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, 2006

                                       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
         Incorporation or organization)                    Identification No.)

              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, 2006, were $12,291,859.

     As of February 15, 2007, the aggregate market value of the outstanding
common equity if the registrant held by non-affiliates, based upon the average
of the bid and ask prices for such stock on that date, was approximately
$22,659,698.

     There were 848,241 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 2007
Annual Meeting of Shareholders to be held May 8, 2007 (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, 2006
(the "Annual Report") are incorporated by reference into Part II of this Form
10-KSB.

                                       2
<PAGE>


                                      INDEX

                                SBT BANCORP, INC.

                                                                        Page No.
                                                                        --------
                                     PART I

Item 1.  Description of Business                                           4-10

Item 2.  Description of Property                                             10

Item 3.  Legal Proceedings                                                   10

Item 4.  Submission of Matters to a Vote of Security Holders                 11

                                     PART II

Item 5.  Market for Common Equity, Related Stockholder Matters and
         Small Business Issuer Purchases of Equity Securities                11

Item 6.  Management's Discussion and Analysis or Plan of Operation           11

Item 7.  Financial Statements                                                11

Item 8.  Changes In and Disagreements with Accountants on Accounting and
         Financial Disclosure                                                11

Item 8A. Controls and Procedures                                             11

Item 8B. Other Information                                                   12

                                    PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange                    12-13

Item 10. Executive Compensation                                              13

Item 11. Security Ownership of Certain Beneficial Owners and Management
         and Related Stockholder Matters                                     13

Item 12. Certain Relationships and Related Transactions, and Director
         Independence                                                        13

Item 13. Exhibits                                                         14-15

Item 14. Principal Accountant Fees and Services                              15

SIGNATURES                                                                   16

Exhibit Index                                                                17

                                       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'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 20,200 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, 2006, approximately 75% of the Bank's loans were secured
by residential property located in Connecticut.

     The  deposit  growth  experienced  during the  Bank's  first  eleven  years
continued  during  2006.  Deposits  increased  by $7.3  million  (3.8%) in 2006,
compared  to $8.0  million in growth  during  2005.  Total  assets  grew to $217
million,  an increase of $7.5 million (3.6%) over the $209.5 million at year-end
2005. The Bank's loan portfolio also grew,  increasing by $9.7 million (6.6%) to
end the year at $157.2 million. The Bank's  loan-to-deposit  ratio, an important
determinant of net interest income  increased to 79% at year-end 2006,  compared
to 77% at year-end 2005.

     Net  income of  $716,933  ($0.85  per  common  share)  for the year  ending
December 31, 2006 was a 57% decrease  from the net income of  $1,673,677  ($2.00
per common share)  reported for the year ended December 31, 2005.  This decrease
was primarily  due to the expenses  incurred for the opening of the new branches
in Canton and  Bloomfield  and expenses  related to the formation of the holding
company and to regulatory requirements of the Sarbanes-Oxley Act.

     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 and Avon,  which comprise the Bank's primary
market, are located in Northwestern  Connecticut,  west of the Connecticut River
near the  northern  corner of  Hartford.  All  three  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,  Bloomfield,  Canton, 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, 2006, the Bank employed a total of 66 people,  59 full-time
employees and 7 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 ten  depository
institutions  with  thirteen  offices.  Of these  institutions,  there are three
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 six depository  institutions with seven offices.  Four of these  institutions
are commercial banks and two are savings banks. The total eight-town area of the
Bank's primary and secondary markets is served by fourteen institutions.

     As of June 30, 2006, by deposit  account market share,  the top three banks
in Simsbury are Simsbury Bank & Trust Company (30%),  Bank of America (29%), and
Webster Bank (19%). The top three banks in Avon are People's Bank (19%), Bank of
America (15%),  and Webster Bank (13%). In Granby,  the top three banks are Bank
of  America  (28%),  Windsor  Federal  Savings  And Loan  Association  (25%) and
Simsbury  Bank & Trust  Company  (23%).  In  Canton,  the top  three  banks  are
Collinsville  Savings  Society  (45%),  Webster  Bank  (25%) and Bank of America
(21%). In Bloomfield,  the top three banks are Wachovia Bank (32%), Webster Bank
(27%) and Bank of America (24%). In the Bank's primary market (Simsbury, Granby,
Avon and  Canton),  the top 3 banks are Bank of America  with 23% of the market,
Webster Bank with 16% and The Simsbury  Bank and Trust  Company with 15%. In the
total eight-town area of the Bank's primary and secondary markets, the top three
banks are Bank of America with 24% 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 is a summary  description of certain laws
which relate to the regulation of the Bank and the Company. The description does
not purport to be complete  and is qualified in its entirety by reference to the
applicable laws and regulations.

     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.

                                       6
<PAGE>


     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.

     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, 2006 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.

                                       7
<PAGE>


     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, 2006 and 2005.

                                 December 31, 2006      December 31, 2005
                                --------------------  ---------------------
                                           Capital                Capital
                                           Minimum                Minimum
                                 Ratio   Requirement   Ratio    Requirement
                                -------  -----------  -------   -----------

Leverage ratio................   7.31%      4.00%       7.61%      4.00%
Tier 1 risk-based ratio.......  11.50%      4.00%      12.41%      4.00%
Total risk-based ratio........  12.75%      8.00%      13.66%      8.00%


     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.

     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.

                                       8
<PAGE>


     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  $23,553 in FICO
assessments during 2006.

     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."

                                       9
<PAGE>


ITEM 2. DESCRIPTION OF PROPERTY

     The Company does not lease or 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 fifth  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 a
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 an
initial term of 63 months  commencing in February  2001,  and which contains two
renewal options of five years each. The first of those options, as amended,  was
exercised in April 2006.

     The Bank made $568,266 in total rental payments during 2006.

     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.

                                       10
<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, 2006.


                                     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

     Not Applicable.

ITEM 8A. CONTROLS AND 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.

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, 2006 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.

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 controls during the fiscal year ended December 31, 2006.

                                       11
<PAGE>


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

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 8, 2007  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.
<TABLE>
<CAPTION>
<S>     <C>                  <C>  <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.   59  Treasurer and Chief Financial Officer of the Company        1995
Executive Vice President and      since March 2006; Executive Vice President and CFO
 Chief Financial Officer          of the Bank since January 2005; Senior Vice President
                                  and Chief Financial Officer of the Bank from 1995
                                  through January, 2005.

Terry L. Boulton              51  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                46  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."

                                       12
<PAGE>


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.,  Attention:  Jane F. von  Holzhausen,  Secretary,  760 Hopmeadow
Street, P.O. Box 248, Simsbury, Connecticut, 06070.

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.
<TABLE>
<CAPTION>
<S>     <C>                   <C>                   <C>                  <C>
                                                                          Number of securities remaining
                               Number of securities                        available for future issuance
                                to be issued upon     Weighted-average       under equity compensation
                                   exercise of        exercise price of     plans (excluding securities
                                outstanding options  outstanding options     reflected in column (a))
                                       (a)                   (b)                        (c)
                              ---------------------------------------------------------------------------
Equity compensation plans
 approved by security holders         68,927               $25.22                     16,117
Equity compensation plans not
 approved by security holders              0                    0                          0
                              ---------------------------------------------------------------------------
      Total                           68,927               $25.22                     16,117
                              ===========================================================================
</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."

                                       13
<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 (filed herewith)

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)

                                       14
<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.

                                       15
<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.

         Name                                Capacity                  Date
         ----                                --------                  ----

/s/                                                               March 21, 2007
-------------------------------            President and
Martin J. Geitz                       Chief Executive Officer

/s/                                    Executive Vice President,  March 21, 2007
-------------------------------      Chief Financial Officer and
Anthony F. Bisceglio                   Chief Accounting Officer

/s/                                           Director            March 21, 2007
-------------------------------
Robert J. Bogino

/s/                                           Director            March 21, 2007
-------------------------------
James T. Fleming

/s/                                           Director            March 21, 2007
-------------------------------
Edward J. Guarco

/s/                                           Director            March 21, 2007
-------------------------------
Gary R. Kevorkian

/s/                                           Director            March 21, 2007
-------------------------------
Barry R. Loucks

/s/                                           Director            March 21, 2007
-------------------------------
George B. Odlum, Jr., DMD

/s/                                           Director            March 21, 2007
-------------------------------
David W. Sessions

                                              Director            March 21, 2007
-------------------------------
Jane F. von Holzhausen

/s/                                           Director            March 21, 2007
-------------------------------
Penny R. Woodford

/s/                                           Director            March 21, 2007
-------------------------------
Lincoln S. Young

                                       16
<PAGE>


Selected Financial and Other Data
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>


                                                       At 12/31/06            At 12/31/05            At 12/31/04
                                                    -------------------    -------------------   -------------------
Balance Sheet Data:
<S>                                                       <C>                    <C>                    <C>
        Total assets                                      $217,046,550           $209,544,654           $202,154,436
        Loans, net                                         155,512,835            145,805,738            141,229,419
        Investment securities                               38,485,046             41,196,740             39,448,449
        Federal funds sold and other interest
             earning deposits                                4,944,524              6,833,970             10,010,972
        Deposits                                           198,402,158            191,115,680            183,132,283
        Stockholders' equity                                16,119,064             15,375,598             14,255,257




