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

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

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

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

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

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

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

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

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

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

Income Statement Breakdown and Analysis

  Quarter to Date
  6/30/2024 3/31/2024 12/31/2023 9/30/2023 6/30/2023
Net income $1,980  $2,790  $3,784  $3,775  $3,226 
Acquisition related items (net of tax)          
Amortization of core deposit intangibles  34   36   60   60   60 
Total acquisition related items (net of tax)  34   36   60   60   60 
Other nonrecurring items (net of tax)          
Proxy contest related expenses              413 
Prepayment penalties collected  (40)  (58)  (85)  (29)  (95)
Total other nonrecurring items (net of tax)  (40)  (58)  (85)  (29)  318 
Adjusted net income from operations $1,974  $2,768  $3,759  $3,806  $3,604 
           
Net interest income $11,837  $12,226  $12,507  $12,659  $13,084 
Prepayment penalties collected  (51)  (73)  (107)  (37)  (120)
Adjusted net interest income $11,786  $12,153  $12,400  $12,622  $12,964 
           
PERFORMANCE RATIOS          
Based on adjusted net income from operations          
Earnings per share $0.44  $0.62  $0.85  $0.86  $0.81 
Return on average assets  0.45%  0.63%  0.86%  0.87%  0.85%
Return on average shareholders’ equity  5.57%  7.92%  11.03%  11.37%  11.05%
Return on average tangible shareholders’ equity  5.96%  8.49%  11.86%  12.24%  11.92%
Efficiency ratio  77.15%  76.65%  69.06%  70.31%  69.51%
           
Based on adjusted net interest income          
Yield on average earning assets (FTE)  5.17%  5.13%  5.03%  4.91%  4.82%
Rate on interest bearing liabilities  3.22%  3.11%  2.90%  2.66%  2.35%
Net interest margin to average earning assets (FTE)  2.84%  2.90%  2.98%  3.04%  3.22%
           

  Year to Date June 30 Variance
   2024   2023  Amount %
Net income $4,770  $7,070  $(2,300) (32.53)%
Acquisition related items (net of tax)        
Amortization of core deposit intangibles  70   120   (50) (41.67)%
Total acquisition related items (net of tax)  70   120   (50) (41.67)%
Other nonrecurring items (net of tax)        
Proxy contest related expenses     413   (413) (100.00)%
Prepayment penalties collected  (98)  (104)  6  (5.77)%
Total other nonrecurring items (net of tax)  (98)  309   (407) (131.72)%
Adjusted net income from operations $4,742  $7,499  $(2,757) (36.76)%
         
Net interest income $24,063  $26,428  $(2,365) (8.95)%
Prepayment penalties collected  (124)  (132)  8  (6.06)%
Adjusted net interest income $23,939  $26,296  $(2,357) (8.96)%
         
PERFORMANCE RATIOS        
Based on adjusted net income from operations        
Earnings per share $1.06  $1.69  $(0.63) (37.28)%
Return on average assets  0.54%  0.89%   (0.35)%
Return on average shareholders’ equity  6.74%  11.75%   (5.01)%
Return on average tangible shareholders’ equity  7.21%  12.70%   (5.49)%
Efficiency ratio  76.90%  68.45%   8.45 %
         
Based on adjusted net interest income        
Yield on average earning assets (FTE)  5.15%  4.78%   0.37 %
Rate on interest bearing liabilities  3.17%  2.19%   0.98 %
Net interest margin to average earning assets (FTE)  2.88%  3.30%   (0.42)%
         

Average Balances, Interest Rate, and Net Interest Income

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

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

  Three Months Ended
  June 30, 2024 March 31, 2024 June 30, 2023
   Average
Balance
  Tax
Equivalent
Interest
 Average
Yield/
Rate
  Average
Balance
  Tax
Equivalent
Interest
 Average
Yield /
Rate
  Average
Balance
  Tax
Equivalent
Interest
 Average
Yield /
Rate
Interest earning assets                  
Total loans $1,462,362  $19,550 5.38% $1,471,130  $19,609 5.36% $1,470,156  $18,725 5.11%
Taxable investment securities  89,751   350 1.57%  94,199   359 1.53%  107,256   418 1.56%
Nontaxable investment securities  11,059   62 2.25%  11,963   67 2.25%  13,253   76 2.30%
Interest earning cash and cash equivalents  97,511   1,331 5.49%  97,237   1,319 5.46%  15,552   208 5.36%
Federal Home Loan Bank stock  9,179   207 9.07%  9,179   201 8.81%  11,376   143 5.04%
Total earning assets  1,669,862   21,500 5.18%  1,683,708   21,555 5.15%  1,617,593   19,570 4.85%
                   
