##### 



Exhibit 13
 Rule 14a-3 Annual Report




---



##### 



FENTURA FINANCIAL, INC.
 FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
December 31, 2007 and 2006
 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




---



##### 



(CROWE CHIZEK AND COMPANY LLC)Crowe Chizek and Company LLC




---



##### 



2007
    
    
    2006ASSETSCash and due from banks
    
    $
    22,734
    
    
    $
    19,946Federal funds sold
    
    
    7,300
    
    
    
    9,500Total cash and cash equivalents
    
    
    30,034
    
    
    
    29,446Securities available for sale, at fair value
    
    
    71,792
    
    
    
    91,104Securities held to maturity (fair value 2007 - $8,714; 2006 - $11,821)
    
    
    8,685
    
    
    
    11,899Loans held for sale
    
    
    1,655
    
    
    
    2,226Loans, net of allowance of 2007- $8,554; 2006- $6,692
    
    
    462,849
    
    
    
    444,301Bank premises and equipment
    
    
    20,101
    
    
    
    16,854Accrued interest receivable
    
    
    2,813
    
    
    
    2,985Bank owned life insurance
    
    
    7,042
    
    
    
    6,815Goodwill
    
    
    7,955
    
    
    
    7,955Acquisition intangibles
    
    
    485
    
    
    
    759Federal Home Loan Bank stock
    
    
    2,032
    
    
    
    2,032Equity Investment
    
    
    3,089
    
    
    
    0Other assets
    
    
    9,487
    
    
    
    5,922Total Assets
    
    $
    628,019
    
    
    $
    622,298LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Non-interest-bearing deposits
    
    $
    75,148
    
    
    $
    74,886Interest-bearing deposits
    
    
    468,355
    
    
    
    453,669Total deposits
    
    
    543,503
    
    
    
    528,555Short-term borrowings
    
    
    649
    
    
    
    1,500Federal Home Loan Bank advances
    
    
    11,030
    
    
    
    11,052Repurchase agreements
    
    
    5,000
    
    
    
    10,000Subordinated debentures
    
    
    14,000
    
    
    
    14,000Accrued taxes, interest and other liabilities
    
    
    4,341
    
    
    
    5,873Total liabilities
    
    
    578,523
    
    
    
    570,980Stockholders equityCommon stock  $0 par value, 5,000,000 shares authorized,
shares issued and outstanding 2,163,385  2007; 2,152,862  2006
    
    
    42,478
    
    
    
    42,158Retained earnings
    
    
    7,488
    
    
    
    10,118Accumulated other comprehensive income (loss)
    
    
    (470
    )
    
    
    (958
    )Total stockholders equity
    
    
    49,496
    
    
    
    51,318Total liabilities and stockholders equity
    
    $
    628,019
    
    
    $
    622,298
 See accompanying notes to consolidated financial statements.
 2.




---



##### 



2007
    
    
    2006
    
    
    2005Interest incomeLoans, including fees
    
    $
    34,964
    
    
    $
    35,131
    
    
    $
    29,670Securities:Taxable
    
    
    3,217
    
    
    
    3,461
    
    
    
    3,250Tax-exempt
    
    
    722
    
    
    
    809
    
    
    
    794Short-term investments
    
    
    311
    
    
    
    515
    
    
    
    164Total interest income
    
    
    39,214
    
    
    
    39,916
    
    
    
    33,878Interest expenseDeposits
    
    
    16,404
    
    
    
    14,743
    
    
    
    9,390Other borrowings
    
    
    2,217
    
    
    
    2,165
    
    
    
    1,908Total interest expense
    
    
    18,621
    
    
    
    16,908
    
    
    
    11,298Net interest income
    
    
    20,593
    
    
    
    23,008
    
    
    
    22,580Provision for loan losses
    
    
    7,466
    
    
    
    1,120
    
    
    
    1,389Net interest income after provision for loan losses
    
    
    13,127
    
    
    
    21,888
    
    
    
    21,191Non-interest incomeService charges on deposit accounts
    
    
    3,421
    
    
    
    3,708
    
    
    
    3,445Gain on sale of mortgage loans
    
    
    402
    
    
    
    615
    
    
    
    842Trust and investment services income
    
    
    1,901
    
    
    
    1,554
    
    
    
    1,157Gain (Loss) on sale of securities
    
    
    2
    
    
    
    (2
    )
    
    
    (149
    )Other income and fees
    
    
    1,853
    
    
    
    1,768
    
    
    
    1,587Total non-interest income
    
    
    7,579
    
    
    
    7,643
    
    
    
    6,882Non-interest expenseSalaries and employee benefits
    
    
    12,183
    
    
    
    12,738
    
    
    
    11,983Occupancy
    
    
    2,090
    
    
    
    1,858
    
    
    
    1,673Furniture and equipment
    
    
    2,139
    
    
    
    2,140
    
    
    
    2,080Loan and collection
    
    
    753
    
    
    
    320
    
    
    
    388Advertising and promotional
    
    
    486
    
    
    
    624
    
    
    
    627Telephone and communication services
    
    
    570
    
    
    
    538
    
    
    
    508Other professional services
    
    
    1,143
    
    
    
    1,066
    
    
    
    949Other general and administrative
    
    
    2,470
    
    
    
    2,702
    
    
    
    2,592Total non-interest expense
    
    
    21,834
    
    
    
    21,986
    
    
    
    20,800Income (loss) before taxes
    
    
    (1,128
    )
    
    
    7,545
    
    
    
    7,273Federal income taxes (benefit)
    
    
    (661
    )
    
    
    2,237
    
    
    
    2,219Net income (loss)
    
    $
    (467
    )
    
    $
    5,308
    
    
    $
    5,054Per share:Earnings  basic
    
    $
    (0.22
    )
    
    $
    2.48
    
    
    $
    2.41Earnings  diluted
    
    
    (0.22
    )
    
    
    2.47
    
    
    
    2.40
 See accompanying notes to consolidated financial statements.
 3.




---



##### 



2007
    
    
    2006
    
    
    2005Net income (loss)
    
    $
    (467
    )
    
    $
    5,308
    
    
    $
    5,054Other comprehensive income:Unrealized holding gains (losses) on available
for sale securities
    
    
    737
    
    
    
    558
    
    
    
    (1,163
    )Less: reclassification adjustment for (gains) and
losses later recognized in income
    
    
    (2
    )
    
    
    2
    
    
    
    149Net unrealized gains (losses)
    
    
    739
    
    
    
    556
    
    
    
    (1,014
    )Tax effect
    
    
    (251
    )
    
    
    (189
    )
    
    
    344Other comprehensive income (loss), net of tax
    
    
    488
    
    
    
    367
    
    
    
    (670
    )Comprehensive income (loss)
    
    $
    (21
    )
    
    $
    5,675
    
    
    $
    4,384
 See accompanying notes to consolidated financial statements.
 4.




---



##### 



AccumulatedOther
    
    
    TotalCommon
    
    
    Retained
    
    
    Comprehensive
    
    
    StockholdersStock
    
    
    Earnings
    
    
    Income (Loss)
    
    
    EquityBalance, January 1, 2005
    
    $
    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)
    
    
    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
    )
    
    $
    49,496
 See accompanying notes to consolidated financial statements.
 5.




---



##### 



2007
    
    
    2006
    
    
    2005OPERATING ACTIVITIES:Net income (loss)
    
    $
    (467
    )
    
    $
    5,308
    
    
    $
    5,054Adjustments to reconcile net income to cash
Provided by Operating Activities:Stock compensation expense
    
    
    (16
    )
    
    
    (20
    )
    
    
    0Depreciation and amortization
    
    
    1,863
    
    
    
    2,008
    
    
    
    1,560Provision for loan losses
    
    
    7,466
    
    
    
    1,120
    
    
    
    1,389Loans originated for sale
    
    
    (21,709
    )
    
    
    (37,099
    )
    
    
    (52,093
    )Proceeds from the sale of loans
    
    
    22,682
    
    
    
    36,530
    
    
    
    53,481(Gain) Loss on sale of securities
    
    
    (2
    )
    
    
    2
    
    
    
    149(Gain) Loss on sale of fixed assets
    
    
    (11
    )
    
    
    0
    
    
    
    0Gain on sales of loans
    
    
    (402
    )
    
    
    (615
    )
    
    
    (842
    )(Gain) Loss on equity investment
    
    
    199
    
    
    
    0
    
    
    
    0Earnings from bank owned life insurance
    
    
    (227
    )
    
    
    (236
    )
    
    
    282Net (increase) decrease in interest receivable & other assets
    
    
    (2,534
    )
    
    
    (470
    )
    
    
    213Net increase (decrease) in interest payable & other liabilities
    
    
    (1,780
    )
    
    
    1,329
    
    
    
    465Total Adjustments
    
    
    5,529
    
    
    
    2,549
    
    
    
    4,604Net Cash Provided By (Used In) Operating Activities
    
    
    5,062
    
    
    
    7,857
    
    
    
    9,658Cash Flows From Investing Activities:Proceeds from maturities of securities  HTM
    
    
    1,819
    
    
    
    5,063
    
    
    
    8,505Proceeds from maturities of securities  AFS
    
    
    15,040
    
    
    
    15,178
    
    
    
    1,410Proceeds from calls of securities  HTM
    
    
    140
    
    
    
    925
    
    
    
    109Proceeds from calls of securities  AFS
    
    
    4,700
    
    
    
    975
    
    
    
    19,943Proceeds from sales of securities  AFS
    
    
    3,000
    
    
    
