-----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, Rv+1LbOWsVq40nHZLw/DmF1ayO37JWpD5IzHW43faJVS4hLZJAjQqSVMPbEY80Rr qmkbkev7rjXnVfAncSfSTw== 0000950124-99-005987.txt : 19991115 0000950124-99-005987.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950124-99-005987 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 99750426 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 September 30, 1999 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT For the transition period from to --------------- --------------- Commission file number 0-23550 FENTURA BANCORP, INC. - -------------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Michigan 38-2806518 - ------------------------------- --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) One Fenton Sq, P.O. Box 725, Fenton, Michigan 48430 --------------------------------------------------- (Address of Principal Executive Offices) (810) 629-2263 --------------------------- (Issuer's telephone number) None ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No - ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: NOVEMBER 10, 1999 Class - Common Stock Shares Outstanding - 1,418,858 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 22 3 PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Fentura Bancorp, Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited)
- ------------------------------------------------------------------------------------------------------------------ SEPT. 30, DEC 31, SEPT. 30, (000's omitted Except Per Share Data) 1999 1998 1998 - ------------------------------------------------------------------------------------------------------------------ ASSETS Cash and due from banks $ 10,751 11,858 10,626 Federal funds sold 8,450 6,300 12,550 --------------------------------------------- Total Cash & Cash Equivalents 19,201 18,158 23,176 Investment securities-held to maturity, at cost (market value of $13,992, and $11,395 at June 30, 1999 and 1998, respectively, and $11,695 at Dec. 1998) 14,059 11,377 11,154 Investment securities-avail for sale, at market 51,562 66,579 52,405 --------------------------------------------- Total investment securities 65,621 77,956 63,559 Loans held for sale 10,538 10,507 10,602 Loans: Commercial 85,045 78,536 72,545 Tax exempt development loans 574 296 393 Real estate loans - mortgage 9,518 9,010 11,456 Real estate loans - construction 14,609 11,641 13,137 Consumer loans 63,219 62,423 66,500 --------------------------------------------- Total loans 172,965 161,906 164,031 Less: Reserve for loan losses (3,043) (2,783) (2,659) --------------------------------------------- Net loans 169,922 159,123 161,372 Bank premises and equipment 4,798 3,996 3,581 Accrued interest receivable 1,865 1,658 1,777 Other assets 5,569 3,649 3,743 --------------------------------------------- Total assets $ 277,514 275,047 267,810 =============================================
4 LIABILITIES Deposits: Non-interest bearing deposits $ 31,824 29,974 29,059 Interest bearing deposits 209,415 211,131 204,935 --------------------------------------------- Total deposits 241,239 241,105 233,994 Federal Funds Purchased 0 0 0 Other borrowings 2,664 1,216 1,599 Accrued taxes, interest and other liabilities 2,046 2,704 2,657 --------------------------------------------- Total liabilities 245,949 245,025 238,250 --------------------------------------------- STOCKHOLDERS' EQUITY Common stock - $2.5 par value 1,418,858 shares issued (1,408,436 in 3,547 3,521 3,513 Dec. 1998 and 1,405,089 in Sept., 1998) Surplus 18,172 17,644 17,486 Retained Earnings 10,571 8,664 8,079 Accumulated other comprehensive income (725) 193 482 --------------------------------------------- Total stockholder's equity 31,565 30,022 29,560 --------------------------------------------- Total liabilities and stockholder's equity $ 277,514 275,047 267,810 =============================================
See notes to consolidated financial statements. 5 Fentura Bancorp, Inc. and Subsidiaries Consolidated Statements of Income (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans $ 4,186 4,326 $ 12,528 13,309 Interest and dividends on investment securities: Taxable 847 737 2,335 2,046 Tax-exempt 144 130 413 377 Int on deposits with banks 0 0 0 1 Interest on federal funds sold 99 221 456 381 ----------------------------- --------------------------------- Total interest income 5,276 5,414 15,732 16,114 INTEREST EXPENSE Deposits 1,933 2,164 5,760 6,437 Short-term borrowings 34 38 98 124 ----------------------------- --------------------------------- Total interest expense 1,967 2,202 5,858 6,561 NET INTEREST INCOME 3,309 3,212 9,874 9,553 Provision for loan losses 165 156 490 568 ----------------------------- --------------------------------- Net interest income after provision for loan losses 3,144 3,056 9,384 8,985 NON-INTEREST INCOME Service charges on deposit accounts 495 432 1,470 1,275 Fiduciary income 154 139 453 419 Other operating income 436 382 1,162 1,239 Investment gains (2) 0 24 5 ----------------------------- --------------------------------- Total non-interest income 1,083 953 3,109 2,938 NON-INTEREST EXPENSE Salaries and benefits 1,363 1,264 4,112 3,818 Occupancy of bank premises 203 179 586 539 Equipment expense 372 355 1,055 1,030 Other operating expenses 826 867 2,576 2,713 ----------------------------- --------------------------------- Total non-interest expense 2,764 2,665 8,329 8,100 NET INCOME BEFORE TAXES 1,463 1,344 4,164 3,823 Applicable income taxes 447 416 1,282 1,178 ----------------------------- --------------------------------- NET INCOME $ 1,016 928 $ 2,882 2,645 ============================= ================================= Per share basic and diluted: Net income $ 0.72 0.66 $ 2.04 1.89 Dividends $ 0.23 0.21 $ 0.69 0.63 Average number of common shares outstanding 1,417,396 1,403,513 1,414,133 1,397,299
See notes to consolidated financial statements. 6 Fentura Bancorp, Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
