##### 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, 2010
 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
(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)
    
    
    3-24Item 2  Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    25-37Item 3  Quantitative and Qualitative Disclosures about Market Risk
    
    
    37-39Item 4T  Controls and Procedures
    
    
    39Part II  Other Information
    
    
    40Item 1  Legal Proceedings
    
    
    40Item 1A  Risk Factors
    
    
    40Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    40Item 3  Defaults Upon Senior Securities
    
    
    40Item 4 Reserved
    
    
    40Item 5  Other Information
    
    
    40Item 6  Exhibits
    
    
    40Signatures
    
    
    41Exhibit Index
    
    
    42EX-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  (000s omitted except share and per share data)
 September 30,2010
    
    
    Dec 31,(unaudited)
    
    

    2009ASSETSCash and due from banks
    
    $
    14,787
    
    
    $
    18,459Federal funds sold
    
    
    39,700
    
    
    
    23,650Total cash & cash equivalents
    
    
    54,487
    
    
    
    42,109Securities-available for sale
    
    
    54,786
    
    
    
    43,608Securities-held to maturity, (fair value of $4,540
at September 30, 2010 and $5,493 at December 31, 2009)
    
    
    4,471
    
    
    
    5,456Total securities
    
    
    59,257
    
    
    
    49,064Loans held for sale
    
    
    1,877
    
    
    
    831Loans:Commercial
    
    
    228,731
    
    
    
    252,764Real estate loans  construction
    
    
    15,439
    
    
    
    26,295Real estate loans  mortgage
    
    
    23,719
    
    
    
    28,058Consumer loans
    
    
    42,806
    
    
    
    48,313Total loans
    
    
    310,695
    
    
    
    355,430Less: Allowance for loan losses
    
    
    (15,037
    )
    
    
    (10,726
    )Net loans
    
    
    295,658
    
    
    
    344,704Bank owned life insurance
    
    
    7,070
    
    
    
    7,221Bank premises and equipment
    
    
    15,254
    
    
    
    15,914Federal Home Loan Bank stock
    
    
    1,900
    
    
    
    1,900Accrued interest receivable
    
    
    1,582
    
    
    
    1,813Other real estate owned
    
    
    9,003
    
    
    
    7,967Assets of discontinued operations
    
    
    0
    
    
    
    37,919Other assets
    
    
    3,290
    
    
    
    12,637Total assets
    
    $
    449,378
    
    
    $
    522,079LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Non-interest bearing deposits
    
    $
    68,361
    
    
    $
    64,530Interest bearing deposits
    
    
    340,882
    
    
    
    376,245Total deposits
    
    
    409,243
    
    
    
    440,775Short term borrowings
    
    
    116
    
    
    
    164Federal Home Loan Bank advances
    
    
    5,954
    
    
    
    7,981Subordinated debentures
    
    
    14,000
    
    
    
    14,000Liabilities of discontinued operations
    
    
    0
    
    
    
    35,217Accrued taxes, interest and other liabilities
    
    
    3,993
    
    
    
    3,410Total liabilities
    
    
    433,306
    
    
    
    501,547Shareholders equityCommon stock  no par value
2,289,912 shares issued (2,248,553 at December 31, 2009)
    
    
    43,002
    
    
    
    42,913Retained deficit
    
    
    (27,257
    )
    
    
    (21,657
    )Accumulated other comprehensive income (loss)
    
    
    327
    
    
    
    (724
    )Total shareholders equity
    
    
    16,072
    
    
    
    20,532Total liabilities and shareholders equity
    
    $
    449,378
    
    
    $
    522,079
 See notes to consolidated financial statements
 3




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FENTURA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(000s omitted except share and per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302010
    
    
    2009
    
    
    2010
    
    
    2009Interest incomeInterest and fees on loans
    
    $
    5,030
    
    
    $
    5,936
    
    
    $
    15,536
    
    
    $
    18,399Interest and dividends on securities:Taxable
    
    
    340
    
    
    
    404
    
    
    
    929
    
    
    
    1,213Tax-exempt
    
    
    54
    
    
    
    135
    
    
    
    282
    
    
    
    418Interest on federal funds sold
    
    
    12
    
    
    
    1
    
    
    
    27
    
    
    
    1Total interest income
    
    
    5,436
    
    
    
    6,476
    
    
    
    16,774
    
    
    
    20,031Interest expenseDeposits
    
    
    1,451
    
    
    
    2,277
    
    
    
    4,862
    
    
    
    7,503Borrowings
    
    
    203
    
    
    
    227
    
    
    
    598
    
    
    
    829Total interest expense
    
    
    1,654
    
    
    
    2,504
    
    
    
    5,460
    
    
    
    8,332Net interest income
    
    
    3,782
    
    
    
    3,972
    
    
    
    11,314
    
    
    
    11,699Provision for loan losses
    
    
    2,905
    
    
    
    1,940
    
    
    
    8,314
    
    
    
    11,306Net interest income after provision for loan losses
    
    
    877
    
    
    
    2,032
    
    
    
    3,000
    
    
    
    393Non-interest incomeService charges on deposit accounts
    
    
    378
    
    
    
    519
    
    
    
    1,255
    
    
    
    1,435Gain on sale of mortgage loans
    
    
    214
    
    
    
    100
    
    
    
    442
    
    
    
    612Trust and investment services income
    
    
    376
    
    
    
    458
    
    
    
    1,103
    
    
    
    1,285Gain on sale of securities
    
    
    0
    
    
    
    0
    
    
    
    75
    
    
    
    12Other than temporary lossTotal impairment
    
    
    (359
    )
    
    
    0
    
    
    
    (359
    )
    
    
    0Loss recognized in other comprehensive income
    
    
    52
    
    
    
    0
    
    
    
    52
    
    
    
    0Net impairment loss recognized in earnings
    
    
    (307
    )
    
    
    0
    
    
    
    (307
    )
    
    
    0Loss on equity investment
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (1,560
    )Other income and fees
    
    
    522
    
    
    
    403
    
    
    
    1,520
    
    
    
    1,461Total non-interest income
    
    
    1,183
    
    
    
    1,480
    
    
    
    4,088
    
    
    
    3,245Non-interest expenseSalaries and employee benefits
    
    
    2,013
    
    
    
    2,129
    
    
    
    6,191
    
    
    
    6,752Occupancy
    
    
    430
    
    
    
    428
    
    
    
    1,310
    
    
    
    1,378Furniture and equipment
    
    
    395
    
    
    
    385
    
    
    
    1,152
    
    
    
    1,212Loan and collection
    
    
    542
    
    
    
    984
    
    
    
    1,532
    
    
    
    2,302Advertising and promotional
    
    
    25
    
    
    
    39
    
    
    
    98
    
    
    
    126Other operating expenses
    
    
    1,242
    
    
    
    1,015
    
    
    
    3,301
    
    
    
    3,458Total non-interest expense
    
    
    4,647
    
    
    
    4,980
    
    
    
    13,584
    
    
    
    15,428Loss from continuing operations before income tax
    
    
    (2,587
    )
    
    
    (1,468
    )
    
    
    (6,496
    )
    
    
    (11,590
    )Federal income tax/(benefit)
    
    
    (250
    )
    
    
    (332
    )
    
    
    (524
    )
    
    
    5,028Net loss from continuing operations
    
    $
    (2,337
    )
    
