SOMC Southern Michigan Bancorp Inc (PK)

          Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective.

          If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box:   o

          If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   o

          If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   o

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

          The board of directors of FNB Financial Corporation is furnishing this prospectus and proxy statement and the accompanying form of proxy on or about [ October __, 2007, ] to the shareholders of FNB to solicit proxies to vote at a special meeting of FNB's shareholders to be held on November 27, 2007, at 88 North Main Street, Three Rivers, Michigan at 6:00 p.m. local time and at any adjournments of the special meeting. At the special meeting, the shareholders of FNB will consider and vote upon a proposal to approve a plan of merger with Southern Michigan Bancorp, Inc., under which FNB would be merged with and into Southern. The plan of merger has already been adopted by Southern's board of directors and Southern is not required to submit the plan of merger to its shareholders for approval.

          This prospectus and proxy statement, when delivered to shareholders of FNB, is a prospectus of Southern relating to an offering of Southern common stock. This offering is made only to holders of FNB common stock.

          You may elect to receive, upon completion of the merger, Southern common stock, cash, or a combination of both. If the plan of merger is approved and the merger is completed, each outstanding share of FNB common stock that you hold will be converted into the right to receive, at your election, either $45.35 in cash or 1.87 shares of Southern common stock (plus cash in lieu of any fractional share), or a combination of both. Because elections are subject to potential allocation as described in this prospectus and proxy statement, there can be no assurance that you will receive the type or proportion of consideration you elect for all your shares of FNB common stock. See " The Merger-Allocation Procedure ."

          The Southern common stock that will be issued to FNB's shareholders in connection with the merger is traded in the OTC Bulletin Board market under the trading symbol "SOMC.OB" Trading activity in Southern common stock is relatively infrequent.

          FNB shareholders should read and consider the information under the heading "Risk Factors" beginning on page 12 of this prospectus and proxy statement. Completion of the merger is subject to approval of the plan of merger by the shareholders of FNB, regulatory approvals, and certain other conditions. See " The Merger-Conditions to the Merger ."

          In the opinion of Austin Associates, LLC, the consideration to be offered and received in the merger is fair, from a financial point of view, to the shareholders of FNB. See " The Merger-Fairness Opinion of Austin Associates, LLC ."

          Your vote is important. Approval of the proposed plan of merger requires the affirmative vote of a majority of the outstanding shares of FNB common stock. Please sign and date the enclosed proxy and mail it promptly in the enclosed envelope, regardless of whether or not you expect to attend the meeting in person.

          The shares of Southern common stock to be issued in the merger are not deposits or savings accounts or other obligations of any bank or savings association, and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency. Southern common stock is subject to investment risks, including possible loss of value.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

This prospectus and proxy statement is dated [ October __, 2007. ]

TABLE OF CONTENTS

Southern has filed a registration statement with the Securities and Exchange Commission (the " Commission " or the " SEC ") relating to the Southern common stock offered in connection with the proposed merger described in this prospectus and proxy statement. This prospectus and proxy statement does not contain all of the information set forth in the registration statement, certain portions of which are omitted in accordance with the rules and regulations of the Commission. Reference is hereby made to the registration statement and exhibits thereto for further information about Southern, FNB, and their respective securities. The registration statement is available at http://www.sec.gov. FNB shareholders can also obtain copies of all or part of the registration statement without charge upon written or oral request directed to Danice Chartrand, Chief Financial Officer, Southern Michigan Bancorp, Inc., 51 West Pearl Street, Coldwater, Michigan 49036, (517) 279-5500. A shareholder making such a request must request the information at least five business days before the date they must make their investment decision to ensure timely delivery. Accordingly, the deadline for an FNB shareholder to make a request is [_____________, 2007].

88 North Main Street
Three Rivers, Michigan 49093

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To the shareholders of FNB Financial Corporation:

          A special meeting of shareholders of FNB Financial Corporation will be held at 88 North Main Street, Three Rivers, Michigan, on November __, 2007 at 6:00 p.m. local time, for the following purposes:

          1.          To consider and vote upon a proposal to approve an agreement and plan of merger between FNB Financial Corporation and Southern Michigan Bancorp, Inc.

          2.          To transact such other business as may properly come before the meeting.

          The Board of Directors has established the close of business on October 12, 2007, as the record date for the determination of shareholders entitled to notice of and to vote at the meeting and any adjournment of the meeting. Shareholders of FNB are entitled to assert dissenters' rights under the Michigan Business Corporation Act (" MBCA ") with respect to the merger as provided in and in compliance with the provisions of the MBCA.

[ October __, 2007 ]

YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO
ATTEND THE MEETING, PLEASE SIGN, DATE AND
RETURN THE ENCLOSED PROXY PROMPTLY .

QUESTIONS AND ANSWERS ABOUT THE MERGER

SUMMARY

          This summary highlights selected information from this prospectus and proxy statement and may not contain all of the information that is important to you. For a more complete description of the legal terms of the merger of Southern and FNB, you should carefully read and consider the plan of merger attached as Appendix A to this prospectus and proxy statement.

The Companies

Southern Michigan Bancorp, Inc.
51 West Pearl Street
Post Office Box 309
Coldwater, Michigan 49036
(517) 279-5500

          Southern Michigan Bancorp, Inc. (" Southern ") is a bank holding company headquartered in Coldwater, Michigan. Southern is the parent company of Southern Michigan Bank & Trust (" Southern Michigan Bank "). Southern Michigan Bank is the parent company of SMB Mortgage Company and SMB&T Financial Services, Inc. Southern Michigan Bank operates 11 banking offices located in Athens, Battle Creek, Camden, Coldwater, Hillsdale, Marshall, North Adams, Tekonsha, and Union City, Michigan. Southern's website address is http://www.smb-t.com.

FNB Financial Corporation
88 North Main Street
Post Office Box 407
Three Rivers, Michigan 49093
(269) 273-1715

          FNB Financial Corporation (" FNB ") is a bank holding company headquartered in Three Rivers, Michigan. FNB is the parent company of The First National Bank of Three Rivers, a national banking association (" FNB Bank "). FNB Bank is the parent company of FNB Financial Services. FNB Bank operates 7 banking offices located in Three Rivers, Cassopolis, Mendon, Constantine, and Centreville, Michigan. FNB's website address is https://www.fnbtr.com.

Summary of Certain Aspects of the Merger

          Structure of the Merger (see page 27). If the merger is completed, FNB will be merged with and into Southern. The surviving corporation will be Southern. The surviving corporation will own FNB Bank and Southern Michigan Bank and all of the other assets of FNB and Southern.

          What FNB Shareholders Will Receive in the Merger (see page 27). If the merger is completed as planned, subject to certain possible adjustments as provided in the plan of merger, you will receive either (1) 1.87 shares of Southern common stock, (2) $45.35 in cash, or (3) a combination of both for each share of FNB common stock.

          You will be receiving an election form and transmittal materials from the Exchange Agent with instructions for electing to receive cash or Southern common stock for your shares of FNB common stock and for surrendering your FNB stock certificates. You should carefully read and follow the instructions in the letter of transmittal regarding how and when to surrender your stock certificates. Your properly completed election form and letter of transmittal and your FNB stock certificates must be received by the Exchange Agent no later than 6:00 p.m. on November 27, 2007 for your election to be effective.

          The total number of shares of FNB common stock to be converted into Southern common stock must be approximately 50% of the total outstanding shares of FNB common stock outstanding at the effective time of the merger. If the number of shares of FNB common stock that FNB shareholders elect to be exchanged for shares of Southern common stock exceed or are less than this number, then the amount of cash and/or shares of Southern common stock that will be received by holders of FNB common stock may be reduced or increased, as the case may be. These allocation procedures are described in detail beginning on page 29 of this prospectus and proxy statement.

          Recommendation to FNB Shareholders to Approve the Merger (see page 33). After careful consideration, FNB's board of directors has determined that the merger would be in the best interests of FNB's shareholders. FNB's board of directors recommends that you vote FOR the proposal to approve the plan of merger.

          Fairness Opinion (see page 44). In deciding to adopt the plan of merger, FNB's board of directors considered the opinion of its financial advisor, Austin Associates, LLC, that the per share consideration to be received by FNB shareholders in the merger is fair to FNB shareholders from a financial point of view. The written opinion of Austin Associates is attached as Appendix B to this prospectus and proxy statement.

          Completion of the Merger (see page 32). Completion of the merger is subject to certain conditions, including, among others, that the shareholders of FNB approve the plan of merger, that necessary regulatory approvals be obtained, that no proceeding seeking to prevent the merger be pending or threatened, and that Southern and FNB obtain various ancillary certificates, opinions and agreements. At any time before the effective time of the merger, the boards of directors of Southern and FNB may, by mutual consent, abandon the merger. In addition, for certain specified reasons the board of directors of either Southern or FNB may abandon the merger.

          It is expected that the closing of the merger will occur, and the merger will become effective, on or before December 31, 2007.

          Vote Required for Approval (see page 23). Only holders of record of FNB common stock on October 12, 2007 have the right to vote on approval of the plan of merger.

          To approve the plan of merger, the holders of at least a majority of the shares of FNB common stock issued and outstanding as of the record date must vote FOR approval of the plan of merger.

          As of August 15, 2007, FNB's directors, executive officers, and their affiliates beneficially owned 55,089 shares, or approximately 9.6% of the shares of FNB common stock entitled to vote on the plan of merger. FNB's directors have advised FNB that they intend to vote their shares for approval of the plan of merger.

          Regulatory Approvals (see page 32). Completion of the merger is subject to the approval of the Federal Reserve Board. The applications to obtain such approval have been filed with the Federal Reserve Board as of the date of this prospectus and proxy statement. Although we do not know of any reason why we will not obtain these regulatory approvals in a timely manner, we cannot be certain when or if we will obtain them.

