Fentura Financial, Inc. Announces Fourth 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 December 31, 2020 presentation.

FENTON, Mich., Feb. 02, 2021 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. (OTCQX: FETM) announces quarterly results of net income of $2,733 and $15,464 for the three and twelve month periods ended December 31, 2020.

Ronald Justice, President and CEO, stated “We are very pleased to report a solid quarter and another year of strong financial performance despite the many challenges presented by the COVID-19 pandemic. The extraordinary efforts of the Fentura team in implementing strategies to respond to the pandemic, allowed us to continue to effectively operate and meet all the banking needs of our clients and to support the communities we serve."

Justice continued, "Our commitment to provide PPP loans through the SBA to our business clients in need, an unprecedented level of residential mortgage loans processed, and the transition of transactions to technology channels during the “shelter in place” Orders, are examples of the team’s response and strong contributors to our results. As we look forward, remaining mindful of the ongoing challenges from the COVID-19 pandemic, we remain confident that our long term strategic focus will lead to continued strong performance.”

Following is a discussion of the Corporation's financial performance as of, and for the three and twelve months periods ended December 31, 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:

		12/31/2020				9/30/2020				6/30/2020				3/31/2020				12/31/2019
INCOME STATEMENT DATA
Interest income		$	11,624			$	12,070			$	11,215			$	11,070			$	11,076
Interest expense		972				1,189				1,618				2,145				2,158
Net interest income		10,652				10,881				9,597				8,925				8,918
Provision for loan losses		982				1,109				2,001				1,542				436
Noninterest income		4,676				5,159				5,292				4,513				2,129
Noninterest expenses		10,971				8,218				7,809				7,686				7,415
Federal income tax expense		642				1,377				1,036				858				644
Net income		$	2,733			$	5,336			$	4,043			$	3,352			$	2,552
PER SHARE
Earnings		$	0.58			$	1.14			$	0.87			$	0.72			$	0.55
Dividends		$	0.075			$	0.075			$	0.075			$	0.075			$	0.07
Tangible book value(1)		$	24.00			$	23.50			$	22.44			$	21.56			$	20.87
Quoted market value
High		$	22.25			$	17.99			$	18.95			$	26.00			$	25.50
Low		$	16.93			$	16.80			$	14.90			$	12.55			$	20.60
Close(1)		$	22.00			$	16.93			$	17.35			$	15.50			$	25.23
PERFORMANCE RATIOS
Return on average assets		0.84		%		1.68		%		1.35		%		1.28		%		1.02		%
Return on average shareholders' equity		9.27		%		18.86		%		15.20		%		13.01		%		10.03		%
Return on average tangible shareholders' equity		9.58		%		19.54		%		15.79		%		13.54		%		10.46		%
Efficiency ratio		71.57		%		51.23		%		52.45		%		57.20		%		67.12		%
Yield on earning assets (FTE)		3.75		%		3.97		%		3.94		%		4.47		%		4.66		%
Rate on interest bearing liabilities		0.50		%		0.63		%		0.91		%		1.28		%		1.36		%
Net interest margin to earning assets (FTE)		3.44		%		3.58		%		3.37		%		3.61		%		3.75		%
BALANCE SHEET DATA(1)
Total investment securities		$	76,501			$	78,179			$	75,526			$	76,312			$	61,621
Gross loans		$	1,066,562			$	1,060,885			$	1,044,564			$	865,577			$	870,555
Total assets		$	1,251,343			$	1,284,845			$	1,237,694			$	1,071,180			$	1,034,759
Total deposits		$	1,071,976			$	1,061,470			$	1,018,287			$	883,837			$	863,102
Borrowed funds		$	49,000			$	96,217			$	96,217			$	71,500			$	61,500
Total shareholders' equity		$	116,435			$	114,081			$	108,969			$	104,828			$	101,444
Net loans to total deposits		98.48		%		98.99		%		101.70		%		97.11		%		100.19		%
Common shares outstanding		4,694,573				4,691,142				4,680,920				4,675,499				4,664,369
QTD BALANCE SHEET AVERAGES
Total assets		$	1,288,199			$	1,264,105			$	1,200,966			$	1,049,245			$	994,094
Earning assets		$	1,235,895			$	1,210,274			$	1,146,941			$	997,089			$	944,692
Interest bearing liabilities		$	773,132			$	750,281			$	711,500			$	672,564			$	629,454
Total shareholders' equity		$	117,263			$	112,565			$	106,998			$	103,646			$	100,991
Total tangible shareholders' equity		$	113,444			$	108,655			$	102,999			$	99,558			$	96,796
Earned common shares outstanding		4,682,113				4,673,629				4,664,946				4,659,279				4,652,569
Unvested stock grants		14,208				14,208				14,208				13,481				9,947
Total common shares outstanding		4,696,321				4,687,837				4,679,154				4,672,760				4,662,516
ASSET QUALITY(1)
Nonperforming loans to gross loans		0.75		%		0.07		%		0.10		%		0.10		%		0.17		%
Nonperforming assets to total assets		0.64		%		0.06		%		0.08		%		0.12		%		0.14		%
Allowance for loan losses to gross loans		1.02		%		0.95		%		0.86		%		0.84		%		0.67		%
Allowance for loan losses to gross loans, net of PPP loans		1.23		%		1.19		%		1.07		%		0.84		%		0.67		%
CAPITAL RATIOS(1)
Total capital to risk weighted assets		15.21		%		15.57		%		15.06		%		14.42		%		14.03		%
Tier 1 capital to risk weighted assets		14.00		%		14.40		%		14.00		%		13.56		%		13.33		%
CET1 capital to risk weighted assets		12.44		%		12.77		%		12.34		%		11.91		%		11.64		%
Tier 1 leverage ratio		9.85		%		9.86		%		9.90		%		10.97		%		11.20		%
(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 twelve month periods ended:

		12/31/2020				12/31/2019				12/31/2018				12/31/2017				12/31/2016
INCOME STATEMENT DATA
Interest income		$	45,979			$	43,541			$	36,350			$	30,111			$	18,645
Interest expense		5,924				8,627				5,827				3,120				2,372
Net interest income		40,055				34,914				30,523				26,991				16,273
Provision for loan losses		5,634				1,335				1,057				609				(900			)
Noninterest income		19,640				8,163				8,277				8,988				6,658
Noninterest expenses		34,684				27,223				25,310				23,818				17,097
Federal income tax expense		3,913				2,941				2,319				2,876				2,293
Net income		$	15,464			$	11,578			$	10,114			$	8,676			$	4,441
PER SHARE
Earnings		$	3.31			$	2.49			$	2.65			$	2.39			$	1.70
Dividends		$	0.30			$	0.28			$	0.24			$	0.20			$	0.40
Tangible book value(1)		$	24.00			$	20.87			$	18.32			$	14.96			$	12.41
Quoted market value
High		$	26.00			$	25.50			$	23.00			$	20.65			$	16.00
Low		$	12.55			$	20.05			$	18.88			$	15.10			$	12.85
Close(1)		$	22.00			$	25.23			$	21.00			$	18.88			$	16.00
PERFORMANCE RATIOS
Return on average assets		1.29		%		1.20		%		1.20		%		1.19		%		0.92		%
Return on average shareholders' equity		14.05		%		12.02		%		15.05		%		15.38		%		10.28		%
Return on average tangible shareholders' equity		14.57		%		12.59		%		16.23		%		16.63		%		10.28		%
Efficiency ratio		58.10		%		63.20		%		65.23		%		66.20		%		74.56		%
Yield on earning assets (FTE)		4.01		%		4.77		%		4.57		%		4.55		%		4.38		%
Rate on interest bearing liabilities		0.82		%		1.41		%		1.07		%		0.65		%		0.76		%
Net interest margin to earning assets (FTE)		3.50		%		3.83		%		3.84		%		4.08		%		3.83		%
BALANCE SHEET DATA(1)
Total investment securities		$	76,501			$	61,621			$	94,721			$	55,323			$	72,458
Gross loans		$	1,066,562			$	870,555			$	772,227			$	672,530			$	515,775
Total assets		$	1,251,343			$	1,034,759			$	926,450			$	781,443			$	703,350
Total deposits		$	1,071,976			$	863,102			$	763,124			$	673,505			$	603,367
Borrowed funds		$	49,000			$	61,500			$	69,000			$	46,000			$	45,000
Total shareholders' equity		$	116,435			$	101,444			$	89,516			$	59,447			$	50,660
Net loans to total deposits		98.48		%		100.19		%		100.60		%		99.32		%		85.01		%
Common shares outstanding		4,694,573				4,664,369				4,636,455				3,631,933				3,619,282
YTD BALANCE SHEET AVERAGES
Total assets		$	1,200,605			$	961,586			$	844,673			$	730,974			$	484,042
Earning assets		$	1,147,570			$	913,574			$	796,283			$	698,753			$	429,547
Interest bearing liabilities		$	726,869			$	612,549			$	544,344			$	485,522			$	306,614
Total shareholders' equity		$	110,094			$	96,358			$	67,192			$	56,429			$	43,218
Total tangible shareholders' equity		$	106,140			$	91,994			$	62,329			$	52,181			$	43,218
Earned common shares outstanding		4,669,992				4,643,955				3,811,677				3,625,568				2,608,903
Unvested stock grants		14,026				9,917				756				—				—
Total common shares outstanding		4,684,018				4,653,872				3,812,433				3,625,568				2,608,903
ASSET QUALITY(1)
Nonperforming loans to gross loans		0.75		%		0.17		%		0.14		%		—		%		—		%
Nonperforming assets to total assets		0.64		%		0.14		%		0.12		%		0.02		%		0.04		%
Allowance for loan losses to gross loans		1.02		%		0.67		%		0.58		%		0.54		%		0.55		%
Allowance for loan losses to gross loans, net of PPP loans		1.23		%		0.67		%		0.58		%		0.54		%		0.55		%
CAPITAL RATIOS(1)
Total capital to risk weighted assets		15.21		%		14.03		%		14.00		%		10.93		%		11.47		%
Tier 1 capital to risk weighted assets		14.00		%		13.33		%		13.40		%		10.39		%		10.95		%
CET1 capital to risk weighted assets		12.44		%		11.64		%		11.52		%		8.27		%		8.40		%
Tier 1 leverage ratio		9.85		%		11.20		%		10.92		%		8.98		%		11.93		%
(1)At end of period

Income Statement Breakdown and Analysis

		Quarter to Date
		12/31/2020					9/30/2020					6/30/2020					3/31/2020					12/31/2019
GAAP net income		$	2,733				$	5,336				$	4,043				$	3,352				$	2,552
Acquisition related items (net of tax)
Accretion on purchased loans		(82			)		(144			)		(110			)		(180			)		(126			)
Amortization of core deposit intangibles		71					72					71					71					89
Amortization on acquired time deposits		5					5					5					5					7
Amortization on purchased mortgage servicing rights		—					—					—					—					3
Total acquisition related items (net of tax)		(6			)		(67			)		(34			)		(104			)		(27			)
Other nonrecurring items (net of tax)
FHLB prepayment penalties		1,507					—					—					—					—
Change in fair value of equity investment due to acquisition transaction		—					—					—					(578			)		—
Change in fair value of mortgage banking instruments(1)		—					—					—					(567			)		—
Interest writeoff from loan transferred to nonaccrual		265					—					—					—					—
Net gain from COLI death benefit		—					—					(173			)		—					—
Prepayment penalties collected		(97			)		(16			)		(12			)		(36			)		(42			)
Mortgage servicing rights (reduction of) impairment		(188			)		(176			)		191					173					—
Total other nonrecurring items (net of tax)		1,487					(192			)		6					(1,008			)		(42			)
Adjusted net income from operations		$	4,214				$	5,077				$	4,015				$	2,240				$	2,483
GAAP net interest income		$	10,652				$	10,881				$	9,597				$	8,925				$	8,918
Accretion on purchased loans		(104			)		(182			)		(139			)		(228			)		(160			)
Interest writeoff from loan transferred to nonaccrual		335					—					—					—					—
Prepayment penalties collected		(123			)		(20			)		(15			)		(46			)		(53			)
Amortization on acquired time deposits		6					6					6					6					9
Adjusted net interest income		$	10,766				$	10,685				$	9,449				$	8,657				$	8,714
PERFORMANCE RATIOS
Based on adjusted net income from operations
Earnings per share		$	0.90				$	1.09				$	0.86				$	0.48				$	0.53
Return on average assets		1.30		%			1.60		%			1.34		%			0.86		%			0.99		%
Return on average shareholders' equity		14.30		%			17.94		%			15.09		%			8.69		%			9.75		%
Return on average tangible shareholders' equity		14.78		%			18.59		%			15.68		%			9.05		%			10.18		%
Efficiency ratio		59.02		%			52.03		%			52.12		%			62.83		%			67.31		%
Based on adjusted net interest income
Yield on earning assets (FTE)		3.75		%			3.97		%			3.94		%			4.50		%			4.66		%
Rate on interest bearing liabilities		0.50		%			0.63		%			0.92		%			1.29		%			1.37		%
Net interest margin to earning assets (FTE)		3.47		%			3.52		%			3.32		%			3.52		%			3.66		%

