##### 



FENTURA FINANCIAL, INC.
 FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
December 31, 2006 and 2005
 and
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    
    1CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETS
    
    
    2CONSOLIDATED STATEMENTS OF INCOME
    
    
    3CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
    
    
    4CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
    
    
    5CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    
    6NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    7-37MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    38-59




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##### 



/s/ Crowe Chizek and Company LLC




---



##### 



2006
    
    2005ASSETSCash and due from banks
    
    $
    19,946
    
    
    $
    21,327Federal funds sold
    
    
    9,500
    
    
    
    9,750Total cash and cash equivalents
    
    
    29,446
    
    
    
    31,077Securities available for sale, at fair value
    
    
    91,104
    
    
    
    99,542Securities held to maturity (fair value 2006 - $11,821; 2005 - $14,672)
    
    
    11,899
    
    
    
    14,851Loans held for sale
    
    
    2,226
    
    
    
    1,042Loans, net of allowance of 2006- $6,692, 2005- $6,301
    
    
    444,301
    
    
    
    433,055Bank premises and equipment
    
    
    16,854
    
    
    
    14,617Accrued interest receivable 2,676 2,676
    
    
    2,985
    
    
    
    2,676Bank owned life insurance
    
    
    6,815
    
    
    
    6,579Goodwill
    
    
    7,955
    
    
    
    7,955Acquisition intangibles
    
    
    759
    
    
    
    1,075Federal Home Loan Bank stock
    
    
    2,032
    
    
    
    2,300Other assets
    
    
    5,922
    
    
    
    4,320$
    622,298
    
    
    $
    619,089LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Noninterest-bearing deposits
    
    $
    74,886
    
    
    $
    76,792Interest-bearing deposits
    
    
    453,669
    
    
    
    451,262Total deposits
    
    
    528,555
    
    
    
    528,054Short-term borrowings
    
    
    1,500
    
    
    
    1,537Federal Home Loan Bank Advances
    
    
    11,052
    
    
    
    14,228Repurchase Agreements
    
    
    10,000
    
    
    
    10,000Subordinated debentures
    
    
    14,000
    
    
    
    14,000Accrued taxes, interest and other liabilities
    
    
    5,873
    
    
    
    4,375Total liabilities
    
    
    570,980
    
    
    
    572,194Stockholders equityCommon stock  $0 par value, 5,000,000 shares authorized,
shares issued 2,152,862  2006; 1,931,297  2005
    
    
    42,158
    
    
    
    34,491Retained earnings
    
    
    10,118
    
    
    
    13,729Accumulated other comprehensive income (loss)
    
    
    (958
    )
    
    
    (1,325
    )51,318
    
    
    
    46,895$
    622,298
    
    
    $
    619,089
 See accompanying notes to consolidated financial statements.
    
    
    2.




---



##### 



2006
    
    2005
    
    2004Interest incomeLoans, including fees
    
    $
    35,131
    
    
    $
    29,670
    
    
    $
    22,161Securities:Taxable
    
    
    3,461
    
    
    
    3,250
    
    
    
    3,053Tax-exempt
    
    
    809
    
    
    
    794
    
    
    
    746Short-term investments
    
    
    515
    
    
    
    164
    
    
    
    134Total interest income
    
    
    39,916
    
    
    
    33,878
    
    
    
    26,094Interest expenseDeposits
    
    
    14,743
    
    
    
    9,390
    
    
    
    7,004Other Borrowings
    
    
    2,165
    
    
    
    1,908
    
    
    
    1,259Total interest expense
    
    
    16,908
    
    
    
    11,298
    
    
    
    8,263Net interest income
    
    
    23,008
    
    
    
    22,580
    
    
    
    17,831Provision for loan losses
    
    
    1,120
    
    
    
    1,389
    
    
    
    1,389Net interest income after provision for loan losses
    
    
    21,888
    
    
    
    21,191
    
    
    
    16,442Noninterest incomeService charges on deposit accounts
    
    
    3,708
    
    
    
    3,445
    
    
    
    3,738Gain on sale of mortgage loans
    
    
    615
    
    
    
    842
    
    
    
    510Trust and investment services income
    
    
    1,554
    
    
    
    1,157
    
    
    
    1,072Gain (Loss) on sale of securities
    
    
    (2
    )
    
    
    (149
    )
    
    
    0Gain on sale of credit card and SBA loans
    
    
    0
    
    
    
    0
    
    
    
    464Other income and fees
    
    
    1,768
    
    
    
    1,587
    
    
    
    1,508Total noninterest income
    
    
    7,643
    
    
    
    6,882
    
    
    
    7,292Noninterest expenseSalaries and employee benefits
    
    
    12,738
    
    
    
    11,983
    
    
    
    9,956Occupancy
    
    
    1,858
    
    
    
    1,673
    
    
    
    1,633Furniture and equipment
    
    
    2,140
    
    
    
    2,080
    
    
    
    2,153Loan and collection
    
    
    320
    
    
    
    388
    
    
    
    289Advertising and promotional
    
    
    624
    
    
    
    627
    
    
    
    499Telephone and communication services
    
    
    538
    
    
    
    508
    
    
    
    314Other professional services
    
    
    1,066
    
    
    
    949
    
    
    
    1,031Other general and administrative
    
    
    2,702
    
    
    
    2,592
    
    
    
    2,301Total noninterest
expense
    
    
    21,986
    
    
    
    20,800
    
    
    
    18,176Income before taxes
    
    
    7,545
    
    
    
    7,273
    
    
    
    5,558Federal income taxes
    
    
    2,237
    
    
    
    2,219
    
    
    
    1,524Net income
    
    $
    5,308
    
    
    $
    5,054
    
    
    $
    4,034Per share:Earnings  basic
    
    $
    2.48
    
    
    $
    2.41
    
    
    $
    1.95Earnings  diluted
    
    
    2.47
    
    
    
    2.40
    
    
    
    1.94
 See accompanying notes to consolidated financial statements.
    
    
    3.




---



##### 



2006
    
    2005
    
    2004Net income
    
    $
    5,308
    
    
    $
    5,054
    
    
    $
    4,034Other comprehensive income:Unrealized holding gains (losses) on available
for sale securities
    
    
    558
    
    
    
    (1,163
    )
    
    
    (803
    )Less: reclassification adjustment for (gains) and
losses later recognized in income
    
    
    2
    
    
    
    149
    
    
    
    0Net unrealized gains (losses)
    
    
    556
    
    
    
    (1,014
    )
    
    
    (803
    )Tax effect
    
    
    (189
    )
    
    
    344
    
    
    
    273Other comprehensive income (loss), net of tax
    
    
    367
    
    
    
    (670
    )
    
    
    (530
    )Comprehensive income
    
    $
    5,672
    
    
    $
    4,384
    
    
    $
    3,504
 See accompanying notes to consolidated financial statements.
    
    
    4.




---



##### 



AccumulatedOther
    
    TotalCommon
    
    Retained
    
    Comprehensive
    
    StockholdersStock
    
    Earnings
    
    Income (Loss)
    
    EquityBalance, January 1, 2004
    
    $
    32,769
    
    
    $
    8,238
    
    
    $
    (125
    )
    
    $
    40,882Net Income
    
    
    0
    
    
    
    4,034
    
    
    
    0
    
    
    
    4,034Cash Dividends ($0.84 per share)
    
    
    0
    
    
    
    (1,758
    )
    
    
    0
    
    
    
    (1,758
    )Stock repurchase (3,621 shares)
    
    
    (122
    )
    
    
    0
    
    
    
    0
    
    
    
    (122
    )Issuance of shares under stock purchase and dividend
reinvestment plans (12,710 shares)
    
    
    463
    
    
    
    0
    
    
    
    0
    
    
    
    463Other comprehensive loss (net of tax)
    
    
    0
    
    
    
    0
    
    
    
    (530
    )
    
    
    (530
    )Balance, December 31, 2004
    
    
    33,110
    
    
    
    10,514
    
    
    
    (655
    )
    
    
    42,969Net Income
    
    
    0
    
    
    
    5,054
    
    
    
    0
    
    
    
    5,054Cash Dividends ($0.88 per share)
    
    
    0
    
    
    
    (1,839
    )
    
    
    0
    
    
    
    (1,839
    )Issuance of shares from common stock offering (23,119 shares)
    
    
    758
    
    
    
    0
    
    
    
    0
    
    
    
    758Issuance of shares under stock purchase and dividend
reinvestment plans (18,715 shares)
    
    
    623
    
    
    
    0
    
    
    
    0
    
    
    
    623Other comprehensive loss (net of tax)
    
    
    0
    
    
    
    0
    
    
    
    (670
    )
    
    
    (670
    )Balance, December 31, 2005
    
    
    34,491
    
    
    
    13,729
    
    
    
    (1,325
    )
    
    
    46,895Net Income
    
    
    0
    
    
    
    5,308
    
    
    
    0
    
    
    
    5,308Cash Dividends ($0.94 per share)
    
    
    0
    
    
    
    (2,069
    )
    
    
    0
    
    
    
    (2,069
    )Stock dividend (194,978 shares)
    
    
    6,850
    
    
    
    (6,850
    )
    
    
    0
    
    
    
    0Issuance of shares under stock purchase and
Dividend reinvestment plans (22,541 shares)
    
    
    742
    
    
    
    0
    
    
    
    0
    
    
    
    742Stock compensation expense
    
    
    20
    
    
    
    0
    
    
    
    0
    
    
    
    20Issuance of shares under stock option exercise (4,046 shares  2006)
    
    
    55
    
    
    
    0
    
    
    
    0
    
    
    
    55Other comprehensive income (net of tax)
    
    
    0
    
    
    
    0
    
    
    
    367
    
    
    
    367Balance, December 31, 2006
    
    $
    42,158
    
    
    $
    10,118
    
    
    $
    (958
    )
    
    $
    51,318
 See accompanying notes to consolidated financial statements.
    
    
    5.




