##### 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 June 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
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ
  Class  Common Stock
    
    Shares Outstanding  2,276,441




---



##### 



Fentura Financial Inc.
Index to Form 10-Q
 PagePart I  Financial Information
    
    3Item 1  Consolidated Financial Statements (Unaudited)
    
    3-25Item 2  Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    26-38Item 3  Quantitative and Qualitative Disclosures about Market Risk
    
    38-40Item 4T  Controls and Procedures
    
    40Part II  Other Information
    
    41Item 1  Legal Proceedings
    
    41Item 1A  Risk Factors
    
    41Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    41Item 3  Defaults Upon Senior Securities
    
    41Item 4 [Reserved]
    
    41Item 5  Other Information
    
    41Item 6  Exhibits
    
    41Signatures
    
    42Exhibit Index
    
    43EX-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)
 June 30,
    
    
    Dec 31,2010
    
    
    2009(unaudited)ASSETSCash and due from banks
    
    $
    15,535
    
    
    $
    18,459Federal funds sold
    
    
    28,050
    
    
    
    23,650Total cash & cash equivalents
    
    
    43,585
    
    
    
    42,109Securities-available for sale
    
    
    45,604
    
    
    
    43,608Securities-held to maturity, (fair value of $4,744
at June 30, 2010 and $5,493 at December 31, 2009)
    
    
    4,697
    
    
    
    5,456Total securities
    
    
    50,301
    
    
    
    49,064Loans held for sale
    
    
    1,259
    
    
    
    831Loans:Commercial
    
    
    244,672
    
    
    
    252,764Real estate loans  construction
    
    
    17,578
    
    
    
    26,295Real estate loans  mortgage
    
    
    24,465
    
    
    
    28,058Consumer loans
    
    
    43,567
    
    
    
    48,313Total loans
    
    
    330,282
    
    
    
    355,430Less: Allowance for loan losses
    
    
    (14,227
    )
    
    
    (10,726
    )Net loans
    
    
    316,055
    
    
    
    344,704Bank owned life insurance
    
    
    7,318
    
    
    
    7,221Bank premises and equipment
    
    
    15,471
    
    
    
    15,914Federal Home Loan Bank stock
    
    
    1,900
    
    
    
    1,900Accrued interest receivable
    
    
    1,743
    
    
    
    1,813Other real estate owned
    
    
    7,948
    
    
    
    7,967Assets of discontinued operations
    
    
    0
    
    
    
    37,919Other assets
    
    
    9,710
    
    
    
    12,637Total assets
    
    $
    455,290
    
    
    $
    522,079LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Non-interest bearing deposits
    
    $
    69,955
    
    
    $
    64,530Interest bearing deposits
    
    
    341,429
    
    
    
    376,245Total deposits
    
    
    411,384
    
    
    
    440,775Short term borrowings
    
    
    10
    
    
    
    164Federal Home Loan Bank advances
    
    
    7,954
    
    
    
    7,981Subordinated debentures
    
    
    14,000
    
    
    
    14,000Liabilities of discontinued operations
    
    
    0
    
    
    
    35,217Accrued taxes, interest and other liabilities
    
    
    4,047
    
    
    
    3,410Total liabilities
    
    
    437,395
    
    
    
    501,547Shareholders equityCommon stock  no par value
2,276,441 shares issued (2,248,553 at December 31, 2009)
    
    
    42,974
    
    
    
    42,913Retained deficit
    
    
    (24,920
    )
    
    
    (21,657
    )Accumulated other comprehensive loss
    
    
    (159
    )
    
    
    (724
    )Total shareholders equity
    
    
    17,895
    
    
    
    20,532Total liabilities and shareholders equity
    
    $
    455,290
    
    
    $
    522,079
 See notes to consolidated financial statements
 3




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##### Table of Contents



FENTURA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(000s omitted except per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302010
    
    
    2009
    
    
    2010
    
    
    2009Interest incomeInterest and fees on loans
    
    $
    5,200
    
    
    $
    6,000
    
    
    $
    10,506
    
    
    $
    12,463Interest and dividends on securities:Taxable
    
    
    297
    
    
    
    390
    
    
    
    589
    
    
    
    809Tax-exempt
    
    
    104
    
    
    
    138
    
    
    
    228
    
    
    
    283Interest on federal funds sold
    
    
    10
    
    
    
    0
    
    
    
    15
    
    
    
    0Total interest income
    
    
    5,611
    
    
    
    6,528
    
    
    
    11,338
    
    
    
    13,555Interest expenseDeposits
    
    
    1,594
    
    
    
    2,613
    
    
    
    3,411
    
    
    
    5,226Borrowings
    
    
    198
    
    
    
    291
    
    
    
    395
    
    
    
    602Total interest expense
    
    
    1,792
    
    
    
    2,904
    
    
    
    3,806
    
    
    
    5,828Net interest income
    
    
    3,819
    
    
    
    3,624
    
    
    
    7,532
    
    
    
    7,727Provision for loan losses
    
    
    3,619
    
    
    
    7,711
    
    
    
    5,409
    
    
    
    9,366Net interest income after provision for loan losses
    
    
    200
    
    
    
    (4,087
    )
    
    
    2,123
    
    
    
    (1,639
    )Non-interest incomeService charges on deposit accounts
    
    
    403
    
    
    
    480
    
    
    
    877
    
    
    
    917Gain on sale of mortgage loans
    
    
    135
    
    
    
    277
    
    
    
    228
    
    
    
    512Trust and investment services income
    
    
    338
    
    
    
    463
    
    
    
    727
    
    
    
    827Gain on sale of securities
    
    
    75
    
    
    
    0
    
    
    
    75
    
    
    
    0Loss on equity investment
    
    
    0
    
    
    
    (874
    )
    
    
    0
    
    
    
    (1,360
    )Other income and fees
    
    
    607
    
    
    
    480
    
    
    
    998
    
    
    
    1,069Total non-interest income
    
    
    1,558
    
    
    
    826
    
    
    
    2,905
    
    
    
    1,965Non-interest expenseSalaries and employee benefits
    
    
    2,063
    
    
    
    2,071
    
    
    
    4,178
    
    
    
    4,623Occupancy
    
    
    431
    
    
    
    447
    
    
    
    880
    
    
    
