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  **UNITED STATES SECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549****FORM 10-K**   þ **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934******For fiscal year ended December 31, 2006****   o **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACTOF 1934******For the transition period from                      to**                    ****Commission file number****000-23550****FENTURA FINANCIAL, INC.****(Exact name of registrant as specified in its charter)**   **Michigan** **38-2806518** **(State or other jurisdiction of** **(IRS Employer Identification No.)****incorporation or organization)**     **175 North Leroy, Fenton, Michigan** **48430-0725**   **(Address of Principal Executive Offices)** **(Zip Code)****Registrant’s telephone number, including area code (810) 750-8725****Securities registered under Section 12(b) of the Exchange Act: None****Securities registered under Section 12(g) of the Exchange Act: Common Stock****Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.    Yes**o     **No**þ**Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 orSection 15(d) of the Act.   Yes**o      **No**þ**Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports) and (2) has been subject to such filing requirementsfor the past 90 days.**  þ**Yes**      o**No****Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-Kis not contained herein, and will not be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K.**      þ**Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act.****Largeaccelerated filer**o      **Accelerated filer**o      **Non-accelerated filer**þ**Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes**o     **No**þ**State the aggregate market value of the voting and nonvoting common equity held by nonaffiliates ofthe registrant computed by reference to the price at which the common equity was sold, or theaverage bid and asked prices of such common equity, as of the last business day of the registrant’smost recently completed second quarter.****Aggregate Market Value as of June 30, 2006: $58,752,175.****State the number of shares outstanding of each of issuer’s classes of common equity, as of thelatest practicable date. 2,160,106 shares of Common Stock as of March 14, 2007.****DOCUMENTS INCORPORATED BY REFERENCE****Portions of the Fentura Financial, Inc. Proxy Statement for its annual meeting of shareholders tobe held April 24, 2007 and its Rule 14a-3 annual report are incorporated by reference into Parts IIand III.**  
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Fentura Financial, Inc.2006 Annual Report on Form 10-KTable Of Contents       Page PART I    Item 1. Description of Business  3 Item 1A Risk Factors  9 Item 1B Unresolved Staff Comments  14 Item 2. Description of Property  15 Item 3. Legal Proceedings  15 Item 4. Submission of Matters to a Vote of Security Holders  15 Additional Item — Executive Officers of Registrant  15      PART II    Item 5. Market for Registrant’s Common Equity, Related Stockholder Mattersand Issuer Purchases of Equity Securities  16 Item 6. Selected Financial Data  17 Item 7. Management’s Discussion and Analysis of Financial Condition andResults of Operations  17 Item 7A. Quantitative and Qualitative Disclosures About Market Risk  17 Item 8. Financial Statements and Supplementary Data  17 Item 9. Changes in and Disagreements with Accountants on Accountingand Financial Disclosure  17 Item 9A. Controls and Procedures  17 Item 9B. Other Information  18      PART III    Item 10. Directors, Executive Officers and Corporate Governance  18 Item 11. Executive Compensation  18 Item 12. Security Ownership of Certain Beneficial Owners and Managementand Related Stockholder Matters  18 Item 13. Certain Relationships and Related Transactions, and Director Independence  19 Item 14. Principal Accountant Fees and Services  19      PART IV    Item 15. Exhibits and Financial Statement Schedules  19      SIGNATURES  21 EXHIBIT INDEX  22  Annual Report to Security Holders Code of Ethics Subsidiaries of the Registrant Consent of Independent Registered Public Accounting Firm Certificate of President & Chief Executive Officer Pursuant to Section 302 Certificate of Chief Financial Officer Pursuant to Section 302 Certificate of Chief Executive Officer & Chief Financial Officer Pursuant to Section 906
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**PART I****ITEM 1.****DESCRIPTION OF BUSINESS****The Company**     Fentura Financial, Inc. (the “Company” or “Fentura”) is a bank holding company headquarteredin Fenton, Michigan that owns three subsidiary banks (see “The Banks” below). All information inthis Item 1 is as of December 31, 2006. The Company’s subsidiary banks operate 17 communitybanking offices offering a full range of banking services principally to individuals, smallbusiness, and government entities throughout mid-Michigan and western Michigan. At the close ofbusiness on December 31, 2006, the Company had assets of $622 million, deposits of $528 million,and shareholders’ equity of $51 million. Trust assets under management totaled $142 million.     Fentura was incorporated in 1987 to serve as the holding company of its sole subsidiary bank,The State Bank (“TSB” or one of the “Banks”). TSB traces its origins to its predecessor, TheCommercial Savings Bank of Fenton, which was incorporated in 1898. See “The Banks” below. OnMarch 13, 2000 a second bank subsidiary, Davison State Bank (“DSB” or one of the “Banks”) commencedoperation. On March 15, 2004, Fentura acquired West Michigan Community Bank (“WMCB” or one of the“Banks”).     The Company’s principal executive offices are located at 175 North Leroy, Fenton, Michigan48430-0725, and its telephone number is (810) 750-8725.**The Banks**     TSB’s original predecessor was incorporated as a state banking corporation under the laws ofMichigan on September 16, 1898 under the name “The Commercial Savings Bank of Fenton.” In 1931, itchanged its name to State Savings Bank of Fenton, and in 1988 became The State Bank. For over 100years, TSB has been engaged in the general banking business in the Fenton, Michigan area. TSB isheadquartered in Fenton and considers its primary service area to be portions of Genesee, Oakland,and Livingston counties in Michigan. As of December 31, 2006, TSB operated four offices and anoperations center in the City of Fenton, Michigan, one office in the City of Linden, Michigan, oneoffice in the Village of Holly, Michigan, three offices in the Township of Grand Blanc, Michigan,and one office in Brighton, Michigan. Its main office is located in downtown Fenton.     DSB commenced operations on March 13, 2000, and is engaged in the general banking business inthe Davison, Michigan area. DSB is headquartered in Davison and considers its primary service areato be portions of Genesee and Lapeer Counties. As of December 31, 2006, DSB operated two officesin the City of Davison, Michigan.     Fentura acquired West Michigan Community Bank on March 15, 2004. WMCB is engaged in thegeneral banking business in Hudsonville, Michigan, and other portions of Ottawa County and westernKent County, Michigan. WMCB is headquartered in Hudsonville and considers its primary serviceareas to be portions of Kent and Ottawa counties. As of December 31, 2006, WMCB operated twooffices in the City of Hudsonville, Michigan, one office in the City of Jenison, Michigan, oneoffice in the City of Holland, Michigan and one office in the City of Grandville, Michigan.     All of the Banks are community-oriented providers of financial services engaged in thebusiness of general commercial banking. Their activities include investing in state and federalsecurities, accepting demand deposits, savings and other time deposits, extending retail,commercial, consumer and real estate loans to individuals and businesses, providing safe depositboxes and credit card services, transmitting funds and providing other services generallyassociated with full service commercial banking. Lending is focused on individuals and smallbusinesses in the local markets served by the Banks. In addition, TSB and WMCB operate trustdepartments offering a full range of fiduciary services.
