Fentura Financial, Inc. Form 8-K/A

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K/A

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

Date of Report: March 15, 2004

FENTURA FINANCIAL, INC.
(Exact name of Registrant as specified in its charter)

Michigan
(State or other Jurisdiction
of incorporation)
000-23550
(Commission File No.)
38-2806518
(IRS Employer
Identification No.)

175 North Leroy Street, P. O. Box 725, Fenton, MI 48430-0725
(Address of principal Executive Offices including Zip Code)

Registrant’s telephone number, including area code: (810) 629-2263



Item 2.   Acquisition or Disposition of Assets.

        Pursuant to an Agreement and Plan of Merger dated as of October 14, 2003, as amended February 26, 2004 (the “Merger Agreement”), Fentura Financial, Inc. (“Fentura”) acquired West Michigan Financial Corporation, the bank holding company for West Michigan Community Bank. West Michigan Community Bank is a Michigan banking corporation headquartered in Hudsonville, Michigan. WMFC Acquisition Subsidiary, Inc., a newly formed subsidiary of Fentura, was merged into West Michigan Financial Corporation as of March 15, 2004 (the “Merger”). As a result of the Merger, all of the common stock of West Michigan Financial Corporation was converted into the right to receive cash. Following the Merger, West Michigan Financial Corporation will be merged into Fentura. As a result of the Merger, Fentura now owns West Michigan Community Bank and its subsidiaries.

        The total consideration paid by Fentura to the shareholders and option holders of West Michigan Financial Corporation consisted of $12,922,950 in cash. The source of these funds was cash and cash equivalents of Fentura, including the proceeds from the $12 million private placement of floating rate trust preferred securities by Fentura Financial Capital Trust I which was completed in the fourth quarter of 2003.

        Pursuant to the Merger Agreement, each share of West Michigan Financial Corporation common stock, $1.00 par value per share that was outstanding immediately before the effective time of the Merger was converted into the right to receive $336 per share in cash, without interest. Each outstanding stock option of West Michigan Financial Corporation was converted into the right to receive cash in an amount equal to the difference between $336 and the exercise price per share under the option, multiplied by the total number of shares of West Michigan Financial Corporation that could be acquired upon exercise of such option. The consideration paid by Fentura was determined by the boards of directors of the parties through arms-length negotiations. Each share of Fentura common stock that was outstanding immediately before the effective time of the Merger remains outstanding after the Merger.

        The transaction was accounted for as a purchase.

Item 7.   Financial Statements and Exhibits.

          (a)        Financial Statements of Business Acquired. The following financial statements of West Michigan Financial Corporation are filed as part of this report:

          (1)        The audited Consolidated Financial Statements of West Michigan Financial Corporation, including the Notes thereto, and the Independent Auditors’ Report dated March 3, 2003, are included in Exhibit 99.2 hereto and incorporated herein.

          (b)        Pro Forma Financial Information. The following Unaudited Pro Forma Condensed Combined Financial Statements of Fentura Financial, Inc. are filed as part of this Report as Exhibit 99.3 hereto and incorporated herein:

1


          (1)        Introduction to Unaudited Pro Forma Condensed Combined Financial Statements.

          (2)        Unaudited Pro Forma Condensed Combined Balance Sheet as of December 31, 2003.

          (3)        Unaudited Pro Forma Condensed Combined Statement of Income for the year ended December 31, 2003.

          (4)        Notes to Unaudited Pro Forma Condensed Combined Balance Sheet and Statements of Income.

          (c)        Exhibits. The following exhibits are furnished with or incorporated by reference into this Current Report:

Exhibit 2.1* Agreement and Plan of Merger between West Michigan Financial Corporation and Fentura Financial, Inc., dated as of October 14, 2003.

Exhibit 2.2* First Amendment to Agreement and Plan of Merger, dated February 26, 2004.

Exhibit 23.1 Consent of Plante & Moran, PLLC.

Exhibit 99.1* Fentura Financial, Inc. Press Release dated March 15, 2004.

Exhibit 99.2 West Michigan Financial Corporation Financial Statements.

Exhibit 99.3 Unaudited Pro Forma Condensed Combined Financial Statements.

*Previously filed





2


SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

FENTURA FINANCIAL, INC.


By: /s/ Douglas Kelley
      ——————————————
Douglas Kelley
Chief Financial Officer

Date: _____________, 2004





3


EXHIBIT INDEX

Exhibit 2.1* Agreement and Plan of Merger between West Michigan Financial Corporation and Fentura Financial, Inc., dated as of October 14, 2003 (Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K dated March 15, 2004)

Exhibit 2.2* First Amendment to Agreement and Plan of Merger, dated February 26, 2004 (Incorporated by reference to Exhibit 2.2 to the Registrant’s Current Report on Form 8-K dated march 15, 2004).

Exhibit 23 Consent of Plante & Moran, PLLC.

Exhibit 99.1* Fentura Financial, Inc. Press Release dated March 15, 2004.

Exhibit 99.2 West Michigan Financial Corporation Financial Statements.

Exhibit 99.3 Unaudited Pro Forma Condensed Combined Financial Statements.

*Previously filed


PLANTE & MORAN, PLLC

EXHIBIT 23

INDEPENDENT AUDITORS’ CONSENT

We consent to the incorporation by reference of our report dated March 3, 2004, related to our audit of the 2003 financial statements of West Michigan Financial Corporation into the Form S-3D of Fentura Financial, Inc. (File No. 333-75194).

