Fentura Financial, Inc. Announces Third Quarter 2024 Earnings (unaudited)

Fentura Financial, Inc.

Fri, Oct 25, 2024, 7:52 AM 13 min read

Ronald L. Justice, President and CEO, stated, “We ended the 2024 third quarter with record total assets, deposits, and shareholders’ equity. These results are a testament to the continued hard work of our team members, and the local value we provide our Michigan communities. During the third quarter, we announced a merger with ChoiceOne Financial Services, Inc., pursuant to which ChoiceOne and Fentura will merge in an all-stock transaction. Once completed, the combination will create the third largest publicly traded bank in Michigan with approximately $4.3 billion in consolidated total assets and 56 offices in Western, Central and Southeastern Michigan. We continue to expect to close the transaction in the first quarter of 2025, subject to the satisfaction of customary closing conditions and regulatory approvals.”

Following is a discussion of our financial performance as of, and for the three and nine months ended September 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:

	9/30/2024			6/30/2024			3/31/2024			12/31/2023			9/30/2023
INCOME STATEMENT DATA
Interest income	$	22,194		$	21,487		$	21,541		$	21,033		$	20,416
Interest expense		10,202			9,650			9,315			8,526			7,757
Net interest income		11,992			11,837			12,226			12,507			12,659
Credit loss expense (reversal)		1,203			796			(43	)		(190	)		(309	)
Noninterest income		2,210			2,314			2,355			2,145			2,338
Noninterest expenses		11,974			10,921			11,166			10,121			10,594
Federal income tax expense		158			454			668			937			937
Net income	$	867		$	1,980		$	2,790		$	3,784		$	3,775
PER SHARE
Earnings	$	0.19		$	0.44		$	0.63		$	0.85		$	0.85
Dividends	$	0.11		$	0.11		$	0.11		$	0.10		$	0.10
Tangible book value⁽¹⁾	$	30.51		$	29.84		$	29.38		$	28.92		$	27.64
Quoted market value
High	$	40.00		$	24.39		$	27.20		$	27.20		$	23.74
Low	$	22.16		$	22.33		$	24.00		$	22.26		$	19.10
Close⁽¹⁾	$	39.07		$	22.50		$	24.40		$	27.20		$	23.74
PERFORMANCE RATIOS
Return on average assets		0.19	%		0.45	%		0.63	%		0.86	%		0.86	%
Return on average shareholders' equity		2.37	%		5.59	%		7.98	%		11.11	%		11.27	%
Return on average tangible shareholders' equity		2.54	%		5.98	%		8.55	%		11.94	%		12.14	%
Efficiency ratio		84.31	%		77.17	%		76.58	%		69.08	%		70.64	%
Yield on average earning assets (FTE)		5.17	%		5.18	%		5.15	%		5.06	%		4.92	%
Rate on interest bearing liabilities		3.28	%		3.22	%		3.11	%		2.90	%		2.66	%
Net interest margin to average earning assets (FTE)		2.80	%		2.85	%		2.92	%		3.01	%		3.05	%
BALANCE SHEET DATA⁽¹⁾
Total investment securities	$	99,724		$	100,167		$	103,210		$	107,615		$	109,543
Gross loans	$	1,442,389		$	1,459,929		$	1,461,465		$	1,473,471		$	1,483,720
Allowance for credit losses	$	14,700		$	15,300		$	15,300		$	15,400		$	15,400
Total assets	$	1,807,370		$	1,756,629		$	1,764,629		$	1,738,952		$	1,744,939
Total deposits	$	1,470,586		$	1,427,059		$	1,438,408		$	1,394,182		$	1,401,797
Borrowed funds	$	179,970		$	178,397		$	178,500		$	198,500		$	201,050
Total shareholders' equity	$	146,398		$	143,301		$	141,074		$	138,702		$	132,902
Net loans to total deposits		97.08	%		101.23	%		100.54	%		104.58	%		104.75	%
Common shares outstanding		4,495,005			4,490,087			4,484,447			4,470,871			4,466,221
QTD BALANCE SHEET AVERAGES
Total assets	$	1,797,307		$	1,762,651		$	1,771,614		$	1,740,526		$	1,739,510
Earning assets	$	1,708,177		$	1,669,862		$	1,683,708		$	1,649,091		$	1,646,848
Interest bearing liabilities	$	1,237,665		$	1,204,370		$	1,205,162		$	1,165,064		$	1,156,835
Total shareholders' equity	$	145,240		$	142,577		$	140,574		$	135,157		$	132,860
Total tangible shareholders' equity	$	135,959		$	133,252		$	131,204		$	125,723		$	123,349
Earned common shares outstanding		4,466,951			4,461,580			4,449,376			4,443,463			4,437,415
Unvested stock grants		26,500			26,500			31,821			26,018			26,668
Total common shares outstanding		4,493,451			4,488,080			4,481,197			4,469,481			4,464,083
ASSET QUALITY
Nonperforming loans to gross loans⁽¹⁾		0.71	%		0.66	%		0.39	%		0.38	%		0.24	%
Nonperforming assets to total assets⁽¹⁾		0.58	%		0.56	%		0.34	%		0.35	%		0.23	%
Allowance for credit losses to gross loans⁽¹⁾		1.02	%		1.05	%		1.05	%		1.05	%		1.04	%
Net charge-offs (recoveries) to QTD average gross loans		0.12	%		0.05	%		—	%	(0.01)%			(0.03)%
Credit loss expense (reversal) to QTD average gross loans		0.08	%		0.05	%		—	%	(0.01)%			(0.02)%
CAPITAL RATIOS⁽¹⁾
Total capital to risk weighted assets		12.48	%		12.38	%		12.27	%		11.91	%		11.59	%
Tier 1 capital to risk weighted assets		11.42	%		11.28	%		11.17	%		10.82	%		10.51	%
CET1 capital to risk weighted assets		10.40	%		10.28	%		10.17	%		9.83	%		9.53	%
Tier 1 leverage ratio		8.78	%		8.92	%		8.78	%		8.77	%		8.58	%

