Fentura Financial, Inc. Announces First Quarter 2023 Earnings (Unaudited)

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


FENTON, Mich., April 28, 2023 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. (OTCQX: FETM) announces quarterly net income results of $3,844 for the three months ended March 31, 2023.

Ronald L. Justice, President and CEO, stated, “Our first quarter performance reflects the success of our strategic growth plan, the hard work of our associates, and the value we provide our communities. We continue to focus on navigating a complex operating environment associated with recent bank failures, higher interest rates and increased economic uncertainty. During the quarter, earnings increased 26.1% to $0.87 per share, benefiting from recent asset growth, a stable net interest margin, and robust asset quality. In addition, record loans, assets, and deposits at March 31, 2023, demonstrates that our model is adaptable, resilient, and positioned to deliver solid financial results in the future.”

Mr. Justice continued, “As we celebrate our 125th anniversary later this year, we are focused on continuing our legacy that was built on serving our local communities and providing leading financial resources to our business and retail customers. The Bank’s success over the past 125 years is a testament to our conservative operating philosophy, robust balance sheet, excellent asset quality, and stable liquidity position. Our commitment to follow these operating values will continue to be the foundation of our success in 2023 and beyond.”

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

  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
INCOME STATEMENT DATA          
Interest income $18,679  $17,782  $15,726  $13,411  $12,301 
Interest expense  5,335   3,645   1,738   785   599 
Net interest income  13,344   14,137   13,988   12,626   11,702 
Provision for loan losses  236   847   1,231   525   502 
Noninterest income  2,328   1,949   2,395   2,794   2,808 
Noninterest expenses  10,633   9,781   10,143   10,560   10,167 
Federal income tax expense  959   1,094   1,000   859   757 
Net income $3,844  $4,364  $4,009  $3,476  $3,084 
PER SHARE          
Earnings $0.87  $0.99  $0.91  $0.79  $0.69 
Dividends $0.10  $0.09  $0.09  $0.09  $0.09 
Tangible book value(1) $26.64  $26.22  $25.22  $24.53  $24.97 
Quoted market value          
High $24.10  $23.40  $25.20  $27.85  $29.25 
Low $21.10  $21.60  $23.00  $24.40  $27.10 
Close(1) $21.31  $22.20  $23.00  $25.00  $27.90 
PERFORMANCE RATIOS          
Return on average assets  0.92%  1.06%  1.02%  0.96%  0.86%
Return on average shareholders’ equity  12.32%  14.01%  12.96%  11.55%  10.53%
Return on average tangible shareholders’ equity  13.34%  15.21%  14.10%  12.60%  11.49%
Efficiency ratio  67.85%  60.80%  61.91%  68.48%  70.07%
Yield on earning assets (FTE)  4.75%  4.57%  4.27%  3.96%  3.70%
Rate on interest bearing liabilities  2.02%  1.42%  0.75%  0.38%  0.29%
Net interest margin to earning assets (FTE)  3.40%  3.63%  3.79%  3.73%  3.52%
BALANCE SHEET DATA(1)          
Total investment securities $122,995  $125,049  $129,886  $136,725  $151,579 
Gross loans $1,457,173  $1,436,166  $1,350,851  $1,232,892  $1,139,351 
Allowance for credit losses $15,220  $13,000  $12,200  $11,000  $11,000 
Total assets $1,749,073  $1,688,863  $1,588,592  $1,471,454  $1,435,485 
Total deposits $1,353,918  $1,332,883  $1,345,209  $1,231,543  $1,252,892 
Borrowed funds $259,050  $222,350  $116,600  $111,000  $52,000 
Total shareholders’ equity $128,247  $126,087  $121,630  $118,566  $121,346 
Net loans to total deposits  106.50%  106.77%  99.51%  99.22%  90.06%
Common shares outstanding  4,453,951   4,439,725   4,434,937   4,429,357   4,459,544 
QTD BALANCE SHEET AVERAGES          
Total assets $1,687,175  $1,637,191  $1,558,040  $1,449,874  $1,448,545 
Earning assets $1,595,605  $1,544,880  $1,464,233  $1,360,658  $1,348,647 
Interest bearing liabilities $1,072,417  $1,016,876  $917,888  $826,708  $831,200 
Total shareholders’ equity $126,495  $123,567  $122,695  $120,659  $118,759 
Total tangible shareholders’ equity $116,834  $113,810  $112,829  $110,686  $108,862 
Earned common shares outstanding  4,421,584   4,413,710   4,408,399   4,417,447   4,451,607 
Unvested stock grants  29,007   24,460   24,460   24,460   27,466 
Total common shares outstanding  4,450,591   4,438,170   4,432,859   4,441,907   4,479,073 
ASSET QUALITY          
Nonperforming loans to gross loans (1)  0.19%  0.16%  0.12%  0.16%  0.20%
Nonperforming assets to total assets (1)  0.17%  0.15%  0.12%  0.16%  0.19%
Allowance for credit losses to gross loans (1)  1.04%  0.91%  0.90%  0.89%  0.97%
Allowance for credit losses to gross loans, net of PPP loans (1)  1.04%  0.91%  0.90%  0.89%  0.97%
Net charge-offs (recoveries) to QTD average gross loans  %  %  %  0.04%  %
Provision for loan losses to QTD average gross loans  0.02%  0.06%  0.10%  0.04%  0.05%
CAPITAL RATIOS(1)          
Total capital to risk weighted assets  11.08%  10.87%  10.96%  11.36%  12.07%
Tier 1 capital to risk weighted assets  10.02%  9.95%  10.07%  10.50%  11.13%
CET1 capital to risk weighted assets  9.04%  8.96%  9.04%  9.39%  9.94%
Tier 1 leverage ratio  8.47%  8.58%  8.91%  9.30%  9.07%
           
