##### 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, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 For the transition period from  to
 Commission file number 000-23550
 Fentura Financial, Inc.
  Michigan
    
    38-2806518(State or other jurisdiction of
    
    (IRS Employee Identification No.)incorporation or organization)
 175 N Leroy, P.O. Box 725, Fenton, Michigan 48430
 (810) 629-2263
 þ o
 o o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company þ o þ
  Class  Common Stock
    
    Shares Outstanding  2,209,183




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##### 



Fentura Financial Inc.
Index to Form 10-Q
 PagePart I  Financial Information
    
    
    3Item 1  Consolidated Financial Statements (Unaudited)
    
    
    3-21Item 2  Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    22-35Item 3  Quantitative and Qualitative Disclosures about Market Risk
    
    
    35-37Item 4T  Controls and Procedures
    
    
    37Part II  Other Information
    
    
    38Item 1  Legal Proceedings
    
    
    38Item 1A  Risk Factors
    
    
    38Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    38Item 3  Defaults Upon Senior Securities
    
    
    38Item 4 Submission of Matters to a Vote of Security Holders
    
    
    38Item 5  Other Information
    
    
    38Item 6  Exhibits
    
    
    38Signatures
    
    
    39Exhibit Index
    
    
    40EX-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
 June 30,2009
    
    Dec 31,(000s omitted except share data)
    
    (unaudited)
    
    2008ASSETSCash and due from banks
    
    $
    43,645
    
    
    $
    13,626Federal funds sold
    
    
    0
    
    
    
    0Total cash & cash equivalents
    
    
    43,645
    
    
    
    13,626Securities-available for sale
    
    
    51,483
    
    
    
    47,065Securities-held to maturity, (fair value of $5,657
at June 30, 2009 and $6,784 at December 31, 2008)
    
    
    5,654
    
    
    
    6,765Total securities
    
    
    57,137
    
    
    
    53,830Loans held for sale
    
    
    1,136
    
    
    
    690Loans:Commercial
    
    
    278,224
    
    
    
    289,523Real estate loans  construction
    
    
    37,028
    
    
    
    48,777Real estate loans  mortgage
    
    
    33,050
    
    
    
    37,828Consumer loans
    
    
    50,669
    
    
    
    52,910Total loans
    
    
    398,971
    
    
    
    429,038Less: Allowance for loan losses
    
    
    (13,970
    )
    
    
    (10,455
    )Net loans
    
    
    385,001
    
    
    
    418,583Bank owned life insurance
    
    
    7,088
    
    
    
    7,282Bank premises and equipment
    
    
    16,369
    
    
    
    16,879Federal Home Loan Bank stock
    
    
    1,900
    
    
    
    1,900Accrued interest receivable
    
    
    1,996
    
    
    
    2,231Acquisition intangibles
    
    
    220
    
    
    
    293Equity investment
    
    
    0
    
    
    
    1,360Other real estate owned
    
    
    5,933
    
    
    
    5,983Assets of held for sale operations
    
    
    42,712
    
    
    
    45,650Other assets
    
    
    5,502
    
    
    
    10,297Total assets
    
    $
    568,639
    
    
    $
    578,604LIABILITIESDeposits:Non-interest bearing deposits
    
    $
    69,231
    
    
    $
    64,325Interest bearing deposits
    
    
    409,844
    
    
    
    405,039Total deposits
    
    
    479,075
    
    
    
    469,364Short term borrowings
    
    
    477
    
    
    
    1,500Federal Home Loan Bank advances
    
    
    9,981
    
    
    
    12,707Subordinated debentures
    
    
    14,000
    
    
    
    14,000Note payable
    
    
    0
    
    
    
    1,000Liabilities of held for sale operations
    
    
    40,143
    
    
    
    42,174Accrued taxes, interest and other liabilities
    
    
    5,753
    
    
    
    1,735Total liabilities
    
    
    549,429
    
    
    
    542,480SHAREHOLDERS EQUITYCommon stock  no par value2,209,183 shares issued (2,185,765 at Dec. 31, 2008)
    
    
    42,850
    
    
    
    42,778Retained deficit
    
    
    (21,700
    )
    
    
    (4,677
    )Accumulated other comprehensive loss
    
    
    (1,940
    )
    
    
    (1,977
    )Total shareholders equity
    
    
    19,210
    
    
    
    36,124Total liabilities and shareholders equity
    
    $
    568,639
    
    
    $
    578,604
  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(000s omitted except per share data)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008INTEREST INCOMEInterest and fees on loans
    
    $
    6,000
    
    
    $
    6,867
    
    
    $
    12,463
    
    
    $
    14,350Interest and dividends on securities:Taxable
    
    
    390
    
    
    
    499
    
    
    
    809
    
    
    
    1,045Tax-exempt
    
    
    138
    
    
    
    144
    
    
    
    283
    
    
    
    255Interest on federal funds sold
    
    
    0
    
    
    
    15
    
    
    
    0
    
    
    
    108Total interest income
    
    
    6,528
    
    
    
    7,525
    
    
    
    13,555
    
    
    
    15,758INTEREST EXPENSEDeposits
    
    
    2,613
    
    
    
    3,065
    
    
    
    5,226
    
    
    
    6,809Borrowings
    
    
    291
    
    
    
    423
    
    
    
    602
    
    
    
    909Total interest expense
    
    
    2,904
    
    
    
    3,488
    
    
    
    5,828
    
    
    
    7,718NET INTEREST INCOME
    
    
    3,624
    
    
    
    4,037
    
    
    
    7,727
    
    
    
    8,040Provision for loan losses
    
    
    7,711
    
    
    
    3,475
    
    
    
    9,366
    
    
    
    4,455Net interest income (loss) after
provision for loan losses
    
    
    (4,087
    )
    
    
    562
    
    
    
    (1,639
    )
    
    
    3,585NON-INTEREST INCOMEService charges on deposit accounts
    
    
    480
    
    
    
    595
    
    
    
    917
    
    
    
    1,220Gain on sale of mortgage loans
    
    
    277
    
    
    
    100
    
    
    
    512
    
    
    
    218Trust and investment services income
    
    
    463
    
    
    
    516
    
    
    
    827
    
    
    
    972Loss on equity investment
    
    
    (874
    )
    
    
    (290
    )
    
    
    (1,360
    )
    
    
    (457
    )Other income and fees
    
    
    480
    
    
    
    451
    
    
    
    1,069
    
    
    
    820Total non-interest income
    
    
    826
    
    
    
    1,372
    
    
    
    1,965
    
    
    
    2,773NON-INTEREST EXPENSESalaries and employee benefits
    
    
    2,071
    
    
    
    2,767
    
    
    
    4,623
    
    
    
    5,591Occupancy
    
    
    447
    
    
    