⁽¹⁾At end of period

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

	9/30/2024			9/30/2023			9/30/2022			9/30/2021			9/30/2020
INCOME STATEMENT DATA
Interest income	$	65,222		$	58,648		$	41,438		$	35,161		$	34,355
Interest expense		29,167			19,561			3,122			2,091			4,952
Net interest income		36,055			39,087			38,316			33,070			29,403
Credit loss expense (reversal)		1,956			132			2,258			(218	)		4,652
Noninterest income		6,879			7,126			7,997			11,092			15,190
Noninterest expenses		34,061			32,547			30,870			27,815			23,939
Federal income tax expense		1,280			2,689			2,616			3,328			3,271
Net income	$	5,637		$	10,845		$	10,569		$	13,237		$	12,731
PER SHARE
Earnings	$	1.26		$	2.45		$	2.39		$	2.86		$	2.73
Dividends	$	0.33		$	0.3		$	0.27		$	0.24		$	0.225
Tangible book value⁽¹⁾	$	30.51		$	27.64		$	25.22		$	26.53		$	23.50
Quoted market value
High	$	40.00		$	24.10		$	29.25		$	27.40		$	26.00
Low	$	22.16		$	18.70		$	23.00		$	21.90		$	12.55
Close⁽¹⁾	$	39.07		$	23.74		$	23.00		$	25.75		$	16.93
PERFORMANCE RATIOS
Return on average assets		0.42	%		0.85	%		0.95	%		1.36	%		1.45	%
Return on average shareholders' equity		5.27	%		11.15	%		11.71	%		14.55	%		15.79	%
Return on average tangible shareholders' equity		5.64	%		12.03	%		12.75	%		15.00	%		16.40	%
Efficiency ratio		79.33	%		70.43	%		66.66	%		62.98	%		53.68	%
Yield on average earning assets (FTE)		5.17	%		4.84	%		3.99	%		3.83	%		4.12	%
Rate on interest bearing liabilities		3.20	%		2.35	%		0.49	%		0.37	%		0.93	%
Net interest margin to average earning assets (FTE)		2.86	%		3.23	%		3.69	%		3.60	%		3.52	%
BALANCE SHEET DATA⁽¹⁾
Total investment securities	$	99,724		$	109,543		$	129,886		$	138,476		$	78,179
Gross loans	$	1,442,389		$	1,483,720		$	1,350,851		$	1,015,177		$	1,060,885
Allowance for credit losses	$	14,700		$	15,400		$	12,200		$	10,500		$	10,100
Total assets	$	1,807,370		$	1,744,939		$	1,588,592		$	1,329,300		$	1,284,845
Total deposits	$	1,470,586		$	1,401,797		$	1,345,209		$	1,144,291		$	1,061,470
Borrowed funds	$	179,970		$	201,050		$	116,600		$	50,000		$	96,217
Total shareholders' equity	$	146,398		$	132,902		$	121,630		$	124,809		$	114,081
Net loans to total deposits		97.08	%		104.75	%		99.51	%		87.80	%		98.99	%
Common shares outstanding		4,495,005			4,466,221			4,434,937			4,569,935			4,691,142
YTD BALANCE SHEET AVERAGES
Total assets	$	1,777,188		$	1,710,941		$	1,485,489		$	1,297,657		$	1,171,415
Earning assets	$	1,687,249		$	1,620,015		$	1,391,179		$	1,230,553		$	1,116,861
Interest bearing liabilities	$	1,215,731		$	1,111,687		$	858,600		$	748,472		$	711,449
Total shareholders' equity	$	142,796		$	130,068		$	120,704		$	121,659		$	107,711
Total tangible shareholders' equity	$	133,470		$	120,482		$	110,792		$	117,991		$	103,712
Earned common shares outstanding		4,459,303			4,428,963			4,425,818			4,630,709			4,665,951
Unvested stock grants		28,274			28,530			25,462			21,088			13,966
Total common shares outstanding		4,487,577			4,457,493			4,451,280			4,651,797			4,679,917
ASSET QUALITY
Nonperforming loans to gross loans⁽¹⁾		0.71	%		0.24	%		0.12	%		0.82	%		0.07	%
Nonperforming assets to total assets⁽¹⁾		0.58	%		0.23	%		0.12	%		0.63	%		0.06	%
Allowance for credit losses to gross loans⁽¹⁾		1.02	%		1.04	%		0.90	%		1.03	%		0.95	%
Net charge-offs (recoveries) to YTD average gross loans		0.18	%	(0.03)%				0.05	%		0.02	%		0.03	%
Credit loss expense (reversal) to YTD average gross loans		0.13	%		0.01	%		0.19	%	(0.02)%				0.44	%
CAPITAL RATIOS⁽¹⁾
Total capital to risk weighted assets		12.48	%		11.59	%		10.96	%		13.63	%		15.57	%
Tier 1 capital to risk weighted assets		11.42	%		10.51	%		10.07	%		12.64	%		14.40	%
CET1 capital to risk weighted assets		10.40	%		9.53	%		9.04	%		11.33	%		12.77	%
Tier 1 leverage ratio		8.78	%		8.58	%		8.91	%		10.21	%		9.86	%

⁽¹⁾At end of period

Income Statement Breakdown and Analysis

	Quarter to Date
	9/30/2024			6/30/2024			3/31/2024			12/31/2023			9/30/2023
Net income	$	867		$	1,980		$	2,790		$	3,784		$	3,775
Acquisition related items (net of tax)
Other acquisition related expenses		753			—			—			—			—
Amortization of core deposit intangibles		35			34			36			60			60
Total acquisition related items (net of tax)		788			34			36			60			60
Other nonrecurring items (net of tax)
Proxy contest related expenses		—			—			—			—			—
Prepayment penalties collected		(24	)		(40	)		(58	)		(85	)		(29	)
Total other nonrecurring items (net of tax)		(24	)		(40	)		(58	)		(85	)		(29	)
Adjusted net income from operations	$	1,631		$	1,974		$	2,768		$	3,759		$	3,806

Net interest income	$	11,992		$	11,837		$	12,226		$	12,507		$	12,659
Prepayment penalties collected		(31	)		(51	)		(73	)		(107	)		(37	)
Adjusted net interest income	$	11,961		$	11,786		$	12,153		$	12,400		$	12,622

PERFORMANCE RATIOS
Based on adjusted net income from operations
Earnings per share	$	0.37		$	0.44		$	0.62		$	0.85		$	0.86
Return on average assets		0.36	%		0.45	%		0.63	%		0.86	%		0.87	%
Return on average shareholders' equity		4.47	%		5.57	%		7.92	%		11.03	%		11.37	%
Return on average tangible shareholders' equity		4.77	%		5.96	%		8.49	%		11.86	%		12.24	%
Efficiency ratio		77.45	%		77.15	%		76.65	%		69.06	%		70.31	%

Based on adjusted net interest income
Yield on average earning assets (FTE)		5.16	%		5.17	%		5.13	%		5.03	%		4.91	%
Rate on interest bearing liabilities		3.28	%		3.22	%		3.11	%		2.90	%		2.66	%
Net interest margin to average earning assets (FTE)		2.79	%		2.84	%		2.90	%		2.98	%		3.04	%

