Fentura Financial, Inc. Announces Second Quarter 2024 Earnings (Unaudited)

Fentura Financial, Inc.

Thu, Jul 25, 2024, 4:31 AM 13 min read

Ronald L. Justice, President and CEO, stated, “Our second quarter results are in line with our expectations as we pursue near-term strategies aimed at navigating a difficult banking environment. We continue to focus on strengthening our balance sheet by controlling loan growth, managing our cost of funds, and maintaining robust asset quality. During the first half, gross loans remained stable as a result of higher home equity loans, consistent commercial and industrial loans, and lower CRE and residential mortgage loans. In addition, total deposits increased 3.4%, borrowed funds were down 11.0% compared to the prior year period, and our asset quality remains at historically strong levels. While higher cost of funds continues to impact profitability, I am pleased to report another quarter of tangible book value growth, which increased 9.9% year-over-year to a record of $29.84 per share.”

Mr. Justice concluded, “While we believe the challenging macro conditions will continue to impact profitability during the remainder of 2024, we are excited by the strength of our banking franchise and the long-term strategies we are pursuing to create value for our shareholders. Finally, I am proud of the hard work and dedication of our employees, and their unwavering commitment to serve our small business, commercial, and retail customers throughout our local Michigan communities.”

Following is a discussion of our financial performance as of, and for the three and six months ended June 30, 2024. At the end of this document is a list of abbreviations and acronyms.

Results of Operations (unaudited)
The following table outlines our QTD results of operations and provides certain performance measures as of, and for the three months ended:

	6/30/2024			3/31/2024			12/31/2023			9/30/2023			6/30/2023
INCOME STATEMENT DATA
Interest income	$	21,487		$	21,541		$	21,033		$	20,416		$	19,553
Interest expense		9,650			9,315			8,526			7,757			6,469
Net interest income		11,837			12,226			12,507			12,659			13,084
Credit loss expense (reversal)		796			(43	)		(190	)		(309	)		205
Noninterest income		2,314			2,355			2,145			2,338			2,460
Noninterest expenses		10,921			11,166			10,121			10,594			11,320
Federal income tax expense		454			668			937			937			793
Net income	$	1,980		$	2,790		$	3,784		$	3,775		$	3,226
PER SHARE
Earnings	$	0.44		$	0.63		$	0.85		$	0.85		$	0.73
Dividends	$	0.11		$	0.11		$	0.10		$	0.10		$	0.10
Tangible book value⁽¹⁾	$	29.84		$	29.38		$	28.92		$	27.64		$	27.16
Quoted market value
High	$	24.39		$	27.20		$	27.20		$	23.74		$	21.21
Low	$	22.33		$	24.00		$	22.26		$	19.10		$	18.70
Close⁽¹⁾	$	22.50		$	24.40		$	27.20		$	23.74		$	19.35
PERFORMANCE RATIOS
Return on average assets		0.45	%		0.63	%		0.86	%		0.86	%		0.76	%
Return on average shareholders' equity		5.59	%		7.98	%		11.11	%		11.27	%		9.89	%
Return on average tangible shareholders' equity		5.98	%		8.55	%		11.94	%		12.14	%		10.67	%
Efficiency ratio		77.17	%		76.58	%		69.08	%		70.64	%		72.83	%
Yield on average earning assets (FTE)		5.18	%		5.15	%		5.06	%		4.92	%		4.85	%
Rate on interest bearing liabilities		3.22	%		3.11	%		2.90	%		2.66	%		2.35	%
Net interest margin to average earning assets (FTE)		2.85	%		2.92	%		3.01	%		3.05	%		3.25	%
BALANCE SHEET DATA⁽¹⁾
Total investment securities	$	100,167		$	103,210		$	107,615		$	109,543		$	117,563
Gross loans	$	1,459,929		$	1,461,465		$	1,473,471		$	1,483,720		$	1,472,288
Allowance for credit losses	$	15,300		$	15,300		$	15,400		$	15,400		$	15,400
Total assets	$	1,756,629		$	1,764,629		$	1,738,952		$	1,744,939		$	1,718,819
Total deposits	$	1,427,059		$	1,438,408		$	1,394,182		$	1,401,797		$	1,380,192
Borrowed funds	$	178,397		$	178,500		$	198,500		$	201,050		$	200,550
Total shareholders' equity	$	143,301		$	141,074		$	138,702		$	132,902		$	130,690
Net loans to total deposits		101.23	%		100.54	%		104.58	%		104.75	%		105.56	%
Common shares outstanding		4,490,087			4,484,447			4,470,871			4,466,221			4,460,053
QTD BALANCE SHEET AVERAGES
Total assets	$	1,762,651		$	1,771,614		$	1,740,526		$	1,739,510		$	1,706,147
Earning assets	$	1,669,862		$	1,683,708		$	1,649,091		$	1,646,848		$	1,617,593
Interest bearing liabilities	$	1,204,370		$	1,205,162		$	1,165,064		$	1,156,835		$	1,105,807
Total shareholders' equity	$	142,577		$	140,574		$	135,157		$	132,860		$	130,860
Total tangible shareholders' equity	$	133,252		$	131,204		$	125,723		$	123,349		$	121,274
Earned common shares outstanding		4,461,580			4,449,376			4,443,463			4,437,415			4,427,890
Unvested stock grants		26,500			31,821			26,018			26,668			29,916
Total common shares outstanding		4,488,080			4,481,197			4,469,481			4,464,083			4,457,806
ASSET QUALITY
Nonperforming loans to gross loans⁽¹⁾		0.66	%		0.39	%		0.38	%		0.24	%		0.16	%
Nonperforming assets to total assets⁽¹⁾		0.56	%		0.34	%		0.35	%		0.23	%		0.16	%
Allowance for credit losses to gross loans⁽¹⁾		1.05	%		1.05	%		1.05	%		1.04	%		1.05	%
Net charge-offs (recoveries) to QTD average gross loans		0.05	%		—	%	(0.01) %			(0.03) %				—	%
Credit loss expense (reversal) to QTD average gross loans		0.05	%		—	%	(0.01) %			(0.02) %				0.01	%
CAPITAL RATIOS⁽¹⁾
Total capital to risk weighted assets		12.38	%		12.27	%		11.91	%		11.59	%		11.31	%
Tier 1 capital to risk weighted assets		11.28	%		11.17	%		10.82	%		10.51	%		10.23	%
CET1 capital to risk weighted assets		10.28	%		10.17	%		9.83	%		9.53	%		9.25	%
Tier 1 leverage ratio		8.92	%		8.78	%		8.77	%		8.58	%		8.55	%

⁽¹⁾At end of period

The following table outlines our YTD results of operations and provides certain performance measures as of, and for the six months ended (unaudited):