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     All three banks are state banks, chartered under the Michigan Banking Code. None are membersof the Federal Reserve, but the deposits of each are insured by the Federal Deposit InsuranceCorporation (the “FDIC”). See “Supervision and Regulation” below.     As of December 31, 2006, TSB employed 130 full time personnel, including 45 officers, and anadditional 38 part time employees; DSB employed 13 full time personnel, including 5 officers, andan additional 10 part time employees; WMCB employed 45 full time personnel, including 18 officers,and an additional 15 part time employees. All Banks consider their employee relations to beexcellent.**Competition**     The financial services industry is highly competitive. The Banks compete with othercommercial banks, many of which are subsidiaries of bank holding companies, for loans, deposits,trust accounts, and other business on the basis of interest rates, fees, convenience and quality ofservice. The Banks also compete with a variety of other financial services organizations includingsavings and loan associations, finance companies, mortgage banking companies, brokerage firms,credit unions and other financial organizations. Many of the Banks’ competitors have substantiallygreater resources than the Banks.**Supervision and Regulation**     *The following is a summary of certain statutes and regulations affecting the Company and theBanks. This summary is qualified in its entirety by such statutes and regulations. A change inapplicable laws or regulations may have a material effect on the Company, the Banks and thebusiness of the Company and the Banks.***General**     Financial institutions and their holding companies are extensively regulated under federal andstate law. Consequently, the growth and earnings performance of the Company and the Banks can beaffected not only by management decisions and general economic conditions, but also by the statutesadministered by, and the regulations and policies of, various governmental regulatory authorities.Those authorities include, but are not limited to, the Board of Governors of the Federal ReserveSystem (the “Federal Reserve Board”), the FDIC, the Commissioner of the Michigan Office ofFinancial and Insurance Services (“Commissioner”), the Internal Revenue Service, and state taxingauthorities. The effect of such statutes, regulations and policies can be significant, and cannotbe predicted with a high degree of certainty.     Federal and state laws and regulations generally applicable to financial institutions andtheir holding companies regulate, among other things, the scope of business, investments, reservesagainst deposits, capital levels relative to operations, lending activities and practices, thenature and amount of collateral for loans, the establishment of branches, mergers, consolidationsand dividends. The system of supervision and regulation applicable to the Company and the Banksestablishes a comprehensive framework for their respective operations and is intended primarily forthe protection of the FDIC’s deposit insurance funds, the depositors of the Banks, and the public,rather than shareholders of the Banks or the Company.     Federal law and regulations establish supervisory standards applicable to the lendingactivities of the Banks, including internal controls, credit underwriting, loan documentation andloan-to-value ratios for loans secured by real property.
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     The Company’s common stock is registered under the Securities Exchange Act of 1934, as amended(the “Exchange Act”). It is therefore subject to the information, proxy solicitation, insidertrading and other restrictions and requirements of the SEC under the Exchange Act. On July 30,2002, President Bush signed into law the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Actprovided for numerous changes to the reporting, accounting, corporate governance and businesspractices of companies as well as financial and other professionals who have involvement with theU.S. public markets.**The Company**     ***General***. The Company, as the sole shareholder of the Banks, is a bank holding company and isregistered with, and subject to regulation by, the Federal Reserve Board under the Bank HoldingCompany Act, as amended (the “BHCA”). Under the BHCA, the Company is subject to periodicexamination by the Federal Reserve Board, and is required to file with the Federal Reserve Boardperiodic reports of its operations and such additional information as the Federal Reserve Board mayrequire.     In accordance with Federal Reserve Board policy, the Company is expected to act as a source offinancial strength to the Banks and to commit resources to support the Banks in circumstances wherethe Company might not do so absent such policy. In addition, if the Commissioner deems a Bank’scapital to be impaired, the Commissioner may require the Bank to restore its capital by a specialassessment upon the Company as the Bank’s sole shareholder. If the Company were to fail to pay anysuch assessment, the directors of the Bank would be required, under Michigan law, to sell theshares of the Bank’s stock owned by the Company to the highest bidder at either a public or privateauction and use the proceeds of the sale to restore the Bank’s capital.     ***Investments and Activities***. Under the BHCA, a bank holding company must obtain FederalReserve approval before: (i) acquiring, directly or indirectly, ownership or control of any votingshares of another bank or bank holding company if, after such acquisition, it would own or controlmore than 5% of such shares (unless it already owns or controls the majority of such shares); (ii)acquiring all or substantially all of the assets of another bank or bank holding company; or (iii)merging or consolidating with another bank holding company. The Federal Reserve may allow a bankholding company to acquire banks located in any state of the United States without regard togeographic restrictions or reciprocity requirements imposed by state law, but subject to certainconditions, including limitations on the aggregate amount of deposits that may be held by theacquiring holding company and all of its insured depository institution affiliates.     The merger or consolidation of an existing bank subsidiary of the Company with another bank,or the acquisition by such a subsidiary of assets of another bank, or the assumption of liabilityby such a subsidiary to pay any deposits in another bank, will require the prior written approvalof the responsible Federal depository institution regulatory agency under the Bank Merger Act. Inaddition, in certain such cases an application to, and the prior approval of, the Federal ReserveBoard under the BHCA and/or the Commissioner under the Michigan Banking Code, may be required.     With certain limited exceptions, the BHCA prohibits any bank holding company from engaging,either directly or indirectly through a subsidiary, in any activity other than managing orcontrolling banks unless the proposed non-banking activity is one that the Federal Reserve Boardhas determined to be so closely related to banking or managing or controlling banks as to be aproper incident thereto. Under current Federal Reserve Board regulations, such permissiblenon-banking activities include such things as mortgage banking, equipment leasing, securitiesbrokerage, and consumer and commercial finance company operations. Well-capitalized andwell-managed bank holding companies may engage *de novo*in certain types of non-banking activitieswithout prior notice to, or approval of, the Federal Reserve Board, provided that written notice ofthe new activity is given to the Federal Reserve Board within 10 business days after the activityis commenced. If a bank holding company wishes to engage in a non-banking activity by acquiring agoing concern, prior notice and/or prior approval will be required, depending upon the activitiesin which the company to be acquired is engaged, the size of the company to be acquired and thefinancial and managerial condition of the acquiring bank holding company.
