Skip to main content

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

Figure 1

Stock Performance Five-Year Total Return
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 assets5.06% 4.92% 4.85% 4.75% 4.57%
Total interest bearing liabilities2.90% 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 lease10.12% 10.79% 10.81% 11.08% 11.55%
Retail strip centers6.69% 6.51% 6.54% 6.57% 6.24%
Office4.20% 4.24% 4.22% 4.11% 4.19%
Special use3.98% 3.88% 3.94% 2.88% 2.46%
Industrial1.93% 1.95% 1.95% 1.99% 2.12%
Medical office1.75% 1.93% 1.95% 2.08% 2.11%
Self storage1.59% 1.48% 1.51% 1.53% 1.55%
Mixed use1.18% 1.34% 1.32% 1.31% 1.34%
Retail0.88% 0.95% 1.02% 1.20% 1.07%
          
Total non-owner occupied commercial real estate loans to gross loans32.32% 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 loans0.38% 0.24% 0.16% 0.19% 0.16%
Nonperforming assets to total assets0.35% 0.23% 0.16% 0.17% 0.15%
Allowance for credit losses to gross loans1.04% 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 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 MunithTDR: 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. JusticeAaron D. Wirsing
 President & CEOChief Financial Officer
 Fentura Financial, Inc. Fentura Financial, Inc.
 810.714.3902810.714.3925
 ron.justice@thestatebank.comaaron.wirsing@thestatebank.com

Disclaimer & Cookie Notice

Welcome to GOLDEA services for Professionals

Before you continue, please confirm the following:

Professional advisers only

I am a professional adviser and would like to visit the GOLDEA CAPITAL for Professionals website.

Cookie Notice

We use cookies to improve your experience on our website

Information we collect about your use of Goldea Capital website

Goldea Capital website collects personal data about visitors to its website.

When someone visits our websites, we use a third party service, Google Analytics, to collect standard internet log information (such as IP address and type of browser they’re using) and details of visitor behavior patterns. We do this to allow us to keep track of the number of visitors to the various parts of the sites and understand how our website is used. We do not make any attempt to find out the identities or nature of those visiting our websites. We won’t share your information with any other organizations for marketing, market research or commercial purposes and we don’t pass on your details to other websites.

Use of cookies
Cookies are small text files that are placed on your computer or other device by websites that you visit. They are widely used to make websites work, or work more efficiently, as well as to provide information to the owners of the site.