# 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 September 30, 2002
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)

Check 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

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: October 17, 2002
Class - Common Stock                 Shares Outstanding - 1,728,120



---

# 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                       | 9
19
21          
|Part II - Other Information    | 22                                                                                                                                                                                                                                                           
|                               | 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 | 22
22
22
22
22
22
|Signatures 
Exhibit Index      | 23
26                                                                                                                                                                                                                                                        

2

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# PART I -
FINANCIAL INFORMATION

## Item 1.
Consolidated Financial Statements

Fentura Financial, Inc.
  Consolidated Balance Sheets

`----------------------------------------------------------------------------------------------------
                                                                        SEPT 30,        DEC 31,
(000's omitted Except share data)                                         2002           2001
                                                                      (unaudited)
----------------------------------------------------------------------------------------------------
ASSETS
   Cash and due from banks                                                $18,707        $19,038
   Federal funds sold                                                      25,900         22,800
                                                                     -------------------------------
     Total cash & cash equivalents                                         44,607         41,838
   Securities-available for sale                                           29,468         25,792
   Securities-held to maturity, (market value of $13,059
      at September 30, 2002 and $13,508 at December 31, 2001)              12,613         13,375
                                                                     -------------------------------
       Total securities                                                    42,081         39,167
   Loans held for sale                                                      3,477          1,710
   Loans:
     Commercial                                                           118,738        116,663
     Tax exempt development loans                                           5,397          2,231
     Real estate loans - mortgage                                          11,517         11,158
     Real estate loans - construction                                      26,032         25,434
     Consumer loans                                                        59,446         58,644
                                                                     -------------------------------
   Total loans                                                            221,130        214,130
   Less: Allowance for loan losses                                         (3,133)        (3,125)
                                                                     -------------------------------
   Net loans                                                              217,997        211,005
   Bank Owned Life Insurance                                                6,147          2,501
   Bank premises and equipment                                              9,310          8,532
   Federal Home Loan Bank stock                                               822            822
   Accrued interest receivable                                              1,597          1,445
   Other assets                                                             2,039          2,070
                                                                     -------------------------------
     Total assets                                                        $328,077       $309,090
                                                                     ===============================


LIABILITIES
   Deposits:
   Non-interest bearing deposits                                          $47,087        $42,524
     Interest bearing deposits                                            236,363        222,746
                                                                     -------------------------------
       Total deposits                                                     283,450        265,270
   Short-term borrowings                                                    1,500          2,100
   Federal Home Loan Bank Advances                                          1,123          1,138
   Accrued taxes, interest and other liabilities                            2,629          2,149
                                                                     -------------------------------
       Total liabilities                                                  288,702        270,657
                                                                     -------------------------------
SHAREHOLDERS' EQUITY
   Common stock - no par value
   1,725,589 shares issued (1,735,496 in Dec. 2001)                        30,350         30,664
   Retained earnings                                                        8,776          7,677
   Accumulated other comprehensive income                                     249             92
                                                                     -------------------------------
     Total shareholders' equity                                            39,375         38,433
                                                                     -------------------------------
       Total Liabilities and Shareholders' Equity                        $328,077       $309,090
                                                                     ===============================
See notes to consolidated financial statements.`

3

---

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

`Three Months Ended                  Nine Months Ended
                                                             September 30,                      September 30,
(000's omitted except per share data)                    2002             2001               2002             2001
                                                  ------------------------------------------------------------------------
INTEREST INCOME
   Interest and fees on loans                           $4,024            $4,355           $11,909           $13,436
   Interest and dividends on
     securities:
     Taxable                                               247               537               781             1,985
     Tax-exempt                                            167               165               468               501
   Interest on federal funds sold                          116               311               261               809
                                                  ------------------------------------------------------------------------
         Total interest income                           4,554             5,368            13,419            16,731

   INTEREST EXPENSE
   Deposits                                              1,375             2,212             4,259             7,118
   Short-term borrowings                                    25                27                75               102
                                                  ------------------------------------------------------------------------
         Total interest expense                          1,400             2,239             4,334             7,220
                                                  ------------------------------------------------------------------------

   NET INTEREST INCOME                                   3,154             3,129             9,085             9,511
   Provision for loan losses                               107               179               209               572
                                                  ------------------------------------------------------------------------
     Net interest income after
       Provision for loan losses                         3,047             2,950             8,876             8,939

   NON-INTEREST INCOME
     Service charges on deposit accounts                   661               511             1,808             1,541
     Trust income                                          147               159               426               484
     Other operating income                                311               268               817               894
     Gain on sale of loans                                 270               170               562               403
     Gain on sale of securities                              0               160                 0               317
                                                  ------------------------------------------------------------------------
       Total non-interest income                         1,389             1,268             3,613             3,639

   NON-INTEREST EXPENSE
     Salaries and benefits                               1,665             1,643             4,979             4,728
     Occupancy of bank premises                            267               236               788               657
     Equipment expense                                     376               376             1,122             1,056
     Other operating expenses                              794               803             2,334             2,477
                                                  ------------------------------------------------------------------------
       Total non-interest expense                        3,102             3,058             9,223             8,918
                                                  ------------------------------------------------------------------------

   INCOME BEFORE TAXES                                   1,334             1,160             3,266             3,660
   Applicable income taxes                                 407               354               970             1,093
                                                  ------------------------------------------------------------------------
   NET INCOME                                             $927              $806            $2,296            $2,567
                                                  ========================================================================

