UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

[X]     ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
        OF 1934

        For the fiscal year ended December 31, 2007

                                       OR

[ ]     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934

        For the transition period from __________ to __________

        Commission file number: 000-51832
                                ---------

                                SBT Bancorp, Inc.
                 (Name of small business issuer in its charter)


        Connecticut                                       20-4346972
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
Incorporation or organization)


                760 Hopmeadow Street,
                    P.O. Box 248,
                     Simsbury, CT                          06070
        ----------------------------------------        ----------
        (Address of principal executive offices)        (Zip Code)


Issuer's telephone number, including area code: (860) 408-5493
                                                --------------

Securities registered under Section 12(b) of the Exchange Act:

                                             Name of each exchange
        Title of each class                   On which registered
        -------------------                  ---------------------
               None                                   None


Securities registered under Section 12(g) of the Exchange Act:


                               Title of each class
                               -------------------
                           Common Stock, no par value


     Check whether the issuer is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act. [ ]

                                       1
<PAGE>

     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [X]

     Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b02 of the Exchange Act). Yes [ ] No [X]

     The issuer's revenues, which include interest income and other income, for
its fiscal year ended December 31, 2007, were $12,942,593.

     As of February 15, 2007, the aggregate market value of the outstanding
common equity of the registrant held by non-affiliates, based upon the average
of the bid and ask prices for such stock on that date, was approximately $
23,612,364.

     There were 850,896 shares of Common Stock, no par value, outstanding on
February 15, 2007.

     Transitional small business disclosures format (check one): [ ]Yes [X] No


                       DOCUMENTS INCORPORATED BY REFERENCE


     Portions of the SBT Bancorp, Inc. definitive Proxy Statement for the 2008
Annual Meeting of Shareholders to be held May 13, 2008 (the "Proxy Statement")
to be filed with the Securities and Exchange Commission are incorporated by
reference into Part III of this Form 10-KSB, and portions of the SBT Bancorp,
Inc. Annual Report to Shareholders for the fiscal year ended December 31, 2007
(the "Annual Report") are incorporated by reference into Part II of this Form
10-KSB.





                                       2
<PAGE>
<TABLE>
<CAPTION>
<S>  <C>                                                                                    <C>
                                      INDEX

                                SBT BANCORP, INC.

                                                                                        Page No.

                                     PART I

Item 1.   Description of Business                                                           4-11

Item 2.   Description of Property                                                             11

Item 3.   Legal Proceedings                                                                   11

Item 4.   Submission of Matters to a Vote of Security Holders                                 12

                                     PART II

Item 5.   Market for Common Equity, Related Stockholder Matters and Small Business
             Issuer Purchases of Equity Securities                                            12

Item 6.   Management's Discussion and Analysis or Plan of Operation                           12

Item 7.   Financial Statements                                                                12

Item 8.   Changes In and Disagreements with Accountants on Accounting and
            Financial Disclosure                                                              12

Item 8A.  Controls and Procedures                                                          12-13

Item 8B.  Other Information                                                                   13

                                    PART III

Item 9.   Directors, Executive Officers, Promoters and Control Persons;
             Compliance with Section 16(a) of the Exchange                                 13-14

Item 10.  Executive Compensation                                                              14

Item 11.  Security Ownership of Certain Beneficial Owners and Management
             and Related Stockholder Matters                                               14-15

Item 12.  Certain Relationships and Related Transactions, and Director Independence           15

Item 13.  Exhibits                                                                         16-17

Item 14.  Principal Accountant Fees and Services                                              17

SIGNATURES                                                                                    18

Exhibit Index                                                                                 19
</TABLE>

                                       3
<PAGE>

ITEM 1. DESCRIPTION OF BUSINESS

General

     SBT Bancorp,  Inc. (the  "Company") is the holding company for The Simsbury
Bank & Trust Company,  Inc. (the "Bank").  The Company was  incorporated  in the
State of  Connecticut  on February 17, 2006.  The Company became the Bank's sole
shareholder  pursuant to a  reorganization  that occurred on March 7, 2006.  The
Company's  only  business is its  investment  in the Bank,  which is a community
oriented  financial  institution  providing a variety of banking and  investment
services.

     The Simsbury Bank & Trust Company,  Inc. was incorporated on April 28, 1992
and commenced operations as a Connecticut  chartered bank on March 31, 1995. The
Bank's deposit accounts are insured under the Federal Deposit  Insurance Act, up
to the  maximum  applicable  limits  thereof.  The Bank is not a  member  of the
Federal Reserve System. The Bank's main office and corporate offices are located
in the town of  Simsbury,  Connecticut.  The Bank has  branch  offices  in Avon,
Bloomfield,  Canton and Granby,  Connecticut.  Simsbury  has a  population  over
23,000. The aggregate population for the Bank's market area is 75,000 people and
is comprised of approximately  29,000  households.  The towns of Avon and Granby
have  had  some of the most  significant  growth  in the  Farmington  Valley  of
Connecticut over the last ten years. The Bank's customer base consists primarily
of individual  consumers and small businesses in the Farmington Valley. The Bank
has over 20,300 deposit accounts.

     The Bank also has seven ATMs; two are located at its main office  including
a drive-through ATM, two are located at its Bloomfield office and one at each of
the other branch offices. The ATMs generate activity fees based upon utilization
by other banks' customers.

     The Bank  offers a full range of  commercial  banking  services,  including
making commercial loans, term real estate loans,  construction  loans, SBA loans
and various  types of consumer  loans;  accepting  checking,  savings,  and time
deposits;  NOW,  Super NOW and money  market  deposit  accounts;  and  providing
travelers'  checks,  safe  deposit  and  other  customary   non-deposit  banking
services. The Bank does not have a trust department.  The Bank offers investment
products to customers  through SBT  Investment  Services,  Inc., a  wholly-owned
subsidiary  of the  Bank,  and  through  its  affiliation  with  the  securities
broker/dealer Infinex Financial Services.

     As of December 31, 2007, approximately 74% of the Bank's loans were secured
by residential property located in Connecticut.

     The Bank's deposits decreased by $11.6 million (5.8%) in 2007,  compared to
a $7.3 million  increase in 2006.  The Bank's total assets at year-end 2007 were
$210  million,  a  decrease  of $6.7  million  (3.1%)  from the $217  million at
year-end  2006.  The Bank's loan  portfolio  increased by $8.5 million (5.4%) in
2007 and ended the year at $165.7 million. The Bank's  loan-to-deposit ratio, an
important determinant of net interest income, increased to 89% at year-end 2007,
compared to 79% at year-end 2006.

         Net income of $1,139,711 ($1.34 per common share) for the year ending
December 31, 2007 was a 59% increase from the net income of $716,933 ($0.85 per
common share) reported for the year ended December 31, 2006.

         Banking is a business that depends on rate differentials. In general,
the difference between the interest rate paid by the Bank on its deposits and
its other borrowings and the interest rate received by the Bank on loans
extended to its customers and securities held in the Bank's portfolio comprise
the major portion of the Bank's earnings. These rates are highly sensitive to
many factors that are beyond the control of the Bank. Accordingly, the earnings
and growth of the Bank are subject to the influence of domestic and foreign
economic conditions, including inflation, recession and unemployment.

                                       4
<PAGE>

     The commercial  banking  business is not only affected by general  economic
conditions  but is also  influenced  by the monetary and fiscal  policies of the
federal  government and the policies of regulatory  agencies,  particularly  the
Federal Reserve Board.  The Federal Reserve Board implements  national  monetary
policies (with objectives such as curbing inflation and combating recessions) by
its open-market operations in United States Government securities,  by adjusting
the required level of reserves for financial institutions subject to its reserve
requirements  and by varying the discount  rates  applicable  to  borrowings  by
depository institutions. The actions of the Federal Reserve Board in these areas
influence  the growth of bank loans,  investments  and  deposits and also affect
interest  rates charged on loans and paid on deposits.  The nature and impact of
any future changes in monetary policies cannot be predicted.

Market Area

     The towns of Simsbury, Granby, Avon, Canton, and Bloomfield, which comprise
the Bank's primary market, are located in Northwestern Connecticut,  west of the
Connecticut  River near the northern corner of Hartford.  All towns are situated
near Interstate  Routes 91 and 84. Bradley  International  Airport is within ten
miles of Simsbury, Granby and Avon and provides a convenient alternative to road
systems for passengers or cargo.

     The road  network from each of the towns  included in the Bank's  secondary
market of  Barkhamsted,  East Granby and New Hartford,  leads through  Simsbury,
Granby or Avon. Residents of these communities,  therefore,  may travel near the
Bank's offices and may find it convenient to bank there.

     Based on the most current  information  available,  the Bank's  primary and
secondary  markets have a median household income of $73,673.  This level places
the  overall   market   approximately   36%  above  the  median  income  of  all
Connecticut's  households.  Compared to the nation as a whole, the median income
in the Bank's primary and secondary  markets is  approximately  75% greater than
the median income for all U.S. households. By themselves,  the towns of Simsbury
and Avon had median household incomes of over $82,428, placing them 96% over the
median  income  for the  U.S.  and  almost  53% over the  median  income  of all
households in Connecticut.

     Educational  attainment  in the Bank's  primary  and  secondary  markets is
similarly high.  Fifty-seven  percent of the residents aged twenty-five and over
in the eight towns are college  graduates.  In Simsbury,  Granby and Avon,  this
figure averages 63%.

Employees

     At December 31, 2007, the Bank employed a total of 65 people,  59 full-time
employees and 6 part-time employees. The Bank's employees are not represented by
any union or other  collective  bargaining  agreement  and the Bank believes its
employee relations are satisfactory.

Competition

     The banking and financial services business in Connecticut  generally,  and
in the Bank's market areas specifically, is highly competitive. The increasingly
competitive environment is a result primarily of changes in regulation,  changes
in  technology  and  product  delivery  systems,  and the  accelerating  pace of
consolidation  among financial services  providers.  The Bank competes for loans
and deposits and customers for financial  services with other commercial  banks,
savings and loan  associations,  securities  and brokerage  companies,  mortgage
companies,  insurance companies,  finance companies,  money market funds, credit
unions and other nonbank financial service providers.  Many of these competitors
are much  larger in total  assets and  capitalization,  have  greater  access to
capital  markets and offer a broader array of financial  services than the Bank.
In order to  compete  with the  other  financial  services  providers,  the Bank
principally  relies upon local promotional  activities,  personal  relationships
established  by  officers,  directors  and  employees  with its  customers,  and
specialized  services  tailored to meet its customers' needs. In those instances
where the Bank is unable to accommodate a customer's  needs,  the Bank will seek
to have those services provided by its correspondents.

                                       5
<PAGE>

     The  Bank's  primary  and  secondary  markets  have  a  number  of  banking
institutions  which  offer  a  variety  of  financial  products.  The  types  of
institutions  range  from large  nationwide  banks to  various  institutions  of
smaller  size.  Other  than the Bank,  no bank is  headquartered  in the  Bank's
primary market area. Simsbury is served by seven depository  institutions with a
total of seven offices. Of these institutions, there are three commercial banks,
two savings  banks and two credit  unions.  Avon is served by eleven  depository
institutions  with  fourteen  offices.  Of these  institutions,  there  are four
commercial banks, five savings banks and two credit unions.  Granby is served by
five  depository  institutions  with the same  number of  offices.  Two of these
institutions are commercial banks and three are savings banks.  Canton is served
by five depository institutions with six offices. Four of these institutions are
commercial  banks  and  one is a  savings  bank.  Bloomfield  is  served  by six
depository institutions,  four commercial banks and two savings banks. The total
eight-town  area of the  Bank's  primary  and  secondary  markets  is  served by
fourteen institutions.

     As of June 30, 2007, by deposit  account market share,  the top three banks
in Simsbury are Simsbury Bank & Trust Company (29%),  Bank of America (28%), and
Webster Bank (19%). The top three banks in Avon are People's Bank (23%), Bank of
America (18%),  and Webster Bank (15%). In Granby,  the top three banks are Bank
of  America  (28%),  Windsor  Federal  Savings  And Loan  Association  (26%) and
Simsbury  Bank & Trust  Company  (21%).  In  Canton,  the top  three  banks  are
Collinsville  Savings  Society  (42%),  Webster  Bank  (24%) and Bank of America
(23%). In Bloomfield,  the top three banks are Wachovia Bank (32%), Webster Bank
(27%) and Bank of America (22%). In the Bank's primary market (Simsbury, Granby,
Avon,  Canton and  Bloomfield),  the top 3 banks are Bank of America with 23% of
the market,  Webster Bank with 18% and The Simsbury  Bank and Trust Company with
12%. In the total  eight-town area of the Bank's primary and secondary  markets,
the top three  banks are Bank of America  with 23% of the market,  Webster  Bank
with 17% and The Simsbury Bank & Trust Company with 11%.

     The present bank regulatory scheme is undergoing  significant  change, both
as it affects the banking industry itself and as it affects  competition between
banks and  non-banking  financial  institutions.  There  has been a  significant
regulatory  change in the bank merger and acquisition  area, in the products and
services  banks can  offer,  and in the  non-banking  activities  in which  bank
holding  companies  may  engage.  Under the  Gramm-Leach-Bliley  Act  enacted by
Congress  on  November  12,  1999,  banks  and bank  holding  companies  may now
affiliate with insurance and securities companies.  In part as a result of these
changes,  banks are now actively  competing  with other types of  non-depository
institutions,  such as money market funds,  brokerage firms, insurance companies
and other financial service enterprises.

     Moreover,  certain  legislation and regulatory  proposals that could affect
the Bank and the banking  industry  in general are pending or may be  introduced
before the United States Congress,  the Connecticut General Assembly and various
governmental  agencies.  These proposals include measures that may further alter
the structure, regulation and competitive relationship of financial institutions
and that may subject the Bank to increased regulation,  disclosure and reporting
requirements.  In addition,  the various banking regulatory  agencies frequently
propose  rules  and  regulations  to  implement  and  enforce  already  existing
regulation.  It cannot be predicted  whether or in what form any  legislation or
regulations will be enacted or the extent to which the business of the Bank will
be affected thereby.

Supervision and Regulation

     Banks and bank  holding  companies  are  extensively  regulated  under both
federal and state law. Set forth below are brief summaries of various aspects of
the supervision  and regulation of the Company and the Bank.  These summaries do
not purport to be complete and are  qualified in their  entirety by reference to
applicable laws, rules and regulations.

     As a bank holding  company,  the Company is regulated by and subject to the
supervision of the Board of Governors of the Federal  Reserve System (the "FRB")
and is required to file with the FRB an annual report and such other information
as may be required.  The FRB has the  authority to conduct  examinations  of the
Company as well.

                                       6
<PAGE>

     The Bank  Holding  Company Act of 1956 (the "BHC Act")  limits the types of
companies  which the Company may acquire or organize and the activities in which
they may engage.  In general,  a bank holding company and its  subsidiaries  are
prohibited  from  engaging in or  acquiring  control of any  company  engaged in
non-banking  activities unless such activities are so closely related to banking
or managing and controlling banks as to be a proper incident thereto. Activities
determined by the FRB to be so closely  related to banking within the meaning of
the BHC Act include operating a mortgage company,  finance company,  credit card
company,  factoring company,  trust company or savings  association;  performing
certain data  processing  operations;  providing  limited  securities  brokerage
services;  acting as an investment or financial advisor;  acting as an insurance
agent for certain types of credit-related  insurance;  leasing personal property
on a full-payout,  non-operating  basis;  providing tax planning and preparation
service;  operating a collection agency; and providing certain courier services.
The FRB also has determined that certain other activities, including real estate
brokerage  and   syndication,   land   development,   property   management  and
underwriting of life insurance unrelated to credit transactions, are not closely
related to banking and  therefore are not proper  activities  for a bank holding
company.

     The BHC Act  requires  every  bank  holding  company  to  obtain  the prior
approval of the FRB before acquiring  substantially all the assets of, or direct
or indirect  ownership or control of more than five percent of the voting shares
of, any bank.  Subject to certain  limitations and restrictions,  a bank holding
company, with the prior approval of the FRB, may acquire an out-of-state bank.

     In  November  1999,  Congress  amended  certain  provisions  of the BHC Act
through passage of the  Gramm-Leach-Bliley  Act. Under this legislation,  a bank
holding  company may elect to become a "financial  holding  company" and thereby
engage  in  a  broader  range  of  activities  than  would  be  permissible  for
traditional bank holding companies. In order to qualify for the election, all of
the depository institution subsidiaries of the bank holding company must be well
capitalized  and well managed,  as defined under FRB  regulations,  and all such
subsidiaries  must have  achieved  a rating  of  "satisfactory"  or better  with
respect to meeting  community credit needs.  Pursuant to the  Gramm-Leach-Bliley
Act,  financial holding companies are permitted to engage in activities that are
"financial in nature" or incidental or complementary  thereto,  as determined by
the FRB. The  Gramm-Leach-Bliley Act identifies several activities as "financial
in  nature",   including,   among  others,  insurance  underwriting  and  agency
activities, investment advisory services, merchant banking and underwriting, and
dealing  in or making a market  in  securities.  The  Company  currently  owns a
financial subsidiary, SBT Investment Services, Inc.

     The  Company  believes  that it meets the  regulatory  criteria  that would
enable it to elect to become a  financial  holding  company.  At this time,  the
Company has  determined  not to make such an election,  although it may do so in
the future.

     The  Gramm-Leach-Bliley  Act also makes it possible for entities engaged in
providing  various other financial  services to form financial holding companies
and form or acquire  banks.  Accordingly,  the  Gramm-Leach-Bliley  Act makes it
possible  for a  variety  of  financial  services  firms to offer  products  and
services  comparable to the products and services  offered through the Company's
subsidiaries.

     There are various statutory and regulatory limitations regarding the extent
to which present and future banking  subsidiaries  of the Company can finance or
otherwise transfer funds to the Company or its non-banking subsidiaries, whether
in the form of loans,  extensions  of credit,  investments  or asset  purchases,
including  regulatory  limitation  on  the  payment  of  dividends  directly  or
indirectly to the Company from the Bank.  Federal bank regulatory  agencies also
have the  authority to limit  further the Bank's  payment of dividends  based on
such factors as the maintenance of adequate  capital for such  subsidiary  bank,
which could reduce the amount of dividends otherwise payable.

     Under the policy of the FRB,  the Company is expected to act as a source of
financial  strength  to its  banking  subsidiaries  and to commit  resources  to
support its banking subsidiaries in circumstances where the Company might not do
so absent such policy. In addition, any subordinated loans by the Company to its
banking subsidiaries would also be subordinate in right of payment to depositors
and obligations to general creditors of such subsidiary banks.

                                       7
<PAGE>

     The FRB has  established  capital  adequacy  guidelines  for  bank  holding
companies that are similar to the FDIC capital  requirements for banks described
below under the heading  "Capital  Standards." The Company  exceeded all current
regulatory capital  requirements to be considered "well capitalized" at December
31, 2007.

     The Bank, as a Connecticut state-chartered bank, is subject to supervision,
periodic  examination and regulation by the Connecticut  Commissioner of Banking
(the "Commissioner") and the Federal Deposit Insurance Corporation (the "FDIC").
If, as a result of an examination of a bank, the FDIC should  determine that the
financial  condition,  capital  resources,  asset quality,  earnings  prospects,
management,   liquidity  or  other   aspects  of  the  bank's   operations   are
unsatisfactory  or that the bank or its  management is violating or has violated
any law or regulation, various remedies are available to the FDIC. Such remedies
include  the  power  to  enjoin  "unsafe  or  unsound"  practices,   to  require
affirmative  action to correct any  conditions  resulting  from any violation or
practice,  to issue an administrative order that can be judicially enforced,  to
direct an  increase in capital,  to restrict  the growth of the bank,  to assess
civil monetary penalties, to remove officers and directors,  and ultimately,  to
terminate a bank's deposit  insurance,  which for a Connecticut  state-chartered
bank would result in a revocation of the bank's charter.  The  Commissioner  has
many of the same remedial powers.

     The  deposits  of the Bank are insured by the FDIC in the manner and to the
extent provided by law. For this protection, the Bank is subject to a semiannual
statutory assessment. (See "Premiums for Deposit Insurance").  Although the Bank
is not a member of the Federal  Reserve System,  it is  nevertheless  subject to
certain regulations of the Board of Governors of the Federal Reserve System.

     Various  requirements  and  restrictions  under  the  laws of the  State of
Connecticut  and the United States affect the operations of the Bank.  State and
federal  statutes  and  regulations   relate  to  many  aspects  of  the  Bank's
operations,  including  reserves  against  deposits,  interest  rates payable on
deposits, loans, investments, mergers and acquisitions,  borrowings,  dividends,
locations  of branch  offices and  capital  requirements.  Further,  the Bank is
required to maintain certain levels of capital.

     Capital Standards

     The FDIC has adopted risk-based  capital guidelines to which  FDIC-insured,
state-chartered  banks that are not members of the Federal Reserve System,  such
as the Bank,  are subject.  The  guidelines  establish a  systematic  analytical
framework  that makes  regulatory  capital  requirements  more  sensitive to the
differences in risk profiles among banking organizations.  Banks are required to
maintain  minimum  levels of capital  based upon  their  total  assets and total
"risk-weighted assets." For purposes of these requirements, capital is comprised
of both Tier 1 and Tier 2 capital.  Tier 1 capital consists  primarily of common
stock and  retained  earnings.  Tier 2 capital  consists  primarily of loan loss
reserves,  subordinated debt, and convertible  securities.  In determining total
capital,  the  amount  of Tier 2 capital  may not  exceed  the  amount of Tier 1
capital.  A bank's total  "risk-based  assets" are  determined  by assigning the
bank's assets and  off-balance  sheet items (e.g.,  letters of credit) to one of
four risk  categories  based upon their relative  credit risks.  The greater the
risk associated with an asset, the greater the amount of such asset that will be
subject to capital requirements.  Banks must satisfy the following three minimum
capital standards: (1) Tier 1 capital in an amount equal to between 4% and 5% of
total assets (the "leverage ratio"); (2) Tier 1 capital in an amount equal to 4%
of  risk-weighted  assets;  and (3) total Tier 1 and Tier 2 capital in an amount
equal to 8% of risk-weighted assets.

     The  Federal  Deposit  Insurance   Corporation   Improvement  Act  of  1991
("FDICIA")  defines  specific  capital  categories  based upon an  institution's
capital  ratios.  The capital  categories,  in  declining  order,  are: (i) well
capitalized;   (ii)  adequately  capitalized;   (iii)   undercapitalized;   (iv)
significantly  undercapitalized;  and  (v)  critically  undercapitalized.  Under
FDICIA and the FDIC's prompt  corrective action rules, the FDIC may take any one
or more of the following  actions  against an  undercapitalized  bank:  restrict
dividends  and  management   fees,   restrict  asset  growth  and  prohibit  new
acquisitions, new branches or new lines of business without prior FDIC approval.
If a bank is significantly undercapitalized,  the FDIC may also require the bank
to raise capital, restrict interest rates a bank may pay on deposits,  require a
reduction in assets,  restrict any activities that might cause risk to the bank,
require   improved   management,   prohibit  the  acceptance  of  deposits  from
correspondent  banks and restrict  compensation to any senior executive officer.
When a bank becomes  critically  undercapitalized  (i.e.,  the ratio of tangible
equity to total  assets is equal to or less than 2%),  the FDIC must,  within 90
days thereafter, appoint a receiver for the bank or take such action as the FDIC
determines  would better  achieve the purposes of the law. Even where such other
action is taken,  the FDIC  generally  must appoint a receiver for a bank if the
bank remains critically  undercapitalized  during the calendar quarter beginning
270 days after the date on which the bank became critically undercapitalized.

