##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 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 
incorporation or organization)
    
    (IRS Employee Identification No.)
 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




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##### 



Fentura Financial Inc.
Index to Form 10-Q
 PagePart I  Financial Information
    
    
    3Item 1  Consolidated Financial Statements (Unaudited)
    
    
    3-24Item 2  Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    24-37Item 3  Quantitative and Qualitative Disclosures about Market Risk
    
    
    38-40Item 4T  Controls and Procedures
    
    
    40Part II  Other Information
    
    
    41Item 1  Legal Proceedings
    
    
    41Item 1A  Risk Factors
    
    
    41Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    41Item 3  Defaults Upon Senior Securities
    
    
    41Item 4 Submission of Matters to a Vote of Security Holders
    
    
    41Item 5  Other Information
    
    
    41Item 6  Exhibits
    
    
    41Signatures
    
    
    42Exhibit Index
    
    
    43EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 Fentura Financial, Inc.
Consolidated Balance Sheets
 September 30,2009
    
    Dec 31,(000s omitted except share data)
    
    (unaudited)
    
    2008ASSETSCash and due from banks
    
    $
    18,814
    
    
    $
    13,626Federal funds sold
    
    
    27,250
    
    
    
    0Total cash & cash equivalents
    
    
    46,064
    
    
    
    13,626Securities-available for sale
    
    
    49,405
    
    
    
    47,065Securities-held to maturity, (fair value of $5,636
at September 30, 2009 and $6,784 at December 31, 2008)
    
    
    5,577
    
    
    
    6,765Total securities
    
    
    54,982
    
    
    
    53,830Loans held for sale
    
    
    1,434
    
    
    
    690Loans:Commercial
    
    
    270,542
    
    
    
    289,523Real estate loans  construction
    
    
    34,072
    
    
    
    48,777Real estate loans  mortgage
    
    
    30,829
    
    
    
    37,828Consumer loans
    
    
    50,438
    
    
    
    52,910Total loans
    
    
    385,881
    
    
    
    429,038Less: Allowance for loan losses
    
    
    (14,485
    )
    
    
    (10,455
    )Net loans
    
    
    371,396
    
    
    
    418,583Bank owned life insurance
    
    
    7,138
    
    
    
    7,282Bank premises and equipment
    
    
    16,111
    
    
    
    16,879Federal Home Loan Bank stock
    
    
    1,900
    
    
    
    1,900Accrued interest receivable
    
    
    2,020
    
    
    
    2,231Acquisition intangibles
    
    
    189
    
    
    
    293Equity investment
    
    
    0
    
    
    
    1,360Other real estate owned
    
    
    6,856
    
    
    
    5,983Assets of held for sale operations
    
    
    41,195
    
    
    
    45,650Other assets
    
    
    5,707
    
    
    
    10,297Total assets
    
    $
    554,992
    
    
    $
    578,604LIABILITIESDeposits:Non-interest bearing deposits
    
    $
    63,786
    
    
    $
    64,325Interest bearing deposits
    
    
    405,080
    
    
    
    405,039Total deposits
    
    
    468,866
    
    
    
    469,364Short term borrowings
    
    
    34
    
    
    
    1,500Federal Home Loan Bank advances
    
    
    9,981
    
    
    
    12,707Subordinated debentures
    
    
    14,000
    
    
    
    14,000Note payable
    
    
    0
    
    
    
    1,000Liabilities of held for sale operations
    
    
    38,164
    
    
    
    42,174Accrued taxes, interest and other liabilities
    
    
    4,400
    
    
    
    1,735Total liabilities
    
    
    535,445
    
    
    
    542,480SHAREHOLDERS EQUITYCommon stock
 no par value 2,225,214 shares issued (2,185,765 at Dec. 31, 2008)
    
    
    42,883
    
    
    
    42,778Retained deficit
    
    
    (22,548
    )
    
    
    (4,677
    )Accumulated other comprehensive loss
    
    
    (788
    )
    
    
    (1,977
    )Total shareholders equity
    
    
    19,547
    
    
    
    36,124Total liabilities and shareholders equity
    
    $
    554,992
    
    
    $
    578,604
  3




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##### Table of Contents



Fentura Financial, Inc.
Consolidated Statements of Income (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 30(000s omitted except per share data)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008INTEREST INCOMEInterest and fees on loans
    
    $
    5,936
    
    
    $
    7,013
    
    
    $
    18,399
    
    
    $
    21,364Interest and dividends on securities:Taxable
    
    
    404
    
    
    
    458
    
    
    
    1,213
    
    
    
    1,503Tax-exempt
    
    
    135
    
    
    
    148
    
    
    
    418
    
    
    
    403Interest on federal funds sold
    
    
    1
    
    
    
    31
    
    
    
    1
    
    
    
    139Total interest income
    
    
    6,476
    
    
    
    7,650
    
    
    
    20,031
    
    
    
    23,409INTEREST EXPENSEDeposits
    
    
    2,277
    
    
    
    2,892
    
    
    
    7,503
    
    
    
    9,702Borrowings
    
    
    227
    
    
    
    350
    
    
    
    829
    
    
    
    1,259Total interest expense
    
    
    2,504
    
    
    
    3,242
    
    
    
    8,332
    
    
    
    10,961NET INTEREST INCOME
    
    
    3,972
    
    
    
    4,408
    
    
    
    11,699
    
    
    
    12,448Provision for loan losses
    
    
    1,940
    
    
    
    700
    
    
    
    11,306
    
    
    
    5,155Net interest income after
provision for loan losses
    
    
    2,032
    
    
    
    3,708
    
    
    
    393
    
    
    
    7,293NON-INTEREST INCOMEService charges on deposit accounts
    
    
    519
    
    
    
    651
    
    
    
    1,435
    
    
    
    1,871Gain on sale of mortgage loans
    
    
    100
    
    
    
    42
    
    
    
    612
    
    
    
    260Trust and investment services income
    
    
    458
    
    
    
    456
    
    
    
    1,285
    
    
    
    1,428Gain on sale of securities
    
    
    12
    
    
    
    0
    
    
    
    12
    
    
    
    0Loss on equity investment
    
    
    0
    
    
    
    (239
    )
    
    
    (1,360
    )
    
    
    (696
    )Other income and fees
    
    
    391
    
    
    
    270
    
    
    
    1,461
    
    
    
    1,089Total non-interest income
    
    
    1,480
    
    
    
    1,180
    
    
    
    3,445
    
    
    
    3,952NON-INTEREST EXPENSESalaries and employee benefits
    
    
    2,129
    
    
    
    2,534
    
    
    
    6,752
    
    
    
    8,126Occupancy
    
    
    428
    
    
    
    453
    
    
    
    1,378
    
    
    
    1,450Furniture and equipment
    
    
    385
    
    
    
    453
    
    
    
    1,212
    
    
    
    1,432Loan and collection
    
    
    984
    
    
    
    135
    
    
    
    2,302
    
    
    
    504Advertising and promotional
    
    
    39
    
    
    
    108
    
    
    
    126
    
    
    
    323Loss on security impairment
    
    
    0
    
    
    
    233
    
    
    
    200
    
    
    
    843Loss on impairment of held for sale operations
    
    
    0
    
    
    
    0
    
    
    
    700
    
    
    
    0Other operating expenses
    
    
    1,015
    
    
    
    861
    
    
    
    3,458
    
    
    
    2,424Total non-interest expense
    
    
    4,980
    
    
    
    4,777
    
    
    
    16,128
    
    
    