    1,103
    
    
    
    18,144Purchases of securities  HTM
    
    
    0
    
    
    
    (3,050
    )
    
    
    (4,701
    )Purchases of securities  AFS
    
    
    (1,482
    )
    
    
    (8,568
    )
    
    
    (30,358
    )Equity investment purchase
    
    
    (3,288
    )
    
    
    0
    
    
    
    0Net increase in loans
    
    
    (26,872
    )
    
    
    (13,830
    )
    
    
    (46,515
    )Purchase of FHLB stock
    
    
    0
    
    
    
    (132
    )
    
    
    0FHLB stock buy back
    
    
    0
    
    
    
    400
    
    
    
    0Acquisition of premises and equipment, net
    
    
    (4,779
    )
    
    
    (3,744
    )
    
    
    (2,223
    )Net Cash Provided By (Used in) Investing Activities
    
    
    (11,722
    )
    
    
    (5,680
    )
    
    
    (35,686
    )Cash Flows From Financing Activities:Net increase (decrease) in deposits
    
    
    14,948
    
    
    
    501
    
    
    
    36,989Net increase (decrease) in short term borrowings
    
    
    (851
    )
    
    
    (37
    )
    
    
    (3,663
    )Net increase (decrease) in repurchase agreements
    
    
    (5,000
    )
    
    
    0
    
    
    
    0Issuance of subordinated debt
    
    
    0
    
    
    
    0
    
    
    
    2,000Proceeds from FHLB advances
    
    
    9,000
    
    
    
    4,000
    
    
    
    57,400Repayments of FHLB advances
    
    
    (9,022
    )
    
    
    (7,020
    )
    
    
    (62,418
    )Proceeds from stock offering
    
    
    0
    
    
    
    0
    
    
    
    758Net proceeds from stock issuance and repurchase
    
    
    336
    
    
    
    817
    
    
    
    623Cash dividends
    
    
    (2,163
    )
    
    
    (2,069
    )
    
    
    (1,839
    )Net Cash Provided By (Used In) Financing Activities
    
    
    7,248
    
    
    
    (3,808
    )
    
    
    29,850NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    588
    
    
    
    (1,631
    )
    
    
    3,822CASH AND CASH EQUIVALENTS  BEGINNING
    
    
    29,446
    
    
    
    31,077
    
    
    
    27,255CASH AND CASH EQUIVALENTS  ENDING
    
    $
    30,034
    
    
    $
    29,446
    
    
    $
    31,077CASH PAID FOR:Interest
    
    $
    18,964
    
    
    $
    16,341
    
    
    $
    10,933Income taxes
    
    $
    (418
    )
    
    $
    1,781
    
    
    $
    2,935NONCASH DISCLOSURES:Transfers from loans to other real estate
    
    $
    858
    
    
    $
    1,567
    
    
    $
    564
 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
 (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
 Equity Investment:
 Long-term Assets
 Bank Owned Life Insurance
 Accounting for
Purchases of Life Insurance  Determining the Amount That Could Be Realized in Accordance with FASB
 (Continued)
 9.




---



##### 



Technical Bulletin No. 85-4 (Accounting for Purchases of Life Insurance){Issue}.
 Goodwill
 Acquisition Intangibles
 10.




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES )
 Stock Based Compensation Share-based Payment
  Accounting for
Stock-Based Compensation,
  2005Net incomeAs reported
    
    $
    5,054Deduct: Stock-based compensation
expense determined under a fair value
based system
    
    
    (8
    )Proforma
    
    $
    5,046Basic net income per shareAs reported
    
    $
    2.41Proforma
    
    
    2.41Diluted net income per shareAs reported
    
    $
    2.40Proforma
    
    
    2.40
 Income Taxes
   (Continued)
 11.




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (
 Loan Commitments and Financial Instruments
 Earnings Per Common Share
 Comprehensive Income
 Loss Contingencies
 Restrictions on Cash
 Dividend Restriction
 Fair Value of Financial Instruments
 Operating Segments
 Reclassifications
 (Continued)
 12.




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Effect of Newly Issued But Not Yet Effective Accounting Standards:
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Accounting for
Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements
 Written Loan Commitments
Recorded at Fair Value through Earnings Application of Accounting
Principles to Loan Commitments
 (Continued)
 13.




---



##### 



NOTE 2  EARNINGS PER SHARE
  $ in thousands except per share data
    
    2007
    
    
    2006
    
    
    2005BasicNet income (loss)
    
    $
    (467
    )
    
    $
    5,308
    
    
    $
    5,054Weighted average common shares outstanding
    
    
    2,159,586
    
    
    
    2,141,388
    
    
    
    2,096,002Basic earnings per common share
    
    $
    (0.22
    )
    
    $
    2.48
    
    
    $
    2.41DilutedNet income (loss)
    
    $
    (467
    )
    
    $
    5,308
    
    
    $
    5,054Weighted average common shares outstanding
for basic earnings per common share
    
    
    2,159,586
    
    
    
    2,141,388
    
    
    
    2,096,002Add: Dilutive effects of assumed exercises of
stock options
    
    
    0
    
    
    
    4,674
    
    
    
    6,434Average shares and dilutive potential common shares
    
    
    2,159,586
    
    
    
    2,146,062
    
    
    
    2,102,436Diluted earnings per common share
    
    $
    (0.22
    )
    
    $
    2.47
    
    
    $
    2.40
  (Continued)
 14.




---



##### 



NOTE 3  SECURITIES
  Available for Sale
 Gross
    
    
    GrossFair
    
    
    Unrealized
    
    
    UnrealizedValue
    
    
    Gains
    
    
    Losses2007U.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
    )2006U.S. Government and federal agency
    
    $
    20,985
    
    
    $
    0
    
    
    $
    (546
    )Mortgage-backed
    
    
    58,499
    
    
    
    48
    
    
    
    (1,189
    )State and municipal
    
    
    9,311
    
    
    
    77
    
    
    
    (27
    )Equity securities
    
    
    2,309
    
    
    
    191
    
    
    
    (5
    )$
    91,104
    
    
    $
    316
    
    
    $
    (1,767
    )
 Held to Maturity
 Gross
    
    
    GrossAmortized
    
    
    Unrecognized
    
    
    Unrecognized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value2007Mortgage-backed
    
    $
    6
    
    
    $
    0
    
    
    $
    0
    
    
    $
    6State and municipal
    
    
    8,679
    
    
    
    61
    
    
    
    (32
    )
    
    
    8,708$
    8,685
    
    
    $
    61
    
    
    $
    (32
    )
    
    $
    8,7142006Mortgage-backed
    
    $
    9
    
    
    $
    0
    
    
    $
    0
    
    
    $
    9State and municipal
    
    
    11,890
    
    
    
    36
    
    
    
    (114
    )
    
    
    11,812$
    11,899
    
    
    $
    36
    
    
    $
    (114
    )
    
    $
    11,821
  2007
    
    2006
    
    2005Proceeds
    
    $
    3,000
    
    
    $
    1,103
    
    
    $
    18,144Gross gains
    
    
    2
    
    
    
    0
    
    
    
    18Gross losses
    
    
    0
    
    
    
    (2
    )
    
    
    (167
    )
 (Continued)
 15.




---



##### 



NOTE 3  SECURITIES
  Held to Maturity
    
    
    Available for SaleAmortized
    
    
    Fair
    
    
    FairCost
    
    
    Value
    
    
    ValueDue in one year or less
    
    $
    1,471
    
    
    $
    1,472
    
    
    $
    6,259Due from one to five years
    
    
    3,728
    
    
    
    3,747
    
    
    
    13,016Due from five to ten years
    
    
    2,860
    
    
    
    2,866
    
    
    
    5,508Due after ten years
    
    
    620
    
    
    
    623
    
    
    
    3,192Mortgage-backed securities
    
    
    6
    
    
    
    6
    
    
    
    40,562Equity securities
    
    
    0
    
    
    
    0
    
    
    
    3,255$
    8,685
    
    
    $
    8,714
    
    
    $
    71,792
    2007
    
    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
    )
 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)
 16.




---



##### 



NOTE 3  SECURITIES
   NOTE 4  LOANS
  2007
    
    
    2006Commercial
    
    $
    318,555
    
    
    $
    272,402Real estate  construction
    
    
    54,892
    
    
    
    78,927Real estate  mortgage
    
    
    39,817
    
    
    
    36,867Consumer
    
    
    58,139
    
    
    
    62,797471,403
    
    
    
    450,993Less allowance for loan losses
    
    
    8,554
    
    
    
    6,692$
    462,849
    
    
    $
    444,301
   (Continued)
 17.




---



##### 



NOTE 4  LOANS
  2007
    
    
    2006
    
    
    2005Balance, beginning of year
    
    $
    6,692
    
    
    $
    6,301
    
    
    $
    5,501Provision for loan losses
    
    
    7,466
    
    
    
    1,120
    
    
    
    1,389Loans charged off
    
    
    (5,859
    )
    
    
    (877
    )
    
    
    (765
    )Loan recoveries
    
    
    255
    
    
    
    148
    
    
    
    176Balance, end of year
    
    $
    8,554
    
    
    $
    6,692
    
    
    $
    6,301
  2007
    
    
    2006Year end loans not requiring allocation
    
    $
    11,197
    
    
    $
    1,365Year end loans requiring allocation
    
    
    18,186
    
    
    
    3,397$
    29,383
    
    
    $
    4,762Amount of the allowance for loan losses allocated
    
    $
    2,751
    
    
    $
    606
   (Continued)
 18.