---



##### 



2006
    
    2005
    
    2004OPERATING ACTIVITIES:Net income
    
    $
    5,308
    
    
    $
    5,054
    
    
    $
    4,034Adjustments to reconcile net income to cash
Provided by Operating Activities:Stock compensation expense
    
    
    (20
    )
    
    
    0
    
    
    
    0Depreciation and amortization
    
    
    2,008
    
    
    
    1,560
    
    
    
    2,336Provision for loan losses
    
    
    1,120
    
    
    
    1,389
    
    
    
    1,389Loans originated for sale
    
    
    (37,099
    )
    
    
    (52,093
    )
    
    
    (33,822
    )Proceeds from the sale of loans
    
    
    36,530
    
    
    
    53,481
    
    
    
    34,540(Gain) Loss on sale of securities
    
    
    2
    
    
    
    149
    
    
    
    0Gain on sales of loans
    
    
    (615
    )
    
    
    (842
    )
    
    
    (974
    )Net (increase) decrease in bank owned life insurance
    
    
    (236
    )
    
    
    282
    
    
    
    (219
    )Net (increase) decrease in interest receivable & other assets
    
    
    (470
    )
    
    
    213
    
    
    
    (53
    )Net increase (decrease) in interest payable & other liabilities
    
    
    1,329
    
    
    
    465
    
    
    
    1,853Total Adjustments
    
    
    2,549
    
    
    
    4,604
    
    
    
    5,050Net Cash Provided By (Used In) Operating Activities
    
    
    7,857
    
    
    
    9,658
    
    
    
    9,084Cash Flows From Investing Activities:Proceeds from maturities of securities  HTM
    
    
    5,063
    
    
    
    8,505
    
    
    
    3,858Proceeds from maturities of securities  AFS
    
    
    15,178
    
    
    
    1,410
    
    
    
    2,625Proceeds from calls of securities  HTM
    
    
    925
    
    
    
    109
    
    
    
    7Proceeds from calls of securities  AFS
    
    
    975
    
    
    
    19,943
    
    
    
    48,813Proceeds from sales of securities  AFS
    
    
    1,103
    
    
    
    18,144
    
    
    
    0Purchases of securities  HTM
    
    
    (3,050
    )
    
    
    (4,701
    )
    
    
    (10,472
    )Purchases of securities  AFS
    
    
    (8,568
    )
    
    
    (30,358
    )
    
    
    (23,865
    )Net increase in loans
    
    
    (13,830
    )
    
    
    (46,515
    )
    
    
    (42,446
    )Purchase of FHLB stock
    
    
    (132
    )
    
    
    0
    
    
    
    0FHLB stock buy back
    
    
    400
    
    
    
    0
    
    
    
    0Net cash from acquisition of WMFC
    
    
    0
    
    
    
    0
    
    
    
    (1,112
    )Acquisition of premises and equipment, net
    
    
    (3,744
    )
    
    
    (2,223
    )
    
    
    (867
    )Net Cash Provided By (Used in) Investing Activities
    
    
    (5,680
    )
    
    
    (35,686
    )
    
    
    (23,459
    )Cash Flows From Financing Activities:Net increase (decrease) in deposits
    
    
    501
    
    
    
    36,989
    
    
    
    32,712Net increase (decrease) in short term borrowings
    
    
    (37
    )
    
    
    (3,663
    )
    
    
    382Net increase (decrease) in repurchase agreements
    
    
    0
    
    
    
    0
    
    
    
    (2,500
    )Issuance of subordinated debt
    
    
    0
    
    
    
    2,000
    
    
    
    0Proceeds from advances from FHLB
    
    
    4,000
    
    
    
    57,400
    
    
    
    0Repayments of advances from FHLB
    
    
    (7,020
    )
    
    
    (62,418
    )
    
    
    (7,706
    )Proceeds from stock offering
    
    
    0
    
    
    
    758
    
    
    
    0Net proceeds from stock issuance and repurchase
    
    
    817
    
    
    
    623
    
    
    
    341Cash dividends
    
    
    (2,069
    )
    
    
    (1,839
    )
    
    
    (1,758
    )Net Cash Provided By (Used In) Financing Activities
    
    
    (3,808
    )
    
    
    29,850
    
    
    
    21,471NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (1,631
    )
    
    
    3,822
    
    
    
    7,096CASH AND CASH EQUIVALENTS  BEGINNING
    
    
    31,077
    
    
    
    27,255
    
    
    
    20,159CASH AND CASH EQUIVALENTS  ENDING
    
    $
    29,446
    
    
    $
    31,077
    
    
    $
    27,255CASH PAID FOR:Interest
    
    $
    16,341
    
    
    $
    10,933
    
    
    $
    8,160Income Taxes
    
    $
    1,781
    
    
    $
    2,935
    
    
    $
    730NONCASH DISCLOSURES:Transfers from loans to other real estate
    
    $
    1,567
    
    
    $
    564
    
    
    $
    201
 See accompanying notes to consolidated financial statements.
    
    
    6.




---



##### 



CONSOLIDATED STATEMENTS OF CASH FLOWS
 2004Securities acquired (including FHLB stock)
    
    $
    26,966Loans acquired
    
    
    97,277Bank premises and equipment
    
    
    4,782Bank owned life insurance
    
    
    184Acquisition intangibles recorded
    
    
    9,578Other assets acquired
    
    
    718Deposits assumed
    
    
    (109,828
    )Borrowings assumed
    
    
    (27,369
    )Other liabilities assumed
    
    
    (1,194
    )
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Nature of Operations and Principles of Consolidation
  Use of Estimates
 Cash Flows
 (Continued)
    
    7.




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Securities
   Loans
   Allowance for Loan Losses
 (Continued)
    
    8.




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   Foreclosed Assets
 Premises and Equipment
 Federal Home Loan Bank (FHLB) stock
 Long-term Assets
 Bank owned life insurance
 Goodwill
 Acquisition Intangibles
 (Continued)
    
    9.




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES )
 Stock Based Compensation Share-based Payment
  Accounting for
Stock-Based Compensation,
 2005
    
    
    2004Net incomeAs reported
    
    $
    5,054
    
    
    $
    4,034Deduct: Stock-based compensation
expense determined under a fair value
based system
    
    
    (8
    )
    
    
    (93
    )Proforma
    
    $
    5,046
    
    
    $
    3,941Basic net income per shareAs reported
    
    $
    2.41
    
    
    $
    1.95Proforma
    
    
    2.41
    
    
    
    1.90Diluted net income per shareAs reported
    
    $
    2.40
    
    
    $
    1.94Proforma
    
    
    2.40
    
    
    
    1.89
 Income Taxes
 Loan Commitments and Financial Instruments
 (Continued)
    
    10.




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (
 Earnings Per Common Share
 Comprehensive Income
 Loss Contingencies
 Restrictions on Cash
 Dividend Restriction
 Fair Value of Financial Instruments
 Operating Segments
 Reclassifications
 Adoption
of New Accounting Standards
 Share-based Payment
 (Continued)
    
    11.




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements (SAB 108),
 Effect
of Newly Issued But Not Yet Effective Accounting Standards:
 Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement No. 109
 (Continued)
    
    12.




---



##### 



NOTE 2  EARNINGS PER SHARE
  $ in thousands except per share data
    
    2006
    
    
    2005
    
    
    2004BasicNet income
    
    $
    5,308
    
    
    $
    5,054
    
    
    $
    4,034Weighted average common shares outstanding
    
    
    2,141,388
    
    
    
    2,096,002
    
    
    
    2,072,741Basic earnings per common share
    
    $
    2.48
    
    
    $
    2.41
    
    
    $
    1.95DilutedNet income
    
    $
    5,308
    
    
    $
    5,054
    
    
    $
    4,034Weighted average common shares outstanding
for basic earnings per common share
    
    
    2,141,388
    
    
    
    2,096,002
    
    
    
    2,072,741Add: Dilutive effects of assumed exercises of
stock options
    
    
    4,674
    
    
    
    6,434
    
    
    
    9,197Average shares and dilutive potential common shares
    
    
    2,146,062
    
    
    
    2,102,436
    
    
    
    2,081,938Diluted earnings per common share
    
    $
    2.47
    
    
    $
    2.40
    
    
    $
    1.94
  (Continued)
    
    13.




---



##### 



NOTE 3  SECURITIES
  Available for Sale
 Gross
    
    
    GrossFair
    
    
    Unrealized
    
    
    UnrealizedValue
    
    
    Gains
    
    
    Losses2006U.S. Government and federal agency
    
    $
    20,985
    
    
    $
    0
    
    
    $
    (546
    )State and municipal
    
    
    9,311
    
    
    
    77
    
    
    
    (27
    )Mortgage-backed
    
    
    58,499
    
    
    
    48
    
    
    
    (1,189
    )Equity securities
    
    
    2,309
    
    
    
    191
    
    
    
    (5
    )$
    91,104
    
    
    $
    316
    
    
    $
    (1,767
    )2005U.S. Government and federal agency
    
    $
    22,886
    
    
    $
    0
    
    
    $
    (640
    )State and municipal
    
    
    6,591
    
    
    
    59
    
    
    
    (47
    )Mortgage-backed
    
    
    68,057
    
    
    
    4
    
    
    
    (1,481
    )Equity securities
    
    
    2,008
    
    
    
    100
    
    
    
    (2
    )$
    99,542
    
    
    $
    163
    
    
    $
    (2,170
    )
 Held to Maturity
 Gross
    
    
    GrossAmortized
    
    
    Unrecognized
    
    
    Unrecognized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value2006Mortgage-backed
    
    $
    9
    
    
    $
    0
    
    
    $
    0
    
    
    $
    9State and municipal
    
    
    11,890
    
    
    
    36
    
    
    
    (114
    )
    
    
    11,812$
    11,899
    
    
    $
    36
    
    
    $
    (114
    )
    
    $
    11,8212005Mortgage-backed
    
    $
    14
    
    
    $
    1
    
    
    $
    0
    
    
    $
    15State and municipal
    
    
    14,837
    
    
    
    46
    
    
    
    (226
    )
    
    
    14,657$
    14,851
    
    
    $
    47
    
    
    $
    (226
    )
    
    $
    14,672
  2006
    
    2005
    
    2004Proceeds
    
    $
    1,103
    
    
    $
    18,144
    
    
    $
    0Gross gains
    
    
    0
    
    
    
    18
    
    
    
    0Gross losses
    
    
    (2
    )
    
    
    (167
    )
    
    
    (0
    )
 (Continued)
    
    14.




---



##### 



NOTE 3  SECURITIES (Continued)
  Held to Maturity
    
    
    Available for SaleAmortized
    
    
    Fair
    
    
    FairCost
    
    
    Value
    
    
    ValueDue in one year or less
    
    $
    3,061
    
    
    $
    3,053
    
    
    $
    4,687Due from one to five years
    
    
    4,912
    
    
    
    4,867
    
    
    
    14,973Due from five to ten years
    
    
    2,514
    
    
    
    2,479
    
    
    
    2,398Due after ten years
    
    
    1,403
    
    
    
    1,413
    
    
    
    8,238Mortgage-backed securities
    
    
    9
    
    
    
    9
    
    
    
    58,499Equity securities
    
    
    0
    
    
    
    0
    
    
    
    2,309$
    11,899
    
    
    $
    11,821
    
    
    $
    91,104
    2006
    
    Less than 12 Months
    
    
    12 Months or More
    
    
    TotalDescription of
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedSecurities
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossUS Government &
federal agency
    
    $
    2,964
    
    
    $
    (11
    )
    
    $
    18,020
    
    
    $
    (535
    )
    
    $
    20,984
    
    
    $
    (546
    )State & municipal
    
    
    2,807
    
    
    
    (14
    )
    
    
    6,863
    
    
    
    (127
    )
    
    
    9,670
    
    
    
    (141
    )Mortgage-backed
    
    
    52,981
    
    
    
    (1,189
    )
    
    
    0
    
    
    
    0
    
    
    
    52,981
    
    
    
    (1,189
    )Equity securities
    
    
    0
    
    
    
    0
    
    
    
    24
    
    
    
    (5
    )
    
    
    24
    
    
    
    (5
    )Total temporarily
impaired
    
    $
    58,752
    
    
    $
    (1,214
    )
    
    $
    24,907
    
    
    $
    (667
    )
    
    $
    83,659
    
    
    $
    (1,881
    )
 (Continued)
    
    15.




