##### 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
  OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 
  Fentura Financial, Inc.
  Michigan
    
    38-2806518(State or other jurisdiction of
    
    (IRS Employee Identification No.)incorporation or organization)
 175 N Leroy, P.O. Box 725, Fenton, Michigan 48430
 (810) 629-2263
 þ o
  Large accelerated filer  o
    
    Accelerated filer  o
    
    Non-accelerated filer  þ
 o þ
  Class  Common Stock
    
    Shares Outstanding  2,142,496




---



##### 



Fentura Financial Inc.
Index to Form 10-Q
 PagePart I  Financial Information
    
    3Item 1  Consolidated Financial Statements (Unaudited)
    
    3-11Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    11-23Item 3  Quantitative and Qualitative Disclosures about Market Risk
    
    23Item 4  Controls and Procedures
    
    25Part II  Other Information
    
    26Item 1  Legal Proceedings
    
    26Item 1A  Risk Factors
    
    26Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    26Item 3  Defaults Upon Senior Securities
    
    26Item 4 Submission of Matters to a Vote of Security Holders
    
    26Item 5  Other Information
    
    26Item 6  Exhibits
    
    26Signatures
    
    27Exhibit Index
    
    28Certificate of the President and Chief Executive Officer to Section 302Certificate of the Chief Financial Officer to Section 302Certificate of the Chief Executive Officer to Section 906Certificate of the Chief Financial Officer to Section 906
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 Fentura Financial, Inc.
 Consolidated Balance Sheets
 June 30,
    
    Dec 31,2006
    
    2005(000's omitted except share data)
    
    (unaudited)ASSETSCash and due from banks
    
    $
    19,346
    
    
    $
    21,327Federal funds sold
    
    
    6,900
    
    
    
    9,750Total cash & cash equivalents
    
    
    26,246
    
    
    
    31,077Securities-available for sale
    
    
    92,646
    
    
    
    99,542Securities-held to maturity, (fair value of $16,734
at June 30, 2006 and $14,672 at December 31, 2005)
    
    
    16,958
    
    
    
    14,851Total securities
    
    
    109,604
    
    
    
    114,393Loans held for sale
    
    
    679
    
    
    
    1,042Loans:Commercial
    
    
    265,097
    
    
    
    254,498Real estate loans  construction
    
    
    87,908
    
    
    
    76,386Real estate loans  mortgage
    
    
    37,076
    
    
    
    37,627Consumer loans
    
    
    66,896
    
    
    
    70,845Total loans
    
    
    456,977
    
    
    
    439,356Less: Allowance for loan losses
    
    
    (6,682
    )
    
    
    (6,301
    )Net loans
    
    
    450,295
    
    
    
    433,055Bank Owned Life Insurance
    
    
    6,683
    
    
    
    6,579Bank premises and equipment
    
    
    16,665
    
    
    
    14,617Federal Home Loan Bank stock
    
    
    2,432
    
    
    
    2,300Accrued interest receivable
    
    
    2,837
    
    
    
    2,676Goodwill
    
    
    7,955
    
    
    
    7,955Acquisition intangibles
    
    
    912
    
    
    
    1,075Other assets
    
    
    4,857
    
    
    
    4,320Total assets
    
    $
    629,165
    
    
    $
    619,089LIABILITIESDeposits:Non-interest bearing deposits
    
    $
    77,463
    
    
    $
    76,792Interest bearing deposits
    
    
    456,937
    
    
    
    451,262Total deposits
    
    
    534,400
    
    
    
    528,054Short term borrowings
    
    
    6,565
    
    
    
    1,537Federal Home Loan Bank Advances
    
    
    12,130
    
    
    
    14,228Repurchase Agreements
    
    
    10,000
    
    
    
    10,000Subordinated debentures
    
    
    14,000
    
    
    
    14,000Accrued taxes, interest and other liabilities
    
    
    4,026
    
    
    
    4,375Total liabilities
    
    
    581,121
    
    
    
    572,194SHAREHOLDERS EQUITYCommon stock  no par value2,142,496 shares issued (1,931,297 at Dec. 31, 2005)
    
    
    41,810
    
    
    
    34,491Retained earnings
    
    
    8,358
    
    
    
    13,729Accumulated other comprehensive income (loss)
    
    
    (2,124
    )
    
    
    (1,325
    )Total shareholders equity
    
    
    48,044
    
    
    
    46,895Total Liabilities and Shareholders Equity
    
    $
    629,165
    
    
    $
    619,089
  3




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##### Table of Contents



Fentura Financial, Inc.  Consolidated Statements of Income (Unaudited)
 Three Months Ended
    
    Six Months EndedJune 30
    
    June 30(000's omitted except per share data)
    
    2006
    
    2005
    
    2006
    
    2005INTEREST INCOMEInterest and fees on loans
    
    $
    8,852
    
    
    $
    7,226
    
    
    $
    17,282
    
    
    $
    13,767Interest and dividends on securities:Taxable
    
    
    852
    
    
    
    811
    
    
    
    1,735
    
    
    
    1,663Tax-exempt
    
    
    196
    
    
    
    233
    
    
    
    403
    
    
    
    477Interest on federal funds sold
    
    
    79
    
    
    
    8
    
    
    
