Exhibit 13

Rule 14a-3 Annual Report

FENTURA FINANCIAL, INC.

FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
December 31, 2009 and 2008

and

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

FENTURA FINANCIAL, INC.

Fenton, Michigan
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008

CONTENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			1
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS			2
CONSOLIDATED STATEMENTS OF INCOME			3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME			4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY			5
CONSOLIDATED STATEMENTS OF CASH FLOWS			6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS			7-42
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			43-64

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of Fentura Financial, Inc. as of December 31, 2009 and 2008, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2009. These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Fentura Financial, Inc. as of December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2009 in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Corporation will continue as a going concern. The Corporation incurred net losses in 2009 and 2008, primarily from higher provisions for loan losses. As discussed in Note 18, the Corporation’s wholly owned bank subsidiaries are under regulatory orders by their regulatory agencies that require, among other provisions, higher regulatory capital requirements. The Banks did not meet the higher capital requirement as of December 31, 2009 and therefore are not in compliance with the regulatory agreements. Failure to comply with the regulatory agreements may result in additional regulatory enforcement actions. These events raise substantial doubt about the Corporation’s ability to continue as a going concern. Management’s plans are also discussed further in Note 18. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

		/s/ Crowe Horwath LLP

Grand Rapids, Michigan
March 12, 2010

FENTURA FINANCIAL, INC.

CONSOLIDATED BALANCE SHEETS
December 31, 2009 and 2008
(000s omitted except share and per share data)

		2009				2008
ASSETS
Cash and due from banks		$	18,459			$	13,626
Federal funds sold			23,650				0
Total cash and cash equivalents			42,109				13,626
Securities available for sale, at fair value			43,608				47,065
Securities held to maturity (fair value 2009 - $5,493; 2008 - $7,010)			5,456				6,765
Total securities			49,064				53,830
Loans held for sale			831				690
Loans, net of allowance of 2009- $10,726; 2008- $10,455			344,704				418,583
Bank premises and equipment			15,914				16,879
Accrued interest receivable 2,676 2,676			1,813				2,231
Bank owned life insurance			7,221				7,282
Federal Home Loan Bank stock			1,900				1,900
Equity investment			0				1,360
Other real estate owned			7,967				5,983
Assets of discontinued operations			37,919				45,650
Other assets			12,637				10,590
Total Assets		$	522,079			$	578,604
LIABILITIES AND STOCKHOLDERS EQUITY
Deposits:
Non-interest-bearing deposits		$	64,530			$	64,325
Interest-bearing deposits			376,245				405,039
Total deposits			440,775				469,364
Short-term borrowings			164				1,500
Federal Home Loan Bank advances			7,981				12,707
Subordinated debentures			14,000				14,000
Note payable			0				1,000
Liabilities of discontinued operations			35,217				42,174
Accrued taxes, interest and other liabilities			3,410				1,735
Total liabilities			501,547				542,480
Shareholders’ equity
Common stock — $0 par value, 5,000,000 shares authorized, shares issued and outstanding 2,248,553 — 2009; 2,185,765 — 2008			42,913				42,778
Retained earnings (deficit)			(21,657	)			(4,677	)
Accumulated other comprehensive income (loss)			(724	)			(1,977	)
Total shareholders’ equity			20,532				36,124
Total liabilities and shareholders’ equity		$	522,079			$	578,604

See accompanying notes to consolidated financial statements.

FENTURA FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2009 and 2008
(000s omitted except share and per share data)

		2009				2008
Interest income
Loans, including fees		$	24,063			$	27,915
Securities:
Taxable			1,536				1,916
Tax-exempt			546				550
Short-term investments			5				139
Total interest income			26,150				30,520
Interest expense
Deposits			9,539				12,446
Other borrowings			1,048				1,606
Total interest expense			10,587				14,052
Net interest income			15,563				16,468
Provision for loan losses			14,723				7,715
Net interest income after provision for loan losses			840				8,753
Non-interest income
Service charges on deposit accounts			1,967				2,431
Gain on sale of mortgage loans			767				337
Trust and investment services income			1,615				1,813
Gain on sale of securities			12				0
Other than temporary loss
Total impairment			(288	)			(843	)
Loss recognized in other comprehensive income			0				0
Net impairment loss recognized in earnings			(288	)			(843	)
Loss on equity investment			(1,360	)			(1,729	)
Other income and fees			1,942				1,571
Total non-interest income			4,655				3,580
Non-interest expense
Salaries and employee benefits			8,694				10,500
Occupancy			1,801				1,926
Furniture and equipment			1,618				1,877
Loan and collection			3,506				810
Advertising and promotional			148				376
Goodwill impairment charge			0				7,955
Telephone and communication services			333				354
Other professional services			1,128				699
Other general and administrative			3,267				2,253
Total non-interest expense			20,495				26,750
Income/(loss) from continuing operations before income tax			(15,000	)			(14,417	)
Federal income tax expense/(benefit)			994				(2,448	)
Income/(loss) from continuing operations			(15,994	)			(11,969	)
Net income/(loss) from discontinued operations, net of tax			(986	)			(196	)
Net income (loss)		$	(16,980	)		$	(12,165	)
Net income/(loss) per share from continuing operations:
Basic and diluted		$	(7.25	)		$	(5.51	)
Net income/(loss) per share from discontinued operations:
Basic and diluted		$	(0.45	)		$	(0.09	)
Net income/(loss) per share
Basic and diluted		$	(7.70	)		$	(5.60	)
Cash dividends declared		$	0			$	0

See accompanying notes to consolidated financial statements.

FENTURA FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 2009 and 2008
(000s omitted except share and per share data)

		2009				2008
Net loss		$	(16,980	)		$	(12,165	)
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) arising during period			1,432				(3,126	)
Impairment loss recognized in income			288				843
Change in unrealized gains (losses) on securities available-for-sale for which a portion of an other than temporary impairment has been recognized in earnings			190				0
Reclassification adjustment for (gains) realized in income			(12	)			0
Tax effect			(645	)			776
Other comprehensive income (loss)			1,253				(1,507	)
Comprehensive income (loss)		$	(15,727	)		$	(13,672	)

See accompanying notes to consolidated financial statements.