(1)At end of period          
           

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

  3/31/2023 3/31/2022 3/31/2021 3/31/2020 3/31/2019
INCOME STATEMENT DATA          
Interest income $18,679  $12,301  $11,919  $11,070  $10,437 
Interest expense  5,335   599   676   2,145   2,090 
Net interest income  13,344   11,702   11,243   8,925   8,347 
Provision for loan losses  236   502   212   1,542   213 
Noninterest income  2,328   2,808   3,906   4,575   1,522 
Noninterest expenses  10,633   10,167   9,083   7,748   6,509 
Federal income tax expense  959   757   1,198   858   633 
Net income $3,844  $3,084  $4,656  $3,352  $2,514 
PER SHARE          
Earnings $0.87  $0.69  $1.00  $0.72  $0.54 
Dividends $0.10  $0.09  $0.08  $0.08  $0.07 
Tangible book value(1) $26.64  $24.97  $24.75  $21.56  $18.88 
Quoted market value          
High $24.10  $29.25  $24.75  $26.00  $21.00 
Low $21.10  $27.10  $21.90  $12.55  $20.05 
Close(1) $21.31  $27.90  $23.30  $15.50  $20.89 
PERFORMANCE RATIOS          
Return on average assets  0.92%  0.86%  1.50%  1.28%  1.09%
Return on average shareholders’ equity  12.32%  10.53%  15.86%  13.01%  11.09%
Return on average tangible shareholders’ equity  13.34%  11.49%  16.38%  13.54%  11.66%
Efficiency ratio  67.85%  70.07%  59.96%  57.39%  65.95%
Yield on earning assets (FTE)  4.75%  3.70%  4.01%  4.47%  4.77%
Rate on interest bearing liabilities  2.02%  0.29%  0.37%  1.28%  1.40%
Net interest margin to earning assets (FTE)  3.40%  3.52%  3.79%  3.61%  3.81%
BALANCE SHEET DATA(1)          
Total investment securities $122,995  $151,579  $89,772  $76,312  $82,222 
Gross loans $1,457,173  $1,139,351  $1,028,117  $865,577  $809,863 
Allowance for credit losses $15,220  $11,000  $11,100  $7,250  $4,745 
Total assets $1,749,073  $1,435,485  $1,303,175  $1,071,181  $946,172 
Total deposits $1,353,918  $1,252,892  $1,122,508  $883,837  $789,533 
Borrowed funds $259,050  $52,000  $49,000  $71,500  $59,000 
Total shareholders’ equity $128,247  $121,346  $119,360  $104,829  $92,236 
Net loans to total deposits  106.50%  90.06%  90.60%  97.11%  101.97%
Common shares outstanding  4,453,951   4,459,544   4,673,932   4,675,499   4,647,978 
YTD BALANCE SHEET AVERAGES          
Total assets $1,687,175  $1,448,545  $1,259,119  $1,049,245  $934,078 
Earning assets $1,595,605  $1,348,647  $1,206,411  $997,089  $887,974 
Interest bearing liabilities $1,072,417  $831,200  $735,159  $672,564  $604,973 
Total shareholders’ equity $126,495  $118,759  $119,034  $103,646  $91,964 
Total tangible shareholders’ equity $116,834  $108,862  $115,298  $99,558  $87,430 
Earned common shares outstanding  4,421,584   4,451,607   4,664,893   4,659,279   4,635,255 
Unvested stock grants  29,007   27,466   21,922   13,481   9,788 
Total common shares outstanding  4,450,591   4,479,073   4,686,815   4,672,760   4,645,043 
ASSET QUALITY          
Nonperforming loans to gross loans (1)  0.19%  0.20%  0.79%  0.10%  0.11%
Nonperforming assets to total assets (1)  0.17%  0.19%  0.62%  0.12%  0.09%
Allowance for credit losses to gross loans (1)  1.04%  0.97%  1.08%  0.84%  0.59%
Allowance for credit losses to gross loans, net of PPP loans (1)  1.04%  0.97%  1.23%  0.84%  0.59%
Net charge-offs (recoveries) to YTD average gross loans  %  %  %  0.01% (0.01)        %
Provision for loan losses to YTD average gross loans  0.02%  0.05%  0.02%  0.18%  0.03%
CAPITAL RATIOS(1)          
Total capital to risk weighted assets  11.08%  12.07%  15.02%  14.44%  14.01%
Tier 1 capital to risk weighted assets  10.02%  11.13%  13.84%  13.58%  13.38%
CET1 capital to risk weighted assets  9.04%  9.94%  12.34%  11.92%  11.55%
Tier 1 leverage ratio  8.47%  9.07%  10.31%  10.97%  11.00%
           
(1)At end of period          
           

Income Statement Breakdown and Analysis

  Quarter to Date
  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
Net income $3,844  $4,364  $4,009  $3,476  $3,084 
Acquisition related items (net of tax)          
Accretion on purchased loans     (20)  (20)  (20)  (20)
Amortization of core deposit intangibles  60   85   85   85   85 
Amortization on acquired time deposits     (21)  (21)  (21)  (21)
Other acquisition related expenses           11   202 
Total acquisition related items (net of tax)  60   44   44   55   246 
Other nonrecurring items (net of tax)          
Prepayment penalties collected  (9)  (61)  (119)  (48)  (162)
Total other nonrecurring items (net of tax)  (9)  (61)  (119)  (48)  (162)
Adjusted net income from operations $3,895  $4,347  $3,934  $3,483  $3,168 
           
Net interest income $13,344  $14,137  $13,988  $12,626  $11,702 
Accretion on purchased loans     (25)  (25)  (26)  (25)
Prepayment penalties collected  (12)  (77)  (150)  (61)  (205)
Amortization on acquired time deposits     (27)  (27)  (26)  (27)
Adjusted net interest income $13,332  $14,008  $13,786  $12,513  $11,445 
           
PERFORMANCE RATIOS          
Based on adjusted net income from operations          
Earnings per share $0.88  $0.98  $0.89  $0.79  $0.71 
Return on average assets  0.94%  1.05%  1.00%  0.96%  0.89%
Return on average shareholders’ equity  12.49%  13.96%  12.72%  11.58%  10.82%
Return on average tangible shareholders’ equity  13.52%  15.15%  13.83%  12.62%  11.80%
Efficiency ratio  67.41%  60.62%  62.02%  68.19%  68.78%
           
Based on adjusted net interest income          
Yield on earning assets (FTE)  4.75%  4.54%  4.22%  3.93%  3.63%
Rate on interest bearing liabilities  2.02%  1.41%  0.74%  0.37%  0.28%
Net interest margin to earning assets (FTE)  3.40%  3.60%  3.74%  3.70%  3.44%


  Year to Date March 31 Variance
  2023 2022 Amount %
Net income $3,844  $3,084  $760  24.64%
Acquisition related items (net of tax)        
Accretion on purchased loans     (20)  20  (100.00)%
Amortization of core deposit intangibles  60   85   (25) (29.41)%
Amortization on acquired time deposits     (21)  21  (100.00)%
Other acquisition related expenses     202   (202) (100.00)%
Total acquisition related items (net of tax)  60   246   (186) (75.61)%
Other nonrecurring items (net of tax)        
Prepayment penalties collected  (9)  (162)  153  (94.44)%
Total other nonrecurring items (net of tax)  (9)  (162)  153  (94.44)%
Adjusted net income from operations $3,895  $3,168  $727  22.95%
         