    173
    
    
    
    18Total interest income
    
    
    9,979
    
    
    
    8,278
    
    
    
    19,593
    
    
    
    15,925INTEREST EXPENSEDeposits
    
    
    3,594
    
    
    
    2,111
    
    
    
    6,835
    
    
    
    3,911Borrowings
    
    
    540
    
    
    
    479
    
    
    
    1,047
    
    
    
    937Total interest expense
    
    
    4,134
    
    
    
    2,590
    
    
    
    7,882
    
    
    
    4,848NET INTEREST INCOME
    
    
    5,845
    
    
    
    5,688
    
    
    
    11,711
    
    
    
    11,077Provision for loan losses
    
    
    240
    
    
    
    329
    
    
    
    640
    
    
    
    598Net interest income after
Provision for loan losses
    
    
    5,605
    
    
    
    5,359
    
    
    
    11,071
    
    
    
    10,479NON-INTEREST INCOMEService charges on deposit accounts
    
    
    950
    
    
    
    879
    
    
    
    1,760
    
    
    
    1,664Gain on sale of mortgage loans
    
    
    157
    
    
    
    166
    
    
    
    320
    
    
    
    348Trust and investment services income
    
    
    417
    
    
    
    294
    
    
    
    800
    
    
    
    588Gain (Loss) on sale of securities
    
    
    0
    
    
    
    1
    
    
    
    0
    
    
    
    (110
    )Other income and fees
    
    
    364
    
    
    
    427
    
    
    
    800
    
    
    
    864Total non-interest income
    
    
    1,888
    
    
    
    1,767
    
    
    
    3,680
    
    
    
    3,354NON-INTEREST EXPENSESalaries and employee benefits
    
    
    3,313
    
    
    
    3,003
    
    
    
    6,641
    
    
    
    5,967Occupancy
    
    
    510
    
    
    
    420
    
    
    
    943
    
    
    
    884Furniture and equipment
    
    
    551
    
    
    
    536
    
    
    
    1,059
    
    
    
    1,080Loan and collection
    
    
    84
    
    
    
    99
    
    
    
    155
    
    
    
    168Advertising and promotional
    
    
    201
    
    
    
    229
    
    
    
    354
    
    
    
    356Other operating expenses
    
    
    1,033
    
    
    
    1,011
    
    
    
    2,125
    
    
    
    1,937Total non-interest expense
    
    
    5,713
    
    
    
    5,298
    
    
    
    11,277
    
    
    
    10,392INCOME BEFORE TAXES
    
    
    1,780
    
    
    
    1,828
    
    
    
    3,474
    
    
    
    3,441Federal income taxes
    
    
    522
    
    
    
    535
    
    
    
    1,009
    
    
    
    995NET INCOME
    
    $
    1,258
    
    
    $
    1,293
    
    
    $
    2,465
    
    
    $
    2,446Per share: (adjusted for 10% stock dividend payable August 4, 2006)Net income  basic
    
    
    $0.59
    
    
    
    $0.62
    
    
    
    $1.15
    
    
    
    $1.17Net income  diluted
    
    
    $0.59
    
    
    
    $0.62
    
    
    
    $1.15
    
    
    
    $1.17Cash Dividends declared
    
    
    $0.23
    
    
    
    $0.22
    
    
    
    $0.45
    
    
    
    $0.44
  4




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Fentura Financial, Inc.  Consolidated Statements of Changes in Shareholders Equity (Unaudited)
 Six Months EndedJune 30,(000's omitted)
    
    2006
    
    
    2005COMMON STOCKBalance, beginning of period
    
    $
    34,491
    
    
    $
    33,110Issuance of shares under
Stock dividend (194,772 shares)
    
    
    6,846
    
    
    
    0Director stock purchase plan &
Dividend reinvestment program (12,381 and
8,919 shares)
    
    
    418
    
    
    
    357Stock repurchase (977 shares  2006)
    
    
    (32
    )
    
    
    0Stock options exercised (5,023 shares - 2006)
    
    
    87
    
    
    
    0Balance, end of period
    
    
    41,810
    
    
    
    33,467RETAINED EARNINGSBalance, beginning of period
    
    
    13,729
    
    
    
    10,514Net income
    
    
    2,465
    
    
    
    2,446Stock dividend (194,772 shares)
    
    
    (6,846
    )
    
    
    0Cash dividends declared
    
    
    (990
    )
    
    
    (912
    )Balance, end of period
    
    
    8,358
    
    
    
    12,048ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)Balance, beginning of period
    
    
    (1,325
    )
    
    
    (655
    )Change in unrealized gain (loss)
on securities, net of tax
    
    
    (799
    )
    
    
    (184
    )Balance, end of period
    
    
    (2,124
    )
    
    
    (839
    )TOTAL SHAREHOLDERS EQUITY
    
    $
    48,044
    
    
    $
    44,676
  5




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##### Table of Contents



Fentura Financial, Inc.  Consolidated Statements of Cash Flows (Unaudited)
 Six Months EndedJune 30,(000's omitted)
    
    2006
    
    2005OPERATING ACTIVITIES:Net income
    
    $
    2,465
    
    
    $
    2,446Adjustments to reconcile net income to cash
Provided by Operating Activities:Depreciation and amortization
    