	Year to Date September 30						Variance
		2024			2023		Amount			%
Net income	$	5,637		$	10,845		$	(5,208	)	(48.02)%
Acquisition related items (net of tax)
Other acquisition related expenses		753			—			753		N/M
Amortization of core deposit intangibles		105			180			(75	)	(41.67)%
Total acquisition related items (net of tax)		858			180			678		376.67	%
Other nonrecurring items (net of tax)
Proxy contest related expenses		—			413			(413	)	(100.00)%
Prepayment penalties collected		(122	)		(133	)		11		(8.27)%
Total other nonrecurring items (net of tax)		(122	)		280			(402	)	(143.57)%
Adjusted net income from operations	$	6,373		$	11,305		$	(4,932	)	(43.63)%

Net interest income	$	36,055		$	39,087		$	(3,032	)	(7.76)%
Prepayment penalties collected		(155	)		(169	)		14		(8.28)%
Adjusted net interest income	$	35,900		$	38,918		$	(3,018	)	(7.75)%

PERFORMANCE RATIOS
Based on adjusted net income from operations
Earnings per share	$	1.43		$	2.55		$	(1.12	)	(43.92)%
Return on average assets		0.48	%		0.88	%				(0.40)%
Return on average shareholders' equity		5.96	%		11.62	%				(5.66)%
Return on average tangible shareholders' equity		6.38	%		12.55	%				(6.17)%
Efficiency ratio		77.08	%		69.06	%				8.02	%

Based on adjusted net interest income
Yield on average earning assets (FTE)		5.16	%		4.83	%				0.33	%
Rate on interest bearing liabilities		3.20	%		2.35	%				0.85	%
Net interest margin to average earning assets (FTE)		2.85	%		3.22	%				(0.37)%

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
	September 30, 2024							June 30, 2024							September 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	$	1,450,371		$	19,599	5.38	%	$	1,462,362		$	19,550	5.38	%	$	1,477,343		$	19,170	5.15	%
Taxable investment securities		89,175			335	1.49	%		89,751			350	1.57	%		101,549			397	1.55	%
Nontaxable investment securities		10,580			57	2.14	%		11,059			62	2.25	%		12,670			70	2.19	%
Interest earning cash and cash equivalents		148,872			2,023	5.41	%		97,511			1,331	5.49	%		43,865			594	5.37	%
Federal Home Loan Bank stock		9,179			192	8.32	%		9,179			207	9.07	%		11,421			199	6.91	%
Total earning assets		1,708,177			22,206	5.17	%		1,669,862			21,500	5.18	%		1,646,848			20,430	4.92	%

Nonearning assets
Allowance for credit losses		(15,282	)						(15,300	)						(15,503	)
Premises and equipment, net		13,514							13,964							15,210
Accrued income and other assets		90,898							94,125							92,955
Total assets	$	1,797,307						$	1,762,651						$	1,739,510

Interest bearing liabilities
Interest bearing demand deposits	$	460,256		$	4,054	3.50	%	$	429,141		$	3,745	3.51	%	$	416,500		$	3,230	3.08	%
Savings deposits		261,620			416	0.63	%		266,731			408	0.62	%		290,939			429	0.59	%
Time deposits		336,570			3,865	4.57	%		330,024			3,756	4.58	%		248,389			2,280	3.64	%
Borrowed funds		179,219			1,867	4.14	%		178,474			1,741	3.92	%		201,007			1,818	3.59	%
Total interest bearing liabilities		1,237,665			10,202	3.28	%		1,204,370			9,650	3.22	%		1,156,835			7,757	2.66	%

Noninterest bearing liabilities
Noninterest bearing deposits		402,274							405,985							435,398
Accrued interest and other liabilities		12,128							9,719							14,417
Shareholders' equity		145,240							142,577							132,860
Total liabilities and shareholders' equity	$	1,797,307						$	1,762,651						$	1,739,510
Net interest income (FTE)				$	12,004						$	11,850						$	12,673
Net interest margin to earning assets (FTE)						2.80	%						2.85	%						3.05	%

	Nine Months Ended
	September 30, 2024							September 30, 2023
	Average Balance			Tax Equivalent Interest		Average Yield / Rate		Average Balance			Tax Equivalent Interest		Average Yield / Rate
Interest earning assets
Total loans	$	1,461,289		$	58,758	5.37	%	$	1,464,959		$	55,749	5.09	%
Taxable investment securities		91,041			1,044	1.53	%		106,158			1,250	1.57	%
Nontaxable investment securities		11,200			186	2.22	%		13,403			227	2.26	%
Interest earning cash and cash equivalents		114,540			4,673	5.45	%		24,484			955	5.21	%
Federal Home Loan Bank stock		9,179			600	8.73	%		11,011			515	6.25	%
Total earning assets		1,687,249			65,261	5.17	%		1,620,015			58,696	4.84	%

Nonearning assets
Allowance for credit losses		(15,328	)						(15,290	)
Premises and equipment, net		13,957							15,342
Accrued income and other assets		91,310							90,874
Total assets	$	1,777,188						$	1,710,941

Interest bearing liabilities
Interest bearing demand deposits	$	436,997		$	11,358	3.47	%	$	385,316		$	7,927	2.75	%
Savings deposits		266,883			1,237	0.62	%		312,762			1,336	0.57	%
Time deposits		331,113			11,265	4.54	%		196,838			4,595	3.12	%
Borrowed funds		180,738			5,307	3.92	%		216,771			5,703	3.52	%
Total interest bearing liabilities		1,215,731			29,167	3.20	%		1,111,687			19,561	2.35	%

Noninterest bearing liabilities
Noninterest bearing deposits		408,449							455,069
Accrued interest and other liabilities		10,212							14,117
Shareholders' equity		142,796							130,068
Total liabilities and shareholders' equity	$	1,777,188						$	1,710,941
Net interest income (FTE)				$	36,094						$	39,135
Net interest margin to earning assets (FTE)						2.86	%						3.23	%

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									Nine Months Ended
	September 30, 2024									September 30, 2024									September 30, 2024
	Compared To									Compared To									Compared To
	June 30, 2024									September 30, 2023									September 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	$	49		$	—		$	49		$	(1,847	)	$	2,276		$	429		$	(227	)	$	3,236		$	3,009
Taxable investment securities		(2	)		(13	)		(15	)		(47	)		(15	)		(62	)		(175	)		(31	)		(206	)
Nontaxable investment securities		(2	)		(3	)		(5	)		(12	)		(1	)		(13	)		(37	)		(4	)		(41	)
Interest earning cash and cash equivalents		825			(133	)		692			1,424			5			1,429			3,672			46			3,718
Federal Home Loan Bank stock		—			(15	)		(15	)		(161	)		154			(7	)		(137	)		222			85
Total changes in interest income		870			(164	)		706			(643	)		2,419			1,776			3,096			3,469			6,565

