##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2011
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 For the transition period from  to
 Commission file number 000-23550
 Fentura Financial, Inc.
  Michigan
    
    38-2806518(State or other jurisdiction of 
incorporation or organization)
    
    (IRS Employee Identification No.)
 175 N Leroy, P.O. Box 725, Fenton, Michigan 48430
  (810) 629-2263
 (Registrants telephone number)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



Fentura Financial, Inc.
Index to Form 10-Q
 PagePart I  Financial Information
    
    
    3Item 1  Consolidated Financial Statements (Unaudited)
    
    
    3-32Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    32-42Item 3  Quantitative and Qualitative Disclosures about Market Risk
    
    
    43-45Item 4  Controls and Procedures
    
    
    45Part II  Other Information
    
    
    46Item 1  Legal Proceedings
    
    
    46Item 1A  Risk Factors
    
    
    46Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    46Item 3  Defaults Upon Senior Securities
    
    
    46Item 4 Reserved
    
    
    46Item 5  Other Information
    
    
    46Item 6  Exhibits
    
    
    46Signatures
    
    
    47Exhibit Index
    
    
    48EX-10.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




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PART I  FINANCIAL INFORMATION
 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 FENTURA FINANCIAL, INC.
 CONSOLIDATED BALANCE SHEETS
  March 31,
    
    
    Dec 31,2011
    
    
    2010(unaudited)ASSETSCash and due from banks
    
    $
    28,422
    
    
    $
    11,592Federal funds sold
    
    
    16,000
    
    
    
    21,900Total cash and cash equivalents
    
    
    44,422
    
    
    
    33,492Securities available for sale
    
    
    44,870
    
    
    
    41,875Securities held to maturity
    
    
    4,349
    
    
    
    4,350Total securities
    
    
    49,219
    
    
    
    46,225Loans held for sale
    
    
    486
    
    
    
    850Loans:Commercial
    
    
    41,384
    
    
    
    43,395Real estate loans  commercial
    
    
    99,350
    
    
    
    106,784Real estate loans  construction
    
    
    8,380
    
    
    
    9,597Real estate loans  residential
    
    
    19,219
    
    
    
    19,046Consumer loans
    
    
    27,543
    
    
    
    29,153Total loans
    
    
    195,876
    
    
    
    207,975Less: Allowance for loan losses
    
    
    (9,015
    )
    
    
    (10,027
    )Net loans
    
    
    186,861
    
    
    
    197,948Bank owned life insurance
    
    
    5,835
    
    
    
    5,800Bank premises and equipment
    
    
    10,302
    
    
    
    10,335Federal Home Loan Bank stock
    
    
    740
    
    
    
    740Accrued interest receivable
    
    
    1,060
    
    
    
    1,050Other real estate owned
    
    
    2,362
    
    
    
    2,742Assets of discontinued operations
    
    
    11,387
    
    
    
    122,968Other assets
    
    
    1,791
    
    
    
    2,078Total assets
    
    $
    314,465
    
    
    $
    424,228LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Non-interest bearing
    
    $
    59,017
    
    
    $
    55,044Interest bearing
    
    
    220,153
    
    
    
    220,933Total deposits
    
    
    279,170
    
    
    
    275,977Short term borrowings
    
    
    662
    
    
    
    879Federal Home Loan Bank advances
    
    
    954
    
    
    
    954Subordinated debentures
    
    
    14,000
    
    
    
    14,000Liabilities of discontinued operations
    
    
    0
    
    
    
    113,321Accrued taxes, interest and other liabilities
    
    
    3,473
    
    
    
    3,042Total liabilities
    
    
    298,259
    
    
    
    408,173Shareholders equityCommon stock  no par value, 5,000,000 shares authorized
and outstanding
2,320,607 at March 31, 2011 (2,308,765 at December 31, 2010)
    
    
    43,062
    
    
    
    43,036Retained deficit
    
    
    (26,732
    )
    
    
    (27,042
    )Accumulated other comprehensive (loss) income
    
    
    (124
    )
    
    
    61Total shareholders equity
    
    
    16,206
    
    
    
    16,055Total liabilities and shareholders equity
    
    $
    314,465
    
    
    $
    424,228
 See accompanying notes to consolidated financial statements
 3




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FENTURA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
 Three Months EndedMarch 312011
    
    
    2010Interest incomeLoans, including fees
    
    $
    3,017
    
    
    $
    3,592Interest and dividends on securities:Taxable
    
    
    279
    
    
    
    225Tax-exempt
    
    
    45
    
    
    
    112Interest on federal funds sold
    
    
    9
    
    
    
    3Total interest income
    
    
    3,350
    
    
    
    3,932Interest expenseDeposits
    
    
    722
    
    
    
    1,134Borrowings
    
    
    126
    
    
    
    126Total interest expense
    
    
    848
    
    
    
    1,260Net interest income
    
    
    2,502
    
    
    
    2,672Provision for loan losses
    
    
    795
    
    
    
    1,135Net interest income after provision for loan losses
    
    
    1,707
    
    
    
    1,537Non-interest incomeService charges on deposit accounts
    
    
    296
    
    
    
    425Trust and investment services income
    
    
    288
    
    
    
    269Gain on sale of mortgage loans
    
    
    68
    
    
    
    81Gain on sale of securities
    
    
    5
    
    
    
    0Other income and fees
    
    
    497
    
    
    
    340Total non-interest income
    
    
    1,154
    
    
    
    1,115Non-interest expenseSalaries and employee benefits
    
    
    1,673
    
    
    
    1,619Occupancy
    
    
    284
    
    
    
    321Furniture and equipment
    
    
    292
    
    
    
    306Loan and collection
    
    
    110
    
    
    
    373Advertising and promotional
    
    
    19
    
    
    
    26Other operating expenses
    
    
    843
    
    
    
    633Total non-interest expense
    
    
    3,221
    
    
    
    3,278Loss from continuing operations before income tax
    
    
    (360
    )
    
    
    (626
    )Federal income tax (benefit)
    
    
    (212
    )
    
    
    (314
    )Net loss from continuing operations
    
    $
    (148
    )
    
    $
    (312
    )Discontinued operations, net of taxNet loss from discontinued operations
    
    
    (11
    )
    
    
    (171
    )Gain from sale of discontinued operations
    
    
    469
    
    
    
    0Net income (loss) from discontinued operations
    
    
    458
    
    
    
    (171
    )Net income (loss)
    
    $
    310
    
    
    $
    (483
    )Net loss per share from continuing operationsBasic and diluted
    
    $
    (0.06
    )
    
    $
    (0.14
    )Net income (loss) per share from discontinued operationsBasic and diluted
    
    $
    0.19
    
    
    $
    (0.07
    )Net income (loss) per shareBasic and diluted
    
    $
    0.13
    
    
    $
    (0.21
    )Cash Dividends declared
    
    $
    0.00
    
    
    $
    0.00
 See accompanying notes to consolidated financial statements.
 4




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FENTURA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(UNAUDITED)
 Three Months EndedMarch 31,(000s omitted except share data)
    
    2011
    
    
    2010Common StockBalance, beginning of period
    
    $
    43,036
    
    
    $
    42,913Issuance of shares underDirector stock purchase plan and
dividend reinvestment program (11,842 and 18,582
shares)
    
    
    26
    
    
    
    32Balance, end of period
    
    
    43,062
    
    
    
    42,945Retained DeficitBalance, beginning of period
    
    
    (27,042
    )
    
    
    (21,657
    )Net income (loss)
    
    
    310
    
    
    
    (483
    )Balance, end of period
    
    
    (26,732
    )
    
    
    (22,140
    )Accumulated Other Comprehensive Income (Loss)Balance, beginning of period
    
    
    61
    
    
    
    (724
    )Change in unrealized (loss) gain on securities, net of tax
    
    
    (185
    )
    
    
    162Balance, end of period
    
    
    (124
    )
    
    
    (562
    )Total shareholders equity
    
    $
    16,206
    
    
    $
    20,243
 See accompanying notes to consolidated financial statements.
 5




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FENTURA FINANCIAL, INC
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
 Three Months EndedMarch 31,(000s omitted)
    
    2011
    
    
    2010OPERATING ACTIVITIES:Net income (loss)
    
    $
    310
    
    
    $
    (483
    )Adjustments to reconcile net income (loss) to cash
Provided by Operating Activities:Depreciation, amortization and accretion
    
    
    110
    
    
    
    160Provision for loan losses
    
    
    795
    
    
    
    1,135Loans originated for sale
    
    
    (4,357
    )
    
    
    (5,570
    )Proceeds from the sale of loans
    
    
    5,422
    
    
    