                                       8
<PAGE>

     To be considered  "adequately  capitalized,"  an institution must generally
have a leverage ratio of at least 4%, a Tier 1 capital to  risk-weighted  assets
ratio of at least 4% and total Tier 1 and Tier 2 capital to risk-weighted assets
ratio of at least 8%. As of December 31, 2007, the most recent notification from
the FDIC categorized the Bank as well capitalized under the regulatory framework
for prompt corrective  action.  To be categorized as well capitalized,  the Bank
must maintain  minimum total  risk-based,  Tier 1 risk-based and Tier 1 leverage
ratios as set forth in the table below.  There are no conditions that Management
believes have changed the Bank's category.

     The  following  table  presents the amounts of  regulatory  capital and the
capital  ratios  for  the  Bank  compared  to  its  minimum  regulatory  capital
requirements as of December 31, 2007 and 2006.
<TABLE>
<CAPTION>
<S>                                  <C>                  <C>                    <C>                <C>
                                            December 31, 2007                          December 31, 2006
                                -----------------------------------------    -------------------------------------
                                                     Capital Minimum                           Capital Minimum
                                     Ratio             Requirement               Ratio           Requirement
                                     -----           ---------------             -----         ---------------
Leverage ratio   .............       8.21%                4.00%                  7.31%              4.00%
Tier 1 risk-based ratio.......      12.23%                4.00%                  11.50%             4.00%
Total risk-based ratio........      13.48%                8.00%                  12.75%             8.00%
</TABLE>

     Safety and Soundness Standards

     Federal  law  requires  each  federal   banking  agency  to  prescribe  for
depository  institutions  under its  jurisdiction  standards  relating to, among
other things:  internal controls;  information  systems and audit systems;  loan
documentation;  credit underwriting;  interest rate risk exposure; asset growth;
compensation;  fees and  benefits;  and such other  operational  and  managerial
standards as the agency deems appropriate.  The federal banking agencies adopted
final regulations and Interagency  Guidelines  Establishing Standards for Safety
and  Soundness  (the  "Guidelines")  to  implement  these  safety and  soundness
standards.  The Guidelines set forth the safety and soundness standards that the
federal  banking  agencies  use to  identify  and  address  problems  at insured
depository  institutions before capital becomes impaired. The Guidelines address
internal  controls  and  information  systems;  internal  audit  system;  credit
underwriting;  loan documentation;  interest rate risk exposure;  asset quality;
earnings and compensation; fees and benefits. If the appropriate federal banking
agency determines that an institution  fails to meet any standard  prescribed by
the  Guidelines,  the agency may require the institution to submit to the agency
an acceptable  plan to achieve  compliance  with the standard set by the Federal
Deposit Insurance Act, as amended. The final regulations establish deadlines for
submission and review of such safety and soundness compliance plans.

     The federal banking  agencies also have adopted final  regulations for real
estate  lending  prescribing  uniform  guidelines for real estate  lending.  The
regulations  require insured  depository  institutions to adopt written policies
establishing  standards,  consistent  with such  guidelines,  for  extensions of
credit  secured  by real  estate.  The  policies  must  address  loan  portfolio
management,  underwriting  standards and loan to value limits that do not exceed
the supervisory limits prescribed by the regulations.

     Appraisals  for "real  estate-related  financial  transactions,"  generally
transactions  with a value of $250,000 or more, must be conducted,  depending on
the  value of the  transaction  by  either  state  certified  or state  licensed
appraisers. State certified appraisers are required for: all transactions with a
transaction value of $1,000,000 or more;  nonresidential  transactions valued at
$250,000 or more; and  transactions of $250,000 or more involving  "complex" 1-4
family residential properties. An appraisal or real estate "evaluation" executed
by a state  licensed  appraiser  is  required  for all other  federally  related
transactions.  Federally related transactions include the sale, lease, purchase,
investment in, or exchange of, real property or interests in real property,  the
financing  or  refinancing  of real  property,  and the use of real  property or
interests  in real  property as  security  for a loan or  investment,  including
mortgage-backed securities.

                                       9
<PAGE>

     Premiums for Deposit Insurance

     The FDIC has  implemented  a  risk-based  assessment  system under which an
institution's  deposit insurance premium  assessment is based on the probability
that  the  deposit  insurance  fund  will  incur  a  loss  with  respect  to the
institution,  the likely  amount of any such loss,  and the revenue needs of the
deposit insurance fund.

     Under this risk-based  assessment system, banks are categorized into one of
three  capital  categories  (well  capitalized,   adequately  capitalized,   and
undercapitalized)  and one of three categories based on supervisory  evaluations
by its primary  federal  regulator  (in the Bank's  case,  the FDIC).  The three
supervisory  categories are:  financially sound with only a few minor weaknesses
(Group  A),   demonstrates   weaknesses   that  could   result  in   significant
deterioration (Group B), and poses a substantial  probability of loss (Group C).
The  capital  ratios  used by the FDIC to  define  well-capitalized,  adequately
capitalized and  undercapitalized  are the same in the FDIC's prompt  corrective
action regulations.  The Bank is currently  considered a "Well Capitalized Group
A"  institution  and,  therefore,  is not  subject  to any  quarterly  FDIC Bank
Insurance   Fund  ("BIF")  or  Savings   Association   Insurance  Fund  ("SAIF")
assessments.  This could change in the future based on the capitalization of the
BIF and SAIF.  The Bank is,  however,  subject to quarterly  assessments  by The
Financing  Corporation ("FICO") to service the interest on its bond obligations.
The rate for this  assessment is  determined  quarterly and is paid based on the
Bank's  average  deposits  for a given  quarter.  The Bank paid  $59,557 in FICO
assessments during 2007.

     Interstate Banking and Branching

     The  Riegle-Neal  Interstate  Banking and Branching  Efficiency Act of 1994
("Riegle-Neal")   was  enacted  to  ease  restrictions  on  interstate  banking.
Effective  September 25, 1995,  Riegle-Neal  allows the Federal Reserve Board to
approve an application of an adequately  capitalized and adequately managed bank
holding  company to acquire control of, or acquire all or  substantially  all of
the assets of, a bank located in a state other that such holding  company's home
state,  without  regard to whether the  transaction is prohibited by the laws of
any state.  The Federal  Reserve Board may not approve the acquisition of a bank
that has not been in  existence  for a minimum time period (not  exceeding  five
years)  specified  by the  statutory  law of the host  state.  Riegle-Neal  also
prohibits  the  Federal  Reserve  Board from  approving  an  application  if the
applicant (and its depository institution  affiliates) controls or would control
more than 10% of the insured deposits in the United States or 30% or more of the
deposits  in the  target  bank's  home state or in any state in which the target
bank maintains a branch.  Riegle-Neal does not affect the authority of states to
limit the percentage of total insured deposits in the state which may be held or
controlled by a bank or bank holding  company to the extent such limitation does
not  discriminate   against   out-of-state  banks  or  bank  holding  companies.
Individual  states  may  also  waive  the  30%  state-wide  concentration  limit
contained in Riegle-Neal.

     Community Reinvestment Act

     Under the Community  Reinvestment Act, as amended,  ("CRA"), as implemented
by FDIC  regulations,  the  Bank has a  continuing  and  affirmative  obligation
consistent  with its safe and sound  operation  to help meet the credit needs of
its entire community, including low and moderate-income  neighborhoods.  The CRA
does not  prescribe  specific  lending  requirements  or programs for  financial
institutions nor does it limit an institution's  discretion to develop the types
of products  and  services  that it believes  are best suited to its  particular
community,  consistent  with the CRA. The CRA requires the FDIC,  in  connection
with its  examination  of a savings  institution,  to assess  the  institution's
record of meeting the credit needs of its community and to take such record into
account in its  evaluation  of certain  applications  by such  institution.  The
Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) amended the
CRA to require public  disclosure of an institution's CRA rating and require the
FDIC to  provide  a  written  evaluation  of an  institution's  CRA  performance
utilizing a four-tiered descriptive rating system. The Bank's latest CRA rating,
received from the FDIC, was "satisfactory."

                                       10
<PAGE>

ITEM 2. DESCRIPTION OF PROPERTY

     The Company does not own any properties.

     The  Bank's  main  office is  located at 981  Hopmeadow  Street,  Simsbury,
Connecticut. The Bank leases its main office pursuant to a lease with an initial
term of ten years, expiring 2011, and which contains renewal options for a total
of an additional ten years.  The Bank also has the option to purchase the office
during  the tenth  year of the  lease.  This  lease  also  covers the lot at 989
Hopmeadow  Street and the building at 987 Hopmeadow Street that is being used as
additional  administrative  offices and is  partially  subleased  to small local
businesses.

     The Bank's Granby branch office is located at 11 Hartford  Avenue,  Granby,
Connecticut.  The Bank leases  this  office  pursuant to a lease with an initial
term of fifteen years,  expiring in 2013, and which contains renewal options for
a total of an additional ten years.

     The  Bank's  Avon  branch  office  is  located  at  27  Dale  Road,   Avon,
Connecticut.  The Bank leases  this  office  pursuant to a lease with an initial
term of fifteen years,  expiring in 2014, and which contains renewal options for
a total of an additional ten years.

     The Bank's Canton Branch office is located at 250 Albany Turnpike,  Canton,
Connecticut.  The Bank leases  this  office  pursuant to a lease with an initial
term of ten years,  expiring in 2015, and which contains  renewal  options for a
total of an additional fifteen years.

     The  Bank's  Bloomfield  office  is  located  at 864  Cottage  Grove  Road,
Bloomfield, Connecticut. The Bank leases this office pursuant to a lease with an
initial term of ten years,  expiring in 2016, and which contains renewal options
for a total of an additional ten years.

     The Bank's  administrative  offices  are located at 760  Hopmeadow  Street,
Simsbury,  Connecticut. The Bank leases this building pursuant to a lease with a
term  that  expires  in 2011.  The Bank has an  option to renew the lease for an
additional term of five years.

     The Bank made $618,592 in total rental payments during 2007.

     The Bank's Investment Policy permits the Bank to invest in  mortgage-backed
securities. It is the policy of the Bank to invest in mortgage-backed securities
that have no more risk than the underlying mortgages. The Investment Policy also
permits  the Bank to invest  in  Preferred  Stock  issued  by  Federal  National
Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC).

ITEM 3. LEGAL PROCEEDINGS

     The  Company is not a party to any  pending  legal  proceeding,  nor is its
property  the  subject of any  pending  legal  proceeding,  other  than  routine
litigation  that is incidental to its business,  and the Company is not aware of
any pending or threatened  litigation that could have a material  adverse effect
upon its business,  operating results,  or financial  condition.  Moreover,  the
Company is not a party to any administrative or judicial  proceeding,  including
but not limited to  proceedings  arising under Section 8 of the Federal  Deposit
Insurance Act.

     To the best of our knowledge, no director, officer, affiliate or holder, of
record or  beneficially,  of 5% or more of our  securities is a party adverse to
the Company or has a material interest adverse to the Company in any proceeding.

                                       11
<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were  submitted to a vote of security  holders during the fourth
quarter of the fiscal year ended December 31, 2007.


                                     PART II


ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
ISSUER PURCHASES OF EQUITY SECURITIES

     The  information  required  by this Item 5 is  incorporated  into this Form
10-KSB  by  reference  to  the   Company's   Annual  Report  under  the  caption
"SHAREHOLDER DATA."

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

     The  information  required  by this Item 6 is  incorporated  into this Form
10-KSB  by  reference  to  the   Company's   Annual  Report  under  the  caption
"MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS."

ITEM 7. FINANCIAL STATEMENTS

     The  information  required  by this Item 7 is  incorporated  into this Form
10-KSB by reference to the Company's Annual Report under the captions  "SELECTED
FINANCIAL AND OTHER DATA" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     None.

ITEM 8A(T). CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Control Procedures

     The  Company  has  initiatives  in  place  to  ensure  compliance  with the
Sarbanes-Oxley Act of 2002 (the "Act").  The Company has an Internal  Compliance
Committee  that is responsible  for the  monitoring of and  compliance  with all
federal  regulations.  This  committee  reports  to  the  Audit  and  Compliance
Committee of the Board of Directors.

     The Company's  Chief  Executive  Officer and Chief  Financial  Officer have
evaluated the effectiveness of the Company's  disclosure controls and procedures
as of December 31, 2007 and have concluded  that, as of that date, the Company's
disclosure  controls and  procedures  were  effective at ensuring  that required
information will be disclosed on a timely basis. This conclusion is based on the
above-referenced officers' evaluation of such controls and procedures.

(b) Management's Annual Report on Internal Control Over Financial Reporting

     The Company's  management is responsible for  establishing  and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) under the Securities  Exchange Act of 1934. The Company's internal
control over  financial  reporting is designed to provide  reasonable  assurance
regarding  the  reliability  of  financial  reporting  and  the  preparation  of
financial statements for external purposes in accordance with generally accepted
accounting principles.

                                       12
<PAGE>

     Any system of internal control,  no matter how well designed,  has inherent
limitations,  including the  possibility  that a control can be  circumvented or
overridden  and  misstatements  due to  error  or  fraud  may  occur  and not be
detected. Also, because of changes in conditions, internal control effectiveness
may vary over time.  Accordingly,  even an effective  system of internal control
will  provide only  reasonable  assurance  with  respect to financial  statement
preparation.

     Management  assessed the  effectiveness  of the Company's  internal control
over  financial  reporting as of December 31,  2007.  Based on that  assessment,
management believes that the Company maintained  effective internal control over
financial reporting as of December 31, 2007.

     This annual report does not include an attestation  report of the Company's
registered  public  accounting  firm regarding  internal  control over financial
reporting.  Management's  report was not subject to attestation by the Company's
registered  public accounting firm pursuant to temporary rules of the Securities
and Exchange  Commission  that permit the Company to provide  only  management's
report in this annual report.

(c) Changes in Internal Controls

     There were no changes in the  Company's  internal  control  over  financial
reporting  that occurred  during the quarter  ended  December 31, 2007 that have
materially  affected,  or  are  reasonably  likely  to  materially  affect,  the
Company's internal control over financial reporting.

ITEM 8B. OTHER INFORMATION

Not Applicable.


                                    PART III


ITEM 9. DIRECTORS EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT

Directors

     The  information  required  by this Item 9 is  incorporated  into this Form
10-KSB by reference to the Proxy  Statement of SBT Bancorp,  Inc. for the annual
meeting of  shareholders  of the  Company  to be held on May 13,  2008 under the
caption "ELECTION OF DIRECTORS" and "INFORMATION ABOUT OUR DIRECTORS."

Executive Officers

     The following  table shows the name,  age,  positions held with the Company
and principal  occupations during the past five years of the Company's executive
officers.

                                       13
<PAGE>
<TABLE>
<CAPTION>
<S>                                   <C>                                                                  <C>
NAME                                  AGE   POSITIONS HELD / PRINCIPAL OCCUPATIONS                     YEAR OF HIRE

Martin J. Geitz                       51    President and Chief Executive Officer of the Company           2004
  President and Chief                       since March 2006; President and Chief Executive
  Executive Officer                         Officer of the Bank since October 2004; Vice
                                            President of Massachusetts Mutual
                                            Life Insurance Company, 2003 to
                                            2004; Chief Executive Officer and
                                            Chief Financial Officer of Cigna
                                            Bank & Trust Company, 2000 to 2003;
                                            President of Fleet Development
                                            Ventures, LLC and Fleet Community
                                            Development Corp, 1997 to 2000.

Anthony F. Bisceglio, Ph.D.           60    Treasurer and Chief Financial Officer of the Company           1995
Executive Vice President and                since March 2006; Executive Vice President and CFO of
  Chief                                     Financial Officer the Bank since
                                            January 2005; Senior Vice President
                                            and Chief Financial Officer of the
                                            Bank from 1995 through January,
                                            2005.

Terry L. Boulton                      52    Senior Vice President and Chief Retail Banking                 2005
Senior Vice President and                   Officer of the Bank since January 2005; Vice
   Chief                                    Retail Banking Officer President of
                                            Bank of America, formerly Fleet
                                            Bank, from 1988 through January,
                                            2005.

Paul R. Little                        47    Senior Vice President and Chief Lending Officer of             2006
Senior Vice President and                   the Bank since May, 2006; Vice President, Commercial
    Chief Lending Officer                   Real Estate Lending, Liberty Bank, 2004 through May,
                                            2006; Vice President, Commercial Real Estate Loans,
                                            Savings Bank of Manchester/New Alliance Bank, 1990
                                            through 2004
</TABLE>

Compliance with Section 16(a)

     The  information  required  by this item 9 is  incorporated  into this Form
10-KSB by reference to the Company's Proxy Statement under the caption  "SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE."

Code of Ethics

     The Company has adopted a Code of Ethics and  Conflicts of Interest  Policy
applicable to directors, officers and employees. The Company will provide to any
shareholder,  without charge, upon written request, a copy of our Code of Ethics
and Conflicts of Interest  Policy.  All such requests  should be directed to SBT
Bancorp, Inc., 760 Hopmeadow Street, P.O. Box 248, Simsbury, Connecticut, 06070,
Attention: Secretary.

ITEM 10. EXECUTIVE COMPENSATION

     The  information  required by this Item 10 is  incorporated  into this Form
10-KSB  by  reference  to the  Company's  Proxy  Statement  under  the  captions
"EXECUTIVE COMPENSATION" and "EMPLOYMENT AGREEMENTS."

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

     The following table sets forth the securities authorized for issuance under
equity compensation plans.

                                       14
<PAGE>
<TABLE>
<CAPTION>
<S>                                             <C>                    <C>                     <C>
                                                                                      Number of securities
                                                                                      remaining available for
                                       Number of securities      Weighted-average      future issuance under
                                         to be issued upon       exercise price of    equity compensation
                                            exercise of         outstanding options    plans (excluding
                                        outstanding options(a)  in column (a)(b)(c)   securities reflected
                                        ---------------------- ---------------------- ----------------------
Equity compensation plans
   approved by security holders                 69,208                 $27.21                  6,931
Equity compensation plans not
   approved by security holders                      0                      0                      0
                                        ---------------------- ---------------------- ----------------------
        Total                                   69,208                 $27.21                  6,931
                                        ====================== ====================== ======================
</TABLE>

     The  remaining  information  required by this Item 11 is  contained  in the
Company's  Proxy  Statement  under the caption  "SECURITY  OWNERSHIP  OF CERTAIN
BENEFICIAL  OWNERS  AND  MANAGEMENT"  and is hereby  incorporated  by  reference
herein.

ITEM  12.  CERTAIN   RELATIONSHIPS  AND  RELATED   TRANSACTIONS,   AND  DIRECTOR
INDEPENDENCE

     The information  required by Item 12 is incorporated  into this form 10-KSB
by reference  to the  Company's  Proxy  Statement  under the  captions  "CERTAIN
TRANSACTIONS" and "INDEPENDENCE OF DIRECTORS AND NOMINEES."

                                       15
<PAGE>

ITEM 13. EXHIBITS

Exhibits.

     The  following  exhibits  required  by Item 601 are filed  herewith  or are
incorporated  by  reference to the filings  previously  made by the Bank and the
Company as noted below (the  reference in  parentheses  at the end of an Exhibit
indicates  the number of the Exhibit as it was filed in the document  referenced
below):

Exhibit No.    Description
-----------    -----------
3(i)           Certificate  of  Incorporation   (incorporated  by  reference  to
               Exhibit  3.1  of  the  Company's   Form  8K12G3  filed  with  the
               Securities and Exchange Commission on March 7, 2006)

3(ii)          Bylaws (incorporated by reference to Exhibit 3.2 of the Company's
               Form 8K12G3 filed with the Securities and Exchange  Commission on
               March 7, 2006)

4              Specimen Common Stock  Certificate  (incorporated by reference to
               Exhibit 4 of the Company's 10-QSB dated May 12, 2006)

10.1           Employment  Agreement,  dated as of  September  1,  2004,  by and
               between the Bank and Martin J. Geitz  (incorporated  by reference
               to Exhibit 10.13 of the Bank's 10-QSB dated November 12, 2004)

10.2           Employment  Agreement,  dated  as of  February  6,  2004,  by and
               between the Bank and Charles D. Forgie and amended as of November
               15, 2005 (incorporated by reference to the Company's 10-KSB dated
               March 24, 2006)

10.3           Employment  Agreement,  dated  as of  February  6,  2004,  by and
               between  the Bank  and  Anthony  F.  Bisceglio  (incorporated  by
               reference  to Exhibit  10.3 of the Bank's Form 10-KSB dated March
               17, 2004)

10.4           Supplemental  Executive  Retirement Plan  Agreement,  dated as of
               April 23,  2001,  by and  between  the Bank and Charles D. Forgie
               (incorporated  by reference to Exhibit 10.5 of the Bank's  10-KSB
               dated March 17, 2004)

10.5           Supplemental  Executive  Retirement Plan  Agreement,  dated as of
               April 23, 2001, by and between the Bank and Anthony F.  Bisceglio
               (incorporated  by reference to Exhibit 10.6 of the Bank's  10-KSB
               dated March 17, 2004)

10.6           Change in Control  Agreement,  dated as of July 30, 1999,  by and
               between the Bank and Charles D. Forgie (incorporated by reference
               to Exhibit 10.7 of the Bank's 10-KSB dated March 17, 2004)

10.8           Change in Control  Agreement,  dated as of July 30, 1999,  by and
               between  the Bank  and  Anthony  F.  Bisceglio  (incorporated  by
               reference  to Exhibit  10.8 of the Bank's  10-KSB dated March 17,
               2004)

10.9           Change in Control  Agreement dated as of December 23, 2005 by and
               between the Bank and Terry L. Boulton  (incorporated by reference
               to Exhibit 10.9 of the Company's 10-KSB filed with the Securities
               and Exchange Commission on April 2, 2007)

10.10          Letter  Agreement  dated as of April 25,  2006 by and between the
               Company and Paul R. Little  (incorporated by reference to Exhibit
               10.1 of the Company's 8-K filed with the  Securities and Exchange
               Commission on May 22, 2006)

13             2007  Annual  Report   (except  for  those   portions   expressly
               incorporated  by  reference,  the 2007 Annual Report is furnished
               for informational  purposes and is not to be deemed filed as part
               of this Form 10-KSB)

                                       16
<PAGE>

21             Subsidiaries (filed herewith)

31.1           Section  Rule  13(a)-14(a)/15(d)-14(a)   Certification  by  Chief
               Executive Officer

31.2           Section  Rule  13(a)-14(a)/15(d)-14(a)   Certification  by  Chief
               Financial Officer

32.1           Section 1350 Certification by Chief Executive Officer

32.2           Section 1350 Certification by Chief Financial Officer


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     The  information  required by this Item 14 appears in the  Company's  Proxy
Statement  under  the  caption   "RATIFICATION  OF  APPOINTMENT  OF  INDEPENDENT
AUDITORS" and is incorporated by reference herein.


                                       17
<PAGE>

                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized, on March 21, 2007.


                                       SBT BANCORP, INC.


