<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 JUNE 30, 1999
[ ] 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: August 05, 1999
Class - Common Stock Shares Outstanding - 1,417,094
<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 21
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
FENTURA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------
Item 1. Consolidated Financial Statements
<TABLE>
<CAPTION>
Fentura Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited)
- ------------------------------------------------------------------------------------------------------------------
JUNE 30, DEC 31, JUNE 30,
(000's omitted Except Per Share Data) 1999 1998 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 13,101 11,858 14,965
Federal funds sold 4,400 6,300 9,400
-------------------------------------------------
Total Cash & Cash Equivalents 17,501 18,158 24,365
Interest bearing deposits with banks 0 0 0
Investment securities-held to maturity,
at cost (market value of $11,200, and
$10,958 at June 30, 1999 and 1998,
respectively, and $11,695 at Dec. 1998) 11,190 11,377 10,845
Investment securities-avail for sale,
at market 60,133 66,579 44,813
-------------------------------------------------
Total investment securities 71,323 77,956 55,658
Loans:
Commercial 81,551 78,536 72,185
Tax exempt development loans 274 296 427
Real estate loans - mortgage 9,831 9,010 11,996
Real estate loans - construction 11,328 11,641 13,593
Consumer loans 61,279 62,423 69,831
-------------------------------------------------
Total loans 164,263 161,906 168,032
Less: Allowance for possible loan losses (2,920) (2,783) (2,758)
-------------------------------------------------
Net loans 161,343 159,123 165,274
Loans held for sale 10,401 10,507 11,137
Bank premises and equipment 4,784 3,996 3,702
Accrued interest receivable 1,547 1,658 1,747
Other assets 5,210 3,649 3,369
-------------------------------------------------
Total assets $ 272,109 275,047 265,252
=================================================
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
LIABILITIES
Deposits:
Non-interest bearing deposits $ 29,203 29,974 28,231
Interest bearing deposits 207,944 211,131 203,371
-------------------------------------------------
Total deposits 237,147 241,105 231,602
FEDERAL FUNDS PURCHASED 0 0 0
OTHER BORROWINGS 945 41 1,500
LONG TERM BORROWINGS 1,164 1,175 1,175
ACCRUED TAXES, INTEREST AND
other liabilities 2,038 2,704 2,458
-------------------------------------------------
Total liabilities 241,294 245,025 236,735
-------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock - $2.5 par value
1,417,094 shares issued (1,408,436 in 3,543 3,521 3,508
Dec.1998 and 1,403,177 in June, 1998)
Surplus 18,081 17,644 17,400
Retained Earnings 9,880 8,664 7,446
Unrealized gain (loss) on securities available for sale (689) 193 163
-------------------------------------------------
Total stockholder's equity 30,815 30,022 28,517
-------------------------------------------------
Total liabilities and
stockholder's equity $ 272,109 275,047 265,252
=================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
Fentura Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 4,320 4,527 $ 8,342 8,983
Interest and dividends on
investment securities:
Taxable 706 637 1,488 1,309
Tax-exempt 134 128 269 247
Int on deposits with banks 0 1 0 1
Interest on federal funds sold 213 112 357 160
-------------------------------- --------------------------------
Total interest income 5,373 5,405 10,456 10,700
INTEREST EXPENSE
Deposits 1,904 2,111 3,827 4,273
Other borrowings 11 18 21 42
Long term borrowings 21 22 43 44
-------------------------------- --------------------------------
Total interest expense 1,936 2,151 3,891 4,359
NET INTEREST INCOME 3,437 3,253 6,565 6,341
Provision for loan losses 130 256 325 412
-------------------------------- --------------------------------
Net interest income after
provision for loan losses 3,307 2,997 6,240 5,929
NON-INTEREST INCOME
Service chrgs on dep accts 499 428 975 843
Fiduciary income 144 139 299 280
Other operating income 357 453 726 857
Investment gains 0 5 26 5
-------------------------------- --------------------------------
Total non-interest income 1,000 1,025 2,026 1,985
NON-INTEREST EXPENSE
Salaries and benefits 1,421 1,315 2,749 2,554
Occupancy of bank premises 190 182 383 360
Equipment expense 342 359 683 675
Other operating expenses 937 879 1,750 1,846
--------------------------------------------------------------------
Total non-interest expense 2,890 2,735 5,565 5,435
NET INCOME BEFORE TAXES 1,417 1,287 2,701 2,479
Applicable income taxes 437 390 835 762
-------------------------------- --------------------------------
NET INCOME $ 980 897 $ 1,866 1,717
================================ ================================
Per share:
Net income $ 0.69 0.64 $ 1.32 1.23
Dividends $ 0.23 0.21 $ 0.46 0.42
Average number of common
shares outstanding 1,415,637 1,401,213 1,412,475 1,394,140
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
Fentura Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
- -------------------------------------------------------------------------------------------------------
JUNE 30, JUNE 30,
(000'S OMITTED) 1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK
Balance, beginning of period $ 3,521 $ 3,462
Issuance of shares under
director stock purchase plan,
stock purchase plan, and
dividend reinvestment prog 22 46
------------------- ------------------
Balance, end of period 3,543 3,508
SURPLUS
Balance, beginning of period 17,644 16,913
Issuance of shares under
director stock purchase plan,
stock purchase plan, and
