DISCONTINUED OPERATIONS

6 Months Ended

Jun. 30, 2011

DISCONTINUED OPERATIONS [Abstract]

DISCONTINUED OPERATIONS

NOTE 9 — DISCONTINUED OPERATIONS

On April 28, 2010, at the Annual Shareholder Meeting, a formal announcement was made regarding the signing of a definitive agreement to sell West Michigan Community Bank. The transaction was consummated on January 31, 2011, and the Corporation received $10,500,000 from the sale of West Michigan Community Bank (a 10% premium to book). As a condition of the sale, the Corporation assumed certain non-performing assets of West Michigan Community Bank which totaled $9,900,000. The assets are housed in a newly formed real estate holding company subsidiary of the Corporation. In addition, The State Bank assumed $2,900,000 of watch rated credits.

A condensed balance sheet of discontinued operations, at June 30, 2011, is presented below.

LOANS AND OTHER REAL ESTATE ASSUMED
CONDENSED BALANCE SHEET OF DISCONTINUED OPERATIONS
(Unaudited)
(000s omitted)

	June 30,
	2011
ASSETS
Cash and cash equivalents		301
Loans		7,350
Other real estate owned		1,246
Other assets		114
Total assets	$	9,011
LIABILITIES
Deposits:
Non-interest bearing		23
Total deposits		23
Accrued taxes		53
Total liabilities	$	76

As discussed above West Michigan Community Bank was sold to a third party investor group as of January 31, 2011. As a result there is no balance sheet presentation at June 30, 2011. A condensed balance sheet of discontinued operations is presented below at December 31, 2010.

WEST MICHIGAN COMMUNITY BANK
CONDENSED BALANCE SHEET OF DISCONTINUED OPERATIONS
(Unaudited)
(000s omitted)

	Dec 31,
	2010
ASSETS
Cash and cash equivalents	$	8,309
Securities — available for sale		15,080
Loans, net of allowance of $3,543		86,353
Other assets		13,226
Total assets	$	122,968
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Non-interest bearing	$	13,751
Interest bearing		93,546
Total deposits		107,297
Federal Home Loan Bank advances		5,000
Accrued taxes, interest and other liabilities		1,024
Shareholders’ equity		9,647
Total liabilities and shareholders’ equity	$	122,968

A condensed statement of income of discontinued operations related to loans and other real estate assumed upon the sale of West Michigan Community Bank is presented for the three and six month periods ended June 30, 2011. Due to the transfer of loans at January 31, 2011, only five months of income and expense are presented in the six month period.

LOANS AND OTHER REAL ESTATE ASSUMED
CONDENSED STATEMENT OF INCOME (LOSS) OF DISCONTINUED OPERATIONS
Unaudited
(000s omitted)

	Three Months Ended			Six Months Ended
	June 30			June 30
	2011			2011
Interest income	$	53		$	54
Net interest income after provision for loan losses		53			54
Non-interest income		107			148
Non-interest expense		326			484
Loss before federal income tax		(166	)		(282	)
Federal income tax expense (benefit)		(57	)		(57	)
Net loss	$	(109	)	$	(225	)

Due to the sale of West Michigan Community Bank on January 31, 2011, the six months ended June 30, 2011 income statement represents a one month period. There is no income statement presentation for the three months ended June 30, 2011.

WEST MICHIGAN COMMUNITY BANK
CONDENSED STATEMENT OF INCOME (LOSS) OF DISCONTINUED OPERATIONS
Unaudited
(000s omitted)

	Three Months Ended			Six Months Ended
	June 30			June 30
	2010			2011			2010
Interest income	$	1,755		$	515		$	3,551
Interest expense		609			129			1,363
Net interest income		1,146			386			2,188
Provision for loan loss		1,170			(50	)		1,825
Net interest income (loss) after provision for loan loss		(24	)		436			363
Non-interest income		222			121			454
Non-interest expense		1,179			415			2,463
Income (loss) before federal income tax		(981	)		142			(1,646	)
Federal income tax expense (benefit)		(555	)		37			(562	)
Net income (loss)	$	(426	)	$	105		$	(1,084	)

In March 2009, the Corporation entered into an agreement to sell all of the stock of one of its bank subsidiaries, Davison State Bank, to a private, non-affiliated, investor group. As of April 30, 2010, Davison State Bank was sold to an independent financial group. As a result, there is no balance sheet for presentation at June 30, 2011 or December 31, 2010.

A condensed statement of income of discontinued operations is presented for the three and six month periods ended June 30, 2010. Due to the sale of Davison State Bank, there is no income statement for presentation for the three or six month periods ended June 30, 2011.

DAVISON STATE BANK
CONDENSED STATEMENT OF INCOME (LOSS) OF DISCONTINUED OPERATIONS
(Unaudited)
(000s omitted)

	Three			Six
	Months			Months
	Ended			Ended
	June 30			June 30
	2010			2010
Interest income	$	150		$	607
Interest expense		27			116
Net interest income		123			491
Provision for loan losses		0			(5	)
Net interest income after provision for loan losses		123			496
Non-interest income		51			178
Non-interest expense		351			121
Income (loss) before federal income tax		(177	)		553
Federal income tax (benefit) expense		(62	)		181
Net (loss) income	$	(115	)	$	372

During the first quarter of 2010, the Corporation reversed a previously recorded gross estimated loss of $700,000 related to the sale of Davison State Bank.

TOTAL DISCONTINUED OPERATIONS
CONDENSED STATEMENT OF INCOME (LOSS) OF DISCONTINUED OPERATIONS
Unaudited
(000s omitted)

	Three Month Period Ended						Six Month Period Ended
	June 30						June 30
	2011			2010			2011			2010
Interest income	$	53		$	1,905		$	569		$	4,158
Interest expense		0			636			129			1,479
Net interest income		53			1,269			440			2,679
Provision for loan losses		0			1,170			(50	)		1,820
Net interest income after provision for loan losses		53			99			490			859
Non-interest income		107			273			269			632
Non-interest expense		326			1,530			899			2,584
Loss before federal income tax		(166	)		(1,158	)		(140	)		(1,093	)
Federal income benefit		(57	)		(617	)		(20	)		(381	)
Net loss	$	(109	)	$	(541	)	$	(120	)	$	(712	)

In connection with the sale of West Michigan Community Bank, during the first quarter the Corporation recognized a gross gain of $711,000. Net of tax, the gain amounted to $469,000.