Discontinued Operations

9 Months Ended

Sep. 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 (“WMCB”). 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 were 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.

As of July 1, 2011, due to a change in intent of the Corporation, the remaining balances of the assets described above and previously classified as discontinued operations at June 30, 2011 were reclassified into continuing operations; therefore there is no balance sheet for presentation at September 30, 2011. Assets also were reclassified for all periods presented. See Note 1 for further discussion.

As of April 30, 2010, Davison State Bank (“DSB”) was sold to an independent financial group. As a result, there is no balance sheet for presentation at September 30, 2011 or December 30, 2010. As of January 31, 2011, West Michigan Community Bank was sold to a third party investor group as a result there is no balance sheet presentation at September 30, 2011.

A condensed balance sheet of discontinued operations is presented below at December 31, 2010.

CONDENSED BALANCE SHEET OF DISCONTINUED OPERATIONS

(Unaudited)

(000s omitted)

	WMCB
	Dec 31, 2010
ASSETS
Cash and cash equivalents	$	9,506
Securities—available for sale		15,080
Loans, net of allowance ($4,740-2010)		77,134
Other assets		11,594
Total assets	$	113,314
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		(7	)
Total liabilities and shareholders’ equity	$	113,314

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 nine months ended September 30, 2011. Due to the transfer of loans at January 31, 2011, only one month of income and expense are presented for West Michigan Community Bank.

A condensed statement of income of discontinued operations is presented for the nine months ended September 30, 2010. Due to the sale of Davison State Bank, there is no income statement for presentation for the three or nine months period ended September 30, 2011.

As of July 1, 2011, the assets previously described as discontinued operations at June 30, 2011 were reclassified into continuing operations. The nine month income statement for the period ended September 30, 2011 is presented below:

CONDENSED STATEMENT OF INCOME OF DISCONTINUED OPERATIONS

Unaudited

(000s omitted)

	Three Months Ended September 30, 2011								Nine Months Ended September 30, 2011
	Assumed Loans and Other Real Estate		DSB		WMCB		Total		Assumed Loans and Other Real Estate			DSB		WMCB			Total
Interest income	$	0	$	0	$	0	$	0	$	0		$	0	$	515		$	515
Interest expense		0		0		0		0		0			0		129			129
Net interest income		0		0		0		0		0			0		386			386
Provision for loan losses		0		0		0		0		0			0		(50	)		(50	)
Net interest income (loss) after provision for loan losses		0		0		0		0		0			0		436			436
Non-interest income		0		0		0		0		0			0		121			121
Non-interest expense		0		0		0		0		82			0		415			497
Income (loss) before federal income tax		0		0		0		0		(82	)		0		142			60
Federal income tax expense (benefit)		0		0		0		0		0			0		57			57
Gain on sale of subsidiary		0		0		0		0		0			0		469			469
Net income (loss)	$	0	$	0	$	0	$	0	$	(82	)	$	0	$	554		$	472

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

CONDENSED STATEMENT OF INCOME OF DISCONTINUED OPERATIONS

Unaudited

(000s omitted)

	Three Months Ended September 30, 2010										Nine Months Ended September 30, 2010
	Assumed Loans and Other Real Estate		DSB		WMCB			Total			Assumed Loans and Other Real Estate		DSB			WMCB			Total
Interest income	$	0	$	0	$	1,533		$	1,533		$	0	$	607		$	4,663		$	5,270
Interest expense		0		0		533			533			0		116			1,896			2,012
Net interest income		0		0		1,000			1,000			0		491			2,767			3,258
Provision for loan losses		0		0		109			109			0		(5	)		878			873
Net interest income (loss) after provision for loan losses		0		0		891			891			0		496			1,889			2,385
Non-interest income		0		0		245			245			0		178			699			877
Non-interest expense		0		0		1,246			1,246			0		121			3,649			3,770
Income (loss) before federal income tax		0		0		(110	)		(110	)		0		553			(1,061	)		(508	)
Federal income tax expense (benefit)		0		0		(16	)		(16	)		0		181			(578	)		(397	)
Gain on sale of subsidiary		0		0		0			0			0		0			0			0
Net income (loss)	$	0	$	0	$	(94	)	$	(94	)	$	0	$	372		$	(483	)	$	(111	)

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.