Net interest income $13,344  $11,702  $1,642  14.03%
Accretion on purchased loans     (25)  25  (100.00)%
Prepayment penalties collected  (12)  (205)  193  (94.15)%
Amortization on acquired time deposits     (27)  27  (100.00)%
Adjusted net interest income $13,332  $11,445  $1,887  16.49%
         
PERFORMANCE RATIOS        
Based on adjusted net income from operations        
Earnings per share $0.88  $0.71  $0.17  23.94%
Return on average assets  0.94%  0.89%   0.05%
Return on average shareholders’ equity  12.49%  10.82%   1.67%
Return on average tangible shareholders’ equity  13.52%  11.80%   1.72%
Efficiency ratio  67.41%  68.78%   (1.37)%
         
Based on adjusted net interest income        
Yield on earning assets (FTE)  4.75%  3.63%   1.12%
Rate on interest bearing liabilities  2.02%  0.28%   1.74%
Net interest margin to earning assets (FTE)  3.40%  3.44%   (0.04)%
         

Average Balances, Interest Rate, and Net Interest Income

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

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

  Three Months Ended
  March 31, 2023 December 31, 2022 March 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 $1,447,375  $17,854 5.00% $1,397,113  $17,024 4.83% $1,110,755  $11,739 4.29%
Taxable investment securities  109,671   435 1.61%  112,321   443 1.56%  143,945   440 1.24%
Nontaxable investment securities  14,287   81 2.30%  14,326   81 2.24%  16,711   90 2.23%
Interest earning cash and cash equivalents  14,035   153 4.42%  12,261   116 3.75%  73,669   29 0.16%
Federal Home Loan Bank stock  10,237   173 6.85%  8,859   135 6.05%  3,567   20 2.27%
Total earning assets  1,595,605   18,696 4.75%  1,544,880   17,799 4.57%  1,348,647   12,318 3.70%
                   
Nonearning assets                  
Allowance for credit losses  (15,145)      (12,538)      (10,509)    
Premises and equipment, net  15,453       15,866       16,941     
Accrued income and other assets  91,262       88,983       93,466     
Total assets $1,687,175      $1,637,191      $1,448,545     
                   
Interest bearing liabilities                  
Interest bearing demand deposits $359,223  $2,078 2.35% $320,672  $1,383 1.71% $275,856  $137 0.20%
Savings deposits  341,154   473 0.56%  362,250   170 0.19%  364,820   120 0.13%
Time deposits  166,518   1,012 2.46%  133,166   523 1.56%  139,463   187 0.54%
Borrowed funds  205,522   1,772 3.50%  200,788   1,569 3.10%  51,061   155 1.23%
Total interest bearing liabilities  1,072,417   5,335 2.02%  1,016,876   3,645 1.42%  831,200   599 0.29%
                   
Noninterest bearing liabilities                  
Noninterest bearing deposits  474,686       484,586       472,595     
Accrued interest and other liabilities  13,577       12,162       25,991     
Shareholders’ equity  126,495       123,567       118,759     
Total liabilities and shareholders’ equity $1,687,175      $1,637,191      $1,448,545     
Net interest income (FTE)   $13,361     $14,154     $11,719  
Net interest margin to earning assets (FTE)     3.40%     3.63%     3.52%
                   

Volume and Rate Variance Analysis

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

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

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

  Three Months Ended Three Months Ended
  March 31, 2023 March 31, 2023
  Compared To Compared To
  December 31, 2022 March 31, 2022
  Increase (Decrease) Due to Increase (Decrease) Due to
   Volume   Rate  Net  Volume   Rate  Net
Changes in interest income            
Total loans $420  $410  $830  $3,955  $2,160  $6,115 
Taxable investment securities  (51)  43   (8)  (475)  470   (5)
Nontaxable investment securities  (2)  2      (27)  18   (9)
Interest earning cash and cash equivalents  17   20   37   (181)  305   124 
Federal Home Loan Bank stock  20   18   38   74   79   153 
Total changes in interest income  404   493   897   3,346   3,032   6,378 
             
Changes in interest expense            
Interest bearing demand deposits  169   526   695   53   1,888   1,941 
Savings deposits  (69)  372   303   (54)  407   353 
Time deposits  148   341   489   43   782   825 
Borrowed funds  31   172   203   1,004   613   1,617 
Total changes in interest expense  279   1,411   1,690   1,046   3,690   4,736 
Net change in net interest income (FTE) $125  $(918) $(793) $2,300  $(658) $1,642 


  Average Yield/Rate for the Three Months Ended
  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
Total earning assets 4.75% 4.57% 4.27% 3.96% 3.70%
Total interest bearing liabilities 2.02% 1.42% 0.75% 0.38% 0.29%
Net interest margin to earning assets (FTE) 3.40% 3.63% 3.79% 3.73% 3.52%


  Quarter to Date Net Interest Income (FTE)
  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
Interest income $18,679 $17,782 $15,726 $13,411 $12,301
FTE adjustment  17  17  18  18  17
Total interest income (FTE)  18,696  17,799  15,744  13,429  12,318
Total interest expense  5,335  3,645  1,738  785  599
Net interest income (FTE) $13,361 $14,154 $14,006 $12,644 $11,719
           

Noninterest Income

  Three Months Ended
  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
Service charges and fees          
Trust and investment services  549  505   546   458   598 
ATM and debit card income  531  559   553   577   485 
Service charges on deposit accounts  218  245   270   246   241 
Total  1,298  1,309   1,369   1,281   1,324 
Net gain on sales of loans  161  24   36   182   483 
Changes in the fair value of MSR  107  (129)  207   433   319 
Change in fair value of equity investments  14  2   (39)  (31)  (48)
Other          
Mortgage servicing fees  406  415   427   435   444 
Change in cash surrender value of corporate owned life insurance  173  175   172   168   166 
Other  169  153   223   326   120 
Total  748  743   822   929   730 
Total noninterest income $2,328 $1,949  $2,395  $2,794  $2,808 
           
Memo items:          
Residential mortgage operations $674 $310  $670  $1,050  $1,246 


  Three Months Ended March 31 Variance
  2023  2022  Amount %
Service charges and fees        
Trust and investment services  549  598   (49) (8.19)%
ATM and debit card income  531  485   46  9.48%
Service charges on deposit accounts  218  241   (23) (9.54)%
Total $1,298 $1,324   (26) (1.96)%
Net gain on sales of loans  161  483   (322) (66.67)%
Changes in the fair value of MSR  107  319   (212) (66.46)%
Change in fair value of equity investments  14  (48)  62  (129.17)%
Other        
Mortgage servicing fees  406  444   (38) (8.56)%
Change in cash surrender value of corporate owned life insurance  173  166   7  4.22%
Other  169  120   49  40.83%
Total  748  730   18  2.47%
Total noninterest income $2,328 $2,808  $(480) (17.09)%
         
Memo items:        
Residential mortgage operations $674 $1,246   (572) (45.91)%
         

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 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. Throughout 2022, the majority of residential mortgage loans originated were portfolio loans. As a result of selling fewer residential mortgage loans into the secondary market, we experienced reduced gains throughout the second half of 2022 and into 2023.

