EXHIBIT 99.1
SPECIAL LETTER TO SHAREHOLDERS
As you are aware, in recent years Fentura Financial, Inc. has invested in several newly formed Michigan banks. Typically, newly formed banks lose money for the first two or three years at which point they turn profitable by having achieved enough loan and deposit growth to support the overhead connected with their start up status.
Accordingly, each month, we analyze our minority investments in newly formed banks to determine the appropriate value to be used for financial reporting purposes. Following the submission of our first quarter report and prior to filing our SEC required Quarterly Report on form 10-Q, we learned new information about the deteriorating condition of one of these banks. It appears that the deteriorating condition of the bank is a permanent rather than temporary condition. As a result, we are required to reduce the carrying value of our investment by taking a charge to earnings which reflects the impaired value. Accordingly, we have reduced the value of our investment by $574,400 resulting in an additional $379,000 reduction to net-income for the first quarter of 2008. The revised first quarter income statement and balance sheet for Fentura Financial, Inc. is displayed on the reverse side of this letter.
Clearly, the challenges facing our industry and in particular Michigan banks, are daunting. We are continuing to investigate several strategic alternatives to strengthen our company as outlined in my prior letter.
If you have any specific questions, please do not hesitate to contact me.
Sincerely,
Donald L. Grill
President & CEO
5
Fentura Financial Inc.
Consolidated Statement of Condition
(000’s omitted except per share data)
Unaudited
Consolidated Statement of Condition
(000’s omitted except per share data)
Unaudited
March 31, | ||||||||
2008 | 2007 | |||||||
ASSETS | ||||||||
Cash and due from banks | $ | 19,314 | $ | 17,236 | ||||
Federal Funds Sold | 2,700 | 6,100 | ||||||
Total cash and cash equivalents | 22,014 | 23,336 | ||||||
Securities available for sale, at fair value | 62,394 | 88,783 | ||||||
Securities held to maturity (fair value of $8,715 at March 31, 2008 and $10,403 at March 31, 2007) | 8,682 | 10,441 | ||||||
Total securities | 71,076 | 99,224 | ||||||
Loans held for sale | 1,463 | 2,352 | ||||||
Commercial loans | 314,065 | 298,338 | ||||||
Construction loans | 60,709 | 64,973 | ||||||
Consumer loans | 58,436 | 35,562 | ||||||
Real estate loans | 38,321 | 60,953 | ||||||
Total loans | 471,531 | 459,826 | ||||||
Less: Allowance for loan losses | (9,389 | ) | (6,962 | ) | ||||
Net loans | 462,142 | 452,864 | ||||||
Bank premises and equipment | 19,568 | 19,509 | ||||||
Accrued interest receivable | 2,487 | 3,313 | ||||||
Bank-owned life insurance | 7,087 | 6,875 | ||||||
Goodwill | 7,955 | 7,955 | ||||||
Other assets | 15,920 | 9,524 | ||||||
Total assets | $ | 609,712 | $ | 624,952 | ||||
LIABILITIES | ||||||||
Noninterest bearing deposits | $ | 71,574 | $ | 77,790 | ||||
Interest bearing deposits | 451,896 | 453,559 | ||||||
Total deposits | 523,470 | 531,349 | ||||||
Short-term borrowings | 716 | 450 | ||||||
Other borrowings | 19,031 | 21,052 | ||||||
Subordinated debt | 14,000 | 14,000 | ||||||
Accrued taxes, interest and other liabilities | 3,117 | 5,797 | ||||||
Total liabilities | 560,334 | 572,648 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Common stock - 2,171,681 issued (2,162,107 in 2007) | 42,649 | 42,476 | ||||||
Retained earnings | 6,860 | 10,524 | ||||||
Accumulated other comprehensive income (loss) | (131 | ) | (696 | ) | ||||
Total stockholders’ equity | 49,378 | 52,304 | ||||||
Total liabilities and stockholders’ equity | $ | 609,712 | $ | 624,952 | ||||
Fentura Financial Inc.
Consolidated Statement of Income
(000’s omitted except per share data)
Unaudited
Consolidated Statement of Income
(000’s omitted except per share data)
Unaudited
Three Months Ended March 31, | ||||||||
2008 | 2007 | |||||||
INTEREST INCOME | ||||||||
Interest and fees on loans | $ | 8,104 | $ | 8,647 | ||||
Interest and dividends on securities: | ||||||||
Taxable | 628 | 917 | ||||||
Tax-exempt | 117 | 215 | ||||||
Interest on short-term securities | 98 | 167 | ||||||
Total interest income | 8,947 | 9,946 | ||||||
INTEREST EXPENSE | ||||||||
Deposits | 4,027 | 3,961 | ||||||
Borrowings | 496 | 585 | ||||||
Total interest expense | 4,523 | 4,546 | ||||||
NET INTEREST INCOME | 4,424 | 5,400 | ||||||
Provision for loan losses | 1,081 | 439 | ||||||
Net interest income after provision for loan losses | 3,343 | 4,961 | ||||||
NONINTEREST INCOME | ||||||||
Service charges on deposit accounts | 774 | 851 | ||||||
Trust income | 456 | 84 | ||||||
Gain on sale of loans | 118 | 507 | ||||||
Other operating income | 210 | 423 | ||||||
Gain (loss) on sale of securities | — | — | ||||||
Total noninterest income | 1,558 | 1,865 | ||||||
NONINTEREST EXPENSE | ||||||||
Salaries and benefits | 3,002 | 3,247 | ||||||
Occupancy of bank premises | 551 | 503 | ||||||
Equipment expense | 494 | 525 | ||||||
Other operating expenses | 1,857 | 1,221 | ||||||
Total noninterest expense | 5,904 | 5,496 | ||||||
NET INCOME (LOSS) BEFORE TAXES | (1,003 | ) | 1,330 | |||||
Federal income taxes (benefit) | (375 | ) | 382 | |||||
NET INCOME (LOSS) | $ | (628 | ) | $ | 948 | |||
Per share amounts: | ||||||||
Net income — basic | $ | (0.29 | ) | $ | 0.44 | |||
Net income — diluted | $ | (0.29 | ) | $ | 0.44 |
Fentura Financial Inc.
Financial Highlights
$ in thousands except per share data
Unaudited
Financial Highlights
$ in thousands except per share data
Unaudited
March 31, | ||||||||||||
2008 | 2007 | % Change | ||||||||||
Net Income | $ | (628 | ) | $ | 948 | (166.24 | ) | |||||
Return on average total equity | (1.26 | )% | 7.40 | % | (117.03 | ) | ||||||
Return on average assets | (0.41 | )% | 0.62 | % | (166.13 | ) | ||||||
Net interest margin | 3.20 | % | 3.94 | % | (18.78 | ) | ||||||
Efficiency ratio | 98.70 | % | 75.65 | % | (30.47 | ) | ||||||
Per Common Share: | ||||||||||||
Net Income — basic | $ | (0.29 | ) | $ | 0.44 | (165.91 | ) | |||||
Net Income — diluted | $ | (0.29 | ) | $ | 0.44 | (165.91 | ) | |||||
Book value | $ | 22.81 | $ | 24.19 | (5.70 | ) | ||||||
Market price (last trade) | $ | 17.75 | $ | 29.50 | (39.83 | ) |