Exhibit 13
 Rule 14a-3 Annual Report




---



##### 



FENTURA FINANCIAL, INC.
 FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
December 31, 2008 and 2007
 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
    
    
    7-36MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS
    
    
    37-59




---



##### 








---



##### 



2008
    
    2007ASSETSCash and due from banks
    
    $
    20,953
    
    
    $
    22,734Federal funds sold
    
    
    0
    
    
    
    7,300Total cash and cash equivalents
    
    
    20,953
    
    
    
    30,034Securities available for sale, at fair value
    
    
    52,722
    
    
    
    71,792Securities held to maturity (fair value 2008 - $8,220; 2007 - $8,714)
    
    
    7,955
    
    
    
    8,685Loans held for sale
    
    
    690
    
    
    
    1,655Loans, net of allowance of 2008- $11,773; 2007- $8,554
    
    
    447,536
    
    
    
    462,849Bank premises and equipment
    
    
    18,669
    
    
    
    20,101Accrued interest receivable
    
    
    2,405
    
    
    
    2,813Bank owned life insurance
    
    
    7,282
    
    
    
    7,042Goodwill
    
    
    0
    
    
    
    7,955Acquisition intangibles
    
    
    293
    
    
    
    485Federal Home Loan Bank stock
    
    
    2,032
    
    
    
    2,032Equity investment
    
    
    1,360
    
    
    
    3,089Other real estate owned
    
    
    6,349
    
    
    
    2,003Other assets
    
    
    10,358
    
    
    
    7,484Total Assets
    
    $
    578,604
    
    
    $
    628,019LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Non-interest-bearing deposits
    
    $
    73,685
    
    
    $
    75,148Interest-bearing deposits
    
    
    436,043
    
    
    
    468,355Total deposits
    
    
    509,728
    
    
    
    543,503Short-term borrowings
    
    
    1,500
    
    
    
    649Federal Home Loan Bank advances
    
    
    14,707
    
    
    
    11,030Repurchase agreements
    
    
    0
    
    
    
    5,000Subordinated debentures
    
    
    14,000
    
    
    
    14,000Note payable
    
    
    1,000
    
    
    
    0Accrued taxes, interest and other liabilities
    
    
    1,545
    
    
    
    4,341Total liabilities
    
    
    542,480
    
    
    
    578,523Stockholders equityCommon stock  $0 par value, 5,000,000 shares authorized,
shares issued and outstanding 2,185,765  2008; 2,163,385  2007
    
    
    42,778
    
    
    
    42,478Retained earnings (deficit)
    
    
    (4,677
    )
    
    
    7,488Accumulated other comprehensive income (loss)
    
    
    (1,977
    )
    
    
    (470
    )Total stockholders equity
    
    
    36,124
    
    
    
    49,496Total liabilities and stockholders equity
    
    $
    578,604
    
    
    $
    628,019
 See accompanying notes to consolidated financial statements.
    
    
    
    2




---



##### 



2008
    
    2007
    
    2006Interest incomeLoans, including fees
    
    $
    30,206
    
    
    $
    34,964
    
    
    $
    35,131Securities:Taxable
    
    
    2,192
    
    
    
    3,217
    
    
    
    3,461Tax-exempt
    
    
    588
    
    
    
    722
    
    
    
    809Short-term investments
    
    
    157
    
    
    
    311
    
    
    
    515Total interest income
    
    
    33,143
    
    
    
    39,214
    
    
    
    39,916Interest expenseDeposits
    
    
    13,365
    
    
    
    16,404
    
    
    
    14,743Other borrowings
    
    
    1,663
    
    
    
    2,217
    
    
    
    2,165Total interest expense
    
    
    15,028
    
    
    
    18,621
    
    
    
    16,908Net interest income
    
    
    18,115
    
    
    
    20,593
    
    
    
    23,008Provision for loan losses
    
    
    8,402
    
    
    
    7,466
    
    
    
    1,120Net interest income after provision for loan losses
    
    
    9,713
    
    
    
    13,127
    
    
    
    21,888Non-interest incomeService charges on deposit accounts
    
    
    2,938
    
    
    
    3,421
    
    
    
    3,708Gain on sale of mortgage loans
    
    
    338
    
    
    
    402
    
    
    
    615Trust and investment services income
    
    
    1,818
    
    
    
    1,901
    
    
    
    1,554Gain (loss) on sale of securities
    
    
    0
    
    
    
    2
    
    
    
    (2
    )Loss on equity investment
    
    
    (1,729
    )
    
    
    (199
    )
    
    
    0Other income and fees
    
    
    1,722
    
    
    
    2,052
    
    
    
    1,768Total non-interest income
    
    
    5,087
    
    
    
    7,579
    
    
    
    7,643Non-interest expenseSalaries and employee benefits
    
    
    11,127
    
    
    
    12,183
    
    
    
    12,738Occupancy
    
    
    2,096
    
    
    
    2,090
    
    
    
    1,858Furniture and equipment
    
    
    1,978
    
    
    
    2,139
    
    
    
    2,140Loan and collection
    
    
    1,037
    
    
    
    753
    
    
    
    320Advertising and promotional
    
    
    422
    
    
    
    486
    
    
    
    624Loss on security impairment
    
    
    843
    
    
    
    0
    
    
    
    0Goodwill impairment charge
    
    
    7,955
    
    
    
    0
    
    
    
    0Telephone and communication services
    
    
    396
    
    
    
    570
    
    
    
    538Other professional services
    
    
    1,238
    
    
    
    1,143
    
    
    
    1,066Other general and administrative
    
    
    2,462
    
    
    
    2,470
    
    
    
    2,702Total non-interest expense
    
    
    29,554
    
    
    
    21,834
    
    
    
    21,986Income (loss) before taxes
    
    
    (14,754
    )
    
    
    (1,128
    )
    
    
    7,545Federal income taxes (benefit)
    
    
    (2,589
    )
    
    
    (661
    )
    
    
    2,237Net income (loss)
    
    $
    (12,165
    )
    
    $
    (467
    )
    
    $
    5,308Per share:Earnings (loss)  basic
    
    $
    (5.60
    )
    
    $
    (0.22
    )
    
    $
    2.48Earnings (loss) diluted
    
    
    (5.60
    )
    
    
    (0.22
    )
    
    
    2.47
 See accompanying notes to consolidated financial statements.
    
    
    
    3




---



##### 



2008
    
    2007
    
    2006Net income (loss)
    
    $
    (12,165
    )
    
    $
    (467
    )
    
    $
    5,308Other comprehensive income:Unrealized holding gains (losses) on available
for sale securities
    
    
    (2,283
    )
    
    
    737
    
    
    
    558Less: reclassification adjustment for (gains) and
losses later recognized in income
    
    
    0
    
    
    
    (2
    )
    
    
    2Net unrealized gains (losses)
    
    
    (2,283
    )
    
    
    739
    
    
    
    556Tax effect
    
    
    776
    
    
    
    (251
    )
    
    
    (189
    )Other comprehensive income (loss), net of tax
    
    
    (1,507
    )
    
    
    488
    
    
    
    367Comprehensive income (loss)
    
    $
    (13,672
    )
    
    $
    (21
    )
    
    $
    5,675
 See accompanying notes to consolidated financial statements.
    
    
    
    4




---



##### 



AccumulatedOther
    
    TotalCommon
    
    Retained
    
    Comprehensive
    
    StockholdersStock
    
    Earnings
    
    Income (Loss)
    
    EquityBalance, January 1, 2006
    
    $
    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
    
    
    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)
    
    
    55
    
    
    
    0
    
    
    
    0
    
    
    
    55Other comprehensive loss (net of tax)
    
    
    0
    
    
    
    0
    
    
    
    367
    
    
    
    367Balance, December 31, 2006
    
    
    42,158
    
    
    
    10,118
    
    
    
    (958
    )
    
    
    51,318Net loss
    
    
    0
    
    
    
    (467
    )
    
    
    0
    
    
    
    (467
    )Cash Dividends ($1.00 per share)
    
    
    0
    
    
    
    (2,163
    )
    
    
    0
    
    
    
    (2,163
    )Issuance of shares under stock purchase and
Dividend reinvestment plans (27,412 shares)
    
    
    818
    
    
    
    0
    
    
    
    0
    
    
    
    818Stock repurchase (17,184 shares)
    
    
    (520
    )
    
    
    0
    
    
    
    0
    
    
    
    (520
    )Stock compensation expense
    
    
    16
    
    
    
    0
    
    
    
    0
    
    
    
    16Issuance of shares under stock option exercise (295 shares)
    
    
    6
    
    
    
    0
    
    
    
    0
    
    
    
    6Other comprehensive income (net of tax)
    
    
    0
    
    
    
    0
    
    
    
    488
    
    
    
    488Balance, December 31, 2007
    
    
    42,478
    
    
    
    7,488
    
    
    
    (470
    )
    
    
    49,496Net loss
    
    
    0
    
    
    
    (12,165
    )
    
    
    0
    
    
    
    (12,165
    )Issuance of shares under stock purchase and
Dividend reinvestment plans (22,380 shares)
    
    
    292
    
    
    
    0
    
    
    
    0
    
    
    
    292Stock compensation expense
    
    
    8
    
    
    
    0
    
    
    
    0
    
    
    
    8Other comprehensive income (net of tax)
    
    
    0
    
    
    
    0
    
    
    
    (1,507
    )
    
    
    (1,507
    )Balance, December 31, 2008
    
    $
    42,778
    
    
    $
    (4,677
    )
    
    $
    (1,977
    )
    
    $
    36,124
 See accompanying notes to consolidated financial statements.
    
