Fentura Financial, Inc. Form 10-K

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For fiscal year ended December 31, 2003

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from to __

Commission file number 000-23550

FENTURA FINANCIAL, INC.
———————————————
(Exact name of registrant as specified in its charter)

Michigan

(State or other jurisdiction of
incorporation or organization)

38-2806518

(IRS Employer Identification No.)

175 North Leroy, Fenton, Michigan

(Address of Principal Executive Offices)

48430-0725

(Zip Code)

Registrant’s telephone number, including area code (810) 750-8725

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: Common Stock

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. X Yes ___ No

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12-b-2). Yes ___ No X.

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, 2003: $58,431,956.

State the number of shares outstanding of each of issuer’s classes of common equity, as of the latest practicable date. 1,883,046 shares of Common Stock as of March 1, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Fentura Financial, Inc. Proxy Statement for its annual meeting of shareholders to be held April 27, 2004 and its Rule 14a-3 annual report are incorporated by reference into Parts II and III.

Fentura Financial, Inc.

2003 Annual Report on Form 10-K

Table Of Contents


			Page
PART I
Item 1 Description of Business			3
Item 2 Description of Property			9
Item 3 Legal Proceedings			9
Item 4 Submission of Matters to a Vote of Security Holders			10
Additional Item - Executive Officers of Registrant			10

PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters			10
Item 6 Selected Financial Data			11
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations			11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			11
Item 8 Financial Statements and Supplementary Data			11
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			11
Item 9A. Controls and Procedures			11

PART III
Item 10. Directors and Executive Officers of the Registrant			11
Item 11. Executive Compensation			11
Item 12. Security Ownership of Certain Beneficial Owners and Management			12
Item 13. Certain Relationships and Related Transactions			12
Item 14. Principal Accountant Fees and Services			12
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K			13

SIGNATURES			14

EXHIBIT INDEX			17

PART I

ITEM 1. DESCRIPTION OF BUSINESS

The Company

Fentura Financial, Inc. (the “Company” or “Fentura”) is a bank holding company headquartered in Fenton, Michigan. As of December 31, 2003, Fentura owned two banks, see “The Banks” below. All information in this Item 1 is as of December 31, 2003. The Company’s subsidiary banks operate ten community banking offices offering a full range of banking services principally to individuals, small business, and government entities throughout mid-Michigan. At the close of business on December 31, 2003, the Company had assets of $420 million, deposits of $349 million, and shareholders’ equity of $41 million. Trust assets under management totaled $80 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. See “The Banks”. On March 13, 2000 a second bank subsidiary, Davison State Bank (“DSB” or one of the “Banks”) commenced operation.

On October 14, 2003, Fentura and West Michigan Financial Corporation entered into a definitive Agreement and Plan of Merger under which Fentura will acquire West Michigan Community Bank in Hudsonville, Michigan. The acquisition was an all cash transaction totaling approximately $13.1 million for all of the outstanding stock of West Michigan Financial Corporation, the holding company for West Michigan Community Bank. The transaction was completed on March 15, 2004.

In August of 2000 Fentura converted from a bank holding company to a financial holding company registered with the Board of Governors of the Federal Reserve System under the Bank Holding Company Act and the Gramm-Leach-Bliley Act (the “GLB Act”). On January 13, 2004, the Company relinquished its financial holding company status. This was necessary in order to complete the acquisition of West Michigan Community Bank, which does not currently meet the capital and other requirements for a bank subsidiary of a financial holding company. Relinquishing the financial holding company status has no adverse effect of any kind on Fentura’s current operations. As a bank holding company, the Company has corporate power to engage in such activities as are permitted to business corporations under the Michigan Business Corporation Act, subject to the limitations of the Bank Holding Company Act and GLB Act and regulations of the Board of Governors of the Federal Reserve System. In general, the Bank Holding Company Act and regulations restrict the Company with respect to its own activities that are closely related to the business of banking. See “Supervision and Regulation.”

The Company’s principal executive offices are located at 175 North Leroy, Fenton, Michigan 48430-0725, and its telephone number is (810) 750-8725.

The Banks

TSB’s original predecessor was incorporated as a state banking corporation under the laws of Michigan on September 16, 1898 under the name “The Commercial Savings Bank of Fenton.” In 1931, it changed its name to State Savings Bank of Fenton, and in 1988 became The State Bank. For over 100 years TSB has been engaged in the general banking business in the Fenton, Michigan area. Its deposits are insured by the Federal Deposit Insurance Corporation (the “FDIC”), but it is not a member of the Federal Reserve System. As a state bank, it is subject to federal and state laws applicable to banks and to regulation and supervision by the FDIC and the Michigan Office of Financial and Insurance Services, Division of Financial Institutions. See “Supervision and Regulation.”

DSB commenced operations on March 13, 2000, and is engaged in the general banking business in the Davison, Michigan area. Its deposits are insured by the Federal Deposit Insurance Corporation (the “FDIC”), but it is not a member of the Federal Reserve System. As a state bank, it is subject to federal and state laws applicable to banks and to regulation and supervision by the FDIC and the Michigan Office of Financial and Insurance Services, Division of Financial Institutions. See “Supervision and Regulation.”

Both Banks are community-oriented providers of financial services engaged in the business of general commercial banking. Their activities include investing in state and federal securities, accepting demand deposits, savings and other time deposits, extending retail, commercial, consumer and real estate loans to individuals and businesses, providing safe deposit boxes and credit card services, transmitting funds and providing other services generally associated with full service commercial banking. Lending is focused on individuals and small businesses in the local markets served by the Banks. In addition, TSB operates a trust department offering a full range of fiduciary services.

TSB is headquartered in the City of Fenton, Michigan, and considers its primary service area to be portions of Genesee, Oakland, and Livingston counties in Michigan. As of December 31, 2003, TSB operated four offices and a operations center in the City of Fenton, Michigan, one office in the City of Linden, Michigan, one office in the Village of Holly, Michigan, and two offices in the Township of Grand Blanc, Michigan. Its main office is located downtown Fenton.

DSB is headquartered in the Township of Davison, Michigan, and considers its primary service area to be portions of Genesee and Lapeer Counties. As of December 31, 2003, DSB operated two offices in the Township of Davison, Michigan.

As of December 31, 2003, TSB employed 124 full time personnel, including 42 officers, and an additional 31part time employees. TSB considers its employee relations to be excellent.

As of December 31, 2003, DSB employed 12 full time personnel, including 3 officers, and an additional 9part time employees. DSB considers its employee relations to be excellent.

Competition

The financial services industry is highly competitive. The Banks compete with other commercial banks, many of which are subsidiaries of bank holding companies, for loans, deposits, trust accounts, and other business on the basis of interest rates, fees, convenience and quality of service. The Banks also compete with a variety of other financial services organizations including savings and loan associations, finance companies, mortgage banking companies, brokerage firms, credit unions and other financial organizations. Many of the Banks’ competitors have substantially greater resources than the Banks.

Supervision and Regulation

The following is a summary of certain statutes and regulations affecting the Company 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 Company, the Banks and the business of the Company 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 Company and the Banks 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 Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), the FDIC, the Commissioner of the Michigan Office of Financial and Insurance Services (“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 Company 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 Banks, and the public, rather than shareholders of the Banks or the Company.

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

The Company’s common stock is registered under the Securities 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. The Sarbanes-Oxley Act provides 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. The SEC continues to issue new and proposed rules implementing various provisions of the Sarbanes-Oxley Act.

The Company

General. In August of 2000, the Company became a financial holding company, within the meaning of the Gramm-Leach-Bliley Act of 1999 (“GLB Act”). On January 13, 2004, the Company relinquished its financial holding company status. This was necessary in order to complete the acquisition of West Michigan Community Bank, which does not currently meet the capital and other requirements for a bank subsidiary of a financial holding company. Relinquishing the financial holding company status has no adverse effect of any kind on Fentura’s current operations. The Company 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 Company 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 Company 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 Company 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 Company as the Bank’s sole shareholder. If the Company 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 Company to the highest bidder at either a public or private auction and use the proceeds of the sale to restore the Bank’s capital.

Investments and Activities. In general, any direct or indirect acquisition by the Company of any voting shares of any bank which would result in the Company’s direct or indirect ownership or control of more than 5% of any class of voting shares of such bank, and any merger or consolidation of the Company with another financial holding company or bank holding company, will require the prior written approval of the Federal Reserve Board under the BHCA.

The merger or consolidation of an existing bank subsidiary of the Company 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 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.

Eligible bank holding companies that elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of non-banking activities, including securities and insurance activities and any other activity that the Federal Reserve Board, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature, incidental to any such financial activity or complementary to any such financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally. The Bank Holding Company Act generally does not place territorial restrictions on the domestic activities of non-bank subsidiaries of bank or financial holding companies.

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.

The Federal Reserve Board’s capital guidelines establish the following minimum regulatory capital requirements for bank holding companies: (i) a leverage capital requirement expressed as a percentage of total average assets, and (ii) a risk-based requirement expressed as a percentage of total risk-weighted assets. The leverage capital requirement consists of a minimum ratio of Tier 1 capital (which consists principally of shareholders’ equity) to total average assets of 3% for the most highly rated companies, with minimum requirements of 4% to 5% for all others. The risk-based requirement consists of a minimum ratio of total capital to total risk-weighted assets of 8%, of which at least one-half must be Tier 1 capital.

Dividends. The Company is a corporation separate and distinct from the Banks. Most of the Company’s revenues are received by it in the form of dividends paid by the Banks. Thus, the Company’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 Company 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 Company, 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.

The Banks

General. The Banks are Michigan banking corporations, and their deposit accounts are insured by the Bank Insurance Fund (the “BIF”) of the FDIC. As a BIF 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 BIF. These agencies and the federal and state laws applicable to the Banks and their 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 FDIC-insured institutions, the Banks are required to pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a risk-based assessment system under which all insured depository institutions are placed into one of nine categories and assessed insurance premiums, based upon their respective levels of capital and results of supervisory evaluation. Institutions classified as well-capitalized (as defined by the FDIC) and considered healthy pay the lowest premium while institutions that are less than adequately capitalized (as defined by the FDIC) and considered of substantial supervisory concern pay the highest premium. Risk classification of all insured institutions is made by the FDIC for each semi-annual assessment period.

The Federal Deposit Insurance Act (“FDIA”) requires the FDIC to establish assessment rates at levels which will maintain the Deposit Insurance Fund at a mandated reserve ratio of not less than 1.25% of estimated insured deposits. For several years, the BIF reserve ratio has been at or above the mandated ratio and assessments have ranged from 0% of deposits for institutions in the lowest risk category to .27% of deposits in the highest risk category.

FICO Assessments. The Banks, as members of the BIF, 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, the predecessor to the FDIC’s Savings Association Insurance Fund (the “SAIF”) which insures the deposits of thrift institutions. From now until the maturity of the outstanding FICO obligations in 2019, BIF members and SAIF members will share the cost of the interest on the FICO bonds on a pro rata basis. It is estimated that FICO assessments during this period will be less than 0.025% of deposits.

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.

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 Risk-Based Capital Ratio	Tier 1 Risk-Based Capital Ratio	Leverage Ratio

Well capitalized Adequately capitalized Undercapitalized Significantly undercapitalized Critically undercapitalized	10% or above 8% or above Less than 8% Less than 6% --	6% or above 4% or above Less than 4% Less than 3% --	5% or above 4% or above Less than 4% Less than 3% A ratio of tangible equity to total assets of 2% or less

As of December 31, 2003, each of the Banks’ ratios exceeded minimum requirements for the well capitalized category.

Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include: requiring the submission of a capital restoration plan; placing limits on asset growth and restrictions on activities; requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired; restricting transactions with affiliates; restricting the interest rate the institution may pay on deposits; ordering a new election of directors of the institution; requiring that senior executive officers or directors be dismissed; prohibiting the institution from accepting deposits from correspondent banks; requiring the institution to divest certain subsidiaries; prohibiting the payment of principal or interest on subordinated debt; and ultimately, appointing a receiver for the institution.

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.

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.

Insider Transactions. The Banks are subject to certain restrictions imposed by the Federal Reserve Act on any extensions of credit to the Company or its subsidiaries, on investments in the stock or other securities of the Company or its subsidiaries and the acceptance of the stock or other securities of the Company or its subsidiaries as collateral for loans. Certain limitations and reporting requirements are also placed on extensions of credit by the Banks to their directors and officers, to directors and officers of the Company and its subsidiaries, to principal shareholders of the Company, 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 Company or one of its subsidiaries or a principal shareholder of the Company may obtain credit from banks with which the Banks maintain a correspondent relationship.

Safety and Soundness Standards. The federal banking agencies have 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 of which the bank is a member. 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 Banks.

Consumer Protection Laws. The Banks’ businesses include 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 thereunder, 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 thereunder, which prohibit discrimination, specify disclosures to be made to borrowers regarding credit and settlement costs, and regulate the mortgage loan servicing activities of the Banks, including the maintenance and operation of escrow accounts and the transfer of mortgage loan servicing. In receiving deposits, the Banks are 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 anywhere in the State of Michigan, subject to receipt of all required regulatory approvals. Banks may establish interstate branch networks through acquisitions of other banks. The establishment of de novo interstate branches or the acquisition of individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) is allowed only if specifically authorized by state law.

Michigan 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 Michigan Office of Financial and Insurance Services, Division of Financial Institutions, (1) acquisition of Michigan banks by FDIC-insured banks, savings banks or savings and loan associations located in other states, (2) 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, (3) consolidation of Michigan banks and FDIC-insured banks, savings banks or savings and loan associations located in other states having laws permitting such consolidation, (4) 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 (5) establishment by foreign banks of branches located in Michigan.

ITEM 2. DESCRIPTION OF PROPERTY

The Company’s executive offices are located at 175 North Leroy Street, Fenton, Michigan, which is also the main office of The State Bank. The State Bank also has the following branches in Fenton: a branch at 15095 Silver Parkway, a branch at 18005 Silver Parkway, and a loan office at 101 North Leroy Street. The State Bank’s other branches are located in Linden, Michigan, at 107 Main Street; Holly, Michigan, at 4043 Grange Hall Road; Grand Blanc, Michigan at 7606 S Saginaw and at 8185 Holly Road. The State Bank has an operations center at 3202 Owen Road in Fenton, Michigan. Davison State Bank is headquartered in Davison, Michigan, at 625 S. State with one branch location at 8503 Davison Road. The Company owns all of its properties with the exception of the Holly, the branch at 8503 Davison Road in Davison, the branch at 8185 Holly Road in Grand Blanc and the branch at 18005 Silver Parkway facilities, which are leased from third parties.

