Fentura Financial, Inc. Announces First 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 March 31, 2024 presentation.

/EIN News/ -- FENTON, Mich., April 26, 2024 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. (OTCQX: FETM) announces quarterly net income results of $2,790 for the three months ended March 31, 2024.

Ronald L. Justice, President and CEO, stated, “I am pleased with the progress we continue to make navigating a difficult operating environment as a result of challenges created by a multi-decades high increase in short-term interest rates over the last twenty-four months and a historically long and deep inversion of the yield curve. While this has impacted the level of profitability we experienced prior to this period, we ended the first quarter with record total assets and shareholders’ equity. I believe these positive trends demonstrate our long-standing commitment to provide our local communities with leading financial solutions, as well as our efforts to maintain excellent asset quality. In fact, our tangible book value per share increased 10.3% to a record of $29.38 per share at March 31, 2024, representing our continued success growing shareholder capital.”

Mr. Justice continued, “We expect the economic and interest rate environment to remain challenging throughout 2024. We remain focused on strengthening our balance sheet by reducing our reliance of borrowed funds and increasing our cash and investment portfolio, while also benefiting from historically high asset quality. As a result of these efforts over the past twelve months, we reduced borrowings by $80.6 million, increased our cash and investment portfolio by $12.1 million, and we have experienced little to no net charge-offs over the last five consecutive quarters. In addition, I am encouraged by the progress we are making enhancing our loan-to-deposit ratio, which improved from 104.58% at December 31, 2023, to 100.54% at March 31, 2024. As you can see, our business model remains adaptable, resilient, and positioned to deliver solid financial results throughout various economic and interest rate cycles.”

Following is a discussion of our financial performance as of, and for the three months ended March 31, 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:

		3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
INCOME STATEMENT DATA
Interest income		$	21,541			$	21,033			$	20,416			$	19,553			$	18,679
Interest expense			9,315				8,526				7,757				6,469				5,335
Net interest income			12,226				12,507				12,659				13,084				13,344
Credit loss expense (reversal)			(43	)			(190	)			(309	)			205				236
Noninterest income			2,355				2,145				2,338				2,460				2,328
Noninterest expenses			11,166				10,121				10,594				11,320				10,633
Federal income tax expense			668				937				937				793				959
Net income		$	2,790			$	3,784			$	3,775			$	3,226			$	3,844
PER SHARE
Earnings		$	0.63			$	0.85			$	0.85			$	0.73			$	0.87
Dividends		$	0.11			$	0.10			$	0.10			$	0.10			$	0.10
Tangible book value(1)		$	29.38			$	28.92			$	27.64			$	27.16			$	26.64
Quoted market value
High		$	27.20			$	27.20			$	23.74			$	21.21			$	24.10
Low		$	24.00			$	22.26			$	19.10			$	18.70			$	21.10
Close(1)		$	24.40			$	27.20			$	23.74			$	19.35			$	21.31
PERFORMANCE RATIOS
Return on average assets			0.63	%			0.86	%			0.86	%			0.76	%			0.92	%
Return on average shareholders' equity			7.98	%			11.11	%			11.27	%			9.89	%			12.32	%
Return on average tangible shareholders' equity			8.55	%			11.94	%			12.14	%			10.67	%			13.34	%
Efficiency ratio			76.58	%			69.08	%			70.64	%			72.83	%			67.85	%
Yield on average earning assets (FTE)			5.15	%			5.06	%			4.92	%			4.85	%			4.75	%
Rate on interest bearing liabilities			3.11	%			2.90	%			2.66	%			2.35	%			2.02	%
Net interest margin to average earning assets (FTE)			2.92	%			3.01	%			3.05	%			3.25	%			3.40	%
BALANCE SHEET DATA(1)
Total investment securities		$	103,210			$	107,615			$	109,543			$	117,563			$	122,995
Gross loans		$	1,461,465			$	1,473,471			$	1,483,720			$	1,472,288			$	1,457,173
Allowance for credit losses		$	15,300			$	15,400			$	15,400			$	15,400			$	15,220
Total assets		$	1,764,629			$	1,738,952			$	1,744,939			$	1,718,819			$	1,749,073
Total deposits		$	1,438,408			$	1,394,182			$	1,401,797			$	1,380,192			$	1,353,918
Borrowed funds		$	178,500			$	198,500			$	201,050			$	200,550			$	259,050
Total shareholders' equity		$	141,074			$	138,702			$	132,902			$	130,690			$	128,247
Net loans to total deposits			100.54	%			104.58	%			104.75	%			105.56	%			106.50	%
Common shares outstanding			4,484,447				4,470,871				4,466,221				4,460,053				4,453,951
QTD BALANCE SHEET AVERAGES
Total assets		$	1,771,614			$	1,740,526			$	1,739,510			$	1,706,147			$	1,687,175
Earning assets		$	1,683,708			$	1,649,091			$	1,646,848			$	1,617,593			$	1,595,605
Interest bearing liabilities		$	1,205,162			$	1,165,064			$	1,156,835			$	1,105,807			$	1,072,417
Total shareholders' equity		$	140,574			$	135,157			$	132,860			$	130,860			$	126,495
Total tangible shareholders' equity		$	131,204			$	125,723			$	123,349			$	121,274			$	116,834
Earned common shares outstanding			4,449,376				4,443,463				4,437,415				4,427,890				4,421,584
Unvested stock grants			31,821				26,018				26,668				29,916				29,007
Total common shares outstanding			4,481,197				4,469,481				4,464,083				4,457,806				4,450,591
ASSET QUALITY
Nonperforming loans to gross loans(1)			0.39	%			0.38	%			0.24	%			0.16	%			0.19	%
Nonperforming assets to total assets(1)			0.34	%			0.35	%			0.23	%			0.16	%			0.17	%
Allowance for credit losses to gross loans(1)			1.05	%			1.05	%			1.04	%			1.05	%			1.04	%
Net charge-offs (recoveries) to QTD average gross loans			—	%			(0.01	)%			(0.03	)%			—	%			—	%
Credit loss expense (reversal) to QTD average gross loans			—	%			(0.01	)%			(0.02	)%			0.01	%			0.02	%
CAPITAL RATIOS(1)
Total capital to risk weighted assets			12.27	%			11.91	%			11.59	%			11.31	%			11.08	%
Tier 1 capital to risk weighted assets			11.17	%			10.82	%			10.51	%			10.23	%			10.02	%
CET1 capital to risk weighted assets			10.17	%			9.83	%			9.53	%			9.25	%			9.04	%
Tier 1 leverage ratio			8.78	%			8.77	%			8.58	%			8.55	%			8.47	%
(1)At end of period