/s/ PLANTE & MORAN, PLLC

PLANTE & MORAN, PLLC

Kalamazoo, Michigan
May 6, 2004





23-1


EXHIBIT 99.2

West Michigan Financial Corporation and Subsidiary


Consolidated Financial Report

December 31, 2003





99.2-1


Independent Auditor’s Report

Board of Directors
West Michigan Financial Corporation

We have audited the accompanying consolidated balance sheet of West Michigan Financial Corporation and Subsidiary as of December 31, 2003 and 2002, and the related consolidated statement of operations, statements of changes in stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of West Michigan Financial Corporation and Subsidiary as of December 31, 2003 and 2002, and the consolidated statement of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ PLANTE & MORAN, PLLC

March 3, 2004

99.2-2


West Michigan Financial Corporation and Subsidiary


Consolidated Balance Sheet

December 31

2003 2002


Assets            
Cash and cash equivalents (Note 2)   $ 4,084,378   $ 3,328,960  
Securities available for sale (Note 3)    27,202,364    18,909,080  
Securities held to maturity (Note 3)    31,631    55,470  
Other securities (Note 3)    1,301,550    1,253,250  
Loans, net (Note 4)    93,446,589    88,715,760  
Loans held for sale    859,520    8,317,485  
Bank premises and equipment (Note 5)    4,410,569    4,753,132  
Deferred income taxes (Note 9)    576,500    240,000  
Accrued interest receivable and other assets (Note 10)    1,121,528    1,035,743  


                Total assets   $ 133,034,629   $ 126,608,880  


   
Liabilities and Stockholders' Equity  
Liabilities  
  Deposits  
    Interest bearing (Note 6)   $ 84,179,806   $ 79,048,835  
    Non-interest bearing    12,816,993    14,208,035  


                Total deposits    96,996,799    93,256,870  
   
  Federal funds purchased    2,379,266    2,100,000  
  Notes payable (Note 8)    4,780,000    4,310,000  
  FHLB advances payable (Note 7)    23,000,000    21,000,000  
  Accrued interest, taxes and other liabilities (Note 10)    1,224,609    551,362  


                Total liabilities    128,380,674    121,218,232  
   
Stockholders' Equity (Notes 13, 14, and 15)  
  Common stock - No par value, $5 stated value  
    Authorized - 50,000 shares  
    Issued and outstanding - 38,029 shares in 2003 and 2002    190,145    190,145  
  Surplus    1,283,071    1,283,071  
  Retained earnings    3,251,605    3,710,309  
  Accumulated other comprehensive income (loss)    (70,866 )  207,123  


                Total stockholders' equity    4,653,955    5,390,648  


                Total liabilities and stockholders' equity   $ 133,034,629   $ 126,608,880  


See Notes to Consolidated Financial Statements.

99.2-3


West Michigan Financial Corporation and Subsidiary


Consolidated Statement of Operations

Year Ended December 31

2003 2002


Interest Income            
  Loans   $ 6,027,917   $ 6,852,180  
  Securities:  
    Taxable    704,186    729,303  
    Non-taxable    135,823    74,693  
  Federal funds sold    27,669    4,708  


            Total interest income    6,895,595    7,660,884  
   
Interest Expense  
  Deposits    1,621,002    2,135,034  
  Federal funds purchased    6,495    18,491  
  Borrowings    957,020    1,143,629  


            Total interest expense    2,584,517    3,297,154  


   
Net Interest Income    4,311,078    4,363,730  
   
Provision for Loan Losses (Note 4)    1,145,000    1,165,000  


   
Net Interest Income - After provision  
  for loan losses    3,166,078    3,198,730  
   
Other Operating Income  
  Service charges on deposit accounts    253,268    268,268  
  Gains on sale of available for sale securities    108,064    95,801  
  Gain on sale of loans held for sale    931,582    608,851  
  Other    580,402    786,150  


            Total other operating income    1,873,316    1,759,070  
   
Other Operating Expenses  
  Salaries and employee benefits (Note 10)    3,347,431    2,863,573  
  Net occupancy expenses    956,010    852,273  
  Other    1,326,432    1,158,128  


            Total other operating expenses    5,629,873    4,873,974  


   
Income (Loss) Before Income Taxes    (590,479 )  83,826  
   
Provision (Credit) for Income Taxes (Note 9)    (188,819 )  25,987  


Net Income (Loss)   $ (401,660 ) $ 57,839  


Basic Earnings (Loss) Per Share (Note 1)   $ (10.56 ) $ 1.52  


Diluted Earnings (Loss) Per Share (Note 1)   $ (10.56 ) $ 1.52  


See Notes to Consolidated Financial Statements.

99.2-4


West Michigan Financial Corporation and Subsidiary


Consolidated Statement of Changes in
Stockholders’ Equity

Common Stock Surplus Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total





Balance - January 1, 2002 (Unaudited)     $ 190,145   $ 1,283,071   $ 3,766,557   $ 73,412   $ 5,313,185  
   
Comprehensive Income (Note 1):  
   
    Net income    -    -    57,839    -    57,839  
   
    Net change in unrealized gain on  
        securities available for sale, net  
        of reclassification and tax    -    -    -    133,711    133,711  

            Total comprehensive income    191,550  
   
Cash dividends ($3.00 per share)    -    -    (114,087 )  -    (114,087 )





Balance - December 31, 2002    190,145    1,283,071    3,710,309    207,123    5,390,648  
   
Comprehensive Loss (Note 1):  
   
    Net loss    -    -    (401,660 )  -    (401,660 )
   
    Net change in unrealized gain (loss) on  
        securities available for sale, net  
        of reclassification and tax    -    -    -    (277,989 )  (277,989 )

            Total comprehensive loss    (679,649 )
   
Cash dividends ($1.50 per share)    -    -    (57,044 )  -    (57,044 )





Balance - December 31, 2003   $ 190,145   $ 1,283,071   $ 3,251,605   $ (70,866 ) $ 4,653,955  






See Notes to Consolidated Financial Statements.

99.2-5


West Michigan Financial Corporation and Subsidiary


Consolidated Statement of Cash Flows

Year Ended December 31

2003 2002


Cash Flows from Operating Activities            
  Net income (loss)   $ (401,660 ) $ 57,839  
  Adjustments to reconcile net income (loss) to net cash  
    from operating activities:  
      Depreciation    567,490    534,525  
      Amortization (accretion) on securities    (78,524 )  134,572  
      Loss on sale of premises and equipment    13,374    1,467  
      Gain on sale of available for sale securities    (108,064 )  (95,801 )
      Proceeds from loans held for sale    72,082,326    47,326,240  
      Originations of loans held for sale    (63,692,779 )  (52,439,212 )
      Gain on sale of loans    (931,582 )  (608,851 )
      Stock dividend received on restricted stock    (48,300 )  -  
      Provision for loan losses    1,145,000    1,165,000  
      Deferred income taxes    (192,500 )  (170,880 )
      Decrease in accrued interest receivable  
        and other assets    (85,785 )  (33,998 )
      Increase (decrease) in accrued interest, taxes and  
       other liabilities    672,453    (196,283 )