Changes in interest expense
Interest bearing demand deposits		380			(71	)		309			359			465			824			1,162			2,269			3,431
Savings deposits		(25	)		33			8			(147	)		134			(13	)		(258	)		159			(99	)
Time deposits		158			(49	)		109			922			663			1,585			4,001			2,669			6,670
Borrowed funds		9			117			126			(896	)		945			49			(1,265	)		869			(396	)
Total changes in interest expense		522			30			552			238			2,207			2,445			3,640			5,966			9,606
Net change in net interest income (FTE)	$	348		$	(194	)	$	154		$	(881	)	$	212		$	(669	)	$	(544	)	$	(2,497	)	$	(3,041	)

	Average Yield/Rate for the Three Months Ended
	9/30/2024		6/30/2024		3/31/2024		12/31/2023		9/30/2023
Total earning assets	5.17	%	5.18	%	5.15	%	5.06	%	4.92	%
Total interest bearing liabilities	3.28	%	3.22	%	3.11	%	2.90	%	2.66	%
Net interest margin to earning assets (FTE)	2.80	%	2.85	%	2.92	%	3.01	%	3.05	%

	Quarter to Date Net Interest Income (FTE)
	9/30/2024		6/30/2024		3/31/2024		12/31/2023		9/30/2023
Interest income	$	22,194	$	21,487	$	21,541	$	21,033	$	20,416
FTE adjustment		12		13		14		14		14
Total interest income (FTE)		22,206		21,500		21,555		21,047		20,430
Total interest expense		10,202		9,650		9,315		8,526		7,757
Net interest income (FTE)	$	12,004	$	11,850	$	12,240	$	12,521	$	12,673

Noninterest Income

	Three Months Ended
	9/30/2024			6/30/2024			3/31/2024			12/31/2023			9/30/2023
Service charges and fees
Trust and investment services		619			607			641			433			572
ATM and debit card		541			545			512			549			568
Service charges on deposit accounts		163			162			140			211			244
Total		1,323			1,314			1,293			1,193			1,384
Net gain on sales of residential mortgage loans		211			177			143			96			164
Net gain on sales of commercial loans		133			98			296			226			—
Change in fair value of equity investments		33			(3	)		(10	)		42			(28	)
Changes in the fair value of MSR		(175	)		(44	)		(96	)		(108	)		119
Other
Mortgage servicing fees		389			386			394			398			398
Change in cash surrender value of corporate owned life insurance		206			207			204			192			181
Other		90			179			131			106			120
Total		685			772			729			696			699
Total noninterest income	$	2,210		$	2,314		$	2,355		$	2,145		$	2,338

Memo items:
Residential mortgage operations	$	425		$	519		$	441		$	386		$	681

	Nine Months Ended September 30						Variance
		2024			2023		Amount			%
Service charges and fees
Trust and investment services	$	1,867		$	1,704		$	163		9.57	%
ATM and debit card		1,598			1,669			(71	)	(4.25)%
Service charges on deposit accounts		465			686			(221	)	(32.22)%
Total		3,930			4,059			(129	)	(3.18)%
Net gain on sales of residential mortgage loans		531			523			8		1.53	%
Net gain on sales of commercial loans		527			95			432		454.74	%
Change in fair value of equity investments		20			(29	)		49		(168.97)%
Changes in the fair value of MSR		(315	)		218			(533	)	(244.50)%
Other
Mortgage servicing fees		1,169			1,210			(41	)	(3.39)%
Change in cash surrender value of corporate owned life insurance		617			531			86		16.20	%
Other		400			519			(119	)	(22.93)%
Total		2,186			2,260			(74	)	(3.27)%
Total noninterest income	$	6,879		$	7,126		$	(247	)	(3.47)%

Memo items:
Residential mortgage operations	$	1,385		$	1,951		$	(566	)	(29.01)%

Residential Mortgage Operations

Residential mortgage operations includes net gains on sales of loans, changes in the fair value of mortgage servicing rights, 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 elevated 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 third quarter of 2024, residential mortgage originations sold into the secondary market totaled $10,722.

Changes in the fair value of MSR are highly correlated to changes in interest rates and prepayment speeds. During the third 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 $4,741. 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 $22,584, or 3.58%, since September 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. Throughout 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
	9/30/2024		6/30/2024		3/31/2024		12/31/2023		9/30/2023
Compensation and benefits	$	5,839	$	5,842	$	6,066	$	5,521	$	5,592
Professional services		799		963		894		695		726
Furniture and equipment		668		689		727		696		668
Occupancy		622		605		623		610		591
Data processing		751		490		547		505		576
Loan and collection		349		425		322		301		232
Advertising and promotional		312		337		348		139		506
Other
Acquisition related expenses		953		—		—		—		—
FDIC insurance premiums		275		327		299		270		330
ATM and debit card		214		188		171		158		153
Telephone and communication		95		86		109		103		115
Amortization of core deposit intangibles		44		44		45		76		75
Other general and administrative		1,053		925		1,015		1,047		1,030
Total		2,634		1,570		1,639		1,654		1,703
Total noninterest expenses	$	11,974	$	10,921	$	11,166	$	10,121	$	10,594

	Nine Months Ended September 30				Variance
		2024		2023	Amount			%
Compensation and benefits	$	17,747	$	16,876	$	871		5.16	%
Professional services		2,656		2,729		(73	)	(2.67)%
Furniture and equipment		2,084		2,079		5		0.24	%
Occupancy		1,850		1,815		35		1.93	%
Data processing		1,788		1,654		134		8.10	%
Loan and collection		1,096		929		167		17.98	%
Advertising and promotional		997		1,466		(469	)	(31.99)%
Other
Acquisition related expenses		953		—		953		N/M
FDIC insurance premiums		901		861		40		4.65	%
ATM and debit card		573		493		80		16.23	%
Telephone and communication		290		334		(44	)	(13.17)%
Amortization of core deposit intangibles		133		227		(94	)	(41.41)%
Other general and administrative		2,993		3,084		(91	)	(2.95)%
Total		5,843		4,999		844		16.88	%
Total noninterest expenses	$	34,061	$	32,547	$	1,514		4.65	%

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 the remainder of 2024.

Data processing primarily includes the expenses relating to our core data processor. The increase in data processing in the third quarter of 2024 is primarily due to the loss of incentive credits from our core data processor following our proposed merger announcement. 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 have declined in 2024 due to the expiration of certain long-term sponsorship commitments. Advertising and promotional expenses are expected to approximate current levels in future periods.

Acquisition related expenses includes expenses related to our proposed merger with ChoiceOne Financial Services, Inc., which was announced during the third quarter of 2024. These expenses include services rendered for investment banking, legal and accounting. We expect to incur additional acquisition related expenses in future periods.

