##### 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, 2007
 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  (Registrants telephone number)
 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)
    
    
    3-10Item 2  Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    11-23Item 3  Quantitative and Qualitative Disclosures about Market Risk
    
    
    24-26Item 4  Controls and Procedures
    
    
    26Part II  Other Information
    
    
    27Item 1  Legal Proceedings
    
    
    27Item 1A  Risk Factors
    
    
    27Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3  Defaults Upon Senior Securities
    
    
    27Item 4 Submission of Matters to a Vote of Security Holders
    
    
    27Item 5  Other Information
    
    
    27Item 6  Exhibits
    
    
    27Signatures
    
    
    28Exhibit Index
    
    
    29Section 302 CertificationSection 302 CertificationSection 906 CertificationSection 906 Certification
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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 Fentura Financial, Inc.   Consolidated Balance Sheets
 September 30,2007
    
    December 31,(000s omitted except per share data)
    
    (unaudited)
    
    2006ASSETSCash and due from banks
    
    $
    22,122
    
    
    $
    19,946Federal funds sold
    
    
    350
    
    
    
    9,500Total cash & cash equivalents
    
    
    22,472
    
    
    
    29,446Securities-available for sale
    
    
    80,250
    
    
    
    91,104Securities-held to maturity, (fair value of $8,821
at September 30, 2007 and $11,821 at December 31, 2006)
    
    
    8,856
    
    
    
    11,899Total securities
    
    
    89,106
    
    
    
    103,003Loans held for sale
    
    
    2,368
    
    
    
    2,226Loans:Commercial
    
    
    303,533
    
    
    
    272,402Real estate loans  construction
    
    
    62,787
    
    
    
    78,927Real estate loans  mortgage
    
    
    40,907
    
    
    
    36,867Consumer loans
    
    
    59,800
    
    
    
    62,797Total loans
    
    
    467,027
    
    
    
    450,993Less: Allowance for loan losses
    
    
    (11,425
    )
    
    
    (6,692
    )Net loans
    
    
    455,602
    
    
    
    444,301Bank Owned Life Insurance
    
    
    6,974
    
    
    
    6,815Bank premises and equipment
    
    
    19,442
    
    
    
    16,854Federal Home Loan Bank stock
    
    
    2,032
    
    
    
    2,032Accrued interest receivable
    
    
    3,362
    
    
    
    2,985Goodwill
    
    
    7,955
    
    
    
    7,955Acquisition intangibles
    
    
    551
    
    
    
    759Other assets
    
    
    9,682
    
    
    
    5,922Total assets
    
    $
    619,546
    
    
    $
    622,298LIABILITIESDeposits:Non-interest bearing deposits
    
    $
    75,279
    
    
    $
    74,886Interest bearing deposits
    
    
    454,655
    
    
    
    453,669Total deposits
    
    
    529,934
    
    
    
    528,555Short term borrowings
    
    
    5,250
    
    
    
    1,500Federal Home Loan Bank Advances
    
    
    11,030
    
    
    
    11,052Repurchase Agreements
    
    
    5,000
    
    
    
    10,000Subordinated debentures
    
    
    14,000
    
    
    
    14,000Accrued taxes, interest and other liabilities
    
    
    4,269
    
    
    
    5,873Total liabilities
    
    
    569,483
    
    
    
    570,980SHAREHOLDERS EQUITYCommon stock  no par value
2,156,453 shares issued (2,152,862 at Dec. 31, 2006)
    
    
    42,304
    
    
    
    42,158Retained earnings
    
    
    8,180
    
    
    
    10,118Accumulated other comprehensive income (loss)
    
    
    (421
    )
    
    
    (958
    )Total shareholders equity
    
    
    50,063
    
    
    
    51,318Total Liabilities and Shareholders Equity
    
    $
    619,546
    
    
    $
    622,298
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Fentura Financial, Inc.
Consolidated Statements of Income (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 30(000s omitted except per share data)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006INTEREST INCOMEInterest and fees on loans
    
    $
    8,796
    
    
    $
    8,929
    
    
    $
    26,360
    
    
    $
    26,211Interest and dividends on securities:Taxable
    
    
    786
    
    
    
    860
    
    
    
    2,504
    
    
    
    2,595Tax-exempt
    
    
    169
    
    
    
    205
    
    
    
    564
    
    
    
    608Interest on federal funds sold
    
    
    40
    
    
    
    218
    
    
    
    251
    
    
    
    391Total interest income
    
    
    9,791
    
    
    
    10,212
    
    
    
    29,679
    
    
    
    29,805INTEREST EXPENSEDeposits
    
    
    4,147
    
    
    
    3,943
    
    
    