    
    
    5




---



##### 



2008
    
    
    2007
    
    
    2006OPERATING ACTIVITIES:Net income (loss)
    
    $
    (12,165
    )
    
    $
    (467
    )
    
    $
    5,308Adjustments to reconcile net income to cash
Provided by Operating Activities:Stock compensation expense
    
    
    8
    
    
    
    16
    
    
    
    20Depreciation and amortization
    
    
    1,333
    
    
    
    1,863
    
    
    
    2,008Provision for loan losses
    
    
    8,402
    
    
    
    7,466
    
    
    
    1,120Loans originated for sale
    
    
    (24,609
    )
    
    
    (21,709
    )
    
    
    (37,099
    )Proceeds from the sale of loans
    
    
    25,912
    
    
    
    22,682
    
    
    
    36,530Gain on sales of loans
    
    
    (338
    )
    
    
    (402
    )
    
    
    (615
    )(Gain) Loss on sale of other real estate
    
    
    (4
    )
    
    
    11
    
    
    
    19Write downs to other real estate owned
    
    
    268
    
    
    
    339
    
    
    
    0(Gain) Loss on sale of securities
    
    
    0
    
    
    
    (2
    )
    
    
    2(Gain) Loss on sale of fixed assets
    
    
    (118
    )
    
    
    (11
    )
    
    
    0(Gain) Loss on equity investment
    
    
    1,729
    
    
    
    199
    
    
    
    0(Gain) Loss on security impairment
    
    
    843
    
    
    
    0
    
    
    
    0Goodwill impairment charge
    
    
    7,955
    
    
    
    0
    
    
    
    0Earnings from bank owned life insurance
    
    
    (240
    )
    
    
    (227
    )
    
    
    (236
    )Net (increase) decrease in interest receivable & other assets
    
    
    (2,462
    )
    
    
    (4,374
    )
    
    
    (1,132
    )Net increase (decrease) in interest payable & other liabilities
    
    
    (2,021
    )
    
    
    (1,780
    )
    
    
    1,329Total Adjustments
    
    
    16,658
    
    
    
    4,071
    
    
    
    1,946Net Cash Provided By (Used In) Operating Activities
    
    
    4,493
    
    
    
    3,604
    
    
    
    7,254Cash Flows From Investing Activities:Proceeds from maturities of securities  HTM
    
    
    1,474
    
    
    
    1,819
    
    
    
    5,063Proceeds from maturities of securities  AFS
    
    
    8,675
    
    
    
    15,040
    
    
    
    15,178Proceeds from calls of securities  HTM
    
    
    0
    
    
    
    140
    
    
    
    925Proceeds from calls of securities  AFS
    
    
    12,662
    
    
    
    4,700
    
    
    
    975Proceeds from sales of securities  AFS
    
    
    1,999
    
    
    
    3,000
    
    
    
    1,103Purchases of securities  HTM
    
    
    (750
    )
    
    
    0
    
    
    
    (3,050
    )Purchases of securities  AFS
    
    
    (7,068
    )
    
    
    (1,482
    )
    
    
    (8,568
    )Equity investment purchase
    
    
    0
    
    
    
    (3,288
    )
    
    
    0Net increase in loans
    
    
    (1,258
    )
    
    
    (26,872
    )
    
    
    (13,830
    )Purchase of FHLB stock
    
    
    0
    
    
    
    0
    
    
    
    (132
    )FHLB stock buy back
    
    
    0
    
    
    
    0
    
    
    
    400Sales of other real estate owned
    
    
    3,555
    
    
    
    1,458
    
    
    
    603Acquisition of premises and equipment, net
    
    
    92
    
    
    
    (4,779
    )
    
    
    (3,744
    )Net Cash Provided By (Used in) Investing Activities
    
    
    19,381
    
    
    
    (10,264
    )
    
    
    (5,077
    )Cash Flows From Financing Activities:Net increase (decrease) in deposits
    
    
    (33,775
    )
    
    
    14,948
    
    
    
    501Net increase (decrease) in short term borrowings
    
    
    851
    
    
    
    (851
    )
    
    
    (37
    )Net increase (decrease) in repurchase agreements
    
    
    (5,000
    )
    
    
    (5,000
    )
    
    
    0Proceeds from Notes payable
    
    
    1,000
    
    
    
    0
    
    
    
    0Proceeds from FHLB advances
    
    
    128,615
    
    
    
    9,000
    
    
    
    4,000Repayments of FHLB advances
    
    
    (124,938
    )
    
    
    (9,022
    )
    
    
    (7,020
    )Net proceeds from stock issuance and repurchase
    
    
    292
    
    
    
    336
    
    
    
    817Cash dividends
    
    
    0
    
    
    
    (2,163
    )
    
    
    (2,069
    )Net Cash Provided By (Used In) Financing Activities
    
    
    (32,955
    )
    
    
    7,248
    
    
    
    (3,808
    )NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (9,081
    )
    
    
    588
    
    
    
    (1,631
    )CASH AND CASH EQUIVALENTS  BEGINNING
    
    
    30,034
    
    
    
    29,446
    
    
    
    31,077CASH AND CASH EQUIVALENTS  ENDING
    
    $
    20,953
    
    
    $
    30,034
    
    
    $
    29,446CASH PAID FOR:Interest
    
    $
    15,619
    
    
    $
    18,964
    
    
    $
    16,341Income taxes
    
    $
    (1,276
    )
    
    $
    (418
    )
    
    $
    1,781NONCASH DISCLOSURES:Transfers from loans to other real estate
    
    $
    8,169
    
    
    $
    2,552
    
    
    $
    1,567
 See accompanying notes to consolidated financial statements.
    
    
    
    6




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Nature of Operations and Principles of Consolidation
  Use of Estimates
 Cash Flows
 Securities
   7




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Loans
   Allowance for Loan Losses
   Other Real Estate Owned and Foreclosed Assets
 8




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Premises and Equipment
 Federal Home Loan Bank (FHLB) stock
 Equity Investment:
 Long-term Assets
 Bank Owned Life Insurance
 Goodwill
 Acquisition Intangibles
 Stock Based Compensation
 9




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES )
 Income Taxes
   Loan Commitments and Financial Instruments
 Earnings Per Common Share
 Comprehensive Income
 Loss Contingencies
 Restrictions on Cash
 10




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES )
 Dividend Restriction
 Fair Value of Financial Instruments
 Operating Segments
 Reclassifications
 Effect of Newly Issued Accounting Standards:
 Fair Value Measurements Effective Date of FASB
Statement No. 157. Determining the Fair Value of a
Financial Asset when the Market for That Asset Is Not Active .
 The Fair Value Option for Financial Assets and
Financial Liabilities
 11




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES )
  Written Loan Commitments
Recorded at Fair Value through Earnings Application of Accounting
Principles to Loan Commitments
  12




---



##### 



NOTE 2  EARNINGS PER SHARE
  2008
    
    
    2007
    
    
    2006000s omitted except share and per share dataBasicNet income (loss)
    
    $
    (12,165
    )
    
    $
    (467
    )
    
    $
    5,308Weighted average common shares outstanding
    
    
    2,174,226
    
    
    
    2,159,586
    
    
    
    2,141,388Basic earnings per common share
    
    $
    (5.60
    )
    
    $
    (0.22
    )
    
    $
    2.48DilutedNet income (loss)
    
    $
    (12,165
    )
    
    $
    (467
    )
    
    $
    5,308Weighted average common shares outstanding
for basic earnings per common share
    
    
    2,174,226
    
    
    
    2,159,586
    
    
    
    2,141,388Add: Dilutive effects of assumed exercises of
stock options
    
    
    0
    
    
    
    0
    
    
    
    4,674Average shares and dilutive potential common shares
    
    
    2,174,226
    
    
    
    2,159,586
    
    
    
    2,146,062Diluted earnings per common share
    
    $
    (5.60
    )
    
    $
    (0.22
    )
    
    $
    2.47
  13




---



##### 



NOTE 3  SECURITIES
  Available for Sale
 Gross
    
    
    GrossFair
    
    
    Unrealized
    
    
    UnrealizedValue
    
    
    Gains
    
    
    Losses2008U.S. Government and federal agency
    
    $
    11,216
    
    
    $
    216
    
    
    $
    0Mortgage-backed
    
    
    31,802
    
    
    
    127
    
    
    
    (2,393
    )State and municipal
    
    
    7,967
    
    
    
    42
    
    
    
    (161
    )Equity securities
    
    
    1,737
    
    
    
    0
    
    
    
    (826
    )$
    52,722
    
    
    $
    385
    
    
    $
    (3,380
    )2007U.S. Government and federal agency
    
    $
    21,152
    
    
    $
    41
    
    
    $
    (37
    )Mortgage-backed
    
    
    40,562
    
    
    
    140
    
    
    
    (662
    )State and municipal
    
    
    6,823
    
    
    
    25
    
    
    
    (61
    )Equity securities
    
    
    3,255
    
    
    
    47
    
    
    
    (207
    )$
    71,792
    
    
    $
    253
    
    
    $
    (967
    )
 Held to Maturity
 Gross
    
    
    GrossAmortized
    
    
    Unrecognized
    
    
    Unrecognized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value2008Mortgage-backed
    
    $
    3
    
    
    $
    0
    
    
    $
    0
    
    
    $
    3State and municipal
    
    
    7,952
    
    
    
    275
    
    
    
    (10
    )
    
    
    8,217$
    7,955
    
    
    $
    275
    
    
    $
    (10
    )
    
    $
    8,2202007Mortgage-backed
    
    $
    6
    
    
    $
    0
    
    
    $
    0
    
    
    $
    6State and municipal
    
    
    8,679
    
    
    
    61
    
    
    
    (32
    )
    
    
    8,708$
    8,685
    
    
    $
    61
    
    
    $
    (32
    )
    
    $
    8,714
  2008
    
    2007
    
    2006Proceeds
    
    $
    1,999
    
    
    $
    3,000
    
    
    $
    1,103Gross gains
    
    
    0
    
    
    
    2
    
    
    
    0Gross losses
    
    
    0
    
    
    
    0
    
    
    
    (2
    )
 14




---



##### 



NOTE 3  SECURITIES
  Held to Maturity
    
    
    Available for SaleAmortized
    
    
    Fair
    
    
    FairCost
    
    
    Value
    
    
    ValueDue in one year or less
    
    $
    2,088
    
    
    $
    2,100
    
    
    $
    7,108Due from one to five years
    
    
    3,534
    
    
    
    3,684
    
    
    
    4,108Due from five to ten years
    
    
    1,960
    
    
    
    2,072
    
    
    
    4,949Due after ten years
    
    
    370
    
    
    
    361
    
    
    
    3,018Mortgage-backed securities
    
    
    3
    
    
    
    3
    
    
    
    31,802Equity securities
    
    
    0
    
    
    
    0
    
    
    
    1,737$
    7,955
    
    
    $
    8,220
    
    
    $
    52,722
    2008(000s omitted)
    
    Less than 12 Months
    
    
    12 Months or More
    
    
    TotalDescription of
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedSecurities
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossState & municipal
    
    $
    2,790
    
    
    $
    (91
    )
    
    $
    1,583
    
    
    $
    (80
    )
    
    $
    4,373
    
    
    $
    (171
    )Mortgage-backed
    
    
    3,968
    
    
    
    (83
    )
    
    
    19,550
    
    
    
    (2,310
    )
    
    
    23,518
    
    
    
    (2,393
    )Equity securities
    
    
    1,049
    
    
    
    (598
    )
    
    
    188
    
    
    
    (228
    )
    
    
    1,237
    
    
    
    (826
    )Total temporarily
impaired
    
    $
    7,807
    
    
    $
    (772
    )
    
    $
    21,321
    
    
    $
    (2,618
    )
    
    $
    29,128
    
    
    $
    (3,390
    )
 2007 (000s omitted)
    
    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
    
    $
    5,985
    
    
    $
    (15
    )
    
    $
    6,978
    
    
    $
    (22
    )
    
    $
    12,963
    
    
    $
    (37
    )State & municipal
    
    
    509
    
    
    
    (2
    )
    
    
    5,601
    
    
    
    (91
    )
    
    
    6,110
    
    
    
    (93
    )Mortgage-backed
    
    
    27,849
    
    
    