	6/30/2024			6/30/2023			6/30/2022			6/30/2021			6/30/2020
INCOME STATEMENT DATA
Interest income	$	43,028		$	38,232		$	25,712		$	23,577		$	22,285
Interest expense		18,965			11,804			1,384			1,438			3,763
Net interest income		24,063			26,428			24,328			22,139			18,522
Credit loss expense (reversal)		753			441			1,027			218			3,543
Noninterest income		4,669			4,788			5,602			8,173			9,985
Noninterest expenses		22,087			21,953			20,727			18,342			15,675
Federal income tax expense		1,122			1,752			1,616			2,370			1,894
Net income	$	4,770		$	7,070		$	6,560		$	9,382		$	7,395
PER SHARE
Earnings	$	1.07		$	1.60		$	1.48		$	2.02		$	1.59
Dividends	$	0.22		$	0.20		$	0.18		$	0.16		$	0.15
Tangible book value⁽¹⁾	$	29.84		$	27.16		$	24.53		$	25.73		$	22.44
Quoted market value
High	$	27.20		$	24.10		$	29.25		$	27.40		$	26.00
Low	$	22.33		$	18.70		$	24.40		$	21.90		$	12.55
Close⁽¹⁾	$	22.50		$	19.35		$	25.00		$	26.00		$	17.35
PERFORMANCE RATIOS
Return on average assets		0.54	%		0.84	%		0.91	%		1.47	%		1.32	%
Return on average shareholders' equity		6.78	%		11.08	%		11.05	%		15.75	%		14.13	%
Return on average tangible shareholders' equity		7.25	%		11.98	%		12.05	%		16.25	%		14.69	%
Efficiency ratio		76.87	%		70.33	%		69.25	%		60.51	%		54.99	%
Yield on average earning assets (FTE)		5.16	%		4.80	%		3.83	%		3.89	%		4.20	%
Rate on interest bearing liabilities		3.17	%		2.19	%		0.34	%		0.39	%		1.09	%
Net interest margin to average earning assets (FTE)		2.89	%		3.32	%		3.63	%		3.65	%		3.49	%
BALANCE SHEET DATA⁽¹⁾
Total investment securities	$	100,167		$	117,563		$	136,725		$	129,944		$	75,526
Gross loans	$	1,459,929		$	1,472,288		$	1,232,892		$	986,358		$	1,044,564
Allowance for credit losses	$	15,300		$	15,400		$	11,000		$	10,800		$	8,991
Total assets	$	1,756,629		$	1,718,819		$	1,471,454		$	1,309,685		$	1,237,694
Total deposits	$	1,427,059		$	1,380,192		$	1,231,543		$	1,126,496		$	1,018,287
Borrowed funds	$	178,397		$	200,550		$	111,000		$	49,500		$	96,217
Total shareholders' equity	$	143,301		$	130,690		$	118,566		$	122,986		$	108,969
Net loans to total deposits		101.23	%		105.56	%		99.22	%		86.60	%		101.70	%
Common shares outstanding		4,490,087			4,460,053			4,429,357			4,638,594			4,680,920
YTD BALANCE SHEET AVERAGES
Total assets	$	1,767,127		$	1,696,660		$	1,449,212		$	1,284,534		$	1,125,064
Earning assets	$	1,676,786		$	1,606,599		$	1,354,652		$	1,225,641		$	1,068,847
Interest bearing liabilities	$	1,204,768		$	1,089,115		$	828,955		$	744,434		$	692,035
Total shareholders' equity	$	141,568		$	128,673		$	119,711		$	120,134		$	105,276
Total tangible shareholders' equity	$	132,220		$	119,050		$	109,776		$	116,432		$	101,233
Earned common shares outstanding		4,455,478			4,424,737			4,434,527			4,654,863			4,662,113
Unvested stock grants		29,160			29,461			25,963			21,297			13,844
Total common shares outstanding		4,484,638			4,454,198			4,460,490			4,676,160			4,675,957
ASSET QUALITY
Nonperforming loans to gross loans⁽¹⁾		0.66	%		0.16	%		0.16	%		0.87	%		0.10	%
Nonperforming assets to total assets⁽¹⁾		0.56	%		0.16	%		0.16	%		0.66	%		0.08	%
Allowance for credit losses to gross loans⁽¹⁾		1.05	%		1.05	%		0.89	%		1.09	%		0.86	%
Net charge-offs (recoveries) to YTD average gross loans		0.06	%		—	%		0.05	%		0.03	%		0.04	%
Credit loss expense (reversal) to YTD average gross loans		0.05	%		0.03	%		0.09	%		0.02	%		0.38	%
CAPITAL RATIOS⁽¹⁾
Total capital to risk weighted assets		12.38	%		11.31	%		11.36	%		14.35	%		15.06	%
Tier 1 capital to risk weighted assets		11.28	%		10.23	%		10.50	%		13.27	%		14.00	%
CET1 capital to risk weighted assets		10.28	%		9.25	%		9.39	%		11.87	%		12.34	%
Tier 1 leverage ratio		8.92	%		8.55	%		9.30	%		10.19	%		9.90	%

⁽¹⁾At end of period

Income Statement Breakdown and Analysis

	Quarter to Date
	6/30/2024			3/31/2024			12/31/2023			9/30/2023			6/30/2023
Net income	$	1,980		$	2,790		$	3,784		$	3,775		$	3,226
Acquisition related items (net of tax)
Amortization of core deposit intangibles		34			36			60			60			60
Total acquisition related items (net of tax)		34			36			60			60			60
Other nonrecurring items (net of tax)
Proxy contest related expenses		—			—			—			—			413
Prepayment penalties collected		(40	)		(58	)		(85	)		(29	)		(95	)
Total other nonrecurring items (net of tax)		(40	)		(58	)		(85	)		(29	)		318
Adjusted net income from operations	$	1,974		$	2,768		$	3,759		$	3,806		$	3,604

Net interest income	$	11,837		$	12,226		$	12,507		$	12,659		$	13,084
Prepayment penalties collected		(51	)		(73	)		(107	)		(37	)		(120	)
Adjusted net interest income	$	11,786		$	12,153		$	12,400		$	12,622		$	12,964

PERFORMANCE RATIOS
Based on adjusted net income from operations
Earnings per share	$	0.44		$	0.62		$	0.85		$	0.86		$	0.81
Return on average assets		0.45	%		0.63	%		0.86	%		0.87	%		0.85	%
Return on average shareholders' equity		5.57	%		7.92	%		11.03	%		11.37	%		11.05	%
Return on average tangible shareholders' equity		5.96	%		8.49	%		11.86	%		12.24	%		11.92	%
Efficiency ratio		77.15	%		76.65	%		69.06	%		70.31	%		69.51	%

Based on adjusted net interest income
Yield on average earning assets (FTE)		5.17	%		5.13	%		5.03	%		4.91	%		4.82	%
Rate on interest bearing liabilities		3.22	%		3.11	%		2.90	%		2.66	%		2.35	%
Net interest margin to average earning assets (FTE)		2.84	%		2.90	%		2.98	%		3.04	%		3.22	%

	Year to Date June 30						Variance
		2024			2023		Amount			%
Net income	$	4,770		$	7,070		$	(2,300	)	(32.53	)%
Acquisition related items (net of tax)
Amortization of core deposit intangibles		70			120			(50	)	(41.67	)%
Total acquisition related items (net of tax)		70			120			(50	)	(41.67	)%
Other nonrecurring items (net of tax)
Proxy contest related expenses		—			413			(413	)	(100.00	)%
Prepayment penalties collected		(98	)		(104	)		6		(5.77	)%
Total other nonrecurring items (net of tax)		(98	)		309			(407	)	(131.72	)%
Adjusted net income from operations	$	4,742		$	7,499		$	(2,757	)	(36.76	)%

Net interest income	$	24,063		$	26,428		$	(2,365	)	(8.95	)%
Prepayment penalties collected		(124	)		(132	)		8		(6.06	)%
Adjusted net interest income	$	23,939		$	26,296		$	(2,357	)	(8.96	)%

PERFORMANCE RATIOS
Based on adjusted net income from operations
Earnings per share	$	1.06		$	1.69		$	(0.63	)	(37.28	)%
Return on average assets		0.54	%		0.89	%				(0.35	)%
Return on average shareholders' equity		6.74	%		11.75	%				(5.01	)%
Return on average tangible shareholders' equity		7.21	%		12.70	%				(5.49	)%
Efficiency ratio		76.90	%		68.45	%				8.45	%

Based on adjusted net interest income
Yield on average earning assets (FTE)		5.15	%		4.78	%				0.37	%
Rate on interest bearing liabilities		3.17	%		2.19	%				0.98	%
Net interest margin to average earning assets (FTE)		2.88	%		3.30	%				(0.42	)%

Average Balances, Interest Rate, and Net Interest Income

The following tables present the daily average amount outstanding for each major category of interest earning assets, nonearning assets, interest bearing liabilities, and noninterest bearing liabilities. These tables also present an analysis of interest income and interest expense for the periods indicated. All interest income is reported on a FTE basis using a federal income tax rate of 21%. Loans in nonaccrual status, for the purpose of the following computations, are included in the average loan balances.

Net interest income is the amount by which interest income on earning assets exceeds the interest expenses on interest bearing liabilities. Net interest income, which includes loan fees, is influenced by changes in the balance and mix of assets and liabilities and market interest rates. We exert some control over these factors; however, FRB monetary policy and competition have a significant impact. For analytical purposes, net interest income is adjusted to a FTE basis by adding the income tax savings from interest on tax exempt loans, and nontaxable investment securities, thus making period-to-period comparisons more meaningful.

	Three Months Ended
	June 30, 2024							March 31, 2024							June 30, 2023
	Average Balance			Tax Equivalent Interest		Average Yield/ Rate		Average Balance			Tax Equivalent Interest		Average Yield / Rate		Average Balance			Tax Equivalent Interest		Average Yield / Rate
Interest earning assets
Total loans	$	1,462,362		$	19,550	5.38	%	$	1,471,130		$	19,609	5.36	%	$	1,470,156		$	18,725	5.11	%
Taxable investment securities		89,751			350	1.57	%		94,199			359	1.53	%		107,256			418	1.56	%
Nontaxable investment securities		11,059			62	2.25	%		11,963			67	2.25	%		13,253			76	2.30	%
Interest earning cash and cash equivalents		97,511			1,331	5.49	%		97,237			1,319	5.46	%		15,552			208	5.36	%
Federal Home Loan Bank stock		9,179			207	9.07	%		9,179			201	8.81	%		11,376			143	5.04	%
Total earning assets		1,669,862			21,500	5.18	%		1,683,708			21,555	5.15	%		1,617,593			19,570	4.85	%

Nonearning assets
Allowance for credit losses		(15,300	)						(15,400	)						(15,220	)
Premises and equipment, net		13,964							14,392							15,363
Accrued income and other assets		94,125							88,914							88,411
Total assets	$	1,762,651						$	1,771,614						$	1,706,147