          Dissenters' Rights (see page 185). Under the provisions of Section 762 of the Michigan Business Corporation Act (" MBCA "), any FNB shareholder may dissent from the proposed merger and be paid the "fair value" of his or her shares (if the plan of merger is approved by the shareholders of FNB and the proposed merger is completed) by complying with the procedures set forth in Sections 761 through 774 of the MBCA.

          Shareholders of FNB who would like to assert dissenters' rights may send a written notice of dissent to Mr. Richard E. Dyer, President and CEO, FNB Financial Corporation, 88 North Main Street, Post Office Box 407, Three Rivers, Michigan 49093.

          Federal Income Tax Consequences (see page 41). Generally speaking, because you may receive a combination of Southern common stock and cash, you should recognize capital gain, but not loss, on the exchange of your shares of FNB common stock to the extent of the lesser of cash received or gain realized in the exchange. FNB and Southern have received an opinion from legal counsel that you generally will not recognize federal income tax gain or loss on the Southern common stock that you receive. This tax treatment might not apply to all FNB shareholders. You should carefully review the section of this prospectus and proxy statement entitled " The Merger-Material Federal Income Tax Consequences ." In addition, you should consult your own tax advisors for a full understanding of the tax consequences of the merger.

          Accounting Treatment (see page 41). Southern expects to account for the merger under the purchase method of accounting. See " The Merger-Accounting Treatment ."

          Ownership of Southern Common Stock by Southern Directors and Executive Officers After the Merger (see page 188). Upon completion of the merger, Southern directors and executive officers as a group will own approximately 6.91% of the then outstanding Southern common stock.

          Ownership of Southern Common Stock by FNB Shareholders After the Merger (see page 28). Upon completion of the merger, FNB shareholders as a group will own approximately 23% of the then outstanding Southern common stock.

          Comparison of Rights of FNB Shareholders to Rights of Shareholders in the Combined Organization (see page 37). An FNB shareholder holding a given percentage of the outstanding shares of FNB common stock will hold a lesser percentage of common stock in the combined organization after the merger. The corporate affairs of the combined organization will be governed by the MBCA, just as the corporate affairs of FNB were governed by the MBCA. The rights of shareholders of the combined organization under the MBCA after the merger will not significantly differ from the present rights of shareholders of FNB under the MBCA.

          Financial Interests of Certain Insiders of FNB (see page 205). Certain insiders of FNB (members of management and the board of directors of FNB and its subsidiaries) may be deemed to have financial interests in the merger in addition to their financial interests as shareholders of FNB generally. These financial interests exist because of, among other things, employment or severance agreements that the officers entered into with FNB, rights that FNB officers and directors have under FNB benefit plans, and rights to indemnification and directors and officers insurance following the merger. The FNB board of directors was aware of these financial interests and considered them, among other matters, in approving the plan of merger.

          Funding of Cash Portion of Merger Consideration (see page 41) . The cash portion of the merger consideration will be approximately $13,000,000. Southern intends to fund the cash portion of the merger consideration with a combination of a cash dividend from Southern Michigan Bank and loan proceeds of approximately $9,000,000.

Market Value of Shares

          There is no public trading market for FNB common stock and trading activity in FNB common stock is infrequent. Southern common stock is traded in the OTC Bulletin Board market and trading activity in Southern common stock is relatively infrequent. Transactions in Southern common stock and FNB common stock are occasionally effected by individuals on an informal basis. Some transactions are effected through the involvement of local brokerage firms. The prices at which such transactions are effected are not always available to Southern and FNB.

          The following table sets forth the market value per share of Southern common stock, the market value per share of FNB common stock and the pro forma equivalent market value per share of FNB common stock on April 17, 2007 (the last business day preceding public announcement of the merger). The equivalent market value for stock election is the estimated market value of Southern common stock to be received in the merger by FNB shareholders for each share of FNB common stock. This value is estimated assuming a market value of $23.85 per share for Southern common stock and using a conversion ratio of 1.87 shares of Southern common stock for each share of FNB common stock.

          The historical market value of Southern common stock used to determine the equivalent market value for stock election is the closing sales price on April 17, 2007, as reported on the OTC Bulletin Board.

          There were no sales of FNB common stock reported to management on April 17, 2007. The historical market value per share of FNB common stock shown for that date is the per share sales price in the last sale of FNB common stock reported to management before April 17, 2007.

Selected Historical Financial Data (Unaudited)

          The following tables show summarized historical consolidated financial data for Southern and FNB. The tables are unaudited. The information in the tables is derived from Southern's and FNB's audited financial statements for 2002 through 2006 and unaudited interim financial statements for the six months ended June 30, 2007 and 2006. This information is only a summary. You should read it in conjunction with the financial statements, related notes, Management's Discussion and Analysis of Financial Condition and Results of Operations, and other information included in this prospectus and proxy statement.

Summary Selected Pro Forma Combined Data (Unaudited)

          The following table shows selected financial information on a pro forma combined basis giving effect to the merger as if the merger had become effective at the end of the period presented, in the case of balance sheet information, and at the beginning of the period presented, in the case of income statement information. The pro forma information reflects the purchase method of accounting.

          Southern anticipates that the merger will provide the combined organization with financial benefits that include reduced operating expenses and the opportunity to earn more revenue. The pro forma information, while helpful in illustrating the financial characteristics of the combined organization under one set of assumptions, does not reflect these benefits and, accordingly, does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined organization would have been had the companies been combined as of the date and during the periods presented.

          You should read this summary pro forma information in conjunction with the information under " Unaudited Pro Forma Combined Condensed Consolidated Financial Statements " beginning on page 53.

Capital Ratios

          Under the risk-based capital guidelines presently in effect for banks and bank holding companies, minimum capital levels are based on the perceived risk in the various asset categories. Certain off-balance-sheet instruments, such as loan commitments and letters of credit, require capital allocations. Bank holding companies, such as Southern and FNB, are required to maintain minimum risk-based capital ratios. Southern's and FNB's ratios are above the regulatory minimum guidelines. The following table shows capital ratios and requirements as of December 31, 2006.

Comparative Per Share Data

          The following table shows information about income per share, dividends per share, and book value per share, combined in a manner that is referred to as "pro forma" information.

          Southern anticipates that the combined organization will derive financial benefits from the merger that include reduced operating expenses and the opportunity to earn more revenue. The pro forma information, while helpful in illustrating the financial characteristics of the combined organization under one set of assumptions, does not reflect these benefits and, accordingly, does not attempt to predict or suggest future results. The pro forma information also does not necessarily reflect what the historical results of the combined organization would have been had the companies been combined during these periods.

          The information in the following table is based on, and should be read together with, the historical financial information that is presented in this document and with the combined condensed consolidated pro forma financial statements presented elsewhere in this document.

RISK FACTORS

          In addition to the other information included in this prospectus and proxy statement, you should carefully consider the risks described below in determining whether to approve the plan of merger.

Risks Associated with the Merger

FNB shareholders are not guaranteed to receive the amount of cash that they request on their election form.

          The plan of merger requires that approximately 50% of the total number of shares of FNB common stock will be converted into Southern common stock and 50% of the total number of shares of FNB common stock will be converted into cash. It is possible, therefore, that you will receive a different proportion of cash and stock than you elect. See " The Merger-Allocation Procedure ."

The value of the stock consideration you receive in the merger will fluctuate with the price of Southern common stock.

          There will be no adjustment made to the merger consideration you are entitled to receive as a result of fluctuations in the market price of FNB common stock or Southern common stock. As a result, it is possible that the value of any Southern common stock you receive in the merger will be different than the value of such shares on the date the board of directors adopted the plan of merger, on the date of the information concerning stock value presented in this prospectus and proxy statement, on the date you make your decision to elect cash or stock, and on the date that you vote to approve the plan of merger. The value of any Southern common stock you receive in the merger may also be materially different than the cash consideration per share to be paid in the merger. Because of the process for allocation of stock consideration and cash consideration in the event of over-election, it is possible that all FNB shareholders will receive some Southern common stock even if they elect to receive all cash.

          Stock price changes may result from a variety of factors, including general market and economic conditions, changes in Southern's business, operations and prospects, and regulatory considerations. Many of these factors are beyond Southern's control. Accordingly, at the time of the special meeting, you will not necessarily know or be able to calculate the exact value of the shares of Southern common stock you will receive upon completion of the merger.

Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated, any of which could result in an inability to complete the merger.

          The merger must be approved by the Federal Reserve Board, which will consider, among other factors, the competitive impact of the merger, Southern's financial and managerial resources, and the convenience and needs of the communities to be served. As part of that consideration, we expect that the Federal Reserve Board will review capital position, safety and soundness, legal and regulatory compliance matters, and Community Reinvestment Act matters. Federal Reserve Board approval may not be received, may take longer than expected, or may impose conditions that are not presently anticipated, any of which could result in an inability to complete the merger.

The plan of merger limits FNB's ability to pursue alternatives to the merger.

          The plan of merger contains provisions that limit FNB's ability to encourage or consider competing third-party proposals to acquire FNB, all or a significant part of its stock, or other similar business combinations. In addition, FNB has agreed to pay Southern a fee of $1,000,000 if the plan of merger is not completed and FNB enters into certain business transactions with third parties. These provisions might discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of FNB from considering or proposing that acquisition even if it were prepared to pay consideration with a higher per share market price than that proposed in the merger, or might result in a potential competing acquiror proposing to pay a lower per share price to acquire FNB than it might otherwise have proposed to pay.

FNB shareholders will have less influence as shareholders of Southern than as shareholders of FNB.

          You currently have the right to vote in the election of the board of directors of FNB and on other matters affecting FNB. If the merger occurs and you become a shareholder of Southern, you will have the right to vote in the election of the board of directors of Southern and other matters affecting Southern. However, your percentage ownership of Southern will be much smaller than your percentage ownership of FNB and you might have less influence in the management policies of the combined organization's operations than you had on FNB's before the merger. Upon completion of the merger, FNB shareholders as a group will own approximately 23% of the then outstanding Southern common stock.