---



##### 



NOTE 3  SECURITIES (Continued)
 2005
    
    Less than 12 Months
    
    
    12 Months or More
    
    
    TotalDescription of
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedSecurities
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossUS Government &
federal agency
    
    $
    0
    
    
    $
    0
    
    
    $
    22,886
    
    
    $
    (640
    )
    
    $
    22,886
    
    
    $
    (640
    )State & municipal
    
    
    5,218
    
    
    
    (47
    )
    
    
    7,593
    
    
    
    (226
    )
    
    
    12,811
    
    
    
    (273
    )Mortgage-backed
    
    
    67,231
    
    
    
    (1,481
    )
    
    
    0
    
    
    
    0
    
    
    
    67,231
    
    
    
    (1,481
    )Equity securities
    
    
    0
    
    
    
    0
    
    
    
    19
    
    
    
    (2
    )
    
    
    19
    
    
    
    (2
    )Total temporarily
impaired
    
    $
    72,449
    
    
    $
    (1,528
    )
    
    $
    30,498
    
    
    $
    (868
    )
    
    $
    102,947
    
    
    $
    (2,396
    )
   NOTE 4  LOANS
  2006
    
    
    2005Commercial
    
    $
    272,402
    
    
    $
    254,498Real estate  construction
    
    
    78,927
    
    
    
    76,386Real estate  mortgage
    
    
    36,867
    
    
    
    37,627Consumer
    
    
    62,797
    
    
    
    70,845450,993
    
    
    
    439,356Less allowance for loan losses
    
    
    6,692
    
    
    
    6,301$
    444,301
    
    
    $
    433,055
 (Continued)
    
    16.




---



##### 



NOTE 4  LOANS
    2006
    
    
    2005
    
    
    2004Balance, beginning of year
    
    $
    6,301
    
    
    $
    5,501
    
    
    $
    3,414Provision for loan losses
    
    
    1,120
    
    
    
    1,389
    
    
    
    1,389Addition from WMCB Acquisition
    
    
    0
    
    
    
    0
    
    
    
    1,159Loans charged off
    
    
    (877
    )
    
    
    (765
    )
    
    
    (671
    )Loan recoveries
    
    
    148
    
    
    
    176
    
    
    
    210Balance, end of year
    
    $
    6,692
    
    
    $
    6,301
    
    
    $
    5,501
  2006
    
    
    2005Year end loans not requiring allocation
    
    $
    1,365
    
    
    $
    1,092Year end loans requiring allocation
    
    
    3,397
    
    
    
    2,714$
    4,762
    
    
    $
    3,806Amount of the allowance for loan losses allocated
    
    $
    606
    
    
    $
    684
  (Continued)
    
    17.




---



##### 



NOTE 4  LOANS
  NOTE 5  PREMISES AND EQUIPMENT, NET
  2006
    
    
    2005Land and land improvements
    
    $
    5,219
    
    
    $
    4,375Building and building improvements
    
    
    12,948
    
    
    
    11,199Furniture and equipment
    
    
    8,805
    
    
    
    7,719Construction in progress
    
    
    776
    
    
    
    73527,748
    
    
    
    24,028Less accumulated depreciation
    
    
    10,894
    
    
    
    9,411$
    16,854
    
    
    $
    14,617
   2007
    
    $
    2682008
    
    
    1182009
    
    
    1182010
    
    
    1192011
    
    
    112Thereafter
    
    
    0$
    735
 (Continued)
    
    18.




---



##### 



NOTE 6  GOODWILL AND INTANGIBLE ASSETS
 Goodwill
  Acquired Intangible Assets
  AccumulatedGross Carrying
    
    
    AmortizationAmortized intangible assets
    
    Amounts
    
    
    2006
    
    
    2005Core deposit assets
    
    $
    1,509
    
    
    $
    818
    
    
    $
    556Customer relationship intangibles
    
    
    216
    
    
    
    148
    
    
    
    94Total
    
    $
    1,725
    
    
    $
    966
    
    
    $
    650
   2006
    
    $
    2742007
    
    
    1922008
    
    
    1362009
    
    
    942010
    
    
    52
  (Continued)
    
    19.




---



##### 



NOTE 7  DEPOSITS
  2006
    
    
    2005Noninterest-bearing:Demand
    
    $
    74,886
    
    
    $
    76,792Interest-bearing:Savings
    
    
    88,893
    
    
    
    109,694Money market demand
    
    
    102,535
    
    
    
    118,445Time, $100,000 and over
    
    
    136,978
    
    
    
    115,452Time, $100,000 and under
    
    
    125,263
    
    
    
    107,671$
    528,555
    
    
    $
    528,054
   2006
    
    
    2005In one year
    
    $
    174,147
    
    
    $
    153,404In two years
    
    
    42,855
    
    
    
    36,497In three years
    
    
    20,117
    
    
    
    13,495In four years
    
    
    10,312
    
    
    
    10,764In five years
    
    
    14,513
    
    
    
    8,767Thereafter
    
    
    297
    
    
    
    196$
    262,241
    
    
    $
    223,123
  (Continued)
    
    20.




---



##### 



NOTE 8  BORROWINGS
 Short-Term
Borrowings
  Federal
Home Loan Bank Advances
  AdvancePrincipal Terms
    
    Amount
    
    
    Range of Maturities
    
    RateDecember 31, 2006Single Maturity fixed rate advances
    
    $
    11,052
    
    
    January 2007 to May 2016
    
    
    5.13
    %December 31, 2005Single Maturity fixed rate advances
    
    $
    10,228
    
    
    January 2006 to May 2016
    
    
    4.27
    %Putable advances
    
    
    4,000
    
    
    January 2006 to January 2011
    
    
    4.48
    %$
    14,228
   2007
    
    $
    3,0222008
    
    
    3,0242009
    
    
    262010
    
    
    2,0282011
    
    
    2,030Thereafter
    
    
    922$
    11,052
 (Continued)
    
    21.




---



##### 



NOTE 8  BORROWINGS
 Repurchase Agreements
   2006
    
    2005Average daily balance during the year
    
    $
    10,000
    
    
    $
    10,000Average interest rate during the year
    
    
    3.32
    %
    
    
    2.70
    %Maximum month-end balance during the year
    
    $
    10,000
    
    
    $
    10,000Weighted average interest rate at year-end
    
    
    3.32
    %
    
    
    3.32
    %
 Subordinated Debenture and Trust Preferred Securities
   (Continued)
    
    22.




---



##### 



NOTE 9  INCOME TAXES
  2006
    
    
    2005
    
    
    2004Current expense
    
    $
    2,749
    
    
    $
    2,704
    
    
    $
    1,524Deferred (benefit) expense
    
    
    (511
    )
    
    
    (485
    )
    
    
    0$
    2,237
    
    
    $
    2,219
    
    
    $
    1,524
  2006
    
    
    2005
    
    
    2004Income tax at statutory rate
    
    $
    2,565
    
    
    $
    2,473
    
    
    $
    1,890Tax exempt interest
    
    
    (336
    )
    
    
    (307
    )
    
    
    (291
    )Other
    
    
    8
    
    
    
    53
    
    
    
    (75
    )$
    2,237
    
    
    $
    2,219
    
    
    $
    1,524
  2006
    
    
    2005Deferred tax assetsAllowance for loan losses
    
    $
    2,257
    
    
    $
    1,866Unrealized loss on securities available for sale
    
    
    493
    
    
    
    682Compensation
    
    
    369
    
    
    
    392Other
    
    
    18
    
    
    
    1683,137
    
    
    
    3,108Deferred tax liabilitiesDepreciation
    
    
    (264
    )
    
    
    (265
    )Purchase accounting adjustments
    
    
    (258
    )
    
    
    (577
    )Other
    
    
    (100
    )
    
    
    (111
    )(622
    )
    
    
    (953
    )$
    2,515
    
    
    $
    2,155
  (Continued)
    
    23.




---



##### 



NOTE 10  BENEFIT PLANS
   NOTE 11  STOCK PURCHASE AND OPTION PLANS
 Director and Employee Plans
    Dividend Investment Plan
  (Continued)
    
    24.




---



##### 



NOTE 11  STOCK PURCHASE AND OPTION PLANS
   2006
    
    2005
    
    2004Automatic dividend reinvestment plan
    
    
    13,337
    
    
    
    11,586
    
    
    
    10,452Director stock purchase & retainer stock
    
    
    7,892
    
    
    
    6,384
    
    
    
    3,529Stock options
    
    
    5,525
    
    
    
    0
    
    
    
    0Other issuance of stock
    
    
    2,890
    
    
    
    2,616
    
    
    
    029,644
    
    
    
    20,586
    
    
    
    13,981
 Stock Option Plans
    (Continued)
    
    25.




---



##### 



NOTE 11  STOCK PURCHASE AND OPTION PLANS
 :
 WeightedAverageNumber
    
    
    Weighted
    
    
    Remaining
    
    
    Aggregateof
    
    
    Average
    
    
    Contractual
    
    
    IntrinsicOptions
    
    
    Price
    
    
    Life
    
    
    ValueOptions outstanding at January 1, 2006
    
    
    46,532
    
    
    $
    28.04Options exercised 2006
    
    
    (5,525
    )
    
    
    15.74Options forfeited 2006
    
    
    (484
    )
    
    
    30.88Options outstanding at December 31, 2006
    
    
    40,523
    
    
    $
    29.68
    
    
    
    6.19
    
    
    $
    116,369Exercisable at December 31, 2006
    
    
    29,412
    
    
    $
    30.45
    
    
    
    6.13
    
    
    $
    61,628
  2005
    
    2004Risk-free interest rate
    
    
    4.28
    %
    
    
    3.78
    %Expected option life
    
    6 years
    
    6 yearsExpected stock price volatility
    
    
    26
    %
    
    
    23
    %Dividend yield
    
    
    3.20
    %
    
    
    2.70
    %Fair value
    
    $
    6.13
    
    
    $
    6.29
  2006Intrinsic value of options exercised
    
    $
    85Cash received from option exercises
    
    
    55Tax benefit realized from option exercises
    
    
    0
  (Continued)
    
    26.




---



##### 



NOTE 12  REGULATORY MATTERS
   (Continued)
    
    27.




---



##### 



NOTE 12  REGULATORY MATTERS
 To Be WellFor Capital
    
    Capitalized UnderAdequacy
    
    Prompt CorrectiveActual
    
    Purposes
    
    Action ProvisionsAs of December 31, 2006
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTotal Capital
(to Risk Weighted Assets)Consolidated
    
    $
    63,934
    
    
    
    12.5
    %
    
    $
    40,949
    
    
    
    8.0
    %
    
    $
    51,186
    
    
    
    10.0
    %The State Bank
    
    
    35,985
    
    
    
    11.0
    
    
    
    26,062
    
    
    
    8.0
    
    
    
    32,577
    
    
    
    10.0Davison State Bank
    
    
    4,737
    
    
    
    11.7
    
    
    
    3,250
    
    
    
    8.0
    
    
    
    4,063
    
    
    
    10.0West Michigan Community Bank
    
    
    16,236
    
    
    
    11.3
    
    
    
    11,446
    
    
    
    8.0
    
    
    
    14,307
    
    
    
    10.0Tier 1 Capital
(to Risk Weighted Assets)Consolidated
    
    
    57,562
    
    
    
    11.3
    
    
    
    20,474
    
    
    
    4.0
    
    
    
    30,712
    
    
    
    6.0The State Bank
    
    
    31,913
    
    
    
    9.8
    
    
    
    13,031
    
    
    
    4.0
    
    
    
    19,546
    
    
    
    6.0Davison State Bank
    
    
    4,229
    
    
    
    10.4
    
    
    
    1,625
    
    
    
    4.0
    
    
    
    2,438
    
    
    
    6.0West Michigan Community Bank
    
    
    14,444
    
    
    
    10.1
    
    
    
    5,723
    
    
    
    4.0
    
    
    
    8,584
    
    
    
    6.0Tier 1 Capital (to Average Assets)Consolidated
    
    
    57,562
    
    
    
    8.6
    
    
    
    26,897
    
    
    
    4.0
    
    
    
    33,622
    
    
    
    5.0The State Bank
    
    
    31,913
    
    
    
    8.2
    
    
    
    15,481
    
    
    
    4.0
    
    
    
    19,352
    
    
    
    5.0Davison State Bank
    
    
    4,229
    
    
    
    8.2
    
    
    
    2,068
    
    
    
    4.0
    
    
    
    2,585
    
    
    
    5.0West Michigan Community Bank
    
    
    14,444
    
    
    
    8.6
    
    
    
    6,739
    
    
    
    4.0
    
    
    
    8,424
    
    
    
    5.0
 (Continued)
    
    28.