Nonearning assets                  
Allowance for credit losses  (15,300)      (15,400)      (15,220)    
Premises and equipment, net  13,964       14,392       15,363     
Accrued income and other assets  94,125       88,914       88,411     
Total assets $1,762,651      $1,771,614      $1,706,147     
                   
Interest bearing liabilities                  
Interest bearing demand deposits $429,141  $3,745 3.51% $421,597  $3,559 3.40% $380,224  $2,619 2.76%
Savings deposits  266,731   408 0.62%  272,296   413 0.61%  306,195   434 0.57%
Time deposits  330,024   3,756 4.58%  326,747   3,644 4.49%  175,607   1,303 2.98%
Borrowed funds  178,474   1,741 3.92%  184,522   1,699 3.70%  243,781   2,113 3.48%
Total interest bearing liabilities  1,204,370   9,650 3.22%  1,205,162   9,315 3.11%  1,105,807   6,469 2.35%
                   
Noninterest bearing liabilities                  
Noninterest bearing deposits  405,985       417,089       455,123     
Accrued interest and other liabilities  9,719       8,789       14,357     
Shareholders’ equity  142,577       140,574       130,860     
Total liabilities and shareholders’ equity $1,762,651      $1,771,614      $1,706,147     
Net interest income (FTE)   $11,850     $12,240     $13,101  
Net interest margin to earning assets (FTE)     2.85%     2.92%     3.25%
                   

  Six Months Ended
  June 30, 2024 June 30, 2023
  Average
Balance
 Tax
Equivalent
Interest
 Average
Yield /Rate
 Average
Balance
 Tax
Equivalent
Interest
 Average
Yield / Rate
Interest earning assets            
Total loans $1,466,747  $39,159 5.37% $1,458,766  $36,579 5.06%
Taxable investment securities  91,975   709 1.55%  108,463   853 1.59%
Nontaxable investment securities  11,511   129 2.25%  13,769   157 2.30%
Interest earning cash and cash equivalents  97,374   2,650 5.47%  14,794   361 4.92%
Federal Home Loan Bank stock  9,179   408 8.94%  10,807   316 5.90%
Total earning assets  1,676,786   43,055 5.16%  1,606,599   38,266 4.80%
             
Nonearning assets            
Allowance for credit losses  (15,350)      (15,183)    
Premises and equipment, net  14,179       15,407     
Accrued income and other assets  91,512       89,837     
Total assets $1,767,127      $1,696,660     
             
Interest bearing liabilities            
Interest bearing demand deposits $425,370  $7,304 3.45% $369,723  $4,697 2.56%
Savings deposits  269,514   821 0.61%  323,675   907 0.57%
Time deposits  328,386   7,400 4.53%  171,064   2,315 2.73%
Borrowed funds  181,498   3,440 3.81%  224,653   3,885 3.49%
Total interest bearing liabilities  1,204,768   18,965 3.17%  1,089,115   11,804 2.19%
             
Noninterest bearing liabilities            
Noninterest bearing deposits  411,537       464,905     
Accrued interest and other liabilities  9,254       13,967     
Shareholders’ equity  141,568       128,673     
Total liabilities and shareholders’ equity $1,767,127      $1,696,660     
Net interest income (FTE)   $24,090     $26,462  
Net interest margin to earning assets (FTE)     2.89%     3.32%
             

Volume and Rate Variance Analysis

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

Volume – change in volume multiplied by the previous period’s rate.
Rate – change in the FTE rate multiplied by the previous period’s volume.

