##### 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, 2006
 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 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)
    
    
    3-11Item 2  Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    11-23Item 3  Quantitative and Qualitative Disclosures about Market Risk
    
    
    23Item 4  Controls and Procedures
    
    
    25Part II  Other Information
    
    
    26Item 1  Legal Proceedings
    
    
    26Item 1A  Risk Factors
    
    
    26Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3  Defaults Upon Senior Securities
    
    
    26Item 4  Submission of Matters to a Vote of Security Holders
    
    
    26Item 5  Other Information
    
    
    26Item 6  Exhibits
    
    
    26Signatures
    
    
    27Exhibit Index
    
    
    28Certificate of the President and Chief Executive Officer to Section 302Certificate of the Chief Financial Officer to Section 302Certificate of the Chief Executive Officer to Section 906Certificate of the Chief Financial Officer to Section 906
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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 Fentura Financial, Inc.
Consolidated Balance Sheets
 September 30,
    
    Dec 31,2006
    
    2005(000s omitted except share data)
    
    (unaudited)ASSETSCash and due from banks
    
    $
    17,473
    
    
    $
    21,327Federal funds sold
    
    
    8,950
    
    
    
    9,750Total cash & cash equivalents
    
    
    26,423
    
    
    
    31,077Securities-available for sale
    
    
    92,557
    
    
    
    99,542Securities-held to maturity, (fair value of $12,161
at September 30, 2006 and $14,672 at December 31, 2005)
    
    
    12,202
    
    
    
    14,851Total securities
    
    
    104,759
    
    
    
    114,393Loans held for sale
    
    
    2,079
    
    
    
    1,042Loans:Commercial
    
    
    264,306
    
    
    
    254,498Real estate loans  construction
    
    
    86,413
    
    
    
    76,386Real estate loans  mortgage
    
    
    37,963
    
    
    
    37,627Consumer loans
    
    
    65,090
    
    
    
    70,845Total loans
    
    
    453,772
    
    
    
    439,356Less: Allowance for loan losses
    
    
    (6,625
    )
    
    
    (6,301
    )Net loans
    
    
    447,147
    
    
    
    433,055Bank Owned Life Insurance
    
    
    6,736
    
    
    
    6,579Bank premises and equipment
    
    
    16,564
    
    
    
    14,617Federal Home Loan Bank stock
    
    
    2,172
    
    
    
    2,300Accrued interest receivable
    
    
    3,079
    
    
    
    2,676Goodwill
    
    
    7,955
    
    
    
    7,955Acquisition intangibles
    
    
    835
    
    
    
    1,075Other assets
    
    
    5,215
    
    
    
    4,320Total assets
    
    $
    622,964
    
    
    $
    619,089LIABILITIESDeposits:Non-interest bearing deposits
    
    $
    75,564
    
    
    $
    76,792Interest bearing deposits
    
    
    456,021
    
    
    
    451,262Total deposits
    
    
    531,585
    
    
    
    528,054Short term borrowings
    
    
    1,251
    
    
    
    1,537Federal Home Loan Bank Advances
    
    
    11,091
    
    
    
    14,228Repurchase Agreements
    
    
    10,000
    
    
    
    10,000Subordinated debentures
    
    
    14,000
    
    
    
    14,000Accrued taxes, interest and other liabilities
    
    
    5,094
    
    
    
    4,375Total liabilities
    
    
    573,021
    
    
    
    572,194SHAREHOLDERS EQUITYCommon stock  no par value
2,147,408 shares issued (2,124,427 at Dec. 31, 2005)
    
    
    41,978
    
    
    
    34,491Retained earnings
    
    
    9,149
    
    
    
    13,729Accumulated other comprehensive income (loss)
    
    
    (1,184
    )
    
    
    (1,325
    )Total shareholders equity
    
    
    49,943
    
    
    
    46,895Total Liabilities and Shareholders Equity
    
    $
    622,964
    
    
    $
    619,089
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##### Table of Contents



Fentura Financial, Inc.
Consolidated Statements of Income (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 30(000s omitted except per share data)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005INTEREST INCOMEInterest and fees on loans
    
    $
    8,929
    
    
    $
    7,749
    
    
    $
    26,211
    
    
    $
    21,516Interest and dividends on securities:Taxable
    
    
    860
    
    
    
    801
    
    
    
    2,595
    
    
    
    2,464Tax-exempt
    
    
    205
    
    
    
    227
    
    
    
    608
    
    
    
    704Interest on federal funds sold
    
    
    218
    
    
    
    36
    
    
    
    391
    
    
    
    54Total interest income
    
    
    10,212
    
    
    
    8,813
    
    
    
    29,805
    
    
    
    24,738INTEREST EXPENSEDeposits
    
    
    3,943
    
    
    
    2,538
    
    
    
    10,778
    
    
    
    6,449Borrowings
    
    
    567
    
    
    
    498
    
    
    
    1,614
    
    
    