dividend reinvestment prog 437 487
------------------- ------------------
Balance, end of period 18,081 17,400
RETAINED EARNINGS
Balance, beginning of period 8,664 6,308
Net income 1,866 1,717
Cash dividends declared (650) (579)
------------------- ------------------
Balance, end of period 9,880 7,446
UNREALIZED GAIN ON SECURITIES
AVAILABLE FOR SALE
Balance, beginning of period 193 59
Change in unrealized gain (loss)
on securities, net of tax (882) 104
------------------- ------------------
Balance, end of period (689) 163
------------------- ------------------
TOTAL SHAREHOLDERS' EQUITY $ 30,815 $ 28,517
=================== ==================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 7
Fentura Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
- ----------------------------------------------------------------------------------------
(000'S OMITTED,
EXCEPT PER SHARE DATA) 1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,866 $ 1,717
Adjustments to reconcile net inc to cash
Provided by Operating Activities:
Depreciation and amortization 406 441
Provision for loan losses 325 256
Amortization (accretion) on securities (30) 28
Loans originated for sale (5,924) (17,764)
Loans sold 6,030 10,152
Gain on investment securities (26) (5)
Decrease (increase) in interest receivable 111 160
Decrease (increase) in other assets (932) (358)
Increase (decrease) in accrued taxes,
interest, and other liabilities (666) (379)
-----------------------
Total Adjustments (706) (7,469)
-----------------------
Net Cash Provided By (Used In) Operating Activities 1,160 (5,752)
-----------------------
Cash Flows From Investing Activities:
Net decrease in deposits with other banks 0 95
Proceeds from maturities of inv activities - HTM 185 3,055
Proceeds from sales and maturities of inv activities - AFS 56,767 19,759
Purchases of investment securities - HTM 0 (4,314)
Purchases of investment securities - AFS (51,636) (17,973)
Net (increase) in customer loans (2,682) 12,188
Capital expenditures (1,194) (153)
-----------------------
Net Cash Used in Investing Activities 1,440 12,657
Cash Flows From Financing Activities:
Net increase (decrease) in DDA/SAV deposits 533 1,202
Net increase (decrease) in Time deposits (4,491) (134)
Net increase (decr) in borrowing's 893 (10)
Proceeds from stock issuance 458 534
Cash dividends (650) (579)
-----------------------
Net Cash Provided By (Used In) Financing Activities (3,257) 1,013
NET INCREASE IN CASH AND CASH EQUIVALENTS ($657) $7,918
CASH AND CASH EQUIVALENTS - BEGINNING $ 18,158 $ 16,447
CASH AND CASH EQUIVALENTS - ENDING $ 17,501 $ 24,365
=======================
CASH PAID FOR:
INTEREST $ 4,305 $ 4,398
INCOME TAXES $ 950 $ 1,130
</TABLE>
See notes to consolidated financial statements.
<PAGE> 8
Fentura Bancorp, Inc. and Subsidiaries
Statement of Comprehensive Income
<TABLE>
<CAPTION>
SIX MONTHS ENDED
(000'S OMITTED) JUNE 30,
1999 1998
----------------------------
<S> <C> <C>
Net Income $ 1,866 $ 1,717
Other comprehensive income, net of tax:
Unrealized holding gains arising
during period ($856) $ 109
Less: reclassification adjustment for
gains included in net income $ 26 $ 5
----------------------------
Other comprehenisive income ($882) $ 104
----------------------------
Comprehensive income $ 984 $ 1,821
============================
</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
six months ended June 30, 1999 are not necessarily indicative of
the results that may be expected for the year ended December 31,
1999.
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
and six months ended June 30, 1999 and 1998. It provides a more detailed and
comprehensive review of the operating results and financial position than could
be obtained from the financial statements alone.
Table 1
Financial Data
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
$ IN THOUSAND EXCEPT PER SHARE DATA AND RATIOS 1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Summary of Consolidated Statements of Earnings:
Interest Income $ 10,456 $ 10,700
Interest Expense 3,891 4,359
-----------------------
Net Interest Income 6,565 6,341
Provision for Possible Credit Losses 325 412
-----------------------
Net Interest Income after Provision 6,240 5,929
Total Other Operating Income 2,026 1,985
Total Other Operating Expense 5,565 5,435
-----------------------
Income Before Income Taxes 2,701 2,479
Provision for Income Taxes 835 762
-----------------------
Net Income $ 1,866 $ 1,717
=======================
Net Income Per Share $ 1.32 $ 1.23
Summary of Consolidated Statements of Financial Condition:
Assets $272,109 $265,252
Securities 71,323 55,658
Loans 174,664 179,169
Deposits 237,147 231,602
Stockholders' Equity 30,815 28,517
Other Financial and Statistical Data:
Tier 1 Capital to Risk Weighted Assets 13.59% 11.83%
Total Capital to Risk Weighted Assets 14.84% 13.08%
Tier 1 Capital to Average Assets 10.81% 10.21%
Total Cash Dividends $ 650 $ 579
Book Value Per Share $ 21.82 $ 20.45
Cash Dividends Paid Per Share $ 0.46 $ 0.42
Period End Market Price Per Share $ 54.00 $ 41.50
Dividend Payout Ratio 34.83% 33.72%
Return on Average Stockholders'Equity 11.98% 12.26%
Return on Average Assets 1.38% 1.33%
Net Interest Margin (FTE) 5.35% 5.34%
Total Equity to Assets at Period End 11.32% 10.75%
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE> 10
Results of Operations
Table 1 summarizes selected financial data for the six months ended June 30,
1999 and 1998. As indicated earnings for the six month ended June 30, 1999 were
$1,866,000 compared to $1,717,000 for the same period in 1998. Earnings have
continued to steadily increase as a result of improvement of net interest income
and other operating income.
