# UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

|[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
|--- | --------------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2003
OR

|[   ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
|----- | ---------------------------------------------------------------------

For the transition period from _______________ to _______________
Commission file number 0-23550Fentura Financial, Inc.
-----------------------------------------------------------------------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

|Michigan
-------------------------
(State or other jurisdiction of
incorporation or organization) | 38-2806518
-------------------------
(IRS Employer Identification No.)
|------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------

One Fenton Sq, P.O. Box 725, Fenton, Michigan 48430
(Address of Principal Executive Offices)(810) 629-2263
(Registrant's telephone number)

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X      Yes           ___      No

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

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable
date: August 1, 2003
Class - Common Stock                 Shares Outstanding - 1,710,408



---



# Fentura
Financial, Inc.Index to Form 10-Q

|                               |                                                                                                                                                                                                                                                               | Page             
|------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------
|Part I - Financial Information |                                                                                                                                                                                                                                                              
|                               | Item 1 - Consolidated Financial Statements (Unaudited)                                                                                                                                                                                                        | 3                
|                               | Item 2 - Management's Discussion and Analysis of          
                  Financial Condition and Results of Operations        
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
Item 4 - Controls and Procedures                       | 10
20
22         
|Part II - Other Information    | 23                                                                                                                                                                                                                                                           
|                               | Item 1 - Legal Proceedings 
Item 2 - Changes in Securities and Use of Proceeds
Item 3 - Defaults Upon Senior Securities 
Item 4 - Submission of Matters to a Vote of Securities Holders
Item 5 - Other Information 
Item 6 - Exhibits and Reports on Form 8-K | 23
23
23
23
23
23
|Signatures 
Exhibit Index      | 24
25                                                                                                                                                                                                                                                        

2

---



# PART I -
FINANCIAL INFORMATION

## Item 1.
Consolidated Financial Statements

Fentura Financial, Inc.
  Consolidated Balance Sheets

`----------------------------------------------------------------------------------------------------
                                                                        JUNE 30,        DEC 31,
(000's omitted Except share data)                                         2003           2002
                                                                      (unaudited)
----------------------------------------------------------------------------------------------------
ASSETS
   Cash and due from banks                                                $21,373        $20,262
   Federal funds sold                                                      33,050         10,300
                                                                     -------------------------------
     Total cash & cash equivalents                                         54,423         30,562
   Securities-available for sale                                           74,311         48,981
   Securities-held to maturity, (market value of $13,418
      at June 30, 2003 and $14,051 at December 31, 2002)                   12,940         13,722
                                                                     -------------------------------
       Total securities                                                    87,251         62,703
   Loans held for sale                                                      3,434          5,509
   Loans:
     Commercial                                                           135,631        129,562
     Real estate loans - mortgage                                          15,086         11,944
     Real estate loans - construction                                      28,984         27,032
     Consumer loans                                                        53,775         55,683
                                                                     -------------------------------
   Total loans                                                            233,476        224,221
   Less: Allowance for loan losses                                         (3,065)        (3,184)
                                                                     -------------------------------
   Net loans                                                              230,411        221,037
   Bank Owned Life Insurance                                                6,348          6,234
   Bank premises and equipment                                              9,477          9,754
   Federal Home Loan Bank stock                                               833            822
   Accrued interest receivable                                              1,567          1,595
   Other assets                                                             3,233          2,267
                                                                     -------------------------------
     Total assets                                                        $396,977       $340,483
                                                                     ===============================


LIABILITIES
   Deposits:
     Non-interest bearing deposits                                        $55,944        $44,875
     Interest bearing deposits                                            283,287        250,994
                                                                     -------------------------------
       Total deposits                                                     339,231        295,869
   Borrowings                                                               1,533          1,500
   Federal Home Loan Bank Advances                                          1,108          1,124
   Repurchase Agreements                                                   12,500              0
   Accrued taxes, interest and other liabilities                            2,489          2,062
                                                                     -------------------------------
       Total liabilities                                                  356,861        300,555
                                                                     -------------------------------
SHAREHOLDERS' EQUITY
   Common stock - no par value
   1,708,537 shares issued (1,722,126 in Dec. 2002)                        29,779         30,236
   Retained earnings                                                        9,939          9,395
   Accumulated other comprehensive income                                     398            297
                                                                     -------------------------------
     Total shareholders' equity                                            40,116         39,928
                                                                     -------------------------------
       Total Liabilities and Shareholders' Equity                        $396,977       $340,483
                                                                     ===============================`

See notes to consolidated financial
statements.

3

---



Fentura Financial, Inc.
Consolidated Statements of Income (Unaudited)

`Three Months Ended                    Six Months Ended
                                                               June 30,                             June 30,
(000's omitted except per share data)                    2003             2002               2003               2002
                                                  ---------------------------------------------------------------------------
INTEREST INCOME
   Interest and fees on loans                           $3,978            $3,974           $7,902              $7,876
   Interest and dividends on
     securities:
     Taxable                                               331               255              659                 532
     Tax-exempt                                            172               147              341                 312
   Interest on federal funds sold                           35                74               61                 145
                                                  ---------------------------------------------------------------------------
         Total interest income                           4,516             4,450            8,963               8,865

   INTEREST EXPENSE
   Deposits                                              1,293             1,352            2,589               2,884
   Borrowings                                               28                24               50                  50
                                                  ---------------------------------------------------------------------------
         Total interest expense                          1,320             1,376            2,639               2,934
                                                  ---------------------------------------------------------------------------

   NET INTEREST INCOME                                   3,197             3,074            6,324               5,931
   Provision for loan losses                               668                69              964                 102
                                                  ---------------------------------------------------------------------------
     Net interest income after
       Provision for loan losses                         2,529             3,005            5,360               5,829

   NONINTEREST INCOME
     Service charges on deposit accounts                   934               594            1,742               1,148
     Gain on sale of mortgages                             434               150              788                 292
     Trust income                                          121               144              233                 278
     Gain on sale of securities                             19                 0               31                   0
     Gain on sale of fixed assets                          201                 0              201                   0
     Other income and fees                                 344               273              633                 506
                                                  ---------------------------------------------------------------------------
       Total noninterest income                          2,053             1,161            3,628               2,224

   NONINTEREST EXPENSE
     Salaries and employee benefits                      1,762             1,606            3,598               3,314
     Occupancy                                             269               265              561                 522
     Furniture and equipment                               365               387              723                 746
     Loan and collection                                    84                50              143                  88
     Advertising and promotional                            98                58              187                 125
     Other operating expenses                              774               714            1,456               1,326
                                                  ---------------------------------------------------------------------------
       Total noninterest expense                         3,352             3,080            6,668               6,121
                                                  ---------------------------------------------------------------------------

   INCOME BEFORE TAXES                                   1,228             1,086            2,320               1,932
   Applicable income taxes                                 318               311              589                 563
                                                  ---------------------------------------------------------------------------
   NET INCOME                                             $910              $775           $1,731              $1,369
                                                  ===========================================================================

   Per share:
   Net income - basic                                    $0.53             $0.45            $1.01               $0.79
                                                         =====             =====            =====               =====
   Net income - diluted                                  $0.53             $0.45            $1.01               $0.79
                                                         =====             =====            =====               =====`

See notes to consolidated financial
statements.