    950Furniture and equipment
    
    
    386
    
    
    
    403
    
    
    
    757
    
    
    
    827Loan and collection
    
    
    433
    
    
    
    933
    
    
    
    990
    
    
    
    1,318Advertising and promotional
    
    
    45
    
    
    
    47
    
    
    
    73
    
    
    
    88Loss on security impairment
    
    
    0
    
    
    
    200
    
    
    
    0
    
    
    
    200Other operating expenses
    
    
    1,012
    
    
    
    1,211
    
    
    
    2,059
    
    
    
    2,441Total non-interest expense
    
    
    4,370
    
    
    
    5,312
    
    
    
    8,937
    
    
    
    10,447Loss from continuing operations before income tax
    
    
    (2,612
    )
    
    
    (8,573
    )
    
    
    (3,909
    )
    
    
    (10,121
    )Federal income tax/(benefit)
    
    
    53
    
    
    
    5,952
    
    
    
    (274
    )
    
    
    5,360Net loss from continuing operations
    
    $
    (2,665
    )
    
    $
    (14,525
    )
    
    $
    (3,635
    )
    
    $
    (15,481
    )Net income/(loss) from discontinued operations, net
of tax
    
    
    (115
    )
    
    
    (839
    )
    
    
    372
    
    
    
    (1,542
    )Net loss
    
    $
    (2,780
    )
    
    $
    (15,364
    )
    
    $
    (3,263
    )
    
    $
    (17,023
    )Loss per share from continuing operationsBasic and diluted
    
    $
    (1.16
    )
    
    $
    (6.61
    )
    
    $
    (1.61
    )
    
    $
    (7.06
    )Income/(loss) per share from discontinued operationsBasic and diluted
    
    $
    (0.07
    )
    
    $
    (0.38
    )
    
    $
    0.17
    
    
    $
    (0.71
    )Net loss per shareBasic and diluted
    
    $
    (1.23
    )
    
    $
    (6.99
    )
    
    $
    (1.44
    )
    
    $
    (7.77
    )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)
 Six Months EndedJune 30,(000s omitted)
    
    2010
    
    
    2009Common StockBalance, beginning of period
    
    $
    42,913
    
    
    $
    42,778Issuance of shares underDirector stock purchase plan & Dividend reinvestment program (27,888 and 23,418 shares)
    
    
    61
    
    
    
    72Balance, end of period
    
    
    42,974
    
    
    
    42,850Retained DeficitBalance, beginning of period
    
    
    (21,657
    )
    
    
    (4,677
    )Net loss
    
    
    (3,263
    )
    
    
    (17,023
    )Balance, end of period
    
    
    (24,920
    )
    
    
    (21,700
    )Accumulated Other Comprehensive LossBalance, beginning of period
    
    
    (724
    )
    
    
    (1,977
    )Change in unrealized loss on securities, net of tax
    
    
    565
    
    
    
    37Balance, end of period
    
    
    (159
    )
    
    
    (1,940
    )Total shareholders equity
    
    $
    17,895
    
    
    $
    19,210
  5




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##### Table of Contents



Fentura Financial, Inc.
Consolidated Statements of Cash Flows (Unaudited)
 Six Months EndedJune 30,(000s omitted)
    
    2010
    
    
    2009OPERATING ACTIVITIES:Net loss
    
    $
    (3,263
    )
    
    $
    (17,023
    )Adjustments to reconcile net loss to cashProvided by Operating Activities:Depreciation and amortization
    
    
    266
    
    
    
    581Establishment of deferred tax asset valuation allowance
    
    
    0
    
    
    
    6,617Provision for loan losses
    
    
    5,409
    
    
    
    9,366Loans originated for sale
    
    
    (13,821
    )
    
    
    (42,302
    )Proceeds from the sale of loans
    
    
    13,621
    
    
    
    42,368Gain on sales of loans
    
    
    (228
    )
    
    
    (512
    )Loss on sale of other real estate owned
    
    
    37
    
    
    
    200Loss on security impairment
    
    
    0
    
    
    
    200Loss on equity investment
    
    
    0
    
    
    
    1,360Gain on sale of securities
    
    
    (75
    )
    
    
    0Earnings from bank owned life insurance
    
    
    (97
    )
    
    
    (103
    )Net (increase) decrease in interest receivable & other assets
    
    
    2,706
    
    
    
    4,911Net increase (decrease) in interest payable & other liabilities
    
    
    637
    
    
    
    (4,079
    )Net change in discontinued operations operating activities
    
    
    806
    
    
    
    3,120Total Adjustments
    
    
    9,261
    
    
    
    21,727Net cash provided by/(used in) operating activities
    
    
    5,998
    
    
    
    4,704CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from maturities of securities  HTM
    
    
    575
    
    
    
    1,108Proceeds from maturities of securities  AFS
    
    
    5,577
    
    
    
    4,726Proceeds from calls of securities  HTM
    
    
    380
    
    
    
    0Proceeds from calls of securities  AFS
    
    
    3,500
    
    
    
    2,000Proceeds from sales of securities  AFS
    
    
    7,105
    
    
    
    0Proceeds from sales of equity securities
    
    
    5
    
    
    
    0Purchases of securities  AFS
    
    
    (17,156
    )
    
    
    (10,646
    )Proceeds from sale of bank subsidiary
    
    
    1,900
    
    
    
    0Net decrease in loans
    
    
    20,907
    
    
    
    23,466Proceeds from bank owned life insurance
    
    
    0
    
    
    
    297Sales of other real estate owned
    
    
    2,315
    
    
    
    865Acquisition of premises and equipment, net
    
    
    (115
    )
    
    
    (71
    )Net change in discontinued operations investing activities
    
    
    (548
    )
    
    
    304Net cash provided by investing activities
    
    
    24,445
    
    
    
    22,049CASH FLOWS FROM FINANCING ACTIVITIES:Net increase (decrease) in deposits
    
    
    (29,391
    )
    
    
    9,711Net (decrease) in short term borrowings
    
    
    (154
    )
    
    
    (1,023
    )Repayment of notes payable
    
    
    0
    
    
    
    (250
    )Purchase of advances from FHLB
    
    
    0
    
    
    
    55,495Repayments of advances from FHLB
    
    
    (27
    )
    
    
    (58,221
    )Net proceeds from stock issuance and purchase
    
    
    61
    
    
    