    
    872
    
    
    
    568Provision for loan losses
    
    
    640
    
    
    
    598Loans originated for sale
    
    
    (19,997
    )
    
    
    (19,995
    )Proceeds from the sale of loans
    
    
    20,680
    
    
    
    18,208Loss on sale of securities
    
    
    0
    
    
    
    110Gain on sales of loans
    
    
    (320
    )
    
    
    (348
    )Net increase in bank owned life insurance
    
    
    (104
    )
    
    
    (80
    )Net (increase) decrease in interest receivable & other assets
    
    
    (698
    )
    
    
    (146
    )Net increase (decrease) in interest payable & other liabilities
    
    
    141
    
    
    
    139Total Adjustments
    
    
    1,214
    
    
    
    (946
    )Net Cash Provided By (Used In) Operating Activities
    
    
    3,679
    
    
    
    1,500Cash Flows From Investing Activities:Proceeds from maturities of securities  HTM
    
    
    761
    
    
    
    770Proceeds from maturities of securities  AFS
    
    
    8,799
    
    
    
    0Proceeds from calls of securities  HTM
    
    
    925
    
    
    
    98Proceeds from calls of securities  AFS
    
    
    985
    
    
    
    12,357Proceeds from sales of securities  AFS
    
    
    0
    
    
    
    14,039Purchases of securities  HTM
    
    
    (3,802
    )
    
    
    (701
    )Purchases of securities  AFS
    
    
    (4,209
    )
    
    
    (16,453
    )Purchase of FHLB stock
    
    
    (132
    )
    
    
    0Net increase in loans
    
    
    (17,880
    )
    
    
    (29,485
    )Acquisition of premises and equipment, net
    
    
    (2,793
    )
    
    
    (1,184
    )Net Cash Provided By (Used in) Investing Activities
    
    
    (17,347
    )
    
    
    (20,559
    )Cash Flows From Financing Activities:Net increase (decrease) in deposits
    
    
    6,346
    
    
    
    12,042Net increase (decrease) in borrowings
    
    
    5,028
    
    
    
    3,184Purchase of advances from FHLB
    
    
    4,000
    
    
    
    28,900Repayments of advances from FHLB
    
    
    (6,020
    )
    
    
    (29,418
    )Net proceeds from stock issuance and purchase
    
    
    473
    
    
    
    357Cash dividends
    
    
    (990
    )
    
    
    (912
    )Net Cash Provided By (Used In) Financing Activities
    
    
    8,837
    
    
    
    14,153NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    $
    (4,831
    )
    
    $
    (4,906
    )CASH AND CASH EQUIVALENTS  BEGINNING
    
    $
    31,077
    
    
    $
    27,255CASH AND CASH EQUIVALENTS  ENDING
    
    $
    26,246
    
    
    $
    22,349CASH PAID FOR:INTEREST
    
    $
    7,899
    
    
    $
    4,757INCOME TAXES
    
    $
    1,435
    
    
    $
    1,060
  6




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##### Table of Contents



Fentura Financial, Inc.  Consolidated Statements of Comprehensive Income (Unaudited)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,(000's Omitted)
    
    2006
    
    2005
    
    2006
    
    2005Net Income
    
    $
    1,258
    
    
    $
    1,293
    
    
    $
    2,465
    
    
    $
    2,446Other comprehensive income (loss), net of tax:Unrealized holding gains (losses) arising
during period
    
    
    (622
    )
    
    
    510
    
    
    
    (799
    )
    
    
    (257
    )Less: reclassification adjustment for
gains/losses included in net income
    
    
    0
    
    
    
    1
    
    
    
    0
    
    
    
    (73
    )Other comprehensive income (loss)
    
    
    (622
    )
    
    
    509
    
    
    
    (799
    )
    
    
    (184
    )Comprehensive income
    
    $
    636
    
    
    $
    1,802
    
    
    $
    1,666
    
    
    $
    2,262
 Fentura Financial, Inc.  Notes to Consolidated Financial Statements (Unaudited)
 Note 1. Basis of Presentation
   Reclassifications:
 Allowance for Loan Losses:
  7




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##### Table of Contents



Stock Option Plans
    Number of
    
    
    WeightedOptions
    
    
    Average PriceOptions outstanding at December 31, 2004
    
    
    46,433
    
    
    $
    28.00Options granted 2005
    
    
    809
    
    
    
    31.82Options forfeited 2005
    
    
    (710
    )
    
    
    29.97Options outstanding at December 31, 2005
    
    
    46,532
    
    
    $
    28.04Options exercised 2006
    
    
    (5,525
    )
    
    
    15.74Options outstanding at June 30, 2006
    
    
    41,007
    
    
    $
    29.69
  Six months endedJune 30, 2006Total unvested optionsSharesUnvested options, beginning of period
    
    
    15,055Vested
    
    
    (3,864
    )Granted
    
    
    0Unvested options, end of period
    
    
    11,191
  Six months ended(000's omitted)
    
    June 30, 2006Proceeds of options exercised
    
    $
    87Related tax benefit recognized
    
    
    0Intrinsic value of options exercised
    
    
    85
 8




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##### Table of Contents



Outstanding
    
    ExercisableWeightedAverage
    
    
    