    (662
    )
    
    
    0
    
    
    
    0
    
    
    
    27,849
    
    
    
    (662
    )Equity securities
    
    
    1,034
    
    
    
    (192
    )
    
    
    18
    
    
    
    (15
    )
    
    
    1,052
    
    
    
    (207
    )Total temporarily
impaired
    
    $
    35,377
    
    
    $
    (871
    )
    
    $
    12,597
    
    
    $
    (128
    )
    
    $
    47,974
    
    
    $
    (999
    )
 15




---



##### 



NOTE 3  SECURITIES
    NOTE 4  LOANS
  2008
    
    
    2007Commercial
    
    $
    311,520
    
    
    $
    318,555Real estate  construction
    
    
    51,823
    
    
    
    54,892Real estate  mortgage
    
    
    39,027
    
    
    
    39,817Consumer
    
    
    56,939
    
    
    
    58,139459,309
    
    
    
    471,403Less allowance for loan losses
    
    
    11,773
    
    
    
    8,554$
    447,536
    
    
    $
    462,849
  16




---



##### 



NOTE 4- LOANS
   2008
    
    
    2007
    
    
    2006Balance, beginning of year
    
    $
    8,554
    
    
    $
    6,692
    
    
    $
    6,301Provision for loan losses
    
    
    8,402
    
    
    
    7,466
    
    
    
    1,120Loans charged off
    
    
    (5,740
    )
    
    
    (5,859
    )
    
    
    (877
    )Loan recoveries
    
    
    557
    
    
    
    255
    
    
    
    148Balance, end of year
    
    $
    11,773
    
    
    $
    8,554
    
    
    $
    6,692
  2008
    
    
    2007Year end loans not requiring allocation
    
    $
    19,086
    
    
    $
    11,197Year end loans requiring allocation
    
    
    29,090
    
    
    
    18,186$
    48,176
    
    
    $
    29,383Amount of the allowance for loan losses allocated
    
    $
    5,642
    
    
    $
    2,751
 2008
    
    2007
    
    2006Average of
individually impaired loans during the year
    
    $
    47,508
    
    
    $
    17,073
    
    
    $
    4,439Interest income recognized during impairment
    
    
    386
    
    
    
    599
    
    
    
    130Cash-basis interest income recognized
    
    
    386
    
    
    
    599
    
    
    
    130
  (000s omitted)
    
    2008
    
    2007Loans past due over 90 days still on accrual
    
    $
    667
    
    
    $
    54Renegotiated loans
    
    
    942
    
    
    
    431Nonaccrual loans
    
    
    24,325
    
    
    $
    13,056
  17




---



##### 



NOTE 5  OTHER REAL ESTATE OWNED
  2008
    
    
    2007Beginning balance
    
    $
    2,003
    
    
    $
    1,248Transfers into other real estate
    
    
    8,169
    
    
    
    2,552Sales of other real estate owned
    
    
    (3,555
    )
    
    
    (1,458
    )Write downs of other real estate owned
    
    
    (268
    )
    
    
    (339
    )Ending balance
    
    $
    6,349
    
    
    $
    2,003
  NOTE 6  PREMISES AND EQUIPMENT, NET
  2008
    
    
    2007Land and land improvements
    
    $
    5,525
    
    
    $
    5,721Building and building improvements
    
    
    16,231
    
    
    
    16,043Furniture and equipment
    
    
    10,203
    
    
    
    9,568Construction in progress
    
    
    0
    
    
    
    1,16931,959
    
    
    
    32,501Less accumulated depreciation
    
    
    13,290
    
    
    
    12,400$
    18,669
    
    
    $
    20,101
   2009
    
    
    $
    2092010
    
    
    
    1972011
    
    
    
    1762012
    
    
    
    1732013
    
    
    
    105$
    860
 18




---



##### 



NOTE 7  GOODWILL AND INTANGIBLE ASSETS
 Goodwill
  Acquired Intangible Assets
  AccumulatedGross Carrying
    
    
    AmortizationAmortized intangible assets
    
    Amounts
    
    
    2008
    
    
    2007Core deposit assets
    
    $
    1,509
    
    
    $
    1,216
    
    
    $
    1,037Customer relationship intangibles
    
    
    216
    
    
    
    216
    
    
    
    203Total
    
    $
    1,725
    
    
    $
    1,432
    
    
    $
    1,240
   2009
    
    
    $
    1362010
    
    
    
    942011
    
    
    
    522012
    
    
    
    112013
    
    
    
    0
    19




---



##### 



NOTE 8  DEPOSITS
  2008
    
    
    2007Noninterest-bearing:Demand
    
    $
    73,685
    
    
    $
    75,148Interest-bearing:Savings
    
    
    76,096
    
    
    
    86,778Money market demand
    
    
    103,138
    
    
    
    98,362Time, $100,000 and over
    
    
    138,436
    
    
    
    160,633Time, $100,000 and under
    
    
    118,373
    
    
    
    122,582$
    509,728
    
    
    $
    543,503
   2008
    
    
    2007In one year
    
    $
    137,060
    
    
    $
    178,369In two years
    
    
    59,126
    
    
    
    36,338In three years
    
    
    29,175
    
    
    
    26,530In four years
    
    
    25,499
    
    
    
    21,460In five years
    
    
    5,782
    
    
    
    20,351Thereafter
    
    
    167
    
    
    
    167$
    256,809
    
    
    $
    283,215
  20




---



##### 



NOTE 9  BORROWINGS
 Short-Term Borrowings
  Federal Home Loan Bank Advances
  AdvancePrincipal Terms
    
    Amount
    
    
    Range of MaturitiesDecember 31, 2008Single Maturity fixed rate advances,
fixed rate at rates from
2.74%-7.34%, averaging 3.85%
    
    $
    13,007
    
    
    January 2009 to May 2016Single Maturity variable rate
advances,
Variable rate as of December 31,
2008 of 0.65%
    
    $
    1,700
    
    
    June 2009Total advances
    
    $
    14,707December 31, 2007Single Maturity fixed rate advances,
fixed rate at rates from
4.55%-7.34%, averaging 5.02%
    
    $
    11,030
    
    
    January 2008 to May 2016
   2009
    
    $
    2,7262010
    
    
    6,0282011
    
    
    5,0302012
    
    
    332013
    
    
    35Thereafter
    
    
    855$
    14,707
 Note Payable
  21




---



##### 



NOTE 9  BORROWINGS
 Repurchase Agreements
   2008
    
    2007Average daily balance during the year
    
    $
    2,377
    
    
    $
    7,356Average interest rate during the year
    
    
    2.67
    %
    
    
    3.11
    %Maximum month-end balance during the year
    
    $
    5,000
    
    
    $
    10,000Weighted average interest rate at year-end
    
    
    0.00
    %
    
    
    2.67
    %
 Subordinated Debenture and Trust Preferred Securities
   22




---



##### 



NOTE 10  INCOME TAXES
  2008
    
    
    2007
    
    
    2006Current expense (benefit)
    
    $
    7
    
    
    $
    434
    
    
    $
    2,552Deferred expense (benefit)
    
    
    (2,596
    )
    
    
    (1,095
    )
    
    
    (315
    )$
    (2,589
    )
    
    $
    (661
    )
    
    $
    2,237
  2008
    
    
    2007
    
    
    2006Income tax at statutory rate
    
    $
    (5,017
    )
    
    $
    (384
    )
    
    $
    2,565Goodwill impairment
    
    
    2,705
    
    
    
    0
    
    
    
    0Tax exempt interest
    
    
    (231
    )
    
    
    (242
    )
    
    
    (284
    )Other
    
    
    (46
    )
    
    
    (35
    )
    
    
    (44
    )$
    (2,589
    )
    
    $
    (661
    )
    
    $
    2,237
  2008
    
    
    2007Deferred tax assetsAllowance for loan losses
    
    $
    4,003
    
    
    $
    2,909Unrealized loss on securities available for sale
    
    
    1,193
    
    
    
    244Compensation
    
    
    481
    
    
    
    416Non-accrual interest
    
    
    618
    
    
    
    216Equity investment
    
    
    656
    
    
    
    0Capital loss
    
    
    287
    
    
    
    0Other
    
    
    291
    
    
    
    1767,528
    
    
    
    3,961Deferred tax liabilitiesDepreciation
    
    
    (518
    )
    
    
    (367
    )Purchase accounting adjustments
    
    
    (300
    )
    
    
    (397
    )Other
    
    
    (93
    )
    
    
    (125
    )(911
    )
    
    
    (889
    )$
    6,617
    
    
    $
    3,072
  23




---



##### 



NOTE 11  BENEFIT PLANS
    NOTE 12  STOCK PURCHASE AND OPTION PLANS
 Director and Employee Plans
    24




---



##### 



NOTE 12  STOCK PURCHASE AND OPTION PLANS
 Dividend Investment Plan
    2008
    
    2007
    
    2006Automatic dividend reinvestment plan
    
    
    4,293
    
    
    
    13,418
    
    
    
    13,337Director stock purchase & retainer stock
    
    
    16,140
    
    
    
    10,754
    
    
    
    7,892Stock options
    
    
    0
    
    
    
    295
    
    
    
    5,525Other issuance of stock
    
    
    1,947
    
    
    
    3,240
    
    
    
    2,89022,380
    
    
    
    27,707
    
    
    
    29,644
 Stock Option Plans
   25




---



##### 



NOTE 12  STOCK PURCHASE AND OPTION PLANS (Continued)
  :
 WeightedAverageNumber
    
    
    Weighted
    
    
    Remaining
    
    
    Aggregateof
    
    
    Average
    
    
    Contractual
    
    
    IntrinsicOptions
    
    
    Price
    
    
    Life
    
    
    ValueOptions outstanding at January 1, 2008
    
    
    40,228
    
    
    $
    29.74Options forfeited 2008
    
    
    (13,631
    )
    
    
    29.49Options outstanding at December 31, 2008
    
    
    26,597
    
    
    $
    29.85
    
    
    
    4.15
    
    
    $
    0Exercisable at December 31, 2008
    
    
    26,597
    
    
    $
    29.85
    
    
    
    4.15
    
    
    $
    0
  (000s omitted)
    
    2008
    
    2007Intrinsic value of options exercised
    
    $
    0
    
    
    $
    3Cash received from option exercises
    
    
    0
    
    
    
    6Tax benefit realized from option exercises
    
    
    0
    
    
    
    0
  26




---



##### 



NOTE 13  FAIR VALUE
      Assets and Liabilities Measured on a Recurring Basis
  Fair Value Measurements at December 31, 2008 UsingQuoted Pricesin Active
    
    Significant Other
    
    SignificantMarkets for
    
    Observable
    
    UnobservableDecember
    
    Identical Assets
    
    Inputs
    
    Inputs(000s omitted)
    
    31, 2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Assets:Available for sale
securities
    
