Fentura Financial, Inc. Announces Third Quarter 2020 Earnings

Dollars in thousands except per share amounts. Certain items in the prior period financial statements have been reclassified to conform with the September 30, 2020 presentation.

FENTON, Mich., Oct. 29, 2020 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. (OTCQX: FETM) announces quarterly results of net income of $5,336 and $12,731 for the three and nine month periods ended September 30, 2020.

Ronald Justice, President and CEO, stated “I remain extremely proud of our team.  Throughout the COVID-19 pandemic, they have remained committed to safely serving the needs of our customers and communities.  While the virus has presented many health and economic challenges, we are focused on enhancing long term shareholder value through consistent financial performance.”

Following is a discussion of the Corporation's financial performance as of, and for the three and nine month periods ended September 30, 2020. At the end of this document is a list of abbreviations and acronyms.

Results of Operations
The following table outlines the Corporation's QTD results of operations and provides certain performance measures as of, and for the three month periods ended:

		9/30/2020				6/30/2020				3/31/2020				12/31/2019				9/30/2019
INCOME STATEMENT DATA
Interest income		$	12,070			$	11,215			$	11,070			$	11,076			$	11,240
Interest expense		1,189				1,618				2,145				2,158				2,184
Net interest income		10,881				9,597				8,925				8,918				9,056
Provision for loan losses		1,109				2,001				1,542				436				422
Noninterest income		5,159				5,292				4,513				2,129				2,262
Noninterest expenses		8,218				7,809				7,686				7,415				6,608
Federal income tax expense		1,377				1,036				858				644				873
Net income		$	5,336			$	4,043			$	3,352			$	2,552			$	3,415
PER SHARE
Earnings		$	1.14			$	0.87			$	0.72			$	0.55			$	0.73
Dividends		$	0.075			$	0.075			$	0.075			$	0.07			$	0.07
Tangible book value(1)		$	23.50			$	22.44			$	21.56			$	20.87			$	20.37
Quoted market value
High		$	17.99			$	18.95			$	26.00			$	25.50			$	21.00
Low		$	16.80			$	14.90			$	12.55			$	20.60			$	20.45
Close(1)		$	16.93			$	17.35			$	15.50			$	25.23			$	21.00
PERFORMANCE RATIOS
Return on average assets		1.68		%		1.35		%		1.28		%		1.02		%		1.40		%
Return on average shareholders' equity		18.86		%		15.20		%		13.01		%		10.03		%		13.83		%
Return on average tangible shareholders' equity		19.54		%		15.79		%		13.54		%		10.46		%		14.47		%
Efficiency ratio		51.23		%		52.45		%		57.20		%		67.12		%		58.38		%
Yield on earning assets (FTE)		3.97		%		3.94		%		4.47		%		4.66		%		4.85		%
Rate on interest bearing liabilities		0.63		%		0.91		%		1.28		%		1.36		%		1.42		%
Net interest margin to earning assets (FTE)		3.58		%		3.37		%		3.61		%		3.75		%		3.91		%
BALANCE SHEET DATA(1)
Total investment securities		$	78,179			$	75,526			$	76,312			$	61,621			$	62,351
Gross loans		$	1,060,885			$	1,044,564			$	865,577			$	870,555			$	826,597
Total assets		$	1,284,845			$	1,237,694			$	1,071,180			$	1,034,759			$	978,046
Total deposits		$	1,061,470			$	1,018,287			$	883,837			$	863,102			$	801,101
Borrowed funds		$	96,217			$	96,217			$	71,500			$	61,500			$	69,000
Total shareholders' equity		$	114,081			$	108,969			$	104,828			$	101,444			$	99,142
Net loans to total deposits		98.99		%		101.70		%		97.11		%		100.19		%		102.51		%
Common shares outstanding		4,691,142				4,680,920				4,675,499				4,664,369				4,658,722
QTD BALANCE SHEET AVERAGES
Total assets		$	1,264,105			$	1,200,966			$	1,049,245			$	994,094			$	971,074
Earning assets		$	1,210,274			$	1,146,941			$	997,089			$	944,692			$	920,857
Interest bearing liabilities		$	750,281			$	711,500			$	672,564			$	629,454			$	611,804
Total shareholders' equity		$	112,565			$	106,998			$	103,646			$	100,991			$	97,958
Total tangible shareholders' equity		$	108,655			$	102,999			$	99,558			$	96,796			$	93,650
Earned common shares outstanding		4,673,629				4,664,946				4,659,279				4,652,569				4,646,835
Unvested stock grants		14,208				14,208				13,481				9,947				9,967
Total common shares outstanding		4,687,837				4,679,154				4,672,760				4,662,516				4,656,802
ASSET QUALITY(1)
Nonperforming loans to gross loans		0.07		%		0.10		%		0.10		%		0.17		%		0.11		%
Nonperforming assets to total assets		0.06		%		0.08		%		0.12		%		0.14		%		0.09		%
Allowance for loan losses to gross loans		0.95		%		0.86		%		0.84		%		0.67		%		0.65		%
CAPITAL RATIOS(1)
Total capital to risk weighted assets		15.57		%		15.06		%		14.42		%		14.03		%		14.42		%
Tier 1 capital to risk weighted assets		14.40		%		14.00		%		13.56		%		13.33		%		13.73		%
CET1 capital to risk weighted assets		12.77		%		12.34		%		11.91		%		11.64		%		11.96		%
Tier 1 leverage ratio		9.86		%		9.90		%		10.97		%		11.20		%		11.22		%
(1)At end of period

The following table outlines the Corporation's YTD results of operations and provides certain performance measures as of, and for the nine month periods ended:

		9/30/2020				9/30/2019				9/30/2018				9/30/2017				9/30/2016
INCOME STATEMENT DATA
Interest income		$	34,355			$	32,465			$	26,419			$	21,246			$	13,693
Interest expense		4,952				6,469				3,901				2,181				1,758
Net interest income		29,403				25,996				22,518				19,065				11,935
Provision for loan losses		4,652				899				767				261				—
Noninterest income		14,964				6,034				6,574				6,768				4,880
Noninterest expenses		23,713				19,808				18,403				16,418				11,960
Federal income tax expense		3,271				2,297				1,817				2,640				1,657
Net income		$	12,731			$	9,026			$	8,105			$	6,514			$	3,198
PER SHARE
Earnings		$	2.73			$	1.94			$	2.23			$	1.80			$	1.28
Dividends		$	0.23			$	0.21			$	0.18			$	0.15			$	0.35
Tangible book value(1)		$	23.50			$	20.37			$	16.91			$	14.29			$	13.78
Quoted market value
High		$	26.00			$	21.00			$	23.00			$	20.65			$	15.00
Low		$	12.55			$	20.05			$	18.88			$	15.10			$	12.85
Close(1)		$	16.93			$	21.00			$	21.15			$	18.45			$	14.50
PERFORMANCE RATIOS
Return on average assets		1.45		%		1.27		%		1.32		%		1.22		%		0.91		%
Return on average shareholders' equity		15.79		%		12.73		%		17.29		%		16.24		%		12.60		%
Return on average tangible shareholders' equity		16.40		%		13.35		%		18.77		%		17.52		%		12.60		%
Efficiency ratio		53.45		%		61.84		%		63.26		%		63.55		%		71.13		%
Yield on earning assets (FTE)		4.11		%		4.81		%		4.59		%		4.15		%		4.38		%
Rate on interest bearing liabilities		0.93		%		1.43		%		0.98		%		0.60		%		0.77		%
Net interest margin to earning assets (FTE)		3.52		%		3.86		%		3.91		%		3.72		%		3.81		%
BALANCE SHEET DATA(1)
Total investment securities		$	78,179			$	62,351			$	79,531			$	67,155			$	23,300
Gross loans		$	1,060,885			$	826,597			$	728,302			$	628,552			$	413,622
Total assets		$	1,284,845			$	978,046			$	909,901			$	756,967			$	500,551
Total deposits		$	1,061,470			$	801,101			$	766,587			$	625,588			$	418,849
Borrowed funds		$	96,217			$	69,000			$	74,000			$	68,000			$	44,000
Total shareholders' equity		$	114,081			$	99,142			$	66,340			$	57,161			$	35,048
Net loans to total deposits		98.99		%		102.51		%		94.46		%		99.95		%		97.88		%
Common shares outstanding		4,691,142				4,658,722				3,645,402				3,631,576				2,543,832
YTD BALANCE SHEET AVERAGES
Total assets		$	1,171,415			$	950,749			$	820,481			$	718,335			$	467,720
Earning assets		$	1,118,093			$	903,192			$	772,111			$	687,175			$	417,673
Interest bearing liabilities		$	711,449			$	606,912			$	528,165			$	481,657			$	283,548
Total shareholders' equity		$	107,711			$	94,815			$	62,662			$	53,760			$	33,891
Total tangible shareholders' equity		$	103,712			$	90,394			$	57,732			$	49,838			$	33,891
Earned common shares outstanding		4,665,951				4,641,084				3,638,123				3,618,889				2,506,250
Unvested stock grants		13,966				9,907				—				—				—
Total common shares outstanding		4,679,917				4,650,991				3,638,123				3,618,889				2,506,250
ASSET QUALITY(1)
Nonperforming loans to gross loans		0.07		%		0.11		%		0.01		%		0.03		%		—		%
Nonperforming assets to total assets		0.06		%		0.09		%		0.03		%		0.05		%		0.06		%
Allowance for loan losses to gross loans		0.95		%		0.65		%		0.57		%		0.52		%		0.88		%
CAPITAL RATIOS(1)
Total capital to risk weighted assets		15.57		%		14.42		%		11.31		%		10.92		%		12.96		%
Tier 1 capital to risk weighted assets		14.40		%		13.73		%		10.73		%		10.41		%		12.06		%
CET1 capital to risk weighted assets		12.77		%		11.96		%		8.77		%		8.23		%		8.61		%
Tier 1 leverage ratio		9.86		%		11.22		%		8.90		%		9.26		%		10.08		%
(1)At end of period