Interest bearing liabilities
Interest bearing demand deposits	$	429,141		$	3,745	3.51	%	$	421,597		$	3,559	3.40	%	$	380,224		$	2,619	2.76	%
Savings deposits		266,731			408	0.62	%		272,296			413	0.61	%		306,195			434	0.57	%
Time deposits		330,024			3,756	4.58	%		326,747			3,644	4.49	%		175,607			1,303	2.98	%
Borrowed funds		178,474			1,741	3.92	%		184,522			1,699	3.70	%		243,781			2,113	3.48	%
Total interest bearing liabilities		1,204,370			9,650	3.22	%		1,205,162			9,315	3.11	%		1,105,807			6,469	2.35	%

Noninterest bearing liabilities
Noninterest bearing deposits		405,985							417,089							455,123
Accrued interest and other liabilities		9,719							8,789							14,357
Shareholders' equity		142,577							140,574							130,860
Total liabilities and shareholders' equity	$	1,762,651						$	1,771,614						$	1,706,147
Net interest income (FTE)				$	11,850						$	12,240						$	13,101
Net interest margin to earning assets (FTE)						2.85	%						2.92	%						3.25	%

	Six Months Ended
	June 30, 2024							June 30, 2023
	Average Balance			Tax Equivalent Interest		Average Yield /Rate		Average Balance			Tax Equivalent Interest		Average Yield / Rate
Interest earning assets
Total loans	$	1,466,747		$	39,159	5.37	%	$	1,458,766		$	36,579	5.06	%
Taxable investment securities		91,975			709	1.55	%		108,463			853	1.59	%
Nontaxable investment securities		11,511			129	2.25	%		13,769			157	2.30	%
Interest earning cash and cash equivalents		97,374			2,650	5.47	%		14,794			361	4.92	%
Federal Home Loan Bank stock		9,179			408	8.94	%		10,807			316	5.90	%
Total earning assets		1,676,786			43,055	5.16	%		1,606,599			38,266	4.80	%

Nonearning assets
Allowance for credit losses		(15,350	)						(15,183	)
Premises and equipment, net		14,179							15,407
Accrued income and other assets		91,512							89,837
Total assets	$	1,767,127						$	1,696,660

Interest bearing liabilities
Interest bearing demand deposits	$	425,370		$	7,304	3.45	%	$	369,723		$	4,697	2.56	%
Savings deposits		269,514			821	0.61	%		323,675			907	0.57	%
Time deposits		328,386			7,400	4.53	%		171,064			2,315	2.73	%
Borrowed funds		181,498			3,440	3.81	%		224,653			3,885	3.49	%
Total interest bearing liabilities		1,204,768			18,965	3.17	%		1,089,115			11,804	2.19	%

Noninterest bearing liabilities
Noninterest bearing deposits		411,537							464,905
Accrued interest and other liabilities		9,254							13,967
Shareholders' equity		141,568							128,673
Total liabilities and shareholders' equity	$	1,767,127						$	1,696,660
Net interest income (FTE)				$	24,090						$	26,462
Net interest margin to earning assets (FTE)						2.89	%						3.32	%

Volume and Rate Variance Analysis

The following table sets forth the effect of volume and rate changes on interest income and expense for the periods indicated. For the purpose of this table, changes in interest due to volume and rate were determined as follows:

Volume - change in volume multiplied by the previous period's rate.
Rate - change in the FTE rate multiplied by the previous period's volume.

The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.

	Three Months Ended									Three Months Ended									Six Months Ended
	June 30, 2024									June 30, 2024									June 30, 2024
	Compared To									Compared To									Compared To
	March 31, 2024									June 30, 2023									June 30, 2023
	Increase (Decrease) Due to									Increase (Decrease) Due to									Increase (Decrease) Due to
	Volume			Rate			Net			Volume			Rate			Net			Volume			Rate			Net
Changes in interest income
Total loans	$	(398	)	$	339		$	(59	)	$	(648	)	$	1,473		$	825		$	212		$	2,368		$	2,580
Taxable investment securities		(55	)		46			(9	)		(87	)		19			(68	)		(124	)		(20	)		(144	)
Nontaxable investment securities		(5	)		—			(5	)		(12	)		(2	)		(14	)		(25	)		(3	)		(28	)
Interest earning cash and cash equivalents		4			8			12			1,118			5			1,123			2,244			45			2,289
Federal Home Loan Bank stock		—			6			6			(166	)		230			64			(128	)		220			92
Total changes in interest income		(454	)		399			(55	)		205			1,725			1,930			2,179			2,610			4,789

Changes in interest expense
Interest bearing demand deposits		66			120			186			362			764			1,126			788			1,819			2,607
Savings deposits		(33	)		28			(5	)		(198	)		172			(26	)		(243	)		157			(86	)
Time deposits		37			75			112			1,523			930			2,453			2,962			2,123			5,085
Borrowed funds		(274	)		316			42			(1,711	)		1,339			(372	)		(1,275	)		830			(445	)
Total changes in interest expense		(204	)		539			335			(24	)		3,205			3,181			2,232			4,929			7,161
Net change in net interest income (FTE)	$	(250	)	$	(140	)	$	(390	)	$	229		$	(1,480	)	$	(1,251	)	$	(53	)	$	(2,319	)	$	(2,372	)

	Average Yield/Rate for the Three Months Ended
	6/30/2024			3/31/2024			12/31/2023			9/30/2023			6/30/2023
Total earning assets		5.18	%		5.15	%		5.06	%		4.92	%		4.85	%
Total interest bearing liabilities		3.22	%		3.11	%		2.90	%		2.66	%		2.35	%
Net interest margin to earning assets (FTE)		2.85	%		2.92	%		3.01	%		3.05	%		3.25	%

	Quarter to Date Net Interest Income (FTE)
	6/30/2024		3/31/2024		12/31/2023		9/30/2023		6/30/2023
Interest income	$	21,487	$	21,541	$	21,033	$	20,416	$	19,553
FTE adjustment		13		14		14		14		17
Total interest income (FTE)		21,500		21,555		21,047		20,430		19,570
Total interest expense		9,650		9,315		8,526		7,757		6,469
Net interest income (FTE)	$	11,850	$	12,240	$	12,521	$	12,673	$	13,101

Noninterest Income

	Three Months Ended
	6/30/2024			3/31/2024			12/31/2023			9/30/2023			6/30/2023
Service charges and fees
Trust and investment services		607			641			433			572			583
ATM and debit card		545			512			549			568			570
Service charges on deposit accounts		162			140			211			244			224
Total		1,314			1,293			1,193			1,384			1,377
Net gain on sales of commercial loans		98			296			226			—			95
Net gain on sales of residential mortgage loans		177			143			96			164			198
Change in fair value of equity investments		(3	)		(10	)		42			(28	)		(16	)
Changes in the fair value of MSR		(44	)		(96	)		(108	)		119			(8	)
Other
Mortgage servicing fees		386			394			398			398			406
Change in cash surrender value of corporate owned life insurance		207			204			192			181			178
Other		179			131			106			120			230
Total		772			729			696			699			814
Total noninterest income	$	2,314		$	2,355		$	2,145		$	2,338		$	2,460

Memo items:
Residential mortgage operations	$	519		$	441		$	386		$	681		$	596

	Six Months Ended June 30						Variance
		2024			2023		Amount			%
Service charges and fees
Trust and investment services	$	1,248		$	1,132		$	116		10.25	%
ATM and debit card		1,057			1,101			(44	)	(4.00	)%
Service charges on deposit accounts		302			442			(140	)	(31.67	)%
Total		2,607			2,675			(68	)	(2.54	)%
Net gain on sales of commercial loans		394			95			299		314.74	%
Net gain on sales of residential mortgage loans		320			359			(39	)	(10.86	)%
Change in fair value of equity investments		(13	)		(1	)		(12	)	1200.00	%
Changes in the fair value of MSR		(140	)		99			(239	)	(241.41	)%
Other
Mortgage servicing fees		780			812			(32	)	(3.94	)%
Change in cash surrender value of corporate owned life insurance		411			350			61		17.43	%
Other		310			399			(89	)	(22.31	)%
Total		1,501			1,561			(60	)	(3.84	)%
Total noninterest income	$	4,669		$	4,788		$	(119	)	(2.49	)%

Memo items:
Residential mortgage operations	$	960		$	1,270		$	(310	)	(24.41	)%

Residential Mortgage Operations

Residential mortgage operations includes net gains on sales of loans, net mortgage servicing rights income, and mortgage servicing fees.

Net gain on sales of residential mortgage loans represents the income earned on the sale of residential mortgage loans into the secondary market. Although increases in interest rates and limited inventories have significantly driven down the volume of new originations and refinancing activity, we continue to actively sell residential mortgage loans into the secondary market. During the second quarter of 2024, residential mortgage originations sold into the secondary market totaled $8,085.