                                                       For the Year           For the Year           For the Year
                                                      Ended 12/31/06         Ended 12/31/05         Ended 12/31/04
                                                    -------------------    -------------------   -------------------
Statement of Income Data:
        Total interest and dividend income                 $11,135,620             $9,759,483             $8,670,263
        Total interest expense                               3,596,887              2,126,399              1,662,982
        Net interest and dividend income                     7,538,733              7,633,084              7,007,281
        Provision for loan losses                                    0                 30,000                 25,000
        Net interest and dividend income after-
            provision for loan losses                        7,538,733              7,603,084              6,982,281
        Gains on loans sold, net                                 3,977                 61,222                 44,726
        Other noninterest income                             1,152,262                983,637                841,702
        Noninterest expense                                  7,679,952              6,128,848              5,186,427
        Income tax expense                                     298,087                845,418                904,032
        Net income                                             716,933              1,673,677              1,778,250

        Earnings per common share                                $0.85                  $2.00                  $2.17
        Earnings per common share,
             assuming dilution                                   $0.84                  $1.96                  $2.10

Other Data:
        Net interest spread                                      3.44%                  3.80%                  3.66%
        Net interest margin                                      3.84%                  4.06%                  3.85%
        Return on average assets
                                                                 0.34%                  0.83%                  0.92%
        Return on average stockholders' equity                   4.52%                 11.19%                 13.17%
        Average stockholders' equity to
            average assets
                                                                 7.49%                  7.45%                  6.99%
</TABLE>

<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,  2006.  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 20,200 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, 2006,  approximately 75% of the
Bank's loans were secured by residential  property  located in Connecticut.  The
Bank  has  two  ATMs at its  main  office  and  one  ATM at  each of its  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.
<PAGE>

         The deposit growth  experienced during the Bank's first eleven years of
operation  continued during 2006.  Deposits  increased by $7.3 million (3.8%) in
2006,  compared to $8.0 million growth during 2005.  Total assets ended the year
at $217.0  million,  an increase of $7.5 million  (3.6%) over $209.5  million at
year-end 2005.  The Bank's loan portfolio also grew,  increasing by $9.7 million
(6.6%) to end the year at $157.2 million. The Bank's  loan-to-deposit  ratio, an
important determinant of net interest income, increased to 79% at year-end 2006,
compared to 77% at year-end 2005.

         Net income of  $716,933  ($0.85  per  common  share) for the year ended
December 31, 2006 was a 57% decrease  from the net income of  $1,673,677  ($2.00
per common  share)  reported for the year ended  December  31,  2005,  and a 60%
decrease from the net income of $1,778,250 ($2.17 per common share) reported for
the year ended December 31, 2004.


Results of Operations for the Years Ended December 31, 2006, 2005 and 2004.

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,  which  totaled  $7,538,733 in 2006,
decreased for the first time in 2006 since the Bank began operations in March of
1995. The main reason for this decrease was the interest rate  environment  that
was prevalent during most of 2006. Earning assets have grown from $30 million on
December  31, 1995 to over $194  million at December 31, 2005 and to almost $200
million at December 31, 2006, a growth rate of 3.1% over the past year and a 24%
growth rate over the last four  years.  The Bank's net  interest  spread and net
interest  margin  decreased  to 3.44% and 3.84% during 2006 as compared to 3.80%
and 4.06% during  2005.  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, 2006, 2005 and 2004.

<PAGE>
<TABLE>
<CAPTION>
                                                NET INTEREST INCOME
                                               (Dollars in thousands)

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

<S>                                                         <C>            <C>         <C>
                     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%
                                                                                       ====


                                                                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            $155,607       $ 2,127      1.37%
                          liabilities                       ========       =======

                          Net interest income                              $ 7,735
                                                                           =======
                          Net interest spread                                           3.80%
                                                                                        ====
                          Net interest margin                                           4.06%
                                                                                        ====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


                                                NET INTEREST INCOME
                                               (Dollars in thousands)


                                                                For the Year Ended 12/31/04
                                                            ------------------------------------
                                                              Average       (1)
                                                              Balance     Interest     Yield
                                                            ------------------------------------
<S>                                                         <C>            <C>         <C>
                     Federal funds sold and overnight
                     deposits                               $ 11,191       $   139     1.24%

                     Investments  (1)                         39,603         1,478     3.73

                     Mortgage loans                           83,349         4,619     5.54
                     Commercial loans                         24,091         1,368     5.68
                     Consumer loans                           25,560         1,161     4.54
                     Term federal funds sold                     719             8     1.11
                                                            --------       -------
                          Total loans                        133,719         7,156     5.35
                                                            --------       -------
                          Total interest-earning assets     $184,513       $ 8,773      4.75%
                                                            ========       =======
                     NOW deposits                           $ 27,514         $  27     0.10%
                     Savings deposits                         78,462           635     0.81
                     Time deposits                            44,070           963     2.19
                                                            --------       -------     ----
                          Total interest-bearing deposits    150,046         1,625     1.08

                     Securities sold under agreements to
                          repurchase                           2,889            38     1.32
                     Federal Home Loan Bank advances               5             -        -
                                                            --------       -------     ----


                     Total interest-bearing liabilities     $152,940       $ 1,663     1.09%
                                                            ========       =======
                          Net interest income                              $ 7,110
                                                                           =======
                          Net interest spread                                          3.66%
                                                                                       ====
                          Net interest margin                                          3.85%
                                                                                       =====
</TABLE>


(1)  ______ On a fully taxable  equivalent  basis based on a tax rate of 38.95%.
     Interest  income  on  investments   includes  a  fully  taxable  equivalent
     adjustment of $133,000 in 2006, $103,000 in 2005 and $103,000 in 2004.

         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.

<PAGE>

<TABLE>
<CAPTION>

                                           Year Ended December 31, 2006     Year Ended December 31, 2005
                                                    Compared to                      Compared to
                                           Year Ended December 31, 2005     Year Ended December 31, 2004
                                          -------------------------------- --------------------------------
                                          Increase (Decrease)              Increase (Decrease)
                                                 Due to                           Due to
                                          ---------------------            ---------------------
                                              Volume      Rate        Net      Volume      Rate        Net
                                          -------------------------------- ----------- --------- ----------
                                                                   (In thousands)
 Interest and dividend income:
<S>                                             <C>       <C>      <C>           <C>      <C>       <C>
    Federal funds sold and overnight deposits   $ 69      $(22)    $   47        $ 45     $ (15)    $   30
    Investments                                  223       132        355         111        39        150
    Loans                                        599       406      1,005         303       606        909
                                                ----      ----      -----        ----     -----     ------
          Total interest-earning assets          891       516      1,407         459       630      1,089
                                                ----      ----      -----        ----     -----     ------
 Interest expense:
    NOW deposits                                   0        (1)        (1)          0         0          0
    Savings deposits                             111      (150)       (39)         (2)      (36)       (38)
    Time deposits                                763       688      1,451         280       184        464
                                                ----      ----      -----        ----     -----     ------
         Total interest-bearing deposits         874       537      1,411         278       148        426

    Securities sold under agreements to
           repurchase                             11        (2)         9          14      (20)         (6)
    FHLB advances                                 25        25         50          44         0         44
                                                ----      ----      -----        ----     -----     ------
          Total interest-bearing
              liabilities                        910       560      1,470         336       128        464
                                                ----      ----      -----        ----     -----     ------
    Net change in interest income               $(19)     $(44)      $(63)       $123     $ 502     $  625
                                                ----      ----      -----        ----     -----     ------
</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, 2006,  the  allowance  was  decreased  by $21,204,  net of  charge-offs  and
recoveries.  The total  allowance  for loan  losses  at  December  31,  2006 was
$1,698,329 or 1.08% of outstanding  loans.  This compares with a total allowance
for loan losses of  $1,719,533  at year-end  2005,  which  represented  1.16% of
outstanding  loans. With the exclusion of loans to financial  institutions (term
federal funds sold), this ratio was 1.08% at year-end 2006 and 1.18% at year-end
2005.  During 2006, the Bank charged-off five loans for a total of $21,308.  The
Bank recovered one loan for $104 during 2006.  During 2005, the Bank charged-off
four loans for a total of $12,476.  The Bank  recovered  one loan for $94 during
2005. Management believes the allowance for loan losses is adequate.

Noninterest Income and Noninterest Expense
<PAGE>

         The  following  table sets forth the various  components  of the Bank's
noninterest  income and  noninterest  expense for the years ended  December  31,
2006, 2005 and 2004.

<TABLE>
<CAPTION>


                                                   NONINTEREST INCOME

                                     For Year                 For Year                 For Year
                                     Ended            % of    Ended           % of       Ended             % of
                                     12/31/06        Total    12/31/05        Total     12/31/04           Total
                                   -----------  ----------- ------------ ------------ ------------- --------------
<S>                                <C>                <C>      <C>              <C>       <C>               <C>
   Service charges on deposit      $   336,664        29.1%    $ 313,746        30.0%     $ 331,374         37.4%
   accounts
   Safe deposit fees                    74,039         6.4        64,819         6.2         61,475          6.9
   Business manager income             129,232        11.2       127,157        12.2        118,768         13.4
   Gain on loans sold, net               3,977         0.3        61,222         5.9         44,726          5.0
   Other income                        612,327        53.0       477,915        45.7        330,085         37.3
                                   -----------       -----    ----------        -----      --------        -----
            Total                  $ 1,156,239       100.0%   $1,044,859        100.0%     $886,428        100.0%
                                   ===========       =====    ==========        =====      ========        =====
</TABLE>