Nine Months Nine Months Ended Ended - ------------------------------------------------------------------------------------------------------- Sept. 30, Sept. 30, (000's omitted) 1999 1998 - ------------------------------------------------------------------------------------------------------- COMMON STOCK Balance, beginning of period $ 3,521 $ 3,462 Issuance of shares under director stock purchase plan, stock purchase plan, and dividend reinvestment prog 26 51 --------------- -------------- Balance, end of period 3,547 3,513 SURPLUS Balance, beginning of period 17,644 16,913 Issuance of shares under director stock purchase plan, stock purchase plan, and dividend reinvestment prog 528 573 --------------- -------------- Balance, end of period 18,172 17,486 RETAINED EARNINGS Balance, beginning of period 8,664 6,308 Net income 2,882 2,645 Cash dividends declared (976) (874) --------------- -------------- Balance, end of period 10,570 8,079 ACCUMULATED OTHER COMPREHENSIVE INCOME Balance, beginning of period 193 59 Change in unrealized gain (loss) on securities, net of tax (917) 423 --------------- -------------- Balance, end of period (724) 482 --------------- -------------- TOTAL SHAREHOLDERS' EQUITY $ 31,565 $ 29,560 =============== ==============
See notes to consolidated financial statements. 7 Fentura Bancorp, Inc. and Subsidiaries Consolidated Statements of Cash Flows
Nine Months Ended September 30, - ---------------------------------------------------------------------------------------- (000's omitted, except per share data) 1999 1998 OPERATING ACTIVITIES: Net income $ 2,882 $ 2,645 Adjustments to reconcile net increases to cash Provided by Operating Activities: Depreciation and amortization 636 670 Provision for loan losses 490 568 Amortization (accretion) on securities (24) (47) Loans originated for sale (6,694) (20,456) Loans sold 6,663 13,379 Gain on investment securities (26) (5) Decrease (increase) in interest receivable (207) 130 Decrease (increase) in other assets (1,448) (896) Increase (decrease) in accrued taxes, interest, and other liabilities (658) (180) --------------------- Total Adjustments (1,268) (6,837) --------------------- Net Cash Provided By (Used In) Operating Activities 1,614 (4,192) --------------------- Cash Flows From Investing Activities: Net decrease in deposits with other banks 0 95 Proceeds from maturities of investment activities - HTM 355 3,375 Proceeds from maturities of investment activities - AFS 55,073 25,385 Proceeds from sales of Investment activities - AFS 12,321 3,231 Purchases of investment securities - HTM (3,100) (4,894) Purchases of investment securities - AFS (53,653) (33,912) Net (increase) in customer loans (11,289) 15,778 Capital expenditures (1,438) (261) --------------------- Net Cash Used in Investing Activities (1,731) 8,797 Cash Flows From Financing Activities: Net increase (decrease) in DDA/SAV deposits 736 1,401 Net increase (decrease) in Time deposits (602) 2,059 Net increase (decrease) in borrowing's 1,448 (1,086) Proceeds from stock issuance 554 624 Cash dividends (976) (874) --------------------- Net Cash Provided By (Used In) Financing Activities 1,160 2,124 NET INCREASE IN CASH AND CASH EQUIVALENTS $ 1,043 $ 6,729 CASH AND CASH EQUIVALENTS - BEGINNING $ 18,158 $ 16,447 CASH AND CASH EQUIVALENTS - ENDING $ 19,201 $ 23,176 ===================== CASH PAID FOR: INTEREST $ 6,244 $ 6,628 INCOME TAXES $ 1,575 $ 1,232
See notes to consolidated financial statements. 8 Fentura Bancorp, Inc. and Subsidiaries Statement of Comprehensive Income
Three Months Ended Nine Months Ended (000's Omitted) September 30, September 30, 1999 1998 1999 1998 ------------------------------------------- Net Income $1,016 $ 928 $2,882 $2,645 Other comprehensive income, net of tax: Unrealized holding gains arising during period ($ 37) $ 319 ($ 893) $ 428 Less: reclassification adjustment for gains included in net income ($ 2) $ 0 $ 24 $ 5 ------------------------------------------ Other comprehenisive income ($ 35) $ 319 ($ 917) $ 423 ------------------------------------------ Comprehensive income $ 981 $1,247 $1,965 $3,068 ==========================================
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 nine months ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. Note 2. Reclassifications Certain prior year amounts have been reclassified to conform to the current year financial statement presentation. Note 3. During the first quarter of 1998 the Corporation adopted the Statement of Financial Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income". The statement requires that entities present items of other comprehensive income in a financial statement with the same prominence as other financial statements. This statement requires reclassification of financial statements for earlier periods for comparative purposes. The adoption for SFAS NO. 130 does not effect the net income of the Corporation. 9 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis is intended to address significant factors affecting the Corporation's consolidated financial statements during the three and nine months ended September 30, 1999 and 1998. It provides a more detailed and comprehensive review of the operating results and financial position than could be obtained from the financial statements alone. Table 1 Selected Financial Data
NINE MONTHS ENDED SEPTEMBER 30, $ in thousand except per share data and ratios 1999 1998 - ------------------------------------------------------------------------------------- Summary of Consolidated Statements of Earnings: Interest Income $ 15,732 $ 16,114 Interest Expense 5,858 6,561 --------------------------- Net Interest Income 9,874 9,553 Provision for Possible Credit Losses 490 568 --------------------------- Net Interest Income after Provision 9,384 8,985 Total Other Operating Income 3,109 2,938 Total Other Operating Expense 8,329 8,100 --------------------------- Income Before Income Taxes 4,164 3,823 Provision for Income Taxes 1,282 1,178 --------------------------- Net Income $ 2,882 $ 2,645 Net Income Per Share $ 2.04 $ 1.89 Summary of Consolidated Statements of Financial Condition: Assets $277,514 $267,810 Securities 65,621 63,559 Loans 183,503 174,633 Deposits 241,239 233,994 Stockholders' Equity 31,565 29,560 Other Financial and Statistical Data: Tier 1 Capital to Risk Weighted Assets 13.22% 13.29% Total Capital to Risk Weighted Assets 14.18% 14.54% Tier 1 Capital to Average Assets 11.04% 10.45% Total Cash Dividends $ 976 $ 874 Book Value Per Share $ 22.32 $ 21.16 Cash Dividends Paid Per Share $ 0.69 $ 0.63 Period End Market Price Per Share $ 46.66 $ 48.00 Dividend Payout Ratio 33.87% 33.04% Return on Average Stockholders' Equity 12.27% 12.43% Return on Average Assets 1.42% 1.35% Net Interest Margin (FTE) 5.35% 5.30% Total Equity to Assets at Period End 11.37% 11.04%