FDIC insurance premiums typically fluctuate each period based on the size of the balance sheet, capital position and overall risk profile. FDIC insurance premiums are expected to approximate current levels in future periods.

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

	9/30/2024		6/30/2024		3/31/2024		12/31/2023		9/30/2023
ASSETS
Cash and due from banks	$	199,717	$	128,590	$	132,349	$	90,661	$	83,365
Total investment securities		99,724		100,167		103,210		107,615		109,543
Residential mortgage loans held-for-sale, at fair value		1,861		2,440		1,067		747		1,037
Gross loans		1,442,389		1,459,929		1,461,465		1,473,471		1,483,720
Less allowance for credit losses		14,700		15,300		15,300		15,400		15,400
Net loans		1,427,689		1,444,629		1,446,165		1,458,071		1,468,320
All other assets		78,379		80,803		81,838		81,858		82,674
Total assets	$	1,807,370	$	1,756,629	$	1,764,629	$	1,738,952	$	1,744,939

LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits	$	1,470,586	$	1,427,059	$	1,438,408	$	1,394,182	$	1,401,797
Total borrowed funds		179,970		178,397		178,500		198,500		201,050
Accrued interest payable and other liabilities		10,416		7,872		6,647		7,568		9,190
Total liabilities		1,660,972		1,613,328		1,623,555		1,600,250		1,612,037
Total shareholders' equity		146,398		143,301		141,074		138,702		132,902
Total liabilities and shareholders' equity	$	1,807,370	$	1,756,629	$	1,764,629	$	1,738,952	$	1,744,939

	9/30/2024 vs 6/30/2024					9/30/2024 vs 9/30/2023
	Variance					Variance
	Amount			%		Amount			%
ASSETS
Cash and due from banks	$	71,127		55.31	%	$	116,352		139.57	%
Total investment securities		(443	)	(0.44)%			(9,819	)	(8.96)%
Residential mortgage loans held-for-sale, at fair value		(579	)	(23.73)%			824		79.46	%
Gross loans		(17,540	)	(1.20)%			(41,331	)	(2.79)%
Less allowance for credit losses		(600	)	(3.92)%			(700	)	(4.55)%
Net loans		(16,940	)	(1.17)%			(40,631	)	(2.77)%
All other assets		(2,424	)	(3.00)%			(4,295	)	(5.20)%
Total assets	$	50,741		2.89	%	$	62,431		3.58	%

LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits	$	43,527		3.05	%	$	68,789		4.91	%
Total borrowed funds		1,573		0.88	%		(21,080	)	(10.48)%
Accrued interest payable and other liabilities		2,544		32.32	%		1,226		13.34	%
Total liabilities		47,644		2.95	%		48,935		3.04	%
Total shareholders' equity		3,097		2.16	%		13,496		10.15	%
Total liabilities and shareholders' equity	$	50,741		2.89	%	$	62,431		3.58	%

Cash and due from banks

	9/30/2024		6/30/2024			3/31/2024		12/31/2023		9/30/2023
Cash and due from banks
Noninterest bearing	$	37,871	$	35,437		$	26,128	$	29,997	$	35,121
Interest bearing		161,846		93,153			106,221		60,664		48,244
Total	$	199,717	$	128,590		$	132,349	$	90,661	$	83,365

	9/30/2024 vs 6/30/2024							9/30/2024 vs 9/30/2023
	Variance							Variance
	Amount		%					Amount		%
Cash and due from banks
Noninterest bearing	$	2,434		6.87	%			$	2,750		7.83	%
Interest bearing		68,693		73.74	%				113,602		235.47	%
Total	$	71,127		55.31	%			$	116,352		139.57	%

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:

	9/30/2024		6/30/2024		3/31/2024		12/31/2023		9/30/2023
Cash and cash equivalents	$	199,717	$	128,590	$	132,349	$	90,661	$	83,365
Fair value of unpledged investment securities		77,019		74,775		73,680		80,247		82,103
FHLB borrowing availability		190,000		190,000		190,000		170,000		170,000
Unsecured lines of credit		23,000		23,000		23,000		20,000		20,000
Funds available through the Fed Discount Window		109		106		107		111		110
Parent company line of credit		5,100		7,000		3,500		3,500		950
Total liquidity sources	$	494,945	$	423,471	$	422,636	$	364,519	$	356,528

The increase in cash and cash equivalents as of September 30, 2024 was due to an increase in total deposits (see "Total deposits" below).

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

	9/30/2024			6/30/2024			3/31/2024			12/31/2023			9/30/2023
Available-for-sale
U.S. Government and federal agency	$	19,432		$	20,430		$	20,427		$	22,425		$	23,420
State and municipal		18,997			19,108			20,403			20,460			20,992
Mortgage backed residential		44,086			45,808			47,505			49,076			50,786
Certificates of deposit		2,234			2,481			2,729			2,728			3,956
Collateralized mortgage obligations - agencies		21,640			22,213			22,778			23,320			24,062
Unrealized gain/(loss) on available-for-sale securities		(8,798	)		(12,179	)		(13,027	)		(12,760	)		(15,958	)
Total available-for-sale		97,591			97,861			100,815			105,249			107,258
Held-to-maturity state and municipal		535			791			877			878			879
Equity securities		1,598			1,515			1,518			1,488			1,406
Total investment securities	$	99,724		$	100,167		$	103,210		$	107,615		$	109,543

	9/30/2024 vs 6/30/2024									9/30/2024 vs 9/30/2023
	Variance									Variance
	Amount			%						Amount			%
Available-for-sale
U.S. Government and federal agency		(998	)	(4.88)%						$	(3,988	)	(17.03)%
State and municipal		(111	)	(0.58)%							(1,995	)	(9.50)%
Mortgage backed residential		(1,722	)	(3.76)%							(6,700	)	(13.19)%
Certificates of deposit		(247	)	(9.96)%							(1,722	)	(43.53)%
Collateralized mortgage obligations - agencies		(573	)	(2.58)%							(2,422	)	(10.07)%
Unrealized gain/(loss) on available-for-sale securities		3,381		(27.76)%							7,160		(44.87)%
Total available-for-sale		(270	)	(0.28)%							(9,667	)	(9.01)%
Held-to-maturity state and municipal		(256	)	(32.36)%							(344	)	(39.14)%
Equity securities		83			5.48	%					192			13.66	%
Total investment securities	$	(443	)	(0.44)%						$	(9,819	)	(8.96)%

The amortized cost and fair value of AFS investment securities as of September 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	$	6,481	$	12,951	$	—	$	—	$	—	$	19,432
State and municipal		1,624		15,190		1,113		1,070		—		18,997
Mortgage backed residential		—								44,086		44,086
Certificates of deposit		2,234		—		—		—		—		2,234
Collateralized mortgage obligations - agencies		—		—		—		—		21,640		21,640
Total amortized cost	$	10,339	$	28,141	$	1,113	$	1,070	$	65,726	$	106,389
Fair value	$	10,111	$	26,620	$	1,017	$	1,001	$	58,842	$	97,591