    1,435Total interest expense
    
    
    4,510
    
    
    
    3,036
    
    
    
    12,392
    
    
    
    7,884NET INTEREST INCOME
    
    
    5,702
    
    
    
    5,777
    
    
    
    17,413
    
    
    
    16,854Provision for loan losses
    
    
    240
    
    
    
    404
    
    
    
    880
    
    
    
    1,002Net interest income after
Provision for loan losses
    
    
    5,462
    
    
    
    5,373
    
    
    
    16,533
    
    
    
    15,852NON-INTEREST INCOMEService charges on deposit accounts
    
    
    989
    
    
    
    907
    
    
    
    2,750
    
    
    
    2,571Gain on sale of mortgage loans
    
    
    124
    
    
    
    282
    
    
    
    444
    
    
    
    630Trust and investment services income
    
    
    372
    
    
    
    254
    
    
    
    1,172
    
    
    
    842Gain (Loss) on sale of securities
    
    
    (2
    )
    
    
    2
    
    
    
    (2
    )
    
    
    (108
    )Other income and fees
    
    
    457
    
    
    
    439
    
    
    
    1,261
    
    
    
    1,303Total non-interest income
    
    
    1,940
    
    
    
    1,884
    
    
    
    5,625
    
    
    
    5,238NON-INTEREST EXPENSESalaries and employee benefits
    
    
    3,197
    
    
    
    3,094
    
    
    
    9,844
    
    
    
    9,062Occupancy
    
    
    457
    
    
    
    441
    
    
    
    1,399
    
    
    
    1,325Furniture and equipment
    
    
    541
    
    
    
    495
    
    
    
    1,600
    
    
    
    1,576Loan and collection
    
    
    72
    
    
    
    87
    
    
    
    227
    
    
    
    255Advertising and promotional
    
    
    140
    
    
    
    153
    
    
    
    494
    
    
    
    509Other operating expenses
    
    
    1,096
    
    
    
    1,002
    
    
    
    3,221
    
    
    
    2,937Total non-interest expense
    
    
    5,503
    
    
    
    5,272
    
    
    
    16,785
    
    
    
    15,664INCOME BEFORE TAXES
    
    
    1,899
    
    
    
    1,985
    
    
    
    5,373
    
    
    
    5,426Federal income taxes
    
    
    563
    
    
    
    686
    
    
    
    1,572
    
    
    
    1,681NET INCOME
    
    $
    1,336
    
    
    $
    1,299
    
    
    $
    3,801
    
    
    $
    3,745Per share: (adjusted for 10% stock dividend paid on August 4, 2006)Net income  basic
    
    $
    0.62
    
    
    $
    0.62
    
    
    $
    1.78
    
    
    $
    1.79Net income  diluted
    
    $
    0.62
    
    
    $
    0.62
    
    
    $
    1.77
    
    
    $
    1.79Cash Dividends declared
    
    $
    0.25
    
    
    $
    0.22
    
    
    $
    0.71
    
    
    $
    0.65
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Fentura Financial, Inc.
Consolidated Statements of Changes in Shareholders Equity (Unaudited)
 Nine Months EndedSeptember 30,(000s omitted)
    
    2006
    
    
    2005COMMON STOCKBalance, beginning of period
    
    $
    34,491
    
    
    $
    33,110Issuance of shares underStock dividend (194,978 shares)
    
    
    6,850
    
    
    
    0Director stock purchase plan &
Dividend reinvestment program (17,087 and
14,222 shares)
    
    
    582
    
    
    
    483Stock Offering (0 shares and 23,019 shares)
    
    
    0
    
    
    
    766Stock repurchase (977 shares  2006)
    
    
    (32
    )
    
    
    0Stock options exercised (5,023 shares  2006)
    
    
    87
    
    
    
    0Balance, end of period
    
    
    41,978
    
    
    
    34,359RETAINED EARNINGSBalance, beginning of period
    
    
    13,729
    
    
    
    10,514Net income
    
    
    3,801
    
    
    
    3,745Stock dividend (194,978 shares)
    
    
    (6,850
    )
    
    
    0Cash dividends declared
    
    
    (1,531
    )
    
    
    (1,377
    )Balance, end of period
    
    
    9,149
    
    
    
    12,882ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)Balance, beginning of period
    
    
    (1,325
    )
    
    
    (655
    )Change in unrealized gain (loss)
on securities, net of tax
    
    
    141
    
    
    
    (445
    )Balance, end of period
    
    
    (1,184
    )
    
    
    (1,100
    )TOTAL SHAREHOLDERS EQUITY
    
    $
    49,943
    
    
    $
    46,141
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Fentura Financial, Inc.
Consolidated Statements of Cash Flows (Unaudited)
 Nine Months EndedSeptember 30,(000s omitted)
    
    2006
    
    2005OPERATING ACTIVITIES:Net income
    
    $
    3,801
    
    
    $
    3,745Adjustments to reconcile net income to cash
Provided by Operating Activities:Depreciation and amortization
    