    492
    
    
    
    950
    
    
    
    997Furniture and equipment
    
    
    403
    
    
    
    508
    
    
    
    827
    
    
    
    979Loan and collection
    
    
    933
    
    
    
    221
    
    
    
    1,318
    
    
    
    369Advertising and promotional
    
    
    47
    
    
    
    130
    
    
    
    88
    
    
    
    215Loss on security impairment
    
    
    200
    
    
    
    36
    
    
    
    200
    
    
    
    610Loss on impairment of held for sale operations
    
    
    0
    
    
    
    0
    
    
    
    700
    
    
    
    0Other operating expenses
    
    
    1,211
    
    
    
    766
    
    
    
    2,441
    
    
    
    1,566Total non-interest expense
    
    
    5,312
    
    
    
    4,920
    
    
    
    11,1147
    
    
    
    10,327Loss from continuing operations before income tax
    
    
    (8,573
    )
    
    
    (2,986
    )
    
    
    (10,821
    )
    
    
    (3,969
    )Federal income tax expense/(benefit)
    
    
    5,952
    
    
    
    (1,025
    )
    
    
    5,360
    
    
    
    (1,389
    )Net loss from continuing operations
    
    $
    (14,525
    )
    
    $
    (1,961
    )
    
    $
    (16,181
    )
    
    $
    (2,580
    )Net loss from held for sale operations, net of tax
    
    
    (839
    )
    
    
    (207
    )
    
    
    (842
    )
    
    
    (217
    )Net loss
    
    $
    (15,364
    )
    
    $
    (2,168
    )
    
    $
    (17,023
    )
    
    $
    (2,797
    )Loss per share from continuing operationsBasic
    
    $
    (6.61
    )
    
    $
    (0.90
    )
    
    $
    (7.38
    )
    
    $
    (1.19
    )Diluted
    
    $
    (6.61
    )
    
    $
    (0.90
    )
    
    $
    (7.38
    )
    
    $
    (1.19
    )Net loss per shareBasic
    
    $
    (6.99
    )
    
    $
    (1.00
    )
    
    $
    (7.77
    )
    
    $
    (1.29
    )Diluted
    
    $
    (6.99
    )
    
    $
    (1.00
    )
    
    $
    (7.77
    )
    
    $
    (1.29
    )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)
    
    2009
    
    
    2008COMMON STOCKBalance, beginning of period
    
    $
    42,778
    
    
    $
    42,478Issuance of shares underDirector stock purchase plan &
Dividend reinvestment program (23,418 and 11,800 shares)
    
    
    72
    
    
    
    213Stock options exercised
    
    
    0
    
    
    
    0Stock compensation expense
    
    
    0
    
    
    
    4Balance, end of period
    
    
    42,850
    
    
    
    42,695RETAINED DEFICITBalance, beginning of period
    
    
    (4,677
    )
    
    
    7,488Net loss
    
    
    (17,023
    )
    
    
    (2,797
    )Cash dividends declared
    
    
    0
    
    
    
    0Balance, end of period
    
    
    (21,700
    )
    
    
    4,691ACCUMULATED OTHER COMPREHENSIVE LOSSBalance, beginning of period
    
    
    (1,977
    )
    
    
    (470
    )Change in unrealized gain (loss)
on securities, net of tax
    
    
    37
    
    
    
    (417
    )Balance, end of period
    
    
    (1,940
    )
    
    
    (887
    )Total Shareholders Equity
    
    $
    19,210
    
    
    $
    46,499
  5




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##### Table of Contents



Fentura Financial, Inc.
Consolidated Statements of Cash Flows (Unaudited)
 Six Months EndedJune 30,(000s omitted)
    
    2009
    
    2008OPERATING ACTIVITIES:Net loss
    
    $
    (17,023
    )
    
    $
    (2,797
    )Adjustments to reconcile net income (loss) to cash Provided by Operating Activities:Stock compensation expense
    
    
    0
    
    
    
    4Depreciation and amortization
    
    
    581
    
    
    
    458Establishment of deferred tax asset valuation allowance
    
    
    6,617
    
    
    
    0Provision for loan losses
    
    
    9,366
    
    
    
    4,455Loans originated for sale
    
    
    (42,302
    )
    
    
    (16,999
    )Proceeds from the sale of loans
    
    
    42,368
    
    
    
    18,424(Gain) on sales of loans
    
    
    (512
    )
    
    
    (218
    )(Gain) Loss on sale of fixed assets
    
    
    0
    
    
    
    (118
    )(Gain) Loss on other real estate owned
    
    
    200
    
    
    
    0Loss on security impairment
    
    
    200
    
    
    
    610Loss on equity investment
    
    
    1,360
    
    
    
    458Earnings from bank owned life insurance
    
    
    194
    
    
    
    (108
    )Net (increase) decrease in interest receivable & other assets
    
    
    1,748
    
    
    
    2,591Net increase (decrease) in interest payable & other liabilities
    
    
    2,097
    
    
    
    (1,412
    )Total Adjustments
    
    
    15,741
    
    
    
    8,145Net cash
provided by (used in) operating activities
    
    
    (1,282
    )
    
    
    5,348CASH FLOWS FROM INVESTING ACTIVITES:Proceeds from maturities of securities  HTM
    
    
    1,108
    
    
    
    1,253Proceeds from maturities of securities  AFS
    
    
    4,726
    
    
    
    4,726Proceeds from sales of securities  AFS
    
    
    0
    
    
    
    1,999Proceeds from calls of securities  AFS
    
    
    2,000
    
    
    
    11,112Purchases of securities  AFS
    
    
    (10,646
    )
    
    
    (6,732
    )Net (increase) decrease in loans
    
    
    24,966
    
    
    
    2,552Sales of other real estate owned
    
    
    865
    
    
    
    0Acquisition of premises and equipment, net
    
    
    (71
    )
    
    
    95Net cash provided by investing activities
    
    
    22,948
    
    
    
    15,005CASH FLOWS FROM FINANCING ACTIVITIES:Net increase (decrease) in deposits
    
    
    9,711
    
    
    
    (26,698
    )Net increase (decrease) in borrowings
    
    
    (1,023
    )
    
    
    2,109Net increase (decrease) in repurchase agreements
    
    
    0
    
    
    
    (5,000
    )Repayment of notes payable
    
    
    (250
    )
    
    
    0Purchase of advances from FHLB
    
    
    55,495
    
    
    
    7,001Repayments of advances from FHLB
    
    
    (58,221
    )
    
    
    (8,024
    )Net proceeds from stock issuance and purchase
    
    
    72
    
    
    
    213Net cash provided by (used in) financing activities
    
    
    5,784
    
    
    