Results of Operations Table 1 summarizes selected financial data for the nine months ended September 30, 1999 and 1998. As indicated earnings for the nine month ended September 30, 1999 were $2,882,000 compared to $2,645,000 for the same period in 1998. Earnings have continued to steadily increase as a result of improvement of net interest income and other operating income. The banking industry uses standard performance indicators to help evaluate an institution's performance. Return on average assets is one of these indicators. For the nine months ended 10 September 30, 1999 the Coporation's return on average assets was 1.42% compared to 1.35% for the same period in 1998. Total assets increased approximately $9,700,000 from September 30, 1998 to $277,514,000 at September 30, 1999. Stockholders' Equity increased approximately $2,005,000 from September 30, 1998 to $31,565,000 at September 30, 1999. The increase in equity will allow the Corporation to continue its growth strategy. Net Income per share-basic was $2.04 in the first nine months of 1999 compared to $1.89 for the same period in 1998. Net Interest Income Net interest income and average balances and yields on major categories of interest-earning assets and interest-bearing liabilities for the three and nine months ended September 30, 1999 and 1998 are summarized in Tables 3 and 4, respectively. The effects of changes in average interest rates and average balances are detailed in Table 2 below.
TABLE 2 CHANGES IN NET INTEREST INCOME DUE TO CHANGES IN AVERAGE VOLUME AND INTEREST RATES THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30, 1999 COMPARED TO 1998 1999 COMPARED TO 1998 INCREASE (DECREASE) INCREASE (DECREASE) DUE TO: DUE TO: ------------------------------------------------------------------------- YIELD/ YIELD/ (000'S OMITTED) VOL RATE TOTAL VOL RATE TOTAL - ------------------------------------------------------------------------------------------------------------------------- INTEREST BEARING DEPOSITS IN BANKS 0 0 0 (1) 0 (1) TAXABLE SECURITIES 105 5 110 313 (24) 289 TAX-EXEMPT SECURITIES 17 (3) 14 42 (6) 36 FEDERAL FUNDS SOLD (112) (10) (122) 150 (75) 75 TOTAL LOANS 33 (168) (135) (661) (301) (962) LOANS HELD FOR SALE (8) 3 (5) 183 (2) 181 ------------------------------------------------------------------------- TOTAL EARNING ASSETS 35 (173) (138) 26 (408) (382) INTEREST BEARING DEMAND DEPOSITS 19 (64) (45) 85 (174) (89) SAVINGS DEPOSITS 39 13 52 110 (77) 33 TIME CD'S $100,000 AND OVER (60) (26) (86) (61) (97) (158) OTHER TIME DEPOSITS (62) (90) (152) (184) (279) (463) OTHER BORROWINGS (4) 0 (4) (22) (4) (26) ------------------------------------------------------------------------- TOTAL INTEREST BEARING LIABILITIES (68) (167) (235) (72) (631) (703) ------------------------------------------------------------------------- NET INTEREST INCOME $103 ($6) $97 $98 $223 $321 =========================================================================
As indicated in Table 2, during the three and nine months ended September 30, 1999, net interest income increased over the same period in 1998 principally due to the reduction of rates paid on interest bearing deposit liabilities. Net interest income (displayed without consideration of full tax equivalency), average balance sheet amounts, and the corresponding yields for the three months ended September 30, 1999 and 1998 are shown in Table 3. Net interest income for the three months ended September 30, 1999 was $3,309,000 an increase of $97,000 over the same period in 1998. This represents an increase of 3.0%. The primary factors contributing to the net interest income increase is the reduction of interest expense due to lower rates paid on interest bearing DDA and time deposits. Also indicated in Table 3, for the three months ended September 30, 1998 net interest Income was $3,212,000. This is an increase of $43,000 or 1.4% over the same period in 1997. The increase in 1998 is primarily attributable to the reduction in interest expense due to lower rates paid on deposits. 11 Net interest Income (displayed without consideration of full tax equivalency), average balance sheet amounts, and the corresponding yields for the nine months ended September 30, 1999 and 1998 are shown in Table 4. Net interest income for the nine months ended September 30, 1999 was $9,874,000 an increase of $321,000 over the same period in 1998. This represents an increase of 3.4%. The primary factor contributing to the net interest income increase is a reduction of interest expense due to lower rates paid on deposits and lower deposit balances. Also indicated in Table 4, for the nine months ended September 30, 1998 net interest income was $9,553,000. This is an increase of $310,000 or 3.4% over the same period in 1997. The increase in 1998 is attributable to the reduction of interest expense due to lower rates paid on savings, interest bearing DDA, and other time deposits. Management continually monitors the Corporation's balance sheet to insulate net interest Income from significant swings caused by interest rate volatility. If market rates change in 1999, corresponding changes in funding costs would be considered to avoid any potential negative impact on net interest income. The corporation's policies in this regard are further discussed in the section titled "Interest Rate Risk". 12