The amortized cost and fair value of HTM investment securities as of September 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	$	85	$	295	$	155	$	—	$	—	$	535
Fair value	$	84	$	290	$	152	$	—	$	—	$	526

Total investment securities have declined in recent periods primarily due to maturities and prepayments. As a result of 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 strategically declined 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:

	9/30/2024			6/30/2024			3/31/2024			12/31/2023			9/30/2023
Commercial and industrial	$	109,188		$	120,331		$	114,772		$	118,089		$	125,330
Commercial real estate		855,270			864,200			867,270			870,693			874,870
Total commercial loans		964,458			984,531			982,042			988,782			1,000,200
Residential mortgage		419,140			418,403			426,762			431,836			431,740
Home equity		55,475			53,133			48,568			48,380			47,069
Total residential real estate loans		474,615			471,536			475,330			480,216			478,809
Consumer		3,316			3,862			4,093			4,473			4,711
Gross loans		1,442,389			1,459,929			1,461,465			1,473,471			1,483,720
Allowance for credit losses		(14,700	)		(15,300	)		(15,300	)		(15,400	)		(15,400	)
Loans, net	$	1,427,689		$	1,444,629		$	1,446,165		$	1,458,071		$	1,468,320

Memo items:
Residential mortgage loans serviced for others	$	609,113		$	613,854		$	619,160		$	624,765		$	631,697

	9/30/2024 vs 6/30/2024									9/30/2024 vs 9/30/2023
	Variance									Variance
	Amount			%						Amount			%
Commercial and industrial	$	(11,143	)	(9.26)%						$	(16,142	)	(12.88)%
Commercial real estate		(8,930	)	(1.03)%							(19,600	)	(2.24)%
Total commercial loans		(20,073	)	(2.04)%							(35,742	)	(3.57)%
Residential mortgage		737			0.18	%					(12,600	)	(2.92)%
Home equity		2,342			4.41	%					8,406			17.86	%
Total residential real estate loans		3,079			0.65	%					(4,194	)	(0.88)%
Consumer		(546	)	(14.14)%							(1,395	)	(29.61)%
Gross loans		(17,540	)	(1.20)%							(41,331	)	(2.79)%
Allowance for credit losses		600		(3.92)%							700		(4.55)%
Loans, net	$	(16,940	)	(1.17)%						$	(40,631	)	(2.77)%

Memo items:
Residential mortgage loans serviced for others	$	(4,741	)	(0.77)%						$	(22,584	)	(3.58)%

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

	9/30/2024		6/30/2024		3/31/2024		12/31/2023		9/30/2023
Loans collectively evaluated
Commercial and industrial	$	102,523	$	113,254	$	112,542	$	115,665	$	124,860
Commercial real estate		854,038		864,026		867,270		870,524		874,701
Residential mortgage		416,864		416,130		423,881		429,109		428,927
Home equity		55,416		53,056		48,388		48,136		46,898
Consumer		3,325		3,862		4,093		4,473		4,711
Subtotal		1,432,166		1,450,328		1,456,174		1,467,907		1,480,097
Loans individually evaluated
Commercial and industrial		6,665		7,077		2,230		2,424		470
Commercial real estate		1,232		174		—		169		169
Residential mortgage		2,276		2,273		2,881		2,727		2,813
Home equity		48		77		180		244		171
Consumer		2		—		—		—		—
Subtotal		10,223		9,601		5,291		5,564		3,623
Gross Loans	$	1,442,389	$	1,459,929	$	1,461,465	$	1,473,471	$	1,483,720

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

	9/30/2024		6/30/2024		3/31/2024		12/31/2023		9/30/2023
Allowance for credit losses for collectively evaluated loans
Commercial and industrial	$	1,436	$	1,434	$	1,300	$	1,407	$	1,362
Commercial real estate		8,347		8,903		8,359		8,467		8,703
Residential mortgage		4,131		4,133		4,202		4,409		4,439
Home equity		348		327		305		321		315
Consumer		51		80		38		44		36
Unallocated		—		—		670		355		294
Subtotal		14,313		14,877		14,874		15,003		15,149
Allowance for credit losses for individually evaluated loans
Commercial and industrial		385		423		423		363		248
Commercial real estate		—		—		—		—		—
Residential mortgage		—		—		3		34		3
Home equity		—		—		—		—		—
Consumer		2		—		—		—		—
Unallocated		—		—		—		—		—
Subtotal		387		423		426		397		251
Allowance for credit losses	$	14,700	$	15,300	$	15,300	$	15,400	$	15,400

Commercial and industrial	$	1,784	$	1,857	$	1,723	$	1,770	$	1,610
Commercial real estate		8,347		8,903		8,359		8,467		8,703
Residential mortgage		4,131		4,133		4,205		4,443		4,442
Home equity		348		327		305		321		315
Consumer		53		80		38		44		36
Unallocated		—		—		670		355		294
Allowance for credit losses	$	14,700	$	15,300	$	15,300	$	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, elevated 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 September 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.

Within the net lease and retail strip center non-owner occupied commercial real estate pools, we have exposure to Rite Aid. During the fourth quarter of 2023, Rite Aid, which operates over 2,000 retail pharmacies across 17 states, filed for Chapter 11 bankruptcy protection. During the third quarter of 2024, Rite Aid announced that it successfully emerged from bankruptcy protection and will now operate as a private company. However, all Rite Aid stores in Michigan were closed as part of the company's restructuring. As a result, one commercial real estate loan was partially charged off and its remaining balance was moved to nonaccrual status during the third quarter of 2024. We continue to actively monitor five remaining loans previously associated with Rite Aid.