---



##### 



NOTE 12  REGULATORY MATTERS
 To Be WellFor Capital
    
    Capitalized UnderAdequacy
    
    Prompt CorrectiveActual
    
    Purposes
    
    Action ProvisionsAs of December 31, 2005
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTotal Capital
(to Risk Weighted Assets)Consolidated
    
    $
    59,880
    
    
    
    11.9
    %
    
    $
    40,430
    
    
    
    8.0
    %
    
    $
    50,537
    
    
    
    10.0
    %The State Bank
    
    
    37,037
    
    
    
    11.5
    
    
    
    25,857
    
    
    
    8.0
    
    
    
    32,322
    
    
    
    10.0Davison State Bank
    
    
    5,357
    
    
    
    11.6
    
    
    
    3,711
    
    
    
    8.0
    
    
    
    4,639
    
    
    
    10.0West Michigan Community Bank
    
    
    13,970
    
    
    
    10.5
    
    
    
    10,602
    
    
    
    8.0
    
    
    
    13,252
    
    
    
    10.0Tier 1 Capital
(to Risk Weighted Assets)Consolidated
    
    
    53,738
    
    
    
    10.6
    
    
    
    20,215
    
    
    
    4.0
    
    
    
    30,322
    
    
    
    6.0The State Bank
    
    
    33,121
    
    
    
    10.3
    
    
    
    12,929
    
    
    
    4.0
    
    
    
    19,393
    
    
    
    6.0Davison State Bank
    
    
    4,790
    
    
    
    10.3
    
    
    
    1,856
    
    
    
    4.0
    
    
    
    2,783
    
    
    
    6.0West Michigan Community Bank
    
    
    12,311
    
    
    
    9.3
    
    
    
    5,301
    
    
    
    4.0
    
    
    
    7,951
    
    
    
    6.0Tier 1 Capital (to Average Assets)Consolidated
    
    
    53,738
    
    
    
    8.9
    
    
    
    24,069
    
    
    
    4.0
    
    
    
    30,086
    
    
    
    5.0The State Bank
    
    
    33,121
    
    
    
    8.6
    
    
    
    15,453
    
    
    
    4.0
    
    
    
    19,317
    
    
    
    5.0Davison State Bank
    
    
    4,790
    
    
    
    8.6
    
    
    
    2,212
    
    
    
    4.0
    
    
    
    2,764
    
    
    
    5.0West Michigan Community Bank
    
    
    12,311
    
    
    
    7.9
    
    
    
    6,253
    
    
    
    4.0
    
    
    
    7,816
    
    
    
    5.0
 (Continued)
    
    29.




---



##### 



NOTE 13  FINANCIAL INSTRUMENTS
  2006
    
    2005Carrying
    
    
    
    
    
    CarryingAmount
    
    Fair Value
    
    Amount
    
    Fair ValueAssets:Cash and cash equivalents
    
    $
    29,446
    
    
    $
    29,446
    
    
    $
    31,077
    
    
    $
    31,077Securities  available for sale
    
    
    91,104
    
    
    
    91,104
    
    
    
    99,542
    
    
    
    99,542Securities  held to maturity
    
    
    11,899
    
    
    
    11,821
    
    
    
    14,851
    
    
    
    14,672FHLB stock
    
    
    2,032
    
    
    
    2,032
    
    
    
    2,300
    
    
    
    2,300Loans held for sale
    
    
    2,226
    
    
    
    2,231
    
    
    
    1,042
    
    
    
    1,045Loans
    
    
    444,301
    
    
    
    435,743
    
    
    
    433,055
    
    
    
    436,060Bank owned life insurance
    
    
    6,815
    
    
    
    6,815
    
    
    
    6,579
    
    
    
    6,579Accrued interest receivable
    
    
    2,985
    
    
    
    2,985
    
    
    
    2,676
    
    
    
    2,676Liabilities:Deposits
    
    $
    528,555
    
    
    $
    521,440
    
    
    $
    528,054
    
    
    $
    524,745Short-term borrowings
    
    
    1,500
    
    
    
    1,500
    
    
    
    1,537
    
    
    
    1,537FHLB advances
    
    
    11,052
    
    
    
    11,052
    
    
    
    14,228
    
    
    
    14,072Repurchase agreements
    
    
    10,000
    
    
    
    10,000
    
    
    
    10,000
    
    
    
    10,000Subordinated debentures
    
    
    14,000
    
    
    
    14,000
    
    
    
    14,000
    
    
    
    14,000Accrued interest payable
    
    
    1,608
    
    
    
    1,608
    
    
    
    1,041
    
    
    
    1,041
  Cash and cash equivalents
  Securities (including mortgage-backed securities)
  Loans held for sale
  Loans
  (Continued)
    
    30.




---



##### 



NOTE 13  FINANCIAL INSTRUMENTS
 Bank owned life insurance
  Off-balance-sheet instruments
  Deposit liabilities
  Short-term borrowings
  FHLB advances
  Repurchase agreements
  Subordinated Debentures
  Limitations
  (Continued)
    
    31.




---



##### 



NOTE 13  FINANCIAL INSTRUMENTS
 Off-balance-sheet risk
   2006
    
    2005Commitments to make loans (at market rates)
    
    $
    43,414
    
    
    $
    42,112Unused lines of credit and letters of credit
    
    
    72,869
    
    
    
    75,014
  (Continued)
    
    32.




---



##### 



NOTE 14  PARENT ONLY CONDENSED FINANCIAL INFORMATION
  
 2006
    
    
    2005ASSETSCash and cash equivalents
    
    $
    5,396
    
    
    $
    1,664Securities available for sale, at market
    
    
    2,309
    
    
    
    2,008Other assets
    
    
    143
    
    
    
    211Investment in subsidiaries
    
    
    58,220
    
    
    
    57,379$
    66,068
    
    
    $
    61,262LIABILITIES AND STOCKHOLDERS EQUITYOther liabilities
    
    $
    750
    
    
    $
    367Subordinated debt
    
    
    14,000
    
    
    
    14,000Stockholders Equity
    
    
    51,318
    
    
    
    46,895$
    66,068
    
    
    $
    61,262
 
 2006
    
    
    2005
    
    
    2004Interest on securities
    
    $
    0
    
    
    $
    0
    
    
    $
    1Other income
    
    
    1
    
    
    
    3
    
    
    
    2Dividends from subsidiaries
    
    
    6,849
    
    
    
    2,158
    
    
    
    2,697Interest expense
    
    
    (1,264
    )
    
    
    (898
    )
    
    
    (569
    )Operating expenses
    
    
    (327
    )
    
    
    (270
    )
    
    
    (349
    )Equity in undistributed income of subsidiaries
    
    
    (468
    )
    
    
    3,664
    
    
    
    1,942Income before income taxes
    
    
    4,791
    
    
    
    4,657
    
    
    
    3,724Federal income tax expense (benefit)
    
    
    (517
    )
    
    
    (397
    )
    
    
    (310
    )Net income
    
    $
    5,308
    
    
    $
    5,054
    
    
    $
    4,034
 (Continued)
    
    33.




---



##### 



NOTE 14  PARENT ONLY CONDENSED FINANCIAL INFORMATION
 
 2006
    
    
    2005
    
    
    2004Cash flows from operating activitiesNet income
    
    $
    5,308
    
    
    $
    5,054
    
    
    $
    4,034Amortization
    
    
    0
    
    
    
    0
    
    
    
    1Change in other assets
    
    
    38
    
    
    
    429
    
    
    
    (4,724
    )Change in other liabilities
    
    
    383
    
    
    
    (106
    )
    
    
    56Equity in undistributed income of subsidiary
    
    
    468
    
    
    
    (3,664
    )
    
    
    (1,942
    )Net cash from operating activities
    
    
    6,197
    
    
    
    1,713
    
    
    
    (2,575
    )Cash flows provided by investing activitiesPurchase of equity securities
    
    
    (213
    )
    
    
    (865
    )
    
    
    (650
    )Sales and maturities of securities  AFS
    
    
    0
    
    
    
    0
    
    
    
    300Purchases of securities  AFS
    
    
    0
    
    
    
    0
    
    
    
    0Purchase of West Michigan Financial Corp
    
    
    0
    
    
    
    0
    
    
    
    (12,900
    )Investment in subsidiary
    
    
    (1,000
    )
    
    
    (500
    )
    
    
    (1,700
    )Net cash from investing activities
    
    
    (1,213
    )
    
    
    (1,365
    )
    
    
    (14,950
    )Cash flows used in financing activitiesIssuance of subordinated debt
    
    
    0
    
    
    
    2,000
    
    
    
    0Net short-term borrowings
    
    
    0
    
    
    
    (750
    )
    
    
    750Dividends paid
    
    
    (2,069
    )
    
    
    (1,839
    )
    
    
    (1,758
    )Stock repurchase
    
    
    0
    
    
    
    0
    
    
    
    (122
    )Proceeds from stock issuance
    
    
    817
    
    
    
    1,381
    
    
    
    463Net cash from financing net activities
    
    
    (1,252
    )
    
    
    792
    
    
    
    (667
    )Change in cash and cash equivalents
    
    
    3,732
    
    
    
    1,140
    
    
    
    (18,192
    )Cash and cash equivalents at beginning of year
    
    
    1,664
    
    
    
    524
    
    
    
    18,716Cash and cash equivalents at end of year
    
    $
    5,396
    
    
    $
    1,664
    
    
    $
    524
 (Continued)
    
    34.




---



##### 



NOTE 15  ACQUISITION
   AmountCore deposits intangible
    
    $
    1,509Customer relationships intangible
    
    
    216In conjunction with the acquisition, the fair values of significant assets and liabilities assumed
at March 15, 2004 were as follows, stated in thousands of dollars:Cash and cash equivalents
    
    $
    (1,112
    )Securities
    
    
    26,966Loans
    
    
    97,277Acquisition intangibles
    
    
    9,578Deposits
    
    
    (109,828
    )Other borrowings
    
    
    (27,369
    )
  (Continued)
    
    35.




