-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F3GJAUfYZbpkIixs4pW++7GlZ8ic2joQDZAbu4fe/wWiJF6qWlTLpXtFUpneajsm 19wNHdqyanV8zyduA+nkHg== 0000950124-00-003223.txt : 20000516 0000950124-00-003223.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950124-00-003223 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FENTURA BANCORP INC CENTRAL INDEX KEY: 0000919865 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 382806518 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23550 FILM NUMBER: 632745 BUSINESS ADDRESS: STREET 1: ONE FENTON SQUARE STREET 2: P O BOX725 CITY: FENTON STATE: MI ZIP: 48430-0725 BUSINESS PHONE: 8106292263 MAIL ADDRESS: STREET 1: ONE FENTON SQ P O BOX 725 CITY: FENTON STATE: MI ZIP: 48430-0725 10-Q 1 FORM 10-Q 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, 2000 -------------- [ ] 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 8, 2000 ----------- Class - Common Stock Shares Outstanding - 1,425,922 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 19
3 PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Fentura Bancorp, Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited)
- ---------------------------------------------------------------------------------------------------- MARCH 30, DEC 31, (000's omitted Except Per Share Data) 2000 1999 - ---------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 13,911 12,714 Federal funds sold 14,550 900 ------------------------------- Total Cash & Cash Equivalents 28,461 13,614 Interest bearing deposits with banks 0 0 Investment securities-held to maturity, at cost (market value of $13,536 at March 31, 2000 and $11,695 at December 1999) 13,677 13,922 Investment securities-avail for sale, at market 52,958 53,964 ------------------------------- Total investment securities 66,635 67,886 Loans: Commercial 86,265 92,359 Tax exempt development loans 580 537 Real estate loans - mortgage 20,971 21,409 Real estate loans - construction 20,945 12,481 Consumer loans 69,164 64,280 ------------------------------- Total loans 197,925 191,066 Less: Reserve for loan losses (3,046) (2,961) ------------------------------- Net loans 194,879 188,105 Loans held for sale 195 180 Bank premises and equipment 6,117 5,200 Accrued interest receivable 1,898 1,687 Other assets 6,057 6,949 ------------------------------- Total assets $ 304,242 283,621 ===============================
4 LIABILITIES Deposits: Non-interest bearing deposits $ 33,380 31,524 Interest bearing deposits 220,604 215,527 ------------------------------- Total deposits 253,984 247,051 Federal Funds Purchased 14,050 0 Other borrowings 1,699 2,529 Accrued taxes, interest and other liabilities 2,263 2,176 ------------------------------- Total liabilities 271,996 251,756 ------------------------------- STOCKHOLDERS' EQUITY Common stock - $2.5 par value 1,425,922 shares issued (1,422,045 in 3,565 3,555 Dec.1999) Surplus 18,474 18,317 Retained earnings 11,594 11,078 Unrealized loss on sec avail for sale (1,387) (1,085) ------------------------------- Total stockholder's equity 32,246 31,865 ------------------------------- Total liabilities and stockholder's equity $ 304,242 283,621 ===============================
See notes to consolidated financial statements. 5 Fentura Bancorp, Inc. and Subsidiaries Consolidated Statements of Income (Unaudited)
Three Months Ended March 31, 2000 1999 - ------------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans $ 4,453 4,022 Interest and dividends on investment securities: Taxable 840 782 Tax-exempt 171 135 Interest on deposits with banks 0 0 Interest on federal funds sold 75 144 ------------------------------------ Total interest income 5,539 5,083 INTEREST EXPENSE Deposits 2,219 1,923 Short-term borrowings 77 32 ------------------------------------ Total interest expense 2,296 1,955 NET INTEREST INCOME 3,243 3,128 Provision for loan losses 169 195 ------------------------------------ Net interest income after Provision for loan losses 3,074 2,933 NON-INTEREST INCOME Service charges on deposit accounts 467 476 Fiduciary income 162 155 Other operating income 322 369 Investment gains 0 26 ------------------------------------ Total non-interest income 951 1,026 NON-INTEREST EXPENSE Salaries and benefits 1,455 1,328 Occupancy of bank premises 202 193 Equipment expense 373 341 Other operating expenses 852 813 ------------------------------------ Total non-interest expense 2,882 2,675 NET INCOME BEFORE TAXES 1,143 1,284 Applicable income taxes 270 398 ------------------------------------ NET INCOME $ 873 886 ==================================== Per share: Net income - basic $ 0.51 0.52 Net income - diluted $ 0.51 0.52 Dividends $ 0.21 0.19 Average number of common shares outstanding 1,707,661 1,691,132
See notes to consolidated financial statements. 6 Fentura Bancorp, Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
