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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For fiscal year ended December 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to _______________
Commission file number 0-23550
FENTURA BANCORP, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-2806518
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
175 North Leroy, Fenton, Michigan 48430-0725
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (810) 750-8725
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. __X__ Yes ___ No
Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
registrant computed by reference to the average bid and asked prices of such
stock was approximately $45,067,950 as of March 13, 2001.
State the number of shares outstanding of each of issuer's classes of common
equity, as of the latest practicable date. 1,725,089 shares of Common Stock as
of March 13, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Fentura Bancorp, Inc. Proxy Statement for its annual meeting of
shareholders to be held April 25, 2001 and its Rule 14a-3 annual report are
incorporated by reference into Parts II and III.
Fentura Bancorp, Inc.
2000 Annual Report on Form 10-K
Table Of Contents
Page
PART I
Item 1. Description of Business 3
Item 2. Description of Property 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
Additional Item - Executive Officers of Registrant 6
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 7
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 7a. Quantitative and Qualitative Disclosures About Market Risk 7
Item 8. Financial Statements and Supplementary Data 8
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 8
PART III
Item 10. Directors and Executive Officers of the Registrant 8
Item 11. Executive Compensation 8
Item 12. Security Ownership of Certain Beneficial Owners and Management 8
Item 13. Certain Relationships and Related Transactions 8
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 9
SIGNATURES 10
EXHIBIT INDEX 11
2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
The Company
Fentura Bancorp, Inc. (the "Company" or "Fentura") is a financial holding
company headquartered in Fenton, Michigan. As of December 31, 2000, Fentura
owned two banks, see "The Banks" below. All information in this Item 1 is as of
December 31, 2000. The Company's subsidiary banks operate nine community banking
offices offering a full range of banking services principally to individuals,
small business, and government entities throughout mid-Michigan. At the close of
business on December 31, 2000 the Company had assets of $293 million, deposits
of $249 million, and shareholders' equity of $36 million. Trust assets under
management totaled $64 million.
Fentura was incorporated in 1987 to serve as the holding company of its
sole subsidiary bank, The State Bank ("TSB" or the "Banks"). TSB traces its
origins to its predecessor, The Commercial Savings Bank of Fenton, which was
incorporated in 1898. See "The Banks". On March 13, 2000 a second bank
subsidiary, Davison State Bank ("DSB" or the "Banks") commenced operation.
In August of 2000 Fentura converted from a bank holding company to a
financial holding company registered with the Board of Governors of the Federal
Reserve System under the Bank Holding Company Act and the Gramm-Leach-Bliley Act
(the "GLB Act"). The Company has corporate power to engage in such activities as
permitted to business corporations under the Michigan Business Corporation Act,
subject to the limitations of the Bank Holding Company Act and GLB Act and
regulations of the Board of Governors of the Federal Reserve System. In general,
the Bank Holding Company Act and regulations restrict the Company with respect
to its own activities that are closely related to the business of banking. The
GLB Act and regulations expand the authority of bank holding companies that are
also financial holding companies allowing them to enter into business
combinations with other financial institutions, including insurance companies,
and securities firms to create a single financial services organization in order
to offer customers a more complete array of financial products and services. See
"Supervision and Regulation."
The Company's principal executive offices are located at 175 North Leroy,
Fenton, Michigan 48430-0725, and its telephone number is (810) 750-8725.
The Banks
TSB's original predecessor was incorporated as a state banking corporation
under the laws of Michigan on September 16, 1898 under the name "The Commercial
Savings Bank of Fenton." In 1931, it changed its name to State Savings Bank of
Fenton, and in 1988 became The State Bank. For over 100 years TSB has been
engaged in the general banking business in the Fenton, Michigan area. Its
deposits are insured by the Federal Deposit Insurance Corporation (the "FDIC"),
but it is not a member of the Federal Reserve System. As a state bank, it is
subject to federal and state laws applicable to banks and to regulation and
supervision by the FDIC and the Michigan Office of Financial and Insurance
Services, Division of Financial Institutions. See "Supervision and Regulation."
DSB commenced operations on March 13, 2000, and is engaged in the general
banking business in the Davison, Michigan area. Its deposits are insured by the
Federal Deposit Insurance Corporation (the "FDIC"), but it is not a member of
the Federal Reserve System. As a state bank, it is subject to federal and state
laws applicable to banks and to regulation and supervision by the FDIC and the
Michigan Office of Financial and Insurance Services, Division of Financial
Institutions. See "Supervision and Regulation."
Both Banks are community-oriented providers of financial services engaged
in the business of general commercial banking. Their activities include
investing in state and federal securities, accepting demand deposits, savings
and other time deposits, extending retail commercial, consumer and real
3
estate loans to individuals and businesses, providing safe deposit boxes and
credit card services, transmitting funds and providing other services generally
associated with full service commercial banking. Lending is focused on
individuals and small businesses in the local market regions of the Banks. In
addition, TSB operates a trust department offering a full range of fiduciary
services.
TSB is headquartered in the City of Fenton, Michigan, and considers its
primary service area to be portions of Genesee, Oakland, and Livingston counties
in Michigan. As of December 31, 2000, TSB operated five offices in the City of
Fenton, Michigan, one office in the City of Linden, Michigan, and one office in
the Village of Holly, Michigan. Its main office is located downtown Fenton.
DSB is headquartered in the Township of Davison, Michigan, and considers
its primary service area to be portions of Genesee and Lapeer Counties. As of
December 31, 2000, DSB operated two offices in the Township of Davison,
Michigan.
As of December 31, 2000, TSB employed 106 full time personnel, including 26
officers, and an additional 27 part time employees. TSB considers its employee
relations to be excellent.
As of December 31, 2000, DSB employed 5 full time personnel, including 2
officers, and an additional 10 part time employees. DSB considers its employee
relations to be excellent.
Competition
The financial services industry is highly competitive. The Banks compete
with other commercial banks, many of which are subsidiaries of bank holding
companies, for loans, deposits, trust accounts, and other business on the basis
of interest rates, fees, convenience and quality of service. The Banks also
compete with a variety of other financial services organizations including
savings and loan associations, finance companies, mortgage banking companies,
brokerage firms, credit unions and other financial organizations. Many of the
Banks' competitors have substantially greater resources than the Banks.
Supervision and Regulation
The following discussion briefly summarizes certain statutes and
regulations that affect or may affect the Company and the Banks, and the conduct
of their respective businesses. The discussion is qualified in its entirety by
reference to such statutes and regulations.
The Company
As a financial holding company, within the meaning of the GLB Act, the
Company is subject to examination and supervision by the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board"). The Company is
required to file with the Federal Reserve Board reports and other information
regarding its business operations and the business operations of its
subsidiaries. It is also required to obtain Federal Reserve Board approval prior
to acquiring, directly or indirectly, ownership or control of voting shares of
any bank, if, after such acquisition it would own or control more than 5% of the
voting stock of such bank. Pursuant to the GLB Act, however, the Company may
engage in, or own or control companies that engage in, any activities determined
by the Federal Reserve Board to be financial in nature or incidental to
activities financial in nature, or complementary to financial activities,
provided that such complementary activities to do pose a substantial risk to the
safety or soundness of depository institutions or the financial system
generally. The GLB Act designated various lending, advisory, insurance and
underwriting, securities underwriting, dealing and market making, and merchant
banking activities (as well as those activities previously approved for bank
holding companies by the Federal Reserve Board) as financial in nature, and
authorized the Federal Reserve Board (in coordination with other regulatory
authorities) to determine that additional activities are financial in nature or
incidental to activities that are financial in nature. Prior to the GLB Act, the
Federal Reserve Board had determined that bank holding companies were permitted,
among other activities, to engage, subject to certain limitations, in such
banking related business ventures as sales and consumer finance, equipment
leasing,
4
computer service bureau and software operations, data processing and services
transmission, discount securities brokerage, and mortgage banking and brokerage.
In addition, federal legislation prohibits acquisition of "control" of a
bank or bank holding company without prior notice to certain federal bank
regulators. "Control" in certain cases may include the acquisition of as little
as 10% of the outstanding shares of capital stock.
The enactment of the Gramm-Leach-Bliley Act of 1999 represents a pivotal
point in the history of the financial services industry. The GLB Act sweeps away
large parts of a regulatory framework that had its origins in the Depression Era
of the 1930s. Effective March 11, 2000, new opportunities became available for
banks, other depository institutions, insurance companies, and securities firms
to enter into combinations that permit a single financial services organization.
The GLB Act provides a new regulatory framework for regulation through the
"financial holding company," which has as its umbrella regulator the Federal
Reserve Board. Functional regulation of the financial holding company's
separately regulated subsidiaries will be conducted by their primary functional
regulator. In order to qualify as a financial holding company, the Company filed
an election to become a financial holding company certifying that each of its
banks was "well capitalized" and "well managed." In addition, the GLB Act makes
satisfactory or above Community Reinvestment Act compliance for insured
depository institutions and their financial holding companies necessary in order
for them to engage in new financial activities. The GLB Act also provides a
federal right to privacy of non-public personal information of individual
customers. Holding companies and their subsidiary banks are also subject to
certain state laws that deal with the use and distribution of non-public
personal information.
Substantially all of the Company's cash revenues are derived from dividends
paid by TSB. Michigan's banking laws restrict the payment of cash dividends by a
state bank by providing (subject to certain exceptions) that dividends may be
paid only out of net profits then on hand after deducting therefrom its losses
and bad debts, and no dividends may be paid unless the bank will have a surplus
amounting to not less than twenty percent (20%) of its capital after the payment
of the dividend. As a start up or de novo bank, Davison is not expected to pay a
dividend until 2003.
The Banks
The Banks are state banking corporations organized under the laws of the
State of Michigan. Consequently, they are subject to regulation and supervision
by the Commissioner of the Office of Financial and Insurance Services - Division
of Financial Institutions of the State of Michigan (the "Commissioner"). The
Banks, because their deposits are, and will be, insured by the FDIC, are also
subject to regulation and supervision by the FDIC. Representatives of both the
Commissioner and the FDIC conduct regular periodic examinations of all Michigan
state banks. Membership in the Federal Reserve System is optional for state
banks; the Banks are not members of the Federal Reserve System.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), signed into law on December 19, 1991, imposed on banks relatively
detailed standards and mandated the development of additional regulations
governing nearly every aspect of the operations and management of banks, in
addition to many aspects of bank holding companies. Some of the major provisions
contained in FDICIA includes recapitalization of the Bank Insurance Fund
("BIF"), a risk-based insurance premium assessment system, a capital-based
supervision system that links supervisory intervention to the deterioration of a
bank's capital level, new auditing and accounting and examination requirements,
and mandated standards for bank lending and operations.
FDICIA provides the FDIC with the authority to impose assessments on
insured BIF member depository institutions to maintain the fund at the
designated reserve ratio defined in FDICIA. Assessment levels are based on a
bank's level of capitalization. Banks with the highest capital level (i.e. "well
capitalized") are charged the lowest assessment. The Banks have sufficient
capital to maintain this designation (the FDIC's highest rating). Further
regulatory changes could impact the amount and type of assessment paid by the
Banks.
5
Examinations by the various regulatory authorities are designed for the
protection of the bank depositors and not for bank or holding company
shareholders. The federal and state laws and regulations of general application
to banks regulate, among other things, the scope of their business, their
investments, their reserves against deposits, the nature and amount of and
collateral for loans, and the maximum interest rates payable on deposits, and
include restrictions on the number of banking offices and activities that may be
performed at such offices.
Transactions between the Banks and the Company are subject to various
restrictions imposed by state and federal regulatory agencies. Such transactions
include loans and other extensions of credit, purchase of securities, and
payments of fees and other distributions. In addition, applicable laws place
restrictions on the amount and nature of loans to executive officers, directors
and controlling persons of FDIC member banks and of bank holding companies that
control such banks.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive offices are located at 175 North Leroy Street,
Fenton, Michigan, which is also the main office of The State Bank. The State
Bank also has the following branches in Fenton: a North Fenton Branch at 1231
North Leroy Street; an Owen Road branch at 3202 Owen Road (this branch also
contains TSB's data processing center, accounting department, and distributions
department), a branch at 18005 Silver Parkway, and a loan office at 101 North
Leroy Street. The Bank's other branches are located in Linden, Michigan, at 107
Main Street; and Holly, Michigan, at 4043 Grange Hall Road. Davison State Bank
is headquartered in Davison, Michigan, at 8477 Davison Road with one branch
location at 8503 Davison Road. The Company owns all of its properties with the
exception of the Holly, Davison, and the Silver Parkway facilities, which are
leased from third parties.
All properties have maintenance contracts and are maintained in good
condition.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company and its subsidiaries are parties to various
legal proceedings incident to their business. At December 31, 2000, there were
no legal proceedings which management anticipates would have a material adverse
effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No items were submitted during the fourth quarter of the year covered by
this report for inclusion to be voted on by security holders through the
solicitation of proxies or otherwise.
ADDITIONAL ITEM - EXECUTIVE OFFICERS OF REGISTRANT
The following information concerning executive officers of the Company has
been omitted from the Registrant's proxy statement pursuant Instruction 3 to
Regulation S-K, Item 401(b).
Officers of the Company are appointed annually by the Board of Directors of
the Company and serve at the pleasure of the Board of Directors. Certain of the
officers named below are appointed annually by the Board of Directors of one or
the other of the Banks and serve at the pleasure of the Board of the Bank that
appointed them. The Bank officers are included in the listing of executive
officers of the Company because of the nature of the office they hold.
Information concerning these executive officers is given below:
Donald L. Grill (age 52) was appointed as President and Chief
Executive Officer of the Company and of TSB in late 1996. From 1983 to
1996, Mr. Grill was employed by
6
First of America Bank Corporation and served as President and Chief
Executive Officer of First of America Bank - Frankenmuth.
Ronald L. Justice (age 36) is the Chief Financial Officer and
Secretary of the Company. Mr. Justice was promoted to Senior Vice President
and Chief Financial Officer of TSB in 1999 and prior to that served as
Chief Financial Officer and Vice President since 1995. Prior to that Mr.
Justice held other positions with TSB.
Robert E. Sewick (age 51) is Senior Vice President and Senior Loan
Officer of TSB. Mr. Sewick was appointed to that position in June of 1999.
