##### 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 September 30, 2008
 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
    
    (IRS Employee Identification No.)incorporation or organization)
 175 N Leroy, P.O. Box 725, Fenton, Michigan 48430
  (810) 629-2263
 (Registrants telephone number)
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ




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##### 



Fentura Financial Inc.
Index to Form 10-Q
 PagePart I  Financial Information
    
    
    3Item 1  Consolidated Financial Statements (Unaudited)
    
    
    3-13Item 2  Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    14-27Item 3  Quantitative and Qualitative Disclosures about Market Risk
    
    
    28-30Item 4T  Controls and Procedures
    
    
    31Part II  Other Information
    
    
    32-33Item 1  Legal Proceedings
    
    
    32Item 1A  Risk Factors
    
    
    32Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3  Defaults Upon Senior Securities
    
    
    32Item 4 Submission of Matters to a Vote of Security Holders
    
    
    32Item 5  Other Information
    
    
    32Item 6  Exhibits
    
    
    32-33Signatures
    
    
    34Exhibit Index
    
    
    35EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 Fentura Financial, Inc.
Consolidated Balance Sheets
 September 30,
    
    Dec 31,2008
    
    2007(000s omitted except share data)
    
    (unaudited)ASSETSCash and due from banks
    
    $
    13,979
    
    
    $
    22,734Federal funds sold
    
    
    5,600
    
    
    
    7,300Total cash & cash equivalents
    
    
    19,579
    
    
    
    30,034Securities-available for sale
    
    
    54,921
    
    
    
    71,792Securities-held to maturity, (fair value of $8,070
at September 30, 2008 and $8,714 at December 31, 2007)
    
    
    8,099
    
    
    
    8,685Total securities
    
    
    63,020
    
    
    
    80,477Loans held for sale
    
    
    1,461
    
    
    
    1,655Loans:Commercial
    
    
    308,029
    
    
    
    313,642Real estate loans  construction
    
    
    54,730
    
    
    
    59,805Real estate loans  mortgage
    
    
    38,746
    
    
    
    39,817Consumer loans
    
    
    57,298
    
    
    
    58,139Total loans
    
    
    458,803
    
    
    
    471,403Less: Allowance for loan losses
    
    
    (11,342
    )
    
    
    (8,554
    )Net loans
    
    
    447,461
    
    
    
    462,849Bank Owned Life Insurance
    
    
    7,201
    
    
    
    7,042Bank premises and equipment
    
    
    19,006
    
    
    
    20,101Federal Home Loan Bank stock
    
    
    2,032
    
    
    
    2,032Accrued interest receivable
    
    
    2,509
    
    
    
    2,813Goodwill
    
    
    7,955
    
    
    
    7,955Acquisition intangibles
    
    
    335
    
    
    
    485Equity Investment
    
    
    2,392
    
    
    
    3,089Other Real Estate Owned
    
    
    6,917
    
    
    
    2,003Other assets
    
    
    7,490
    
    
    
    7,484Total Assets
    
    $
    587,358
    
    
    $
    628,019LIABILITIESDeposits:Non-interest bearing deposits
    
    $
    73,867
    
    
    $
    75,148Interest bearing deposits
    
    
    434,257
    
    
    
    468,355Total deposits
    
    
    508,124
    
    
    
    543,503Short term borrowings
    
    
    2,375
    
    
    
    649Federal Home Loan Bank Advances
    
    
    15,007
    
    
    
    11,030Repurchase Agreements
    
    
    0
    
    
    
    5,000Subordinated debentures
    
    
    14,000
    
    
    
    14,000Accrued taxes, interest and other liabilities
    
    
    1,651
    
    
    
    4,341Total liabilities
    
    
    541,157
    
    
    
    578,523SHAREHOLDERS EQUITYCommon stock  no par value
2,180,571 shares issued (2,163,385 at Dec. 31, 2007)
    
    
    42,738
    
    
    
    42,478Retained earnings
    
    
    4,987
    
    
    
    7,488Accumulated other comprehensive income (loss)
    
    
    (1,524
    )
    
    
    (470
    )Total shareholders equity
    
    
    46,201
    
    
    
    49,496Total Liabilities and Shareholders Equity
    
    $
    587,358
    
    
    $
    628,019
  3




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##### Table of Contents



Fentura Financial, Inc.
Consolidated Statements of Income (Unaudited)
 Three Months Ended
    
    Nine Months EndedSeptember 30
    
    September 30(000s omitted except per share data)
    
    2008
    
    2007
    
    2008
    
    2007INTEREST INCOMEInterest and fees on loans
    
    $
    7,582
    
    
    $
    8,796
    
    
    $
    23,143
    
    
    $
    26,360Interest and dividends on securities:Taxable
    
    
    523
    
    
    
    786
    
    
    
    1,716
    
    
    
    2,504Tax-exempt
    
    
    161
    
    
    
    169
    
    
    
    429
    
    
    
    564Interest on federal funds sold
    
    
    42
    
    
    
    40
    
    
    
    156
    
    
    
    251Total interest income
    
    
    8,308
    
    
    
    9,791
    
    
    
    25,444
    
    
    
    29,679INTEREST EXPENSEDeposits
    
    
    3,109
    
    
    
    4,147
    
    
    
    10,421
    
    
    
    12,098Borrowings
    
    
    366
    
    
    
    547
    
    
    
    1,301
    
    
    
    1,692Total interest expense
    
    
    3,475
    
    
    
    4,694
    
    
    