    4,834Gain on sales of loans
    
    
    (701
    )
    
    
    (81
    )(Gain) loss on other real estate owned
    
    
    (7
    )
    
    
    10Write downs on other real estate owned
    
    
    34
    
    
    
    79Gain on sale of securities
    
    
    (5
    )
    
    
    0Earnings from bank owned life insurance
    
    
    (35
    )
    
    
    (38
    )Net (increase) decrease in interest receivable & other assets
    
    
    (183
    )
    
    
    38Net increase (decrease) in interest payable & other liabilities
    
    
    431
    
    
    
    (189
    )Net change in discontinued operations operating activities
    
    
    6,224
    
    
    
    (3,267
    )Total Adjustments
    
    
    7,728
    
    
    
    (2,889
    )Net cash provided by (used in) operating activities
    
    
    8,038
    
    
    
    (3,372
    )CASH FLOWS FROM INVESTING ACTIVITES:Proceeds from maturities of securities  AFS
    
    
    1,451
    
    
    
    2,246Proceeds from calls of securities  AFS
    
    
    2,000
    
    
    
    0Proceeds from sales of securities  AFS
    
    
    2,024
    
    
    
    0Purchases of securities  AFS
    
    
    (8,116
    )
    
    
    0Proceeds from sale of bank subsidiary
    
    
    711
    
    
    
    0Net decrease in loans
    
    
    10,115
    
    
    
    6,472Sales of other real estate owned
    
    
    530
    
    
    
    153Acquisition of premises and equipment, net
    
    
    (150
    )
    
    
    (26
    )Net change in discontinued operations investing activities
    
    
    95,290
    
    
    
    4,017Net cash provided by investing activities
    
    
    103,855
    
    
    
    12,862CASH FLOWS FROM FINANCING ACTIVITIES:Net increase (decrease) in deposits
    
    
    3,193
    
    
    
    (12,343
    )Net decrease in short term borrowings
    
    
    (217
    )
    
    
    (97
    )Net proceeds from stock issuance and purchase
    
    
    26
    
    
    
    32Net change in discontinued operations financing activities
    
    
    (103,965
    )
    
    
    (187
    )Net cash used in financing activities
    
    
    (100,963
    )
    
    
    (12,595
    )Net change in cash and cash equivalents
    
    $
    10,930
    
    
    $
    (3,105
    )Cash and cash equivalents  Beginning
    
    $
    33,492
    
    
    $
    31,640Cash and cash equivalents  Ending
    
    $
    44,422
    
    
    $
    28,535Less cash and cash equivalents of discontinued operations
    
    
    0
    
    
    
    12,633Cash and cash equivalents of continuing operations
    
    $
    44,422
    
    
    $
    15,902Cash paid for:Interest
    
    $
    732
    
    
    $
    1,159Income taxes
    
    $
    167
    
    
    $
    249Non-cash Disclosures:Transfers from loans to other real estate
    
    $
    177
    
    
    $
    937
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FENTURA FINANICIAL, INC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 Three Months EndedMarch 31,(000s omitted)
    
    2011
    
    
    2010Net income (loss)
    
    $
    310
    
    
    $
    (483
    )Other comprehensive income (loss), net of tax:Reclassification adjustment for gains included in income
    
    
    5
    
    
    
    0Unrealized holding (losses) gains related to
available-for-sale securities arising during period
    
    
    (285
    )
    
    
    245Tax effect
    
    
    95
    
    
    
    (83
    )Other comprehensive (loss) income
    
    
    (185
    )
    
    
    162Comprehensive income (loss)
    
    $
    125
    
    
    $
    (321
    )
 FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 1  BASIS OF PRESENTATION
     Securities:
  7




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NOTE 1  BASIS OF PRESENTATION
     Allowance for Loan Losses:
  8




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##### Table of Contents



NOTE 1  BASIS OF PRESENTATION
  Other Real Estate Owned and Foreclosed Assets
 Income Taxes:
   Dividend Restrictions
 Stock
Option Plans
  9




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##### Table of Contents



NOTE 1  BASIS OF PRESENTATION
   Number of
    
    
    WeightedOptions
    
    
    Average PriceOptions outstanding and exercisable at January 1, 2011
    
    
    18,872
    
    
    $
    29.32Options forfeited in 2011
    
    
    (2,238
    )
    
    $
    20.77Options outstanding and exercisable at March 31, 2011
    
    
    16,634
    
    
    $
    30.47
  Operating
Segments
 Reclassifications:
 NOTE 2  ADOPTION OF NEW ACCOUNTING STANDARDS
 New Accounting Pronouncements:
  10




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NOTE 2  ADOPTION OF NEW ACCOUNTING STANDARDS
   Newly Issued But Not Yet Effective Accounting Guidance
  NOTE 3  SECURITIES
  (000s omitted)
    
    Amortized
    
    
    Gross
    
    
    Gross UnrealizedAvailable for Sale
    
    Cost
    
    
    Unrealized Gains
    
    
    Losses
    
    
    Fair ValueMarch 31, 2011U.S. Government and federal agency
    
    $
    3,990
    
    
    $
    0
    
    
    $
    (19
    )
    
    $
    3,971Mortgage-backed residential
    
    
    6,877
    
    
    
    126
    
    
    
    (39
    )
    
    
    6,964Collateralized mortgage obligations-agencies
    
    
    27,946
    
    
    
    197
    
    
    
    (92
    )
    
    
    28,051Collateralized mortgage obligations-private label
    
    
    4,077
    
    
    
    0
    
    
    
    (366
    )
    
    
    3,711Equity securities
    
    
    2,155
    
    
    
    39
    
    
    
    (21
    )
    
    
    2,173$
    45,045
    
    
    $
    362
    
    
    $
    (537
    )
    
    $
    44,870December 31, 2010U.S. Government and federal agency
    
    $
    4,005
    
    
    $
    6
    
    
    $
    (11
    )
    
    $
    4,000Mortgage-backed residential
    
    
    7,342
    
    
    
    126
    
    
    
    (36
    )
    
    
    7,432Collateralized mortgage obligations-agencies
    
    
    24,758
    
    
    
    258
    
    
    
    (114
    )
    
    
    24,902Collateralized mortgage obligations-private label
    
    
    4,215
    
    
    
    0
    
    
    
    (344
    )
    
    
    3,871Equity securities
    
    
    1,655
    
    
    
    49
    
    
    
    (34
    )
    
    
    1,670$
    41,975
    
    
    $
    439
    
    
    $
    (539
    )
    
    $
    41,875
 11




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NOTE 3  SECURITIES
 (000s omitted)
    
    
    
    
    
    Gross Unrealized
    
    
    Gross UnrealizedHeld to Maturity
    
    Amortized Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueMarch 31, 2011State and municipal
    
    $
    4,349
    
    
    $
    59
    
    
    $
    (1
    )
    
    $
    4,407$
    4,349
    
    
    $
    59
    
    
    $
    (1
    )
    
    $
    4,407December 31, 2010State and municipal
    
    $
    4,350
    
    
    $
    41
    
    
    $
    (8
    )
    
    $
    4,383$
    4,350
    
    
    $
    41
    
    
    $
    (8
    )
    
    $
    4,383
  Available for SaleAmortized
    
    
    Fair(000s omitted)
    
    Cost
    
    
    ValueU.S. Government and federal agencyDue in one year or less
    
    $
    3,990
    
    
    $
    3,971Mortgage-backed residential
    
    
    6,877
    
    
    
    6,964Collateralized mortgage obligations-agencies
    
    
    27,946
    
    
    
    28,051Collateralized mortgage obligations-private label
    
    
    4,077
    
    
    
    3,711Equity securities
    
    
    2,155
    
    
    
    2,173$
    45,045
    
    
    $
    44,870
 Held to MaturityAmortized
    
    
    Fair(000s omitted)
    
    Cost
    
    
    ValueDue in one year or less
    
    $
    1,145
    
    
    $
    1,151Due from one to five years
    
    
    1,957
    
    
    
    1,987Due from five to ten years
    
    
    879
    
    
    
    897Due after ten years
    
    
    368
    
    
    
    372$
    4,349
    
    
    $
    4,407
   Three months ended(000s omitted)
    
    March 31, 2011Proceeds
    
    $
    2,024Gross gains
    
    
    5Gross losses
    
    
    0
   12




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NOTE 3  SECURITIES
  March 31, 2011
    
    Less than 12 months
    
    
    12 months or more
    
    
    Total(000s omitted)
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDescription of Securities
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossUS Government and
federal agencies
    
    $
    1,981
    
    
    $
    (19
    )
    