    72Net change in discontinued operations financing activities
    
    
    544
    
    
    
    (2,518
    )Net cash provided by (used in) financing activities
    
    
    (28,967
    )
    
    
    3,266Net change in cash and cash equivalents
    
    $
    1,476
    
    
    $
    30,019Cash and cash equivalents  Beginning
    
    
    42,109
    
    
    
    13,626Cash and cash equivalents  Ending
    
    $
    43,585
    
    
    $
    43,645Less cash and cash equivalents of discontinued operations
    
    
    0
    
    
    
    2,569Cash and cash equivalents of continuing operations
    
    $
    43,585
    
    
    $
    41,076
 6




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Fentura Financial, Inc.
 Consolidated Statements of Cash Flows (Unaudited)
 Six Months EndedJune 30(000s omitted)
    
    2010
    
    
    2009Cash paid for:Interest
    
    $
    3,677
    
    
    $
    5,655Income taxes
    
    $
    0
    
    
    $
    3,715Non-cash Disclosures:Transfers from loans to other real estate
    
    $
    2,333
    
    
    $
    750
  Fentura Financial, Inc.
Consolidated Statements of Comprehensive Income (Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(000s omitted)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Net loss
    
    $
    (2,780
    )
    
    $
    (15,364
    )
    
    $
    (3,263
    )
    
    $
    (17,023
    )Other comprehensive income
(loss), net of tax:Unrealized holding gains (losses) arising
during period
    
    
    669
    
    
    
    1,038
    
    
    
    856
    
    
    
    56Tax effect
    
    
    (266
    )
    
    
    (353
    )
    
    
    (291
    )
    
    
    (19
    )Other comprehensive income (loss)
    
    
    403
    
    
    
    685
    
    
    
    565
    
    
    
    37Comprehensive loss
    
    $
    (2,377
    )
    
    $
    (14,679
    )
    
    $
    (2,698
    )
    
    $
    (16,986
    )
 Fentura Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
 NOTE 1  BASIS OF PRESENTATION
     7




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##### Table of Contents



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
  Stock Option Plans
  9




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##### Table of Contents



NOTE 1  BASIS OF PRESENTATION (continued)
    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 June 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)
   NOTE 3  SECURITIES
  Amortized
    
    
    Gross Unrealized
    
    
    Gross Unrealized(000s omitted)
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAvailable for SaleJune 30, 2010U.S. Government & federal agency
    
    $
    8,715
    
    
    $
    44
    
    
    $
    0
    
    
    $
    8,759State and municipal
    
    
    901
    
    
    
    12
    
    
    
    0
    
    
    
    913Mortgage-backed residential
    
    
    12,947
    
    
    
    306
    
    
    
    0
    
    
    
    13,253Collateralized mortgage obligations
    
    
    21,324
    
    
    
    367
    
    
    
    (524
    )
    
    
    21,167Equity securities
    
    
    1,956
    
    
    
    45
    
    
    
    (489
    )
    
    
    1,512$
    45,843
    
    
    $
    774
    
    
    $
    (1,013
    )
    
    $
    45,604December 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
    
    
    GrossAmortized
    
    
    Unrecognized
    
    
    Unrecognized(000s omitted)
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueHeld to MaturityJune 30, 2010State and municipal
    
    $
    4,697
    
    
    $
    52
    
    
    $
    (5
    )
    
    $
    4,744December 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
    
    $
    9,616
    
    
    $
    9,672Due from one to five years
    
    
    0
    
    
    
    0Due from five to ten years
    
    
    0
    
    
    
    0Mortgage-backed securities
    
    
    12,947
    
    
    
    13,253Collateralized mortgage obligations
    
    
    21,324
    
    
    
    21,167Equity securities
    
    
    1,956
    
    
    
    1,512$
    45,843
    
    
    $
    45,604
 Held to MaturityAmortized
    
    
    Fair(000s omitted)
    
    Cost
    
    
    ValueDue in one year or less
    
    $
    2,616
    
    
    $
    2,624Due from one to five years
    
    
    2,081
    
    
    
    2,120Due from five to ten years
    
    
    0
    
    
    
    0Due after ten years
    
    
    0
    
    
    
    0$
    4,697
    
    
    $
    4,744
    12




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##### Table of Contents



NOTE 3  SECURITIES (continued)
 2010
 Less than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized(000s omitted)
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossCollateralized mortgage obligations
    
    
    0
    
    
    
    0
    
    
    
    4,854
    
    
    
    (524
    )
    
    
    4,854
    
    
    
    (524
    )Equity securities
    
    
    0
    
    
    
    0
    
    
    
    717
    
    
    
    (489
    )
    
    
    717
    
    
    
    (489
    )Total temporarily impaired
    
    $
    0
    
    
    $
    0
    
    
    $
    5,571
    
    
    $
    (1,013
    )
    
    $
    5,571
    
    
    $
    (1,013
    )
 2009
 Less than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized(000s omitted)
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossUS Government & federal agency
    
    $
    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
 NOTE 4  LOANS AND ALLOWANCE FOR LOAN LOSSES
  (000s omitted)
    
    June 30, 2010
    
    
    December 31, 2009Commercial
    
    $
    83,004
    
    
    $
    81,425Real estate  commercial
    
    
    161,668
    
    
    
    171,339Real estate  construction
    
    
    17,578
    
    
    
    26,295Real estate  mortgage
    
    
    24,465
    
    
    
    28,058Consumer
    
    
    43,567
    
    
    
    48,313330,282
    
    
    
    355,430Less allowance for loan losses
    
    
    14,227
    
    
    
    10,726$
    316,055
    
    
    $
    344,704
  14




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##### Table of Contents



NOTE 4  LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
  (000s omitted)
    
    June 30, 2010
    
    
    June 30, 2009Balance, January 1,
    
    $
    10,726
    
    
    $
    10,455Provision for loan losses
    
    
    5,409
    
    
    
    9,366Loans charged off
    
    
    (2,646
    )
    
    
    (5,958
    )Loan recoveries
    
    
    738
    
    
    
    107Balance, end of period
    
    $
    14,227
    
    
    $
    13,970
  (000s omitted)
    
