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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For fiscal year ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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Commission file number 0-23550
Fentura Bancorp, Inc.
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(Exact name of small business issuer as specified in its charter)
MICHIGAN 38-2806518
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One Fenton Sq, PO Box 725, Fenton, Michigan 48430-0725
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(Address of Principal Executive Offices) (ZIP CODE)
Registrant's telephone number, including area code (810) 629-2263
Securities registered under Section 12(b) of the exchange act: None
Securities registered under Section 12(g) of the exchange act: Common Stock
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
X YES NO
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Check if there is no disclosure of delinquent filers in response to item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
State Issuer's revenues for its most recent fiscal year. $24,039,000.
Aggregate market value of the voting stock held by non-affiliates of the
registrant computed by reference to the average bid and asked prices of such
stock was approximately $27,906,903 as of March 19, 1997.
State the number of shares outstanding of each of issuer's classes of
Common equity, as of the latest practicable date. 678,566 shares of Common
Stock ($5 par value) as of March 19, 1997.
The Index to the Exhibits can be found on page 9.
PAGE 1 OF 10 PAGES
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Fentura Bancorp, Inc. 1996 Annual Report to Shareholders
are incorporated by reference into Parts I and II.
Portions of the Fentura Bancorp, Inc. Proxy Statement for its annual
meeting of shareholders held March 19, 1997 are incorporated by reference into
Part III.
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Fentura Bancorp, Inc.
1996 Annual Report on Form 10-KSB
Table of Contents
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Page
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PART I
Item 1. Description of Business 4
Item 2. Description of Property 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 6
Item 6. Management's Discussion and Analysis or Plan of Operation 7
Item 7. Financial Statements 7
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 7
PART III
Item 9. Directors, Executive Officers, Promoters, and Control Persons
Compliance with Section 16(a) of the Exchange Act 7
Item 10. Executive Compensation 7
Item 11. Security Ownership of Certain Beneficial Owners and Management 7
Item 12. Certain Relationships and Related Transactions 8
Item 13. Exhibits and Reports on Form 8-K 8
EXHIBIT INDEX 9-10
SIGNATURES 11
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
The Company
Fentura Bancorp, Inc. (the "Company" or "Fentura") is a one-bank holding
company headquartered in Fenton, Michigan. The Company's subsidiary bank
operates nine community banking offices offering a full range of banking
services principally to individuals, small business, and government entities
throughout mid-Michigan. At the close of business on December 31, 1996, the
Company had assets of $254 million, deposits of $224 million, and shareholders'
equity of $24 million. Trust assets under management totaled $47.8 million.
Fentura was incorporated in 1987 to serve as the holding company of its
sole subsidiary bank, The State Bank ("TSB" or the "Bank"). TSB traces its
origins to its original predecessor, The Commercial Savings Bank of Fenton,
which was incorporated in 1898. see "The Bank".
The Company is a bank holding company registered with the Board of
Governors of the Federal Reserve System under the Bank Holding Company Act.
The Company has corporate power to engage in such activities as permitted to
business corporation under the Michigan Business Corporation Act, subject to
the limitations of the Bank Holding Company Act and regulations of the Board of
Governors of the Federal Reserve System. In general, the Bank Holding Company
Act and regulations restrict the Company with respect to its own activities
that are closely related to the business of banking. See "Supervision and
Regulation."
The Company's principal executive offices are located at One Fenton
Square, Fenton, Michigan 48430-0725, and its telephone number is (810)
629-2263.
The Bank
TSB'S ultimate predecessor was incorporated as a state banking corporation
under the laws of Michigan on September 16, 1898 under the name "The Commercial
Savings Bank of Fenton." In 1931, it changed its name to State Savings Bank of
Fenton, and in 1988 became The State Bank via a merger with a corporation
formed for that purpose. For more than 95 years TSB has been engaged in the
general banking business in the Fenton, Michigan area. Its depositors are
insured by the Federal Deposit Insurance Corporation (the "FDIC"), but it is
not a member of the Federal Reserve System. As a state bank, it is subject to
federal and state laws applicable to banks and to regulation and supervision by
the FDIC and the Commissioner of the Financial Institutions Bureau of Michigan.
See "Supervision and Regulation."
TSB is a community-oriented provider of financial services engaged in the
business of general commercial banking. Its activities include investing in
state and federal securities, accepting demand deposits, savings and other time
deposits, extending retail commercial , consumer and real estate loans to
individuals, partnerships and corporations, providing safe deposit boxes and
credit card services, transmitting funds and providing other services generally
associated with full service commercial banking. Lending is focused on
individuals and small businesses in the local market regions of TSB. In
addition, TSB operates a trust department offering a full range of fiduciary
services. TSB competes with a large number of commercial banks and other
financial institutions throughout southeastern michigan, some of which have
significantly greater total resources than the bank.
TSB is headquartered in the City of Fenton, Michigan, and considers its
primary service area to be the County of Genesee, Michigan. As of December 31,
1996, TSB operated four offices in the City of Fenton, Michigan, one office in
the City of Linden, Michigan, two offices in the City of Davison, Michigan, one
office in the Village of Holly, Michigan, and one office in the City of
Clarkston, Michigan. Its main office is located downtown Fenton.
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As of December 31, 1996, TSB employed 119 full time personnel, including 22
officers, and an additional 41 part time employees. TSB considers its employee
relations to be excellent.
Supervision and Regulation
The following discussion briefly summarizes certain statutes and
regulations that affect or may affect the Company and the Bank, and the conduct
of their respective businesses. The discussion is qualified in its entirety by
reference to such statutes and regulations.
The Company
The Company is a bank holding company within the meaning of the Bank
Holding Company Act, and registered as such with the Board of Governors of the
Federal Reserve System (the "Board of Governors"). The Company is required by
that Act to file annual reports of its operations and such additional
information as the Board of Governors may require and is subject, along with
its subsidiaries, to examination by the Board of Governors.
The Bank Holding Company Act requires every bank holding company to obtain
prior approval of the Board of Governors before it may merge with or
consolidate into another bank holding company, acquire substantially all the
assets of any bank, or acquire ownership or control of any voting shares of any
bank if after such acquisition it would own or control, directly or indirectly,
more than 5% of the voting shares of such bank holding company or bank. The
Board of Governors may not approve the acquisition by the Company of voting
shares or substantially all the assets of any bank located in any state other
than Michigan unless the laws of such other state specifically authorize such
an acquisition.
The Bank Holding Company Act also prohibits a bank holding company, with
certain exceptions, from acquiring direct or indirect ownership or control of
more than 5% of the voting shares of any company that is not a bank and from
engaging in any business other than that of banking, managing and controlling
banks or furnishing services to banks and their subsidiaries. However, bank
holding companies may engage in, and may own shares of companies engaged in,
certain businesses found by the Board of Governors to be so closely related to
banking or the management or control of banks as to be a proper incident
thereto. Under current regulations of the Board of Governors, a bank holding
company and its non-bank subsidiaries are permitted, among other activities,
to engage, subject to certain specified limitations, in such banking related
business ventures as sales and consumer finance, equipment leasing, computer
service bureau and software operations, data processing and services
transmission, discount securities brokerage, mortgage banking and brokerage,
sale and leaseback and other forms of real estate banking. The Bank Holding
Company Act does not place territorial restrictions on the activities of
non-bank subsidiaries of the bank holding companies.
In addition, federal legislation prohibits acquisition of "control" of a
bank or bank holding company without prior notice to certain federal bank
regulators. "Control" in certain cases may include the acquisition of as
little as 10% of the outstanding shares of capital stock.
Substantially all of the Company's cash revenues are derived from
dividends paid by the Bank. Michigan's banking laws restrict the payment of
cash dividends by a state bank by providing (subject to certain exceptions)
that dividends may be paid only out of net profits then on hand after deducting
therefrom its losses and bad debts, and no dividends may be paid unless the
bank will have a surplus amounting to not less than twenty percent (20%) of its
capital after the payment of the dividend.
The Bank
The Bank is a state banking corporation organized under the laws of the
State of Michigan. Consequently, it is subject to regulation and supervision
by the Commissioner of the Financial Institutions Bureau of the State of
Michigan (the "Commissioner"). The Bank, because its
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depositors are, and will be, insured by the FDIC, is also subject to regulation
and supervision by the FDIC. Representatives of both the Commissioner and the
FDIC conduct regular periodic examinations of all Michigan state banks.
Membership in the Federal Reserve System is optional for state banks; the Bank
is not a member of the Federal Reserve System.
Examinations by the various regulatory authorities are designed for the
protection of the bank depositors and not for bank or bank holding company
shareholders. The federal and state laws and regulations of general
application to banks regulate, among other things, the scope of their business,
their investments, their reserves against deposits, the nature and amount of
and collateral for loans, and the maximum interest rates payable on deposits,
and include restrictions on the number of banking offices and activities that
may be performed at such offices.
Transactions between the Bank and the Company are subject to various
restrictions imposed by state and federal regulatory agencies. Such
transactions include loans and other extensions of credit, purchase of
securities, and payments of fees and other distributions. In addition,
applicable laws place restrictions on the amount and nature of loans to
executive officers, directors and controlling persons of FDIC member banks and
of bank holding companies that control such banks.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's main banking branch and its executive offices are located at One
Fenton Square, Fenton, Michigan. The Company also has the following branches
in Fenton: a North Fenton Branch at 1231 North Leroy Street; and an Owen Road
branch at 3202 Owen Road (this branch also contains TSB's data processing
center, accounting department, and distributions department), and a branch at
18005 Silver Parkway. The Bank's other branches are located in Linden,
Michigan, at 107 Main Street; Holly, Michigan, at 4043 Grange Hall Road;
Davison, Michigan, at 8477 Davison Road and 8503 Davison Rd; and Clarkston,
Michigan, at 6555 Sashabaw Road. The Bank owns all of its properties with the
exception of the Holly, Davison, Clarkston, and the 18005 Silver Parkway
facilities, which are leased from third parties.
All properties have maintenance contracts and are maintained in good
condition.
ITEM 3. LEGAL PROCEEDINGS
As of December 31, 1996, the Corporation was not party to any litigation
required to be described in this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1996 to a vote of
security holders through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The market and dividend information required by this item appears under
the captions "Fentura Bancorp, Inc. Common Stock" and "Table 8" on page 24 of
the 1996 Annual Report to Shareholders, and is incorporated herein by
reference.
The holders of record information required by this item appears under the
caption "Shareholders Entitled to Vote" on page 2 of the Corporation's 1997
Notice of Annual Meeting and Proxy Statement, and is incorporated herein by
reference.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The information required by this item appears under the title
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS", appearing on pages 18 through 24 of the Corporation's 1996 Annual
Report to Shareholders and is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements of the Corporation and Report of
Grant Thornton LLP, Independent Auditors appear on pages 6 through 17 of the
Corporation's 1996 Annual Report to Shareholders, and are incorporated herein
by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
During the years ended December 31, 1996 and 1995, the Corporation had no
changes or disagreements with accountants on accounting and financial
disclosure required to be described in this item.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by this item with regard to Item 401 of
Regulation S-B appears under the captions "Information Concerning Nominees and
Incumbent Directors", "Meetings and Committees of the Board of Directors of the
Corporation", and "Executive Officers" on pages 3, 4, and 6 respectively, of
the Corporation's 1997 Notice of Annual Meeting of Shareholders and Proxy
Statement, and is incorporated herein by reference.
The information required by this item with regard to Item 405 of
Regulation S-B appears under the captions "Security Ownership of Certain
Beneficial Owners and Management" and "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" on pages 4, 5, and 8, respectively, of the
Corporation's 1996 Notice of Annual Meeting of Shareholders and Proxy
Statement, and is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item appears under the captions
"Executive Compensation", "Directors' Fees", and "Employment Contracts and
Termination of Employment and Change-In-Control Arrangements" on pages 6 and 7
of the Corporation's 1997 Notice of Annual Meeting of Shareholders and Proxy
Statement, and is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item appears under the caption "Security
Ownership of Certain Beneficial Owners and Management" on pages 4 and 5 of the
Corporation's 1997 Notice of Annual Meeting of Shareholders and Proxy
Statement, and is incorporated herein by reference.
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appear under the caption
"Transactions with Certain Interested Parties" on page 8 of the Corporation's
1996 Notice of Annual Meeting and Proxy Statement, and is incorporated herein
by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Report on Form 8-K
No reports on Form 8-K were filed for the quarter ended December 31, 1996.
(b) Exhibits:
The "Exhibit Index" is filed herewith on pages 9 through 10 of this
report and is incorporated herein by reference.
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FENTURA BANCORP, INC.
1996 Annual Report on Form 10-K
EXHIBIT INDEX
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Exhibit
No. Exhibit Location
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3(I) Articles of Incorporation of Fentura Bancorp, Inc. *
3(ii) Bylaws of Fentura Bancorp, Inc. *
4.1 Dividend Reinvestment Plan *****
10.1 Equipment Sale Agreement between The State Bank and ITI, Inc.
dated May 31, 1989 *
10.2 Master Equipment Lease Agreement between The State Bank and
Unisys Finance Corporation dated September 6, 1989 *
10.3 Software License Agreement between The State Bank and ITI, Inc.
dated July 3, 1989 *
10.4 Lease of Site for Automated Teller Machines between The State Bank
and Bryce Felch dated November 6, 1986 *
10.5 Lease of Site for Automated Teller Machines between The State Bank
and VG's Food Center, Inc. dated January 1, 1992 *
10.6 Lease of Holly Branch Bank Site between The State Bank and Inter Lakes
Associates dated March 26, 1991 *
10.7 Lease of Davison Branch Bank Site between The State Bank and VG's
Food Center, Inc. dated April 27, 1993 *
10.8 Lease of Clarkston Branch Site between The State Bank and Waldon
Properties, Inc. dated January 24, 1994 ***
10.9 Lease of Site for Automated Teller Machines between The State Bank and
Russell and Joy Manser dated December 1, 1994 ***
10.10 Lease of Fenton Silver Parkway Branch site between The State Bank and
VG's Food Centers dated March 26, 1996 ****
10.11 Lease of Davison (second) Branch site between The State Bank and
VG'S Food Centers dated November 12, 1996
10.12 Directors Stock Purchase Plan *****
10.13 Non-Employee Director Stock Option Plan *****
10.14 Form of Non-Employee Director Stock Option Agreement *****
10.15 Retainer Stock Plan for Directors *****
10.16 Employee Stock Option Plan *****
10.17 Form of Employee Stock Option Plan Agreement *****
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10.18 Executive Stock Bonus Plan *****
10.19 Stock Purchase Plan between The State Bank and Donald E.
Johnson, Jr., Mary Alice J. Heaton, and Linda J. LeMieux dated
November 27, 1996
13.1 1996 Annual Report to Shareholders
22.1 Subsidiaries of the Registrant *
27. Financial Data Schedule
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* Incorporated by reference to form 10-SB registration number 0-23550
** Incorporated by reference to form 8-K filed July 8, 1994
*** Incorporated by reference to form 10K-SB filed March 20, 1995
**** Incorporated by reference to form 10Q-SB filed May 2, 1996
***** Incorporated by reference to form 10K-SB filed March 27, 1996
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Signatures
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized .
Fentura Bancorp, Inc.
(Registrant)
By /s/Donald L. Grill Date: March 19, 1997
---------------------
Donald L. Grill
On behalf of the registrant
and as President & CEO,
and Director
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
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Signature Capacity Date
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/s/Robert J. Dery Chairman of the Board March 19, 1997
- --------------------------- and Director
Robert J. Dery
/s/Russell H. VanGilder, Jr. Vice Chairman of the Board March 19, 1997
- ---------------------------- and Director
Russell H. VanGilder, Jr.