Table 3 AVERAGE BALANCES AND RATES THREE MONTHS ENDED SEPTEMBER 30, (dollars in thousands) 1999 1998 -------------------------------- -------------------------------- ASSETS AVG BAL INC/EXP YIELD AVG BAL INC/EXP YIELD ------------------------------------------------------------------- Interest bearing deposits in Banks $ 0 $ 0 0.00% $ 0 $ 0 0.00% Investment securities: U.S. Treasury and Government Agencies 54,534 832 6.05% 47,601 721 6.01% State and Political 12,269 144 4.66% 10,837 130 4.76% Other 822 15 7.24% 788 16 8.06% -------------------------------- -------------------------------- Total Investment Securities 67,625 991 5.81% 59,226 867 5.81% Fed Funds Sold 7,755 99 5.06% 15,844 221 5.53% Loans: Commercial 90,714 2,184 9.55% 80,413 1,998 9.86% Tax Free 306 5 6.48% 401 5 4.95% Real Estate-Mortgage 13,301 321 9.57% 16,305 418 10.17% Consumer 62,316 1,490 9.49% 68,191 1,714 9.97% -------------------------------- -------------------------------- Total loans 166,637 4,000 9.52% 165,310 4,135 9.92% Allowance for Loan Loss (2,967) (2,706) Net Loans 163,670 4,000 9.70% 162,604 4,135 10.09% -------------------------------- -------------------------------- Loans Held for Sale 10,496 186 7.03% 10,870 191 6.97% -------------------------------- -------------------------------- TOTAL EARNING ASSETS $252,513 $5,276 8.29% $251,250 $5,414 8.55% ------------------------------------------------------------------- Cash Due from Banks 9,848 9,284 All Other Assets 12,259 9,213 ----------- ----------- TOTAL ASSETS $271,653 $267,041 ----------- ----------- LIABILITIES & SHAREHOLDERS' EQUITY: Deposits: Non-Interest bearing - DDA $ 30,418 $ 27,964 Interest bearing - DDA 41,625 172 1.64% 38,195 217 2.25% Savings Deposits 66,572 494 2.94% 61,205 442 2.87% Time CD's $100,000 and Over 22,310 301 5.35% 26,436 387 5.81% Other Time CD's 74,872 966 5.12% 79,304 1,118 5.59% -------------------------------- -------------------------------- Total Deposits 235,797 1,933 3.25% 233,104 2,164 3.68% OTHER BORROWINGS 1,959 34 6.89% 2,169 38 6.95% -------------------------------- -------------------------------- INTEREST BEARING LIABILITIES $207,338 $1,967 3.76% $207,309 $2,202 4.21% ------------------------------------------------------------------- All Other Liabilities 2,240 2,473 Shareholders Equity 31,657 29,295 ----------- ----------- TOTAL LIABILITIES AND S/H EQUITY $271,653 $267,041 ----------- --------- ----------- ---------- Net Interest Rate Spread 4.53% 4.33% Impact of Non-Int. Bearing Funds on Margin 0.67% 0.74% --------- ---------- Net Interest Income/Margin $3,309 5.20% $3,212 5.07% ===================== =====================
13
Table 4 AVERAGE BALANCES AND RATES NINE MONTHS ENDED SEPTEMBER 30, (dollars in thousands) 1999 1998 -------------------------------- -------------------------------- ASSETS AVG BAL INC/EXP YIELD AVG BAL INC/EXP YIELD ------------------------------------------------------------------- Interest bearing deposits in Banks $ 0 $ 0 0.00% $ 21 $ 1 6.37% Investment securities: U.S. Treasury and Government Agencies 50,604 2,289 6.05% 44,248 1,999 6.04% State and Political 11,625 413 4.75% 10,466 377 4.82% Other 1,284 46 4.79% 779 47 8.07% -------------------------------- -------------------------------- Total Investment Securities 63,513 2,748 5.78% 55,493 2,423 5.84% Fed Funds Sold 12,760 456 4.78% 9,157 381 5.56% Loans: Commercial 88,436 6,477 9.79% 84,266 6,211 9.85% Tax Free 296 13 5.87% 434 18 5.55% Real Estate-Mortgage 14,264 1,033 9.68% 19,552 1,485 10.15% Consumer 61,948 4,452 9.61% 69,555 5,223 10.04% -------------------------------- -------------------------------- Total loans 164,944 11,975 9.71% 173,807 12,937 9.95% Allowance for Loan Loss (2,897) (2,889) Net Loans 162,047 11,975 9.88% 170,918 12,937 10.12% -------------------------------- -------------------------------- Loans Held for Sale 10,523 553 7.03% 7,064 372 7.04% -------------------------------- -------------------------------- --------- --------- TOTAL EARNING ASSETS $251,740 $15,732 8.36% $245,542 $16,114 8.77% ------------------------------------------------------------------- Cash Due from Banks 9,969 9,505 All Other Assets 11,422 9,200 ----------- ----------- TOTAL ASSETS $270,234 $261,358 ----------- ----------- LIABILITIES & SHAREHOLDERS' EQUITY: Deposits: Non-Interest bearing - DDA $ 28,878 0.00% $ 26,487 0.00% Interest bearing - DDA 42,135 539 1.71% 37,091 628 2.26% Savings Deposits 65,109 1,372 2.82% 60,185 1,339 2.97% Time CD's $100,000 and Over 24,021 954 5.31% 25,405 1,112 5.85% Other Time CD's 74,760 2,895 5.18% 79,087 3,358 5.68% -------------------------------- -------------------------------- Total Deposits 234,903 5,760 3.28% 228,255 6,437 3.77% Other Borrowings 1,896 98 6.91% 2,304 124 7.20% -------------------------------- -------------------------------- INTEREST BEARING LIABILITIES $207,921 $5,858 3.77% $204,072 $6,561 4.30% ------------------------------------------------------------------- All Other Liabilities 2,115 2,423 Shareholders Equity 31,320 28,376 ----------- ----------- TOTAL LIABILITIES and S/H EQUITY $270,234 $261,358 ----------- --------- ----------- --------- Net Interest Rate Spread 4.59% 4.48% Impact of Non-Int. Bearing Funds on Margin 0.66% 0.73% --------- --------- Net Interest Income/Margin $9,874 5.24% $9,553 5.20% ===================== =====================
14 ALLOWANCE AND PROVISION FOR LOAN LOSSES The allowance for loan losses (ALL) reflects management's judgment as to the level considered appropriate to absorb potential losses inherent in the loan portfolio. Fentura's subsidiary, The State Bank's, methodology in determining the adequacy of the ALL includes a review of individual loans and off-balance sheet arrangements, historical loss experience, current economic conditions, portfolio trends, and other pertinent factors. Although reserves have been allocated to various portfolio segments, the ALL is general in nature and is available for the portfolio in its entirety. At September 30, 1999, the ALL was $3,043,000, or 1.66% of total loans, including those loans held for sale. This compares with $2,659,000, or 1.52%, at September 30, 1998. The increase in the ALL balance and percentage of total loans is a result of the decline in loan balances. The provision for loan losses was $165,000 and $490,000 for the three and nine months, respectively, ended September 30, 1999 and $156,000 and $ 568,000 for the same periods in 1998. The primary reason for decreasing the provision in the first nine months of 1999 was the improvement in overall loan quality and a decline in loan balances.