Mr. Sewick has 29 years of banking experience, most recently as Senior Vice
President/Regional Credit Officer of Huntington National Bank for Western
Michigan.
John A. Emmendorfer, Jr. (age 38) was appointed President and Chief
Executive Officer of Davison on February 24, 2000. Prior to that time Mr.
Emmendorfer was an employee of TSB from 1988 to 1999 and most recently
served as TSB's Vice President and Director of Commercial Lending.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The market and dividend information required by this item appears under the
caption "Fentura Bancorp, Inc. Common Stock" and "Table 17" on page 43 under the
title "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS", of the Company's 2000 Rule 14a-3 annual report, and is
incorporated herein by reference.
The holders of record information required by this item appears under the
caption "Stock Ownership Information" on page 4 of the Company's 2001 Notice of
Annual Meeting of Shareholders and Proxy Statement, and is incorporated herein
by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item appears under the title "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS",
appearing in Table 1 on page 27 of the Company's 2000 Rule 14a-3 annual report,
and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item appears under the title "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS",
appearing on pages 27 through 43 of the Company's 2000 Rule 14a-3 annual report,
and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item appears under the headings "Liquidity
and Interest Rate Risk Management" on pages 39 and 40 and "Quantitative and
Qualitative Disclosure About Market Risk" on pages 40 and 41 under the title
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" of the Company's 2000 Rule 14a-3 annual report, and is incorporated
herein by reference.
7
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and Report of Grant
Thornton LLP, Independent Auditors appear on pages 1 through 26 of the Financial
Statements portion of the Company's 2000 Rule 14a-3 annual report, and are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
During the years ended December 31, 2000 and 1999, the Company had no
changes or disagreements with accountants on accounting and financial disclosure
required to be described in this item.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's Executive officers are identified in "Additional Item" in
Part I of this Report on Form 10-K. The other information required by this item
appears under the captions "2001 Election of Directors," "The Corporation's
Board of Directors," "Committees of the Corporation Board," and "Compliance with
Section 16 Reporting" on pages 3, 4, 5, and 13, respectively, of the Company's
2001 Notice of Annual Shareholders Meeting and Proxy Statement, and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appears under the captions "Executive
Compensation," "Directors' Compensation," "Executive Compensation," "Retirement
and Change in Control Arrangements" and "Shareholder Return Performance Graph"
on pages 5 and 6, and 8 through 13, respectively, of the Company's 2001 Notice
of Annual Shareholders Meeting and Proxy Statement, and is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appears under the caption "Stock
Ownership of Directors, Executive Officers and Certain Major Shareholders" on
page 4 of the Company's 2001 Notice of Annual Shareholders Meeting and Proxy
Statement, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appears under the caption "Other
Information - Transactions with Certain Interested Persons" on page 13 of the
Company's 2001 Notice of Annual Shareholders Meeting and Proxy Statement, and is
incorporated herein by reference.
8
PART IV
ITEM 14. EXHIBITS. FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
The following consolidated financial statements of the Company
and Report of Grant Thornton LLP, Independent Auditors are
incorporated by reference under Item 8 "Financial Statements and
Supplementary Data" of this document:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial statements
Report of Grant Thornton LLP, Independent Auditors
2. Financial Statement Schedules
All schedules are omitted -- see Item 14(d) below.
3. Exhibits:
The exhibits listed on the "Exhibit Index" following the signature
page of this report are filed herewith and are incorporated herein by
reference.
(b) Report on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
2000.
(c) Exhibits:
The "Exhibit Index" follows the signature page of this report and is
incorporated herein by reference.
(d) Financial Statement Schedules:
All financial statement schedules normally required by Article 9 of
Regulation S-X are omitted since they are either not applicable or the
required information is shown in the consolidated financial statements or
notes thereto.
9
Signatures
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized .
Fentura Bancorp, Inc.
(Registrant)
By /s/Donald L. Grill Date: March 20, 2001
Donald L. Grill
On behalf of the registrant
and as President & CEO,
and Director
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated. Each director of the Registrant, whose
signature appears below, hereby appoints Russell H. Van Gilder, Jr. and Donald
L. Grill, and each of them severally, as his or her attorney-in-fact, to sign
his or her name and on his or her behalf, as a director of the Registrant, and
to file with the Commission any and all amendments to this report on Form 10-K.
Signature Capacity Date
/s/Russell H. VanGilder, Jr. Chairman of the Board March 20, 2001
Russell H. VanGilder, Jr. and Director
/s/Forrest A. Shook Vice Chairman of the Board March 20, 2001
Forrest A. Shook Director
/s/David A. Duthie Director March 20, 2001
David A. Duthie
/s/Peggy L. Haw-Jury Director March 20, 2001
Peggy L. Haw-Jury
/s/J. David Karr Director March 20, 2001
J. David Karr
/s/Thomas P. McKenney Director March 20, 2001
Thomas P. McKenney
/s/Ronald L. Justice Chief Financial Officer and Secretary March 20, 2001
Ronald L. Justice (Also Principal Accounting Officer)
10
FENTURA BANCORP, INC.
2000 Annual Report on Form 10-K
EXHIBIT INDEX
Exhibit
No. Exhibit Location
- ----------------------------------------------------------------------------------------------------------------------
3(i) Articles of Incorporation of Fentura Bancorp, Inc. *
3(ii) Bylaws of Fentura Bancorp, Inc. *
3(iii) Amendment to the Articles of Incorporation of Fentura Bancorp, Inc. (Filed herewith)
4.1 Dividend Reinvestment Plan ***
10.7 Lease of Davison Branch Bank Site between The State Bank and VG's Food Center, *
Inc. dated April 27, 1993
10.10 Lease of Fenton Silver Parkway Branch site between The State Bank and VG's Food **
Centers dated March 26, 1996
10.11 Lease of Davison (second) Branch site between The State Bank and VG'S Food Centers ****
dated November 12, 1996
10.12 Directors Stock Purchase Plan ***
10.13 Non-Employee Director Stock Option Plan ***
10.14 Form of Non-Employee Director Stock Option Agreement **
10.15 Retainer Stock Plan for Directors ***
10.16 Employee Stock Option Plan ***
10.17 Form of Employee Stock Option Plan Agreement ***
10.18 Executive Stock Bonus Plan ***
10.19 Stock Purchase Plan between The State Bank and Donald E. Johnson, Jr., Mary Alice ****
J. Heaton, and Linda J. LeMieux dated November 17, 1996
10.20 Severance Compensation Agreement between the Registrant and Donald L. Grill dated *****
March 20, 1997
13.00 Rule 14a-3 Annual Report to Security Holders (Filed herewith)
21.1 Subsidiaries of the Registrant (Filed herewith)
23.1 Consent of Independent Accountants (Filed herewith)
* Incorporated by reference to Form 10-SB Registration Number
0-23550
** Incorporated by reference to Form 10Q-SB filed on May 2, 1996
*** Incorporated by reference to Form 10K-SB filed on March 17, 1996
**** Incorporated by reference to Form 10K-SB filed March 20,. 1997
***** Incorporated by reference to Form 10Q-SB filed May 12, 1997
11
EXHIBIT 3(iii)
AMENDMENT TO THE ARTICLES OF INCORPORATION
Pursuant to the provisions of Act 284, Public Acts of 1972, the undersigned
corporation executes the following Certificate:
1. The present name of the corporation is: Fentura Bancorp, Inc.
2. The identification number assigned by the Bureau is: 403-566
3. Article III of the Articles of Incorporation is hereby amended to
read as follows:
ARTICLE III
The aggregate number of shares of all classes of capital stock that
the Corporation shall have authority to issue is 5,000,000 shares of Common
Stock ("Common Stock"), all of which will be of the same class, with full
voting rights and powers and all other rights and powers and no
qualifications, limitations or restrictions.
4. The foregoing amendment to the Articles of Incorporation was duly
adopted on the 26th day of April, 2000 by the shareholders at a meeting the
necessary votes were cast in favor of the amendment.
Signed this 28th day of April, 2000.
//s// Donald L. Grill
Donald L. Grill, President
EXHIBIT 13.00
RULE 14a-3 ANNUAL REPORT TO SECURITY HOLDERS
Financial Statements and Report of
Independent Certified Public Accountants
Fentura Bancorp, Inc.
December 31, 2000, 1999 and 1998
and
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Contents
Page
Report of Independent Certified Public Accountants.......................... 3
Financial Statements
Consolidated Balance Sheets............................................. 4
Consolidated Statements of Income....................................... 5
Consolidated Statements of Comprehensive Income......................... 6
Consolidated Statements of Stockholders' Equity......................... 7
Consolidated Statements of Cash Flows................................... 8
Notes to Consolidated Financial Statements.............................. 9
Management's Discussion and Analysis of
Financial Condition and Results of Operations............................. 27
Report of Independent Certified Public Accountants
Stockholders and Board of Directors
Fentura Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of Fentura Bancorp,
Inc. and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of income, comprehensive income, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
2000. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Fentura
Bancorp, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Grant Thornton LLP
Southfield, Michigan
January 26, 2001
Fentura Bancorp, Inc.
Consolidated Balance Sheets
(In Thousands, Except Share Data)
December 31,
ASSETS 2000 1999
-------- --------
Cash and due from banks $ 13,459 $ 12,714
Federal funds sold 7,250 900
-------- --------
Cash and cash equivalents 20,709 13,614
Investment securities-available for sale, at market 53,421 53,964
Investment securities-held to maturity, at cost (market value of
$13,419 and $13,774 in 2000 and 1999, respectively) 13,283 13,922
Loans held for sale 187 180
Loans, net of allowance for possible credit losses of $2,932
and $2,961, respectively 192,176 188,105
Bank premises and equipment, net 6,547 5,200
Accrued interest receivable 1,924 1,687
Other assets 4,643 6,949
-------- --------
TOTAL ASSETS $292,890 $283,621
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Interest-bearing $213,894 $215,527
Noninterest bearing 34,762 31,524
-------- --------
Total deposits 248,656 247,051
Short-term borrowings 4,680 1,365
Long-term debt 1,151 1,164
Accrued taxes, interest and other liabilities 2,649 2,176
-------- --------
Total liabilities 257,136 251,756
Stockholders' Equity
Common stock, $2.50 par value; 5,000,000 shares authorized, 1,722,308 and
1,706,454 shares issued and outstanding in
2000 and 1999, respectively 4,305 3,555
Capital surplus 26,016 18,317
Retained earnings 5,648 11,078
Accumulated other comprehensive loss (215) (1,085)
-------- --------
Total stockholders' equity 35,754 31,865
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $292,890 $283,621
========= =========
The accompanying notes are an integral part of these statements.
4
Fentura Bancorp, Inc.
Consolidated Statements of Income
(In Thousands, Except Share Data)
Years Ended December 31,
2000 1999 1998
------- ------- -------
Interest income
Loans $18,710 $16,882 $17,487
Investment securities
Taxable 3,350 3,163 2,840
Tax-exempt 624 577 515
Short-term investments 643 592 598
------- ------- -------
Total interest income 23,327 21,214 21,440
Interest expense
Deposits 9,266 7,881 8,487
Short-term borrowings 86 93 108
Long-term debt 538 39 53
------- ------- -------
Total interest expense 9,890 8,013 8,648
------- ------- -------
Net interest income 13,437 13,201 12,792
Provision for possible credit losses 584 545 724
------- ------- -------
Net interest income after provision for possible credit losses 12,853 12,656 12,068
Noninterest income
Service charges on deposit accounts 1,915 1,972 1,766
Gain on sale of mortgages 179 108 283
Mortgage servicing 631 153 181
Fiduciary income 695 581 562
Other income and fees 1,108 1,424 1,124
Security gains - 24 112
------- ------- -------
Total non-interest income 4,528 4,262 4,028
Noninterest expenses
Salaries and employee benefits 5,801 5,564 5,025
Occupancy 784 797 723
Furniture and equipment 1,552 1,429 1,396
Other general and administrative 3,299 3,346 3,404
------- ------- -------
Total non-interest expenses 11,436 11,136 10,548
------- ------- -------
Income before income taxes 5,945 5,782 5,548
Provision for income taxes 1,729 1,782 1,728
------- ------- -------
NET INCOME $ 4,216 $ 4,000 $ 3,820
======== ======== ========
Net income per common share
Basic $ 2.46 $ 2.36 $ 2.28
Diluted 2.45 $ 2.35 $ 2.28
Cash dividends per share $ .97 $ .93 $ .88
The accompanying notes are an integral part of these statements.
5
Fentura Bancorp, Inc.
Consolidated Statements of Comprehensive Income
(In Thousands, Except Share Data)
Years Ended December 31,
2000 1999 1998
------- ------ ------
Net income $ 4,216 $4,000 $3,820
Other comprehensive income, net of tax:
Unrealized holding gains (losses) arising
during the year 870 (1,262) 208
Less: reclassification adjustment for gains
included in net income - 16 74
------- ------ ------
Other comprehensive income (loss) 870 (1,278) 134
------- ------ ------
COMPREHENSIVE INCOME $ 5,086 $2,722 $3,954
======== ======= =======
The accompanying notes are an integral part of these statements.
6
Fentura Bancorp, Inc.
Consolidated Statements of Stockholders' Equity
(In Thousands, Except Share Data)
Years Ended December 31, 2000, 1999 and 1998
Accumulated
Other
Comprehensive Total
Common Capital Retained Income Stockholders'
Stock Surplus Earnings (Loss) Equity
------- ------- -------- ------------- -----------
Balance, January 1, 1998 $3,462 $16,913 $6,308 $ 59 $26,742
Net income - - 3,820 - 3,820
Cash dividends ($.88 per share) - - (1,464) - (1,464)
Issuance of shares under stock
purchase plans 59 731 - - 790
Other comprehensive income - - - 134 134
------ ------- ------ ------ -------
Balance, December 31, 1998 3,521 17,644 8,664 193 30,022
Net income - - 4,000 - 4,000
Cash dividends ($.93 per share) - - (1,586) - (1,586)
Issuance of shares under
stock purchase plans 34 673 - - 707
Other comprehensive loss - - - (1,278) (1,278)
------ ------- ------ ------ -------
Balance, December 31, 1999 3,555 18,317 11,078 (1,085) 31,865
Net income - - 4,216 - 4,216
Cash dividends ($.97 per share) - - (1,659) - (1,659)
Issuance of shares under
stock purchase plans 38 432 - 470
Stock repurchase (1) - (7) - (8)
Stock dividend 713 7,267 (7,980) - -
Other comprehensive income - - - 870 870
------ ------- ------ ------ -------
Balance, December 31, 2000 $4,305 $26,016 $5,648 $ (215) $35,754
======= ======== ======= ======= ========
The accompanying notes are an integral part of these statements.