    $
    52,722
    
    
    $
    9
    
    
    $
    51,484
    
    
    $
    1,229
    27




---



##### 



NOTE 13  FAIR VALUE
  Fair Value Measurements Using SignificantUnobservable Inputs(Level 3)(000s omitted)
    
    Asset
    
    Liability
    
    TotalBeginning balance, Jan. 1, 2008
    
    $
    2,721
    
    
    $
    0
    
    
    $
    2,721Total gains or losses (realized / unrealized)Included in earningsLoss on security impairment
    
    
    (843
    )
    
    
    0
    
    
    
    (843
    )Included in other comprehensive income
    
    
    (649
    )
    
    
    0
    
    
    
    (649
    )Transfers in and / or out of Level 3
    
    
    0
    
    
    
    0
    
    
    
    0Ending balance, December 31, 2008
    
    $
    1,229
    
    
    $
    0
    
    
    $
    1,229
 Assets and Liabilities Measured on a Non-Recurring Basis
  Fair Value Measurements at December 31, 2008 UsingSignificantQuoted Prices in
    
    Other
    
    SignificantActive Markets for
    
    Observable
    
    UnobservableDecember
    
    Identical Assets
    
    Inputs
    
    Inputs(000s omitted)
    
    31, 2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Assets:Impaired loans
    
    $
    23,448
    
    
    $
    0
    
    
    $
    0
    
    
    $
    23,448
   28




---



##### 



NOTE 13  FAIR VALUE
  2008
    
    2007Carrying
    
    
    
    
    
    CarryingAmount
    
    Fair Value
    
    Amount
    
    Fair ValueAssets:Cash and cash equivalents
    
    $
    20,953
    
    
    $
    20,953
    
    
    $
    30,034
    
    
    $
    30,034Securities  held to maturity
    
    
    7,955
    
    
    
    8,220
    
    
    
    8,685
    
    
    
    8,714FHLB stock
    
    
    2,032
    
    
    
    n/a
    
    
    
    2,032
    
    
    
    n/aLoans held for sale
    
    
    690
    
    
    
    690
    
    
    
    1,655
    
    
    
    1,655Loans
    
    
    447,536
    
    
    
    424,892
    
    
    
    462,849
    
    
    
    457,693Accrued interest receivable
    
    
    2,405
    
    
    
    2,405
    
    
    
    2,813
    
    
    
    2,813Liabilities:Deposits
    
    $
    509,728
    
    
    $
    491,371
    
    
    $
    543,503
    
    
    $
    536,969Short-term borrowings
    
    
    1,500
    
    
    
    1,500
    
    
    
    649
    
    
    
    649FHLB advances
    
    
    14,707
    
    
    
    14,475
    
    
    
    11,030
    
    
    
    10,907Repurchase agreements
    
    
    0
    
    
    
    0
    
    
    
    5,000
    
    
    
    5,000Subordinated debentures
    
    
    14,000
    
    
    
    13,896
    
    
    
    14,000
    
    
    
    13,934Note payable
    
    
    1,000
    
    
    
    1,000
    
    
    
    0
    
    
    
    0Accrued interest payable
    
    
    674
    
    
    
    674
    
    
    
    921
    
    
    
    921
  Cash and cash equivalents
  Securities (including mortgage-backed securities)
  FHLB Stock
  Loans held for sale
  Loans
  29




---



##### 



NOTE 13  FAIR VALUE
 Off-balance-sheet instruments
  Deposit liabilities
  Short-term borrowings
  Note Payable
  FHLB advances
  Repurchase agreements
  Subordinated Debentures
  Limitations
  30




---



##### 



NOTE 14  REGULATORY MATTERS
    31




---



##### 



NOTE 14  REGULATORY MATTERS
 To Be WellCapitalizedUnderPromptFor Capital
    
    CorrectiveAdequacy
    
    ActionActual
    
    Purposes
    
    ProvisionsAs of December 31, 2008
(000s omitted)
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTotal Capital
(to Risk Weighted Assets)Consolidated
    
    $
    58,194
    
    
    
    11.4
    %
    
    $
    40,726
    
    
    
    8.0
    %
    
    NA
    
    
    NAThe State Bank
    
    
    34,807
    
    
    
    10.7
    
    
    
    25,952
    
    
    
    8.0
    
    
    
    32,440
    
    
    
    10.0Davison State Bank
    
    
    4,170
    
    
    
    11.7
    
    
    
    2,863
    
    
    
    8.0
    
    
    
    3,578
    
    
    
    10.0West Michigan Community Bank
    
    
    15,656
    
    
    
    10.8
    
    
    
    11,558
    
    
    
    8.0
    
    
    
    14,448
    
    
    
    10.0Tier 1 Capital
(to Risk Weighted Assets)Consolidated
    
    
    51,827
    
    
    
    10.2
    
    
    
    20,363
    
    
    
    4.0
    
    
    NA
    
    
    NAThe State Bank
    
    
    30,720
    
    
    
    9.5
    
    
    
    12,976
    
    
    
    4.0
    
    
    
    19,464
    
    
    
    6.0Davison State Bank
    
    
    3,712
    
    
    
    10.4
    
    
    
    1,431
    
    
    
    4.0
    
    
    
    2,147
    
    
    
    6.0West Michigan Community Bank
    
    
    13,834
    
    
    
    9.6
    
    
    
    5,779
    
    
    
    4.0
    
    
    
    8,669
    
    
    
    6.0Tier 1 Capital
(to Average Assets)Consolidated
    
    
    51,827
    
    
    
    8.8
    
    
    
    23,320
    
    
    
    4.0
    
    
    NA
    
    
    NAThe State Bank
    
    
    30,720
    
    
    
    8.5
    
    
    
    14,498
    
    
    
    4.0
    
    
    
    18,123
    
    
    
    5.0Davison State Bank
    
    
    3,712
    
    
    
    8.2
    
    
    
    1,804
    
    
    
    4.0
    
    
    
    2,255
    
    
    
    5.0West Michigan Community Bank
    
    
    13,834
    
    
    
    8.1
    
    
    
    6,833
    
    
    
    4.0
    
    
    
    8,541
    
    
    
    5.0
 32




---



##### 



NOTE 14  REGULATORY MATTERS
 To Be WellFor Capital
    
    Capitalized UnderAdequacy
    
    Prompt CorrectiveActual
    
    Purposes
    
    Action ProvisionsAs of December 31, 2007
(000s omitted)
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTotal Capital
(to Risk Weighted Assets)Consolidated
    
    $
    61,993
    
    
    
    11.6
    %
    
    $
    42,738
    
    
    
    8.0
    %
    
    NA
    
    
    NAThe State Bank
    
    
    36,342
    
    
    
    10.7
    
    
    
    27,164
    
    
    
    8.0
    
    
    
    33,955
    
    
    
    10.0Davison State Bank
    
    
    4,408
    
    
    
    11.2
    
    
    
    3,160
    
    
    
    8.0
    
    
    
    3,950
    
    
    
    10.0West Michigan Community Bank
    
    
    15,280
    
    
    
    10.3
    
    
    
    11,908
    
    
    
    8.0
    
    
    
    14,884
    
    
    
    10.0Tier 1 Capital
(to Risk Weighted Assets)Consolidated
    
    
    55,370
    
    
    
    10.4
    
    
    
    21,369
    
    
    
    4.0
    
    
    NA
    
    
    NAThe State Bank
    
    
    32,087
    
    
    
    9.4
    
    
    
    13,582
    
    
    
    4.0
    
    
    
    20,373
    
    
    
    6.0Davison State Bank
    
    
    3,908
    
    
    
    9.9
    
    
    
    1,580
    
    
    
    4.0
    
    
    
    2,370
    
    
    
    6.0West Michigan Community Bank
    
    
    13,409
    
    
    
    9.0
    
    
    
    5,954
    
    
    
    4.0
    
    
    
    8,931
    
    
    
    6.0Tier 1 Capital
(to Average Assets)Consolidated
    
    
    55,370
    
    
    
    9.0
    
    
    
    24,573
    
    
    
    4.0
    
    
    NA
    
    
    NAThe State Bank
    
    
    32,087
    
    
    
    8.3
    
    
    
    15,403
    
    
    
    4.0
    
    
    
    19,253
    
    
    
    5.0Davison State Bank
    
    
    3,908
    
    
    
    8.0
    
    
    
    1,945
    
    
    
    4.0
    
    
    
    2,432
    
    
    
    5.0West Michigan Community Bank
    
    
    13,409
    
    
    
    7.9
    
    
    
    6,767
    
    
    
    4.0
    
    
    
    8,459
    
    
    
    5.0
 33




---



##### 



NOTE 15  LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES
 Off-balance-sheet risk
   2008
    
    2007Commitments to make loans (at market rates)
    
    $
    25,898
    
    
    $
    35,633Unused lines of credit and letters of credit
    
    
    51,515
    
    
    
    74,506
  34




---



##### 



NOTE 16  PARENT ONLY CONDENSED FINANCIAL INFORMATION
  
 2008
    
    2007ASSETSCash and cash equivalents
    
    $
    814
    
    
    $
    842Securities available for sale, at market
    
    
    1,237
    
    
    
    2,738Equity investment
    
    
    1,360
    
    
    
    3,089Other assets
    
    
    773
    
    
    
    63Investment in subsidiaries
    
    
    47,103
    
    
    
    57,479$
    51,287
    
    
    $
    64,211LIABILITIES AND STOCKHOLDERS EQUITYOther liabilities
    
    $
    163
    
    
    $
    715Subordinated debt
    
    
    14,000
    
    
    
    14,000Other borrowings
    
    
    1,000
    
    
    
    0Stockholders equity
    
    
    36,124
    
    
    
    49,496$
    51,287
    
    
    $
    64,211
 
 2008
    
    2007
    
    2006Other income (Loss) on equity investment
    
    $
    (1,729
    )
    
    $
    (199
    )
    
    $
    1Dividends from subsidiaries
    
    
    400
    
    
    
    2,208
    
    
    
    6,849Interest expense
    
    
    (976
    )
    
    
    (1,256
    )
    
    
    (1,264
    )Operating expenses
    
    
    (1,178
    )
    
    
    (351
    )
    
    
    (326
    )Dividends in excess of earnings
    
    
    (9,218
    )
    
    
    (1,462
    )
    
    
    (468
    )Income/(loss) before income taxes
    
    
    (12,700
    )
    
    
    (1,059
    )
    
    
    4,792Federal income tax expense (benefit)
    
    
    (535
    )
    
    
    (593
    )
    
    
    (517
    )Net income (loss)
    
    $
    (12,165
    )
    
    $
    (467
    )
    
    $
    5,308
 35




---



##### 



NOTE 16  PARENT ONLY CONDENSED FINANCIAL INFORMATION
 
 2008
    
    2007
    
    2006Cash flows from operating activitiesNet income (loss)
    
    $
    (12,165
    )
    
    $
    (467
    )
    
    $
    5,308Change in other assets
    
    
    68
    
    
    
    201
    
    
    
    38Change in other liabilities
    
    
    (312
    )
    