            Net cash provided by (used in) operating activities    8,941,449    (4,325,382 )
   
Cash Flows from Investing Activities  
  Proceeds from maturities, prepayments, and calls of securities
      available for sale
    3,623,867    603,250  
  Proceeds from sale of available for sale securities    5,684,322    17,355,696  
  Proceeds from maturities of held to maturity securities    -    115,000  
  Purchase of securities available for sale    (17,812,241 )  (20,045,737 )
  Purchase of other securities    -    (50,000 )
  Net (increase) decrease in loans    (5,875,829 )  4,977,622  
  Purchase of premises and equipment    (238,301 )  (561,860 )


            Net cash provided by (used in) investing activities    (14,618,182 )  2,393,971  
   
Cash Flows from Financing Activities  
  Net increase in demand deposits, checking accounts  
    and savings accounts    6,315,252    6,581,396  
  Net decrease in time deposits    (2,575,323 )  (1,832,162 )
  Net increase (decrease) in federal funds purchased    279,266    (1,800,000 )
  Advances from FHLB    14,000,000    16,000,000  
  Repayments to FHLB    (12,000,000 )  (19,000,000 )
  Proceeds from note payable    1,500,000    750,000  
  Payments on note payable    (1,030,000 )  (240,000 )
  Cash dividends    (57,044 )  (114,087 )


            Net cash provided by financing activities    6,432,151    345,147  


Net Increase (Decrease) in Cash and Cash Equivalents    755,418    (1,586,264 )

See Notes to Consolidated Financial Statements.

99.2-6


West Michigan Financial Corporation and Subsidiary


           
Cash and Cash Equivalents - Beginning of year      3,328,960    4,915,224  


Cash and Cash Equivalents - End of year   $ 4,084,378   $ 3,328,960  


Cash Paid (Received) for Interest and Income Taxes  
  Interest   $ 2,570,933   $ 3,298,614  


  Income taxes   $ (10,526 ) $ 333,000  






See Notes to Consolidated Financial Statements.

99.2-7


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

Note 1 – Summary of Significant Accounting Policies

  Basis of Presentation and Consolidation – The consolidated financial statements include the accounts of West Michigan Financial Corporation (the “Corporation”) and its wholly owned subsidiary, West Michigan Community Bank (the “Bank”).

  The Bank owns two subsidiaries, Community Insurance Services (the “Services Corporation”), which offers mutual fund products, securities brokerage services, retirement planning services, insurance products, investment management and advisory services, and West Michigan Mortgage, LLC (the “Mortgage Company”). The Mortgage Company was formed in 2002 and manages the residential loan portfolio, including origination and loan sales to the secondary market. The Services Corporation has a minority interest in a limited liability company formed through the Michigan Bankers Association along with other community financial institutions of Michigan. The limited liability company allows the Corporation to participate in title and other insurance premiums in an agency capacity. All significant intercompany transactions have been eliminated in consolidation.

  Use of Estimates in the Preparation of Financial Statements – The accounting and reporting policies of the Corporation and its subsidiary conform to accounting principles generally accepted in the United States of America. Management is required to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from these estimates and assumptions. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and deferred tax assets.

99.2-8


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

  Nature of Operations – The Corporation provides a variety of financial products and services through branch offices to the Michigan communities in Kent and Ottawa Counties. It offers a wide variety of deposits products and its primary lending products are residential mortgages and commercial loans.

  Significant Group Concentrations of Credit Risk – The Corporation’s activities are with customers located within Michigan. Note 3 discusses the types of securities the Corporation invests in; Note 4 discusses the types of lending that the Corporation engages in. The Corporation does not have any significant concentrations with any one industry or customer.

99.2-9


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

Note 1 – Summary of Significant Accounting Policies (Continued)

  Cash and Cash Equivalents – For purposes of the consolidated statement of cash flows, cash and cash equivalents include cash, balances due from banks, and federal funds sold, all of which mature within ninety days.

  Securities – Debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost. Securities not classified as held to maturity, including equity securities with readily determinable fair values, are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income, net of income taxes.

  Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

  Loans Held For Sale – Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized in a valuation allowance by charges to income.

  Loans – The Corporation grants mortgage, commercial, and consumer loans to customers. A substantial portion of the loan portfolio is represented by commercial real estate loans throughout West Michigan. The ability of the Corporation’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in this area.

99.2-10


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

  Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

99.2-11


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

Note 1 – Summary of Significant Accounting Policies (Continued)

  The accrual of interest on loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash basis or cost-recovery method, until qualifying for return for accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

  Allowance for Loan Losses – The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

  The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

99.2-12


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

  The allowance consists of specific, general and unallocated components. The specific components relate to loans that are classified as either doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

99.2-13


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

Note 1 – Summary of Significant Accounting Policies (Continued)

  A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial, commercial real estate and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the liquidated fair value of the collateral if the loan is collateral dependent.

  Large groups of homogeneous loans are collectively evaluated for impairment. Accordingly, the Corporation does not separately identify individual consumer and residential loans for impairment disclosures.

  Credit-related Financial Instruments – In the ordinary course of business, the Bank has entered into commitments to extend credit, including commercial letters of credit. Such financial instruments are recorded when they are funded.

99.2-14


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

  Bank Premises and Equipment – Land is carried at cost. Bank premises and equipment are stated at cost, less depreciation computed using straight-line and declining balance methods over the estimated useful lives of the assets.

  Income Taxes – Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the various temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.

  Stock Compensation Plans – As permitted by SFAS No. 148, the Corporation will continue to apply the provisions of APB Opinion No. 25, “Accounting for Stock-Based Compensation,” for all employee stock opinion grants and has elected to disclose pro forma net income and earnings per share amounts as if the fair-value based method has been applied in measuring compensation costs.

