FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2009
OR
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from to
Commission file number 000-23550
(Exact name of registrant as specified in its charter)
|
|
|
Michigan
|
|
38-2806518 |
|
|
|
(State or other jurisdiction of
incorporation or organization)
|
|
(IRS Employee Identification No.) |
175 N Leroy, P.O. Box 725, Fenton, Michigan 48430
(Address of Principal Executive Offices)
(Registrants telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 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. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files.) o Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See the definitions of large accelerated filer, accelerated filer
and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date: April 24, 2009
|
|
|
Class Common Stock
|
|
Shares Outstanding 2,196,037 |
Fentura Financial Inc.
Index to Form 10-Q
2
PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Fentura Financial, Inc.
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
|
2009 |
|
Dec 31, |
(000s omitted except share data) |
|
(unaudited) |
|
2008 |
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
26,643 |
|
|
$ |
13,626 |
|
Federal funds sold |
|
|
0 |
|
|
|
0 |
|
|
|
|
Total cash & cash equivalents |
|
|
26,643 |
|
|
|
13,626 |
|
Securities-available for sale |
|
|
42,737 |
|
|
|
47,065 |
|
Securities-held to maturity, (fair value of $7,769
at March 31, 2009 and $8,220 at December 31, 2008) |
|
|
6,563 |
|
|
|
6,765 |
|
|
|
|
Total securities |
|
|
49,300 |
|
|
|
53,830 |
|
Loans held for sale |
|
|
4,842 |
|
|
|
690 |
|
Loans: |
|
|
|
|
|
|
|
|
Commercial |
|
|
282,184 |
|
|
|
289,523 |
|
Real estate loans construction |
|
|
51,001 |
|
|
|
48,777 |
|
Real estate loans mortgage |
|
|
36,235 |
|
|
|
37,828 |
|
Consumer loans |
|
|
51,206 |
|
|
|
52,910 |
|
|
|
|
Total loans |
|
|
420,626 |
|
|
|
429,038 |
|
Less: Allowance for loan losses |
|
|
(11,405 |
) |
|
|
(10,455 |
) |
|
|
|
Net loans |
|
|
409,221 |
|
|
|
418,583 |
|
Bank owned life insurance |
|
|
7,034 |
|
|
|
7,282 |
|
Bank premises and equipment |
|
|
16,610 |
|
|
|
16,879 |
|
Federal Home Loan Bank stock |
|
|
1,900 |
|
|
|
1,900 |
|
Accrued interest receivable |
|
|
2,275 |
|
|
|
2,231 |
|
Acquisition intangibles |
|
|
252 |
|
|
|
293 |
|
Equity Investment |
|
|
845 |
|
|
|
1,360 |
|
Other real estate owned |
|
|
5,703 |
|
|
|
5,983 |
|
Assets of held for sale operations |
|
|
43,878 |
|
|
|
45,650 |
|
Other assets |
|
|
8,831 |
|
|
|
10,297 |
|
|
|
|
Total assets |
|
$ |
577,334 |
|
|
$ |
578,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Non-interest bearing deposits |
|
$ |
65,668 |
|
|
$ |
64,325 |
|
Interest bearing deposits |
|
|
409,224 |
|
|
|
405,039 |
|
|
|
|
Total deposits |
|
|
474,892 |
|
|
|
469,364 |
|
Short term borrowings |
|
|
886 |
|
|
|
1,500 |
|
Federal Home Loan Bank advances |
|
|
10,007 |
|
|
|
12,707 |
|
Subordinated debentures |
|
|
14,000 |
|
|
|
14,000 |
|
Note payable |
|
|
750 |
|
|
|
1,000 |
|
Liabilities of held for sale operations |
|
|
40,856 |
|
|
|
42,174 |
|
Accrued taxes, interest and other liabilities |
|
|
2,090 |
|
|
|
1,735 |
|
|
|
|
Total liabilities |
|
|
543,481 |
|
|
|
542,480 |
|
|
|
|
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Common stock no par value
2,195,326 shares issued (2,185,765 at Dec. 31, 2008) |
|
|
42,814 |
|
|
|
42,778 |
|
Retained deficit |
|
|
(6,336 |
) |
|
|
(4,677 |
) |
Accumulated other comprehensive loss |
|
|
(2,625 |
) |
|
|
(1,977 |
) |
|
|
|
Total shareholders equity |
|
|
33,853 |
|
|
|
36,124 |
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
577,334 |
|
|
$ |
578,604 |
|
|
|
|
See notes to consolidated financial statements.
3
Fentura Financial, Inc.
Consolidated Statements of Income (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31 |
|
(000s omitted except per share data) |
|
2009 |
|
|
2008 |
|
|
INTEREST INCOME |
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
$ |
6,463 |
|
|
$ |
7,483 |
|
Interest and dividends on securities: |
|
|
|
|
|
|
|
|
Taxable |
|
|
420 |
|
|
|
547 |
|
Tax-exempt |
|
|
144 |
|
|
|
111 |
|
Interest on federal funds sold |
|
|
0 |
|
|
|
93 |
|
|
|
|
Total interest income |
|
|
7,027 |
|
|
|
8,234 |
|
INTEREST EXPENSE |
|
|
|
|
|
|
|
|
Deposits |
|
|
2,613 |
|
|
|
3,745 |
|
Borrowings |
|
|
311 |
|
|
|
486 |
|
|
|
|
Total interest expense |
|
|
2,924 |
|
|
|
4,231 |
|
|
|
|
NET INTEREST INCOME |
|
|
4,103 |
|
|
|
4,003 |
|
Provision for loan losses |
|
|
1,655 |
|
|
|
980 |
|
|
|
|
Net interest income after
Provision for loan losses |
|
|
2,448 |
|
|
|
3,023 |
|
NON-INTEREST INCOME |
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
436 |
|
|
|
623 |
|
Gain on sale of mortgage loans |
|
|
235 |
|
|
|
118 |
|
Trust and investment services income |
|
|
364 |
|
|
|
456 |
|
Loss on equity investment |
|
|
(515 |
) |
|
|
(168 |
) |
Other income and fees |
|
|
620 |
|
|
|
372 |
|
|
|
|
Total non-interest income |
|
|
1,140 |
|
|
|
1,401 |
|
NON-INTEREST EXPENSE |
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
2,552 |
|
|
|
2,824 |
|
Occupancy |
|
|
503 |
|
|
|
505 |
|
Furniture and equipment |
|
|
424 |
|
|
|
471 |
|
Loan and collection |
|
|
385 |
|
|
|
148 |
|
Advertising and promotional |
|
|
41 |
|
|
|
85 |
|
Loss on security impairment |
|
|
0 |
|
|
|
574 |
|
Loss on impairment of held for sale operations |
|
|
700 |
|
|
|
0 |
|
Other operating expenses |
|
|
1,231 |
|
|
|
799 |
|
|
|
|
Total non-interest expense |
|
|
5,836 |
|
|
|
5,406 |
|
|
|
|
Loss from continuing operations before income tax |
|
|
(2,248 |
) |
|
|
(982 |
) |
Federal income tax benefit |
|
|
(592 |
) |
|
|
(364 |
) |
|
|
|
Net loss from continuing operations |
|
$ |
(1,656 |
) |
|
$ |
(618 |
) |
|
|
|
Net loss from held for sale operations, net of tax |
|
|
(3 |
) |
|
|
(10 |
) |
|
|
|
Net loss |
|
$ |
(1,659 |
) |
|
$ |
(628 |
) |
|
|
|
Loss per share from continuing operations |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.76 |
) |
|
$ |
(0.29 |
) |
|
|
|
|
|
|
|
Diluted |
|
$ |
(0.76 |
) |
|
$ |
(0.29 |
) |
|
|
|
|
|
|
|
Net loss per share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.76 |
) |
|
$ |
(0.29 |
) |
|
|
|
|
|
|
|
Diluted |
|
$ |
(0.76 |
) |
|
$ |
(0.29 |
) |
|
|
|
|
|
|
|
Cash Dividends declared |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
4
Fentura Financial, Inc.
Consolidated Statements of Changes in Shareholders Equity (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
(000s omitted) |
|
2009 |
|
|
2008 |
|
|
COMMON STOCK |
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
42,778 |
|
|
$ |
42,478 |
|
Issuance of shares under |
|
|
|
|
|
|
|
|
Director stock purchase plan &
Dividend reinvestment program (9,561 and 8,296 shares) |
|
|
36 |
|
|
|
169 |
|
Stock options exercised |
|
|
0 |
|
|
|
0 |
|
Stock compensation expense |
|
|
0 |
|
|
|
2 |
|
|
|
|
|
|
|
|
Balance, end of period |
|
|
42,814 |
|
|
|
42,649 |
|
|
|
|
|
|
|
|
|
|
RETAINED EARNINGS |
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
|
(4,677 |
) |
|
|
7,488 |
|
Net loss |
|
|
(1,659 |
) |
|
|
(628 |
) |
Cash dividends declared |
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
Balance, end of period |
|
|
(6,336 |
) |
|
|
6,860 |
|
|
|
|
|
|
|
|
|
|
ACCUMULATED OTHER COMPREHENSIVE LOSS |
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
|
(1,977 |
) |
|
|
(470 |
) |
Change in unrealized gain (loss)
on securities, net of tax |
|
|
(648 |
) |
|
|
339 |
|
|
|
|
|
|
|
|
Balance, end of period |
|
|
(2,625 |
) |
|
|
(131 |
) |
|
|
|
|
|
|
|
Total Shareholders Equity |
|
$ |
33,853 |
|
|
$ |
49,378 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
5
Fentura Financial,
Inc.
