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

FETM - Fentura Financial Inc. Announces Third Quarter 2021 Earnings

Fentura Financial Inc

FENTON, Mich., Nov. 01, 2021 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. (OTCQX: FETM) announces quarterly results of net income of $3,855 and $13,237 for the three and nine month periods ended September 30, 2021.

Ronald Justice, President and CEO, stated "I am extremely pleased by our team's tremendous efforts which continue to generate strong operating results. While residential mortgage activity has been trending downward, overall closings and pipelines remain at historically high levels. Additionally, our commercial lending team has done a tremendous job of developing new relationships and expanding existing customer relationships. These efforts have led to increases in gross loans (net of PPP loans) of $59,029 and $160,367 since June 30, 2021 and September 30, 2020, respectively. Asset quality metrics remain strong and the vast majority of borrowers who were granted COVID-19 related payment deferrals have resumed regular payments. Our team remains committed to our mission and we are well positioned and optimistic about our future."

Following is a discussion of the Corporation's financial performance as of, and for the three and nine month periods ended September 30, 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 and provides certain performance measures as of, and for the three month periods ended:

9/30/2021
6/30/2021
3/31/2021
12/31/2020
9/30/2020
INCOME STATEMENT DATA
Interest income
$
11,584
$
11,658
$
11,919
$
11,624
$
12,070
Interest expense
653
762
676
972
1,189
Net interest income
10,931
10,896
11,243
10,652
10,881
Provision for loan losses
(436
)
6
212
982
1,109
Noninterest income
2,899
4,230
3,854
4,676
5,159
Noninterest expenses
9,453
9,222
9,031
10,971
8,218
Federal income tax expense
958
1,172
1,198
642
1,377
Net income
$
3,855
$
4,726
$
4,656
$
2,733
$
5,336
PER SHARE
Earnings
$
0.84
$
1.02
$
1.00
$
0.58
$
1.14
Dividends
$
0.080
$
0.080
$
0.080
$
0.075
$
0.075
Tangible book value (1)
$
26.53
$
25.73
$
24.75
$
23.88
$
23.50
Quoted market value
High
$
26.25
$
27.40
$
24.75
$
22.25
$
17.99
Low
$
25.60
$
23.55
$
21.90
$
16.93
$
16.80
Close (1)
$
25.75
$
26.00
$
23.30
$
22.00
$
16.93
PERFORMANCE RATIOS
Return on average assets
1.16
%
1.45
%
1.50
%
0.84
%
1.68
%
Return on average shareholders' equity
12.26
%
15.64
%
15.86
%
9.27
%
18.86
%
Return on average tangible shareholders' equity
12.63
%
16.12
%
16.38
%
9.58
%
19.54
%
Efficiency ratio
68.35
%
60.97
%
59.82
%
71.57
%
51.23
%
Yield on earning assets (FTE)
3.69
%
3.79
%
4.01
%
3.75
%
3.97
%
Rate on interest bearing liabilities
0.34
%
0.41
%
0.37
%
0.50
%
0.63
%
Net interest margin to earning assets (FTE)
3.48
%
3.55
%
3.79
%
3.44
%
3.58
%
BALANCE SHEET DATA (1)
Total investment securities
$
138,476
$
129,944
$
89,772
$
76,111
$
78,179
Gross loans
$
1,015,177
$
986,358
$
1,028,117
$
1,066,562
$
1,060,885
Total assets
$
1,329,300
$
1,309,685
$
1,303,175
$
1,251,446
$
1,284,845
Total deposits
$
1,144,291
$
1,126,496
$
1,122,508
$
1,071,976
$
1,061,470
Borrowed funds
$
50,000
$
49,500
$
49,000
$
49,000
$
96,217
Total shareholders' equity
$
124,809
$
122,986
$
119,360
$
115,868
$
114,081
Net loans to total deposits
87.80
%
86.60
%
90.60
%
98.48
%
98.99
%
Common shares outstanding
4,569,955
4,638,614
4,673,932
4,694,275
4,691,142
QTD BALANCE SHEET AVERAGES
Total assets
$
1,323,912
$
1,309,942
$
1,259,119
$
1,288,199
$
1,264,105
Earning assets
$
1,248,018
$
1,234,827
$
1,206,411
$
1,235,895
$
1,210,274
Interest bearing liabilities
$
756,545
$
753,706
$
735,159
$
773,132
$
750,281
Total shareholders' equity
$
124,720
$
121,235
$
119,034
$
117,263
$
112,565
Total tangible shareholders' equity
$
121,120
$
117,567
$
115,298
$
113,444
$
108,655
Earned common shares outstanding
4,582,401
4,644,833
4,664,893
4,682,063
4,673,629
Unvested stock grants
20,671
20,671
21,922
14,208
14,208
Total common shares outstanding
4,603,072
4,665,504
4,686,815
4,696,271
4,687,837
ASSET QUALITY (1)
Nonperforming loans to gross loans
0.82
%
0.87
%
0.79
%
0.75
%
0.07
%
Nonperforming assets to total assets
0.63
%
0.66
%
0.62
%
0.64
%
0.06
%
Allowance for loan losses to gross loans
1.03
%
1.09
%
1.08
%
1.02
%
0.95
%
Allowance for loan losses to gross loans, net of PPP loans
1.04
%
1.14
%
1.23
%
1.23
%
1.19
%
CAPITAL RATIOS (1)
Total capital to risk weighted assets
13.63
%
14.35
%
15.02
%
15.14
%
15.57
%
Tier 1 capital to risk weighted assets
12.64
%
13.27
%
13.84
%
13.93
%
14.40
%
CET1 capital to risk weighted assets
11.33
%
11.87
%
12.34
%
12.38
%
12.77
%
Tier 1 leverage ratio
10.21
%
10.19
%
10.31
%
9.80
%
9.86
%
(1) At end of period

