-----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, JyuAa08dJSZt+H2h7IQQ4aB6ZmLFYcMrWdAmMkAbOQ1h8Rim2avyPjAkgJw9M9TQ RUmTywFduvTV0aBlSLSd+A== 0000950124-98-002979.txt : 19980518 0000950124-98-002979.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950124-98-002979 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NONE 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: 98623987 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, 1998 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from _______________ to _______________ Commission file number 0-23550 Fentura Bancorp, Inc. - -------------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Michigan 38-2806518 - --------------------------------------- ------------------------------------ (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) One Fenton Sq, P.O. Box 725, Fenton, Michigan 48430 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (810) 629-2263 --------------------------- (Issuer's telephone number) None - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No - ------ ------ APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: May 12, 1998 ----------------- Class - Common Stock Shares Outstanding - 1,400,777 2 Fentura Bancorp, Inc. Index To Form 10-Q Page ---- Part I - Financial Information Item 1 - Consolidated Financial Statements 3 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II - Other Information Item 1 - 6 Miscellaneous Information 16 3 PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Fentura Bancorp, Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited)
- -------------------------------------------------------------------------------------- MARCH 31, DEC 31, MARCH 31, (000's omitted Except Per Share Data) 1998 1997 1997 - -------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 10,163 11,047 9,528 Federal funds sold 9,300 5,400 5,200 ----------------------------------------- Total Cash & Cash Equivalents 19,463 16,447 14,728 Interest bearing deposits with banks 0 95 95 Investment securities-held to maturity, at cost (market value of $9,952, and $7,477 at March 31, 1998 and 1997, respectively) 9,848 9,590 7,466 Investment securities-avail for sale, at market 42,549 46,460 45,075 ----------------------------------------- Total investment securities 52,397 56,050 52,541 Loans: Commercial 75,790 81,063 76,656 Tax exempt development loans 449 481 713 Real estate loans - mortgage 13,617 14,589 15,297 Real estate loans - construction 15,701 15,007 19,018 Consumer loans 70,272 69,533 66,108 ----------------------------------------- Total loans 175,829 180,673 177,792 Less: Reserve for loan losses (3,012) (2,955) (2,913) ----------------------------------------- Net loans 172,817 177,718 174,879 Loans held for sale 7,867 3,525 768 Bank premises and equipment 3,789 3,990 4,566 Accrued interest receivable 1,715 1,907 1,738 Other assets 3,432 3,066 3,784 ----------------------------------------- Total assets $ 261,480 262,798 253,099 =========================================
4 LIABILITIES Deposits: Non-interest bearing deposits $ 29,070 31,072 25,286 Interest bearing deposits 199,884 199,462 197,930 ------------------------------------ Total deposits 228,954 230,534 223,216 Federal Funds Purchased 0 0 0 Other borrowings 2,394 2,685 2,695 Accrued taxes, interest and other liabilities 2,580 2,837 2,653 ------------------------------------ Total liabilities 233,928 236,056 228,564 ------------------------------------ STOCKHOLDERS' EQUITY Common stock - $5 par value 1,392,777 shares issued (692,343 in 1997 and 679,895 in March, 1997) 6,964 3,462 3,399 Surplus 17,111 16,913 16,371 Retained Earnings 3,362 6,308 5,109 Unrealized loss on sec avail for sale 115 59 (344) ------------------------------------ Total stockholder's equity 27,552 26,742 24,535 ------------------------------------ Total liabilities and stockholder's equity $261,480 262,798 253,099 ====================================
See notes to consolidated financial statements. 5 Fentura Bancorp, Inc. and Subsidiaries Consolidated Statements of Income (Unaudited)