/s/Richard A. Bagnall Executive Vice President March 19, 1997
- ----------------------- & Director
Richard A. Bagnall
/s/Jon S. Gerych Director March 19, 1997
- ----------------
Jon S. Gerych
/s/Philip J. Lasco Director March 19, 1997
- ------------------
Philip J. Lasco
/s/Thomas P. McKenney Director March 19, 1997
- ---------------------
Thomas P. McKenney
/s/Brian P. Petty Director March 19, 1997
- -----------------
Brian P. Petty
/s/Glen J. Pieczynski Director March 19, 1997
- ---------------------
Glen J. Pieczynski
/s/Forrest A. Shook Director March 19, 1997
- -----------------------
Forrest A. Shook
/s/Ronald L. Justice V.P. & Chief Financial Officer March 19, 1997
- -------------------- (Also Principal Accounting Officer)
Ronald L. Justice
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EXHIBIT 10.11
BANK LICENSE AGREEMENT
Agreement #: 102
Operator: VG's Food Centers
Store: Davison
Targeted Opening Date: 11/15/96
THIS AGREEMENT, made as of the 12 day of November, 1996 by and between
VG'S FOOD CENTERS, a Michigan corporation ("Operator"), whose address is 209 S.
Alloy Dr., Fenton, MI and THE STATE BANK, a Michigan Corporation ("Licensee"),
whose address is One Fenton Square, Fenton, MI.
WITNESSETH:
That, for and in consideration of the mutual promises herein, Operator and
Licensee have agreed as follows:
1. GRANT OF LICENSE. Subject to the terms and conditions set forth herein,
Licensee shall have the right and license to install a mini-branch banking
facility (hereinafter referred to as the "Branch Facility") in the
above-captioned store (hereinafter referred to as the "Licensed Location"),
and the right to operate a banking office, along with the right to offer
any services that a bank or bank affiliate is lawfully permitted to offer
in the Branch Facility (collectively the "Permitted Services"). It is
specifically agreed that Licensee will not engage in any other business or
sell or offer for sale any merchandise that is not related to the operation
of a bank branch facility or to the operation of any business by such a
bank affiliate and which would compete with merchandise sold or offered for
sale by Operator or any other licensee or concessionaire in the Licensed
Location, except as described herein.
2. TERM. The initial term of this Agreement shall commence on the date
hereof, and shall terminate ten (10) years from the last day of the month
of the Targeted Opening Date, unless earlier terminated or extended as
provided hereunder. Licensee may renew this Agreement for up to two (2)
additional five (5) year terms, by giving Operator written notice of
renewal at least one hundred eighty (180) days before the expiration of the
then current term. Operator may terminate this Agreement by written notice
to the Licensee if the Branch Facility does not open for business on the
Targeted Opening Date, unless the Targeted Opening Date is extended by
reason of Force Majeure (as defined in Section 17, below) or otherwise with
Operator's consent.
3. PAYMENTS.
(a) Licensee shall pay to Operator the license fee (hereinafter referred
to as "License Fees") set forth in Exhibit "A". Payments shall commence on
the date on
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which the Branch Facility first opens for business. License fees shall be
payable in equal monthly installments in advance on the first day of each
month, with such payments being prorated on a daily basis for any partial
month.
4. USE AND OCCUPANCY.
(a) So long as Licensee is operating a Branch Facility in the Licensed
Location, Licensee shall have the exclusive right to operate a full service
branch banking business and to offer the Permitted Services in the Licensed
Location. Licensee may offer certain of the Permitted Services, including
without limitation insurance products and investment services, through
separate departments of the Licensee and/or affiliated companies, provided
that such affiliated companies shall be controlled by or be under common
control with Licensee. Operator shall not permit any other licensee,
concessionaire, or other third party to install ATMs or other cash
dispensing machines in the Licensed Location during the term of this
Agreement.
(b) Licensee shall commence operations on the Targeted Opening Date, as
the same may be extended pursuant to the terms hereof, and shall operate
the Branch Facility on at least a seven (7) day per week basis with at
least fifty-six (56) hours of operation in each week, except for state or
federal holidays on which Licensee's other branches are closed. The Branch
Facility will be adequately staffed during its hours of operation.
Licensee's use of the Branch Facility shall be subject to such reasonable
limitations and restrictions as Operator may from time to time impose
(including limiting hours of operation to periods in which the Licensed
Location is open to the public) in order to assure that the operation of
the Branch Facility does not interfere with Store operations; provided,
however, that such restrictions and limitations shall not unreasonably
interfere with or hinder Licensee's operations. Operator's personnel shall
not block or restrict access to the Branch Facility.
(c) Operator agrees that Licensee's employees may market Licensee's
services to the customers in the Store, and that Licensee may promote
Licensee's services through the reasonable use of in-aisle signage and
banners; provided, however, that the mode of approaching customers and the
use and placement of in-aisle signage and banners shall be subject to
Operator's approval, which approval shall not be unreasonably withheld or
delayed.
(d) Operator hereby warrants and represents that there are no exclusive
use provisions that would prevent Licensee from operating its Branch
Facility as contemplated by this Agreement.
5. LICENSEE'S EMPLOYEES.
(a) Licensee is an independent contractor, and nothing in this Agreement
shall be construed to create a partnership, joint venture, or co-employer
or joint employer relationship by and between Operator and Licensee.
Operator and Licensee shall have the sole and exclusive right to select and
direct their respective employees and to determine the terms and conditions
of their employment. Licensee shall at its own cost and expense, maintain
workers' compensation coverage, unemployment
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compensation coverage and any other insurance that may be required by law
with respect to Licensee's employees.
(b) Licensee's employees, while working at the Licensed Location, shall be
entitled to use toilets, "break rooms" and other similar facilities
provided by Operator for the convenience of its employees. Operator agrees
to provide parking facilities and agrees to allow Licensee, its employees,
agents, and invitees, to use such parking facilities, on a nonexclusive
basis, subject to such reasonable rules and regulations of Operator which
Operator may, from time to time, establish.
6. IMPROVEMENTS AND ADDITIONS: SIGNS.
(a) Operator has designated the area of the Licensed Location depicted on
Exhibit "B" attached hereto and made a part hereof for installation of the
Branch Facility, and Licensee or its contractors at Licensee's sole cost
and expense shall install the Branch Facility in accordance with plans
approved by Operator. Licensee shall not make any material modification to
the Branch Facility without Operator's prior written approval, which
approval shall not be unreasonably withheld or delayed.
(b) Licensee shall furnish all fixtures, equipment and finishings which it
deems necessary or desirable for its operations at the Branch Facility, and
shall obtain all necessary permits and governmental approval. Operator
acknowledges that all fixtures and equipment located in the Branch Facility
are the property of Licensee and agrees that Licensee may remove them at
the expiration or earlier termination of this Agreement; provided, however,
that any fixtures or equipment remaining after such expiration or earlier
termination shall be considered abandoned, and Operator may remove and
dispose of them as it sees fit at Licensee's expense.
(c) Licensee's signage shall be subject to Operator's prior written
approval. Licensee's signs shall be removed upon the expiration or earlier
termination of this Agreement and any damage caused by such removal shall
be repaired. Licensee shall obtain any approvals required by any
applicable municipal ordinances and regulations. Operator shall assist
Licensee in obtaining any such approvals, including without limitation
requesting waivers or variances where applicable.
(d) If any general contractor or subcontractor of Licensee files a lien
against the Licensed Location, Licensee shall cause such lien to be
discharged of record.
7. REMODELING.
Licensee recognizes that Operator may, from time to time, remodel the
Licensed Location to accommodate changes in retailing patterns. If
Operator determines that the Branch Facility must be relocated in
connection with such remodeling, Operator shall notify Licensee of its
proposed new location of the Branch Facility, which location shall be at
the front of the Store, convenient to the checkout stands and plainly
visible to customers. If Licensee is not satisfied with the new location
proposed by Operator, Licensee's exclusive and sole remedy is to terminate
this
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Agreement. If Licensee and Operator agree upon a remodel location,
Operator shall move the Branch Facility to the new location, and shall
endeavor to minimize disruption to the operation of Licensee's business
during its remodeling of the Licensed Location.
8. MAINTENANCE; SERVICES.
Licensee shall maintain the Branch Facility in good order and repair.
Operator shall maintain the Licensed Location in good order and repair.
Operator shall furnish janitorial services for aisles and floors adjacent
to the Branch Facility and electricity, heating, and air conditioning
required as a result of normal activity to be carried on in the Branch
Facility. Where services are the responsibility of a third party, Operator
will use reasonable efforts to obtain conformance with this paragraph.
9. INSURANCE.
(a) Licensee shall carry personal property insurance and public liability
insurance with respect to its operations in the Licensed Locations naming
Operator, and Operator's Landlord (if any), as additional insured parties
under the liability insurance policy. The limits of the liability
insurance policy shall not be less than $2,000,000.00 per occurrence for
bodily injury and for property damage. Licensee shall furnish Operator a
certificate evidencing such coverage and a renewal certificate at least
twenty (20) days prior to the cancellation or expiration of such policy.
(b) The parties hereto agree that the merchandise and other property of
each at the Licensed Location may be subject to damage or loss by reason of
many hazards such as theft, fire, leakage, heater power failure, accidents,
defects in plumbing, boiler or other explosions, and the bursting of pipes,
and that insurance is obtainable against most if not all of such hazards.
Operator shall not be liable for any damage to the Branch Facility or to
the fixtures or equipment of Licensee contained therein or any loss
suffered by Licensee caused by fire or other hazards, regardless of the
cause thereof. Licensee hereby agrees to release Operator of and from all
liability for such damages. Licensee shall not be liable for any damage to
the Licensed Location or any part thereof or any loss suffered by Operator,
caused by fire or other hazards, regardless of the cause thereof. Operator
hereby agrees to release Licensee of and from all liability for such
damages. Subject to the foregoing mutual waiver of subrogation, Licensee
and Operator shall hold the other harmless from any and all claims for
injury, death, or damages resulting from its respective activities or
business or from the negligent or wrongful acts, at the Licensed Location
of its respective employees, agents, and contractors acting within the
scope of their employment, agency or contract.
4
<PAGE> 5
10. TAXES.
Licensee shall pay all license fees and taxes assessed by any taxing
authority on its operations, fixtures, and equipment and machinery.
Operator agrees to forward to Licensee all tax bills, license notices, and
the like that are payable by Licensee but are received by Operator,
promptly upon their receipt.
11. ADVERTISING.
Both Operator and Licensee recognize that it is in their best interest to
promote the business of each other at the Licensed Location. Operator and
its employees shall cooperate and promote the goodwill and business of
Licensee at the Licensed Location, and Licensee and its employees shall
promote the goodwill and business of Operator at the Branch Facility. The
cost of any advertising jointly undertaken by Operator and Licensee shall
be shared on a mutually acceptable basis. In addition, Operator and
Licensee may each, at its own expense, separately advertise the existence
of the Branch Facility in the Licensed Location in such media and in such
manner as each deems appropriate; provided, however, that Operator and
Licensee shall obtain the prior approval of the other in respect of any
advertisement or notice that refers to both Operator and Licensee.
12. DEFAULT.
(a) If Licensee fails to make the payments of license fees required under
Paragraph 3, above, or any other charge provided for hereunder or under
paragraph 1 when the same is due and the same shall not be paid after ten
(10) days written notice to Licensee, of if Licensee breaches any other
covenant of this Agreement, and fails to remedy same within thirty (30)
days after written notice to Licensee specifying the nature of such
default, or fails to commerce efforts within such thirty (30) day period to
remedy such default which cannot be cured within thirty (30) days and
thereafter diligently to prosecute such efforts to completion, Operator may
declare this Agreement terminated, and Licensee shall thereupon promptly
vacate the Licensed Location. In addition, in the event of Licensee's
default as aforesaid, Operator may, without terminating this Agreement,
reenter and take possession of the Licensed Location from Licensee by any
lawful means; and it is agreed that the commencement and prosecution of any
action by Operator, or any execution of any judgment or decree obtained in
any action to recover possession of the Licensed Location or any other
reentry, shall not be construed as an election to terminate this License,
and shall not be deemed to have absolved or discharged Licensee from any of
its obligations or liabilities for the remainder of the licensed term.
(b) In case of any default, whether or not this Agreement is terminated,
Licensee will indemnify Operator against all loss of rent and other
payments provided herein to be paid by Licensee to Operator between the
time of default or termination and the expiration of the term of this
5
<PAGE> 6
Agreement. It is understood and agreed that at the time of the termination
or reentry or any time thereafter, Operator may rent the Licensed Location
for a term which may expire after the expiration of the term of this
Agreement without releasing Licensee from any liability whatsoever; that
Licensee shall be liable for any expenses incurred by Operator in
connection with obtaining possession of the Licensed Location and in
connection with any relicensing, including, but without limitation,
reasonable attorneys' fees, reasonable brokers' fees, and reasonable
consultants' fees; and that monies collected from any relicensing shall be
applied first to the foregoing expenses and then to payment of the license
fee and all payments due from Licensee to Operator. Said indemnification
of Operator by Licensee shall be accomplished by payments made on the days
on which said License Fee and other payments would have been due and
payable hereunder if this Agreement had not terminated.
(c) If any dispute shall arise between Operator and Licensee as to any
claimed default by Licensee and such dispute is referred to arbitration
pursuant to the terms of this Agreement, and provided Licensee performs all
of the other terms and conditions of this Agreement except for the item in
dispute, no default shall be deemed to exist on the part of Licensee and no
period for the remedying of such alleged default shall be deemed to
commence until the day following the arbitrator's determination of such
dispute adversely to Licensee, nor shall Licensee pay or be obligated to
pay any attorney's fees or other expenses incurred by Operator in enforcing
any of the obligations under this Agreement unless any such dispute or
default is determined adversely to Licensee.
13. TERMINATION.
Operator may terminate this Agreement upon one hundred twenty (120) days
written notice to Licensee if Operator elects to discontinue its business
at the Licensed Location, unless Operator sells or subleases the Licensed
Location to a retailer, acceptable to Licensee, which assumes Operator's
obligations hereunder.
14. CASUALTY.
(a) If by fire or other casualty, the Licensed Location is destroyed or
damaged, Operator agrees to notify Licensee as to whether it shall repair
the damage or destruction resulting from such casualty as soon as possible,
but in any event within sixty (60) days from the date of such damage or
destruction. If Operator elects to repair such damage or destruction,
Operator shall proceed with due diligence to restore the Licensed Location
to substantially the same condition as existed before such damage or
destruction as soon as reasonably possible after the date of such damage or
destruction. If Operator fails to notify Licensee within sixty (60) days of
such damage that it intends to repair such damage or destruction, Licensee
shall have the right and option to terminate this Agreement by written
notice to Operator.
(b) If by fire or other casualty, the Branch Facility is destroyed or
damaged to the extent that Licensee is deprived of occupancy or use of the
same or Licensee's business is materially impaired, Licensee shall repair
the damage or destruction resulting from such casualty as soon as possible,
but in any event within (i) ninety (90) days from the date of such damage
or destruction, if the damage or destruction is confined to the Branch
Facility or (ii) ninety (90) days from Operator's
6
<PAGE> 7
commencement of restoration of the Licensed Location or such longer period
as may elapse prior to Operator's completion of repairs to the Licensed
Location, if the Licensed Location is also damaged or destroyed. If such
damage or destruction is not substantially repaired within the period set
forth above, Operator shall have the right and option to terminate this
Agreement by written notice to Licensee. Notwithstanding the foregoing,
Licensee shall be under no obligation to repair any such damage or
destruction that occurs within the last year of any term of this Agreement.
