10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For fiscal year ended December 31, 2010

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 000-23550

FENTURA FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

Michigan	38-2806518
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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 preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

Indicate by check mark 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. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o 
Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

State the aggregate market value of the voting and nonvoting common equity held by nonaffiliates of the registrant computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant’s most recently completed second quarter.

Aggregate Market Value as of June 30, 2010: $7,284,611

State the number of shares outstanding of each of issuer’s classes of common equity, as of the latest practicable date. 2,309,951 shares of Common Stock as of March 1, 2011.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Fentura Financial, Inc. Proxy Statement for its annual meeting of shareholders to be held April 27, 2011 and its Rule 14a-3 annual report are incorporated by reference into Parts II and III.

Fentura Financial, Inc.

2010 Annual Report on Form 10-K

Table of Contents

		Page
PART I
Item 1.	Business		3
Item 1A	Risk Factors		12
Item 1B	Unresolved Staff Comments		12
Item 2.	Properties		12
Item 3.	Legal Proceedings		13
Item 4.	Reserved		13
Additional Item — Executive Officers of Registrant			13
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		14
Item 6.	Selected Financial Data		14
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		14
Item 8.	Financial Statements and Supplementary Data		14
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		15
Item 9A	Controls and Procedures		15
Item 9B.	Other Information		16
PART III
Item 10.	Directors, Executive Officers and Corporate Governance		16
Item 11.	Executive Compensation		16
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		17
Item 13.	Certain Relationships and Related Transactions, and Director Independence		17
Item 14.	Principal Accountant Fees and Services		17
PART IV
Item 15.	Exhibits and Financial Statement Schedules		18
SIGNATURES			19
EXHIBIT INDEX			20

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PART I

ITEM 1. DESCRIPTION OF BUSINESS

The Company

     Fentura Financial, Inc. (the “Corporation” or “Fentura”) is a bank holding company headquartered in Fenton, Michigan that owns two subsidiary banks (see “The Banks” below). All information in this Item 1 is as of December 31, 2010. The Corporation’s subsidiary banks operate 14 community banking offices offering a full range of banking services principally to individuals, small businesses, and government entities throughout mid-Michigan and western Michigan. At the close of business on December 31, 2010, the Corporation had assets of $424 million, deposits of $276 million, and shareholders’ equity of $16 million. Trust assets under management totaled $82 million.

     Fentura was incorporated in 1987 to serve as the holding company of its sole subsidiary bank, The State Bank (“TSB” or one of the “Banks”). TSB traces its origins to its predecessor, The Commercial Savings Bank of Fenton, which was incorporated in 1898. On March 15, 2004, Fentura acquired West Michigan Community Bank (“WMCB” or one of the “Banks”). See “The Banks” below.

     The Corporation’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. TSB is headquartered in Fenton and considers its primary service area to be portions of Genesee, Oakland, and Livingston counties in Michigan. As of December 31, 2010, TSB operated four offices and an operations center in the City of Fenton, Michigan, one office in the City of Linden, Michigan, one office in the Village of Holly, Michigan, two offices in the Township of Grand Blanc, Michigan, and one office in Brighton, Michigan. Its main office is located in downtown Fenton.

     Fentura acquired West Michigan Community Bank on March 15, 2004. WMCB is engaged in the general banking business in Hudsonville, Michigan, and other portions of Ottawa County and western Kent County, Michigan. WMCB is headquartered in Hudsonville and considers its primary service areas to be portions of Kent and Ottawa counties. As of December 31, 2009, WMCB operated two offices in the City of Hudsonville, Michigan, one office in the City of Jenison, Michigan, and two offices in the City of Holland, Michigan.

     On April 28, 2010, at the Annual Shareholder Meeting, a formal announcement was made regarding the signing of a definitive agreement to sell West Michigan Community Bank. The transaction was consummated on January 31, 2011, and the Corporation received $10,500,000 from the sale of West Michigan Community Bank (a 10% premium to book). As a condition of the sale, the Corporation acquired non-performing assets of West Michigan Community Bank which totaled $10,100,000. The assets will be housed in a newly formed real estate holding company subsidiary of the Corporation.

     The 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 estate loans to individuals and businesses, providing safe deposit boxes, transmitting funds and providing other services generally associated with full service commercial banking. Lending is focused on individuals and small businesses in the local markets served by the Banks. In addition, TSB and WMCB operates trust departments offering a full range of fiduciary services.

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     Both of the banks are state bank, chartered under the Michigan Banking Code. It is not a member of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), but the deposits are insured by the Federal Deposit Insurance Corporation (the “FDIC”). See “Supervision and Regulation” below.

     As of December 31, 2010, TSB employed 97 full time personnel, including 39 officers, and an additional 38 part time employees. WMCB employed 33 full time personnel, including 11 officers, and an additional 8 part time employees. The Banks considers their 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 Bank.

Supervision and Regulation

     The following is a summary of certain statutes and regulations affecting the Corporation and the Banks. This summary is qualified in its entirety by such statutes and regulations. A change in applicable laws or regulations may have a material effect on the Corporation, the Banks and the business of the Corporation and the Banks.

General

     Financial institutions and their holding companies are extensively regulated under federal and state law. Consequently, the growth and earnings performance of the Corporation and the Bank can be affected not only by management decisions and general economic conditions, but also by the statutes administered by, and the regulations and policies of, various governmental regulatory authorities. Those authorities include, but are not limited to, the Federal Reserve Board, the FDIC, the Commissioner of the Michigan Office of Financial and Insurance Regulation (“Commissioner”), the Internal Revenue Service, and state taxing authorities. The effect of such statutes, regulations and policies can be significant, and cannot be predicted with a high degree of certainty.

     Federal and state laws and regulations generally applicable to financial institutions and their holding companies regulate, among other things, the scope of business, investments, reserves against deposits, capital levels relative to operations, lending activities and practices, the nature and amount of collateral for loans, the establishment of branches, mergers, consolidations and dividends. The system of supervision and regulation applicable to the Corporation and the Banks establishes a comprehensive framework for their respective operations and is intended primarily for the protection of the FDIC’s deposit insurance funds, the depositors of the Bank, and the public, rather than shareholders of the Bank or the Corporation.

     Federal law and regulations establish supervisory standards applicable to the lending activities of the Bank, including internal controls, credit underwriting, loan documentation and loan-to-value ratios for loans secured by real property.

Recent Legislation

     The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) became law on July 21, 2010. The Dodd-Frank Act constitutes one of the most significant efforts in recent history to comprehensively overhaul the financial services industry and will affect large and small financial institutions alike. While some of the provisions of the Dodd-Frank Act take effect immediately,

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many of the provisions have delayed effective dates and their implementation will require the issuance of numerous new regulations.

     The Dodd-Frank Act deals with a wide range of regulatory issues including, but not limited to: mandating new capital requirements that would require certain bank holding companies to be subject to the same capital requirements as their depository institutions; eliminating (with certain exceptions) trust preferred securities; codifying the Federal Reserve’s Source of Strength doctrine; creating a Bureau of Consumer Financial Protection which will have the power to exercise broad regulatory, supervisory and enforcement authority concerning both existing and new consumer financial protection laws; permanently increasing federal deposit insurance protection to $250,000 per depositor; extending the unlimited coverage for qualifying non-interest bearing transactional accounts until December 31, 2012; increasing the ratio of reserves to deposits minimum to 1.35 percent; assessing premiums for deposit insurance coverage on average consolidated total assets less average tangible equity, rather than on a deposit base; authorizing the assessment of examination fees; establishing new standards and restrictions on the origination of mortgages; permitting financial institutions to pay interest on business checking accounts; limiting interchange fees payable on debit card transactions; and implementing requirements on boards, corporate governance and executive compensation for public companies.

The complete impact of the Dodd-Frank Act is unknown since many of the substantive requirements will be contained in the many rules and regulations to be implemented. However, the Dodd-Frank Act will have significant and immediate effects on banks and bank holding companies in many areas.

The Corporation

     General. The Corporation, as the sole shareholder of the Banks, is a bank holding company and is registered with, and subject to regulation by, the Federal Reserve Board under the Bank Holding Company Act, as amended (the “BHCA”). Under the BHCA, the Corporation is subject to periodic examination by the Federal Reserve Board, and is required to file with the Federal Reserve Board periodic reports of its operations and such additional information as the Federal Reserve Board may require.

     In accordance with Federal Reserve Board policy, the Corporation is expected to act as a source of financial strength to the Banks and to commit resources to support the Banks in circumstances where the Corporation might not do so absent such policy. In addition, if the Commissioner deems a bank’s capital to be impaired, the Commissioner may require the bank to restore its capital by a special assessment upon the Corporation as the Bank’s sole shareholder. If the Corporation were to fail to pay any such assessment, the directors of the bank would be required, under Michigan law, to sell the shares of the Bank’s stock owned by the Corporation to the highest bidder at either a public or private auction and use the proceeds of the sale to restore the Bank’s capital.

     The Corporation’s common stock is registered under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). It is therefore subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the Exchange Act. On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”). The Sarbanes-Oxley Act provided for numerous changes to the reporting, accounting, corporate governance and business practices of companies as well as financial and other professionals who have involvement with the U.S. public markets.

     Investments and Activities. Under the BHCA, a bank holding company must obtain Federal Reserve Board approval before: (i) acquiring, directly or indirectly, ownership or control of any voting shares of another bank or bank holding company if, after such acquisition, it would own or control more than 5% of such shares (unless it already owns or controls the majority of such shares); (ii) acquiring all or substantially all of the assets of another bank or bank holding company; or (iii) merging or consolidating with another bank holding company. The Federal Reserve Board may allow a bank holding company to acquire banks located in any state of the United States without regard to geographic restrictions or reciprocity requirements imposed by state law, but subject to certain conditions, including

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limitations on the aggregate amount of deposits that may be held by the acquiring holding company and all of its insured depository institution affiliates.

     The merger or consolidation of an existing bank subsidiary of the Corporation with another bank, or the acquisition by such a subsidiary of assets of another bank, or the assumption of liability by such a subsidiary to pay any deposits in another bank, will require the prior written approval of the responsible Federal depository institution regulatory agency under the Bank Merger Act. In addition, in certain such cases, an application to, and the prior approval of, the Federal Reserve Board under the BHCA and/or the Commissioner under the Michigan Banking Code, may be required.

     With certain limited exceptions, the BHCA prohibits any bank holding company from engaging, either directly or indirectly through a subsidiary, in any activity other than managing or controlling banks unless the proposed non-banking activity is one that the Federal Reserve Board has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Under current Federal Reserve Board regulations, such permissible non-banking activities include such things as mortgage banking, equipment leasing, securities brokerage, and consumer and commercial finance company operations. Well-capitalized and well-managed bank holding companies may engage de novo in certain types of non-banking activities without prior notice to, or approval of, the Federal Reserve Board, provided that written notice of the new activity is given to the Federal Reserve Board within 10 business days after the activity is commenced. If a bank holding company wishes to engage in a non-banking activity by acquiring a going concern, prior notice and/or prior approval will be required, depending upon the activities in which the company to be acquired is engaged, the size of the company to be acquired and the financial and managerial condition of the acquiring bank holding company.

     A bank holding company whose subsidiary depository institutions all are well-capitalized and well-managed and who have Community Reinvestment Act ratings of at least “satisfactory” may elect to become a financial holding company. A financial holding company is permitted to engage in a broader range of activities than are permitted to bank holding companies.

     Those expanded activities include any activity which the Federal Reserve Board (in certain instances in consultation with the Department of the Treasury) determines, by order or regulation, to be financial in nature or incidental to such financial activity, or to be complementary to a financial activity and not to pose a substantial risk to the safety or soundness of depository institutions or the financial system generally. Such expanded activities include, among others: insuring, guaranteeing, or indemnifying against loss, harm, damage, illness, disability or death, or issuing annuities, and acting as principal, agent, or broker for such purposes; providing financial, investment, or economic advisory services, including advising a mutual fund; and underwriting, dealing in, or making a market in securities. The Corporation has not elected to be treated as a financial holding company.

     The BHCA generally does not place territorial restrictions on the domestic activities of non-bank subsidiaries of bank or financial holding companies.

     Federal legislation also prohibits the acquisition of control of a bank holding company, such as the Corporation, by a person or a group of persons acting in concert, without prior notice to the Federal Reserve Board. Control is defined in certain cases as the acquisition of 10% of the outstanding shares of a bank holding company.

     Capital Requirements. The Federal Reserve Board uses capital adequacy guidelines in its examination and regulation of bank holding companies. If capital falls below minimum guidelines, a bank holding company may, among other things, be denied approval to acquire or establish additional banks or non-bank businesses. These capital guidelines are comparable to those established by the regulatory authorities for the Banks discussed below.

     Regulatory Agreements Effective November 2010, the Corporation received a notice from The Federal Reserve which defined restrictions being placed upon the Holding Company. The restrictions include the declaration or payment of any dividends, the receipt of dividends from subsidiary Banks, the

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repayment of any principal or interest on subordinated debentures or Trust Preferred securities, restrictions on debt, any changes in Executive or Senior Management or change in the role of Senior Management. In addition, the notice provided an indication for the Corporation to “maintain sufficient capital” levels.

     Dividends. The Corporation is a corporation separate and distinct from the Banks. Most of the Corporation’s revenues are received by it in the form of dividends paid by the Banks. Thus, the Corporation’s ability to pay dividends to its shareholders is indirectly limited by statutory restrictions on the Banks’ ability to pay dividends described below. Further, in a policy statement, the Federal Reserve Board has expressed its view that a bank holding company experiencing earnings weaknesses should not pay cash dividends exceeding its net income or which can only be funded in ways that weaken the bank holding company’s financial health, such as by borrowing. Additionally, the Federal Reserve Board possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies. Similar enforcement powers over the Banks are possessed by the FDIC. The “prompt corrective action” provisions of federal law and regulation authorizes the Federal Reserve Board to restrict the payment of dividends by the Corporation for an insured bank which fails to meet specified capital levels.

     In addition to the restrictions on dividends imposed by the Federal Reserve Board, the Michigan Business Corporation Act provides that dividends may be legally declared or paid only if after the distribution a corporation, such as the Corporation, can pay its debts as they come due in the usual course of business and its total assets equal or exceed the sum of its liabilities plus the amount that would be needed to satisfy the preferential rights upon dissolution of any holders of preferred stock whose preferential rights are superior to those receiving the distribution.

     Effective November 2010, The Federal Reserve notified the Corporation of restrictions being placed upon the Holding Company. The restrictions include the declaration or payment of any dividends, or the receipt of dividends from subsidiary Banks, among other restrictions. (See Regulatory Agreements on page 7.)

     Regulatory Developments. The Emergency Economic Stabilization Act of 2008 (“EESA”) was enacted on October 3, 2008. Pursuant to EESA, the U.S. Department of Treasury (the “Treasury”) created the Troubled Asset Relief Program’s (“TARP”) Capital Purchase Program (“CPP”) under which the Treasury was authorized to invest in non-voting, senior preferred stock of U.S. banks and savings associations or their holding companies. The Corporation and the Banks did not participate in the TARP CPP.

The Banks

     General. The Banks are Michigan banking corporations, and the deposit accounts are insured by the deposit insurance fund of the FDIC. As FDIC-insured Michigan chartered banks, the Banks are subject to the examination, supervision, reporting and enforcement requirements of the Commissioner, as the chartering authority for Michigan banks, and the FDIC, as administrator of the deposit insurance fund. These agencies and the federal and state laws applicable to the Banks and its operations, extensively regulate various aspects of the banking business including, among other things, permissible types and amounts of loans, investments and other activities, capital adequacy, branching, interest rates on loans and on deposits, the maintenance of non-interest bearing reserves on deposit accounts, and the safety and soundness of banking practices.

     Deposit Insurance. As an FDIC-insured institution, the Bank is required to pay deposit insurance premium assessments to the deposit insurance fund pursuant to a risk-based assessment system. Deposit accounts are generally insured up to a maximum of $100,000 per separately insured depositor and up to a maximum of $250,000 for self-directed retirement accounts. Effective October 3, 2008, EESA raised the basic limit on federal deposit insurance coverage from $100,000 to $250,000 per

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depositor. This increase was effective on a temporary basis until December 31, 2013; however, effective July 22, 2010, the limit was raised permanently to $250,000 per depositor pursuant to the Dodd-Frank Act. In addition, in November 2010, pursuant to the Dodd-Frank Act, the FDIC issued a final rule to provide temporary unlimited deposit insurance coverage for non-interest bearing accounts from December 31, 2010 through December 31, 2012.

     Under the FDIC’s risk-based assessment regulations there are four risk categories, and each insured institution is assigned to a risk category based on capital levels and supervisory ratings. Well-capitalized institutions with CAMELS composite ratings of 1 or 2 are placed in Risk Category I while other institutions are placed in Risk Categories II, III or IV depending on their capital levels and CAMELS composite ratings. The assessment rates may be changed by the FDIC as necessary to maintain the deposit insurance fund at the reserve ratio designated by the FDIC. The FDIC may set the reserve ratio annually at between 1.15% and 1.50% of insured deposits. Generally, deposit insurance assessments will be collected for a quarter at the end of the next quarter. Assessments will be based on deposit balances at the end of the quarter, except institutions with $1 billion or more in assets and any institutions that become insured on or after January 1, 2007 will have their assessment base determined using average daily balances of insured deposits.

     Due to a decrease in the reserve ratio of the Deposit Insurance Fund, in October 2008, the FDIC established a restoration plan to restore the reserve ratio to at least 1.15% within five years (the FDIC extended this time to eight years). The reserve ratio has now been increased to 1.35% by the Dodd-Frank Act. The FDIC has been directed to offset the effects of increased assessments on depository institutions with less than $10 billion in assets. To achieve these levels, the FDIC is authorized by the Dodd-Frank Act to make special assessments and charge examination fees.

     On December 16, 2008, the FDIC adopted and issued a final rule increasing the rates banks pay for deposit insurance uniformly by 7 basis points (annualized) effective January 1, 2009. Under the final rule, risk-based rates for the first quarter 2009 assessment ranged between 12 and 50 basis points (annualized). The 2009 first quarter assessment rates varied depending on an institution’s risk category. On February 27, 2009, the FDIC adopted a final rule amending the way that the assessment system differentiates for risk and setting new assessment rates beginning with the second quarter of 2009. As of April 1, 2009, for the highest rated institutions, those in Risk Category I, the initial base assessment rate was between 12 and 16 basis points and for the lowest rated institutions, those in Risk Category IV, the initial base assessment rate was 45 basis points. The final rule modified the means to determine a Risk Category I institution’s initial base assessment rate. It also provided for the following adjustments to an institution’s assessment rate: (1) a decrease for long-term unsecured debt, including most senior and subordinated debt and, for small institutions, a portion of Tier 1 capital; (2) an increase for secured liabilities above a threshold amount; and (3) for institutions in risk categories other than Risk Category I, an increase for brokered deposits above a threshold amount. After applying these adjustments, for the highest rated institutions, those in Risk Category I, the total base assessment rate is between 7 and 24 basis points and for the lowest rated institutions, those in Risk Category IV, the total base assessment rate is between 40 and 77.5 basis points.

     On May 22, 2009, the FDIC imposed a special assessment of five basis points on each FDIC-insured depository institution’s assets, minus its Tier 1 capital as of June 30, 2009. The special assessment was collected on September 30, 2009, and the Banks’ paid an additional assessment of $267,000.

     On November 12, 2009, the FDIC adopted a final rule that required insured institutions to prepay on December 31, 2009, estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011, and 2012. For purposes of calculating the prepayment amount, the institution’s third quarter 2009 assessment base was increased quarterly at a five percent annual growth rate through the end of 2012. On September 29, 2009, the FDIC also increased annual assessment rates uniformly by three basis points beginning in 2011. On December 31, 2009, the Banks prepaid estimated assessments of $303,000.

     On November 21, 2008, the FDIC adopted final regulations implementing the Temporary Liquidity Guarantee Program (“TLGP”) pursuant to which depository institutions could elect to participate. Pursuant to the TLGP, for a surcharge the FDIC provides full FDIC deposit insurance coverage for non-

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interest bearing deposit transaction accounts regardless of dollar amount for an additional fee assessment by the FDIC (the “Transaction Account Guarantee”). These accounts are mainly payment-processing accounts, such as business payroll accounts. The Banks did not opt out of the Transaction Account Guarantee portion of the TLGP. The Transaction Account Guarantee was to expire on December 31, 2009, but was extended until December 31, 2010 for those participating institutions that did not opt out of the extended period. The Banks elected not to continue its participation in the Transaction Account Guarantee program during the extended period. The Dodd-Frank Act provides unlimited federal deposit insurance until January 1, 2013 for non-interest bearing demand transaction accounts at all insured depository institutions. There is no additional surcharge related to this coverage.

     Also pursuant to the TLGP, the FDIC will guarantee, through the earlier of maturity or December 31, 2012, certain newly issued senior unsecured debt issued by participating institutions on or after October 14, 2008 and before October 31, 2009 (the “Debt Guarantee”). The Corporation and the Banks did not opt out of the Debt Guarantee portion of the TLGP but did not issue any debt under the Debt Guarantee program.

     FICO Assessments. The Banks are subject to assessments to cover the payments on outstanding obligations of the Financing Corporation (“FICO”). FICO was created to finance the recapitalization of the Federal Savings and Loan Insurance Corporation, during the thrift crisis in the 1980s. From now until the maturity of the outstanding FICO obligations in 2019, insured institutions will share the cost of the interest on the FICO bonds on a pro rata basis.

     Commissioner Assessments. Michigan banks are required to pay supervisory fees to the Commissioner to fund the operations of the Commissioner. The amount of supervisory fees paid by a bank is based upon the bank’s total assets, as reported to the Commissioner.

     Capital Requirements. The FDIC has established the following minimum capital standards for state-chartered, FDIC insured non-member banks, such as the Banks: a leverage requirement consisting of a minimum ratio of Tier 1 capital to total average assets of 3% for the most highly-rated banks with minimum requirements of 4% to 5% for all others, and a risk-based capital requirement consisting of a minimum ratio of total capital to total risk-weighted assets of 8%, at least one-half of which must be Tier 1 capital. Tier 1 capital consists principally of shareholders’ equity. These capital requirements are minimum requirements. Higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual institutions.