		Year to Date December 31										Variance
		2020					2019					Amount				%
GAAP net income		$	15,464				$	11,578				$	3,886			33.56	%
Acquisition related items (net of tax)
Accretion on purchased loans		(516			)		(635			)		119				(18.74	)%
Amortization of core deposit intangibles		285					356					(71		)		(19.94	)%
Amortization on acquired time deposits		20					28					(8		)		(28.57	)%
Amortization on purchased mortgage servicing rights		—					12					(12		)		(100.00	)%
Total acquisition related items (net of tax)		(211			)		(239			)		28				(11.72	)%
Other nonrecurring items (net of tax)
FHLB prepayment penalties		1,507					—					1,507				N/M
Change in fair value of equity investment due to acquisition transaction		(578			)		—					(578		)		N/M
Change in fair value of mortgage banking instruments(1)		(567			)		—					(567		)		N/M
Interest writeoff from loan transferred to nonaccrual		265					—					265				N/M
Net gain from COLI death benefit		(173			)		—					(173		)		N/M
Prepayment penalties collected		(161			)		(348			)		187				(53.74	)%
Mortgage servicing rights (reduction of) impairment		—					—					—				N/M
Total other nonrecurring items (net of tax)		293					(348			)		641				(184.20	)%
Adjusted net income from operations		$	15,546				$	10,991				$	4,555			41.44	%
GAAP net interest income		$	40,055				$	34,914				$	5,141			14.72	%
Accretion on purchased loans		(653			)		(804			)		151				(18.78	)%
Interest writeoff from loan transferred to nonaccrual		335					—					335				N/M
Prepayment penalties collected		(204			)		(441			)		237				(53.74	)%
Amortization on acquired time deposits		24					35					(11		)		(31.43	)%
Adjusted net interest income		$	39,557				$	33,704				$	5,853			17.37	%
PERFORMANCE RATIOS
Based on adjusted net income from operations
Earnings per share		$	3.33				$	2.37				$	0.96			40.51	%
Return on average assets		1.29		%			1.14		%							0.15	%
Return on average shareholders' equity		14.12		%			11.41		%							2.71	%
Return on average tangible shareholders' equity		14.65		%			11.95		%							2.70	%
Efficiency ratio		56.16		%			63.92		%							(7.76	)%
Based on adjusted net interest income
Yield on earning assets (FTE)		3.97		%			4.64		%							(0.67	)%
Rate on interest bearing liabilities		0.82		%			1.41		%							(0.59	)%
Net interest margin to earning assets (FTE)		3.45		%			3.69		%							(0.24	)%

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

⁽¹⁾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. 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
		December 31, 2020											September 30, 2020											December 31, 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		$	1,099,779			$	11,268			4.08	%		$	1,086,629			$	11,701			4.28	%		$	857,474			$	10,581			4.90	%
Taxable investment securities		62,866				238				1.51	%		62,490				256				1.63	%		49,982				307				2.44	%
Nontaxable investment securities		16,047				103				2.55	%		15,822				101				2.54	%		10,366				80				3.06	%
Federal funds sold		—				—				—	%		—				—				—	%		16,833				66				1.56	%
Interest earning cash and cash equivalents		53,715				15				0.11	%		41,845				9				0.09	%		6,887				28				1.61	%
Federal Home Loan Bank stock		3,488				22				2.51	%		3,488				24				2.74	%		3,150				31				3.90	%
Total earning assets		1,235,895				11,646				3.75	%		1,210,274				12,091				3.97	%		944,692				11,093				4.66	%
Nonearning assets
Allowance for loan losses		(10,375		)									(9,255		)									(5,519		)
Fixed assets		15,465											15,349											15,395
Accrued income and other assets		47,214											47,737											39,526
Total assets		$	1,288,199										$	1,264,105										$	994,094
Interest bearing liabilities
Interest bearing demand deposits		$	218,627			$	128			0.23	%		$	221,592			$	144			0.26	%		$	140,368			$	410			1.16	%
Savings deposits		291,856				114				0.16	%		271,260				116				0.17	%		225,219				217				0.38	%
Time deposits		179,076				407				0.90	%		161,212				567				1.40	%		201,640				1,089				2.14	%
Borrowed funds		83,573				323				1.54	%		96,217				362				1.50	%		62,227				442				2.82	%
Total interest bearing liabilities		773,132				972				0.50	%		750,281				1,189				0.63	%		629,454				2,158				1.36	%
Noninterest bearing liabilities
Noninterest bearing deposits		385,032											388,904											254,858
Accrued interest and other liabilities		12,772											12,355											8,791
Shareholders' equity		117,263											112,565											100,991
Total liabilities and shareholders' equity		$	1,288,199										$	1,264,105										$	994,094
Net interest income (FTE)						$	10,674										$	10,902										$	8,935
Net interest margin to earning assets (FTE)										3.44	%										3.58	%										3.75	%

		Twelve Months Ended
		December 31, 2020											December 31, 2019
		Average Balance				Tax Equivalent Interest				Average Yield / Rate			Average Balance				Tax Equivalent Interest				Average Yield / Rate
Interest earning assets
Total loans		$	1,028,303			$	44,238			4.30	%		$	820,489			$	41,102			5.01	%
Taxable investment securities		61,288				1,170				1.91	%		63,661				1,703				2.68	%
Nontaxable investment securities		13,463				368				2.73	%		9,951				297				2.98	%
Federal funds sold		8,397				116				1.38	%		10,904				216				1.98	%
Interest earning cash and cash equivalents		32,767				55				0.17	%		5,419				116				2.14	%
Federal Home Loan Bank stock		3,352				109				3.25	%		3,150				169				5.37	%
Total earning assets		1,147,570				46,056				4.01	%		913,574				43,603				4.77	%
Nonearning assets
Allowance for loan losses		(8,301		)									(5,018		)
Fixed assets		15,465											14,998
Accrued income and other assets		45,871											38,032
Total assets		$	1,200,605										$	961,586
Interest bearing liabilities
Interest bearing demand deposits		$	200,200			$	996			0.50	%		$	96,713			$	855			0.88	%
Savings deposits		260,498				569				0.22	%		238,656				1,115				0.47	%
Time deposits		181,859				2,848				1.57	%		216,839				4,835				2.23	%
Borrowed funds		84,312				1,511				1.79	%		60,341				1,822				3.02	%
Total interest bearing liabilities		726,869				5,924				0.82	%		612,549				8,627				1.41	%
Noninterest bearing liabilities
Noninterest bearing deposits		352,489											246,357
Accrued interest and other liabilities		11,153											6,322
Shareholders' equity		110,094											96,358
Total liabilities and shareholders' equity		$	1,200,605										$	961,586
Net interest income (FTE)						$	40,132										$	34,976
Net interest margin to earning assets (FTE)										3.50	%										3.83	%

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												Twelve Months Ended
		December 31, 2020												December 31, 2020												December 31, 2020
		Compared To												Compared To												Compared To
		September 30, 2020												December 31, 2019												December 31, 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		$	805			$	(1,238	)		$	(433	)		$	9,263			$	(8,576	)		$	687			$	9,481			$	(6,345	)		$	3,136
Taxable investment securities		10				(28		)		(18		)		347				(416		)		(69		)		(62		)		(471		)		(533		)
Nontaxable investment securities		2				—				2				99				(76		)		23				98				(27		)		71
Federal funds sold		—				—				—				(33		)		(33		)		(66		)		(43		)		(57		)		(100		)
Interest earning cash and cash equivalents		3				3				6				170				(183		)		(13		)		129				(190		)		(61		)
Federal Home Loan Bank stock		—				(2		)		(2		)		18				(27		)		(9		)		10				(70		)		(60		)
Total changes in interest income		820				(1,265		)		(445		)		9,864				(9,311		)		553				9,613				(7,160		)		2,453
Changes in interest expense
Interest bearing demand deposits		(2		)		(14		)		(16		)		955				(1,237		)		(282		)		625				(484		)		141
Savings deposits		29				(31		)		(2		)		300				(403		)		(103		)		95				(641		)		(546		)
Time deposits		344				(504		)		(160		)		(110		)		(572		)		(682		)		(701		)		(1,286		)		(1,987		)
Borrowed funds		(96		)		57				(39		)		635				(754		)		(119		)		579				(890		)		(311		)
Total changes in interest expense		275				(492		)		(217		)		1,780				(2,966		)		(1,186		)		598				(3,301		)		(2,703		)
Net change in net interest income (FTE)		$	545			$	(773	)		$	(228	)		$	8,084			$	(6,345	)		$	1,739			$	9,015			$	(3,859	)		$	5,156