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

		3/31/2024				3/31/2023				3/31/2022				3/31/2021				3/31/2020
INCOME STATEMENT DATA
Interest income		$	21,541			$	18,679			$	12,301			$	11,919			$	11,070
Interest expense			9,315				5,335				599				676				2,145
Net interest income			12,226				13,344				11,702				11,243				8,925
Credit loss expense (reversal)			(43	)			236				502				212				1,542
Noninterest income			2,355				2,328				2,808				3,906				4,575
Noninterest expenses			11,166				10,633				10,167				9,083				7,748
Federal income tax expense			668				959				757				1,198				858
Net income		$	2,790			$	3,844			$	3,084			$	4,656			$	3,352
PER SHARE
Earnings		$	0.63			$	0.87			$	0.69			$	1.00			$	0.72
Dividends		$	0.11			$	0.10			$	0.09			$	0.08			$	0.08
Tangible book value(1)		$	29.38			$	26.64			$	24.97			$	24.75			$	21.56
Quoted market value
High		$	27.20			$	24.10			$	29.25			$	24.75			$	26.00
Low		$	24.00			$	21.10			$	27.10			$	21.90			$	12.55
Close(1)		$	24.40			$	21.31			$	27.90			$	23.30			$	15.50
PERFORMANCE RATIOS
Return on average assets			0.63	%			0.92	%			0.86	%			1.50	%			1.28	%
Return on average shareholders' equity			7.98	%			12.32	%			10.53	%			15.86	%			13.01	%
Return on average tangible shareholders' equity			8.55	%			13.34	%			11.49	%			16.38	%			13.54	%
Efficiency ratio			76.58	%			67.85	%			70.07	%			59.96	%			57.39	%
Yield on average earning assets (FTE)			5.15	%			4.75	%			3.70	%			4.01	%			4.47	%
Rate on interest bearing liabilities			3.11	%			2.02	%			0.29	%			0.37	%			1.28	%
Net interest margin to average earning assets (FTE)			2.92	%			3.40	%			3.52	%			3.79	%			3.61	%
BALANCE SHEET DATA(1)
Total investment securities		$	103,210			$	122,995			$	151,579			$	89,772			$	76,312
Gross loans		$	1,461,465			$	1,457,173			$	1,139,351			$	1,028,117			$	865,577
Allowance for credit losses		$	15,300			$	15,220			$	11,000			$	11,100			$	7,250
Total assets		$	1,764,629			$	1,749,073			$	1,435,485			$	1,303,175			$	1,071,181
Total deposits		$	1,438,408			$	1,353,918			$	1,252,892			$	1,122,508			$	883,837
Borrowed funds		$	178,500			$	259,050			$	52,000			$	49,000			$	71,500
Total shareholders' equity		$	141,074			$	128,247			$	121,346			$	119,360			$	104,829
Net loans to total deposits			100.54	%			106.50	%			90.06	%			90.60	%			97.11	%
Common shares outstanding			4,484,447				4,453,951				4,459,544				4,673,914				4,675,499
YTD BALANCE SHEET AVERAGES
Total assets		$	1,771,614			$	1,687,175			$	1,448,545			$	1,259,119			$	1,049,245
Earning assets		$	1,683,708			$	1,595,605			$	1,348,647			$	1,206,411			$	997,089
Interest bearing liabilities		$	1,205,162			$	1,072,417			$	831,200			$	735,159			$	672,564
Total shareholders' equity		$	140,574			$	126,495			$	118,759			$	119,034			$	103,646
Total tangible shareholders' equity		$	131,204			$	116,834			$	108,862			$	115,298			$	99,558
Earned common shares outstanding			4,449,376				4,421,584				4,451,607				4,664,893				4,659,279
Unvested stock grants			31,821				29,007				27,466				21,922				13,481
Total common shares outstanding			4,481,197				4,450,591				4,479,073				4,686,815				4,672,760
ASSET QUALITY
Nonperforming loans to gross loans(1)			0.39	%			0.19	%			0.20	%			0.79	%			0.10	%
Nonperforming assets to total assets(1)			0.34	%			0.17	%			0.19	%			0.62	%			0.12	%
Allowance for credit losses to gross loans(1)			1.05	%			1.04	%			0.97	%			1.08	%			0.84	%
Net charge-offs (recoveries) to YTD average gross loans			—	%			—	%			—	%			—	%			0.01	%
Credit loss expense (reversal) to YTD average gross loans			—	%			0.02	%			0.05	%			0.02	%			0.18	%
CAPITAL RATIOS(1)
Total capital to risk weighted assets			12.27	%			11.08	%			12.07	%			15.02	%			14.44	%
Tier 1 capital to risk weighted assets			11.17	%			10.02	%			11.13	%			13.84	%			13.58	%
CET1 capital to risk weighted assets			10.17	%			9.04	%			9.94	%			12.34	%			11.92	%
Tier 1 leverage ratio			8.78	%			8.47	%			9.07	%			10.31	%			10.97	%
(1)At end of period

Income Statement Breakdown and Analysis

		Quarter to Date
		3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
Net income		$	2,790			$	3,784			$	3,775			$	3,226			$	3,844
Acquisition related items (net of tax)
Amortization of core deposit intangibles			36				60				60				60				60
Total acquisition related items (net of tax)			36				60				60				60				60
Other nonrecurring items (net of tax)
Proxy contest related expenses			—				—				—				413				—
Prepayment penalties collected			(58	)			(85	)			(29	)			(95	)			(9	)
Total other nonrecurring items (net of tax)			(58	)			(85	)			(29	)			318				(9	)
Adjusted net income from operations		$	2,768			$	3,759			$	3,806			$	3,604			$	3,895
Net interest income		$	12,226			$	12,507			$	12,659			$	13,084			$	13,344
Prepayment penalties collected			(73	)			(107	)			(37	)			(120	)			(12	)
Adjusted net interest income		$	12,153			$	12,400			$	12,622			$	12,964			$	13,332
PERFORMANCE RATIOS
Based on adjusted net income from operations
Earnings per share		$	0.62			$	0.85			$	0.86			$	0.81			$	0.88
Return on average assets			0.63	%			0.86	%			0.87	%			0.85	%			0.94	%
Return on average shareholders' equity			7.92	%			11.03	%			11.37	%			11.05	%			12.49	%
Return on average tangible shareholders' equity			8.49	%			11.86	%			12.24	%			11.92	%			13.52	%
Efficiency ratio			76.65	%			69.06	%			70.31	%			69.51	%			67.41	%
Based on adjusted net interest income
Yield on average earning assets (FTE)			5.13	%			5.03	%			4.91	%			4.82	%			4.75	%
Rate on interest bearing liabilities			3.11	%			2.90	%			2.66	%			2.35	%			2.02	%
Net interest margin to average earning assets (FTE)			2.90	%			2.98	%			3.04	%			3.22	%			3.40	%