Three Months Three Months Ended Ended - ------------------------------------------------------------------------------------------------------- March 31, March 31, (000's omitted) 2000 1999 - ------------------------------------------------------------------------------------------------------- COMMON STOCK Balance, beginning of period $ 3,555 $ 3,521 Issuance of shares under Director stock purchase plan, stock purchase plan, and dividend reinvestment program 10 8 ---------------- --------------- Balance, end of period 3,565 3,529 SURPLUS Balance, beginning of period 18,317 17,644 Issuance of shares under director stock purchase plan, stock purchase plan, and dividend reinvestment program 157 163 ---------------- --------------- Balance, end of period 18,474 17,807 RETAINED EARNINGS Balance, beginning of period 11,078 8,664 Net income 873 886 Cash dividends declared (357) (324) ---------------- --------------- Balance, end of period 11,594 9,226 UNREALIZED GAIN ON SECURITIES AVAILABLE FOR SALE Balance, beginning of period (1,085) 193 Change in unrealized gain (loss) on securities, net of tax (302) (190) ---------------- --------------- Balance, end of period (1,387) 3 ---------------- --------------- TOTAL SHAREHOLDERS' EQUITY $ 32,246 $ 30,565 ================ ===============
See notes to consolidated financial statements. 7 Fentura Bancorp, Inc. and Subsidiaries Consolidated Statements of Cash Flows
Three Months Ended March 31, - ---------------------------------------------------------------------------------------- (000's omitted, Except Per Share Data) 2000 1999 - ---------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $873 $886 Adjustments to reconcile net income to cash Provided by Operating Activities: Depreciation and amortization 246 200 Provision for loan losses 150 195 Amortization (accretion) on securities (12) (4) Loans originated for sale (641) (1,141) Loans sold 626 1,057 Gain on investment securities 0 (26) Decrease (increase) in interest receivable (211) 230 Decrease (increase) in other assets 1,047 (1,445) Increase (decrease) in accrued taxes, interest, and other liabilities 87 (433) ------------------------ Total Adjustments 1,292 (1,367) ------------------------ Net Cash Provided By (Used In) Operating Activities 2,165 (481) ------------------------ Cash Flows From Investing Activities: Net decrease in deposits with other banks 0 0 Proceeds from maturities of investment activities - HTM 20 20 Proceeds from maturities of investment activities - AFS 786 34,291 Purchases of investment securities - HTM 0 0 Purchases of investment securities - AFS 0 (21,893) Net (increase) in customer loans (6,924) (1,578) Capital expenditures (1,163) (234) ------------------------ Net Cash Used in Investing Activities (7,281) 10,606 Cash Flows From Financing Activities: Net increase (decrease) in DDA/SAV deposits 791 (4,639) Net increase (decrease) in Time deposits 6,142 (4,234) Net increase (decrease) in borrowing's 13,220 164 Proceeds from stock issuance 167 171 Cash dividends (357) (324) ------------------------ Net Cash Provided By (Used In) Financing Activities 19,963 (8,862) NET INCREASE IN CASH AND CASH EQUIVALENTS $14,847 $1,263 CASH AND CASH EQUIVALENTS - BEGINNING $13,614 $18,158 CASH AND CASH EQUIVALENTS - ENDING $28,461 $19,421 ======================== CASH PAID FOR: INTEREST $2,186 $2,384 INCOME TAXES $0 $60
See notes to consolidated financial statements. 8 Fentura Bancorp, Inc. and Subsidiaries Statement of Comprehensive Income
Three Months Ended (000's Omitted) March 31, 2000 1999 ---------------------------- Net Income $873 $886 Other comprehensive income, net of tax: Unrealized holding gains arising during period ($302) ($164) Less: reclassification adjustment for $0 gains included in net income $0 $26 ---------------------------- Other comprehensive income ($302) ($190) ---------------------------- Comprehensive income $571 $696 ============================
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, 2000 are not necessarily indicative of the results that may be expected for the year ended December 31, 2000. Note 2. Reclassifications On April 26, 2000 the Corporation declared a 20% stock dividend payable on May 26, 2000, to the stockholders of record as of April 26, 2000. Accordingly, the per share amounts for March 31, 1999, and March 31, 2000, have been retroactively adjusted to reflect the effect of the dividend. Note 3. On March 13, 2000, Fentura Bancorp's subsidiary The State Bank spun off two of its existing branches in Davison Michigan to create a De Novo Bank (Davison State Bank). Davison State Bank is a wholly owned subsidiary of Fentura Bancorp, Inc. This transaction did not have any effect on the consolidated financial statements. 9 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This item provides a narrative discussion and analysis of the consolidated financial condition and results of operations of Fentura Bancorp, Inc. (the Corporation), together with its operating subsidiaries, The State Bank and Davison State Bank (the Banks), for the three months ended March 31, 2000 and 1999. The supplemental financial data included throughout should be read in conjunction with the primary financial statements presented on pages 3 through 8. 