    
    (35
    )
    
    
    383Dividends in excess of earnings
    
    
    9,218
    
    
    
    1,462
    
    
    
    468Loss on security impairment
    
    
    843
    
    
    
    0
    
    
    
    0Net loss of equity investment
    
    
    1,729
    
    
    
    199
    
    
    
    0Net cash from operating activities
    
    
    (620
    )
    
    
    1,360
    
    
    
    6,197Cash flows provided by investing activitiesEquity Investment
    
    
    0
    
    
    
    (3,288
    )
    
    
    0Sales and maturities of securities-AFS
    
    
    0
    
    
    
    0
    
    
    
    0Purchases of securities-AFS
    
    
    0
    
    
    
    (783
    )
    
    
    (213
    )Investment in subsidiary
    
    
    (700
    )
    
    
    0
    
    
    
    (1,000
    )Net cash from investing activities
    
    
    (700
    )
    
    
    (4,071
    )
    
    
    (1,213
    )Cash flows used in financing activitiesIssuance of subordinated debt
    
    
    0
    
    
    
    0
    
    
    
    0Net short-term borrowings
    
    
    1,000
    
    
    
    0
    
    
    
    0Dividends paid
    
    
    0
    
    
    
    (2,163
    )
    
    
    (2,069
    )Stock repurchase
    
    
    0
    
    
    
    (520
    )
    
    
    0Proceeds from stock issuance
    
    
    292
    
    
    
    840
    
    
    
    817Net cash from financing activities
    
    
    1,292
    
    
    
    (1,843
    )
    
    
    (1,252
    )Change in cash and cash equivalents
    
    
    (28
    )
    
    
    (4,554
    )
    
    
    3,732Cash and cash equivalents at beginning of year
    
    
    842
    
    
    
    5,396
    
    
    
    1,664Cash and cash equivalents at end of year
    
    $
    814
    
    
    $
    842
    
    
    $
    5,396
 NOTE 17  SUBSEQUENT EVENTS
  36




---



##### 



Managements Discussion and Analysis of Financial Condition and Results of Operations
  TABLE 1
 Selected Financial Data
 $ 000s omitted except per share data and ratios
    
    2008
    
    2007
    
    2006
    
    2005
    
    2004Summary of Consolidated Statements of Income:Interest Income
    
    $
    33,143
    
    
    $
    39,214
    
    
    $
    39,916
    
    
    $
    33,878
    
    
    $
    26,094Interest Expense
    
    
    15,028
    
    
    
    18,621
    
    
    
    16,908
    
    
    
    11,298
    
    
    
    8,263Net Interest Income
    
    
    18,115
    
    
    
    20,593
    
    
    
    23,008
    
    
    
    22,580
    
    
    
    17,831Provision for Loan Losses
    
    
    8,402
    
    
    
    7,466
    
    
    
    1,120
    
    
    
    1,389
    
    
    
    1,389Net Interest Income after Provision
    
    
    9,713
    
    
    
    13,127
    
    
    
    21,888
    
    
    
    21,191
    
    
    
    16,442Total Other Operating Income
    
    
    5,087
    
    
    
    7,579
    
    
    
    7,643
    
    
    
    6,882
    
    
    
    7,292Total Other Operating Expense
    
    
    29,554
    
    
    
    21,834
    
    
    
    21,986
    
    
    
    20,800
    
    
    
    18,176Income (loss) Before Income Taxes
    
    
    (14,754
    )
    
    
    (1,128
    )
    
    
    7,545
    
    
    
    7,273
    
    
    
    5,558Federal Income Taxes (Benefit)
    
    
    (2,589
    )
    
    
    (661
    )
    
    
    2,237
    
    
    
    2,219
    
    
    
    1,524Net Income (loss)
    
    $
    (12,165
    )
    
    $
    (467
    )
    
    $
    5,308
    
    
    $
    5,054
    
    
    $
    4,034Earnings Per Share  Basic*
    
    $
    (5.60
    )
    
    $
    (0.22
    )
    
    $
    2.48
    
    
    $
    2.41
    
    
    $
    1.95Earnings Per Share  Diluted*
    
    $
    (5.60
    )
    
    $
    (0.22
    )
    
    $
    2.47
    
    
    $
    2.40
    
    
    $
    1.94Summary of Consolidated Balance Sheets:Assets
    
    $
    578,604
    
    
    $
    628,019
    
    
    $
    622,298
    
    
    $
    619,089
    
    
    $
    584,890Securities, including FHLB stock
    
    
    62,709
    
    
    
    82,509
    
    
    
    105,035
    
    
    
    116,693
    
    
    
    131,429Loans, including loans held for sale
    
    
    459,999
    
    
    
    473,058
    
    
    
    453,219
    
    
    
    440,398
    
    
    
    395,017Deposits
    
    
    509,728
    
    
    
    543,503
    
    
    
    528,555
    
    
    
    528,054
    
    
    
    491,065Borrowings
    
    
    30,207
    
    
    
    30,679
    
    
    
    36,552
    
    
    
    39,765
    
    
    
    46,602Stockholders Equity
    
    
    36,124
    
    
    
    49,496
    
    
    
    51,318
    
    
    
    46,895
    
    
    
    42,969Other Financial and Statistical Data:Tier 1 Capital to Risk Weighted Assets
    
    
    10.21
    %
    
    
    10.40
    %
    
    
    11.30
    %
    
    
    10.60
    %
    
    
    10.20
    %Total Capital to Risk Weighted Assets
    
    
    11.43
    %
    
    
    11.60
    %
    
    
    12.50
    %
    
    
    11.90
    %
    
    
    11.40
    %Tier 1 Capital to Average Assets
    
    
    8.84
    %
    
    
    9.00
    %
    
    
    8.60
    %
    
    
    8.90
    %
    
    
    8.70
    %Total Cash Dividends
    
    $
    0
    
    
    $
    2,163
    
    
    $
    2,069
    
    
    $
    1,839
    
    
    $
    1,758Book Value Per Share*
    
    $
    16.53
    
    
    $
    22.88
    
    
    $
    24.08
    
    
    $
    22.07
    
    
    $
    20.67Cash Dividends Paid Per Share*
    
    $
    0
    
    
    $
    1.00
    
    
    $
    0.94
    
    
    $
    0.88
    
    
    $
    0.84Period End Market Price Per Share*
    
    $
    6.75
    
    
    $
    22.00
    
    
    $
    32.55
    
    
    $
    29.77
    
    
    $
    33.41Dividend Pay-out Ratio
    
    
    0.00
    %
    
    
    -463.17
    %
    
    
    38.98
    %
    
    
    36.39
    %
    
    
    43.58
    %Return on Average Stockholders Equity
    
    
    -25.20
    %
    
    
    -0.89
    %
    
    
    10.82
    %
    
    
    11.09
    %
    
    
    9.72
    %Return on Average Assets
    
    
    -2.03
    %
    
    
    -0.08
    %
    
    
    0.85
    %
    
    
    0.85
    %
    
    
    0.74
    %Net Interest Margin
    
    
    3.40
    %
    
    
    3.72
    %
    
    
    4.11
    %
    
    
    4.23
    %
    
    
    3.70
    %Total Equity to Assets at Period End
    
    
    6.24
    %
    
    
    7.88
    %
    
    
    8.25
    %
    
    
    7.57
    %
    
    
    7.34
    %
 
 *
    
    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. 37




---



##### 



RESULTS OF OPERATIONS
    NET INTEREST INCOME
   38




---



##### 



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)2008
    
    
    
    
    
    
    
    
    
    
    2007DUE
    
    
    
    
    
    
    
    
    
    
    DUETO:
    
    
    
    
    
    
    
    
    
    
    TO:YIELD/
    
    
    
    
    
    
    
    
    
    
    YIELD/(000s omitted)
    
    VOL
    
    RATE
    
    TOTAL
    
    
    VOL
    
    RATE
    
    TOTALTAXABLE SECURITIES
    
    $
    (1,027
    )
    
    $
    18
    
    
    $
    (1,009
    )
    
    
    $
    (372
    )
    
    $
    125
    
    
    $
    (247
    )TAX-EXEMPT SECURITIES
    
    
    (123
    )
    
    
    (80
    )
    
    
    (203
    )
    
    
    
    (210
    )
    
    
    78
    
    
    
    (132
    )FEDERAL FUNDS SOLD
    
    
    2
    
    
    
    (148
    )
    
    
    (146
    )
    
    
    
    (198
    )
    
    
    (2
    )
    
    
    (200
    )TOTAL LOANS
    
    
    435
    
    
    
    (5,148
    )
    
    
    (4,713
    )
    
    
    
    790
    
    
    
    (968
    )
    
    
    (178
    )LOANS HELD FOR SALE
    
    
    (41
    )
    
    
    (6
    )
    
    
    (47
    )
    
    
    
    2
    
    
    
    (4
    )
    
    
    (2
    )TOTAL EARNING ASSETS
    
    
    (754
    )
    
    
    (5,364
    )
    
    
    (6,118
    )
    
    
    
    12
    
    
    
    (771
    )
    
    
    (759
    )INTEREST
BEARING DEMAND DEPOSITS
    
    
    (55
    )
    
    
    (980
    )
    
    
    (1,035
    )
    
    
    
    (120
    )
    
    
    83
    
    
    
    (37
    )SAVINGS DEPOSITS
    
    
    (76
    )
    
    
    (394
    )
    
    
    (470
    )
    
    
    
    (131
    )
    
    
    69
    
    
    
    (62
    )TIME CDs $100,000 AND OVER
    
    
    (401
    )
    
    
    (10
    )
    
    
    (411
    )
    
    
    
    1,018
    
    
    
    (103
    )
    
    
    915OTHER TIME DEPOSITS
    
    
    175
    
    
    
    (1,297
    )
    
    
    (1,122
    )
    
    
    
    (253
    )
    
    
    1,098
    
    
    
    845OTHER BORROWINGS
    
    
    (51
    )
    
    
    (503
    )
    
    
    (554
    )
    
    
    
    (187
    )
    
    
    239
    
    
    
    52TOTAL
INTEREST BEARING LIABILITIES
    
    
    (408
    )
    
    
    (3,184
    )
    
    
    (3,592
    )
    
    
    
    327
    
    
    
    1,386
    
    
    
    1,713NET INTEREST INCOME
    
    $
    (346
    )
    
    $
    (2,180
    )
    
    $
    (2,526
    )
    
    
    $
    (315
    )
    
    $
    (2,157
    )
    
    $
    (2,472
    )
 40




---



##### 



TABLE 3
(000s omitted)
 Summary of Net Interest Income
Years Ended December 31,
 2008
    
    
    2007
    
    
    2006AVG
    
    
    
    
    
    
    
    
    
    
    AVG
    
    
    
    
    
    
    
    
    