    (30,399
    )Net Change in Cash and Cash Equivalents
    
    $
    27,450
    
    
    $
    (10,046
    )Change in cash and cash equivalents of held for sale operations
    
    
    2,569
    
    
    
    (2,231
    )Cash and cash equivalents  Beginning
    
    $
    13,626
    
    
    $
    27,041Cash and cash equivalents  Ending
    
    $
    43,645
    
    
    $
    14,764Cash paid for:Interest
    
    $
    5,655
    
    
    $
    7,690Income Taxes
    
    $
    3,715
    
    
    $
    0Noncash Disclosures:Transfers from loans to other real estate
    
    $
    750
    
    
    $
    2,892
 6




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Fentura Financial, Inc.  Consolidated Statements of Comprehensive Income (Unaudited)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,(000s Omitted)
    
    2009
    
    2008
    
    2009
    
    2008Net loss
    
    $
    (15,364
    )
    
    $
    (2,168
    )
    
    $
    (17,023
    )
    
    $
    (2,797
    )Other comprehensive income (loss), net of tax:Unrealized holding gains (losses) arising
during period
    
    
    900
    
    
    
    (706
    )
    
    
    237
    
    
    
    193Impairment loss recognized during
period
    
    
    (200
    )
    
    
    (35
    )
    
    
    (200
    )
    
    
    (610
    )Other comprehensive income (loss)
    
    
    1,100
    
    
    
    (741
    )
    
    
    37
    
    
    
    (417
    )Comprehensive income (loss)
    
    $
    (14,264
    )
    
    $
    (2,909
    )
    
    $
    (16,986
    )
    
    $
    (3,214
    )
 Fentura Financial, Inc.  Notes to Consolidated Financial Statements (Unaudited)
 NOTE 1  BASIS OF PRESENTATION
     7




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Reclassifications:
 Allowance for Loan Losses:
  Income Taxes
  Dividend Restriction
 Stock Option Plans
   8




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##### Table of Contents



Number of
    
    WeightedOptions
    
    Average PriceOptions outstanding at December 31, 2008
    
    
    26,597
    
    
    $
    29.85Options granted 2009
    
    
    0
    
    
    $
    0.00Options forfeited 2009
    
    
    (2,350
    )
    
    $
    30.52Options outstanding at June 30, 2009
    
    
    24,247
    
    
    $
    29.78
 NOTE 2  ADOPTION OF NEW ACCOUNTING STANDARDS
 New Accounting Pronouncements:
  Non-controlling Interest in Consolidated Financial
Statements, an amendment of ARB No. 51
  Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities. Earnings Per Share.
 Recognition and
Presentation of Other-Than-Temporary Impairments,
 9




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Determining Fair Value When the
Volume and Level of Activity for the Asset and Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly
 Interim Disclosures
about Fair Value of Financial Instruments Disclosures
about Fair Value of Financial Instruments
 Recently Issued and Not Yet Effective Accounting Standards
 The FASB Accounting Standards Codification and the Hierarchy
of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162
 Effective Date of FASB Statement No. 157
 10




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Subsequent Events
  NOTE 3  FAIR VALUE
      Assets and Liabilities 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)Assets:Available for sale
securities
    
    June 30, 2009
    
    $
    51,483
    
    
    $
    12
    
    
    $
    51,471
    
    
    $
    0Available for sale
securities
    
    December 31, 2008
    
    $
    47,065
    
    
    $
    9
    
    
    $
    45,827
    
    
    $
    1,229
 11




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##### Table of Contents



NOTE 3  FAIR VALUE (Continued)
     Fair Value Measurements UsingSignificant Unobservable 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
    
    
    
    (200
    )Included in other comprehensive income
    
    
    356
    
    
    
    0
    
    
    
    356Purchases, issuances, and settlementsTransfers in and / or out of Level 3
    
    
    (1,385
    )
    
    
    0
    
    
    
    (1,385
    )Ending balance, June 30, 2009
    
    $
    0
    
    
    $
    0
    
    
    $
    0
 Assets and Liabilities Measured on a Non-Recurring Basis
  Fair Value Measurements UsingQuoted Pricesin Active
    
    SignificantMarkets for
    
    Other
    
    SignificantIdentical
    
    Observable
    
    UnobservableAssets
    
    Inputs
    
    Inputs(000s omitted)
    
    
    
    Total
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Assets:Impaired loans
    
    June 30, 2009
    
    $
    26,693
    
    
    $
    0
    
    
    $
    0
    
    
    $
    26,693Other real estate
owned
    
    June 30, 2009
    
    $
    22
    
    
    $
    0
    
    
    $
    0
    
    
    $
    22Impaired loans
    
    December 31, 2008
    
    $
    19,970
    
    
    $
    0
    
    
    $
    0
    
    
    $
    19,970
   12




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NOTE 3  FAIR VALUE
    June 30, 2009
    
    December 31, 2008Carrying
    
    
    
    
    
    Carrying(000s omitted)
    
    Amount
    
    Fair Value
    
    Amount
    
    Fair ValueAssets:Cash and cash equivalents
    
    $
    43,645
    
    
    $
    43,645
    
    
    $
    13,626
    
    
    $
    14,764Securities  held to maturity
    
    
    5,654
    
    
    
    5,657
    
    
    
    6,765
    
    
    
    6,784FHLB stock
    
    
    1,900
    
    
    
    n/a
    
    
    
    1,900
    
    
    
    n/aLoans held for sale
    
    
    1,136
    
    
    
    1,136
    
    
    
    690
    
    
    
    448Loans
    
    
    398,971
    
    
    
    377,835
    
    
    
    429,038
    
    
    
    408,387Accrued interest receivable
    
    
    1,996
    
    
    
    1,996
    
    
    
    2,231
    
    
    
    2,231Liabilities:Deposits
    
    $
    479,075
    
    
    $
    451,013
    
    
    $
    469,364
    
    
    $
    433,398Short-term borrowings
    
    
    477
    
    
    
    477
    
    
    
    1,500
    
    
    
    1,500FHLB advances
    
    
    9,981
    
    
    
    9,709
    
    
    
    12,707
    
    
    
    12,505Subordinated debentures
    
    
    14,000
    
    
    
    13,810
    
    
    
    14,000
    
    
    
    14,061Accrued interest payable
    
    
    763
    
    
    
    763
    
    
    
    590
    
    
    
    590
  Cash and cash equivalents
  Securities (including mortgage-backed securities)
  FHLB Stock
  Loans held for sale
  13




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##### Table of Contents



NOTE 3  FAIR VALUE
 Loans
  Off-balance-sheet instruments
  Deposit liabilities
  Short-term borrowings
  Note Payable
  FHLB advances
  Repurchase agreements
  Subordinated Debentures
  Limitations
  14




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##### Table of Contents



NOTE 4  SECURITIES
  (000s omitted)
    