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 Selected Financial Data Three Months Ended March 31, $ in thousands except per share data and ratios 2000 1999 - --------------------------------------------------------------------------------------------- Summary of Consolidated Statements of Earnings: Interest Income $5,539 $5,083 Interest Expense 2,296 1,955 ---------------------------------- Net Interest Income 3,243 3,128 Provision for Possible Credit Losses 169 195 ---------------------------------- Net Interest Income after Provision 3,074 2,933 Total Other Operating Income 951 1,026 Total Other Operating Expense 2,882 2,675 ---------------------------------- Income Before Income Taxes 1,143 1,284 Provision for Income Taxes 270 398 ---------------------------------- Net Income $873 $886 ================================== Net Income Per Share - Basic $0.51 $0.52 Net Income Per Share - Diluted $0.51 $0.52 Summary of Consolidated Statements of Financial Condition: Assets $304,242 $266,448 Securities 66,635 65,242 Loans 198,120 173,947 Deposits 253,984 232,232 Stockholders' Equity 32,246 30,565 Other Financial and Statistical Data: Tier 1 Capital to Risk Weighted Assets 13.58% 13.67% Total Capital to Risk Weighted Assets 14.82% 14.92% Tier 1 Capital to Average Assets 11.71% 11.38% Total Cash Dividends $357 $324 Book Value Per Share $18.85 $18.04 Cash Dividends Paid Per Share $0.21 $0.23 Period End Market Price Per Share $28.10 $43.20 Dividend Pay-out Ratio 40.89% 36.57% Return on Average Stockholders' Equity 10.73% 11.51% Return on Average Assets 1.22% 1.32% Net Interest Margin (FTE) 5.01% 5.12% Total Equity to Assets at Year End 10.60% 11.47% - ---------------------------------------------------------------------------------------------
10 Results of Operations Table 1 summarizes selected financial data for the three months ended March 31, 2000 and 1999. As indicated earnings for the three months ended March 31, 2000 were $873,000 compared to $886,000 for the same period in 1999. Earnings decreased slightly as a result of increased operating expenses. Despite this earnings decline, core banking activities and new opportunities in our current and surrounding markets remain strong and accordingly, management believes overall performance will remain strong throughout 2000. The banking industry uses standard performance indicators to help evaluate the Corporation's performance. Return on average assets is one of these indicators. For the three months ended March 31, 2000 the Corporation's return on average assets was 1.22% compared to 1.32% for the same period in 1999. Total assets increased approximately $38,000,000 from March 31, 1999 to $304,242,000 at March 31, 2000. Stockholders' Equity increased approximately $1,700,000 from March 31, 1999 to $32,246,000 at March 31, 2000. The increase in equity will allow the Corporation to continue its growth strategy. Net income per share-basic was $.51 in the first three months of 2000 compared to $.52 for the same period in 1999. 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 months ended March 31, 2000 and 1999 are summarized in Table 3. 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 THREE MONTHS ENDED MARCH 31, THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO 1999 1999 COMPARED TO 1998 INCREASE (DECREASE) INCREASE (DECREASE) DUE TO: DUE TO: ------------------------------------------------------------------------- YIELD/ YIELD/ (000'S OMITTED) VOL RATE TOTAL VOL RATE TOTAL - ------------------------------------------------------------------------------------------------------------------------- INTEREST BEARING DEPOSITS IN BANKS 0 0 0 (1) 0 (1) TAXABLE SECURITIES 3 55 58 126 (16) 110 TAX-EXEMPT SECURITIES 41 (5) 36 19 (3) 16 FEDERAL FUNDS SOLD (90) 21 (69) 126 (30) 96 TOTAL LOANS 716 (104) 612 (337) (180) (517) LOANS HELD FOR SALE (182) 1 (181) 108 (25) 83 ------------------------------------------------------------------------- TOTAL EARNING ASSETS 488 (32) 456 41 (254) (213) INTEREST BEARING DEMAND DEPOSITS (9) 9 0 40 (55) (15) SAVINGS DEPOSITS 33 119 152 34 (69) (35) TIME CD'S $100,000 AND OVER 87 29 116 (1) (44) (45) OTHER TIME DEPOSITS 15 13 28 (62) (82) (144) OTHER BORROWINGS 43 2 45 (12) (2) (14) ------------------------------------------------------------------------- TOTAL INTEREST BEARING LIABILITIES 169 172 341 (1) (252) (253) ------------------------------------------------------------------------- NET INTEREST INCOME $319 ($204) $115 $42 ($2) $40 =========================================================================