                                       By: /s/
                                           ------------------------------------
                                           Martin J. Geitz
                                           President and Chief Executive Officer


     In  accordance  with the Exchange Act, this Report has been signed below by
the following  persons on behalf of the  Registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
<S>                                                                                           <C> <C>
                Name                                    Capacity                        Date
                ----                                    --------                        ----

   /s/                                                  President and                   March 27, 2007
----------------------------------------            Chief Executive Officer
Martin J. Geitz

   /s/                                              Executive Vice President,           March 27, 2007
----------------------------------------           Chief Financial Officer and
Anthony F. Bisceglio                               Chief Accounting Officer

   /s/
----------------------------------------                Director                        March 27, 2007
Robert J. Bogino

   /s/
----------------------------------------                Director                        March 27, 2007
James T. Fleming

   /s/
----------------------------------------                Director                        March 28, 2007
Edward J. Guarco

   /s/
----------------------------------------                Director                        March 27, 2007
Gary R. Kevorkian

   /s/
----------------------------------------                Director                        March 27, 2007
Barry R. Loucks

   /s/
----------------------------------------                Director                        March 27, 2007
George B. Odlum, Jr., DMD

   /s/
----------------------------------------                Director                        March 27, 2007
David W. Sessions

   /s/
----------------------------------------                Director                        March 27, 2007
Rodney R. Reynolds

   /s/
----------------------------------------                Director                        March 27, 2007
Penny R. Woodford

   /s/
----------------------------------------                Director                        March 27, 2007
Lincoln S. Young
</TABLE>

                                       18
<PAGE>

                                  EXHIBIT INDEX
Exhibit No.    Description
----------     -----------
3(i)           Certificate  of  Incorporation   (incorporated  by  reference  to
               Exhibit  3.1  of  the  Company's   Form  8K12G3  filed  with  the
               Securities and Exchange Commission on March 7, 2006)

3(ii)          Bylaws (incorporated by reference to Exhibit 3.2 of the Company's
               Form 8K12G3 filed with the Securities and Exchange  Commission on
               March 7, 2006)

4              Specimen Common Stock  Certificate  (incorporated by reference to
               Exhibit 4 of the Company's 10-QSB dated May 12, 2006)

10.1           Employment  Agreement,  dated as of  September  1,  2004,  by and
               between the Bank and Martin J. Geitz  (incorporated  by reference
               to Exhibit 10.13 of the Bank's 10-QSB dated November 12, 2004)

10.2           Employment  Agreement,  dated  as of  February  6,  2004,  by and
               between the Bank and Charles D. Forgie and amended as of November
               15, 2005 (incorporated by reference to the Company's 10-KSB dated
               March 24, 2006)

10.3           Employment  Agreement,  dated  as of  February  6,  2004,  by and
               between  the Bank  and  Anthony  F.  Bisceglio  (incorporated  by
               reference  to Exhibit  10.3 of the Bank's Form 10-KSB dated March
               17, 2004)

10.4           Supplemental  Executive  Retirement Plan  Agreement,  dated as of
               April 23,  2001,  by and  between  the Bank and Charles D. Forgie
               (incorporated  by reference to Exhibit 10.5 of the Bank's  10-KSB
               dated March 17, 2004)

10.5           Supplemental  Executive  Retirement Plan  Agreement,  dated as of
               April 23, 2001, by and between the Bank and Anthony F.  Bisceglio
               (incorporated  by reference to Exhibit 10.6 of the Bank's  10-KSB
               dated March 17, 2004)

10.6           Change in Control  Agreement,  dated as of July 30, 1999,  by and
               between the Bank and Charles D. Forgie (incorporated by reference
               to Exhibit 10.7 of the Bank's 10-KSB dated March 17, 2004)

10.8           Change in Control  Agreement,  dated as of July 30, 1999,  by and
               between  the Bank  and  Anthony  F.  Bisceglio  (incorporated  by
               reference  to Exhibit  10.8 of the Bank's  10-KSB dated March 17,
               2004)

10.9           Change in Control  Agreement dated as of December 23, 2005 by and
               between the Bank and Terry L. Boulton  (incorporated by reference
               to Exhibit 10.9 of the Company's 10-KSB filed with the Securities
               and Exchange Commission on April 2, 2007)

10.10          Letter  Agreement  dated as of April 25,  2006 by and between the
               Company and Paul R. Little  (incorporated by reference to Exhibit
               10.1 of the Company's 8-K filed with the  Securities and Exchange
               Commission on May 22, 2006)

13             2006  Annual  Report   (except  for  those   portions   expressly
               incorporated  by  reference,  the 2006 Annual Report is furnished
               for informational  purposes and is not to be deemed filed as part
               of this Form 10-KSB)

21             Subsidiaries (filed herewith)

31.1           Section  Rule  13(a)-14(a)/15(d)-14(a)   Certification  by  Chief
               Executive Officer

31.2           Section  Rule  13(a)-14(a)/15(d)-14(a)   Certification  by  Chief
               Financial Officer

32.1           Section 1350 Certification by Chief Executive Officer

32.2           Section 1350 Certification by Chief Financial Officer


                                       19


<PAGE>

                                  April 9, 2008


Dear Fellow Shareholders:

We are very pleased to report great progress in 2007.  Your company SBT Bancorp,
Inc. (the "Company") delivered significant earnings improvement and, through its
subsidiary,  The Simsbury Bank & Trust Company,  Inc.  ("Simsbury  Bank" or, the
"Bank"),  grew its customer base,  increased  loans to businesses,  families and
individuals,  and  expanded  the  management  of  its  clients'  wealth  through
investments and insurance.  Our earnings in each quarter of the year were better
than the quarter  before.  A  reflection  of our success is that  Simsbury  Bank
remains  Simsbury's  largest bank, as well as the largest community bank and the
third largest bank overall in our primary market.*

Our performance in 2007 occurred in an extremely  challenging  environment.  For
most of the year, interest rates worked against us with a flat or inverted yield
curve.  Competition  was intense in all of our markets.  And expense  management
remained a challenge as we continued to slowly grow into the capacity associated
with our two newest branches.

Key Strategies and Customer Growth

During  2007,  we believed  that  shareholder  value  would be most  enhanced by
emphasizing  strategies  that would  improve  current  earnings  although  these
strategies  made it more  difficult  to grow market  share.  We focused on three
areas: net interest income; noninterest income; and expense management.


o      We derive over 80% of our revenue from interest  rate spread  activities,
so we took  steps to improve  our net  interest  margin.  Our  deposit  and loan
pricing  strategies  yielded a 4.4% increase in net interest and dividend income
before  provision  for loan  losses  compared to a 1.2%  decline in 2006.  Total
revenue increased 6.0% in 2007, assisted by two atypical events described below,
after an only  slight 0.5%  increase  in 2006.  Total  deposits  declined  5.8%,
however,  our deposit mix  improved.  Through  continuing  success with our free
business  checking  product and attracting new non-business  customers,  we grew
checking  deposits 3.6% from year-end 2006 to year-end 2007 (8.6% comparing full
year  average  balances)  and  permitted  rate  sensitive  deposits,  especially
certificates  of deposit,  to decline  10.2% from  year-end  to  year-end  (8.2%
comparing full year average balances). Low cost demand, NOW and savings deposits
accounted for 66% of deposits at year-end  compared to 62% at year-end 2006. Net
loans  increased 5.3% due principally to commercial  loans and residential  real
estate  secured  loans.  We funded our loan growth  (5.3%)  principally  through
redeploying funds from our investment portfolio.


---------
*According to the 2007 FDIC Survey of Deposits,  Simsbury  Bank's  deposits were
greater than any other bank with  branches in Simsbury  (including  the nation's
largest) and greater than any other  community  bank serving any of the towns of
Avon,  Bloomfield,  Canton,  Granby,  New  Hartford and  Simsbury.  Only Bank of
America and Webster Bank  reported more deposits than Simsbury Bank in our eight
town primary market.

                                       20
<PAGE>

These strategies yielded a significant improvement in our net interest margin to
4.16% from 3.84% in 2006.

o      Noninterest  income  related  directly to banking  customer  products and
services  as  well  as  investment  services  commissions   increased  16.3%  to
$1,150,014 in 2007 due to continued growth of our investment  services  business
and growth in  banking  service  fees.  Our  efforts  to expand  our  investment
services  capabilities  continued to meet great success with a 27.3% increase in
commissions to $210,631.  Assets under management  increased 49% ($17.1 million)
to $51.6  million at year end.  Service  charge and fee income for  deposit  and
other banking services  increased 14.1% to $939,383 due both to volume and price
increases.  Overdraft  fees,  ATM fees  and  debit  card  fees  were  the  major
contributors to banking fee income growth.

o      Noninterest expense increased only 2.9% in 2007 after a 25.3% increase in
2006.  The 2006  increase was due  principally  to the  staffing,  occupancy and
equipment  expenses  associated  with  opening two new  branches to increase our
total to five. In 2007,  staffing,  occupancy and equipment  expenses  increased
5.3% due  principally  to the full year impact of expenses  associated  with our
newest  branch  in  Bloomfield.  Growth in  staffing,  occupancy  and  equipment
expenses  was offset by a 2.7% decline in all other  noninterest  expenses as we
managed all expenses very  closely.  Despite our  successful  efforts to contain
expense  growth,  our  efficiency  ratio shows that we continue to carry  excess
capacity to deliver banking and investment services to our customers.

o      The Bank's number of deposit accounts  increased only modestly (0.7%) due
to our deposit  pricing  strategy  which  resulted in a decline in time  deposit
accounts offset by growth in checking  accounts.  More of our customers continue
to use our  state-of-the-art  online services.  SBT Online  customers  increased
18.8%  (15.2% in 2006)  while the  number of  customers  using  online  bill pay
increased 17.9% (29.2% in 2006).  During the past several years,  our commercial
loan business has grown  steadily.  At year end 2007, we had 7% more  commercial
loan  facilities  than at the prior year end. Our  mortgage  and  consumer  loan
facilities  have also grown.  Most of our consumer  loans are home equity loans.
During 2006 and 2005, they grew faster than mortgages,  which actually  declined
during  those  years  as we  stood  by our  conventional  mortgage  underwriting
standards. In 2007, however, consumer loan facilities and mortgages increased by
6% and 3%,  respectively,  as our  reliability  as a  conventional  mortgage and
consumer lender became more apparent in the emerging subprime mortgage crisis.

                                       21
<PAGE>

Capital and Shareholder Value

The Bank's  capital  position  improved  in 2007 and remains  strong.  We remain
substantially in excess of the FDIC's "well capitalized"  definition.  This is a
very  important  fact at a time of increasing  economic  uncertainty.  While our
local markets have not exhibited the economic  strains present in other parts of
the country, a national economic slowdown will inevitably have a local impact.

Despite  the  Company's   earnings  dip  since  our  investment  in  creating  a
geographically  larger  franchise  area,  shareholder  equity and book value per
share have continued to grow. Stockholders' Equity grew by 7.4% in 2007 (4.8% in
2006) while Book Value per Share grew by 6.3% (4.4% in 2006). Earnings per share
reflect our improved earnings in 2007 as well as a slight increase in the number
of shares outstanding.  We did not utilize the share buyback program approved by
the Board in 2006 and the program has expired.

Investment Portfolio Actions and BOLI Income

In the fourth quarter, the Bank took actions related to its investment portfolio
precipitated by the rapidly changing  financial market conditions  brought on by
the subprime mortgage crisis.  The gradual steepening of the interest rate yield
curve and the decline of short term interest  rates created an  opportunity  for
the Bank to sell certain securities and reinvest in other securities to engineer
a better  return  from our  investment  portfolio.  The Bank also wrote down the
value of a Federal National Mortgage  Association ("FNMA") trust preferred stock
security  whose market value had declined  below the Bank's  internal  valuation
change  guidelines  following  the onset of the subprime  mortgage  crisis.  The
combined impact of these actions was a one-time $313,569 loss.

The Bank  funds a portion  of  employee  benefits,  including  our  supplemental
employee  retirement  plan ("SERP"),  through an earning asset called bank owned
life  insurance  ("BOLI").  Charles  "Chip"  Forgie,  our former  Chief  Lending
Officer,  unexpectedly  passed away in 2007.  As a result of Chip's  actuarially
premature death, the Bank received death benefit income from BOLI of $613,349 in
the fourth quarter.

Financial Markets, Economic Conditions and SBT Bancorp

Since  August  2007,  the  subprime  mortgage  crisis has had a major  impact on
financial  markets and the economy.  The continuing  unfolding of the crisis has
fostered  extraordinary  actions by the Federal  Reserve,  the  Treasury and the
Congress to try to address  financial market liquidity  concerns and indications
of a residential real estate led weakening of the economy nationally.

                                       22
<PAGE>

The Bank never engaged in originating or holding subprime mortgages and holds no
securities  backed  by  subprime  mortgages.  Our only  direct  exposure  to the
subprime  mortgage  crisis  is  FNMA  and  Freddie  Mac  trust  preferred  stock
investments  totaling $1.3 million.  Fannie's and Freddie's financial conditions
have been adversely impacted through their subprime mortgage exposure.  As such,
the value of certain securities issued by them has been adversely  impacted.  As
noted above,  the Bank wrote down one such  security in its  portfolio  due to a
drop in value below internal value change guidelines.

At  its  most  simple,  the  subprime  mortgage  crisis  is a  painful  downward
revaluation of a large asset class.  It is similar to the downward  revaluations
of internet and information  technology  companies in 2000 and 2001, New England
commercial  real  estate in 1990 and 1991,  savings  and loan owned real  estate
development  projects in the late 1980's,  and oil and gas reserves and drilling
equipment  in the early  1980's.  Asset  revaluations  through the early  1990's
tended to be most  visible at  commercial  and  savings  banks.  Commercial  and
savings banks with too much exposure to the affected  asset classes  experienced
difficulties and sometimes failed. By the late 1990's, however, financial market
deregulation  and the emergence of other  significant  investors such as private
equity  funds,  leveraged  buyout  funds  and  hedge  funds  led to a much  more
complicated  and less  transparent  financial  market.  In the current  subprime
mortgage crisis,  the uncertainty  associated with who holds what securities and
the quality of those  holdings  has led to  liquidity  and  investor  confidence
crises for a number of investment banks and hedge funds and, to a lesser extent,
large commercial banks.

Banks are a reflection of the economy.  The continued unraveling of the subprime
mortgage  crisis  will  impact  the  national  economy  for  much of  2008  and,
therefore,  banks such as yours.  Simsbury Bank's success is tied to the success
of the businesses, families and individuals in Central Connecticut, particularly
in our primary  market area.  Simsbury  Bank manages its assets and  liabilities
conservatively  and  with the  knowledge  that  economic  cycles  will  test any
unhealthy loan or deposit  concentrations.  Most of our loans are to businesses,
families and  individuals  in our primary  market area.  We try to mitigate this
geographic  concentration  risk by having a diverse loan  portfolio by loan type
and  borrower.  Half  of our  over  $160  million  in  loans  at year  end  were
conventional  home  mortgages.  One  quarter  of our loans were  consumer  loans
including  home  equity  loans.  Finally,  one  quarter  of our  loans  were  to
commercial businesses.  Our loan quality at year end continued to be outstanding
with no nonaccrual loans and low delinquency rates.  However,  we have seen some
weakening of certain  loans.  Due  principally  to the  prospects of a weakening
economy  as  well  as some of the  challenges  faced  by some of our  commercial
borrowers,  we made a $250,000  addition to our loan loss  reserve in the fourth
quarter.

On the  liability  side,  our deposits of over $180 million are adequate to fund
most of our loan and investment activities.  We do not rely on wholesale funding
such as brokered  CDs. We  occasionally  borrow from the Federal  Home Loan Bank
when it offers rates,  terms and  flexibility  better than we can obtain through
local deposits. Our deposit mix is advantageous with one third each in checking,
savings and time deposit accounts.

We feel very  confident in the strength and diversity of our loan  portfolio and
our deposit base. We will continue to manage our risks closely as we execute our
plans to grow revenues and earnings and thereby enhance shareholder value.

In Recognition

In 2007, Simsbury Bank lost two of its most valued alumni. Modesto Brunoli was a
founder of the Bank and served as a director  until 2003.  Charles "Chip" Forgie
was the Bank's first Chief Lending Officer. Moe and Chip contributed much to the
Bank's success and will be missed by all who had the honor to know and work with
them.

                                       23
<PAGE>

Also in 2007, one of our Founding Directors,  Jane von Holzhausen,  retired from
the Board of Directors  due to new career  demands that required her to relocate
to southern Connecticut. We will miss Jane's candor and insights.

Looking Forward

We look  forward with a  confidence  rooted in the  strength of our people,  our
capacity and capabilities, and our market area. The current financial market and
economic  weaknesses  create an opportunity for us. We are open for business and
seeking to provide the capital and financial strength that our market demands.

We will  continue  to grow  shareholder  value by  continuing  to focus in three
areas.  First, we will serve our current markets so well that existing customers
choose to do more  business  with us and those who are not  currently  customers
choose to  select  us as a  banking  and  investment  partner.  Second,  we will
continue  to  diversify  our  business  by  building  our  business  banking and
investment services capabilities. This strategy supports our goals of becoming a
more important  partner to our customers in their  financial  lives and becoming
less  dependent  on interest  rate spread  income for our revenue and  earnings.
Third, we will remain open to and opportunistic with regard to acquisitions as a
way to grow.

We appreciate  your support and look forward to continuing to help our customers
achieve  their life  goals by being  their  banking  and  investment  partner of
choice.

Sincerely,


/s/                                           /s/
-----------------------------------           ----------------------------------
Martin J. Geitz                               Lincoln S. Young
President & Chief Executive Officer           Chairman of the Board of Directors



                                       24
<PAGE>

Selected Financial and Other Data
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                                   <C>                 <C>                 <C>
                                     At 12/31/07         At 12/31/06         At 12/31/05
                                   ---------------     ---------------     ---------------
Balance Sheet Data:
   Total assets                       $210,390,282        $217,046,550        $209,544,654
   Loans, net                          163,765,440         155,512,835         145,805,738
   Investment securities                25,501,248          38,485,046          41,196,740
   Federal funds sold and other
    interest earning deposits
                                         2,330,187           4,944,524           6,833,970
   Deposits                            186,805,866         198,402,158         191,115,680
   Stockholders' equity                 17,318,059          16,119,064          15,375,598

                                    For the Year        For the Year        For the Year
                                   Ended 12/31/07      Ended 12/31/06      Ended 12/31/05
                                   ---------------     ---------------     ---------------
Statement of Income Data:
   Total interest and dividend
    income                             $11,349,114         $11,135,620          $9,759,483
   Total interest expense                3,477,333           3,596,887           2,126,399
   Net interest and dividend income      7,871,781           7,538,733           7,633,084
   Provision for loan losses               250,000                   0              30,000
   Net interest and dividend income
    after-provision for loan losses
                                         7,621,781           7,538,733           7,603,084
   Gains (loss) on loans sold, net           (414)               3,977              61,222
   Other noninterest income              1,593,893           1,152,262             983,637
   Noninterest expense                   7,901,091           7,679,952           6,128,848
   Income tax expense                      174,458             298,087             845,418
   Net income                            1,139,711             716,933           1,673,677

   Earnings per common share                 $1.34               $0.85               $2.00
   Earnings per common share,
assuming dilution                            $1.33               $0.84               $1.96

Other Data:
   Net interest spread                       3.64%               3.44%               3.80%
   Net interest margin                       4.16%               3.84%               4.06%
   Return on average assets                  0.55%               0.34%               0.83%
   Return on average stockholders'
    equity                                   6.80%               4.52%              11.19%
   Average stockholders' equity to
    average assets                           8.11%               7.49%               7.45%
</TABLE>

                                       25
<PAGE>
Management's Discussion and Analysis of
Financial Conditions and Results of Operations
--------------------------------------------------------------------------------

Forward Looking Statements

     When used in this Annual Report or any press release,  public  announcement
or filing, the words "intends,"  "expects,"  "plans,"  "estimates,"  "projects,"
"believes,"  "anticipates"  and  similar  expressions  are  intended to identify
forward-looking  statements.  The  Company  (defined  below)  has  made  and may
continue to make various  forward-looking  statements  with respect to earnings,
credit quality and other financial and business  matters for periods  subsequent
to December 31, 2007. All statements, other than statements of historical facts,
are  forward-looking  statements.  The Bank (defined  below) cautions that these
forward-looking  statements  are not  guarantees of future  performance  and are
subject to numerous  assumptions,  risks and uncertainties,  and that statements
relating to subsequent periods are subject to greater uncertainty because of the
increased  likelihood of changes in underlying  factors and assumptions.  Actual
results could differ materially from forward-looking  statements. In addition to
those  factors  previously  disclosed by the Bank and those  factors  identified
elsewhere  herein,  the following  factors could cause actual  results to differ
materially from such forward-looking  statements:  competitive pressures on loan
and deposit product pricing;  other actions of competitors;  changes in economic
conditions;  the extent and timing of  actions  of the  Federal  Reserve  Board;
customer  deposit  disintermediation;  changes in  customers'  acceptance of the
Bank's  products  and  services;  and the extent and timing of  legislative  and
regulatory actions and reforms.

     Please  do not  rely  unduly  on any  forward-looking  statement,  as  such
statements  speak only as of the date made and the Bank undertakes no obligation
to revise or update such statements to reflect events or circumstances after the
date  hereof  or  to  reflect  the   occurrence  of   unanticipated   events  or
circumstances.

General

     This  discussion  is  designed  to assist you in better  understanding  the
Company's  financial  condition,  results of  operations,  liquidity and capital
resources  and  any  significant  changes  and  trends  related  thereto.   This
discussion   should  be  read  in  conjunction  with  the  Company's   financial
statements.

     SBT Bancorp,  Inc. (the  "Company") is the holding company for The Simsbury
Bank & Trust  Company,  Inc.  (the "Bank").  The Company's  only business is its
investment  in the Bank,  which is a community  oriented  financial  institution
providing a variety of banking and investment services.

     The Bank was  incorporated on April 28, 1992 and commenced  operations as a
Connecticut  chartered bank on March 31, 1995.  The Bank's deposit  accounts are
insured under the Federal  Deposit  Insurance Act, up to the maximum  applicable
limits  thereof.  The Bank is not a member of the Federal  Reserve  System.  The
Bank's  main  office  and its  corporate  offices  are  located  in the  town of
Simsbury, Connecticut. The Bank has branch offices in the towns of Granby, Avon,
Canton and  Bloomfield,  Connecticut.  Simsbury  has a  population  of more than
23,000. The aggregate population for the Bank's market area is 75,000, comprised
of approximately 29,000 households.  The Bank's customer base consists primarily
of  individual  consumers  and  small  businesses  in the  Farmington  Valley of
Connecticut. The Bank has in excess of 20,300 deposit accounts.

     The Bank  offers a full  range of  banking  services  including  commercial
loans,  term real estate loans,  construction  loans, SBA loans and a variety of
consumer  loans;  checking,  savings,  certificates  of deposit and money market
deposit  accounts;  and  travelers'  checks,  safe  deposit and other  customary
non-deposit banking services. As of December 31, 2007,  approximately 74% of the
Bank's loans were secured by residential  property  located in Connecticut.  The
Bank has two ATMs at its main office and the Bloomfield  branch,  and one ATM at
each of its other branch  locations.  The ATMs generate activity fees based upon
utilization  by  other  banks'  customers.  The  Bank  does  not  have  a  trust
department.  The Bank  offers  investment  products  to  customers  through  SBT
Investment  Services,  Inc., a wholly-owned  subsidiary of the Bank, and through
its affiliation with the securities broker/dealer Infinex Financial Services.

     The deposits  decreased by $11.6 million  (5.8%) in 2007,  compared to $7.3
million in growth during 2006. Total assets are $210 million, a decrease of $6.7
million (3.1%) from the $217 million at year-end 2006. The Bank's loan portfolio
grew,  increasing by $8.5 million (5.4%) to end the year at $165.7 million.  The
Bank's  loan-to-deposit  ratio, an important  determinant of net interest income
increased to 89% at year-end 2007, compared to 79% at year-end 2006.

                                       26
<PAGE>

     Net  income of  $1,139,711  ($1.34 per  common  share) for the year  ending
December 31, 2007 was a 59% increase from the net income of $716,933  ($0.85 per
common share) reported for the year ended December 31, 2006

Results of Operations for the Years Ended December 31, 2007, 2006 and 2005.