15. CONDEMNATION.
Operator reserves to itself, and Licensee assigns to Operator, all rights
to damages accruing or awards or other compensation payable on account of
any taking by eminent domain or by reason of any of act of public authority
or sale in lieu thereof for which damages or awards or other compensation
are payable. Licensee agrees to execute such instruments of assignment as
may be reasonably required by Operator in any petition for the recovery of
such damages, and to turn over to Operator any damages that may be
recovered by Licensee in any such proceeding. It is agreed and understood,
however, that Operator does not reserve to itself and Licensee does not
assign to Operator any award of damages payable for the Branch Facility or
any trade fixtures installed by Licensee; provided such award shall not
limit or diminish the amount of the award, damages or other compensation
payable to Operator.
16. SECURITY.
It shall be Licensee's obligation to provide any security, including
security personnel, deemed necessary by Licensee.
17. FORCE MAJEURE
Performance hereunder (other than the payment of money) shall be excused,
and the deadline for such performance shall be extended, during the period,
and to the extent, such performance is rendered impossible, impracticable
or unduly burdensome owing to acts of God, strikes, lockouts, or labor
difficulty; governmental requirements; unavailability of parts through
normal supply sources; computer malfunction; failure of any utility to
supply its services for reasons beyond a party's control; explosion,
sabotage, accident, riot or civil commotion; act of war; fire or other
casualty; or any other cause beyond the reasonable control of the party
whose performance is to be excused.
18. NOTICES.
All notices and communications hereunder, shall be in writing and signed by
a duly authorized representative of the party making the same. All notices
shall be deemed effective when delivered personally or when deposited in
the United States mail, registered or certified, return receipt requested,
postage prepaid, or by a national private courier, such as Federal Express,
addressed as set forth in the heading of
7
<PAGE> 8
this Agreement. The names and addresses for the purposes of this paragraph
may be changed by giving written notice of such change in the manner herein
provided for giving notice. Until such written notice is actually
received, the last name and address stated by written notice or provided
herein shall be deemed to continue in effect for all purposes hereunder.
19. ENTIRE AGREEMENT.
The parties hereto agree that this Agreement sets forth all the promises,
agreement and understandings between them with respect to Licensee's right
and license to install, operate, and maintain the Branch Facility. No
amendment or modification to this Agreement shall be binding unless such
amendment or modification is reduced to writing and signed by both parties.
20. CAPTIONS.
The captions of the several sections of this Agreement are not part of the
context hereof and shall be ignored in construing this Agreement. They are
intended only as aids in locating various provisions hereof.
21. SEVERABILITY.
Each provision contained in this Agreement shall be independent and
severable from all other provisions contained herein, and the invalidity of
any such provision shall in no way affect the enforceability of the other
provisions.
22. GOVERNING LAW.
All questions of enforceability and interpretation which may arise under
this Agreement shall be determined by the laws of the State of Michigan.
23. BINDING EFFECT.
This Contract shall be binding upon and shall inure to the benefit of
Operator and Licensee and their respective legal representatives and any
entity that succeeds to the rights of Operator or Licensee as a result of
any merger, consolidation or other corporate combination.
24. APPROVALS AND REQUIREMENTS.
(a) Operator hereby warrants and represents that Operator has all
requisite consents and approvals to enter into this Agreement from, and is
in compliance with the requirements of, all landlords and mortgagees, and
if required, all necessary third parties, including but not limited to
state and federal regulatory authorities, zoning commissions, and other
local authorities.
8
<PAGE> 9
(b) The obligations of the Licensee as set forth herein are contingent
upon Licensee obtaining all necessary permits and approvals to operate a
branch banking facility at the Licensed Location. Operator or Licensee may
elect to terminate this Agreement if Licensee is not able to obtain all
such permits or approvals by the Targeted Opening Date, as the same may be
extended. This contingency shall be satisfied upon delivery of such notice
to Operator that Licensee has obtained such permits or approvals.
25. ASSIGNMENT.
The identity and character of Licensee is a substantial part of the
consideration for this Agreement, and this Agreement shall be personal to
Licensee. Without the prior written consent of Operator this Agreement and
the rights granted hereunder may not be assigned or transferred in any
manner whatsoever, whether voluntarily, involuntarily, or by operation of
law; provided, however, that this Agreement may be assigned, or the Branch
Facility may be sublicensed, in whole or in part, to any corporation into
or with which the Licensee may be merged or consolidated or to any
corporation which shall be an affiliate, subsidiary, parent or successor of
licensee, without the prior consent of Operator, provided in every such
instance that the use of the Branch Facility shall remain the same.
Acquisition by Licensee, its corporate successors or assigns, of a
substantial portion of the assets, together with the assumption of all or
substantially all of the obligations and liabilities of any corporation,
shall be deemed a merger of such corporation into Licensee for purposes of
this Paragraph.
26. WAIVER.
The failure of either party hereto to seek redress for violation of, or to
insist upon the performance of, any covenant or condition of this Agreement
shall not prevent the continuation of said act of a subsequent act from
having all the force and effect of an original violation.
27. RECORDATION.
This Agreement shall not be recorded.
28. ARBITRATION.
Any controversy or claim arising out of or relating to this Agreement or
relating to any breach or claimed breach hereof shall be settled by
arbitration, in accordance with the rules then pertaining, of the American
Arbitration Association. This agreement for arbitration shall be
enforceable and judgment upon the award rendered by all or a majority of
the arbitrators may be entered in any court for a judicial acceptance of
such award and an order of enforcement, as the case may be.
9
<PAGE> 10
29. CONSENTS OR APPROVALS.
Any requirement for the consent or approval of either party shall be
subject to the further proviso that such consent(s) or approval(s) shall
not be unreasonably withheld or delayed.
30. SUSPENSION OF BUSINESS BY GOVERNMENT ORDER.
If the Licensee is prohibited from conducting its business in the Branch
Facility by any governmental authority having jurisdiction, Licensee shall
notify Operator of the same, and the License Fees and other charges
reserved hereunder shall be wholly abated while such prohibition remains in
effect. If such prohibition shall continue in effect longer than thirty
(30) days, this Agreement shall terminate.
IN WITNESS WHEREOF, the parties hereto have caused duplicate counterparts
of this Agreement to be duly executed and delivered on or as of the date first
set forth at the beginning of this Agreement.
LICENSEE: THE STATE BANK OPERATOR: VG'S FOOD CENTERS
By: /s/Carolyn M. Spicer By: /s/Russell H. VanGilder, Jr.
------------------------ ----------------------------------
Carolyn M. Spicer Russell H. VanGilder, Jr.
Title: Senior Vice President Title: Chairman
10
<PAGE> 11
EXHIBIT "A"
LICENSE FEES
Licensee shall pay to Operator monthly License Fees according to the schedule
below:
Years 1 - 5 $2,520/monthly $30,240/annually
Years 6 - 10 $2,970/monthly $35,640/annually
Years 11 - 15 $3,420/monthly $41,040/annually
Years 16 - 20 $3,870/monthly $46,640/annually
11
<PAGE> 1
EXHIBIT 10.19
November 27, 1996
Mrs. Mary Alice J. Heaton
Mrs. Linda J. LeMieux
Mr. Donald E. Johnson, Jr.
901 Citizens Bank Building
Flint, Michigan 48502
Dear Mary Alice, Linda and Don:
This letter agreement follows several conversations between Don and me,
and confirms the agreements which we have reached concerning the shareholder
interests in Fentura Bancorp, Inc. of the Johnson Family. When I refer to the
"Johnson Family Members" in this letter, I mean you three and the following
persons:
Donald W. Heaton Earl D. Johnson
Sarah W. Heaton James N. Johnson
William B. Heaton Scott C. Johnson
William W. Heaton Alice H. Moss
Donald E. Johnson, III Lucinda H. Mau
As part of an overall strategy intended to increase the number of shares
available to Fentura's common shareholders, enhance the liquidity of the market
for Fentura's shares, and facilitate an increase in the equity ownership stakes
of management and the directors, Fentura recently adopted several stock-based
plans. These plans include a dividend reinvestment plan (the "DRIP") whereby
shareholders may use cash dividends to automatically purchase shares of stock
directly from Fentura. The primary purpose of the DRIP is to make shares
available for purchase by "smaller" shareholders. For that reason,
participation is limited to persons who hold less than 9.9% of Fentura's total
outstanding shares.
After discussing the practical intentions and effects of all the stock
plans, and particularly the DRIP, you three have agreed to not participate in
the DRIP and to waive any rights you may have to object to the DRIP, in
exchange for the purchase rights set forth below.
<PAGE> 2
Mr. Donald E. Johnson, Jr.
November 27, 1996
Page 2
On or prior to January 31 of each year following a year in which the DRIP
was in operation, Fentura will advise you, in a written notice sent to Don (the
"Option Notice"), of the number of Fentura shares sold under the DRIP to all
shareholders who are not Johnson Family Members (the "DRIP Shares") in the
immediately preceding year (the "DRIP Year"). Each of you will have the option
(each separate option is a "Johnson Family Member Option"), if you choose, to
purchase from Fentura one-third of the total number of Fentura shares that would
be sufficient to prevent the dilution to all Johnson Family Members as a group
that would otherwise result solely as a result of the DRIP Shares. The total
number of shares for the three Johnson Family Member Options will be determined
by comparing the number of shares held by all Johnson Family Members on January
1 of the DRIP Year, reduced by any shares disposed of by the Johnson Family
Members during the DRIP Year and increased by any shares acquired by the Johnson
Family Members during the DRIP Year, to (a) the total number of outstanding
Fentura shares on January 1 of the DRIP Year, and (b) the total number of
outstanding Fentura shares on January 1 of the DRIP Year plus DRIP Shares sold
during the DRIP Year; this total will be reduced by the number of shares
purchased through the DRIP by Johnson Family Members. The Option Notice will
specify the number of shares which each of you may purchase and the applicable
purchase price. Each Johnson Family Member Option shall be exercised in whole
only, and only by delivery of a written exercise notice (an "Option Exercise
Notice") from you (if you wish to exercise your option) to Fentura on or prior
to February 28 of the same year. If not exercised, a Johnson Family Member
Option will expire at the close of business on February 28 of the applicable
year. If any of you three do not wish to exercise your option, you may assign
your option to the other two. The form of Option Exercise Notice required will
be included with the Option Notice. Each of you will be entitled to make your
own independent decision whether or not to exercise your particular Johnson
Family Member Option.
The purchase price under the Johnson Family Member Options will be the
"Fair Market Value" of shares of Fentura Common Stock as of December 31 of the
year immediately preceding the year in which the Option Notice is given,
determined by the Fentura Board in accordance with the procedures set forth in
the DRIP. Payment in full for the option price must be included with the Option
Exercise Notice. Fentura will issue and deliver certificates for purchased
shares as soon as practicable after receipt of a properly submitted Option
Exercise Notice. These certificates may bear such restrictive and other
informational legends as may be required by applicable laws.
You and the other Johnson Family Members will continue to be free to sell
or otherwise dispose of your shares at any time, in accordance with applicable
laws, free of any obligations and rights under this letter agreement.
<PAGE> 3
Mr. Donald E. Johnson, Jr.
November 27, 1996
Page 3
Option rights hereunder are personal to each of you, and are not transferable or
assignable except to each other among you three. If and to the extent that any
of you three acquires or disposes of any shares, option rights hereunder will be
appropriately adjusted.
Shares will be sold under this letter agreement without registration under
the Securities Act of 1933 and applicable state securities registration or "blue
sky" laws, and will be "restricted securities" within the meaning of Rule 144
promulgated by the U.S. Securities and Exchange Commission. This means, among
other things, that shares so acquired may not generally be transferred for at
least two years after acquisition. The Option Notice and Option Exercise Notice
may contain and/or require information or representations necessary to ensure
compliance with applicable securities registration exemption rules. If and to
the extent that Fentura is prohibited by law from issuing or selling shares to
any of you, Fentura's obligations to you hereunder will be suspended until and
unless the sale may legally be made. You will be solely responsible for
ensuring that any and all requirements imposed on you in respect of the sales
hereunder are satisfied, including for example any required bank regulatory
approvals, and Fentura may require proof of such compliance as a condition to
completing a sale hereunder.
The annual Option Notice to the three of you as a group will be sent only
to Don (as representative of the group) at his address as set forth at the
beginning of this letter. You may change Don's address for purposes of the
Option Notices at any time by notifying Fentura in writing.
This letter agreement will remain in effect as long as any of you three
holds Fentura shares and the DRIP remains in effect. Fentura reserves the right
to modify or amend the DRIP at any time and in any respect, including
particularly the right to terminate the DRIP at any time.
In exchange for the option rights set forth in this letter agreement, each
of you three, for him/herself and on behalf of his/her respective successors and
assigns, hereby releases Fentura and its subsidiaries, and their respective
officers, directors, employees, agents, attorneys and other representatives, of
and from any claims or liabilities whatever they may have to the releasing
parties relating to or arising in relation to the DRIP.
We ask that each of you confirms the agreement among Fentura and you three
by countersigning a copy of this letter agreement. This letter agreement may be
executed in several counterparts, without every party signing the same actual
document, but all signed copies together shall constitute one agreement.
<PAGE> 4
Mr. Donald E. Johnson, Jr.
November 27, 1996
Page 4
Very truly yours,
FENTURA BANCORP, INC.
/s/Robert J. Dery
Robert J. Dery
Chairman of the Board of Directors
Each person signing below, for him/herself only (a) agrees to be a party to
the foregoing letter agreement, and (b) confirms that he/she is the record
and/or beneficial owner of the number of shares indicated by his/her signature.
If the shares owned by the undersigned are held in "street name," through a
trust, or in a similar fashion whereby the undersigned is not the record owner,
the undersigned must arrange for the shares to be re-registered in his/her name
of record.
/s/Donald E. Johnson, Jr. /s/ Mary Alice J. Heaton
- -------------------------------- ------------------------------
Donald E. Johnson, Jr. Mary Alice J. Heaton
Number of Shares: 73,425 Number of Shares: 37,818
----------- ----------
/s/Linda J. LeMieux
- --------------------------
Linda J. LeMieux
Number of Shares:37,825
-----------
<PAGE> 1
EXHIBIT 13.1
FENTURA BANCORP, INC.
FENTON, MI
1996 ANNUAL REPORT
<PAGE> 2
THE STATE BANK
CUSTOMER IS KING
- -------------------------------TABLE OF CONTENTS-------------------------------
CHAIRMAN'S LETTER 2
MISSION STATEMENT 3
STATEMENT OF MANAGEMENT RESPONSIBILITY 4
FINANCIAL HIGHLIGHTS 5
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 6
CONSOLIDATED BALANCE SHEETS 7
CONSOLIDATED STATEMENTS OF INCOME 8
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY 9
CONSOLIDATED STATEMENTS OF CASH FLOWS 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11-17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 18-24
FINANCIAL REVIEW 25
1996 PHOTO GALLERY 26-27
NEW TEAM MEMBERS & PROMOTIONS 28
OUR LEADERSHIP TEAM 29
OUR DIRECTORS 30-31
OUR COMMUNITY OFFICES 32
<PAGE> 3
CHAIRMAN'S LETTER
To Our Shareholders and Friends:
I am pleased to report that your Bank achieved record earnings again in 1996.
Net income increased 7% to $3,233,000 from $3,025,000 earned in 1995. Per
Share Earnings increased from $4.53 to $4.84, based on weighted average shares
outstanding for each year. Factors contributing to the earnings increase
included a strong increase in net interest income, continued steady balance
sheet growth and a 10% increase in other operating income.
Total Assets at year end 1996 were $254,381,000 compared to $238,559,000 at
12/31/95. This 7% year to year increase in total Assets was funded by a 6%
increase in total Deposits. Shareholder Equity increased 10% to $24,109,000 or
$36.09 per share compared with $21,880,000 or $32.80 per share twelve months
earlier.