   Per share:
   Net income - basic                                     $0.53             $0.47             $1.32             $1.49
                                                          =====             =====             =====             =====
   Net income - diluted                                   $0.53             $0.46             $1.32             $1.48
                                                          =====             =====             =====             =====
   Cash dividends declared                                $0.23             $0.22             $0.69             $0.66
                                                          =====             =====             =====             =====
See notes to consolidated financial statements.`

4

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

`Nine Months                Nine Months
                                                                 Ended                      Ended

-------------------------------------------------------------------------------------------------------
                                                             September 30,              September 30,
(000's omitted)                                                  2002                        2001
-------------------------------------------------------------------------------------------------------
COMMON STOCK
   Balance, beginning of period                                 $30,664                     $30,321
   Issuance of shares under
     Director stock purchase plan &
     Dividend reinvestment program                                  111                         277
    Purchase of 16,749 shares of stock                             (425)
                                                            ----------------            ---------------
   Balance, end of period                                        30,350                      30,598

RETAINED EARNINGS
   Balance, beginning of period                                   7,677                       5,648
     Net income                                                   2,296                       2,567
     Cash dividends declared                                     (1,197)                     (1,141)
                                                            ----------------            ---------------
   Balance, end of period                                         8,776                       7,074

ACCUMULATED OTHER COMPREHENSIVE
   INCOME (LOSS)
   Balance, beginning of period                                      92                        (215)
     Change in unrealized gain (loss)
     on securities, net of tax                                      157                         625
                                                            ----------------            ---------------
   Balance, end of period                                           249                         410
                                                            ----------------            ---------------
TOTAL SHAREHOLDERS' EQUITY                                      $39,375                     $38,082
                                                            ================            ===============
See notes to consolidated financial statements.`

5

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

`Nine Months Ended
                                                                      September 30,
-----------------------------------------------------------------------------------------
(000's omitted)
                                                                     2002       2001
-----------------------------------------------------------------------------------------

OPERATING ACTIVITIES:

   Net income                                                        $2,296     $2,567
   Adjustments to reconcile net income to cash
     Provided by Operating Activities:
       Depreciation and amortization                                    761        672
       Provision for loan losses                                        209        572
       Amortization (accretion) on securities                           373         (5)
       Loans originated for sale                                    (32,917)   (30,542)
       Proceeds from the sale of loans                               31,712     29,924
       Gain on sale of securities                                         0       (317)
       Gain on sales of loans                                          (562)      (403)
       Net increase in bank owned life insurance                     (3,646)         0
       Net (increase) decrease in interest receivable & other
        assets                                                         (121)       554
       Net increase (decrease) in interest payable & other
        liabilities                                                     399       (532)
                                                                  -----------------------
Total Adjustments                                                    (3,792)       (77)
                                                                  -----------------------
Net Cash Provided By (Used In) Operating Activities                  (1,496)     2,490
                                                                  -----------------------

Cash Flows From Investing Activities:

   Proceeds from maturities of securities - HTM                       5,193      3,773
   Proceeds from maturities of securities - AFS                       4,888      4,074
   Proceeds from calls of securities - AFS                            9,935     18,596
   Proceeds from sales of securities - AFS                                0     10,431
   Purchases of securities - HTM                                     (4,444)    (1,738)
   Purchases of securities - AFS                                    (18,621)   (19,613)
   Net increase in loans                                             (7,201)    (8,321)
   Capital expenditures                                              (1,539)    (2,263)
                                                                  -----------------------
Net Cash Provided By (Used in) Investing Activities                 (11,789)     4,939

Cash Flows From Financing Activities:

   Net increase (decrease) in deposits                               18,180     27,739
   Net increase (decrease) in borrowings                               (615)    (3,193)
   Purchase of 16,749 shares of stock                                  (425)         0
   Proceeds from stock issuance                                         111        277
   Cash dividends                                                    (1,197)    (1,141)
                                                                  -----------------------
Net Cash Provided By (Used In) Financing Activities                  16,054     23,682

NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS                  $2,769    $31,111

CASH AND CASH EQUIVALENTS - BEGINNING                               $41,838    $20,709
CASH AND CASH EQUIVALENTS - ENDING                                  $44,607    $51,820
                                                                  =======================

CASH PAID FOR:
   INTEREST                                                          $4,093     $7,278
   INCOME TAXES                                                      $1,060     $1,518
See notes to consolidated financial statements.`

6

---

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

`Three Months Ended          Nine Months Ended
(000's Omitted)                                         September 30,               September 30,
                                                      2002         2001          2002          2001
                                                   -----------------------------------------------------
Net Income                                              $927         $806       $2,296        $2,567
Other comprehensive income (loss), net of tax:
   Unrealized holding gains (losses) arising
       during period                                     $51         $348         $157          $834
   Less: reclassification adjustment for
       gains included in net income                       $0         $106           $0          $209
                                                   -----------------------------------------------------
Other comprehensive income (loss)                        $51         $242         $157          $625
                                                   -----------------------------------------------------
Comprehensive income                                    $978       $1,048       $2,453        $3,192
                                                   =====================================================`

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 nine months ended September 30, 2002 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2002. 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, 2001.