    15,102Income/(loss) from continuing operations
before income tax
    
    
    (1,468
    )
    
    
    111
    
    
    
    (12,290
    )
    
    
    (3,857
    )Federal income tax expense/(benefit)
    
    
    (332
    )
    
    
    (101
    )
    
    
    5,028
    
    
    
    (1,490
    )Net income/(loss) from continuing operations
    
    $
    (1,136
    )
    
    $
    212
    
    
    $
    (17,318
    )
    
    $
    (2,367
    )Net income/(loss) from held for sale
operations, net of tax
    
    
    289
    
    
    
    83
    
    
    
    (553
    )
    
    
    (134
    )Net income/(loss)
    
    $
    (847
    )
    
    $
    295
    
    
    $
    (17,871
    )
    
    $
    (2,501
    )Income/(loss) per share from continuing operationsBasic
    
    $
    (0.51
    )
    
    $
    0.10
    
    
    $
    (7.88
    )
    
    $
    (1.09
    )Diluted
    
    $
    (0.51
    )
    
    $
    0.10
    
    
    $
    (7.88
    )
    
    $
    (1.09
    )Net income/(loss) per shareBasic
    
    $
    (0.38
    )
    
    $
    0.14
    
    
    $
    (8.13
    )
    
    $
    (1.15
    )Diluted
    
    $
    (0.38
    )
    
    $
    0.14
    
    
    $
    (8.13
    )
    
    $
    (1.15
    )Cash Dividends declared
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.00
  4




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Fentura Financial, Inc.
Consolidated Statements of Changes in Shareholders Equity (Unaudited)
 Nine Months EndedSeptember 30,(000s omitted)
    
    2009
    
    
    2008COMMON STOCKBalance, beginning of period
    
    $
    42,778
    
    
    $
    42,478Issuance of shares underDirector stock purchase plan &
Dividend reinvestment program (39,449 and 17,187 shares)
    
    
    105
    
    
    
    254Stock compensation expense
    
    
    0
    
    
    
    6Balance, end of period
    
    
    42,883
    
    
    
    42,738RETAINED DEFICITBalance, beginning of period
    
    
    (4,677
    )
    
    
    7,488Net loss
    
    
    (17,871
    )
    
    
    (2,501
    )Balance, end of period
    
    
    (22,548
    )
    
    
    4,987ACCUMULATED OTHER COMPREHENSIVE LOSSBalance, beginning of period
    
    
    (1,977
    )
    
    
    (470
    )Change in unrealized gain (loss)
on securities, net of tax
    
    
    1,189
    
    
    
    (1,054
    )Balance, end of period
    
    
    (788
    )
    
    
    (1,524
    )Total Shareholders Equity
    
    $
    19,547
    
    
    $
    46,201
  5




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##### Table of Contents



Fentura Financial, Inc.
Consolidated Statements of Cash Flows (Unaudited)
 Nine Months EndedSeptember 30,(000s omitted)
    
    2009
    
    2008OPERATING ACTIVITIES:Net loss
    
    $
    (17,871
    )
    
    $
    (2,501
    )Adjustments to reconcile net income (loss) to cash
Provided by Operating Activities:Stock compensation expense
    
    
    0
    
    
    
    6Depreciation and amortization
    
    
    811
    
    
    
    610Establishment of deferred tax asset valuation allowance
    
    
    5,924
    
    
    
    0Provision for loan losses
    
    
    11,306
    
    
    
    5,155Loans originated for sale
    
    
    (49,629
    )
    
    
    (19,918
    )Proceeds from the sale of loans
    
    
    49,497
    
    
    
    20,372(Gain) on sales of loans
    
    
    (612
    )
    
    
    (260
    )(Gain) Loss on sale of securities
    
    
    (12
    )
    
    
    0(Gain) Loss on sale of fixed assets
    
    
    0
    
    
    
    (118
    )(Gain) Loss on other real estate owned
    
    
    645
    
    
    
    (70
    )Loss on security impairment
    
    
    200
    
    
    
    843Loss on equity investment
    
    
    1,360
    
    
    
    697Earnings from bank owned life insurance
    
    
    (59
    )
    
    
    (159
    )Net (increase) decrease in interest receivable & other assets
    
    
    (1,347
    )
    
    
    (21,774
    )Net increase (decrease) in interest payable & other liabilities
    
    
    (3,783
    )
    
    
    1,972Total Adjustments
    
    
    14,301
    
    
    
    (12,644
    )Net cash (used in) operating activities
    
    
    (3,570
    )
    
    
    (15,145
    )CASH FLOWS FROM INVESTING ACTIVITES:Proceeds from maturities of securities  HTM
    
    
    1,183
    
    
    
    1,326Proceeds from maturities of securities  AFS
    
    
    7,714
    
    
    
    6,961Proceeds from sales of securities  AFS
    
    
    4,000
    
    
    
    1,999Proceeds from calls of securities  AFS
    
    
    2,000
    
    
    
    11,112Purchases of securities  AFS
    
    
    (14,560
    )
    
    
    (7,067
    )Net decrease in loans
    
    
    41,379
    
    
    
    14,912Proceeds from bank owned life insurance
    
    
    203
    
    
    
    0Sales of other real estate owned
    
    
    1,876
    
    
    
    2,613Acquisition of premises and equipment, net
    
    
    (79
    )
    
    
    76Net cash provided by investing activities
    
    
    43,716
    
    
    
    31,932CASH FLOWS FROM FINANCING ACTIVITIES:Net (decrease) in deposits
    
    
    (498
    )
    
    
    (33,513
    )Net increase (decrease) in borrowings
    
    
    (1,466
    )
    
    
    1,726Net (decrease) in repurchase agreements
    
    
    0
    
    
    
    (5,000
    )Repayment of notes payable
    
    
    (1,000
    )
    
    
    0Purchase of advances from FHLB
    
    
    55,495
    
    
    
    25,001Repayments of advances from FHLB
    
    
    (58,221
    )
    
    
    (23,024
    )Net proceeds from stock issuance and purchase
    
    
    105
    
    
    
    255Net cash (used in) financing activities
    
    
    (5,585
    )
    
    
    (34,555
    )Net Change in Cash and Cash Equivalents
    
    $
    32,438
    
    
    $
    (14,154
    )Change in cash and cash equivalents of held for sale operations
    
    
    (2,123
    )
    
    
    3,614Cash and cash equivalents  Beginning
    
    $
    13,626
    
    
    $
    27,041Cash and cash equivalents  Ending
    
    $
    46,064
    
    
    $
    12,887Cash paid for:Interest
    
    $
    8,506
    
    
    $
    11,043Income Taxes
    
    $
    3,981
    
    
    $
    0Noncash Disclosures:Transfers from loans to other real estate
    
    $
    3,394
    
    
    $
    6,917
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Fentura
Financial, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(000s Omitted)
    
    2009
    
    2008
    
    2009
    
    2008Net loss
    
    $
    (847
    )
    
    $
    295
    
    
    $
    (17,871
    )
    
    $
    (2,501
    )Other comprehensive income (loss), net of tax:Unrealized holding gains (losses) arising
during period
    
    
    547
    
    
    
    (75
    )
    
    
    764
    
    
    
    332Impairment loss recognized during period
    
    
    0
    
    
    
    (233
    )
    
    
    (200
    )
    
    
    (843
    )Reclassification adjustment for gains
included in income
    
    
    12
    
    
    
    0
    
    
    
    12
    
    
    
    0Tax effect
    
    
    593
    
    
    
    (328
    )
    
    
    613
    
    
    
    (543
    )Other comprehensive income (loss)
    
    
    1,152
    
    
    
    (636
    )
    
    
    1,189
    
    
    
    (1,054
    )Comprehensive income (loss)
    
    $
    305
    
    
    $
    (341
    )
    
    $
    (16,682
    )
    
    $
    (3,555
    )
 Fentura Financial, Inc.