    12,098
    
    
    
    10,778Borrowings
    
    
    547
    
    
    
    567
    
    
    
    1,692
    
    
    
    1,614Total interest expense
    
    
    4,694
    
    
    
    4,510
    
    
    
    13,790
    
    
    
    12,392NET INTEREST INCOME
    
    
    5,097
    
    
    
    5,702
    
    
    
    15,889
    
    
    
    17,413Provision for loan losses
    
    
    5,144
    
    
    
    240
    
    
    
    6,232
    
    
    
    880Net interest income (loss) after
Provision for loan losses
    
    
    (47
    )
    
    
    5,462
    
    
    
    9,657
    
    
    
    16,533NON-INTEREST INCOMEService charges on deposit accounts
    
    
    860
    
    
    
    989
    
    
    
    2,547
    
    
    
    2,750Gain on sale of mortgage loans
    
    
    65
    
    
    
    124
    
    
    
    268
    
    
    
    444Trust and investment services income
    
    
    471
    
    
    
    372
    
    
    
    1,439
    
    
    
    1,172Gain (Loss) on sale of securities
    
    
    0
    
    
    
    (2
    )
    
    
    0
    
    
    
    (2
    )Other income and fees
    
    
    574
    
    
    
    457
    
    
    
    1,609
    
    
    
    1,261Total non-interest income
    
    
    1,970
    
    
    
    1,940
    
    
    
    5,863
    
    
    
    5,625NON-INTEREST EXPENSESalaries and employee benefits
    
    
    2,868
    
    
    
    3,197
    
    
    
    9,308
    
    
    
    9,844Occupancy
    
    
    543
    
    
    
    457
    
    
    
    1,556
    
    
    
    1,399Furniture and equipment
    
    
    532
    
    
    
    541
    
    
    
    1,591
    
    
    
    1,600Loan and collection
    
    
    111
    
    
    
    72
    
    
    
    287
    
    
    
    227Advertising and promotional
    
    
    125
    
    
    
    140
    
    
    
    396
    
    
    
    494Other operating expenses
    
    
    1,057
    
    
    
    1,096
    
    
    
    3,192
    
    
    
    3,221Total non-interest expense
    
    
    5,236
    
    
    
    5,503
    
    
    
    16,330
    
    
    
    16,785INCOME (LOSS) BEFORE TAXES
    
    
    (3,313
    )
    
    
    1,899
    
    
    
    (810
    )
    
    
    5,373Federal income taxes
    
    
    (1,206
    )
    
    
    563
    
    
    
    (495
    )
    
    
    1,572NET INCOME (LOSS)
    
    $
    (2,107
    )
    
    $
    1,336
    
    
    $
    (315
    )
    
    $
    3,801Per share: (adjusted for 10% stock dividend paid on August 4, 2006)Net income (loss)  basic
    
    $
    (0.98
    )
    
    $
    0.62
    
    
    $
    (0.15
    )
    
    $
    1.78Net income (loss)  diluted
    
    $
    (0.98
    )
    
    $
    0.62
    
    
    $
    (0.15
    )
    
    $
    1.77Cash Dividends declared
    
    $
    0.25
    
    
    $
    0.25
    
    
    $
    0.75
    
    
    $
    0.71
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Fentura Financial, Inc.  Consolidated Statements of Changes in Shareholders Equity (Unaudited)
 Nine Months EndedSeptember 30,(000s omitted)
    
    2007
    
    
    2006COMMON STOCKBalance, beginning of period
    
    $
    42,158
    
    
    $
    34,491Issuance of shares under
Stock Dividend (194,772 shares-2006)
    
    
    0
    
    
    
    6,850Director stock purchase plan &
Dividend reinvestment program (20,480 and
17,087 shares)
    
    
    628
    
    
    
    582Stock repurchase (17,184 shares and 977 shares )
    
    
    (520
    )
    
    
    (32
    )Stock options exercised (295 and 5,023 shares)
    
    
    6
    
    
    
    87Stock compensation expense
    
    
    32
    
    
    
    0Balance, end of period
    
    
    42,304
    
    
    
    41,978RETAINED EARNINGSBalance, beginning of period
    
    
    10,118
    
    
    
    13,729Net income
    
    
    (315
    )
    
    
    3,801Stock dividend
    
    
    0
    
    
    
    (6,850
    )Cash dividends declared
    
    
    (1,623
    )
    
    
    (1,531
    )Balance, end of period
    
    
    8,180
    
    
    
    9,149ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)Balance, beginning of period
    
    
    (958
    )
    
    
    (1,325
    )Change in unrealized gain (loss)
on securities available for sale, net of tax
    
    
    537
    
    
    