<TABLE>
<CAPTION>
                                                   NONINTEREST EXPENSE

                                     For Year                  For Year                    For Year
                                  Ended 12/31/06    % of         Ended           % of        Ended         % of
                                                     Total     12/31/05         Total      12/31/04        Total
                                  --------------- ---------- -------------- ------------- ------------ ------------
<S>                                <C>                <C>     <C>               <C>       <C>             <C>
 Salaries and employee benefits    $4,036,284         52.6%   $3,114,881        50.8%     $2,716,535      52.4%
 Occupancy expense                  1,028,280         13.4       753,452        12.3         682,675      13.1
 Equipment expense                    324,683          4.2       211,354         3.4         222,383       4.3
 Forms and supplies                   209,355          2.7       163,881         2.7         133,127       2.6
 Advertising and promotions           346,677          4.5       350,690         5.7         215,689       4.2
 Professional fees                    364,181          4.7       328,850         5.4         164,031       3.2
 Insurance                             75,023          1.0        78,757         1.3          74,591       1.4
 Loan expenses                        120,846          1.6        85,142         1.4         109,795       2.1
 Telephone and postage                147,885          1.9       138,457         2.3         118,787       2.3
 Other expenses                     1,026,738         13.4        903,384       14.7         748,814      14.4
                                   -----------      ------    -----------       ----      ----------      ----
            Total                  $7,679,952        100.0%   $6,128,848       100.0%      $5,186,427     100.0%
                                   ==========        =====    ==========       =====       ==========     =====
</TABLE>


         Noninterest  income for the twelve  months ended  December 31, 2006 was
$1,156,239,  an increase of over $111,000 from the twelve months ended  December
31,  2005.  The 2006  increase  was due  primarily  to the  increases in service
charges on deposit  accounts,  safe deposit  fees,  and other income offset by a
decrease in gains on loans sold. The Bank continued to sell residential mortgage
loans with thirty year maturities during 2006 resulting in gains of $3,977.  The
Bank sold loans  resulting  in gains of $61,222  during  2005.  The  increase in
service  charges  on  deposit  accounts  was  primarily  due to an  increase  in
overdraft fees  collected.  The Bank collected  approximately  $214,000 in these
charges during 2006 compared to approximately $205,000 collected during 2005. At
December 31, 2006, the Bank had over 20,200 deposit  accounts,  1,200 or 6% more
than the  approximately  19,000  accounts at year-end 2005 and 3,100 or 18% more
than the  approximately  17,100 accounts at year-end 2004. The increase in other
income  during  2006 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.  The Bank did not sell any  investment  securities  during  2006 or
2005.

         Noninterest   expense  for  the  year  ended   December  31,  2006  was
$7,679,952, an increase of $1,551,104 or 25%, over 2005. Noninterest expense for
the year ended December 31, 2005 was $6,128,848. This compares to an increase of
18% from 2004 to 2005 in noninterest  expense. The largest increases occurred in
salaries and benefits,  occupancy  expense,  equipment  expense and professional
fees. The increases in 2006 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.  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 2006, as compared to 51% in 2005. Other major  categories  during
2006 included  occupancy  expense and equipment expense at approximately 13% and
4%,   respectively,   advertising  and  promotions  at  approximately   5%,  and
professional  fees at  approximately  5%.  Other major  categories  in 2005 also
included   occupancy  and  equipment  expenses  at  approximately  12%  and  3%,
respectively.  The largest components of other expenses,  totaling $1,026,738 in
2006 and  $903,384  in 2005,  consisted  of  correspondent  banking  charges and
software costs.

Financial Condition at Years Ended December 31, 2006, 2005 and 2004

         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, 2006, 2005 and 2004.



<TABLE>
<CAPTION>


                           Distribution of Assets, Liabilities and Stockholders' Equity
                                              (Dollars in thousands)

                                       For the Year Ended        For the Year Ended           For the Year Ended
                                            12/31/06                  12/31/05                     12/31/04
                                      ----------------------    ----------------------      ------------------------
                                                 Percent                   Percent                       Percent
                                      Average    of Total       Average        of             Average        of
                                       Balance    Assets        Balance   Total Assets        Balance    Total Assets
                                      ---------- -----------    ---------- -----------      ------------ -----------
Assets
<S>                                    <C>             <C>       <C>             <C>        <C>             <C>
    Cash and due from banks            $  6,511        3.1%      $  6,195        3.1%       $  5,516        2.9%
    Investment securities                43,776       20.7         40,636       20.2          39,603       20.5
    Federal funds sold and
    overnight                             4,348        2.1          5,267        2.6          11,191        5.8
         deposits
    Loans, net                          150,102       71.0        143,385       71.4         132,008       68.3
    Premises and equipment                1,309        0.6            570        0.3             508        0.2
    Accrued interest and other assets     5,462        2.5          4,872        2.4           4,479        2.3
         Total assets                  $211,508      100.0%      $200,925      100.0%       $193,305      100.0%

Liabilities and Stockholders' Equity
   Deposits
      Demand and NOW deposits          $ 57,982       27.4%      $ 56,639       28.2%       $ 53,762       27.8%
      Savings deposits                   61,444       29.1         73,994       36.8          78,462       40.6
      Time deposits                      72,271       34.1         51,684       25.7          44,070       22.8
         Total deposits                 191,697       90.6        182,317       90.7         176,294       91.2
   Accrued interest and other
   liabilities                            3,964        1.9          3,648        1.8           3,507        1.8
                                       --------      -----       --------      ------       --------      ------

         Total liabilities              195,661       92.5        185,965       92.5         179,801       93.0
                                       --------      -----       --------      ------       --------      ------

Stockholders' equity:
    Common stock                          8,555        4.1          8,397        4.2           8,197        4.3
    Retained earnings and other
          comprehensive income            7,292        3.4          6,563        3.3           5,307        2.7
                                       --------      -----       --------      ------       --------      ------
         Total stockholders' equity      15,847        7.5         14,960        7.5          13,504        7.0
                                       --------      -----       --------      ------       --------      ------

         Total liabilities and
            stockholders' equity       $211,508      100.0%      $200,925      100.0%       $193,305      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,  2006,  the Bank had  fourteen  securities  with a carrying  value
totaling $5,421,325 pledged for such purposes.

         As of December 31, 2006, 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.
<PAGE>

         The following  table  summarizes  the amounts and  distribution  of the
Bank's investment securities held as of December 31, 2006, 2005, and 2004.

<TABLE>
<CAPTION>


                                                   INVESTMENT PORTFOLIO
                                                  (Dollars in thousands)
                                                                              December 31, 2006
                                                                     ------------------------------------
                                                                      Amortized     Fair
                                                                        Cost       Value       Yield
                                                                     ------------ --------- -------------
                  AVAILABLE-FOR-SALE SECURITIES
                  -----------------------------
                  U.S. Government and Agency securities
<S>                                                                     <C>       <C>           <C>
                       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
</TABLE>
<TABLE>
<CAPTION>

                                                                              December 31, 2005
                                                                     ------------------------------------
                                                                      Amortized     Fair
                                                                        Cost       Value       Yield
                                                                     ------------ --------- -------------
                  AVAILABLE-FOR-SALE SECURITIES
                  -----------------------------
                  U.S. Government and Agency securities
<S>                                                                     <C>       <C>           <C>
                       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               17,826    17,479      3.38
                           securities
                  State and Municipal securities
                      Due within one year                                  1,000       998      2.80
                      Due after one to five years                          1,937     1,950      4.14
                      Due after five to ten years                          1,821     1,949      5.38
                      Due after ten years                                    232       250      5.60
                                                                        --------  --------
                           Total State and Municipal securities            4,990     5,147      4.39
                  Corporate debt securities
                       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
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                  INVESTMENT PORTFOLIO
                                                 (Dollars in thousands)

                                                                             December 31, 2004
                                                                   --------------------------------------
                                                                    Amortized   Fair
                                                                      Cost       Value        Yield
                                                                   ------------ -------- ----------------
                AVAILABLE-FOR-SALE SECURITIES
                U.S. Government and Agency securities
<S>                                                                    <C>      <C>           <C>
                    Due within one year                                $ 2,30   $ 2,308       4.00%
                    Due after one to five years                         12,495   12,379       3.00
                                                                       -------   ------
                          Total U.S. Government and Agency              14,795   14,687       3.15
                          securities
                State and Municipal securities
                    Due after one to five years                         2,278     2,369       4.28
                    Due after five to ten years                         1,820     2,013       5.38
                    Due after ten years                                   232       253       5.60
                                                                       -------   ------
                           Total State and Municipal securities         4,330     4,635       4.81
                Corporate debt securities
                    Due within one year                                    500      500       3.85
                    Due after one to five years                            475      467       3.30
                          Total Corporate debt securities                  975      967       3.58
                Mortgage-backed securities
                         WARM* within one year                           1,605    1,642       5.99
                         WARM* after one to five years                  15,063   14,989       4.50
                         WARM* after five to ten years                      41       40       6.30
                                                                       -------   ------
                                  Total Mortgage-backed securites        16,709   16,671      4.65
                Preferred stocks                                          2,000   1,523       1.53
                          Total Available-for-sale securities         $ 38,809  $38,483       3.91%


                * - Weighted-Average Remaining Maturity
</TABLE>

Loan Portfolio

         General The following  table  presents the Bank's loan  portfolio as of
December 31, 2006, 2005 and 2004.

<TABLE>
<CAPTION>

                                                      LOAN PORTFOLIO
                                                  (Dollars in thousands)

                                             December 31, 2006           December 31, 2005           December 31, 2004
                                            ---------------------      ----------------------     ------------------------
                                                       % Total                       % Total                      % Total
                                              Balance      Loans         Balance       Loans         Balance        Loans
                                            ---------- ----------      ---------- -----------     ----------- ------------
<S>                                          <C>            <C>         <C>            <C>          <C>             <C>
Commercial, financial and agricultural *     $ 10,947       7.0%        $ 11,386       7.7%         $ 14,089        9.9%
Real estate - construction and land
development                                    11,113       7.1            9,037       6.1             6,954        4.9
Real estate - residential                     106,375      67.7           96,459      65.5            97,646       68.4
Real estate - commercial                       15,974      10.2           16,101      10.9            11,197        7.8
Municipal                                         987       0.6              987       0.7             1,015        0.7
Consumer                                       11,582       7.4           13,381       9.1            11,850        8.3
                                              -------     -----         --------    ------          --------      -----
Total loans                                   156,978     100.0%         147,351     100.0%          142,751      100.0%
Allowance for loan losses                      (1,698)    =====           (1,720)   ======                        =====
Deferred costs, net                               233                        175                         180
                                             --------                   --------                    --------
Net Loans                                    $155,513                   $145,806                    $141,229
                                             ========                   ========                    ========
</TABLE>

* -  Includes  Term  federal  funds  sold  of $0 at  12/31/2006,  $2,000,000  at
12/31/2005 and $4,000,000 at 12/31/2004.