Three Months Ended March 31, - ----------------------------------------------------------------------- (000's omitted, Except Per Share Data) 1998 1997 - ----------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans $4,456 4,433 Interest and dividends on investment securities: Taxable 672 670 Tax-exempt 119 88 Int on deposits with banks 1 2 Interest on federal funds sold 48 91 ------------------ Total interest income 5,296 5,284 INTEREST EXPENSE Deposits 2,162 2,208 Short-term borrowings 46 43 ------------------ Total interest expense 2,208 2,251 NET INTEREST INCOME 3,088 3,033 Provision for loan losses 156 156 ------------------ Net interest income after provision for loan losses 2,932 2,877 NON-INTEREST INCOME Service chrgs on dep accts 415 362 Fiduciary income 141 105 Other operating income 404 339 ------------------ Total non-interest income 960 806 NON-INTEREST EXPENSE Salaries and benefits 1,239 1,288 Occupancy of bank premises 178 177 Equipment expense 316 339 Other operating expenses 967 803 Investment gains (losses) 0 0 ------------------ Total non-interest expense 2,700 2,607 NET INCOME BEFORE TAXES 1,192 1,076 Applicable income taxes 372 341 ------------------ NET INCOME $ 820 735 ================== Per share: (1,392,777 shares) Net income ................................. $ 0.59 0.53 Dividends ................................. $ 0.20 0.19
See notes to consolidated financial statements. 6 Fentura Bancorp, Inc. and Subsidiaries Consolidated Statements of Cash Flows
Three Months Ended March 31, - -------------------------------------------------------------------------------- (000's omitted, Except Per Share Data) 1998 1997 - -------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $ 820 $ 735 Adjustments to reconcile net inc to cash Provided by Operating Activities: Depreciation and amortization 218 247 Provision for loan losses 156 156 Amortization (accretion) on securities 10 24 Loans originated for sale (5,876) (4,903) Loans sold 1,534 5,142 Gain on investment securities 0 0 Decrease (increase) in interest receivable 192 97 Decrease (increase) in other assets (396) (692) Increase (decrease) in accrued taxes, interest, and other liabilities (257) (1,201) ----------------------- Total Adjustments (4,419) (1,130) ----------------------- Net Cash Provided By (Used In) Operating Activities (3,599) (395) ----------------------- Cash Flows From Investing Activities: Net decrease in deposits with other banks 95 0 Proceeds from maturities of inv activities - HTM 20 10 Proceeds from maturities of inv activities - AFS 11,450 3,565 Purchases of investment securities - HTM (281) (552) Purchases of investment securities - AFS (7,460) (4,964) Net (increase) in customer loans 4,745 (2,642) Capital expenditures (17) (19) ----------------------- Net Cash Used in investing Activities 8,552 (4,602) Cash Flows From Financing Activities: Net increase (decrease) in DDA/SAV deposits 167 (3,663) Net increase (decrease) in Time deposits (1,747) 2,961 Net increase (decr) in borrowing's (291) 326 Proceeds from stock issuance 218 119 Cash dividends (284) (258) ----------------------- Net Cash Provided By (Used In) Financing Activities (1,937) (515) NET DECREASE IN CASH AND CASH EQUIVALENTS $ 3,016 ($ 5,512) CASH AND CASH EQUIVALENTS - BEGINNING $ 16,447 $ 20,371 CASH AND CASH EQUIVALENTS - ENDING $ 19,463 $ 14,859 ======================= CASH PAID FOR: INTEREST $ 2,400 $ 2,233 INCOME TAXES $ 200 $ 0
See notes to consolidated financial statements. 7 Fentura Bancorp, Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
Three Months Ended Three Months Ended - ------------------------------------------------------------------------------------------------------------ March 31, March 31, (000's omitted) 1998 1997 - ------------------------------------------------------------------------------------------------------------ COMMON STOCK Balance, beginning of period $ 3,462 $ 3,386 Issuance of shares under director stock purchase plan, stock purchase plan, and dividend reinvestment prog 20 13 Stock dividend 3,482 0 -------- -------- Balance, end of period 6,964 3,399 SURPLUS Balance, beginning of period 16,913 16,266 Issuance of shares under director stock purchase plan, stock purchase plan, and dividend reinvestment prog 198 105 Stock dividend 0 0 -------- -------- Balance, end of period 17,111 16,371 RETAINED EARNINGS Balance, beginning of period 6,308 4,632 Net income 820 735 Stock dividend (3,482) Cash dividends declared (284) (258) -------- -------- Balance, end of period 3,362 5,109 UNREALIZED GAIN ON SECURITIES AVAILABLE FOR SALE Balance, beginning of period 59 (175) Change in unrealized gain (loss) on securities, net of tax 56 (169) -------- -------- Balance, end of period 115 (344) -------- -------- TOTAL SHAREHOLDERS' EQUITY $ 27,552 $ 24,535 ======== ========