Net Interest Income and Net Interest Margin

     The Bank's earnings  depend largely upon the difference  between the income
received from its loan portfolio and investment securities and the interest paid
on its  liabilities,  mainly interest paid on deposits.  This difference is "net
interest  income." The net interest  income,  when  expressed as a percentage of
average  total  interest-earning  assets,  is  referred  to as the net  interest
margin.  The Bank's net  interest  income is affected by the change in the level
and  the  mix  of  interest-earning  assets  and  interest-bearing  liabilities,
referred to as volume  changes.  The Bank's net interest margin is also affected
by changes in yields earned on assets and rates paid on liabilities, referred to
as rate  changes.  Interest  rates  charged  on the  Bank's  loans are  affected
principally  by the demand for such  loans,  the supply of money  available  for
lending purposes and competitive factors.  These factors are in turn affected by
general economic conditions and other factors beyond the Bank's control, such as
federal  economic  policies,  the  general  supply  of  money  in  the  economy,
legislative tax policies, governmental budgetary matters, and the actions of the
Federal Reserve.

     Net interest and dividend  income,  after  provision  for loan losses which
totaled  $7,621,781 in 2007, which is an increased by $83,048 from 2006, or 1.1%
in 2007.  Earning  assets have grown from $191  million on December  31, 2005 to
over $199  million at December 31, 2006  decreasing  to $194 million at December
31, 2007. The Bank's net interest  spread and net interest  margin  increased to
3.64% and 4.16% during 2007 as compared to 3.44% and 3.84% during 2006. This was
primarily due to the unusual interest rate environment that was prevalent during
the year. This environment was  characterized by interest rates that were higher
in the short term than they were in the long term.  This made it  necessary  for
the Bank to pay more for shorter term time deposits than it would have in a more
normal interest rate climate.

     The following table presents the average amounts  outstanding for the major
categories   of  the  Bank's   interest-earning   assets  and   interest-bearing
liabilities and the average  interest rates earned or paid thereon for the years
ended December 31, 2007, 2006 and 2005.


                                       27
<PAGE>
                               NET INTEREST INCOME
                             (Dollars in thousands)


                                                For the Year Ended 12/31/07
                                            ------------------------------------
                                             Average         (1)
                                              Balance     Interest      Yield
                                            ------------------------------------

Federal funds sold and overnight deposits   $     3,812    $       201     5.23%

Investments (1)                                  33,092          1,598     4.83

Mortgage loans                                   78,901          4,343     5.50
Commercial loans                                 38,528          2,747     7.13
Consumer loans                                   39,864          2,566     6.44
Term federal funds sold                              33              1     3.03
     Total loans                                157,326          9,657     6.14
                                            -----------     ----------

     Total interest-earning assets          $   194,230         11,456     5.90
                                            ===========     ==========

NOW deposits                                $    27,764    $        51     0.18%
Savings deposits                                 57,754            546     0.95
Time deposits                                    65,016          2,759     4.24
                                            -----------     ----------
     Total interest-bearing deposits            150,534          3,356     2.23

Securities sold under agreements to
repurchase                                        1,529             37     2.42
Federal Home Loan Bank advances                   1,632             85     5.21
                                            -----------     ----------

     Total interest-bearing liabilities     $   153,695    $     3,478     2.26%
                                            ===========     ==========

     Net interest income                                   $     7,978
                                                            ==========
     Net interest spread                                                   3.64%
                                                                      ==========
     Net interest margin                                                   4.16%
                                                                      ==========


                                                For the Year Ended 12/31/06
                                            ------------------------------------
                                             Average         (1)
                                              Balance     Interest      Yield
                                            ------------------------------------

Federal funds sold and overnight deposits   $     4,348    $       216     4.97%

Investments (1)                                  43,776          1,983     4.53

Mortgage loans                                   77,038          4,174     5.42
Commercial loans                                 36,727          2,594     7.06
Consumer loans                                   37,920          2,296     6.05
Term federal funds sold                             137              6     4.38
                                            -----------     ----------
     Total loans                                151,822          9,070     5.97
                                            -----------     ----------

     Total interest-earning assets          $   199,946    $    11,269     5.64%
                                            ===========     ==========

NOW deposits                                $    25,951    $        26     0.10%
Savings deposits                                 61,444            558     0.91
Time deposits                                    72,271          2,878     3.98
                                            -----------     ----------
     Total interest-bearing deposits            159,666          3,462     2.17

Securities sold under agreements to
repurchase                                        1,903             41     2.15
Federal Home Loan Bank advances                   1,763             94     5.33
                                            -----------     ----------

Total interest-bearing liabilities          $   163,332    $     3,597     2.20%
                                            ===========     ==========

     Net interest income                                   $     7,672
                                                            ==========
     Net interest spread                                                   3.44%
                                                                      ==========
     Net interest margin                                                   3.84%
                                                                      ==========

                                       28
<PAGE>
                              NET INTEREST INCOME
                             (Dollars in thousands)


                                                For the Year Ended 12/31/05
                                            ------------------------------------
                                             Average         (1)
                                              Balance     Interest      Yield
                                            ------------------------------------

Federal funds sold and overnight deposits   $     5,267    $       169     3.21%

Investments (1)                                  40,636          1,628     4.01

Mortgage loans                                   80,376          4,364     5.43
Commercial loans                                 32,893          2,108     6.41
Consumer loans                                   30,938          1,579     5.10
Term federal funds sold                             542             14     2.58
                                            -----------     ----------
     Total loans                                144,749          8,065     5.57
                                            -----------     ----------

     Total interest-earning assets          $   190,652    $     9,862     5.17%
                                            ===========     ==========

NOW deposits                                $    26,721    $        27     0.10%
Savings deposits                                 73,994            597     0.81
Time deposits                                    51,684          1,427     2.76
                                            -----------     ----------
     Total interest-bearing deposits            152,399          2,051     1.35

Securities sold under agreements to
repurchase                                        2,007             32     1.59
Federal Home Loan Bank advances                   1,201             44     3.66
                                            -----------     ----------

     Total interest-bearing liabilities     $   155,607    $     2,127     1.37%
                                            ===========     ==========

     Net interest income                                   $     7,735
                                                            ==========
     Net interest spread                                                   3.80%
                                                                      ==========
     Net interest margin                                                   4.06%
                                                                      ==========

(1)     On a  fully  taxable  equivalent  basis  based  on a tax  rate  of 34 %.
        Interest  income on  investments  includes  a fully  taxable  equivalent
        adjustment of $106,090 in 2007, $133,000 in 2006 and $103,000 in 2005.

     The following table sets forth the effects of changing rates and volumes on
our net  interest  income.  The rate column  shows the effects  attributable  to
changes in rate (changes in rate multiplied by prior volume).  The volume column
shows  the  effects  attributable  to  changes  in  volume  (changes  in  volume
multiplied  by prior  rate).  The net  column  represents  the sum of the  prior
columns.  For purposes of this table,  changes  attributable  to changes in both
rate and volume that cannot be  segregated  have been  allocated  proportionally
based on the changes due to rate and the changes due to volume.

                                       29
<PAGE>
<TABLE>
<CAPTION>
<S>                     <C>            <C>            <C>            <C>            <C>            <C>
                               Year Ended December 31, 2007                 Year Ended December 31, 2006
                                       Compared to                                  Compared to
                               Year Ended December 31, 2006                 Year Ended December 31, 2005
                        ------------------------------------------   ------------------------------------------
                            Increase (Decrease)                          Increase (Decrease)
                                  Due to                                       Due to
                        ---------------------------                  ---------------------------
                           Volume          Rate           Net           Volume          Rate           Net
                        ------------   ------------   ------------   ------------   ------------   ------------
                                                            (In thousands)
Interest and dividend
 income:
  Federal funds sold
   and overnight
  Deposits              $        12    $       (27)   $       (15)   $        69    $       (22)   $        47
  Investments                   327           (617)          (290)           223            132            355
  Loans                         253            334            587            599            406          1,005
                        ------------   ------------   ------------   ------------   ------------   ------------
    Total interest-
     earning assets             592           (310)           282            891            516          1,407
                        ------------   ------------   ------------   ------------   ------------   ------------

Interest expense:
   NOW deposits                  23              2             25              0             (1)            (1)
   Savings deposits              26            (38)           (12)           111           (150)           (39)
   Time deposits                225           (344)          (119)           763            688          1,451
                        ------------   ------------   ------------   ------------   ------------   ------------
Total interest-bearing
 deposits                       274           (380)          (106)           874            537          1,411

   Securities sold
    under agreements to
   Repurchase                     7            (11)            (4)            11             (2)             9
   FHLB advances                 (2)            (7)            (9)            25             25             50
                        ------------   ------------   ------------   ------------   ------------   ------------
     Total interest-
      bearing
      liabilities               279           (398)          (119)           910            560          1,470
                        ------------   ------------   ------------   ------------   ------------   ------------

   Net change in
    interest income     $       313    $        88    $       401    $       (19)   $       (44)   $       (63)
                        ============   ============   ============   ============   ============   ============
</TABLE>

Provision for Loan Losses

     Provisions  for loan  losses  are  charged to  earnings  to bring the total
allowance for loan losses to a level deemed appropriate by the Bank's management
("Management")  based on such factors as historical  experience,  the volume and
type of  lending  conducted  by the Bank,  the amount of  non-performing  loans,
regulatory policies, generally accepted accounting principles,  general economic
conditions,  and other  factors  related to the  collectability  of loans in the
Bank's portfolio.

     Each  month  the Bank  reviews  the  allowance  for loan  losses  and makes
additional  provisions to the allowance,  as needed. For the year ended December
31, 2007,  the  allowance  was  increased by $226,223,  net of  charge-offs  and
recoveries.  The total  allowance  for loan  losses  at  December  31,  2007 was
$1,924,552 or 1.16% of outstanding  loans.  This compares with a total allowance
for loan losses of  $1,698,329  at year-end  2006,  which  represented  1.08% of
outstanding  loans. With the exclusion of loans to financial  institutions (term
federal funds sold), this ratio was 1.18% at year-end 2007 and 1.08% at year-end
2006.  During 2007, the Bank charged-off 4 loans for a total of $23,777.  During
2006, the Bank charged-off five loans for a total of $21,308. There were no loan
recoveries in 2007. The Bank recovered one loan for $104 during 2006. Management
believes the allowance for loan losses is adequate.

Noninterest Income and Noninterest Expense

     The  following  table  sets  forth the  various  components  of the  Bank's
noninterest  income and  noninterest  expense for the years ended  December  31,
2007, 2006 and 2005.
<TABLE>
<CAPTION>
<S>                     <C>                   <C>     <C>              <C>     <C>              <C>
                                         NONINTEREST INCOME

                        For Year Ended     % of    For Year Ended   % of    For Year Ended   % of
                            12/31/07       Total      12/31/06      Total      12/31/05      Total
                        -----------------------------------------------------------------------------

Service charges on
 deposit accounts       $   413,758           26.0%   $   336,664      29.1%   $   313,746      30.0%
Safe deposit fees            79,764            5.0         74,039       6.4         64,819       6.2
Business manager income     132,339            8.3        129,232      11.2        127,157      12.2
Loss on loans sold, net        (414)          (0.0)         3,977       0.3         61,222       5.9
SBT Investment Services,
 Inc                        210,630           13.2        165,496      14.3         83,705       8.0
Other income                757,402           47.5        446,831      38.7        394,210      37.7
                        -----------------------------------------------------------------------------

         Total          $ 1,593,479          100.0%   $ 1,156,239     100.0%   $ 1,044,859     100.0%
                        =============================================================================
</TABLE>

                                       30
<PAGE>
<TABLE>
<CAPTION>
<S>                     <C>              <C>     <C>              <C>     <C>              <C>
                                      NONINTEREST EXPENSE

                         For Year
                           Ended              For Year Ended   % of    For Year Ended   % of
                          12/31/07 % of Total    12/31/06      Total      12/31/05      Total
                        ------------------------------------------------------------------------

Salaries and employee
 benefits               $ 4,166,414      52.7%   $ 4,036,284      52.6%   $ 3,114,881      50.8%
Occupancy expense         1,115,588      14.1      1,028,280      13.4        753,452      12.3
Equipment expense           391,122       5.0        324,683       4.2        211,354       3.4
Forms and supplies          417,476       5.3        209,355       2.7        163,881       2.7
Advertising and
 promotions                 335,999       4.3        346,677       4.5        350,690       5.7
Professional fees           126,826       1.6        364,181       4.7        328,850       5.4
Insurance                   110,172       1.4         75,023       1.0         78,757       1.3
Loan expenses                77,603       1.0        120,846       1.6         85,142       1.4
Telephone and postage       130,700       1.6        147,885       1.9        138,457       2.3
Other expenses            1,029,191      13.0      1,026,738      13.4        903,384      14.7
                        ------------------------------------------------------------------------

     Total              $ 7,901,092     100.0%   $ 7,679,952     100.0%   $ 6,128,848     100.0%
                        ========================================================================
</TABLE>

     Noninterest  income for the  twelve  months  ended  December  31,  2007 was
$1,593,478,  an increase of over $437,000 from the twelve months ended  December
31, 2006. The 2007 increase was due primarily to an increase of $597,465 in cash
surrender  value of bank owned life  insurance and BOLI death benefit income net
of a $313,569 loss on sales and write downs of available for sale  securities in
2007. Growth in service charges on deposit  accounts,  other service charges and
fees also  contributed to the increase.  The Bank continued to sell  residential
mortgage  loans with thirty year  maturities  during 2007 resulting in losses of
$414 compared to gains of $3,977 during 2006. The increase in service charges on
deposit  accounts was primarily due to an increase in overdraft fees  collected.
The Bank collected  approximately $274,000 in these charges during 2007 compared
to approximately  $214,000 collected during 2006. At December 31, 2007, the Bank
had over  20,300  deposit  accounts,  100 or 0.50%  more than the  approximately
20,200  accounts  at year-end  2006 and 1,200 or 6% more than the  approximately
19,000  accounts at year-end  2005.  The increase in other income during 2007 is
primarily due to an increase in other fees received  related to ATM and point of
sales transactions,  an increase in income from bank-owned life insurance and an
increase in investment services fees and commissions.

During 2007,  proceeds from sales of  available-for-sale  securities amounted to
$8,236,450.  Gross realized  losses on those sales amounted to $85,669.  The tax
benefit applicable to these gross realized losses amounted to $33,368.  In 2007,
a  write-down  of $227,900  was  recorded on an  available-for-sale  security as
management  had deemed this  particular  security  to be other than  temporarily
impaired. There were no sales of available-for-sale securities during 2006.

     Noninterest expense for the year ended December 31, 2007 was $7,901,092, an
increase of $221,140  or 3%, over 2006.  Noninterest  expense for the year ended
December 31, 2006 was $7,679,952.  This compares to an increase of 25% from 2005
to 2006 in noninterest  expense. The increases in 2007 were primarily related to
the  addition  of our  fourth  and fifth  full-service  branches  and the Bank's
continued  efforts  to  promote  itself as the bank of choice in the  Farmington
Valley of  Connecticut.  In 2007 other  factors in this  increase  are  expenses
related to compliance  with new regulatory  requirements  and the formation of a
bank holding company.

     Salaries and employee benefits  comprised 53% of total noninterest  expense
during  2007,  as compared to 53% in 2006.  Other major  categories  during 2007
included  occupancy  expense and equipment  expense at approximately 14% and 5%,
respectively,  advertising and promotions at approximately  4%, and professional
fees at approximately 5%. Other major categories in 2006 also included occupancy
and equipment  expenses at approximately 13% and 4%,  respectively.  The largest
components of other  expenses,  totaling  $1,029,191  in 2007 and  $1,026,738 in
2006, consisted of correspondent banking charges and software costs.

Financial Condition at Years Ended December 31, 2007, 2006 and 2005

     The  following  table sets forth the  average  balances  of each  principal
category of the Bank's assets,  liabilities  and capital  accounts for the years
ended December 31, 2007, 2006 and 2005.

                                       31
<PAGE>
<TABLE>
<CAPTION>
<S>                     <C>               <C>    <C>               <C>    <C>               <C>
                  Distribution of Assets, Liabilities and Stockholders' Equity
                                     (Dollars in thousands)

                         For the Year Ended       For the Year Ended       For the Year Ended
                               12/31/07                 12/31/06                 12/31/05
                        ----------------------   ----------------------   ----------------------
                                   Percent of               Percent of               Percent of
                         Average      Total       Average     Total        Average     Total
                          Balance     Assets       Balance     Assets       Balance     Assets
                        ----------------------   ----------------------   ----------------------
Assets
  Cash and due from
   banks                $     7,604       3.7%   $     6,511       3.1%   $     6,195       3.1%
  Investment securities      33,092      16.0         43,776      20.7         40,636      20.2
  Federal funds sold and
   overnight deposits
                              3,812       1.9          4,348       2.1          5,267       2.6
  Loans, net                155,616      75.4        150,102      71.0        143,385      71.4
  Premises and equipment      1,410       0.7          1,309       0.6            570       0.3
  Accrued interest and
   other assets               4,942       2.3          5,462       2.5          4,872       2.4
                        ----------------------   ----------------------   ----------------------

     Total assets       $   206,476     100.0%   $   211,508     100.0%   $   200,925     100.0%
                        ======================   ======================   ======================

Liabilities and
 Stockholders' Equity
 Deposits
  Demand and NOW
   deposits             $    62,955      30.5%   $    57,982      27.4%   $    56,639      28.2%
  Savings deposits           57,754      28.0         61,444      29.1         73,994      36.8
  Time deposits              65,016      31.5         72,271      34.1         51,684      25.7
                        ----------------------   ----------------------   ----------------------
    Total deposits          185,725      90.0        191,697      90.6        182,317      90.7
 Accrued interest and
  other liabilities           3,995       1.9          3,964       1.9          3,648       1.8
                        ----------------------   ----------------------   ----------------------

    Total liabilities       189,720      91.9        195,661      92.5        185,965      92.5
                        ----------------------   ----------------------   ----------------------

Stockholders' equity:
  Common stock                8,576       4.2          8,555       4.1          8,397       4.2
  Retained earnings and
   other comprehensive
   income
                              8,180       3.9          7,292       3.4          6,563       3.3
                        ----------------------   ----------------------   ----------------------
    Total stockholders'
     equity                  16,756       8.1         15,847       7.5         14,960       7.5
                        ----------------------   ----------------------   ----------------------

    Total liabilities
     and stockholders'
     equity
                        $   206,476     100.0%   $   211,508     100.0%   $   200,925     100.0%
                        ======================   ======================   ======================
</TABLE>

Investment Portfolio

     In order to  maintain a reserve of  readily  marketable  assets to meet the
Bank's  liquidity  and loan  requirements,  the  Bank  purchases  United  States
Treasury securities and other investments.  Sales of "federal funds" (short-term
loans to other banks) are regularly utilized. Placement of funds in certificates
of  deposit  with  other  financial  institutions  may be  made  as  alternative
investments pending utilization of funds for loans or other purposes.

     Securities  may be  pledged  to meet  security  requirements  imposed  as a
condition for receipt of deposits of public funds and repurchase agreements.  At
December 31, 2007, the Bank had twelve securities with a carrying value totaling
$4,374,960 pledged for such purposes.

     As of December 31, 2007, the Bank's investment  portfolio consisted of U.S.
government  and  agency   securities  and  preferred   stocks,   mortgage-backed
securities,  corporate  bonds,  municipal  securities,  and money market  mutual
funds. The Bank's policy is to stagger the maturities of its investments to meet
overall  liquidity  requirements  of the Bank.  The Bank's  current policy is to
invest only in securities with average maturities of less than ten years.

     The following table  summarizes the amounts and  distribution of the Bank's
investment securities held as of December 31, 2007, 2006, and 2005.

                                       32
<PAGE>
                              INVESTMENT PORTFOLIO
                             (Dollars in thousands)
                                                        December 31, 2007
                                                 -------------------------------
                                                 Amortized    Fair
                                                    Cost      Value     Yield
                                                 -------------------------------
AVAILABLE-FOR-SALE SECURITIES
-------------------------------------------------
U.S. Government and Agency securities
  Due within one year                            $    3,000  $   2,999     4.85%
  Due after one to five years                         1,500      1,503     5.53
                                                  ---------   --------
    Total U.S. Government and Agency securities       4,500      4,502     5.08
State and Municipal securities
  Due after one to five years                         2,325      2,393     5.30
  Due after five to ten years                         4,588      4,624     4.46
                                                  ---------   --------
    Total State and Municipal securities              6,913      7,017     4.79
Corporate debt securities
  Due after one to five years                           475        474     3.30
                                                  ---------   --------
    Total Corporate debt securities                     475        474     3.30
Mortgage-backed securities
  WARM* within one year                                   -          -        -
  WARM* after one to five years                      11,636     11,625     5.02
                                                  ---------   --------
    Total Mortgage-backed securities                 11,636     11,625     5.02
Preferred stocks                                      1,772      1,253     5.09
                                                  ---------   --------
    Total Available-for-sale securities          $   25,296  $  24,871     4.79%
                                                  =========   ========

* - Weighted-Average Remaining Maturity



                                                        December 31, 2006
                                                 -------------------------------
                                                 Amortized     Fair
                                                     Cost     Value     Yield
                                                 -------------------------------
AVAILABLE-FOR-SALE SECURITIES
-------------------------------------------------
U.S. Government and Agency securities
  Due within one year                            $     7,076 $   7,016     3.45%
  Due after one to five years                         10,750    10,646     4.41
                                                  ----------  --------
    Total U.S. Government and Agency securities       17,826    17,662     4.03
State and Municipal securities
  Due after one to five years                          2,261     2,261     4.31
  Due after five to ten years                          1,724     1,833     5.43
                                                  ----------  --------
    Total State and Municipal securities               3,985     4,094     4.79
Corporate debt securities
  Due after one to five years                            475       465     3.30
                                                  ----------  --------
    Total Corporate debt securities                      475       465     3.30
Mortgage-backed securities
  WARM* within one year                                7,851     7,698     4.63
  WARM* after one to five years                        6,261     6,142     4.67
                                                  ----------  --------
    Total Mortgage-backed securities                  14,112    13,840     4.65
Preferred stocks                                       2,000     1,756     4.18
                                                  ----------  --------
    Total Available-for-sale securities          $    38,398 $  37,817     4.29%
                                                  ==========  ========

* - Weighted-Average Remaining Maturity

                                       33
<PAGE>
                              INVESTMENT PORTFOLIO
                             (Dollars in thousands)

                                                        December 31, 2005
                                                 -------------------------------
                                                  Amortized
                                                    Cost    Fair Value  Yield
                                                 -------------------------------
AVAILABLE-FOR-SALE SECURITIES
-------------------------------------------------
U.S. Government and Agency securities
  Due within one year                            $     4,500 $   4,431     2.65%
  Due after one to five years                         13,326    13,048     3.62
                                                  ----------  --------
    Total U.S. Government and Agency securities       17,826    17,479     3.38
State and Municipal securities
  Due after one to five years                          1,000       998     2.80
  Due after five to ten years                          1,937     1,950     4.14
  Due after ten years                                  1,821     1,949     5.38
    Total State and Municipal securities                 232       250     5.60
                                                  ----------  --------
Corporate debt securities                              4,990     5,147     4.39
  Due within one year
  Due after one to five years                            475       459     3.30
                                                  ----------  --------
    Total Corporate debt securities                      475       459     3.30
Mortgage-backed securities
  WARM* within one year                                3,977     3,944     4.96
  WARM* after one to five years                       11,846    11,522     4.46
  WARM* after five to ten years                           26        25     6.30
                                                  ----------  --------
    Total Mortgage-backed securities                  15,849    15,491     4.59
Preferred stocks                                       2,000     1,655     2.84
                                                  ----------  --------
    Total Available-for-sale securities          $    41,140 $  40,231     4.22%
                                                  ==========  ========

* - Weighted-Average Remaining Maturity


Loan Portfolio

     General  The  following  table  presents  the Bank's loan  portfolio  as of
December 31, 2007, 2006 and 2005.
<TABLE>
<CAPTION>
<S>                                   <C>               <C>         <C>                <C>        <C>               <C>
                                 LOAN PORTFOLIO
                             (Dollars in thousands)

                                       December 31, 2007             December 31, 2006            December 31, 2005
                                   --------------------------    --------------------------   --------------------------
                                                   % Total                        % Total                      % Total
                                       Balance       Loans           Balance       Loans          Balance       Loans
                                   --------------------------    --------------------------   --------------------------

Commercial, financial and
 agricultural *                       $16,585           10.0%       $10,947            7.0%       $11,386           7.7%
Real estate - construction and land
 development                           10,756            6.5         11,113            7.1          9,037           6.1
Real estate - residential             113,629           68.7        106,375           67.7         96,459          65.5
Real estate - commercial               15,135            9.1         15,974           10.2         16,101          10.9
Municipal                               1,916            1.2            987            0.6            987           0.7
Consumer                                7,427            4.5         11,582            7.4         13,381           9.1
                                   ----------     -----------    ----------     -----------   -----------     ----------

Total loans                           165,448          100.0%       156,978          100.0%       147,351         100.0%
                                                  ===========                   ===========                   ==========

Allowance for loan losses              (1,925)                       (1,698)                       (1,720)
Deferred costs, net                       242                           233                           175
                                   ----------                    ----------                   -----------

Net Loans                            $163,765                      $155,513                      $145,806
                                   ==========                    ==========                   ===========

* - Includes Term federal funds sold of $3,000,000 at 12/31/2007, $0 at 12/31/2006 and $2,000,000 at 12/31/2005.
</TABLE>

* -  Includes  Term  federal  funds  sold of  $3,000,000  at  12/31/2007,  $0 at
12/31/2006 and $2,000,000 at 12/31/2005.

