Fentura Financial, Inc. Announces Fourth Quarter 2023 Earnings (unaudited)

Fentura Financial, Inc.

Figure 1

Stock Performance Five-Year Total Return

Dollars in thousands except per share amounts. Certain items in the prior period financial statements have been reclassified to conform with the December 31, 2023 presentation.

FENTON, Mich., Jan. 29, 2024 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. (OTCQX: FETM) announces net income results of $3,784 and $14,629 for the quarter and year ended December 31, 2023, respectively.

Ronald L. Justice, President and CEO, stated, “Fentura reported another strong year of growth, as we ended 2023 with record total assets and total deposits. Throughout the year we experienced higher interest expenses as the rapid increase in interest rates impacted our cost of funds and reduced net interest income. Despite these trends, 2023 was another solid year of profitability as we benefited from record levels of interest income and excellent asset quality. In fact, net income and earnings per diluted share would have increased year-over-year had it not been for $523 in one-time legal and professional fees associated with 2023’s annual meeting and proxy contest. Strong earnings and asset quality combined with limited impacts from accumulated other comprehensive income produced a 10% year-over-year increase in total shareholders’ equity, which was a record $138.7 million at December 31, 2023.”

Mr. Justice continued, “Our operating and financial performance in 2023 is a testament to the hard work and commitment of Fentura’s team members and our commitment to community banking principles over the past 125 years. In addition, it reflects the community banking values and local support we provide across our Michigan communities. As we look to 2024, we expect another fluid operating environment primarily due to continued uncertainty around Federal Reserve interest rate and monetary policies. Despite these concerns, we are focused on supporting our communities that need value added and local financial partners like Fentura. During the year, we expect to make strategic investments in expanding our wealth management and treasury management capabilities to better serve our communities and deepen our customer relationships, while maintaining strong asset quality and controlling expenses that we believe will drive increased value for our shareholders.”

Following is a discussion of our financial performance as of, and for the year ended December 31, 2023. 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:

	12/31/2023				9/30/2023				6/30/2023				3/31/2023				12/31/2022
INCOME STATEMENT DATA
Interest income	$	21,033			$	20,416			$	19,553			$	18,679			$	17,782
Interest expense		8,526				7,757				6,469				5,335				3,645
Net interest income		12,507				12,659				13,084				13,344				14,137
Credit loss expense		(190	)			(309	)			205				236				847
Noninterest income		2,145				2,338				2,460				2,328				1,949
Noninterest expenses		10,121				10,594				11,320				10,633				9,781
Federal income tax expense		937				937				793				959				1,094
Net income	$	3,784			$	3,775			$	3,226			$	3,844			$	4,364
PER SHARE
Earnings	$	0.85			$	0.85			$	0.73			$	0.87			$	0.99
Dividends	$	0.10			$	0.10			$	0.10			$	0.10			$	0.09
Tangible book value(1)	$	28.92			$	27.64			$	27.16			$	26.64			$	26.22
Quoted market value
High	$	27.20			$	23.74			$	21.21			$	24.10			$	23.40
Low	$	22.26			$	19.10			$	18.70			$	21.10			$	21.60
Close(1)	$	27.20			$	23.74			$	19.35			$	21.31			$	22.20
PERFORMANCE RATIOS
Return on average assets		0.86	%			0.86	%			0.76	%			0.92	%			1.06	%
Return on average shareholders' equity		11.11	%			11.27	%			9.89	%			12.32	%			14.01	%
Return on average tangible shareholders' equity		11.94	%			12.14	%			10.67	%			13.34	%			15.21	%
Efficiency ratio		69.08	%			70.64	%			72.83	%			67.85	%			60.80	%
Yield on earning assets (FTE)		5.06	%			4.92	%			4.85	%			4.75	%			4.57	%
Rate on interest bearing liabilities		2.90	%			2.66	%			2.35	%			2.02	%			1.42	%
Net interest margin to earning assets (FTE)		3.01	%			3.05	%			3.25	%			3.40	%			3.63	%
BALANCE SHEET DATA(1)
Total investment securities	$	107,615			$	109,543			$	117,563			$	122,995			$	125,049
Gross loans	$	1,473,471			$	1,483,720			$	1,472,288			$	1,457,173			$	1,436,166
Allowance for credit losses	$	15,400			$	15,400			$	15,400			$	15,220			$	13,000
Total assets	$	1,738,340			$	1,744,939			$	1,718,819			$	1,749,073			$	1,688,863
Total deposits	$	1,394,182			$	1,401,797			$	1,380,192			$	1,353,918			$	1,332,883
Borrowed funds	$	198,500			$	201,050			$	200,550			$	259,050			$	222,350
Total shareholders' equity	$	138,702			$	132,902			$	130,690			$	128,247			$	126,087
Net loans to total deposits		104.58	%			104.75	%			105.56	%			106.50	%			106.77	%
Common shares outstanding		4,470,871				4,466,221				4,460,053				4,453,951				4,439,725
QTD BALANCE SHEET AVERAGES
Total assets	$	1,740,526			$	1,739,510			$	1,706,147			$	1,687,175			$	1,637,191
Earning assets	$	1,649,091			$	1,646,848			$	1,617,593			$	1,595,605			$	1,544,880
Interest bearing liabilities	$	1,165,064			$	1,156,835			$	1,105,807			$	1,072,417			$	1,016,876
Total shareholders' equity	$	135,157			$	132,860			$	130,860			$	126,495			$	123,567
Total tangible shareholders' equity	$	125,723			$	123,349			$	121,274			$	116,834			$	113,810
Earned common shares outstanding		4,443,463				4,437,415				4,427,890				4,421,584				4,413,710
Unvested stock grants		26,018				26,668				29,916				29,007				24,460
Total common shares outstanding		4,469,481				4,464,083				4,457,806				4,450,591				4,438,170
ASSET QUALITY
Nonperforming loans to gross loans (1)		0.38	%			0.24	%			0.16	%			0.19	%			0.16	%
Nonperforming assets to total assets (1)		0.35	%			0.23	%			0.16	%			0.17	%			0.15	%
Allowance for credit losses to gross loans (1)		1.04	%			1.04	%			1.05	%			1.04	%			0.91	%
Net charge-offs (recoveries) to QTD average gross loans	(0.01		)%		(0.03		)%			—	%			—	%			—	%
Provision for loan losses to QTD average gross loans	(0.01		)%		(0.02		)%			0.01	%			0.02	%			0.06	%
CAPITAL RATIOS(1)
Total capital to risk weighted assets		11.91	%			11.59	%			11.31	%			11.08	%			10.87	%
Tier 1 capital to risk weighted assets		10.82	%			10.51	%			10.23	%			10.02	%			9.95	%
CET1 capital to risk weighted assets		9.83	%			9.53	%			9.25	%			9.04	%			8.96	%
Tier 1 leverage ratio		8.77	%			8.58	%			8.55	%			8.47	%			8.58	%
(1)At end of period

