<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______________ to _______________
Commission file number 0-23550
Fentura Bancorp, Inc.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Michigan 38-2806518
- --------------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One Fenton Sq, P.O. Box 725, Fenton, Michigan 48430
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(810) 629-2263
---------------------------
(Issuer's telephone number)
None
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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
- ------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: May 12, 1998
-----------------
Class - Common Stock Shares Outstanding - 1,400,777
<PAGE> 2
Fentura Bancorp, Inc.
Index To Form 10-Q
Page
----
Part I - Financial Information
Item 1 - Consolidated Financial Statements 3
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II - Other Information
Item 1 - 6 Miscellaneous Information 16
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Fentura Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
MARCH 31, DEC 31, MARCH 31,
(000's omitted Except Per Share Data) 1998 1997 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 10,163 11,047 9,528
Federal funds sold 9,300 5,400 5,200
-----------------------------------------
Total Cash & Cash Equivalents 19,463 16,447 14,728
Interest bearing deposits with banks 0 95 95
Investment securities-held to maturity,
at cost (market value of $9,952, and
$7,477 at March 31, 1998 and 1997,
respectively) 9,848 9,590 7,466
Investment securities-avail for sale,
at market 42,549 46,460 45,075
-----------------------------------------
Total investment securities 52,397 56,050 52,541
Loans:
Commercial 75,790 81,063 76,656
Tax exempt development loans 449 481 713
Real estate loans - mortgage 13,617 14,589 15,297
Real estate loans - construction 15,701 15,007 19,018
Consumer loans 70,272 69,533 66,108
-----------------------------------------
Total loans 175,829 180,673 177,792
Less: Reserve for loan losses (3,012) (2,955) (2,913)
-----------------------------------------
Net loans 172,817 177,718 174,879
Loans held for sale 7,867 3,525 768
Bank premises and equipment 3,789 3,990 4,566
Accrued interest receivable 1,715 1,907 1,738
Other assets 3,432 3,066 3,784
-----------------------------------------
Total assets $ 261,480 262,798 253,099
=========================================
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
LIABILITIES
Deposits:
Non-interest bearing deposits $ 29,070 31,072 25,286
Interest bearing deposits 199,884 199,462 197,930
------------------------------------
Total deposits 228,954 230,534 223,216
Federal Funds Purchased 0 0 0
Other borrowings 2,394 2,685 2,695
Accrued taxes, interest and
other liabilities 2,580 2,837 2,653
------------------------------------
Total liabilities 233,928 236,056 228,564
------------------------------------
STOCKHOLDERS' EQUITY
Common stock - $5 par value
1,392,777 shares issued (692,343 in
1997 and 679,895 in March, 1997) 6,964 3,462 3,399
Surplus 17,111 16,913 16,371
Retained Earnings 3,362 6,308 5,109
Unrealized loss on sec avail for sale 115 59 (344)
------------------------------------
Total stockholder's equity 27,552 26,742 24,535
------------------------------------
Total liabilities and
stockholder's equity $261,480 262,798 253,099
====================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
Fentura Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
- -----------------------------------------------------------------------
(000's omitted,
Except Per Share Data) 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $4,456 4,433
Interest and dividends on
investment securities:
Taxable 672 670
Tax-exempt 119 88
Int on deposits with banks 1 2
Interest on federal funds sold 48 91
------------------
Total interest income 5,296 5,284
INTEREST EXPENSE
Deposits 2,162 2,208
Short-term borrowings 46 43
------------------
Total interest expense 2,208 2,251
NET INTEREST INCOME 3,088 3,033
Provision for loan losses 156 156
------------------
Net interest income after
provision for loan losses 2,932 2,877
NON-INTEREST INCOME
Service chrgs on dep accts 415 362
Fiduciary income 141 105
Other operating income 404 339
------------------
Total non-interest income 960 806
NON-INTEREST EXPENSE
Salaries and benefits 1,239 1,288
Occupancy of bank premises 178 177
Equipment expense 316 339
Other operating expenses 967 803
