# 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 ofincorporation 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.

1

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Fentura Financial, Inc.

2003 Annual Report on
Form 10-K

Table Of Contents

|                                                                                              |  | 
|--------------------------------------------------------------------------------------------- |  | 
|
|PART I                                                                                        |  | 
|Item 1    Description of Business                                                             |  | 
|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 7  Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 
|Item 7A.  Quantitative and Qualitative Disclosures About Market Risk                          |  | 
|Item 8    Financial Statements and Supplementary Data                                         |  | 
|Item 9   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |  | 
|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                      |  | 
|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                                                                                    |  | 
|                                                                                              |  | 
|EXHIBIT INDEX                                                                                 |  | 

2

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# 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.

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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.

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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.

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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.

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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
ratabasis. 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.

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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-BasedCapital 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.

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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.

9

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# 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

---



| | 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.

11

---



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:

12

---



# 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))
|--------------------- | ---------------------------------------------------------------------- | ------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------
|
|Equity compensation   |                                                                        |                                                        |                                                                                                                                            
|plans approved by     |                                                                        |                                                       
|security holders      |                                                                        |                                                        |                                                                                                                                            
|                      |                                                                        |                                                        |                                                                                                                                            
|Equity compensation   |                                                                        |                                                       
|plans not approved by |                                                                        |                                                       
|security holders      |                                                                        |                                                        |                                                                                                                                            
|                      |                                                                        |                                                        |                                                                                                                                            
|Total                 |                                                                        |                                                        |                                                                                                                                            
|                      |                                                                        |                                                        |                                                                                                                                            

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) | 1. | 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
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Financial
Statement Schedules All
schedules are omitted  see Item 14(d) below.
| | -- | -------------------------------------------------------------------------------

| | 3. | Exhibits: The
exhibits listed on the Exhibit Index following the signature page of this
report are filed herewith and are incorporated herein by reference.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

13

---



|(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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14

---



# 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 & CEOBy: /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.

|                       |  | 
|---------------------- |  | 
|
|/s/ Forrest A. Shook   |  | 
|                       |  | 
|Forrest A. Shook       |  | 
|/s/ Donald L. Grill    |  | 
|                       |  | 
|Donald L. Grill        |  | 
|/s/ Peggy L. Haw Jury  |  | 
|                       |  | 
|Peggy L. Haw Jury      |  | 
|/s/ J. David Karr      |  | 
|                       |  | 
|J. David Karr          |  | 
|/s/ Thomas P. McKenney |  | 
|                       |  | 
|Thomas P. McKenney     |  | 
|/s/ Thomas L. Miller   |  | 
|                       |  | 
|Thomas L. Miller       |  | 
|/s/ Brian P. Petty     |  | 
|                       |  | 
|Brian P. Petty         |  | 
|/s/ Ian W. Schonsheck  |  | 
|                       |  | 
|Ian W. Schonsheck      |  | 
|/s/ Douglas J. Kelley  |  | 
|                       |  | 
|Douglas J. Kelley      |  | 

15

---



# FENTURA FINANCIAL, INC.

# 2003 Annual Report on
Form 10-K

# EXHIBIT INDEX

|Exhibit No. | Exhibit
|----------- | -------

---

|2 | 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)
|----- | -------------------------------------------------------------------------------------------------------------------------------------

16

---



|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
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

17

---



# 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                             | 
|CONSOLIDATED FINANCIAL STATEMENTS                          | 
|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 CONSOLIDATED FINANCIAL STATEMENTS                 | 

---



REPORT OF INDEPENDENT AUDITORS

Board of Directors and
StockholdersFentura 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, MichiganFebruary
5, 2004

---



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

---

|                                                       | 2003 | 2002
|------------------------------------------------------ | ---- | ----
|                                                       |      |     
|ASSETS                                                 |      |     
|Cash and due from banks                                |      |     
|Federal funds sold                                     |      |     
|                                                       |      |     
|Total cash and cash equivalents                        |      |     
|                                                       |      |     
|Securities available for sale, at fair value           |      |     
|Securities held to maturity (fair value 2003 - $12,519 |      |     
|2002 - $14,051)                                        |      |     
|                                                       |      |     
|Loans held for sale                                    |      |     
|Loans, net of allowance of 2003 - $3,414,              |      |     
|2002 - $3,184                                          |      |     
|                                                       |      |     
|Bank premises and equipment                            |      |     
|Accrued interest receivable                            |      |     
|Bank owned life insurance                              |      |     
|Federal Home Loan Bank stock                           |      |     
|Other assets                                           |      |     
|                                                       |      |     
|                                                       |      |     
|                                                       |      |     
|                                                       |      |     
|LIABILITIES AND STOCKHOLDERS' EQUITY                   |      |     
|Deposits:                                              |      |     
|Noninterest-bearing deposits                           |      |     
|Interest-bearing deposits                              |      |     
|                                                       |      |     
|Total deposits                                         |      |     
|                                                       |      |     
|Short-term borrowings                                  |      |     
|Federal Home Loan Bank Advances                        |      |     
|Repurchase Agreements                                  |      |     
|Subordinated debentures                                |      |     
|Accrued taxes, interest and other liabilities          |      |     
|                                                       |      |     
|Total liabilities                                      |      |     
|                                                       |      |     
|Stockholders' equity                                   |      |     
|Common stock - $0 par value, shares issued             |      |     
|1,880,485 - 2003; 1,722,126 - 2002                     |      |     
|Retained earnings                                      |      |     
|Accumulated other comprehensive income                 |      |     
|                                                       |      |     
|                                                       |      |     
|                                                       |      |     
|                                                       |      |     
|                                                       |      |     

See accompanying
notes to consolidated financial statements.