---



##### 



NOTE 15  ACQUISITION (
 2004Interest income
    
    $
    27,485Interest expense
    
    
    8,691Net interest income
    
    
    18,794Provision for loan losses
    
    
    1,426Net interest income after provision
    
    
    17,368Noninterest income
    
    
    7,555Noninterest expense
    
    
    19,167Income before federal income tax
    
    
    5,756Federal income tax expense
    
    
    1,586Net income
    
    $
    4,170Basic earnings per share
    
    $
    2.21Diluted earnings per share
    
    
    2.20
 NOTE 16  SUMMARY OF QUARTERLY FINANCIAL DATA  UNAUDITED
  First
    
    Second
    
    Third
    
    Fourth2006
    
    Quarter
    
    Quarter
    
    Quarter
    
    QuarterInterest income
    
    $
    9,614
    
    
    $
    9,979
    
    
    $
    10,212
    
    
    $
    10,111Interest expense
    
    
    3,748
    
    
    
    4,134
    
    
    
    4,510
    
    
    
    4,516Provision for loan losses
    
    
    400
    
    
    
    240
    
    
    
    240
    
    
    
    240Noninterest income
    
    
    1,797
    
    
    
    1,888
    
    
    
    1,940
    
    
    
    2,018Noninterest expenses
    
    
    5,569
    
    
    
    5,713
    
    
    
    5,503
    
    
    
    5,201Income before income taxes
    
    
    1,694
    
    
    
    1,780
    
    
    
    1,899
    
    
    
    2,172Provision for income taxes
    
    
    487
    
    
    
    522
    
    
    
    563
    
    
    
    665Net income
    
    
    1,207
    
    
    
    1,258
    
    
    
    1,336
    
    
    
    1,507Earnings per shareBasic
    
    
    .57
    
    
    
    .59
    
    
    
    .62
    
    
    
    .70Diluted
    
    
    .56
    
    
    
    .59
    
    
    
    .62
    
    
    
    .70
 (Continued)
    
    36.




---



##### 



NOTE 16  SUMMARY OF QUARTERLY FINANCIAL DATA  UNAUDITED
 First
    
    Second
    
    Third
    
    Fourth2005
    
    Quarter
    
    Quarter
    
    Quarter
    
    QuarterInterest income
    
    $
    7,647
    
    
    $
    8,278
    
    
    $
    8,813
    
    
    $
    9,140Interest expense
    
    
    2,258
    
    
    
    2,590
    
    
    
    3,036
    
    
    
    3,414Provision for loan losses
    
    
    269
    
    
    
    329
    
    
    
    404
    
    
    
    387Noninterest income
    
    
    1,586
    
    
    
    1,767
    
    
    
    1,884
    
    
    
    1,645Noninterest expenses
    
    
    5,093
    
    
    
    5,298
    
    
    
    5,272
    
    
    
    5,137Income before income taxes
    
    
    1,613
    
    
    
    1,828
    
    
    
    1,985
    
    
    
    1,847Provision for income taxes
    
    
    461
    
    
    
    535
    
    
    
    686
    
    
    
    537Net income
    
    
    1,152
    
    
    
    1,293
    
    
    
    1,299
    
    
    
    1,310Earnings per shareBasic
    
    
    .55
    
    
    
    .62
    
    
    
    .62
    
    
    
    .62Diluted
    
    
    .54
    
    
    
    .62
    
    
    
    .62
    
    
    
    .62
 (Continued)
    
    37.




---



##### 



Managements Discussion and Analysis of Financial Condition and Results of Operations
  TABLE 1
    
    Selected Financial Data
 $ in thousands except per share data and ratios
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Summary of Consolidated Statements of Income:Interest Income
    
    $
    39,916
    
    
    $
    33,878
    
    
    $
    26,094
    
    
    $
    18,438
    
    
    $
    17,952Interest Expense
    
    
    16,908
    
    
    
    11,298
    
    
    
    8,263
    
    
    
    5,601
    
    
    
    5,722Net Interest Income
    
    
    23,008
    
    
    
    22,580
    
    
    
    17,831
    
    
    
    12,837
    
    
    
    12,230Provision for Loan Losses
    
    
    1,120
    
    
    
    1,389
    
    
    
    1,389
    
    
    
    1,319
    
    
    
    426Net Interest Income after Provision
    
    
    21,888
    
    
    
    21,191
    
    
    
    16,442
    
    
    
    11,518
    
    
    
    11,804Total Other Operating Income
    
    
    7,643
    
    
    
    6,882
    
    
    
    7,292
    
    
    
    6,866
    
    
    
    5,394Total Other Operating Expense
    
    
    21,986
    
    
    
    20,800
    
    
    
    18,176
    
    
    
    13,276
    
    
    
    12,253Income Before Income Taxes
    
    
    7,545
    
    
    
    7,273
    
    
    
    5,558
    
    
    
    5,108
    
    
    
    4,945Provision for Income Taxes
    
    
    2,237
    
    
    
    2,219
    
    
    
    1,524
    
    
    
    1,320
    
    
    
    1,479Net Income
    
    $
    5,308
    
    
    $
    5,054
    
    
    $
    4,034
    
    
    $
    3,788
    
    
    $
    3,466Net Income Per Share  Basic *
    
    $
    2.48
    
    
    $
    2.41
    
    
    $
    1.95
    
    
    $
    1.83
    
    
    $
    1.65Net Income Per Share  Diluted *
    
    $
    2.47
    
    
    $
    2.40
    
    
    $
    1.94
    
    
    $
    1.83
    
    
    $
    1.65Summary of Consolidated Balance Sheets:Assets
    
    $
    622,298
    
    
    $
    619,089
    
    
    $
    584,890
    
    
    $
    419,966
    
    
    $
    340,483Securities, including FHLB stock
    
    
    105,035
    
    
    
    116,693
    
    
    
    131,429
    
    
    
    126,856
    
    
    
    63,525Loans, including loans held for sale
    
    
    453,219
    
    
    
    440,398
    
    
    
    395,017
    
    
    
    254,340
    
    
    
    229,730Deposits
    
    
    528,555
    
    
    
    528,054
    
    
    
    491,065
    
    
    
    348,525
    
    
    
    295,869Borrowings and Other Fundings
    
    
    36,552
    
    
    
    39,765
    
    
    
    46,602
    
    
    
    29,057
    
    
    
    2,624Stockholders Equity
    
    
    51,318
    
    
    
    46,895
    
    
    
    42,969
    
    
    
    40,882
    
    
    
    39,928Other Financial and Statistical Data:Tier 1 Capital to Risk Weighted Assets
    
    
    11.30
    %
    
    
    10.60
    %
    
    
    10.20
    %
    
    
    16.90
    %
    
    
    14.10
    %Total Capital to Risk Weighted Assets
    
    
    12.50
    %
    
    
    11.90
    %
    
    
    11.40
    %
    
    
    18.00
    %
    
    
    15.20
    %Tier 1 Capital to Average Assets
    
    
    8.60
    %
    
    
    8.90
    %
    
    
    8.70
    %
    
    
    14.00
    %
    
    
    12.60
    %Total Cash Dividends
    
    $
    2,069
    
    
    $
    1,839
    
    
    $
    1,758
    
    
    $
    1,966
    
    
    $
    1,748Book Value Per Share *
    
    $
    24.08
    
    
    $
    22.07
    
    
    $
    20.67
    
    
    $
    19.74
    
    
    $
    19.16Cash Dividends Paid Per Share *
    
    $
    0.94
    
    
    $
    0.88
    
    
    $
    0.84
    
    
    $
    0.76
    
    
    $
    0.84Period End Market Price Per Share *
    
    $
    32.75
    
    
    $
    29.77
    
    
    $
    33.41
    
    
    $
    28.59
    
    
    $
    28.72Dividend Pay-out Ratio
    
    
    38.98
    %
    
    
    36.39
    %
    
    
    43.58
    %
    
    
    51.90
    %
    
    
    50.43
    %Return on Average Stockholders Equity
    
    
    10.82
    %
    
    
    11.09
    %
    
    
    9.72
    %
    
    
    9.32
    %
    
    
    8.78
    %Return on Average Assets
    
    
    0.85
    %
    
    
    0.85
    %
    
    
    0.74
    %
    
    
    1.00
    %
    
    
    1.10
    %Net Interest Margin
    
    
    4.11
    %
    
    
    4.23
    %
    
    
    3.70
    %
    
    
    3.88
    %
    
    
    4.46
    %Total Equity to Assets at Period End
    
    
    8.25
    %
    
    
    7.57
    %
    
    
    7.34
    %
    
    
    9.73
    %
    
    
    11.73
    %
 
 *
    
    Per Share data calculated using average shares outstanding in each period. Per share amounts and average shares outstanding have
been adjusted to reflect a 10% stock dividend paid on August 4, 2006 and February 13, 2004 (Continued)
    
    38.




---



##### 



RESULTS OF OPERATIONS
   NET INTEREST INCOME
      39




---



##### 



TABLE 2
 Changes in Net Interest Income
Due to Changes in Average Volume
and Interest Rates
Years Ended December 31,
 INCREASE
    
    
    
    
    
    
    
    
    
    
    INCREASE(DECREASE)
    
    
    
    
    
    
    
    
    
    
    (DECREASE)2006
    
    
    
    
    
    
    
    
    
    
    2005DUE
    
    
    
    
    
    
    
    
    
    
    DUETO:
    
    
    TO:YIELD/
    
    
    
    
    
    
    
    
    
    
    YIELD/(000s omitted)
    
    VOL
    
    RATE
    
    TOTAL
    
    
    VOL
    
    RATE
    
    TOTALTAXABLE SECURITIES
    
    $
    (226
    )
    
    $
    448
    
    
    $
    222
    
    
    
    $
    (412
    )
    
    $
    609
    
    
    $
    197TAX-EXEMPT SECURITIES
    
    
    (127
    )
    
    
    150
    
    
    
    23
    
    
    
    
    624
    
    
    
    (551
    )
    
    
    73FEDERAL FUNDS SOLD
    
    
    215
    
    
    
    124
    
    
    
    339
    
    
    
    
    (71
    )
    
    
    101
    
    
    
    30TOTAL LOANS
    
    
    2,178
    
    
    
    3,299
    
    
    
    5,477
    
    
    
    
    3,744
    
    
    
    3,678
    
    
    
    7,422LOANS HELD FOR SALE
    
    
    (37
    )
    
    
    7
    
    
    
    (30
    )
    
    
    
    75
    
    
    
    17
    
    
    
    92TOTAL EARNING ASSETS
    
    
    2,003
    
    
    
    4,028
    
    
    
    6,031
    
    
    
    
    3,960
    
    
    
    3,854
    
    
    
    7,814INTEREST BEARING DEMAND
DEPOSITS
    
    
    (121
    )
    
    
    828
    
    
    
    707
    
    
    
    
    33
    
    
    
    461
    
    
    
    494SAVINGS DEPOSITS
    
    
    (284
    )
    
    
    141
    
    
    
    (143
    )
    
    
    
    (370
    )
    
    
    (522
    )
    
    
    (892
    )TIME CDs $100,000 AND OVER
    
    
    1,748
    
    
    
    1,447
    
    
    
    3,195
    
    
    
    
    1,372
    
    
    
    420
    
    
    
    1,792OTHER TIME DEPOSITS
    
    
    685
    
    
    