		Year to Date March 31								Variance
			2024				2023			Amount				%
Net income		$	2,790			$	3,844			$	(1,054	)		(27.42	)%
Acquisition related items (net of tax)
Amortization of core deposit intangibles			36				60				(24	)		(40.00	)%
Total acquisition related items (net of tax)			36				60				(24	)		(40.00	)%
Other nonrecurring items (net of tax)
Proxy contest related expenses			—				—				—			N/M
Prepayment penalties collected			(58	)			(9	)			(49	)		544.44	%
Total other nonrecurring items (net of tax)			(58	)			(9	)			(49	)		544.44	%
Adjusted net income from operations		$	2,768			$	3,895			$	(1,127	)		(28.93	)%
Net interest income		$	12,226			$	13,344			$	(1,118	)		(8.38	)%
Prepayment penalties collected			(73	)			(12	)			(61	)		508.33	%
Adjusted net interest income		$	12,153			$	13,332			$	(1,179	)		(8.84	)%
PERFORMANCE RATIOS
Based on adjusted net income from operations
Earnings per share		$	0.62			$	0.88			$	(0.26	)		(29.55	)%
Return on average assets			0.63	%			0.94	%						(0.31	)%
Return on average shareholders' equity			7.92	%			12.49	%						(4.57	)%
Return on average tangible shareholders' equity			8.49	%			13.52	%						(5.03	)%
Efficiency ratio			76.65	%			67.41	%						9.24	%
Based on adjusted net interest income
Yield on average earning assets (FTE)			5.13	%			4.75	%						0.38	%
Rate on interest bearing liabilities			3.11	%			2.02	%						1.09	%
Net interest margin to average earning assets (FTE)			2.90	%			3.40	%						(0.50	)%

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
		March 31, 2024											December 31, 2023											March 31, 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		$	1,471,130			$	19,609			5.36	%		$	1,477,899			$	19,633			5.27	%		$	1,447,375			$	17,854			5.00	%
Taxable investment securities			94,199				359			1.53	%			95,263				374			1.56	%			109,671				435			1.61	%
Nontaxable investment securities			11,963				67			2.25	%			12,166				68			2.22	%			14,287				81			2.30	%
Interest earning cash and cash equivalents			97,237				1,319			5.46	%			54,584				760			5.52	%			14,035				153			4.42	%
Federal Home Loan Bank stock			9,179				201			8.81	%			9,179				212			9.16	%			10,237				173			6.85	%
Total earning assets			1,683,708				21,555			5.15	%			1,649,091				21,047			5.06	%			1,595,605				18,696			4.75	%
Nonearning assets
Allowance for credit losses			(15,400	)										(15,444	)										(15,145	)
Premises and equipment, net			14,392											14,875											15,453
Accrued income and other assets			88,914											92,004											91,262
Total assets		$	1,771,614										$	1,740,526										$	1,687,175
Interest bearing liabilities
Interest bearing demand deposits		$	421,597			$	3,559			3.40	%		$	413,681			$	3,540			3.40	%		$	359,223			$	2,078			2.35	%
Savings deposits			272,296				413			0.61	%			279,197				421			0.60	%			341,154				473			0.56	%
Time deposits			326,747				3,644			4.49	%			271,375				2,709			3.96	%			166,518				1,012			2.46	%
Borrowed funds			184,522				1,699			3.70	%			200,811				1,856			3.67	%			205,522				1,772			3.50	%
Total interest bearing liabilities			1,205,162				9,315			3.11	%			1,165,064				8,526			2.90	%			1,072,417				5,335			2.02	%
Noninterest bearing liabilities
Noninterest bearing deposits			417,089											424,859											474,686
Accrued interest and other liabilities			8,789											15,446											13,577
Shareholders' equity			140,574											135,157											126,495
Total liabilities and shareholders' equity		$	1,771,614										$	1,740,526										$	1,687,175
Net interest income (FTE)						$	12,240										$	12,521										$	13,361
Net interest margin to earning assets (FTE)										2.92	%										3.01	%										3.40	%

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
		March 31, 2024												March 31, 2024
		Compared To												Compared To
		December 31, 2023												March 31, 2023
		Increase (Decrease) Due to												Increase (Decrease) Due to
		Volume				Rate				Net				Volume				Rate				Net
Changes in interest income
Total loans		$	(568	)		$	544			$	(24	)		$	326			$	1,429			$	1,755
Taxable investment securities			(6	)			(9	)			(15	)			(56	)			(20	)			(76	)
Nontaxable investment securities			(5	)			4				(1	)			(12	)			(2	)			(14	)
Interest earning cash and cash equivalents			616				(57	)			559				1,121				45				1,166
Federal Home Loan Bank stock			—				(11	)			(11	)			(99	)			127				28
Total changes in interest income			37				471				508				1,280				1,579				2,859
Changes in interest expense
Interest bearing demand deposits			19				—				19				414				1,067				1,481
Savings deposits			(38	)			30				(8	)			(279	)			219				(60	)
Time deposits			565				370				935				1,417				1,215				2,632
Borrowed funds			(252	)			95				(157	)			(574	)			501				(73	)
Total changes in interest expense			294				495				789				978				3,002				3,980
Net change in net interest income (FTE)		$	(257	)		$	(24	)		$	(281	)		$	302			$	(1,423	)		$	(1,121	)

		Average Yield/Rate for the Three Months Ended
		3/31/2024			12/31/2023			9/30/2023			6/30/2023			3/31/2023
Total earning assets		5.15	%		5.06	%		4.92	%		4.85	%		4.75	%
Total interest bearing liabilities		3.11	%		2.90	%		2.66	%		2.35	%		2.02	%
Net interest margin to earning assets (FTE)		2.92	%		3.01	%		3.05	%		3.25	%		3.40	%