Investment gains (losses) 0 0
------------------
Total non-interest expense 2,700 2,607
NET INCOME BEFORE TAXES 1,192 1,076
Applicable income taxes 372 341
------------------
NET INCOME $ 820 735
==================
Per share: (1,392,777 shares)
Net income ................................. $ 0.59 0.53
Dividends ................................. $ 0.20 0.19
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
Fentura Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
March 31,
- --------------------------------------------------------------------------------
(000's omitted,
Except Per Share Data) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 820 $ 735
Adjustments to reconcile net inc to cash
Provided by Operating Activities:
Depreciation and amortization 218 247
Provision for loan losses 156 156
Amortization (accretion) on securities 10 24
Loans originated for sale (5,876) (4,903)
Loans sold 1,534 5,142
Gain on investment securities 0 0
Decrease (increase) in interest receivable 192 97
Decrease (increase) in other assets (396) (692)
Increase (decrease) in accrued taxes,
interest, and other liabilities (257) (1,201)
-----------------------
Total Adjustments (4,419) (1,130)
-----------------------
Net Cash Provided By (Used In) Operating Activities (3,599) (395)
-----------------------
Cash Flows From Investing Activities:
Net decrease in deposits with other banks 95 0
Proceeds from maturities of inv activities - HTM 20 10
Proceeds from maturities of inv activities - AFS 11,450 3,565
Purchases of investment securities - HTM (281) (552)
Purchases of investment securities - AFS (7,460) (4,964)
Net (increase) in customer loans 4,745 (2,642)
Capital expenditures (17) (19)
-----------------------
Net Cash Used in investing Activities 8,552 (4,602)
Cash Flows From Financing Activities:
Net increase (decrease) in DDA/SAV deposits 167 (3,663)
Net increase (decrease) in Time deposits (1,747) 2,961
Net increase (decr) in borrowing's (291) 326
Proceeds from stock issuance 218 119
Cash dividends (284) (258)
-----------------------
Net Cash Provided By (Used In) Financing Activities (1,937) (515)
NET DECREASE IN CASH AND CASH EQUIVALENTS $ 3,016 ($ 5,512)
CASH AND CASH EQUIVALENTS - BEGINNING $ 16,447 $ 20,371
CASH AND CASH EQUIVALENTS - ENDING $ 19,463 $ 14,859
=======================
CASH PAID FOR:
INTEREST $ 2,400 $ 2,233
INCOME TAXES $ 200 $ 0
</TABLE>
See notes to consolidated financial statements.
<PAGE> 7
Fentura Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
- ------------------------------------------------------------------------------------------------------------
March 31, March 31,
(000's omitted) 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK
Balance, beginning of period $ 3,462 $ 3,386
Issuance of shares under
director stock purchase plan,
stock purchase plan, and
dividend reinvestment prog 20 13
Stock dividend 3,482 0
-------- --------
Balance, end of period 6,964 3,399
SURPLUS
Balance, beginning of period 16,913 16,266
Issuance of shares under
director stock purchase plan,
stock purchase plan, and
dividend reinvestment prog 198 105
Stock dividend 0 0
-------- --------
Balance, end of period 17,111 16,371
RETAINED EARNINGS
Balance, beginning of period 6,308 4,632
Net income 820 735
Stock dividend (3,482)
Cash dividends declared (284) (258)
-------- --------
Balance, end of period 3,362 5,109
UNREALIZED GAIN ON SECURITIES
AVAILABLE FOR SALE
Balance, beginning of period 59 (175)
Change in unrealized gain (loss)
on securities, net of tax 56 (169)
-------- --------
Balance, end of period 115 (344)
-------- --------
TOTAL SHAREHOLDERS' EQUITY $ 27,552 $ 24,535
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 8
FENTURA BANCORP, INC. AND SUBSIDIARIES
STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three Months Ended
(000's Omitted) March 31,
1998 1997
----------------
<S> <C> <C>
Net Income $ 820 $ 735
Other comprehensive income, net of tax:
Unrealized holding gains arising
during period $ 56 ($169)
Less: reclassification adjustment for
gains included in net income $ 0 $ 0
----------------
Other comprehensive income $ 56 ($169)
----------------
Comprehensive income $ 876 $ 566
================
</TABLE>
Fentura Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Basis of presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions for Form - 10Q
and Article 9 of Regulation S-X. Accordingly, they do not include all
of the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 1998.