All properties have maintenance contracts and are maintained in good condition.

ITEM 3. LEGAL PROCEEDINGS

From time to time, the Company and its subsidiaries are parties to various legal proceedings incident to their business. At December 31, 2003, there were no legal proceedings which management anticipates would have a material adverse effect on the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted during the fourth quarter of the year covered by this report to a vote of security holders through the solicitation of proxies or otherwise.

ADDITIONAL ITEM — EXECUTIVE OFFICERS OF REGISTRANT

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

Officers of the Company are appointed annually by the Board of Directors of the Company and serve at the pleasure of the Board of Directors. Certain of the officers named below are appointed annually by the Board of Directors of one or the other of the Banks and serve at the pleasure of the Board of the Bank that appointed them. The Bank officers are included in the listing of executive officers of the Company because of the nature of the office they hold. Information concerning these executive officers is given below:

Donald L. Grill (age 55) was appointed as President and Chief Executive Officer of the Company and of TSB in late 1996. From 1983 to 1996, Mr. Grill was employed by First of America Bank Corporation and served as President and Chief Executive Officer of First of America Bank — Frankenmuth.

Ronald L. Justice (age 39) is the Senior Vice president and Secretary of the Company since 1999 and prior to that served as Chief Financial Officer of the Company and the affiliates banks and Vice President since 1995. Prior to that Mr. Justice held other positions with TSB.

Robert E. Sewick (age 54) is Senior Vice President and Senior Loan Officer of TSB. Mr. Sewick was appointed to that position in June of 1999. Mr. Sewick has 30 years of banking experience, most recently as Senior Vice President/Regional Credit Officer of Huntington National Bank for Western Michigan.

Douglas J. Kelley (age 35) was appointed Chief Financial Officer of the Company in 2003. Previously, he served as Controller and Chief Financial Officer of the two affiliates banks since 2001. Mr. Kelley has 12 years of banking experience most recently as AVP and Accounting Officer with Citizens Bank.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The market and dividend information required by this item appears under the caption “Fentura Financial, Inc. Common Stock” and Table 15 on page 51 under the title “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS”, of the Company’s 2003 Rule 14a-3 annual report, and is incorporated herein by reference.

The holders of record information required by this item appears under the caption “Stock Ownership Information” on page 4 of the Company’s 2004 Notice of Annual Meeting of Shareholders and Proxy Statement, and is incorporated herein by reference.

ITEM 6. SELECTED FINANCIAL DATA

The information required by this item appears under the title “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS”, appearing in Table 1 on page 33 of the Company’s 2003 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 33 through 51 of the Company’s 2003 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 45 and 46 and “Quantitative and Qualitative Disclosure About Market Risk” on page 47 under the title “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” of the Company’s 2003 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 and Report of Crowe, Chizek and Company LLC, Independent Auditors appear on pages 1 through 32 of the Financial Statements portion of the Company’s 2003 Rule 14a-3 annual report, and are incorporated herein by reference.

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

None

ITEM 9A CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

The Company’s Chief Executive Officer and the Chief Financial Officer, after evaluating the effectiveness of the Company’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 Company’s disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company would be made known to them by others within the Company, particularly during the period in which this Form 10-K Annual Report was being prepared.

(b) Changes in Internal Controls.

During the period covered by this report, there have been no changes in the Company’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Company’s Executive officers are identified in “Additional Item” in Part I of this Report on Form 10-K. The other information required by this item appears under the captions “2004 Election of Directors,” “The Corporation’s Board of Directors,” “Committees of the Corporation Board,” and “Compliance with Section 16 Reporting” on pages 3, 5, 6, 7, 8, and 15, respectively, of the Company’s 2004 Notice of Annual Shareholders Meeting and Proxy Statement, and is incorporated herein by reference.

The Board of Directors of the Company has determined that Peggy L. Haw-Jury, 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.

The Board of Directors of the Company has adopted a Code of Ethics, which details principles and responsibilities governing ethical conduct for all Company directors and executive officers. The Code of Ethics was filed as an Exhibit to the Company’s 2002 Annual Report on Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item appears under the captions “Directors’ Compensation,” “Executive Compensation,” “Retirement and Change in Control Arrangements” and “Shareholder Return Performance Graph” on pages 6, 9, 11 and 12 and 14, respectively, of the Company’s 2004 Notice of Annual Shareholders Meeting and Proxy Statement, and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item appears under the caption “Stock Ownership of Directors, Executive Officers and Certain Major Shareholders” on page 4 of the Company’s 2004 Notice of Annual Shareholders Meeting and Proxy Statement, and is incorporated herein by reference.

Securities Authorized for Issuance Under Equity Compensation Plans. The Company had the following equity compensation plans at December 31, 2003:

EQUITY COMPENSATION PLAN INFORMATION

	Number of securities to be issued upon exercise of outstanding options		Weighted-average exercise price of outstanding options		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (1))
Plan Category	(1)		(2)		(3)
Equity compensation
plans approved by
security holders		22,770	$	26.21		91,470

Equity compensation
plans not approved by
security holders		0		0		0

Total		22,770	$	26.21		91,470

These equity compensation plans are more fully described in Note 10 to the Consolidated Financial Statements.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item appears under the caption “Other Information — Transactions with Certain Interested Persons” on page 14 of the Company’s 2004 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 12 of the Company’s 2004 Notice of Annual Shareholders Meeting and Proxy Statement and is here incorporated by reference.

ITEM 15. EXHIBITS. FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)

Financial Statements:
The following consolidated financial statements of the Company and Report of Crowe, Chizek and Company LLC, Independent Auditors are incorporated by reference under Item 8 “Financial Statements and Supplementary Data” of this document:

Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Report of Crowe Chizek LLC, Independent Auditors

Financial Statement Schedules
All schedules are omitted — see Item 14(d) below.

Exhibits:
The exhibits listed on the “Exhibit Index” following the signature page of this report are filed herewith and are incorporated herein by reference.

(b)	Report on Form 8-K

A form 8-K Report dated December 16, 2003 was filed to report a dividend declaration by the Registrant.

A Form 8-K Report dated October 17, 2993 was filed to report a press release under Item 12 announcing quarterly earnings.

A Form 8-K Report dated October 14, 2003 was filed to report execution of a definitive agreement for the Registrant to acquire West Michigan Community Bank in Hudsonville, Michigan.

(c)	Exhibits: The “Exhibit Index” follows the signature page of this report and is incorporated herein by reference.

(d)	Financial Statement Schedules:

All financial statement schedules normally required by Article 9 of Regulation S-X are omitted since they are either not applicable or the required information is shown in the consolidated financial statements or notes thereto.

Signatures

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, dated March 25, 2004.

Fentura Financial, Inc.
      (Registrant)

By: /s/ Donald L. Grill
      ——————————————
      Donald L. Grill
      On behalf of the registrant
        and as President & CEO

By: /s/ Douglas J. Kelley
      ——————————————
      Douglas J. Kelley
      Chief Financial Officer
        (Principal Accounting Officer)

In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Each director of the Registrant, whose signature appears below, hereby appoints 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
	Chairman of the Board	March 25, 2004
Forrest A. Shook	Director
/s/ Donald L. Grill
	Director	March 25, 2004
Donald L. Grill
/s/ Peggy L. Haw Jury
	Director	March 25, 2004
Peggy L. Haw Jury
/s/ J. David Karr
	Director	March 25, 2004
J. David Karr
/s/ Thomas P. McKenney
	Director	March 25, 2004
Thomas P. McKenney
/s/ Thomas L. Miller
	Director	March 25, 2004
Thomas L. Miller
/s/ Brian P. Petty
	Director	March 25, 2004
Brian P. Petty
/s/ Ian W. Schonsheck
	Director	March 25, 2004
Ian W. Schonsheck
/s/ Douglas J. Kelley
	Chief Financial Officer	March 25, 2004
Douglas J. Kelley	(Principal Accounting Officer)

FENTURA FINANCIAL, INC.

2003 Annual Report on Form 10-K

EXHIBIT INDEX

Exhibit No.

Exhibit

Agreement and Plan of Merger By and Among Fentura Financial, Inc., West Michigan Financial Corporation and West Michigan Community Bank dated as of October 14, 2003, and joined in by WMFC Acquisition Subsidiary, Inc. and Amendment No. 1 thereto (Incorporated by reference to Exhibits 2.1 and 2.2 to the Registrant's Current Report on Form 8-K dated March 15, 2004).

3(i)	Articles of Incorporation of Fentura Financial, Inc. (Incorporated by reference to Form 10-SB Registration Number 0-23550)

3(ii)

Bylaws of Fentura Financial, Inc. (Incorporated by reference to Form 10-SB Registration Number 0-23550)

3(iii)

Amendment to the Articles of Incorporation of Fentura Financial, Inc. (Incorporated by reference to Exhibit 3(iii) to the Form 10-K Filed March 20, 2001)

3(iv)

Amendment to the Articles of Incorporation of Fentura Financial, Inc. (Incorporated by reference to Exhibit 3 filed with Form 10-Q for the quarter ended March 31, 2002)

4.1	Amended and Restated Automatic Dividend Reinvestment Plan (Incorporated by reference to Registration Statement on Form S-3 — Registration No. 333-75194)

10.7	Lease of Davison Branch Bank Site between The State Bank and VG's Food Center, Inc. dated April 27, 1993 (Incorporated by reference to Form 10-SB Registration Number 0-23550)

10.10

Lease of Fenton Silver Parkway Branch site between The State Bank and VG’s Food Centers dated March 26, 1996 (Incorporated by reference to Form 10Q-SB filed on May 2, 1996)

10.11

Lease of Davison (second) Branch site between The State Bank and VG’S Food Centers dated November 12, 1996 (Incorporated by reference to Exhibit 10.11 to the Form 10K-SB filed on March 20, 1997)

10.12

Directors Stock Purchase Plan (Incorporated by reference to Form 10K-SB filed on March 17, 1996)

10.13

Non-Employee Director Stock Option Plan (Incorporated by reference to Form 10K-SB filed on March 17, 1996)

10.14

Form of Non-Employee Director Stock Option Agreement (Incorporated by reference to Form 10Q-SB filed on May 2, 1996)

10.15

Retainer Stock Plan for Directors (Incorporated by reference to Form 10K-SB filed on March 17, 1996)

10.16

Employee Stock Option Plan(Incorporated by reference to Form 10K-SB filed on March 17, 1996)

10.17

Form of Employee Stock Option Plan Agreement (Incorporated by reference to Form 10K-SB filed on March 17, 1996)

Exhibit No.

Exhibit

10.18

Executive Stock Bonus Plan (Incorporated by reference to Form 10K-SB filed on March 17, 1996)

10.19

Stock Purchase Plan between The State Bank and Donald E. Johnson, Jr., Mary Alice J. Heaton, and Linda J. LeMieux dated November 17, 1996 (Incorporated by reference to Exhibit 10.19 to the Form 10K-SB filed March 20, 1997)

10.20

Severance Compensation Agreement between the Registrant and Donald L. Grill dated March 20, 1997 (Incorporated by reference to Exhibit 10.20 to the Form 10Q-SB filed May 12, 1997)

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 (Incorporated by reference to Exhibit 14 to the Form 10-K filed on March 27, 2003)

21.1	Subsidiaries of the Registrant (Filed herewith)

23.1	Consent of Independent Accountants (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

Exhibit 13

Rule 14a-3 annual report

FENTURA FINANCIAL, INC.

CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003 and 2002

FENTURA FINANCIAL, INC.
Fenton, Michigan

CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003 and 2002

CONTENTS


REPORT OF INDEPENDENT AUDITORS		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

REPORT OF INDEPENDENT AUDITORS

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, 2003 and 2002, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Fentura Financial, Inc. as of December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.

Crowe Chizek and Company LLC

Grand Rapids, Michigan
February 5, 2004

FENTURA FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2003 and 2002
(000‘s omitted except share and per share data)

	2003			2002

ASSETS
Cash and due from banks	$	16,509		$	20,262
Federal funds sold		3,650			10,300

Total cash and cash equivalents		20,159			30,562

Securities available for sale, at fair value		113,833			48,981
Securities held to maturity (fair value 2003 - $12,519
2002 - $14,051)		12,169			13,722

Loans held for sale		1,095			5,509
Loans, net of allowance of 2003 - $3,414,
2002 - $3,184		249,831			221,037

Bank premises and equipment		9,606			9,754
Accrued interest receivable		1,884			1,595
Bank owned life insurance		6,458			6,234
Federal Home Loan Bank stock		854			822
Other assets		4,077			2,267

	$	419,966		$	340,483


LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing deposits	$	58,708		$	44,875
Interest-bearing deposits		289,817			250,994

Total deposits		348,525			295,869

Short-term borrowings		3,449			1,500
Federal Home Loan Bank Advances		1,108			1,124
Repurchase Agreements		12,500			0
Subordinated debentures		12,000			0
Accrued taxes, interest and other liabilities		1,502			2,062

Total liabilities		379,084			300,555

Stockholders' equity
Common stock - $0 par value, shares issued
1,880,485 - 2003; 1,722,126 - 2002		32,769			30,236
Retained earnings		8,238			9,395
Accumulated other comprehensive income		(125	)		297

		40,882			39,928

	$	419,966		$	340,483

See accompanying notes to consolidated financial statements.

FENTURA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2003, 2002 and 2001
(000‘s omitted except share and per share data)

	2003		2002		2001

Interest income
Loans, including fees	$	15,669	$	15,924	$	17,555
Securities:
Taxable		1,943		1,046		2,426
Tax-exempt		665		644		660
Short-term investments		161		338		926

Total interest income		18,438		17,952		21,567

Interest expense
Deposits		5,318		5,623		8,958
Short-term borrowings		9		16		47
Other Borrowings		274		83		86

Total interest expense		5,601		5,722		9,091

Net interest income		12,837		12,230		12,476

Provision for loan losses		1,319		426		751

Net interest income after provision for loan losses		11,518		11,804		11,725

Noninterest income
Service charges on deposit accounts		3,609		2,594		2,286
Gain on sale of mortgage loans		1,258		1,009		659
Trust income		507		540		566
Gain on sale of securities		31		0		674
Gain on sale of fixed assets		201		0		0
Other income and fees		1,260		1,251		1,178

Total noninterest income		6,866		5,394		5,363

Noninterest expense
Salaries and employee benefits		6,981		6,454		5,988
Occupancy		1,116		1,061		886
Furniture and equipment		1,533		1,563		1,411
Office supplies		300		305		300
Loan and collection		280		183		178
Advertising and promotional		373		315		320
Other professional services		1,171		1,100		1,144
Other general and administrative		1,522		1,272		1,473

Total noninterest expense		13,276		12,253		11,700

Net income before taxes		5,108		4,945		5,388

Federal income taxes		1,320		1,479		1,611

Net income	$	3,788	$	3,466	$	3,777

Per share:
Earnings - basic	$	2.01	$	1.82	$	1.99
Earnings - diluted		2.01		1.81		1.98

See accompanying notes to consolidated financial statements.