7
Fentura Bancorp, Inc.
Consolidated Statements of Cash Flows
(In Thousands, Except Share Data)
Years Ended December 31,
2000 1999 1998
------- ------- -------
Cash Flows From Operating Activities
Net income $ 4,216 $ 4,000 $ 3,820
Adjustments to reconcile net income to net cash
(used in) provided by operating activities
Depreciation and amortization 984 879 907
Deferred income taxes (benefit) (100) (35) 48
Provision for possible credit losses 584 545 724
Accretion on securities (43) (28) (47)
Gain on sale of mortgage services rights (467) - -
Realized (gain) loss on sale of investment securities - (24) (112)
Decrease (increase) in loans held for sale (7) 10,327 (6,982)
Decrease (increase) in accrued interest receivable (237) (29) 249
Decrease (increase) in other assets and other liabilities 915 (3,135) (834)
------- ------- -------
Total adjustments 1,629 8,500 (6,047)
------- ------- -------
Net cash provided by (used in) operating activities 5,845 12,500 (2,227)
Cash Flows From Investing Activities
Net decrease in time deposits with other banks - - 95
Proceeds from sales of investment securities held for sale - 12,321 11,014
Proceeds from maturities of investment securities 6,539 56,628 38,582
Purchase of investment securities (3,995) (60,763) (71,140)
Originations of loans, net of principal repayments (4,655) (37,987) (3,023)
Proceeds from sales of loans 100 8,460 20,895
Proceeds of sale of mortgage servicing rights 887 - -
Acquisition of premises and equipment (1,336) (2,083) (913)
------- ------- -------
Net cash used in investing activities (2,460) (23,424) (4,490)
Cash Flows From Financing Activities
Net increase (decrease) in demand deposits, NOW
accounts, and savings accounts (4,857) 5,380 12,234
Net increase (decrease) in certificates of deposit 6,462 566 (1,663)
Net increase (decrease) in short-term borrowings 3,315 1,324 (1,459)
Payment of long-term debt (13) (11) (10)
Cash dividends paid (1,659) (1,586) (1,464)
Proceeds from issuance of common stock 462 707 790
------- ------- -------
Net cash provided by financing activities 3,710 6,380 8,428
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 7,095 (4,544) 1,711
Cash and cash equivalents at beginning of year 13,614 18,158 16,447
------- ------- -------
Cash and cash equivalents at end of year $20,709 $13,614 $18,158
======== ======== ========
Supplemental disclosure of cash flow information: Cash paid during the year for:
Interest $ 9,652 $ 8,279 $ 8,725
Income taxes 1,627 $ 2,054 $ 1,727
The accompanying notes are an integral part of these statements.
8
Fentura Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
Note A - Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The consolidated financial statements include the accounts of Fentura Bancorp,
Inc. (the Corporation) and its wholly-owned subsidiaries, The State Bank in
Fenton, Michigan and Davison State Bank in Davison, Michigan (the Banks). The
State Bank includes the accounts of its wholly-owned subsidiary, Fentura
Mortgage Corporation (the Mortgage Company).
Davison State Bank was formed March 13, 2000 as a de novo bank resulting from
the spin-off of two existing branches of The State Bank. This transaction was
accounted for at historical cost and therefore did not have any effect on the
consolidated financial statements.
The Banks and Mortgage Company operate nine community banking offices offering
banking and trust services principally to individuals, small businesses and
governmental entities primarily in Genesee, Livingston and Oakland Counties,
Michigan.
A summary of the significant accounting policies applied in the preparation of
the accompanying consolidated financial statements follows.
Cash Equivalents
For purposes of the consolidated statements of cash flows, the Corporation
considers cash on hand, cash and due from banks and federal funds sold to be
cash equivalents.
Investment Securities
Investment securities are classified based on management's intent with respect
to holding securities. Securities purchased, where the Corporation has both the
positive intent and ability to hold to maturity, are classified as held to
maturity and are recorded at cost, adjusted for amortization of premium and
accretion of discount. All other securities purchased by the Corporation are
classified as available for sale and carried at market value. Unrealized gains
and losses on available for sale securities are excluded from income and
recorded as an amount, net of tax, as a separate component of accumulated other
comprehensive income until realized.
Loans Held for Sale
Loans held for sale are carried at the lower of cost or estimated market value.
Market value is determined in the aggregate on the basis of existing forward
commitments or fair values attributable to similar loans.
Loans and Interest Income on Loans
Loans held for investment are carried at their outstanding principal adjusted
for deferred loan fees and costs. Interest on loans is accrued and credited to
income based upon the principal amount outstanding. The accrual of interest on
loans is discontinued when, in the opinion of management, there is an indication
that the borrower may be unable to meet payments as they become due. Upon such
discontinuance, all unpaid interest accrued during the current quarter is
reversed, and unpaid interest accrued during prior quarters is charged to the
allowance for possible credit losses. Interest accruals are generally resumed
when all delinquent principal and/or interest has been brought current or the
loan becomes both well secured and in the process of collection.
9
Fentura Bancorp, Inc.
Notes to Consolidated Financial Statements - Continued
December 31, 2000, 1999 and 1998
Note A - Summary of Significant Accounting Policies (Continued)
Loan Origination Fees and Costs
Loan origination fees and certain direct loan origination costs are capitalized
and recognized over the estimated life of the related loans as an adjustment of
its yield.
Allowance for Possible Credit Losses
The allowance for possible credit losses is established as losses are estimated
to have occurred through a provision for loan losses charged to income. Loan
losses are charged against the allowance when management believes the
uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any,
are credited to the allowance.
The allowance for possible credit losses is evaluated on a regular basis by
management and is based upon management's periodic review of the collectibility
of the loans in light of historical experience, the nature and volume of the
loan portfolio, adverse situations that may affect the borrower's ability to
repay, estimated value of any underlying collateral and prevailing economic
conditions. This evaluation is inherently subjective as it requires estimates
that are susceptible to significant revision as more information becomes
available.
The Corporation considers a loan impaired when it is probable, in the opinion of
management, that principal and interest may not be collected according to the
contractual terms of the loan. Consistent with this definition, the Corporation
considers all non-accrual loans to be impaired. The allowance for possible
credit losses includes specific allowances for impaired loans.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over useful lives
ranging from 3 to 50 years.
Income Taxes
The Corporation files a consolidated Federal income tax return with the Banks.
The Corporation utilizes the asset and liability method of accounting for income
taxes. Deferred tax assets and liabilities are recorded based on the difference
between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes. Tax planning strategies are utilized in the
computation of deferred federal income taxes. In addition, the current or
deferred tax consequences of a transaction are measured by applying the
provisions of enacted tax laws to determine the amount of taxes receivable or
payable currently or in future years.
10
Fentura Bancorp, Inc.
Notes to Consolidated Financial Statements - Continued
December 31, 2000, 1999 and 1998
Note A - Summary of Significant Accounting Policies (Continued)
Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted
average common shares outstanding for the period. Diluted net income per share
reflects the potential dilution that could occur if outstanding options or other
contracts to issue common stock were exercised and converted into common stock
or resulted in the issuance of common stock that then shared in the income of
the entity. On April 26, 2000, the Corporation declared a 20% stock dividend
payable May 26, 2000. Accordingly, the per share amounts for 1999 and 1998 have
been retroactively adjusted to reflect the effect of the stock dividend.
Average outstanding shares utilized in the determination of earnings per share
are as follows:
2000 1999 1998
--------- --------- ---------
Basic 1,712,971 1,698,581 1,679,290
Diluted 1,717,457 1,705,290 1,679,290
Use of Estimates
In the preparation of consolidated financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and revenues and expenses for the reporting periods.
Material estimates that are particularly susceptible to significant change
include market values of securities available for sale and the determination of
the allowance for loan losses. Actual results could differ from those estimates.
Comprehensive Income
The provisions of Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" (SFAS 130), were adopted in 1998. Comprehensive income
includes both net income and other comprehensive income. Other comprehensive
income includes the change in unrealized gains or losses on investments
available-for-sale, which is also reported as a separate component of
shareholders' equity. Unrealized investment gains or losses only impact the
income statement when the investment is sold.
Issued But Not Yet Adopted Accounting Standards
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standard (SFAS) No. 133, (as amended), "Accounting for
Derivative Instruments and Hedging Activities." The statement requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
statement is effective in 2001 for the Corporation; however, management does not
expect this pronouncement to have a significant impact on the Corporation's
financial position or results of operations.
11
Fentura Bancorp, Inc.
Notes to Consolidated Financial Statements - Continued
December 31, 2000, 1999 and 1998
Note A - Summary of Significant Accounting Policies (Continued)
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
140") which replaces SFAS No. 125 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" ("SFAS No. 125"). It
revises the standards for accounting for securitizations and other transfers of
financial assets and collateral and requires certain disclosures, but it carries
over most of SFAS No. 125's provisions without reconsideration. SFAS No. 140 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. Implementation of SFAS No. 140 is
not expected to have a material effect on the Corporation's financial position
or results of operations.
Note B - Restricted Cash Balances
Aggregate reserves of $3,123,000 and $3,787,000 were maintained in the form of
vault cash and deposits with the Federal Reserve Bank to satisfy regulatory
requirements at December 31, 2000 and 1999, respectively.
Note C - Investment Securities
The amortized cost and estimated market value of investments available for sale,
by major category, are as follows (in thousands):
December 31, 2000
-------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- -------- -------- --------
Obligations of U.S. government and agencies $33,108 $40 $ 59 $33,089
Equity securities 1,287 - 192 1,095
Mortgage backed securities 19,352 53 168 19,237
------- ---- ------ -------
$53,747 $93 $419 $53,421
======== ===== ====== ========
December 31, 1999
-------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- -------- -------- --------
Obligations of U.S. government and agencies $32,048 $ 1 $ 684 $31,365
Equity securities 1,287 - 208 1,079
Mortgage-backed securities 22,273 2 755 21,520
------- ---- ------ -------
$55,608 $ 3 $1,647 $53,964
======== ===== ======= ========
12
Fentura Bancorp, Inc.
Notes to Consolidated Financial Statements - Continued
December 31, 2000, 1999 and 1998
Note C - Investment Securities (Continued)
The amortized cost and estimated market value of investment securities available
for sale at December 31, 2000, by contractual maturity, are shown below (in
thousands). Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations without call or
prepayment penalties.
Estimated
Amortized Market
Cost Value
--------- ---------
Due in one year or less $ 5,078 $ 5,094
Due in one year through five years 24,022 24,012
Due after five years through ten years 4,008 3,983
------- -------
33,108 33,089
Equity securities 1,287 1,095
Mortgage-backed securities 19,352 19,237
------- -------
$53,747 $53,421
======== ========
Investment securities held to maturity at December 31, 2000 and 1999 consist of
obligations of states and political subdivisions and are summarized (in
thousands) as follows:
2000 1999
-------- --------
Amortized cost $13,283 $13,922
Gross unrealized gains 153 65
Gross unrealized losses (17) (213)
------- -------
Estimated market value $13,419 $13,774
======== ========
The amortized cost and estimated market value of investment securities held to
maturity at December 31, 2000, by contractual maturity, are shown below (in
thousands). Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
Estimated
Amortized Market
Cost Value
-------- --------
Due in one year or less $ 4,139 $ 4,156
Due in one year through five years 4,503 4,544
Due after five years through ten years 2,524 2,592
Due after ten years 2,117 2,127
------- -------
$13,283 $13,419
======== ========
13
Fentura Bancorp, Inc.
Notes to Consolidated Financial Statements - Continued
December 31, 2000, 1999 and 1998
Note C - Investment Securities (Continued)
Securities having a carrying value of $2,120,000 and $2,616,000 at December 31,
2000 and 1999, respectively were pledged to secure public deposits, repurchase
agreements, and for other purposes required by law.
Gross gains on sales of securities of $73,000 and $115,000 and gross losses of
$49,000 and $3,000 were recognized in 1999 and 1998, respectively. There were no
securities gains or losses in 2000.
Note D - Loans
Major categories of loans at December 31, are as follows (in thousands):
2000 1999
-------- --------
Commercial $101,925 $ 92,896
Real estate - construction 17,471 12,481
Real estate - mortgage 10,514 21,409
Consumer 65,198 64,280
-------- --------
195,108 191,066
Less allowance for possible credit losses 2,932 2,961
-------- --------
$192,176 $188,105
======== =========
Loan maturities and rate sensitivity of the loan portfolio at December 31, 2000
are as follows (in thousands):
Within One- After
One Five Five
Year Years Years Total
------- -------- ------- --------
Commercial, including construction $44,756 $ 63,861 $ 5,895 $114,512
Real estate 5,352 745 9,300 15,397
Consumer 9,267 38,826 17,106 65,199
------- -------- ------- --------
$59,375 $103,432 $32,301 $195,108
======== ========= ======== =========
Loans at fixed interest rates $22,671 $ 81,389 $31,614 $135,674
Loans at variable interest rates 36,704 22,043 687 59,434
------- -------- ------- --------
$59,375 $103,432 $32,301 $195,108
======== ========= ======== =========
The Corporation originates primarily residential and commercial real estate
loans, commercial, construction and installment loans. The Corporation estimates
that 80% of their loan portfolio is based in Genesee and Livingston counties
within southeast Michigan with the remainder of the portfolio distributed
throughout Michigan. The ability of the Corporation's debtors to honor their
contracts is dependent upon the real estate and general economic conditions in
this area.
14
Fentura Bancorp, Inc.
Notes to Consolidated Financial Statements - Continued
December 31, 2000, 1999 and 1998
Note D - Loans (Continued)
Certain directors and executive officers of the Corporation, including their
affiliates are loan customers of the Bank. Such loans were made in the ordinary
course of business at the Bank's normal credit terms and interest rates, and do
not represent more than a normal risk of collection. Total loans to these
persons at December 31, 2000, 1999 and 1998 amounted to $1,134,000, $1,449,000,
and $909,000, respectively. During 2000, $217,000 of new loans were made and
repayments totaled $532,000.