4

---



Fentura Financial, Inc.
Consolidated Statements of Changes in Shareholders' Equity (Unaudited)

`Six Months                  Six Months
                                                                 Ended                       Ended

---------------------------------------------------------------------------------------------------------
                                                                June 30,                    June 30,
(000's omitted)                                                   2003                        2002
---------------------------------------------------------------------------------------------------------
COMMON STOCK
   Balance, beginning of period                                 $30,236                     $30,664
   Issuance of shares under
     Director stock purchase plan &
     Dividend reinvestment program                                  200                         111
   Repurchase stock                                                (657)                       (152)
                                                            ------------------          -----------------
   Balance, end of period                                        29,779                      30,623

RETAINED EARNINGS
   Balance, beginning of period                                   9,395                       7,677
     Net income                                                   1,731                       1,369
     Cash dividends declared                                     (1,187)                       (799)
                                                            ------------------          -----------------
   Balance, end of period                                         9,939                       8,247

ACCUMULATED OTHER COMPREHENSIVE
   INCOME (LOSS)
   Balance, beginning of period                                     297                          92
     Change in unrealized gain (loss)
     on securities, net of tax                                      101                         106
                                                            ------------------          -----------------
   Balance, end of period                                           398                         198
                                                            ------------------          -----------------
TOTAL SHAREHOLDERS' EQUITY                                      $40,116                     $39,068
                                                            ==================          =================`

See notes to consolidated financial
statements.

5

---



Fentura Financial, Inc.
Consolidated Statements of Cash Flows (Unaudited)

`Six Months Ended
                                                                              June 30,
----------------------------------------------------------------------------------------------
(000's omitted)
                                                                          2003       2002
----------------------------------------------------------------------------------------------

OPERATING ACTIVITIES:

   Net income                                                             $1,731     $1,369
   Adjustments to reconcile net income to cash
     Provided by Operating Activities:
       Depreciation and amortization                                         486        494
       Provision for loan losses                                             964        102
       Amortization (accretion) on securities                                485        243
       Loans originated for sale                                         (47,748)   (16,683)
       Proceeds from the sale of loans                                    50,611     17,093
       Gain on sale of securities                                            (31)         0
       Gain on sales of loans                                               (788)      (292)
       Net increase in bank owned life insurance                            (114)    (5,071)
       Net (increase) decrease in interest receivable & other assets        (938)      (240)
       Net increase (decrease) in interest payable & other liabilities       375        (57)
                                                                       -----------------------
Total Adjustments                                                          3,302     (4,411)
                                                                       -----------------------
Net Cash Provided By (Used In) Operating Activities                        5,033     (3,042)
                                                                       -----------------------

Cash Flows From Investing Activities:

   Proceeds from maturities of securities - HTM                            1,803      4,712
   Proceeds from maturities of securities - AFS                            2,540      3,964
   Proceeds from calls of securities - AFS                                16,962      3,700
   Proceeds from sales of securities - AFS                                10,998          0
   Purchases of securities - HTM                                          (1,030)      (945)
   Purchases of securities - AFS                                         (56,133)   (10,644)
   Net increase in loans                                                 (10,338)    (2,848)
   Capital expenditures                                                     (209)    (1,368)
                                                                       -----------------------
Net Cash Provided By (Used in) Investing Activities                      (35,407)    (3,329)

Cash Flows From Financing Activities:

   Net increase (decrease) in deposits                                    43,362      1,717
   Net increase (decrease) in borrowings                                      17       (719)
   Net increase (decrease) in repurchase agreements                       12,500          0
   Net proceeds from stock issuance and purchase                            (457)        41
   Cash dividends                                                         (1,187)      (799)
                                                                       -----------------------
Net Cash Provided By (Used In) Financing Activities                       54,235        158

NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS                      $23,861    ($6,213)

CASH AND CASH EQUIVALENTS - BEGINNING                                    $30,562    $41,838
                                                                       -----------------------
CASH AND CASH EQUIVALENTS - ENDING                                       $54,423    $35,625
                                                                       =======================

CASH PAID FOR:
   INTEREST                                                               $2,650     $2,695
   INCOME TAXES                                                             $513       $821`

See notes to consolidated financial
statements.

6

---



Fentura Financial, Inc.
Consolidated Statements of Comprehensive Income (Unaudited)

`Three Months Ended          Six Months Ended
(000's Omitted)                                               June 30,                   June 30,
                                                         2003         2002          2003          2002

Net Income                                                 $910       $1,731        $1,731        $1,369
Other comprehensive income (loss), net of tax:
   Unrealized holding gains (losses) arising
       during period                                        149          132           132           106
   Less: reclassification adjustment for
       gains included in net income                          19            0            31             0
                                                     -------------------------------------------------------
Other comprehensive income (loss)                           168          168           101           106
                                                     -------------------------------------------------------
Comprehensive income                                      1,078         $943        $1,832        $1,475
                                                     =======================================================`

Fentura Financial, Inc. Notes to Consolidated
Financial Statements (Unaudited)

# Note 1. Basis of
presentation

The consolidated financial
statements include Fentura Financial, Inc. (the Corporation) and its wholly owned
subsidiaries, The State Bank in Fenton, Michigan and Davison State Bank in Davison,
Michigan (the Banks). Intercompany transactions and balances are eliminated in
consolidation.

The accompanying unaudited
consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim financial
information and the instructions for Form  10Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes required by accounting
principles generally accepted in the United States of America for complete financial
statements. In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. Operating
results for the six months ended June 30, 2003 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2003. For further
information, refer to the consolidated financial statements and footnotes thereto included
in the Corporations annual report on Form 10-K for the year ended December 31, 2002.

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

7

---



# Note 2. Earnings per
common share

A reconciliation of the numerators
and denominators used in the computation of basic earnings per common share and diluted
earnings per common share is presented below. Earnings per common share are presented
below for the three months and six months ended June 30, 2003 and 2002:

`Three Months Ended               Six Months Ended
                                                          June 30,                        June 30,
                                                     2003           2002            2003             2002
                                                     ----           ----            ----             ----
Basic Earnings Per Common Share:
Numerator
   Net Income                                    $910,000       $775,000      $1,731,000       $1,369,000
                                                 ========       ========      ==========       ==========

Denominator
   Weighted average common shares
   Outstanding                                  1,712,611      1,733,535       1,716,066        1,735,080
                                                =========      =========       =========        =========

Basic earnings per common share                     $0.53          $0.45           $1.01            $0.79
                                                    =====          =====           =====            =====

Diluted Earnings Per Common Share:
Numerator
   Net Income                                    $910,000       $775,000      $1,731,000       $1,369,000
                                                 ========       ========      ==========       ==========

Denominator
   Weighted average common shares
   Outstanding for basic earnings per
   Common share                                 1,712,611      1,733,535       1,716,066        1,735,080

Add:  Dilutive effects of assumed
   Exercises of stock options                       6,216          4,857           6,245            4,269
                                                    -----          -----           ----             -----

   Weighted average common shares
   And dilutive potential common
   Shares outstanding                           1,718,827      1,738,392       1,722,311        1,739,349
                                                =========      =========       =========        =========

Diluted earnings per common share                   $0.53          $0.45           $1.01            $0.79
                                                    =====          =====           =====            =====`

Stock  options for 5,737 and 6,841  shares of common  stock for the three and six month  period ended June 30, 2003
and 2002 were not considered in computing diluted earnings per common share because they were not dilutive.

Note 3.  Stock Option Plans

The Nonemployee  Director Stock Option Plan grants options to nonemployee  directors to purchase the  Corporation's
common  stock on April 1 each year.  The  purchase  price of the shares is the fair market value at the date of the
grant,  and there is a three-year  vesting period before options may be exercised.  Options to acquire no more than
6,720  shares of stock may be granted  under the Plan in any  calendar  year and  options to acquire  not more than
67,200 shares in the aggregate may be outstanding at any one time.
The Employee Stock Option Plan grants options to eligible  employees to purchase the Corporation's  common stock at
or  above,  the fair  market  value of the  stock at the date of the  grant.  Awards  granted  under  this plan are
limited  to an  aggregate  of 72,000  shares.  The  administrator  of the plan is a  committee  of  directors.  The
administrator  has the power to determine  the number of options to be granted,  the exercise  price of the options
and other  terms of the  options,  subject  to  consistency  with the terms of the plan.  Options  covering  13,250
shares were granted under this Plan on June 26, 2003.