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

9/30/2021
9/30/2020
9/30/2019
9/30/2018
9/30/2017
INCOME STATEMENT DATA
Interest income
$
35,161
$
34,355
$
32,465
$
26,419
$
21,246
Interest expense
2,091
4,952
6,469
3,901
2,181
Net interest income
33,070
29,403
25,996
22,518
19,065
Provision for loan losses
(218
)
4,652
899
767
261
Noninterest income
10,983
14,964
6,034
6,574
6,768
Noninterest expenses
27,706
23,713
19,808
18,403
16,418
Federal income tax expense
3,328
3,271
2,297
1,817
2,640
Net income
$
13,237
$
12,731
$
9,026
$
8,105
$
6,514
PER SHARE
Earnings
$
2.86
$
2.73
$
1.94
$
2.23
$
1.80
Dividends
$
0.240
$
0.225
$
0.210
$
0.180
$
0.150
Tangible book value (1)
$
26.53
$
23.50
$
20.37
$
16.91
$
14.29
Quoted market value
High
$
27.40
$
26.00
$
21.00
$
23.00
$
20.65
Low
$
21.90
$
12.55
$
20.05
$
18.88
$
15.10
Close (1)
$
25.75
$
16.93
$
21.00
$
21.15
$
18.45
PERFORMANCE RATIOS
Return on average assets
1.36
%
1.45
%
1.27
%
1.32
%
1.21
%
Return on average shareholders' equity
14.55
%
15.79
%
12.73
%
17.29
%
16.20
%
Return on average tangible shareholders' equity
15.00
%
16.40
%
13.35
%
18.77
%
17.48
%
Efficiency ratio
62.89
%
53.45
%
61.84
%
63.26
%
63.55
%
Yield on earning assets (FTE)
3.83
%
4.12
%
4.81
%
4.59
%
4.15
%
Rate on interest bearing liabilities
0.37
%
0.93
%
1.43
%
0.98
%
0.60
%
Net interest margin to earning assets (FTE)
3.60
%
3.52
%
3.85
%
3.91
%
3.72
%
BALANCE SHEET DATA (1)
Total investment securities
$
138,476
$
78,179
$
62,351
$
79,531
$
67,155
Gross loans
$
1,015,177
$
1,060,885
$
826,597
$
728,302
$
628,552
Total assets
$
1,329,300
$
1,284,845
$
978,046
$
909,901
$
756,967
Total deposits
$
1,144,291
$
1,061,470
$
801,101
$
766,587
$
625,588
Borrowed funds
$
50,000
$
96,217
$
69,000
$
74,000
$
68,000
Total shareholders' equity
$
124,809
$
114,081
$
99,142
$
66,340
$
57,161
Net loans to total deposits
87.80
%
98.99
%
102.51
%
94.46
%
99.95
%
Common shares outstanding
4,569,955
4,691,142
4,658,722
3,645,402
3,631,576
YTD BALANCE SHEET AVERAGES
Total assets
$
1,297,657
$
1,171,415
$
950,749
$
820,481
$
718,335
Earning assets
$
1,230,553
$
1,116,861
$
903,192
$
772,111
$
687,175
Interest bearing liabilities
$
748,472
$
711,449
$
606,912
$
528,165
$
481,657
Total shareholders' equity
$
121,659
$
107,711
$
94,815
$
62,662
$
53,760
Total tangible shareholders' equity
$
117,991
$
103,712
$
90,394
$
57,732
$
49,838
Earned common shares outstanding
4,630,709
4,665,951
4,641,084
3,638,123
3,618,889
Unvested stock grants
21,088
13,966
9,907
—
—
Total common shares outstanding
4,651,797
4,679,917
4,650,991
3,638,123
3,618,889
ASSET QUALITY (1)
Nonperforming loans to gross loans
0.82
%
0.07
%
0.11
%
0.01
%
0.03
%
Nonperforming assets to total assets
0.63
%
0.06
%
0.09
%
0.03
%
0.05
%
Allowance for loan losses to gross loans
1.03
%
0.95
%
0.65
%
0.57
%
0.52
%
Allowance for loan losses to gross loans, net of PPP loans
1.04
%
1.19
%
0.65
%
0.57
%
0.52
%
CAPITAL RATIOS (1)
Total capital to risk weighted assets
13.63
%
15.57
%
14.42
%
11.31
%
10.92
%
Tier 1 capital to risk weighted assets
12.64
%
14.40
%
13.73
%
10.73
%
10.41
%
CET1 capital to risk weighted assets
11.33
%
12.77
%
11.96
%
8.77
%
8.23
%
Tier 1 leverage ratio
10.21
%
9.86
%
11.22
%
8.90
%
9.26
%
(1) At end of period