    11,722
    
    
    
    13,790NET INTEREST INCOME
    
    
    4,833
    
    
    
    5,097
    
    
    
    13,722
    
    
    
    15,889Provision for loan losses
    
    
    736
    
    
    
    5,144
    
    
    
    5,628
    
    
    
    6,232Net interest income after
Provision for loan losses
    
    
    4,097
    
    
    
    (47
    )
    
    
    8,094
    
    
    
    9,657NON-INTEREST INCOMEService charges on deposit accounts
    
    
    802
    
    
    
    860
    
    
    
    2,291
    
    
    
    2,547Gain on sale of mortgage loans
    
    
    42
    
    
    
    65
    
    
    
    260
    
    
    
    268Trust and investment services income
    
    
    458
    
    
    
    471
    
    
    
    1,432
    
    
    
    1,439Other income and fees
    
    
    43
    
    
    
    574
    
    
    
    619
    
    
    
    1,609Total non-interest income
    
    
    1,345
    
    
    
    1,970
    
    
    
    4,602
    
    
    
    5,863NON-INTEREST EXPENSESalaries and employee benefits
    
    
    2,683
    
    
    
    2,868
    
    
    
    8,620
    
    
    
    9,308Occupancy
    
    
    492
    
    
    
    543
    
    
    
    1,574
    
    
    
    1,556Furniture and equipment
    
    
    478
    
    
    
    532
    
    
    
    1,508
    
    
    
    1,591Loan and collection
    
    
    173
    
    
    
    111
    
    
    
    718
    
    
    
    287Advertising and promotional
    
    
    114
    
    
    
    125
    
    
    
    363
    
    
    
    396Loss on security impairment
    
    
    233
    
    
    
    0
    
    
    
    843
    
    
    
    0Other operating expenses
    
    
    1,045
    
    
    
    1,057
    
    
    
    3,157
    
    
    
    3,192Total non-interest expense
    
    
    5,218
    
    
    
    5,236
    
    
    
    16,783
    
    
    
    16,330INCOME (LOSS) BEFORE TAXES
    
    
    224
    
    
    
    (3,313
    )
    
    
    (4,087
    )
    
    
    (810
    )Federal income taxes/(benefit)
    
    
    (71
    )
    
    
    (1,206
    )
    
    
    (1,586
    )
    
    
    (495
    )NET INCOME (LOSS)
    
    $
    295
    
    
    $
    (2,107
    )
    
    $
    (2,501
    )
    
    $
    (315
    )Per share:Net income (loss)  basic
    
    $
    0.14
    
    
    $
    (0.98
    )
    
    $
    (1.15
    )
    
    $
    (0.15
    )Net income (loss)  diluted
    
    $
    0.14
    
    
    $
    (0.98
    )
    
    $
    (1.15
    )
    
    $
    (0.15
    )Cash Dividends declared
    
    $
    0.00
    
    
    $
    0.25
    
    
    $
    0.00
    
    
    $
    0.75
  4




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Fentura Financial, Inc.
Consolidated Statements of Changes in Shareholders Equity (Unaudited)
 Nine Months EndedSeptember 30,(000s omitted)
    
    2008
    
    
    2007COMMON STOCKBalance, beginning of period
    
    $
    42,478
    
    
    $
    42,158Issuance of shares underDirector
stock purchase plan & Dividend reinvestment program (17,186 and 11,799 shares)
    
    
    254
    
    
    
    628Stock repurchase (0 and 17,184 shares)
    
    
    0
    
    
    
    (520
    )Stock options exercised (0 and 295 shares)
    
    
    0
    
    
    
    6Stock compensation expense
    
    
    6
    
    
    
    32Balance, end of period
    
    
    42,738
    
    
    
    42,304RETAINED EARNINGSBalance, beginning of period
    
    
    7,488
    
    
    
    10,118Net income (loss)
    
    
    (2,501
    )
    
    
    (315
    )Cash dividends declared
    
    
    0
    
    
    
    (1,623
    )Balance, end of period
    
    
    4,987
    
    
    
    8,180ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)Balance, beginning of period
    
    
    (470
    )
    
    
    (958
    )Change in unrealized gain (loss)
on securities available for sale, net of tax
    
    
    (1,054
    )
    
    
    537Balance, end of period
    
    
    (1,524
    )
    
    
    (421
    )TOTAL SHAREHOLDERS EQUITY
    
    $
    46,201
    
    
    $
    50,063
  5




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##### Table of Contents



Fentura
Financial, Inc.  Consolidated Statements of Cash Flows (Unaudited)
 Nine Months EndedSeptember 30,(000s omitted)
    
    2008
    
    2007OPERATING ACTIVITIES:Net income (loss)
    
    $
    (2,501
    )
    
    $
    (315
    )Adjustments to reconcile net income (loss) to cash
Provided by Operating Activities:Stock compensation expense
    
    
    6
    
    
    
    32Depreciation and amortization
    
    
    663
    
    
    
    1,396Provision for loan losses
    
    
    5,628
    
    
    
    6,232Loans originated for sale
    
    
    (19,918
    )
    
    
    (13,505
    )Proceeds from the sale of loans
    
    
    20,372
    
    
    
    13,650(Gain) Loss on sales of loans
    
    
    (260
    )
    
    
    (268
    )Gain (Loss) on sale of fixed assets
    
    
    (118
    )
    
    
    0Loss on security impairment
    
    
    843
    
    
    
    0Loss on equity investment
    
    
    697
    
    
    