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

  Three Months Ended Three Months Ended Six Months Ended
  June 30, 2024 June 30, 2024 June 30, 2024
  Compared To Compared To Compared To
  March 31, 2024 June 30, 2023 June 30, 2023
  Increase (Decrease) Due to Increase (Decrease) Due to Increase (Decrease) Due to
   Volume   Rate  Net  Volume   Rate  Net  Volume   Rate  Net
Changes in interest income                  
Total loans $(398) $339  $(59) $(648) $1,473  $825  $212  $2,368  $2,580 
Taxable investment securities  (55)  46   (9)  (87)  19   (68)  (124)  (20)  (144)
Nontaxable investment securities  (5)     (5)  (12)  (2)  (14)  (25)  (3)  (28)
Interest earning cash and cash equivalents  4   8   12   1,118   5   1,123   2,244   45   2,289 
Federal Home Loan Bank stock     6   6   (166)  230   64   (128)  220   92 
Total changes in interest income  (454)  399   (55)  205   1,725   1,930   2,179   2,610   4,789 
                   
Changes in interest expense                  
Interest bearing demand deposits  66   120   186   362   764   1,126   788   1,819   2,607 
Savings deposits  (33)  28   (5)  (198)  172   (26)  (243)  157   (86)
Time deposits  37   75   112   1,523   930   2,453   2,962   2,123   5,085 
Borrowed funds  (274)  316   42   (1,711)  1,339   (372)  (1,275)  830   (445)
Total changes in interest expense  (204)  539   335   (24)  3,205   3,181   2,232   4,929   7,161 
Net change in net interest income (FTE) $(250) $(140) $(390) $229  $(1,480) $(1,251) $(53) $(2,319) $(2,372)
                   

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

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

Noninterest Income

  Three Months Ended
  6/30/2024 3/31/2024 12/31/2023 9/30/2023 6/30/2023
Service charges and fees          
Trust and investment services  607   641   433   572   583 
ATM and debit card  545   512   549   568   570 
Service charges on deposit accounts  162   140   211   244   224 
Total  1,314   1,293   1,193   1,384   1,377 
Net gain on sales of commercial loans  98   296   226      95 
Net gain on sales of residential mortgage loans  177   143   96   164   198 
Change in fair value of equity investments  (3)  (10)  42   (28)  (16)
Changes in the fair value of MSR  (44)  (96)  (108)  119   (8)
Other          
Mortgage servicing fees  386   394   398   398   406 
Change in cash surrender value of corporate owned life insurance  207   204   192   181   178 
Other  179   131   106   120   230 
Total  772   729   696   699   814 
Total noninterest income $2,314  $2,355  $2,145  $2,338  $2,460 
           
Memo items:          
Residential mortgage operations $519  $441  $386  $681  $596 

  Six Months Ended June 30 Variance
   2024   2023  Amount %
Service charges and fees        
Trust and investment services $1,248  $1,132  $116  10.25 %
ATM and debit card  1,057   1,101   (44) (4.00)%
Service charges on deposit accounts  302   442   (140) (31.67)%
Total  2,607   2,675   (68) (2.54)%
Net gain on sales of commercial loans  394   95   299  314.74 %
Net gain on sales of residential mortgage loans  320   359   (39) (10.86)%
Change in fair value of equity investments  (13)  (1)  (12) 1200.00 %
Changes in the fair value of MSR  (140)  99   (239) (241.41)%
Other        
Mortgage servicing fees  780   812   (32) (3.94)%
Change in cash surrender value of corporate owned life insurance  411   350   61  17.43 %
Other  310   399   (89) (22.31)%
Total  1,501   1,561   (60) (3.84)%
Total noninterest income $4,669  $4,788  $(119) (2.49)%
         
Memo items:        
Residential mortgage operations $960  $1,270  $(310) (24.41)%
         