Notes to Consolidated Financial Statements (Unaudited)
 NOTE 1  BASIS OF PRESENTATION
     7




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NOTE 1  BASIS OF PRESENTATION (continued)
  Reclassifications:
 Allowance for Loan Losses:
  Income Taxes
  Dividend Restriction
 Stock Option Plans
   8




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NOTE 1  BASIS OF PRESENTATION (continued)
   Number of
    
    WeightedOptions
    
    Average PriceOptions outstanding at December 31, 2008
    
    
    26,597
    
    
    $
    29.85Options granted 2009
    
    
    0
    
    
    $
    0.00Options forfeited 2009
    
    
    (2,592
    )
    
    $
    30.31Options outstanding at September 30, 2009
    
    
    24,005
    
    
    $
    29.80
 NOTE 2  ADOPTION OF NEW ACCOUNTING STANDARDS
 New
Accounting Pronouncements:   Business Combinations
 Non-controlling Interest in Consolidated
Financial Statements
 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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NOTE 2  ADOPTION OF NEW ACCOUNTING STANDARDS (continued)
 
     10




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NOTE 2  ADOPTION OF NEW ACCOUNTING STANDARDS (continued)
   NOTE 3  SECURITIES
  (000s omitted)
    
    
    
    
    
    Gross
    
    
    GrossAvailable for Sale
    
    Amortized
    
    
    Unrecognized
    
    
    Unrecognized2009
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueU.S. Government & federal agency
    
    $
    7,558
    
    
    $
    58
    
    
    $
    (52
    )
    
    $
    7,564State and municipal
    
    
    7,868
    
    
    
    290
    
    
    
    (15
    )
    
    
    8,143Mortgage-backed  residential
    
    
    15,909
    
    
    
    275
    
    
    
    (9
    )
    
    
    16,175Collateralized mortgage obligations
    
    
    16,616
    
    
    
    201
    
    
    
    (1,123
    )
    
    
    15,694Equity securities
    
    
    2,363
    
    
    
    36
    
    
    
    (570
    )
    
    
    1,829$
    50,314
    
    
    $
    860
    
    
    $
    (1,769
    )
    
    $
    49,405
 (000s omitted)
    
    
    
    
    
    Gross
    
    
    GrossHeld to Maturity
    
    Amortized
    
    
    Unrecognized
    
    
    Unrecognized2009
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueState and municipal
    
    $
    5,575
    
    
    $
    74
    
    
    $
    (15
    )
    
    $
    5,634Mortgage-backed  residential
    
    
    2
    
    
    
    0
    
    
    
    0
    
    
    
    2$
    5,577
    
    
    $
    74
    
    
    $
    (15
    )
    
    $
    5,636
  Available for SaleAmortized
    
    
    Fair(000s omitted)
    
    Cost
    
    
    ValueDue in one year or less
    
    $
    7,094
    
    
    $
    7,121Due from one to five years
    
    
    4,529
    
    
    
    4,552Due from five to ten years
    
    
    3,803
    
    
    
    4,034Mortgage-backed securities
    
    
    15,909
    
    
    
    16,175Collateralized mortgage obligations
    
    
    16,616
    
    
    
    15,694Equity securities
    
    
    2,363
    
    
    
    1,829$
    50,314
    
    
    $
    49,405
 11




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NOTE 3  SECURITIES (continued)
 Held to MaturityAmortized
    
    
    Fair(000s omitted)
    
    Cost
    
    
    ValueDue in one year or less
    
    $
    2,642
    
    
    $
    2,650Due from one to five years
    
    
    2,166
    
    
    
    2,180Due from five to ten years
    
    
    767
    
    
    
    804Due after ten years
    
    
    0
    
    
    
    0Mortgage-backed securities
    
    
    2
    
    
    
    2$
    5,577
    
    
    $
    5,636
    2009
 Available for Sale(000s omitted)
    
    Less than 12 Months
    
    
    12 Months or More
    
    
    TotalDescription of
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedSecurities
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossUS Government & federal agency
    
    $
    3,506
    
    
    $
    (52
    )
    
    $
    0
    
    
    $
    0
    
    
    $
    3,506
    
    
    $
    (52
    )State & municipal
    
    
    0
    
    
    
    0
    
    
    
    685
    
    
    
    (15
    )
    
    
    685
    
    
    
    (15
    )Mortgage-backed
    
    
    1,276
    
    
    
    (9
    )
    
    
    0
    
    
    
    0
    
    
    
    1,276
    
    
    
    (9
    )Collateralized mortgage obligations
    
    
    0
    
    
    
    0
    
    
    
    5,042
    
    
    
    (1,123
    )
    
    
    5,042
    
    
    
    (1,123
    )Equity securities
    
    
    0
    
    
    
    0
    
    
    
    1,315
    
    
    
    (570
    )
    
    
    1,315
    
    
    
    (570
    )Total available for sale
    
    $
    4,782
    
    
    $
    (61
    )
    
    $
    7,042
    
    
    $
    (1,708
    )
    
    $
    11,824
    
    
    $
    (1,769
    )
 2009
 Held to Maturity(000s omitted)
    
    Less than 12 Months
    
    
    12 Months or More
    
    
    TotalDescription of
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedSecurities
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossState & municipal
    
    $
    321
    
    
    $
    (1
    )
    
    $
    641
    
    
    $
    (14
    )
    
    $
    962
    
    
    $
    (15
    )Total held to
maturity
    
    $
    321
    
    
    $
    (1
    )
    
    $
    641
    
    
    $
    (14
    )
    
    $
    962
    
    
    $
    (15
    )
 12




---



##### Table of Contents



NOTE 3  SECURITIES (continued)
 2008
 Available for Sale(000s omitted)
    
    Less than 12 Months
    
    
    12 Months or More
    
    
    TotalDescription of
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedSecurities
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossState & municipal
    
    $
    2,790
    
    
    $
    (91
    )
    
    $
    1,583
    
    
    $
    (80
    )
    
    $
    4,373
    
    
    $
    (171
    )Mortgage-backed
    
    
    3,968
    
    
    
    (83
    )
    
    
    19,550
    
    
    
    (2,310
    )
    
    
    23,518
    
    
    
    (2,393
    )Equity securities
    
    
    1,049
    
    
    
    (598
    )
    
    
    188
    
    
    
    (228
    )
    
    
    1,237
    
    
    
    (826
    )Total available for sale
    
    $
    7,807
    
    
    $
    (772
    )
    
    $
    21,321
    
    
    $
    (2,618
    )
    
    $
    29,128
    
    
    $
    (3,390
    )
 2008
 Held to Maturity(000s omitted)
    
    Less than 12 Months
    
    
    12 Months or More
    
    
    TotalDescription of
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedSecurities
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossState & municipal
    
    $
    0
    
    
    $
    0
    
    
    $
    682
    
    
    $
    (29
    )
    
    $
    682
    
    
    $
    (29
    )Total held to maturity
    
    $
    0
    
    
    $
    0
    
    
    $
    682
    
    
    $
    (29
    )
    
