# EXHIBIT 10.12

# SEVERANCE COMPENSATION
AGREEMENT

THIS
SEVERANCE COMPENSATION AGREEMENT (the Agreement), has been made on
March 9, 2006 by FENTURA FINANCIAL, INC., a Michigan corporation (the
Company), THE STATE BANK, (the Bank) and DENNIS E.
LEYDER, an individual (the Executive).

# BACKGROUND STATEMENT:

The
Executive is a principal officer of the Bank and the Company and his continued services
are important to the Bank, its depositors and customers, and the Companys
shareholders. The Bank and the Company believe it is in their best interests that the
Executive continue to render services to the Bank and the Company if a Change of Control
is threatened or occurs, free from the distractions and vexations which might result if
his personal economic security is made uncertain as a result of an impending Change of
Control.

| | 1. | Definitions. The following words and phrases have the following meanings:
| | -- | -------------------------------------------------------------------------

| | a) | Cause means (i) the willful and continuing failure by
               the Executive to substantially perform his duties with the Bank or the Company
               (other than any such failure resulting from the Executives death or
               Disability) and which is not remedied in a reasonable period of time after
               receipt by Executive of written notice from the Bank specifying the duties the
               Executive has failed to perform, or (ii) the willful and continued engaging
               by Executive in gross misconduct that is materially injurious to the Bank or the
               Company and which is not ceased within a reasonable period of time after receipt
               by Executive of written notice from the Bank specifying the misconduct and the
               injury, or (iii) an adjudication of the Executives guilt of any crime
               involving a serious and substantial breach of the Executives fiduciary
               duties to the Bank. No act or failure to act on the Executives part shall
               be considered willful unless done, or omitted to be done, by him in
               bad faith and without reasonable belief that his action or omission was in the
               best interest of the Bank or the Company.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | Change in Control means (i) the acquisition, directly,
               indirectly and/or beneficially, by any person or group, of more than fifty
               percent (50%) of the voting securities of the Company or the Bank,
               (ii) the occurrence of any event at any time during any two (2) year
               period which results in a majority of the Board of Directors of the Company or
               the Bank being comprised of individuals who were not members of such Board at
               the commencement of that two (2) year period (the Incumbent
               Board); provided, however, that any individual becoming a director
               subsequent to the date hereof whose election, or nomination for election by the
               Companys or the Banks shareholders, was approved by a vote of at
               least a majority of the directors then comprising the Incumbent Board shall be
               considered as though such individual were a member of the Incumbent Board, but
               excluding for this purpose any such individual whose initial assumption of the
               office occurs as a result of an actual or threatened election contest with
               respect to the election or removal of directors or other actual or threatened
               solicitation of proxies or consents by or on behalf of a person other than the
               Incumbent Board, (iii) a sale of all or substantially all of the assets of
               the Company or the Bank to another entity, or (iv) a merger or
               reorganization of the Company or the Bank with another entity.
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| | c) | Compensation means with respect to the period under
               consideration, the aggregate of all amounts paid by the Company and the Bank to
               and includable in the Executives earnings as base salary, bonuses,
               commissions, fees and any other compensation, but excluding contributions made
               to any welfare and pension benefit plans by the Bank and/or Company at its or
               their sole expense.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d) | Disability means any physical or mental impairment which
               meets the definition of disability found in the long-term or short-term
               disability policy insuring the Executive at the time disability is alleged or if
               no such policy is in effect at that time, any physical or mental impairment
               that, on the basis of qualified medical opinion of three (3) medical
               doctors, has rendered Executive wholly and permanently unable to engage in the
               regular and continuous occupation or employment for remuneration or profit of a
               nature similar to his employment with the Bank for a period of six
               (6) consecutive months or more.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | e) | Good Reason means any of the following, as determined by the
               Executive in his discretion: (i) the assignment to the Executive by the
               Bank or the Company of any duties inconsistent with his position, duties,
               responsibilities and status with the Bank or the Company immediately prior to a
               Change in Control, or a change adverse to Executive in Executives
               reporting responsibilities, titles, terms of employment (including bonus,
               compensation, fringe benefits and vacation entitlement) or offices as in
               effect immediately prior to a Change in Control; or (ii) the Bank or the
               Company requiring Executive to be based anywhere other than within fifteen
               (15) miles of his present office location, or to travel on business of the
               Bank to an extent substantially greater than Executives present business
               travel obligations; or (iii) the failure by the Company to obtain the
               assumption of this Agreement as contemplated in Section 6 hereof. If any of
               the foregoing result from, or follow, a termination of employment for Cause,
               then Good Reason will not have occurred.
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| | 2. | Income Protection Benefits. If the Executive is an employee of the Bank
               or the Company when a Change in Control occurs, and the Executives
               employment is thereafter terminated without Cause either by the Bank or the
               Company, or by the Executive for Good Reason, or by any party because of the
               Executives death or Disability, then:
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| | a) | The Company and the Bank shall pay to the Executive, in a lump sum in cash
               within 30 days after the date of termination of employment the aggregate of the
               following amounts:
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| | i) | that portion of the Executives annual base salary and directors fees
                    through the date of termination not theretofore paid, and
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| | ii) | the product of (x) the sum of all commissions and bonuses of any kind paid
                    or payable to Executive in the calendar year immediately preceding the year in
                    which termination of employment occurs multiplied by (y) a fraction, the
                    numerator of which is the number of days in the current calendar year through
                    the date of termination, and the denominator of which is 365, and
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | iii) | any compensation previously deferred by the Executive (together with any accrued
                    interest or earnings thereon), and
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------