8

---



The following table summarizes stock option activity:

`Number of                 Weighted
                                                                 Options                Average Price
                                                                 -------                -------------

     Options outstanding at December 31, 2001                     22,583                    $25.89
     Options granted 2002                                          2,947                     26.50
     Options forfeited 2002                                       (2,760)                    29.36
                                                                ---------
     Options outstanding at December 31, 2002                     22,770                     26.21
     Options granted 2003                                         13,250                     34.25
                                                                --------
     Options outstanding at June 30, 2003                         36,020                    $28.96
                                                                ========`

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):

`Three Months Ended June 30,                  Six Months Ended June 30,
                                    2003               2002                  2003                      2002
                                    ----               ----                  ----                      ----
     Net Income
          As reported              $  910             $  775                $1,731                    $1,369
          Proforma                    893                761                 1,705                     1,353

     Basic  net  income  per
          share
          As reported                0.53               0.45                  1.01                      0.79
          Proforma                   0.52               0.44                  0.99                      0.78

     Diluted  net income per
          share
          As reported                0.53               0.45                  1.01                      0.79
          Proforma                   0.52               0.44                  0.99                      0.78`

Proforma net income includes
compensation cost for the Corporations stock option plan based on the fair values of
the grants as of the dates of the awards consistent with the method prescribed by SFAS
123. The fair value of each option grant is estimated using the Black-Scholes
option-pricing model. Assumptions used in the model for options granted during 2003 were
as follows: an expected life of 6 years, a dividend yield of 3.8%, a risk free return of
3.77% and expected volatility of 31%. Assumptions used in the model for options granted
during 2002 were as follows: an expected life of 6 years, a dividend yield of 3.8%, a risk
free return of 4.62% and expected volatility of 31%.

# Note 4. Commitments and
contingencies

There are various contingent
liabilities that are not reflected in the financial statements including claims and legal
actions arising in the ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these matters is not expected
to have a material effect on the Corporations consolidated financial condition or
results of operations.

9

---



# Item 2 
Managements Discussion and Analysis of Financial Condition and Results of Operations

# Results of Operations

Certain of the Corporations
accounting policies are important to the portrayal of the Corporations financial
condition, since they require management to make difficult, complex or subjective
judgments, some of which may relate to matters that are inherently uncertain. Estimates
associated with these policies are susceptible to material changes as a result of changes
in facts and circumstances. Facts and circumstances, which could affect these judgments
include, but without limitation, changes in interest rates, in the performance of the
economy or in the financial condition of borrowers. Management believes that its critical
accounting policies include determining the allowance for loan losses, determining the
fair value of securities and other financial instruments and the valuation of mortgage
servicing rights.

As indicated in the income
statement, earnings for the six months ended June 30, 2003 were $1,731,000 compared to
$1,369,000 for the same period in 2002. Net income for the second quarter of 2003 was
$910,000 compared to $775,000 for the same period in 2002. Earnings increased as a result
of an increase in non-interest income and an increase in net interest income. The
Corporation continues to focus on core banking activities and new opportunities in current
and surrounding markets. Management believes that the softening of the economy that began
in 2001 and projected economic uncertainty may continue to place pressure on net interest
income and asset quality.

The banking industry uses standard
performance indicators to help evaluate a banking institutions performance. Return
on average assets is one of these indicators. For the six months ended June 30, 2003 the
Corporations return on average assets (annualized) was 1.01% compared to 0.90% for
the same period in 2002. Net income per share  basic and diluted was $1.01 in the
first six months of 2003 compared to $0.79 for net income per share  basic and
diluted for the same period in 2002. Net income per share  basic and diluted was
$0.53 in the second quarter 2003 compared to $0.45 for net income per share  basic
and diluted for the same period in 2002.

# Net Interest Income

Net interest income and average
balances and yields on major categories of interest-earning assets and interest-bearing
liabilities for the three months ended June 30, 2003 and 2002 are summarized in Table
3.and for the six months ended June 30, 2003 and 2002 are summarized in Table 2. The
effects of changes in average interest rates and average balances are detailed in Table 1
below.

# Table 1

`SIX MONTHS ENDED
                                                           JUNE 30,
                                                    2003 COMPARED TO 2002
                                                     INCREASE (DECREASE)
                                                           DUE TO:
                                             -------------------------------------
                                                            YIELD/
(000'S OMITTED)                                  VOL         RATE        TOTAL
----------------------------------------------------------------------------------
TAXABLE SECURITIES                               $501       ($378)        $123
TAX-EXEMPT SECURITIES                             124         (74)          50
FEDERAL FUNDS SOLD                                (56)        (28)         (84)

TOTAL LOANS                                       549        (563)         (14)
LOANS HELD FOR SALE                                35          23           58
                                             -------------------------------------

   TOTAL EARNING ASSETS                         1,153      (1,020)         133


INTEREST BEARING DEMAND DEPOSITS                   38         (56)         (18)
SAVINGS DEPOSITS                                  125        (141)         (16)
TIME CD'S $100,000 AND OVER                       202         (94)         108
OTHER TIME DEPOSITS                                 3        (372)        (369)
OTHER BORROWINGS                                 (337)        337            0
                                             -------------------------------------

   TOTAL INTEREST BEARING LIABILITIES              31        (326)        (295)
                                             -------------------------------------

      NET INTEREST INCOME                      $1,122       ($694)        $428
                                             =====================================`

10

---



As indicated in Table 1, during
the six months ended June 30, 2003, net interest income increased compared to the same
period in 2002, principally because of the increase in securities interest income and the
decrease in interest expense due to the repricing of certificates of deposit as they
matured and renewed at lower rates. Interest income increased slightly in the loan
portfolio and decreased slightly in the core deposit portfolio.

Net interest income (displayed
with consideration of full tax equivalency), average balance sheet amounts, and the
corresponding yields for the six months ended June 30, 2003 and 2002 are shown in Table 2.
Net interest income for the six months ended June 30, 2003 was $6,558,000 an increase of
$627,000 over the same period in 2002. This represents an increase of 10.6%. The primary
factor contributing to the net interest income increase was reduction in interest expense
due to repricing time deposit rates. Managements actions to reprice loans and
deposits to improve the margin and short-term rate stability contributed substantially to
the improvement during the first six months of 2003 compared to the first six months of
2002.

Management reviews the economic
forecasts and strategy on a monthly basis. Accordingly, the Corporation will continue to
strategically manage the balance sheet structure to create stability in net interest
income. The Corporation expects to continue to seek out new loan opportunities while
continuing to maintain sound credit quality.

As indicated in Table 3, for the
three months ended June 30, 2003, the Corporations net interest margin (with
consideration of full tax equivalency) was 4.21% compared with 4.51% for the same period
in 2002. This decline is attributable to the impact of interest rate reductions by the
Federal Reserve Board in late 2002 and the end of the second quarter in 2003. The decrease
in interest rates has impacted the net interest income in the short term because loans
repriced more quickly than deposits thus reducing net interest income.

Average earning assets increased
13.4% or approximately $36,915,000 comparing the first six months of 2003 to the same time
period in 2002. Loans, the highest yielding component of earning assets, represented 74.4%
of earning assets in 2003 compared to 78.6% in 2002. Average interest bearing liabilities
increased 15.8% or $35,066,000 comparing the first six months of 2003 to the same time
period in 2002. Non-interest bearing deposits amounted to 15.4% of average earning assets
in the first six months of 2003 compared with 15.1% in the same time period of 2002.

Management continually monitors
the Corporations balance sheet to insulate net interest income from significant
swings caused by interest rate volatility. If market rates change in 2003, corresponding
changes in funding costs will be considered to avoid any potential negative impact on net
interest income. Management has adjusted both loan and deposit rates in response to the
June 27th prime rate reduction of twenty-five basis points, which should alleviate any
negative impact on net interest income. The Corporations policies in this regard are
further discussed in the section titled Interest Rate Sensitivity Management.