See notes to consolidated financial statements. 8 FENTURA BANCORP, INC. AND SUBSIDIARIES STATEMENT OF COMPREHENSIVE INCOME
Three Months Ended (000's Omitted) March 31, 1998 1997 ---------------- Net Income $ 820 $ 735 Other comprehensive income, net of tax: Unrealized holding gains arising during period $ 56 ($169) Less: reclassification adjustment for gains included in net income $ 0 $ 0 ---------------- Other comprehensive income $ 56 ($169) ---------------- Comprehensive income $ 876 $ 566 ================
Fentura Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1. Basis of presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions for Form - 10Q and Article 9 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. Note 2. Reclassifications Certain prior year amounts have been reclassified to conform to the current year financial statement presentation. Note 3. During the first quarter of 1998 the Corporation adopted the Statement of Financial Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income". The statement requires that entities present items of other comprehensive income in a financial statement with the same prominence as other financial statements. This statement requires reclassification of financial statements for earlier periods for comparative purposes. The adoption for SFAS No. 130 does not effect the net income of the Corporation. 9 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis is intended to address significant factors affecting the Corporation's consolidated financial statements during the three months ended March 31, 1998 and 1997. It provides a more detailed and comprehensive review of the operating results and financial position than could be obtained from the financial statements alone. THREE MONTHS, 1998 VERSUS THREE MONTHS, 1997 Net Interest Income Net interest income, the principal source of earnings, is the amount of interest income generated by earning assets (principally investment securities and loans) less interest expense paid on interest bearing liabilities (largely deposits and other borrowings). Table 1 summarizes the changes in net interest income resulting from changes in volume and rates for the quarters ended March 31, 1998 and 1997. As indicated in the table, during 1998 net interest income increased due to the increase in volume of earning assets and both the reduction of volume and rate of interest bearing liabilities. Table 1 also indicates that the increase in net interest income in 1997 was due to an increase in volume of earning assets. Net interest income (displayed without consideration of full tax equivalency), average balance sheet amounts, and the corresponding yields for the three months ended March 31, 1998 and 1997 are shown in Table 2. Net interest income for the three months ended March 31, 1998 was $3,088,000 an increase of $55,000 over the same period in 1997. This represents an increase of 1.8%. The primary factors contributing to the net interest income increase are growth in the Corporation's earning assets through increases in federal funds sold and loans held for sale and a reduction of interest expense due to lower rates paid on savings, interest bearing DDA, and other time deposits. Also indicated in Table 2, for the three months ended March 31, 1997 net interest income was $3,033,000. This is an increase of $155,000 or 5.4% over the same period in 1996. The increase in 1997 is attributable to the increase in income derived from increases within investment securities and loans. Table 1 CHANGES IN NET INTEREST INCOME DUE TO CHANGES IN AVERAGE VOLUME AND INTEREST RATES THREE MONTHS ENDED MARCH 31,
INCREASE (DECREASE) INCREASE (DECREASE) 1998 1997 DUE TO: DUE TO: ---------------------------------------------------------------------- TWELVE MONTHS ENDED DECEMBER 31, YIELD/ YIELD/ (000'S OMITTED) VOL RATE TOTAL VOL RATE TOTAL - -------------------------------------------------------------------------------------------------------------- INTEREST BEARING DEPOSITS IN BANKS ($ 1) $ 0 ($ 1) ($ 2) $ 0 ($ 2) TAXABLE SECURITIES (1) 3 2 109 35 144 TAX-EXEMPT SECURITIES 38 (7) 31 (46) 1 (45) FEDERAL FUNDS SOLD (46) 3 (43) (11) (3) (14) TOTAL LOANS (16) (45) (61) 245 (36) 209 LOANS HELD FOR SALE 97 (13) 84 (6) 1 (5) ----------------------------------------------------------------- TOTAL EARNING ASSETS 71 (59) 12 289 (2) 287 INTEREST BEARING DEMAND DEPOSITS 13 (6) 7 18 (5) 13 SAVINGS DEPOSITS 17 (23) (6) 6 29 35 TIME CD'S $100,000 AND OVER (51) 10 (41) 21 (25) (4) OTHER TIME DEPOSITS 7 (13) (6) 108 (8) 100 OTHER BORROWINGS (2) 5 3 (13) 1 (12) ----------------------------------------------------------------- TOTAL INTEREST BEARING LIABILITIES (16) (27) (43) 140 (8) 132 ----------------------------------------------------------------- NET INTEREST INCOME $ 87 ($ 32) $ 55 $ 149 $ 6 $ 155 =================================================================