Consolidated Statements of Cash Flows (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
(000s omitted) |
|
2009 |
|
2008 |
|
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(1,659 |
) |
|
$ |
(628 |
) |
Adjustments to reconcile net income (loss) to cash
Provided by Operating Activities: |
|
|
|
|
|
|
|
|
Stock compensation expense |
|
|
0 |
|
|
|
2 |
|
Depreciation and amortization |
|
|
342 |
|
|
|
216 |
|
Provision for loan losses |
|
|
1,655 |
|
|
|
980 |
|
Loans originated for sale |
|
|
(17,275 |
) |
|
|
(9,901 |
) |
Proceeds from the sale of loans |
|
|
13,358 |
|
|
|
10,211 |
|
(Gain) on sales of loans |
|
|
(235 |
) |
|
|
(118 |
) |
(Gain) Loss on sale of fixed assets |
|
|
0 |
|
|
|
(40 |
) |
(Gain) Loss on sale of other real estate owned |
|
|
57 |
|
|
|
0 |
|
Loss on security impairment |
|
|
0 |
|
|
|
574 |
|
Loss on equity investment |
|
|
515 |
|
|
|
168 |
|
Earnings from bank owned life insurance |
|
|
(251 |
) |
|
|
(45 |
) |
Net (increase) decrease in interest receivable & other assets |
|
|
356 |
|
|
|
(755 |
) |
Net increase (decrease) in interest payable & other liabilities |
|
|
427 |
|
|
|
(1,397 |
) |
|
|
|
Total Adjustments |
|
|
(1,051 |
) |
|
|
(105 |
) |
|
|
|
Net cash used in operating activities |
|
|
(2,710 |
) |
|
|
(733 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITES: |
|
|
|
|
|
|
|
|
Proceeds from maturities of securities HTM |
|
|
200 |
|
|
|
0 |
|
Proceeds from maturities of securities AFS |
|
|
2,039 |
|
|
|
2,309 |
|
Proceeds from calls of securities AFS |
|
|
2,000 |
|
|
|
11,112 |
|
Purchases of securities AFS |
|
|
0 |
|
|
|
(5,499 |
) |
Net (increase) decrease in loans |
|
|
9,858 |
|
|
|
292 |
|
Sales of other real estate owned |
|
|
663 |
|
|
|
0 |
|
Acquisition of premises and equipment, net |
|
|
(53 |
) |
|
|
167 |
|
|
|
|
Net cash provided by investing activities |
|
|
14,707 |
|
|
|
8,381 |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net increase (decrease) in deposits |
|
|
4,473 |
|
|
|
(14,738 |
) |
Net increase (decrease) in borrowings |
|
|
(614 |
) |
|
|
67 |
|
(Repayment) of notes payable |
|
|
(250 |
) |
|
|
0 |
|
Purchase of advances from FHLB |
|
|
55,495 |
|
|
|
9,001 |
|
Repayments of advances from FHLB |
|
|
(58,195 |
) |
|
|
(8,000 |
) |
Net proceeds from stock issuance and purchase |
|
|
36 |
|
|
|
169 |
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
945 |
|
|
|
(13,501 |
) |
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents |
|
$ |
12,942 |
|
|
$ |
(5,853 |
) |
Change in cash and cash equivalents of held for sale operations |
|
|
75 |
|
|
|
(2,252 |
) |
|
|
|
Cash and cash equivalents Beginning |
|
$ |
13,626 |
|
|
$ |
30,034 |
|
|
|
|
Cash and cash equivalents Ending |
|
$ |
26,643 |
|
|
$ |
22,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
2,085 |
|
|
$ |
4,803 |
|
Income Taxes |
|
$ |
195 |
|
|
$ |
0 |
|
Noncash Disclosures: |
|
|
|
|
|
|
|
|
Transfers from loans to other real estate |
|
$ |
1,238 |
|
|
$ |
1,527 |
|
See notes to consolidated financial statements
6
Fentura Financial, Inc.
Consolidated Statements of Comprehensive Income (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
(000s Omitted) |
|
2009 |
|
2008 |
|
Net loss |
|
$ |
(1,659 |
) |
|
$ |
(628 |
) |
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising
during period |
|
|
(648 |
) |
|
|
913 |
|
Less: Impairment loss recognized during period |
|
|
0 |
|
|
|
(574 |
) |
|
|
|
Other comprehensive income (loss) |
|
|
(648 |
) |
|
|
339 |
|
|
|
|
Comprehensive income (loss) |
|
$ |
(2,307 |
) |
|
$ |
(289 |
) |
|
|
|
Fentura Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
NOTE 1 BASIS OF PRESENTATION
The consolidated financial statements at December 31, 2008, March 31, 2008 and March 31, 2009
include Fentura Financial, Inc. (the Corporation) and its wholly owned subsidiaries, The State
Bank in Fenton, Michigan; Davison State Bank in Davison, Michigan; and West Michigan Community Bank
in Hudsonville, Michigan (the Banks), as well as Fentura Mortgage Company, West Michigan Mortgage
Company, LLC, and the other subsidiaries of the Banks. Intercompany transactions and balances are
eliminated in consolidation.
On March 17, 2009, The Corporation entered into an agreement to sell all of the stock of one of its
bank subsidiaries, Davison State Bank, to a private, non-affiliated, investor group. The
transaction is expected to close during the third quarter of 2009. At March 31, 2009, Davison had
assets of $43.9 million, loans of $29.6 million, deposits of $39.3 million, equity of $3.0 million
and a year-to-date net loss of $3,000. The agreement calls for consideration to be received of
$3.0 million plus or minus certain closing equity adjustments. The Corporation recorded an
estimated loss on the sale of Davison State Bank of $700,000 in the first quarter of 2009. The
agreement also provides for a termination payment of $150,000 if either party breaches the
agreement. This transaction will have minimal impact to 2009 core earnings due to the
proportionate size of Davison State Bank. The Corporation projects cost savings for the fourth
quarter of 2009 and beyond, as a result of this transaction.
Financial statements are presented with held for sale operations sequestered on the balance sheet
and income statement. The presentations have been updated for both March 31, 2009, December 31,
2008 and March 31, 2008 to reflect the held for sale operations results.
The accompanying unaudited consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for interim financial
information and the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and notes required by accounting principles generally
accepted in the United States of America 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, 2009
are not necessarily indicative of the results that may be expected for the year ending December 31,
2009. For further information, refer to the consolidated financial statements and footnotes thereto
included in the Corporations annual report on Form 10-K for the year ended December 31, 2008.
7
Reclassifications: Some items in the prior year financial statements were reclassified to
conform to the current presentation.
Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for
probable incurred credit losses, increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance balance required using past loan
loss experience, the nature and volume of the portfolio, information about specific borrower
situations and estimated collateral values, economic conditions, and other factors. Allocations of
the allowance may be made for specific loans, but the entire allowance is available for any loan
that, in managements judgment, should be charged-off. Loan losses are charged against the
allowance when management believes the uncollectibility of a loan balance is confirmed.
A loan is impaired when full payment under the loan terms is not expected. Impairment is evaluated
in total for smaller-balance loans of similar nature such as residential mortgage, consumer, and on
an individual loan basis for other loans. If a loan is impaired, a portion of the allowance is
allocated so that the loan is reported, net, at the present value of estimated future cash flows
using the loans existing rate or at the fair value of collateral if repayment is expected solely
from the collateral.
Income Taxes: Income tax expense is the total of the current year income tax due or
refundable and the change in deferred tax assets and liabilities. Deferred tax assets and
liabilities are the expected future tax amounts for the temporary differences between carrying
amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation
allowance, if needed, reduces deferred tax assets to the amount expected to be realized.
A tax position is recognized as a benefit only if it is more likely than not that the tax
position would be sustained in a tax examination, with a tax examination being presumed to occur.
The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being
realized on examination. For tax positions not meeting the more likely than not test, no tax
benefit is recorded.
The Corporation recognizes interest and/or penalties related to income tax matters in income tax
expense.
Dividend Restriction: Banking regulations require maintaining certain capital levels and
may limit the dividends paid by the Banks to the Corporation or by the Corporation to shareholders.
The Banks have been restricted from dividend payments in efforts of preserving their individual
capital levels.
Stock Option Plans: The Nonemployee Director Stock Option Plan provides for granting
options to nonemployee directors to purchase the Corporations common stock. No options have been
granted in 2009. The purchase price of the shares is the fair market value at the date of the
grant, and there is a three-year vesting period before options may be exercised. Options to
acquire no more than 8,131 shares of stock may be granted under the Plan in any calendar year and
options to acquire not more than 73,967 shares in the aggregate may be outstanding at any one time.
The Employee Stock Option Plan grants options to eligible employees to purchase the Corporations
common stock at or above, the fair market value of the stock at the date of the grant. Awards
granted under this plan are limited to an aggregate of 86,936 shares. The administrator of the
plan is a committee of directors. The administrator has the power to determine the number of
options to be granted, the exercise price of the options and other terms of the options, subject to
consistency with the terms of the Plan.
The fair value of each option award is estimated on the date of grant using a closed form option
valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected
volatilities are based on historical volatilities of the Corporations common stock. The
Corporation uses historical data to estimate option exercise and post-vesting termination behavior.
(Employee and management options are
8
tracked separately.) The expected term of options granted is based on historical data and
represents the period of time that options granted are expected to be outstanding, which takes into
account that the options are not transferable. The risk-free interest rate for the expected term
of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. Shares
that are issued upon option exercise come from authorized but unissued shares.
The following table summarizes stock option activity:
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Weighted |
|
|
Options |
|
Average Price |
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2008
|
|
|
26,597 |
|
|
$ |
29.85 |
|
Options granted 2009
|
|
|
0 |
|
|
$ |
0.00 |
|
Options forfeited 2009
|
|
|
0 |
|
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
Options outstanding at March 31, 2009
|
|
|
26,597 |
|
|
$ |
29.85 |
|
|
|
|
|
|
|
|
|
|
NOTE 2 ADOPTION OF NEW ACCOUNTING STANDARDS
New Accounting Pronouncements:
In December 2007, the FASB issued FAS No. 141 (revised 2007), Business Combinations (FAS 141(R)),
which establishes principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest in an acquiree, including the recognition and measurement of goodwill
acquired in a business combination. FAS No. 141(R) is effective for fiscal years beginning on or
after December 15, 2008. The adoption of this standard did not have any impact on the
Corporations results of operations or financial position.
In December 2007, the FASB issued SFAS No. 160, Non-controlling Interest in Consolidated Financial
Statements, an amendment of ARB No. 51 (SFAS No. 160), which changed the accounting and reporting
for minority interests, re-characterizing them as non-controlling interests and classifying them as
a component of equity within the consolidated balance sheets. FAS No. 160 is effective as of the
beginning of the first fiscal year beginning on or after December 15, 2008. The adoption of FAS
No. 160 did not have a significant impact on the Corporations results of operations or financial
position.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities, an amendment of SFAS No. 133. FAS No. 161 amends and expands the disclosure
requirements of SFAS No. 133 for derivative instruments and hedging activities. FAS No. 161
requires qualitative disclosure about objectives and strategies for using derivative and hedging
instruments, quantitative disclosures about fair value amounts of the instruments and gains and
losses on such instruments, as well as disclosures about credit-risk features in derivative
agreements. FAS No. 161 is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application encouraged. The adoption of this
standard did not have a material effect on the Corporations results of operations or financial
position.