    0Earnings from bank owned life insurance
    
    
    (159
    )
    
    
    (159
    )Net (increase) decrease in interest receivable & other assets
    
    
    2,317
    
    
    
    (5,159
    )Net increase (decrease) in interest payable & other liabilities
    
    
    (2,152
    )
    
    
    (1,881
    )Total Adjustments
    
    
    7,919
    
    
    
    338Net Cash Provided By (Used In) Operating Activities
    
    
    5,418
    
    
    
    23Cash Flows From Investing Activities:Proceeds from maturities of securities  AFS
    
    
    7,441
    
    
    
    1,649Proceeds from maturities of securities  HTM
    
    
    1,332
    
    
    
    12,744Proceeds from calls of securities  AFS
    
    
    12,662
    
    
    
    4,700Proceeds from calls of securities  HTM
    
    
    0
    
    
    
    140Proceeds from sales of securities  AFS
    
    
    1,999
    
    
    
    0Purchases of securities  AFS
    
    
    (7,067
    )
    
    
    (4,571
    )Purchases of securities  HTM
    
    
    (750
    )
    
    
    0Net (increase) decrease in loans
    
    
    2,843
    
    
    
    (17,533
    )Sales of Other Real Estate Owned
    
    
    2,782
    
    
    
    1,022Acquisition of premises and equipment, net
    
    
    89
    
    
    
    (3,746
    )Net Cash Provided By (Used in) Investing Activities
    
    
    18,549
    
    
    
    (5,595
    )Cash Flows From Financing Activities:Net increase (decrease) in deposits
    
    
    (35,379
    )
    
    
    1,379Net increase (decrease) in short term borrowings
    
    
    1,726
    
    
    
    3,750Net increase (decrease) in repurchase agreements
    
    
    (5,000
    )
    
    
    (5,000
    )Purchase of advances from FHLB
    
    
    27,001
    
    
    
    7,000Repayments of advances from FHLB
    
    
    (23,024
    )
    
    
    (7,022
    )Net proceeds from stock issuance and purchase
    
    
    254
    
    
    
    114Cash dividends
    
    
    0
    
    
    
    (1,623
    )Net Cash Provided By (Used In) Financing Activities
    
    
    (34,422
    )
    
    
    (1,402
    )NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    $
    (10,455
    )
    
    $
    (6,974
    )CASH AND CASH EQUIVALENTS  BEGINNING
    
    $
    30,034
    
    
    $
    29,446CASH AND CASH EQUIVALENTS  ENDING
    
    $
    19,579
    
    
    $
    22,472CASH PAID FOR:INTEREST
    
    $
    11,388
    
    
    $
    13,789INCOME TAXES
    
    $
    0
    
    
    $
    450NONCASH DISCLOSURES:Transfers from loans to other real estate
    
    $
    6,917
    
    
    $
    147
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Fentura Financial, Inc.
Consolidated Statements of Comprehensive Income (Unaudited)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(000s Omitted)
    
    2008
    
    2007
    
    2008
    
    2007Net Income (loss)
    
    $
    295
    
    
    $
    (2,107
    )
    
    $
    (2,501
    )
    
    $
    (315
    )Other comprehensive income (loss), net of tax:Unrealized holding gains (losses) arising
during period
    
    
    (869
    )
    
    
    618
    
    
    
    (1,896
    )
    
    
    537Less: Impairment loss recognized during
period
    
    
    (233
    )
    
    
    0
    
    
    
    (843
    )
    
    
    0Other comprehensive income (loss)
    
    
    (636
    )
    
    
    618
    
    
    
    (1,053
    )
    
    
    537Comprehensive income (loss)
    
    $
    (341
    )
    
    $
    (1,489
    )
    
    $
    (3,554
    )
    
    $
    222
 Fentura Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
 Note 1 Basis of Presentation
   Reclassifications:
 Securities
  7




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Allowance for Loan Losses:
  Stock Option Plans
    Number of
    
    WeightedOptions
    
    Average PriceOptions outstanding at December 31, 2007
    
    
    40,228
    
    
    $
    29.74Options forfeited 2008
    
    
    (12,722
    )
    
    $
    29.94Options outstanding at September 30, 2008
    
    
    27,506
    
    
    $
    29.64
 8




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Note 2 Adoption of New Accounting Standards
 Fair Value Option and Fair Value Measurements
 Fair Value Measurements Effective Date of FASB
Statement No. 157 Determining the Fair Value of a Financial Asset when
the Market for that Asset is not Active
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Note 3 Fair Value
      9




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Assets and Liabilities Measured on a Recurring Basis
  Fair Value Measurements at September 30, 2008 UsingQuoted Pricesin Active
    
    Significant Other
    
    SignificantMarkets for
    
    Observable
    
    UnobservableSeptember
    
    Identical Assets
    
    Inputs
    
    Inputs(000s omitted)
    
    30, 2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Assets:Available
for sale securities
    
    $
    54,921
    
    
    $
    10
    
    
    $
    53,374
    
    
    $
    1,537
     Fair Value Measurements Using SignificantUnobservable Inputs(Level 3)(000s omitted)
    
    Asset
    
    
    Liability
    
    
    TotalBeginning balance, Jan. 1, 2008
    
    $
    2,721
    
    
    $
    0
    
    
    $
    2,721Total gains or losses (realized / unrealized)Included in
earnings Loss on security impairment
    
    
    (843
    )
    
    
    0
    
    
    