99.2-15


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

Note 1 – Summary of Significant Accounting Policies (Continued)

        The Corporation’s as reported and the pro forma information for the years ended December 31:

2003 2002


 Net Income (loss)            
     As reported net income (loss) available to  
          common shareholders   $ (401,660 ) $ 57,839  
     Less: stock-based compensation expense determined  
          under fair value method, net of tax    -    18,104  


     Pro forma net income (loss)   $ (401,660 ) $ 39,735  
   
 Earnings (loss) Per Share  
     As reported earnings (loss) per share   $ (10.56 ) $ 1.52  
     Pro forma earnings (loss) per share   $ (10.56 ) $ 1.04  
     As reported earnings (loss) per diluted share   $ (10.56 ) $ 1.52  
     Pro forma earnings (loss) per diluted share   $ (10.56 ) $ 1.04  

  Compensation expense in the pro forma disclosures is not indicative of future amounts, as additional grants are generally made each year. No options were granted during 2003. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions for December 31, 2002:

Dividend yield      0.47 %
 Expected life    10.0 Yrs  
 Expected volatility    4.74 %
 Risk-free interest rate    4.00 %
 Weighted average fair value of options granted  
     during the year   $ 46.04  

99.2-16


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

  Earnings (Loss) per Share – Basic earnings (loss) per share represents income available to common stockholders divided by the weighted average number of common shares outstanding during the period.

99.2-17


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

Note 1 – Summary of Significant Accounting Policies (Continued)

  Diluted earnings (loss) per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustments to income that would result from the assumed issuance. Potential common shares that may be issued by the Corporation relate solely to outstanding stock options and are determined using the treasury stock method. There were no dilutive stock options as of December 31, 2003 and 2002.

  Comprehensive Income (Loss) – Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

  The components of other comprehensive income (loss) and related tax effects are as follows for the years ended December 31:

2003 2002


Unrealized holding gains (losses) on            
   available-for-sale securities   $ (313,130 ) $ 298,392  
Reclassification adjustment for  
   gains realized in income    (108,064 )  (95,801 )


Net unrealized gains (losses)    (421,194 )  202,591  
   
Tax effect    143,205    (68,880 )


Net-of-tax amount   $ (277,989 ) $ 133,711  


99.2-18


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

Note 2 – Restrictions on Cash and Amounts Due From Banks

  The Bank is required to maintain average balances on hand or with the Federal Reserve Bank. At December 31, 2003 and 2002, these reserve balances amounted to $85,112 and $42,431, respectively.

Note 3 – Securities

  The amortized cost and estimated market value of securities available for sale, with gross unrealized gains and losses, are as follows:

December 31, 2003

Amortized Cost Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Market Value




 Available for sale securities:                    
    U.S. government agencies   $ 13,708,914    49,385   $ 219,301   $ 13,538,998  
    Municipal bonds    3,398,617    91,945    15,581    3,474,981  
    Mortgage-backed securities    10,202,205    6,701    20,521    10,188,385  




                Total   $ 27,309,736   $ 148,031   $ 255,403   $ 27,202,364  




   
Held to maturity-mortgage backed securities   $ 31,631   $ 2,388   $ -   $ 34,019  





December 31, 2002

Amortized Cost Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Market Value




 Available for sale securities:                    
    U.S. government agencies   $ 9,908,393   $ 166,649 $-   $ 10,075,042  
    Municipal bonds    3,412,667    64,657    5,046    3,472,278  
    Mortgage-backed securities    5,274,198    87,562    -    5,361,760  




                Total   $ 18,595,258   $ 318,868   $ 5,046   $ 18,909,080  




   
Held to maturity-mortgage backed securities   $ 55,470   $ 3,515 $  -   $ 58,985  





99.2-19


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

Note 3 – Securities (Continued)

  Other securities consist of FHLB stock, which is restricted-use and required for membership with the organization. The security is carried at cost, which approximates market value.

  The carrying amount of securities pledged as collateral for FHLB advances, excluding FHLB stock, was $23,942,751 and $15,238,061 at December 31, 2003 and 2002, respectively.

  The amortized cost and estimated market value of securities available for sale at December 31, 2003, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because of call options for some bond payments or prepayments within mortgage-backed securities.

Available for Sale Held To Maturity


Amortized Cost Estimated Market Value Amortized Cost Estimated Market Value




Due in one year or less     $ 469,656   $ 475,053   $-   $-  
Due after one year through five years    2,471,114    2,512,972    -    -  
Due after five years through ten years    9,367,430    9,243,175    -    -  
Due after ten years    4,799,331    4,782,779    -    -  




     17,107,531    17,013,979    -    -  
   
Mortgage-backed securities    10,202,205    10,188,385    31,631    34,019  




                Total   $ 27,309,736   $ 27,202,364   $ 31,631   $ 34,019  





99.2-20


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

Note 4 – Loans

Major categories of loans included in the portfolio are as follows at December 31:


     2003    2002  


Commercial loans   $ 8,271,235   $ 9,972,098  
   
Mortgage loans on real estate:  
     Residential 1-4 family    5,763,594    6,830,684  
     Commercial    56,423,343    45,536,067  
     Construction    7,622,794    11,239,499  
     Equity lines of credit    10,243,092    5,300,848  


     88,324,058    78,879,196  
   
Consumer lending    7,046,039    11,236,847  


           Subtotal    95,370,097    90,116,043  
   
Less: Allowance for loan losses    (1,923,508 )  (1,400,283 )


           Total loans, net   $ 93,446,589   $ 88,715,760  



  The carrying amount of loans pledged as collateral for FHLB advances were $17,024,742 and $14,859,026 at December 31, 2003, and 2002, respectively.

99.2-21


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

  A summary of the activity in the allowance for loan losses is as follows:

       2003    2002  


Balance - Beginning of year   $ 1,400,283   $ 958,063  
   
Provision charged to operations    1,145,000    1,165,000  
   
Loans charged off    (734,911 )  (745,356 )
   
Recoveries on loans previously charged off    113,136    22,576  


Balance - End of year   $ 1,923,508   $ 1,400,283  



99.2-22


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

Note 4 – Loans (Continued)

        The following is a summary of information pertaining to impaired loans at December 31:

     2003    2002  


Impaired loans without a  
   valuation allowance   $-   $ 286,090  
   
Impaired loans with a valuation  
   Allowance    1,444,040    200,000  


Total impaired loans   $ 1,444,040   $ 486,090  


Specific allowance related to impaired  
   Loans   $ 945,911   $ 143,659  


     Total non-accrual loans   $ 679,091   $ 1,573,874  


     Total loans past-due ninety days or more  
        and still accruing   $ 16,387   $ 156,781  


   
   
    2003    2002  


 Average investment in  
    impaired loans   $ 1,227,910   $ 984,118  


 Interest income recognized  
    on impaired loans   $ 30,924   $ 12,647  


 Interest income recognized on  
    a cash basis on impaired loans   $ 30,924   $ 12,647  


  No additional funds are committed to be advanced in connection with impaired loans.