Income Statement Breakdown and Analysis

		Quarter to Date
		9/30/2020					6/30/2020					3/31/2020					12/31/2019					9/30/2019
GAAP net income		$	5,336				$	4,043				$	3,352				$	2,552				$	3,415
Acquisition related items (net of tax)
Accretion on purchased loans		(144		)			(110		)			(180		)			(126		)			(189		)
Amortization of core deposit intangibles		72					71					71					89					88
Amortization on acquired time deposits		5					5					5					7					7
Amortization on purchased mortgage servicing rights		—					—					—					3					3
Total acquisition related items (net of tax)		(67		)			(34		)			(104		)			(27		)			(91		)
Other nonrecurring items (net of tax)
Net gain from COLI death benefit		—					(173		)			—					—					—
Prepayment penalties collected		(16		)			(12		)			(36		)			(42		)			(284		)
Change in fair value of equity investment due to acquisition transaction		—					—					(578		)			—					—
Change in fair value of mortgage banking instruments		—					—					(448		)			—					—
Mortgage servicing rights (reduction of) impairment		(176		)			191					173					—					—
Total other nonrecurring items (net of tax)		(192		)			6					(889		)			(42		)			(284		)
Adjusted net income from operations		$	5,077				$	4,015				$	2,359				$	2,483				$	3,040
GAAP net interest income		$	10,881				$	9,597				$	8,925				$	8,918				$	9,056
Accretion on purchased loans		(182		)			(139		)			(228		)			(160		)			(239		)
Prepayment penalties collected		(20		)			(15		)			(46		)			(53		)			(360		)
Amortization on acquired time deposits		6					6					6					9					9
Adjusted net interest income		$	10,685				$	9,449				$	8,657				$	8,714				$	8,466
PERFORMANCE RATIOS
Based on adjusted net income from operations
Earnings per share		$	1.09				$	0.86				$	0.51				$	0.53				$	0.65
Return on average assets		1.60			%		1.34			%		0.90			%		0.99			%		1.24			%
Return on average shareholders' equity		17.94			%		15.09			%		9.15			%		9.75			%		12.31			%
Return on average tangible shareholders' equity		18.59			%		15.68			%		9.53			%		10.18			%		12.88			%
Based on adjusted net interest income
Yield on earning assets (FTE)		3.90			%		3.89			%		4.36			%		4.57			%		4.59			%
Rate on interest bearing liabilities		0.63			%		0.91			%		1.28			%		1.37			%		1.43			%
Net interest margin to earning assets (FTE)		3.52			%		3.32			%		3.50			%		3.66			%		3.66			%

		Year to Date September 30										Variance
		2020					2019					Amount					%
GAAP net income		$	12,731				$	9,026				$	3,705				41.05		%
Acquisition related items (net of tax)
Accretion on purchased loans		(434		)			(509		)			75					(14.73	)	%
Amortization of core deposit intangibles		214					267					(53		)			(19.85	)	%
Amortization on acquired time deposits		15					21					(6		)			(28.57	)	%
Amortization on purchased mortgage servicing rights		—					9					(9		)			(100.00	)	%
Total acquisition related items (net of tax)		(205		)			(212		)			7					(3.30	)	%
Other nonrecurring items (net of tax)
Change in fair value of equity investment due to acquisition transaction		(578		)			—					(578		)			N/M
Change in fair value of mortgage banking instruments		(448		)			—					(448		)			N/M
Net gain from COLI death benefit		(173		)			—					(173		)			N/M
Prepayment penalties collected		(64		)			(307		)			243					(79.15	)	%
Mortgage servicing rights (reduction of) impairment		188					—					188					N/M
Total other nonrecurring items (net of tax)		(1,075		)			(307		)			(768		)			250.16		%
Adjusted net income from operations		$	11,451				$	8,507				$	2,944				34.61		%
GAAP net interest income		$	29,403				$	25,996				$	3,407				13.11		%
Accretion on purchased loans		(549		)			(644		)			95					(14.75	)	%
Prepayment penalties collected		(81		)			(388		)			307					(79.12	)	%
Amortization on acquired time deposits		18					26					(8		)			(30.77	)	%
Adjusted net interest income		$	28,791				$	24,990				$	3,801				15.21		%
PERFORMANCE RATIOS
Based on adjusted net income from operations
Earnings per share		$	2.45				$	1.83				$	0.62				33.88		%
Return on average assets		1.31			%		1.20			%							0.11		%
Return on average shareholders' equity		14.20			%		12.00			%							2.20		%
Return on average tangible shareholders' equity		14.75			%		12.58			%							2.17		%
Based on adjusted net interest income
Yield on earning assets (FTE)		4.03			%		4.66			%							(0.63	)	%
Rate on interest bearing liabilities		0.93			%		1.44			%							(0.51	)	%
Net interest margin to earning assets (FTE)		3.45			%		3.71			%							(0.26	)	%

To effectively compare core operating results from period to period, the impact of acquisition related items and other nonrecurring items have been isolated.

The Corporation adopted Staff Accounting Bulletin No. 109 as of January 1, 2020. This standard required the Corporation to record the servicing assets of interest rate lock commitments and loans held for sale at fair value.  Changes in the fair value of these instruments is recognized as a component of noninterest income.  As forward loan sales commitments and interest rate lock commitments were previously recorded at fair value, the nonrecurring item impact disclosed above represents the change in fair value of loans held for sale.  Subsequent to the adoption of Staff Accounting Bulletin No. 109, changes in fair value related to mortgage banking are recurring in nature.

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.