In December, Donald L. Grill was named President & CEO of both Fentura
Bancorp., Inc. and The State Bank. Mr. Grill brings 23 years of banking
experience to The State Bank. His prior experiences include serving as COO of
a large Michigan based bank holding company regional bank as well as President
& CEO of a community bank located in Frankenmuth, Michigan.
The Board approved Officer status for seven individuals during 1996. Dale N.
Smallidge was named Vice President and Consumer Lending Manager. Initial
Officer appointments were granted to: Thomas E. Bertschy promoted to Human
Resources Officer; Kimberly A. Cadieux promoted to Customer Service Officer
and Sales Manager; Dennis J. Carnell, Jr. and Neil G. Zelley appointed as
Commercial Lending Officers; Sharon M. Howell appointed as Community Offices
Director; and Robert J. Zoldos promoted to Operations Officer.
I want to personally thank Dick Bagnall, Executive Vice President, Carolyn
Spicer, Senior Vice President, Ron Justice, Vice President, Tracy Winglemire,
Vice President, Tom Bertschy, Human Resources Officer, and Joyce Dunckel,
Executive Services Manager, for their teamwork and cooperation in overseeing
bank operations prior to Mr. Grill's appointment.
Two new supermarket branches were opened in 1996 in VG's Food Centers to
provide 7 day banking services to customers in the Fenton and Davison
Communities.
Your Bank's technological capabilities took a major step forward during the
year with the unveiling of PC based home banking which allows customers to
check balances, transfer funds, view account statements, pay bills and much
more from their home or office computer.
As we approach our centennial year of service to our customers, we are
extremely optimistic about our future. Asset quality remains strong and our
growth rates continue to outpace peer banks. Our alternative retail delivery
systems, unique products and services, and strengthened management team
position us well for continued growth and profitability.
The Board of Directors, management team, and talented staff members want to
thank you for your continued support and confidence.
Sincerely,
/s/ ROBERT J. DERY
Robert J. Dery
Chairman of the Board
-2-
<PAGE> 4
MISSION STATEMENT
[PHOTO]
WE ARE COMMITTED TO REMAINING AN INDEPENDENT COMMUNITY BANK
WE ARE A TEAM OF PROFESSIONALS WHO PLEDGE ALLEGIANCE TO
CUSTOMER SATISFACTION
EMPLOYEE CAMARADERIE
COMMUNITY SERVICE
SHAREHOLDER VALUE
We Will Honor These Commitments While Providing Service Second to None By:
Providing convenient and flexible products and services to meet changing
consumer needs while resolving service issues at the point of customer contact
in an accurate and timely manner.
Aligning our resources to create a collaborative culture that fosters rewarding
team relationships while providing challenging work assignments and personal
growth opportunities for everyone.
Supporting the communities we serve with our active involvement and economic
support through donations, sponsorships and charitable contributions while
perpetuating our heritage of good citizenship.
Enhancing profitable customer relationships to ensure consistent earnings and
long term value while maximizing shareholder equity and customer loyalty.
-3-
<PAGE> 5
STATEMENT OF
MANAGEMENT RESPONSIBILITY
To the Stockholders:
Management of Fentura Bancorp, Inc. and its wholly owned subsidiary, The State
Bank, has prepared and is responsible for the consolidated financial statements
and the integrity and consistency of other related data contained in our Annual
Report. In the opinion of management, the consolidated financial statements,
which necessarily include amounts based on management estimates and judgments,
have been prepared in conformity with generally accepted accounting principles
appropriate to the circumstances.
The Corporation maintains an internal control structure that is designed to
provide reasonable assurance as to the integrity of financial records and the
protection of assets. The internal control structure includes written policies
and procedures, proper delegation of authority, organizational division of
responsibilities, and careful selection and training of qualified personnel.
The effectiveness of, and compliance with, established control procedures is
monitored through a continuous program of internal audit and credit
examination. In recognition of cost-benefit relationships and inherent control
limitations, some features of the control structure are designed to detect
rather than prevent errors, irregularities and departures from Corporation
policies and practices. Management believes the internal control structure has
prevented or detected on a timely basis any occurrences that could be material
to the consolidated financial statements and that timely corrective actions
have been initiated when appropriate.
The Audit Committee of the Board of Directors is composed of outside directors
and has the responsibility for the recommendations of the independent certified
public accounts for the Corporation. The Audit Committee meets regularly with
the independent certified public accountants and the internal audit department
to review audit reports, the scope of both internal and external audits and to
discuss any action to be taken. The independent certified public accountants
and the internal auditors have free access to the Audit Committee.
The consolidated financial statements in this Annual Report have been audited
by the Corporation's independent certified public accountants, Grant Thornton,
LLP.
/s/ DONALD L. GRILL /s/ RONALD L. JUSTICE
Donald L. Grill Ronald L. Justice
President and Vice President
Chief Executive Officer Chief Financial Officer
-4-
<PAGE> 6
FINANCIAL HIGHLIGHTS
<TABLE>
Dollar Amounts
in Thousands Years Ended December 31, Percentage
Except Per Share Data 1996 1995 Change
------------------ ----------
<S> <C> <C> <C>
EARNINGS AND DIVIDENDS
Net Income $ 3,233 $ 3,025 6.88%
Cash Dividends 1,291 1,114 15.89%
PER SHARE RESULTS*
Net Income $ 4.84 $ 4.53 6.73%
Cash Dividends 1.93 1.67 15.56%
Stockholders' Equity 36.09 32.80 10.02%
DAILY AVERAGES
Loans (Net) $169,063 $154,577 9.37%
Loans Held for Sale 966 815 18.53%
Investments 48,248 49,687 - 2.90%
Money Market Assets 6,541 1,891 245.90%
Total Assets 242,981 223,626 8.66%
Deposits 214,805 196,694 9.21%
Borrowings 2,655 5,130 -48.25%
Stockholders' Equity 23,020 20,684 11.29%
TRUST ASSETS
Market Value of Trust Assets $ 47,776 $ 38,520 24.03%
AVERAGE RATES (Tax Equiv.)
Loans 10.06% 10.15% - 0.89%
Securities 6.29% 6.30% - 0.16%
Money Market Assets 5.41% 6.38% -15.20%
Earning Assets 9.12% 9.20% - 0.87%
Deposits and Borrowed Funds 3.94% 3.91% 0.77%
Interest Margin 5.36% 5.43% - 1.29%
NET RETURN
On Average Assets 1.33% 1.35% - 1.48%
On Average Equity 14.04% 14.62% - 3.97%
RATIOS
Dividend Payout Ratio 39.88% 36.87% 8.16%
Equity To Assets Ratio (Average) 9.47% 9.22% 2.42%
</TABLE>
*Per share results are calculated using the average number of common shares
outstanding.
-5-
<PAGE> 7
[REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS LETTERHEAD]
[GRANT THORNTON LOGO]
Board of Directors
Fentura Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of Fentura
Bancorp, Inc. and subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Fentura
Bancorp, Inc. and subsidiary as of December 31, 1996, and 1995, and the results
of their consolidated operations and their consolidated cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Grant Thornton LLP
Detroit, Michigan
January 17, 1997
-6-
<PAGE> 8
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
As of December 31,
1996 1995
ASSETS --------------------------------------
- ------
<S> <C> <C>
Cash and due from banks (Note B) $ 11,921 $ 11,545
Federal funds sold 8,450 6,300
-------- --------
Cash and cash equivalents 20,371 17,845
Time deposits with other banks 95 190
Loans held for sale 1,007 925
Investment securities-held to maturity, at cost
(market value of $6,594 and $9,487 in
1996 and 1995, respectively) (Note C) 6,530 9,399
Investment securities-available for sale, at
market (Note C) 44,355 36,431
Loans (Note D) 175,229 167,536
Less allowance for possible credit losses (2,836) (2,618)
-------- --------
Net loans 172,393 164,918
-------- --------
Bank premises and equipment, net (Note E) 4,794 3,887
Accrued interest receivable 1,835 1,677
Other assets 3,001 3,287
-------- --------
Total assets $254,381 $238,559
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits (Note F)
Interest bearing $195,843 $184,074
Noninterest bearing 28,206 27,411
-------- --------
Total deposits 224,049 211,485
Short-term borrowings 1,174 631
FHLB Advances (Note G) 1,195 2,000
Accrued taxes, interest and other liabilities (Notes H and I) 3,854 2,563
-------- --------
Total liabilities 230,272 216,679
Stockholders' Equity (Note J & K)
Common stock, $5 par value; 1,000,000 shares authorized,
677,147 shares issued and outstanding 3,386 3,335
Capital surplus 16,266 15,910
Retained earnings 4,632 2,690
Unrealized loss on securities available for sale (Note C) (175) (55)
-------- --------
Total stockholders' equity 24,109 21,880
-------- --------
Total liabilities and stockholders' equity $254,381 $238,559
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
-7-
<PAGE> 9
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Interest income
Loans $17,337 $15,974 $12,141
Investment securities
Taxable 2,378 2,431 2,588
Tax-exempt 434 462 469
Short-term investments 353 121 197
------- ------- -------
Total interest income 20,502 18,988 15,395
Interest expense
Deposits 8,389 7,522 5,902
Short-term borrowings 182 371 82
------- ------- -------
Total interest expense 8,571 7,893 5,984
------- ------- -------
Net interest income 11,931 11,095 9,411
Provision for possible credit losses (Note D) 648 540 263
------- ------- -------
Net interest income after provision for possible credit losses 11,283 10,555 9,148
Other operating income
Service charges on deposit accounts 1,439 1,314 1,299
Gain on sale of mortgages 326 243 370
Mortgage servicing income 364 396 368
Fiduciary income 350 271 245
Other 1,058 999 488
------- ------- -------
Total other operating income 3,537 3,223 2,770
Other operating expenses
Salaries and employee benefits (Note I) 4,661 4,289 3,784
Net occupancy costs 645 580 463
Net furniture and equipment costs 1,317 1,091 905
Office supplies 320 233 189
FDIC assessment 2 222 394
Advertising and promotional 354 293 274
Loss on security transactions (Note C) 67 117 32
Other 2,889 2,538 2,236
------- ------- -------
Total other operating expenses 10,255 9,363 8,277
------- ------- -------
Income before income taxes 4,565 4,415 3,641
Provision for income taxes (Note H) 1,332 1,390 1,054
------- ------- -------
Net income $ 3,233 $ 3,025 $ 2,587
======= ======= =======
Per share amounts (Note K)
Net income $ 4.84 $ 4.53 $ 3.88
Cash dividends $ 1.93 $ 1.67 $ 1.44
Average number of common shares outstanding 668,106 667,079 667,079
</TABLE>
The accompanying notes are an integral part of these statements.
-8-
<PAGE> 10
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
(in thousands, except per share data)
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on Securities Total
Common Capital Retained Available Stockholders'
Stock Surplus Earnings For Sale Equity
------ ------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $2,901 $13,132 $2,361 $ 47 $18,441
Net income - - 2,587 - 2,587
Cash dividends, $1.44 per share - - (957) - (957)
Unrealized loss on securities,
net of tax of $543 (Note C) - - - (1,054) (1,054)
------ ------- ------ ----- -------
Balance, December 31, 1994 2,901 13,132 3,991 (1,007) 19,017
Net income - - 3,025 - 3,025
Cash dividends, $1.67 per share - - (1,114) - (1,114)
Stock dividend (Note K) 434 2,778 (3,212) - -
Unrealized gain on securities,
net of tax of $491 (Note C) - - - 952 952
------ ------- ------ ----- -------
Balance, December 31, 1995 3,335 15,910 2,690 (55) 21,880
Net income - - 3,233 - 3,233
Cash dividends, $1.93 per share - - (1,291) - (1,291)
Issuance of shares under stock purchase
plans (Note J):
Automatic Dividend Reinvestment Plan 18 125 - - 143
Directors Stock Purchase Plan 20 144 - - 164
Retainer Stock Plan 7 44 - - 51
Issuance of shares 6 43 - - 49
Unrealized loss on securities,
net of tax of $62 (Note C) - - - (120) (120)
------ ------- ------ ----- -------
Balance, December 31, 1996 $3,386 $16,266 $4,632 $(175) $24,109
====== ======= ====== ===== =======
</TABLE>
The accompanying notes are an integral part of these statements.
-9-
<PAGE> 11
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 3,233 $ 3,025 $ 2,587
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 949 726 716
Deferred income taxes (120) (71) 19
Provision for possible credit losses 648 540 263
(Accretion) amortization on securities 129 98 287
Realized loss on sale of investment securities 67 117 32
(Increase) decrease in loans held for sale (82) (221) (186)
(Increase) in accrued interest receivable (158) (87) (327)
(Increase) decrease in other assets 445 383 626
Increase (decrease) in accrued taxes, interest
and other liabilities 1,291 895 (70)
------- ------- -------
Total adjustments 3,169 2,380 1,360
------- ------- -------
Net cash provided by operating activities 6,402 5,405 3,947
Cash flows from investing activities
Net decrease in time deposits with other banks 95 196 190
Proceeds from sales of investment securities 5,449 17,436 5,306
Proceeds from maturities of investment securities 11,966 12,007 15,774
Purchase of investment securities (22,849) (19,566) (20,610)
Origination of loans, net of principal repayments (8,847) (30,159) (28,060)
Proceeds from sales of loans 724 4,955 1,301
Acquisition of premises and equipment (1,832) (1,235) (788)
Proceeds from sales of premises and equipment - 68 71
------- ------- -------
Net cash used in investing activities (15,294) (16,298) (26,816)
Cash flows from financing activities
Net increase (decrease) in demand deposits, NOW accounts,
and savings accounts 2,382 (885) 1,492
Net increase (decrease) in certificates of deposit 10,182 17,717 16,939
Net increase (decrease) in short-term borrowings 543 (869) 750
Net increase (decrease) in FHLB advances (805) 2,000 -
Cash dividends (1,291) (1,114) (957)
Proceeds from issuance of stock 407 - -
------- ------- -------
Net cash provided by financing activities 11,418 16,849 18,224
------- ------- -------
Net increase (decrease) in cash and cash equivalents 2,526 5,956 (4,645)
Cash and cash equivalents at beginning of year 17,845 11,889 16,534
------- ------- -------
Cash and cash equivalents at end of year $20,371 $17,845 $11,889
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 9,382 $ 7,740 $ 6,055
Income taxes $ 1,575 $ 1,516 $ 996
</TABLE>
The accompanying notes are an integral part of these statements.
-10-
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. BASIS OF PRESENTATION AND OPERATIONS - Fentura Bancorp, Inc. (the
Corporation) was incorporated in Michigan during 1988 and began operations
as a bank holding company on July 1, 1988, by issuance of its common stock
in exchange for all of the common stock of The State Bank. The State Bank
has been in existence since 1898 and operates nine community banking
offices offering banking and trust services principally to individuals,
small business, and government entities primarily in Genesee, Livingston
and Oakland counties in southeastern Michigan.
A summary of the significant accounting policies applied in the preparation
of the accompanying consolidated financial statements follows.
2. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Fentura Bancorp, Inc., and its wholly-owned
subsidiary, The State Bank (the Bank). All significant intercompany
transactions are eliminated in consolidation.
3. LOANS HELD FOR SALE - Loans held for sale are carried at the lower of
cost or market. Market value is determined in the aggregate on the basis
of existing forward commitments.
4. INVESTMENT SECURITIES - Investment securities are classified based on the
Corporation's intent with respect to holding securities.
Securities purchased, where the Corporation has both the positive intent
and ability to hold to maturity, are classified as held to maturity and are
recorded at cost, adjusted for amortization of premium and accretion of
discount.