    
    AVGBAL
    
    
    INC/EXP
    
    
    YIELD
    
    
    BAL
    
    
    INC/EXP
    
    
    YIELD
    
    
    BAL
    
    
    INC/EXP
    
    
    YIELDASSETSSecurities:U.S. Treasury and Government
Agencies
    
    $
    49,733
    
    
    $
    2,089
    
    
    
    4.20
    %
    
    $
    73,051
    
    
    $
    3,120
    
    
    
    4.27
    %
    
    $
    84,099
    
    
    $
    3,348
    
    
    
    3.98
    %State and Political (1)
    
    
    15,728
    
    
    
    891
    
    
    
    5.66
    %
    
    
    17,716
    
    
    
    1,094
    
    
    
    6.17
    %
    
    
    21,376
    
    
    
    1,226
    
    
    
    5.73
    %Other
    
    
    4,651
    
    
    
    127
    
    
    
    2.73
    %
    
    
    6,641
    
    
    
    105
    
    
    
    1.58
    %
    
    
    4,304
    
    
    
    124
    
    
    
    2.88
    %Total Securities
    
    
    70,112
    
    
    
    3,107
    
    
    
    4.43
    %
    
    
    97,408
    
    
    
    4,319
    
    
    
    4.43
    %
    
    
    109,779
    
    
    
    4,698
    
    
    
    4.28
    %Fed Funds Sold
    
    
    6,113
    
    
    
    157
    
    
    
    2.57
    %
    
    
    6,082
    
    
    
    303
    
    
    
    4.98
    %
    
    
    10,045
    
    
    
    503
    
    
    
    5.01
    %Loans:Commercial
    
    
    366,882
    
    
    
    23,600
    
    
    
    6.43
    %
    
    
    359,262
    
    
    
    27,276
    
    
    
    7.59
    %
    
    
    343,702
    
    
    
    26,820
    
    
    
    7.80
    %Tax Free (1)
    
    
    3,329
    
    
    
    226
    
    
    
    6.78
    %
    
    
    3,552
    
    
    
    233
    
    
    
    6.57
    %
    
    
    4,217
    
    
    
    271
    
    
    
    6.43
    %Real Estate-Mortgage
    
    
    38,592
    
    
    
    2,486
    
    
    
    6.44
    %
    
    
    38,047
    
    
    
    2,531
    
    
    
    6.65
    %
    
    
    36,330
    
    
    
    2,638
    
    
    
    7.26
    %Consumer
    
    
    57,853
    
    
    
    3,908
    
    
    
    6.76
    %
    
    
    60,057
    
    
    
    4,893
    
    
    
    8.15
    %
    
    
    66,526
    
    
    
    5,382
    
    
    
    8.09
    %Total loans
    
    
    466,656
    
    
    
    30,220
    
    
    
    6.48
    %
    
    
    460,918
    
    
    
    34,933
    
    
    
    7.58
    %
    
    
    450,775
    
    
    
    35,111
    
    
    
    7.79
    %Allowance for Loan Loss
    
    
    (10,561
    )
    
    
    
    
    
    
    
    
    
    
    (8,014
    )
    
    
    
    
    
    
    
    
    
    
    (6,632
    )Net Loans
    
    
    456,095
    
    
    
    30,220
    
    
    
    6.63
    %
    
    
    452,904
    
    
    
    34,933
    
    
    
    7.71
    %
    
    
    444,143
    
    
    
    35,111
    
    
    
    7.91
    %Loans Held for Sale
    
    
    1,042
    
    
    
    63
    
    
    
    6.05
    %
    
    
    1,662
    
    
    
    110
    
    
    
    6.62
    %
    
    
    1,626
    
    
    
    112
    
    
    
    6.89
    %TOTAL EARNING ASSETS
    
    
    543,923
    
    
    
    33,547
    
    
    
    6.17
    %
    
    
    566,070
    
    
    
    39,665
    
    
    
    7.01
    %
    
    
    572,225
    
    
    
    40,424
    
    
    
    7.06
    %Cash Due from Banks
    
    
    16,603
    
    
    
    
    
    
    
    
    
    
    
    17,321
    
    
    
    
    
    
    
    
    
    
    
    18,155All Other Assets
    
    
    50,558
    
    
    
    
    
    
    
    
    
    
    
    45,500
    
    
    
    
    
    
    
    
    
    
    
    39,663TOTAL ASSETS
    
    $
    600,523
    
    
    
    
    
    
    
    
    
    
    $
    620,877
    
    
    
    
    
    
    
    
    
    
    $
    623,411LIABILITIES & SHAREHOLDERS EQUITY:Deposits:Interest bearing  DDA
    
    $
    95,880
    
    
    
    1,323
    
    
    
    1.38
    %
    
    $
    98,172
    
    
    $
    2,358
    
    
    
    2.40
    %
    
    $
    103,356
    
    
    $
    2,395
    
    
    
    2.32
    %Savings Deposits
    
    
    83,245
    
    
    
    720
    
    
    
    0.86
    %
    
    
    88,943
    
    
    
    1,190
    
    
    
    1.34
    %
    
    
    99,339
    
    
    
    1,252
    
    
    
    1.26
    %Time CDs $100,000 and Over
    
    
    143,736
    
    
    
    6,719
    
    
    
    4.67
    %
    
    
    152,305
    
    
    
    7,130
    
    
    
    4.68
    %
    
    
    130,860
    
    
    
    6,215
    
    
    
    4.75
    %Other Time CDs
    
    
    117,675
    
    
    
    4,604
    
    
    
    3.91
    %
    
    
    114,182
    
    
    
    5,726
    
    
    
    5.01
    %
    
    
    120,427
    
    
    
    4,881
    
    
    
    4.05
    %Total Interest Bearing Deposits
    
    
    440,536
    
    
    
    13,366
    
    
    
    3.03
    %
    
    
    453,602
    
    
    
    16,404
    
    
    
    3.62
    %
    
    
    453,982
    
    
    
    14,743
    
    
    
    3.25
    %Other Borrowings
    
    
    35,043
    
    
    
    1,663
    
    
    
    4.75
    %
    
    
    35,868
    
    
    
    2,217
    
    
    
    6.18
    %
    
    
    39,268
    
    
    
    2,165
    
    
    
    5.51
    %INTEREST BEARING LIABILITIES
    
    
    475,579
    
    
    
    15,029
    
    
    
    3.16
    %
    
    
    489,470
    
    
    
    18,621
    
    
    
    3.80
    %
    
    
    493,250
    
    
    
    16,908
    
    
    
    3.43
    %Non-interest bearing  DDA
    
    
    73,991
    
    
    
    
    
    
    
    
    
    
    
    75,177
    
    
    
    
    
    
    
    
    
    
    
    77,256All Other Liabilities
    
    
    2,672
    
    
    
    
    
    
    
    
    
    
    
    4,008
    
    
    
    
    
    
    
    
    
    
    
    3,832Shareholders Equity
    
    
    48,281
    
    
    
    
    
    
    
    
    
    
    
    52,222
    
    
    
    
    
    
    
    
    
    
    
    49,073TOTAL LIABILITIES and S/H
EQUITY
    
    $
    600,523
    
    
    
    
    
    
    
    
    
    
    $
    620,877
    
    
    
    
    
    
    
    
    
    
    $
    623,411Net Interest Rate Spread
    
    
    
    
    
    
    
    
    
    
    3.01
    %
    
    
    
    
    
    
    
    
    
    
    3.20
    %
    
    
    
    
    
    
    
    
    
    
    3.64
    %Impact of Non-Interest BearingFunds on Margin
    
    
    
    
    
    
    
    
    
    
    0.40
    %
    
    
    
    
    
    
    
    
    
    
    0.51
    %
    
    
    
    
    
    
    
    
    
    
    0.47
    %Net Interest Income/Margin
    
    
    
    
    
    $
    18,518
    
    
    
    3.40
    %
    
    
    
    
    
    $
    21,044
    
    
    
    3.72
    %
    
    
    
    
    
    $
    23,516
    
    
    
    4.11
    %
 
 (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 4
Analysis of the Allowance for Loan Losses
 Years Ended December 31,(000s omitted)
    
    2008
    
    2007
    
    2006
    
    2005
    
    2004Balance Beginning of Period
    
    $
    8,554
    
    
    $
    6,692
    
    
    $
    6,301
    
    
    $
    5,501
    
    
    $
    3,414Charge-offs:Commercial, Financial and Agricultural
    
    
    (5,005
    )
    
    
    (4,991
    )
    
    
    (554
    )
    
    
    (405
    )
    
    
    (365
    )Real Estate-Mortgage
    
    
    (297
    )
    
    
    (186
    )
    
    
    0
    
    
    
    0
    
    
    
    0Installment Loans to Individuals
    
    
    (438
    )
    
    
    (682
    )
    
    
    (323
    )
    
    
    (360
    )
    
    
    (306
    )Total Charge-offs
    
    
    (5,740
    )
    
    
    (5,859
    )
    
    
    (877
    )
    
    
    (765
    )
    
    
    (671
    )Recoveries:Commercial and Financial
    
    
    314
    
    
    
    155
    
    
    
    51
    
    
    
    70
    
    
    
    38Real Estate-Mortgage
    
    
    23
    
    
    
    1
    
    
    
    0
    
    
    
    0
    
    
    
    0Installment Loans to Individuals
    
    
    220
    
    
    
    99
    
    
    
    97
    
    
    
    106
    
    
    
    172Total Recoveries
    
    
    557
    
    
    
    255
    
    
    
    148
    
    
    
    176
    
    
    
    210Net Charge-offs
    
    
    (5,183
    )
    
    
    (5,604
    )
    
    
    (729
    )
    
    
    (589
    )
    
    
    (461
    )Provision for loan losses
    
    
    8,402
    
    
    
    7,466
    
    
    
    1,120
    
    
    
    1,389
    
    
    
    1,389Addition from WMCB acquisition
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,159Balance at End of Period
    
    $
    11,773
    
    
    $
    8,554
    
    
    $
    6,692
    
    
    $
    6,301
    
    
    $
    5,501Ratio of
Net Charge-Offs During the Period
    
    
    1.13
    %
    
    
    1.19
    %
    
    
    0.16
    %
    
    
    0.14
    %
    
    
    0.12
    %
 NON-INTEREST INCOME
     43




---



##### 



th
 NON-INTEREST EXPENSE
        44




---



##### 



FINANCIAL CONDITION
   45




---



##### 



SECURITIES PORTFOLIO
    46




---



##### 



TABLE 5
Analysis and Maturities of Securities
 Amortized
    
    Fair(000s omitted)
    
    Cost
    
    Value
    
    Yield(1)AVAILABLE FOR SALEU.S. AgenciesOne year or less
    
    $
    7,000
    
    
    $
    7,108
    
    
    
    3.68
    %Over one through five years
    
    
    4,000
    
    
    
    4,108
    
    
    
    4.35
    %Over five through ten years
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %Over ten years
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %Total
    
    
    11,000
    
    
    
    11,216Mortgage-BackedOne year or less
    
    $
    0
    
    
    $
    0
    
    
    