99.2-23


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

Note 5 – Bank Premises and Equipment

  Bank premises and equipment consist of the following at December 31:

     2003    2002  


Land   $ 657,213   $ 657,213  
Buildings and improvements    3,795,044    3,785,995  
Furniture and equipment    3,326,602    3,257,150  


                   Total cost    7,778,859    7,700,358  
   
Less accumulated depreciation  
     and amortization    3,368,290    2,947,226  


                   Net carrying amount   $ 4,410,569   $ 4,753,132  



  In August of 2002, the Bank signed a five year lease agreement to open an additional branch in Holland, Michigan. Pursuant to the terms of the lease agreement, future minimum rent commitments are as follows:

2004         $ 63,860  
2005       65,776  
2006       67,749  
2007       69,782  

    Total   $ 267,167  


  The lease contains three options to renew the agreement in five year increments. The cost of such rentals is not included above. Total rent expense amounted to approximately $62,000 and $26,000 for the years ended December 31, 2003 and 2002, respectively.

99.2-24


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

Note 6 – Deposits

  The following is a summary of the interest-bearing deposits at December 31:

     2003    2002  


Checking accounts   $ 17,752,849   $ 13,100,599  
Money market    26,936,276    24,181,179  
Savings    9,527,430    9,228,483  
Time:  
     $100,000 and over    4,839,446    4,162,042  
     Under $100,000    25,123,805    28,376,532  


            Total interest-bearing  
                deposits   $ 84,179,806   $ 79,048,835  



  The remaining maturities of time deposits outstanding at December 31, 2003 are as follows:

$100,000 and Over Under $100,000


2004     $ 1,902,299   $ 10,358,243  
2005    1,765,560    10,252,223  
2006    1,171,587    2,883,281  
2007    -    1,602,981  
2008    -    27,077  
Thereafter    -    -  


Total   $ 4,839,446   $ 25,123,805  



99.2-25


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

Note 7 – FHLB Advances Payable

  Advances from the FHLB are secured by the Bank’s unencumbered qualifying securities and mortgage loans (see Notes 3 and 4). These assets have been pledged to the FHLB under both blanket and specific collateral provisions of an “Advance, Pledge, and Security Agreement” dated April 10, 1996.

The maturity schedule advances at December 31, 2003 are as follows:

Fixed Rate

Amount Rate


2004     $ 13,000,000   1.27 - 5.53 %    
2005    2,000,000   2.23 - 3.28 %  
2006    3,000,000   3.77 - 4.73 %  
2007    3,000,000   3.21 - 3.75 %  
2008    -   -  
Thereafter    2,000,000   4.22 %  

        Total   $23,000,000 


  At December 31, 2003 and 2002, the weighted average interest rates on fixed-rate, long-term debt was 2.98 percent and 4.44 percent, respectively.

99.2-26


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

Note 8 – Notes Payable

  Notes payable consists of the following at December 31:

2003 2002




Note payable to a bank with variable interest rates at .75 percent under prime (effective interest rates of 3.25 and 3.50 percent at December 31, 2003 and 2002, respectively), collateralized by 100 percent of the common stock in West Michigan Community Bank. The Corporation is required to pay quarterly installments plus interest
    $3,280,000   $3,560,000  


Note payable to a bank with variable interest rates at .75 percent under prime and a floor of 4.00 percent (effective interest rates of 4.00 percent at December 31, 2002), collateralized by 100 percent of the common stock in West Michigan Community Bank
     -    750,000  


Privately placed debentures ("the debentures") to executive officers of the Corporation and existing shareholders. The first issuance of debentures, totaling $250,000, were issued on February 10, 2003 and carry a fixed interest rate of 10 percent. The second issuance, totaling $1,250,000 were issued February 18, 2003 and carry the same interest rate. Interest on the debentures is payable quarterly on or not later than January 1, April 1, July 1, and October 1 of each year. These debentures are unsecured and mature ten years from the date of issuance and may be repaid at any time subject to prior written consent of the holders of senior indebtedness
     1,500,000    -  


                 Total notes payable   $ 4,780,000   $ 4,310,000  



99.2-27


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

Note 8 – Notes Payable (Continued)

        The maturity schedule as of December 31, 2003 is as follows:

2004     $ 320,000  
2005    380,000  
2006    420,000  
2007    460,000  
2008    500,000  
Thereafter    2,700,000  

        Total   $ 4,780,000  


Note 9 – Income Taxes

  The provision for income taxes reflected in the consolidated statement of operations consists of the following:

     2003    2002  


Current tax expense   $ 3,681   $ 196,867  
Deferred tax benefit    (192,500 )  (170,880 )


          Total income tax expense (benefit)   $ (188,819 ) $ 25,987  



  The differences between the statutory federal income tax rate and the effective tax rates are summarized as follows:

     2003    2002  


Income tax (benefit) at statutory rates   $ (200,763 ) $ 28,501  
   
Nontaxable municipal interest income    (46,180 )  (25,396 )
Effect of nondeductible expenses,  
     graduated tax rates, and other    58,124    22,882  


            Reported tax expense (benefit)   $ (188,819 ) $ 25,987  



99.2-28


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

Note 9 – Income Taxes (Continued)

  Deferred tax assets and liabilities are as follows:

     2003    2002  


Deferred tax assets:  
     Allowance for loan losses   $ 524,500   $ 386,000  
     Non-accrual interest    70,000    61,000  
     Deferred compensation    112,000    102,000  
     Unrealized losses on securities available for sale    37,000    -  
     Other    29,000    28,000  


              Total deferred tax assets    772,500    577,000  
   
Deferred tax liabilities:  
     Fixed assets    (194,000 )  (216,000 )
     Unrealized gains on securities available for sale    -    (107,000 )
     Other    (2,000 )  (14,000 )


              Total deferred tax liabilities    (196,000 )  (337,000 )


              Net deferred tax asset   $ 576,500   $ 240,000  


Note 10 – Employee Benefit Plans

  Retirement Plan – The Corporation has a defined contribution retirement plan that covers all employees with more than six months and 1,000 hours of service annually. Contributions by the Corporation to the plan are discretionary and totaled $38,446 for 2003 and $39,108 for 2002.