    141Balance, end of period
    
    
    (421
    )
    
    
    (1,184
    )TOTAL SHAREHOLDERS EQUITY
    
    $
    50,063
    
    
    $
    49,943
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Fentura Financial, Inc.
 Consolidated Statements of Cash Flows (Unaudited)
 Nine Months EndedSeptember 30,(000s omitted)
    
    2007
    
    2006OPERATING ACTIVITIES:Net income
    
    $
    (315
    )
    
    $
    3,801Adjustments to reconcile net income to cash
Provided by Operating Activities:Depreciation and amortization
    
    
    1,396
    
    
    
    1,600Provision for loan losses
    
    
    6,232
    
    
    
    880Loans originated for sale
    
    
    (13,524
    )
    
    
    (28,578
    )Proceeds from the sale of loans
    
    
    13,650
    
    
    
    27,985Loss on Sale of Securities
    
    
    0
    
    
    
    2Gain on sales of loans
    
    
    (268
    )
    
    
    (444
    )Stock compensation expense
    
    
    32
    
    
    
    0Net (increase) decrease in bank owned life insurance
    
    
    (159
    )
    
    
    (157
    )Net (increase) decrease in interest receivable & other assets
    
    
    (3,971
    )
    
    
    (1,356
    )Net increase (decrease) in interest payable & other liabilities
    
    
    (1,881
    )
    
    
    647Total Adjustments
    
    
    1,507
    
    
    
    579Net Cash Provided By (Used In) Operating Activities
    
    
    1,192
    
    
    
    4,380Cash Flows From Investing Activities:Proceeds from maturities of securities  HTM
    
    
    1,649
    
    
    
    4,762Proceeds from maturities of securities  AFS
    
    
    12,744
    
    
    
    12,191Proceeds from calls of securities  HTM
    
    
    140
    
    
    
    925Proceeds from calls of securities  AFS
    
    
    4,700
    
    
    
    985Proceeds from sales of securities  AFS
    
    
    0
    
    
    
    1,101Purchases of securities  HTM
    
    
    0
    
    
    
    (3,051
    )Purchases of securities  AFS
    
    
    (4,571
    )
    
    
    (7,354
    )Purchase of FHLB Stock
    
    
    0
    
    
    
    (132
    )FHLB stock buy back
    
    
    0
    
    
    
    260Net increase in loans
    
    
    (17,680
    )
    
    
    (14,972
    )Acquisition of premises and equipment, net
    
    
    (3,746
    )
    
    
    (3,080
    )Net Cash Provided By (Used in) Investing Activities
    
    
    (6,764
    )
    
    
    (8,365
    )Cash Flows From Financing Activities:Net increase (decrease) in deposits
    
    
    1,379
    
    
    
    3,531Net increase (decrease) in short term borrowings
    
    
    3,750
    
    
    
    (286
    )Net increase (decrease) in repurchase agreements
    
    
    (5,000
    )
    
    
    0Advances from FHLB
    
    
    7,000
    
    
    
    4,000Repayments of advances from FHLB
    
    
    (7,022
    )
    
    
    (7,020
    )Net proceeds from stock issuance and purchase
    
    
    114
    
    
    
    637Cash dividends
    
    
    (1,623
    )
    
    
    (1,531
    )Net Cash Provided By (Used In) Financing Activities
    
    
    (1,402
    )
    
    
    (669
    )NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    $
    (6,974
    )
    
    $
    (4,654
    )CASH AND CASH EQUIVALENTS  BEGINNING
    
    $
    29,446
    
    
    $
    31,077CASH AND CASH EQUIVALENTS  ENDING
    
    $
    22,472
    
    
    $
    26,423CASH PAID FOR:INTEREST
    
    $
    13,789
    
    
    $
    12,074INCOME TAXES
    
    $
    450
    
    
    $
    1,316NONCASH DISCLOSURES:Transfers from loans to other real estate
    
    $
    147
    
    
    $
    927
 
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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)
    
    2007
    
    2006
    
    2007
    
    2006Net Income (loss)
    
    $
    (2,107
    )
    
    $
    1,336
    
    
    $
    (315
    )
    
    $
    3,801Other comprehensive income (loss), net of tax:Unrealized holding gains (losses) arising
during period
    
    
    275
    
    
    
    942
    
    
    
    537
    
    
    
    143Less: reclassification adjustment for
gains/(losses) included in net income
    
    
    0
    
    
    
    (2
    )
    
    
    0
    
    
    
    (2
    )Other comprehensive income (loss)
    
    
    275
    
    
    
    940
    
    
    
    537
    
    
    
    141Comprehensive income (loss)
    
    $
    (1,832
    )
    