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

	12/31/2023				12/31/2022				12/31/2021				12/31/2020				12/31/2019
INCOME STATEMENT DATA
Interest income	$	79,681			$	59,220			$	46,910			$	45,979			$	43,541
Interest expense		28,087				6,767				2,736				5,924				8,627
Net interest income		51,594				52,453				44,174				40,055				34,914
Credit loss expense		(58	)			3,105				(180	)			5,634				1,335
Noninterest income		9,271				9,880				14,080				19,640				8,163
Noninterest expenses		42,668				40,585				37,663				34,684				27,223
Federal income tax expense		3,626				3,710				4,192				3,913				2,941
Net income	$	14,629			$	14,933			$	16,579			$	15,464			$	11,578
PER SHARE
Earnings	$	3.30			$	3.38			$	3.60			$	3.31			$	2.49
Dividends	$	0.40			$	0.36			$	0.32			$	0.30			$	0.28
Tangible book value(1)	$	28.92			$	26.22			$	25.43			$	23.88			$	20.87
Quoted market value
High	$	27.20			$	29.25			$	28.28			$	26.00			$	25.50
Low	$	18.70			$	21.60			$	21.90			$	12.55			$	20.05
Close(1)	$	27.20			$	22.20			$	28.28			$	22.00			$	25.23
PERFORMANCE RATIOS
Return on average assets		0.85	%			0.98	%			1.26	%			1.29	%			1.20	%
Return on average shareholders' equity		11.14	%			12.30	%			13.52	%			14.05	%			12.02	%
Return on average tangible shareholders' equity		12.01	%			13.39	%			13.93	%			14.57	%			12.59	%
Efficiency ratio		70.10	%			65.11	%			64.65	%			58.10	%			63.20	%
Yield on earning assets (FTE)		4.90	%			4.15	%			3.80	%			4.01	%			4.77	%
Rate on interest bearing liabilities		2.50	%			0.75	%			0.36	%			0.82	%			1.41	%
Net interest margin to earning assets (FTE)		3.17	%			3.67	%			3.58	%			3.50	%			3.83	%
BALANCE SHEET DATA(1)
Total investment securities	$	107,615			$	125,049			$	164,942			$	76,111			$	61,621
Gross loans	$	1,473,471			$	1,436,166			$	1,100,092			$	1,066,562			$	870,555
Allowance for credit losses	$	15,400			$	13,000			$	10,500			$	10,900			$	5,813
Total assets	$	1,738,340			$	1,688,863			$	1,417,785			$	1,251,446			$	1,034,759
Total deposits	$	1,394,182			$	1,332,883			$	1,228,298			$	1,071,976			$	863,102
Borrowed funds	$	198,500			$	222,350			$	50,000			$	49,000			$	61,500
Total shareholders' equity	$	138,702			$	126,087			$	124,455			$	115,868			$	101,444
Net loans to total deposits		104.58	%			106.77	%			88.71	%			98.48	%			100.19	%
Common shares outstanding		4,470,871				4,439,725				4,496,701				4,694,275				4,664,369
YTD BALANCE SHEET AVERAGES
Total assets	$	1,718,339			$	1,523,419			$	1,311,673			$	1,200,605			$	961,586
Earning assets	$	1,627,284			$	1,429,605			$	1,237,755			$	1,147,570			$	913,574
Interest bearing liabilities	$	1,125,032			$	898,170			$	754,622			$	726,869			$	612,549
Total shareholders' equity	$	131,341			$	121,422			$	122,629			$	110,094			$	96,358
Total tangible shareholders' equity	$	121,793			$	111,548			$	118,986			$	106,140			$	91,994
Earned common shares outstanding		4,432,588				4,422,791				4,603,259				4,669,979				4,643,955
Unvested stock grants		27,902				25,212				20,984				14,027				9,917
Total common shares outstanding		4,460,490				4,448,003				4,624,243				4,684,006				4,653,872
ASSET QUALITY
Nonperforming loans to gross loans (1)		0.38	%			0.16	%			0.18	%			0.75	%			0.17	%
Nonperforming assets to total assets (1)		0.35	%			0.15	%			0.17	%			0.64	%			0.14	%
Allowance for credit losses to gross loans (1)		1.04	%			0.91	%			0.95	%			1.02	%			0.67	%
Net charge-offs (recoveries) to YTD average gross loans	(0.04		)%			0.05	%			0.02	%			0.05	%			—	%
Provision for loan losses to YTD average gross loans		—	%			0.25	%		(0.02		)%			0.56	%			0.16	%
CAPITAL RATIOS(1)
Total capital to risk weighted assets		11.91	%			10.87	%			12.22	%			15.14	%			14.03	%
Tier 1 capital to risk weighted assets		10.82	%			9.95	%			11.30	%			13.93	%			13.33	%
CET1 capital to risk weighted assets		9.83	%			8.96	%			10.07	%			12.38	%			11.64	%
Tier 1 leverage ratio		8.77	%			8.58	%			9.13	%			9.80	%			11.20	%
(1)At end of period

Income Statement Breakdown and Analysis

	Quarter to Date
	12/31/2023				9/30/2023				6/30/2023				3/31/2023				12/31/2022
Net income	$	3,784			$	3,775			$	3,226			$	3,844			$	4,364
Acquisition related items (net of tax)
Accretion on purchased loans		—				—				—				—				(20	)
Amortization of core deposit intangibles		60				60				60				60				85
Amortization on acquired time deposits		—				—				—				—				(21	)
Other acquisition related expenses		—				—				—				—				—
Total acquisition related items (net of tax)		60				60				60				60				44
Other nonrecurring items (net of tax)
Proxy contest related expenses		—				—				413				—				—
Prepayment penalties collected		(85	)			(29	)			(95	)			(9	)			(61	)
Total other nonrecurring items (net of tax)		(85	)			(29	)			318				(9	)			(61	)
Adjusted net income from operations	$	3,759			$	3,806			$	3,604			$	3,895			$	4,347
Net interest income	$	12,507			$	12,659			$	13,084			$	13,344			$	14,137
Accretion on purchased loans		—				—				—				—				(25	)
Prepayment penalties collected		(107	)			(37	)			(120	)			(12	)			(77	)
Amortization on acquired time deposits		—				—				—				—				(27	)
Adjusted net interest income	$	12,400			$	12,622			$	12,964			$	13,332			$	14,008
PERFORMANCE RATIOS
Based on adjusted net income from operations
Earnings per share	$	0.85			$	0.86			$	0.81			$	0.88			$	0.98
Return on average assets		0.86	%			0.87	%			0.85	%			0.94	%			1.05	%
Return on average shareholders' equity		11.03	%			11.37	%			11.05	%			12.49	%			13.96	%
Return on average tangible shareholders' equity		11.86	%			12.24	%			11.92	%			13.52	%			15.15	%
Efficiency ratio		69.06	%			70.31	%			69.51	%			67.41	%			60.62	%
Based on adjusted net interest income
Yield on earning assets (FTE)		5.03	%			4.91	%			4.82	%			4.75	%			4.54	%
Rate on interest bearing liabilities		2.90	%			2.66	%			2.35	%			2.02	%			1.41	%
Net interest margin to earning assets (FTE)		2.98	%			3.04	%			3.22	%			3.40	%			3.60	%