		Average Yield/Rate for the Three Month Periods Ended
		12/31/2020			9/30/2020			6/30/2020			3/31/2020			12/31/2019
Total earning assets		3.75	%		3.97	%		3.94	%		4.47	%		4.66	%
Total interest bearing liabilities		0.50	%		0.63	%		0.91	%		1.28	%		1.36	%
Net interest margin to earning assets (FTE)		3.44	%		3.58	%		3.37	%		3.61	%		3.75	%

		Quarter to Date Net Interest Income (FTE)
		12/31/2020				9/30/2020				6/30/2020				3/31/2020				12/31/2019
Interest income		$	11,624			$	12,070			$	11,215			$	11,070			$	11,076
FTE adjustment		22				21				18				17				17
Total interest income (FTE)		11,646				12,091				11,233				11,087				11,093
Total interest expense		972				1,189				1,618				2,145				2,158
Net interest income (FTE)		$	10,674			$	10,902			$	9,615			$	8,942			$	8,935

Noninterest Income

		Quarter to Date
		12/31/2020				9/30/2020				6/30/2020				3/31/2020				12/31/2019
Net gain on sales of mortgage loans		$	2,994			$	3,130			$	2,644			$	970			$	650
ATM and debit card income		437				460				394				355				399
Trust and investment services		445				464				321				389				337
Change in fair value of mortgage banking instruments		(449		)		(66		)		1,225				833				—
Mortgage servicing fees		325				293				270				262				256
Net mortgage servicing rights income		509				559				(163		)		(50		)		130
Change in fair value of equity investments		(3		)		2				7				749				(5		)
Service charges on deposit accounts		194				177				119				219				245
Net gain on sales of commercial loans		—				—				—				668				—
Net gain from corporate owned life insurance death benefit		—				—				173				—				—
Other income and fees		224				140				302				118				117
Total noninterest income		$	4,676			$	5,159			$	5,292			$	4,513			$	2,129
Residential mortgage operations		$	3,379			$	3,916			$	3,976			$	2,015			$	1,036

		Year to Date December 31								Variance
		2020				2019				Amount				%
Net gain on sales of mortgage loans		$	9,738			$	1,932			$	7,806			404.04	%
ATM and debit card income		1,646				1,581				65				4.11	%
Trust and investment services		1,619				1,519				100				6.58	%
Change in fair value of mortgage banking instruments		1,543				—				1,543				N/M
Mortgage servicing fees		1,150				940				210				22.34	%
Net mortgage servicing rights income		855				624				231				37.02	%
Change in fair value of equity investments		755				46				709				1541.30	%
Service charges on deposit accounts		709				940				(231		)		(24.57	)%
Net gain on sales of commercial loans		668				—				668				N/M
Net gain from corporate owned life insurance death benefit		173				—				173				N/M
Other income and fees		784				581				203				34.94	%
Total noninterest income		$	19,640			$	8,163			$	11,477			140.60	%
Residential mortgage operations		$	13,286			$	3,496			9,790				280.03	%

Residential Mortgage Operations

Net gain on sales of mortgage loans represents the income earned on the sale of residential mortgage loans into the secondary market. Throughout 2020, the interest rate environment was very advantageous for residential mortgage originations and refinancing, resulting in record gains. Although many consumers are facing uncertainty due to the COVID-19 pandemic, residential mortgage originations and refinancing activities were substantially greater in 2020. Throughout 2020, home values and housing costs continued to rise due to inventory shortages and a lack of new construction. The Corporation expects residential mortgage activity to moderate in 2021.

Change in fair value of mortgage banking instruments represents changes in the fair value of the Corporation's interest rate lock commitments, mortgage loans held-for-sale, and mandatory forward loan sales commitments. On January 1, 2020, the Corporation adopted SAB 109, resulting in the Corporation recognizing the value of servicing at the time of commitment, rather than at the time of delivery. Additionally, the Corporation also elected the fair value option for residential mortgage loans HFS on January 1, 2020. Generally, the adoption of SAB 109 resulted in the acceleration of the timing of revenue recognition in relation to the Corporation's secondary market mortgage production. Pursuant to this adoption, changes in the fair value of mortgage banking instruments and loans held for sale are included in noninterest income.

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 2021.

Net mortgage servicing rights income represents income generated from the capitalization of mortgage servicing rights, net of amortization and impairment. In each of the first two quarters of 2020, the Corporation recognized impairments in its servicing portfolio as a direct result of the low interest rate environment and record level of refinancing activity. During the third and fourth quarters of 2020, these impairments were reversed.

Overall revenues from residential mortgage operations (net gains from sale of mortgage loans, change in the fair value of mortgage banking instruments, mortgage servicing fees, and net mortgage servicing rights income) increased by $9,790 or 280.03% in 2020, which represented a record level of production for the Corporation's residential mortgage team. Included in the $487,342 of residential mortgage production in 2020, was $292,130 in refinancing activity. As refinancing activity is expected to decline in 2021, revenues from residential mortgage operations will likely decline in 2021.

All Other Noninterest Income

ATM and debit card income represents fees earned on ATM and debit card transactions. The Corporation expects these fees to increase modestly into 2021.

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 increase modestly in 2021.

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 in the foreseeable future.

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 pandemic. Service charges on deposit accounts are expected to approximate current levels into 2021.

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 does not expect to receive any gains from the sale of commercial loans in 2021.

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 in 2021.

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 2021.

Noninterest Expenses

		Quarter to Date
		12/31/2020				9/30/2020				6/30/2020				3/31/2020				12/31/2019
Total compensation		$	4,958			$	4,531			$	4,252			$	4,248			$	4,037
Professional services		938				524				571				522				582
Furniture and equipment		607				614				618				610				575
Data processing		501				503				535				442				362
FHLB prepayment penalty		1,907				—				—				—				—
Occupancy		475				491				435				476				467
Loan and collection		359				292				229				162				203
Advertising and promotional		184				284				255				252				232
ATM and debit card		125				109				92				108				98
Amortization of core deposit intangibles		90				91				90				90				113
Telephone and communication		64				91				86				96				115
FDIC insurance premiums		59				55				59				55				6
Other general and administrative		704				633				587				625				625
Total noninterest expenses		$	10,971			$	8,218			$	7,809			$	7,686			$	7,415

		Year to Date December 31								Variance
		2020				2019				Amount				%
Total compensation		$	17,989			$	14,946			$	3,043			20.36	%
Professional services		2,555				1,960				595				30.36	%
Furniture and equipment		2,449				1,998				451				22.57	%
Data processing		1,981				1,416				565				39.90	%
FHLB prepayment penalty		1,907				—				1,907				N/M
Occupancy		1,877				1,774				103				5.81	%
Loan and collection		1,042				552				490				88.77	%
Advertising and promotional		975				908				67				7.38	%
ATM and debit card		434				402				32				7.96	%
Amortization of core deposit intangibles		361				451				(90		)		(19.96	)%
Telephone and communication		337				444				(107		)		(24.10	)%
FDIC insurance premiums		228				144				84				58.33	%
Other general and administrative		2,549				2,228				321				14.41	%
Total noninterest expenses		$	34,684			$	27,223			$	7,461			27.41	%

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, however, commissions are expected to decline in 2021.