Changes in the fair value of MSR are highly correlated to changes in interest rates and prepayment speeds. As a significant portion of the serviced loan portfolio was originated at historically low interest rates, income recognized from the changes in the fair value of MSR have trended downward in recent quarters. While we experienced an increase in the first quarter of 2023, the overall direction of the fair value of MSR will likely continue to decline due to a reduction in the size of our servicing portfolio as a result of reduced levels of secondary market originations and prepayments. During the first quarter of 2023, the serviced loan portfolio declined by $11,000. 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 $52,624 since the first quarter of 2022. We expect mortgage servicing fees to trend modestly downward throughout 2023 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. The increase in income during the first quarter of 2023 is a direct result of higher customer demand for annuity products. Trust services and wealth management fees are subject to market fluctuations and interest rate changes. We expect these fees to continue to increase throughout 2023.

ATM and debit card income represents fees earned on ATM and debit card transactions. We expect these fees to approximate current levels throughout 2023.

Service charges on deposit accounts includes fees earned from deposit customers for transaction-based charges, account maintenance and overdraft services. Service charges on deposit accounts are expected to approximate current levels throughout 2023.

Change in cash surrender value of corporate owned life insurance is expected to modestly increase throughout 2023.

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

Noninterest Expenses

  Three Months Ended
  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
Compensation and benefits $5,792 $5,329 $5,320 $5,453 $5,347
Professional services  766  594  763  777  812
Furniture and equipment  726  772  822  805  818
Occupancy  635  566  578  579  604
Data processing  513  111  363  665  412
Advertising and promotional  451  580  405  326  278
Loan and collection  240  278  435  600  327
Other          
FDIC insurance premiums  201  149  150  172  150
ATM and debit card  161  254  154  160  143
Telephone and communication  119  110  112  112  105
Amortization of core deposit intangibles  76  107  108  107  108
Other acquisition related expenses        14  256
Other general and administrative  953  931  933  790  807
Total  1,510  1,551  1,457  1,355  1,569
Total noninterest expenses $10,633 $9,781 $10,143 $10,560 $10,167


  Three Months Ended
March 31
 Variance
  2023 2022 Amount %
Compensation and benefits $5,792 $5,347 $445  8.32%
Professional services  766  812  (46) (5.67)%
Furniture and equipment  726  818  (92) (11.25)%
Occupancy  635  604  31  5.13%
Data processing  513  412  101  24.51%
Advertising and promotional  451  278  173  62.23%
Loan and collection  240  327  (87) (26.61)%
Other        
FDIC insurance premiums  201  150  85  21.96%
ATM and debit card  161  143  18  12.59%
Telephone and communication  119  105  14  13.33%
Amortization of core deposit intangibles  76  108  (32) (29.63)%
Other acquisition related expenses    256  (256) (100.00)%
Other general and administrative  953  807  146  18.09%
Total  1,510  1,569  (59) (3.76)%
Total noninterest expenses $10,633 $10,167 $466  4.58%
         

Compensation and benefits includes salaries, commissions and incentives, employee benefits, and payroll taxes. Compensation and benefits increased in the first quarter of 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 due to merit increases and market based adjustments. These increases will be partially offset by decreases in commissions as loan originations in the first quarter of 2023 declined from elevated levels experienced in 2022. This trend is expected to continue throughout 2023.

Professional services include expenses relating to third-party professional services. These services include, but are not limited to, regulatory, auditing, consulting, and legal. The decline in these expenses during the fourth quarter of 2022 is primarily due to a decrease in audit fees. Professional services expenses are expected to increase slightly in 2023.

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 2023.

Data processing primarily includes the expenses relating to our core data processor. These expenses trended downward during the third and fourth quarters of 2022 due to receipt of renewal incentives from our core data processor. Data processing expenses are expected to normalize in 2023 as these renewal incentives wind down.

Advertising and promotional 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 moderately increase during 2023.

Loan and collection includes expenses related to the origination and collection of loans. These expenses are expected to decline in future periods as loan growth is expected to moderate throughout 2023.

FDIC insurance premiums typically fluctuate each period based on the size of the balance sheet, capital position and overall risk profile. FDIC insurance premiums are expected to increase in 2023 primarily due to the FDIC increasing its assessment rate for all insured institutions effective January 1, 2023.

ATM and debit card expenses fluctuate based on customer and non-customer utilization of ATMs and customer debit card volumes. The increase in ATM and debit card expenses during the fourth quarter of 2022 is due to an increase in customer disputes resulting from fraudulent debit card activity. We expect these fees to approximate current levels in 2023.

Telephone and communication includes expenses relating to our communication systems. These expenses are expected to approximate current levels during 2023.

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.

Other acquisition related expenses includes expenses incurred during the first half of 2022 related to the acquisition of FSB. We do not anticipate recording additional acquisition expenses in future periods.

Other general and administrative includes miscellaneous other expense items, none of which are individually significant. Other general and administrative expenses are expected to increase slightly in future periods.

