2 0 2 1 A N N U A L R E P O R T I am proud of the resiliency of our team in their efforts to ensure, that despite the pandemic, our customers’ needs for services, financial information, and transactions have been met. 2021 was another exciting and challenging year for Fentura. On December 1, the acquisition of Farmers State Bank of Munith (FSB) was mortgage team had another outstanding year, originating more than $357.6 million in new loans. Total loans increased by $33.5 million to $1.1 billion completed and since that time, our primary focus has at year end, or 3.1%. Total loans, excluding PPP loans, been the conversion of their core technology system to increased $209.2 million at year end, or 23.5%, net transfer their customer data to our system. Additionally, of loan payoffs and paydowns. Total investments we welcomed their team of banking professionals to increased $88.8 million to $164.9 million at year ours and have begun to promote The State Bank’s brand, end, or 116.7%. Investments increased due to the products and services in FSB’s markets. The resulting acquisition of FSB, as well as the Company expanding enhanced strong core deposit base and our market expansion plans will allow us to improve shareholder value through enhanced growth. Throughout the year we continued to navigate operations based on the impacts of the COVID-19 pandemic. I am proud of the resiliency of our team in their efforts to ensure, that despite the pandemic, our customer’s needs for services, financial information, and transactions have been met. The Company experienced strong growth again this year, reaching $1.4 billion in assets at year end. During the year assets increased over $166 million or 13.3%. This strong level of growth was achieved through organic loan and deposit opportunities and the acquisition of FSB noted previously. the portfolio to generate additional interest income. The asset increases were primarily funded by deposit growth. Total deposits were $1.2 billion at year end, increasing by $156.3 million or 14.6% over 2020. Retail and commercial deposits experienced growth and increased totals in all deposit categories at year end 2021, with the exception of time deposits. Our customers continued to increase deposit dollars to checking, savings and money market accounts based on historically low market interest rates reducing rates on time deposits. Capital increased by $8.6 million, ending the year at $124.4 million. The increase was primarily driven by our strong earnings. The majority of asset growth occurred in the loan and 2021 marks the fifth consecutive year the Company investment portfolios. Within loans, the commercial achieved record earnings. Net income totaled $16.6 loan team, excluding Paycheck Protection Plan loans, million, an increase of $1.1 million or 7.2%. Balance originated $297.3 million in new loans, including sheet growth and the resulting increase in net interest $69 million in SBA and USDA loans. The residential income, as well as a modest net reversal of provision for loan losses, contributed to the net income increase. and with numerous other organizations, both Mr. Net interest income totaled $44.2 million for the Petty and Mr. Rybar bring a wealth of experience and year, an increase of $4.1 million compared to 2020. knowledge to their new leadership roles. Also in May, the Noninterest income totaled $14.1 million, a decrease of Board announced the appointment of Kelly Myers to the $5.6 million compared to 2020, largely due to a decline Board of Directors. Mrs. Myers is an attorney, founding in net gains on the sales of loans based on residential her own practice in Howell, Michigan. Her legal and loan originations not reaching the elevated levels of the business experience has further strengthened our Board. prior year due to constrained housing inventory and Following the acquisition of Farmers State Bank, their rising interest rates impacting refinance opportunities. President and Chief Financial Officer, Jeanne Richter, Noninterest expenses totaled $37.7 million, an increase was appointed Chief Risk Officer of the Bank. Jeanne of $3.0 million over 2020. These expenses were higher in is an experienced banker, with a