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 nine months ended
September 30, 2002 and 2001:

`Three Months Ended             Nine Months Ended
                                                     September 30,                 September 30,
                                                     2002           2001        2002           2001
                                                     ----           ----        ----           ----
Basic Earnings Per Common Share:
Numerator
   Net Income                                    $927,000       $806,000     $2,296,000     $2,567,000
                                                 ========       ========     ===========    ==========

Denominator
   Weighted average common shares
   Outstanding                                  1,733,535      1,730,576      1,735,080      1,727,556
                                                =========      =========      =========      =========

Basic earnings per common share                     $0.53          $0.47          $1.32          $1.49
                                                    =====          =====          =====          =====

Diluted Earnings Per Common Share:
Numerator
   Net Income                                   $ 927,000      $ 806,000     $2,296,000     $2,567,000
                                                =========      =========     ==========     ==========

Denominator
   Weighted average common shares
   Outstanding for basic earnings per
   Common share                                 1,733,535      1,730,576      1,735,080      1,727,556

Add:  Dilutive effects of assumed
   Exercises of stock options                       5,566          3,528          4,723          3,574
                                                    -----          -----          -----          -----

   Weighted average common shares
   And dilutive potential common
   Shares outstanding                           1,739,101      1,734,104      1,739,803      1,731,130
                                                =========      =========      =========      =========

Diluted earnings per common share                   $0.53          $0.46          $1.32          $1.48
                                                    =====          =====          =====          =====`

Stock options for 6,841 and
6,975 shares of common stock for the three-month and nine-month periods ended
September 30, 2002 and 2001 were not considered in computing diluted earnings
per common share because they were not dilutive.

## Note 3.
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.

8

---

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations

## Results of
Operations

As indicated in the income
statement, earnings for the nine months ended September 30, 2002 were $2,296,000
compared to $2,567,000 for the same period in 2001. Net income for the third
quarter of 2002 was $927,000 compared to $806,000 for the same period in 2001.
Earnings increased in the third quarter due to an increase in non-interest
income and an increase in net interest income. Earnings decreased on a year to
date basis due to a decrease in net interest income and slightly higher
non-interest expenses. 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 nine months ended September 30, 2002 the Corporations
return on average assets (annualized) was 0.99% compared to 1.12% for the same
period in 2001. Net income per share - basic and diluted was $1.32 in the first
nine months of 2002 compared to $1.49 for net income per share  basic and
$1.48 for net income per share diluted for the same period in 2001.

## 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 September 30, 2002 and
2001 are summarized in Table 3 and for the nine months ended September 30, 2002
and 2001 are summarized in Table 2. The effects of changes in average interest
rates and average balances are detailed in Table 1 below.

## Table 1

`NINE MONTHS ENDED
                                                        SEPTEMBER 30,
                                                    2002 COMPARED TO 2001
                                                     INCREASE (DECREASE)
                                                           DUE TO:
                                             -------------------------------------
                                                            YIELD/
(000'S OMITTED)                                  VOL         RATE        TOTAL
----------------------------------------------------------------------------------
TAXABLE SECURITIES                              ($889)      ($315)     ($1,204)
TAX-EXEMPT SECURITIES                              76        (109)         (33)
FEDERAL FUNDS SOLD                               (148)       (400)        (548)

TOTAL LOANS                                     1,045      (2,551)      (1,506)
LOANS HELD FOR SALE                               (12)         (9)         (21)
                                             -------------------------------------

   TOTAL EARNING ASSETS                            72      (3,384)      (3,312)


INTEREST BEARING DEMAND DEPOSITS                   75        (249)        (174)
SAVINGS DEPOSITS                                  285        (924)        (639)
TIME CD'S $100,000 AND OVER                      (423)       (773)      (1,196)
OTHER TIME DEPOSITS                              (542)       (308)        (850)
OTHER BORROWINGS                                   (2)        (25)         (27)
                                             -------------------------------------

   TOTAL INTEREST BEARING LIABILITIES            (607)     (2,279)      (2,886)
                                             -------------------------------------

      NET INTEREST INCOME                       $679     ($1,105)       ($426)
                                             =====================================`

9

---

As indicated in Table 1,
during the nine months ended September 30, 2002, net interest income decreased
compared to the same period in 2001, principally because of the decrease in
prime rate that occurred throughout 2001 that caused the variable rate loan
products to reprice at lower rates. Interest expense decreased largely due to
the lowering of core deposit rates and the repricing of certificates of deposits
as they have matured and renewed at lower rates.

Net interest income
(displayed without consideration of full tax equivalency), average balance sheet
amounts, and the corresponding yields for the nine months ended September 30,
2002 and 2001 are shown in Table 2. Net interest income for the nine months
ended September 30, 2002 was $9,085,000 a decrease of $426,000 over the same
period in 2001. This represents a decrease of 4.5%. The primary factor
contributing to the net interest income decrease was the series of reductions in
interest rates by the Federal Reserve Board in 2001. Net interest income for the
third quarter of 2002 was $3,154,000 an increase of $25,000 from the same period
in 2001 as shown in Table 3. This represents an increase of 0.8%. Management
actions to reprice loans and deposits to improve the margin and short term rate
stability contributed substantially to the improvement during the third quarter
of 2002.

Management expects the
economy to be steady during the last quarter of 2002. 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 September 30, 2002, the Corporations net
interest margin (without consideration of full tax equivalency) was 4.38%
compared with 4.28% for the same period in 2001. The increase in net interest
margin is attributable to reducing deposit costs and effectively pricing new
loan volume. Also, the Corporations net interest margin for the nine
months ended September 30, 2002 was 4.36% compared with 4.47% for the same
period in 2001 and is indicated in Table 2. These declines are attributable to
the impact of interest rate reductions by the Federal Reserve Board in 2001. 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
decreased 2.1% or approximately $6,102,000 comparing the first nine months of
2002 to the same time period in 2001. Loans, the highest yielding component of
earning assets, represented 77.9% of earning assets in 2002 compared to 70.6% in
2001. Average interest bearing liabilities decreased 1.7% or $3,834,000
comparing the first nine months of 2002 to the same time period in 2001.
Non-interest bearing deposits amounted to 19.2% of average earning assets in the
first nine months of 2002 compared with 16.8% in the same time period of 2001.