    $
    682
    
    
    $
    (29
    )
 Other-Than-Temporary-Impairment
     13




---



##### Table of Contents



NOTE 3  SECURITIES (continued)
 Collateralized Mortgage Obligations (CMOs) and Equity Securities
    Other Securities
   14




---



##### Table of Contents



NOTE 3  SECURITIES (continued)
  NOTE 4  LOANS AND ALLOWANCE FOR LOAN LOSSES
  (000s omitted)
    
    September 30, 2009
    
    
    December 31, 2008Commercial
    
    $
    268,438
    
    
    $
    289,523Real estate  construction
    
    
    34,072
    
    
    
    48,777Real estate  mortgage
    
    
    30,829
    
    
    
    37,828Consumer
    
    
    50,438
    
    
    
    52,910383,777
    
    
    
    429,038Less allowance for loan losses
    
    
    14,485
    
    
    
    10,455$
    369,292
    
    
    $
    418,583
   (000s omitted)
    
    September 30, 2009
    
    
    September 30, 2008Balance, January 1,
    
    $
    10,455
    
    
    $
    7,592Provision for loan losses
    
    
    11,306
    
    
    
    5,155Loans charged off
    
    
    (7,524
    )
    
    
    (3,182
    )Loan recoveries
    
    
    248
    
    
    
    457Balance, end of period
    
    $
    14,485
    
    
    $
    10,022
  (000s omitted)
    
    September 30, 2009
    
    
    September 30, 2008Balance, July 1,
    
    $
    13,970
    
    
    $
    11,380Provision for loan losses
    
    
    1,940
    
    
    
    700Loans charged off
    
    
    (1,567
    )
    
    
    (2,253
    )Loan recoveries
    
    
    142
    
    
    
    195Balance, end of period
    
    $
    14,485
    
    
    $
    10,022
   (000s omitted)
    
    September 30, 2009
    
    
    December 31, 2008Period end loans not requiring allocation
    
    $
    6,798
    
    
    $
    19,086Period end loans requiring allocation
    
    
    40,838
    
    
    
    29,090$
    47,636
    
    
    $
    48,176Amount of the allowance for loan losses allocated
    
    $
    8,504
    
    
    $
    5,642
 15




---



##### Table of Contents



NOTE 4  LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
  (000s omitted)
    
    September 30, 2009
    
    December 31, 2008Loans past due over 90 days still on accrual
    
    $
    193
    
    
    $
    667Renegotiated loans
    
    $
    2,568
    
    
    $
    942Nonaccrual loans
    
    $
    23,052
    
    
    $
    24,325
  NOTE 5  FAIR VALUE
      Assets and Liabilities Measured on a Recurring Basis
  16




---



##### Table of Contents



NOTE 5  FAIR VALUE (continued)
 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 securitiesUS Govt and federal agency
    
    $
    7,563
    
    
    $
    0
    
    
    $
    7,563
    
    
    $
    0State and municipal
    
    
    8,143
    
    
    
    0
    
    
    
    8,143
    
    
    
    0Mortgage backed/CMO securities
    
    
    31,856
    
    
    
    0
    
    
    
    31,856
    
    
    
    0Equity securities
    
    
    1,843
    
    
    
    20
    
    
    
    1,823
    
    
    
    0September 30, 2009
    
    $
    49,405
    
    
    $
    20
    
    
    $
    49,385
    
    
    $
    0Available for sale securitiesUS Govt and federal agency
    
    $
    8,186
    
    
    $
    0
    
    
    $
    8,186
    
    
    $
    0State and municipal
    
    
    7,762
    
    
    
    0
    
    
    
    7,762
    
    
    
    0Mortgage backed/CMO securities
    
    $
    29,380
    
    
    
    0
    
    
    
    29,380
    
    
    
    0Equity securities
    
    $
    1,737
    
    
    $
    9
    
    
    
    0
    
    
    $
    1,728December 31, 2008
    
    $
    47,065
    
    
    $
    9
    
    
    $
    45,328
    
    
    $
    1,728
  Fair Value Measurements Using SignificantUnobservable Inputs(Level 3)(000s omitted)
    
    Asset
    
    
    Liability
    
    
    TotalBeginning balance, Jan. 1, 2009
    
    $
    1,229
    
    
    $
    0
    
    
    $
    1,229Total gains or losses (realized / unrealized)Included in earnings
    
    
    108
    
    
    
    
    
    
    
    108Loss on security impairment
    
    
    (200
    )
    
    
    0
    
    
    
    (200
    )Included in other comprehensive income
    
    
    248
    
    
    
    0
    
    
    
    248Purchases, issuances, and settlementsTransfers in and / or out of Level 3
    
    
    (1,385
    )
    
    
    0
    
    
    
    (1,385
    )Ending balance, September 30, 2009
    
    $
    0
    
    
    $
    0
    
    
    $
    0
  17




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##### Table of Contents



NOTE 5  FAIR VALUE (continued)
 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
    
    September 30, 2009
    
    $
    32,334
    
    
    $
    0
    
    
    $
    0
    
    
    $
    32,334Other real estate owned
    
    September 30, 2009
    
    $
    976
    
    
    $
    0
    
    
    $
    0
    
    
    $
    976Impaired loans
    
    December 31, 2008
    
    $
    19,970
    
    
    $
    0
    
    
    $
    0
    
    
    $
    19,970
    September 30, 2009
    
    December 31, 2008(000s omitted)
    
    CarryingAmount
    
    Fair Value
    
    CarryingAmount
    
    Fair ValueAssets:Cash and cash equivalents
    
    $
    46,064
    
    
    $
    46,064
    
    
    $
    13,626
    
    
    $
    13,626Securities  held to maturity
    
    
    5,577
    
    
    
    5,636
    
    
    
    6,765
    
    
    
    6,784FHLB stock
    
    
    1,900
    
    
    
    n/a
    
    
    
    1,900
    
    
    
    n/aLoans held for sale
    
    
    1,434
    
    
    
    1,434
    
    
    
    690
    
    
    
    690Loans
    
    
    383,777
    
    
    
    364,670
    
    
    
    429,038
    
    
    
    408,387Accrued interest receivable
    
    
    2,020
    
    
    
    2,020
    
    
    
    2,231
    
    
    
    2,231Liabilities:Deposits
    
    $
    468,866
    
    
    $
    463,403
    
    
    $
    469,364
    
    
    $
    433,398Short-term borrowings
    
    
    34
    
    
    
    34
    
    
    
    1,500
    
    
    
    1,500FHLB advances
    
    
    9,981
    
    
    
    9,670
    
    
    
    12,707
    
    
    
    12,505Subordinated debentures
    
    
    14,000
    
    
    
    12,656
    
    
    
    14,000
    
    
    
    14,061Accrued interest payable
    
    
    855
    
    
    
    855
    
    
    
    590
    
    
    
    590
 18




---



##### Table of Contents



NOTE 5  FAIR VALUE (continued)
  Cash and cash equivalents
  Securities (including mortgage-backed securities)
  FHLB Stock
  Loans held for sale
  Loans
  Off-balance-sheet instruments
  Deposit liabilities
  Short-term borrowings
  Note Payable
  FHLB advances
  Repurchase agreements
  19




---



##### Table of Contents



NOTE 5  FAIR VALUE (Continued)
 Subordinated Debentures
  Limitations
  NOTE 6  INCOME TAXES
    NOTE 7  EARNINGS PER COMMON SHARE
  20




---



##### Table of Contents



NOTE 7  EARNINGS PER COMMON SHARE (continued)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(000s omitted except share and per share data)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008BasicNet income (loss)
    