11

---



# Table 2

`SIX MONTHS ENDED JUNE 30,
AVERAGE BALANCES AND RATES                                      2003                               2002
(000's omitted)(Annualized)                         AVERAGE     INCOME/    YIELD/     AVERAGE      INCOME/    YIELD/
ASSETS                                              BALANCE     EXPENSE     RATE       BALANCE     EXPENSE     RATE
                                                   -------------------------------------------------------------------
   Securities:
     U.S. Treasury and Government Agencies           $44,865       $587     2.64%       $19,503       $390     4.03%
     State and Political (1)                          21,034        517     4.95%        16,609        467     5.67%
     Other                                             3,303         72     4.40%         5,385        146     5.47%
                                                   --------------------------------   --------------------------------
     Total Securities                                 69,202      1,176     3.43%        41,497      1,003     4.87%
     Fed Funds Sold                                   10,613         61     1.16%        17,371        145     1.68%
   Loans:
     Commercial                                      156,565      5,284     6.81%       138,732      4,883     7.10%
     Tax Free (1)                                      5,370        174     6.54%         3,054        118     7.80%
     Real Estate-Mortgage                             13,299        449     6.81%        12,053        475     7.95%
     Consumer                                         53,937      1,926     7.20%        60,353      2,371     7.92%
                                                   --------------------------------   --------------------------------
   Total loans                                       229,171      7,833     6.89%       214,192      7,847     7.39%
   Allowance for Loan Losses                          (3,251)                            (3,119)
   Net Loans                                         225,920      7,833     6.99%       211,073      7,847     7.50%
                                                   --------------------------------   --------------------------------
   Loans Held for Sale                                 2,926        127     8.75%         1,937         69     7.18%
                                                   --------------------------------   --------------------------------
   TOTAL EARNING ASSETS                             $311,912     $9,197     5.95%      $274,997     $9,064     6.65%
                                                   -------------------------------------------------------------------
   Cash Due from Banks                                17,609                             14,717
   All Other Assets                                   20,021                             17,531
                                                   -----------                        -----------
TOTAL ASSETS                                        $346,291                           $304,126
                                                   -----------                        -----------
LIABILITIES & SHAREHOLDERS' EQUITY:
   Deposits:
   Interest bearing - DDA                            $48,246        186     0.78%       $40,696        204     1.01%
   Savings Deposits                                  100,520        590     1.18%        83,309        606     1.47%
   Time CD's $100,000 and Over                        31,710        535     3.40%        21,520        427     4.00%
   Other Time CD's                                    74,244      1,278     3.47%        74,114      1,647     4.48%
                                                   --------------------------------   --------------------------------
   Total Deposits                                    254,720      2,589     2.05%       219,639      2,884     2.65%
   Other Borrowings                                    2,210         50     4.56%         2,225         50     4.53%
                                                   --------------------------------   --------------------------------
   INTEREST BEARING LIABILITIES                     $256,930     $2,639     2.07%      $221,864     $2,934     2.67%
                                                   -------------------------------------------------------------------
   Non-Interest bearing - DDA                         48,141                             41,569
   All Other Liabilities                               1,046                              1,695
   Shareholders' Equity                               40,174                             38,998
                                                   -----------                        -----------
   TOTAL LIABILITIES & SHAREHOLDERS' EQUITY         $346,291                           $304,126
                                                   -----------            ---------   -----------            ---------
Net Interest Rate Spread                                                    3.87%                              3.98%
                                                                          ---------                          ---------
Net Interest Income /Margin                                      $6,558     4.24%                   $6,130     4.50%
                                                              =====================              =====================`

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

12

---



Table 3

`THREE MONTHS ENDED JUNE 30,
AVERAGE BALANCES AND RATES                                      2003                               2002
(000's omitted)(Annualized)                         AVERAGE     INCOME/    YIELD/     AVERAGE      INCOME/    YIELD/
ASSETS                                              BALANCE     EXPENSE     RATE       BALANCE     EXPENSE     RATE
                                                   -------------------------------------------------------------------
   Securities:
     U.S. Treasury and Government Agencies           $44,912       $300     2.68%       $17,957       $182     4.07%
     State and Political (2)                          20,998        261     4.98%        15,614        223     5.72%
     Other                                             2,758         31     4.51%         5,358         73     5.46%
                                                   --------------------------------   --------------------------------
     Total Securities                                 68,668        592     3.46%        38,929        478     4.92%
     Fed Funds Sold                                   12,211         35     1.15%        17,508         74     1.70%
   Loans:
     Commercial                                      158,847      2,675     6.75%       137,983      2,469     7.18%
     Tax Free (2)                                      5,241         86     6.61%         3,658         74     8.14%
     Real Estate-Mortgage                             14,036        233     6.66%        11,823        232     7.87%
     Consumer                                         53,532        945     7.08%        61,341      1,191     7.79%
                                                   --------------------------------   --------------------------------
   Total loans                                       231,656      3,939     6.82%       214,805      3,966     7.41%
   Allowance for Loan Losses                          (3,256)                            (3,150)
   Net Loans                                         228,400      3,939     6.92%       211,655      3,966     7.52%
                                                   --------------------------------   --------------------------------
   Loans Held for Sale                                 3,069         68     8.89%         1,989         33     6.65%
                                                   --------------------------------   --------------------------------
   TOTAL EARNING ASSETS                             $315,604     $4,634     5.89%      $273,231     $4,551     6.68%
                                                   -------------------------------------------------------------------
   Cash Due from Banks                                17,452                             14,938
   All Other Assets                                   19,886                             18,583
                                                   -----------                        -----------
TOTAL ASSETS                                        $349,686                           $303,602
                                                   -----------                        -----------
LIABILITIES & SHAREHOLDERS' EQUITY:
   Deposits:
   Interest bearing - DDA                            $46,871         91     0.78%       $41,466         95     0.92%
   Savings Deposits                                  103,407        308     1.19%        85,190        299     1.41%
   Time CD's $100,000 and Over                        29,421        256     3.49%        20,760        195     3.77%
   Other Time CD's                                    75,659        638     3.38%        71,794        763     4.26%
                                                   --------------------------------   --------------------------------
   Total Deposits                                    255,358      1,293     2.03%       219,210      1,352     2.47%
   Other Borrowings                                    2,726         28     4.12%         1,788         24     5.38%
                                                   --------------------------------   --------------------------------
   INTEREST BEARING LIABILITIES                     $258,084     $1,321     2.05%      $220,998     $1,376     2.50%
                                                   -------------------------------------------------------------------
   Non-Interest bearing - DDA                         50,032                             41,766
   All Other Liabilities                               1,066                              1,450
   Shareholders' Equity                               40,504                             39,388
                                                   -----------                        -----------
   TOTAL LIABILITIES & SHAREHOLDERS' EQUITY         $349,686                           $303,602
                                                   -----------            ---------   -----------            ---------
Net Interest Rate Spread                                                    3.84%                              4.18%
                                                                          ---------                          ---------
Net Interest Income /Margin                                      $3,313     4.21%                   $3,175     4.66%
                                                              =====================              =====================`

(2)    
           Presented on a fully taxable equivalent basis using a federal income tax
          rate of 34%.

13

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ALLOWANCE AND PROVISION
FOR LOAN LOSSES

The Corporation maintains formal
policies and procedures to control and monitor credit risk. Management believes the
allowance for loan losses is adequate to provide for probable incurred losses 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 loan losses. Management continues to
identify and devote attention to credits that are not performing as agreed. Of course,
deterioration of economic conditions could have an impact on the Corporations credit
quality, which could impact the need for greater provision for loan losses and the level
of the allowance for loan losses as a percentage of gross loans. Non-performing loans are
discussed further in the section titled Non-Performing Assets.

The allowance for loan losses
(ALL)reflects managements judgment as to the level considered appropriate to
absorb probable losses in the loan portfolio. Fenturas subsidiary banks
methodology in determining the adequacy of the ALLincludes a review of individual
loans, historical loss experience, current economic conditions, portfolio trends, and
other pertinent factors. Although portions of the allowance have been allocated to various
portfolio segments, the ALLis general in nature and is available for the portfolio
in its entirety. At June 30, 2003, the ALLwas $3,065,000, or 1.31% of total loans.
This compares with $3,184,000, or 1.42%, at December 31, 2002. The decrease of the ALLas a percentage of total loans reflects a small decrease in the allowance for loan
losses and a large increase in total loans. Management believes that the allowance to
gross loans percentage is appropriate given identified risk in the loan portfolio based on
asset quality.