99.2-29


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

  Deferred Compensation – The Corporation sponsors deferred compensation agreements for certain employees and officers. The cost of the agreements was approximately $30,000 and $70,000 in 2003 and 2002, respectively and is included in compensation expense. The accrued liability for these agreements was $329,926 and $299,627 as of December 31, 2003 and 2002, respectively. The accrued liability is included in other liabilities on the accompanying balance sheets. The Corporation has purchased life insurance policies on the participating employees and officers, the cash surrender values of which are included in other assets.

99.2-30


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

Note 11 – Related Parties

  In the ordinary course of business, the Bank has granted loans to principal officers and directors and their affiliates of approximately $610,000 and $1,663,000 as of December 31, 2003 and 2002, respectively.

  At December 31, 2003, the Corporation had commitments to advance an additional $1,170,000 to these related parties under line-of-credit and similar arrangements.

Note 12 – Financial Instruments

  The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Corporation’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. SFAS 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Corporation.

  The following methods and assumptions were used by the Corporation in estimating fair value disclosures for financial instruments:

99.2-31


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

  Cash and cash equivalents – The carrying amounts of cash and short-term instruments approximate fair values.

  Securities – Fair values for securities, excluding restricted use stocks, are based on quoted market prices. The carrying value of Federal Home Loan Bank stock approximates fair value based on the redemption provisions of the Federal Home Loan Bank.

  Mortgage loans held for sale – Fair values of mortgage loans held for sale are based on commitments on hand from investors or prevailing market prices.

  Accrued interest – The carrying amounts of accrued interest approximate fair value.

99.2-32


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

Note 12 – Financial Instruments (Continued)

  Loans receivable – For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for certain mortgage loans (e.g., one-to-four family residential), and other consumer loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. Fair values for other loans (e.g., commercial real estate and investment property mortgage loans, commercial and industrial loans) are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for non-performing loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

  Deposit liabilities – The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

  Federal Funds Purchased – The carrying amounts of federal funds purchased approximate their fair values.

99.2-33


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

  Notes payable and FHLB advances payable – The fair values of the Corporation’s long-term borrowings are estimated using discounted cash flow analyses based on the Corporation’s current incremental borrowing rates for similar types of borrowing arrangements.

  The Corporation has disclosed the following fair values of its financial instruments in accordance with Statement of Financial Accounting Standards No. 107, “Disclosures About Fair Value of Financial Instruments”:

99.2-34


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

Note 12 – Financial Instruments (Continued)

Carrying Amount Estimated Fair Value


December 31, 2003            
Assets:  
    Cash and cash equivalents   $ 4,084,378   $ 4,084,378  
    Securities available for sale    27,202,364    27,202,364  
    Securities held to maturity    31,631    34,019  
    Other securities    1,301,550    1,301,550  
    Loans held for sale    859,520    872,843  
    Net loans and accrued interest receivable    94,071,451    94,414,061  
   
Liabilities:  
    Deposits and accrued interest payable    97,096,734    97,211,534  
    Fed funds purchased    2,379,266    2,379,266  
    Notes payable    4,780,000    4,780,000  
    FHLB advances payable    23,000,000    23,942,168  
   
December 31, 2002  
Assets:  
    Cash and cash equivalents   $ 3,328,960   $ 3,328,960  
    Securities available for sale    18,909,080    18,909,080  
    Securities held to maturity    55,470    58,985  
    Other securities    1,253,250    1,253,250  
    Loans held for sale    8,317,485    8,429,771  
    Net loans and accrued interest receivable    89,375,724    91,254,064  
   
Liabilities:  
    Deposits and accrued interest payable    93,343,221    92,781,010  
    Fed funds purchased    2,100,000    2,100,000  
    Notes payable    4,310,000    4,310,000  
    FHLB advances payable    21,000,000    21,618,111  

99.2-35


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

Note 12 – Financial Instruments (Continued)

  Off-Balance-Sheet Risk – The Corporation is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and financial guarantees. These instruments involve, to varying degrees, elements of credit and interest rate risk that are not recognized in the balance sheet.

  Commitments to extend credit are agreements to lend to a customer as long as there are no violations of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require a payment of a fee. Fees from issuing these commitments to extend credit are recognized over the period to maturity. Since a portion of the commitments are expected to expire without being drawn upon, the total commitments do not necessarily represent future cash requirements. The Corporation evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained upon extension of credit is based on management’s credit evaluation of the customer.

  Exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and financial guarantees written is represented by the contractual notional amount of those items. The Corporation generally requires collateral to support such financial instruments in excess of the contractual notional amount of those instruments.

99.2-36


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

  At December 31, 2003, and 2002, the following financial instruments were outstanding whose contract amounts represent credit risk:

Contract Amount

2003 2002


Commitments to grant loans     $ 19,717,000   $ 12,669,000  
Unfunded commitments under lines of credit    6,731,000    5,381,000  
Letters of credit    153,000    481,000  

99.2-37


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

Note 13 – Restrictions on Dividends, Advances, and Loans

  Banking regulations place certain restrictions on dividends paid and loans or advances made by the Bank to the Corporation. The total amount of dividends which may be paid at any date is generally limited to the retained earnings of the Bank. However, dividends paid by the Bank would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum standards. At December 31, 2003, the Bank’s primary regulator has required the Bank to obtain regulatory approval for any dividends other than dividends to the Corporation for payment on debt service or director fees.

  Loans or advances made by the Bank to the Corporation are generally limited to 10 percent of the Bank’s capital stock and surplus. Accordingly, at December 31, 2003, Bank funds available for loans or advances to the Corporation amounted to $720,000.

Note 14 – Stock-Based Compensation

  The Corporation has stock option plans under which options may be granted to certain officers, employees and directors at not less than the market price of the Corporation’s stock on the date of the grant. The plan was established in 2000 and authorized up to 1,000 options. The options are immediately vested when granted. Options expire within ten years of the date of the grant, subject to certain cancellation provisions related to employment.

