Exhibit 13
 Rule 14a-3 Annual Report




---



##### 



FENTURA FINANCIAL, INC.
 FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
December 31, 2009 and 2008
 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
    
    
    7-42MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    43-64




---



##### 



(-s- Crowe Horwoth LLP)/s/ Crowe Horwath LLP




---



##### 



2009
    
    
    2008ASSETSCash and due from banks
    
    $
    18,459
    
    
    $
    13,626Federal funds sold
    
    
    23,650
    
    
    
    0Total cash and cash equivalents
    
    
    42,109
    
    
    
    13,626Securities available for sale, at fair value
    
    
    43,608
    
    
    
    47,065Securities held to maturity (fair value 2009 - $5,493; 2008 - $7,010)
    
    
    5,456
    
    
    
    6,765Total securities
    
    
    49,064
    
    
    
    53,830Loans held for sale
    
    
    831
    
    
    
    690Loans, net of allowance of 2009- $10,726; 2008- $10,455
    
    
    344,704
    
    
    
    418,583Bank premises and equipment
    
    
    15,914
    
    
    
    16,879Accrued interest receivable 2,676 2,676
    
    
    1,813
    
    
    
    2,231Bank owned life insurance
    
    
    7,221
    
    
    
    7,282Federal Home Loan Bank stock
    
    
    1,900
    
    
    
    1,900Equity investment
    
    
    0
    
    
    
    1,360Other real estate owned
    
    
    7,967
    
    
    
    5,983Assets of discontinued operations
    
    
    37,919
    
    
    
    45,650Other assets
    
    
    12,637
    
    
    
    10,590Total Assets
    
    $
    522,079
    
    
    $
    578,604LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Non-interest-bearing deposits
    
    $
    64,530
    
    
    $
    64,325Interest-bearing deposits
    
    
    376,245
    
    
    
    405,039Total deposits
    
    
    440,775
    
    
    
    469,364Short-term borrowings
    
    
    164
    
    
    
    1,500Federal Home Loan Bank advances
    
    
    7,981
    
    
    
    12,707Subordinated debentures
    
    
    14,000
    
    
    
    14,000Note payable
    
    
    0
    
    
    
    1,000Liabilities of discontinued operations
    
    
    35,217
    
    
    
    42,174Accrued taxes, interest and other liabilities
    
    
    3,410
    
    
    
    1,735Total liabilities
    
    
    501,547
    
    
    
    542,480Shareholders equityCommon stock  $0 par value, 5,000,000 shares authorized,
shares issued and outstanding 2,248,553  2009; 2,185,765  2008
    
    
    42,913
    
    
    
    42,778Retained earnings (deficit)
    
    
    (21,657
    )
    
    
    (4,677
    )Accumulated other comprehensive income (loss)
    
    
    (724
    )
    
    
    (1,977
    )Total shareholders equity
    
    
    20,532
    
    
    
    36,124Total liabilities and shareholders equity
    
    $
    522,079
    
    
    $
    578,604
 See accompanying notes to consolidated financial statements.
 2




---



##### 



2009
    
    
    2008Interest incomeLoans, including fees
    
    $
    24,063
    
    
    $
    27,915Securities:Taxable
    
    
    1,536
    
    
    
    1,916Tax-exempt
    
    
    546
    
    
    
    550Short-term investments
    
    
    5
    
    
    
    139Total interest income
    
    
    26,150
    
    
    
    30,520Interest expenseDeposits
    
    
    9,539
    
    
    
    12,446Other borrowings
    
    
    1,048
    
    
    
    1,606Total interest expense
    
    
    10,587
    
    
    
    14,052Net interest income
    
    
    15,563
    
    
    
    16,468Provision for loan losses
    
    
    14,723
    
    
    
    7,715Net interest income after provision for loan losses
    
    
    840
    
    
    
    8,753Non-interest incomeService charges on deposit accounts
    
    
    1,967
    
    
    
    2,431Gain on sale of mortgage loans
    
    
    767
    
    
    
    337Trust and investment services income
    
    
    1,615
    
    
    
    1,813Gain on sale of securities
    
    
    12
    
    
    
    0Other than temporary lossTotal impairment
    
    
    (288
    )
    
    
    (843
    )Loss recognized in other comprehensive income
    
    
    0
    
    
    
    0Net impairment loss recognized in earnings
    
    
    (288
    )
    
    
    (843
    )Loss on equity investment
    
    
    (1,360
    )
    
    
    (1,729
    )Other income and fees
    
    
    1,942
    
    
    
    1,571Total non-interest income
    
    
    4,655
    
    
    
    3,580Non-interest expenseSalaries and employee benefits
    
    
    8,694
    
    
    
    10,500Occupancy
    
    
    1,801
    
    
    
    1,926Furniture and equipment
    
    
    1,618
    
    
    
    1,877Loan and collection
    
    
    3,506
    
    
    
    810Advertising and promotional
    
    
    148
    
    
    
    376Goodwill impairment charge
    
    
    0
    
    
    
    7,955Telephone and communication services
    
    
    333
    
    
    
    354Other professional services
    
    
    1,128
    
    
    
    699Other general and administrative
    
    
    3,267
    
    
    
    2,253Total non-interest expense
    
    
    20,495
    
    
    
    26,750Income/(loss) from continuing operations before income tax
    
    
    (15,000
    )
    
    
    (14,417
    )Federal income tax expense/(benefit)
    
    
    994
    
    
    
    (2,448
    )Income/(loss) from continuing operations
    
    
    (15,994
    )
    
    
    (11,969
    )Net income/(loss) from discontinued operations, net of tax
    
    
    (986
    )
    
    
    (196
    )Net income (loss)
    
    $
    (16,980
    )
    
    $
    (12,165
    )Net income/(loss) per share from continuing operations:Basic and diluted
    
    $
    (7.25
    )
    
    $
    (5.51
    )Net income/(loss) per share from discontinued operations:Basic and diluted
    
    $
    (0.45
    )
    
    $
    (0.09
    )Net income/(loss) per shareBasic and diluted
    
    $
    (7.70
    )
    
    $
    (5.60
    )Cash dividends declared
    
    $
    0
    
    
    $
    0
 See accompanying notes to consolidated financial statements.
 3




---



##### 



2009
    
    
    2008Net loss
    
    $
    (16,980
    )
    
    $
    (12,165
    )Other comprehensive income (loss), net of tax:Unrealized holding gains (losses) arising during period
    
    
    1,432
    
    
    
    (3,126
    )Impairment loss recognized in income
    
    
    288
    
    
    
    843Change in unrealized gains (losses) on securities
available-for-sale for which a portion of an other than
temporary impairment has been recognized in earnings
    
    
    190
    
    
    
    0Reclassification adjustment for (gains) realized in income
    
    
    (12
    )
    
    
    0Tax effect
    
    
    (645
    )
    
    
    776Other comprehensive income (loss)
    
    
    1,253
    
    
    
    (1,507
    )Comprehensive income (loss)
    
    $
    (15,727
    )
    
    $
    (13,672
    )
 See accompanying notes to consolidated financial statements.
 4




---



##### 



AccumulatedOther
    
    TotalCommon
    
    Retained
    
    Comprehensive
    
    ShareholdersStock
    
    Earnings
    
    Income (Loss)
    
    EquityBalance, January 1, 2008
    
    $
    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 loss (net of tax)
    
    
    0
    
    
    
    0
    
    
    
    (1,507
    )
    
    
    (1,507
    )Balance, December 31, 2008
    
    $
    42,778
    
    
    $
    (4,677
    )
    
    $
    (1,977
    )
    
    $
    36,124Net loss
    
    
    0
    
    
    
    (16,980
    )
    
    
    0
    
    
    
    (16,980
    )Issuance of shares under stock
purchase and dividend reinvestment
plans (62,788 shares)
    
    
    135
    
    
    
    0
    
    
    
    0
    
    
    
    135Other comprehensive income (net of tax)
    
    
    0
    
    
    
    0
    
    
    
    1,253
    
    
    
    1,253Balance, December 31, 2009
    
    $
    42,913
    
    
    $
    (21,657
    )
    
    $
    (724
    )
    
    $
    20,532
 See accompanying notes to consolidated financial statements.
 5




---



##### 



2009
    
    
    2008OPERATING ACTIVITIES:Net loss
    
    $
    (16,980
    )
    
    $
    (12,165
    )Adjustments to reconcile net loss to cashProvided by Operating Activities:Stock compensation expense
    
    
    0
    
    
    
    8Depreciation and amortization
    
    
    1,077
    
    
    
    1,245Establishment of deferred tax asset valuation allowance
    
    
    6,464
    
    
    
    0Deferred income taxes
    
    
    (785
    )
    
    
    (2,866
    )Provision for loan losses
    
    
    14,723
    
    
    
    7,715Loans originated for sale
    
    
    (60,091
    )
    
    
    (24,609
    )Proceeds from the sale of loans
    
    
    60,717
    
    
    
    25,912Gain on sales of loans
    
    
    (767
    )
    
    
    (337
    )(Gain) loss on sale of securities
    
    
    (12
    )
    
    
    0Loss on sale of fixed assets
    
    
    0
    
    
    
    (118
    )Loss on sale of other real estate owned
    
    
    103
    
    
    
    (25
    )Write downs on other real estate owned
    
    
    1,410
    
    
    
    123Loss on equity investment
    
    
    1,360
    
    
    
    1,729Loss on security impairment
    
    
    288
    
    
    
    843Goodwill impairment charge
    
    
    0
    
    
    
    7,955Earnings from bank owned life insurance
    
    
    (142
    )
    
    
    (240
    )Net (increase) decrease in interest receivable & other assets
    
    
    (7,757
    )
    
    
    154Net increase (decrease) in interest payable & other liabilities
    
    
    1,675
    
    
    
    (1,937
    )Net change in discontinued operations operating activities
    
    
    307
    
    
    
    1,106Total Adjustments
    
    
    18,570
    
    
    
    16,658Net cash provided by (used in) operating activities
    
    
    1,590
    
    
    
    4,493Cash Flows From Investing Activities:Proceeds from maturities of securities  HTM
    
    
    1,303
    
    
    
    1,439Proceeds from maturities of securities  AFS
    
    
    11,295
    
    
    
    8,302Proceeds from calls of securities  HTM
    
    
    0
    
    
    
    0Proceeds from calls of securities  AFS
    
    
    3,830
    
    
    
    11,134Proceeds from sales of securities  AFS
    
    
    4,383
    
    
    
    1,999Purchases of securities  AFS
    
    
    (14,505
    )
    
    
    (7,068
    )Net decrease (increase) in loans
    
    
    53,607
    
    
    
    (4,970
    )Proceeds from bank owned life insurance
    
    
    203
    
    
    
    0Sales of other real estate owned
    
    
    2,052
    
    
    
    3,158Acquisition of premises and equipment, net
    
    
    (152
    )
    