    909
    
    
    
    1,594
    
    
    
    
    230
    
    
    
    762
    
    
    
    992OTHER BORROWINGS
    
    
    (333
    )
    
    
    590
    
    
    
    257
    
    
    
    
    203
    
    
    
    446
    
    
    
    649TOTAL INTEREST BEARING
LIABILITIES
    
    
    1,695
    
    
    
    3,915
    
    
    
    5,610
    
    
    
    
    1,468
    
    
    
    1,567
    
    
    
    3,035NET INTEREST INCOME
    
    $
    308
    
    
    $
    113
    
    
    $
    421
    
    
    
    $
    2,492
    
    
    $
    2,287
    
    
    $
    4,779
 40




---



##### 



TABLE 3
 Summary of Net Interest IncomeYears Ended December 31,2006
    
    
    2005
    
    
    2004AVG
    
    
    
    
    
    
    
    
    
    
    AVG
    
    
    
    
    
    
    
    
    
    
    AVG(000s omitted)
    
    BAL
    
    
    INC/EXP
    
    
    YIELD
    
    
    BAL
    
    
    INC/EXP
    
    
    YIELD
    
    
    BAL
    
    
    INC/EXP
    
    
    YIELDASSETSSecurities:U.S. Treasury and Government
Agencies
    
    $
    84,099
    
    
    $
    3,348
    
    
    
    3.98
    %
    
    $
    91,280
    
    
    $
    3,141
    
    
    
    3.44
    %
    
    $
    106,512
    
    
    $
    2,916
    
    
    
    2.74
    %State and Political (1)
    
    
    21,376
    
    
    
    1,226
    
    
    
    5.73
    %
    
    
    23,892
    
    
    
    1,203
    
    
    
    5.04
    %
    
    
    15,354
    
    
    
    1,130
    
    
    
    7.36
    %Other
    
    
    4,304
    
    
    
    124
    
    
    
    2.88
    %
    
    
    3,733
    
    
    
    109
    
    
    
    2.89
    %
    
    
    3,053
    
    
    
    137
    
    
    
    4.49
    %Total Securities
    
    
    109,779
    
    
    
    4,698
    
    
    
    4.28
    %
    
    
    118,905
    
    
    
    4,453
    
    
    
    3.74
    %
    
    
    124,919
    
    
    
    4,183
    
    
    
    3.35
    %Fed Funds Sold
    
    
    10,045
    
    
    
    503
    
    
    
    5.01
    %
    
    
    4,347
    
    
    
    164
    
    
    
    3.77
    %
    
    
    9,308
    
    
    
    134
    
    
    
    1.44
    %Loans:Commercial
    
    
    343,702
    
    
    
    26,820
    
    
    
    7.80
    %
    
    
    307,746
    
    
    
    21,527
    
    
    
    7.00
    %
    
    
    259,016
    
    
    
    15,632
    
    
    
    6.04
    %Tax Free (1)
    
    
    4,217
    
    
    
    271
    
    
    
    6.43
    %
    
    
    4,844
    
    
    
    308
    
    
    
    6.35
    %
    
    
    4,708
    
    
    
    297
    
    
    
    6.31
    %Real Estate-Mortgage
    
    
    36,330
    
    
    
    2,638
    
    
    
    7.26
    %
    
    
    36,409
    
    
    
    2,690
    
    
    
    7.39
    %
    
    
    26,198
    
    
    
    1,801
    
    
    
    6.87
    %Consumer
    
    
    66,526
    
    
    
    5,382
    
    
    
    8.09
    %
    
    
    72,064
    
    
    
    5,109
    
    
    
    7.09
    %
    
    
    70,408
    
    
    
    4,482
    
    
    
    6.37
    %Total loans
    
    
    450,775
    
    
    
    35,111
    
    
    
    7.79
    %
    
    
    421,063
    
    
    
    29,634
    
    
    
    7.04
    %
    
    
    360,330
    
    
    
    22,212
    
    
    
    6.16
    %Allowance for Loan Loss
    
    
    (6,632
    )
    
    
    
    
    
    
    
    
    
    
    (5,975
    )
    
    
    
    
    
    
    
    
    
    
    (4,779
    )Net Loans
    
    
    444,143
    
    
    
    35,111
    
    
    
    7.91
    %
    
    
    415,088
    
    
    
    29,634
    
    
    
    7.14
    %
    
    
    355,551
    
    
    
    22,212
    
    
    
    6.16
    %Loans Held for Sale
    
    
    1,626
    
    
    
    112
    
    
    
    6.89
    %
    
    
    2,215
    
    
    
    142
    
    
    
    6.41
    %
    
    
    884
    
    
    
    50
    
    
    
    5.66
    %TOTAL EARNING ASSETS
    
    
    572,225
    
    
    
    40,424
    
    
    
    7.06
    %
    
    
    546,530
    
    
    
    34,393
    
    
    
    6.29
    %
    
    
    495,441
    
    
    
    26,579
    
    
    
    5.36
    %Cash Due from Banks
    
    
    18,155
    
    
    
    
    
    
    
    
    
    
    
    20,067
    
    
    
    
    
    
    
    
    
    
    
    24,249All Other Assets
    
    
    39,663
    
    
    
    
    
    
    
    
    
    
    
    36,823
    
    
    
    
    
    
    
    
    
    
    
    31,990TOTAL ASSETS
    
    $
    623,411
    
    
    
    
    
    
    
    
    
    
    $
    597,445
    
    
    
    
    
    
    
    
    
    
    $
    546,901LIABILITIES & SHAREHOLDERS
EQUITY:Deposits:Interest bearing  DDA
    
    $
    103,356
    
    
    $
    2,395
    
    
    
    2.32
    %
    
    $
    111,670
    
    
    $
    1,688
    
    
    
    1.51
    %
    
    $
    108,704
    
    
    $
    1,194
    
    
    
    1.10
    %Savings Deposits
    
    
    99,339
    
    
    
    1,252
    
    
    
    1.26
    %
    
    
    125,031
    
    
    
    1,395
    
    
    
    1.12
    %
    
    
    149,099
    
    
    
    2,287
    
    
    
    1.53
    %Time CDs $100,000 and Over
    
    
    130,860
    
    
    
    6,215
    
    
    
    4.75
    %
    
    
    83,120
    
    
    
    3,020
    
    
    
    3.63
    %
    
    
    39,260
    
    
    
    1,228
    
    
    
    3.13
    %Other Time CDs
    
    
    120,427
    
    
    
    4,881
    
    
    
    4.05
    %
    
    
    99,928
    
    
    
    3,287
    
    
    
    3.29
    %
    
    
    90,855
    
    
    
    2,295
    
    
    
    3.08
    %Total Interest Bearing Deposits
    
    
    453,982
    
    
    
    14,743
    
    
    
    3.25
    %
    
    
    419,749
    
    
    
    9,390
    
    
    
    2.24
    %
    
    
    387,918
    
    
    
    7,004
    
    
    
    1.81
    %Other Borrowings
    
    
    39,268
    
    
    
    2,165
    
    
    
    5.51
    %
    
    
    47,697
    
    
    
    1,908
    
    
    
    4.00
    %
    
    
    41,082
    
    
    
    1,259
    
    
    
    3.06
    %INTEREST BEARING LIABILITIES
    
    
    493,250
    
    
    
    16,908
    
    
    
    3.43
    %
    
    
    467,446
    
    
    
    11,298
    
    
    
    2.42
    %
    
    
    429,000
    
    
    
    8,263
    
    
    
    1.93
    %Non-interest bearing  DDA
    
    
    77,256
    
    
    
    
    
    
    
    
    
    
    
    81,471
    
    
    
    
    
    
    
    
    
    
    
    73,553All Other Liabilities
    
    
    3,832
    
    
    
    
    
    
    
    
    
    
    
    2,935
    
    
    
    
    
    
    
    
    
    
    
    2,618Shareholders Equity
    
    
    49,073
    
    
    
    
    
    
    
    
    
    
    
    45,593
    
    
    
    
    
    
    
    
    
    
    
    41,730TOTAL LIABILITIES and S/HEQUITY
    
    $
    623,411
    
    
    
    
    
    
    
    
    
    
    $
    597,445
    
    
    
    
    
    
    
    
    
    
    $
    546,901Net Interest Rate Spread
    
    
    
    
    
    
    
    
    
    
    3.64
    %
    
    
    
    
    
    
    
    
    
    
    3.88
    %
    
    
    
    
    
    
    
    
    
    
    3.44
    %Impact of Non-Interest Bearing
Funds on Margin
    
    
    
    
    
    
    
    
    
    
    0.47
    %
    
    
    
    
    
    
    
    
    
    
    0.35
    %
    
    
    
    
    
    
    
    
    
    
    0.26
    %Net Interest Income/Margin
    
    
    
    
    
    $
    23,516
    
    
    
    4.11
    %
    
    
    
    
    
    $
    23,095
    
    
    
    4.23
    %
    
    
    
    
    
    $
    18,316
    
    
    
    3.70
    %
 
 (1)
    
     Presented on a fully taxable equivalent basis using a federal income tax rate of 34%. 41




---



##### 



ALLOWANCE AND PROVISION FOR LOAN LOSSES
     42




---



##### 



TABLE 4Analysis of the Allowance for Loan Losses Years Ended December 31,(000s omitted)
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Balance Beginning of Period
    
    $
    6,301
    
    
    $
    5,501
    
    
    $
    3,414
    
    
    $
    3,184
    
    
    $
    3,125Charge-offs:Commercial, Financial and Agricultural
    
    
    (554
    )
    
    
    (405
    )
    
    
    (365
    )
    
    
    (940
    )
    
    
    (329
    )Real Estate-Construction
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Real Estate-Mortgage
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (7
    )Installment Loans to Individuals
    
    
    (323
    )
    
    
    (360
    )
    
    
    (306
    )
    
    
    (455
    )
    
    
    (510
    )Total Charge-offs
    
    
    (877
    )
    
    
    (765
    )
    
    
    (671
    )
    
    
    (1,395
    )
    
    
    (846
    )Recoveries:Commercial and Financial
    
    
    51
    
    
    
    70
    
    
    
    38
    
    
    
    168
    
    
    
    344Real Estate-Construction
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Real Estate-Mortgage
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Installment Loans to Individuals
    
    
    97
    
    
    
    106
    
    
    
    172
    
    
    
    138
    
    
    
    135Total Recoveries
    
    
    148
    
    
    
    176
    
    
    
    210
    
    
    
    306
    
    
    
    479Net Charge-offs
    
    
    (729
    )
    
    
    (589
    )
    
    
    (461
    )
    
    
    (1,089
    )
    
    
    (367
    )Provision
    
    
    1,120
    
    
    
    1,389
    
    
    
    1,389
    
    
    
    1,319
    
    
    
    426Addition from WMCB acquisition
    
    
    0
    
    
    
    0
    
    
    
    1,159
    
    
    
    0
    
    
    
