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home / news releases / FETM - Fentura Financial Inc. Announces Fourth Quarter 2021 Earnings

FETM - Fentura Financial Inc. Announces Fourth Quarter 2021 Earnings

Fentura Financial Inc

Dollars in thousands except per share amounts. Certain items in the prior period financial statements have been reclassified to conform with the December 31, 2021 presentation.

FENTON, Mich., Feb. 04, 2022 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. (OTCQX: FETM) announces quarterly results of net income of $3,342 and $16,579 for the three and twelve months periods ended December 31, 2021, respectively.

"I am pleased to report another quarter and year of strong financial performance,” stated Ronald L. Justice, President and CEO. “Loan growth and asset quality both remained solid through the fourth quarter of 2021, contributing to our record earnings for the year and an ROA of 1.26% and NIM of 3.58%. Loan pipelines remain strong and should support solid performance in future periods. I continue to be impressed with our team's commitment to our mission and providing high quality community banking to the markets we serve, especially with the challenges of the COVID-19 pandemic. The completion of the acquisition of Farmers State Bank of Munith allows Fentura to serve the banking needs of an expanded market area and we look forward to continuing and growing the long-standing relationships built on the fine service tradition of the Farmers State Bank of Munith’s team."

On December 1, 2021, the Corporation completed the acquisition of Farmers State Bank of Munith ("FSB"), for cash consideration of $15,500, pursuant to the Agreement and Plan of Merger dated June 22, 2021, at which time FSB was merged into the Bank. Upon completion of the acquisition of FSB, the Corporation added total assets of $106,761, deposits of $96,169 and goodwill of $5,634. The Corporation's financials are inclusive of the impact related to the FSB acquisition.

Following is a discussion of the Corporation's financial performance as of, and for the three and twelve months periods ended December 31, 2021. 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 including the impact of the acquisition of FSB, which was completed on December 1, 2021, and provides certain performance measures as of, and for the three month periods ended:

12/31/2021
9/30/2021
6/30/2021
3/31/2021
12/31/2020
INCOME STATEMENT DATA
Interest income
$
11,749
$
11,584
$
11,658
$
11,919
$
11,624
Interest expense
645
653
762
676
972
Net interest income
11,104
10,931
10,896
11,243
10,652
Provision for loan losses
38
(436
)
6
212
982
Noninterest income
3,097
2,899
4,230
3,854
4,676
Noninterest expenses
9,957
9,453
9,222
9,031
10,971
Federal income tax expense
864
958
1,172
1,198
642
Net income
$
3,342
$
3,855
$
4,726
$
4,656
$
2,733
PER SHARE
Earnings
$
0.74
$
0.84
$
1.02
$
1.00
$
0.58
Dividends
$
0.080
$
0.080
$
0.080
$
0.080
$
0.075
Tangible book value (1)
$
25.43
$
26.53
$
25.73
$
24.75
$
23.88
Quoted market value
High
$
28.28
$
26.25
$
27.40
$
24.75
$
22.25
Low
$
25.75
$
25.60
$
23.55
$
21.90
$
16.93
Close (1)
$
28.28
$
25.75
$
26.00
$
23.30
$
22.00
PERFORMANCE RATIOS
Return on average assets
0.98
%
1.16
%
1.45
%
1.50
%
0.84
%
Return on average shareholders' equity
10.56
%
12.26
%
15.64
%
15.86
%
9.27
%
Return on average tangible shareholders' equity
10.87
%
12.63
%
16.12
%
16.38
%
9.58
%
Efficiency ratio
70.11
%
68.35
%
60.97
%
59.82
%
71.57
%
Yield on earning assets (FTE)
3.67
%
3.69
%
3.79
%
4.01
%
3.75
%
Rate on interest bearing liabilities
0.33
%
0.34
%
0.41
%
0.37
%
0.50
%
Net interest margin to earning assets (FTE)
3.47
%
3.48
%
3.55
%
3.79
%
3.44
%
BALANCE SHEET DATA (1)
Total investment securities
$
164,942
$
138,476
$
129,944
$
89,772
$
76,111
Gross loans
$
1,100,092
$
1,015,177
$
986,358
$
1,028,117
$
1,066,562
Total assets
$
1,417,931
$
1,329,300
$
1,309,685
$
1,303,175
$
1,251,446
Total deposits
$
1,228,298
$
1,144,291
$
1,126,496
$
1,122,508
$
1,071,976
Borrowed funds
$
50,000
$
50,000
$
49,500
$
49,000
$
49,000
Total shareholders' equity
$
124,455
$
124,809
$
122,986
$
119,360
$
115,868
Net loans to total deposits
88.71
%
87.80
%
86.60
%
90.60
%
98.48
%
Common shares outstanding
4,496,701
4,569,955
4,638,614
4,673,932
4,694,275
QTD BALANCE SHEET AVERAGES
Total assets
$
1,353,694
$
1,323,912
$
1,309,942
$
1,259,119
$
1,288,199
Earning assets
$
1,273,650
$
1,248,018
$
1,234,827
$
1,206,411
$
1,235,895
Interest bearing liabilities
$
773,082
$
756,545
$
753,706
$
735,159
$
773,132
Total shareholders' equity
$
125,500
$
124,720
$
121,235
$
119,034
$
117,263
Total tangible shareholders' equity
$
121,933
$
121,120
$
117,567
$
115,298
$
113,444
Earned common shares outstanding
4,520,962
4,582,401
4,644,833
4,664,893
4,682,063
Unvested stock grants
20,671
20,671
20,671
21,922
14,208
Total common shares outstanding
4,541,633
4,603,072
4,665,504
4,686,815
4,696,271
ASSET QUALITY (1)
Nonperforming loans to gross loans
0.18
%
0.82
%
0.87
%
0.79
%
0.75
%
Nonperforming assets to total assets
0.17
%
0.63
%
0.66
%
0.62
%
0.64
%
Allowance for loan losses to gross loans
0.95
%
1.03
%
1.09
%
1.08
%
1.02
%
Allowance for loan losses to gross loans, net of PPP loans
0.96
%
1.04
%
1.14
%
1.23
%
1.23
%
CAPITAL RATIOS (1)
Total capital to risk weighted assets
12.23
%
13.63
%
14.35
%
15.02
%
15.14
%
Tier 1 capital to risk weighted assets
11.31
%
12.64
%
13.27
%
13.84
%
13.93
%
CET1 capital to risk weighted assets
10.09
%
11.33
%
11.87
%
12.34
%
12.38
%
Tier 1 leverage ratio
9.14
%
10.21
%
10.19
%
10.31
%
9.80
%
(1) At end of period

The following table outlines the Corporation's YTD results of operations including the impact of the acquisition of FSB, which was completed on December 1, 2021, and provides certain performance measures as of, and for the twelve month periods ended:

12/31/2021
12/31/2020
12/31/2019
12/31/2018
12/31/2017
INCOME STATEMENT DATA
Interest income
$
46,910
$
45,979
$
43,541
$
36,350
$
30,111
Interest expense
2,736
5,924
8,627
5,827
3,120
Net interest income
44,174
40,055
34,914
30,523
26,991
Provision for loan losses
(180
)
5,634
1,335
1,057
609
Noninterest income
14,080
19,640
8,163
8,277
8,988
Noninterest expenses
37,663
34,684
27,223
25,310
23,818
Federal income tax expense
4,192
3,913
2,941
2,319
2,876
Net income
$
16,579
$
15,464
$
11,578
$
10,114
$
8,676
PER SHARE
Earnings
$
3.60
$
3.31
$
2.49
$
2.65
$
2.39
Dividends
$
0.320
$
0.300
$
0.280
$
0.240
$
0.200
Tangible book value (1)
$
25.43
$
23.88
$
20.87
$
18.32
$
14.96
Quoted market value
High
$
28.28
$
26.00
$
25.50
$
23.00
$
20.65
Low
$
21.90
$
12.55
$
20.05
$
18.88
$
15.10
Close (1)
$
28.28
$
22.00
$
25.23
$
21.00
$
18.88
PERFORMANCE RATIOS
Return on average assets
1.26
%
1.29
%
1.20
%
1.20
%
1.19
%
Return on average shareholders' equity
13.52
%
14.05
%
12.02
%
15.05
%
15.38
%
Return on average tangible shareholders' equity
13.93
%
14.57
%
12.59
%
16.23
%
16.63
%
Efficiency ratio
64.65
%
58.10
%
63.20
%
65.23
%
66.20
%
Yield on earning assets (FTE)
3.80
%
4.01
%
4.77
%
4.57
%
4.55
%
Rate on interest bearing liabilities
0.36
%
0.82
%
1.41
%
1.07
%
0.65
%
Net interest margin to earning assets (FTE)
3.58
%
3.50
%
3.83
%
3.84
%
4.08
%
BALANCE SHEET DATA (1)
Total investment securities
$
164,942
$
76,111
$
61,621
$
94,721
$
55,323
Gross loans
$
1,100,092
$
1,066,562
$
870,555
$
772,227
$
672,530
Total assets
$
1,417,931
$
1,251,446
$
1,034,759
$
926,450
$
781,443
Total deposits
$
1,228,298
$
1,071,976
$
863,102
$
763,124
$
673,505
Borrowed funds
$
50,000
$
49,000
$
61,500
$
69,000
$
46,000
Total shareholders' equity
$
124,455
$
115,868
$
101,444
$
89,516
$
59,447
Net loans to total deposits
88.71
%
98.48
%
100.19
%
100.60
%
99.32
%
Common shares outstanding
4,496,701
4,694,275
4,664,369
4,636,455
3,631,933
YTD BALANCE SHEET AVERAGES
Total assets
$
1,311,673
$
1,200,605
$
961,586
$
844,673
$
730,974
Earning assets
$
1,237,755
$
1,147,570
$
913,574
$
796,283
$
698,753
Interest bearing liabilities
$
754,622
$
726,869
$
612,549
$
544,344
$
485,522
Total shareholders' equity
$
122,629
$
110,094
$
96,358
$
67,192
$
56,429
Total tangible shareholders' equity
$
118,986
$
106,140
$
91,994
$
62,329
$
52,181
Earned common shares outstanding
4,603,259
4,669,979
4,643,955
3,811,677
3,625,568
Unvested stock grants
20,984
14,027
9,917
756
—
Total common shares outstanding
4,624,243
4,684,006
4,653,872
3,812,433
3,625,568
ASSET QUALITY (1)
Nonperforming loans to gross loans
0.18
%
0.75
%
0.17
%
0.14
%
—
%
Nonperforming assets to total assets
0.17
%
0.64
%
0.14
%
0.12
%
0.02
%
Allowance for loan losses to gross loans
0.95
%
1.02
%
0.67
%
0.58
%
0.54
%
Allowance for loan losses to gross loans, net of PPP loans
0.96
%
1.23
%
0.67
%
0.58
%
0.54
%
CAPITAL RATIOS (1)
Total capital to risk weighted assets
12.23
%
15.14
%
14.03
%
14.00
%
10.93
%
Tier 1 capital to risk weighted assets
11.31
%
13.93
%
13.33
%
13.40
%
10.39
%
CET1 capital to risk weighted assets
10.09
%
12.38
%
11.64
%
11.52
%
8.27
%
Tier 1 leverage ratio
9.14
%
9.80
%
11.20
%
10.92
%
8.98
%
(1) At end of period

Income Statement Breakdown and Analysis

Quarter to Date
12/31/2021
9/30/2021
6/30/2021
3/31/2021
12/31/2020
GAAP net income
$
3,342
$
3,855
$
4,726
$
4,656
$
2,733
Acquisition related items (net of tax)
Accretion on purchased loans
(154
)
(152
)
(152
)
(151
)
(82
)
Amortization of core deposit intangibles
54
54
53
54
71
Amortization on acquired time deposits
2
2
2
2
5
Other acquisition related expenses
178
51
—
—
—
Total acquisition related items (net of tax)
80
(45
)
(97
)
(95
)
(6
)
Other nonrecurring items (net of tax)
FHLB prepayment penalties
—
—
—
—
1,507
Change in fair value of equity investment due to acquisition transaction
—
—
—
—
—
Change in fair value of mortgage banking instruments
—
—
—
—
—
Interest writeoff from loan transferred to nonaccrual
—
—
—
—
265
Net gain from COLI death benefit
—
—
—
—
—
Prepayment penalties collected
—
(65
)
(33
)
(17
)
(97
)
Mortgage servicing rights impairment (reduction of impairment)
—
—
—
—
(188
)
Total other nonrecurring items (net of tax)
—
(65
)
(33
)
(17
)
1,487
Adjusted net income from operations
$
3,422
$
3,745
$
4,596
$
4,544
$
4,214
GAAP net interest income
$
11,104
$
10,931
$
10,896
$
11,243
$
10,652
Accretion on purchased loans
(195
)
(192
)
(192
)
(191
)
(104
)
Interest writeoff from loan transferred to nonaccrual
—
—
—
—
335
Prepayment penalties collected
(115
)
(82
)
(42
)
(21
)
(123
)
Amortization on acquired time deposits
3
3
3
3
6
Adjusted net interest income
$
10,797
$
10,660
$
10,665
$
11,034
$
10,766
PERFORMANCE RATIOS
Based on adjusted net income from operations
Earnings per share
$
0.76
$
0.82
$
0.99
$
0.97
$
0.90
Return on average assets
1.00
%
1.12
%
1.41
%
1.46
%
1.30
%
Return on average shareholders' equity
10.82
%
11.91
%
15.21
%
15.48
%
14.30
%
Return on average tangible shareholders' equity
11.13
%
12.27
%
15.68
%
15.98
%
14.78
%
Efficiency ratio
68.98
%
68.74
%
61.46
%
60.20
%
59.02
%
Based on adjusted net interest income
Yield on earning assets (FTE)
3.61
%
3.60
%
3.72
%
3.94
%
3.78
%
Rate on interest bearing liabilities
0.33
%
0.34
%
0.41
%
0.37
%
0.50
%
Net interest margin to earning assets (FTE)
3.40
%
3.39
%
3.47
%
3.71
%
3.47
%