		Three Months Ended
		September 30, 2020											June 30, 2020											September 30, 2019
		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		$	1,086,629			$	11,701			4.28	%		$	1,048,068			$	10,788			4.14	%		$	827,456			$	10,639			5.10	%
Taxable investment securities		62,490				256				1.63	%		62,829				323				2.07	%		58,059				375				2.56	%
Nontaxable investment securities		15,822				101				2.54	%		11,449				84				2.95	%		9,482				72				3.01	%
Federal funds sold		—				—				—	%		—				—				—	%		16,546				89				2.13	%
Interest earning cash and cash equivalents		41,845				9				0.09	%		21,314				5				0.09	%		6,164				35				2.25	%
Federal Home Loan Bank stock		3,488				24				2.74	%		3,281				33				4.05	%		3,150				45				5.67	%
Total earning assets		1,210,274				12,091				3.97	%		1,146,941				11,233				3.94	%		920,857				11,255				4.85	%
Nonearning assets
Allowance for loan losses		(9,255		)									(7,753		)									(5,139		)
Fixed assets		15,349											15,509											14,942
Accrued income and other assets		47,737											46,269											40,414
Total assets		$	1,264,105										$	1,200,966										$	971,074
Interest bearing liabilities
Interest bearing demand deposits		$	221,592			$	144			0.26	%		$	189,981			$	249			0.53	%		$	97,572			$	244			0.99	%
Savings deposits		271,260				116				0.17	%		247,687				140				0.23	%		243,796				282				0.46	%
Time deposits		161,212				567				1.40	%		181,661				821				1.82	%		209,984				1,207				2.28	%
Borrowed funds		96,217				362				1.50	%		92,171				408				1.78	%		60,452				451				2.96	%
Total interest bearing liabilities		750,281				1,189				0.63	%		711,500				1,618				0.91	%		611,804				2,184				1.42	%
Noninterest bearing liabilities
Noninterest bearing deposits		388,904											371,320											253,292
Accrued interest and other liabilities		12,355											11,148											8,020
Shareholders' equity		112,565											106,998											97,958
Total liabilities and shareholders' equity		$	1,264,105										$	1,200,966										$	971,074
Net interest income (FTE)						$	10,902										$	9,615										$	9,071
Net interest margin to earning assets (FTE)										3.58	%										3.37	%										3.91	%

		Nine Months Ended
		September 30, 2020											September 30, 2019
		Average Balance				Tax Equivalent Interest				Average Yield / Rate			Average Balance				Tax Equivalent Interest				Average Yield / Rate
Interest earning assets
Total loans		$	1,004,477			$	32,970			4.38	%		$	808,159			$	30,521			5.05	%
Taxable investment securities		60,760				932				2.05	%		68,219				1,396				2.74	%
Nontaxable investment securities		12,601				266				2.82	%		9,812				218				2.97	%
Federal funds sold		11,196				116				1.38	%		8,928				150				2.25	%
Interest earning cash and cash equivalents		25,753				40				0.21	%		4,924				88				2.39	%
Federal Home Loan Bank stock		3,306				87				3.52	%		3,150				138				5.86	%
Total earning assets		1,118,093				34,411				4.11	%		903,192				32,511				4.81	%
Nonearning assets
Allowance for loan losses		(7,610		)									(4,851		)
Fixed assets		15,465											14,866
Accrued income and other assets		45,467											37,542
Total assets		$	1,171,415										$	950,749
Interest bearing liabilities
Interest bearing demand deposits		$	194,058			$	868			0.60	%		$	82,161			$	445			0.72	%
Savings deposits		250,045				455				0.24	%		243,135				898				0.49	%
Time deposits		182,786				2,441				1.78	%		221,903				3,746				2.26	%
Borrowed funds		84,560				1,188				1.88	%		59,713				1,380				3.09	%
Total interest bearing liabilities		711,449				4,952				0.93	%		606,912				6,469				1.43	%
Noninterest bearing liabilities
Noninterest bearing deposits		341,642											243,523
Accrued interest and other liabilities		10,613											5,499
Shareholders' equity		107,711											94,815
Total liabilities and shareholders' equity		$	1,171,415										$	950,749
Net interest income (FTE)						$	29,459										$	26,042
Net interest margin to earning assets (FTE)										3.52	%										3.86	%

Net Interest Income

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. The Corporation exerts 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 year-to-year comparisons more meaningful.

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												Nine Months Ended
		September 30, 2020												September 30, 2020												September 30, 2020
		Compared To												Compared To												Compared To
		June 30, 2020												September 30, 2019												September 30, 2019
		Increase (Decrease) Due to												Increase (Decrease) Due to												Increase (Decrease) Due to
		Volume				Rate				Net				Volume				Rate				Net				Volume				Rate				Net
Changes in interest income
Total loans		$	476			$	437			$	913			$	9,669			$	(8,607	)		$	1,062			$	8,588			$	(6,139	)		$	2,449
Taxable investment securities		(2		)		(65		)		(67		)		166				(285		)		(119		)		(140		)		(324		)		(464		)
Nontaxable investment securities		81				(64		)		17				96				(67		)		29				66				(18		)		48
Federal funds sold		—				—				—				(45		)		(44		)		(89		)		48				(82		)		(34		)
Interest earning cash and cash equivalents		4				—				4				206				(232		)		(26		)		137				(185		)		(48		)
Federal Home Loan Bank stock		12				(21		)		(9		)		28				(49		)		(21		)		11				(62		)		(51		)
Total changes in interest income		571				287				858				10,120				(9,284		)		836				8,710				(6,810		)		1,900
Changes in interest expense
Interest bearing demand deposits		227				(332		)		(105		)		838				(938		)		(100		)		553				(130		)		423
Savings deposits		73				(97		)		(24		)		189				(355		)		(166		)		41				(484		)		(443		)
Time deposits		(83		)		(171		)		(254		)		(240		)		(400		)		(640		)		(592		)		(713		)		(1,305		)
Borrowed funds		103				(149		)		(46		)		914				(1,003		)		(89		)		646				(838		)		(192		)
Total changes in interest expense		320				(749		)		(429		)		1,701				(2,696		)		(995		)		648				(2,165		)		(1,517		)
Net change in net interest income (FTE)		$	251			$	1,036			$	1,287			$	8,419			$	(6,588	)		$	1,831			$	8,062			$	(4,645	)		$	3,417

		Average Yield/Rate for the Three Month Periods Ended
		9/30/2020			6/30/2020			3/31/2020			12/31/2019			9/30/2019
Total earning assets		3.97	%		3.94	%		4.47	%		4.66	%		4.85	%
Total interest bearing liabilities		0.63	%		0.91	%		1.28	%		1.36	%		1.42	%
Net interest margin to earning assets (FTE)		3.58	%		3.37	%		3.61	%		3.75	%		3.91	%

		Quarter to Date Net Interest Income (FTE)
		9/30/2020				6/30/2020				3/31/2020				12/31/2019				9/30/2019
Interest income		$	12,070			$	11,215			$	11,070			$	11,076			$	11,240
FTE adjustment		21				18				17				17				15
Total interest income (FTE)		12,091				11,233				11,087				11,093				11,255
Total interest expense		1,189				1,618				2,145				2,158				2,184
Net interest income (FTE)		$	10,902			$	9,615			$	8,942			$	8,935			$	9,071

Noninterest Income

		Quarter to Date
		9/30/2020				6/30/2020				3/31/2020				12/31/2019				9/30/2019
Net gain on sales of mortgage loans		$	3,130			$	2,644			$	970			$	650			$	665
Net mortgage servicing rights income		559				(163		)		(50		)		130				142
Trust and investment services		464				321				389				337				395
ATM and debit card income		460				394				355				399				418
Mortgage servicing fees		293				270				262				256				243
Service charges on deposit accounts		177				119				219				245				239
Change in fair value of equity investments		2				7				749				(5		)		16
Net gain from corporate owned life insurance death benefit		—				173				—				—				—
Net gain on sales of commercial loans		—				—				668				—				—
Change in fair value of mortgage banking instruments		(66		)		1,225				833				—				—
Other income and fees		140				302				118				117				144
Total noninterest income		$	5,159			$	5,292			$	4,513			$	2,129			$	2,262