    0Balance at End of Period
    
    $
    6,692
    
    
    $
    6,301
    
    
    $
    5,501
    
    
    $
    3,414
    
    
    $
    3,184Ratio of Net Charge-Offs During the Period
    
    
    0.16
    %
    
    
    0.14
    %
    
    
    0.12
    %
    
    
    0.43
    %
    
    
    0.16
    %
 NON-INTEREST INCOME
      43




---



##### 



NON-INTEREST EXPENSE
        44




---



##### 



FINANCIAL CONDITION
   SECURITIES PORTFOLIO
   45




---



##### 



TABLE 5  Analysis and Maturities of Securities
 Amortized
    
    Fair(000s omitted)
    
    Cost
    
    Value
    
    Yield(1)AVAILABLE FOR SALEU.S. AgenciesOne year or less
    
    $
    2,975
    
    
    $
    2,965
    
    
    
    3.42
    %Over one through five years
    
    
    14,382
    
    
    
    14,010
    
    
    
    3.63
    %Over five through ten years
    
    
    1,630
    
    
    
    1,593
    
    
    
    4.50
    %Over ten years
    
    
    2,544
    
    
    
    2,417
    
    
    
    3.75
    %Total
    
    
    21,531
    
    
    
    20,985Mortgage-Backed
One year or less
    
    $
    1
    
    
    $
    1
    
    
    
    8.25
    %Over one through five years
    
    
    21,308
    
    
    
    20,691
    
    
    
    3.89
    %Over five through ten years
    
    
    5,546
    
    
    
    5,382
    
    
    
    4.45
    %Over ten years
    
    
    32,785
    
    
    
    32,425
    
    
    
    4.44
    %Total
    
    
    59,640
    
    
    
    58,499State and Political
One year or less
    
    $
    1,725
    
    
    $
    1,722
    
    
    
    4.96
    %Over one through five years
    
    
    1,271
    
    
    
    1,263
    
    
    
    4.20
    %Over five through ten years
    
    
    885
    
    
    
    872
    
    
    
    7.67
    %Over ten years
    
    
    5,380
    
    
    
    5,454
    
    
    
    6.51
    %Total
    
    
    9,261
    
    
    
    9,311Equity Securities
    
    $
    2,123
    
    
    $
    2,309HELD TO
MATURITYMortgage-Backed
One year or less
    
    $
    0
    
    
    $
    0
    
    
    
    0.00
    %Over one through five years
    
    
    1
    
    
    
    1
    
    
    
    7.50
    %Over five through ten years
    
    
    8
    
    
    
    8
    
    
    
    9.08
    %Over ten years
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %Total
    
    
    9
    
    
    
    9State and Political
One year or less
    
    $
    3,061
    
    
    $
    3,053
    
    
    
    6.12
    %Over one through five years
    
    
    4,912
    
    
    
    4,867
    
    
    
    6.07
    %Over five through ten years
    
    
    2,903
    
    
    
    2,866
    
    
    
    6.41
    %Over ten years
    
    
    1,014
    
    
    
    1,026
    
    
    
    6.33
    %Total
    
    
    11,890
    
    
    
    11,812Total Securities
    
    $
    104,454
    
    
    $
    102,925
 
 (1)
    
    Tax equivalent yield 46




---



##### 



LOAN PORTFOLIO
    TABLE 6  Loan Portfolio
 December 31,(000s omitted)
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Commercial
    
    $
    272,402
    
    
    $
    254,498
    
    
    $
    229,012
    
    
    $
    146,450
    
    
    $
    129,562Real estate  construction
    
    
    78,927
    
    
    
    76,386
    
    
    
    61,278
    
    
    
    32,913
    
    
    
    27,032Real estate  mortgage
    
    
    36,867
    
    
    
    37,627
    
    
    
    32,705
    
    
    
    18,335
    
    
    
    11,944Consumer
    
    
    62,797
    
    
    
    70,845
    
    
    
    70,435
    
    
    
    55,547
    
    
    
    55,683Total
    
    $
    450,993
    
    
    $
    439,356
    
    
    $
    393,430
    
    
    $
    253,245
    
    
    $
    224,221
  TABLE 7
Maturities of the Loan Portfolio by Loan Type
 Within
    
    
    One-
    
    
    AfterDecember 31, 2006
    
    One
    
    
    Five
    
    
    Five(000s omitted)
    
    Year
    
    
    Years
    
    
    Years
    
    
    TotalCommercial
    
    $
    78,852
    
    
    $
    176,326
    
    
    $
    17,224
    
    
    $
    272,402Real estate  construction
    
    
    60,311
    
    
    
    15,471
    
    
    
    3,145
    
    
    
    78,927Real estate  mortgage
    
    
    9,267
    
    
    
    10,495
    
    
    
    17,105
    
    
    
    36,867Consumer
    
    
    8,198
    
    
    
    33,321
    
    
    
    21,278
    
    
    
    62,797$
    156,628
    
    
    $
    235,613
    
    
    $
    58,752
    
    
    $
    450,993
 47




---



##### 



TABLE 8  Maturities of the Loan Portfolio by Rate Categories
 Within
    
    
    One-
    
    
    AfterDecember 31, 2006
    
    One
    
    
    Five
    
    
    Five(000s omitted)
    
    Year
    
    
    Years
    
    
    Years
    
    
    TotalLoans:Fixed Rate
    
    $
    48,345
    
    
    $
    173,517
    
    
    $
    37,949
    
    
    $
    259,811Variable Rate
    
    
    108,283
    
    
    
    62,096
    
    
    
    20,803
    
    
    
    191,182$
    156,628
    
    
    $
    235,613
    
    
    $
    58,752
    
    
    $
    450,993
    NON-PERFORMING ASSETS
   48




---



##### 



TABLE 9  Non-Performing Assets and Past Due Loans (000s omitted)
 December 31,2006
    
    2005
    
    2004
    
    2003
    
    2002Non-Performing Loans:Loans Past Due 90 Days or More & Still
Accruing
    
    $
    2,311
    
    
    $
    80
    
    
    $
    91
    
    
    $
    47
    
    
    $
    72Non-Accrual Loans
    
    
    2,354
    
    
    
    1,476
    
    
    
    1,102
    
    
    
    229
    
    
    
    512Renegotiated Loans
    
    
    437
    
    
    
    1,401
    
    
    
    477
    
    
    
    1,262
    
    
    
    0Total Non-Performing Loans
    
    
    5,102
    
    
    
    2,957
    
    
    
    1,670
    
    
    
    1,538
    
    
    
    584Other Non-Performing Assets:Other Real Estate
    
    
    1,247
    
    
    
    500
    
    
    
    208
    
    
    
    1,081
    
    
    
    110Other Real Estate Owned in Redemption
    
    
    216
    
    
    
    0
    
    
    
    856
    
    
    
    184
    
    
    
    164Other Non-Performing Assets
    
    
    155
    
    
    
    6
    
    
    
    4
    
    
    
    79
    
    
    
    92Total Other Non-Performing Assets
    
    
    1,618
    
    
    
    506
    
    
    
    1,068
    
    
    
    1,344
    
    
    
    366Total Non-Performing Assets
    
    $
    6,720
    
    
    $
    3,463
    
    
    $
    2,738
    
    
    $
    2,882
    
    
    $
    950Non-Performing Loans as a % of
Total Loans
    
    
    1.13
    %
    
    
    0.67
    %
    
    
    0.70
    %
    
    
    0.61
    %
    
    
    0.26
    %Non-Performing Assets as a % of
Total Loans and Other Real Estate
    
    
    1.48
    %
    
    
    0.79
    %
    
    
    0.69
    %
    
    
    1.13
    %
    
    
    0.42
    %Allowance for Loan Losses as a % of
Non-Performing Loans
    
    
    131.16
    %
    
    
    213.09
    %
    
    
    350.16
    %
    
    
    221.98
    %
    
    
    545.21
    %Accruing Loans Past Due 90 Days or
More to Total Loans
    
    
    0.51
    %
    
    
    0.02
    %
    
    
    0.02
    %
    
    
    0.20
    %
    
    
    0.03
    %Non-performing Assets as a % of
Total Assets
    
    
    1.08
    %
    
    
    0.56
    %
    
    
    0.47
    %
    
    
    0.69
    %
    
    
    0.28
    %
  TABLE 10  Allocation of the Allowance for Loan Losses
 December 31,
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002(000s omitted)
    
    Amount
    
    Loan %
    
    Amount
    
    Loan %
    
    Amount
    
    Loan %
    
    Amount
    
    Loan %
    
    Amount
    
    Loan %Commercial and
construction
    
    $
    5,657
    
    
    
    77.90
    %
    
    $
    5,339
    
    
    
    75.31
    %
    
    $
    4,600
    
    
    
    73.79
    %
    
    $
    2,624
    
    
    
    70.83
    %
    
    $
    2,222
    
    
    
    69.84
    %Real estate mortgage
    
    
    328
    
    
    
    8.17
    %
    
    
    263
    
    
    
    8.56
    %
    
    
    312
    
    
    
    8.31
    %
    
    
    207
    
    
    
    7.24
    %
    
    
    65
    
    
    
    5.33
    %Consumer
    
    
    623
    
    
    
    13.93
    %
    
    
    593
    
    
    
    16.13
    %
    
    
    508
    
    
    
    17.90
    %
    
    
    576
    
    
    
    21.93
    %
    
    
    897
    
    
    
    24.83
    %Unallocated
    
    
    84
    
    
    
    
    
    
    
    106
    
    
    
    
    
    
    
    81
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    0Total
    
    $
    6,692
    
    
    
    100.00
    %
    
    $
    6,301
    
    
    
    100.00
    %
    
    $
    5,501
    
    
    
    100.00
    %
    
    $
    3,414
    
    
    
    100.00
    %
    
    $
    3,184
    
    
    
    100.00
    %
 49




---



##### 



DEPOSITS  TABLE 11
Average Deposits  Years Ended December 31,
 2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Average
    
    
    Average
    
    
    Average
    
    
    Average
    
    
    Average(000s omitted)
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    RateNon-int. bearing
demand
    
    $
    77,256
    
    
    
    
    
    
    $
    81,471
    
    
    
    
    
    
    $
    73,553
    
    
    
    
    
    
    $
    52,853
    
    
    
    
    
    
    $
    43,908Interest-bearing
demand
    
    
    103,356
    
    
    
    2.15
    %
    
    
    111,670
    
    
    
    1.51
    %
    
    
    108,704
    
    
    
    1.10
    %
    
    
    53,897
    
    
    
    0.94
    %
    
    
    42,637
    
    
    
    0.95
    %Savings
    
    
    99,339
    
    
    
    1.26
    %
    
    
    125,031
    
    
    
    1.12
    %
    
    
    149,099
    
    
    
    1.53
    %
    
    
    117,138
    
    
    
    1.17
    %
    
    
    85,746
    
    
    
    1.37
    %Time
    
    
    251,287
    
    
    
    4.73
    %
    
    
    183,048
    
    
    
    3.45
    %
    
    
    130,115
    
    
    
    2.71
    %
    
    
    102,563
    
    
    
    3.35
    %
    
    
    99,419
    
    
    
    4.07
    %Total
    
    $
    531,238
    
    
    
    2.89
    %
    
    $
    501,220
    
    
    
    1.87
    %
    
    $
    461,471
    
    
    
    1.52
    %
    
    $
    326,451
    
    
    
    1.63
    %
    
    $
    271,710
    
    
    
    2.07
    %
  50




---



##### 



TABLE 12  Maturity of Time Certificates of Deposit of $100,000 or More
 December 31,(000s omitted)
    