Directors and officers of FNB have financial interests in the merger that differ from the financial interests of non-director or non-management shareholders.

          Some of the directors and officers of FNB have financial interests in the merger that differ from, or are in addition to, their financial interests as shareholders of FNB generally. These financial interests exist because of, among other things, employment or severance agreements that the officers entered into with FNB, rights that FNB officers and directors have under FNB benefit plans, and rights to indemnification and directors and officers insurance following the merger. In addition, three of the members of the FNB board of directors will join the board of directors of Southern. Although the members of each of FNB's and Southern's board of directors knew about these additional financial interests and considered them when they adopted the plan of merger and the merger, you should understand that some of the directors and officers of FNB will receive financial benefits or other payments in connection with the merger that you will not receive. See " Voting and Management Information-Interests of Certain Persons ."

The opinion obtained by FNB from its financial advisor will not reflect subsequent changes.

          Austin Associates, the financial advisor to FNB, has delivered a "fairness opinion" to the board of directors of FNB. The opinion of Austin Associates is directed to the board of FNB and is not a recommendation to any shareholder on how to vote on the plan of merger, the form of consideration any shareholder should elect in the merger, or any other matter. The opinion, which was originally issued on April 17, 2007, and which was updated as of the date of this document, states that, based upon and subject to the assumptions and limitations on review set forth in the opinion, the merger consideration is fair, from a financial point of view, to FNB shareholders. The opinion does not reflect changes that may occur or may have occurred after the date of this updated opinion, including changes to the operations and prospects of Southern or FNB, changes in general market and economic conditions, or regulatory or other factors. Any such changes, or other factors on which the updated opinion is based, may alter the relative value of Southern and FNB.

The merger may fail to qualify as a reorganization for federal income tax purposes, resulting in your recognition of taxable gain or loss in respect of all of your FNB common stock.

          Southern and FNB have received an opinion from legal counsel that the merger qualifies as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986. The Internal Revenue Service (the " IRS ") will not provide a ruling on the matter. The opinion from legal counsel does not bind the IRS or prevent the IRS from adopting a contrary position. If the merger fails to qualify as a reorganization, you generally would recognize gain or loss on each share of FNB common stock surrendered in an amount equal to the difference between your adjusted tax basis in that share and the sum of the amount of cash and the fair market value of the Southern common stock received in exchange for that share upon completion of the merger.

In certain cases, such as if the merger is not completed by December 31, 2007, or if one or more events occur that have a material adverse effect on either Southern or FNB, either Southern or FNB or both may choose to abandon the merger.

          In certain cases, such as if the merger is not completed by December 31, 2007, or if one or more events occur that have a material adverse effect on either Southern or FNB, either Southern or FNB, if it is not in breach of its obligations under the plan of merger, may terminate the plan of merger and abandon the merger. For a fuller

discussion of the circumstances under which either Southern or FNB or both may terminate the plan of merger and abandon the merger, see " The Merger-Abandonment of the Merger ."

Risks Associated with Southern Common Stock

There is not an active public trading market for Southern common stock and Southern does not expect an active trading market for Southern common stock to develop after the merger.

          Southern common stock is traded in the OTC Bulletin Board market. Transactions in the stock are relatively infrequent. Although the number of shares of Southern common stock and shareholders will increase as a result of the merger, Southern does not expect an active trading market for Southern common stock to develop after the merger.

Southern's ability to pay dividends is limited and Southern may be unable to pay future dividends.

          Southern's ability to pay dividends is limited by regulatory restrictions and the need to maintain sufficient consolidated capital. The ability of Southern Michigan Bank to pay dividends to Southern is limited by its obligations to maintain sufficient capital and by other general restrictions on its dividends that are applicable to banks. If Southern or Southern Michigan Bank does not satisfy these regulatory requirements, Southern would be unable to continue to pay dividends on its common stock.

Southern may issue additional shares of its common stock in the future, which would dilute your ownership if you did not, or were not permitted to, invest in the additional issuances.

          Southern's articles of incorporation authorize its board of directors, without shareholder approval, to, among other things, issue additional common stock. The issuance of any additional shares of Southern common stock could be substantially dilutive to your ownership of Southern common stock. To the extent that Southern issues stock appreciation rights, options or warrants to purchase Southern common stock in the future and those stock appreciation rights, options or warrants are exercised, Southern's shareholders may experience further dilution. Holders of shares of Southern common stock have no preemptive rights that entitle holders to purchase their pro rata share of any offering of shares of any class or series and, therefore, Southern's shareholders may not be permitted to invest in future issuances of Southern common stock.

Southern may issue debt and equity securities that are senior to Southern common stock as to distributions and in liquidation, which could negatively affect the value of Southern common stock.

          In the future, Southern may attempt to increase its capital resources by entering into debt or debt-like financing that is unsecured or secured by all or up to all of Southern's assets, or issuing debt or equity securities, which could include issuances of secured or unsecured commercial paper, medium-term notes, senior notes, subordinated notes, preferred stock or common stock. In the event of Southern's liquidation, its lenders and holders of its debt securities would receive a distribution of Southern's available assets before distributions to the holders of Southern common stock. Because Southern's decision to incur debt and issue securities in future offerings will depend on market conditions and other factors beyond Southern's control, Southern cannot predict or estimate the amount, timing or nature of its future offerings and debt financings. Further, market conditions could require Southern to accept less favorable terms for the issuance of its securities in the future. Thus, shareholders will bear the risk of Southern's future offerings reducing the value of their shares of Southern common stock and diluting their interest in Southern.

Unless you obtain prior consent from Southern, you will not be permitted to transfer to another party your shares of Southern common stock if the party who would receive the shares would own of record fewer than 100 shares of Southern common stock.

          Southern's articles of incorporation provide that a shareholder may not transfer shares of Southern common stock without the consent of Southern, if, as a result of an attempted transfer, the party who would receive the shares would own fewer than 100 shares of Southern common stock. "Transfer" means any type of disposition, including a sale, gift, contribution, pledge, or other action that results in a change of record ownership of any share of Southern

common stock. Southern may withhold its consent in its discretion. This restriction will limit the transferability of your shares of Southern common stock and, unless you obtain Southern's prior consent, you will be prohibited from transferring fewer than 100 shares of your Southern common stock if the party who would receive the shares would own of record fewer than 100 shares of Southern common stock.

Risks Related to Southern's Business

Combining Southern and FNB may be more difficult, costly, or time-consuming than we expect.

          Southern and FNB have operated, and, until completion of the merger, will continue to operate, independently. It is possible that the integration process for the merger could result in the loss of key employees or disruption of either or both of the banks' ongoing business or inconsistencies in standards, procedures and policies that would adversely affect their ability to maintain relationships with clients and employees or to achieve the anticipated benefits of the merger. If Southern has difficulties with the integration process, Southern might not achieve the economic benefits expected to result from the merger. As with any merger of banking institutions, the merger may also result in business disruptions that cause either or both of the banks to lose customers or cause customers to remove their deposits or loans from the banks and move their business to competing financial institutions.

If Southern's allowance for loan losses is not sufficient to cover actual loan losses, Southern's earnings could decrease.

          Southern's loan customers may not repay their loans according to the terms of these loans, and the collateral securing the payment of these loans may be insufficient to assure repayment. Southern may experience significant loan losses, which could have a material adverse effect on its operating results. Southern's management makes various assumptions and judgments about the collectibility of Southern's loan portfolio, including the creditworthiness of its borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of Southern's loans. Southern maintains an allowance for loan losses to cover loan losses that may occur. In determining the size of the allowance, Southern relies on an analysis of its loan portfolio based on historical loss experience, volume and types of loans, trends in classification, volume and trends in delinquencies and non-accruals, national and local economic conditions, and other pertinent information. As Southern expands into new markets, its determination of the size of the allowance could be understated due to Southern's lack of familiarity with market-specific factors.

          If Southern's assumptions are wrong, its current allowance may not be sufficient to cover loan losses, and adjustments may be necessary to allow for different economic conditions or adverse developments in Southern's loan portfolio. Material increases to Southern's allowance would materially decrease its net income.

          In certain situations, where collection efforts are unsuccessful or acceptable work-out arrangements cannot be reached, Southern may have to write off certain loans in whole or in part. In such situations, Southern may acquire real estate or other assets, if any, which secure the loans through foreclosure or other similar available remedies. In such cases, the amount owed under the defaulted loan often exceeds the value of the assets acquired.

          In addition, federal and state regulators periodically review Southern's allowance for loan losses and may require Southern to increase its provision for loan losses or recognize further loan charge-offs based on judgments different than those of Southern's management. Any increase in Southern's allowance for loan losses or loan charge-offs as required by these regulatory agencies could have a negative effect on Southern's operating results.

Losses on loans acquired as a result of the merger could result in a decrease in Southern's earnings.

          As a result of the merger, Southern will acquire FNB Bank and its entire loan portfolio. FNB Bank's loans were not underwritten and administered under the supervision of Southern's management or under Southern's loan policies, and future loan loss development on the acquired loan portfolio may be different, and may be less favorable, than Southern's historical loan loss experience. FNB's recent historical loan loss experience has been less favorable than Southern's. Thus, it is possible that the merger will result in Southern being forced to increase its consolidated provisions for loan losses in the future resulting in a decrease in Southern's earnings.

Southern's loan portfolio includes a substantial percentage of commercial and industrial loans, which may be subject to greater risks than those related to residential loans.