11 As indicated in Table 2, during the three months ended March 31, 2000, net interest income increased over the same period in 1999, principally due to the increase in interest income from loan growth. 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, 2000 and 1999 are shown in Table 3. Net interest income for the three months ended March 31, 2000 was 3,243,000 an increase of $115,000 over the same period in 1999. This represents an increase of 3.7%. The primary factor contributing to the net interest income increase is an increase in interest income from loan growth. Also indicated in Table 3, for the three months ended March 31, 1999 net interest income was $3,128,000. This is an increase of $40,000 or 1.3% over the same period in 1998. The increase in 1999 is attributable to the reduction of interest expense due to lower rates paid on savings, interest bearing checking deposits, and time deposits. Management expects a continued strong local economy throughout 2000 and because of this believes loan demand will remain strong. Accordingly, the Corporation will aggressively seek out new loan opportunities while continuing to maintain sound credit quality. Management also believes that continued loan growth will increase net interest income in 2000. As indicated in Table 3, for the three months ended March 31, 2000, the Corporation's net interest margin (without consideration of full tax equivalency) was 4.90% compared with 5.06% for the same period in 1999. This decline is attributable to an increase in the overall cost of funds within deposits. The Corporation's cost of funds was increased along with increases in market interest rates. Average earning assets increased 6.2% or approximately $15,651,000 comparing the first quarter of 2000 to the same time period in 1999. Loans, the highest yielding component of earning assets, represented 72.8% of earning assets in 2000 compared to 69.5% in 1999. Average interest bearing liabilities increased 6.2% or $13,000,000 comparing the first quarter of 2000 to the same time period in 1999. Non-interest bearing deposits amounted to 12.1% of average earning assets in the first quarter of 2000 compared with 11.0% in the same time period on 1999. Management continually monitors the Corporation's balance sheet to insulate net interest income from significant swings caused by interest rate volatility. If market rates continue to change in 2000, corresponding changes in funding costs will 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". 12
Table 3 THREE MONTHS ENDED MARCH 31, AVERAGE BALANCES AND RATES 2000 1999 (000'S omitted) AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ ASSETS BALANCE EXPENSE RATE BALANCE EXPENSE RATE ------------------------------------------------------------------- Interest bearing deposits in Banks $0 $0 0.00% $0 $0 0.00% Investment securities: U.S. Treasury and Government Agencies 51,728 824 6.41% 51,357 767 6.06% State and Political 14,764 171 4.66% 11,360 135 4.82% Other 1,077 16 5.98% 1,264 15 4.81% -------------------------------- -------------------------------- Total Investment Securities 67,569 1,011 6.02% 63,981 917 5.81% Fed Funds Sold 4,745 75 6.36% 12,556 144 4.65% Loans: Commercial 102,018 2,368 9.34% 85,745 1,963 9.28% Tax Free 588 9 6.16% 296 4 5.48% Real Estate-Mortgage 25,316 535 8.50% 15,731 388 10.00% Consumer 65,816 1,538 9.40% 61,727 1,483 9.74% -------------------------------- -------------------------------- Total loans 193,738 4,450 9.24% 163,499 3,838 9.52% Allowance for Loan Loss (2,984) (2,828) Net Loans 190,754 4,450 9.38% 160,671 3,838 9.69% -------------------------------- -------------------------------- Loans Held for Sale 184 3 6.56% 10,549 184 7.07% -------------------------------- -------------------------------- TOTAL EARNING ASSETS $266,236 $5,539 8.37% $250,585 $5,083 8.23% ------------------------------------------------------------------- Cash Due from Banks 10,732 9,960 All Other Assets 13,190 10,959 ----------- ----------- TOTAL ASSETS $287,174 $268,676 ----------- ----------- LIABILITIES & SHAREHOLDERS' EQUITY: Deposits: Non-Interest bearing - DDA $32,174 $27,625 Interest bearing - DDA 41,030 187 1.83% 43,024 187 1.76% Savings Deposits 67,777 576 3.42% 62,881 424 2.73% Time CD's $100,000 and Over 31,926 450 5.67% 25,384 334 5.34% Other Time CD's 76,040 1,006 5.32% 74,896 978 5.30% -------------------------------- -------------------------------- Total Deposits 248,947 2,219 3.59% 233,810 1,923 3.34% Other Borrowings 4,230 77 7.32% 1,818 32 7.14% -------------------------------- -------------------------------- INTEREST BEARING LIABILITIES $221,003 $2,296 4.18% $208,003 $1,955 3.81% ------------------------------------------------------------------- All Other Liabilities 1,446 2,255 Shareholders Equity 32,551 30,793 ----------- ----------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $287,174 $268,676 ----------- --------- ----------- --------- Net Interest Rate Spread 4.19% 4.41% Impact of Non-Interest Bearing Funds on Margin 0.71% 0.65% --------- --------- Net Interest Income/Margin $3,243 4.90% $3,128 5.06% ===================== =====================