Balance Sheet Breakdown and Analysis

  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
ASSETS          
Cash and due from banks $100,496 $57,844 $43,345 $38,510 $80,133
Total investment securities  122,995  125,049  129,886  136,725  151,579
Residential mortgage loans held-for-sale, at fair value  875  493  62  664  3,038
Gross loans  1,457,173  1,436,166  1,350,851  1,232,892  1,139,351
Less allowance for credit losses  15,220  13,000  12,200  11,000  11,000
Net loans  1,441,953  1,423,166  1,338,651  1,221,892  1,128,351
All other assets  82,754  82,311  76,648  73,663  72,384
Total assets $1,749,073 $1,688,863 $1,588,592 $1,471,454 $1,435,485
  .        
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Total deposits $1,353,918 $1,332,883 $1,345,209 $1,231,543 $1,252,892
Total borrowed funds  259,050  222,350  116,600  111,000  52,000
Accrued interest payable and other liabilities  7,858  7,543  5,153  10,345  9,247
Total liabilities  1,620,826  1,562,776  1,466,962  1,352,888  1,314,139
Total shareholders’ equity  128,247  126,087  121,630  118,566  121,346
Total liabilities and shareholders’ equity $1,749,073 $1,688,863 $1,588,592 $1,471,454 $1,435,485


  3/31/2023 vs 12/31/2022 3/31/2023 vs 3/31/2022
  Variance Variance
  Amount % Amount %
ASSETS        
Cash and due from banks $42,652  73.74% $20,363  25.41%
Total investment securities  (2,054) (1.64)%  (28,584) (18.86)%
Residential mortgage loans held-for-sale, at fair value  382  77.48%  (2,163) (71.20)%
Gross loans  21,007  1.46%  317,822  27.90%
Less allowance for credit losses  2,220  17.08%  4,220  38.36%
Net loans  18,787  1.32%  313,602  27.79%
All other assets  443  0.54%  10,370  14.33%
Total assets $60,210  3.57% $313,588  21.85%
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Total deposits $21,035  1.58% $101,026  8.06%
Total borrowed funds  36,700  16.51%  207,050  398.17%
Accrued interest payable and other liabilities  315  4.18%  (1,389) (15.02)%
Total liabilities  58,050  3.71%  306,687  23.34%
Total shareholders’ equity  2,160  1.71%  6,901  5.69%
Total liabilities and shareholders’ equity $60,210  3.57% $313,588  21.85%
         

Cash and due from banks

  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
Cash and due from banks          
Noninterest bearing $24,376  $28,216  $29,530 $26,085 $23,715 
Interest bearing  76,120   29,628   13,815  12,425  56,418 
Total $100,496  $57,844  $43,345 $38,510 $80,133 
           
  3/31/2023 vs 12/31/2022   3/31/2023 vs 3/31/2022
  Variance   Variance
  Amount %   Amount %
Cash and due from banks          
Noninterest bearing $(3,840) (13.61)%   $661  2.79%
Interest bearing  46,492   156.92%    19,702  34.92%
Total $42,652   73.74%   $20,363  25.41%
           

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

Primary and secondary liquidity sources

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

  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
Cash and cash equivalents $100,496 $57,844 $43,345 $38,510 $80,133
Fair value of unpledged investment securities  102,368  103,819  109,685  115,586  132,364
FHLB borrowing availability  111,500  144,567  78,000  83,000  140,000
Unsecured lines of credit  20,000  26,500  26,500  26,500  26,500
Funds available through the Fed Discount Window  119  113  115  125  125
Parent company line of credit  1,450  1,650  2,400  3,000  5,000
PPPLF        429  583
Total liquidity sources $335,933 $334,493 $260,045 $267,150 $384,705
           

The increase in cash and cash equivalents during the first quarter of 2023 was due to our utilization of wholesale funding (see “Wholesale funding sources” below). The increase in FHLB borrowing availability during the fourth quarter of 2022 was due to approval from the FHLB to allow us to pledge eligible commercial real estate loans. During the first quarter of 2023, our FHLB borrowing availability declined due to our utilization of additional FHLB advances. Due to market conditions in the Banking Industry during the first quarter of 2023, Zions Correspondent Banking has limited Fed Funds line advances to secured arrangements only and will continue to do so for the foreseeable future. As such, our unsecured lines of credit declined by $6,500 during the first quarter of 2023.

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 funding.

Investment securities

  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
Available-for-sale          
U.S. Government and federal agency $24,402  $24,394  $26,391  $27,391  $28,396 
State and municipal  22,649   22,709   22,743   22,863   24,949 
Mortgage backed residential  54,595   56,293   58,313   60,672   63,532 
Certificates of deposit  7,426   7,426   8,166   8,914   9,917 
Collateralized mortgage obligations - agencies  25,275   25,925   26,560   27,733   28,968 
Unrealized gain/(loss) on available-for-sale securities  (13,940)  (14,184)  (14,698)  (13,509)  (6,900)
Total available-for-sale  120,407   122,563   127,475   134,064   148,862 
Held-to-maturity state and municipal  1,168   1,171   1,173   1,386   1,509 
Equity securities  1,420   1,315   1,238   1,275   1,208 
Total investment securities $122,995  $125,049  $129,886  $136,725  $151,579 
           
  3/31/2023 vs 12/31/2022   3/31/2023 vs 3/31/2022
  Variance   Variance
  Amount %   Amount %
Available-for-sale          
U.S. Government and federal agency  8   0.03%   $(3,994) (14.07)%
State and municipal  (60) (0.26)%    (2,300) (9.22)%
Mortgage backed residential  (1,698) (3.02)%    (8,937) (14.07)%
Certificates of deposit     %    (2,491) (25.12)%
Collateralized mortgage obligations - agencies  (650) (2.51)%    (3,693) (12.75)%
Unrealized gain/(loss) on available-for-sale securities  244  (1.72)%    (7,040)  102.03%
Total available-for-sale  (2,156) (1.76)%    (28,455) (19.12)%
Held-to-maturity state and municipal  (3) (0.26)%    (341) (22.60)%
Equity securities  105   7.98%    212   17.55%
Total investment securities $(2,054) (1.64)%   $(28,584) (18.86)%
           

The amortized cost and fair value of AFS investment securities as of March 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 $6,523 $17,879 $ $ $ $24,402
State and municipal  3,342  16,639  1,287  1,381    22,649
Mortgage backed residential          54,595  54,595
Certificates of deposit  5,452  1,974        7,426
Collateralized mortgage obligations - agencies          25,275  25,275
Total amortized cost $15,317 $36,492 $1,287 $1,381 $79,870 $134,347
Fair value $14,965 $33,346 $1,176 $1,273 $69,647 $120,407
             

The amortized cost and fair value of HTM investment securities as of March 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 $        633         $        305         $        230         $        —         $        —         $        1,168        
Fair value $        629         $        298         $        226         $        —         $        —         $        1,153        
             

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. Overall, our level of loans HFS has declined year-over-year as a result of increases in market interest rates and lack of residential inventory.