         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.
<PAGE>

         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.

         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,  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.  During the year ended December 31, 2005, the Bank
sold  twenty-five  loans with total  principal  balances  of  $6,495,650  to RMS
resulting in total net gains of $61,222 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, 2006,
these lending limits for the Bank were $2,293,286 and $4,322,143, 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,  2006,  approximately  75% of the  Bank's  loans  were  secured by
residential property located in Connecticut. As of December 31, 2005, 72% 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>

                                      MATURITIES AND RATE SENSITIVITY OF LOANS
                                              As of December 31, 2006
                                                   (In thousands)

                                                                   Over One
                                                   One Year        but less           Over
                                                    Or Less          than           Five Years       Total
                                                                  Five Years
                                                   ----------    -------------     ------------    -----------
<S>                                                 <C>              <C>            <C>            <C>
       Commercial, financial and agricultural       $  6,358         $  4,589                -       $ 10,947
       Real Estate - construction and land            11,113                -                -         11,113
       development
       Real Estate - residential                      24,061           18,051         $ 64,263        106,375
       Real Estate - commercial                       15,292              454              228         15,974
       Municipal                                          61              926                -            987
       Consumer                                        4,462            7,120                -         11,582
                                                    --------         --------         --------       --------
                     Total loans                    $ 61,347         $ 31,140         $ 64,491       $156,978
                                                    ========         ========         ========       ========
       Loans with fixed interest rates              $ 11,021         $ 29,258         $ 49,606        $89,885
       Loans with variable interest rates             50,326            1,882           14,885         67,093
                                                    --------         --------         --------       --------
                   Total loans                      $ 61,347         $ 31,140         $ 64,491       $156,978
                                                    ========         ========         ========       ========
</TABLE>




         The following  table sets forth at December 31, 2006, 2005 and 2004 the
Bank's loan  commitments,  standby letters of credit and unadvanced  portions of
loans.

<TABLE>
<CAPTION>
                                   LOAN COMMITMENTS AND STANDBY LETTERS OF CREDIT
                                                   (In thousands)

                                                          12/31/06    12/31/05    12/31/04
                                                          --------    --------    --------
<S>                                                        <C>         <C>         <C>
                           Commitments to originate loans  $ 3.521     $ 1,545     $ 4,566
                           Standby letters of credit           428         358           -
                           Unadvanced portion of loans
                              Construction                   6,698       5,270       4,432
                              Commercial lines of credit     6,380       6,654       4,655
                              Residential real estate            -           -         266
                              Consumer                         780         877         773
                              Home equity lines of credit   22,898      20,116      15,711
                                                          --------    --------    --------
                              Total                       $ 40,705    $ 34,820    $ 30,403
                                                          ========    ========    ========
</TABLE>


         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  $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. The Bank
had no nonaccrual loans as of December 31, 2004. The Bank had no loans more than
90 days past due and still  accruing  interest as of December 31, 2006,  2005 or
2004.

         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, 2006, 2005 and 2004, 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  fourteen  classified  loans  with a  combined  outstanding
balance of $2,168,600 as of December 31, 2006 and eighteen classified loans with
a combined outstanding balance of $2,711,270 as of December 31, 2005.

<PAGE>

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.


         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, 2006, 2005 and 2004.

<TABLE>
<CAPTION>
                                          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
                                                          12/31/06          12/31/05          12/31/04
                                                         -----------       ------------     --------------
    ALLOWANCE FOR LOAN LOSSES
<S>                                                         <C>                <C>                <C>
    Balance at beginning of period                          $ 1,720            $ 1,702            $ 1,670
                                                            -------            -------            -------
    Total charge-offs                                           (22)               (12)               (14)
    Total recoveries                                              -                  -                 21
                                                            -------            -------            -------
    Net loans (charged-off) recovered                           (22)               (12)                  7
                                                            -------            -------            -------
    Provision for loan losses                                     -                 30                 25
                                                            -------            -------            -------
    Balance at end of period                                $ 1,698             $1,720             $1,702
                                                            =======            =======            =======
    BALANCES
    Average total loans                                    $151,822           $144,749           $133,719
    Total loans at end of period                            156,978            147,351            142,751

    RATIOS
    Allowance for loan losses to average loans                 1.12%              1.19%             1.28%
    Allowance for loan losses to loans at end of period        1.08               1.17              1.19
</TABLE>


         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, 2006, 2005 and 2004.

<TABLE>
<CAPTION>

                                       ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
                                               (Dollars in thousands)

                                      December 31, 2006            December 31, 2005           December 31, 2004
                                   ------------------------     ------------------------    -------------------------
                                                  % of                         % of                           % of
                                    Allocation    Loans by       Allocation   Loans by      Allocation       Loans by
                                   of Allowance   Category       of Allowance Category      of Allowance     Category
                                   ------------- ----------     ------------ -----------    ------------- -----------
<S>                                        <C>     <C>                <C>        <C>             <C>          <C>
Real estate - residential                $  464    67.7%            $  418       65.5%        $   513         68.4%
Real estate -  commercial                   465    10.2                455       10.9             264          7.8
Real estate - construction and land
    development                             212     7.1                208        6.1             116          4.9
Commercial, financial and
agricultural                                331     7.0                370        7.7             525          9.9
Municipal                                     9     0.6                  9        0.7              26          0.7
Consumer                                    217     7.4                260        9.1             258          8.3
                                         ------   -----             ------      -----         -------        -----
     Total                               $1,698   100.0%            $1,720      100.0%         $1,702        100.0%
                                         ======   ======            ======      =====         =======        =====
</TABLE>

<PAGE>

Deposits

         Deposits are the Bank's primary source of funds.  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, 2005,  the Bank had a deposit mix of 32%
checking,  35%  savings  and 33%  certificates.  Nineteen  percent  of the total
deposits of $191.1  million were  noninterest  bearing at December 31, 2005.  At
December 31, 2006,  $7,142,000 of the Bank's  deposits were from public sources.
At  December  31,  2005,  $6,461,000  of the Bank's  deposits  were from  public
sources.  The  Bank's net  interest  income is  enhanced  by its  percentage  of
noninterest bearing deposits.

         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, 2006 and 2005, 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, 2006,  2005
and 2004.
<TABLE>
<CAPTION>
                                              AVERAGE DEPOSITS
                                           (Dollars in thousands)

                             For the Year Ended           For the Year Ended            For the Year Ended
                             December 31, 2006             December 31, 2005            December 31, 2004
                           -----------------------     --------------------------    -------------------------
                            Average      Average        Average        Average        Average       Average
                            Balance      Rate           Balance        Rate           Balance        Rate
                           ---------- ------------     ----------- --------------    ----------- -------------
<S>                          <C>          <C>             <C>           <C>             <C>           <C>
Demand deposits              $32,031      0.00%            $29,918       0.00%           $26,248       0.00%
NOW deposits                  25,951      0.10              26,721       0.10             27,514       0.10
Savings deposits              61,444      0.91              73,994       0.81             78,462       0.81
Time deposits                 72,271      3.98              51,684       2.76             44,070       2.19
                            --------     ------           --------       ----           --------       -----
   Total average deposits   $191,697      1.81%           $182,317       1.12%          $176,294       0.92%
                            ========     ======           ========       ====           ========       =====
</TABLE>


         The following table indicates the maturity schedule for the Bank's time
deposits of $100,000 or more as of December 31, 2006, 2005 and 2004.
<TABLE>
<CAPTION>

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

                                    December 31, 2006           December 31, 2005         December 31, 2004
                                 ------------------------     ----------------------    ----------------------
                                                 % of                       % of                    % of
                                   Balance       Total         Balance      Total        Balance      Total
                                 ------------ -----------     ---------- -----------    ----------- ----------
<S>                                  <C>           <C>          <C>         <C>          <C>          <C>
Three months or less                 $15,322       60.5%        $ 7,521     35.0%        $ 5,656      39.4%
Over three through six months          6,036       23.9           5,498     25.6           4,864      33.9
Over six through twelve months         1,998        7.9           5,236     24.4           1,024       7.2
Over twelve months                     1,948        7.7           3,228     15.0           2,799      19.5
                                     -------     ------         -------     -----        -------     ------
        Total Time Deposits          $25,304     100.0%         $21,483     100.0%       $14,343     100.0%
                                     =======     ======         =======     =====        =======     ======
</TABLE>
<PAGE>

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.