13 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 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, 2000, the ALL was $3,046,000, or 1.54% of total loans, including those loans held for sale. This compares with $2,850,000, or 1.64%, at March 31, 1999. The reduction of the ALL as a percentage of total loans reflects improved overall asset quality and increased loan totals. The provision for possible credit losses was $169,000 in the first three months of 2000 and $195,000 for the same time period in 1999. The Bank decreased the provision in 2000 comparing to 1999 because of an overall improvement in asset quality and a reduction in loans charged-off. Table 4 summarizes loan losses and recoveries from the first quarter of 1999 and 2000. During the first three months of 2000 the Corporation experienced net charge-offs of $84,000, compared with net charge-offs of $128,000 for the same time period in 1999. Accordingly, the net charge-off ratio for the first quarter of 2000 was .04% compared to .08% for the same time period in 1999. The net charge-off ratio decreased in 2000 due to an increase in overall asset quality and increased loan totals. The Corporation maintains formal policies and procedures to control and monitor credit risk. Management believes the allowance for possible credit losses is adequate to meet normal credit risks in the loan portfolio. The Corporation's loan portfolio has no significant concentrations in any one industry nor any exposure in foreign loans. The Corporation has not extended credit to finance highly leveraged transactions nor does it intend to do so in the future. Employment levels and other economic conditions in the Corporation's local markets may have a significant impact on the level of credit losses. Management continues to identify and devote attention to credits that may not be performing as agreed. Therefore, in light of the aforementioned, and strong economic conditions and asset quality, management expects a modest reduction to the allowance for loan losses as a percentage to gross loans in 2000. Non-performing loans are discussed further in the section titled "Non-Performing Assets". Table 4 ANALYSIS OF THE ALLOWANCE FOR POSSIBLE CREDIT LOSSES
Three Months Ended (000's omitted) March 31, 2000 1999 ------------------------------ Balance at Beginning of Period $2,961 $2,783 ------------------------------ Charge-Offs: Commercial, Financial and Agriculture (9) (72) Real Estate-Mortgage 0 (2) Installment Loans to Individuals (99) (88) Lease Financing 0 0 ------------------------------ Total Charge-Offs (108) (162) ------------------------------ Recoveries: Commercial, Financial and Agriculture 1 6 Real Estate-Mortgage 0 0 Installment Loans to Individuals 23 28 Lease Financing 0 0 ------------------------------ Total Recoveries 24 34 ------------------------------ Net Charge-Offs (84) (128) ------------------------------ Provision 169 195 ------------------------------ Balance at End of Period $3,046 $2,850 ============================== Ratio of Net Charge-Offs During the Period 0.04% 0.08% ==============================
14 NON-INTEREST INCOME TABLE 5
Three Months Ended Analysis of Non-Interest Income March 31, - ------------------------------------------------------------------------- (000's omitted) 2000 1999 - ------------------------------------------------------------------------- Service Charges on Deposit Accounts $467 $476 Gain on Sale of Mortgages $13 $52 Mortgage Servicing Fees $65 $76 Fiduciary Income $162 $155 Other Operating Income $244 $241 Investment Gains $0 $26 ------------------------ Total Non-Interest Income $951 $1,026 ========================
Non-interest income decreased in the three months ended March 31, 2000 as compared to the same period in 1999, due to an decrease in the gain on sale of mortgage loans, a decrease in service charges on deposit accounts, and a decrease in investment gains. Overall non-interest income was $951,000 in the three months ended March 31, 2000 compared to $951,000 for the same period in 1999. These figures represent an decrease of 7.3%. Table 5 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 $467,000 in the three months ended March 31, 2000 compared to $476,000 for the same period of 1999. This represents an decrease of 1.9%. An increase in average balances maintained in savings accounts offsetting service charges, is the primary reason for the decline. Gains on the sale of mortgage loans originated by the bank and sold in the secondary market were $13,000 in the quarter ended March 31, 2000 and $52,000 in the same period in 1999. The decrease occurred because of a decrease in residential mortgage refinance activity and new loan volumes due to the upward movement of market interest rates. Mortgage servicing fees were $65,000 in the three months ended