Table 4 also summarizes loan losses
and recoveries for the first six months of 2003 and 2002. During the first six months of
2003 the Corporation experienced net charge-offs of $1,083,000 or .91% of loans
(annualized) compared with net charge-offs of $152,000 or .13% in the first six months of
2002. The charge-off of one large commercial credit relationship comprised $846,000 of the
$1,083,000 net charge-offs for the period. The provision for loan losses was $964,000 in
the first six months of 2003 and $102,000 for the same time period in 2002. The provision
was increased primarily as a result of the unanticipated charges to the allowance related
to the commercial credit relationship noted. The loss resulted from borrower falsification
of borrowing base reports related to accounts receivables and inventory.

Table 4

`ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
                                                          Six Months Ended         Six Months Ended
                                                               June 30                 June 30,
(000's omitted)                                                 2003                     2002
                                                       --------------------------------------------------
Balance at Beginning of Period                                  $3,184                   $3,125
                                                       --------------------------------------------------
Charge-Offs:
     Commercial, Financial and Agriculture                        (915)                    (148)
     Real Estate-Mortgage                                            0                        0
     Installment Loans to Individuals                             (254)                    (233)
                                                       --------------------------------------------------
         Total Charge-Offs                                      (1,169)                    (381)
Recoveries:
     Commercial, Financial and Agriculture                          27                      149
     Real Estate-Mortgage                                            0                        0
     Installment Loans to Individuals                               59                       80
                                                       --------------------------------------------------
         Total Recoveries                                           86                      229
                                                       --------------------------------------------------
Net Charge-Offs                                                 (1,083)                    (152)
Provision                                                          964                      102
                                                       --------------------------------------------------
Balance at End of Period                                        $3,065                   $3,075
                                                       ==================================================
Ratio of Net Charge-Offs to Gross Loans                          0.46%                    0.07%
                                                       ==================================================`

14

---



NON-INTEREST INCOME

Non-interest income increased during
the six months ended June 30, 2003 as compared to the same period in 2002, primarily due
to the increase in gain on sale of mortgages, and an increase in service charges on
deposit accounts. Overall non-interest income was $3,628,000 for the six months ended June
30, 2003 compared to $2,224,000 for the same period in 2002. These figures represent an
increase of 63.1%. Non-interest income increased 76.8% in the second quarter of 2003
compared with the same period in 2002. The increase was due to higher gain on sale of
mortgages and higher service charges on deposits in the second quarter of 2003. The income
statement provides a detailed breakdown of the components of non-interest income.

The most significant category of
non-interest income is service charges on deposit accounts. These fees were $1,742,000 in
the first six months of 2003 compared to $1,148,000 for the same period of 2002. This
represents an increase of 51.7%. In the second quarter of 2003 service charges increased
57.2% over the same period in 2002. Increases are attributable to service charges from
growth in core deposits and the introduction of a new overdraft privilege product.

Gains on the sale of mortgage loans
originated by the Banks and sold in the secondary market were $788,000 in the six months
ended June 30, 2003 and $292,000 in the same period in 2002. In the second quarter of 2003
gain on the sale of mortgages increased 189.3% over the same period in 2002. The change is
due to an increase in loans sold in the secondary market due to the increase in
residential mortgage refinance activity and new loan volumes due to the downward movement
to historically low market interest rates.

Trust income decreased $45,000 in the
first six months of 2003 compared to the same period in the prior year. In the second
quarter of 2003 trust fees decreased 56.5% compared with the same period in 2002. The
decrease in fees is attributable to the decline in the value of assets under management
and the loss of several trust accounts within the Corporations Trust Department.

Gain on sale of securities increased
$31,000 in the first six months of 2003, due to the bank selling some low yielding
securities and purchasing higher yielding securities in the second quarter and selling a
single security in the first quarter. This gain made up 0.9% of the 2003 first six months
noninterest income.

Gain on sale of fixed assets
increased in the second quarter of 2003 due to the sale of the North Fenton branch. The
gain on the sale was $201,000.

Other operating income increased
$127,000 to $633,000 in the first six months of 2003 compared to $506,000 in the same time
period in 2002. This is an increase of 25.1%. Other operating income increased due to the
cash surrender value of life insurance and the increase in debit and ATM income.

15

---



Non-Interest Expense

Total non-interest expense was
$6,667,000 in the first six months ended June 30, 2003 compared with $6,121,000 in the
same period of 2002. This is an increase of 8.9%. In the second quarter of 2003 total
non-interest expenses were $3,352,000 compared to $3,080,000 in the same quarter in 2002.
These increases are largely attributable to an increase in salaries and benefits expense
and other operating expenses.

Salary and benefit costs,
Fenturas largest non-interest expense category, were $3,598,000 in the first six
months of 2003, compared with $3,314,000, or an increase of 8.6%, for the same time period
in 2002. In the second quarter of 2003 salary and benefits costs were $1,762,000 compared
with $1,606,000, or an increase of 9.7% for the same quarter in 2002. Increased costs are
primarily a result of a modest salary increase for employees and an increase in employee
benefit costs and commission expenses paid to mortgage originators.

During the first six months ended
June 30, 2003 furniture and equipment expenses were $723,000 compared to $746,000 for the
same period in 2002, a decrease of 3.1%. In the second quarter of 2003 equipment expenses
decreased 5.7% from the second quarter of 2002. The decreases in expenses are attributable
to reduction in equipment maintenance contracts and equipment depreciation.

Occupancy expenses at $561,000
increased in the six months ended June 30, 2003 compared to the same period in 2002 by
$39,000 or 7.5%. Occupancy expenses increased 1.5% in the second quarter of 2003 compared
to 2002. The increases are attributable to increases in facility repairs, a full half a
year of expenses pertaining to the opening of the Grand Blanc and Silver Lake Parkway
offices in 2002 and maintenance contracts expense.

Loan and collection expenses, at
$143,000, were up $55,000 during the six months ended June 30, 2003 compared to the same
time period in 2002. In the second quarter loan and collection expense increased 68.0%
compared to the second quarter of 2002. The increase is primarily attributable to an
increase in other loan expense pertaining to the large charged off loan and an increase in
dealer service fees.

Advertising expenses were $187,000 in
the six months ended June 30, 2003 compared with $125,000 for the same period in 2002.
Advertising expenses increased 68.9% in the second quarter of 2003 compared to the same
quarter in 2002. The increases were primarily due to the increase in media, shareholder
and promotional expenses.

Other operating expenses were
$1,456,000 in the six months ended June 30, 2003 compared to $1,326,000 in the same time
period in 2002, an increase of $130,000 or 9.8%. Other operating expenses were $774,000 in
the second quarter of 2003 compared to $714,000 in the same period in 2002. The increases
are attributable to an increase in the amount of overdrawn deposit account charge-offs and
an increase in other outside services and consulting expenses.

16

---



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 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.
Customer deposits are the primary source of funding for earning assets while short-term
debt and other sources of funds could be further utilized if market conditions and
liquidity needs change.

The Corporations total
assets were $397 million at June 30, 2003 compared to December 31, 2002 total assets of
$340 million. Loans comprised 59.7% of total assets at June 30, 2003 compared to 67.5% at
December 31, 2002. Loans grew $7.2 million with commercial loans and real estate loans
leading the advance, which together grew $9.1 million while other loan categories
experienced small decreases. The ratio of non-interest bearing deposits to total deposits
was 16.5% at June 30, 2003 compared to 15.2% at December 31, 2002. Interest bearing
deposit liabilities totaled $283 million at June 30, 2003 compared to $251 million at
December 31, 2002. Total deposits increased $43.4 million with non-interest bearing demand
deposits increasing $11.1 million and interest bearing deposits increasing $32.3 million.
Short-term borrowings increased $33 thousand due to the slight increase in treasury tax
& loan deposits at the end of the two periods. FHLB advance balances decreased
slightly during the period due to a principal payment being made on the advance. The
Corporation entered into repurchase agreements during the period for $12.5 million.