---



##### 



NOTE 5  PREMISES AND EQUIPMENT, NET
  2007
    
    
    2006Land and land improvements
    
    $
    5,721
    
    
    $
    5,219Building and building improvements
    
    
    16,043
    
    
    
    12,948Furniture and equipment
    
    
    9,568
    
    
    
    8,805Construction in progress
    
    
    1,169
    
    
    
    77632,501
    
    
    
    27,748Less accumulated depreciation
    
    
    12,400
    
    
    
    10,894$
    20,101
    
    
    $
    16,854
   2008
    
    $
    2302009
    
    
    1792010
    
    
    1832011
    
    
    1562012
    
    
    129Thereafter
    
    
    0$
    877
 (Continued)
 19.




---



##### 



NOTE 6  GOODWILL AND INTANGIBLE ASSETS
 Goodwill
  Acquired Intangible Assets
  Gross Carrying
    
    
    
    AccumulatedAmounts
    
    
    AmortizationAmortized intangible assets
    
    
    
    
    2007
    
    
    2006Core deposit assets
    
    $
    1,509
    
    
    $
    1,037
    
    
    $
    818Customer relationship intangibles
    
    
    216
    
    
    
    203
    
    
    
    148Total
    
    $
    1,725
    
    
    $
    1,240
    
    
    $
    966
   2008
    
    $
    1922009
    
    
    1362010
    
    
    942011
2012
    
    
    52
11
  (Continued)
 20.




---



##### 



NOTE 7  DEPOSITS
  2007
    
    
    2006Noninterest-bearing:Demand
    
    $
    75,148
    
    
    $
    74,886Interest-bearing:Savings
    
    
    86,778
    
    
    
    88,893Money market demand
    
    
    98,362
    
    
    
    102,535Time, $100,000 and over
    
    
    160,633
    
    
    
    136,978Time, $100,000 and under
    
    
    122,582
    
    
    
    125,263$
    543,503
    
    
    $
    528,555
   2007
    
    
    2006In one year
    
    $
    178,369
    
    
    $
    174,147In two years
    
    
    36,338
    
    
    
    42,855In three years
    
    
    26,530
    
    
    
    20,117In four years
    
    
    21,460
    
    
    
    10,312In five years
    
    
    20,351
    
    
    
    14,513Thereafter
    
    
    167
    
    
    
    297$
    283,215
    
    
    $
    262,241
  (Continued)
 21.




---



##### 



NOTE 8  BORROWINGS
 Short-Term Borrowings
  Federal Home Loan Bank Advances
  AdvancePrincipal Terms
    
    Amount
    
    
    Range of MaturitiesDecember 31, 2007Single Maturity fixed rate advances,
fixed rate at rates from
4.55%-7.34%, averaging 5.02%
    
    $
    11,030
    
    
    January 2008 to May 2016December 31, 2006Single Maturity fixed rate advances
fixed rate at rates from
3.21%-7.34%, averaging 5.13%
    
    $
    11,052
    
    
    January 2007 to May 2016
   2008
    
    $
    6,0242009
    
    
    262010
    
    
    2,0282011
    
    
    2,0302012
    
    
    33Thereafter
    
    
    889$
    11,030
 (Continued)
 22.




---



##### 



NOTE 8  BORROWINGS
 Repurchase Agreements
   2007
    
    2006Average daily balance during the year
    
    $
    7,356
    
    
    $
    10,000Average interest rate during the year
    
    
    3.11
    %
    
    
    3.32
    %Maximum month-end balance during the year
    
    $
    10,000
    
    
    $
    10,000Weighted average interest rate at year-end
    
    
    2.61
    %
    
    
    3.32
    %
 Subordinated Debenture and Trust Preferred Securities
   (Continued)
 23.




---



##### 



NOTE 9  INCOME TAXES
  2007
    
    
    2006
    
    
    2005Current expense
    
    $
    434
    
    
    $
    2,552
    
    
    $
    2,704Deferred (benefit) expense
    
    
    (1,095
    )
    
    
    (315
    )
    
    
    (485
    )$
    (661
    )
    
    $
    2,237
    
    
    $
    2,219
  2007
    
    
    2006
    
    
    2005Income tax at statutory rate
    
    $
    (384
    )
    
    $
    2,565
    
    
    $
    2,473Tax exempt interest
    
    
    (242
    )
    
    
    (284
    )
    
    
    (307
    )Other
    
    
    (35
    )
    
    
    (44
    )
    
    
    53$
    (661
    )
    
    $
    2,237
    
    
    $
    2,219
  2007
    
    
    2006Deferred tax assetsAllowance for loan losses
    
    $
    2,909
    
    
    $
    2,117Unrealized loss on securities available for sale
    
    
    244
    
    
    
    493Compensation
    
    
    416
    
    
    
    404Non-accrual Interest
    
    
    216
    
    
    
    79Other
    
    
    176
    
    
    
    533,961
    
    
    
    3,146Deferred tax liabilitiesDepreciation
    
    
    (367
    )
    
    
    (309
    )Purchase accounting adjustments
    
    
    (397
    )
    
    
    (502
    )Other
    
    
    (125
    )
    
    
    (109
    )(889
    )
    
    
    (920
    )$
    3,072
    
    
    $
    2,226
  (Continued)
 24.




---



##### 



NOTE 10  BENEFIT PLANS
    NOTE 11  STOCK PURCHASE AND OPTION PLANS
 Director and Employee Plans
    (Continued)
 25.




---



##### 



NOTE 11  STOCK PURCHASE AND OPTION PLANS
 Dividend Investment Plan
    2007
    
    
    2006
    
    
    2005Automatic dividend reinvestment plan
    
    
    13,418
    
    
    
    13,337
    
    
    
    11,586Director stock purchase & retainer stock
    
    
    10,754
    
    
    
    7,892
    
    
    
    6,384Stock options
    
    
    295
    
    
    
    5,525
    
    
    
    0Other issuance of stock
    
    
    3,240
    
    
    
    2,890
    
    
    
    2,61627,707
    
    
    
    29,644
    
    
    
    20,586
 Stock Option Plans
   (Continued)
 26.




---



##### 



NOTE 11  STOCK PURCHASE AND OPTION PLANS (Continued)
  :
 WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Average
    
    
    Contractual
    
    
    IntrinsicOptions
    
    
    Price
    
    
    Life
    
    
    ValueOptions outstanding at January 1, 2007
    
    
    40,523
    
    
    $
    29.68Options exercised 2007
    
    
    (295
    )
    
    
    21.90Options forfeited 2007
    
    
    0
    
    
    
    0Options outstanding at December 31, 2007
    
    
    40,228
    
    
    $
    29.74
    
    
    
    5.08
    
    
    $
    6,470Exercisable at December 31, 2007
    
    
    35,267
    
    
    $
    29.94
    
    
    
    5.02
    
    
    $
    6,441
  2005Risk-free interest rate
    
    
    4.28
    %Expected option life
    
    6 yearsExpected stock price volatility
    
    
    26
    %Dividend yield
    
    
    3.20
    %Fair value
    
    $
    6.13
  (in thousands)
    
    2007
    
    2006Intrinsic value of options exercised
    
    $
    3
    
    
    $
    85Cash received from option exercises
    
    
    6
    
    
    
    55Tax benefit realized from option exercises
    
    
    0
    
    
    
    0
  (Continued)
 27.




---



##### 



NOTE 12  REGULATORY MATTERS
    (Continued)
 28.




---



##### 



NOTE 12  REGULATORY MATTERS
 To Be WellFor Capital
    
    Capitalized UnderAdequacy
    
    Prompt CorrectiveActual
    
    Purposes
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of December 31, 2007Total 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
 (Continued)
 29.




---



##### 



NOTE 12  REGULATORY MATTERS
 To Be WellFor Capital
    
    Capitalized UnderAdequacy
    
    Prompt CorrectiveActual
    
    Purposes
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of December 31, 2006Total Capital(to Risk Weighted Assets)Consolidated
    
    $
    63,934
    
    
    
    12.5
    %
    
    $
    40,949
    
    
    
    8.0
    %
    
    NA
    
    
    NAThe 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
    
    
    NA
    
    
    NAThe 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
    
    
    NA
    
    
    NAThe 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)
 30.




---



##### 



NOTE 13  FINANCIAL INSTRUMENTS
  2007
    
    2006Carrying
    
    
    
    
    
    CarryingAmount
    
    Fair Value
    
    Amount
    
    Fair ValueAssets:Cash and cash equivalents
    
    $
    30,034
    
    
    $
    30,034
    
    
    $
    29,446
    
    
    $
    29,446Securities  available for sale
    
    
    71,792
    
    
    
    71,792
    
    
    
    91,104
    
    
    
    91,104Securities  held to maturity
    
    
    8,685
    
    
    
    8,714
    
    
    
    11,899
    
    
    
    11,821FHLB stock
    
    
    2,032
    
    
    
    2,032
    
    
    
    2,032
    
    
    
    2,032Loans held for sale
    
    
    1,655
    
    
    
    1,655
    
    
    
    2,226
    
    
    
    2,231Loans
    
    
    462,849
    
    
    
    457,693
    
    
    
    444,301
    
    
    
    435,743Accrued interest receivable
    
    
    2,813
    
    
    
    2,813
    
    
    
    2,985
    
    
    
    2,985Liabilities:Deposits
    
    $
    543,503
    
    
    $
    536,969
    
    
    $
    528,555
    
    
    $
    521,440Short-term borrowings
    
    
    649
    
    
    
    649
    
    
    
    1,500
    
    
    
    1,500FHLB advances
    
    
    11,030
    
    
    
    10,907
    
    
    
    11,052
    
    
    
    11,052Repurchase agreements
    
    
    5,000
    
    
    
    5,000
    
    
    
    10,000
    
    
    
    10,000Subordinated debentures
    
    
    14,000
    
    
    
    13,934
    
    
    
    14,000
    
    
    
    14,000Accrued interest payable
    
    
    921
    
    
    
    921
    
    
    
    1,608
    
    
    
    1,608
  Cash and cash equivalents
  Securities (including mortgage-backed securities)
  Loans held for sale
  Loans
  (Continued)
 31.