The banking industry uses standard performance indicators to help evaluate an
institution's performance. Return on average assets is one of these indicators.
For the six months ended June 30, 1999 the Coporation's return on average assets
was 1.38% compared to 1.33% for the same period in 1998. Total assets increased
approximately $7,000,000 from June 30, 1998 to $272,109,000 at June 30, 1999.
Stockholders' Equity increased approximately $2,300,000 from June 30, 1998 to
$30,815,000 at June 30, 1999. The increase in equity will allow the Corporation
to continue its growth strategy. Net income per share-basic was $1.32 in the
first six months of 1999 compared to $1.23 for the same period in 1998.
Net Interest Income
Net interest income and average balances and yields on major categories of
interest-earning assets and interest-bearing liabilities for the three and six
months ended June 30, 1999 and 1998 are summarized in Tables 3 and 4,
respectively. The effects of changes in average interest rates and average
balances are detailed in Table 2 below.
Table 2 CHANGES IN NET INTEREST INCOME
DUE TO CHANGES IN AVERAGE VOLUME
AND INTEREST RATES
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
1999 COMPARED TO 1998 1999 COMPARED TO 1998
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO: DUE TO:
------------------------------------------------------------------------
YIELD/ YIELD/
(000'S OMITTED) VOL RATE TOTAL VOL RATE TOTAL
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST BEARING DEPOSITS IN BANKS 0 0 0 (1) 0 (1)
TAXABLE SECURITIES 81 (12) 69 208 (29) 179
TAX-EXEMPT SECURITIES 6 0 6 24 (2) 22
FEDERAL FUNDS SOLD 248 (147) 101 262 (65) 197
TOTAL LOANS (239) 16 (223) (587) (153) (740)
LOANS HELD FOR SALE 18 (2) 16 117 (18) 99
------------------------------------------------------------------------
TOTAL EARNING ASSETS 114 (145) (31) 23 (267) (244)
INTEREST BEARING DEMAND DEPOSITS 31 (60) (29) 70 (114) (44)
SAVINGS DEPOSITS 32 (16) 16 67 (86) (19)
TIME CD'S $100,000 AND OVER 10 (37) (27) 4 (76) (72)
OTHER TIME DEPOSITS (69) (98) (167) (126) (185) (311)
OTHER BORROWINGS (8) 0 (8) (19) (3) (22)
------------------------------------------------------------------------
TOTAL INTEREST BEARING LIABILITIES (4) (211) (215) (4) (464) (468)
------------------------------------------------------------------------
NET INTEREST INCOME $ 118 $ 66 $ 184 $ 27 $ 197 $ 224
========================================================================
</TABLE>
As indicated in Table 2, during the three and six months ended June 30 1999, net
interest income increased over the same period in 1998 principally due to the
reduction of rates paid on interest bearing deposit liabilities.
<PAGE> 11
Net interest income (displayed without consideration of full tax equivalency),
average balance sheet amounts, and the corresponding yields for the three months
ended June 30, 1999 and 1998 are shown in Table 3. Net interest income for the
three months ended June 30, 1999 was $3,437,000 an increase of $184,000 over the
same period in 1998. This represents an increase of 5.7%. The primary factors
contributing to the net interest income increase is the reduction of interest
expense due to lower rates paid on interest bearing DDA and time deposits. Also
indicated in Table 3, for the three months ended June 30, 1998 net interest
income was $3,253,000. This is an increase of $212,000 or 7.0% over the same
period in 1997. The increase in 1998 is primarily attributable to the growth in
the Corporation's earning assets through increases in federal funds sold and
loans held for sale and a reduction in interest expense due to lower rates paid
on deposits.
Net interest income (displayed without consideration of full tax equivalency),
average balance sheet amounts, and the corresponding yields for the six months
ended June 30, 1999 and 1998 are shown in Table 4. Net interest income for the
six months ended June 30, 1999 was 6,565,000 an increase of $224,000 over the
same period in 1998. This represents an increase of 3.5%. The primary factor
contributing to the net interest income increase is a reduction of interest
expense due to lower rates paid deposits and lower deposit balances. Also
indicated in Table 4, for the six months ended June 30, 1998 net interest income
was $6,341,000. This is an increase of $267,000 or 4.4% over the same period in
1997. The increase in 1998 is attributable to the growth in the Corporation's
earning assets through increases in loans held for sale and investment
securities, and accordingly an increase in interest income, and a reduction of
interest expense due to lower rates paid on savings, interest bearing DDA, and
other time deposits.
Management continually monitors the Corporation's balance sheet to insulate net
interest income from significant swings caused by interest rate volatility. If
market rates change in 1999, corresponding changes in funding costs would be
considered to avoid any potential negative impact on net interest income. The
Corporation's policies in this regard are further discussed in the section
titled "Interest Rate Risk".