Loans and allowance for credit losses

As outlined in the following tables, our loan portfolio has grown substantially throughout the past 12 months, primarily in the commercial real estate and residential mortgage segments. However, due to current market conditions, we expect loan demand to decline during 2023. Specifically, our commercial pipeline has declined significantly since December 31, 2022, and the requests that are being presented are lower dollar balances and often carry an SBA guarantee. Our allowance for credit losses increased $2,000 during the first quarter of 2023 as a result of the adoption of ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” 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:

  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
Commercial, net of PPP loans $111,557  $106,616  $107,531  $108,054  $94,810 
PPP loans           429   583 
Commercial real estate  874,690   869,496   820,165   745,416   698,275 
Total commercial loans  986,247   976,112   927,696   853,899   793,668 
Residential mortgage  418,987   406,408   368,971   327,574   297,940 
Home equity  46,909   47,768   47,928   44,648   40,609 
Total residential real estate loans  465,896   454,176   416,899   372,222   338,549 
Consumer  5,030   5,878   6,256   6,771   7,134 
Gross loans  1,457,173   1,436,166   1,350,851   1,232,892   1,139,351 
Allowance for credit losses  (15,220)  (13,000)  (12,200)  (11,000)  (11,000)
Loans, net $1,441,953  $1,423,166  $1,338,651  $1,221,892  $1,128,351 
           
Memo items:          
Gross loans, net of PPP loans $1,457,173  $1,436,166  $1,350,851  $1,232,463  $1,138,768 
Residential mortgage loans serviced for others $636,121  $647,121  $660,490  $678,117  $688,745 
           
  3/31/2023 vs 12/31/2022   3/31/2023 vs 3/31/2022
  Variance   Variance
  Amount %   Amount %
Commercial, net of PPP loans $4,941   4.63%   $16,747   17.66%
PPP loans    N/M    (583) (100.00)%
Commercial real estate  5,194   0.60%    176,415   25.26%
Total commercial loans  10,135   1.04%    192,579   24.26%
Residential mortgage  12,579   3.10%    121,047   40.63%
Home equity  (859) (1.80)%    6,300   15.51%
Total residential real estate loans  11,720   2.58%    127,347   37.62%
Consumer  (848) (14.43)%    (2,104) (29.49)%
Gross loans  21,007   1.46%    317,822   27.90%
Allowance for credit losses  (2,220)  17.08%    (4,220)  38.36%
Loans, net $18,787   1.32%   $313,602   27.79%
           
Memo items:          
Gross loans, net of PPP loans $21,007   1.46%   $318,405   27.96%
Residential mortgage loans serviced for others $(11,000) (1.70)%   $(52,624) (7.64)%
           

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

  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
Loans collectively evaluated for impairment          
Commercial and industrial $111,426 $106,616 $107,531 $108,483 $94,899
Commercial real estate  874,509  869,313  819,982  745,025  697,818
Residential mortgage  416,879  404,308  367,652  326,481  296,883
Home equity  46,761  47,728  47,887  44,607  40,568
Consumer  5,020  5,871  6,251  6,771  7,134
Subtotal  1,454,595  1,433,836  1,349,303  1,231,367  1,137,302
Loans individually evaluated for impairment          
Commercial and industrial  131        494
Commercial real estate  181  183  183  391  457
Residential mortgage  2,108  2,100  1,319  1,093  1,057
Home equity  148  40  41  41  41
Consumer  10  7  5    
Subtotal  2,578  2,330  1,548  1,525  2,049
Gross Loans $1,457,173 $1,436,166 $1,350,851 $1,232,892 $1,139,351
           

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

  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
Loans collectively evaluated for impairment          
Commercial and industrial $1,324 $1,094 $1,129 $1,074 $837
Commercial real estate  8,765  7,480  7,126  6,437  6,716
Residential mortgage  4,576  3,878  3,458  3,061  3,007
Home equity  416  370  370  345  364
Consumer  49  128  90  74  63
Subtotal  15,130  12,950  12,173  10,991  10,987
Loans individually evaluated for impairment          
Commercial and industrial  3        
Commercial real estate          
Residential mortgage  77  43  27  9  13
Home equity          
Consumer  10  7      
Subtotal  90  50  27  9  13
Allowance for credit losses $15,220 $13,000 $12,200 $11,000 $11,000
           
Commercial and industrial $1,327 $1,094 $1,129 $1,074 $837
Commercial real estate  8,765  7,480  7,126  6,437  6,716
Residential mortgage  4,653  3,921  3,485  3,070  3,020
Home equity  416  370  370  345  364
Consumer  59  135  90  74  63
Allowance for credit losses $15,220 $13,000 $12,200 $11,000 $11,000
           

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. We continue to monitor various industries that have been impacted by the pandemic but we will now shift attention to new concerns associated with 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 March 31, 2023, delinquencies in the non-owner occupied commercial real estate loan portfolio continue to remain minimal, as only one loan was included in our 30-89 days past due category in the office pool for $180. 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.

Due to 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.

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.

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.

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

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

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

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

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

  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
Net lease $161,392  $165,848  $160,453 $162,424  $158,862 
Retail strip centers  95,726   89,671   85,050  69,598   47,833 
Office  59,867   60,166   58,997  42,556   42,724 
Special use  41,932   35,284   25,289  26,576   28,889 
Medical office  30,363   30,305   29,679  26,890   19,231 
Industrial  29,025   30,396   32,222  28,235   25,389 
Self storage  22,265   22,285   22,467  10,736   10,804 
Mixed use  19,054   19,208   19,405  16,520   14,655 
Retail  17,429   15,437   15,279  13,597   17,610 
           
Total non-owner occupied commercial loans $477,053  $468,600  $448,841 $397,132  $365,997 
           
  3/31/2023 vs 12/31/2022   3/31/2023 vs 3/31/2022
  Variance   Variance
  Amount %   Amount %
Net lease $(4,456) (2.69)%   $2,530   1.59%
Retail strip centers  6,055   6.75%    47,893   100.13%
Office  (299) (0.50)%    17,143   40.12%
Special use  6,648   18.84%    13,043   45.15%
Medical office  58   0.19%    11,132   57.89%
Industrial  (1,371) (4.51)%    3,636   14.32%
Self storage  (20) (0.09)%    11,461   106.08%
Mixed use  (154) (0.80)%    4,399   30.02%
Retail  1,992   12.90%    (181) (1.03)%
           
Total non-owner occupied commercial loans $8,453   1.80%   $111,056   30.34%
           

The following table presents current and historical non-owner occupied commercial real estate loans by industry as a percentage of gross loans:

  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
Net lease 11.08% 11.55% 11.88% 13.17% 13.94%
Retail strip centers 6.57% 6.24% 6.30% 5.65% 4.20%
Office 4.11% 4.19% 4.37% 3.45% 3.75%
Special use 2.88% 2.46% 1.87% 2.16% 2.54%
Medical office 2.08% 2.11% 2.20% 2.18% 1.69%
Industrial 1.99% 2.12% 2.39% 2.29% 2.23%
Self storage 1.53% 1.55% 1.66% 0.87% 0.95%
Mixed use 1.31% 1.34% 1.44% 1.34% 1.29%
Retail 1.20% 1.07% 1.13% 1.10% 1.55%
           
Total non-owner occupied commercial loans to gross loans 32.75% 32.63% 33.24% 32.21% 32.14%
           

Asset quality

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

  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
Accruing interest          
Current $1,449,266 $1,428,691 $1,346,141 $1,228,082 $1,132,961
Past due 30-89 days  5,185  5,182  3,131  2,802  4,099
Past due 90 days or more  144    71  525  284
Total accruing interest  1,454,595  1,433,873  1,349,343  1,231,409  1,137,344
Nonaccrual  2,578  2,293  1,508  1,483  2,007
Total loans $1,457,173 $1,436,166 $1,350,851 $1,232,892 $1,139,351
Total loans past due and in nonaccrual status $7,907 $7,475 $4,710 $4,810 $6,390
           

The following table summarizes the our nonperforming assets as of:

  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
Nonaccrual loans $2,578 $2,293 $1,508 $1,483 $2,007
Accruing loans past due 90 days or more  144    71  525  284
Total nonperforming loans  2,722  2,293  1,579  2,008  2,291
Other real estate owned  293  293  293  383  383
Total nonperforming assets $3,015 $2,586 $1,872 $2,391 $2,674
           

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

  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
Total charge-offs $28 $58 $40 $533 $9
Total recoveries  12  11  9  8  7
Net charge-offs (recoveries) $16 $47 $31 $525 $2
Provision for loan losses $236 $847 $1,231 $525 $502
           

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

  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
Nonperforming loans to gross loans 0.19% 0.16% 0.12% 0.16% 0.20%
Nonperforming assets to total assets 0.17% 0.15% 0.12% 0.16% 0.19%
Allowance for credit losses to gross loans 1.04% 0.91% 0.90% 0.89% 0.97%
Allowance for credit losses to gross loans, net of PPP loans 1.04% 0.91% 0.90% 0.89% 0.97%
Net charge-offs (recoveries) to QTD average gross loans % % % 0.04% %
Provision for loan losses to QTD average gross loans 0.02% 0.06% 0.10% 0.04% 0.05%
           

The following table summarizes our net unamortized discounts on purchased loans as of:

  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
Net unamortized premium (discount) on purchased loans $ $ $(25) $(51) $(76)
                   

The following table summarizes the average loan size as of:

  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
Commercial and industrial $312 $311 $314 $309 $264
Commercial real estate  895  890  851  802  756
Total commercial loans  739  740  711  667  618
Residential mortgage  228  225  217  208  193
Home equity  52  52  52  50  46
Total residential real estate loans  170  166  159  151  140
Consumer  13  13  14  14  14
Gross loans $328 $323 $311 $292 $271
           

All other assets

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

  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
Premises and equipment, net $15,219  $15,571  $16,100 $16,459  $16,696 
Federal Home Loan Bank stock  10,958   10,215   5,760  4,140   3,337 
Corporate owned life insurance  26,869   26,697   26,522  26,350   26,136 
Mortgage servicing rights  8,773   8,666   8,795  8,588   8,155 
Accrued interest receivable  3,976   4,002   3,300  2,798   2,784 
Goodwill  8,853   8,853   8,853  8,853   8,853 
Other assets          
Core deposit intangibles  760   836   943  1,051   1,158 
Right-of-use assets  1,107   1,204   1,065  1,159   1,110 
Other real estate owned  293   293   293  383   383 
Other  5,946   5,974   5,017  3,882   3,772 
Total  8,106   8,307   7,318  6,475   6,423 
All other assets $82,754  $82,311  $76,648 $73,663  $72,384 
           
  3/31/2023 vs 12/31/2022   3/31/2023 vs 3/31/2022
  Variance   Variance
  Amount %   Amount %
Premises and equipment, net $(352) (2.26)%   $(1,477) (8.85)%
Federal Home Loan Bank stock  743   7.27%    7,621   228.38%
Corporate owned life insurance  172   0.64%    733   2.80%
Mortgage servicing rights  107   1.23%    618   7.58%
Accrued interest receivable  (26) (0.65)%    1,192   42.82%
Goodwill     %       %
Other assets          
Core deposit intangibles  (76) (9.09)%    (398) (34.37)%
Right-of-use assets  (97) (8.06)%    (3) (0.27)%
Other real estate owned     %    (90) (23.50)%
Other  (28) (0.47)%    2,174   57.64%
Total  (201) (2.42)%    1,683   26.20%
All other assets $443   0.54%   $10,370   14.33%
           

The increase in FHLB stock throughout 2022 and into the first quarter 2023 is a direct result of an increase in FHLB advances as a result of our robust loan growth.

Total deposits

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

  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
Noninterest bearing demand $457,585  $461,390  $500,204 $493,262  $480,230 
Interest bearing          
Savings  323,254   351,066   380,118  368,849   377,170 
Money market demand  214,781   170,459   213,672  144,606   135,051 
NOW          
Retail NOW  155,659   136,611   148,775  118,707   126,461 
Brokered NOW  60,005   40,009         
Total NOW Accounts  215,664   176,620   148,775  118,707   126,461 
Time deposits          
Other time deposits  121,567   102,358   80,454  84,376   112,237 
Brokered time deposits  20,077   70,000   20,000  20,000   20,000 
Internet time deposits  990   990   1,986  1,743   1,743 
Total time deposits  142,634   173,348   102,440  106,119   133,980 
Total deposits $1,353,918  $1,332,883  $1,345,209 $1,231,543  $1,252,892 
           
  3/31/2023 vs 12/31/2022   3/31/2023 vs 3/31/2022
  Variance   Variance
  Amount %   Amount %
Noninterest bearing demand $(3,805) (0.82)%   $(22,645) (4.72)%
Interest bearing          
Savings  (27,812) (7.92)%    (53,916) (14.29)%
Money market demand  44,322   26.00%    79,730   59.04%
NOW          
Retail NOW  19,048   13.94%    29,198   23.09%
Brokered NOW  19,996   49.98%    60,005   %
Total NOW Accounts  39,044   22.11%    89,203   70.54%
Time deposits          
Other time deposits  19,209   18.77%    9,330   8.31%
Brokered time deposits  (49,923) (71.32)%    77   0.39%
Internet time deposits     %    (753) (43.20)%
Total time deposits  (30,714) (17.72)%    8,654   6.46%
Total deposits $21,035   1.58%   $101,026   8.06%
           

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 nine times, from a target range of 0.00-0.25% to 4.75-5.00%, or 475 basis points. This rapid increase in interest rates has led to significant competition amongst financial institutions. Due to the expectation that interest rates may continue to rise, customers have been unwilling to lock in long-term funds, leading to a shift in demand to higher-yielding non-maturity deposit accounts. While overall market liquidity continues to tighten and be extremely competitive, we have strategic initiatives in place to grow core market deposits in 2023.