     The Bank's  commercial loans are made for the purpose of providing  working
capital,  financing  the purchase of equipment or for other  business  purposes.
Such loans  include loans with  maturities  ranging from thirty days to one year
and "term loans" which are loans with  maturities  normally  ranging from one to
twenty-five years.  Short-term  business loans are generally intended to finance
current transactions and typically provide for periodic principal payments, with
interest  payable  monthly.  Term loans  normally  provide for fixed or floating
interest rates, with monthly payments of both principal and interest.

     The Bank's  construction  loans are primarily interim loans made to finance
the  construction of commercial and single family  residential  property.  These
loans are typically short-term.  The Bank generally  pre-qualifies  construction
loan borrowers for permanent  "take-out"  financing as a condition to making the
construction loan. The Bank occasionally will make loans for speculative housing
construction or for acquisition and development of raw land.

                                       34
<PAGE>

     The Bank's other real estate loans consist primarily of loans made based on
the  borrower's  cash flow and which are secured by deeds of trust on commercial
and residential  property to provide another source of repayment in the event of
default.  It is the Bank's policy to restrict  real estate loans without  credit
enhancement  to no more  than  80% of the  lower of the  appraised  value or the
purchase  price  of the  property  depending  on the  type of  property  and its
utilization.  The Bank offers both fixed and floating rate loans.  Maturities on
such loans  typically range from five to twenty years.  However,  Small Business
Administration  ("SBA") and certain  other real estate  loans easily sold in the
secondary market are made for longer maturities. The Bank has been designated an
approved SBA lender.  The Bank's SBA loans are categorized as commercial or real
estate - commercial depending on the underlying  collateral.  Also, the Bank has
been  approved as an  originator  of loans that can be sold to the Federal  Home
Loan Mortgage Corporation.

     The Bank has entered into an agreement with Resource Mortgage Solutions,  a
division of NetBank  ("RMS") to sell  mortgage  loans  originated by the Bank to
RMS.  During the year ended December 31, 2007, the Bank sold one loan with total
principal  balance of $ $268,000 to RMS  resulting in a total net loss of $(414)
for the Bank.  During the year ended December 31, 2006, the Bank sold four loans
with total principal balances of $598,000 to RMS resulting in total net gains of
$3,977 for the Bank.

     Consumer loans are made for the purpose of financing  automobiles,  various
types of consumer goods, and other personal  purposes.  Consumer loans generally
provide for the monthly  payment of principal and  interest.  Most of the Bank's
consumer loans are secured by the personal property being purchased.

     With certain exceptions, the Bank is permitted under applicable law to make
related extensions of credit to any one borrowing entity up to 15% of the Bank's
capital and  reserves.  An  additional  10% is  allowable if the credit is fully
secured by qualified collateral. The Bank sells participations in its loans when
necessary to stay within lending limits.  As of December 31, 2007, these lending
limits for the Bank were $2,815,875 and $4,693,125, respectively.

     Loan  Concentrations The Bank does not have any significant  concentrations
in its loan  portfolio  by industry or group of  industries.  As of December 31,
2007, approximately 74% of the Bank's loans were secured by residential property
located in  Connecticut.  As of December 31, 2006,  75% of the Bank's loans were
secured by such property.

     Loan Portfolio Maturities and Interest Rate Sensitivity The following table
summarizes  the  maturities  and interest  rate  sensitivity  of the Bank's loan
portfolio.
<TABLE>
<CAPTION>
<S>                          <C>             <C>              <C>            <C>
                         MATURITIES AND RATE SENSITIVITY OF LOANS
                                 As of December 31, 2007
                                      (In thousands)

                                              Over One but
                               One Year         less than         Over
                                Or Less        Five Years      Five Years        Total
                             --------------  ---------------  -------------  -------------

Commercial, financial and
 agricultural                $        6,624  $         9,863  $          98  $      16,585
Real Estate - construction
 and land development                10,756                -              -         10,756
Real Estate - residential            23,520           25,023  $      65,086        113,629
Real Estate - commercial             14,649              324            162         15,135
Municipal                             1,916                -              -          1,916
Consumer                              3,028            4,399              -          7,427
                             --------------  ---------------  -------------  -------------
     Total loans             $       60,493  $        39,609  $      65,346  $     165,448
                             ==============  ===============  =============  =============

Loans with fixed interest
 rates                       $       12,114  $        33,169  $      51,338  $      96,621

Loans with variable interest
 rates                               48,379            6,439         14,009         68,827
                             --------------  ---------------  -------------  -------------
     Total loans             $       60,493  $        39,608  $      65,347  $     165,448
                             ==============  ===============  =============  =============
</TABLE>

     The  following  table sets forth at December  31,  2007,  2006 and 2005 the
Bank's loan  commitments,  standby letters of credit and unadvanced  portions of
loans.

                                       35
<PAGE>
                 LOAN COMMITMENTS AND STANDBY LETTERS OF CREDIT
                                 (In thousands)

                                         12/31/07       12/31/06       12/31/05
                                        ----------     ----------     ----------

Commitments to originate loans         $     2,222    $     3,521    $     1,545
Standby letters of credit                      557            428            358
Unadvanced portion of loans
   Construction                              8,480          6,698          5,270
   Commercial lines of credit                6,801          6,380          6,654
   Residential real estate                       -              -              -
   Consumer                                    730            780            877
   Home equity lines of credit              22,721         22,898         20,116
                                        ----------     ----------     ----------

      Total                            $    41,511    $    40,705    $    34,820
                                        ==========     ==========     ==========

     Non-Performing  Assets  Interest on  performing  loans is accrued and taken
into income daily. Loans over 90 days past due are deemed  "non-performing"  and
are placed on a nonaccrual status, unless the loan is well collateralized and in
the process of collection.  Interest received on nonaccrual loans is credited to
income  only  upon  receipt  and in  certain  circumstances  may be  applied  to
principal  until the loan has been  repaid in full,  at which time the  interest
received is credited to income.  The Bank had one nonaccrual loan with a balance
of  approximately  $5,328 as of December 31, 2007.  The Bank had one  nonaccrual
loan with a balance of  approximately  $78,000 as of December 31, 2006. The Bank
had one nonaccrual loan with a balance of  approximately  $32,500 as of December
31,  2005.  As of  December  31,  2007 the bank had one loan with a  balance  of
approximately  $973  that was more  than 90 days  past  due and  still  accruing
interest.  The Bank had no loans  more than 90 days past due and still  accruing
interest as of December 31, 2006 or 2005.

     When appropriate or necessary to protect the Bank's interests,  real estate
taken as collateral on a loan may be taken by the Bank through  foreclosure or a
deed in lieu of foreclosure.  Real property  acquired in this manner by the Bank
will be known as "other real estate owned" ("OREO"),  and will be carried on the
books of the Bank as an asset, at the lesser of the Bank's  recorded  investment
or the fair value less  estimated  costs to sell. As of December 31, 2007,  2006
and 2005, there was no OREO held by the Bank.

     The risk of  nonpayment  of loans is an  inherent  feature  of the  banking
business. That risk varies with the type and purpose of the loan, the collateral
which is utilized to secure payment,  and ultimately,  the credit  worthiness of
the borrower. In order to minimize this credit risk, the Bank requires that most
loans be approved  by at least two  officers,  one of whom must be an  executive
officer.  Commercial  loans  greater  than  $100,000  as well as other  loans in
certain  circumstances  must be approved by the Loan  Committee of the Company's
Board of Directors.

     The Bank also  maintains  a program  of annual  review of  certain  new and
renewed loans by an outside loan review consultant. Loans are graded from "pass"
to "loss",  depending on credit quality, with "pass" representing loans that are
fully  satisfactory as additions to the Bank's portfolio.  These are loans which
involve a degree of risk that is not unwarranted  given the favorable aspects of
the credit and which  exhibit both primary and  secondary  sources of repayment.
Classified  loans  identified  in the  review  process  are added to the  Bank's
Internal  Watchlist and an additional  allowance for loan losses is  established
for such loans if appropriate.  Additionally,  the Bank is examined regularly by
the  Federal  Deposit  Insurance   Corporation  and  the  State  of  Connecticut
Department  of Banking at which time a further  review of the loan  portfolio is
conducted.

     There were twenty four classified loans with a combined outstanding balance
of $ 4,157,400  as of December  31, 2007 and  eighteen  classified  loans with a
combined outstanding balance of $2,168,600 as of December 31, 2006.

Allowance for Loan Losses

     The Bank  maintains an allowance  for loan losses to provide for  potential
losses in the loan portfolio.  Additions to the allowance are made by charges to
operating  expenses in the form of a provision  for loan losses.  All loans that
are judged to be  uncollectible  are  charged  against the  allowance  while any
recoveries  are  credited  to the  allowance.  Management  conducts  a  critical
evaluation of the loan portfolio monthly. This evaluation includes an assessment
of the following  factors:  the results of the Bank's internal loan review,  any
external  loan  review,  any  regulatory  examination,   loan  loss  experience,
estimated  potential  loss  exposure on each credit,  concentrations  of credit,
value of collateral,  any known  impairment in the borrower's  ability to repay,
and present and prospective economic conditions.

                                       36
<PAGE>

     The  following   table   summarizes   the  Bank's  loan  loss   experience,
transactions in the allowance for loan losses and certain prominent ratios at or
for the years ended December 31, 2007, 2006 and 2005.
<TABLE>
<CAPTION>
<S>                                                        <C>            <C>            <C>
                                      ALLOWANCE FOR LOAN LOSSES
                                       (Dollars in thousands)

                                                            At or For      At or For      At or For
                                                             the Year       the Year       the Year
                                                              Ended          Ended          Ended
                                                             12/31/07       12/31/06       12/31/05
                                                           ------------   ------------   ------------

ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period                             $     1,698    $     1,720    $     1,702
                                                           ------------   ------------   ------------
Total charge-offs                                                  (24)           (22)           (12)
Total recoveries                                                     -              -              -
                                                           ------------   ------------   ------------
Net loans (charged-off) recovered                                  (24)           (22)           (12)
                                                           ------------   ------------   ------------
Provision for loan losses                                          250              -             30
                                                           ------------   ------------   ------------
Balance at end of period                                   $     1,924    $     1,698    $     1,720
                                                           ============   ============   ============

BALANCES
Average total loans                                        $   157,326    $   151,822    $   144,749
Total loans at end of period                                   165,448        156,978        147,351

RATIOS
Allowance for loan losses to average loans                        1.22%          1.12%          1.19%
Allowance for loan losses to loans at end of period               1.16           1.08           1.17


     The following  table  summarizes  the  allocation of the allowance for loan
losses by loan type and the percent of loans in each category  compared to total
loans at December 31, 2007, 2006 and 2005

                     ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
                             (Dollars in thousands)

                                                   December 31, 2007        December 31, 2006        December 31, 2005
                                                 ----------------------   ----------------------   ----------------------
                                                 Allocation % of Loans    Allocation    % of       Allocation    % of
                                                     of         by            of      Loans by         of      Loans by
                                                  Allowance   Category     Allowance  Category      Allowance  Category
                                                 ----------------------   ----------------------   ----------------------

Real estate - residential                        $       563      68.7%   $       464      67.7%   $       418     65.5%
Real estate - commercial                                 316       9.1            465      10.2            455     10.9
Real estate - construction and land
development                                              464       6.5            212       7.1            208      6.1
Commercial, financial and agricultural                   363      10.0            331       7.0            370      7.7
Municipal                                                 31       1.2              9       0.6              9      0.7
Consumer                                                 188       4.5            217       7.4            260      9.1
                                                 ----------------------   ----------------------   ----------------------

Total                                            $     1,925     100.0%   $     1,698     100.0%   $     1,720    100.0%
                                                 ======================   ======================   ======================
</TABLE>

Deposits

     Deposits are the Bank's primary source of funds.  At December 31, 2007, the
Bank had a deposit mix of 37% checking, 29% savings and 34% certificates. Twenty
two percent of the total deposits of $186.8 million were noninterest  bearing at
December  31,  2007.  At December  31,  2006,  the Bank had a deposit mix of 34%
checking, 28% savings and 38% certificates. Twenty percent of the total deposits
of $198.4 million were noninterest bearing at December 31, 2006. At December 31,
2007,  $7,499,000 of the Bank's deposits were from public  sources.  At December
31, 2006, $7,142,000 of the Bank's deposits were from public sources. The Bank's
net  interest  income is  enhanced  by its  percentage  of  noninterest  bearing
deposits.

                                       37
<PAGE>

     The Bank's deposits are obtained from a cross-section of the communities it
serves.  No material portion of the Bank's deposits has been obtained from or is
dependent upon any one person or industry.  The Bank's  business is not seasonal
in nature. The Bank accepts deposits in excess of $100,000 from customers. Those
deposits are priced to remain competitive. As of December 31, 2007 and 2006, the
Bank had no brokered funds on deposit.

     The Bank is not dependent upon funds from sources outside the United States
and has not made loans to any foreign entities.

     The following table summarizes the distribution of average deposits and the
average  annualized  rates paid for the years ended  December  31, 2007 2006 and
2005.
<TABLE>
<CAPTION>
<S>                          <C>              <C>     <C>              <C>     <C>              <C>
                                AVERAGE DEPOSITS
                             (Dollars in thousands)

                               For the Year Ended       For the Year Ended       For the Year Ended
                               December 31, 2007        December 31, 2006        December 31, 2005
                             ----------------------   ----------------------   ----------------------
                              Average    Average       Average    Average       Average     Average
                               Balance      Rate        Balance      Rate        Balance     Rate
                             ----------------------   ----------------------   ----------------------

Demand deposits              $    35,189      0.00%   $    32,031      0.00%   $    29,918      0.00%
NOW deposits                      27,764      0.18         25,951      0.10         26,721      0.10
Savings deposits                  57,754      0.94         61,444      0.91         73,994      0.81
Time deposits                     64,999      4.24         72,271      3.98         51,684      2.76
                             -----------              -----------              -----------

Total average deposits       $   185,706      1.81%   $   191,697      1.81%   $   182,317      1.12%
                             ===========              ===========              ===========

     The following  table  indicates  the maturity  schedule for the Bank's time
deposits of $100,000 or more as of December 31, 2007, 2006 and 2005.

             SCHEDULED MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
                             (Dollars in thousands)

                               December 31, 2007        December 31, 2006        December 31, 2005
                             ----------------------   ----------------------   ----------------------
                                           % of                     % of
                               Balance     Total        Balance     Total        Balance  % of Total
                             ----------------------   ----------------------   ----------------------

Three months or less         $     9,723      47.4%   $    15,322      60.5%   $     7,521      35.0%
Over three through six months      6,474      31.5          6,036      23.9          5,498      25.6
Over six through twelve
 months                            2,938      14.3          1,998       7.9          5,236      24.4
Over twelve months                 1,388       6.8          1,948       7.7          3,228      15.0
                             ----------------------   ----------------------   ----------------------

Total Time Deposits          $    20,523     100.0%   $    25,304     100.0%   $    21,483     100.0%
                             ======================   ======================   ======================
</TABLE>

Liquidity and Asset-Liability Management

     Liquidity  management  for banks requires that funds always be available to
pay anticipated deposit withdrawals and maturing financial  obligations promptly
and fully in accordance  with their terms.  The balance of the funds required is
generally  provided by payments on loans,  sale of loans,  liquidation of assets
and the acquisition of additional deposit liabilities.  One method banks utilize
for  acquiring  additional  liabilities  is through the  acceptance of "brokered
deposits"  (defined  to  include  not only  deposits  received  through  deposit
brokers,  but also deposits  bearing  interest in excess of 75 basis points over
market  rates),  typically  attracting  large  certificates  of  deposit at high
interest  rates.  The Bank,  however,  has not accepted and does not  anticipate
accepting "brokered deposits" in the future.

                                       38
<PAGE>

     To meet liquidity  needs, the Bank maintains a portion of its funds in cash
deposits in other banks, federal funds sold, and available-for-sale  securities.
As of December 31, 2007, the Bank's  liquidity ratio was 22%, defined as the sum
of $2.3  million in federal  funds  sold,  $24.9  million in  available-for-sale
securities  at fair  value,  and $13.4  million  in cash and due from  banks and
interest-bearing  deposits at the Federal  Home Loan Bank,  as a  percentage  of
deposits.  As of December 31, 2006, the Bank's  liquidity ratio was 27%, defined
as  the  sum  of  $4.9  million  in  federal   funds  sold,   $37.8  million  in
available-for-sale  securities at fair value,  and $10.9 million in cash and due
from banks and interest  bearing  deposits at the Federal  Home Loan Bank,  as a
percentage of deposits.

     The careful planning of asset and liability  maturities and the matching of
interest rates to correspond with this maturity  matching is an integral part of
the active management of an institution's net yield. To the extent maturities of
assets and liabilities do not match in a changing interest rate environment, net
yields may be  affected.  Even with  perfectly  matched  repricing of assets and
liabilities,  risks remain in the form of prepayment  of assets,  timing lags in
adjusting  certain assets and  liabilities  that have varying  sensitivities  to
market interest rates and basis risk. In its overall attempt to match assets and
liabilities, Management takes into account rates and maturities to be offered in
connection with its time deposits and by offering  variable rate loans. The Bank
has generally  been able to control its exposure to changing  interest  rates by
maintaining  shorter-term  investments and offering floating interest rate loans
and a majority of its time deposits at relatively short maturities.

     The table  below sets forth the  interest  rate  sensitivity  of the Bank's
interest-sensitive assets and interest-sensitive  liabilities as of December 31,
2007,  2006 and 2005,  using the interest rate  sensitivity  gap ratio.  For the
purposes  of  the  following   table,   an  asset  or  liability  is  considered
rate-sensitive  within a  specified  period  when it can be  repriced or matures
within its contractual terms.
<TABLE>
<CAPTION>
<S>                                              <C>                                                         <C>
                            INTEREST RATE SENSITIVITY
                             (Dollars in thousands)

                                                                            December 31, 2007
                                                 -----------------------------------------------------------------------
                                                   Due Within       Due in     Due After One
                                                      Three     Three to Twelve Year to Five  Due After Five
                                                     Months          Months         Years          Years        Total
                                                 -----------------------------------------------------------------------
Rate sensitive assets
   Federal funds sold and overnight
    deposits                                     $      5,300              -              -             -    $     5,300
   Available-for-sale securities                        3,728   $        524   $     15,995   $     4,624         24,871
   Total loans                                         56,231          4,263         39,608        65,346        165,448
                                                 ------------   ------------   ------------   -----------    -----------
      Total                                      $     65,259   $      4,787   $     55,603   $    69,970    $   195,619
                                                 ============   ============   ============   ===========    ===========

Rate sensitive liabilities
   NOW deposits                                  $      1,311              -              -   $    24,905    $    26,216
   Savings deposits                                    29,988              -              -        24,241         54,229
   Time deposits                                       25,118   $     32,840   $      5,201             7         63,166
   Securities sold under agreements to
    repurchase                                          2,000              -              -             -          2,000
                                                 ------------   ------------   ------------   -----------    -----------
      Total                                      $     58,417   $     32,840   $      5,201   $    49,153    $   145,611
                                                 ============   ============   ============   ===========    ===========

Interest rate sensitivity gap                    $      6,842   $    (28,053)  $     50,402   $    20,818    $    50,009
                                                 ============   ============   ============   ===========    ===========
Cumulative gap                                   $      6,842   $    (21,211)  $     29,191   $    50,009
                                                 ============   ============   ============   ===========

Cumulative gap ratio to total assets                        3%           (10)%           13%           23%
</TABLE>

                                       39
<PAGE>
<TABLE>
<CAPTION>
<S>                                              <C>                                                         <C>
                            INTEREST RATE SENSITIVITY
                             (Dollars in thousands)

                                                                            December 31, 2006
                                                 -----------------------------------------------------------------------
                                                                  Due in
                                                   Due Within    Three to   Due After One
                                                      Three        Twelve    Year to Five    Due After Five
                                                     Months        Months        Years           Years          Total
                                                 -----------------------------------------------------------------------
Rate sensitive assets
   Federal funds sold and overnight
    deposits                                     $      4,875            -               -               -   $     4,875
   Available-for-sale securities                        3,001   $   13,469     $    19,514    $      1,833        37,817
   Total loans                                         54,835        6,512          31,140          64,491       156,978
                                                 ------------   ----------      -----------    -----------    ----------
        Total                                    $     62,711   $   19,981     $    50,654    $     66,324   $   199,670
                                                 ============   ==========      ===========    ===========    ==========

Rate sensitive liabilities
   NOW deposits                                  $      1,458            -               -    $     27,701   $    29,159
   Savings deposits                                    32,641            -               -          23,235        55,876
   Time deposits                                       40,294   $   26,336     $     7,945               -        74,575
   Securities sold under agreements to
    repurchase                                          1,628            -               -               -         1,628
                                                 ------------   ----------      -----------    -----------   -----------
        Total                                    $     76,021   $   26,336     $     7,945    $     50,936   $   161,238
                                                 ============   ==========      ===========    ===========   ===========

Interest rate sensitivity gap                    $    (13,310)  $   (6,355)    $    42,709    $     15,388   $    38,432
                                                 ============   ==========      ===========    ===========   ===========
Cumulative gap                                   $    (13,310)  $  (19,665)    $    23,044    $     38,432
                                                 ============   ==========      ===========    ===========

Cumulative gap ratio to total assets                       (6)%         (9)%            11%             18%



                                                                            December 31, 2005
                                                 -----------------------------------------------------------------------
                                                                  Due in
                                                   Due Within    Three to   Due After One
                                                      Three        Twelve    Year to Five    Due After Five
                                                     Months        Months        Years           Years          Total
                                                 -----------------------------------------------------------------------

Rate sensitive assets
   Federal funds sold and overnight
    deposits                                     $      6,767            -               -               -   $     6,767
   Available-for-sale securities                        1,656   $    9,372     $    26,979    $      2,224        40,231
   Total Loans                                         52,274        6,208          30,367          58,502       147,351
                                                 ------------   ----------      -----------    -----------   -----------
        Total                                    $     60,697   $   15,580     $    57,346    $     60,726   $   194,349
                                                 ============   ==========      ===========    ===========   ===========

Rate sensitive liabilities
   NOW deposits                                  $      1,277            -               -    $     24,266   $    25,543
   Savings deposits                                    40,692            -               -          26,243        66,935
   Time deposits                                       15,539   $   31,803     $    15,221               -        62,563
   Securities sold under agreements to
    repurchase                                          2,313            -               -               -         2,313
                                                 ------------   ----------      -----------    -----------   -----------
        Total                                    $     59,821   $   31,803     $    15,221    $     50,509   $   157,354
                                                 ============   ==========      ===========    ===========   ===========

Interest rate sensitivity gap                    $        876   $  (16,223)    $    42,125    $     10,217   $    36,995
                                                 ============   ==========      ===========    ===========   ===========
Cumulative gap                                   $        876   $  (15,347)    $    26,778    $     36,995
                                                 ============   ==========      ===========    ===========

Cumulative gap ratio to total assets                        0%          (7)%            13%             18%
</TABLE>

     Since  interest  rate  changes do not affect all  categories  of assets and
liabilities equally or simultaneously, a cumulative gap analysis alone cannot be
used to evaluate the Bank's interest rate  sensitivity  position.  To supplement
traditional gap analysis,  the Bank performs simulation modeling to estimate the
potential  effects of changing  interest rates.  This process allows the Bank to
explore complex  relationships  among repricing assets and liabilities over time
in various interest rate environments.