Transactions in the allowance for possible credit losses for the years ended
December 31, were as follows (in thousands):
2000 1999 1998
------ ------ ------
Balance, beginning of year $2,961 $2,783 $2,955
Provision for possible credit losses charged to
operations 584 545 724
------ ------ ------
3,545 3,328 3,679
Loans charged off, net of recoveries of $193
$84 and $172 for 2000, 1999 and 1998
respectively 613 367 896
------ ------ ------
Balance, end of year $2,932 $2,961 $2,783
======= ======= =======
As a percent of total loans 1.50% 1.55% 1.72%
======= ======= =======
Loan impairment is measured by estimating the expected future cash flows and
discounting them at the respective effective interest rate or by valuing the
underlying collateral. The recorded investment in these loans is as follows at
December 31, (in thousands):
2000 1999
------ ------
Principal amount not requiring allowance $ - $ -
Principal amount requiring specific allowance 2,315 1,548
------ ------
2,315 1,548
Less: valuation allowance 715 702
------ ------
$1,600 $ 844
======= =======
Loans on which accrual of interest have been discontinued at December 31, 2000
and 1999 amounted to $731,000 and $742,000 respectively and are included in the
impaired loans above.
Interest income recognized on impaired loans based on cash collections totaled
approximately $146,000, $299,000, and $204,000 for the years ended December 31,
2000, 1999 and 1998, respectively. The average recorded investment in impaired
loans was $1,932,000, $1,848,000, and $2,685,000 during the years ended December
31, 2000, 1999 and 1998.
15
Fentura Bancorp, Inc.
Notes to Consolidated Financial Statements - Continued
December 31, 2000, 1999 and 1998
Note E - Bank Premises and Equipment
Bank premises and equipment is comprised of the following at December 31, (in
thousands):
2000 1999
------- -------
Land and land improvements $ 1,273 $ 859
Building and building improvements 4,208 4,190
Furniture and equipment 7,963 7,277
Construction in progress 995 -
------- -------
14,439 12,326
Less accumulated depreciation 7,892 7,126
------- -------
$ 6,547 $ 5,200
======== ========
Note F - Deposits
The following is a summary of interest-bearing deposits at December 31, (in
thousands):
2000 1999
-------- --------
Interest-bearing:
Savings $ 66,186 $ 72,745
Money market demand 37,165 38,702
Time, $100,000 and over 34,259 28,070
Time, $100,000 and under 76,284 76,010
-------- --------
$213,894 $215,527
========= =========
At December 31, 2000, scheduled maturities of time deposits were as follows (in
thousands):
Amount
--------
Less than 1 year $ 75,269
1 - 5 years 35,003
Over 5 years 271
--------
$110,543
=========
Note G - Borrowings
Short-Term Borrowings
Short-term borrowings consist of term federal funds purchased and treasury tax
and loan deposits and generally are repaid within one to 120 days from the
transaction date.
Long-Term Debt
The Bank has the authority and approval from the Federal Home Loan Bank (FHLB)
to borrow up to $15 million collateralized by 1-4 family mortgage loans,
government and agency securities, and mortgage-backed securities. Advances
outstanding at December 31, 2000 and 1999 mature in 2016, can be prepaid without
penalty and bear interest at 7.34%.
16
Fentura Bancorp, Inc.
Notes to Consolidated Financial Statements - Continued
December 31, 2000, 1999 and 1998
Note H - Income Taxes
The provision for income taxes reflected in the consolidated statements of
income for the years ended December 31, consists of the following (in
thousands):
2000 1999 1998
------ ------ ------
Current expense $1,829 $1,817 $1,680
Deferred (benefit) expense (100) (35) 48
------ ------ ------
$1,729 $1,782 $1,728
======= ======= =======
Income tax expense was less than the amount computed by applying the statutory
federal income tax rate to income before income taxes. The reasons for the
difference are as follows:
% of Pretax Income
----------------------
2000 1999 1998
------ ------ ------
Income tax at statutory rate 34.0% 34.0% 34.0%
Tax exempt interest (3.4) (3.0) (2.7)
Other (1.5) (.2) (.2)
------ ------ ------
Actual income tax expense 29.1% 30.8% 31.1%
======= ======= ======
The net deferred tax asset and current refund (liability) are reflected in the
balance sheet in other assets and accrued taxes, interest and other liabilities,
respectively. The details of the net deferred tax asset and current liability at
December 31, are as follows (in thousands):
2000 1999
------ ------
Deferred tax assets
Allowance for possible credit losses $ 805 $ 813
Unrealized losses on investment securities available for sale 111 559
Compensation 137 102
Depreciation and other 60 17
------ ------
Total deferred tax assets 1,113 1,491
Deferred tax liabilities
Mortgage servicing rights (132) (115)
Depreciation and other (93) (140)
------ ------
Total deferred tax liabilities (225) (255)
------ ------
Net deferred tax asset 888 1,236
Current refund 19 122
------ ------
$ 907 $1,358
======= ======
17
Fentura Bancorp, Inc.
Notes to Consolidated Financial Statements - Continued
December 31, 2000, 1999 and 1998
Note I - Benefit Plans
The Corporation has a noncontributory discretionary employee stock ownership
plan (Plan) covering substantially all of its employees. It is a requirement of
the plan to invest principally in the Corporation's common stock. The
contribution to the Plan in 2000, 1999 and 1998 was $120,000, $120,000 and
$122,000, respectively.
The Corporation has also established a 401(k) Plan where 50% of the employees'
contribution can be matched with a discretionary contribution by the Corporation
up to a maximum of 6% of gross wages. The contribution to the 401(k) Plan for
2000, 1999 and 1998 was $79,000, $80,000 and $76,000, respectively.
Note J - Stock Purchase and Option Plans
Director and Employee Plans
The Directors' Stock Purchase Plan permits directors of the Corporation to
purchase shares of common stock made available for purchase under the plan at
the fair market value on the fifteenth day prior to the annual issuance date.
The total number of shares issuable under this plan is limited to 9,600 shares
in any calendar year.
The Retainer Stock Plan allows directors to elect to receive shares of common
stock in full or partial payment of the director's retainer fees and fees for
attending meetings. The number of shares is determined by dividing the dollar
amount of fees to be paid in shares by the market value of the stock on the
first business day prior to the payment date.
The Executive Stock Bonus Plan permits the administrator of the plan to grant
shares of the Corporation's common stock to eligible employees. Any executive or
managerial level employee is eligible to receive grants under the plan. The
Board of Directors administers the plan.
Dividend Investment Plan
The Automatic Dividend Reinvestment Plan ("DRIP") permits enrolled shareholders
to automatically use dividends paid on common stock to purchase additional
shares of the Corporation's common stock at the fair market value on the
investment date. Any shareholder who is the beneficial or record owner of not
more than 9.9% of the issued and outstanding shares of the Corporation's common
stock is eligible to participate in the plan.
Pursuant to a separate agreement with a family who collectively holds more than
9.9% of the Corporation's stock, on or prior to January 31 of each year
beginning January 31, 1997, the Corporation is to advise the family, in a
written notice, of the number of shares sold under the DRIP. Each family member
will have the option, until February 28 of the same year, to purchase from the
Corporation one-third of the total number of shares that would be sufficient to
prevent the dilution to all family members as a group that result solely as a
result of the DRIP shares. The purchase price under this agreement is the fair
market value on December 31 of the year immediately preceding the year in which
the written notice is given.
18
Fentura Bancorp, Inc.
Notes to Consolidated Financial Statements - Continued
December 31, 2000, 1999 and 1998
Note J - Stock Purchase and Option Plans (Continued)
Stock Option Plans
The Nonemployee Director Stock Option Plan grants options to nonemployee
directors to purchase the Corporation's common stock on April 1 each year. 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 6,720 shares of stock may be granted under the
Plan in any calendar year and options to acquire not more than 67,200 shares in
the aggregate may be outstanding at any one time.
The Employee Stock Option Plan grants options to eligible employees to purchase
the Corporation's 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 72,000 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 following summarizes shares issued under the various plans:
2000 1999 1998
------ ------ ------
Automatic dividend reinvestment plan 12,607 8,846 10,925
Director stock purchase and retainer stock plan 1,018 5,800 11,945
Other issuance of shares 1,912 1,685 5,630
------ ------ ------
15,537 16,331 28,500
======= ======= =======
The following table summarizes stock option activity:
No. of Weighted
Options Average Price
------ ------------
Options outstanding at January 1, 1998 7,728 17.34
Options granted in 1998 4,968 23.22
------
Options outstanding at December 31, 1998 12,696 19.64
Options granted in 1999 5,208 37.25
------
Options outstanding at December 31, 1999 17,904 24.77
Options granted in 2000 1,771 39.58
------
Options outstanding at December 31, 2000 19,675 $26.10
======
19
Fentura Bancorp, Inc.
Notes to Consolidated Financial Statements - Continued
December 31, 2000, 1999 and 1998
Note J - Stock Purchase and Option Plans (Continued)
Information pertaining to options outstanding at December 31, 2000 is as
follows:
Weighted
Average Weighted
Range of Number Remaining Average Number
Exercise Price Outstanding Life Price Exercisable
----------- --------- -------- ----------
$15.00 - $20.00 7,728 5.75 $17.35 3,864
$20.00 - $30.00 4,968 7.23 23.21 -
$30.00 - $40.00 6,979 9.00 37.59 -
$40.00 - $50.00 240 8.52 45.00 -
------ -----
Outstanding at end of year 19,675 7.27 $26.10 3,864
======= =======
The stock option plans are accounted for in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) as permitted under Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation" (SFAS 123). In accordance with APB 25, no compensation
expense is required nor has been recognized for the options issued under
existing plans. Had the Corporation chosen not to elect APB 25, SFAS 123 would
apply and compensation expense would have been recognized, and the Corporation's
earnings would have been as follows (in thousands, except per share data):
2000 1999 1998
------- ------- -------
Net income
As reported $ 4,216 $ 4,000 $ 3,820
Proforma $ 4,171 $ 3,977 $ 3,796
Basic net income per share
As reported $ 2.46 $ 2.36 $ 2.28
Proforma $ 2.44 $ 2.34 $ 2.26
Diluted net income per share
As reported $ 2.45 $ 2.35 $ 2.28
Proforma $ 2.43 $ 2.33 $ 2.26
Proforma net income includes compensation cost for the Corporation's stock
option plan based on the fair values of the grants as of the dates of the awards
consistent with the method prescribed by SFAS 123. The fair value of each option
grant is estimated using the Black-Scholes option-pricing model assuming an
expected life of 10 years, a dividend yield of 3%, a risk free return of 6.88%
and expected volatility of 52%.
20
Fentura Bancorp, Inc.
Notes to Consolidated Financial Statements - Continued
December 31, 2000, 1999 and 1998
Note K - Regulatory Matters
The Corporation (on a consolidated basis) and its Bank subsidiaries are subject
to various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain
mandatory - and possibly additional discretionary - actions by regulators that,
if undertaken, could have a direct material effect on the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Corporation and the Banks must meet specific
capital guidelines that involve quantitative measures of assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory accounting
practices. The capital amounts and classifications are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors. Prompt corrective action provisions are not applicable to bank
holding companies.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and 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 December 31,
2000, that the Corporation and the Banks meet all capital adequacy requirements
to which they are subject. At December 31, 1999 The State Bank met all capital
requirements to which it was subject. As of December 31, 2000, the most recent
notification from Federal Deposit Insurance Corporation categorized the
Corporation and the Banks as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Corporation
and the Banks must maintain minimum total risk-based, Tier 1 risk-based, and
Tier 1 leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the Banks'
category.
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
----------------- --------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
----------------- --------------- ----------------
As of December 31, 2000:
Total Capital
(to Risk Weighted Assets)
Consolidated $38,974 16.2% $19,232 8% $24,040 NA
The State Bank 32,822 14.9% 17,667 8% 22,084 10%
Davison State Bank 3,232 16.8% 1,539 8% 1,924 10%
Tier 1 Capital
(to Risk Weighted Assets)
Consolidated $35,969 15.0% 9,616 4% $14,424 NA
The State Bank 30,061 13.6% 8,333 4% 13,250 6%
Davison State Bank 2,991 15.5% 770 4% 1,154 6%
Tier 1 Capital
(to Average Assets)
Consolidated $35,969 12.1% $11,839 4% $14,799 NA
The State Bank 30,061 11.0% 10,938 4% 13,673 5%
Davison State Bank 2,991 13.5% 886 4% 1,108 5%
21
Fentura Bancorp, Inc.
Notes to Consolidated Financial Statements - Continued
December 31, 2000, 1999 and 1998
Note K - Regulatory Matters (Continued)
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
----------------- --------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
----------------- --------------- ----------------
As of December 31, 1999: (For The State Bank only)
Total Capital
(to Risk Weighted Assets) $33,349 14.3% $18,706 8.0% $23,382 10.0%
Tier 1 Capital
(to Risk Weighted Assets) $30,426 13.0% $ 9,353 4.0% $14,029 6.0%
Tier 1 Capital
(to Average Assets) $30,426 11.1% $10,916 4.0% $13,645 5.0%
Note L - Financial Instruments
The estimated fair values of the Corporation's financial instruments at December
31, are as follows (in thousands):
2000 1999
--------------------- ---------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
Assets:
Cash and cash equivalents $ 20,709 $ 20,709 $13,614 $13,614
Loans held for sale 187 188 180 181
Investment securities 66,704 66,840 67,886 67,738
Loans 192,176 193,017 188,105 190,194
Liabilities:
Deposits 248,656 249,267 247,051 247,545
Short-term borrowings 4,680 4,680 1,365 1,365
Long-term debt 1,151 1,202 1,164 1,246
The following methods and assumptions were used by the Corporation in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and short-term instruments approximate their fair values.
Investment securities and time deposits with other banks (including
mortgage-backed securities): Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
22
Fentura Bancorp, Inc.
Notes to Consolidated Financial Statements - Continued
December 31, 2000, 1999 and 1998
Note L - Financial Instruments (Continued)
Loans held for sale: The market value of these loans represents estimated fair
value. The market value is determined in the aggregate on the basis of existing
forward commitments or fair values attributable to similar loans.
Loans: For variable rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. The fair values
for other loans are estimated using discounted cash flow analysis, using
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality. The carrying amount of accrued interest receivable
approximates its fair value.