| | iv) | any accrued vacation pay.
| | --- | -------------------------

| | b) | The Executive shall have the right within 90 days following termination of
               employment to exercise any stock options awarded him prior to the termination of
               his employment.
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| | c) | The Bank and/or the Company shall thereafter pay to the Executive an annual
               amount equal to 50% of the highest amount of the Executives annual
               Compensation in the five calendar years immediately preceding Executives
               termination for a period of 2 years from and after the Executives
               termination of employment, payable in equal monthly installments commencing the
               first day of the month coinciding with or immediately following the
               Executives termination of employment. If the Executive dies after the
               Banks and the Companys obligation to make these payments is
               triggered, the Bank and the Company shall thereafter pay to the Executives
               Beneficiary a lump sum amount equal to the present value of the unpaid monthly
               installments, discounted using a ten percent (10%) per annum interest rate.
               In lieu of the foregoing installments, the Executive may elect by written notice
               to the Bank within ninety (90) days of the Executives termination of
               employment to receive a lump sum amount equal to the present value of the
               monthly installments, discounted by using a ten percent (10%) per annum
               interest rate.
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| | d) | The Bank and/or the Company shall provide to the Executive, at its expense,
               hospital and medical insurance coverage of the same or equivalent scope as he
               was covered by immediately prior to termination of his employment for a period
               of 2 years after the Executives termination of employment.
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| | 3. | Maximum Benefits Upon Change of Control. If the Banks usual
               certified public accountants determine that any payment by the Bank or the
               Company to or for the benefit of the Executive (whether paid or payable pursuant
               to the terms of this Agreement or otherwise) (the
               Payment) would be nondeductible by the Bank or the Company for
               Federal Income Tax purposes because of Section 280G of the Internal Revenue
               Code of 1986, as amended (the Code), then the aggregate present value of
               amounts payable to or for the benefit of the Executive pursuant to this
               Agreement (the Agreement Payments) shall be reduced (but not
               below zero) to the Reduced Amount. The Reduced Amount means an
               amount expressed in present value, determined in accordance with
               Section 280G(d)(4) of the Code, which maximizes the present value of
               all Agreement Payments without causing any Payment to be nondeductible by the
               Bank or the Company because of Section 280G of the Code.
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| | 4. | Term. Unless earlier terminated by mutual agreement of the Company and
               the Executive, this Agreement shall terminate upon the earliest of (a) the
               termination of the Executives employment with the Bank and the Company for
               any reason prior to a Change in Control; or (b) five (5) years from
               the date of a Change in Control. Obligations under Section 2 of this Agreement
               created prior to termination shall survive termination.
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| | 5. | Termination Prior To Change in Control. Notwithstanding anything in this
               agreement to the contrary, if a Change of Control occurs and (i) if the
               Executives employment with the Company or the Bank is terminated prior to
               the date on which Change of Control occurs, and if the termination of employment
               (a) was at the request or suggestion of a 3rd party who has taken steps
               reasonably calculated to effect the Change of Control or (b) otherwise
               arose in connection with or in anticipation of the Change of Control, or
               (ii) Executive has terminated his employment with Company and/or Bank for
               Good Reason prior to Change of Control, then Executive shall be entitled to the
               Income Protection Benefits and all other rights and privileges provided by this
               Agreement.
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| | 6. | Successors, Binding Agreements.
| | -- | -------------------------------