Year to Date December 31
Variance
2021
2020
Amount
%
GAAP net income
$
16,579
$
15,464
$
1,115
7.21
%
Acquisition related items (net of tax)
Accretion on purchased loans
(609
)
(516
)
(93
)
18.02
%
Amortization of core deposit intangibles
215
285
(70
)
(24.56)%
Amortization on acquired time deposits
8
18
(10
)
(55.56)%
Other acquisition related expenses
229
—
229
N/M
Total acquisition related items (net of tax)
(157
)
(213
)
56
(26.29)%
Other nonrecurring items (net of tax)
FHLB prepayment penalties
—
1,507
(1,507
)
(100.00)%
Change in fair value of equity investment due to acquisition transaction
—
(578
)
578
(100.00)%
Change in fair value of mortgage banking instruments
—
(448
)
448
(100.00)%
Interest writeoff from loan transferred to nonaccrual
—
265
(265
)
(100.00)%
Net gain from COLI death benefit
—
(173
)
173
(100.00)%
Prepayment penalties collected
(205
)
(161
)
(44
)
27.33
%
Mortgage servicing rights impairment (reduction of impairment)
—
—
—
N/M
Total other nonrecurring items (net of tax)
(205
)
412
(617
)
(149.76)%
Adjusted net income from operations
$
16,217
$
15,663
$
554
3.54
%
GAAP net interest income
$
44,174
$
40,055
$
4,119
10.28
%
Accretion on purchased loans
(770
)
(653
)
(117
)
17.92
%
Interest writeoff from loan transferred to nonaccrual
—
335
(335
)
(100.00)%
Prepayment penalties collected
(260
)
(204
)
(56
)
27.45
%
Amortization on acquired time deposits
12
24
(12
)
(50.00)%
Adjusted net interest income
$
43,156
$
39,557
$
3,599
9.10
%
PERFORMANCE RATIOS
Based on adjusted net income from operations
Earnings per share
$
3.52
$
3.35
$
0.17
5.07
%
Return on average assets
1.24
%
1.30
%
(0.06)%
Return on average shareholders' equity
13.22
%
14.23
%
(1.01)%
Return on average tangible shareholders' equity
13.63
%
14.76
%
(1.13)%
Efficiency ratio
64.70
%
56.16
%
8.54
%
Based on adjusted net interest income
Yield on earning assets (FTE)
3.72
%
3.98
%
(0.26)%
Rate on interest bearing liabilities
0.36
%
0.82
%
(0.46)%
Net interest margin to earning assets (FTE)
3.50
%
3.46
%
0.04
%

Average Balances, Interest Rate, and Net Interest Income

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

Net interest income is the amount by which interest income on earning assets exceeds the interest expenses on interest bearing liabilities. Net interest income, which includes loan fees, is influenced by changes in the balance and mix of assets and liabilities and market interest rates. 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 period-to-period comparisons more meaningful.

Three Months Ended
December 31, 2021
September 30, 2021
December 31, 2020
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
$
1,050,383
$
11,235
4.24
%
$
1,000,660
$
11,076
4.39
%
$
1,099,779
$
11,268
4.08
%
Taxable investment securities
129,817
389
1.19
%
113,868
372
1.30
%
62,866
238
1.51
%
Nontaxable investment securities
16,876
94
2.21
%
17,085
95
2.21
%
16,047
103
2.55
%
Federal funds sold
—
—
—
%
—
—
—
%
—
—
—
%
Interest earning cash and cash equivalents
73,022
33
0.18
%
112,917
45
0.16
%
53,715
15
0.11
%
Federal Home Loan Bank stock
3,552
18
2.01
%
3,488
16
1.82
%
3,488
22
2.51
%
Total earning assets
1,273,650
11,769
3.67
%
1,248,018
11,604
3.69
%
1,235,895
11,646
3.75
%
Nonearning assets
Allowance for loan losses
(10,773
)
(10,889
)
(10,375
)
Fixed assets
16,568
16,465
15,465
Accrued income and other assets
74,249
70,318
47,214
Total assets
$
1,353,694
$
1,323,912
$
1,288,199
Interest bearing liabilities
Interest bearing demand deposits
$
250,327
$
132
0.21
%
$
228,147
$
121
0.21
%
$
218,627
$
128
0.23
%
Savings deposits
344,180
113
0.13
%
325,161
108
0.13
%
291,856
114
0.16
%
Time deposits
128,574
224
0.69
%
153,694
264
0.68
%
179,076
407
0.90
%
Borrowed funds
50,001
176
1.40
%
49,543
160
1.28
%
83,573
323
1.54
%
Total interest bearing liabilities
773,082
645
0.33
%
756,545
653
0.34
%
773,132
972
0.50
%
Noninterest bearing liabilities
Noninterest bearing deposits
444,929
433,057
385,032
Accrued interest and other liabilities
10,183
9,590
12,772
Shareholders' equity
125,500
124,720
117,263
Total liabilities and shareholders' equity
$
1,353,694
$
1,323,912
$
1,288,199
Net interest income (FTE)
$
11,124
$
10,951
$
10,674
Net interest margin to earning assets (FTE)
3.47
%
3.48
%
3.44
%


Twelve Months Ended
December 31, 2021
December 31, 2020
Average Balance
Tax Equivalent Interest
Average Yield / Rate
Average Balance
Tax Equivalent Interest
Average Yield / Rate
Interest earning assets
Total loans
$
1,037,189
$
45,129
4.35
%
$
1,028,303
$
44,238
4.30
%
Taxable investment securities
98,002
1,285
1.31
%
61,288
1,170
1.91
%
Nontaxable investment securities
17,090
394
2.31
%
13,463
368
2.73
%
Federal funds sold
—
—
—
%
8,397
116
1.38
%
Interest earning cash and cash equivalents
81,970
112
0.14
%
32,767
55
0.17
%
Federal Home Loan Bank stock
3,504
73
2.08
%
3,352
109
3.25
%
Total earning assets
1,237,755
46,993
3.80
%
1,147,570
46,056
4.01
%
Nonearning assets
Allowance for loan losses
(11,000
)
(8,301
)
Fixed assets
16,224
15,465
Accrued income and other assets
68,694
45,871
Total assets
$
1,311,673
$
1,200,605
Interest bearing liabilities
Interest bearing demand deposits
$
227,114
$
496
0.22
%
$
200,200
$
996
0.50
%
Savings deposits
325,043
438
0.13
%
260,498
569
0.22
%
Time deposits
153,057
1,156
0.76
%
181,859
2,848
1.57
%
Borrowed funds
49,408
646
1.31
%
84,312
1,511
1.79
%
Total interest bearing liabilities
754,622
2,736
0.36
%
726,869
5,924
0.82
%
Noninterest bearing liabilities
Noninterest bearing deposits
424,273
352,489
Accrued interest and other liabilities
10,149
11,153
Shareholders' equity
122,629
110,094
Total liabilities and shareholders' equity
$
1,311,673
$
1,200,605
Net interest income (FTE)
$
44,257
$
40,132
Net interest margin to earning assets (FTE)
3.58
%
3.50
%

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, 2021
December 31, 2021
December 31, 2021
Compared To
Compared To
Compared To
September 30, 2021
December 31, 2020
December 31, 2020
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
$
1,873
$
(1,714
)
$
159
$
(1,897
)
$
1,864
$
(33
)
$
380
$
511
$
891
Taxable investment securities
166
(149
)
17
461
(310
)
151
558
(443
)
115
Nontaxable investment securities
(1
)
—
(1
)
28
(37
)
(9
)
89
(63
)
26
Federal funds sold
—
—
—
—
—
—
(58
)
(58
)
(116
)
Interest earning cash and cash equivalents
(43
)
31
(12
)
6
12
18
69
(12
)
57
Federal Home Loan Bank stock
—
2
2
3
(7
)
(4
)
5
(41
)
(36
)
Total changes in interest income
1,995
(1,830
)
165
(1,399
)
1,522
123
1,043
(106
)
937
Changes in interest expense
Interest bearing demand deposits
11
—
11
57
(53
)
4
121
(621
)
(500
)
Savings deposits
5
—
5
85
(86
)
(1
)
127
(258
)
(131
)
Time deposits
(64
)
24
(40
)
(100
)
(83
)
(183
)
(397
)
(1,295
)
(1,692
)
Borrowed funds
1
15
16
(120
)
(27
)
(147
)
(525
)
(340
)
(865
)
Total changes in interest expense
(47
)
39
(8
)
(78
)
(249
)
(327
)
(674
)
(2,514
)
(3,188
)
Net change in net interest income (FTE)
$
2,042
$
(1,869
)
$
173
$
(1,321
)
$
1,771
$
450
$
1,717
$
2,408
$
4,125