10
TABLE 2 AVERAGE BALANCES AND RATES THREE MONTHS ENDED MARCH 31, (000's omitted) 1998 1997 --------------------------------------- ---------------------------------- AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ ASSETS BALANCE EXPENSE RATE BALANCE EXPENSE RATE -------------------------------------- ---------------------------------- Interest bearing deposits in Banks $ 64 $ 1 6.34% $ 95 $ 2 8.54% Investment securities: U.S. Treasury and Government Agencies 43,620 657 6.11% 43,723 656 6.08% State and Political 9,822 119 4.91% 6,860 88 5.20% Other 760 15 8.00% 716 14 7.93% ------------------------------------ --------------------------------- Total Investment Securities 54,202 791 5.92% 51,299 758 5.99% Fed Funds Sold 3,492 48 5.57% 7,049 91 5.24% Loans: Commercial 86,699 2,084 9.75% 86,498 2,116 9.92% Tax Free 467 7 6.08% 734 10 5.53% Real Estate-Mortgage 19,604 518 10.72% 25,370 671 10.73% Consumer 70,216 1,746 10.08% 65,038 1,619 10.10% ------------------------------------ --------------------------------- Total loans 176,986 4,355 9.98% 177,640 4,416 10.08% Allowance for Loan Loss (2,945) (2,871) Net Loans 174,041 4,355 10.15% 174,769 4,416 10.25% ------------------------------------ --------------------------------- Loans Held for Sale 5,697 101 7.19% 846 17 8.15% ------------------------------------ --------------------------------- TOTAL EARNING ASSETS $ 240,441 $ 5,296 8.93% $ 236,929 $ 5,284 9.04% --------------------------------------------------------------------------- Cash Due from Banks 9,558 9,525 All Other Assets 9,175 10,009 --------- --------- TOTAL ASSETS $ 256,229 $ 253,592 ========= ========= LIABILITIES & SHAREHOLDERS' EQUITY: Deposits: Non-interest bearing - DDA $ 25,840 $ 26,378 Interest bearing - DDA 35,958 202 2.28% 33,715 195 2.35% Savings Deposits 58,631 459 3.17% 56,594 465 3.33% Time CD's $100,000 and Over 25,474 379 6.03% 28,963 420 5.88% Other Time CD's 79,185 1,122 5.75% 78,689 1,128 5.81% ------------------------------------ --------------------------------- Total Deposits 225,088 2,162 3.90% 224,339 2,208 3.99% Other Borrowings 2,421 46 7.71% 2,512 43 6.94% ------------------------------------ --------------------------------- INTEREST BEARING LIABILITIES $ 201,669 $ 2,208 4.44% $ 200,473 $ 2,251 4.55% --------------------------------------------------------------------------- All Other Liabilities 2,477 2,388 Shareholders Equity 26,243 24,353 ========= ========= TOTAL LIABILITIES and S/H EQUITY $ 256,229 $ 253,592 ========= ========= ==== ==== Net Interest Rate Spread 4.49% 4.49% Impact of non-int bearing funds on margin 0.72% 0.70% ----- ----- Net Interest Income/Margin $ 3,088 5.21% $ 3,033 5.19% ====================== ====================
11 ALLOWANCE AND PROVISION FOR LOAN LOSSES The allowance for loan losses (ALL) reflects management's judgment as to the level considered appropriate to absorb potential losses inherent in the loan portfolio. Fentura's subsidiary, The State Bank's, methodology in determining the adequacy of the ALL includes a review of individual loans and off-balance sheet arrangements, historical loss experience, current economic conditions, portfolio trends, and other pertinent factors. Although reserves have been allocated to various portfolio segments, the ALL is general in nature and is available for the portfolio in its entirety. At March 31, 1998, the ALL was $3,012,000, or 1.71% of total loans. This compares with $2,913,000, or 1.64%, at March 31, 1997. The provision for loan losses was $156,000 for the first three months of 1998 and $156,000 for the same period in 1997. The primary reason for a level provision was only modest increases in loan outstandings including loans hold for sale. Table 3 ANALYSIS OF THE ALLOWANCE FOR POSSIBLE CREDIT LOSSES