    
    98Net change in discontinued operations investing activities
    
    
    2,691
    
    
    
    5,289Net cash provided by (used in) investing activities
    
    
    64,707
    
    
    
    19,381Cash Flows From Financing Activities:Net decrease in deposits
    
    
    (28,589
    )
    
    
    (31,284
    )Net increase (decrease) in short-term borrowings
    
    
    (1,336
    )
    
    
    851Net increase (decrease) in repurchase agreements
    
    
    0
    
    
    
    (5,000
    )Proceeds from/(repayment) of notes payable
    
    
    (1,000
    )
    
    
    1,000Purchase of advances from FHLB
    
    
    55,495
    
    
    
    126,615Repayments of advances from FHLB
    
    
    (60,221
    )
    
    
    (124,938
    )Net proceeds from stock issuance and repurchase
    
    
    135
    
    
    
    292Cash dividends
    
    
    0
    
    
    
    0Net change in discontinued operations financing activities
    
    
    (7,088
    )
    
    
    (491
    )Net cash provided by (used in) financing activities
    
    
    (42,604
    )
    
    
    (32,955
    )Net change in cash and cash equivalents
    
    
    23,693
    
    
    
    (9,081
    )Cash and cash equivalents-Beginning
    
    $
    20,953
    
    
    $
    30,034Cash and cash equivalents-Ending
    
    $
    44,646
    
    
    $
    20,953Less cash and cash equivalents of discontinued operations at year end
    
    
    2,537
    
    
    
    7,327Cash and cash equivalents of continuing operations at year end
    
    $
    42,109
    
    
    $
    13,626Cash paid for (received from):Interest
    
    $
    10,285
    
    
    $
    17,576Income taxes
    
    $
    139
    
    
    $
    (113
    )Non-cash disclosures:Transfers from loans to other real estate
    
    $
    5,549
    
    
    $
    7,992
 See accompanying notes to consolidated financial statements.
 6




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##### 



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




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Securities
   Loans
   Allowance for Loan Losses
 8




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   Other Real Estate Owned and Foreclosed Assets
 Premises and Equipment
 Federal Home Loan Bank (FHLB) stock
 Equity
Investment:
 Long-term Assets
 Bank Owned Life Insurance
 9




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Goodwill
 Acquisition Intangibles
 Stock Based Compensation
 Income Taxes
   Loan Commitments and Financial Instruments
 Earnings (loss) Per Common Share
 10




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Comprehensive Income
 Loss Contingencies
 Restrictions on Cash
 Dividend Restrictions
 Fair Value of Financial Instruments
 Operating Segments :
 Reclassifications
 New Accounting Pronouncements:
  Business Combinations
 11




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Non-controlling Interest in Consolidated
Financial Statements
 Recognition and Presentation of
Other-Than-Temporary Impairments,
    12




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Newly Issued But Not Yet Effective Standards:
   13




---



##### 



NOTE 2  EARNINGS PER SHARE
  (000s omitted except share and per share data)
    
    2009
    
    
    2008BasicNet income (loss)
    
    $
    (16,980
    )
    
    $
    (12,165
    )Weighted average common shares outstanding
    
    
    2,205,419
    
    
    
    2,174,226Basic earnings (loss) per common share
    
    $
    (7.70
    )
    
    $
    (5.60
    )DilutedNet income (loss)
    
    $
    (16,980
    )
    
    $
    (12,165
    )Weighted average common shares outstanding
for basic earnings per common share
    
    
    2,205,419
    
    
    
    2,174,226Add: Dilutive effects of assumed exercises of
stock options
    
    
    0
    
    
    
    0Average shares and dilutive potential
common shares
    
    
    2,205,419
    
    
    
    2,174,226Diluted earnings (loss) per common share
    
    $
    (7.70
    )
    
    $
    (5.60
    )
  (000s omitted except share and per share data)
    
    2009
    
    
    2008BasicNet income (loss) of continuing operations
    
    $
    (15,994
    )
    
    $
    (11,969
    )Weighted average common shares outstanding
    
    
    2,205,419
    
    
    
    2,174,226Basic earnings (loss) per common share
from continuing operations
    
    $
    (7.25
    )
    
    $
    (5.50
    )DilutedNet income (loss) of continuing operations
    
    $
    (15,994
    )
    
    $
    (11,969
    )Weighted average common shares outstanding
for basic earnings per common share
    
    
    2,205,419
    
    
    
    2,174,226Add: Dilutive effects of assumed exercises of
stock options
    
    
    0
    
    
    
    0Average shares and dilutive potential
common shares
    
    
    2,205,419
    
    
    
    2,174,226Diluted earnings (loss) per common share from continuing operations
    
    $
    (7.25
    )
    
    $
    (5.50
    )
  14




---



##### 



NOTE 3  SECURITIES
  Available for Sale
    
    
    
    
    
    Gross Unrealized
    
    
    Gross Unrealized(000s omitted)
    
    Amortized Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value2009U.S. Government & federal agency
    
    $
    6,543
    
    
    $
    38
    
    
    $
    (67
    )
    
    
    $6,514State and municipal
    
    
    7,034
    
    
    
    102
    
    
    
    (41
    )
    
    
    7,095Mortgage-backed residential
    
    
    13,482
    
    
    
    298
    
    
    
    0
    
    
    
    13,780Collateralized mortgage obligations
    
    
    15,369
    
    
    
    199
    
    
    
    (878
    )
    
    
    14,690Equity securities
    
    
    1,971
    
    
    
    21
    
    
    
    (463
    )
    
    
    1,529$
    44,399
    
    
    $
    658
    
    
    $
    (1,449
    )
    
    
    $43,6082008U.S. Government & federal agency
    
    $
    8,000
    
    
    $
    187
    
    
    $
    0
    
    
    $
    8,187State and municipal
    
    
    7,883
    
    
    
    40
    
    
    
    (161
    )
    
    
    7,762Mortgage-backed residential
    
    
    16,919
    
    
    
    83
    
    
    
    (147
    )
    
    
    16,855Collateralized mortgage obligations
    
    
    14,338
    
    
    
    43
    
    
    
    (1,857
    )
    
    
    12,524Equity securities
    
    
    2,563
    
    
    
    0
    
    
    
    (826
    )
    
    
    1,737$
    49,703
    
    
    $
    353
    
    
    $
    (2,991
    )
    
    
    $47,065
 Held to Maturity
    
    
    
    
    
    Gross Unrealized
    
    
    Gross Unrealized(000s omitted)
    
    Amortized Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value2009State and municipal
    
    $
    5,455
    
    
    $
    55
    
    
    $
    (18
    )
    
    $
    5,492Mortgage-backed residential
    
    
    1
    
    
    
    0
    
    
    
    0
    
    
    
    1$
    5,456
    
    
    $
    55
    
    
    $
    (18
    )
    
    $
    5,4932008State and municipal
    
    $
    6,762
    
    
    $
    255
    
    
    $
    (10
    )
    
    $
    7,007Mortgage-backed residential
    
    
    3
    
    
    
    0
    
    
    
    0
    
    
    
    3$
    6,765
    
    
    $
    255
    
    
    $
    (10
    )
    
    $
    7,010
 Sales of available for sale securities were as follows:
 (000s omitted)
    
    2009
    
    
    2008Proceeds
    
    $
    4,383
    
    
    $
    1,999Gross gains
    
    
    12
    
    
    
    0Gross losses
    
    
    0
    
    
    
    0
 15




---



##### 



NOTE 3  SECURITIES
  Available for Sale
    
    
    Held to MaturityAmortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair(000s omitted)
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    ValueDue in one year or less
    
    $
    2,000
    
    
    $
    2,038
    
    
    $
    721
    
    
    $
    726Due from one to five years
    
    
    2,026
    
    
    
    2,021
    
    
    
    2,601
    
    
    
    2,628Due from five to ten years
    
    
    5,276
    
    
    
    5,314
    
    
    
    1,765
    
    
    
    1,768Due after ten years
    
    
    4,275
    
    
    
    4,236
    
    
    
    368
    
    
    
    370Mortgage-backed and CMOs
    
    
    28,851
    
    
    
    28,470
    
    
    
    1
    
    
    
    1Equity securities
    
    
    1,971
    
    
    
    1,529
    
    
    
    0
    
    
    
    0$
    44,399
    
    
    $
    43,608
    
    
    $
    5,456
    
    
    $
    5,493
  At year-end 2009 holdings totaling $2,406,000 in securities issued by Wells Fargo exceed 10% of
shareholders equity. At year end 2008 there were no holdings of securities of any one issuer,
other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders
equity.
  2009
    
    Less than 12 months
    
    
    12 months or more
    
    
    Total(000s omitted)
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDescription of Securities
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossUS Govt & federal agencies
    
    $
    3,475
    
    
    $
    (67
    )
    
    $
    0
    
    
    $
    0
    
    
    $
    3,475
    
    
    $
    (67
    )State & municipal
    
    
    497
    
    
    
    (18
    )
    
    
    659
    
    
    
    (41
    )
    
    
    1,156
    
    
    
    (59
    )Collateralized Mortgage
Obligations
    
    
    0
    
    
    
    0
    
    
    
    4,872
    
    
    
    (878
    )
    
    
    4,872
    
    
    
    (878
    )Equity securities
    
    
    0
    
    
    
    0
    
    
    
    1,009
    
    
    
    (463
    )
    
    
    1,009
    
    
    
    (463
    )Total temporarily impaired
    
    $
    3,972
    
    
    $
    (85
    )
    
    $
    6,540
    
    
    $
    (1,382
    )
    
    $
    10,512
    
    
    $
    (1,467
    )
 2008
    
    Less than 12 months
    
    
    12 months or more
    
    
    Total(000s omitted)
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDescription of Securities
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossState & municipal
    
    $
    2,881
    
    
    $
    (91
    )
    
    $
    1,663
    
    
    $
    (80
    )
    
    $
    4,544
    
    
    $
    (171
    )Mortgage-backed & CMOs
    
    
    4,060
    
    
    
    (83
    )
    
    
    19,067
    
    
    
    (1,921
    )
    
    
    23,127
    
    
    
    (2,004
    )Equity securities
    
    
    1,049
    
    
    
    (598
    )
    
    
    188
    
    
    
    (228
    )
    
    
    1,237
    
    
    
    (826
    )Total temporarily impaired
    
    $
    7,990
    
    
    $
    (772
    )
    
    $
    20,918
    
    
    $
    (2,229
    )
    
    $
    28,908
    
    
    $
    (3,001
    )
 16




---



##### 



NOTE 3  SECURITIES
 Other-Than-Temporary-Impairment
    (000s omitted)Beginning balance, January 1, 2009
    
    $
    0Amounts related to credit loss for which an other-than-temporary
impairment was not previously recognized
    
    
    288Ending balance, December 31, 2009
    
    $
    288
    17




---



##### 



NOTE 3  SECURITIES
  Collateralized Mortgage Obligations and Equity Securities
    18