Average Yield/Rate for the Three Month Periods Ended
12/31/2021
9/30/2021
6/30/2021
3/31/2021
12/31/2020
Total earning assets
3.67
%
3.69
%
3.79
%
4.01
%
3.75
%
Total interest bearing liabilities
0.33
%
0.34
%
0.41
%
0.37
%
0.50
%
Net interest margin to earning assets (FTE)
3.47
%
3.48
%
3.55
%
3.79
%
3.44
%


Quarter to Date Net Interest Income (FTE)
12/31/2021
9/30/2021
6/30/2021
3/31/2021
12/31/2020
Interest income
$
11,749
$
11,584
$
11,658
$
11,919
$
11,624
FTE adjustment
20
20
21
22
22
Total interest income (FTE)
11,769
11,604
11,679
11,941
11,646
Total interest expense
645
653
762
676
972
Net interest income (FTE)
$
11,124
$
10,951
$
10,917
$
11,265
$
10,674

Noninterest Income

Quarter to Date
12/31/2021
9/30/2021
6/30/2021
3/31/2021
12/31/2020
Net gain on sales of mortgage loans
$
838
$
1,096
$
1,253
$
1,845
$
2,545
ATM and debit card income
496
495
511
448
437
Trust and investment services
399
562
403
468
445
Net mortgage servicing rights income
407
(69
)
1,119
138
509
Mortgage servicing fees
394
369
362
335
325
Service charges on deposit accounts
218
199
168
166
194
Change in cash surrender value of corporate owned life insurance
168
165
237
64
65
PPP referral fees
—
6
74
351
—
Net gain on sales of commercial loans
—
—
—
—
—
Net gain from corporate owned life insurance death benefit
—
—
—
—
—
Change in fair value of equity investments
(9
)
(4
)
2
(19
)
(3
)
Other income and fees
186
80
101
58
159
Total noninterest income
$
3,097
$
2,899
$
4,230
$
3,854
$
4,676
Memo items:
Residential mortgage operations
$
1,639
$
1,396
$
2,734
$
2,318
$
3,379


Year to Date December 31
Variance
2021
2020
Amount
%
Net gain on sales of mortgage loans
$
5,032
$
11,281
$
(6,249
)
(55.39)%
ATM and debit card income
1,950
1,646
304
18.47
%
Trust and investment services
1,832
1,619
213
13.16
%
Net mortgage servicing rights income
1,595
855
740
86.55
%
Mortgage servicing fees
1,460
1,150
310
26.96
%
Service charges on deposit accounts
751
709
42
5.92
%
Change in cash surrender value of corporate owned life insurance
634
—
634
N/M
PPP referral fees
431
—
431
—
%
Net gain on sales of commercial loans
—
668
(668
)
(100.00)%
Net gain from corporate owned life insurance death benefit
—
173
(173
)
(100.00)%
Change in fair value of equity investments
(30
)
755
(785
)
(103.97)%
Other income and fees
425
784
(359
)
(45.79)%
Total noninterest income
$
14,080
$
19,640
$
(5,560
)
(28.31) %
Memo items:
Residential mortgage operations
$
8,087
$
13,286
(5,199
)
(39.13)%

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 and 2021, the interest rate environment was advantageous for residential mortgage originations and refinancing, resulting in record gains. While residential mortgage originations and refinancing activity remained strong in 2021, it decreased from the elevated levels of activity in 2020. Residential mortgage originations and refinancing activity are likely to slow down due to lower housing inventory and expected interest rate increases in 2022.

In 2021, the Corporation elected to adopt the fair value measurement option for all MSR pursuant to FASB ASC 860 ("Transfers and Servicing"). Previously, the Corporation utilized the amortization method option for MSR. Changes in the fair value of MSR are highly correlated to changes in interest rates. As a significant portion of the serviced loan portfolio has been originated over the past two years at low interest rates, management expects the value of the servicing portfolio to remain strong. In addition, the Corporation continues to see a shift from refinancing activity to purchase activity in mortgage originations, which should positively impact the servicing portfolio value.

The primary driver utilized in the fair value of MSR is prepayment speeds. Prepayment speed assumptions are derived from a combination of recent industry-wide pool speeds and Bloomberg's dealer estimates. Faster prepayment speeds result in lower value, due to cash flow being shorter.

Mortgage servicing fees includes the fees earned for servicing loans that have been sold into the secondary market. The annual increase in mortgage servicing fees is directly related to the increase in the size of the serviced portfolio. The MSR portfolio has continued to grow throughout 2021 and the mortgage servicing fees increased throughout 2021 as the Corporation continues to add to the serviced portfolio.

Throughout 2021, overall revenues from residential mortgage operations (net gain on sales of mortgage loans, net mortgage servicing rights income, and mortgage servicing fees) remained strong, but did not reach the elevated levels experienced during 2020 due to the constrained housing inventory and rising interest rates.

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 moderately into 2022, as economic activity begins to normalize to pre-pandemic levels.

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 through the wealth management and trust department. Income generated from trust services has remained stable from fiduciary fees for estate settlement services and portfolio management. Revenue from wealth management increased in 2021 due to strong demand from customers for annuities. Both the trust services and wealth management programs are subject to market fluctuations and interest rate changes. Trust and investment services income is expected to increase modestly in 2022.

Service charges on deposit accounts includes fees earned from deposit customers for transaction-based, account maintenance and overdraft services. The increase in the fourth quarter of 2021 is a result of more deposit customers utilizing overdraft services. Service charges on deposit accounts are expected to approximate current levels in 2022.

Change in cash surrender value of corporate owned life insurance increased in 2021 as a result of the purchase of $15,000 in additional corporate owned life insurance policies in the second quarter of 2021. The Corporation expects the change in cash surrender value of corporate owned life insurance to approximate current earnings levels in 2022.

PPP referral fees represent referral fees the Corporation earned from the second round of the PPP loan program through the SBA. Due to strong portfolio loan demand, management elected to refer the second round of PPP requests to a third party for processing and funding. As such, the associated referral fees were recognized as a component of noninterest income. As the second round of the PPP loan program ended on May 31, 2021, the Corporation recorded minimal PPP referral fees in the second half of 2021 and no future revenues are anticipated.

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. In 2021, the Corporation did not sell the guaranteed portion of SBA or USDA loans.

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 and the Corporation. The Corporation does not expect to receive any gains from COLI death benefits in 2022.

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, the Corporation recorded a $732 gain from an equity investment in a financial institution that was sold. The Corporation does not anticipate any significant changes in fair value from investment equity sales in the foreseeable future.

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

Noninterest Expenses

Quarter to Date
12/31/2021
9/30/2021
6/30/2021
3/31/2021
12/31/2020
Total compensation
$
5,054
$
5,001
$
5,000
$
5,004
$
4,958
Professional services
948
790
703
624
938
Furniture and equipment
794
761
712
637
607
Data processing
622
557
583
509
501
Occupancy
491
522
508
495
475
Advertising and promotional
356
384
304
284
184
Loan and collection
286
264
337
406
359
ATM and debit card
158
131
144
122
125
FDIC insurance premiums
138
153
79
155
59
Telephone and communication
96
80
130
94
64
Other acquisition related expenses
225
64
—
—
—
Amortization of core deposit intangibles
67
68
67
68
90
FHLB prepayment penalty
—
—
—
—
1,907
Other general and administrative
722
678
655
633
704
Total noninterest expenses
$
9,957
$
9,453
$
9,222
$
9,031
$
10,971


Year to Date December 31
Variance
2021
2020
Amount
%
Total compensation
$
20,059
$
17,989
$
2,070
11.51
%
Professional services
3,065
2,555
510
19.96
%
Furniture and equipment
2,904
2,449
455
18.58
%
Data processing
2,271
1,981
290
14.64
%
Occupancy
2,016
1,877
139
7.41
%
Advertising and promotional
1,328
975
353
36.21
%
Loan and collection
1,293
1,042
251
24.09
%
ATM and debit card
555
434
121
27.88
%
FDIC insurance premiums
525
228
297
130.26
%
Telephone and communication
400
337
63
18.69
%
Other acquisition related expenses
289
—
289
N/M
Amortization of core deposit intangibles
270
361
(91
)
(25.21)%
FHLB prepayment penalty
—
1,907
(1,907
)
(100.00)%
Other general and administrative
2,688
2,549
139
5.45
%
Total noninterest expenses
$
37,663
$
34,684
$
2,979
8.59
%

Total compensation includes salaries, commissions and incentives, employee benefits, and payroll taxes. Total compensation has increased in 2021 due to an increase in the number of employees, a reduction of deferred loan costs, annual merit increases and an increase in employee benefits. Fluctuations in commissions and incentives are primarily driven by residential mortgage originations, which can vary significantly from period to period.