    
    1,600
    
    
    
    1,058Provision for loan losses
    
    
    880
    
    
    
    1,002Loans originated for sale
    
    
    (28,578
    )
    
    
    (38,528
    )Proceeds from the sale of loans
    
    
    27,985
    
    
    
    38,303Loss on sale of securities
    
    
    2
    
    
    
    108Gain on sales of loans
    
    
    (444
    )
    
    
    (630
    )Net (increase) decrease in bank owned life insurance
    
    
    (157
    )
    
    
    444Net (increase) decrease in interest receivable & other assets
    
    
    (1,356
    )
    
    
    121Net increase (decrease) in interest payable & other liabilities
    
    
    647
    
    
    
    (665
    )Total Adjustments
    
    
    579
    
    
    
    1,213Net Cash Provided By (Used In) Operating Activities
    
    
    4,380
    
    
    
    4,958Cash Flows From Investing Activities:Proceeds from maturities of securities  HTM
    
    
    4,762
    
    
    
    8,200Proceeds from maturities of securities  AFS
    
    
    12,191
    
    
    
    0Proceeds from calls of securities  HTM
    
    
    925
    
    
    
    102Proceeds from calls of securities  AFS
    
    
    985
    
    
    
    17,351Proceeds from sales of securities  AFS
    
    
    1,101
    
    
    
    14,684Purchases of securities  HTM
    
    
    (3,051
    )
    
    
    (3,201
    )Purchases of securities  AFS
    
    
    (7,354
    )
    
    
    (16,953
    )Purchase of FHLB stock
    
    
    (132
    )
    
    
    0FHLB stock buy back
    
    
    260
    
    
    
    0Net increase in loans
    
    
    (14,972
    )
    
    
    (41,195
    )Acquisition of premises and equipment, net
    
    
    (3,080
    )
    
    
    (1,491
    )Net Cash Provided By (Used in) Investing Activities
    
    
    (8,365
    )
    
    
    (22,503
    )Cash Flows From Financing Activities:Net increase (decrease) in deposits
    
    
    3,531
    
    
    
    25,871Net increase (decrease) in borrowings
    
    
    (286
    )
    
    
    (3,250
    )Net increase (decrease) in repurchase agreements
    
    
    0
    
    
    
    2,000Purchase of advances from FHLB
    
    
    4,000
    
    
    
    29,900Repayments of advances from FHLB
    
    
    (7,020
    )
    
    
    (32,918
    )Net proceeds from stock issuance and purchase
    
    
    637
    
    
    
    1,249Cash dividends
    
    
    (1,531
    )
    
    
    (1,377
    )Net Cash Provided By (Used In) Financing Activities
    
    
    (669
    )
    
    
    21,475NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    $
    (4,654
    )
    
    $
    3,930CASH AND CASH EQUIVALENTS  BEGINNING
    
    $
    31,077
    
    
    $
    27,255CASH AND CASH EQUIVALENTS  ENDING
    
    $
    26,423
    
    
    $
    31,185CASH PAID FOR:INTEREST
    
    $
    12,074
    
    
    $
    7,740INCOME TAXES
    
    $
    1,316
    
    
    $
    2,303NONCASH DISCLOSURES:Transfers from loans to other real estate
    
    $
    927
    
    
    $
    532
 
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Fentura Financial, Inc.
Consolidated Statements of Comprehensive Income (Unaudited)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(000s Omitted)
    
    2006
    
    2005
    
    2006
    
    2005Net Income
    
    $
    1,336
    
    
    $
    1,299
    
    
    $
    3,801
    
    
    $
    3,745Other comprehensive income (loss), net of tax:Unrealized holding gains (losses) arising
during period
    
    
    942
    
    
    
    (258
    )
    
    
    143
    
    
    
    (553
    )Less: reclassification adjustment for
gains/(losses) included in net income
    
    
    (2
    )
    
    
    2
    
    
    
    (2
    )
    
    
    (108
    )Other comprehensive income (loss)
    
    
    940
    
    
    
    (260
    )
    
    
    141
    
    
    
    (445
    )Comprehensive income
    
    $
    2,276
    
    
    $
    1,039
    
    
    $
    3,942
    
    
    $
    3,300
 Fentura Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
 Note 1. Basis of Presentation
  S-X.
 Reclassifications:
 Allowance for Loan Losses:
  7




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Stock Option Plans
    Number of
    
    
    WeightedOptions
    
    
    Average PriceOptions outstanding at December 31, 2004
    
    
    46,433
    
    
    $
    28.00Options granted 2005
    
    
    809
    
    
    
    31.82Options forfeited 2005
    
    
    (710
    )
    
    
    29.97Options outstanding at December 31, 2005
    
    
    46,532
    
    
    $
    28.04Options exercised 2006
    
    
    (5,525
    )
    
    
    15.74Options outstanding at September 30, 2006
    
    
    41,007
    
    
    $
    29.69
   Nine months ended(000s omitted)
    