FENTURA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 2003, 2002 and 2001
(000‘s omitted except share and per share data)

	2003			2002			2001

Net income	$	3,788		$	3,466		$	3,777

Other comprehensive income:
Unrealized holding gains (losses) on available
for sale securities		(609	)		311			1,139
Less: reclassification adjustment for gains and
losses later recognized in income		31			0			674

Net unrealized gains (losses)		(640	)		311			465
Tax effect		218			(106	)		(158	)

Other comprehensive income (loss), net of tax		(422	)		205			307

Comprehensive income	$	3,366		$	3,671		$	4,084

See accompanying notes to consolidated financial statements.

FENTURA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Years ended December 31, 2003, 2002 and 2001
(000‘s omitted except share and per share data)

	Common Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity

Balance, January 1, 2001	$	30,321			5,648		$	(215	)	$	35,754
Net Income					3,777						3,777

Cash Dividends ($0.92 per share)		0			(1,748	)		0			(1,748	)

Issuance of shares under stock purchase plans		343			0			0			343

Other comprehensive income (net of tax)		0			0			307			307

Balance, December 31, 2001		30,664			7,677			92			38,433

Net Income		0			3,466			0			3,466

Cash Dividends ($0.92 per share)		0			(1,748	)		0			(1,748	)

Stock repurchase (23,259 shares)		(719	)		0			0			(719	)

Issuance of shares under stock purchase plans		291			0			0			291

Other comprehensive income (net of tax)		0			0			205			205

Balance, December 31, 2002		30,236			9,395			297			39,928

Net Income		0			3,788			0			3,788

Cash Dividends ($0.92 per share)		0			(1,966	)		0			(1,966	)

Stock Dividend (170,953 shares)		2,979			(2,979	)		0			0

Stock repurchase (26,478 shares)		(894	)		0			0			(894	)

Issuance of shares under stock purchase plans		448			0			0			448

Other comprehensive loss (net of tax)		0			0			(422	)		(422	)

Balance, December 31, 2003	$	32,769			8,238		$	(125	)	$	40,882

See accompanying notes to consolidated financial statements.

FENTURA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2003, 2002 and 2001
(000‘s omitted except share and per share data)

	2003			2002			2001

Cash flows from operating activities
Net income	$	3,788		$	3,466		$	3,777
Adjustments to reconcile net income to
net cash from operating activities
Depreciation and amortization		1,917			1,599			968
Deferred income taxes (benefit)		0			(88	)		(170	)
Provision for loan losses		1,319			426			751
Gain on sale of loans		(1,258	)		(1,009	)		(659	)
Loans originated for sale		(76,622	)		(62,672	)		(48,585	)
Proceeds from the sale of loans		82,294			59,882			47,721
Gain on sales of securities		(31	)		0			(674	)
Gain on sale of fixed assets		(201	)		0			0
Net change in accrued interest receivable
and other assets		(2,131	)		(580	)		440
Net change in accrued interest payable and
other liabilities		(340	)		(105	)		(377	)

Net cash from operating activities		8,735			919			3,192

Cash flows from investing activities
Proceeds from maturities of securities - HTM		6,108			5,233			4,054
Proceeds from maturities of securities - AFS		8,027			7,810			8,620
Proceeds from calls of securities - HTM		715			325			0
Proceeds from calls of securities - AFS		29,857			10,285			20,596
Proceeds from sales of securities - AFS		10,997			0			27,274
Purchases of securities - HTM		(5,266	)		(5,925	)		(4,235	)
Purchases of securities - AFS		(115,232	)		(41,517	)		(28,487	)
Originations of loans, net of principal repayments		(30,113	)		(10,458	)		(19,580	)
Net change in bank owned life insurance		(224	)		(3,500	)		0
Acquisition of premises and equipment, net		(682	)		(2,257	)		(2,921	)

Net cash from investing activities		(95,813	)		(40,004	)		5,321

Cash flows from financing activities
Net change in deposits		52,656			30,599			16,614
Net change in short-term borrowings		1,949			(600	)		(2,580	)
Repayments on advances from Federal
Home Loan Bank		(16	)		(14	)		(13	)
Issuance of repurchase agreements		12,500			0			0
Issuance of subordinated debt		12,000			0			0
Cash dividends paid		(1,966	)		(1,748	)		(1,748	)
Net proceeds from stock issuance and purchases		(446	)		(428	)		343

Net cash from financing activities		76,675			27,809			12,616

Net increase in cash and cash equivalents		10,403			11,276			21,129

Cash and cash equivalents at beginning of year		30,562			41,838			20,709

Cash and cash equivalents at end of year	$	20,159		$	30,562		$	41,838

Supplemental disclosure of cash flow information
Cash paid during the year for
Interest $	$	5,696		$	5,909		$	8,861
Income taxes		1,850			1,569			1,710

See accompanying notes to consolidated financial statements.

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003 and 2002

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 subsidiaries, The State Bank in Fenton, Michigan; Fentura Mortgage Company and Davison State Bank in Davison, Michigan (the Banks). Intercompany transactions and balances are eliminated in consolidation.

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. 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. Other financial instruments which potentially represent concentrations of credit risk include deposit accounts in other financial institutions and federal funds sold.

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, fair values of securities, fair values of financial instruments and status of contingencies are particularly subject to change.

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 loan and deposit transactions.

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. Other securities such as Federal Home Loan Bank stock are carried at cost.

Interest income includes amortization of purchase premium or discount. Gains and losses on sales are based on the amortized cost of the security sold. Securities are written down to fair value when a decline in fair value is not temporary.

(Continued)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 market, on an aggregate basis.

Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Interest 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). Payments received on such loans are reported as principal reductions.

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 uncollectibility of a loan balance is confirmed.

A loan is impaired when full payment under the loan terms is not expected. Impairment is evaluated in total for smaller-balance loans of similar nature such as residential mortgage, consumer, and credit card loans, and on an individual loan basis for other loans. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.

Foreclosed Assets: Assets acquired through or instead of loan foreclosure are initially recorded at fair value when acquired, establishing a new cost 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. Depreciation is computed using the straight-line method over useful lives ranging from 3 to 50 years.

(Continued)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 Corporation has purchased life insurance policies on certain key executives. Bank owned life insurance is recorded at its cash surrender value, or the amount that can be realized.

Stock Compensation: Employee compensation expense under stock option plans is reported if options are granted below market price at grant date. Pro forma disclosures of net income and earnings per share are shown using the fair value method of SFAS No. 123 to measure expense for options granted after 1994, using an option pricing model to estimate fair value.

The stock option plans are accounted for in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) as permitted under Financial Accounting Standards No. 123, Accounting for Stock Based Compensation (SFAS 123). In accordance with APB 25, no compensation expense is required nor has been recognized for the options issued under existing plans. Had the Corporation chosen not to elect APB 25, SFAS 123 would apply and compensation expense would have been recognized, and the Corporation’s earnings would have been as follows (in thousands, except per share data):

	2003			2002			2001

Net income
As reported	$	3,788		$	3,466		$	3,777
Deduct: Stock-based compensation
expense determined under a fair value
based system		(12	)		(20	)		(10	)

Proforma	$	3,776		$	3,446		$	3,767

Basic net income per share
As reported	$	2.01		$	1.82		$	1.99
Proforma		2.00			1.81			1.98

Diluted net income per share
As reported	$	2.01		$	1.81		$	1.98
Proforma		2.00			1.80			1.97

Weighted average fair value of options granted
during year	$	5.97		$	6.67		$	8.36

(Continued)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Proforma net income includes compensation cost for the Corporation’s stock option plan based on the fair value of the grants as of the dates of the awards consistent with the method prescribed by SFAS 123. The fair value of each option grant is estimated using the Black-Scholes option-pricing model. Assumptions used in the model for options granted during 2001 were as follows: an expected life of 6 years, a dividend yield of 3.45%, a risk free return of 5.09% and expected volatility of 40%. Assumption used in the model for options granted during 2002 were as follows: an expected life of 6 years, a dividend yield of 3.8%, a risk free return of 4.62% and expected volatility of 31%. Assumptions used in the model for options granted during 2003 were as follows: an expected life of 6 years, a dividend yield of 3.6%, a risk free return of 2.78% and expected volatility of 24%.

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

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 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 Per Common Share: Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. ESOP shares are considered outstanding for this calculation unless unearned. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock options. Earnings and dividends per share are restated for all stock splits and dividends through the date of issue of the financial statements.

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

Adoption of New Accounting Standards: During 2003, the Corporation adopted FASB Statement 149, Amendment of Statement 133 on Derivative Instruments Hedging Activities, FASB Statement 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equities, FASB Statement 132 (revised 2003), Employers’ Disclosures about Pensions and Other Postretirement Benefits, FASB Interpretation 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, and FASB Interpretation 46, Consolidation of Variable Interest Entities. Adoption of the new standards did not materially affect the Corporation’s operating results or financial condition.

(Continued)

10.

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 $6,716,000 and $4,750,000 was required to meet regulatory reserve and clearing requirements at year-end 2003 and 2002 respectively. These balances do not earn interest.

Dividend Restriction: Banking regulations require maintaining certain capital levels and may limit the dividends paid by the banks to the holding company or by the holding company to shareholders.

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.

(Continued)

11.

NOTE 2 — EARNINGS PER SHARE

The factors in the earnings per share computation follow.

	2003		2002		2001

Basic
Net income	$	3,788,000	$	3,466,000	$	3,777,000

Weighted average common shares
outstanding		1,883,201		1,904,844		1,901,881

Basic earnings per common share	$	2.01	$	1.82	$	1.99

Diluted
Net income	$	3,788,000	$	3,466,000	$	3,777,000

Weighted average common shares outstanding
for basic earnings per common share		1,883,201		1,904,844		1,901,881
Add: Dilutive effects of assumed exercises of
stock options		5,231		5,022		3,802

Average shares and dilutive potential
common shares		1,888,432		1,909,866		1,905,683

Diluted earnings per common share	$	2.01	$	1.81	$	1.98

Stock options for 5,096, 6,311 and 7,525 shares of common stock were not considered in computing diluted earnings per common share for 2003, 2002 and 2001 respectively, because they were antidilutive.

(Continued)

12.

NOTE 3 — SECURITIES

Year-end securities are as follows (in thousands):

Available for Sale

	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses

2003
U.S. Government and federal agency	$	62,882	$	243	$	(38	)
State and municipal		6,791		83		(5	)
Mortgage-backed		42,744		82		(571	)
Corporate		1,021		16		0
Equity securities		395		0		0

	$	113,833	$	424	$	(614	)

2002
U.S. Government and federal agency	$	29,027	$	144	$	0
State and municipal		9,388		100		(33	)
Mortgage-backed		7,093		192		0
Corporate		3,078		47		0
Equity securities		395		0		0

	$	48,981	$	483	$	(33	)

Held to Maturity

	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value

2003
State and municipal	$	12,169	$	364	$	(14	)	$	12,519

2002
State and municipal	$	13,722	$	332	$	(3	)	$	14,051

Sales of available for sale securities were as follows (in thousands):

	2003		2002		2001

Proceeds	$	10,997	$	0	$	27,274
Gross gains		37		0		674
Gross losses		6		0		0

(Continued)

13.

NOTE 3 — SECURITIES (Continued)

Contractual maturities of debt securities at year-end 2003 were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, and equity securities are shown separately (in thousands).

	Held to Maturity				Available for Sale

	Amortized Cost		Fair Value		Fair Value

Due in one year or less	$	3,858	$	3,864	$	2,183
Due from one to five years		3,661		3,822		55,322
Due from five to ten years		2,599		2,704		11,190
Due after ten years		2,051		2,129		1,999
Mortgage-backed securities		0		0		42,744
Equity securities		0		0		395

	$	12,169	$	12,519	$	113,833

Securities pledged at year-end 2003 and 2002 had a carrying amount of $30,161,000 and $2,065,000 and were pledged to secure public deposits and repurchase agreements.

At year-end 2003 and 2002, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity.

Securities with unrealized losses at year-end 2003 not recognized in income are as follows:

	Less than 12 Months					12 Months or More					Total

Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss

US Government & federal agency	$	18,459	$	(38	)	$	0	$	0		$	18,459	$	(38	)
State & municipal		4,803		(16	)		593		(3	)		5,396		(19	)
Mortgage-backed		40,282		(571	)		0		0			40,282		(571	)
Corporate		0		0			0		0			0		0
Equity securities		0		0			0		0			0		0

Total temporarily impaired	$	64,544	$	(625	)	$	593	$	(3	)	$	64,137	$	(628	)

Unrealized losses have not been recognized into income because the issuers are of high credit quality, management has the intent and ability to hold for the foreseeable future, and the decline in fair value is largely due to increased in market interest rates. The fair value is expected to recover as the bonds approach their maturity date and market rates decline.

(Continued)

14.

NOTE 4 — LOANS

Major categories of loans at December 31, are as follows (in thousands):

	2003		2002

Commercial	$	146,450	$	129,562
Real estate - construction		32,913		27,032
Real estate - mortgage		18,335		11,944
Consumer		55,547		55,683

		253,245		224,221
Less allowance for loan losses		3,414		3,184

	$	249,831	$	221,037

The Corporation originates primarily residential and commercial real estate loans, commercial, construction and installment loans. The Corporation estimates that 80% of their loan portfolio is based in Genesee and Livingston counties within southeast Michigan with the remainder of the portfolio distributed throughout Michigan. The ability of the Corporation’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in this area.

Certain directors and executive officers of the Corporation, including their affiliates are loan customers of the Banks. Such loans were made in ordinary course of business at the Banks’ normal credit terms and interest rates, and do not represent more than a normal risk of collection. Total loans to these persons at December 31, 2003 and 2002 amounted to $5,001,000 and $4,971,000 respectively. During 2003, $1,845,000 of new loans were made to these persons, repayments totaled $1,815,000 and changes in composition resulted in a increase of $30,000.