          Southern's commercial and industrial loan portfolio was $170,878,000 at December 31, 2006, comprising 67.6% of total loans. Commercial and industrial loans generally carry larger loan balances and involve a greater degree of financial and credit risks than home equity loans or residential mortgage loans. Any significant failure to pay on time by Southern's customers would hurt Southern's earnings. The increased financial and credit risk associated with these types of loans is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the size of loan balances, the effects of general economic conditions on income-producing properties, and the increased difficulty of evaluating and monitoring these types of loans. The repayment of loans secured by commercial real estate is typically dependent upon the successful operation of the related real estate or commercial project. If the cash flow from the project is reduced, the borrower's ability to repay the loan may be impaired. This cash flow shortage may result in the failure to make loan payments. In such cases, Southern may be compelled to modify the terms of the loan. In addition, the nature of these loans is such that they are generally less predictable and more difficult to evaluate and monitor. As a result, repayment of these loans may, to a greater extent than residential loans, be subject to adverse conditions in the real estate market or economy.

Prepayments of loans may negatively impact Southern's business.

          Generally, customers of Southern may prepay the principal amount of their outstanding loans at any time. The speed at which such prepayments occur, as well as the size of such prepayments, are within such customers' discretion. If customers prepay the principal amount of their loans, and Southern is unable to lend those funds to other borrowers or invest the funds at the same or higher interest rates, Southern's interest income will be reduced. A significant reduction in interest income could have a negative impact on Southern's results of operations and financial condition.

Changes in interest rates may negatively affect Southern's earnings and the value of its assets.

          Changes in interest rates may affect Southern's level of interest income, the primary component of its gross revenue, and the level of its interest expense, Southern's largest recurring expenditure. In recent years, the Federal Reserve Board has repeatedly increased its target federal funds rate. While the federal funds rate and other short-term market interest rates that Southern uses to guide its deposit pricing have increased, intermediate and long-term market interest rates, which influence Southern's loan pricing, have not increased proportionately. This has led to a "flattening" of the market yield curve. The flat yield curve may hurt Southern's interest rate spread and net interest margin because the interest rates Southern pays on its deposits may reprice upwards faster than the interest rates that Southern earns on its loans and investments. If short-term interest rates continue to rise so that the yield curve remains relatively flat or inverts, Southern's net interest spread and net interest margin may continue to compress, which would hurt its net interest income.

          Residential mortgage originations generated $627,000, or 3%, of Southern's gross revenue for the year ended December 31, 2006. Southern expects the number of residential real estate loans that it originates to be inversely related to interest rates. Accordingly, a period of rising interest rates may negatively affect Southern's residential mortgage origination business.

          Changes in the level of interest rates also may negatively affect Southern's ability to originate real estate loans, the value of Southern's assets and its ability to realize gains from the sale of its assets, all of which may adversely affect Southern's earnings. A decline in the market value of Southern's assets may limit its ability to raise additional capital. As a result, Southern could be required to sell some of its loans and investments under adverse market conditions or upon terms that are not favorable to Southern, in order to maintain its liquidity. If those sales are made at prices lower than the amortized costs of the investments, Southern will incur losses.

Loss of Southern's Chief Executive Officer or other executive officers could adversely affect its business.

          Southern's success is dependent upon the continued service and skills of its executive officers and senior management. If Southern loses the services of these key personnel, it could have a negative impact on Southern's

business because of their skills, years of industry experience and the difficulty of promptly finding qualified replacement personnel. The services of John H. Castle, Southern's Chairman and Chief Executive Officer, Kurt G. Miller, Southern's President, and Danice L. Chartrand, Southern's Chief Financial Officer, would be particularly difficult to replace.

Southern's continued growth may require it to raise additional capital in the future, but that capital might not be available on acceptable terms when it is needed.

          Southern is required by federal and state regulatory authorities to maintain adequate levels of capital to support its operations. Southern expects that it may need to raise additional capital to support its continued growth after the merger. Southern's ability to raise additional capital will depend on conditions in the capital markets at that time, which are outside Southern's control, and on its financial performance. Southern cannot assure you of its ability to raise additional capital on terms acceptable to Southern. If Southern cannot raise additional capital when needed, its ability to further expand its operations through organic growth and acquisitions could be materially impaired.

The merger may distract management of Southern from its other responsibilities.

          The acquisition of FNB could cause the management of Southern to focus its time and energies on matters related to the acquisition that otherwise would be directed to the business and operations of Southern. Any such distraction on the part of management, if significant, could affect its ability to manage existing business and develop new business and adversely affect the business and earnings of Southern.

Unanticipated costs relating to the merger could reduce Southern's future earnings per share.

          Southern believes it has reasonably estimated the likely costs of integrating the operations of FNB into Southern and the incremental costs of operating as a combined organization. However, it is possible that unexpected transaction costs, such as taxes, fees or professional expenses, or unexpected future operating expenses, such as increased personnel costs or increased taxes, and other types of unanticipated adverse developments, could have an adverse effect on the results of operations and financial condition of Southern after the merger. If unexpected costs are incurred, the merger could have a significant dilutive effect on Southern's earnings per share. In other words, if the merger is completed and Southern incurs such unexpected costs and expenses as a result of the merger, Southern believes that the earnings per share of Southern common stock could be less than they would have been if the merger had not been completed.

Southern's business is subject to the success of the local economies where it operates.

          Southern's success significantly depends upon the economy, population, income levels, deposits and housing starts in the southwest Michigan market. If this market does not grow or if prevailing economic conditions locally or nationally are unfavorable, Southern's business may be adversely affected. Adverse economic conditions in southwest Michigan, including the loss of certain significant employers, could reduce Southern's growth rate, affect the ability of its customers to repay their loans to Southern, and generally adversely affect Southern's financial condition and results of operations. Southern is less able than a larger institution to spread the risks of unfavorable local economic conditions across a large number of diversified economies.

          Any adverse market or economic conditions in Michigan may disproportionately increase the risk that Southern's borrowers are unable to make their loan payments. In addition, the market value of the real estate securing loans as collateral could be adversely affected by unfavorable changes in market and economic conditions. Any sustained period of increased payment delinquencies, foreclosures or losses caused by adverse market or economic conditions in the State of Michigan could adversely affect the value of Southern's assets, revenues, results of operations and financial condition.

          Commercial banks and other financial institutions are affected by economic and political conditions, both domestic and international, and by governmental monetary policies. Conditions such as inflation, recession, unemployment, high interest rates, short money supply, scarce natural resources, international disorders, terrorism and other factors beyond Southern's control may adversely affect profitability.

Southern's recent operating results may not be indicative of its future operating results.

          Southern may not be able to sustain its historical rate of growth or may not even be able to grow its business at all. In the future, Southern may not have the benefit of a favorable interest rate environment, a strong residential mortgage market, or the ability to find suitable candidates for acquisition. Various factors, such as economic conditions, regulatory and legislative considerations and competition, may also impede or prohibit Southern's ability to expand its market presence. If Southern experiences a significant decrease in its historical rate of growth, Southern's results of operations and financial condition may be adversely affected due to a high percentage of its operating costs being fixed expenses.

Competition from competing financial institutions and other financial service providers may adversely affect Southern's profitability.

          The banking business is highly competitive and Southern experiences competition in each of its markets from many other financial institutions. Southern competes with commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds, and other mutual funds, as well as other super-regional, national and international financial institutions that operate offices in Southern's primary market areas and elsewhere. In addition, some of the institutions that Southern competes against are not subject to the same regulatory restrictions as Southern, and accordingly, may have certain, inherent, cost advantages.

          Southern competes with these institutions both in attracting deposits and in making loans. Price competition for loans might result in Southern originating fewer loans, or earning less on its loans, and price competition for deposits might result in a decrease in Southern's total deposits or higher rates on its deposits. In addition, Southern has to attract its customer base from other existing financial institutions and from new residents. Many of Southern's competitors are larger financial institutions. While Southern believes it can and does successfully compete with these other financial institutions in its primary markets, Southern may face a competitive disadvantage as a result of its smaller size, lack of geographic diversification, and inability to spread its marketing costs across a broader market. Although Southern competes by concentrating its marketing efforts in its primary markets with local advertisements, personal contacts, and greater flexibility and responsiveness in working with local customers, Southern can give no assurance that this strategy will be successful.

Registration under the Securities Exchange Act of 1934 may adversely effect Southern's earnings.

          As a result of the merger, Southern will be required to become a registrant under the Securities Exchange Act of 1934 (" Exchange Act "). This will result in Southern becoming subject to the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, and other laws, rules and regulations applicable to registered companies that were not applicable to Southern before the merger. Southern will incur substantial additional expenses to comply with these laws and regulations that may adversely effect its earnings when compared to prior periods. Complying with these laws and regulations will require substantial time and attention of Southern's board of directors and management, reducing the time and attention they will have available for integrating FNB's business and operations and managing the combined organization. Companies that are subject to these laws and regulations are also believed to be subject to a greater risk of litigation and liability than companies that are not.

Southern is subject to extensive regulation that could limit or restrict its activities.

          Southern operates in a highly regulated industry and is subject to examination, supervision, and comprehensive regulation by various federal and state agencies. Southern's compliance with these regulations is costly and restricts certain of its activities, including payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on deposits and locations of offices. Southern is also subject to capitalization guidelines established by its regulators, which require Southern to maintain adequate capital to support its growth.

          The laws and regulations applicable to the banking industry could change at any time, and Southern cannot predict the effects of these changes on its business and profitability. Because government regulation greatly affects the business and financial results of all commercial banks and bank holding companies, Southern's cost of compliance could adversely affect its ability to operate profitably.

Future claims could be made against Southern or Southern Michigan Bank related to their relationship with Alanar, Inc. and its affiliates.