strong reputation in 2021 primarily due to an increase in total compensation, Michigan banking. We look forward to her developing largely due to an increase in the number of employees this new role within the Company and strengthening and annual merit increases. Additionally, most other our operation. Additionally, Craig Johnson, the Chief noninterest expense categories increased during the Lending Officer, and Aaron Wirsing, the Chief Financial year due to the size of the Company and the impact of Officer, were promoted to Executive Vice Presidents market conditions on the cost of goods and services in during the year in recognition of their contributions to the market. Provisions declined despite growth of the the success of the Company during their tenure and loan portfolio, based on strong credit quality indicators. their increased responsibilities as we have grown. I am proud of the exceptional one-year total return to shareholders the Company achieved in 2021. For the year, the total return to shareholders was 30.0%, supported by dividends and market price appreciation of Fentura stock. I am honored that our strong overall financial performance earned the Company important The Company’s team of banking professionals worked diligently to support our mission, vision and core values throughout 2021. Despite the continued challenges faced in great part due to the COVID-19 pandemic, the team’s efforts once again produced outstanding results, positioning us for a strong future. As always, thank you for your continued support. recognition again this year. In May 2021, the Bank was again named to the American Bankers Association’s Warmly, Top 200 Publicly Traded Banks, ranking 40th. Rankings Ronald L. Justice are based on the average of the three previous years President and CEO return on average equity. Additionally, the Bank was named the 2021 #1 Michigan-Based Community Bank SBA Lender by the Small Business Administration. Throughout the year, we experienced important additions and changes to our Board and senior management team. In May the Board announced the appointment of Brian Petty as Chairperson of the Board and Ronald Rybar as Vice Chairperson. Previous Chairperson, Thomas McKenney, continues to serve as a Director. As seasoned members of the Company’s Board, as businessmen, and individuals active in the community President & CEO Report 3 While 2021 was no doubt on the heels of a challenging yet rewarding year, in many ways these challenges have allowed us to focus on our vision to become known for helping our customers look past obstacles or limiting perspectives to see what’s possible. Our growth and success over the past several years have in fact pointed directly to this vision for not only how we serve our customers, but how we operate as a bank. We have confirmed that communities need banks committed to their success, and families and businesses need financial partners by their side to help them navigate constant changes. We have learned that our ability to stand out amongst of sea of competitors relies on how we uniquely serve our customers with the perspective that anything is possible. New Markets Oakland County Lending Team Michael Franklin Paul J. Dowling Commercial Lending Market Manager Vice President Commercial Lender Vice President Growth in Oakland County Our newest branch located on Northwestern Highway in Farmington Hills opened in the first quarter of 2021. Our focus on connecting with local businesses led our team to close over $78 million in commercial loans and help 55 businesses in 2021 alone. Oakland County is an extremely competitive market, yet our team has found instant success in helping local businesses that want to partner with a bank where they will feel valued and have a team beside them who is empowered to make decisions. Welcoming Farmers State Bank On December 1, 2021, the acquisition of Farmers State Bank of Munith became official. Fentura Financial’s acquisition of Farmers State Bank allows us to promote our dedication to community banking in an expanded market area, including Ingham and Jackson counties. Farmers State Bank customers now have access to The State Bank’s more expansive product line, including enhanced mobile and online banking tools. 