When securities are purchased and the Corporation intends to hold the
securities for an indefinite period of time but not necessarily to
maturity, they are classified as available for sale and carried at market
value. Any decision to sell a security available for sale would be based
on various factors, including significant movements in interest rates,
changes in the maturity mix of the Corporation's assets and liabilities,
liquidity demands, regulatory capital considerations, and other similar
factors. Cost is adjusted for amortization of premiums and accretion of
discounts to maturity or, for mortgage backed securities, over the
estimated life of the security. Unrealized gains and losses for available
for sale securities are excluded from income and recorded as an amount, net
of tax, in a separate component of stockholders' equity until realized.
Trading securities are defined as debt or equity securities acquired with
the purpose of selling them in the near term. These securities are
recorded at market value and unrealized gains or losses are recorded as a
component of net income. The Corporation has no securities that qualify as
trading securities.
5. INTEREST INCOME ON LOANS - Interest on loans is accrued and credited to
income based upon the principal amount outstanding. The accrual of
interest on loans is discontinued when, in the opinion of management,
there is an indication that the borrower may be unable to meet payments as
they become due. Upon such discontinuance, all unpaid interest accrued
during the current quarter is reversed, and unpaid interest accrued during
prior quarters is charged to the allowance for possible credit losses.
Interest accruals are generally resumed when all delinquent principal
and/or interest has been brought current or the loan becomes both well
secured and in the process of collection.
6. LOAN ORIGINATION FEES AND COSTS - Loan origination fees and certain
direct loan origination costs are capitalized and recognized over the
life of the related loans as a yield adjustment.
7. LOAN IMPAIRMENT - A loan is identified as impaired when it is probable,
in the opinion of management, that interest and principal may not be
collected according to the contractual terms of the loan agreement.
8. ALLOWANCE FOR POSSIBLE CREDIT LOSSES - The allowance is maintained at a
level considered by management to be adequate to provide for reasonably
foreseeable loan losses based on an evaluation of the loan portfolio, loan
loss experience and the economic environment.
9. MORTGAGE SERVICING RIGHTS - Mortgage servicing rights represent the cost of
acquiring the right to service mortgage loans. These costs are initially
capitalized and subsequently amortized in proportion to, and over the
period of, the estimated net loan servicing income. The value of the
mortgage servicing rights is periodically evaluated in relation to the
estimated discounted net future servicing revenues. Any valuation
adjustment is recorded as an offset to the asset.
Statement of Financial Accounting Standards (SFAS) No. 122 (an amendment of
SFAS No. 65), "Accounting for Mortgage Servicing Rights", was adopted by
the Corporation in 1996 and increased income before income taxes by
approximately $205,000.
10. BANK PREMISES AND EQUIPMENT - Bank premises and equipment are stated at
cost less accumulated depreciation. Depreciation is computed using the
straight-line method over useful lives ranging from 3 to 50 years.
11. INCOME TAXES - The Corporation files a consolidated Federal income tax
return. The Corporation utilizes the asset and liability method of
accounting for income taxes. Deferred tax assets and liabilities are
recorded based on the difference between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes.
Tax planning strategies are utilized in the computation of deferred
federal income taxes. In addition, the current or deferred tax
consequences of a transaction is measured by applying the provisions of
enacted tax laws to determine the amount of taxes receivable or payable
currently or in future years.
12. INCOME PER SHARE - Income per share is calculated by dividing net
earnings by the weighted average number of common shares outstanding.
-11-
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
13. USE OF ESTIMATES - In the preparation of financial statements, management
is required to make estimates and assumptions that effect reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
14. CASH EQUIVALENTS - For purposes of the consolidated statements of cash
flows, the Corporation considers cash on hand, cash due from banks, and
federal funds sold to be cash equivalents.
15. ISSUED BUT NOT YET ADOPTED ACCOUNTING STANDARDS - The Financial
Accounting Standards Board has issued Statement of Financial Accounting
Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities", as amended by SFAS
No. 127. The Statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities based on consistent application of a financial-components
approach that focuses on control. The Statement is effective for
transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, except for certain
transactions such as repurchase agreements and securities lending, which
are effective after December 31, 1997. This pronouncement is to be
applied prospectively. Management does not expect the Statement to have a
material impact on the consolidated financial condition or results of
operations of the Bank.
NOTE B - RESTRICTED CASH BALANCES
Aggregate reserves of $1,900,000 were maintained in the form of vault cash
and deposits with the Federal Reserve Bank to satisfy regulatory requirements
at December 31, 1996.
NOTE C - INVESTMENT SECURITIES
The Corporation adopted the Financial Accounting Standards Board's "Guide
to Implementation of Statement 115" (the Guide) in November, 1995. Pursuant to
the Guide, the Corporation reassessed security classifications, and accordingly
reclassified certain portions of its investment portfolio from held maturity to
available for sale. The effect of this reclassification was the transfer of
securities with a recorded value of approximately $15,669,000 to assets
designated as available for sale, and increased equity by approximately
$99,000, net of deferred tax of $51,000 for the unrealized holding gain.
The amortized cost and estimated market value of investment securities
held to maturity at December 31, 1996, by contractual maturity, are shown below
(in thousands). Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
------ ------
<S> <C> <C>
Due in one year or less $ 766 $ 767
Due in one year through
five years 3,112 3,154
Due after five years through
ten years 2,041 2,046
Due after ten years 611 627
------ ------
$6,530 $6,594
====== ======
</TABLE>
The amortized cost and estimated market value of investments in securities
held to maturity, by major category, are as follows (in thousands):
<PAGE> 14
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------ ---- ------ ------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $6,530 $ 82 $18 $6,594
====== ==== === ======
<CAPTION>
December 31, 1995
----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------ ---- ------ ------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $9,399 $100 $12 $9,487
====== ==== === ======
</TABLE>
The amortized cost and estimated market value of investment securities
available for sale at December 31, 1996, by contractual maturity, are shown
below (in thousands). Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
------- -------
<S> <C> <C>
Due in one year or less $ 3,187 $ 3,180
Due in one year through five years 31,811 31,576
Due after five years through ten years 6,032 6,050
------- -------
41,030 40,806
Equity securities 716 716
Mortgage backed securities 2,874 2,833
------- -------
Totals $44,620 $44,355
======= =======
</TABLE>
-12-
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 1996, 1995 and 1994
(continued)
NOTE C - INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated market value of investments in debt
securities available for sale, by major category, are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------- ----- ------ -------
<S> <C> <C> <C> <C>
Obligations of US govern-
ment corporations and
agencies $41,030 $66 $290 $40,806
Equity securities 716 - - 716
Mortgage backed securities 2,874 - 41 2,833
------- --- ---- -------
$44,620 $66 $331 $44,355
======= === ==== =======
<CAPTION>
December 31, 1995
-----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------- ----- ------ -------
Obligations of US govern-
ment corporations and
agencies $33,718 $222 $308 $33,632
Obligations of states and
political subdivisions 501 14 - 515
Equity securities 682 - - 682
Mortgage backed securities 1,613 1 12 1,602
------- ---- ---- -------
$36,514 $237 $320 $36,431
======= ==== ==== =======
</TABLE>
Securities having a carrying value of $2,524,000 (market value of
$2,508,000) were pledged at December 31, 1996, to secure public deposits,
repurchase agreements, and for other purposes required by law.
Gross gains on sales of securities of $41,000, $78,000 and $65,000 and
gross losses of $108,000, $195,000 and $97,000 were recognized in 1996, 1995
and 1994, respectively.
NOTE D - LOANS
Major categories of loans included in the portfolio at December 31, are as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Commercial $ 79,450 $ 71,091
Real estate - construction 15,467 21,666
Real estate - mortgage 15,924 15,820
Consumer 64,388 58,959
-------- --------
$175,229 $167,536
======== ========
</TABLE>
Final loan maturities and rate sensitivity of the loan portfolio at
December 31, 1996, are as follows (in thousands):
<TABLE>
<CAPTION>
Within One- After
One Five Five
Year Years Years Total
------- -------- ------- --------
<S> <C> <C> <C> <C>
Commercial $28,480 $ 52,828 $ 3,782 $ 85,090
Real Estate 10,632 4,167 10,953 25,752
Consumer 8,321 47,018 9,048 64,387
------- -------- ------- --------
$47,433 $104,013 $23,783 $175,229
======= ======== ======= ========
Loans at fixed
interest rates $17,762 $ 81,224 $22,860 $121,846
Loans at variable
interest rates 29,671 22,789 923 53,383
------- -------- ------- --------
$47,433 $104,013 $23,783 $175,229
======= ======== ======= ========
</TABLE>
The aggregate balances on nonaccrual loans and the reduction of interest
income associated with these loans at December 31, are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Nonaccrual $575 $320
==== ====
As a percentage of total loans .33% .19%
==== ====
Income in accordance with
original loan terms $ 46 $ 51
Income recognized - -
---- ----
Reduction in interest income $ 46 $ 51
==== ====
</TABLE>
Certain directors and executive officers of the Corporation, including
their associates, were loan customers of the Bank during 1996 and 1995. Such
loans were made in the ordinary course of business at the Bank's normal credit
terms and interest rates, and do not represent more than a normal risk of
collection. Total loans to those persons at December 31, 1996, 1995 and 1994
amounted to $1,448,000, $1,645,000, and $1,524,000, respectively. During 1996,
$68,000 of new loans were made, repayments totaled $133,000, and directors with
loans (or associated loans) aggregating $132,000 were removed. At December 31,
1996, those loans aggregated 6.0% of consolidated stockholders' equity.
Transactions in the allowance for possible credit losses for the years
ended December 31, were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Balance, beginning of year $2,618 $2,158 $2,169
Provision for possible credit
losses charged to operations 648 540 263
------ ------ ------
3,266 2,698 2,432
Loans charged off, net of recoveries
of $7, $210 and $136 for 1996,
1995 and 1994, respectively 430 80 274
------ ------ ------
Balance, end of year $2,836 $2,618 $2,158
====== ====== ======
As a percent of total loans 1.62% 1.56% 1.52%
====== ====== ======
</TABLE>
-13-
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 1996, 1995 and 1994
(continued)
NOTE D - LOANS (CONTINUED)
The Corporation adopted Statement of Financial Accounting Standards (SFAS)
No. 114 (as amended by SFAS No. 118), "Accounting by Creditors for Impairment
of a Loan", effective as of January 1, 1995. The change had no significant
effect on the recorded allowance for possible credit losses. Loan impairment
is measured by estimating the expected future cash flows and discounting them
at the respective effective interest rate or by valuing the underlying
collateral. The recorded investment in these loans is as follows at December
31, (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Principal amount of impaired loans $959 $556
Less: valuation allowance 451 150
---- ----
$508 $406
==== ====
</TABLE>
The above valuation allowance related to impaired loans is included in the
total allowance for possible credit losses.
Total cash collected on impaired loans during 1996 was approximately
$370,000, of which approximately $247,000 was credited to the principal balance
outstanding on such loans and $123,000 was recognized as interest income.
Total cash collected on impaired loans during 1995 was approximately $92,000,
of which approximately $69,000 was credited to the principal balance
outstanding on such loans and $23,000 was recognized as interest income.
Interest that would have been accrued on impaired loans during 1996 and 1995
was approximately $45,000 and $48,000, respectively.
NOTE E - BANK PREMISES AND EQUIPMENT
Bank premises and equipment are comprised of the following at December 31,
(in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Land and land improvements $ 355 $ 202
Building and building improvements 2,703 2,437
Furniture and equipment 6,492 5,135
------ ------
9,550 7,774
Less accumulated depreciation 4,756 3,887
------ ------
$4,794 $3,887
====== ======
</TABLE>
NOTE F - DEPOSITS
The following is a summary of deposits at December 31, (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Interest bearing:
Savings $ 58,642 $ 54,496
Money market demand 32,871 35,430
Time, $100,000 and over 27,258 25,604
Time, $100,000 and under 77,072 68,544
-------- --------
$195,843 $184,074
======== ========
Noninterest bearing:
Demand $ 28,206 $ 27,411
======== ========
</TABLE>
At December 31, 1996, scheduled maturity of time deposits were as follows
(in thousands):
<TABLE>
<CAPTION>
Amount
--------
<S> <C>
Less than 1 year $ 68,474
1-5 years 35,473
Over 5 years 383
--------
$104,330
========
</TABLE>
NOTE G - FHLB ADVANCES
The State Bank has the authority and approval from the FHLB to utilize
$15,000,000 in collateralized borrowings. Advances at December 31, 1996 mature
in 2016. Pursuant to collateral agreements with the FHLB, advances are
collateralized by the unpaid principal balance of permanent 1-4 family whole
mortgage loans, the outstanding balance of U.S. government and agency
securities, and the outstanding balance of mortgage backed securities. The
average monthly amount of outstanding advances approximated $1,300,000 and
$2,200,000 during 1996 and 1995, respectively. Interest expense for advances
totaled approximately $93,000 and $164,000 during 1996 and 1995, respectively.
There were no FHLB advances outstanding in 1994.
NOTE H - INCOME TAXES
The provision for income taxes reflected in the consolidated statements of
income for the years ended December 31, consists of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Current $1,452 $1,461 $1,035
Deferred (120) (71) 19
------ ------ ------
$1,332 $1,390 $1,054
====== ====== ======
</TABLE>
Income tax expense was less than the amount computed by applying the
statutory federal income tax rate to income before income taxes. The reasons
for the difference are as follows:
<TABLE>
<CAPTION>
% of Pretax Income
------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income tax at statutory rate 34% 34 % 34 %
Tax exempt interest (3) (3) (5)
Other (2) - -
-- -- --
Actual income tax expense 29% 31 % 29 %
== == ==
</TABLE>
-14-
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 1996, 1995 and 1994
(continued)
NOTE H - INCOME TAXES (CONTINUED)
The deferred tax asset and current liability are reflected in the balance
sheet in other assets and accrued taxes, interest and other liabilities,
respectively. The details of the net deferred tax asset and current liability
at December 31, are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Deferred tax liabilities
Depreciation $(126) $(132)
Other (82) (71)
----- -----
Total deferred tax liabilities (208) (203)
Deferred tax assets
Provision for possible credit losses 771 681
Deferred loan fees 7 17
Deferred compensation 88 59
Unrealized losses on investment
securities available for sale 90 28
Other 16 -
----- -----
Total deferred tax assets 972 785
----- -----
Net deferred tax asset 764 582
Current liability (22) (90)
----- -----
$ 744 $ 492
===== =====
</TABLE>
The tax effect of the unrealized losses on investment securities available
for sale is credited directly to its related component of stockholders' equity.
NOTE I - BENEFIT PLANS
The Corporation has a noncontributory discretionary employee stock
ownership plan (Plan) covering substantially all of its employees. It is the
Plan's intention to invest principally in the Corporation's common stock. The
contribution to the Plan in 1996, 1995 and 1994 was $135,000, $125,000, and
$105,000, respectively.
The Corporation has also established a 401(k) Plan where 25% of the
employees' contribution can be matched with a discretionary contribution by the
Corporation up to a maximum of 6% of gross wages. The contribution to the Plan
for 1996, 1995 and 1994 was $31,000, $30,000, and $26,000, respectively.
NOTE J - STOCK PURCHASE AND OPTION PLANS
The Corporation implemented the following stock purchase and option plans
in 1996.
The Automatic Dividend Reinvestment Plan ("DRIP") permits enrolled
shareholders to automatically use dividends paid on common stock to purchase
additional shares of the Corporation's common stock at the fair market value on
the investment date. Any shareholder who is the beneficial or record owner of
not more than 9.9% of the issued and outstanding shares of the Corporation's
common stock is eligible to participate in the plan.
The Directors Stock Purchase Plan permits directors of the Corporation to
purchase shares of common stock made available for purchase under the plan at
the fair market value on the fifteenth day prior to the annual issuance date.