<PAGE> 12
<TABLE>
<CAPTION>
Table 3 AVERAGE BALANCES AND RATES
THREE MONTHS ENDED JUNE 30,
(dollars in thousands) 1999 1998
------------------------------ --------------------------------
ASSETS AVG BAL INC/EXP YIELD AVG BAL INC/EXP YIELD
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits in Banks $ 0 $ 0 0.00% $ 0 $ 0 0.00%
Investment securities:
U.S. Treasury and Government Agencies 46,389 690 5.97% 41,524 621 6.00%
State and Political 11,248 134 4.78% 10,739 128 4.78%
Other 1,297 16 4.95% 788 16 8.14%
------------------------------ --------------------------------
Total Investment Securities 58,934 840 5.72% 53,051 765 5.78%
Fed Funds Sold 17,969 213 4.75% 8,136 112 5.52%
Loans:
Commercial 88,849 2,330 10.52% 85,687 2,124 9.94%
Tax Free 286 4 5.61% 435 11 10.14%
Real Estate-Mortgage 13,808 324 9.41% 17,907 462 10.35%
Consumer 61,779 1,479 9.60% 70,221 1,763 10.07%
------------------------------ --------------------------------
Total loans 164,722 4,137 10.07% 174,250 4,360 10.04%
Allowance for Loan Loss (2,896) (3,017)
Net Loans 161,826 4,137 10.25% 171,233 4,360 10.21%
------------------------------ --------------------------------
Loans Held for Sale 10,496 183 6.99% 9,502 167 7.05%
------------------------------ --------------------------------
TOTAL EARNING ASSETS $ 252,121 $ 5,373 8.55% $ 244,939 $ 5,404 8.85%
-----------------------------------------------------------------
Cash Due from Banks 10,099 9,673
All Other Assets 11,047 9,212
---------- ------------
TOTAL ASSETS $ 270,371 $ 260,807
---------- ------------
LIABILITIES & SHAREHOLDERS' EQUITY:
Deposits:
Non-Interest bearing - DDA $ 28,588 $ 27,765
Interest bearing - DDA 42,533 180 1.70% 37,097 209 2.26%
Savings Deposits 65,102 454 2.80% 60,742 438 2.89%
Time CD's $100,000 and Over 24,431 319 5.24% 23,726 346 5.85%
Other Time CD's 74,453 951 5.12% 79,353 1,118 5.65%
------------------------------ --------------------------------
Total Deposits 235,107 1,904 3.25% 228,683 2,111 3.70%
Other Borrowings 1,860 32 6.90% 2,321 40 6.91%
------------------------------ --------------------------------
INTEREST BEARING LIABILITIES $ 208,379 $ 1,936 3.73% $ 203,239 $ 2,151 4.25%
-----------------------------------------------------------------
All Other Liabilities 1,900 2,319
Shareholders Equity 31,504 27,484
---------- ------------
TOTAL LIABILITIES and S/H EQUITY $ 270,371 $ 260,807
---------- ---- ------------ ----
Net Interest Rate Spread 4.82% 4.60%
Impact of Non-Int Funds on Margin 0.65% 0.72%
---- ----
Net Interest Income/Margin $ 3,437 5.47% $ 3,253 5.33%
================= ==================
</TABLE>
<PAGE> 13
<TABLE>
<CAPTION>
Table 4 AVERAGE BALANCES AND RATES
SIX MONTHS ENDED JUNE 30,
(dollars in thousands) 1999 1998
------------------------------- -------------------------------
ASSETS AVG BAL INC/EXP YIELD AVG BAL INC/EXP YIELD
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits in Banks $ 0 $0 0.00% $ 32 $ 1 6.30%
Investment securities:
U.S. Treasury and Government Agencies 48,873 1,457 6.01% 42,572 1,278 6.05%
State and Political 11,304 269 4.80% 10,281 247 4.84%
Other 1,281 31 4.88% 774 31 8.08%
------------------------------ -------------------------------
Total Investment Securities 61,458 1,757 5.77% 53,627 1,556 5.85%
Fed Funds Sold 15,263 357 4.72% 5,814 160 5.55%
Loans:
Commercial 87,297 4,293 9.92% 86,193 4,208 9.85%
Tax Free 291 8 5.54% 451 18 8.05%
Real Estate-Mortgage 14,783 712 9.71% 18,988 980 10.41%
Consumer 61,764 2,962 9.67% 70,255 3,509 10.07%
------------------------------ -------------------------------
Total loans 164,135 7,975 9.80% 175,887 8,715 9.99%
Allowance for Loan Loss (2,862) (2,981)
Net Loans 161,273 7,975 9.97% 172,906 8,715 10.16%
------------------------------ ------------------------------
Loans Held for Sale 10,498 367 7.05% 7,331 268 7.37%
------------------------------ ------------------------------
TOTAL EARNING ASSETS $ 251,354 $10,456 8.39% $ 242,691 $ 10,700 8.89%
----------------------------------------------------------------
Cash Due from Banks 10,030 9,616
All Other Assets 11,003 9,194
---------- -----------
TOTAL ASSETS $ 269,525 $ 258,520
---------- -----------
LIABILITIES & SHAREHOLDERS' EQUITY:
Deposits:
Non-Interest bearing - DDA $ 28,106 $ 25,660
Interest bearing - DDA 42,649 367 1.74% 36,484 411 2.27%
Savings Deposits 64,122 878 2.76% 59,730 897 3.03%
Time CD's $100,000 and Over 24,818 653 5.31% 24,681 725 5.92%
Other Time CD's 74,764 1,929 5.20% 79,189 2,240 5.70%
------------------------------ ------------------------------
Total Deposits 234,459 3,827 3.29% 225,744 4,273 3.82%
Other Borrowings 1,839 64 7.02% 2,370 86 7.32%
------------------------------ ------------------------------
INTEREST BEARING LIABILITIES $ 208,192 $3,891 3.77% $ 202,454 $ 4,359 4.34%
----------------------------------------------------------------
All Other Liabilities 2,078 2,399
Shareholders Equity 31,149 28,007
---------- -----------
TOTAL LIABILITIES and S/H EQUITY $ 269,525 $ 258,520
---------- ----- ----------- ----
Net Interest Rate Spread 4.62% 4.55%
Impact of Non-Int Funds on Margin 0.65% 0.72%
---- ----
Net Interest Income/Margin $6,565 5.27% $ 6,341 5.27%
============== =================
</TABLE>
<PAGE> 14
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 June 30, 1999, the ALL was
$2,920,000, or 1.67% of total loans, including those loans held for sale. This
compares with $2,758,000, or 1.54%, at June 30, 1998. The increase in the ALL
balance and percentage of total loans is a result of the decline in loan
balances.