    September 30, 2006Proceeds of options exercised
    
    $
    87Related tax benefit recognized
    
    
    0Intrinsic value of options exercised
    
    
    85
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Outstanding
    
    ExercisableWeightedAverage
    
    
    
    
    
    WeightedRemaining
    
    
    
    
    
    AverageContractual
    
    
    
    
    
    ExerciseShares
    
    Life
    
    Shares
    
    Price$1.00  -$20.00
    
    
    668
    
    
    
    1.6
    
    
    
    668
    
    
    $
    19.28$20.01-$30.00
    
    
    22,072
    
    
    
    6.1
    
    
    
    10,880
    
    
    $
    24.48$30.01-$40.00
    
    
    18,267
    
    
    
    7.0
    
    
    
    18,267
    
    
    $
    34.44Outstanding at period end
    
    
    41,007
    
    
    
    6.5
    
    
    
    29,815
    
    
    $
    30.47
   Statement of Financial Accounting Standards No. 123R  Share based Payments FASB Statement No. 123, Accounting for Stock-Based Compensation
  Stock Options: (000s omitted)
 September 30, 2006Three Months
    
    Nine MonthsEnded
    
    EndedCompensation cost recognized in income
    
    $
    7
    
    
    $
    15Related tax benefit recognized
    
    
    0
    
    
    
    0
  (000s omitted)
 StockOptionsRemainder of 2006
    
    $
    42007
    
    
    162008
    
    
    8Total
    
    $
    28
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September 30, 2005Three months
    
    Nine months(Dollars in thousands except per share data)
    
    ended
    
    endedNet Income as Reported
    
    $
    1,299
    
    
    $
    3,745Less: Value Determined Under Fair Value
Based Method (net of taxes)
    
    
    2
    
    
    
    6Amount Expensed in the Period (net of taxes)
    
    
    0
    
    
    
    0Pro Forma Net Income
    
    $
    1,297
    
    
    $
    3,739Basic Earnings per Share as Reported
    
    $
    0.62
    
    
    $
    1.79Pro Forma Basic Earnings per Share
    
    $
    0.62
    
    
    $
    1.79Diluted Earnings per Share as Reported
    
    $
    0.62
    
    
    $
    1.79Pro Forma Diluted Earnings per Share
    
    $
    0.62
    
    
    $
    1.79
 Recently-Issued Standard Not Yet Adopted:
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Note 2. Earnings Per Common Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Basic Earnings Per Common Share:NumeratorNet Income
    
    $
    1,336,000
    
    
    $
    1,299,000
    
    
    $
    3,801,000
    
    
    $
    3,745,000DenominatorWeighted average common shares
Outstanding
    
    
    2,144,854
    
    
    
    2,092,278
    
    
    
    2,138,322
    
    
    
    2,087,146Basic earnings per common share
    
    $
    0.62
    
    
    $
    0.62
    
    
    $
    1.78
    
    
    $
    1.79Diluted Earnings Per Common Share:NumeratorNet Income
    
    $
    1,336,000
    
    
    $
    1,299,000
    
    
    $
    3,801,000
    
    
    $
    3,745,000DenominatorWeighted average common shares
Outstanding for basic earnings per
Common share
    
    
    2,144,854
    
    
    
    2,092,278
    
    
    
    2,138,322
    
    
    
    2,087,146Add: Dilutive effects of assumed
exercises of stock options
    
    
    4,909
    
    
    
    6,170
    
    
    
    4,611
    
    
    
    6,664Weighted average common shares
and dilutive potential common
shares outstanding
    
    
    2,149,763
    
    
    
    2,098,448
    
    
    
    2,142,933
    
    
    
    2,093,810Diluted earnings per common share
    
    $
    0.62
    
    
    $
    0.62
    
    
    $
    1.77
    
    
    $
    1.79
  Note 3. Commitments and Contingencies
  11




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Results of Operations
    Net Interest Income
  12




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Table 1
 NINE MONTHS ENDEDSEPTEMBER 30,2006 COMPARED TO 2005INCREASE (DECREASE)DUE TOYIELD/(000S OMITTED)
    
    VOL
    
    
    RATE
    
    
    TOTALTaxable Securities
    
    $
    (143
    )
    
    $
    274
    
    
    $
    131Tax-Exempt Securities
    
    
    (113
    )
    
    
    (33
    )
    
    
    (146
    )Federal Funds Sold
    
    
    179
    
    
    
    158
    
    
    
    337Total Loans
    
    
    1,791
    
    
    
    2,934
    
    
    
    4,725Loans Held for Sale
    
    
    (46
    )
    
    
    7
    
    
    
    (39
    )Total Earning Assets
    
    
    1,668
    
    
    
    3,340
    
    
    
    5,008Interest Bearing Demand Deposits
    
    
    (76
    )
    
    
    744
    
    
    
    668Savings Deposits
    
    
    (215
    )
    