    June 30, 2010
    
    
    June 30, 2009Balance, January 1,
    
    $
    12,338
    
    
    $
    11,405Provision for loan losses
    
    
    3,619
    
    
    
    7,711Loans charged off
    
    
    (1,863
    )
    
    
    (5,194
    )Loan recoveries
    
    
    133
    
    
    
    48Balance, end of period
    
    $
    14,227
    
    
    $
    13,970
   (000s omitted)
    
    June 30, 2010
    
    
    December 31, 2009Period end loans not requiring allocation
    
    $
    14,329
    
    
    $
    15,874Period end loans requiring allocation
    
    
    25,278
    
    
    
    23,059$
    39,607
    
    
    $
    38,933Amount of the allowance for loan losses allocated
    
    $
    8,105
    
    
    $
    5,683
  (000s omitted)
    
    June 30, 2010
    
    
    December 31, 2009Loans past due over 90 days still on accrual
    
    $
    1,673
    
    
    $
    319Renegotiated loans
    
    
    2,324
    
    
    
    3,822Non-accrual loans
    
    
    16,661
    
    
    
    16,507
  NOTE 5 FAIR VALUE
   15




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##### Table of Contents



NOTE 5  FAIR VALUE (continued)
    Impaired Loans:
 Other Real Estate Owned:
 16




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##### Table of Contents



NOTE 5  FAIR VALUE (continued)
 Assets Measured on a Recurring Basis
  Fair Value Measurements UsingSignificantQuoted Prices in
    
    
    Other
    
    
    SignificantActive Markets
    
    
    Observable
    
    
    Unobservablefor Identical
    
    
    Inputs
    
    
    Inputs(000s omitted)
    
    Total
    
    
    Assets (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)June 30, 2010Available for sale securitiesUS Government and federal agency
    
    $
    8,759
    
    
    $
    0
    
    
    $
    8,759
    
    
    $
    0State and municipal
    
    
    913
    
    
    
    0
    
    
    
    913
    
    
    
    0Mortgage-backed residential
    
    
    13,253
    
    
    
    0
    
    
    
    13,253
    
    
    
    0Collateralized mortgage obligations
    
    
    21,167
    
    
    
    0
    
    
    
    21,167
    
    
    
    0Equity securities
    
    
    1,512
    
    
    
    7
    
    
    
    1,505
    
    
    
    0$
    45,604
    
    
    $
    7
    
    
    $
    45,597
    
    
    $
    0
 Fair Value Measurements UsingQuoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets
    
    
    Other
    
    
    Unobservablefor Identical
    
    
    Observable Inputs
    
    
    Inputs(000s omitted)
    
    Total
    
    
    Assets (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
  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 earningsLoss on security impairment
    
    
    200
    
    
    
    0
    
    
    
    200Included in other comprehensive income
    
    
    (356
    )
    
    
    0
    
    
    
    (356
    )Purchases, issuances, and settlementsTransfers in and / or out of Level 3
    
    
    (1,385
    )
    
    
    0
    
    
    
    (1,385
    )Ending balance, June 30, 2009
    
    $
    0
    
    
    $
    0
    
    
    $
    0
 17




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##### Table of Contents



NOTE 5 FAIR VALUE (continued)
 Assets Measured on a Non-Recurring Basis
  Quoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets for
    
    
    Other
    
    
    UnobservableIdentical Assets
    
    
    Observable
    
    
    Inputs(000s omitted)
    
    Total
    
    
    (Level 1)
    
    
    Inputs (Level 2)
    
    
    (Level 3)At June 30, 2010Impaired loans
    
    $
    17,355
    
    
    $
    0
    
    
    $
    0
    
    
    $
    17,355Other real estate owned
    
    
    540
    
    
    
    0
    
    
    
    0
    
    
    
    540At December 31, 2009Impaired loans
    
    $
    17,376
    
    
    $
    0
    
    
    $
    0
    
    
    $
    17,376Other real estate owned
    
    
    1,274
    
    
    
    0
    
    
    
    0
    
    
    
    1,274
     June 30, 2010
    
    
    December 31, 2009(000s omitted)
    
    Carrying Amount
    
    
    Fair Value
    
    
    Carrying Amount
    
    
    Fair ValueAssets:Cash and cash equivalents
    
    $
    43,585
    
    
    $
    43,585
    
    
    $
    42,109
    
    
    $
    42,109Securities  held to maturity
    
    
    4,697
    
    
    
    4,744
    
    
    
    5,456
    
    
    
    5,493FHLB stock
    
    
    1,900
    
    
    
    n/a
    
    
    
    1,900
    
    
    
    n/aLoans held for sale
    
    
    1,259
    
    
    
    1,259
    
    
    
    831
    
    
    
    831Loans (including impaired loans)
    
    
    316,055
    
    
    
    306,413
    
    
    
    344,704
    
    
    
    326,422Accrued interest receivable
    
    
    1,743
    
    
    
    1,743
    
    
    
    1,813
    
    
    
    1,813Liabilities:Deposits
    
    $
    411,384
    
    
    $
    409,814
    
    
    $
    440,775
    
    
    $
    441,827Short-term borrowings
    
    
    10
    
    
    
    10
    
    
    
    164
    
    
    
    164FHLB advances
    
    
    7,954
    
    
    
    8,376
    
    
    
    7,981
    
    
    
    8,488Subordinated debentures
    
    
    14,000
    
    
    
    12,613
    
    
    
    14,000
    
    
    
    12,656Accrued interest payable
    
    
    1,021
    
    
    
    1,021
    
    
    
    892
    
    
    
    892
 18




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##### Table of Contents



NOTE 5  FAIR VALUE (continued)
  Cash and cash equivalents
 Securities
 FHLB Stock
 Loans held for sale
  Loans
  Off-balance-sheet instruments
  Deposit liabilities
 Short-term borrowings
 FHLB advances
 Subordinated Debentures
 19




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##### Table of Contents



NOTE 5  FAIR VALUE (continued)
 Limitations
 NOTE 6  INCOME TAXES
    NOTE 7  EARNINGS PER COMMON SHARE
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(000s omitted except share and per share data)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009BasicNet loss
    
    $
    (2,780
    )
    
    $
    (15,364
    )
    
    $
    (3,263
    )
    
    $
    (17,023
    )Weighted average common shares outstanding
    
    
    2,268,791
    
    
    