         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, 2006, the Bank's liquidity ratio was 27%, defined
as the  sum of  $4.875  million  in  federal  funds  sold,  $37.817  million  in
available-for-sale securities at fair value, and $10.879 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, 2005, the Bank's liquidity ratio was
29%, defined as the sum of $6.767 million in federal funds sold, $40.231 million
in  available-for-sale  securities at fair value, and $9.357 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,
2006,  2005 and 2004,  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>

                                           INTEREST RATE SENSITIVITY
                                             (Dollars in thousands)

                                                                   December 31, 2006
                                       --------------------------------------------------------------------------
                                         Due Within         Due in       Due After One    Due After
                                           Three       Three to Twelve   Year to Five       Five
                                           Months           Months           Years          Years       Total
                                           ------           ------           -----          -----       -----
<S>                                    <C>                <C>              <C>             <C>        <C>

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%


</TABLE>
<PAGE>


<TABLE>
<CAPTION>


                                           INTEREST RATE SENSITIVITY
                                             (Dollars in thousands)

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

<TABLE>
<CAPTION>

                                                                  December 31, 2004
                                       ------------------------------------------------------------------------
                                         Due Within         Due in       Due After One    Due After
                                           Three       Three to Twelve   Year to Five       Five
                                           Months           Months           Years          Years       Total
                                           ------           ------           -----          -----       -----

Rate sensitive assets
<S>                                     <C>              <C>              <C>          <C>           <C>
      Federal funds sold and
      overnight deposits                $  9,976             --                --            --      $  9,976
      Available-for-sale securities        2,023         $  3,950          $ 30,203      $  2,306      38,482
      Total Loans                         43,324            6,761            32,603        60,063     142,751
                                        --------         --------          --------      --------    --------
           Total                        $ 55,323         $ 10,711          $ 62,806      $ 62,369    $191,209
                                        ========         ========          ========      ========    ========
Rate sensitive liabilities
      NOW deposits                      $  1,426             --                --        $ 27,092    $ 28,518
      Savings deposits                    50,447             --                --          28,341      78,788
      Time deposits                       12,913         $ 18,100          $ 14,327        45,340
                                                                                                     --------
      Securities sold under
      agreements to repurchase             2,188             --                --            --         2,188
      Federal Home Loan Bank advances      2,000             --                --            --         2,000
                                        --------         --------          --------      --------    --------
           Total                        $ 68,974         $ 18,100          $ 14,327      $ 55,433    $156,834
                                        ========         ========          ========      ========    ========
Interest rate sensitivity gap           $(13,651)        $ (7,389)         $ 48,479      $  6,936    $ 34,375
                                        ========         ========          ========      ========    ========
Cumulative gap                          $(13,651)        $(21,040)         $ 27,439      $ 34,375
                                        ========         ========          ========      ========
Cumulative gap ratio to total assets          (7)%            (10)%              14%           17%
</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.


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,  2006,  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, 2006,  2005 and 2004, 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>

                                               CAPITAL RATIOS

                                                                                      Minimum
                                               Actual       Actual     Actual       Regulatory       Well-
                                               12/31/06    12/31/05     12/31/04   Requirements   Capitalized
                                               --------    --------     --------   ------------   -----------
Bank:
<S>                                               <C>          <C>         <C>             <C>         <C>
Total capital (to risk weighted assets)           12.75%       13.66%      13.27%          8.00%       10.00%
Tier 1 capital (to risk weighted assets)          11.50%       12.41%      12.02%          4.00%        6.00%
Tier 1 capital (to average assets)                 7.31%        7.61%       7.11%          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 2006 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  2006,  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.
<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, 2006 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, 2006.


Options Outstanding

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

<TABLE>
<CAPTION>
                                                                                            Number of
                                                                                            securities
                                                                                       remaining available
                                                                                       for future issuance
                                               Number of                                   under equity
                                            securities to be                            compensation plans
                                              issued upon         Weighted-average          (excluding
                                              exercise of         exercise price of         securities
                                          outstanding options    outstanding options   reflected in column
                                                  (a)                    (b)                   (a))
                                                                                               (c)
                                          --------------------- ---------------------- ---------------------
<S>                                       <C>                   <C>                    <C>
Equity compensation plans
      approved by security holders                      68,927                 $25.22                16,117
Equity compensation plans not
      approved by security holders                           0                      0                     0
                                          --------------------- ---------------------- ---------------------
                 Total                                  68,927                 $25.22                16,117
                                          ===================== ====================== =====================
</TABLE>


<PAGE>


                                [GRAPHIC OMITTED]
                       SHATSWELL, MacLEOD & COMPANY, P.C.

West Peabody, Massachusetts
February 6, 2007


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, 2006 and 2005 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, 2006 and 2005 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
February 6, 2007


<PAGE>



<TABLE>
<CAPTION>

                        SBT BANCORP, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2006 and 2005

ASSETS                                                                        2006            2005
------                                                                   -------------    -------------
<S>                                                                      <C>              <C>
Cash and due from banks                                                  $  10,861,262    $   9,349,045
Interest-bearing deposits with the Federal Home Loan Bank                       17,807            8,234
Money market mutual funds                                                       51,717           58,464
Federal funds sold                                                           4,875,000        6,767,272
                                                                         -------------    -------------
           Cash and cash equivalents                                        15,805,786       16,183,015
Investments in available-for-sale securities (at fair value)                37,817,246       40,231,140
Federal Home Loan Bank stock, at cost                                          667,800          965,600
Loans held-for-sale                                                            268,000

Loans                                                                      157,211,164      147,525,271
   Less allowance for loan losses                                            1,698,329        1,719,533
                                                                         -------------    -------------
           Loans, net                                                      155,512,835      145,805,738
Premises and equipment                                                       1,551,960        1,006,357
Accrued interest receivable                                                    894,999          793,488
Bank owned life insurance                                                    2,827,460        2,681,367
Other assets                                                                 1,700,464        1,877,949
                                                                         -------------    -------------
           Total assets                                                  $ 217,046,550    $ 209,544,654
                                                                         =============    =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
   Demand deposits                                                       $  38,791,256    $  36,074,640
   Savings and NOW deposits                                                 85,035,535       92,477,912
   Time deposits                                                            74,575,367       62,563,128
                                                                         -------------    -------------
           Total deposits                                                  198,402,158      191,115,680
Securities sold under agreements to repurchase                               1,627,896        2,312,832
Other liabilities                                                              897,432          740,544
                                                                         -------------    -------------
           Total liabilities                                               200,927,486      194,169,056
                                                                         -------------    -------------
Stockholders' equity:
   Common stock, no par value; authorized 2,000,000 shares; issued and
     outstanding 841,991 shares in 2006 and 838,528 shares in 2005           8,636,380        8,456,690
   Retained earnings                                                         7,837,022        7,473,542
   Accumulated other comprehensive loss                                       (354,338)        (554,634)
                                                                         -------------    -------------
           Total stockholders' equity                                       16,119,064       15,375,598
                                                                         -------------    -------------
           Total liabilities and stockholders' equity                    $ 217,046,550    $ 209,544,654
                                                                         =============    =============
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


<PAGE>



                        SBT BANCORP, INC. AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
                     Years Ended December 31, 2006 and 2005

<TABLE>
<CAPTION>
                                                                                  2006           2005
                                                                              -----------   ------------
Interest and dividend income:
<S>                                                                           <C>           <C>
   Interest and fees on loans                                                 $ 9,068,964   $ 8,065,276
   Interest on debt securities:
     Taxable                                                                    1,558,164     1,273,044
     Tax-exempt                                                                   208,591       195,112
   Dividends                                                                       83,544        56,765
   Other interest                                                                 216,357       169,286
                                                                              -----------   ------------
           Total interest and dividend income                                  11,135,620     9,759,483
                                                                              -----------   ------------
Interest expense:
   Interest on deposits                                                         3,462,049     2,050,630
   Interest on Federal Home Loan Bank advances                                     93,619        43,770
   Interest on securities sold under agreements to repurchase                      41,219        31,999
                                                                              -----------   ------------
           Total interest expense                                               3,596,887     2,126,399
                                                                              -----------   ------------
           Net interest and dividend income                                     7,538,733     7,633,084
Provision for loan losses                                                                        30,000
                                                                              -----------   ------------
           Net interest and dividend income after provision for loan losses     7,538,733     7,603,084
                                                                              -----------   ------------
Noninterest income:
   Service charges on deposit accounts                                            336,664       313,746
   Investment services fees and commissions                                       165,496        83,705
   Other service charges and fees                                                 486,458       427,339
   Increase in cash surrender value of life insurance policies                    130,656       127,754
   Gain on loans sold, net                                                          3,977        61,222
   Other income                                                                    32,988        31,093
                                                                              -----------   ------------
           Total noninterest income                                             1,156,239     1,044,859
                                                                              -----------   ------------
Noninterest expense:
   Salaries and employee benefits                                               4,036,284     3,114,881
   Occupancy expense                                                            1,028,280       753,452
   Equipment expense                                                              324,683       211,354
   Professional fees                                                              364,181       328,850
   Advertising and promotions                                                     346,677       350,690
   Forms and supplies                                                             209,355       163,881
   Correspondent charges                                                          196,001       195,458
   Postage                                                                        102,850       104,070
   Directors' fees                                                                129,335       130,000
   Other expense                                                                  942,306       776,212
                                                                              -----------   ------------
           Total noninterest expense                                            7,679,952     6,128,848
                                                                              -----------   ------------
           Income before income tax expense                                     1,015,020     2,519,095
Income tax expense                                                                298,087       845,418
                                                                              -----------   ------------
           Net income                                                         $   716,933   $ 1,673,677
                                                                              ===========   ===========
Earnings per common share                                                     $       .85   $      2.00
                                                                              ===========   ===========
Earnings per common share, assuming dilution                                  $       .84   $      1.96
                                                                              ===========   ===========
</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.