In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities. This FSP addresses whether these
types of instruments are participating prior to vesting and, therefore need to be included in the
earning allocation in computing earnings per share under the two class method described in FASB
Statement No. 128, Earnings Per Share. This FSP is effective for fiscal years beginning
after December 15, 2008, and interim periods within those years. All prior-period earnings per
share data presented shall be
9
adjusted retrospectively. The adoption of this FSP on January 1, 2009 had no effect on the
Corporations results of operations or financial position.
Recently Issued and Not Yet Effective Accounting Standards:
In April 2009, the FASB issued Staff Position (FSP) No. 115-2 and No. 124-2, Recognition and
Presentation of Other-Than-Temporary Impairments, which amends existing guidance for determining
whether impairment is other-than-temporary for debt securities. The FSP requires an entity to
assess whether it intends to sell, or it is more likely than not that it will be required to sell a
security in an unrealized loss position before recovery of its amortized cost basis. If either of
these criteria is met, the entire difference between amortized cost and fair value is recognized in
earnings. For securities that do not meet the aforementioned criteria, the amount of impairment
recognized in earnings is limited to the amount related to credit losses, while impairment related
to other factors is recognized in other comprehensive income. Additionally, the FSP expands and
increases the frequency of existing disclosures about other-than-temporary impairments for debt and
equity securities. This FSP is effective for interim and annual reporting periods ending after
June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The
Corporation plans to adopt this FSP in the second quarter, however, does not expect the adoption to
have a material effect on the results of operations or financial position.
In April 2009, the FASB issued Staff Position (FSP) No. 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset and Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly. This FSP emphasizes that even if there has been a
significant decrease in the volume and level of activity, the objective of a fair value measurement
remains the same. Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed
sale) between market participants. The FSP provides a number of factors to consider when
evaluating whether there has been a significant decrease in the volume and level of activity for an
asset or liability in relation to normal market activity. In addition, when transactions or
quoted prices are not considered orderly, adjustments to those prices based on the weight of
available information may be needed to determine the appropriate fair value. The FSP also requires
increased disclosures. This FSP is effective for interim and annual reporting periods ending after
June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending
after March 15, 2009. The Corporation plans to adopt this FSP in the second quarter, however, does
not expect the adoption to have a material effect on the results of operations or financial
position.
In April 2009, the FASB issued Staff Position (FSP) No. 107-1 and APB 28-1, Interim Disclosures
about Fair Value of Financial Instruments. This FSP amends FASB Statement No. 107, Disclosures
about Fair Value of Financial Instruments, to require disclosures about fair value of financial
instruments for interim reporting periods of publicly traded companies that were previously only
required in annual financial statements. This FSP is effective for interim reporting periods
ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.
The Corporation plans to adopt this FSP in the second quarter.
10
NOTE 3 FAIR VALUE
Statement 157 establishes a fair value hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring fair value. The
standard describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets
that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices
for similar assets or liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entitys own assumptions
about the assumptions that market participants would use in pricing and asset or liability.
The fair values of securities available for sale are determined by obtaining quoted prices on
nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a
mathematical technique widely used in the industry to value debt securities without relying
exclusively on quoted prices for the specific securities but rather by relying on the securities
relationship to other benchmark quoted securities (Level 2 inputs). The remaining fair values of
securities (Level 3 inputs) are based on the reporting entitys own assumptions and basic knowledge
of market conditions and individual investment performance. The Corporation reviews the
performance of the securities that comprise Level 3 on a quarterly basis.
Assets and Liabilities Measured on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for |
|
Significant Other |
|
Significant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identical Assets |
|
Observable Inputs |
|
Unobservable Inputs |
|
|
|
|
(000s omitted) |
|
|
|
|
|
Total |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale
securities |
|
March 31, 2009 |
|
$ |
42,737 |
|
|
$ |
23 |
|
|
$ |
41,724 |
|
|
$ |
990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale
securities |
|
December 31, 2008 |
|
$ |
52,722 |
|
|
$ |
9 |
|
|
$ |
45,827 |
|
|
$ |
1,229 |
|
|
|
|
|
Level 1 assets are comprised of investments in other financial institutions, which are publicly
traded on the open market.
Level 2 assets are comprised of available for sale securities including, U.S. Treasuries,
Government Agencies and Municipal Securities.
Level 3 assets are comprised of investments in other financial institutions including DeNovo banks.
The table below presents a reconciliation and income statement classification of gains and losses
for all assets measured at fair value on a recurring basis using significant unobservable inputs
(Level 3) for the quarter ended March 31, 2009:
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
Significant Unobservable Inputs |
|
|
|
(Level 3) |
|
(000s omitted) |
|
Asset |
|
|
Liability |
|
|
Total |
|
Beginning balance, Jan. 1, 2009 |
|
$ |
1,229 |
|
|
$ |
0 |
|
|
$ |
1,229 |
|
Total gains or losses (realized / unrealized)
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
|
|
|
|
|
|
|
|
|
|
|
|
Loss on security impairment |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Included in other comprehensive income |
|
|
(239 |
) |
|
|
0 |
|
|
|
(239 |
) |
Purchases, issuances, and settlements
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Transfers in and / or out of Level 3 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
Ending balance, March 31, 2009 |
|
$ |
990 |
|
|
$ |
0 |
|
|
$ |
990 |
|
Assets and Liabilities Measured on a Non-Recurring Basis
Assets and liabilities measured at fair value on a non-recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for |
|
Significant Other |
|
Significant |
|
|
|
|
|
|
|
|
Identical Assets |
|
Observable Inputs |
|
Unobservable Inputs |
(000s omitted) |
|
|
|
Total |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
March 31, 2009
|
|
$ |
29,266 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
29,266 |
|
Other real estate owned
|
|
March 31, 2009
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
December 31, 2008
|
|
$ |
21,235 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
21,235 |
|
The following represent impairment charges recognized during the period:
At March 31, 2009, impaired loans, which are measured for impairment using the fair value of the
collateral for collateral dependent loans, had a carrying amount of $35,865,000 with a valuation
allowance of $6,599,000 resulting in an additional provision for loan losses of $1,100,000 for the
period. This is compared to December 31, 2008 when the fair value of the collateral dependent
impaired loans was $29,090,000 with a valuation allowance of $5,642,000.
At March 31, 2009, other real estate owned measured at fair vale using collateral valuation methods
(Level 3 inputs) has a carrying value of zero. During the period ended March 31, 2009, other real
estate owned did not incur valuation losses.
NOTE 4 SECURITIES
The Corporation evaluates securities for other-than-temporary impairment at least on a quarterly
basis, and more frequently when economic or market concerns warrant such evaluation. Consideration
is given to the length of time and the extent to which fair value has been less than cost, the
financial condition and near-term prospects of the issuer, and the intent and the ability of the
Corporation to retain its investment
12
in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
In analyzing the issuers financial condition, the Corporation may consider whether the securities
are issued by the federal government or its agencies, whether downgrades by bond rating agencies
have occurred, and the results of the reviews of the issuers financial condition.
NOTE 5 EARNINGS PER COMMON SHARE
A reconciliation of the numerators and denominators used in the computation of basic earnings per
common share and diluted earnings per common share is presented below. Earnings per common share
are presented below for the three months ended March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
000s omitted except share and per share data |
|
2009 |
|
|
2008 |
|
Basic |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(1,659 |
) |
|
$ |
(628 |
) |
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
2,187,084 |
|
|
|
2,167,235 |
|
|
|
|
|
|
|
|
Outstanding |
|
|
|
|
|
|
|
|
Basic loss per common share |
|
$ |
(0.76 |
) |
|
$ |
(0.29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(1,659 |
) |
|
$ |
(628 |
) |
Weighted average common shares outstanding for
basic earnings per common share |
|
|
2,187,084 |
|
|
|
2,167,235 |
|
Add: Dilutive effects of assumed exercises of stock
Options |
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
Average shares and dilutive potential common shares |
|
|
2,187,084 |
|
|
|
2,167,235 |
|
|
|
|
|
|
|
|
Diluted loss per common share |
|
$ |
(0.76 |
) |
|
$ |
(0.29 |
) |
|
|
|
|
|
|
|
There were no stock options for the three month period ended March 31, 2009 or 2008 that were
dilutive, as a result of the net loss for both periods.
NOTE 6 COMMITMENTS AND CONTINGENCIES
There are various contingent liabilities that are not reflected in the financial statements
including claims and legal actions arising in the ordinary course of business. In the opinion of
management, after consultation with legal counsel, the ultimate disposition of these matters is not
expected to have a material effect on the Corporations consolidated financial condition or results
of operations.
NOTE 7 HELD FOR SALE OPERATIONS
On March 17, 2009, The Corporation entered into an agreement to sell all of the stock of one of its
bank subsidiaries, Davison State Bank, to a private, non-affiliated, investor group. The
transaction is expected to close during the third quarter of 2009. At March 31, 2009, Davison had
assets of $43.9 million, loans of $29.6 million, deposits of $39.3 million, equity of $3.0 million
and a year-to-date net loss of $3,000. The agreement calls for consideration to be received of
$3.0 million plus or minus certain closing equity adjustments. The Corporation recorded an
estimated loss on the sale of Davison State Bank of $700,000 in the first quarter of 2009. The
agreement also provides for a termination payment of $150,000 if either party breaches the
agreement. This transaction will have minimal impact to 2009 core earnings due to the
proportionate size of Davison State Bank. The Corporation projects cost savings for the fourth
quarter of 2009 and beyond, as a result of this transaction.
13
A condensed balance sheet of held for sale operations is presented below for the periods ended
March 31, 2009 and December 31, 2008. A condensed statement of income of held for sale operations
are presented for the quarters ended March 31, 2009 and March 31, 2008.