    $
    2,276
    
    
    $
    222
    
    
    $
    3,942
 Fentura Financial, Inc.  Notes to Consolidated Financial Statements (Unaudited)
 Note 1. Basis of Presentation
   Reclassifications:
 Allowance for Loan Losses:
  7




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Stock Option Plans
    Number of
    
    WeightedOptions
    
    Average PriceOptions outstanding at December 31, 2006
    
    
    40,523
    
    
    $
    29.68Options exercised in 2007
    
    
    (295
    )
    
    $
    21.90Options outstanding at September 30, 2007
    
    
    40,228
    
    
    $
    29.74
 Effect of Newly Issued but not yet Effective Accounting Standards
  8




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Note 2. Earnings Per Common Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Basic Net Income Per Common Share:NumeratorNet Income (loss)
    
    $
    (2,107,000
    )
    
    $
    1,336,000
    
    
    $
    (315,000
    )
    
    $
    3,801,000DenominatorWeighted average common shares
Outstanding
    
    
    2,158,623
    
    
    
    2,144,854
    
    
    
    2,159,536
    
    
    
    2,138,322Basic Net Income (loss) per common share
    
    $
    (0.98
    )
    
    $
    0.62
    
    
    $
    (0.15
    )
    
    $
    1.78Diluted Net Income Per Common Share:NumeratorNet Income (loss)
    
    $
    (2,107,000
    )
    
    $
    1,336,000
    
    
    $
    (315,000
    )
    
    $
    3,801,000DenominatorWeighted average common shares
Outstanding for basic earnings per
Common share
    
    
    2,158,623
    
    
    
    2,144,854
    
    
    
    2,159,536
    
    
    
    2,138,322Add: Dilutive effects of assumed
exercises of stock options
    
    
    0
    
    
    
    4,909
    
    
    
    0
    
    
    
    4,611Weighted average common shares
and dilutive potential common
shares outstanding
    
    
    2,158,623
    
    
    
    2,149,763
    
    
    
    2,159,536
    
    
    
    2,142,933Diluted Net Income (loss) per common share
    
    $
    (0.98
    )
    
    $
    0.62
    
    
    $
    (0.15
    )
    
    $
    1.77
  Note 3. Commitments and Contingencies
  9




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Note 4. Allowance for Loan Losses
   Three Months
    
    
    Nine MonthsBeginning Balance
    
    $
    7,174
    
    
    $
    6,692Provision for loan losses
    
    
    5,144
    
    
    
    6,232Loans charged off
    
    
    (948
    )
    
    
    (1,703
    )Loan recoveries
    
    
    55
    
    
    
    204Balance, September 30, 2007
    
    $
    11,425
    
    
    $
    11,425
  September 30,
    
    
    December 31,2007
    
    
    2006Loans not requiring allocation
    
    $
    5,844
    
    
    $
    1,365Loans requiring allocation
    
    
    24,507
    
    
    
    3,397$
    30,351
    
    
    $
    4,762Amount of the allowance for loan losses allocated
    
    $
    4,350
    
    
    $
    606
 10




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Results of Operations
    Net Interest Income
  11




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Table 1
 NINE MONTHS ENDEDSEPTEMBER 30,2007 COMPARED TO 2006INCREASE (DECREASE)DUE TOYIELD/(000S OMITTED)
    
    VOL
    
    
    RATE
    
    
    TOTALTaxable Securities
    
    $
    (219
    )
    
    $
    135
    
    
    $
    (84
    )Tax-Exempt Securities
    
    
    (154
    )
    
    
    87
    
    
    
    (67
    )Federal Funds Sold
    
    
    (144
    )
    
    
    4
    
    
    
    (140
    )Total Loans
    
    
    447
    
    
    
    (315
    )
    
    
    132Loans Held for Sale
    
    
    6
    
    
    
    (5
    )
    
    
    1Total Earning Assets
    
    
    (64
    )
    
    
    (94
    )
    
    
    (158
    )Interest Bearing Demand Deposits
    
    
    (86
    )
    
    
    82
    
    
    
    (4
    )Savings Deposits
    
    
    (116
    )
    
    
    47
    
    
    
    (69
    )Time CDs $100,000 and Over
    
    
    250
    
    
    
    330
    
    
    
    580Other Time Deposits
    
    
    189
    
    
    
    624
    
    
    
    813Other Borrowings
    
    
    (98
    )
    
    
    176
    
    
    
    78Total Interest Bearing Liabilities
    
    
    139
    
    
    
    1,259
    
    
    
    1,398Net Interest Income
    
    $
    (203
    )
    
    $
    (1,353
    )
    