    $
    (1,136
    )
    
    $
    (5,972
    )
    
    $
    (16,618
    )Net income/(loss) from discontinued operations, net of tax
    
    
    0
    
    
    
    289
    
    
    
    372
    
    
    
    (1,253
    )Net loss
    
    $
    (2,337
    )
    
    $
    (847
    )
    
    $
    (5,600
    )
    
    $
    (17,871
    )Loss per share from continuing operationsBasic and diluted
    
    $
    (1.03
    )
    
    $
    (0.51
    )
    
    $
    (2.64
    )
    
    $
    (7.56
    )Income/(loss) per share from discontinued operationsBasic and diluted
    
    $
    0.00
    
    
    $
    0.13
    
    
    $
    0.17
    
    
    $
    (0.57
    )Net loss per shareBasic and diluted
    
    $
    (1.03
    )
    
    $
    (0.38
    )
    
    $
    (2.47
    )
    
    $
    (8.13
    )Cash Dividends declared
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.00
  4




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FENTURA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (UNAUDITED)
 Nine Months EndedSeptember 30,(000s omitted)
    
    2010
    
    
    2009Common StockBalance, beginning of period
    
    $
    42,913
    
    
    $
    42,778Issuance of shares underDirector stock purchase plan &
Dividend reinvestment program (41,359 and 39,449
shares)
    
    
    89
    
    
    
    105Balance, end of period
    
    
    43,002
    
    
    
    42,883Retained DeficitBalance, beginning of period
    
    
    (21,657
    )
    
    
    (4,677
    )Net loss
    
    
    (5,600
    )
    
    
    (17,871
    )Balance, end of period
    
    
    (27,257
    )
    
    
    (22,548
    )Accumulated Other Comprehensive Income (Loss)Balance, beginning of period
    
    
    (724
    )
    
    
    (1,977
    )Change in unrealized gain (loss) on securities, net of tax
    
    
    1,051
    
    
    
    1,189Balance, end of period
    
    
    327
    
    
    
    (788
    )Total shareholders equity
    
    $
    16,072
    
    
    $
    19,547
  5




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##### Table of Contents



FENTURA FINANCIAL, INC
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
 Nine Months EndedSeptember 30,(000s omitted)
    
    2010
    
    
    2009OPERATING ACTIVITIES:Net loss
    
    $
    (5,600
    )
    
    $
    (17,871
    )Adjustments to reconcile net income (loss) to cashProvided by Operating Activities:Depreciation and amortization
    
    
    437
    
    
    
    811Establishment of deferred tax asset valuation allowance
    
    
    0
    
    
    
    5,924Provision for loan losses
    
    
    8,314
    
    
    
    11,306Loans originated for sale
    
    
    (26,921
    )
    
    
    (49,629
    )Proceeds from the sale of loans
    
    
    26,317
    
    
    
    49,497Gain on sales of loans
    
    
    (442
    )
    
    
    (612
    )Loss on other real estate owned
    
    
    104
    
    
    
    645Loss on security impairment
    
    
    0
    
    
    
    200Loss on equity investment
    
    
    307
    
    
    
    1,360Gain on sale of securities
    
    
    (75
    )
    
    
    (12
    )Earnings from bank owned life insurance
    
    
    (146
    )
    
    
    (59
    )Net (increase) decrease in interest receivable & other assets
    
    
    9,003
    
    
    
    (3,914
    )Net increase (decrease) in interest payable & other liabilities
    
    
    583
    
    
    
    (3,783
    )Net change in discontinued operations operating activities
    
    
    806
    
    
    
    (838
    )Total Adjustments
    
    
    18,287
    
    
    
    10,896Net cash provided by/(used in) operating activities
    
    
    12,687
    
    
    
    (6,975
    )CASH FLOWS FROM INVESTING ACTIVITES:Proceeds from maturities of securities  HTM
    
    
    800
    
    
    
    1,183Proceeds from maturities of securities  AFS
    
    
    8,705
    
    
    
    7,714Proceeds from calls of securitiesHTM
    
    
    380
    
    
    
    0Proceeds from calls of securities  AFS
    
    
    5,500
    
    
    
    2,000Proceeds from sales of securities  AFS
    
    
    7,105
    
    
    
    4,000Proceeds from sales of equity securities
    
    
    5
    
    
    
    0Purchases of securities  AFS
    
    
    (30,901
    )
    
    
    (14,560
    )Proceeds from sale of bank subsidiary
    
    
    1,900
    
    
    
    0Net decrease in loans
    
    
    36,754
    
    
    
    41,379Proceeds from bank owned life insurance
    
    
    297
    
    
    
    203Sales of other real estate owned
    
    
    2,838
    
    
    
    1,876Acquisition of premises and equipment, net
    
    
    (170
    )
    
    
    (79
    )Net change in discontinued operations investing activities
    
    
    (548
    )
    
    
    5,557Net cash provided by investing activities
    
    
    32,665
    
    
    
    49,723CASH FLOWS FROM FINANCING ACTIVITIES:Net decrease in deposits
    
    
    (31,532
    )
    
    
    (498
    )Net decrease in short term borrowings
    
    
    (48
    )
    
    
    (1,466
    )Repayment of notes payable
    
    
    0
    
    
    
    (1,000
    )Purchase of advances from FHLB
    
    
    0
    
    
    
    55,495Repayments of advances from FHLB
    
    
    (2,027
    )
    
    
    (58,221
    )Net proceeds from stock issuance and purchase
    
    
    89
    
    
    
    105Net change in discontinued operations financing activities
    
    
    544
    
    
    
    (4,275
    )Net cash used in financing activities
    
    
    (32,974
    )
    
    
    (9,860
    )Net change in cash and cash equivalents
    
    $
    12,378
    
    
    $
    32,882Cash and cash equivalents  Beginning
    
    $
    42,109
    
    
    $
    13,626Cash and cash equivalents  Ending
    
    $
    54,487
    
    
    $
    46,064Less cash and cash equivalents of discontinued operations
    
    
    0
    
    
    
    444Cash and cash equivalents of continuing operations
    
    $
    54,487
    
    
    $
    32,438
 6




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##### Table of Contents



FENTURA FINANCIAL, INC

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
 Nine Months Ended(000s omitted)
    
    2010
    
    
    2009Cash paid for:Interest
    
    $
    5,219
    
    
    $
    8,506Income taxes
    
    $
    0
    
    
    $
    3,981Non-cash Disclosures:Transfers from loans to other real estate
    
    $
    3,978
    
    
    $
    3,394
 FENTURA FINANICIAL, INC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(000s omitted)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Net loss
    
    $
    (2,337
    )
    
    $
    (847
    )
    
    $
    (5,600
    )
    
    $
    (17,871
    )Other comprehensive income (loss), net of tax:Unrealized holding gains (losses) arising
during period
    
    
    1,114
    
    
    
    547
    
    
    
    1,977
    
    
    
    764Impairment loss recognized during period
    
    
    (307
    )
    
    
    0
    
    
    
    (307
    )
    
    
    (200
    )Reclassification adjustment for gains included in income
    
    
    0
    
    
    
    12
    
    
    
    75
    
    
    
    12Tax effect
    
    
    (321
    )
    
    
    593
    
    
    
    (694
    )
    