    $
    0
    
    
    $
    0
    
    
    $
    1,981
    
    
    $
    (19
    )State and municipal
    
    
    0
    
    
    
    0
    
    
    
    169
    
    
    
    (1
    )
    
    
    169
    
    
    
    (1
    )Mortgage-backed residential
    
    
    3,454
    
    
    
    (39
    )
    
    
    0
    
    
    
    0
    
    
    
    3,454
    
    
    
    (39
    )Collateralized mortgage obligations-agencies
    
    
    5,674
    
    
    
    (92
    )
    
    
    0
    
    
    
    0
    
    
    
    5,674
    
    
    
    (92
    )Collateralized mortgage
obligations-private
label
    
    
    0
    
    
    
    0
    
    
    
    3,711
    
    
    
    (366
    )
    
    
    3,711
    
    
    
    (366
    )Equity securities
    
    
    186
    
    
    
    (14
    )
    
    
    453
    
    
    
    (7
    )
    
    
    639
    
    
    
    (21
    )Total temporarily impaired
    
    $
    11,295
    
    
    $
    (164
    )
    
    $
    4,333
    
    
    $
    (374
    )
    
    $
    15,628
    
    
    $
    (538
    )
 December 31, 2010
    
    Less than 12 months
    
    
    12 months or more
    
    
    Total(000s omitted)
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDescription of Securities
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossUS Government and
federal agencies
    
    $
    1,989
    
    
    $
    (11
    )
    
    $
    0
    
    
    $
    0
    
    
    $
    1,989
    
    
    $
    (11
    )State and municipal
    
    
    365
    
    
    
    (3
    )
    
    
    245
    
    
    
    (5
    )
    
    
    610
    
    
    
    (8
    )Mortgage-backed residential
    
    
    2,062
    
    
    
    (36
    )
    
    
    0
    
    
    
    0
    
    
    
    2,062
    
    
    
    (36
    )Collateralized mortgage obligations-agencies
    
    
    6,085
    
    
    
    (114
    )
    
    
    0
    
    
    
    0
    
    
    
    6,085
    
    
    
    (114
    )Collateralized mortgage
obligations-private
label
    
    
    0
    
    
    
    0
    
    
    
    3,871
    
    
    
    (344
    )
    
    
    3,871
    
    
    
    (344
    )Equity securities
    
    
    186
    
    
    
    (14
    )
    
    
    439
    
    
    
    (20
    )
    
    
    625
    
    
    
    (34
    )Total temporarily impaired
    
    $
    10,687
    
    
    $
    (178
    )
    
    $
    4,555
    
    
    $
    (369
    )
    
    $
    15,242
    
    
    $
    (547
    )
 Other-Than-Temporary-Impairment
   Collateralized Mortgage Obligations
  13




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NOTE 3  SECURITIES
   Equity securities
   NOTE 4  LOANS AND ALLOWANCE FOR LOAN LOSSES
  (000s omitted)
    
    March 31, 2011
    
    
    December 31, 2010Commercial
    
    $
    41,384
    
    
    $
    43,395Real estate  commercial
    
    
    99,350
    
    
    
    106,784Real estate  construction
    
    
    8,380
    
    
    
    9,597Real estate  mortgage
    
    
    19,219
    
    
    
    19,046Consumer
    
    
    27,543
    
    
    
    29,153195,876
    
    
    
    207,975Less allowance for loan losses
    
    
    9,015
    
    
    
    10,027$
    186,861
    
    
    $
    197,948
  14




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##### Table of Contents



NOTE 4  LOANS AND ALLOWANCE FOR LOAN LOSSES
  Commercial
    
    
    ResidentialReal
    
    
    Real
    
    
    Installment
    
    
    Home(000s omitted)
    
    Commercial
    
    
    Estate
    
    
    Estate
    
    
    Loans
    
    
    Equity
    
    
    Unallocated
    
    
    TotalBalance January 1, 2011Allowance for loan losses
    
    $
    869
    
    
    $
    7,942
    
    
    $
    411
    
    
    $
    233
    
    
    $
    508
    
    
    $
    64
    
    
    $
    10,027Provision for loan losses
    
    
    (158
    )
    
    
    888
    
    
    
    (4
    )
    
    
    (17
    )
    
    
    148
    
    
    
    (62
    )
    
    
    795Loans charged off
    
    
    0
    
    
    
    (1,818
    )
    
    
    (11
    )
    
    
    (32
    )
    
    
    (98
    )
    
    
    0
    
    
    
    (1,959
    )Loan recoveries
    
    
    6
    
    
    
    124
    
    
    
    1
    
    
    
    6
    
    
    
    15
    
    
    
    0
    
    
    
    152Balance March 31, 2011
    
    $
    717
    
    
    $
    7,136
    
    
    $
    397
    
    
    $
    190
    
    
    $
    573
    
    
    $
    2
    
    
    $
    9,015
  (000s omitted)Balance, January 1, 2010
    
    $
    8,589Provision for loan losses
    
    
    1,135Loans charged off:Commercial
    
    
    (104
    )Commercial real estate
    
    
    (323
    )Installment
    
    
    (53
    )Home equity
    
    
    (56
    )Residential real estate
    
    
    (78
    )Total loans charged off
    
    
    (614
    )Loan recoveries:Commercial
    
    
    19Commercial real estate
    
    
    539Installment
    
    
    18Home equity
    
    
    0Residential real estate
    
    
    0Total loan recoveries
    
    
    576Balance, March 31, 2010
    
    $
    9,686
 15




---



##### Table of Contents



NOTE 4  LOANS AND ALLOWANCE FOR LOAN LOSSES
  Commercial
    
    
    Residential(000s omitted)
    
    
    
    
    
    Real
    
    
    Real
    
    
    Installment
    
    
    HomeMarch 31, 2011
    
    Commercial
    
    
    Estate
    
    
    Estate
    
    
    Loans
    
    
    Equity
    
    
    Unallocated
    
    
    TotalAllowance for loan losses:Ending allowance balance
attributable to loans:Individually evaluated for
impairment
    
    $
    279
    
    
    $
    4,083
    
    
    $
    56
    
    
    $
    112
    
    
    $
    180
    
    
    $
    0
    
    
    $
    4,710Collectively evaluated for
impairment
    
    
    438
    
    
    
    3,053
    
    
    
    341
    
    
    
    78
    
    
    
    393
    
    
    
    2
    
    
    
    4,305Total ending allowance
balance
    
    $
    717
    
    
    $
    7,136
    
    
    $
    397
    
    
    $
    190
    
    
    $
    573
    
    
    $
    2
    
    
    $
    9,015Loans:Loans individually
evaluated for impairment
    
    $
    2,964
    
    
    $
    23,438
    
    
    $
    1,019
    
    
    $
    393
    
    
    $
    275
    
    
    $
    0
    
    
    $
    28,089Loans collectively
evaluated for impairment
    
    
    38,420
    
    
    
    84,292
    
    
    
    18,200
    
    
    
    7,423
    
    
    
    19,452
    
    
    
    0
    
    
    
    167,787Total ending loans balance
    
    
    41,384
    
    
    
    107,730
    
    
    
    19,219
    
    
    
    7,816
    
    
    
    19,727
    
    
    
    0
    
    
    
    195,876Accrued interest receivable
    
    
    124
    
    
    
    390
    
    
    
    73
    
    
    
    49
    
    
    
    58
    
    
    
    0
    
    
    
    694Total recorded investment
in loans
    
    $
    41,508
    
    
    $
    108,120
    
    
    $
    19,292
    
    
    $
    7,865
    
    
    $
    19,785
    
    
    $
    0
    
    
    $
    196,570
 Commercial
    
    
    Residential(000s omitted)
    
    
    
    
    
    Real
    
    
    Real
    
    
    
    
    
    
    HomeDecember 31, 2010
    
    Commercial
    
    
    Estate
    
    
    Estate
    
    
    Installment Loans
    
    
    Equity
    
    
    Unallocated
    
    
    TotalAllowance for loan losses:Ending allowance balance
attributable to loans:Individually evaluated for
impairment
    
    $
    184
    
    
    $
    5,962
    
    
    $
    95
    
    
    $
    69
    
    
    $
    160
    
    
    $
    18
    
    
    $
    6,488Collectively evaluated for
impairment
    
    
    685
    
    
    
    1,980
    
    
    
    316
    
    
    
    164
    
    
    
    348
    
    
    
    46
    
    
    