---



##### 



NOTE 13  FINANCIAL INSTRUMENTS
 Off-balance-sheet instruments
  Deposit liabilities
  Short-term borrowings
  FHLB advances
  Repurchase agreements
  Subordinated Debentures
  Limitations
  (Continued)
 32.




---



##### 



NOTE 13  FINANCIAL INSTRUMENTS
 Off-balance-sheet risk
   2007
    
    2006Commitments to make loans (at market rates)
    
    $
    35,633
    
    
    $
    43,414Unused lines of credit and letters of credit
    
    
    74,506
    
    
    
    72,869
  (Continued)
 33.




---



##### 



NOTE 14  PARENT ONLY CONDENSED FINANCIAL INFORMATION
  
 2007
    
    2006ASSETSCash and cash equivalents
    
    $
    842
    
    
    $
    5,396Securities available for sale, at market
    
    
    2,738
    
    
    
    2,309Equity Investment
    
    
    3,089
    
    
    
    0Other assets
    
    
    63
    
    
    
    143Investment in subsidiaries
    
    
    57,479
    
    
    
    58,220$
    64,211
    
    
    $
    66,068LIABILITIES AND STOCKHOLDERS EQUITYOther liabilities
    
    $
    715
    
    
    $
    750Subordinated debt
    
    
    14,000
    
    
    
    14,000Stockholders equity
    
    
    49,496
    
    
    
    51,318$
    64,211
    
    
    $
    66,068
 
 2007
    
    2006
    
    2005Interest on securities
    
    $
    0
    
    
    $
    0
    
    
    $
    0Other income
    
    
    (198
    )
    
    
    1
    
    
    
    3Dividends from subsidiaries
    
    
    2,208
    
    
    
    6,849
    
    
    
    2,158Interest expense
    
    
    (1,256
    )
    
    
    (1,264
    )
    
    
    (898
    )Operating expenses
    
    
    (352
    )
    
    
    (327
    )
    
    
    (270
    )(Equity in undistributed income of subsidiaries)
dividends in excess of earnings
    
    
    (1,462
    )
    
    
    (468
    )
    
    
    3,664Income/(loss) before income taxes
    
    
    (1,060
    )
    
    
    4,791
    
    
    
    4,657Federal income tax expense (benefit)
    
    
    (593
    )
    
    
    (517
    )
    
    
    (397
    )Net income (loss)
    
    $
    (467
    )
    
    $
    5,308
    
    
    $
    5,054
 (Continued)
 34.




---



##### 



NOTE 14  PARENT ONLY CONDENSED FINANCIAL INFORMATION
 
 2007
    
    2006
    
    2005Cash flows from operating activitiesNet income (loss)
    
    $
    (467
    )
    
    $
    5,308
    
    
    $
    5,054Change in other assets
    
    
    201
    
    
    
    38
    
    
    
    429Change in other liabilities
    
    
    (35
    )
    
    
    383
    
    
    
    (106
    )(Equity in undistributed income of subsidiary)
dividends in excess of earnings
    
    
    1,462
    
    
    
    468
    
    
    
    (3,664
    )Net loss of equity investment
    
    
    199
    
    
    
    0
    
    
    
    0Net cash from operating activities
    
    
    1,360
    
    
    
    6,197
    
    
    
    1,713Cash flows provided by investing activitiesEquity Investment
    
    
    (3,288
    )
    
    
    0
    
    
    
    0Sales and maturities of securities-AFS
    
    
    0
    
    
    
    0
    
    
    
    0Purchases of securities-AFS
    
    
    (783
    )
    
    
    (213
    )
    
    
    (865
    )Investment in subsidiary
    
    
    0
    
    
    
    (1,000
    )
    
    
    (500
    )Net cash from investing activities
    
    
    (4,071
    )
    
    
    (1,213
    )
    
    
    (1,365
    )Cash flows used in financing activitiesIssuance of subordinated debt
    
    
    0
    
    
    
    0
    
    
    
    2,000Net short-term borrowings
    
    
    0
    
    
    
    0
    
    
    
    (750
    )Dividends paid
    
    
    (2,163
    )
    
    
    (2,069
    )
    
    
    (1,839
    )Stock repurchase
    
    
    (520
    )
    
    
    0
    
    
    
    0Proceeds from stock issuance
    
    
    840
    
    
    
    817
    
    
    
    1,381Net cash from financing activities
    
    
    (1,843
    )
    
    
    (1,252
    )
    
    
    792Change in cash and cash equivalents
    
    
    (4,554
    )
    
    
    3,732
    
    
    
    1,140Cash and cash equivalents at beginning of year
    
    
    5,396
    
    
    
    1,664
    
    
    
    524Cash and cash equivalents at end of year
    
    $
    842
    
    
    $
    5,396
    
    
    $
    1,664
 (Continued)
 35.




---



##### 



NOTE 15  SUMMARY OF QUARTERLY FINANCIAL DATA  UNAUDITED
  First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter2007Interest income
    
    $
    9,946
    
    
    $
    9,942
    
    
    $
    9,791
    
    
    $
    9,535Interest expense
    
    
    4,546
    
    
    
    4,550
    
    
    
    4,694
    
    
    
    4,831Provision for loan losses
    
    
    439
    
    
    
    649
    
    
    
    5,144
    
    
    
    1,234Non-interest income
    
    
    1,865
    
    
    
    2,028
    
    
    
    1,970
    
    
    
    1,716Non-interest expense
    
    
    5,496
    
    
    
    5,598
    
    
    
    5,236
    
    
    
    5,504Income before income taxes
    
    
    1,330
    
    
    
    1,173
    
    
    
    (3,313
    )
    
    
    (318
    )Provision for income taxes
    
    
    382
    
    
    
    329
    
    
    
    (1,206
    )
    
    
    (166
    )Net Income (Loss)
    
    $
    948
    
    
    $
    844
    
    
    $
    (2,107
    )
    
    $
    (152
    )Earnings per shareBasic
    
    
    0.44
    
    
    
    0.39
    
    
    
    (0.98
    )
    
    
    (0.07
    )Diluted
    
    
    0.44
    
    
    
    0.39
    
    
    
    (0.98
    )
    
    
    (0.07
    )
  First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter2006Interest income
    
    $
    9,614
    
    
    $
    9,979
    
    
    $
    10,212
    
    
    $
    10,111Interest expense
    
    
    3,748
    
    
    
    4,134
    
    
    
    4,510
    
    
    
    4,516Provision for loan losses
    
    
    400
    
    
    
    240
    
    
    
    240
    
    
    
    240Non-interest income
    
    
    1,797
    
    
    
    1,888
    
    
    
    1,940
    
    
    
    2,018Non-interest expense
    
    
    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.




---



##### 



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
    
    2007
    
    2006
    
    2005
    
    2004
    
    2003Summary of Consolidated Statements of Income:Interest Income
    
    $
    39,214
    
    
    $
    39,916
    
    
    $
    33,878
    
    
    $
    26,094
    
    
    $
    18,438Interest Expense
    
    
    18,621
    
    
    
    16,908
    
    
    
    11,298
    
    
    
    8,263
    
    
    
    5,601Net Interest Income
    
    
    20,593
    
    
    
    23,008
    
    
    
    22,580
    
    
    
    17,831
    
    
    
    12,837Provision for Loan Losses
    
    
    7,466
    
    
    
    1,120
    
    
    
    1,389
    
    
    
    1,389
    
    
    
    1,319Net Interest Income after Provision
    
    
    13,127
    
    
    
    21,888
    
    
    
    21,191
    
    
    
    16,442
    
    
    
    11,518Total Other Operating Income
    
    
    7,579
    
    
    
    7,643
    
    
    
    6,882
    
    
    
    7,292
    
    
    
    6,866Total Other Operating Expense
    
    
    21,834
    
    
    
    21,986
    
    
    
    20,800
    
    
    
    18,176
    
    
    
    13,276Income (loss) Before Income Taxes
    
    
    (1,128
    )
    
    
    7,545
    
    
    
    7,273
    
    
    
    5,558
    
    
    
    5,108Federal Income Taxes (Benefit)
    
    
    (661
    )
    
    
    2,237
    
    
    
    2,219
    
    
    
    1,524
    
    
    
    1,320Net Income
    
    $
    (467
    )
    
    $
    5,308
    
    
    $
    5,054
    
    
    $
    4,034
    
    
    $
    3,788Earnings Per Share  Basic*
    
    $
    (0.22
    )
    
    $
    2.48
    
    
    $
    2.41
    
    
    $
    1.95
    
    
    $
    1.83Earnings Per Share  Diluted*
    
    $
    (0.22
    )
    
    $
    2.47
    
    
    $
    2.40
    
    
    $
    1.94
    
    
    $
    1.83Summary of Consolidated Balance Sheets:Assets
    
    $
    628,019
    
    
    $
    622,298
    
    
    $
    619,089
    
    
    $
    584,890
    
    
    $
    419,966Securities, including FHLB stock
    
    
    80,477
    
    
    