    $
    (1,556
    )
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Table 2 Average Balance and Rates
 NINE MONTHS ENDED SEPTEMBER 30,2007
    
    
    2006AVERAGE
    
    
    INCOME/
    
    
    YIELD/
    
    
    AVERAGE
    
    
    INCOME/
    
    
    YIELD/(000s omitted)(Annualized)
    
    BALANCE
    
    
    EXPENSE
    
    
    RATE
    
    
    BALANCE
    
    
    EXPENSE
    
    
    RATEASSETSSecurities:U.S. Treasury and Government Agencies
    
    $
    75,448
    
    
    $
    2,436
    
    
    
    4.32
    %
    
    $
    84,706
    
    
    $
    2,499
    
    
    
    3.94
    %State and Political (1)
    
    
    18,434
    
    
    
    854
    
    
    
    6.20
    %
    
    
    22,122
    
    
    
    921
    
    
    
    5.57
    %Other
    
    
    6,086
    
    
    
    75
    
    
    
    1.63
    %
    
    
    4,347
    
    
    
    96
    
    
    
    2.95
    %Total Securities
    
    
    99,968
    
    
    
    3,365
    
    
    
    4.50
    %
    
    
    111,175
    
    
    
    3,516
    
    
    
    4.23
    %Fed Funds Sold
    
    
    6,544
    
    
    
    251
    
    
    
    5.13
    %
    
    
    10,342
    
    
    
    391
    
    
    
    5.05
    %Loans:Commercial
    
    
    356,794
    
    
    
    20,556
    
    
    
    7.70
    %
    
    
    342,383
    
    
    
    19,949
    
    
    
    7.79
    %Tax Free (1)
    
    
    3,659
    
    
    
    179
    
    
    
    6.55
    %
    
    
    4,349
    
    
    
    209
    
    
    
    6.43
    %Real Estate-Mortgage
    
    
    37,340
    
    
    
    1,893
    
    
    
    6.78
    %
    
    
    36,061
    
    
    
    1,984
    
    
    
    7.36
    %Consumer
    
    
    60,367
    
    
    
    3,718
    
    
    
    8.23
    %
    
    
    67,681
    
    
    
    4,072
    
    
    
    8.04
    %Total loans (2)
    
    
    458,160
    
    
    
    26,346
    
    
    
    7.69
    %
    
    
    450,474
    
    
    
    26,214
    
    
    
    7.78
    %Allowance for Loan Losses
    
    
    (7,275
    )
    
    
    
    
    
    
    
    
    
    
    (6,590
    )Net Loans
    
    
    450,885
    
    
    
    26,346
    
    
    
    7.81
    %
    
    
    443,884
    
    
    
    26,214
    
    
    
    7.90
    %Loans Held for Sale
    
    
    1,401
    
    
    
    69
    
    
    
    6.58
    %
    
    
    1,289
    
    
    
    68
    
    
    
    7.05
    %TOTAL EARNING ASSETS
    
    $
    566,073
    
    
    $
    30,031
    
    
    
    7.09
    %
    
    $
    573,280
    
    
    $
    30,189
    
    
    
    7.04
    %Cash Due from Banks
    
    
    17,181
    
    
    
    
    
    
    
    
    
    
    
    18,346All Other Assets
    
    
    44,361
    
    
    
    
    
    
    
    
    
    
    
    39,200TOTAL ASSETS
    
    $
    620,340
    
    
    
    
    
    
    
    
    
    
    $
    624,236LIABILITIES & SHAREHOLDERS EQUITY:Deposits:Interest bearing  DDA
    
    $
    99,850
    
    
    $
    1,791
    
    
    
    2.40
    %
    
    $
    104,891
    
    
    $
    1,795
    
    
    
    2.29
    %Savings Deposits
    
    
    89,413
    
    
    
    883
    
    
    
    1.32
    %
    
    
    101,830
    
    
    
    952
    
    
    
    1.25
    %Time CDs $100,000 and Over
    
    
    136,922
    
    
    
    5,130
    
    
    
    5.01
    %
    
    
    129,798
    
    
    
    4,550
    
    
    
    4.69
    %Other Time CDs
    
    
    125,267
    
    
    
    4,294
    
    
    
    4.58
    %
    
    
    118,801
    
    
    
    3,481
    
    
    
    3.92
    %Total Deposits
    
    
    451,452
    
    
    
    12,098
    
    
    
    3.58
    %
    
    
    455,320
    
    
    
    10,778
    
    
    
    3.16
    %Other Borrowings
    
    
    37,058
    
    
    
    1,692
    
    
    
    6.10
    %
    
    
    39,461
    
    
    
    1,614
    
    
    