March 31, 2000 compared to $76,000 in the same time period in 1999. This is a decline of $11,000 or 14.5%. The decline is attributable to lower serviced loan balances in 2000 due to payoffs throughout 1999 of serviced loans and the Corporation's retention of certain new mortgages as opposed to selling those loans and recognizing servicing fees during the same time period. Fiduciary income increased $7,000 in the three months ended March 31, 2000 comparing to the same time period in the prior year. This 4.5% increase in fees is attributed to growth in the assets under management within the Corporation's Investment Trust Department. Gains on the sale of investments were $26,000 in the first quarter of 1999. These gains occurred from sales of investments which had lower yield potential and longer maturities in connection with forecasts relating to yield curve movements and the expected impact on market rates. Proceeds from these transactions are being used to invest in other securities with stronger yields within certain maturity horizons. During the first quarter of 2000 there were no sales transactions of investment securities. 15 Non-Interest Expense TABLE 6
Three Months Ended Analysis of Non-Interest Expense March 31, - ------------------------------------------------------------------------- (000's omitted) 2000 1999 - ------------------------------------------------------------------------- Salaries and Benefits $1,455 $1,328 Equipment $373 $341 Net Occupancy $202 $193 FDIC Assessment $12 $7 Office Supplies $74 $65 Loan & Collection Expense $121 $60 Advertising $55 $52 Other Operating Expense $590 $629 ------------------------ Total Non-Interest Expense $2,882 $2,675 ========================
Total non-interest expense was $2,882,000 in the three months ended March 31, 2000 compared with $2,675,000 in the same period of 1999. This is a increase of 7.7%. This increase is largely attributable to an increase in salary and benefits expense and an increase in loan and collection expenses. Salary and benefit costs, Fentura's largest non-interest expense category, were $1,455,000 in the three months ended March 31, 2000, compared with $1,328,000, or an increase of 9.6%, for the same time period in 1999. Increased costs are primarily a result of a change in the mix of full time and part time employees, normal annual salary increases, and an increase in payroll taxes. During the three months ended March 31, 2000 equipment expenses were $373,000 compared to $341,000 for the same period in 1999, an increase of 9.4%. The increase in expense is attributable to equipment depreciation which increased due to new equipment purchases including a new mainframe computer system. Occupancy expenses at $202,000 increased in the three months ended March 31, 2000 comparing to the same period in 1999 by $9,000 or 4.7%. The increase is attributable to increases in facility repairs and maintenance contracts expense. During the three months ended March 31, 2000 office supplies expense at $74,000 increased $9,000 comparing to the $65,000 in expense for the same period in 1999. This increase is attributable to volume increases of regular office supplies and preprinted forms in 2000. Loan and collection expenses, at $121,000, were up $61,000 during the three months ended March 31, 2000 comparing to the same time period in 1999. This increase is primarily attributable to increases in dealer service fees paid in connection with indirect lending and an increase in legal expenses in connection with collection efforts. Other operating expenses were $590,000 in the three months ended March 31, 2000 compared to $629,000 in the same time period in 1999, a decrease of $39,000 or 6.2%. The decrease is attributable to a decrease in deposit account charge-offs and losses and a decrease in the Michigan Single Business Tax (SBT) accrual. Deposit account losses were down in 2000 because of enhanced monitoring procedures. The SBT accrual is lower in 2000 due to slightly lower earnings, an increase in the capital acquisition deduction in connection with the purchase of the mainframe computer system. 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 7 represents the levels of these assets at March 31, 2000 and 1999. 16 Non-performing assets increased modestly at March 31, 2000 compared to March 31, 1999. This increase is attributable to an increase in other real estate owned. Other real estate owned has increased primarily due to a property acquired through a relocation compensation agreement. The level and composition of non-performing assets are affected by economic conditions in the Corporation's local markets. Non-performing assets, charge-offs, and provisions for possible credit losses tend to decline in a strong economy and increase in a weak economy, potentially impacting the Corporation's operating results. In addition to non-performing loans, management carefully monitors other credits that are current in terms of principal and interest payments but, in management's opinion, may deteriorate in quality if economic conditions change. Table 7 Non-Performing Assets and Past Due Loans