Income Statement Breakdown and Analysis

Quarter to Date
9/30/2021
6/30/2021
3/31/2021
12/31/2020
9/30/2020
GAAP net income
$
3,855
$
4,726
$
4,656
$
2,733
$
5,336
Acquisition related items (net of tax)
Accretion on purchased loans
(152
)
(152
)
(151
)
(82
)
(144
)
Amortization of core deposit intangibles
54
53
54
71
72
Amortization on acquired time deposits
2
2
2
5
5
Other acquisition related expenses
51
—
—
—
—
Total acquisition related items (net of tax)
(45
)
(97
)
(95
)
(6
)
(67
)
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
)
(16
)
Mortgage servicing rights impairment (reduction of impairment)
—
—
—
(188
)
(176
)
Total other nonrecurring items (net of tax)
(65
)
(33
)
(17
)
1,487
(192
)
Adjusted net income from operations
$
3,745
$
4,596
$
4,544
$
4,214
$
5,077
GAAP net interest income
$
10,931
$
10,896
$
11,243
$
10,652
$
10,881
Accretion on purchased loans
(192
)
(192
)
(191
)
(104
)
(182
)
Interest writeoff from loan transferred to nonaccrual
—
—
—
335
—
Prepayment penalties collected
(82
)
(42
)
(21
)
(123
)
(20
)
Amortization on acquired time deposits
3
3
3
6
6
Adjusted net interest income
$
10,660
$
10,665
$
11,034
$
10,766
$
10,685
PERFORMANCE RATIOS
Based on adjusted net income from operations
Earnings per share
$
0.82
$
0.99
$
0.97
$
0.90
$
1.09
Return on average assets
1.12
%
1.41
%
1.46
%
1.30
%
1.60
%
Return on average shareholders' equity
11.91
%
15.21
%
15.48
%
14.30
%
17.94
%
Return on average tangible shareholders' equity
12.27
%
15.68
%
15.98
%
14.78
%
18.59
%
Efficiency ratio
68.74
%
61.46
%
60.20
%
59.02
%
52.03
%
Based on adjusted net interest income
Yield on earning assets (FTE)
3.60
%
3.72
%
3.94
%
3.78
%
3.91
%
Rate on interest bearing liabilities
0.34
%
0.41
%
0.37
%
0.50
%
0.63
%
Net interest margin to earning assets (FTE)
3.39
%
3.47
%
3.71
%
3.47
%
3.52
%