     The Company's  Executive  Committee meets at least quarterly to monitor the
Bank's investments,  liquidity needs and oversee its asset-liability management.
Between  meetings of the  Executive  Committee,  Management  oversees the Bank's
liquidity.

                                       40
<PAGE>

Capital Reserve

     The  Federal  Deposit  Insurance   Corporation   Improvement  Act  of  1991
("FDICIA")  defines  specific  capital  categories  based upon an  institution's
capital  ratios.  The capital  categories,  in  declining  order,  are: (i) well
capitalized;   (ii)  adequately  capitalized;   (iii)   undercapitalized;   (iv)
significantly  undercapitalized;  and  (v)  critically  undercapitalized.  Under
FDICIA and the FDIC's prompt  corrective action rules, the FDIC may take any one
or more of the following  actions  against an  undercapitalized  bank:  restrict
dividends  and  management   fees,   restrict  asset  growth  and  prohibit  new
acquisitions, new branches or new lines of business without prior FDIC approval.
If a bank is significantly undercapitalized,  the FDIC may also require the bank
to raise capital, restrict interest rates a bank may pay on deposits,  require a
reduction in assets,  restrict any activities that might cause risk to the bank,
require   improved   management,   prohibit  the  acceptance  of  deposits  from
correspondent  banks and restrict  compensation to any senior executive officer.
When a bank becomes  critically  undercapitalized,  (i.e., the ratio of tangible
equity to total  assets is equal to or less than 2%),  the FDIC must,  within 90
days thereafter, appoint a receiver for the bank or take such action as the FDIC
determines  would better  achieve the purposes of the law. Even where such other
action is taken,  the FDIC  generally  must appoint a receiver for a bank if the
bank remains critically  undercapitalized  during the calendar quarter beginning
270 days after the date on which the bank became critically undercapitalized.

     To be considered  "adequately  capitalized,"  an institution must generally
have a leverage ratio of at least 4%, a Tier 1 capital to  risk-weighted  assets
ratio of at least 4% and total Tier 1 and Tier 2 capital to risk-weighted assets
ratio of at least 8%. As of December 31, 2007, the most recent notification from
the  Federal  Deposit  Insurance  Corporation   categorized  the  Bank  as  well
capitalized under the regulatory  framework for prompt corrective  action. To be
categorized  as  well   capitalized,   the  Bank  must  maintain  minimum  total
risk-based,  Tier 1  risk-based  and Tier 1 leverage  ratios as set forth in the
table below.  There are no conditions that Management  believes have changed the
Bank's category.

     At December  31,  2007,  2006 and 2005,  the Bank's  capital  exceeded  all
minimum  regulatory  requirements  and  the  Bank  was  considered  to be  "well
capitalized" as defined in the regulations issued by the FDIC.
<TABLE>
<CAPTION>
<S>                                              <C>         <C>        <C>           <C>           <C>
                                 CAPITAL RATIOS

                                                                                      Minimum
                                               Actual       Actual     Actual       Regulatory       Well-
                                               12/31/07    12/31/06    12/31/05   Requirements   Capitalized
                                               --------    --------    --------   ------------   -----------
Bank:
Total capital (to risk weighted assets)          13.48%      12.75%     13.66%        8.00%         10.00%
Tier 1 capital (to risk weighted assets)         12.23%      11.50%     12.41%        4.00%          6.00%
Tier 1 capital (to average assets)                8.21%       7.31%      7.61%        4.00%          5.00%
</TABLE>

Inflation

     The impact of inflation on a financial institution can differ significantly
from that exerted on other companies.  Banks, as financial intermediaries,  have
many assets and  liabilities  that may move in concert with inflation both as to
interest rates and value.  This is especially  true for  companies,  such as the
Bank, with a high percentage of interest rate sensitive  assets and liabilities.
A bank can reduce the impact of  inflation  if it can manage its  interest  rate
sensitivity  position.  The Bank  attempts  to  structure  its mix of  financial
instruments  and manage  its  interest  rate  sensitivity  position  in order to
minimize the  potential  adverse  effects of inflation or other market forces on
its net interest income and therefore its earnings and capital.

     Financial   institutions  are  also  affected  by  inflation's   impact  on
non-interest  expenses,  such as salaries  and  occupancy  expenses.  During the
period 1992 through 2007 inflation has remained relatively stable, due primarily
to continuous management of the money supplied by the Federal Reserve.  Based on
the Bank's  interest  rate  sensitivity  position  at  year-end  2007,  the Bank
benefits in the short term from rising interest rates and is adversely  impacted
by falling  interest  rates.  As such,  indirectly,  the management of the money
supply by the  Federal  Reserve to  control  the rate of  inflation  may have an
impact on the earnings of the Bank. Also, the changes in interest rates may have
a corresponding impact on the ability of borrowers to repay loans with the Bank.

                                       41
<PAGE>

Sarbanes-Oxley Act of 2002

     The  Company  has  initiatives  in  place  to  ensure  compliance  with the
Sarbanes-Oxley  act of 2002.  The Company has an Internal  Compliance  Committee
that is  responsible  for the  monitoring  of and  compliance  with all  federal
regulations. This committee reports to the Audit and Compliance Committee of the
Board of Directors.

Evaluation of Disclosure Control Procedures

     The Company's  Chief  Executive  Officer and Chief  Financial  Officer have
evaluated the effectiveness of the Company's  disclosure controls and procedures
as of December 31, 2007 and have concluded  that, as of that date, the Company's
disclosure  controls and  procedures  were  effective at ensuring  that required
information will be disclosed on a timely basis. This conclusion is based on the
above-referenced  officers' evaluation of such controls and procedures within 90
days of the date of this Form 10-KSB.

Changes in Internal Controls

     There were no significant  changes in the Company's  internal controls over
financial  reporting  or in other  factors that could  significantly  affect the
Company's internal controls during the fiscal year ended December 31, 2007.

Options Outstanding

     The following table sets forth the securities authorized for issuance under
equity compensation plans.
<TABLE>
<CAPTION>
<S>                                                        <C>                      <C>                       <C>
                                                                                            Number of securities
                                                                                           remaining available for
                                                                                            future issuance under
                                        Number of securities to                              equity compensation
                                         be issued upon exercise Weighted-average exercise    plans (excluding
                                         of outstanding options    price of outstanding      securities reflected
                                                   (a)                  options (b)           in column (a)(c)
                                        ---------------------------------------------------------------------------
Equity compensation plans approved by
 security holders                                          69,208                   $27.21                    6,931

Equity compensation plans not approved
 by security holders                                            0                        0                        0
                                        ---------------------------------------------------------------------------
                 Total                                     69,208                   $27.21                    6,931
                                        ===========================================================================
</TABLE>

                                       42
<PAGE>
                       SHATSWELL, MacLEOD & COMPANY, P.C.
                       ----------------------------------
                          CERTIFIED PUBLIC ACCOUNTANTS



The Board of Directors and Stockholders
SBT Bancorp, Inc.
Simsbury, Connecticut

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------

We have audited the accompanying consolidated balance sheets of SBT Bancorp,
Inc. and Subsidiary as of December 31, 2007 and 2006 and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated 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 consolidated financial position of SBT
Bancorp, Inc. and Subsidiary as of December 31, 2007 and 2006 and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.

                                          /s/ Shatswell, MacLeod & Company, P.C.
                                              SHATSWELL, MacLEOD & COMPANY, P.C.

West Peabody, Massachusetts
March 27, 2008

                                       43
<PAGE>

<TABLE>
<S>                                                                                 <C>               <C>
                                     SBT BANCORP, INC. AND SUBSIDIARY
                                     --------------------------------

                                       CONSOLIDATED BALANCE SHEETS
                                       ---------------------------

                                        December 31, 2007 and 2006
                                        --------------------------

ASSETS                                                                                2007              2006
------                                                                            ---------------   ---------------
Cash and due from banks                                                             $  13,423,626     $  10,861,262
Interest-bearing deposits with the Federal Home Loan Bank                                  25,982            17,807
Money market mutual funds                                                                   4,205            51,717
Federal funds sold                                                                      2,300,000         4,875,000
                                                                                  ---------------   ---------------
           Cash and cash equivalents                                                   15,753,813        15,805,786
Investments in available-for-sale securities (at fair value)                           24,870,548        37,817,246
Federal Home Loan Bank stock, at cost                                                     630,700           667,800
Loans held-for-sale                                                                                         268,000

Loans                                                                                 165,689,992       157,211,164
   Less allowance for loan losses                                                       1,924,552         1,698,329
                                                                                  ---------------   ---------------
           Loans, net                                                                 163,765,440       155,512,835

Premises and equipment                                                                  1,222,955         1,551,960
Accrued interest receivable                                                               808,430           894,999
Bank owned life insurance                                                               1,818,081         2,827,460
Other assets                                                                            1,520,315         1,700,464
                                                                                  ---------------   ---------------
           Total assets                                                              $210,390,282      $217,046,550
                                                                                  ===============   ===============


LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits:
   Demand deposits                                                                  $  40,195,563     $  38,791,256
   Savings and NOW deposits                                                            83,444,482        85,035,535
   Time deposits                                                                       63,165,821        74,575,367
                                                                                  ---------------   ---------------
           Total deposits                                                             186,805,866       198,402,158
Federal Home Loan Bank advances                                                         2,000,000
Securities sold under agreements to repurchase                                          1,363,033         1,627,896
Due to broker                                                                           1,433,223
Other liabilities                                                                       1,470,101           897,432
                                                                                  ---------------   ---------------
           Total liabilities                                                          193,072,223       200,927,486
                                                                                  ---------------   ---------------
Stockholders' equity:
   Common stock, no par value; authorized 2,000,000 shares; issued and
     outstanding 850,896 shares in 2007 and 841,991 shares in 2006                      8,975,051         8,636,380
   Retained earnings                                                                    8,602,875         7,837,022
   Accumulated other comprehensive loss                                                  (259,867)         (354,338)
                                                                                  ---------------   ---------------
           Total stockholders' equity                                                  17,318,059        16,119,064
                                                                                  ---------------   ---------------
           Total liabilities and stockholders' equity                                $210,390,282      $217,046,550
                                                                                  ===============   ===============

              The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                       44
<PAGE>

<TABLE>
<S>                                                                                  <C>               <C>

                                     SBT BANCORP, INC. AND SUBSIDIARY
                                     --------------------------------

                                    CONSOLIDATED STATEMENTS OF INCOME
                                    ---------------------------------

                                  Years Ended December 31, 2007 and 2006
                                  --------------------------------------

                                                                                       2007              2006
                                                                                   --------------   ---------------
Interest and dividend income:
   Interest and fees on loans                                                        $  9,656,912      $  9,068,964
   Interest on debt securities:
     Taxable                                                                            1,191,681         1,558,164
     Tax-exempt                                                                           205,940           208,591
   Dividends                                                                               94,034            83,544
   Other interest                                                                         200,547           216,357
                                                                                   --------------   ---------------
           Total interest and dividend income                                          11,349,114        11,135,620
                                                                                   --------------   ---------------
Interest expense:
   Interest on deposits                                                                 3,355,094         3,462,049
   Interest on Federal Home Loan Bank advances                                             85,312            93,619
   Interest on securities sold under agreements to repurchase                              36,927            41,219
                                                                                   --------------   ---------------
           Total interest expense                                                       3,477,333         3,596,887
                                                                                   --------------   ---------------
           Net interest and dividend income                                             7,871,781         7,538,733
   Provision for loan losses                                                              250,000
                                                                                   --------------   ---------------
           Net interest and dividend income after provision for loan losses             7,621,781         7,538,733
                                                                                   --------------   ---------------
Noninterest income:
   Service charges on deposit accounts                                                    413,758           336,664
   Losses on sales and write-down of available-for-sale securities                       (313,569)
   Investment services fees and commissions                                               210,631           165,496
   Other service charges and fees                                                         525,625           486,458
   Increase in cash surrender value of life insurance policies                            114,772           130,656
   BOLI death benefit income                                                              613,349
   (Loss) gain on loans sold, net                                                            (414)            3,977
   Other income                                                                            29,327            32,988
                                                                                   --------------   ---------------
           Total noninterest income                                                     1,593,479         1,156,239
                                                                                   --------------   ---------------
Noninterest expense:
   Salaries and employee benefits                                                       4,166,414         4,036,284
   Occupancy expense                                                                    1,115,588         1,028,280
   Equipment expense                                                                      391,122           324,683
   Professional fees                                                                      417,476           364,181
   Advertising and promotions                                                             335,999           346,677
   Forms and supplies                                                                     126,826           209,355
   Correspondent charges                                                                  187,484           196,001
   Postage                                                                                 92,744           102,850
   Directors' fees                                                                        140,500           129,335
   Other expense                                                                          926,938           942,306
                                                                                   --------------   ---------------
           Total noninterest expense                                                    7,901,091         7,679,952
                                                                                    -------------   ---------------
           Income before income tax expense                                             1,314,169         1,015,020
Income tax expense                                                                        174,458           298,087
                                                                                   --------------   ---------------
           Net income                                                                $  1,139,711      $    716,933
                                                                                   ==============   ===============

Earnings per common share                                                            $       1.34      $        .85
                                                                                   ==============   ===============

Earnings per common share, assuming dilution                                         $       1.33      $        .84
                                                                                  ===============   ===============

                The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                       45
<PAGE>
<TABLE>
<S>               <C> <C>                             <C>             <C>              <C>             <C>
                                     SBT BANCORP, INC. AND SUBSIDIARY
                                     --------------------------------

                        CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                        ----------------------------------------------------------

                                  Years Ended December 31, 2007 and 2006
                                  --------------------------------------
                                                                                     Accumulated
                                                                                       Other
                                                        Common         Retained    Comprehensive
                                                         Stock         Earnings         Loss             Total
                                                     -----------     -----------   ---------------  --------------
Balance, December 31, 2005                            $8,456,690      $7,473,542       $(554,634)      $15,375,598
Comprehensive income:
   Net income                                                            716,933
   Net change in unrealized holding loss on
     available-for-sale securities, net of tax
     effect                                                                              200,296
       Comprehensive income                                                                                917,229
3,463 shares issued on stock options exercised            55,880                                            55,880
Stock based compensation                                 123,810                                           123,810
Dividends declared ($.42 per share)                                     (353,453)                         (353,453)
                                                     -----------     -----------   ---------------  --------------
Balance, December 31, 2006                             8,636,380       7,837,022        (354,338)       16,119,064
Comprehensive income:
   Net income                                                          1,139,711
   Net change in unrealized holding loss on
     available-for-sale securities, net of tax
     effect                                                                               94,471
       Comprehensive income                                                                              1,234,182
8,905 shares issued on stock options exercised           122,657                                           122,657
Tax benefit on stock options exercised                    82,847                                            82,847
Stock based compensation                                 133,167                                           133,167
Dividends declared ($.44 per share)                                     (373,858)                         (373,858)
                                                     -----------     -----------   ---------------  --------------
Balance, December 31, 2007                            $8,975,051      $8,602,875       $(259,867)      $17,318,059
                                                     ===========     ===========   ===============  ==============


Reclassification disclosure for the years ended December 31:

                                                                                        2007              2006
                                                                                   ---------------  --------------
Net unrealized holding (losses) gains on available-for-sale securities                 $(158,826)      $   328,087
Reclassification adjustment for realized losses in net income                            313,569
                                                                                   ---------------  --------------
   Other comprehensive income before income tax effect                                   154,743           328,087
Income tax expense                                                                       (60,272)         (127,791)
                                                                                   ---------------  --------------
     Other comprehensive income, net of tax                                            $  94,471       $   200,296
                                                                                   ===============  ==============

Accumulated other comprehensive loss as of December 31, 2007 and 2006 consists
of net unrealized holding losses on available-for-sale securities, net of taxes.

         The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                       46
<PAGE>

<TABLE>
<S>                                                                                  <C>              <C>
                                     SBT BANCORP, INC. AND SUBSIDIARY
                                     --------------------------------

                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  -------------------------------------

                                  Years Ended December 31, 2007 and 2006
                                  --------------------------------------
                                                                                        2007              2006
                                                                                   --------------  ----------------
Cash flows from operating activities:
   Net income                                                                        $  1,139,711     $     716,933
   Adjustments to reconcile net income to net cash provided by operating activities:
     Amortization of securities, net                                                        5,607            21,059
     Loss on sales and write-down of available for sale securities                        313,569
     Change in deferred loan costs, net                                                    (8,919)          (58,262)
     Provision for loan loss                                                              250,000
     Decrease (increase) in loans held-for-sale                                           268,000          (268,000)
     Depreciation and amortization                                                        356,731           314,817
     Decrease in other assets                                                             261,809           117,937
     Decrease (increase) in interest receivable                                            86,569          (101,511)
     Decrease (increase) in taxes receivable                                              187,616           (70,880)
     Increase in cash surrender value of bank owned life insurance                       (114,772)         (130,656)
     BOLI death benefit income                                                           (613,349)
     Stock based compensation                                                             133,167           123,810
     Increase in other liabilities                                                        357,223           144,587
     Increase in interest payable                                                         215,446            12,301
     Deferred tax (benefit) expense                                                      (252,771)           12,966
                                                                                   --------------   ---------------

   Net cash provided by operating activities                                            2,585,637           835,101
                                                                                   --------------   ---------------

Cash flows from investing activities:
   Purchases of available-for-sale securities                                          (5,576,817)       (6,915,828)
   Proceeds from maturities of available-for-sale securities                           11,555,855         9,636,750
   Proceeds from sales of securities                                                    8,236,450
   Redemption of Federal Home Loan Bank stock                                              69,000           297,800
   Purchase of Federal Home Loan Bank stock                                               (31,900)
   Loan originations and principal collections, net                                    (6,243,686)       (5,085,846)
   Loan purchases                                                                      (2,250,000)       (4,563,093)
   Recoveries of previously charged off loans                                                                   104
   Capital expenditures                                                                   (21,656)         (870,749)
   Redemption of life insurance policies                                                1,752,937
   Premiums paid on life insurance policy                                                 (15,437)          (15,437)
                                                                                   --------------   ---------------

   Net cash provided by (used in) investing activities                                  7,474,746        (7,516,299)
                                                                                   --------------   ---------------

Cash flows from financing activities:
   Net decrease in demand deposits, NOW and savings accounts                             (186,746)       (4,725,761)
   Net (decrease) increase in time deposits                                           (11,409,546)       12,012,239
   Net change in short term advances from the Federal Home Loan Bank                    2,000,000
   Net decrease in securities sold under agreements to repurchase                        (264,863)         (684,936)
   Proceeds from exercise of stock options                                                122,657            55,880
   Dividends paid                                                                        (373,858)         (353,453)
                                                                                   --------------   ---------------

   Net cash (used in) provided by financing activities                                (10,112,356)        6,303,969
                                                                                   --------------   ---------------

Net decrease in cash and cash equivalents                                                 (51,973)         (377,229)
Cash and cash equivalents at beginning of year                                         15,805,786        16,183,015
                                                                                   --------------   ---------------
Cash and cash equivalents at end of year                                              $15,753,813       $15,805,786
                                                                                   ==============   ===============

Supplemental disclosures:
   Interest paid                                                                       $3,261,887        $3,584,586
   Income taxes paid                                                                      239,613           356,001

                  The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                       47
<PAGE>
                        SBT BANCORP, INC. AND SUBSIDIARY
                        --------------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

                     Years Ended December 31, 2007 and 2006
                     --------------------------------------

NOTE 1 - NATURE OF OPERATIONS
-----------------------------

On March 2, 2006, The Simsbury Bank & Trust Company, Inc. (the "Bank")
reorganized into a holding company structure. As a result, the Bank became a
wholly-owned subsidiary of SBT Bancorp, Inc. (the "Company") and each
outstanding share of common stock of the Bank was converted into the right to
receive one share of the common stock, no par value, of the Company. The Company
files reports with the Securities and Exchange Commission and is supervised by
the Board of Governors of the Federal Reserve System.

The Bank is a state chartered bank which was incorporated on April 28, 1992 and
is headquartered in Simsbury, Connecticut. The Bank commenced operations on
March 31, 1995 engaging principally in the business of attracting deposits from
the general public and investing those deposits in securities, residential and
commercial real estate, consumer and small business loans.

NOTE 2 - ACCOUNTING POLICIES
----------------------------

The accounting and reporting policies of the Company and its subsidiary conform
to accounting principles generally accepted in the United States of America and
predominant practices within the banking industry. The consolidated financial
statements of the Company were prepared using the accrual basis of accounting.
The significant accounting policies of the Company are summarized below to
assist the reader in better understanding the consolidated financial statements
and other data contained herein.

         USE OF ESTIMATES:

         The preparation of consolidated financial statements in conformity with
         accounting principles generally accepted in the United States of
         America requires management to make estimates and assumptions that
         affect the reported amounts of assets and liabilities and disclosure of
         contingent assets and liabilities at the date of the consolidated
         financial statements and the reported amounts of revenues and expenses
         during the reporting period. Actual results could differ from those
         estimates.

         BASIS OF PRESENTATION:

         The consolidated financial statements include the accounts of the
         Company and its wholly-owned subsidiary the Bank and the Bank's
         wholly-owned subsidiary, SBT Investment Services, Inc. SBT Investment
         Services, Inc. was established solely for the purpose of providing
         investment products, financial advice and services to its clients and
         the community. All significant intercompany accounts and transactions
         have been eliminated in the consolidation.

         CASH AND CASH EQUIVALENTS:

         For purposes of reporting cash flows, cash and cash equivalents include
         cash on hand, cash items, due from banks, Federal Home Loan Bank
         interest-bearing demand and overnight deposits, money market mutual
         funds and federal funds sold.

         Cash and due from banks as of December 31, 2007 and 2006 includes
         2,676,000 and $2,446,000, respectively, which is subject to withdrawals
         and usage restrictions to satisfy the reserve requirements of the
         Federal Reserve Bank.