The provision for loan losses was $130,000 and $325,000 for the three and six
months, respectively, ended June 30, 1999 and $256,000 and $ 412,000 for the
same periods in 1998. The primary reason for decreasing the provision in the
second quarter of 1999 was the improvement in overall loan quality.
Table 5 ANALYSIS OF THE ALLOWANCE FOR POSSIBLE CREDIT LOSSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
(000'S OMITTED) JUNE 30, JUNE 30,
1999 1998 1999 1998
--------------------------------------------
<S> <C> <C> <C> <C>
Balance at Beginning of Period $ 2,850 $ 3,012 $ 2,783 $ 2,955
--------------------------------------------
Charge-Offs:
Domestic:
Commercial, Financial and Agriculture 0 (383) (72) (425)
Real Estate-Mortgage 0 (10) (2) (10)
Installment Loans to Individuals (83) (145) (171) (231)
Lease Financing 0 0 0 0
--------------------------------------------
Total Charge-Offs (83) (538) (245) (666)
--------------------------------------------
Recoveries:
Domestic:
Commercial, Financial and Agriculture 4 2 10 15
Real Estate-Mortgage 0 0 0 0
Installment Loans to Individuals 19 26 47 42
Lease Financing 0 0 0 0
--------------------------------------------
Total Recoveries 23 28 57 57
--------------------------------------------
Net Charge-Offs (60) (510) (188) (609)
--------------------------------------------
Provision 130 256 325 412
--------------------------------------------
Balance at End of Period $ 2,920 $2,758 $ 2,920 $ 2,758
============================================
Ratio of Net Charge-Offs During the Period 0.14% 1.11% 0.22% 0.66%
============================================
</TABLE>
NON-INTEREST INCOME
TABLE 6
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
ANALYSIS OF NON-INTEREST INCOME JUNE 30, JUNE 30,
- --------------------------------------------------------------------------------------
(000'S OMITTED)
1999 1998 1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service Charges on Deposit Accounts $ 499 $ 428 $ 975 $ 843
Gain on Sale of Mortgages $ 31 $ 73 83 147
Mortgage Servicing Fees $ 72 $ 87 148 181
Fiduciary Income $ 144 $ 139 299 280
Other Operating Income $ 254 $ 293 495 529
Investment Gains $ 0 $ 5 26 5
------------------------------------------
Total Non-Interest Income $1,000 $1,025 $2,026 $1,985
==========================================
</TABLE>
<PAGE> 15
Non-interest income decreased in the three months ended June 30, 1999 as
compared to the same period in 1998 due to decreases in other operating income
and the gain on sale of mortgages. For the six months ended June 30, 1999
comparing to the same period in 1998 non-interest income increased. This
improvement is primarily attributable to an increase in service charges on
deposit accounts. Overall non-interest income was $1,00,000 and $2,026,000 in
the three and six months, respectively, ended June 30, 1999 compared to
$1,025,000 and $1,985,000 for the same periods in 1998. Table 6 provides a more
detailed breakdown of the components of non-interest income and the following
discussion provides a detailed analysis of the changes from each period.
The most significant category of non-interest income is service charges on
deposit accounts. These fees were $499,000 in the three months ended June 30,
1999 and $975,000 in the six months ended June 30, 1999 compared to $428,000 and
$843,000, respectively, for the same periods of 1998. These represent increases
of 16.6% and 15.7%, respectively. Growth in deposit totals, the number of
accounts and certain account activities account for the increases.
Gains on the sale of mortgage loans originated by the bank and sold in the
secondary market were $31,000 in the quarter ended June 30, 1999 and $73,000 in
the same period in 1998. These gains were $83,000 in the six months ended June
30, 1999 and $147,000 in the same period of 1998. These decreases occurred
because of lower residential mortgage refinance activity due to the impact of
changing market rates.
Mortgage servicing fees were $72,000 and $148,000 for the three and six months
ended June 30, 1999, respectively compared to $87,000 and $181,000 for the same
periods, respectively, in 1998. The declines are attributable to lower serviced
loan balances in 1999 due to payoffs throughout 1998 and the first half of 1999
and the Corporation's retention of certain new mortgages as opposed to selling
those loans and recognizing servicing fees.
Fiduciary income increased $5,000 in the three months ended June 30, 1999 and
increased $19,000 in the six months ended June 30, 1999 comparing to the same
time periods in the prior year. These 3.6% and 6.8%, respectively, increases 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 was $254,000 for the three months ended June 30, 1999 and
$293,000 for the same period in 1998. This is a decrease of 13.3% compared to
the same time period in 1998. For the six months ended June 30, 1999 other
income was $495,000 compared to $529,000 to the same period in 1998. This is an
increase of 6.4%. These decreases occurred primarily due to lower transaction
fees associated with certain ATM activity.