		Year to Date September 30								Variance
		2020				2019				Amount				%
Net gain on sales of mortgage loans		$	6,744			$	1,282			$	5,462			426.05		%
Net mortgage servicing rights income		346				493				(147		)		(29.82	)	%
Trust and investment services		1,174				1,182				(8		)		(0.68	)	%
ATM and debit card income		1,209				1,182				27				2.28		%
Mortgage servicing fees		825				684				141				20.61		%
Service charges on deposit accounts		515				695				(180		)		(25.90	)	%
Change in fair value of equity investments		758				51				707				1386.27		%
Net gain from corporate owned life insurance death benefit		173				—				173				N/M
Net gain on sales of commercial loans		668				—				668				N/M
Change in fair value of mortgage banking instruments		1,992				—				1,992				N/M
Other income and fees		560				465				95				20.43		%
Total noninterest income		$	14,964			$	6,034			$	8,930			147.99		%

Net gain on sales of mortgage loans represents the income earned on the sale of residential mortgage loans into the secondary market. During 2019, and throughout 2020, the interest rate environment was very advantageous for residential mortgage originations and refinancing. While the interest rate environment is historically attractive for residential mortgage origination, the uncertainty that many consumers are facing due to the COVID-19 global pandemic is expected to reduce residential mortgage originations. As such, gains from the sales of mortgage loans are expected to decline in future periods.

Net mortgage servicing rights income represents income generated from the capitalization of mortgage servicing rights, net of amortization and impairment. For the quarter ended September 30, 2020, the Corporation recognized a reduction in MSR impairment of $222 as mortgage rates stabilized.

Trust and investment services includes income the Corporation earned from contracts with customers to manage assets for investment and/or to transact on their accounts. The wealth management component is strongly correlated to changes in the stock market and as such, can vary from period to period. Trust and investment services income is expected to approximate current levels throughout the remainder of the year.

ATM and debit card income represents fees earned on ATM and debit card transactions. The Corporation expects these fees to increase modestly throughout the remainder of 2020.

Mortgage servicing fees includes the fees earned for servicing loans that have been sold into the secondary market. The increase in mortgage servicing fees is directly related to the increase in the size of the serviced portfolio. Mortgage servicing fees are expected to continue to increase throughout the year.

Service charges on deposit accounts includes fees earned from deposit customers for transaction-based, account maintenance and overdraft services. The year-over-year decrease in service charges on deposit accounts is primarily due to a shift of customer demand toward deposit accounts with no or reduced service charges, as well as a temporary reduction in fees charged due to the COVID-19 global pandemic. 

Change in fair value of equity investments represents the income earned on equities held in the Corporation's investment portfolio. During the first quarter of 2020, an equity position held by the Corporation was bought out through an acquisition, resulting in a recognized gain of $732. The Corporation does not anticipate any significant changes in fair value from equity sales throughout the remainder of 2020.

Net gain from corporate owned life insurance death benefit is recognized in the event of the death of an insured individual. The death of an insured individual occurred in the second quarter of 2020. The Corporation does not expect to receive any gains from COLI death benefits for the remainder of 2020.

Net gain on sales of commercial loans represents the income earned from the sale of commercial loans into the secondary market. During the first quarter of 2020, the Corporation sold the guaranteed portion of one SBA loan and one USDA loan. The Corporation continually analyzes its commercial loan portfolio for opportunistic sales strategies.

On January 1, 2020, the Corporation adopted SAB 109. The Corporation now recognizes the value of servicing at the time of commitment, which resulted in an increase in retained earnings of $78 at January 1, 2020. The Corporation also elected the fair value option for its residential mortgage loans HFS on January 1, 2020, which resulted in an increase in retained earnings of $436. Pursuant to this adoption, changes in the fair value of mortgage banking instruments and loans held for sale are included in noninterest income. Change in fair value of mortgage banking instruments will fluctuate with the Corporation's residential mortgage loan originations and interest rate fluctuations. As mortgage loan originations are expected to decline, the change in fair value of mortgage banking instruments is expected to decrease throughout the remainder of 2020.

Other income and fees includes miscellaneous other income items, none of which are individually significant. Other income and fees are expected to approximate current levels throughout 2020.

Noninterest Expenses

		Quarter to Date
		9/30/2020				6/30/2020				3/31/2020				12/31/2019				9/30/2019
Total compensation		$	4,531			$	4,252			$	4,248			$	4,037			$	3,530
Furniture and equipment		614				618				610				575				497
Professional services		524				571				522				582				494
Data processing		503				535				442				362				405
Occupancy		491				435				476				467				444
Loan and collection		292				229				162				203				120
Advertising and promotional		284				255				252				232				222
ATM and debit card		109				92				108				98				109
Amortization of core deposit intangibles		91				90				90				113				112
Telephone and communication		91				86				96				115				110
FDIC insurance premiums		55				59				55				6				20
Other general and administrative		633				587				625				625				545
Total noninterest expenses		$	8,218			$	7,809			$	7,686			$	7,415			$	6,608

		Year to Date September 30								Variance
		2020				2019				Amount				%
Total compensation		$	13,031			$	10,909			$	2,122			19.45		%
Furniture and equipment		1,842				1,423				419				29.44		%
Professional services		1,617				1,378				239				17.34		%
Data processing		1,480				1,054				426				40.42		%
Occupancy		1,402				1,307				95				7.27		%
Loan and collection		683				349				334				95.70		%
Advertising and promotional		791				676				115				17.01		%
ATM and debit card		309				304				5				1.64		%
Amortization of core deposit intangibles		271				338				(67		)		(19.82	)	%
Telephone and communication		273				329				(56		)		(17.02	)	%
FDIC insurance premiums		169				138				31				22.46		%
Other general and administrative		1,845				1,603				242				15.10		%
Total noninterest expenses		$	23,713			$	19,808			$	3,905			19.71		%

Total compensation includes salaries, commissions and incentives, employee benefits, and payroll taxes. Total compensation has increased due to annual merit increases and an increase in commissions and incentives paid. Fluctuations in commissions and incentives are primarily driven by residential mortgage originations, which can vary significantly from period to period.

Furniture and equipment and occupancy expenses primarily consist of depreciation, repairs and maintenance, property taxes, utilities, insurance, certain service contracts, and other related items. These expenses are expected to increase with the size and complexity of the Corporation.

Professional services include expenses relating to third-party professional services. These services include, but are not limited to, regulatory, auditing, consulting, and legal. These expenses are expected to increase in future periods to ensure compliance with audit and regulatory requirements.

Data processing primarily includes the expenses relating to the Corporation's core data processor. These expenses are expected to increase throughout the remainder of 2020 with the size and complexity of the Corporation.

Loan and collection includes expenses related to the origination and collection of loans, as well as expenses related to OREO. The increase in expenses is a direct result of increased loan volume, as the current low interest rate environment has been attractive for borrowers. The Corporation may experience an increase in these expenses throughout the remainder of 2020 and into 2021.

Advertising and promotional includes the Corporation's media costs and any donations or sponsorships made on behalf of the Corporation. The increase in expenses is a direct result of the Corporation enhancing its marketing efforts to attract new and expand existing customer loans and deposit accounts. These expenses are expected to approximate current levels for the remainder of 2020 as a result of the Corporation's re-branding strategy.

ATM and debit card expenses fluctuate based on customer and non-customer utilization of ATMs and customer debit card volumes. The Corporation expects these fees to increase modestly throughout the remainder of 2020.

Amortization of core deposit intangibles relates to the core deposits acquired from Community Bancorp, Inc. on December 31, 2016 and is expected to approximate current levels throughout the remainder of 2020.

Telephone and communication includes expenses relating to the Corporation's communication systems. These expenses are expected to maintain current levels for the remainder of 2020.