Activity in the allowance for loan losses for the years are as follows (in thousands)

	2003			2002			2001

Balance, beginning of year	$	3,184		$	3,125		$	2,932
Provision for loan losses		1,319			426			751

		4,503			3,551			3,683
Loans charged off		(1,395	)		(846	)		(713	)
Loan recoveries		306			479			155

Balance, end of year	$	3,414		$	3,184		$	3,125

(Continued)

15.

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 these loans is as follows at December 31, (in thousands):

	2003		2002

Principal amount not requiring allocation	$	66	$	0
Principal amount requiring allocation		5,036		2,403

	$	5,102	$	2,403

Amount of the allowance for loan losses
allocated	$	724	$	479

Loans for which the accrual of interest has been discontinued at December 31, 2003 and 2002 amounted to $229,000 and $512,000, respectively, and are included in the impaired loans above. Loans past due greater than 90 days and still accruing interest amounted to $47,000 and $72,000 at December 31, 2003 and 2002.

Interest income recognized on impaired loans based on cash collections totaled approximately $160,000, $72,000 and $142,000 for the years ended December 31, 2003, 2002 and 2001, respectively. The average recorded investment in impaired loans was $3,752,000, $2,642,000 and $2,597,000 during the years ended December 31, 2003, 2002 and 2001 respectively.

NOTE 5 — PREMISES AND EQUIPMENT, NET

Bank premises and equipment is comprised of the following at December 31 (in thousands):

	2003		2002

Land and land improvements	$	1,599	$	1,375
Building and building improvements		8,533		8,510
Furniture and equipment		6,443		8,425
Construction in progress		101		658

		16,675		18,968
Less accumulated depreciation		7,069		9,214

	$	9,606	$	9,754

Depreciation expense was $1,031,000, $1,035,000 and $936,000 for 2003, 2002 and 2001, respectively.

(Continued)

16.

NOTE 5 — PREMISES AND EQUIPMENT, NET (Continued)

The Corporation leases property for certain branches and ATM locations. Rent expense for 2003 was $149,000, for 2002 was $133,000 and for 2001 was $130,000. Rent commitments under noncancelable operating leases were as follows, before considering renewal options that generally are present (in thousands).


2004	$	158
2005		149
2006		99
2007		30

	$	436

NOTE 6 — DEPOSITS

The following is a summary of deposits at December 31 (in thousands):

	2003		2002

Noninterest-bearing:
Demand	$	58,708	$	44,875
Interest-bearing:
Savings		131,819		91,972
Money market demand		65,056		51,194
Time, $100,000 and over		24,664		33,540
Time, $100,000 and under		68,278		74,288

	$	348,525	$	295,869

Scheduled maturities of time deposits at December 31, were as follows (in thousands):

	2002		2002

In one year	$	44,375	$	58,246
In two years		18,040		19,462
In three years		6,073		11,982
In four years		16,713		1,431
In five years		7,598		16,579
Thereafter		143		128

	$	92,942	$	107,828

Deposits from principal officers, directors, and their affiliates at year-end December 31, 2003 and 2002 were $3,488,000 and $3,759,000.

(Continued)

17.

NOTE 7 — 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 Advances

The Bank has the authority and approval from the Federal Home Loan Bank (FHLB) to borrow up to $20 million collateralized by 1-4 family mortgage loans, government and agency securities, and mortgage-backed securities. The advance outstanding at December 31, 2003 and 2002 mature in 2016, cannot be prepaid without penalty and bears interest at 7.34%. The amount of pledged assets are $4,000,000 at December 31, 2003 and $11,914,000 at December 31, 2002.

Repurchase Agreements

Repurchase agreements are secured by mortgage-backed securities held by a third party trustee with a carrying amount of $23.9 million at year-end 2003.

These agreements are fixed rate financing arrangements that mature in 2004 ($2,500,000), 2005 ($5,000,000) and 2008 ($5,000,000). At maturity, the securities underlying the agreements are returned to the Corporation. Information concerning repurchase agreements is summarized as follows (in thousands):

	2003			2002

Average daily balance during the year	$	6,575		$	0
Average interest rate during the year		1.85	%		0.00	%
Maximum month-end balance during the year	$	12,500		$	0
Weighted average interest rate at year-end		1.85	%		0.00	%

Subordinated Debenture and Trust Preferred Securities

A trust formed by the Corporation issued $12,000,000 of 4.17% floating rate (LIBOR plus 3.00%) trust preferred securities in 2003 as part of a pooled offering of such securities. The Corporation issued subordinated debentures 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.

Required payments on all debt over the next five years are (in thousands):


2004 2005 2006 2007 2008	$	500 500 500 500 459

(Continued)

18.

NOTE 8 — INCOME TAXES

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

	2003		2002			2001

Current expense	$	1,273	$	1,567		$	1,781
Deferred (benefit) expense		47		(88	)		(170	)

	$	1,320	$	1,479		$	1,611

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

	2003			2003			2003

Income tax at statutory rate	$	1,737		$	1,681		$	1,832
Tax exempt interest		(271	)		(253	)		(179	)
Other		(146	)		51			(42	)

	$	1,320		$	1,479		$	1,611

The net deferred tax asset recorded includes the following amounts of deferred tax assets and liabilities (in thousands):

	2003			2002

Deferred tax assets
Allowance for loan losses	$	916		$	931
Unrealized loss on securities available for sale		64			0
Compensation		175			177
Other		65			91

		1,220			1,199
Deferred tax liabilities
Accretion		(27	)		(13	)
Unrealized gain on securities available for sale		0			(153	)
Depreciation		(52	)		(123	)
Other		(88	)		(28	)

		(167	)		(317	)

	$	1,053		$	882

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 determined that no valuation allowance is required at December 31, 2003 or 2002.

(Continued)

19.

NOTE 9 — BENEFIT PLANS

The Corporation has a noncontributory discretionary employee stock ownership plan (Plan) covering substantially all of its employees. It is a requirement of the plan to invest principally in the Corporation’s common stock. The contribution to the Plan in 2003, 2002 and 2001 was $60,000, $88,000 and $100,000, respectively.

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. The contribution to the 401(k) Plan for 2003, 2002 and 2001 was $141,000, $100,000 and $84,000, respectively.

NOTE 10 — STOCK PURCHASE AND OPTION PLANS

Director and Employee Plans

On December 26, 2001, the Corporation approved a plan to repurchase up to 50,000 shares of its common stock. The timing of the purchases and the actual number of shares purchased are based on market conditions. Shares have been repurchased from time to time in the open market or in privately negotiated transactions. Shares repurchased will be available for future issuance in the discretion of the Corporation’s Board of Directors. The Corporation repurchased 26,178 shares and 23,259 shares in 2003 and 2002, respectively.

The Directors Stock Purchase Plan permits directors of the Corporation to purchase shares of common stock made available for purchase under the plan at the fair market value on the fifteenth day prior to the annual issuance date. The total number of shares issuable under this plan is limited to 9,600 shares in any calendar year.

The Retainer Stock Plan allows directors to elect to receive shares of common stock in full or partial payment of the director’s retainer fees and fees for attending meetings. The number of shares is determined by dividing the dollar amount of fees to be paid in shares by the market value of the stock on the first business day prior to the payment date.

The Executive Stock Bonus Plan permits the administrator of the plan to grant shares of the Corporation’s common stock to eligible employees. Any executive or managerial level employee is eligible to receive grants under the plan. The Board of Directors administers the plan.

Dividend Investment Plan

The Automatic Dividend Reinvestment Plan (“DRIP”) permits enrolled shareholders to automatically use dividends paid on common stock to purchase additional shares of the Corporation’s common stock at the fair market value on the investment date. Any shareholder who is the beneficial or record owner of not more than 9.9% of the issued and outstanding shares of the Corporation’s common stock is eligible to participate in the plan.

(Continued)

20.

>NOTE 10 - STOCK PURCHASE AND OPTION PLANS (Continued)

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:

	2003		2002		2001

Automatic dividend reinvestment plan		10,480		8,835		11,448
Director stock purchase & retainer stock		2,970		568		0
Other issuance of stock		0		1,475		3,059

		13,450		10,878		14,507

Stock Option Plans

The Nonemployee Director Stock Option Plan grants options to nonemployee directors to purchase the Corporation’s common stock on April 1 each year. The purchase price of the shares is the fair market value at the date of the grant, and there is a three-year vesting period before options may be exercised. Options to acquire no more than 6,720 shares of stock may be granted under the Plan in any calendar year and options to acquire not more than 67,200 shares in the aggregate may be outstanding at any one time.

The Employee Stock Option Plan grants options to eligible employees to purchase the Corporation’s common stock at or above, the fair market value of the stock at the date of the grant. Awards granted under this plan are limited to an aggregate of 72,000 shares. The administrator of the plan is a committee of directors. The administrator has the power to determine the number of options to be granted, the exercise price of the options and other terms of the options, subject to consistency with the terms of the plan.

(Continued)

21.

NOTE 10 - STOCK PURCHASE AND OPTION PLANS (Continued)

The following table summarizes stock option activity:

Number of Weighted Options Average Price

	Number of Options			Weighted Average Price

Options outstanding at January 1, 2001		21,637		$	23.72
Options granted 2001		3,568			22.85
Options forfeited 2001		(366	)		28.00

Options outstanding at December 31, 2001		24,839			23.54
Options granted 2002		3,242			24.09
Options forfeited 2002		(3,037	)		26.69

Options outstanding at December 31, 2002		25,044			23.83
Options granted 2003		14,575			31.14
Options exercise 2003		(1,822	)		17.58
Options forfeited 2003		(3,036	)		23.96

Options outstanding at December 31, 2003		34,761		$	26.99

Information pertaining to options outstanding at December 31, is as follows:

Range of Exercise Price	Number Outstanding		Weighted Average Remaining Life		Weighted Average Price		Number Exercisable

2003
$15.00 - $20.00		4,856		2.75	$	15.77		4,856
$20.00 - $30.00		10,235		6.38		22.60		3,642
$30.00 - $40.00		19,407		8.64		31.92		4,831
$40.00 - $50.00		264		5.50		40.91		264

Outstanding at end of year		34,761						13,593

Weighted average exercise price of options
exercisable at the end of the year					$	26.99


2002
$15.00 - $20.00		7,284		3.79	$	15.85		7,286
$20.00 - $30.00		11,450		7.30		22.53		4,858
$30.00 - $40.00		6,046		7.02		34.17		4,250
$40.00 - $50.00		264		6.50		40.91		264

Outstanding at end of year		25,044						16,658

Weighted average exercise price of options
exercisable at the end of the year					$	22.87

(Continued)

22.

NOTE 10 - STOCK PURCHASE AND OPTION PLANS (Continued)

Range of Exercise Price	Number Outstanding		Weighted Average Remaining Life		Weighted Average Price		Number Exercisable

2001
$15.00 - $20.00		8,500		4.75	$	15.77		8,500
$20.00 - $30.00		8,814		7.31		21.76		5,466
$30.00 - $40.00		7,261		8.00		34.05
$40.00 - $50.00		264		7.51		40.91

Outstanding at end of year		24,839						13,966

Weighted average exercise price of options
exercisable at the end of the year					$	18.11

NOTE 11 REGULATORY MATTERS

The Corporation (on a consolidated basis) and its Bank subsidiaries are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory — and possibly additional discretionary — actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and the Banks must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items 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 Corporation and the Banks to maintain minimum amounts and ratios (set forth in the table below in thousands) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2003, that the Corporation and the Banks meet all capital adequacy requirements to which they are subject. As of December 31, 2003 and 2002, the most recent notifications from Federal Deposit Insurance Corporation categorized the Corporation and the Banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Corporation and the Banks must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since the notifications that management believes have changed the Banks’ category.

(Continued)

23.

NOTE 11 — REGULATORY MATTERS (Continued)

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2003
Total Capital
(to Risk Weighted Assets)
Consolidated	$	56,421		18.0	%	$	25,119		8.0	%	$	31,398		10.0	%
The State Bank		31,307		11.6			21,638		8.0			27,048		10.0
Davison State Bank		4,844		11.6			3,353		8.0			4,192		10.0
Tier 1 Capital
(to Risk Weighted Assets)
Consolidated		53,007		16.9			12,559		4.0			18,839		6.0
The State Bank		28,358		10.5			10,819		4.0			16,229		6.0
Davison State Bank		4,380		10.5			1,677		4.0			2,515		6.0
Tier 1 Capital (to Average Assets)
Consolidated		53,007		14.0			15,125		4.0			18,906		5.0
The State Bank		28,358		7.8			14,496		4.0			18,120		5.0
Davison State Bank		4,380		9.4			1,861		4.0			2,327		5.0

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2002
Total Capital
(to Risk Weighted Assets)
Consolidated	$	42,815		15.2	%	$	22,538		8.0	%	$	28,173		10.0	%
The State Bank		27,663		11.2			19,680		8.0			24,600		10.0
Davison State Bank		4,347		13.3			2,619		8.0			3,274		10.0

Tier 1 Capital
(to Risk Weighted Assets)
Consolidated		39,631		14.1			11,269		4.0			16,904		6.0
The State Bank		24,862		10.1			9,840		4.0			14,760		6.0
Davison State Bank		3,964		12.1			1,310		4.0			1,965		6.0

Tier 1 Capital (to Average Assets)
Consolidated		39,631		12.6			12,607		4.0			15,758		5.0
The State Bank		24,862		8.9			11,161		4.0			13,952		5.0
Davison State Bank		3,964		9.9			1,606		4.0			2,008		5.0

(Continued)

24.

NOTE 12 — FINANCIAL INSTRUMENTS

The estimated fair values of the Corporation’s financial instruments at December 31, are as follows (in thousands):

	2003				2002
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets:
Cash and cash equivalents	$	20,159	$	20,159	$	30,562	$	30,562
Securities - available for sale		113,833		113,833		48,981		48,981
Securities - held to maturity		12,169		12,519		13,722		14,051
FHLB stock		854		854		822		822
Loans held for sale		1,095		1,107		5,509		5,565
Loans		249,831		250,345		221,037		222,739
Accrued interest receivable		1,884		1,884		1,595		1,595

Liabilities:
Deposits		348,525		350,758		295,869		297,219
Short-term borrowings		3,449		3,449		1,500		1,500
FHLB advances		1,108		1,319		1,124		1,105
Repurchase agreements		12,500		12,401		0		0
Subordinated debentures		12,000		12,000		0		0
Accrued interest payable		463		463		551		551

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 (including mortgage-backed securities)

Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Loans held for sale

The market value of these loans represents estimated fair value. The market value is determined in the aggregate on the basis of existing forward commitments or fair values attributable to similar loans.