Three Months Ended (000's omitted) March 31, 1998 1997 -------------------------- Balance Beginning of Period $ 2,955 $ 2,836 -------------------------- Charge-offs: Domestic: Commercial, Financial and Agricultural (42) (2) Real Estate-Mortgage 0 0 Installment Loans to Individuals (86) (105) Lease Financing 0 0 -------------------------- Total Charge-offs (128) (107) -------------------------- Recoveries: Domestic: Commercial, Financial and Agricultural 13 12 Real Estate-Mortgage 0 4 Installment Loans to Individuals 16 12 Lease Financing 0 0 -------------------------- Total Recoveries 29 28 -------------------------- Net Charge-offs (99) (79) -------------------------- Provision 156 156 -------------------------- Balance at End of Period $ 3,012 $ 2,913 ========================== Loans outstanding at period end $ 175,828 $ 177,792 Average loans outstanding during period $ 176,986 $ 177,640 Allowance for loan losses as a percentage of loans outstanding at period end 1.71% 1.64% Ratio of net charge-offs during period to average loans outstanding (annualized) 0.22% 0.18%
12 NON-INTEREST INCOME Non-interest income was $960,000 for the first three months of 1998 and $806,000 in the same period of 1997. This figure represents an increase of 19.1% in 1998. Table 1 provides a more detailed breakdown of the components of non-interest income than can be found in the income statement on page 5. The most significant category of non-interest income is service charges on deposit accounts. These fees were $415,000 in the first three months of 1998 and $362,000 in the same period of 1997. This represents an increase of 14.6% Growth in deposit totals, the number of accounts and certain account activities account for the increase. Gains on the sale of mortgage loans originated by the bank and sold in the secondary market were $74,000 in the first quarter of 1998 and $63,000 in the same period in 1997. This 17.5% increase occurred because of increases in residential mortgage refinance activity due to the impact of lower market rates. Fiduciary income increased $36,000 in the first three months of 1998 compared to the same time period in the prior year. This 34.3% increase in fees is attributed to growth in the assets under management within the Corporation's Investment Trust Department. Other operating income, includes income from the sale of checks, safe deposit box rent, merchant account income, ATM income, and other miscellaneous income items. Other operating income at $236,000 for the first quarter of 1998 increased $59,000 or 33.3% compared to the same time period in 1997. This increase occurred due to transaction fees associated with certain ATM activity. TABLE 4
Three Months Ended Analysis of Non-Interest Income March 31, - --------------------------------------------------------- (000's omitted) 1998 1997 - --------------------------------------------------------- Service Charges on Deposit Accounts $415 $362 Gain on Sale of Mortgages 74 63 Gain on Sale of Real Estate Owned 0 1 Mortgage Servicing Fees 94 98 Fiduciary Income 141 105 Other Operating Income 236 177 ---- ---- Total Non-Interest Income $960 $806 ==== ====
Non-Interest Expense Total non-interest expense was $2,700,000 in the first three months of 1998 compared with $2,607,000 in the same period of 1997. This is an increase of 3.6%. Salary and benefit costs, Fentura's largest non-interest expense category, were $1,239,000 in the first quarter of 1998, compared with $1,288,000 for the first quarter of 1997. 1998 salary costs represent a decrease of 3.8% comparing to 1997. Reduced costs are primarily a result of several vacant positions and the reduction of salary and benefits expense accordingly. During the first three months of 1998 equipment expenses were $316,000 compared to $339,000 for the same period in 1997. The reduction of expense in 1998 is attributable to equipment depreciation. Depreciation expense decreased because several substantial assets reached full depreciation in the last quarter of 1997. During the first quarter of 1998 office supplies expenses were $88,000 compared to $63,000 for the same period of 1997, an increase of 39.7%. This increase is attributable to cost and volume increases of regular office supplies and preprinted forms. 13 Loan and collection expenses were $111,000 in the first quarter of 1998 compared to $102,000 for the same period in 1997, an increase of 8.8%. The increase is primarily attributable to an increase in indirect consumer loan volume and accordingly, an increase in dealer reserve expense and an increase in home equity loan fees waived to the customer and paid by the bank. Other operating expenses were $681,000 in the first three months of 1998 compared to $532,000 in the first three months of 1997. This 28.0% increase in expense is attributable to a loss in January 1998 of $75,000 on an improperly endorsed check and increases in legal and consulting expense associated with efforts to improve employee benefits and enhance compensation and leveling systems. TABLE 5