    
    
    
    
    Gross
    
    
    GrossAvailable for Sale
    
    Amortized
    
    
    Unrecognized
    
    
    Unrecognized2009
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueU.S. Government & federal agency
    
    $
    9,574
    
    
    $
    105
    
    
    $
    (136
    )
    
    $
    9,543State and municipal
    
    
    7,873
    
    
    
    46
    
    
    
    (102
    )
    
    
    7,817Mortgage-backed  residential
    
    
    16,817
    
    
    
    239
    
    
    
    (32
    )
    
    
    17,024Collateralized mortgage obligations
    
    
    16,698
    
    
    
    113
    
    
    
    (1,612
    )
    
    
    15,199Equity securities
    
    
    2,362
    
    
    
    10
    
    
    
    (472
    )
    
    
    1,900$
    53,324
    
    
    $
    513
    
    
    $
    (2,354
    )
    
    $
    51,483
 (000s omitted)
    
    
    
    
    
    Gross
    
    
    GrossHeld to Maturity
    
    Amortized
    
    
    Unrecognized
    
    
    Unrecognized2009
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueState and municipal
    
    $
    5,652
    
    
    $
    38
    
    
    $
    (35
    )
    
    $
    5,655Mortgage-backed  residential
    
    
    2
    
    
    
    0
    
    
    
    0
    
    
    
    2$
    5,654
    
    
    $
    38
    
    
    $
    (35
    )
    
    $
    5,657
  Available for SaleAmortized
    
    
    Fair(000s omitted)
    
    Cost
    
    
    ValueDue in one year or less
    
    $
    8,420
    
    
    $
    8,441Due from one to five years
    
    
    3,750
    
    
    
    3,714Due from five to ten years
    
    
    4,777
    
    
    
    4,695Due after ten years
    
    
    500
    
    
    
    511Mortgage-backed securities
    
    
    16,820
    
    
    
    17,023Collateralized mortgage obligations
    
    
    16,698
    
    
    
    15,199Equity securities
    
    
    2,362
    
    
    
    1,900$
    53,327
    
    
    $
    51,483
 Held to MaturityAmortized
    
    
    Fair(000s omitted)
    
    Cost
    
    
    ValueDue in one year or less
    
    $
    570
    
    
    $
    572Due from one to five years
    
    
    2,818
    
    
    
    2,836Due from five to ten years
    
    
    2,264
    
    
    
    2,247Due after ten years
    
    
    0
    
    
    
    0Mortgage-backed securities
    
    
    2
    
    
    
    2$
    5,654
    
    
    $
    5,657
 15




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##### Table of Contents



2009
 Available for Sale
    
    Less than 12 Months
    
    
    12 Months or More
    
    
    Total(000s omitted)Description of
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedSecurities
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossUS Government & federal
agency
    
    $
    3,438
    
    
    $
    (136
    )
    
    $
    0
    
    
    $
    0
    
    
    $
    3,438
    
    
    $
    (136
    )State & municipal
    
    
    2,357
    
    
    
    (102
    )
    
    
    0
    
    
    
    0
    
    
    
    2,357
    
    
    
    (102
    )Mortgage-backed
    
    
    4,346
    
    
    
    (32
    )
    
    
    0
    
    
    
    0
    
    
    
    4,346
    
    
    
    (32
    )Collateralized mortgage
obligations
    
    
    8,437
    
    
    
    (69
    )
    
    
    4,976
    
    
    
    (1,543
    )
    
    
    13,413
    
    
    
    (1,612
    )Equity securities
    
    
    0
    
    
    
    0
    
    
    
    1,900
    
    
    
    (472
    )
    
    
    1,900
    
    
    
    (472
    )Total available for sale
    
    $
    18,578
    
    
    $
    (339
    )
    
    $
    6,876
    
    
    $
    (2,015
    )
    
    $
    25,454
    
    
    $
    (2,354
    )
 2009
 Held to Maturity
    
    Less than 12 Months
    
    
    12 Months or More
    
    
    Total(000s omitted)Description of
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedSecurities
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossState & municipal
    
    $
    1,015
    
    
    $
    (35
    )
    
    $
    0
    
    
    $
    0
    
    
    $
    1,015
    
    
    $
    (35
    )Mortgage-backed
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total held to maturity
    
    $
    1,015
    
    
    $
    (35
    )
    
    $
    0
    
    
    $
    0
    
    
    $
    1,015
    
    
    $
    (35
    )
   Other-Than-Temporary-Impairment
 Accounting for Certain Investments in Debt and
Equity Securities
 16




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##### Table of Contents



Recognition of Interest Income and
Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to be Held by a
Transfer in Securitized Financial Assets.
     Collateralized Mortgage Obligations (CMOs) and Equity Securities
    17




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##### Table of Contents



Other Securities
   NOTE 4  LOANS AND ALLOWANCE FOR LOAN LOSSES
  (000s omitted)
    
    June 30, 2009
    
    
    December 31, 2008Commercial
    
    $
    278,224
    
    
    $
    289,523Real estate  construction
    
    
    37,028
    
    
    
    48,777Real estate  mortgage
    
    
    33,050
    
    
    
    37,828Consumer
    
    
    50,669
    
    
    
    52,910398,971
    
    
    
    429,038Less allowance for loan losses
    
    
    13,970
    
    
    
    10,455$
    385,001
    
    
    $
    418,583
  18




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##### Table of Contents



(000s omitted)
    
    June 30, 2009
    
    
    June 30, 2008Balance, January 1,
    
    $
    10,455
    
    
    $
    7,592Provision for loan losses
    
    
    9,366
    
    
    
    4,455Loans charged off
    
    
    (5,958
    )
    
    
    (929
    )Loan recoveries
    
    
    107
    
    
    
    262Balance, end of period
    
    $
    13,970
    
    
    $
    11,380
  (000s omitted)
    
    June 30, 2009
    
    
    June 30, 2008Balance, April 1,
    
    $
    11,405
    
    
    $
    8,325Provision for loan losses
    
    
    7,711
    
    
    
    3,475Loans charged off
    
    
    (5,194
    )
    
    
    (500
    )Loan recoveries
    
    
    48
    
    
    
    80Balance, end of period
    
    $
    13,970
    
    
    $
    11,380
  (000s omitted)
    
    June 30, 2009
    
    
    December 31, 2008Period end loans not requiring allocation
    
    $
    15,205
    
    
    $
    19,086Period end loans requiring allocation
    
    
    35,208
    
    
    
    29,090$
    50,413
    
    
    $
    48,176Amount of the allowance for loan losses allocated
    
    $
    8,465
    
    
    $
    5,642
  (000s omitted)
    