FDIC insurance premiums typically fluctuate based on the size of the Corporation's balance sheet, capital position, overall risk profile, and examination ratings. FDIC insurance premiums decreased significantly in 2019 due to a Small Bank Assessment Credit issued by the FDIC in the second quarter of 2019. The credit was fully applied during the first quarter of 2020. The Corporation expects FDIC insurance premiums to approximate current levels throughout the remainder of 2020.

Other general and administrative includes miscellaneous other expense items, none of which are individually significant. These expenses are expected to approximate current levels into the foreseeable future.

Balance Sheet Breakdown and Analysis

		9/30/2020				6/30/2020				3/31/2020				12/31/2019				9/30/2019
ASSETS
Cash and cash equivalents		$	75,032			$	35,190			$	71,140			$	46,803			$	37,572
Total investment securities		78,179				75,526				76,312				61,621				62,351
Loans held-for-sale		34,833				46,354				21,154				19,491				15,111
Gross loans		1,060,885				1,044,564				865,577				870,555				826,597
Less allowance for loan losses		10,100				8,991				7,250				5,813				5,413
Net loans		1,050,785				1,035,573				858,327				864,742				821,184
All other assets		46,016				45,051				44,247				42,102				41,828
Total assets		$	1,284,845			$	1,237,694			$	1,071,180			$	1,034,759			$	978,046
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits		$	1,061,470			$	1,018,287			$	883,837			$	863,102			$	801,101
Total borrowed funds		96,217				96,217				71,500				61,500				69,000
Accrued interest payable and other liabilities		13,077				14,221				11,015				8,713				8,803
Total liabilities		1,170,764				1,128,725				966,352				933,315				878,904
Total shareholders' equity		114,081				108,969				104,828				101,444				99,142
Total liabilities and shareholders' equity		$	1,284,845			$	1,237,694			$	1,071,180			$	1,034,759			$	978,046

		9/30/2020 vs 6/30/2020								9/30/2020 vs 9/30/2019
		Variance								Variance
		Amount				%				Amount				%
ASSETS
Cash and cash equivalents		$	39,842			113.22		%		$	37,460			99.70	%
Total investment securities		2,653				3.51		%		15,828				25.39	%
Loans held-for-sale		(11,521		)		(24.85	)	%		19,722				130.51	%
Gross loans		16,321				1.56		%		234,288				28.34	%
Less allowance for loan losses		1,109				12.33		%		4,687				86.59	%
Net loans		15,212				1.47		%		229,601				27.96	%
All other assets		965				2.14		%		4,188				10.01	%
Total assets		$	47,151			3.81		%		$	306,799			31.37	%
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits		$	43,183			4.24		%		$	260,369			32.50	%
Total borrowed funds		—				—		%		27,217				39.44	%
Accrued interest payable and other liabilities		(1,144		)		(8.04	)	%		4,274				48.55	%
Total liabilities		42,039				1.96		%		291,860				17.37	%
Total shareholders' equity		5,112				4.69		%		14,939				15.07	%
Total liabilities and shareholders' equity		$	47,151			3.81		%		$	306,799			31.37	%

Cash and cash equivalents

		9/30/2020				6/30/2020				3/31/2020				12/31/2019					9/30/2019
Cash and cash equivalents
Noninterest bearing		$	22,108			$	20,369			$	33,312			$	17,754				$	21,808
Interest bearing		52,924				14,821				37,828				6,049					6,764
Federal funds sold		—				—				—				23,000					9,000
Cash and cash equivalents		$	75,032			$	35,190			$	71,140			$	46,803				$	37,572
		9/30/2020 vs 6/30/2020												9/30/2020 vs 9/30/2019
		Variance												Variance
		Amount				%								Amount					%
Cash and cash equivalents
Noninterest bearing		$	1,739			8.54		%						$	300				1.38			%
Interest bearing		38,103				257.09		%						46,160					682.44			%
Federal funds sold		—				N/M								(9,000		)			(100.00		)	%
Cash and cash equivalents		$	39,842			113.22		%						$	37,460				99.70			%

Cash and cash equivalents, which is comprised of cash and due from banks and federal funds sold, fluctuate from period to period based on loan demand and variances in deposit accounts.

Primary and secondary liquidity sources

While the Corporation continues to maintain a strong liquidity position, it is important to monitor all liquidity sources. The following table outlines the Corporation's primary and secondary sources of liquidity as of:

		9/30/2020				6/30/2020				3/31/2020				12/31/2019				9/30/2019
Cash and cash equivalents		$	75,032			$	35,190			$	71,140			$	46,803			$	37,572
Unpledged investment securities		58,739				52,647				51,889				40,094				40,675
FHLB borrowing availability		97,500				97,500				42,500				52,500				45,000
Federal funds purchased lines of credit		21,500				21,500				17,500				17,500				17,500
Funds available through the Fed Discount Window		10,000				10,000				10,000				10,000				10,000
PPPLF		206,343				202,184				—				—				—
Total liquidity sources		$	469,114			$	419,021			$	193,029			$	166,897			$	150,747

Total investment securities

		9/30/2020				6/30/2020					3/31/2020				12/31/2019				9/30/2019
Available-for-sale
U.S. Government and federal agency		$	19,311			$	21,339				$	23,610			$	18,867			$	22,854
State and municipal		15,729				14,115					10,657				10,691				10,194
Mortgage backed residential		20,886				12,335					10,176				10,748				6,227
Certificates of deposit		5,921				6,665					8,644				6,659				7,155
Collateralized mortgage obligations - agencies		11,141				15,736					18,288				9,527				10,826
Unrealized gain/(loss) on available-for-sale securities		2,099				2,242					1,735				1,092				1,048
Total available-for-sale		75,087				72,432					73,110				57,584				58,304
Held-to-maturity state and municipal		1,977				1,981					2,091				2,096				2,100
Equity securities		1,115				1,113					1,111				1,941				1,947
Total investment securities		$	78,179			$	75,526				$	76,312			$	61,621			$	62,351
		9/30/2020 vs 6/30/2020													9/30/2020 vs 9/30/2019
		Variance													Variance
		Amount				%									Amount				%
Available-for-sale
U.S. Government and federal agency		$	(2,028	)		(9.50		)	%						$	(3,543	)		(15.50		)	%
State and municipal		1,614				11.43			%						5,535				54.30			%
Mortgage backed residential		8,551				69.32			%						14,659				235.41			%
Certificates of deposit		(744		)		(11.16		)	%						(1,234		)		(17.25		)	%
Collateralized mortgage obligations - agencies		(4,595		)		(29.20		)	%						315				2.91			%
Unrealized gain/(loss) on available-for-sale securities		(143		)		(6.38		)	%						1,051				100.29			%
Total available-for-sale		2,655				3.67			%						16,783				28.79			%
Held-to-maturity state and municipal		(4		)		(0.20		)	%						(123		)		(5.86		)	%
Equity securities		2				0.18			%						(832		)		(42.73		)	%
Total investment securities		$	2,653			3.51			%						$	15,828			25.39			%

The amortized cost and fair value of AFS investment securities as of September 30, 2020 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		$	16,380			$	2,931			$	—			$	—			$	—			$	19,311
State and municipal		2,509				6,049				5,089				2,082				—				15,729
Mortgage backed residential		—				—				—				—				20,886				20,886
Certificates of deposit		1,731				4,190				—				—				—				5,921
Collateralized mortgage obligations - agencies		—				—				—				—				11,141				11,141
Total amortized cost		$	20,620			$	13,170			$	5,089			$	2,082			$	32,027			$	72,988
Fair value		$	20,757			$	14,024			$	5,308			$	2,375			$	32,623			$	75,087

The amortized cost and fair value of HTM investment securities as of September 30, 2020 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		$	414			$	1,113			$	370			$	80			$	—			$	1,977
Fair value		$	419			$	1,160			$	398			$	86			$	—			$	2,063

Throughout 2019, yields on bonds that met the Corporation's investment standards declined significantly. As such, the Corporation did not replace the majority of maturing investments in 2019. However, an influx of liquidity in late 2019 and into 2020 led the Corporation to make investment security purchases in order to stabilize net interest margin and generate additional net interest income. Total investment securities are expected to grow with overall balance sheet growth as it is an important source of liquidity and consistent earnings. The following table summarizes information as of September 30, 2020 for investment securities purchased YTD:

		Book Value				Fully Taxable Equivalent Weighted Average Yield
U.S. Government and federal agency		$	10,388			0.46	%
State and municipal		6,274				1.72	%
Collateralized mortgage obligations - agencies		7,103				1.59	%
Certificates of deposit		496				1.01	%
Mortgage backed residential		13,176				1.26	%
Held-to-maturity state and municipal		—				—	%
Total		$	37,437			1.17	%

Loans held-for-sale

Loans HFS represent the balance 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. As residential mortgage activity is likely to decrease throughout the remainder of 2020, the balance of loans HFS will also likely decline.