     Prompt Corrective Regulatory Action. Federal law provides the federal banking regulators with broad power to take prompt corrective action to resolve the problems of undercapitalized institutions. The extent of the regulators’ powers depends on whether the institution in question is “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized.” Federal regulations define these capital categories as follows:

	Total	Tier 1
	Risk-Based	Risk-Based
	Capital Ratio	Capital Ratio	Leverage Ratio
Well capitalized	10% or above	6% or above	5% or above
Adequately capitalized	8% or above	4% or above	4% or above
Undercapitalized	Less than 8%	Less than 4%	Less than 4%
Significantly undercapitalized	Less than 6%	Less than 3%	Less than 3%
Critically undercapitalized	—	—	A ratio of tangible equity to total assets of 2% or less

     As of December 31, 2010, each of the Banks’ ratios exceeded minimum requirements for the adequately capitalized category. However due to regulatory agreements, the Banks cannot be considered “well” capitalized and are classified as “adequately” capitalized.

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     In general, a depository institution may be reclassified to a lower category than is indicated by its capital levels if the appropriate federal depository institution regulatory agency determines the institution to be otherwise in an unsafe or unsound condition or to be engaged in an unsafe or unsound practice. This could include a failure by the institution, following receipt of a less-than-satisfactory rating on its most recent examination report, to correct the deficiency.

     In addition, FDIC insured institutions may be liable for any loss incurred by, or reasonably expected to be incurred by the FDIC in connection with the default of commonly controlled FDIC insured depository institutions or any assistance provided by the FDIC to commonly controlled FDIC insured depository institutions in danger of default.

     Regulatory Agreements In December 2008, WMCB was presented with a Consent Order from the FDIC and the Commissioner (the “Consent Order”). The Consent Order sets forth commitments to be made by WMCB to, among other items, address and strengthen WMCB’s practices relating to oversight of WMCB by the management and board of directors of WMCB; maintain sufficient capital at WMCB; improve asset quality through the review of WMCB’s position on problem loans; improve WMCB’s liquidity position; review the adequacy of WMCB’s allowance for loan and lease losses; and adopt and implement a profit plan and budget. The Consent Order also requires WMCB to retain a Tier 1 capital to average asset ratio of a minimum of 8.0%. As of December 31, 2010, WMCB had a Tier 1 capital to average asset ratio of 7.5%. WMCB’s board of directors and management reviewed the Consent Order and after discussions, the directors signed the Consent Order agreeing to comply with all of the requirements of the Consent Order.

     In December 2009, TSB was presented with a Consent Order from the FDIC and the Commissioner (the “Consent Order”). This Consent Order was effective January 8, 2010. The Consent Order set forth commitments to be made by TSB to, among other items, address and strengthen TSB’s practices relating to oversight of TSB by the management and board of directors of TSB; maintain sufficient capital at TSB; improve asset quality through the review of TSB’s position on problem loans; improve TSB’s liquidity position; review the adequacy of TSB’s allowance for loan and lease losses; and adopt and implement a profit plan and budget. The Consent Order requires TSB to maintain a Tier 1 capital to average asset ratio of a minimum of 8.0% and a total capital to risk-weighed asset ratio of 12.0%. At December 31, 2010, TSB had a Tier 1 capital to average assets ratio of 6.5% and a total capital to risk-weighed asset ratio of 10.0%. This is compared to December 31, 2009, when TSB had a Tier 1 capital to average asset ratio of 6.2% and a total capital to risk-weighted asset ratio of 8.9%. TSB’s board of directors and management reviewed the Consent Order and after discussions, the directors signed the Consent Order agreeing to comply with all of the requirements of the Consent Order.

     Dividends. Under Michigan law, the Banks are restricted as to the maximum amount of dividends they may pay on their common stock. The Banks may not pay dividends except out of net income after deducting their losses and bad debts. A Michigan state bank may not declare or pay a dividend unless the bank will have surplus amounting to at least 20% of its capital after the payment of the dividend.

     Federal law generally prohibits a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized. The FDIC may prevent an insured bank from paying dividends if the bank is in default of payment of any assessment due to the FDIC. In addition, the FDIC may prohibit the payment of dividends by an insured bank, if such payment is determined, by reason of the financial condition of the bank, to be an unsafe and unsound banking practice.

     Pursuant to the Consent Order, TSB may not declare or pay any cash dividend without the prior written consent of the FDIC and the Commissioner.

     Insider Transactions. The Banks are subject to certain restrictions imposed by the Federal Reserve Act on any extensions of credit to the Corporation or its subsidiaries, on investments in the stock or other securities of the Corporation or its subsidiaries and the acceptance of the stock or other

10

securities of the Corporation or its subsidiaries as collateral for loans. Certain limitations and reporting requirements are also placed on extensions of credit by the Banks to its directors and officers, to directors and officers of the Corporation and its subsidiaries, to principal shareholders of the Corporation, and to “related interests” of such directors, officers and principal shareholders. In addition, federal law and regulations may affect the terms upon which any person becoming a director or officer of the Corporation or one of its subsidiaries or a principal shareholder of the Corporation may obtain credit from banks with which the Banks maintain a correspondent relationship.

     Safety and Soundness Standards. The FDIC has adopted guidelines to promote the safety and soundness of federally insured depository institutions. These guidelines establish standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings.

     Investments and Other Activities. Under federal law and FDIC regulations, FDIC -insured state banks are prohibited, subject to certain exceptions, from making or retaining equity investments of a type, or in an amount, that are not permissible for a national bank. Federal law, as implemented by FDIC regulations, also prohibits FDIC insured state banks and their subsidiaries, subject to certain exceptions, from engaging as principal in any activity that is not permitted for a national bank or its subsidiary, respectively, unless the bank meets, and continues to meet, its minimum regulatory capital requirements and the FDIC determines the activity would not pose a significant risk to the deposit insurance fund. Impermissible investments and activities must be divested or discontinued within certain time frames set by the FDIC in accordance with federal law. These restrictions are not currently expected to have a material impact on the operations of the Bank.

     Federal law also authorizes insured state banks to engage in financial activities, through subsidiaries, similar to the activities permitted for financial holding companies. If a state bank wants to establish a subsidiary engaged in financial activities, it must meet certain criteria, including that it and all of its affiliated insured depository institutions are well-capitalized and have a Community Reinvestment Act rating of at least “satisfactory” and that it is well-managed. There are capital deduction and financial statement requirements and financial and operational safeguards that apply to subsidiaries engaged in financial activities. Such a subsidiary is considered to be an affiliate of the bank and there are limitations on certain transactions between a bank and a subsidiary engaged in financial activities of the same type that apply to transactions with a bank’s holding company and its subsidiaries.

     Consumer Protection Laws. The Banks’ business includes making a variety of types of loans to individuals. In making these loans, the Banks are subject to State usury and regulatory laws and to various federal statutes, including the privacy of consumer financial information provisions of the Gramm-Leach-Bliley Act and regulations promulgated there under, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Real Estate Settlement Procedures Act, and the Home Mortgage Disclosure Act, and the regulations promulgated there under, which prohibit discrimination, specify disclosures to be made to borrowers regarding credit and settlement costs, and regulate the mortgage loan servicing activities of the Bank, including the maintenance and operation of escrow accounts and the transfer of mortgage loan servicing. In receiving deposits, the Bank is subject to extensive regulation under State and federal law and regulations, including the Truth in Savings Act, the Expedited Funds Availability Act, the Bank Secrecy Act, the Electronic Funds Transfer Act, and the Federal Deposit Insurance Act. Violation of these laws could result in the imposition of significant damages and fines upon the Bank and its directors and officers.

     Branching Authority. Michigan banks, such as the Banks, have the authority under Michigan law to establish branches in any state, including Michigan, the District of Columbia, a territory or protectorate of the United States or a foreign country, subject to receipt of all required regulatory approvals. Under federal law banks may establish interstate branch networks through merger or consolidation with other banks without regard to whether such activity is contrary to state law. The establishment of de novo interstate branches or the acquisition of individual branches of a bank in another state (rather than the merger or consolidation with an out-of-state bank) is allowed only if specifically authorized by the law of the state where the branch will be established or acquired.

11

     Michigan law permits both U.S. and non-U.S. banks to establish branch offices in Michigan. The Michigan Banking Code permits, in appropriate circumstances and with the approval of the Commissioner, (1) sale by a Michigan bank of branches to an FDIC-insured bank, savings bank or savings and loan association located in a state in which a Michigan bank could purchase branches of the purchasing entity, (2) consolidation of Michigan banks and FDIC-insured banks, savings banks or savings and loan associations located in other states having laws which permit such a consolidation, (3) establishment of branches in Michigan by FDIC-insured banks located in other states, the District of Columbia or U.S. territories or protectorates having laws permitting a Michigan bank to establish a branch in such jurisdiction, and (4) establishment by foreign banks of branches located in Michigan.

Reserve Requirement. Under a regulation promulgated by the Federal Reserve, depository institutions, including the Banks, are required to maintain cash reserves against a stated percentage of their transaction accounts. Effective October 9, 2008, the Federal Reserve Banks are now authorized to pay interest on such reserves. The current reserve requirements are as follows:

• for transaction accounts totaling $10.7 million or less, a reserve of 0%; and

• for transaction accounts in excess of $10.7 million up to and including $58.8 million, a reserve of 3%; and

• for transaction accounts totaling in excess of $58.8 million, a reserve requirement of $1.443 million plus 10% of that portion of the total transaction accounts greater than $58.8 million.

The dollar amounts and percentages reported here are all subject to adjustment by the Federal Reserve.

ITEM 1A. Risk Factors.

     This item is not applicable to smaller reporting companies.

ITEM 1B. Unresolved Staff Comments.

     Not applicable.

ITEM 2. PROPERTIES

     The Corporation’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 community offices (all of which are in Michigan):

• Branch — 15095 Silver Parkway, Fenton (owned)

• Branch — 18005 Silver Parkway, Fenton (leased)

• Loan Extension Office — 101 North Leroy Street, Fenton (owned)

• Branch — 107 Main Street, Linden (owned)

• Branch — 4043 Grange Hall Road, Holly (leased)

• Branch — 7606 S Saginaw, Grand Blanc (owned)

• Branch — 1401 E. Hill Road, Grand Blanc (owned)

• Branch — 134 N. First St, Brighton (owned)

• Operations Center — 3202 Owen Road, Fenton (owned)

     West Michigan Community Bank is headquartered in Hudsonville, Michigan, at 5367 School Avenue. West Michigan Community Bank also has the following community offices (all of which are in Michigan):

• Branch — 3467 Kelly Street, Hudsonville (owned)

• Branch — 81 E. 8^th Street, Holland (leased)

• Branch — 3493 W. Shore Dr, Holland (owned)

• Branch — 437 Baldwin Road, Jenison (owned)

12

     The Corporation owns the headquarters of each of its Banks and many of the other bank offices (as noted above). The balance of the bank offices 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 Corporation and its subsidiaries are parties to various legal proceedings incident to their business. At December 31, 2010, there were no legal proceedings which management anticipates would have a material adverse effect on the Corporation.

ITEM 4. RESERVED

ADDITIONAL ITEM — EXECUTIVE OFFICERS OF REGISTRANT

     The following information concerning executive officers of the Corporation has been omitted from the Registrant’s proxy statement pursuant to Instruction 3 to Regulation S-K, Item 401(b).

     Officers of the Corporation are appointed annually by the Board of Directors of the Corporation 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 Corporation because of the nature of the office they hold. Information concerning these executive officers is given below:

     Donald L. Grill (age 63) serves as President and Chief Executive Officer of the Corporation and Chief Executive Officer of The State Bank since 1996. From 1983 to 1996, Mr. Grill was employed by First of America Bank Corporation and served as President and Chief Executive Officer of First of America Bank — Frankenmuth.

     Ronald L. Justice (age 46) is the COO and President of The State Bank and Senior Vice President of the Corporation. Prior to holding these positions, he served as the CEO and President of West Michigan Community Bank, CEO and President of Davison State Bank, Secretary of the Corporation and CFO of the Corporation and its subsidiary Banks. Prior to that, Mr. Justice held other positions with The State Bank.

     Dennis E. Leyder (age 57) was appointed Senior Vice President of the Corporation on December 1, 2004 and served as President and Chief Operating Officer of The State Bank from December 2006 to January 2009. In his current capacity as Senior Vice President at The State Bank, he is responsible for all compliance, trust and investment management. Mr. Leyder has over 26 years of banking experience, all in Genesee County.

     Holly J Pingatore (age 53) is a Senior Vice President of the Corporation and a Senior Vice President of The State Bank. Prior to joining The State Bank in 1999, Ms. Pingatore served in various capacities at a large Michigan based regional bank.

     Douglas J. Kelley (age 41) was appointed Chief Financial Officer of the Corporation in 2003 and was appointed Senior Vice President of the Corporation on December 1, 2004. Mr. Kelley also serves as Secretary of the Corporation. Prior to being named Chief Financial Officer, he served as Controller and CFO of The State Bank and Davison State Bank. Prior to joining the Banks, Mr. Kelley was an Assistant Vice President and Accounting Officer with a large Michigan based Bank. Mr. Kelley has over 19 years of banking experience.

     Daniel J. Wollschlager (age 60) is the Chief Lending Officer and Executive Vice President of The State Bank. Prior to holding these positions, he was Senior Vice President of The State Bank, CEO of a south east Michigan bank and a senior officer of a large Midwest based regional bank.

13

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

     The market, dividend, and holders of record information required by this item appears under the caption “Fentura Financial, Inc. Common Stock” and Table 16 on page 64 under the title “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS”, of the Corporation’s 2010 Rule 14a-3 annual report, and is incorporated herein by reference. Please refer to the caption “Dividends” under “Item 1. Description of Business” of this Form 10-K for a discussion of regulations which affect our ability to pay dividends.

     The following table summarizes the repurchase activity of the Corporation’s common stock during the quarter ended December 31, 2010:

					Total Number of		Maximum Number of
					Purchased as		Shares that May Yet
	Total Number of		Average Price Paid		Publicly Announced		be Purchased Under
	Share Purchased		per Share		Plans or Programs		the Program
October 1-October 31		0	$	0.00		0		0
November 1-November 30		0	$	0.00		0		0
December 1-December 31		0	$	0.00		0		0
Total		0	$	0.00		0		0

     The Company does not currently have a repurchase program in place.

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 — SELECTED FINANCIAL DATA”, appearing in Table 1 on page 44 of the Corporation’s 2010 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 44 through 64 of the Corporation’s 2010 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 57 through 59, “Quantitative and Qualitative Disclosure About Market Risk” on page 61 and “Interest Rate Sensitivity Management” on pages 62 through 63 under the title “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS”, appearing on pages 44 through 64of the Corporation’s 2010 Rule 14a-3 annual report, and is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The consolidated financial statements of the Company including the notes thereto and Report of Crowe Horwath LLP, Independent Registered Public Accounting Firm, appear on pages 1 through 43 of the Financial Statements portion of the Corporation’s 2010 Rule 14a-3 annual report, and are

14

incorporated herein by reference. The supplementary data is not required for smaller reporting companies.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     On February 4, 2011, Fentura Financial, Inc. (“Fentura”) dismissed its independent registered public accounting firm, Crowe Horwath LLP (“Crowe Horwath”) to be effective upon Fentura filing its 2010 Form 10-K. Crowe Horwath’s report on Fentura’s consolidated financial statements as of and for the years ended December 31, 2009 and 2008 contained no adverse opinion or a disclaimer of opinion, and were not qualified as to uncertainty, audit scope or accounting principles, except that Crowe Horwath’s opinion on the 2009 consolidated financial statements included an explanatory paragraph describing substantial doubt about Fentura’s ability to continue as a going concern. The decision to change accountants was approved by the Audit Committee of the Board of Directors.

     During each of the years in the two year period ended December 31, 2010, and the subsequent interim period to the date hereof, there were (i) no disagreements between Fentura and Crowe Horwath on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Crowe Horwath, would have caused Crowe Horwath to make reference to the subject matter of the disagreements in connection with its reports.

     On February 4, 2011, Fentura notified Rehmann Robson, P.C. (“Rehmann”) of the registrant’s intent to formally engage Rehmann as its new independent registered public accounting firm to be effective upon Fentura filing its 2010 Form 10-K. During the last two fiscal years and the subsequent interim period to the date hereof, Fentura did not consult with Rehmann regarding (1) the application of accounting principles to any transaction, either completed or proposed; (2) the type of audit opinion that might be rendered on Fentura’s financial statements; or (3) any matter that was the subject of a disagreement (as defined in Item 304(a)(1)(v) of Regulation S-K).

ITEM 9A CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

     The Corporation’s Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Corporation’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) as of the end of the period covered by this Form 10-K Annual Report, have concluded that the Corporation’s disclosure controls and procedures were adequate and effective to ensure that material information relating to the Corporation would be made known to them by others within the Corporation, particularly during the period in which this Form 10-K Annual Report was being prepared.

     During 3^rd quarter end review procedures a formula error was uncovered in one of the Bank’s allowance for loan loss calculation work sheets which resulted in the overstatement of the allowance for loan losses. Management appropriately corrected the work sheet. Since no preliminary financial results were disclosed, a restatement was not required. Management has remediated this weakness has tested the effectiveness of the control.

15

Internal Control over Financial Reporting.

     Management’s Annual Report on Internal Control over Financial Reporting.

The management of Fentura Financial Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Fentura Financial Inc.’s internal control over financial reporting is a process designed under the supervision of the Corporation’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Corporation’s financial statements for external reporting purposes in accordance with United States generally accepted accounting principles.

Fentura Financial Inc.’s management assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2010 based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated Framework.” Based on that assessment, management determined that, as of December 31, 2010, the Corporation’s internal control over financial reporting is effective, based on those criteria.

Other than the remediated control referenced above, there was no change in the Corporation’s internal control over financial reporting that occurred during the Corporation’s quarter ended December 31, 2010, that materially affected, or is reasonably likely to affect, the Corporation’s internal control over financial reporting.

ITEM 9B OTHER INFORMATION

     None

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

     The Corporation’s executive officers are identified under “Additional Item” in Part I of this Report on Form 10-K. The other information required by this item appears under the captions “Proposal 1-2011 Election of Directors,” “The Corporation’s Board of Directors,” “Code of Ethics,” “Committees of the Corporation Board,” and “Compliance with Section 16 Reporting” on pages 3-10 and 19, respectively, of the Corporation’s 2011 Notice of Annual Shareholders Meeting and Proxy Statement, and is incorporated herein by reference.

     The Board of Directors of the Corporation has determined that Douglas W. Rotman, a director and member of the Audit Committee, qualifies as an “Audit Committee financial expert” as defined in rules adopted by the Securities and Exchange Commission pursuant to the Sarbanes-Oxley Act of 2002 and is independent pursuant to NASDAQ listing standards.

     The Board of Directors of the Corporation has adopted a Code of Ethics, which details principles and responsibilities governing ethical conduct for all Corporation directors and executive officers. The Code of Ethics is filed as an Exhibit to this Annual Report on Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

     The information required by this item appears under the captions “Director Compensation,” “Executive Compensation Discussion,” “Payments for Termination following a Change in Control” and “Compensation/ESOP Committee,” on pages 9 and 11 through 17 of the Corporation’s 2011 Notice of Annual Shareholders Meeting and Proxy Statement, and is incorporated herein by reference.

16

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

     The information required by this item appears under the caption “Stock Ownership of Directors, Executive Officers and Certain Major Shareholders” on page 5 of the Corporation’s 2011 Notice of Annual Shareholders Meeting and Proxy Statement, and is incorporated herein by reference.

     Securities Authorized for Issuance Under Equity Compensation Plans. The Corporation had the following equity compensation plans at December 31, 2010:

EQUITY COMPENSATION PLAN INFORMATION

					Number of securities
					remaining available for
					future issuance under
					equity compensation
	Number of securities to		Weighted-average		plans (excluding
	be issued upon exercise		exercise price of		securities reflected
	of outstanding options		outstanding options		in column (1))
Plan Category	(1)		(2)		(3)
Equity compensation plans approved by security holders		18,872	$	29.32		120,400
Equity compensation plans not approved by security holders		0		0		0
Total		18,872	$	29.32		120,400

     These equity compensation plans are more fully described in Note 11 to the Consolidated Financial Statements.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

     The information required by this item appears under the captions “Independence of Directors and Attendance at Meetings” and “Other Information — Transactions with Certain Interested Parties” on pages 7 and 20 respectively, of the Corporation’s 2011 Notice of Annual Shareholders Meeting and Proxy Statement, and is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     The information required by this item appears under the caption “Relationship with Independent Public Accountants” on page 18 of the Corporation’s 2010 Notice of Annual Shareholders Meeting and Proxy Statement and is incorporated herein by reference.

17

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)	1.	Financial Statements:
		The following consolidated financial statements of the Corporation and Report of Crowe Horwath LLP, Independent Registered Public Accounting Firm, 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 Crowe Horwath LLP, Independent Registered Public Accounting Firm
	2.	Financial Statement Schedules
		All schedules are omitted — see Item 15(c) 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)	Exhibits:
	The “Exhibit Index” follows the signature page of this report and is incorporated herein by reference.
(c)	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.

18

Signatures

     Pursuant to the requirements of 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, dated March 14, 2011.