    2,196,743
    
    
    
    2,259,406
    
    
    
    2,191,940Basic loss per common share
    
    $
    (1.23
    )
    
    $
    (6.99
    )
    
    $
    (1.44
    )
    
    $
    (7.77
    )DilutedNet loss
    
    $
    (2,780
    )
    
    $
    (15,364
    )
    
    $
    (3,263
    )
    
    $
    (17,023
    )Weighted average common shares outstanding for
basic earnings per common share
    
    
    2,268,791
    
    
    
    2,196,743
    
    
    
    2,259,406
    
    
    
    2,191,940Add: Dilutive effects of assumed exercises of stockOptions
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Average shares and dilutive potential common shares
    
    
    2,268,791
    
    
    
    2,196,743
    
    
    
    2,259,406
    
    
    
    2,191,940Diluted loss per common share
    
    $
    (1.23
    )
    
    $
    (6.99
    )
    
    $
    (1.44
    )
    
    $
    (7.77
    )
 20




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##### Table of Contents



NOTE 7  EARNINGS PER COMMON SHARE (continued)
  NOTE 8  COMMITMENTS AND CONTINGENCIES
  NOTE 9 DISCONTINUED OPERATIONS
   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
  21




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##### Table of Contents



NOTE 9 DISCONTINUED OPERATIONS (continued)
 DAVISON STATE BANK
CONDENSED STATEMENT OF INCOME OF DISCONTINUED OPERATIONS
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302010
    
    
    2009
    
    
    2010
    
    
    2009Interest income
    
    $
    150
    
    
    $
    513
    
    
    $
    607
    
    
    $
    1,062Interest expense
    
    
    27
    
    
    
    171
    
    
    
    116
    
    
    
    359Net interest income
    
    
    123
    
    
    
    342
    
    
    
    491
    
    
    
    703Provision for loan losses
    
    
    0
    
    
    
    156
    
    
    
    (5
    )
    
    
    155Net interest income after provision for loan losses
    
    
    123
    
    
    
    186
    
    
    
    496
    
    
    
    548Non-interest income
    
    
    51
    
    
    
    141
    
    
    
    178
    
    
    
    263Non-interest expense
    
    
    351
    
    
    
    490
    
    
    
    121
    
    
    
    1,677Income/(loss) before federal income tax
    
    
    (177
    )
    
    
    (163
    )
    
    
    553
    
    
    
    (866
    )Federal income tax expense/(benefit)
    
    
    (62
    )
    
    
    676
    
    
    
    181
    
    
    
    676Net income/(loss)
    
    $
    (115
    )
    
    $
    (839
    )
    
    $
    372
    
    
    $
    (1,542
    )
 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 June 30, 2010Total Capital
(to Risk Weighted Assets)Consolidated
    
    $
    28,691
    
    
    
    7.8
    %
    
    $
    29,586
    
    
    
    8.0
    %
    
    NA
        
    NAThe State Bank
    
    
    24,863
    
    
    
    9.8
    
    
    
    20,269
    
    
    
    8.0
    
    
    $
    30,403
    
    
    
    12.0
    %(1)West Michigan Community Bank
    
    
    10,668
    
    
    
    9.3
    
    
    
    9,152
    
    
    
    8.0
    
    
    NA
    

    NATier 1 Capital
(to Risk Weighted Assets)Consolidated
    
    
    23,967
    
    
    
    6.5
    
    
    
    14,793
    
    
    
    4.0
    
    
    NA
    
    NAThe State Bank
    
    
    21,595
    
    
    
    8.5
    
    
    
    10,134
    
    
    
    4.0
    
    
    NA
    
    NAWest Michigan Community Bank
    
    
    9,231
    
    
    
    8.1
    
    
    
    4,576
    
    
    
    4.0
    
    
    NA
    
    NATier 1 Capital
(to Average Assets)Consolidated
    
    
    23,967
    
    
    
    5.1
    
    
    
    18,957
    
    
    
    4.0
    
    
    NA
    
    NAThe State Bank
    
    
    21,595
    
    
    
    6.8
    
    
    
    12,640
    
    
    
    4.0
    
    
    
    25,280
    
    
    
    8.0West Michigan Community Bank
    
    
    9,231
    
    
    
    6.4
    
    
    
    5,770
    
    
    
    4.0
    
    
    
    11,540
    
    
    
    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 April 10, 2010 24




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##### Table of Contents



NOTE 11-DEFINITIVE AGREEMENT
  25




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##### Table of Contents



ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Results of Operations
    Net Interest Income
   26




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##### Table of Contents



Table 1
 SIX MONTHS ENDEDJUNE 302010 COMPARED TO 2009INCREASE (DECREASE)DUE TOYIELD/(000s omitted)
    
    VOL
    
    
    RATE
    
    
    TOTALTaxable securities
    
    $
    (68
    )
    
    $
    (130
    )
    
    $
    (198
    )Tax-exempt securities
    
    
    (82
    )
    
    
    (2
    )
    
    
    (84
    )Other securities
    
    
    (1
    )
    
    
    (21
    )
    
    
    (22
    )Federal funds sold
    
    
    15
    
    
    
    0
    
    
    
    15Total loans
    
    
    (2,263
    )
    
    
    329
    
    
    
    (1,934
    )Loans held for sale
    
    
    (28
    )
    
    
    1
    
    
    
    (27
    )Total earning assets
    
    
    (2,427
    )
    
    
    177
    
    
    
    (2,250
    )Interest bearing demand deposits
    
    
    (23
    )
    
    
    (218
    )
    
    
    (241
    )Savings deposits
    
    
    (5
    )
    
    
    (155
    )
    
    
    (160
    )Time CDs $100,000 and over
    
    
    (565
    )
    
    
    (244
    )
    
    
    (809
    )Other time deposits
    
    
    (157
    )
    
    
    (448
    )
    
    
    (605
    )Other borrowings
    
    
    (96
    )
    
    
    (111
    )
    
    
    (207
    )Total interest bearing liabilities
    
    
    (846
    )
    
    
    (1,176
    )
    
    
    (2,022
    )Net Interest Income
    
    $
    (1,581
    )
    