    105,035
    
    
    
    116,693
    
    
    
    131,429
    
    
    
    126,856Loans, including loans held for sale
    
    
    473,058
    
    
    
    453,219
    
    
    
    440,398
    
    
    
    395,017
    
    
    
    254,340Deposits
    
    
    543,503
    
    
    
    528,555
    
    
    
    528,054
    
    
    
    491,065
    
    
    
    348,525Borrowings
    
    
    30,679
    
    
    
    36,552
    
    
    
    39,765
    
    
    
    46,602
    
    
    
    29,057Stockholders Equity
    
    
    49,496
    
    
    
    51,318
    
    
    
    46,895
    
    
    
    42,969
    
    
    
    40,882Other Financial and Statistical Data:Tier 1 Capital to Risk Weighted Assets
    
    
    10.40
    %
    
    
    11.30
    %
    
    
    10.60
    %
    
    
    10.20
    %
    
    
    16.90
    %Total Capital to Risk Weighted Assets
    
    
    11.60
    %
    
    
    12.50
    %
    
    
    11.90
    %
    
    
    11.40
    %
    
    
    18.00
    %Tier 1 Capital to Average Assets
    
    
    9.00
    %
    
    
    8.60
    %
    
    
    8.90
    %
    
    
    8.70
    %
    
    
    14.00
    %Total Cash Dividends
    
    $
    2,163
    
    
    $
    2,069
    
    
    $
    1,839
    
    
    $
    1,758
    
    
    $
    1,966Book Value Per Share*
    
    $
    22.88
    
    
    $
    24.08
    
    
    $
    22.07
    
    
    $
    20.67
    
    
    $
    19.74Cash Dividends Paid Per Share*
    
    $
    1.00
    
    
    $
    0.94
    
    
    $
    0.88
    
    
    $
    0.84
    
    
    $
    0.76Period End Market Price Per Share*
    
    $
    22.00
    
    
    $
    32.75
    
    
    $
    29.77
    
    
    $
    33.41
    
    
    $
    28.59Dividend Pay-out Ratio
    
    
    -463.17
    %
    
    
    38.98
    %
    
    
    36.39
    %
    
    
    43.58
    %
    
    
    51.90
    %Return on Average Stockholders Equity
    
    
    -0.89
    %
    
    
    10.82
    %
    
    
    11.09
    %
    
    
    9.72
    %
    
    
    9.32
    %Return on Average Assets
    
    
    -0.08
    %
    
    
    0.85
    %
    
    
    0.85
    %
    
    
    0.74
    %
    
    
    1.00
    %Net Interest Margin
    
    
    3.72
    %
    
    
    4.11
    %
    
    
    4.23
    %
    
    
    3.70
    %
    
    
    3.88
    %Total Equity to Assets at Period End
    
    
    7.88
    %
    
    
    8.25
    %
    
    
    7.57
    %
    
    
    7.34
    %
    
    
    9.73
    %
 
 *
    
    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. 37




---



##### 



RESULTS OF OPERATIONS
   NET INTEREST INCOME
     38




---



##### 



TABLE 2
 Changes in Net Interest Income
Due to Changes in Average Volume
and Interest Rates
Years Ended December 31,
 INCREASE
    
    
    INCREASE(DECREASE)
    
    
    (DECREASE)2007
    
    
    2006DUE
    
    
    DUETO:
    
    
    TO:YIELD/
    
    
    
    
    
    
    
    
    
    
    YIELD/(000s omitted)
    
    VOL
    
    RATE
    
    TOTAL
    
    
    VOL
    
    RATE
    
    TOTALTAXABLE SECURITIES
    
    $
    (372
    )
    
    $
    125
    
    
    $
    (247
    )
    
    
    $
    (226
    )
    
    $
    448
    
    
    $
    222TAX-EXEMPT SECURITIES
    
    
    (210
    )
    
    
    78
    
    
    
    (132
    )
    
    
    
    (127
    )
    
    
    150
    
    
    
    23FEDERAL FUNDS SOLD
    
    
    (198
    )
    
    
    (2
    )
    
    
    (200
    )
    
    
    
    215
    
    
    
    124
    
    
    
    339TOTAL LOANS
    
    
    790
    
    
    
    (968
    )
    
    
    (178
    )
    
    
    
    2,178
    
    
    
    3,299
    
    
    
    5,477LOANS HELD FOR SALE
    
    
    2
    
    
    
    (4
    )
    
    
    (2
    )
    
    
    
    (37
    )
    
    
    7
    
    
    
    (30
    )TOTAL EARNING ASSETS
    
    
    12
    
    
    
    (771
    )
    
    
    (759
    )
    
    
    
    2,003
    
    
    
    4,028
    
    
    
    6,031INTEREST BEARING DEMAND DEPOSITS
    
    
    (120
    )
    
    
    83
    
    
    
    (37
    )
    
    
    
    (121
    )
    
    
    828
    
    
    
    707SAVINGS DEPOSITS
    
    
    (131
    )
    
    
    69
    
    
    
    (62
    )
    
    
    
    (284
    )
    
    
    141
    
    
    
    (143
    )TIME CDs $100,000 AND OVER
    
    
    1,018
    
    
    
    (103
    )
    
    
    915
    
    
    
    
    1,748
    
    
    
    1,447
    
    
    
    3,195OTHER TIME DEPOSITS
    
    
    (253
    )
    
    
    1,098
    
    
    
    845
    
    
    
    
    685
    
    
    
    909
    
    
    
    1,594OTHER BORROWINGS
    
    
    (187
    )
    
    
    239
    
    
    
    52
    
    
    
    
    (333
    )
    
    
    590
    
    
    
    257TOTAL INTEREST BEARING
LIABILITIES
    
    
    327
    
    
    
    1,386
    
    
    
    1,713
    
    
    
    
    1,695
    
    
    
    3,915
    
    
    
    5,610NET INTEREST INCOME
    
    $
    (315
    )
    
    $
    (2,157
    )
    
    $
    (2,472
    )
    
    
    $
    308
    
    
    $
    113
    
    
    $
    421
 39




---



##### 



TABLE 3
 Summary of Net Interest Income
Years Ended December 31,
 2007
    
    
    2006
    
    
    2005AVG
    
    
    
    
    
    
    
    
    
    
    AVG
    
    
    
    
    
    
    
    
    
    
    AVG(000s omitted)
    
    BAL
    
    
    INC/EXP
    
    
    YIELD
    
    
    BAL
    
    
    INC/EXP
    
    
    YIELD
    
    
    BAL
    
    
    INC/EXP
    
    
    YIELDASSETSSecurities:U.S. Treasury and GovernmentAgencies
    
    $
    73,051
    
    
    $
    3,120
    
    
    
    4.27
    %
    
    $
    84,099
    
    
    $
    3,348
    
    
    
    3.98
    %
    
    $
    91,280
    
    
    $
    3,141
    
    
    
    3.44
    %State and Political (1)
    
    
    17,716
    
    
    
    1,094
    
    
    
    6.17
    %
    
    
    21,376
    
    
    
    1,226
    
    
    
    5.73
    %
    
    
    23,892
    
    
    
    1,203
    
    
    
    5.04
    %Other
    
    
    6,641
    
    
    
    105
    
    
    
    1.58
    %
    
    
    4,304
    
    
    
    124
    
    
    
    2.88
    %
    
    
    3,733
    
    
    
    109
    
    
    
    2.89
    %Total Securities
    
    
    97,408
    
    
    
    4,319
    
    
    
    4.43
    %
    
    
    109,779
    
    
    
    4,698
    
    
    
    4.28
    %
    
    
    118,905
    
    
    
    4,453
    
    
    
    3.74
    %Fed Funds Sold
    
    
    6,082
    
    
    
    303
    
    
    
    4.98
    %
    
    
    10,045
    
    
    
    503
    
    
    
    5.01
    %
    
    
    4,347
    
    
    
    164
    
    
    
    3.77
    %Loans:Commercial
    
    
    359,262
    
    
    
    27,276
    
    
    
    7.59
    %
    
    
    343,702
    
    
    
    26,820
    
    
    
    7.80
    %
    
    
    307,746
    
    
    
    21,527
    
    
    
    7.00
    %Tax Free (1)
    
    
    3,552
    
    
    
    233
    
    
    
    6.57
    %
    
    
    4,217
    
    
    
    271
    
    
    
    6.43
    %
    
    
    4,844
    
    
    
    308
    
    
    
    6.35
    %Real Estate-Mortgage
    
    
    38,047
    
    
    
    2,531
    
    
    
    6.65
    %
    
    
    36,330
    
    
    
    2,638
    
    
    
    7.26
    %
    
    
    36,409
    
    
    
    2,690
    
    
    
    7.39
    %Consumer
    
    
    60,057
    
    
    
    4,893
    
    
    
    8.15
    %
    
    
    66,526
    
    
    
    5,382
    
    
    
    8.09
    %
    
    
    72,064
    
    
    
    5,109
    
    
    
    7.09
    %Total loans
    
    
    460,918
    
    
    
    34,933
    
    
    
    7.58
    %
    
    
    450,775
    
    
    
    35,111
    
    
    
    7.79
    %
    
    
    421,063
    
    
    
    29,634
    
    
    
    7.04
    %Allowance for Loan Loss
    
    
    (8,014
    )
    
    
    
    
    
    
    
    
    
    
    (6,632
    )
    
    
    