<PAGE>



                        SBT BANCORP, INC. AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                     Years Ended December 31, 2006 and 2005
<TABLE>
<CAPTION>
                                                                                     Accumulated
                                                                                           Other
                                                      Common         Retained       Comprehensive
                                                       Stock         Earnings                 Loss         Total
                                                     ---------      ----------      --------------      -----------
<S>                                                  <C>            <C>                <C>              <C>
Balance, December 31, 2004                           $8,320,286     $6,134,028         $(199,057)       $14,255,257
Comprehensive income:
   Net income                                                        1,673,677
   Net change in unrealized holding loss on
     available-for-sale securities, net of tax
     effect                                                                             (355,577)
       Comprehensive income                                                                               1,318,100
8,695 shares issued on stock options exercised          129,481                                             129,481
Tax benefit for stock options                             6,923                                               6,923
Dividends declared ($.40 per share)                                   (334,163)                            (334,163)
                                                      ---------      ---------      -------------      ------------
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
</TABLE>

Reclassification disclosure for the years ended December 31:
<TABLE>
<CAPTION>


                                                                                           2006              2005
                                                                                           ----              ----
<S>                                                                                      <C>              <C>
Net unrealized holding gains (losses) on available-for-sale securities                   $328,087         $(582,436)
                                                                                         --------         ---------
   Other comprehensive income (loss) before income tax effect                             328,087          (582,436)
Income tax (expense) benefit                                                             (127,791)          226,859
                                                                                         --------           -------
     Other comprehensive income (loss), net of tax                                       $200,296         $(355,577)
                                                                                         ========         =========
</TABLE>


Accumulated other  comprehensive  loss as of December 31, 2006 and 2005 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.


<PAGE>



                        SBT BANCORP, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Years Ended December 31, 2006 and 2005
<TABLE>
<CAPTION>

                                                                                            2006            2005
                                                                                       ------------    ------------
Cash flows from operating activities:
   Net income                                                                          $    716,933    $  1,673,677
                                                                                       ------------    ------------
   Adjustments to reconcile net income to net cash provided by operating activities:
<S>                                                                                          <C>             <C>
     Amortization of securities, net                                                         21,059          71,416
     Change in deferred loan costs, net                                                     (58,262)          5,572
     Provision for loan losses                                                               30,000
     (Increase) decrease in loans held-for-sale                                            (268,000)        740,000
     Depreciation and amortization                                                          314,817         179,904
     Decrease (increase) in other assets                                                    117,937        (357,991)
     Increase in interest receivable                                                       (101,511)        (68,681)
     (Increase) decrease in taxes receivable                                                (70,880)         20,353
     Increase in cash surrender value of bank owned life insurance                         (130,656)       (127,754)
                                             123,810
     Increase in other liabilities
     Increase in other liabilities                                                          144,587         148,010
     Increase in interest payable                                                            12,301          13,462
     Deferred tax expense (benefit)                                                          12,966         (30,908)
                                                                                       ------------    ------------
   Net cash provided by operating activities                                                835,101       2,297,060
                                                                                       ------------    ------------
Cash flows from investing activities:
   Proceeds from maturities of interest-bearing time deposit with other bank                500,000
   Purchases of available-for-sale securities                                            (6,915,828)    (10,210,385)
   Proceeds from maturities of available-for-sale securities                              9,636,750       7,808,242
   Redemption of Federal Home Loan Bank stock                                               297,800
   Loan originations and principal collections, net                                      (5,085,846)      3,115,689
   Loan purchases                                                                        (4,563,093)     (7,727,674)
   Recoveries of previously charged off loans                                                   104              94
   Capital expenditures                                                                    (870,749)       (616,609)
   Premiums paid on life insurance policy                                                   (15,437)        (15,437)
                                                                                       ------------    ------------
   Net cash used in investing activities                                                 (7,516,299)     (7,146,080)
                                                                                       ------------    ------------
Cash flows from financing activities:
   Net decrease in demand deposits, NOW and savings accounts                             (4,725,761)     (9,239,185)
   Net increase in time deposits                                                         12,012,239      17,222,582
   Net change in short term advances from Federal Home Loan Bank                         (2,000,000)
   Net (decrease) increase in securities sold under agreements to repurchase               (684,936)        125,008
   Proceeds from exercise of stock options                                                   55,880         129,481
   Dividends paid                                                                          (353,453)       (334,163)
                                                                                       ------------    ------------
   Net cash provided by financing activities                                              6,303,969       5,903,723
                                                                                       ------------    ------------
Net (decrease) increase in cash and cash equivalents                                       (377,229)      1,054,703
Cash and cash equivalents at beginning of year                                           16,183,015      15,128,312
                                                                                       ------------    ------------
Cash and cash equivalents at end of year                                               $ 15,805,786    $ 16,183,015
                                                                                       ============    ============

                                                                                            2006            2005
                                                                                       -------------   ------------
Supplemental disclosures:
   Interest paid                                                                       $  3,584,586    $  2,112,937
   Income taxes paid                                                                        356,001         855,973
</TABLE>

<PAGE>


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

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

                     Years Ended December 31, 2006 and 2005
                     --------------------------------------

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, 2006 and 2005 includes
     $2,446,000 and $1,812,000, respectively, which is subject to withdrawals
     and usage restrictions to satisfy the reserve requirements of the Federal
     Reserve Bank.

<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.

<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:

<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.

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

     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, 2006, the Company has a stock-based employee compensation
     plan which is described more fully in Note 15. The Company accounts for the
     plan under SFAS No. 123(R) "Share-based payment". During the year ended
     December 31, 2006, $123,810 in stock-based employee compensation was
     recognized. Prior to January 1, 2006, the Company accounted for the plan
     under the recognition and measurement principles of APB Opinion No. 25,
     "Accounting for Stock Issued to Employees," and related Interpretations. No
     stock-based employee compensation cost was reflected in net income, as all
     options granted under this plan prior to January 1, 2006 had an exercise
     price equal to the market value of the underlying common stock on the date
     of grant.

<PAGE>


     The following table illustrates the effect on net income and earnings per
     share if the Company had applied the fair value recognition provisions of
     SFAS No. 123 (revised 2004), "Share Based Payment" to stock-based employee
     compensation for the year ended December 31, 2005.

     Net income, as reported                                         $1,673,677
     Deduct: Total stock-based employee compensation expense
      determined under fair value based method for all awards,
      net of related tax effects                                         60,589
                                                                    ------------
     Pro forma net income                                            $1,613,088
                                                                    ============

     Earnings per share:
       Basic - as reported                                                $2.00
       Basic - pro forma                                                  $1.93
       Diluted - as reported                                              $1.96
       Diluted - pro forma                                                $1.89

     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 is not expected to 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 Company does not expect the adoption of
     this statement to have a material impact on its financial condition,
     results of operations or cash flows.

     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.

<PAGE>


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>
<CAPTION>
<S>     <C>                                    <C>            <C>         <C>          <C>
                                                                 Gross       Gross
                                                 Amortized    Unrealized   Unrealized      Fair
                                                   Cost          Gains       Losses        Value
                                               -------------  ----------  ------------ -------------
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 agencies 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
                                               =============  ==========  ============ =============

December 31, 2005:
  Debt securities issued by the U.S. Treasury
   and other U.S. government corporations
   and agencies                                $ 17,826,063   $           $   346,668  $ 17,479,395
  Obligations of states and municipalities        4,989,994     189,025        31,955     5,147,064
  Corporate debt securities                         475,000                    16,097       458,903
  Mortgage-backed securities                     15,848,575      20,856       378,903    15,490,528
  U.S. government agencies perpetual/callable
   preferred stocks                               2,000,000                   344,750     1,655,250
  Marketable equity securities                       58,464                                  58,464
                                               -------------  ----------  ------------ -------------
                                                 41,198,096     209,881     1,118,373    40,289,604
  Money market mutual funds included in cash
   and cash equivalents                             (58,464)                                (58,464)
                                               -------------  ----------  ------------ -------------
        Total available-for-sale securities    $ 41,139,632   $ 209,881   $ 1,118,373  $ 40,231,140
                                               =============  ==========  ============ =============

The scheduled maturities of debt securities were as follows as of December 31,
2006:
                                                                                           Fair
                                                                                           Value
                                                                                       -------------
Due within one year                                                                    $  7,015,546
Due after one year through five years                                                    13,373,000
Due after five years through ten years                                                    1,833,094
Mortgage-backed securities                                                               13,840,006
                                                                                       -------------
                                                                                       $ 36,061,646
                                                                                       =============
</TABLE>

There were no sales of available-for-sale securities during 2006 and 2005.

There were no securities of issuers whose aggregate carrying amount exceeded 10%
of stockholders' equity as of December 31, 2006.

As of December 31, 2006 and 2005, the total carrying amounts of securities
pledged for securities sold under agreements to repurchase and public deposits
was $5,421,325 and $5,704,711, respectively.

<PAGE>


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 as
of December 31, 2006:
<TABLE>
<CAPTION>
<S>     <C>                                 <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
                                            ------------ ---------- ------------- ---------- ------------- ----------
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 agencies
 perpetual/callable preferred stocks                                   1,755,600    244,400     1,755,600    244,400
                                            ------------ ---------- ------------- ---------- ------------- ----------
    Total temporarily impaired securities   $ 4,312,924  $  11,719  $ 26,681,878  $ 728,204  $ 30,994,802  $ 739,923
                                            ============ ========== ============= ========== ============= ==========
</TABLE>
Company management considers investments with an unrealized loss at December 31,
2006 to be only temporarily impaired because the impairment is due 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, no declines are deemed to be other
than temporary.