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 2002, 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 regard to the November 6th
prime rate reduction of fifty 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.

10

---

## Table 2

`NINE MONTHS ENDED SEPTEMBER 30,
AVERAGE BALANCES AND RATES                                      2002                               2001
(000's omitted)(Annualized)                          AVERAGE    INCOME/    YIELD/     AVERAGE      INCOME/    YIELD/
ASSETS                                              BALANCE     EXPENSE     RATE       BALANCE     EXPENSE     RATE
                                                   -------------------------------------------------------------------
   Securities:
     U.S. Treasury and Government Agencies           $18,996       $573     4.03%       $41,543     $1,890     6.08%
     State and Political                              16,408        468     3.82%        14,232        501     4.71%
     Other                                             5,192        208     4.11%         2,285         95     5.56%
                                                   --------------------------------   --------------------------------
     Total Securities                                 40,596      1,249     4.11%        58,060      2,486     5.72%
     Fed Funds Sold                                   20,862        261     1.67%        25,525        809     4.24%
   Loans:
     Commercial                                      139,987      7,488     7.15%       120,306      8,059     8.96%
     Tax Free                                          3,647        123     4.51%           799         31     5.19%
     Real Estate-Mortgage                              9,357        585     8.36%        11,290        882     9.73%
     Consumer                                         60,915      3,552     7.80%        65,257      4,342     8.90%
                                                   --------------------------------   --------------------------------
   Total loans                                       213,906     11,748     7.34%       197,652     13,254     8.97%
   Allowance for Loan Losses                          (3,113)                            (2,027)
   Net Loans                                         210,789     11,748     7.45%       194,625     13,254     9.10%
                                                   --------------------------------   --------------------------------
   Loans Held for Sale                                 3,238        161     6.65%         3,467        182     7.02%
                                                   --------------------------------   --------------------------------
   TOTAL EARNING ASSETS                             $278,602    $13,419     6.44%      $284,704    $16,731     7.86%
                                                   -------------------------------------------------------------------
   Cash Due from Banks                                15,018                             10,881
   All Other Assets                                   18,302                             13,865
                                                   -----------                        -----------
TOTAL ASSETS                                        $308,805                           $306,423
                                                   ===========                        ===========
LIABILITIES & SHAREHOLDERS' EQUITY:
   Deposits:
   Interest bearing - DDA                            $41,752        313     1.00%       $36,180        487     1.85%
   Savings Deposits                                   84,694        902     1.42%        71,476      1,541     2.88%
   Time CD's $100,000 and Over                        22,247        637     3.83%        35,007      1,487     5.68%
   Other Time CD's                                    73,819      2,407     4.36%        83,646      3,603     5.76%
                                                   --------------------------------   --------------------------------
   Total Deposits                                    222,512      4,259     2.56%       226,309      7,118     3.60%
   Other Borrowings                                    2,137         75     4.69%         2,174        102     6.27%
                                                   --------------------------------   --------------------------------
   INTEREST BEARING LIABILITIES                     $224,649     $4,334     2.58%      $228,483     $7,220     4.22%
                                                   -------------------------------------------------------------------
   Non-Interest bearing - DDA                         43,103                             38,292
   All Other Liabilities                               1,756                              2,284
   Shareholders' Equity                               39,297                             37,364
                                                   -----------                        -----------
   TOTAL LIABILITIES & SHAREHOLDERS' EQUITY         $308,805                           $306,423
                                                   ===========            ---------   ===========            ---------
Net Interest Rate Spread                                                    3.86%                              3.64%
                                                                          ---------                          ---------
Net Interest Income /Margin                                      $9,085     4.36%                   $9,511     4.47%
                                                              =====================              =====================`

11

---

Table 3

`THREE MONTHS ENDED SEPTEMBER 30,
AVERAGE BALANCES AND RATES                                      2002                               2001
(000's omitted)(Annualized)                          AVERAGE    INCOME/    YIELD/     AVERAGE      INCOME/    YIELD/
ASSETS                                              BALANCE     EXPENSE     RATE       BALANCE     EXPENSE     RATE
                                                   -------------------------------------------------------------------
   Securities:
     U.S. Treasury and Government Agencies           $17,960       $182     4.02%       $33,657       $488     5.75%
     State and Political                              16,007        167     4.19%        14,568        165     4.49%
     Other                                             4,805         65     5.20%         4,086         49     4.76%
                                                   --------------------------------   --------------------------------
     Total Securities                                 38,772        414     4.24%        52,311        702     5.32%
     Fed Funds Sold                                   27,845        116     1.65%        35,590        311     3.47%
   Loans:
     Commercial                                      138,628      2,531     7.24%       123,710      2,629     8.43%
     Tax Free                                          4,833         54     4.43%           772         10     5.14%
     Real Estate-Mortgage                              9,776        198     8.04%         9,138        251    10.90%
     Consumer                                         62,043      1,179     7.54%        64,335      1,391     8.58%
                                                   --------------------------------   --------------------------------
   Total loans                                       215,280      3,962     7.30%       197,955      4,281     8.58%
   Allowance for Loan Losses                          (3,113)                            (3,111)
   Net Loans                                         212,167      3,962     7.41%       194,844      4,281     8.72%
                                                   --------------------------------   --------------------------------
   Loans Held for Sale                                 3,902         62     6.30%         4,186         74     7.01%
                                                   --------------------------------   --------------------------------
   TOTAL EARNING ASSETS                             $285,799     $4,554     6.32%      $290,042     $5,368     7.34%
                                                   -------------------------------------------------------------------
   Cash Due from Banks                                15,618                             10,938
   All Other Assets                                   19,855                             13,997
                                                   -----------                        -----------
TOTAL ASSETS                                        $318,159                           $311,866
                                                   ===========                        ===========
LIABILITIES & SHAREHOLDERS' EQUITY:
   Deposits:
   Interest bearing - DDA                            $43,867        109     0.99%       $36,589        156     1.69%
   Savings Deposits                                   86,424        294     1.35%        76,720        491     2.54%
   Time CD's $100,000 and Over                        23,701        210     3.52%        32,704        402     4.88%
   Other Time CD's                                    74,272        762     4.07%        83,061      1,163     5.56%
                                                   --------------------------------   --------------------------------
   Total Deposits                                    228,264      1,375     2.39%       229,074      2,212     3.26%
   Other Borrowings                                    1,963         25     5.05%         1,952         27     5.49%
                                                   --------------------------------   --------------------------------
   INTEREST BEARING LIABILITIES                     $230,227     $1,400     2.41%      $231,026     $2,239     3.85%
                                                   -------------------------------------------------------------------
   Non-Interest bearing - DDA                         46,164                             40,514
   All Other Liabilities                               1,885                              2,206
   Shareholders' Equity                               39,883                             38,120
                                                   -----------                        -----------
   TOTAL LIABILITIES & SHAREHOLDERS' EQUITY         $318,159                           $311,866
                                                   ===========            ---------   ===========            ---------
Net Interest Rate Spread                                                    3.91%                              3.49%
                                                                          ---------                          ---------
Net Interest Income /Margin                                      $3,154     4.38%                   $3,129     4.28%
                                                              =====================              =====================`