    
    
    
    
    
    
    
    (5,975
    )Net Loans
    
    
    452,904
    
    
    
    34,933
    
    
    
    7.71
    %
    
    
    444,143
    
    
    
    35,111
    
    
    
    7.91
    %
    
    
    415,088
    
    
    
    29,634
    
    
    
    7.14
    %Loans Held for Sale
    
    
    1,662
    
    
    
    110
    
    
    
    6.62
    %
    
    
    1,626
    
    
    
    112
    
    
    
    6.89
    %
    
    
    2,215
    
    
    
    142
    
    
    
    6.41
    %TOTAL EARNING ASSETS
    
    
    566,070
    
    
    
    39,665
    
    
    
    7.01
    %
    
    
    572,225
    
    
    
    40,424
    
    
    
    7.06
    %
    
    
    546,530
    
    
    
    34,393
    
    
    
    6.29
    %Cash Due from Banks
    
    
    17,321
    
    
    
    
    
    
    
    
    
    
    
    18,155
    
    
    
    
    
    
    
    
    
    
    
    20,067All Other Assets
    
    
    45,500
    
    
    
    
    
    
    
    
    
    
    
    39,663
    
    
    
    
    
    
    
    
    
    
    
    36,823TOTAL ASSETS
    
    $
    620,877
    
    
    
    
    
    
    
    
    
    
    $
    623,411
    
    
    
    
    
    
    
    
    
    
    $
    597,445LIABILITIES & SHAREHOLDERS
EQUITY:Deposits:Interest bearing  DDA
    
    $
    98,172
    
    
    $
    2,358
    
    
    
    2.40
    %
    
    $
    103,356
    
    
    $
    2,395
    
    
    
    2.32
    %
    
    $
    111,670
    
    
    $
    1,688
    
    
    
    1.51
    %Savings Deposits
    
    
    88,943
    
    
    
    1,190
    
    
    
    1.34
    %
    
    
    99,339
    
    
    
    1,252
    
    
    
    1.26
    %
    
    
    125,031
    
    
    
    1,395
    
    
    
    1.12
    %Time CDs $100,000 and Over
    
    
    152,305
    
    
    
    7,130
    
    
    
    4.68
    %
    
    
    130,860
    
    
    
    6,215
    
    
    
    4.75
    %
    
    
    83,120
    
    
    
    3,020
    
    
    
    3.63
    %Other Time CDs
    
    
    114,182
    
    
    
    5,726
    
    
    
    5.01
    %
    
    
    120,427
    
    
    
    4,881
    
    
    
    4.05
    %
    
    
    99,928
    
    
    
    3,287
    
    
    
    3.29
    %Total Interest Bearing Deposits
    
    
    453,602
    
    
    
    16,404
    
    
    
    3.62
    %
    
    
    453,982
    
    
    
    14,743
    
    
    
    3.25
    %
    
    
    419,749
    
    
    
    9,390
    
    
    
    2.24
    %Other Borrowings
    
    
    35,868
    
    
    
    2,217
    
    
    
    6.18
    %
    
    
    39,268
    
    
    
    2,165
    
    
    
    5.51
    %
    
    
    47,697
    
    
    
    1,908
    
    
    
    4.00
    %INTEREST BEARING LIABILITIES
    
    
    489,470
    
    
    
    18,621
    
    
    
    3.80
    %
    
    
    493,250
    
    
    
    16,908
    
    
    
    3.43
    %
    
    
    467,446
    
    
    
    11,298
    
    
    
    2.42
    %Non-interest bearing  DDA
    
    
    75,177
    
    
    
    
    
    
    
    
    
    
    
    77,256
    
    
    
    
    
    
    
    
    
    
    
    81,471All Other Liabilities
    
    
    4,008
    
    
    
    
    
    
    
    
    
    
    
    3,832
    
    
    
    
    
    
    
    
    
    
    
    2,935Shareholders Equity
    
    
    52,222
    
    
    
    
    
    
    
    
    
    
    
    49,073
    
    
    
    
    
    
    
    
    
    
    
    45,593TOTAL LIABILITIES and S/H
EQUITY
    
    $
    620,877
    
    
    
    
    
    
    
    
    
    
    $
    623,411
    
    
    
    
    
    
    
    
    
    
    $
    597,445Net Interest Rate Spread
    
    
    
    
    
    
    
    
    
    
    3.20
    %
    
    
    
    
    
    
    
    
    
    
    3.64
    %
    
    
    
    
    
    
    
    
    
    
    3.88
    %Impact of Non-Interest Bearing
Funds on Margin
    
    
    
    
    
    
    
    
    
    
    0.51
    %
    
    
    
    
    
    
    
    
    
    
    0.47
    %
    
    
    
    
    
    
    
    
    
    
    0.35
    %Net Interest Income/Margin
    
    
    
    
    
    $
    21,044
    
    
    
    3.72
    %
    
    
    
    
    
    $
    23,516
    
    
    
    4.11
    %
    
    
    
    
    
    $
    23,095
    
    
    
    4.23
    %
 (1)  Presented on a fully taxable equivalent basis using a federal income tax rate of 34%.
 40




---



##### 



ALLOWANCE AND PROVISION FOR LOAN LOSSES
     41




---



##### 



TABLE 4
Analysis of the Allowance for Loan Losses
 Years Ended December 31,(000s omitted)
    
    2007
    
    2006
    
    2005
    
    2004
    
    2003Balance Beginning of Period
    
    $
    6,692
    
    
    $
    6,301
    
    
    $
    5,501
    
    
    $
    3,414
    
    
    $
    3,184Charge-offs:Commercial, Financial and Agricultural
    
    
    (4,991
    )
    
    
    (554
    )
    
    
    (405
    )
    
    
    (365
    )
    
    
    (940
    )Real Estate-Construction
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Real Estate-Mortgage
    
    
    (186
    )
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Installment Loans to Individuals
    
    
    (682
    )
    
    
    (323
    )
    
    
    (360
    )
    
    
    (306
    )
    
    
    (455
    )Total Charge-offs
    
    
    (5,859
    )
    
    
    (877
    )
    
    
    (765
    )
    
    
    (671
    )
    
    
    (1,395
    )Recoveries:Commercial and Financial
    
    
    155
    
    
    
    51
    
    
    
    70
    
    
    
    38
    
    
    
    168Real Estate-Construction
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Real Estate-Mortgage
    
    
    1
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Installment Loans to Individuals
    
    
    99
    
    
    
    97
    
    
    
    106
    
    
    
    172
    
    
    
    138Total Recoveries
    
    
    255
    
    
    
    148
    
    
    
    176
    
    
    
    210
    
    
    
    306Net Charge-offs
    
    
    (5,604
    )
    
    
    (729
    )
    
    
    (589
    )
    
    
    (461
    )
    
    
    (1,089
    )Provision for loan losses
    
    
    7,466
    
    
    
    1,120
    
    
    
    1,389
    
    
    
    1,389
    
    
    
    1,319Addition from WMCB acquisition
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,159
    
    
    
    0Balance at End of Period
    
    $
    8,554
    
    
    $
    6,692
    
    
    $
    6,301
    
    
    $
    5,501
    
    
    $
    3,414Ratio of Net Charge-Offs During the
Period
    
    
    1.19
    %
    
    
    0.16
    %
    
    
    0.14
    %
    
    
    0.12
    %
    
    
    0.43
    %
 42




---



##### 



NON-INTEREST INCOME
      NON-INTEREST EXPENSE
     43




---



##### 



FINANCIAL CONDITION
   44




---



##### 



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
    
    $
    6,000
    
    
    $
    5,984
    
    
    
    3.94
    %Over one through five years
    
    
    13,000
    
    
    
    13,016
    
    
    
    4.45
    %Over five through ten years
    
    
    2,148
    
    
    
    2,152
    
    
    
    5.00
    %Over ten years
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %Total
    
    
    21,148
    
    
    
    21,152Mortgage-BackedOne year or less
    
    $
    0
    
    
    $
    0
    
    
    
    0.00
    %Over one through five years
    
    
    9,083
    
    
    
    8,859
    
    
    
    4.11
    %Over five through ten years
    
    
    3,930
    
    
    
    3,840
    
    
    
    4.25
    %Over ten years
    
    
    28,071
    
    
    
    27,863
    
    
    
    5.05
    %Total
    
    
    41,084
    
    
    
    40,562State and PoliticalOne year or less
    
    $
    276
    
    
    $
    275
    
    
    
    6.89
    %Over one through five years
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %Over five through ten years
    
    
    3,363
    
    
    
    3,356
    
    
    
    6.72
    %Over ten years
    
    
    3,220
    
    
    
    3,192
    
    
    
    5.93
    %Total
    
    
    6,859
    
    
    
    6,823Equity Securities
    
    $
    3,406
    
    
    $
    3,255HELD TO MATURITYMortgage-BackedOne year or less
    
    $
    0
    
    
    $
    0
    
    
    
    0.00
    %Over one through five years
    
    
    6
    
    
    
    6
    
    
    
    9.13
    %Over five through ten years
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %Over ten years
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %Total
    
    
    6
    
    
    
    6State and PoliticalOne year or less
    
    $
    1,471
    
    
    $
    1,472
    
    
    
    5.73
    %Over one through five years
    
    
    3,728
    
    
    
    3,747
    
    
    
    6.11
    %Over five through ten years
    
    
    2,860
    
    
    
    2,866
    
    
    
    6.61
    %Over ten years
    
    
    620
    
    
    
    623
    
    
    