    $
    (847
    )
    
    $
    295
    
    
    $
    (17,871
    )
    
    $
    (2,501
    )Weighted average common shares outstanding
    
    
    2,210,613
    
    
    
    2,175,186
    
    
    
    2,198,233
    
    
    
    2,171,758Basic income (loss) per common share
    
    $
    (0.38
    )
    
    $
    0.14
    
    
    $
    (8.13
    )
    
    $
    (1.15
    )DilutedNet income (loss)
    
    $
    (847
    )
    
    $
    295
    
    
    $
    (17,871
    )
    
    $
    (2,501
    )Weighted average common shares outstanding
for basic earnings per common share
    
    
    2,210,613
    
    
    
    2,175,186
    
    
    
    2,198,233
    
    
    
    2,171,758Add: Dilutive effects of assumed exercises
of stock options
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Average shares and dilutive potential common
shares
    
    
    2,210,613
    
    
    
    2,175,186
    
    
    
    2,198,233
    
    
    
    2,171,758Diluted income (loss) per common share
    
    $
    (0.38
    )
    
    $
    0.14
    
    
    $
    (8.13
    )
    
    $
    (1.15
    )
  NOTE 8  COMMITMENTS AND CONTINGENCIES
  NOTE 9  HELD FOR SALE OPERATIONS
   21




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##### Table of Contents



NOTE 9  HELD FOR SALE OPERATIONS (continued)
 DAVISON STATE BANK
CONDENSED BALANCE SHEET OF HELD FOR SALE OPERATIONS
(Unaudited)
 September 30,
    
    Dec 31,(000s omitted)
    
    2009
    
    2008ASSETSCash and cash equivalents
    
    $
    5,204
    
    
    $
    7,327Securities  available for sale
    
    
    7,277
    
    
    
    5,657Securities  held to maturity
    
    
    440
    
    
    
    1,190Loans, net of allowance ($633-2009, $1,318-2008)
    
    
    24,936
    
    
    
    28,954Other assets
    
    
    3,338
    
    
    
    2,522Total assets
    
    $
    41,195
    
    
    $
    45,650LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Non-interest bearing
    
    $
    9,478
    
    
    $
    9,361Interest bearing
    
    
    26,612
    
    
    
    31,004Total deposits
    
    
    36,090
    
    
    
    40,365Federal Home Loan Bank advances
    
    
    2,000
    
    
    
    2,000Accrued taxes, interest and other liabilities
    
    
    74
    
    
    
    (191
    )Shareholders equity
    
    
    3,031
    
    
    
    3,476Total liabilities and shareholders Equity
    
    $
    41,195
    
    
    $
    45,650
 DAVISON STATE BANK
CONDENSED STATEMENT OF INCOME OF HELD FOR SALE OPERATIONS
(Unaudited)
 Three Months Ended
    
    Nine Months EndedSeptember 30
    
    September 30(000s omitted)
    
    2009
    
    2008
    
    2009
    
    2008Interest income
    
    $
    494
    
    
    $
    658
    
    
    $
    1,556
    
    
    $
    2,035Interest expense
    
    
    151
    
    
    
    232
    
    
    
    510
    
    
    
    761Net interest income
    
    
    343
    
    
    
    426
    
    
    
    1,046
    
    
    
    1,274Provision for loan losses
    
    
    35
    
    
    
    36
    
    
    
    190
    
    
    
    473Net interest income after provision for loan losses
    
    
    308
    
    
    
    390
    
    
    
    856
    
    
    
    801Non-interest income
    
    
    143
    
    
    
    166
    
    
    
    405
    
    
    
    504Non-interest expense
    
    
    418
    
    
    
    444
    
    
    
    1,395
    
    
    
    1,536Income (loss) before federal income tax
    
    
    33
    
    
    
    112
    
    
    
    (134
    )
    
    
    (231
    )Federal income tax expense/(benefit)
    
    
    (256
    )
    
    
    29
    
    
    
    419
    
    
    
    (97
    )Net income (loss)
    
    $
    289
    
    
    $
    83
    
    
    $
    (553
    )
    
    $
    (134
    )
 NOTE 10-REGULATORY MATTERS
  22




---



##### Table of Contents



NOTE 10-REGULATORY MATTERS (continued)
  To Be Well CapitalizedUnder PromptFor Capital Adequacy
    
    Corrective ActionActual
    
    Purposes
    
    Provisions(000s omitted)
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of September 30, 2009Total Capital
(to Risk Weighted Assets)Consolidated
    
    $
    39,924
    
    
    
    8.8
    %
    
    $
    36,329
    
    
    
    8.0
    %
    
    NA
    
    NAThe State Bank
    
    
    24,423
    
    
    
    8.4
    
    
    
    23,269
    
    
    
    8.0
    
    
    
    29,087
    
    
    
    10.0Davison State Bank
    
    
    3,594
    
    
    
    10.3
    
    
    
    2,805
    
    
    
    8.0
    
    
    
    3,507
    
    
    
    10.0West Michigan Community Bank
    
    
    11,750
    
    
    
    9.1
    
    
    
    10,378
    
    
    
    8.0
    
    
    
    12,973
    
    
    
    10.0Tier 1 CapitalConsolidated
    
    
    34,142
    
    
    
    7.5
    
    
    
    18,164
    
    
    
    4.0
    
    
    NA
    
    NAThe State Bank
    
    
    20,700
    
    
    
    7.1
    
    
    
    11,635
    
    
    
    4.0
    
    
    
    17,452
    
    
    
    6.0Davison State Bank
    
    
    3,179
    
    
    
    9.1
    
    
    
    1,403
    
    
    
    4.0
    
    
    
    2,104
    
    
    
    6.0West Michigan Community Bank
    
    
    10,106
    
    
    
    7.8
    
    
    
    5,189
    
    
    
    4.0
    
    
    
    7,784
    
    
    
    6.0Tier 1 Capital (to Average Assets)Consolidated
    
    
    34,142
    
    
    
    6.1
    
    
    
    22,494
    
    
    
    4.0
    
    
    NA
    
    NAThe State Bank
    
    
    20,700
    
    
    
    5.7
    
    
    
    14,421
    
    
    
    4.0
    
    
    
    18,027
    
    
    
    5.0Davison State Bank
    
    
    3,179
    
    
    
    7.6
    
    
    
    1,683
    
    
    
    4.0
    
    
    
    2,103
    
    
    
    5.0West Michigan Community Bank
    
    
    10,106
    
    
    
    6.3
    
    
    
    6,390
    
    
    
    4.0
    
    
    
    7,987
    
    
    
    5.0
 To Be Well CapitalizedUnder PromptFor Capital Adequacy
    
    Corrective ActionActual
    
    Purposes
    
    Provisions(000s omitted)
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of December 31, 2008Total Capital
(to Risk Weighted Assets)Consolidated
    
    $
    58,194
    
    
    
    11.4
    %
    
    $
    40,726
    
    
    
    8.0
    %
    
    NA
    
    NAThe State Bank
    
    
    34,807
    
    
    
    10.7
    
    
    
    25,952
    
    
    
    8.0
    
    
    
    32,440
    
    
    
    10.0Davison State Bank
    
    
    4,170
    
    
    
    11.7
    
    
    
    2,863
    
    
    
    8.0
    
    
    
    3,578
    
    
    
    10.0West Michigan Community Bank
    
    
    15,656
    
    
    
    10.8
    
    
    
    11,558
    
    
    
    8.0
    
    
    
    14,448
    
    
    