The total number of shares issuable under this plan is limited to 4,000 shares
in any calendar year.
The Retainer Stock Plan for Directors allows directors to elect to receive
shares of common stock in full or partial payment of the directors' retainer
fees and fees for attending meetings. The number of shares is determined by
dividing the dollar amount of fees to be paid in shares by the market value of
the stock on the first business day prior to the payment date.
The Executive Stock Bonus Plan permits the administrator of the plan to
grant shares of the Corporation's common stock to eligible employees. Any
executive or managerial level employee is eligible to receive grants under the
plan. The plan is administered by the Board of Directors.
The Nonemployee Director Stock Option Plan grants options to nonemployee
directors to purchase the Corporation's common stock on April 1 each year. The
purchase price of the shares is the fair market value at the date of the grant,
and there is a three year vesting period before options may be exercised.
Options to acquire no more than 2,800 shares of stock may be granted under the
Plan in any calendar year and options to acquire not more than 28,000 shares in
the aggregate may be outstanding at any one time. There were 1,840 options
outstanding under this plan at December 31, 1996.
The Employee Stock Option Plan grants options to eligible employees to
purchase the Corporation's common stock at or above, the fair market value of
the stock at the date of the grant. Awards granted under this plan are limited
to an aggregate of 30,000 shares. The administrator of the plan is a committee
of directors. The administrator has the power to determine the number of
options to be granted, the exercise price of the options and other terms of the
options, subject to consistency with the terms of the plan. There were no
options outstanding under this plan at December 31, 1996.
Pursuant to a separate agreement with a family who collectively holds more
than 9.9% of the Corporation's stock, on or prior to January 31 of each year
beginning January 31, 1997, the Corporation is to advise the family, in a
written notice, of the number of shares sold under the DRIP. Each family
member will have the option, until February 28 of the same year, to purchase
from the Corporation one-third of the total number of shares that would be
sufficient to prevent the dilution to all family members as a group that would
otherwise result solely as a result of the DRIP shares. The purchase price
under this agreement is the fair market value on December 31 of the year
immediately preceding the year in which the written notice is given.
The options granted under the above described option plans are not
significant to the Corporation, consequently pro forma disclosures under SFAS
No. 123, "Accounting for Stock Based Compensation," have not been presented.
NOTE K - COMMON STOCK
The Corporation declared a 15% stock dividend in November, 1995.
Accordingly, per share amounts for 1994 have been adjusted to reflect the 1995
dividend. The 1995 dividend was payable on January 19, 1996, to shareholders
of record as of January 5, 1996.
-15-
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 1996, 1995 and 1994
(continued)
NOTE L - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighed assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the
Bank meets the capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based,
and Tier 1 leverage ratios as set forth in the table. There are no conditions
or events, since that notification, that management believes have changed the
Bank's category.
<TABLE>
<CAPTION>
As of December 31, 1996
-----------------------
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
-------------- -------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighed Assets) $26,414 13.01% $16,246 8.00% $20,307 10.00%
Tier 1 Capital
(to Risk Weighed Assets) $23,876 11.76% $ 8,123 4.00% $12,184 6.00%
Tier 1 Capital
(to Average Assets) $23,876 9.86% $ 9,688 4.00% $12,110 5.00%
<CAPTION>
As of December 31, 1996
-----------------------
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
-------------- -------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighed Assets) $24,348 12.61% $15,446 8.00% $19,308 10.00%
Tier 1 Capital
(to Risk Weighed Assets) $21,934 11.36% $ 7,723 4.00% $11,585 6.00%
Tier 1 Capital
(to Average Assets) $21,934 9.81% $ 8,946 4.00% $11,181 5.00%
</TABLE>
NOTE M - FINANCIAL INSTRUMENTS
1. FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Corporation's financial instruments at
December 31, are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash
equivalents $ 20,371 $ 20,371 $ 17,845 $ 17,845
Time deposits
with other banks 95 95 190 190
Loans held for sale 1,007 1,010 925 938
Securities 50,882 50,949 45,830 45,918
Loans 172,393 174,900 164,918 166,960
Liabilities:
Deposits 224,049 223,993 211,485 211,683
Short-term
borrowings 1,174 1,174 631 631
FHLB advances 1,195 1,236 2,000 2,000
</TABLE>
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and short-term instruments approximate their fair values.
Investment securities and time deposits with other banks (including
mortgage-backed securities): Fair values for investment securities are based
on quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Loans held for sale: The market value of these loans represents estimated
fair value. The market value is determined in the aggregate on the basis of
existing forward commitments.
Loans: For variable rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values.
The fair values for other loans are estimated using discounted cash flow
analysis, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. The carrying amount of accrued
interest receivable approximates its fair value.
Off-balance-sheet instruments: The Corporation's off-balance-sheet
instruments approximate their fair values.
Deposit liabilities: The fair values disclosed for demand deposits are,
by definition, equal to the amount payable on demand at the reporting date.
The carrying amounts for variable rate, fixed term money market accounts and
certificates of deposit approximate their fair values at the reporting date.
Fair values for fixed rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on similar certificates. The carrying amount of accrued interest
payable approximates its fair value.
Short-term borrowings: The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-term borrowings
approximate their fair values.
FHLB advances: Rates currently available for debt with similar terms and
remaining maturities are used to estimate the fair value of the existing debt.
-16-
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 1996, 1995 and 1994
(continued)
NOTE M - FINANCIAL INSTRUMENTS (CONTINUED)
Limitations: Fair value estimates are made at a specific point in time,
based on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that could
result from offering for sale at one time the Corporation's entire holdings of
a particular financial instrument. Because no market exists for a significant
portion of the Corporation's financial instruments, fair value estimates are
based on management's judgments regarding future expected loss experience,
current economic conditions, risk characteristics and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment, therefore, cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
OFF-BALANCE-SHEET RISK
The Corporation is party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit and financial
guarantees. These instruments involve, to varying degrees, elements of credit
and interest rate risk that are not recognized in the statement of financial
condition.
Exposure to credit loss in the event of nonperformance by the other party
to the financial instrument for commitments to extend credit and financial
guarantees written is represented by the contractual notational amount of those
items. The Corporation generally requires collateral to support such financial
instruments in excess of the contractual notational amount of those instruments
and, therefore, is in a fully collateralized position.
The Corporation had outstanding unfunded loan origination commitments
aggregating $37,973,000 and $32,861,000 at December 31, 1996 and 1995,
respectively. Commitments to extend credit are agreements to lend to a
customer as long as there are no violations of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require a payment of a fee. Fees from issuing
these commitments to extend credit are recognized over the period to maturity.
Since a portion of the commitments are expected to expire without being drawn
upon, the total commitments do not necessarily represent future cash
requirements. The Corporation evaluates each customer's creditworthiness on a
case by case basis. The amount of collateral obtained upon extension of credit
is based on management's credit evaluation of the customer.
The Corporation originates primarily residential and commercial real
estate loans, commercial loans, and installment loans. The Corporation
estimates that 81% of the loan portfolio is based in Genesee, Livingston, and
Oakland counties within Southeast Michigan with the remainder of the portfolio
distributed throughout Michigan.
At December 31, 1996, the Corporation had consumer loans collateralized by
real estate aggregating approximately $21,950,000 and construction loans
collateralized by real estate relating to commercial, residential and land
development properties of approximately $15,467,000.
NOTE N - SUMMARY OF UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following quarterly financial information is unaudited. However, in
the opinion of management, all adjustments which include normal recurring
adjustments necessary to present fairly the results of operations for such
periods are reflected (in thousands except per share data).
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31,
-------------- -------------- --------------- --------------
1996 1995 1996 1995 1996 1995 1996 1995
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $2,878 $2,535 $2,964 $2,724 $3,028 $2,853 $3,061 $2,983
Provision for possible
credit losses 180 80 150 160 117 105 201 195
Noninterest income 774 762 897 835 841 757 1,025 869
Noninterest expense 2,353 2,379 2,548 2,423 2,634 2,197 2,720 2,364
Net income 780 588 834 684 799 895 820 858
Net income per share 1.17 .88 1.25 1.02 1.20 1.34 1.22 1.29
</TABLE>
NOTE O - PARENT ONLY CONDENSED FINANCIAL INFORMATION
The condensed financial information that follows presents the financial
condition of Fentura Bancorp, Inc. (parent company only), along with the
results of its operations and its cash flows.
CONDENSED BALANCE SHEETS
December 31, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
ASSETS
Cash $ 407 $ -
Investment in subsidiary 23,702 21,880
------- -------
$24,109 $21,880
======= =======
Stockholders' equity $24,109 $21,880
======= =======
</TABLE>
CONDENSED STATEMENTS OF INCOME
Years Ended December 31, 1996, 1995, 1994
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Dividends from subsidiary $1,291 $1,114 $ 957
Equity in undistributed income
of subsidiary 1,942 1,911 1,630
------ ------ ------
Net income $3,233 $3,025 $2,587
====== ====== ======
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995, 1994
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $3,233 $3,025 $2,587
Adjustment to reconcile net
income to net cash provided
by operating activities
Equity in undistributed
income of subsidiary (1,942) (1,911) (1,630)
------ ------ ------
Net cash provided by
operating activities 1,291 1,114 957
Cash flows used for financing activities
Dividends paid (1,291) (1,114) (957)
Proceeds from stock issuance 407 - -
------ ------ ------
Net cash used in financing
activities (884) (1,114) (957)
Net change in cash and cash
equivalents 407 - -
Cash and cash equivalents at
beginning of year - - -
------ ------ ------
Cash and cash equivalents at
end of year $ 407 $ - $ -
====== ====== ======
</TABLE>
-17-
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This section provides a narrative discussion and analysis of the consolidated
financial condition and results of operations of Fentura Bancorp, Inc. (the
Corporation together with its sole operating subsidiary, The State Bank [the
Bank]), for the years ended December 31, 1996, 1995 and 1994. The supplemental
financial data included throughout this discussion should be read in
conjunction with the primary financial statements presented on pages 7 through
17 of this report. It provides a more detailed and comprehensive review of the
operating results and financial position than could be obtained from financial
statements alone.
PERFORMANCE SUMMARY
Selected financial data as of December 31, 1996 and 1995, and for the twelve
month periods then ended, are presented on page 5 of the Corporation's 1996
Annual Report. As indicated, the Corporation experienced an increase in net
interest income caused primarily by earning asset growth.
NET INTEREST INCOME
Net interest income, the principal source of earnings, is the amount of
interest income generated by earning assets (principally investment securities
and loans) less interest paid on interest bearing liabilities (largely deposits
and other borrowings). Table 1 summarizes the changes in net interest income
resulting from changes in volume and rates for years ended December 31, 1996,
1995 and 1994. Net interest income (displayed without consideration of full
tax equivalency), average balance sheet amounts, and the corresponding yields
for the last three years are shown in Table 2. Net interest income increased
$836,000 in 1996, or 7.5% to $11,931,000 as compared with an increase of
$1,684,000 or 17.9%, in 1995, and $1,001,000, or 11.9% in 1994. The primary
factor contributing to the interest income increase is substantial growth in
the Company's loan portfolio (the largest group of earning assets). The
increase in interest income was partially offset by increases in interest
expense. Growth in the Company's certificate of deposit balances and an
increase in interest rates resulted in the increase in interest expense.
Balances increased due to greater market penetration in existing markets,
growth in new market areas, and a change in consumer behavior toward
certificates of deposits as market interest rates increased.
As indicated in Table 2, for the year ended December 31, 1996, the
Corporation's net interest margin was 5.24% compared with 5.30% and 4.95% for
the same period in 1995 and 1994 respectively. The decrease in margin from
1995 to 1996 is attributed to the change in the interest rate environment.
Asset yields are lower because certain assets have matured or paid down
throughout the year and new assets have been recorded at lower interest rates.
Additionally, certain assets have repriced as market rates fluctuated during
the year.
Average earning assets increased 8.7% in 1996 and 10.2% in 1995. Loans, the
highest yielding component of earning assets, represented 75.5% of earning
assets in 1996 up from 75.0% in 1995 and 67.7% in 1994. Average interest
bearing liabilities increased 8.4% in 1996 and 11.3% in 1995. Noninterest
bearing deposits amounted to 11.8% of average earning assets in 1996 compared
with 12.4% in 1995 and 13.4% in 1994.
TABLE 1
CHANGES IN NET INTEREST INCOME
DUE TO CHANGES IN AVERAGE VOLUME AND INTEREST RATES
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INCREASE (DECREASE) INCREASE (DECREASE) INCREASE (DECREASE)
1996 1995 1994
DUE TO: DUE TO: DUE TO:
-----------------------------------------------------------------
YIELD/ YIELD/ YIELD/
(000'S Omitted) VOL RATE TOTAL VOL RATE TOTAL VOL RATE TOTAL
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Bearing Deposits in Banks ($20) $1 ($19) ($7) $1 ($6) ($11) $0 ($11)
Taxable Securities (52) (2) (54) (332) 176 (156) 704 (414) 290
Tax-Exempt Securities (29) 2 (27) (3) (4) (7) (34) (31) (65)
Federal Funds Sold 286 (34) 252 (107) 36 (71) (251) 26 (225)
Total Loans 1,503 (146) 1,357 2,666 1,157 3,823 1,224 204 1,428
Loans Held For Sale 12 (7) 5 17 (7) 10 (37) 6 (31)
--------------------------------------------------------------------
TOTAL EARNING ASSETS 1,700 (186) 1,514 2,234 1,359 3,593 1,595 (209) 1,386
Interest Bearing Demand Deposits 29 6 35 (37) (48) (85) 55 (68) (13)
Savings Deposits (48) (136) (184) (26) 38 12 352 (28) 324
Time CD's $100,000 and Over 550 (23) 527 366 254 620 (31) 80 49
Other Time Deposits 479 10 489 597 476 1,073 (23) 21 (2)
Other Borrowings (179) (10) (189) 185 104 289 25 2 27
--------------------------------------------------------------------
TOTAL INTEREST BEARING LIABILITIES 831 (153) 678 1,085 824 1,909 378 7 385
--------------------------------------------------------------------
NET INTEREST INCOME $ 869 ($33) $836 $1,149 $ 535 $1,684 $1,217 ($216) $1,001
====================================================================
</TABLE>
-18-
<PAGE> 21
TABLE 2 AVERAGE BALANCES AND RATES
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
------------------------ ------------------------ ------------------------
(000'S Omitted) Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest Bearing Deposits in Banks $ 138 $ 13 9.42% $ 370 $ 32 8.65% $ 450 $ 37 8.22%
INVESTMENT SECURITIES:
U.S. Treasury and Government Agencies 39,024 2,322 5.95% 39,946 2,379 5.96% 45,584 2,523 5.53%
State and Political 8,517 435 5.11% 9,080 462 5.09% 9,134 469 5.13%
Other 707 55 7.78% 661 52 7.87% 991 65 6.56%
------------------------ ------------------------ ------------------------
Total Investment Securities 48,248 2,812 5.83% 49,687 2,893 5.82% 55,709 3,057 5.49%
Federal Funds Sold 6,403 341 5.33% 1,521 89 5.85% 4,560 160 3.51%
LOANS:
Commercial 85,087 8,417 9.89% 78,226 7,928 10.13% 63,541 5,981 9.41%
Tax Free 1,001 56 5.59% 983 61 6.21% 1,562 93 5.95%
Real Estate-Mortgage 24,715 2,651 10.73% 22,103 2,407 10.89% 20,588 2,071 10.06%
Consumer 61,018 6,139 10.06% 55,671 5,510 9.90% 42,929 3,945 9.19%
------------------------ ------------------------ ------------------------
Total Loans 171,821 17,263 10.05% 156,983 15,906 10.13% 128,620 12,090 9.40%
Allowance for Loan Losses (2,758) (2,406) (2,218)
Net Loans 169,063 17,263 10.21% 154,577 15,906 10.29% 126,402 12,090 9.56%
------------------------ ------------------------ ------------------------
Loans Held for Sale 966 73 7.56% 815 68 8.35% 611 51 8.35%
------------------------ ------------------------ ------------------------
TOTAL EARNINGS ASSETS $227,576 $20,502 9.01% $209,375 $18,988 9.07% $189,950 $15,395 8.10%
------------------------ ------------------------ ------------------------
Cash & Due From Banks 8,724 7,829 6,824
All Other Assets 9,439 8,828 8,911
-------- -------- --------
TOTAL ASSETS $242,981 $223,626 $203,467
======== ======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Deposits:
Noninterest Bearing - DDA $ 26,895 - - $ 26,041 - - $ 25,529 - -
Interest Bearing - DDA 30,534 758 2.48% 29,349 723 2.46% 30,744 808 2.63%
Savings Deposits 56,536 1,760 3.11% 57,974 1,944 3.35% 62,019 1,932 3.12%
Time CD's 100,000 and Over 28,290 1,661 5.87% 19,052 1,134 5.95% 11,128 514 4.62%
Other Time CD's 72,550 4,210 5.80% 64,278 3,721 5.79% 52,454 2,648 5.05%
------------------------ ------------------------ ------------------------
Total Deposits 214,805 8,389 3.91% 196,694 7,522 3.82% 181,874 5,902 3.25%
Other Borrowings 2,655 182 6.85% 5,130 321 7.23% 1,574 82 5.21%
------------------------ ------------------------ ------------------------
INTEREST BEARING LIABILITIES $190,565 $ 8,571 4.50% $175,783 $ 7,893 4.49% $157,919 $ 5,984 3.79%
All Other Liabilities 2,501 1,118 992
Stockholders' Equity 23,020 20,684 19,027
-------- -------- --------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $242,981 $223,626 $203,467
======== ======== ========
Net Interest Rate Spread 4.51% 4.58% 4.32%
Impact on Noninterest Bearing
FUNDS ON MARGIN 0.73% 0.72% 0.64%
Net Interest Income/Margin $11,931 5.24% $11,095 5.30% $ 9,411 4.95%
======= ==== ======= ==== ======= ====
</TABLE>
YIELDS ARE CALCULATED WITHOUT CONSIDERATION OF FULL TAX EQUIVALENCY.