Fentura Financial, Inc. (Registrant)
By	/s/ Donald L. Grill
	Donald L. Grill
	On behalf of the registrant and as President & CEO (Principal Executive Officer)
By	/s/ Douglas J. Kelley
	Douglas J. Kelley
	Chief Financial Officer (Principal Financial and Accounting Officer)

Pursuant to the requirements of 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 Forrest A. Shook 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/ Forrest A. Shook Forrest A. Shook	Chairman of the Board Director	March 14, 2011
/s/ Donald L. Grill Donald L. Grill	Director	March 14, 2011
/s/ Ronald K. Rybar Ronald K. Rybar	Director	March 14, 2011
/s/ Thomas P. McKenney Thomas P. McKenney	Director	March 14, 2011
/s/ Brian P. Petty Brian P. Petty	Director	March 14, 2011
/s/ JoAnne Shaw JoAnne Shaw	Director	March 14, 2011
/s/ William Dery William Dery	Director	March 14, 2011
/s/ Douglas W. Rotman Douglas W. Rotman	Director	March 14, 2011
/s/ James A. Wesseling James A. Wesseling	Director	March 14, 2011

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FENTURA FINANCIAL, INC.
2010 Annual Report on Form 10-K
EXHIBIT INDEX

Exhibit
No.	Exhibit
3(i)	Articles of Incorporation of Fentura Financial, Inc. (Incorporated by reference from Form 10-K for the year ended December 31, 2009).
3(ii)	Bylaws of Fentura Financial, Inc. (Incorporated by reference to Form 10-SB Registration Number 0-23550).
4.1	Amended and Restated Automatic Dividend Reinvestment Plan (Incorporated by reference to Registration Statement on Form S-3 — Registration No. 333-75194).
10.1	Supplemental Executive Retirement Agreement with Donald Grill dated March 16, 2007 (Incorporated by reference from Current Report filed on Form 8-K on March 22, 2007).
10.2	Supplemental Executive Retirement Agreement with Daniel Wollschlager dated October 24, 2008 (Incorporated by reference from Current Report filed on Form 8-K on October 29, 2008).
10.3	Non-Employee Director Stock Option Plan (Incorporated by reference to Form 10-K SB filed on March 17, 1996).
10.4	Form of Non Employee Stock Option Plan Agreement (Incorporated by reference to Form 10-Q SB filed on May 2, 1996)
10.5	Retainer Stock Option Plan for Directors (Incorporated by reference to Form 10-K SB filed on March 17, 1996).
10.6	Employee Stock Option Plan (Incorporated by reference to Form 10-K SB filed on March 17, 1996).
10.7	Form of Employee Stock Option Plan Agreement (Incorporated by reference to Form 10-K SB filed on March 17, 1996).
10.8	Stock Purchase Plan between The State Bank and Donald E. Johnson, Jr., Mary Alice J. Heaton, and Linda J. LeMieux dated November 17, 1996 (Incorporated by reference to Exhibit 10.19 to the Form 10-K SB filed March 20, 1997).
10.9	Stock Purchase Plan (Incorporated by reference to Exhibit 99.1 Form S-8 filed on August 10, 2004).
10.10	Severance Compensation Agreement between Donald L. Grill. (Incorporated by reference from Current Report on Form 8-K filed on July 24, 2008).
10.11	Severance Compensation Agreement between Ronald L. Justice. (Incorporated by reference from Current Report on Form 8-K filed on July 24, 2008).
10.12	Severance Compensation Agreement between Dennis E. Leyder. (Incorporated by reference from Current Report on Form 8-K filed on July 24, 2008).
10.13	Severance Compensation Agreement between Douglas J. Kelley. (Incorporated by reference from Current Report on Form 8-K filed on July 24, 2008).

20

Exhibit
No.	Exhibit
10.14	Severance Compensation Agreement between Holly J. Pingatore. (Incorporated by reference from Current Report on Form 8-K filed on July 24, 2008).
10.15	Nonqualified Deferred Compensation Plan. (Incorporated by reference from Exhibit 10.11 to the Current report on Form 8-K filed October 29, 2008).
10.16	Fentura Bancorp, Inc. Employee Deferred Compensation and Stock Ownership Plan. (Incorporated by reference to Exhibit 10.13 to the Form 10-K filed March 28, 2005).
10.17	2006 Executive Stock Bonus Plan (Filed as Exhibit 10.1 Form 8-K filed on December 4, 2006).
10.18	Written agreement with the Federal Reserve Bank of Chicago date November 4, 2010, (Incorporated by reference from current report on Form 8-K filed on November 12, 2010).
13	Rule 14a-3 Annual Report to Security Holders (This report, except for those portions which are expressly incorporated by reference in this filing, is furnished for the information of the Securities and Exchange Commission and is not deemed filed as a part of this Report).
14	Code of Ethics for Directors and Executive Officers (Filed herewith).
21.1	Subsidiaries of the Registrant (Filed herewith).
23.1	Consent of Independent Registered Public Accounting Firm (Filed herewith).
24	Powers of Attorney. Contained on the signature page of this report.
31.1	Certificate of President and Chief Executive Officer of Fentura Financial, Inc. pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certificate of Chief Financial Officer of Fentura Financial, Inc. pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certificate of Chief Executive Office and Chief Financial Officer of Fentura Financial, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1	Stipulation and Consent-The State Bank (Incorporated by reference from Exhibit 99.2 of Current Report on Form 8-K filed on February 1, 2010).

21

EX-13

Exhibit 13

Rule 14a-3 Annual Report

FENTURA FINANCIAL, INC.

FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
December 31, 2010 and 2009

and

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FENTURA FINANCIAL, INC.

Fenton, Michigan
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

CONTENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	1
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS	2
CONSOLIDATED STATEMENTS OF INCOME	3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY	5
CONSOLIDATED STATEMENTS OF CASH FLOWS	6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	7-44
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	45-65

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Fentura Financial, Inc.
Fenton, Michigan

We have audited the accompanying consolidated balance sheets of Fentura Financial, Inc. as of December 31, 2010 and 2009, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2010. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. 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 financial position of Fentura Financial, Inc. as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2010 in conformity with U.S. generally accepted accounting principles.

As discussed in Note 14, the Corporation’s bank subsidiary is not in compliance with revised minimum regulatory capital requirements under a formal regulatory agreement which has imposed limitations on certain operations. Failure to comply with the regulatory agreement may result in additional regulatory enforcement actions.

Grand Rapids, Michigan March 9, 2011	/s/ Crowe Horwath LLP

FENTURA FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2010 and 2009
(000s omitted except share and per share data)

	2010			2009
ASSETS
Cash and due from banks	$	11,592		$	15,490
Federal funds sold		21,900			16,150
Total cash and cash equivalents		33,492			31,640
Securities available for sale, at fair value		41,875			33,939
Securities held to maturity (fair value 2010 - $4,383; 2009 - $5,492)		4,350			5,455
Total securities		46,225			39,394
Loans held for sale		850			229
Loans, net of allowance of 2010- $10,027; 2009- $8,589		197,948			233,461
Bank premises and equipment		10,335			10,994
Accrued interest receivable		1,050			1,289
Bank owned life insurance		5,800			5,947
Federal Home Loan Bank stock		740			806
Other real estate owned		2,742			3,761
Assets of discontinued operations		122,968			185,273
Other assets		2,078			9,285
Total Assets	$	424,228		$	522,079
LIABILITIES AND STOCKHOLDERS EQUITY
Deposits:
Non-interest-bearing deposits	$	55,044		$	53,113
Interest-bearing deposits		220,933			258,438
Total deposits		275,977			311,551
Short-term borrowings		879			164
Federal Home Loan Bank advances		954			981
Subordinated debentures		14,000			14,000
Liabilities of discontinued operations		113,321			172,077
Accrued taxes, interest and other liabilities		3,042			2,774
Total liabilities		408,173			501,547
Shareholders’ equity
Common stock — $0 par value, 5,000,000 shares authorized, shares issued and outstanding 2,308,765 — 2010; 2,248,553 — 2009		43,036			42,913
Retained deficit		(27,042	)		(21,657	)
Accumulated other comprehensive income (loss)		61			(724	)
Total shareholders’ equity		16,055			20,532
Total liabilities and shareholders’ equity	$	424,228		$	522,079

See accompanying notes to consolidated financial statements.

2

FENTURA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2010 and 2009
(000s omitted except share and per share data)

	2010			2009
Interest income	$	13,874		$	16,239
Loans, including fees
Securities:
Taxable		881			1,173
Tax-exempt		295			474
Short-term investments		27			3
Total interest income		15,077			17,889
Interest expense
Deposits		4,032			6,230
Other borrowings		520			695
Total interest expense		4,552			6,925
Net interest income		10,525			10,964
Provision for loan losses		6,934			11,040
Net interest income after provision for loan losses		3,591			(76	)
Non-interest income
Service charges on deposit accounts		1,445			1,726
Gain on sale of mortgage loans		701			744
Trust and investment services income		915			919
Gain on sale of securities		51			0
Other than temporary loss
Total impairment		(359	)		(288	)
Loss recognized in other comprehensive income		52			0
Net impairment loss recognized in earnings		(307	)		(288	)
Loss on equity investment		0			(1,360	)
Other income and fees		1,968			1,649
Total non-interest income		4,773			3,390
Non-interest expense
Salaries and employee benefits		6,387			6,650
Occupancy		1,225			1,326
Furniture and equipment		1,265			1,339
Loan and collection		1,279			2,559
Advertising and promotional		101			121
Telephone and communication services		247			251
Other professional services		294			179
Other general and administrative		2,289			2,286
Total non-interest expense		13,087			14,711
Income/(loss) from continuing operations before income tax		(4,723	)		(11,397	)
Federal income tax expense/(benefit)		(202	)		2,283
Income/(loss) from continuing operations		(4,521	)		(13,680	)
Net income/(loss) from discontinued operations, net of tax		(864	)		(3,300	)
Net income (loss)	$	(5,385	)	$	(16,980	)
Net income/(loss) per share from continuing operations:
Basic and diluted	$	(1.99	)	$	(6.20	)
Net income/(loss) per share from discontinued operations:
Basic and diluted	$	(0.38	)	$	(1.50	)
Net income/(loss) per share
Basic and diluted	$	(2.37	)	$	(7.70	)
Cash dividends declared	$	0		$	0

See accompanying notes to consolidated financial statements.

3

FENTURA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 2010 and 2009
(000s omitted except share and per share data)

	2010			2009
Net loss	$	(5,385	)	$	(16,980	)
Other comprehensive income (loss), net of tax:
Unrealized holding gains arising during period		731			1,622
Impairment loss recognized in income		307			288
Reclassification adjustments from losses realized in net loss from discontinued operations		202			0
Reclassification adjustment for gains realized in income		(51	)		(12	)
Tax effect		(404	)		(645	)
Other comprehensive income		785			1,253
Comprehensive loss	$	(4,600	)	$	(15,727	)

See accompanying notes to consolidated financial statements.

4

FENTURA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Years ended December 31, 2010 and 2009
(000s omitted except share and per share data)

						Accumulated
						Other			Total
	Common		Retained			Comprehensive			Shareholders’
	Stock		Earnings			Income (Loss)			Equity
Balance, January 1, 2009	$	42,778	$	(4,677	)	$	(1,977	)	$	36,124
Net loss		0		(16,980	)		0			(16,980	)
Issuance of shares under stock purchase and dividend reinvestment plans (62,788 shares)		135		0			0			135
Other comprehensive loss (net of tax)		0		0			1,253			1,253
Balance, December 31, 2009	$	42,913	$	(21,657	)	$	(724	)	$	20,532
Net loss		0		(5,385	)		0			(5,385	)
Issuance of shares under stock purchase and dividend reinvestment plans (60,212 shares)		123		0			0			123
Other comprehensive income (net of tax)		0		0			785			785
Balance, December 31, 2010	$	43,036	$	(27,042	)	$	61		$	16,055

See accompanying notes to consolidated financial statements.

5

FENTURA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2010 and 2009

(000s omitted except share and per share data)

	2010			2009
OPERATING ACTIVITIES:
Net loss	$	(5,385	)	$	(16,980	)
Adjustments to reconcile net loss to cash Provided by Operating Activities:
Depreciation, amortization and accretion		613			682
Establishment of deferred tax asset valuation allowance		0			6,464
Deferred income taxes		(339	)		(785	)
Provision for loan losses		6,934			11,040
Loans originated for sale		(44,315	)		(58,580	)
Proceeds from the sale of loans		44,395			59,785
Gain on sales of loans		(701	)		(744	)
Gain on sale of securities		(51	)		0
(Gain) loss on sale of other real estate owned		(363	)		28
Write downs on other real estate owned		342			1,184
Loss on equity investment		0			1,360
Loss on security impairment		307			288
Earnings from bank owned life insurance		(150	)		(65	)
Net (increase) decrease in interest receivable & other assets		7,381			(7,519	)
Net increase (decrease) in interest payable & other liabilities		268			1,004
Net change in discontinued operations operating activities		2,201			4,428
Total Adjustments		16,522			18,570
Net cash provided by (used in) operating activities		11,137			1,590
Cash Flows From Investing Activities:
Proceeds from maturities of securities — HTM		725			1,303
Proceeds from maturities of securities — AFS		10,301			9,746
Proceeds from calls of securities — HTM		380			0
Proceeds from calls of securities — AFS		4,700			2,500
Proceeds from sales of securities — AFS		8,677			0
Purchases of securities — AFS		(30,515	)		(8,340	)
Proceeds from sales of equity securities		6			9
Net decrease (increase) in loans		26,299			34,806
Proceeds from FHLB stock repurchase		66			0
Proceeds from bank owned life insurance		297			203
Sales of other real estate owned		3,320			1,380
Acquisition of premises and equipment, net		(126	)		(130	)
Net change in discontinued operations investing activities		21,441			23,230
Net cash provided by (used in) investing activities		45,571			64,707
Cash Flows From Financing Activities:
Net decrease in deposits		(35,574	)		(20,441	)
Net increase (decrease) in short-term borrowings		715			(1,336	)
Proceeds from/(repayment) of notes payable		0			(1,000	)
Repayments of advances from FHLB		(27	)		(26	)
Net proceeds from stock issuance and repurchase		123			135
Cash dividends		0			0
Net change in discontinued operations financing activities		(24,790	)		(19,936	)
Net cash provided by (used in) financing activities		(59,553	)		(42,604	)
Net change in cash and cash equivalents		(2,845	)		23,693
Cash and cash equivalents-Beginning	$	44,646		$	20,953
Cash and cash equivalents at year end		41,801			44,646
Less cash and cash equivalents of discontinued operations		8,309			13,006
Cash and cash equivalents of continuing operations at year end	$	33,492		$	31,640
Cash paid for (received from):
Interest	$	4,147		$	7,073
Income taxes	$	(361	)	$	(519	)
Non-cash disclosures:
Transfers from loans to other real estate	$	2,459		$	4,255
Loans provided for sales of other real estate owned	$	179		$	0

See accompanying notes to consolidated financial statements.

6

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Principles of Consolidation: The consolidated financial statements include Fentura Financial, Inc. (the Corporation) and its wholly owned subsidiary, The State Bank in Fenton, Michigan; and reported as discontinued operations, West Michigan Community Bank in Hudsonville, Michigan and the other subsidiaries of the Banks. Intercompany transactions and balances are eliminated in consolidation.

In 2009, the Corporation entered into an agreement to sell one of its bank subsidiaries, Davison State Bank, to a private, nonaffiliated investor group. This sale closed on April 30, 2010. Additionally, the Corporation entered into an agreement to sell West Michigan Community Bank to a bank holding company. This sale closed on January 31, 2011. As a result of these sale agreements, both subsidiaries are reported as discontinued operations. See Note 13 for further discussion.

The Corporation provides banking and trust services principally to individuals, small businesses and governmental entities through its nine community banking offices in Genesee, Livingston, and Oakland Counties in southeastern Michigan. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential mortgage, commercial, and installment loans. Commercial real estate and construction loans are 56.0% of total loans and other commercial business loans are 20.9% of total loans at December 31, 2010. For the year ended December 31, 2009, the loan portfolio was composed as follows: commercial real estate and construction loans 64.0%, of total loans and other commercial business loans 12.8% of total loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets and real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Real estate loans are secured by both residential and commercial real estate. The Corporation’s exposure to credit risk is substantially affected by the economy in the Corporation’s market area and by changes in commercial real estate values. While the loan portfolio is substantially commercial based, the Corporation is not dependent on any single borrower. Other financial instruments which potentially represent concentrations of credit risk include deposit accounts in other financial institutions and federal funds sold.

The principal source of liquidity of the Corporation is dividends from its bank subsidiaries and deposits in the subsidiary banks. The Corporation’s access to liquidity from its banking subsidiaries is subject to regulatory restrictions, as a result of the Consent Orders entered into with various banking regulators further described in Note 14. The Banks are currently subject to restrictions on their ability to make dividend payments without prior regulatory approval. The Corporation currently believes that it has cash on hand to cover its financial obligations and expenses for the foreseeable future and is not reliant on new capital funding to meet such obligations. The Banks’ primary sources of liquidity are deposits that consist of non-maturing and maturing time deposits. At December 31, 2010 maturing time deposits consist of brokered deposits equaling 8.0% of total deposits and other time deposits equaling 29.7% of total deposits. Details regarding deposits are further described in Note 7 of the Financial Statements.

Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, the fair values of securities and other financial instruments, other than temporary impairment of securities, the carrying value of other real estate owned and deferred taxes are particularly subject to change.

7

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Cash Flows: Cash and cash equivalents, includes cash, deposits with other financial institutions under 90 days, and federal funds sold. Net cash flows are reported for customer loan and deposit transactions and short-term borrowings.

Securities: Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities, where prepayments are anticipated. Gains and losses on sales are based on the amortized cost of the security sold.

Management evaluates securities for other-than-temporary (OTTI) impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

In determining OTTI management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss. If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs, and an allowance for loan losses. Loans held for sale are reported at the lower of cost or fair value, on an aggregate basis and are sold with servicing rights released.

Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments. Interest

8

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

income is not reported when full loan repayment is in doubt, typically when the loan is impaired or payments are past due over 90 days (180 days for residential mortgages).

All interest accrued but not received for loans placed on non-accrual are reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Consumer loans are typically charged off no later than 120 days past due.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segments and is based on the actual loss history experienced by the Corporation over the most recent three years. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The following portfolio segments have been identified: commercial, commercial real estate, residential mortgage, installment loans and home equity loans.

A loan is impaired when full payment under the loan terms is not expected. Commercial and commercial real estate loans are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures. Loans for which the terms have been modified and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and are classified as impaired. Troubled debt restructurings are measured at the present value of estimated future cash flows using the loans effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral.

Other Real Estate Owned and Foreclosed Assets: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less estimated selling costs when acquired, establishing a new cost

9

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

basis. If fair value declines, a valuation allowance is recorded through expense. Costs after acquisition are expensed.

Premises and Equipment: Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Buildings and related components are depreciated using the straight-line method with useful lives ranging from 15 to 40 years. Furniture, fixtures and equipment are depreciated using the straight-line method with useful lives ranging from 3 to 7 years.

Federal Home Loan Bank (FHLB) stock: The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Long-term Assets: Premises and equipment and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

Bank Owned Life Insurance: The Bank has purchased life insurance policies on certain key executives. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Stock Based Compensation: Compensation cost is recognized for stock options and restricted stock awards issued to employees, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Corporation’s common stock at the date of grant is used for restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

The Corporation recognizes interest and/or penalties related to income tax matters in income tax expense. There was no such interest or penalties in 2010 or 2009.

Loan Commitments and Financial Instruments: Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and standby letters of credit, issued to meet customer

10

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Earnings (loss) Per Common Share: Basic earnings or loss per common share are net income or net loss divided by the weighted average number of common shares outstanding during the period. Employee Stock Ownership Plan (ESOP) shares are considered outstanding for this calculation unless unearned. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under stock options.

Comprehensive Income: Comprehensive income consists of net income (loss) and other comprehensive income (loss). Other comprehensive income includes unrealized gains and losses on securities available for sale, which are also recognized as separate components of equity.

Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank of $25,000 and $60,000 was required to meet regulatory reserve and clearing requirements at year-end 2010 and 2009 respectively.

Dividend Restrictions: Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Banks to the Corporation or by the Corporation to shareholders. West Michigan Community Bank and The State Bank have been restricted from dividend payments due to the signing of Consent Orders with the Federal Deposit Insurance Corporation (FDIC). The Holding Company has been placed under restrictions by The Federal Reserve regarding the declaration or payment of any dividends and the receipt of dividends from subsidiary Banks.

Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Operating Segments: While the Corporation’s chief decision-makers monitor the revenue streams of the various Corporation products and services, operations are managed and financial performance is evaluated on a Corporate-wide basis. Accordingly, all of the Corporation’s financial service operations are considered by management to be aggregated in one reportable operating segment.

Reclassifications: Some items in the prior year financial statements were reclassified to conform to the current presentation.

New Accounting Pronouncements: In June 2009, the FASB amended previous guidance relating to transfers of financial assets and eliminates the concept of a qualifying special purpose entity. This guidance must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. This guidance must be applied to transfers occurring on or after the effective date. Additionally, on and after the effective date, the concept of a qualifying special-purpose entity is no longer relevant for accounting purposes. Therefore, formerly qualifying special-purpose entities should be evaluated for

11

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

consolidation by reporting entities on and after the effective date in accordance with the applicable consolidation guidance. The disclosure provisions were also amended and apply to transfers that occurred both before and after the effective date of this guidance. The effect of adopting this new guidance was not material to the Corporation.

In June 2009, the FASB amended guidance for consolidation of variable interest entity guidance by replacing the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. Additional disclosures about an enterprise’s involvement in variable interest entities are also required. This guidance is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Early adoption is prohibited. The effect of adopting this new guidance was not material to the Corporation.

In July 2010, the FASB issued an Accounting Standards Update, “Receivables: Disclosure About the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” The objective of this ASU is for an entity to provide disclosures that facilitate financial statement users’ evaluation of the nature of credit risk inherent in the entity’s portfolio of financing receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses, and the changes and reasons for those changes in the allowance for credit losses. An entity should provide disclosure on a disaggregated basis on two defined levels: (1) portfolio segment; and (2) class of financing receivable. The update makes changes to existing disclosure requirements and includes additional disclosure requirements about financing receivables, including credit quality indicators of financing receivables at the end of the reporting period by class of financing receivables, the aging of past due financing receivables at the end of the reporting period by class of financing receivables and their effect on the allowance for credit losses. The Corporation adopted this update as of December 31, 2010 and the adoption had no impact on its operations.

NOTE 2 — EARNINGS PER SHARE

The factors in the earnings per share computation follow.

(000s omitted except share and per share data)	2010			2009
Basic
Net income (loss)	$	(5,385	)	$	(16,980	)
Weighted average common shares outstanding		2,272,065			2,205,419
Basic earnings (loss) per common share	$	(2.37	)	$	(7.70	)
Diluted
Net income (loss)	$	(5,385	)	$	(16,980	)
Weighted average common shares outstanding for basic earnings per common share		2,272,065			2,205,419
Add: Dilutive effects of assumed exercises of stock options		0			0
Average shares and dilutive potential common shares		2,272,065			2,205,419
Diluted earnings (loss) per common share	$	(2.37	)	$	(7.70	)

12

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 2 — EARNINGS PER SHARE (continued)

The factors in the earnings per share of continuing operations follow:

(000s omitted except share and per share data)	2010			2009
Basic
Net income (loss) of continuing operations	$	(4,521	)	$	(13,680	)
Weighted average common shares outstanding		2,272,065			2,205,419
Basic earnings (loss) per common share from continuing operations	$	(1.99	)	$	(6.20	)
Diluted
Net income (loss) of continuing operations	$	(4,521	)	$	(13,680	)
Weighted average common shares outstanding for basic earnings per common share		2,272,065			2,205,419
Add: Dilutive effects of assumed exercises of stock options		0			0
Average shares and dilutive potential common shares		2,272,065			2,205,419
Diluted earnings (loss) per common share from continuing operations	$	(1.99	)	$	(6.20	)

Stock options for 18,872, and 20,297 shares of common stock were not considered in computing diluted earnings per common share for 2010 and 2009 respectively, because they were antidilutive.