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     A bank holding company whose subsidiary depository institutions all are well-capitalized andwell-managed and who have Community Reinvestment Act ratings of at least “satisfactory” may electto become a financial holding company. A financial holding company is permitted to engage in abroader range of activities than are permitted to bank holding companies.     Those expanded activities include any activity which the Federal Reserve (in certain instancesin consultation with the Department of the Treasury) determines, by order or regulation, to befinancial in nature or incidental to such financial activity, or to be complementary to a financialactivity and not to pose a substantial risk to the safety or soundness of depository institutionsor the financial system generally. Such expanded activities include, among others: insuring,guaranteeing, or indemnifying against loss,harm, damage, illness, disability or death, or issuing annuities, and acting as principal,agent, or broker for such purposes; providing financial, investment, or economic advisory services,including advising a mutual fund; and underwriting, dealing in, or making a market in securities.     The BHCA generally does not place territorial restrictions on the domestic activities ofnon-bank subsidiaries of bank or financial holding companies.     Federal legislation also prohibits the acquisition of control of a bank holding company, suchas the Company, by a person or a group of persons acting in concert, without prior notice to theFederal Reserve. Control is defined in certain cases as the acquisition of 10% of the outstandingshares of a bank holding company.     ***Capital Requirements***. The Federal Reserve Board uses capital adequacy guidelines in itsexamination and regulation of bank holding companies. If capital falls below minimum guidelines, abank holding company may, among other things, be denied approval to acquire or establish additionalbanks or non-bank businesses. These capital guidelines are comparable to those established by theregulatory authorities for the Banks discussed below.     ***Dividends***. The Company is a corporation separate and distinct from the Banks. Most of theCompany’s revenues are received by it in the form of dividends paid by the Banks. Thus, theCompany’s ability to pay dividends to its shareholders is indirectly limited by statutoryrestrictions on the Banks’ ability to pay dividends described below. Further, in a policystatement, the Federal Reserve Board has expressed its view that a bank holding companyexperiencing earnings weaknesses should not pay cash dividends exceeding its net income or whichcan only be funded in ways that weaken the bank holding company’s financial health, such as byborrowing. Additionally, the Federal Reserve Board possesses enforcement powers over bank holdingcompanies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe orunsound practices or violations of applicable statutes and regulations. Among these powers is theability to proscribe the payment of dividends by banks and bank holding companies. Similarenforcement powers over the Banks are possessed by the FDIC. The “prompt corrective action”provisions of federal law and regulation authorizes the Federal Reserve Board to restrict thepayment of dividends by the Company for an insured bank which fails to meet specified capitallevels.     In addition to the restrictions on dividends imposed by the Federal Reserve Board, theMichigan Business Corporation Act provides that dividends may be legally declared or paid only ifafter the distribution a corporation, such as the Company, can pay its debts as they come due inthe usual course of business and its total assets equal or exceed the sum of its liabilities plusthe amount that would be needed to satisfy the preferential rights upon dissolution of any holdersof preferred stock whose preferential rights are superior to those receiving the distribution.
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**The Banks**     ***General***. The Banks are Michigan banking corporations, and their deposit accounts are insuredby the deposit insurance fund of the FDIC. As FDIC-insured Michigan chartered banks, the Banks aresubject to the examination, supervision, reporting and enforcement requirements of theCommissioner, as the chartering authority for Michigan banks, and the FDIC, as administrator of thedeposit insurance fund. These agencies and the federal and state laws applicable to the Banks andtheir operations, extensively regulate various aspects of the banking business including, amongother things, permissible types and amounts of loans, investments and other activities, capitaladequacy, branching, interest rates on loans and on deposits, the maintenance of non-interestbearing reserves on deposit accounts, and the safety and soundness of banking practices.     ***Deposit Insurance***. As FDIC-insured institutions, the Banks are required to pay depositinsurance premium assessments to the FDIC.Following the adoption of the Federal Deposit InsuranceReform Act of 2005, the FDIC has the opportunity, through its rulemaking authority, to betterprice deposit insurance for risk than was previously authorized. The FDIC adopted regulationseffective January 1, 2007 that create a new system of risk-based assessments, set assessment ratesbeginning January 1, 2007 and establish a new insurance assessment system. Under the newregulations there are four risk categories, and each insured institution will be assigned to a riskcategory based on capital levels and supervisory ratings. Well-capitalized institutions withCAMELS composite ratings of 1 or 2 will be placed in Risk Category I while other institutions willbe placed in Risk Categories II, III or IV depending on their capital levels and CAMELS compositeratings. The new regulations also established assessment rates beginning January 1, 2007 with thehighest rated institutions, those in Risk Category I, paying premiums of between .05% and .07% ofdeposits and the lowest rated institutions, those in Risk Category IV, paying premiums of .43% ofdeposits. The assessment rates may be changed by the FDIC as necessary to maintain the insurancefund at the reserve ratio designated by the FDIC, which currently is 1.25% of insured deposits.The FDIC may set the reserve ratio annually at between 1.15% and 1.50% of insured deposits.Deposit insurance assessments will be collected for a quarter at the end of the next quarter withthe first assessments under the new system being collected on June 30, 2007 for insurance coveragefor the first quarter of 2007. Assessments will be based on deposit balances at the end of thequarter, except for institutions with $1 billion or more in assets and institutions that becomeinsured on or after January 1, 2007 which will have their assessment base determined using averagedaily balances of insured deposits.     ***FICO Assessments.***The Banks are subject to assessments to cover the payments on outstandingobligations of the Financing Corporation (“FICO”). FICO was created to finance the recapitalizationof the Federal Savings and Loan Insurance Corporation, during the thrift crisis in the 1980s. Fromnow until the maturity of the outstanding FICO obligations in 2019, insured institutions will sharethe cost of the interest on the FICO bonds on a *pro rata*basis.     ***Commissioner Assessments.***Michigan banks are required to pay supervisory fees to theCommissioner to fund the operations of the Commissioner. The amount of supervisory fees paid by abank is based upon the bank’s total assets, as reported to the Commissioner.     ***Capital Requirements***. The FDIC has established the following minimum capital standards forstate-chartered, FDIC insured non-member banks, such as the Banks: a leverage requirementconsisting of a minimum ratio of Tier 1 capital to total average assets of 3% for the mosthighly-rated banks with minimum requirements of 4% to 5% for all others, and a risk-based capitalrequirement consisting of a minimum ratio of total capital to total risk-weighted assets of 8%, atleast one-half of which must be Tier 1 capital. Tier 1 capital consists principally ofshareholders’ equity. These capital requirements are minimum requirements. Higher capital levelswill be required if warranted by the particular circumstances or risk profiles of individualinstitutions.