12

---

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 ALL 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 September 30, 2002, the ALLwas $3,133,000,
or 1.42% of total loans. This compares with $3,125,000, or 1.46%, at December
31, 2001. The decrease of the ALLas a percentage of total loans reflects
a slight increase in the allowance for loan losses and substantial increase loan
totals. Management believes that the allowance to gross loans percentage is
appropriate given anticipated risk in the loan portfolio based on asset quality.

Table 4 also summarizes
loan losses and recoveries for the first nine months of 2002 and 2001. During
the first nine months of 2002 the Corporation experienced net charge-offs of
$201,000, compared with net charge-offs of $359,000 for the nine months ended
September 30, 2001. As a result, the net charge-off ratio for the first nine
months of 2002 was .09% compared to .18% for the same period in 2001. The
provision for loan losses was $209,000 in the first nine months of 2002 and
$572,000 for the same time period in 2001. The Corporation decreased the
provision in 2002 compared to 2001 to maintain the allowance for loan losses at
the level management believes is necessary to provide for probable incurred
losses in the loan portfolio.

Table 4

`ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
                                                          Nine Months Ended        Nine Months Ended
                                                            September 30             September 30,
(000's omitted)                                                 2002                     2001
                                                       -------------------------------------------------
Balance at Beginning of Period                                  $3,125                   $2,932
                                                       -------------------------------------------------
Charge-Offs:
     Commercial, Financial and Agriculture                        (231)                     (54)
     Real Estate-Mortgage                                            0                        0
     Installment Loans to Individuals                             (385)                    (416)
                                                       -------------------------------------------------
         Total Charge-Offs                                        (616)                    (470)
Recoveries:
     Commercial, Financial and Agriculture                         305                        3
     Real Estate-Mortgage                                            0                        2
     Installment Loans to Individuals                              110                      106
                                                       -------------------------------------------------
         Total Recoveries                                          415                      111
Net Charge-Offs                                                   (201)                    (359)
Provision                                                          209                      572
                                                       -------------------------------------------------
Balance at End of Period                                        $3,133                   $3,145
                                                       =================================================
Ratio of Net Charge-Offs to Gross Loans                          0.09%                    0.18%
                                                       =================================================`

13

---

NON-INTEREST INCOME

TABLE 5

`Three Months Ended          Nine Months Ended
Analysis of Non-Interest Income                       September 30                September 30
(000's omitted)                                    2002          2001          2002          2001
-------------------------------------------------------------------------------------------------------
Service Charges on Deposit Accounts                  $661         $511         $1,808        $1,541
Gain on Sale of Loans                                $270         $170           $562          $403
Mortgage Servicing Fees                                $0           $0             $0           $35
Trust Income                                         $147         $159           $426          $484
Other Operating Income                               $311         $268           $817          $859
Gain on sale of securities - AFS                       $0         $160             $0          $317
                                               --------------------------------------------------------
     Total Non-Interest Income                     $1,389       $1,268         $3,613        $3,639
                                               ========================================================`

Non-interest income
decreased slightly in nine months ended September 30, 2002 as compared to the
same period in 2001, primarily due to the decrease in trust income, and a
decrease in the gain on sale of securities that occurred in 2001. Overall
non-interest income was $3,613,000 for the nine months ended September 30, 2002
compared to $3,639,000 for the same period in 2001. These figures represent a
decrease of 0.7%. Non-interest income increased 9.5% in the third quarter of
2002 compared with the same period in 2001. Table 5 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 $1,808,000 in the first nine months of 2002 compared to $1,541,000 for
the same period of 2001. This represents an increase of 17.3%. Increases are
attributable to service charges from growth in core deposits and the
introduction of a new overdraft privilege product. In the third quarter of 2002
service charges increased 20.0% over 2001.

Gains on the sale of
mortgage loans originated by the Banks and sold in the secondary market were
$562,000 in the nine months ended September 30, 2002 and $403,000 in the same
period in 2001. 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 of historically low market interest
rates. For the third quarter of 2002, gain on sale of mortgages increased 58.8%
over the prior year.