    5.47
    %INTEREST BEARING LIABILITIES
    
    $
    488,510
    
    
    $
    13,790
    
    
    
    3.77
    %
    
    $
    494,781
    
    
    $
    12,392
    
    
    
    3.35
    %Non-Interest bearing  DDA
    
    
    75,106
    
    
    
    
    
    
    
    
    
    
    
    77,723All Other Liabilities
    
    
    4,029
    
    
    
    
    
    
    
    
    
    
    
    3,394Shareholders Equity
    
    
    52,695
    
    
    
    
    
    
    
    
    
    
    
    48,338TOTAL LIABILITIES & SHAREHOLDERS EQUITY
    
    $
    620,340
    
    
    
    
    
    
    
    
    
    
    $
    624,236Net Interest Rate Spread
    
    
    
    
    
    
    
    
    
    
    3.32
    %
    
    
    
    
    
    
    
    
    
    
    3.69
    %Net Interest Income /Margin
    
    
    
    
    
    $
    16,241
    
    
    
    3.84
    %
    
    
    
    
    
    $
    17,797
    
    
    
    4.15
    %
  (1)
    
    Presented on a fully taxable equivalent basis using a federal income tax rate of 34%.(2)
    
    Includes Non-Accrual loans. 14




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##### Table of Contents



Table 3 Average Balance and Rates
 THREE MONTHS ENDED SEPTEMBER 30,2007
    
    
    2006AVERAGE
    
    
    INCOME/
    
    
    YIELD/
    
    
    AVERAGE
    
    
    INCOME/
    
    
    YIELD/(000s omitted)(Annualized)
    
    BALANCE
    
    
    EXPENSE
    
    
    RATE
    
    
    BALANCE
    
    
    EXPENSE
    
    
    RATEASSETSSecurities:U.S. Treasury and Government Agencies
    
    $
    71,918
    
    
    $
    764
    
    
    
    4.21
    %
    
    $
    82,604
    
    
    $
    830
    
    
    
    3.99
    %State and Political (1)
    
    
    16,464
    
    
    
    255
    
    
    
    6.15
    %
    
    
    21,900
    
    
    
    311
    
    
    
    5.63
    %Other
    
    
    8,458
    
    
    
    25
    
    
    
    1.18
    %
    
    
    4,164
    
    
    
    30
    
    
    
    2.86
    %Total Securities
    
    
    96,840
    
    
    
    1,044
    
    
    
    4.28
    %
    
    
    108,668
    
    
    
    1,171
    
    
    
    4.27
    %Fed Funds Sold
    
    
    3,201
    
    
    
    40
    
    
    
    4.97
    %
    
    
    16,248
    
    
    
    218
    
    
    
    5.32
    %Loans:Commercial
    
    
    360,654
    
    
    
    6,840
    
    
    
    7.52
    %
    
    
    344,613
    
    
    
    6,846
    
    
    
    7.88
    %Tax Free (1)
    
    
    3,484
    
    
    
    58
    
    
    
    6.55
    %
    
    
    4,116
    
    
    
    67
    
    
    
    6.43
    %Real Estate-Mortgage
    
    
    39,465
    
    
    
    669
    
    
    
    6.72
    %
    
    
    36,258
    
    
    
    651
    
    
    
    7.21
    %Consumer
    
    
    59,378
    
    
    
    1,230
    
    
    
    8.22
    %
    
    
    66,314
    
    
    
    1,366
    
    
    
    8.17
    %Total loans (2)
    
    
    462,981
    
    
    
    8,797
    
    
    
    7.54
    %
    
    
    451,301
    
    
    
    8,930
    
    
    
    7.85
    %Allowance for Loan Losses
    
    
    (8,125
    )
    
    
    
    
    
    
    
    
    
    
    (6,692
    )Net Loans
    
    
    454,856
    
    
    
    8,797
    
    
    
    7.67
    %
    
    
    444,609
    
    
    
    8,930
    
    
    
    7.97
    %Loans Held for Sale
    
    
    1,011
    
    
    
    17
    
    
    
    6.82
    %
    
    
    1,237
    
    
    
    22
    
    
    
    7.06
    %TOTAL EARNING ASSETS
    
    $
    564,033
    
    
    $
    9,898
    
    
    
    6.96
    %
    
    $
    577,454
    
    
    $
    10,341
    
    
    
    7.10
    %Cash Due from Banks
    
    
    17,075
    
    
    
    
    
    
    
    
    
    
    
    20,353All Other Assets
    
    
    45,780
    
    
    
    
    
    
    
    
    
    
    
    39,598TOTAL ASSETS
    
    $
    618,763
    
    
    
    
    
    
    
    
    
