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

Dollars in thousands except per share amounts. Certain items in the prior period financial statements have been reclassified to conform with the June 30, 2024 presentation.

FENTON, Mich., July 25, 2024 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. (OTCQX: FETM) announces quarterly net income results of $1,980 and $4,770 for the three and six months ended June 30, 2024, respectively.

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
		ron.justice@thestatebank.com		aaron.wirsing@thestatebank.com