Residential Mortgage Operations

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

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

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

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

All Other Noninterest Income

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

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

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

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

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

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

Noninterest Expenses

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

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

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

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

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

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

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

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

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

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

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

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

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

Balance Sheet Breakdown and Analysis

  6/30/2024 3/31/2024 12/31/2023 9/30/2023 6/30/2023
ASSETS          
Cash and due from banks $128,590 $132,349 $90,661 $83,365 $59,181
Total investment securities  100,167  103,210  107,615  109,543  117,563
Residential mortgage loans held-for-sale, at fair value  2,440  1,067  747  1,037  1,106
Gross loans  1,459,929  1,461,465  1,473,471  1,483,720  1,472,288
Less allowance for credit losses  15,300  15,300  15,400  15,400  15,400
Net loans  1,444,629  1,446,165  1,458,071  1,468,320  1,456,888
All other assets  80,803  81,838  81,858  82,674  84,081
Total assets $1,756,629 $1,764,629 $1,738,952 $1,744,939 $1,718,819
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Total deposits $1,427,059 $1,438,408 $1,394,182 $1,401,797 $1,380,192
Total borrowed funds  178,397  178,500  198,500  201,050  200,550
Accrued interest payable and other liabilities  7,872  6,647  7,568  9,190  7,387
Total liabilities  1,613,328  1,623,555  1,600,250  1,612,037  1,588,129
Total shareholders’ equity  143,301  141,074  138,702  132,902  130,690
Total liabilities and shareholders’ equity $1,756,629 $1,764,629 $1,738,952 $1,744,939 $1,718,819
           

  6/30/2024 vs 3/31/2024 6/30/2024 vs 6/30/2023
  Variance Variance
  Amount % Amount %
ASSETS        
Cash and due from banks $(3,759) (2.84)% $69,409  117.28 %
Total investment securities  (3,043) (2.95)%  (17,396) (14.80)%
Residential mortgage loans held-for-sale, at fair value  1,373  128.68 %  1,334  120.61 %
Gross loans  (1,536) (0.11)%  (12,359) (0.84)%
Less allowance for credit losses     %  (100) (0.65)%
Net loans  (1,536) (0.11)%  (12,259) (0.84)%
All other assets  (1,035) (1.26)%  (3,278) (3.90)%
Total assets $(8,000) (0.45)% $37,810  2.20 %
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Total deposits $(11,349) (0.79)% $46,867  3.40 %
Total borrowed funds  (103) (0.06)%  (22,153) (11.05)%
Accrued interest payable and other liabilities  1,225  18.43 %  485  6.57 %
Total liabilities  (10,227) (0.63)%  25,199  1.59 %
Total shareholders’ equity  2,227  1.58 %  12,611  9.65 %
Total liabilities and shareholders’ equity $(8,000) (0.45)% $37,810  2.20 %
         

Cash and due from banks

  6/30/2024 3/31/2024 12/31/2023 9/30/2023 6/30/2023
Cash and due from banks          
Noninterest bearing $35,437  $26,128  $29,997 $35,121 $33,028 
Interest bearing  93,153   106,221   60,664  48,244  26,153 
Total $128,590  $132,349  $90,661 $83,365 $59,181 
           
  6/30/2024 vs 3/31/2024   6/30/2024 vs 6/30/2023
  Variance   Variance
  Amount %   Amount %
Cash and due from banks          
Noninterest bearing $9,309   35.63 %   $2,409  7.29 %
Interest bearing  (13,068) (12.30)%    67,000  256.18 %
Total $(3,759) (2.84)%   $69,409  117.28 %
           

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

Primary and secondary liquidity sources

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

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

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

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

Investment securities

  6/30/2024 3/31/2024 12/31/2023 9/30/2023 6/30/2023
Available-for-sale          
U.S. Government and federal agency $20,430  $20,427  $22,425  $23,420  $24,411 
State and municipal  19,108   20,403   20,460   20,992   21,110 
Mortgage backed residential  45,808   47,505   49,076   50,786   52,704 
Certificates of deposit  2,481   2,729   2,728   3,956   6,679 
Collateralized mortgage obligations – agencies  22,213   22,778   23,320   24,062   24,680 
Unrealized gain/(loss) on available-for-sale securities  (12,179)  (13,027)  (12,760)  (15,958)  (14,536)
Total available-for-sale  97,861   100,815   105,249   107,258   115,048 
Held-to-maturity state and municipal  791   877   878   879   1,081 
Equity securities  1,515   1,518   1,488   1,406   1,434 
Total investment securities $100,167  $103,210  $107,615  $109,543  $117,563 
           