---



##### 



NOTE 3  SECURITIES
   Other Securities
  NOTE 4  LOANS
  (000s omitted)
    
    2009
    
    
    2008Commercial
    
    $
    81,425
    
    
    $
    102,167Real estate  commercial
    
    
    171,339
    
    
    
    187,356Real estate  construction
    
    
    26,295
    
    
    
    48,777Real estate  mortgage
    
    
    28,058
    
    
    
    37,828Consumer
    
    
    48,313
    
    
    
    52,910355,430
    
    
    
    429,038Less allowance for loan losses
    
    
    10,726
    
    
    
    10,455$
    344,704
    
    
    $
    418,583
   19




---



##### 



NOTE 4  LOANS
   (000s omitted)
    
    2009
    
    
    2008Balance, beginning of year
    
    $
    10,455
    
    
    $
    7,592Provision for loan losses
    
    
    14,723
    
    
    
    7,715Loans charged off
    
    
    (14,806
    )
    
    
    (5,404
    )Loan recoveries
    
    
    354
    
    
    
    552Balance, end of year
    
    $
    10,726
    
    
    $
    10,455
  (000s omitted)
    
    2009
    
    
    2008Year end loans not requiring allocation
    
    $
    15,874
    
    
    $
    17,520Year end loans requiring allocation
    
    
    23,059
    
    
    
    26,018$
    38,933
    
    
    $
    43,538Amount of the allowance for loan losses allocated
    
    $
    5,683
    
    
    $
    4,784
 2009
    
    
    2008Average of individually impaired loans during the year
    
    $
    39,928
    
    
    $
    42,998Cash basis interest income recognized during
impairment
    
    
    1,706
    
    
    
    1,727
  (000s omitted)
    
    2009
    
    
    2008Loans past due over 90 days still on accrual
    
    $
    319
    
    
    $
    667Renegotiated loans
    
    
    3,823
    
    
    
    942Non-accrual loans
    
    
    19,241
    
    
    
    22,574
   20




---



##### 



NOTE 5  OTHER REAL ESTATE OWNED
  (000s omitted)
    
    2009
    
    
    2008Beginning balance
    
    $
    5,983
    
    
    $
    1,473Transfers into other real estate
    
    
    5,549
    
    
    
    7,792Sales of other real estate owned
    
    
    (2,155
    )
    
    
    (3,159
    )Write downs of other real estate owned
    
    
    (1,410
    )
    
    
    (123
    )Ending balance
    
    $
    7,967
    
    
    $
    5,983
  NOTE 6  PREMISES AND EQUIPMENT, NET
  (000s omitted)
    
    2009
    
    
    2008Land and land improvements
    
    $
    5,093
    
    
    $
    5,093Building and building improvements
    
    
    14,568
    
    
    
    14,532Furniture and equipment
    
    
    9,850
    
    
    
    9,743Construction in progress
    
    
    9
    
    
    
    029,520
    
    
    
    29,368Less accumulated depreciation
    
    
    13,606
    
    
    
    12,489$
    15,914
    
    
    $
    16,879
   2010
    
    $
    1722011
    
    
    1262012
    
    
    812013
    
    
    72014
    
    
    0$
    386
 21




---



##### 



NOTE 7  GOODWILL AND INTANGIBLE ASSETS
 Goodwill
  Acquired Intangible Assets
  Gross CarryingAmortized intangible assets
    
    Amounts
    
    
    Accumulated Amortization2009
    
    
    2008Core deposit assets
    
    $
    1,509
    
    
    $
    1,352
    
    
    $
    1,216
   2010
    
    $
    942011
    
    
    522012
    
    
    11
  NOTE 8  DEPOSITS
  (000s omitted)
    
    2009
    
    
    2008Noninterest-bearing:Demand
    
    $
    64,530
    
    
    $
    64,325Interest-bearing:Savings
    
    
    67,973
    
    
    
    66,558Money market demand
    
    
    90,047
    
    
    
    100,886Time, $100,000 and over
    
    
    109,955
    
    
    
    130,591Time, $100,000 and under
    
    
    108,270
    
    
    
    107,004$
    440,775
    
    
    $
    469,364
 22




---



##### 



NOTE 8  DEPOSITS
  (000s omitted)
    
    2009
    
    
    2008In one year
    
    $
    136,574
    
    
    $
    122,556In two years
    
    
    44,355
    
    
    
    55,754In three years
    
    
    26,661
    
    
    
    28,453In four years
    
    
    5,564
    
    
    
    25,159In five years
    
    
    4,895
    
    
    
    5,610Thereafter
    
    
    176
    
    
    
    63$
    218,225
    
    
    $
    237,595
    NOTE 9  BORROWINGS
 Short-Term Borrowings
  Federal Home Loan Bank Advances
  (000s omitted)Principal Terms
    
    Advance Amount
    
    
    Range of MaturitiesDecember 31, 2009Single Maturity fixed rate advances, with rates from 2.94%-7.34%,
averaging 4.44%
    
    $
    7,981
    
    
    September 2010 to May 2016December 31, 2008Single Maturity fixed rate advances, with rates from 2.74%-7.34%,
averaging 4.01%
    
    $
    11,007
    
    
    January 2009 to May 2016Single maturity variable rate advances at .65% at December 31, 2008.
    
    $
    1,700
    
    
    June 2009Total advances
    
    $
    12,707
 23




---



##### 



NOTE 9  BORROWINGS
   2010
    
    $
    2,0282011
    
    
    5,0302012
    
    
    332013
    
    
    352014
    
    
    39Thereafter
    
    
    816$
    7,981
 Note Payable
  Repurchase Agreements
   (000s omitted)
    
    2009
    
    
    2008Average daily balance during the year
    
    $
    0
    
    
    $
    2,377Average interest rate during the year
    
    
    0.00
    %
    
    
    2.67
    %Maximum month-end balance during the year
    
    $
    0
    
    
    $
    5,000Weighted average interest rate at year-end
    
    
    0.00
    %
    
    
    0.00
    %
 Subordinated Debenture and Trust Preferred Securities
   24




---



##### 



NOTE 9  BORROWINGS
   NOTE 10  INCOME TAXES
  (000s omitted)
    
    2009
    
    
    2008Current expense (benefit) of continuing operations
    
    $
    (4,685
    )
    
    $
    418Deferred expense (benefit) of continuing operations
    
    
    (785
    )
    
    
    (2,866
    )Valuation allowance establishment
    
    
    6,464
    
    
    
    0Net tax from continuing operations
    
    
    994
    
    
    
    (2,448
    )Net tax expense (benefit) of discontinued operations
    
    
    (275
    )
    
    
    (142
    )$
    719
    
    
    $
    (2,590
    )
  (000s omitted)
    
    2009
    
    
    2008Income tax at statutory rate
    
    $
    (5,101
    )
    
    $
    (4,902
    )Valuation allowance
    
    
    6,570
    
    
    
    0Goodwill impairment
    
    
    0
    
    
    
    2,705Tax exempt income
    
    
    (202
    )
    
    
    (202
    )Other
    
    
    (273
    )
    
    
    (49
    )$
    994
    
    
    $
    (2,448
    )
 25




---



##### 



NOTE 10  INCOME TAXES
  (000s omitted)
    
    2009
    
    
    2008Deferred tax assetsAllowance for loan losses
    
    $
    3,877
    
    
    $
    4,003Alternative minimum tax credit
    
    
    622
    
    
    
    0Unrealized loss on securities available for sale
    
    
    372
    
    
    
    1,193Compensation
    
    
    415
    
    
    
    481Non-accrual interest
    
    
    173
    
    
    
    618Equity investment
    
    
    0
    
    
    
    656Capital loss
    
    
    1,390
    
    
    
    287ORE write downs
    
    
    418
    
    
    
    182Other
    
    
    408
    
    
    
    1097,675
    
    
    
    7,529Deferred tax liabilitiesDepreciation
    
    
    (578
    )
    
    
    (518
    )Purchase accounting adjustments
    
    
    (253
    )
    
    
    (300
    )Other
    
    
    (93
    )
    
    
    (93
    )(924
    )
    
    
    (911
    )Valuation allowance
    
    
    (6,751
    )
    
    
    0$
    0
    
    
    $
    6,618
    26




---



##### 



NOTE 11  BENEFIT PLANS
    NOTE 12  STOCK PURCHASE AND OPTION PLANS
 Director and Employee Plans
    Dividend Investment Plan
  27




---



##### 



NOTE 12  STOCK PURCHASE AND OPTION PLANS
   2009
    
    2008Automatic dividend reinvestment plan
    
    
    0
    
    
    
    4,293Director stock purchase & retainer stock
    
    
    59,360
    
    
    
    16,140Stock options
    
    
    0
    
    
    
    0Other issuance of stock
    
    
    3,428
    
    
    
    1,94762,788
    
    
    
    22,380
 Stock Option Plans
    28




---



##### 



NOTE 12  STOCK PURCHASE AND OPTION PLANS
 :
 WeightedAverageRemainingNumber of
    
    
    Weighted
    
    
    Contractual
    
    
    AggregateOptions
    
    
    Average Price
    
    
    Life
    
    
    Intrinsic ValueOptions outstanding at January 1, 2009
    
    
    26,597
    
    
    $
    29.85Options forfeited 2009
    
    
    (6,300
    )
    
    
    30.80Options outstanding at December 31, 2009
    
    
    20,297
    
    
    $
    29.55
    
    
    
    3.37
    
    
    $
    0Exercisable at December 31, 2009
    
    
    20,297
    
    
    $
    29.55
    
    
    
    3.37
    
    
    $
    0
  NOTE 13  FAIR VALUE
      Impaired Loans:
 29




---



##### 



NOTE 13  FAIR VALUE
  Other Real Estate Owned:
 Assets and Liabilities Measured on a Recurring Basis
  Fair Value Measurements UsingQuoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable Inputs(000s omitted)
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:December 31, 2009Available for sale securitiesUS Government and agency
    
    $
    6,514
    
    
    $
    0
    
    
    $
    6,514
    
    
    $
    0State and municipal
    
    
    7,095
    
    
    
    0
    
    
    
    7,095
    
    
    
    0Mortgage-backed residential
    
    
    13,780
    
    
    
    0
    
    
    
    13,780
    
    
    
    0Collateralized mortgage obligations
    
    
    14,690
    
    
    
    0
    
    
    
    14,690
    
    
    
    0Equity securities
    
    
    1,529
    
    
    
    18
    
    
    
    1,511
    
    
    
    0$
    43,608
    
    
    $
    18
    
    
    $
    43,590
    
    
    $
    0
 Fair Value Measurements UsingQuoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable Inputs(000s omitted)
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:December 31, 2008Available for sale securitiesUS Government and agency
    