March 31, 2000 1999 ------------------------------ Non-Performing Loans: Loans Past Due 90 Days or More & Still Accruing $184,000 $182,000 Non-Accrual Loans 925,000 1,032,000 Renegotiated Loans 0 7,000 ------------------------------ Total Non-Performing Loans 1,109,000 1,221,000 ------------------------------ Other Non-Performing Assets: Other Real Estate 377,000 172,000 REO in Redemption 0 96,000 Other Non-Performing Assets 73,000 30,000 ------------------------------ Total Other Non-Performing Assets 450,000 298,000 ------------------------------ Total Non-Performing Assets $1,559,000 $1,519,000 ============================== Non-Performing Loans as a % of Total Loans 0.56% 0.75% Non-Performing Assets as a % of Total Loans and Other Real Estate 0.79% 0.93% Allowance for Loan Losses as a % of Non-Performing Loans 274.66% 233.42% Allowance for Loan Losses, Other Real Estate, and In-Substance Foreclosures as a % of Non-Performing Assets 219.56% 198.95% Accruing Loans Past Due 90 Days or More to Total Loans 0.09% 0.11% Non-performing Assets as a % of Total Assets 0.51% 0.57%
LIQUIDITY AND INTEREST RATE RISK MANAGEMENT Asset/Liability management is designed to assure liquidity and reduce interest rate risks. The goal in managing interest rate risk is to maintain a strong and relatively stable net interest margin. It is the responsibility of the 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. The ALCO, which is comprised of key members of management, meets regularly to review financial performance and soundness, including interest rate risk and liquidity exposure in relation to present and perspective markets, business conditions, and product lines. Accordingly, the committee adopts funding and balance sheet management strategies that are intended to maintain earnings, liquidity, and growth rates 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 Corporation'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 2000 and 1999. While these 17 sources of funds are expected to continue to be available to provide funds in the future, the mix and availability of funds will depend upon future economic conditions. The Corporation does not foresee any difficulty in meeting its funding requirements. Primary liquidity is provided through short-term investments or borrowings (including federal funds sold and purchased) while secondary liquidity is provided by the investment portfolio. As of March 30, 2000 federal funds sold represented 2.9% of total assets, compared to 3.6% at March 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 is 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 increased $19,963,000 in first three months of 2000 due to the increase in deposits and borrowings. Comparatively, in the first three months of 1999, cash flows from financing activities decreased $8,862,000 because of decreases in deposit totals. Outward cash flows from investing activities were $7,281,000 during the first three months of 2000. The increase in investing activities at the end of the first quarter of 2000, were to fund new loan growth. CAPITAL MANAGEMENT Total shareholders' equity rose 5.59% to $32,246,000 at March 31, 2000 compared with $30,565,000 at March 31, 1999. The Company's equity to asset ratio was 10.6% at March 31, 2000 and 11.5% at March 31, 1999. 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 2000, the Corporation increased its cash dividends by 10.5% to $.21 per share compared with $.19 in the same time period in 1999. As indicated on the balance sheet on page 4, at March 31, 1999 the Company had an unrealized loss on securities available for sale (AFS) of $1,387,000 compared to an unrealized gain at March 31, 1999 of $3,000. This decrease to an unrecognized loss position is attributable to the upward movement of 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%. As reflected in Table 8, at March 31, 1999 and 2000, the Corporation was well in excess of the minimum capital and leverage requirements necessary to be considered a "well capitalized" banking company. 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. 18 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 8 Capital Ratios Regulatory Minimum For March 31, December 31, March 31, "Well Capitalization" 2000 1999 1999 Risk Based Capital: Total Capital 10% 14.82% 14.55% 14.92% Tier 1 6% 13.58% 13.30% 13.67% Tier 1 Leverage 5% 11.71% 12.03% 11.38%
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. The Corporation currently does not utilize derivatives 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 9 sets forth the distribution of re-pricing of the Corporation's earning assets and interest bearing liabilities as of March 31, 2000, 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.