NOTE 7 HELD FOR SALE OPERATIONS (continued)
DAVISON STATE BANK
CONDENSED BALANCE SHEET OF HELD FOR SALE OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
Dec 31, |
(000s omitted) |
|
2009 |
|
2008 |
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
6,953 |
|
|
$ |
7,327 |
|
Securities available for sale |
|
|
5,019 |
|
|
|
5,789 |
|
Securities held to maturity |
|
|
1,190 |
|
|
|
1,190 |
|
Loans, net of allowance ($1,187-2009, $1,318-2008) |
|
|
28,372 |
|
|
|
28,954 |
|
Other assets |
|
|
2,341 |
|
|
|
2,390 |
|
|
|
|
Total assets |
|
$ |
43,878 |
|
|
$ |
45,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Non-interest bearing |
|
$ |
8,207 |
|
|
$ |
9,361 |
|
Interest bearing |
|
|
31,103 |
|
|
|
31,004 |
|
|
|
|
Total deposits |
|
|
39,310 |
|
|
|
40,365 |
|
Federal Home Loan Bank advances |
|
|
2,000 |
|
|
|
2,000 |
|
Accrued taxes, interest and other liabilities |
|
|
(453 |
) |
|
|
(191 |
) |
Shareholders equity |
|
|
3,021 |
|
|
|
3,476 |
|
|
|
|
Total liabilities and shareholders Equity |
|
$ |
43,878 |
|
|
$ |
45,650 |
|
|
|
|
DAVISON STATE BANK
CONDENSED STATEMENT OF INCOME OF HELD FOR SALE OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31 |
(000s omitted) |
|
2009 |
|
2008 |
|
Interest income |
|
$ |
549 |
|
|
$ |
714 |
|
Interest expense |
|
|
188 |
|
|
|
292 |
|
|
|
|
Net interest income |
|
|
361 |
|
|
|
422 |
|
Provision for loan losses |
|
|
(1 |
) |
|
|
101 |
|
|
|
|
Net interest income after provision for loan losses |
|
|
362 |
|
|
|
321 |
|
|
|
|
|
|
|
|
|
|
Non-interest income |
|
|
122 |
|
|
|
157 |
|
Non-interest expense |
|
|
487 |
|
|
|
499 |
|
|
|
|
Loss before federal income tax |
|
|
(3 |
) |
|
|
(21 |
) |
|
|
|
Federal income tax benefit |
|
|
0 |
|
|
|
(11 |
) |
|
|
|
Net loss |
|
$ |
(3 |
) |
|
$ |
(10 |
) |
|
|
|
14
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Certain of the Corporations accounting policies are important to the portrayal of the
Corporations financial condition, since they require management to make difficult, complex or
subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates
associated with these policies are susceptible to material changes as a result of changes in facts
and circumstances. Facts and circumstances, which could affect these judgments, include, but
without limitation, changes in interest rates, in the performance of the economy or in the
financial condition of borrowers. Management believes that its critical accounting policies include
determining the allowance for loan losses and determining the fair value of securities and other
financial instruments.
The Corporation evaluates securities for other-than-temporary impairment at least on a quarterly
basis, and more frequently when economic or market concerns warrant such evaluation. Consideration
is given to the length of time and the extent to which fair value has been less than cost, the
financial condition and near-term prospects of the issuer, and the intent and the ability of the
Corporation to retain its investment in the issuer for a period of time sufficient to allow for any
anticipated recovery in fair value. In analyzing an issuers financial condition, the Corporation
may consider whether the securities are issued by the federal government or its agencies, whether
downgrades by bond rating agencies have occurred, and the results of the reviews of the issuers
financial condition.
Our accounting for income taxes involves the valuation of deferred tax assets and liabilities
primarily associated with differences in the timing of the recognition of revenues and expenses for
financial reporting and tax purposes. We have recorded no valuation allowance on the balance of
our deferred tax assets as we conclude that the tax benefits associated with this asset will more
likely than not be realized based upon the levels of taxable income in prior years and the
expectation of a return to profitability and generation of taxable income in future years.
Management has reviewed the deferred tax position for the Corporation at March 31, 2009 and
December 31, 2008. The deferred tax position was impacted by several significant transactions in
2008. These transactions included write-off of an investment and a 60% write down of an equity
investment. After evaluating the impact of the significant transactions the Corporation has
determined that no valuation reserve is required.
As indicated in the income statement, the loss for the three months ended March 31, 2009 was
$1,659,000 compared to loss of $628,000 for the same period in 2008. Net interest income in the
first quarter of 2009, was approximately $100,000 above net interest income for the same quarter in
2008. The first quarter 2009 provision for loan loss was up $675,000 comparing the first quarter
of 2008. The increase in provision is due to the continued economic depression which has reduced
real estate values, weakened the job markets and has negatively impacted borrower capacity to repay
their obligations. Management feels the provision is adequate and the allowance for loan losses has
increased $3,080,000 when comparing the period ended March 31, 2009 to the period ended March 31,
2008.
Additionally, on March 17, 2009, the Corporation entered into an agreement to sell all of the stock
of one of its bank subsidiaries, Davison State Bank, to a private non-affiliated, investor group.
The transaction is expected to close during the third quarter of 2009. In the first quarter of
2009, the Corporation recorded, in other operating expenses, an estimated loss on the sale of
$700,000 along with estimated sale related expenses of $150,000. As a result of this pending
transaction, the financial statements are displayed with consideration of continuing operations
being detailed and held for sale operations being omitted from comparisons.
The banking industry uses standard performance indicators to help evaluate a banking institutions
performance. Return on average assets is one of these indicators. For the three months ended March
31, 2009, the Corporations return on average assets (annualized) was (1.17%) compared to (0.41%)
for the
15
same period in 2008. Net loss per share, basic and diluted, was ($0.76) in the first three months
of 2009 compared to ($0.29) net loss per share basic and diluted for the same period in 2008.
Net Interest Income
Net interest income and average balances and yields on major categories of interest-earning assets
and interest-bearing liabilities for the three months ended March 31, 2009 and 2008 are summarized
in Table 2. The effects of changes in average interest rates and average balances are detailed in
Table 1 below.
Table 1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED |
|
|
|
MARCH 31, |
|
|
|
2009 COMPARED TO 2008 |
|
|
|
INCREASE (DECREASE) |
|
|
|
DUE TO |
|
|
|
|
|
|
|
|
|
|
YIELD/ |
|
|
|
|
(000s omitted) |
|
TIME |
|
|
VOL |
|
|
RATE |
|
|
TOTAL |
|
|
Taxable securities |
|
$ |
(6 |
) |
|
$ |
(149 |
) |
|
$ |
29 |
|
|
$ |
(126 |
) |
Tax-exempt securities |
|
|
(2 |
) |
|
|
(4 |
) |
|
|
58 |
|
|
|
52 |
|
Federal funds sold |
|
|
(1 |
) |
|
|
(92 |
) |
|
|
0 |
|
|
|
(93 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
(82 |
) |
|
|
(196 |
) |
|
|
(735 |
) |
|
|
(1,013 |
) |
|
|
|
Loans held for sale |
|
|
0 |
|
|
|
2 |
|
|
|
(6 |
) |
|
|
(4 |
) |
|
|
|
Total earning assets |
|
|
(91 |
) |
|
|
(439 |
) |
|
|
(654 |
) |
|
|
(1,184 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand deposits |
|
|
(5 |
) |
|
|
(17 |
) |
|
|
(197 |
) |
|
|
(219 |
) |
Savings deposits |
|
|
(2 |
) |
|
|
(10 |
) |
|
|
(81 |
) |
|
|
(93 |
) |
Time CDs $100,000 and over |
|
|
(21 |
) |
|
|
(259 |
) |
|
|
(202 |
) |
|
|
(482 |
) |
Other time deposits |
|
|
(13 |
) |
|
|
(11 |
) |
|
|
(312 |
) |
|
|
(336 |
) |
Other borrowings |
|
|
(5 |
) |
|
|
(30 |
) |
|
|
(140 |
) |
|
|
(175 |
) |
|
|
|
Total interest bearing liabilities |
|
|
(46 |
) |
|
|
(327 |
) |
|
|
(932 |
) |
|
|
(1,305 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income |
|
$ |
(45 |
) |
|
$ |
(112 |
) |
|
$ |
278 |
|
|
$ |
121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As indicated in Table 1, during the three months ended March 31, 2009, net interest income
increased compared to the same period in 2008. While interest rates and volume on loans have
decreased over the past year, deposit interest expense decreased at a more rapid pace. This is due
to the immediate repricing ability of liquid deposits and the nature of the short term CDs that
customers had been acquiring.
Net interest income (displayed with consideration of full tax equivalency), average balance sheet
amounts, and the corresponding yields for the three months ended March 31, 2009 and 2008 are shown
in Table 2. Net interest income for the three months ended March 31, 2009 was $4,191,000, an
increase of $121,000, or 2.97%, over the same period in 2009. Net interest margin increased due to
a decline in prevailing market rates, which reduced interest income on loans. The decreases on
loans was offset by managements ability to effectively re-price deposits downward on rate bearing
deposits as well as increase the average balance of non-interest bearing deposits.
Management reviews economic forecasts and strategy on a monthly basis. Accordingly, the Corporation
will continue to strategically manage the balance sheet structure in an effort to create stability
in net interest income. The Corporation expects to continue to seek out new loan opportunities
while continuing to maintain sound credit quality.
As indicated in Table 2, for the three months ended March 31, 2009, the Corporations net interest
margin (with consideration of full tax equivalency) was 3.52% compared with 3.14% for the same
period in 2008. This increase is a result of managements ability to make large downward repricing
steps on
16
interest bearing liabilities. Additionally non-interest bearing deposits increased when comparing
the period ended March 31, 2009 to the period ended March 31, 2008.
Average earning assets decreased 7.4% or approximately $38,835,000 comparing the three months of
2009 to the same time period in 2008. Strategic shrinking of the balance sheet has led to the
dramatic decrease. Loans, the highest yielding component of earning assets, represented 88.3% of
earning assets in 2009 compared to 83.9% in 2008. Average interest bearing liabilities decreased
6.9% or $31,805,000 comparing the first three months of 2009 to the same time period in 2008.
Non-interest bearing deposits amounted to 15.1% of average earning assets in the first three months
of 2009 compared with 13.7% in the same time period of 2008.
Management continually monitors the Corporations balance sheet in an effort to insulate net
interest income from significant swings caused by interest rate volatility. If market rates change
in 2009, corresponding changes in funding costs will be considered to avoid the potential negative
impact on net interest income. The Corporations policies in this regard are further discussed in
the section titled Interest Rate Sensitivity Management.