    6.25
    %Total
    
    
    8,679
    
    
    
    8,708Total Securities
    
    $
    81,182
    
    
    $
    80,506
 
 (1)
    
    Tax equivalent yield
 46




---



##### 



LOAN PORTFOLIO
    TABLE 6
Loan Portfolio
 December 31,(000s omitted)
    
    2007
    
    2006
    
    2005
    
    2004
    
    2003Commercial
    
    $
    318,555
    
    
    $
    272,402
    
    
    $
    254,498
    
    
    $
    229,012
    
    
    $
    146,450Real estate  construction
    
    
    54,892
    
    
    
    78,927
    
    
    
    76,386
    
    
    
    61,278
    
    
    
    32,913Real estate  mortgage
    
    
    39,817
    
    
    
    36,867
    
    
    
    37,627
    
    
    
    32,705
    
    
    
    18,335Consumer
    
    
    58,139
    
    
    
    62,797
    
    
    
    70,845
    
    
    
    70,435
    
    
    
    55,547Total
    
    $
    471,403
    
    
    $
    450,993
    
    
    $
    439,356
    
    
    $
    393,430
    
    
    $
    253,245
  TABLE 7
Maturities of the Loan Portfolio by Loan Type
 Within
    
    
    One-
    
    
    AfterDecember 31, 2007
    
    One
    
    
    Five
    
    
    Five(000s omitted)
    
    Year
    
    
    Years
    
    
    Years
    
    
    TotalCommercial
    
    $
    92,467
    
    
    $
    190,084
    
    
    $
    36,004
    
    
    $
    318,555Real estate  construction
    
    
    48,244
    
    
    
    5,379
    
    
    
    1,269
    
    
    
    54,892Real estate  mortgage
    
    
    6,010
    
    
    
    10,750
    
    
    
    23,057
    
    
    
    39,817Consumer
    
    
    7,862
    
    
    
    33,441
    
    
    
    16,836
    
    
    
    58,139$
    154,583
    
    
    $
    239,654
    
    
    $
    77,166
    
    
    $
    471,403
 47




---



##### 



TABLE 8
Maturities of the Loan Portfolio by Rate Categories
 Within
    
    
    One-
    
    
    AfterDecember 31, 2007
    
    One
    
    
    Five
    
    
    Five(000s omitted)
    
    Year
    
    
    Years
    
    
    Years
    
    
    TotalLoans:Fixed Rate
    
    $
    60,864
    
    
    $
    199,931
    
    
    $
    50,725
    
    
    $
    311,520Variable Rate
    
    
    93,719
    
    
    
    39,723
    
    
    
    26,441
    
    
    
    159,883$
    154,583
    
    
    $
    239,654
    
    
    $
    77,166
    
    
    $
    471,403
    NON-PERFORMING ASSETS
   48




---



##### 



TABLE 9
Non-Performing Assets and Past Due Loans (000s omitted)
 December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003Non-Performing Loans:Loans Past Due 90 Days or More & Still
Accruing
    
    $
    54
    
    
    $
    2,311
    
    
    $
    80
    
    
    $
    91
    
    
    $
    47Non-Accrual Loans
    
    
    13,056
    
    
    
    2,354
    
    
    
    1,476
    
    
    
    1,102
    
    
    
    229Renegotiated Loans
    
    
    431
    
    
    
    437
    
    
    
    1,401
    
    
    
    477
    
    
    
    1,262Total Non-Performing Loans
    
    
    13,541
    
    
    
    5,102
    
    
    
    2,957
    
    
    
    1,670
    
    
    
    1,538Other Non-Performing Assets:Other Real Estate
    
    
    2,003
    
    
    
    1,247
    
    
    
    500
    
    
    
    208
    
    
    
    1,081Other Real Estate Owned in Redemption
    
    
    1,829
    
    
    
    216
    
    
    
    0
    
    
    
    856
    
    
    
    184Other Non-Performing Assets
    
    
    155
    
    
    
    155
    
    
    
    6
    
    
    
    4
    
    
    
    79Total Other Non-Performing Assets
    
    
    3,987
    
    
    
    1,618
    
    
    
    506
    
    
    
    1,068
    
    
    
    1,344Total Non-Performing Assets
    
    $
    17,528
    
    
    $
    6,720
    
    
    $
    3,463
    
    
    $
    2,738
    
    
    $
    2,882Non-Performing Loans as a % ofTotal Loans
    
    
    2.86
    %
    
    
    1.13
    %
    
    
    0.67
    %
    
    
    0.70
    %
    
    
    0.61
    %Non-Performing Assets as a % ofTotal Loans and Other Real Estate
    
    
    3.70
    %
    
    
    1.48
    %
    
    
    0.79
    %
    
    
    0.69
    %
    
    
    1.13
    %Allowance for Loan Losses as a % ofNon-Performing Loans
    
    
    63.18
    %
    
    
    131.16
    %
    
    
    213.09
    %
    
    
    350.16
    %
    
    
    221.98
    %Accruing Loans Past Due 90 Days or
More to Total Loans
    
    
    0.01
    %
    
    
    0.51
    %
    
    
    0.02
    %
    
    
    0.02
    %
    
    
    0.20
    %Non-performing Assets as a % ofTotal Assets
    
    
    2.79
    %
    
    
    1.08
    %
    
    
    0.56
    %
    
    
    0.47
    %
    
    
    0.69
    %
  TABLE 10
Allocation of the Allowance for Loan Losses
 December 31,
    
    2007
    2006
    2005
    2004
    2003(000s omitted)
    
    Amount
    
    Loan %
    
    Amount
    
    Loan %
    
    Amount
    
    Loan %
    
    Amount
    
    Loan %
    
    Amount
    
    Loan %Commercial and
construction
    
    $
    7,321
    
    
    
    79.22
    %
    
    $
    5,657
    
    
    
    77.90
    %
    
    $
    5,339
    
    
    
    75.31
    %
    
    $
    4,600
    
    
    
    73.79
    %
    
    $
    2,624
    
    
    
    70.83
    %Real estate mortgage
    
    
    389
    
    
    
    8.45
    %
    
    
    328
    
    
    
    8.17
    %
    
    
    263
    
    
    
    8.56
    %
    
    
    312
    
    
    
    8.31
    %
    
    
    207
    
    
    
    7.24
    %Consumer
    
    
    767
    
    
    
    12.33
    %
    
    
    623
    
    
    
    13.93
    %
    
    
    593
    
    
    
    16.13
    %
    
    
    508
    
    
    
    17.90
    %
    
    
    576
    
    
    
    21.93
    %Unallocated
    
    
    77
    
    
    
    
    
    
    
    84
    
    
    
    
    
    
    
    106
    
    
    
    
    
    
    
    81
    
    
    
    
    
    
    
    7Total
    
    $
    8,554
    
    
    
    100.00
    %
    
    $
    6,692
    
    
    
    100.00
    %
    
    $
    6,301
    
    
    
    100.00
    %
    
    $
    5,501
    
    
    
    100.00
    %
    
    $
    3,414
    
    
    
    100.00
    %
 49




---



##### 



DEPOSITS
 TABLE 11
Average Deposits
 2007
    
    2006
    
    2005
    
    2004
    
    2003Years Ended December 31,
    
    Average
    
    Average
    
    Average
    
    Average
    
    Average(000s omitted)
    
    Balance
    
    Rate
    
    Balance
    
    Rate
    
    Balance
    
    Rate
    
    Balance
    
    Rate
    
    Balance
    
    RateNon-int. bearing
demand
    
    $
    75,177
    
    
    
    
    
    
    $
    77,256
    
    
    
    
    
    
    $
    81,471
    
    
    
    
    
    
    $
    73,553
    
    
    
    
    
    
    $
    52,853Interest-bearing
demand
    
    
    98,172
    
    
    
    2.40
    %
    
    
    103,356
    
    
    
    2.32
    %
    
    
    111,670
    
    
    
    1.51
    %
    
    
    108,704
    
    
    
    1.10
    %
    
    
    53,897
    
    
    
    0.94
    %Savings
    
    
    88,943
    
    
    
    1.34
    %
    
    
    99,339
    
    
    
    1.26
    %
    
    
    125,031
    
    
    
    1.12
    %
    
    
    149,099
    
    
    
    1.53
    %
    
    
    117,138
    
    
    
    1.17
    %Time
    
    
    266,487
    
    
    
    4.82
    %
    
    
    251,287
    
    
    
    4.73
    %
    
    
    183,048
    
    
    
    3.45
    %
    
    
    130,115
    
    
    
    2.71
    %
    
    
    102,563
    
    
    
    3.35
    %Total
    
    $
    528,779
    
    
    
    3.10
    %
    
    $
    531,238
    
    
    
    2.89
    %
    
    $
    501,220
    
    
    
    1.87
    %
    
    $
    461,471
    
    
    
    1.52
    %
    
    $
    326,451
    
    
    
    1.63
    %
  50




---



##### 



TABLE 12  Maturity of Time Certificates of Deposit of $100,000 or More
 December 31,(000s omitted)
    
    2007
    
    2006Three months or less
    
    $
    41,891
    
    
    $
    37,216Over three through six months
    
    
    22,833
    
    
    
    29,661Over six through twelve months
    
    
    19,451
    
    
    
    16,832Over twelve months
    
    
    76,458
    
    
    
    53,269Total
    
    $
    160,633
    
    
    $
    136,978
  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
    
    $
    283,215
    
    
    $
    178,369
    
    
    $
    62,868
    
    
    $
    41,811
    
    
    $
    167Short-term borrowings
    
    
    649
    
    
    