    3,539Total ending
allowance balance
    
    $
    869
    
    
    $
    7,942
    
    
    $
    411
    
    
    $
    233
    
    
    $
    508
    
    
    $
    64
    
    
    $
    10,027Loans:Loans individually
evaluated for impairment
    
    $
    1,183
    
    
    $
    25,602
    
    
    $
    1,069
    
    
    $
    228
    
    
    $
    357
    
    
    $
    0
    
    
    $
    28,439Loans collectively
evaluated for impairment
    
    
    42,212
    
    
    
    90,779
    
    
    
    17,977
    
    
    
    7,798
    
    
    
    20,770
    
    
    
    0
    
    
    
    179,536Total ending
loans balance
    
    $
    43,395
    
    
    $
    116,381
    
    
    $
    19,046
    
    
    $
    8,026
    
    
    $
    21,127
    
    
    $
    0
    
    
    $
    207,975Accrued interest
receivable
    
    
    357
    
    
    
    429
    
    
    
    76
    
    
    
    55
    
    
    
    58
    
    
    
    0
    
    
    
    975Total recorded
investment in loans
    
    $
    43,752
    
    
    $
    116,810
    
    
    $
    19,122
    
    
    $
    8,081
    
    
    $
    21,185
    
    
    $
    0
    
    
    $
    208,950
 16




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##### Table of Contents



NOTE 4  LOANS AND ALLOWANCE FOR LOAN LOSSES
  Unpaid Principal
    
    
    
    
    
    
    Allowance for LoanMarch 31, 2011
    
    Balance
    
    
    Recorded Investment
    
    
    Losses AllocatedWith no related allowances recorded:Commercial
    
    $
    2,237
    
    
    $
    2,239
    
    
    $
    0Commercial Real EstateConstruction
    
    
    428
    
    
    
    428
    
    
    
    0Other
    
    
    4,789
    
    
    
    4,802
    
    
    
    0Residential real estate
    
    
    567
    
    
    
    567
    
    
    
    0ConsumerInstallment Loans
    
    
    238
    
    
    
    239
    
    
    
    0With an allowance recorded:Commercial
    
    
    727
    
    
    
    728
    
    
    
    279Commercial real estate:Construction
    
    
    4,972
    
    
    
    4,973
    
    
    
    389Other
    
    
    13,249
    
    
    
    13,285
    
    
    
    3,694Residential real estate
    
    
    452
    
    
    
    509
    
    
    
    56ConsumerInstallment loans
    
    
    155
    
    
    
    157
    
    
    
    112Home equity
    
    
    275
    
    
    
    276
    
    
    
    180Total
    
    $
    28,089
    
    
    $
    28,203
    
    
    $
    4,710
 Unpaid Principal
    
    
    
    
    
    
    Allowance for LoanDecember 31, 2010
    
    Balance
    
    
    Recorded Investment
    
    
    Losses AllocatedWith no related allowances recorded:Commercial
    
    $
    490
    
    
    $
    490
    
    
    $
    0Commercial Real EstateConstruction
    
    
    149
    
    
    
    149
    
    
    
    0Other
    
    
    4,034
    
    
    
    4,036
    
    
    
    0Residential real estate
    
    
    544
    
    
    
    544
    
    
    
    0ConsumerInstallment Loans
    
    
    116
    
    
    
    116
    
    
    
    0Home Equity
    
    
    74
    
    
    
    75
    
    
    
    0With an allowance recorded:Commercial
    
    
    693
    
    
    
    696
    
    
    
    184Commercial real estate:Construction
    
    
    348
    
    
    
    348
    
    
    
    101Other
    
    
    21,071
    
    
    
    21,161
    
    
    
    5,879Residential real estate
    
    
    525
    
    
    
    529
    
    
    
    95ConsumerInstallment loans
    
    
    112
    
    
    
    112
    
    
    
    69Home equity
    
    
    283
    
    
    
    284
    
    
    
    160Total
    
    $
    28,439
    
    
    $
    28,540
    
    
    $
    6,488
 17




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##### Table of Contents



NOTE 4  LOANS AND ALLOWANCE FOR LOAN LOSSES
   March 31, 2011
    
    
    
    
    
    Loans Past Due Over 90(000s omitted)
    
    Nonaccrual (1)
    
    
    Days Still Accruing (2)Commercial
    
    $
    1,746
    
    
    $
    0Commercial real estateConstruction
    
    
    5,256
    
    
    
    0Other
    
    
    7,610
    
    
    
    418ConsumerHome Equity
    
    
    0
    
    
    
    154Installment loans
    
    
    115
    
    
    
    5Residential real estate (1)
    
    
    522
    
    
    
    0Total
    
    $
    15,249
    
    
    $
    577
 
 (1)
    
    -Includes deferred fees and costs of $1(2)
    
    -Includes accrued interest receivable of $13 December 31, 2010
    
    
    
    
    
    Loans Past Due Over 90(000s omitted)
    
    Nonaccrual
    
    
    Days Still Accruing (1)Commercial
    
    $
    1,847
    
    
    $
    0Commercial real estateConstruction
    
    
    5,234
    
    
    
    0Other
    
    
    4,799
    
    
    
    0ConsumerInstallment loans
    
    
    121
    
    
    
    0Residential real estate
    
    
    495
    
    
    
    135Total
    
    $
    12,496
    
    
    $
    135
 
 (1)
    
    -Includes accrued interest receivable of $2  (000s omitted)
    
    30-59 Days
    
    
    
    
    
    
    Greater than 90March 31, 2011
    
    Past Due
    
    
    60-89 Days Past Due
    
    
    Days Past Due
    
    
    Total Past DueCommercial
    
    $
    173
    
    
    $
    327
    
    
    $
    1,658
    
    
    $
    2,158Commercial real estate:Construction
    
    
    867
    
    
    
    0
    
    
    
    4,447
    
    
    
    5,314Other
    
    
    1,368
    
    
    
    1,939
    
    
    
    7,225
    
    
    
    10,532Consumer:Installment loans
    
    
    11
    
    
    
    11
    
    
    
    97
    
    
    
    119Home Equity
    
    
    87
    
    
    
    0
    
    
    
    153
    
    
    
    240Residential real estateTraditional
    
    
    0
    
    
    
    0
    
    
    
    522
    
    
    
    522Total
    
    $
    2,506
    
    
    $
    2,277
    
    
    $
    14,102
    
    
    $
    18,885
 18




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##### Table of Contents



NOTE 4  LOANS AND ALLOWANCE FOR LOAN LOSSES
 (000s omitted)
    
    30-59 Days
    
    
    
    
    
    
    Greater than 90December 31, 2010
    
    Past Due
    
    
    60-89 Days Past Due
    
    
    Days Past Due (1)
    
    
    Total Past DueCommercial
    
    $
    26
    
    
    $
    235
    
    
    $
    1,209
    
    
    $
    1,470Commercial real estate:Construction
    
    
    0
    
    
    
    141
    
    
    
    4,748
    
    
    
    4,889Other
    
    
    1,186
    
    
    
    11
    
    
    
    4,133
    
    
    
    5,330Consumer:Installment loans
    
    
    46
    
    
    
    4
    
    
    
    96
    
    
    
    146Home Equity
    
    
    118
    
    
    
    5
    
    
    
    0
    
    
    
    123Residential real estateTraditional
    
    
    156
    
    
    
    0
    
    
    
    630
    
    
    
    786Total
    
    $
    1,532
    
    
    $
    396
    
    
    $
    10,816
    
    
    $
    12,744
 Renegotiated loans:
   Loans in discontinued operations:
   Credit Quality Indicators:
  Watch.Loans classified as watch have a potential weakness that deserves managements
close attention. If left uncorrected, these potential weaknesses may result in
deterioration of the repayment prospects for the loan or of the institutions credit
position at some future date.
 Substandard.Loans classified as substandard are inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so
classified have a well-defined weakness or weaknesses that jeopardize the liquidation of
the debt. They are characterized by the distinct possibility that the institution will
sustain some loss if the deficiencies are not corrected.
 19




---



##### Table of Contents



NOTE 4  LOANS AND ALLOWANCE FOR LOAN LOSSES
 Doubtful.Loans classified as doubtful have all the weaknesses inherent in those classified
as substandard, with the added characteristic that the weaknesses make collection or
liquidation in full, on the basis of currently existing facts, conditions, and values,
highly questionable and improbable. The Corporation does not classify loans as doubtful.
Loans that approach this status are charged-off.
  (000s omitted)March 31, 2011
    
    Prime
    
    
    Pass
    
    
    Watch
    
    
    Substandard
    
    
    TotalCommercial
    
    $
    4,362
    
    
    $
    32,430
    
    
    $
    1,752
    
    
    $
    2,964
    
    
    $
    41,508Commercial real estate:Construction
    
    
    0
    
    
    