    
    132
    
    
    
    (83
    )Time CDs $100,000 and Over
    
    
    1,427
    
    
    
    1,197
    
    
    
    2,624Other Time Deposits
    
    
    520
    
    
    
    600
    
    
    
    1,120Other Borrowings
    
    
    (318
    )
    
    
    497
    
    
    
    179Total Interest Bearing Liabilities
    
    
    1,338
    
    
    
    3,170
    
    
    
    4,508Net Interest Income
    
    $
    330
    
    
    $
    170
    
    
    $
    500
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##### Table of Contents



Table 2 Average Balance and Rates
 NINE MONTHS ENDED SEPTEMBER 30,2006
    
    
    2005AVERAGE
    
    
    INCOME/
    
    
    YIELD/
    
    
    AVERAGE
    
    
    INCOME/
    
    
    YIELD/(000s omitted)(Annualized)
    
    BALANCE
    
    
    EXPENSE
    
    
    RATE
    
    
    BALANCE
    
    
    EXPENSE
    
    
    RATEASSETSSecurities:U.S. Treasury and Government Agencies
    
    $
    84,706
    
    
    $
    2,499
    
    
    
    3.94
    %
    
    $
    93,282
    
    
    $
    2,412
    
    
    
    3.46
    %State and Political (1)
    
    
    22,122
    
    
    
    921
    
    
    
    5.57
    %
    
    
    24,735
    
    
    
    1,067
    
    
    
    5.77
    %Other
    
    
    4,347
    
    
    
    96
    
    
    
    2.95
    %
    
    
    1,241
    
    
    
    52
    
    
    
    5.60
    %Total Securities
    
    
    111,175
    
    
    
    3,516
    
    
    
    4.23
    %
    
    
    119,258
    
    
    
    3,531
    
    
    
    3.96
    %Fed Funds Sold
    
    
    10,342
    
    
    
    391
    
    
    
    5.05
    %
    
    
    2,400
    
    
    
    54
    
    
    
    3.01
    %Loans:Commercial
    
    
    342,383
    
    
    
    19,949
    
    
    
    7.79
    %
    
    
    303,201
    
    
    
    15,545
    
    
    
    6.85
    %Tax Free (1)
    
    
    4,349
    
    
    
    209
    
    
    
    6.43
    %
    
    
    4,933
    
    
    
    235
    
    
    
    6.37
    %Real Estate-Mortgage
    
    
    36,061
    
    
    
    1,984
    
    
    
    7.36
    %
    
    
    35,505
    
    
    
    1,952
    
    
    
    7.35
    %Consumer
    
    
    67,681
    
    
    
    4,072
    
    
    
    8.04
    %
    
    
    72,173
    
    
    
    3,757
    
    
    
    6.96
    %Total loans
    
    
    450,474
    
    
    
    26,214
    
    
    
    7.78
    %
    
    
    415,812
    
    
    
    21,489
    
    
    
    6.91
    %Allowance for Loan Losses
    
    
    (6,590
    )
    
    
    
    
    
    
    
    
    
    
    (5,881
    )Net Loans
    
    
    443,884
    
    
    
    26,214
    
    
    
    7.90
    %
    
    
    409,931
    
    
    
    21,489
    
    
    
    7.01
    %Loans Held for Sale
    
    
    1,289
    
    
    
    68
    
    
    
    7.05
    %
    
    
    2,265
    
    
    
    107
    
    
    
    6.32
    %TOTAL EARNING ASSETS
    
    $
    573,280
    
    
    $
    30,189
    
    
    
    7.04
    %
    
    $
    539,735
    
    
    $
    25,181
    
    
    
    6.24
    %Cash Due from Banks
    
    
    18,346
    
    
    
    
    
    
    
    
    
    
    
    19,936All Other Assets
    
    
    39,200
    
    
    
    
    
    
    
    
    
    
    
    37,455TOTAL ASSETS
    
    $
    624,236
    
    
    
    
    
    
    
    
    
    
    $
    591,245LIABILITIES & SHAREHOLDERS EQUITY:Deposits:Interest bearing  DDA
    
    $
    104,891
    
    
    $
    1,795
    
    
    
    2.29
    %
    
    $
    112,505
    
    
    $
    1,127
    
    
    
    1.34
    %Savings Deposits
    
    
    101,830
    
    
    
    952
    
    
    
    1.25
    %
    
    
    128,533
    
    
    
    1,035
    
    
    
    1.08
    %Time CDs $100,000 and Over
    
    
    129,798
    
    
    
    4,550
    
    
    
    4.69
    %
    
    
    74,548
    
    
    
    1,926
    
    
    
    3.45
    %Other Time CDs
    
    
    118,801
    
    
    
    3,481
    
    
    
    3.92
    %
    
    
    97,360
    
    
    
    2,361
    
    
    
    3.24
    %Total Deposits
    
    
    455,320
    
    
    
    10,778
    
    
    
    3.16
    %
    
    
    412,946
    
    
    