NOTE 3 — SECURITIES

Year-end securities were as follows:

Available for Sale	Amortized		Gross Unrealized		Gross Unrealized
(000s omitted)	Cost		Gains		Losses			Fair Value
2010
U.S. Government & federal agency	$	4,005	$	6	$	(11	)	$	4,000
Mortgage-backed residential		7,342		126		(36	)		7,432
Collateralized mortgage obligations-agencies		24,758		258		(114	)		24,902
Collateralized mortgage obligations-private label		4,215		0		(344	)		3,871
Equity securities		1,655		49		(34	)		1,670
	$	41,975	$	439	$	(539	)	$	41,875
2009
U.S. Government & federal agency	$	5,542	$	38	$	(67	)	$	5,513
State and municipal		5,788		81		(41	)		5,828
Mortgage-backed residential		10,560		242		0			10,802
Collateralized mortgage obligations-agencies		5,272		123		0			5,395
Collateralized mortgage obligations-private label		5,750		0		(878	)		4,872
Equity securities		1,971		21		(463	)		1,529
	$	34,883	$	505	$	(1,449	)	$	33,939

13

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 3 — SECURITIES (continued)

			Gross		Gross
Held to Maturity			Unrecognized		Unrecognized
(000s omitted)	Amortized Cost		Gains		Losses			Fair Value
2010
State and municipal	$	4,350	$	41	$	(8	)	$	4,383
	$	4,350	$	41	$	(8	)	$	4,383
2009
State and municipal	$	5,455	$	55	$	(18	)	$	5,492
	$	5,455	$	55	$	(18	)	$	5,492

The other-than-temporary impairment recognized in accumulated other comprehensive income was $0 and $97,000 for securities at December 31, 2010 and 2009.

Sales of available for sale securities were as follows:

(000s omitted)	2010			2009
Proceeds	$	8,683		$	9
Gross gains		215			0
Gross losses		(164	)		0

Contractual maturities of securities at year-end 2010 were as follows. Securities not due at a single maturity date, mortgage-backed, collateralized mortgage obligations and equity securities are shown separately.

	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
(000s omitted)	Cost		Value		Cost		Value
Due in one year or less	$	4,005	$	4,000	$	1,146	$	1,157
Due from one to five years		0		0		1,957		1,969
Due from five to ten years		0		0		879		892
Due after ten years		0		0		368		365
Mortgage-backed residential		7,342		7,432		0		0
Collateralized mortgage obligations-agencies		24,758		24,902		0		0
Collateralized mortgage obligations-private label		4,215		3,871		0		0
Equity securities		1,655		1,670		0		0
	$	41,975	$	41,875	$	4,350	$	4,383

Securities pledged at year-end 2010 and 2009 had a carrying amount of $8,707,000 and $18,878,000 and were pledged to secure public deposits and borrowings.

At year-end 2010 two holdings totaling $3,871,000 in securities issued by Wells Fargo and Bear Stearns exceeded 10% of shareholder’s equity. At year-end 2009 holdings totaling $2,406,000 in securities issued by Wells Fargo exceed 10% of shareholders’ equity.

14

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 3 — SECURITIES (continued)

Securities with unrealized losses at year-end 2010 and 2009, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position are as follows:

2010
(000s omitted)	Less than 12 months					12 months or more					Total
Description of	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Securities	Value		Loss			Value		Loss			Value		Loss
US Gov’t & federal agencies	$	1,989	$	(11	)	$	0	$	0		$	1,989	$	(11	)
State & municipal		365		(3	)		245		(5	)		610		(8	)
Mortgage backed residential		2,062		(36	)		0		0			2,062		(36	)
Collateralized Mortgage Obligations-agencies		6,085		(114	)		0		0			6,085		(114	)
Collateralized Mortgage Obligations-private label		0		0			3,871		(344	)		3,871		(344	)
Equity securities		186		(14	)		439		(20	)		625		(34	)
Total temporarily impaired	$	10,687	$	(178	)	$	4,555	$	(369	)	$	15,242	$	(547	)

2009
(000s omitted)	Less than 12 months					12 months or more					Total
Description of	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Securities	Value		Loss			Value		Loss			Value		Loss
US Gov’t & federal agencies	$	3,475	$	(67	)	$	0	$	0		$	3,475	$	(67	)
State & municipal		497		(18	)		659		(41	)		1,156		(59	)
Collateralized Mortgage Obligations-private label							4,872		(878	)		4,872		(878	)
Equity securities		0		0			1,009		(463	)		1,009		(463	)
Total temporarily impaired	$	3,972	$	(85	)	$	6,540	$	(1,382	)	$	10,512	$	(1,467	)

Other-Than-Temporary-Impairment

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. In evaluating OTTI, management considers the factors presented in Note 1.

The table below presents a roll forward of the credit losses recognized in earnings on debt securities for which a portion of OTTI was recognized in other comprehensive income for the period ended December 31, 2010:

(000s omitted)	2010			2009
Beginning balance, January 1,	$	288		$	0
Additions for credit losses on securities for which no previous other-than-temporary impairment was recognized		298			288
Increases to credit losses on securities for which other-than-temporary impairment was previously recognized		9			0
Reduction for previous credit losses realized on securities sold during the period		(88	)		0
Ending balance, December 31,	$	507		$	288

15

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 3 — SECURITIES (continued)

As of December 31, 2010, the Corporation’s security portfolio consisted of 87 securities, 13 of which were in an unrealized loss position. The majority of unrealized losses are related to the Corporation’s collateralized mortgage obligations (CMOs) as discussed below.

In 2010, the Corporation recognized other-than-temporary impairments totaling $307,000 on four individual investments. Three of the impairments, totaling $298,000 were recognized on equity securities as a result of analysis of the declining performance of the individual institutions. The fourth totaling $9,000 was on a single collateralized mortgage obligation instrument and was recognized due to the deterioration of the underlying loans. In 2009, the Corporation recognized other-than-temporary impairments totaling $288,000 on four individual investments. Three of the impairments, totaling $209,000 were recognized on equity securities as a result of analysis of the declining performance of the individual institutions. The fourth totaling $79,000 was on the previously mentioned collateralized mortgage obligation.

Collateralized Mortgage Obligations

The decline in fair value of the Corporation’s private label collateralized mortgage obligations is primarily attributable to the lack of liquidity and the financial crisis affecting these markets and not necessarily the expected cash flows of the individual securities. The ratings held on the private label securities are AA and A-. The underlying collateral of these CMOs is comprised largely of 1-4 family residences. In each of these securities, the Corporation holds the senior tranche and receives payments before other tranches. For private label securities, management completes an analysis to review the recent performance of the mortgage pools underlying the instruments. At December 31, 2010, two of the private label securities with an amortized cost of $3,900,000 have an unrealized loss of $344,000.

The Corporation has also been closely monitoring the performance of the CMO and MBS portfolios. In 2009, there were several CMOs that were downgraded in the market. Management continued to monitor items such as payment streams and underlying default rates, and did not determine a severe change in these items. On a quarterly basis, management uses multiple assumptions to project the expected future cash flows of the private label CMO’s with prepayment speeds, projected default rates and loss severity rates. The cash flows are then discounted using the effective rate on the securities determined at acquisition. Recent historical experience is the base for determining the cash flow assumptions and are adjusted when appropriate after considering characteristics of the underlying loans collateralizing the private label CMO security. As a result of its review, the Corporation recognized a $9,000 other-than-temporary impairment as a result of incurred credit losses which has been reflected in the income statement. The security with the credit loss was the Corporation’s sole CCC rated security. The Corporation sold this security during the fourth quarter of 2010 and recognized an additional loss of $136,000.

The Corporation has three agency collateralized mortgage obligations with an unrealized loss of $114,000. The decline in value is primarily due to changes in interest rates and other market conditions.

Equity Securities

The Corporation’s equity investments with unrealized losses are investments into non-public bank holding companies within Michigan. These securities receive a multi-faceted review utilizing call report data. Management reviews such performance indicators as earnings, ROE, ROA, non-performing assets,

16

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 3 — SECURITIES (continued)

brokered deposits and capital ratios. Management draws conclusions from this information, as well as any published information or trading activity received from the individual institutions, to assist in determining if any unrealized loss is other than temporary impairment.

Additionally management considers the length of time the investments have been at an unrealized loss. At the end of the fourth quarter, management performed its review and determined that no additional other-than-temporary impairment was necessary on the equity securities in the portfolio.

During 2010 OTTI totaling $298,000 was recognized on the Corporation’s equity securities in bank holding companies. The impairment was recognized as a result of the length of time these securities have been at an unrealized loss position.

US Government and federal agencies and state and municipal

Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Corporation does not have the intent to sell these mortgage-backed securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Corporation does not consider these securities to be other-than-temporarily impaired at December 31, 2010.

NOTE 4 — LOANS

Major categories of loans at December 31, are as follows:

(000s omitted)	2010		2009
Commercial	$	43,395	$	31,066
Real estate — commercial		106,784		133,097
Real estate — construction		9,597		21,904
Real estate — residential		19,046		23,681
Consumer		29,153		32,302
		207,975		242,050
Less allowance for loan losses		10,027		8,589
	$	197,948	$	233,461

The Corporation originates primarily residential and commercial real estate loans, commercial, construction and installment loans. The Corporation estimates that the majority of their loan portfolio is based in Genesee, Oakland 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 these areas.

Certain directors and executive officers of the Corporation, including their affiliates are loan customers of the Bank. These amounts are reflective of directors and executive officers of continuing operations only.

(000s omitted)	2010			2009
Beginning balance, January 1,	$	4,223		$	10,142
New loans		247			0
Repayments		(339	)		(115	)
Change in related parties		(1,033	)		(5,804	)
Ending balance, December 31,	$	3,098		$	4,223

17

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 4 — LOANS (continued)

Activity in the allowance for loan losses for the years is as follows:

(000s omitted)	2010			2009
Balance, beginning of year	$	8,589		$	7,328
Provision for loan losses		6,934			11,040
Loans charged off		(6,417	)		(9,996	)
Loan recoveries		921			217
Balance, end of year	$	10,027		$	8,589

18

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 4 — LOANS (continued)

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method at December 31, 2010:

			Commercial		Residential
			Real		Real				Home
(000s omitted)	Commercial		Estate		Estate		Installment Loans		Equity		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	184	$	5,962	$	95	$	69	$	160	$	18	$	6,488
Collectively evaluated for impairment		685		1,980		316		164		348		46		3,539
Total ending allowance balance	$	869	$	7,942	$	411	$	233	$	508	$	64	$	10,027
Loans:
Loans individually evaluated for impairment	$	1,183	$	25,602	$	1,069	$	228	$	357	$	0	$	28,439
Loans collectively evaluated for impairment		42,212		90,779		17,977		7,798		20,770		0		179,536
Total ending loans balance	$	43,395	$	116,381	$	19,046	$	8,026	$	21,127	$	0	$	207,975
Accrued interest receivable		357		429		76		55		58		0		975
Total recorded investment in loans	$	43,752	$	116,810	$	19,122	$	8,081	$	21,185	$	0	$	208,950

19

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 4 — LOANS (continued)

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 impaired loans is as follows at December 31:

(000s omitted)	2010		2009
Year end loans not requiring allocation	$	5,407	$	7,937
Year end loans requiring allocation		23,032		19,947
	$	28,439	$	27,884
Amount of the allowance for loan losses allocated	$	6,488	$	5,248

	2010		2009
Average of individually impaired loans during the year	$	27,612	$	25,129
Cash basis interest income recognized during impairment		1,262		1,057

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2010:

					Allowance
					for Loan
	Unpaid Principal		Recorded		Losses
	Balance		Investment		Allocated
With no related allowances recorded:
Commercial	$	490	$	490	$	0
Commercial Real Estate
Construction		149		149		0
Other		4,034		4,036		0
Residential real estate		544		544		0
Consumer
Installment Loans		116		116		0
Home Equity		74		75		0
With an allowance recorded:
Commercial		693		696		184
Commercial real estate:
Construction		348		348		101
Other		21,071		21,161		5,879
Residential real estate		525		529		95
Consumer
Installment loans		112		112		69
Home equity		283		284		160
Total	$	28,439	$	28,540	$	6,488

20

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 4 — LOANS (continued)

Non-accrual loans and loans past due 90 days still on accrual were as follows:

(000s omitted)	2010		2009
Loans past due over 90 days still on accrual	$	133	$	319
Renegotiated loans		3,654		1,454
Non-accrual loans		12,496		11,429

Non-accrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans at December 31, 2010:

			Loans Past Due
			Over 90 Days Still
(000s omitted)	Nonaccrual		Accruing (1)
Commercial	$	1,847	$	0
Commercial real estate
Construction		5,234		0
Other		4,799		0
Consumer
Installment loans		121		0
Residential real estate		495		135
Total	$	12,496	$	135

(1) -Includes accrued interest receivable of $2

The following table presents the aging of the recorded investment in past due loans at December 31, 2010 by class of loans:

	30-59 Days Past		60-89 Days Past		Greater than 90		Total Past
(000s omitted)	Due		Due		Days Past Due (1)		Due
Commercial	$	26	$	235	$	1,209	$	1,470
Commercial real estate:
Construction		0		141		4,748		4,889
Other		1,186		11		4,133		5,330
Consumer:
Installment loans		46		4		96		146
Home Equity		118		5		0		123
Residential real estate
Traditional		156		0		630		786
Total	$	1,532	$	396	$	10,816	$	12,744

(1) -Includes accrued interest receivable of $2

21

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 4 — LOANS (continued)

Troubled Debt Restructurings:

The Corporation allocated $598,000 and $40,000 of specific reserves to customers whose loan terms have been modified in troubled debt restructuring as of December 31, 2010 and 2009. Renegotiated loans above are also included with impaired loans. The Corporation has no additional amounts committed to these customers.

Loans to be acquired from discontinued operations:

As part of the terms of the sale of West Michigan Community Bank, selected non performing assets will be acquired by a newly formed holding company. The holding company will acquire $1,100,000 of substandard loans, $4,400,000 of non-accrual loans and $800,000 of real estate in redemption. These loans have a $1,277,000 of allowance for loan losses allocated as of December 31, 2010.

Additionally, The State Bank will acquire $2,900,000 of watch credit grade loans. The total of all loans to be acquired is $9,200,000.

Credit Quality Indicators:

The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debts such as: current financial information, historical payment experience; credit documentation, public information, and current economic trends, among other factors. The Corporation analyzes loans individually by classifying the loans as to credit risk. This analysis includes non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a quarterly basis. The Corporation uses the following definitions for classified risk ratings:

Watch. Loans classified as watch have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection nor liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The Corporation does not classify loans as doubtful. Loans that approach this status are charged-off.

22

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 4 — LOANS (continued)

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be prime or pass rated loans. At December 31, 2010, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

(000s omitted)	Prime		Pass		Watch		Substandard		Total
Commercial	$	3,174	$	33,871	$	3,530	$	3,177	$	43,752
Commercial real estate:
Construction		0		755		1,414		6,979		9,148
Other		0		81,739		9,863		16,060		107,662
Total	$	3,174	$	116,365	$	14,807	$	26,216	$	160,562

The Corporation considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Corporation also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in residential and consumer loans based on payment activity as of December 31, 2010:

	Consumer				Residential
(000s omitted)	Home Equity		Installment		Traditional		Total
Performing	$	21,128	$	7,553	$	18,053	$	46,734
Non-performing		57		528		1,069		1,654
Total	$	21,185	$	8,081	$	19,122	$	48,388

NOTE 5 — OTHER REAL ESTATE OWNED

Other real estate owned at December 31, included in continuing operations, was:

(000s omitted)	2010			2009
Beginning balance	$	3,761		$	2,099
Transfers into other real estate		2,459			4,255
Sales of other real estate owned		(3,136	)		(1,409	)
Write downs of other real estate owned		(342	)		(1,184	)
Ending balance	$	2,742		$	3,761

Net gains (losses) on sales of other real estate were $363,000 in 2010 and ($28,000) in 2009. Due to declining real estate values, the Corporation experienced write-downs of other real estate owned of $342,000 in 2010 and $1,184,000 in 2009. Carrying costs associated with other real estate owned totaled $482,000 in 2010 and $823,000 in 2009.

As part of the terms of the sale of West Michigan Community Bank, $3,900,000 other real estate owned, included in discontinued operations, will be retained by a newly formed real estate holding company.

23

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 5 — OTHER REAL ESTATE OWNED (continued)

Other real estate owned at December 31, included in discontinued operations, was:

(000s omitted)	2010			2009
Beginning balance	$	4,206		$	3,885
Transfers into other real estate		1,714			1,294
Sales of other real estate owned		(2,003	)		(746	)
Write downs of other real estate owned		(63	)		(227	)
Ending balance	$	3,854		$	4,206

NOTE 6 — PREMISES AND EQUIPMENT, NET

Bank premises and equipment is comprised of the following at December 31:

(000s omitted)	2010		2009
Land and land improvements	$	2,305	$	2,305
Building and building improvements		11,421		11,385
Furniture and equipment		5.802		5,979
Construction in progress		0		8
		19,528		19,677
Less accumulated depreciation		9,193		8,683
	$	10,335	$	10,994

Depreciation expense, of continuing operations, was $785,000 and $848,000 for 2010 and 2009.

The Corporation leases property for certain branches and ATM locations. Rent expense of continuing operations were $96,000 for 2010 and $100,800 for 2009. Rent commitments under non-cancelable operating leases were as follows, before considering renewal options that generally are present (000s omitted):

2011	$	71
2012		52
2013		52
2014		52
2015		26
	$	253

NOTE 7 — DEPOSITS

The following is a summary of deposits of continuing operations at December 31:

(000s omitted)	2010		2009
Noninterest-bearing:
Demand	$	55,044	$	53,113
Interest-bearing:
Savings		64,133		60,663
Money market demand		52,723		57,123
Time, $100,000 and over		45,296		71,419
Time, $100,000 and under		58,781		69,233
	$	275,977	$	311,551

24

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 7 — DEPOSITS (continued)

Scheduled maturities of time deposits at December 31, were as follows:

(000s omitted)	2010		2009
In one year	$	50,519	$	79,103
In two years		36,361		28,404
In three years		9,500		22,600
In four years		4,839		5,525
In five years		2,770		4,895
Thereafter		88		125
	$	104,077	$	140,652

Brokered deposits totaled approximately $21,995,000 and $34,398,000 at December 31, 2010 and 2009. At December 31, 2010 and 2009, brokered deposits had interest rates ranging from 4.90% to 5.30% and 4.80% to 5.30%, respectively, and maturities ranging from five months to twenty-two months. Brokered deposits mature as follows: $11,005,000 in 2011 and $10,990,000 in 2012.

The State Bank is considered adequately capitalized at December 31, 2010 as a result, it is precluded, under prompt corrective action guidelines, from issuing or renewing brokered deposits. Management anticipates repayment of brokered deposits as they mature using fed funds and the Banks’ local deposits.

Deposits from principal officers, directors, and affiliates of continuing operations at year-end December 31, 2010 and 2009 were $4,528,000 and $2,083,000.

NOTE 8 — 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.

Federal Home Loan Bank Advance

At year-end, advances of continuing operations, from the FHLB were as follows:

(000s omitted)	Advance
Principal Terms	Amount		Maturity Date
December 31, 2010
Single maturity fixed rate advance with rate of 7.34%	$	954	May 2016
December 31, 2009
Single Maturity fixed rate advance, with rate of 7.34%	$	981	May 2016

The advance is payable at its maturity date, a prepayment penalty is assessed with early payoffs of advances. The advance was collateralized by securities totaling $6,700,000 and $11,136,000 at December 31, 2010 and 2009.

25

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 8 — BORROWINGS (continued)

Maturities over the next five years are (000s omitted):

2011		30
2012		33
2013		35
2014		39
2015		42
Thereafter		775
	$	954

Subordinated Debenture and Trust Preferred Securities

A trust formed by the Corporation issued $12,000,000 of trust preferred securities in 2003 as part of a pooled offering of such securities. The interest rate is a floating rate (LIBOR plus 3.00%) and the current rate at December 31, 2010 is 3.29%. The Corporation issued subordinated debentures at the same terms as the trust preferred securities to the trust in exchange for the proceeds of the offering; the debentures and related debt issuance costs represent the sole assets of the trust. The Corporation may redeem the subordinated debentures, in whole but not in part, any time after 2008 at a price of 100% of face value. The subordinated debentures must be redeemed no later than 2033.

A trust formed by the Corporation issued $2,000,000 of trust preferred securities in 2005 as part of a pooled offering of such securities. The interest rate is a floating rate (LIBOR plus 1.60%) and the current rate at December 31, 2010 is 1.88%. The Corporation issued subordinated debentures at the same terms as the trust preferred securities to the trust in exchange for the proceeds of the offering; the debentures and related debt issuance costs represent the sole assets of the trust. The Corporation may redeem the subordinated debentures, in whole but not in part, any time after 2010 at a price of 100% of face value. The subordinated debentures must be redeemed no later than 2035.

The Corporation is not considered the primary beneficiary of these trusts, therefore the trusts are not consolidated in the Corporations’ financial statements but rather the subordinated debentures are shown as a liability.

As the subsidiary banks are working to preserve capital and withholding the payment of dividends to the holding company, the Corporation elected in the first quarter of 2009 to defer interest payments for five years on $14,000,000 of subordinated debentures. The reason for the interest deferral is to maintain liquidity at the holding company and the Bank subsidiaries. Accrued interest payable on the subordinated debentures was $1,027,000 at December 31, 2010 compared to $577,000 at December 31, 2009. The Corporation is not in default under either of the indentures. During this five year period, the Corporation is precluded from paying dividends on its outstanding common stock. The Corporation subsequently may give notice that it elects to shorten the deferral period, pay accrued interest and return to the normal course of dividend payments.