		Quarter to Date Net Interest Income (FTE)
		3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
Interest income		$	21,541			$	21,033			$	20,416			$	19,553			$	18,679
FTE adjustment			14				14				14				17				17
Total interest income (FTE)			21,555				21,047				20,430				19,570				18,696
Total interest expense			9,315				8,526				7,757				6,469				5,335
Net interest income (FTE)		$	12,240			$	12,521			$	12,673			$	13,101			$	13,361

Noninterest Income

		Three Months Ended
		3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
Service charges and fees
Trust and investment services			641				433				572				583				549
ATM and debit card			512				549				568				570				531
Service charges on deposit accounts			140				211				244				224				218
Total			1,293				1,193				1,384				1,377				1,298
Net gain on sales of commercial loans			296				226				—				95				—
Net gain on sales of residential mortgage loans			143				96				164				198				161
Change in fair value of equity investments			(10	)			42				(28	)			(16	)			15
Changes in the fair value of MSR			(96	)			(108	)			119				(8	)			107
Other
Mortgage servicing fees			394				398				398				406				406
Change in cash surrender value of corporate owned life insurance			204				192				181				178				172
Other			131				106				120				230				169
Total			729				696				699				814				747
Total noninterest income		$	2,355			$	2,145			$	2,338			$	2,460			$	2,328
Memo items:
Residential mortgage operations		$	441			$	386			$	681			$	596			$	674

		Three Months Ended March 31								Variance
			2024				2023			Amount				%
Service charges and fees
Trust and investment services		$	641			$	549			$	92			16.76	%
ATM and debit card			512				531				(19	)		(3.58	)%
Service charges on deposit accounts			140				218				(78	)		(35.78	)%
Total			1,293				1,298				(5	)		(0.39	)%
Net gain on sales of commercial loans			296				—				296			N/M
Net gain on sales of residential mortgage loans			143				161				(18	)		(11.18	)%
Change in fair value of equity investments			(10	)			15				(25	)		(166.67	)%
Changes in the fair value of MSR			(96	)			107				(203	)		(189.72	)%
Other
Mortgage servicing fees			394				406				(12	)		(2.96	)%
Change in cash surrender value of corporate owned life insurance			204				172				32			18.60	%
Other			131				169				(38	)		(22.49	)%
Total			729				747				(18	)		(2.41	)%
Total noninterest income		$	2,355			$	2,328			$	27			1.16	%
Memo items:
Residential mortgage operations		$	441			$	674			$	(233	)		(34.57	)%

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 first quarter of 2024, residential mortgage originations sold into the secondary market totaled $6,385. We expect this trend to continue in future periods.

Changes in the fair value of MSR are highly correlated to changes in interest rates and prepayment speeds. During the first 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 $5,605. 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 $16,961, or 2.67%, since March 31, 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. We transitioned our wealth management program to a new platform in 2023, which provides our clients a full range of leading investment services and solutions. 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. 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 quarter of 2024, we sold the guaranteed portion of select SBA loans. We anticipate this strategy 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
		3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
Compensation and benefits		$	6,066			$	5,521			$	5,592			$	5,492			$	5,792
Professional services			894				695				726				1,237				766
Furniture and equipment			727				696				668				685				726
Occupancy			623				610				591				589				635
Data processing			547				505				576				565				513
Advertising and promotional			348				139				506				509				451
Loan and collection			322				301				232				457				240
Other
FDIC insurance premiums			299				270				330				330				201
ATM and debit card			171				158				153				179				161
Telephone and communication			109				103				115				100				119
Amortization of core deposit intangibles			45				76				75				76				76
Other general and administrative			1,015				1,047				1,030				1,101				953
Total			1,639				1,654				1,703				1,786				1,510
Total noninterest expenses		$	11,166			$	10,121			$	10,594			$	11,320			$	10,633

		Three Months Ended March 31								Variance
			2024				2023			Amount				%
Compensation and benefits		$	6,066			$	5,792			$	274			4.73	%
Professional services			894				766				128			16.71	%
Furniture and equipment			727				726				1			0.14	%
Occupancy			623				635				(12	)		(1.89	)%
Data processing			547				513				34			6.63	%
Advertising and promotional			348				451				(103	)		(22.84	)%
Loan and collection			322				240				82			34.17	%
Other
FDIC insurance premiums			299				201				98			48.76	%
ATM and debit card			171				161				10			6.21	%
Telephone and communication			109				119				(10	)		(8.40	)%
Amortization of core deposit intangibles			45				76				(31	)		(40.79	)%
Other general and administrative			1,015				953				62			6.51	%
Total			1,639				1,510				129			8.54	%
Total noninterest expenses		$	11,166			$	10,633			$	533			5.01	%

Compensation and benefits includes salaries, commissions and incentives, employee benefits, and payroll taxes. Compensation and benefits increased in the first quarter of 2024 due to an increase in the size of the organization, merit increases, and market based adjustments. While there continues to be meaningful wage pressure, we expect a modest increase in overall compensation and benefits throughout 2024. These increases will be partially offset by decreases in commissions as loan originations continue to slow. This trend is expected to continue in future periods.

Professional services include expenses relating to third-party professional services. These services include, but are not limited to, regulatory, auditing, consulting, and legal. The increase in professional services during the second quarter of 2023 was due to an increase in expenses resulting from a proxy contest relating to our 2023 annual meeting of stockholders. The consulting and legal fees related to this matter totaled approximately $523. 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.

Advertising and promotional expenses includes media costs and any donations or sponsorships. The increase in such expenses in the first quarter of 2024 is a result of enhanced marketing efforts to attract new and expand existing customer loan and deposit account relationships, as well as an increase in homeownership grants. Total advertising and promotional expenses are expected to decline in 2024 due to the expiration of certain long-term sponsorship commitments.

Loan and collection includes expenses related to the origination and collection of loans. The increase in such expenses in 2024 is due 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.

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. These expenses have increased partially due to an increase in fraudulent activity (check, ACH and identity theft) on customer accounts. Other general and administrative expenses are expected to approximate current levels in future periods.