    
    613Other comprehensive income (loss)
    
    
    486
    
    
    
    1,152
    
    
    
    1,051
    
    
    
    1,189Comprehensive income (loss)
    
    $
    (1,851
    )
    
    $
    305
    
    
    $
    (4,549
    )
    
    $
    (16,682
    )
 FENTURA FINANCIAL, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 1  BASIS OF PRESENTATION
     7




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NOTE 1  BASIS OF PRESENTATION (continued)
  Reclassifications
  Securities
      8




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##### Table of Contents



NOTE 1  BASIS OF PRESENTATION (continued)
 Allowance for Loan Losses
   Other Real Estate Owned and Foreclosed Assets
 Income Taxes
    Dividend Restriction
   9




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##### Table of Contents



NOTE 1  BASIS OF PRESENTATION (continued)
 Stock Option Plans
    Number of
    
    
    WeightedOptions
    
    
    Average PriceOptions outstanding at December 31, 2009
    
    
    20,297
    
    
    $
    29.55Options granted 2010
    
    
    0
    
    
    $
    0.00Options forfeited 2010
    
    
    (3,542
    )
    
    $
    25.04Options outstanding and exercisable at
September 30, 2010
    
    
    16,755
    
    
    $
    30.51
 Going Concern
   NOTE 2  ADOPTION OF NEW ACCOUNTING STANDARDS
 New Accounting Pronouncements:
  10




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##### Table of Contents



NOTE 2  ADOPTION OF NEW ACCOUNTING STANDARDS (continued)
   Newly Issued But Not Yet Effective Accounting Guidance
  NOTE 3  SECURITIES
  Gross
    
    
    Gross(000s omitted)
    
    Amortized
    
    
    Unrealized
    
    
    UnrealizedAvailable for Sale
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueSeptember 30, 2010U.S. Government & federal agency
    
    $
    11,210
    
    
    $
    34
    
    
    $
    0
    
    
    $
    11,244State and municipal
    
    
    898
    
    
    
    8
    
    
    
    0
    
    
    
    906Mortgage-backed residential
    
    
    8,678
    
    
    
    326
    
    
    
    0
    
    
    
    9,004Collateralized mortgage obligations
    
    
    31,844
    
    
    
    509
    
    
    
    (427
    )
    
    
    31,926Equity securities
    
    
    1,658
    
    
    
    54
    
    
    
    (6
    )
    
    
    1,706$
    54,288
    
    
    $
    931
    
    
    $
    (433
    )
    
    $
    54,786
 December 31, 2009U.S. Government & federal agency
    
    $
    6,543
    
    
    $
    38
    
    
    $
    (67
    )
    
    $
    6,514State and municipal
    
    
    7,034
    
    
    
    102
    
    
    
    (41
    )
    
    
    7,095Mortgage-backed residential
    
    
    13,482
    
    
    
    298
    
    
    
    0
    
    
    
    13,780Collateralized mortgage obligations
    
    
    15,369
    
    
    
    199
    
    
    
    (878
    )
    
    
    14,690Equity securities
    
    
    1,971
    
    
    
    21
    
    
    
    (463
    )
    
    
    1,529$
    44,399
    
    
    $
    658
    
    
    $
    (1,449
    )
    
    $
    43,608
 11




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##### Table of Contents



NOTE 3  SECURITIES (continued)
 Gross
    
    
    Gross(000s omitted)
    

    Amortized
    
    
    Unrecognized
    
    
    UnrecognizedHeld to Maturity
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueSeptember 30, 2010State and municipal
    
    $
    4,471
    
    
    $
    69
    
    
    $
    0
    
    
    $
    4,540
 December 31, 2009State and municipal
    
    $
    5,455
    
    
    $
    55
    
    
    $
    (18
    )
    
    $
    5,492Mortgage-backed residential
    
    
    1
    
    
    
    0
    
    
    
    0
    
    
    
    1$
    5,456
    
    
    $
    55
    
    
    $
    (18
    )
    
    $
    5,493
  Available for SaleAmortized
    
    
    Fair(000s omitted)
    
    Cost
    
    
    ValueDue in one year or less
    
    $
    12,108
    
    
    $
    12,150Due from one to five years
    
    
    0
    
    
    
    0Due from five to ten years
    
    
    0
    
    
    
    0Mortgage-backed securities
    
    
    8,678
    
    
    
    9,004Collateralized mortgage obligations
    
    
    31,844
    
    
    
    31,926Equity securities
    
    
    1,658
    
    
    
    1,706$
    54,288
    
    
    $
    54,786
 Held to MaturityAmortized
    
    
    Fair(000s omitted)
    
    Cost
    
    
    ValueDue in one year or less
    
    $
    2,792
    
    
    $
    2,805Due from one to five years
    
    
    1,679
    
    
    
    1,735Due from five to ten years
    
    
    0
    
    
    
    0Due after ten years
    
    
    0
    
    
    
    0$
    4,471
    
    
    $
    4,540
   (000s omitted)
    
    2010
    
    
    2009Proceeds
    
    $
    7,110
    
    
    $
    4,000Gross gains
    
    
    90
    
    
    
    12Gross losses
    
    
    (15
    )
    
    
    0
  12




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##### Table of Contents



NOTE 3  SECURITIES (continued)
 Less than 12 Months
    
    
    12 Months or More
    
    
    Total2010
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized(000s omitted)
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossCollateralized mortgage
obligations
    
    $
    5,483
    
    
    $
    (45
    )
    
    $
    4,584
    
    
    $
    (382
    )
    
    $
    10,067
    
    
    $
    (427
    )Equity securities
    
    
    0
    
    
    
    0
    
    
    
    2
    
    
    
    (6
    )
    
    
    2
    
    
    
    (6
    )Total temporarily impaired
    
    $
    5,583
    
    
    $
    (45
    )
    
    $
    4,586
    
    
    $
    (388
    )
    
    $
    10,119
    
    
    $
    (433
    )
 Less than 12 months
    
    
    12 months or more
    
    
    Total2009
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized(000s omitted)
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossUS Govt & federal agencies
    
    $
    3,475
    
    
    $
    (67
    )
    
    $
    0
    
    
    $
    0
    
    
    $
    3,475
    
    
    $
    (67
    )State & municipal
    
    
    497
    
    
    
    (18
    )
    
    
    659
    
    
    
    (41
    )
    
    
    1,156
    
    
    
    (59
    )Collateralized Mortgage
Obligations
    
    
    0
    
    
    
    0
    
    
    
    4,872
    
    
    
    (878
    )
    
    
    4,872
    
    
    
    (878
    )Equity securities
    
    
    0
    
    
    
    0
    
    
    
    1,009
    
    
    
    (463
    )
    
    
    1,009
    
    
    
    (463
    )Total temporarily impaired
    
    $
    3,972
    
    
    $
    (85
    )
    
    $
    6,540
    
    
    $
    (1,382
    )
    
    $
    10,512
    
    
    $
    (1,467
    )
 Other-Than-Temporary-Impairment
    Collateralized Mortgage Obligations (CMOs)
    13




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##### Table of Contents



NOTE 3  SECURITIES (continued)
  Equity securities
   (000s omitted)Beginning Balance, January 1, 2010
    
    $
    288Increases to the amount related to the credit loss for
which other-than-temporary was previously recognized
    