                                       48

<PAGE>

         SECURITIES:

         Investments in debt securities are adjusted for amortization of
         premiums and accretion of discounts computed so as to approximate the
         interest method. Gains or losses on sales of investment securities are
         computed on a specific identification basis.

         The Company classifies debt and equity securities into one of three
         categories: held-to-maturity, available-for-sale, or trading. These
         security classifications may be modified after acquisition only under
         certain specified conditions. In general, securities may be classified
         as held-to-maturity only if the Company has the positive intent and
         ability to hold them to maturity. Trading securities are defined as
         those bought and held principally for the purpose of selling them in
         the near term. All other securities must be classified as
         available-for-sale.

               --   Held-to-maturity securities are measured at amortized cost
                    in the consolidated balance sheets. Unrealized holding gains
                    and losses are not included in earnings, or in a separate
                    component of capital. They are merely disclosed in the notes
                    to the consolidated financial statements.

               --   Available-for-sale securities are carried at fair value on
                    the consolidated balance sheets. Unrealized holding gains
                    and losses are not included in earnings but are reported as
                    a net amount (less expected tax) in a separate component of
                    capital until realized.

               --   Trading securities are carried at fair value on the
                    consolidated balance sheets. Unrealized holding gains and
                    losses for trading securities are included in earnings.

         Declines in the fair value of held-to-maturity and available-for-sale
         securities below their cost that are deemed to be other than temporary
         are reflected in earnings as realized losses.

         LOANS HELD-FOR-SALE:

         Loans held-for-sale in the secondary market are carried at the lower of
         cost or estimated fair value in the aggregate. Net unrealized losses
         are provided for in a valuation allowance by charges to operations.
         Interest income on mortgages held-for-sale is accrued currently and
         classified as interest on loans.

         LOANS:

         Loans receivable that management has the intent and ability to hold
         until maturity or payoff, are reported at their outstanding principal
         balances adjusted for amounts due to borrowers on unadvanced loans, any
         charge-offs, the allowance for loan losses and any deferred fees or
         costs on originated loans, or unamortized premiums or discounts on
         purchased loans.

         Interest on loans is recognized on a simple interest basis.

         Loan origination and commitment fees and certain direct origination
         costs are 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.

         Residential real estate loans are generally placed on nonaccrual when
         reaching 90 days past due or in process of foreclosure. All closed-end
         consumer loans 90 days or more past due and any equity line in the
         process of foreclosure are placed on nonaccrual status. Secured
         consumer loans are written down to realizable value and unsecured
         consumer loans are charged-off upon reaching 120 or 180 days past due
         depending on the type of loan. Commercial real estate loans and
         commercial business loans and leases which are 90 days or more past due
         are generally placed on nonaccrual status, unless secured by sufficient
         cash or other assets immediately convertible to cash. When a loan has
         been placed on nonaccrual status, previously accrued and uncollected
         interest is reversed against interest on loans. A loan can be returned
         to accrual status when collectibility of principal is reasonably
         assured and the loan has performed for a period of time, generally six
         months.

                                       49
<PAGE>

         Cash receipts of interest income on impaired loans are credited to
         principal to the extent necessary to eliminate doubt as to the
         collectibility of the net carrying amount of the loan. Some or all of
         the cash receipts of interest income on impaired loans is recognized as
         interest income if the remaining net carrying amount of the loan is
         deemed to be fully collectible. When recognition of interest income on
         an impaired loan on a cash basis is appropriate, the amount of income
         that is recognized is limited to that which would have been accrued on
         the net carrying amount of the loan at the contractual interest rate.
         Any cash interest payments received in excess of the limit and not
         applied to reduce the net carrying amount of the loan are recorded as
         recoveries of charge-offs until the charge-offs are fully recovered.

         ALLOWANCE FOR LOAN LOSSES:

         The allowance for loan losses is established as losses are estimated to
         have occurred through a provision for loan losses charged to earnings.
         Loan losses are charged against the allowance when management believes
         the uncollectibility of a loan balance is confirmed. Subsequent
         recoveries, if any, are credited to the allowance.

         The allowance for loan losses is evaluated on a regular basis by
         management and is based upon management's periodic review of the
         collectibility of the loans in light of historical experience, the
         nature and volume of the loan portfolio, adverse situations that may
         affect the borrower's ability to repay, estimated value of any
         underlying collateral and prevailing economic conditions. This
         evaluation is inherently subjective as it requires estimates that are
         susceptible to significant revision as more information becomes
         available.

         A loan is considered impaired when, based on current information and
         events, it is probable that the Company will be unable to collect the
         scheduled payments of principal or interest when due according to the
         contractual terms of the loan agreement. Factors considered by
         management in determining impairment include payment status, collateral
         value, and the probability of collecting scheduled principal and
         interest payments when due. Loans that experience insignificant payment
         delays and payment shortfalls generally are not classified as impaired.
         Management determines the significance of payment delays and payment
         shortfalls on a case-by-case basis, taking into consideration all of
         the circumstances surrounding the loan and the borrower, including the
         length of the delay, the reasons for the delay, the borrower's prior
         payment record, and the amount of the shortfall in relation to the
         principal and interest owed. Impairment is measured on a loan by loan
         basis for commercial and construction loans by either the present value
         of expected future cash flows discounted at the loan's effective
         interest rate, the loan's obtainable market price, or the fair value of
         the collateral if the loan is collateral dependent.

         Large groups of smaller balance homogeneous loans are collectively
         evaluated for impairment. Accordingly, the Company does not separately
         identify individual consumer and residential loans for impairment
         disclosures.

         PREMISES AND EQUIPMENT:

         Premises and equipment are stated at cost, less accumulated
         depreciation and amortization. Cost and related allowances for
         depreciation and amortization of premises and equipment retired or
         otherwise disposed of are removed from the respective accounts with any
         gain or loss included in income or expense. Depreciation and
         amortization are calculated principally on the straight-line method
         over the estimated useful lives of the assets. Estimated lives are 3 to
         20 years for furniture and equipment. Leasehold improvements are
         amortized over the lesser of the life of the lease or the estimated
         life of the improvements.

         FAIR VALUES OF FINANCIAL INSTRUMENTS:

         Statement of Financial Accounting Standards (SFAS) No. 107,
         "Disclosures about Fair Value of Financial Instruments," requires that
         the Company disclose estimated fair values for its financial
         instruments. Fair value methods and assumptions used by the Company in
         estimating its fair value disclosures are as follows:

                                       50
<PAGE>

         Cash and cash equivalents: The carrying amounts reported in the balance
         sheets for cash and cash equivalents approximate those assets' fair
         values.

         Securities: Fair values for securities are based on quoted market
         prices, where available. If quoted market prices are not available,
         fair values are based on quoted market prices of comparable
         instruments.

         Loans held-for-sale: Fair values for loans held-for-sale are estimated
         based on outstanding investor commitments, or in the absence of such
         commitments, are based on current investor yield requirements.

         Loans receivable: For variable-rate loans that reprice frequently and
         with no significant change in credit risk, fair values are based on
         carrying values. The fair values for other loans are estimated by
         discounting the future cash flows, using interest rates currently being
         offered for loans with similar terms to borrowers of similar credit
         quality.

         Accrued interest receivable: The carrying amount of accrued interest
         receivable approximates its fair value.

         Deposit liabilities: The fair values disclosed for demand deposits,
         regular savings, NOW accounts, and money market accounts are equal to
         the amount payable on demand at the reporting date (i.e., their
         carrying amounts). Fair values for certificates of deposit are
         estimated using a discounted cash flow calculation that applies
         interest rates currently being offered on certificates to a schedule of
         aggregated expected monthly maturities on time deposits.

         Federal Home Loan Bank advances: Fair values of Federal Home Loan Bank
         advances are estimated using discounted cash flow analyses based on the
         Company's current incremental borrowing rates for similar types of
         borrowing arrangements.

         Securities sold under agreements to repurchase: The carrying amounts of
         securities sold under agreements to repurchase approximate their fair
         values.

         Due to broker: The carrying amount of due to broker approximates its
         fair value.

         Off-balance sheet instruments: The fair value of commitments to
         originate loans is estimated using the fees currently charged to enter
         similar agreements, taking into account the remaining terms of the
         agreements and the present creditworthiness of the counterparties. For
         fixed-rate loan commitments and the unadvanced portion of loans, fair
         value also considers the difference between current levels of interest
         rates and the committed rates. The fair value of letters of credit is
         based on fees currently charged for similar agreements or on the
         estimated cost to terminate them or otherwise settle the obligation
         with the counterparties at the reporting date.

         ADVERTISING:

         The Company directly expenses costs associated with advertising as they
         are incurred.

         INCOME TAXES:

         The Company recognizes income taxes under the asset and liability
         method. Under this method, deferred tax assets and liabilities are
         established for the temporary differences between the accounting basis
         and the tax basis of the Company's assets and liabilities at enacted
         tax rates expected to be in effect when the amounts related to such
         temporary differences are realized or settled.

         STOCK BASED COMPENSATION:

         At December 31, 2007, the Company has a stock-based employee
         compensation plan which is described more fully in Note 16. The Company
         accounts for the plan under SFAS No. 123(R) "Share-Based Payment".
         During the years ended December 31, 2007 and 2006, $133,167 and
         $123,810, respectively, in stock-based employee compensation was
         recognized.

                                       51
<PAGE>

         EARNINGS PER SHARE:

         Basic earnings per share (EPS) excludes dilution and is computed by
         dividing income available to common stockholders by the
         weighted-average number of common shares outstanding for the period.
         Diluted EPS reflects the potential dilution that could occur if
         securities or other contracts to issue common stock were exercised or
         converted into common stock or resulted in the issuance of common stock
         that then shared in the earnings of the entity.

         RECENT ACCOUNTING PRONOUNCEMENTS:

         In February 2006, the Financial Accounting Standards Board (FASB)
         issued SFAS No. 155, "Accounting for Certain Hybrid Instruments" (SFAS
         155), which permits, but does not require, fair value accounting for
         any hybrid financial instrument that contains an embedded derivative
         that would otherwise require bifurcation in accordance with SFAS 133.
         The statement also subjects beneficial interests issued by
         securitization vehicles to the requirements of SFAS No. 133. The
         statement is effective as of January 1, 2007. The adoption of SFAS 155
         did not have a material impact on the Company's financial condition and
         results of operations.

         In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing
         of Financial Assets- an amendment of FASB Statement No. 140" (SFAS
         156). SFAS 156 requires an entity to recognize a servicing asset or
         servicing liability each time it undertakes an obligation to service a
         financial asset by entering into a servicing contract in specific
         situations. Additionally, the servicing asset or servicing liability
         shall be initially measured at fair value; however, an entity may elect
         the "amortization method" or "fair value method" for subsequent balance
         sheet reporting periods. SFAS 156 is effective as of an entity's first
         fiscal year beginning after September 15, 2006. Early adoption is
         permitted as of the beginning of an entity's fiscal year, provided the
         entity has not yet issued financial statements, including interim
         financial statements, for any period of that fiscal year. The adoption
         of this statement did not have a material impact on the Company's
         financial condition, results of operations or cash flows.

         In June 2006 the FASB issued Interpretation No. 48, "Accounting for
         Uncertainty in Income Taxes - an interpretation of FASB Statement 109"
         (FIN 48). FIN 48 prescribes a recognition threshold and measurement
         attribute for the financial statement recognition and measurement of a
         tax position taken, or expected to be taken, in a tax return and
         provides guidance on derecognition, classification, interest and
         penalties, accounting in interim periods, disclosure and transition.
         FIN 48 is effective for fiscal years beginning after December 15, 2006.
         The adoption of FIN 48 did not have a material impact on the Company's
         financial statements.

         In September 2006, the FASB issued SFAS No. 157, "Fair Value
         Measurements" (SFAS 157). SFAS 157 defines fair value, establishes a
         framework for measuring fair value under generally accepted accounting
         principles (GAAP) and enhances disclosures about fair value
         measurements. SFAS 157 retains the exchange price notion and clarifies
         that the exchange price is the price that would be received for an
         asset or paid to transfer a liability (an exit price) in an orderly
         transaction between market participants on the measurement date. SFAS
         157 is effective for the Company's consolidated financial statements
         for the year beginning on January 1, 2008, with earlier adoption
         permitted. The Company does not expect the adoption of this statement
         to have a material impact on its financial condition and results of
         operations.

         In September 2006, the FASB ratified the consensus reached by the
         Emerging Issues Task Force ("EITF") on Issue No. 06-4 "Accounting for
         Deferred Compensation and Postretirement Benefit Aspects of Endorsement
         Split-Dollar Life Insurance Arrangements," (EITF 06-4). EITF 06-4
         requires companies with an endorsement split-dollar life insurance
         arrangement to recognize a liability for future postretirement
         benefits. The effective date is for fiscal years beginning after
         December 15, 2007, with earlier application permitted. Companies should
         recognize the effects of applying this issue through either (a) a
         change in accounting principle through a cumulative effect adjustment
         to retained earnings or (b) a change in accounting principle through
         retrospective application to all periods. The Company does not expect
         the adoption of the issue to have a material impact on its financial
         condition and results of operations.

                                       52
<PAGE>

         In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
         for Financial Assets and Financial Liabilities including an amendment
         of FASB Statement No. 115" (SFAS 159). SFAS 159 permits entities to
         choose to measure many financial instruments and certain other items at
         fair value that are not currently required to be measured at fair
         value. The objective is to improve financial reporting by providing
         entities with the opportunity to mitigate volatility in reported
         earnings caused by measuring related assets and liabilities differently
         without having to apply complex hedge accounting provisions. This
         Statement also establishes presentation and disclosure requirements
         designed to facilitate comparisons between entities that choose
         different measurement attributes for similar types of assets and
         liabilities. The new standard is effective at the beginning of the
         Company's fiscal year beginning January 1, 2008, and early application
         may be elected in certain circumstances. The Company does not expect
         the adoption of this statement to have a material impact on its
         financial condition and results of operation.

NOTE 3 - INVESTMENTS IN AVAILABLE-FOR-SALE SECURITIES
-----------------------------------------------------

Debt and equity securities have been classified in the consolidated balance
sheets according to management's intent. The amortized cost of securities and
their approximate fair values are as follows as of December 31:
<TABLE>
<S>                                                      <C>           <C>         <C>         <C>
                                                                         Gross       Gross
                                                          Amortized    Unrealized  Unrealized      Fair
                                                             Cost        Gains       Losses       Value
                                                         ------------  ----------  ----------  ------------
December 31, 2007:
  Debt securities issued by the U.S. Treasury
     and other U.S. government corporations
     and agencies                                        $  4,500,000  $    3,404  $    1,778  $  4,501,626
  Obligations of states and municipalities                  6,913,444     107,323       3,681     7,017,086
  Corporate debt securities                                   475,000                     892       474,108
  Mortgage-backed securities                               11,635,666      43,506      53,944    11,625,228
  U.S. government sponsored enterprises
     perpetual/callable preferred stocks                    1,772,100         400     520,000     1,252,500
  Marketable equity securities                                  4,205                                 4,205
                                                         ------------  ----------  ----------   -----------
                                                           25,300,415     154,633     580,295    24,874,753
  Money market mutual funds included in cash
     and cash equivalents                                     (4,205)                               (4,205)
                                                         ------------  ----------  ----------  ------------
                Total available-for-sale securities      $ 25,296,210  $  154,633  $  580,295  $ 24,870,548
                                                         ============  ==========  ==========  ============

December 31, 2006:
  Debt securities issued by the U.S. Treasury
     and other U.S. government corporations
     and agencies                                        $ 17,825,395  $    6,169  $  169,644  $ 17,661,920
  Obligations of states and municipalities                  3,985,050     137,626      28,368     4,094,308
  Corporate debt securities                                   475,000                   9,588       465,412
  Mortgage-backed securities                               14,112,206      15,723     287,923    13,840,006
  U.S. government sponsored enterprises
     perpetual/callable preferred stocks                    2,000,000                 244,400     1,755,600
  Marketable equity securities                                 51,717                                51,717
                                                         ------------  ----------  ----------  ------------
                                                           38,449,368     159,518     739,923    37,868,963
  Money market mutual funds included in cash
     and cash equivalents                                    (51,717)                              (51,717)
                                                         ------------  ----------  ----------  ------------
                Total available-for-sale securities      $ 38,397,651  $  159,518  $  739,923  $ 37,817,246
                                                         ============  ==========  ==========  ============
</TABLE>

                                       53
<PAGE>

The scheduled maturities of debt securities were as follows as of December 31,
2007:
                                                                  Fair
                                                                  Value
                                                             ------------
Due within one year                                          $  3,974,397
Due after one year through five years                           3,394,519
Due after five years through ten years                            768,363
Due after ten years                                             3,855,541
Mortgage-backed securities                                     11,625,228
                                                             ------------
                                                             $ 23,618,048
                                                             ============

During 2007, proceeds from sales of available-for-sale securities amounted to
$8,236,450. Gross realized losses on those sales amounted to $85,669. The tax
benefit applicable to these gross realized losses amounted to $33,368. In 2007,
a write-down of $227,900 was recorded on an available-for-sale security as
management had deemed this particular security to be other than temporarily
impaired. There were no sales of available-for-sale securities during 2006.

There were no securities of issuers whose aggregate carrying amount exceeded 10%
of stockholders' equity as of December 31, 2007.

As of December 31, 2007 and 2006, the total carrying amounts of securities
pledged for securities sold under agreements to repurchase and public deposits
was $4,374,960 and $5,421,325, respectively.

The aggregate fair value and unrealized losses of securities that have been in a
continuous unrealized loss position for less than twelve months and for twelve
months or more, and are not other than temporarily impaired, are as follows
<TABLE>
<S>                                           <C>           <C>         <C>          <C>          <C>          <C>
                                                Less than 12 Months       12 Months or Longer              Total
                                              ------------------------  ------------------------  -----------------------
                                                  Fair      Unrealized     Fair      Unrealized      Fair      Unrealized
                                                 Value        Losses       Value       Losses        Value       Losses
                                              ------------  ----------  -----------  -----------  -----------  ----------
December 31, 2007:
  Debt securities issued by the U.S.
     Treasury and other U.S. government
     corporations and agencies                $    999,357  $      642  $   998,864  $     1,136  $ 1,998,221  $    1,778
  Obligations of states and municipalities         632,686       3,681                                632,686       3,681
  Corporate debt securities                                                 474,108          892      474,108         892
  Mortgage-backed securities                       865,430          20    4,994,383       53,924    5,859,813      53,944
  U.S. government sponsored enterprises
     perpetual/callable preferred stocks                                    980,000      520,000      980,000     520,000
                                              ------------  ----------  -----------  -----------  -----------  ----------
       Total temporarily impaired securities  $  2,497,473  $    4,343  $ 7,447,355  $   575,952  $ 9,944,828  $  580,295
                                              ============  ==========  ===========  ===========  ===========  ==========

December 31, 2006:
  Debt securities issued by the U.S.
     Treasury and other U.S. government
     corporations and agencies                $  3,990,180  $    9,820  $11,665,571  $   159,824  $15,655,751  $  169,644
  Obligations of states and municipalities                                  902,855       28,368      902,855      28,368
  Corporate debt securities                                                 465,412        9,588      465,412       9,588
  Mortgage-backed securities                       322,744       1,899   11,892,440      286,024   12,215,184     287,923
  U.S. government sponsored enterprises
     perpetual/callable preferred stocks                                  1,755,600      244,400    1,755,600     244,400
                                              ------------  ----------  -----------  -----------  -----------  ----------
       Total temporarily impaired securities  $  4,312,924  $   11,719  $ 26,681,87  $   728,204  $30,994,802  $  739,923
                                              ============  ==========  ===========  ===========  ===========  ==========
</TABLE>

Company management considers investments with an unrealized loss at December 31,
2007 to be only temporarily impaired because the impairment is due primarily to
the current interest rate environment, not other credit factors. As management
has the ability to hold debt securities until maturity, or for the foreseeable
future if classified as available-for-sale, and equity securities until recovery
to cost basis occurs, no declines are deemed to be other than temporary.

                                       54
<PAGE>

<TABLE>
<S>                                                          <C>               <C>
NOTE 4 - LOANS

Loans consisted of the following as of December 31:

                                                                 2007              2006
                                                            --------------   ---------------
Commercial, financial and agricultural                       $  16,585,402     $  10,947,268
Real estate - construction and land development                 10,755,501        11,113,090
Real estate - residential                                      113,629,149       106,375,264
Real estate - commercial                                        15,134,849        15,973,601
Municipal                                                        1,915,727           987,153
Consumer                                                         7,427,567        11,581,910
                                                            --------------   ---------------
                                                               165,448,195       156,978,286
Allowance for loan losses                                       (1,924,552)       (1,698,329)
Deferred costs, net                                                241,797           232,878
                                                            --------------   ---------------
           Net loans                                          $163,765,440      $155,512,835
                                                            ==============   ===============

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

                                                                 2007              2006
                                                            --------------    --------------
Balance at beginning of year                                 $   1,698,329     $   1,719,533
Provision for loan losses                                          250,000
Recoveries of loans previously charged off                                               104
Charge offs                                                        (23,777)          (21,308)
                                                            --------------     -------------
Balance at end of year                                       $   1,924,552     $   1,698,329
                                                            ==============     =============

The following table sets forth information regarding
nonaccrual loans and accruing loans 90 days or more
overdue as of December 31:

                                                                 2007              2006
                                                            --------------    --------------
Total nonaccrual loans                                       $       5,328     $      78,047
                                                            ==============   ===============

Accruing loans which are 90 days or more overdue             $         973     $           0
                                                            ==============   ===============

Information about loans that meet the definition of
an impaired loan in SFAS No. 114 is as follows as of
December 31:
</TABLE>

<TABLE>
<S>                                                               <C>          <C>         <C>           <C>
                                                                            2007                      2006
                                                                  ------------------------ --------------------------
                                                                  Recorded     Related     Recorded      Related
                                                                  Investment   Allowance   Investment    Allowance
                                                                  In Impaired  For Credit  In Impaired   For Credit
                                                                  Loans        Losses      Loans         Losses
                                                                  ------------ ----------- ------------- ------------
Loans for which there is a related allowance for credit losses    $          0 $         0 $      78,047 $      1,756

Loans for which there is no related allowance for credit losses              0           0             0            0
                                                                  ------------ ----------- ------------- ------------

      Totals                                                      $          0 $         0 $      78,047 $      1,756
                                                                  ============ =========== ============= ============

Average recorded investment in impaired loans during the
  year ended December 31                                          $     15,609             $      60,186
                                                                  ============             =============

Related amount of interest income recognized during the time,
  in the year ended December 31, that the loans were impaired

      Total recognized                                            $      7,964             $       3,735
                                                                  ============             =============
      Amount recognized using a cash-basis method of
        accounting                                                $      7,964             $       3,735
                                                                  ============             =============
</TABLE>

                                       55
<PAGE>

NOTE 5 - PREMISES AND EQUIPMENT
-------------------------------

The following is a summary of premises and equipment as of December 31:

                                                     2007           2006
                                                 -----------    -----------
Leasehold improvements                            $1,131,840     $1,148,740
Furniture and equipment                            2,279,832      2,242,519
                                                 -----------    -----------
                                                   3,411,672      3,391,259
Accumulated depreciation and amortization         (2,188,717)    (1,839,299)
                                                 -----------    -----------
                                                  $1,222,955     $1,551,960

NOTE 6 - DEPOSITS
-----------------

The aggregate amount of time deposit accounts in denominations of $100,000 or
more as of December 31, 2007 and 2006 was $20,523,507 and $25,304,338,
respectively.