  6/30/2024 vs 3/31/2024   6/30/2024 vs 6/30/2023
  Variance   Variance
  Amount %   Amount %
Available-for-sale          
U.S. Government and federal agency  3   0.01 %   $(3,981) (16.31)%
State and municipal  (1,295) (6.35)%    (2,002) (9.48)%
Mortgage backed residential  (1,697) (3.57)%    (6,896) (13.08)%
Certificates of deposit  (248) (9.09)%    (4,198) (62.85)%
Collateralized mortgage obligations – agencies  (565) (2.48)%    (2,467) (10.00)%
Unrealized gain/(loss) on available-for-sale securities  848  (6.51)%    2,357  (16.21)%
Total available-for-sale  (2,954) (2.93)%    (17,187) (14.94)%
Held-to-maturity state and municipal  (86) (9.81)%    (290) (26.83)%
Equity securities  (3) (0.20)%    81   5.65 %
Total investment securities $(3,043) (2.95)%   $(17,396) (14.80)%
           

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

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

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

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

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

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

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

Loans and allowance for credit losses

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

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

  6/30/2024 3/31/2024 12/31/2023 9/30/2023 6/30/2023
Commercial and industrial $120,331  $114,772  $118,089  $125,330  $120,985 
Commercial real estate  864,200   867,270   870,693   874,870   870,761 
Total commercial loans  984,531   982,042   988,782   1,000,200   991,746 
Residential mortgage  418,403   426,762   431,836   431,740   430,065 
Home equity  53,133   48,568   48,380   47,069   45,689 
Total residential real estate loans  471,536   475,330   480,216   478,809   475,754 
Consumer  3,862   4,093   4,473   4,711   4,788 
Gross loans  1,459,929   1,461,465   1,473,471   1,483,720   1,472,288 
Allowance for credit losses  (15,300)  (15,300)  (15,400)  (15,400)  (15,400)
Loans, net $1,444,629  $1,446,165  $1,458,071  $1,468,320  $1,456,888 
           
Memo items:          
Residential mortgage loans serviced for others $613,854  $619,160  $624,765  $631,697  $632,018 
           
  6/30/2024 vs 3/31/2024   6/30/2024 vs 6/30/2023
  Variance   Variance
  Amount %   Amount %
Commercial and industrial $5,559   4.84 %   $(654) (0.54)%
Commercial real estate  (3,070) (0.35)%    (6,561) (0.75)%
Total commercial loans  2,489   0.25 %    (7,215) (0.73)%
Residential mortgage  (8,359) (1.96)%    (11,662) (2.71)%
Home equity  4,565   9.40 %    7,444   16.29 %
Total residential real estate loans  (3,794) (0.80)%    (4,218) (0.89)%
Consumer  (231) (5.64)%    (926) (19.34)%
Gross loans  (1,536) (0.11)%    (12,359) (0.84)%
Allowance for credit losses      %    100  (0.65)%
Loans, net $(1,536) (0.11)%   $(12,259) (0.84)%
           
Memo items:          
Residential mortgage loans serviced for others $(5,306) (0.86)%   $(18,164) (2.87)%
           

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

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

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

  6/30/2024 3/31/2024 12/31/2023 9/30/2023 6/30/2023
Allowance for credit losses for collectively evaluated loans          
Commercial and industrial $1,434 $1,300 $1,407 $1,362 $1,488
Commercial real estate  8,903  8,359  8,467  8,703  8,991
Residential mortgage  4,133  4,202  4,409  4,439  4,453
Home equity  327  305  321  315  325
Consumer  80  38  44  36  40
Unallocated    670  355  294  49
Subtotal  14,877  14,874  15,003  15,149  15,346
Allowance for credit losses for individually evaluated loans          
Commercial and industrial  423  423  363  248  15
Commercial real estate          
Residential mortgage    3  34  3  39
Home equity          
Consumer          
Unallocated          
Subtotal  423  426  397  251  54
Allowance for credit losses $15,300 $15,300 $15,400 $15,400 $15,400
           
Commercial and industrial $1,857 $1,723 $1,770 $1,610 $1,503
Commercial real estate  8,903  8,359  8,467  8,703  8,991
Residential mortgage  4,133  4,205  4,443  4,442  4,492
Home equity  327  305  321  315  325
Consumer  80  38  44  36  40
Unallocated    670  355  294  49
Allowance for credit losses $15,300 $15,300 $15,400 $15,400 $15,400
           