FENTURA FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Years ended December 31, 2009 and 2008
(000s omitted except share and per share data)

										Accumulated
										Other				Total
		Common				Retained				Comprehensive				Shareholders’
		Stock				Earnings				Income (Loss)				Equity
Balance, January 1, 2008		$	42,478			$	7,488			$	(470	)		$	49,496
Net loss			0				(12,165	)			0				(12,165	)
Issuance of shares under stock purchase and dividend reinvestment plans (22,380 shares)			292				0				0				292
Stock compensation expense			8				0				0				8
Other comprehensive loss (net of tax)			0				0				(1,507	)			(1,507	)
Balance, December 31, 2008		$	42,778			$	(4,677	)		$	(1,977	)		$	36,124
Net loss			0				(16,980	)			0				(16,980	)
Issuance of shares under stock purchase and dividend reinvestment plans (62,788 shares)			135				0				0				135
Other comprehensive income (net of tax)			0				0				1,253				1,253
Balance, December 31, 2009		$	42,913			$	(21,657	)		$	(724	)		$	20,532

See accompanying notes to consolidated financial statements.

FENTURA FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2009 and 2008
(000s omitted except share and per share data)

		2009				2008
OPERATING ACTIVITIES:
Net loss		$	(16,980	)		$	(12,165	)
Adjustments to reconcile net loss to cash
Provided by Operating Activities:
Stock compensation expense			0				8
Depreciation and amortization			1,077				1,245
Establishment of deferred tax asset valuation allowance			6,464				0
Deferred income taxes			(785	)			(2,866	)
Provision for loan losses			14,723				7,715
Loans originated for sale			(60,091	)			(24,609	)
Proceeds from the sale of loans			60,717				25,912
Gain on sales of loans			(767	)			(337	)
(Gain) loss on sale of securities			(12	)			0
Loss on sale of fixed assets			0				(118	)
Loss on sale of other real estate owned			103				(25	)
Write downs on other real estate owned			1,410				123
Loss on equity investment			1,360				1,729
Loss on security impairment			288				843
Goodwill impairment charge			0				7,955
Earnings from bank owned life insurance			(142	)			(240	)
Net (increase) decrease in interest receivable & other assets			(7,757	)			154
Net increase (decrease) in interest payable & other liabilities			1,675				(1,937	)
Net change in discontinued operations operating activities			307				1,106
Total Adjustments			18,570				16,658
Net cash provided by (used in) operating activities			1,590				4,493
Cash Flows From Investing Activities:
Proceeds from maturities of securities — HTM			1,303				1,439
Proceeds from maturities of securities — AFS			11,295				8,302
Proceeds from calls of securities — HTM			0				0
Proceeds from calls of securities — AFS			3,830				11,134
Proceeds from sales of securities — AFS			4,383				1,999
Purchases of securities — AFS			(14,505	)			(7,068	)
Net decrease (increase) in loans			53,607				(4,970	)
Proceeds from bank owned life insurance			203				0
Sales of other real estate owned			2,052				3,158
Acquisition of premises and equipment, net			(152	)			98
Net change in discontinued operations investing activities			2,691				5,289
Net cash provided by (used in) investing activities			64,707				19,381
Cash Flows From Financing Activities:
Net decrease in deposits			(28,589	)			(31,284	)
Net increase (decrease) in short-term borrowings			(1,336	)			851
Net increase (decrease) in repurchase agreements			0				(5,000	)
Proceeds from/(repayment) of notes payable			(1,000	)			1,000
Purchase of advances from FHLB			55,495				126,615
Repayments of advances from FHLB			(60,221	)			(124,938	)
Net proceeds from stock issuance and repurchase			135				292
Cash dividends			0				0
Net change in discontinued operations financing activities			(7,088	)			(491	)
Net cash provided by (used in) financing activities			(42,604	)			(32,955	)
Net change in cash and cash equivalents			23,693				(9,081	)
Cash and cash equivalents-Beginning		$	20,953			$	30,034
Cash and cash equivalents-Ending		$	44,646			$	20,953
Less cash and cash equivalents of discontinued operations at year end			2,537				7,327
Cash and cash equivalents of continuing operations at year end		$	42,109			$	13,626
Cash paid for (received from):
Interest		$	10,285			$	17,576
Income taxes		$	139			$	(113	)
Non-cash disclosures:
Transfers from loans to other real estate		$	5,549			$	7,992

See accompanying notes to consolidated financial statements.

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008

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; Davison State Bank in Davison, Michigan; and West Michigan Community Bank in Hudsonville, Michigan (“the Banks”), as well as Fentura Mortgage Company, West Michigan Mortgage Company, LLC, and the other subsidiaries of 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 eleven community banking offices in Genesee, Livingston, and Oakland Counties in southeastern Michigan and five community banking offices in Ottawa and Kent Counties in west Michigan. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential mortgage, commercial, and installment loans. Commercial real estate and construction loans are 55.6% of total loans and other commercial business loans are 22.9% of total loans at December 31, 2009. For the year ended December 31, 2008, the loan portfolio was composed as follows: commercial real estate and construction loans 55.0%, of total loans and other commercial business loans 23.8% of total loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets and real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Real estate loans are secured by both residential and commercial real estate. The Corporation’s exposure to credit risk is substantially affected by the economy in the Corporation’s market area and by changes in commercial real estate values. While the loan portfolio is substantially commercial based, the Corporation is not dependent on any single borrower. Other financial instruments which potentially represent concentrations of credit risk include deposit accounts in other financial institutions and federal funds sold.