    
    $
    630,713LIABILITIES & SHAREHOLDERS EQUITY:Deposits:Interest bearing  DDA
    
    $
    99,379
    
    
    $
    602
    
    
    
    2.40
    %
    
    $
    103,558
    
    
    $
    616
    
    
    
    2.36
    %Savings Deposits
    
    
    89,030
    
    
    
    307
    
    
    
    1.37
    %
    
    
    99,573
    
    
    
    329
    
    
    
    1.31
    %Time CDs $100,000 and Over
    
    
    139,682
    
    
    
    1,789
    
    
    
    5.08
    %
    
    
    137,134
    
    
    
    1,682
    
    
    
    4.87
    %Other Time CDs
    
    
    124,739
    
    
    
    1,449
    
    
    
    4.61
    %
    
    
    123,358
    
    
    
    1,316
    
    
    
    4.23
    %Total Deposits
    
    
    452,830
    
    
    
    4,147
    
    
    
    3.63
    %
    
    
    463,623
    
    
    
    3,943
    
    
    
    3.37
    %Other Borrowings
    
    
    34,687
    
    
    
    547
    
    
    
    6.25
    %
    
    
    36,500
    
    
    
    567
    
    
    
    6.16
    %INTEREST BEARING LIABILITIES
    
    $
    487,517
    
    
    $
    4,694
    
    
    
    3.82
    %
    
    $
    500,123
    
    
    $
    4,510
    
    
    
    3.58
    %Non-Interest bearing  DDA
    
    
    75,648
    
    
    
    
    
    
    
    
    
    
    
    78,089All Other Liabilities
    
    
    3,164
    
    
    
    
    
    
    
    
    
    
    
    3,657Shareholders Equity
    
    
    52,434
    
    
    
    
    
    
    
    
    
    
    
    48,844TOTAL LIABILITIES & SHAREHOLDERS EQUITY
    
    $
    618,763
    
    
    
    
    
    
    
    
    
    
    $
    630,713Net Interest Rate Spread
    
    
    
    
    
    
    
    
    
    
    3.14
    %
    
    
    
    
    
    
    
    
    
    
    3.53
    %Net Interest Income /Margin
    
    
    
    
    
    $
    5,204
    
    
    
    3.66
    %
    
    
    
    
    
    $
    5,831
    
    
    
    4.01
    %
 
 (1)
    
    Presented on a fully taxable equivalent basis using a federal income tax rate of 34%.(2)
    
    Includes Non-Accrual Loans. 15




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##### Table of Contents



Allowance and Provision For Loan Losses
  ALL) ALL ALL ALL ALL ALL
  16




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##### Table of Contents



Table 4 Analysis of the Allowance for Loan Losses
 Nine Months Ended September 30,(000s omitted)
    
    2007
    
    2006Balance at Beginning of Period
    
    $
    6,692
    
    
    $
    6,301Charge-Offs:Commercial, Financial and Agriculture
    
    
    (1,189
    )
    
    
    (411
    )Real Estate-Mortgage
    
    
    (105
    )
    
    
    0Installment Loans to Individuals
    
    
    (409
    )
    
    
    (235
    )Total Charge-Offs
    
    
    (1,703
    )
    
    
    (646
    )Recoveries:Commercial, Financial and Agriculture
    
    
    129
    
    
    
    20Real Estate-Mortgage
    
    
    1
    
    
    
    0Installment Loans to Individuals
    
    
    74
    
    
    
    70Total Recoveries
    
    
    204
    
    
    
    90Net Charge-Offs
    
    
    (1,499
    )
    
    
    (556
    )Provision for loan losses
    
    
    6,232
    
    
    
    880Balance at End of Period
    
    $
    11,425
    
    
    $
    6,625Ratio of Net Charge-Offs to Gross Loans
    
    
    0.32
    %
    
    
    0.12
    %
 Non-Interest Income
      17




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##### Table of Contents



Non-Interest Expense
     18




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##### Table of Contents



Financial Condition
   19




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##### Table of Contents



Non-Performing Assets
    20




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##### Table of Contents



Table 5  Non-Performing Assets and Past Due Loans
 September 30,
    
    December 31,2007
    
    2006Non-Performing Loans:Loans Past Due 90 Days or More & Still
Accruing
    
    $
    938
    
    
    $
    2,311Non-Accrual Loans
    
    
    12,832
    
    
    
    2,354Renegotiated Loans
    
    
    433
    
    
    
    437Total Non-Performing Loans
    
    
    14,203
    
    
    
    5,102Other Non-Performing Assets:Other Real Estate
    
    
    1,292
    
    
    
    1,145REO in Redemption
    
    
    2,379
    
    
    