Year to Date September 30
Variance
2021
2020
Amount
%
GAAP net income
$
13,237
$
12,731
$
506
3.97
%
Acquisition related items (net of tax)
Accretion on purchased loans
(455
)
(434
)
(21
)
4.84
%
Amortization of core deposit intangibles
161
214
(53
)
(24.77
)
%
Amortization on acquired time deposits
6
13
(7
)
(53.85
)
%
Other acquisition related expenses
51
—
51
N/M
Total acquisition related items (net of tax)
(237
)
(207
)
(30
)
14.49
%
Other nonrecurring items (net of tax)
FHLB prepayment penalties
—
—
—
—
%
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
—
—
—
—
%
Net gain from COLI death benefit
—
(173
)
173
(100.00
)
%
Prepayment penalties collected
(115
)
(64
)
(51
)
79.69
%
Mortgage servicing rights impairment (reduction of impairment)
—
188
(188
)
(100.00
)
%
Total other nonrecurring items (net of tax)
(115
)
(1,075
)
960
(89.30
)
%
Adjusted net income from operations
$
12,885
$
11,449
$
1,436
12.54
%
GAAP net interest income
$
33,070
$
29,403
$
3,667
12.47
%
Accretion on purchased loans
(575
)
(549
)
(26
)
4.74
%
Interest writeoff from loan transferred to nonaccrual
—
—
—
—
%
Prepayment penalties collected
(145
)
(81
)
(64
)
79.01
%
Amortization on acquired time deposits
9
17
(8
)
(47.06
)
%
Adjusted net interest income
$
32,359
$
28,790
$
3,569
12.40
%
PERFORMANCE RATIOS
Based on adjusted net income from operations
Earnings per share
$
2.78
$
2.45
$
0.33
13.47
%
Return on average assets
1.33
%
1.31
%
0.02
%
Return on average shareholders' equity
14.16
%
14.20
%
(0.04
)
%
Return on average tangible shareholders' equity
14.60
%
14.75
%
(0.15
)
%
Efficiency ratio
63.31
%
55.13
%
8.18
%
Based on adjusted net interest income
Yield on earning assets (FTE)
3.75
%
4.04
%
(0.29
)
%
Rate on interest bearing liabilities
0.37
%
0.93
%
(0.56
)
%
Net interest margin to earning assets (FTE)
3.52
%
3.45
%
0.07
%

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
September 30, 2021
June 30, 2021
September 30, 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
$
1,000,660
$
11,076
4.39
%
$
1,023,620
$
11,220
4.40
%
$
1,086,629
$
11,701
4.28
%
Taxable investment securities
113,868
372
1.30
%
89,467
322
1.44
%
62,490
256
1.63
%
Nontaxable investment securities
17,085
95
2.21
%
17,234
100
2.33
%
15,822
101
2.54
%
Federal funds sold
—
—
—
%
—
—
—
%
—
—
—
%
Interest earning cash and cash equivalents
112,917
45
0.16
%
101,018
23
0.09
%
41,845
9
0.09
%
Federal Home Loan Bank stock
3,488
16
1.82
%
3,488
14
1.61
%
3,488
24
2.74
%
Total earning assets
1,248,018
11,604
3.69
%
1,234,827
11,679
3.79
%
1,210,274
12,091
3.97
%
Nonearning assets
Allowance for loan losses
(10,889
)
(11,193
)
(9,255
)
Fixed assets
16,465
16,104
15,349
Accrued income and other assets
70,318
70,204
47,737
Total assets
$
1,323,912
$
1,309,942
$
1,264,105
Interest bearing liabilities
Interest bearing demand deposits
$
228,147
$
121
0.21
%
$
223,420
$
122
0.22
%
$
221,592
$
144
0.26
%
Savings deposits
325,161
108
0.13
%
320,000
108
0.14
%
271,260
116
0.17
%
Time deposits
153,694
264
0.68
%
161,197
377
0.94
%
161,212
567
1.40
%
Borrowed funds
49,543
160
1.28
%
49,089
155
1.27
%
96,217
362
1.50
%
Total interest bearing liabilities
756,545
653
0.34
%
753,706
762
0.41
%
750,281
1,189
0.63
%
Noninterest bearing liabilities
Noninterest bearing deposits
433,057
425,353
388,904
Accrued interest and other liabilities
9,590
9,648
12,355
Shareholders' equity
124,720
121,235
112,565
Total liabilities and shareholders' equity
$
1,323,912
$
1,309,942
$
1,264,105
Net interest income (FTE)
$
10,951
$
10,917
$
10,902
Net interest margin to earning assets (FTE)
3.48
%
3.55
%
3.58
%