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.

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.

Data processing primarily includes the expenses relating to the Corporation's core data processor. These expenses are expected to increase throughout 2021 with the size and complexity of the Corporation.

During the fourth quarter of 2020, the Corporation paid off three Federal Home Loan Bank borrowings, totaling $30,000. The Corporation incurred a one-time early payoff fee in the amount $1,907. The payoff was executed to enhance net interest income and net interest margins in each of the next three years. The weighted average rate of the three FHLB borrowings was 2.17%. The Corporation is expected to save approximately $650 during 2021.

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 continue to experience an increase in these expenses into 2021.

Advertising and promotional includes the Corporation's media costs and any donations or sponsorships made on behalf of the Corporation. The annual 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. In addition to traditional marketing strategies, the Corporation rolled out a new branding strategy in 2020, which resulted in elevated advertising and promotional expenses. Total advertising and promotional expenses are expected to decline slightly in 2021.

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 2021.

Amortization of core deposit intangibles relates to the core deposits acquired from Community Bancorp, Inc. on December 31, 2016 and is expected to continue to decline as the core deposit intangible is being amortized based on the sum-of-years-digits method.

Telephone and communication includes expenses relating to the Corporation's communication systems. These expenses are expected to maintain current levels throughout 2021.

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. FDIC insurance premiums are expected to increase in 2021 primarily due to the Corporation's growth in total assets.

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

Balance Sheet Breakdown and Analysis

		12/31/2020				9/30/2020				6/30/2020				3/31/2020				12/31/2019
ASSETS
Cash and cash equivalents		$	46,367			$	75,032			$	35,190			$	71,140			$	46,803
Total investment securities		76,501				78,179				75,526				76,312				61,621
Loans held-for-sale		27,306				34,833				46,354				21,154				19,491
Gross loans		1,066,562				1,060,885				1,044,564				865,577				870,555
Less allowance for loan losses		10,900				10,100				8,991				7,250				5,813
Net loans		1,055,662				1,050,785				1,035,573				858,327				864,742
All other assets		45,507				46,016				45,051				44,247				42,102
Total assets		$	1,251,343			$	1,284,845			$	1,237,694			$	1,071,180			$	1,034,759
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits		$	1,071,976			$	1,061,470			$	1,018,287			$	883,837			$	863,102
Total borrowed funds		49,000				96,217				96,217				71,500				61,500
Accrued interest payable and other liabilities		13,932				13,077				14,221				11,015				8,713
Total liabilities		1,134,908				1,170,764				1,128,725				966,352				933,315
Total shareholders' equity		116,435				114,081				108,969				104,828				101,444
Total liabilities and shareholders' equity		$	1,251,343			$	1,284,845			$	1,237,694			$	1,071,180			$	1,034,759

		12/31/2020 vs 9/30/2020							12/31/2020 vs 12/31/2019
		Variance							Variance
		Amount				%			Amount				%
ASSETS
Cash and cash equivalents		$	(28,665	)		(38.20	)%		$	(436	)		(0.93	)%
Total investment securities		(1,678		)		(2.15	)%		14,880				24.15	%
Loans held-for-sale		(7,527		)		(21.61	)%		7,815				40.10	%
Gross loans		5,677				0.54	%		196,007				22.52	%
Less allowance for loan losses		800				7.92	%		5,087				87.51	%
Net loans		4,877				0.46	%		190,920				22.08	%
All other assets		(509		)		(1.11	)%		3,405				8.09	%
Total assets		$	(33,502	)		(2.61	)%		$	216,584			20.93	%
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits		$	10,506			0.99	%		$	208,874			24.20	%
Total borrowed funds		(47,217		)		(49.07	)%		(12,500		)		(20.33	)%
Accrued interest payable and other liabilities		855				6.54	%		5,219				59.90	%
Total liabilities		(35,856		)		(1.61	)%		201,593				11.22	%
Total shareholders' equity		2,354				2.06	%		14,991				14.78	%
Total liabilities and shareholders' equity		$	(33,502	)		(2.61	)%		$	216,584			20.93	%

Cash and cash equivalents

		12/31/2020				9/30/2020					6/30/2020				3/31/2020				12/31/2019
Cash and cash equivalents
Noninterest bearing		$	22,712			$	22,108				$	20,369			$	33,312			$	17,754
Interest bearing		23,655				52,924					14,821				37,828				6,049
Federal funds sold		—				—					—				—				23,000
Cash and cash equivalents		$	46,367			$	75,032				$	35,190			$	71,140			$	46,803

		12/31/2020 vs 9/30/2020									12/31/2020 vs 12/31/2019
		Variance									Variance
		Amount				%					Amount				%
Cash and cash equivalents
Noninterest bearing		$	604			2.73			%		$	4,958			27.93		%
Interest bearing		(29,269		)		(55.30			)%		17,606				291.06		%
Federal funds sold		—				N/M					(23,000		)		(100.00		)%
Cash and cash equivalents		$	(28,665	)		(38.20			)%		$	(436	)		(0.93		)%

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:

		12/31/2020				9/30/2020				6/30/2020				3/31/2020				12/31/2019
Cash and cash equivalents		$	46,367			$	75,032			$	35,190			$	71,140			$	46,803
Unpledged investment securities		59,025				58,739				52,647				51,889				40,094
FHLB borrowing availability		140,000				97,500				97,500				42,500				52,500
Federal funds purchased lines of credit		21,500				21,500				21,500				17,500				17,500
Funds available through the Fed Discount Window		10,000				10,000				10,000				10,000				10,000
PPPLF		177,845				206,343				202,184				—				—
Total liquidity sources		$	454,737			$	469,114			$	419,021			$	193,029			$	166,897

Total investment securities

		12/31/2020				9/30/2020					6/30/2020				3/31/2020				12/31/2019
Available-for-sale
U.S. Government and federal agency		$	7,935			$	19,311				$	21,339			$	23,610			$	18,867
State and municipal		15,768				15,729					14,115				10,657				10,691
Mortgage backed residential		19,101				20,886					12,335				10,176				10,748
Certificates of deposit		5,180				5,921					6,665				8,644				6,659
Collateralized mortgage obligations - agencies		23,110				11,141					15,736				18,288				9,527
Unrealized gain/(loss) on available-for-sale securities		1,932				2,099					2,242				1,735				1,092
Total available-for-sale		73,026				75,087					72,432				73,110				57,584
Held-to-maturity state and municipal		1,973				1,977					1,981				2,091				2,096
Equity securities		1,502				1,115					1,113				1,111				1,941
Total investment securities		$	76,501			$	78,179				$	75,526			$	76,312			$	61,621

 