    2006
    
    2005Three months or less
    
    $
    37,216
    
    
    $
    44,097Over three through six months
    
    
    29,661
    
    
    
    18,470Over six through twelve months
    
    
    16,832
    
    
    
    24,280Over twelve months
    
    
    53,269
    
    
    
    28,605Total
    
    $
    136,978
    
    
    $
    115,452
  FEDERAL INCOME TAXES
  LIQUIDITY AND INTEREST RATE RISK MANAGEMENT
  51




---



##### 



Table 13
 Less than 1
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsTime Deposits
    
    $
    262,241
    
    
    $
    174,147
    
    
    $
    62,972
    
    
    $
    24,825
    
    
    $
    297Short-term borrowings
    
    
    1,500
    
    
    
    1,500
    
    
    
    
    
    
    
    
    
    
    
    FHLB advances
    
    
    11,052
    
    
    
    3,022
    
    
    
    3,050
    
    
    
    4,058
    
    
    
    922Repurchase agreements
    
    
    10,000
    
    
    
    5,000
    
    
    
    5,000
    
    
    
    
    
    
    
    Subordinated debt
    
    
    14,000
    
    
    
    
    
    
    
    14,000
    
    
    
    
    
    
    
    Operating leases
    
    
    735
    
    
    
    268
    
    
    
    236
    
    
    
    231
    
    
    
    Total
    
    $
    299,528
    
    
    $
    183,937
    
    
    $
    85,258
    
    
    $
    29,114
    
    
    $
    1,219
 CAPITAL RESOURCES
    52




---



##### 



CRITICAL ACCOUNTING POLICIES AND ESTIMATES
    OFF-BALANCE-SHEET ITEMS
  53




---



##### 



QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   54




---



##### 



TABLE 14
 Rate Sensitivity of Financial Instruments
    
    
    
    
    
    
    
    
    
    Fair(000s omitted)
    
    2007
    
    2008
    
    2009
    
    2010
    
    2011
    
    Thereafter
    
    Total
    
    ValueRate Sensitive Assets:Fixed interest rate loans
    
    $
    48,345
    
    
    $
    40,490
    
    
    $
    47,145
    
    
    $
    43,502
    
    
    $
    42,380
    
    
    $
    37,949
    
    
    $
    259,811
    
    
    $
    251,306Average interest rate
    
    
    6.80
    %
    
    
    6.98
    %
    
    
    6.90
    %
    
    
    6.80
    %
    
    
    7.30
    %
    
    
    6.58
    %Variable interest rate loans
    
    $
    108,283
    
    
    $
    27,059
    
    
    $
    13,817
    
    
    $
    16,256
    
    
    $
    4,964
    
    
    
    20,803
    
    
    $
    191,182
    
    
    $
    191,129Average interest rate
    
    
    9.06
    %
    
    
    8.13
    %
    
    
    8.09
    %
    
    
    8.41
    %
    
    
    8.48
    %
    
    
    8.07
    %Fixed interest rate securities
    
    $
    18,366
    
    
    $
    9,950
    
    
    $
    14,671
    
    
    $
    11,368
    
    
    $
    3,649
    
    
    $
    17,383
    
    
    $
    75,387
    
    
    $
    77,617Average interest rate
    
    
    4.09
    %
    
    
    3.90
    %
    
    
    3.91
    %
    
    
    4.06
    %
    
    
    4.15
    %
    
    
    4.72
    %Variable Interest rate securities
    
    $
    12,534
    
    
    $
    10,095
    
    
    $
    0
    
    
    $
    3,184
    
    
    $
    343
    
    
    $
    1,460
    
    
    $
    27,616
    
    
    $
    25,308Average interest rate
    
    
    3.59
    %
    
    
    3.96
    %
    
    
    0
    %
    
    
    4.15
    %
    
    
    3.75
    %
    
    
    4.51
    %FHLB Stock
    
    $
    2,032
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,032
    
    
    $
    2,032Average interest rate
    
    
    5.00
    %Other interest bearing assets
    
    $
    9,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    9,500
    
    
    $
    9,500Average interest rate
    
    
    5.13
    %Rate Sensitive Liabilities:Interest-bearing checking
    
    $
    102,535
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    102,535
    
    
    $
    102,534Average interest rate
    
    
    2.10
    %Savings
    
    $
    88,893
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    88,893
    
    
    $
    88,892Average interest rate
    
    
    0.61
    %Time
    
    $
    174,150
    
    
    $
    42,855
    
    
    $
    20,117
    
    
    $
    10,312
    
    
    $
    14,513
    
    
    $
    294
    
    
    $
    262,241
    
    
    $
    252,127Average interest rate
    
    
    4.73
    %
    
    
    4.57
    %
    
    
    4.71
    %
    
    
    4.69
    %
    
    
    5.13
    %
    
    
    3.11
    %Short term borrowings
    
    $
    1,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,500
    
    
    $
    1,495Average interest rate
    
    
    1.25
    %FHLB advances
    
    $
    3,022
    
    
    $
    3,024
    
    
    $
    26
    
    
    $
    2,028
    
    
    $
    2,030
    
    
    $
    922
    
    
    $
    11,052
    
    
    $
    11,052Average interest rate
    
    
    3.59
    %
    
    
    4.76
    %
    
    
    7.34
    %
    
    
    4.60
    %
    
    
    4.91
    %
    
    
    7.34
    %Repurchase agreements
    
    $
    5,000
    
    
    $
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    10,000
    
    
    $
    10,000Average interest rate
    
    
    2.61
    %
    
    
    4.02
    %Subordinated debt
    
    
    
    
    
    
    
    
    
    $
    12,000
    
    
    
    
    
    
    $
    2,000
    
    
    
    
    
    
    $
    14,000
    
    
    $
    14,000Average interest rate
    
    
    
    
    
    
    
    
    
    
    8.75
    %
    
    
    
    
    
    
    8.75
    %
 INTEREST RATE SENSITIVITY MANAGEMENT
   55




---



##### 



TABLE 15
 Gap AnalysisDecember 31, 2006Within
    
    Three
    
    One to
    
    AfterThree
    
    Months-
    
    Five
    
    Five(000s Omitted)
    
    Months
    
    One Year
    
    Years
    
    Years
    
    TotalFederal Funds Sold
    
    $
    9,500
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    9,500Securities
    
    
    16,183
    
    
    
    14,717
    
    
    
    53,260
    
    
    
    18,843
    
    
    
    103,003Loans
    
    
    50,907
    
    
    
    105,721
    
    
    
    235,613
    
    
    
    58,752
    
    
    
    450,993Loans Held for Sale
    
    
    2,226
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    2,226FHLB Stock
    
    
    2,032
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    2,032Total Earning Assets
    
    $
    80,848
    
    
    $
    120,438
    
    
    $
    288,873
    
    
    $
    77,595
    
    
    $
    567,754Interest Bearing Liabilities:Interest Bearing Demand Deposits
    
    $
    102,535
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    102,535Savings Deposits
    
    
    88,893
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    88,893Time Deposits Less than $100,000
    
    
    27,079
    
    
    
    63,360
    
    
    
    34,527
    
    
    
    297
    
    
    
    125,263Time Deposits Greater than $100,000
    
    
    37,219
    
    
    
    46,491
    
    
    
    53,268
    
    
    
    0
    
    
    
    136,978Short-term Borrowings
    
    
    1,500
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,500FHLB Advances
    
    
    1,000
    
    
    
    2,022
    
    
    
    7,108
    
    
    
    922
    
    
    
    11,052Repurchase Agreements
    
    
    0
    
    
    
    5,000
    
    
    
    5,000
    
    
    
    0
    
    
    
    10,000Subordinated Debt
    
    
    0
    
    
    
    0
    
    
    
    14,000
    
    
    
    0
    
    
    
    14,000Total Interest Bearing Liabilities
    
    $
    258,226
    
    
    $
    116,873
    
    
    $
    113,903
    
    
    $
    1,219
    
    
    $
    490,221Interest Rate Sensitivity GAP
    
    ($
    177,378
    )
    
    $
    3,565
    
    
    $
    174,970
    
    
    $
    76,376
    
    
    $
    77,533Cumulative Interest Rate
Sensitivity GAP
    
    ($
    177,378
    )
    
    ($
    173,813
    )
    
    $
    1,157
    
    
    $
    77,533Interest Rate Sensitivity GAP
    
    
    0.31
    
    
    
    1.03
    
    
    
    2.54
    
    
    
    63.65Cumulative Interest Rate
Sensitivity GAP Ratio
    
    
    0.31
    
    
    
    0.54
    
    
    
    1.00
    
    
    
    1.16
  56




---



##### 



FORWARD LOOKING STATEMENTS
   57




---



##### 



FENTURA FINANCIAL, INC. COMMON STOCK
  TABLE 16  Common Stock Data
 Market
    
    DividendsInformation
    
    PaidYears
    
    Quarter
    
    High
    
    Low
    
    Per Share2004
    
    
    First Quarter
    
    $
    35.45
    
    
    $
    28.23
    
    
    $
    0.210Second Quarter
    
    
    40.91
    
    
    
    28.42
    
    
    
    0.210Third Quarter
    
    
    40.91
    
    
    
    35.82
    
    
    
    0.210Fourth Quarter
    
    
    37.00
    
    
    
    35.41
    
    
    
    0.210$
    0.8402005
    
    
    First Quarter
    
    $
    32.55
    
    
    $
    30.24
    
    
    $
    0.220Second Quarter
    
    
    31.13
    
    
    
    29.35
    
    
    
    0.220Third Quarter
    
    
    31.57
    
    
    
    29.39
    
    
    
    0.220Fourth Quarter
    
    
    30.49
    
    
    
    29.31
    
    
    
    0.220$
    0.8802006
    
    
    First Quarter
    
    $
    31.55
    
    
    $
    29.77
    
    
    $
    0.230Second Quarter
    
    
    33.41
    
    
    
    31.14
    
    
    
    0.230Third Quarter
    
    
    33.64
    
    
    
    30.00
    
    
    
    0.230Fourth Quarter
    
    
    34.00
    
    
    
    32.55
    
    
    
    0.250$
    0.940
 Note:
    
    Market and dividend per share figures have been adjusted to reflect a 10% stock dividend
paid on August 4, 2006.
 58




---



##### 



SHAREHOLDER RETURN PERFORMANCE GRAPH
   COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG FENTURA FINANCIAL, INC., NASDAQ MARKET INDEX,
AND MIDWEST QUADRANT PINK BANK INDEX
 
 Period
EndingIndex
    
    12/31/01
    
    
    12/31/02
    
    
    12/31/03
    
    
    12/31/04
    
    
    12/31/05
    
    
    12/31/06Fentura Financial, Inc.
    
    
    100.00
    
    
    
    140.72
    
    
    
    143.91
    
    
    
    172.33
    
    
    
    157.93
    
    
    
    177.83NASDAQ  Total US
    
    
    100.00
    
    
    
    68.76
    
    
    
    103.67
    
    
    
    113.16
    
    
    
    115.57
    
    
    
    127.58SNL Midwest OTC-BB and Pink Banks
    
    
    100.00
    
    
    
    128.26
    
    
    
    161.90
    
    
    
    192.90
    
    
    
    200.83
    
    
    
    211.50
  59