	Year to Date December 31								Variance
		2023				2022			Amount				%
Net income	$	14,629			$	14,933			$	(304	)		(2.04	)%
Acquisition related items (net of tax)
Accretion on purchased loans		—				(80	)			80			(100.00	)%
Amortization of core deposit intangibles		240				340				(100	)		(29.41	)%
Amortization on acquired time deposits		—				(84	)			84			(100.00	)%
Other acquisition related expenses		—				213				(213	)		(100.00	)%
Total acquisition related items (net of tax)		240				389				(149	)		(38.30	)%
Other nonrecurring items (net of tax)
Proxy contest related expenses		413				—				413			N/M
Prepayment penalties collected		(218	)			(390	)			172			(44.10	)%
Total other nonrecurring items (net of tax)		195				(390	)			585			(150.00	)%
Adjusted net income from operations	$	15,064			$	14,932			$	132			0.88	%
Net interest income	$	51,594			$	52,453			$	(859	)		(1.64	)%
Accretion on purchased loans		—				(101	)			101			(100.00	)%
Prepayment penalties collected		(276	)			(493	)			217			(44.02	)%
Amortization on acquired time deposits		—				(107	)			107			(100.00	)%
Adjusted net interest income	$	51,318			$	51,752			$	(434	)		(0.84	)%
PERFORMANCE RATIOS
Based on adjusted net income from operations
Earnings per share	$	3.40			$	3.38			$	0.02			0.59	%
Return on average assets		0.88	%			0.98	%						(0.10	)%
Return on average shareholders' equity		11.47	%			12.30	%						(0.83	)%
Return on average tangible shareholders' equity		12.37	%			13.39	%						(1.02	)%
Efficiency ratio		69.06	%			64.72	%						4.34	%
Based on adjusted net interest income
Yield on earning assets (FTE)		4.88	%			4.11	%						0.77	%
Rate on interest bearing liabilities		2.50	%			0.74	%						1.76	%
Net interest margin to earning assets (FTE)		3.15	%			3.62	%						(0.47	)%

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
	December 31, 2023										September 30, 2023										December 31, 2022
	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	$	1,477,899			$	19,633		5.27	%		$	1,477,343			$	19,170		5.15	%		$	1,397,113			$	17,024		4.83	%
Taxable investment securities		95,263				374		1.56	%			101,549				397		1.55	%			112,321				443		1.56	%
Nontaxable investment securities		12,166				68		2.22	%			12,670				70		2.19	%			14,326				81		2.24	%
Interest earning cash and cash equivalents		54,584				760		5.52	%			43,865				594		5.37	%			12,261				116		3.75	%
Federal Home Loan Bank stock		9,179				212		9.16	%			11,421				199		6.91	%			8,859				135		6.05	%
Total earning assets		1,649,091				21,047		5.06	%			1,646,848				20,430		4.92	%			1,544,880				17,799		4.57	%
Nonearning assets
Allowance for credit losses		(15,444	)									(15,503	)									(12,538	)
Premises and equipment, net		14,875										15,210										15,866
Accrued income and other assets		92,004										92,955										88,983
Total assets	$	1,740,526									$	1,739,510									$	1,637,191
Interest bearing liabilities
Interest bearing demand deposits	$	413,681			$	3,540		3.40	%		$	416,500			$	3,230		3.08	%		$	320,672			$	1,383		1.71	%
Savings deposits		279,197				421		0.60	%			290,939				429		0.59	%			362,250				170		0.19	%
Time deposits		271,375				2,709		3.96	%			248,389				2,280		3.64	%			133,166				523		1.56	%
Borrowed funds		200,811				1,856		3.67	%			201,007				1,818		3.59	%			200,788				1,569		3.10	%
Total interest bearing liabilities		1,165,064				8,526		2.90	%			1,156,835				7,757		2.66	%			1,016,876				3,645		1.42	%
Noninterest bearing liabilities
Noninterest bearing deposits		424,859										435,398										484,586
Accrued interest and other liabilities		15,446										14,417										12,162
Shareholders' equity		135,157										132,860										123,567
Total liabilities and shareholders' equity	$	1,740,526									$	1,739,510									$	1,637,191
Net interest income (FTE)					$	12,521									$	12,673									$	14,154
Net interest margin to earning assets (FTE)								3.01	%									3.05	%									3.63	%

	Twelve Months Ended
	December 31, 2023										December 31, 2022
	Average Balance				Tax Equivalent Interest			Average Yield / Rate			Average Balance				Tax Equivalent Interest			Average Yield / Rate
Interest earning assets
Total loans	$	1,468,193			$	75,382		5.13	%		$	1,247,996			$	56,610		4.54	%
Taxable investment securities		103,436				1,624		1.57	%			126,925				1,767		1.39	%
Nontaxable investment securities		13,093				295		2.25	%			15,215				342		2.25	%
Interest earning cash and cash equivalents		32,009				1,715		5.36	%			34,145				345		1.01	%
Federal Home Loan Bank stock		10,553				727		6.89	%			5,324				228		4.28	%
Total earning assets		1,627,284				79,743		4.90	%			1,429,605				59,292		4.15	%
Nonearning assets
Allowance for credit losses		(15,328	)									(11,436	)
Premises and equipment, net		15,226										16,455
Accrued income and other assets		91,157										88,795
Total assets	$	1,718,339									$	1,523,419
Interest bearing liabilities
Interest bearing demand deposits	$	392,407			$	11,467		2.92	%		$	293,039			$	2,523		0.86	%
Savings deposits		304,371				1,757		0.58	%			366,503				529		0.14	%
Time deposits		215,473				7,304		3.39	%			122,032				971		0.80	%
Borrowed funds		212,781				7,559		3.55	%			116,596				2,744		2.35	%
Total interest bearing liabilities		1,125,032				28,087		2.50	%			898,170				6,767		0.75	%
Noninterest bearing liabilities
Noninterest bearing deposits		447,517										488,370
Accrued interest and other liabilities		14,449										15,457
Shareholders' equity		131,341										121,422
Total liabilities and shareholders' equity	$	1,718,339									$	1,523,419
Net interest income (FTE)					$	51,656									$	52,525
Net interest margin to earning assets (FTE)								3.17	%									3.67	%

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												Twelve Months Ended
	December 31, 2023												December 31, 2023												December 31, 2023
	Compared To												Compared To												Compared To
	September 30, 2023												December 31, 2022												December 31, 2022
	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	$	7			$	456			$	463			$	1,013			$	1,596			$	2,609			$	10,810			$	7,962			$	18,772
Taxable investment securities		(39	)			16				(23	)			(69	)			—				(69	)			(352	)			209				(143	)
Nontaxable investment securities		(7	)			5				(2	)			(12	)			(1	)			(13	)			(47	)			—				(47	)
Interest earning cash and cash equivalents		149				17				166				567				77				644				(23	)			1,393				1,370
Federal Home Loan Bank stock		(188	)			201				13				5				72				77				308				191				499
Total changes in interest income		(78	)			695				617				1,504				1,744				3,248				10,696				9,755				20,451
Changes in interest expense
Interest bearing demand deposits		(144	)			454				310				489				1,668				2,157				1,110				7,834				8,944
Savings deposits		(46	)			38				(8	)			(261	)			512				251				(102	)			1,330				1,228
Time deposits		220				209				429				881				1,305				2,186				1,212				5,121				6,333
Borrowed funds		(12	)			50				38				—				287				287				2,974				1,841				4,815
Total changes in interest expense		18				751				769				1,109				3,772				4,881				5,194				16,126				21,320
Net change in net interest income (FTE)	$	(96	)		$	(56	)		$	(152	)		$	395			$	(2,028	)		$	(1,633	)		$	5,502			$	(6,371	)		$	(869	)

	Average Yield/Rate for the Three Months Ended
	12/31/2023			9/30/2023			6/30/2023			3/31/2023			12/31/2022
Total earning assets	5.06	%		4.92	%		4.85	%		4.75	%		4.57	%
Total interest bearing liabilities	2.90	%		2.66	%		2.35	%		2.02	%		1.42	%
Net interest margin to earning assets (FTE)	3.01	%		3.05	%		3.25	%		3.40	%		3.63	%