Off-balance-sheet instruments: The Corporation's off-balance-sheet instruments
approximate their fair values.
Deposit liabilities: The fair values disclosed for demand deposits are, by
definition, equal to the amount payable on demand at the reporting date. The
carrying amounts for variable rate, fixed term money market accounts and
certificates of deposit approximate their fair values at the reporting date.
Fair values for fixed rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on similar certificates. The carrying amount of accrued interest payable
approximates its fair value.
Short-term borrowings: The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-term borrowings
approximate their fair values.
Long-Term debt: Rates currently available for FHLB debt with similar terms and
remaining maturities are used to estimate the fair value of the existing debt.
Limitations: Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Corporation's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of the
Corporation's financial instruments, fair value estimates are based on
management's judgments regarding future expected loss experience, current
economic conditions, risk characteristics and other factors. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Off-Balance-Sheet Risk
The Corporation is party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and financial guarantees. These
instruments involve, to varying degrees, elements of credit and interest rate
risk that are not recognized in the statement of financial condition.
23
Fentura Bancorp, Inc.
Notes to Consolidated Financial Statements - Continued
December 31, 2000, 1999 and 1998
Note L - Financial Instruments (Continued)
Exposure to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to extend credit and financial guarantees
written is represented by the contractual notational amount of those items. The
Corporation generally requires collateral to support such financial instruments
in excess of the contractual notational amount of those instruments and,
therefore, is in a fully collateralized position.
The Corporation had outstanding unfunded loan origination commitments
aggregating $44,184,000 and $48,573,000 at December 31, 2000 and 1999,
respectively. Commitments to extend credit are agreements to lend to a customer
as long as there are no violations of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require a payment of a fee. Fees from issuing these commitments to
extend credit are recognized over the period to maturity. Since portions of the
commitments are expected to expire without being drawn upon, the total
commitments do not necessarily represent future cash requirements. The
Corporation evaluates each customer's creditworthiness on a case by case basis.
The amount of collateral obtained upon extension of credit is based on
management's credit evaluation of the customer.
Note M - Parent Only Condensed Financial Information
The condensed financial information that follows presents the financial
condition of Fentura Bancorp, Inc. (parent company only), along with the results
of its operations and its cash flows.
Fentura Bancorp, Inc.
Condensed Balance Sheets
December 31, (in thousands)
2000 1999
------- -------
Assets
Cash and cash equivalents $ 2,452 $ 1,645
Investment securities 273 256
Land held for investment - 414
Other assets 65 71
Investment in subsidiaries 32,964 29,479
------- -------
$35,754 $31,865
======== ========
Stockholders' Equity
Common Stock $ 4,305 3,555
Additional paid in capital 26,016 18,317
Retained earnings 5,648 11,078
Accumulated other comprehensive loss (215) (1,085)
------- -------
$35,754 $31,865
======== ========
24
Fentura Bancorp, Inc.
Notes to Consolidated Financial Statements - Continued
December 31, 2000, 1999 and 1998
Note M - Parent Only Condensed Financial Information (Continued)
Fentura Bancorp, Inc.
Condensed Statements of Income
Years Ended December 31, (in thousands)
2000 1999 1998
------ ------ ------
Dividends from subsidiaries $1,659 $1,586 $1,464
Operating expenses (69) (79) (22)
Equity in undistributed income of subsidiaries 2,626 2,493 2,378
------ ------ ------
Net income $4,216 $4,000 $3,820
======= ======= =======
Condensed Statements of Cash Flows
Years Ended December 31, (in thousands)
2000 1999 1998
------ ------ ------
Cash flows from operating activities
Net income $4,216 $4,000 $3,820
Adjustment to reconcile net income to net
cash provided by operating activities
Equity in undistributed income of subsidiary (2,626) (2,493) (2,378)
------ ------ ------
Net cash provided by operating activities 1,590 1,507 1,442
Cash flows provided by (used in) investing activities
Sale of equity investment - 10
Purchase of investments - - (475)
(Increase) decrease in land held for investment 414 - (414)
------ ------ ------
Net cash provided by (used in)
investing activities 414 10 (889)
Cash flows used in financing activities
Dividends paid (1,659) (1,586) (1,464)
Proceeds from stock issuance 462 707 790
------ ------ ------
Net cash used in financing activities (1,197) (879) (674)
------ ------ ------
Increase (decrease) in cash and cash equivalents 807 638 (121)
Cash and cash equivalents at beginning of year 1,645 1,007 1,128
------ ------ ------
Cash and cash equivalents at end of year $2,452 $1,645 $1,007
======= ======= =======
25
Fentura Bancorp, Inc.
Notes to Consolidated Financial Statements - Continued
December 31, 2000, 1999 and 1998
Note N - Summary of Quarterly Financial Data - Unaudited (In Thousands,
except per share data)
The unaudited quarterly results of operations for 2000 and 1999 are as follows:
2000
-------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Interest income $5,539 $5,919 $5,967 $5,902
Interest expense 2,296 2,512 2,559 2,523
Provision for loan losses 169 201 153 61
Non-interest expense 2,882 3,076 2,892 2,586
Income before income taxes 1,143 1,183 1,457 2,162
Provision for income taxes 270 353 437 669
------ ------ ------ ------
Net income $ 873 $ 830 $1,020 $1,493
======= ======= ======= =======
Net income per share
Basic .51 .48 .59 .88
Diluted .51 .48 .59 .87
1999
-------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Interest income $5,083 $5,373 $5,276 $5,482
Interest expense 1,955 1,936 1,967 2,155
Provision for loan losses 195 130 165 55
Non-interest expense 1,026 1,000 1,083 1,153
Income before income taxes 1,284 1,417 1,463 1,618
Provision for income taxes 398 437 447 500
------ ------ ------ ------
Net income $ 886 $ 980 $1,016 $1,118
======= ======= ======= ========
Net income per share (a)
Basic .52 .58 .60 .66
Diluted .52 .58 .60 .65
(a) Per share amounts have been restated to reflect the 20% stock dividend
declared April 26, 2000.
26
Management's Discussion and Analysis of Financial Condition and
Results of Operations
This section provides a narrative discussion and analysis of the consolidated
financial condition and results of operations of Fentura Bancorp, Inc. (the
Corporation), together with its subsidiaries, The State Bank and Davison State
Bank (the Banks), for the years ended December 31, 2000, 1999, and 1998. The
supplemental financial data included throughout this discussion should be read
in conjunction with the primary financial statements presented on pages 4
through 26 of this report. It provides a more detailed and comprehensive review
of operating results and financial position than could be obtained from a
reading of the financial statements alone.
TABLE 1 Selected Financial Data
$ in thousands except per share data
and ratios 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
Summary of Consolidated Statements of Earnings:
Interest Income $23,327 $21,214 $21,440 $21,601 $20,502
Interest Expense 9,890 8,013 8,648 9,167 8,571
-------------------------------------------------------
Net Interest Income 13,437 13,201 12,792 12,434 11,931
Provision for Possible Credit Losses 584 545 724 624 648
-------------------------------------------------------
Net Interest Income after Provision 12,853 12,656 12,068 11,810 11,283
Total Other Operating Income 4,528 4,262 4,028 3,472 3,472
Total Other Operating Expense 11,436 11,136 10,548 10,242 10,190
-------------------------------------------------------
Income Before Income Taxes 5,945 5,782 5,548 5,040 4,565
Provision for Income Taxes 1,729 1,782 1,728 1,580 1,332
-------------------------------------------------------
Net Income $4,216 $4,000 $3,820 $3,460 $3,233
=======================================================
Net Income Per Share - Basic $2.46 $2.36 $2.28 $2.11 $2.02
Net Income Per Share - Diluted $2.45 $2.35 $2.28 $2.11 $2.02
Summary of Consolidated Statements of Financial Condition:
Assets $292,890 $283,621 $275,047 $262,798 $254,381
Securities 66,704 67,886 77,956 56,050 50,885
Loans 195,295 191,246 172,413 184,198 176,236
Deposits 248,656 247,051 241,105 230,534 224,049
Stockholders' Equity 35,754 31,865 30,022 26,742 24,109
Other Financial and Statistical Data:
Tier 1 Capital to Risk Weighted Assets 14.96% 13.01% 13.30% 12.22% 11.76%
Total Capital to Risk Weighted Assets 16.21% 14.26% 14.55% 13.47% 13.01%
Tier 1 Capital to Average Assets 12.15% 11.15% 10.60% 9.99% 9.86%
Total Cash Dividends $1,659 $1,586 $1,464 $1,784 $1,291
Book Value Per Share $20.76 $18.68 $17.77 $16.09 $14.83
Cash Dividends Paid Per Share $0.97 $0.93 $0.88 $1.09 $0.81
Period End Market Price Per Share $25.13 $36.88 $41.67 $21.88 $17.98
Dividend Pay-out Ratio 39.35% 39.65% 38.32% 51.56% 39.93%
Return on Average Stockholders' Equity 12.56% 12.66% 14.02% 13.76% 14.04%
Return on Average Assets 1.42% 1.46% 1.45% 1.35% 1.33%
Net Interest Margin 5.07% 5.32% 5.28% 5.26% 5.36%
Total Equity to Assets at Period End 12.21% 11.24% 10.92% 10.18% 9.48%
27
RESULTS OF OPERATIONS
The Corporation achieved record earnings again during 2000. Earnings for 2000 of
$4,216,000 exceeded 1999 results of $4,000,000 by 5.4%. Net income has continued
to steadily increase as a result of continued strength of core banking
activities. Contributing to the 2000 record results was the improvement of net
interest income and other operating income. Because of the strength of core
banking activities and new opportunities in the Corporation's current and
surrounding markets, management believes performance will remain strong
throughout 2001.
Standard performance indicators used in the banking industry help evaluate the
Corporation's performance. Two of these performance indicators are return on
average assets and return on average equity. For 2000, 1999, 1998 respectively,
the Corporation posted a return on average assets of 1.42%, 1.46%, and 1.45%.
Total assets increased $9 million in 2000, $9 million in 1999, and $12 million
in 1998. Return on average equity was 12.56% in 2000, 12.66% in 1999, and 14.02%
in 1998. The increases in equity will allow the Corporation to continue its
growth strategy. Net income per share-basic was $2.46 in 2000, $2.36 in 1999,
and $2.28 in 1998.
NET INTEREST INCOME
Net interest income, the principal source of income, is the amount of interest
income generated by earning assets (principally investment securities and loans)
less interest expense paid on interest bearing liabilities (largely deposits and
other borrowings).
A critical task of management is to price assets and liabilities so that the
spread between the interest earned on assets and the interest paid on
liabilities is maximized without unacceptable risk. While interest rates on
earning assets and interest bearing liabilities are subject to market forces, in
general the Corporation can exert more control over deposit costs than earning
assets rates. Loan products carry either fixed rates of interest or rates tied
to market indices determined independently. The Corporation sets its own rates
on deposits, providing management with some flexibility in determining the
timing and proportion of rate changes for the cost of its deposits.
Table 2 summarizes the changes in net interest income resulting from changes in
volume and rates for the years ended December 31, 2000 and 1999. Net interest
income (displayed without consideration of full tax equivalency), average
balance sheet amounts, and the corresponding yields for the last three years are
shown in Table 3. Net interest income increased $236,000 in 2000, or 1.8% to
$13,437,000 as compared with an increase of $409,000 or 3.2% to $13,201,000 in
1999. The primary factor contributing to the increase in net interest income in
2000 was the increase in interest income from asset growth. Within assets, both
loans and federal funds sold increased. In 1999, the primary factor contributing
to the increase in net interest income was the reduction of interest expense.
Interest expense was reduced even though interest-bearing liabilities increased.
This reduction in expense occurred because of continuing progress in promoting
lower cost core deposits while reducing reliance on higher rate retail or
negotiated certificates of deposit as well as the re-pricing that occurred on
maturing certificates of deposit in response to earlier drops in prime rates.
As indicated in Table 3, for the year ended December 31, 2000, the Corporation's
net interest margin was 4.91% compared with 5.18% and 5.17% for the same period
in 1999 and 1998 respectively, and continues to remain substantially above peer
performance. The decrease in margin in 2000 is attributable to an increase in
the Corporation's cost of funds. Cost of funding increased in response to
increases in treasury rates and local competitor's rates. The increase in net
interest margin in 1999 and 1998 is attributable to the change in balance sheet
mix achieved through growth and the continued emphasis on lowering the cost of
funds outlined in the paragraph above. Management anticipates steady loan growth
and accordingly, continued growth in net interest income in 2001.
Average earning assets increased 7.4% in 2000, 2.9% in 1999, and 3.0% in 1998.
Loans, the highest yielding component of earning assets, represented 72.3% of
earning assets in 2000, compared to 69.9% in
28
1999 and 69.4% in 1998. Average interest bearing liabilities increased 7.0% in
2000, 2.5% in 1999, and 1.4% in 1998. Non-interest bearing deposits amounted to
13.1% of average earning assets in 2000 compared with 11.7% in 1999 and 11.0% in
1998.