(Continued)

25.

NOTE 12 — FINANCIAL INSTRUMENTS (Continued)

Loans

For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair value for other loans are estimated using discounted cash flow analysis, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The carrying amount of accrued interest receivable approximates its fair value.

Off-balance-sheet instruments

The Corporation’s off-balance-sheet instruments approximate their fair values.

Deposit liabilities

The fair values disclosed for demand deposits are, by definition equal to the amount payable on demand at the reporting date. The carrying amounts for variable rate, fixed term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed 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.

Repurchase agreements

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

Subordinated Debentures

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

(Continued)

26.

NOTE 12 — FINANCIAL INSTRUMENTS (Continued)

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Corporation’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Corporation’s financial instruments, fair value estimates are based on management’s judgments regarding future expected loss experience, current economic conditions, risk characteristics and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Off-balance-sheet risk

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 (in thousands):


	2003		2002

Commitments to make loans (at market rates)	$	21,478	$	26,528
Unused lines of credit and letters of credit		58,259		52,795

Commitments to make loans are generally made for periods of 90 days or less. At December 31, 2003, $3,075,000 of the outstanding loan commitments had fixed interest rates ranging from 5.8% to 7.0% and maturities ranging from three years to seven years.

(Continued)

27.

NOTE 13 — 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
December 31 (in thousands)


	2003			2002

ASSETS
Cash and cash equivalents	$	18,716		$	7,780
Securities available for sale, at market		696			2,964
Other assets		1,275			63
Investment in subsidiaries		32,612			29,121

	$	53,299		$	39,928


STOCKHOLDERS' EQUITY
Other liabilities	$	417		$	0
Subordinated debt		12,000			0
Common stock		32,769			30,236
Retained earnings		8,238			9,395
Accumulated other comprehensive income (loss)		(125	)		297

	$	53,299		$	39,928

CONDENSED STATEMENTS OF INCOME
Years ended December 31 (in thousands)

	2003			2002			2001

Interest on securities	$	24		$	37		$	0
Gain on sale of securities		0			0			26
Dividends from subsidiaries		0			10,799			1,769
Operating expenses		(212	)		(98	)		(133	)
Equity in undistributed income of subsidiaries		3,912			(7,289	)		2,088

Income before income taxes		3,724			3,449			3,750
Federal income tax expense (benefit)		(64	)		(17	)		(27	)

Net income	$	3,788		$	3,466		$	3,777

(Continued)

28.

NOTE 13 - PARENT ONLY CONDENSED FINANCIAL INFORMATION (Continued)

CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31 (in thousands)

	2003			2002			2001

Cash flows from operating activities
Net income	$	3,788		$	3,466		$	3,777
Gain on sale of securities		0			0			(26	)
Amortization		4			21			0
Change in other assets		(1,210	)		(37	)		(1	)
Change in other liabilities		417			0			0
Equity in undistributed income of subsidiary		(3,912	)		7,289			(2,088	)

Net cash from operating activities		(913	)		10,739			1,662

Cash flows provided by investing activities
Sale of equity securities		0			0			491
Purchase of equity securities		0			(395	)		0
Sales and maturities of securities - AFS		2,564			3,524			0
Purchases of securities - AFS		(303	)		(6,112	)		0
(Increase) decrease in land held in investment		0			0			0
Investment in subsidiary		0			(1,000	)		0

Net cash from investing activities		2,261			(3,983	)		491

Cash flows used in financing activities
Issuance of subordinated debt		12,000			0			0
Dividends paid		(1,966	)		(1,748	)		(1,748	)
Stock repurchase		(894	)		(719	)		0
Proceeds from stock issuance		448			291			343

Net cash from financing activities		9,588			(2,176	)		(1,405	)

Increase in cash and cash equivalents		10,936			4,580			748

Cash and cash equivalents at beginning of year		7,780			3,200			2,452

Cash and cash equivalents at end of year	$	18,716		$	7,780		$	3,200

(Continued)

29.

NOTE 14 — SUMMARY OF QUARTERLY FINANCIAL DATA – UNAUDITED

The unaudited quarterly results of operations for 2003 and 2002 are as follows (in thousands except per share data):

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter

2003
Interest income	$	4,446	$	4,516	$	4,773	$	4,702
Interest expense		1,318		1,320		1,449		1,513
Provision for loan losses		296		668		122		233
Noninterest income		1,575		2,053		1,807		1,431
Noninterest expenses		3,303		3,365		3,425		3,183
Income before income taxes		1,104		1,216		1,584		1,204
Provision for income taxes		283		306		417		314
Net income		821		910		1,167		890

Earnings per share
Basic		.44		.48		.62		.47
Diluted		.44		.48		.62		.47


2002
Interest income	$	4,416	$	4,450	$	4,554	$	4,532
Interest expense		1,559		1,376		1,400		1,387
Provision for loan losses		33		69		107		217
Noninterest income		1,056		1,161		1,389		1,788
Noninterest expenses		3,034		3,080		3,102		3,037
Income before income taxes		846		1,086		1,334		1,679
Provision for income taxes		253		311		407		508
Net income		593		775		927		1,171

Earnings per share
Basic		.31		.41		.48		.62
Diluted		.31		.41		.48		.62

(Continued)

30.

NOTE 15 – ACQUISITION (Unaudited)

On October 15, 2003, the Corporation announced the signing of a definitive agreement to acquire West Michigan Financial Corporation (“WMFC”), a commercial bank headquartered in Hudsonville, Michigan. The purpose of the acquisition is to establish a presence in the West Michigan market. Under the terms of the transaction, the Corporation will acquire all of the outstanding stock of WMFC in exchange for cash. The total cost of the transaction is expected to be approximately $13.1 million. The Corporation expects the transaction to close on or around March 15, 2004.

The acquisition will be accounted for using the purchase method of accounting, and, accordingly, the purchase price will be allocated to the assets purchased and the liabilities assumed based upon the estimated fair values at the date of acquisition. The purchase accounting fair value adjustments will be amortized under various methods and over the lives of the corresponding assets and liabilities. Goodwill will not be amortized, but will be reviewed for impairment on a yearly basis. Goodwill for the acquisition is estimated to be $7.9 million. Intangible assets recorded for the acquisition that are subject to amortization are estimated as follows in thousands of dollars:

	Amount


Core deposits intangible	$	2,720
Trust relationships intangible		200

In conjunction with the acquisition, the fair values of significant assets and liabilities assumed are as follows, stated in thousands of dollars:



Cash and cash equivalents	$	4,084
Securities		27,236
Loans		94,414
Acquisition intangibles		10,820
Deposits		97,212
Other borrowings		31,101

The following table presents pro forma information stated in thousands of dollars for the years ended December 31, 2003 and 2002 as if the acquisition of WMFC had occurred at the beginning of 2003 and 2002. The pro forma information includes adjustments for the amortization of intangibles arising from the transaction, the elimination of acquisition related expenses, and the related income tax effects. The pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transactions been effected on the assumed dates.

(Continued)

31.

NOTE 15 –ACQUISITION (Unaudited) (Continued)


	2003		2002

Interest income	$	25,434	$	25,763
Interest expense		8,686		9,619

Net interest income		16,748		16,144
Provision for loan losses		2,464		1,591

Net interest income after provision		14,284		14,553
Noninterest income		8,739		7,153
Noninterest expense		18,951		17,177

Income before federal income tax		4,072		4,529
Federal income tax expense		1,131		1,505
Net income	$	2,941	$	3,024

Basic earnings per share	$	1.56	$	1.59
Diluted earnings per share		1.56		1.5

(Continued)

32.

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 and Davison State Bank (the Banks), for the years ended December 31, 2003, 2002, and 2001. The supplemental financial data included throughout this discussion should be read in conjunction with the primary financial statements presented on pages 5 through 32 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.

Selected Financial Data

TABLE 1

$ in thousands except per share data And ratios	2003			2002			2001			2000			1999

Summary of Consolidated Statements of Income:
Interest Income	$	18,438		$	17,952		$	21,567		$	23,327		$	21,214
Interest Expense		5,601			5,722			9,091			9,890			8,013

Net Interest Income		12,837			12,230			12,476			13,437			13,201
Provision for Loan Losses		1,319			426			751			584			545

Net Interest Income after Provision		11,518			11,804			11,725			12,853			12,656
Total Other Operating Income		6,866			5,394			5,363			4,528			4,262
Total Other Operating Expense		13,276			12,253			11,700			11,436			11,136

Income Before Income Taxes		5,108			4,945			5,388			5,945			5,782
Provision for Income Taxes		1,320			1,479			1,611			1,729			1,782

Net Income	$	3,788		$	3,466		$	3,777		$	4,216		$	4,000

Net Income Per Share - Basic	$	2.01		$	1.82		$	1.99		$	2.24		$	2.15
Net Income Per Share - Diluted	$	2.01		$	1.81		$	1.98		$	2.23		$	2.14

Summary of Consolidated Balance Sheets:
Assets	$	419,966		$	340,483		$	309,090		$	292,890		$	283,621
Securities, including FHLB stock		126,856			63,525			39,989			66,704			67,886
Loans, including loans held for sale		254,340			229,730			215,840			195,295			191,246
Deposits		348,525			295,869			265,270			248,656			247,051
Stockholders' Equity		40,882			39,928			38,433			35,754			31,865

Other Financial and Statistical Data:
Tier 1 Capital to Risk Weighted Assets		16.90	%		14.10	%		15.01	%		14.96	%		13.01	%
Total Capital to Risk Weighted Assets		18.00	%		15.20	%		16.23	%		16.21	%		14.26	%
Tier 1 Capital to Average Assets		14.00	%		12.60	%		12.50	%		12.15	%		11.15	%
Total Cash Dividends	$	1,966		$	1,748		$	1,748		$	1,659		$	1,586
Book Value Per Share	$	21.74		$	21.08		$	20.14		$	18.87		$	16.98
Cash Dividends Paid Per Share	$	0.92		$	0.92		$	0.92		$	0.88		$	0.85
Period End Market Price Per Share	$	31.45		$	31.59		$	23.18		$	22.85		$	33.52
Dividend Pay-out Ratio		51.90	%		50.43	%		46.28	%		39.35	%		39.65	%
Return on Average Stockholders' Equity		9.32	%		8.78	%		10.01	%		12.56	%		12.66	%
Return on Average Assets		1.00	%		1.10	%		1.23	%		1.42	%		1.46	%
Net Interest Margin		3.88	%		4.46	%		4.53	%		5.07	%		5.32	%
Total Equity to Assets at Period End		9.73	%		11.73	%		12.43	%		12.21	%		11.24	%

33.

RESULTS OF OPERATIONS

The Corporation achieved net income of $3,788,000 for the year of 2003, an increase of $322,000 or 9.3%. Net income increased primarily due to increased net interest income during 2003. Contributing to the 2003 results was the increase in total noninterest income of $1,472,000, a 27.3% increase over the noninterest income in the prior year. Non-interest expense increased by $1,023,000 or 8.4%. We expect that interest rates will remain steady or possibly increase in 2004, which should have a positive impact on our operations.

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 2003, 2002, and 2001 respectively, the Corporation posted a return on average assets of 1.00%, 1.10%, and 1.23%. Return on average equity was 9.32% in 2003, 8.78% in 2002, and 10.01% in 2001. While the Corporation has a very strong capital position, the 2.4% increase in our equity in 2003,coupled with the issuance of $12 million of trust preferred securities, greatly enhance our ability to grow. Total assets increased $79 million in 2003, $31 million in 2002, and $16 million in 2001. Basic earnings per share were $2.01 in 2003, $1.82 in 2002, and $1.99 in 2001.

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. Loan products carry either fixed rates of interest or rates tied to market indices determined independently. The Corporation sets its own rates on deposits, providing management with some flexibility in determining the timing and proportion of rate changes for the cost of its deposits.

Table 2 summarizes the changes in net interest income resulting from changes in volume and rates for the years ended December 31, 2003 and 2002. 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 increased by $638,000 in 2003, or 5.0% and decreased by $220,000 or 1.7% in 2002. The primary factor contributing to the increase in net interest income was the increase in loan and security volume and a slight decrease in interest expense. The increase in volume increased net interest income to offset the decrease in net interest margin.

As indicated in Table 3, for the year ended December 31, 2003, the Corporation’s net interest margin was 3.88% compared with 4.46% and 4.53% for the same period in 2002 and 2001, respectively. The decrease in 2003 was due to lower earning asset yields due to the historically low rate environment. The decrease in margin in 2002 and 2001 was attributable to a decrease in the Corporation’s earning asset yields due to the cuts in the prime rate. Cost of funding decreased in response to decreases in treasury rates and local competitor’s rates.

Average earning assets increased 20.7% in 2003. Average earning assets increased due to the Corporation entering into a securities leverage strategy that helped increase net interest income during 2003. The securities leverage strategy involved borrowing $12.5 million in repurchase agreements and using $12.5 million in excess liquidity to purchase $25 million of mortgage-backed securities at a positive spread to help increase net interest income. Average earning assets decreased 0.3% in 2002, and increased 4.0% in 2001. Loans, the highest yielding component of earning assets, represented 69.3% of earning assets in 2003, compared to 77.2% in 2002 and 71.1% in 2001. Average interest bearing liabilities increased 22.7% in 2003, 0.9% in 2002, and 1.4% in 2001. Non-interest bearing deposits amounted to 15.4% of average earning assets in 2003 compared with 15.5% in 2002 and 13.7% in 2001.

34.