    (843
    )Included in other comprehensive income
    
    
    (341
    )
    
    
    0
    
    
    
    (341
    )Transfers in and / or out of Level 3
    
    
    0
    
    
    
    0
    
    
    
    0Ending balance, September 30, 2008
    
    $
    1,537
    
    
    $
    0
    
    
    $
    1,537
 Assets and Liabilities Measured on a Non-Recurring Basis
  Fair Value Measurements at September 30, 2008 UsingSignificantQuoted Prices in
    
    Other
    
    SignificantActive Markets for
    
    Observable
    
    UnobservableSeptember
    
    Identical Assets
    
    Inputs
    
    Inputs(000s omitted)
    
    30, 2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Assets:Impaired loans
    
    $
    17,092
    
    
    $
    0
    
    
    $
    0
    
    
    $
    17,092
 10




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Note 4 Securities
  Note 5 Allowance for Loan Losses
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Balance, beginning of period
    
    $
    12,778
    
    
    $
    7,174
    
    
    $
    8,554
    
    
    $
    6,692Provision for loan losses
    
    
    736
    
    
    
    5,144
    
    
    
    5,628
    
    
    
    6,232Loans charged off
    
    
    (2,369
    )
    
    
    (948
    )
    
    
    (3,302
    )
    
    
    (1,703
    )Loan recoveries
    
    
    197
    
    
    
    55
    
    
    
    462
    
    
    
    204Balance, end of period
    
    $
    11,342
    
    
    $
    11,425
    
    
    $
    11,342
    
    
    $
    11,425
  September 30,
    
    
    December 31,2008
    
    
    2007Period end loans not requiring allocation
    
    $
    18,238
    
    
    $
    11,197Period end loans requiring allocation
    
    
    22,255
    
    
    
    18,186$
    40,493
    
    
    $
    29,383Amount of the allowance for loan losses
allocated
    
    $
    5,163
    
    
    $
    2,751
  11




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Note 6 Earnings Per Common Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    

      
  September 30,($ in thousands except per share data)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Basic Earnings Per Common Share:NumeratorNet Income (loss)
    
    $
    295
    
    
    $
    (2,107
    )
    
    $
    (2,501
    )
    
    $
    (315
    )DenominatorWeighted average common shares
Outstanding
    
    
    2,175,786
    
    
    
    2,158,623
    
    
    
    2,171,758
    
    
    
    2,159,536Basic earnings (loss) per common share
    
    $
    0.14
    
    
    $
    (0.98
    )
    
    $
    (1.15
    )
    
    $
    (0.15
    )Diluted Earnings Per Common Share:NumeratorNet Income (loss)
    
    $
    295
    
    
    $
    (2,107
    )
    
    $
    (2,501
    )
    
    $
    (315
    )DenominatorWeighted average common shares
Outstanding for basic earnings per
Common share
    
    
    2,175,786
    
    
    
    2,158,623
    
    
    
    2,171,758
    
    
    
    2,159,536Add: Dilutive effects of assumed
exercises of stock options
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Weighted average common shares
and dilutive potential common
shares outstanding
    
    
    2,175,786
    
    
    
    2,158,623
    
    
    
    2,171,758
    
    
    
    2,159,536Diluted earnings (loss) per common
share
    
    $
    0.14
    
    
    $
    (0.98
    )
    
    $
    (1.15
    )
    
    $
    (0.15
    )
  Note 7 Commitments and Contingencies
  12




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Note 8 Participation in the Treasury Capital Purchase Program
  13




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ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Results of Operations
     14




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Net Interest Income
  Table 1
 NINE MONTHS ENDEDSEPTEMBER 30,2008 COMPARED TO 2007INCREASE (DECREASE)DUE TOYIELD/(000S OMITTED)
    
    VOL
    
    
    RATE
    
    
    TOTALTaxable Securities
    
    $
    (759
    )
    
    $
    (35
    )
    
    $
    (794
    )Tax-Exempt Securities
    
    
    (127
    )
    
    
    (77
    )
    
    
    (204
    )Federal Funds Sold
    
    
    58
    
    
    
    (153
    )
    
    
    (95
    )Total Loans
    
    
    558
    
    
    
    (3,761
    )
    
    
    (3,203
    )Loans Held for Sale
    
    
    (10
    )
    
    
    (6
    )
    
    
    (16
    )Total Earning Assets
    
    
    (280
    )
    
    
    (4,032
    )
    
    
    (4,312
    )Interest Bearing Demand Deposits
    
    
    (60
    )
    
    
    (667
    )
    
    
    (727
    )Savings Deposits
    
    
    (48
    )
    
    
    (261
    )
    
    
    (309
    )Time CDs $100,000 and Over
    
    
    325
    
    
    
    (256
    )
    
    
    69Other Time Deposits
    
    
    (258
    )
    
    
    (452
    )
    
    
    (710
    )Other Borrowings
    
    
    (134
    )
    
    
    (257
    )
    
    
    (391
    )Total Interest Bearing Liabilities
    
    
    (175
    )
    
    
    (1,893
    )
    
    
    (2,068
    )Net Interest Income
    
    $
    ($105
    )
    
    $
    (2,139
    )
    
    $
    (2,244
    )
   15




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16




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Table 2 Average Balance and Rates
 NINE MONTHS ENDED September 30,2008

    
    2007AVERAGE
    
    
    INCOME/
    
    
    YIELD/
    
    
    AVERAGE
    
    
    INCOME/
    
    
    YIELD/(000s omitted)(Annualized)
    