17
Table 2 Average Balance and Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED MARCH 31, |
|
|
2009 |
|
|
2008 |
|
|
AVERAGE |
|
|
INCOME/ |
|
|
YIELD/ |
|
|
AVERAGE |
|
|
INCOME/ |
|
|
YIELD/ |
|
(000s omitted)(Annualized) |
|
BALANCE |
|
|
EXPENSE |
|
|
RATE |
|
|
BALANCE |
|
|
EXPENSE |
|
|
RATE |
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and Government Agencies |
|
$ |
36,469 |
|
|
$ |
377 |
|
|
|
4.19 |
% |
|
$ |
50,229 |
|
|
$ |
517 |
|
|
|
4.14 |
% |
State and Political (1) |
|
|
14,409 |
|
|
|
220 |
|
|
|
6.18 |
% |
|
|
14,801 |
|
|
|
168 |
|
|
|
4.57 |
% |
Other |
|
|
3,638 |
|
|
|
43 |
|
|
|
4.79 |
% |
|
|
5,151 |
|
|
|
29 |
|
|
|
2.26 |
% |
|
|
|
|
|
Total Securities |
|
|
54,516 |
|
|
|
640 |
|
|
|
4.76 |
% |
|
|
70,181 |
|
|
|
714 |
|
|
|
4.09 |
% |
Fed Funds Sold |
|
|
0 |
|
|
|
0 |
|
|
|
0.00 |
% |
|
|
11,716 |
|
|
|
93 |
|
|
|
3.19 |
% |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
333,313 |
|
|
|
5,082 |
|
|
|
6.18 |
% |
|
|
343,848 |
|
|
|
5,876 |
|
|
|
6.87 |
% |
Tax Free (1) |
|
|
2,752 |
|
|
|
44 |
|
|
|
6.48 |
% |
|
|
2,009 |
|
|
|
32 |
|
|
|
6.37 |
% |
Real Estate-Mortgage |
|
|
37,606 |
|
|
|
591 |
|
|
|
6.37 |
% |
|
|
38,247 |
|
|
|
612 |
|
|
|
6.44 |
% |
Consumer |
|
|
52,227 |
|
|
|
735 |
|
|
|
5.71 |
% |
|
|
53,366 |
|
|
|
945 |
|
|
|
7.12 |
% |
|
|
|
|
|
Total loans |
|
|
425,898 |
|
|
|
6,452 |
|
|
|
6.14 |
% |
|
|
437,470 |
|
|
|
7,465 |
|
|
|
6.86 |
% |
Allowance for Loan Losses |
|
|
(10,421 |
) |
|
|
|
|
|
|
|
|
|
|
(7,804 |
) |
|
|
|
|
|
|
|
|
Net Loans |
|
|
415,477 |
|
|
|
6,452 |
|
|
|
6.30 |
% |
|
|
429,666 |
|
|
|
7,465 |
|
|
|
6.99 |
% |
|
|
|
|
|
Loans Held for Sale |
|
|
2,089 |
|
|
|
25 |
|
|
|
4.85 |
% |
|
|
1,971 |
|
|
|
29 |
|
|
|
5.92 |
% |
|
|
|
|
|
TOTAL EARNING ASSETS CONTINUING OPERATIONS |
|
$ |
482,503 |
|
|
$ |
7,117 |
|
|
|
5.98 |
% |
|
$ |
521,338 |
|
|
$ |
8,301 |
|
|
|
6.40 |
% |
|
|
|
|
|
Cash Due from Banks |
|
|
16,689 |
|
|
|
|
|
|
|
|
|
|
|
13,983 |
|
|
|
|
|
|
|
|
|
Assets of held for sale operations |
|
|
44,880 |
|
|
|
|
|
|
|
|
|
|
|
49,573 |
|
|
|
|
|
|
|
|
|
All Other Assets |
|
|
49,856 |
|
|
|
|
|
|
|
|
|
|
|
45,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
575,640 |
|
|
|
|
|
|
|
|
|
|
$ |
622,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & SHAREHOLDERS EQUITY: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing DDA |
|
$ |
89,959 |
|
|
$ |
216 |
|
|
|
0.97 |
% |
|
$ |
93,624 |
|
|
$ |
435 |
|
|
|
1.87 |
% |
Savings Deposits |
|
|
69,370 |
|
|
|
97 |
|
|
|
0.57 |
% |
|
|
73,461 |
|
|
|
190 |
|
|
|
1.04 |
% |
Time CDs $100,000 and Over |
|
|
131,924 |
|
|
|
1,414 |
|
|
|
4.35 |
% |
|
|
153,017 |
|
|
|
1,896 |
|
|
|
4.98 |
% |
Other Time CDs |
|
|
109,694 |
|
|
|
888 |
|
|
|
3.28 |
% |
|
|
110,668 |
|
|
|
1,224 |
|
|
|
4.45 |
% |
|
|
|
|
|
Total Deposits |
|
|
400,947 |
|
|
|
2,615 |
|
|
|
2.65 |
% |
|
|
430,770 |
|
|
|
3,745 |
|
|
|
3.50 |
% |
Other Borrowings |
|
|
29,809 |
|
|
|
311 |
|
|
|
4.23 |
% |
|
|
31,791 |
|
|
|
486 |
|
|
|
6.15 |
% |
|
|
|
|
|
INTEREST BEARING LIABILITIES |
|
$ |
430,756 |
|
|
$ |
2,926 |
|
|
|
2.75 |
% |
|
$ |
462,561 |
|
|
$ |
4,231 |
|
|
|
3.68 |
% |
|
|
|
|
|
Non-Interest bearing DDA |
|
|
64,973 |
|
|
|
|
|
|
|
|
|
|
|
63,393 |
|
|
|
|
|
|
|
|
|
Liabilities of held for sale operations |
|
|
41,364 |
|
|
|
|
|
|
|
|
|
|
|
43,158 |
|
|
|
|
|
|
|
|
|
All Other Liabilities |
|
|
1,907 |
|
|
|
|
|
|
|
|
|
|
|
3,709 |
|
|
|
|
|
|
|
|
|
Shareholders Equity |
|
|
36,640 |
|
|
|
|
|
|
|
|
|
|
|
49,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES & SHAREHOLDERS EQUITY |
|
$ |
575,640 |
|
|
|
|
|
|
|
|
|
|
$ |
622,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Rate Spread |
|
|
|
|
|
|
|
|
|
|
3.23 |
% |
|
|
|
|
|
|
|
|
|
|
2.72 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income /Margin |
|
|
|
|
|
$ |
4,191 |
|
|
|
3.52 |
% |
|
|
|
|
|
$ |
4,070 |
|
|
|
3.14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Presented on a fully taxable equivalent basis using a federal income tax rate of 34%. |
18
Allowance and Provision For Loan Losses
The Corporation maintains formal policies and procedures to control and monitor credit risk.
Management believes the allowance for loan losses is adequate to provide for probable incurred
losses in the loan portfolio. While the Corporations loan portfolio has no significant
concentrations in any one industry or any exposure in foreign loans, the loan portfolio has a
concentration connected with construction and land development loans. Specific strategies have
been deployed to reduce the concentration level and limit exposure to this type of lending in the
future. The Michigan economy, employment levels and other economic conditions in the Corporations
local markets may have a significant impact on the level of credit losses. Management continues to
identify and devote attention to credits that are not performing as agreed. Of course,
deterioration of economic conditions could have an impact on the Corporations credit quality,
which could impact the need for greater provision for loan losses and the level of the allowance
for loan losses as a percentage of gross loans. Non-performing loans are discussed further in the
section titled Non-Performing Assets.
The allowance for loan losses reflects managements judgment as to the level considered appropriate
to absorb probable losses in the loan portfolio. The Corporations methodology in determining the
adequacy of the allowance is based on ongoing quarterly assessments and relies on several key
elements, which include specific allowances for identified problem loans and a formula-based
risk-allocated allowance for the remainder of the portfolio. This includes a review of individual
loans, size, and composition of the loan portfolio, historical loss experience, current economic
conditions, financial condition of borrowers, the level and composition of non-performing loans,
portfolio trends, estimated net charge-offs and other pertinent factors. While we consider the
allowance for loan losses to be adequate based on information currently available, future
adjustments to the allowance may be necessary due to changes in economic conditions, delinquencies,
or loss rates. Although portions of the allowance have been allocated to various portfolio
segments, the allowance is general in nature and is available for the portfolio in its entirety.
At March 31, 2009, the allowance was $11,405,000, or 2.68% of total loans compared to $10,455,000,
or 2.43%, at December 31, 2008, increasing the allowance $950,000 during the first three months of
2009. Non performing loan levels, discussed later, increased during the period and net charge-offs
have increased to $705,000 during the first three months of 2009 compared to $247,000 during the
first three months of 2008. Management has reviewed historical losses and following analysis of
those losses, believes that the allowance is appropriate given identified risk in the loan
portfolio based on asset quality.
Table 3 below summarizes loan losses and recoveries for the first three months of 2009 and 2008.
During the first three months of 2009, the Corporation experienced net charge-offs of $705,000 or
..17% of gross loans compared with net charge-offs of $247,000 or .06% of gross loans in the first
three months of 2008. The provision for loan loss was $1,655,000 in the first three months of 2009
and $980,000 for the same time period in 2008. As a result of continuing credit quality
deterioration and the review of historical losses by loan type, additional provision for loan
losses was taken in the first quarter. The substantial increase in provision for loan loss was to
provide specific reserves for non-performing construction and land development loans, increased
charge-offs and continuing decline in the Michigan economy.
Davison State Bank had net charge-offs of $129,000 in the first three months of 2009 and no loan
loss provision for the first quarter of 2009.