Changes in the fair value of MSR are highly correlated to changes in interest rates and prepayment speeds. During the second quarter of 2024, the fair value of the servicing portfolio decreased primarily due to a decline in the size of the servicing portfolio as the portfolio declined by $5,306. Mortgage servicing rights are expected to continue to decline due to likely further reductions in the size of our servicing portfolio as paydowns and maturities are expected to outpace new originations.

Mortgage servicing fees includes the fees earned for servicing loans that have been sold into the secondary market. The annual decrease in mortgage servicing fees is directly related to the size of the serviced portfolio. Due to reduced levels of secondary market originations and prepayments, the serviced loan portfolio declined by $18,164, or 2.87%, since June 30, 2023. We expect mortgage servicing fees to trend modestly downward in future periods due to decreased secondary market originations.

All Other Noninterest Income

Trust and investment services includes income earned from contracts with customers to manage assets for investment and/or to transact on their accounts through the wealth management and trust department. Trust services and wealth management fees are subject to market fluctuations and interest rate changes. We expect trust and investment services fees to modestly increase in future periods.

ATM and debit card income represents fees earned on ATM and debit card transactions. We expect these fees to approximate current levels in 2024.

Service charges on deposit accounts includes fees earned from deposit customers for transaction-based charges, account maintenance and overdraft services. These charges have declined in 2024 due to a reduced level of NSF fees charged to customers based on regulatory guidance and overall industry trends. Service charges on deposit accounts are expected to approximate current levels throughout the remainder of the year.

Net gain on sales of commercial loans represents the income earned from the sale of commercial loans into the secondary market. During the first and second quarters of 2024, we sold the guaranteed portion of select SBA loans. We anticipate this strategy to continue throughout the remainder of the year.

Change in cash surrender value of corporate owned life insurance is expected to modestly increase throughout 2024.

Other includes miscellaneous other income items, none of which are individually significant.

Noninterest Expenses

	Three Months Ended
	6/30/2024		3/31/2024		12/31/2023		9/30/2023		6/30/2023
Compensation and benefits	$	5,842	$	6,066	$	5,521	$	5,592	$	5,492
Professional services		963		894		695		726		1,237
Furniture and equipment		689		727		696		668		685
Occupancy		605		623		610		591		589
Data processing		490		547		505		576		565
Loan and collection		425		322		301		232		457
Advertising and promotional		337		348		139		506		509
Other
FDIC insurance premiums		327		299		270		330		330
ATM and debit card		188		171		158		153		179
Telephone and communication		86		109		103		115		100
Amortization of core deposit intangibles		44		45		76		75		76
Other general and administrative		925		1,015		1,047		1,030		1,101
Total		1,570		1,639		1,654		1,703		1,786
Total noninterest expenses	$	10,921	$	11,166	$	10,121	$	10,594	$	11,320

	Six Months Ended June 30				Variance
	2024		2023		Amount			%
Compensation and benefits	$	11,908	$	11,284	$	624		5.53	%
Professional services		1,857		2,003		(146	)	(7.29	)%
Furniture and equipment		1,416		1,411		5		0.35	%
Occupancy		1,228		1,224		4		0.33	%
Data processing		1,037		1,078		(41	)	(3.80	)%
Loan and collection		747		697		50		7.17	%
Advertising and promotional		685		960		(275	)	(28.65	)%
Other
FDIC insurance premiums		626		531		95		17.89	%
ATM and debit card		359		340		19		5.59	%
Telephone and communication		195		219		(24	)	(10.96	)%
Amortization of core deposit intangibles		89		152		(63	)	(41.45	)%
Other general and administrative		1,940		2,054		(114	)	(5.55	)%
Total		3,209		3,296		(87	)	(2.64	)%
Total noninterest expenses	$	22,087	$	21,953	$	134		0.61	%

Compensation and benefits includes salaries, commissions and incentives, employee benefits, and payroll taxes. Compensation and benefits has increased in 2024 due to an increase in the size of the organization, merit increases, and market based adjustments. We expect a modest increase in overall compensation and benefits throughout the remainder of 2024.

Professional services include expenses relating to third-party professional services. These services include, but are not limited to, regulatory, auditing, consulting, and legal. Professional services expenses are expected to approximate current levels in future periods.

Furniture and equipment and occupancy expenses primarily consist of depreciation, repairs and maintenance, certain service contracts, and other related items. These expenses are expected to approximate current levels throughout 2024.

Data processing primarily includes the expenses relating to our core data processor. Data processing expenses are expected to modestly increase throughout 2024 due to annual contractual increases from our core data processor.

Loan and collection includes expenses related to the origination and collection of loans. The increase in such expenses in 2024 is due to increased levels of home ownership grants. Loan and collection expenses are expected to approximate current levels in future periods as loan growth is expected to approximate current levels.

Advertising and promotional expenses includes media costs and any donations or sponsorships. These expenses also include marketing efforts to attract new and expand existing customer loan and deposit account relationships. Total advertising and promotional expenses are expected to decline in 2024 due to the expiration of certain long-term sponsorship commitments.

FDIC insurance premiums typically fluctuate each period based on the size of the balance sheet, capital position and overall risk profile. These expenses have increased due to the FDIC increasing its assessment rate for all insured institutions effective January 1, 2023. FDIC insurance premiums are expected to approximate current levels.

ATM and debit card expenses fluctuate based on customer and non-customer utilization of ATMs and customer debit card volumes. We expect these fees to approximate current levels in future periods.

Telephone and communication includes expenses relating to our communication systems. These expenses are expected to approximate current levels in future periods.

Amortization of core deposit intangibles relates to the core deposits acquired from Community Bancorp, Inc. on December 31, 2016 and FSB on December 1, 2021. These core deposit intangibles are being amortized using an accelerated sum-of-years-digits method over their estimated useful lives of seven years. The core deposit intangibles associated with the acquisition of Community Bancorp, Inc. were fully amortized as of December 31, 2023. The core deposit intangibles associated with the acquisition of FSB will be amortized through 2028.

Other general and administrative includes miscellaneous other expense items. Other general and administrative expenses are expected to approximate current levels in future periods.

Balance Sheet Breakdown and Analysis

	6/30/2024		3/31/2024		12/31/2023		9/30/2023		6/30/2023
ASSETS
Cash and due from banks	$	128,590	$	132,349	$	90,661	$	83,365	$	59,181
Total investment securities		100,167		103,210		107,615		109,543		117,563
Residential mortgage loans held-for-sale, at fair value		2,440		1,067		747		1,037		1,106
Gross loans		1,459,929		1,461,465		1,473,471		1,483,720		1,472,288
Less allowance for credit losses		15,300		15,300		15,400		15,400		15,400
Net loans		1,444,629		1,446,165		1,458,071		1,468,320		1,456,888
All other assets		80,803		81,838		81,858		82,674		84,081
Total assets	$	1,756,629	$	1,764,629	$	1,738,952	$	1,744,939	$	1,718,819

LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits	$	1,427,059	$	1,438,408	$	1,394,182	$	1,401,797	$	1,380,192
Total borrowed funds		178,397		178,500		198,500		201,050		200,550
Accrued interest payable and other liabilities		7,872		6,647		7,568		9,190		7,387
Total liabilities		1,613,328		1,623,555		1,600,250		1,612,037		1,588,129
Total shareholders' equity		143,301		141,074		138,702		132,902		130,690
Total liabilities and shareholders' equity	$	1,756,629	$	1,764,629	$	1,738,952	$	1,744,939	$	1,718,819

	6/30/2024 vs 3/31/2024					6/30/2024 vs 6/30/2023
	Variance					Variance
	Amount			%		Amount			%
ASSETS
Cash and due from banks	$	(3,759	)	(2.84	)%	$	69,409		117.28	%
Total investment securities		(3,043	)	(2.95	)%		(17,396	)	(14.80	)%
Residential mortgage loans held-for-sale, at fair value		1,373		128.68	%		1,334		120.61	%
Gross loans		(1,536	)	(0.11	)%		(12,359	)	(0.84	)%
Less allowance for credit losses		—		—	%		(100	)	(0.65	)%
Net loans		(1,536	)	(0.11	)%		(12,259	)	(0.84	)%
All other assets		(1,035	)	(1.26	)%		(3,278	)	(3.90	)%
Total assets	$	(8,000	)	(0.45	)%	$	37,810		2.20	%

LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits	$	(11,349	)	(0.79	)%	$	46,867		3.40	%
Total borrowed funds		(103	)	(0.06	)%		(22,153	)	(11.05	)%
Accrued interest payable and other liabilities		1,225		18.43	%		485		6.57	%
Total liabilities		(10,227	)	(0.63	)%		25,199		1.59	%
Total shareholders' equity		2,227		1.58	%		12,611		9.65	%
Total liabilities and shareholders' equity	$	(8,000	)	(0.45	)%	$	37,810		2.20	%

Cash and due from banks

	6/30/2024			3/31/2024			12/31/2023		9/30/2023		6/30/2023
Cash and due from banks
Noninterest bearing	$	35,437		$	26,128		$	29,997	$	35,121	$	33,028
Interest bearing		93,153			106,221			60,664		48,244		26,153
Total	$	128,590		$	132,349		$	90,661	$	83,365	$	59,181

	6/30/2024 vs 3/31/2024								6/30/2024 vs 6/30/2023
	Variance								Variance
	Amount			%					Amount		%
Cash and due from banks
Noninterest bearing	$	9,309			35.63	%			$	2,409		7.29	%
Interest bearing		(13,068	)	(12.30		)%				67,000		256.18	%
Total	$	(3,759	)	(2.84		)%			$	69,409		117.28	%

Cash and due from banks fluctuates from period to period based on loan demand and variances in deposit account balances.