The principal source of liquidity of the Corporation is dividends from its bank subsidiaries and deposits in the subsidiary banks. The Corporation’s access to liquidity at its banking subsidiaries is subject to regulatory restrictions, as a result of the Consent Orders entered into with various banking regulators further described in Note 15. West Michigan Community Bank and The State Bank are currently subject to restrictions on their ability to make dividend payments without prior regulatory approval. The Corporation currently believes that it has cash on hand to cover its financial obligations and expenses for the foreseeable future and is not reliant on new capital funding to meet such obligations. The Banks’ primary sources of liquidity are deposits that consist of non-maturing and maturing time deposits. At December 31, 2009, maturing time deposits consist of brokered deposits equaling 13.2% of total deposits and other time deposits equaling 36.3% of total deposits. Details regarding deposits are further described in Note 8 of the Financial Statements.

Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, the fair values of securities and other financial instruments and the carrying value of other real estate owned 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 customer loan and deposit transactions and short-term borrowings.

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities, where prepayments are anticipated. Gains and losses on sales are based on the amortized cost of the security sold. Securities are written down to fair value when a decline in fair value is not temporary.

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

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

Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments. Interest income is not reported when full loan repayment is in doubt, typically when the loan is impaired or payments are past due over 90 days (180 days for residential mortgages).

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

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

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors.

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

Other Real Estate Owned and Foreclosed Assets: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less estimated selling costs when acquired, establishing a new cost basis. If fair value declines, a valuation allowance is recorded through expense. Costs after acquisition are expensed.

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

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

Equity Investment: The Corporation made an investment in 2007 of 24.99% ownership in Valley Capital Bank headquartered in Mesa, Arizona. This investment was recorded utilizing the equity method of accounting. Gains or losses on the investment were recorded through the income statement. The balance sheet value of this investment was adjusted for the gains or losses resulting from the equity method of accounting. During 2009, the Corporation wrote off remaining balance of $1,360,000 as a result of the closure of the institution. The Corporation recognized $1,729,000 of losses in 2008 related to this equity investment.

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 Banks have purchased life insurance policies on certain key executives. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Goodwill: Goodwill resulted from prior business acquisitions and represented the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill was assessed at least annually for impairment and any such impairment was recognized in the period identified. Goodwill is further discussed in Note 7 to the financial statements. Goodwill was fully written off in 2008.

Acquisition Intangibles: Acquisition intangibles consist of core deposit intangible assets arising from acquisitions. They are initially measured at fair value and then are amortized on an accelerated method over their estimated useful lives. Acquisition intangibles are assessed at least annually for impairment and any such impairment will be recognized in the period identified.

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

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

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

The Corporation recognizes interest and/or penalties related to income tax matters in income tax expense. There was no such interest or penalties in 2009 or 2008.

Loan Commitments and Financial Instruments: Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and standby letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

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

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

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

Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank of $479,000 and $1,601,000 was required to meet regulatory reserve and clearing requirements at year-end 2009 and 2008 respectively.

Dividend Restrictions: Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Banks to the Corporation or by the Corporation to shareholders. West Michigan Community Bank and The State Bank have been restricted from dividend payments due to the signing of Consent Orders with the Federal Deposit Insurance Corporation (FDIC). In addition, the Corporation has elected to withhold dividend requests from Davison State Bank.

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

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

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

New Accounting Pronouncements:

In September 2006, the FASB issued guidance that defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This guidance also establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The guidance was effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued guidance that delayed the effective date of this fair value guidance on all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The effect of adopting this new guidance was to add additional footnote disclosure.

In December 2007, the FASB issued statements regarding Business Combinations, which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in an acquiree,

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

including the recognition and measurement of goodwill acquired in a business combination. This statement is effective for fiscal years beginning on or after December 15, 2008. The adoption of this standard did not have an impact on the Corporation’s results of operations or financial position.

In December 2007, the FASB issued a statement regarding Non-controlling Interest in Consolidated Financial Statements, which changed the accounting and reporting for minority interests, re-characterizing them as non-controlling interests and classifying them as a component of equity within the consolidated balance sheets. This is effective as of the beginning of the first fiscal year beginning on or after December 15, 2008. The adoption of this statement did not have a significant impact on the Corporation’s results of operations or financial position.

In April 2009, the FASB issued a statement regarding the Recognition and Presentation of Other-Than-Temporary Impairments, which amends existing guidance for determining whether impairment is other-than-temporary for debt securities. This statement requires an entity to assess whether it intends to sell, or it is more likely than not that it will be required to sell a security in an unrealized loss position before recovery of its amortized cost basis. If either of these criteria is met, the entire difference between amortized cost and fair value is recognized in earnings. For securities that do not meet the aforementioned criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income.

Additionally, the statement expands and increases the frequency of existing disclosures about other-than-temporary impairments for debt and equity securities. This statement is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The adoption of this standard resulted in $147,000 of other-than-temporary impairment relating to other factors being recognized in other comprehensive income, net of tax.

In April 2009, the FASB issued a statement regarding determining fair value when the volume and level of activity for the asset and liability have significantly decreased and identifying transactions that are not orderly. This statement emphasizes that even if there has been a significant decrease in the volume and level of activity, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants. The statement provides a number of factors to consider when evaluating whether there has been a significant decrease in the volume and level of activity for an asset or liability in relation to normal market activity. In addition, when transactions or quoted prices are not considered orderly, adjustments to those prices based on the weight of available information may be needed to determine the appropriate fair value. The statement also requires increased disclosures. This statement is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. The Corporation adopted this statement in the second quarter. The adoption did not have any effect on the results of operations or financial position.

In June 2009, the FASB issued a statement regarding the codification of financial accounting standards and the hierarchy of generally accepted accounting principles. The objective of this statement is to replace the statement previously titled, “The Hierarchy of Generally Accepted Accounting Principles”, and to establish the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”). Rules and

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009.