    $
    8,187
    
    
    $
    0
    
    
    $
    8,187
    
    
    $
    0State and municipal
    
    
    7,762
    
    
    
    0
    
    
    
    7,762
    
    
    
    0Mortgage-backed residential
    
    
    16,855
    
    
    
    0
    
    
    
    16,855
    
    
    
    0Collateralized mortgage obligations
    
    
    12,524
    
    
    
    0
    
    
    
    12,524
    
    
    
    0Equity securities
    
    
    1,737
    
    
    
    8
    
    
    
    500
    
    
    
    1,229$
    47,065
    
    
    $
    8
    
    
    $
    45,828
    
    
    $
    1,229
 30




---



##### 



NOTE 13  FAIR VALUE
  Fair Value Measurements UsingSignificant Unobservable Inputs(Level 3)(000s omitted)
    
    Asset
    
    
    Liability
    
    
    TotalBeginning balance, Jan. 1, 2009
    
    $
    1,229
    
    
    $
    0
    
    
    $
    1,229Total gains or losses (realized / unrealized)Included in earnings
    
    
    7
    
    
    
    0
    
    
    
    7Loss on security impairment
    
    
    (208
    )
    
    
    0
    
    
    
    (208
    )Included in other comprehensive income
    
    
    357
    
    
    
    0
    
    
    
    357Purchases, issuances and settlementsTransfers in and / or out of Level 3
    
    
    (1,385
    )
    
    
    0
    
    
    
    (1,385
    )Ending balance, December 31, 2009
    
    $
    0
    
    
    $
    0
    
    
    $
    0
  Fair Value Measurements UsingSignificant Unobservable Inputs(Level 3)(000s omitted)
    
    Asset
    
    
    Liability
    
    
    TotalBeginning balance, Jan. 1, 2008
    
    $
    2,721
    
    
    $
    0
    
    
    $
    2,721Total gains or losses (realized / unrealized)Included in earnings
    
    
    0
    
    
    
    0
    
    
    
    0Loss on security impairment
    
    
    (843
    )
    
    
    0
    
    
    
    (843
    )Included in other comprehensive income
    
    
    (649
    )
    
    
    0
    
    
    
    (649
    )Purchases, issuances and settlementsTransfers in and / or out of Level 3
    
    
    0
    
    
    
    0
    
    
    
    0Ending balance, December 31, 2008
    
    $
    1,229
    
    
    $
    0
    
    
    $
    1,229
 31




---



##### 



NOTE 13  FAIR VALUE
 Assets and Liabilities Measured on a Non-Recurring Basis
  Quoted Pricesin Active Marketsfor Identical
    
    Significant Other
    
    SignificantAssets
    
    Observable Inputs
    
    Unobservable Inputs(000s omitted)
    
    Total
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Assets:At December 31, 2009Impaired loans
    
    $
    17,376
    
    
    $
    0
    
    
    $
    0
    
    
    $
    17,376Other real estate owned
    
    
    1,274
    
    
    
    0
    
    
    
    0
    
    
    
    1,274At December 31, 2008Impaired loans
    
    $
    21,234
    
    
    $
    0
    
    
    $
    0
    
    
    $
    21,234Other real estate owned
    
    
    470
    
    
    
    0
    
    
    
    0
    
    
    
    470
    32




---



##### 



NOTE 13  FAIR VALUE
  2009
    
    2008(000s omitted)
    
    Carrying Amount
    
    Fair Value
    
    Carrying Amount
    
    Fair ValueAssets:Cash and cash equivalents
    
    $
    42,109
    
    
    $
    42,109
    
    
    $
    13,626
    
    
    $
    13,626Securities  held to maturity
    
    
    5,456
    
    
    
    5,493
    
    
    
    6,765
    
    
    
    7,010FHLB stock
    
    
    1,900
    
    
    
    n/a
    
    
    
    1,900
    
    
    
    n/aLoans held for sale
    
    
    831
    
    
    
    831
    
    
    
    690
    
    
    
    690Loans (including impaired loans)
    
    
    344,704
    
    
    
    326,422
    
    
    
    418,583
    
    
    
    408,387Accrued interest receivable
    
    
    1,813
    
    
    
    1,813
    
    
    
    2,231
    
    
    
    2,231Liabilities:Deposits
    
    $
    440,775
    
    
    $
    441,827
    
    
    $
    469,364
    
    
    $
    471,652Short-term borrowings
    
    
    164
    
    
    
    164
    
    
    
    1,500
    
    
    
    1,500FHLB advances
    
    
    7,981
    
    
    
    8,488
    
    
    
    12,707
    
    
    
    12,505Subordinated debentures
    
    
    14,000
    
    
    
    12,656
    
    
    
    14,000
    
    
    
    14,061Note payable
    
    
    0
    
    
    
    0
    
    
    
    1,000
    
    
    
    1,000Accrued interest payable
    
    
    892
    
    
    
    892
    
    
    
    590
    
    
    
    590
  Cash and cash equivalents
  Securities
  FHLB Stock
  Loans held for sale
  Loans
  33




---



##### 



NOTE 13  FAIR VALUE
 Off-balance-sheet instruments
  Deposit liabilities
  Short-term borrowings
  FHLB advances
  Subordinated Debentures
  Limitations
  34




---



##### 



NOTE 14-DISCONTINUED OPERATIONS
   DAVISON STATE BANK
CONDENSED BALANCE SHEET OF DISCONTINUED OPERATIONS
 Dec 31,
    
    
    Dec 31,(000s omitted)
    
    2009
    
    
    2008ASSETSCash and cash equivalents
    
    $
    2,537
    
    
    $
    7,327Securities  available for sale
    
    
    7,082
    
    
    
    5,657Securities  held to maturity
    
    
    405
    
    
    
    1,190Loans, net of allowance ($678-2009, $1,318-2008)
    
    
    24,396
    
    
    
    28,954Other assets
    
    
    3,499
    
    
    
    2,522Total assets
    
    $
    37,919
    
    
    $
    45,650LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Non-interest bearing
    
    $
    9,012
    
    
    $
    9,361Interest bearing
    
    
    26,265
    
    
    
    31,004Total deposits
    
    
    35,277
    
    
    
    40,365Federal Home Loan Bank advances
    
    
    0
    
    
    
    2,000Accrued taxes, interest and other liabilities
    
    
    (60
    )
    
    
    (191
    )Shareholders equity
    
    
    2,702
    
    
    
    3,476Total liabilities and shareholders equity
    
    $
    37,919
    
    
    $
    45,650
 35




---



##### 



NOTE 14-DISCONTINUED OPERATIONS
 DAVISON STATE BANK
CONDENSED STATEMENT OF INCOME OF DISCONTINUED OPERATIONS
 Years EndedDecember 31(000s omitted)
    
    2009
    
    
    2008Interest income
    
    $
    2,023
    
    
    $
    2,622Interest expense
    
    
    642
    
    
    
    976Net interest income
    
    
    1,381
    
    
    
    1,646Provision for loan losses
    
    
    505
    
    
    
    687Net interest income after provision for loan losses
    
    
    876
    
    
    
    959Non-interest income
    
    
    563
    
    
    
    666Non-interest expense
    
    
    2,700
    
    
    
    1,963Income (loss) before federal income tax
    
    
    (1,261
    )
    
    
    (338
    )Federal income tax expense/(benefit)
    
    
    (275
    )
    
    
    (142
    )Net income (loss)
    
    $
    (986
    )
    
    $
    (196
    )
 NOTE 15  REGULATORY MATTERS
    36




---



##### 



NOTE 15  REGULATORY MATTERS
      37




---



##### 



NOTE 15  REGULATORY MATTERS
 For Capital
    
    RegulatoryAdequacy
    
    AgreementActual
    
    Purposes
    
    Requirements(000s omitted)
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of December 31, 2009Total Capital
(to Risk Weighted Assets)Consolidated
    
    $
    33,661
    
    
    
    7.8
    %
    
    $
    34,636
    
    
    
    8.0
    %
        
    NA
              
    NAThe State Bank
    
    
    24,334
    
    
    
    8.9
    
    
    
    21,961
    
    
    
    8.0
    
    
    $
    32,810
    
    
    
    12.0
    %(1)Davison State Bank
    
    
    3,328
    
    
    
    9.9
    
    
    
    2,692
    
    
    
    8.0
    

        
    NA
              
    NAWest Michigan Community Bank
    
    
    11,841
    
    
    
    9.4
    
    
    
    10,063
    
    
    
    8.0
    

        
    NA
              
    NATier 1 Capital(to Risk Weighted Assets)Consolidated



    
    
    28,164
    
    
    
    6.5
    
    
    
    17,318
    
    
    
    4.0
    

        
    NA
              
    NAThe State Bank
    
    
    20,830
    
    
    
    7.6
    
    
    
    10,981
    
    
    
    4.0
    

        
    NA
              
    NADavison State Bank
    
    
    2,904
    
    
    
    8.6
    
    
    
    1,346
    
    
    
    4.0
    

        
    NA
              
    NAWest Michigan Community
Bank
    
    
    10,262
    
    
    
    8.2
    
    
    
    5,031
    
    
    
    4.0
    
        
    NA
              
    NATier 1 Capital

(to Average Assets)Consolidated
    
    
    28,164
    
    
    
    5.0
    
    
    
    22,491
    
    
    
    4.0
    
        
    NA
              
    NAThe State Bank
    
    
    20,830
    
    
    
    6.2
    
    
    
    13,535
    
    
    
    4.0
    
    
    
    27,069
    
    
    
    8.0Davison State Bank
    
    
    2,904
    
    
    
    7.2
    
    
    
    1,620
    
    
    
    4.0
    
    
    
    3,240
    
    
    
    8.0West Michigan Community
Bank
    
    
    10,262
    
    
    
    6.9
    
    
    
    5,923
    
    
    
    4.0
    
    
    
    11,845
    
    
    
    8.0
 
 (1)
    
    Effective April 10, 2010 38




---



##### 



NOTE 15  REGULATORY MATTERS
 To Be WellFor Capital
    
    Capitalized UnderAdequacy
    
    Prompt CorrectiveActual
    
    Purposes
    
    Action Provisions(000s omitted)
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of December 31, 2008Total 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
 NOTE 16  LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES
 Off-balance-sheet risk
   (000s omitted)
    
    2009
    
    2008Commitments to make loans (at market rates)
    
    $
    2,939
    
    
    $
    25,898Unused lines of credit and letters of credit
    
    
    53,941
    
    
    
    46,786
 39




---



##### 



NOTE 16  LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES
  NOTE 17  PARENT ONLY CONDENSED FINANCIAL INFORMATION
  
 2009
    
    
    2008ASSETSCash and cash equivalents
    
    $
    319
    
    
    $
    814Securities available for sale, at fair value
    
    
    1,009
    
    
    
    1,237Equity investment
    
    
    0
    
    
    
    1,360Other assets
    
    
    448
    
    
    
