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

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.

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 Association	FTE: Fully taxable equivalent
ACH: Automated Clearing House	GAAP: Generally Accepted Accounting Principles
ACL: Allowance for credit losses	HFS: Held-for-sale
AFS: Available-for-sale	HTM: Held-to-maturity
AIR: Accrued interest receivable	HFS: Held-for-sale
AOCI: Accumulated other comprehensive income	HTM: Held-to-maturity
ARRC: Alternative Reference Rates Committee	IRA: Individual retirement account
ASC: Accounting Standards Codification	ITM: Interactive Teller Machine
ASU: Accounting Standards Update	LIBOR: London Interbank Offered Rate
ATM: Automated teller machine	MSR: Mortgage servicing rights
CARES Act: Coronavirus Aid, Relief, and Economic Security Act	N/M: Not meaningful
CDI: Core deposit intangible	NASDAQ: National Association of Securities Dealers Automated Quotations
CET1: Common equity tier 1	NOW: Negotiable order of withdrawal
COLI: Corporate owned life insurance	NSF: Non-sufficient funds
COVID-19: Coronavirus Disease 2019	OCI: Other comprehensive income
DRIP: Dividend Reinvestment Plan	OIS: Overnight Index Swap
EPS: Earnings Per Common Share	OREO: Other real estate owned
ESOP: Employee Stock Ownership Plan	OTTI: Other-than-temporary impairment
FASB: Financial Accounting Standards Board	PPP: Paycheck Protection Program
FDIC: Federal Deposit Insurance Corporation	PPPLF: Paycheck Protection Program Liquidity Facility
FHLB: Federal Home Loan Bank	QTD: Quarter-to-date
FHLLC: Fentura Holdings LLC	SAB: Staff Accounting Bulletin
FHLMC: Federal Home Loan Mortgage Corporation	SBA: U.S. Small Business Administration
FNMA: Federal National Mortgage Association	SEC: Securities and Exchange Commission
FOMC: Federal Open Market Committee	SERP: Supplemental Executive Retirement Plan
FRB: Federal Reserve Bank	SOFR: Secured Overnight Funding Rate
FSB: Farmers State Bank of Munith	TDR: Troubled debt restructuring

About Fentura Financial, Inc. and The State Bank

Fentura Financial, Inc. is the holding company for The State Bank. It was formed in 1987 and is traded on the OTCQX exchange under the symbol FETM, and has been recognized as one of the Top 50 performing stocks on that exchange.

The State Bank is a 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. Justice	Aaron D. Wirsing
	President & CEO	Chief Financial Officer
	Fentura Financial, Inc.	Fentura Financial, Inc.
	810.714.3902	810.714.3925
	ron.justice@thestatebank.com	aaron.wirsing@thestatebank.com