Newly Issued But Not Yet Effective Standards:

In June 2009, the FASB amended previous guidance relating to transfers of financial assets and eliminates the concept of a qualifying special purpose entity. This guidance must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. This guidance must be applied to transfers occurring on or after the effective date. Additionally, on and after the effective date, the concept of a qualifying special-purpose entity is no longer relevant for accounting purposes. Therefore, formerly qualifying special-purpose entities should be evaluated for consolidation by reporting entities on and after the effective date in accordance with the applicable consolidation guidance. The disclosure provisions were also amended and apply to transfers that occurred both before and after the effective date of this guidance. The effect of adopting this new guidance not is expected to be material.

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

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008

NOTE 2 — EARNINGS PER SHARE

The factors in the earnings per share computation follow.

(000s omitted except share and per share data)		2009				2008
Basic
Net income (loss)		$	(16,980	)		$	(12,165	)
Weighted average common shares outstanding			2,205,419				2,174,226
Basic earnings (loss) per common share		$	(7.70	)		$	(5.60	)
Diluted
Net income (loss)		$	(16,980	)		$	(12,165	)
Weighted average common shares outstanding for basic earnings per common share			2,205,419				2,174,226
Add: Dilutive effects of assumed exercises of stock options			0				0
Average shares and dilutive potential common shares			2,205,419				2,174,226
Diluted earnings (loss) per common share		$	(7.70	)		$	(5.60	)

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

(000s omitted except share and per share data)		2009				2008
Basic
Net income (loss) of continuing operations		$	(15,994	)		$	(11,969	)
Weighted average common shares outstanding			2,205,419				2,174,226
Basic earnings (loss) per common share from continuing operations		$	(7.25	)		$	(5.50	)
Diluted
Net income (loss) of continuing operations		$	(15,994	)		$	(11,969	)
Weighted average common shares outstanding for basic earnings per common share			2,205,419				2,174,226
Add: Dilutive effects of assumed exercises of stock options			0				0
Average shares and dilutive potential common shares			2,205,419				2,174,226
Diluted earnings (loss) per common share from continuing operations		$	(7.25	)		$	(5.50	)

Stock options for 20,297, and 26,597 shares of common stock were not considered in computing diluted earnings per common share for 2009 and 2008 respectively, because they were antidilutive.

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008

NOTE 3 — SECURITIES

Year-end securities were as follows:

Available for Sale						Gross Unrealized				Gross Unrealized
(000s omitted)		Amortized Cost				Gains				Losses				Fair Value
2009
U.S. Government & federal agency		$	6,543			$	38			$	(67	)			$6,514
State and municipal			7,034				102				(41	)			7,095
Mortgage-backed residential			13,482				298				0				13,780
Collateralized mortgage obligations			15,369				199				(878	)			14,690
Equity securities			1,971				21				(463	)			1,529
		$	44,399			$	658			$	(1,449	)			$43,608
2008
U.S. Government & federal agency		$	8,000			$	187			$	0			$	8,187
State and municipal			7,883				40				(161	)			7,762
Mortgage-backed residential			16,919				83				(147	)			16,855
Collateralized mortgage obligations			14,338				43				(1,857	)			12,524
Equity securities			2,563				0				(826	)			1,737
		$	49,703			$	353			$	(2,991	)			$47,065

Held to Maturity						Gross Unrealized				Gross Unrealized
(000s omitted)		Amortized Cost				Gains				Losses				Fair Value
2009
State and municipal		$	5,455			$	55			$	(18	)		$	5,492
Mortgage-backed residential			1				0				0				1
		$	5,456			$	55			$	(18	)		$	5,493
2008
State and municipal		$	6,762			$	255			$	(10	)		$	7,007
Mortgage-backed residential			3				0				0				3
		$	6,765			$	255			$	(10	)		$	7,010

Sales of available for sale securities were as follows:

(000s omitted)		2009				2008
Proceeds		$	4,383			$	1,999
Gross gains			12				0
Gross losses			0				0

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008

NOTE 3 — SECURITIES (continued)

Contractual maturities of securities at year-end 2009 were as follows. Securities not due at a single maturity date, mortgage-backed, collateralized mortgage obligations and equity securities are shown separately.

		Available for Sale								Held to Maturity
		Amortized				Fair				Amortized				Fair
(000s omitted)		Cost				Value				Cost				Value
Due in one year or less		$	2,000			$	2,038			$	721			$	726
Due from one to five years			2,026				2,021				2,601				2,628
Due from five to ten years			5,276				5,314				1,765				1,768
Due after ten years			4,275				4,236				368				370
Mortgage-backed and CMOs			28,851				28,470				1				1
Equity securities			1,971				1,529				0				0
		$	44,399			$	43,608			$	5,456			$	5,493

Securities pledged at year-end 2009 and 2008 had a carrying amount of $23,188,000 and $28,218,000 and were pledged to secure public deposits and borrowings.

At year-end 2009 holdings totaling $2,406,000 in securities issued by Wells Fargo exceed 10% of shareholders’ equity. At year end 2008 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 2009 and 2008, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position are as follows:

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

2008		Less than 12 months								12 months or more								Total
(000s omitted)		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
Description of Securities		Value				Loss				Value				Loss				Value				Loss
State & municipal		$	2,881			$	(91	)		$	1,663			$	(80	)		$	4,544			$	(171	)
Mortgage-backed & CMOs			4,060				(83	)			19,067				(1,921	)			23,127				(2,004	)
Equity securities			1,049				(598	)			188				(228	)			1,237				(826	)
Total temporarily impaired		$	7,990			$	(772	)		$	20,918			$	(2,229	)		$	28,908			$	(3,001	)

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008

NOTE 3 — SECURITIES (continued)

Other-Than-Temporary-Impairment

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

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

The table below presents a roll forward of the credit losses recognized in earnings on debt securities for which a portion of OTTI was recognized in other comprehensive income for the period ended December 31, 2009:

(000s omitted)
Beginning balance, January 1, 2009		$	0
Amounts related to credit loss for which an other-than-temporary impairment was not previously recognized			288
Ending balance, December 31, 2009		$	288

As of December 31, 2009, the Corporation’s security portfolio consisted of 129 securities, 27 of which were in an unrealized loss position. The majority of unrealized losses are related to the Corporation’s collateralized mortgage obligations (CMOs) and equity securities, as discussed below.