Mortgage servicing fees
were $35,000 in the nine months ended September 30, 2001 compared to $0 in the
same time period in 2002. The decline is attributable to the sale of a
significant portion of the Corporations serviced loans, in the last
quarter of 2000. Servicing income was recognized in January of 2001 until these
serviced loans were actually transferred to the purchaser.

Trust income decreased
$58,000 in the nine months ended September 30, 2002 comparing to the same period
in the prior year. This 12.0% decrease in fees is attributable to the decline in
the value of assets under management and the loss of a few trust accounts within
the Corporations Trust Department. Trust income decreased 7.5% in the
third quarter of 2002 compared with 2001.

Other operating income
decreased $42,000 to $817,000 in the first nine months of 2002 compared to
$859,000 in the same time period in 2001. This is a decrease of 4.9%. Other
operating income decreased due to decreases in income from the sale of official
checks and a decrease in income from the sale of consumer investment products.
In the third quarter of 2002 other operating income increased 16.0% compared
with the same period in 2001.

The Corporation had a gain
on sale of securities in the third quarter of 2001. This gain made up 12.6% of
the third quarter of 2001 noninterest income and 8.7% of the year to date
through September 30, 2001 non-interest income.

14

---

Non-Interest Expense

TABLE 6

`Three Months Ended     Nine Months Ended
Analysis of Non-Interest Expense                    September 30,          September 30,
----------------------------------------------------------------------------------------------
(000's omitted)
                                                  2002        2001       2002        2001
----------------------------------------------------------------------------------------------
Salaries and Benefits                             $1,665      $1,643      $4,979     $4,728
Equipment                                           $376        $376      $1,122     $1,056
Occupancy                                           $267        $236        $788       $657
Office Supplies                                      $91         $83        $198       $192
Loan & Collection Expense                            $40         $48        $128       $130
Advertising                                         $112         $88        $237       $256
Other Operating Expense                             $551        $584      $1,771     $1,899
                                              ------------------------------------------------
    Total Non-Interest Expense                    $3,102      $3,058      $9,223     $8,918
                                              ================================================`

Total non-interest expense
was $9,223,000 in the nine months ended September 30, 2002 compared with
$8,918,000 in the same period of 2001. This is an increase of 3.4%. This
increase is largely attributable to an increase in salaries and benefits expense
and net occupancy expenses.

Salary and benefit costs,
Fenturas largest non-interest expense category, were $4,979,000 in the
nine months ended September 30, 2002, compared with $4,728,000, or an increase
of 5.3%, for the same time period in 2001. Increased costs are primarily a
result of a modest increase in the number of employees and an increase in
employee benefit costs and commission expenses paid to mortgage originators. The
third quarter showed an increase of 1.3% in salaries and benefits.

During the nine months
ended September 30, 2002 equipment expenses were $1,122,000 compared to
$1,056,000 for the same period in 2001, an increase of 6.3%. The increases in
expenses are attributable to additions to equipment maintenance contracts and
equipment depreciation, which increased due to the opening of the Silver Lake
Parkway and Grand Blanc branch bank offices. In the third quarter of 2002
equipment expenses have remained steady in comparison with the third quarter of
2001.

Occupancy expenses at
$788,000 increased in the nine months ended September 30, 2002 comparing to the
same period in 2001 by $131,000 or 19.9%. The increases are attributable to
increases in facility repairs, opening of the Grand Blanc and Silver Lake
Parkway offices and operation of the Davison State Bank new main office, which
opened in the second quarter of 2001 and maintenance contracts expense.
Occupancy expenses increased 13.1% in the third quarter of 2002 compared to
2001.

During the nine months
ended September 30, 2002 office supplies expense at $198,000 increased $6,000
comparing to the $192,000 in expense for the same period in 2001. The increase
is attributable to the opening of the new branch offices in 2002. Office
supplies have increased 9.6% in comparison between the third quarter in 2002 and
2001.

Loan and collection
expenses, at $128,000, were down $2,000 during the nine months ended September
30, 2002 comparing to the same time period in 2001. The decrease is primarily
attributable to a reduction in other loan expense. In the third quarter, loan
and collection expenses were down 16.7% compared with third quarter of 2001.

Advertising expenses were
$237,000 in the nine months ended September 30, 2002 compared with $256,000 for
the same period in 2001. The decrease of $19,000 or 7.4% was primarily due to
the decrease in shareholder expenses and promotional expenses to the over 50
years of age customer segment. Advertising increased 27.3% in the third quarter
of 2002 compared to 2001.

Other operating expenses
were $1,771,000 in the nine months ended September 30, 2002 compared to
$1,899,000 in the same time period in 2001, a decrease of $128,000 or 6.7%. The
decrease is attributable to a decrease in the amount of overdrawn deposit
account charge-offs and a decrease in legal and consulting expenses. Other
operating expenses decreased 5.7% in the third quarter of 2002 compared with the
same period in 2001.

15

---

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. In the second quarter of 2002, the Corporation bought $3.6
million in bank owned life insurance policies, which increased earning assets.
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 $328 million at September 30, 2002 compared to December 31,
2001 total assets of $309 million. Loans comprised 68.5% of total assets at
September 30, 2002 compared to 69.3% at December 31, 2001. Loans grew $7.0
million with commercial loans and tax-exempt loans leading the advance, which
together grew $5.2 million while other loan categories experienced small
increases or remained steady. The ratio of non-interest bearing deposits to
total deposits was 16.6% at September 30, 2002 compared to 16.0% at December 31,
2001. Interest bearing deposit liabilities totaled $236 million at September 30,
2002 compared to $223 million at December 31, 2001. Total deposits increased
$18.2 million with non-interest bearing demand deposits leading the increase
with growth of $4.5 million and substantial growth in all deposit categories.
Short-term borrowings decreased $0.6 million due to the decrease in federal
funds purchased from December 31, 2001.