    773Investment in subsidiaries
    
    
    33,001
    
    
    
    47,103Total Assets
    
    $
    34,777
    
    
    $
    51,287LIABILITIES AND SHAREHOLDERS EQUITYOther liabilities
    
    $
    245
    
    
    $
    163Subordinated debt
    
    
    14,000
    
    
    
    14,000Other borrowings
    
    
    0
    
    
    
    1,000Shareholders equity
    
    
    20,532
    
    
    
    36,124Total liabilities and shareholders equity
    
    $
    34,777
    
    
    $
    51,287
 
 2009
    
    
    2008Other income (loss) on equity investment
    
    $
    (1,360
    )
    
    $
    (1,729
    )Dividends from subsidiaries
    
    
    750
    
    
    
    400Interest expense
    
    
    (620
    )
    
    
    (976
    )Operating expenses
    
    
    (1,408
    )
    
    
    (1,178
    )Dividends in excess of earnings
    
    
    (15,069
    )
    
    
    (9,217
    )Income/(loss) before income taxes
    
    
    (17,707
    )
    
    
    (12,700
    )Federal income tax expense (benefit)
    
    
    (727
    )
    
    
    (535
    )Net income (loss)
    
    $
    (16,980
    )
    
    $
    (12,165
    )
 40




---



##### 



NOTE 17  PARENT ONLY CONDENSED FINANCIAL INFORMATION
 
 2009
    
    2008Cash flows from operating activitiesNet income (loss)
    
    $
    (16,980
    )
    
    $
    (12,165
    )Change in other assets
    
    
    (86
    )
    
    
    67Change in other liabilities
    
    
    81
    
    
    
    (312
    )Dividends in excess of earnings
    
    
    15,069
    
    
    
    9,217Loss on security impairment
    
    
    908
    
    
    
    843Net loss of equity investment
    
    
    1,360
    
    
    
    1,729Net cash from (used in) operating activities
    
    
    352
    
    
    
    (621
    )Cash flows provided by investing activitiesEquity investment
    
    
    0
    
    
    
    0Sale of equity security
    
    
    383
    
    
    
    0Purchases of securities-AFS
    
    
    0
    
    
    
    0Investment in subsidiary
    
    
    (365
    )
    
    
    (700
    )Net cash from (used in) investing activities
    
    
    18
    
    
    
    (700
    )Cash flows used in financing activitiesIssuance of subordinated debt
    
    
    0
    
    
    
    0Net short-term borrowings
    
    
    (1,000
    )
    
    
    1,000Dividends paid
    
    
    0
    
    
    
    0Stock repurchase
    
    
    0
    
    
    
    0Proceeds from stock issuance
    
    
    135
    
    
    
    293Net cash from (used in) financing activities
    
    
    (865
    )
    
    
    1,292Change in cash and cash equivalents
    
    
    (495
    )
    
    
    (28
    )Cash and cash equivalents at beginning of year
    
    
    814
    
    
    
    842Cash and cash equivalents at end of year
    
    $
    319
    
    
    $
    814
 NOTE 18  GOING CONCERN
   41




---



##### 



NOTE 18  GOING CONCERN
      42




---



##### 



Managements Discussion and Analysis of Financial Condition and Results of Operations
  TABLE 1
 Selected Financial Data
 000s omitted except per share data and ratios
    
    2009
    
    2008
    
    2007
    
    2006
    
    2005Summary of Consolidated Statements of Income:Interest income
    
    $
    26,150
    
    
    $
    30,520
    
    
    $
    36,023
    
    
    $
    36,448
    
    
    $
    30,640Interest expense
    
    
    10,587
    
    
    
    14,052
    
    
    
    17,361
    
    
    
    15,582
    
    
    
    10,310Net interest income
    
    
    15,563
    
    
    
    16,468
    
    
    
    18,662
    
    
    
    20,866
    
    
    
    20,330Provision for loan losses
    
    
    14,723
    
    
    
    7,715
    
    
    
    6,795
    
    
    
    1,120
    
    
    
    1,189Net interest income after provision
    
    
    840
    
    
    
    8,753
    
    
    
    11,867
    
    
    
    19,746
    
    
    
    19,141Total other operating income
    
    
    4,655
    
    
    
    3,580
    
    
    
    6,668
    
    
    
    6,824
    
    
    
    6,567Total other operating expense
    
    
    20,495
    
    
    
    26,750
    
    
    
    19,650
    
    
    
    19,758
    
    
    
    18,905Income (loss) before income taxes
    
    
    (15,000
    )
    
    
    (14,417
    )
    
    
    (1,115
    )
    
    
    6,812
    
    
    
    6,803Federal income taxes (benefit)
    
    
    994
    
    
    
    (2,448
    )
    
    
    (627
    )
    
    
    2,020
    
    
    
    2,090Income (loss) from continuing operations
    
    
    (15,994
    )
    
    
    (11,969
    )
    
    
    (488
    )
    
    
    4,792
    
    
    
    4,713Discontinued operations, net of tax
    
    
    (986
    )
    
    
    (196
    )
    
    
    21
    
    
    
    516
    
    
    
    341Net income (loss)
    
    $
    (16,980
    )
    
    $
    (12,165
    )
    
    $
    (467
    )
    
    $
    5,308
    
    
    $
    5,054Earnings per share  basic*
    
    $
    (7.70
    )
    
    $
    (5.60
    )
    
    $
    (0.22
    )
    
    $
    2.48
    
    
    $
    2.41Earnings per share  diluted*
    
    $
    (7.70
    )
    
    $
    (5.60
    )
    
    $
    (0.22
    )
    
    $
    2.47
    
    
    $
    2.40Summary of Consolidated Balance Sheets:Assets
    
    $
    522,079
    
    
    $
    578,604
    
    
    $
    628,019
    
    
    $
    622,298
    
    
    $
    619,089Securities, including FHLB stock
    
    
    50,964
    
    
    
    55,730
    
    
    
    77,120
    
    
    
    94,873
    
    
    
    107,609Loans, including loans held for sale
    
    
    345,535
    
    
    
    419,273
    
    
    
    432,126
    
    
    
    413,628
    
    
    
    393,730Deposits
    
    
    440,775
    
    
    
    469,364
    
    
    
    500,647
    
    
    
    482,904
    
    
    
    478,192Borrowings
    
    
    22,145
    
    
    
    29,207
    
    
    
    16,680
    
    
    
    22,552
    
    
    
    25,764Shareholders equity
    
    
    20,532
    
    
    
    36,124
    
    
    
    49,496
    
    
    
    51,318
    
    
    
    46,895Other Financial and Statistical Data:Tier 1 capital to risk weighted assets
    
    
    6.50
    %
    
    
    10.20
    %
    
    
    10.40
    %
    
    
    11.30
    %
    
    
    10.60
    %Total capital to risk weighted assets
    
    
    7.80
    %
    
    
    11.40
    %
    
    
    11.60
    %
    
    
    12.50
    %
    
    
    11.90
    %Tier 1 capital to average assets
    
    
    5.00
    %
    
    
    8.80
    %
    
    
    9.00
    %
    
    
    8.60
    %
    
    
    8.90
    %Total cash dividends
    
    $
    0
    
    
    $
    0
    
    
    $
    2,163
    
    
    $
    2,069
    
    
    $
    1,839Book value per share*
    
    $
    9.13
    
    
    $
    16.53
    
    
    $
    22.88
    
    
    $
    24.08
    
    
    $
    22.07Cash dividends paid per share*
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    1.00
    
    
    $
    0.94
    
    
    $
    0.88Period end market price per share*
    
    $
    1.36
    
    
    $
    6.75
    
    
    $
    22.00
    
    
    $
    32.55
    
    
    $
    29.77Dividend pay-out ratio
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    -463.17
    %
    
    
    38.98
    %
    
    
    36.39
    %Return on average shareholders equity
    
    
    -61.18
    %
    
    
    -25.13
    %
    
    
    -0.89
    %
    
    
    10.82
    %
    
    
    11.09
    %Return on average assets
    
    
    -3.02
    %
    
    
    -2.03
    %
    
    
    -0.08
    %
    
    
    0.85
    %
    
    
    0.85
    %Net interest margin
    
    
    3.42
    %
    
    
    3.32
    %
    
    
    3.66
    %
    
    
    4.11
    %
    
    
    4.23
    %Total equity to assets at period end
    
    
    3.93
    %
    
    
    6.24
    %
    
    
    7.88
    %
    
    
    8.25
    %
    
    
    7.57
    %
 
 *
    
    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. 43




---



##### 



RESULTS OF OPERATIONS
     NET INTEREST INCOME
   44




---



##### 



Table 2
 Changes in Net Interest Income due to changes in average volume and interest rates
Years ended December 31,
 INCREASE /(DECREASE)DUE TO2009
    
    
    2008YIELD/
    
    
    
    
    
    
    
    
    
    
    YIELD/(000s omitted)
    
    VOL
    
    RATE
    
    TOTAL
    
    
    VOL
    
    RATE
    
    TOTALTaxable securities
    
    $
    (279
    )
    
    $
    (100
    )
    
    $
    (379
    )
    
    
    $
    (891
    )
    
    $
    (35
    )
    
    $
    (926
    )Tax-exempt securities (1)
    
    
    (56
    )
    
    
    50
    
    
    
    (6
    )
    
    
    
    (90
    )
    
    
    (80
    )
    
    
    (170
    )Federal funds sold
    
    
    28
    
    
    
    (163
    )
    
    
    (135
    )
    
    
    
    22
    
    
    
    (122
    )
    
    
    (100
    )Total loans (1)
    
    
    (2,060
    )
    
    
    (1,799
    )
    
    
    (3,859
    )
    
    
    
    514
    
    
    
    (4,833
    )
    
    
    (4,319
    )Loans held for sale
    
    
    28
    
    
    
    (11
    )
    
    
    17
    
    
    
    
    (38
    )
    
    
    (9
    )
    
    
    (47
    )Total earning assets
    
    
    (2,339
    )
    
    
    (2,023
    )
    
    
    (4,362
    )
    
    
    
    (483
    )
    
    
    (5,079
    )
    
    
    (5,562
    )Interest bearing demand deposits
    
    
    (87
    )
    
    
    (603
    )
    
    
    (690
    )
    
    
    
    (50
    )
    
    
    (982
    )
    
    
    (1,032
    )Savings deposits
    
    
    (3
    )
    
    
    (351
    )
    
    
    (354
    )
    
    
    
    (41
    )
    
    
    (324
    )
    
    
    (365
    )Time CDs $100,000 and over
    
    
    (470
    )
    
    
    (690
    )
    
    
    (1,160
    )
    
    
    
    171
    
    
    
    (426
    )
    
    
    (255
    )Other time deposits
    
    
    264
    
    
    
    (967
    )
    
    
    (703
    )
    
    
    
    (295
    )
    
    
    (754
    )
    