Loan concentration analysis

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

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

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

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

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

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

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

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

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

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

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

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

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

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

  6/30/2024 3/31/2024 12/31/2023 9/30/2023 6/30/2023
Net lease $141,064  $147,103  $149,056 $160,077  $159,199 
Retail strip centers  106,631   107,834   98,588  96,567   96,310 
Office  62,237   61,657   61,822  62,959   62,062 
Special use  71,006   58,278   58,710  57,612   57,978 
Industrial  23,107   22,575   28,380  28,906   28,661 
Medical office  24,818   25,380   25,842  28,591   28,752 
Self storage  32,502   25,660   23,455  21,993   22,169 
Mixed use  16,980   17,174   17,335  19,833   19,412 
Retail  17,191   12,533   12,981  14,115   14,998 
           
Total non-owner occupied commercial real estate loans $495,536  $478,194  $476,169 $490,653  $489,541 
           
  6/30/2024 vs 3/31/2024   6/30/2024 vs 6/30/2023
  Variance   Variance
  Amount %   Amount %
Net lease $(6,039) (4.11)%   $(18,135) (11.39)%
Retail strip centers  (1,203) (1.12)%    10,321   10.72 %
Office  580   0.94 %    175   0.28 %
Special use  12,728   21.84 %    13,028   22.47 %
Industrial  532   2.36 %    (5,554) (19.38)%
Medical office  (562) (2.21)%    (3,934) (13.68)%
Self storage  6,842   26.66 %    10,333   46.61 %
Mixed use  (194) (1.13)%    (2,432) (12.53)%
Retail  4,658   37.17 %    2,193   14.62 %
           
Total non-owner occupied commercial real estate loans $17,342   3.63 %   $5,995   1.22 %
           

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

  6/30/2024 3/31/2024 12/31/2023 9/30/2023 6/30/2023
Net lease $1,291 $1,311 $1,316 $1,300 $1,292
Retail strip centers  2,197  2,231  2,135  2,115  2,081
Office  1,363  1,296  1,297  1,294  1,332
Special use  2,546  2,064  2,079  2,134  2,342
Industrial  925  941  1,092  1,072  1,025
Medical office  1,128  1,103  1,078  1,145  1,159
Self storage  1,926  1,509  1,380  1,692  1,583
Mixed use  1,334  1,321  1,333  1,240  1,294
Retail  513  447  461  429  450
           
Total non-owner occupied commercial real estate loans $1,448 $1,392 $1,379 $1,362 $1,366
           

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

  6/30/2024 3/31/2024 12/31/2023 9/30/2023 6/30/2023
Net lease 9.66% 10.07% 10.12% 10.79% 10.81%
Retail strip centers 7.30% 7.38% 6.69% 6.51% 6.54%
Office 4.26% 4.22% 4.20% 4.24% 4.22%
Special use 4.86% 3.99% 3.98% 3.88% 3.94%
Industrial 1.58% 1.54% 1.93% 1.95% 1.95%
Medical office 1.70% 1.74% 1.75% 1.93% 1.95%
Self storage 2.23% 1.76% 1.59% 1.48% 1.51%
Mixed use 1.16% 1.18% 1.18% 1.34% 1.32%
Retail 1.18% 0.86% 0.88% 0.95% 1.02%
           
Total non-owner occupied commercial real estate loans to gross loans 33.93% 32.74% 32.32% 33.07% 33.26%
           

Asset quality

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

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

The following table summarizes the our nonperforming assets as of:

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

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

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

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

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

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

The following table summarizes the average loan size as of:

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

All other assets

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

  6/30/2024 3/31/2024 12/31/2023 9/30/2023 6/30/2023
Premises and equipment, net $13,661  $14,111  $14,561 $14,928  $15,345 
Federal Home Loan Bank stock  9,179   9,179   9,179  9,179   11,498 
Corporate owned life insurance  27,877   27,670   27,466  27,274   27,047 
Mortgage servicing rights  8,636   8,680   8,776  8,884   8,765 
Accrued interest receivable  4,747   4,869   4,472  4,485   3,992 
Goodwill  8,853   8,853   8,853  8,853   8,853 
Other assets          
Core deposit intangibles  444   488   533  609   684 
Right-of-use assets  1,142   1,237   1,333  1,426   1,510 
Other real estate owned  293   345   597  345   345 
Other  5,971   6,406   6,088  6,691   6,042 
Total  7,850   8,476   8,551  9,071   8,581 
All other assets $80,803  $81,838  $81,858 $82,674  $84,081 
           