Professional services include expenses relating to third-party professional services. These services include, but are not limited to, regulatory, auditing, consulting, and legal. The increase in professional services is primarily due to audit and accounting and other outside services, which include professional services related to the Interactive Teller Machine project. These expenses are expected to continue to increase in future periods to ensure compliance with audit and regulatory requirements and legal expenses related to the acquisition of FSB.

Furniture and equipment and occupancy expenses primarily consist of depreciation, repairs and maintenance, certain service contracts, and other related items. The increase in furniture and equipment relate to the Interactive Teller Machine integration within the Corporation. These expenses are expected to continue 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 increased in the fourth quarter in relation to the acquisition of FSB and are expected to increase with the size and complexity of the Corporation.

Occupancy expenses primarily consist of depreciation of buildings, property taxes, repairs and maintenance, utilities, insurance, and other related items. The increase in these expenses in 2021 is due to branch remodels. These expenses are expected to continue to increase with the size and complexity of the Corporation.

Advertising and promotional includes the Corporation's media costs and any donations or sponsorships made on behalf of the Corporation. The increase in advertising and promotional expenses in the third quarter of 2021 is due to the Corporation's sponsorship for a portion of the Linden, Argentine Township, Fenton, and Fenton Township Pathway group. The annual increase in such expenses is a result of the Corporation enhancing its marketing efforts to attract new and expand existing customer loan and deposit account relationships. In addition to traditional marketing strategies, the Corporation rolled out a new branding strategy in 2020, which resulted in elevated advertising and promotional expenses in both 2020 and 2021. Total advertising and promotional expenses are expected to approximate current levels in 2022.

Loan and collection includes expenses related to the origination and collection of loans. The increase in expenses throughout 2020 and into the first half of 2021 is a direct result of increased loan volume due to the low interest rate environment created by the Federal Reserve Bank's response to the COVID-19 pandemic.

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 approximate current levels into 2022.

FDIC insurance premiums typically fluctuate based on the size of the Corporation's balance sheet, capital position, overall risk profile, and examination ratings. The fluctuation is attributed to the increased asset size and composition of the Corporation's balance sheet. FDIC insurance premiums are expected to normalize throughout 2022.

Telephone and communication includes expenses relating to the Corporation's communication systems. These expenses are expected to increase into 2022 primarily due to the growth of the Corporation.

Other acquisition related expenses includes expenses related to the Corporation's acquisition of FSB, which closed in the fourth quarter of 2021.

Amortization of core deposit intangibles relates to the core deposits acquired from Community Bancorp, Inc. on December 31, 2016 and FSB on December 1, 2021. These core deposit intangibles are being amortized based on the sum-of-years-digits method. Amortization of core deposit intangibles is expected to increase into 2022 as a result of the core deposit intangible generated in relation to acquisition of FSB.

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 2021, 2022, and 2023. The weighted average rate of the three FHLB borrowings was 2.17%. As a result of the early payoffs, the Corporation reduced interest expense by approximately $660 during 2021.

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

12/31/2021
9/30/2021
6/30/2021
3/31/2021
12/31/2020
ASSETS
Cash and cash equivalents
$
83,446
$
112,861
$
132,676
$
121,477
$
46,757
Total investment securities
164,942
138,476
129,944
89,772
76,111
Residential mortgage loans held-for-sale, at fair value
6,783
9,702
7,670
26,322
27,306
Gross loans
1,100,092
1,015,177
986,358
1,028,117
1,066,562
Less allowance for loan and lease losses
10,500
10,500
10,800
11,100
10,900
Net loans
1,089,592
1,004,677
975,558
1,017,017
1,055,662
All other assets
73,168
63,584
63,837
48,587
45,610
Total assets
$
1,417,931
$
1,329,300
$
1,309,685
$
1,303,175
$
1,251,446
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits
$
1,228,298
$
1,144,291
$
1,126,496
$
1,122,508
$
1,071,976
Total borrowed funds
50,000
50,000
49,500
49,000
49,000
Accrued interest payable and other liabilities
15,178
10,200
10,703
12,307
14,602
Total liabilities
1,293,476
1,204,491
1,186,699
1,183,815
1,135,578
Total shareholders' equity
124,455
124,809
122,986
119,360
115,868
Total liabilities and shareholders' equity
$
1,417,931
$
1,329,300
$
1,309,685
$
1,303,175
$
1,251,446


12/31/2021 vs 9/30/2021
12/31/2021 vs 12/31/2020
Variance
Variance
Amount
%
Amount
%
ASSETS
Cash and cash equivalents
$
(29,415
)
(26.06)%
$
36,689
78.47
%
Total investment securities
26,466
19.11
%
88,831
116.71
%
Residential mortgage loans held-for-sale, at fair value
(2,919
)
(30.09)%
(20,523
)
(75.16)%
Gross loans
84,915
8.36
%
33,530
3.14
%
Less allowance for loan and lease losses
—
—
%
(400
)
(3.67)%
Net loans
84,915
8.45
%
33,930
3.21
%
All other assets
9,584
15.07
%
27,558
60.42
%
Total assets
$
88,631
6.67
%
$
166,485
13.30
%
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits
$
84,007
7.34
%
$
156,322
14.58
%
Total borrowed funds
—
—
%
1,000
2.04
%
Accrued interest payable and other liabilities
4,978
48.80
%
576
3.94
%
Total liabilities
88,985
3.79
%
157,898
7.15
%
Total shareholders' equity
(354
)
(0.28) %
8,587
7.41
%
Total liabilities and shareholders' equity
$
88,631
6.67
%
$
166,485
13.30
%

Total investment securities

12/31/2021
9/30/2021
6/30/2021
3/31/2021
12/31/2020
Available-for-sale
U.S. Government and federal agency
$
30,406
$
5,967
$
5,917
$
5,942
$
7,935
State and municipal
25,010
25,227
23,096
17,080
15,768
Mortgage backed residential
66,874
67,199
60,390
32,135
19,101
Certificates of deposit
10,172
4,190
4,932
4,932
5,180
Collateralized mortgage obligations - agencies
30,180
31,732
31,281
25,505
23,110
Unrealized gain/(loss) on available-for-sale securities
(468
)
1,432
1,334
1,117
1,932
Total available-for-sale
162,174
135,747
126,950
86,711
73,026
Held-to-maturity state and municipal
1,512
1,515
1,859
1,968
1,973
Equity securities
1,256
1,214
1,135
1,093
1,112
Total investment securities
$
164,942
$
138,476
$
129,944
$
89,772
$
76,111
12/31/2021 vs 9/30/2021
12/31/2021 vs 12/31/2020
Variance
Variance
Amount
%
Amount
%
Available-for-sale
U.S. Government and federal agency
24,439
409.57
%
$
22,471
283.19
%
State and municipal
(217
)
(0.86)%
9,242
58.61
%
Mortgage backed residential
(325
)
(0.48)%
47,773
250.11
%
Certificates of deposit
5,982
142.77
%
4,992
96.37
%
Collateralized mortgage obligations - agencies
(1,552
)
(4.89)%
7,070
30.59
%
Unrealized gain/(loss) on available-for-sale securities
(1,900
)
(132.68)%
(2,400
)
(124.22)%
Total available-for-sale
26,427
19.47
%
89,148
122.08
%
Held-to-maturity state and municipal
(3
)
(0.20)%
(461
)
(23.37)%
Equity securities
42
3.46
%
144
12.95
%
Total investment securities
$
26,466
19.11
%
$
88,831
116.71
%