Table 5 ANALYSIS OF THE ALLOWANCE FOR POSSIBLE CREDIT LOSSES Three Months Ended Nine Months Ended (000's omitted) September 30, September 30, 1999 1998 1999 1998 ---------------------------------------------- Balance at Beginning of Period $2,920 $2,758 $2,783 $2,955 ---------------------------------------------- Charge-Offs: Domestic: Commercial, Financial and Agriculture 0 (30) (72) (454) Real Estate-Mortgage 0 (67) (2) (77) Installment Loans to Individuals (58) (215) (229) (446) Lease Financing 0 0 0 0 ---------------------------------------------- Total Charge-Offs (58) (312) (303) (977) ---------------------------------------------- Recoveries: Domestic: Commercial, Financial and Agriculture 2 30 12 45 Real Estate-Mortgage 0 0 0 0 Installment Loans to Individuals 14 27 61 68 Lease Financing 0 0 0 0 ---------------------------------------------- Total Recoveries 16 57 73 113 ---------------------------------------------- Net Charge-Offs (42) (255) (230) (864) ---------------------------------------------- Provision 165 156 490 568 ---------------------------------------------- Balance at End of Period $3,043 $2,659 $3,043 $2,659 ============================================== Ratio of Net Charge-Offs During the Period 0.09% 0.58% 0.17% 0.64% ==============================================
NON-INTEREST INCOME
TABLE 6 Three Months Ended Nine Months Ended Analysis of Non-Interest Income September 30, September 30, - ------------------------------------------------------------------------------------------------- (000's omitted) 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------- Service Charges on Deposit Accounts $ 495 $432 $1,470 $1,275 Gain on Sale of Mortgages $ 10 $ 43 93 190 Mortgage Servicing Fees $ 68 $ 84 216 265 Fiduciary Income $ 154 $139 453 419 Other Operating Income $ 358 $255 853 784 Investment Gains ($ 2) $ 0 24 5 ------------------------------------------------ Total Non-Interest Income $1,083 $953 $3,109 $2,938 ================================================
15 Non-interest income increased in the three and nine months ended September 30, 1999 as compared to the same period in 1998 due to increases in other operating income, service charges on deposit accounts, and fiduciary income. Overall non-interest income was $1,083,000 and $3,109,000 in the three and nine months, respectively, ended September 30, 1999 compared to $953,000 and $2,938,000 for the same periods in 1998. Table 6 provides a more detailed breakdown of the components of non-interest income and the following discussion provides a detailed analysis of the changes from each period. The most significant category of non-interest income is service charges on deposit accounts. These fees were $495,000 in the three months ended September 30, 1999 and $1,470,000 in the nine months ended September 30, 1999 compared to $432,000 and $1,275,000, respectively, for the same periods of 1998. These represent increases of 14.6% and 15.3%, respectively. Growth in deposit totals, the number of accounts and certain account activities account for the increases. Gains on the sale of mortgage loans originated by the bank and sold in the secondary market were $10,000 in the quarter ended September 30, 1999 and $43,000 in the same period in 1998. These gains were $93,000 in the nine months ended September 30, 1999 and $190,000 in the same period of 1998. These decreases occurred because of lower residential mortgage refinance activity due to the impact of changing market rates. Mortgage servicing fees were $68,000 and $216,000 for the three and nine months ended September 30, 1999, respectively compared to $84,000 and $265,000 for the same periods, respectively, in 1998. The declines are attributable to lower serviced loan balances in 1999 due to payoffs throughout 1998 and the first nine months of 1999 and the Corporation's retention of certain new mortgages as opposed to selling those loans and recognizing servicing fees. Fiduciary income increased $15,000 in the three months ended September 30, 1999 and increased $34,000 in the nine months ended September 30, 1999 comparing to the same time periods in the prior year. These 10.8% and 8.1%, respectively, increases in fees is attributed to growth in the assets under management within the Corporation's Investment Trust Department. Other operating income includes income from the sale of checks, safe deposit box rent, merchant account income, ATM income, and other miscellaneous income items. Other operating income was $358,000 for the three months ended September 30, 1999 and $255,000 for the same period 1998. This is an increase of 40.3% compared to the same time period in 1998. For the nine months ended September 30, 1999 other income was $853,000 compared to $784,000 to the same period in 1998. This is an increase of 8.8%. These decreases occurred primarily due to a gain recognized from the sale of deposits, sold in connection with the sale of a branch location in the third quarter of 1999. Non-Interest Expense