AVERAGE LOAN BALANCES INCLUDE NONACCRUING LOANS.
LOAN INCOME INCLUDES CASH RECEIVED ON NONACCRUING LOANS.
-19-
<PAGE> 22
ALLOWANCE AND PROVISION FOR POSSIBLE CREDIT LOSSES
The allowance for possible credit losses reflects management's judgment as the
level considered appropriate to absorb potential losses inherent in the loan
portfolio. The Bank's methodology in determining adequacy of the allowance
includes a review of individual loans and off-balance sheet arrangements,
historical loss experience, current economic conditions, portfolio trends, and
other pertinent factors. Although reserves have been allocated to various
portfolio segments, the allowance is general in nature and is available for the
portfolio in its entirety. At December 31, 1996, the allowance for possible
credit losses was $2,836,000, or 1.62% of total loans. This compares with
$2,618,000, or 1.56%, at December 31, 1995.
The provision for possible credit losses was $648,000 in 1996, $540,000 and
$263,000 in 1995 and 1994 respectively. The provision was increased in 1996 in
order to maintain an acceptable allowance to gross loan percentage with growth
in the loan portfolio. Management believes that increasing the provision in
1996 is prudent in light of loan portfolio growth and its estimate of future
net charge offs based on presently known risks within the portfolio. Table 3
summarizes loan losses and recoveries during 1996, 1995 and 1994. During 1996
the Bank experienced net charge-offs of $430,000, compared with net charge-offs
of $80,000 and $274,000 in 1995 and 1994 respectively. Accordingly, the net
charge-off ratio for 1996 was .24% compared to .05% and .19% at the end of 1995
and 1994 respectively. An increase in charge-offs of installment loans to
individuals and a decrease in recoveries from commercial loans were the
components most significantly impacting 1996 totals.
<TABLE>
<CAPTION>
TABLE 3 ANALYSIS OF THE ALLOWANCE FOR POSSIBLE CREDIT LOSSES
(000'S Omitted) Years Ended December 31,
1996 1995 1994
------------------------------------------
<S> <C> <C> <C>
Balance at Beginning of Year $2,618 $2,158 $2,169
------------------------------------------
Charge-offs:
Domestic:
Commercial, Financial and Agricultural (154) (151) (240)
Real Estate-Construction 0 0 0
Real Estate-Mortgage (50) (14) (30)
Installment Loans to Individuals (304) (125) (140)
Lease Financing 0 0 0
------------------------------------------
Total Charge-offs (508) (290) (410)
------------------------------------------
Recoveries:
Domestic:
Commercial, Financial and Agricultural 7 127 61
Real Estate-Construction 0 0 0
Real Estate-Mortgage 8 9 4
Installment Loans to Individuals 63 74 71
Lease Financing 0 0 0
------------------------------------------
Total Recoveries 78 210 136
------------------------------------------
Net Charge-offs (430) (80) (274)
------------------------------------------
Provision 648 540 263
------------------------------------------
Balance at End of Year $2,836 $2,618 $2,158
==========================================
Ratio of Net Charge-offs During the Period 0.24% 0.05% 0.19%
==========================================
</TABLE>
-20-
<PAGE> 23
ANALYSIS OF NONINTEREST INCOME
Noninterest income was $3,537,000 in 1996, and $3,223,000 and $2,770,000 in
1995 and 1994 respectively. These amounts represent an increase of 9.7% in
1996 and a 16.4% increase in 1995.
The most significant component of the increase in noninterest income in 1996
was service charges on deposit accounts. As indicated in Table 4, these
customer charges were $1,439,000 compared to $1,314,000 in 1995, an increase of
$125,000. Growth in the number of accounts and certain account activities
account for the increase.
Income derived from merchant services and VISA interchange fees, included in
other operating income, was $146,000 in 1996 up from $104,000 in 1995. This
increase is attributable to an increase in new merchant accounts and an
increase in customer debit card activity resulting in increased VISA
interchange fees.
Gain on the sale of mortgage loans originated by the Bank and sold in the
secondary market was $326,000 in 1996 and $243,000 in 1995. This 34.2%
increase occurred primarily because the Corporation began recognizing income
from the value of mortgage servicing rights in 1996 within the guidelines of
Statement of Financial Accounting Standard No. 122.
Fiduciary income increased $79,000 in 1996 to $350,000 compared to $271,000 in
1995. This 29.2% increase in fees is attributed to growth in the assets under
management within the Corporation's Investment Trust Department.
Gain on the sale of real estate owned decreased $152,000 in 1996 to $145,000
compared to $297,000 in 1995. A decline in the amount of real estate owned and
associated sale transactions account for the decline in 1996.
<TABLE>
<CAPTION>
TABLE 4 ANALYSIS OF NONINTEREST INCOME
(000'S Omitted) Years Ended December 31,
1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
Service Charges on Deposit Accounts $1,439 $1,314 $1,299
Gain on Sale of Mortgages 326 243 370
Gain on Sale of Real Estate Owned 145 297 16
Mortgage Servicing Income 364 396 368
Fiduciary Income 350 271 245
Other Operating Income 913 702 472
-----------------------------------
Total Noninterest Income $3,537 $3,223 $2,770
===================================
</TABLE>
NONINTEREST EXPENSE
Total noninterest expense was $10,255,000 in 1996 compared with $9,363,000 in
1995 and $8,277,000 in 1994. This is an increase of 9.5% in 1996, and an
increase of 13.1% in 1995.
Salary and benefit costs, the Corporation's largest noninterest expense
category, were $4,661,000 in 1996, compared with $4,289,000 in 1995 and
$3,784,000 in 1994. 1996 salary costs represent an increase of 8.7% over 1995.
Increased costs are a result of additional staff to more effectively develop
and sell product lines to the Corporation's customers and positions to staff
two new branch facilities, one opening in June and the other in November of
1996.
Equipment expenses also increased substantially. In 1996 equipment expenses
were $1,317,000 compared to $1,091,000 in 1995, an increase of 20.7%.
Equipment (mostly computer hardware and software) for the new branches and
increased costs for maintenance contracts on the Corporation's computer systems
are the primary reasons for the increase in equipment expenses.
Occupancy expenses associated with the Corporation's facilities were $645,000
in 1996 compared to $580,000 in 1995 and $463,000 in 1994. This represents an
increase of 11.2% in 1996. The primary reason for the increase in 1996 is the
lease expense associated with the two new branches and increased depreciation
expenses associated with renovation of existing facilities.
In 1995, the Federal Deposit Insurance Corporation (FDIC) reviewed and
restructured its premium assessments. Many banks not only received a lower
assessment factor but also received a refund on prior premiums due to
retroactive FDIC actions. Accordingly, in 1996 expenses associated with the
FDIC assessment declined $220,000 to $2,000 from $222,000 in 1995.
Office supplies expense increased $87,000 in 1996 to $320,000 compared to
$233,000 in 1995. This 37.3% is attributable to an increase in costs and
purchase amounts of regular office supplies and preprinted forms.
Advertising and promotional expenses were $354,000 in 1996 compared to $293,000
in 1995 and $274,000 in 1994. The $61,000 or 20.8% increase in 1996 is
attributable to increases in the use of various types of media to advertise the
Corporation's products and services and for promotional items to be given to
existing and potential customers as an additional form of advertisement.
The final category of noninterest expense is other operating expenses. These
expenses were $2,506,000 in 1996 compared to $2,120,000 and $1,830,000 in 1995
and 1994 respectively. The $386,000 increase in 1996 was primarily associated
with increased legal and outside consultant expenses. In addition, the
Corporation also settled a law suit which contributed to the increase in
noninterest expense in 1996.
<TABLE>
<CAPTION>
TABLE 5 ANALYSIS OF NONINTEREST EXPENSE
(000'S Omitted) Years Ended December 31,
1996 1995 1994
--------------------------------------------
<S> <C> <C> <C>
Salaries and Benefits $ 4,661 $4,289 $3,784
Equipment 1,317 1,091 905
Net Occupancy 645 580 463
FDIC Assessment 2 222 394
Office Supplies 320 233 189
Loan & Collection Expense 383 418 406
Advertising and Promotional 354 293 274
Loss on Securities Transactions 67 117 32
Other Operating Expenses 2,506 2,120 1,830
--------------------------------------------
Total Noninterest Expense $10,255 $9,363 $8,277
============================================
</TABLE>
-21-
<PAGE> 24
LIQUIDITY AND INTEREST RATE RISK MANAGEMENT
Asset/Liability management is designed to assure liquidity and reduce interest
rate risks. The goal in managing interest rate risk is to maintain a strong
and relatively stable net interest margin. It is the responsibility of the
Bank's Asset/Liability Management Committee (ALCO) to set policy guidelines and
to establish short-term and long-term strategies with respect to interest rate
exposure and liquidity. ALCO, which is comprised of key members of management,
meets regularly to review financial performance and soundness, including
interest rate risk and liquidity exposure in relation to present and
perspective markets, business conditions, and product lines. Accordingly, the
Committee adopts funding and balance sheet management strategies that are
intended to determine that earnings, liquidity, and growth rates are consistent
with policy and prudent business standards.
Liquidity maintenance together with a solid capital base and strong earnings
performance are key objectives of the Corporation. The Bank's liquidity is
derived from a strong deposit base comprised of individual and business
deposits. Deposit accounts of customers in the mature markets represent a
substantial portion of deposits of individuals. The Bank's deposit base plus
other funding sources (federal funds purchased, other liabilities and
shareholders' equity) provided primarily all funding needs in 1996 and 1995.
Primary liquidity is provided through short-term investments or borrowings
(including federal funds sold and purchased) and secondary liquidity is
provided by the investment portfolio. As of December 31, 1996, federal funds
sold represented 3.3% of total assets, compared to 2.6% at the end of 1995.
The Corporation regularly monitors liquidity to ensure adequate cash flows to
cover unanticipated reductions in the availability of funding sources.
Interest rate risk is managed by controlling and limiting the level of earnings
volatility arising from rate movements. The Corporation regularly performs
reviews and analysis of those factors impacting interest rate risk. Factors
include maturity and repricing frequency of balance sheet components, impact of
rate changes on interest margin and prepayment speeds, market value impacts of
rate changes, and other issues. Both actual and projected performance are
reviewed, analyzed, and compared to policy and objectives to assure present and
future financial viability.
Cash flows from financing activities primarily resulted from the growth of
certificates of deposit. In 1996 those deposits increased $10,182,000 compared
with an increase of $17,717,000 in 1995 and an increase of $16,939,000 in 1994.
Cash used in investing activities was $15,294,000 in 1996 and $16,298,000 in
1995. The primary reason for the decrease in investing activities was a
decrease in the originations of loans, net of principal repayments comparing
1996 to 1995.
RISK ELEMENTS AND MANAGEMENT
Credit risk is managed via specific credit approvals and monitoring procedures.
The Bank's credit administration function reviews the portfolio on a periodic
basis for compliance with credit policies and for identification of problem
loans. These procedures provide management with information for setting
appropriate direction and taking corrective action as needed.
Construction and Real Estate Loans
The Bank closely monitors its construction and commercial mortgage loan
portfolios. Construction loans at December 31, 1996, which comprised 8.8% of
total loans, totaled $15,467,000 as compared to $21,666,000 at the end of 1995.
The construction and commercial real estate loan portfolios are located
principally in the Bank's local markets. Included are loans to various
industries and professional organizations. The Bank believes that the
portfolios are well diversified and do not present a significant risk to the
institution.
-22-
<PAGE> 25
NONPERFORMING ASSETS
Nonperforming assets include loans on which interest accruals have ceased,
loans which have been re-negotiated, and real estate acquired through
foreclosure. Past due loans are loans which were delinquent 90 days or more
but have not been placed on nonaccrual status. Table 6 represents the levels
of these assets at December 31, 1996, 1995, and 1994.
In addition to nonperforming and past due loans, there were $1,014,000 of loans
outstanding at December 31, 1996, that management is monitoring due to the
possible financial problems of the borrowers.
TABLE 6 NONPERFORMING ASSETS AND PAST DUE LOANS
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
--------------------------------------
<S> <C> <C> <C>
Nonperforming Loans:
Loans Past Due 90 Days or More
& Still Accruing $123,000 $ 462,000 $ 41,000
Nonaccrual Loans 575,000 320,000 747,000
Renegotiated Loans 0 0 10,000
--------------------------------------
Total Nonperforming Loans 698,000 782,000 798,000
--------------------------------------
Other Nonperforming Assets:
Other Real Estate 56,000 207,000 1,142,000
REO in Redemption 0 131,000 193,000
In-Substance Foreclosure 0 0 120,000
Other Nonperforming Assets 28,000 0 6,000
--------------------------------------
Total Other Nonperforming Assets 84,000 338,000 1,461,000
--------------------------------------
Total Nonperforming Assets $782,000 $1,120,000 $2,259,000
======================================
Nonperforming Loans as a % of Total Loans 0.40% 0.47% 0.56%
Nonperforming Assets as a % of Total Loans 0.45% 0.67% 1.57%
and Other Real Estate
Allowance for Possible Credit Losses as a % of 406.30% 334.78% 270.43%
Nonperforming Loans
Allowance for Possible Credit Losses, Other Real Estates
and In-Substance Foreclosures as a % of 369.82% 263.93% 159.94%
Nonperforming Assets
Accruing Loans Past Due 90 Days or More
to Total Loans 0.07% 0.28% 0.03%
Nonperforming Assets as a % of Total Assets 0.31% 0.47% 1.04%
</TABLE>
CAPITAL MANAGEMENT
Total shareholders' equity rose 10.2% to $24,109,000 at December 31, 1996,
compared with $21,880,000 at December 31, 1995. The Corporation's equity to
asset ratio was 9.5% at December 31, 1996, compared to 9.2% at December 31,
1995. In 1996 the Corporation increased its cash dividends by 15.6% to $1.93
per share compared with $1.67 in 1995.