Balance Sheet Breakdown and Analysis

		3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
ASSETS
Cash and due from banks		$	132,349			$	90,661			$	83,365			$	59,181			$	100,496
Total investment securities			103,210				107,615				109,543				117,563				122,995
Residential mortgage loans held-for-sale, at fair value			1,067				747				1,037				1,106				875
Gross loans			1,461,465				1,473,471				1,483,720				1,472,288				1,457,173
Less allowance for credit losses			15,300				15,400				15,400				15,400				15,220
Net loans			1,446,165				1,458,071				1,468,320				1,456,888				1,441,953
All other assets			81,838				81,858				82,674				84,081				82,754
Total assets		$	1,764,629			$	1,738,952			$	1,744,939			$	1,718,819			$	1,749,073
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits		$	1,438,408			$	1,394,182			$	1,401,797			$	1,380,192			$	1,353,918
Total borrowed funds			178,500				198,500				201,050				200,550				259,050
Accrued interest payable and other liabilities			6,647				7,568				9,190				7,387				7,858
Total liabilities			1,623,555				1,600,250				1,612,037				1,588,129				1,620,826
Total shareholders' equity			141,074				138,702				132,902				130,690				128,247
Total liabilities and shareholders' equity		$	1,764,629			$	1,738,952			$	1,744,939			$	1,718,819			$	1,749,073

		3/31/2024 vs 12/31/2023							3/31/2024 vs 3/31/2023
		Variance							Variance
		Amount				%			Amount				%
ASSETS
Cash and due from banks		$	41,688			45.98	%		$	31,853			31.70	%
Total investment securities			(4,405	)		(4.09	)%			(19,785	)		(16.09	)%
Residential mortgage loans held-for-sale, at fair value			320			42.84	%			192			21.94	%
Gross loans			(12,006	)		(0.81	)%			4,292			0.29	%
Less allowance for credit losses			(100	)		(0.65	)%			80			0.53	%
Net loans			(11,906	)		(0.82	)%			4,212			0.29	%
All other assets			(20	)		(0.02	)%			(916	)		(1.11	)%
Total assets		$	25,677			1.48	%		$	15,556			0.89	%
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits		$	44,226			3.17	%		$	84,490			6.24	%
Total borrowed funds			(20,000	)		(10.08	)%			(80,550	)		(31.09	)%
Accrued interest payable and other liabilities			(921	)		(12.17	)%			(1,211	)		(15.41	)%
Total liabilities			23,305			1.46	%			2,729			0.17	%
Total shareholders' equity			2,372			1.71	%			12,827			10.00	%
Total liabilities and shareholders' equity		$	25,677			1.48	%		$	15,556			0.89	%

Cash and due from banks

		3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
Cash and due from banks
Noninterest bearing		$	26,128			$	29,997			$	35,121			$	33,028			$	24,376
Interest bearing			106,221				60,664				48,244				26,153				76,120
Total		$	132,349			$	90,661			$	83,365			$	59,181			$	100,496
		3/31/2024 vs 12/31/2023												3/31/2024 vs 3/31/2023
		Variance												Variance
		Amount				%								Amount				%
Cash and due from banks
Noninterest bearing		$	(3,869	)			(12.90	)%						$	1,752				7.19	%
Interest bearing			45,557				75.10	%							30,101				39.54	%
Total		$	41,688				45.98	%						$	31,853				31.70	%

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:

		3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
Cash and cash equivalents		$	132,349			$	90,661			$	83,365			$	59,181			$	100,496
Fair value of unpledged investment securities			73,680				80,247				82,103				82,041				102,368
FHLB borrowing availability			190,000				170,000				170,000				170,000				111,500
Unsecured lines of credit			23,000				20,000				20,000				20,000				20,000
Funds available through the Fed Discount Window			107				111				110				119				119
Parent company line of credit			3,500				3,500				950				1,450				1,450
Total liquidity sources		$	422,636			$	364,519			$	356,528			$	332,791			$	335,933

The increase in cash and cash equivalents in the first quarter of 2024 was due to an increase in total deposits (see "Total deposits" below). The decrease in fair value of unpledged investment securities during 2023 was due to pledging additional securities in our investment portfolio for deposit relationships with collateral agreements. 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

		3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
Available-for-sale
U.S. Government and federal agency		$	20,427			$	22,425			$	23,420			$	24,411			$	24,402
State and municipal			20,403				20,460				20,992				21,110				22,649
Mortgage backed residential			47,505				49,076				50,786				52,704				54,595
Certificates of deposit			2,729				2,728				3,956				6,679				7,426
Collateralized mortgage obligations - agencies			22,778				23,320				24,062				24,680				25,275
Unrealized gain/(loss) on available-for-sale securities			(13,027	)			(12,760	)			(15,958	)			(14,536	)			(13,940	)
Total available-for-sale			100,815				105,249				107,258				115,048				120,407
Held-to-maturity state and municipal			877				878				879				1,081				1,168
Equity securities			1,518				1,488				1,406				1,434				1,420
Total investment securities		$	103,210			$	107,615			$	109,543			$	117,563			$	122,995
		3/31/2024 vs 12/31/2023												3/31/2024 vs 3/31/2023
		Variance												Variance
		Amount				%								Amount				%
Available-for-sale
U.S. Government and federal agency			(1,998	)			(8.91	)%						$	(3,975	)			(16.29	)%
State and municipal			(57	)			(0.28	)%							(2,246	)			(9.92	)%
Mortgage backed residential			(1,571	)			(3.20	)%							(7,090	)			(12.99	)%
Certificates of deposit			1				0.04	%							(4,697	)			(63.25	)%
Collateralized mortgage obligations - agencies			(542	)			(2.32	)%							(2,497	)			(9.88	)%
Unrealized gain/(loss) on available-for-sale securities			(267	)			2.09	%							913				(6.55	)%
Total available-for-sale			(4,434	)			(4.21	)%							(19,592	)			(16.27	)%
Held-to-maturity state and municipal			(1	)			(0.11	)%							(291	)			(24.91	)%
Equity securities			30				2.02	%							98				6.90	%
Total investment securities		$	(4,405	)			(4.09	)%						$	(19,785	)			(16.09	)%

The amortized cost and fair value of AFS investment securities as of March 31, 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		$	7,484			$	12,943			$	—			$	—			$	—			$	20,427
State and municipal			2,922				15,247				1,114				1,120				—				20,403
Mortgage backed residential			—																47,505				47,505
Certificates of deposit			2,729				—				—				—				—				2,729
Collateralized mortgage obligations - agencies			—				—				—				—				22,778				22,778
Total amortized cost		$	13,135			$	28,190			$	1,114			$	1,120			$	70,283			$	113,842
Fair value		$	12,639			$	25,791			$	1,012			$	1,037			$	60,336			$	100,815