    815
    
    
    
    1,201
    
    
    
    4,501
    
    
    
    6,517Other
    
    
    0
    
    
    
    72,199
    
    
    
    10,414
    
    
    
    18,990
    
    
    
    101,603Total
    
    $
    4,362
    
    
    $
    105,444
    
    
    $
    13,367
    
    
    $
    26,455
    
    
    $
    149,628
 (000s omitted)December 31, 2010
    
    Prime
    
    
    Pass
    
    
    Watch
    
    
    Substandard
    
    
    TotalCommercial
    
    $
    3,174
    
    
    $
    33,871
    
    
    $
    3,530
    
    
    $
    3,177
    
    
    $
    43,752Commercial real estate:Construction
    
    
    0
    
    
    
    755
    
    
    
    1,414
    
    
    
    6,979
    
    
    
    9,148Other
    
    
    0
    
    
    
    81,739
    
    
    
    9,863
    
    
    
    16,060
    
    
    
    107,662Total
    
    $
    3,174
    
    
    $
    116,365
    
    
    $
    14,807
    
    
    $
    26,216
    
    
    $
    160,562
  (000s omitted)
    
    Consumer
    
    
    ResidentialMarch 31, 2011
    
    Home Equity
    
    
    Installment
    
    
    Real Estate
    
    
    TotalPerforming
    
    $
    19,510
    
    
    $
    7,472
    
    
    $
    18,273
    
    
    $
    45,255Non-performing
    
    
    275
    
    
    
    393
    
    
    
    1,019
    
    
    
    1,687Total
    
    $
    19,785
    
    
    $
    7,865
    
    
    $
    19,292
    
    
    $
    46,942
 (000s omitted)
    
    Consumer
    
    
    ResidentialDecember 31, 2010
    
    Home Equity
    
    
    Installment
    
    
    Real Estate
    
    
    TotalPerforming
    
    $
    21,128
    
    
    $
    7,553
    
    
    $
    18,053
    
    
    $
    46,734Non-performing
    
    
    57
    
    
    
    528
    
    
    
    1,069
    
    
    
    1,654Total
    
    $
    21,185
    
    
    $
    8,081
    
    
    $
    19,122
    
    
    $
    48,388
 20




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##### Table of Contents



NOTE 5 FAIR VALUE
  Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets
that the entity has the ability to access as of the measurement date.
 Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices
for similar assets or liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market data.
 Level 3: Significant unobservable inputs that reflect a reporting entitys own assumptions
about the assumptions that market participants would use in pricing an asset or liability.
  Impaired Loans:
 Other Real Estate Owned:
 21




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##### Table of Contents



NOTE 5 FAIR VALUE
 Assets Measured on a Recurring Basis
  Fair Value Measurements UsingQuoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable Inputs(000s omitted)
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)March 31, 2011Available for sale securitiesUS Government and federal agency
    
    $
    3,971
    
    
    $
    0
    
    
    $
    3,971
    
    
    $
    0Mortgage-backed residential
    
    
    6,964
    
    
    
    0
    
    
    
    6,964
    
    
    
    0Collateralized mortgage
obligations-agency
    
    
    28,051
    
    
    
    0
    
    
    
    28,051
    
    
    
    0Collateralized mortgage
obligations-private label
    
    
    3,711
    
    
    
    0
    
    
    
    3,711
    
    
    
    0Equity securities
    
    
    2,173
    
    
    
    0
    
    
    
    1,013
    
    
    
    1,160$
    44,870
    
    
    $
    0
    
    
    $
    43,710
    
    
    $
    1,160
 Fair Value Measurements UsingQuoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable Inputs(000s omitted)
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)December 31, 2010Available for sale securitiesUS Government and federal agency
    
    $
    4,000
    
    
    $
    0
    
    
    $
    4,000
    
    
    $
    0Mortgage-backed residential
    
    
    7,432
    
    
    
    0
    
    
    
    7,432
    
    
    
    0Collateralized mortgage
obligations-agency
    
    
    24,902
    
    
    
    0
    
    
    
    24,902
    
    
    
    0Collateralized mortgage
obligations-private label
    
    
    3,871
    
    
    
    0
    
    
    
    3,871
    
    
    
    0Equity securities
    
    
    1,670
    
    
    
    0
    
    
    
    523
    
    
    
    1,147$
    41,875
    
    
    $
    0
    
    
    $
    40,728
    
    
    $
    1,147
  22




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##### Table of Contents



NOTE 5 FAIR VALUE
  Equity Securities(000s omitted)
    
    2011
    
    
    2010Beginning balance, Jan. 1,
    
    $
    1,147
    
    
    $
    1,229Total gains or losses (realized / unrealized)Included in other comprehensive income
    
    
    13
    
    
    
    (239
    )Ending balance, March 31,
    
    $
    1,160
    
    
    $
    990
 Assets Measured on a Non-Recurring Basis
  Quoted Pricesin Active Markets
    
    
    
    
    
    
    Significantfor Identical
    
    
    Significant Other
    
    
    UnobservableAssets
    
    
    Observable Inputs
    
    
    Inputs(000s omitted)
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)At March 31, 2011Impaired loansCommercial
    
    $
    174
    
    
    $
    0
    
    
    $
    0
    
    
    $
    174Commercial real estate
    
    
    7,318
    
    
    
    0
    
    
    
    0
    
    
    
    7,318Residential real estate
    
    
    648
    
    
    
    0
    
    
    
    0
    
    
    
    648Consumer
    
    
    521
    
    
    
    0
    
    
    
    0
    
    
    
    521Total impaired loans
    
    $
    8,661
    
    
    $
    0
    
    
    $
    0
    
    
    $
    8,661Other real estate ownedCommercial real estate
    
    $
    309
    
    
    $
    0
    
    
    $
    0
    
    
    $
    309Total other real estate owned
    
    $
    309
    
    
    $
    0
    
    
    $
    0
    
    
    $
    309At December 31, 2010Impaired loansCommercial
    
    $
    599
    
    
    $
    0
    
    
    $
    0
    
    
    $
    599Commercial real estate
    
    
    7,066
    
    
    
    0
    
    
    
    0
    
    
    
    7,066Residential real estate
    
    
    716
    
    
    
    0
    
    
    
    0
    
    
    
    716Consumer
    
    
    355
    
    
    
    0
    
    
    
    0
    
    
    
    355Total impaired loans
    
    $
    8,736
    
    
    $
    0
    
    
    $
    0
    
    
    $
    8,736Other real estate ownedCommercial real estate
    
    $
    235
    
    
    $
    0
    
    
    $
    0
    
    
    $
    235Residential real estate
    
    
    60
    
    
    
    0
    
    
    
    0
    
    
    
    60Total other real estate owned
    
    $
    295
    
    
    $
    0
    
    
    $
    0
    
    
    $
    295
   23




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##### Table of Contents



NOTE 5 FAIR VALUE
    March 31, 2011
    
    
    December 31, 2010(000s omitted)
    
    Carrying Amount
    
    
    Fair Value
    
    
    Carrying Amount
    
    
    Fair ValueAssets:Cash and cash equivalents
    
    $
    44,422
    
    
    $
    44,422
    
    
    $
    33,492
    
    
    $
    33,492Securities  held to maturity
    
    
    4,349
    
    
    
    4,407
    
    
    
    4,350
    
    
    
    4,383Loans held for sale
    
    
    486
    
    
    
    486
    
    
    
    850
    
    
    
    850Loans (including impaired loans)
    
    
    186,861
    
    
    
    180,965
    
    
    
    197,948
    
    
    
    194,925FHLB stock
    
    
    740
    
    
    
    740
    
    
    
    740
    
    
    
    740Accrued interest receivable
    
    
    1,060
    
    
    
    1,060
    
    
    
    1,050
    
    
    
    1,050Liabilities:Deposits
    
    $
    279,170
    
    
    $
    273,563
    
    
    $
    275,977
    
    
    $
    272,223Short-term borrowings
    
    
    662
    
    
    
    662
    
    
    
    879
    
    
    
    879FHLB advances
    
    
    954
    
    
    
    1,180
    
    
    
    954
    
    
    
    1,369Subordinated debentures
    
    
    14,000
    
    
    
    12,614
    
    
    
    14,000
    
    
    
    12,613Accrued interest payable
    
    
    1,273
    
    
    
    1,273
    
    
    
    1,166
    
    
    
    1,166
  Cash and cash equivalents:
 Securities:
 FHLB Stock:
 Loans held for sale:
 Loans:
 Off-balance-sheet instruments:
 Deposit liabilities:
 24