The amortized cost and fair value of AFS investment securities as of December 31, 2021 were as follows:

Maturing
Due in One Year or Less
After One Year But Within Five Years
After Five Years But Within Ten Years
After Ten Years
Securities with Variable Monthly Payments or Noncontractual Maturities
Total
U.S. Government and federal agency
$
6,044
$
19,487
$
4,875
$
—
$
—
$
30,406
State and municipal
2,085
8,600
12,491
1,834
—
25,010
Mortgage backed residential
—
—
—
—
66,874
66,874
Certificates of deposit
2,745
7,427
—
—
—
10,172
Collateralized mortgage obligations - agencies
—
—
—
—
30,180
30,180
Total amortized cost
$
10,874
$
35,514
$
17,366
$
1,834
$
97,054
$
162,642
Fair value
$
10,934
$
35,778
$
17,330
$
2,080
$
96,052
$
162,174

The amortized cost and fair value of HTM investment securities as of December 31, 2021 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
$
333
$
799
$
380
$
—
$
—
$
1,512
Fair value
$
336
$
828
$
399
$
—
$
—
$
1,563

Throughout 2021, the Corporation expanded its investment portfolio to generate additional interest income. Total investment securities, which increased as a part of the acquisition of FSB in the amount of $35,749, are expected to stabilize through 2022. The following table summarizes information as of December 31, 2021 for investment securities purchased YTD:

Book Value
Fully Taxable Equivalent Weighted Average Yield
U.S. Government and federal agency
$
2,005
0.95
%
State and municipal
11,182
1.15
%
Collateralized mortgage obligations - agencies
14,009
1.13
%
Mortgage backed residential
51,321
1.17
%
Total
$
78,517
1.15
%

Residential mortgage loans held-for-sale, at fair value

Loans HFS represent the fair value of loans that have been committed to be sold to the secondary market, but have not yet been delivered. The level of loans HFS fluctuates based on loan demand as well as the timing of loan deliveries to the secondary market.

Loans and allowance for loan losses

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

12/31/2021
9/30/2021
6/30/2021
3/31/2021
12/31/2020
Commercial, net of PPP loans
$
91,529
$
74,308
$
65,875
$
60,693
$
63,579
PPP loans
2,172
4,985
35,195
122,583
177,845
Commercial real estate
656,818
616,358
573,598
541,428
517,054
Total commercial loans
750,519
695,651
674,668
724,704
758,478
Residential mortgage
298,799
273,478
265,323
258,333
262,770
Home equity
42,220
41,902
41,771
40,205
39,900
Total residential real estate loans
341,019
315,380
307,094
298,538
302,670
Consumer
8,554
4,146
4,596
4,875
5,414
Gross loans
1,100,092
1,015,177
986,358
1,028,117
1,066,562
Allowance for loan and lease losses
(10,500
)
(10,500
)
(10,800
)
(11,100
)
(10,900
)
Loans, net
$
1,089,592
$
1,004,677
$
975,558
$
1,017,017
$
1,055,662
Memo items:
Gross loans, net of PPP loans
$
1,097,920
$
1,010,192
$
951,163
$
905,534
$
888,717
Residential mortgage loans serviced for others
$
639,757
$
591,399
$
581,984
$
546,836
$
526,416
12/31/2021 vs 9/30/2021
12/31/2021 vs 12/31/2020
Variance
Variance
Amount
%
Amount
%
Commercial, net of PPP loans
$
17,221
23.18
%
$
27,950
43.96
%
PPP loans
(2,813
)
(56.43)%
(175,673
)
(98.78)%
Commercial real estate
40,460
6.56
%
139,764
27.03
%
Total commercial loans
54,868
7.89
%
(7,959
)
(1.05) %
Residential mortgage
25,321
9.26
%
36,029
13.71
%
Home equity
318
0.76
%
2,320
5.81
%
Total residential real estate loans
25,639
8.13
%
38,349
12.67
%
Consumer
4,408
106.32
%
3,140
58.00
%
Gross loans
84,915
8.36
%
33,530
3.14
%
Allowance for loan losses
—
—
%
400
(3.67)%
Loans, net
$
84,915
8.45
%
$
33,930
3.21
%
Memo items:
Gross loans, net of PPP loans
$
87,728
8.68
%
$
209,203
23.54
%
Residential mortgage loans serviced for others
$
48,358
8.18
%
$
113,341
21.53
%

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

12/31/2021
9/30/2021
6/30/2021
3/31/2021
12/31/2020
Loans collectively evaluated for impairment
Commercial
$
93,207
$
79,252
$
100,424
$
183,203
$
241,424
Commercial real estate
656,818
609,382
564,781
532,294
508,182
Residential mortgage
297,626
272,463
264,448
257,543
262,017
Home equity
42,138
41,840
41,708
40,141
39,874
Consumer
8,554
4,146
4,596
4,875
5,412
Subtotal
1,098,343
1,007,083
975,957
1,018,056
1,056,909
Loans individually evaluated for impairment
Commercial
494
41
646
73
—
Commercial real estate
—
6,976
8,817
9,134
8,872
Residential mortgage
1,173
1,015
875
790
753
Home equity
82
62
63
64
26
Consumer
—
—
—
—
2
Subtotal
1,749
8,094
10,401
10,061
9,653
Gross Loans
$
1,100,092
$
1,015,177
$
986,358
$
1,028,117
$
1,066,562

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

12/31/2021
9/30/2021
6/30/2021
3/31/2021
12/31/2020
Loans collectively evaluated for impairment
Commercial
$
743
$
613
$
585
$
626
$
673
Commercial real estate
6,350
6,104
6,264
6,026
5,602
Residential mortgage
2,940
3,066
2,814
3,280
3,480
Home equity
379
410
440
453
440
Consumer
77
53
85
92
97
Subtotal
10,489
10,246
10,188
10,477
10,292
Loans individually evaluated for impairment
Commercial
—
—
42
—
—
Commercial real estate
—
250
566
619
602
Residential mortgage
11
4
4
4
4
Home equity
—
—
—
—
—
Consumer
—
—
—
—
2
Subtotal
11
254
612
623
608
Allowance for loan losses
$
10,500
$
10,500
$
10,800
$
11,100
$
10,900


Commercial
$
743
$
613
$
627
$
626
$
673
Commercial real estate
6,350
6,354
6,830
6,645
6,204
Residential mortgage
2,951
3,070
2,818
3,284
3,484
Home equity
379
410
440
453
440
Consumer
77
53
85
92
99
Allowance for loan losses
$
10,500
$
10,500
$
10,800
$
11,100
$
10,900

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

12/31/2021
9/30/2021
6/30/2021
3/31/2021
12/31/2020
Accruing interest
Current
$
1,094,141
$
1,004,220
$
976,852
$
1,018,343
$
1,057,404
Past due 30-89 days
3,971
2,596
923
1,636
1,165
Past due 90 days or more
276
364
36
120
50
Total accruing interest
1,098,388
1,007,180
977,811
1,020,099
1,058,619
Nonaccrual
1,704
7,997
8,547
8,018
7,943
Total loans
$
1,100,092
$
1,015,177
$
986,358
$
1,028,117
$
1,066,562
Total loans past due and in nonaccrual status
$
5,951
$
10,957
$
9,506
$
9,774
$
9,158

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

12/31/2021
9/30/2021
6/30/2021
3/31/2021
12/31/2020
Nonaccrual loans
$
1,704
$
7,997
$
8,547
$
8,018
$
7,943
Accruing loans past due 90 days or more
276
364
36
120
50
Total nonperforming loans
1,980
8,361
8,583
8,138
7,993
Other real estate owned
382
—
—
—
—
Total nonperforming assets
$
2,362
$
8,361
$
8,583
$
8,138
$
7,993

During the fourth quarter of 2020, 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. In the second quarter of 2021, the hotel began and continued to make regular contractual principal and interest payments. During the fourth quarter of 2021, the loan returned to good standing, resulting in a decrease in total nonaccrual loans.