    10.0Tier 1 CapitalConsolidated
    
    
    51,827
    
    
    
    10.2
    
    
    
    20,363
    
    
    
    4.0
    
    
    NA
    
    NAThe State Bank
    
    
    30,720
    
    
    
    9.5
    
    
    
    12,976
    
    
    
    4.0
    
    
    
    19,464
    
    
    
    6.0Davison State Bank
    
    
    3,712
    
    
    
    10.4
    
    
    
    1,431
    
    
    
    4.0
    
    
    
    2,147
    
    
    
    6.0West Michigan Community Bank
    
    
    13,834
    
    
    
    9.6
    
    
    
    5,779
    
    
    
    4.0
    
    
    
    8,669
    
    
    
    6.0Tier 1 Capital (to Average Assets)Consolidated
    
    
    51,827
    
    
    
    8.8
    
    
    
    23,320
    
    
    
    4.0
    
    
    NA
    
    NAThe State Bank
    
    
    30,720
    
    
    
    8.5
    
    
    
    14,498
    
    
    
    4.0
    
    
    
    18,123
    
    
    
    5.0Davison State Bank
    
    
    3,712
    
    
    
    8.2
    
    
    
    1,804
    
    
    
    4.0
    
    
    
    2,255
    
    
    
    5.0West Michigan Community Bank
    
    
    13,834
    
    
    
    8.1
    
    
    
    6,833
    
    
    
    4.0
    
    
    
    8,541
    
    
    
    5.0
 23




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##### Table of Contents



NOTE 10-REGULATORY MATTERS (continued)
     
    Results of Operations
  24




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##### Table of Contents



Net Loss from Continuing Operations
   Net Interest Income
  25




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##### Table of Contents



Table 1
 NINE MONTHS ENDEDSEPTEMBER 30,2009 COMPARED TO 2008INCREASE (DECREASE)DUE TOYIELD/(000s omitted)
    
    VOL
    
    
    RATE
    
    
    TOTALTaxable securities
    
    $
    (267
    )
    
    $
    (23
    )
    
    $
    (290
    )Tax-exempt securities (1)
    
    
    (34
    )
    
    
    56
    
    
    
    22Federal funds sold
    
    
    (92
    )
    
    
    (46
    )
    
    
    (138
    )Total loans (1)
    
    
    (1,335
    )
    
    
    (1,627
    )
    
    
    (2,962
    )Loans held for sale
    
    
    21
    
    
    
    (12
    )
    
    
    9Total earning assets
    
    
    (1,707
    )
    
    
    (1,652
    )
    
    
    (3,359
    )Interest bearing demand deposits
    
    
    (71
    )
    
    
    (460
    )
    
    
    (531
    )Savings deposits
    
    
    (8
    )
    
    
    (248
    )
    
    
    (256
    )Time CDs $100,000 and over
    
    
    (334
    )
    
    
    (535
    )
    
    
    (869
    )Other time deposits
    
    
    231
    
    
    
    (774
    )
    
    
    (543
    )Other borrowings
    
    
    (246
    )
    
    
    (184
    )
    
    
    (430
    )Total interest bearing liabilities
    
    
    (428
    )
    
    
    (2,201
    )
    
    
    (2,629
    )Net Interest Income
    
    $
    (1,279
    )
    
    $
    549
    
    
    $
    (730
    )
 
 (1)
    
    Presented on a fully taxable equivalent basis using a federal income tax rate of 34%.    26




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27




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Table 2 Average Balance and Rates
 NINE MONTHS ENDED SEPTEMBER 30,2009
    
    
    2008AVERAGE
    
    
    INCOME/
    
    
    YIELD/
    
    
    AVERAGE
    
    
    INCOME/
    
    
    YIELD/(000s omitted)(Annualized)
    
    BALANCE
    
    
    EXPENSE
    
    
    RATE
    
    
    BALANCE
    
    
    EXPENSE
    
    
    RATEASSETSSecurities:U.S. Treasury and Government Agencies
    
    $
    37,997
    
    
    $
    1,143
    
    
    
    4.02
    %
    
    $
    45,266
    
    
    $
    1,411
    
    
    
    4.16
    %State and Political (1)
    
    
    13,902
    
    
    
    633
    
    
    
    6.09
    %
    
    
    14,697
    
    
    
    611
    
    
    
    5.55
    %Other
    
    
    4,309
    
    
    
    70
    
    
    
    2.17
    %
    
    
    7,529
    
    
    
    92
    
    
    
    1.63
    %Total Securities
    
    
    56,208
    
    
    
    1,846
    
    
    
    4.39
    %
    
    
    67,492
    
    
    
    2,114
    
    
    
    4.18
    %Fed Funds Sold
    
    
    2,332
    
    
    
    1
    
    
    
    0.06
    %
    
    
    6,964
    
    
    
    139
    
    
    
    2.67
    %Loans:Commercial
    
    
    320,436
    
    
    
    14,453
    
    
    
    6.03
    %
    
    
    342,455
    
    
    
    16,787
    
    
    
    6.55
    %Tax Free (1)
    
    
    2,656
    
    
    
    129
    
    
    
    6.48
    %
    
    
    1,985
    
    
    
    97
    
    
    
    6.53
    %Real Estate-Mortgage
    
    
    35,113
    
    
    
    1,614
    
    
    
    6.15
    %
    
    
    37,217
    
    
    
    1,770
    
    
    
    6.35
    %Consumer
    
    
    51,351
    
    
    
    2,185
    
    
    
    5.69
    %
    
    
    53,543
    
    
    
    2,689
    
    
    
    6.71
    %Total loans
    
    
    409,556
    
    
    
    18,381
    
    
    
    6.00
    %
    
    
    435,200
    
    
    
    21,343
    
    
    
    6.55
    %Allowance for Loan Losses
    
    
    (11,891
    )
    
    
    
    
    
    
    
    
    
    
    (9,193
    )Net Loans
    
    
    397,665
    
    
    
    18,381
    
    
    
    6.18
    %
    
    
    426,007
    
    
    
    21,343
    
    
    
    6.69
    %Loans Held for Sale
    
    
    1,657
    
    
    
    62
    
    
    
    5.00
    %
    
    
    1,189
    
    
    
    53
    
    
    
    5.95
    %TOTAL EARNING ASSETS CONTINUING OPERATIONS
    
    $
    469,753
    
    
    $
    20,290
    
    
    
    5.77
    %
    
    $
    510,845
    
    
    $
    23,649
    
    
    
    6.18
    %Cash Due from Banks
    
    
    32,115
    
    
    
    
    
    
    
    
    
    
    
    13,338Assets of Held for Sale Operations
    
    
    43,457
    
    
    
    
    
    
    
    
    
    
    
    45,899All Other Assets
    
    
    39,433
    
    
    
    
    
    
    
    
    
    
    
    44,428TOTAL ASSETS
    
    $
    572,867
    
    
    
    
    
    
    
    
    
    
    $
    605,317LIABILITIES & SHAREHOLDERS EQUITY:Deposits:Interest Bearing  DDA
    
    $
    88,275
    
    
    $
    523
    
    
    
    0.79
    %
    
    $
    94,275
    
    
    $
    1,054
    
    
    
    1.49
    %Savings Deposits
    
    
    74,373
    
    
    
    236
    
    
    
    0.42
    %
    
    
    75,347
    
    
    
    492
    
    
    
    0.87
    %Time CDs $100,000 and Over
    
    
    128,744
    
    
    
    4,067
    
    
    