    
    307Ending balance, September 30, 2010
    
    $
    595
 NOTE 4  LOANS AND ALLOWANCE FOR LOAN LOSSES
  (000s omitted)
    
    September 30, 2010
    
    
    December 31, 2009Commercial
    
    $
    77,281
    
    
    $
    81,425Real estate  commercial
    
    
    151,450
    
    
    
    171,339Real estate  construction
    
    
    15,439
    
    
    
    26,295Real estate  mortgage
    
    
    23,719
    
    
    
    28,058Consumer
    
    
    42,806
    
    
    
    48,313310,695
    
    
    
    355,430Less allowance for loan losses
    
    
    15,037
    
    
    
    10,726$
    295,658
    
    
    $
    344,704
 14




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##### Table of Contents



NOTE 4  LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
   (000s omitted)
    
    September 30, 2010
    
    
    September 30, 2009Balance, January 1,
    
    $
    10,726
    
    
    $
    10,455Provision for loan losses
    
    
    8,314
    
    
    
    11,306Loans charged off
    
    
    (4,863
    )
    
    
    (7,524
    )Loan recoveries
    
    
    860
    
    
    
    248Balance, end of period
    
    $
    15,037
    
    
    $
    14,485
  (000s omitted)
    
    September 30, 2010
    
    
    September 30, 2009Balance, July 1,
    
    $
    14,227
    
    
    $
    13,970Provision for loan losses
    
    
    2,905
    
    
    
    1,940Loans charged off
    
    
    (2,216
    )
    
    
    (1,567
    )Loan recoveries
    
    
    121
    
    
    
    142Balance, end of period
    
    $
    15,037
    
    
    $
    14,485
   (000s omitted)
    
    September 30, 2010
    
    
    December 31, 2009Period end loans not requiring allocation
    
    $
    12,998
    
    
    $
    15,874Period end loans requiring allocation
    
    
    30,154
    
    
    
    23,059$
    43,152
    
    
    $
    38,933Amount of the allowance for loan losses allocated
    
    $
    9,229
    
    
    $
    5,683
  (000s omitted)
    
    September 30, 2010
    
    
    December 31, 2009Loans past due over 90 days still on accrual
    
    $
    0
    
    
    $
    319Troubled debt restructurings
    
    $
    3,225
    
    
    $
    3,822Nonaccrual loans
    
    $
    15,410
    
    
    $
    16,507
  15




---



##### Table of Contents



NOTE 5 FAIR VALUE
      Impaired Loans:
 Other Real Estate Owned:
 16




---



##### Table of Contents



NOTE 5 FAIR VALUE (continued)
 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)September 30, 2010Available for sale securitiesUS Government and federal
agency
    
    $
    11,244
    
    
    $
    0
    
    
    $
    11,244
    
    
    $
    0State and municipal
    
    
    906
    
    
    
    0
    
    
    
    906
    
    
    
    0Mortgage-backed residential
    
    
    9,004
    
    
    
    0
    
    
    
    9,004
    
    
    
    0Collateralized mortgage
obligations
    
    
    31,926
    
    
    
    0
    
    
    
    31,926
    
    
    
    0Equity securities
    
    
    1,706
    
    
    
    12
    
    
    
    1,694
    
    
    
    0$
    54,786
    
    
    $
    12
    
    
    $
    54,774
    
    
    $
    0
 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, 2009Available for sale securitiesUS Government and federal agency
    
    $
    6,514
    
    
    $
    0
    
    
    $
    6,514
    
    
    $
    0State and municipal
    
    
    7,095
    
    
    
    0
    
    
    
    7,095
    
    
    
    0Mortgage-backed residential
    
    
    13,780
    
    
    
    0
    
    
    
    13,780
    
    
    
    0Collateralized mortgage obligations
    
    
    14,690
    
    
    
    0
    
    
    
    14,690
    
    
    
    0Equity securities
    
    
    1,529
    
    
    
    18
    
    
    
    1,511
    
    
    
    0$
    43,608
    
    
    $
    18
    
    
    $
    43,590
    
    
    $
    0
  17




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##### Table of Contents



NOTE 5 FAIR VALUE (continued)
 Fair Value Measurements Using SignificantUnobservable Inputs(Level 3)(000s omitted)
    
    Asset
    
    
    Liability
    
    
    TotalBeginning balance, Jan. 1, 2009
    
    $
    1,229
    
    
    $
    0
    
    
    $
    1,229Total gains or losses (realized / unrealized)Included in earnings
    
    
    7
    
    
    
    
    
    
    
    7Loss on security impairment
    
    
    (208
    )
    
    
    0
    
    
    
    (208
    )Included in other comprehensive income
    
    
    357
    
    
    
    0
    
    
    
    357Purchases, issuances, and settlementsTransfers in and / or out of Level 3
    
    
    (1,385
    )
    
    
    0
    
    
    
    (1,385
    )Ending balance, September 30, 2009
    
    $
    0
    
    
    $
    0
    
    
    $
    0
 Assets Measured on a Non-Recurring Basis
  Quoted Pricesin Active Marketsfor Identical
    
    
    Significant Other
    
    
    SignificantAssets
    
    
    Observable Inputs
    
    
    Unobservable Inputs(000s omitted)
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)At September 30, 2010Impaired loans
    
    $
    20,925
    
    
    $
    0
    
    
    $
    0
    
    
    $
    20,925Other real estate owned
    
    
    1,401
    
    
    
    0
    
    
    
    0
    
    
    
    1,401At December 31, 2009Impaired loans
    
    $
    17,376
    
    
    $
    0
    
    
    $
    0
    
    
    $
    17,376Other real estate owned
    
    
    1,274
    
    
    
    0
    
    
    
    0
    
    
    
    1,274
    18




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##### Table of Contents



NOTE 5 FAIR VALUE (continued)
  September 30, 2010
    
    
    December 31, 2009(000s omitted)
    
    Carrying 
Amount
    
    
    Fair Value
    
    
    Carrying 
Amount
    
    
    Fair ValueAssets:Cash and cash equivalents
    
    $
    54,487
    
    
    $
    54,487
    
    
    $
    42,109
    
    
    $
    42,109Securities  held to maturity
    
    
    4,471
    
    
    
    4,540
    
    
    
    5,456
    
    
    
    5,493FHLB stock
    
    
    1,900
    
    
    
    n/a
    
    
    
    1,900
    
    
    
    n/aLoans held for sale
    
    
    1,877
    
    
    
    1,880
    
    
    
    831
    
    
    
    831Loans (including impaired loans)
    
    
    295,658
    
    
    
    270,583
    
    
    
    344,704
    
    
    
    326,422Accrued interest receivable
    
    
    1,582
    
    
    
    1,582
    
    
    
    1,813
    
    
    
    1,813Liabilities:Deposits
    
    $
    409,243
    
    
    $
    403,614
    
    
    $
    440,775
    
    
    $
    441,827Short-term borrowings
    
    
    116
    
    
    
    116
    
    
    
    164
    
    
    
    164FHLB advances
    
    
    5,954
    
    
    
    6,311
    
    
    
    7,981
    
    
    
    8,488Subordinated debentures
    
    
    14,000
    
    
    
    12,644
    
    
    
    14,000
    
    
    
    12,656Accrued interest payable
    
    
    1,132
    
    
    