    BALANCE
    
    
    EXPENSE
    
    
    RATE
    
    
    BALANCE
    
    
    EXPENSE
    
    
    RATEASSETSSecurities:U.S. Treasury and Government Agencies
    
    $
    51,484
    
    
    $
    1,618
    
    
    
    4.20
    %
    
    $
    75,448
    
    
    $
    2,436
    
    
    
    4.32
    %State and Political (1)
    
    
    15,727
    
    
    
    650
    
    
    
    5.52
    %
    
    
    18,434
    
    
    
    854
    
    
    
    6.20
    %Other
    
    
    7,661
    
    
    
    99
    
    
    
    1.73
    %
    
    
    6,086
    
    
    
    75
    
    
    
    1.63
    %Total Securities
    
    
    74,872
    
    
    
    2,367
    
    
    
    4.22
    %
    
    
    99,968
    
    
    
    3,365
    
    
    
    4.50
    %Fed Funds Sold
    
    
    8,056
    
    
    
    156
    
    
    
    2.59
    %
    
    
    6,544
    
    
    
    251
    
    
    
    5.13
    %Loans:Commercial
    
    
    369,330
    
    
    
    18,124
    
    
    
    6.55
    %
    
    
    356,794
    
    
    
    20,556
    
    
    
    7.70
    %Tax Free (1)
    
    
    3,247
    
    
    
    162
    
    
    
    6.67
    %
    
    
    3,659
    
    
    
    179
    
    
    
    6.55
    %Real Estate-Mortgage
    
    
    38,428
    
    
    
    1,851
    
    
    
    6.43
    %
    
    
    37,340
    
    
    
    1,893
    
    
    
    6.78
    %Consumer
    
    
    57,901
    
    
    
    3,006
    
    
    
    6.93
    %
    
    
    60,367
    
    
    
    3,718
    
    
    
    8.23
    %Total loans
    
    
    468,906
    
    
    
    23,143
    
    
    
    6.59
    %
    
    
    458,160
    
    
    
    26,346
    
    
    
    7.69
    %Allowance for Loan Losses
    
    
    (10,336
    )
    
    
    
    
    
    
    
    
    
    
    (7,275
    )Net Loans
    
    
    458,570
    
    
    
    23,143
    
    
    
    6.74
    %
    
    
    450,885
    
    
    
    26,346
    
    
    
    7.81
    %Loans Held for Sale
    
    
    1,189
    
    
    
    53
    
    
    
    5.95
    %
    
    
    1,401
    
    
    
    69
    
    
    
    6.58
    %TOTAL EARNING ASSETS
    
    $
    553,023
    
    
    $
    25,719
    
    
    
    6.21
    %
    
    $
    566,073
    
    
    $
    30,031
    
    
    
    7.09
    %Cash Due from Banks
    
    
    15,334
    
    
    
    
    
    
    
    
    
    
    
    17,181All Other Assets
    
    
    47,296
    
    
    
    
    
    
    
    
    
    
    
    44,361TOTAL ASSETS
    
    $
    605,317
    
    
    
    
    
    
    
    
    
    
    $
    620,340LIABILITIES & SHAREHOLDERS EQUITY:Deposits:Interest bearing  DDA
    
    $
    96,623
    
    
    $
    1,064
    
    
    
    1.47
    %
    
    $
    99,850
    
    
    $
    1,791
    
    
    
    2.40
    %Savings Deposits
    
    
    84,690
    
    
    
    574
    
    
    
    0.91
    %
    
    
    89,413
    
    
    
    883
    
    
    
    1.32
    %Time CDs $100,000 and Over
    
    
    145,959
    
    
    
    5,199
    
    
    
    4.76
    %
    
    
    136,922
    
    
    
    5,130
    
    
    
    5.01
    %Other Time CDs
    
    
    118,013
    
    
    
    3,584
    
    
    
    4.06
    %
    
    
    125,267
    
    
    
    4,294
    
    
    
    4.58
    %Total Deposits
    
    
    445,285
    
    
    
    10,421
    
    
    
    3.13
    %
    
    
    451,452
    
    
    
    12,098
    
    
    
    3.58
    %Other Borrowings
    
    
    34,190
    
    
    
    1,301
    
    
    
    5.08
    %
    
    
    37,058
    
    
    
    1,692
    
    
    
    6.10
    %INTEREST BEARING LIABILITIES
    
    $
    479,475
    
    
    $
    11,722
    
    
    
    3.27
    %
    
    $
    488,510
    
    
    $
    13,790
    
    
    
    3.77
    %Non-Interest bearing  DDA
    
    
    73,974
    
    
    
    
    
    
    
    
    
    
    
    75,106All Other Liabilities
    
    
    2,934
    
    
    
    
    
    
    
    
    
    
    
    4,029Shareholders Equity
    
    
    48,934
    
    
    
    
    
    
    
    
    
    
    
    52,695TOTAL LIABILITIES & SHAREHOLDERS EQUITY
    
    $
    605,317
    
    
    
    
    
    
    
    
    
    
    $
    620,340Net Interest Rate Spread
    
    
    
    
    
    
    
    
    
    
    2.95
    %
    
    
    
    
    
    
    
    
    
    
    3.32
    %Net Interest Income /Margin
    
    
    
    
    
    $
    13,997
    
    
    
    3.38
    %
    
    
    
    
    
    $
    16,241
    
    
    
    3.84
    %
 
 (1)
    