TABLE 2 Changes in Net Interest Income
Due to Changes in Average Volume
and Interest Rates
Years Ended December 31,
INCREASE (DECREASE) INCREASE (DECREASE)
2000 1999
DUE TO: DUE TO:
--------------------------------------------------------
YIELD/ YIELD/
(000's omitted) VOL RATE TOTAL VOL RATE TOTAL
- ------------------------------------------------------------------------------------------------------
INTEREST BEARING DEPOSITS IN BANKS $0 $0 $0 $ (1) $0 $ (1)
TAXABLE SECURITIES 4 147 151 309 7 316
TAX-EXEMPT SECURITIES 91 (7) 84 81 (13) 68
FEDERAL FUNDS SOLD (137) 188 51 48 (53) (5)
TOTAL LOANS 1,859 (33) 1,826 631 (754) (123)
LOANS HELD FOR SALE 0 1 1 (482) 1 (481)
--------------------------------------------------------
TOTAL EARNING ASSETS 1,817 296 2,113 586 (812) (226)
INTEREST BEARING DEMAND DEPOSITS (31) 51 20 127 (177) (50)
SAVINGS DEPOSITS 22 346 368 114 39 153
TIME C.D.s $100,000 AND OVER 420 263 683 (46) (96) (142)
OTHER TIME DEPOSITS 15 299 314 (207) (361) (568)
OTHER BORROWINGS 526 (34) 492 (24) (4) (28)
--------------------------------------------------------
TOTAL INTEREST BEARING LIABILITIES 952 925 1,877 (36) (599) (635)
--------------------------------------------------------
NET INTEREST INCOME $865 ($629) $236 $622 ($213) $409
========================================================
29
TABLE 3 Summary of Net Interest Income
(000's omitted) Years Ended December 31,
2000 1999 1998
ASSETS AVG BAL INC/EXP YIELD AVG BAL INC/EXP YIELD AVG BAL INC/EXP YIELD
-------------------------------------------------------------------------------------
Interest bearing deposits in $0 $0 0.00% $0 $0 0.00% $16 $1 6.25%
Banks
Investment securities:
U.S. Treasury and 50,884 3,244 6.38% 51,098 3,091 6.05% 45,998 2,777 6.04%
Government Agencies
State and Political 14,298 667 4.66% 12,365 583 4.71% 10,689 515 4.82%
Other 1,086 63 5.80% 814 65 7.99% 827 63 7.62%
------------------------- -------------------------- -------------------------
Total Investment Securities 66,268 3,974 6.00% 64,277 3,739 5.82% 57,514 3,355 5.83%
Fed Funds Sold 9,306 643 6.91% 12,100 592 4.89% 11,199 597 5.33%
Loans:
Commercial 105,276 10,120 9.61% 90,985 8,804 9.68% 83,430 8,203 9.83%
Tax Free 618 34 5.50% 366 21 5.74% 409 23 5.62%
Real Estate-Mortgage 23,552 2,130 9.04% 24,442 2,085 8.53% 19,601 1,946 9.93%
Consumer 68,342 6,412 9.38% 62,367 5,960 9.56% 68,344 6,821 9.98%
------------------------- -------------------------- -------------------------
Total loans 197,788 18,696 9.45% 178,160 16,870 9.47% 171,784 16,993 9.89%
Allowance for Loan Loss (3,157) (2,928) (2,845)
Net Loans 194,631 18,696 9.61% 175,232 16,870 9.63% 168,939 16,993 10.06%
------------------------- -------------------------- -------------------------
Loans Held for Sale 184 14 7.63% 180 13 7.22% 7,016 494 7.04%
------------------------- -------------------------- -------------------------
TOTAL EARNING ASSETS $273,546 $23,327 8.53% $254,717 $21,214 8.33% $247,529 $21,440 8.66%
-------------------------------------------------------------------------------------
Cash Due from Banks 12,202 10,149 9,650
All Other Assets 13,390 11,842 9,278
--------- --------- ---------
TOTAL ASSETS $295,981 $273,780 $263,612
--------- --------- ---------
LIABILITIES & SHAREHOLDERS'
EQUITY:
Deposits:
Non-Interest bearing - DDA $35,711 $29,912 $27,202
Interest bearing - DDA 40,199 733 1.82% 41,996 713 1.70% 35,982 763 2.12%
Savings Deposits 66,890 2,311 3.45% 66,141 1,943 2.94% 62,172 1,790 2.88%
Time CD's $100,000 and Over 33,025 2,042 6.18% 25,226 1,359 5.39% 26,034 1,501 5.77%
Other Time CD's 75,124 4,180 5.56% 74,827 3,866 5.17% 78,495 4,434 5.65%
------------------------- -------------------------- -------------------------
Total Deposits 250,949 9,266 3.69% 238,102 7,881 3.31% 229,885 8,488 3.69%
Other Borrowings 9,509 624 6.56% 1,908 132 6.92% 2,249 160 7.11%
------------------------- -------------------------- -------------------------
INTEREST BEARING LIABILITIES $224,747 $9,890 4.40% $210,098 $8,013 3.81% $204,932 $8,648 4.22%
-------------------------------------------------------------------------------------
All Other Liabilities 1,958 2,175 2,512
Shareholders Equity 33,565 31,595 28,966
--------- --------- ---------
TOTAL LIABILITIES and S/H $295,981 $273,780 $263,612
EQUITY
--------- -------- --------- --------- --------- --------
Net Interest Rate Spread 4.13% 4.51% 4.44%
Impact of Non-Int. Funds on 0.78% 0.67% 0.73%
Margin
-------- --------- --------
Net Interest Income/Margin $13,437 4.91% $13,201 5.18% $12,792 5.17%
================ ================= ================
30
ALLOWANCE AND PROVISION FOR POSSIBLE CREDIT LOSSES
The allowance for possible credit losses reflects management's judgment as to
the level considered appropriate to absorb potential losses inherent in the loan
portfolio. The Bank's methodology in determining the adequacy of the allowance
includes a review of individual loans and off-balance sheet arrangements, 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 future net charge-offs, and
other pertinent factors. Although reserves have been allocated to various
portfolio segments, the allowance is general in nature and is available for the
portfolio in its entirety. At December 31, 2000, the allowance for possible
credit losses was $2,932,000 or 1.50% of total loans. This compares with
$2,961,000 or 1.55% at December 31, 1999 and $2,783,000, or 1.72%, at December
31, 1998. The Corporation has lowered the allowance for possible credit losses
as a percent of total loans because of overall asset quality.
The provision for possible credit losses was $584,000 in 2000 and $545,000 and
$724,000 in 1999 and 1998 respectively. The modest increase in provision in 2000
represents management's efforts to maintain adequate reserves commensurate with
loan growth. The decrease in the provision in 1999 reflects an overall
improvement in asset quality and a reduction in loans charged-off. Loans
charged-off decreased in 1999 because of a non-repetitive, substantial write
down on a non-performing commercial loan in 1998. Table 4 summarizes loan losses
and recoveries from 1996 through 2000. During 2000 the Corporation experienced
net charge-offs of $613,000, compared with net charge-offs of $367,000 and
$896,000 in 1999 and 1998 respectively. Accordingly, the net charge-off ratio
for 2000 was .31% compared to .19% and .55% at the end of 1999 and 1998
respectively. The net charge-off ratio increased in 2000 primarily due to a
write down on a non-performing commercial loan. The net charge-off ratio
decreased significantly in 1999 due to an increase in overall asset quality.
The Corporation maintains formal policies and procedures to control and monitor
credit risk. Management believes the allowance for possible credit losses is
adequate to meet normal credit risks in the loan portfolio. The Corporation's
loan portfolio has no significant concentrations in any one industry nor any
exposure in foreign loans. The Corporation has not extended credit to finance
highly leveraged transactions nor does it intend to do so in the future.
Employment levels and other economic conditions in the Corporation's local
markets may have a significant impact on the level of credit losses. Management
continues to identify and devote attention to credits that may not be performing
as agreed. Because of these factors and the uncertainty of economic conditions,
management expects to maintain the current level of the allowance for loan
losses as a percentage of gross loans in 2001. Non-performing loans are
discussed further in the section titled "Non-Performing Assets".
TABLE 4
Analysis of the Allowance for Possible Credit Losses Years Ended December 31,
(000's omitted) 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------
Balance Beginning of Period $2,961 $2,783 $2,955 $2,836 $2,618
--------------------------------------------------
Charge-offs:
Commercial, Financial and (284) (72) (454) (69) (154)
Agricultural
Real Estate-Construction 0 0 0 0 0
Real Estate-Mortgage 0 (2) (77) 0 (50)
Installment Loans to Individuals (522) (377) (537) (500) (304)
--------------------------------------------------
Total Charge-offs (806) (451) (1,068) (569) (508)
--------------------------------------------------
Recoveries:
Commercial, Financial and 107 13 43 15 7
Agricultural
Real Estate-Construction 0 0 0 0 0
Real Estate-Mortgage 0 0 37 4 8
Installment Loans to Individuals 86 71 92 45 63
--------------------------------------------------
Total Recoveries 193 84 172 64 78
--------------------------------------------------
Net Charge-offs (613) (367) (896) (505) (430)
--------------------------------------------------
Provision 584 545 724 624 648
--------------------------------------------------
Balance at End of Period $2,932 $2,961 $2,783 $2,955 $2,836
==================================================
Ratio of Net Charge-Offs During the 0.31% 0.19% 0.55% 0.28% 0.24%
Period
31
OTHER OPERATING INCOME
TABLE 5 Years Ended
Analysis of Other Operating Income December 31,
- -------------------------------------------------------------------------------------
(000's omitted) 2000 1999 1998
- -------------------------------------------------------------------------------------
Service Charges on Deposit Accounts $1,915 $1,972 $1,766
Gain on Sale of Mortgages 179 108 283
Gain on Sale of Real Estate Owned 25 89 8
Mortgage Servicing Fees 631 153 181
Fiduciary Income 695 581 562
Gain on Security Transactions 0 24 112
Other Operating Income 1,083 1,335 1,116
------------------------------------
Total Non-Interest Income $4,528 $4,262 $4,028
====================================
Other operating income was $4,528,000 in 2000, $4,262,000 and $4,028,000 in 1999
and 1998 respectively. These amounts represent an increase of 6.2% in 2000
compared to 1999 and an increase of 5.8% comparing 1999 to 1998.
The most significant category of other operating income is service charges on
deposit accounts. These fees were $1,915,000 in 2000, compared to $1,972,000 and
$1,766,000 in 1999 and 1998 respectively. This is a decrease of $57,000 or 2.9%
in 2000, an increase of $206,000 or 11.7% in 1999, and an increase of $182,000
or 11.5% in 1998. In 2000, the decrease is attributable to higher individual
checking and saving account balances offsetting service charges. In 1999 and
1998 increases in service charges are attributable to growth in deposit totals,
the number of accounts and certain account activities.
Gains on the sale of mortgage loans originated by the Bank and sold in the
secondary market were $179,000 in 2000, $108,000 in 1999, and $283,000 in 1998.
The 65.7% increase in 2000 is attributable to increases in mortgage loans made
and subsequently sold in the secondary market due to an increase in new home
purchase activity. The 61.9% decrease in 1999 is attributable to decreases in
mortgage loans made and subsequently sold in the secondary market due to a
decrease in new home purchase and refinance activity due to the impact of
changing market rates. The 31.6% increase in 1998 is attributable to increases
in mortgage loans made and subsequently sold in the secondary market due to an
increase in refinance activity brought on by market rates.
Mortgage servicing fees increased substantially in 2000. The fees increased from
$153,000 in 1999 to $631,000 in 2000. The increase is attributable to a gain on
the sale of mortgage servicing rights associated with loans previously sold in
the secondary market.
Fiduciary income increased $114,000 in 2000 to $695,000 compared to $581,000 in
1999 and $562,000 in 1998. The 19.6% increase in 2000, and the 3.4% increase in
1999 are attributable to growth in the assets under management within the
Corporation's Investment Trust Department and the market value of assets under
management.
In 1999, the Company recognized a $24,000 gain on security transactions compared
to $112,000 in security gains in 1998. These gains are a result of several
transactions wherein the Company sold investment securities to reinvest in
issues which provided greater total income potential. In 2000 there were no sale
transactions and accordingly no gains.
Other operating income includes income from the sale of checks, safe deposit box
rent, merchant account income, ATM income, and other miscellaneous income items.
Other operating income was $1,108,000 in 2000 compared to $1,335,000 and
$1,116,000 in 1999 and 1998 respectively. The decrease in 2000 compared to 1999,
and the increase in 1999 compared to 1998 is primarily attributable to a one
time gain representing a premium received for deposits sold in connection with a
branch sale.
32
OTHER OPERATING EXPENSE
TABLE 6 Years Ended
Analysis of Other Operating Expense December 31,
- ---------------------------------------------------------------------------------------
(000's omitted) 2000 1999 1998
- ---------------------------------------------------------------------------------------
Salaries and Benefits $5,801 $5,564 $5,025
Equipment 1,552 1,429 1,396
Net Occupancy 784 797 723
FDIC Assessment 50 27 28
Office Supplies 311 274 313
Loan & Collection Expense 289 373 356
Advertising and Promotional 263 257 249
Other Operating Expenses 2,386 2,415 2,458
--------------------------------------
Total Non-Interest Expense $11,436 $11,136 $10,548
======================================
Total other operating expense was $11,436,000 in 2000 compared to $11,136,000 in
1999 and $10,548,000 in 1998. This is an increase of 2.7% in 2000 and 5.6% in
1999.
Salary and benefit costs, the Corporation's largest other operating expense
category, were $5,801,000 in 2000, compared with $5,564,000 in 1999, and
$5,025,000 in 1998. Increased costs are a result of annual salary increases and
staff additions in connection with the spin-off of two branches to form a
separate bank.
In 2000, equipment expenses were $1,552,000 compared to $1,429,000 in 1999 and
$1,396,000 in 1998, an increase of 8.6% in 2000 and an increase of 2.4% in 1999.
The increase in 2000 is attributable to depreciation costs. Depreciation expense
increased in connection with equipment leases and purchases including a new main
frame system. Equipment expenses increased in 1999 primarily because of higher
costs in connection with maintenance contracts. A minimal portion of the
increase in equipment expense in 1999 is attributable to depreciation on
replacement equipment to ensure Y2K compatibility. Overall the impact of Y2K was
insignificant.
Occupancy expenses associated with the Corporation's facilities were $784,000 in
2000 compared to $797,000 in 1999 and $723,000 in 1998. In 2000, this is a
decrease of 1.6% and in 1999 an increase of 10.2%. The decrease in 2000 is
attributable to lower lease expense as a result of a branch sale in 1999. In
1999 the increase is attributable to increases in facility repairs, maintenance
contracts, and expenses connected with the opening of the "Loan Store".
Loan and collection expenses were $289,000 in 2000 compared to $373,000 in 1999,
and $356,000 in 1998. The $84,000 or 22.5% decrease in 2000 is attributable to a
decrease in dealer service fees paid in connection with indirect auto lending
and a decrease in fees paid by the Corporation for the origination of home
equity loans. The $17,000 or 4.8% increase in 1999 is attributable to expense in
connection with the disposition of other real estate and increased legal expense
in connection with loan collections.
The final category of operating expense is other operating expenses. These
expenses were $2,386,000 in 2000 compared to $2,415,000 in 1999, and $2,458,000
in 1998. These fees were lower in 2000 because of a reduction in costs for legal
and professional fees. These expenses decreased in 1999 because of lower costs
for check production.