During the first quarter of 2020, the Corporation opted to recognize loans HFS at fair value which represents the price at which the loans could be sold in the principal market at the measurement date.

Loans and allowance for loan losses

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

		9/30/2020				6/30/2020					3/31/2020				12/31/2019				9/30/2019
Commercial		$	271,113			$	260,440				$	67,731			$	71,689			$	63,747
Commercial real estate		483,275					469,039				462,561				455,289				420,127
Total commercial loans		754,388					729,479				530,292				526,978				483,874
Residential mortgage		261,375					268,295				285,392				292,946				291,401
Home equity		39,456					40,114				43,222				41,987				43,061
Total residential real estate loans		300,831					308,409				328,614				334,933				334,462
Consumer		5,666					6,676				6,671				8,644				8,261
Gross loans		1,060,885					1,044,564				865,577				870,555				826,597
Allowance for loan losses		(10,100		)			(8,991	)			(7,250		)		(5,813		)		(5,413		)
Loans, net		$	1,050,785			$	1,035,573				$	858,327			$	864,742			$	821,184
		9/30/2020 vs 6/30/2020													9/30/2020 vs 9/30/2019
		Variance													Variance
		Amount				%									Amount				%
Commercial		$	10,673				4.10		%						$	207,366			325.30			%
Commercial real estate		14,236					3.04		%						63,148				15.03			%
Total commercial loans		24,909					3.41		%						270,514				55.91			%
Residential mortgage		(6,920		)			(2.58	)	%						(30,026		)		(10.30		)	%
Home equity		(658		)			(1.64	)	%						(3,605		)		(8.37		)	%
Total residential real estate loans		(7,578		)			(2.46	)	%						(33,631		)		(10.06		)	%
Consumer		(1,010		)			(15.13	)	%						(2,595		)		(31.41		)	%
Gross loans		16,321					1.56		%						234,288				28.34			%
Allowance for loan losses		(1,109		)			12.33		%						(4,687		)		86.59			%
Loans, net		$	15,212				1.47		%						$	229,601			27.96			%

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

		9/30/2020				6/30/2020				3/31/2020				12/31/2019				9/30/2019
Originated loans collectively evaluated for impairment
Commercial		$	270,174			$	259,384			$	66,524			$	70,322			$	61,970
Commercial real estate		469,353				452,084				446,713				436,626				400,470
Residential mortgage		257,395				263,997				280,265				286,635				285,499
Home equity		37,022				37,663				40,459				39,023				39,586
Consumer		5,477				6,445				6,391				8,330				7,902
Subtotal		1,039,421				1,019,573				840,352				840,936				795,427
Originated loans individually evaluated for impairment
Commercial		—				—				—				—				—
Commercial real estate		2,204				3,290				1,658				1,668				1,677
Residential mortgage		655				663				672				1,362				631
Home equity		—				—				—				—				240
Consumer		3				3				5				—				—
Subtotal		2,862				3,956				2,335				3,030				2,548
Acquired loans collectively evaluated for impairment
Commercial		910				1,057				1,204				1,362				1,753
Commercial real estate		11,368				13,293				13,630				16,346				17,194
Residential mortgage		2,335				2,683				3,459				3,911				4,139
Home equity		2,415				2,432				2,743				2,943				3,213
Consumer		185				226				273				314				358
Subtotal		17,213				19,691				21,309				24,876				26,657
Acquired loans individually evaluated for impairment
Commercial		—				—				—				—				—
Commercial real estate		—				—				—				—				—
Residential mortgage		55				—				58				58				61
Home equity		—				—				—				—				—
Consumer		—				—				—				—				—
Subtotal		55				—				58				58				61
Acquired loans with deteriorated credit quality
Commercial		29				(1		)		3				5				24
Commercial real estate		350				372				560				649				786
Residential mortgage		935				952				938				980				1,071
Home equity		19				19				20				21				22
Consumer		1				2				2				—				1
Subtotal		1,334				1,344				1,523				1,655				1,904
Gross Loans		$	1,060,885			$	1,044,564			$	865,577			$	870,555			$	826,597
Total originated loans		$	1,042,283			$	1,023,529			$	842,687			$	843,966			$	797,975
Total acquired loans		18,602				21,035				22,890				26,589				28,622
Gross loans		$	1,060,885			$	1,044,564			$	865,577			$	870,555			$	826,597

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

		9/30/2020				6/30/2020				3/31/2020				12/31/2019				9/30/2019
Originated loans collectively evaluated for impairment
Commercial		$	632			$	535			$	478			$	358			$	301
Commercial real estate		5,113				4,564				3,609				2,790				2,539
Residential mortgage		3,281				3,080				2,442				1,917				1,820
Home equity		416				353				280				195				198
Consumer		101				102				89				87				87
Subtotal		9,543				8,634				6,898				5,347				4,945
Originated loans individually evaluated for impairment
Commercial		—				—				—				—				—
Commercial real estate		289				100				111				127				26
Residential mortgage		5				5				6				128				27
Home equity		—				—				—				—				213
Consumer		3				3				5				—				—
Subtotal		297				108				122				255				266
Acquired loans collectively evaluated for impairment
Commercial		1				1				1				1				2
Commercial real estate		7				9				7				5				5
Residential mortgage		9				9				9				8				9
Home equity		18				15				14				12				13
Consumer		—				—				—				—				—
Subtotal		35				34				31				26				29
Acquired loans with deteriorated credit quality
Commercial		—				—				—				—				—
Commercial real estate		32				22				39				34				31
Residential mortgage		189				189				156				147				137
Home equity		4				4				4				4				5
Consumer		—				—				—				—				—
Subtotal		225				215				199				185				173
Allowance for loan losses		$	10,100			$	8,991			$	7,250			$	5,813			$	5,413
Total originated loans		$	9,840			$	8,742			$	7,020			$	5,602			$	5,211
Total acquired loans		260				249				230				211				202
Allowance for loan losses		$	10,100			$	8,991			$	7,250			$	5,813			$	5,413

Commercial		$	633			$	536			$	479			$	359			$	303
Commercial real estate		5,441				4,695				3,766				2,956				2,601
Residential mortgage		3,484				3,283				2,613				2,200				1,993
Home equity		438				372				298				211				429
Consumer		104				105				94				87				87
Allowance for loan losses		$	10,100			$	8,991			$	7,250			$	5,813			$	5,413

The following table summarizes the Corporation's current, past due, and nonaccrual loans as of:

		9/30/2020				6/30/2020				3/31/2020				12/31/2019				9/30/2019
Accruing interest
Current		$	1,058,437			$	1,042,589			$	862,581			$	867,901			$	824,587
Past due 30-89 days		1,703				948				2,152				1,213				1,089
Past due 90 days or more		86				361				166				239				209
Total accruing interest		1,060,226				1,043,898				864,899				869,353				825,885
Nonaccrual		659				666				678				1,202				712
Total loans		$	1,060,885			$	1,044,564			$	865,577			$	870,555			$	826,597
Total loans past due and in nonaccrual status		$	2,448			$	1,975			$	2,996			$	2,654			$	2,010