    0.00
    %Over one through five years
    
    
    7,929
    
    
    
    7,906
    
    
    
    4.11
    %Over five through ten years
    
    
    2,555
    
    
    
    2,526
    
    
    
    4.25
    %Over ten years
    
    
    23,584
    
    
    
    21,370
    
    
    
    4.64
    %Total
    
    
    34,068
    
    
    
    31,802State and PoliticalOne year or less
    
    $
    0
    
    
    $
    0
    
    
    
    0.00
    %Over one through five years
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %Over five through ten years
    
    
    3,349
    
    
    
    3,330
    
    
    
    6.72
    %Over ten years
    
    
    4,737
    
    
    
    4,637
    
    
    
    6.34
    %Total
    
    
    8,086
    
    
    
    7,967Equity Securities
    
    $
    2,563
    
    
    $
    1,737HELD TO MATURITYMortgage-BackedOne year or less
    
    $
    0
    
    
    $
    0
    
    
    
    0.00
    %Over one through five years
    
    
    3
    
    
    
    3
    
    
    
    9.00
    %Over five through ten years
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %Over ten years
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %Total
    
    
    3
    
    
    
    3State and PoliticalOne year or less
    
    $
    2,088
    
    
    $
    2,100
    
    
    
    5.92
    %Over one through five years
    
    
    2,841
    
    
    
    3,684
    
    
    
    6.13
    %Over five through ten years
    
    
    2,404
    
    
    
    2,072
    
    
    
    6.61
    %Over ten years
    
    
    619
    
    
    
    361
    
    
    
    6.25
    %Total
    
    
    7,952
    
    
    
    8,217Total Securities
    
    $
    63,672
    
    
    $
    60,942
 
 (1)
    
    Tax equivalent yield 47




---



##### 



LOAN PORTFOLIO
   TABLE 6
Loan Portfolio
 December 31,(000s omitted)
    
    2008
    
    2007
    
    2006
    
    2005
    
    2004Commercial
    
    $
    311,520
    
    
    $
    318,555
    
    
    $
    272,402
    
    
    $
    254,498
    
    
    $
    229,012Real
estate  construction
    
    
    51,823
    
    
    
    54,892
    
    
    
    78,927
    
    
    
    76,386
    
    
    
    61,278Real
estate  mortgage
    
    
    39,027
    
    
    
    39,817
    
    
    
    36,867
    
    
    
    37,627
    
    
    
    32,705Consumer
    
    
    56,939
    
    
    
    58,139
    
    
    
    62,797
    
    
    
    70,845
    
    
    
    70,435Total
    
    $
    459,309
    
    
    $
    471,403
    
    
    $
    450,993
    
    
    $
    439,356
    
    
    $
    393,430
  TABLE 7
Maturities of the Loan Portfolio by Loan Type
 Within
    
    
    One-
    
    
    AfterDecember 31, 2008
    
    One
    
    
    Five
    
    
    Five(000s omitted)
    
    Year
    
    
    Years
    
    
    Years
    
    
    TotalCommercial
    
    $
    126,280
    
    
    $
    160,795
    
    
    $
    24,445
    
    
    $
    311,520Real
estate  construction
    
    
    44,000
    
    
    
    5,909
    
    
    
    1,914
    
    
    
    51,823Real
estate  mortgage
    
    
    6,411
    
    
    
    10,177
    
    
    
    22,439
    
    
    
    39,027Consumer
    
    
    8,639
    
    
    
    31,564
    
    
    
    16,736
    
    
    
    56,939$
    185,330
    
    
    $
    208,445
    
    
    $
    65,534
    
    
    $
    459,309
 48




---



##### 



TABLE 8
Maturities of the Loan Portfolio by Rate Categories
 Within
    
    
    One-
    
    
    AfterDecember 31, 2008
    
    One
    
    
    Five
    
    
    Five(000s omitted)
    
    Year
    
    
    Years
    
    
    Years
    
    
    TotalLoans:Fixed Rate
    
    $
    89,067
    
    
    $
    183,042
    
    
    $
    45,554
    
    
    $
    317,663Variable Rate
    
    
    96,263
    
    
    
    25,403
    
    
    
    19,980
    
    
    
    141,646$
    185,330
    
    
    $
    208,445
    
    
    $
    65,534
    
    
    $
    459,309
    NON-PERFORMING ASSETS
   49




---



##### 



TABLE 9
Non-Performing Assets and Past Due Loans (000s omitted)
 December 31,2008
    
    2007
    
    2006
    
    2005
    
    2004Non-Performing Loans:Loans Past Due 90 Days or More & Still
Accruing
    
    $
    667
    
    
    $
    54
    
    
    $
    2,311
    
    
    $
    80
    
    
    $
    91Non-Accrual Loans
    
    
    24,325
    
    
    
    13,056
    
    
    
    2,354
    
    
    
    1,476
    
    
    
    1,102Renegotiated Loans
    
    
    942
    
    
    
    431
    
    
    
    437
    
    
    
    1,401
    
    
    
    477Total Non-Performing Loans
    
    
    25,934
    
    
    
    13,541
    
    
    
    5,102
    
    
    
    2,957
    
    
    
    1,670Other Non-Performing Assets:Other Real Estate
    
    
    6,349
    
    
    
    2,003
    
    
    
    1,247
    
    
    
    500
    
    
    
    208Other Real Estate Owned in Redemption
    
    
    390
    
    
    
    1,829
    
    
    
    216
    
    
    
    0
    
    
    
    856Other Non-Performing Assets
    
    
    25
    
    
    
    155
    
    
    
    155
    
    
    
    6
    
    
    
    4Total Other Non-Performing Assets
    
    
    6,764
    
    
    
    3,987
    
    
    
    1,618
    
    
    
    506
    
    
    
    1,068Total Non-Performing Assets
    
    $
    32,698
    
    
    $
    17,528
    
    
    $
    6,720
    
    
    $
    3,463
    
    
    $
    2,738Non-Performing Loans as a % of
Total Loans
    
    
    5.64
    %
    
    
    2.86
    %
    
    
    1.13
    %
    
    
    0.67
    %
    
    
    0.70
    %Non-Performing Assets as a % of
Total Loans and Other Real Estate
    
    
    5.37
    %
    
    
    3.70
    %
    
    
    1.48
    %
    
    
    0.79
    %
    
    
    0.69
    %Allowance for Loan Losses as a % of
Non-Performing Loans
    
    
    45.40
    %
    
    
    63.18
    %
    
    
    131.16
    %
    
    
    213.09
    %
    
    
    350.16
    %Accruing Loans Past Due 90 Days or
More to Total Loans
    
    
    0.15
    %
    
    
    0.01
    %
    
    
    0.51
    %
    
    
    0.02
    %
    
    
    0.02
    %Non-performing Assets as a % of
Total Assets
    
    
    5.65
    %
    
    
    2.79
    %
    
    
    1.08
    %
    
    
    0.56
    %
    
    
    0.47
    %
  TABLE 10
Allocation of the Allowance for Loan Losses
 December 31,
    
    2008
    
    2007
    
    2006
    
    2005
    
    2004(000s omitted)
    
    Amount
    
    Loan %
    
    Amount
    
    Loan %
    
    Amount
    
    Loan %
    
    Amount
    
    Loan %
    
    Amount
    
    Loan %Commercial and
construction
    
    $
    10,187
    
    
    
    79.11
    %
    
    $
    7,321
    
    
    
    79.22
    %
    
    $
    5,657
    
    
    
    77.90
    %
    
    $
    5,339
    
    
    
    75.31
    %
    
    $
    4,600
    
    
    
    73.79
    %Real estate mortgage
    
    
    440
    
    
    
    8.50
    %
    
    
    389
    
    
    
    8.45
    %
    
    
    328
    
    
    
    8.17
    %
    
    
    263
    
    
    
    8.56
    %
    
    
    312
    
    
    
    8.31
    %Consumer
    
    
    1,137
    
    
    
    12.39
    %
    
    
    767
    
    
    
    12.33
    %
    
    
    623
    
    
    
    13.93
    %
    
    
    593
    
    
    
    16.13
    %
    
    
    508
    
    
    
    17.90
    %Unallocated
    
    
    9
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    84
    
    
    
    
    
    
    
    106
    
    
    
    
    
    
    
    81Total
    
    $
    11,773
    
    
    
    100.00
    %
    
    $
    8,554
    
    
    
    100.00
    %
    
    $
    6,692
    
    
    
    100.00
    %
    
    $
    6,301
    
    
    
    100.00
    %
    
    $
    5,501
    
    
    
    100.00
    %
 50




---



##### 



DEPOSITS
TABLE 11
Average Deposits
Years Ended December 31,
 2008
    
    2007
    
    2006
    
    2005
    
    2004Average
    
    Average
    
    Average
    
    Average
    
    Average(000s omitted)
    
    Balance
    
    Rate
    
    Balance
    
    Rate
    
    Balance
    
    Rate
    
    Balance
    
    Rate
    
    Balance
    
    RateNon-int. bearing demand
    
    $
    73,991
    
    
    
    
    
    
    $
    75,177
    
    
    
    
    
    
    $
    77,256
    
    
    
    
    
    
    $
    81,471
    
    
    
    
    
    
    $
    73,553Interest-bearing demand
    
    
    95,880
    
    
    
    1.38
    %
    
    
    98,172
    
    
    
    2.40
    %
    
    
    103,356
    
    
    
    2.32
    %
    
    
    111,670
    
    
    
    1.51
    %
    
    
    108,704
    
    
    
    1.10
    %Savings
    
    
    83,245
    
    
    
    0.87
    %
    
    
    88,943
    
    
    
    1.34
    %
    
    
    99,339
    
    
    
    1.26
    %
    
    
    125,031
    
    
    
    1.12
    %
    
    
    149,099
    
    
    
    1.53
    %Time
    
    
    261,411
    
    
    
    4.33
    %
    
    
    266,487
    
    
    
    4.82
    %
    
    
    251,287
    
    
    
    4.73
    %
    
    
    183,048
    
    
    
    3.45
    %
    
    
    130,115
    
    
    
    2.71
    %Total
    
    $
    514,527
    
    
    
    2.60
    %
    
    $
    528,779
    
    
    
    3.10
    %
    
    $
    531,238
    
    
    
    2.89
    %
    
    $
    501,220
    
    
    
    1.87
    %
    
    $
    461,471
    
    
    
    1.52
    %
   51




---



##### 



TABLE 12
Maturity of Time Certificates of Deposit of $100,000 or More
 December 31,(000s omitted)
    
    2008
    
    2007Three months or less
    
    $
    15,152
    
    
    $
    41,891Over three through six months
    
    
    22,951
    
    
    
    22,833Over six through twelve months
    
    
    23,146
    
    
    
    19,451Over twelve months
    
    
    77,187
    
    
    