	Quarter to Date Net Interest Income (FTE)
	12/31/2023			9/30/2023			6/30/2023			3/31/2023			12/31/2022
Interest income	$	21,033		$	20,416		$	19,553		$	18,679		$	17,782
FTE adjustment		14			14			17			17			17
Total interest income (FTE)		21,047			20,430			19,570			18,696			17,799
Total interest expense		8,526			7,757			6,469			5,335			3,645
Net interest income (FTE)	$	12,521		$	12,673		$	13,101		$	13,361		$	14,154

Noninterest Income

	Three Months Ended
	12/31/2023				9/30/2023				6/30/2023				3/31/2023			12/31/2022
Service charges and fees
ATM and debit card income	$	549			$	568			$	570			$	531		$	559
Trust and investment services		433				572				583				549			505
Service charges on deposit accounts		211				244				224				218			245
Total		1,193				1,384				1,377				1,298			1,309
Net gain on sales of residential mortgage loans		96				164				198				161			24
Net gain on sales of commercial loans		226				—				95				—			—
Changes in the fair value of MSR		(108	)			119				(8	)			107			(129	)
Change in fair value of equity investments		42				(28	)			(16	)			15			2
Other
Mortgage servicing fees		398				398				406				406			415
Change in cash surrender value of corporate owned life insurance		192				181				178				172			175
Other		106				120				230				169			153
Total		696				699				814				747			743
Total noninterest income	$	2,145			$	2,338			$	2,460			$	2,328		$	1,949
Memo items:
Residential mortgage operations	$	386			$	681			$	596			$	674		$	310

	Twelve Months Ended December 31							Variance
		2023			2022			Amount				%
Service charges and fees
ATM and debit card income	$	2,218		$	2,174			$	44			2.02	%
Trust and investment services		2,137			2,107				30			1.42	%
Service charges on deposit accounts		897			1,002				(105	)		(10.48	)%
Total		5,252			5,283				(31	)		(0.59	)%
Net gain on sales of residential mortgage loans		619			725				(106	)		(14.62	)%
Net gain on sales of commercial loans		321			—				321			N/M
Changes in the fair value of MSR		110			830				(720	)		(86.75	)%
Change in fair value of equity investments		13			(116	)			129			(111.21	)%
Other
Mortgage servicing fees		1,608			1,721				(113	)		(6.57	)%
Change in cash surrender value of corporate owned life insurance		723			681				42			6.17	%
Other		625			756				(131	)		(17.33	)%
Total		2,956			3,158				(202	)		(6.40	)%
Total noninterest income	$	9,271		$	9,880			$	(609	)		(6.16	)%
Memo items:
Residential mortgage operations	$	2,337		$	3,276			$	(939	)		(28.66	)%

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. Increases in interest rates and limited inventories have significantly driven down the volume of new originations and refinancing activity in 2023. While a majority of our residential mortgage loans originated have been portfolio loans, we have continued to actively sell residential mortgage loans into the secondary market. 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 fourth quarter of 2023, the fair value of the servicing portfolio decreased due to a decline in the size of the servicing portfolio. During the fourth quarter of 2023, the serviced loan portfolio declined by $6,932. The overall direction of the fair value of MSR is expected to decline due to a reduction in the size of our servicing portfolio. This is a result of reduced levels of secondary market originations and prepayments. We expect this trend to continue in future periods.

Mortgage servicing fees includes the fees earned for servicing loans that have been sold into the secondary market. The annual decrease in mortgage servicing fees is directly related to the size of the serviced portfolio. Due to reduced levels of secondary market originations and prepayments, the serviced loan portfolio declined by $22,356, or 3.45%, since December 31, 2022. We expect mortgage servicing fees to trend modestly downward in future periods due to decreased secondary market originations.

All Other Noninterest Income

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

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. During the second quarter of 2023, we transitioned our wealth management program to a new platform that offers a robust, flexible technology platform and comprehensive financial solutions, which will provide 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.

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 decline slightly in 2024, primarily as a result of us lowering our fees charged to customers for overdraft services.

Net gain on sales of commercial loans represents the income earned from the sale of commercial loans into the secondary market. During the second and fourth quarters of 2023, we sold the guaranteed portion of select SBA loans. We have strategic initiatives in place to sell certain commercial loans throughout 2024.

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

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

Noninterest Expenses

	Three Months Ended
	12/31/2023			9/30/2023			6/30/2023			3/31/2023			12/31/2022
Compensation and benefits	$	5,521		$	5,592		$	5,492		$	5,792		$	5,329
Professional services		695			726			1,237			766			594
Furniture and equipment		696			668			685			726			772
Occupancy		610			591			589			635			566
Data processing		505			576			565			513			111
Advertising and promotional		139			506			509			451			580
Loan and collection		301			232			457			240			278
Other
FDIC insurance premiums		270			330			330			201			149
ATM and debit card		158			153			179			161			254
Telephone and communication		103			115			100			119			110
Amortization of core deposit intangibles		76			75			76			76			107
Other acquisition related expenses		—			—			—			—			—
Other general and administrative		1,047			1,030			1,101			953			931
Total	$	1,654		$	1,703		$	1,786		$	1,510		$	1,551
Total noninterest expenses	$	10,121		$	10,594		$	11,320		$	10,633		$	9,781

	Twelve Months Ended December 31						Variance
		2023			2022		Amount				%
Compensation and benefits	$	22,397		$	21,449		$	948			4.42	%
Professional services		3,424			2,946			478			16.23	%
Furniture and equipment		2,775			3,217			(442	)		(13.74	)%
Occupancy		2,425			2,327			98			4.21	%
Data processing		2,159			1,551			608			39.20	%
Advertising and promotional		1,605			1,589			16			1.01	%
Loan and collection		1,230			1,574			(344	)		(21.86	)%
Other
FDIC insurance premiums		1,131			621			510			82.13	%
ATM and debit card		651			711			(60	)		(8.44	)%
Telephone and communication		437			439			(2	)		(0.46	)%
Amortization of core deposit intangibles		303			430			(127	)		(29.53	)%
Other acquisition related expenses		—			270			(270	)		(100.00	)%
Other general and administrative		4,131			3,461			670			19.36	%
Total	$	6,653		$	5,932		$	721			12.15	%
Total noninterest expenses	$	42,668		$	40,585		$	2,083			5.13	%

Compensation and benefits includes salaries, commissions and incentives, employee benefits, and payroll taxes. Compensation and benefits increased in 2023 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 in 2024 due to merit increases and market based adjustments. 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 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 in 2024.

Data processing primarily includes the expenses relating to our core data processor. These expenses normalized in 2023 due to receipt of renewal incentives from our core data processor during 2022. Data processing expenses are expected to modestly increase in 2024 due to annual contractual increases from our core data processor.

Advertising and promotional expenses includes media costs and any donations or sponsorships. The annual increase in such expenses is a result of enhanced 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.

Loan and collection includes expenses related to the origination and collection of loans. 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 increased in 2023 due to the FDIC increasing its assessment rate for all insured institutions effective January 1, 2023. FDIC insurance premiums are expected to moderately increase in 2024.

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 acquisition related expenses includes expenses incurred during the first half of 2022 related to the acquisition of FSB.