    4.22
    %
    
    
    137,547
    
    
    
    4,936
    
    
    
    4.79
    %Other Time CDs
    
    
    114,512
    
    
    
    2,677
    
    
    
    3.13
    %
    
    
    106,490
    
    
    
    3,220
    
    
    
    4.04
    %Total Deposits
    
    
    405,904
    
    
    
    7,503
    
    
    
    2.47
    %
    
    
    413,659
    
    
    
    9,702
    
    
    
    3.13
    %Other Borrowings
    
    
    26,133
    
    
    
    829
    
    
    
    4.24
    %
    
    
    32,333
    
    
    
    1,259
    
    
    
    5.20
    %INTEREST BEARING LIABILITIES
    
    $
    432,037
    
    
    $
    8,332
    
    
    
    2.58
    %
    
    $
    445,992
    
    
    $
    10,961
    
    
    
    3.28
    %Non-Interest bearing  DDA
    
    
    67,163
    
    
    
    
    
    
    
    
    
    
    
    65,509Liabilities of Held for Sale Operations
    
    
    40,384
    
    
    
    
    
    
    
    
    
    
    
    42,016All Other Liabilities
    
    
    3,012
    
    
    
    
    
    
    
    
    
    
    
    2,866Shareholders Equity
    
    
    30,271
    
    
    
    
    
    
    
    
    
    
    
    48,934TOTAL LIABILITIES & SHAREHOLDERS EQUITY
    
    $
    572,867
    
    
    
    
    
    
    
    
    
    
    $
    605,317Net Interest Rate Spread
    
    
    
    
    
    
    
    
    
    
    3.20
    %
    
    
    
    
    
    
    
    
    
    
    2.90
    %Net Interest Income /Margin
    
    
    
    
    
    $
    11,958
    
    
    
    3.40
    %
    
    
    
    
    
    $
    12,688
    
    
    
    3.32
    %
 
 (1)
    
    Presented on a fully taxable equivalent basis using a federal income tax rate of 34%. 28




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##### Table of Contents



Table 3 Average Balance and Rates
 THREE MONTHS ENDED SEPTEMBER 30,2009
    
    
    2008AVERAGE
    
    
    INCOME/
    
    
    YIELD/
    
    
    AVERAGE
    
    
    INCOME/
    
    
    YIELD/(000s omitted)(Annualized)
    
    BALANCE
    
    
    EXPENSE
    
    
    RATE
    
    
    BALANCE
    
    
    EXPENSE
    
    
    RATEASSETSSecurities:U.S. Treasury and Government Agencies
    
    $
    40,316
    
    
    $
    384
    
    
    
    3.78
    %
    
    $
    40,740
    
    
    $
    427
    
    
    
    4.22
    %State and Political (1)
    
    
    13,429
    
    
    
    205
    
    
    
    6.04
    %
    
    
    14,759
    
    
    
    224
    
    
    
    6.11
    %Other
    
    
    3,805
    
    
    
    20
    
    
    
    2.09
    %
    
    
    6,886
    
    
    
    31
    
    
    
    1.81
    %Total Securities
    
    
    57,550
    
    
    
    609
    
    
    
    4.20
    %
    
    
    62,385
    
    
    
    682
    
    
    
    4.40
    %Fed Funds Sold
    
    
    6,919
    
    
    
    1
    
    
    
    0.06
    %
    
    
    6,341
    
    
    
    31
    
    
    
    1.97
    %Loans:Commercial
    
    
    305,122
    
    
    
    4,677
    
    
    
    6.08
    %
    
    
    340,638
    
    
    
    5,543
    
    
    
    6.54
    %Tax Free (1)
    
    
    2,521
    
    
    
    41
    
    
    
    6.44
    %
    
    
    1,964
    
    
    
    30
    
    
    
    6.21
    %Real Estate-Mortgage
    
    
    32,701
    
    
    
    498
    
    
    
    6.04
    %
    
    
    36,318
    
    
    
    567
    
    
    
    6.28
    %Consumer
    
    
    50,678
    
    
    
    720
    
    
    
    5.64
    %
    
    
    53,765
    
    
    
    872
    
    
    
    6.52
    %Total loans
    
    
    391,022
    
    
    
    5,936
    
    
    
    6.02
    %
    
    
    432,685
    
    
    
    7,012
    
    
    
    6.52
    %Allowance for Loan Losses
    
    
    (14,127
    )
    
    
    
    
    
    
    
    
    
    
    (11,412
    )Net Loans
    
    
    376,895
    
    
    
    5,936
    
    
    
    6.25
    %
    
    
    421,273
    
    
    
    7,012
    
    
    
    6.69
    %Loans Held for Sale
    
    
    1,022
    
    
    
    14
    
    
    
    5.43
    %
    
    
    684
    
    
    
    11
    
    
    
    6.47
    %TOTAL EARNING ASSETS CONTINUING OPERATIONS
    
    $
    456,513
    
    
    $
    6,560
    
    
    
    5.70
    %
    
    $
    502,095
    
    
    $
    7,736
    
    
    
    6.20
    %Cash Due from Banks
    
    
    40,618
    
    
    
    
    
    
    
    
    
    
    
    13,242Assets of held for sale operations
    
    
    42,117
    
    
    
    
    
    
    
    
    
    
    
    46,297All Other Assets
    
    
    37,205
    
    
    
    
    
    
    
    
    
    
    
    44,094TOTAL ASSETS
    
    $
    562,326
    
    
    
    
    
    
    
    
    
    
    $
    594,316LIABILITIES & SHAREHOLDERS EQUITY:Deposits:Interest bearing  DDA
    
    $
    88,906
    
    
    $
    113
    
    
    
    0.50
    %
    
    $
    94,357
    
    
    $
    297
    
    
    
    1.27
    %Savings Deposits
    
    
    77,020
    
    
    
    31
    
    
    
    0.16
    %
    
    
    77,875
    
    
    
    158
    
    
    
    0.82
    %Time CDs $100,000 and Over
    
    
    124,411
    
    
    
    1,272
    
    
    
    4.06
    %
    
    
    127,750
    
    
    
    1,475
    
    
    
    4.64
    %Other Time CDs
    
    
    115,117
    
    
    
    861
    
    
    
    2.97
    %
    
    
    104,080
    
    
    
    962
    
    
    
    3.72
    %Total Deposits
    
    
    405,454
    
    
    
    2,277
    
    
    
    2.23
    %
    
    
    404,062
    
    
    
    2,892
    
    
    
    2.88
    %Other Borrowings
    
    
    24,244
    
    
    
    227
    
    
    
    3.71
    %
    
    
    31,024
    
    
    
    350
    
    
    
    4.54
    %INTEREST BEARING LIABILITIES
    
    $
    429,698
    
    
    $
    2,504
    
    
    
    2.31
    %
    
    $
    435,086
    
    
    $
    3,242
    
    
    
    3.00
    %Non-Interest bearing  DDA
    
    
    67,685
    
    
    
    
    
    
    
    
    
    
    
    67,284Liabilities of held for sale operations
    
    
    39,476
    
    
    
    
    
    
    
    
    
    
    
    42,572All Other Liabilities
    
    
    5,300
    
    
    
    
    
    
    
    
    
    
    
    2,151Shareholders Equity
    
    
    20,167
    
    
    
    
    
    
    
    
    
    
    
    47,223TOTAL LIABILITIES & SHAREHOLDERS EQUITY
    
    $
    562,326
    
    
    
    
    
    
    
    
    
    
    $
    594,316Net Interest Rate Spread
    
    
    