Primary and secondary liquidity sources

The following table outlines our primary and secondary sources of liquidity as of:

	6/30/2024		3/31/2024		12/31/2023		9/30/2023		6/30/2023
Cash and cash equivalents	$	128,590	$	132,349	$	90,661	$	83,365	$	59,181
Fair value of unpledged investment securities		74,775		73,680		80,247		82,103		82,041
FHLB borrowing availability		190,000		190,000		170,000		170,000		170,000
Unsecured lines of credit		23,000		23,000		20,000		20,000		20,000
Funds available through the Fed Discount Window		106		107		111		110		119
Parent company line of credit		11,000		3,500		3,500		950		1,450
Total liquidity sources	$	427,471	$	422,636	$	364,519	$	356,528	$	332,791

The increase in cash and cash equivalents as of June 30, 2024 was due to an increase in total deposits (see "Total deposits" below). The increase in FHLB borrowing availability during the first quarter of 2024 was due to less utilization of FHLB advances as loan growth has moderated in recent periods.

In addition to the above liquidity sources, we also have the option of utilizing wholesale funding sources, such as brokered NOW accounts, brokered time deposits, and internet time deposits. Although wholesale funding sources are typically more expensive than core deposits and other liquidity sources, they are an integral part of our overall asset and liability management strategy.

Investment securities

	6/30/2024			3/31/2024			12/31/2023			9/30/2023			6/30/2023
Available-for-sale
U.S. Government and federal agency	$	20,430		$	20,427		$	22,425		$	23,420		$	24,411
State and municipal		19,108			20,403			20,460			20,992			21,110
Mortgage backed residential		45,808			47,505			49,076			50,786			52,704
Certificates of deposit		2,481			2,729			2,728			3,956			6,679
Collateralized mortgage obligations - agencies		22,213			22,778			23,320			24,062			24,680
Unrealized gain/(loss) on available-for-sale securities		(12,179	)		(13,027	)		(12,760	)		(15,958	)		(14,536	)
Total available-for-sale		97,861			100,815			105,249			107,258			115,048
Held-to-maturity state and municipal		791			877			878			879			1,081
Equity securities		1,515			1,518			1,488			1,406			1,434
Total investment securities	$	100,167		$	103,210		$	107,615		$	109,543		$	117,563

	6/30/2024 vs 3/31/2024									6/30/2024 vs 6/30/2023
	Variance									Variance
	Amount			%						Amount			%
Available-for-sale
U.S. Government and federal agency		3			0.01	%				$	(3,981	)	(16.31		)%
State and municipal		(1,295	)	(6.35		)%					(2,002	)	(9.48		)%
Mortgage backed residential		(1,697	)	(3.57		)%					(6,896	)	(13.08		)%
Certificates of deposit		(248	)	(9.09		)%					(4,198	)	(62.85		)%
Collateralized mortgage obligations - agencies		(565	)	(2.48		)%					(2,467	)	(10.00		)%
Unrealized gain/(loss) on available-for-sale securities		848		(6.51		)%					2,357		(16.21		)%
Total available-for-sale		(2,954	)	(2.93		)%					(17,187	)	(14.94		)%
Held-to-maturity state and municipal		(86	)	(9.81		)%					(290	)	(26.83		)%
Equity securities		(3	)	(0.20		)%					81			5.65	%
Total investment securities	$	(3,043	)	(2.95		)%				$	(17,396	)	(14.80		)%

The amortized cost and fair value of AFS investment securities as of June 30, 2024 were as follows:

	Maturing
	Due in One Year or Less		After One Year But Within Five Years		After Five Years But Within Ten Years		After Ten Years		Securities with Variable Monthly Payments or Noncontractual Maturities		Total
U.S. Government and federal agency	$	7,483	$	12,947	$	—	$	—	$	—	$	20,430
State and municipal		1,655		15,219		1,114		1,120		—		19,108
Mortgage backed residential		—								45,808		45,808
Certificates of deposit		2,481		—		—		—		—		2,481
Collateralized mortgage obligations - agencies		—		—		—		—		22,213		22,213
Total amortized cost	$	11,619	$	28,166	$	1,114	$	1,120	$	68,021	$	110,040
Fair value	$	11,206	$	25,863	$	987	$	1,024	$	58,781	$	97,861

The amortized cost and fair value of HTM investment securities as of June 30, 2024 were as follows:

	Maturing
	Due in One Year or Less		After One Year But Within Five Years		After Five Years But Within Ten Years		After Ten Years		Securities with Variable Monthly Payments or Noncontractual Maturities		Total
State and municipal	$	341	$	295	$	155	$	—	$	—	$	791
Fair value	$	338	$	282	$	147	$	—	$	—	$	767

Total investment securities have declined in recent periods primarily due to maturities and prepayments. As a result of the current liquidity environment and overall market conditions, we have not replenished maturing securities with new purchases.

Residential mortgage loans held-for-sale, at fair value

Loans HFS represent the fair value of loans that have been committed to be sold to the secondary market, but have not yet been delivered. The level of loans HFS fluctuates based on loan demand as well as the timing of loan deliveries to the secondary market.

Loans and allowance for credit losses

As outlined in the following tables, our loan portfolio has moderated throughout the past 12 months. As a result of current market conditions, we expect minimal loan growth throughout the remainder of 2024. Specifically, our commercial pipeline has declined significantly, and the requests that are being presented are lower dollar balances and often carry an SBA guarantee.

The following tables outline the composition and changes in the loan portfolio as of:

	6/30/2024			3/31/2024			12/31/2023			9/30/2023			6/30/2023
Commercial and industrial	$	120,331		$	114,772		$	118,089		$	125,330		$	120,985
Commercial real estate		864,200			867,270			870,693			874,870			870,761
Total commercial loans		984,531			982,042			988,782			1,000,200			991,746
Residential mortgage		418,403			426,762			431,836			431,740			430,065
Home equity		53,133			48,568			48,380			47,069			45,689
Total residential real estate loans		471,536			475,330			480,216			478,809			475,754
Consumer		3,862			4,093			4,473			4,711			4,788
Gross loans		1,459,929			1,461,465			1,473,471			1,483,720			1,472,288
Allowance for credit losses		(15,300	)		(15,300	)		(15,400	)		(15,400	)		(15,400	)
Loans, net	$	1,444,629		$	1,446,165		$	1,458,071		$	1,468,320		$	1,456,888

Memo items:
Residential mortgage loans serviced for others	$	613,854		$	619,160		$	624,765		$	631,697		$	632,018

	6/30/2024 vs 3/31/2024									6/30/2024 vs 6/30/2023
	Variance									Variance
	Amount			%						Amount			%
Commercial and industrial	$	5,559			4.84	%				$	(654	)	(0.54		)%
Commercial real estate		(3,070	)	(0.35		)%					(6,561	)	(0.75		)%
Total commercial loans		2,489			0.25	%					(7,215	)	(0.73		)%
Residential mortgage		(8,359	)	(1.96		)%					(11,662	)	(2.71		)%
Home equity		4,565			9.40	%					7,444			16.29	%
Total residential real estate loans		(3,794	)	(0.80		)%					(4,218	)	(0.89		)%
Consumer		(231	)	(5.64		)%					(926	)	(19.34		)%
Gross loans		(1,536	)	(0.11		)%					(12,359	)	(0.84		)%
Allowance for credit losses		—			—	%					100		(0.65		)%
Loans, net	$	(1,536	)	(0.11		)%				$	(12,259	)	(0.84		)%

Memo items:
Residential mortgage loans serviced for others	$	(5,306	)	(0.86		)%				$	(18,164	)	(2.87		)%

The following table presents historical loan balances by portfolio segment as of:

	6/30/2024		3/31/2024		12/31/2023		9/30/2023		6/30/2023
Loans collectively evaluated
Commercial and industrial	$	113,254	$	112,542	$	115,665	$	124,860	$	120,854
Commercial real estate		864,026		867,270		870,524		874,701		870,580
Residential mortgage		416,130		423,881		429,109		428,927		428,147
Home equity		53,056		48,388		48,136		46,898		45,535
Consumer		3,862		4,093		4,473		4,711		4,788
Subtotal		1,450,328		1,456,174		1,467,907		1,480,097		1,469,904
Loans individually evaluated
Commercial and industrial		7,077		2,230		2,424		470		131
Commercial real estate		174		—		169		169		181
Residential mortgage		2,273		2,881		2,727		2,813		1,918
Home equity		77		180		244		171		154
Consumer		—		—		—		—		—
Subtotal		9,601		5,291		5,564		3,623		2,384
Gross Loans	$	1,459,929	$	1,461,465	$	1,473,471	$	1,483,720	$	1,472,288

The following table presents historical allowance for credit losses allocations by portfolio segment as of:

	6/30/2024		3/31/2024		12/31/2023		9/30/2023		6/30/2023
Allowance for credit losses for collectively evaluated loans
Commercial and industrial	$	1,434	$	1,300	$	1,407	$	1,362	$	1,488
Commercial real estate		8,903		8,359		8,467		8,703		8,991
Residential mortgage		4,133		4,202		4,409		4,439		4,453
Home equity		327		305		321		315		325
Consumer		80		38		44		36		40
Unallocated		—		670		355		294		49
Subtotal		14,877		14,874		15,003		15,149		15,346
Allowance for credit losses for individually evaluated loans
Commercial and industrial		423		423		363		248		15
Commercial real estate		—		—		—		—		—
Residential mortgage		—		3		34		3		39
Home equity		—		—		—		—		—
Consumer		—		—		—		—		—
Unallocated		—		—		—		—		—
Subtotal		423		426		397		251		54
Allowance for credit losses	$	15,300	$	15,300	$	15,400	$	15,400	$	15,400

Commercial and industrial	$	1,857	$	1,723	$	1,770	$	1,610	$	1,503
Commercial real estate		8,903		8,359		8,467		8,703		8,991
Residential mortgage		4,133		4,205		4,443		4,442		4,492
Home equity		327		305		321		315		325
Consumer		80		38		44		36		40
Unallocated		—		670		355		294		49
Allowance for credit losses	$	15,300	$	15,300	$	15,400	$	15,400	$	15,400

Loan concentration analysis

As a result of current economic conditions, there continues to be a heightened focus in the financial industry for non-owner occupied commercial real estate loans, most specifically retail and office space industries. While we continue to monitor various industries that have been impacted by the pandemic, we also continue to monitor the effects of inflation, supply chain disruption, rising interest rates, and office space usage associated with an increased remote workforce. The overall credit quality indicators of non-owner occupied commercial real estate loan portfolio have remained strong. Performance is based on debt service coverage ratio, loan to value ratio and payment trends. As of June 30, 2024, there were no delinquencies in the non-owner occupied commercial real estate loan portfolio. We expect the non-owner occupied commercial real estate loan portfolio to experience insignificant growth, if any, in future periods.

We have exposure in our loan portfolio to Rite Aid in the net lease and retail strip center non-owner occupied commercial real estate pools. During the fourth quarter of 2023, Rite Aid, which operates over 2,000 retail pharmacies across 17 states, has filed for Chapter 11 bankruptcy protection. Exposure in the net lease pool whereas Rite Aid is a single tenant consists of five loans totaling $8,065. Exposure in the retail strip center pool whereas Rite Aid is a tenant consists of three loans totaling $16,990. We continue to actively monitor the status of the Rite Aid's filing and exit strategy from bankruptcy.

With the ongoing pressures on the office sector due to remote work capabilities and less required office space, we continue to monitor the office pool more closely for potential deterioration. It is not expected that there will be much, if any, impact on portfolio performance in this pool in the near future due to existing lease terms, tenant mix, office size, and strong underwriting at origination. Due to current economic uncertainty and the pressures noted above, it is unlikely that we will seek new loan originations in the non-owner occupied office pool in 2024.

Below is a description of each industry pool within the non-owner occupied commercial real estate loan portfolio:

Net lease: Loans in this pool represent national credit tenants (or franchisees of the same) or large regional tenants with excellent credit. These loans are typically single tenant net lease credits with strong debt service coverage ratios and lease terms that extend beyond the maturity of the loan.

Retail strip centers: Loans in this pool represent loans collateralized by retail strip centers. The tenant base within this pool consists primarily of retail space whose average lease periods run between one and ten years. Larger strip centers are usually anchored by a national or regional tenant. Guarantors in this category typically have large liquid reserves.

Office: Loans in this pool represent loans collateralized by non-owner occupied office buildings. The tenant base includes legal and other professional services whose average lease periods run from three to fifteen years.

Special use: Loans in this pool represent loans collateralized by special use buildings, which include hotels, motels, assisted living and nursing homes that are not classified as construction or SBA loans.

Industrial: Loans in this pool represent investment properties used for manufacturing and production.

Medical office: Loans in this pool represent loans collateralized by non-owner occupied medical office buildings. The tenant base includes medical services whose average lease periods run from three to fifteen years.

Self storage: Loans in this pool represent self storage buildings. Loan terms are generally five years or less and the lease terms of the units are typically on a month-to-month basis.

Mixed use: Loans in this pool represent loans collateralized by mixed use real estate. The tenant base within this pool consists primarily of office-retail, office-residential or retail-residential space. The properties are most often purchased by individuals for investment purposes.

Retail: Loans in this pool represent loans collateralized by single tenant retail buildings whose average lease periods run over five years.

The following tables present the composition of current and historical non-owner occupied commercial real estate loans, based on loan collateral, by industry pool:

	6/30/2024			3/31/2024			12/31/2023		9/30/2023			6/30/2023
Net lease	$	141,064		$	147,103		$	149,056	$	160,077		$	159,199
Retail strip centers		106,631			107,834			98,588		96,567			96,310
Office		62,237			61,657			61,822		62,959			62,062
Special use		71,006			58,278			58,710		57,612			57,978
Industrial		23,107			22,575			28,380		28,906			28,661
Medical office		24,818			25,380			25,842		28,591			28,752
Self storage		32,502			25,660			23,455		21,993			22,169
Mixed use		16,980			17,174			17,335		19,833			19,412
Retail		17,191			12,533			12,981		14,115			14,998

Total non-owner occupied commercial real estate loans	$	495,536		$	478,194		$	476,169	$	490,653		$	489,541

	6/30/2024 vs 3/31/2024								6/30/2024 vs 6/30/2023
	Variance								Variance
	Amount			%					Amount			%
Net lease	$	(6,039	)	(4.11		)%			$	(18,135	)	(11.39		)%
Retail strip centers		(1,203	)	(1.12		)%				10,321			10.72	%
Office		580			0.94	%				175			0.28	%
Special use		12,728			21.84	%				13,028			22.47	%
Industrial		532			2.36	%				(5,554	)	(19.38		)%
Medical office		(562	)	(2.21		)%				(3,934	)	(13.68		)%
Self storage		6,842			26.66	%				10,333			46.61	%
Mixed use		(194	)	(1.13		)%				(2,432	)	(12.53		)%
Retail		4,658			37.17	%				2,193			14.62	%

Total non-owner occupied commercial real estate loans	$	17,342			3.63	%			$	5,995			1.22	%

The following table presents the average loan size of current and historical non-owner occupied commercial real estate loans, based on loan collateral, by industry pool:

	6/30/2024		3/31/2024		12/31/2023		9/30/2023		6/30/2023
Net lease	$	1,291	$	1,311	$	1,316	$	1,300	$	1,292
Retail strip centers		2,197		2,231		2,135		2,115		2,081
Office		1,363		1,296		1,297		1,294		1,332
Special use		2,546		2,064		2,079		2,134		2,342
Industrial		925		941		1,092		1,072		1,025
Medical office		1,128		1,103		1,078		1,145		1,159
Self storage		1,926		1,509		1,380		1,692		1,583
Mixed use		1,334		1,321		1,333		1,240		1,294
Retail		513		447		461		429		450

Total non-owner occupied commercial real estate loans	$	1,448	$	1,392	$	1,379	$	1,362	$	1,366

The following table presents current and historical non-owner occupied commercial real estate loans, based on loan collateral, by industry pool as a percentage of gross loans:

	6/30/2024		3/31/2024		12/31/2023		9/30/2023		6/30/2023
Net lease	9.66	%	10.07	%	10.12	%	10.79	%	10.81	%
Retail strip centers	7.30	%	7.38	%	6.69	%	6.51	%	6.54	%
Office	4.26	%	4.22	%	4.20	%	4.24	%	4.22	%
Special use	4.86	%	3.99	%	3.98	%	3.88	%	3.94	%
Industrial	1.58	%	1.54	%	1.93	%	1.95	%	1.95	%
Medical office	1.70	%	1.74	%	1.75	%	1.93	%	1.95	%
Self storage	2.23	%	1.76	%	1.59	%	1.48	%	1.51	%
Mixed use	1.16	%	1.18	%	1.18	%	1.34	%	1.32	%
Retail	1.18	%	0.86	%	0.88	%	0.95	%	1.02	%