99.2-38


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

        The following tables summarize information about stock option transactions:

2003 2002


Number of Shares Weighted Average Exercise Price Number of Shares Weighted Average Exercise Price




Outstanding, beginning of period     879   $172.59   546   $162.74  
     Granted    -    -    386    182.90  
     Exercised    -    -    -    -  
     Terminated    -    -    (53 )  (162.74 )




Options outstanding at end of year    879    879


Outstanding, end of period    879   $172.59    879   $182.90  




Exercisable, end of period    879   $172.59    879   $172.59  





99.2-39


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

Note 15 – Regulatory Matters

  The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

  Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts, and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2003, and 2002, that the Bank met all capital adequacy requirements to which it is subject.

  The most recent notification from the Federal Deposit Insurance Corporation as of December 31, 2003, categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. As of December 31, 2003, management believes that the Bank is categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risked-based and Tier 1 leverage ratios as set forth in the following tables. The Bank’s actual capital amounts and ratios as of December 31, 2003 and 2002 are also presented in the table.

99.2-40


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

Note 15 – Regulatory Matters (Continued)

Actual For Capital Adequacy Purposes To be Well Capitalized Under Prompt Corrective Action Provisions



Amounts Ratio Amounts Ratio Amounts Ratio






($ 000's omitted)
As of December 31, 2003:                            
   
Total Capital  
    (to Risk Weighted Assets)   $ 10,550    10.20%   $ 8,275    8.0%   $ 10,343    10.0%  
Tier I Capital  
    (to Risk Weighted Assets)   $ 9,249    8.90%   $ 4,157    4.0%   $ 6,235    6.0%  
Tier I Capital  
    (to Average Assets)   $ 9,249    7.40%   $ 4,999    4.0%   $ 6,249    5.0%  
   
As of December 31, 2002:  
   
Total Capital  
    (to Risk Weighted Assets)   $ 10,508    10.5%   $ 8,006    8.0%   $ 10,008    10.0%  
Tier I Capital  
    (to Risk Weighted Assets)   $ 9,253    9.2%   $ 4,023    4.0%   $ 6,035    6.0%  
Tier I Capital  
    (to Average Assets)   $ 9,253    7.5%   $ 4,935    4.0%   $ 6,169    5.0%  

  In addition to the minimum capital amounts and ratios outlined by the regulatory framework for prompt corrective action, the Bank has been required by the Office of Financial and Insurance Services (OFIS) and the Federal Deposit Insurance Corporation (FDIC) (collectively “the regulators”) to maintain a Tier I Capital to average assets ratio of 7.00%. As of December 31, 2003, the Bank is in compliance with all capital requirements.

99.2-41


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

Note 16 – Plan of Merger

  On October 14, 2003, the Corporation signed an Agreement and Plan of Merger with Fentura Financial, Inc. The Plan calls for the conversion of all outstanding common stock of the Corporation to cash in the amount of $336.00 per share.

  Certain financial requirements were outlined in the agreement, including a minimum net worth requirement to be maintained through the closing date. As of the closing date, the Corporation must have a minimum calculation of net book value of $5,200,000 exclusive of certain allowable adjustments as outlined in the Plan. As of December 31, 2003, the Corporation has not reached the adjusted net book value. Management expects to reach adjusted net book value requirement by the closing date. The schedule of the adjusted net book value for the year ended December 31, 2003 is as follows:

Common Stock Surplus Retained Earnings Accumulated Other Comprehensive Loss Total





Balance - December 31, 2003     $ 190,145   $ 1,283,071   $ 3,251,605   $ (70,866 ) $ 4,653,955  





Adjustment to the allowance for loan losses, net of tax
    379,500  

Adjustment for costs expensed in accordance with the Plan of Merger, net of tax
    68,220  

Realized gains on the sale of securities recorded after October 1, 2003, net of tax
    -  

Unrealized losses on available for sale securities, net of tax
    70,866  

Total adjusted book value as of December 31, 2003   $ 5,172,541  


Required book value (per section 6.3 (i) of Plan of Merger)
   $ 5,200,000  
Excess (Deficiency)   $ (27,459 )

99.2-42


West Michigan Financial Corporation and Subsidiary


Notes to Consolidated Financial Statements
December 31, 2003 and 2002

  The Corporation has certain severance agreements which call for payments to certain officers and senior management of the Corporation upon termination resulting from a change in control. Liabilities related to these agreements have not been included in the Consolidated Balance Sheet at December 31, 2003.

99.2-43


EXHIBIT 99.3

Unaudited Pro Forma Condensed Combined Financial Statements

        The following unaudited pro forma condensed combined balance sheet as of December 31, 2003, and the unaudited pro forma condensed combined statement of income for the year ended December 31, 2003, give effect to the Merger. This pro forma financial information is based on the historical consolidated financial statements of Fentura Financial, Inc. (“Fentura”) and West Michigan Financial Corporation (“WMFC”) and their subsidiaries under the assumptions and adjustments set forth in the accompanying notes to the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined balance sheet assumes the Merger was consummated on December 31, 2003. The unaudited pro forma condensed combined statement of income give effect to the Merger as if the Merger occurred at the beginning of 2003.

        The unaudited pro forma condensed combined financial statements do not reflect restructuring and other Merger related expenses expected to be incurred by Fentura and WMFC, or the anticipated cost savings. As a result, the pro forma combined financial condition and results of operations of Fentura as of and after the Effective Time of the Merger may not be indicative of the results that actually would have occurred if the Merger had been in effect during the periods presented or of the results that may be attained in the future.