    
    
    WeightedRemaining
    
    
    
    
    
    AverageContractual
    
    
    
    
    
    ExerciseShares
    
    Life
    
    Shares
    
    Price$1.00-$20.00
    
    
    668
    
    
    
    1.8
    
    
    
    668
    
    
    $
    19.28$20.01-$30.00
    
    
    22,072
    
    
    
    6.4
    
    
    
    10,880
    
    
    $
    24.48$30.01-$40.00
    
    
    18,268
    
    
    
    7.3
    
    
    
    18,268
    
    
    $
    34.44$40.01-$50.00
    
    
    0
    
    
    
    0
    
    
    
    0Outstanding at period end
    
    
    41,007
    
    
    
    6.7
    
    
    
    29,816
    
    
    $
    30.47
   Statement of Financial Accounting Standards No. 123R  Share based Payments FASB Statement No. 123, Accounting for Stock-Based Compensation
  June 30, 2006Three
    
    SixStock Options: (000's omitted)
    
    Months Ended
    
    Months EndedCompensation cost recognized in income
    
    $
    4
    
    
    $
    8Related tax benefit recognized
    
    
    0
    
    
    
    0
  Stock(000's omitted)
    
    OptionsRemainder of 2006
    
    $
    112007
    
    
    162008
    
    
    8Total
    
    $
    35
  9




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##### Table of Contents



Three months ended
    
    Six months endedJune 30,
    
    June 30,(Dollars in thousands except per share data)
    
    2006
    
    2005
    
    2006
    
    2005Net Income as Reported
    
    $
    1,258
    
    
    $
    1,293
    
    
    $
    2,465
    
    
    $
    2,446Less: Value Determined Under Fair Value
Based Method (net of taxes)
    
    
    4
    
    
    
    2
    
    
    
    8
    
    
    
    4Amount Expensed in the Period (net of taxes)
    
    
    (4
    )
    
    
    0
    
    
    
    (8
    )
    
    
    0Pro Forma Net Income
    
    $
    1,258
    
    
    $
    1,291
    
    
    $
    2,465
    
    
    $
    2,442Basic Earnings per Share as Reported
    
    $
    0.59
    
    
    $
    0.62
    
    
    $
    1.15
    
    
    $
    1.17Pro Forma Basic Earnings per Share
    
    $
    0.59
    
    
    $
    0.62
    
    
    $
    1.15
    
    
    $
    1.17Diluted Earnings per Share as Reported
    
    $
    0.59
    
    
    $
    0.62
    
    
    $
    1.15
    
    
    $
    1.17Pro Forma Diluted Earnings per Share
    
    $
    0.59
    
    
    $
    0.62
    
    
    $
    1.15
    
    
    $
    1.17
  10




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##### Table of Contents



Note 2. Earnings Per Common Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Basic Earnings Per Common Share:NumeratorNet Income
    
    $
    1,258,000
    
    
    $
    1,293,000
    
    
    $
    2,465,000
    
    
    $
    2,446,000DenominatorWeighted average common shares
Outstanding
    
    
    2,137,592
    
    
    
    2,087,443
    
    
    
    2,133,926
    
    
    
    2,084,537Basic earnings per common share
    
    $
    0.59
    
    
    $
    0.62
    
    
    $
    1.15
    
    
    $
    1.17Diluted Earnings Per Common Share:NumeratorNet Income
    
    $
    1,258,000
    
    
    $
    1,293,000
    
    
    $
    2,465,000
    
    
    $
    2,446,000DenominatorWeighted average common shares
Outstanding for basic earnings per
Common share
    
    
    2,137,592
    
    
    
    2,087,443
    
    
    
    2,133,926
    
    
    
    2,084,537Add: Dilutive effects of assumed
exercises of stock options
    
    
    4,662
    
    
    
    6,425
    
    
    
    4,520
    
    
    
    6,909Weighted average common shares
and dilutive potential common
shares outstanding
    
    
    2,142,254
    
    
    
    2,093,868
    
    
    
    2,138,446
    
    
    
    2,094,446Diluted earnings per common share
    
    $
    0.59
    
    
    $
    0.62
    
    
    $
    1.15
    
    
    $
    1.17
  Note 3. Commitments and Contingencies
  11




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Results of Operations
    Net Interest Income
  12




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##### Table of Contents



Table 1
 SIX MONTHS ENDEDJUNE 30,2006 COMPARED TO 2005INCREASE (DECREASE)DUE TOYIELD/(000'S OMITTED)
    
    VOL
    
    RATE
    
    TOTALTaxable Securities
    
    $
    (85
    )
    
    $
    157
    
    
    $
    72Tax-Exempt Securities
    
    
    (121
    )
    
    
    9
    
    
    
    (112
    )Federal Funds Sold
    
    
    69
    
    
    
    86
    
    
    
    155Total Loans
    
    
    1,367
    
    
    
    2,146
    
    
    
    3,513Loans Held for Sale
    
    
    (9
    )
    
    
    5
    
    
    
    (4
    )Total Earning Assets
    
    
    1,221
    
    
    
    2,403
    
    
    
    3,624Interest Bearing Demand Deposits
    
    
    (36
    )
    
    
    577
    
    
    