TABLE 7 Three Months Ended Nine Months Ended Analysis of Non-Interest Expense September 30, September 30, 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------- Salaries and Benefits $1,363 $1,264 $4,112 $3,818 Equipment $ 372 $ 355 1,055 1,030 Net Occupancy $ 203 $ 179 586 539 FDIC Assessment $ 6 $ 7 20 21 Office Supplies $ 62 $ 76 195 235 Loan & Collection Expense $ 100 $ 96 263 294 Advertising $ 48 $ 59 208 209 Other Operating Expense $ 610 $ 629 1,890 1,954 ------------------------------------------------ Total Non-Interest Expenses $2,764 $2,665 $8,329 $8,100 ================================================
16 Total non-interest expense was $2,764,000 in the three months ended September 30, 1999 compared with $2,665,000 in the same period of 1998. This is an increase of 3.7%. For the nine months ended September 30, 1999 non-interest expenses were $8,329,000 compared to $8,100,000 in the same time period of 1998, an increase of 2.8%. These increases occurred due to increases in salaries and benefits, net occupancy, and equipment expenses. Salary and benefit costs, Fentura's largest non-interest expense category, were $1,363,000 in the quarter ended September 30, 1999, compared with $1,264,000, or an increase of 7.8%, for the same time period in 1998. These costs were $4,112,000 in the nine months ended September 30, 1999, and $3,818,000, or an increase of 7.7%, for the same time period in 1998. Increased costs are primarily a result of filling vacant positions, the revision of position and salary levels in the second quarter of 1998 which resulted in salary increases, and the implementation of pension programs for certain employees which resulted in increases in benefit expense. During the three months ended September 30, 1999 equipment expenses were $372,000 compared to $355,000 for the same period in 1998, an increase of 4.8%. For the nine months ended September 30, 1999 these expenses were $1,055,000 compared to $1,030,000 for the same time period in 1998, a increase of 2.4%. For the three and nine months ended September 30, 1999 equipment expense increased because of repairs, upgrades, and maintenance performed in the first nine months of 1999. Occupancy expenses increased in both the three and nine months ended September 30, 1999 comparing to the same periods in 1998. These expenses were $203,000 and $586,000 in the three and nine months ended September 30, 1999, respectively, and $179,000 and $539,000 in the same periods, respectively, in 1998. This is a 13.4% increase in the three months ended September 30, 1999 compared to the same period in 1998, and a 8.7% increase in the nine months ended September 30, 1999 compared to the same period in 1998. These increases are attributable to increases in facility repairs and maintenance, utility, real estate tax, and facility depreciation expense. As indicated in Table 7, during the three and nine months ended September 30, 1999 office supplies expense decreased $14,000 and $40,000, respectively, comparing to the same periods in 1998. These decreases are attributable to cost and volume decreases of regular office supplies and preprinted forms. Loan and collection expenses increased $4,000 to $100,000 in the three months ended September 30, 1999 an increase of 4.2% comparing to $96,000 for the same time period in 1998. This increase is attributable to an increase in legal expense in connection with loan collection and repossessions. For the nine months ended September 30, 1999, loan and collection expenses were $263,000 compared to $294,000 for the same time period in 1998. This $31,000 decrease, or 10.5%, is attributable to a decrease in dealer service fees paid in connection with indirect auto lending. Other operating expenses were $1,890,000 in the nine months ended September 30, 1999 compared to $1,954,000 in the same time period in 1998, a decrease of 3.3%. The expenses decreased comparing the two periods because of a one time loss of $75,000 on an improperly endorsed check in January of 1998 and a reduction of fees paid for check production in 1999. NONPERFORMING ASSETS Non-performing assets include loans on which interest accruals have ceased, loans which have been renegotiated, and real estate acquired through foreclosure. Past due loans are loans which were delinquent 90 days or more, but have not been placed on non-accrual status. Table 8 represents the levels of these assets at September 30, 1999 and 1998. Non-performing loans include several delinquent single-family mortgage loans which have sufficient equity and no expected loss. Non-accrual loans include one residential mortgage loan 17 and several smaller balance consumer loans. All non-accrual loans are secured and accordingly, no significant losses are anticipated. As Table 8 indicates, non-performing assets have decreased substantially comparing September 30, 1999 to September 30, 1998, due to the payoffs of several large commercial non-accrual loans between September 30, 1998 and September 30, 1999.