FINANCIAL CONDITION
Proper management of the volume and composition of the Corporation's 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 Corporation's investment
securities portfolio is structured to provide a source of liquidity through
maturities and 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 Corporation's highest yielding
assets. Client
33
deposits are the primary source of funding for earning assets while short term
debt and other sources of funds could be utilized if market conditions and
liquidity needs change.
The Corporation's total assets averaged $296 million for 2000 exceeding 1999's
average of $274 million by $22 million or 8%. Average loans comprised 66.8% of
total average assets during 2000 compared to 65.1% in 1999. Loans grew $19.6
million on average with commercial loans leading the advance by $14.3 million or
15.7%. The ratio of average non-interest bearing deposits to total deposits was
14.2% in 2000 compared to 12.6% during 1999. Interest bearing deposits comprised
95.8% of total average interest bearing liabilities during 2000, down slightly
from 99.1% during 1999.
INVESTMENT SECURITIES PORTFOLIO
Investment securities (including equity securities) totaled $66,704,000 at
December 31, 2000 compared to $67,886,000 at December 31, 1999. This is a
decrease of $1,182,000 or 1.7%. The decrease in 2000, resulted principally from
maturing principal throughout the year, which due to stronger demand was used to
fund new loans. At December 31, 2000 these investment securities comprised 24.8%
of earning assets, down from 26.1% at December 31, 1999. A summary of investment
securities balances (including available for sale and held to maturity
securities) at the end of the last five years are included below. The
Corporation considers all of its investments as available for sale except for
Michigan tax exempt securities which are classified as held to maturity.
TABLE 7
Investment Securities
(000's omitted)
December 31, 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
U.S. Treasury $0 $0 $1,000 $5,981 $7,943
Federal Agencies:
Mortgage-backed 19,237 21,520 12,690 3,535 2,833
Other 32,125 31,365 51,626 36,184 32,863
Tax-Exempt State and Municipal 14,247 13,922 11,377 9,590 6,530
Other 1,095 1,079 1,263 760 716
--------------------------------------------------------
Total Investment Securities $66,704 $67,886 $77,956 $56,050 $50,885
Table 8 contains the amortized cost, fair value, and yields of the classes of
debt investment securities for each of the last two years. As the data
indicates, investment securities balances from December 31, 1999 to December 31,
2000 have decreased. Increases in loan balances from new loan growth in excess
of the amount of deposit growth, accounts for the decrease in investments in
2000.
The Corporation's present policies with respect to the classification of
investments in debt and equity securities are discussed in Note A to the
Consolidated Financial Statements. An analysis of investment securities
classifications, excluding equity securities at year end for each of the last
two years is presented in Table 8. As of December 31, 2000, the estimated
aggregate fair value of the Corporation's debt investment securities portfolio
was $2,000 above amortized cost. At December 31, 2000 gross unrealized gains
were $246,000 and gross unrealized losses were $244,000. A summary of estimated
fair values and unrealized gains and losses for the major components of the
investment securities portfolio is provided in Note C to the Consolidated
Financial Statements.
34
TABLE 8
Analysis of Investment Securities
2000 1999
Amortized Fair Amortized Fair
(000's omitted) Cost Value Yield Cost Value Yield
- ---------------------------------------------------------------------------------------------
Available for Sale:
U.S. Treasuries $0 $0 0.00% $0 $0 0.00%
U.S. Agencies 32,144 32,125 6.19% 31,128 30,447 6.16%
Mortgage backed 19,352 19,237 5.96% 22,273 21,521 5.96%
Tax exempt State and Municipal 964 964 6.51% 920 917 6.59%
Held To Maturity:
Tax exempt State and Municipal 13,283 13,419 6.56% 13,922 13,774 6.22%
----------------------------------------------------------
Total $65,743 $65,745 6.20% $68,243 $66,659 6.11%
==========================================================
Average Maturity 3.34 Years 4.45 Years
The following table shows, by class of maturities at December 31, 2000, the
amounts and weighted average yields of debt investment securities.
TABLE 9
Analysis and Maturities of Investment Securities
Amortized Fair
(000's omitted) Cost Value Yield
- --------------------------------------------------------------------------
AVAILABLE FOR SALE
U.S. Agencies
One year or less $4,114 $4,129 6.34%
Over one through five years 24,022 24,012 6.13%
Over five through ten years 4,008 3,984 6.42%
Over ten years 0 0 0.00%
---------------------------
Total 32,144 32,125
Mortgage-Backed
One year or less $0 $0
Over one through five years 177 176 6.39%
Over five through ten years 6,966 6,991 6.30%
Over ten years 12,209 12,070 5.85%
---------------------------
Total 19,352 19,237
State and Political
One year or less $964 $964 6.51%
Over one through five years 0 0
Over five through ten years 0 0
Over ten years 0 0
---------------------------
Total 964 964
HELD TO MATURITY
State and Political
One year or less $4,139 $4,156 7.23%
Over one through five years 4,503 4,544 6.45%
Over five through ten years 2,524 2,592 6.84%
Over ten years 2,117 2,127 6.59%
---------------------------
Total 13,283 13,419
Total Investment Securities $65,743 $65,745
35
LOAN PORTFOLIO
The Corporation extends credit primarily within in its local markets in Genesee,
Oakland, and Livingston counties. The Corporation's commercial loan portfolio is
widely diversified with no concentration within a single industry that exceeds
10% of total loans. The Corporation's respective loan portfolio balances are
summarized in Table 10.
Total loans increased $4,042,000 at December 31, 2000, with total loans
comprising 72.5% of earning assets as compared to 71.5% of December 31, 1999
earning assets. Local economic conditions remained strong throughout 2000. The
strength of the local economy supported continued commercial business growth
including commercial development. Accordingly, the Corporation experienced
strong demand for commercial loans. In 2000, commercial loans increased
approximately $9,000,000 to $101,925,000 or 9.7% . Additionally, real estate
construction and development loans increased $4,990,000 or 40% to $17,471,000 at
December 31, 2000. Consumer loans increased modestly in 2000 while real estate
mortgage loans decreased due to the sale of approximately $10,000,000 in fixed
rate mortgage loans in the last quarter of 2000.
During 1999, the Corporation experienced a significant amount of commercial loan
demand brought on by strong growth within our market areas. Because of this
demand, commercial loans increased $14,064,000 or 17.8% in 1999. Mortgage loans
also increased significantly in 1999 primarily due to a management decision to
hold certain loans as portfolio loans as opposed to selling them in the
secondary market. Accordingly, mortgage loans increased $9,768,000 in 1999.
Management expects the local economy to support continued growth and development
in 2001 and will aggressively seek out new loan opportunities while continuing
to maintain sound credit quality.
TABLE 10
Loan Portfolio
December 31,
(000's omitted) 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
Commercial $101,925 $92,896 $78,832 $81,544 $79,450
Real estate - construction 17,471 12,481 9,010 14,589 15,467
Real estate - mortgage 10,514 21,409 11,641 15,007 15,924
Consumer 65,198 64,280 62,423 69,533 64,388
--------------------------------------------------------------------
Total $195,108 $191,066 $161,906 $180,673 $175,229
====================================================================
NON-PERFORMING ASSETS
Non-performing assets include loans on which interest accruals have ceased,
loans which have been re-negotiated, and real estate acquired through
foreclosure. Past due loans are loans which were delinquent 90 days or more, but
have not been placed on non-accrual status. Table 11 represents the levels of
these assets at December 31, 1996 through 2000.
The improvement in total non-performing assets at December 31, 2000 compared to
1999 is attributable to the sale and disposition of other real estate owned and
in redemption, offset by only a modest increase in non-performing loans.
The improvement or decrease in non-performing loans in 1999 as compared to 1998
and in 1998 compared to 1997 is the result of various factors including
successful workout strategies and charges to the allowance for loan losses.
The level and composition of non-performing assets are affected by economic
conditions in the Corporation's local markets. Non-performing assets,
charge-offs, and provisions for possible credit losses
36
tend to decline in a strong economy and increase in a weak economy, potentially
impacting the Corporation's operating results. In addition to non-performing
loans, management carefully monitors other credits that are current in terms of
principal and interest payments but, in management's opinion, may deteriorate in
quality if economic conditions change.
TABLE 11
Non-Performing Assets and Past Due Loans
December 31,
2000 1999 1998 1997 1996
----------------------------------------------------------------
Non-Performing Loans:
Loans Past Due 90 Days or More & Still
Accruing $489,000 $240,000 $168,000 $618,000 $123,000
Non-Accrual Loans 731,000 859,000 1,102,000 1,866,000 575,000
Renegotiated Loans 0 6,000 7,000 8,000 0
----------------------------------------------------------------
Total Non-Performing Loans 1,220,000 1,105,000 1,277,000 2,492,000 698,000
----------------------------------------------------------------
Other Non-Performing Assets:
Other Real Estate 0 288,000 172,000 0 56,000
Other Real Estate Owned in 0 179,000 96,000 0 0
Redemption
Other Non-Performing Assets 159,000 56,000 39,000 94,000 28,000
----------------------------------------------------------------
Total Other Non-Performing Assets 159,000 523,000 307,000 94,000 84,000
----------------------------------------------------------------
Total Non-Performing Assets $1,379,000 $1,628,000 $1,584,000 $2,586,000 $782,000
================================================================
Non-Performing Loans as a % of
Total Loans 0.63% 0.58% 0.79% 1.38% 0.40%
Non-Performing Assets as a % of
Total Loans and Other Real Estate 0.71% 0.85% 0.98% 1.43% 0.45%
Allowance for Loan Losses as a % of
Non-Performing Loans 240.33% 267.96% 217.93% 118.58% 406.30%
Allowance for Loan Losses, Other Real
Estate, and In-Substance Foreclosures
as a % of Non-Performing Assets 212.62% 199.57% 192.61% 114.27% 369.82%
Accruing Loans Past Due 90 Days or
More to Total Loans 0.25% 0.13% 0.10% 0.34% 0.07%
Non-performing Assets as a % of
Total Assets 0.47% 0.57% 0.58% 0.98% 0.31%
Table 12 reflects the allocation of the allowance for loan losses and is based
upon ranges of estimates and is not intended to imply either limitations on the
usage of the allowance or precision of the specific amounts. The Corporation
does not view the allowance for loan losses as being divisible among the various
categories of loans. The entire allowance is available to absorb any future
losses without regard to the category or categories in which the charged-off
loans are classified. Table 12 also reflects the percentage ratio of outstanding
loans by category to total loans at the end of the respective year.
TABLE 12
Allocation of the Allowance for Loan Losses
2000 1999 1998 1997 1996
December 31, Loan Loan Loan Loan Loan
(000's omitted) Amount % Amount % Amount % Amount % Amount %
- -----------------------------------------------------------------------------------------------------------------
Commercial $1,645 58.69% $1,682 53.19% $1,270 51.69% $1,416 49.65% $1,065 48.56%
Real estate mortgage 94 7.89% 144 13.17% 130 9.76% 153 11.86% 370 14.70%
Consumer 890 33.42% 963 33.64% 983 38.56% 1,376 38.49% 1,374 36.74%
Unallocated 303 172 400 10 27
- -----------------------------------------------------------------------------------------------------------------
Total $2,932 100.00% $2,961 100.00% $2,783 100.00% $2,955 100.00% $2,836 100.00%
========================================================================================
37
The following describes the Corporation's policy and related disclosures for
impaired loans. The Corporation maintains an allowance for impaired loans. A
loan is considered impaired when management determines it is probable that the
principal and interest due under the contractual terms of the loan will not be
collected. In most instances, impairment is measured based on the fair value of
the underlying collateral. Impairment may also be measured based on the present
value of expected future cash flows discounted at the loan's effective interest
rate. Interest income on impaired non-accrual loans is recognized on a cash
basis. Interest income on all other impaired loans is recorded on an accrual
basis.
Certain of the Corporation's non-performing loans included in Table 11 are
considered impaired. The Corporation measures impairment on all large balance
non-accrual commercial loans. Certain large balance accruing loans rated
substandard or worse are also measured for impairment. Impairment losses are
adequately covered by the provision for loan losses. The policy does not apply
to large groups of smaller balance homogeneous loans that are collectively
evaluated for impairment. Loans collectively evaluated for impairment include
certain smaller balance commercial loans, consumer loans, residential real
estate loans, and credit card loans, and are not included in the impaired loan
data in the following paragraphs.
At December 31, 2000, loans considered to be impaired totaled $2,315,000. All
amounts included within impaired loans required specific allowance. The average
recorded investment in impaired loans was $1,932,000 in 2000. The interest
income recognized on impaired loans based on cash collections totaled $146,000
during 2000.
At December 31, 1999, loans considered to be impaired totaled $1,548,000. All
amounts included in impaired loans required specific allowance. The average
recorded investment in impaired loans was $1,848,000 in 1999. The interest
income recognized on impaired loans based on cash collections totaled $299,000
during 1999.
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 and charged to the allowance for loan losses for
prior quarters when the loan is placed on non-accrual status.
DEPOSITS
TABLE 13
Average Deposits
Years Ended December 31, 2000 1999 1998 1997 1996
Average Average Average Average Average Average Average Average Average Average
(000's omitted) Balance Rate Balance Rate Balance Rate Balance Rate Balance Rate
- -----------------------------------------------------------------------------------------------------------------
Non-int. bearing demand $35,711 $29,912 $27,202 $26,447 $26,895
Interest-bearing demand 40,199 1.82% 41,996 1.70% 35,982 2.12% 32,380 2.30% 30,534 2.48%
Savings 66,890 3.45% 66,141 2.94% 62,172 2.88% 59,892 3.31% 56,536 3.11%
Time 108,149 5.75% 100,053 5.23% 104,529 5.68% 107,388 5.84% 100,840 5.82%
-----------------------------------------------------------------------------------------
Total $250,949 3.69% $238,102 3.31% $229,885 3.69% $226,107 3.98% $214,805 3.91%
=========================================================================================
The Corporation's average deposit balances and rates for the past five years are
summarized in Table 13. Total average deposits were 5.4% higher in 2000 as
compared to 1999. Deposit growth was derived primarily from increases in
non-interest bearing demand and time deposits. Interest-bearing demand deposits
comprised 16.0% of total deposits while savings deposits comprised 26.7% of
total deposits.