		12/31/2020 vs 9/30/2020								12/31/2020 vs 12/31/2019
		Variance								Variance
		Amount				%				Amount				%
Available-for-sale
U.S. Government and federal agency		$	(11,376	)		(58.91		)%		$	(10,932	)		(57.94		)%
State and municipal		39				0.25		%		5,077				47.49		%
Mortgage backed residential		(1,785		)		(8.55		)%		8,353				77.72		%
Certificates of deposit		(741		)		(12.51		)%		(1,479		)		(22.21		)%
Collateralized mortgage obligations - agencies		11,969				107.43		%		13,583				142.57		%
Unrealized gain/(loss) on available-for-sale securities		(167		)		(7.96		)%		840				76.92		%
Total available-for-sale		(2,061		)		(2.74		)%		15,442				26.82		%
Held-to-maturity state and municipal		(4		)		(0.20		)%		(123		)		(5.87		)%
Equity securities		387				34.71		%		(439		)		(22.62		)%
Total investment securities		$	(1,678	)		(2.15		)%		$	14,880			24.15		%

The amortized cost and fair value of AFS investment securities as of December 31, 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		$	4,994			$	2,941			$	—			$	—			$	—			$	7,935
State and municipal		1,784				6,237				5,665				2,082				—				15,768
Mortgage backed residential		—				—				—				—				19,101				19,101
Certificates of deposit		990				4,190				—				—				—				5,180
Collateralized mortgage obligations - agencies		—				—				—				—				23,110				23,110
Total amortized cost		$	7,768			$	13,368			$	5,665			$	2,082			$	42,211			$	71,094
Fair value		$	7,847			$	14,166			$	5,909			$	2,420			$	42,684			$	73,026

The amortized cost and fair value of HTM investment securities as of December 31, 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		$	413			$	1,110			$	370			$	80			$	—			$	1,973
Fair value		$	416			$	1,154			$	398			$	86			$	—			$	2,054

Throughout 2020, yields on bonds that met the Corporation's investment standards declined significantly. An influx of liquidity during the year 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 December 31, 2020 for investment securities purchased YTD:

		Book Value				Fully Taxable Equivalent Weighted Average Yield
U.S. Government and federal agency		$	—			—	%
State and municipal		7,087				1.69	%
Collateralized mortgage obligations - agencies		20,902				1.09	%
Certificates of deposit		—				—	%
Mortgage backed residential		12,556				1.09	%
Held-to-maturity state and municipal		—				—	%
Total		$	40,545			1.19	%

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.

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:

		12/31/2020				9/30/2020						6/30/2020				3/31/2020				12/31/2019
Commercial		$	241,424			$	271,113					$	260,440			$	67,731			$	71,689
Commercial real estate		517,054				483,275						469,039				462,561				455,289
Total commercial loans		758,478				754,388						729,479				530,292				526,978
Residential mortgage		262,770				261,375						268,295				285,392				292,946
Home equity		39,900				39,456						40,114				43,222				41,987
Total residential real estate loans		302,670				300,831						308,409				328,614				334,933
Consumer		5,414				5,666						6,676				6,671				8,644
Gross loans		1,066,562				1,060,885						1,044,564				865,577				870,555
Allowance for loan losses		(10,900		)		(10,100				)		(8,991		)		(7,250		)		(5,813				)
Loans, net		$	1,055,662			$	1,050,785					$	1,035,573			$	858,327			$	864,742

		12/31/2020 vs 9/30/2020									12/31/2020 vs 12/31/2019
		Variance									Variance
		Amount				%					Amount				%
Commercial		$	(29,689	)		(10.95		)%			$	169,735			236.77		%
Commercial real estate		33,779				6.99		%			61,765				13.57		%
Total commercial loans		4,090				0.54		%			231,500				43.93		%
Residential mortgage		1,395				0.53		%			(30,176		)		(10.30		)%
Home equity		444				1.13		%			(2,087		)		(4.97		)%
Total residential real estate loans		1,839				0.61		%			(32,263		)		(9.63		)%
Consumer		(252		)		(4.45		)%			(3,230		)		(37.37		)%
Gross loans		5,677				0.54		%			196,007				22.52		%
Allowance for loan losses		(800		)		7.92		%			(5,087		)		87.51		%
Loans, net		$	4,877			0.46		%			$	190,920			22.08		%

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

		12/31/2020				9/30/2020				6/30/2020				3/31/2020				12/31/2019
Originated loans collectively evaluated for impairment
Commercial		$	241,009			$	270,174			$	259,384			$	66,524			$	70,322
Commercial real estate		497,133				469,353				452,084				446,713				436,626
Residential mortgage		259,080				257,395				263,997				280,265				286,635
Home equity		37,701				37,022				37,663				40,459				39,023
Consumer		5,248				5,477				6,445				6,391				8,330
Subtotal		1,040,171				1,039,421				1,019,573				840,352				840,936
Originated loans individually evaluated for impairment
Commercial		—				—				—				—				—
Commercial real estate		8,872				2,204				3,290				1,658				1,668
Residential mortgage		699				655				663				672				1,362
Home equity		—				—				—				—				—
Consumer		2				3				3				5				—
Subtotal		9,573				2,862				3,956				2,335				3,030
Acquired loans collectively evaluated for impairment
Commercial		387				910				1,057				1,204				1,362
Commercial real estate		10,755				11,368				13,293				13,630				16,346
Residential mortgage		2,073				2,335				2,683				3,459				3,911
Home equity		2,173				2,415				2,432				2,743				2,943
Consumer		163				185				226				273				314
Subtotal		15,551				17,213				19,691				21,309				24,876
Acquired loans individually evaluated for impairment
Commercial		—				—				—				—				—
Commercial real estate		—				—				—				—				—
Residential mortgage		54				55				—				58				58
Home equity		26				—				—				—				—
Consumer		—				—				—				—				—
Subtotal		80				55				—				58				58
Acquired loans with deteriorated credit quality
Commercial		28				29				(1		)		3				5
Commercial real estate		294				350				372				560				649
Residential mortgage		864				935				952				938				980
Home equity		—				19				19				20				21
Consumer		1				1				2				2				—
Subtotal		1,187				1,334				1,344				1,523				1,655
Gross Loans		$	1,066,562			$	1,060,885			$	1,044,564			$	865,577			$	870,555
Total originated loans		$	1,049,744			$	1,042,283			$	1,023,529			$	842,687			$	843,966
Total acquired loans		16,818				18,602				21,035				22,890				26,589
Gross loans		$	1,066,562			$	1,060,885			$	1,044,564			$	865,577			$	870,555