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:

	9/30/2024			6/30/2024			3/31/2024		12/31/2023			9/30/2023
Net lease	$	137,406		$	141,064		$	147,103	$	149,056		$	160,077
Retail strip centers		106,948			106,631			107,834		98,588			96,567
Office		61,897			62,237			61,657		61,822			62,959
Special use		71,307			71,006			58,278		58,710			57,612
Industrial		23,338			23,107			22,575		28,380			28,906
Medical office		24,551			24,818			25,380		25,842			28,591
Self storage		32,797			32,502			25,660		23,455			21,993
Mixed use		16,829			16,980			17,174		17,335			19,833
Retail		15,183			17,191			12,533		12,981			14,115

Total non-owner occupied commercial real estate loans	$	490,256		$	495,536		$	478,194	$	476,169		$	490,653

	9/30/2024 vs 6/30/2024								9/30/2024 vs 9/30/2023
	Variance								Variance
	Amount			%					Amount			%
Net lease	$	(3,658	)	(2.59)%					$	(22,671	)	(14.16)%
Retail strip centers		317			0.30	%				10,381			10.75	%
Office		(340	)	(0.55)%						(1,062	)	(1.69)%
Special use		301			0.42	%				13,695			23.77	%
Industrial		231			1.00	%				(5,568	)	(19.26)%
Medical office		(267	)	(1.08)%						(4,040	)	(14.13)%
Self storage		295			0.91	%				10,804			49.12	%
Mixed use		(151	)	(0.89)%						(3,004	)	(15.15)%
Retail		(2,008	)	(11.68)%						1,068			7.57	%

Total non-owner occupied commercial real estate loans	$	(5,280	)	(1.07)%					$	(397	)	(0.08)%

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:

	9/30/2024		6/30/2024		3/31/2024		12/31/2023		9/30/2023
Net lease	$	1,383	$	1,291	$	1,311	$	1,316	$	1,300
Retail strip centers		2,379		2,197		2,231		2,135		2,115
Office		1,370		1,363		1,296		1,297		1,294
Special use		2,612		2,546		2,064		2,079		2,134
Industrial		933		925		941		1,092		1,072
Medical office		1,116		1,128		1,103		1,078		1,145
Self storage		1,923		1,926		1,509		1,380		1,692
Mixed use		1,324		1,334		1,321		1,333		1,240
Retail		407		513		447		461		429

Total non-owner occupied commercial real estate loans	$	1,489	$	1,448	$	1,392	$	1,379	$	1,362

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:

	9/30/2024		6/30/2024		3/31/2024		12/31/2023		9/30/2023
Net lease	9.53	%	9.66	%	10.07	%	10.12	%	10.79	%
Retail strip centers	7.41	%	7.30	%	7.38	%	6.69	%	6.51	%
Office	4.29	%	4.26	%	4.22	%	4.20	%	4.24	%
Special use	4.94	%	4.86	%	3.99	%	3.98	%	3.88	%
Industrial	1.62	%	1.58	%	1.54	%	1.93	%	1.95	%
Medical office	1.70	%	1.70	%	1.74	%	1.75	%	1.93	%
Self storage	2.27	%	2.23	%	1.76	%	1.59	%	1.48	%
Mixed use	1.17	%	1.16	%	1.18	%	1.18	%	1.34	%
Retail	1.05	%	1.18	%	0.86	%	0.88	%	0.95	%

Total non-owner occupied commercial real estate loans to gross loans	33.98	%	33.93	%	32.74	%	32.32	%	33.07	%

Asset quality

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

	9/30/2024		6/30/2024		3/31/2024		12/31/2023		9/30/2023
Accruing interest
Current	$	1,428,014	$	1,445,780	$	1,451,432	$	1,463,668	$	1,477,386
Past due 30-89 days		4,152		4,534		4,344		4,239		2,711
Past due 90 days or more		—		14		398		—		—
Total accruing interest		1,432,166		1,450,328		1,456,174		1,467,907		1,480,097
Nonaccrual		10,223		9,601		5,291		5,564		3,623
Total loans	$	1,442,389	$	1,459,929	$	1,461,465	$	1,473,471	$	1,483,720
Total loans past due and in nonaccrual status	$	14,375	$	14,149	$	10,033	$	9,803	$	6,334

The following table summarizes the our nonperforming assets as of:

	9/30/2024		6/30/2024		3/31/2024		12/31/2023		9/30/2023
Nonaccrual loans	$	10,223	$	9,601	$	5,291	$	5,564	$	3,623
Accruing loans past due 90 days or more		—		14		398		—		—
Total nonperforming loans		10,223		9,615		5,689		5,564		3,623
Other real estate owned		293		293		345		597		345
Total nonperforming assets	$	10,516	$	9,908	$	6,034	$	6,161	$	3,968

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

	9/30/2024		6/30/2024		3/31/2024			12/31/2023			9/30/2023
Total charge-offs	$	1,814	$	814	$	86		$	110		$	16
Total recoveries		11		18		29			300			455
Net charge-offs (recoveries)	$	1,803	$	796	$	57		$	(190	)	$	(439	)
Allowance for credit losses	$	1,203	$	796	$	(43	)	$	(190	)	$	(309	)

During the third quarter of 2024, we partially charged off one commercial real estate loan for $1,443 related to the Rite Aid bankruptcy filing. 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:

	9/30/2024		6/30/2024		3/31/2024		12/31/2023		9/30/2023
Nonperforming loans to gross loans	0.71	%	0.66	%	0.39	%	0.38	%	0.24	%
Nonperforming assets to total assets	0.58	%	0.56	%	0.34	%	0.35	%	0.23	%
Allowance for credit losses to gross loans	1.02	%	1.05	%	1.05	%	1.05	%	1.04	%
Net charge-offs (recoveries) to QTD average gross loans	0.12	%	0.05	%	—	%	(0.01)%		(0.03)%
Credit loss expense (reversal) to QTD average gross loans	0.08	%	0.05	%	—	%	(0.01)%		(0.02)%

The following table summarizes the average loan size as of:

	9/30/2024		6/30/2024		3/31/2024		12/31/2023		9/30/2023
Commercial and industrial	$	310	$	343	$	326	$	334	$	353
Commercial real estate		901		906		900		905		896
Total commercial loans		740		754		746		752		751
Residential mortgage		235		234		234		236		234
Home equity		58		56		53		53		52
Total residential real estate loans		173		173		174		175		174
Consumer		12		13		13		13		12
Gross loans	$	335	$	337	$	336	$	337	$	335

All other assets

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

	9/30/2024			6/30/2024			3/31/2024		12/31/2023			9/30/2023
Premises and equipment, net	$	13,203		$	13,661		$	14,111	$	14,561		$	14,928
Federal Home Loan Bank stock		9,179			9,179			9,179		9,179			9,179
Corporate owned life insurance		28,129			27,877			27,670		27,466			27,274
Mortgage servicing rights		8,461			8,636			8,680		8,776			8,884
Accrued interest receivable		4,354			4,747			4,869		4,472			4,485
Goodwill		8,853			8,853			8,853		8,853			8,853
Other assets
Core deposit intangibles		400			444			488		533			609
Right-of-use assets		1,062			1,142			1,237		1,333			1,426
Other real estate owned		293			293			345		597			345
Other		4,445			5,971			6,406		6,088			6,691
Total		6,200			7,850			8,476		8,551			9,071
All other assets	$	78,379		$	80,803		$	81,838	$	81,858		$	82,674