    
    
    
    
    
    
    
    3.39
    %
    
    
    
    
    
    
    
    
    
    
    3.20
    %Net Interest Income /Margin
    
    
    
    
    
    $
    4,056
    
    
    
    3.52
    %
    
    
    
    
    
    $
    4,494
    
    
    
    3.60
    %
 
 (1)
    
    Presented on a fully taxable equivalent basis using a federal income tax rate of 34%. 29




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Allowance and Provision For Loan Losses
      30




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##### Table of Contents



Table 4 Analysis of the Allowance for Loan Losses
 Nine Months Ended September 30,(000s omitted)
    
    2009
    
    2008Balance at Beginning of Period
    
    $
    10,455
    
    
    $
    7,592Charge-Offs:Commercial, Financial and Agriculture
    
    
    (6,263
    )
    
    
    (2,656
    )Real Estate-Mortgage
    
    
    (738
    )
    
    
    (230
    )Installment Loans to Individuals
    
    
    (523
    )
    
    
    (296
    )Total Charge-Offs
    
    
    (7,524
    )
    
    
    (3,182
    )Recoveries:Commercial, Financial and Agriculture
    
    
    166
    
    
    
    266Real Estate-Mortgage
    
    
    7
    
    
    
    0Installment Loans to Individuals
    
    
    75
    
    
    
    191Total Recoveries
    
    
    248
    
    
    
    457Net Charge-Offs
    
    
    (7,276
    )
    
    
    (2,725
    )Provision
    
    
    11,306
    
    
    
    5,155Balance at End of Period
    
    $
    14,485
    
    
    $
    10,022Ratio of Net Charge-Offs to Gross Loans
    
    
    1.89
    %
    
    
    0.64
    %
 Non-Interest Income
      31




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##### Table of Contents



Non-Interest Expense
         32




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##### Table of Contents



Financial Condition
    Non-Performing Assets
    33




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##### Table of Contents



Table 5  Non-Performing Assets and Past Due Loans
 September 30,
    
    December 31,(000s omitted)
    
    2009
    
    2008Non-Performing Loans:Loans Past Due 90 Days or More & Still
Accruing
    
    $
    193
    
    
    $
    667Non-Accrual Loans
    
    
    23,052
    
    
    
    22,574Renegotiated Loans
    
    
    2,568
    
    
    
    942Total Non-Performing Loans
    
    
    25,813
    
    
    
    24,183Other Non-Performing Assets:Other Real Estate
    
    
    6,856
    
    
    
    5,983REO in Redemption
    
    
    2,104
    
    
    
    390Other Non-Performing Assets
    
    
    0
    
    
    
    25Total Other Non-Performing Assets
    
    
    8,960
    
    
    
    6,398Total Non-Performing Assets
    
    $
    34,773
    
    
    $
    30,581Non-Performing Loans as a % of Total Loans
    
    
    6.73
    %
    
    
    5.63
    %Allowance
for Loan Losses as a % of Non-Performing Loans
    
    
    56.12
    %
    
    
    43.23
    %Accruing
Loans Past Due 90 Days or More to Total Loans
    
    
    0.05
    %
    
    
    0.16
    %Non-performing Assets as a % of Total Assets
    
    
    6.27
    %
    
    
    5.29
    %
 Liquidity and Interest Rate Risk Management
   34




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##### Table of Contents



Capital Management
  Regulatory Capital Requirements
  35




---



##### Table of Contents



Critical Accounting Policies and Estimates
   36




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##### Table of Contents



Off Balance Sheet Arrangements
  37




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    Interest Rate Sensitivity Management
   38




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##### Table of Contents



Table 7 GAP Analysis  September 30, 2009
 Within
    
    Three
    
    One to
    
    AfterThree
    
    Months to
    
    Five
    
    Five(000s omitted)
    
    Months
    
    One Year
    
    Years
    
    Years
    
    TotalEarning Assets:Federal Funds Sold
    
    $
    27,250
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    27,250Securities
    
    
    8,844
    
    
    
    12,719
    
    
    
    17,779
    
    
    
    15,640
    
    
    
    54,982Loans
    
    
    66,546
    
    
    
    92,869
    
    
    
    176,018
    
    
    
    48,344
    
    
    
    383,777Loans Held for Sale
    
    
    1,434
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,434FHLB Stock
    
    
    1,900
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,900Total Earning Assets
    
    $
    105,974
    
    
    $
    105,588
    
    
    $
    193,797
    
    
    $
    63,984
    
    
    $
    469,343Interest Bearing Liabilities:Interest Bearing Demand Deposits
    
    $
    99,324
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    99,324Savings Deposits
    
    
    77,698
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    77,698Time Deposits Less than $100,000
    
    
    20,929
    
    
    
    57,542
    
    
    
    32,733
    
    
    
    30
    
    
    
    111,234Time Deposits Greater than $100,000
    
    
    22,372
    
    
    
    29,272
    
    
    
    65,180
    
    
    
    0
    
    
    
    116,824Short term borrowings
    
    
    34
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    34Other Borrowings
    
    
    0
    
    
    
    4,028
    
    
    
    5,098
    
    
    
    855
    
    
    
    9,981Subordinated debentures
    
    
    14,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    14,000Total Interest Bearing Liabilities
    
    $
    234,357
    
    
    $
    90,842
    
    
    $
    103,011
    
    
    $
    885
    
    
    $
    429,095Interest Rate Sensitivity GAP
    
    
    ($128,383
    )
    
    $
    14,746
    
    
    $
    90,786
    
    
    $
    63,099
    
    
    $
    40,248Cumulative Interest Rate
Sensitivity GAP
    
    
    ($128,383
    )
    
    
    ($113,637
    )
    
    
    ($22,851
    )
    
    $
    40,248Interest Rate Sensitivity GAP
    
    
    (0.45
    )
    
    
    1.16
    
    
    
    1.88
    
    
    
    72.28Cumulative Interest Rate
Sensitivity GAP Ratio
    
    
    (0.45
    )
    
    
    0.71
    
    
    
    2.59
    
    
    
    74.87
  Forward Looking Statements
  39




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##### Table of Contents



ITEM 4T: CONTROLS AND PROCEDURES
 (a)
    
    Evaluation of Disclosure Controls and Procedures. The Corporations Chief Executive
Officer and Chief Financial Officer, after evaluating the effectiveness of the Corporations
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
as of the end of the period covered by this Form 10-Q Quarterly Report, have concluded that
the Corporations disclosure controls and procedures were adequate and effective to ensure
that material information relating to the Corporation would be made known to them by others
within the Corporation, particularly during the period in which this Form 10-Q was being
prepared.
 (b)
    
    Changes in Internal Controls. During the period covered by this report, there have
been no changes in the Corporations internal control over financial reporting that have
materially affected or are reasonably likely to materially affect the Corporations internal
control over financial reporting.
 40




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings. 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, except as disclosed below.
 Since December 31, 2008, the subsidiary banks of the Corporation have reduced their
risk rating from well capitalized to adequately capitalized. These changes in
ratings may impact the banks liquidity position. The banks ability to obtain
brokered CDs will be limited.
 
 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 None
 
 Item 5.
    
    Other Information. None
 
 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.
 
 41




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##### Table of Contents



Fentura Financial, Inc.Dated:  November 11, 2009
    /s/ Donald L. GrillDonald L. GrillPresident & CEODated:  November 11, 2009
    /s/ Douglas J. KelleyDouglas J. KelleyChief Financial Officer  42




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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.
 43