    541Savings Deposits
    
    
    (150
    )
    
    
    91
    
    
    
    (59
    )Time CDs $100,000 and Over
    
    
    995
    
    
    
    88
    
    
    
    1,083Other Time Deposits
    
    
    336
    
    
    
    1,023
    
    
    
    1,359Other Borrowings
    
    
    (213
    )
    
    
    323
    
    
    
    110Total Interest Bearing Liabilities
    
    
    932
    
    
    
    2,102
    
    
    
    3,034Net Interest Income
    
    $
    289
    
    
    $
    301
    
    
    $
    590
     13




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14




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##### Table of Contents



Table 2 Average Balance and Rates
 SIX MONTHS ENDED JUNE 30,2006
    
    2005(000's omitted)(Annualized)
    
    AVERAGE
    
    INCOME/
    
    YIELD/
    
    AVERAGE
    
    INCOME/
    
    YIELD/ASSETS
    
    BALANCE
    
    EXPENSE
    
    RATE
    
    BALANCE
    
    EXPENSE
    
    RATESecurities:U.S. Treasury and Government Agencies
    
    $
    86,522
    
    
    $
    1,676
    
    
    
    3.91
    %
    
    $
    94,744
    
    
    $
    1,629
    
    
    
    3.47
    %State and Political (1)
    
    
    21,487
    
    
    
    611
    
    
    
    5.73
    %
    
    
    25,803
    
    
    
    723
    
    
    
    5.65
    %Other
    
    
    4,441
    
    
    
    59
    
    
    
    2.68
    %
    
    
    1,115
    
    
    
    34
    
    
    
    6.15
    %Total Securities
    
    
    112,450
    
    
    
    2,346
    
    
    
    4.21
    %
    
    
    121,662
    
    
    
    2,386
    
    
    
    3.95
    %Fed Funds Sold
    
    
    7,341
    
    
    
    173
    
    
    
    4.75
    %
    
    
    1,515
    
    
    
    18
    
    
    
    2.40
    %Loans:Commercial
    
    
    341,248
    
    
    
    13,104
    
    
    
    7.74
    %
    
    
    300,339
    
    
    
    9,983
    
    
    
    6.70
    %Tax Free (1)
    
    
    4,467
    
    
    
    142
    
    
    
    6.43
    %
    
    
    4,951
    
    
    
    158
    
    
    
    6.44
    %Real Estate-Mortgage
    
    
    35,962
    
    
    
    1,333
    
    
    
    7.47
    %
    
    
    33,457
    
    
    
    1,199
    
    
    
    7.23
    %Consumer
    
    
    69,658
    
    
    
    2,705
    
    
    
    7.83
    %
    
    
    71,819
    
    
    
    2,431
    
    
    
    6.83
    %Total loans
    
    
    451,335
    
    
    
    17,284
    
    
    
    7.72
    %
    
    
    410,566
    
    
    
    13,771
    
    
    
    6.76
    %Allowance for Loan Losses
    
    
    (6,538
    )
    
    
    
    
    
    
    
    
    
    
    (5,773
    )Net Loans
    
    
    444,797
    
    
    
    17,284
    
    
    
    7.84
    %
    
    
    404,793
    
    
    
    13,771
    
    
    
    6.86
    %Loans Held for Sale
    
    
    1,315
    
    
    
    46
    
    
    
    7.05
    %
    
    
    1,615
    
    
    
    50
    
    
    
    6.24
    %TOTAL EARNING ASSETS
    
    $
    572,441
    
    
    $
    19,849
    
    
    
    6.99
    %
    
    $
    535,358
    
    
    $
    16,225
    
    
    
    6.11
    %Cash Due from Banks
    
    
    17,326
    
    
    
    
    
    
    
    
    
    
    
    19,048All Other Assets
    
    
    37,715
    
    
    
    
    
    
    
    
    
    
    
    35,829TOTAL ASSETS
    
    $
    620,944
    
    
    
    
    
    
    
    
    
    
    $
    584,462LIABILITIES & SHAREHOLDERS EQUITY:Deposits:Interest bearing  DDA
    
    $
    105,573
    
    
    $
    1,180
    
    
    
    2.25
    %
    
    $
    111,865
    
    
    $
    639
    
    
    
    1.15
    %Savings Deposits
    
    
    102,978
    
    
    
    623
    
    
    
    1.22
    %
    
    
    131,955
    
    
    
    682
    
    
    
    1.04
    %Time CDs $100,000 and Over
    
    
    126,068
    
    
    
    2,866
    
    
    
    4.58
    %
    
    
    65,693
    
    
    
    1,083
    
    
    
    3.22
    %Other Time CDs
    
    
    116,482
    
    
    
    2,166
    
    
    
    3.75
    %
    
    
    95,253
    
    
    
    1,507
    
    
    
    3.19
    %Total Deposits
    
    
    451,101
    
    
    
    6,835
    
    
    
    3.06
    %
    
    
    404,766
    
    
    
    3,911
    
    
    
    1.95
    %Other Borrowings
    
    
    40,966
    
    
    
    1,047
    
    
    
    5.15
    %
    
    
    53,061
    
    
    
    937
    
    
    
    3.56
    %INTEREST BEARING LIABILITIES
    
    $
    492,067
    
    
    $
    7,882
    
    
    