The amortized cost and fair value of HTM investment securities as of March 31, 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		$	427			$	295			$	155			$	—			$	—			$	877
Fair value		$	424			$	285			$	151			$	—			$	—			$	860

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. During the first quarter of 2024, gross loans declined $12,006, primarily due to an acceleration of commercial loan payoffs. As a result of current market conditions, we expect minimal loan growth in 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:

		3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
Commercial and industrial		$	114,772			$	118,089			$	125,330			$	120,985			$	111,557
Commercial real estate			867,270			870,693					874,870				870,761				874,690
Total commercial loans			982,042			988,782					1,000,200				991,746				986,247
Residential mortgage			426,762			431,836					431,740				430,065				418,987
Home equity			48,568			48,380					47,069				45,689				46,909
Total residential real estate loans			475,330			480,216					478,809				475,754				465,896
Consumer			4,093			4,473					4,711				4,788				5,030
Gross loans			1,461,465			1,473,471					1,483,720				1,472,288				1,457,173
Allowance for credit losses			(15,300	)		(15,400		)			(15,400	)			(15,400	)			(15,220	)
Loans, net		$	1,446,165			$	1,458,071			$	1,468,320			$	1,456,888			$	1,441,953
Memo items:
Residential mortgage loans serviced for others		$	619,160			$	624,765			$	631,697			$	632,018			$	636,121
		3/31/2024 vs 12/31/2023												3/31/2024 vs 3/31/2023
		Variance												Variance
		Amount				%								Amount				%
Commercial and industrial		$	(3,317	)		(2.81		)%						$	3,215				2.88	%
Commercial real estate			(3,423	)		(0.39		)%							(7,420	)			(0.85	)%
Total commercial loans			(6,740	)		(0.68		)%							(4,205	)			(0.43	)%
Residential mortgage			(5,074	)		(1.17		)%							7,775				1.86	%
Home equity			188			0.39		%							1,659				3.54	%
Total residential real estate loans			(4,886	)		(1.02		)%							9,434				2.02	%
Consumer			(380	)		(8.50		)%							(937	)			(18.63	)%
Gross loans			(12,006	)		(0.81		)%							4,292				0.29	%
Allowance for credit losses			100			(0.65		)%							(80	)			0.53	%
Loans, net		$	(11,906	)		(0.82		)%						$	4,212				0.29	%
Memo items:
Residential mortgage loans serviced for others		$	(5,605	)		(0.90		)%						$	(16,961	)			(2.67	)%

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

		3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
Loans collectively evaluated
Commercial and industrial		$	112,542			$	115,665			$	124,860			$	120,854			$	111,426
Commercial real estate			867,270				870,524				874,701				870,580				874,509
Residential mortgage			423,881				429,109				428,927				428,147				416,879
Home equity			48,388				48,136				46,898				45,535				46,761
Consumer			4,093				4,473				4,711				4,788				5,020
Subtotal			1,456,174				1,467,907				1,480,097				1,469,904				1,454,595
Loans individually evaluated
Commercial and industrial			2,230				2,424				470				131				131
Commercial real estate			—				169				169				181				181
Residential mortgage			2,881				2,727				2,813				1,918				2,108
Home equity			180				244				171				154				148
Consumer			—				—				—				—				10
Subtotal			5,291				5,564				3,623				2,384				2,578
Gross Loans		$	1,461,465			$	1,473,471			$	1,483,720			$	1,472,288			$	1,457,173

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

		3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
Allowance for credit losses for collectively evaluated loans
Commercial and industrial		$	1,300			$	1,407			$	1,362			$	1,488			$	1,324
Commercial real estate			8,359				8,467				8,703				8,991				8,765
Residential mortgage			4,202				4,409				4,439				4,453				4,576
Home equity			305				321				315				325				416
Consumer			38				44				36				40				49
Unallocated			670				355				294				49				—
Subtotal			14,874				15,003				15,149				15,346				15,130
Allowance for credit losses for individually evaluated loans
Commercial and industrial			423				363				248				15				3
Commercial real estate			—				—				—				—				—
Residential mortgage			3				34				3				39				77
Home equity			—				—				—				—				—
Consumer			—				—				—				—				10
Unallocated			—				—				—				—				—
Subtotal			426				397				251				54				90
Allowance for credit losses		$	15,300			$	15,400			$	15,400			$	15,400			$	15,220
Commercial and industrial		$	1,723			$	1,770			$	1,610			$	1,503			$	1,327
Commercial real estate			8,359				8,467				8,703				8,991				8,765
Residential mortgage			4,205				4,443				4,442				4,492				4,653
Home equity			305				321				315				325				416
Consumer			38				44				36				40				59
Unallocated			670				355				294				49				—
Allowance for credit losses		$	15,300			$	15,400			$	15,400			$	15,400			$	15,220

Loan concentration analysis

As a result of the 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 March 31, 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.

The net lease pool is the largest pool in the non-owner occupied commercial real estate portfolio. Risk associated within this pool is minimal as these are national or regional tenants that are well vetted during origination and annually thereafter. Risk is further minimized in this pool as locations are spread out nationally.

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, filed for Chapter 11 bankruptcy protection. Exposure in the net lease pool whereas Rite Aid is a single tenant consists of six loans totaling $9,976. Exposure in the retail strip center pool whereas Rite Aid is a tenant consists of three loans totaling $17,174. One loan in the retail strip center pool has been reported on the Rite Aid store closure listing, however, the loan is well-secured. 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:

		3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
Net lease		$	147,103			$	149,056			$	160,077			$	159,199			$	161,392
Retail strip centers			107,834				98,588				96,567				96,310				95,726
Office			61,657				61,822				62,959				62,062				59,867
Special use			58,278				58,710				57,612				57,978				41,932
Industrial			22,575				28,380				28,906				28,661				29,025
Medical office			25,380				25,842				28,591				28,752				30,363
Self storage			25,660				23,455				21,993				22,169				22,265
Mixed use			17,174				17,335				19,833				19,412				19,054
Retail			12,533				12,981				14,115				14,998				17,429
Total non-owner occupied commercial real estate loans		$	478,194			$	476,169			$	490,653			$	489,541			$	477,053
		3/31/2024 vs 12/31/2023												3/31/2024 vs 3/31/2023
		Variance												Variance
		Amount				%								Amount				%
Net lease		$	(1,953	)			(1.31	)%						$	(14,289	)			(8.85	)%
Retail strip centers			9,246				9.38	%							12,108				12.65	%
Office			(165	)			(0.27	)%							1,790				2.99	%
Special use			(432	)			(0.74	)%							16,346				38.98	%
Industrial			(5,805	)			(20.45	)%							(6,450	)			(22.22	)%
Medical office			(462	)			(1.79	)%							(4,983	)			(16.41	)%
Self storage			2,205				9.40	%							3,395				15.25	%
Mixed use			(161	)			(0.93	)%							(1,880	)			(9.87	)%
Retail			(448	)			(3.45	)%							(4,896	)			(28.09	)%
Total non-owner occupied commercial real estate loans		$	2,025				0.43	%						$	1,141				0.24	%