Bank premises and equipment
decreased $277,000 to $9.5 million at June 30, 2003 compared to $9.7 million at December
31, 2002. The decrease is due to depreciation expense and reduction in property resulting
from the sale of the North Fenton office.

# NON-PERFORMING ASSETS

Non-performing assets include
loans on which interest accruals have ceased, loans that have been renegotiated, and real
estate acquired through foreclosure. Past due loans are loans which were delinquent 90
days or more, but have not been placed on non-accrual status. Table 5 reflects the levels
of these assets at June 30, 2003 and December 31, 2002.

Non-performing assets increased at
June 30, 2003 compared to December 31, 2002. This increase is primarily due to an increase
in Other Real Estate and REO-in-Redemption, which increased $931,000 in the first six
months of 2003. One property directly related to the $846,000 charged off commercial
credit, comprises $599,000 of the increase in the period. The majority of the properties
are commercial and marketability is dependent on the real estate market. Non-performing
assets decreased significantly as compared to March 31, 2003 primarily due to the decrease
in non-performing loans, which resulted from an $862,000 charge to the allowance for loan
losses in the second quarter. The Corporation provided $668,000 to the loan loss reserve
in the second quarter.

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. Based on the current economic conditions, management continues to
closely monitor credit quality.

17

---



# Table 5

`Non-Performing Assets and Past Due Loans

                                                    June 30,    December 31,
                                                      2003            2002
                                                 --------------------------------
Non-Performing Loans:
     Loans Past Due 90 Days or More & Still
         Accruing                                         $75            $72
     Non-Accrual Loans                                    485            512
     Renegotiated Loans                                     0              0
                                                 --------------------------------
         Total Non-Performing Loans                       560            584
                                                 --------------------------------
Other Non-Performing Assets:
     Other Real Estate                                    873            110
     REO in Redemption                                    332            164
     Other Non-Performing  Assets                          29             92
                                                 --------------------------------
         Total Other Non-Performing Assets              1,234            366
                                                 --------------------------------
Total Non-Performing Assets                            $1,794           $950
                                                 ================================
Non-Performing Loans as a % of
     Total Loans                                       0.24%           0.26%
Allowance for Loan Losses as a % of
     Non-Performing Loans                            547.32%         545.21%
Accruing Loans Past Due 90 Days or
     More to Total Loans                               0.03%           0.03%
Non-performing Assets as a % of
     Total Assets                                      0.45%           0.28%`

LIQUIDITY AND INTEREST
RATE RISK MANAGEMENT

Asset/Liability management is
designed to assure liquidity and reduce interest rate risks. The goal in managing interest
rate risk is to maintain a strong and relatively stable net interest margin. It is the
responsibility of the Asset/Liability Management Committee (ALCO) to set policy guidelines
and to establish short-term and long-term strategies with respect to interest rate
exposure and liquidity. The ALCO, which is comprised of key members of 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 Banks deposit base
plus other funding sources (federal funds purchased, other liabilities and
shareholders equity) provided primarily all funding needs in the first six months of
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
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 securities portfolio provides secondary liquidity. As of June 30, 2003 federal funds
sold represented 8.3% of total assets, compared to 3.0% at December 31, 2002. The
Corporation had excess liquidity at June 30, 2203 due to a large short-term deposit from a
local municipality. The Corporation regularly monitors liquidity to ensure adequate cash
flows to cover unanticipated reductions in the availability of funding sources.

18

---



Interest rate risk is managed by
controlling and limiting the level of earnings volatility arising from rate movements. The
Corporation entered into a leverage strategy in the second quarter, which was purchasing
securities funded by repurchase agreements. This strategy helped leverage more capital of
the Corporation and limit volatility if interest rates dropped further. The Corporation
regularly performs reviews and analysis 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.

As indicated in the statement of cash
flows, cash provided by financing activities was $54,235,000 in the first six months of
2003 due to the increase in deposits. Comparatively, in the first six months of 2002, cash
provided in financing activities was $158,000 because of increases in deposits. Cash used
in investing activities was $35,407,000 during the first six months of 2003. Cash flow
from investing activities decreased for the first six months of 2003 primarily because of
an increase in securities purchases and an increase in loan demand.

NEWLY ISSUED BUT NOT
EFFECTIVE ACCOUNTING STANDARDS

The Financial Accounting Standards
Board (FASB) recently issued two new accounting standards, Statement 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities,and Statement 150,
Accounting for Certain Financial Instruments with Characteristics of both Liabilities
and Equities, both of which generally become effective in the quarter beginning July
1, 2003. Because the Corporation does not have these instruments or is only nominally
involved in these instruments, the new accounting standards will not materially affect the
Corporations operating results or financial condition.

CAPITAL MANAGEMENT

Total shareholders equity
increased 0.5% to $40,116,000 at June 30, 2003 compared with $39,928,000 at December 31,
2002. The Corporations equity to asset ratio was 10.1% at June 30, 2003 and 11.7% at
December 31, 2002. The increase in the amount of capital resulted primarily from the net
income from the Corporation, partially offset by dividends declared.

As indicated on the balance sheet at
December 31, 2002 the Corporation had accumulated other comprehensive income of $297,000
compared to accumulated other comprehensive income at June 30, 2003 of $398,000. The
increase in the income position is attributable to the fluctuation of the market price of
securities held in the available for sale portfolio.

Regulatory Capital
Requirements

Bank holding companies and their bank
subsidiaries are required by banking industry regulators to maintain certain levels of
capital. These are expressed in the form of certain ratios. These ratios are based on the
degree of credit risk in the Corporations assets. All assets and off-balance sheet
items such as outstanding loan commitments are assigned risk factors to create an overall
risk-weighted asset total. Capital is separated into two levels, Tier I capital
(essentially total common shareholders equity less goodwill) and Tier II capital
(essentially the allowance for loan losses limited to 1.25% of gross risk-weighted
assets). Capital levels are then measured as a percentage of total risk weighted assets.
The regulatory minimum for Tier I capital to risk weighted assets is 4% and the minimum
for Total capital (Tier I plus Tier II) to risk weighted assets is 8%. The Tier I leverage
ratio measures Tier I capital to average assets and must be a minimum of 4%. As reflected
in Table 6, at June 30, 2003 and at December 31, 2002, the Corporation was well in excess
of the minimum capital and leverage requirements necessary to be considered a well
capitalized banking company.

The FDIC has adopted a risk-based
insurance premium system based in part on a banks capital adequacy. Under this
system a depository institution is classified as well capitalized, adequately capitalized,
or undercapitalized according to its regulatory capital levels. Subsequently, a financial
institutions premium levels are based on these classifications and its regulatory
supervisory rating (the higher the classification the lower the premium). It is the
Corporations goal to maintain capital levels sufficient to retain a designation of
well capitalized.

19

---



Table 6

`Capital Ratios
                               -----------------------------------------------------------------------------
                                  Regulatory Minimum                  Fentura Financial, Inc.
                                For "Well Capitalized"      June 30,      December 31,        June 30,
                                                              2003            2002              2002
Total Capital to risk
     Weighted assets                      10%                14.53%          15.20%            15.90%
Tier 1  Capital to risk                    6%                13.49%          14.10%            14.74%
     Weighted assets
Tier 1 Capital to average
     Assets                                5%                11.47%          12.60%            12.78%`

# ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The information concerning
quantitative and qualitative disclosures about market risk contained on page 47 in the
Corporations Annual Report on Form 10-K for the year ended December 31, 2002,
is here incorporated by reference.