Total non-owner occupied commercial real estate loans to gross loans	33.93	%	32.74	%	32.32	%	33.07	%	33.26	%

Asset quality

The following table summarizes our current, past due, and nonaccrual loans as of:

	6/30/2024		3/31/2024		12/31/2023		9/30/2023		6/30/2023
Accruing interest
Current	$	1,445,780	$	1,451,432	$	1,463,668	$	1,477,386	$	1,466,354
Past due 30-89 days		4,534		4,344		4,239		2,711		3,550
Past due 90 days or more		14		398		—		—		—
Total accruing interest		1,450,328		1,456,174		1,467,907		1,480,097		1,469,904
Nonaccrual		9,601		5,291		5,564		3,623		2,384
Total loans	$	1,459,929	$	1,461,465	$	1,473,471	$	1,483,720	$	1,472,288
Total loans past due and in nonaccrual status	$	14,149	$	10,033	$	9,803	$	6,334	$	5,934

The following table summarizes the our nonperforming assets as of:

	6/30/2024		3/31/2024		12/31/2023		9/30/2023		6/30/2023
Nonaccrual loans	$	9,601	$	5,291	$	5,564	$	3,623	$	2,384
Accruing loans past due 90 days or more		14		398		—		—		—
Total nonperforming loans		9,615		5,689		5,564		3,623		2,384
Other real estate owned		293		345		597		345		345
Total nonperforming assets	$	9,908	$	6,034	$	6,161	$	3,968	$	2,729

The following table summarizes our charge-offs, recoveries and provision for loan losses as of, and for the three-month periods ended:

	6/30/2024		3/31/2024			12/31/2023			9/30/2023			6/30/2023
Total charge-offs	$	814	$	86		$	110		$	16		$	41
Total recoveries		18		29			300			455			16
Net charge-offs (recoveries)	$	796	$	57		$	(190	)	$	(439	)	$	25
Provision for loan losses	$	796	$	(43	)	$	(190	)	$	(309	)	$	205

During the second quarter of 2024, we charged down one commercial loan by $794. We believe that the credit characteristics are unique and are not an indication of softening in the remainder of our commercial loan portfolio.

The following table summarizes the our primary asset quality measures as of:

	6/30/2024		3/31/2024		12/31/2023		9/30/2023		6/30/2023
Nonperforming loans to gross loans	0.66	%	0.39	%	0.38	%	0.24	%	0.16	%
Nonperforming assets to total assets	0.56	%	0.34	%	0.35	%	0.23	%	0.16	%
Allowance for credit losses to gross loans	1.05	%	1.05	%	1.05	%	1.04	%	1.05	%
Net charge-offs (recoveries) to QTD average gross loans	0.05	%	—	%	(0.01	)%	(0.03	)%	—	%
Credit loss expense (reversal) to QTD average gross loans	0.05	%	—	%	(0.01	)%	(0.02	)%	0.01	%

The following table summarizes the average loan size as of:

	6/30/2024		3/31/2024		12/31/2023		9/30/2023		6/30/2023
Commercial and industrial	$	343	$	326	$	334	$	353	$	346
Commercial real estate		906		900		905		896		885
Total commercial loans		754		746		752		751		743
Residential mortgage		234		234		236		234		234
Home equity		56		53		53		52		51
Total residential real estate loans		173		174		175		174		174
Consumer		13		13		13		12		12
Gross loans	$	337	$	336	$	337	$	335	$	333

All other assets

The following tables outline the composition and changes in other assets as of:

	6/30/2024			3/31/2024			12/31/2023		9/30/2023			6/30/2023
Premises and equipment, net	$	13,661		$	14,111		$	14,561	$	14,928		$	15,345
Federal Home Loan Bank stock		9,179			9,179			9,179		9,179			11,498
Corporate owned life insurance		27,877			27,670			27,466		27,274			27,047
Mortgage servicing rights		8,636			8,680			8,776		8,884			8,765
Accrued interest receivable		4,747			4,869			4,472		4,485			3,992
Goodwill		8,853			8,853			8,853		8,853			8,853
Other assets
Core deposit intangibles		444			488			533		609			684
Right-of-use assets		1,142			1,237			1,333		1,426			1,510
Other real estate owned		293			345			597		345			345
Other		5,971			6,406			6,088		6,691			6,042
Total		7,850			8,476			8,551		9,071			8,581
All other assets	$	80,803		$	81,838		$	81,858	$	82,674		$	84,081

	6/30/2024 vs 3/31/2024								6/30/2024 vs 6/30/2023
	Variance								Variance
	Amount			%					Amount			%
Premises and equipment, net	$	(450	)	(3.19		)%			$	(1,684	)	(10.97		)%
Federal Home Loan Bank stock		—			—	%				(2,319	)	(20.17		)%
Corporate owned life insurance		207			0.75	%				830			3.07	%
Mortgage servicing rights		(44	)	(0.51		)%				(129	)	(1.47		)%
Accrued interest receivable		(122	)	(2.51		)%				755			18.91	%
Goodwill		—			—	%				—			—	%
Other assets
Core deposit intangibles		(44	)	(9.02		)%				(240	)	(35.09		)%
Right-of-use assets		(95	)	(7.68		)%				(368	)	(24.37		)%
Other real estate owned		(52	)	(15.07		)%				(52	)	(15.07		)%
Other		(435	)	(6.79		)%				(71	)	(1.18		)%
Total		(626	)	(7.39		)%				(731	)	(8.52		)%
All other assets	$	(1,035	)	(1.26		)%			$	(3,278	)	(3.90		)%

The annual decrease in premises and equipment was due to depreciation on our existing premises and equipment.

The annual decrease in FHLB stock was due to our participation in a voluntary repurchase program offered by the FHLB. We anticipate our FHLB stock balance will remain consistent in future periods.

Total deposits

The following tables outline the composition and changes in the deposit portfolio as of:

	6/30/2024			3/31/2024			12/31/2023		9/30/2023			6/30/2023
Noninterest bearing demand	$	404,521		$	401,518		$	423,019	$	425,820		$	457,204
Interest bearing
Savings		262,538			274,922			273,302		293,310			301,872
Money market demand		230,304			229,584			223,827		225,138			221,686
NOW
Retail NOW		205,383			203,614			178,892		198,271			161,765
Brokered NOW		—			—			—		—			—

Total NOW Accounts		205,383			203,614			178,892		198,271			161,765
Time deposits
Other time deposits		264,009			268,466			234,838		198,509			176,280
Brokered time deposits		60,304			60,304			60,304		60,251			60,395
Internet time deposits		—			—			—		498			990

Total time deposits		324,313			328,770			295,142		259,258			237,665

Total deposits	$	1,427,059		$	1,438,408		$	1,394,182	$	1,401,797		$	1,380,192

	6/30/2024 vs 3/31/2024								6/30/2024 vs 6/30/2023
	Variance								Variance
	Amount			%					Amount			%
Noninterest bearing demand	$	3,003			0.75	%			$	(52,683	)	(11.52		)%
Interest bearing
Savings		(12,384	)	(4.50		)%				(39,334	)	(13.03		)%
Money market demand		720			0.31	%				8,618			3.89	%
NOW
Retail NOW		1,769			0.87	%				43,618			26.96	%
Brokered NOW		—			—	%				—			—	%

Total NOW Accounts		1,769			0.87	%				43,618			26.96	%
Time deposits
Other time deposits		(4,457	)	(1.66		)%				87,729			49.77	%
Brokered time deposits		—			—	%				(91	)	(0.15		)%
Internet time deposits		—			—	%				(990	)	(100.00		)%

Total time deposits		(4,457	)	(1.36		)%				86,648			36.46	%

Total deposits	$	(11,349	)	(0.79		)%			$	46,867			3.40	%

Beginning in March 2022, the FOMC began raising its target federal funds rate in order to combat rising inflation. Since then, the FOMC has raised its target federal funds rate 11 times, from a target range of 0.00-0.25% to 5.25-5.50%, or 525 basis points. This rapid increase in interest rates has led to significant competition amongst financial institutions for deposits. Due to the overall uncertainty regarding potential rate changes in the future, customers have not sought out long-term funds, leading to a shift in demand to higher-yielding non-maturity deposit accounts as well as short-term time deposits.