For time deposits as of December 31, 2007, the scheduled maturities for years
ended December 31 are:

                           2008                         $57,956,232
                           2009                           2,433,076
                           2010                           1,360,164
                           2011                             960,483
                           2012                             455,866
                                                        -----------
                                    Total               $63,165,821
                                                        ===========

NOTE 7 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
-------------------------------------------------------

Securities sold under agreements to repurchase consist of funds borrowed from
customers on a short-term basis secured by portions of the Company's investment
portfolio. The securities which were sold have been accounted for not as sales
but as borrowings. The securities consisted of debt securities issued by the
U.S. Treasury and other U.S. government sponsored enterprises, corporations and
agencies. The securities were held in safekeeping by Morgan Stanley, under the
control of the Company. The purchasers have agreed to sell to the Company
substantially identical securities at the maturity of the agreements. The
agreements mature generally within three months from date of issue.

NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES
----------------------------------------

Advances consist of funds borrowed from the Federal Home Loan Bank (FHLB).

As of December 31, 2007, the Company has a $2,000,000 advance with an interest
rate of 4.38% which will mature in 2008.

Borrowings from the FHLB are secured by a blanket lien on qualified collateral,
consisting primarily of loans with first mortgages secured by one to four family
properties and other qualified assets.

NOTE 9 - INCOME TAX EXPENSE
---------------------------

The components of income tax expense are as follows for the years ended December
31:
                                               2007              2006
                                            -----------       -----------
Current:
   Federal                                     $341,346          $222,816
   State                                         85,883            62,305
                                            -----------       -----------
                                                427,229           285,121
                                            -----------       -----------
Deferred:
   Federal                                     (204,753)            8,330
   State                                        (48,018)            4,636
                                            -----------       -----------
                                               (252,771)           12,966
                                            -----------       -----------
           Total income tax expense            $174,458          $298,087
                                            ===========       ===========

                                       56
<PAGE>

The reasons for the differences between the statutory federal income tax rate
and the effective tax rates are summarized as follows for the years ended
December 31:

                                                          2007         2006
                                                         ------       ------
                                                           % of        % of
                                                         Income       Income
                                                         ------       ------
Federal income tax at statutory rate                      34.0%       34.0%
Increase (decrease) in tax resulting from:
   Tax-exempt income                                     (27.6)      (14.6)
   Other                                                   1.5         1.4
   Stock based compensation                                3.5         4.2
   State tax, net of federal tax benefit                   1.9         4.4
                                                         -----       -----
       Effective tax rates                                13.3%       29.4%
                                                         =====       =====

The Company had gross deferred tax assets and gross deferred tax liabilities as
follows as of December 31:

                                                         2007          2006
                                                       -----------   ---------
Deferred tax assets:
   Allowance for loan losses                           $   625,727    $528,352
   Deferred compensation                                   211,835     196,329
   Other                                                     3,648       6,586
   Write-down of equity securities                          88,767
   Net unrealized holding loss on available-for-sale
     securities                                            165,795     226,067
                                                       -----------   ---------
           Gross deferred tax assets                     1,095,772     957,334
                                                       -----------   ---------

Deferred tax liabilities:
   Depreciation(147,322)                                  (204,664)
   Deferred loan costs/fees                                (93,987)    (90,706)
                                                       -----------   ---------
           Gross deferred tax liabilities                 (241,309)   (295,370)
                                                       -----------   ---------
Net deferred tax asset                                 $   854,463    $661,964
                                                       ===========   =========

As of December 31, 2007, the Company had no operating loss carryovers for income
tax purposes.

NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES
------------------------------------------------

As of December 31, 2007 the Company was obligated under non-cancelable operating
leases for bank premises and equipment expiring between June 2010 and May 2016.
The total minimum rental due in future periods under these existing agreements
is as follows as of December 31, 2007:

                           2008                           $   609,026
                           2009                               618,048
                           2010                               625,531
                           2011                               377,701
                           2012                               292,139
                           Thereafter                         714,255
                                                          -----------
                                Total                     $ 3,236,700
                                                          ===========

Certain leases contain provisions for escalation of minimum lease payments
contingent upon percentage increases in the consumer price index. Total rental
expense amounted to $618,592 and $574,782 for the years ended December 31, 2007
and 2006, respectively.

NOTE 11 - FINANCIAL INSTRUMENTS
-------------------------------

The Company is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to originate loans, unadvanced funds
on loans and standby letters of credit. The instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in the
balance sheets. The contract amounts of those instruments reflect the extent of
involvement the Company has in particular classes of financial instruments.

                                       57
<PAGE>

The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for loan commitments is represented by
the contractual amounts of those instruments. The Company uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance sheet instruments.

Commitments to originate loans are agreements to lend to a customer provided
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation of the borrower. Collateral held varies, but may
include secured interests in mortgages, accounts receivable, inventory,
property, plant and equipment and income-producing properties.

Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance by a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. As of December 31, 2007 and 2006 the
maximum potential amount of the Company's obligation was $557,312 and $428,312,
respectively, for financial and standby letters of credit. The Company's
outstanding letters of credit generally have a term of less than one year. If a
letter of credit is drawn upon, the Company may seek recourse through the
customer's underlying line of credit. If the customer's line of credit is also
in default, the Company may take possession of the collateral, if any, securing
the line of credit.

The estimated fair values of the Company's financial instruments, all of which
are held or issued for purposes other than trading, are as follows as of
December 31:

<TABLE>
<S>                                      <C>               <C>              <C>               <C>
                                                        2007                              2006
                                         -------------------------------    -------------------------------
                                            Carrying            Fair           Carrying           Fair
                                             Amount             Value           Amount            Value
                                         -------------     -------------    -------------     -------------

Financial assets:
   Cash and cash equivalents             $  15,753,813     $  15,753,813    $  15,805,786     $  15,805,786
   Available-for-sale securities            24,870,548        24,870,548       37,817,246        37,817,246
   Federal Home Loan Bank stock                630,700           630,700          667,800           667,800
   Loans held-for-sale                                                            268,000           268,386
   Loans, net                              163,765,440       162,124,000      155,512,835       153,402,000
   Accrued interest receivable                 808,430           808,430          894,999           894,999

Financial liabilities:
   Deposits                                186,805,866       187,007,000      198,402,158       198,404,000
   Federal Home Loan Bank advances           2,000,000         2,000,000
   Securities sold under agreements to
     repurchase                              1,363,033         1,363,033        1,627,896         1,627,896
   Due to broker                             1,433,223         1,433,223
</TABLE>

The carrying amounts of financial instruments shown in the above table are
included in the consolidated balance sheets under the indicated captions.
Accounting policies related to financial instruments are described in Note 2.

Notional amounts of financial instrument liabilities with off-balance-sheet
credit risk are as follows as of December 31:

                                                   2007              2006
                                               ------------      ------------
Commitments to originate loans                 $  2,222,250      $  3,520,850
Standby letters of credit                           557,312           428,312
Unadvanced portions of loans:
   Construction                                   8,480,187         6,697,932
   Commercial lines of credit                     6,800,654         6,380,518
   Consumer                                         729,769           779,823
   Home equity                                   22,721,211        22,897,790
                                               ------------      ------------
                                                $41,511,383      $ 40,705,225
                                               ============      ============

                                       58
<PAGE>

There is no material difference between the notional amounts and the estimated
fair values of the above off-balance sheet liabilities.

NOTE 12 - RELATED PARTY TRANSACTIONS
------------------------------------

Certain directors and executive officers of the Company and companies in which
they have significant ownership interest were customers of the Bank during 2007.
Total loans to such persons and their companies amounted to $3,384,543 as of
December 31, 2007. During the year ended December 31, 2007 principal payments
totaled $1,720,477 and advances amounted to $1,955,705.

Deposits from related parties held by the Company as of December 31, 2007 and
2006 amounted to $2,779,043 and $1,857,419, respectively.

During 2007 and 2006, the Company paid $61,939 and $53,932, respectively, for
rent and related expenses of the Company's Granby branch office to a company of
which a bank director is a principal. The rent expense for the Granby branch
included in Note 10 amounted to $44,935 in 2007 and 2006.

During 2007 and 2006, the Company paid $1,369 and $375,876, respectively, for
construction costs and related fees for the Company's Canton branch office to a
company of which a bank director is a principal. These amounts are included in
capital expenditures for 2007 and 2006.

NOTE 13 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
---------------------------------------------------------

Most of the Company's business activity is with customers located within the
state. There are no concentrations of credit to borrowers that have similar
economic characteristics. The majority of the Company's loan portfolio is
comprised of loans collateralized by real estate located in the State of
Connecticut.

NOTE 14 - REGULATORY MATTERS
----------------------------

The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of its assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 2007 and 2006, that
the Bank meets all capital adequacy requirements to which it is subject.

As of December 31, 2007, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based
and Tier 1 leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.

                                       59
<PAGE>

The Bank's actual capital amounts and ratios are also presented in the table.
<TABLE>
<S>                                                   <C>           <C>        <C>            <C>     <C>         <C>
                                                                                                        To Be Well
                                                                                                    Capitalized Under
                                                                                 For Capital        Prompt Corrective
                                                           Actual             Adequacy Purposes     Action Provisions
                                                  ------------------------ ----------------------- --------------------
                                                    Amount       Ratio       Amount       Ratio      Amount     Ratio
                                                  ----------- ------------ ----------- ----------- ---------- ---------
                                                                      (Dollar amounts in thousands)
As of December 31, 2007:
 Total Capital (to Risk Weighted Assets):
  The Simsbury Bank & Trust Company, Inc.             $18,287       13.48%     $10,855      =>8.0%    $13,568   =>10.0%

 Tier 1 Capital (to Risk Weighted Assets):
  The Simsbury Bank & Trust Company, Inc.              16,588        12.23       5,427       =>4.0      8,141     =>6.0

 Tier 1 Capital (to Average Assets):
  The Simsbury Bank & Trust Company, Inc.              16,588         8.21       8,087       =>4.0     10,109     =>5.0

As of December 31, 2006:
 Total Capital (to Risk Weighted Assets):
  The Simsbury Bank & Trust Company, Inc.              17,398        12.75      10,918       =>8.0    $13,647   =>10.0%

 Tier 1 Capital (to Risk Weighted Assets):
  The Simsbury Bank & Trust Company, Inc.              15,700        11.50       5,459       =>4.0      8,188     =>6.0

 Tier 1 Capital (to Average Assets):
  The Simsbury Bank & Trust Company, Inc.              15,700         7.31       8,586       =>4.0     10,733     =>5.0
</TABLE>

The declaration of cash dividends is dependent on a number of factors, including
regulatory limitations, and the Company's operating results and financial
condition. The stockholders of the Company will be entitled to dividends only
when, and if, declared by the Company's Board of Directors out of funds legally
available therefore. The declaration of future dividends will be subject to
favorable operating results, financial conditions, tax considerations, and other
factors.

Under Connecticut law, the Bank may pay dividends only out of net profits. The
Connecticut Banking Commissioner's approval is required for dividend payments
which exceed the current year's net profits and retained net profits from the
preceding two years. As of December 31, 2007, the Bank is restricted from
declaring dividends to the Company in an amount greater than $2,913,642.

NOTE 15 - EMPLOYEE BENEFITS
---------------------------

The Company sponsors a 401(k) savings and retirement plan. Employees who were 21
years of age and employed on the plan's effective date were immediately eligible
to participate in the plan. Other employees who have attained age 21 are
eligible for membership on the first day of the month following completion of 90
days of service.

The provisions of the 401(k) plan allow eligible employees to contribute subject
to IRS limitations. The Company's matching contribution will be determined at
the beginning of the plan year. The Company's expense under this plan was
$35,123 in 2007 and $75,868 in 2006.

The Company entered into employment agreements (the "Agreements") with the
Executive Officers of the Company. The Agreements provide for severance benefits
upon termination following a change in control as defined in the agreements in
amounts equal to cash compensation as defined in the agreements and fringe
benefits that the Executive(s) would have received if the Executive(s) would
have continued working for an additional five years.

                                       60
<PAGE>

NOTE 16 - STOCK OPTION PLAN
---------------------------

The Simsbury Bank & Trust Company, Inc. 1998 Stock Plan ("Plan") provides for
the granting of options to purchase shares of common stock or the granting of
shares of restricted stock up to an aggregate amount of 142,000 shares of common
stock of the Company. Options granted under the Plan may be either Incentive
Stock Options ("ISOs") within the meaning of Section 422 of the Internal Revenue
Code or non-qualified options which do not qualify as ISOs ("NQOs"). No
restricted stock awards or stock options may be granted under the Plan after
March 17, 2008.

The exercise price for shares covered by an ISO may not be less than 100% of the
fair market value of common stock on the date of grant. The exercise price for
shares covered by a NQO may not be less than 50% of the fair market value of
common stock at the date of grant. All options must expire no later than ten
years from the date of grant. The Plan also provides the Board with authority to
make grants that will provide that options will become exercisable and
restricted awards will become fully vested upon a change in control of the
Company.

In accordance with the Plan each non-employee director is granted a NQO to
purchase 1,000 shares of common stock at the fair market value of the common
stock on the grant date. These options will become exercisable in two equal
installments beginning on the first anniversary of the date of grant.

The fair value of each option granted in 2007 and 2006 was estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:

                                                2007             2006
                                              -------          -------
Expected volatility                             12.9%            14.6%
Expected dividends                               1.5%             1.5%
Expected term (in years)                           10               10
Risk free rate                                  4.71%            5.20%

A summary of the status of the Company's stock option plan as of December 31 and
changes during the years ending on that date is presented below:

<TABLE>
<S>                                     <C>               <C>              <C>               <C>
                                                   2007                                2006
                                        ------------------------------   -------------------------------
                                                     Weighted-Average                  Weighted-Average
Fixed Options                           Shares         Exercise Price      Shares       Exercise Price
-------------                           ------     --------------------    ------     ------------------
Outstanding at beginning of year        68,927            $25.22           63,204            $24.34
Granted                                 10,500             30.00           10,500             29.00
Exercised                               (8,905)            13.77           (3,463)            16.17
Forfeited                               (1,314)            36.55           (1,314)            36.55
                                       -------                            -------
Outstanding at end of year              69,208             27.21           68,927             25.22
                                        ======                             ======

Options exercisable at year-end         44,708             25.60           41,364             21.46
Weighted-average fair value of
   options granted during the year       $8.11                              $8.77
</TABLE>

                                       61
<PAGE>

The following table summarizes information about fixed stock options outstanding
as of December 31, 2007:

<TABLE>
<S> <C>                <C>                    <C>                    <C>                  <C>
                                     Options Outstanding and  Exercisable
----------------------------------------------------------------------------------------------------
                                           Weighted-Average
                       Number                  Remaining            Number
Exercise Price      Outstanding            Contractual Life       Exercisable         Exercise Price
--------------      -----------          --------------------     -----------         --------------
    $13.625            12,766                 0.4 years              12,766               $13.625
     15.65              1,311                 4.2 years               1,311                15.65
     16.25              2,628                 3.9 years               2,628                16.25
     33.25              2,625                 6.5 years               2,625                33.25
     34.90              1,314                 6.3 years               1,314                34.90
     35.00              5,250                 6.8 years               5,250                35.00
     36.55              1,314                 6.3 years               1,314                36.55
     31.50             21,000                 8.0 years              14,000                31.50
     29.00             10,500                 8.5 years               3,500                29.00
     30.00             10,500                 9.6 years
                       ------                                        ------
     27.21             69,208                 6.5 years              44,708                25.60
                       ======                                        ======
</TABLE>

As of December 31, 2007, there was $167,496 of total unrecognized compensation
cost related to nonvested share-based arrangements granted under the Plan. That
cost is expected to be recognized over a weighted average period of 1.5 years.
The total value of shares that vested during the years ended December 31, 2007
and 2006 was $133,167 and $123,810, respectively.

NOTE 17 - EARNINGS PER SHARE (EPS)
----------------------------------

Reconciliation of the numerators and the denominators of the basic and diluted
per share computations for net income are as follows:
<TABLE>
<S>                                                   <C>                <C>           <C>
                                                      Income             Shares       Per-Share
                                                     (Numerator)      (Denominator)     Amount
                                                     -----------      -------------     ------
Year ended December 31, 2007
   Basic EPS
     Net income                                       $1,139,711         849,468       $ 1.34
     Effect of dilutive securities, options                                9,405
                                                     -----------       ---------
   Diluted EPS
     Net income                                       $1,139,711         858,873       $ 1.33
                                                     ===========       =========

Year ended December 31, 2006
   Basic EPS
     Net income                                      $   716,933         841,191       $  .85
     Effect of dilutive securities, options                               14,283
                                                     -----------       ---------
   Diluted EPS
     Net income                                      $   716,933         855,474       $  .84
                                                     ===========       =========
</TABLE>

NOTE 18 - RECLASSIFICATION
--------------------------

Certain amounts in the prior year have been reclassified to be consistent with
the current year's statement presentation.

                                       62
<PAGE>

<TABLE>
<S>                                        <C>                                  <C>
Board of Directors                                                                Officers
*Chairman of Committee
                                           Gary R. Kevorkian                      Martin J. Geitz
                                           Attorney at Law                        President and Chief Executive Officer
Lincoln S. Young                             Investment Services Committee
Chairman of the Board                        Loan Committee                       Anthony F. Bisceglio, Ph.D.
Retired Chief Executive Officer              Personnel Committee                  Treasurer and Chief Financial Officer
Turbine Engine Services Corp.
  Corporate Governance Committee*          Barry R. Loucks                        Gary R. Kevorkian
  Executive Committee                      Retired President and CEO              Secretary
  Investment Services Committee            The Simsbury Bank & Trust Company
  Loan Committee                             Executive Committee*
  Personnel Committee                        Loan Committee

Robert J. Bogino
Vice Chairman                              George B. Odlum, Jr., DMD
Retired President and Co-Owner             General Dentistry
Bogino & DeMaria, Inc.                       Audit & Compliance Committee*
  Audit & Compliance Committee               Executive Committee
  Corporate Governance Committee
  Executive Committee                      Rodney R. Reynolds
  Investment Services Committee            Retired Founding Director
  Loan Committee*                          Trust Company of Connecticut
                                             Investment Services Committee
James T. Fleming                             Personnel Committee
President
Connecticut Automotive Retailers
    Association                            David W. Sessions
  Audit & Compliance Committee             President and Treasurer
  Corporate Governance Committee           Casle Corporation
                                             Executive Committee
Martin J. Geitz                              Loan Committee
President and Chief Executive Officer        Personnel Committee*
The Simsbury Company and Trust Company
  Executive Committee                      Penny R. Woodford
  Investment Services Committee            Real Estate Agent
  Loan Committee                           Coldwell Banker Residential Brokerage
                                             Audit & Compliance Committee
Edward J. Guarco                             Corporate Governance Committee
Vice President
State Line Oil
  Audit & Compliance Committee
  Personnel Committee
</TABLE>

                                       63
<PAGE>

<TABLE>
<S>                                         <C>                                             <C>
Board of Directors                           Officers                                        Employees

All SBT Bancorp, Inc. Directors
                                             Martin J. Geitz
Directors Emeriti                            President and Chief Executive Officer           Dianna S. Anderson
                                                                                             Theresa D. Bendell
Richard C. Anthony                           Anthony F. Bisceglio, Ph.D.                     Yvonne L. Bourgoin
Consultant                                   Executive Vice President, Treasurer and Chief   Alexandra S. Bullard
                                              Financial Officer
                                                                                             Katherine P. Cain
Robert B. August                             Terry L. Boulton                                Carol D. Clifford
Retired Attorney at Law                      Senior Vice President and                       Catherine A. Cook
                                             Chief Retail Banking Officer                    Cheryl B. Dilisio
Jackson F. Eno                                                                               S. Thomas Edge
Vice President                               Paul R. Little                                  Marilyn E. Ehrhardt
Morgan Stanley                               Senior Vice President and                       Lori L. Ethier
                                             Chief Lending Officer                           Deborah A. Fochesato
Jane F. von Holzhausen                                                                       Beate E. Forst
Vice President of Operations                 Howard R. Zern                                  Dawna M. Fuller
Southwest Region                             Senior Vice President and                       Shirley T. Gentry
Prudential Connecticut Realty                Chief Bank Operations &                         Lynn G. Godin
                                             Information Technology Officer                  Barbara A. Holcomb
Evan W. Woollacott                                                                           Jo-Ann Horton
Retired Vice Chairman and Commissioner       Gary R. Kevorkian                               Leslie S. Kane
Connecticut Department of Public             Secretary                                       Regina M. Keith
Utility Control                                                                              Roseline A. Kelley
                                             Vice Presidents                                 Elizabeth C. Lenhart
                                             ---------------
                                             James R. Babcock                                Francine T. Love
                                             Richard A. Bahre                                Catherine L. Miller
                                             Robert A. Francolini                            Irene P. Najman
                                             H. Holbrook Hyde, Jr.                           Vanessa L. Palmes
                                             Lauren S. McCoy                                 Julia E. Pattison
                                                                                             Alan G. Pollack
                                             Assistant Vice Presidents                       Patricia A. Pschirer
                                             -------------------------
                                             Brenda J. Abbott                                Petrina C. Reid
                                             Brian D. Belyea                                 Elizabeth D. Rimkie
                                             Susan D. Presutti, Assistant Secretary          Margaret E. Rose
                                             Kenneth S. Sklodosky                            Shawna L. Santos
                                             Sophie S. Stevens                               Joyce Slate
                                             Barbara J. Wallace                              Gerald Smith, Jr.
                                                                                             Irene M. Smith
                                             Assistant Treasurers                            Karen E. Storms
                                             --------------------
                                             Margot M. Byrne                                 Maria Theodoratos
                                             Christine A. Gates                              Annette M. Troutman
                                             Barbara J. Hanifin                              Linda M. Weber
                                             Karen G. Jepeal                                 Michelle G. Wiggins
                                             Lisa A. Morgan                                  Sarah C. Young
                                             Craig S. Porter
                                             Salverio P. Titus
</TABLE>

                                       64
<PAGE>
Corporate Information
--------------------------------------------------------------------------------

                                SBT Bancorp, Inc.
                              760 Hopmeadow Street
                                  P.O. Box 248
                        Simsbury, Connecticut 06070-0248
                                 (860) 658-BANK
                               Fax: (860) 651-5942
                              www.simsburybank.com


Notice of Shareholders' Meeting
-------------------------------

The Annual Meeting of Shareholders of SBT Bancorp, Inc., the holding
company for The Simsbury Bank & Trust Company, Inc., will be held at 5:00 p.m.
on Tuesday, May 13, 2008 at 981 Hopmeadow Street, Simsbury, Connecticut.

Independent Auditors                             Legal Counsel
--------------------                             -------------
Shatswell, MacLeod & Company, P.C.               Day Pitney LLP
83 Pine Street                                   Counselors at Law
West Peabody, MA 01960-3635                      CityPlace I
                                                 Hartford, CT 06103-3499

Transfer Agent                                   Shareholder Contact
--------------                                   -------------------
American Stock Transfer & Trust Company          Susan D. Presutti
59 Maiden Lane                                   SBT Bancorp, Inc.
Plaza Level                                      760 Hopmeadow Street
New York, NY 10005                               Simsbury, CT 06070
Shareholder Relations: (800) 937-5449            (860) 408-5493


Trading Symbol: SBTB
---------------

COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB WILL BE FORWARDED WITHOUT
CHARGE UPON WRITTEN REQUEST TO:


                          Gary R. Kevorkian, Secretary
                                SBT Bancorp, Inc.
                              760 Hopmeadow Street
                                  P.O. Box 248
                             Simsbury, CT 06070-0248




                                       65