26

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 9 — INCOME TAXES

The provision (benefit) for income taxes reflected in the consolidated statements of income for the years ended December 31 consists of the following:

(000s omitted)	2010			2009
Current expense (benefit) of continuing operations	$	137		$	(3,396	)
Deferred expense (benefit) of continuing operations		(339	)		(785	)
Establishment of valuation allowance		0			6,464
Net tax from continuing operations		(202	)		2,283
Net tax expense (benefit) of discontinued operations		0			(1,564	)
	$	(202	)	$	719

Income tax expense (benefit) for continuing operations was less than the amount computed by applying the statutory federal income tax rate to income (loss) before income taxes. The reasons for the difference are as follows:

(000s omitted)	2010			2009
Income tax at statutory rate	$	(1,431	)	$	(3,876	)
Valuation allowance		1,251			6,598
Tax exempt income		(124	)		(181	)
Other		102			(258	)
	$	(202	)	$	2,283

The net deferred tax asset recorded includes the following amounts of deferred tax assets and liabilities:

(000s omitted)	2010			2009
Deferred tax assets
Allowance for loan losses	$	4,614		$	3,877
Alternative minimum tax credit		563			622
Unrealized loss on securities available for sale		0			372
Compensation		443			415
Net operating loss		1,216			0
Non-accrual interest		248			173
Capital loss		1,393			1,390
ORE write downs		556			418
Other		256			408
		9,289			7,675
Deferred tax liabilities
Depreciation		(512	)		(578	)
Purchase accounting adjustments		(220	)		(253	)
Unrealized gain on securities available for sale		(31	)		0
Other		(83	)		(93	)
		(846	)		(924	)
Valuation allowance		(8,443	)		(6,751	)
	$	0		$	0

27

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 9 — INCOME TAXES (continued)

A valuation allowance related to deferred tax assets is required when it is considered more likely than not that all or part of the benefit related to such assets will not be realized. Management has reviewed the deferred tax position for the Corporation at December 31, 2010 and 2009. In 2009 the Corporation’s evaluation of taxable events, losses in recent years and the continuing deterioration of the Michigan economy led management to conclude that it was more likely than not that all or part of the benefit would not be realized. As a result, during the second quarter of 2009, the Corporation recognized a valuation allowance. During the fourth quarter of 2009, new tax laws were enacted which allowed the Corporation to exercise the option to carry the current year loss back over a five year taxable income period. In 2010 the Corporation evaluated the deferred tax position and found there to be no change at this time. The valuation allowance against our deferred tax assets may be reversed to income in future periods to the extent that the related deferred income tax assets are realized or the valuation allowance is otherwise no longer required. Management will continue to monitor our deferred tax assets quarterly for changes affecting their realizability.

There were no unrecognized tax benefits at December 31, 2010 or 2009, and the Corporation does not expect the total amount of unrecognized tax benefits to significantly increase in the next twelve months.

The Corporation and its subsidiaries are subject to U.S federal income taxes as well as income tax of the state of Michigan. The Corporation is no longer subject to examination by taxing authorities for years before 2007.

NOTE 10 — 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. No contributions were made to the Plan in 2010 or 2009.

The Corporation has also established a 401(k) Plan in which 50% of the employees’ contribution can be matched with a discretionary contribution by the Corporation up to a maximum of 6% of gross wages. In 2009 the Corporation elected to eliminate its contribution to the 401(k) Plan during the first quarter. This election was maintained in 2010. Therefore there were no contributions to the plan in 2010 and the reduced contributions in 2009 totaled $59,000.

The Corporation entered into Supplemental Executive Retirement Agreements (SERP Agreements) with certain executives. The SERP Agreements are designed to encourage executives to remain long term employees of the Corporation, and to provide specified benefits to certain key executives who contribute materially to the continued growth, development and future business success of the Corporation. The retirement benefits are an unsecured obligation of the Corporation. The Corporation and the Affiliate Bank has established other Non-Qualified Deferred Compensation arrangements for employees not covered under the SERP. The arrangements are designed to encourage certain officers to remain long term employees of the Corporation and the Banks, and to provide the officers with supplemental retirement income. At year end 2010 and 2009, accumulated liability for these plans totaled $671,246 and $585,030. The Corporation’s contributions to the plans in 2010 and 2009 were $0 and $99,367, respectively.

28

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 11 — 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 and the numbers of shares issued are at the sole discretion of the Board of Directors. No shares were granted under this plan during 2010 or 2009.

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. Similarly, a reverse agreement exists which allows the Corporation to redeem family shares to maintain the family ownership percentage in the event that stock repurchase activity more than offsets the shares available because of the DRIP.

The following summarizes shares issued under the various plans:

	2010		2009
Automatic dividend reinvestment plan		0		0
Director stock purchase & retainer stock		54,090		59,360
Stock options		0		0
Other issuance of stock		6,122		3,428
		60,212		62,788

29

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 11 — STOCK PURCHASE AND OPTION PLANS (continued)

Stock Option Plans

The Nonemployee Director Stock Option Plan provides for granting options to nonemployee directors to purchase the Corporation’s common stock. The purchase price of the shares is the fair market value at the date of the grant, and there is a three-year vesting period before options may be exercised. Options to acquire no more than 8,131 shares of stock may be granted under the Plan in any calendar year and options to acquire not more than 73,967 shares in the aggregate may be outstanding at any one time. No options were granted in 2010 or 2009.

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 86,936 shares. The administrator of the plan is a committee of directors. The administrator has the power to determine the number of options to be granted, the exercise price of the options and other terms of the options, subject to consistency with the terms of the Plan. No options were granted in 2010 or 2009.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model. Expected volatilities are based on historical volatilities of the Corporation’s common stock. The Corporation uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. Shares that are issued upon option exercise come from authorized but unissued shares.

The following table summarizes stock option activity:

						Weighted
						Average
	Number			Weighted		Remaining		Aggregate
	of			Average		Contractual		Intrinsic
	Options			Price		Life		Value
Options outstanding at January 1, 2010		20,297		$	29.55
Options forfeited 2010		(1,425	)		32.64
Options outstanding at December 31, 2010		18,872		$	29.32		2.59	$	0
Exercisable at December 31, 2010		18,872		$	29.32		2.59	$	0

No options were exercised during 2010 or 2009. As of December 31, 2010, there was no unrecognized compensation cost related to non-vested stock options granted under the Plan.

30

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 12 — FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values.

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing and asset or liability.

The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The remaining fair values of securities (Level 3 inputs) are based on the reporting entity’s own assumptions and basic knowledge of market conditions and individual investment performance. The Corporation reviews the performance of the securities that comprise level 3 on a quarterly basis.

Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Other Real Estate Owned: Non-recurring adjustments to certain commercial and residential real estate properties classified as other real estate owned are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property, resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.

31

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 12 — FAIR VALUE (continued)

Assets Measured on a Recurring Basis

Assets measured at fair value on a recurring basis are summarized below:

	Fair Value Measurements Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(000s omitted)	Total		(Level 1)		(Level 2)		(Level 3)
December 31, 2010
Available for sale securities
US Government and agency	$	4,000	$	0	$	4,000	$	0
Mortgage-backed residential		7,432		0		7,432		0
Collateralized mortgage obligations-agency		24,902		0		24,902		0
Collateralized mortgage obligations-private label		3,871		0		3,871		0
Equity securities		1,670		0		523		1,147
	$	41,875	$	0	$	40,728	$	1,147

	Fair Value Measurements Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(000s omitted)	Total		(Level 1)		(Level 2)		(Level 3)
December 31, 2009
Available for sale securities
US Government and agency	$	5,513	$	0	$	5,513	$	0
State and municipal		5,828		0		5,828		0
Mortgage-backed residential		10,802		0		10,802		0
Collateralized mortgage obligations-agency		5,395		0		5,395		0
Collateralized mortgage obligations-private label		4,872		0		4,872		0
Equity securities		1,529		17		1,512		0
	$	33,939	$	17	$	33,922	$	0

At June 30, 2009, $1,385,000 of equity securities were transferred from level 3 inputs to level 2 inputs due to the existence of observable trades in markets that are not active.

During 2010, $1,445,000 of equity securities were transferred from level 2 to level 3 due to no observable trades during 2010 and a change in valuation methodology.

32

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 12 — FAIR VALUE (continued)

The table below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

	Equity Securities
(000s omitted)	2010			2009
Beginning balance, Jan. 1,	$	0		$	1,229
Total gains or losses (realized / unrealized)
Included in earnings		0			7
Loss on security impairment		(298	)		(208	)
Included in other comprehensive income		0			357
Purchases, issuances and settlements
Transfers in and / or out of Level 3		1,445			(1,385	)
Ending balance, December 31,	$	1,147		$	0

Assets Measured on a Non-Recurring Basis

Assets measured at fair value on a non-recurring basis are summarized below:

			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(000s omitted)	Total		(Level 1)		(Level 2)		(Level 3)
At December 31, 2010
Impaired loans
Commercial	$	599	$	0	$	0	$	599
Commercial real estate		7,066		0		0		7,066
Residential real estate		716		0		0		716
Consumer		355		0		0		355
Total impaired loans	$	8,736	$	0	$	0	$	8,736
Other real estate owned
Commercial real estate	$	235	$	0	$	0	$	235
Residential real estate		60		0		0		60
Total other real estate owned	$	295		0		0	$	295
At December 31, 2009
Impaired loans	$	14,700	$	0	$	0	$	14,700
Other real estate owned		470		0		0		470

33

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 12 — FAIR VALUE (continued)

The following represent impairment charges recognized during the period:

Impaired loans, that are measured for impairment using the fair value of the collateral had a carrying amount of $12,500,000, with a valuation allowance of $3,764,000, resulting in an additional provision for loan losses of $700,000 at December 31, 2010. At December 31, 2009 impaired loans had a carrying amount of $19,947,000, with a valuation allowance of $5,247,000, which resulted in additional provision for loan losses of $1,959,000.

Other real estate owned which is measured at the lower of carrying value or fair value less costs to sell, had a net carrying amount of $2,742,000, of which $295,000 was at fair value at December 31, 2010, which resulted from write-downs totaling $352,000. At December 31, 2009 other real estate owned had a net carrying amount of $1,274,000, of which $470,000 was at fair value, which resulted from write-downs totaling $123,000.

Carrying amount and estimated fair value of financial instruments, not previously presented, at year end were as follows:

	2010				2009
	Carrying				Carrying
(000s omitted)	Amount		Fair Value		Amount		Fair Value
Assets:
Cash and cash equivalents	$	33,492	$	33,492	$	31,640	$	31,640
Securities — held to maturity		4,350		4,383		5,455		5,492
FHLB stock		740		n/a		806		n/a
Loans held for sale		850		850		229		229
Loans (including impaired loans)		197,948		194,925		233,461		258,506
Accrued interest receivable		1,050		1,050		1,289		1,289
Liabilities:
Deposits	$	275,977	$	272,223	$	311,551	$	297,608
Short-term borrowings		879		879		164		164
FHLB advances		954		1,369		981		1,257
Subordinated debentures		14,000		12,613		14,000		12,656
Accrued interest payable		1,166		1,166		758		758

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.

Securities

Fair values for securities held to maturity are based on similar information previously presented for securities available for sale.

34

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 12 — FAIR VALUE (continued)

FHLB Stock

It was not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

Loans held for sale

The fair values of these loans are determined in the aggregate on the basis of existing forward commitments or fair values attributable to similar loans.

Loans

For variable rate loans that re-price frequently and with no significant change in credit risk, fair values are based on carrying values. The fair value for other loans is estimated using discounted cash flow analysis. The carrying amount of accrued interest receivable approximates its fair value.

Off-balance-sheet instruments

The fair value of off-balance sheet items is not considered material.

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 certificates of deposit are estimated using 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 and other short-term borrowings approximate their fair values.

FHLB advances

Rates currently available for FHLB debt with similar terms and remaining maturities are used to estimate the fair value of the existing debt.

Subordinated Debentures

The estimated fair value of the existing subordinated debentures is calculated by comparing a current market rate for the instrument compared to the book rate. The difference between these rates computes the fair value.

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.

35

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 13 — DISCONTINUED OPERATIONS

On March 17, 2009, The Corporation entered into an agreement to sell all of the stock of one of its bank subsidiaries, Davison State Bank, to a private, non-affiliated, investor group. The Corporation recorded an estimated loss on the sale of Davison State Bank of $700,000 in the first quarter of 2009 which is recorded in net loss from discontinued operations. As a result of the amended sales agreement, the estimated loss of $700,000 was reversed in the first quarter of 2010. Condensed balance sheets and statements of income of discontinued operations are presented below. As of April 30, 2010, Davison State Bank was sold to an independent financial group. As a result, there is no balance sheet for presentation at December 31, 2010.

DAVISON STATE BANK
CONDENSED BALANCE SHEET OF DISCONTINUED OPERATIONS

	Dec 31,
(000s omitted)	2009
ASSETS
Cash and cash equivalents	$	2,537
Securities — available for sale		7,082
Securities — held to maturity		405
Loans, net of allowance ($678)		24,396
Other assets		3,499
Total assets	$	37,919
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Non-interest bearing	$	9,012
Interest bearing		26,265
Total deposits		35,277
Accrued taxes, interest and other liabilities		(60	)
Shareholders’ equity		2,702
Total liabilities and shareholders’ equity	$	37,919

On April 28, 2010, at the Annual Shareholder Meeting, a formal announcement was made regarding the signing of a definitive agreement to sell West Michigan Community Bank. The transaction was consummated on January 31, 2011, and the Corporation received $10,500,000 from the sale of West Michigan Community Bank (a 10% premium to book). As a condition of the sale, the Corporation acquired non-performing assets of West Michigan Community Bank which totaled $10,100,000. The assets will be housed in a newly formed real estate holding company subsidiary of the Corporation. In addition, The State Bank acquired $2,900,000 of watch rated credits into its loan portfolio.

36

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 13 — DISCONTINUED OPERATIONS (continued)

A condensed balance sheet of discontinued operations is presented below at December 31, 2010 and 2009.

WEST MICHIGAN COMMUNITY BANK
CONDENSED BALANCE SHEET OF DISCONTINUED OPERATIONS

	Dec 31,		Dec 31,
(000s omitted)	2010		2009
ASSETS
Cash and cash equivalents	$	8,309	$	10,469
Securities — available for sale		15,080		9,669
Loans, net of allowance ($3,543-2010, $2,137-2009)		86,353		111,844
Other assets		13,226		15,372
Total assets	$	122,968	$	147,354
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Non-interest bearing	$	13,751	$	11,739
Interest bearing		93,546		117,804
Total deposits		107,297		129,543
Federal Home Loan Bank advances		5,000		7,000
Accrued taxes, interest and other liabilities		1,024		317
Shareholders’ equity		9,647		10,494
Total liabilities and shareholders’ equity	$	122,968	$	147,354

TOTAL DISCONTINUED OPERATIONS
CONDENSED BALANCE SHEET OF DISCONTINUED OPERATIONS

	Dec 31,		Dec 31,
(000s omitted)	2010		2009
ASSETS
Cash and cash equivalents	$	8,309	$	13,006
Securities — available for sale		15,080		16,751
Securities — held to maturity		0		405
Loans, net of allowance ($3,543-2010, $2,815-2009)		86,353		136,240
Other assets		13,226		18,871
Total assets	$	122,968	$	185,273
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Non-interest bearing	$	13,751	$	20,751
Interest bearing		93,546		144,069
Total deposits		107,297		164,820
Federal Home Loan Bank advances		5,000		7,000
Accrued taxes, interest and other liabilities		1,024		257
Shareholders’ equity		9,647		13,196
Total liabilities and shareholders’ equity	$	122,968	$	185,273

37

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 13 — DISCONTINUED OPERATIONS (continued)

A condensed statement of income of discontinued operations is presented for the twelve months ended December 31, 2010 and December 31, 2009.

DAVISON STATE BANK
CONDENSED STATEMENT OF INCOME OF DISCONTINUED OPERATIONS

	Years Ended
	December 31
(000s omitted)	2010			2009
Interest income	$	607		$	2,023
Interest expense		116			642
Net interest income		491			1,381
Provision for loan losses		(5	)		505
Net interest income after provision for loan losses		496			876
Non-interest income		178			563
Non-interest expense		121			2,700
Income (loss) before federal income tax		553			(1,261	)
Federal income tax expense/(benefit)		181			275
Net income (loss)	$	372		$	(986	)

WEST MICHIGAN COMMUNITY BANK
CONDENSED STATEMENT OF INCOME OF DISCONTINUED OPERATIONS

	Years Ended
	December 31
(000s omitted)	2010			2009
Interest income	$	6,865		$	8,260
Interest expense		2,349			3,661
Net interest income		4,516			4,599
Provision for loan losses		1,955			3,683
Net interest income after provision for loan losses		2,561			916
Non-interest income		1,007			1,266
Non-interest expense		4,985			5,785
Income (loss) before federal income tax		(1,417	)		(3,603	)
Federal income tax expense (benefit)		(181	)		(1,289	)
Net income (loss)	$	(1,236	)	$	(2,314	)

38

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 13 — DISCONTINUED OPERATIONS (continued)

TOTAL DISCONTINUED OPERATIONS
CONDENSED STATEMENT OF INCOME OF DISCONTINUED OPERATIONS

	Years Ended
	December 31
(000s omitted)	2010			2009
Interest income	$	7,472		$	10,283
Interest expense		2,465			4,303
Net interest income		5,007			5,980
Provision for loan losses		1,950			4,188
Net interest income after provision for loan losses		3,057			1,792
Non-interest income		1,185			1,829
Non-interest expense		5,106			8,485
Income (loss) before federal income tax		(864	)		(4,864	)
Federal income tax expense (benefit)		0			(1,564	)
Net income (loss)	$	(864	)	$	(3,300	)

NOTE 14 — 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 Corporation’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 are 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 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). As of December 31, 2010 and 2009, the most recent notifications from Federal Deposit Insurance Corporation categorized the Banks as adequately capitalized under the regulatory framework for prompt corrective action.

West Michigan Community Bank was placed under a Consent Order with federal and state banking regulators that contain provisions to foster improvement in West Michigan Community Bank’s earnings, lower non performing loan levels, and increase capital. The Consent Order required West Michigan Community Bank to retain a Tier 1 capital to average assets ratio of a minimum of 8.0%. As of December 31, 2010, West Michigan Community Bank had a Tier 1 capital to average assets ratio of 7.5%, as compared to a Tier 1 capital to average asset ratio of 6.9% at December 31, 2009. West Michigan Community Bank was not in compliance with the Consent Order requirements. As previously mentioned, West Michigan Community Bank was sold on January 31, 2011.

39

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 14 — REGULATORY MATTERS (continued)

In January 2010, The State Bank entered into a Consent Order with federal and state banking regulators that contain provisions to foster improvement in The State Bank’s earnings, lower nonperforming loan levels, increase capital, and require revisions to various policies. The Consent Order requires The State Bank to maintain a Tier 1 capital to average asset ratio of a minimum of 8.0%. It also requires The State Bank to maintain a total capital to risk weighted asset ratio of 12.0%. At December 31, 2010, The State Bank had a Tier 1 capital to average assets ratio of 6.5% and a total capital to risk-weighted assets ratio of 10.0%. The State Bank is not in compliance with the Consent Order requirements, and therefore cannot be considered well capitalized.

The Consent Orders restrict the Banks from issuing or renewing brokered deposits. Refer to Note 8 for further details. The Consent Orders also restrict dividend payments from The State Bank and West Michigan Community Bank to the Corporation. The Corporation, the Board of Directors and management continue to work on plans to come into compliance with the Consent Orders which includes the injection of capital into The State Bank resulting from the sale of West Michigan Community Bank. The sale is projected to provide an additional $3.5 million of capital that may be allocated to The State Bank. While below the compliance level required by the Orders, both Banks maintain capital levels that would be considered well capitalized by regular prompt corrective action regulatory standards. Non-compliance with Consent Order requirements may cause banks to be subject to further enforcement actions by the FDIC.

Effective in November 2010, the Corporation received a notice from The Federal Reserve which defined restrictions being placed upon the holding company. The restrictions include the declaration or payment of any dividends, the receipt of dividends from subsidiary banks, the repayment of any principal or interest on subordinated debentures or Trust Preferred securities, restrictions on debt, any changes in Executive or Senior Management or change in the role of Senior Management. In addition, the notice provided an expectation that the Corporation “maintain sufficient capital” levels.

As illustrated in the table below, at December 31, 2010, the Consolidated Corporation’s total capital to risk weighted assets ratio indicates that it is under capitalized. The Corporation’s total capital to risk weighted assets ratio of 7.8% at December 31, 2010 was below the minimum requirement of 8.0%. This is compared to December 31, 2009 when the total capital to risk weighted assets for the Corporation was at 7.8%. With the current capital levels, the Corporation is required to obtain written approval prior to payments of any dividends or for any increase or decrease to outstanding debt.

The Corporation’s principal source of funds for dividend payments is dividends received from the Banks. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years, subject to the limitations described above.

40

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 14 — REGULATORY MATTERS (continued)

						For Capital					Regulatory
						Adequacy					Agreement
	Actual					Purposes					Requirements
(000s omitted)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2010
Total Capital (to Risk Weighted Assets)
Consolidated	$	25,443		7.8	%	$	26,073		8.0	%	NA		NA
The State Bank		22,670		10.0			18,152		8.0		$	27,228		12.0	%
West Michigan Community Bank		10,722		11.0			7,794		8.0		NA		NA
Tier 1 Capital (to Risk Weighted Assets)
Consolidated		21,261		6.5			13,036		4.0		NA		NA
The State Bank		19,735		8.7			9,076		4.0		NA		NA
West Michigan Community Bank		9,475		9.7			3,897		4.0		NA		NA
Tier 1 Capital (to Average Assets)
Consolidated		21,261		4.9			17,330		4.0		NA		NA
The State Bank		19,735		6.5			12,204		4.0			24,408		8.0
West Michigan Community Bank		9,475		7.5			5,025		4.0			10,050		8.0

41

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 14 — REGULATORY MATTERS (continued)

						For Capital					Regulatory
						Adequacy					Agreement
	Actual					Purposes					Requirements
(000s omitted)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2009
Total Capital (to Risk Weighted Assets)
Consolidated	$	33,661		7.8	%	$	34,636		8.0	%	NA		NA
The State Bank		24,334		8.9			21,961		8.0		$	32,810		12.0%	(1)
Davison State Bank		3,328		9.9			2,692		8.0		NA		NA
West Michigan Community Bank		11,841		9.4			10,063		8.0		NA		NA
Tier 1 Capital (to Risk Weighted Assets)
Consolidated		28,164		6.5			17,318		4.0		NA		NA
The State Bank		20,830		7.6			10,981		4.0		NA		NA
Davison State Bank		2,904		8.6			1,346		4.0		NA		NA
West Michigan Community Bank		10,262		8.2			5,031		4.0		NA		NA
Tier 1 Capital (to Average Assets)
Consolidated		28,164		5.0			22,491		4.0		NA		NA
The State Bank		20,830		6.2			13,535		4.0			27,069		8.0
Davison State Bank		2,904		7.2			1,620		4.0			3,240		8.0
West Michigan Community Bank		10,262		6.9			5,923		4.0			11,845		8.0

(1) Effective April 10, 2010

Management believes they have responded fully to the provisions of the Consent Orders except for the capital requirements. In order to be considered well capitalized and comply with the capital requirements of the Orders, The State Bank would have needed a capital injection of approximately $4.3 million as of December 31, 2010. While below the compliance level required by the Orders, the bank maintains capital levels considered adequate by regulatory standards. Non-compliance with Consent Order requirements may cause the bank to be subject to further enforcement actions by the FDIC.