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

12/31/2021
9/30/2021
6/30/2021
3/31/2021
12/31/2020
Nonperforming loans to gross loans
0.18
%
0.82
%
0.87
%
0.79
%
0.75
%
Nonperforming assets to total assets
0.17
%
0.63
%
0.66
%
0.62
%
0.64
%
Allowance for loan losses to gross loans
0.95
%
1.03
%
1.09
%
1.08
%
1.02
%
Allowance for loan losses to gross loans, less PPP loans
0.96
%
1.04
%
1.14
%
1.23
%
1.23
%

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

12/31/2021
9/30/2021
6/30/2021
3/31/2021
12/31/2020
Net unamortized discount on purchased loans
$
101
$
196
$
388
$
580
$
773

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. Management continues to actively enhance the analysis of the ALLL as client impact and broader economic data from the pandemic becomes more clear.

The following table summarizes the average loan size as of:

12/31/2021
9/30/2021
6/30/2021
3/31/2021
12/31/2020
Commercial
$
192
$
217
$
168
$
206
$
169
Commercial real estate
715
791
761
727
707
Total commercial loans
533
608
498
444
351
Residential mortgage
188
203
199
183
182
Home equity
38
47
47
46
45
Total residential real estate loans
126
141
138
131
130
Consumer
15
25
24
22
22
Gross loans
$
235
$
287
$
262
$
249
$
226

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 provided 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 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 tables below summarize total PPP fee income for the periods ended:

Quarter to Date
12/31/2021
9/30/2021
6/30/2021
3/31/2021
12/31/2020
PPP fees recognized
$
56
$
376
$
999
$
1,777
$
1,199
PPP referral fee income
—
6
74
351
—
Total PPP fees recognized
$
56
$
382
$
1,073
$
2,128
$
1,199


Year to Date December 31
Variance
2021
2020
Amount
%
PPP fees recognized
$
3,208
$
3,560
$
(352
)
(9.89)%
PPP referral fee income
431
—
431
N/M
Total PPP fees recognized
$
3,639
$
3,560
$
79
2.22
%

All other assets

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

12/31/2021
9/30/2021
6/30/2021
3/31/2021
12/31/2020
Corporate owned life insurance
$
25,970
$
25,803
$
25,638
$
10,354
$
10,291
Premises and equipment, net
16,957
16,330
16,231
15,969
15,461
Goodwill
8,853
3,219
3,219
3,219
3,219
Mortgage servicing rights
7,836
6,454
6,523
5,404
4,885
Accrued interest receivable
4,663
4,416
4,423
5,451
5,068
Federal Home Loan Bank stock
3,708
3,488
3,488
3,488
3,488
Core deposit intangibles
1,266
338
406
474
541
Right-of-use assets
1,150
1,241
1,364
1,139
364
Other real estate owned
382
—
—
—
—
Derivatives
156
320
601
1,009
1,331
Other assets
2,227
1,975
1,944
2,080
962
All other assets
$
73,168
$
63,584
$
63,837
$
48,587
$
45,610
12/31/2021 vs 9/30/2021
12/31/2021 vs 12/31/2020
Variance
Variance
Amount
%
Amount
%
Corporate owned life insurance
$
167
0.65
%
$
15,679
152.36
%
Premises and equipment, net
627
3.84
%
1,496
9.68
%
Goodwill
5,634
175.02
%
5,634
175.02
%
Mortgage servicing rights
1,382
21.41
%
2,951
60.41
%
Accrued interest receivable
247
5.59
%
(405
)
(7.99)%
Federal Home Loan Bank stock
220
6.31
%
220
6.31
%
Core deposit intangibles
928
274.56
%
725
134.01
%
Right-of-use assets
(91
)
(7.33)%
786
215.93
%
Other real estate owned
382
N/M
382
N/M
Derivatives
(164
)
(51.25)%
(1,175
)
(88.28)%
Other assets
252
12.76
%
1,265
131.50
%
All other assets
$
9,584
15.07
%
$
27,558
60.42
%

Corporate owned life insurance represents the cash surrender value of life insurance policies owned by the Corporation on the lives of key members of management. The increase in Corporate owned life insurance in the second quarter of 2021 was due to the purchase of $15,000 in additional policies.

Goodwill represents the premium paid over the fair market value for a company the Corporation purchases in merger and acquisition activity. The increase in goodwill is a result of acquisition of FSB, which had a purchase price of $15,500, resulting in $5,634 of additional goodwill for the Corporation.

Mortgage servicing rights are servicing assets that are recognized from the sales of mortgage loans. The increase in mortgage servicing rights throughout 2021 is due to the increased volume of residential mortgage loan sales. The serviced loan portfolio has continued to grow in 2021 and the Corporation expects the serviced loan portfolio to increase into 2022 as the Corporation continues to add to the serviced portfolio.

The increase in core deposit intangibles in the fourth quarter of 2021 relates to the acquisition of FSB. As a part of the transaction, a core deposit intangible of $995 was recorded by the Corporation. Core deposit intangibles are being amortized using the sum-of-the-years digits method and will decline into 2022 as they are amortized.

Right-of-use assets were established pursuant to the adoption of FASB 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. The increase in the Corporation's right-of-use assets in the first quarter of 2021 was due to the recognition of two additional lease obligations.

Other real estate owned represents real estate property that the Corporation acquires through foreclosure. The increase in other real estate owned is primarily due to properties acquired in connection with the acquisition of FSB.

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.

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

Total deposits

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

12/31/2021
9/30/2021
6/30/2021
3/31/2021
12/31/2020
Noninterest bearing demand
$
459,254
$
442,358
$
435,588
$
422,013
$
378,733
Interest bearing
Savings
360,204
320,724
305,409
309,454
290,343
Money market demand
125,391
119,719
113,088
109,101
113,729
NOW
141,480
115,114
102,046
103,342
101,419
Time deposits
141,969
146,376
170,365
178,598
187,752
Total deposits
$
1,228,298
$
1,144,291
$
1,126,496
$
1,122,508
$
1,071,976
12/31/2021 vs 9/30/2021
12/31/2021 vs 12/31/2020
Variance
Variance
Amount
%
Amount
%
Noninterest bearing demand
$
16,896
3.82
%
$
80,521
21.26
%
Interest bearing
Savings
39,480
12.31
%
69,861
24.06
%
Money market demand
5,672
4.74
%
11,662
10.25
%
NOW
26,366
22.90
%
40,061
39.50
%
Time deposits
(4,407
)
(3.01)%
(45,783
)
(24.38)%
Total deposits
$
84,007
7.34
%
$
156,322
14.58
%

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. Total deposits have also increased due to government related stimulus programs. The decrease in time deposits throughout 2021 is primarily due to maturities of municipal time deposits which were partially offset by the addition of time deposits from the acquisition of FSB in the amount of $11,375. As a result of the Corporation's liquidity position and rate compression on contractual time deposits, the Corporation will continue to allow higher priced time deposits to exit. The Corporation will continue to monitor deposit growth and adjust interest rates in order to minimize downward pressure on margins.