          Southern Michigan Bank previously served as indenture trustee and also is the depository bank in connection with certain bond offerings underwritten by Alanar, Inc. Southern Michigan Bank also is party to an agreement with Guardian Services, LLC, an affiliate of Alanar, Inc., to provide fiduciary oversight services related to the custodianship of certain individual retirement accounts that invested in bonds underwritten by Alanar, Inc. On July 26, 2005, the SEC obtained a court order freezing all assets under the control of Alanar, Inc., Guardian Services, LLC, and their affiliates, including all accounts at Southern Michigan Bank. Alanar, Inc., Guardian Services, LLC, and their affiliates have been under court-appointed monitorship since July 26, 2005 and in receivership since December 20, 2005. The SEC and the receiver have alleged that Alanar, Inc., Guardian Services, LLC, and their affiliates engaged in fraud and other improper conduct to hide bond defaults in connection with over 340 bond offerings. Of the 49 bond issuances for which Southern Michigan Bank previously served as indenture trustee, the receiver has reported that approximately $28,700,000 in principal and $6,000,000 in interest (representing 18% of the total indebtedness of all outstanding bonds involved in the Alanar matter) remained to be paid by the issuers as of April 30, 2007. Before the SEC action freezing the accounts in July 2005, approximately 62% of this bond indebtedness was current and 38% was in default. Under the stated terms of the trust indentures in each of these offerings, Southern Michigan Bank had no contractual duties to perform as indenture trustee until it received written notice of an event of default on the bonds. The receiver has asserted that Alanar was able to hide past bond defaults by using improper transfers between the various accounts so that new investor money was allegedly used to pay returns to old investors. Following the SEC action resulting in the receiver asserting control over all accounts for the potential benefit of the receivership estate, another 44% ceased to make payments into the bond repayment accounts, while 17% have continued to make their scheduled payments into these accounts notwithstanding the risk of such funds being subject to potential use for the benefit of the receivership estate. Southern Michigan Bank has not served as indenture trustee since November 16, 2006, when the court approved the removal of Southern Michigan Bank as trustee so that the receiver could assume this role to promote efficiency in the administration of the receivership. On August 28, 2007, the court approved a plan of receivership pursuant to which another bank is eventually expected to serve as the depository bank for the bond issuances and Southern Michigan Bank's agreement with Guardian Services, LLC related to the individual retirement accounts will eventually be terminated. Upon the occurrence of these events, it is expected that Southern Michigan Bank will not have any further relationship with Alanar or its affiliates.

          No claims with respect to this matter have been filed against Southern or Southern Michigan Bank by any person or entity. There can be no assurance, however, that Southern or Southern Michigan Bank will not be subject to future claims arising out of their relationship with Alanar, Inc. and Guardian Services, LLC. Protracted litigation or an adverse decision or settlement of any such action or proceeding could have a material adverse effect on the financial position, business, prospects, and results of operation of Southern or Southern Michigan Bank. For more information, see " Legal Proceedings-Alanar, Inc. " on page 76.

If Southern is required to write down goodwill and other intangible assets, its financial condition and results of operations would be negatively affected.

          A substantial portion of the value of the merger consideration will be allocated to goodwill and other intangible assets on Southern's consolidated balance sheets. The amount of the purchase price that is allocated to goodwill and other intangible assets is determined by the excess of the purchase price over the net identifiable assets acquired. Southern will be required to conduct an annual review to determine whether goodwill and other identifiable intangible assets are impaired.

          Goodwill is tested for impairment annually in the fourth quarter. An impairment test also could be triggered between annual testing dates if an event occurs or circumstances change that would more likely than not reduce the fair value below the carrying amount. Examples of those events or circumstances would include the following:

          Southern cannot assure you that it will not be required to take an impairment charge in the future. Any material impairment charge would have a negative effect on Southern's financial results and shareholders' equity.

Environmental liability associated with commercial lending could result in losses.

          In the course of its business, Southern may acquire, through foreclosure, properties securing loans it has originated or purchased that are in default. Particularly in commercial real estate lending, there is a risk that hazardous substances could be discovered on these properties. In this event, Southern might be required to remove these substances from the affected properties at Southern's sole cost and expense. The cost of this removal could substantially exceed the value of affected properties. Southern may not have adequate remedies against the prior owner or other responsible parties and could find it difficult or impossible to sell the affected properties. These events could have an adverse effect on Southern's business, results of operations and financial condition.

Attractive acquisition opportunities may not be available to Southern in the future, which may negatively impact Southern's ability to grow its business and effectively compete in existing and new markets.

          Southern will continue to consider the acquisition of other businesses. However, Southern may not have the opportunity to make suitable acquisitions on favorable terms in the future. Southern expects that other banking and financial companies, many of which have significantly greater resources than Southern does, will compete with Southern to acquire compatible businesses. This competition could increase prices for acquisitions that Southern might likely pursue. Also, acquisitions of regulated businesses, such as banks, are subject to various regulatory approvals. Failure to maintain regulatory compliance with the various regulations applicable to Southern could make regulatory approvals difficult to obtain. If Southern fails to receive the appropriate regulatory approvals, Southern will not be able to consummate an acquisition that Southern believes is in its best interests.

Southern may face risks with respect to future expansion and acquisitions or mergers, which include substantial acquisition costs, an inability to effectively integrate an acquired business into Southern's operations, lower than anticipated profit levels, and economic dilution to shareholders.

          Southern may seek to acquire other financial institutions or parts of those institutions and may engage in de novo branch expansion in the future. Southern may also consider and enter into new lines of business or offer new products or services. Southern may incur substantial costs to expand. An expansion may not result in the levels of profits it seeks or levels of profits comparable to or better than Southern's historical experience. Integration efforts for any future mergers or acquisitions may not be successful, which could have a material adverse affect on Southern's operations and financial condition. Also, Southern may issue equity securities, including Southern common stock and securities convertible into shares of Southern common stock, in connection with future acquisitions, which could cause ownership and economic dilution to its current shareholders.

FORWARD-LOOKING STATEMENTS

          This prospectus and proxy statement contains data and information that constitute forward-looking statements regarding, among other things, the anticipated closing date of the merger, the expected pro forma effect of the merger, and plans and objectives of Southern's management for future operations of the combined organization following consummation of the merger. You can identify these forward-looking statements because they may include terms such as "believes," "anticipates," "intends," "expects," or similar expressions and may include discussions of future strategy. Provisions and allowance for loan losses are estimated and are inherently forward-looking statements. Both Southern and FNB caution you not to rely unduly on any forward-looking statements in this prospectus and proxy statement. These forward-looking statements are based on current expectations that involve a number of risks and uncertainties. Actual results may differ materially from the results expressed in these forward-looking statements.

          Future factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement include changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking laws and regulations; changes in tax laws; changes in prices, levies, and assessments; the impact of technological advances; governmental and regulatory policy changes; the outcomes of pending and future litigation and contingencies; trends in customer behaviors and their ability to repay loans; changes in the local and national economies; the possibility that expected efficiencies and cost savings from the merger of FNB with Southern and other mergers and acquisitions in which Southern may be involved might not be fully realized within the expected time frame; and the risk factors discussed above under the section entitled "Risk Factors." Neither Southern nor FNB undertakes any obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.

          This section should not be construed as a complete list of all of the economic, competitive, governmental, technological and other factors that could adversely affect our expected consolidated financial position, results of operations or liquidity. We undertake no obligation to update or revise our forward-looking statements to reflect developments that occur or information obtained after the date of this prospectus and proxy statement.

GENERAL PROXY INFORMATION

Voting by Proxy

          FNB's board of directors has designated October 12, 2007 as the record date for determination of shareholders entitled to notice of and to vote at the special meeting. If a holder of shares of FNB common stock as of the record date properly executes and returns a proxy in the enclosed form, the shares represented by that proxy will be voted at the special meeting of FNB shareholders and at any adjournment of that meeting. If a shareholder specifies a choice, the proxy will be voted in accordance with the shareholder's specification. If no specification is made, the shares represented by the proxy will be voted for approval of the plan of merger. Proxies that indicate a vote against approval of the plan of merger, if any, will not be used by management of FNB to vote for any proposed adjournment of the special meeting.

          FNB's management currently is not aware of any other matter to be presented at the special meeting. If other matters are presented, the shares for which proxies have been received will be voted in accordance with the judgment of the persons named as proxies.

          A shareholder may revoke a proxy at any time before its exercise by written notice delivered to the President and CEO of FNB, Richard E. Dyer, or by attending and voting in person at the special meeting.

Proxy Solicitation

          The board of directors and management of FNB will initially solicit proxies by mail. If they deem it advisable, directors, officers, and employees of FNB may also solicit proxies in person, by telephone or by facsimile without additional compensation. In addition, nominees and other fiduciaries may solicit proxies. Such persons may at the request of FNB's management mail material to or otherwise communicate with the beneficial owners of shares held by them.

Expenses

          FNB will pay all expenses incurred in connection with the solicitation of proxies of FNB shareholders and the printing and mailing of this prospectus and proxy statement. Southern will pay all filing costs associated with the registration statement. Southern and FNB will each pay its own fees and expenses incident to preparing for, entering into, and carrying out the plan of merger and procuring any necessary approvals, including fees and expenses of its own legal counsel and accountants and postage expenses. Under certain circumstances involving the termination of the plan of merger and a business combination of FNB with any other entity, Southern would be entitled to a termination fee from FNB. See " The Merger-Termination Fee after Business Combination ."

Shareholder Proposals

          FNB is not currently required to comply with the Commission's rules with respect to solicitation of proxies. If the merger is not completed, FNB is not expected to be required to comply with those rules in connection with its next annual meeting of shareholders. If the merger is completed, FNB will be merged with and into Southern. FNB is not expected to hold any future annual meetings of shareholders, and holders of FNB common stock will become shareholders of Southern. If a shareholder of Southern would like a proposal to be presented at the 2008 annual meeting of shareholders and if the shareholder would like the proposal to be considered for inclusion in Southern's proxy statement and form of proxy relating to that meeting, the shareholder must submit the proposal to Southern in accordance with Commission Rule 14a-8 and Southern's bylaws. Southern must receive the proposal before November 17, 2007 for the proposal to be eligible for inclusion in the proxy statement and form of proxy relating to that meeting under Commission Rule 14a-8 and Southern's bylaws. Any other proposal a shareholder intends to present at the 2008 annual meeting of shareholders must be submitted by November 17, 2007, in accordance with Southern's bylaws.