The bank has achieved improved capital ratios since falling below the well capitalized level in June of 2009. Management has initiated multiple strategies to meet the capital requirements including shrinking assets of the Bank as much as feasible without weakening the liquidity position, reducing operating costs by reducing overhead and curtailing spending, and raising additional capital through the sale of Fentura subsidiary, Davison State Bank. Management has successfully reduced assets of The State Bank by $31.1 million during 2010 and efforts to shrink assets further are continuing. The sale of Davison State Bank generated $3.0 million in proceeds which were used to strengthen the capital position of The State Bank.

The January 2011 sale of West Michigan Community Bank generated $900,000 of cash which is available to be injected into The State Bank. The Corporation will also receive cash from future principal payments on loans acquired from the sale of West Michigan Community bank and from proceeds of other real estate sold, to strengthen the capital position of The State Bank, subject to regulatory approval.

42

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 15 — LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES

Off-balance-sheet risk

Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.

The contractual amount of financial instruments with off-balance-sheet risk was as follows at year-end:

(000s omitted)	2010		2009
Commitments to make loans (at market rates)	$	8,403	$	2,847
Unused lines of credit and letters of credit		29,746		34,213

Commitments to make loans are generally made for periods of 90 days or less. At December 31, 2010, loan commitments and unused line of credit had interest rates ranging from 3.63% to 6.25% and maturities ranging from 9 months to 30 years.

NOTE 16 — PARENT ONLY CONDENSED FINANCIAL INFORMATION

The condensed financial information that follows presents the financial condition of Fentura Financial, Inc. (parent company only), along with the results of its operations and its cash flows.

CONDENSED BALANCE SHEETS
Years ended December 31,
(000s omitted)

	2010		2009
ASSETS
Cash and cash equivalents	$	863	$	319
Securities available for sale, at fair value		1,148		1,009
Other assets		188		448
Investment in subsidiaries		29,317		33,001
Total Assets	$	31,516	$	34,777
LIABILITIES AND SHAREHOLDERS’ EQUITY
Other liabilities	$	1,461	$	245
Subordinated debt		14,000		14,000
Shareholders’ equity		16,055		20,532
Total liabilities and shareholders’ equity	$	31,516	$	34,777

43

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009

NOTE 16 — PARENT ONLY CONDENSED FINANCIAL INFORMATION (continued)

CONDENSED STATEMENTS OF INCOME
Years ended December 31,
(000s omitted)

	2010			2009
Loss on equity investment	$	0		$	(1,360	)
Other income		704			0
Dividends from subsidiaries		0			750
Interest expense		(450	)		(620	)
Operating expenses		(727	)		(1,408	)
Equity in undistributed net loss of subsidiaries		(3,780	)		(15,069	)
Net loss before income taxes		(4,253	)		(17,707	)
Federal income tax expense (benefit)		1,132			(727	)
Net loss	$	(5,385	)	$	(16,980	)

CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31,
(000s omitted)

	2010			2009
Cash flows from operating activities
Net income (loss)	$	(5,385	)	$	(16,980	)
Change in other assets		938			(86	)
Change in other liabilities		45			81
Equity in undistributed net loss of subsidiaries		3,780			15,069
Loss on security impairment		203			908
Net loss of equity investment		0			1,360
Net cash from (used in) operating activities		(419	)		352
Cash flows provided by investing activities
Sale of equity security		0			383
Proceeds from sale of subsidiary		2,800			0
Loss on sale of subsidiary		(59	)		0
Investment in subsidiary		(1,900	)		(365	)
Net cash from (used in) investing activities		841			18
Cash flows used in financing activities
Issuance of subordinated debt		0			0
Net short-term borrowings		0			(1,000	)
Dividends paid		0			0
Stock repurchase		0			0
Proceeds from stock issuance		122			135
Net cash from (used in) financing activities		122			(865	)
Change in cash and cash equivalents		544			(495	)
Cash and cash equivalents at beginning of year		319			814
Cash and cash equivalents at end of year	$	863		$	319

44

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 Financial, Inc. (the Corporation), together with its subsidiaries, The State Bank (the Bank), as well as Fentura Mortgage Company, for the years ended December 31, 2010, 2009, 2008, 2007 and 2006. Davison State Bank, and West Michigan Community Bank, and West Michigan Mortgage Company, LLC have been reclassified into Discontinued Operations in all periods. The supplemental financial data included throughout this discussion should be read in conjunction with the primary financial statements presented on pages 1 through 44 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

000s omitted except per share data and ratios	2010			2009			2008			2007			2006
Summary of Consolidated Statements of Income:
Interest income	$	15,077		$	17,889		$	20,627		$	24,716		$	24,712
Interest expense		4,552			6,925			9,307			11,382			10,274
Net interest income		10,525			10,964			11,320			13,334			14,438
Provision for loan losses		6,934			11,040			5,610			5,395			720
Net interest income after provision		3,591			(76	)		5,710			7,939			13,718
Total other operating income		4,773			3,390			3,060			5,308			5,482
Total other operating expense		13,087			14,711			14,455			13,854			14,622
Income (loss) before income taxes		(4,723	)		(11,397	)		(5,685	)		(607	)		4,578
Federal income taxes (benefit)		(202	)		2,283			(2,149	)		(435	)		1,427
Income (loss) from continuing operations		(4,521	)		(13,680	)		(3,536	)		(172	)		3,151
Discontinued operations, net of tax		(864	)		(3,300	)		(8,629	)		(295	)		2,157
Net income (loss)	$	(5,385	)	$	(16,980	)	$	(12,165	)	$	(467	)	$	5,308
Earnings per share — basic*	$	(2.37	)	$	(7.70	)	$	(5.60	)	$	(0.22	)	$	2.48
Earnings per share — diluted*	$	(2.37	)	$	(7.70	)	$	(5.60	)	$	(0.22	)	$	2.47
Summary of Consolidated Balance Sheets:
Assets	$	424,228		$	522,079		$	578,604		$	628,019		$	622,298
Securities, including FHLB stock		46,965			40,200			44,999			59,682			83,060
Loans, including loans held for sale		198,798			233,690			284,252			293,873			283,441
Assets of discontinued operations		122,968			185,273			208,737			225,405			221,343
Deposits		275,977			311,551			331,992			354,303			345,576
Borrowings		15,833			15,145			17,507			20,679			26,552
Liabilities of discontinued operations		113,321			172,077			191,116			199,757			194,322
Shareholders’ equity		16,055			20,532			36,124			49,496			51,318
Other Financial and Statistical Data:
Tier 1 capital to risk weighted assets		6.50	%		6.50	%		10.20	%		10.40	%		11.30	%
Total capital to risk weighted assets		7.80	%		7.80	%		11.40	%		11.60	%		12.50	%
Tier 1 capital to average assets		4.90	%		5.00	%		8.80	%		9.00	%		8.60	%
Total cash dividends	$	0		$	0		$	0		$	2,163		$	2,069
Book value per share*	$	6.95		$	9.13		$	16.53		$	22.88		$	24.08
Cash dividends paid per share*	$	0.00		$	0.00		$	0.00		$	1.00		$	0.94
Period end market price per share*	$	1.75		$	1.36		$	6.75		$	22.00		$	32.55
Dividend pay-out ratio		0.00	%		0.00	%		0.00	%		-463.17	%		38.98	%
Return on average shareholders’ equity		-28.52	%		-61.18	%		-25.13	%		-0.89	%		10.82	%
Return on average assets		-1.15	%		-3.02	%		-2.03	%		-0.08	%		0.85	%
Net interest margin		3.72	%		3.50	%		3.33	%		3.66	%		4.11	%
Total equity to assets at period end		3.78	%		3.93	%		6.24	%		7.88	%		8.25	%

* Per Share data calculated using average shares outstanding in each period. Per share amounts and average shares outstanding have been adjusted to reflect a 10% stock dividend paid on August 4, 2006.

45

RESULTS OF OPERATIONS

The Corporation posted a net loss of $5,385,000 for the twelve months ended December 31, 2010, compared to a net loss of $16,980,000 for the same period in 2009. In 2010, the loss was driven by ongoing proportionately high provision for loan losses although net interest income had stabilized when compared to 2009. Net-interest income declined $439,000, in 2010 due to a reduction in interest income of $2,812,000 versus a reduction of $2,373,000 in interest expense. Interest income declined primarily due to decreases in volume of loans. Non-interest income increased in 2010 by $1,383,000 or 41.0% from the non-interest income in the prior year. This was due to the write off of a DeNovo bank equity investment which resulted in a loss of $1,360,000. Non-interest expense decreased by $1,624,000 or 11.0%, primarily due to decreases in loan and collection expenses.

Standard performance indicators used in the banking industry help management evaluate the Corporation’s performance. Two of these performance indicators are return on average assets and return on average equity. For 2010 and 2009 respectively, the Corporation posted a return on average assets of (1.15%) and (3.02%). Return on average equity was (28.52%) in 2010 and (61.18%) in 2009. The Corporation’s capital position experienced a decrease in equity of $4.5 million or 21.8% in 2010. Total assets decreased $97.9 million in 2010 and decreased $56.5 million in 2009. The large decrease in 2010 was the largely the result of the sale of a subsidiary bank during the second quarter of 2010. Diluted loss per share was ($2.37) in 2010 and ($7.70) in 2009.

The markets in which The Corporation operates continue to be effected by the economic challenges in the State of Michigan. The economic conditions continue to place pressure on its customers and their ability to repay loans. This has driven up the level of troubled assets and has resulted in increased related loan expenses and provision for loan losses. The Corporation continues to monitor troubled assets and the capital levels of its Banks.

On April 28, 2010, at the Annual Shareholder Meeting, a formal announcement was made regarding the signing of a definitive agreement to sell West Michigan Community Bank. The transaction was consummated on January 31, 2011, and the Corporation received $10,500,000 from the sale of West Michigan Community Bank (a 10% premium to book). Regulatory approval was received for the sale of West Michigan Community Bank and for the Corporation to acquire approximately $10,100,000 of non-performing assets. As the non-performing assets are converted to performing loans or liquidated, the proceeds will be available to strengthen the capital position of The State Bank.

NET INTEREST INCOME

Net interest income, the principal source of income, is the amount of interest income generated by earning assets (principally 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 interest earning assets and interest bearing liabilities are subject to market forces, in general, the Corporation can exert more control over deposit costs than earning asset rates. Deposit costs are somewhat limited though due to the timing of repricing of time deposits. Loan products carry either fixed rates of interest or rates tied to market indices which are 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, 2010 and 2009. Net interest income (displayed with consideration of full tax equivalency), average balance sheet amounts, and the corresponding yields for the last three years are shown in Table 3. Tax equivalent net interest income decreased by $538,000 in 2010 or 4.8% and

46

decreased by $347,000 or 3.0% in 2009. In both 2010 and 2009 investment security balances decreased, loan volume decreased and non-performing loans increased slightly.

As indicated in Table 3, for the year ended December 31, 2010, the Corporation’s net interest margin was 3.72% compared with 3.50% in 2009. The improvement in 2010 is primarily attributable to stabilization in the loan portfolio as fewer loans were placed into non-accrual status than in the prior year. In addition, the average interest bearing liability rate continued to decrease, as management continued to re-price the core deposit products along with time deposit portfolio as they matured. The increase in 2009 was attributed to a larger decline in interest bearing liability rates over the decline in earning asset yields.

Average earning assets decreased 10.3% in 2010 and decreased 7.7% in 2009. Average earning assets were reduced through lower total average securities and loans when comparing 2010 to 2009. Loan balances, including loans held for sale, the highest yielding component of earning assets, represent 78.9% of earning assets in 2010, compared to 84.9% in 2009. Average interest bearing liabilities decreased 13.2% in 2010 and decreased 3.4% in 2009. Non-interest bearing deposits amounted to 19.2% of average earning assets in 2010 compared with 16.8% in 2009.

Table 2

Changes in Net Interest Income due to changes in average volume and interest rates
Years ended December 31,

							INCREASE /(DECREASE)
							DUE TO
	2010									2009
				YIELD/									YIELD/
(000s omitted)	VOL			RATE			TOTAL			VOL			RATE			TOTAL
Taxable securities	$	10		$	(302	)	$	(292	)	$	(216	)	$	(86	)	$	(302	)
Tax-exempt securities (1)		(284	)		13			(271	)		(51	)		51			0
Federal funds sold		18			6			24			14			(135	)		(121	)
Total loans (1)		(2,757	)		407			(2,350	)		(1,210	)		(1,119	)		(2,329	)
Loans held for sale		(19	)		(3	)		(22	)		32			(9	)		23
Total earning assets		(3,032	)		121			(2,911	)		(1,431	)		(1,298	)		(2,729	)
Interest bearing demand deposits		(13	)		(154	)		(167	)		4			(255	)		(251	)
Savings deposits		(5	)		(166	)		(171	)		(6	)		(340	)		(346	)
Time CDs $100,000 and over		(751	)		(150	)		(901	)		(216	)		(421	)		(637	)
Other time deposits		(410	)		(549	)		(959	)		(9	)		(671	)		(680	)
Other borrowings		(25	)		(150	)		(175	)		(244	)		(224	)		(468	)
Total interest bearing liabilities		(1,204	)		(1,169	)		(2,373	)		(471	)		(1,911	)		(2,382	)
Net Interest Income	$	(1,828	)	$	1,290		$	(538	)	$	(960	)	$	613		$	(347	)

(1) Presented on a fully taxable equivalent basis using a federal income tax rate of 34%.

47

TABLE 3
(000s omitted) Summary of Net Interest Income
Years Ended December 31,

	2010								2009								2008
				INC/								INC/					AVG			INC/
ASSETS	AVG BAL			EXP		YIELD			AVG BAL			EXP		YIELD			BAL			EXP		YIELD
Securities:
U.S. Treasury and Government Agencies	$	29,135		$	849		2.91	%	$	28,346		$	1,126		3.97	%	$	32,773		$	1,422		4.34	%
State and Political (1)		7,310			447		6.11	%		11,961			718		6.00	%		12,846			718		5.59	%
Other		1,846			32		1.73	%		3,067			47		1.53	%		6,123			53		0.87	%
Total Securities		38,291			1,328		3.47	%		43,374			1,891		4.36	%		51,742			2,193		4.24	%
Fed Funds Sold		22,550			27		0.12	%		5,089			3		0.06	%		4,508			124		2.75	%
Loans:
Commercial		172,488			10,671		6.19	%		206,691			12,379		5.99	%		221,631			14,041		6.34	%
Tax Free (1)		2,228			144		6.46	%		2,616			167		6.38	%		2,093			139		6.64	%
Real Estate-Mortgage		21,491			1,315		6.12	%		28,268			1,723		6.10	%		30,583			1,950		6.38	%
Consumer		30,654			1,745		5.69	%		34,382			1,956		5.69	%		37,350			2,424		6.49	%
Total loans		226,861			13,875		6.12	%		271,957			16,225		5.97	%		291,657			18,554		6.36	%
Allowance for Loan Loss		(10,104	)							(8,883	)							(6,098	)
Net Loans		216,757			13,875		6.40	%		263,074			16,225		6.17	%		285,559			18,554		6.50	%
Loans Held for Sale		986			48		4.87	%		1,373			70		5.10	%		769			47		6.11	%
TOTAL EARNING ASSETS		288,688			15,278		5.29	%		321,793			18,189		5.65	%		348,676			20,918		6.00	%
Cash Due from Banks		13,361								20,255								9,823
Assets of discontinued operations		150,441								201,534								220,573
All Other Assets		27,753								27,426								27,681
TOTAL ASSETS	$	470,139							$	562,125							$	600,655
LIABILITIES & SHAREHOLDERS’ EQUITY:
Deposits:
Interest bearing — DDA	$	48,988		$	94		0.19	%	$	51,657		$	261		0.51	%	$	51,234		$	512		1.00	%
Savings Deposits		64,562			77		0.12	%		66,056			248		0.38	%		66,778			594		0.89	%
Time CD’s $100,000 and Over		60,770			2,436		3.97	%		80,055			3,337		4.17	%		84,834			3,974		4.68	%
Other Time CD’s		63,392			1,425		2.27	%		77,943			2,384		3.06	%		78,165			3,064		3.92	%
Total Interest Bearing Deposits		237,712			4,032		1.70	%		275,711			6,230		2.26	%		281,011			8,144		2.90	%
Other Borrowings		15,332			520		3.39	%		15,916			695		4.37	%		20,844			1,163		5.58	%
INTEREST BEARING LIABILITIES		253,044			4,552		1.80	%		291,627			6,925		2.37	%		301,855			9,307		3.08	%
Non-interest bearing — DDA		55,286								53,941								53,043
Liabilities of discontinued operations		139,647								186,063								194,752
All Other Liabilities		3,281								2,741								2,601
Shareholders Equity		18,881								27,753								48,404
TOTAL LIABILITIES and S/H EQUITY	$	470,139							$	562,125							$	600,655
Net Interest Rate Spread							3.48	%							3.28	%							2.92	%
Impact of Non-Interest Bearing Funds on Margin							0.24	%							0.22	%							0.41	%
Net Interest Income/Margin				$	10,726		3.72	%				$	11,264		3.50	%				$	11,611		3.33	%

(1) — Presented on a fully taxable equivalent basis using a federal income tax rate of 34%.

48

ALLOWANCE AND PROVISION FOR LOAN LOSSES

The allowance for loan losses reflects management’s judgment as to the level considered appropriate to absorb probable incurred losses in the loan portfolio. The Corporation’s methodology in determining the adequacy of the allowance is based on ongoing quarterly assessments and relies on several key elements, which include specific allowances for identified problem loans and a formula based risk allocated allowance for the remainder of the portfolio. This includes a review of individual loans, size and composition of the loan portfolio, historical loss experience, current economic conditions, financial condition of borrowers, the level and composition of non-performing loans, portfolio trends, estimated net charge-offs, and other pertinent factors. 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, 2010, the allowance for loan losses was $10,027,000 or 4.82% of total loans. This compares with $8,589,000 or 3.55% at December 31, 2009. Management believes the allowance for loan losses at December 31, 2010 of $10,027,000 was sufficient to cover all probable incurred losses in the loan portfolio at that time.

The provision for loan losses was $6,934,000 in 2010 and $11,040,000 in 2009. Provision for 2010 decreased from the 2009 level by $4,106,000. The decrease in 2010 is related to the declining size of the loan portfolio along with improving economic indicators which partially drive the loan loss calculations. The amount of provision taken for the year is a direct output of the calculation of loan loss adequacy performed on a quarterly basis. The Corporation has a methodology that provides for formula based allowances on homogeneous pools of general loans, as well as specific allocations for impaired loans. During 2010 specific reserves for impaired loans increased compared to 2009 due to the continued decline of the underlying collateral value of the impaired loans. Reserves for the homogeneous pools of loans decreased from 2010 to 2009 due to the reduction in the loan portfolio and a change in the mix of loan concentrations. The Bank experienced gross charge-offs of non-performing assets of $6,417,000 for 2010, compared to $9,996,000 for 2009.

In 2010, the Corporation reduced the size of the commercial loan portfolio. Commercial loans decreased $13,984,000 from 2009 year end. Real estate construction and mortgage loans decreased $16,942,000 from year end 2009. The decline in real estate construction and mortgage loans was primarily due to management efforts to continue to reduce exposure to this sector. Charge-offs of commercial loans totaled $5,618,000 in 2010 compared to $8,423,000 in 2009. Non-performing loans increased slightly in 2010 when compared to 2009.

Table 4 summarizes loan losses and recoveries from 2006 through 2010. During 2010, the Corporation experienced net charge-offs of $5,496,000, compared with net charge-offs of $9,779,000 in 2009. The year to year decrease in charge offs was primarily due to a decrease in commercial loan charge-offs by $2,806,000 year over year. Also, mortgage loan charge-offs decreased by $419,000 and consumer charge-offs decreased by $354,000. Total recoveries increased by $704,000 comparing 2010 with 2009. The net charge-off ratio is the difference of charged-off loans minus the recoveries from loans divided by gross loans. Accordingly, the net charge-off ratio for 2010 was 2.64% compared to 4.04% at the end of 2009. As charge-offs have occurred, the Bank reviews the remaining loan concentration and believes that the level of losses have decreased compared to prior years.

The Corporation maintains formal policies and procedures to control and monitor credit risk. Management believes the allowance for loan losses is adequate to meet normal credit risks in the loan portfolio. The Corporation has identified a concentration level connected with construction and land development loans. Specific strategies were developed to reduce the concentration level and limit exposure to this type of lending. The Corporation has been successful in reducing this concentration in 2009 and 2010. The Corporation’s loan portfolio has no 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. The Michigan economy, employment levels and other economic conditions in the Corporation’s local markets may have a significant impact on the level of credit losses. At December 31, 2010, the local economy of the Bank continues to struggle. Unemployment remains high, collateral values on real estate have

49

stabilized on 1-4 family property, yet commercial property values continue to decline. Loan demand in commercial and consumer types continues to be low. Management continues to identify and devote attention to credits that may not be performing as agreed. Non-performing loans are discussed further in the section titled “Non-Performing Assets”.

TABLE 4

Analysis of the Allowance for Loan Losses

	Years Ended December 31,
(000s omitted)	2010			2009			2008			2007			2006
Balance Beginning of Period	$	8,589		$	7,328		$	4,882		$	4,088		$	3,916
Charge-offs:
Commercial, Financial and
Agricultural		(5,618	)		(8,424	)		(2,994	)		(4,032	)		(419	)
Real Estate-Mortgage		(264	)		(683	)		(203	)		(177	)		0
Installment Loans to Individuals		(535	)		(889	)		(366	)		(588	)		(221	)
Total Charge-offs		(6,417	)		(9,996	)		(3,563	)		(4,797	)		(640	)
Recoveries:
Commercial and Financial		812			152			222			140			31
Real Estate-Mortgage		41			4			23			0			0
Installment Loans to Individuals		68			61			154			56			61
Total Recoveries		921			217			399			196			92
Net Charge-offs		(5,496	)		(9,779	)		(3,164	)		(4,601	)		(548	)
Provision for loan losses		6,934			11,040			5,610			5,395			720
Balance at End of Period	$	10,027		$	8,589		$	7,328		$	4,882		$	4,088
Ratio of Net Charge-Offs During the Period		2.64	%		4.04	%		1.13	%		1.54	%		0.19	%

NON-INTEREST INCOME

Non-interest income was $4,773,000 in 2010 and $3,390,000 in 2009. These amounts represent an increase of 40.8% in 2010 compared to 2009.