    6,449
    
    
    
    2.09
    %Other Borrowings
    
    
    39,461
    
    
    
    1,614
    
    
    
    5.47
    %
    
    
    50,710
    
    
    
    1,435
    
    
    
    3.78
    %INTEREST BEARING LIABILITIES
    
    $
    494,781
    
    
    $
    12,392
    
    
    
    3.35
    %
    
    $
    463,656
    
    
    $
    7,884
    
    
    
    2.27
    %Non-Interest bearing  DDA
    
    
    77,723
    
    
    
    
    
    
    
    
    
    
    
    81,849All Other Liabilities
    
    
    3,394
    
    
    
    
    
    
    
    
    
    
    
    1,541Shareholders Equity
    
    
    48,338
    
    
    
    
    
    
    
    
    
    
    
    44,199TOTAL LIABILITIES & SHAREHOLDERS EQUITY
    
    $
    624,236
    
    
    
    
    
    
    
    
    
    
    $
    591,245Net Interest Rate Spread
    
    
    
    
    
    
    
    
    
    
    3.69
    %
    
    
    
    
    
    
    
    
    
    
    3.96
    %Net Interest Income /Margin
    
    
    
    
    
    $
    17,797
    
    
    
    4.15
    %
    
    
    
    
    
    $
    17,297
    
    
    
    4.28
    %
 
 (1)
    
    Presented on a fully taxable equivalent basis using a federal income tax rate of 34%. 15




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##### Table of Contents



Table 3 Average Balance and Rates
 THREE MONTHS ENDED SEPTEMBER 30,2006
    
    
    2005AVERAGE
    
    
    INCOME/
    
    
    YIELD/
    
    
    AVERAGE
    
    
    INCOME/
    
    
    YIELD/(000s omitted)(Annualized)
    
    BALANCE
    
    
    EXPENSE
    
    
    RATE
    
    
    BALANCE
    
    
    EXPENSE
    
    
    RATEASSETSSecurities:U.S. Treasury and Government Agencies
    
    $
    82,604
    
    
    $
    830
    
    
    
    3.99
    %
    
    $
    90,401
    
    
    $
    783
    
    
    
    3.44
    %State and Political (1)
    
    
    21,900
    
    
    
    311
    
    
    
    5.63
    %
    
    
    22,601
    
    
    
    342
    
    
    
    6.01
    %Other
    
    
    4,164
    
    
    
    30
    
    
    
    2.86
    %
    
    
    1,495
    
    
    
    18
    
    
    
    4.78
    %Total Securities
    
    
    108,668
    
    
    
    1,171
    
    
    
    4.27
    %
    
    
    114,497
    
    
    
    1,143
    
    
    
    3.96
    %Fed Funds Sold
    
    
    16,248
    
    
    
    218
    
    
    
    5.32
    %
    
    
    4,222
    
    
    
    36
    
    
    
    3.38
    %Loans:Commercial
    
    
    344,613
    
    
    
    6,846
    
    
    
    7.88
    %
    
    
    312,060
    
    
    
    5,565
    
    
    
    7.08
    %Tax Free (1)
    
    
    4,116
    
    
    
    67
    
    
    
    6.43
    %
    
    
    4,893
    
    
    
    77
    
    
    
    6.27
    %Real Estate-Mortgage
    
    
    36,258
    
    
    
    651
    
    
    
    7.21
    %
    
    
    39,540
    
    
    
    753
    
    
    
    7.56
    %Consumer
    
    
    66,314
    
    
    
    1,366
    
    
    
    8.17
    %
    
    
    72,864
    
    
    
    1,325
    
    
    
    7.21
    %Total loans
    
    
    451,301
    
    
    
    8,930
    
    
    
    7.85
    %
    
    
    429,357
    
    
    
    7,720
    
    
    
    7.13
    %Allowance for Loan Losses
    
    
    (6,692
    )
    
    
    
    
    
    
    
    
    
    
    (6,097
    )Net Loans
    
    
    444,609
    
    
    
    8,930
    
    
    
    7.97
    %
    
    
    423,260
    
    
    
    7,720
    
    
    
    7.24
    %Loans Held for Sale
    
    
    1,237
    
    
    
    22
    
    
    
    7.06
    %
    
    
    3,542
    
    
    
    57
    
    
    
    6.38
    %TOTAL EARNING ASSETS
    
    $
    577,454
    
    
    $
    10,340
    
    
    
    7.10
    %
    
    $
    551,618
    
    
    $
    8,956
    
    
    
    6.44
    %Cash Due from Banks
    
    
    20,353
    
    
    
    
    
    
    
    
    
    
    
    20,663All Other Assets
    
    
    39,598
    
    
    
    
    
    
    
    
    
    
    
    37,499TOTAL ASSETS
    
    $
    630,713
    
    
    
    
    
    
    
    
    