Note 2. Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year financial statement presentation.
Note 3. During the first quarter of 1998 the Corporation adopted the
Statement of Financial Accounting Standards (SFAS) No. 130 "Reporting
Comprehensive Income". The statement requires that entities present
items of other comprehensive income in a financial statement with the
same prominence as other financial statements. This statement requires
reclassification of financial statements for earlier periods for
comparative purposes.
The adoption for SFAS No. 130 does not effect the net income of the
Corporation.
<PAGE> 9
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis is intended to address significant factors
affecting the Corporation's consolidated financial statements during the three
months ended March 31, 1998 and 1997. It provides a more detailed and
comprehensive review of the operating results and financial position than could
be obtained from the financial statements alone.
THREE MONTHS, 1998 VERSUS THREE MONTHS, 1997
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 expense 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 the quarters ended March 31, 1998
and 1997. As indicated in the table, during 1998 net interest income increased
due to the increase in volume of earning assets and both the reduction of volume
and rate of interest bearing liabilities. Table 1 also indicates that the
increase in net interest income in 1997 was due to an increase in volume of
earning assets. Net interest income (displayed without consideration of full tax
equivalency), average balance sheet amounts, and the corresponding yields for
the three months ended March 31, 1998 and 1997 are shown in Table 2. Net
interest income for the three months ended March 31, 1998 was $3,088,000 an
increase of $55,000 over the same period in 1997. This represents an increase of
1.8%. The primary factors contributing to the net interest income increase are
growth in the Corporation's earning assets through increases in federal funds
sold and loans held for sale and a reduction of interest expense due to lower
rates paid on savings, interest bearing DDA, and other time deposits. Also
indicated in Table 2, for the three months ended March 31, 1997 net interest
income was $3,033,000. This is an increase of $155,000 or 5.4% over the same
period in 1996. The increase in 1997 is attributable to the increase in income
derived from increases within investment securities and loans.
Table 1 CHANGES IN NET INTEREST INCOME
DUE TO CHANGES IN AVERAGE VOLUME
AND INTEREST RATES
THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
INCREASE (DECREASE) INCREASE (DECREASE)
1998 1997
DUE TO: DUE TO:
----------------------------------------------------------------------
TWELVE MONTHS ENDED DECEMBER 31, YIELD/ YIELD/
(000'S OMITTED) VOL RATE TOTAL VOL RATE TOTAL
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST BEARING DEPOSITS IN BANKS ($ 1) $ 0 ($ 1) ($ 2) $ 0 ($ 2)
TAXABLE SECURITIES (1) 3 2 109 35 144
TAX-EXEMPT SECURITIES 38 (7) 31 (46) 1 (45)
FEDERAL FUNDS SOLD (46) 3 (43) (11) (3) (14)
TOTAL LOANS (16) (45) (61) 245 (36) 209
LOANS HELD FOR SALE 97 (13) 84 (6) 1 (5)
-----------------------------------------------------------------
TOTAL EARNING ASSETS 71 (59) 12 289 (2) 287
INTEREST BEARING DEMAND DEPOSITS 13 (6) 7 18 (5) 13
SAVINGS DEPOSITS 17 (23) (6) 6 29 35
TIME CD'S $100,000 AND OVER (51) 10 (41) 21 (25) (4)
OTHER TIME DEPOSITS 7 (13) (6) 108 (8) 100
OTHER BORROWINGS (2) 5 3 (13) 1 (12)
-----------------------------------------------------------------
TOTAL INTEREST BEARING LIABILITIES (16) (27) (43) 140 (8) 132