    318Other Non-Performing Assets
    
    
    211
    
    
    
    155Total Other Non-Performing Assets
    
    
    3,882
    
    
    
    1,618Total Non-Performing Assets
    
    $
    18,085
    
    
    $
    6,720Non-Performing Loans as a % of
Total Loans
    
    
    3.03
    %
    
    
    1.13
    %Allowance for Loan Losses as a % of
Non-Performing Loans
    
    
    80.44
    %
    
    
    131.16
    %Accruing Loans Past Due 90 Days or
More to Total Loans
    
    
    0.20
    %
    
    
    0.51
    %Non-performing Assets as a % of
Total Assets
    
    
    2.92
    %
    
    
    1.08
    %
 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 RatiosFentura Financial, Inc.Regulatory Minimum
    
    September 30,
    
    December 31,
    
    September 30,For Well Capitalized
    
    2007
    
    2006
    
    2006Total Capital to risk
Weighted assets
    
    
    10
    %
    
    
    11.77
    %
    
    
    12.50
    %
    
    
    12.17
    %Tier 1 Capital to risk
Weighted assets
    
    
    6
    %
    
    
    10.53
    %
    
    
    11.30
    %
    
    
    10.94
    %Tier 1 Capital to average
Assets
    
    
    5
    %
    
    
    8.38
    %
    
    
    8.60
    %
    
    
    8.28
    %
 Off Balance Sheet Arrangements
  23




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    Interest Rate Sensitivity Management
   24




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##### Table of Contents



Table 7 GAP Analysis  September 30, 2007
 Within
    
    Three
    
    One to
    
    AfterThree
    
    Months to
    
    Five
    
    Five(000s omitted)
    
    Months
    
    One Year
    
    Years
    
    Years
    
    TotalEarning Assets:Federal Funds Sold
    
    $
    350
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    350Securities
    
    
    11,918
    
    
    
    11,776
    
    
    
    43,632
    
    
    
    21,780
    
    
    
    89,106Loans
    
    
    70,012
    
    
    
    103,700
    
    
    
    225,171
    
    
    
    68,144
    
    
    
    467,027Loans Held for Sale
    
    
    2,368
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    2,368FHLB Stock
    
    
    2,032
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    2,032Total Earning Assets
    
    $
    86,680
    
    
    $
    115,476
    
    
    $
    268,803
    
    
    $
    89,924
    
    
    $
    560,883Interest Bearing Liabilities:Interest Bearing Demand Deposits
    
    $
    93,526
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    93,526Savings Deposits
    
    
    95,019
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    95,019Time Deposits Less than $100,000
    
    
    33,983
    
    
    
    59,979
    
    
    
    29,392
    
    
    
    162
    
    
    
    123,516Time Deposits Greater than $100,000
    
    
    27,128
    
    
    
    45,516
    
    
    
    69,950
    
    
    
    0
    
    
    
    142,594Short term borrowings
    
    
    5,250
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    5,250Other Borrowings
    
    
    2,000
    
    
    
    4,024
    
    
    
    4,116
    
    
    
    890
    
    
    
    11,030Repurchase agreements
    
    
    0
    
    
    
    5,000
    
    
    
    0
    
    
    
    0
    
    
    
    5,000Subordinated debentures
    
    
    0
    
    
    
    0
    
    
    
    14,000
    
    
    
    0
    
    
    
    14,000Total Interest Bearing Liabilities
    
    $
    256,906
    
    
    $
    114,519
    
    
    $
    117,458
    
    
    $
    1,052
    
    
    $
    489,935Interest Rate Sensitivity GAP
    
    $
    (170,226
    )
    
    $
    957
    
    
    $
    151,345
    
    
    $
    88,872
    
    
    $
    70,948Cumulative Interest Rate
Sensitivity GAP
    
    $
    (170,226
    )
    
    $
    (169,269
    )
    
    $
    (17,924
    )
    
    $
    70,948Interest Rate Sensitivity GAP
    
    
    (0.34
    )
    
    
    1.01
    
    
    
    2.29
    
    
    
    85.50Cumulative Interest Rate
Sensitivity GAP Ratio
    
    
    (0.34
    )
    
    
    0.54
    
    
    
    0.96
    
    
    
    1.14
  25




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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.
 26




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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
Corporation from those disclosed in its Annual Report on Form 10-K for the year ended December
31, 2006.
 
 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.
 27




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##### Table of Contents



Fentura Financial Inc.Dated:  November 9, 2007
    /s/ Donald L. GrillDonald L. GrillPresident & CEO Dated:  November 9, 2007
    /s/ Douglas J. KelleyDouglas J. KelleyChief Financial Officer
 28




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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.
 29