The most significant category of non-interest income is service charges on deposit accounts, which were $1,445,000 in 2010, compared to $1,726,000 in 2009. This was a decrease of $281,000 or 16.3% in 2010. The decrease in 2010 was in all categories of service charges, with the largest declining component being NSF and overdraft privilege fees.

Gains on the sale of mortgage loans originated by the Bank and sold in the secondary market were $701,000 in 2010 and $744,000 in 2009. The decrease of 5.8% in 2010 is due to the slowing of refinancing activity, as mortgage rates have risen, along with lower volumes of customers eligible for refinancing and new mortgages. The Corporation sells the majority of the mortgage loans originated in the secondary market on a servicing released basis.

Trust and investment income decreased $4,000 in 2010 to $915,000; compared with $919,000 in 2009. The market value of the trust and investment portfolios has steadied.

Other income and fees includes income from the sale of checks, safe deposit box rent, merchant account income, ATM income, gain on sale of real estate owned and other miscellaneous income items. Other income and fees were $1,968,000 for 2010, compared to $1,649,000 in 2009. The largest improvement was in gain on sale of other real estate owned. For the year ended December 31, 2010, the gain on sale of real estate owned was $392,000, compared to a loss on sale of real estate owned of $28,000.

Throughout 2010, the Corporation performed a quarterly review of bank equity stocks owned. As a result of this review, the Corporation acknowledged other-than-temporary impairment on one investment.

50

During the third quarter of 2010, the Bank recognized impairment of $307,000 on one bank stock. The remaining amortized cost for bank stocks owned is $1,655,000 and has an unrealized net gain of $15,000 at December 31, 2010. This is compared to other-than-temporary impairment realized totaling $288,000 for the year ended December 31, 2009.

For the year ended December 31, 2009, the Corporation recognized a loss on equity investment of $1,360,000. This transaction did not recur in 2010.

NON-INTEREST EXPENSE

Total non-interest expense was $13,087,000 in 2010 compared to $14,711,000 in 2009. This was a decrease of 11.0% in 2010.

Salaries and employee benefits, the Corporation’s largest operating expense category, were $6,387,000 in 2010, compared with $6,650,000 in 2009. The decrease between 2010 and 2009 was primarily a result of personnel reductions, through attrition.

Occupancy expenses associated with the Corporation’s facilities were $1,225,000 in 2010 compared to $1,326,000 in 2009 for a decrease of 7.6%. In 2010, the benefits of restructuring building cleaning services to in-house and the renegotiation of multiple property maintenance contracts, which began in 2009, were recognized.

In 2010, equipment expenses were $1,265,000 compared to $1,339,000 in 2009 for a decrease of 5.5% in 2010. In 2010, the Corporation experienced a decrease of $53,000 in depreciation expense. In addition in rental expenses were up $7,000, and maintenance expenses were down $21,000.

Loan and collection expenses were $1,279,000 in 2010 compared to $2,559,000 in 2009. The decrease was related to other real estate owned (ORE) held by the Corporation. In 2010, ORE carrying costs and related expenses totaled $482,000 compared to $823,000 for 2009. Multiple properties being held in ORE required negative valuation adjustments totaling $342,000 in 2010 compared to $1,184,000 in 2009. These adjustments were made as a result of the continuing decline in real estate values in Michigan. The decreases from 2009 to 2010 were in the categories of increased filing and recording costs, appraisal expense, collection expenses and other loan related expenses. It is anticipated that in 2011, loan and collection expenses will remain similar to 2010 or have a slight decline.

Advertising expenses were $101,000 in 2010 compared to $121,000 in 2009. When comparing 2010 to 2009, the Corporation reduced media expenses and other promotional expenses by 16.5%. The Bank continues to maintain presence in the local markets through continued sponsorship of local activities and community groups. The Corporation continues to remain focused on targeted advertising.

Other professional service fees include audit fees, consulting fees, legal fees, and various other professional services. Other professional services were $294,000 in 2010 compared to $179,000 in 2009. In 2010, the Corporation and the Bank had decreases of $161,000 of legal expenses, mostly in relation to troubled loans. The Corporation saw flattening of audit and state exam fees during 2010, as well as decreases totaling $141,000 in other professional services.

Other general and administrative expenses, including telephone and communication services, were $2,289,000 in 2010, or an increase of 0.1%, compared to $2,286,000 in 2009. Increases were in expenses such as operating insurances, other losses and other operating expenses. Partially offsetting these increases was a decrease in the FDIC assessment of $50,000 or 4.5% from 2009 to 2010. Other small decreases, on an individual basis, were in business development expenses, subscriptions, and education expenses.

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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 securities portfolio is structured to provide a source of liquidity through maturities and to generate an income stream with relatively low levels of principal risk. The Corporation does not engage in securities trading. Loans comprise the largest component of earning assets and are the Corporation’s highest yielding assets. Client 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 $470,139,000 for 2010 declining from the 2009 average of $562,125,000 by $91,986,000 or 16.4%. Average loans comprised 78.9% of total average earning assets during 2010 compared to 84.9% in 2009. Loans declined $45,483,000, on average, from year end 2009 to year end 2010, with commercial loans having the largest decline of $34,591,000 or 16.5%. The ratio of average non-interest bearing deposits to total deposits was 18.9% in 2010 compared to 16.4% in 2009. Interest bearing deposits comprised 93.9% of total average interest bearing liabilities during 2010, down from 94.5% during 2009. This was primarily due to the decrease in interest bearing checking accounts and time deposits. The Corporation’s year-end total assets were $424,228,000 for 2010 down from $522,079,000 in 2009. The decrease was mainly due to the sale of a subsidiary bank during 2010, along with the ongoing strategic shrinkage of the loan portfolio.

SECURITIES PORTFOLIO

Securities of continuing operations totaled $46,225,000 at December 31, 2010 compared to $39,394,000 at December 31, 2009. This was an increase of $6,831,000 or 17.3%. At December 31, 2010, these securities comprised 16.7% of earning assets, up from 13.2% at December 31, 2009. The Corporation’s present policies, with respect to the classification of securities, are discussed in Note 1 to the Consolidated Financial Statements. The Corporation considers all of its securities as available for sale except for Michigan tax-exempt securities which are classified as held to maturity.

As of December 31, 2010, the estimated aggregate fair value of the Corporation’s securities portfolio was $67,000 below amortized cost. At December 31, 2010, gross unrealized gains were $480,000 and gross unrealized losses were $547,000. A summary of estimated fair values and unrealized gains and losses for the major components of the securities portfolio is provided in Item 1 of the Form 10-K. As of year end 2010, the Corporation continues to receive a favorable rate of return on the securities.

With regard to equity investments held by the Corporation, management regularly reviews the performance of each institution that is not publicly traded. The majority of the equity securities are investments in Michigan bank holding companies. On a quarterly basis, management reviews the Corporation’s investment in these equity securities. Management reviews current market prices on publicly traded equity securities and compares the current price to the book price. Any difference is adjusted as a temporary valuation difference, unless other resources provide other information. Equity securities that are not publicly traded receive a multi-faceted review utilizing call report data. Management reviews such performance indicators as earnings, ROE, ROA, non-performing assets, brokered deposits and capital ratios. Management draws conclusions from this information, as well as any published information or trading activity received from the individual institutions, to assist in determining if any unrealized loss is other than temporary impairment. As a result of the September 30, 2010 review, OTTI totaling $298,000 was recognized during the quarter on the Corporation’s equity securities in bank holding companies. The impairment was recognized as a result of the length of time these securities have been at an unrealized loss position.

The Corporation has also been closely monitoring the performance of the CMO and MBS portfolios. In 2009, there were several CMOs that were downgraded in the market. Management continued to monitor items such as payment streams and underlying default rates, and did not determine a severe change in these items. On a quarterly basis, management uses multiple assumptions to project the expected future

52

cash flows of the private label CMOs with prepayment speeds, projected default rates and loss severity rates. The cash flows are then discounted using the effective rate on the securities determined at acquisition. Recent historical experience is the base for determining the cash flow assumptions and are adjusted when appropriate after considering characteristics of the underlying loans collateralizing the private label CMO security. As a result of its review, the Corporation recognized a $9,000 other-than-temporary impairment as a result of incurred credit losses which has been reflected in the income statement. The security with the credit loss was the Corporation’s sole CCC rated security. The Corporation sold this security during the fourth quarter of 2010.

TABLE 5

Analysis and Maturities of Securities

	Amortized		Fair
(000s omitted)	Cost		Value		Yield (1)
AVAILABLE FOR SALE
U.S. Agencies
One year or less	$	0	$	0		0.00	%
Over one through five years		0		0		0.00	%
Over five through ten years		4,005		4,000		2.38	%
Over ten years		0		0		0.00	%
Total		4,005		4,000
Mortgage-Backed
One year or less	$	0	$	0		0.00	%
Over one through five years		0		0		0.00	%
Over five through ten years		0		0		0.00	%
Over ten years		36,315		36,205		3.61	%
Total		36,315		36,205
Equity Securities	$	1,655	$	1,670
HELD TO MATURITY
State and Political
One year or less	$	1,146	$	1,157		4.28	%
Over one through five years		1,957		1,970		4.17	%
Over five through ten years		879		892		4.17	%
Over ten years		368		364		4.25	%
Total		4,350		4,383
Total Securities	$	46,325	$	46,258

⁽¹⁾ Tax equivalent yield

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 but includes a concentration in commercial real estate, as discussed previously and in the following paragraph. The Corporation’s loan portfolio balances are summarized in Table 6.

Total loans, of continuing operations, decreased $34,075,000 for the year ended December 31, 2010, with total loans comprising 75.1% of earning assets as compared to 81.3% of December 31, 2009 earning assets. The economic challenges experienced in the State of Michigan that began in 2007 have continued

53

to linger in 2010. Continued employment and economic declines, primarily in the automotive industry, contributed to steepening unemployment rates and a declining population. With these burdening challenges as well as by management strategy, the Corporation achieved a commercial loan reduction during the year. In 2010, commercial loans decreased $13,984,000 or 8.5% to $150,179,000. Real estate construction and mortgage loans also decreased by $16,942,000 or 37.2% in 2010. The decline was primarily in the real estate construction portfolio as management focused efforts on reducing the concentration. Consumer loans decreased $3,149,000 or 9.7% in 2010. In 2009, commercial loan totals decreased $11,430,000 to $164,163,000 or declined by 6.5%. In addition, real estate construction and mortgage loans decreased $23,281,000 or 33.8% to $45,585,000 at December 31, 2009. Consumer loans decreased $3,217,000 or 9.1% in 2009.

TABLE 6

Loan Portfolio

December 31,
(000s omitted)	2010		2009		2008		2007		2006
Commercial	$	150,179	$	164,163	$	175,593	$	193,647	$	168,276
Real estate — construction		9,597		21,904		37,358		35,479		46,880
Real estate — residential		19,046		23,681		31,508		31,142		29,234
Consumer		29,153		32,302		35,519		37,695		40,913
Total	$	207,975	$	242,050	$	279,978	$	297,963	$	285,303

The Corporation originates primarily residential and commercial real estate loans, commercial, construction, and consumer loans. The Corporation estimates that the majority of the loan portfolio is based in Genesee, Oakland and Livingston counties within southeast Michigan. The ability of the Corporation’s debtors to honor their contracts is dependent upon the general economic conditions in the markets we serve.

TABLE 7

Maturities of the Loan Portfolio by Loan Type

	Within		One-		After
(000s omitted)	One		Five		Five
December 31, 2010	Year		Years		Years		Total
Commercial	$	74,388	$	67,313	$	8,478	$	150,179
Real estate — construction		9,079		344		174		9,597
Real estate — residential		694		3,151		15,201		19,046
Consumer		4,800		18,491		5,862		29,153
	$	88,961	$	89,299	$	29,715	$	207,975

TABLE 8

Maturities of the Loan Portfolio by Rate Categories

	Within		One-		After
(000s omitted)	One		Five		Five
December 31, 2010	Year		Years		Years		Total
Loans:
Fixed Rate	$	61,868	$	73,698	$	19,652	$	155,218
Variable Rate		27,093		15,601		10,063		52,757
	$	88,961	$	89,299	$	29,715	$	207,975

54

Credit risk is managed via specific credit approvals and monitoring procedures. Management has implemented conservative lending guidelines in terms of loan-to-value (LTV) ratios and has implemented limits regarding the concentration of loan types. The Corporation’s outside loan review function examines the loan portfolio on a quarterly basis for compliance with credit policies and to assess the overall quality of the loan portfolio. These procedures provide management with information on an ongoing basis 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, 2010, which comprised 4.6% of total loans, totaled $9,597,000 as compared to $21,904,000 at the end of 2009.

The construction and commercial real estate loan properties are located principally in the Corporation’s local markets. Included are loans to various individual, industrial, commercial, professional and small business borrowers. The Corporation believes that the portfolio is reasonably well diversified.

NON-PERFORMING ASSETS

Non-performing assets include loans on which interest accruals have ceased, real estate acquired through foreclosure, loans past due 90 days or more and still accruing and renegotiated loans. Table 9 represents the levels of these assets at December 31, 2006 through 2010. Non-performing assets decreased $147,000 at December 31, 2010 as compared to 2009. Other Real Estate Owned decreased $1,019,000 in 2010. Other Real Estate owned totaled $2,742,000 at December 31, 2010. Other Real Estate in Redemption decreased to $828,000 at the end of 2010 from $2,733,000 at the end of 2009. The Other Real Estate Owned in Redemption balance is comprised of seven commercial and two residential properties. Non-performing loans at December 31, 2010, increased by $3,071,000 as compared to December 31, 2009. This was largely due to the increase in renegotiated loans as of December 31, 2010. Renegotiated loans are loans for which concessions have been granted to the borrower based on their individual financial situation. These concessions may include modifications to the interest rate, term of the loan or forgiveness of principal or interest. Loans past due over 90 days and still accruing interest decreased $186,000 during this period. Non-accrual loans increased $1,067,000 when comparing December 31, 2010 to December 31, 2009.

On April 28, 2010, at the Annual Shareholder Meeting, a formal announcement was made regarding the signing of a definitive agreement to sell West Michigan Community Bank. The transaction was consummated on January 31, 2011, and the Corporation received $10,500,000 from the sale of West Michigan Community Bank (a 10% premium to book). As a condition of the sale, the Corporation acquired non-performing assets of West Michigan Community Bank which totaled $10,100,000. The assets will be housed in a newly formed real estate holding company subsidiary of the Corporation. In addition, The State Bank acquired $2,900,000 of watch rated credits into its loan portfolio.

The level and composition of non-performing assets are both affected by economic conditions in the Corporation’s local markets. Non-performing assets, charge-offs, and provisions for loan losses tend to decline in a strong economy and increase in a weak economy, thereby 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.

55

TABLE 9

Non-Performing Assets and Past Due Loans

	December 31,
(000s omitted)	2010			2009			2008			2007			2006
Non-Performing Loans:
Loans Past Due 90 Days or More & Still Accruing	$	133		$	319		$	656		$	54		$	348
Non-Accrual Loans		12,496			11,429			20,272			9,662			1,094
Renegotiated Loans		3,654			1,464			942			431			437
Total Non-Performing Loans		16,283			13,212			21,870			10,147			1,879
Other Non-Performing Assets:
Other Real Estate		2,742			3,761			2,098			128			0
Other Real Estate Owned in Redemption		828			2,733			73			1,460			0
Other Non-Performing Assets		0			0			25			49			18
Total Other Non-Performing Assets		3,570			6,494			2,196			1,637			18
Total Non-Performing Assets	$	19,853		$	19,706		$	24,066		$	11,784		$	1,897
Non-Performing Loans as a % of Total Loans		7.83	%		5.46	%		7.52	%		3.41	%		0.45	%
Non-Performing Assets as a % of Total Loans and Other Real Estate		9.42	%		8.02	%		8.21	%		3.95	%		0.45	%
Allowance for Loan Losses as a % of Non-Performing Loans		61.58	%		65.01	%		33.51	%		48.11	%		326.66	%
Accruing Loans Past Due 90 Days or More to Total Loans		0.06	%		0.13	%		0.23	%		0.02	%		0.08	%
Non-performing Assets as a % of Total Assets		4.68	%		3.77	%		4.16	%		1.87	%		0.30	%

Table 10 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 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 10 also reflects the percentage ratio of outstanding loans by category to total loans at the end of each of the respective years.

TABLE 10

Allocation of the Allowance for Loan Losses

December 31,	2010					2009					2008					2007					2006
(000s omitted)	Amount		Loan %			Amount		Loan %			Amount		Loan %			Amount		Loan %			Amount		Loan %
Commercial and construction	$	8,830		76.82	%	$	7,440		76.87	%	$	6,343		76.06	%	$	4,159		76.90	%	$	3,292		75.33	%
Real estate mortgage		413		9.16	%		521		9.78	%		231		11.25	%		208		10.45	%		239		10.28	%
Consumer		738		14.02	%		622		13.35	%		747		12.69	%		513		12.65	%		545		14.39	%
Unallocated		46					5					7					1					11
Total	$	10,027		100.00	%	$	8,588		100.00	%	$	7,328		100.00	%	$	4,881		100.00	%	$	4,087		100.00	%

As discussed earlier under “Allowance and Provision for Loan Losses,” the Corporation has a methodology that provides for formula based allowances as well as specific allocations 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.

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The Corporation’s non-performing loans included in Table 9 are considered impaired. The Corporation measures impairment on all large balance non-accrual commercial loans. Certain large balance accruing loans rated watch or lower are also measured for impairment. Impairment losses are believed to be adequately covered by the provision for loan losses. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment and include certain smaller balance commercial loans, consumer loans, and residential real estate loans, and are not included in the impaired loan data in the following paragraphs.

Impaired loans totaled $28,439,000 at December 31, 2010 compared to $27,884,000 at December 31, 2009. Specific allowances for loan losses on impaired loans totaled $6,470,000 and $5,248,000 at December 31, 2010 and 2009, respectively. The increase from 2010 to 2009 was due an increase in non-accrual loans. Additional information on impaired loans is described in Note 4 of the financial statements.

The Corporation maintains policies and procedures to identify and monitor non-accrual loans. A loan is placed on non-accrual status when there is doubt regarding collection of principal or interest, or when principal or interest is past due 90 days or more. Interest accrued but not collected is reversed against income for the current quarter when the loan is placed on non-accrual status.

DEPOSITS
TABLE 11
Average Deposits

Years Ended December 31

	2010					2009					2008					2007					2006
	Average					Average					Average					Average					Average
(000s omitted)	Balance		Rate			Balance		Rate			Balance		Rate			Balance		Rate			Balance		Rate
Non-int. bearing demand	$	55,286				$	53,941				$	53,043				$	55,618				$	55,664
Interest-bearing demand		48,988		0.19	%		51,657		0.50	%		51,234		1.00	%		56,993		1.69	%		62,060		1.78	%
Savings		64,563		0.12	%		66,056		0.37	%		66,778		0.89	%		70,093		1.35	%		79,208		1.30	%
Time		124,162		3.11	%		157,998		3.62	%		162,999		4.32	%		165,495		4.73	%		146,641		4.34	%
Total	$	292,998		1.70	%	$	329,652		2.26	%	$	334,054		2.90	%	$	348,199		3.33	%	$	343,573		2.95	%

The Corporation’s average deposit balances, of continuing operations, and rates for the past five years are summarized in Table 11. Total average deposits were 11.1% lower in 2010 as compared to 2009. In 2010, non-interest bearing demand deposits increased $1.3 million, while all other categories of deposits experienced declining averages in 2010. Despite the changes, the proportion each category held of total deposits remained fairly flat from year to year. Interest-bearing demand average deposits comprised 16.7% of total average deposits, savings average deposits comprised 22.0% of total average deposits, and time average deposits comprised 42.4% of total average deposits.

Brokered deposits, included in time deposits, totaled approximately $21,995,000 and $34,398,000 at December 31, 2010 and 2009. At December 31, 2010 and 2009, brokered deposits had interest rates ranging from 4.90% to 5.30% and 4.80% to 5.30%, respectively, and maturities ranging from five months to twenty-two months. Brokered deposits mature as follows: $11,005,000 in 2011 and $10,990,000 in 2012.

The State Bank is considered adequately capitalized at December 31, 2010, and is precluded, under prompt corrective action guidelines, from issuing or renewing brokered deposits. Management anticipates repayment of brokered deposits as they mature. These repayments are anticipated to be made from fed funds and the Bank’s local deposits.

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As of December 31, 2010, certificates of deposit of $100,000 or more accounted for approximately 16.4% of total deposits compared to 22.9% at December 31, 2009. The maturities of these deposits are summarized in Table 12.

TABLE 12
Maturity of Time Certificates of Deposit of $100,000 or More

	December 31,
(000s omitted)	2010		2009
Three months or less	$	4,638	$	7,552
Over three through six months		7,612		11,396
Over six through twelve months		11,012		17,227
Over twelve months		22,034		35,244
Total	$	45,296	$	71,419

FEDERAL INCOME TAXES

The Corporation’s effective tax rate, of continuing operations, was .43% for 2010 and 20.0% for 2009. The principal difference between the effective tax rates and the statutory tax rate of 34% is the Corporation’s investments in certain tax-exempt securities and loans as well as its valuation allowance against its tax assets.

During 2010 and 2009, the Corporation evaluated its deferred tax position. A valuation allowance related to deferred tax assets is required when it is considered more likely than not that all or part of the benefit related to such assets will not be realized. In 2009, the Corporation’s evaluation of taxable events and the losses in recent years led management to conclude that it was more likely than not that all or part of the benefit would not be realized. As a result, during the second quarter of 2009, the Corporation recognized a valuation allowance. During the fourth quarter of 2009, new tax laws were enacted which allowed the Corporation to exercise the option to take the current year loss and carry it back over a five year taxable income period. This exercise provided the Corporation with a tax benefit of $5,046,000 during the fourth quarter of 2009. Additional information relating to federal income taxes is included in Note 10 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 Corporation’s liquidity is derived from a strong deposit base comprised of individual and business deposits. The Corporation’s deposit base plus other funding sources (federal funds purchased, other liabilities and shareholders’ equity) provided primarily all funding needs in 2010 and 2009. 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.