19
Table 3 Analysis of the Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
(000s omitted) |
|
2009 |
|
2008 |
Balance at Beginning of Period |
|
$ |
10,455 |
|
|
$ |
7,592 |
|
|
|
|
Charge-Offs: |
|
|
|
|
|
|
|
|
Commercial, Financial and Agriculture |
|
|
(627 |
) |
|
|
(301 |
) |
Real Estate-Mortgage |
|
|
(36 |
) |
|
|
(23 |
) |
Installment Loans to Individuals |
|
|
(101 |
) |
|
|
(105 |
) |
|
|
|
Total Charge-Offs |
|
|
(764 |
) |
|
|
(429 |
) |
Recoveries: |
|
|
|
|
|
|
|
|
Commercial, Financial and Agriculture |
|
|
35 |
|
|
|
148 |
|
Real Estate-Mortgage |
|
|
3 |
|
|
|
0 |
|
Installment Loans to Individuals |
|
|
21 |
|
|
|
34 |
|
|
|
|
Total Recoveries |
|
|
59 |
|
|
|
182 |
|
|
|
|
Net Charge-Offs |
|
|
(705 |
) |
|
|
(247 |
) |
Provision |
|
|
1,655 |
|
|
|
980 |
|
|
|
|
Balance at End of Period |
|
$ |
11,405 |
|
|
$ |
8,325 |
|
|
|
|
Ratio of Net Charge-Offs to Gross Loans |
|
|
0.17 |
% |
|
|
0.06 |
% |
Non-Interest Income
Non-interest income decreased during the three months ended March 31, 2009 as compared to the same
period in 2008, primarily due to the decrease in service charges on deposits and trust and
investment services income and an increase in gain on sale of mortgage loans. Overall non-interest
income, of continuing operations, was $1,140,000 for the three months ended March 31, 2009 compared
to $1,401,000 for the same period in 2008. This represents a decrease of 18.6%.
The most significant category of non-interest income is service charges on deposit accounts. These
fees from continuing operations were $436,000 in the first three months of 2009, compared to
$623,000 for the same period of 2008. This represents a decrease of 30.0% from year to year. The
decrease is a result of a 32.8% decrease in NSF charges as customers have become more mindful of
the usage of the overdraft privilege product.
Gain on the sale of mortgage loans originated by the Banks and sold into the secondary market
increased 99.2% to $235,000 in the three months ended March 31, 2009 compared to $118,000 in the
same period in 2008. As market conditions continue to be favorable for mortgage rates, consumers
in the market have flocked to refinance their homes, taking advantage of historically low rates.
Management sees this as a short term rise in mortgage refinance and believes that it will taper off
as the year continues.
Trust, investment and financial planning services income decreased $92,000 or 20.2% in the first
three months of 2009 compared to the same period in the prior year. A portion of the decrease is a
result of the decline in market values in which funds are invested into, and income is earned from.
In addition, as many consumers have feared market conditions, they have withdrawn their brokerage
relationships, thus impacting income.
Other operating income decreased by $99,000 or 48.5% to $105,000 in the first three months of 2009
compared to $204,000 in the same time period in 2008. The primary driver of the decrease was a loss
on the equity investment. A partial offset of $66,000 can be associated with the collection of
building rent from a property now owned by one of the subsidiary banks. The Banks also increased
service fees collected in relation to debit card services were up by $7,000 year over year. In
addition, one of the Banks received proceeds from a bank owned life insurance policy providing a
benefit of $203,000. Drawing from those increases, the Banks recognized slightly larger losses on
sales of real estate owned and a reduced collection of fees from servicing other institutions.
The Corporation also realized a $515,000 loss on its equity investment in Valley Capital Bank
headquartered in Mesa, Arizona. This is compared to a $167,000 loss in the first quarter of 2008.
As a DeNovo, Valley Capital Bank was
20
anticipated to have operating losses during their start-up phase. Valley Capital Bank is receiving
the same economic pressure as other financial institutions resulting in an increased loan loss
provision and other real estate expenses. Accordingly, the Corporation has recognized its share of
the operating loss, using the equity method of accounting on this investment.
Non-Interest Expense
Total non-interest expense, from continued operations, increased 8.0% to $5,836,000 in the three
months ended March 31, 2009, compared with $5,406,000 in the same period of 2008. The increase was
largely attributed to the estimated loss on sale of Davison State Bank of $700,000 and an
additional $150,000 in estimated transaction costs in conjunction with an agreement to sell this
bank. In addition, increases in loan and collection expenses related to other real estate owned,
were the largest year-over-year increases. Decreases in salaries and benefits, furniture and
equipment depreciation and advertising expenses, partially offset the large increases.
Salary and benefit costs, the Corporations largest non-interest expense category, were $2,552,000
in the first three months of 2009, compared with $2,824,000, or a decrease of 9.6%, for the same
time period in 2008. The decrease in cost was due to strategic staff reduction and realignment
along with the elimination of performance incentive payments.
Occupancy expenses, at $503,000, decreased in the three months ended March 31, 2009 compared to the
same period in 2008 by $2,000 or 0.4%. The expenses remained nearly flat from year-to-year as
management worked to maintain expenses through contract and service negotiation.
During the three months ended March 31, 2009, furniture and equipment expenses were $424,000
compared to $471,000 for the same period in 2008, a decrease of 10.0%. This is the result of
decreases, totaling $68,000, in depreciation on furniture and equipment, as some items have become
fully depreciated. The decreases were partially offset by increases to rental and maintenance of
furniture and equipment. Management continues to scrutinize vendors to improve contract terms and
ensure that only necessary services are being paid for.
Loan and collection expenses, from continuing operations, at $385,000, were up $237,000 or 160.1%
during the three months ended March 31, 2009 compared to the same time period in 2008. The
increase was primarily attributable to an increase in other loan expense relating to other real
estate owned, in the form of property taxes and property maintenance. As the Banks continue to
become owners of these properties, resulting from the unfavorable changing economy in Michigan, we
anticipate these expenses to be above desired levels until the economic situation begins to become
more favorable.
Advertising expenses of $41,000 in the three months ended March 31, 2009 decreased 51.8% compared
with $85,000 for the same period in 2008. The Corporation has taken a close review of how
advertising, sponsorship and donation funds are shared with the community. As a result, we have
reduced our advertising in local markets and reduced sponsorships of community events, while still
remaining a participating sponsor.
Other operating expenses, from continued operations, were $1,931,000 in the three months ended
March 31, 2009 compared to $799,000 in the same time period in 2008, an increase of $558,000 or
40.6%. The Corporation recorded a preliminary loss on the sale of Davison State Bank of $700,000,
along with the accrual of $150,000 in related transaction costs in conjunction with an agreement to
sell this bank. The sale is expected to close later in 2009. These transactions along with a
significant increase in FDIC assessment expense were the main increases from year to year. The
FDIC insurance assessments will continue to increase, due to the 10 basis point special assessment
approved by the FDIC in 2009. Offsetting these increases were reductions in transportation
expense, director fees, ATM/Debit card expenses, dues and memberships, conferences and education
and other losses.
21
Financial Condition
Proper management of the volume and composition of the Corporations earning assets and funding
sources is essential for ensuring strong and consistent earnings performance, maintaining adequate
liquidity and limiting exposure to risks caused by changing market conditions. The Corporations
securities portfolio is structured to provide a source of liquidity through maturities and to
generate an income stream with relatively low levels of principal risk. The Corporation does not
engage in securities trading. Loans comprise the largest component of earning assets and are the
Corporations highest yielding assets. Customer deposits are the primary source of funding for
earning assets while short-term debt and other sources of funds could be further utilized if market
conditions and liquidity needs change.
The Corporations total assets were $577 million at March 31, 2009 compared to total assets of $579
million at December 31, 2008. This includes assets from discontinued operations of $44 million at
March 31, 2009 and $46 million at December 31, 2008. Loans comprised 72.8% of total assets at
March 31, 2009 compared to 74.2% at December 31, 2008. Loans shrank $8.4 million during the first
three months of 2009. On the liability side of the balance sheet, the ratio of non-interest bearing
deposits to total deposits was 13.8% at March 31, 2009 and 13.7% at December 31, 2008. Interest
bearing deposit liabilities totaled $409.2 million at March 31, 2009 compared to $405.0 million at
December 31, 2008. Total deposits increased $5.5 million with non-interest bearing demand deposits
increasing $1,343,000 and interest bearing deposits increasing $4,185,000. Short-term borrowings
decreased $614,000 due to the decrease in treasury tax and loan payments outstanding at the end of
the two periods. FHLB advances decreased $2.7 million comparing the two periods.
Bank premises and equipment decreased $269,000 to $16.6 million at March 31, 2009 compared to $16.9
million at December 31, 2008. The decrease was a result of normal depreciation.
Non-Performing Assets
Non-performing assets include loans on which interest accruals have ceased, loans past due 90 days
or more and still accruing, loans that have been renegotiated, and real estate acquired through
foreclosure. Table 4 reflects the levels of these assets at March 31, 2009 and December 31, 2008.
Non-performing assets increased from December 31, 2008 to March 31, 2009. The increase of $110,000
was primarily due to increases in loans in redemption, which was offset by decreases in non-accrual
loans and other real estate owned. Loans past due 90 days or more and still accruing held
relatively flat from year end and non-accrual loans decreased $955,000. REO-in-Redemption balance
is comprised of seven commercial properties and three residential properties for a total of
$1,627,000 at March 31, 2009. Marketability of these properties is dependent on the real estate
market. Renegotiated loans decreased $942,000 from December 31, 2008 to a total of $940,000 at
March 31, 2009. Additionally, decreases to non accrual loans resulted from transfers to real
estate in redemption.
The level and composition of non-performing assets are affected by economic conditions in the
Corporations local markets. Non-performing assets, charge-offs, and provisions for loan losses
tend to decline in a strong economy and increase in a weak economy, potentially impacting the
Corporations 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 managements
opinion, may deteriorate in quality if economic conditions change.
Certain portions of the Corporations non-performing loans included in Table 4 are considered
impaired. The Corporation measures impairment on all large balance non-accrual commercial loans.
Certain large balance accruing loans rated watch or lower are also measured for impairment.
Impairment losses are believed to be adequately covered by the allowance for loan losses.
22
The Corporation maintains policies and procedures to identify and monitor non-accrual loans. A
loan is placed on non-accrual 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 when the loan is placed on non-accrual
status.
Davison State Bank had non-performing loans of $1,635,000 and non-performing assets of $1,955,000
at March 31, 2009, compared to $1,751,000 of non-performing loans and $2,117,000 of non-performing
assets at December 31, 2008.