| | a) | Any purchaser, successor or assign (whether direct or indirect), to or of all,
               substantially all, or any material part of the business, properties and assets
               of the Bank and/or the Company shall be bound by the terms of this Agreement,
               and the Bank and the Company shall require any such purchaser, successor or
               assign, by agreement in form and substance satisfactory to Executive, expressly,
               absolutely and unconditionally to assume and agree to perform this Agreement in
               the same manner and to the same extent that the Bank and the Company would be
               required to perform if no such succession or assignment had taken place.
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| | b) | The Bank and the Company each hereby guarantee the timely payment and
               performance, when due, of the others obligations under this Agreement.
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| | c) | This Agreement shall inure to the benefit of and be enforceable by the
               Executives personal and legal representatives, executives, administrators,
               successors, heirs, distributees, devisees and legatees.
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| | 7. | Notices. Notices under this Agreement shall be in writing and shall be
               deemed given when hand delivered or three (3) days after being mailed by
               United States registered or certified mail, return receipt requested, postage
               prepaid, as follows:
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| | If to the Company   
or the Bank:        
If to the Executive: | Fentura Financial, Inc.
175 N. Leroy St.
PO Box 725
Fenton, MI 48430-0725
Mr. Dennis E. Leyder
16184 Pine Lake Forest Drive
Linden, MI  48451
| | -------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------

| | or
to such other address as either party may designate.
| | -------------------------------------------------------

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| | 8. | At Will Preserved. This Agreement is intended only to provide an economic
               benefit for Executive if his employment with the Bank or the Company is
               terminated under the circumstances described herein. Even though this economic
               benefit may be payable, Executives employment with the Bank and the
               Company shall continue to be at will, and the Bank, the Company or
               the Executive may terminate Executives employment with the Bank or the
               Company at any time, with or without cause. Further, the existence of this
               Agreement and the economic benefits herein provided shall not contradict,
               override, supersede or in any way detract from or affect the at will
               employment status of any other employee of the Bank or the Company. The
               employment terms set forth in the Banks employee handbook or employee
               manual, as they may be in effect from time to time, shall control.
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| | 9. | Miscellaneous.
| | -- | --------------

| | a) | Modification; Waiver. This Agreement may be modified, waived or
               discharged only in, and limited to the extent specifically set forth in, a
               written document signed by the Executive and the Company.
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| | b) | Validity. The invalidity or unenforceability of any provision of this
               Agreement shall not affect the validity or enforceability of any other provision
               of this Agreement, which shall remain in full force and effect.
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| | c) | Governing Law. This Agreement shall be governed in all respects according
               to the laws of the State of Michigan.
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| |  | COMPANY:FENTURA FINANCIAL, INC.,a Michigan corporation
By   /s/ Forrest A. Shook
        
        Forrest A. Shook, Chairman
| |  | ------------------------------------------------------------------------------------------------------------------------------------------

| |  | BANK:THE STATE BANK
By   /s/ Brian P. Petty
        
        Brian P. Petty, Chairman
| |  | ---------------------------------------------------------------------------------------------------

| |  | EXECUTIVE:
        /s/ Dennis E. Leyder
        
        Dennis E. Leyder
| |  | ---------------------------------------------------------------------------------------

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