    Presented on a fully taxable equivalent basis using a federal income tax rate of 34%. 17




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##### Table of Contents



Table 3 Average Balance and Rates
 THREE MONTHS ENDED September 30,2008

    
    2007AVERAGE
    
    
    INCOME/
    
    
    YIELD/
    
    
    AVERAGE
    
    
    INCOME/
    
    
    YIELD/(000s omitted)(Annualized)
    
    BALANCE
    
    
    EXPENSE
    
    
    RATE
    
    
    BALANCE
    
    
    EXPENSE
    
    
    RATEASSETSSecurities:U.S. Treasury and Government Agencies
    
    $
    46,531
    
    
    $
    490
    
    
    
    4.19
    %
    
    $
    71,918
    
    
    $
    764
    
    
    
    4.21
    %State and Political (1)
    
    
    16,227
    
    
    
    244
    
    
    
    5.98
    %
    
    
    16,464
    
    
    
    255
    
    
    
    6.15
    %Other
    
    
    7,016
    
    
    
    32
    
    
    
    1.81
    %
    
    
    8,458
    
    
    
    25
    
    
    
    1.18
    %Total Securities
    
    
    69,774
    
    
    
    766
    
    
    
    4.37
    %
    
    
    96,840
    
    
    
    1,044
    
    
    
    4.28
    %Fed Funds Sold
    
    
    8,863
    
    
    
    42
    
    
    
    1.89
    %
    
    
    3,201
    
    
    
    40
    
    
    
    4.97
    %Loans:Commercial
    
    
    367,472
    
    
    
    5,971
    
    
    
    6.46
    %
    
    
    360,654
    
    
    
    6,840
    
    
    
    7.52
    %Tax Free (1)
    
    
    3,183
    
    
    
    53
    
    
    
    6.63
    %
    
    
    3,484
    
    
    
    58
    
    
    
    6.55
    %Real Estate-Mortgage
    
    
    37,522
    
    
    
    595
    
    
    
    6.31
    %
    
    
    39,465
    
    
    
    669
    
    
    
    6.72
    %Consumer
    
    
    57,818
    
    
    
    970
    
    
    
    6.67
    %
    
    
    59,378
    
    
    
    1,230
    
    
    
    8.22
    %Total loans
    
    
    465,995
    
    
    
    7,589
    
    
    
    6.48
    %
    
    
    462,981
    
    
    
    8,797
    
    
    
    7.54
    %Allowance for Loan Losses
    
    
    (12,781
    )
    
    
    
    
    
    
    
    
    
    
    (8,125
    )Net Loans
    
    
    453,214
    
    
    
    7,589
    
    
    
    6.66
    %
    
    
    454,856
    
    
    
    8,797
    
    
    
    7.67
    %Loans Held for Sale
    
    
    685
    
    
    
    11
    
    
    
    6.39
    %
    
    
    1,011
    
    
    
    17
    
    
    
    6.82
    %TOTAL EARNING ASSETS
    
    $
    545,317
    
    
    $
    8,408
    
    
    
    6.13
    %
    
    $
    564,033
    
    
    $
    9,898
    
    
    
    6.96
    %Cash Due from Banks
    
    
    15,284
    
    
    
    
    
    
    
    
    
    
    
    17,075All Other Assets
    
    
    46,561
    
    
    
    
    
    
    
    
    
    
    
    45,780TOTAL ASSETS
    
    $
    594,381
    
    
    
    
    
    
    
    
    
    
    $
    618,763LIABILITIES & SHAREHOLDERS EQUITY:Deposits:Interest bearing  DDA
    
    $
    96,763
    
    
    $
    302
    
    
    
    1.24
    %
    
    $
    99,379
    
    
    $
    602
    
    
    
    2.40
    %Savings Deposits
    
    
    87,291
    
    
    
    182
    
    
    
    0.83
    %
    
    
    89,030
    
    
    
    307
    
    
    
    1.37
    %Time CDs $100,000 and Over
    
    
    136,918
    
    
    
    1,556
    
    
    
    4.52
    %
    
    
    139,682
    
    
    
    1,789
    
    
    
    5.08
    %Other Time CDs
    
    
    115,122
    
    
    
    1,069
    
    
    
    3.69
    %
    
    
    124,739
    
    
    
    1,449
    
    
    
    4.61
    %Total Deposits
    
    
    436,094
    
    
    
    3,109
    
    
    
    2.84
    %
    
    
    452,830
    
    
    
    4,147
    
    
    
    3.63
    %Other Borrowings
    
    
    33,064
    
    
    
    366
    
    
    
    4.40
    %
    
    
    34,687
    
    
    
    547
    
    
    
    6.25
    %INTEREST BEARING LIABILITIES
    
    $
    469,158
    
    
    $
    3,475
    
    
    
    2.95
    %
    
    $
    487,517
    
    
    $
    4,694
    
    
    
    3.82
    %Non-Interest bearing  DDA
    
    
    75,892
    
    
    
    
    
    
    
    
    
    
    
    75,648All Other Liabilities
    
    
    2,108
    
    
    
    
    
    
    
    
    
    
    
    3,164Shareholders Equity
    
    
    47,223
    
    
    
    
    
    
    
    
    
    
    
    52,434TOTAL LIABILITIES & SHAREHOLDERS EQUITY
    
    $
    594,381
    
    
    
    
    
    
    
    
    
    
    $
    618,763Net Interest Rate Spread
    
    
    