Nine Months Ended
September 30, 2021
September 30, 2020
Average
Balance
Tax
Equivalent
Interest
Average
Yield /
Rate
Average
Balance
Tax
Equivalent
Interest
Average
Yield /
Rate
Interest earning assets
Total loans
$
1,032,792
$
33,894
4.39
%
$
1,004,476
$
32,970
4.38
%
Taxable investment securities
87,399
896
1.37
%
60,760
932
2.05
%
Nontaxable investment securities
17,161
300
2.34
%
12,601
266
2.82
%
Federal funds sold
—
—
—
%
11,196
116
1.38
%
Interest earning cash and cash equivalents
89,713
79
0.12
%
24,522
40
0.22
%
Federal Home Loan Bank stock
3,488
55
2.11
%
3,306
87
3.52
%
Total earning assets
1,230,553
35,224
3.83
%
1,116,861
34,411
4.12
%
Nonearning assets
Allowance for loan losses
(11,075
)
(7,610
)
Fixed assets
16,108
15,465
Accrued income and other assets
62,071
46,699
Total assets
$
1,297,657
$
1,171,415
Interest bearing liabilities
Interest bearing demand deposits
$
219,378
$
364
0.22
%
$
194,058
$
868
0.60
%
Savings deposits
318,664
325
0.14
%
250,045
455
0.24
%
Time deposits
161,219
932
0.77
%
182,786
2,441
1.78
%
Borrowed funds
49,211
470
1.28
%
84,560
1,188
1.88
%
Total interest bearing liabilities
748,472
2,091
0.37
%
711,449
4,952
0.93
%
Noninterest bearing liabilities
Noninterest bearing deposits
417,387
341,642
Accrued interest and other liabilities
10,139
10,613
Shareholders' equity
121,659
107,711
Total liabilities and shareholders' equity
$
1,297,657
$
1,171,415
Net interest income (FTE)
$
33,133
$
29,459
Net interest margin to earning assets (FTE)
3.60
%
3.52
%

Volume and Rate Variance Analysis

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

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

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

Three Months Ended
Three Months Ended
Nine Months Ended
September 30, 2021
September 30, 2021
September 30, 2021
Compared To
Compared To
Compared To
June 30, 2021
September 30, 2020
September 30, 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
$
(131
)
$
(13
)
$
(144
)
$
(2,276
)
$
1,651
$
(625
)
$
855
$
69
$
924
Taxable investment securities
221
(171
)
50
424
(308
)
116
450
(486
)
(36
)
Nontaxable investment securities
(1
)
(4
)
(5
)
37
(43
)
(6
)
105
(71
)
34
Federal funds sold
—
—
—
—
—
—
(58
)
(58
)
(116
)
Interest earning cash and cash equivalents
3
19
22
25
11
36
76
(37
)
39
Federal Home Loan Bank stock
—
2
2
—
(8
)
(8
)
7
(39
)
(32
)
Total changes in interest income
92
(167
)
(75
)
(1,790
)
1,303
(487
)
1,435
(622
)
813
Changes in interest expense
Interest bearing demand deposits
13
(14
)
(1
)
26
(49
)
(23
)
166
(670
)
(504
)
Savings deposits
11
(11
)
—
96
(104
)
(8
)
147
(277
)
(130
)
Time deposits
(16
)
(97
)
(113
)
(25
)
(278
)
(303
)
(260
)
(1,249
)
(1,509
)
Borrowed funds
3
2
5
(155
)
(47
)
(202
)
(407
)
(311
)
(718
)
Total changes in interest expense
11
(120
)
(109
)
(58
)
(478
)
(536
)
(354
)
(2,507
)
(2,861
)
Net change in net interest income (FTE)
$
81
$
(47
)
$
34
$
(1,732
)
$
1,781
$
49
$
1,789
$
1,885
$
3,674