TABLE 2

Changes in Net Interest Income
Due to Changes in Average Volume
and Interest Rates
Years Ended December 31,

	INCREASE (DECREASE) 2003 DUE TO:									INCREASE (DECREASE) 2002 DUE TO:

(000's omitted)	VOL			YIELD/RATE			TOTAL			VOL			YIELD/RATE			TOTAL

TAXABLE SECURITIES	$	1,723		$	(826	)	$	897		$	(903	)	$	(477	)	$	(1,380	)
TAX-EXEMPT SECURITIES		112			(80	)		32			209			(269	)		(60	)
FEDERAL FUNDS SOLD		(81	)		(96	)		(177	)		(124	)		(464	)		(588	)
TOTAL LOANS		1,386			(1,548	)		(162	)		1,172			(2,838	)		(1,666	)
LOANS HELD FOR SALE		(50	)		(23	)		(73	)		111			(6	)		105

TOTAL EARNING ASSETS		3,090			(2,573	)		517			465			(4,054	)		(3,589	)

INTEREST BEARING DEMAND DEPOSITS		107			(6	)		101			100			(286	)		(186	)
SAVINGS DEPOSITS		430			(230	)		200			326			(1,048	)		(722	)
TIME CDs $100,000 AND OVER		(55	)		(499	)		(554	)		(467	)		(305	)		(772	)
OTHER TIME DEPOSITS		189			(241	)		(52	)		(454	)		(1,201	)		(1,655	)
OTHER BORROWINGS		305			(121	)		184			(9	)		(25	)		(34	)

TOTAL INTEREST BEARING LIABILITIES		976			(1,097	)		(121	)		(504	)		(2,865	)		(3,369	)

NET INTEREST INCOME	$	2,114			($1,476	)	$	638		$	969			($1,189	)		($ 220	)

35.

TABLE 3

Summary of Net Interest Income

(000's omitted)	Years Ended December 31,
	2003								2002								2001
ASSETS	AVG BAL			INC/EXP		YIELD			AVG BAL			INC/EXP		YIELD			AVG BAL			INC/EXP		YIELD

Securities:
U.S. Treasury and Government Agencies		68,109			1,820		2.67	%		21,800			788		3.61	%		38,674			2,253		5.83	%
State and Political (1)		19,384			1,008		5.20	%		17,387			976		5.61	%		14,471			1,036		7.16	%
Other		1,950			123		6.31	%		4,667			258		5.53	%		3,472			173		4.98	%

Total Securities		89,443			2,951		3.30	%		43,854			2,022		4.61	%		56,617			3,462		6.11	%
Fed Funds Sold		15,911			161		1.01	%		20,904			338		1.62	%		24,129			926		3.84	%
Loans:
Commercial		159,752			10,476		6.56	%		137,622			9,868		7.17	%		122,712			10,557		8.60	%
Tax Free (1)		5,204			339		6.51	%		4,095			279		6.81	%		1,021			73		7.12	%
Real Estate-Mortgage		15,276			1,090		7.14	%		13,504			1,044		7.73	%		12,857			1,162		9.85	%
Consumer		54,476			3,743		6.87	%		60,568			4,619		7.63	%		65,635			5,684		8.66	%

Total loans		234,708			15,648		6.67	%		215,789			15,810		7.33	%		202,225			17,476		8.64	%
Allowance for Loan Loss		(3,247	)							(3,127	)							(3,050	)
Net Loans		231,461			15,648		6.76	%		212,662			15,810		7.43	%		199,175			17,476		8.77	%

Loans Held for Sale		2,508			136		5.42	%		3,294			209		6.34	%		1,595			104		6.52	%

TOTAL EARNING ASSETS	$	342,570		$	18,896		5.52	%	$	283,841		$	18,379		6.47	%	$	284,566		$	21,968		7.72	%

Cash Due from Banks		18,167								15,648								11,466
All Other Assets		20,634								18,807								13,880

TOTAL ASSETS	$	378,124							$	315,169							$	306,862

LIABILITIES & SHAREHOLDERS'
EQUITY:
Deposits:
Interest bearing - DDA		53,897			506		0.94	%		42,637			405		0.95	%		36,457			591		1.62	%
Savings Deposits		117,138			1,374		1.17	%		85,746			1,174		1.37	%		73,151			1,896		2.59	%
Time CD's $100,000 and Over		28,804			970		3.37	%		24,305			1,022		4.20	%		32,847			1,794		5.46	%
Other Time CD's		73,759			2,468		3.35	%		75,114			3,022		4.02	%		83,197			4,677		5.62	%

Total Interest Bearing		273,598			5,318		1.94	%		227,802			5,623		2.47	%		225,652			8,958		3.97	%
Deposits
Other Borrowings		8,502			283		3.33	%		2,081			99		4.76	%		2,240			133		5.94	%

INTEREST BEARING LIABILITIES	$	282,100		$	5,601		1.99	%	$	229,883		$	5,722		2.49	%	$	227,892		$	9,091		3.99	%

Non-interest bearing - DDA		52,853								43,908								39,014
All Other Liabilities		2,522								1,885								2.237
Shareholders Equity		40,649								39,493								37,719

TOTAL LIABILITIES and S/H EQUITY	$	378,124							$	315,169							$	306,862

Net Interest Rate Spread							3.53	%							3.98	%							3.73	%
Net Interest Income/Margin				$	13,295		3.88	%				$	12,657		4.46	%				$	12,877		4.53	%

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

36.

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 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, 2003, the allowance for loan losses was $3,414,000 or 1.34% of total loans. This compares with $3,184,000 or 1.42% at December 31, 2002 and $3,125,000, or 1.46%, at December 31, 2001. Management believes that the allowance to gross loans percentage is appropriate given identified risk in the loan portfolio based on asset quality.

The provision for loan losses was $1,319,000 in 2003 and $426,000 and $751,000 in 2002 and 2001, respectively. The increase in the provision in 2003 reflects management’s effort to maintain adequate reserves due to an unanticipated charge-off of one large commercial relationship in the first half of the year. In 2002, loans charged-off had a modest increase due to certain non-performing commercial loans. In 2001, loans charged-off decreased, due to a non-repetitive, substantial charge-off on non-performing commercial loans in 2000 and an increase in loans charged-off in the indirect loan portfolio in 2000. This increased charge-off level resulted in an increase in provision for loan losses in 2001.

Table 4 summarizes loan losses and recoveries from 1999 through 2003. During 2003 the Corporation experienced net charge-offs of $1,089,000, compared with net charge-offs of $367,000 and $558,000 in 2002 and 2001, respectively. The net charge-off ratio is the net of charge-off loans minus the recoveries from loans divided by gross loans. Accordingly, the net charge-off ratio for 2003 was .43% compared to .16% and .28% at the end of 2002 and 2001, respectively. The net charge-off ratio increased due to the charge-off of one substantial commercial loan in 2003, which comprised $836,000 of the net charge-offs for the year. In 2002, the net charge-off ratio decreased due to an increase in commercial recoveries. In 2001, the net charge-off ratio decreased slightly due to fewer charge-offs from the commercial and consumer portfolios.

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’s loan portfolio has no significant concentrations in any one industry or any exposure in foreign loans. The Corporation has not extended credit to finance highly leveraged transactions nor does it intend to do so in the future. Employment levels and other economic conditions in the Corporation’s local markets may have a significant impact on the level of credit losses. Management continues to identify and devote attention to credits that may not be performing as agreed. Management does not expect the level of the allowance for loan losses as a percentage of gross loans to change significantly in 2004. 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,
(000's omitted)	2003			2002			2001			2000			1999

Balance Beginning of Period	$	3,184		$	3,125		$	2,932		$	2,961		$	2,955

Charge-offs:
Commercial, Financial and Agricultural		(940	)		(329	)		(226	)		(284	)		(72	)
Real Estate-Construction		0			0			0			0			0
Real Estate-Mortgage		0			(7	)		0			0			(2	)
Installment Loans to Individuals		(456	)		(510	)		(487	)		(522	)		(377	)

Total Charge-offs		(1,396	)		(846	)		(713	)		(806	)		(451	)

Recoveries:
Commercial, Financial and Agricultural		169			344			30			107			13
Real Estate-Construction		0			0			0			0			0
Real Estate-Mortgage		0			0			0			0			0
Installment Loans to Individuals		138			135			125			86			71

Total Recoveries		307			479			155			193			84

Net Charge-offs		(1,089	)		(367	)		(558	)		(613	)		(367	)

Provision		1,319			426			751			584			545

Balance at End of Period	$	3,414		$	3,184		$	3,125		$	2,932		$	2,961

Ratio of Net Charge-Offs During the Period		0.43	%		0.16	%		0.28	%		0.31	%		0.19	%

37.

NON-INTEREST INCOME

Non-interest income was $6,866,000 in 2003, $5,394,000 and $5,363,000 in 2002 and 2001, respectively. These amounts represent an increase of 27.3% in 2003 compared to 2002 and an increase of 0.6% comparing 2002 to 2001.

The most significant category of non-interest income is service charges on deposit accounts. These fees were $3,609,000 in 2003, compared to $2,594,000 and $2,286,000 in 2002 and 2001, respectively. This was an increase of $1,015,000 or 39.1% in 2003 and an increase of $308,000 or 13.5% in 2002. The increase in 2003 was due to the overdraft privilege product being in place all year and a slight increase in business deposit account service charges. In 2002, the increase was due to a new overdraft privilege product and an increase in business deposit account service charges.

Gains on the sale of mortgage loans originated by the Banks and sold in the secondary market were $1,258,000 in 2003, $1,009,000 in 2002, and $659,000 in 2001. The 24.7% increase in 2003 was due to the increase in mortgage loan production caused by an increase in new home purchases and refinancing activity due to low mortgage interest rates. The 53.1% increase in 2002 was due to the increase in mortgage loan production because of the lowest interest rates in thirty years. The Corporation sells the majority of the mortgage loans originated in the secondary market on a servicing released basis; thus the Corporation did not receive mortgage-servicing fees in 2003, 2002 or 2001.

Trust income decreased $33,000 in 2003 to $507,000 compared to $540,000 in 2002 and $566,000 in 2001. The 6.1% decrease in 2003 was due to decline in market value of trust assets. The decrease in 2002 was due to portfolio turnover and decline in market value of these assets.

In 2003, the Corporation did recognize a gain on security transactions of $31,000 compared to no gains in 2002, and a gain of $674,000 on security transactions in 2001. In 2003, these gains were due to the Corporation selling some low yielding securities and purchasing higher yielding securities. In 2001, these gains were a result of several transactions wherein the Corporation sold investment securities and reinvested in issues, which will provide greater total income potential.

In 2003, the Corporation recognized a gain on the sale of fixed assets of $201,000, due to the sale of a branch of one of the Bank subsidiaries.

Other income and fees includes income from the sale of checks, safe deposit box rent, merchant account income, ATM income, and other miscellaneous income items. Other income and fees were $1,260,000 in 2003 compared to $1,251,000 and $1,178,000 in 2002 and 2001, respectively. The increase in 2003 was due to an increase debit card and ATM income. The increase in 2002 was due to an increase cash surrender value of bank owned life insurance.

38.

NON-INTEREST EXPENSE

Total non-interest expense was $13,276,000 in 2003 compared to $12,253,000 in 2002 and $11,700,000 in 2001. This was an increase of 8.4% in 2003 and 4.7% in 2002.

Salaries and employee benefits, the Corporation’s largest operating expense category, were $6,981,000 in 2003, compared with $6,454,000 in 2002, and $5,988,000 in 2001. Increased costs are a result of annual salary increases, increases in health care expenses and staff additions in connection with a new branch office in Grand Blanc, which opened in 2002.

In 2003, equipment expenses were $1,533,000 compared to $1,563,000 in 2002 and $1,411,000 in 2001, a decrease of 1.9% in 2003 and an increase of 10.8% in 2002. The slight decrease in 2003 was due to lower rental costs and depreciation expense. The increase in 2002 was attributable to equipment maintenance costs increasing due to more equipment to cover and an increase in equipment depreciation.

Occupancy expenses associated with the Corporation’s facilities were $1,116,000 in 2003 compared to $1,061,000 in 2002 and $886,000 in 2001. In 2003, this was an increase of 5.2% and in 2002 an increase of 19.8%. The increase in 2003 was due to higher property taxes, and expenses associated with opening the new Grand Blanc extension office. The increase in 2002 was due to the expenses associated with the opening of the new Silver Parkway office and the opening of the second Grand Blanc office of The State Bank. The increase in 2001 was due to the opening of the new main office of Davison State Bank and the new Grand Blanc office of The State Bank.

Office supplies were $300,000 in 2003 compared to $305,000 in 2002 and $ 300,000 in 2001. In 2003, this was a decrease of 1.6% and in 2002 an increase of 1.7 %. The slight decrease in 2003 was due to reduction in various normal office supplies. The slight increase in 2002 is attributable to a modest increase in purchases of various normal office supplies. The decrease in 2001 was due to the reduction of office supplies expenses from 2000 when expenses were higher for the initial supplies for the new Davison State Bank.

Loan and collection expenses were $280,000 in 2003 compared to $183,000 in 2002, and $178,000 in 2001. The increase of 53.0% in 2003 was due to the other real estate and collection efforts pertaining to a large charge off during the year. The slight increase in 2002 of 2.8% was due to the increase in filing and recording fees due to growth in the loan portfolio.

Advertising expenses were $373,000 in 2003 compared to $315,000 in 2002, and $320,000 in 2001. The 18.4% increase in advertising expense in 2003 was due to broader advertising efforts in the Grand Blanc market. The slight decrease in 2002 of $5,000 or 1.6% was due to a reduction in other promotional materials.

Other professional service fees include audit fees, consulting fees, legal fees, and various other professional services. Other professional services were $1,171,000 in 2003 compared to $1,100,000 in 2002, and $1,144,000 in 2001. The increase of 6.5% in 2003 was due to higher consulting fees pertaining to the implementation of the overdraft privilege product. The decrease in 2002 of $44,000 or 3.8% was due to lower consulting fees.

Other general and administrative expenses were $1,522,000 in 2003 compared to $1,272,000 in 2002, and $1,473,000 in 2001. The increase of $250,000 or 19.7% in 2003 was due to higher other losses from charged off deposit accounts and higher business development expenses. The decreases in these expenses were due to lower other losses from charged off accounts and lower correspondent bank charges in 2002.

39.

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 $378 million for 2003 exceeding 2002‘s average of $315 million by $63 million or 20.0%. The Corporation entered into a security leverage strategy in 2003, which entailed borrowing $12.5 of repurchase agreements and using $12.5 of excess liquidity to purchase $25 million of mortgage-backed securities that returned a positive spread and increased net interest income for the Corporation. Average loans comprised 62.1% of total average assets during 2003 compared to 68.5% in 2002. Loans grew $18.9 million on average, with commercial loans leading the advance by $22.1 million or 16.1%. The ratio of average non-interest bearing deposits to total deposits was 16.2% in 2003 compared to 16.2% during 2002. Interest bearing deposits comprised 97.0% of total average interest bearing liabilities during 2003, down from 99.1% during 2002. The Corporation’s year-end total assets were $420 million for 2003 up from $340 million in 2002. The increase was due to the higher loan demand and an increase in securities funded by deposit growth and borrowings in 2003.