Table 8 Non-Performing Assets and Past Due Loans September 30, 1999 1998 ------------------------------ Non-Performing Loans: Loans Past Due 90 Days or More & Still Accruing $170,000 $ 181,000 Non-Accrual Loans 227,000 1,307,000 Re-negotiated Loans 6,000 7,000 ------------------------------ Total Non-Performing Loans 403,000 1,495,000 ------------------------------ Other Non-Performing Assets: Other Real Estate 172,000 206,000 REO in Redemption 275,000 122,000 Other Non-Performing Assets 61,000 67,000 ------------------------------ Total Other Non-Performing Assets 508,000 395,000 ------------------------------ Total Non-Performing Assets $911,000 $1,890,000 ============================== Non-Performing Loans as a % of Total Loans 0.22% 0.86% Non-Performing Assets as a % of Total Loans and Other Real Estate 0.50% 1.08% Allowance for Loan Losses as a % of Non-Performing Loans 755.09% 177.86% Allowance for Loan Losses, Other Real Estate, and In-Substance Foreclosures as a % of Non-Performing Assets 383.10% 158.04% Accruing Loans Past Due 90 Days or More to Total Loans 0.09% 0.10% Non-performing Assets as a % of Total Assets 0.33% 0.71%
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. The following describes the Corporation's policy and related disclosures for impaired loans. The Corporation maintains a valuation allowance for impaired loans. A loan is considered impaired when management determines it is probable that all of the principal and interest due under the contractual terms of the loan will not be collected. In most instances, impairment is measured based on the fair value of the underlying collateral. Impairment may also be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate. Interest income on impaired non-accrual loans is recognized on a cash basis. Interest income on all other impaired loans is recorded on an accrual basis. Certain of the Corporation's non-performing loans included in Table 11 are considered impaired. The Corporation measures impairment on all large balance non-accrual commercial loans. Certain large balance accruing loans rated substandard or worse are also measured for impairment. Impairment losses are included in the provision for loan losses. The policy does not apply to large 18 groups of smaller balance homogeneous loans that are collectively evaluated for impairment. Loans collectively evaluated for impairment include certain smaller balance commercial loans, consumer loans, residential real estate loans, and credit card loans. Impaired loans totaled $1,372,000 at September 30, 1999 compared to $2,381,000 at September 30, 1998. The substantial decline in impaired loans in 1999 is attributable to the non-accrual loan payoffs referenced earlier in this section. The Corporation maintains policies and procedures to identify and monitor nonaccrual loans. A loan is placed on nonaccrual status when there is doubt regarding collection of principal or interest, or when principal or interest is past due 90 days or more. Interest accrued but not collected is reversed against income for the current quarter and charged to the allowance for loan losses for prior quarters when the loan is placed on nonaccrual status. 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 nine months of 1999 and 1998. Primary liquidity is provided through short-term investments or borrowings (including federal funds sold and purchased) and secondary liquidity is provided by the investment portfolio. As of September 30, 1999 federal funds sold represented 3.0% of total assets, compared to 4.7% at September 30, 1998. The Corporation regularly monitors liquidity to ensure adequate cash flows to cover unanticipated reductions in the availability of funding sources. Interest rate risk is managed by controlling and limiting the level of earnings volatility arising from rate movements. The Corporation regularly performs reviews and analysis of those factors impacting interest rate risk. Factors include maturity and re-pricing frequency of balance sheet components, impact of rate changes on interest margin and prepayment speeds, market value impacts of rate changes, and other issues. Both actual and projected performance are reviewed, analyzed, and compared to policy and objectives to assure present and future financial viability. As indicated in the statement of cash flows, cash flows from financing activities have decreased in 1999 due to a decline in time deposit balances. Comparatively, in the first nine months of 1998, cash flows from financing activities increased because of an increase in checking and savings deposits. Cash flows from investing activities were $1,731,000 during the first nine months of 1999 and $8,797,000 in the same period of 1998. The primary reason for the decline in investing activities at the end of the third quarter of 1999 was an increase in maturing and sold investments netting against funds used for investment purchases and new loans. CAPITAL MANAGEMENT Total shareholders' equity rose 6.8% to $31,565,000 at September 30, 1999 compared with $29,560,000 at September 30, 1998. The Company's equity to asset ratio was 11.4% at September 19 30, 1999 and 11.04% at September 30, 1998. The increase in the amount of capital was obtained through retained earnings and the proceeds from the issuance of new shares. In the first three quarters of 1999, the Corporation increased its cash dividends per share by 9.5% to $.69 per share compared with $.63 in the same time period of 1998. As indicated on the balance sheet on page 4, at September 30, 1999 the Company had accumulated other comprehensive losses consisting of unrealized loss on securities available for sale (AFS) of $724,000 compared to an unrealized gain at September 30, 1998 of $482,000. This change from a unrealized gain to an unrealized loss is attributable to market interest rates and the interest rate structures on those securities held in the AFS portfolio. Regulatory Capital Requirements Bank holding companies and their bank subsidiaries are required by banking industry regulators to meet certain levels of capital adequacy. These are expressed in the form of certain ratios. Capital is separated into two levels, Tier I capital (essentially total common stockholders' equity less goodwill) and Tier II capital (essentially the reserve for loan losses limited to 1.25% of gross risk-weighted assets). These ratios are based on the degree of credit risk in the Corporation's assets. All assets and off-balance sheet items such as outstanding loan commitments are assigned risk factors to create an overall risk weighted asset total. Capital levels are then measured as a percentage of total risk weighted assets. The regulatory minimum for Tier I capital to risk weighted assets is 4% and the minimum for Total capital (Tier I plus Tier II) to risk weighted assets is 8%. The Tier I leverage ratio measures Tier I capital to average assets and must be a minimum of 4%. The FDIC has adopted a risk-based insurance premium system based in part on a corporation's capital adequacy. Under this system a depository institution is classified as well capitalized, adequately capitalized, or undercapitalized according to its regulatory capital levels. Subsequently, a financial institution's premium levels are based on these classifications and its regulatory supervisory rating (the higher the classification the lower the premium). It is the Corporation's goal to maintain capital levels sufficient to receive a designation of "well capitalized".
TABLE 9 - ----------------------------------------------------------------------------------------- CAPITAL RATIOS REGULATORY Minimum For "Well September 30, December 31, September 30, Capitalization" 1999 1998 1998 - ----------------------------------------------------------------------------------------- Risk Based Capital: Total Capital 10% 14.18% 14.55% 14.54% Tier 1 6% 13.22% 13.30% 13.29% Tier 1 Leverage 5% 11.04% 10.60% 10.45%
INTEREST RATE SENSITIVITY MANAGEMENT Interest rate sensitivity management seeks to maximize net interest income as a result of changing interest rates, within prudent ranges of risk. The Corporation attempts to accomplish this objective by structuring the balance sheet so that re-pricing opportunities exist for both assets and liabilities in roughly equivalent amounts at approximately the same time intervals. Imbalances in these re-pricing opportunities at any point in time constitute a bank's interest rate sensitivity. As a matter of practice, the Bank doesn't use derivative transactions in managing interest rate risk. An indicator of the interest rate sensitivity structure of a financial institution's balance sheet is the difference between rate sensitive assets and rate sensitive liabilities, and is referred to as "GAP". 20 Table 10 sets forth the distribution of re-pricing of the Corporation's earning assets and interest bearing liabilities as of September 30, 1999, the interest rate sensitivity GAP, as defined above, the cumulative interest rate sensitivity GAP, the interest rate sensitivity GAP ratio (i.e. interest rate sensitive assets divided by interest rate sensitive liabilities) and the cumulative sensitivity GAP ratio. The table also sets forth the time periods in which earning assets and liabilities will mature or may re-price in accordance with their contractual terms. However, the table does not necessarily indicate the impact of general interest rate movements on the net interest margin since the re-pricing of various categories of assets and liabilities is subject to the Corporation's needs, competitive pressures, and the needs of the Corporation's customers. In addition, various assets and liabilities indicated as re-pricing within the same period may in fact re-price at different times within such period and at different rates or indices.