    
    
    
    
    
    
    
    3.19
    %
    
    
    
    
    
    
    
    
    
    
    3.14
    %Net Interest Income /Margin
    
    
    
    
    
    $
    4,935
    
    
    
    3.60
    %
    
    
    
    
    
    $
    5,204
    
    
    
    3.66
    %
 
 (1)
    
    Presented on a fully taxable equivalent basis using a federal income tax rate of 34%. 18




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##### Table of Contents



Allowance and Provision For Loan Losses
    19




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##### Table of Contents



Table 4 Analysis of the Allowance for Loan Losses
 Nine Months Ended September 30,(000s omitted)
    
    2008
    
    2007Balance at Beginning of Period
    
    $
    8,554
    
    
    $
    6,692Charge-Offs:Commercial, Financial and Agriculture
    
    
    (2,769
    )
    
    
    (1,189
    )Real Estate-Mortgage
    
    
    (230
    )
    
    
    (105
    )Installment Loans to Individuals
    
    
    (303
    )
    
    
    (409
    )Total Charge-Offs
    
    
    (3,302
    )
    
    
    (1,703
    )Recoveries:Commercial, Financial and Agriculture
    
    
    266
    
    
    
    129Real Estate-Mortgage
    
    
    0
    
    
    
    1Installment Loans to Individuals
    
    
    196
    
    
    
    74Total Recoveries
    
    
    462
    
    
    
    204Net Charge-Offs
    
    
    (2,840
    )
    
    
    (1,499
    )Provision for loan losses
    
    
    5,628
    
    
    
    6,232Balance at End of Period
    
    $
    11,342
    
    
    $
    11,425Ratio of Net Charge-Offs to Gross Loans
    
    
    0.62
    %
    
    
    0.32
    %
 Non-Interest Income
     20




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##### Table of Contents



Non-Interest Expense
   21




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##### Table of Contents



22




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##### Table of Contents



Financial Condition
    Non-Performing Assets
   23




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##### Table of Contents



Table 5 Non-Performing Assets and Past Due Loans
 September 30,
    
    December 31,2008
    
    2007Non-Performing Loans:Loans Past Due 90 Days or More & Still
Accruing
    
    $
    3,876
    
    
    $
    54Non-Accrual Loans
    
    
    16,240
    
    
    
    13,056Renegotiated Loans
    
    
    3,002
    
    
    
    431Total Non-Performing Loans
    
    
    23,118
    
    
    
    13,541Other Non-Performing Assets:Other Real Estate
    
    
    5,978
    
    
    
    2,003REO in Redemption
    
    
    888
    
    
    
    1,829Other Non-Performing Assets
    
    
    222
    
    
    
    155Total Other Non-Performing Assets
    
    
    7,088
    
    
    
    3,987Total Non-Performing Assets
    
    $
    30,206
    
    
    $
    17,528Non-Performing Loans as a % of
Total Loans
    
    
    5.02
    %
    
    
    2.86
    %Allowance for Loan Losses as a % of
Non-Performing Loans
    
    
    49.06
    %
    
    
    63.18
    %Accruing Loans Past Due 90 Days or
More to Total Loans
    
    
    0.84
    %
    
    
    0.01
    %Non-performing Assets as a % of
Total Assets
    
    
    5.14
    %
    
    
    2.79
    %
 Liquidity and Interest Rate Risk Management
  24




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##### Table of Contents



25




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##### Table of Contents



Capital Management
    Regulatory Capital Requirements
   26




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##### Table of Contents



Table 6
 Capital RatiosFentura Financial, Inc.Regulatory Minimum
    
    September 30
    
    December 31,
    
    September 30,For Well Capitalized
    
    2008
    
    2007
    
    2007Total Capital to riskWeighted assets
    
    
    10
    %
    
    
    11.66
    %
    
    
    11.60
    %
    
    
    11.77
    %Tier 1 Capital to riskWeighted assets
    
    
    6
    %
    
    
    10.41
    %
    
    
    10.40
    %
    
    
    10.53
    %Tier 1 Capital to averageAssets
    
    
    5
    %
    
    
    9.12
    %
    
    
    9.00
    %
    
    
    8.38
    %
  Off Balance Sheet Arrangements
  27




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##### Table of Contents



ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    Interest Rate Sensitivity Management
   28




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##### Table of Contents



Table 7 GAP Analysis  September 30, 2008
 Within
    
    Three
    
    One to
    
    AfterThree
    
    Months to
    
    Five
    
    Five(000s omitted)
    
    Months
    
    One Year
    
    Years
    
    Years
    
    TotalEarning Assets:Federal Funds Sold
    
    $
    5,600
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    5,600Securities
    
    
    27,811
    
    
    
    18,421
    
    
    
    12,864
    
    
    
    3,924
    
    
    
    63,020Loans
    
    
    83,723
    
    
    
    87,665
    
    
    
    225,862
    
    
    
    61,553
    
    
    
    458,803Loans Held for Sale
    
    
    1,461
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,461FHLB Stock
    
    
    2,032
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    2,032Total Earning Assets
    
    $
    120,627
    
    
    $
    106,086
    
    
    $
    238,726
    
    
    $
    65,477
    
    
    $
    530,916Interest Bearing Liabilities:Interest Bearing Demand Deposits
    
    $
    97,673
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    97,673Savings Deposits
    
    
    85,474
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    85,474Time Deposits Less than $100,000
    
    
    27,314
    
    
    
    50,980
    
    
    