99.3-1


Unaudited Pro Forma Condensed Combined Balance Sheet
December 31, 2003
(Dollars in Thousands)

Fentura
Historical
WMFC
Historical
Pro Forma
Adjustments
Pro Forma
Combined




ASSETS                    
   Cash and due from banks   $ 16,509   $ 4,084   $(12,607 ) $ 7,986  
   Federal funds sold    3,650    0    0    3,650  




       Total cash and cash equivalents    20,159    4,084    (12,607 )  11,636  
   
   Securities available for sale, at fair value    113,833    27,202    143    141,178  
   
   Securities held to maturity (fair value 2003 - $12,553)    12,169    32    0    12,201  
   
   Loans held for sale    1,095    860    0    1,955  
   Loans, net of allowance of 2003 - $5,338,    249,831    93,447    105  343,383  
   Bank premises and equipment    9,606    4,411    (624 )  13,393  
   Accrued interest receivable    1,884    1,122    0    3,006  
   Bank owned life insurance    6,458    0    0    6,458  
   Federal Home Loan Bank stock    854    1,301    0    2,155  
   Goodwill    0    0    6,750    6,750  
   Other Intangible Assets    0    0    3,202    3,202  
   Other assets    4,077    576    0    4,653  




    $ 419,966   $ 133,035   $(3,324 ) $ 549,677  




   
LIABILITIES AND STOCKHOLDERS' EQUITY  
   Deposits:  
       Noninterest-bearing deposits   $ 58,708   $ 12,817   $ 0   $ 71,525  
       Interest-bearing deposits    289,817    84,180    444  374,441  




          Total deposits    348,525    96,997    444  445,966  
   
   Short-term borrowings    3,449    7,159    (1,000 )  9,608  
   Federal Home Loan Bank Advances    1,108    23,000    433    24,541  
   Repurchase Agreements    12,500    0    0    12,500  
   Subordinated debentures    12,000    0    0    12,000  
   Accrued taxes, interest and other liabilities    1,502    1,225    1,524    4,251  




       Total liabilities    379,084    128,381    1,401    508,866  
   
Stockholders' equity  
   Common stock - $0 par value, shares issued  
     1,880,485 - 2003    32,769    1,473    (1,473 )  32,769  
   Retained earnings    8,238    3,252    (3,252 )  8,238  
   Accumulated other comprehensive income    (125 )  (71 )  0    (196 )




     40,882    4,654    (4,725 )  40,811  




    $ 419,966   $ 133,035   $(3,324 ) $ 549,677  




        See notes to unaudited pro forma condensed combined financial statements.

99.3-2


Unaudited Pro Forma Condensed Combined Statement of Income
Year Ended December 31, 2003
(Dollars in Thousands, Except Per Share Amounts)

Fentura
Historical
WMFC
Historical
Pro Forma
Adjustments
Pro Forma
Combined




Interest income                    
     Loans, including fees   $ 15,669 $ 6,027   $ 0   $ 21,696
     Securities:  
        Taxable    1,943    704    0    2,647  
        Tax-exempt    665    136    0    801  
     Short-term investments    161    28    0    189  




        Total interest income    18,438    6,895    0    25,333  
    
Interest expense  
     Deposits    5,318    1,621    0    6,939  
     Short-term borrowings    9    6    0    15  
     Other Borrowings    274    957    0    1,231  




        Total interest expense    5,601    2,584    0    8,185  




Net interest income    12,837    4,311    0    17,148  
   
Provision for loan losses    1,319    1,145    0    2,464  




Net interest income after provision for loan losses    11,518    3,166    0    14,684  
   
Noninterest income  
     Service charges on deposit accounts    3,609    253    0    3,862  
     Gain on sale of mortgage loans    1,258    932    0    2,190  
     Trust income    507    0    0    507  
     Gain on sale of securities    31    108    0    139  
     Gain on sale of fixed assets    201    0    0    201  
     Other income and fees    1,260    580    0    1,840  




        Total noninterest income    6,866    1,873    0    8,739  
   
Noninterest expense  
     Salaries and employee benefits    6,981    3,347    0    10,328  
     Occupancy    1,116    956    0    2,072  
     Furniture and equipment    1,533    0    0    1,533  
     Office supplies    300    0    0    300  
     Loan and collection    280    0    0    280  
     Advertising and promotional    373    0    0    373  
     Other professional services    1,171    0    0    1,171  
     Other general and administrative    1,522    1,326    0    2,848  




        Total noninterest expense    13,276    5,629    0    18,905  





99.3-3


Fentura
Historical
WMFC
Historical
Pro Forma
Adjustments
Pro Forma
Combined




Net income before taxes    5,108    (590 )  0    4,518  




Federal income taxes    1,320    (189 )  0    1,131  




Net income   $ 3,788    ($401 ) $ 0   $ 3,387  




Per share:  
     Earnings - basic   $ 2.01   $(10.56 ) $ 0.00 $1.80  
     Earnings - diluted   $ 2.01   $(10.56 ) $ 0.00 $1.79  

        See notes to unaudited pro forma condensed combined financial statements.

99.3-4


Notes to Unaudited Pro Forma Condensed Combined Balance
Sheets and Statements of Income


NOTE 1

Each share of WMFC common stock that is issued and outstanding immediately prior to the Effective Time of the Merger will be canceled and converted, by virtue of the Merger and without any further action, into the right to receive $336 per share in cash.

NOTE 2

Since the final determination of adjustments to assets and liabilities will be made based on the fair values as of the Effective Time of the Merger and after evaluations of the values are complete, the final amounts may differ from the estimates provided herein.

NOTE 3

The calculation of goodwill is as follows:

Goodwill Calculation

Purchase Price      12,923  
WMFC Equity    (4,703 )
Identified intangibles    (3,202 )
Purchase accounting adjustments  
Loans    105  
Deposits    444  
Investments    (150 )
Fixed assets    (671 )
Debt    433  
Deal costs    300  
Other liabilities    467  
Leases    47  
Deferred taxes    757  

          Goodwill    6,750

99.3-5


NOTE 4

A reconciliation of the numerators and denominators of pro forma basic and diluted earnings per share for the year ended December 31, 2003 are as follows:

2003

Basic        
  Net Income   $ 3,387,000  

Weighted average common shares outstanding    1,883,201  

Basic earnings per common share   $ 1.80  

   
Diluted  
  Net Income   $ 3,387,000  

Weighted average common shares outstanding  
 per basic earnings per common share    1,883,201  
Add: Dilutive effects of assumed exercises of  
 stock options    5,231  

Average shares & dilutive potential common shares    1,888,432  

Diluted earnings per common share   $ 1.79  


NOTE 5

Income tax expense on pro forma adjustments is reflected using a 34% tax rate.

99.3-6