Non-Interest Expense
TABLE 7
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
ANALYSIS OF NON-INTEREST EXPENSE JUNE 30, JUNE 30,
- ------------------------------------------------------------------------------------------------
(000'S OMITTED)
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and Benefits $1,421 $1,315 $2,749 $2,554
Equipment $ 342 $ 359 683 675
Net Occupancy $ 190 $ 183 383 360
FDIC Assessment $ 7 $ 7 14 14
Office Supplies $ 68 $ 71 133 159
Loan & Collection Expense $ 103 $ 88 163 199
Advertising $ 108 $ 70 160 151
Other Operating Expense $ 651 $ 642 1,280 1,323
------------------------------------------
Total Non-Interest Expense $2,890 $2,735 $5,565 $5,435
==========================================
</TABLE>
<PAGE> 16
Total non-interest expense was $2,890,000 in the three months ended June 30,
1999 compared with $2,735,000 in the same period of 1998. This is an increase of
5.7%. For the six months ended June 30, 1999 non-interest expenses were
$5,565,000 compared to $5,435,000 in the same time period of 1998, an increase
of 2.4%. These increases occurred due to increases in salaries and benefits, net
occupancy, and advertising expenses.
Salary and benefit costs, Fentura's largest non-interest expense category, were
$1,421,000 in the quarter ended June 30, 1999, compared with $1,315,000, or an
increase of 8.1%, for the same time period in 1998. These costs were $2,749,000
in the six months ended June 30, 1999, and $2,554,000, or an increase of 7.6%,
for the same time period in 1998. Increased costs are primarily a result of
filling vacant positions, the revision of position and salary levels in the
second quarter of 1998, and the implementation of pension programs for certain
employees.
During the three months ended June 30, 1999 equipment expenses were $342,000
compared to $359,000 for the same period in 1998, an decrease of 4.7%. For the
six months ended June 30, 1999 these expenses were $683,000 compared to $675,000
for the same time period in 1998, a increase of 1.2%. The decrease of expense in
the three months ended June 30, 1999 compared to the same period in 1998 is
attributable to equipment depreciation. Depreciation expense decreased because
several substantial assets reached full depreciation in the last quarter of
1998. For the six months ended June 30, 1999 equipment expense increased because
of repairs, upgrades, and maintenance performed in the first quarter of 1999.
Occupancy expenses increased in both the three and six months ended June 30,
1999 comparing to the same periods in 1998. These expenses were $190,000 and
$383,000 in the three and six months ended June 30, 1999, respectively, and
$183,000 and $360,000 in the same periods, respectively, in 1998. This is a 3.8%
increase in the three months ended June 30, 1999 compared to the same period in
1998, and a 6.4% increase in the six months ended June 30, 1999 compared to the
same period in 1998. These increases are attributable to increases in facility
repairs and maintenance, utility, real estate tax, and facility depreciation
expense.
As indicated in Table 7, during the three and six months ended June 30, 1999
office supplies expense decreased $3,000 and $26,000, respectively, comparing to
the same periods in 1998. These decreases are attributable to cost and volume
decreases of regular office supplies and preprinted forms.
Loan and collection expenses increased $15,000 to $103,000 in the three months
ended June 30, 1999 an increase of 17.0% comparing to the $88,000 for the same
time period in 1998. This increase is attributable a one time payment of
insurance premiums in connection with the home equity loan product. For the six
months ended June 30, 1999, loan and collection expenses were $163,000 compared
to $199,000 for the same time period in 1998. This $36,000 decrease, or 18.1%,
is attributable to a decrease in dealer service fees paid in connection with
indirect auto lending.
Advertising expenses were $108,000 and $160,000 for the three and six months
ended June 30, 1999, respectively, compared to $70,000 and $151,000 for the same
periods in 1998, respectively. This is an increase of 54.3% for the three months
ended June 30, 1999 comparing to the same period in 1998, and an increase of
6.0% for the six months ended June 30, 1999 comparing to the same period in
1998. These increases are attributable to increases in shareholder
communications, promotional activities, and advertising expense connected with
our senior citizens programs.
Other operating expenses were $1,280,000 in the six months ended June 30, 1999
compared to $1,323,000 in the same time period in 1998, a decrease of 3.3%. The
expenses decreased comparing the two periods because of a one time loss of
$75,000 on an improperly endorsed check in January of 1998. These expenses
increased in the three months ended June 30, 1999 comparing to the same period
in 1998 because of increases in consulting expenses.
<PAGE> 17
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 8 represents the levels of
these assets at June 30, 1999 and 1998.
Non-performing loans include several delinquent single-family mortgage loans
which have sufficient equity and no expected loss. Non-accrual loans include two
commercial loans and one residential mortgage loan. All non-accrual loans are
secured by real estate with sufficient equity and accordingly, no losses are
anticipated. As Table 8 indicates, non-performing assets have decreased
substantially comparing June 30, 1999 to June 30, 1998, because of a payoff of a
large commercial non-accrual loan in the second quarter on 1999.