	9/30/2024 vs 6/30/2024								9/30/2024 vs 9/30/2023
	Variance								Variance
	Amount			%					Amount			%
Premises and equipment, net	$	(458	)	(3.35)%					$	(1,725	)	(11.56)%
Federal Home Loan Bank stock		—			—	%				—			—	%
Corporate owned life insurance		252			0.90	%				855			3.13	%
Mortgage servicing rights		(175	)	(2.03)%						(423	)	(4.76)%
Accrued interest receivable		(393	)	(8.28)%						(131	)	(2.92)%
Goodwill		—			—	%				—			—	%
Other assets
Core deposit intangibles		(44	)	(9.91)%						(209	)	(34.32)%
Right-of-use assets		(80	)	(7.01)%						(364	)	(25.53)%
Other real estate owned		—			—	%				(52	)	(15.07)%
Other		(1,526	)	(25.56)%						(2,246	)	(33.57)%
Total		(1,650	)	(21.02)%						(2,871	)	(31.65)%
All other assets	$	(2,424	)	(3.00)%					$	(4,295	)	(5.20)%

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

Total deposits

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

	9/30/2024			6/30/2024			3/31/2024		12/31/2023			9/30/2023
Noninterest bearing demand	$	398,338		$	404,521		$	401,518	$	423,019		$	425,820
Interest bearing
Savings		264,337			262,538			274,922		273,302			293,310
Money market demand		250,715			230,304			229,584		223,827			225,138
NOW
Retail NOW		202,030			205,383			203,614		178,892			198,271
Brokered NOW		—			—			—		—			—

Total NOW Accounts		202,030			205,383			203,614		178,892			198,271
Time deposits
Other time deposits		294,862			264,009			268,466		234,838			198,509
Brokered time deposits		60,304			60,304			60,304		60,304			60,251
Internet time deposits		—			—			—		—			498

Total time deposits		355,166			324,313			328,770		295,142			259,258

Total deposits	$	1,470,586		$	1,427,059		$	1,438,408	$	1,394,182		$	1,401,797

	9/30/2024 vs 6/30/2024								9/30/2024 vs 9/30/2023
	Variance								Variance
	Amount			%					Amount			%
Noninterest bearing demand	$	(6,183	)	(1.53)%					$	(27,482	)	(6.45)%
Interest bearing
Savings		1,799			0.69	%				(28,973	)	(9.88)%
Money market demand		20,411			8.86	%				25,577			11.36	%
NOW
Retail NOW		(3,353	)	(1.63)%						3,759			1.90	%
Brokered NOW		—			—	%				—			—	%

Total NOW Accounts		(3,353	)	(1.63)%						3,759			1.90	%
Time deposits
Other time deposits		30,853			11.69	%				96,353			48.54	%
Brokered time deposits		—			—	%				53			0.09	%
Internet time deposits		—			—	%				(498	)	(100.00)%

Total time deposits		30,853			9.51	%				95,908			36.99	%

Total deposits	$	43,527			3.05	%			$	68,789			4.91	%

Between March 2022 and July 2023, the FOMC 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, in order to combat rising inflation. This rapid increase in interest rates led to significant competition amongst financial institutions for deposits. In September 2024, the FOMC lowered the target federal funds rate 50 basis points to a target range of 4.75-5.00%. 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:

	9/30/2024		6/30/2024			3/31/2024		12/31/2023			9/30/2023
Federal Home Loan Bank borrowings	$	160,000	$	160,000		$	160,000	$	180,000		$	180,000
Subordinated debentures		14,000		14,000			14,000		14,000			14,000
Other borrowings		5,970		4,397			4,500		4,500			7,050
Total borrowed funds	$	179,970	$	178,397		$	178,500	$	198,500		$	201,050

	9/30/2024 vs 6/30/2024							9/30/2024 vs 9/30/2023
	Variance							Variance
	Amount		%					Amount			%
Federal Home Loan Bank borrowings	$	—		—	%			$	(20,000	)	(11.11)%
Subordinated debentures		—		—	%				—			—	%
Other borrowings		1,573		35.77	%				(1,080	)	(15.32)%
Total borrowed funds	$	1,573		0.88	%			$	(21,080	)	(10.48)%

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:

	9/30/2024		6/30/2024			3/31/2024		12/31/2023			9/30/2023
Federal Home Loan Bank borrowings	$	160,000	$	160,000		$	160,000	$	180,000		$	180,000
Subordinated debentures		14,000		14,000			14,000		14,000			14,000
Other borrowings		5,970		4,397			4,500		4,500			7,050
Brokered NOW accounts		—		—			—		—			—
Brokered time deposits		60,304		60,304			60,304		60,304			60,251
Internet time deposits		—		—			—		—			498
Total wholesale funds	$	240,274	$	238,701		$	238,804	$	258,804		$	261,799

	9/30/2024 vs 6/30/2024							9/30/2024 vs 9/30/2023
	Variance							Variance
	Amount		%					Amount			%
Federal Home Loan Bank borrowings	$	—		—	%				(20,000	)	(11.11)%
Subordinated debentures		—		—	%				—			—	%
Other borrowings		1,573		35.77	%				(1,080	)	(15.32)%
Brokered NOW accounts		—	N/A						—		N/A
Brokered time deposits		—		—	%				53			0.09	%
Internet time deposits		—	N/A						(498	)	(100.00)%
Total wholesale funds	$	1,573		0.66	%			$	(21,525	)	(8.22)%

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 September 30, 2024, the Bank's total capital ratio was 12.78%, tier 1 capital ratio was 11.72%, and tier 1 leverage ratio was 9.02%. 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:

	9/30/2024			6/30/2024			3/31/2024			12/31/2023			9/30/2023
Common stock	$	74,826		$	74,690		$	74,555		$	74,230		$	74,118
Retained earnings		78,467			78,094			76,607			74,309			70,972
Accumulated other comprehensive (loss) income		(6,895	)		(9,483	)		(10,088	)		(9,837	)		(12,188	)
Total shareholders' equity	$	146,398		$	143,301		$	141,074		$	138,702		$	132,902

	9/30/2024 vs 6/30/2024									9/30/2024 vs 9/30/2023
	Variance									Variance
	Amount			%						Amount			%
Common stock	$	136			0.18	%				$	708			0.96	%
Retained earnings		373			0.48	%					7,495			10.56	%
Accumulated other comprehensive (loss) income		2,588		(27.29)%							5,293		(43.43)%
Total shareholders' equity	$	3,097			2.16	%				$	13,496			10.15	%

The Board of Directors has authorized the repurchase of up to $10,000 of common stock. As of September 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 September 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)		45.40	%	67.28	%	59.12	%	100.80	%

National OTC Peers	43	(1.01)%		(3.49)%		2.11	%	8.44	%
Fentura Ranking out of 44		1		1		4		4

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

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 5-Star Bauer Financial rated 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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