    
    (1,049
    )Other borrowings
    
    
    (324
    )
    
    
    (234
    )
    
    
    (558
    )
    
    
    
    (156
    )
    
    
    (452
    )
    
    
    (608
    )Total interest bearing liabilities
    
    
    (620
    )
    
    
    (2,845
    )
    
    
    (3,465
    )
    
    
    
    (371
    )
    
    
    (2,938
    )
    
    
    (3,309
    )Net Interest Income
    
    $
    (1,719
    )
    
    $
    822
    
    
    $
    (897
    )
    
    
    $
    (112
    )
    
    $
    (2,141
    )
    
    $
    (2,253
    )
 
 (1)
    
    Presented on a fully taxable equivalent basis using a federal income tax rate of 34%. 45




---



##### 



TABLE 3
 Summary of Net Interest Income Years Ended December 31,2009
    
    
    2008
    
    
    2007AVG
    
    
    INC/
    
    
    
    
    
    
    
    
    
    
    INC/
    
    
    
    
    
    
    AVG
    
    
    INC/(000s omitted)
    
    BAL
    
    
    EXP
    
    
    YIELD
    
    
    AVG BAL
    
    
    EXP
    
    
    YIELD
    
    
    BAL
    
    
    EXP
    
    
    YIELDASSETSSecurities:U.S. Treasury and Government
Agencies
    
    $
    37,830
    
    
    $
    1,453
    
    
    
    3.84
    %
    
    $
    43,608
    
    
    $
    1,821
    
    
    
    4.18
    %
    
    $
    65,097
    
    
    $
    2,751
    
    
    
    4.23
    %State and Political (1)
    
    
    13,719
    
    
    
    827
    
    
    
    6.03
    %
    
    
    14,669
    
    
    
    833
    
    
    
    5.68
    %
    
    
    16,183
    
    
    
    1,003
    
    
    
    6.20
    %Other
    
    
    4,161
    
    
    
    84
    
    
    
    2.02
    %
    
    
    7,217
    
    
    
    95
    
    
    
    1.32
    %
    
    
    6,660
    
    
    
    91
    
    
    
    1.37
    %Total Securities
    
    
    55,710
    
    
    
    2,364
    
    
    
    4.24
    %
    
    
    65,494
    
    
    
    2,749
    
    
    
    4.20
    %
    
    
    87,940
    
    
    
    3,845
    
    
    
    4.37
    %Fed Funds Sold
    
    
    6,566
    
    
    
    4
    
    
    
    0.06
    %
    
    
    5,249
    
    
    
    139
    
    
    
    2.65
    %
    
    
    4,773
    
    
    
    239
    
    
    
    5.01
    %Loans:Commercial
    
    
    312,896
    
    
    
    18,907
    
    
    
    6.04
    %
    
    
    340,598
    
    
    
    21,882
    
    
    
    6.42
    %
    
    
    332,681
    
    
    
    25,177
    
    
    
    7.57
    %Tax Free (1)
    
    
    2,616
    
    
    
    168
    
    
    
    6.42
    %
    
    
    2,093
    
    
    
    139
    
    
    
    6.64
    %
    
    
    2,183
    
    
    
    138
    
    
    
    6.32
    %Real Estate-Mortgage
    
    
    33,931
    
    
    
    2,067
    
    
    
    6.09
    %
    
    
    37,383
    
    
    
    2,377
    
    
    
    6.36
    %
    
    
    36,273
    
    
    
    2,406
    
    
    
    6.63
    %Consumer
    
    
    51,004
    
    
    
    2,898
    
    
    
    5.68
    %
    
    
    53,578
    
    
    
    3,501
    
    
    
    6.53
    %
    
    
    55,334
    
    
    
    4,497
    
    
    
    8.13
    %Total loans
    
    
    400,447
    
    
    
    24,040
    
    
    
    6.00
    %
    
    
    433,652
    
    
    
    27,899
    
    
    
    6.43
    %
    
    
    426,471
    
    
    
    32,218
    
    
    
    7.55
    %Allowance for Loan Loss
    
    
    (12,035
    )
    
    
    
    
    
    
    
    
    
    
    (9,352
    )
    
    
    
    
    
    
    
    
    
    
    (7,325
    )Net Loans
    
    
    388,412
    
    
    
    24,040
    
    
    
    6.19
    %
    
    
    424,300
    
    
    
    27,899
    
    
    
    6.58
    %
    
    
    419,146
    
    
    
    32,218
    
    
    
    7.69
    %Loans Held for Sale
    
    
    1,576
    
    
    
    80
    
    
    
    5.08
    %
    
    
    1,042
    
    
    
    63
    
    
    
    6.05
    %
    
    
    1,666
    
    
    
    110
    
    
    
    6.60
    %TOTAL EARNING ASSETS
    
    
    464,299
    
    
    
    26,488
    
    
    
    5.70
    %
    
    
    505,437
    
    
    
    30,850
    
    
    
    6.10
    %
    
    
    520,850
    
    
    
    36,412
    
    
    
    6.99
    %Cash Due from Banks
    
    
    28,116
    
    
    
    
    
    
    
    
    
    
    
    13,705
    
    
    
    
    
    
    
    
    
    
    
    15,112Assets of discontinued operations
    
    
    42,681
    
    
    
    
    
    
    
    
    
    
    
    45,647
    
    
    
    
    
    
    
    
    
    
    
    49,496All Other Assets
    
    
    39,064
    
    
    
    
    
    
    
    
    
    
    
    45,218
    
    
    
    
    
    
    
    
    
    
    
    42,744TOTAL ASSETS
    
    $
    562,125
    
    
    
    
    
    
    
    
    
    
    $
    600,655
    
    
    
    
    
    
    
    
    
    
    $
    620,877LIABILITIES & SHAREHOLDERS EQUITY:Deposits:Interest bearing  DDA
    
    $
    86,982
    
    
    $
    620
    
    
    
    0.71
    %
    
    $
    93,593
    
    
    $
    1,310
    
    
    
    1.40
    %
    
    $
    95,670
    
    
    $
    2,342
    
    
    
    2.45
    %Savings Deposits
    
    
    73,779
    
    
    
    259
    
    
    
    0.35
    %
    
    
    74,104
    
    
    
    613
    
    
    
    0.83
    %
    
    
    77,450
    
    
    
    978
    
    
    
    1.26
    %Time CDs $100,000 and Over
    
    
    125,015
    
    
    
    5,228
    
    
    
    4.18
    %
    
    
    135,461
    
    
    
    6,388
    
    
    
    4.72
    %
    
    
    132,009
    
    
    
    6,643
    
    
    
    5.03
    %Other Time CDs
    
    
    113,165
    
    
    
    3,432
    
    
    
    3.03
    %
    
    
    106,024
    
    
    
    4,135
    
    
    
    3.90
    %
    
    
    112,732
    
    
    
    5,184
    
    
    
    4.60
    %Total Interest Bearing Deposits
    
    
    398,941
    
    
    
    9,539
    
    
    
    2.39
    %
    
    
    409,182
    
    
    
    12,446
    
    
    
    3.04
    %
    
    
    417,861
    
    
    
    15,147
    
    
    
    3.62
    %Other Borrowings
    
    
    25,778
    
    
    
    1,048
    
    
    
    4.07
    %
    
    
    33,150
    
    
    
    1,606
    
    
    
    4.84
    %
    
    
    35,829
    
    
    
    2,214
    
    
    
    6.18
    %INTEREST BEARING LIABILITIES
    
    
    424,719
    
    
    
    10,587
    
    
    
    2.49
    %
    
    
    442,332
    
    
    
    14,052
    
    
    
    3.18
    %
    
    
    453,690
    
    
    
    17,361
    
    
    
    3.83
    %Non-interest bearing  DDA
    
    
    66,659
    
    
    
    
    
    
    
    
    
    
    
    65,460
    
    
    
    
    
    
    
    
    
    
    
    65,826Liabilities of discontinued operations
    
    
    39,603
    
    
    
    
    
    
    
    
    
    
    
    41,813
    
    
    
    
    
    
    
    
    
    
    
    45,377All Other Liabilities
    
    
    3,391
    
    
    
    
    
    
    
    
    
    
    
    2,646
    
    
    
    
    
    
    
    
    
    
    
    3,762Shareholders Equity
    
    
    27,753
    
    
    
    
    
    
    
    
    
    
    
    48,404
    
    
    
    
    
    
    
    
    
    
    
    52,222TOTAL LIABILITIES and S/H EQUITY
    
    $
    562,125
    
    
    
    
    
    
    
    
    
    
    $
    600,655
    
    
    
    
    
    
    
    
    
    
    $
    620,877Net Interest Rate Spread
    
    
    
    
    
    
    
    
    
    
    3.21
    %
    
    
    
    
    
    
    
    
    
    
    2.92
    %
    
    
    
    
    
    
    
    
    
    
    3.16
    %Impact of Non-Interest Bearing Funds
on Margin
    
    
    
    
    
    
    
    
    
    
    0.21
    %
    
    
    
    
    
    
    
    
    
    
    0.40
    %
    
    
    
    
    
    
    
    
    
    
    0.49
    %Net Interest Income/Margin
    
    
    
    
    
    $
    15,901
    
    
    
    3.42
    %
    
    
    
    
    
    $
    16,798
    
    
    
    3.32
    %
    
    
    
    
    
    $
    19,051
    
    
    
    3.66
    %
 
 (1)
    
     Presented on a fully taxable equivalent basis using a federal income tax rate of 34%. 46




---



##### 



ALLOWANCE AND PROVISION FOR LOAN LOSSES
      47




---



##### 



TABLE 4
Analysis of the Allowance for Loan Losses
 Years Ended December 31,(000s omitted)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Balance Beginning of Period
    
    $
    10,455
    
    
    $
    7,592
    
    
    $
    6,138
    
    
    $
    5,735
    
    
    $
    5,040Charge-offs:Commercial, Financial and Agricultural
    
    
    (12,593
    )
    
    
    (4,693
    )
    
    
    (4,751
    )
    
    
    (554
    )
    
    
    (336
    )Real Estate-Mortgage
    
    
    (1,011
    )
    
    
    (281
    )
    
    
    (176
    )
    
    
    0
    
    
    
    0Installment Loans to Individuals
    
    
    (1,202
    )
    
    
    (430
    )
    
    
    (662
    )
    
    
    (298
    )
    
    
    (304
    )Total Charge-offs
    
    
    (14,806
    )
    
    
    (5,404
    )
    
    
    (5,589
    )
    
    
    (852
    )
    
    
    (640
    )Recoveries:Commercial and Financial
    
    
    259
    
    
    
    314
    
    
    
    154
    
    
    
    49
    
    
    
    46Real Estate-Mortgage
    
    
    8
    
    
    
    23
    
    
    
    0
    
    
    
    0
    
    
    
    0Installment Loans to Individuals
    
    
    87
    
    
    