5 Growing Core Deposits Growing Community 3,513 Retail Accounts Opened in 2021 156.3MILLION increase in total deposits 19 MILLION increase in Kasasa Accounts Growing Home Ownership New Mortgage and Refinance Loans 1,243 MILLION357.6 New Mortgage and Refinance Loans 483,975 donated in 2021 throughout our local communities 36,000 donated to 12 local school districts to support the needs of low- to moderate-income children and families from the staff-directed fundraising effort through the Change for Kids Program. Since the program’s inception, $258,000 has been donated. 37,000 donated to the Food Bank of Eastern Michigan. With the 2021 contribution, The State Bank has raised a total of $405,000 throughout the successful 20-year partnership with the Food Bank of Eastern Michigan. Growing Local Business Growing Wealth Growth in Numbers #1 Michigan-Based Community Bank SBA Lender* FOR TWO YEARS IN A ROW! *Based on number and dollar amount of SBA loans approved during the fiscal years ending 9/30/20 and 9/30/21. MILLION69.3 Small Business Administration (SBA) Loans MILLION297.3 New Commercial Loans INCREASE13.2 Wealth Management & Trust Services Revenue MILLION INCREASE19.9 Wealth Management & Trust Services Assets Under Management Growing Innovation 13,083 Average Monthly ITM Transactions Serving customers seven days a week with Connect! ITMs throughout our markets 7 COMMERCIAL | SAGINAW “Kevin Neumeyer and The State Bank have helped me with several loans and refinancing arrangements over the last several years. Every time I am thoroughly impressed with the speed and accuracy at which they get everything done. We work through any hiccups that may come up and resolve them with ease. Kevin always keeps me informed as to how the process is going and what to expect as we move forward. I have dealt with several different banks over the years and The State Bank is by far the friendliest and easiest to work with and that is why they continue to get my business whenever we have a banking need.” Josh Kemerer River Bend Self Storage & Uhaul Rentals WEALTH MANAGEMENT | FENTON “I have been associated with The State Bank’s Wealth Management department for over 10 years. During that time I had to make some significant retirement investment decisions. The recommendations and counsel I received from Tom Hufton were well researched and consistent with my investment strategies. We meet regularly to track our progress and change direction when appropriate. I feel the whole organization is aligned and working in my best interest. Could not be more pleased.” Daniel Donar MORTGAGE | LINDEN “A bank like no other! Personable professional service. Go above and beyond their job to help achieve your goals. They have a skilled team that meshed seamlessly with our real estate company whom they maintain excellent relationship with. My wife and I closed on a house and had it purchased all in the same week! We couldn’t be more happy or thankful.” Christopher & Christina Arsenault COMMERCIAL | BURTON & BRIGHTON “Our experience in dealing with The State Bank has been 100% positive in the acquisition of two businesses in 2021. Our loan officer Kevin Neumeyer has always been extremely responsive, knowledgeable, and professional giving us outstanding service. As we are new to The State Bank, our experience at the branch level as well as the support on the backend has been as good as Kevin offered. As we grow, why would we ever look elsewhere?” Anne and Don Haley Strive Centers For Autism I cannot overstate, the impact our relationship with The State Bank has had on our continued success. Greg Walker, Managing Principal, WalkerHealthcareIT COMMERCIAL | FENTON “The team at The State Bank has been true partners in our business while using the power of a big bank to make a local impact. We have benefited from their expertise and their many solutions at competitive prices.” Ryan Niles Niles Industrial TREASURY MANAGEMENT | BLOOMFIELD HILLS “WalkerHealthcareIT has been a customer of The State Bank since 2020. The referral to The State Bank actually came from one of its competitors in the market. At that time, our company was growing rapidly, but we were