    $
    1,353
    
    
    $
    (228
    )
      27




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##### Table of Contents



Table 2 Average Balance and Rates
 SIX MONTHS ENDED JUNE 30,2010
    
    
    2009AVERAGE
    
    
    INCOME/
    
    
    YIELD/
    
    
    AVERAGE
    
    
    INCOME/
    
    
    YIELD/(000s omitted)(Annualized)
    
    BALANCE
    
    
    EXPENSE
    
    
    RATE
    
    
    BALANCE
    
    
    EXPENSE
    
    
    RATEASSETSSecurities:U.S. Treasury and Government Agencies
    
    $
    33,285
    
    
    $
    561
    
    
    
    3.40
    %
    
    $
    36,818
    
    
    $
    759
    
    
    
    4.16
    %State and Political (1)
    
    
    11,428
    
    
    
    345
    
    
    
    6.09
    %
    
    
    14,143
    
    
    
    429
    
    
    
    6.11
    %Other
    
    
    3,423
    
    
    
    28
    
    
    
    1.65
    %
    
    
    3,526
    
    
    
    50
    
    
    
    2.86
    %Total Securities
    
    
    48,136
    
    
    
    934
    
    
    
    3.91
    %
    
    
    54,487
    
    
    
    1,238
    
    
    
    4.58
    %Fed Funds Sold
    
    
    29,552
    
    
    
    15
    
    
    
    0.10
    %
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %Loans:Commercial
    
    
    269,922
    
    
    
    8,279
    
    
    
    6.19
    %
    
    
    328,220
    
    
    
    9,777
    
    
    
    6.01
    %Tax Free (1)
    
    
    2,325
    
    
    
    74
    
    
    
    6.42
    %
    
    
    2,724
    
    
    
    85
    
    
    
    6.29
    %Real Estate-Mortgage
    
    
    26,694
    
    
    
    837
    
    
    
    6.32
    %
    
    
    36,339
    
    
    
    1,117
    
    
    
    6.20
    %Consumer
    
    
    45,871
    
    
    
    1,320
    
    
    
    5.80
    %
    
    
    51,693
    
    
    
    1,465
    
    
    
    5.72
    %Total loans
    
    
    344,812
    
    
    
    10,510
    
    
    
    6.15
    %
    
    
    418,976
    
    
    
    12,444
    
    
    
    5.99
    %Allowance for Loan Losses
    
    
    (11,744
    )
    
    
    
    
    
    
    
    
    
    
    (10,772
    )Net Loans
    
    
    333,068
    
    
    
    10,510
    
    
    
    6.36
    %
    
    
    408,204
    
    
    
    12,444
    
    
    
    6.15
    %Loans Held for Sale
    
    
    844
    
    
    
    21
    
    
    
    5.02
    %
    
    
    1,979
    
    
    
    48
    
    
    
    4.89
    %TOTAL EARNING ASSETS CONTINUING OPERATIONS
    
    $
    423,344
    
    
    
    11,480
    
    
    
    5.47
    %
    
    $
    475,442
    
    
    
    13,730
    
    
    
    5.82
    %Cash Due from Banks
    
    
    16,090
    
    
    
    
    
    
    
    
    
    
    
    27,794Assets of discontinued operations
    
    
    24,716
    
    
    
    
    
    
    
    
    
    
    
    44,138All Other Assets
    
    
    43,290
    
    
    
    
    
    
    
    
    
    
    
    41,605TOTAL ASSETS
    
    $
    495,696
    
    
    
    
    
    
    
    
    
    
    $
    578,207LIABILITIES & SHAREHOLDERS EQUITY:Deposits:Interest bearing  DDA
    
    $
    82,842
    
    
    $
    170
    
    
    
    0.41
    %
    
    $
    87,954
    
    
    $
    411
    
    
    
    0.94
    %Savings Deposits
    
    
    71,260
    
    
    
    45
    
    
    
    0.13
    %
    
    
    73,027
    
    
    
    205
    
    
    
    0.57
    %Time CDs $100,000 and Over
    
    
    102,648
    
    
    
    1,986
    
    
    
    3.90
    %
    
    
    130,946
    
    
    
    2,795
    
    
    
    4.30
    %Other Time CDs
    
    
    103,576
    
    
    
    1,210
    
    
    
    2.36
    %
    
    
    114,204
    
    
    
    1,815
    
    
    
    3.20
    %Total Deposits
    
    
    360,326
    
    
    
    3,411
    
    
    
    1.91
    %
    
    
    406,131
    
    
    
    5,226
    
    
    
    2.59
    %Other Borrowings
    
    
    22,305
    
    
    
    395
    
    
    
    3.57
    %
    
    
    27,093
    
    
    
    602
    
    
    
    4.48
    %INTEREST BEARING LIABILITIES
    
    $
    382,631
    
    
    
    3,806
    
    
    
    2.01
    %
    
    $
    433,224
    
    
    
    5,828
    
    
    
    2.71
    %Non-Interest bearing  DDA
    
    
    66,532
    
    
    
    
    
    
    
    
    
    
    
    66,897Liabilities of discontinued operations
    
    
    24,716
    
    
    
    
    
    
    
    
    
    
    
    40,845All Other Liabilities
    
    
    3,346
    
    
    
    
    
    
    
    
    
    
    
    1,853Shareholders Equity
    
    
    18,471
    
    
    
    
    
    
    
    
    
    
    
    35,388TOTAL LIABILITIES & SHAREHOLDERS EQUITY
    
    $
    495,696
    
    
    
    
    
    
    
    
    
    
    $
    578,207Net Interest Rate Spread
    
    
    
    
    
    
    
    
    
    
    3.12
    %
    
    
    
    
    
    
    
    
    
    
    3.79
    %Net Interest Income /Margin
    
    
    
    
    
    $
    7,674
    
    
    
    3.66
    %
    
    
    
    
    
    $
    7,902
    
    
    
    3.35
    %
 
 (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 JUNE 30,2010
    
    
    2009AVERAGE
    
    
    INCOME/
    
    
    YIELD/
    
    
    AVERAGE
    
    
    INCOME/
    
    
    YIELD/(000s omitted)(Annualized)
    
    BALANCE
    
    
    EXPENSE
    
    
    RATE
    
    
    BALANCE
    
    
    EXPENSE
    
    
    RATEASSETSSecurities:U.S. Treasury and Government Agencies
    
    $
    33,408
    
    
    $
    283
    
    
    