Three Months Ended Analysis of Non-Interest Expense March 31, - ---------------------------------------------------- (000's omitted) 1998 1997 - ---------------------------------------------------- Salaries and Benefits $1,239 $1,288 Equipment 316 339 Net Occupancy 177 177 FDIC Assessment 7 6 Office Supplies 88 63 Loan & Collection Expense 111 102 Advertising 81 100 Security Losses 0 0 Other Operating Expense 681 532 ------ ------ Total Non-Interest Expense $2,700 $2,607 ====== ======
NONPERFORMING ASSETS Non-performing assets include loans on which interest accruals have ceased, loans which have been renegotiated, and real estate acquired through foreclosure. Past due loans are loans which were delinquent 90 days or more, but have not been placed on non-accrual status. Table 6 represents the levels of these assets at March 31, 1998 and 1997. The increase in non-performing loans is primarily due to several delinquent single-family mortgage loans which have sufficient equity and no expected loss. Additionally, the increase in non-accrual loans is due to two large commercial loan facilities wherein agreements have been executed that require specific action plans, collateral pledges, and related performance expectations. The loans will be closely monitored. While the non-performing loan increase is of concern, overall asset quality remains satisfactory. The ratio trends listed below support the above mentioned loan facilities that are included in the non-performing category. Table 6
Non-Performing Assets and Past Due Loans March 31, 1998 1997 --------------------------- Non-Performing Loans: Loans Past Due 90 Days or More & Still Accruing $ 869,000 $ 144,000 Non-Accrual Loans 1,688,000 747,000 Renegotiated Loans 8,000 0 --------------------------- Total Non-Performing Loans 2,565,000 891,000 --------------------------- Other Non-Performing Assets: Other Real Estate 0 0 REO in Redemption 154,000 0 Other Non-Performing Assets 63,000 88,000 --------------------------- Total Other Non-Performing Assets 217,000 88,000 --------------------------- Total Non-Performing Assets $2,782,000 $ 979,000 ===========================
14 Non-Performing Loans as a % of Total Loans 1.46% 0.50% Non-Performing Assets as a % of Total Loans and Other Real Estate 1.58% 0.55% Allowance for Loan Losses as a % of Non-Performing Loans 117.43% 326.94% Allowance for Loan Losses, Other Real Estate, and In-Substance Foreclosures as a % of Non-Performing Assets 113.80% 297.55% Accruing Loans Past Due 90 Days or More to Total Loans 0.49% 0.08% Nonperforming Assets as a % of Total Assets 1.06% 0.39%
LIQUIDITY AND INTEREST RATE RISK MANAGEMENT Asset/Liability management procedures are designed to assure liquidity and reduce interest rate risks. The goal in managing interest rate risk is to maintain a strong and relatively stable net interest margin. It is the responsibility of the Asset/Liability Management Committee (ALCO) to set policy guidelines and to establish short-term and long-term strategies with respect to interest rate exposure and liquidity. ALCO, which is comprised of key members of management, meets regularly to review Fentura's financial performance and soundness, including interest rate risk and liquidity exposure in relation to present and perspective markets, business conditions, and product lines. Accordingly, the committee adopts funding and balance sheet management strategies that are intended to determine that earnings, liquidity, and growth rates are consistent with policy and prudent business standards. Liquidity maintenance together with a solid capital base and strong earnings performance are key objectives of the Corporation. The Bank's liquidity is derived from a strong deposit base comprised of individual and business deposits. Deposit accounts of customers in the mature market represent a substantial portion of deposits of individuals. The