Average Yield/Rate for the Three Month Periods Ended
9/30/2021
6/30/2021
3/31/2021
12/31/2020
9/30/2020
Total earning assets
3.69
%
3.79
%
4.01
%
3.75
%
3.97
%
Total interest bearing liabilities
0.34
%
0.41
%
0.37
%
0.50
%
0.63
%
Net interest margin to earning assets (FTE)
3.48
%
3.55
%
3.79
%
3.44
%
3.58
%


Quarter to Date Net Interest Income (FTE)
9/30/2021
6/30/2021
3/31/2021
12/31/2020
9/30/2020
Interest income
$
11,584
$
11,658
$
11,919
$
11,624
$
12,070
FTE adjustment
20
21
22
22
21
Total interest income (FTE)
11,604
11,679
11,941
11,646
12,091
Total interest expense
653
762
676
972
1,189
Net interest income (FTE)
$
10,951
$
10,917
$
11,265
$
10,674
$
10,902

Noninterest Income

Quarter to Date
9/30/2021
6/30/2021
3/31/2021
12/31/2020
9/30/2020
Net gain on sales of mortgage loans
$
1,096
$
1,253
$
1,845
$
2,545
$
3,064
ATM and debit card income
495
511
448
437
460
Trust and investment services
562
403
468
445
464
Net mortgage servicing rights income
(69
)
1,119
138
509
559
Mortgage servicing fees
369
362
335
325
293
Service charges on deposit accounts
199
168
166
194
177
Change in cash surrender value of corporate owned life insurance
165
237
64
65
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
(4
)
2
(19
)
(3
)
2
Other income and fees
80
101
58
159
75
Total noninterest income
$
2,899
$
4,230
$
3,854
$
4,676
$
5,159
Memo items:
Residential mortgage operations
$
1,396
$
2,734
$
2,318
$
3,379
$
3,916


Year to Date September 30
Variance
2021
2020
Amount
%
Net gain on sales of mortgage loans
$
4,194
$
8,736
$
(4,542
)
(51.99
)
%
ATM and debit card income
1,454
1,209
245
20.26
%
Trust and investment services
1,433
1,174
259
22.06
%
Net mortgage servicing rights income
1,188
346
842
243.35
%
Mortgage servicing fees
1,066
825
241
29.21
%
Service charges on deposit accounts
533
515
18
3.50
%
Change in cash surrender value of corporate owned life insurance
466
196
270
137.76
%
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
(21
)
758
(779
)
(102.77
)
%
Other income and fees
239
364
(125
)
(34.34
)
%
Total noninterest income
$
10,983
$
14,964
$
(3,981
)
(26.60
)
%
Memo items:
Residential mortgage operations
$
6,448
$
9,907
(3,459
)
(34.91
)
%

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 continuing into 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 during the first nine months of 2021, however not as strong as 2020, it is likely to slow down due to lower housing inventory and expected increases in interest rates.

Net mortgage servicing rights income represents income generated from the capitalization of MSR, net of amortization. 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 a record level of refinancing activity. During the third and fourth quarters of 2020, these impairments had recovered. In the first quarter of 2021, refinancing activity remained elevated, however beginning in the second quarter of 2021, the composition of mortgage originations shifted from refinancing activity to purchase activity and was at a slower volume than previous refinancing.

In 2021, the Corporation elected to adopt the fair value measurement option for all MSR pursuant to FASB ASC 860 ("Transfers and Servicing"). This election resulted in a transfer of $301 to retained earnings to reflect the difference between the fair value and the carrying amount of MSR as of January 1, 2021, net of tax. 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, as 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. During the third quarter of 2021, prepayment speeds increased slightly due to overall industry trends in the Corporation's serviced portfolio resulting in a slight decrease in the fair value of MSR.

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 are expected to increase throughout the remainder of 2021 as the Corporation continues to add to the serviced portfolio.

Throughout the remainder of 2021, overall revenues from residential mortgage operations (net gain on sales of mortgage loans, net mortgage servicing rights income, and mortgage servicing fees) are expected to remain strong, but are not expected to 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 throughout the remainder of 2021, 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 has 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 throughout the remainder of 2021.

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

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 moderate through the remainder of 2021.

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 does not expect to earn additional PPP referral fees throughout the remainder of 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 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. The Corporation does not expect to receive any gains from COLI death benefits 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, 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. Other income and fees are expected to approximate current levels throughout 2021.