    1,132
    
    
    
    892
    
    
    
    892
  Cash and cash equivalents
  Securities
  FHLB Stock
  Loans held for sale
  Loans
  Off-balance-sheet instruments
  Deposit liabilities
  19




---



##### Table of Contents



NOTE 5 FAIR VALUE (continued)
  Short-term borrowings
  FHLB advances
  Subordinated Debentures
  Limitations
  NOTE 6  INCOME TAXES
    20




---



##### Table of Contents



NOTE 7  EARNINGS PER COMMON SHARE
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(000s omitted except share and per share data)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009BasicNet loss
    
    $
    (2,337
    )
    
    $
    (847
    )
    
    $
    (5,600
    )
    
    $
    (17,871
    )Weighted average common shares outstanding
    
    
    2,277,406
    
    
    
    2,210,613
    
    
    
    2,265,472
    
    
    
    2,198,233Basic loss per common share
    
    $
    (1.03
    )
    
    $
    (0.38
    )
    
    $
    (2.47
    )
    
    $
    (8.13
    )DilutedNet loss
    
    $
    (2,337
    )
    
    $
    (847
    )
    
    $
    (5,600
    )
    
    $
    (17,871
    )Weighted average common shares outstanding for
basic earnings per common share
    
    
    2,277,406
    
    
    
    2,210,613
    
    
    
    2,265,472
    
    
    
    2,198,233Add: Dilutive effects of assumed exercises of stock Options
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Average shares and dilutive potential common shares
    
    
    2,277,406
    
    
    
    2,210,613
    
    
    
    2,265,472
    
    
    
    2,198,233Diluted loss per common share
    
    $
    (1.03
    )
    
    $
    (0.38
    )
    
    $
    (2.47
    )
    
    $
    (8.13
    )
  NOTE 8  COMMITMENTS AND CONTINGENCIES
  NOTE 9  DISCONTINUED OPERATIONS
  21




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##### Table of Contents



NOTE 9  DISCONTINUED OPERATIONS (continued)
 DAVISON STATE BANK
CONDENSED BALANCE SHEET OF DISCONTINUED OPERATIONS
(Unaudited)
 Dec 31, 2009ASSETSCash and cash equivalents
    
    $
    2,537Securities  available for sale
    
    
    7,082Securities  held to maturity
    
    
    405Loans, net of allowance ($679-2009)
    
    
    24,396Other assets
    
    
    3,499Total assets
    
    $
    37,919LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Non-interest bearing
    
    $
    9,012Interest bearing
    
    
    26,265Total deposits
    
    
    35,277Accrued taxes, interest and other liabilities
    
    
    (60
    )Shareholders equity
    
    
    2,702Total liabilities and shareholders equity
    
    $
    37,919
 DAVISON STATE BANK
CONDENSED STATEMENT OF INCOME OF DISCONTINUED OPERATIONS
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302010
    
    
    2009
    
    
    2010
    
    
    2009Interest income
    
    $
    0
    
    
    $
    494
    
    
    $
    607
    
    
    $
    1,556Interest expense
    
    
    0
    
    
    
    151
    
    
    
    116
    
    
    
    510Net interest income
    
    
    0
    
    
    
    343
    
    
    
    491
    
    
    
    1,046Provision for loan losses
    
    
    0
    
    
    
    35
    
    
    
    (5
    )
    
    
    190Net interest income after provision for loan losses
    
    
    0
    
    
    
    308
    
    
    
    496
    
    
    
    856Non-interest income
    
    
    0
    
    
    
    143
    
    
    
    178
    
    
    
    405Non-interest expense
    
    
    0
    
    
    
    418
    
    
    
    121
    
    
    
    2,095Income/(loss) before federal income tax
    
    
    0
    
    
    
    33
    
    
    
    553
    
    
    
    (834
    )Federal income tax expense/(benefit)
    
    
    0
    
    
    
    (256
    )
    
    
    181
    
    
    
    419Net income/(loss)
    
    $
    0
    
    
    $
    289
    
    
    $
    372
    
    
    $
    (1,253
    )
 NOTE 10-REGULATORY MATTERS
  22




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##### Table of Contents



NOTE 10 REGULATORY MATTERS (continued)
         23




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##### Table of Contents



NOTE 10REGULATORY MATTERS (continued)
 For Capital
    
    
    RegulatoryAdequacy
    
    
    AgreementActual
    
    
    Purposes
    
    
    Requirements(000s omitted)
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioAs of September 30, 2010Total Capital(to Risk Weighted Assets)Consolidated
    
    $
    25,393
    
    
    
    7.4
    %
    
    $
    27,544
    
    
    
    8.0
    %
    
    NA
    
    NAThe State Bank
    
    
    22,632
    
    
    
    9.4
    
    
    
    19,219
    
    
    
    8.0
    
    
    $
    24,023
    
    
    12.0%  (1)West Michigan Community
Bank
    
    
    10,404
    
    
    
    10.1
    
    
    
    8,226
    
    
    
    8.0
    
    
    NA
    
    NATier 1 Capital(to Risk Weighted Assets)Consolidated
    
    
    20,956
    
    
    
    6.1
    
    
    
    13,772
    
    
    
    4.0
    
    
    NA
    
    NAThe State Bank
    
    
    19,509
    
    
    
    8.1
    
    
    
    9,609
    
    
    
    4.0
    
    
    NA
    
    NAWest Michigan Community
Bank
    
    
    9,090
    
    
    
    8.8
    
    
    
    4,113
    
    
    
    4.0
    
    
    NA
    
    NATier 1 Capital(to Average Assets)Consolidated
    
    
    20,956
    
    
    
    4.6
    
    
    
    18,191
    
    
    
    4.0
    
    
    NA
    
    NAThe State Bank
    
    
    19,509
    
    
    
    6.2
    
    
    
    12,634
    
    
    
    4.0
    
    
    
    25,268
    
    
    8.0West Michigan Community
Bank
    
    
    9,090
    
    
    
    6.7
    
    
    
    5,462
    
    
    
    4.0
    
    
    
    10,924
    
    
    8.0
 For Capital
    
    
    RegulatoryAdequacy
    
    
    AgreementActual
    
    
    Purposes
    
    
    Requirements(000s omitted)
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioAs of December 31, 2009Total Capital(to Risk Weighted Assets)Consolidated
    
    $
    33,661
    
    
    
    7.8
    %
    
    $
    34,636
    
    
    
    8.0
    %
    
    NA
    
    NAThe State Bank
    
    
    24,334
    
    
    
    8.9
    
    
    
    21,961
    
    
    
    8.0
    
    
    $
    32,810
    
    
    12.0%(1)Davison State Bank
    
    
    3,328
    
    
    
    9.9
    
    
    
    2,692
    
    
    
    8.0
    
    
    NA
    
    NAWest Michigan Community
Bank
    
    
    11,841
    
    
    
    9.4
    
    
    
    10,063
    
    
    
    8.0
    
    
    NA
    
    NATier 1 Capital(to Risk Weighted Assets)Consolidated
    
    
    28,164
    
    
    
    6.5
    
    
    
    17,318
    
    
    
    4.0
    
    
    NA
    
    NAThe State Bank
    
    
    20,830
    
    
    
    7.6
    
    
    
    10,981
    
    
    