In 2009, the Corporation recognized other-than-temporary impairments totaling $288,000 on four individual investments. Three of the impairments, totaling $209,000 were recognized on equity securities as a result of analysis of the declining performance of the individual institutions. The fourth totaling $79,000 was on a single collateralized mortgage obligation instrument and was recognized due to the downgrade of the investment. In 2008, the Corporation recognized other-than-temporary impairment of $843,000 on a single equity security, due to cessation of operations of the related financial institution.

Unrealized losses on the remaining investments have not been recognized into income because the issuers are of high credit quality, management does not intend to sell the securities, and the decline in fair value is largely due to increased market interest rates. The fair value is expected to recover as the bonds

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008

NOTE 3 — SECURITIES (continued)

approach their maturity date or if market rates decline prior to maturity. With respect to equity securities, accounted for under the cost method management believes that the unrealized losses on these instruments are temporary. This is due to the nature of the companies invested in being primarily denovo banks which are expected to have net losses during their first few years of operation. Management works directly with these institutions and is kept abreast of their financial status on a regular basis, in some cases participating in their Board meetings. Management reviews capital levels and performance ratios of these denovo banks. Management anticipates that each of these institutions will improve their performance in the near future and their market value will improve.

Collateralized Mortgage Obligations and Equity Securities

The Corporation’s unrealized losses relate primarily to its investment in collateralized mortgage obligation securities. The decline in fair value is primarily attributable to temporary illiquidity and the financial crisis affecting these markets and not necessarily the expected cash flows of the individual securities. These ten investments have an amortized cost of $15.4 million and a net unrealized loss of $679,000. The majority of these securities were issued by U.S. government sponsored agencies, Ginnie Mae and Federal Home Loan Bank, all of which hold AAA ratings by a major rating agency. In addition, the portfolio contains four private label securities. The ratings held on the private label securities are AAA on two of the securities, BB on one and CCC on the fourth. The underlying collateral of these CMOs is comprised largely of 1-4 family residences. In each of these securities, the Corporation holds the senior tranche and receives payments before other tranches. For private label securities, management completes an analysis to review the recent performance of the mortgage pools underlying the instruments.

The Corporation has also been closely monitoring the performance of the CMO and MBS portfolios. In 2009, there were several CMOs that were downgraded in the market. Management continued to monitor items such as payment streams and underlying default rates, and did not determine a sever change in these items. On a quarterly basis, management uses multiple assumptions to project the expected future cash flows of the private label CMO’s with prepayment speeds, projected default rates and loss severity rates. The cash flows are then discounted using the effective rate on the securities determined at acquisition Recent historical experience is the base for determining the cash flow assumptions and are adjusted when appropriate after considering characteristics of the underlying loans collateralizing the private label CMO security. As a result of its review, The Corporation recognized a $79,000 other-than-temporary impairment as a result of incurred credit losses which has been reflected in the income statement. The security with the credit loss is the Corporation’s sole CCC rated security and has a remaining amortized cost of $712,691 at December 31, 2009. The remaining unrealized loss of $146,000 on this security has been reflected in accumulated other comprehensive income.

The Corporation also holds investments in equity securities. The majority of the equity securities are investments into non-public bank holding companies within Michigan. One equity investment is held in a Community Reinvestment Act (CRA) money market instrument. On a quarterly basis, management reviews comparable current market prices on publicly traded equity securities and compares the current price to the book price. Any difference is adjusted as a temporary valuation difference, unless other resources provide other information. Equity securities that are not publicly traded receive a multi-faceted review utilizing call report data. Management reviews such performance indicators as earnings, ROE, ROA, non-performing assets, brokered deposits and capital ratios. Management draws conclusions from this information, as well as any published information or trading activity received from the individual institutions, to assist in determining if an OTTI adjustment is warranted. The equity securities portfolio

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008

NOTE 3 — SECURITIES (continued)

an amortized cost of $1,971,000, a net unrealized loss of $442,000 and a fair value of $1,529,000. At the end of the fourth quarter, management performed its review and determined that other-than-temporary impairment was necessary on two equity securities in the portfolio. This is in addition to the other than temporary impairment taken in the second quarter.

The OTTI taken in the second quarter was determined based on the age of the denovo, unfavorable changes in the performance of their loan portfolio and decreases in capital ratios. The impairment taken on the individual security totaled $200,000. At December 31, 2009, in management’s quarterly review of the equity securities portfolio, management concluded that two additional investments warranted write downs due to their weak capital ratios and continued negative earnings streams. The OTTI taken during the fourth quarter on these two investments totaled $8,000. The performance of the remaining banks remained relatively stable and as a result no other-than-temporary impairment was recognized as management anticipates improved performance of these institutions as economic conditions stabilize.

Other Securities

At December 31, 2009, approximately 68% of the mortgage-backed securities held by the Corporation were issued by U.S. government-sponsored entities and agencies, including Ginnie Mae, Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to support. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Corporation does not have the intent to sell these mortgage-backed securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Corporation does not consider these securities to be other-than-temporarily impaired at December 31, 2009.

NOTE 4 — LOANS

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

(000s omitted)		2009				2008
Commercial		$	81,425			$	102,167
Real estate — commercial			171,339				187,356
Real estate — construction			26,295				48,777
Real estate — mortgage			28,058				37,828
Consumer			48,313				52,910
			355,430				429,038
Less allowance for loan losses			10,726				10,455
		$	344,704			$	418,583

The Corporation originates primarily residential and commercial real estate loans, commercial, construction and installment loans. The Corporation estimates that the majority of their loan portfolio is based in Genesee, Oakland and Livingston counties within southeast Michigan; in Kent and Ottawa counties in west Michigan, with the remainder of the portfolio distributed throughout Michigan. The ability of the Corporation’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in these areas.