-----------------------------------------------------------------
NET INTEREST INCOME $ 87 ($ 32) $ 55 $ 149 $ 6 $ 155
=================================================================
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
TABLE 2 AVERAGE BALANCES AND RATES
THREE MONTHS ENDED MARCH 31,
(000's omitted) 1998 1997
--------------------------------------- ----------------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
ASSETS BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits in
Banks $ 64 $ 1 6.34% $ 95 $ 2 8.54%
Investment securities:
U.S. Treasury and Government Agencies 43,620 657 6.11% 43,723 656 6.08%
State and Political 9,822 119 4.91% 6,860 88 5.20%
Other 760 15 8.00% 716 14 7.93%
------------------------------------ ---------------------------------
Total Investment Securities 54,202 791 5.92% 51,299 758 5.99%
Fed Funds Sold 3,492 48 5.57% 7,049 91 5.24%
Loans:
Commercial 86,699 2,084 9.75% 86,498 2,116 9.92%
Tax Free 467 7 6.08% 734 10 5.53%
Real Estate-Mortgage 19,604 518 10.72% 25,370 671 10.73%
Consumer 70,216 1,746 10.08% 65,038 1,619 10.10%
------------------------------------ ---------------------------------
Total loans 176,986 4,355 9.98% 177,640 4,416 10.08%
Allowance for Loan Loss (2,945) (2,871)
Net Loans 174,041 4,355 10.15% 174,769 4,416 10.25%
------------------------------------ ---------------------------------
Loans Held for Sale 5,697 101 7.19% 846 17 8.15%
------------------------------------ ---------------------------------
TOTAL EARNING ASSETS $ 240,441 $ 5,296 8.93% $ 236,929 $ 5,284 9.04%
---------------------------------------------------------------------------
Cash Due from Banks 9,558 9,525
All Other Assets 9,175 10,009
--------- ---------
TOTAL ASSETS $ 256,229 $ 253,592
========= =========
LIABILITIES & SHAREHOLDERS' EQUITY:
Deposits:
Non-interest bearing - DDA $ 25,840 $ 26,378
Interest bearing - DDA 35,958 202 2.28% 33,715 195 2.35%
Savings Deposits 58,631 459 3.17% 56,594 465 3.33%
Time CD's $100,000 and Over 25,474 379 6.03% 28,963 420 5.88%
Other Time CD's 79,185 1,122 5.75% 78,689 1,128 5.81%
------------------------------------ ---------------------------------
Total Deposits 225,088 2,162 3.90% 224,339 2,208 3.99%
Other Borrowings 2,421 46 7.71% 2,512 43 6.94%
------------------------------------ ---------------------------------
INTEREST BEARING LIABILITIES $ 201,669 $ 2,208 4.44% $ 200,473 $ 2,251 4.55%
---------------------------------------------------------------------------
All Other Liabilities 2,477 2,388
Shareholders Equity 26,243 24,353
========= =========
TOTAL LIABILITIES and S/H EQUITY $ 256,229 $ 253,592
========= =========
==== ====
Net Interest Rate Spread 4.49% 4.49%
Impact of non-int bearing funds on
margin 0.72% 0.70%
----- -----
Net Interest Income/Margin $ 3,088 5.21% $ 3,033 5.19%
====================== ====================
</TABLE>
<PAGE> 11
ALLOWANCE AND PROVISION FOR LOAN LOSSES
The allowance for loan losses (ALL) reflects management's judgment as to the
level considered appropriate to absorb potential losses inherent in the loan
portfolio. Fentura's subsidiary, The State Bank's, methodology in determining
the adequacy of the ALL 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 ALL is general in nature and is
available for the portfolio in its entirety. At March 31, 1998, the ALL was
$3,012,000, or 1.71% of total loans. This compares with $2,913,000, or 1.64%, at
March 31, 1997.
The provision for loan losses was $156,000 for the first three months of 1998
and $156,000 for the same period in 1997. The primary reason for a level
provision was only modest increases in loan outstandings including loans hold
for sale.