    36,304
    
    
    
    130
    
    
    
    114,728Time Deposits Greater than $100,000
    
    
    24,711
    
    
    
    30,816
    
    
    
    80,855
    
    
    
    0
    
    
    
    136,382Short term borrowings
    
    
    2,375
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    2,375Other Borrowings
    
    
    2,000
    
    
    
    1,026
    
    
    
    11,091
    
    
    
    890
    
    
    
    15,007Subordinated debentures
    
    
    14,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    14,000Total Interest Bearing Liabilities
    
    $
    253,547
    
    
    $
    82,822
    
    
    $
    128,250
    
    
    $
    1,020
    
    
    $
    465,639Interest Rate Sensitivity GAP
    
    $
    (132,920
    )
    
    $
    23,264
    
    
    $
    110,476
    
    
    $
    64,457
    
    
    $
    65,277Cumulative Interest Rate
Sensitivity GAP
    
    $
    (132,920
    )
    
    $
    (109,656
    )
    
    $
    820
    
    
    $
    65,277Interest Rate Sensitivity GAP
    
    
    (0.48
    )
    
    
    1.28
    
    
    
    1.86
    
    
    
    64.19Cumulative Interest Rate
Sensitivity GAP Ratio
    
    
    (0.48
    )
    
    
    0.81
    
    
    
    2.67
    
    
    
    66.86
    29




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##### Table of Contents



Forward Looking Statements
  30




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##### Table of Contents



ITEM 4T 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.
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PART II  OTHER INFORMATION
 
 Item 1.       Legal Proceedings.- None
 
 Item 1A.
    
    Risk Factors With this exception of those risks described below, there have been no
material changes in the risk factors applicable to the Corporation from those disclosed in its
Annual Report on Form 10-K for the year ended December 31, 2007.If economic conditions deteriorate in our primary market, our results of operations
and financial condition could be adversely impacted as borrowers ability to repay
loans weakens and the value of the collateral securing loan decreases.Our financial results may be adversely affected by changes in prevailing economic
conditions, including decreases in real estate values, changes in interest rate
which may cause a decrease in interest rate spreads, adverse employment conditions,
the monetary and fiscal policies of federal government and other significant
external events. Decreases in real estate values could potentially adversely affect
the value of property used as collateral for our mortgage loans. In the event that
we are required to foreclose on a property securing a mortgage loan, there can be no
assurance that we will recover funds in an amount equal to any remaining loan
balance as a result of prevailing general economic conditions, real estate values
and other factors associated with the ownership of real property. As a result, the
market value of the real estate underlying the loans may not, at any given time, be
sufficient to satisfy the outstanding principal amount of the loans. Consequently,
we would sustain loan losses and potentially incur a higher provision for loan loss
expense. Adverse changes in the economy may also have a negative effect of the
ability of borrowers to make timely repayments of their loans, which could have an
adverse impact on earnings.Our securities portfolio may be negatively impacted by fluctuations in market value.Our securities portfolio may be impacted by fluctuations in market value,
potentially reducing accumulated other comprehensive income and/or earnings.
Fluctuations in market value may be caused by decreases in interest rates, lower
market prices for securities and lower investor demand. Our securities portfolio is
evaluated for other-than-temporary impairment on at least a quarterly basis. If
this evaluation shows an impairment to cash flow connected with one or more
securities, a potential loss to earnings may occur.
 
 Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
 
 Item 3. Defaults Upon Senior Securities. 
 
 Item 4.
Submission of Matters to a Vote of Securities Holders.
 
 Item 5.
Other Information.
 
 Item 6. Exhibits.
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##### Table of Contents



10.1
    
    Severance Compensation Agreement with Donald L. Grill.
(Incorporated by reference from Current Report on Form 8-K filed on July 24,
2008).10.2
    
    Severance Compensation Agreement with Ronald L. Justice.
(Incorporated by reference from Current Report on Form 8-K filed on July 24,
2008).10.3
    
    Severance Compensation Agreement with Dennis E. Leyder.
(Incorporated by reference from Current Report on Form 8-K filed on July 24,
2008).10.4
    
    Severance Compensation Agreement with Douglas J. Kelley.
(Incorporated by reference from Current Report on Form 8-K filed on July 24,
2008).10.5
    
    Severance Compensation Agreement with Holly J. Pingatore.
(Incorporated by reference from Current Report on Form 8-K filed on July 24,
2008).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.
 
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##### Table of Contents



Dated:  November 12, 2008
    
    /s/Donald L. GrillDonald L. GrillPresident & CEODated:  November 12, 2008
    
    /s/Douglas J. KelleyDouglas J. KelleyChief Financial Officer 34




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##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    Description10.1
    
    Severance Compensation Agreement with Donald L. Grill. (Incorporated by reference from
Current Report on Form 8-K filed on July 24, 2008).10.2
    
    Severance Compensation Agreement with Ronald L. Justice. (Incorporated by reference from
Current Report on Form 8-K filed on July 24, 2008).10.3
    
    Severance Compensation Agreement with Dennis E. Leyder. (Incorporated by reference from
Current Report on Form 8-K filed on July 24, 2008).10.4
    
    Severance Compensation Agreement with Douglas J. Kelley. (Incorporated by reference from
Current Report on Form 8-K filed on July 24, 2008).10.5
    
    Severance Compensation Agreement with Holly J. Pingatore. (Incorporated by reference from
Current Report on Form 8-K filed on July 24, 2008).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.
 35