  6/30/2024 vs 3/31/2024   6/30/2024 vs 6/30/2023
  Variance   Variance
  Amount %   Amount %
Premises and equipment, net $(450) (3.19)%   $(1,684) (10.97)%
Federal Home Loan Bank stock      %    (2,319) (20.17)%
Corporate owned life insurance  207   0.75 %    830   3.07 %
Mortgage servicing rights  (44) (0.51)%    (129) (1.47)%
Accrued interest receivable  (122) (2.51)%    755   18.91 %
Goodwill      %        %
Other assets          
Core deposit intangibles  (44) (9.02)%    (240) (35.09)%
Right-of-use assets  (95) (7.68)%    (368) (24.37)%
Other real estate owned  (52) (15.07)%    (52) (15.07)%
Other  (435) (6.79)%    (71) (1.18)%
Total  (626) (7.39)%    (731) (8.52)%
All other assets $(1,035) (1.26)%   $(3,278) (3.90)%
           

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

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

Total deposits

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

  6/30/2024 3/31/2024 12/31/2023 9/30/2023 6/30/2023
Noninterest bearing demand $404,521  $401,518  $423,019 $425,820  $457,204 
Interest bearing          
Savings  262,538   274,922   273,302  293,310   301,872 
Money market demand  230,304   229,584   223,827  225,138   221,686 
NOW          
Retail NOW  205,383   203,614   178,892  198,271   161,765 
Brokered NOW              
           
Total NOW Accounts  205,383   203,614   178,892  198,271   161,765 
Time deposits          
Other time deposits  264,009   268,466   234,838  198,509   176,280 
Brokered time deposits  60,304   60,304   60,304  60,251   60,395 
Internet time deposits          498   990 
           
Total time deposits  324,313   328,770   295,142  259,258   237,665 
           
Total deposits $1,427,059  $1,438,408  $1,394,182 $1,401,797  $1,380,192 
           
  6/30/2024 vs 3/31/2024   6/30/2024 vs 6/30/2023
  Variance   Variance
  Amount %   Amount %
Noninterest bearing demand $3,003   0.75 %   $(52,683) (11.52)%
Interest bearing          
Savings  (12,384) (4.50)%    (39,334) (13.03)%
Money market demand  720   0.31 %    8,618   3.89 %
NOW          
Retail NOW  1,769   0.87 %    43,618   26.96 %
Brokered NOW      %        %
           
Total NOW Accounts  1,769   0.87 %    43,618   26.96 %
Time deposits          
Other time deposits  (4,457) (1.66)%    87,729   49.77 %
Brokered time deposits      %    (91) (0.15)%
Internet time deposits      %    (990) (100.00)%
           
Total time deposits  (4,457) (1.36)%    86,648   36.46 %
           
Total deposits $(11,349) (0.79)%   $46,867   3.40 %
           

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

Total borrowed funds

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

  6/30/2024 3/31/2024 12/31/2023 9/30/2023 6/30/2023
Federal Home Loan Bank borrowings $160,000  $160,000  $180,000 $180,000  $180,000 
Subordinated debentures  14,000   14,000   14,000  14,000   14,000 
Other borrowings  4,397   4,500   4,500  7,050   6,550 
Total borrowed funds $178,397  $178,500  $198,500 $201,050  $200,550 
           
  6/30/2024 vs 3/31/2024   6/30/2024 vs 6/30/2023
  Variance   Variance
  Amount %   Amount %
Federal Home Loan Bank borrowings $    %   $(20,000) (11.11)%
Subordinated debentures      %        %
Other borrowings  (103) (2.29)%    (2,153) (32.87)%
Total borrowed funds $(103) (0.06)%   $(22,153) (11.05)%
           

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

Wholesale funding sources

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

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

  6/30/2024 3/31/2024 12/31/2023 9/30/2023 6/30/2023
Federal Home Loan Bank borrowings $160,000  $160,000  $180,000 $180,000  $180,000 
Subordinated debentures  14,000   14,000   14,000  14,000   14,000 
Other borrowings  4,397   4,500   4,500  7,050   6,550 
Brokered NOW accounts              
Brokered time deposits  60,304   60,304   60,304  60,251   60,395 
Internet time deposits          498   990 
Total wholesale funds $238,701  $238,804  $258,804 $261,799  $261,935 
           