Table 3 ANALYSIS OF THE ALLOWANCE FOR POSSIBLE CREDIT LOSSES
<TABLE>
<CAPTION>
Three Months Ended
(000's omitted) March 31,
1998 1997
--------------------------
<S> <C> <C>
Balance Beginning of Period $ 2,955 $ 2,836
--------------------------
Charge-offs:
Domestic:
Commercial, Financial and Agricultural (42) (2)
Real Estate-Mortgage 0 0
Installment Loans to Individuals (86) (105)
Lease Financing 0 0
--------------------------
Total Charge-offs (128) (107)
--------------------------
Recoveries:
Domestic:
Commercial, Financial and Agricultural 13 12
Real Estate-Mortgage 0 4
Installment Loans to Individuals 16 12
Lease Financing 0 0
--------------------------
Total Recoveries 29 28
--------------------------
Net Charge-offs (99) (79)
--------------------------
Provision 156 156
--------------------------
Balance at End of Period $ 3,012 $ 2,913
==========================
Loans outstanding at period end $ 175,828 $ 177,792
Average loans outstanding during period $ 176,986 $ 177,640
Allowance for loan losses as a percentage
of loans outstanding at period end 1.71% 1.64%
Ratio of net charge-offs during period to
average loans outstanding (annualized) 0.22% 0.18%
</TABLE>
<PAGE> 12
NON-INTEREST INCOME
Non-interest income was $960,000 for the first three months of 1998 and $806,000
in the same period of 1997. This figure represents an increase of 19.1% in 1998.
Table 1 provides a more detailed breakdown of the components of non-interest
income than can be found in the income statement on page 5.
The most significant category of non-interest income is service charges on
deposit accounts. These fees were $415,000 in the first three months of 1998 and
$362,000 in the same period of 1997. This represents an increase of 14.6% Growth
in deposit totals, the number of accounts and certain account activities account
for the increase.
Gains on the sale of mortgage loans originated by the bank and sold in the
secondary market were $74,000 in the first quarter of 1998 and $63,000 in the
same period in 1997. This 17.5% increase occurred because of increases in
residential mortgage refinance activity due to the impact of lower market rates.
Fiduciary income increased $36,000 in the first three months of 1998 compared to
the same time period in the prior year. This 34.3% increase in fees is
attributed to growth in the assets under management within the Corporation's
Investment Trust Department.
Other operating income, includes income from the sale of checks, safe deposit
box rent, merchant account income, ATM income, and other miscellaneous income
items. Other operating income at $236,000 for the first quarter of 1998
increased $59,000 or 33.3% compared to the same time period in 1997. This
increase occurred due to transaction fees associated with certain ATM activity.
TABLE 4
<TABLE>
<CAPTION>
Three Months Ended
Analysis of Non-Interest Income March 31,
- ---------------------------------------------------------
(000's omitted)
1998 1997
- ---------------------------------------------------------
<S> <C> <C>
Service Charges on Deposit Accounts $415 $362
Gain on Sale of Mortgages 74 63
Gain on Sale of Real Estate Owned 0 1
Mortgage Servicing Fees 94 98
Fiduciary Income 141 105
Other Operating Income 236 177
---- ----
Total Non-Interest Income $960 $806
==== ====
</TABLE>
Non-Interest Expense
Total non-interest expense was $2,700,000 in the first three months of 1998
compared with $2,607,000 in the same period of 1997. This is an increase of
3.6%.
Salary and benefit costs, Fentura's largest non-interest expense category, were
$1,239,000 in the first quarter of 1998, compared with $1,288,000 for the first
quarter of 1997. 1998 salary costs represent a decrease of 3.8% comparing to
1997. Reduced costs are primarily a result of several vacant positions and the
reduction of salary and benefits expense accordingly.
During the first three months of 1998 equipment expenses were $316,000 compared
to $339,000 for the same period in 1997. The reduction of expense in 1998 is
attributable to equipment depreciation. Depreciation expense decreased because
several substantial assets reached full depreciation in the last quarter of
1997.
During the first quarter of 1998 office supplies expenses were $88,000 compared
to $63,000 for the same period of 1997, an increase of 39.7%. This increase is
attributable to cost and volume increases of regular office supplies and
preprinted forms.