Bank's deposit base plus other funding sources (federal funds purchased, other liabilities and shareholders' equity) provided primarily all funding needs in the first three months of 1998 and 1997. Primary liquidity is provided through short-term investments or borrowings (including federal funds sold and purchased) and secondary liquidity is provided by the investment portfolio. As of March 31, 1998 federal funds sold represented 3.6% of total assets, compared to 2.1% at March 31, 1997. The Corporation regularly monitors liquidity to ensure adequate cash flows to cover unanticipated reductions in the availability of funding sources. Interest rate risk is managed by controlling and limiting the level of earnings volatility arising from rate movements. The Corporation regularly performs reviews and analysis of those factors impacting interest rate risk. Factors include maturity and re-pricing frequency of balance sheet components, impact of rate changes on interest margin and prepayment speeds, market value impacts of rate changes, and other issues. Both actual and projected performance are reviewed, analyzed, and compared to policy and objectives to assure present and future financial viability. As indicated in the statement of cash flows, cash flows from financing activities have decreased in 1998 due to a less aggressive approach to negotiating the interest rate of large time deposits and accordingly a decline in overall all deposit totals. Comparatively, in the first three months of 1997, cash flows from financing activities decreased because of a decline in checking and saving deposits. Cash flows from investing activities were $8,552,000 during the first three months of 1998 and ($4,602,000) in the same period of 1997. The primary reason for the decline in investing activities at the end of the first quarter of 1998 was an decrease in deposits creating funding for investing activity and an increase in federal funds sold. 15 CAPITAL MANAGEMENT Total shareholders' equity rose 12.3% to $27,552,000 at March 31, 1998 compared with $24,535,000 at March 31, 1997. The Company's equity to asset ratio was 10.5% at March 31, 1998 and 9.7% at March 31, 1997. The increase in the amount of capital was obtained through retained earnings and the proceeds from the issuance of new shares. In the first three months of 1998, the Corporation increased its cash dividends by 10.1% to $.20 per share compared with $.19 in the first three months of 1997. As indicated on the balance sheet on page 4, at March 31, 1998 the Company had an unrealized gain on securities available for sale (AFS) of $115,000 compared to an unrealized loss at March 31, 1997 of $344,000. This decrease in unrealized loss to a gain position is attributable to market interest rates and the interest rate structures on those securities held in the Company's AFS portfolio. Regulatory Capital Requirements Bank holding companies and their bank subsidiaries are required by banking industry regulators to meet certain levels of capital adequacy. These are expressed in the form of certain ratios. Capital is separated into two levels, Tier I capital (essentially total common stockholders' equity less goodwill) and Tier II capital (essentially the reserve for loan losses limited to 1.25% of gross risk-weighted assets). These ratios are based on the degree of credit risk in the Corporation's assets. All assets and off-balance sheet items such as outstanding loan commitments are assigned risk factors to create an overall risk weighted asset total. Capital levels are then measured as a percentage of total risk weighted assets. The regulatory minimum for Tier I capital to risk weighted assets is 4% and the minimum for Total capital (Tier I plus Tier II) to risk weighted assets is 8%. The Tier I leverage ratio measures Tier I capital to average assets and must be a minimum of 4%. The FDIC has adopted a risk-based insurance premium system based in part on a corporation's capital adequacy. Under this system a depository institution is classified as well capitalized, adequately capitalized, or undercapitalized according to its regulatory capital levels. Subsequently, a financial institution's premium levels are based on these classifications and its regulatory supervisory rating (the higher the classification the lower the premium). It is the Corporation's goal to maintain capital levels sufficient to receive a designation of "well capitalized". Table 7