2.

---



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                               |      |      | $   
|Securities:                                         |      |     
|Taxable                                             |      |      |     
|Tax-exempt                                          |      |      |     
|Short-term investments                              |      |      |     
|                                                    |      |      |     
|Total interest income                               |      |      |     
|                                                    |      |     
|Interest expense                                    |      |     
|Deposits                                            |      |      |     
|Short-term borrowings                               |      |      |     
|Other Borrowings                                    |      |      |     
|                                                    |      |      |     
|Total interest expense                              |      |      |     
|                                                    |      |      |     
|Net interest income                                 |      |      |     
|                                                    |      |     
|Provision for loan losses                           |      |      |     
|                                                    |      |      |     
|Net interest income after provision for loan losses |      |      |     
|                                                    |      |     
|Noninterest income                                  |      |     
|Service charges on deposit accounts                 |      |      |     
|Gain on sale of mortgage loans                      |      |      |     
|Trust income                                        |      |      |     
|Gain on sale of securities                          |      |      |     
|Gain on sale of fixed assets                        |      |      |     
|Other income and fees                               |      |      |     
|                                                    |      |      |     
|Total noninterest income                            |      |      |     
|                                                    |      |     
|Noninterest expense                                 |      |     
|Salaries and employee benefits                      |      |      |     
|Occupancy                                           |      |      |     
|Furniture and equipment                             |      |      |     
|Office supplies                                     |      |      |     
|Loan and collection                                 |      |      |     
|Advertising and promotional                         |      |      |     
|Other professional services                         |      |      |     
|Other general and administrative                    |      |      |     
|                                                    |      |      |     
|Total noninterest expense                           |      |      |     
|                                                    |      |      |     
|Net income before taxes                             |      |      |     
|                                                    |      |     
|Federal income taxes                                |      |      |     
|                                                    |      |      |     
|Net income                                          |      |      | $   
|                                                    |      |      |     
|Per share:                                          |      |     
|Earnings - basic                                    |      |      | $   
|Earnings - diluted                                  |      |      |     

See
accompanying notes to consolidated financial statements.

3.

---



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                                      |      |      | $   
|                                                |      |     
|Other comprehensive income:                     |      |     
|Unrealized holding gains (losses) on available  |      |     
|for sale securities                             |      |      |     
|Less: reclassification adjustment for gains and |      |     
|losses later recognized in income               |      |      |     
|                                                |      |      |     
|Net unrealized gains (losses)                   |      |      |     
|Tax effect                                      |      |      |     
|                                                |      |      |     
|Other comprehensive income (loss), net of tax   |      |      |     
|                                                |      |      |     
|Comprehensive income                            |      |      | $   
|                                                |      |      |     

See accompanying
notes to consolidated financial statements.

4.

---



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                       
|Net Income                                    |               |                   |                                               |                              
|                                              |               |                  
|Cash Dividends ($0.92 per share)              |               |                   |                                               | 0                            
|                                              |               |                  
|Issuance of shares under stock purchase plans |               |                   |                                               | 343                          
|                                              |               |                  
|Other comprehensive income (net of tax)       |               |                   |                                               | 0                            
|                                              |               |                   |                                               |                              
|Balance, December 31, 2001                    |               |                   |                                               | 30,664                       
|                                              |               |                  
|Net Income                                    |               |                   |                                               | 0                            
|                                              |               |                  
|Cash Dividends ($0.92 per share)              |               |                   |                                               | 0                            
|                                              |               |                  
|Stock repurchase (23,259 shares)              |               |                   |                                               | (719                         
|                                              |               |                  
|Issuance of shares under stock purchase plans |               |                   |                                               | 291                          
|                                              |               |                  
|Other comprehensive income (net of tax)       |               |                   |                                               | 0                            
|                                              |               |                   |                                               |                              
|Balance, December 31, 2002                    |               |                   |                                               | 30,236                       
|                                              |               |                  
|Net Income                                    |               |                   |                                               | 0                            
|                                              |               |                  
|Cash Dividends ($0.92 per share)              |               |                   |                                               | 0                            
|                                              |               |                  
|Stock Dividend (170,953 shares)               |               |                   |                                               | 2,979                        
|                                              |               |                  
|Stock repurchase (26,478 shares)              |               |                   |                                               | (894                         
|                                              |               |                  
|Issuance of shares under stock purchase plans |               |                   |                                               | 448                          
|                                              |               |                  
|Other comprehensive loss (net of tax)         |               |                   |                                               | 0                            
|                                              |               |                   |                                               |                              
|Balance, December 31, 2003                    |               |                   | $                                             | 32,769                       
|                                              |               |                   |                                               |                              

See accompanying
notes to consolidated financial statements.

5.