<PAGE> 13
Loan and collection expenses were $111,000 in the first quarter of 1998 compared
to $102,000 for the same period in 1997, an increase of 8.8%. The increase is
primarily attributable to an increase in indirect consumer loan volume and
accordingly, an increase in dealer reserve expense and an increase in home
equity loan fees waived to the customer and paid by the bank.
Other operating expenses were $681,000 in the first three months of 1998
compared to $532,000 in the first three months of 1997. This 28.0% increase in
expense is attributable to a loss in January 1998 of $75,000 on an improperly
endorsed check and increases in legal and consulting expense associated with
efforts to improve employee benefits and enhance compensation and leveling
systems.
TABLE 5
<TABLE>
<CAPTION>
Three Months Ended
Analysis of Non-Interest Expense March 31,
- ----------------------------------------------------
(000's omitted)
1998 1997
- ----------------------------------------------------
<S> <C> <C>
Salaries and Benefits $1,239 $1,288
Equipment 316 339
Net Occupancy 177 177
FDIC Assessment 7 6
Office Supplies 88 63
Loan & Collection Expense 111 102
Advertising 81 100
Security Losses 0 0
Other Operating Expense 681 532
------ ------
Total Non-Interest Expense $2,700 $2,607
====== ======
</TABLE>
NONPERFORMING ASSETS
Non-performing assets include loans on which interest accruals have ceased,
loans which have been renegotiated, and real estate acquired through
foreclosure. Past due loans are loans which were delinquent 90 days or more, but
have not been placed on non-accrual status. Table 6 represents the levels of
these assets at March 31, 1998 and 1997.
The increase in non-performing loans is primarily due to several delinquent
single-family mortgage loans which have sufficient equity and no expected loss.
Additionally, the increase in non-accrual loans is due to two large commercial
loan facilities wherein agreements have been executed that require specific
action plans, collateral pledges, and related performance expectations. The
loans will be closely monitored. While the non-performing loan increase is of
concern, overall asset quality remains satisfactory.
The ratio trends listed below support the above mentioned loan facilities that
are included in the non-performing category.
Table 6
<TABLE>
<CAPTION>
Non-Performing Assets and Past Due Loans
March 31,
1998 1997
---------------------------
<S> <C> <C>
Non-Performing Loans:
Loans Past Due 90 Days or More & Still
Accruing $ 869,000 $ 144,000
Non-Accrual Loans 1,688,000 747,000
Renegotiated Loans 8,000 0
---------------------------
Total Non-Performing Loans 2,565,000 891,000
---------------------------
Other Non-Performing Assets:
Other Real Estate 0 0
REO in Redemption 154,000 0
Other Non-Performing Assets 63,000 88,000
---------------------------
Total Other Non-Performing Assets 217,000 88,000
---------------------------
Total Non-Performing Assets $2,782,000 $ 979,000
===========================
</TABLE>
<PAGE> 14
<TABLE>
<S> <C> <C>
Non-Performing Loans as a % of
Total Loans 1.46% 0.50%
Non-Performing Assets as a % of
Total Loans and Other Real Estate 1.58% 0.55%
Allowance for Loan Losses as a % of
Non-Performing Loans 117.43% 326.94%
Allowance for Loan Losses, Other Real
Estate, and In-Substance Foreclosures
as a % of Non-Performing Assets 113.80% 297.55%
Accruing Loans Past Due 90 Days or
More to Total Loans 0.49% 0.08%
Nonperforming Assets as a % of
Total Assets 1.06% 0.39%
</TABLE>
LIQUIDITY AND INTEREST RATE RISK MANAGEMENT
Asset/Liability management procedures are 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 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 Fentura's 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 market 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 the first three
months of 1998 and 1997.
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 March 31, 1998 federal funds sold represented
3.6% of total assets, compared to 2.1% at March 31, 1997. 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 re-pricing 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.