- ----------------------------------------------------------------------------------- Capital Ratios Regulatory Minimum For "Well March 31, December 31, March 31, Capitalization" 1998 1997 1997 - ----------------------------------------------------------------------------------- Risk Based Capital: Total Capital 10% 13.71% 13.47% 13.05% Tier 1 6% 12.46% 12.22% 11.80% Tier 1 Leverage 5% 10.18% 9.99% 9.60%
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. 16 An indicator of the interest rate sensitivity structure of a financial institution's balance sheet is the difference between its interest rate sensitive assets and interest rate sensitive liabilities, and is referred to as "GAP". Table 8 sets forth the distribution of re-pricing of the Corporation's earning assets and interest bearing liabilities as of December 31, 1997, the interest rate sensitivity GAP, as defined above, the cumulative interest rate sensitivity GAP, the interest rate sensitivity GAP ratio (i.e. interest rate sensitive assets divided by interest rate sensitive liabilities) and the cumulative sensitivity GAP ratio. The table also sets forth the time periods in which earning assets and liabilities will mature or may re-price in accordance with their contractual terms. However, the table does not necessarily indicate the impact of general interest rate movements on the net interest margin since the re-pricing of various categories of assets and liabilities is subject to the Corporation's needs, competitive pressures, and the needs of the Corporation's customers. In addition, various assets and liabilities indicated as re-pricing within the same period may in fact re-price at different times within such period and at different rates or indices. Table 8 GAP ANALYSIS MARCH 31, 1998
(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 9,300 0 0 0 9,300 Investment Securities 11,253 7,446 14,708 18,990 52,397 Loans 59,077 7,782 86,156 22,814 175,829 Loans Held for Sale 138 0 0 7,729 7,867 ----------------------------------------------------------------- Total Earning Assets $ 79,768 $ 15,228 $100,864 $ 49,533 $245,393 ================================================================= Interest Bearing Liabilities: Interest Bearing Demand Deposits $ 34,800 $ 0 $ 0 $ 0 $ 34,800 Savings Deposits 18,337 0 0 43,317 61,654 Time Deposits Less than $100,000 13,727 42,066 23,600 0 79,393 Time Deposits Greater than $100,000 9,396 10,637 3,614 391 24,038 Other Borrowings 1,219 0 40 1,135 2,394 ----------------------------------------------------------------- Total Interest Bearing Liabilities $ 77,479 $ 52,703 $ 27,254 $ 44,843 $202,279 ================================================================= Interest Rate Sensitivity GAP $ 2,289 ($37,475) $ 73,610 $ 4,690 $ 43,114 Cumulative Interest Rate Sensitivity GAP $ 2,289 ($35,186) $ 38,424 $ 43,114 Interest Rate Sensitivity GAP 1.03 0.29 3.70 1.10 Cumulative Interest Rate Sensitivity GAP Ratio 1.03 0.73 1.24 1.21
PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a. Exhibits The exhibits listed on the "Exhibit Index" on page 15 of this report are incorporated herein by reference. b. Report on Form 8-k No reports on Form 8-k were filed for the quarter ended March 31, 1998. 17 FENTURA BANCORP, INC. 1998 Quarterly Report on Form 10Q EXHIBIT INDEX
Exhibit No. Exhibit Location - ----- ------------------------------------------------------------------ --------- 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 *****
18 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
* 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 19 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FENTURA BANCORP, INC. Date May 14, 1998 By /s/ Donald L. Grill -------------- ----------------------------------- Donald L. Grill Director President & CEO Date May 14, 1998 By /s/ Ronald L. Justice ------------- ----------------------------------- Ronald L. Justice Vice President (Authorized Signer) Chief Financial Officer Cashier 20 Exhibit Index
Exhibit No. Description - ----------- ----------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 10,163 0 9,300 0 42,549 9,848 9,952 175,829 3,012 261,480 228,954 1,209 2,580 1,185 0 0 6,964 20,588 261,480 4,456 791 49 5,296 2,162 2,208 3,088 156 0 2,700 1,192 1,192 0 0 820 .59 .59 5.25 1,688 869 8 0 2,955 128 29 3,012 3,012 0 0
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