    June 30, 2009
    
    December 31, 2008Loans past due over 90 days still on accrual
    
    $
    15
    
    
    $
    667Renegotiated loans
    
    $
    108
    
    
    $
    942Nonaccrual loans
    
    $
    23,872
    
    
    $
    24,325
  OTE 6  INCOME TAXES
  19




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##### Table of Contents



NOTE 7  EARNINGS PER COMMON SHARE
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(000s omitted except share and per share data)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008BasicNet loss
    
    $
    (15,364
    )
    
    $
    (2,168
    )
    
    $
    (17,023
    )
    
    $
    (2,797
    )Weighted average common shares
outstanding
    
    
    2,196,743
    
    
    
    2,172,177
    
    
    
    2,191,940
    
    
    
    2,169,692OutstandingBasic loss per common share
    
    $
    (6.99
    )
    
    $
    (1.00
    )
    
    $
    (7.77
    )
    
    $
    (1.29
    )DilutedNet loss
    
    $
    (15,364
    )
    
    $
    (2,168
    )
    
    $
    (17,023
    )
    
    $
    (2,797
    )Weighted average common shares
outstanding for
basic earnings per common share
    
    
    2,196,743
    
    
    
    2,172,177
    
    
    
    2,191,940
    
    
    
    2,169,692Add: Dilutive effects of
assumed exercises of stock
options
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Average shares and dilutive
potential common shares
    
    
    2,196,743
    
    
    
    2,172,177
    
    
    
    2,191,940
    
    
    
    2,169,692Diluted loss per common share
    
    $
    (6.99
    )
    
    $
    (1.00
    )
    
    $
    (7.77
    )
    
    $
    (1.29
    )
  NOTE 8  COMMITMENTS AND CONTINGENCIES
  NOTE 9  HELD FOR SALE OPERATIONS
  20




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DAVISON STATE BANK
CONDENSED BALANCE SHEET OF HELD FOR SALE OPERATIONS
(Unaudited)
 June 30,
    
    Dec 31,(000s omitted)
    
    2009
    
    2008ASSETSCash and cash equivalents
    
    $
    5,164
    
    
    $
    7,327Securities  available for sale
    
    
    7,195
    
    
    
    5,657Securities  held to maturity
    
    
    1,190
    
    
    
    1,190Loans, net of allowance ($652-2009, $1,318-2008)
    
    
    26,757
    
    
    
    28,954Other assets
    
    
    2,406
    
    
    
    2,522Total assets
    
    $
    42,712
    
    
    $
    45,650LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Non-interest bearing
    
    $
    8,552
    
    
    $
    9,361Interest bearing
    
    
    29,295
    
    
    
    31,004Total deposits
    
    
    37,847
    
    
    
    40,365Federal Home Loan Bank advances
    
    
    2,000
    
    
    
    2,000Accrued taxes, interest and other liabilities
    
    
    295
    
    
    
    (191
    )Shareholders equity
    
    
    2,570
    
    
    
    3,476Total liabilities and shareholders Equity
    
    $
    42,712
    
    
    $
    45,650
 DAVISON STATE BANK
CONDENSED STATEMENT OF INCOME OF HELD FOR SALE OPERATIONS
(Unaudited)
 Three Months Ended
    
    Six Months EndedJune 30
    
    June 30(000s omitted)
    
    2009
    
    2008
    
    2009
    
    2008Interest income
    
    $
    513
    
    
    $
    664
    
    
    $
    1,062
    
    
    $
    1,377Interest expense
    
    
    171
    
    
    
    237
    
    
    
    359
    
    
    
    529Net interest income
    
    
    342
    
    
    
    427
    
    
    
    703
    
    
    
    848Provision for loan losses
    
    
    156
    
    
    
    336
    
    
    
    155
    
    
    
    437Net interest income after provision for loan losses
    
    
    186
    
    
    
    91
    
    
    
    548
    
    
    
    411Non-interest income
    
    
    141
    
    
    
    181
    
    
    
    263
    
    
    
    338Non-interest expense
    
    
    490
    
    
    
    595
    
    
    
    977
    
    
    
    1,093Loss before federal income tax
    
    
    (163
    )
    
    
    (323
    )
    
    
    (166
    )
    
    
    (344
    )Federal income tax expense/(benefit)
    
    
    676
    
    
    
    (116
    )
    
    
    676
    
    
    
    (127
    )Net loss
    
    $
    (839
    )
    
    $
    (207
    )
    
    $
    (842
    )
    
    $
    (217
    )
 21




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##### Table of Contents



Results of Operations
     22




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##### Table of Contents



Net Loss from Continuing Operations
  Net Interest Income
  Table 1
 SIX MONTHS ENDEDJUNE 30,2009 COMPARED TO 2008INCREASE (DECREASE)DUE TOYIELD/(000s omitted)
    
    TIME
    
    
    VOL
    
    
    RATE
    
    
    TOTALTaxable securities
    
    $
    (6
    )
    
    $
    (235
    )
    
    $
    5
    
    
    $
    (236
    )Tax-exempt securities (1)
    
    
    (2
    )
    
    
    (13
    )
    
    
    58
    
    
    
    43Federal funds sold
    
    
    (1
    )
    
    
    (107
    )
    
    
    0
    
    
    
    (108
    )Total loans (1)
    
    
    (79
    )
    
    
    (573
    )
    
    
    (1,234
    )
    
    
    (1,886
    )Loans held for sale
    
    
    0
    
    
    
    15
    
    
    
    (9
    )
    
    
    6Total earning assets
    
    
    (88
    )
    
    
    (913
    )
    
    
    (1,180
    )
    
    
    (2,181
    )Interest bearing demand deposits
    
    
    (4
    )
    
    
    (50
    )
    
    
    (291
    )
    
    
    (345
    )Savings deposits
    
    
    (2
    )
    
    
    (5
    )
    
    
    (122
    )
    
    
    (129
    )Time CDs $100,000 and over
    
    
    (19
    )
    
    
    (280
    )
    
    
    (367
    )
    
    
    (666
    )Other time deposits
    
    
    (13
    )
    
    
    136
    
    
    
    (566
    )
    
    
    (443
    )Other borrowings
    
    
    (5
    )
    
    
    (162
    )
    
    
    (140
    )
    
    
    (307
    )Total interest bearing liabilities
    
    
    (43
    )
    
    
    (361
    )
    
    
    (1,486
    )
    
    
    (1,890
    )Net Interest Income
    
    $
    (45
    )
    
    $
    (552
    )
    
    $
    306
    
    
    $
    (291
    )
 
 (1)
    
    Presented on a fully taxable equivalent basis using a federal income tax rate of 34%. 23