  6/30/2024 vs 3/31/2024   6/30/2024 vs 6/30/2023
  Variance   Variance
  Amount %   Amount %
Federal Home Loan Bank borrowings $    %    (20,000) (11.11)%
Subordinated debentures      %        %
Other borrowings  (103) (2.29)%    (2,153) (32.87)%
Brokered NOW accounts                                  N/A                                    N/A
Brokered time deposits      %    (91) (0.15)%
Internet time deposits                                  N/A    (990) (100.00)%
Total wholesale funds $(103) (0.04)%   $(23,234) (8.87)%
           

Accrued interest payable and other liabilities

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

Total shareholders’ equity

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

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

  6/30/2024 3/31/2024 12/31/2023 9/30/2023 6/30/2023
Common stock $74,690  $74,555  $74,230  $74,118  $73,993 
Retained earnings  78,094   76,607   74,309   70,972   67,643 
Accumulated other comprehensive (loss) income  (9,483)  (10,088)  (9,837)  (12,188)  (10,946)
Total shareholders’ equity $143,301  $141,074  $138,702  $132,902  $130,690 
           
  6/30/2024 vs 3/31/2024   6/30/2024 vs 6/30/2023
  Variance   Variance
  Amount %   Amount %
Common stock $135   0.18 %   $697   0.94 %
Retained earnings  1,487   1.94 %    10,451   15.45 %
Accumulated other comprehensive (loss) income  605  (6.00)%    1,463  (13.37)%
Total shareholders’ equity $2,227   1.58 %   $12,611   9.65 %
           

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

Stock Performance

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

 # in Peer Group YTD 1 Year 3 Year 5 Year
Fentura Financial, Inc. (OTCQX:FETM)  (16.54)% 18.38 % (9.19)% 17.90 %
           
National OTC Peers43 (1.01)% (3.49)% 2.11 % 8.44 %
Fentura Ranking out of 44  42 6 23 14
           
Midwest / Great Lakes OTC Peers17 (1.97)% (5.16)% (1.63)% 1.35 %
Fentura Ranking out of 18  16 1 8 4
           

Abbreviations and Acronyms

ABA: American Bankers AssociationFTE: Fully taxable equivalent
ACH: Automated Clearing HouseGAAP: Generally Accepted Accounting Principles
ACL: Allowance for credit lossesHFS: Held-for-sale
AFS: Available-for-saleHTM: Held-to-maturity
AIR: Accrued interest receivableHFS: Held-for-sale
AOCI: Accumulated other comprehensive incomeHTM: Held-to-maturity
ARRC: Alternative Reference Rates CommitteeIRA: Individual retirement account
ASC: Accounting Standards CodificationITM: Interactive Teller Machine
ASU: Accounting Standards UpdateLIBOR: London Interbank Offered Rate
ATM: Automated teller machineMSR: Mortgage servicing rights
CDI: Core deposit intangibleN/M: Not meaningful
CET1: Common equity tier 1NASDAQ: National Association of Securities Dealers Automated Quotations
COLI: Corporate owned life insuranceNOW: Negotiable order of withdrawal
DRIP: Dividend Reinvestment PlanNSF: Non-sufficient funds
EPS: Earnings Per Common ShareOCI: Other comprehensive income
ESOP: Employee Stock Ownership PlanOIS: Overnight Index Swap
FASB: Financial Accounting Standards BoardOREO: Other real estate owned
FDIC: Federal Deposit Insurance CorporationOTTI: Other-than-temporary impairment
FHLB: Federal Home Loan BankQTD: Quarter-to-date
FHLLC: Fentura Holdings LLCSAB: Staff Accounting Bulletin
FHLMC: Federal Home Loan Mortgage CorporationSBA: U.S. Small Business Administration
FNMA: Federal National Mortgage AssociationSEC: Securities and Exchange Commission
FOMC: Federal Open Market CommitteeSERP: Supplemental Executive Retirement Plan
FRB: Federal Reserve BankSOFR: Secured Overnight Funding Rate
FSB: Farmers State Bank of MunithTLM: 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
     

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