Vote Required for Approval

          An affirmative vote of the shareholders holding a majority of the outstanding shares of FNB common stock is required to approve the plan of merger. For purposes of counting votes on approval of the plan of merger, abstentions, broker non-votes and other shares not voted will be counted as voted against the plan of merger.

THE MERGER

          The respective boards of directors of Southern and FNB have adopted the plan of merger. The following discussion summarizes the material provisions of the plan of merger and certain aspects of the merger. This summary discussion does not purport to be a complete description of the merger. You should carefully review the plan of merger in its entirety before making an investment decision. The plan of merger is attached as Appendix A to this prospectus and proxy statement and incorporated by reference into this prospectus and proxy statement.

Background of the Merger

          The board of directors of FNB has regularly engaged in strategic planning initiatives. In the summer of 2005, the board met with FNB's legal counsel to discuss various strategic planning alternatives available to FNB, including acquisition and internal growth opportunities. In May, 2006, the board authorized management to engage Austin Associates to assist FNB in its strategic planning initiative. During the next several months, members of FNB's management met with representatives of Austin Associates to discuss various growth strategies, capital planning initiatives, management development and other strategic planning activities.

          In August, 2006, the Office of the Comptroller of the Currency (" OCC ") presented the board of directors of FNB Bank with a formal written agreement (the " Written Agreement ") between the board of directors of FNB Bank and the OCC to address various issues raised by the OCC regarding the operations of FNB Bank. A formal written agreement is a bilateral document between the board of a bank and its primary federal regulator that is intended to address matters that require, in the judgment of the regulator, corrective action by the bank. Soon thereafter, the Written Agreement was executed. It contains a number of restrictions that limit the ability of FNB to advance many of the strategic initiatives under consideration by the board of FNB.

          On October 18, 2006, a representative of Austin Associates met with the board of directors to present its initial findings regarding strategic planning opportunities. A discussion took place regarding the possibility of combining with another financial institution to enhance the ability of FNB to further that part of its long-term strategic plan that involved expanding its markets and growing geographically.

          On October 19, 2006, the board met in a strategic planning session to review Austin Associates' recommendations in greater detail. It also considered the impact of the Written Agreement and other issues affecting FNB. At that meeting, the board approved the engagement of Austin Associates to conduct a valuation of FNB on a sale of control basis. In addition, Austin Associates was directed to assist the board in assessing its ability to carry out its long-term strategic plan on a stand-alone basis.

          The results of the Austin Associates valuation were presented to the board at a meeting held on December 19, 2006. Austin Associates identified and presented information on twelve candidates that could potentially have an interest in affiliating with FNB, while indicating its belief that not more than six or possibly seven candidates would express serious interest. At that meeting, a presentation was also made by FNB's legal counsel regarding duties of the board of directors in considering merger and acquisition opportunities, including a possible sale of FNB. At the conclusion of that meeting, the board appointed a committee (the " Special Committee ") composed of directors Peterson, Carton, Haas and Dyer and authorized the Special Committee to engage the services of an investment banker to assist FNB in exploring a possible sale of FNB.

          In January, 2007, Austin Associates was engaged by FNB to serve as its financial advisor to assist it in exploring the potential merger of FNB with another financial institution. Austin Associates thereafter prepared a confidential information package for delivery to potential merger partners. The Special Committee also authorized Austin Associates to identify potential merger partners that had the ability to assist FNB in geographic expansion efforts while maintaining FNB's community bank focus. Austin Associates presented information about several potential merger partners that met some or all of the criteria established by the Special Committee. The Special Committee narrowed its discussions down to four potential merger partners which it discussed in detail and ranked them from a qualitative perspective from the most desirable to the least desirable. The board concluded that Southern best met its criteria. Based on the Special Committee's determination, senior management and Austin Associates were authorized and directed to seek to enter into discussions concerning a possible strategic business combination with Southern, prior to engaging in negotiations with any of the remaining potential merger partners.

          On February 21, 2007, Southern and FNB entered into a confidentiality agreement. In early March, 2007, Southern submitted a preliminary indication of interest to merge with FNB. Thereafter, members of the Special Committee met with FNB's legal counsel and Austin Associates to review Southern's proposal. The preliminary indication of interest was below the level that was acceptable to the Special Committee and the Special Committee determined that FNB should continue its discussions for a possible strategic business combination exclusively with Southern only if it could obtain improved financial terms. At that meeting, the Special Committee authorized representatives of Austin Associates and management of FNB to conduct further discussions with Southern in order to obtain more favorable financial terms. On March 21, 2007, Southern submitted a revised indication of interest which proposed that FNB merge with Southern and proposed that shares of FNB be exchanged for a combination of cash and Southern common stock, which was valued at approximately $45.35 per FNB share with total consideration of approximately $25.9 million. The $25.9 million (or $45.35 per share) price was determined through the assistance of Donnelly Penman and Partners, Southern's financial advisor, by conducting various valuation analyses. These included valuation comparisons to comparable completed and announced control transactions (in the Midwest region and in Michigan, specifically), detailed financial modeling to understand the expected accretion/dilution to Southern shareholders as a result of the proposed FNB transaction as well as discounted cash flow analyses of Southern on a stand alone basis and a combined basis with FNB. The 1.87 ratio was determined by calculating the multiplier needed to equate the Southern stock price of $24.25 upon the date of the revised indication of interest (March 21, 2007) into consideration of $45.35 per FNB share. The Special Committee was satisfied with Southern's revised indication of interest from a financial point of view and continued to view Southern as FNB's first choice as a strategic merger partner. The Special Committee concluded that it was in the best interest of FNB to continue discussions with Southern and recommended to the board of directors of FNB at a meeting held on March 23, 2007, that the board authorize Austin Associates to negotiate the terms a definitive merger agreement with Southern. The board of directors adopted such recommendation at the March 23, 2007 meeting.

          Southern and FNB then entered into an exclusive dealing agreement to permit each party to perform due diligence with respect to the other and to enable FNB and Southern to negotiate the terms of a definitive merger agreement. Following completion of due diligence and the negotiation of the terms of the plan of merger, the Special Committee met to review the terms of the plan of merger. The Special Committee recommended adoption of the plan of merger by the full board of directors of FNB. On April 17, 2007, FNB's board of directors met to consider the plan of merger. At that meeting, a presentation regarding the terms of the plan of merger was made by Austin Associates and FNB's legal counsel. Austin Associates also delivered an oral opinion stating that the terms of the plan of merger were fair, from a financial point of view, to FNB and its shareholders. The board voted to adopt the plan of merger. Later that day, the plan of merger was executed by representatives of FNB and Southern.

Reasons for the Merger

          The boards of directors of Southern and FNB have each unanimously determined that the proposed merger is desirable and in the best interests of their respective corporation and its shareholders. In negotiating the terms of the plan of merger and in considering its adoption, each corporation's board of directors reviewed the financial results and conditions of FNB and Southern, the perceived prospects for each in the future, and the business philosophies of FNB and Southern. FNB also provided Southern with FNB Bank's 2007 budget, which is, in substance, a projection and inherently forward-looking. The following is a summary of FNB Bank's 2007 budget provided to Southern. It does not reflect costs associated with the merger or actual losses incurred, which are expected to be greater than projected.

First National Bank of Three Rivers
2007 Budget
Summary Report

          FNB's board reviewed and discussed with Austin Associates the fairness opinion and the financial analysis supporting such opinion. See " The Merger - Fairness Opinion of Austin Associates, LLC ." In this regard, the board considered the fact that while certain metrics utilized by Austin Associates would have indicated a higher price, the board was satisfied based on consideration of Austin Associates' analysis as a whole and determined, therefore, that reliance on Austin Associates' fairness opinion was appropriate. For example, under Austin Associates' analysis of comparable transactions, the metric "Premium/Core Deposits" resulted in a deal transaction multiple of 11.8% versus 17.6%, 12.8%, and 14.3% for comparable Michigan, Midwest, and National transactions, respectively. The board noted, however, the inherent unreliability of this metric based on the wide variability of results observed, for example in the case of Michigan transactions where the lowest premium to core deposits ratio was 4.7% and the highest was 37.4%. The board also considered and agreed with Austin Associates' approach generally (based on Austin Associates' experience) in giving more weight to the earnings-based approaches, including the DCF valuation with cost savings and the price to earnings multiple, and less weight to balance sheet-based approaches. Similar to the "Premium/Core Deposits" metric, the board observed that the "Price/Tangible Book Value" multiple of 209% for this transaction was less than the 232% multiple of book value for comparable Michigan transactions. But when the board considered the significantly higher return on assets (.76% versus .53%), return on equity (7.45% versus 6.32%), and lower nonperforming asset ratios (.44% versus 1.69%) for the Michigan comparable transactions, the higher market to book value premium for the Michigan peer group appeared to be reasonable.

          Southern's board of directors has recognized that its opportunity to grow organically within its existing markets is, to some degree, limited by competition and economic conditions. Growth through acquisition has been part of Southern's strategic plan for several years. FNB's expressed interest in a business combination presented Southern's board of directors and management with an opportunity to implement this strategy. A strategic combination with FNB would allow Southern to expand the organization into adjacent markets without the anti-trust law considerations that could limit in-market acquisition opportunities.

          Southern's management believes that Southern has the capital and systems capacity to support a larger organization. The strategic combination with FNB is expected to allow Southern to deploy its capital and systems more efficiently to support a larger organization. Southern also believes that each organization has complimentary strengths in its product offerings that present opportunities for synergies for both banks when these strengths are shared between the two organizations.

          The boards of directors of FNB and Southern each believe the merger provides the shareholders of each corporation an opportunity to have an interest in a larger and more diversified financial organization. Shareholders of the combined organization may enjoy certain benefits associated with the combined organization's larger and more diversified asset base and access to a broader range of markets. The combined organization's shareholders will, however, also be subject to the risks associated with either Southern or FNB, in which they have not previously held an interest.

