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.

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.

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.

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

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

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

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

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	)

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

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.

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

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

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

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.

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.

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

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.

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.

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