Table 4 Non-Performing Assets and Past Due Loans
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2009 |
|
2008 |
Non-Performing Loans: |
|
|
|
|
|
|
|
|
Loans Past Due 90 Days or More & Still
Accruing |
|
$ |
687 |
|
|
$ |
667 |
|
Non-Accrual Loans |
|
|
21,734 |
|
|
|
22,574 |
|
Renegotiated Loans |
|
|
940 |
|
|
|
942 |
|
|
|
|
Total Non-Performing Loans |
|
|
23,361 |
|
|
|
24,183 |
|
|
|
|
Other Non-Performing Assets: |
|
|
|
|
|
|
|
|
Other Real Estate |
|
|
5,703 |
|
|
|
5,983 |
|
REO in Redemption |
|
|
1,627 |
|
|
|
390 |
|
Other Non-Performing Assets |
|
|
0 |
|
|
|
25 |
|
|
|
|
Total Other Non-Performing Assets |
|
|
7,329 |
|
|
|
6,398 |
|
|
|
|
Total Non-Performing Assets |
|
$ |
30,691 |
|
|
$ |
30,581 |
|
|
|
|
Non-Performing Loans as a % of
Total Loans |
|
|
5.49 |
% |
|
|
5.63 |
% |
Allowance for Loan Losses as a % of
Non-Performing Loans |
|
|
48.82 |
% |
|
|
43.23 |
% |
Accruing Loans Past Due 90 Days or
More to Total Loans |
|
|
0.16 |
% |
|
|
0.16 |
% |
Non-performing Assets as a % of
Total Assets |
|
|
5.31 |
% |
|
|
5.29 |
% |
Liquidity and Interest Rate Risk Management
Asset/Liability management is designed to assure liquidity and reduce interest rate risks. The goal
in managing interest rate risk is to maintain a strong and relatively stable net interest margin.
It is the responsibility of the Asset/Liability Management Committee (ALCO) to set policy
guidelines and to establish short-term and long-term strategies with respect to interest rate
exposure and liquidity. The ALCO, which is comprised of key members of management, meets regularly
to review financial performance and soundness, including interest rate risk and liquidity exposure
in relation to present and prospective markets, business conditions, and product lines.
Accordingly, the committee adopts funding and balance sheet management strategies that are intended
to maintain earnings, liquidity, and growth rates consistent with policy and prudent business
standards.
Liquidity maintenance together with a solid capital base and strong earnings performance are key
objectives of the Corporation. The Corporations 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 Banks deposit base plus other
funding sources (federal funds purchased, short-term borrowings, FHLB advances, repurchase
agreements, other liabilities and shareholders equity) provided primarily all funding needs in the
first three months of 2009. While these sources of funds are expected to continue to be available
to provide funds in the future, the
23
mix and availability of funds will depend upon future economic conditions. The Corporation does not
foresee any difficulty in meeting its funding requirements.
Primary liquidity is provided through short-term investments or borrowings (including federal funds
sold and purchased) while the securities portfolio provides secondary liquidity. The securities
portfolio has decreased $4.5 million since December 31, 2008 due to the calls and maturities of
securities and pay downs of Mortgage Backed Securities (MBS). The Corporation has invested some of
the excess funds, from the call of these securities, back into the securities and loan portfolios
to increase yield and income versus keeping the excess funds in federal funds sold which has a
lower yield. 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.
The Corporation had cash flows from financing activities resulting primarily from the increase of
deposits. In the first three months of 2009, these deposits increased $4,473,000. Cash provided by
investing activities was $14,707,000 in first three months of 2009 compared to cash used of
$10,222,000 in first three months of 2008. The change in investing activities was due to a call on
available for sale securities totaling $2,000,000 and the maturity of $200,000 of held to maturity
securities. In addition, declines in the loan portfolio of $9,858,000 provided the cash from
investing activities.
Capital Management
Total shareholders equity decreased 6.3% to $33,853,000 at March 31, 2009 compared with
$36,124,000 at December 31, 2008. The Corporations equity to asset ratio was 5.9% at March 31,
2009 and 6.2% at December 31, 2008. The decline was due to a net loss in the first quarter of 2009.
As indicated on the balance sheet at December 31, 2008, the Corporation had an accumulated other
comprehensive loss of $1,977,000 compared to accumulated other comprehensive loss at March 31, 2009
of $2,625,000. The increase in the loss position is attributable to a combination of the
fluctuation of the market price of securities held in the available for sale portfolio, largely in
relation to private label securities.
Regulatory Capital Requirements
Bank holding companies and their bank subsidiaries are required by banking industry regulators to
maintain certain levels of capital. These are expressed in the form of certain ratios. These ratios
are based on the degree of credit risk in the Corporations 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 is separated into two levels, Tier I capital (essentially total
common shareholders equity plus qualifying cumulative preferred securities (limited to 33% of
common equity, less goodwill) and Tier II capital (essentially the allowance for loan losses
limited to 1.25% of gross risk-weighted assets). 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 3%. As
reflected in Table 5, at March 31, 2009 and at December 31, 2008, the Corporation was well in
excess of the minimum capital and leverage requirements necessary to be considered a well
capitalized banking company.
24
The FDIC has adopted a risk-based insurance premium system based in part on a banks 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 institutions premium levels are based on these classifications and its regulatory
supervisory rating (the higher the classification the lower the premium). It is the Corporations
goal to maintain capital levels sufficient to retain a designation of well capitalized.
Quantitative measures established by regulation to ensure capital adequacy require the Banks to
maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as
defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of March 31, 2009, that the Banks
meet all capital adequacy requirements to which they are subject. As of December 31, 2008 and
2007, the most recent notifications from Federal Deposit Insurance Corporation categorized the
Banks as well capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Banks must maintain minimum total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as set forth in the table.
West Michigan Community Bank has entered into a Consent Order with the regulatory agencies in 2009
that resulted in it being considered less than well-capitalized as of March 1, 2009 when the
Consent Order was effective. The Consent Order requires West Michigan Community Bank to retain a
Tier 1 capital to total assets ratio of a minimum of 8.0%. As of March 31, 2009, West Michigan
Community Bank had a Tier 1 capital to total assets ratio of 8.4%. The Consent Order also restricts
dividend payments from West Michigan Community Bank to the Holding Company. The Consent Order does
not place any restrictions on the Holding Company. The State Bank and Davison State Bank are also
taking measures to preserve capital by restricting dividend payments to the Holding Company. The
State Bank and Davison State Bank have increased their minimum target ratio of Tier 1 capital to
total assets from 5% to 8%. The State Bank and Davison State Bank had actual Tier 1 capital to
total assets of 8.2% and 8.3%, respectively, at March 31, 2009.
The Corporations principal source of funds for dividend payments is dividends received from the
Banks. Banking regulations limit the amount of dividends that may be paid without prior approval
of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any
calendar year is limited to the current years net profits, combined with the retained net profits
of the preceding two years, subject to the capital requirements described above.
Table 5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Ratios |
|
|
|
|
|
|
Fentura Financial, Inc. |
|
|
Regulatory Minimum |
|
March 31, |
|
December 31, |
|
March 31, |
|
|
For Well Capitalized |
|
2009 |
|
2008 |
|
2008 |
Total Capital to risk
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted assets |
|
|
10 |
% |
|
|
11.37 |
% |
|
|
11.40 |
% |
|
|
11.65 |
% |
Tier 1 Capital to risk
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted assets |
|
|
6 |
% |
|
|
10.10 |
% |
|
|
10.20 |
% |
|
|
10.41 |
% |
Tier 1 Capital to average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
5 |
% |
|
|
8.76 |
% |
|
|
8.80 |
% |
|
|
9.13 |
% |
The Corporations primary source of cash to service its subordinated debt and notes payable is
dividends from the three subsidiary banks. As the subsidiary banks are working to preserve capital
and not upstream dividends to the Holding Company, the Corporation has elected to defer interest
payments for five years on $14,000,000 of subordinated debentures. The reason for the interest
deferral is to maintain liquidity at the Holding Company. The Corporation is not in default under
either of the indentures. During this five year period, the Corporation is precluded from paying
dividends on its outstanding
25
common stock. The Corporation subsequently may give notice that it elects to shorten the deferral
period, pay accrued interest and return to the normal course of dividend payments.
Critical Accounting Policies and Estimates
The Managements Discussion and Analysis of financial condition and results of operations are based
on the Corporations consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The preparation of these
financial statements requires us to make estimates and judgments that affect the reported amounts
of assets, liabilities, income and expenses. Material estimates that are particularly susceptible
to significant change in the near term relate to the determination of the allowance for loan
losses, and actual results could differ from those estimates.
The allowance for loan losses is maintained at a level we believe is adequate to absorb probable
losses identified and inherent in the loan portfolio. Our evaluation of the adequacy of the
allowance for loan losses is an estimate based on reviews of individual loans, assessments of the
impact of current and anticipated economic conditions on the portfolio, and historical loss
experience. The allowance for loan losses represents managements best estimate, but significant
downturns in circumstances relating to loan quality or economic conditions could result in a
requirement for an increased allowance for loan losses in the near future. Likewise, an upturn in
loan quality or improved economic conditions may result in a decline in the required allowance for
loan losses. In either instance unanticipated changes could have a significant impact on operating
earnings.
The allowance for loan losses is increased through a provision charged to operating expense.
Uncollectible loans are charged-off through the allowance for loan losses. Recoveries of loans
previously charged-off are added to the allowance for loan losses. A loan is considered impaired
when it is probable that contractual interest and principal payments will not be collected either
for the amounts or by the dates as scheduled in the loan agreement.
Our accounting for income taxes involves the valuation of deferred tax assets and liabilities
primarily associated with differences in the timing of the recognition of revenues and expenses for
financial reporting and tax purposes. We have recorded no valuation allowance on the balance of
our deferred tax assets as we conclude that the tax benefits associated with this asset will more
likely than not be realized based upon the levels of taxable income in prior years and the
expectation of a return to profitability and generation of taxable income in future years.
Management has reviewed the deferred tax position for the Corporation at March 31, 2009 and
December 31, 2008. The deferred tax position was impacted by several significant non-recurring
transactions in the past few years. After evaluating the impact of the significant transactions
the Corporation has determined that no valuation reserve is required.
The Corporation evaluates securities for other-than-temporary impairment at least on a quarterly
basis, and more frequently when economic or market concerns warrant such evaluation. Consideration
is given to the length of time and the extent to which fair value has been less than cost, the
financial condition and near-term prospects of the issuer, and the intent and the ability of the
Corporation to retain its investment in the issuer for a period of time sufficient to allow for any
anticipated recovery in fair value. In analyzing an issuers financial condition, the Corporation
may consider whether the securities are issued by the federal government or its agencies, whether
downgrades by bond rating agencies have occurred, and the results of the reviews of the issuers
financial condition.