    4.0
    
    
    NA
    
    NADavison State Bank
    
    
    2,904
    
    
    
    8.6
    
    
    
    1,346
    
    
    
    4.0
    
    
    NA
    
    NAWest Michigan Community
Bank
    
    
    10,262
    
    
    
    8.2
    
    
    
    5,031
    
    
    
    4.0
    
    
    NA
    
    NATier 1 Capital(to Average Assets)Consolidated
    
    
    28,164
    
    
    
    5.0
    
    
    
    22,491
    
    
    
    4.0
    
    
    NA
    
    NAThe State Bank
    
    
    20,830
    
    
    
    6.2
    
    
    
    13,535
    
    
    
    4.0
    
    
    
    27,069
    
    
    8.0Davison State Bank
    
    
    2,904
    
    
    
    7.2
    
    
    
    1,620
    
    
    
    4.0
    
    
    
    3,240
    
    
    8.0West Michigan Community
Bank
    
    
    10,262
    
    
    
    6.9
    
    
    
    5,923
    
    
    
    4.0
    
    
    
    11,845
    
    
    8.0
 
 (1)
    
    Effective January 10, 2010 24




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##### Table of Contents



NOTE 11DEFINITIVE AGREEMENT
   
    Results of Operations
   25




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##### Table of Contents



Net Interest Income
   Table 1
 NINE MONTHS ENDEDSEPTEMBER 30,2010 COMPARED TO 2009INCREASE (DECREASE)DUE TOYIELD/(000s omitted)
    
    VOL
    
    
    RATE
    
    
    TOTALTaxable securities
    
    $
    (4
    )
    
    $
    (280
    )
    
    $
    (284
    )Tax-exempt securities (1)
    
    
    (205
    )
    
    
    (1
    )
    
    
    (206
    )Federal funds sold
    
    
    24
    
    
    
    2
    
    
    
    26Total loans (1)
    
    
    (3,353
    )
    
    
    510
    
    
    
    (2,843
    )Loans held for sale
    
    
    (26
    )
    
    
    0
    
    
    
    (26
    )Total earning assets
    
    
    (3,564
    )
    
    
    231
    
    
    
    (3,333
    )Interest bearing demand deposits
    
    
    (24
    )
    
    
    (258
    )
    
    
    (282
    )Savings deposits
    
    
    (5
    )
    
    
    (162
    )
    
    
    (167
    )Time CDs $100,000 and over
    
    
    (929
    )
    
    
    (269
    )
    
    
    (1,198
    )Other time deposits
    
    
    (302
    )
    
    
    (692
    )
    
    
    (994
    )Other borrowings
    
    
    (115
    )
    
    
    (116
    )
    
    
    (231
    )Total interest bearing liabilities
    
    
    (1,375
    )
    
    
    (1,497
    )
    
    
    (2,872
    )Net Interest Income
    
    $
    (2,189
    )
    
    $
    1,728
    
    
    $
    (461
    )
 
 (1)
    
    Presented on a fully taxable equivalent basis using a federal income tax rate of 34%.    26




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27




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##### Table of Contents



Table 2 Average Balance and Rates
 NINE MONTHS ENDED SEPTEMBER 30,2010
    
    
    2009AVERAGE
    
    
    INCOME/
    
    
    YIELD/
    
    
    AVERAGE
    
    
    INCOME/
    
    
    YIELD/(000s omitted)(Annualized)
    
    BALANCE
    
    
    EXPENSE
    
    
    RATE
    
    
    BALANCE
    
    
    EXPENSE
    
    
    RATEASSETSSecurities:U.S. Treasury and Government Agencies
    
    $
    38,464
    
    
    $
    905
    
    
    
    3.15
    %
    
    $
    37,997
    
    
    $
    1,143
    
    
    
    4.02
    %State and Political (1)
    
    
    9,396
    
    
    
    427
    
    
    
    6.08
    %
    
    
    13,902
    
    
    
    633
    
    
    
    6.09
    %Other
    
    
    2,906
    
    
    
    24
    
    
    
    1.10
    %
    
    
    4,309
    
    
    
    70
    
    
    
    2.17
    %Total Securities
    
    
    50,766
    
    
    
    1,356
    
    
    
    3.57
    %
    
    
    56,208
    
    
    
    1,846
    
    
    
    4.39
    %Fed Funds Sold
    
    
    31,914
    
    
    
    27
    
    
    
    0.11
    %
    
    
    2,332
    
    
    
    1
    
    
    
    0.06
    %Loans:Commercial
    
    
    263,621
    
    
    
    12,266
    
    
    
    6.22
    %
    
    
    320,436
    
    
    
    14,453
    
    
    
    6.03
    %Tax Free (1)
    
    
    2,283
    
    
    
    111
    
    
    
    6.50
    %
    
    
    2,656
    
    
    
    129
    
    
    
    6.48
    %Real Estate-Mortgage
    
    
    25,969
    
    
    
    1,218
    
    
    
    6.27
    %
    
    
    35,113
    
    
    
    1,614
    
    
    
    6.15
    %Consumer
    
    
    44,949
    
    
    
    1,943
    
    
    
    5.78
    %
    
    
    51,351
    
    
    
    2,185
    
    
    
    5.69
    %Total loans
    
    
    336,822
    
    
    
    15,538
    
    
    
    6.17
    %
    
    
    409,556
    
    
    
    18,381
    
    
    
    6.00
    %Allowance for Loan Losses
    
    
    (12,528
    )
    
    
    
    
    
    
    
    
    
    
    (11,891
    )Net Loans
    
    
    324,294
    
    
    
    15,538
    
    
    
    6.41
    %
    
    
    397,665
    
    
    
    18,381
    
    
    
    6.18
    %Loans Held for Sale
    
    
    955
    
    
    
    36
    
    
    
    5.04
    %
    
    
    1,657
    
    
    
    62
    
    
    
    5.00
    %TOTAL EARNING ASSETS CONTINUING OPERATIONS
    
    $
    420,457
    
    
    
    16,957
    
    
    
    5.39
    %
    
    $
    469,753
    
    
    $
    20,290
    
    
    
    5.77
    %Cash Due from Banks
    
    
    16,387
    
    
    
    
    
    
    
    
    
    
    
    32,115Assets of Held for Sale Operations
    
    
    16,387
    
    
    
    
    
    
    
    
    
    
    
    43,457All Other Assets
    
    
    42,278
    
    
    
    
    
    
    
    
    
    
    
    39,433TOTAL ASSETS
    
    $
    482,981
    
    
    
    
    
    
    
    
    
    
    $
    572,867LIABILITIES & SHAREHOLDERS EQUITY:Deposits:Interest Bearing  DDA
    
    $
    83,950
    
    
    $
    241
    
    
    
    0.38
    %
    
    $
    88,275
    
    
    $
    523
    
    
    
    0.79
    %Savings Deposits
    
    
    72,680
    
    
    
    69
    
    
    
    0.13
    %
    
    
    74,373
    
    
    
    236
    
    
    
    0.42
    %Time CDs $100,000 and Over
    
    
    97,636
    
    
    
    2,869
    
    
    
    3.93
    %
    
    
    128,744
    
    
    
    4,067
    
    
    
    4.22
    %Other Time CDs
    
    
    100,392
    
    
    
    1,683
    
    
    