    3.23
    %
    
    $
    457,827
    
    
    $
    4,848
    
    
    
    2.14
    %Non-Interest bearing  DDA
    
    
    77,536
    
    
    
    
    
    
    
    
    
    
    
    81,483All Other Liabilities
    
    
    3,260
    
    
    
    
    
    
    
    
    
    
    
    1,507Shareholders Equity
    
    
    48,081
    
    
    
    
    
    
    
    
    
    
    
    43,645TOTAL LIABILITIES & SHAREHOLDERS EQUITY
    
    $
    620,944
    
    
    
    
    
    
    
    
    
    
    $
    584,462Net Interest Rate Spread
    
    
    
    
    
    
    
    
    
    
    3.76
    %
    
    
    
    
    
    
    
    
    
    
    3.98
    %Net Interest Income /Margin
    
    
    
    
    
    $
    11,967
    
    
    
    4.22
    %
    
    
    
    
    
    $
    11,377
    
    
    
    4.29
    %
 
 (1)
    
    Presented on a fully taxable equivalent basis using a federal income tax rate of 34%. 15




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##### Table of Contents



Table 3 Average Balance and Rates
 THREE MONTHS ENDED JUNE 30,2006
    
    2005(000's omitted)(Annualized)
    
    AVERAGE
    
    INCOME/
    
    YIELD/
    
    AVERAGE
    
    INCOME/
    
    YIELD/ASSETS
    
    BALANCE
    
    EXPENSE
    
    RATE
    
    BALANCE
    
    EXPENSE
    
    RATESecurities:U.S. Treasury and Government Agencies
    
    $
    84,493
    
    
    $
    824
    
    
    
    3.91
    %
    
    $
    93,294
    
    
    $
    796
    
    
    
    3.42
    %State and Political (1)
    
    
    21,608
    
    
    
    297
    
    
    
    5.51
    %
    
    
    25,154
    
    
    
    353
    
    
    
    5.63
    %Other
    
    
    4,240
    
    
    
    28
    
    
    
    2.65
    %
    
    
    1,186
    
    
    
    15
    
    
    
    5.07
    %Total Securities
    
    
    110,341
    
    
    
    1,149
    
    
    
    4.18
    %
    
    
    119,634
    
    
    
    1,164
    
    
    
    3.90
    %Fed Funds Sold
    
    
    6,335
    
    
    
    79
    
    
    
    5.00
    %
    
    
    1,387
    
    
    
    8
    
    
    
    2.31
    %Loans:Commercial
    
    
    346,505
    
    
    
    6,740
    
    
    
    7.80
    %
    
    
    314,742
    
    
    
    5,251
    
    
    
    6.72
    %Tax Free (1)
    
    
    4,397
    
    
    
    70
    
    
    
    6.36
    %
    
    
    4,914
    
    
    
    78
    
    
    
    6.37
    %Real Estate-Mortgage
    
    
    36,170
    
    
    
    679
    
    
    
    7.53
    %
    
    
    34,686
    
    
    
    644
    
    
    
    7.45
    %Consumer
    
    
    68,662
    
    
    
    1,364
    
    
    
    7.97
    %
    
    
    71,790
    
    
    
    1,249
    
    
    
    6.98
    %Total loans
    
    
    455,734
    
    
    
    8,853
    
    
    
    7.79
    %
    
    
    426,132
    
    
    
    7,222
    
    
    
    6.80
    %Allowance for Loan Losses
    
    
    (6,650
    )
    
    
    
    
    
    
    
    
    
    
    (5,894
    )Net Loans
    
    
    449,084
    
    
    
    8,853
    
    
    
    7.91
    %
    
    
    420,238
    
    
    
    7,222
    
    
    
    6.89
    %Loans Held for Sale
    
    
    1,277
    
    
    
    23
    
    
    
    7.22
    %
    
    
    1,818
    
    
    
    30
    
    
    
    6.62
    %TOTAL EARNING ASSETS
    
    $
    573,687
    
    
    $
    10,104
    
    
    
    7.06
    %
    
    $
    548,971
    
    
    $
    8,424
    
    
    
    6.15
    %Cash Due from Banks
    
    
    16,967
    
    
    
    
    
    
    
    
    
    
    
    19,333All Other Assets
    
    
    38,470
    
    
    
    
    
    
    
    
    
    
    
    36,288TOTAL ASSETS
    
    $
    622,474
    
    
    
    
    
    
    
    
    
    
    $
    598,698LIABILITIES & SHAREHOLDERS EQUITY:Deposits:Interest bearing  DDA
    
    $
    102,391
    
    
    $
    588
    
    
    
    2.30
    %
    
    $
    113,832
    
    
    $
    334
    
    
    
    1.18
    %Savings Deposits
    
    
    100,627
    
    
    
    306
    
    
    
    1.22
    %
    
    
    124,571
    
    
    
    318
    
    
    
    1.02
    %Time CDs $100,000 and Over
    
    
    126,968
    
    
    
    1,544
    
    
    
    4.88
    %
    
    
    79,843
    
    
    
    679
    
    
    
    3.41
    %Other Time CDs
    
    
    122,296
    
    
    
    1,156
    
    
    