SECURITIES PORTFOLIO

Securities totaled $126,002,000 at December 31, 2003 compared to $62,703,000 at December 31, 2002. This was an increase of $63,299,000 or 101.0%. The increase in 2003 resulted principally from the purchasing new securities to deploy the increase in deposits and from purchasing new securities for the security leverage strategy. At December 31, 2003 these securities comprised 32.8% of earning assets, up from 21.4% at December 31, 2002. The Corporation considers all of its securities as available for sale except for Michigan tax-exempt securities, which are classified as held to maturity. Increases in loan balances from new loan growth in excess of the amount of deposit growth, coupled with the increase in securities in 2002 accounts for the decrease in federal funds sold. Fed funds sold were $3,650,000 at December 31, 2003 compared with $10,300,000 at December 31, 2002.

The Corporation’s present policies with respect to the classification of securities are discussed in Note 1 to the Consolidated Financial Statements. As of December 31, 2003, the estimated aggregate fair value of the Corporation’s securities portfolio was $160,000 above amortized cost. At December 31, 2003 gross unrealized gains were $788,000 and gross unrealized losses were $628,000. A summary of estimated fair values and unrealized gains and losses for the major components of the securities portfolio is provided in Note 3 to the Consolidated Financial Statements. Yields on municipal securities presented in Table 5 below have not been tax effected.

40.

TABLE 5
Analysis and Maturities of Securities

(000's omitted)	Amortized Cost		Fair Value

AVAILABLE FOR SALE
U.S. Agencies
One year or less	$	0	$	0	0.00	%
Over one through five years		53,628		53,849	3.10	%
Over five through ten years		7,049		7,034	1.94	%
Over ten years		2,000		1,999	3.60	%

Total		62,677		62,882
Mortgage-Backed
One year or less	$	0	$	0	0.00	%
Over one through five years		0		0	0.00	%
Over five through ten years		14,693		14,431	3.53	%
Over ten years		28,540		28,313	3.48	%

Total		43,233		42,744
State and Political
One year or less	$	1,159	$	1,162	1.91	%
Over one through five years		1,466		1,473	2.06	%
Over five through ten years		4,088		4,156	3.02	%
Over ten years		0		0	0.00	%

Total		6,713		6,791
Corporate Bonds
One year or less	$	1,005	$	1,021	5.92	%
Over one through five years		0		0	0.00	%
Over five through ten years		0		0	0.00	%
Over ten years		0		0	0.00	%

Total		1,005		1,021
Equity Securities	$	395	$	395

HELD TO MATURITY
State and Political
One year or less	$	3,858	$	3,862	1.85	%
Over one through five years		3,661		3,822	3.93	%
Over five through ten years		2,599		2,704	4.16	%
Over ten years		2,051		2,131	4.58	%

Total		12,169		12,519

Total Securities	$	126,192	$	126,352

LOAN PORTFOLIO

The Corporation extends credit primarily within in its local markets in Genesee, Oakland, and Livingston counties. The Corporation’s commercial loan portfolio is widely diversified with no concentration within a single industry that exceeds 10% of total loans. The Corporation’s loan portfolio balances are summarized in Table 6.

Total loans increased $29,024,000 for the year ended December 31, 2003, with total loans comprising 75.6% of earning assets as compared to 75.6% of December 31, 2002 earning assets. Local economic conditions remained reasonably steady throughout 2003. The steadiness of the local economy supported

41.

continued commercial business growth including commercial development. Accordingly, the Corporation experienced strong demand for commercial loans. In 2003, commercial loans increased $16,888,000 to $146,450,000 or 13.0%. Also, real estate construction and mortgage loans increased $12,272,000 or 31.5% in 2003. Consumer loans stayed steady for 2003. In 2002, commercial loans increased approximately $10,668,000 to $129,562,000 or 9.0%. Additionally, real estate construction and development loans increased $1,598,000 or 6.3% to $27,032,000 at December 31, 2002. Consumer loans decreased in 2002 approximately $2,908,000 due to a decrease in indirect loans.

Management expects the local economy to support continued growth and development in 2004 and will aggressively seek out new loan opportunities while continuing its efforts to maintain sound credit quality.

TABLE 6
Loan Portfolio

December 31, (000's omitted)	2003		2002		2001		2000		1999

Commercial	$	146,450	$	129,562	$	118,894	$	101,925	$	92,896
Real estate - construction		32,913		27,032		25,434		17,471		12,481
Real estate - mortgage		18,335		11,944		11,158		10,514		21,409
Consumer		55,547		55,683		58,644		65,198		64,280

Total	$	253,245	$	224,221	$	214,130	$	195,108	$	191,066

The Corporation originates primarily residential and commercial real estate loans, commercial, construction, and consumer loans. The Corporation estimates that 80% of the loan portfolio is based in Genesee and Livingston counties within southeast Michigan. The ability of the Corporation’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in the area

TABLE 7
Maturities of the Loan Portfolio by Loan Type

December 31, 2003 (000's omitted)	Within One Year		One-Five Years		After Five Years		Total

Commercial	$	41,820	$	89,144	$	15,486	$	146,450
Real estate - construction		29,169		3,744		0		32,913
Real estate - mortgage		7,318		5,609		5,408		18,335
Consumer		9,197		22,936		23,414		55,547

	$	87,504	$	121,433	$	44,308	$	253,245

TABLE 8
Maturities of the Loan Portfolio by Rate Categories

December 31, 2003 (000's omitted)	Within One Year		One-Five Years		After Five Years		Total

Loans:
Fixed Rate	$	29,551	$	69,854	$	19,648	$	119,053
Variable Rate		57,953		51,579		24,660		134,192
	$	87,504	$	121,433	$	44,308	$	253,245

Credit risk is managed via specific credit approvals and monitoring procedures. The Corporation’s outside loan review function examines the loan portfolio on a periodic basis for compliance with credit policies and to assess the overall credit 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.

42.

The Corporation closely monitors its construction and commercial mortgage loan portfolios. Construction loans at December 31, 2003, which comprised 13.0% of total loans, totaled $32,913,000 as compared to $27,032,000 and $25,434,000 at the end of 2002 and 2001, respectively.

The construction and commercial real estate loan properties are located principally in the Corporation’s local markets. Included are loans to various industrial and professional organizations. The Corporation believes that these portfolios are well diversified and do not present a significant risk to the Banks.

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, 1999 through 2003. Non-performing assets increased at December 31, 2003 as compared to 2002. This increase was primarily due to the increase in Other Real Estate and Other Real Estate Owned In Redemption, which increased $991,000 in this period. The majority of the properties are commercial and marketability is dependent on the real estate market. One commercial property comprises $599,000 of the increase during this period. Non-performing loans increased significantly as compared to December 31, 2002 due to the increase in renegotiated loans, which consist of two fully secured commercial credits. Non-accrual loans and loans past due over 90 days and still accruing interest decreased significantly during this period. This was due to the improvement in loan quality over the past few years.

The level and composition of non-performing assets are affected by economic conditions in the Corporation’s local markets. Non-performing assets, charge-offs, and provisions for loan losses tend to decline in a strong economy and increase in a weak economy, potentially impacting the Corporation’s operating results. In addition to non-performing loans, management carefully monitors other credits that are current in terms of principal and interest payments but, in management’s opinion, may deteriorate in quality if economic conditions change.

TABLE 9
Non-Performing Assets and Past Due Loans

(000's omitted)	December 31,
	2003			2002			2001			2000			1999

Non-Performing Loans:
Loans Past Due 90 Days or More & Still
Accruing	$	47		$	72		$	186		$	489		$	240
Non-Accrual Loans		229			512			321			731			859
Renegotiated Loans		1,262			0			0			0			6

Total Non-Performing Loans		1,538			584			507			1,220			1,105

Other Non-Performing Assets:
Other Real Estate		1,081			110			0			0			288
Other Real Estate Owned in Redemption		184			164			0			0			179
Other Non-Performing Assets		79			92			10			159			56

Total Other Non-Performing Assets		1,344			366			10			159			523

Total Non-Performing Assets	$	2,882		$	950		$	517		$	1,379		$	1,628

Non-Performing Loans as a % of
Total Loans		0.61	%		0.26	%		0.24	%		0.63	%		0.58	%
Non-Performing Assets as a % of
Total Loans and Other Real Estate		1.13	%		0.42	%		0.25	%		0.71	%		0.85	%
Allowance for Loan Losses as a % of
Non-Performing Loans		221.98	%		545.21	%		616.37	%		240.33	%		267.96	%
Accruing Loans Past Due 90 Days or
More to Total Loans		0.20	%		0.03	%		0.09	%		0.25	%		0.13	%
Non-performing Assets as a % of
Total Assets		0.69	%		0.28	%		0.17	%		0.47	%		0.57	%

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 Corporation does not view the allowance for loan losses as being divisible among the various categories of loans. The entire allowance is available to absorb any future losses without regard to the

43.

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

	2003					2002					2001					2000					1999
December 31, (000's omitted)	Amount		Loan %			Amount		Loan %			Amount		Loan %			Amount		Loan %			Amount		Loan %

Commercial and construction	$	2,624		70.83	%	$	2,222		69.84	%	$	2,121		67.40	%	$	1,645		58.69	%	$	1,682		53.19	%
Real estate mortgage		207		7.24	%		65		5.33	%		60		5.21	%		94		7.89	%		144		13.17	%
Consumer		576		21.93	%		897		24.83	%		819		27.39	%		890		33.42	%		963		33.64	%
Unallocated		7					0					125					303					172

Total	$	3,414		100.00	%	$	3,184		100.00	%	$	3,125		100.00	%	$	2,932		100.00	%	$	2,961		100.00	%

The following describes the Corporation’s policy and related disclosures for impaired loans. The Corporation maintains an allowance for impaired loans. A loan is considered impaired when management determines it is probable that the principal and interest due under the contractual terms of the loan will not be collected. In most instances, impairment is measured based on the fair value of the underlying collateral. Impairment may also be measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate. Interest income on impaired non-accrual loans is recognized on a cash basis. Interest income on all other impaired loans is recorded on an accrual basis.

Certain of the Corporation’s non-performing loans included in Table 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 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, residential real estate loans, and credit card loans, and are not included in the impaired loan data in the following paragraphs.

At December 31, 2003, loans considered to be impaired totaled $5,102,000. A specific allowance is required for all except for a $66,000 loan. The average recorded investment in impaired loans was $3,752,000 in 2003. The interest income recognized on impaired loans based on cash collections totaled $160,000 during 2003.

At December 31, 2002, loans considered to be impaired totaled $2,403,000. All amounts included in impaired loans required specific allowance. The average recorded investment in impaired loans was $2,642,000 in 2002. The interest income recognized on impaired loans based on cash collections totaled $72,000 during 2002.

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

44.

DEPOSITS
TABLE 11
Average Deposits

Years Ended December 31,	2003					2002					2001					2000					1999
(000's omitted)	Average Balance		Average Rate			Average Balance		Average Rate			Average Balance		Average Rate			Average Balance		Average Rate			Average Balance		Average Rate

Non-int. bearing demand	$	52,853				$	43,908				$	39,014				$	35,711				$	29,912
Interest-bearing demand		53,897		0.94	%		42,637		0.95	%		36,457		1.62	%		40,199		1.82	%		41,996		1.70	%
Savings		117,138		1.17	%		85,746		1.37	%		73,151		2.59	%		66,890		3.45	%		66,141		2.94	%
Time		102,563		3.35	%		99,419		4.07	%		116,044		5.758			108,149		5.75	%		100,053		5.23	%

Total	$	326,451		1.63	%	$	271,710		2.07	%	$	264,666		3.38	%	$	250,949		3.69	%	$	238,102		3.31	%

The Corporation’s average deposit balances and rates for the past five years are summarized in Table 11. Total average deposits were 20.2% higher in 2003 as compared to 2002. Deposit growth was derived primarily from increases in all deposit categories. Interest-bearing demand deposits comprised 16.5% of total deposits, savings deposits comprised 35.9% of total deposits, and time deposits comprised 31.4% of total deposits.

As of December 31, 2003 certificates of deposit of $100,000 or more accounted for approximately 7.1% of total deposits compared to 11.3% at December 31, 2002. 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,		December 31,
(000's omitted)	2003		2002

Three months or less	$	7,358	$	9,701
Over three through six months		2,654		3,110
Over six through twelve months		3,280		7,532
Over twelve months		11,372		13,197

Total	$	24,664	$	33,540

Repurchase agreements are secured by mortgage-backed securities held by a third party trustee with a carrying amount of $23.9 million at year-end 2003. These agreements are fixed rate financing arrangements that mature in 2004 ($2,500,000), 2005 ($5,000,000) and 2008 ($5,000,000). At maturity, the securities underlying the agreements are returned to the Corporation. These repurchase agreements were used as part of the securities leverage strategy to help enhance net interest income for the Corporation.

FEDERAL INCOME TAXES

The Corporation’s effective tax rate was 25.8% for 2003, 29.9% for 2002 and 29.9% for 2001. The principal difference between the effective tax rates and the statutory tax rate of 34% is the Corporation’s investment in securities and loans, which provide income exempt from federal income tax. Additional information relating to federal income taxes is included in Note 8 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.

45.

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. Deposit accounts of customers in the mature market represent a substantial portion of deposits of individuals. The Corporation’s deposit base plus other funding sources (federal funds purchased, other liabilities and shareholders’ equity) provided primarily all funding needs in 2003, 2002, and 2001. While these sources of funds are expected to continue to be available to provide funds in the future, the mix and availability of funds will depend upon future economic and market conditions. The Corporation does not foresee any difficulty in meeting its funding requirements.

Primary liquidity is provided through short-term investments or borrowings (including federal funds sold and purchased), while the security portfolio provides secondary liquidity along with FHLB advances. As of December 31, 2003 federal funds sold represented 1.0% of total assets, compared to 3.0% at the end of 2002. The Corporation regularly monitors liquidity to ensure adequate cash flows to cover unanticipated reductions in the availability of funding sources.

Interest rate risk is managed by controlling and limiting the level of earnings volatility arising from rate movements. The Corporation regularly performs reviews and analyses of those factors impacting interest rate risk. Factors include maturity and re-pricing frequency of balance sheet components, impact of rate changes on interest margin and prepayment speeds, market value impacts of rate changes, and other issues. Both actual and projected performance, are reviewed, analyzed, and compared to policy and objectives to assure present and future financial viability.