    2.24
    %
    
    
    114,512
    
    
    
    2,677
    
    
    
    3.13
    %Total Deposits
    
    
    354,658
    
    
    
    4,862
    
    
    
    1.83
    %
    
    
    405,904
    
    
    
    7,503
    
    
    
    2.47
    %Other Borrowings
    
    
    22,217
    
    
    
    598
    
    
    
    3.60
    %
    
    
    26,133
    
    
    
    829
    
    
    
    4.24
    %INTEREST BEARING LIABILITIES
    
    $
    376,875
    
    
    
    5,460
    
    
    
    1.94
    %
    
    $
    432,037
    
    
    $
    8,332
    
    
    
    2.58
    %Non-Interest bearing  DDA
    
    
    67,483
    
    
    
    
    
    
    
    
    
    
    
    67,163Liabilities of Held for Sale Operations
    
    
    15,178
    
    
    
    
    
    
    
    
    
    
    
    40,384All Other Liabilities
    
    
    3,834
    
    
    
    
    
    
    
    
    
    
    
    3,012Shareholders Equity
    
    
    19,611
    
    
    
    
    
    
    
    
    
    
    
    30,271TOTAL LIABILITIES & SHAREHOLDERS EQUITY
    
    $
    482,981
    
    
    
    
    
    
    
    
    
    
    $
    572,867Net Interest Rate Spread
    
    
    
    
    
    
    
    
    
    
    3.45
    %
    
    
    
    
    
    
    
    
    
    
    3.20
    %Net Interest Income /Margin
    
    
    
    
    
    $
    11,497
    
    
    
    3.66
    %
    
    
    
    
    
    $
    11,958
    
    
    
    3.40
    %
 
 (1)
    
    Presented on a fully taxable equivalent basis using a federal income tax rate of 34%. 28




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##### Table of Contents



Table 3 Average Balance and Rates
 THREE MONTHS ENDED SEPTEMBER 30,2010
    
    
    2009AVERAGE
    
    
    INCOME/
    
    
    YIELD/
    
    
    AVERAGE
    
    
    INCOME/
    
    
    YIELD/(000s omitted)(Annualized)
    
    BALANCE
    
    
    EXPENSE
    
    
    RATE
    
    
    BALANCE
    
    
    EXPENSE
    
    
    RATEASSETSSecurities:U.S. Treasury and Government Agencies
    
    $
    47,632
    
    
    $
    335
    
    
    
    2.79
    %
    
    $
    40,316
    
    
    $
    384
    
    
    
    3.78
    %State and Political (1)
    
    
    5,414
    
    
    
    82
    
    
    
    6.01
    %
    
    
    13,429
    
    
    
    205
    
    
    
    6.04
    %Other
    
    
    2,899
    
    
    
    5
    
    
    
    0.68
    %
    
    
    3,805
    
    
    
    20
    
    
    
    2.09
    %Total Securities
    
    
    55,945
    
    
    
    422
    
    
    
    2.99
    %
    
    
    57,550
    
    
    
    609
    
    
    
    4.20
    %Fed Funds Sold
    
    
    36,561
    
    
    
    12
    
    
    
    0.13
    %
    
    
    6,919
    
    
    
    1
    
    
    
    0.06
    %Loans:Commercial
    
    
    251,224
    
    
    
    3,988
    
    
    
    6.30
    %
    
    
    305,122
    
    
    
    4,677
    
    
    
    6.08
    %Tax Free (1)
    
    
    2,202
    
    
    
    35
    
    
    
    6.31
    %
    
    
    2,521
    
    
    
    41
    
    
    
    6.44
    %Real Estate-Mortgage
    
    
    24,543
    
    
    
    381
    
    
    
    6.16
    %
    
    
    32,701
    
    
    
    498
    
    
    
    6.04
    %Consumer
    
    
    43,134
    
    
    
    624
    
    
    
    5.74
    %
    
    
    50,678
    
    
    
    720
    
    
    
    5.64
    %Total loans
    
    
    321,103
    
    
    
    5,028
    
    
    
    6.21
    %
    
    
    391,022
    
    
    
    5,936
    
    
    
    6.02
    %Allowance for Loan Losses
    
    
    (14,051
    )
    
    
    
    
    
    
    
    
    
    
    (14,127
    )Net Loans
    
    
    307,052
    
    
    
    5,028
    
    
    
    6.50
    %
    
    
    376,895
    
    
    
    5,936
    
    
    
    6.25
    %Loans Held for Sale
    
    
    1,173
    
    
    
    14
    
    
    
    4.74
    %
    
    
    1,022
    
    
    
    14
    
    
    
    5.43
    %TOTAL EARNING ASSETS CONTINUING OPERATIONS
    
    $
    414,782
    
    
    
    5,476
    
    
    
    5.24
    %
    
    $
    456,513
    
    
    $
    6,560
    
    
    
    5.70
    %Cash Due from Banks
    
    
    16,972
    
    
    
    
    
    
    
    
    
    
    
    40,618Assets of held for sale operations
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    42,117All Other Assets
    
    
    40,283
    
    
    
    
    
    
    
    
    
    
    
    37,205TOTAL ASSETS
    
    $
    457,986
    
    
    
    
    
    
    
    
    
    
    $
    562,326LIABILITIES & SHAREHOLDERS EQUITY:Deposits:Interest bearing  DDA
    
    $
    86,129
    
    
    $
    71
    
    
    
    0.33
    %
    
    $
    88,906
    
    
    $
    113
    
    
    
    0.50
    %Savings Deposits
    
    
    75,472
    
    
    
    25
    
    
    
    0.13
    %
    
    
    77,020
    
    
    
    31
    
    
    
    0.16
    %Time CDs $100,000 and Over
    
    
    87,776
    
    
    
    883
    
    
    
    3.99
    %
    
    
    124,411
    
    
    
    1,272
    
    
    
    4.06
    %Other Time CDs
    
    
    94,127
    
    
    
    472
    
    
    
    1.99
    %
    
    
    115,117
    
    
    
    861
    
    
    
    2.97
    %Total Deposits
    
    
    343,504
    
    
    
    1,451
    
    
    
    1.68
    %
    
    
    405,454
    
    
    
    2,277
    
    
    
    2.23
    %Other Borrowings
    
    
    22,044
    
    
    
    203
    
    
    
    3.65
    %
    
    
    24,244
    
    
    
    227
    
    
    
    3.71
    %INTEREST BEARING LIABILITIES
    
    $
    365,548
    
    
    $
    1,654
    
    
    
    1.80
    %
    
    $
    429,698
    
    
    $
    2,504
    
    
    
    2.31
    %Non-Interest bearing  DDA
    
    
    69,356
    
    
    
    
    
    
    
    
    
    
    
    67,685Liabilities of held for sale operations
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    39,476All Other Liabilities
    
    
    4,822
    
    
    
    
    
    
    
    
    
    
    
    5,300Shareholders Equity
    
    
    18,260
    
    
    
    
    
    
    
    
    
    
    
    20,167TOTAL LIABILITIES & SHAREHOLDERS EQUITY
    
    $
    457,986
    
    
    
    
    
    
    
    
    
    
    $
    562,326Net Interest Rate Spread
    
    
    
    
    
    
    
    
    
    
    3.44
    %
    
    
    
    
    
    
    
    
    