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

				12/31/2020								9/30/2020								6/30/2020							3/31/2020								12/31/2019
Originated loans collectively evaluated for impairment
Commercial				$		673						$		632						$		535					$		478						$		358
Commercial real estate				5,561								5,113								4,564							3,609								2,790
Residential mortgage				3,282								3,281								3,080							2,442								1,917
Home equity				424								416								353							280								195
Consumer				97								101								102							89								87
Subtotal				10,037								9,543								8,634							6,898								5,347
Originated loans individually evaluated for impairment
Commercial				—								—								—							—								—
Commercial real estate				602								289								100							111								127
Residential mortgage				4								5								5							6								128
Home equity				—								—								—							—								—
Consumer				2								3								3							5								—
Subtotal				608								297								108							122								255
Acquired loans collectively evaluated for impairment
Commercial				—								1								1							1								1
Commercial real estate				9								7								9							7								5
Residential mortgage				8								9								9							9								8
Home equity				16								18								15							14								12
Consumer				—								—								—							—								—
Subtotal				33								35								34							31								26
Acquired loans with deteriorated credit quality
Commercial				—								—								—							—								—
Commercial real estate				32								32								22							39								34
Residential mortgage				190								189								189							156								147
Home equity				—								4								4							4								4
Consumer				—								—								—							—								—
Subtotal				222								225								215							199								185
Allowance for loan losses				$		10,900						$		10,100						$		8,991					$		7,250						$		5,813
Total originated loans				$		10,645						$		9,840						$		8,742					$		7,020						$		5,602
Total acquired loans				255								260								249							230								211
Allowance for loan losses				$		10,900						$		10,100						$		8,991					$		7,250						$		5,813
Commercial				$		673						$		633						$		536					$		479						$		359
Commercial real estate				6,204								5,441								4,695							3,766								2,956
Residential mortgage				3,484								3,484								3,283							2,613								2,200
Home equity				440								438								372							298								211
Consumer				99								104								105							94								87
Allowance for loan losses				$		10,900						$		10,100						$		8,991					$		7,250						$		5,813

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

		12/31/2020				9/30/2020				6/30/2020				3/31/2020				12/31/2019
Accruing interest
Current		$	1,057,404			$	1,058,437			$	1,042,589			$	862,581			$	867,901
Past due 30-89 days		1,165				1,703				948				2,152				1,213
Past due 90 days or more		50				86				361				166				239
Total accruing interest		1,058,619				1,060,226				1,043,898				864,899				869,353
Nonaccrual		7,943				659				666				678				1,202
Total loans		$	1,066,562			$	1,060,885			$	1,044,564			$	865,577			$	870,555
Total loans past due and in nonaccrual status		$	9,158			$	2,448			$	1,975			$	2,996			$	2,654

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

		12/31/2020				9/30/2020				6/30/2020				3/31/2020				12/31/2019
Nonaccrual loans		$	7,943			$	659			$	666			$	678			$	1,202
Accruing loans past due 90 days or more		50				86				361				166				239
Total nonperforming loans		7,993				745				1,027				844				1,441
Other real estate owned		—				—				—				400				—
Total nonperforming assets		$	7,993			$	745			$	1,027			$	1,244			$	1,441

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

		12/31/2020			9/30/2020			6/30/2020			3/31/2020			12/31/2019
Nonperforming loans to gross loans		0.75	%		0.07	%		0.10	%		0.10	%		0.17	%
Nonperforming assets to total assets		0.64	%		0.06	%		0.08	%		0.12	%		0.14	%
Allowance for loan losses to gross loans		1.02	%		0.95	%		0.86	%		0.84	%		0.67	%
Allowance for loan losses to gross loans, less PPP loans		1.23	%		1.19	%		1.07	%		0.84	%		0.67	%

During the fourth quarter, the Corporation transferred one commercial real estate loan with an outstanding principal balance of $7,214 to nonaccrual. The underlying collateral for this loan is an extended stay hotel. The hotel's current cash flow is insufficient to service the debt in accordance with the contractual terms of the note and, as such, the loan continues to be on payment deferrals. A specific reserve has been established for the estimated collateral deficiency (based on a current appraisal), net of a 70% USDA guarantee.

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

		12/31/2020				9/30/2020				6/30/2020				3/31/2020				12/31/2019
Net unamortized discount on purchased loans		$	773			$	877			$	1,058			$	1,233			$	1,462

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 since December 31, 2019 were $177,845 of PPP loans.

Despite historically strong credit quality indicators, there continues to be significant uncertainty surrounding the overall impact of the COVID-19 pandemic on the loan portfolio. This uncertainty resulted in the Corporation increasing the ALLL by $5,087, or 87.51%, since December 31, 2019. Management will continue to monitor the loan portfolio to ensure that the ALLL remains appropriate.

The following table summarizes the average loan size as of:

		12/31/2020				9/30/2020				6/30/2020				3/31/2020				12/31/2019
Commercial		$	169			$	166			$	171			$	214			$	228
Commercial real estate		707				672				654				644				641
Total commercial loans		351				321				325				513				514
Residential mortgage		182				180				177				194				198
Home equity		45				45				45				46				44
Total residential real estate loans		130				129				128				137				138
Consumer		22				22				25				26				32
Gross loans		$	226			$	215			$	213			$	234			$	234

COVID-19, CARES Act and SBA activity

The communities which the Corporation serves are not immune to the fallout of the COVID-19 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 considered 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 6 months or less.

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.

As outlined in the following table, the majority of the Corporation's portfolio and serviced loans have returned to normal principal and interest payments. The balance of those loans with deferrals are actively monitored and specific reserves have been established where appropriate.

The table below outlines the active COVID-19 related loan modifications as of December 31, 2020:

		Number of Modifications			Outstanding Balance				% of Portfolio
Commercial		2			$	1,303			0.54	%
Commercial real estate		8			15,504				3.00	%
Total commercial loan modifications		10			16,807				2.22	%
Portfolio residential mortgage loans		5			333				0.13	%
Home equity		1			21				0.05	%
Total residential real estate loan modifications		6			354				0.12	%
Consumer		—			—				—	%
Total portfolio modifications		16			$	17,161			1.61	%
Residential mortgage loans serviced for FHLMC		55			$	9,423			1.80	%

The accommodation industry was particularly impacted by the COVID-19 pandemic. Due to executive action put in place by the government, including stay-at-home orders and travel restrictions, hotel occupancy rates were reduced drastically. The Corporation has 15 commercial loans in its portfolio in the accommodation industry with a book balance of $19,980. Of these loans, approximately 52% are government-backed by guarantees from either the SBA or USDA.

The Corporation was extremely active in participating in the PPP loan program. As of December 31, 2020, the Corporation funded 1,370 loans totaling $216,205. During the fourth quarter of 2020, the SBA began processing PPP forgiveness applications, which reduced the outstanding balance of PPP loans to $177,845 as of December 31, 2020. As of December 31, 2020, the Corporation received forgiveness payments for 232 PPP loans from the SBA.

The Corporation generated $6,799 in fees from the SBA through the PPP loan program. The income is being recognized over the life of the PPP loans (24 to 60 months) based on the level yield method. As of December 31, 2020, the Corporation has recognized $3,560 in income, with $3,239 remaining as unearned income.