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##### Table of Contents



24




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##### Table of Contents



Table 2 Average Balance and Rates
 SIX MONTHS ENDED JUNE 302009
    
    
    2008AVERAGE
    
    
    INCOME/
    
    
    YIELD/
    
    
    AVERAGE
    
    
    INCOME/
    
    
    YIELD/(000s omitted)(Annualized)
    
    BALANCE
    
    
    EXPENSE
    
    
    RATE
    
    
    BALANCE
    
    
    EXPENSE
    
    
    RATEASSETSSecurities:U.S. Treasury and Government Agencies
    
    $
    36,818
    
    
    $
    759
    
    
    
    4.16
    %
    
    $
    47,552
    
    
    $
    983
    
    
    
    4.16
    %State and Political (1)
    
    
    14,143
    
    
    
    429
    
    
    
    6.11
    %
    
    
    14,666
    
    
    
    386
    
    
    
    5.30
    %Other
    
    
    3,526
    
    
    
    50
    
    
    
    2.86
    %
    
    
    4,913
    
    
    
    62
    
    
    
    2.54
    %Total Securities
    
    
    54,487
    
    
    
    1,238
    
    
    
    4.58
    %
    
    
    67,131
    
    
    
    1,431
    
    
    
    4.29
    %Fed Funds Sold
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %
    
    
    7,279
    
    
    
    108
    
    
    
    2.98
    %Loans:Commercial
    
    
    328,220
    
    
    
    9,777
    
    
    
    6.01
    %
    
    
    343,374
    
    
    
    11,247
    
    
    
    6.59
    %Tax Free (1)
    
    
    2,724
    
    
    
    85
    
    
    
    6.39
    %
    
    
    1,995
    
    
    
    64
    
    
    
    6.41
    %Real Estate-Mortgage
    
    
    36,339
    
    
    
    1,117
    
    
    
    6.20
    %
    
    
    37,672
    
    
    
    1,202
    
    
    
    6.42
    %Consumer
    
    
    51,693
    
    
    
    1,465
    
    
    
    5.72
    %
    
    
    53,430
    
    
    
    1,817
    
    
    
    6.84
    %Total loans
    
    
    418,976
    
    
    
    12,444
    
    
    
    5.99
    %
    
    
    436,471
    
    
    
    14,330
    
    
    
    6.60
    %Allowance for Loan Losses
    
    
    (10,772
    )
    
    
    
    
    
    
    
    
    
    
    (8,072
    )Net Loans
    
    
    408,204
    
    
    
    12,444
    
    
    
    6.15
    %
    
    
    428,399
    
    
    
    14,330
    
    
    
    6.73
    %Loans Held for Sale
    
    
    1,979
    
    
    
    48
    
    
    
    4.89
    %
    
    
    1,444
    
    
    
    42
    
    
    
    5.85
    %TOTAL EARNING ASSETS CONTINUING OPERATIONS
    
    $
    475,442
    
    
    $
    13,730
    
    
    
    5.82
    %
    
    $
    512,325
    
    
    $
    15,911
    
    
    
    6.25
    %Cash Due from Banks
    
    
    27,794
    
    
    
    
    
    
    
    
    
    
    
    13,387Assets of held for sale operations
    
    
    44,138
    
    
    
    
    
    
    
    
    
    
    
    45,697All Other Assets
    
    
    41,605
    
    
    
    
    
    
    
    
    
    
    
    47,541TOTAL ASSETS
    
    $
    578,207
    
    
    
    
    
    
    
    
    
    
    $
    610,878LIABILITIES & SHAREHOLDERS EQUITY:Deposits:Interest bearing  DDA
    
    $
    87,954
    
    
    $
    411
    
    
    
    0.94
    %
    
    $
    94,234
    
    
    $
    756
    
    
    
    1.61
    %Savings Deposits
    
    
    73,027
    
    
    
    205
    
    
    
    0.57
    %
    
    
    74,069
    
    
    
    334
    
    
    
    0.91
    %Time CDs $100,000 and Over
    
    
    130,946
    
    
    
    2,795
    
    
    
    4.30
    %
    
    
    142,498
    
    
    
    3,461
    
    
    
    4.88
    %Other Time CDs
    
    
    114,204
    
    
    
    1,815
    
    
    
    3.20
    %
    
    
    107,708
    
    
    
    2,258
    
    
    
    4.22
    %Total Deposits
    
    
    406,131
    
    
    
    5,226
    
    
    
    2.59
    %
    
    
    418,509
    
    
    
    6,809
    
    
    
    3.27
    %Other Borrowings
    
    
    27,093
    
    
    
    602
    
    
    
    4.48
    %
    
    
    32,995
    
    
    
    909
    
    
    
    5.54
    %INTEREST BEARING LIABILITIES
    
    $
    433,224
    
    
    $
    5,828
    
    
    
    2.71
    %
    
    $
    451,504
    
    
    $
    7,718
    
    
    
    3.44
    %Non-Interest bearing  DDA
    
    
    66,897
    
    
    
    
    
    
    
    
    
    
    
    64,612Liabilities of held for sale operations
    
    
    40,845
    
    
    
    
    
    
    
    
    
    
    
    41,734All Other Liabilities
    
    
    1,853
    
    
    
    
    
    
    
    
    
    
    
    3,230Shareholders Equity
    
    
    35,388
    
    
    
    
    
    
    
    
    
    
    
    49,798TOTAL LIABILITIES & SHAREHOLDERS EQUITY
    
    $
    578,207
    
    
    
    
    
    
    
    
    
    
    $
    610,878Net Interest Rate Spread
    
    
    
    
    
    
    
    
    
    
    3.11
    %
    
    
    
    
    
    
    
    
    
    
    2.81
    %Net Interest Income /Margin
    
    
    
    
    
    $
    7,902
    
    
    
    3.35
    %
    
    
    
    
    
    $
    8,193
    
    
    
    3.22
    %
 
 (1)
    
    Presented on a fully taxable equivalent basis using a federal income tax rate of 34%. 25




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##### Table of Contents



Table 3 Average Balance and Rates
 THREE MONTHS ENDED JUNE 30,2009
    
    
    2008AVERAGE
    
    
    INCOME/
    
    
    YIELD/
    
    
    AVERAGE
    
    
    INCOME/
    
    
    YIELD/(000s omitted)(Annualized)
    
    BALANCE
    
    
    EXPENSE
    
    
    RATE
    
    
    BALANCE
    
    
    EXPENSE
    
    
    RATEASSETSSecurities:U.S. Treasury and Government Agencies
    
    $
    37,664
    
    
    $
    383
    
    
    
    4.08
    %
    
    $
    44,775
    
    
    $
    468
    
    
    
    4.19
    %State and Political (1)
    
    
    13,889
    
    
    
    209
    
    
    
    6.04
    %
    
    
    14,631
    
    
    
    218
    
    
    
    6.00
    %Other
    
    
    2,905
    
    
    