    215
    
    
    
    94
    
    
    
    86
    
    
    
    100Total Recoveries
    
    
    354
    
    
    
    552
    
    
    
    248
    
    
    
    135
    
    
    
    146Net Charge-offs
    
    
    (14,452
    )
    
    
    (4,852
    )
    
    
    (5,341
    )
    
    
    (717
    )
    
    
    (494
    )Provision for loan losses
    
    
    14,723
    
    
    
    7,715
    
    
    
    6,795
    
    
    
    1,120
    
    
    
    1,189Balance at End of Period
    
    $
    10,726
    
    
    $
    10,455
    
    
    $
    7,592
    
    
    $
    6,138
    
    
    $
    5,735Ratio of Net Charge-Offs During the Period
    
    
    4.06
    %
    
    
    1.13
    %
    
    
    1.22
    %
    
    
    0.17
    %
    
    
    0.12
    %
 NON-INTEREST INCOME
     48




---



##### 



th
   NON-INTEREST EXPENSE
      49




---



##### 



FINANCIAL CONDITION
   50




---



##### 



SECURITIES PORTFOLIO
     51




---



##### 



TABLE 5  Analysis and Maturities of Securities
 Amortized
    
    Fair(000s omitted)
    
    Cost
    
    Value
    
    Yield(1)AVAILABLE FOR SALEU.S. AgenciesOne year or less
    
    $
    2,000
    
    
    $
    2,038
    
    
    
    4.63
    %Over one through five years
    
    
    2,026
    
    
    
    2,021
    
    
    
    3.25
    %Over five through ten years
    
    
    1,000
    
    
    
    1,000
    
    
    
    3.00
    %Over ten years
    
    
    1,517
    
    
    
    1,455
    
    
    
    5.40
    %Total
    
    
    6,543
    
    
    
    6,514Mortgage-BackedOne year or less
    
    $
    3,974
    
    
    $
    4,017
    
    
    
    3.85
    %Over one through five years
    
    
    252
    
    
    
    257
    
    
    
    4.50
    %Over five through ten years
    
    
    1,611
    
    
    
    1,652
    
    
    
    4.08
    %Over ten years
    
    
    23,014
    
    
    
    22,544
    
    
    
    4.44
    %Total
    
    
    28,851
    
    
    
    28,470State and PoliticalOne year or less
    
    $
    0
    
    
    $
    0
    
    
    
    0.00
    %Over one through five years
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %Over five through ten years
    
    
    4,276
    
    
    
    4,314
    
    
    
    6.28
    %Over ten years
    
    
    2,758
    
    
    
    2,781
    
    
    
    6.41
    %Total
    
    
    7,034
    
    
    
    7,095Equity Securities
    
    $
    1,971
    
    
    $
    1,529HELD TO MATURITYMortgage-BackedOne year or less
    
    $
    0
    
    
    $
    0
    
    
    
    0.00
    %Over one through five years
    
    
    1
    
    
    
    1
    
    
    
    9.00
    %Over five through ten years
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %Over ten years
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %Total
    
    
    1
    
    
    
    1State and PoliticalOne year or less
    
    $
    721
    
    
    $
    726
    
    
    
    5.95
    %Over one through five years
    
    
    2,601
    
    
    
    2,628
    
    
    
    6.25
    %Over five through ten years
    
    
    1,765
    
    
    
    1,768
    
    
    
    6.66
    %Over ten years
    
    
    368
    
    
    
    370
    
    
    
    6.44
    %Total
    
    
    5,455
    
    
    
    5,492Total Securities
    
    $
    48,971
    
    
    $
    49,101
 
 (1)
    
    Tax equivalent yield 52




---



##### 



LOAN PORTFOLIO
   TABLE 6

Loan Portfolio
 December 31,(000s omitted)
    
    2009
    
    2008
    
    2007
    
    2006
    
    2005Commercial
    
    $
    252,764
    
    
    $
    289,523
    
    
    $
    293,916
    
    
    $
    249,488
    
    
    $
    230,609Real estate  construction
    
    
    26,295
    
    
    
    48,777
    
    
    
    52,125
    
    
    
    75,180
    
    
    
    71,852Real estate  mortgage
    
    
    28,058
    
    
    
    37,828
    
    
    
    38,597
    
    
    
    34,872
    
    
    
    32,475Consumer
    
    
    48,313
    
    
    
    52,910
    
    
    
    53,425
    
    
    
    58,000
    
    
    
    63,486Total
    
    $
    355,430
    
    
    $
    429,038
    
    
    $
    438,063
    
    
    $
    417,540
    
    
    $
    398,422
  TABLE 7
Maturities of the Loan Portfolio by Loan Type
 Within
    
    
    One-
    
    
    After(000s omitted)
    
    One
    
    
    Five
    
    
    FiveDecember 31, 2009
    
    Year
    
    
    Years
    
    
    Years
    
    
    TotalCommercial
    
    $
    93,924
    
    
    $
    145,207
    
    
    $
    13,633
    
    
    $
    252,764Real estate  construction
    
    
    25,014
    
    
    
    1,281
    
    
    
    0
    
    
    
    26,295Real estate  mortgage
    
    
    2,077
    
    
    
    6,169
    
    
    
    19,812
    
    
    
    28,058Consumer
    
    
    9,375
    
    
    
    26,451
    
    
    
    12,487
    
    
    
    48,313$
    130,390
    
    
    $
    179,108
    
    
    $
    45,932
    
    
    $
    355,430
 53




---



##### 



TABLE 8  Maturities of the Loan Portfolio by Rate Categories
 Within
    
    
    One-
    
    
    After(000s omitted)
    
    One
    
    
    Five
    
    
    FiveDecember 31, 2009
    
    Year
    
    
    Years
    
    
    Years
    
    
    TotalLoans:Fixed Rate
    
    $
    75,810
    
    
    $
    153,063
    
    
    $
    29,271
    
    
    $
    258,144Variable Rate
    
    
    54,580
    
    
    
    26,045
    
    
    
    16,661
    
    
    
    97,286$
    130,390
    
    
    $
    179,108
    
    
    $
    45,932
    
    
    $
    355,430
    NON-PERFORMING ASSETS
   54




---



##### 



TABLE 9  Non-Performing Assets and Past Due Loans
 December 31,(000s omitted)
    
    2009
    
    2008
    
    2007
    
    2006
    
    2005Non-Performing Loans:Loans Past Due 90 Days or More & Still Accruing
    
    $
    319
    
    
    $
    667
    
    
    $
    54
    
    
    $
    2,311
    
    
    $
    76Non-Accrual Loans
    
    
    19,241
    
    
    
    22,574
    
    
    
    12,340
    
    
    
    1,636
    
    
    
    1,131Renegotiated Loans
    
    
    3,822
    
    
    
    942
    
    
    
    431
    
    
    
    437
    
    
    
    1,401Total Non-Performing Loans
    
    
    23,382
    
    
    
    24,183
    
    
    
    12,825
    
    
    
    4,384
    
    
    
    2,608Other Non-Performing Assets:Other Real Estate
    
    
    7,967
    
    
    
    5,983
    
    
    
    1,473
    
    
    
    1,145
    
    
    
    0Other Real Estate Owned in Redemption
    
    
    4,972
    
    
    
    390
    
    
    
    1,829
    
    
    
    216
    
    
    
    0Other Non-Performing Assets
    
    
    0
    
    
    
    25
    
    
    
    155
    
    
    
    155
    
    
    
    6Total Other Non-Performing Assets
    
    
    12,939
    
    
    
    6,398
    
    
    
    3,457
    
    
    
    1,516
    
    
    
    6Total Non-Performing Assets
    
    $
    36,321
    
    
    $
    30,581
    
    
    $
    16,282
    
    
    $
    5,900
    
    
    $
    2,614Non-Performing Loans as a % of Total Loans
    
    
    6.56
    %
    
    
    5.63
    %
    
    
    2.92
    %
    
    
    1.05
    %
    
    
    0.66
    %Non-Performing Assets as a % of Total Loans and Other Real Estate
    
    
    9.97
    %
    
    
    7.02
    %
    
    
    3.69
    %
    
    
    1.41
    %
    
    
    0.67
    %Allowance for Loan Losses as a % of Non-Performing Loans
    
    
    45.87
    %
    
    
    43.23
    %
    
    
    59.20
    %
    
    
    140.01
    %
    
    
    219.86
    %Accruing Loans Past Due 90 Days or
More to Total Loans
    
    
    0.09
    %
    
    
    0.16
    %
    
    
    0.01
    %
    
    
    0.55
    %
    
    
    0.02
    %Non-performing Assets as a % ofTotal Assets
    
    
    6.96
    %
    
    
    5.29
    %
    
    
    2.59
    %
    
    
    0.95
    %
    
    
    0.42
    %
  TABLE 10
Allocation of the Allowance for Loan Losses
 December 31,
    
    2009
    
    2008
    
    2007
    
    2006
    
    2005(000s omitted)
    
    Amount
    
    Loan %
    
    Amount
    
    Loan %
    
    Amount
    
    Loan %
    
    Amount
    
    Loan %
    
    Amount
    
    Loan %Commercial and
construction
    
    $
    9,072
    
    
    
    78.51
    %
    
    $
    8,908
    
    
    
    78.85
    %
    
    $
    6,478
    
    
    
    78.99
    %
    
    $
    5,085
    
    
    
    77.76
    %
    
    $
    4,871
    
    
    
    75.91
    %Real estate mortgage
    
    
    726
    
    
    
    7.89
    %
    
    
    436
    
    
    
    8.82
    %
    
    
    386
    
    
    
    8.81
    %
    
    
    317
    
    
    
    8.35
    %
    
    
    214
    
    
    
    8.15
    %Consumer
    
    
    915
    
    
    
    13.60
    %
    
    
    1,101
    
    
    
    12.33
    %
    
    
    724
    
    
    
    12.20
    %
    
    
    586
    
    
    
    13.89
    %
    
    
    538
    
    
    
    15.94
    %Unallocated
    
    
    13
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    52
    
    
    
    
    
    
    
    112Total
    
    $
    10,726
    
    
    
    100.00
    %
    
    $
    10,455
    
    
    
    100.00
    %
    
    $
    7,592
    
    
    
    100.00
    %
    
    $
    6,040
    
    
    
    100.00
    %
    
    $
    5,735
    
    
    
    100.00
    %
 55




---



##### 



DEPOSITS
 TABLE 11
 Average Deposits
 2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Years Ended December 31,
    
    Average
    

    Average
    

    Average
    

    Average
    

    Average(000s omitted)
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    RateNon-int. bearing demand
    
    $
    66,659
    
    
    
    
    
    
    $
    65,460
    
    
    
    
    
    
    $
    65,826
    
    
    
    
    
    
    $
    68,061
    
    
    
    
    
    
    $
    72,691Interest-bearing demand
    
    
    86,982
    
    
    