At December 31, 1996, the Corporation's tier 1 and total risk-based capital
ratios were 11.76% and 13.01%, respectively, compared with 11.36% and 12.61% in
1995. The Corporation's tier 1 leverage ratio was 9.86% at December 31, 1996
compared with 9.81% at December 31, 1995. The increases are largely
attributable to growth in U.S. government agencies and treasury securities and
an increase in the amount of federal funds sold at December 31, 1996, which for
regulatory purposes are classified as lower risk than certain other asset
categories. Regulations prescribed under the Federal Deposit Corporation
Improvement Act of 1991 have defined "well capitalized" institutions as those
having total risk-based ratios, tier 1 risk-based capital ratios and tier 1
leverage ratios of at least 10%, 6% and 5% respectively. At December 31, 1996,
the Corporation was well in excess of the minimum capital and leverage
requirements necessary to be considered a "well capitalized" banking company
as defined by federal law.
At December 31, 1996, the Corporation had an unrealized loss on securities
available for sale (AFS) of $175,000 compared to an unrealized loss at December
31, 1995 of $55,000. This increase in unrealized loss is attributed to an
overall increase of market interest rates throughout 1996. With higher
market rates, the unrecognized loss based on book value to market value
increased.
-23-
<PAGE> 26
INTEREST RATE SENSITIVITY MANAGEMENT
Interest rate sensitivity management seeks to maximize net interest income as a
result of changing interest rates, within prudent ranges of risk. The
Corporation attempts to accomplish this objective by structuring the balance
sheet so that repricing opportunities exist for both assets and liabilities in
roughly equivalent amounts at approximately the same time intervals.
Imbalances in these repricing opportunities at any point in time constitutes a
bank's interest rate sensitivity.
An indicator of the interest rate sensitivity structure of a financial
institution's balance sheet is the difference between its interest rate
sensitive assets and interest rate sensitive liabilities, which is referred to
as "GAP".
Table 7 sets forth the distribution of repricing of the Corporation's earning
assets and interest bearing liabilities as of December 31, 1996, the interest
rate sensitivity GAP, as defined above, the cumulative interest rate
sensitivity GAP, the interest rate sensitivity GAP ratio (i.e. interest rate
sensitive assets divided by interest rate sensitive liabilities) and the
cumulative sensitivity GAP ratio. The table also sets forth the time periods
in which earning assets and liabilities will mature or may reprice in
accordance with their contractual terms. However, the table does not
necessarily indicate the impact of general interest rate movements on the net
interest margin since the repricing of various categories of assets and
liabilities is subject to the Corporation's needs, competitive pressures, and
the needs of the Corporation's customers. In addition, various assets and
liabilities indicated as repricing within the same period may, in fact, reprice
at different times within such period and at different rates or indices.
TABLE 7 GAP ANALYSIS
(000'S Omitted)
<TABLE>
<CAPTION>
December 31, 1996
Within Three One to After
Three Months Five Five
Months One Year Years Years Total
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earning Assets:
Interest Bearing Bank Deposits $ 0 $ 0 $ 95 $ 0 $ 95
Federal Funds Sold 8,450 0 0 0 8,450
Investment Securities 1,873 3,936 34,745 10,331 50,885
Loans 60,903 10,248 81,224 22,854 175,229
Loans Held for Sale 1,007 0 0 0 1,007
-------------------------------------------------
Total Earning Assets $72,233 $14,184 $116,064 $33,185 $235,666
=================================================
Interest Bearing Liabilities:
Interest Bearing Demand Deposits $32,871 $ 0 $ 0 $0 $ 32,871
Savings Deposits 17,557 0 0 41,085 58,642
Time Deposits Less Than $100,000 16,034 32,757 28,158 123 77,072
Time Deposits Greater Than $100,000 10,837 9,889 6,532 0 27,258
Other Borrowings 1,174 10 40 1,145 2,369
-------------------------------------------------
Total Interest Bearing Liabilities $78,473 $42,656 $ 34,730 $42,352 $198,212
=================================================
Interest Rate Sensitivity GAP ($ 6,240) ($28,472) $ 81,334 ($ 9,167) $ 37,455
Cumulative Interest Rate Sensitivity GAP ($ 6,240) ($34,712) $ 46,622 $37,455
Interest Rate Sensitivity GAP Ratio (0.92) (0.33) 3.34 0.78
Cumulative Interest Rate Sensitivity GAP Ratio (0.92) (0.71) 1.30 1.19
</TABLE>
FENTURA BANCORP, INC. COMMON STOCK
Table 8 sets forth the high and low bid information for each quarter of 1996
and 1995, as provided by Roney & Co. These quotations reflect inter-dealer
prices, without retail mark-up, mark-down, or commission and may not represent
actual transactions.
As of January 1, 1997, there were 496 shareholders of record.
TABLE 8
<TABLE>
<CAPTION>
Dividends
Bid Information Paid
Year Quarter High Low Per Share
<S> <C> <C> <C>
1995 First Quarter $40.00 $40.00 $0.33
Second Quarter $41.00 $40.00 $0.33
Third Quarter $43.00 $41.00 $0.33
Fourth Quarter $43.00 $41.50 $0.68
-----
$1.67
1996 First Quarter $37.50 $36.50 $0.36
Second Quarter $37.50 $37.50 $0.36
Third Quarter $38.75 $37.50 $0.36
Fourth Quarter $42.00 $40.00 $0.85
-----
$1.93
</TABLE>
Note: Dividend per share figures have been adjusted to reflect the 15% stock
dividend payable in January 1996.
-24-
<PAGE> 27
FINANCIAL REVIEW
ASSETS NET INCOME
(in thousands of dollars) (in thousands of dollars)
1992 179,943 1992 2,320
1993 197,151 1993 2,465
1994 216,838 1994 2,587
1995 238,559 1995 3,025
1996 254,381 1996 3,233
TOTAL DEPOSITS LOANS
(in thousands of dollars) (in thousands of dollars)
1992 159,599 1992 115,423
1993 176,222 1993 115,927
1994 194,653 1994 142,412
1995 211,485 1995 167,536
1996 224,049 1996 175,229
BOOK VALUE PER SHARE NET RETURN ON AVERAGE ASSETS
(in dollars) (percent)
1992 25.27 1992 1.31%
1993 27.64 1993 1.32%
1994 28.51 1994 1.27%
1995 32.80 1995 1.35%
1996 36.09 1996 1.33%
-25-
<PAGE> 28
NEW TEAM MEMBERS, PROMOTIONS & TRANSFERS
NEW TEAM MEMBERS INCLUDE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
[PHOTO] [PHOTO] [PHOTO] [PHOTO]
NICHOLAS D. BUDA KIMBERLY A. CADIEUX DENNIS J. CARNELL, JR. DONALD L. GRILL
LOAN ORIGINATOR OFFICER OFFICER PRESIDENT AND
MORTGAGE LENDING CUSTOMER SERVICE COMMERCIAL LENDING CHIEF EXECUTIVE OFFICER
<CAPTION>
<S> <C> <C>
[PHOTO] [PHOTO] [PHOTO]
SHARON M. HOWELL PETER D. LEWIS DALE N. SMALLIDGE
OFFICER CREDIT ANALYST VICE PRESIDENT
COMMUNITY OFFICES DIRECTOR CREDIT ADMINISTRATION CONSUMER LENDING
</TABLE>
PROMOTIONS AND TRANSFERS ARE:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
[PHOTO] [PHOTO] [PHOTO] [PHOTO] [PHOTO]
THOMAS E. BERTSCHY LINDA J. GREGORY THOMAS B. HUFTON II WILLIAM M. JOHNSTON WILLIAM J. KREBS
OFFICER ADMINISTRATIVE ASSISTANT MANAGER MANAGER MANAGER
HUMAN RESOURCES CREDIT ADMINISTRATION FENTON VG'S COMMERCIAL LENDING DISTRIBUTED PROCESSING
<CAPTION>
<S> <C> <C> <C>
[PHOTO] [PHOTO] [PHOTO] [PHOTO]
JACQUELINE M. OCHS TERRY L. VICK II NEIL G. ZELLEY ROBERT J. ZOLDOS
BUSINESS BANKING MANAGER OFFICER OFFICER
SERVICES REPRESENTATIVE DAVISON COMMERCIAL LENDING OPERATIONS
</TABLE>
-28-
<PAGE> 29
OUR LEADERSHIP TEAM
ADMINISTRATION
Robert J. Dery Chairman of the Board
Russell H. Van Gilder, Jr. Vice Chairman of the Board
Donald L. Grill President & Chief Executive Officer
Richard A. Bagnall Executive Vice President & Senior Loan Officer
Carolyn M. Spicer Senior Vice President & Senior Retail Officer
Ronald L. Justice Vice President & CFO
Joyce A. Dunckel Manager Executive Services
<TABLE>
<S><C>
CORPORATE ADMINISTRATION HOLLY COMMUNITY OFFICE
Neil G. Zelley Chief Auditor Kaye M. Cornell Manager
Thomas E. Bertschy Human Resources Officer
LINDEN COMMUNITY OFFICE
INVESTMENT TRUST SERVICES Gerry A. Wagner Manager
Tracy A. Justice Vice President
COMMERCIAL LENDING
RETAIL BANKING John A. Emmendorfer Vice President
James J. Smythe Vice President
Catherine A. Joslin VP Senior EDP Officer Dennis J. Carnell, Jr. Loan Officer
Elsie M. Wermuth Vice President William M. Johnston Manager
Timothy J. Allen Distributed Processing Officer
Kimberly A. Cadieux Customer Service Officer
Sharon M. Howell Community Offices Director CONSUMER LENDING
Pamela J. Koan Compliance/Security Officer
Laura L. Nelson Retail Banking Officer Dale N. Smallidge Vice President
Terry L. Tibbitts Community Concierge Officer Loretta M. Mead Loan Officer
Robert J. Zoldos Operations Officer Jon C. Phillips Loan Officer
William J. Krebs Distributed Processing Manager
Jacqueline M. Ochs Retail Banking Manager
Laura L. Temple Teller Services Manager MORTGAGE LENDING
Cynthia L. Duquette Loan Officer
CLARKSTON COMMUNITY OFFICE Nicholas D. Buda Loan Originator
Joyce M. Rodgers Loan Originator
Michael J. Macklem Manager Cherie L. Mayner Manager
Colleen Hackney Manager
Jo Ann Zurek Administrative Assistant
DAVISON COMMUNITY OFFICE
Terry L. Vick II Manager CREDIT ADMINISTRATION
Cathy A. Reynolds Vice President
FENTON VG'S COMMUNITY OFFICE Linda J. Gregory Administrative Assistant
Peter D. Lewis Credit Analyst
Thomas B. Hufton II Manager
LOAN CONTROL
Jill M. Pearce Officer
Lori A. Barton Administrative Assistant
</TABLE>
-29-
<PAGE> 30
THE STATE BANK DIRECTORS
<TABLE>
<S><C>
[PHOTO] [PHOTO]
ROBERT J. DERY RUSSELL H. VAN GILDER, JR.
CHAIRMAN VICE CHAIRMAN
[PHOTO] [PHOTO] [PHOTO]
RICHARD A. BAGNALL JON S. GERYCH DONALD L. GRILL
[PHOTO] [PHOTO] [PHOTO]
PHILIP J. LASCO THOMAS P. MCKENNEY BRIAN P. PETTY
[PHOTO] [PHOTO] [PHOTO]
GLEN J. PIECZYNSKI FORREST A. SHOOK STEVE R. SUSZEK
DIRECTOR EMERITUS
</TABLE>
-30-
<PAGE> 31
DIRECTORS
FENTURA BANCORP, INC.
<TABLE>
<S> <C>
Richard A. Bagnall Executive Vice President & Senior Loan Officer - The State Bank
Donald L. Grill President & CEO - The State Bank
Robert J. Dery Chairman of the Board
Jon S. Gerych President - Gerych's Inc.
Philip J. Lasco President - Lasco Ford Chrysler
Thomas P. McKenney Attorney - Kohl, Secrest, Wardle, Lynch, Clark and Hampton
Brian P. Petty President - Fenton Glass Service, Inc.
Glen J. Pieczynski Owner - Linden True Value Hardware, Inc.
Russell H. Van Gilder, Jr. Chairman of the Board - VG's Food Center, Inc.
</TABLE>
THE STATE BANK
<TABLE>
<S> <C>
Richard A. Bagnall Executive Vice President & Senior Loan Officer - The State Bank
Donald L. Grill President & CEO - The State Bank
Robert J. Dery Chairman of the Board
Jon S. Gerych President - Gerych's Inc.
Philip J. Lasco President - Lasco Ford Chrysler
Thomas P. McKenney Attorney - Kohl, Secrest, Wardle, Lynch, Clark and Hampton
Brian P. Petty President - Fenton Glass Service, Inc.
Glen J. Pieczynski Owner - Linden True Value Hardware, Inc.
Forrest A. Shook President & Owner - NLB Corp.
Russell H. Van Gilder, Jr. Chairman of the Board - VG's Food Center, Inc.
Steve R. Suszek Director Emeritus - President - Stevens Furniture, Inc.
</TABLE>
FOR ADDITIONAL INFORMATION CONTACT...
PUBLIC RELATIONS DEPARTMENT
FENTURA BANCORP, INC.
ONE FENTON SQUARE, P.O. BOX 725
FENTON, MI 48430-0725
TELEPHONE (810) 750-8725
-31-
<PAGE> 32
THE STATE BANK
COMMUNITY OFFICES
[MAP]
[LOGO] EQUAL HOUSING LENDER
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 11,921
<INT-BEARING-DEPOSITS> 95
<FED-FUNDS-SOLD> 8,450
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 44,355
<INVESTMENTS-CARRYING> 6,530
<INVESTMENTS-MARKET> 6,594
<LOANS> 175,229
<ALLOWANCE> 2,836
<TOTAL-ASSETS> 254,381
<DEPOSITS> 224,049
<SHORT-TERM> 1,174
<LIABILITIES-OTHER> 3,854
<LONG-TERM> 1,195
0
0
<COMMON> 3,386
<OTHER-SE> 20,723
<TOTAL-LIABILITIES-AND-EQUITY> 254,381
<INTEREST-LOAN> 17,337
<INTEREST-INVEST> 2,812
<INTEREST-OTHER> 353
<INTEREST-TOTAL> 20,502
<INTEREST-DEPOSIT> 8,389
<INTEREST-EXPENSE> 8,571
<INTEREST-INCOME-NET> 11,931
<LOAN-LOSSES> 648
<SECURITIES-GAINS> (67)
<EXPENSE-OTHER> 10,188
<INCOME-PRETAX> 4,565
<INCOME-PRE-EXTRAORDINARY> 3,233
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,233
<EPS-PRIMARY> 4.84
<EPS-DILUTED> 4.84
<YIELD-ACTUAL> 5.24
<LOANS-NON> 575
<LOANS-PAST> 123
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,618
<CHARGE-OFFS> 508
<RECOVERIES> 78
<ALLOWANCE-CLOSE> 2,836
<ALLOWANCE-DOMESTIC> 2,452
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 384
</TABLE>