Table 10 GAP ANALYSIS SEPTEMBER 30, 1999 (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 8,450 0 0 0 8,450 Investment Securities 695 3,839 28,198 32,889 65,621 Loans 61,109 7,840 79,971 24,045 172,965 Loans Held for Sale 163 0 0 10,375 10,538 ------------------------------------------------------------ Total Earning Assets $70,417 $11,679 $108,169 $67,309 $257,574 ============================================================ Interest Bearing Liabilities: Interest Bearing Demand Deposits $40,356 $ 0 $ 0 $ 0 $ 40,356 Savings Deposits 21,534 0 0 44,612 66,146 Time Deposits Less than $100,000 20,102 32,926 22,307 60 75,395 Time Deposits Greater than $100,000 10,558 14,367 2,593 0 27,518 Other Borrowings 1,500 0 50 1,114 2,664 ------------------------------------------------------------ Total Interest Bearing Liabilities $94,050 $47,293 $24,950 $45,786 $212,079 ============================================================ Interest Rate Sensitivity GAP ($23,633) ($35,614) $83,219 $21,523 $ 45,495 Cumulative Interest Rate Sensitivity GAP ($23,633) ($59,247) $23,972 $45,495 Interest Rate Sensitivity GAP 0.75 0.25 4.34 1.47 Cumulative Interest Rate Sensitivity GAP Ratio 0.75 0.58 1.14 1.21
IMPACT OF YEAR 2000 The Year 2000 issue is the result of computer programs which were designed to utilize two digits rather than four digits in date fields for computer calculations. Any computer or electronic calculation recognizing a two digit rather than a four digit date may incur system failure or miscalculate information when using a date after December 31, 1999 resulting in potentially serious impairment to business operations. The Corporation began addressing the Year 2000 issue internally in 1997 with the formation of a task force created to identify, coordinate, manage and monitor the impact of Year 2000 related issues. The task force consists of representatives from every functional area of the Corporation. The Corporation's Year 2000 Program initially focused on technology assessment and planning, and the upgrading or renovation of internal systems. Once the assessment and renovation phases 21 were largely complete the task force focused on testing or validating internal systems and the assessment of external business risk and contingency planning. Currently, the Corporation's Year 2000 Program is tracked against a well defined set of goals and key dates. The Corporation has not identified any noncompliant systems for which a solution is not available and which would impair the business operationS. All Year 2000 costs to date have not been material and are being expensed, or capitalized if it is a system replacement, as incurred. Anticipated future expenses are not expected to materially impair future earnings. All testing procedures for mission critical systems were completed by June 30, 1999. Completion of the goals as of June 30, 1999 meets the milestones established by the Corporation's banking regulators. Throughout the remainder of 1999, the task force will continue to assess and create contingency plans as they relate to internal operational risk as well as external risks including major customer and vendor due diligence. However, as of September 30, 1999 the Corporation's Y2K Business Resumption Contingency Plan had been completed and has been submitted to the FDIC. In its normal course of business, the Corporation manages many types of risk. Management recognizes that the risks presented by Year 2000 are unique given the pervasive nature of the problem and the fact that there may be a higher likelihood the Year 2000 risk will present itself in multiple, simultaneous impacts. Because of this, the Corporation has adjusted and will continue to adjust its risk management processes and contingency plans to take the most probable anticipated Year 2000 effects into account. Although it is too early to predict accurately what system failures may occur, management believes sufficient planning, communication, coordination, and testing will mitigate potential material disruption. In this regard, contingency plans including command centers, response teams, technology teams, and testing are being developed. In addition to the internal and external testing, and credit assessments, the Corporation is assessing operational and liquidity needs to enhance contingency plans. While the Corporation is not aware of any Year 2000 problems for which a solution is not available, other unanticipated year 2000 issues could arise, and there can be no assurance that actual results will be comparable to expected results. 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. 22 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 September 30, 1999. 23 FENTURA BANCORP, INC. 1999 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 ***** 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 from 10Q-SB filed May 12, 1997 24 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FENTURA BANCORP, INC. DATE NOVEMBER 12, 1999 BY /S/ DONALD L. GRILL ----------------- -------------------- DONALD L. GRILL DIRECTOR PRESIDENT & CEO DATE NOVEMBER 12, 1999 BY /S/ RONALD L. JUSTICE ----------------- ---------------------- RONALD L. JUSTICE SENIOR VICE PRESIDENT(AUTHORIZED SIGNER) CHIEF FINANCIAL OFFICER CASHIER EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 9-MOS DEC-31-1999 JAN-01-1998 SEP-30-1998 10,751 0 8,450 0 51,562 14,059 13,992 172,965 3,043 277,514 241,239 1,500 2,046 1,164 0 0 3,547 28,018 277,514 12,528 2,748 456 15,732 5,760 5,858 9,874 490 24 8,329 4,164 4,164 0 0 2,882 2.04 2.04 5.24 227 170 6 0 2,783 303 73 3,043 3,043 0 0
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