    3.79
    %
    
    
    98,904
    
    
    
    780
    
    
    
    3.16
    %Total Deposits
    
    
    452,282
    
    
    
    3,594
    
    
    
    3.19
    %
    
    
    417,150
    
    
    
    2,111
    
    
    
    2.03
    %Other Borrowings
    
    
    40,899
    
    
    
    540
    
    
    
    5.30
    %
    
    
    53,912
    
    
    
    479
    
    
    
    3.56
    %INTEREST BEARING LIABILITIES
    
    $
    493,181
    
    
    $
    4,134
    
    
    
    3.36
    %
    
    $
    471,062
    
    
    $
    2,590
    
    
    
    2.21
    %Non-Interest bearing  DDA
    
    
    77,653
    
    
    
    
    
    
    
    
    
    
    
    82,119All Other Liabilities
    
    
    3,417
    
    
    
    
    
    
    
    
    
    
    
    1,678Shareholders Equity
    
    
    48,223
    
    
    
    
    
    
    
    
    
    
    
    43,839TOTAL LIABILITIES & SHAREHOLDERS EQUITY
    
    $
    622,474
    
    
    
    
    
    
    
    
    
    
    $
    598,698Net Interest Rate Spread
    
    
    
    
    
    
    
    
    
    
    3.70
    %
    
    
    
    
    
    
    
    
    
    
    3.94
    %Net Interest Income /Margin
    
    
    
    
    
    $
    5,970
    
    
    
    4.17
    %
    
    
    
    
    
    $
    5,834
    
    
    
    4.26
    %
 
 (1)
    
    Presented on a fully taxable equivalent basis using a federal income tax rate of 34%. 16




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##### Table of Contents



Allowance and Provision For Loan Losses
  ALL) ALL ALL ALL ALL
  17




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##### Table of Contents



Table 4 Analysis Of The Allowance For Loan Losses
 Six Months Ended June 30,(000's omitted)
    
    2006
    
    2005Balance at Beginning of Period
    
    $
    6,301
    
    
    $
    5,501Charge-Offs:Commercial, Financial and Agriculture
    
    
    (172
    )
    
    
    (37
    )Real Estate-Mortgage
    
    
    0
    
    
    
    0Installment Loans to Individuals
    
    
    (135
    )
    
    
    (167
    )Total Charge-Offs
    
    
    (307
    )
    
    
    (204
    )Recoveries:Commercial, Financial and Agriculture
    
    
    15
    
    
    
    47Real Estate-Mortgage
    
    
    0
    
    
    
    0Installment Loans to Individuals
    
    
    33
    
    
    
    54Total Recoveries
    
    
    48
    
    
    
    101Net Charge-Offs
    
    
    (259
    )
    
    
    (103
    )Provision
    
    
    640
    
    
    
    598Balance at End of Period
    
    $
    6,682
    
    
    $
    5,996Ratio of Net Charge-Offs to Gross Loans
    
    
    0.06
    %
    
    
    0.02
    %
 Non-Interest Income
       18




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##### Table of Contents



Non-Interest Expense
           19




---



##### Table of Contents



Financial Condition
    Non-Performing Assets
   20




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##### Table of Contents



Table 5  Non-Performing Assets and Past Due Loans
 June 30,
    
    December 31,2006
    
    2005Non-Performing Loans:Loans Past Due 90 Days or More & Still
Accruing
    
    $
    164
    
    
    $
    80Non-Accrual Loans
    
    
    1,421
    
    
    
    1,476Renegotiated Loans
    
    
    439
    
    
    
    1,401Total Non-Performing Loans
    
    
    2,024
    
    
    
    2,957Other Non-Performing Assets:Other Real Estate
    
    
    0
    
    
    
    500REO in Redemption
    
    
    711
    
    
    
    0Other Non-Performing Assets
    
    
    43
    
    
    
    6Total Other Non-Performing Assets
    
    
    754
    
    
    
    506Total Non-Performing Assets
    
    $
    2,778
    
    
    $
    3,463Non-Performing Loans as a % of
Total Loans
    
    
    0.44
    %
    
    
    0.67
    %Allowance for Loan Losses as a % of
Non-Performing Loans
    
    
    330.14
    %
    
    
    213.09
    %Accruing Loans Past Due 90 Days or
More to Total Loans
    
    
    0.04
    %
    
    
    0.02
    %Non-performing Assets as a % of
Total Assets
    
    
    0.44
    %
    
    
    0.56
    %
 Liquidity and Interest Rate Risk Management
   21




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##### Table of Contents



Capital Management
   Regulatory Capital Requirements
  22




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##### Table of Contents



Table 6
 Capital RatiosRegulatory Minimum
    
    Fentura Financial, Inc.For "Well Capitalized"
    
    June 30,
    
    December 31,
    
    June 30,2006
    
    2005
    
    2005Total Capital to risk
Weighted assets
    
    
    10
    %
    
    
    11.88
    %
    
    
    11.40
    %
    
    
    11.10
    %Tier 1 Capital to risk
Weighted assets
    
    
    6
    %
    
    
    10.63
    %
    
    
    10.20
    %
    
    
    9.88
    %Tier 1 Capital to average
Assets
    
    
    5
    %
    
    
    8.22
    %
    
    
    8.70
    %
    
    
    8.48
    %
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    Interest Rate Sensitivity Management
   23