    76,458Total
    
    $
    138,436
    
    
    $
    160,633
  FEDERAL INCOME TAXES
  LIQUIDITY AND INTEREST RATE RISK MANAGEMENT
    52




---



##### 



Table
13
 Less than 1
    
    
    
    
    
    
    More than(000s omitted)
    
    Total
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsTime Deposits
    
    $
    256,809
    
    
    $
    137,060
    
    
    $
    88,301
    
    
    $
    31,281
    
    
    $
    167Short-term
borrowings
    
    

    1,500
    
    
    
    1,500
    
    
    
    0
    
    
    
    0
    
    
    
    0FHLB advances
    
    
    14,707
    
    
    
    2,726
    
    
    
    11,058
    
    
    
    68
    
    
    
    855Subordinated debt
    
    
    14,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    14,000Note payable
    
    
    1,000
    
    
    
    1,000
    
    
    
    0
    
    
    
    0
    
    
    
    0Operating leases
    
    
    860
    
    
    
    209
    
    
    
    373
    
    
    
    278
    
    
    
    0Total
    
    $
    288,876
    
    
    $
    142,495
    
    
    $
    99,732
    
    
    $
    31,627
    
    
    $
    15,022
 CAPITAL RESOURCES
    CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  53




---



##### 



Goodwill and Other Intangible Assets.
   OFF-BALANCE-SHEET ITEMS
  54




---



##### 



QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   55




---



##### 



TABLE 14
 Rate Sensitivity of Financial Instruments
 (000s omitted)
    
    2009
    
    2010
    
    2011
    
    2012
    
    2013
    
    Thereafter
    
    Total
    
    Fair ValueRate Sensitive Assets:Fixed interest rate loans
    
    $
    89,067
    
    
    $
    46,365
    
    
    $
    47,876
    
    
    $
    46,017
    
    
    $
    42,784
    
    
    $
    45,554
    
    
    $
    317,663
    
    
    $
    294,978Average interest rate
    
    
    6.91
    %
    
    
    6.91
    %
    
    
    6.80
    %
    
    
    6.83
    %
    
    
    7.20
    %
    
    
    6.72
    %Variable interest rate loans
    
    $
    96,263
    
    
    $
    9,194
    
    
    $
    5,399
    
    
    $
    3,875
    
    
    $
    6,935
    
    
    $
    19,980
    
    
    $
    141,646
    
    
    $
    141,687Average interest rate
    
    
    4.82
    %
    
    
    3.68
    %
    
    
    3.81
    %
    
    
    4.90
    %
    
    
    4.37
    %
    
    
    4.83
    %Fixed interest rate securities
    
    $
    16,309
    
    
    $
    11,802
    
    
    $
    3,542
    
    
    $
    1,187
    
    
    $
    498
    
    
    $
    11,233
    
    
    $
    44,571
    
    
    $
    45,119Average interest rate
    
    
    3.86
    %
    
    
    3.75
    %
    
    
    3.88
    %
    
    
    4.02
    %
    
    
    3.93
    %
    
    
    4.51
    %Variable Interest rate securities
    
    $
    3,891
    
    
    $
    1,489
    
    
    $
    1,474
    
    
    $
    1,273
    
    
    $
    1,222
    
    
    $
    8,975
    
    
    $
    18,324
    
    
    $
    14,082Average interest rate
    
    
    1.84
    %
    
    
    3.90
    %
    
    
    3.90
    %
    
    
    3.90
    %
    
    
    3.80
    %
    
    
    4.20
    %FHLB Stock
    
    $
    2,032
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,032
    
    
    $
    2,032Average interest rate
    
    
    5.00
    %Total rate sensitive assets
    
    $
    207,562
    
    
    $
    68,850
    
    
    $
    58,291
    
    
    $
    52,352
    
    
    $
    51,439
    
    
    $
    85,742
    
    
    $
    524,236
    
    
    $
    497,898Rate Sensitive Liabilities:Interest-bearing checking
    
    $
    103,138
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    103,138
    
    
    $
    98,410Average interest rate
    
    
    1.19
    %Savings
    
    $
    76,096
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    76,096
    
    
    $
    72,229Average interest rate
    
    
    0.14
    %Time
    
    $
    137,061
    
    
    $
    59,128
    
    
    $
    29,174
    
    
    $
    25,499
    
    
    $
    5,781
    
    
    $
    166
    
    
    $
    256,809
    
    
    $
    247,047Average interest rate
    
    
    3.40
    %
    
    
    4.20
    %
    
    
    4.75
    %
    
    
    4.72
    %
    
    
    3.82
    %
    
    
    1.18
    %Short term borrowings
    
    $
    1,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,500
    
    
    $
    1,500Average interest rate
    
    
    1.25
    %FHLB advances
    
    $
    2,726
    
    
    $
    6,028
    
    
    $
    5,030
    
    
    $
    33
    
    
    $
    35
    
    
    $
    855
    
    
    $
    14,707
    
    
    $
    14,475Average interest rate
    
    
    1.54
    %
    
    
    3.42
    %
    
    
    3.82
    %
    
    
    7.34
    %
    
    
    7.34
    %
    
    
    7.34
    %Subordinated debt
    
    $
    14,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    14,000
    
    
    $
    13,860Average interest rate
    
    
    5.49
    %Note payable
    
    $
    1,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,000
    
    
    $
    1,000Average interest rate
    
    
    4.75
    %Total rate sensitive liabilities
    
    $
    335,521
    
    
    $
    65,156
    
    
    $
    34,204
    
    
    $
    25,532
    
    
    $
    5,816
    
    
    $
    1,021
    
    
    $
    467,250
    
    
    $
    448,516
 INTEREST RATE SENSITIVITY MANAGEMENT
    56




---



##### 



TABLE 15
 Gap AnalysisDecember 31, 2008Within
    
    Three
    
    One to
    
    AfterThree
    
    Months-
    
    Five
    
    Five(000s Omitted)
    
    Months
    
    One Year
    
    Years
    
    Years
    
    TotalSecurities
    
    $
    4,934
    
    
    $
    14,523
    
    
    $
    22,561
    
    
    $
    18,659
    
    
    $
    60,677Loans
    
    
    76,832
    
    
    
    108,498
    
    
    
    208,445
    
    
    
    65,534
    
    
    
    459,309Loans Held for Sale
    
    
    690
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    690FHLB Stock
    
    
    2,032
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    2,032Total Earning Assets
    
    $
    84,488
    
    
    $
    123,021
    
    
    $
    231,006
    
    
    $
    84,193
    
    
    $
    522,708Interest Bearing Liabilities:Interest Bearing Demand Deposits
    
    $
    103,138
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    103,138Savings Deposits
    
    
    76,074
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    76,074Time Deposits Less than $100,000
    
    
    23,520
    
    
    
    52,286
    
    
    
    42,495
    
    
    
    72
    
    
    
    118,373Time Deposits Greater than $100,000
    
    
    15,152
    
    
    
    46,097
    
    
    
    77,089
    
    
    
    98
    
    
    
    138,436Short-term Borrowings
    
    
    1,500
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,500FHLB Advances
    
    
    1,000
    
    
    
    1,726
    
    
    
    11,126
    
    
    
    855
    
    
    
    14,707Note Payable
    
    
    1,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,000Subordinated Debt
    
    
    14,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    14,000Total Interest Bearing Liabilities
    
    $
    235,384
    
    
    $
    100,109
    
    
    $
    130,710
    
    
    $
    1,025
    
    
    $
    467,228Interest Rate Sensitivity GAP
    
    $
    (150,896
    )
    
    $
    22,912
    
    
    $
    100,296
    
    
    $
    83,168
    
    
    $
    55,480Cumulative Interest Rate
Sensitivity GAP
    
    $
    (150,896
    )
    
    $
    (127,984
    )
    
    $
    (27,688
    )
    
    $
    55,480Interest Rate Sensitivity GAP
    
    
    0.36
    
    
    
    1.23
    
    
    
    1.77
    
    
    
    82.14Cumulative Interest Rate
Sensitivity GAP Ratio
    
    
    0.36
    
    
    
    0.62
    
    
    
    0.94
    
    
    
    1.12
  57




---



##### 



FORWARD LOOKING STATEMENTS
   58




---



##### 



FENTURA FINANCIAL, INC. COMMON STOCK
  TABLE 16
Common Stock Data
 Market
    
    DividendsInformation
    
    PaidYears
    
    Quarter
    
    High
    
    Low
    
    Per ShareFirst Quarter
    
    $
    31.55
    
    
    $
    29.77
    
    
    $
    0.2302006
    
    Second Quarter
    
    
    33.41
    
    
    
    31.14
    
    
    
    0.230Third Quarter
    
    
    33.64
    
    
    
    30.00
    
    
    
    0.230Fourth Quarter
    
    
    34.00
    
    
    
    32.55
    
    
    
    0.250$
    0.940First Quarter
    
    $
    34.00
    
    
    $
    29.25
    
    
    $
    0.2502007
    
    Second Quarter
    
    
    31.50
    
    
    
    29.50
    
    
    
    0.250Third Quarter
    
    
    31.50
    
    
    
    26.05
    
    
    
    0.250Fourth Quarter
    
    
    26.05
    
    
    
    21.05
    
    
    
    0.250$
    1.000First Quarter
    
    $
    23.00
    
    
    $
    17.75
    
    
    $
    0.0002008
    
    Second Quarter
    
    
    19.75
    
    
    
    11.50
    
    
    
    0.000Third Quarter
    
    
    11.50
    
    
    
    6.60
    
    
    
    0.000Fourth Quarter
    
    
    11.50
    
    
    
    6.75
    
    
    
    0.000$
    0.000
 Note:
    
    Market and dividend per share figures have been adjusted to reflect a 10% stock dividend
paid on August 4, 2006.
 59




---



##### 



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
    
    
    12/31/03
    
    
    12/31/04
    
    
    12/31/05
    
    
    12/31/06
    
    
    12/31/07
    
    
    12/31/08Fentura Financial, Inc.
    
    
    
    100.00
    
    
    
    
    119.75
    
    
    
    
    109.75
    
    
    
    
    123.57
    
    
    
    
    86.35
    
    
    
    
    26.80NASDAQ Composite
    
    
    
    100.00
    
    
    
    
    108.59
    
    
    
    
    110.08
    
    
    
    
    120.56
    
    
    
    
    132.39
    
    
    
    
    78.72SNL Midwest OTC-BB and Pink Banks
    
    
    
    100.00
    
    
    
    
    119.15
    
    
    
    
    124.05
    
    
    
    
    130.64
    
    
    
    
    127.52
    
    
    
    
    95.04Fentura Financial Peer Group*
    
    
    
    100.00
    
    
    
    
    115.52
    
    
    
    
    105.97
    
    
    
    
    109.53
    
    
    
    
    66.88
    
    
    
    
    34.48
 
 Source: SNL Financial LC, Charlottesville, VA*
    
    Fentura Financial Peer Group consists of Banks in Michigan (MI) 60




---



##### 



FENTURA FINANCIAL, INC.