    0.71
    %
    
    
    93,593
    
    
    
    1.40
    %
    
    
    95,670
    
    
    
    2.45
    %
    
    
    100,726
    
    
    
    2.36
    %
    
    
    108,547
    
    
    
    1.53
    %Savings
    
    
    73,779
    
    
    
    0.35
    %
    
    
    74,104
    
    
    
    0.83
    %
    
    
    77,450
    
    
    
    1.26
    %
    
    
    87,418
    
    
    
    1.22
    %
    
    
    110,639
    
    
    
    1.11
    %Time
    
    
    238,180
    
    
    
    3.64
    %
    
    
    241,485
    
    
    
    4.36
    %
    
    
    244,741
    
    
    
    4.83
    %
    
    
    225,751
    
    
    
    4.42
    %
    
    
    159,771
    
    
    
    3.46
    %Total
    
    $
    465,600
    
    
    
    2.39
    %
    
    $
    474,642
    
    
    
    3.04
    %
    
    $
    483,687
    
    
    
    3.62
    %
    
    $
    481,956
    
    
    
    3.24
    %
    
    $
    451,648
    
    
    
    2.22
    %
   56




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##### 



TABLE 12
 Maturity of Time Certificates of Deposit of $100,000 or More
 December 31,(000s omitted)
    
    2009
    
    
    2008Three months or less
    
    $
    15,084
    
    
    $
    13,508Over three through six months
    
    
    17,850
    
    
    
    21,132Over six through twelve months
    
    
    25,298
    
    
    
    20,803Over twelve months
    
    
    51,723
    
    
    
    75,148Total
    
    $
    109,955
    
    
    $
    130,591
 FEDERAL INCOME TAXES
   LIQUIDITY AND INTEREST RATE RISK MANAGEMENT
  57




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##### 



58




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##### 



Table 13
 Less than 1
    
    
    
    
    
    
    
    
    
    
    More than(000s omitted)
    
    Total
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsTime Deposits
    
    $
    218,225
    
    
    $
    136,574
    
    
    $
    71,016
    
    
    $
    10,459
    
    
    $
    176Short-term borrowings
    
    
    164
    
    
    
    164
    
    
    
    0
    
    
    
    0
    
    
    
    0FHLB advances
    
    
    7,981
    
    
    
    2,028
    
    
    
    5,063
    
    
    
    74
    
    
    
    816Subordinated debt
    
    
    14,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    14,000Operating leases
    
    
    386
    
    
    
    172
    
    
    
    207
    
    
    
    7
    
    
    
    0Total
    
    $
    240,756
    
    
    $
    138,938
    
    
    $
    76,286
    
    
    $
    10,540
    
    
    $
    14,992
 CAPITAL RESOURCES
     REGULATORY ORDERS
   59




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##### 



CRITICAL ACCOUNTING POLICIES AND ESTIMATES
     60




---



##### 



OFF-BALANCE-SHEET ITEMS
  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   61




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##### 



TABLE 14
 Rate Sensitivity of Financial Instruments
 Fair(000s omitted)
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    Thereafter
    
    
    Total
    
    
    ValueRate Sensitive Assets:Fixed interest rate loans
    
    $
    76,641
    
    
    $
    48,074
    
    
    $
    51,713
    
    
    $
    43,018
    
    
    $
    10,258
    
    
    $
    29,271
    
    
    $
    258,975
    
    
    $
    245,138Average interest rate
    
    
    6.03
    %
    
    
    6.53
    %
    
    
    6.53
    %
    
    
    6.87
    %
    
    
    6.76
    %
    
    
    6.45
    %Variable interest rate loans
    
    $
    54,580
    
    
    $
    7,276
    
    
    $
    6,331
    
    
    $
    8,030
    
    
    $
    4,408
    
    
    $
    16,661
    
    
    $
    97,286
    
    
    $
    92,841Average interest rate
    
    
    4.86
    %
    
    
    4.48
    %
    
    
    4.44
    %
    
    
    4.76
    %
    
    
    4.61
    %
    
    
    5.28
    %Fixed interest rate securities
    
    $
    15,711
    
    
    $
    6,555
    
    
    $
    1,499
    
    
    $
    495
    
    
    $
    963
    
    
    $
    10,715
    
    
    $
    35,938
    
    
    $
    36,972Average interest rate
    
    
    3.57
    %
    
    
    3.30
    %
    
    
    3.60
    %
    
    
    3.17
    %
    
    
    3.67
    %
    
    
    3.91
    %Variable Interest rate securities
    
    $
    3,265
    
    
    $
    1,855
    
    
    $
    1,683
    
    
    $
    1,185
    
    

    $
    1,172
    
    
    $
    3,966
    
    
    $
    13,126
    
    
    $
    12,129Average interest rate
    
    
    2.08
    %
    
    
    2.90
    %
    
    
    2.90
    %
    
    
    2.90
    %
    
    
    2.90
    %
    
    
    3.56
    %FHLB Stock
    
    $
    1,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,900
    
    
    $
    1,900Average interest rate
    
    
    5.00
    %Other interest bearing assets
    
    $
    23,650
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    23,650
    
    
    $
    23,650Average interest rate
    
    
    0.20
    %Total rate sensitive assets
    
    $
    175,747
    
    
    $
    63,760
    
    
    $
    61,226
    
    
    $
    52,728
    
    
    $
    16,801
    
    
    $
    60,612
    
    
    $
    430,874
    
    
    $
    412,630Rate Sensitive Liabilities:Interest-bearing checking
    
    $
    90,047
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    90,047
    
    
    $
    90,047Average interest rate
    
    
    0.27
    %Savings
    
    $
    67,973
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    67,973
    
    
    $
    67,973Average interest rate
    
    
    0.11
    %Time
    
    $
    136,579
    
    
    $
    44,481
    
    
    $
    26,535
    
    
    $
    5,564
    
    
    $
    4,896
    
    
    $
    170
    
    
    $
    218,225
    
    
    $
    219,298Average interest rate
    
    
    2.76
    %
    
    
    3.87
    %
    
    
    4.58
    %
    
    
    3.92
    %
    
    
    2.60
    %
    
    
    1.81
    %Short term borrowings
    
    $
    164
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    164
    
    
    $
    164Average interest rate
    
    
    0.00
    %FHLB advances
    
    $
    2,028
    
    
    $
    5,030
    
    
    $
    33
    
    
    $
    35
    
    
    $
    39
    
    
    $
    816
    
    
    $
    7,981
    
    
    $
    8,488Average interest rate
    
    
    4.60
    %
    
    
    3.80
    %
    
    
    7.34
    %
    
    
    7.34
    %
    
    
    7.34
    %
    
    
    7.34
    %Subordinated debt
    
    $
    14,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    14,000
    
    
    $
    12,656Average interest rate
    
    
    3.00
    %Total rate sensitive liabilities
    
    $
    310,791
    
    
    $
    49,511
    
    
    $
    26,568
    
    
    $
    5,599
    
    
    $
    4,935
    
    
    $
    986
    
    
    $
    398,390
    
    
    $
    386,806
 INTEREST RATE SENSITIVITY MANAGEMENT
    62




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##### 



TABLE 15
 Gap AnalysisDecember 31, 2009Within
    
    
    Three
    
    
    One to
    
    
    AfterThree
    
    
    Months-
    
    
    Five
    
    
    Five(000s omitted)
    
    Months
    
    
    One Year
    
    
    Years
    
    
    Years
    
    
    TotalFederal Funds sold
    
    $
    23,650
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    23,650Securities
    
    
    4,396
    
    
    
    14,580
    
    
    
    15,446
    
    
    
    14,642
    
    
    
    49,064Loans
    
    
    54,211
    
    
    
    76,841
    
    
    
    178,191
    
    
    
    46,187
    
    
    
    355,430Loans Held for Sale
    
    
    831
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    831FHLB Stock
    
    
    1,900
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,900Total Earning Assets
    
    $
    84,988
    
    
    $
    91,421
    
    
    $
    193,637
    
    
    $
    60,829
    
    
    $
    430,875Interest Bearing Liabilities:Interest Bearing Demand Deposits
    
    $
    90,047
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    90,047Savings Deposits
    
    
    67,973
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    67,973Time Deposits Less than $100,000
    
    
    23,514
    
    
    
    54,833
    
    
    
    29,753
    
    
    
    170
    
    
    
    108,270Time Deposits Greater than $100,000
    
    
    15,084
    
    
    
    43,148
    
    
    
    51,723
    
    
    
    0
    
    
    
    109,955Short-term Borrowings
    
    
    164
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    164FHLB Advances
    
    
    2,028
    
    
    
    5,030
    
    
    
    107
    
    
    
    816
    
    
    
    7,981Subordinated Debt
    
    
    14,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    14,000Total Interest Bearing Liabilities
    
    $
    212,810
    
    
    $
    103,011
    
    
    $
    81,583
    
    
    $
    986
    
    
    $
    398,390Interest Rate Sensitivity GAP
    
    
    ($127,822
    )
    
    
    ($11,592
    )
    
    $
    112,054
    
    
    $
    59,843
    
    
    $
    32,485Cumulative Interest Rate
Sensitivity GAP
    
    
    ($127,822
    )
    
    
    ($139,412
    )
    
    
    ($27,358
    )
    
    $
    32,485Interest Rate Sensitivity GAP
    
    
    0.40
    
    
    
    0.89
    
    
    
    2.37
    
    
    
    61.69Cumulative Interest Rate
Sensitivity GAP Ratio
    
    
    0.40
    
    
    
    0.56
    
    
    
    0.93
    
    
    
    1.08
  63




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##### 



FORWARD LOOKING STATEMENTS
   FENTURA FINANCIAL, INC. COMMON STOCK
  TABLE 16
 Common Stock Data
 Market
    
    
    DividendsInformation
    
    
    PaidYears
    
    Quarter
    
    High
    
    
    Low
    
    
    Per Share (1)2008
    
    First Quarter
    
    $
    23.00
    
    
    $
    17.75
    
    
    $
    0.000Second Quarter
    
    
    19.75
    
    
    
    11.50
    
    
    
    0.000Third Quarter
    
    
    11.50
    
    
    
    6.60
    
    
    
    0.000Fourth Quarter
    
    
    11.50
    
    
    
    6.75
    
    
    
    0.000$
    0.0002009
    
    First Quarter
    
    $
    7.50
    
    
    $
    2.50
    
    
    $
    0.000Second Quarter
    
    
    6.00
    
    
    
    4.25
    
    
    
    0.000Third Quarter
    
    
    5.00
    
    
    
    2.00
    
    
    
    0.000Fourth Quarter
    
    
    2.40
    
    
    
    0.90
    
    
    
    0.000$
    0.000
 
 (1)
    
    Refer to Note 1 to the Financial Statements Dividend Restrictions for a discussion of
limitations on the Corporations ability to pay dividends. 64




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##### 



65