Fentura Financial, Inc. faces
market risk to the extent that both earnings and the fair value of its financial
instruments are affected by changes in interest rates. The Corporation manages this risk
with static GAP analysis and has begun simulation modeling. For the first six months of
2003, the results of these measurement techniques were within the Corporations
policy guidelines. The Corporation does not believe that there has been a material change
in the nature of the Corporations primary 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 are
managed in 2003 compared to 2002.

The Corporations market risk
exposure is mainly comprised of its vulnerability to interest rate risk. Prevailing
interest rates and interest rate relationships in the future will be primarily determined
by market factors, which are outside of the Corporations control. All information
provided in this section consists of forward-looking statements. Reference is made to the
section captioned Forward Looking Statements in this quarterly report for a
discussion of the limitations on the Corporations responsibility for such
statements.

# INTEREST RATE
SENSITIVITY MANAGEMENT

Interest rate sensitivity
management seeks to maximize net interest income as a result of changing interest rates,
within prudent ranges of risk. The Corporation attempts to accomplish this objective by
structuring the balance sheet so that re-pricing opportunities exist for both assets and
liabilities in roughly equivalent amounts at approximately the same time intervals.
Imbalances in these re-pricing opportunities at any point in time constitute a banks
interest rate sensitivity. The Corporation currently does not utilize derivatives in
managing interest rate risk.

An indicator of the interest rate
sensitivity structure of a financial institutions balance sheet is the difference
between rate sensitive assets and rate sensitive liabilities, and is referred to as
GAP.

Table 7 sets forth the
distribution of re-pricing of the Corporations earning assets and interest bearing
liabilities as of June 30, 2003, the interest rate sensitivity GAP, as defined above, the
cumulative interest rate sensitivity GAP, the interest rate sensitivity GAP ratio (i.e.
interest rate sensitive assets divided by interest rate sensitive liabilities) and the
cumulative sensitivity GAP ratio. The table also sets forth the time periods in which
earning assets and liabilities will mature or may re-price in accordance with their
contractual terms.

20

---



Table 7

`GAP ANALYSIS JUNE 30, 2003

(000's Omitted)                                    Within       Three      One to       After
                                                   Three      Months to     Five        Five
                                                   Months     One Year      Years       Years       Total
                                                -------------------------------------------------------------
Earning Assets:
    Federal Funds Sold                           $  33,050   $       0   $       0   $       0    $ 33,050
    Securities                                      28,439       5,619      39,832      13,361      87,251
    Loans                                          123,093      16,938      78,464      14,981     233,476
    Loans Held for Sale                              3,434           0           0           0       3,434
                                                -------------------------------------------------------------
       Total Earning Assets                       $188,016   $   22,557  $ 118,296   $  28,342    $357,211
                                                =============================================================

Interest Bearing Liabilities:
    Interest Bearing Demand Deposits             $  51,038   $       0   $       0   $       0   $  51,038
    Savings Deposits                               126,736           0           0           0     126,736
    Time Deposits Less than $100,000                 8,934      25,274      40,754         107      75,069
    Time Deposits Greater than $100,000              9,249       8,935      12,260           0      30,444
    Short term borrowings                            1,533           0           0           0       1,533
    Other Borrowings                                     0          16          76       1,016       1,108
    Repurchase Agreements                                0       2,500      10,000           0      12,500
                                                -------------------------------------------------------------
       Total Interest Bearing Liabilities         $197,490    $ 36,725   $  63,090   $    1,123   $298,428
                                                =============================================================
Interest Rate Sensitivity GAP                     $ (9,474)  $ (14,168)  $  55,206   $  27,219   $  58,783
Cumulative Interest Rate
    Sensitivity GAP                               $ (9,474)  $ (23,642)  $  31,564   $  58,783
Interest Rate Sensitivity GAP                        (0.95)      (0.61)       1.88       25.24
Cumulative Interest Rate
    Sensitivity GAP Ratio                            (0.95)      (0.90)       1.11        1.20`

As  indicated  in Table 7,  the  short-term  (one  year and  less)  cumulative  interest  rate  sensitivity  gap is
negative.  Accordingly,  if market  interest  rates  increase,  this negative gap position would have a short- term
negative  impact on interest  margin.  Conversely,  if market rates  continue to decline this should  theoretically
have a short-term  positive  impact.  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  volumes.  These
limitations  are evident when  considering  the  Corporation's  Gap position at June 30, 2002 and the change in net
interest  margin for the six months  ended June 30,  2003  compared  to the same time  period in 2002.  At June 30,
2002 the  Corporation  was  negatively  gapped  through one year and since that time  interest  rates have declined
further,  yet net interest  margin  decreased  compared to the first six months of 2003 to the same period in 2002.
This occurred  because certain deposit  categories,  specifically  interest  bearing demand and savings,  have been
repriced  at the same  time but not at the same  level as the  asset  portfolios  resulting  in a  decrease  in net
interest margin.  Additionally,  simulation  modeling,  which measures the impact of upward and downward  movements
of  interest  rates on  interest  margin  and the market  value of equity,  indicates  that an upward  movement  of
interest rates would not  significantly  impact net interest income.  Management has adjusted both loan and deposit
rates in response to the June 27,, 2003 prime rate reduction of twenty-five  basis points,  which should  alleviate
any negative impact on net interest income.

21

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FORWARD LOOKING STATEMENTS

This report  includes  "forward-looking  statements"  as that term is used in the  securities  laws. All statements
regarding our expected financial  position,  business and strategies are forward-looking  statements.  In addition,
the  words   "anticipates,"   "believes,"   "estimates,"   "seeks,"  "expects,"  "plans,"  "intends,"  and  similar
expressions,  as they relate to us or our  management,  are intended to identify  forward-looking  statements.  The
presentation  and  discussion  of the provision and  allowance  for loan losses and  statements  concerning  future
profitability  or future growth or increases,  are examples of inherently  forward looking  statements in that they
involve  judgments and statements of belief as to the outcome of future events.  Our ability to predict  results or
the actual  effect of future plans or  strategies  is  inherently  uncertain.  Factors  which could have a material
adverse affect on our operations and our future  prospects  include,  but are not limited to, changes in:  interest
rates,  general  economic  conditions,  legislative/regulatory  changes,  monetary and fiscal  policies of the U.S.
Government,  including  policies of the U.S.  Treasury and the Federal Reserve Board, the quality or composition of
the loan or investment  portfolios,  demand for loan  products,  deposit flows,  competition,  demand for financial
services in our market area and  accounting  principles,  policies and  guidelines.  These risks and  uncertainties
should be considered in  evaluating  forward-looking  statements  and undue  reliance  should not be placed on such
statements.  Further  information  concerning  us  and  our  business,  including  additional  factors  that  could
materially affect our financial results, is included in our filings with the Securities and Exchange Commission.

ITEM 4:  CONTROLS AND PROCEDURES

|(a) | Evaluation of Disclosure  Controls and Procedures.  The  Corporation's  Chief  Executive  Officer
                  and Chief Financial Officer,  after evaluating the effectiveness of the Corporation's  disclosure
                  controls and  procedures  (as defined in Exchange Act Rules  13a-15(e)  and  15d-15(e)) as of the
                  end of the  period  covered  by  this  Form  10-Q  Quarterly  Report,  have  concluded  that  the
                  Corporation's  disclosure  controls and  procedures  were  adequate and  effective to ensure that
                  material  information  relating to the  Corporation  would be made known to them by others within
                  the  Corporation,  particularly  during  the period in which  this Form  10-Quarterly  Report was
                  being prepared.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | Changes  in  Internal  Controls.  During the period  covered by this  report,  there have been no
                  changes in the  Corporation's  internal  control over financial  reporting  that have  materially
                  affected or are reasonably likely to materially  affect the  Corporation's  internal control over
                  financial reporting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

22

---



# PART II  OTHER
INFORMATION

|Item 1. | Legal Proceedings. - None                             
|------- | ------------------------------------------------------
|Item 2. | Changes in Securities and Use of Proceeds. - None     
|Item 3. | Defaults Upon Senior Securities. - None               
|Item 4. | Submission of Matters to a Vote of Securities Holders.