Total borrowed funds

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

  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
Federal Home Loan Bank borrowings $238,500 $202,000  $97,000 $92,000 $35,000 
Subordinated debentures  14,000  14,000   14,000  14,000  14,000 
Other borrowings  6,550  6,350   5,600  5,000  3,000 
Total borrowed funds $259,050 $222,350  $116,600 $111,000 $52,000 
           
  3/31/2023 vs 12/31/2022   3/31/2023 vs 3/31/2022
  Variance   Variance
  Amount %   Amount %
Federal Home Loan Bank borrowings $36,500  18.07%   $203,500  581.43%
Subordinated debentures    %      %
Other borrowings  200  3.15%    3,550  118.33%
Total borrowed funds $36,700  16.51%   $207,050  398.17%
           

We utilize a mix of borrowed funds and organic deposit growth to fund loan demand. The increase in Federal Home Loan Bank borrowings throughout 2022 and into 2023 was the result of the highly competitive deposit landscape and the growth of our loan portfolio, which grew $318,405, or 27.96%, net of PPP loans, since the first quarter of 2022 (see “Wholesale funding sources” below).

Wholesale funding sources

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

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

  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
Federal Home Loan Bank borrowings $238,500  $202,000  $97,000 $92,000  $35,000 
Subordinated debentures  14,000   14,000   14,000  14,000   14,000 
Other borrowings  6,550   6,350   5,600  5,000   3,000 
Brokered NOW accounts  60,005   40,009         
Brokered time deposits  20,077   70,000   20,000  20,000   20,000 
Internet time deposits  990   990   1,986  1,743   1,743 
Total wholesale funds $340,122  $333,349  $138,586 $132,743  $73,743 
           
  3/31/2023 vs 12/31/2022   3/31/2023 vs 3/31/2022
  Variance   Variance
  Amount %   Amount %
Federal Home Loan Bank borrowings $36,500   18.07%    203,500   581.43%
Subordinated debentures     %       %
Other borrowings  200   3.15%    3,550   118.33%
Brokered NOW accounts  19,996   49.98%    60,005  N/A
Brokered time deposits  (49,923) (71.32)%    77   0.39%
Internet time deposits     %    (753) (43.20)%
Total wholesale funds $6,773   2.03%   $266,379   361.23%
           

As noted above, the increased competition for deposits, coupled with strong loan growth has led to an increased utilization of wholesale funding sources. During the first quarter of 2023, we had a $50,000 brokered time deposit mature. We replaced this with additional FHLB borrowings as well as non-maturity brokered deposits.

Accrued interest payable and other liabilities

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

Total shareholders’ equity

We are considered a “well-capitalized” institution, as our capital ratios exceed the minimum designated standards necessary in accordance with Basel III guidelines. As of March 31, 2023, the Bank’s total capital ratio was 11.27%, tier 1 capital ratio was 10.20%, and tier 1 leverage ratio was 8.62%. 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 asset growth moderation strategies.

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

  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
Common stock $73,868  $73,569  $73,460  $73,324  $74,132 
Retained earnings  64,863   63,044   59,080   55,469   52,393 
Accumulated other comprehensive (loss) income  (10,484)  (10,526)  (10,910)  (10,227)  (5,179)
Total shareholders’ equity $128,247  $126,087  $121,630  $118,566  $121,346 
           
  3/31/2023 vs 12/31/2022   3/31/2023 vs 3/31/2022
  Variance   Variance
  Amount %   Amount %
Common stock $299   0.41%   $(264) (0.36)%
Retained earnings  1,819   2.89%    12,470   23.80%
Accumulated other comprehensive (loss) income  42  (0.40)%    (5,305)  102.43%
Total shareholders’ equity $2,160   1.71%   $6,901   5.69%
           

The Board of Directors has authorized the repurchase up to $10,000 of common stock. As of March 31, 2023, we had $1,393 of common stock available to repurchase through the program. The following tables outline the number of shares, dollar amount and weighted average share price associated with the common stock repurchase plan for the following periods:

  Three Months Ended
  3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022
Number of Shares Repurchased        35,000  51,461
Dollar Amount of Shares Repurchased $ $ $ $935 $1,501
Weighted Average Share Price N/A N/A N/A $26.71 $29.17
             

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 March 31, 2018 and all dividends were reinvested.

Stock Performance Five-Year Total Return

The graph accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/ce2e9192-3d63-43cb-b7f3-ae7bc5a1176d

Date FETM ABAQ Index
3/31/2018 $100.00 $100.00
3/31/2019  107.04  87.93
3/31/2020  81.22  62.64
3/31/2021  122.23  106.53
3/31/2022  147.19  107.58
3/31/2023  115.70  83.59
       

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
CARES Act: Coronavirus Aid, Relief, and Economic Security ActN/M: Not meaningful
CDI: Core deposit intangibleNASDAQ: National Association of Securities Dealers Automated Quotations
CET1: Common equity tier 1NOW: Negotiable order of withdrawal
COLI: Corporate owned life insuranceNSF: Non-sufficient funds
COVID-19: Coronavirus Disease 2019OCI: Other comprehensive income
DRIP: Dividend Reinvestment PlanOIS: Overnight Index Swap
EPS: Earnings Per Common ShareOREO: Other real estate owned
ESOP: Employee Stock Ownership PlanOTTI: Other-than-temporary impairment
FASB: Financial Accounting Standards BoardPPP: Paycheck Protection Program
FDIC: Federal Deposit Insurance CorporationPPPLF: Paycheck Protection Program Liquidity Facility
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 full-service, 5-Star Bauer Financial rated commercial, retail and trust bank headquartered in Fenton, Michigan. It currently operates 20 offices in 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