---



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                                         |      |      | $   
|Adjustments to reconcile net income to             |      |     
|net cash from operating activities                 |      |     
|Depreciation and amortization                      |      |      |     
|Deferred income taxes (benefit)                    |      |      |     
|Provision for loan losses                          |      |      |     
|Gain on sale of loans                              |      |      |     
|Loans originated for sale                          |      |      |     
|Proceeds from the sale of loans                    |      |      |     
|Gain on sales of securities                        |      |      |     
|Gain on sale of fixed assets                       |      |      |     
|Net change in accrued interest receivable          |      |     
|and other assets                                   |      |      |     
|Net change in accrued interest payable and         |      |     
|other liabilities                                  |      |      |     
|                                                   |      |      |     
|Net cash from operating activities                 |      |      |     
|                                                   |      |     
|Cash flows from investing activities               |      |     
|Proceeds from maturities of securities - HTM       |      |      |     
|Proceeds from maturities of securities - AFS       |      |      |     
|Proceeds from calls of securities - HTM            |      |      |     
|Proceeds from calls of securities - AFS            |      |      |     
|Proceeds from sales of securities - AFS            |      |      |     
|Purchases of securities - HTM                      |      |      |     
|Purchases of securities - AFS                      |      |      |     
|Originations of loans, net of principal repayments |      |      |     
|Net change in bank owned life insurance            |      |      |     
|Acquisition of premises and equipment, net         |      |      |     
|                                                   |      |      |     
|Net cash from investing activities                 |      |      |     
|                                                   |      |     
|Cash flows from financing activities               |      |     
|Net change in deposits                             |      |      |     
|Net change in short-term borrowings                |      |      |     
|Repayments on advances from Federal                |      |     
|Home Loan Bank                                     |      |      |     
|Issuance of repurchase agreements                  |      |      |     
|Issuance of subordinated debt                      |      |      |     
|Cash dividends paid                                |      |      |     
|Net proceeds from stock issuance and purchases     |      |      |     
|                                                   |      |      |     
|Net cash from financing activities                 |      |      |     
|                                                   |      |      |     
|Net increase in cash and cash equivalents          |      |      |     
|                                                   |      |     
|Cash and cash equivalents at beginning of year     |      |      |     
|                                                   |      |      |     
|Cash and cash equivalents at end of year           |      |      | $   
|                                                   |      |      |     
|Supplemental disclosure of cash flow information   |      |     
|Cash paid during the year for                      |      |     
|Interest $                                         |      |      | $   
|Income taxes                                       |      |      |     

See
accompanying notes to consolidated financial statements.

6.

---



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)

7.

---



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)

8.

---



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                                    |      |      | $   
|Deduct:  Stock-based compensation              |      |     
|expense determined under a fair value          |      |     
|based system                                   |      |      |     
|                                               |      |      |     
|Proforma                                       |      |      | $   
|                                               |      |      |     
|Basic net income per share                     |      |     
|As reported                                    |      |      | $   
|Proforma                                       |      |      |     
|                                               |      |     
|Diluted net income per share                   |      |     
|As reported                                    |      |      | $   
|Proforma                                       |      |      |     
|                                               |      |     
|Weighted average fair value of options granted |      |     
|during year                                    |      |      | $   

(Continued)

9.

---



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                                     |      |      | $   
|                                               |      |      |     
|Weighted average common shares                 |      |     
|outstanding                                    |      |      |     
|                                               |      |      |     
|Basic earnings per common share                |      |      | $   
|                                               |      |      |     
|Diluted                                        |      |     
|Net income                                     |      |      | $   
|                                               |      |      |     
|Weighted average common shares outstanding     |      |     
|for basic earnings per common share            |      |      |     
|Add:  Dilutive effects of assumed exercises of |      |     
|stock options                                  |      |      |     
|                                               |      |      |     
|Average shares and dilutive potential          |      |     
|common shares                                  |      |      |     
|                                               |      |      |     
|Diluted earnings per common share              |      |      | $   
|                                               |      |      |     

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 |             |                             | $                        
|State and municipal                |             |                             |                          
|Mortgage-backed                    |             |                             |                          
|Corporate                          |             |                             |                          
|Equity securities                  |             |                             |                          
|                                   |             |                             |                          
|                                   |             |                             | $                        
|                                   |             |                             |                          
|2002                               |             |                            
|U.S. Government and federal agency |             |                             | $                        
|State and municipal                |             |                             |                          
|Mortgage-backed                    |             |                             |                          
|Corporate                          |             |                             |                          
|Equity securities                  |             |                             |                          
|                                   |             |                             |                          
|                                   |             |                             | $                        
|                                   |             |                             |                          

# Held to Maturity

|                    | Amortized
  Cost | Gross   
Unrecognized
    Gains | Gross
Unrecognized
    Losses | Fair
Value
|------------------- | ---------------- | ------------------------------- | ----------------------------- | ----------
|                    |                  |                                 |                               |           
|2003                |                  |                                 |                               |           
|State and municipal |                  |                                 | $                             | 12,169    
|                    |                  |                                 |                               |           
|2002                |                  |                                
|State and municipal |                  |                                 | $                             | 13,722    
|                    |                  |                                 |                               |           

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

|             | 2003 | 2002 | 2001
|------------ | ---- | ---- | ----
|             |      |      |     
|Proceeds     |      |      | $   
|Gross gains  |      |      |     
|Gross losses |      |      |     

(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
|-------------------------- | ---------------- | ------------------
|                           |                  |                   
|                           |                 
|                           |                  |                   
|Due in one year or less    |                  |                   
|Due from one to five years |                  |                   
|Due from five to ten years |                  |                   
|Due after ten years        |                  |                   
|Mortgage-backed securities |                  |                   
|Equity securities          |                  |                   
|                           |                  |                   
|                           |                  |                   
|                           |                  |                   

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
|------------------------------- | ------------------- | ----------------- | -----
|                               
|                                |                     |                   |      
|                                |                     |                   |      
|US  Government & federal agency |                     |                   | $    
|State & municipal               |                     |                   |      
|Mortgage-backed                 |                     |                   |      
|Corporate                       |                     |                   |      
|Equity securities               |                     |                   |      
|                                |                     |                   |      
|Total temporarily impaired      |                     |                   | $    
|                                |                     |                   |      
|                               

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                     |      |     
|Real estate - construction     |      |     
|Real estate - mortgage         |      |     
|Consumer                       |      |     
|                               |      |     
|                               |      |     
|Less allowance for loan losses |      |     
|                               |      |     
|                               |      |     
|                               |      |     

| | 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 |      |      | $   
|Provision for loan losses  |      |      |     
|                           |      |      |     
|                           |      |      |     
|Loans charged off          |      |      |     
|Loan recoveries            |      |      |     
|                           |      |      |     
|Balance, end of year       |      |      | $   
|                           |      |      |     

(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 |      |     
|Principal amount requiring allocation     |      |     
|                                          |      |     
|                                          |      |     
|                                          |      |     
|Amount of the allowance for loan losses   |      |     
|allocated                                 |      |     

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         |      |     
|Building and building improvements |      |     
|Furniture and equipment            |      |     
|Construction in progress           |      |     
|                                   |      |     
|                                   |      |     
|Less accumulated depreciation      |      |     
|                                   |      |     
|                                   |      |     
|                                   |      |     

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 | 
|2005 | 
|2006 | 
|2007 | 
|     | 
|     | 
|     | 

# NOTE 6  DEPOSITS

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

|                         | 2003 | 2002
|------------------------ | ---- | ----
|                         |      |     
|Noninterest-bearing:     |      |     
|Demand                   |      |     
|Interest-bearing:        |      |     
|Savings                  |      |     
|Money market demand      |      |     
|Time, $100,000 and over  |      |     
|Time, $100,000 and under |      |     
|                         |      |     
|                         |      |     
|                         |      |     

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

|               | 2002 | 2002
|-------------- | ---- | ----
|               |      |     
|In one year    |      |     
|In two years   |      |     
|In three years |      |     
|In four years  |      |     
|In five years  |      |     
|Thereafter     |      |     
|               |      |     
|               |      |     
|               |      |     

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      |      |     
|Average interest rate during the year      |      |     
|Maximum month-end balance during the year  |      |     
|Weighted average interest rate at year-end |      |     

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 | $

(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            |      |      | $   
|Deferred (benefit) expense |      |      |     
|                           |      |      |     
|                           |      |      | $   
|                           |      |      |     

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 |      |      | $   
|Tax exempt interest          |      |      |     
|Other                        |      |      |     
|                             |      |      |     
|                             |      |      | $   
|                             |      |      |     

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                        |      |     
|Unrealized loss on securities available for sale |      |     
|Compensation                                     |      |     
|Other                                            |      |     
|                                                 |      |     
|                                                 |      |     
|Deferred tax liabilities                         |      |     
|Accretion                                        |      |     
|Unrealized gain on securities available for sale |      |     
|Depreciation                                     |      |     
|Other                                            |      |     
|                                                 |      |     
|                                                 |      |     
|                                                 |      |     
|                                                 |      |     
|                                                 |      |     

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     |      |      |     
|Director stock purchase & retainer stock |      |      |     
|Other issuance of stock                  |      |      |     
|                                         |      |      |     
|                                         |      |      |     
|                                         |      |      |     

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 Options | Weighted Average Price
|---------------------------------------- | ----------------- | ----------------------
|                                         |                   |                       
|Options outstanding at January 1, 2001   |                   |                       
|Options granted 2001                     |                   |                       
|Options forfeited 2001                   |                   |                       
|                                         |                   |                       
|Options outstanding at December 31, 2001 |                   |                       
|Options granted 2002                     |                   |                       
|Options forfeited 2002                   |                   |                       
|                                         |                   |                       
|Options outstanding at December 31, 2002 |                   |                       
|Options granted 2003                     |                   |                       
|Options exercise 2003                    |                   |                       
|Options forfeited 2003                   |                   |                       
|                                         |                   |                       
|Options outstanding at December 31, 2003 |                   |                       
|                                         |                   |                       

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             
|$20.00 - $30.00                            |                    |                                 |                        | 10,235            
|$30.00 - $40.00                            |                    |                                 |                        | 19,407            
|$40.00 - $50.00                            |                    |                                 |                        | 264               
|                                           |                    |                                 |                        |                   
|Outstanding at end of year                 |                    |                                 |                        | 34,761            
|                                           |                    |                                 |                        |                   
|Weighted average exercise price of options |                    |                                
|exercisable at the end of the year         |                    |                                 |                        |                   
|                                           |                    |                                 |                        |                   
|                                           |                    |                                
|2002                                       |                    |                                
|$15.00 - $20.00                            |                    |                                 |                        | 7,284             
|$20.00 - $30.00                            |                    |                                 |                        | 11,450            
|$30.00 - $40.00                            |                    |                                 |                        | 6,046             
|$40.00 - $50.00                            |                    |                                 |                        | 264               
|                                           |                    |                                 |                        |                   
|Outstanding at end of year                 |                    |                                 |                        | 25,044            
|                                           |                    |                                 |                        |                   
|Weighted average exercise price of options |                    |                                
|exercisable at the end of the year         |                    |                                 |                        |                   
|                                           |                    |                                 |                        |                   

(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             
|$20.00 - $30.00                            |                    |                                 |                        | 8,814             
|$30.00 - $40.00                            |                    |                                 |                        | 7,261             
|$40.00 - $50.00                            |                    |                                 |                        | 264               
|                                           |                    |                                 |                        |                   
|Outstanding at end of year                 |                    |                                 |                        | 24,839            
|                                           |                    |                                 |                        |                   
|Weighted average exercise price of options |                    |                                
|exercisable at the end of the year         |                    |                                 |                        |                   
|                                           |                    |                                 |                        |                   

# 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
|---------------------------------- | ------ | ----------------------------- | ----------------------------------------------------------------
|                                   |        |                               |                                                                 
|As of December 31, 2003            |        |                               |                                                                 
|Total Capital                      |        |                              
|(to Risk Weighted Assets)          |        |                              
|Consolidated                       |        |                               | $                                                               
|The State Bank                     |        |                               |                                                                 
|Davison State Bank                 |        |                               |                                                                 
|Tier 1 Capital                     |        |                              
|(to Risk Weighted Assets)          |        |                              
|Consolidated                       |        |                               |                                                                 
|The State Bank                     |        |                               |                                                                 
|Davison State Bank                 |        |                               |                                                                 
|Tier 1 Capital (to Average Assets) |        |                              
|Consolidated                       |        |                               |                                                                 
|The State Bank                     |        |                               |                                                                 
|Davison State Bank                 |        |                               |                                                                 

|                                   | Actual | For Capital Adequacy Purposes | To Be Well Capitalized Under Prompt Corrective Action Provisions
|---------------------------------- | ------ | ----------------------------- | ----------------------------------------------------------------
|                                   |        |                               |                                                                 
|As of December 31, 2002            |        |                               |                                                                 
|Total Capital                      |        |                              
|(to Risk Weighted Assets)          |        |                              
|Consolidated                       |        |                               | $                                                               
|The State Bank                     |        |                               |                                                                 
|Davison State Bank                 |        |                               |                                                                 
|                                   |        |                              
|Tier 1 Capital                     |        |                              
|(to Risk Weighted Assets)          |        |                              
|Consolidated                       |        |                               |                                                                 
|The State Bank                     |        |                               |                                                                 
|Davison State Bank                 |        |                               |                                                                 
|                                   |        |                              
|Tier 1 Capital (to Average Assets) |        |                              
|Consolidated                       |        |                               |                                                                 
|The State Bank                     |        |                               |                                                                 
|Davison State Bank                 |        |                               |                                                                 

(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
|------------------------------- | ---- | ----
|                                |      |     
|Assets:                         |      |     
|Cash and cash equivalents       |      |     
|Securities - available for sale |      |     
|Securities - held to maturity   |      |     
|FHLB stock                      |      |     
|Loans held for sale             |      |     
|Loans                           |      |     
|Accrued interest receivable     |      |     
|                                |      |     
|Liabilities:                    |      |     
|Deposits                        |      |     
|Short-term borrowings           |      |     
|FHLB advances                   |      |     
|Repurchase agreements           |      |     
|Subordinated debentures         |      |     
|Accrued interest payable        |      |     

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)  |      |     
|Unused lines of credit and letters of credit |      |     

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                     |      |     
|Securities available for sale, at market      |      |     
|Other assets                                  |      |     
|Investment in subsidiaries                    |      |     
|                                              |      |     
|                                              |      |     
|                                              |      |     
|                                              |      |     
|STOCKHOLDERS' EQUITY                          |      |     
|Other liabilities                             |      |     
|Subordinated debt                             |      |     
|Common stock                                  |      |     
|Retained earnings                             |      |     
|Accumulated other comprehensive income (loss) |      |     
|                                              |      |     
|                                              |      |     
|                                              |      |     

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

|                                               | 2003 | 2002 | 2001
|---------------------------------------------- | ---- | ---- | ----
|                                               |      |      |     
|Interest on securities                         |      |      | $   
|Gain on sale of securities                     |      |      |     
|Dividends from subsidiaries                    |      |      |     
|Operating expenses                             |      |      |     
|Equity in undistributed income of subsidiaries |      |      |     
|                                               |      |      |     
|Income before income taxes                     |      |      |     
|Federal income tax expense (benefit)           |      |      |     
|                                               |      |      |     
|Net income                                     |      |      | $   
|                                               |      |      |     

(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                                     |      |      | $   
|Gain on sale of securities                     |      |      |     
|Amortization                                   |      |      |     
|Change in other assets                         |      |      |     
|Change in other liabilities                    |      |      |     
|Equity in undistributed income of subsidiary   |      |      |     
|                                               |      |      |     
|Net cash from operating activities             |      |      |     
|                                               |      |     
|Cash flows provided by investing activities    |      |     
|Sale of equity securities                      |      |      |     
|Purchase of equity securities                  |      |      |     
|Sales and maturities of securities - AFS       |      |      |     
|Purchases of securities - AFS                  |      |      |     
|(Increase) decrease in land held in investment |      |      |     
|Investment in subsidiary                       |      |      |     
|                                               |      |      |     
|Net cash from investing activities             |      |      |     
|                                               |      |     
|Cash flows used in financing activities        |      |     
|Issuance of subordinated debt                  |      |      |     
|Dividends paid                                 |      |      |     
|Stock repurchase                               |      |      |     
|Proceeds from stock issuance                   |      |      |     
|                                               |      |      |     
|Net cash from financing activities             |      |      |     
|                                               |      |      |     
|Increase in cash and cash equivalents          |      |      |     
|                                               |      |     
|Cash and cash equivalents at beginning of year |      |      |     
|                                               |      |     
|Cash and cash equivalents at end of year       |      |      | $   

(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         
|Interest expense           |               |                |               | 1,318         
|Provision for loan losses  |               |                |               | 296           
|Noninterest income         |               |                |               | 1,575         
|Noninterest expenses       |               |                |               | 3,303         
|Income before income taxes |               |                |               | 1,104         
|Provision for income taxes |               |                |               | 283           
|Net income                 |               |                |               | 821           
|                           |               |               
|Earnings per share         |               |               
|Basic                      |               |                |               | .44           
|Diluted                    |               |                |               | .44           
|                           |               |               
|                           |               |               
|2002                       |               |               
|Interest income            |               |                | $             | 4,416         
|Interest expense           |               |                |               | 1,559         
|Provision for loan losses  |               |                |               | 33            
|Noninterest income         |               |                |               | 1,056         
|Noninterest expenses       |               |                |               | 3,034         
|Income before income taxes |               |                |               | 846           
|Provision for income taxes |               |                |               | 253           
|Net income                 |               |                |               | 593           
|                           |               |               
|Earnings per share         |               |               
|Basic                      |               |                |               | .31           
|Diluted                    |               |                |               | .31           

(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       |       
|Trust relationships intangible |       

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 | 
|Securities                | 
|Loans                     | 
|Acquisition intangibles   | 
|Deposits                  | 
|Other borrowings          | 

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                     |      |     
|Interest expense                    |      |     
|                                    |      |     
|Net interest income                 |      |     
|Provision for loan losses           |      |     
|                                    |      |     
|Net interest income after provision |      |     
|Noninterest income                  |      |     
|Noninterest expense                 |      |     
|                                    |      |     
|Income before federal income tax    |      |     
|Federal income tax expense          |      |     
|Net income                          |      |     
|                                    |      |     
|Basic earnings per share            |      |     
|Diluted earnings per share          |      |     

(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

|2003                                          | 2002 | 2001 | 2000 | 1999   
|--------------------------------------------- | ---- | ---- | ---- | -------
|                                             
|Summary of Consolidated Statements of Income: |      |      |      |        
|Interest Income                               |      |      | $    | 18,438 
|Interest Expense                              |      |      |      | 5,601  
|                                              |     
|Net Interest Income                           |      |      |      | 12,837 
|Provision for Loan Losses                     |      |      |      | 1,319  
|                                              |     
|Net Interest Income after Provision           |      |      |      | 11,518 
|Total Other Operating Income                  |      |      |      | 6,866  
|Total Other Operating Expense                 |      |      |      | 13,276 
|                                              |     
|Income Before Income Taxes                    |      |      |      | 5,108  
|Provision for Income Taxes                    |      |      |      | 1,320  
|                                              |     
|Net Income                                    |      |      | $    | 3,788  
|                                              |     
|Net Income Per Share - Basic                  |      |      | $    | 2.01   
|Net Income Per Share - Diluted                |      |      | $    | 2.01   
|                                              |      |     
|Summary of Consolidated Balance Sheets:       |      |     
|Assets                                        |      |      | $    | 419,966
|Securities, including FHLB stock              |      |      |      | 126,856
|Loans, including loans held for sale          |      |      |      | 254,340
|Deposits                                      |      |      |      | 348,525
|Stockholders' Equity                          |      |      |      | 40,882 
|                                              |      |     
|Other Financial and Statistical Data:         |      |     
|Tier 1 Capital to Risk Weighted Assets        |      |      |      | 16.90  
|Total Capital to Risk Weighted Assets         |      |      |      | 18.00  
|Tier 1 Capital to Average Assets              |      |      |      | 14.00  
|Total Cash Dividends                          |      |      | $    | 1,966  
|Book Value Per Share                          |      |      | $    | 21.74  
|Cash Dividends Paid Per Share                 |      |      | $    | 0.92   
|Period End Market Price Per Share             |      |      | $    | 31.45  
|Dividend Pay-out Ratio                        |      |      |      | 51.90  
|Return on Average Stockholders' Equity        |      |      |      | 9.32   
|Return on Average Assets                      |      |      |      | 1.00   
|Net Interest Margin                           |      |      |      | 3.88   
|Total Equity to Assets at Period End          |      |      |      | 9.73   

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)2003DUE TO: | INCREASE (DECREASE)2002DUE TO:
|---------------------------------- | ------------------------------ | ------------------------------
|                                   |                               
|                                   |                                |                               
|                                  
|TAXABLE SECURITIES                 |                                |                               
|TAX-EXEMPT SECURITIES              |                                |                               
|FEDERAL FUNDS SOLD                 |                                |                               
|TOTAL LOANS                        |                                |                               
|LOANS HELD FOR SALE                |                                |                               
|                                   |                               
|TOTAL EARNING ASSETS               |                                |                               
|                                   |                                |                               
|INTEREST BEARING DEMAND DEPOSITS   |                                |                               
|SAVINGS DEPOSITS                   |                                |                               
|TIME CDs $100,000 AND OVER         |                                |                               
|OTHER TIME DEPOSITS                |                                |                               
|OTHER BORROWINGS                   |                                |                               
|                                   |                               
|TOTAL INTEREST BEARING LIABILITIES |                                |                               
|                                   |                               
|NET INTEREST INCOME                |                                |                               
|                                   |                               

35.

---



# TABLE 3

# Summary of Net Interest
Income

|(000's omitted)                       | Years Ended December 31,
|------------------------------------- | ------------------------
|
|
|                                      |                         
|Securities:                           |                         
|U.S. Treasury and Government Agencies |                         
|State and Political (1)               |                         
|Other                                 |                         
|                                      |                         
|Total Securities                      |                         
|Fed Funds Sold                        |                         
|Loans:                                |                         
|Commercial                            |                         
|Tax Free (1)                          |                         
|Real Estate-Mortgage                  |                         
|Consumer                              |                         
|                                      |                         
|Total loans                           |                         
|Allowance for Loan Loss               |                         
|Net Loans                             |                         
|                                      |                         
|Loans Held for Sale                   |                         
|                                      |                         
|TOTAL EARNING ASSETS                  |                         
|                                      |                         
|Cash Due from Banks                   |                         
|All Other Assets                      |                         
|                                      |                         
|TOTAL ASSETS                          |                         
|                                      |                         
|LIABILITIES & SHAREHOLDERS'           |                         
|EQUITY:                               |                         
|Deposits:                             |                         
|Interest bearing - DDA                |                         
|Savings Deposits                      |                         
|Time CD's $100,000 and Over           |                         
|Other Time CD's                       |                         
|                                      |                         
|Total Interest Bearing                |                         
|Deposits                              |                         
|Other Borrowings                      |                         
|                                      |                         
|INTEREST BEARING LIABILITIES          |                         
|                                      |                         
|Non-interest bearing - DDA            |                         
|All Other Liabilities                 |                         
|Shareholders Equity                   |                         
|                                      |                         
|TOTAL LIABILITIES and S/H EQUITY      |                         
|                                      |                         
|Net Interest Rate Spread              |                         
|Net Interest Income/Margin            |                         
|                                      |                         

(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,
|------------------------------------------ | ------------------------
|
|                                          
|Balance Beginning of Period                |                         
|                                           |                         
|Charge-offs:                               |                         
|Commercial, Financial and Agricultural     |                         
|Real Estate-Construction                   |                         
|Real Estate-Mortgage                       |                         
|Installment Loans to Individuals           |                         
|                                           |                         
|Total Charge-offs                          |                         
|                                           |                         
|Recoveries:                                |                         
|Commercial, Financial and Agricultural     |                         
|Real Estate-Construction                   |                         
|Real Estate-Mortgage                       |                         
|Installment Loans to Individuals           |                         
|                                           |                         
|Total Recoveries                           |                         
|                                           |                         
|Net Charge-offs                            |                         
|                                           |                         
|Provision                                  |                         
|                                           |                         
|Balance at End of Period                   |                         
|                                           |                         
|Ratio of Net Charge-Offs During the Period |                         

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 | Yield
|--------------------------- | -------------- | ---------- | -----
|                           
|AVAILABLE FOR SALE          |                |            |      
|U.S. Agencies               |                |           
|One year or less            |                |            | $    
|Over one through five years |                |            |      
|Over five through ten years |                |            |      
|Over ten years              |                |            |      
|                            |               
|Total                       |                |            |      
|Mortgage-Backed             |                |           
|One year or less            |                |            | $    
|Over one through five years |                |            |      
|Over five through ten years |                |            |      
|Over ten years              |                |            |      
|                            |               
|Total                       |                |            |      
|State and Political         |                |           
|One year or less            |                |            | $    
|Over one through five years |                |            |      
|Over five through ten years |                |            |      
|Over ten years              |                |            |      
|                            |               
|Total                       |                |            |      
|Corporate Bonds             |                |           
|One year or less            |                |            | $    
|Over one through five years |                |            |      
|Over five through ten years |                |            |      
|Over ten years              |                |            |      
|                            |               
|Total                       |                |            |      
|Equity Securities           |                |            | $    
|                            |                |           
|HELD TO MATURITY            |                |           
|State and Political         |                |           
|One year or less            |                |            | $    
|Over one through five years |                |            |      
|Over five through ten years |                |            |      
|Over ten years              |                |            |      
|                            |               
|Total                       |                |            |      
|                            |                |           
|Total Securities            |                |            | $    

# 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 |     
|Real estate - construction   |      |      |      | 32,913  |     
|Real estate - mortgage       |      |      |      | 18,335  |     
|Consumer                     |      |      |      | 55,547  |     
|                             |     
|Total                        |      |      | $    | 253,245 |     
|                             |     

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 OneYear | One-FiveYears | After FiveYears | Total 
|--------------------------------- | -------------- | ------------- | --------------- | ------
|                                  |                |               |                 |       
|Commercial                        |                |               | $               | 41,820
|Real estate - construction        |                |               |                 | 29,169
|Real estate - mortgage            |                |               |                 | 7,318 
|Consumer                          |                |               |                 | 9,197 
|                                  |                |               |                 |       
|                                  |                |               | $               | 87,504
|                                  |                |               |                 |       

# TABLE 8 
Maturities of the Loan Portfolio
by Rate Categories

|December 31, 2003 (000's omitted) | Within OneYear | One-FiveYears | After FiveYears | Total 
|--------------------------------- | -------------- | ------------- | --------------- | ------
|                                  |                |               |                 |       
|Loans:                            |                |               |                 |       
|Fixed Rate                        |                |               | $               | 29,551
|Variable Rate                     |                |               |                 | 57,953
|                                  |                |               | $               | 87,504

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.

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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,
|-------------------------------------- | ------------
|
|                                       |             
|Non-Performing Loans:                  |             
|Loans Past Due 90 Days or More & Still |             
|Accruing                               |             
|Non-Accrual Loans                      |             
|Renegotiated Loans                     |             
|                                       |             
|Total Non-Performing Loans             |             
|                                       |             
|Other Non-Performing Assets:           |             
|Other Real Estate                      |             
|Other Real Estate Owned in Redemption  |             
|Other Non-Performing  Assets           |             
|                                       |             
|Total Other Non-Performing Assets      |             
|                                       |             
|Total Non-Performing Assets            |             
|                                       |             
|Non-Performing Loans as a % of         |             
|Total Loans                            |             
|Non-Performing Assets as a % of        |             
|Total Loans and Other Real Estate      |             
|Allowance for Loan Losses as a % of    |             
|Non-Performing Loans                   |             
|Accruing Loans Past Due 90 Days or     |             
|More to Total Loans                    |             
|Non-performing Assets as a % of        |             
|Total Assets                           |             

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.

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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
|--------------------------- | ---- | ---- | ---- | ----- | ----
|
|                           
|Commercial and construction |      |      | $    | 2,624 |     
|Real estate mortgage        |      |      |      | 207   |     
|Consumer                    |      |      |      | 576   |     
|Unallocated                 |      |      |      | 7     |     
|                           
|Total                       |      |      | $    | 3,414 |     
|                            |     

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.

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# DEPOSITS TABLE 11 Average Deposits

|Years Ended December 31, | 2003 | 2002 | 2001 | 2000    | 1999
|------------------------ | ---- | ---- | ---- | ------- | ----
|
|                        
|Non-int. bearing demand  |      |      | $    | 52,853  |     
|Interest-bearing demand  |      |      |      | 53,897  |     
|Savings                  |      |      |      | 117,138 |     
|Time                     |      |      |      | 102,563 |     
|                         |     
|Total                    |      |      | $    | 326,451 |     
|                         |     

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,
|------------------------------ | ------------ | ------------
|
|                              
|Three months or less           |              |             
|Over three through six months  |              |             
|Over six through twelve months |              |             
|Over twelve months             |              |             
|                               |             
|Total                          |              |             
|                               |             

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.

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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     |                  
|FHLB advances         |       |                  |           | 1,108     |                  
|Repurchase agreements |       |                  |           | 12,500    |                  
|Subordinated debt     |       |                  |           | 12,000    |                  
|Operating leases      |       |                  |           | 436       |                  
|                      |       |                  |           |           |                  
|Total                 |       |                  | $         | 29,493    |                  
|                      |       |                  |           |           |                  

# 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.

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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.

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# 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 |           
|Average interest rate             |      |      |      | 7.21    | %      |            | 7.58   | %         
|Variable interest rate loans      |      |      | $    | 57,948  |        | $          | 14,080 |           
|Average interest rate             |      |      |      | 5.21    | %      |            | 5.17   | %         
|Fixed interest rate securities    |      |      | $    | 6,040   |        | $          | 937    |           
|Average interest rate             |      |      |      | 3.34    | %      |            | 3.87   | %         
|Variable Interest rate securities |      |      |      |         |        |            |        |           
|Average interest rate             |      |      |      |         | 3.99   | %         
|FHLB Stock                        |      |      | $    | 854     |        |            | $      | 854       
|Average interest rate             |      |      |      | 6.00    | %     
|Other interest bearing assets     |      |      | $    | 3,650   |        |            | $      | 3,650     
|Average interest rate             |      |      |      | 0.90    | %     
|Rate Sensitive Liabilities:       |      |     
|Interest-bearing checking         |      |      | $    | 65,056  |        |            | $      | 65,056    
|Average interest rate             |      |      |      | 1.25    | %     
|Savings                           |      |      | $    | 131,819 |        |            | $      | 131,819   
|Average interest rate             |      |      |      | 1.09    | %     
|Time                              |      |      | $    | 44,418  |        | $          | 17,994 |           
|Average interest rate             |      |      |      | 2.48    | %      |            | 3.49   | %         
|Short term borrowings             |      |      | $    | 3,449   |        |            | $      | 3,449     
|Average interest rate             |      |      |      | 1.50    | %     
|FHLB advances                     |      |      | $    | 17      |        | $          | 18     |           
|Average interest rate             |      |      |      | 7.34    | %      |            | 7.34   | %         
|Repurchase agreements             |      |      | $    | 2,500   |        | $          | 5,000  |           
|Average interest rate             |      |      |      | 1.20    | %      |            | 1.40   | %         
|Subordinated debt                 |      |      |      | $       | 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.

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# TABLE 15
Gap Analysis

|                                    | December 31, 2003
|----------------------------------- | -----------------
|
|                                   
|Interest Bearing Bank Deposits      |                  
|Federal Funds Sold                  |                  
|Securities                          |                  
|Loans                               |                  
|Loans Held for Sale                 |                  
|FHLB Stock                          |                  
|                                    |                  
|Total Earning Assets                |                  
|                                    |                  
|Interest Bearing Liabilities:       |                  
|Interest Bearing Demand Deposits    |                  
|Savings Deposits                    |                  
|Time Deposits Less than $100,000    |                  
|Time Deposits Greater than $100,000 |                  
|Short-term Borrowings               |                  
|FHLB Advances                       |                  
|Repurchase Agreements               |                  
|Subordinated Debt                   |                  
|                                    |                  
|Total Interest Bearing Liabilities  |                  
|                                    |                  
|Interest Rate Sensitivity GAP       |                  
|Cumulative Interest Rate            |                  
|Sensitivity GAP                     |                  
|Interest Rate Sensitivity GAP       |                  
|Cumulative Interest Rate            |                  
|Sensitivity GAP Ratio               |                  

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.

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# 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.

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# 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 16Common Stock Data

|               |                                                                                                                                                                                     | Market Information                                                                           | Dividends Paid                                                                              
|-------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------
|
|              
|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

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

51.

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# 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, MichiganMarch
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. GrillChief 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) | 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/ Douglas J. Kelley
Douglas J. KelleyChief 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. GrillChief Executive Officer and President/s/ Douglas J. Kelley
Douglas J. KelleyChief 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.