As indicated in the statement of cash flows, cash flows from financing
activities have decreased in 1998 due to a less aggressive approach to
negotiating the interest rate of large time deposits and accordingly a decline
in overall all deposit totals. Comparatively, in the first three months of 1997,
cash flows from financing activities decreased because of a decline in checking
and saving deposits. Cash flows from investing activities were $8,552,000 during
the first three months of 1998 and ($4,602,000) in the same period of 1997. The
primary reason for the decline in investing activities at the end of the first
quarter of 1998 was an decrease in deposits creating funding for investing
activity and an increase in federal funds sold.
<PAGE> 15
CAPITAL MANAGEMENT
Total shareholders' equity rose 12.3% to $27,552,000 at March 31, 1998 compared
with $24,535,000 at March 31, 1997. The Company's equity to asset ratio was
10.5% at March 31, 1998 and 9.7% at March 31, 1997. The increase in the amount
of capital was obtained through retained earnings and the proceeds from the
issuance of new shares. In the first three months of 1998, the Corporation
increased its cash dividends by 10.1% to $.20 per share compared with $.19 in
the first three months of 1997.
As indicated on the balance sheet on page 4, at March 31, 1998 the Company had
an unrealized gain on securities available for sale (AFS) of $115,000 compared
to an unrealized loss at March 31, 1997 of $344,000. This decrease in unrealized
loss to a gain position is attributable to market interest rates and the
interest rate structures on those securities held in the Company's AFS
portfolio.
Regulatory Capital Requirements
Bank holding companies and their bank subsidiaries are required by banking
industry regulators to meet certain levels of capital adequacy. These are
expressed in the form of certain ratios. Capital is separated into two levels,
Tier I capital (essentially total common stockholders' equity less goodwill) and
Tier II capital (essentially the reserve for loan losses limited to 1.25% of
gross risk-weighted assets). These ratios are based on the degree of credit risk
in the Corporation's assets. All assets and off-balance sheet items such as
outstanding loan commitments are assigned risk factors to create an overall risk
weighted asset total. Capital levels are then measured as a percentage of total
risk weighted assets. The regulatory minimum for Tier I capital to risk weighted
assets is 4% and the minimum for Total capital (Tier I plus Tier II) to risk
weighted assets is 8%. The Tier I leverage ratio measures Tier I capital to
average assets and must be a minimum of 4%.
The FDIC has adopted a risk-based insurance premium system based in part on a
corporation's capital adequacy. Under this system a depository institution is
classified as well capitalized, adequately capitalized, or undercapitalized
according to its regulatory capital levels. Subsequently, a financial
institution's premium levels are based on these classifications and its
regulatory supervisory rating (the higher the classification the lower the
premium). It is the Corporation's goal to maintain capital levels sufficient to
receive a designation of "well capitalized".
Table 7
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Capital Ratios Regulatory
Minimum For
"Well March 31, December 31, March 31,
Capitalization" 1998 1997 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Risk Based Capital:
Total Capital 10% 13.71% 13.47% 13.05%
Tier 1 6% 12.46% 12.22% 11.80%
Tier 1 Leverage 5% 10.18% 9.99% 9.60%
</TABLE>
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 re-pricing opportunities exist for both assets and liabilities in
roughly equivalent amounts at approximately the same time intervals. Imbalances
in these re-pricing opportunities at any point in time constitute a bank's
interest rate sensitivity. As a matter of practice, the Bank doesn't use
derivative transactions in managing interest rate risk.
<PAGE> 16
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, and is referred to as
"GAP".
Table 8 sets forth the distribution of re-pricing of the Corporation's earning
assets and interest bearing liabilities as of December 31, 1997, 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 re-price 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
re-pricing 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 re-pricing
within the same period may in fact re-price at different times within such
period and at different rates or indices.