The Corporation had cash flows from financing activities resulting primarily from the inflow of savings deposits and short-term borrowings. In 2003, these deposits increased $52,656,000 and these borrowings increased $1,949,000. Cash used by investing activities was $95,813,000 in 2003 compared to cash used of $40,004,000 in 2002. The change in investing activities was due to the increased amount of purchased securities and the increase in the origination of loans in 2003 compared to 2002.

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

Table 13

	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years

Short-term borrowings	$	3,449	$	3,449	$	-	$	-	$	-
FHLB advances		1,108		-		-		-		1,108
Repurchase agreements		12,500		2,500		5,000		5,000		-
Subordinated debt		12,000		-		-		-		12,000
Operating leases		436		158		248		30		-

Total	$	29,493	$	6,107	$	5,248	$	5,030	$	13,108

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, 2003, the Corporation was well in excess of the minimum capital and leverage requirements necessary to be considered a “well capitalized” banking company as defined by federal law.

Total shareholders’ equity rose 2.4% to $40,882,000 at December 31, 2003, compared with $39,928,000 at December 31, 2002. The Corporation’s equity to asset ratio was 9.7% at December 31, 2003, compared to 11.7% at December 31, 2002. The increase in equity in 2003 resulted from retained earnings (net income in excess of dividends). In 2003, the Corporation paid the same dividend as in 2002 at $0.92 per share.

46.

At December 31, 2003, the Corporation’s tier 1 and total risk-based capital ratios were 16.9% and 18.0%, respectively, compared with 14.1% and 15.2% in 2002. The increase in the risk-based capital ratios was largely due to the new issuance of trust preferred securities to help continue the growth strategy of the Corporation. The Corporation’s tier 1 leverage ratio was 14.0% at December 31, 2003 compared with 12.6% at December 31, 2002. This increase in the leverage ratio was due to the increase in capital.

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 2003, 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 2003 compared to 2002.

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, 2003. 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.

47.

TABLE 14
Rate Sensitivity of Financial Instruments

(000's omitted)	2004			2005			2006			2007			2008			Thereafter			Total		Fair Value


Rate Sensitive Assets:
Fixed interest rate loans	$	29,437		$	18,092		$	25,090		$	13,170		$	13,674		$	19,590		$	119,053	$	121,877
Average interest rate		7.21	%		7.58	%		7.01	%		7.02	%		6.67	%		6.57	%
Variable interest rate loans	$	57,948		$	14,080		$	11,468		$	10,403		$	15,631		$	24,663		$	134,193	$	136,403
Average interest rate		5.21	%		5.17	%		5.11	%		4.72	%		4.65	%		4.52	%
Fixed interest rate securities	$	6,040		$	937		$	5,992		$	21,476		$	30,569		$	36,973		$	101,987	$	102,337
Average interest rate		3.34	%		3.87	%		3.62	%		3.19	%		3.67	%		4.26	%
Variable Interest rate securities																$	24,015		$	24,015	$	24,015
Average interest rate																	3.99	%
FHLB Stock	$	854																	$	854	$	854
Average interest rate		6.00	%
Other interest bearing assets	$	3,650																	$	3,650	$	3,650
Average interest rate		0.90	%
Rate Sensitive Liabilities:
Interest-bearing checking	$	65,056																	$	65,056	$	65,056
Average interest rate		1.25	%
Savings	$	131,819																	$	131,819	$	131,819
Average interest rate		1.09	%
Time	$	44,418		$	17,994		$	6,071		$	16,711		$	7,603		$	145		$	92,942	$	95,175
Average interest rate		2.48	%		3.49	%		3.12	%		4.65	%		3.42	%		2.80	%
Short term borrowings	$	3,449																	$	3,449	$	3,449
Average interest rate		1.50	%
FHLB advances	$	17		$	18		$	20		$	22		$	24		$	1,007		$	1,108	$	1,319
Average interest rate		7.34	%		7.34	%		7.34	%		7.34	%		7.34	%		7.34	%
Repurchase agreements	$	2,500		$	5,000								$	5,000					$	12,500	$	12,401
Average interest rate		1.20	%		1.40	%								2.60	%
Subordinated debt													$	12,000					$	12,000	$	12,000
Average interest rate														4.15	%

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, 2003, 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.

48.

TABLE 15
Gap Analysis

	December 31, 2003
(000's Omitted)	Within Three Months			Three Months - One Year			One to Five Years			After Five Years		Total

Interest Bearing Bank Deposits	$	0		$	0		$	0		$	0	$	0
Federal Funds Sold		3,650			0			0			0		3,650
Securities		12,067			24,793			39,480			49,662		126,002
Loans		50,593			62,063			111,398			29,191		253,245
Loans Held for Sale		1,095			0			0			0		1,095
FHLB Stock		854			0			0			0		854

Total Earning Assets	$	68,259		$	86,856		$	150,878		$	78,853	$	384,846

Interest Bearing Liabilities:
Interest Bearing Demand Deposits	$	65,056		$	0		$	0		$	0	$	65,056
Savings Deposits		131,819			0			0			0		131,819
Time Deposits Less than $100,000		7,801			23,301			36,902			274		68,278
Time Deposits Greater than $100,000		7,002			6,185			11,477			0		24,664
Short-term Borrowings		3,449			0			0			0		3,449
FHLB Advances		0			15			60			1,033		1,108
Repurchase Agreements		0			2,500			10,000			0		12,500
Subordinated Debt		0			0			12,000			0		12,000

Total Interest Bearing Liabilities	$	215,127		$	32,001		$	70,439		$	1,307	$	318,874

Interest Rate Sensitivity GAP		($146,868	)	$	54,855		$	80,439		$	77,546	$	65,972
Cumulative Interest Rate
Sensitivity GAP		($146,868	)		($92,013	)		($ 11,574	)	$	65,972
Interest Rate Sensitivity GAP		-38.16			14.25			20.90			20.15
Cumulative Interest Rate
Sensitivity GAP Ratio		-38.16			-23.90			-3.01			17.14

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. The limitations of gap described above impacted financial performance in 2003. The Corporation’s gap position was negative and there was a decline in market interest rates; yet net interest income increased but the net interest margin ratio declined. This occurred because of growth in the assets that were added to balance sheet at a lower margin to liabilities than in the past. Thus this growth helps increase net interest income but drops net interest margin. The liabilities, largely deposits, either lagged market re-pricing due to the maturity dates on time deposits or were not re-priced by the same amount as assets due to competitive pressures. Interest bearing checking and savings deposits are generally lower cost of funds products compared to time deposits. This lower level of interest rates creates a smaller opportunity for re-pricing. For example certain asset products re-priced downward 4.00% with the downward movement of national prime rates in the first part of 2003 while most of interest bearing checking and savings were at rates lower than 0.50% at the start of the year and accordingly, had a much lesser level of re-pricing opportunity. The Corporation will continue to make strides in managing interest rate sensitivity.

49.

ACCOUNTING AND REPORTING DEVELOPMENTS

During 2003, the Corporation adopted FASB Statement 149, Amendment of Statement 133 on Derivative Instruments Hedging Activities, FASB Statement 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equities, FASB Statement 132 (revised 2003), Employers’ Disclosures about Pensions and Other Postretirement Benefits, FASB Interpretation 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, and FASB Interpretation 46, Consolidation of Variable Interest Entities. Adoption of the new standards did not materially affect the Corporation’s operating results or financial condition.

FORWARD LOOKING STATEMENTS

This discussion and analysis of financial condition and results of operations, and other sections of the Consolidated Financial Statements, contain forward looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and about the Corporation itself. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “projects,” variations of such words and similar expressions are intended to identify such forward looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“Future Factors”), which are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecast in such forward-looking statements. The Corporation undertakes no obligation to update, amend or clarify forward looking statements as a result of new information, future events, or otherwise.

Future Factors that could cause a difference between an ultimate actual outcome and a preceding forward looking statement include, but are not limited to, changes in interest rate and interest rate relationships, demands for products and services, the degree of competition by traditional and non-traditional competitors, changes in banking laws or regulations, changes in tax laws, change in prices, the impact of technological advances, government and regulatory policy changes, the outcome of pending and future litigation and contingencies, trends in customer behavior as well as their ability to repay loans, and the local economy.

50.

FENTURA FINANCIAL, INC. COMMON STOCK

Table 16 sets forth the high and low market information for each quarter of 2001 through 2003. These quotations reflect inter-dealer prices, without retail mark-up, markdown, or commission and may not represent actual transactions. As of March 1, 2004, there were 772 shareholders of record, not including participants in the Corporation’s employee stock option program.

TABLE 16
Common Stock Data

		Market Information		Dividends Paid
Years	Quarter	High	Low	Per Share

2001 2002 2003	First Quarter Second Quarter Third Quarter Fourth Quarter First Quarter Second Quarter Third Quarter Fourth Quarter First Quarter Second Quarter Third Quarter Fourth Quarter	$25.30 26.48 25.36 24.55 $26.14 30.91 29.50 31.59 $31.82 31.59 31.82 31.82	$22.85 23.86 22.73 22.73 $23.18 24.55 26.82 28.41 $30.45 31.09 30.47 30.56	$0.200 0.200 0.200 0.320 $0.920 $0.000 0.210 0.210 0.500 $0.920 $0.230 0.230 0.230 0.230

Note:

Market and dividend per share figures have been adjusted to reflect a 10% stock dividend payable on February 13, 2004.

51.

Exhibit 21.1
Subsidiaries of the Registrant

Company	Ownership	State of Incorporation
The State Bank Davison State Bank Community Bank Services, Inc. Fentura Mortgage Company, Inc. West Michigan Community Bank (as of March 15, 2004)	100% 100% 100% by The State Bank 100% by The State Bank 100%	Michigan Michigan Michigan Michigan Michigan

EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the Registration Statement of Fentura Financial, Inc. on Form S-3D (File No.333-75194) of our report dated February 6, 2004 on the 2003 Consolidated Financial Statements of Fentura Financial, Inc., which report is included in the 2003 Annual Report on Form 10-K of Fentura Financial, Inc.

/s/ CROWE CHIZEK AND COMPANY, LLC

Grand Rapids, Michigan
March 21, 2004

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)) 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)

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

(c)

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 25, 2004

/s/ Donald L. Grill
——————————————
Donald L. Grill
Chief Executive Officer and
President

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)) for the registrant and have:

(a)

(b)

(c)

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)

(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 25, 2004

/s/ Douglas J. Kelley
——————————————
Douglas J. Kelley
Chief Financial Officer

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, 2003 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, 2003 fairly presents, in all material respects, the financial condition and results of operations of Fentura Financial, Inc.

Date: March 25, 2004

/s/ Donald L. Grill
——————————————
Donald L. Grill
Chief Executive Officer and President

/s/ Douglas J. Kelley
——————————————
Douglas J. Kelley
Chief Financial Officer

A signed original of this certification has been provided to Fentura Financial, Inc. and will be retained by Fentura Financial, Inc. and furnished to the Securities and Exchange Commission upon request.

U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For fiscal year ended December 31, 2003

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from __________ to ____________

Commission file number 000-23550

FENTURA FINANCIAL, INC. ———————————————(Exact name of registrant as specified in its charter)

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

Aggregate Market Value as of June 30, 2003: $58,431,956.

DOCUMENTS INCORPORATED BY REFERENCE

PART I

ITEM 1. DESCRIPTION OF BUSINESS

The Company

The Banks

Competition

Supervision and Regulation

General

The Company

The Banks

ITEM 2. DESCRIPTION OF PROPERTY

ITEM 3. LEGAL PROCEEDINGS

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

ADDITIONAL ITEM — EXECUTIVE OFFICERS OF REGISTRANT

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

ITEM 6. SELECTED FINANCIAL DATA

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9A CONTROLS AND PROCEDURES

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

EQUITY COMPENSATION PLAN INFORMATION

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

ITEM 15. EXHIBITS. FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

Signatures

FENTURA FINANCIAL, INC.

2003 Annual Report on Form 10-K

EXHIBIT INDEX

Exhibit 13

Rule 14a-3 annual report

FENTURA FINANCIAL, INC.

CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 — EARNINGS PER SHARE

Held to Maturity

NOTE 4 — LOANS

NOTE 5 — PREMISES AND EQUIPMENT, NET

NOTE 5 — PREMISES AND EQUIPMENT, NET (Continued)

NOTE 6 — DEPOSITS

NOTE 7 — BORROWINGS

NOTE 8 — INCOME TAXES

NOTE 9 — BENEFIT PLANS

NOTE 10 — STOCK PURCHASE AND OPTION PLANS

NOTE 11 REGULATORY MATTERS

NOTE 12 — FINANCIAL INSTRUMENTS

NOTE 13 — PARENT ONLY CONDENSED FINANCIAL INFORMATION

NOTE 14 — SUMMARY OF QUARTERLY FINANCIAL DATA – UNAUDITED

NOTE 15 – ACQUISITION (Unaudited)

RESULTS OF OPERATIONS

NET INTEREST INCOME

TABLE 2

Changes in Net Interest Income Due to Changes in Average Volume and Interest Rates Years Ended December 31,

TABLE 3

Summary of Net Interest Income

ALLOWANCE AND PROVISION FOR LOAN LOSSES

TABLE 4

NON-INTEREST INCOME

NON-INTEREST EXPENSE

FINANCIAL CONDITION

SECURITIES PORTFOLIO

TABLE 5 Analysis and Maturities of Securities

LOAN PORTFOLIO

TABLE 6 Loan Portfolio

TABLE 7 Maturities of the Loan Portfolio by Loan Type

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

For the transition period from to __

FENTURA FINANCIAL, INC.
———————————————
(Exact name of registrant as specified in its charter)

Changes in Net Interest Income
Due to Changes in Average Volume
and Interest Rates
Years Ended December 31,

TABLE 5
Analysis and Maturities of Securities

TABLE 6
Loan Portfolio

TABLE 7
Maturities of the Loan Portfolio by Loan Type

TABLE 8
Maturities of the Loan Portfolio by Rate Categories

TABLE 9
Non-Performing Assets and Past Due Loans

TABLE 10
Allocation of the Allowance for Loan Losses

DEPOSITS
TABLE 11
Average Deposits

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

TABLE 14
Rate Sensitivity of Financial Instruments

TABLE 15
Gap Analysis

TABLE 16
Common Stock Data

Exhibit 21.1
Subsidiaries of the Registrant

EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS