# Exhibit 13

# Rule 14a-3 Annual
Report

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# FENTURA FINANCIAL, INC.

# FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM December 31, 2005 and
2004

# and

# MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

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FENTURA FINANCIAL, INC.Fenton, Michigan

CONSOLIDATED FINANCIAL
STATEMENTSDecember 31, 2005 and
2004

CONTENTS

|                                                           | 
|---------------------------------------------------------- | 
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM    | 
|                                                           | 
|                                                           | 
|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                 | 
|                                                           | 
|MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL          | 
|CONDITION AND RESULTS OF OPERATIONS                        | 

---



REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

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, 2005 and 2004, 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, 2005. These financial statements are the responsibility of the
Corporations management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. 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, 2005 and 2004, and
the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2005 in conformity with U.S. generally accepted accounting principles.

| | /s/ Crowe Chizek and Company LLC
     Crowe Chizek and Company LLC
| | ------------------------------------------------------------------

Grand Rapids, MichiganMarch
3, 2006

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FENTURA FINANCIAL, INC. CONSOLIDATED BALANCE
SHEETSDecember 31, 2005 and
2004 (000s omitted
except share and per share data)

---

|                                                       | 2005 | 2004      
|------------------------------------------------------ | ---- | ----------
|ASSETS                                                 |      |           
|Cash and due from banks                                |      | $   21,327
|Federal funds sold                                     |      | 9,750     
|                                                       |      |           
|Total cash and cash equivalents                        |      | 31,077    
|Securities available for sale, at fair value           |      | 99,542    
|Securities held to maturity (fair value 2005 - $14,672 |     
|2004 - $18,788)                                        |      | 14,851    
|Loans held for sale                                    |      | 1,042     
|Loans, net of allowance of 2005 - $6,301,              |     
|2004 - $5,501                                          |      | 433,055   
|Bank premises and equipment                            |      | 14,617    
|Accrued interest receivable                            |      | 2,676     
|Bank owned life insurance                              |      | 6,579     
|Goodwill                                               |      | 7,955     
|Acquisition intangibles                                |      | 1,075     
|Federal Home Loan Bank stock                           |      | 2,300     
|Other assets                                           |      | 4,320     
|                                                       |      |           
|                                                       |      | $ 619,089 
|                                                       |      |           
|LIABILITIES AND STOCKHOLDERS' EQUITY                   |     
|Deposits:                                              |     
|Noninterest-bearing deposits                           |      | $   76,792
|Interest-bearing deposits                              |      | 451,262   
|                                                       |      |           
|Total deposits                                         |      | 528,054   
|Short-term borrowings                                  |      | 1,537     
|Federal Home Loan Bank Advances                        |      | 14,228    
|Repurchase Agreements                                  |      | 10,000    
|Subordinated debentures                                |      | 14,000    
|Accrued taxes, interest and other liabilities          |      | 4,375     
|                                                       |      |           
|Total liabilities                                      |      | 572,194   
|Stockholders' equity                                   |     
|Common stock - $0 par value, shares issued             |     
|1,931,297 - 2005; 1,889,463 - 2004                     |      | 34,491    
|Retained earnings                                      |      | 13,729    
|Accumulated other comprehensive income (loss)          |      | (1,325    
|                                                       |      |           
|                                                       |      | 46,895    
|                                                       |      |           
|                                                       |      | $ 619,089 
|                                                       |      |           

See accompanying notes
to consolidated financial statements.

2.

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FENTURA FINANCIAL, INC.CONSOLIDATED STATEMENTS
OF INCOME Years ended December
31, 2005, 2004 and 2003(000s omitted
except share and per share data)

---

|                                                    | 2005 | 2004       | 2003
|--------------------------------------------------- | ---- | ---------- | ----
|Interest income                                     |      |            |     
|Loans, including fees                               |      | $ 29,670   |     
|Securities:                                         |     
|Taxable                                             |      | 3,250      |     
|Tax-exempt                                          |      | 794        |     
|Short-term investments                              |      | 164        |     
|                                                    |      |            |     
|Total interest income                               |      | 33,878     |     
|Interest expense                                    |     
|Deposits                                            |      | 9,390      |     
|Other Borrowings                                    |      | 1,908      |     
|                                                    |      |            |     
|Total interest expense                              |      | 11,298     |     
|                                                    |      |            |     
|Net interest income                                 |      | 22,580     |     
|Provision for loan losses                           |      | 1,389      |     
|                                                    |      |            |     
|Net interest income after provision for loan losses |      | 21,191     |     
|Noninterest income                                  |     
|Service charges on deposit accounts                 |      | 3,445      |     
|Gain on sale of mortgage loans                      |      | 842        |     
|Trust and investment services income                |      | 1,157      |     
|Gain (Loss) on sale of securities                   |      | (149       | )   
|Gain on sale of fixed assets                        |      | 0          |     
|Gain on sale of credit card and SBA loans           |      | 0          |     
|Other income and fees                               |      | 1,587      |     
|                                                    |      |            |     
|Total noninterest income                            |      | 6,882      |     
|Noninterest expense                                 |     
|Salaries and employee benefits                      |      | 11,983     |     
|Occupancy                                           |      | 1,673      |     
|Furniture and equipment                             |      | 2,080      |     
|Office supplies                                     |      | 378        |     
|Loan and collection                                 |      | 388        |     
|Advertising and promotional                         |      | 627        |     
|Other professional services                         |      | 949        |     
|Other general and administrative                    |      | 2,722      |     
|                                                    |      |            |     
|Total noninterest expense                           |      | 20,800     |     
|                                                    |      |            |     
|Net income before taxes                             |      | 7,273      |     
|Federal income taxes                                |      | 2,219      |     
|                                                    |      |            |     
|Net income                                          |      | $   5,054  |     
|                                                    |      |            |     
|Per share:                                          |     
|Earnings - basic                                    |      | $     2.65 |     
|Earnings - diluted                                  |      | 2.64       |     

See accompanying notes
to consolidated financial statements.

3.

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FENTURA FINANCIAL, INC.CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOMEYears ended December
31, 2005, 2004 and 2003(000s omitted
except share and per share data)

---

|                                                  | 2005 | 2004    | 2003
|------------------------------------------------- | ---- | ------- | ----
|Net income                                        |      | $ 5,054 |     
|Other comprehensive income:                       |     
|Unrealized holding gains (losses) on available    |     
|for sale securities                               |      | (1,163  | )   
|Less: reclassification adjustment for (gains) and |     
|losses later recognized in income                 |      | 149     |     
|                                                  |      |         |     
|Net unrealized gains (losses)                     |      | (1,014  | )   
|Tax effect                                        |      | 344     |     
|                                                  |      |         |     
|Other comprehensive income (loss), net of tax     |      | (670    | )   
|                                                  |      |         |     
|Comprehensive income                              |      | $ 4,384 |     
|                                                  |      |         |     

See accompanying notes
to consolidated financial statements.

4.

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FENTURA FINANCIAL, INC.CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY Years ended December
31, 2005, 2004 and 2003 (000s omitted
except share and per share data)

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|                                                     | Common Stock | Retained Earnings | Accumulated
Other
ComprehensiveIncome (Loss) | Total
Stockholders'Equity
|---------------------------------------------------- | ------------ | ----------------- | -------------------------------------------- | -------------------------
|Balance, January 1, 2003                             |              | $ 30,236          |                                              | $   9,395                
|Net Income                                           |              | 0                 |                                              | 3,788                    
|Cash Dividends ($0.92 per share)                     |              | 0                 |                                              | (1,966                   
|Stock Dividend (170,953 shares)                      |              | 2,979             |                                              | (2,979                   
|Stock repurchase (26,478 shares)                     |              | (894              | )                                            | 0                        
|Issuance of shares under stock purchase and dividend |             
|reinvestment plans (13,450 shares)                   |              | 448               |                                              | 0                        
|Other comprehensive loss (net of tax)                |              | 0                 |                                              | 0                        
|                                                     |              |                   |                                              |                          
|Balance, December 31, 2003                           |              | 32,769            |                                              | 8,238                    
|Net Income                                           |              | 0                 |                                              | 4,034                    
|Cash Dividends ($0.92 per share)                     |              | 0                 |                                              | (1,758                   
|Stock repurchase (3,621 shares)                      |              | (122              | )                                            | 0                        
|Issuance of shares under stock purchase and dividend |             
|reinvestment plans (12,710 shares)                   |              | 463               |                                              | 0                        
|Other comprehensive loss (net of tax)                |              | 0                 |                                              | 0                        
|                                                     |              |                   |                                              |                          
|Balance, December 31, 2004                           |              | 33,110            |                                              | 10,514                   
|Net Income                                           |              | 0                 |                                              | 5,054                    
|Cash Dividends ($0.97 per share)                     |              | 0                 |                                              | (1,839                   
|Issuance of shares from common stock                 |             
|offering (23,119 shares)                             |              | 758               |                                              | 0                        
|Issuance of shares under stock purchase and dividend |             
|reinvestment plans (18,715 shares)                   |              | 623               |                                              | 0                        
|Other comprehensive loss (net of tax)                |              | 0                 |                                              | 0                        
|                                                     |              |                   |                                              |                          
|Balance, December 31, 2005                           |              | $ 34,491          |                                              | $ 13,729                 
|                                                     |              |                   |                                              |                          

See accompanying notes
to consolidated financial statements.

5.

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FENTURA FINANCIAL, INC.CONSOLIDATED STATEMENTS
OF CASH FLOWS Years ended December
31, 2005, 2004 and 2003 (000s omitted
except share and per share data)

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|                                                                | 2005 | 2004      | 2003
|--------------------------------------------------------------- | ---- | --------- | ----
|OPERATING ACTIVITIES:                                           |      |           |     
|Net income                                                      |      | $   5,054 |     
|Adjustments to reconcile net income to cash                     |     
|Provided by Operating Activities:                               |     
|Depreciation and amortization                                   |      | 1,560     |     
|Provision for loan losses                                       |      | 1,389     |     
|Loans originated for sale                                       |      | (52,093   | )   
|Proceeds from the sale of loans                                 |      | 53,481    |     
|(Gain) Loss on sale of securities                               |      | 149       |     
|(Gain) Loss on sales of fixed assets                            |      | 0         |     
|Gain on sales of loans                                          |      | (842      | )   
|Net (increase) decrease in bank owned life insurance            |      | 282       |     
|Net (increase) decrease in interest receivable & other assets   |      | 213       |     
|Net increase (decrease) in interest payable & other liabilities |      | 465       |     
|                                                                |     
|Total Adjustments                                               |      | 4,604     |     
|                                                                |     
|Net Cash Provided By (Used In) Operating Activities             |      | 9,658     |     
|                                                                |     
|Cash Flows From Investing Activities:                           |     
|Proceeds from maturities of securities - HTM                    |      | 8,505     |     
|Proceeds from maturities of securities - AFS                    |      | 1,410     |     
|Proceeds from calls of securities - HTM                         |      | 109       |     
|Proceeds from calls of securities - AFS                         |      | 19,943    |     
|Proceeds from sales of securities - AFS                         |      | 18,144    |     
|Purchases of securities - HTM                                   |      | (4,701    | )   
|Purchases of securities - AFS                                   |      | (30,358   | )   
|Net increase in loans                                           |      | (46,515   | )   
|Net cash from acquisition of WMFC                               |      | 0         |     
|Acquisition of premises and equipment, net                      |      | (2,223    | )   
|                                                                |     
|Net Cash Provided By (Used in) Investing Activities             |      | (35,686   | )   
|Cash Flows From Financing Activities:                           |     
|Net increase (decrease) in deposits                             |      | 36,989    |     
|Net increase (decrease) in short term borrowings                |      | (3,663    | )   
|Net increase (decrease) in repurchase agreements                |      | 0         |     
|Issuance of subordinated debt                                   |      | 2,000     |     
|Purchase of advances from FHLB                                  |      | 57,400    |     
|Repayments of advances from FHLB                                |      | (62,418   | )   
|Proceeds from stock offering                                    |      | 758       |     
|Net proceeds from stock issuance and purchase                   |      | 623       |     
|Cash dividends                                                  |      | (1,839    | )   
|                                                                |     
|Net Cash Provided By (Used In) Financing Activities             |      | 29,850    |     
|NET INCREASE IN CASH AND CASH EQUIVALENTS                       |      | 3,822     |     
|CASH AND CASH EQUIVALENTS - BEGINNING                           |      | 27,255    |     
|                                                                |     
|CASH AND CASH EQUIVALENTS - ENDING                              |      | $ 31,077  |     
|                                                                |     
|CASH PAID FOR:                                                  |     
|INTEREST                                                        |      | $ 10,933  |     
|INCOME TAXES                                                    |      | $   2,935 |     

See notes to consolidated financial
statements

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(Continued)

6.

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FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

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CONSOLIDATED STATEMENTS
OF CASH FLOWS (Continued) Noncash investing and financing
activities:

| | WMFC acquisition                           | 2004
| | ------------------------------------------ | ----
| | Securities acquired (including FHLB stock) |     
| | Loans acquired                             |     
| | Bank premises and equipment                |     
| | Bank owned life insurance                  |     
| | Acquisition intangibles recorded           |     
| | Other assets acquired                      |     
| | Deposits assumed                           |     
| | Borrowings assumed                         |     
| | Other liabilities assumed                  |     

# NOTE 1  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and
Principles of Consolidation: The consolidated financial statements include Fentura
Financial, Inc. (the Corporation) and its wholly owned subsidiaries, The State Bank
in Fenton, Michigan; Davison State Bank in Davison, Michigan; and West Michigan Community
Bank in Hudsonville, Michigan (the Banks), as well as Fentura Mortgage
Company, West Michigan Mortgage Company, LLC, and the other subsidiaries of the Banks.
Intercompany transactions and balances are eliminated in consolidation.

The Corporation provides banking and
trust services principally to individuals, small businesses and governmental entities
through its eleven community banking offices in Genesee, Livingston, Oakland Counties in
southeastern Michigan and four community banking offices in Ottawa and Kent Counties in
west Michigan. Its primary deposit products are checking, savings, and term certificate
accounts, and its primary lending products are residential mortgage, commercial, and
installment loans. 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.

Sale of Common Stock:During 2005, the Corporation completed a secondary stock offering, selling 23,119
shares. Net of issuance expenses the common stock sale raised $758,000. The proceeds were
used to support the anticipated growth in assets, fund investments in loans and securities
and for general corporate purposes.

---

(Continued)

7.

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FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

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NOTE 1 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)

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
carrying value of intangibles are particularly subject to change.

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

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. Premiums and discounts on securities are amortized on the
level-yield method without anticipating prepayments. 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.

Declines in the fair value of
securities below their cost that are other than temporary are reflected as realized
losses. In estimating other-than-temporary losses, management considers: (1) the
length of time and extent the fair value has been less than cost, (2) the financial
condition and near term prospects of the issuer, and (3) the Corporations
ability and intent to hold the security for a period sufficient to allow for any
anticipated recovery in fair value.

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 and are sold with servicing rights
released.

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

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

---

(Continued)

8.

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FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

NOTE 1 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)

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. Consumer loans are typically charged off no later than 120 days past due.

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

A loan is impaired when full payment
under the loan terms is not expected. Commercial and commercial real estate loans are
individually evaluated for impairment. If a loan is impaired, a portion of the allowance
is allocated so that the loan is reported, net, at the present value of estimated future
cash flows using the loans existing rate or at the fair value of collateral if
repayment is expected solely from the collateral. Large groups of smaller balance
homogeneous loans, such as consumer and residential real estate loans, are collectively
evaluated for impairment, and accordingly, they are not separately identified for
impairment disclosures.

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. Buildings and related components are depreciated using the straight-line
method with useful lives ranging from 15 to 40 years. Furniture, fixtures and equipment
are depreciated using the straight-line method with useful lives ranging from 3 to 7
years.

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.

---

(Continued)

9.

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FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

NOTE 1 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

Goodwill: Goodwill results
from prior business acquisitions and represents the excess of the purchase price over the
fair value of acquired tangible assets and liabilities and identifiable intangible assets.
Goodwill is assessed at least annually for impairment and any such impairment will be
recognized in the period identified.

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

Stock 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):

|                                      | 2005 | 2004          | 2003
|------------------------------------- | ---- | ------------- | ----
|Net income                            |      |               |     
|As reported                           |      | $      5,054  |     
|Deduct:  Stock-based compensation     |     
|expense determined under a fair value |     
|based system                          |      | (8            | )   
|                                      |      |               |     
|Proforma                              |      | $      5,046  |     
|                                      |      |               |     
|Basic net income per share            |     
|As reported                           |      | $        2.65 |     
|Proforma                              |      | 2.65          |     
|Diluted net income per share          |     
|As reported                           |      | $        2.64 |     
|Proforma                              |      | 2.64          |     

---

(Continued)

10.

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FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

NOTE 1 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)

The fair value of options granted and
the pro forma effects are computed using option-pricing models, using the following
weighted-average assumptions as of grant date.

|                                       | 2005 | 2004    | 2003
|-------------------------------------- | ---- | ------- | ----
|Risk-free interest rate                |      | 4.28    | %   
|Expected option life                   |      | 6 year  | s   
|Expected stock price volatility        |      | 26      | %   
|Dividend yield                         |      | 3.20    | %   
|Weighted average fair value of options |     
|granted during the year                |      | $  6.74 |     
|                                       |      |         |     

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. Employee Stock Ownership Plan (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.

---

(Continued)

11.

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FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

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 $853,000 and $6,358,000 was required
to meet regulatory reserve and clearing requirements at year-end 2005 and 2004
respectively. These balances do not earn interest. During 2005, the Corporation
implemented a new software program that reduced the Corporations regulatory reserve
requirement.

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.

NOTE 1 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)

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)

12.

---



FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

# NOTE 2  EARNINGS
PER SHARE

The factors in the earnings per share
computation follow.

|                                               | 2005 | 2004           | 2003
|---------------------------------------------- | ---- | -------------- | ----
|Basic                                          |      |                |     
|Net income                                     |      | $       5,054  |     
|                                               |      |                |     
|Weighted average common shares                 |     
|outstanding                                    |      | 1,905,456      |     
|                                               |      |                |     
|Basic earnings per common share                |      | $         2.65 |     
|                                               |      |                |     
|Diluted                                        |     
|Net income                                     |      | $       5,054  |     
|                                               |      |                |     
|Weighted average common shares outstanding     |     
|for basic earnings per common share            |      | 1,905,456      |     
|Add:  Dilutive effects of assumed exercises of |     
|stock options                                  |      | 5,849          |     
|                                               |      |                |     
|Average shares and dilutive potential          |     
|common shares                                  |      | 1,911,305      |     
|                                               |      |                |     
|Diluted earnings per common share              |      | $         2.64 |     
|                                               |      |                |     

Stock options for 14,785, 12,404 and
5,096 shares of common stock were not considered in computing diluted earnings per common
share for 2005, 2004 and 2003 respectively, because they were antidilutive.

---

(Continued)

13.

---



FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

# NOTE 3  SECURITIES

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

Available for Sale

|                                   | FairValue | GrossUnrealizedGains | GrossUnrealizedLosses
|---------------------------------- | --------- | -------------------- | ---------------------
|2005                               |           |                      |                      
|U.S. Government and federal agency |           | $  22,886            |                      
|State and municipal                |           | 6,591                |                      
|Mortgage-backed                    |           | 68,057               |                      
|Equity securities                  |           | 2,008                |                      
|                                   |           |                      |                      
|                                   |           | $  99,542            |                      
|                                   |           |                      |                      
|2004                               |           |                      |                      
|U.S. Government and federal agency |           | $  47,835            |                      
|State and municipal                |           | 7,124                |                      
|Mortgage-backed                    |           | 54,386               |                      
|Equity securities                  |           | 1,045                |                      
|                                   |           |                      |                      
|                                   |           | $110,390             |                      
|                                   |           |                      |                      

Held to Maturity

|                    | AmortizedCost | Gross   
UnrecognizedGains | Gross
Unrecognized Losses | FairValue
|------------------- | ------------- | -------------------------- | ------------------------- | ---------
|2005                |               |                            |                           |          
|Mortgage-backed     |               | $       14                 |                           | $     1  
|State and municipal |               | 14,837                     |                           | 46       
|                    |               |                            |                           |          
|                    |               | $14,851                    |                           | $   47   
|                    |               |                            |                           |          
|2004                |               |                            |                          
|Mortgage-backed     |               | $       23                 |                           | $     2  
|State and municipal |               | 18,763                     |                           | 181      
|                    |               |                            |                           |          
|                    |               | $18,786                    |                           | $ 183    
|                    |               |                            |                           |          

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

|             | 2005 | 2004    | 2003
|------------ | ---- | ------- | ----
|Proceeds     |      | $18,144 |     
|Gross gains  |      | 18      |     
|Gross losses |      | 167     |     

---

(Continued)

14.

---



FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

# NOTE 3 SECURITIES
(Continued)

Contractual maturities of debt securities
at year-end 2005 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    |                  | $  5,059          
|Due from one to five years |                  | 3,728             
|Due from five to ten years |                  | 3,928             
|Due after ten years        |                  | 2,122             
|Mortgage-backed securities |                  | 14                
|Equity securities          |                  | 0                 
|                           |                  |                   
|                           |                  | $14,851           
|                           |                  |                   

Securities pledged at year-end
2005 and 2004 had a carrying amount of $47,923,000 and $47,209,000 and were pledged to
secure public deposits and repurchase agreements.

At year-end 2005 and
2004, 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 2005 and 2004, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position are as follows:

|2005                           | Less than 12 Months | 12 Months or More | Total
|------------------------------ | ------------------- | ----------------- | -----
|
|US Government & federal agency |                     | $         0       |      
|State & municipal              |                     | 5,218             |      
|Mortgage-backed                |                     | 67,231            |      
|Equity securities              |                     | 0                 |      
|                               |                     |                   |      
|Total temporarily impaired     |                     | $72,449           |      
|                               |                     |                   |      

---

(Continued)

15.

---



FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

# NOTE 3 SECURITIES
(Continued)

|2004                           | Less than 12 Months | 12 Months or More | Total
|------------------------------ | ------------------- | ----------------- | -----
|
|US Government & federal agency |                     | $  47,834         |      
|State & municipal              |                     | 8,307             |      
|Mortgage-backed                |                     | 52,856            |      
|                               |                     |                   |      
|Total temporarily impaired     |                     | $108,997          |      
|                               |                     |                   |      

The Corporation evaluates securities
for other-than-temporary impairment at least on a quarterly basis, and more frequently
when economic or market concerns warrant such evaluation. Consideration is given to the
length of time and the extent to which fair value has been less than cost, the financial
condition and near-term prospects of the issuer, and the intent and the ability of the
Corporation to retain its investment in the issuer for a period of time sufficient to
allow for any anticipated recovery in fair value. In analyzing an issuers financial
condition, the Corporation may consider whether the securities are issued by the federal
government or its agencies, whether downgrades by bond rating agencies have occurred, and
the results of the reviews of the issuers financial condition.

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 market interest rates. The fair value is expected to recover as
the bonds approach their maturity date or if market rates decline prior to maturity.

# NOTE 4  LOANS

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

|                               | 2005 | 2004    
|------------------------------ | ---- | --------
|Commercial                     |      | $254,498
|Real estate - construction     |      | 76,386  
|Real estate - mortgage         |      | 37,627  
|Consumer                       |      | 70,845  
|                               |      |         
|                               |      | 439,356 
|Less allowance for loan losses |      | 6,301   
|                               |      |         
|                               |      | $433,055
|                               |      |         

---

(Continued)

16.

---



FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

NOTE 4  LOANS
(Continued)

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

Certain directors and executive
officers of the Corporation, including their affiliates are loan customers of the Banks.
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, 2005 and 2004 amounted to $10,752,000 and
$14,191,000 respectively. During 2005, $5,836,000 of new loans were made to these persons,
repayments totaled $5,340,000. During 2005, several directors resigned and the loans to
these persons at the end of 2004 totaled $3,935,000.

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

|                               | 2005 | 2004    | 2003
|------------------------------ | ---- | ------- | ----
|Balance, beginning of year     |      | $ 5,501 |     
|Provision for loan losses      |      | 1,389   |     
|Addition from WMCB Acquisition |      | 0       |     
|Loans charged off              |      | (765    | )   
|Loan recoveries                |      | 176     |     
|                               |      |         |     
|Balance, end of year           |      | $ 6,301 |     
|                               |      |         |     

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):

|                                                  | 2005 | 2004   
|------------------------------------------------- | ---- | -------
|Year end loans not requiring allocation           |      | $1,092 
|Year end loans requiring allocation               |      | 2,714  
|                                                  |      |        
|                                                  |      | $3,806 
|                                                  |      |        
|Amount of the allowance for loan losses allocated |      | $   684

Loans for which the accrual of
interest has been discontinued at December 31, 2005 and 2004 amounted to $1,476,000 and
$1,102,000, respectively, and are included in the impaired loans above. Loans past due
greater than 90 days and still accruing interest amounted to $80,000 and $91,000 at
December 31, 2005 and 2004.

---

(Continued)

17.

---



FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

NOTE 4  LOANS
(Continued)

Interest income recognized on
impaired loans based on cash collected in total is approximately $293,000, $192,000 and
$160,000 for the years ended December 31, 2005, 2004 and 2003, respectively. If the
impaired loans had performed in accordance with their contractual terms during the year,
additional interest income of $113,000, $77,000 and $22,000 would have been recorded in
2005, 2004 and 2003, respectively. The average recorded investment in impaired loans was
$3,655,000, $4,303,000 and $3,752,000 during the years ended December 31, 2005, 2004 and
2003, respectively.

# NOTE 5  PREMISES
AND EQUIPMENT, NET

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

|                                   | 2005 | 2004    
|---------------------------------- | ---- | --------
|Land and land improvements         |      | $  4,375
|Building and building improvements |      | 11,199  
|Furniture and equipment            |      | 7,719   
|Construction in progress           |      | 735     
|                                   |      |         
|                                   |      | 24,028  
|Less accumulated depreciation      |      | 9,411   
|                                   |      |         
|                                   |      | $14,617 
|                                   |      |         

Depreciation expense was $1,418,000,
$1,445,000 and $1,031,000 for 2005, 2004 and 2003, respectively.

The Corporation leases property for
certain branches and ATM locations. Rent expense for 2005 was $292,000, for 2004 was
$292,000 and for 2003 was $149,000. Rent commitments under noncancelable operating leases
were as follows, before considering renewal options that generally are present (in
thousands).

| |           
| | ----------
| | 2006      
| | 2007      
| | 2008      
| | 2009      
| | 2010      
| | Thereafter
| |           
| |           
| |           

---

(Continued)

18.

---



FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

# NOTE 6  GOODWILL
AND INTANGIBLE ASSETS

Goodwill  

Goodwill relates to the acquisition of West Michigan Financial Corporation during 2004.  See Note 15.

Acquired Intangible
Assets Acquired intangible assets related to
the 2004 acquisition of West Michigan Financial Corporation were as follows as of
year-end:

|Amortizes intangible assets       | Gross CarryingAmounts | Accumulated Amortization
|--------------------------------- | --------------------- | ------------------------
|2005                              | 2004                 
|Core deposit assets               |                       | $1,509                  
|Customer relationship intangibles |                       | 216                     
|                                  |                       |                         
|Total                             |                       | $1,725                  
|                                  |                       |                         

Aggregate amortization expense was
$358,000 and $292,000 for 2005 and 2004, respectively.

Estimated amortization expense for each
of the next five years:

| |     
| | ----
| | 2006
| | 2007
| | 2008
| | 2009
| | 2010

The weighted average
remaining amortization period for the intangible assets is 3.12 years.

---

(Continued)

19.

---



FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

# NOTE 7  DEPOSITS

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

|                         | 2005 | 2004     
|------------------------ | ---- | ---------
|Noninterest-bearing:     |      |          
|Demand                   |      | $  76,792
|Interest-bearing:        |     
|Savings                  |      | 109,694  
|Money market demand      |      | 118,445  
|Time, $100,000 and over  |      | 115,452  
|Time, $100,000 and under |      | 107,671  
|                         |      |          
|                         |      | $528,054 
|                         |      |          

Brokered deposits totaled
approximately $29,260 and $3,304 at December 31, 2005 and 2004. At December 31, 2005 and
2004, brokered deposits had interest rates ranging from 2.70% to 4.55% and 1.50% to 5.25%,
respectively, and maturities ranging from one month to fifty-six months.

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

|               | 2005 | 2004    
|-------------- | ---- | --------
|In one year    |      | $153,404
|In two years   |      | 36,497  
|In three years |      | 13,495  
|In four years  |      | 10,764  
|In five years  |      | 8,767   
|Thereafter     |      | 196     
|               |      |         
|               |      | $223,123
|               |      |         

Deposits from principal officers,
directors, and their affiliates at year-end December 31, 2005 and 2004 were $10,561,000
and $21,013,000.

---

(Continued)

20.

---



FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

# NOTE 8  BORROWINGS

Short-Term BorrowingsShort-term borrowings consist of term
federal funds purchased and treasury tax and loan deposits and generally are repaid within
one to 120 days from the transaction date.

Federal Home Loan Bank
Advances        At
year-end, advance from the Federal Home Loan Bank were as follows (dollars in thousands):

|Principal Terms                     | AdvanceAmount | Range of Maturities | Rate
|----------------------------------- | ------------- | ------------------- | ----
|December 31, 2005                   |               |                     |     
|Single Maturity fixed rate advances |               | $10,228             |     
|Putable advances                    |               | 4,000               |     
|                                    |               |                    
|                                    |               | $14,228             |     
|                                    |               |                    
|December 31, 2004                   |              
|Single Maturity fixed rate advances |               | $15,402             |     
|Putable advances                    |               | 4,000               |     
|                                    |               |                    
|                                    |               | $19,402             |     
|                                    |               |                    

Each advance is payable at its
maturity date, a prepayment penalty is assessed with early payoffs of advances. The
advances were collateralized by securities totaling $28,346,000 and $20,574,000 and first
mortgage loans totaling $7,844,000 and $8,842,000 under a blanket lien arrangement at
December 31, 2005 and 2004.

Maturities over the next five years
are (dollars in thousands):

| |           
| | ----------
| | 2006      
| | 2007      
| | 2008      
| | 2009      
| | 2010      
| | Thereafter
| |           
| |           
| |           

---

(Continued)

21.

---



FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

NOTE 8  BORROWINGS
(Continued)

Repurchase AgreementsRepurchase agreements are secured by
mortgage-backed securities held by a third party trustee with carrying amounts of $13.9
million and $18.9 million at year-end 2005 and 2004.

These agreements are fixed rate
financing arrangements that, at year-end 2005, mature in 2007 ($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):

|                                           | 2005 | 2004        
|------------------------------------------ | ---- | ------------
|Average daily balance during the year      |      | $     10,000
|Average interest rate during the year      |      | 2.70        
|Maximum month-end balance during the year  |      | $     10,000
|Weighted average interest rate at year-end |      | 3.32        

Subordinated Debenture
and Trust Preferred SecuritiesA trust formed by the Corporation
issued $12,000,000 trust preferred securities in 2003 as part of a pooled offering of such
securities. The interest rate is a floating rate (LIBOR plus 3.00%) and the current
rate at December 31, 2005 is 6.87%. 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.

A trust formed by the Corporation
issued $2,000,000 trust preferred securities in 2005 as part of a pooled offering of such
securities. The interest rate is a floating rate (LIBOR plus 1.60%) and the current
rate at December 31, 2005 is 5.98%. 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 2010 at a price of 100%
of face value. The subordinated debentures must be redeemed no later than 2035.

---

(Continued)

22.

---



FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

# NOTE 9  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):

|                           | 2005 | 2004    | 2003
|-------------------------- | ---- | ------- | ----
|Current expense            |      | $ 2,704 |     
|Deferred (benefit) expense |      | (485    | )   
|                           |      |         |     
|                           |      | $ 2,219 |     
|                           |      |         |     

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 thousands):

|                             | 2005 | 2004    | 2003
|---------------------------- | ---- | ------- | ----
|Income tax at statutory rate |      | $ 2,473 |     
|Tax exempt interest          |      | (307    | )   
|Other                        |      | 53      |     
|                             |      |         |     
|                             |      | $ 2,219 |     
|                             |      |         |     

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

|                                                 | 2005 | 2004   
|------------------------------------------------ | ---- | -------
|Deferred tax assets                              |      |        
|Allowance for loan losses                        |      | $ 1,866
|Unrealized loss on securities available for sale |      | 682    
|Compensation                                     |      | 392    
|Other                                            |      | 168    
|                                                 |      |        
|                                                 |      | 3,108  
|Deferred tax liabilities                         |     
|Depreciation                                     |      | (265   
|Purchase accounting adjustments                  |      | (577   
|Other                                            |      | (111   
|                                                 |      |        
|                                                 |      | (953   
|                                                 |      |        
|                                                 |      | $ 2,155
|                                                 |      |        

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, 2005 or 2004.

---

(Continued)

23.

---



FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

# NOTE 10  BENEFIT
PLANS

The Corporation has a noncontributory
discretionary employee stock ownership plan (Plan) covering substantially all of its
employees. It is a requirement of the plan to invest principally in the Corporations
common stock. The contribution to the Plan in 2005, 2004 and 2003 was $50,000, $40,000 and
$60,000, 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 2005, 2004 and 2003 was $242,000, $180,000 and
$141,000, respectively.

# NOTE 11  STOCK
PURCHASE AND OPTION PLANS

Director and Employee
PlansOn 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 0 shares and
3,621 shares in 2005 and 2004, respectively. No further purchases are contemplated under
this Plan.

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
PlanThe 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)

24.

---



FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

NOTE 11 - 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:

|                                         | 2005 | 2004   | 2003
|---------------------------------------- | ---- | ------ | ----
|Automatic dividend reinvestment plan     |      | 10,533 |     
|Director stock purchase & retainer stock |      | 5,804  |     
|Other issuance of stock                  |      | 2,379  |     
|                                         |      |        |     
|                                         |      | 18,716 |     
|                                         |      |        |     

Stock Option PlansThe 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)

25.

---



FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

NOTE 11 - STOCK PURCHASE
AND OPTION PLANS (Continued)

The following table summarizes stock
option activity:

|                                         | Number of Options | WeightedAverage Price
|---------------------------------------- | ----------------- | ---------------------
|Options outstanding at January 1, 2003   |                   | 25,044               
|Options granted 2003                     |                   | 14,575               
|Options exercised 2003                   |                   | (1,822               
|Options forfeited 2003                   |                   | (3,036               
|                                         |                   |                      
|Options outstanding at December 31, 2003 |                   | 34,761               
|Options granted 2004                     |                   | 12,250               
|Options forfeited 2004                   |                   | (4,799               
|                                         |                   |                      
|Options outstanding at December 31, 2004 |                   | 42,212               
|Options granted 2005                     |                   | 735                  
|Options forfeited 2005                   |                   | (645                 
|                                         |                   |                      
|Options outstanding at December 31, 2005 |                   | 42,302               
|                                         |                   |                      

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

|Range of Exercise Price                    | Number   Outstanding | Weighted
   Average  
  Remaining Life | Weighted
 Average Price | NumberExercisable
|------------------------------------------ | -------------------- | -------------------------------------- | ----------------------- | -----------------
|2005     $15.00 - $20.00                   |                      | 3,642                                  |                         |                  
|$20.00 - $30.00                            |                      | 8,413                                  |                         |                  
|$30.00 - $40.00                            |                      | 29,983                                 |                         |                  
|$40.00 - $50.00                            |                      | 264                                    |                         |                  
|                                           |                      |                                        |                         |                  
|Outstanding at end of year                 |                      | 42,302                                 |                         |                  
|                                           |                      |                                        |                         |                  
|Weighted average exercise price of options |                     
|exercisable at the end of the year         |                      |                                        |                         |                  
|                                           |                      |                                        |                        

---

(Continued)

26.

---



FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

# NOTE 12 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, 2005, that the Corporation and the Banks meet all capital
adequacy requirements to which they are subject. As of December 31, 2005 and 2004, 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 Corporation or the Banks category.

---

(Continued)

27.

---



FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

NOTE 12  REGULATORY MATTERS(Continued)

|                                   | Actual | For Capital 
   Adequacy   
   Purposes | To Be Well
 Capitalized Under
 Prompt Corrective
 Action Provisions
|---------------------------------- | ------ | --------------------------------------- | -------------------------------------------------------------------
|
|As of December 31, 2005            |        |                                         |                                                                    
|Total Capital                      |       
|(to Risk Weighted Assets)          |       
|Consolidated                       |        | $59,880                                 |                                                                    
|The State Bank                     |        | 37,037                                  |                                                                    
|Davison State Bank                 |        | 5,357                                   |                                                                    
|West Michigan Community Bank       |        | 13,970                                  |                                                                    
|Tier 1 Capital                     |       
|(to Risk Weighted Assets)          |       
|Consolidated                       |        | 53,738                                  |                                                                    
|The State Bank                     |        | 33,121                                  |                                                                    
|Davison State Bank                 |        | 4,790                                   |                                                                    
|West Michigan Community Bank       |        | 12,311                                  |                                                                    
|Tier 1 Capital (to Average Assets) |       
|Consolidated                       |        | 53,738                                  |                                                                    
|The State Bank                     |        | 33,121                                  |                                                                    
|Davison State Bank                 |        | 4,790                                   |                                                                    
|West Michigan Community Bank       |        | 12,311                                  |                                                                    

---

(Continued)

28.

---



FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

|                                     | Actual | For Capital 
   Adequacy   
   Purposes | To Be Well
 Capitalized Under
 Prompt Corrective
 Action Provisions
|------------------------------------ | ------ | --------------------------------------- | -------------------------------------------------------------------
|
|As of December 31, 2004Total Capital |        |                                         |                                                                    
|(to Risk Weighted Assets)            |       
|Consolidated                         |        | $52,257                                 |                                                                    
|The State Bank                       |        | 34,268                                  |                                                                    
|Davison State Bank                   |        | 5,126                                   |                                                                    
|West Michigan Community Bank         |        | 11,845                                  |                                                                    
|Tier 1 Capital                       |       
|(to Risk Weighted Assets)            |       
|Consolidated                         |        | 46,756                                  |                                                                    
|The State Bank                       |        | 30,622                                  |                                                                    
|Davison State Bank                   |        | 4,665                                   |                                                                    
|West Michigan Community Bank         |        | 10,451                                  |                                                                    
|Tier 1 Capital (to Average Assets)   |       
|Consolidated                         |        | 46,756                                  |                                                                    
|The State Bank                       |        | 30,622                                  |                                                                    
|Davison State Bank                   |        | 4,665                                   |                                                                    
|West Michigan Community Bank         |        | 10,451                                  |                                                                    

---

(Continued)

29.

---



FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

# NOTE 13 FINANCIAL
INSTRUMENTS

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

|                                | 2 0 0 5 | 2 0 0 4  
|------------------------------- | ------- | ---------
|
|Assets:                         |         |          
|Cash and cash equivalents       |         | $  31,077
|Securities - available for sale |         | 99,542   
|Securities - held to maturity   |         | 14,851   
|FHLB stock                      |         | 2,300    
|Loans held for sale             |         | 1,042    
|Loans                           |         | 433,055  
|Bank owned life insurance       |         | 6,579    
|Accrued interest receivable     |         | 2,676    
|Liabilities:                    |        
|Deposits                        |         | 528,054  
|Short-term borrowings           |         | 1,537    
|FHLB advances                   |         | 14,228   
|Repurchase agreements           |         | 10,000   
|Subordinated debentures         |         | 14,000   
|Accrued interest payable        |         | 1,041    

The following methods and assumptions
were used by the Corporation in estimating its fair value disclosures for financial
instruments:

Cash and cash
equivalentsThe 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 saleThe 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)

30.

---



FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

NOTE 13  FINANCIAL
INSTRUMENTS(Continued)

LoansFor 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.

Bank owned life
insuranceThe carrying amounts reported in the
balance sheet for bank owned life insurance approximates their fair values.

Off-balance-sheet
instrumentsThe Corporations
off-balance-sheet instruments approximate their fair values.

Deposit liabilitiesThe 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 borrowingsThe carrying amounts of federal funds
purchased and other short-term borrowings approximate their fair values.

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

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

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

---

(Continued)

31.

---



FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

NOTE 13  FINANCIAL
INSTRUMENTS(Continued)

LimitationsFair 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 riskSome 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):

|                                             | 2005 | 2004   
|-------------------------------------------- | ---- | -------
|Commitments to make loans (at market rates)  |      | $42,112
|Unused lines of credit and letters of credit |      | 75,014 

Commitments to make loans are
generally made for periods of 90 days or less. At December 31, 2005, $6,599,000 of
the outstanding loan commitments had fixed interest rates ranging from 6.7% to 8.0% and
maturities ranging from three years to seven years.

---

(Continued)

32.

---



FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

# NOTE 14  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)

|                                         | 2005 | 2004     
|---------------------------------------- | ---- | ---------
|ASSETS                                   |      |          
|Cash and cash equivalents                |      | $  1,664 
|Securities available for sale, at market |      | 2,008    
|Other assets                             |      | 211      
|Investment in subsidiaries               |      | 57,379   
|                                         |      |          
|                                         |      | $61,262  
|                                         |      |          
|LIABILITIES AND STOCKHOLDERS' EQUITY     |     
|Other liabilities                        |      | $     367
|Other borrowings                         |      | 0        
|Subordinated debt                        |      | 14,000   
|Stockholders' Equity                     |      | 46,895   
|                                         |      |          
|                                         |      | $61,262  
|                                         |      |          

CONDENSED STATEMENTS OF
INCOMEYears ended December 31 (in
thousands)

|                                               | 2005 | 2004       | 2003
|---------------------------------------------- | ---- | ---------- | ----
|Interest on securities                         |      | $        0 |     
|Other income                                   |      | 3          |     
|Dividends from subsidiaries                    |      | 2,158      |     
|Interest expense                               |      | (898       | )   
|Operating expenses                             |      | (270       | )   
|Equity in undistributed income of subsidiaries |      | 3,664      |     
|                                               |      |            |     
|Income before income taxes                     |      | 4,657      |     
|Federal income tax expense (benefit)           |      | (397       | )   
|                                               |      |            |     
|Net income                                     |      | $ 5,054    |     
|                                               |      |            |     

---

(Continued)

33.

---



FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

NOTE 14 - PARENT ONLY
CONDENSED FINANCIAL INFORMATION (Continued)

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

|                                               | 2005 | 2004    | 2003
|---------------------------------------------- | ---- | ------- | ----
|Cash flows from operating activities           |      |         |     
|Net income                                     |      | $ 5,054 |     
|Amortization                                   |      | 0       |     
|Change in other assets                         |      | 288     |     
|Change in other liabilities                    |      | 106     |     
|Equity in undistributed income of subsidiary   |      | (3,664  | )   
|                                               |      |         |     
|Net cash from operating activities             |      | 1,713   |     
|Cash flows provided by investing activities    |     
|Purchase of equity securities                  |      | (865    | )   
|Sales and maturities of securities - AFS       |      | 0       |     
|Purchases of securities - AFS                  |      | 0       |     
|Purchase of West Michigan Financial Corp       |      | 0       |     
|Investment in subsidiary                       |      | (500    | )   
|                                               |      |         |     
|Net cash from investing activities             |      | (1,365  | )   
|Cash flows used in financing activities        |     
|Issuance of subordinated debt                  |      | 2,000   |     
|Net short-term borrowings                      |      | (750    | )   
|Dividends paid                                 |      | (1,839  | )   
|Stock repurchase                               |      | 0       |     
|Proceeds from stock issuance                   |      | 1,381   |     
|                                               |      |         |     
|Net cash from financing activities             |      | 792     |     
|                                               |      |         |     
|Change in cash and cash equivalents            |      | 1,140   |     
|Cash and cash equivalents at beginning of year |      | 524     |     
|                                               |      |         |     
|Cash and cash equivalents at end of year       |      | $ 1,664 |     
|                                               |      |         |     

---

(Continued)

34.

---



FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

# NOTE 15 ACQUISITION

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 was to establish a presence in the West Michigan market resulting in a
foundation to grow the Corporations asset base, primarily loans, in the West Michigan
market. Under the terms of the transaction, the Corporation acquired all of the
outstanding stock of WMFC in exchange for cash. The total cost of the transaction was
$12.9 million. The Corporation closed the transaction on March 15, 2004.

The acquisition has been accounted
for using the purchase method of accounting, and accordingly, the purchase price has been
allocated to the tangible and identified intangible assets purchased and the liabilities
assumed based upon the estimated fair values at the date of acquisition. Identified
intangible assets and purchase accounting fair value adjustments are being amortized under
various methods over the expected lives of the corresponding assets and liabilities.
Goodwill will not be amortized, but will be reviewed for impairment on an annual basis.
Goodwill is tax deductible over 15 years. Identified intangible assets aggregate to $1.7
million and include a core deposit intangible and customer relationship value related to
West Michigan Financial Corporations loan, deposit and wealth management customers.
Goodwill aggregated to $7.9 million. Intangible assets recorded for the acquisition that
are subject to amortization were computed as follows in thousands of dollars:

|                                 
|---------------------------------
|Core deposits intangible         
|Customer relationships intangible

In conjunction with the acquisition,
the fair values of significant assets and liabilities assumed at March 15, 2004 were 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, 2004 and
2003 as if the acquisition of WMFC had occurred at the beginning of 2004 and 2003. 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. WMFC has been included in results since March 15, 2004. 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)

35.

---



FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

NOTE 15 ACQUISITION
(Continued)

|                                    | 2004 | 2003     
|----------------------------------- | ---- | ---------
|Interest income                     |      | $27,485  
|Interest expense                    |      | 8,691    
|                                    |      |          
|Net interest income                 |      | 18,794   
|Provision for loan losses           |      | 1,426    
|                                    |      |          
|Net interest income after provision |      | 17,368   
|Noninterest income                  |      | 7,555    
|Noninterest expense                 |      | 19,167   
|                                    |      |          
|Income before federal income tax    |      | 5,756    
|Federal income tax expense          |      | 1,586    
|                                    |      |          
|Net income                          |      | $  4,170 
|                                    |      |          
|Basic earnings per share            |      | $    2.21
|Diluted earnings per share          |      | 2.20     

# NOTE 16  SUMMARY
OF QUARTERLY FINANCIAL DATA  UNAUDITED

The unaudited quarterly results of
operations for 2005 and 2004 are as follows (in thousands except per share data):

|                           | First Quarter | Second  Quarter | Third  Quarter | FourthQuarter
|-------------------------- | ------------- | --------------- | -------------- | -------------
|2005Interest income        |               | $7,647          |                | $8,278       
|Interest expense           |               | 2,258           |                | 2,590        
|Provision for loan losses  |               | 269             |                | 329          
|Noninterest income         |               | 1,586           |                | 1,767        
|Noninterest expenses       |               | 5,093           |                | 5,298        
|Income before income taxes |               | 1,613           |                | 1,828        
|Provision for income taxes |               | 461             |                | 535          
|Net income                 |               | 1,152           |                | 1,293        
|Earnings per share         |              
|Basic                      |               | .61             |                | .68          
|Diluted                    |               | .61             |                | .68          

---

(Continued)

36.

---



FENTURA FINANCIAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            December 31, 2005 and 2004

---

NOTE 16 - SUMMARY OF
QUARTERLY FINANCIAL DATA - UNAUDITED (Continued)

|                           | First Quarter | Second  Quarter | Third  Quarter | FourthQuarter
|-------------------------- | ------------- | --------------- | -------------- | -------------
|2004Interest income        |               | $5,257          |                | $6,512       
|Interest expense           |               | 1,694           |                | 2,082        
|Provision for loan losses  |               | 273             |                | 363          
|Noninterest income         |               | 1,611           |                | 1,831        
|Noninterest expenses       |               | 3,795           |                | 4,791        
|Income before income taxes |               | 1,106           |                | 1,107        
|Provision for income taxes |               | 284             |                | 286          
|Net income                 |               | 822             |                | 821          
|Earnings per share         |              
|Basic                      |               | .44             |                | .44          
|Diluted                    |               | .44             |                | .43          

The Corporation sold SBA and credit
card loans of $4 million in the fourth quarter, which produced a gain of $464,000. The
loans were sold to reduce future credit risk.

---

(Continued)

37.

---



# 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, Davison State Bank, and West Michigan Community Bank (the Banks), for the years
ended December 31, 2005, 2004, and 2003. The supplemental financial data included
throughout this discussion should be read in conjunction with the primary financial
statements presented on pages 5 through 35 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. The financial data and results of
operations for West Michigan Community Bank are included only from the date of acquisition
on March 15, 2004.

# Selected Financial Data

|TABLE 1$ in thousands except per share data
  and ratios | 2005 | 2004        | 2003 | 2002        | 2001
|-------------------------------------------------------- | ---- | ----------- | ---- | ----------- | ----
|                                                         |     
|Summary of Consolidated Statements of Income:            |      |             |      |             |     
|Interest Income                                          |      | $  33,878   |      | $  26,094   |     
|Interest Expense                                         |      | 11,298      |      | 8,263       |     
|                                                         |      |            
|Net Interest Income                                      |      | 22,580      |      | 17,831      |     
|Provision for Loan Losses                                |      | 1,389       |      | 1,389       |     
|                                                         |      |            
|Net Interest Income after Provision                      |      | 21,191      |      | 16,442      |     
|Total Other Operating Income                             |      | 6,882       |      | 7,292       |     
|Total Other Operating Expense                            |      | 20,800      |      | 18,176      |     
|                                                         |      |            
|Income Before Income Taxes                               |      | 7,273       |      | 5,558       |     
|Provision for Income Taxes                               |      | 2,219       |      | 1,524       |     
|                                                         |      |            
|Net Income                                               |      | $    5,054  |      | $    4,034  |     
|                                                         |      |            
|Net Income Per Share - Basic                             |      | $      2.65 |      | $      2.14 |     
|Net Income Per Share - Diluted                           |      | $      2.64 |      | $      2.13 |     
|Summary of Consolidated Balance Sheets:                  |     
|Assets                                                   |      | $619,089    |      | $584,890    |     
|Securities, including FHLB stock                         |      | 116,693     |      | 131,429     |     
|Loans, including loans held for sale                     |      | 440,398     |      | 395,017     |     
|Deposits                                                 |      | 528,054     |      | 491,065     |     
|Borrowings and Other Fundings                            |      | 39,765      |      | 46,602      |     
|Stockholders' Equity                                     |      | 46,895      |      | 42,969      |     
|Other Financial and Statistical Data:                    |     
|Tier 1 Capital to Risk Weighted Assets                   |      | 10.60       | %    | 10.20       | %   
|Total Capital to Risk Weighted Assets                    |      | 11.90       | %    | 11.40       | %   
|Tier 1 Capital to Average Assets                         |      | 8.90        | %    | 8.70        | %   
|Total Cash Dividends                                     |      | $    1,839  |      | $    1,758  |     
|Book Value Per Share                                     |      | $    24.28  |      | $    22.74  |     
|Cash Dividends Paid Per Share                            |      | $      0.97 |      | $      0.92 |     
|Period End Market Price Per Share                        |      | $    32.75  |      | $    36.75  |     
|Dividend Pay-out Ratio                                   |      | 36.39       | %    | 43.58       | %   
|Return on Average Stockholders' Equity                   |      | 11.09       | %    | 9.72        | %   
|Return on Average Assets                                 |      | 0.85        | %    | 0.74        | %   
|Net Interest Margin                                      |      | 4.23        | %    | 3.70        | %   
|Total Equity to Assets at Period End                     |      | 7.57        | %    | 7.34        | %   

---

(Continued)

38.

---



RESULTS OF OPERATIONSThe Corporation achieved net income
of $5,054,000 for the year of 2005, an increase of $1,020,000 or 25.3%. Net income
increased primarily due to the expansion of the Corporations footprint in Southeast
and Western Michigan, significantly higher loan balances and to the increases to the prime
rate during 2005. Noninterest income decreased in 2005 by $410,000 or 5.6% from the
noninterest income in the prior year. Non-interest expense increased by $2,624,000 or
14.4%. We expect that interest rates will remain steady or possibly increase slightly in
2006, 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 2005, 2004, and 2003 respectively, the Corporation posted a return on average assets
of 0.85%, 0.74%, and 1.00%. Return on average equity was 11.09% in 2005, 9.72% in 2004,
and 9.32% in 2003. While the Corporation has a very strong capital position, the 9.14%
increase in our equity in 2005, and the issuance of $2 million of trust preferred
securities, greatly enhances our ability to grow. Total assets increased $34 million in
2005, $165 million in 2004, and $79 million in 2003. Diluted earnings per share were $2.64
in 2005, $2.13 in 2004, and $2.01 in 2003.

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, 2005 and 2004. 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
$4,778,000 in 2005, or 26.1% and increased by $5,021,000 or 37.8% in 2004. The primary
factors contributing to the increase in net interest income in 2005 were the increase in
loan volumes and the increases in the prime rate. The increase in volumes and prime rate
increased net interest income which significantly offset increases in interest expenses
resulting in an increase in net interest margin.

As indicated in Table 3, for the year
ended December 31, 2005, the Corporations net interest margin was 4.23% compared
with 3.70% and 3.88% for the same period in 2004 and 2003, respectively. The increase in
2005 was attributable to higher earning asset yields due to the increases in the prime
rate during the year, offset with measured increases in the deposit yields. The decrease
in 2004 was due to lower earning asset yields due to the historically low rate environment
and the addition of West Michigan Community Bank which had a significantly lower net
interest margin than the other two banks in the Corporation.

Average earning assets increased
10.3% in 2005. Average earning assets increased 44.6% in 2004, and increased 20.7% in
2003. Average earning assets increased due to higher loan balances, the highest yielding
component of earning assets, representing 77.4% of earning assets in 2005, compared to
72.9% in 2004 and 69.3% in 2003. Average interest bearing liabilities increased 9.0% in
2005, 52.1% in 2004, and 22.7% in 2003. Non-interest bearing deposits amounted to 14.9% of
average earning assets in 2005 compared with 14.8% in 2004 and 15.4% in 2003.

39.

---



|TABLE 2 | Changes in Net Interest IncomeDue to Changes in
Average Volumeand Interest Rates Years Ended December
31, | 
|------- | --------------------------------------------------------------------------------------------------------- | 

|                                                   | INCREASE (DECREASE) 
        2005         
       DUE TO: | INCREASE (DECREASE)
        2004
        DUE TO:
|-------------------------------------------------- | --------------------------------------------------------- | ------------------------------------------------
|                                                   |                                                           |                                                 
|
|                                                   |                                                          
|TAXABLE SECURITIES                                 |                                                           | $  (413                                         
|TAX-EXEMPT SECURITIES                              |                                                           | 624                                             
|FEDERAL FUNDS SOLD                                 |                                                           | (71                                             
|TOTAL LOANS                                        |                                                           | 3,744                                           
|LOANS HELD FOR SALE                                |                                                           | 75                                              
|                                                   |                                                           |                                                 
|TOTAL EARNING ASSETS                               |                                                           | 3,959                                           
|INTEREST BEARING DEMAND DEPOSITS                   |                                                           | 33                                              
|SAVINGS DEPOSITS                                   |                                                           | (370                                            
|TIME CDs $100,000 AND OVER                         |                                                           | 1,372                                           
|OTHER TIME DEPOSITS                                |                                                           | 230                                             
|OTHER BORROWINGS                                   |                                                           | 203                                             
|                                                   |                                                           |                                                 
|TOTAL INTEREST BEARING
                LIABILITIES |                                                           | 1,468                                           
|                                                   |                                                           |                                                 
|NET INTEREST INCOME                                |                                                           | $ 2,491                                         
|                                                   |                                                           |                                                 

40.

---



|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                       |                         
|Impact of Non-Interest Bearing Funds on Margin |                         
|                                               |                         
|Net Interest Income/Margin                     |                         
|                                               |                         

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

41.

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ALLOWANCE AND PROVISION
FOR LOAN LOSSESThe allowance for loan losses
reflects managements judgment as to the level considered appropriate to absorb
probable incurred losses in the loan portfolio. The Corporations methodology in
determining the adequacy of the allowance is based on ongoing quarterly assessments and
relies on several key elements, which include specific allowances for identified problem
loans and a formula based risk allocated allowance for the remainder of the portfolio.
This includes a review of individual loans, size and composition of the loan portfolio,
historical loss experience, current economic conditions, financial condition of borrowers,
the level and composition of non-performing loans, portfolio trends, estimated net
charge-offs, and other pertinent factors. Although reserves have been allocated to various
portfolio segments, the allowance is general in nature and is available for the portfolio
in its entirety. At December 31, 2005, the allowance for loan losses was $6,301,000 or
1.43% of total loans. This compares with $5,501,000 or 1.40% at December 31, 2004 and
$3,414,000, or 1.34%, at December 31, 2003. Management believes that the allowance for
loan losses is appropriate given identified risk in the loan portfolio based on asset
quality.

The provision for loan losses was
$1,389,000 in 2005 and $1,389,000 and $1,319,000 in 2004 and 2003, respectively, with
$457,000 of the 2004 provision attributable to West Michigan Community Bank. The 2005
provision level reflects continued loan growth in the subsidiary banks coupled with a
slight increase in nonperforming assets and higher net charge-offs. The provision for loan
losses was consistent in 2005 with 2004, due to growth in the loan portfolios and slight
increases in restructured loans. The increase in 2004 was due to the addition of West
Michigan Community Bank; if the acquisition had not been made the provision would have
been $932,000 for 2004. The provision in 2003 responded to an unanticipated charge-off of
one large commercial relationship in the first half of the 2003.

Table 4 summarizes loan losses and
recoveries from 2001 through 2005. During 2005 the Corporation experienced net charge-offs
of $589,000, compared with net charge-offs of $461,000 and $1,089,000 in 2004 and 2003,
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 2005 was .15%
compared to .12% and .43% at the end of 2004 and 2003, respectively. The net charge-off
ratio increased in 2005 due to higher charge offs in the commercial and consumer
portfolios. In 2003, one large commercial relationship accounted for $836,000 of the net
charge-offs for the year.

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 2006. Non-performing loans are discussed further in the section
titled Non-Performing Assets.

42.

---



|Table 4Analysis 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                                        |                         
|                                                 |                         
|Addition from WMCB acquisition                   |                         
|                                                 |                         
|Balance at End of Period                         |                         
|                                                 |                         
|Ratio of Net Charge-Offs During the Period       |                         

NON-INTEREST INCOME Non-interest income was $6,882,000 in 2005,
$7,292,000 and $6,866,000 in 2004 and 2003, respectively. These amounts represent a
decrease of 5.6% in 2005 compared to 2004 and an increase of 6.2% comparing 2004 to 2003.

The most significant category of
non-interest income is service charges on deposit accounts. These fees were $3,445,000 in
2005, compared to $3,738,000 and $3,609,000 in 2004 and 2003, respectively. This was a
decrease of $293,000 or 7.8% in 2005 and an increase of $129,000 or 3.6% in 2004. The
decrease in 2005 was due to a decrease in NSF and overdraft privilege fees. The increase
in 2004 was due to the addition of West Michigan Community Bank, which provided $277,000
of service charges on deposit accounts.

Gains on the sale of mortgage loans
originated by the Banks and sold in the secondary market were $842,000 in 2005, $510,000
in 2004, and $1,258,000 in 2003. The increase of 65.1% in 2005 is due to a full year of
West Michigan Community Bank and a more sales focused mortgage origination program in
2005. The decrease of $748,000 in 2004 was due to higher interest rates than in 2003 and a
continued slowdown of the refinance activity. 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 2005, 2004 or 2003.

Trust and investment income increased
$85,000 or 7.3% in 2005 to $1,157,000 compared with $1,072,000 in 2004 and $571,000 in
2003. The 7.3% increase is due to a full year of West Michigan Community Bank trust and
investment fees and the increase in market value of trust assets. The 33.5% increase in
2004 was due primarily to the acquisition of West Michigan Community Bank, which provided
$119,000 of additional trust income.

43.

---



In 2005, the Corporation recognized
security losses of $149,000, which losses were incurred in order to reposition the
security portfolio into higher yielding securities. In 2004, the Corporation did not
recognize any securities gains compared to 2003 when the Corporation did recognize a gain
on security transactions of $31,000. In 2003, these gains were due to the Corporation
selling some low yielding securities and purchasing higher yielding securities.

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.

In 2004, the Corporation recognized a
gain on the sale of the credit card portfolio and the sale of some SBA loans, which
totaled $464,000. The Corporation sold the credit card portfolio due to potential fraud
risk in the future and sold the SBA loans due to processing issues with the loans.

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 $1,587,000 in 2005 compared
to $1,508,000 and $1,196,000 in 2004 and 2003, respectively. The increase of 5.2% is due
to a full year of other income from West Michigan Community Bank and an increase in ATM
and debit card income. The increase in 2004 was due to the addition of West Michigan
Community Bank.

NON-INTEREST EXPENSE Total non-interest expense was
$20,800,000 in 2005 compared to $18,176,000 in 2004 and $13,276,000 in 2003. This was an
increase of 14.4% in 2005 and 36.9% in 2004.

Salaries and employee benefits, the
Corporations largest operating expense category, were $11,983,000 in 2005, compared
with $9,956,000 in 2004, and $6,981,000 in 2003. The increase in 2005 was primarily due to
a full year of salaries for West Michigan Community Bank and bonus payouts for bank
performance for employees during 2005. Increased costs in 2004 were primarily a result of
the West Michigan Community Bank acquisition that increased this category by $2,081,000.
The other portion of the increase were due to annual salary increases, increases in health
care expenses and staff additions in connection with new branch offices in Brighton,
Goodrich and Grandville, which all opened in 2004.

In 2005, equipment expenses were
$2,080,000 compared to $2,153,000 in 2004 and $1,533,000 in 2003, a decrease of 3.4% in
2005 and an increase of 40.4% in 2004. The decrease in 2005 was due to a reduction in
equipment maintenance on the mainframe computer. The Corporation purchased a new mainframe
computer in early 2005, which will be amortized over three years. The increase in 2004 was
primarily attributable to the acquisition of West Michigan Community Bank, which added
$388,000 in depreciation expense in 2004. Also, the increase in 2004 was due in part to
equipment maintenance cost increasing due to more equipment to cover and an increase in
equipment depreciation.

Occupancy expenses associated with
the Corporations facilities were $1,673,000 in 2005 compared to $1,633,000 in 2004
and $1,116,000 in 2003. In 2005, this was an increase of 2.4% and in 2004 an increase of
46.3%. The slight increase in 2005 is due to a full year of occupancy expenses for West
Michigan Community Bank and occupancy expenses of the three recently opened branches. The
increase of $517,000 in 2004 was also due to the opening of the three branch offices
(Goodrich, Brighton & Grandville) and the acquisition of West Michigan Community
Bank, which had occupancy expenses of $303,000 in 2004.

Office supplies were $378,000 in 2005
compared to $349,000 in 2004 and $ 300,000 in 2003. In 2005, this was an increase of 8.3%
and in 2004 an increase of 16.3%. The increase is due to a full year of West Michigan
Community Bank and a full year of expenses for the three branches opened in 2004. The
increase of $49,000 in 2004 was due to the West Michigan Community Bank acquisition, which
had office supplies in 2004 that totaled $56,000.

Loan and collection expenses were
$388,000 in 2005 compared to $289,000 in 2004, and $280,000 in 2003. The increase of 34.3%
for 2005 was due to an increase in ORE expenses and a full year of West Michigan Community
Bank loan expenses. The slight increase in 2004 of 3.2% was due to the acquisition of West
Michigan Community Bank, which had loan and collection expenses of $60,000 in 2004.

44.

---



Advertising expenses were $627,000 in
2005 compared to $499,000 in 2004, and $373,000 in 2003. The increase of 25.7% in 2005 was
due to more focused advertising efforts in all markets and a full year of advertising
expenses for West Michigan Community Bank. The increase of 33.8% in 2004 was due to the
acquisition of West Michigan Community Bank, which had advertising expenses of $132,000.
Other professional service fees include audit fees, consulting fees, legal fees, and
various other professional services. Other professional services were $949,000 in 2005
compared to $1,031,000 in 2004, and $1,171,000 in 2003. The decrease of 8.0% in 2005 was
due to lower legal and consulting fees. The decrease of 12.0% in 2004 was due to having
lower consulting fees pertaining to the overdraft privilege product. The increase of 6.5%
in 2003 was due to higher consulting fees pertaining to the implementation of the
overdraft privilege product.

Other general and administrative
expenses were $2,722,000 in 2005 compared to $2,266,000 in 2004, and $1,522,000 in 2003.
The increase of 20.1% in 2005 was due to increases in education and development of our
staff, business development and a full year of West Michigan Community Bank expenses. The
increase of $744,000 in 2004 was primarily due to the acquisition of West Michigan
Community Bank, which had other expenses of $480,000 in 2004. Also, other losses and
business development expenses increased in 2004.

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 $597 million for 2005 exceeding 2004s average of $547 million by $50
million or 9.1%. The Corporation acquired West Michigan Financial Corporation on March 15,
2004, which had assets of $137 million. The Corporation entered into a security leverage
strategy in 2003, which entailed borrowing $12.5 million of repurchase agreements and
using $12.5 million 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 70.5% of total average assets during 2005 compared to
65.9% in 2004. Loans grew $60.7 million on average, with commercial loans leading the
advance by $48.7 million or 18.6%. The ratio of average non-interest bearing deposits to
total deposits was 16.3% in 2005 compared to 15.9% during 2004. Interest bearing deposits
comprised 89.8% of total average interest bearing liabilities during 2005, down from 90.4%
during 2004. The Corporations year-end total assets were $619 million for 2005 up
from $585 million in 2004. The increase was due to the higher loan demand in 2005.

SECURITIES PORTFOLIO Securities totaled $114,393,000 at
December 31, 2005 compared to $129,177,000 at December 31, 2004. This was a decrease of
$14,784,000 or 11.4%. At December 31, 2005 these securities comprised 21.8% of earning
assets, down from 24.4% at December 31, 2004. The Corporation considers all of its
securities as available for sale except for Michigan tax-exempt securities and a few
mortgage backed securities, which are classified as held to maturity. Increases in loan
balances from new loan growth in 2005 did exceed the amount of deposit growth, which
coupled with the decrease in securities in 2005 accounts for the increase in federal funds
sold. Fed funds sold were $9,750,000 at December 31, 2005 compared with $4,550,000 at
December 31, 2004.

45.

---



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, 2005, the estimated aggregate fair
value of the Corporations securities portfolio was $2,186,000 below amortized cost.
At December 31, 2005 gross unrealized gains were $210,000 and gross unrealized losses were
$2,396,000. 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.

# TABLE 5 Analysis and Maturities
of Securities

|(000's omitted)             | Amortized
  Cost | FairValue     | Yield
|--------------------------- | ---------------- | ------------- | -----
|                            |                 
|AVAILABLE FOR SALE          |                  |               |      
|U.S. Agencies               |                 
|One year or less            |                  | $           0 |      
|Over one through five years |                  | 14,317        |      
|Over five through ten years |                  | 6,150         |      
|Over ten years              |                  | 3,059         |      
|                            |                  |              
|Total                       |                  | 23,526        |      
|Mortgage-Backed             |                 
|One year or less            |                  | $    1,998    |      
|Over one through five years |                  | 19,290        |      
|Over five through ten years |                  | 5,919         |      
|Over ten years              |                  | 42,327        |      
|                            |                  |              
|Total                       |                  | 69,534        |      
|State and Political         |                 
|One year or less            |                  | $       564   |      
|Over one through five years |                  | 1,204         |      
|Over five through ten years |                  | 3,194         |      
|Over ten years              |                  | 1,617         |      
|                            |                  |              
|Total                       |                  | 6,579         |      
|Equity Securities           |                  | $    1,910    |      
|                           
|HELD TO MATURITY            |                 
|Mortgage-Backed             |                 
|One year or less            |                  | $           0 |      
|Over one through five years |                  | 3             |      
|Over five through ten years |                  | 11            |      
|Over ten years              |                  | 0             |      
|                            |                  |              
|Total                       |                  | 14            |      
|State and Political         |                 
|One year or less            |                  | $    5,059    |      
|Over one through five years |                  | 3,728         |      
|Over five through ten years |                  | 4,078         |      
|Over ten years              |                  | 1,972         |      
|                            |                  |              
|Total                       |                  | 14,837        |      
|Total Securities            |                  | $116,400      |      

46.

---



LOAN PORTFOLIO The Corporation extends credit
primarily within in its local markets in Genesee, Oakland, and Livingston counties and in
its new local markets in Kent and Ottawa counties of the west side of Michigan. 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 $45,926,000 for
the year ended December 31, 2005, with total loans comprising 77.8% of earning assets as
compared to 74.4% of December 31, 2004 earning assets. The increase was the growth of the
commercial loan portfolio. Economic conditions remained reasonably steady throughout 2005
in southeastern Michigan and in western Michigan. The steadiness of the economy supported
continued commercial business growth including commercial development. Accordingly, the
Corporation experienced strong demand for commercial loans. In 2005, commercial loans
increased $25,486,000 to $254,498,000 or 11.1%. Also, real estate construction and
mortgage loans increased $20,031,000 or 21.3% in 2005. Consumer loans increased $410,000
or 0.58% in 2005. In 2004, commercial loans increased approximately $82,562,000 to
$229,012,000 or 56.4%. Additionally, real estate construction and development loans
increased $28,364,000 or 86.2% to $32,913,000 at December 31, 2004. Consumer loans
increased $14,888,000 or 26.8% in 2004.

Management expects the economy to
support continued growth and development in 2006 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) | 2005 | 2004     | 2003 | 2002     | 2001
|-------------------------------------------------- | ---- | -------- | ---- | -------- | ----
|                                                   |     
|Commercial                                         |      | $254,498 |      | $229,012 |     
|Real estate - construction                         |      | 76,386   |      | 61,278   |     
|Real estate - mortgage                             |      | 37,627   |      | 32,705   |     
|Consumer                                           |      | 70,845   |      | 70,435   |     
|                                                   |      |         
|Total                                              |      | $439,356 |      | $393,430 |     
|                                                   |      |         

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, Oakland
and Livingston counties within southeast Michigan and Kent and Ottawa counties in
western Michigan. The ability of the Corporations debtors to honor their contracts
is dependent upon the real estate and general economic conditions in the areas.

# TABLE 7Maturities of the Loan
Portfolio by Loan Type

|December 31, 2005 
(000's omitted) | Within  
   One   
 Year | One- 
 Five 
Years | After
  Five
 Years | Total   
|---------------------------------- | ------------------------ | ------------------ | ------------------- | --------
|                                   |                          |                    |                     |         
|Commercial                         |                          | $  67,192          |                     | $168,228
|Real estate - construction         |                          | 69,047             |                     | 5,607   
|Real estate - mortgage             |                          | 18,201             |                     | 9,820   
|Consumer                           |                          | 9,760              |                     | 35,662  
|                                   |                          |                    |                     |         
|                                   |                          | $164,200           |                     | $219,317
|                                   |                          |                    |                     |         

47.

---



# TABLE 8 Maturities of the Loan Portfolio
by Rate Categories

|December 31, 2005 
(000's omitted) | Within 
  One   
Year | One- 
   Five 
Years | After
  Five
Years | Total   
|---------------------------------- | --------------------- | -------------------- | ------------------ | --------
|                                   |                       |                      |                    |         
|Loans:                             |                       |                      |                    |         
|Fixed Rate                         |                       | $  45,617            |                    | $143,344
|Variable Rate                      |                       | 118,572              |                    | 75,972  
|                                   |                       |                      |                    |         
|                                   |                       | $164,200             |                    | $219,317
|                                   |                       |                      |                    |         

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.

The Corporation closely monitors its
construction and commercial mortgage loan portfolios. Construction loans at December 31,
2005, which comprised 17.4% of total loans, totaled $76,386,000 as compared to $61,278,000
and $32,913,000 at the end of 2004 and 2003, 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, 2001 through 2005. Non-performing assets increased
at December 31, 2005 as compared to 2004. Other Real Estate Owned increased $292,000 in
2005, however, Other Real Estate In Redemption decreased by $856,000, which had one
residential property that comprised $727,000 of the $856,000 balance at the end of the
year in 2004. The majority of the properties are commercial and marketability is dependent
on the real estate market. One single-family residential property comprises $500,000 of
the outstanding balance at the end of 2005. Non-performing loans increased as compared to
December 31, 2004. Renegotiated loans were increased significantly due to the restructure
of two SBA guaranteed loans. Non-accrual loans and loans past due over 90 days and still
accruing interest increased during this period. This increase was due to two commercial
credits being nonaccrual in one of the subsidiary banks.

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.

48.

---



# TABLE 9Non-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 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 10Allocation of the
Allowance for Loan Losses

|                     | 2005 | 2004   | 2003 | 2002   | 2001
|-------------------- | ---- | ------ | ---- | ------ | ----
|
|                     |     
|Commercial and       |      | $5,339 |      | 75.31  | %   
|construction         |     
|Real estate mortgage |      | 263    |      | 8.56   | %   
|Consumer             |      | 593    |      | 16.13  | %   
|Unallocated          |      | 106    |      |        |     
|                     |      |       
|Total                |      | $6,301 |      | 100.00 | %   
|                     |      |       

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

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

49.

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At December 31, 2005, loans
considered to be impaired totaled $3,806,000. Specific allowances totaling $684,000 is
required for $2,714,000 in loan balances the remaining impaired loans do not require
specific reserves. The average recorded investment in impaired loans was $3,655,000 in
2005. The interest income recognized on impaired loans based on cash collections totaled
$293,000 during 2005.

At December 31, 2004, loans
considered to be impaired totaled $3,504,000. A specific allowance is required for all
except for a $139,000 loan. The average recorded investment in impaired loans was
$4,303,000 in 2004. The interest income recognized on impaired loans based on cash
collections totaled $192,000 during 2004.

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.

# DEPOSITS TABLE 11Average Deposits

|Years Ended December 31, | 2005 | 2004 | 2003 | 2002    | 2001
|------------------------ | ---- | ---- | ---- | ------- | ----
|                         |      |      |      |         |     
|                        
|Non-int. bearing demand  |      |      | $    | 81,471  |     
|Interest-bearing demand  |      |      |      | 111,670 |     
|Savings                  |      |      |      | 125,031 |     
|Time                     |      |      |      | 183,048 |     
|                         |     
|Total                    |      |      | $    | 501,220 |     
|                         |     

The Corporations average
deposit balances and rates for the past five years are summarized in Table 11. Total
average deposits were 8.77% higher in 2005 as compared to 2004. Deposit growth was
primarily in non-interest bearing demand, interest bearing demand and time deposit
accounts. Interest-bearing demand deposits comprised 22.3% of total deposits, savings
deposits comprised 24.9% of total deposits, and time deposits comprised 36.5% of total
deposits.

As of December 31, 2005 certificates
of deposit of $100,000 or more accounted for approximately 21.9% of total deposits
compared to 10.4% at December 31, 2004. The maturities of these deposits are summarized in
Table 12.

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

|(000's omitted)                | December 31,2005 | December 31,2004
|------------------------------ | ---------------- | ----------------
|                               |                 
|Three months or less           |                  | $  44,097       
|Over three through six months  |                  | 18,470          
|Over six through twelve months |                  | 24,280          
|Over twelve months             |                  | 28,605          
|                               |                  |                 
|Total                          |                  | $115,452        
|                               |                  |                 

Repurchase agreements are secured by
mortgage-backed securities held by a third party trustee with a carrying amount of $13.9
million at year-end 2005. These agreements are fixed rate financing arrangements that
mature in 2007 ($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.

50.

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FEDERAL INCOME TAXES
The Corporations effective tax
rate was 30.5% for 2005, 27.4% for 2004 and 25.8% for 2003. 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. The increase between 2005 and 2004 is due to the federal income tax
assessed on bank owned life insurance policies surrendered on former employees during
2005. Additional information relating to federal income taxes is included in Note 8 to the
Consolidated Financial Statements.

LIQUIDITY AND INTEREST
RATE RISK MANAGEMENTAsset/Liability management is
designed to assure liquidity and reduce interest rate risks. The goal in managing interest
rate risk is to maintain a strong and relatively stable net interest margin. It is the
responsibility of the Asset/Liability Management Committee (ALCO) to set policy
guidelines and to establish short-term and long-term strategies with respect to interest
rate exposure and liquidity. The ALCO, which is comprised of key members of senior
management, meets regularly to review financial performance and soundness, including
interest rate risk and liquidity exposure in relation to present and prospective markets,
business conditions, and product lines. Accordingly, the committee adopts funding and
balance sheet management strategies that are intended to maintain earnings, liquidity, and
growth rates consistent with policy and prudent business standards. Liquidity maintenance,
together with a solid capital base and strong earnings performance are key objectives of
the Corporation. The Corporations liquidity is derived from a strong deposit base
comprised of individual and business deposits. 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 2005, 2004, and
2003. 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, 2005 federal funds sold represented 1.6% of total assets, compared to 0.8% at
the end of 2004. 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 demand and savings deposits
and decrease of borrowings. In 2005, these deposits increased $36,989,000 and these
borrowings decreased $3,018,000. Cash used by investing activities was $35,686,000 in 2005
compared to cash used of $23,459,000 in 2004. The change in investing activities was due
to the increase in the origination of loans in 2005 compared to 2004 and not as many
securities purchases in 2005 compared with 2004.

51.

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

|Table 13              | Total | Less than 1year | 1-3 years | 3-5 years | More than5 years
|--------------------- | ----- | --------------- | --------- | --------- | ----------------
|Time Deposits         |       | $223,123        |           | $153,404  |                 
|Short-term borrowings |       | 1,537           |           | 1,537     |                 
|FHLB advances         |       | 14,228          |           | 5,176     |                 
|Repurchase agreements |       | 10,000          |           | -         |                 
|Subordinated debt     |       | 14,000          |           | -         |                 
|Operating leases      |       | 478             |           | 244       |                 
|                      |       |                 |           |           |                 
|Total                 |       | $263,366        |           | $179,892  |                 
|                      |       |                 |           |           |                 

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, 2005, the Corporation was
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
9.1% to $46,895,000 at December 31, 2005, compared with $42,969,000 at December 31, 2004.
The Corporations equity to asset ratio was 7.6% at December 31, 2005, compared to
7.3% at December 31, 2005. The decrease in this ratio was primarily due to the acquisition
of West Michigan Community Bank. The increase in equity in 2005 resulted from a stock offering and
retained earnings (net income in excess of dividends). In 2005, the
Corporation paid $0.97 per share in dividends, compared to $0.92 paid in 2004.

At December 31, 2005, the
Corporations tier 1 and total risk-based capital ratios were 10.6% and 11.9%,
respectively, compared with 10.2% and 11.4% in 2004. The decrease in the risk-based
capital ratios was largely due to the purchase of West Michigan Financial Corporation in
March of 2004. The Corporations tier 1 leverage ratio was 8.9% at December 31, 2005
compared with 8.7% at December 31, 2004. This decrease in the leverage ratio was due to
the purchase of West Michigan Financial Corporation.

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

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

52.

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The allowance for loan and lease
losses is increased through a provision charged to operating expense. Uncollectible loans
and leases are charged-off through the allowance for loan and lease losses. Recoveries of
loans and leases previously charged-off are added to the allowance for loan and lease
losses. A loan is considered impaired when it is probable that contractual interest and
principal payments will not be collected either for the amounts or by the dates as
scheduled in the loan agreement. Our policy for recognizing income on impaired loans is to
accrue interest unless a loan is placed on nonaccrual status.

OFF-BALANCE-SHEET
ITEMSSome 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. Amount of
commitments are included in Note 13 to the consolidated financial statements.

QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISKFentura 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 2005, 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 2005 compared to 2004.

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,
2005. 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.

53.

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# TABLE 14

Rate Sensitivity of
Financial Instruments

|(000's omitted)                   | 2006 | 2007       | 2008 | 2009     | 2010 | Thereafter | Total | Fair Value
|--------------------------------- | ---- | ---------- | ---- | -------- | ---- | ---------- | ----- | ----------
|                                 
|Rate Sensitive Assets:            |      |            |      |          |      |            |       |           
|Fixed interest rate loans         |      | $  45,628  |      | $ 35,666 |      | $35,365    |       | $34,015   
|Average interest rate             |      | 6.66%      |      | 6.76%    |      | 6.71%      |       | 6.53%     
|Variable interest rate loans      |      | $118,583   |      | $ 17,876 |      | $21,138    |       | $17,867   
|Average interest rate             |      | 8.21%      |      | 7.58%    |      | 7.51%      |       | 7.41%     
|Fixed interest rate securities    |      | $  25,443  |      | $  9,035 |      | $  7,592   |       | $12,068   
|Average interest rate             |      | 4.44%      |      | 4.87%    |      | 4.08%      |       | 5.37%     
|Variable Interest rate securities |      | $  18,063  |      | $  2,550 |      | $10,142    |       | $     679 
|Average interest rate             |      | 2.95%      |      | 3.40%    |      | 3.60%      |       | 3.71%     
|FHLB Stock                        |      | $    2,300 |      |          |      |            |       |           
|Average interest rate             |      | 4.40%      |      |          |      |            |       |           
|Other interest bearing assets     |      | $    9,750 |      |          |      |            |       |           
|Average interest rate             |      | 4.00%      |      |          |      |            |       |           
|                                  |     
|Rate Sensitive Liabilities:       |     
|Interest-bearing checking         |      | $118,445   |      |          |      |            |       |           
|Average interest rate             |      | 1.83%      |      |          |      |            |       |           
|Savings                           |      | $109,694   |      |          |      |            |       |           
|Average interest rate             |      | 0.57%      |      |          |      |            |       |           
|Time                              |      | $153,296   |      | $36,497  |      | $13,495    |       | $10,763   
|Average interest rate             |      | 3.67%      |      | 4.12%    |      | 3.68%      |       | 4.05%     
|Short term borrowings             |      | $    1,536 |      |          |      |            |       |           
|Average interest rate             |      | 1.25%      |      |          |      |            |       |           
|FHLB advances                     |      | $    5,171 |      | $  3,015 |      | $  1,015   |       | $       15
|Average interest rate             |      | 4.00%      |      | 3.60%    |      | 4.50%      |       | 7.34%     
|Repurchase agreements             |      |            |      | $  5,000 |      | $  5,000   |       |           
|Average interest rate             |      |            |      | 4.00%    |      | 2.60%      |       |           
|Subordinated debt                 |      |            |      |          |      | $12,000    |       |           
|Average interest rate             |      |            |      |          |      | 4.20%      |       |           

INTEREST RATE
SENSITIVITY MANAGEMENTInterest 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, 2005, 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.

54.

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|TABLE 15 | Gap Analysis December 31, 2005 | 
|-------- | ------------------------------ | 

|(000's Omitted)                     | Within 
   Three 
  Months | Three   
Months-  
One Year | One to  
  Five   
  Years | After
  Five
 Years | Total
|----------------------------------- | -------------------------- | --------------------------- | -------------------------- | ------------------- | -----
|                                    |                           
|Federal Funds Sold                  |                            | $     9,750                 |                            | $            0      |      
|Securities                          |                            | 16,910                      |                            | 18,841              |      
|Loans                               |                            | 54,229                      |                            | 109,984             |      
|Loans Held for Sale                 |                            | 1,042                       |                            | 0                   |      
|FHLB Stock                          |                            | 2,300                       |                            | 0                   |      
|                                    |                            |                            
|Total Earning Assets                |                            | $   84,231                  |                            | $ 128,825           |      
|                                    |                            |                            
|Interest Bearing Liabilities:       |                           
|Interest Bearing Demand Deposits    |                            | $ 118,445                   |                            | $            0      |      
|Savings Deposits                    |                            | 109,694                     |                            | 0                   |      
|Time Deposits Less than $100,000    |                            | 18,628                      |                            | 47,841              |      
|Time Deposits Greater than $100,000 |                            | 44,097                      |                            | 42,751              |      
|Short-term Borrowings               |                            | 1,537                       |                            | 0                   |      
|FHLB Advances                       |                            | 4,000                       |                            | 1,015               |      
|Repurchase Agreements               |                            | 0                           |                            | 0                   |      
|Subordinated Debt                   |                            | 0                           |                            | 0                   |      
|                                    |                            |                            
|Total Interest Bearing Liabilities  |                            | $ 296,401                   |                            | $   91,607          |      
|                                    |                            |                            
|Interest Rate Sensitivity GAP       |                            | ($212,170                   | )                          | $   37,218          |      
|Cumulative Interest Rate            |                           
|Sensitivity GAP                     |                            | ($212,169                   | )                          | ($174,951           | )    
|Interest Rate Sensitivity GAP       |                            | 0.28                        |                            | 1.41                |      
|Cumulative Interest Rate            |                           
|Sensitivity GAP Ratio               |                            | 0.28                        |                            | 0.55                |      

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 2005. The
Corporations gap position was negative and there was an increase in market interest
rates; yet net interest income increased and the net interest margin ratio increased. In
2005, with the Corporation being in a negative gap position, net interest income should in
theory decrease if rates rose. What occurred, however, was rates increased on the asset
side and the Corporation lagged the market, generating more net interest income and
increasing the net interest margin ratio in 2005. 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. For example certain asset products re-priced upward 1.25% with the upward
movement of national prime rates in the last part of 2005 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 expects to
continue to make strides in managing interest rate sensitivity.

55.

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ACCOUNTING AND
REPORTING DEVELOPMENTSFAS 123, Revised requires all public
companies to record compensation cost for stock options provided to employees in return
for employee service. The cost is measured at the fair value of the options when granted,
and this cost is expensed over the employee service period, which is normally the vesting
period of the options. This will apply to awards granted or modified after January 1,
2006. Compensation cost will also be recorded for prior option grants that vest after this
date. The effect on results of operations will depend on the level of future option grants
and the calculation of the fair value of the options granted at such future date, as well
as the vesting periods provided, and so cannot be predicted. The application of this
standard is expected to result in additional compensation expense of approximately $3,500
during 2006 for options that have already been granted but which will not vest until after
January 1, 2006. There will be no significant effect on financial position, as total
equity will not change.

SOP 03-3 requires that a valuation
allowance for loans acquired in a transfer, including in a business combination, reflect
only losses incurred after acquisition and should not be recorded at acquisition. It
applies to any loan acquired in a transfer that showed evidence of credit quality
deterioration since it was made.

The effect of these other new
standards on the Corporations financial position and results of operations is not
expected to be material.

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

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

FENTURA FINANCIAL,
INC. COMMON STOCKTable 16 sets forth the high and low
market information for each quarter of 2003 through 2005. These quotations reflect
inter-dealer prices, without retail mark-up, markdown, or commission and may not represent
actual transactions. As of February 1, 2006, there were 921 shareholders of record, not
including participants in the Corporations employee stock option program.

56.

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# TABLE 16 Common Stock Data

|     |  | MarketInformation | DividendsPaid
|---- |  | ----------------- | -------------
|
|
|     |  | First Quarter     |              
|2003 |  | Second Quarter    |              
|     |  | Third Quarter     |              
|     |  | Fourth Quarter    |              
|     |  | First Quarter     |              
|2004 |  | Second Quarter    |              
|     |  | Third Quarter     |              
|     |  | Fourth Quarter    |              
|     |  | First Quarter     |              
|2005 |  | Second Quarter    |              
|     |  | Third Quarter     |              
|     |  | Fourth Quarter    |              

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

57.