Table 8 GAP ANALYSIS
MARCH 31, 1998
<TABLE>
<CAPTION>
(000's Omitted) 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 $ 0 $ 0 0
Federal Funds Sold 9,300 0 0 0 9,300
Investment Securities 11,253 7,446 14,708 18,990 52,397
Loans 59,077 7,782 86,156 22,814 175,829
Loans Held for Sale 138 0 0 7,729 7,867
-----------------------------------------------------------------
Total Earning Assets $ 79,768 $ 15,228 $100,864 $ 49,533 $245,393
=================================================================
Interest Bearing Liabilities:
Interest Bearing Demand Deposits $ 34,800 $ 0 $ 0 $ 0 $ 34,800
Savings Deposits 18,337 0 0 43,317 61,654
Time Deposits Less than $100,000 13,727 42,066 23,600 0 79,393
Time Deposits Greater than $100,000 9,396 10,637 3,614 391 24,038
Other Borrowings 1,219 0 40 1,135 2,394
-----------------------------------------------------------------
Total Interest Bearing Liabilities $ 77,479 $ 52,703 $ 27,254 $ 44,843 $202,279
=================================================================
Interest Rate Sensitivity GAP $ 2,289 ($37,475) $ 73,610 $ 4,690 $ 43,114
Cumulative Interest Rate
Sensitivity GAP $ 2,289 ($35,186) $ 38,424 $ 43,114
Interest Rate Sensitivity GAP 1.03 0.29 3.70 1.10
Cumulative Interest Rate
Sensitivity GAP Ratio 1.03 0.73 1.24 1.21
</TABLE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
The exhibits listed on the "Exhibit Index" on page 15 of this report are
incorporated herein by reference.
b. Report on Form 8-k
No reports on Form 8-k were filed for the quarter ended March 31, 1998.
<PAGE> 17
FENTURA BANCORP, INC.
1998 Quarterly Report on Form 10Q
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Exhibit Location
- ----- ------------------------------------------------------------------ ---------
<S> <C> <C>
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 *****
10.18 Executive Stock Bonus Plan *****
</TABLE>
<PAGE> 18
<TABLE>
<S> <C> <C>
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 ******
10.20 Severance Compensation Agreements between the registrant and
Donald L. Grill and Richard A. Bagnall dated March 20, 1997 *******
27.0 Financial Data Schedule
</TABLE>
* 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
****** Incorporated by reference to form 10K-SB filed March 20, 1997
******* Incorporated by reference to form 10Q-SB filed May 12, 1997
<PAGE> 19
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FENTURA BANCORP, INC.
Date May 14, 1998 By /s/ Donald L. Grill
-------------- -----------------------------------
Donald L. Grill
Director
President & CEO
Date May 14, 1998 By /s/ Ronald L. Justice
------------- -----------------------------------
Ronald L. Justice
Vice President (Authorized Signer)
Chief Financial Officer
Cashier
<PAGE> 20
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 10,163
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 42,549
<INVESTMENTS-CARRYING> 9,848
<INVESTMENTS-MARKET> 9,952
<LOANS> 175,829
<ALLOWANCE> 3,012
<TOTAL-ASSETS> 261,480
<DEPOSITS> 228,954
<SHORT-TERM> 1,209
<LIABILITIES-OTHER> 2,580
<LONG-TERM> 1,185
0
0
<COMMON> 6,964
<OTHER-SE> 20,588
<TOTAL-LIABILITIES-AND-EQUITY> 261,480
<INTEREST-LOAN> 4,456
<INTEREST-INVEST> 791
<INTEREST-OTHER> 49
<INTEREST-TOTAL> 5,296
<INTEREST-DEPOSIT> 2,162
<INTEREST-EXPENSE> 2,208
<INTEREST-INCOME-NET> 3,088
<LOAN-LOSSES> 156
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,700
<INCOME-PRETAX> 1,192
<INCOME-PRE-EXTRAORDINARY> 1,192
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 820
<EPS-PRIMARY> .59
<EPS-DILUTED> .59
<YIELD-ACTUAL> 5.25
<LOANS-NON> 1,688
<LOANS-PAST> 869
<LOANS-TROUBLED> 8
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,955
<CHARGE-OFFS> 128
<RECOVERIES> 29
<ALLOWANCE-CLOSE> 3,012
<ALLOWANCE-DOMESTIC> 3,012
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