All other assets

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

		12/31/2020				9/30/2020					6/30/2020				3/31/2020				12/31/2019
Premises and equipment, net		$	15,461			$	15,267				$	15,323			$	15,533			$	15,245
Corporate owned life insurance		10,291				10,225					10,115				10,380				10,316
Accrued interest receivable		5,068				5,645					5,266				3,124				2,877
Mortgage servicing rights		4,885				4,376					3,816				3,980				4,030
Federal Home Loan Bank stock		3,488				3,488					3,488				3,150				3,150
Goodwill		3,219				3,219					3,219				3,219				3,219
Derivatives		1,331				1,772					1,311				1,063				125
Core deposit intangibles		541				632					722				812				902
Right-of-use assets		364				387					409				432				475
Other real estate owned		—				—					—				400				—
Other assets		859				1,005					1,382				2,154				1,763
All other assets		$	45,507			$	46,016				$	45,051			$	44,247			$	42,102

		12/31/2020 vs 9/30/2020								12/31/2020 vs 12/31/2019
		Variance								Variance
		Amount				%				Amount				%
Premises and equipment, net		$	194			1.27		%		$	216			1.42		%
Corporate owned life insurance		66				0.65		%		(25		)		(0.24		)%
Accrued interest receivable		(577		)		(10.22		)%		2,191				76.16		%
Mortgage servicing rights		509				11.63		%		855				21.22		%
Federal Home Loan Bank stock		—				—		%		338				10.73		%
Goodwill		—				—		%		—				—		%
Derivatives		(441		)		(24.89		)%		1,206				964.80		%
Core deposit intangibles		(91		)		(14.40		)%		(361		)		(40.02		)%
Right-of-use assets		(23		)		(5.94		)%		(111		)		(23.37		)%
Other real estate owned		—				N/M				—				N/M
Other assets		(146		)		(14.53		)%		(904		)		(51.28		)%
All other assets		$	(509	)		(1.11		)%		$	3,405			8.09		%

Mortgage servicing rights 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 mortgage servicing rights is due to the increased volume of residential mortgage loan sales. The Corporation expects mortgage servicing rights to increase, as residential real estate lending is expected to continue to remain strong into 2021.

Derivatives represent the fair value of interest rate lock commitments and mandatory forward loan sales commitments that are in a gain position. These balances can fluctuate from period to period based on changes in interest rates and the volume of the Corporation's loan pipeline.

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:

		12/31/2020				9/30/2020					6/30/2020				3/31/2020				12/31/2019
Noninterest bearing demand		$	378,733			$	391,706				$	383,452			$	281,848			$	260,503
Interest bearing
Savings		290,343				269,051					245,957				215,748				215,218
Money market demand		113,729				99,252					90,504				79,070				88,350
NOW		101,419				120,681					122,477				83,910				75,976
Time deposits		187,752				180,780					175,897				223,261				223,055
Total deposits		$	1,071,976			$	1,061,470				$	1,018,287			$	883,837			$	863,102

		12/31/2020 vs 9/30/2020								12/31/2020 vs 12/31/2019
		Variance								Variance
		Amount				%				Amount				%
Noninterest bearing demand		$	(12,973	)		(3.31		)%		$	118,230			45.39		%
Interest bearing
Savings		21,292				7.91		%		75,125				34.91		%
Money market demand		14,477				14.59		%		25,379				28.73		%
NOW		(19,262		)		(15.96		)%		25,443				33.49		%
Time deposits		6,972				3.86		%		(35,303		)		(15.83		)%
Total deposits		$	10,506			0.99		%		$	208,874			24.20		%

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 December 31, 2020:

		Maturity Buckets
		3 Months or Less				3 to 6 Months				6 to 9 Months				9 to 12 Months				Beyond 12 Months
Balance		$	70,975			$	31,251			$	33,057			$	16,780			$	35,689
Weighted average yield		0.63		%		0.82		%		0.77		%		0.54		%		0.99		%
		Cumulative Maturities
		3 Months or Less				Up to 6 Months				Up to 9 Months				Up to 12 Months				Total
Balance		$	70,975			$	102,226			$	135,283			$	152,063			$	187,752
Weighted average yield		0.63		%		0.69		%		0.71		%		0.69		%		0.75		%

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:

		12/31/20				9/30/20					6/30/20				3/31/20				12/31/19
Federal Home Loan Bank borrowings		$	35,000			$	77,500				$	77,500			$	57,500			$	47,500
Subordinated debentures		14,000				14,000					14,000				14,000				14,000
PPPLF		—				4,717					4,717				—				—
Federal funds purchased		—				—					—				—				—
Total borrowed funds		$	49,000			$	96,217				$	96,217			$	71,500			$	61,500

		12/31/2020 vs 9/30/2020								12/31/2020 vs 12/31/2019
		Variance								Variance
		Amount				%				Amount				%
Federal Home Loan Bank borrowings		$	(42,500	)		(54.84		)%		$	(12,500	)		(26.32		)%
Subordinated debentures		—				—		%		—				—		%
PPPLF		(4,717		)		(100.00		)%		—				N/M
Federal funds purchased		—				—		%		—				—		%
Total borrowed funds		$	(47,217	)		(49.07		)%		$	(12,500	)		(20.33		)%

The Corporation utilizes a mix of borrowed funds and organic deposit growth to fund loan demand. The increase in Federal Home Loan Bank borrowings in the second quarter of 2020 was solely due to the Corporation funding PPP loans. The decrease in Federal Home Loan Bank borrowings in the fourth quarter of 2020 was primarily due to early payoffs of three FHLB borrowings totaling $30,000.

Total borrowed funds are expected to approximate current levels in 2021 as there are no scheduled maturities. 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:

		12/31/20				9/30/20					6/30/20				3/31/20				12/31/19
Federal Home Loan Bank borrowings		$	35,000			$	77,500				$	77,500			$	57,500			$	47,500
Brokered money market demand		—				25,029					25,010				—				—
Brokered time deposits		20,000				28,605					28,837				28,605				28,605
Subordinated debentures		14,000				14,000					14,000				14,000				14,000
Internet time deposits		2,839				10,208					11,690				18,005				18,009
PPPLF		—				4,717					4,717				—				—
Total wholesale funds		$	71,839			$	160,059				$	161,754			$	118,110			$	108,114

		12/31/2020 vs 9/30/2020								12/31/2020 vs 12/31/2019
		Variance								Variance
		Amount				%				Amount				%
Federal Home Loan Bank borrowings		$	(42,500	)		(54.84		)%		$	(12,500	)		(26.32		)%
Brokered money market demand		(25,029		)		(100.00		)%		—				N/M
Brokered time deposits		(8,605		)		(30.08		)%		(8,605		)		(30.08		)%
Subordinated debentures		—				—				—				—		%
Internet time deposits		(7,369		)		(72.19		)%		(15,170		)		(84.24		)%
PPPLF		(4,717		)		(100.00		)%		—				N/M
Total wholesale funds		$	(88,220	)		(55.12		)%		$	(36,275	)		(33.55		)%

The Corporation utilizes wholesale funds to manage balance sheet growth. Wholesale funding has historically been more expensive than core deposits, however, due to the COVID-19 pandemic, the FRB has kept Fed funds rates near zero. 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 2021 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. During the fourth quarter of 2020, the Corporation repurchased 5,640 shares for $110.

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 December 31, 2015 and all dividends were reinvested.

The graph accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/d09cbdf7-6e1d-421d ...

Date		FETM		ABAQ Index
12/31/2015		100.00		100.00
12/31/2016		119.19		135.98
12/31/2017		141.41		136.98
12/31/2018		158.44		114.22
12/31/2019		190.98		137.44
12/31/2020		169.84		117.60

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	Aaron D. Wirsing
	President & CEO	Chief Financial Officer
	Fentura Financial, Inc.	Fentura Financial, Inc.
	810.714.3902	810.714.3925
	[e-mail]	[e-mail]