    3.40
    %
    
    $
    37,664
    
    
    $
    383
    
    
    
    4.08
    %State and Political (1)
    
    
    10,319
    
    
    
    158
    
    
    
    6.14
    %
    
    
    13,889
    
    
    
    209
    
    
    
    6.04
    %Other
    
    
    2,907
    
    
    
    14
    
    
    
    1.93
    %
    
    
    2,905
    
    
    
    7
    
    
    
    0.97
    %Total Securities
    
    
    46,634
    
    
    
    455
    
    
    
    3.91
    %
    
    
    54,458
    
    
    
    599
    
    
    
    4.41
    %Fed Funds Sold
    
    
    33,429
    
    
    
    10
    
    
    
    0.12
    %
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %Loans:Commercial
    
    
    265,246
    
    
    
    4,104
    
    
    
    6.21
    %
    
    
    323,183
    
    
    
    4,693
    
    
    
    5.82
    %Tax Free (1)
    
    
    2,265
    
    
    
    37
    
    
    
    6.55
    %
    
    
    2,697
    
    
    
    44
    
    
    
    6.53
    %Real Estate-Mortgage
    
    
    25,796
    
    
    
    415
    
    
    
    6.45
    %
    
    
    36,957
    
    
    
    525
    
    
    
    5.70
    %Consumer
    
    
    44,533
    
    
    
    644
    
    
    
    5.80
    %
    
    
    49,295
    
    
    
    730
    
    
    
    5.94
    %Total loans
    
    
    337,840
    
    
    
    5,200
    
    
    
    6.17
    %
    
    
    412,132
    
    
    
    5,992
    
    
    
    5.83
    %Allowance for Loan Losses
    
    
    (12,330
    )
    
    
    
    
    
    
    
    
    
    
    (11,101
    )Net Loans
    
    
    325,510
    
    
    
    5,200
    
    
    
    6.41
    %
    
    
    401,031
    
    
    
    5,992
    
    
    
    5.99
    %Loans Held for Sale
    
    
    975
    
    
    
    12
    
    
    
    4.94
    %
    
    
    1,870
    
    
    
    23
    
    
    
    4.93
    %TOTAL EARNING ASSETS CONTINUING OPERATIONS
    
    $
    418,878
    
    
    $
    5,677
    
    
    
    5.44
    %
    
    $
    468,460
    
    
    $
    6,614
    
    
    
    5.66
    %Cash Due from Banks
    
    
    16,923
    
    
    
    
    
    
    
    
    
    
    
    38,776Assets of discontinued operations
    
    
    12,353
    
    
    
    
    
    
    
    
    
    
    
    43,405All Other Assets
    
    
    41,937
    
    
    
    
    
    
    
    
    
    
    
    41,224TOTAL ASSETS
    
    $
    477,761
    
    
    
    
    
    
    
    
    
    
    $
    580,764LIABILITIES & SHAREHOLDERS EQUITY:Deposits:Interest bearing  DDA
    
    $
    82,733
    
    
    $
    75
    
    
    
    0.36
    %
    
    $
    85,972
    
    
    $
    194
    
    
    
    0.91
    %Savings Deposits
    
    
    72,847
    
    
    
    23
    
    
    
    0.13
    %
    
    
    76,644
    
    
    
    111
    
    
    
    0.58
    %Time CDs $100,000 and Over
    
    
    95,852
    
    
    
    941
    
    
    
    3.94
    %
    
    
    129,979
    
    
    
    1,381
    
    
    
    4.26
    %Other Time CDs
    
    
    100,838
    
    
    
    555
    
    
    
    2.21
    %
    
    
    118,665
    
    
    
    927
    
    
    
    3.13
    %Total Deposits
    
    
    352,270
    
    
    
    1,594
    
    
    
    1.81
    %
    
    
    411,260
    
    
    
    2,613
    
    
    
    2.55
    %Other Borrowings
    
    
    22,279
    
    
    
    198
    
    
    
    3.56
    %
    
    
    24,406
    
    
    
    291
    
    
    
    4.78
    %INTEREST BEARING LIABILITIES
    
    $
    374,549
    
    
    $
    1,792
    
    
    
    1.92
    %
    
    $
    435,666
    
    
    $
    2,904
    
    
    
    2.67
    %Non-Interest bearing  DDA
    
    
    68,662
    
    
    
    
    
    
    
    
    
    
    
    68,798Liabilities of discontinued operations
    
    
    12,353
    
    
    
    
    
    
    
    
    
    
    
    40,334All Other Liabilities
    
    
    3,255
    
    
    
    
    
    
    
    
    
    
    
    1,798Shareholders Equity
    
    
    18,942
    
    
    
    
    
    
    
    
    
    
    
    34,168TOTAL LIABILITIES & SHAREHOLDERS EQUITY
    
    $
    477,761
    
    
    
    
    
    
    
    
    
    
    $
    580,764Net Interest Rate Spread
    
    
    
    
    
    
    
    
    
    
    2.85
    %
    
    
    
    
    
    
    
    
    
    
    2.99
    %Net Interest Income /Margin
    
    
    
    
    
    $
    3,885
    
    
    
    3.72
    %
    
    
    
    
    
    $
    3,710
    
    
    
    3.18
    %
 29




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Allowance and Provision For Loan Losses
     30




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##### Table of Contents



Table 4 Analysis of the Allowance for Loan Losses
 Six Months Ended June 30,(000s omitted)
    
    2010
    
    
    2009Balance at Beginning of Period
    
    $
    10,726
    
    
    $
    10,455Charge-Offs:Commercial, Financial and Agriculture
    
    
    (2,081
    )
    
    
    (5,063
    )Real Estate-Mortgage
    
    
    (179
    )
    
    
    (476
    )Installment Loans to Individuals
    
    
    (386
    )
    
    
    (418
    )Total Charge-Offs
    
    
    (2,646
    )
    
    
    (5,957
    )Recoveries:Commercial, Financial and Agriculture
    
    
    651
    
    
    
    60Real Estate-Mortgage
    
    
    39
    
    
    
    2Installment Loans to Individuals
    
    
    48
    
    
    
    44Total Recoveries
    
    
    738
    
    
    
    106Net Charge-Offs
    
    
    (1,908
    )
    