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     ***Prompt Corrective Regulatory Action.***Federal law provides the federal banking regulators withbroad power to take prompt corrective action to resolve the problems of undercapitalizedinstitutions. The extent of the regulators’ powers depends on whether the institution in questionis “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantlyundercapitalized,” or “critically undercapitalized.” Federal regulations define these capitalcategories as follows:               Total Tier 1    Risk-Based Risk-Based    Capital Ratio Capital Ratio Leverage RatioWell capitalized 10% or above 6% or above 5% or aboveAdequately capitalized 8% or above 4% or above 4% or aboveUndercapitalized Less than 8% Less than 4% Less than 4%Significantly undercapitalized Less than 6% Less than 3% Less than 3%Critically undercapitalized  —   —  A ratio of tangible equity to total assets of 2% or less     As of December 31, 2006, each of the Banks’ ratios exceeded minimum requirements for the wellcapitalized category.     Depending upon the capital category to which an institution is assigned, the regulators’corrective powers include: requiring the submission of a capital restoration plan; placing limitson asset growth and restrictions on activities; requiring the institution to issue additionalcapital stock (including additional voting stock) or to be acquired; restricting transactions withaffiliates; restricting the interest rate the institution may pay on deposits; ordering a newelection of directors of the institution; requiring that senior executive officers or directors bedismissed; prohibiting the institution from accepting deposits from correspondent banks; requiringthe institution to divest certain subsidiaries; prohibiting the payment of principal or interest onsubordinated debt; and ultimately, appointing a receiver for the institution.     In general, a depository institution may be reclassified to a lower category than is indicatedby its capital levels if the appropriate federal depository institution regulatory agencydetermines the institution to be otherwise in an unsafe or unsound condition or to be engaged in anunsafe or unsound practice. This could include a failure by the institution, following receipt ofa less-than-satisfactory rating on its most recent examination report, to correct the deficiency.     ***Dividends***. Under Michigan law, the Banks are restricted as to the maximum amount of dividendsthey may pay on their common stock. The Banks may not pay dividends except out of net income afterdeducting their losses and bad debts. A Michigan state bank may not declare or pay a dividendunless the bank will have surplus amounting to at least 20% of its capital after the payment of thedividend.     Federal law generally prohibits a depository institution from making any capital distribution(including payment of a dividend) or paying any management fee to its holding company if thedepository institution would thereafter be undercapitalized. The FDIC may prevent an insured bankfrom paying dividends if the bank is in default of payment of any assessment due to the FDIC. Inaddition, the FDIC may prohibit the payment of dividends by an insured bank, if such payment isdetermined, by reason of the financial condition of the bank, to be an unsafe and unsound bankingpractice.     ***Insider Transactions***. The Banks are subject to certain restrictions imposed by the FederalReserve Act on any extensions of credit to the Company or its subsidiaries, on investments in thestock or other securities of the Company or its subsidiaries and the acceptance of the stock orother securities of the Company or its subsidiaries as collateral for loans. Certain limitationsand reporting requirements are also placed on extensions of credit by the Banks to their directorsand officers, to directors and officers of the Company and its subsidiaries, to principalshareholders of the Company, and to “related interests” of such directors, officers and principalshareholders. In addition, federal law and regulations may affect the
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terms upon which any personbecoming a director or officer of the Company or one of its subsidiaries or a principal shareholderof the Company may obtain credit from banks with which the Banks maintain a correspondentrelationship.     ***Safety and Soundness Standards***. The FDIC has adopted guidelines to promote the safety andsoundness of federally insured depository institutions. These guidelines establish standards forinternal controls, information systems, internal audit systems, loan documentation, creditunderwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset qualityand earnings.     ***Investments and Other Activities***. Under federal law and FDIC regulations, FDIC -insured statebanks are prohibited, subject to certain exceptions, from making or retaining equity investments ofa type, or in an amount, that are not permissible for a national bank. Federal law, as implementedby FDIC regulations, also prohibits FDIC insured state banks and their subsidiaries, subject tocertain exceptions, from engaging as principal in any activity that is not permitted for a nationalbank or its subsidiary, respectively, unless the bank meets, and continues to meet, its minimumregulatory capital requirements and the FDIC determines the activity would not pose a significantrisk to the deposit insurance fund. Impermissible investments and activities must be divested ordiscontinued within certain time frames set by the FDIC in accordance with federal law. Theserestrictions are not currently expected to have a material impact on the operations of the Banks.     ***Consumer Protection Laws***. The Banks’ businesses include making a variety of types of loans toindividuals. In making these loans, the Banks are subject to State usury and regulatory laws and tovarious federal statutes, including the privacy of consumer financial information provisions of theGramm-Leach-Bliley Act and regulations promulgated thereunder, the Equal Credit Opportunity Act,the Fair Credit Reporting Act, the Truth in Lending Act, the Real Estate Settlement Procedures Act,and the Home Mortgage Disclosure Act, and the regulations promulgated thereunder, which prohibitdiscrimination, specify disclosures to be made to borrowers regarding credit and settlement costs,and regulate the mortgage loan servicing activities of the Banks, including the maintenance andoperation of escrow accounts and the transfer of mortgage loan servicing. In receiving deposits,the Banks are subject to extensive regulation under State and federal law and regulations,including the Truth in Savings Act, the Expedited Funds Availability Act, the Bank Secrecy Act, theElectronic Funds Transfer Act, and the Federal Deposit Insurance Act. Violation of these lawscould result in the imposition of significant damages and fines upon the Bank and its directors andofficers.     ***Branching Authority.***Michigan banks, such as the Banks, have the authority under Michigan lawto establish branches in any state, including Michigan, the District of Columbia, a territory orprotectorate of the United States or a foreign country, subject to receipt of all requiredregulatory approvals. Under federal law banks may establish interstate branch networks throughmerger or consolidation with other banks without regard to whether such activity is contrary tostate law. The establishment of de novo interstate branches or the acquisition of individualbranches of a bank in another state (rather than the merger or consolidation with an out-of-statebank) is allowed only if specifically authorized by the law of the state where the branch will beestablished or acquired.     Michigan law permits both U.S. and non-U.S. banks to establish branch offices in Michigan.The Michigan Banking Code permits, in appropriate circumstances and with the approval of theCommissioner, (1) sale by a Michigan bank of branches to an FDIC-insured bank, savings bank orsavings and loan association located in a state in which a Michigan bank could purchase branches ofthe purchasing entity, (2) consolidation of Michigan banks and FDIC-insured banks, savings banks orsavings and loan associations located in other states having laws, (3) establishment of branches inMichigan by FDIC-insured banks located in other states, the District of Columbia or U.S.territories or protectorates having laws permitting a Michigan bank to establish a branch in suchjurisdiction, and (4) establishment by foreign banks of branches located in Michigan.