Table 8
NON-PERFORMING ASSETS AND PAST DUE LOANS
<TABLE>
<CAPTION>
JUNE 30,
1999 1998
---------------------------
<S> <C> <C>
Non-Performing Loans:
Loans Past Due 90 Days or More & Still
Accruing $ 264,000 $ 255,000
Non-Accrual Loans 359,000 1,916,000
Renegotiated Loans 6,000 7,000
---------------------------
Total Non-Performing Loans 629,000 2,178,000
---------------------------
Other Non-Performing Assets:
Other Real Estate 172,000 0
REO in Redemption 182,000 131,000
Other Non-Performing Assets 4,000 82,000
---------------------------
Total Other Non-Performing Assets 358,000 213,000
---------------------------
Total Non-Performing Assets $ 987,000 $2,391,000
===========================
Non-Performing Loans as a % of
Total Loans 0.36% 1.22%
Non-Performing Assets as a % of
Total Loans and Other Real Estate 0.56% 1.33%
Allowance for Loan Losses as a % of
Non-Performing Loans 464.23% 126.63%
Allowance for Loan Losses, Other Real
Estate, and In-Substance Foreclosures
as a % of Non-Performing Assets 331.71% 120.83%
Accruing Loans Past Due 90 Days or
More to Total Loans 0.15% 0.14%
Nonperforming Assets as a % of
Total Assets 0.36% 0.90%
</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
<PAGE> 18
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 six
months of 1999 and 1998.
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 June 30, 1999 federal funds sold represented
1.6% of total assets, compared to 3.5% at June 30, 1998. 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 1999 due to a decline in time deposit balances.
Comparatively, in the first six months of 1998, cash flows from financing
activities increased because of an increase in checking and savings deposits.
Cash flows from investing activities were $1,440,000 during the first six months
of 1999 and $12,657,000 in the same period of 1998. The primary reason for the
decline in investing activities at the end of the second quarter of 1999 was an
increase in maturing and sold investments netting against funds used for
investment purchases.
CAPITAL MANAGEMENT
Total shareholders' equity rose 8.1% to $30,815,000 at June 30, 1999 compared
with $28,517,000 at June 30, 1998. The Company's equity to asset ratio was 11.3%
at June 30, 1999 and 10.8% at June 30, 1998. The increase in the amount of
capital was obtained through retained earnings and the proceeds from the
issuance of new shares. In the first half of 1999, the Corporation increased its
cash dividends per share by 9.5% to $.46 per share compared with $.42 in the
first half of 1998.
As indicated on the balance sheet on page 4, at June 30, 1999 the Company had an
unrealized loss on securities available for sale (AFS) of $689,000 compared to
an unrealized gain at June 30, 1998 of $163,000. This change from a unrealized
gain to an unrealized loss is attributable to market interest rates and the
interest rate structures on those securities held in the 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%.
<PAGE> 19
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 9
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
CAPITAL RATIOS REGULATORY
MINIMUM FOR
"WELL JUNE 30, DECEMBER 31, JUNE 30,
CAPITALIZATION" 1999 1998 1998
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RISK BASED CAPITAL:
Total Capital 10% 14.84% 14.55% 13.08%
Tier 1 6% 13.59% 13.30% 11.83%
Tier 1 Leverage 5% 10.81% 10.60% 10.21%
</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.
An indicator of the interest rate sensitivity structure of a financial
institution's balance sheet is the difference between rate sensitive assets and
rate sensitive liabilities, and is referred to as "GAP".
Table 10 sets forth the distribution of re-pricing of the Corporation's earning
assets and interest bearing liabilities as of June 30, 1999, 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 10 GAP ANALYSIS JUNE 30, 1999
<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 4,400 0 0 0 4,400
Investment Securities 6,814 703 29,293 34,513 71,323
Loans 56,434 7,120 79,513 21,196 164,263
Loans Held for Sale 152 0 0 10,249 10,401
----------------------------------------------------------------
Total Earning Assets $ 67,800 $ 7,823 $108,806 $ 65,958 $250,387
================================================================
</TABLE>
<PAGE> 20
<TABLE>
<CAPTION>
INTEREST BEARING LIABILITIES:
<S> <C> <C> <C> <C> <C>
Interest Bearing Demand Deposits $ 40,103 $ 0 $ 0 $ 0 $ 40,103
Savings Deposits 19,562 0 0 49,256 68,818
Time Deposits Less than $100,000 16,018 36,456 22,268 72 74,814
Time Deposits Greater than $100,000 12,016 8,120 4,073 0 24,209
Other Borrowings 945 0 40 1,124 2,109
------------------------------------------------------------------
Total Interest Bearing Liabilities $ 88,644 $ 44,576 $ 26,381 $ 50,452 $210,053
==================================================================
Interest Rate Sensitivity GAP ($20,844) ($36,753) $ 82,425 $ 15,506 $ 40,334
Cumulative Interest Rate
Sensitivity GAP ($20,844) ($57,597) $ 24,828 $ 40,334
Interest Rate Sensitivity GAP 0.76 0.18 4.12 1.31
Cumulative Interest Rate
Sensitivity GAP Ratio 0.76 0.57 1.16 1.19
</TABLE>
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs which were designed to
utilize two digits rather than four digits in date fields for computer
calculations. Any computer or electronic calculation recognizing a two digit
rather than a four digit date may incur system failure or miscalculate
information when using a date after December 31, 1999 resulting in potentially
serious impairment to business operations. The Corporation began addressing the
Year 2000 issue internally in 1997 with the formation of a task force created to
identify, coordinate, manage and monitor the impact of Year 2000 related issues.