    7
    
    
    
    0.79
    %
    
    
    4,674
    
    
    
    32
    
    
    
    2.67
    %Total Securities
    
    
    54,458
    
    
    
    599
    
    
    
    4.41
    %
    
    
    64,080
    
    
    
    718
    
    
    
    4.50
    %Fed Funds Sold
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %
    
    
    2,842
    
    
    
    15
    
    
    
    2.12
    %Loans:Commercial
    
    
    323,183
    
    
    
    4,693
    
    
    
    5.82
    %
    
    
    342,898
    
    
    
    5,371
    
    
    
    6.30
    %Tax Free (1)
    
    
    2,697
    
    
    
    44
    
    
    
    6.53
    %
    
    
    1,981
    
    
    
    32
    
    
    
    6.46
    %Real Estate-Mortgage
    
    
    36,957
    
    
    
    525
    
    
    
    5.70
    %
    
    
    37,097
    
    
    
    590
    
    
    
    6.40
    %Consumer
    
    
    49,295
    
    
    
    730
    
    
    
    5.94
    %
    
    
    53,495
    
    
    
    872
    
    
    
    6.56
    %Total loans
    
    
    412,132
    
    
    
    5,992
    
    
    
    5.83
    %
    
    
    435,471
    
    
    
    6,865
    
    
    
    6.34
    %Allowance for Loan Losses
    
    
    (11,101
    )
    
    
    
    
    
    
    
    
    
    
    (8,340
    )Net Loans
    
    
    401,031
    
    
    
    5,992
    
    
    
    5.99
    %
    
    
    427,131
    
    
    
    6,865
    
    
    
    6.46
    %Loans Held for Sale
    
    
    1,870
    
    
    
    23
    
    
    
    4.93
    %
    
    
    917
    
    
    
    14
    
    
    
    6.14
    %TOTAL EARNING ASSETS CONTINUING OPERATIONS
    
    $
    468,460
    
    
    $
    6,614
    
    
    
    5.66
    %
    
    $
    503,310
    
    
    $
    7,612
    
    
    
    6.08
    %Cash Due from Banks
    
    
    38,776
    
    
    
    
    
    
    
    
    
    
    
    12,790Assets of held for sale operations
    
    
    43,405
    
    
    
    
    
    
    
    
    
    
    
    44,284All Other Assets
    
    
    41,224
    
    
    
    
    
    
    
    
    
    
    
    47,039TOTAL ASSETS
    
    $
    580,764
    
    
    
    
    
    
    
    
    
    
    $
    599,083LIABILITIES & SHAREHOLDERS EQUITY:Deposits:Interest bearing  DDA
    
    $
    85,972
    
    
    $
    194
    
    
    
    0.91
    %
    
    $
    94,843
    
    
    $
    322
    
    
    
    1.37
    %Savings Deposits
    
    
    76,644
    
    
    
    111
    
    
    
    0.58
    %
    
    
    74,678
    
    
    
    145
    
    
    
    0.78
    %Time CDs $100,000 and Over
    
    
    129,979
    
    
    
    1,381
    
    
    
    4.26
    %
    
    
    131,980
    
    
    
    1,563
    
    
    
    4.77
    %Other Time CDs
    
    
    118,665
    
    
    
    927
    
    
    
    3.13
    %
    
    
    104,749
    
    
    
    1,034
    
    
    
    3.97
    %Total Deposits
    
    
    411,260
    
    
    
    2,613
    
    
    
    2.55
    %
    
    
    406,250
    
    
    
    3,064
    
    
    
    3.03
    %Other Borrowings
    
    
    24,406
    
    
    
    291
    
    
    
    4.78
    %
    
    
    34,198
    
    
    
    423
    
    
    
    4.97
    %INTEREST BEARING LIABILITIES
    
    $
    435,666
    
    
    $
    2,904
    
    
    
    2.67
    %
    
    $
    440,448
    
    
    $
    3,487
    
    
    
    3.18
    %Non-Interest bearing  DDA
    
    
    68,798
    
    
    
    
    
    
    
    
    
    
    
    65,830Liabilities of held for sale operations
    
    
    40,334
    
    
    
    
    
    
    
    
    
    
    
    40,314All Other Liabilities
    
    
    1,798
    
    
    
    
    
    
    
    
    
    
    
    2,747Shareholders Equity
    
    
    34,168
    
    
    
    
    
    
    
    
    
    
    
    49,744TOTAL LIABILITIES & SHAREHOLDERS EQUITY
    
    $
    580,764
    
    
    
    
    
    
    
    
    
    
    $
    599,083Net Interest Rate Spread
    
    
    
    
    
    
    
    
    
    
    2.99
    %
    
    
    
    
    
    
    
    
    
    
    2.90
    %Net Interest Income /Margin
    
    
    
    
    
    $
    3,710
    
    
    
    3.18
    %
    
    
    
    
    
    $
    4,125
    
    
    
    3.29
    %
 
 (1)
    
    Presented on a fully taxable equivalent basis using a federal income tax rate of 34%. 26




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Allowance and Provision For Loan Losses
      27




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##### Table of Contents



Table 4 Analysis of the Allowance for Loan Losses
 Six Months Ended June 30,(000s omitted)
    
    2009
    
    2008Balance at Beginning of Period
    
    $
    10,455
    
    
    $
    7,592Charge-Offs:Commercial, Financial and Agriculture
    
    
    (5,063
    )
    
    
    (629
    )Real Estate-Mortgage
    
    
    (477
    )
    
    
    (88
    )Installment Loans to Individuals
    
    
    (418
    )
    
    
    (212
    )Total Charge-Offs
    
    
    (5,958
    )
    
    
    (929
    )Recoveries:Commercial, Financial and Agriculture
    
    
    60
    
    
    
    201Real Estate-Mortgage
    
    
    3
    
    
    
    0Installment Loans to Individuals
    
    
    44
    
    
    
    61Total Recoveries
    
    
    107
    
    
    
    262Net Charge-Offs
    
    
    (5,851
    )
    
    
    (667
    )Provision
    
    
    9,366
    
    
    
    4,455Balance at End of Period
    
    $
    13,970
    
    
    $
    11,380Ratio of Net Charge-Offs to Gross Loans
    
    
    1.46
    %
    
    
    0.16
    %
 Non-Interest Income
      28




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##### Table of Contents



Non-Interest Expense
       29




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##### Table of Contents



Financial Condition
    Non-Performing Assets
   30




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##### Table of Contents



Table 5  Non-Performing Assets and Past Due Loans
 (000s omitted)
    
    June 30,
    
    December 31,2009
    
    2008Non-Performing Loans:Loans Past Due 90 Days or More & Still
Accruing
    
    $
    15
    
    
    $
    667Non-Accrual Loans
    
    
    23,872
    
    
    