The following table summarizes the Corporation's nonperforming assets as of:

		9/30/2020				6/30/2020				3/31/2020				12/31/2019				9/30/2019
Nonaccrual loans		$	659			$	666			$	678			$	1,202			$	712
Accruing loans past due 90 days or more		86				361				166				239				209
Total nonperforming loans		745				1,027				844				1,441				921
Other real estate owned		—				—				400				—				—
Total nonperforming assets		$	745			$	1,027			$	1,244			$	1,441			$	921

The following table summarizes the Corporation's primary asset quality measures as of:

		9/30/2020			6/30/2020			3/31/2020			12/31/2019			9/30/2019
Nonperforming loans to gross loans		0.07	%		0.10	%		0.10	%		0.17	%		0.11	%
Nonperforming assets to total assets		0.06	%		0.08	%		0.12	%		0.14	%		0.09	%
Allowance for loan losses to gross loans		0.95	%		0.86	%		0.84	%		0.67	%		0.65	%

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

		9/30/2020				6/30/2020				3/31/2020				12/31/2019				9/30/2019
Net unamortized discount on purchased loans		$	877			$	1,058			$	1,233			$	1,462			$	1,626

As outlined in the preceding tables, the Corporation has grown its loan portfolio over the past 12 months with most of the growth coming in the form of commercial and commercial real estate loans. Despite the significant growth, the Corporation has not relaxed its underwriting standards.  Included in the increase in commercial loans were $211,060 of PPP loans.

Despite historically strong credit quality indicators, there continues to be significant uncertainty surrounding the overall impact of COVID-19 on the loan portfolio. This uncertainty resulted in the Corporation increasing the ALLL by $4,287, or 73.75%, since December 31, 2019. Management will continue to monitor the loan portfolio to ensure that the ALLL remains at an appropriate level.

The following table summarizes the average loan size as of:

		9/30/2020				6/30/2020				3/31/2020				12/31/2019				9/30/2019
Commercial		$	166			$	171			$	214			$	228			$	204
Commercial real estate		672				654				644				641				605
Total commercial loans		321				325				513				514				481
Residential mortgage		180				177				194				198				200
Home equity		45				45				46				44				45
Total residential real estate loans		129				128				137				138				139
Consumer		22				25				26				32				31
Gross loans		$	215			$	213			$	234			$	234			$	225

COVID-19, CARES Act and SBA activity

The communities which the Corporation serves were not immune to the fallout of the COVID-19 global pandemic. The Corporation  has committed significant efforts to work with customers through temporary loan modifications and participation in the PPP loan program through the SBA.

The Corporation considers the modification type on a loan-by-loan basis. Most modifications for loans held within the Corporation's loan portfolio resulted in the deferment of principal and interest payments for 3 months.

In regards to commercial loan modifications, loan officers are contacting the borrowers to determine an appropriate strategy for the next 3 months. If an additional 3 months of principal deferral is warranted, the Corporation is generally collecting accrued interest.

Portfolio residential mortgage loans may have their deferral extended an additional 3 months if the borrower is experiencing a hardship. If the borrower has an escrow established, the Corporation is generally continuing to collect escrow payments.

The Corporation also provides a variety of accommodations for loans that the Corporation services for FHLMC including providing mortgage forbearance for up to 12 months, waiving assessments of penalties and late fees, halting foreclosure actions and evictions, and offering loan modification options that lower payments or keep payments the same after the forbearance period.

The table below outlines the COVID-19 related loan modifications granted by the Corporation as of September 30, 2020:

		Number of Modifications			Outstanding Balance
Commercial		11			$	3,020
Commercial real estate		30			24,169
Total commercial loan modifications		41			27,189
Portfolio residential mortgage loans		92			20,591
Home equity		11			645
Total residential real estate loan modifications		103			21,236
Consumer		3			25
Total portfolio modifications		147			$	48,450
Residential mortgage loans serviced for FHLMC		101			$	20,195

The Corporation was extremely active in participating in the PPP loan program. As of September 30, 2020, the Corporation funded 1,370 loans with outstanding balances totaling $211,060.  The SBA is expected to begin processing applications for forgiveness of PPP loans in the fourth quarter of 2020.

The Corporation generated $6,738 in fees from the SBA through the PPP loan program. The income will be recognized over the life of the PPP loans, which were originated with 24 and 60 month terms. As of September 30, 2020, the Corporation has recognized $2,361 in income, with $4,377 remaining as unearned income.

All other assets

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

		9/30/2020				6/30/2020					3/31/2020				12/31/2019				9/30/2019
Premises and equipment, net		$	15,267			$	15,323				$	15,533			$	15,245			$	15,443
Corporate owned life insurance		10,225					10,115				10,380				10,316					10,248
Accrued interest receivable		5,645					5,266				3,124				2,877					2,954
Mortgage servicing rights		4,376					3,816				3,980				4,030					3,900
Federal Home Loan Bank stock		3,488					3,488				3,150				3,150					3,150
Goodwill		3,219					3,219				3,219				3,219					3,219
Derivatives		1,772					1,311				1,063				125					172
Core deposit intangibles		632					722				812				902					1,015
Right-of-use assets		387					409				432				475					105
Other real estate owned		—					—				400				—					—
Other assets		1,005					1,382				2,154				1,763					1,622
All other assets		$	46,016			$	45,051				$	44,247			$	42,102			$	41,828
		9/30/2020 vs 6/30/2020													9/30/2020 vs 9/30/2019
		Variance													Variance
		Amount				%									Amount				%
Premises and equipment, net		$	(56	)		(0.37		)	%						$	(176	)		(1.14		)	%
Corporate owned life insurance		110				1.09			%						(23		)		(0.22		)	%
Accrued interest receivable		379				7.20			%						2,691				91.10			%
Mortgage servicing rights		560				14.68			%						476				12.21			%
Federal Home Loan Bank stock		—				—			%						338				10.73			%
Goodwill		—				—			%						—				—			%
Derivatives		461				35.16			%						1,600				930.23			%
Core deposit intangibles		(90		)		(12.47		)	%						(383		)		(37.73		)	%
Right-of-use assets		(22		)		(5.38		)	%						282				268.57			%
Other real estate owned		—				N/M									—				N/M
Other assets		(377		)		(27.28		)	%						(617		)		(38.04		)	%
All other assets		$	965			2.14			%						$	4,188			10.01			%

MSR are servicing assets that are recognized from the sales of mortgage loans. A portion of the cost of originating the loan is allocated to the servicing right based on relative fair value. The increase in MSR is due to the increased volume of residential mortgage loan sales.  The Corporation expects MSR to stabilize, as residential real estate lending is expected to decline throughout the remainder of 2020.

Derivatives are used in the process of hedging the Corporation's mortgage banking activities. The derivatives are recorded at fair value. The Corporation does not expect significant growth in derivatives as residential real estate lending is expected to tighten throughout the remainder of 2020.

Right-of-use assets were established pursuant to the adoption of ASU 2016-02, "Leases (Topic 842)", on January 1, 2019. Right-of-use assets are recognized at the lease commencement date based on the estimated present value of the lease payments over the lease term, for leases that are longer than 12 months.

Total deposits

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

		9/30/2020					6/30/2020						3/31/2020				12/31/2019					9/30/2019
Noninterest bearing demand		$	391,706				$	383,452					$	281,848			$	260,503				$	253,784
Interest bearing
Savings		269,051					245,957						215,748				215,218					213,494
Money market demand		99,252					90,504						79,070				88,350					80,873
NOW		120,681					122,477						83,910				75,976					39,286
Time deposits		180,780					175,897						223,261				223,055					213,664
Total deposits		$	1,061,470				$	1,018,287					$	883,837			$	863,102				$	801,101
		9/30/2020 vs 6/30/2020															9/30/2020 vs 9/30/2019
		Variance															Variance
		Amount					%										Amount					%
Noninterest bearing demand		$	8,254						2.15		%						$	137,922				54.35			%
Interest bearing
Savings		23,094							9.39		%						55,557					26.02			%
Money market demand		8,748							9.67		%						18,379					22.73			%
NOW		(1,796		)					(1.47	)	%						81,395					207.19			%
Time deposits		4,883							2.78		%						(32,884		)			(15.39		)	%
Total deposits		$	43,183						4.24		%						$	260,369				32.50			%

The Corporation has continued its focus of growing non-contractual deposits while supplementing funding with time deposits. The Corporation has been able to drive this meaningful increase through enhanced organic growth strategies. The Corporation will continue to monitor deposit growth and adjust interest rates in order to minimize downward pressure on margins.