As of December 31, 2000 certificates of deposit of $100,000 or more accounted
for approximately 13.8% of total deposits compared to 11.4% at December 31,
1999. The maturities of these deposits are summarized in Table 14.
38
TABLE 14
Maturity of Time Certificates of Deposit of $100,000 or More
December 31,
(000's omitted) 2000
- -----------------------------------------------
Three months or less $16,673
Over three through six months 9,453
Over six through twelve months 3,822
Over twelve months 4,311
--------------
Total 34,259
==============
FEDERAL INCOME TAXES
The Corporation's effective tax rate was 29% for 2000 and 31% for 1999 and 1998.
The principal difference between the effective tax rates and the statutory tax
rate of 34% is the Corporation's investment in securities and loans which
provide income exempt from federal income tax. Additional information relating
to federal income taxes is included in Note H to the Consolidated Financial
Statements.
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 senior
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 Bank's liquidity is
derived from a strong deposit base comprised of individual and business
deposits. Deposit accounts of customers in the mature market represent a
substantial portion of deposits of individuals. The Bank's deposit base plus
other funding sources (federal funds purchased, other liabilities and
shareholders' equity) provided primarily all funding needs in 2000, 1999, and
1998. While these sources of funds are expected to continue to be available to
provide funds in the future, the mix and availability of funds will depend upon
future economic and market conditions. The Corporation does not foresee any
difficulty in meeting its funding requirements.
Primary liquidity is provided through short-term investments or borrowings
(including federal funds sold and purchased), while secondary liquidity is
provided by the investment portfolio. As of December 31, 2000 federal funds sold
represented 2.5% of total assets, compared to .3% at the end of 1999. 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 analyses 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.
39
The Corporation had cash flows from financing activities resulting primarily
from the growth of certificates of deposit and short-term borrowings. In 2000,
these deposits increased $6,462,000 and these borrowings increased $3,315,000.
Cash used in investing activities was $3,347,000 in 2000 compared to $23,424,000
in 1999 and $4,490,000 in 1998. The decrease in investing activities in 2000
resulted from the increase in origination of loans and a decrease in investing
activities.
RISK ELEMENTS AND MANAGEMENT
Credit risk is managed via specific credit approvals and monitoring procedures.
The Corporation's outside loan review function examines the loan portfolio on a
periodic basis for compliance with credit policies and for identification of
problem loans. These procedures provide management with information for setting
appropriate direction and taking corrective action as needed.
The Corporation closely monitors its construction and commercial mortgage loan
portfolios. Construction loans at December 31, 2000, which comprised 9.0% of
total loans, totaled $17,471,000 as compared to $12,481,000 and $9,010,000 at
the end of 1999 and 1998 respectively.
The construction and commercial real estate loan properties are located
principally in the Corporation's local markets. Included are loans to various
industries and professional organizations. The Corporation believes that these
portfolios are well diversified and do not present a significant risk to the
institution.
CAPITAL RESOURCES
Management closely monitors capital levels to provide for current and future
business needs and to comply with regulatory requirements. Regulations
prescribed under the Federal Deposit Insurance Corporation Improvement Act of
1991 have defined "well capitalized" institutions as those having total
risk-based ratios, tier 1 risk-based capital ratios and tier 1 leverage ratios
of at least 10%, 6%, and 5% respectively. At December 31, 2000, the Corporation
was well in excess of the minimum capital and leverage requirements necessary to
be considered a "well capitalized" banking company as defined by federal law.
Total shareholders' equity rose 12.2% to $35,754,000 at December 31, 2000,
compared with $31,865,000 at December 31, 1999. The Corporation's equity to
asset ratio was 12.2% at December 31, 2000, compared to 11.2% at December 31,
1999. The increase in the amount of capital was obtained through retained
earnings and the proceeds from the issuance of new shares. In 2000, the
Corporation increased its cash dividends by 4.3% to $.97 per share compared with
$.93 in 1999.
At December 31, 2000, the Corporation's tier 1 and total risk-based capital
ratios were 15.0% and 16.2%, respectively, compared with 13.0% and 14.3% in
1999. The Corporation's tier 1 leverage ratio was 12.1% at December 31, 2000
compared with 11.2% at December 31, 1999. These increases in risk-based capital
ratios are largely attributable to an increase in federal funds sold investments
at December 31, 2000, and the increases in capital.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Fentura Bancorp, 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. Throughout 2000, the results of these measurement
techniques were within the Corporation's policy guidelines. The Corporation does
not believe that there has been a material change in the nature of the
Corporation's 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 are
managed in 2000 compared to 1999.
The Corporation's 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
40
the Corporation's control. All information provided in this section consists of
forward looking statements. Reference is made to the section captioned "Forward
Looking Statements" in this annual report for a discussion of the limitations on
the Corporation's responsibility for such statements.
The following table provides information about the Corporation's financial
instruments that are sensitive to changes in interest rates as of December 31,
2000. They show expected cash flows from market sensitive instruments for each
of the next five years and thereafter. The expected maturity date values for
loans (including loans held for sale) and investment securities (at amortized
cost) were calculated without adjusting the instruments' contractual maturity
dates for expected prepayments. Maturity date values for interest bearing core
deposits were not based on estimates of the period over which the deposits would
be outstanding, but rather the opportunity for re-pricing. The Corporation
believes that re-pricing dates, as opposed to expected maturity dates, may be
more relevant in analyzing the value of such instruments and are reported as
such in the following table.
TABLE 15
Rate Sensitivity of Financial Instruments
(000's omitted) 2001 2002 2003 2004 2005 Thereafter Total
- ----------------------------------------------------------------------------------------------------------
Rate Sensitive Assets:
Fixed interest rate loans $22,639 $17,361 $18,792 $23,771 $21,465 $31,614 $135,642
Average interest rate 9.39% 9.60% 9.56% 9.15% 9.44% 7.71%
Variable interest rate loans $36,737 $6,368 $3,683 $12,003 $0 $862 $59,653
Average interest rate 10.36% 10.40% 10.31% 10.35% 10.24% 8.89%
Fixed interest rate $9,232 $11,302 $13,435 $2,680 $1,276 $27,627 $65,552
securities
Average interest rate 6.76% 6.09% 6.05% 6.89% 6.39% 6.12%
Variable Interest rate $1,152 $1,152
securities
Average interest rate 5.83%
Other interest bearing assets $7,250 $7,250
Average interest rate 6.44%
Rate Sensitive Liabilities:
Interest-bearing checking $37,165 $37,165
Average interest rate 1.71%
Savings $66,186 $66,186
Average interest rate 3.45%
Time $75,269 $22,597 $6,421 $5,985 $0 $271 $110,543
Average interest rate 5.80% 6.10% 5.96% 5.95% 6.58% 4.69%
Short term borrowings $4,680 $4,680
Average interest rate 5.92%
FHLB advances $10 $10 $10 $10 $10 $1,101 $1,151
Average interest rate 7.34% 7.34% 7.34% 7.34% 7.34% 7.34%
INTEREST RATE SENSITIVITY MANAGEMENT
Interest rate sensitivity management seeks to maximize net interest income as a
result of changing interest rates, within prudent ranges of risk. The
Corporation attempts to accomplish this objective by structuring the balance
sheet so that re-pricing opportunities exist for both assets and liabilities in
roughly equivalent amounts at approximately the same time intervals. Imbalances
in these re-pricing opportunities at any point in time constitute a bank's
interest rate sensitivity. The Corporation currently does not utilize
derivatives in managing interest rate risk.
An indicator of the interest rate sensitivity structure of a financial
institution's balance sheet is the difference between its interest rate
sensitive assets and interest rate sensitive liabilities, and is referred to as
"GAP".
Table 16 sets forth the distribution of re-pricing of the Corporation's earning
assets and interest bearing liabilities as of December 31, 2000, the interest
rate sensitivity GAP, as defined above, the cumulative interest rate sensitivity
GAP, the interest rate sensitivity GAP ratio (i.e. interest rate sensitive
assets divided by interest rate sensitive liabilities) and the cumulative
sensitivity GAP ratio. The table also sets forth the time periods in which
earning assets and liabilities will mature or may re-price in accordance with
their contractual terms.
41
TABLE 16 Gap Analysis
December 31, 2000
Within Three One to After
Three Months- Five Five
(000's Omitted) Months One Year Years Years Total
- -------------------------------------------------------------------------------------------------------------
Interest Bearing Bank Deposits $0 $0 $0 $0 $0
Federal Funds Sold 7,250 0 0 0 7,250
Investment Securities 1,172 9,212 28,692 27,628 66,704
Loans 72,538 9,265 81,389 31,916 195,108
Loans Held for Sale 187 0 0 0 187
------------------------------------------------------------
Total Earning Assets $81,147 $18,477 $110,081 $59,544 $269,249
============================================================
Interest Bearing Liabilities:
Interest Bearing Demand Deposits $37,165 $0 $0 $0 $37,165
Savings Deposits 23,371 0 0 42,815 66,186
Time Deposits Less than $100,000 19,387 26,768 30,054 75 76,284
Time Deposits Greater than $100,000 16,673 13,275 4,311 0 34,259
Federal Funds Purchased 3,250 3,250
Other Borrowings 1,430 10 40 1,101 2,581
------------------------------------------------------------
Total Interest Bearing Liabilities $101,276 $40,053 $34,405 $43,991 $219,725
============================================================
Interest Rate Sensitivity GAP ($20,129) ($21,576) $75,676 $15,553 $49,524
Cumulative Interest Rate
Sensitivity GAP ($20,129) ($41,705) $33,971 $49,524
Interest Rate Sensitivity GAP -0.80 -0.46 3.20 1.35
Cumulative Interest Rate
Sensitivity GAP Ratio -0.80 -0.70 1.19 1.23
As indicated in Table 16, the short-term (one year and less) cumulative interest
rate sensitivity gap is negative. Accordingly, if market interest rates
increase, this negative gap position would have a short- term negative impact on
interest margin. Conversely, if market interest rates decrease, this negative
gap position would have a short-term positive impact on interest margin.
However, gap analysis is limited and may not provide an accurate indication of
the impact of general interest rate movements on the net interest margin since
the re-pricing of various categories of assets and liabilities is subject to the
Corporation's needs, competitive pressures, and the needs of the Corporation's
customers. In addition, various assets and liabilities indicated as re-pricing
within the same period may in fact re-price at different times within such
period and at different rate indices. The Corporation is implementing a
sophisticated computer program to perform analysis of interest rate risk, assist
with asset/liability management, and model and measure interest rate
sensitivity.
ACCOUNTING AND REPORTING DEVELOPMENTS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standard (SFAS) No. 133, (as amended), "Accounting for
Derivative Instruments and Hedging Activities." The statement requires an entity
to recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The statement is
effective in 2001 for the Corporation. However, management does not expect this
pronouncement to have a significant impact on the Corporation's financial
position or results of operations.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
140") which replaces SFAS No. 125 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" ("SFAS No. 125"), issued in
June 1996. It revises the standards for accounting for securitizations and other
transfers of financial assets and collateral and requires certain disclosures,
but it carries over most of SFAS No. 125's provisions without reconsideration.
SFAS No. 140 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. Implementation of
SFAS No. 140 is not expected to have a material effect on the Corporation's
financial position or results of operations.
42
FORWARD LOOKING STATEMENTS
This discussion and analysis of financial condition and results of operations,
and other sections of the Financial Statements, contain forward looking
statements that are based on management's beliefs, assumptions, current
expectations, estimates and projections about the financial services industry,
the economy, and about the Corporation itself. Words such as "anticipates,"
"believes," "estimates," "expects," "forecasts," "intends," "is likely,"
"plans," "projects," variations of such words and similar expressions are
intended to identify such forward looking statements. These statements are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions ("Future Factors") which are difficult to predict with regard to
timing, extent, likelihood and degree of occurrence. Therefore, actual results
and outcomes may materially differ from what may be expressed or forecast in
such forward looking statements. The Corporation undertakes no obligation to
update, amend or clarify forward looking statements as a result of new
information, future events, or otherwise.
Future Factors that could cause a difference between an ultimate actual outcome
and a preceding forward looking statement include, but are not limited to,
changes in interest rate and interest rate relationships, demands for products
and services, the degree of competition by traditional and non-traditional
competitors, changes in banking laws or regulations, changes in tax laws, change
in prices, the impact of technological advances, government and regulatory
policy changes, the outcome of pending and future litigation and contingencies,
trends in customer behavior as well as their ability to repay loans, and the
local economy.
FENTURA BANCORP, INC. COMMON STOCK
Table 17 sets forth the high and low market information for each quarter of 1998
through 2000. These quotations reflect inter-dealer prices, without retail
mark-up, mark-down, or commission and may not represent actual transactions. As
of March 13, 2001, there were 602 shareholders of record, not including
participants in the Company's employee stock option program.
TABLE 17
Common Stock Data
Market Dividends
Information Paid
Year Quarter High Low Per Share
- -------------------------------------------------------------------------------------
First Quarter $23.33 $22.08 $0.175
1998 Second Quarter 42.19 31.67 0.175
Third Quarter 41.67 34.38 0.175
Fourth Quarter 42.50 38.75 0.350
------------
$0.880
First Quarter $46.67 $40.83 $0.190
1999 Second Quarter 45.00 44.17 0.190
Third Quarter 47.19 37.50 0.190
Fourth Quarter 42.29 31.67 0.360
------------
$0.930
First Quarter $40.83 $29.27 $0.210
2000 Second Quarter 37.00 24.99 0.210
Third Quarter 30.00 24.63 0.210
Fourth Quarter 26.50 22.00 0.340
------------
$0.970
Note: Dividend per share figures have been adjusted to reflect a 20% stock
dividend distributed on May 26, 2000.
43
Exhibit 21.1
Subsidiaries of the Registrant
Company Ownership State of Incorporation
------- --------- ----------------------
The State Bank 100% Michigan
Davison State Bank 100% Michigan
Community Bank Services, Inc. 100% by The State Bank Michigan
Fentura Mortgage Company, Inc. 100% by The State Bank Michigan
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
of Fentura Bancorp, Inc. on Form S-3 (File No. 333-4668) of our report dated
January 26, 2001 on the 2000 Consolidated Financial Statements of Fentura
Bancorp, Inc., which report is included in the 2000 Annual Report on Form 10-K
of Fentura Bancorp, Inc.
GRANT THORNTON LLP
Southfield, Michigan
March 20, 2001