Noninterest Expenses

Quarter to Date
9/30/2021
6/30/2021
3/31/2021
12/31/2020
9/30/2020
Total compensation
$
5,001
$
5,000
$
5,004
$
4,958
$
4,531
Professional services
790
703
624
938
524
Furniture and equipment
761
712
637
607
614
Data processing
557
583
509
501
503
Occupancy
522
508
495
475
491
Loan and collection
264
337
406
359
292
Advertising and promotional
384
304
284
184
284
ATM and debit card
131
144
122
125
109
FDIC insurance premiums
153
79
155
59
55
Telephone and communication
80
130
94
64
91
Amortization of core deposit intangibles
68
67
68
90
91
Other acquisition related expenses
64
—
—
—
—
FHLB prepayment penalty
—
—
—
1,907
—
Other general and administrative
678
655
633
704
633
Total noninterest expenses
$
9,453
$
9,222
$
9,031
$
10,971
$
8,218


Year to Date September 30
Variance
2021
2020
Amount
%
Total compensation
$
15,005
$
13,031
$
1,974
15.15
%
Professional services
2,117
1,617
500
30.92
%
Furniture and equipment
2,110
1,842
268
14.55
%
Data processing
1,649
1,480
169
11.42
%
Occupancy
1,525
1,402
123
8.77
%
Loan and collection
1,007
683
324
47.44
%
Advertising and promotional
972
791
181
22.88
%
ATM and debit card
397
309
88
28.48
%
FDIC insurance premiums
387
169
218
128.99
%
Telephone and communication
304
273
31
11.36
%
Amortization of core deposit intangibles
203
271
(68
)
(25.09
)
%
Other acquisition related expenses
64
—
64
N/M
FHLB prepayment penalty
—
—
—
N/M
Other general and administrative
1,966
1,845
121
6.56
%
Total noninterest expenses
$
27,706
$
23,713
$
3,993
16.84
%

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. However, commissions are expected to decline throughout the remainder of 2021 as mortgage originations decline.

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.

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 with in 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 are expected to increase throughout the remainder of 2021 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.

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. Due to declining volume, loan and collection costs are expected to decline through the remainder of 2021.

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, Fenton Township Pathway group. The annual increase in 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 increase modestly throughout the remainder of 2021 due to the growth of the Corporation.

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 throughout the remainder of 2021.

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 the remainder of 2021.

Telephone and communication includes expenses relating to the Corporation's communication systems. These expenses are expected to increase throughout 2021 primarily due to the growth of the Corporation.

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 in 2021 as the core deposit intangible is being amortized based on the sum-of-years-digits method. The Corporation expects an increase in the the core deposit intangible in 2022 associated with the acquisition of Farmers State Bank of Munith.

Other acquisition related expenses includes, but is not limited to, consulting and legal expenses related to the Corporation's acquisition of Farmers State Bank of Munith. The transaction is anticipated to close during the fourth quarter of 2021. As such, these expenses are expected to be temporarily elevated over the remainder of 2021 and potentially into early 2022.

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 will reduce 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

9/30/2021
6/30/2021
3/31/2021
12/31/2020
9/30/2020
ASSETS
Cash and cash equivalents
$
112,861
$
132,676
$
121,477
$
46,757
$
75,032
Total investment securities
138,476
129,944
89,772
76,111
78,179
Residential mortgage loans held-for-sale, at fair value
9,702
7,670
26,322
27,306
34,833
Gross loans
1,015,177
986,358
1,028,117
1,066,562
1,060,885
Less allowance for loan and lease losses
10,500
10,800
11,100
10,900
10,100
Net loans
1,004,677
975,558
1,017,017
1,055,662
1,050,785
All other assets
63,584
63,837
48,587
45,610
46,016
Total assets
$
1,329,300
$
1,309,685
$
1,303,175
$
1,251,446
$
1,284,845
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits
$
1,144,291
$
1,126,496
$
1,122,508
$
1,071,976
$
1,061,470
Total borrowed funds
50,000
49,500
49,000
49,000
96,217
Accrued interest payable and other liabilities
10,200
10,703
12,307
14,602
13,077
Total liabilities
1,204,491
1,186,699
1,183,815
1,135,578
1,170,764
Total shareholders' equity
124,809
122,986
119,360
115,868
114,081
Total liabilities and shareholders' equity
$
1,329,300
$
1,309,685
$
1,303,175
$
1,251,446
$
1,284,845