NOTE 4 - LOANS
--------------

Loans consisted of the following as of December 31:
<TABLE>
<CAPTION>
<S>     <C>                                                                    <C>             <C>
                                                                                     2006            2005
                                                                                --------------  --------------
Commercial, financial and agricultural                                          $  10,947,268   $  11,385,701
Real estate - construction and land development                                    11,113,090       9,037,438
Real estate - residential                                                         106,375,264      96,458,618
Real estate - commercial                                                           15,973,601      16,101,173
Municipal                                                                             987,153         987,153
Consumer                                                                           11,581,910      13,380,572
                                                                                --------------  --------------
                                                                                  156,978,286     147,350,655
Allowance for loan losses                                                          (1,698,329)     (1,719,533)
Deferred costs, net                                                                   232,878         174,616
                                                                                --------------  --------------
      Net loans                                                                 $ 155,512,835   $ 145,805,738
                                                                                ==============  ==============

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

                                                                                     2006            2005
                                                                                --------------  --------------
Balance at beginning of year                                                    $   1,719,533   $   1,701,915
Recoveries of loans previously charged off                                                104              94
Charge offs                                                                           (21,308)        (12,476)
Provision for loan losses                                                                              30,000
                                                                                --------------  --------------
Balance at end of year                                                          $   1,698,329   $   1,719,533
                                                                                ==============  ==============
</TABLE>

<PAGE>


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

                                                              2006        2005
                                                            ---------  ---------
Total nonaccrual loans                                      $ 78,047   $ 32,443
                                                            =========  =========

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

Information about loans that meet the definition of an impaired loan in SFAS No.
114 is as follows as of December 31:
<TABLE>
<CAPTION>
<S>     <C>                                                    <C>           <C>           <C>          <C>
                                                                          2006                      2005
                                                                -------------------------  ------------------------
                                                                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  $    78,047   $    1,756   $    32,443  $    3,244

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

        Totals                                                  $    78,047   $    1,756   $    32,443  $    3,244
                                                                ============  ===========  ============ ===========

Average recorded investment in impaired loans during the
 year ended December 31                                         $    60,186                $     6,489
                                                                ============               ============

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

        Total recognized                                        $     3,735                $         0
                                                                ============               ============
        Amount recognized using a cash-basis method of
         accounting                                             $     3,735                $         0
                                                                ============               ============
</TABLE>

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

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

                                                        2006            2005
                                                    ------------    ------------
Leasehold improvements                              $ 1,148,740     $   666,102
Furniture and equipment                               2,242,519       1,869,479
                                                    ------------    ------------
                                                      3,391,259       2,535,581
Accumulated depreciation and amortization            (1,839,299)     (1,529,224)
                                                    ------------    ------------
                                                    $ 1,551,960     $ 1,006,357

     NOTE 6 - DEPOSITS

The aggregate amount of time deposit accounts in denominations of $100,000 or
more as of December 31, 2006 and 2005 was $25,304,338 and $21,483,496,
respectively.

For time deposits as of December 31, 2006, the scheduled maturities for years
ended December 31 are:

        2007                                                   $ 66,629,836
        2008                                                      5,526,686
        2009                                                      1,232,341
        2010                                                        764,072
        2011                                                        422,432
                                                               -------------
            Total                                              $ 74,575,367
                                                               =============

<PAGE>


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 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 - INCOME TAX EXPENSE
---------------------------

The components of income tax expense are as follows for the years ended December
31:
                                                            2006         2005
                                                         ----------   ----------
Current:
   Federal                                               $ 222,816    $ 708,211
   State                                                    62,305      168,115
                                                         ----------   ----------
                                                           285,121      876,326
                                                         ----------   ----------
Deferred:
   Federal                                                   8,330      (26,718)
   State                                                     4,636       (4,190)
                                                         ----------   ----------
                                                            12,966      (30,908)
                                                         ----------   ----------
       Total income tax expense                          $ 298,087    $ 845,418
                                                         ==========   ==========

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:

                                                            2006         2005
                                                         ----------   ----------
                                                            % of         % of
                                                           Income       Income
                                                         ----------   ----------
Federal income tax at statutory rate                          34.0%        34.0%
Increase (decrease) in tax resulting from:
   Tax-exempt income                                         (14.6)        (5.1)
   Other                                                       1.4           .2
   Stock based compensation                                    4.2
   State tax, net of federal tax benefit                       4.4          4.5
                                                         ----------   ----------
       Effective tax rates                                    29.4%        33.6%
                                                         ==========   ==========

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

                                                            2006        2005
                                                         ----------  -----------
Deferred tax assets:
   Allowance for loan losses                             $ 528,352   $  528,352
   Deferred compensation                                   196,329      179,658
   Other                                                     6,586       17,370
   Net unrealized holding loss on available-for-sale
    securities                                             226,067      353,858
                                                         ----------  -----------
       Gross deferred tax assets                           957,334    1,079,238
                                                         ----------  -----------

Deferred tax liabilities:
   Depreciation                                           (204,664)    (208,503)
   Deferred loan costs/fees                                (90,706)     (68,014)
                                                         ----------  -----------
       Gross deferred tax liabilities                     (295,370)    (276,517)
                                                         ----------  -----------
Net deferred tax asset                                   $ 661,964   $  802,721
                                                         ==========  ===========

As of December 31, 2006, the Company had no operating loss carryovers for income
tax purposes.

<PAGE>


NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES
-----------------------------------------------

As of December 31, 2006 the Company was obligated under non-cancelable operating
leases for bank premises and equipment expiring between 2007 and 2016. The total
minimum rental due in future periods under these existing agreements is as
follows as of December 31, 2006:

       2007                                               $   585,010
       2008                                                   588,307
       2009                                                   597,327
       2010                                                   604,811
       2011                                                   358,754
       Thereafter                                           1,020,057
                                                          ------------
           Total                                          $ 3,754,266
                                                          ============

Total rental expense amounted to $574,782 and $408,361 for the years ended
December 31, 2006 and 2005, respectively.

NOTE 10 - 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.

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, 2006 and 2005 the
maximum potential amount of the Company's obligation was $428,312 and $358,262,
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.

<PAGE>


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>
<CAPTION>
<S>     <C>                            <C>            <C>              <C>             <C>
                                                    2006                            2005
                                       ------------------------------  ------------------------------
                                          Carrying          Fair          Carrying          Fair
                                           Amount           Value          Amount           Value
                                       --------------  --------------  --------------  --------------
Financial assets:
  Cash and cash equivalents            $  15,805,786   $  15,805,786   $  16,183,015   $  16,183,015
  Available-for-sale securities           37,817,246      37,817,246      40,231,140      40,231,140
  Federal Home Loan Bank stock               667,800         667,800         965,600         965,600
  Loans held-for-sale                        268,000         268,386
  Loans, net                             155,512,835     153,402,000     145,805,738     143,769,000
  Accrued interest receivable                894,999         894,999         793,488         793,488

Financial liabilities:
  Deposits                               198,402,158     198,404,000     191,115,680     191,117,000
  Securities sold under agreements to
   repurchase                              1,627,896       1,627,896       2,312,832       2,312,832

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:

                                                                            2006            2005
                                                                       --------------  --------------
Commitments to originate loans                                         $   3,520,850   $   1,544,500
Standby letters of credit                                                    428,312         358,262
Unadvanced portions of loans:
  Construction                                                             6,697,932       5,270,221
  Commercial lines of credit                                               6,380,518       6,654,353
  Consumer                                                                   779,823         876,891
  Home equity                                                             22,897,790      20,115,648
                                                                       --------------  --------------
                                                                       $  40,705,225   $  34,819,875
                                                                       ==============  ==============
</TABLE>
There is no material difference between the notional amounts and the estimated
fair values of the above off-balance sheet liabilities.

NOTE 11 - 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 2006.
Total loans to such persons and their companies amounted to $3,149,315 as of
December 31, 2006. During the year ended December 31, 2006 principal payments
totaled $2,704,242 and advances amounted to $3,875,066.

Deposits from related parties held by the Company as of December 31, 2006 and
2005 amounted to $1,857,419 and $1,761,463, respectively.

During 2006 and 2005, the Company paid $53,932 and $65,089, respectively, for
rent and related expense 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 9 amounted to $44,935 in 2006 and $45,385 in 2005.

During 2006 and 2005, the Company paid $375,876 and $228,148, 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. This amount is included in
capital expenditures for 2006 and 2005.

During 2006 and 2005, a director of the Company was paid $6,352 and $5,288,
respectively, for legal services.

<PAGE>


NOTE 12 - 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 13 - REGULATORY MATTERS
----------------------------

The Company and its subsidiary the Bank are 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 Company's and the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. Their 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 Company and 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,
2006 and 2005, that the Company and the Bank meet all capital adequacy
requirements to which they are subject.

As of December 31, 2006, 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.

The Company's and the Bank's actual capital amounts and ratios are also
presented in the table.
<TABLE>
<CAPTION>
<S>     <C>                                <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, 2006:
  Total Capital (to Risk Weighted Assets):
    Consolidated                            $ 17,927   13.13%  $ 10,920              >8.0%       N/A
                                                                                     -

    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):
    Consolidated                              16,229    11.89     5,460              >4.0        N/A
                                                                                     -

    The Simsbury Bank & Trust Company, Inc.   15,700    11.50     5,459              >4.0      8,188        >6.0
                                                                                     -                      -

  Tier 1 Capital (to Average Assets):
    Consolidated                              16,229     7.56     8,586              >4.0        N/A
                                                                                     -

    The Simsbury Bank & Trust Company, Inc.   15,700     7.31     8,586              >4.0     10,733        >5.0
                                                                                     -                      -

As of December 31, 2005 (Bank only):
  Total Capital (to Risk Weighted Assets)     17,153    13.66    10,046              >8.0     12,558       >10.0
                                                                                     -                     -

  Tier 1 Capital (to Risk Weighted Assets)    15,579    12.41     5,023              >4.0      7,535        >6.0
                                                                                     -                      -

  Tier 1 Capital (to Average Assets)          15,579     7.61     8,188              >4.0     10,235        >5.0
                                                                                     -                      -
</TABLE>

<PAGE>


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, 2006, the Bank is restricted from
declaring dividends to the Company in an amount greater than $3,412,821.