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##### Table of Contents



NOTE 5 FAIR VALUE
  Short-term borrowings:
 FHLB advances:
 Subordinated Debentures:
 Limitations:
 NOTE 6  INCOME TAXES
    NOTE 7  EARNINGS PER COMMON SHARE
  25




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##### Table of Contents



NOTE 7  EARNINGS PER COMMON SHARE
  Three Months EndedMarch 31,(000s omitted except share and per share data)
    
    2011
    
    
    2010BasicNet income (loss)
    
    $
    310
    
    
    $
    (483
    )Weighted average common shares outstanding
    
    
    2,309,912
    
    
    
    2,249,917Basic income (loss) per common share
    
    $
    0.13
    
    
    $
    (0.21
    )DilutedNet income (loss)
    
    $
    310
    
    
    $
    (483
    )Weighted average common shares outstanding for
basic earnings per common share
    
    
    2,309,912
    
    
    
    2,249,917Add:
Dilutive effects of assumed exercises of stock options
    
    
    0
    
    
    
    0Average shares and dilutive potential common shares
    
    
    2,309,912
    
    
    
    2,249,917Diluted income (loss) per common share
    
    $
    0.13
    
    
    $
    (0.21
    )
  Three Months EndedMarch 31,(000s omitted except share and per share data)
    
    2011
    
    
    2010BasicNet loss of continuing operations
    
    $
    (148
    )
    
    $
    (312
    )Weighted average common shares outstanding
    
    
    2,309,912
    
    
    
    2,249,917Basic loss per common share from continuing
operations
    
    $
    (0.06
    )
    
    $
    (0.14
    )DilutedNet loss of continuing operations
    
    $
    (148
    )
    
    $
    (312
    )Weighted average common shares outstanding
for basic earnings per common share
    
    
    2,309,912
    
    
    
    2,249,917Add: Dilutive effects of assumed exercises of
stock options
    
    
    0
    
    
    
    0Average shares and dilutive potential common shares
    
    
    2,309,912
    
    
    
    2,249,917Diluted loss per common share from continuing operations
    
    $
    (0.06
    )
    
    $
    (0.14
    )
  NOTE 8  COMMITMENTS AND CONTINGENCIES
  26




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##### Table of Contents



NOTE 9  DISCONTINUED OPERATIONS
   LOANS AND OTHER REAL ESTATE ASSUMED
CONDENSED BALANCE SHEET OF DISCONTINUED OPERATIONS
(Unaudited)
 Mar 31, 2011ASSETSLoans
    
    
    6,949Other real estate owned
    
    
    4,438Total assets
    
    $
    11,387
  WEST MICHIGAN COMMUNITY BANK
CONDENSED BALANCE SHEET OF DISCONTINUED OPERATIONS
(Unaudited)
 Dec 31, 2010ASSETSCash and cash equivalents
    
    $
    8,309Securities  available for sale
    
    
    15,080Loans, net of allowance ($3,543-2010)
    
    
    86,353Other assets
    
    
    13,226Total assets
    
    $
    122,968LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Non-interest bearing
    
    $
    13,751Interest bearing
    
    
    93,546Total deposits
    
    
    107,297Federal Home Loan Bank advances
    
    
    5,000Accrued taxes, interest and other liabilities
    
    
    1,024Shareholders equity
    
    
    9,647Total liabilities and shareholders equity
    
    $
    122,968
 27




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##### Table of Contents



NOTE 9  DISCONTINUED OPERATIONS
  LOANS AND OTHER REAL ESTATE ASSUMED
CONDENSED STATEMENT OF INCOME OF DISCONTINUED OPERATIONS
Unaudited
(000s omitted)
 Period EndedMarch 312011Interest income
    
    $
    1Net interest income after provision for loan losses
    
    
    1Non-interest income
    
    
    41Non-interest expense
    
    
    158Loss before federal income tax
    
    
    (116
    )Federal income tax expense (benefit)
    
    
    0Net income (loss)
    
    $
    (116
    )
  WEST MICHIGAN COMMUNITY BANK
CONDENSED STATEMENT OF INCOME OF DISCONTINUED OPERATIONS
Unaudited
(000s omitted)
 Periods EndedMarch 312011
    
    
    2010Interest income
    
    $
    515
    
    
    $
    1,796Interest expense
    
    
    129
    
    
    
    754Net interest income
    
    
    386
    
    
    
    1,042Provision for loan losses
    
    
    (50
    )
    
    
    655Net interest income after provision for loan losses
    
    
    436
    
    
    
    387Non-interest income
    
    
    121
    
    
    
    232Non-interest expense
    
    
    415
    
    
    
    1,284Income (loss) before federal income tax
    
    
    142
    
    
    
    (665
    )Federal income tax expense (benefit)
    
    
    37
    
    
    
    (7
    )Net income (loss)
    
    $
    105
    
    
    $
    (658
    )
 28




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##### Table of Contents



NOTE 9  DISCONTINUED OPERATIONS
   DAVISON STATE BANK
CONDENSED STATEMENT OF INCOME OF DISCONTINUED OPERATIONS
(Unaudited)
(000s omitted)
 Three MonthsEndedMarch 312010Interest income
    
    $
    457Interest expense
    
    
    89Net interest income
    
    
    368Provision for loan losses
    
    
    (5
    )Net interest income after provision for loan losses
    
    
    373Non-interest income
    
    
    127Non-interest expense
    
    
    470Income before federal income tax
    
    
    30Reversal of estimated loss on sale of discontinued operations
    
    
    700Federal income tax expense
    
    
    243Net income
    
    $
    487
  TOTAL DISCONTINUED OPERATIONS
CONDENSED STATEMENT OF INCOME OF DISCONTINUED OPERATIONS
Unaudited
(000s omitted)
 Periods EndedMarch 312011
    
    
    2010Interest income
    
    $
    516
    
    
    $
    2,253Interest expense
    
    
    129
    
    
    
    843Net interest income
    
    
    387
    
    
    
    1,410Provision for loan losses
    
    
    (50
    )
    
    
    650Net interest income after provision for loan losses
    
    
    437
    
    
    
    760Non-interest income
    
    
    162
    
    
    
    1,059Non-interest expense
    
    
    573
    
    
    
    1,754Income before federal income tax
    
    
    26
    
    
    
    65Federal income tax expense
    
    
    37
    
    
    
    236Net loss
    
    $
    (11
    )
    
    $
    (171
    )
  29




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##### Table of Contents



NOTE 10-REGULATORY MATTERS
       30




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##### Table of Contents



NOTE 10-REGULATORY MATTERS
    For Capital
    
    
    RegulatoryAdequacy
    
    
    AgreementActual
    
    
    Purposes
    
    
    Requirements(000s omitted)
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioAs of March 31, 2011Total Capital
(to Risk Weighted Assets)Consolidated
    
    $
    24,535
    
    
    
    10.9
    %
    
    $
    17,966
    
    
    
    8.0
    %
    
    NA    
    
    NAThe State Bank
    
    
    23,293
    
    
    
    10.9
    
    
    
    17,100
    
    
    
    8.0
    
    
    $
    21,735
    
    
    
    12.0
    %Tier 1 Capital
(to Risk Weighted Assets)Consolidated
    
    
    21,780
    
    
    
    9.7
    
    
    
    8,983
    
    
    
    4.0
    
    
    NA    
    
    NAThe State Bank
    
    
    20,538
    
    
    
    9.6
    
    
    
    8,550
    
    
    
    4.0
    
    
    NA    
    
    NATier 1 Capital
(to Average Assets)Consolidated
    
    
    21,780
    
    
    
    6.5
    
    
    
    13,383
    
    
    
    4.0
    
    
    NA    
    
    NAThe State Bank
    
    
    20,538
    
    
    
    6.8
    
    
    
    12,074
    
    
    
    4.0
    
    
    
    24,148
    
    
    
    8.0
 31




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##### Table of Contents



NOTE 10-REGULATORY MATTERS
 For Capital
    
    
    RegulatoryAdequacy
    
    
    AgreementActual
    
    
    Purposes
    
    
    Requirements(000s omitted)
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioAs of December 31, 2010Total Capital
(to Risk Weighted Assets)Consolidated
    
    $
    25,443
    
    
    
    7.8
    %
    
    $
    26,073
    
    
    
    8.0
    %
    
    NA     
    
    NAThe State Bank
    
    
    22,670
    
    
    
    10.0
    
    
    
    18,152
    
    
    
    8.0
    
    
    $
    27,228
    
    
    
    12.0
    %West Michigan Community
Bank
    
    
    10,722
    
    
    
    11.0
    
    
    
    7,794
    
    
    