    
    $
    603,683LIABILITIES & SHAREHOLDERS EQUITY:Deposits:Interest bearing  DDA
    
    $
    103,558
    
    
    $
    616
    
    
    
    2.36
    %
    
    $
    113,795
    
    
    $
    488
    
    
    
    1.70
    %Savings Deposits
    
    
    99,573
    
    
    
    329
    
    
    
    1.31
    %
    
    
    121,377
    
    
    
    354
    
    
    
    1.16
    %Time CDs $100,000 and Over
    
    
    137,134
    
    
    
    1,682
    
    
    
    4.87
    %
    
    
    92,020
    
    
    
    844
    
    
    
    3.64
    %Other Time CDs
    
    
    123,358
    
    
    
    1,316
    
    
    
    4.23
    %
    
    
    101,931
    
    
    
    852
    
    
    
    3.32
    %Total Deposits
    
    
    463,623
    
    
    
    3,943
    
    
    
    3.37
    %
    
    
    429,123
    
    
    
    2,538
    
    
    
    2.35
    %Other Borrowings
    
    
    36,500
    
    
    
    567
    
    
    
    6.16
    %
    
    
    45,065
    
    
    
    498
    
    
    
    4.38
    %INTEREST BEARING LIABILITIES
    
    $
    500,123
    
    
    $
    4,510
    
    
    
    3.58
    %
    
    $
    474,188
    
    
    $
    3,036
    
    
    
    2.54
    %Non-Interest bearing  DDA
    
    
    78,089
    
    
    
    
    
    
    
    
    
    
    
    82,376All Other Liabilities
    
    
    3,657
    
    
    
    
    
    
    
    
    
    
    
    1,825Shareholders Equity
    
    
    48,844
    
    
    
    
    
    
    
    
    
    
    
    45,294TOTAL LIABILITIES & SHAREHOLDERS EQUITY
    
    $
    630,713
    
    
    
    
    
    
    
    
    
    
    $
    603,683Net Interest Rate Spread
    
    
    
    
    
    
    
    
    
    
    3.53
    %
    
    
    
    
    
    
    
    
    
    
    3.90
    %Net Interest Income /Margin
    
    
    
    
    
    $
    5,831
    
    
    
    4.01
    %
    
    
    
    
    
    $
    5,920
    
    
    
    4.26
    %
 
 (1)
    
    Presented on a fully taxable equivalent basis using a federal income tax rate of 34%. 16




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##### Table of Contents



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




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##### Table of Contents



Table 4 Analysis Of The Allowance For Loan Losses
 Nine Months Ended September 30,(000s omitted)
    
    2006
    
    
    2005Balance at Beginning of Period
    
    $
    6,301
    
    
    $
    5,501Charge-Offs:Commercial, Financial and Agriculture
    
    
    (411
    )
    
    
    (113
    )Real Estate-Mortgage
    
    
    0
    
    
    
    0Installment Loans to Individuals
    
    
    (235
    )
    
    
    (236
    )Total Charge-Offs
    
    
    (646
    )
    
    
    (349
    )Recoveries:Commercial, Financial and Agriculture
    
    
    20
    
    
    
    63Real Estate-Mortgage
    
    
    0
    
    
    
    0Installment Loans to Individuals
    
    
    70
    
    
    
    77Total Recoveries
    
    
    90
    
    
    
    140Net Charge-Offs
    
    
    (556
    )
    
    
    (209
    )Provision
    
    
    880
    
    
    
    1,002Balance at End of Period
    
    $
    6,625
    
    
    $
    6,294Ratio of Net Charge-Offs to Gross Loans
    
    
    0.12
    %
    
    
    0.04
    %
 Non-Interest Income
       18




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##### Table of Contents



Non-Interest Expense
          19




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##### Table of Contents



Financial Condition
    Non-Performing Assets
  20




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##### Table of Contents



Table 5  Non-Performing Assets and Past Due Loans
 September 30,
    
    December 31,2006
    
    2005Non-Performing Loans:Loans Past Due 90 Days or More & Still
Accruing
    
    $
    71
    
    
    $
    80Non-Accrual Loans
    
    
    1,483
    
    
    
    1,476Renegotiated Loans
    
    
    438
    
    
    
    1,401Total Non-Performing Loans
    
    
    1,992
    
    
    
    2,957Other Non-Performing Assets:Other Real Estate
    
    
    0
    
    
    
    500REO in Redemption
    
    
    927
    
    
    
    0Other Non-Performing Assets
    
    
    37
    
    
    
    6Total Other Non-Performing Assets
    
    
    964
    
    
    