          The boards of directors believe that the merger will enable the corporations' subsidiaries to become more effective competitors in their respective markets through access to greater financial and managerial resources. Each corporation's directors consider this access to be important in light of increased competition from a broader range of financial institutions than has generally been encountered in the banking industry. Each board also believes that the merger will permit the achievement of certain economies of scale in the areas of administration, regulatory compliance, management and capital formation. The boards of directors did not assign any particular weight to any one of the foregoing factors.

Vote Required to Approve the Plan of Merger

          Under the plan of merger, FNB is soliciting proxies from FNB shareholders for the purpose of approving the plan of merger. The affirmative vote of the holders of a majority of the outstanding shares of FNB common stock is required to approve the plan of merger.

Structure of the Merger

          At the time the merger becomes effective, FNB will be merged with and into Southern. The surviving corporation will be Southern, which will own FNB Bank and all of the other assets of FNB. Upon completion of the merger, Southern would have authorized capital stock of 4,000,000 shares of common stock, par value of $2.50 per share, of which approximately 2,308,061 shares will be issued and outstanding, and 100,000 shares of preferred stock, none of which will be issued or outstanding. The estimated number of shares of Southern common stock to be outstanding after the merger was determined by reference to the conversion ratio of 1.87 shares of Southern common stock for each share of FNB common stock, as applied to the 286,670 shares of FNB common stock (50% of the outstanding shares of FNB common stock as of April 17, 2007), added to the 1,771,988 shares of Southern common stock outstanding as of August 15, 2007. The articles of incorporation and bylaws of Southern as in effect immediately before the effective time of the merger will be the articles of incorporation and bylaws of the combined organization immediately after the effective time of the merger.

What FNB Shareholders Will Receive in the Merger

          You may elect to receive, subject to the completion of the merger, Southern common stock, cash, or a combination of both, subject to potential allocation as described beginning on page 29 of this prospectus and proxy statement. If the plan of merger is approved and the merger is subsequently completed, each outstanding share of FNB common stock that you hold will be converted into the right to receive, at your election, either $45.35 in cash or 1.87 shares of Southern common stock (plus cash in lieu of any fractional share). You may elect to have a portion of your shares of FNB common stock converted into cash, with the remainder converted into Southern

common stock. All elections are subject to an allocation adjustment to ensure that approximately 50% of the outstanding shares of FNB common stock will be converted into the right to receive cash and 50% of the outstanding shares of FNB common stock will be converted into the right to receive Southern common stock. Because elections are subject to potential allocation, there can be no assurance that you will receive the type or proportion of consideration you elect as to all your shares of FNB common stock.

          Southern will not issue fractional shares of Southern common stock in the merger. An FNB shareholder who would otherwise be entitled to receive a fraction of a share of Southern common stock in the merger will instead receive an amount of cash determined by multiplying that fraction by $45.35.

          The amount and nature of the merger consideration was established through arm's-length negotiations between Southern and FNB and their respective advisors, and reflects the balancing of a number of countervailing factors. The total amount of the merger consideration reflects a price both parties concluded was appropriate.

          We cannot assure you that the current fair market value of Southern common stock or FNB common stock will be equivalent to the fair market value of Southern common stock or FNB common stock on the effective date of the merger.

Ownership of Southern Common Stock by FNB Shareholders After the Merger

          Upon completion of the merger, FNB shareholders as a group will own approximately 23% of the then outstanding Southern common stock. This percentage was calculated by dividing the approximate number of shares of Southern common stock that will be owned by FNB shareholders after the merger (536,073) by the approximate number of shares of Southern common stock that will be issued and outstanding after the merger (2,308,061).

Election Procedure

          As soon as practicable after the mailing of the prospectus, the Exchange Agent will send to each holder of record of FNB common stock as of the record date for the special meeting an election form and transmittal materials for the surrender to the Exchange Agent of FNB's stock certificates. The Exchange Agent will use its reasonable best efforts to make the election form and transmittal materials available to persons who become record holders of FNB common stock after the record date for the special meeting. If the FNB common stock is held in street name with a bank or broker, that bank or broker will be responsible for forwarding an election form to you.

          An election will be properly made only if the Exchange Agent receives a properly completed election form, along with the FNB stock certificate(s), and any other completed transmittal materials, before 6:00 p.m. Eastern Time on November 27, 2007, (which we refer to as the Election Deadline). Please note that you will not receive the merger consideration to which you are entitled until you provide the Exchange Agent your FNB stock certificates. Any election form may be revoked or changed by the person submitting such election form at or before the Election Deadline. If an election form is revoked and a replacement election form is not properly submitted to the Exchange Agent prior to the Election Deadline, the shares of FNB common stock represented by such election form and/or stock certificate(s) will be treated like other shares of FNB common stock with respect to which no election or a non-election has been made. Subject to the terms of the plan of merger and the election form, Southern and the Exchange Agent will have reasonable discretion to determine whether any election, revocation or change has been properly or timely made and to disregard immaterial defects in election forms, and any good faith decisions of Southern or the Exchange Agent regarding such matters shall be binding and conclusive. None of FNB, Southern, or the Exchange Agent will be under any obligation to notify any person of any defect in an election form.

          If you wish to elect whether your shares of FNB common stock will be converted into shares of Southern common stock and/or cash, the Exchange Agent must RECEIVE your election form AND all FNB stock certificate(s) representing all of your shares of FNB common stock covered by the election form before the Election Deadline. Please do not send your stock certificates with your proxy card. You will receive a transmittal form with instructions on exchanging your FNB stock certificates from the Exchange Agent.

          For an election form to be effective, it must be:

          (1) PROPERLY COMPLETED AND EXECUTED; AND

          (2) ACTUALLY RECEIVED, TOGETHER WITH PROPERLY COMPLETED AND EXECUTED TRANSMITTAL MATERIALS AND FNB STOCK CERTIFICATE(S), BY THE EXCHANGE AGENT BY 6:00 P.M. EASTERN TIME ON NOVEMBER 27, 2007, AS SPECIFIED ON THE ELECTION FORM .

Allocation Procedure

          The plan of merger requires that approximately 50% of the total number of shares of FNB common stock will be converted into cash and 50% of the total number of shares of FNB common stock will be converted into Southern common stock. It is possible, therefore, that if you elect cash or stock for all or a portion of your shares of FNB common stock, you could receive a different proportion of cash or stock than you elected.

          If the total number of shares of FNB common stock for which a stock election has been made (which we refer to as the Stock Election Number) is less than 50% of the total number of shares of FNB common stock outstanding at the effective time of the merger, then all non-election shares of each holder of FNB common stock or, if less than all, such number as necessary to reduce the aggregate number of shares of FNB common stock receiving cash to 50% of the total number of shares of FNB common stock outstanding at the effective time of the merger (allocated on a pro rata basis), will be converted into the right to receive Southern common stock. After that adjustment, if the number of shares electing cash still exceeds 50% of the total number of shares of FNB common stock outstanding at the effective time of the merger, each shareholder who made a cash election will receive a combination of cash and Southern common stock following a pro rata adjustment of all elections for cash as necessary to keep within the 50% stock and cash limitation.

          If the Stock Election Number is more than 50% of the total number of shares of FNB common stock outstanding at the effective time of the merger, then all non-election shares of each holder of FNB common stock or, if less than all, such number as necessary to reduce the aggregate number of shares of FNB common stock receiving Southern common stock to 50% of the total number of shares of FNB common stock outstanding at the effective time of the merger (allocated on a pro rata basis), will be converted into the right to receive cash. After that adjustment, if the Stock Election Number still exceeds 50% of the total number of shares of FNB common stock outstanding at the effective time of the merger, each shareholder who made a stock election will receive a combination of cash and Southern common stock following a pro rata adjustment of all elections for stock as necessary to keep within the 50% stock and cash limitation.

          If the Stock Election Number is 50% of the total shares of FNB common stock outstanding at the effective time of the merger, then the shares of those shareholders who did not make an election will be converted, on a 50/50 basis, into the right to receive cash and Southern common stock.

Cessation of Shareholder Status

          As of the effective time of the merger, holders of FNB common stock outstanding immediately before the effective time of the merger will cease to be shareholders of FNB and will have no rights as FNB shareholders.

Payment of Merger Consideration

          On or before the effective time of the merger, Southern will deliver to the Exchange Agent written notice of the number of shares of Southern common stock that will be issued in the merger. Within one business day after the effective time of the merger, Southern will transfer to the Exchange Agent the amount of cash necessary for the Exchange Agent to pay the cash payable to FNB shareholders in the merger (including cash in lieu of fractional shares).

          If the Exchange Agent has received properly executed transmittal documents and FNB stock certificates (or an affidavit of loss and indemnity bond for such certificates) from an FNB shareholder, and the FNB stock certificates (or affidavit of loss and indemnity bond for such certificates) and transmittal materials are in a form and condition reasonably acceptable to the Exchange Agent, Southern will cause the Exchange Agent to:

          The Exchange Agent will have reasonable discretion to determine and apply reasonable terms and conditions to effect an orderly exchange of the old certificates for the merger consideration.

          The declaration of any dividends on Southern common stock payable to shareholders of record of Southern as of a record date after the effective time of the merger will include dividends on all shares issuable under the plan of merger. However, no former shareholder of FNB will be entitled to receive a distribution of such dividends until the Exchange Agent has received that shareholder's old certificates (or affidavit of loss and indemnity bond for such certificates) and properly submitted transmittal materials. Upon physical exchange of that shareholder's old certificates (or affidavit of loss and indemnity bond for such certificates), he or she will be entitled to receive from Southern an amount equal to all such dividends (without interest and less the amount of any required tax withholding) declared and paid with respect to those shares.

          After the effective time of the merger, Southern and FNB will not transfer on the stock transfer books of FNB any shares of FNB common stock that were issued and outstanding immediately before the effective time of the merger. If, after the effective time of the merger, a shareholder properly presents old certificates to Southern, Southern will cancel and exchange the old certificates for the merger consideration as provided in the plan of merger. After the effective time of the merger, ownership of shares represented by old certificates may be transferred only on the stock transfer records of Southern.