| | The annual meeting of shareholders of the Registrant was held on April 30, 2003.  The
                  shareholders voted on the following matters at the meeting:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | Election of two directors for terms expiring at the 2006 annual meeting:
| | --- | ------------------------------------------------------------------------
| |     | Director Nominee:
Forrest A. Shook
Donald L. Grill                      

|Item 5. | Other Information. - The Audit  Committee of the Board of Directors  approved the categories of
                  all non-audit  services performed by the Registrant's  independent  accountants during the period
                  covered by this report.
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item 6. | Exhibits and Reports on Form 8-K.                                                                                                                                                                                                                            

| | (a) | Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | 31.1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | 31.2                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | 32.1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | 32.2                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (b) | Reports on 8-K
Report on Form 8-K dated March 31, 2003 and filed April 2, 2003 furnishing information
                  announcing a dividend for the quarter ended March 31, 2003.
                  Report on Form 8-K dated April 18, 2003 furnishing press releases announcing a dividend and the
                  results of the quarter ended March 31, 2003.
                  Report on Form 8-K dated May 5, 2003 furnishing a press release announcing a reorganization of
                  the Registrant's Board of Directors

23

---



Signatures

Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.

|                       | Fentura Financial, Inc.
|---------------------- | -----------------------
|Date:  August 12, 2003 | By                     
|                       |                        
|Date:  August 12, 2003 | By                     
|                       |                        

24

---



EXHIBIT INDEX

|Exhibit | Description                                                                                                                                                                                                      
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1    | Certificate of the President and Chief Executive Officer of Fentura  Financial,  Inc. pursuant to
                  15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|31.2    | Certificate  of the Chief  Financial  Officer of Fentura  Financial,  Inc.  pursuant to 15 U.S.C.
                  Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.          
|32.1    | Certificate  of the Chief  Executive  Officer of Fentura  Financial,  Inc.  pursuant to 18 U.S.C.
                  Section 1350 , as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.         
|32.2    | Certificate  of the Chief  Financial  Officer of Fentura  Financial,  Inc.  pursuant to 18 U.S.C.
                  Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.          

25

---



Exhibit 31.1

I, Donald L. Grill, certify that:

|1. | I have reviewed this quarterly report on Form 10-Q of Fentura Financial, Inc.;
|-- | ------------------------------------------------------------------------------

|2. | Based on my knowledge, this report does not contain any untrue statement of a
               material fact or omit to state a material fact necessary to make the statements
               made, in light of the circumstances under which such statements were made, not
               misleading with respect to the period covered by this report;
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Based on my knowledge, the financial statements, and other financial information
               included in this quarterly report, fairly present in all material respects the
               financial condition, results of operations and cash flows of the registrant as
               of, and for, the periods presented in this report;
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The registrants other certifying officers and I are responsible for
               establishing and maintaining disclosure controls and procedures (as defined in
               Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | designed such disclosure controls and procedures, or caused such disclosure
                    controls and procedures to be designed under our supervision, to ensure that
                    material information relating to the registrant, including its consolidated
                    subsidiaries, is made known to us by others within those entities, particularly
                    during the period in which this report is being prepared;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | evaluated the effectiveness of the registrants disclosure controls and
                    procedures and presented in this report our conclusions about the effectiveness
                    of the disclosure controls and procedures, as of the end of the period covered
                    by this report based on such evaluation; and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | disclosed in this report any change in the registrants internal control
                    over financial reporting that occurred during the registrants most recent
                    fiscal quarter (the registrants fourth fiscal quarter in the case of an
                    annual report) that has materially affected, or is reasonably likely to
                    materially affect, the registrants internal control over financial
                    reporting; and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | The registrants other certifying officers and I have disclosed, based on
               our most recent evaluation of internal control over financial reporting, to the
               registrants auditors and the audit committee of the registrants
               board of directors (or persons performing the equivalent functions):
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | all significant deficiencies and material weaknesses in the design or operation
                    of internal control over financial reporting which are reasonably likely to
                    adversely affect the registrants ability to record, process, summarize and
                    report financial information; and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | any fraud, whether or not material, that involves management or other employees
                    who have a significant role in the registrants internal control over
                    financial reporting;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Dated: August 12, 2003

| | /s/ Donald L. GrillDonald L. Grill
President and Chief Executive Officer
| | ------------------------------------------------------------------------



---



Exhibit 31.2

I, Ronald L. Justice, certify that:

|1. | I have reviewed this quarterly report on Form 10-Q of Fentura Financial, Inc.;
|-- | ------------------------------------------------------------------------------

|2. | Based on my knowledge, this report does not contain any untrue statement of a
               material fact or omit to state a material fact necessary to make the statements
               made, in light of the circumstances under which such statements were made, not
               misleading with respect to the period covered by this report;
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Based on my knowledge, the financial statements, and other financial information
               included in this quarterly report, fairly present in all material respects the
               financial condition, results of operations and cash flows of the registrant as
               of, and for, the periods presented in this report;
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The registrants other certifying officers and I are responsible for
               establishing and maintaining disclosure controls and procedures (as defined in
               Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | designed such disclosure controls and procedures, or caused such disclosure
                    controls and procedures to be designed under our supervision, to ensure that
                    material information relating to the registrant, including its consolidated
                    subsidiaries, is made known to us by others within those entities, particularly
                    during the period in which this report is being prepared;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | evaluated the effectiveness of the registrants disclosure controls and
                    procedures and presented in this report our conclusions about the effectiveness
                    of the disclosure controls and procedures, as of the end of the period covered
                    by this report based on such evaluation; and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | disclosed in this report any change in the registrants internal control
                    over financial reporting that occurred during the registrants most recent
                    fiscal quarter (the registrants fourth fiscal quarter in the case of an
                    annual report) that has materially affected, or is reasonably likely to
                    materially affect, the registrants internal control over financial
                    reporting; and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | The registrants other certifying officers and I have disclosed, based on
               our most recent evaluation of internal control over financial reporting, to the
               registrants auditors and the audit committee of the registrants
               board of directors (or persons performing the equivalent functions):
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | all significant deficiencies and material weaknesses in the design or operation
                    of internal control over financial reporting which are reasonably likely to
                    adversely affect the registrants ability to record, process, summarize and
                    report financial information; and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | any fraud, whether or not material, that involves management or other employees
                    who have a significant role in the registrants internal control over
                    financial reporting;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Dated: August 12, 2003

| | /s/ Ronald L. JusticeRonald L. Justice
Chief Financial Officer
| | --------------------------------------------------------------



---



Exhibit 32.1

I, Donald L. Grill,  Chief  Executive  Officer of Fentura  Financial Inc.  certify,  pursuant to 18 U.S.C.  Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

|(1) | the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003
               which this statement accompanies fully complies with the requirements of Section
               13(a) or 15(d) of the Securities Exchange Act of 1934, and
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | the information contained in the Quarterly Report on Form 10-Q for the quarterly
               period ended June 30, 2003 fairly presents, in all material respects, the
               financial condition and results of operations of Fentura Financial, Inc.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Dated: August 12, 2003

| | /s/ Donald L. GrillDonald L. Grill
Chief Executive Officer
| | ----------------------------------------------------------



---



Exhibit 32.2

I, Ronald L. Justice,  Chief Financial Officer of Fentura Financial,  Inc. certify,  pursuant to 18 U.S.C.  Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

|(1) | the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003
               which this statement accompanies fully complies with the requirements of Section
               13(a) or 15(d) of the Securities Exchange Act of 1934, and
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | the information contained in the Quarterly Report on Form 10-Q for the quarterly
               period ended June 30, 2003 fairly presents, in all material respects, the
               financial condition and results of operations of Fentura Financial, Inc.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Dated: August 12, 2003

| | /s/ Ronald L. JusticeRonald L. Justice
Chief Financial Officer
| | --------------------------------------------------------------