Other general and administrative includes miscellaneous other expense items. These expenses increased in 2023 partially due to an increase in fraudulent activity (check, ACH and identity theft) on customer accounts. During 2023, expenses related to fraudulent activity totaled approximately $243. Other general and administrative expenses are expected to approximate current levels in future periods.

Balance Sheet Breakdown and Analysis

	12/31/2023			9/30/2023			6/30/2023			3/31/2023			12/31/2022
ASSETS
Cash and due from banks	$	90,661		$	83,365		$	59,181		$	100,496		$	57,844
Total investment securities		107,615			109,543			117,563			122,995			125,049
Residential mortgage loans held-for-sale, at fair value		747			1,037			1,106			875			493
Gross loans		1,473,471			1,483,720			1,472,288			1,457,173			1,436,166
Less allowance for credit losses		15,400			15,400			15,400			15,220			13,000
Net loans		1,458,071			1,468,320			1,456,888			1,441,953			1,423,166
All other assets		81,246			82,674			84,081			82,754			82,311
Total assets	$	1,738,340		$	1,744,939		$	1,718,819		$	1,749,073		$	1,688,863
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits	$	1,394,182		$	1,401,797		$	1,380,192		$	1,353,918		$	1,332,883
Total borrowed funds		198,500			201,050			200,550			259,050			222,350
Accrued interest payable and other liabilities		6,956			9,190			7,387			7,858			7,543
Total liabilities		1,599,638			1,612,037			1,588,129			1,620,826			1,562,776
Total shareholders' equity		138,702			132,902			130,690			128,247			126,087
Total liabilities and shareholders' equity	$	1,738,340		$	1,744,939		$	1,718,819		$	1,749,073		$	1,688,863

	12/31/2023 vs 9/30/2023							12/31/2023 vs 12/31/2022
	Variance							Variance
	Amount				%			Amount				%
ASSETS
Cash and due from banks	$	7,296			8.75	%		$	32,817			56.73	%
Total investment securities		(1,928	)		(1.76	)%			(17,434	)		(13.94	)%
Residential mortgage loans held-for-sale, at fair value		(290	)		(27.97	)%			254			51.52	%
Gross loans		(10,249	)		(0.69	)%			37,305			2.60	%
Less allowance for credit losses		—			—	%			2,400			18.46	%
Net loans		(10,249	)		(0.70	)%			34,905			2.45	%
All other assets		(1,428	)		(1.73	)%			(1,065	)		(1.29	)%
Total assets	$	(6,599	)		(0.38	)%		$	49,477			2.93	%
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits	$	(7,615	)		(0.54	)%		$	61,299			4.60	%
Total borrowed funds		(2,550	)		(1.27	)%			(23,850	)		(10.73	)%
Accrued interest payable and other liabilities		(2,234	)		(24.31	)%			(587	)		(7.78	)%
Total liabilities		(12,399	)		(0.77	)%			36,862			2.36	%
Total shareholders' equity		5,800			4.36	%			12,615			10.00	%
Total liabilities and shareholders' equity	$	(6,599	)		(0.38	)%		$	49,477			2.93	%

Cash and due from banks

	12/31/2023				9/30/2023				6/30/2023			3/31/2023			12/31/2022
Cash and due from banks
Noninterest bearing	$	29,997			$	35,121			$	33,028		$	24,376		$	28,216
Interest bearing		60,664				48,244				26,153			76,120			29,628
Total	$	90,661			$	83,365			$	59,181		$	100,496		$	57,844
	12/31/2023 vs 9/30/2023											12/31/2023 vs 12/31/2022
	Variance											Variance
	Amount				%							Amount			%
Cash and due from banks
Noninterest bearing	$	(5,124	)		(14.59		)%					$	1,781			6.31	%
Interest bearing		12,420				25.74	%						31,036			104.75	%
Total	$	7,296				8.75	%					$	32,817			56.73	%

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:

	12/31/2023			9/30/2023			6/30/2023			3/31/2023			12/31/2022
Cash and cash equivalents	$	90,661		$	83,365		$	59,181		$	100,496		$	57,844
Fair value of unpledged investment securities		80,247			82,103			82,041			102,368			103,819
FHLB borrowing availability		170,000			170,000			170,000			111,500			144,567
Unsecured lines of credit		20,000			20,000			20,000			20,000			26,500
Funds available through the Fed Discount Window		111			110			119			119			113
Parent company line of credit		3,500			950			1,450			1,450			1,650
Total liquidity sources	$	364,519		$	356,528		$	332,791		$	335,933		$	334,493

The increase in cash and cash equivalents throughout 2023 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 2023 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

	12/31/2023				9/30/2023				6/30/2023				3/31/2023				12/31/2022
Available-for-sale
U.S. Government and federal agency	$	22,425			$	23,420			$	24,411			$	24,402			$	24,394
State and municipal		20,460				20,992				21,110				22,649				22,709
Mortgage backed residential		49,076				50,786				52,704				54,595				56,293
Certificates of deposit		2,728				3,956				6,679				7,426				7,426
Collateralized mortgage obligations - agencies		23,320				24,062				24,680				25,275				25,925
Unrealized gain/(loss) on available-for-sale securities		(12,760	)			(15,958	)			(14,536	)			(13,940	)			(14,184	)
Total available-for-sale		105,249				107,258				115,048				120,407				122,563
Held-to-maturity state and municipal		878				879				1,081				1,168				1,171
Equity securities		1,488				1,406				1,434				1,420				1,315
Total investment securities	$	107,615			$	109,543			$	117,563			$	122,995			$	125,049
	12/31/2023 vs 9/30/2023												12/31/2023 vs 12/31/2022
	Variance												Variance
	Amount				%								Amount				%
Available-for-sale
U.S. Government and federal agency		(995	)		(4.25		)%						$	(1,969	)		(8.07		)%
State and municipal		(532	)		(2.53		)%							(2,249	)		(9.90		)%
Mortgage backed residential		(1,710	)		(3.37		)%							(7,217	)		(12.82		)%
Certificates of deposit		(1,228	)		(31.04		)%							(4,698	)		(63.26		)%
Collateralized mortgage obligations - agencies		(742	)		(3.08		)%							(2,605	)		(10.05		)%
Unrealized gain/(loss) on available-for-sale securities		3,198			(20.04		)%							1,424			(10.04		)%
Total available-for-sale		(2,009	)		(1.87		)%							(17,314	)		(14.13		)%
Held-to-maturity state and municipal		(1	)		(0.11		)%							(293	)		(25.02		)%
Equity securities		82				5.83	%							173				13.16	%
Total investment securities	$	(1,928	)		(1.76		)%						$	(17,434	)		(13.94		)%

The amortized cost and fair value of AFS investment securities as of December 31, 2023 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	$	4,518		$	17,907		$	—		$	—		$	—		$	22,425
State and municipal		1,296			16,552			1,286			1,326			—			20,460
Mortgage backed residential		—												49,076			49,076
Certificates of deposit		749			1,979			—			—			—			2,728
Collateralized mortgage obligations - agencies		—			—			—			—			23,320			23,320
Total amortized cost	$	6,563		$	36,438		$	1,286		$	1,326		$	72,396		$	118,009
Fair value	$	6,429		$	33,689		$	1,191		$	1,239		$	62,701		$	105,249

The amortized cost and fair value of HTM investment securities as of December 31, 2023 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	$	343		$	305		$	230		$	—		$	—		$	878
Fair value	$	341		$	299		$	228		$	—		$	—		$	868

Total investment securities declined in 2023 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 continued to grow throughout the past 12 months, primarily in the commercial and residential mortgage segments. However, due to an acceleration of commercial loan payoffs during the fourth quarter of 2023, gross loans declined $10,249. As a result of current market conditions, we expect minimal loan growth into 2024. Specifically, our commercial pipeline declined significantly throughout 2023, and the requests that are being presented are lower dollar balances and often carry an SBA guarantee. Our allowance for credit losses increased $1,870 as a result of the adoption of ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", as amended, on January 1, 2023. This was recorded as a cumulative-effect adjustment, net of tax, from retained earnings.