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**ITEM 1A. Risk Factors.**     You should carefully consider the following risk factors, together with the other informationprovided in this Annual Report on Form 10-K.     ***The Company may need additional capital in the future and adequate financing may not beavailable to it on acceptable terms, or at all.***     On March 15, 2004, the Company completed its acquisition of West Michigan Community Bank. Atthe time it was acquired, West Michigan Community Bank was operating under a Memorandum ofUnderstanding (MOU) with the FDIC and the Michigan Office of Financial and Insurance Services. TheMOU was lifted in July 2004, and the bank is no longer under special scrutiny by the FDIC or OFISand is considered well capitalized under federal banking regulations. However, projections forWest Michigan Community Bank indicate that it could require capital infusions in the near term toremain a well capitalized bank. The Company raised some capital in 2005 through an offering of itscommon stock to Michigan residents (resulting in approximately $758,000 of gross proceeds to theCompany) and the issuance of $2 million aggregate principal amount of floating rate preferredsecurities through the Company’s newly-formed, wholly-owned trust, Fentura Financial Capital TrustII. However, additional capital may be required in the future, which may not be available to theCompany on acceptable terms or at all. If the Company is unable to obtain the funding it needs, itmay be unable to develop its products and services, take advantage of future opportunities, orrespond to competitive pressures, which could have a material adverse effect on its financialcondition and profitability.     ***The Company has credit risk inherent in its asset portfolio, and its allowance for loan lossesmay not be sufficient to cover actual loan losses.***     The Banks’ loan customers may not repay their loans according to their respective terms, andany collateral securing the payment of these loans may be insufficient to assure repayment. As aresult, the Banks may experience significant credit losses which could have a material adverseeffect on the Company’s operating results.     To offset this risk, the Company makes various assumptions and judgments about thecollectibility of the loan portfolios of the Banks, including the creditworthiness of borrowers andthe value of the real estate and other assets that may serve as collateral for the repayment ofloans. In determining the size of the allowance for loan losses, the Company relies on itsexperience and its evaluation of current economic conditions. If its assumptions prove to beincorrect, its current allowance for loan losses may not be sufficient to cover any loan lossesinherent in its loan portfolio and adjustments may be necessary to allow for different economicconditions or adverse developments in its loan portfolio. Material additions to the allowance wouldmaterially decrease net income.     In the near term, the Company’s strategy is to continue to expand commercial lendingactivities in the markets in which its Banks are currently operating. The Company may also pursueopportunities to expand into new markets outside its traditional markets by establishing officesstaffed by commercial loan officers who come from other commercial banks in these new markets. TheCompany cannot be sure that its loan loss experience with any new borrowers in these newer marketswill be consistent with its loan loss experience in its traditional markets. Its actual loan lossexperience in these markets may cause the Company to increase its reserves.     The allowance for loan losses is based upon ranges of estimates and is not intended to implyeither limitations on the usage of the allowance or precision of the specific amounts. The Companydoes not view the allowance for loan losses as being divisible among the various categories ofloans. The entire allowance is available to absorb any future losses without regard to thecategory or categories in which the charged-off loans are classified. In addition, federal andstate regulators periodically review the Company’s allowance for loan losses and may require it toincrease the provision for loan losses or recognize additional loan charge-offs. Any increase inthe allowance for loan losses or loan charge-offs
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required by these regulatory agencies could havea material adverse effect on the results of operations and financial condition of the Company.     ***The Company has credit risk inherent in its securities portfolio.***     The Company maintains diversified securities portfolios, which include obligations of the U.S.Treasury and government-sponsored agencies as well as securities issued by states and politicalsubdivisions, corporate securities, and mortgage-backed securities. The Company may also invest incapital securities, which include preferred stocks and trust preferred securities. At December 31,2006, the Company owned (stated at fair value) approximately $2 million of common stock in otherentities, which primarily represents its minority investments in four Michigan banks.     The Company seeks to limit credit losses in its securities portfolios by generally purchasingonly highly rated securities (rated “A” or higher by a major debt rating agency) or by conductingsignificant due diligence on the issuer for unrated securities. However, the Company may, in thefuture, experience losses in its securities portfolio which may be other than temporary in natureand result in charges that could materially adversely affect its results of operations.     ***The Company’s mortgage-banking revenues are susceptible to substantial variations dependentlargely upon factors that the Company does not control, such as market interest rates.***     The Company’s mortgage-banking revenues are earned in the form of gains on the sale of realestate mortgage loans. The amount of gains realized by the Company primarily depends on the volumeof loans the Company sells, which depends on the Company’s ability to originate real estatemortgage loans and the demand for fixed-rate obligations and other loans that are outside of itsestablished interest-rate risk parameters. Net gains on real estate mortgage loans are alsodependent upon economic and competitive factors, which are largely outside of the Company’scontrol, as well as theCompany’s ability to effectively manage exposure to changes in interest rates and can often be avolatile part of its overall revenues. As market interest rates continue to stabilize in 2007 orfuture periods, which they are generally expected to do, the Company’s level of mortgage loanactivity, particularly refinancing activity, could decline, resulting in lower levels of realestate mortgage loan originations, sales, and gains on such sales.     ***Fluctuations in interest rates and economic conditions could reduce the Company’sprofitability and negatively affect its capital and liquidity.***     The Company realizes income primarily from the difference between interest earned on loans andinvestments and the interest paid on deposits and borrowings. The Company’s interest income andinterest expense are affected by general economic conditions and by the policies of regulatoryauthorities. While the Company has taken measures intended to manage the risks of operating in achanging interest rate environment, there can be no assurance that these measures will be effectivein avoiding undue interest rate risk. The Company expects that it will periodically experience“gaps” in the interest rate sensitivities of its assets and liabilities, meaning that either itsinterest-bearing liabilities will be more sensitive to changes in market interest rates than itsinterest-earning assets, or vice versa. In either event, if market interest rates should movecontrary to its position, this “gap” will work against it, and its earnings may be negativelyaffected.
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     The Company is unable to predict fluctuations of market interest rates, which are affected by,among other factors, changes in the following: **•** inflation or deflation rates;  **•** levels of business activity;  **•** recession;  **•** unemployment levels;  **•** money supply;  **•** domestic or foreign events; and  **•** instability in domestic and foreign financial markets.     In addition, substantially all of its loans are to businesses and individuals in mid-Michiganand West Michigan, and any decline in the economy of either of these areas could adversely affectit.     ***The Company’s operations may be adversely affected if the Company is unable to secure adequatefunding. The Company’s use of wholesale funding sources exposes it to liquidity risk and potentialearnings volatility.***     The Company relies on wholesale funding to a modest extent, including its revolving creditfacility, Federal Home Loan Bank borrowings, and brokered deposits, to augment its core deposits tofund its business. Because wholesale funding sources are affected by general market conditions,the availability of funding from wholesale lenders may be dependent on the confidence theseinvestors have in the Company’s commercial and consumer finance operations. The continuedavailability to the Company of these funding sources is uncertain, and it may be difficult toretain or replace brokered deposits at attractive rates as they mature. The Company’s liquiditywill be constrained if it is unable to renew its wholesale funding sources or if adequate financingis not available in the future at acceptable rates of interest or at all. The Company may not havesufficient liquidity to continue to fund new loans, and the Company may need to liquidate loans orother assets unexpectedly in order to repay obligations as they mature.     ***The Company relies heavily on its management team, and the unexpected loss of key managers mayadversely affect its operations.***     The Company’s success to date has been influenced strongly by its ability to attract and toretain senior management experienced in banking and financial services. The ability to retainexecutive officers and the current management teams of each of its lines of business will continueto be important to successful implementation of its strategies. The Company does not haveemployment or non-compete agreements with any of these key employees, except that the Companyentered into non-compete agreements with each of the directors of West Michigan Financial Corp. inconnection with the Company’s acquisition of West Michigan Financial Corp. and its subsidiaries(including West Michigan CommunityBank). The unexpected loss of services of any key management personnel, or the inability torecruit and retain qualified personnel in the future, could have an adverse effect on the Company’sbusiness and financial results.     ***Competition with other financial institutions could adversely affect the Company’sprofitability.***     The Company faces vigorous competition from banks and other financial institutions, includingsavings and loan associations, savings banks, finance companies, mortgage banking companies, creditunions, and other financial organizations. A number of these banks and other financialinstitutions have substantially greater resources and lending limits, larger branch systems, and awider array of banking services. To a limited extent, the Company also competes with otherproviders of financial services, such as money market mutual funds, brokerage firms, consumerfinance companies, and insurance companies, which are not subject to the same degree of regulationas that imposed on the Banks. As a result, these non-bank competitors may have an advantage overthe Company in providing certain
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services, and this competition may reduce or limit the Company’smargins on banking services, reduce its market share, and adversely affect its results ofoperations and financial condition.     ***Changes in economic conditions could adversely affect the Company’s loan portfolio.***     The Company’s success depends to a great extent upon general economic conditions. The Companyhas in general experienced a slowing economy in Michigan since 2001. Unlike larger banks that aremore geographically diversified, the Company provides banking services to customers primarily inmid-Michigan and, with the March 2004 acquisition of West Michigan Community Bank, in WestMichigan. The Company’s loan portfolio, the ability of the borrowers to repay these loans, and thevalue of the collateral securing these loans will be impacted by local economic conditions.     An economic slowdown could have many adverse consequences, including the following: **•** Loan delinquencies may increase;  **•** Problem assets and foreclosures may increase;  **•** Demand for the Company’s products and services may decline; and  **•** Collateral for the Company’s loans may decline in value, in turn reducing customers’borrowing power and reducing the value of assets and collateral associated withexisting loans.     In addition to local economic conditions in Michigan, the Company’s success will also dependin part upon the state of the national economy. A general downturn in the local or nationaleconomy may impact the Company’s operations. In addition, the effect of possible future terroristattacks or war on the Company or the local or national economy cannot be known or predicted.     ***The Company may be unable to maintain its historical growth rate, which may adversely impactits results of operation and financial condition.***     To achieve its growth, the Company has opened additional branches and acquired other financialinstitutions and branches. The Company may be unable to sustain its historical rate of growth ormay not even be able to grow at all, and the Company may encounter difficulties obtaining thefunding necessary to support its growth. Various factors, such as economic conditions,competition, and regulatory considerations, may impede or prohibit the opening of new branchoffices. In addition, the Company may have difficulty identifying suitable financial institutionsand other non-banking entities that the Company desires to acquire that are available for sale.Further, its inability to attract and retain experienced bankers may adversely affect its internalgrowth. A significant decrease in its historical rate of growth may adversely impact its resultsof operations and financial condition.     ***The Company operates in a highly regulated environment and may be adversely affected bychanges in federal and local laws and regulations.***     The Company is subject to extensive regulation, supervision, and examination by federal andstate banking authorities. Any change in applicable regulations or federal or state legislationcould have asubstantial impact on it and its Banks and their operations. Additional legislation andregulations may be enacted or adopted in the future that could significantly affect its powers,authority, and operations, which could increase its costs of doing business and, as a result, givean advantage to its competitors who may not be subject to similar legislative and regulatoryrequirements. Further, regulators have significant discretion and power to prevent or remedyunsafe or unsound practices or violations of laws by banks and bank holding companies in theperformance of their supervisory and enforcement duties. The exercise of regulatory power may havea negative impact on the Company’s results of operations and financial condition. The effect ofthis regulation can be significant and cannot be predicted with a high degree of certainty.
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     ***The Company may face challenges in managing its operational risks as the Company grows.***     Like other financial services companies, the Company faces a number of operational risks,including the potential for processing errors, internal or external fraud, failure of computersystems, and external events beyond its control such as natural disasters. Acts of fraud aredifficult to detect and deter, and the Company cannot assure investors that its risk managementprocedures and controls will prevent losses from fraudulent activity. The Company’s growth maystrain its existing managerial resources and internal monitoring, accounting, and reportingsystems.     ***The Company’s ability to pay dividends on its common stock is limited not only by itsprofitability, but also by bank regulation.***     Most of the Company’s revenues are received in the form of dividends paid to it by itssubsidiary Banks. Thus, its ability to pay dividends to the holders of its common stock isindirectly limited by statutory restrictions on the ability of its subsidiary Banks to paydividends to it. Further, in a policy statement, the Federal Reserve Board has expressed its viewthat a bank holding company experiencing earnings weaknesses should not pay cash dividendsexceeding its net income or that can only be funded in ways that weaken the bank holding company’sfinancial health, such as by borrowing. In addition, the Federal Reserve Board possessesenforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedyactions that represent unsafe or unsound practices or violations of applicable statutes andregulations. Among these powers is the ability to proscribe the payment of dividends by banks andbank holding companies. The FDIC has similar enforcement powers over the Company’s subsidiaryBanks. Federal law has “prompt corrective action” provisions that authorize the Federal ReserveBoard to restrict its payment of dividends for an insured bank that fails to meet specified capitallevels.     In addition to the restrictions on dividends imposed by federal banking regulation, theMichigan Business Corporation Act provides that dividends may be legally declared or paid only if,after the distribution, the Company is able to pay its debts as they become due in the usual courseof business and its total assets equal or exceed the sum of its total liabilities plus the amountthat would be needed to satisfy the preferential rights upon dissolution of any holders ofpreferred stock whose preferential rights are superior to those receiving the dividend.     In addition, under Michigan banking laws, the Company’s Banks may not pay dividends except outof net income after deducting their losses and bad debts. Each Bank may not declare or pay adividend unless it will have surplus amounting to at least 20% of its capital after the payment ofthe dividend.     ***There is a only limited trading market for the Company’s common stock.***     The Company’s common stock is reported on the OTC Bulletin Board under the symbol “FETM.” Thedevelopment and maintenance of an active trading market depends, however, upon the existence ofwilling buyers and sellers, the presence of which is beyond the Company’s control or the control ofany market maker. Although the Company is publicly traded and file reports with the SEC, thevolume of trading activity in its stock is relatively limited. Even if a more active marketdevelops, there can be no assurance that such a market will continue.**ITEM 1B. Unresolved Staff Comments.**     Not applicable.
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**ITEM 2.****DESCRIPTION OF PROPERTY**     The Company’s executive offices are located at 175 North Leroy Street, Fenton, Michigan, whichis also the main office of The State Bank. The State Bank also has the following community offices(all of which are in Michigan): **•** Branch — 15095 Silver Parkway, Fenton *(owned)*  **•** Branch — 18005 Silver Parkway, Fenton *(leased)*  **•** Loan Extension Office — 101 North Leroy Street, Fenton *(owned)*  **•** Branch — 107 Main Street, Linden *(owned)*  **•** Branch — 4043 Grange Hall Road, Holly *(leased)*  **•** Branch — 7606 S Saginaw, Grand Blanc *(owned)*  **•** Branch — 8185 Holly Road, Grand Blanc *(leased)*  **•** Loan Extension Office — 8245 Holly Road, Grand Blanc *(leased)*  **•** Branch — 315 E. Grand River Ave, Brighton *(leased)*  **•** Operations Center — 3202 Owen Road, Fenton *(owned)*     Davison State Bank is headquartered in Davison, Michigan, at 625 S. State Street. DavisonState Bank also has the following community offices (both of which are in Michigan): **•** Branch — 8503 Davison Road, Davison *(leased)*  **•** Branch — 7521 S. State Road, Goodrich *(leased)*     West Michigan Community Bank is headquartered in Hudsonville, Michigan, at 5367 School Avenue.West Michigan Community Bank also has the following community offices (all of which are inMichigan): **•** Branch — 3467 Kelly Street, Hudsonville *(owned)*  **•** Branch — 81 E. 8th Street, Holland *(leased)*  **•** Branch — 437 Baldwin Road, Jenison *(owned)*  **•** Branch — 4471 Wilson Ave., S.W., Grandville *(leased)*     The Company owns the headquarters of each of its three Banks and many of the other bankoffices (as noted above). The balance of the bank offices are leased from third parties. Allproperties have maintenance contracts and are maintained in good condition.**ITEM 3.****LEGAL PROCEEDINGS**     From time to time, the Company and its subsidiaries are parties to various legal proceedingsincident to their business. At December 31, 2006, there were no legal proceedings which managementanticipates would have a material adverse effect on the Company.**ITEM 4.****SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**     No matters were submitted during the fourth quarter of 2006 to a vote of security holdersthrough the solicitation of proxies or otherwise.**ADDITIONAL ITEM — EXECUTIVE OFFICERS OF REGISTRANT**     The following information concerning executive officers of the Company has been omitted fromthe Registrant’s proxy statement pursuant to Instruction 3 to Regulation S-K, Item 401(b).
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     Officers of the Company are appointed annually by the Board of Directors of the Company andserve at the pleasure of the Board of Directors. Certain of the officers named below are appointedannually by the Board of Directors of one or the other of the Banks and serve at the pleasure ofthe Board of the Bank that appointed them. The Bank officers are included in the listing ofexecutive officers of the Company because of the nature of the office they hold. Informationconcerning these executive officers is given below:     *Donald L. Grill*(age 59) serves as President and Chief Executive Officer of theCompany and Chief Executive Officer of The State Bank since 1996. From 1983 to1996, Mr. Grill was employed by First of America Bank Corporation and served asPresident and Chief Executive Officer of First of America Bank — Frankenmuth.     *Robert E. Sewick*(age 57) was appointed President and CEO of West MichiganCommunity Bank on March 15, 2004, and was appointed Senior Vice President of theCompany on December 1, 2004. Prior to the appointment, Mr. Sewick was Senior VicePresident and Senior Lender of The State Bank. Prior to joining The State Bank inJune of 1999, he was Senior Vice President and Regional Credit officer forHuntington National Bank for Western Michigan. Mr, Sewick has over 30 years ofbanking experience.     *Ronald L. Justice*(age 42) is the CEO of Davison State Bank and the Secretaryand Senior Vice President of the Company. Prior to holding these positions, heserved as the CFO of the Company and its subsidiary Banks. Prior to that, Mr.Justice held other positions with The State Bank.     *Dennis E. Leyder*(age 53) was appointed Senior Vice President of the Companyon December 1, 2004 and was promoted to President and Chief Operating Officer of TheState Bank in December 2006. In his new capacity at The State Bank, he isresponsible for all retail banking, marketing, trust and investment management. Mr.Leyder has over 23 years of banking experience, all in Genesee County.     *Holly J Pingatore*(age 49) was named Senior Vice President of the Company onDecember 1, 2004. Her responsibilities include data processing, bank operations,product support, and network services. Prior to such appointment, she was SeniorVice President of The State Bank. Prior to joining The State Bank in 1999, Ms.Pingatore served in various capacities at a large Michigan based regional bank.     *Douglas J. Kelley*(age 38) was appointed Chief Financial Officer of theCompany in 2003 and was appointed Senior Vice President of the Company on December1, 2004. Prior to being named Chief Financial Officer, he served as Controller andCFO of The State Bank and Davison State Bank since 2001. Prior to joining theBanks, Mr. Kelley was an Assistant Vice President and Accounting Officer withCitizens Bank. Mr. Kelley has over 16 years of banking experience .**PART II****ITEM 5.****MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER****MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES**     The market, dividend, and holders of record information required by this item appears underthe caption “Fentura Financial, Inc. Common Stock” and Table 16 on page 58 under the title“MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS”, of theCompany’s 2006 Rule 14a-3 annual report, and is incorporated herein byreference. The performance graph is incorporated by reference from page 59 of the Company’s2006 Rule 14a-3 annual report.