Certain directors and executive officers of the Corporation, including their affiliates are loan customers of the Banks. Total loans to these persons at December 31, 2009 and 2008 amounted to $7,753,000 and $15,581,000 respectively. During 2009, there were no new loans made to these persons, and repayments

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008

NOTE 4 — LOANS (continued)

totaled $706,000. The decrease from 2008 of $7,122,000 reflects the 2009 consolidation of two Boards of Directors and the resulting dismissal of several individuals whom carried loan balances.

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

(000s omitted)		2009				2008
Balance, beginning of year		$	10,455			$	7,592
Provision for loan losses			14,723				7,715
Loans charged off			(14,806	)			(5,404	)
Loan recoveries			354				552
Balance, end of year		$	10,726			$	10,455

Loan impairment is measured by estimating the expected future cash flows and discounting them at the respective effective interest rate or by valuing the underlying collateral. The recorded investment in impaired loans is as follows at December 31:

(000s omitted)		2009				2008
Year end loans not requiring allocation		$	15,874			$	17,520
Year end loans requiring allocation			23,059				26,018
		$	38,933			$	43,538
Amount of the allowance for loan losses allocated		$	5,683			$	4,784

		2009				2008
Average of individually impaired loans during the year		$	39,928			$	42,998
Cash basis interest income recognized during impairment			1,706				1,727

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

(000s omitted)		2009				2008
Loans past due over 90 days still on accrual		$	319			$	667
Renegotiated loans			3,823				942
Non-accrual loans			19,241				22,574

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

The Corporation allocated $65,000 of specific reserves to customers whose loan terms have been modified in troubled debt restructuring as of December 31, 2009. Renegotiated loans above are also included with impaired loans. The Corporation has no additional amounts committed to these customers.

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008

NOTE 5 — OTHER REAL ESTATE OWNED

Other real estate owned at December 31 was:

(000s omitted)		2009				2008
Beginning balance		$	5,983			$	1,473
Transfers into other real estate			5,549				7,792
Sales of other real estate owned			(2,155	)			(3,159	)
Write downs of other real estate owned			(1,410	)			(123	)
Ending balance		$	7,967			$	5,983

Net gains (losses) on sales of other real estate were ($103,000) in 2009 and ($69,000) in 2008. Due to declining real estate values, the Corporation experienced write-downs of other real estate owned of $1,410,000 in 2009 and $123,000 in 2008. Carrying costs associated with other real estate owned totaled $1,430,000 in 2009 and $320,000 in 2008.

NOTE 6 — PREMISES AND EQUIPMENT, NET

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

(000s omitted)		2009				2008
Land and land improvements		$	5,093			$	5,093
Building and building improvements			14,568				14,532
Furniture and equipment			9,850				9,743
Construction in progress			9				0
			29,520				29,368
Less accumulated depreciation			13,606				12,489
		$	15,914			$	16,879

Depreciation expense, of continuing operations, was $1,117,000 and $1,368,000 for 2009 and 2008.

The Corporation leases property for certain branches and ATM locations. Rent expense of continuing operations were $166,000 for 2009 and $210,000 for 2008. Rent commitments under non-cancelable operating leases were as follows, before considering renewal options that generally are present (000s omitted):

2010		$	172
2011			126
2012			81
2013			7
2014			0
		$	386

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008

NOTE 7 — GOODWILL AND INTANGIBLE ASSETS

Goodwill

In December 2008, the Corporation prepared a valuation analysis of goodwill and other intangible assets. The analysis of goodwill was completed by developing the implied fair value of the Corporation’s equity utilizing three different evaluation methods as follows: discounted cash flow analysis of future earnings; comparable transaction method, based on the equity value of the sale of other banks that have recently occurred; and publicly traded method, based primarily by the Corporation’s stock price and the market capitalization of comparable companies. Like many publicly traded financial institutions, during 2008 the Corporation’s stock price and market capitalization declined below its book value, and the Corporation sustained higher credit losses and related costs to administrate credit. As a result, the Corporation recorded a full impairment charge of $7,955,000 against goodwill in the fourth quarter of 2008.

Acquired Intangible Assets

Acquired intangible assets related to the 2004 acquisition of West Michigan Financial Corporation were as follows as of year-end (000s omitted):

		Gross Carrying
Amortized intangible assets		Amounts				Accumulated Amortization
						2009				2008
Core deposit assets		$	1,509			$	1,352			$	1,216

Aggregate amortization expense was $136,000 and $192,000 for 2009 and 2008, respectively.

Future estimated amortization expense is as follows (000s omitted):

2010		$	94
2011			52
2012			11

The weighted average remaining amortization period for the intangible assets is 1.47 years.

NOTE 8 — DEPOSITS

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

(000s omitted)		2009				2008
Noninterest-bearing:
Demand		$	64,530			$	64,325
Interest-bearing:
Savings			67,973				66,558
Money market demand			90,047				100,886
Time, $100,000 and over			109,955				130,591
Time, $100,000 and under			108,270				107,004
		$	440,775			$	469,364

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008

NOTE 8 — DEPOSITS (continued)

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

(000s omitted)		2009				2008
In one year		$	136,574			$	122,556
In two years			44,355				55,754
In three years			26,661				28,453
In four years			5,564				25,159
In five years			4,895				5,610
Thereafter			176				63
		$	218,225			$	237,595

Brokered deposits totaled approximately $58,344,000 and $67,127,000 at December 31, 2009 and 2008. At December 31, 2009 and 2008, brokered deposits had interest rates ranging from 4.00% to 5.40% and 4.00% to 5.40%, respectively, and maturities ranging from three months to thirty-four months. Brokered deposits mature as follows: $21,509,000 in 2010; $22,096,000 in 2011 and $14,739,000 in 2012.

Since West Michigan Community Bank and The State Bank are considered adequately capitalized at December 31, 2009, they are precluded, under prompt corrective action guidelines, from issuing or renewing brokered deposits. Management anticipates repayment of brokered deposits as they mature using fed funds and the Banks’ local deposits.