Bank premises and
equipment increased $778,000 to $9.3 million at September 30, 2002 comparing to
$8.5 million at December 31, 2001. The increase is attributable to the opening
of a new banking 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 7 reflects the levels of these assets at September 30,
2002 and December 31, 2001.

Non-performing assets
increased at September 30, 2002 compared to December 31, 2001. This increase is
attributable to an increase in repossessed assets and an increase in
non-performing loans. The non-accrual loans increased because seven new loans
were placed on non-accrual totaling $748,000. During the month of October the
Corporation received a repayment reducing non-accrual loans by $271,000. The
increase in non-performing assets did not in managements opinion warrant
an increase in the loan loss reserve, because of a decrease in charge-offs and a
change in loan portfolio mix. Also, most of the non-performing assets are
well-secured loans. The charge-off percentage for the nine months ended
September 30, 2002 is .09% and it was 0.18% at September 30, 2001. Also,
the mix of the loan portfolio has switched in the past year. In 2001, the
Corporation had more indirect & consumer loans in the portfolio and in 2002,
the mix is more commercial loans and commercial real estate loans, which
historically have lower net charge-off ratios.

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.

16

---

## Table 7

## Non-Performing
Assets and Past Due Loans

`September 30,  December 31,
                                                      2002            2001
                                                 --------------------------------
Non-Performing Loans:
     Loans Past Due 90 Days or More & Still
         Accruing                                    $187,000       $186,000
     Non-Accrual Loans                                864,000        321,000
     Renegotiated Loans                                     0              0
                                                 --------------------------------
         Total Non-Performing Loans                 1,051,000        507,000
                                                 --------------------------------
Other Non-Performing Assets:
     Other Real Estate                                      0              0
     REO in Redemption                                      0              0
     Other Non-Performing  Assets                      27,000         10,000
                                                 --------------------------------
         Total Other Non-Performing Assets             27,000         10,000
                                                 --------------------------------
Total Non-Performing Assets                        $1,078,000       $517,000
                                                 ================================
Non-Performing Loans as a % of
     Total Loans                                       0.48%           0.24%
Allowance for Loan Losses as a % of
     Non-Performing Loans                            298.10%         616.37%
Accruing Loans Past Due 90 Days or
     More to Total Loans                               0.39%           0.09%
Non-performing Assets as a % of
     Total Assets                                       .33%           0.17%`

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 nine months of 2002. 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 September 30, 2002 federal funds sold represented 7.9% of total assets,
compared to 7.4% at December 31, 2001. The Corporation regularly monitors
liquidity to ensure adequate cash flows to cover unanticipated reductions in the
availability of funding sources.

17

---

Interest rate risk is
managed by controlling and limiting the level of earnings volatility arising
from rate movements. 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 $16,064,000
in the first nine months of 2002 due to the increase in deposits. Comparatively,
in the first nine months of 2001, cash provided by financing activities was
$23,682,000 because of increases in deposits. Cash used in investing activities
was $11,789,000 during the first nine months of 2002. Cash flow from investing
activities decreased for the first nine months of 2002 primarily because of an
increase in securities purchases and increase in loan demand.

CAPITAL MANAGEMENT

Total shareholders
equity rose 2.5% to $39,375,000 at September 30, 2002 compared with $38,433,000
at December 31, 2001. The Corporations equity to asset ratio was 12.0% at
September 30, 2002 and 12.4% at December 31, 2001. The increase in the amount of
capital resulted primarily from the increase in retained earnings.

As indicated on the balance
sheet at December 31, 2001 the Corporation had accumulated other comprehensive
income of $92,000 compared to accumulated other comprehensive income at
September 30, 2002 of $249,000. 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 8, at September 30, 2002 and at December
31, 2001, 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.

18

---

Table 8

`Capital Ratios
                             ---------------------------------------------------------------------------
                                Regulatory Minimum                  Fentura Financial, Inc.
                              For "Well Capitalized"   September 30,    December 31,      September 30,
                                                            2002            2001              2001
Total Capital to risk
     Weighted assets                    10%                15.90%          16.20%            17.03%
Tier 1  Capital to risk
     Weighted assets                     6%                14.72%          15.00%            15.77%
Tier 1 Capital to average
     Assets                              5%                12.67%          12.50%            12.10%`

## ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The information
concerning quantitative and qualitative disclosures about market risk contained
on pages 47 through 48 in the Corporations Annual Report on Form 10-K for
the year ended December 31, 2001, 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 nine months of 2002, 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 2002 compared to 2001.

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 9 sets forth the
distribution of re-pricing of the Corporations earning assets and interest
bearing liabilities as of September 30, 2002, 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.