NOTE 14 - 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 equaled 50 cents per
dollar contributed by the participant up to 6% of the participant's annual
salary. The Company's expense under this plan was $75,868 in 2006 and $49,205 in
2005.

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.

NOTE 15 - 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 an 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 2006 and 2005 was estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:

                                                    2006             2005
                                                   ------           ------
Expected volatility                                 14.6%            14.6%
Expected dividends                                   1.5%             1.5%
Expected term (in years)                              10               10
Risk free rate                                      5.20%            4.49%

<PAGE>


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>
<CAPTION>
<S>     <C>                       <C>     <C>               <C>     <C>
                                           2006                      2005
                                   --------------------------------------------------
                                           Weighted-Average          Weighted-Average
Fixed Options                      Shares   Exercise Price   Shares   Exercise Price
-------------                     -------- ---------------- -------- ----------------
Outstanding at beginning of year   63,204       $24.34       50,899       $19.77
Granted                            10,500        29.00       21,000        31.50
Exercised                          (3,463)       16.17       (8,695)       14.89
Forfeited                          (1,314)       36.55
                                  --------                  --------
Outstanding at end of year         68,927        25.22       63,204        24.34
                                   ======                   ========

Options exercisable at year-end    41,364        21.46       34,764        17.76
Weighted-average fair value of
 options granted during the year    $8.77                     $8.60
</TABLE>

The following table summarizes information about fixed stock options outstanding
as of December 31, 2006:

                               Options Outstanding and Exercisable
                                Weighted-Average
                     Number         Remaining         Number
Exercise Price    Outstanding   Contractual Life    Exercisable   Exercise Price
--------------    -----------   ----------------    -----------   --------------
   $13.625           21,016         1.4 years          21,016        $13.625
    15.65             2,185         5.2 years           2,185          15.65
    16.25             2,409         4.9 years           2,409          16.25
    33.25             2,625         7.5 years           1,750          33.25
    34.90             1,314         7.3 years             876          34.90
    35.00             5,250         7.8 years           3,500          35.00
    36.55             2,628         7.3 years           2,628          36.55
    31.50            21,000         9.0 years           7,000          31.50
    29.00            10,500         9.5 years
                     ------                            ------
                     68,927         6.2 years          41,364
                     ======                            ======

As of December 31, 2006, there was $215,460 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 1.8 years.
The total value of shares that vested during the years ended December 31, 2006
and 2005 was $123,810 and $60,589, respectively.

NOTE 16 - 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>
<CAPTION>
<S>     <C>                                       <C>           <C>            <C>
                                                    Income         Shares      Per-Share
                                                  (Numerator)   (Denominator)    Amount
                                                  -----------   -------------  ----------
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
                                                  ===========   =============

Year ended December 31, 2005
  Basic EPS
    Net income                                    $1,673,677         835,079       $2.00
    Effect of dilutive securities, options                            18,276
                                                  -----------   -------------
  Diluted EPS
    Net income                                    $1,673,677         853,355       $1.96
                                                  ===========   =============
</TABLE>

<PAGE>


NOTE 17 - RECLASSIFICATION
--------------------------

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


<PAGE>


Shareholder Data
--------------------------------------------------------------------------------


     The Company's shares of common stock are quoted for trading on the OTC
Bulletin Board under the symbol "SBTB." At December 31, 2006, there were 841,991
shares outstanding and approximately 1,100 shareholders of record. There is a
limited market for the Company's shares. The following table sets forth the high
and low bid information for the period indicated.


                               Year Ended                 Year Ended
                            December 31, 2006         December 31, 2005
                           -------------------       -------------------

                            High         Low          High         Low
     First Quarter         $34.00       $31.60       $34.50       $36.50
     Second Quarter        $34.00       $28.75       $34.00       $31.50
     Third Quarter         $31.00       $27.25       $33.00       $30.70
     Fourth Quarter        $31.00       $29.55       $33.50       $33.15


     The above quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not reflect actual transactions. The Company
became the Bank's parent company in a reorganization that occurred on March 2,
2006. For periods prior to the reorganization, the above table sets forth the
high and low bid information for the Bank's common shares.

Dividends

     The Company's shareholders are entitled to dividends when and if declared
by the Board of Directors out of funds legally available therefore. Connecticut
law prohibits the Company from paying cash dividends except from its net
profits, which are defined by state statutes. The Company declared and paid cash
dividends of $353,453 during 2006. The Company declared and paid cash dividends
of $334,163 during 2005.

     The Company did not repurchase any of its securities during the fourth
quarter of 2006.

<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 8, 2007 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:

                        Jane F. von Holzhausen, Secretary
                                SBT Bancorp, Inc.
                              760 Hopmeadow Street
                                  P.O. Box 248
                             Simsbury, CT 06070-0248

<PAGE>


SBT Bancorp, Inc.
--------------------------------------------------------------------------------

Board of Directors
*Chairman of Committee

Lincoln S. Young
Chairman of the Board*
Retired Chief Executive Officer
Turbine Engine Services Corp.
   Corporate Governance Committee*
   Executive Committee
   Investment Services Committee
   Loan Committee
   Personnel Committee
   Marketing & Public Relations Committee

Robert J. Bogino
Vice Chairman
Retired President and Co-Owner
Bogino & DeMaria, Inc.
   Audit & Compliance Committee
   Corporate Governance Committee
   Executive Committee
   Investment Services Committee
   Loan Committee*

James T. Fleming
Commissioner
   Department of Public Works
State of Connecticut
   Audit & Compliance Committee
   Corporate Governance Committee
   Marketing & Public Relations Committee

Martin J. Geitz
President and Chief Executive Officer
The Simsbury Company and Trust Company
   Executive Committee
   Investment Services Committee
   Loan Committee
   Marketing & Public Relations Committee

Edward J. Guarco
Vice President
State Line Oil
   Audit & Compliance Committee
   Personnel Committee

Gary R. Kevorkian
Attorney at Law
   Loan Committee
   Personnel Committee

Barry R. Loucks
Retired President and CEO
The Simsbury Bank & Trust Company
   Executive Committee*
   Loan Committee
   Marketing & Public Relations Committee

George B. Odlum, Jr., DMD
General Dentistry
   Audit & Compliance Committee*
   Executive Committee

David W. Sessions
President and Treasurer
Casle Corporation
   Executive Committee
   Loan Committee
   Personnel Committee*

Jane F. von Holzhausen
Secretary
Vice President of Operations,
   Southwest Region
Prudential Connecticut Realty
   Corporate Governance Committee
   Executive Committee
   Marketing & Public Relations Committee*

Penny R. Woodford
Real Estate Agent
Coldwell Companyer Residential Brokerage
   Audit & Compliance Committee
   Marketing & Public Relations Committee

Officers

Martin J. Geitz
President and Chief Executive Officer

Anthony F. Bisceglio, Ph.D.
Treasurer and Chief Financial Officer

Jane F. von Holzhausen
Secretary

<PAGE>


The Simsbury Bank and Trust Company, Inc.
--------------------------------------------------------------------------------

Board of Directors

All SBT Bancorp, Inc. Directors and:

NEW DIRECTOR
New Director Occupation
   New Directors Committees

Directors Emeriti

Richard C. Anthony
Chairman
Weekapaug Foundation for Conservation

Robert B. August
Attorney at Law

Jackson F. Eno
Vice President
Morgan Stanley

Evan W. Woollacott
Retired Vice Chairman and Commissioner
Connecticut D.P.U.C.

Officers

Martin J. Geitz
President and Chief Executive Officer

Anthony F. Bisceglio, Ph.D.
Executive Vice President, Treasurer and Chief Financial Officer

Terry L. Boulton
Senior Vice President and
Chief Retail Companying Officer

Paul R. Little
Senior Vice President and
Chief Lending Officer

Jane F. von Holzhausen
Secretary

Vice Presidents
---------------
James R. Babcock
Richard A. Bahre
Robert A. Francolini
H. Holbrook Hyde, Jr.
Gladden R. Keyes
Lauren S. McCoy
Janice L. Zdun

Assistant Vice Presidents
-------------------------
Brian D. Belyea
Juliana R. Gingerich
Gladden R. Keyes
Jeffrey J. Levitsky
Kim A. McDonald
Susan D. Presutti, Assistant Secretary
Sophie S. Stevens
Barbara J. Wallace

Assistant Treasurers
--------------------
Margot M. Byrne
Christine A. Gates
Barbara J. Hanifin
Aline C. Hoadley
Karen G. Jepeal
Lisa A. Morgan
Craig S. Porter
Salverio P. Titus

Employees

Dianna S. Anderson
Theresa D. Bendell
Torrance H L Berry
Yvonne L. Bourgoin
Erin A. Bowe
Elizabeth  A. Brady
Alexandra S. Bullard
Katherine P. Cain
Carol D. Clifford
Nicole A. Dietz
Heather E. Dill
Cheryl B. Dilisio
S. Thomas Edge
Marilyn E. Ehrhardt
Lori L. Ethier
Deborah A. Fochesato
Pamela S. Ford
Beate E. Forst
Dawna M. Fuller
Shirley T. Gentry
Barbara A. Holcomb
Jo-Ann Horton
Regina M. Keith
Tina M. Kuracz
Elizabeth C. Lenhart
Francine T. Love
Abbey L. McGunnigle
Catherine L. Miller
Shawna L. Morin
Irene P. Najman
Alan G. Pollack
Patricia A. Pschirer
Margaret E. Rose
Gerald Smith, Jr.
Irene M. Smith
Karen E. Storms
Maria Theodoratos
Annette M. Troutman
Susan J. Truss
Liliana C. Viveiros
Michelle G. Wiggins

<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 (filed herewith)

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

                                       17