considered too small to matter to most large commercial banking institutions. We knew we were seeking a bank that could understand the complexities of our business, which required both a strong lending component coupled with a treasury management relationship. Mike and his team took the time necessary to understand our needs; thus being instrumental in allowing us to meet the financial demands of rapid growth. I cannot overstate, the impact our relationship with The State Bank has had on our continued success.” Greg Walker Managing Principal, WalkerHealthcareIT COMMERCIAL | BLOOMFIELD HILLS “Tom Barrett and his team in Brighton have helped me grow my construction business and manage and grow my commercial portfolio. Responsiveness, innovative lending solutions and long-term relationships are the reasons I bank with The State Bank.” Richie Atto Atto Constructions MORTGAGE | ROYAL OAK “As new home buyers, Carl Moraw made the process an absolute breeze. We could tell from the beginning that he really cared about helping us understand the pre-approval and mortgage process step by step and it made us feel comfortable throughout. He was incredibly transparent and understanding and went the extra mile to check in and work as a great partner to our realtor. He even came to Birmingham to our closing to support us and answer all of our questions.” Jarett Coy & Audrey Crimmins COMMERCIAL | FLINT “Thank you for the professionalism and diligence given with our request for an Operating Line of Credit and an Equipment Line of Credit. Both were approved in a timely manner. Throughout the process, the team at The State Bank kept us informed with the status of the process. When the Loan Documents were ready for signing and funding, Andrew came to our office rather than the four partners of ProEx meeting up at The State Bank. We look forward to a long relationship with The State Bank.” Jeffrey Hawks President, ProEx, Flint, MI COMMERCIAL | FLINT “The State Bank is the best of both worlds, small bank feel with very personal and focused attention and the options of all the larger name, national banks. The State Bank has made the commercial banking maze very easy to access and manage with immediate assistance from top level banking decision makers. There is never any runaround! Covid proved to be difficult times both personally and professionally for everyone. The State Bank eased the confusion and concerns of sustaining our security services, deemed essential during the shutdowns. We were able to provide seamless service to all of our customers while providing our valuable employees with full pay, due to the speed and ease of our PPP loan. I was thankful we were able to support both our customers and employees during the challenging times. I would highly recommend the State Bank for both personal and commercial banking needs, as they have far exceeded all expectations.” Dave Forystek Premier Security Solutions COMMERCIAL | FLINT “We truly appreciate our business relationship with The State Bank. Our interactions with Commercial Loan Officer and Vice President Jill White are always addressed timely and professionally. We have also experienced exceptional customer service from their branch staff, both in-person and remotely. In this era of automated and impersonal customer service, it is refreshing to deal with a bank that is not only responsive, but one that also strives to meet and exceed your expectations. Accordingly, we highly recommend doing business with The State Bank.” Brian G. Glowiak Metro Community Development PPP | FENTON “Like most employers in Michigan, our companies were severely impacted by the Covid-19 pandemic. When the PPP loan became available, we had been doing business at one of the largest banks in the country for over 15 years. During the first round of PPP loans, our banker couldn’t even get our application through in time. Realizing our business was just one of many “numbers” to them, we made a phone call to Stephanie at The State Bank. She listened to what we had to say, took our application, and as soon as the second round of PPPs opened, it was submitted and approved within days. Since that moment, we have moved over all of our business banking (and personal as well) to The State Bank. It has been a pleasure working with The State Bank and we look forward to a successful working relationship in the future!” Mike Miotke & Jayme Brown B&M Crane Rental, LLC B&M Tower Technologies, Inc. Responsiveness, innovative lending solutions and long- term relationships are the reasons I bank with The State Bank. Richie Atto, Atto Constructions Growth in Financial Partnerships 9 Dollars in Thousands Except Per Share Amounts Balance Sheet and Asset Quality Ratios 12/31/21 12/31/20 12/31/19 12/31/18 12/31/17 Net Loans to Total Deposits 88.71% 98.48% 100.19% 100.60% 99.32% ALLL to Gross Loans Net Loan Charge offs to Gross Loans Nonperforming Loans to Gross Loans 0.95% 0.02% 0.18% 1.02% 0.05% 0.75% 0.67% 0.00% 0.17% 0.58% 0.02% 0.14% 0.54% -0.02% 0.00% Per Share Data Earnings per Share Book Value per Share 12/31/21 12/31/20 12/31/19 12/31/18 12/31/17 $3.60 $3.31 $2.49 $2.65 $2.39 $27.68 $24.68 $21.75 $19.31 $16.37 Tangible Book Value per Share $25.43 $23.88 $20.87 $18.32 $14.96 Market Price per Share Dividends per Share $28.28 $22.00 $25.23 $21.00 $18.88 $0.32 $0.30 $0.28 $0.24 $0.20 Total 1 Year Return to Shareholders (%) 30.00% -11.61% 21.48% 12.50% 19.25% Common Shares Outstanding 4,496,701 4,694,275 4,664,369 4,636,455 3,631,933 Average Common Shares Outstanding 4,624,243 4,684,006 4,653,872 3,812,433 3,625,568 Performance Ratios 12/31/21 12/31/20 12/31/19 12/31/18 12/31/17 Return on Average Assets 1.26% 1.29% 1.20% 1.20% 1.19% Return on Average Shareholders' Equity 13.52% 14.05% 12.02% 15.05% 15.38% Net Interest Margin Yield (FTE) 3.58% 3.50% 3.83% 3.84% 4.08% Efficiency Ratio 64.65% 58.10% 63.20% 65.23% 66.20% Capital Ratios 12/31/21 12/31/20 12/31/19 12/31/18 12/31/17 Total Capital to Risk Weighted Assets 12.22% 15.14% 14.03% 14.00% 10.93% Tier 1 Capital to Risk Weighted Assets 11.30% 13.93% 13.33% 13.40% 10.39% CET1 Capital to Risk Weighted Assets 10.07% 12.38% 11.64% 11.52% Tier 1 Capital to Average Assets 9.13% 9.80% 11.20% 10.92% 8.27% 8.98% 10 CONDENSED CONSOLIDATED BALANCE SHEETS Assets 12/31/21 12/31/20 12/31/19 12/31/18 12/31/17 Cash and Cash Equivalents $ 83,446 $46,757 $46,803 $23,412 $15,928 Total Securities Loans Held for Sale Gross Loans 164,942 6,783 76,111 27,306 61,621 19,491 94,721 55,323 903 2,067 1,100,092 1,066,562 870,555 772,227 672,530 Less Allowance for Loan Losses 10,500 10,900 5,813 4,488 3,603 Net Loans All Other Assets Total Assets 1,089,592 1,055,662 864,742 767,739 668,927 73,038 45,610 42,102 39,675 39,198 $1,417,801 $1,251,446 $1,034,759 $926,450 $781,443 Liabilities and Shareholders’ Equity Total Deposits Total Borrowed Funds Accrued Interest and Other Liabilities 12/31/21 12/31/20 12/31/19 12/31/18 12/31/17 $1,228,298 $1,071,976 $ 863,102 $763,124 $673,505 50,000 15,048 49,000 14,602 61,500 69,000 46,000 8,713 4,810 2,491 Total Liabilities 1,293,346 1,135,578 933,315 836,934 721,996 Total Shareholders' Equity 124,455 115,868 101,444 89,516 59,447 Total Liabilities and Shareholders' Equity $1,417,801 $1,251,446 $1,034,759 $926,450 $781,443 CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED Interest and Dividend Income 12/31/21 12/31/20 12/31/19 12/31/18 12/31/17 Loans, Including Fees $45,129 $44,238 $41,102 $34,371 $28,765 Investments 1,781 1,741 2,439 1,979 1,346 Total Interest and Dividend Income 46,910 45,979 43,541 36,350 30,111 Total Interest Expense Net Interest Income Provision for Loan Losses Net Interest Income, After Provision for Loan Losses Total Non-Interest Income Total Non-Interest Expenses 2,736 5,924 8,627 5,827 3,120 44,174 40,055 34,914 30,523 26,991 (180) 5,634 1,335 1,057 609 44,354 34,421 33,579 29,466 26,382 14,080 37,663 19,640 34,684 8,163 8,277 8,988 27,223 25,310 23,818 Income Before Federal Income Taxes 20,771 19,377 14,519 12,433 11,552 Federal Income Taxes Net Income 4,192 3,913 2,941 2,319 2,876 $ 16,579 $15,464 $11,578 $10,114 $8,676 2021 Growth Highlights 11 11 MARKET PRICE PER SHARE BALANCE SHEET $28.28 $25.23 $22.00 $21.00 $18.88 Gross Loans Total Deposits Total Assets , 0 5 4 6 2 9 $ , 7 2 2 2 7 7 $ , 4 2 1 3 6 7 $ , 5 5 5 0 7 8 $ , 2 0 1 3 6 8 $ , 3 4 4 1 8 7 $ , 5 0 5 3 7 6 $ , 0 3 5 2 7 6 $ , 9 5 7 4 3 0 1 $ , , 6 4 4 1 5 