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:

		3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
Net lease		$	1,311			$	1,316			$	1,300			$	1,292			$	1,299
Retail strip centers			2,231				2,135				2,115				2,081				2,087
Office			1,296				1,297				1,294				1,332				1,409
Special use			2,064				2,079				2,134				2,342				1,951
Industrial			941				1,092				1,072				1,025				1,038
Medical office			1,103				1,078				1,145				1,159				1,193
Self storage			1,509				1,380				1,692				1,583				1,590
Mixed use			1,321				1,333				1,240				1,294				1,466
Retail			447				461				429				450				474
Total non-owner occupied commercial real estate loans		$	1,392			$	1,379			$	1,362			$	1,366			$	1,352

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:

		3/31/2024			12/31/2023			9/30/2023			6/30/2023			3/31/2023
Net lease		10.07	%		10.12	%		10.79	%		10.81	%		11.08	%
Retail strip centers		7.38	%		6.69	%		6.51	%		6.54	%		6.57	%
Office		4.22	%		4.20	%		4.24	%		4.22	%		4.11	%
Special use		3.99	%		3.98	%		3.88	%		3.94	%		2.88	%
Industrial		1.54	%		1.93	%		1.95	%		1.95	%		1.99	%
Medical office		1.74	%		1.75	%		1.93	%		1.95	%		2.08	%
Self storage		1.76	%		1.59	%		1.48	%		1.51	%		1.53	%
Mixed use		1.18	%		1.18	%		1.34	%		1.32	%		1.31	%
Retail		0.86	%		0.88	%		0.95	%		1.02	%		1.20	%
Total non-owner occupied commercial real estate loans to gross loans		32.74	%		32.32	%		33.07	%		33.26	%		32.75	%

Asset quality

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

		3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
Accruing interest
Current		$	1,451,432			$	1,463,668			$	1,477,386			$	1,466,354			$	1,449,266
Past due 30-89 days			4,344				4,239				2,711				3,550				5,185
Past due 90 days or more			398				—				—				—				144
Total accruing interest			1,456,174				1,467,907				1,480,097				1,469,904				1,454,595
Nonaccrual			5,291				5,564				3,623				2,384				2,578
Total loans		$	1,461,465			$	1,473,471			$	1,483,720			$	1,472,288			$	1,457,173
Total loans past due and in nonaccrual status		$	10,033			$	9,803			$	6,334			$	5,934			$	7,907

The following table summarizes the our nonperforming assets as of:

		3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
Nonaccrual loans		$	5,291			$	5,564			$	3,623			$	2,384			$	2,578
Accruing loans past due 90 days or more			398				—				—				—				144
Total nonperforming loans			5,689				5,564				3,623				2,384				2,722
Other real estate owned			345				597				345				345				293
Total nonperforming assets		$	6,034			$	6,161			$	3,968			$	2,729			$	3,015

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

		3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
Total charge-offs		$	85			$	110			$	16			$	41			$	28
Total recoveries			28				300				455				16				12
Net charge-offs (recoveries)		$	57			$	(190	)		$	(439	)		$	25			$	16
Provision for loan losses		$	(43	)		$	(190	)		$	(309	)		$	205			$	236

Due to the efforts of our loan and collection team, we successfully recovered multiple previously charged-off loans during the third and fourth quarters of 2023.

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

		3/31/2024			12/31/2023			9/30/2023			6/30/2023			3/31/2023
Nonperforming loans to gross loans		0.39	%		0.38	%		0.24	%		0.16	%		0.19	%
Nonperforming assets to total assets		0.34	%		0.35	%		0.23	%		0.16	%		0.17	%
Allowance for credit losses to gross loans		1.05	%		1.05	%		1.04	%		1.05	%		1.04	%
Net charge-offs (recoveries) to QTD average gross loans		—	%		(0.01	)%		(0.03	)%		—	%		—	%
Credit loss expense (reversal) to QTD average gross loans		—	%		(0.01	)%		(0.02	)%		0.01	%		0.02	%

The following table summarizes the average loan size as of:

		3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
Commercial and industrial		$	326			$	334			$	353			$	346			$	312
Commercial real estate			900				905				896				885				895
Total commercial loans			746				752				751				743				739
Residential mortgage			234				236				234				234				228
Home equity			53				53				52				51				52
Total residential real estate loans			174				175				174				174				170
Consumer			13				13				12				12				13
Gross loans		$	336			$	337			$	335			$	333			$	328

All other assets

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

		3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
Premises and equipment, net		$	14,111			$	14,561			$	14,928			$	15,345			$	15,219
Federal Home Loan Bank stock			9,179				9,179				9,179				11,498				10,958
Corporate owned life insurance			27,670				27,466				27,274				27,047				26,869
Mortgage servicing rights			8,680				8,776				8,884				8,765				8,773
Accrued interest receivable			4,869				4,472				4,485				3,992				3,976
Goodwill			8,853				8,853				8,853				8,853				8,853
Other assets
Core deposit intangibles			488				533				609				684				760
Right-of-use assets			1,237				1,333				1,426				1,510				1,107
Other real estate owned			345				597				345				345				293
Other			6,406				6,088				6,691				6,042				5,946
Total			8,476				8,551				9,071				8,581				8,106
All other assets		$	81,838			$	81,858			$	82,674			$	84,081			$	82,754
		3/31/2024 vs 12/31/2023												3/31/2024 vs 3/31/2023
		Variance												Variance
		Amount				%								Amount				%
Premises and equipment, net		$	(450	)			(3.09	)%						$	(1,108	)			(7.28	)%
Federal Home Loan Bank stock			—				—	%							(1,779	)			(16.23	)%
Corporate owned life insurance			204				0.74	%							801				2.98	%
Mortgage servicing rights			(96	)			(1.09	)%							(93	)			(1.06	)%
Accrued interest receivable			397				8.88	%							893				22.46	%
Goodwill			—				—	%							—				—	%
Other assets
Core deposit intangibles			(45	)			(8.44	)%							(272	)			(35.79	)%
Right-of-use assets			(96	)			(7.20	)%							130				11.74	%
Other real estate owned			(252	)			(42.21	)%							52				17.75	%
Other			318				5.22	%							460				7.74	%
Total			(75	)			(0.88	)%							370				4.56	%
All other assets		$	(20	)			(0.02	)%						$	(916	)			(1.11	)%