Table 9 GAP ANALYSIS MARCH 31, 2000 (000's Omitted) Within Three One to After Three Months- Five Five Months One Year Years Years Total ------------------------------------------------------------ Earning Assets: Interest Bearing Bank Deposits $0 $0 $0 $0 0 Federal Funds Sold 14,550 0 0 0 14,550 Investment Securities 1,778 3,663 31,649 29,545 66,635 Loans 63,634 10,527 82,801 40,963 197,925 Loans Held for Sale 195 0 0 0 195 ------------------------------------------------------------ Total Earning Assets $80,157 $14,190 $114,450 $70,508 $279,305 ============================================================ Interest Bearing Liabilities: Interest Bearing Demand Deposits $39,911 $0 $0 $0 $39,911 Savings Deposits 24,613 0 0 45,857 70,470 Time Deposits Less than $100,000 17,828 35,871 21,869 63 75,631 Time Deposits Greater than $100,000 17,165 14,538 2,889 0 34,592 Federal Funds Purchased 14,050 Other Borrowings 546 0 40 1,113 1,699 ------------------------------------------------------------ Total Interest Bearing Liabilities $114,113 $50,409 $24,798 $47,033 $222,303 ============================================================ Interest Rate Sensitivity GAP ($33,956) ($36,219) $89,652 $23,475 $57,002 Cumulative Interest Rate Sensitivity GAP ($33,956) ($70,175) $19,477 $42,952 Interest Rate Sensitivity GAP -0.70 -0.28 4.62 1.50 Cumulative Interest Rate Sensitivity GAP Ratio -0.70 -0.57 1.10 1.18
19 As indicated in Table 9, the short-term (one year and less) cumulative interest rate sensitivity gap is negative. Accordingly, if market interest rates increase, this negative gap position would have a short- term negative impact on interest margin. However, gap analysis is limited and may not provide an accurate indication of 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 indices. Additionally, simulation modeling, which measures the impact of upward and downward movements of interest rates on interest margin and the market value of equity, indicates that an upward movement of interest rates would not significantly reduce net interest income. 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 4 No reports on Form 8-k were filed for the quarter ended March 31, 2000. 20 FENTURA BANCORP, INC. 2000 Quarterly Report on Form 10Q EXHIBIT INDEX
Exhibit No. Exhibit Location - -------- -------------------------------------------------------------------------- --------- 3(I) Articles of Incorporation of Fentura Bancorp, Inc. * 3(ii) Bylaws of Fentura Bancorp, Inc. * 4.1 Dividend Reinvestment Plan ***** 10.1 Equipment Sale Agreement between The State Bank and ITI, Inc. dated May 31, 1989 * 10.2 Master Equipment Lease Agreement between The State Bank and Unisys Finance Corporation dated September 6, 1989 * 10.3 Software License Agreement between The State Bank and ITI, Inc. dated July 3, 1989 * 10.4 Lease of Site for Automated Teller Machines between The State Bank and Bryce Felch dated November 6, 1986 * 10.5 Lease of Site for Automated Teller Machines between The State Bank and VG's Food Center, Inc. dated January 1, 1992 * 10.6 Lease of Holly Branch Bank Site between The State Bank and Inter Lakes Associates dated March 26, 1991 * 10.7 Lease of Davison Branch Bank Site between The State Bank and VG's Food Center, Inc. dated April 27, 1993 * 10.8 Lease of Clarkston Branch Site between The State Bank and Waldon Properties, Inc. dated January 24, 1994 *** 10.9 Lease of Site for Automated Teller Machines between The State Bank and Russell and Joy Manser dated December 1, 1994 *** 10.10 Lease of Fenton Silver Parkway Branch site between The State Bank and VG's Food Centers dated March 26, 1996 **** 10.11 Lease of Davison (second) Branch site between The State Bank and VG'S Food Centers dated November 12, 1996 ****** 10.12 Directors Stock Purchase Plan ***** 10.13 Non-Employee Director Stock Option Plan ***** 10.14 Form of Non-Employee Director Stock Option Agreement ***** 10.15 Retainer Stock Plan for Directors ***** 10.16 Employee Stock Option Plan ***** 10.17 Form of Employee Stock Option Plan Agreement *****
21 10.18 Executive Stock Bonus Plan ***** 10.19 Stock Purchase Plan between The State Bank and Donald E. Johnson, Jr., Mary Alice J. Heaton, and Linda J. LeMieux dated November 27, 1996 ****** 10.20 Severance Compensation Agreement between the registrant and ******* Donald L. Grill dated March 20, 1997 13.00 Rule 14a-3 Annual Report to Security Holders 21.1 Subsidiaries of the Registrant 27.0 Financial Data Schedule
* 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 22 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 12, 2000 By /s/ Donald L. Grill ------------ -------------------- Donald L. Grill Director President & CEO Date May 12, 2000 By /s/ Ronald L. Justice ------------ ----------------------- Ronald L. Justice Senior Vice President (Authorized Signer) Chief Financial Officer Cashier 23 Exhibit Index -------------
Exhibit No. Description - ----------- ----------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 13,911 0 14,550 0 52,958 13,677 13,536 198,120 3,046 304,242 253,984 14,586 2,263 1,163 0 0 3,565 28,681 304,242 4,453 1,011 75 5,539 2,219 2,296 3,243 169 0 2,882 1,143 1,143 0 0 873 .51 .51 8.37 925 184 0 0 2,961 108 24 3,046 3,046 0 0
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