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

	12/31/2023				9/30/2023				6/30/2023				3/31/2023				12/31/2022
Commercial and industrial	$	118,089			$	125,330			$	120,985			$	111,557			$	106,616
Commercial real estate		870,693				874,870				870,761				874,690				869,496
Total commercial loans		988,782				1,000,200				991,746				986,247				976,112
Residential mortgage		431,836				431,740				430,065				418,987				406,408
Home equity		48,380				47,069				45,689				46,909				47,768
Total residential real estate loans		480,216				478,809				475,754				465,896				454,176
Consumer		4,473				4,711				4,788				5,030				5,878
Gross loans		1,473,471				1,483,720				1,472,288				1,457,173				1,436,166
Allowance for credit losses		(15,400	)			(15,400	)			(15,400	)			(15,220	)			(13,000	)
Loans, net	$	1,458,071			$	1,468,320			$	1,456,888			$	1,441,953			$	1,423,166
Memo items:
Residential mortgage loans serviced for others	$	624,765			$	631,697			$	632,018			$	636,121			$	647,121
	12/31/2023 vs 9/30/2023												12/31/2023 vs 12/31/2022
	Variance												Variance
	Amount				%								Amount				%
Commercial and industrial	$	(7,241	)		(5.78		)%						$	11,473				10.76	%
Commercial real estate		(4,177	)		(0.48		)%							1,197				0.14	%
Total commercial loans		(11,418	)		(1.14		)%							12,670				1.30	%
Residential mortgage		96				0.02	%							25,428				6.26	%
Home equity		1,311				2.79	%							612				1.28	%
Total residential real estate loans		1,407				0.29	%							26,040				5.73	%
Consumer		(238	)		(5.05		)%							(1,405	)		(23.90		)%
Gross loans		(10,249	)		(0.69		)%							37,305				2.60	%
Allowance for credit losses		—				—	%							(2,400	)			18.46	%
Loans, net	$	(10,249	)		(0.70		)%						$	34,905				2.45	%
Memo items:
Residential mortgage loans serviced for others	$	(6,932	)		(1.10		)%						$	(22,356	)		(3.45		)%

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

	12/31/2023			9/30/2023			6/30/2023			3/31/2023			12/31/2022
Loans collectively evaluated for impairment
Commercial and industrial	$	115,665		$	124,860		$	120,854		$	111,426		$	106,616
Commercial real estate		870,524			874,701			870,580			874,509			869,313
Residential mortgage		429,109			428,927			428,147			416,879			404,308
Home equity		48,136			46,898			45,535			46,761			47,728
Consumer		4,473			4,711			4,788			5,020			5,871
Subtotal		1,467,907			1,480,097			1,469,904			1,454,595			1,433,836
Loans individually evaluated for impairment
Commercial and industrial		2,424			470			131			131			—
Commercial real estate		169			169			181			181			183
Residential mortgage		2,727			2,813			1,918			2,108			2,100
Home equity		244			171			154			148			40
Consumer		—			—			—			10			7
Subtotal		5,564			3,623			2,384			2,578			2,330
Gross Loans	$	1,473,471		$	1,483,720		$	1,472,288		$	1,457,173		$	1,436,166

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

	12/31/2023			9/30/2023			6/30/2023			3/31/2023			12/31/2022
Loans collectively evaluated for impairment
Commercial and industrial	$	1,407		$	1,362		$	1,488		$	1,324		$	1,094
Commercial real estate		8,467			8,703			8,991			8,765			7,480
Residential mortgage		4,409			4,439			4,453			4,576			3,878
Home equity		321			315			325			416			370
Consumer		44			36			40			49			128
Unallocated		355			294			49			—			—
Subtotal		15,003			15,149			15,346			15,130			12,950
Loans individually evaluated for impairment
Commercial and industrial		363			248			15			3			—
Commercial real estate		—			—			—			—			—
Residential mortgage		34			3			39			77			43
Home equity		—			—			—			—			—
Consumer		—			—			—			10			7
Unallocated		—			—			—			—			—
Subtotal		397			251			54			90			50
Allowance for credit losses	$	15,400		$	15,400		$	15,400		$	15,220		$	13,000
Commercial and industrial	$	1,770		$	1,610		$	1,503		$	1,327		$	1,094
Commercial real estate		8,467			8,703			8,991			8,765			7,480
Residential mortgage		4,443			4,442			4,492			4,653			3,921
Home equity		321			315			325			416			370
Consumer		44			36			40			59			135
Unallocated		355			294			49			—			—
Allowance for credit losses	$	15,400		$	15,400		$	15,400		$	15,220		$	13,000

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 non-owner occupied commercial real estate loan portfolio has remained solid, and performance has not been lacking. Performance is based on debt service coverage ratio, loan to value ratio and payment trends. As of December 31, 2023, there were no delinquencies in the non-owner occupied commercial real estate loan portfolio. We expect loan demand in the non-owner occupied commercial real estate loan portfolio to experience insignificant growth, if any, in future periods.

The net lease pool is one of the largest growth pools in the non-owner occupied commercial real estate portfolio and continues to remain strong. 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.

During the fourth quarter of 2023, Rite Aid, which operates over 2,000 retail pharmacies across 17 states, filed for Chapter 11 bankruptcy protection. 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. Exposure in the net lease pool whereas Rite Aid is a single tenant consists of six loans totaling $10,082. Exposure in the retail strip center pool whereas Rite Aid is a tenant consists of three loans totaling $17,359. 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.

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 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:

	12/31/2023				9/30/2023				6/30/2023			3/31/2023				12/31/2022
Net lease	$	149,056			$	160,077			$	159,199		$	161,392			$	165,848
Retail strip centers		98,588				96,567				96,310			95,726				89,671
Office		61,822				62,959				62,062			59,867				60,166
Special use		58,710				57,612				57,978			41,932				35,284
Industrial		28,380				28,906				28,661			29,025				30,396
Medical office		25,842				28,591				28,752			30,363				30,305
Self storage		23,455				21,993				22,169			22,265				22,285
Mixed use		17,335				19,833				19,412			19,054				19,208
Retail		12,981				14,115				14,998			17,429				15,437
Total non-owner occupied commercial real estate loans	$	476,169			$	490,653			$	489,541		$	477,053			$	468,600
	12/31/2023 vs 9/30/2023											12/31/2023 vs 12/31/2022
	Variance											Variance
	Amount				%							Amount				%
Net lease	$	(11,021	)		(6.88		)%					$	(16,792	)		(10.12		)%
Retail strip centers		2,021				2.09	%						8,917				9.94	%
Office		(1,137	)		(1.81		)%						1,656				2.75	%
Special use		1,098				1.91	%						23,426				66.39	%
Industrial		(526	)		(1.82		)%						(2,016	)		(6.63		)%
Medical office		(2,749	)		(9.61		)%						(4,463	)		(14.73		)%
Self storage		1,462				6.65	%						1,170				5.25	%
Mixed use		(2,498	)		(12.60		)%						(1,873	)		(9.75		)%
Retail		(1,134	)		(8.03		)%						(2,456	)		(15.91		)%
Total non-owner occupied commercial real estate loans	$	(14,484	)		(2.95		)%					$	7,569				1.62	%