19

---

## Table 9

`GAP ANALYSIS SEPTEMBER 30, 2002

(000's Omitted)                                    Within       Three      One to       After
                                                   Three      Months to     Five        Five
                                                   Months     One Year      Years       Years       Total
                                                -------------------------------------------------------------
Earning Assets:
    Federal Funds Sold                           $  25,900   $       0   $       0   $       0   $  25,900
    Securities                                       1,639      11,397      20,013       9,032      42,081
    Loans                                          100,630      15,268      82,332      22,900     221,130
    Loans Held for Sale                              3,477           0           0           0       3,477
                                                -------------------------------------------------------------
       Total Earning Assets                       $131,646   $   26,665  $ 102,345   $  31,932    $292,588
                                                =============================================================

Interest Bearing Liabilities:
    Interest Bearing Demand Deposits             $  44,661   $       0   $       0   $       0   $  44,661
    Savings Deposits                                87,948           0           0           0      87,948
    Time Deposits Less than $100,000                13,919      23,741      37,376           0      75,036
    Time Deposits Greater than $100,000              7,917       8,633      12,168           0      28,718
    Short term borrowings                            1,500           0           0           0       1,500
    Other Borrowings                                     0          16          77       1,030       1,123
                                                -------------------------------------------------------------
       Total Interest Bearing Liabilities         $155,945    $ 32,390   $  49,621   $    1,030   $238,986
                                                =============================================================
Interest Rate Sensitivity GAP                    $ (24,299)   $ (5,725)  $  52,724   $  30,902   $  53,602
Cumulative Interest Rate
    Sensitivity GAP                              $ (24,299)  $ (30,024)  $  22,700   $  53,602
Interest Rate Sensitivity GAP                         (0.84)      (0.82)       2.06       31.00
Cumulative Interest Rate
    Sensitivity GAP Ratio                             (0.84)      (0.84)       1.10        1.22`

As indicated in Table 9,
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 September 30, 2002 and the change in net interest income for the
nine months ended September 30, 2002 compared to the same time period in 2001.
At September 30, 2001 the Corporation was negatively gapped through one year and
since that time interest rates have declined further, yet net interest income
declined comparing the first nine months of 2002 to the same period in 2001.
This occurred because certain deposit categories, specifically interest bearing
demand and savings, did not re-price at the same time or at the same level as
asset portfolios. 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 regard to the November 6th prime rate
reduction of fifty basis points, which should alleviate any negative impact on
net interest income.

20

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## FORWARD
LOOKING STATEMENTS

This report contains
forward looking statements as that term is used in the securities
laws. All statements regarding the Corporations expected financial
position, performance, business and strategies are forward looking statements.
These statements are based on managements beliefs, assumptions, current
expectations, estimates and projections about the financial services industry,
the economy, and about the Corporation itself. Words such as
anticipates, believes, estimates,
expects, forecasts, intends, is
likely, plans, projects, variations of such words
and similar expressions are intended to identify such forward looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions (Future
Factors), which are difficult to predict with regard to timing, extent,
likelihood and degree of occurrence. Therefore, actual results and outcomes may
materially differ from what may be expressed or forecast in such forward-looking
statements. The Corporation undertakes no obligation to update, amend or clarify
forward looking statements as a result of new information, future events, or
otherwise.

Future Factors that
could cause a difference between an ultimate actual outcome and a preceding
forward looking statements contained in this report include, but are not limited
to, changes in interest rate and interest rate relationships, demands for
products and services, the degree of competition by traditional and
non-traditional competitors, changes in banking laws or regulations, changes in
tax laws, changes in prices, the impact of technological advances, government
and regulatory policy changes, the outcome of pending and future litigation and
contingencies, trends in customers behaviors as well as their ability to
repay loans, and the local economy. Further information concerning us and our
business, including additional factors that could materially affect our
financial results, is included in our other filings with the Securities and
Exchange Commission.

## ITEM 4:
CONTROLS AND PROCEDURES

## 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-14(c) and 15d-14(c)) as of a date within 90
days of the filing date of this Form 10-Q Quarterly Report (the Evaluation
Date), have concluded that as of the Evaluation Date, 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 company, particularly during the period
in which this Form 10-Q Quarterly Report was being prepared.

## Changes in
Internal Controls

There were no
significant changes in the Corporations internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of the most recent evaluation, nor any significant deficiencies or material
weaknesses in such internal controls requiring corrective actions. As a result,
no corrective actions were taken.

21

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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. - None

|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              
| | --- | ----------------------
| |     | 99.1                  
| |     | 99.2                  
| | (b) | Reports on 8-K - None.

22

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# 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:  November 13, 2002 | By                     
|                         |                        
|Date:  November 13, 2002 | By                     
|                         |                        

23

---

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 quarterly 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 quarterly 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
quarterly 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-14 and 15d-14) for the registrant and
we have:                                                                                                                                                                
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                      
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                      
|   | (c)                                                                                                                                                                                                                                                                                                                                                                                      
|5. | The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the
audit committee of registrants board of directors (or persons performing the equivalent function):                                                                                                                                           
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                      
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                      
|6. | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.

Date: November
13, 2002

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

24

---

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 quarterly 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 quarterly 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
quarterly 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-14 and 15d-14) for the registrant and
we have:                                                                                                                                                                
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                      
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                      
|   | (c)                                                                                                                                                                                                                                                                                                                                                                                      
|5. | The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the
audit committee of registrants board of directors (or persons performing the equivalent function):                                                                                                                                           
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                      
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                      
|6. | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.

Date: November
13, 2002

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

25

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EXHIBIT INDEX

|Exhibit | Description                                                                                                                                                                                       
|------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|99.1    | 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.
|99.2    | 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. 

26

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# Exhibit 99.1

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 September 30, 2002 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 September 30, 2002 fairly presents, in all material respects, the
financial condition and results of operations of Fentura Financial, Inc.

Date: November
13, 2002

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

27

---

# Exhibit 99.2

(1)        the Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 2002 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 September 30, 2002 fairly presents, in all material respects, the
financial condition and results of operations of Fentura Financial, Inc.

Date: November
13, 2002

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

28