    649
    
    
    
    0
    
    
    
    0
    
    
    
    0FHLB advances
    
    
    11,030
    
    
    
    6,024
    
    
    
    2,054
    
    
    
    2,063
    
    
    
    889Repurchase agreements
    
    
    5,000
    
    
    
    5,000
    
    
    
    0
    
    
    
    0
    
    
    
    0Subordinated debt
    
    
    14,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    14,000Operating leases
    
    
    877
    
    
    
    230
    
    
    
    362
    
    
    
    285
    
    
    
    0Total
    
    $
    314,771
    
    
    $
    190,272
    
    
    $
    67,284
    
    
    $
    44,159
    
    
    $
    15,056
 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)
    
    2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    Thereafter
    
    Total
    
    ValueRate Sensitive Assets:Fixed interest rate loans
    
    $
    60,864
    
    
    $
    51,591
    
    
    $
    53,509
    
    
    $
    46,626
    
    
    $
    48,205
    
    
    $
    50,725
    
    
    $
    311,520
    
    
    $
    306,363Average interest rate
    
    
    7.08
    %
    
    
    6.88
    %
    
    
    6.90
    %
    
    
    6.83
    %
    
    
    7.26
    %
    
    
    6.69
    %Variable interest rate loans
    
    $
    93,719
    
    
    $
    16,012
    
    
    $
    13,665
    
    
    $
    4,111
    
    
    $
    5,935
    
    
    $
    26,441
    
    
    $
    159,883
    
    
    $
    159,884Average interest rate
    
    
    7.55
    %
    
    
    7.19
    %
    
    
    7.38
    %
    
    
    7.52
    %
    
    
    7.30
    %
    
    
    7.39
    %Fixed interest rate securities
    
    $
    18,283
    
    
    $
    11,051
    
    
    $
    11,910
    
    
    $
    3,533
    
    
    $
    1,288
    
    
    $
    8,233
    
    
    $
    54,298
    
    
    $
    54,302Average interest rate
    
    
    4.64
    %
    
    
    3.74
    %
    
    
    3.78
    %
    
    
    3.85
    %
    
    
    3.92
    %
    
    
    4.79
    %Variable Interest rate securities
    
    $
    7,571
    
    
    $
    3,182
    
    
    $
    2,123
    
    
    $
    1,469
    
    
    $
    1,350
    
    
    $
    10,484
    
    
    $
    26,179
    
    
    $
    22,949Average interest rate
    
    
    1.81
    %
    
    
    3.96
    %
    
    
    4.32
    %
    
    
    4.15
    %
    
    
    3.75
    %
    
    
    5.25
    %FHLB Stock
    
    $
    2,032
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,032
    
    
    $
    2,032Average interest rate
    
    
    5.00
    %Other interest bearing assets
    
    $
    7,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,300
    
    
    $
    7,300Average interest rate
    
    
    3.30
    %Total rate sensitive assets
    
    $
    189,769
    
    
    $
    81,836
    
    
    $
    81,207
    
    
    $
    55,739
    
    
    $
    56,778
    
    
    $
    95,883
    
    
    $
    561,212
    
    
    $
    522,830Rate Sensitive Liabilities:Interest-bearing checking
    
    $
    98,362
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    98,362
    
    
    $
    98,360Average interest rate
    
    
    1.95
    %Savings
    
    $
    86,778
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    86,778
    
    
    $
    86,765Average interest rate
    
    
    0.58
    %Time
    
    $
    178,369
    
    
    $
    36,338
    
    
    $
    26,530
    
    
    $
    21,460
    
    
    $
    20,351
    
    
    $
    167
    
    
    $
    283,215
    
    
    $
    276,697Average interest rate
    
    
    4.73
    %
    
    
    4.80
    %
    
    
    4.88
    %
    
    
    5.07
    %
    
    
    4.92
    %
    
    
    2.82
    %Short term borrowings
    
    $
    649
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    649
    
    
    $
    649Average interest rate
    
    
    1.25
    %FHLB advances
    
    $
    6,024
    
    
    $
    26
    
    
    $
    2,028
    
    
    $
    2,030
    
    
    $
    33
    
    
    $
    889
    
    
    $
    11,030
    
    
    $
    10,907Average interest rate
    
    
    5.19
    %
    
    
    7.34
    %
    
    
    5.52
    %
    
    
    5.72
    %
    
    
    7.34
    %
    
    
    7.34
    %Repurchase agreements
    
    $
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,000
    
    
    $
    5,000Average interest rate
    
    
    2.61
    %Subordinated debt
    
    $
    14,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    14,000
    
    
    $
    13,934Average interest rate
    
    
    8.46
    %Total rate sensitive liabilities
    
    $
    389,182
    
    
    $
    36,364
    
    
    $
    28,558
    
    
    $
    23,490
    
    
    $
    20,384
    
    
    $
    1,056
    
    
    $
    499,034
    
    
    $
    492,312
 INTEREST RATE SENSITIVITY MANAGEMENT
    55




---



##### 



TABLE 15
 Gap AnalysisDecember 31, 2007Within
    
    Three
    
    One to
    
    AfterThree
    
    Months-
    
    Five
    
    Five(000s Omitted)
    
    Months
    
    One Year
    
    Years
    
    Years
    
    TotalFederal Funds Sold
    
    $
    7,300
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    7,300Securities
    
    
    18,439
    
    
    
    7,415
    
    
    
    35,906
    
    
    
    18,717
    
    
    
    80,477Loans
    
    
    46,417
    
    
    
    106,517
    
    
    
    250,997
    
    
    
    67,472
    
    
    
    471,403Loans Held for Sale
    
    
    1,655
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,655FHLB Stock
    
    
    2,032
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    2,032Total Earning Assets
    
    $
    78,424
    
    
    $
    113,932
    
    
    $
    286,903
    
    
    $
    86,697
    
    
    $
    565,956Interest Bearing Liabilities:Interest Bearing Demand Deposits
    
    $
    98,362
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    98,362Savings Deposits
    
    
    86,778
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    86,778Time Deposits Less than $100,000
    
    
    29,018
    
    
    
    65,176
    
    
    
    28,221
    
    
    
    167
    
    
    
    122,582Time Deposits Greater than $100,000
    
    
    41,891
    
    
    
    42,284
    
    
    
    76,458
    
    
    
    0
    
    
    
    160,633Short-term Borrowings
    
    
    649
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    649FHLB Advances
    
    
    5,000
    
    
    
    1,024
    
    
    
    4,116
    
    
    
    890
    
    
    
    11,030Repurchase Agreements
    
    
    0
    
    
    
    5,000
    
    
    
    0
    
    
    
    0
    
    
    
    5,000Subordinated Debt
    
    
    14,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    14,000Total Interest Bearing Liabilities
    
    $
    275,698
    
    
    $
    113,484
    
    
    $
    108,795
    
    
    $
    1,057
    
    
    $
    499,034Interest Rate Sensitivity GAP
    
    ($
    199,855
    )
    
    $
    442
    
    
    $
    168,420
    
    
    $
    94,826
    
    
    $
    63,833Cumulative Interest Rate
Sensitivity GAP
    
    ($
    199,855
    )
    
    ($
    199,413
    )
    
    ($
    30,993
    )
    
    $
    63,833Interest Rate Sensitivity GAP
    
    
    0.28
    
    
    
    1.00
    
    
    
    2.55
    
    
    
    90.71Cumulative Interest Rate
Sensitivity GAP Ratio
    
    
    0.28
    
    
    
    0.49
    
    
    
    0.94
    
    
    
    1.13
  56




---



##### 



FORWARD LOOKING STATEMENTS
   57




---



##### 



FENTURA FINANCIAL, INC. COMMON STOCK
  TABLE 16
Common Stock Data
 Market
    
    DividendsInformation
    
    PaidYears
    
    Quarter
    
    High
    
    Low
    
    Per ShareFirst Quarter
    
    $
    32.55
    
    
    $
    30.24
    
    
    $
    0.2202005
    
    
    Second Quarter
    
    
    31.13
    
    
    
    29.35
    
    
    
    0.220Third Quarter
    
    
    31.57
    
    
    
    29.39
    
    
    
    0.220Fourth Quarter
    
    
    30.49
    
    
    
    29.31
    
    
    
    0.220$
    0.880First 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$
    1.000
 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
    
    
    12/31/02
    
    
    12/31/03
    
    
    12/31/04
    
    
    12/31/05
    
    
    12/31/06
    
    
    12/31/07Fentura Financial, Inc.
    
    
    
    100.00
    
    
    
    
    102.26
    
    
    
    
    122.46
    
    
    
    
    112.23
    
    
    
    
    126.37
    
    
    
    
    88.31NASDAQ Composite
    
    
    
    100.00
    
    
    
    
    150.01
    
    
    
    
    162.89
    
    
    
    
    165.13
    
    
    
    
    180.85
    
    
    
    
    198.60SNL Midwest OTC-BB and Pink Banks
    
    
    
    100.00
    
    
    
    
    126.23
    
    
    
    
    150.40
    
    
    
    
    156.59
    
    
    
    
    164.90
    
    
    
    
    160.97Fentura Financial Peer Group*
    
    
    
    100.00
    
    
    
    
    133.65
    
    
    
    
    154.47
    
    
    
    
    141.68
    
    
    
    
    146.31
    
    
    
    
    89.98
 Source: SNL Financial LC, Charlottesville, VA*
    
    Fentura Financial Peer Group consists of Banks in Michigan (MI)
 59