    506Total Non-Performing Assets
    
    $
    2,956
    
    
    $
    3,463Non-Performing Loans as a % of
Total Loans
    
    
    0.44
    %
    
    
    0.67
    %Allowance for Loan Losses as a % of
Non-Performing Loans
    
    
    333.58
    %
    
    
    213.09
    %Accruing Loans Past Due 90 Days or
More to Total Loans
    
    
    0.02
    %
    
    
    0.02
    %Non-performing Assets as a % of
Total Assets
    
    
    0.48
    %
    
    
    0.56
    %
 Liquidity and Interest Rate Risk Management
  21




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##### Table of Contents



Capital Management
   Regulatory Capital Requirements
  22




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##### Table of Contents



Table 6
 Capital RatiosRegulatory Minimum
    
    Fentura Financial, Inc.For Well Capitalized
    
    September 30,
    
    December 31,
    
    September 30,2006
    
    2005
    
    2005Total Capital to risk
Weighted assets
    
    
    10
    %
    
    
    12.17
    %
    
    
    11.40
    %
    
    
    11.84
    %Tier 1 Capital to risk
Weighted assets
    
    
    6
    %
    
    
    10.94
    %
    
    
    10.20
    %
    
    
    10.61
    %Tier 1 Capital to average
Assets
    
    
    5
    %
    
    
    8.28
    %
    
    
    8.70
    %
    
    
    8.87
    %
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    23




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##### Table of Contents



Interest Rate Sensitivity Management
   Table 7 GAP Analysis  September 30, 2006
 Within
    
    Three
    
    One to
    
    AfterThree
    
    Months to
    
    Five
    
    Five(000s omitted)
    
    Months
    
    One Year
    
    Years
    
    Years
    
    TotalEarning Assets:Federal Funds Sold
    
    $
    8,950
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    8,950Securities
    
    
    14,352
    
    
    
    20,264
    
    
    
    42,751
    
    
    
    27,392
    
    
    
    104,759Loans
    
    
    83,348
    
    
    
    93,981
    
    
    
    222,497
    
    
    
    53,946
    
    
    
    453,772Loans Held for Sale
    
    
    2,079
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    2,079FHLB Stock
    
    
    2,172
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    2,172Total Earning Assets
    
    $
    110,901
    
    
    $
    114,245
    
    
    $
    265,248
    
    
    $
    81,338
    
    
    $
    571,732Interest Bearing Liabilities:Interest Bearing Demand Deposits
    
    $
    104,421
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    104,421Savings Deposits
    
    $
    111,073
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    111,073Time Deposits Less than $100,000
    
    
    26,254
    
    
    
    52,482
    
    
    
    30,641
    
    
    
    392
    
    
    
    109,769Time Deposits Greater than $100,000
    
    
    24,952
    
    
    
    56,372
    
    
    
    49,434
    
    
    
    0
    
    
    
    130,758Short term borrowings
    
    
    1,251
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,251Other Borrowings
    
    
    0
    
    
    
    1,015
    
    
    
    9,099
    
    
    
    977
    
    
    
    11,091Repurchase agreements
    
    
    0
    
    
    
    0
    
    
    
    10,000
    
    
    
    0
    
    
    
    10,000Subordinated debentures
    
    
    0
    
    
    
    0
    
    
    
    14,000
    
    
    
    0
    
    
    
    14,000Total Interest Bearing Liabilities
    
    $
    267,951
    
    
    $
    109,869
    
    
    $
    113,174
    
    
    $
    1,369
    
    
    $
    492,363Interest Rate Sensitivity GAP
    
    
    ($157,050
    )
    
    $
    4,376
    
    
    $
    152,074
    
    
    $
    79,969
    
    
    $
    79,369Cumulative Interest RateSensitivity GAP
    
    
    ($157,050
    )
    
    
    ($152,674
    )
    
    
    ($600
    )
    
    $
    79,369Interest Rate Sensitivity GAP
    
    
    (0.41
    )
    
    
    1.04
    
    
    
    2.34
    
    
    
    59.41Cumulative Interest RateSensitivity GAP Ratio
    
    
    (0.41
    )
    
    
    (0.60
    )
    
    
    (1.00
    )
    
    
    1.16
  24




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##### Table of Contents



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




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
 
 Item 1A.
    
    Risk Factors There have been no material changes in the risk factors applicable to the Company from those disclosed
in its Annual Report on Form 10-K for the year ended December 31, 2005.
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
 Item 3. Defaults Upon Senior Securities. 
 
 Item 4. Submission of Matters to a Vote of Securities Holders.
 
 Item 5. Other Information.
 
 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.
 26




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##### Table of Contents



Fentura Financial Inc.Dated: November 10, 2006
    
    /s/ Donald L. GrillDonald L. Grill 
President & CEODated: November 10, 2006
    
    /s/ Douglas J. KelleyDouglas J. KelleyChief Financial Officer
 27




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##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    Description31.1
    
    Certificate of the President and Chief Executive Officer of Fentura Financial, Inc. pursuant
to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.31.2
    
    Certificate of the Chief Financial Officer of Fentura Financial, Inc. pursuant to 15 U.S.C.
Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certificate of the Chief Executive Officer of Fentura Financial, Inc. pursuant to 18 U.S.C.
Section 1350 , as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certificate of the Chief Financial Officer of Fentura Financial, Inc. pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 28