Off Balance Sheet Arrangements
At March 31, 2009, the Banks had outstanding standby letters of credit of $2.8 million and unfunded
loan commitments outstanding of $96.3 million. Because these commitments generally have fixed
expiration dates and many will expire without being drawn upon, the total commitment level does not
necessarily
26
represent future cash requirements. If needed to fund these outstanding commitments, the Banks
have the ability to fund these commitments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information concerning quantitative and qualitative disclosures about market risk contained on
page 54 in the Corporations Annual Report on Form 10-K for the year ended December 31, 2008, is
incorporated herein by reference.
Fentura Financial, Inc. faces market risk to the extent that both earnings and the fair value of
its financial instruments are affected by changes in interest rates. The Corporation manages this
risk with static GAP analysis and has begun simulation modeling. For the first three months of
2009, the results of these measurement techniques were within the Corporations policy guidelines.
The Corporation does not believe that there has been a material change in the nature of the
Corporations primary market risk exposures, including the categories of market risk to which the
Corporation is exposed and the particular markets that present the primary risk of loss to the
Corporation, or in how those exposures have been managed in 2009 compared to 2008.
The Corporations market risk exposure is mainly comprised of its vulnerability to interest rate
risk. Prevailing interest rates and interest rate relationships in the future will be primarily
determined by market factors, which are outside of the Corporations control. All information
provided in this section consists of forward-looking statements. Reference is made to the section
captioned Forward Looking Statements in this quarterly report for a discussion of the limitations
on the Corporations responsibility for such statements.
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 banks interest rate
sensitivity. The Corporation currently does not utilize derivatives in managing interest rate risk.
An indicator of the interest rate sensitivity structure of a financial institutions balance sheet
is the difference between rate sensitive assets and rate sensitive liabilities, and is referred to
as GAP. Table 6 sets forth the distribution of re-pricing of the Corporations earning assets and
interest bearing liabilities as of March 31, 2009, 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.
27
Table 6 GAP Analysis March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within |
|
Three |
|
One to |
|
After |
|
|
|
|
Three |
|
Months to |
|
Five |
|
Five |
|
|
(000s omitted) |
|
Months |
|
One Year |
|
Years |
|
Years |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Funds Sold |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Securities |
|
|
7,067 |
|
|
|
11,626 |
|
|
|
20,416 |
|
|
|
10,191 |
|
|
|
49,300 |
|
Loans |
|
|
99,444 |
|
|
|
69,801 |
|
|
|
198,165 |
|
|
|
53,216 |
|
|
|
420,626 |
|
Loans Held for Sale |
|
|
4,842 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
4,842 |
|
FHLB Stock |
|
|
1,900 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,900 |
|
|
|
|
Total Earning Assets |
|
$ |
113,253 |
|
|
$ |
81,427 |
|
|
$ |
218,581 |
|
|
$ |
63,407 |
|
|
$ |
476,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Bearing Demand Deposits |
|
$ |
87,281 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
87,281 |
|
Savings Deposits |
|
|
72,866 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
72,866 |
|
Time Deposits Less than $100,000 |
|
|
21,359 |
|
|
|
49,008 |
|
|
|
43,897 |
|
|
|
142 |
|
|
|
114,406 |
|
Time Deposits Greater than $100,000 |
|
|
27,736 |
|
|
|
35,491 |
|
|
|
71,444 |
|
|
|
0 |
|
|
|
134,671 |
|
Short term borrowings |
|
|
1,636 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,636 |
|
Other Borrowings |
|
|
26 |
|
|
|
2,000 |
|
|
|
7,126 |
|
|
|
855 |
|
|
|
10,007 |
|
Subordinated debentures |
|
|
14,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
14,000 |
|
|
|
|
Total Interest Bearing Liabilities |
|
$ |
224,904 |
|
|
$ |
86,499 |
|
|
$ |
122,467 |
|
|
$ |
997 |
|
|
$ |
434,867 |
|
|
|
|
Interest Rate Sensitivity GAP |
|
|
($111,651 |
) |
|
|
($5,072 |
) |
|
$ |
96,114 |
|
|
$ |
62,410 |
|
|
$ |
41,801 |
|
Cumulative Interest Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sensitivity GAP |
|
|
($111,651 |
) |
|
|
($116,723 |
) |
|
|
($20,609 |
) |
|
$ |
41,801 |
|
|
|
|
|
Interest Rate Sensitivity GAP |
|
|
(0.50 |
) |
|
|
(0.94 |
) |
|
|
1.78 |
|
|
|
63.59 |
|
|
|
|
|
Cumulative Interest Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sensitivity GAP Ratio |
|
|
(0.50 |
) |
|
|
(1.44 |
) |
|
|
0.34 |
|
|
|
63.93 |
|
|
|
|
|
As indicated in Table 6, the short-term (one year and less) cumulative interest rate
sensitivity gap is negative. Accordingly, if market interest rates increase, this negative gap
position could have a short-term negative impact on interest margin. Conversely, if market rates
decline this should theoretically have a short-term positive impact. However, gap analysis is
limited and may not provide an accurate indication of the impact of general interest rate movements
on the net interest margin since the re-pricing of various categories of assets and liabilities is
subject to the Corporations needs, competitive pressures, and the needs of the Corporations
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 rate volumes.
These limitations are evident when considering the Corporations gap position at March 31, 2009 and
the change in net interest margin for the three months ended March 31, 2009 compared to the same
time period in 2008. At March 31, 2009, the Corporation was negatively gapped through one year and
since that time interest rates have stayed steady; and rates are expected to remain flat for the
next 3 months. Further, net interest margin increased when the first three months of 2009 is
compared to the same period in 2008. This occurred as short-term, higher priced deposits matured
and was re-priced to lower rates, as well as an increase in non-interest bearing deposits. In
addition to GAP analysis, the Corporation, as part of managing interest rate risk, also performs
simulation modeling, which measures the impact of upward and downward movements of interest rates
on interest margin and the market value of equity. Assuming continued success at achieving
repricing of loans to higher rates at a faster pace than repricing of deposits, simulation modeling
indicates that an upward movement of interest rates could have a positive impact on net interest
income. Because management believes that it should be able to continue these repricing
relationships, it anticipates improved performance in net interest margin.
28
Forward Looking Statements
This report includes forward-looking statements as that term is used in the securities laws. All
statements regarding our expected financial position, business and strategies are forward-looking
statements. In addition, the words anticipates, believes, estimates, seeks, expects,
plans, intends, and similar expressions, as they relate to us or our management, are intended
to identify forward-looking statements. The presentation and discussion of the provision and
allowance for loan losses and statements concerning future profitability or future growth or
increases, are examples of inherently forward looking statements in that they involve judgments and
statements of belief as to the outcome of future events. Our ability to predict results or the
actual effect of future plans or strategies is inherently uncertain. Factors which could have a
material adverse affect on our operations and our future prospects include, but are not limited to,
changes in: interest rates, general economic conditions, legislative/regulatory changes, monetary
and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal
Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan
products, deposit flows, competition, demand for financial services in our market area and
accounting principles, policies and guidelines. These risks and uncertainties should be considered
in evaluating forward-looking statements and undue reliance should not be placed on such
statements. Further information concerning us and our business, including additional factors that
could materially affect our financial results, is included in our other filings with the Securities
and Exchange Commission.
ITEM 4T: CONTROLS AND PROCEDURES
(a) |
|
Evaluation of Disclosure Controls and Procedures. The Corporations Chief Executive
Officer and Chief Financial Officer, after evaluating the effectiveness of the Corporations
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
as of the end of the period covered by this Form 10-Q Quarterly Report, have concluded that
the Corporations disclosure controls and procedures were adequate and effective to ensure
that material information relating to the Corporation would be made known to them by others
within the Corporation, particularly during the period in which this Form 10-Q was being
prepared. |
|
(b) |
|
Changes in Internal Controls. During the period covered by this report, there have
been no changes in the Corporations internal control over financial reporting that have
materially affected or are reasonably likely to materially affect the Corporations internal
control over financial reporting. |
29
PART II OTHER INFORMATION
Item 1. |
|
Legal Proceedings. None |
Item 1A. |
|
Risk Factors There have been no material changes in the risk factors applicable to the
Corporation from those disclosed in its Annual Report on Form 10-K for the year ended December
31, 2008. |
Item 2. |
|
Unregistered Sales of Equity Securities and Use of Proceeds. None |
Item 3. |
|
Defaults Upon Senior Securities. None |
Item 4. |
|
Submission of Matters to a Vote of Securities Holders. |
On January 23, 2009, the Company held a special meeting of shareholders to
consider an amendment to the articles of incorporation to permit the
issuance of preferred stock. The results of the vote at the special meeting
were as follows:
|
|
|
|
|
|
|
For |
|
Against |
|
Abstain |
|
Non-Votes |
1,285,699
|
|
178,127
|
|
22,257
|
|
694,985 |
Item 5. |
|
Other Information. None |
3(i) |
|
Articles of Incorporation (Incorporated by reference from Form
10-K for the year ended 12/31/08). |
|
31.1 |
|
Certificate of the President and Chief Executive Officer of
Fentura Financial, Inc. pursuant to 15 U.S.C. Section 7241, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
31.2 |
|
Certificate of the Chief Financial Officer of Fentura
Financial, Inc. pursuant to 15 U.S.C. Section 7241, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32.1 |
|
Certificate of the Chief Executive Officer of Fentura
Financial, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
|
32.2 |
|
Certificate of the Chief Financial Officer of Fentura
Financial, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
30
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
Fentura Financial, Inc.
|
|
Dated: May 15, 2009 |
/s/ Donald L. Grill
|
|
|
Donald L. Grill |
|
|
President & CEO |
|
|
|
|
|
Dated: May 15, 2009 |
/s/ Douglas J. Kelley
|
|
|
Douglas J. Kelley |
|
|
Chief Financial Officer |
|
31
EXHIBIT INDEX
|
|
|
Exhibit |
|
Description |
|
|
|
3(i)
|
|
Articles of Incorporation (Incorporated by reference from Form 10-K for the year ended
12/31/08). |
|
|
|
31.1
|
|
Certificate of the President and Chief Executive Officer of Fentura Financial, Inc. pursuant
to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
|
|
|
31.2
|
|
Certificate of the Chief Financial Officer of Fentura Financial, Inc. pursuant to 15 U.S.C.
Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certificate of the Chief Executive Officer of Fentura Financial, Inc. pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certificate of the Chief Financial Officer of Fentura Financial, Inc. pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32