Deposits from principal officers, directors, and affiliates of continuing operations at year-end December 31, 2009 and 2008 were $2,516,000 and $2,599,000.

NOTE 9 — 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

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

(000s omitted)
Principal Terms		Advance Amount				Range of Maturities
December 31, 2009
Single Maturity fixed rate advances, with rates from 2.94%-7.34%, averaging 4.44%		$	7,981			September 2010 to May 2016
December 31, 2008
Single Maturity fixed rate advances, with rates from 2.74%-7.34%, averaging 4.01%		$	11,007			January 2009 to May 2016
Single maturity variable rate advances at .65% at December 31, 2008.		$	1,700			June 2009
Total advances		$	12,707

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008

NOTE 9 — BORROWINGS (continued)

Each advance is payable at its maturity date, a prepayment penalty is assessed with early payoffs of advances. The advances were collateralized by securities totaling $14,179,000 and $20,456,000; first mortgage loans totaling $13,889,000 and $14,509,000 and commercial loans totaling $30,793,000 and $31,820,000 under a blanket lien arrangement at December 31, 2009 and 2008.

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

2010		$	2,028
2011			5,030
2012			33
2013			35
2014			39
Thereafter			816
		$	7,981

Note Payable

At December 31, 2009 the Corporation had no outstanding note payable and relinquished its line of credit. As of December 31, 2008, the Corporation had two outstanding advances, totaling $1,000,000. The advances were floating rate advances, with a rate of 4.75% and the notes were secured by the stock of one of the Banks. The advances were repaid in March and April of 2009.

Repurchase Agreements

Repurchase agreements were secured by mortgage-backed securities held by a third party trustee. The Corporation repaid the final issuance at maturity in 2008.

Information concerning repurchase agreements is summarized as follows:

(000s omitted)		2009				2008
Average daily balance during the year		$	0			$	2,377
Average interest rate during the year			0.00	%			2.67	%
Maximum month-end balance during the year		$	0			$	5,000
Weighted average interest rate at year-end			0.00	%			0.00	%

Subordinated Debenture and Trust Preferred Securities

A trust formed by the Corporation issued $12,000,000 of trust preferred securities in 2003 as part of a pooled offering of such securities. The interest rate is a floating rate (LIBOR plus 3.00%) and the current rate at December 31, 2009 is 3.30%. The Corporation issued subordinated debentures at the same terms as the trust preferred securities to the trust in exchange for the proceeds of the offering; the debentures and related debt issuance costs represent the sole assets of the trust. The Corporation may redeem the subordinated debentures, in whole but not in part, any time after 2008 at a price of 100% of face value. The subordinated debentures must be redeemed no later than 2033.

A trust formed by the Corporation issued $2,000,000 of trust preferred securities in 2005 as part of a pooled offering of such securities. The interest rate is a floating rate (LIBOR plus 1.60%) and the current rate at December 31, 2009 is 1.87%. The Corporation issued subordinated debentures at the same terms as the trust preferred securities to the trust in exchange for the proceeds of the offering; the debentures and related debt issuance costs represent the sole assets of the trust. The Corporation may redeem the subordinated debentures, in whole but not in part, any time after 2010 at a price of 100% of face value. The subordinated debentures must be redeemed no later than 2035.

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008

NOTE 9 — BORROWINGS (continued)

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

As the subsidiary banks are working to preserve capital and withholding the payment of dividends to the holding company, the Corporation elected in the first quarter of 2009 to defer interest payments for five years on $14,000,000 of subordinated debentures. The reason for the interest deferral is to maintain liquidity at the holding company and the Bank subsidiaries. Accrued interest payable on the subordinated debentures was $577,000 at December 31, 2009 compared to $134,000 at December 31, 2008. The Corporation is not in default under either of the indentures. During this five year period, the Corporation is precluded from paying dividends on its outstanding common stock. The Corporation subsequently may give notice that it elects to shorten the deferral period, pay accrued interest and return to the normal course of dividend payments.

NOTE 10 — INCOME TAXES

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

(000s omitted)		2009				2008
Current expense (benefit) of continuing operations		$	(4,685	)		$	418
Deferred expense (benefit) of continuing operations			(785	)			(2,866	)
Valuation allowance establishment			6,464				0
Net tax from continuing operations			994				(2,448	)
Net tax expense (benefit) of discontinued operations			(275	)			(142	)
		$	719			$	(2,590	)

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

(000s omitted)		2009				2008
Income tax at statutory rate		$	(5,101	)		$	(4,902	)
Valuation allowance			6,570				0
Goodwill impairment			0				2,705
Tax exempt income			(202	)			(202	)
Other			(273	)			(49	)
		$	994			$	(2,448	)

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008

NOTE 10 — INCOME TAXES (continued)

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

(000s omitted)		2009				2008
Deferred tax assets
Allowance for loan losses		$	3,877			$	4,003
Alternative minimum tax credit			622				0
Unrealized loss on securities available for sale			372				1,193
Compensation			415				481
Non-accrual interest			173				618
Equity investment			0				656
Capital loss			1,390				287
ORE write downs			418				182
Other			408				109
			7,675				7,529
Deferred tax liabilities
Depreciation			(578	)			(518	)
Purchase accounting adjustments			(253	)			(300	)
Other			(93	)			(93	)
			(924	)			(911	)
Valuation allowance			(6,751	)			0
		$	0			$	6,618

A valuation allowance related to deferred tax assets is required when it is considered more likely than not that all or part of the benefit related to such assets will not be realized. Management has reviewed the deferred tax position for the Corporation at December 31, 2009 and 2008. In 2008, the Corporation evaluated the impact of the Corporation’s history of taxable income and near-term earnings prospects, and determined that no valuation reserve was required. In 2009 however, the Corporation’s evaluation of taxable events, losses in recent years and the continuing deterioration of the Michigan economy led management to conclude that it was more likely than not that all or part of the benefit would not be realized. As a result, during the second quarter of 2009, the Corporation recognized a valuation allowance. During the fourth quarter of 2009, new tax laws were enacted which allowed the Corporation to exercise the option to carry the current year loss back over a five year taxable income period. The valuation allowance against our deferred tax assets may be reversed to income in future periods to the extent that the related deferred income tax assets are realized or the valuation allowance is otherwise no longer required. Management will continue to monitor our deferred tax assets quarterly for changes affecting their realizability.