2 1 $ , , 1 0 8 7 1 4 1 $ , , 8 9 2 8 2 2 1 $ , , 2 9 0 0 0 1 1 $ , , 6 7 9 1 7 0 1 $ , , 2 6 5 6 6 0 1 $ , 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 RETURN ON AVERAGE ASSETS EARNINGS PER SHARE 1.19% 1.20% 1.20% 1.29% 1.26% $3.60 $3.31 $2.65 $2.49 $2.39 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 EFFICIENCY RATIO NET INCOME 66.20% 65.23% 64.65% 63.20% 58.10% $16,579 $15,464 $10,114 $11,578 $8,676 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 Dollars in Thousands Except Per Share Amounts Best of... The State Bank was honored this year as MLive’s Reader’s Choice for Best Bank and Best Mortgage in the Northeast Michigan region. This award came from voters, who showed their support of The State Bank in a highly competitive region. In addition, the Tri-County Times, serving Fenton, Linden, and Holly, awarded The State Bank with the Best of the Best award in the banking category. Top Performing Community Banks Fentura Financial, Inc., announced that it has ranked in the American Banker Magazine’s “Top 200 Community Banks” list, as one of the top-performing 40 community banks in the United States. S&P Global Marketing Intelligence reviewed a total of 479 publicly traded banks and thrifts with total assets of less than $2 billion as of Dec. 31, 2020, and that are publicly traded or report financials to the SEC. Rankings were based on return on average equity across three years. (Source: Capital Performance Group.) Building Better Communities In 2021, The State Bank committed $500,000 to develop a section of a non-motorized pathway along Silver Lake Road in Fenton. With the sponsorship, this portion of the pathway will be named The State Bank Trail. The Best Bank for Small Business For the second year in a row, The State Bank has been ranked as the #1 Michigan-Based Community Bank Small Business Administration (SBA) Lender based upon the number of approved loans for the SBA fiscal years ending September 30, 2020 and 2021. Our passion for small business and the need for business owners to feel valued by their bank has led to the bank’s continued success. We are honored to be recognized; 2020 and 2021 have been difficult years for many; to continue to be listed in the top 40 of the country is an indicator that community banking continues to be vital for the financial wellness of our local families, businesses and communities. Ron Justice, President and CEO The State Bank Trail will be a permanent reminder of our commitment to put the good back in banking by being actively engaged in developing, strengthening, and energizing the communities that we live in. Ron Justice, President and CEO Growth & Performance Recognized 13 Locations 14 STOCKBRIDGE 5101 M-106 Stockbridge, MI 49285 517.985.1062 THOMAS TOWNSHIP 7590 Gratiot Road Saginaw, MI 48609 989.781.2350 VG’S FOOD CENTER 18005 Silver Parkway Fenton, MI 48430 810.750.8781 ATM Only Locations ALPINE FOOD PLAZA 606 W. Broad Street Linden, MI 48451 BURT 10811 Albee Road Burt, MI 48417 CHESANING 148 Chapman Street Chesaning, MI 48616 THOMPSON ROAD 3237 W. Thompson Road Fenton, MI 48430 MAIN OFFICE 175 N. Leroy Street Fenton, MI 48430 810.629.2263 BIRCH RUN 8412 Main Street Birch Run, MI 48415 989.624.6280 BRIGHTON 134 N. First Street Brighton, MI 48116 810.534.0800 CHESANING 12771 Brady Road Chesaning, MI 48616 989.845.7070 HOLLY 4043 Grange Hall Road Holly, MI 48442 810.750.8701 LINDEN 107 Main Street Linden, MI 48451 810.750.8794 MONTROSE 200 W. State Street Montrose, MI 48457 810.639.6101 MUNITH 201 N. Main Street Munith, MI 49259 517.985.1062 FARMINGTON HILLS NEW LOTHROP Northwestern Professional Center 9380 Genesee Street 31000 Northwestern Highway, New Lothrop, MI 48460 Suite 150 810.638.3003 Farmington Hills, MI 48334 248.498.6979 SAGINAW GRAND BLANC NORTH Saginaw, MI 48601 218 S. Washington Avenue 1401 E. Hill Road Grand Blanc, MI 48439 810.603.9500 GRAND BLANC SOUTH 7606 S. Saginaw Street Grand Blanc, MI 48439 810.695.9601 GRASS LAKE 989.393.4020 SILVER PARKWAY 15095 Silver Parkway Fenton, MI 48430 810.750.5605 ST. CHARLES 207 S. Saginaw Street St. Charles, MI 48655 12005 Michigan Avenue 989.865.9434 Grass Lake, MI 49240 517.985.1062 800.535.0517 | Fentura.com | TheStateBank.com