    22,574Renegotiated Loans
    
    
    108
    
    
    
    942Total Non-Performing Loans
    
    
    23,995
    
    
    
    24,183Other Non-Performing Assets:Other Real Estate
    
    
    5,933
    
    
    
    5,983REO in Redemption
    
    
    1,671
    
    
    
    390Other Non-Performing Assets
    
    
    0
    
    
    
    25Total Other Non-Performing
Assets
    
    
    7,604
    
    
    
    6,398Total Non-Performing Assets
    
    $
    31,599
    
    
    $
    30,581Non-Performing Loans as a % of
Total Loans
    
    
    6.00
    %
    
    
    5.63
    %Allowance for Loan Losses as a % of
Non-Performing Loans
    
    
    58.22
    %
    
    
    43.23
    %Accruing Loans Past Due 90 Days or
More to Total Loans
    
    
    0.00
    %
    
    
    0.16
    %Non-performing Assets as a % of
Total Assets
    
    
    5.56
    %
    
    
    5.29
    %
 31




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Liquidity and Interest Rate Risk Management
      Capital Management
  32




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##### Table of Contents



Regulatory Capital Requirements
      33




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##### Table of Contents



Table 6
 Capital RatiosFentura Financial, Inc.Regulatory Minimum
    
    June 30,
    
    December 31,
    
    June 30,For Well Capitalized
    
    2009
    
    2008
    
    2008Total Capital to risk Weighted assets
    
    
    10
    %
    
    
    8.47
    %
    
    
    11.40
    %
    
    
    11.56
    %Tier 1 Capital to risk Weighted assets
    
    
    6
    %
    
    
    7.24
    %
    
    
    10.20
    %
    
    
    10.31
    %Tier 1 Capital to average Assets
    
    
    5
    %
    
    
    6.02
    %
    
    
    8.80
    %
    
    
    8.98
    %
  Critical Accounting Policies and Estimates
     34




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##### Table of Contents



Off Balance Sheet Arrangements
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    Interest Rate Sensitivity Management
  35




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##### Table of Contents



Table 7 GAP Analysis  June 30, 2009
 Within
    
    Three
    
    One to
    
    AfterThree
    
    Months to
    
    Five
    
    Five(000s omitted)
    
    Months
    
    One Year
    
    Years
    
    Years
    
    TotalEarning Assets:Federal Funds Sold
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0Securities
    
    
    8,737
    
    
    
    14,925
    
    
    
    17,550
    
    
    
    15,925
    
    
    
    57,137Loans
    
    
    100,335
    
    
    
    63,632
    
    
    
    175,835
    
    
    
    59,169
    
    
    
    398,971Loans Held for Sale
    
    
    1,136
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,136FHLB Stock
    
    
    1,900
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,900Total Earning Assets
    
    $
    112,108
    
    
    $
    78,557
    
    
    $
    193,385
    
    
    $
    75,094
    
    
    $
    459,144Interest Bearing Liabilities:Interest Bearing Demand Deposits
    
    $
    84,930
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    84,930Savings Deposits
    
    
    79,659
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    79,659Time Deposits Less than $100,000
    
    
    17,893
    
    
    
    59,336
    
    
    
    40,620
    
    
    
    125
    
    
    
    117,974Time Deposits Greater than $100,000
    
    
    10,840
    
    
    
    49,466
    
    
    
    66,975
    
    
    
    0
    
    
    
    127,281Short term borrowings
    
    
    477
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    477Other Borrowings
    
    
    0
    
    
    
    2,000
    
    
    
    7,126
    
    
    
    855
    
    
    
    9,981Subordinated debentures
    
    
    14,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    14,000Total Interest Bearing Liabilities
    
    $
    207,799
    
    
    $
    110,802
    
    
    $
    114,721
    
    
    $
    980
    
    
    $
    434,302Interest Rate Sensitivity GAP
    
    
    ($95,691
    )
    
    
    ($32,245
    )
    
    $
    78,664
    
    
    $
    74,114
    
    
    $
    24,842Cumulative Interest RateSensitivity GAP
    
    
    ($95,691
    )
    
    
    ($127,936
    )
    
    
    ($49,272
    )
    
    $
    24,842Interest Rate Sensitivity GAP
    
    
    (0.54
    )
    
    
    (0.71
    )
    
    
    1.69
    
    
    
    76.61Cumulative Interest RateSensitivity GAP Ratio
    
    
    (0.54
    )
    
    
    (1.25
    )
    
    
    0.44
    
    
    
    77.05
  36




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##### Table of Contents



Forward Looking Statements
  
 ITEM 4T: CONTROLS AND PROCEDURES
 (a)
    
    Evaluation of Disclosure Controls and Procedures. The Corporations Chief Executive
Officer and Chief Financial Officer, after evaluating the effectiveness of the Corporations
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
as of the end of the period covered by this Form 10-Q Quarterly Report, have concluded that
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.
 37




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings. None
 
 Item 1A.
    
    Risk Factors There have been no material changes in the risk factors applicable to the
Corporation from those disclosed in its Annual Report on Form 10-K for the year ended December
31, 2008.
 
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds. None
 
 Item 3.
    
    Defaults Upon Senior Securities. None
 
 Item 4.
    
    Submission of Matters to a Vote of Securities Holders.The registrants annual meeting was held April 28, 2009. Three 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
    
    
    2012
    
    
    
    1,316,553
    
    
    
    145,986Donald L. Grill
    
    
    2012
    
    
    
    1,238,439
    
    
    
    224,100Douglas W. Rotman
    
    
    2012
    
    
    
    1,304,041
    
    
    
    158,498Sheryl E. Stephens
    
    
    2012
    
    
    
    1,274,831
    
    
    
    187,708
 The following directors were not up for re-election and, consequently, their terms
continue after the annual meeting: Kenneth R. Elston, Thomas L. Miller, Ian W.
Schonsheck, Thomas P. McKenney, and Brian P. Petty.
 
 Item 5.
    
    Other Information. None
 
 Item 6.
    
    Exhibits.
  31.1
    
    Certificate of the President and Chief Executive Officer of
Fentura Financial, Inc. pursuant to 15 U.S.C. Section 7241, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certificate of the Chief Financial Officer of Fentura
Financial, Inc. pursuant to 15 U.S.C. Section 7241, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certificate of the Chief Executive Officer of Fentura
Financial, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certificate of the Chief Financial Officer of Fentura
Financial, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 38




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##### Table of Contents



Fentura Financial, Inc.Dated:  August 14, 2009
    /s/ Donald L. GrillDonald L. GrillPresident & CEODated:  August 14, 2009
    /s/ Douglas J. KelleyDouglas J. KelleyChief Financial Officer 39




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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.
 40