Cash and cash equivalents

12/31/2021
9/30/2021
6/30/2021
3/31/2021
12/31/2020
Cash and cash equivalents
Noninterest bearing
$
28,475
$
25,693
$
22,454
$
25,698
$
23,102
Interest bearing
54,971
87,168
110,222
95,779
23,655
Cash and cash equivalents
$
83,446
$
112,861
$
132,676
$
121,477
$
46,757
12/31/2021 vs 9/30/2021
12/31/2021 vs 12/31/2020
Variance
Variance
Amount
%
Amount
%
Cash and cash equivalents
Noninterest bearing
$
2,782
10.83
%
$
5,373
23.26
%
Interest bearing
(32,197
)
(36.94)%
31,316
132.39
%
Cash and cash equivalents
$
(29,415
)
(26.06) %
$
36,689
78.47
%

Cash and cash equivalents, which is comprised of cash and due from banks, fluctuate from period to period based on loan demand and variances in deposit accounts. The Corporation expects cash and cash equivalents to decline from its current elevated levels as the funds are redeployed into the loan and investment portfolios.

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:

12/31/2021
9/30/2021
6/30/2021
3/31/2021
12/31/2020
Cash and cash equivalents
$
83,446
$
112,861
$
132,676
$
121,477
$
46,757
Unpledged investment securities
143,431
127,913
118,019
76,384
59,025
FHLB borrowing availability
140,000
140,000
140,000
140,000
140,000
Federal funds purchased lines of credit
21,500
21,500
21,500
21,500
21,500
Funds available through the Fed Discount Window
10,000
10,000
10,000
10,000
10,000
Parent company line of credit
7,000
7,000
7,500
8,000
8,000
PPPLF
2,172
4,985
35,195
122,583
177,845
Total liquidity sources
$
407,549
$
424,259
$
464,890
$
499,944
$
463,127

Total borrowed funds

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

12/31/21
9/30/21
6/30/21
3/31/21
12/31/20
Federal Home Loan Bank borrowings
$
35,000
$
35,000
$
35,000
$
35,000
$
35,000
Subordinated debentures
14,000
14,000
14,000
14,000
14,000
Federal funds purchased
—
—
—
—
—
Other borrowings
1,000
1,000
500
—
—
Total borrowed funds
$
50,000
$
50,000
$
49,500
$
49,000
$
49,000
12/31/2021 vs 9/30/2021
12/31/2021 vs 12/31/2020
Variance
Variance
Amount
%
Amount
%
Federal Home Loan Bank borrowings
$
—
—
%
$
—
—
%
Subordinated debentures
—
—
%
—
—
%
Other borrowings
—
—
%
1,000
N/M
Total borrowed funds
$
—
—
%
$
1,000
2.04
%

The Corporation utilizes a mix of borrowed funds and organic deposit growth to fund loan demand. Other borrowings is comprised of the outstanding balance on the holding company line of credit. Total borrowed funds are expected to approximate current levels into 2022. 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:

12/31/21
9/30/21
6/30/21
3/31/21
12/31/20
Federal Home Loan Bank borrowings
$
35,000
$
35,000
$
35,000
$
35,000
$
35,000
Subordinated debentures
14,000
14,000
14,000
14,000
14,000
Other borrowings
1,000
1,000
500
—
—
Brokered time deposits
20,000
20,000
20,000
20,234
20,000
Internet time deposits
1,743
2,739
2,739
2,739
2,839
Total wholesale funds
$
71,743
$
72,739
$
72,239
$
71,973
$
71,839
12/31/2021 vs 9/30/2021
12/31/2021 vs 12/31/2020
Variance
Variance
Amount
%
Amount
%
Federal Home Loan Bank borrowings
$
—
—
%
$
—
—
%
Subordinated debentures
—
—
%
—
—
%
Other borrowings
—
—
%
1,000
N/M
Brokered time deposits
—
—
%
—
—
%
Internet time deposits
(996
)
(36.36)%
(1,096
)
(38.61)%
Total wholesale funds
$
(996
)
(1.37) %
$
(96
)
(0.13) %

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 2022 through the Corporation's earnings. As of December 31, 2021, the Corporation's capital ratios remained strong and are expected to exceed well capitalized provisions for the foreseeable future, inclusive of the impact of the acquisition of FSB in the fourth quarter of 2021.

In November 2021, the Corporation's Board of Directors approved an amendment to the Corporation's common stock repurchase program, initially authorized in April 2020 for the repurchase of up to $5,000 of the Corporation's common stock. The amendment allows the Corporation to repurchase up to $10,000 in aggregate of the currently outstanding shares of the Corporation's common stock. As of December 31, 2021, the Corporation has $3,829 of common stock available to repurchase. The following tables outline the number of shares, dollar amount and weighted average share price associated with the Corporation's common stock repurchase plan for the following periods:

Quarter to Date
12/31/2021
9/30/2021
6/30/2021
3/31/2021
12/31/2020
Number of Shares Repurchased
78,285
73,714
40,383
37,315
5,342
Dollar Amount of Shares Repurchased
$
2,193
$
1,929
$
1,059
$
880
$
110
Weighted Average Share Price
$
28.01
$
26.17
$
26.22
$
23.58
$
20.59


Year to Date December 31
2021
2020
Number of Shares Repurchased
229,697
5,342
Dollar Amount of Shares Repurchased
$
6,061
$
110
Weighted Average Share Price
$
26.39
$
20.59

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: 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, 2016 and all dividends were reinvested.

The graph accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/544ea7ea-b187-4302-ad28-833fed87c37f

Date
FETM
ABAQ Index
12/31/2016
100.00
100.00
12/31/2017
121.56
100.73
12/31/2018
137.25
83.99
12/31/2019
165.44
101.07
12/31/2020
147.13
86.48
12/31/2021
188.38
114.46

Abbreviations and Acronyms

ABA: American Bankers Association
HFS: Held-for-sale
AFS: Available-for-sale
HTM: Held-to-maturity
ALLL: Allowance for loan and lease losses
IRA: Individual retirement account
AOCI: Accumulated other comprehensive income
ITM: Interactive teller machine
ASC: Accounting Standards Codification
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
FASB: Financial Accounting Standards Board
PPP: Paycheck Protection Program
FDIC: Federal Deposit Insurance Corporation
PPPLF: Paycheck Protection Program Liquidity Facility
FHLB: Federal Home Loan Bank
QTD: Quarter-to-date
FHLMC: Federal Home Loan Mortgage Corporation
SAB: Staff Accounting Bulletin
FRB: Federal Reserve Bank
SBA: U.S. Small Business Administration
FSB: Farmers State Bank of Munith
USDA: United States Department of Agriculture
FTE: Fully taxable equivalent
YTD: Year-to-date
GAAP: Generally Accepted Accounting Principles

About Fentura Financial, Inc. and The State Bank

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

The State Bank is a full-service, 5-Star Bauer Financial rated commercial, retail and trust bank headquartered in Fenton, Michigan. It currently operates 20 full-service branches in Genesee, Ingham, Jackson, Livingston, Oakland, Saginaw, and Shiawassee Counties. 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
ron.justice@thestatebank.com
aaron.wirsing@thestatebank.com

Stock Information
Company Name: Fentura Financial Inc
Stock Symbol: FETM
Market: OTC
Website: fentura.com
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