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:

	12/31/2023			9/30/2023			6/30/2023			3/31/2023			12/31/2022
Net lease	$	1,316		$	1,300		$	1,292		$	1,299		$	1,307
Retail strip centers		2,135			2,115			2,081			2,087			2,092
Office		1,297			1,294			1,332			1,409			1,422
Special use		2,079			2,134			2,342			1,951			1,703
Industrial		1,092			1,072			1,025			1,038			1,050
Medical office		1,078			1,145			1,159			1,193			1,212
Self storage		1,380			1,692			1,583			1,590			1,714
Mixed use		1,333			1,240			1,294			1,466			1,478
Retail		461			429			450			474			459
Total non-owner occupied commercial real estate loans	$	1,379		$	1,362		$	1,366		$	1,352		$	1,346

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:

	12/31/2023			9/30/2023			6/30/2023			3/31/2023			12/31/2022
Net lease	10.12	%		10.79	%		10.81	%		11.08	%		11.55	%
Retail strip centers	6.69	%		6.51	%		6.54	%		6.57	%		6.24	%
Office	4.20	%		4.24	%		4.22	%		4.11	%		4.19	%
Special use	3.98	%		3.88	%		3.94	%		2.88	%		2.46	%
Industrial	1.93	%		1.95	%		1.95	%		1.99	%		2.12	%
Medical office	1.75	%		1.93	%		1.95	%		2.08	%		2.11	%
Self storage	1.59	%		1.48	%		1.51	%		1.53	%		1.55	%
Mixed use	1.18	%		1.34	%		1.32	%		1.31	%		1.34	%
Retail	0.88	%		0.95	%		1.02	%		1.20	%		1.07	%
Total non-owner occupied commercial real estate loans to gross loans	32.32	%		33.07	%		33.26	%		32.75	%		32.63	%

Asset quality

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

	12/31/2023			9/30/2023			6/30/2023			3/31/2023			12/31/2022
Accruing interest
Current	$	1,463,668		$	1,477,386		$	1,466,354		$	1,449,266		$	1,428,691
Past due 30-89 days		4,239			2,711			3,550			5,185			5,182
Past due 90 days or more		—			—			—			144			—
Total accruing interest		1,467,907			1,480,097			1,469,904			1,454,595			1,433,873
Nonaccrual		5,564			3,623			2,384			2,578			2,293
Total loans	$	1,473,471		$	1,483,720		$	1,472,288		$	1,457,173		$	1,436,166
Total loans past due and in nonaccrual status	$	9,803		$	6,334		$	5,934		$	7,907		$	7,475

The following table summarizes the our nonperforming assets as of:

	12/31/2023			9/30/2023			6/30/2023			3/31/2023			12/31/2022
Nonaccrual loans	$	5,564		$	3,623		$	2,384		$	2,578		$	2,293
Accruing loans past due 90 days or more		—			—			—			144			—
Total nonperforming loans		5,564			3,623			2,384			2,722			2,293
Other real estate owned		597			345			345			293			293
Total nonperforming assets	$	6,161		$	3,968		$	2,729		$	3,015		$	2,586

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

	12/31/2023				9/30/2023				6/30/2023			3/31/2023			12/31/2022
Total charge-offs	$	110			$	16			$	41		$	28		$	58
Total recoveries		300				455				16			12			11
Net charge-offs (recoveries)	$	(190	)		$	(439	)		$	25		$	16		$	47
Provision for loan losses	$	(190	)		$	(309	)		$	205		$	236		$	847

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.   This led to net recoveries of $588 for the year ended December 31, 2023.

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

	12/31/2023			9/30/2023			6/30/2023			3/31/2023			12/31/2022
Nonperforming loans to gross loans	0.38	%		0.24	%		0.16	%		0.19	%		0.16	%
Nonperforming assets to total assets	0.35	%		0.23	%		0.16	%		0.17	%		0.15	%
Allowance for credit losses to gross loans	1.04	%		1.04	%		1.05	%		1.04	%		0.91	%
Net charge-offs (recoveries) to QTD average gross loans	(0.01	)%		(0.03	)%		—	%		—	%		—	%
Provision for loan losses to QTD average gross loans	(0.01	)%		(0.02	)%		0.01	%		0.02	%		0.06	%

The following table summarizes the average loan size as of:

	12/31/2023			9/30/2023			6/30/2023			3/31/2023			12/31/2022
Commercial and industrial	$	334		$	353		$	346		$	312		$	311
Commercial real estate		905			896			885			895			890
Total commercial loans		752			751			743			739			740
Residential mortgage		236			234			234			228			225
Home equity		53			52			51			52			52
Total residential real estate loans		175			174			174			170			166
Consumer		13			12			12			13			13
Gross loans	$	337		$	335		$	333		$	328		$	323

All other assets

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

	12/31/2023				9/30/2023				6/30/2023			3/31/2023				12/31/2022
Premises and equipment, net	$	14,561			$	14,928			$	15,345		$	15,219			$	15,571
Federal Home Loan Bank stock		9,179				9,179				11,498			10,958				10,215
Corporate owned life insurance		27,466				27,274				27,047			26,869				26,697
Mortgage servicing rights		8,776				8,884				8,765			8,773				8,666
Accrued interest receivable		4,472				4,485				3,992			3,976				4,002
Goodwill		8,853				8,853				8,853			8,853				8,853
Other assets
Core deposit intangibles		533				609				684			760				836
Right-of-use assets		1,333				1,426				1,510			1,107				1,204
Other real estate owned		597				345				345			293				293
Other		5,476				6,691				6,042			5,946				5,974
Total		7,939				9,071				8,581			8,106				8,307
All other assets	$	81,246			$	82,674			$	84,081		$	82,754			$	82,311
	12/31/2023 vs 9/30/2023											12/31/2023 vs 12/31/2022
	Variance											Variance
	Amount				%							Amount				%
Premises and equipment, net	$	(367	)		(2.46		)%					$	(1,010	)		(6.49		)%
Federal Home Loan Bank stock		—				—	%						(1,036	)		(10.14		)%
Corporate owned life insurance		192				0.70	%						769				2.88	%
Mortgage servicing rights		(108	)		(1.22		)%						110				1.27	%
Accrued interest receivable		(13	)		(0.29		)%						470				11.74	%
Goodwill		—				—	%						—				—	%
Other assets
Core deposit intangibles		(76	)		(12.48		)%						(303	)		(36.24		)%
Right-of-use assets		(93	)		(6.52		)%						129				10.71	%
Other real estate owned		252				73.04	%						304				103.75	%
Other		(1,215	)		(18.16		)%						(498	)		(8.34		)%
Total		(1,132	)		(12.48		)%						(368	)		(4.43		)%
All other assets	$	(1,428	)		(1.73		)%					$	(1,065	)		(1.29		)%

The decrease in premises and equipment during 2023 was due to depreciation on our existing premises and equipment.