Total borrowed funds

The following tables outline the composition and changes in borrowed funds as of:

	6/30/2024			3/31/2024			12/31/2023		9/30/2023			6/30/2023
Federal Home Loan Bank borrowings	$	160,000		$	160,000		$	180,000	$	180,000		$	180,000
Subordinated debentures		14,000			14,000			14,000		14,000			14,000
Other borrowings		4,397			4,500			4,500		7,050			6,550
Total borrowed funds	$	178,397		$	178,500		$	198,500	$	201,050		$	200,550

	6/30/2024 vs 3/31/2024								6/30/2024 vs 6/30/2023
	Variance								Variance
	Amount			%					Amount			%
Federal Home Loan Bank borrowings	$	—			—	%			$	(20,000	)	(11.11		)%
Subordinated debentures		—			—	%				—			—	%
Other borrowings		(103	)	(2.29		)%				(2,153	)	(32.87		)%
Total borrowed funds	$	(103	)	(0.06		)%			$	(22,153	)	(11.05		)%

We utilize a mix of borrowed funds and organic deposit growth to fund loan demand. As loan growth has slowed in recent periods, our reliance on FHLB advances has declined.

Wholesale funding sources

Although we have been successful at growing market deposits, we utilize wholesale funding sources when necessary to fill gaps when asset growth outpaces deposit growth. Our wholesale funding sources include Federal Home Loan Bank borrowings, correspondent Fed Funds lines and brokered deposits. Although wholesale funding sources are typically more expensive than core deposits, they are an integral part of our funding.

The following tables outline the composition and changes in wholesale funding sources as of:

	6/30/2024			3/31/2024			12/31/2023		9/30/2023			6/30/2023
Federal Home Loan Bank borrowings	$	160,000		$	160,000		$	180,000	$	180,000		$	180,000
Subordinated debentures		14,000			14,000			14,000		14,000			14,000
Other borrowings		4,397			4,500			4,500		7,050			6,550
Brokered NOW accounts		—			—			—		—			—
Brokered time deposits		60,304			60,304			60,304		60,251			60,395
Internet time deposits		—			—			—		498			990
Total wholesale funds	$	238,701		$	238,804		$	258,804	$	261,799		$	261,935

	6/30/2024 vs 3/31/2024								6/30/2024 vs 6/30/2023
	Variance								Variance
	Amount			%					Amount			%
Federal Home Loan Bank borrowings	$	—			—	%				(20,000	)	(11.11		)%
Subordinated debentures		—			—	%				—			—	%
Other borrowings		(103	)	(2.29		)%				(2,153	)	(32.87		)%
Brokered NOW accounts		—		N/A						—		N/A
Brokered time deposits		—			—	%				(91	)	(0.15		)%
Internet time deposits		—		N/A						(990	)	(100.00		)%
Total wholesale funds	$	(103	)	(0.04		)%			$	(23,234	)	(8.87		)%

Accrued interest payable and other liabilities

Accrued interest payable and other liabilities includes accrued interest payable, federal income taxes payable, deferred federal income taxes payable, and all other liabilities (none of which are individually significant).

Total shareholders' equity

We are considered a “well-capitalized” institution, as our capital ratios exceed the minimum designated standards necessary in accordance with Basel III guidelines. As of June 30, 2024, the Bank's total capital ratio was 12.57%, tier 1 capital ratio was 11.47%, and tier 1 leverage ratio was 9.06%. The minimum requirements to be considered well-capitalized are a total capital ratio of 10.00%, tier 1 capital ratio of 8.00%, and tier 1 leverage ratio of 5.00%. While we continue to be considered well-capitalized, we are focused on enhancing our capital ratios through earnings of the Bank as well as asset growth moderation strategies in 2024.

The following tables outline the composition and changes in shareholders' equity as of:

	6/30/2024			3/31/2024			12/31/2023			9/30/2023			6/30/2023
Common stock	$	74,690		$	74,555		$	74,230		$	74,118		$	73,993
Retained earnings		78,094			76,607			74,309			70,972			67,643
Accumulated other comprehensive (loss) income		(9,483	)		(10,088	)		(9,837	)		(12,188	)		(10,946	)
Total shareholders' equity	$	143,301		$	141,074		$	138,702		$	132,902		$	130,690

	6/30/2024 vs 3/31/2024									6/30/2024 vs 6/30/2023
	Variance									Variance
	Amount			%						Amount			%
Common stock	$	135			0.18	%				$	697			0.94	%
Retained earnings		1,487			1.94	%					10,451			15.45	%
Accumulated other comprehensive (loss) income		605		(6.00		)%					1,463		(13.37		)%
Total shareholders' equity	$	2,227			1.58	%				$	12,611			9.65	%

The Board of Directors has authorized the repurchase of up to $10,000 of common stock. As of June 30, 2024, we had $1,393 of common stock available to repurchase through the program. We did not execute any repurchases of our common stock during 2024.

Stock Performance

The following table compares the cumulative total shareholder return on our common stock for the year-to-date, 1 year, 3 year, and 5 year periods ended June 30, 2024. The National OTC Peer Group was developed by selecting all OTC traded bank holding companies with total assets between $1 billion and $3 billion as of 03/31/2024 that had a quoted stock price on Bloomberg. The Midwest / Great Lakes OTC Peer Group represents those institutions included in the National OTC Peer Group that are headquartered in Illinois, Indiana, Michigan, Ohio, Pennsylvania, and Wisconsin.

	# in Peer Group	YTD		1 Year		3 Year		5 Year
Fentura Financial, Inc. (OTCQX:FETM)		(16.54	)%	18.38	%	(9.19	)%	17.90	%

National OTC Peers	43	(1.01	)%	(3.49	)%	2.11	%	8.44	%
Fentura Ranking out of 44		42		6		23		14

Midwest / Great Lakes OTC Peers	17	(1.97	)%	(5.16	)%	(1.63	)%	1.35	%
Fentura Ranking out of 18		16		1		8		4

Abbreviations and Acronyms

ABA: American Bankers Association	FTE: Fully taxable equivalent
ACH: Automated Clearing House	GAAP: Generally Accepted Accounting Principles
ACL: Allowance for credit losses	HFS: Held-for-sale
AFS: Available-for-sale	HTM: Held-to-maturity
AIR: Accrued interest receivable	HFS: Held-for-sale
AOCI: Accumulated other comprehensive income	HTM: Held-to-maturity
ARRC: Alternative Reference Rates Committee	IRA: Individual retirement account
ASC: Accounting Standards Codification	ITM: Interactive Teller Machine
ASU: Accounting Standards Update	LIBOR: London Interbank Offered Rate
ATM: Automated teller machine	MSR: Mortgage servicing rights
CDI: Core deposit intangible	N/M: Not meaningful
CET1: Common equity tier 1	NASDAQ: National Association of Securities Dealers Automated Quotations
COLI: Corporate owned life insurance	NOW: Negotiable order of withdrawal
DRIP: Dividend Reinvestment Plan	NSF: Non-sufficient funds
EPS: Earnings Per Common Share	OCI: Other comprehensive income
ESOP: Employee Stock Ownership Plan	OIS: Overnight Index Swap
FASB: Financial Accounting Standards Board	OREO: Other real estate owned
FDIC: Federal Deposit Insurance Corporation	OTTI: Other-than-temporary impairment
FHLB: Federal Home Loan Bank	QTD: Quarter-to-date
FHLLC: Fentura Holdings LLC	SAB: Staff Accounting Bulletin
FHLMC: Federal Home Loan Mortgage Corporation	SBA: U.S. Small Business Administration
FNMA: Federal National Mortgage Association	SEC: Securities and Exchange Commission
FOMC: Federal Open Market Committee	SERP: Supplemental Executive Retirement Plan
FRB: Federal Reserve Bank	SOFR: Secured Overnight Funding Rate
FSB: Farmers State Bank of Munith	TLM: Troubled loan modifications

About Fentura Financial, Inc. and The State Bank

Fentura Financial, Inc. is the holding company for The State Bank. It was formed in 1987 and is traded on the OTCQX exchange under the symbol FETM, and has been recognized as one of the Top 50 performing stocks on that exchange.

The State Bank is a commercial, retail and trust bank headquartered in Fenton, Michigan. It currently operates 20 full-service offices and one loan production center serving Bay, Genesee, Ingham, Jackson, Livingston, Oakland, Saginaw, and Shiawassee counties. The State Bank believes in the potential of banking to help create better lives, better businesses, and better communities, and works to achieve this through its full array of consumer, mortgage, SBA, commercial and wealth management banking and advisory services, together with philanthropic and volunteer support to organizations and groups within the communities it serves. More information can be found at www.thestatebank.com or www.fentura.com.

Cautionary Statement: This press release contains certain forward-looking statements that involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements concerning future growth in earning assets and net income. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including, but not limited to, economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services, interest rates and fees for services. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release.

Contacts:	Ronald L. Justice	Aaron D. Wirsing
	President & CEO	Chief Financial Officer
	Fentura Financial, Inc.	Fentura Financial, Inc.
	810.714.3902	810.714.3925
	[email protected]	[email protected]

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