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##### Table of Contents



Table 7 GAP Analysis  June 30, 2006
 Within
    
    Three
    
    One to
    
    AfterThree
    
    Months to
    
    Five
    
    Five(000's omitted)
    
    Months
    
    One Year
    
    Years
    
    Years
    
    TotalEarning Assets:Federal Funds Sold
    
    $
    6,900
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    6,900Securities
    
    
    22,837
    
    
    
    10,583
    
    
    
    51,319
    
    
    
    24,865
    
    
    
    109,604Loans
    
    
    68,877
    
    
    
    97,730
    
    
    
    231,471
    
    
    
    58,899
    
    
    
    456,977Loans Held for Sale
    
    
    679
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    679FHLB Stock
    
    
    2,432
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    2,432Total Earning Assets
    
    $
    101,725
    
    
    $
    108,313
    
    
    $
    282,790
    
    
    $
    83,764
    
    
    $
    576,592Interest Bearing Liabilities:Interest Bearing Demand Deposits
    
    $
    100,433
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    100,433Savings Deposits
    
    $
    111,673
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    111,673Time Deposits Less than $100,000
    
    
    18,066
    
    
    
    53,522
    
    
    
    32,839
    
    
    
    141
    
    
    
    104,568Time Deposits Greater than $100,000
    
    
    32,259
    
    
    
    50,814
    
    
    
    57,190
    
    
    
    0
    
    
    
    140,263Short term borrowings
    
    
    6,565
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    6,565Other Borrowings
    
    
    1,000
    
    
    
    1,015
    
    
    
    9,138
    
    
    
    977
    
    
    
    12,130Repurchase agreements
    
    
    0
    
    
    
    0
    
    
    
    10,000
    
    
    
    0
    
    
    
    10,000Subordinated debentures
    
    
    0
    
    
    
    0
    
    
    
    14,000
    
    
    
    0
    
    
    
    14,000Total Interest Bearing Liabilities
    
    $
    269,996
    
    
    $
    105,351
    
    
    $
    123,167
    
    
    $
    1,118
    
    
    $
    499,632Interest Rate Sensitivity GAP
    
    
    ($168,271
    )
    
    
    $2,962
    
    
    $
    159,623
    
    
    $
    82,646
    
    
    $
    76,960Cumulative Interest Rate
Sensitivity GAP
    
    
    ($168,271
    )
    
    
    ($165,309
    )
    
    
    ($5,868
    )
    
    $
    76,960Interest Rate Sensitivity GAP
    
    
    (0.38
    )
    
    
    1.03
    
    
    
    2.30
    
    
    
    74.92Cumulative Interest Rate
Sensitivity GAP Ratio
    
    
    (0.38
    )
    
    
    (0.56
    )
    
    
    (0.99
    )
    
    
    1.15
  24




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##### Table of Contents



Forward Looking Statements
  
 ITEM 4: CONTROLS AND PROCEDURES
 (a)
    
    Evaluation of Disclosure Controls and Procedures. The Corporations Chief Executive
Officer and Chief Financial Officer, after evaluating the effectiveness of the Corporations
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
as of the end of the period covered by this Form 10-Q Quarterly Report, have concluded that
the Corporations disclosure controls and procedures were adequate and effective to ensure
that material information relating to the Corporation would be made known to them by others
within the Corporation, particularly during the period in which this Form 10-Q was being
prepared.(b)
    
    Changes in Internal Controls. During the period covered by this report, there have
been no changes in the Corporations internal control over financial reporting that have
materially affected or are reasonably likely to materially affect the Corporations internal
control over financial reporting.
 25




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings. Item 1.
    
    Legal Proceedings.- None
 
 Item 1A. Risk Factors Item 1A.
    
    Risk Factors- There have been no material changes in the risk factors applicable to the
Company from those disclosed in its Annual Report on Form 10-K for the year ended December 31,
2005.
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Item 2.
    
    Unregistered Sales of Equity
Securities and Use of Proceeds.- None
 
 Item 3. Defaults Upon Senior Securities. Item 3.
    
    Defaults Upon Senior Securities.
-None
 
 Item 4. Submission of Matters to a Vote of Securities Holders. Item 4.
    
    Submission of Matters to a Vote of Securities Holders.- The registrants annual meeting was
held April 25, 2006. Two directors were elected at the meeting, each to a three year term. The
vote was as follows:
 VOTEDirector Nominee
    
    Term Expires
    
    For
    
    WithheldForrest A. Shook
    
    
    2009
    
    
    
    1,521,034
    
    
    
    1,143Donald L. Grill
    
    
    2009
    
    
    
    1,521,034
    
    
    
    1,143
  
 Item 5. Other Information. Item 5.
    
    Other Information. -None
 
 Item 6. Exhibits. Item 6.
    
    Exhibits.
 (a)
    
    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.
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##### Table of Contents



Fentura Financial Inc.Dated: August 11, 2006
    
    /s/ Donald L. GrillDonald L. GrillPresident & CEODated: August 11, 2006
    
    /s/ Douglas J. KelleyDouglas J. KelleyChief Financial Officer
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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.
 28