The decrease in FHLB stock during the third quarter of 2023 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:

	12/31/2023				9/30/2023				6/30/2023			3/31/2023				12/31/2022
Noninterest bearing demand	$	423,019			$	425,820			$	457,204		$	457,585			$	461,390
Interest bearing
Savings		273,302				293,310				301,872			323,254				351,066
Money market demand		223,827				225,138				221,686			214,781				170,459
NOW
Retail NOW		178,892				198,271				161,765			155,659				136,611
Brokered NOW		—				—				—			60,005				40,009
Total NOW Accounts		178,892				198,271				161,765			215,664				176,620
Time deposits
Other time deposits		234,838				198,509				176,280			121,567				102,358
Brokered time deposits		60,304				60,251				60,395			20,077				70,000
Internet time deposits		—				498				990			990				990
Total time deposits		295,142				259,258				237,665			142,634				173,348
Total deposits	$	1,394,182			$	1,401,797			$	1,380,192		$	1,353,918			$	1,332,883
	12/31/2023 vs 9/30/2023											12/31/2023 vs 12/31/2022
	Variance											Variance
	Amount				%							Amount				%
Noninterest bearing demand	$	(2,801	)		(0.66		)%					$	(38,371	)		(8.32		)%
Interest bearing
Savings		(20,008	)		(6.82		)%						(77,764	)		(22.15		)%
Money market demand		(1,311	)		(0.58		)%						53,368				31.31	%
NOW
Retail NOW		(19,379	)		(9.77		)%						42,281				30.95	%
Brokered NOW		—				—	%						(40,009	)		(100.00		)%
Total NOW Accounts		(19,379	)		(9.77		)%						2,272				1.29	%
Time deposits
Other time deposits		36,329				18.30	%						132,480				129.43	%
Brokered time deposits		53				0.09	%						(9,696	)		(13.85		)%
Internet time deposits		(498	)		(100.00		)%						(990	)		(100.00		)%
Total time deposits		35,884				13.84	%						121,794				70.26	%
Total deposits	$	(7,615	)		(0.54		)%					$	61,299				4.60	%

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. The FOMC has indicated in recent announcements that there may be federal fund rate decreases in 2024, but these potential decreases remain dependent on economic data. While these potential decreases may translate to a lower cost of funds for us, overall competition for deposits will likely continue to remain strong. While overall market liquidity continues to tighten and be extremely competitive, we have strategic initiatives in place to grow core market deposits in 2024.

As a result of the competitive deposit market and customer demand shifting to non-maturity deposit accounts and short-term time deposits, we navigated away from brokered NOW accounts and executed two brokered time deposits during the second quarter of 2023 totaling $40,251, which were split between two- and three-year maturities.

Total borrowed funds

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

	12/31/2023				9/30/2023				6/30/2023			3/31/2023				12/31/2022
Federal Home Loan Bank borrowings	$	180,000			$	180,000			$	180,000		$	238,500			$	202,000
Subordinated debentures		14,000				14,000				14,000			14,000				14,000
Other borrowings		4,500				7,050				6,550			6,550				6,350
Total borrowed funds	$	198,500			$	201,050			$	200,550		$	259,050			$	222,350
	12/31/2023 vs 9/30/2023											12/31/2023 vs 12/31/2022
	Variance											Variance
	Amount				%							Amount				%
Federal Home Loan Bank borrowings	$	—				—	%					$	(22,000	)		(10.89		)%
Subordinated debentures		—				—	%						—				—	%
Other borrowings		(2,550	)		(36.17		)%						(1,850	)		(29.13		)%
Total borrowed funds	$	(2,550	)		(1.27		)%					$	(23,850	)		(10.73		)%

We utilize a mix of borrowed funds and organic deposit growth to fund loan demand. The increase in Federal Home Loan Bank borrowings in the first quarter of 2023 was the result of the highly competitive deposit landscape and the growth of our loan portfolio. However, 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:

	12/31/2023				9/30/2023				6/30/2023			3/31/2023				12/31/2022
Federal Home Loan Bank borrowings	$	180,000			$	180,000			$	180,000		$	238,500			$	202,000
Subordinated debentures		14,000				14,000				14,000			14,000				14,000
Other borrowings		4,500				7,050				6,550			6,550				6,350
Brokered NOW accounts		—				—				—			60,005				40,009
Brokered time deposits		60,304				60,251				60,395			20,077				70,000
Internet time deposits		—				498				990			990				990
Total wholesale funds	$	258,804			$	261,799			$	261,935		$	340,122			$	333,349
	12/31/2023 vs 9/30/2023											12/31/2023 vs 12/31/2022
	Variance											Variance
	Amount				%							Amount				%
Federal Home Loan Bank borrowings	$	—				—	%						(22,000	)		(10.89		)%
Subordinated debentures		—				—	%						—				—	%
Other borrowings		(2,550	)		(36.17		)%						(1,850	)		(29.13		)%
Brokered NOW accounts		—			N/A								(40,009	)		(100.00		)%
Brokered time deposits		53				0.09	%						(9,696	)		(13.85		)%
Internet time deposits		(498	)		(100.00		)%						(990	)		(100.00		)%
Total wholesale funds	$	(2,995	)		(1.14		)%					$	(74,545	)		(22.36		)%

During 2023, our reliance on wholesale funding sources decreased, as our outstanding FHLB borrowings and brokered NOW accounts declined. We replaced a portion of these wholesale funds by executing two brokered time deposits during the second quarter of 2023 totaling $40,251.

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 December 31, 2023, the Bank's total capital ratio was 12.13%, tier 1 capital ratio was 11.03%, 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:

	12/31/2023				9/30/2023				6/30/2023				3/31/2023				12/31/2022
Common stock	$	74,230			$	74,118			$	73,993			$	73,868			$	73,569
Retained earnings		74,309				70,972				67,643				64,863				63,044
Accumulated other comprehensive (loss) income		(9,837	)			(12,188	)			(10,946	)			(10,484	)			(10,526	)
Total shareholders' equity	$	138,702			$	132,902			$	130,690			$	128,247			$	126,087
	12/31/2023 vs 9/30/2023												12/31/2023 vs 12/31/2022
	Variance												Variance
	Amount				%								Amount				%
Common stock	$	112				0.15	%						$	661				0.90	%
Retained earnings		3,337				4.70	%							11,265				17.87	%
Accumulated other comprehensive (loss) income		2,351			(19.29		)%							689			(6.55		)%
Total shareholders' equity	$	5,800				4.36	%						$	12,615				10.00	%

The Board of Directors has authorized the repurchase of up to $10,000 of common stock. As of December 31, 2023, we had $1,393 of common stock available to repurchase through the program. We did not execute any repurchases of our common stock during 2023.
Stock Performance

The following graph compares the cumulative total shareholder return on our common stock for the last five years with the cumulative total return on the ABA NASDAQ Community Bank Index (NASDAQ: ABAQ) over the same period. The graph assumes the value of an investment in our common stock and the ABA NASDAQ Community Bank Index was $100 at December 31, 2018 and all dividends were reinvested.

The graph accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/26344377-cd5f-4927-b69e-0d4ad40cd546

Date		FETM			ABAQ Index
12/31/2018		$	100.00		$	100.00
12/31/2019			121.48			120.33
12/31/2020			107.52			102.96
12/31/2021			138.95			136.27
12/31/2022			111.71			123.51
12/31/2023			137.43			116.99

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	TDR: Troubled debt restructuring

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