    
    (5,851
    )Provision
    
    
    5,409
    
    
    
    9,366Balance at End of Period
    
    $
    14,227
    
    
    $
    13,970Ratio of Net Charge-Offs to Gross Loans
    
    
    0.58
    %
    
    
    1.46
    %
 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
 June 30,
    
    
    December 31,(000s omitted)
    
    2010
    
    
    2009Non-Performing Loans:Loans Past Due 90 Days or More & Still Accruing
    
    $
    1,673
    
    
    $
    319Non-Accrual Loans
    
    
    16,661
    
    
    
    16,507Renegotiated Loans
    
    
    2,324
    
    
    
    3,822Total Non-Performing Loans
    
    
    20,658
    
    
    
    20,648Other Non-Performing Assets:Other Real Estate
    
    
    7,948
    
    
    
    7,967REO in Redemption
    
    
    2,792
    
    
    
    4,972Total Other Non-Performing Assets
    
    
    10,740
    
    
    
    12,939Total Non-Performing Assets
    
    $
    31,398
    
    
    $
    33,587Non-Performing Loans as a % of Total Loans
    
    
    6.23
    %
    
    
    5.80
    %Non-Performing Loans as a % of Total Loans and Other Real Estate
    
    
    6.09
    %
    
    
    5.67
    %Allowance for Loan Losses as a % of Non-Performing Loans
    
    
    68.87
    %
    
    
    51.95
    %Accruing Loans Past Due 90 Days or More to Total Loans
    
    
    0.50
    %
    
    
    0.09
    %Non-performing Assets as a % of Total Assets
    
    
    6.90
    %
    
    
    6.43
    %
    Liquidity and Interest Rate Risk Management
  34




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Capital Resources
    35




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##### Table of Contents



Regulatory Orders
       36




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##### Table of Contents



Critical Accounting Policies and Estimates
       37




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##### Table of Contents



Off Balance Sheet Arrangements
   (000s omitted)
    
    June 30, 2010
    
    
    December 31, 2009Commitments to make loans (at market rates)
    
    $
    5,812
    
    
    $
    2,939Unused lines of credit and letters of credit
    
    
    44,659
    
    
    
    53,941
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    Interest Rate Sensitivity Management
   38




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##### Table of Contents



Table 6 GAP Analysis  June 30, 2010
 Within
    
    
    Three
    
    
    One to
    
    
    AfterThree
    
    
    Months to
    
    
    Five
    
    
    Five(000s omitted)
    
    Months
    
    
    One Year
    
    
    Years
    
    
    Years
    
    
    TotalEarning Assets:Federal Funds Sold
    
    $
    28,050
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    28,050Securities
    
    
    5,815
    
    
    
    13,314
    
    
    
    11,961
    
    
    
    19,211
    
    
    
    50,301Loans
    
    
    76,065
    
    
    
    59,985
    
    
    
    152,187
    
    
    
    42,045
    
    
    
    330,282Loans Held for Sale
    
    
    1,259
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,259FHLB Stock
    
    
    1,900
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,900Total Earning Assets
    
    $
    113,089
    
    
    $
    73,299
    
    
    $
    164,148
    
    
    $
    61,256
    
    
    $
    411,792Interest Bearing Liabilities:Interest Bearing Demand Deposits
    
    $
    80,878
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    80,878Savings Deposits
    
    
    74,869
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    74,869Time Deposits Less than $100,000
    
    
    19,831
    
    
    
    42,325
    
    
    
    34,726
    
    
    
    98
    
    
    
    96,980Time Deposits Greater than $100,000
    
    
    6,766
    
    
    
    42,385
    
    
    
    39,551
    
    
    
    0
    
    
    
    88,702Short term borrowings
    
    
    10
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    10Other Borrowings
    
    
    2,000
    
    
    
    5,030
    
    
    
    148
    
    
    
    776
    
    
    
    7,954Subordinated debentures
    
    
    14,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    14,000Total Interest Bearing Liabilities
    
    $
    198,354
    
    
    $
    89,740
    
    
    $
    74,425
    
    
    $
    874
    
    
    $
    363,393Interest Rate Sensitivity GAP
    
    $
    (85,265
    )
    
    $
    (16,441
    )
    
    $
    89,723
    
    
    $
    60,382
    
    
    $
    48,399Cumulative Interest Rate
Sensitivity GAP
    
    $
    (85,265
    )
    
    $
    (101,706
    )
    
    $
    (11,983
    )
    
    $
    48,399Interest Rate Sensitivity GAP
    
    
    0.57
    
    
    
    0.82
    
    
    
    2.21
    
    
    
    70.09Cumulative Interest Rate
Sensitivity GAP Ratio
    
    
    0.57
    
    
    
    0.65
    
    
    
    0.97
    
    
    
    1.13
  Forward Looking Statements
  39




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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.
 40




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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.
  10.1
    
    Stock purchase agreement for sale of West Michigan Community
Bank dated April 27, 2010 (incorporated by reference from Form 8-K filed on May
3, 2010).
 31.1
    
    Certificate of the President and Chief Executive Officer of
Fentura Financial, Inc. pursuant to 15 U.S.C. Section 7241, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
 31.2
    
    Certificate of the Chief Financial Officer of Fentura
Financial, Inc. pursuant to 15 U.S.C. Section 7241, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
 32.1
    
    Certificate of the Chief Executive Officer of Fentura
Financial, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 32.2
    
    Certificate of the Chief Financial Officer of Fentura
Financial, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 41




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##### Table of Contents



Fentura Financial, Inc.Dated:  August 13, 2010
    /s/Donald L. GrillDonald L. GrillPresident & CEODated:  August 13, 2010
    /s/Douglas J. KelleyDouglas J. KelleyChief Financial Officer 42




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##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    Description10.1
    
    Stock purchase agreement for sale of West Michigan Community Bank dated April 27, 2010
(incorporated by reference from Form 8-K filed on May 3, 2010).31.1
    
    Certificate of the President and Chief Executive Officer of Fentura Financial, Inc. pursuant
to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.31.2
    
    Certificate of the Chief Financial Officer of Fentura Financial, Inc. pursuant to 15 U.S.C.
Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certificate of the Chief Executive Officer of Fentura Financial, Inc. pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certificate of the Chief Financial Officer of Fentura Financial, Inc. pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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