    
    3.39
    %Net Interest Income /Margin
    
    
    
    
    
    $
    3,822
    
    
    
    3.66
    %
    
    
    
    
    
    $
    4,056
    
    
    
    3.52
    %
 
 (1)
    
    Presented on a fully taxable equivalent basis using a federal income tax rate of 34%. 29




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##### Table of Contents



Allowance and Provision For Loan Losses
     30




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##### Table of Contents



Table 4 Analysis of the Allowance for Loan Losses
 Nine Months Ended September 30,(000s omitted)
    
    2010
    
    2009Balance at Beginning of Period
    
    $
    10,726
    
    
    $
    10,455Charge-Offs:Commercial, Financial and Agriculture
    
    
    (4,159
    )
    
    
    (6,263
    )Real Estate-Mortgage
    
    
    (186
    )
    
    
    (738
    )Installment Loans to Individuals
    
    
    (518
    )
    
    
    (523
    )Total Charge-Offs
    
    
    (4,863
    )
    
    
    (7,524
    )Recoveries:Commercial, Financial and Agriculture
    
    
    754
    
    
    
    166Real Estate-Mortgage
    
    
    40
    
    
    
    7Installment Loans to Individuals
    
    
    66
    
    
    
    75Total Recoveries
    
    
    860
    
    
    
    248Net Charge-Offs
    
    
    (4,003
    )
    
    
    (7,276
    )Provision
    
    
    8,314
    
    
    
    11,306Balance at End of Period
    
    $
    15,037
    
    
    $
    14,485Ratio of Net Charge-Offs to Gross Loans
    
    
    1.28
    %
    
    
    1.89
    %
 Non-Interest Income
      31




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##### Table of Contents



Non-Interest Expense
        32




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##### Table of Contents



Financial Condition
      Non-Performing Assets
    33




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##### Table of Contents



Table 5  Non-Performing Assets and Past Due Loans
 September 30,
    
    
    December 31,(000s omitted)
    
    2010
    
    
    2009Non-Performing Loans:Loans Past Due 90 Days or More & Still Accruing
    
    $
    0
    
    
    $
    319Non-Accrual Loans
    
    
    15,410
    
    
    
    16,507Troubled debt restructurings
    
    
    3,225
    
    
    
    3,822Total Non-Performing Loans
    
    
    18,635
    
    
    
    20,648Other Non-Performing Assets:Other Real Estate
    
    
    9,003
    
    
    
    7,967REO in Redemption
    
    
    1,358
    
    
    
    4,972Total Other Non-Performing Assets
    
    
    10,361
    
    
    
    12,939Total Non-Performing Assets
    
    $
    28,996
    
    
    $
    33,587Non-Performing Loans as a % of Total Loans
    
    
    5.96
    %
    
    
    5.80
    %Non-Performing Loans as a % of Total Loans and Other
Real Estate
    
    
    5.79
    %
    
    
    5.67
    %Allowance for Loan Losses as a % of Non-Performing Loans
    
    
    80.69
    %
    
    
    51.95
    %Accruing Loans Past Due 90 Days or More to Total Loans
    
    
    0.00
    %
    
    
    0.09
    %Non-performing Assets as a % of Total Assets
    
    
    6.45
    %
    
    
    6.43
    %
   Liquidity and Interest Rate Risk Management
  34




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##### Table of Contents



Capital Resources
    35




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##### Table of Contents



Regulatory Orders
   Critical Accounting Policies and Estimates
     36




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##### Table of Contents



Off Balance Sheet Arrangements
   (000s omitted)
    
    September 30, 2010
    
    
    December 31, 2009Commitments to make loans (at market rates)
    
    $
    9,450
    
    
    $
    2,939Unused lines of credit and letters of credit
    
    
    48,259
    
    
    
    53,941
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    37




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##### Table of Contents



Interest Rate Sensitivity Management
   Table 6 GAP Analysis  September 30, 2010
 Within
    
    
    Three
    
    
    One to
    
    
    AfterThree
    
    
    Months to
    
    
    Five
    
    
    Five(000s omitted)
    
    Months
    
    
    One Year
    
    
    Years
    
    
    Years
    
    
    TotalEarning Assets:Federal Funds Sold
    
    $
    39,700
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    39,700Securities
    
    
    14,469
    
    
    
    7,633
    
    
    
    18,025
    
    
    
    19,130
    
    
    
    59,257Loans
    
    
    75,875
    
    
    
    53,527
    
    
    
    142,813
    
    
    
    38,480
    
    
    
    310,695Loans Held for Sale
    
    
    1,877
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,877FHLB Stock
    
    
    1,900
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,900Total Earning Assets
    
    $
    133,821
    
    
    $
    61,160
    
    
    $
    160,838
    
    
    $
    57,610
    
    
    $
    413,429Interest Bearing Liabilities:Interest Bearing Demand Deposits
    
    $
    82,842
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    82,842Savings Deposits
    
    
    80,451
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    80,451Time Deposits Less than $100,000
    
    
    20,255
    
    
    
    32,450
    
    
    
    37,529
    
    
    
    93
    
    
    
    90,327Time Deposits Greater than $100,000
    
    
    22,004
    
    
    
    30,756
    
    
    
    34,502
    
    
    
    0
    
    
    
    87,262Short term borrowings
    
    
    116
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    116Other Borrowings
    
    
    0
    
    
    
    5,030
    
    
    
    148
    
    
    
    776
    
    
    
    5,954Subordinated debentures
    
    
    14,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    14,000Total Interest Bearing Liabilities
    
    $
    219,668
    
    
    $
    68,236
    
    
    $
    72,179
    
    
    $
    869
    
    
    $
    360,952Interest Rate Sensitivity GAP
    
    
    ($85,847
    )
    
    
    ($7,076
    )
    
    $
    88,659
    
    
    $
    56,741
    
    
    $
    52,477Cumulative Interest Rate
Sensitivity GAP
    
    
    ($85,847
    )
    
    
    ($92,923
    )
    
    
    ($4,264
    )
    
    $
    52,477Interest Rate Sensitivity GAP
    
    
    0.61
    
    
    
    0.90
    
    
    
    2.23
    
    
    
    66.29Cumulative Interest Rate
Sensitivity GAP Ratio
    
    
    0.61
    
    
    
    0.68
    
    
    
    0.99
    
    
    
    1.15
  38




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##### Table of Contents



Forward Looking Statements
  
 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
except for the following 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.
 During quarter end review procedures a formula error was uncovered in one of the Banks
allowance for loan loss calculation work sheets which resulted in the overstatement of the
allowance for loan losses. Management appropriately corrected the work sheet. Since no
preliminary financial results were disclosed, a restatement was not required. Management
has remediated this weakness and will test the effectiveness of the control prior to year
end.
 (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.
 39




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
 
 Item 1A. Risk Factors
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
 Item 3. Defaults Upon Senior Securities. 
 
 Item 4. [Reserved]
 
 Item 5. Other Information.
 
 Item 6. Exhibits.
  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.
 40




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##### Table of Contents



Fentura Financial, Inc.Dated:  November 10, 2010
    /s/ Donald L. GrillDonald L. GrillPresident & CEODated:  November 10, 2010
    /s/ Douglas J. KelleyDouglas J. KelleyChief Financial Officer 41




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##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    Description31.1
    
    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.
 42