The task force consists of representatives from every functional area of the
Corporation.
The Corporation's Year 2000 Program initially focused on technology assessment
and planning, and the upgrading or renovation of internal systems. Once the
assessment and renovation phases were largely complete the task force focused on
testing or validating internal systems and the assessment of external business
risk and contingency planning.
Currently, the Corporation's Year 2000 Program is tracked against a well defined
set of goals and key dates. The Corporation has not identified any noncompliant
systems for which a solution is not available and which would impair the
business operations. All Year 2000 costs to date have not been material and are
being expensed, or capitalized if it is a system replacement, as incurred.
Anticipated future expenses are not expected to materially impair future
earnings. All testing procedures were completed by June 30, 1999. Completion of
the goals as of June 30, 1999 meets the milestones established by the
Corporation's banking regulators.
Throughout 1999, the task force will continue to assess and create contingency
plans as they relate to internal operational risk as well as external risks
including major customer and vendor due diligence. However, as of June 30, 1999
the Corporation's Y2K Business Resumption Contingency Plan had been completed
and has been submitted to the FDIC for approval.
In its normal course of business, the Corporation manages many types of risk.
Management recognizes that the risks presented by Year 2000 are unique given the
pervasive nature of the problem and the fact that there may be a higher
likelihood the Year 2000 risk will present itself in multiple, simultaneous
impacts. Because of this, the Corporation has adjusted and will continue to
adjust its risk management processes and contingency plans to take the most
probable anticipated Year 2000 effects into account. Although it is too early to
predict accurately what system failures may occur, management believes
sufficient planning, communication, coordination, and testing will mitigate
potential material disruption. In this regard, contingency plans including
command centers, response teams, technology teams, and testing are being
developed. In addition to the internal and external testing, and credit
assessments, the Corporation is assessing operational and liquidity needs to
enhance contingency plans.
While the Corporation is not aware of any Year 2000 problems for which a
solution is not available, other unanticipated Year 2000 issues could arise, and
there can be no assurance that actual results will be comparable to expected
results.
<PAGE> 21
FORWARD LOOKING STATEMENT
This discussion and analysis of financial condition and results of operations,
and other sections of the Financial Statements, contain forward looking
statements that are based on management's beliefs, assumptions, current
expectations, estimates and projections about the financial services industry,
the economy, and about the Corporation itself. Words such as "anticipates,"
"believes," "estimates," "expects," "forecasts," "intends," "is likely,"
"plans," "projects," variations of such words and similar expressions are
intended to identify such forward looking statements. These statements are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions ("Future Factors") which are difficult to predict with regard to
timing, extent, likelihood and degree of occurrence. Therefore, actual results
and outcomes may materially differ from what may be expressed or forecast in
such forward looking statements. The Corporation undertakes no obligation to
update, amend or clarify forward looking statements as a result of new
information, future events, or otherwise.
Future Factors that could cause a difference between an ultimate actual outcome
and a preceding forward looking statement include, but are not limited to,
changes in interest rate and interest rate relationships, demands for products
and services, the degree of competition by traditional and non-traditional
competitors, changes in banking laws or regulations, changes in tax laws, change
in prices, the impact of technological advances, government and regulatory
policy changes, the outcome of pending and future litigation and contingencies,
trends in customer's behaviors as well as their ability to repay loans, and the
local economy.
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 June 30, 1999.
<PAGE> 22
FENTURA BANCORP, INC.
1999 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> 23
<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 from 10Q-SB filed May 12, 1997
<PAGE> 24
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 August 6, 1999 By /s/ Donald L. Grill
-------------- --------------------
Donald L. Grill
Director
President & CEO
Date August 6, 1999 By /s/ Ronald L. Justice
-------------- ----------------------
Ronald L. Justice
Vice President (Authorized Signer)
Chief Financial Officer
Cashier
<PAGE> 25
Exhibit Index
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 13,101
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 60,133
<INVESTMENTS-CARRYING> 11,190
<INVESTMENTS-MARKET> 11,200
<LOANS> 174,664
<ALLOWANCE> 2,920
<TOTAL-ASSETS> 272,109
<DEPOSITS> 237,147
<SHORT-TERM> 945
<LIABILITIES-OTHER> 2,038
<LONG-TERM> 1,164
0
0
<COMMON> 3,543
<OTHER-SE> 27,272
<TOTAL-LIABILITIES-AND-EQUITY> 272,109
<INTEREST-LOAN> 8,342
<INTEREST-INVEST> 1,757
<INTEREST-OTHER> 357
<INTEREST-TOTAL> 10,456
<INTEREST-DEPOSIT> 3,827
<INTEREST-EXPENSE> 3,891
<INTEREST-INCOME-NET> 6,565
<LOAN-LOSSES> 325
<SECURITIES-GAINS> 26
<EXPENSE-OTHER> 5,565
<INCOME-PRETAX> 2,701
<INCOME-PRE-EXTRAORDINARY> 2,701
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,866
<EPS-BASIC> 1.32
<EPS-DILUTED> 1.32
<YIELD-ACTUAL> 8.39
<LOANS-NON> 359
<LOANS-PAST> 264
<LOANS-TROUBLED> 6
<LOANS-PROBLEM> 696
<ALLOWANCE-OPEN> 2,783
<CHARGE-OFFS> 245
<RECOVERIES> 57
<ALLOWANCE-CLOSE> 2,920
<ALLOWANCE-DOMESTIC> 2,920
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