There were no unrecognized tax benefits at December 31, 2009 or 2008, and the Corporation does not expect the total amount of unrecognized tax benefits to significantly increase in the next twelve months.

The Corporation and its subsidiaries are subject to U.S federal income taxes as well as income tax of the state of Michigan. The Corporation is no longer subject to examination by taxing authorities for years before 2006.

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008

NOTE 11 — BENEFIT PLANS

The Corporation has a noncontributory discretionary employee stock ownership plan (Plan) covering substantially all of its employees. It is a requirement of the plan to invest principally in the Corporation’s common stock. No contributions were made to the Plan in 2009 or 2008.

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. As a cost reduction measure, in 2009 the Corporation elected to eliminate its contribution to the 401(k) Plan during the first quarter. As a result the contributions to the plan for 2009 were $80,000 compared to contributions of $289,000 for 2008.

The Corporation entered into Supplemental Executive Retirement Agreements (SERP Agreements) with certain executives. The SERP Agreements are designed to encourage executives to remain long term employees of the Corporation, and to provide specified benefits to certain key executives who contribute materially to the continued growth, development and future business success of the Corporation. The retirement benefits are an unsecured obligation of the Corporation. The Corporation and the Affiliate Banks have established other Non-Qualified Deferred Compensation arrangements for employees not covered under the SERP. The arrangements are designed to encourage certain officers to remain long term employees of the Corporation and the Banks, and to provide the officers with supplemental retirement income. At year end 2009 and 2008, accumulated liability for these plans totaled $1,220,005 and $1,177,644. The Corporation’s contributions to the plans in 2009 and 2008 were $99,367 and $84,412.

NOTE 12 — STOCK PURCHASE AND OPTION PLANS

Director and Employee Plans

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

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

The Executive Stock Bonus Plan permits the administrator of the plan to grant shares of the Corporation’s common stock to eligible employees. Any executive or managerial level employee is eligible to receive grants under the plan. The Board of Directors administers the plan and the numbers of shares issued are at the sole discretion of the Board of Directors. No shares were granted under this plan during 2009.

Dividend Investment Plan

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

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008

NOTE 12 — 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:

		2009				2008
Automatic dividend reinvestment plan			0				4,293
Director stock purchase & retainer stock			59,360				16,140
Stock options			0				0
Other issuance of stock			3,428				1,947
			62,788				22,380

Stock Option Plans

The Nonemployee Director Stock Option Plan provides for granting options to nonemployee directors to purchase the Corporation’s common stock. The purchase price of the shares is the fair market value at the date of the grant, and there is a three-year vesting period before options may be exercised. Options to acquire no more than 8,131 shares of stock may be granted under the Plan in any calendar year and options to acquire not more than 73,967 shares in the aggregate may be outstanding at any one time. No options were granted in 2009 or 2008.

The Employee Stock Option Plan grants options to eligible employees to purchase the Corporation’s common stock at or above, the fair market value of the stock at the date of the grant. Awards granted under this plan are limited to an aggregate of 86,936 shares. The administrator of the plan is a committee of directors. The administrator has the power to determine the number of options to be granted, the exercise price of the options and other terms of the options, subject to consistency with the terms of the Plan. No options were granted in 2009 or 2008.

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

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008

NOTE 12 — STOCK PURCHASE AND OPTION PLANS (continued)

The following table summarizes stock option activity:

										Weighted
										Average
										Remaining
		Number of				Weighted				Contractual				Aggregate
		Options				Average Price				Life				Intrinsic Value
Options outstanding at January 1, 2009			26,597			$	29.85
Options forfeited 2009			(6,300	)			30.80
Options outstanding at December 31, 2009			20,297			$	29.55				3.37			$	0
Exercisable at December 31, 2009			20,297			$	29.55				3.37			$	0

No options were exercised during 2009 or 2008. As of December 31, 2009, there was no unrecognized compensation cost related to non-vested stock options granted under the Plan.

NOTE 13 — FAIR VALUE

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

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

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

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

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

Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences

FENTURA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008

NOTE 13 — FAIR VALUE (continued)

between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

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

Assets and Liabilities Measured on a Recurring Basis

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

		Fair Value Measurements Using
						Quoted Prices in
						Active Markets for				Significant Other				Significant
						Identical Assets				Observable Inputs				Unobservable Inputs
(000s omitted)		Total				(Level 1)				(Level 2)				(Level 3)
Assets:
December 31, 2009
Available for sale securities
US Government and agency		$	6,514			$	0			$	6,514			$	0
State and municipal			7,095				0				7,095				0
Mortgage-backed residential			13,780				0				13,780				0
Collateralized mortgage obligations			14,690				0				14,690				0
Equity securities			1,529				18				1,511				0
		$	43,608			$	18			$	43,590			$	0

		Fair Value Measurements Using
						Quoted Prices in
						Active Markets for				Significant Other				Significant
						Identical Assets				Observable Inputs				Unobservable Inputs
(000s omitted)		Total				(Level 1)				(Level 2)				(Level 3)
Assets:
December 31, 2008
Available for sale securities
US Government and agency		$	8,187			$	0			$	8,187			$	0
State and municipal			7,762				0				7,762				0
Mortgage-backed residential			16,855				0				16,855				0
Collateralized mortgage obligations			12,524				0				12,524				0
Equity securities			1,737				8				500				1,229
		$	47,065			$	8			$	45,828			$	1,229