    8.0
    
    
    NA     
    
    NATier 1 Capital
(to Risk Weighted Assets)Consolidated
    
    
    21,261
    
    
    
    6.5
    
    
    
    13,036
    
    
    
    4.0
    
    
    NA     
    
    NAThe State Bank
    
    
    19,735
    
    
    
    8.7
    
    
    
    9,076
    
    
    
    4.0
    
    
    NA     
    
    NAWest Michigan Community
Bank
    
    
    9,475
    
    
    
    9.7
    
    
    
    3,897
    
    
    
    4.0
    
    
    NA     
    
    NATier 1 Capital
(to Average Assets)Consolidated
    
    
    21,261
    
    
    
    4.9
    
    
    
    17,330
    
    
    
    4.0
    
    
    NA     
    
    NAThe State Bank
    
    
    19,735
    
    
    
    6.5
    
    
    
    12,204
    
    
    
    4.0
    
    
    
    24,408
    
    
    
    8.0West Michigan Community
Bank
    
    
    9,475
    
    
    
    7.5
    
    
    
    5,025
    
    
    
    4.0
    
    
    
    10,050
    
    
    
    8.0
 
   Results of Operations
   32




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##### Table of Contents



Net Interest Income
    Table 1
 THREE MONTHS ENDEDMARCH 31,2011 COMPARED TO 2010INCREASE (DECREASE)DUE TOYIELD/(000s omitted)
    
    VOLUME
    
    
    RATE
    
    
    TOTALTaxable securities
    
    $
    107
    
    
    $
    (53
    )
    
    $
    54Tax-exempt securities (1)
    
    
    (108
    )
    
    
    6
    
    
    
    (102
    )Federal funds sold
    
    
    2
    
    
    
    4
    
    
    
    6Total loans (1)
    
    
    (640
    )
    
    
    59
    
    
    
    (581
    )Loans held for sale
    
    
    1
    
    
    
    0
    
    
    
    1Total earning assets
    
    
    (638
    )
    
    
    16
    
    
    
    (622
    )Interest bearing demand deposits
    
    
    (2
    )
    
    
    (15
    )
    
    
    (17
    )Savings deposits
    
    
    2
    
    
    
    (6
    )
    
    
    (4
    )Time CDs $100,000 and over
    
    
    (234
    )
    
    
    (6
    )
    
    
    (240
    )Other time deposits
    
    
    (47
    )
    
    
    (104
    )
    
    
    (151
    )Other borrowings
    
    
    0
    
    
    
    0
    
    
    
    0Total interest bearing liabilities
    
    
    (281
    )
    
    
    (131
    )
    
    
    (412
    )Net Interest Income
    
    $
    (357
    )
    
    $
    147
    
    
    $
    (210
    )
 
 (1)
    
    Presented on a fully taxable equivalent basis using a federal income tax rate of 34%.   33




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##### Table of Contents



34




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##### Table of Contents



Table 2 Average Balance and Rates
 THREE MONTHS ENDED MARCH 31,2011
    
    
    2010AVERAGE
    
    
    INCOME/
    
    
    YIELD/
    
    
    AVERAGE
    
    
    INCOME/
    
    
    YIELD/(000s omitted)(Annualized)
    
    BALANCE
    
    
    EXPENSE
    
    
    RATE
    
    
    BALANCE
    
    
    EXPENSE
    
    
    RATEASSETSSecurities:U.S. Treasury and Government Agencies
    
    $
    40,279
    
    
    $
    267
    
    
    
    2.69
    %
    
    $
    25,577
    
    
    $
    216
    
    
    
    3.42
    %State and Political (1)
    
    
    4,350
    
    
    
    68
    
    
    
    6.34
    %
    
    
    11,283
    
    
    
    170
    
    
    
    6.11
    %Other
    
    
    2,804
    
    
    
    12
    
    
    
    1.74
    %
    
    
    2,328
    
    
    
    9
    
    
    
    1.57
    %Total Securities
    
    
    47,433
    
    
    
    347
    
    
    
    2.97
    %
    
    
    39,188
    
    
    
    395
    
    
    
    4.09
    %Fed Funds Sold
    
    
    22,741
    
    
    
    9
    
    
    
    0.16
    %
    
    
    14,289
    
    
    
    3
    
    
    
    0.09
    %Loans:Commercial
    
    
    148,538
    
    
    
    2,289
    
    
    
    6.25
    %
    
    
    182,779
    
    
    
    2,744
    
    
    
    6.09
    %Tax Free (1)
    
    
    2,001
    
    
    
    32
    
    
    
    6.49
    %
    
    
    2,384
    
    
    
    39
    
    
    
    6.70
    %Real Estate-Mortgage
    
    
    19,393
    
    
    
    291
    
    
    
    6.09
    %
    
    
    23,189
    
    
    
    355
    
    
    
    6.21
    %Consumer
    
    
    28,350
    
    
    
    405
    
    
    
    5.79
    %
    
    
    31,901
    
    
    
    460
    
    
    
    5.85
    %Total loans
    
    
    198,282
    
    
    
    3,017
    
    
    
    6.17
    %
    
    
    240,253
    
    
    
    3,598
    
    
    
    6.07
    %Allowance for Loan Losses
    
    
    (10,129
    )
    
    
    
    
    
    
    
    
    
    
    (8,954
    )Net Loans
    
    
    188,153
    
    
    
    3,017
    
    
    
    6.50
    %
    
    
    231,299
    
    
    
    3,598
    
    
    
    6.31
    %Loans Held for Sale
    
    
    637
    
    
    
    8
    
    
    
    5.09
    %
    
    
    575
    
    
    
    7
    
    
    
    4.94
    %TOTAL EARNING ASSETS
    
    $
    269,093
    
    
    
    3,381
    
    
    
    5.10
    %
    
    $
    294,305
    
    
    $
    4,003
    
    
    
    5.52
    %Cash Due from Banks
    
    
    17,934
    
    
    
    
    
    
    
    
    
    
    
    12,680Assets of Discontinued Operations
    
    
    46,045
    
    
    
    
    
    
    
    
    
    
    
    184,550All Other Assets
    
    
    26,595
    
    
    
    
    
    
    
    
    
    
    
    31,249TOTAL ASSETS
    
    $
    349,538
    
    
    
    
    
    
    
    
    
    
    $
    513,830LIABILITIES & SHAREHOLDERS EQUITY:Deposits:Interest Bearing  DDA
    
    $
    48,157
    
    
    $
    14
    
    
    
    0.12
    %
    
    $
    51,334
    
    
    $
    31
    
    
    
    0.24
    %Savings Deposits
    
    
    68,004
    
    
    
    16
    
    
    
    0.10
    %
    
    
    62,102
    
    
    
    20
    
    
    
    0.13
    %Time CDs $100,000 and Over
    
    
    46,224
    
    
    
    434
    
    
    
    3.81
    %
    
    
    71,172
    
    
    
    674
    
    
    
    3.84
    %Other Time CDs
    
    
    57,339
    
    
    
    258
    
    
    
    1.82
    %
    
    
    65,622
    
    
    
    409
    
    
    
    2.53
    %Total Deposits
    
    
    219,724
    
    
    
    722
    
    
    
    1.33
    %
    
    
    250,230
    
    
    
    1,134
    
    
    
    1.84
    %Other Borrowings
    
    
    15,354
    
    
    
    126
    
    
    
    3.33
    %
    
    
    15,331
    
    
    
    126
    
    
    
    3.33
    %INTEREST BEARING LIABILITIES
    
    $
    235,078
    
    
    
    848
    
    
    
    1.46
    %
    
    $
    265,561
    
    
    
    1,260
    
    
    
    1.92
    %Non-Interest bearing  DDA
    
    
    57,342
    
    
    
    
    
    
    
    
    
    
    
    53,148Liabilities of Discontinued Operations
    
    
    37,422
    
    
    
    
    
    
    
    
    
    
    
    171,292All Other Liabilities
    
    
    3,040
    
    
    
    
    
    
    
    
    
    
    
    3,079Shareholders Equity
    
    
    16,656
    
    
    
    
    
    
    
    
    
    
    
    20,750TOTAL LIABILITIES & SHAREHOLDERS EQUITY
    
    $
    349,538
    
    
    
    
    
    
    
    
    
    
    $
    513,830Net Interest Rate Spread
    
    
    
    
    
    
    
    
    
    
    3.64
    %
    
    
    
    
    
    
    
    
    
    
    3.60
    %Net Interest Income /Margin
    
    
    
    
    
    $
    2,533
    
    
    
    3.82
    %
    
    
    
    
    
    $
    2,743
    
    
    
    3.78
    %
 
 (1)
    
    Presented on a fully taxable equivalent basis using a federal income tax rate of 34%. 35




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##### Table of Contents



Allowance and Provision For Loan Losses
      36




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##### Table of Contents



Table 3 Analysis of the Allowance for Loan Losses
 Three Months Ended March 31,(000s omitted)
    
    2011
    
    
    2010Balance at Beginning of Period
    
    $
    10,027
    
    
    $
    8,589Charge-Offs:Commercial, Financial and Agriculture
    
    
    (1,818
    )
    
    
    (427
    )Real Estate-Mortgage
    
    
    (98
    )
    
    
    (78
    )Installment Loans to Individuals
    
    
    (43
    )
    
    
    (109
    )Total Charge-Offs
    
    
    (1,959
    )
    
    
    (614
    )Recoveries:Commercial, Financial and Agriculture
    
    
    130
    
    
    
    558Real Estate-Mortgage
    
    
    1
    
    
    
    0Installment Loans to Individuals
    
    
    21
    
    
    
    18Total Recoveries
    
    
    152
    
    
    
    576Net Charge-Offs
    
    
    (1,807
    )
    
    
    (38
    )Provision
    
    
    795
    
    
    
    1,135Balance at End of Period
    
    $
    9,015
    
    
    $
    9,686Ratio of Net Charge-Offs to Gross Loans
    
    
    0.93
    %
    
    
    0.02
    %
 Non-Interest Income
      Non-Interest Expense
    37




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Financial Condition
      38




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##### Table of Contents



Non-Performing Assets
    Table 4  Non-Performing Assets and Past Due Loans
 March 31,
    
    
    December 31,(000s omitted)
    
    2011
    
    
    2010Non-Performing Loans:Loans Past Due 90 Days or More & Still Accruing
    
    $
    564
    
    
    $
    133Non-Accrual Loans
    
    
    13,900
    
    
    
    12,496Renegotiated Loans
    
    
    4,976
    
    
    
    3,654REO in Redemption
    
    
    1,348
    
    
    
    828Total Non-Performing Loans
    
    
    20,788
    
    
    
    17,111Other Non-Performing Assets:Other Real Estate
    
    
    2,362
    
    
    
    2,742Total Other Non-Performing Assets
    
    
    2,362
    
    
    
    2,742Total Non-Performing Assets
    
    $
    23,150
    
    
    $
    19,853Non-Performing Loans as a % of Total Loans
    
    
    10.61
    %
    
    
    8.23
    %Non-Performing Loans as a % of Total Loans and Other Real Estate
    
    
    10.49
    %
    
    
    8.12
    %Allowance for Loan Losses as a % of Non-Performing Loans
    
    
    43.37
    %
    
    
    58.60
    %Accruing Loans Past Due 90 Days or More to Total Loans
    
    
    0.29
    %
    
    
    0.06
    %Non-performing Assets as a % of Total Assets
    
    
    7.36
    %
    
    
    4.68
    %
   39




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Liquidity and Interest Rate Risk Management
      40




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##### Table of Contents



Capital Resources
     Regulatory Orders
   Critical Accounting Policies and Estimates
   41




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Off Balance Sheet Arrangements
   (000s omitted)
    
    March 31, 2011
    
    
    December 31, 2010Commitments to make loans (at market rates)
    
    $
    5,524
    
    
    $
    8,403Unused lines of credit and letters of credit
    
    
    29,427
    
    
    
    29,746
 42




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    Interest Rate Sensitivity Management
   43




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Within
    
    
    Three
    
    
    One to
    
    
    AfterThree
    
    
    Months to
    
    
    Five
    
    
    Five(000s omitted)
    
    Months
    
    
    One Year
    
    
    Years
    
    
    Years
    
    
    TotalEarning Assets:Federal Funds Sold
    
    $
    16,000
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    16,000Securities
    
    
    12,020
    
    
    
    5,635
    
    
    
    14,621
    
    
    
    16,943
    
    
    
    49,219Loans
    
    
    44,816
    
    
    
    35,755
    
    
    
    86,617
    
    
    
    28,688
    
    
    
    195,876Loans Held for Sale
    
    
    486
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    486FHLB Stock
    
    
    740
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    740Total Earning Assets
    
    $
    74,062
    
    
    $
    41,390
    
    
    $
    101,238
    
    
    $
    45,631
    
    
    $
    262,321Interest Bearing Liabilities:Interest Bearing Demand Deposits
    
    $
    46,059
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    46,059Savings Deposits
    
    
    70,591
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    70,591Time Deposits Less than $100,000
    
    
    7,976
    
    
    
    17,059
    
    
    
    30,651
    
    
    
    90
    
    
    
    55,776Time Deposits Greater than $100,000
    
    
    8,210
    
    
    
    12,667
    
    
    
    26,850
    
    
    
    0
    
    
    
    47,727Short term borrowings
    
    
    662
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    662Other Borrowings
    
    
    30
    
    
    
    0
    
    
    
    149
    
    
    
    775
    
    
    
    954Subordinated debentures
    
    
    14,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    14,000Total Interest Bearing Liabilities
    
    $
    147,528
    
    
    $
    29,726
    
    
    $
    57,650
    
    
    $
    865
    
    
    $
    235,769Interest Rate Sensitivity GAP
    
    
    ($73,466
    )
    
    $
    11,664
    
    
    $
    43,588
    
    
    $
    44,766
    
    
    $
    26,552Cumulative Interest Rate
Sensitivity GAP
    
    
    ($73,466
    )
    
    
    ($61,802
    )
    
    
    ($18,214
    )
    
    $
    26,552Interest Rate Sensitivity GAP
    
    
    0.50
    
    
    
    1.39
    
    
    
    1.76
    
    
    
    52.75Cumulative Interest Rate
Sensitivity GAP Ratio
    
    
    0.50
    
    
    
    0.65
    
    
    
    0.92
    
    
    
    1.11
  Forward Looking Statements
  44




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ITEM 4: CONTROLS AND PROCEDURES
 (a)
    
    Evaluation of Disclosure Controls and Procedures. The Corporations Chief Executive
Officer and Chief Financial Officer, after evaluating the effectiveness of the Corporations
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
as of the end of the period covered by this Form 10-Q Quarterly Report, have concluded that
the Corporations disclosure controls and procedures were adequate and effective to ensure
that material information relating to the Corporation would be made known to them by others
within the Corporation, particularly during the period in which this Form 10-Q was being
prepared.(b)
    
    Changes in Internal Controls. During the period covered by this report, there have
been no changes in the Corporations internal control over financial reporting that have
materially affected or are reasonably likely to materially affect the Corporations internal
control over financial reporting.
 45




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings. None
 
 Item 1A.
    
    Risk Factors This item is not applicable to smaller reporting companies.
 
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds. None
 
 Item 3.
    
    Defaults Upon Senior Securities. None
 
 Item 4.
    
    [Reserved]
 
 Item 5.
    
    Other Information. None
 
 Item 6.
    
    Exhibits.
  10.1
    
    Severance compensation agreement with Ronald L. Justice.10.2
    
    Amended and restated supplemental executive retirement plan
with Daniel J. Wollschlager (Incorporated by reference from Form 8-K filed on
May 2, 2010)31.1
    
    Certificate of the President and Chief Executive Officer of
Fentura Financial, Inc. pursuant to 15 U.S.C. Section 7241, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certificate of the Chief Financial Officer of Fentura
Financial, Inc. pursuant to 15 U.S.C. Section 7241, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certificate of the Chief Executive Officer of Fentura
Financial, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certificate of the Chief Financial Officer of Fentura
Financial, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 46




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##### Table of Contents



Fentura Financial, Inc.Dated:  May 13, 2011
    /s/ Donald L. GrillDonald L. GrillPresident & CEODated:  May 13, 2011
    /s/ Douglas J. KelleyDouglas J. KelleyChief Financial Officer and 
Principal Accounting Officer 47




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##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    Description10.1
    
    
    Severance compensation agreement with Ronald L. Justice.10.2
    
    
    Amended and restated supplemental executive retirement plan with Daniel J. Wollschlager
(Incorporated by reference from Form 8-K filed on May 2, 2010)31.1
    
    
    Certificate of the President and Chief Executive Officer of Fentura Financial, Inc. pursuant
to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.31.2
    
    
    Certificate of the Chief Financial Officer of Fentura Financial, Inc. pursuant to 15 U.S.C.
Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certificate of the Chief Executive Officer of Fentura Financial, Inc. pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    Certificate of the Chief Financial Officer of Fentura Financial, Inc. pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 48