A source of liquidity that is no longer available to the Bank is brokered deposits. Brokered deposits totaled approximately $21,995,000 and $34,398,000 at December 31, 2010 and 2009. As The State Bank is considered adequately capitalized at December 31, 2010, it is precluded, under prompt corrective action

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guidelines, from issuing or renewing brokered deposits. Management anticipates repayment of brokered deposits as they mature using fed funds and the Bank’s local deposits.

Primary liquidity is provided through short-term investments or borrowings (including federal funds sold and purchased), while the security portfolio provides secondary liquidity along with FHLB advances. As of December 31, 2010, the Corporation had federal funds sold of $21,900,000 as compared to $16,150,000 federal funds sold at the end of 2009. In 2010, loan balances continued to decrease substantially. These decreases were partially accompanied by decreases in the deposit portfolio. However, the remaining differential allowed for the Corporation to be positioned into fed funds sold at year end. The Corporation regularly monitors liquidity to ensure adequate cash flows to cover unanticipated reductions in the availability of funding sources.

In April 2009, the Corporation announced that in order to maintain liquidity at the holding company, it provided notice to each of The Bank of New York and Wilmington Trust Company, the trustees of the Corporation’s junior subordinated debt securities due 2033 (“Fentura Trust I”), and junior subordinated debt securities due 2035 (“Fentura Trust II”), respectively, that the Corporation was exercising its right to defer interest payments for each of the interest payment dates of June 15, 2009, as to the Fentura Trust I, and May 23, 2009, as to the Fentura Trust II to June 15, 2014 and May 23, 2014, respectively, unless the Corporation subsequently gives notice that it has elected to shorten such deferral period. The Corporation has the ability under each of the trust indentures to defer interest payments for up to twenty consecutive quarterly periods (five years), so long as the Corporation is not in default, as defined in the respective indentures. The Corporation is not in default under either of the indentures. Interest on the debt securities continues to accrue during the deferral period and interest on the deferred interest also accrues, both of which must be paid at the end of the deferral period. The total then-estimated annual interest that was payable on the debt securities, if not deferred, was approximately $1,027,000, based on variable rates at the time of deferral. The management of the holding company liquidity position remains stable as the operating expenses of the holding company are minimal.

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.

The Corporation had cash flows from financing activities resulting primarily from the outflow of time deposits. In 2010, total deposits decreased $35,574,000. Cash provided by investing activities was $45,571,000 in 2010 compared to $65,7070,000 in 2009. The change in investing activities was due to increased calls and sales of investments, which were partially offset by purchases of investments. A continued decrease in loan volume from 2009 to 2010, which was management’s strategy, also played a key role in the investing activities. Sales of other real estate owned increased $1,940,000 when comparing 2010 to 2009.

The following table discloses information on the maturity of the Corporation’s contractual long-term obligations:

Table 13
			Less than 1						More than
(000s omitted)	Total		year		1-3 years		3-5 years		5 years
Time Deposits	$	104,077	$	50,519	$	45,861	$	7,609	$	88
Short-term borrowings		879		879		0		0		0
FHLB advances		954		30		68		81		775
Subordinated debt		14,000		0		0		0		14,000
Operating leases		253		71		104		78		0
Total	$	120,163	$	51,499	$	46,033	$	7,768	$	14,863

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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, 2010 the subsidiary Banks maintained adequately capitalized leverage requirements as defined by federal law.

At December 31, 2010, the Corporation’s tier 1 and total risk-based capital ratios were 6.5% and 7.8%, respectively, compared with 6.5% and 7.8% in 2009. The Corporation’s tier 1 leverage ratio was 4.9% at December 31, 2010 compared with 5.0% at December 31, 2009. Although the Corporation experienced a decline in equity from year to year, the Corporation was also able to reduce the size of the balance sheet and maintain risk-based ratios at similar levels to last year.

Total shareholders’ equity declined 21.8% to $16,055,000 at December 31, 2010, compared with $20,532,000 at December 31, 2009. The Corporation’s equity to asset ratio was 3.8% at December 31, 2010, compared to 3.9% at December 31, 2009. The decrease in equity in 2010 resulted from negative earnings. The Corporation did not pay dividends in either 2009 or 2010 in order to conserve capital.

Additional information regarding the capital levels of the Corporation and the Bank is in Note 14 to the Financial Statements, for a discussion of capital requirements imposed by regulatory agreements.

REGULATORY ORDERS

In December 2009, The State Bank entered into a formal enforcement action with federal and state banking regulators that contain provisions to foster improvement in The State Bank’s earnings, reduce nonperforming loan levels, increase capital, and require revisions to various policies.

The stipulation and consent to the issuance of a consent order (the “Stipulation and Consent”) among The State Bank, the FDIC and the Michigan Office of Financial and Insurance Regulation (“OFIR”) contains several provisions which pertain to The State Bank’s asset quality. Specifically, The State Bank is required to maintain an adequate allowance for loan losses and to adopt a plan to reduce The State Bank’s risk position in each asset in excess of $500,000 which was then classified as substandard or doubtful. In addition, while the Stipulation and Consent is in effect, The State Bank may not extend additional credit to any borrower who is already obligated on any extension of credit that has been charged-off so long as the credit remains uncollected. Likewise, The State Bank may not extend any additional credit to any borrower whose loan has been classified as substandard or doubtful and is uncollected, unless approved by The State Bank’s board of directors.

The Stipulation and Consent also requires The State Bank to implement or improve certain plans. Specifically, The State Bank must implement a plan and 2011 budget to improve The State Bank’s overall earnings. The State Bank must also adopt a written contingency funding plan identifying sources of liquid assets to meet contingency funding needs over the near term.

With respect to capital and management generally, The State Bank is required to have and maintain its level of Tier 1 capital as a percentage of its total assets at a minimum of 8%, its total capital to total risk-adjusted assets as a minimum of 12%, and not pay or declare any dividends without the prior consent of the FDIC and the OFIR. The State Bank must also retain qualified management and obtain approval of the FDIC and the OFIR of any changes in The State Bank’s directors or senior executive officers.

Effective November 2010, the Corporation received a notice from The Federal Reserve which defined restrictions being placed upon the Holding Company. The restrictions include the declaration or payment of any dividends, the receipt of dividends from subsidiary Banks, the repayment of any principal or interest on subordinated debentures or Trust Preferred securities, restrictions on debt, any changes in Executive or Senior Management or change in the role of Senior Management. In addition, the notice provided an indication for the corporation to “maintain sufficient capital” levels.

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The Corporation and Bank has addressed substantially all of the requirements of the enforcement action with the exception of the minimum capital ratios set forth above. Refer to Note 14 to the financial statements for additional information.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Management’s Discussion and Analysis of financial condition and results of operations are based on the Corporation’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, income and expenses. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, ORE, securities valuation and income taxes. Actual results could differ from those estimates.

The allowance for loan losses is maintained at a level we believe is adequate to absorb probable losses identified and inherent in the loan portfolio. Our evaluation of the adequacy of the allowance for loan losses is an estimate based on reviews of individual loans, assessments of the impact of current and anticipated economic conditions on the portfolio, and historical loss experience. The allowance for loan losses represents management’s best estimate, but significant downturns in circumstances relating to loan quality or economic conditions could result in a requirement for an increased allowance for loan losses in the future. Likewise, an upturn in loan quality or improved economic conditions may result in a decline in the required allowance for loan losses. In either instance unanticipated changes could have a significant impact on operating earnings.

The allowance for loan losses is increased through a provision charged to operating expense. Uncollectible loans are charged-off against the allowance for loan losses. Recoveries of loans previously charged-off are added to the allowance for loan losses. A loan is considered impaired when it is probable that contractual interest and principal payments will not be collected either for the amounts or by the dates as scheduled in the loan agreement.

A valuation allowance related to deferred tax assets is required when it is considered more likely than not that all or part of the benefit related to such assets will not be realized. The Corporation’s evaluation of taxable events, losses in recent years and the continuing deterioration of the Michigan economy let management to conclude that it was more likely than not that all or part of the benefit would not be realized. The valuation allowance against our deferred tax assets may be reversed to income in future periods to the extent that the deferred income tax assets are realized or the valuation allowance is otherwise no longer required. Management will continue to monitor our deferred tax assets quarterly for changes affecting their realizability.

Other Real Estate Owned and Foreclosed Assets are acquired through or instead of loan foreclosure. They are initially recorded at fair value less estimated selling costs when acquired, establishing a new cost basis. If fair value declines, a valuation allowance is recorded through expense. Costs after acquisition are expensed. See Note 5 to the financial statements for additional information regarding other real estate owned.

The Corporation evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. In determining other-than-temporary impairment (“OTTI”) management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of

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whether other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

OFF-BALANCE-SHEET ITEMS

Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment. The amounts of commitments are included in Note 15 to the consolidated financial statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Fentura Financial, Inc. faces market risk to the extent that both earnings and the fair value of its financial instruments are affected by changes in interest rates. The Corporation manages this risk with static GAP analysis and has begun simulation modeling. Throughout 2010 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 substantially influenced 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 were managed in 2010 compared to 2009.

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 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, 2010. The table shows expected cash flows from market sensitive instruments for each of the next five years and thereafter. The expected maturity date values for loans and 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.

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TABLE 14

Rate Sensitivity of Financial Instruments

																						Fair
(000s omitted)	2011			2012			2013			2014			2015			Thereafter			Total			Value
Rate Sensitive Assets:
Fixed interest rate loans	$	63,427		$	34,089		$	27,962		$	6,668		$	4,977		$	18,801		$	155,924		$	144,532
Average interest rate		5.76	%		6.75	%		6.64	%		6.82	%		7.32	%		6.55	%		6.47	%
Variable interest rate loans	$	27,236		$	3,767		$	4,647		$	4,793		$	2,394		$	10,063		$	52,900		$	51,244
Average interest rate		4.94	%		4.28	%		4.46	%		4.78	%		5.20	%		5.05	%		4.90	%
Fixed interest rate securities	$	8,669		$	2,170		$	2,228		$	2,554		$	1,690		$	18,003		$	35,314		$	35,346
Average interest rate		2.79	%		2.90	%		2.91	%		2.88	%		2.59	%		3.20	%		3.00	%
Variable Interest rate securities	$	11,781		$	230		$	244		$	258		$	250		$	8,049		$	20,812		$	10,912
Average interest rate		0.10	%		5.50	%		5.60	%		5.60	%		6.20	%		4.58	%		2.09	%
FHLB Stock	$	740																	$	740		$	740
Average interest rate		5.00	%																	5.00	%
Other interest bearing assets	$	21,900																	$	21,900		$	21,900
Average interest rate		0.10	%																	0.10	%
Total rate sensitive assets	$	133,753		$	40,256		$	35,081		$	14,273		$	9,311		$	54,916		$	287,590		$	264,674
Rate Sensitive Liabilities:
Interest-bearing checking	$	51,623																	$	51,623		$	51,623
Average interest rate		0.17	%																	0.17	%
Savings	$	64,133																	$	64,133		$	64,133
Average interest rate		0.10	%																	0.10	%
Time	$	50,519		$	36,361		$	9,500		$	4,839		$	2,770		$	86		$	104,075		$	102,640
Average interest rate		2.36	%		3.07	%		2.93	%		2.64	%		2.06	%		1.80	%		2.76	%
Short term borrowings	$	879																	$	879		$	879
Average interest rate		0.00	%																	0.00	%
FHLB advances	$	30		$	33		$	35		$	39		$	42		$	775		$	954		$	1,369
Average interest rate		7.34	%		7.34	%		7.34	%		7.34	%		7.34	%		7.34	%		7.34	%
Subordinated debt	$	14,000																	$	14,000		$	12,613
Average interest rate		3.09	%																	3.09	%
Total rate sensitive liabilities	$	181,184		$	36,394		$	9,535		$	4,878		$	2,812		$	861		$	235,664		$	233,257

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 15 sets forth the distribution of re-pricing of the Corporation’s earning assets and interest bearing liabilities as of December 31, 2010, 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.

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TABLE 15

	Gap Analysis
	December 31, 2010
	Within			Three			One to			After
	Three			Months-			Five			Five
(000s omitted)	Months			One Year			Years			Years		Total
Federal Funds sold	$	21,900		$	0		$	0		$	0	$	21,900
Securities		6,132			4,417			9,622			26,054		46,225
Loans		50,048			38,914			89,299			29,714		207,975
Loans Held for Sale		850			0			0			0		850
FHLB Stock		740			0			0			0		740
Total Earning Assets	$	79,670		$	43,331		$	98,921		$	55,768	$	277,690
Interest Bearing Liabilities:
Interest Bearing Demand Deposits	$	52,723		$	0		$	0		$	0	$	52,723
Savings Deposits		64,133			0			0			0		64,133
Time Deposits Less than $100,000		10,576			16,681			31,435			89		58,781
Time Deposits Greater than $100,000		4,638			18,624			22,034			0		45,296
Short-term Borrowings		879			0			0			0		879
FHLB Advances		0			30			149			775		954
Subordinated Debt		14,000			0			0			0		14,000
Total Interest Bearing Liabilities	$	146,949		$	35,335		$	53,618		$	864	$	236,766
Interest Rate Sensitivity GAP		($67,279	)	$	7,996		$	45,303		$	54,904	$	40,924
Cumulative Interest Rate Sensitivity GAP		($67,279	)		($59,283	)		($13,980	)	$	40,924
Interest Rate Sensitivity GAP		0.54			1.23			1.84			64.55
Cumulative Interest Rate Sensitivity GAP Ratio		0.54			0.67			0.94			1.17

As indicated in Table 15, the short-term (one year and less) cumulative interest rate sensitivity gap is negative. Accordingly, if market interest rates increase, this negative gap position could have a short- term negative impact on interest margin. Conversely, if market interest rates decrease, this negative gap position could 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. In 2010, market driven rates, such as the Prime Rate remained steady throughout the year. This steadiness allowed management to close the gap related to interest rate sensitivity. Management was able to reduce liquid interest bearing liability rates to extremely low rates, while maintaining relatively similar volumes in 2010. The Bank was also able to re-price maturing time deposits, in a downward fashion as longer term certificates at higher rates matured during the year. On the asset side of the balance sheet rates on the investment portfolios remained relatively steady, and yields on loans increased comparing 2010 to 2009. Management worked to re-price loans favorably as they renewed and were priced accordingly for risk, however overall loan yields decreased. This was due to increases in non-performing loans. The Corporation expects to continue to make strides in managing interest rate sensitivity.

64

FORWARD LOOKING STATEMENTS

This discussion and analysis of financial condition and results of operations, and other sections of the Consolidated Financial Statements and this annual report, 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 and national economy.

FENTURA FINANCIAL, INC. COMMON STOCK

The Corporation’s shares are quoted on the OTC Bulletin Board. Table 16 sets forth the high and low market information for each quarter of 2009 through 2010. These quotations reflect inter-dealer prices, without retail mark-up, markdown, or commission and may not represent actual transactions. As of February 1, 2011, there were 707 shareholders of record, not including participants in the Corporation’s employee stock option program.

TABLE 16

Common Stock Data

			Market				Dividends
			Information				Paid
Years		Quarter	High		Low		Per Share (1)
	2009	First Quarter	$	7.50	$	2.50	$	0.000
		Second Quarter		6.00		4.25		0.000
		Third Quarter		5.00		2.00		0.000
		Fourth Quarter		2.40		0.90		0.000
							$	0.000
	2010	First Quarter	$	1.75	$	1.10	$	0.000
		Second Quarter		4.25		3.20		0.000
		Third Quarter		3.00		1.90		0.000
		Fourth Quarter		1.75		1.45		0.000
							$	0.000

(1) Refer to Note 1 to the Financial Statements “Dividend Restrictions” for a discussion of limitations on the Corporation’s ability to pay dividends.

65

SHAREHOLDER RETURN PERFORMANCE GRAPH

     The graph compares the cumulative total shareholder return on the Corporation’s common stock for the last five years with the cumulative total return of the Midwest Quadrant Pink Bank Index, published by SNL Financial L.C., and the NASDAQ Market Index assuming a $100 investment at the end of 2003. The NASDAQ Market Index is a broad equity market index. The Midwest Quadrant Pink Bank Index is composed of 101 banks and bank holding companies located in the Midwest and whose shares primarily trade on the Over-the-Counter Bulletin Board.

     Cumulative total return is measured by dividing (i) the sum of (A) the cumulative amount of dividends for the measurement period, assuming dividend reinvestment, and (B) the difference between the share price at the end and the beginning of the measurement period; by (ii) the share price at the beginning of the measurement period. The graph assumes the investment of $100 in the Corporation’s common stock, the NASDAQ Market Index, and the Midwest Quadrant Pink Bank Index at the market close on December 31, 2005 and the reinvestment of all dividends through the period ending December 31, 2010.

COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG FENTURA FINANCIAL, INC., NASDAQ MARKET INDEX,
AND MIDWEST QUADRANT PINK BANK INDEX

	Period Ending
Index	12/31/05		12/31/06		12/31/07		12/31/08		12/31/09		12/31/10
Fentura Financial, Inc.		100.00		112.60		78.69		24.42		4.92		6.33
NASDAQ Composite		100.00		110.39		122.15		73.32		106.57		125.91
SNL Midwest OTC-BB and Pink Banks		100.00		105.31		102.80		76.62		65.37		69.39
Fentura Financial Peer Group*		100.00		103.50		62.65		32.31		21.84		21.51

Source: SNL Financial LC, Charlottesville, VA

* Fentura Financial Peer Group consists of Banks in Michigan (MI)

66

Directors and Executive Officers

William H. Dery, MD Director of the Midland Family Medicine Residency Program at Mid-Michigan Medical Center Midland, MI	Forrest A. Shook, Chairman of the Board Chairman NLB Corporation Wixom, MI
Thomas P. McKenney Owner/President and Attorney McKenney and McKenney Holly, MI	Jo Anne Shaw President The Coffee Beanery Flushing, MI
Brian P. Petty President and Owner Fenton Glass Service, Inc. Fenton, MI	Ronald K. Rybar President The Rybar Group Fenton, MI
Douglas W. Rotman Partner Ferris, Busscher and Zwiers, P.C. Holland, MI	James A. Wesseling Senior Partner and Attorney Wesseling and Brackmann, P.C. Hudsonville, MI
Donald L. Grill President and Chief Executive Officer Fentura Financial, Inc. Fenton, MI	Douglas J. Kelley Senior Vice President and Chief Financial Officer Fentura Financial, Inc. Fenton, MI
Ronald L. Justice President and Chief Operating Officer The State Bank Fenton, MI	Daniel J. Wollschlager Executive Vice President and Chief Lending Officer The State Bank Fenton, MI

67

EX-14

Exhibit 14

FENTURA FINANCIAL, INC.
CODE OF ETHICS

In my role with Fentura Financial, Inc. and/or subsidiaries or affiliates (the “Company”), I certify to the Company and the Audit Committee of the Board of Directors of the Company, that I will adhere to and advocate the following principles and responsibilities governing my professional and ethical conduct to the best of my knowledge and ability:

1.	I will act with honesty and integrity, avoiding actual or apparent conflicts of interest in all personal and professional relationships.
2.	I will provide information that is accurate, complete, objective, relevant, timely and understandable.
3.	I will comply with the rules and regulations of federal, state, and local governments, and other appropriate private and public regulatory agencies.
4.	I will act in good faith, responsibly, and with due care. I will not misrepresent material facts or allow my independent judgment to be subordinated or otherwise compromised.
5.	I will respect and maintain the confidentiality of information reviewed or acquired in carrying out my duties except when authorized or otherwise legally obligated to disclose.
6.	I will share knowledge and maintain skills important and relevant to the needs of the Company.
7.	I will proactively practice and promote ethical behavior as a professional in my role with the Company.
8.	I will not solicit for myself or for a third party anything of value from anyone in return for any business, service or confidential information of the Company, nor will I accept anything of value from anyone (except for my wages and as otherwise permitted by law) in connection with the business of the Company, either before or after a transaction is discussed or completed.
9.	I will comply with and adhere to all of the Company’s policies and practices, including those policies governing accounting and financial reporting practices and corporate governance.
10.	I will respond honestly and candidly when dealing with the Company’s independent and internal auditors, regulators and attorneys.
11.	I will promptly disclose to an appropriate person or persons any material transaction or relationship that reasonably could be expected to give rise to a conflict of interest, and/or violations of this Code.

(Signature)  (Date)   (Rvsd 01/05)

EX-21.1

Exhibit 21.1
Subsidiaries of the Registrant

Company	Ownership	State of Incorporation
Fentura Holdings, LLC	100%	Michigan
The State Bank	100%	Michigan
Community Bank Services, Inc.	100% by The State Bank	Michigan

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     We consent to the incorporation by reference in the Registration Statements of Fentura Financial, Inc. on Form S-3D (File No.333-120182) and on Forms S-8 (File No. 333-118085), (File No. 333-137104) and (File No. 333-137103) of our report dated March 9, 2011, appearing in this 2010 Annual Report on Form 10-K of Fentura Financial, Inc.

/s/ CROWE HORWATH LLP  

Grand Rapids, Michigan
March 9, 2011

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Donald L. Grill, certify that:

1. I have reviewed this Annual Report on Form 10-K of Fentura Financial, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	designed such internal control over financial reporting, or caused internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 14, 2011

/s/ Donald L. Grill  

Donald L. Grill 

Chief Executive Officer and President 

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Douglas J. Kelley, certify that:

1. I have reviewed this Annual Report on Form 10-K of Fentura Financial, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	designed such internal control over financial reporting, or caused internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 14, 2011

/s/ Douglas J. Kelley  

Douglas J. Kelley 

Chief Financial Officer 

EX-32.1

Exhibit 32.1

     Each of Donald L. Grill, Chief Executive Officer and President, and Douglas J. Kelley, Chief Financial Officer, of Fentura Financial, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	the Annual Report on Form 10-K for the fiscal year ended December 31, 2010 which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
(2)	the information contained in the Annual Report on Form 10-K for the fiscal year ended December 31, 2010 fairly presents, in all material respects, the financial condition and results of operations of Fentura Financial, Inc.

Dated: March 14, 2011

/s/ Donald L. Grill  

Donald L. Grill 

Chief Executive Officer and President 

/s/ Douglas J. Kelley  

Douglas J. Kelley 

Chief Financial Officer