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:

		3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
Noninterest bearing demand		$	401,518			$	423,019			$	425,820			$	457,204			$	457,585
Interest bearing
Savings			274,922				273,302				293,310				301,872				323,254
Money market demand			229,584				223,827				225,138				221,686				214,781
NOW
Retail NOW			203,614				178,892				198,271				161,765				155,659
Brokered NOW			—				—				—				—				60,005
Total NOW Accounts			203,614				178,892				198,271				161,765				215,664
Time deposits
Other time deposits			268,466				234,838				198,509				176,280				121,567
Brokered time deposits			60,304				60,304				60,251				60,395				20,077
Internet time deposits			—				—				498				990				990
Total time deposits			328,770				295,142				259,258				237,665				142,634
Total deposits		$	1,438,408			$	1,394,182			$	1,401,797			$	1,380,192			$	1,353,918
		3/31/2024 vs 12/31/2023												3/31/2024 vs 3/31/2023
		Variance												Variance
		Amount				%								Amount				%
Noninterest bearing demand		$	(21,501	)			(5.08	)%						$	(56,067	)			(12.25	)%
Interest bearing
Savings			1,620				0.59	%							(48,332	)			(14.95	)%
Money market demand			5,757				2.57	%							14,803				6.89	%
NOW
Retail NOW			24,722				13.82	%							47,955				30.81	%
Brokered NOW			—				—	%							(60,005	)			(100.00	)%
Total NOW Accounts			24,722				13.82	%							(12,050	)			(5.59	)%
Time deposits
Other time deposits			33,628				14.32	%							146,899				120.84	%
Brokered time deposits			—				—	%							40,227				200.36	%
Internet time deposits			—				—	%							(990	)			(100.00	)%
Total time deposits			33,628				11.39	%							186,136				130.50	%
Total deposits		$	44,226				3.17	%						$	84,490				6.24	%

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. While overall market liquidity continues to tighten and be extremely competitive, we have strategic initiatives in place to grow core market deposits in 2024.

Total borrowed funds

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

		3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
Federal Home Loan Bank borrowings		$	160,000			$	180,000			$	180,000			$	180,000			$	238,500
Subordinated debentures			14,000				14,000				14,000				14,000				14,000
Other borrowings			4,500				4,500				7,050				6,550				6,550
Total borrowed funds		$	178,500			$	198,500			$	201,050			$	200,550			$	259,050
		3/31/2024 vs 12/31/2023												3/31/2024 vs 3/31/2023
		Variance												Variance
		Amount				%								Amount				%
Federal Home Loan Bank borrowings		$	(20,000	)			(11.11	)%						$	(78,500	)			(32.91	)%
Subordinated debentures			—				—	%							—				—	%
Other borrowings			—				—	%							(2,050	)			(31.30	)%
Total borrowed funds		$	(20,000	)			(10.08	)%						$	(80,550	)			(31.09	)%

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:

		3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
Federal Home Loan Bank borrowings		$	160,000			$	180,000			$	180,000			$	180,000			$	238,500
Subordinated debentures			14,000				14,000				14,000				14,000				14,000
Other borrowings			4,500				4,500				7,050				6,550				6,550
Brokered NOW accounts			—				—				—				—				60,005
Brokered time deposits			60,304				60,304				60,251				60,395				20,077
Internet time deposits			—				—				498				990				990
Total wholesale funds		$	238,804			$	258,804			$	261,799			$	261,935			$	340,122
		3/31/2024 vs 12/31/2023												3/31/2024 vs 3/31/2023
		Variance												Variance
		Amount				%								Amount				%
Federal Home Loan Bank borrowings		$	(20,000	)			(11.11	)%							(78,500	)			(32.91	)%
Subordinated debentures			—				—	%							—				—	%
Other borrowings			—				—	%							(2,050	)			(31.30	)%
Brokered NOW accounts			—			N/A									(60,005	)			(100.00	)%
Brokered time deposits			—				—	%							40,227				200.36	%
Internet time deposits			—			N/A									(990	)			(100.00	)%
Total wholesale funds		$	(20,000	)			(7.73	)%						$	(101,318	)			(29.79	)%

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 March 31, 2024, the Bank's total capital ratio was 12.47%, tier 1 capital ratio was 11.37%, and tier 1 leverage ratio was 8.94%. 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:

		3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
Common stock		$	74,555			$	74,230			$	74,118			$	73,993			$	73,868
Retained earnings			76,607				74,309				70,972				67,643				64,863
Accumulated other comprehensive (loss) income			(10,088	)			(9,837	)			(12,188	)			(10,946	)			(10,484	)
Total shareholders' equity		$	141,074			$	138,702			$	132,902			$	130,690			$	128,247
		3/31/2024 vs 12/31/2023												3/31/2024 vs 3/31/2023
		Variance												Variance
		Amount				%								Amount				%
Common stock		$	325				0.44	%						$	687				0.93	%
Retained earnings			2,298				3.09	%							11,744				18.11	%
Accumulated other comprehensive (loss) income			(251	)			2.55	%							396				(3.78	)%
Total shareholders' equity		$	2,372				1.71	%						$	12,827				10.00	%

The Board of Directors has authorized the repurchase of up to $10,000 of common stock. As of March 31, 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 the first quarter of 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 March 31, 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 12/31/2023 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)			(9.91)%		8.25%		4.28%		28.32%
National OTC Peers	43		(1.01)%		(3.49)%		2.11%		8.44%
Fentura Ranking out of 44			40		9		22		7
Midwest / Great Lakes OTC Peers	17		(1.97)%		(5.16)%		(1.63)%		1.35%
Fentura Ranking out of 18			16		2		9		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 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