Schedule of time deposit maturities

The following table summarizes the contractual maturities of the time deposits as of September 30, 2020:

		Maturity Buckets
		3 Months or Less				3 to 6 Months				6 to 9 Months				9 to 12 Months				Beyond 12 Months
Balance		$	68,508			$	37,360			$	13,078			$	29,961			$	31,873
Weighted average yield		1.07		%		1.07		%		1.48		%		0.81		%		1.17		%
		Cumulative Maturities
		3 Months or Less				Up to 6 Months				Up to 9 Months				Up to 12 Months				Total
Balance		$	68,508			$	105,868			$	118,946			$	148,907			$	180,780
Weighted average yield		1.07		%		1.07		%		1.12		%		1.06		%		1.08		%

The repricing of time deposits will have a significant impact on their weighted average yield. Current rates offered by the Corporation have time deposit rates ranging from 0.05% to 0.55% depending on the term and opening balance.

Total borrowed funds

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

		9/30/20				6/30/20				3/31/20				12/31/19				9/30/19
Federal Home Loan Bank borrowings		$	77,500			$	77,500			$	57,500			$	47,500			$	55,000
Subordinated debentures		14,000				14,000				14,000				14,000				14,000
PPPLF		4,717				4,717				—				—				—
Federal funds purchased		—				—				—				—				—
Total borrowed funds		$	96,217			$	96,217			$	71,500			$	61,500			$	69,000
		9/30/2020 vs 6/30/2020												9/30/2020 vs 9/30/2019
		Variance												Variance
		Amount				%								Amount				%
Federal Home Loan Bank borrowings		$	—			—		%						$	22,500			40.91		%
Subordinated debentures		—				—		%						—				—		%
PPPLF		—				—		%						4,717				N/M
Federal funds purchased		—				—		%						—				—		%
Total borrowed funds		$	—			—		%						$	27,217			39.44		%

The Corporation utilizes a mix of borrowed funds and organic deposit growth to fund loan demand. There are times when Federal Home Loan Bank borrowings have extremely attractive interest rates and the Corporation will add to borrow funds for future deployment of funds. The increase in Federal Home Loan Bank borrowings in the second quarter of 2020 is solely due to the Corporation's participation in a PPP loan funding program through the FHLB.

Total borrowed funds are expected to decrease as current Federal Home Loan Bank borrowings mature. The Corporation continually analyzes the market for opportunities and will borrow funds when deemed financially beneficial.

Wholesale funding sources

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

		9/30/20				6/30/20					3/31/20				12/31/19				9/30/19
Federal Home Loan Bank borrowings		$	77,500			$	77,500				$	57,500			$	47,500			$	55,000
Brokered money market demand		25,029				25,010					—				—				—
Brokered time deposits		28,605				28,837					28,605				28,605				16,326
Subordinated debentures		14,000				14,000					14,000				14,000				14,000
Internet time deposits		10,208				11,690					18,005				18,009				21,977
PPPLF		4,717				4,717					—				—				—
Total wholesale funds		$	160,059			$	161,754				$	118,110			$	108,114			$	107,303
		9/30/2020 vs 6/30/2020													9/30/2020 vs 9/30/2019
		Variance													Variance
		Amount				%									Amount				%
Federal Home Loan Bank borrowings		$	—			—			%						$	22,500			40.91			%
Brokered money market demand		19				0.08			%						25,029				N/M
Brokered time deposits		(232		)		(0.80		)	%						12,279				75.21			%
Subordinated debentures		—				—			%						—				—			%
Internet time deposits		(1,482		)		(12.68		)	%						(11,769		)		(53.55		)	%
PPPLF		—				—			%						4,717				N/M
Total wholesale funds		$	(1,695	)		(1.05		)	%						$	52,756			49.17			%

The Corporation utilizes wholesale funds to fund balance sheet growth. While wholesale funding has historically been more expensive than core deposits, there have been times in 2020 where that is not the case. The Corporation continually analyzes sources of wholesale funding when the increases in interest earning assets out-pace the increases in core 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).  Accrued interest payable and other liabilities are not expected to fluctuate significantly in future periods.

Total shareholders' equity

Total shareholders' equity includes common stock, retained earnings, and AOCI. Total shareholders' equity is expected to continue to grow throughout the remainder of 2020 through the Corporation's earnings. In April 2020, the Corporation's Board of Directors amended its common stock repurchase plan to authorize the repurchase of up to $5,000 of common stock.

Stock Performance

The following graph compares the cumulative total shareholder return on the Corporation's common stock for the last five years with the cumulative total return on the ABA NASDAQ Community Bank Index (NASDAQ: XX:ABAQ) over the same period. The graph assumes the value of an investment in the Corporation's common stock and the ABA NASDAQ Community Bank Index was $100 at September 30, 2015 and all dividends were reinvested.

A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/7ee315f5-1e3a-4bf3 ...

Date		FETM		ABAQ Index
9/30/2015		100.00		100.00
9/30/2016		106.17		109.26
9/30/2017		135.60		140.97
9/30/2018		156.38		143.70
9/30/2019		157.23		129.69
9/30/2020		129.57		86.56

Abbreviations and Acronyms

ABA: American Bankers Association	HTM: Held-to-maturity
AFS: Available-for-sale	IRA: Individual retirement account
ALLL: Allowance for loan losses	ITM: Interactive teller machine
AOCI: Accumulated other comprehensive income	MSR: Mortgage servicing rights
ASU: Accounting Standards Update	N/M: Not meaningful
ATM: Automated teller machine	NASDAQ: National Association of Securities Dealers Automated Quotations
CARES Act: Coronavirus Aid, Relief, and Economic Security Act
	NOW: Negotiable order of withdrawal
CET1: Common equity tier 1	NSF: Non-sufficient funds
COVID-19: Coronavirus Disease 2019	OREO: Other real estate owned
FDIC: Federal Deposit Insurance Corporation	PPP: Paycheck Protection Program
FHLB: Federal Home Loan Bank	PPPLF: Paycheck Protection Program Liquidity Facility
FHLMC: Federal Home Loan Mortgage Corporation	QTD: Quarter-to-date
FRB: Federal Reserve Bank	SAB: Staff Accounting Bulletin
FTE: Fully taxable equivalent	SBA: Small Business Association
GAAP: Generally Accepted Accounting Principles	USDA: United States Department of Agriculture
HFS: Held-for-sale	YTD: Year-to-date

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 was recognized as one of the Top 50 performing stocks in 2018 and 2019 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 15 full-service branches in Genesee, Livingston, Oakland, Saginaw, and Shiawassee Counties and a loan production office in Saginaw County. The State Bank was ranked #22 by S&P Global in terms of 2019 performance for banks under $2 billion in assets. The State Bank’s commercial department provides a complete array of products including lines of credit, term loans, commercial mortgages, SBA loans and a full-suite of cash management products. The retail department offers personal checking, savings, time and IRA deposit accounts and a wide array of loan products including home equity, auto and personal loans. The residential loan department offers construction, purchase and refinance residential mortgage loans. The wealth management department offers a full-service suite of trust and portfolio management services. 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             President & CEO              Fentura Financial, Inc.    810.714.3902                     [e-mail]		Aaron D. Wirsing Chief Financial Officer Fentura Financial, Inc. [e-mail]