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     The table required by Item 703 of regulation S-K is intentionally omitted due to the fact theCompany does not currently have an issuer repurchase plan in place.**ITEM 6.****SELECTED FINANCIAL DATA**     The information required by this item appears under the title “MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — SELECTED FINANCIAL DATA”, appearing inTable 1 on page 38 of the Company’s 2006 Rule 14a-3 annual report, and is incorporated herein byreference.**ITEM 7.****MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND****RESULTS OF OPERATIONS**     The information required by this item appears under the title “MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS”, appearing on pages 38 through 58 of theCompany’s 2006 Rule 14a-3 annual report, and is incorporated herein by reference.**ITEM 7A.****QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**     The information required by this item appears under the headings “Liquidity and Interest RateRisk Management” on pages 51 and 52 and “Quantitative and Qualitative Disclosure About Market Risk”on page 54 and 55 under the title “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS” of the Company’s 2006 Rule 14a-3 annual report, and is incorporated hereinby reference.**ITEM 8.****FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**     The consolidated financial statements of the Company and Report of Crowe Chizek and CompanyLLC, Independent Registered Public Accounting Firm, appear on pages 2 through 7 of the FinancialStatements portion of the Company’s 2006 Rule 14a-3 annual report, and are incorporated herein byreference. The supplementary data required by this item is contained in Note 16 thereto.**ITEM 9.****CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTINGAND FINANCIAL DISCLOSURE**     None**ITEM 9A****CONTROLS AND PROCEDURES**     (a) Evaluation of Disclosure Controls and Procedures.     The Company’s Chief Executive Officer and Chief Financial Officer, after evaluating theeffectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules13a-15(e) and 15(d)-15(e)) as of the end of the period covered by this Form 10-K Annual Report,have concluded that the Company’s disclosure controls and procedures were adequate and effective toensure that material information relating to the Company would be made known to them by otherswithin the Company, particularly during the period in which this Form 10-K Annual Report was beingprepared.     (b) Changes in Internal Controls.     During the fourth quarter ended December 31, 2006, there have been no changes in the Company’sinternal control over financial reporting that have materially affected or are reasonably likely tomaterially affect the Company’s internal control over financial reporting.
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**ITEM 9B****OTHER INFORMATION**     None**PART III****ITEM 10.****DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**     The Company’s executive officers are identified under “Additional Item” in Part I of thisReport on Form 10-K. The other information required by this item appears under the captions “2007Election of Directors,” “The Corporation’s Board of Directors,” “Code of Ethics,” “Committees ofthe Corporation Board,” and “Compliance with Section 16 Reporting” on pages 3, 4, 5, 6, 7, 8, 9, 10and 21, respectively, of the Company’s 2007 Notice of Annual Shareholders Meeting and ProxyStatement, and is incorporated herein by reference.     The Board of Directors of the Company has determined that Kenneth R. Elston, a director andmember of the Audit Committee, qualifies as an “Audit Committee financial expert” as defined inrules adopted by the Securities and Exchange Commission pursuant to the Sarbanes-Oxley Act of 2002and is independent pursuant to NASD listing standards.     The Board of Directors of the Company has adopted a Code of Ethics, which details principlesand responsibilities governing ethical conduct for all Company directors and executive officers.The Code of Ethics is filed as an Exhibit to this Annual Report on Form 10-K.**ITEM 11.****EXECUTIVE COMPENSATION**     The information required by this item appears under the captions “Director Compensation,”“Executive Compensation,” “Payments upon Termination/Change in Control” and “Compensation/ESOPCommittee Interlocks,” on pages 11 through 20 of the Company’s 2007 Notice of Annual ShareholdersMeeting and Proxy Statement, and is incorporated herein by reference.**ITEM 12.****SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS**     The information required by this item appears under the caption “Stock Ownership of Directors,Executive Officers and Certain Major Shareholders” on pages 5 and 6 of the Company’s 2007 Notice ofAnnual Shareholders Meeting and Proxy Statement, and is incorporated herein by reference.     **Securities Authorized for Issuance Under Equity Compensation Plans.**The Company had thefollowing equity compensation plans at December 31, 2006:
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**EQUITY COMPENSATION PLAN INFORMATION**                       Number of securities          remaining available for          future issuance under          equity compensation  Number of securities to Weighted-average plans (excluding  be issued upon exercise exercise price of securities reflected  of outstanding options outstanding options in column (1))Plan Category (1) (2) (3)Equity compensationplans approved bysecurity holders  40,523  $29.68   120,400    Equity compensationplans not approved bysecurity holders  0   0   0     Total  40,523  $29.68   120,400         These equity compensation plans are more fully described in Note 11 to the ConsolidatedFinancial Statements.**ITEM 13.****CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**     The information required by this item appears under the captions “Independence of Directorsand Attendance at Meetings” and “Other Information — Transactions with Certain Interested Parties”on pages 7 and 21 and 22, respectively, of the Company’s 2007 Notice of Annual Shareholders Meetingand Proxy Statement, and is incorporated herein by reference.**ITEM 14.****PRINCIPAL ACCOUNTANT FEES AND SERVICES**     The information required by this item appears under the caption “Relationship with IndependentPublic Accountants” on pages 20 and 21 of the Company’s 2007 Notice of Annual Shareholders Meetingand Proxy Statement and is incorporated herein by reference.**PART IV****ITEM 15.****EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**(a) 1.  Financial Statements:    The following consolidated financial statements of the Company and Report of CroweChizek and Company LLC, Independent Registered Public Accounting Firm, areincorporated by reference under Item 8 “Financial Statements and Supplementary Data”of this document:Consolidated Balance Sheets