          One hundred eighty days after the effective time of the merger, Southern is allowed to cause the Exchange Agent to return to Southern any funds (including any interest) made available to the Exchange Agent for payment of the merger Consideration and not yet disbursed to holders of old certificates. Thereafter, holders of old certificates will only be permitted to look to Southern as a general creditor for payment of the merger consideration payable upon surrender of such old certificates.

          Each share of Southern common stock outstanding immediately before the effective time of the merger will continue to be outstanding without any change. Each shareholder of Southern whose shares were outstanding immediately before the effective time of the merger will hold the same number of shares, with identical designations, preferences, limitations and relative rights, immediately after the effective time of the merger.

Management After the Merger

          Upon completion of the merger, the board of directors of the combined organization will consist of 15 members, including three members of the board of directors of FNB immediately before the effective time of the merger. The directors of the combined organization will be:

          The officers of the combined organization will be:

Effective Time of the Merger

          The merger will be completed on the date and time specified in a certificate of merger filed in accordance with the MBCA. If the shareholders of FNB approve the plan of merger at the special meeting of FNB shareholders, and the other conditions to the merger set forth in the plan of merger and summarized under " The Merger-Conditions to the Merger " in this prospectus and proxy statement are satisfied, the effective time of the merger is anticipated to be during the fourth quarter of 2007, if the plan of merger has not been terminated before then. The merger may not be completed until receipt of approval from the Federal Reserve Board or its delegate and expiration of the required waiting period following such approval.

          FNB is not permitted under the plan of merger to declare, set aside, pay, or make any dividend or other distribution or payment with respect to any shares of FNB common stock, nor is it permitted to purchase or redeem any shares of FNB common stock.

Conditions to the Merger

          The obligations of Southern and FNB to complete the merger are subject to the fulfillment of certain conditions, including the following:

          Either Southern or FNB, whichever is entitled to the benefit of the foregoing conditions, may waive one or more of those conditions except where satisfaction of the condition is required by law. The plan of merger contains various other conditions to the respective obligations of Southern and FNB that have been satisfied.

Abandonment of the Merger

          The boards of directors, or duly authorized committees of the boards of directors, of Southern and FNB may by mutual consent terminate the plan of merger and abandon the merger at any time before the effective time of the merger.

          Either Southern or FNB may terminate the plan of merger and abandon the merger on its own action, subject to certain notice requirements, upon the occurrence of certain events specified in the plan of merger, including the following:

Exclusive Commitment

Board Recommendation

          The FNB board of directors has approved the merger and other transactions contemplated by the plan of merger and adopted the plan of merger. The FNB board of directors has determined that it believes that the plan of merger is in the best interests of FNB and its shareholders and recommends that the FNB shareholders vote FOR approval of the merger.

No Negotiations with Third Parties

          FNB has agreed that it will not directly or indirectly invite, initiate, solicit, or encourage any other party to make any proposal involving the sale of FNB or FNB Bank. Further, FNB has agreed that it will not negotiate with any other party regarding a possible sale of FNB or provide any nonpublic information about itself or any of FNB's subsidiaries to any party other than Southern unless it has received an unsolicited acquisition proposal which the FNB board of directors determines to be a superior proposal. FNB must promptly notify Southern of all inquires and proposals that it receives relating to a proposed acquisition transaction and must keep Southern informed on the status and details of any such inquiry or proposal.

Termination Fee after Business Combination

          Under certain circumstances involving the acquisition of control of FNB by a party other than Southern, Southern will be entitled to a fee of $1,000,000 from FNB. Southern is entitled to this fee if certain events or transactions described in the plan of merger occur and either (i) a party other than Southern acquires beneficial ownership of 25% or more of the then outstanding shares of FNB common stock, or (ii) without Southern's prior written consent, FNB enters into an agreement with a party other than Southern involving (a) a merger, consolidation, share exchange, tender offer, exchange offer, sale of shares, or similar business combination of FNB or any of its subsidiaries, (b) a purchase, lease, or other acquisition of all or substantially all of the assets or deposits

of FNB or any of its subsidiaries, (c) a purchase or other acquisition of securities representing 10% or more of the voting power of FNB or any of its subsidiaries, or (d) any substantially similar transaction.

          Southern is not entitled to the fee if certain events or transactions described in the plan of merger occur, such as completion of the merger.

          The preparation of a financial fairness opinion involves various determinations as to the most appropriate methods of financial analysis and the application of those methods to the particular circumstances. It is, therefore, not readily susceptible to partial analysis or summary description. In connection with rendering its opinion, Austin Associates performed a variety of financial analyses. Austin Associates believes that its analyses and the facts considered in its analyses, without considering all other factors and analyses, could create an incomplete or inaccurate view of the analyses and the process underlying the rendering of Austin Associates' opinion. No limitations were imposed by FNB's board of directors or its management upon Austin Associates with respect to the investigations made or the procedures followed by Austin Associates in rendering its opinion.

          In performing its analyses, Austin Associates made numerous assumptions with respect to industry performance, business and economic conditions, and other matters, many of which are beyond the control of Southern and FNB and which may not be realized. Any estimates contained in Austin Associates' analyses are not necessarily predictive of future results or values, and may be significantly more or less favorable than the estimates. Estimates of values of companies do not purport to be appraisals or necessarily reflect the prices at which the companies or their securities may actually be sold. Unless specifically noted, none of the analyses performed by Austin Associates was assigned a greater significance by Austin Associates than any other. The relative importance or weight given to these analyses is not affected by the order of the analyses or the corresponding results. The summaries of financial analyses include information presented in tabular format. The tables should be read together with the text of those summaries.

          Austin Associates has relied, without independent verification, upon the accuracy and completeness of the information it reviewed for the purpose of rendering its opinion. Austin Associates has performed annual stock valuations of Southern for its Employee Stock Ownership Plan with the most recent completed in February 2007 based on year-end 2006 financial information. Austin Associates has not reviewed any individual credit files of Southern or FNB, and has assumed that Southern's and FNB's allowances are, in the aggregate, adequate to cover losses. Austin Associates' opinion is based on economic, market and other conditions existing on the date of its opinion.

          In rendering its opinion, Austin Associates made the following assumptions:

          In connection with its opinion, Austin Associates reviewed:

          In addition, Austin Associates:

          The following is a summary of all material analyses performed by Austin Associates in connection with its opinion provided to FNB's board of directors as of April 17, 2007. The summary does not purport to be a complete description of the analyses performed by Austin Associates.

FNB Sale of Control Valuation

          FNB retained Austin Associates to complete a sale of control valuation of FNB common stock in October 2006. The results of the valuation were presented to the board of directors of FNB on December 19, 2006. Austin Associates determined the sale of control value of FNB based on financial information through September 30, 2006. The valuation focused on three areas including (1) the sale of control value of FNB; (2) review of economic and demographic data and deposit market share trends in FNB's market areas; and (3) identification and review of potential buyer candidates. As part of the sale of control valuation, Austin Associates reviewed the historical performance of FNB including balance sheet growth, loan and deposit mix, profitability, asset quality, capital ratios, deposit market share trends along with economic outlook for its markets. Austin Associates also held discussions with management regarding its estimated performance for the remainder of 2006 and projections for 2007.

          To determine sale of control indications of value, Austin Associates used two approaches. The first approach was based on a discounted cash flow (earnings-based) approach that considers the stand-alone projected performance of FNB and then considers the potential cost savings that could be achieved through a merger.

Discounted Cash Flow Method ("DCF") : Indications of value for FNB were developed based on projected stand-alone earnings and then adjusted for estimated cost savings. All cost savings were assumed in compensation and benefits and other operating expense areas, including data processing, directors' fees, taxes (other than income) and legal/audit. We believe this level of overhead cost savings is consistent with a potential buyer's pro forma operating cost structure.

          In developing these projections, Austin Associates considered FNB's strategic plan developed during the second half of 2006. Austin Associates assumed no other material changes in the operations of FNB, including the

types of products and services offered. Austin Associates used primarily current trend lines of FNB in developing its projections. In addition to the historical performance of FNB Bank, Austin Associates considered FNB's budget forecasts for the fourth quarter of 2006 and all of 2007.

          Austin Associates assumed a two percent annual asset growth rate for each year between September 2006 to September 2011 for FNB on a stand-alone basis. Austin Associates also assumed FNB's stand-alone earnings would increase from $1.3 million for the twelve month period ending September 30, 2007 to $1.6 million for the twelve month period ending September 30, 2011.

          Austin Associates utilized a 12 percent discount rate in its discounted cash flow analysis. To confirm the validity of this result, Austin Associates reviewed long-term compound annual stock market returns for various market indices. According to the Ibbotson Associates, Inc. widely recognized Stocks, Bonds, Bills and Inflation 2006 Yearbook, the compound annual return for the period 1926 to 2005 was 10.4 percent for large company stocks and 12.6 percent for small company stocks.

          Austin Associates projected a three percent growth rate in earnings for years six and beyond in the stand-alone DCF value calculation. This growth rate is above FNB's actual compound annual growth rate in total assets of 0.3% from year-end 2001 to September 30, 2006. In addition, Austin Associates calculated the DCF value associated with potential cost savings using a similar methodology as that in the stand-alone calculation. Indications of value ranged from $23.2 million to $26.3 million under the DCF approach.

          The second approach was based on a review of guideline sale of control transactions. After reviewing selected transactions and seller's financial performance, Austin Associates applied comparable price to tangible book value, price to earnings and premium to core deposit multiples to develop indications of value. Indications of value ranged from $24.7 million to $29.6 million under the guideline transaction approach.

          Based on its analysis, Austin Associates estimated a potential aggregate sale of control value for FNB between $24.0 and $27.0 million. The following is a summary of the valuation results.