9/30/2021 vs 6/30/2021
9/30/2021 vs 9/30/2020
Variance
Variance
Amount
%
Amount
%
ASSETS
Cash and cash equivalents
$
(19,815
)
(14.93
)
%
$
37,829
50.42
%
Total investment securities
8,532
6.57
%
60,297
77.13
%
Residential mortgage loans held-for-sale, at fair value
2,032
26.49
%
(25,131
)
(72.15
)
%
Gross loans
28,819
2.92
%
(45,708
)
(4.31
)
%
Less allowance for loan and lease losses
(300
)
(2.78
)
%
400
3.96
%
Net loans
29,119
2.98
%
(46,108
)
(4.39
)
%
All other assets
(253
)
(0.40
)
%
17,568
38.18
%
Total assets
$
19,615
1.50
%
$
44,455
3.46
%
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits
$
17,795
1.58
%
$
82,821
7.80
%
Total borrowed funds
500
1.01
%
(46,217
)
(48.03
)
%
Accrued interest payable and other liabilities
(503
)
(4.70
)
%
(2,877
)
(22.00
)
%
Total liabilities
17,792
0.77
%
33,727
1.51
%
Total shareholders' equity
1,823
1.48
%
10,728
9.40
%
Total liabilities and shareholders' equity
$
19,615
1.50
%
$
44,455
3.46
%

Total investment securities

9/30/2021
6/30/2021
3/31/2021
12/31/2020
9/30/2020
Available-for-sale
U.S. Government and federal agency
$
5,967
$
5,917
$
5,942
$
7,935
$
19,311
State and municipal
25,227
23,096
17,080
15,768
15,729
Mortgage backed residential
67,199
60,390
32,135
19,101
20,886
Certificates of deposit
4,190
4,932
4,932
5,180
5,921
Collateralized mortgage obligations - agencies
31,732
31,281
25,505
23,110
11,141
Unrealized gain/(loss) on available-for-sale securities
1,432
1,334
1,117
1,932
2,099
Total available-for-sale
135,747
126,950
86,711
73,026
75,087
Held-to-maturity state and municipal
1,515
1,859
1,968
1,973
1,977
Equity securities
1,214
1,135
1,093
1,112
1,115
Total investment securities
$
138,476
$
129,944
$
89,772
$
76,111
$
78,179
9/30/2021 vs 6/30/2021
9/30/2021 vs 9/30/2020
Variance
Variance
Amount
%
Amount
%
Available-for-sale
U.S. Government and federal agency
$
50
0.85
%
$
(13,344
)
(69.10
)
%
State and municipal
2,131
9.23
%
9,498
60.39
%
Mortgage backed residential
6,809
11.28
%
46,313
221.74
%
Certificates of deposit
(742
)
(15.04
)
%
(1,731
)
(29.23
)
%
Collateralized mortgage obligations - agencies
451
1.44
%
20,591
184.82
%
Unrealized gain/(loss) on available-for-sale securities
98
7.35
%
(667
)
(31.78
)
%
Total available-for-sale
8,797
6.93
%
60,660
80.79
%
Held-to-maturity state and municipal
(344
)
(18.50
)
%
(462
)
(23.37
)
%
Equity securities
79
6.96
%
99
8.88
%
Total investment securities
$
8,532
6.57
%
$
60,297
77.13
%

The amortized cost and fair value of AFS investment securities as of September 30, 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
$
2,986
$
2,015
$
966
$
—
$
—
$
5,967
State and municipal
2,268
8,611
12,514
1,834
—
25,227
Mortgage backed residential
—
—
—
—
67,199
67,199
Certificates of deposit
984
3,206
—
—
—
4,190
Collateralized mortgage obligations - agencies
—
—
—
—
31,732
31,732
Total amortized cost
$
6,238
$
13,832
$
13,480
$
1,834
$
98,931
$
134,315
Fair value
$
6,332
$
14,319
$
13,654
$
2,089
$
99,353
$
135,747

The amortized cost and fair value of HTM investment securities as of September 30, 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
$
334
$
801
$
380
$
—
$
—
$
1,515
Fair value
$
338
$
837
$
402
$
—
$
—
$
1,577

Throughout 2021, the Corporation expanded its investment portfolio to generate additional interest income. Total investment securities are expected to stabilize through 2021. The following table summarizes information as of September 30, 2021 for investment securities purchased YTD:

Book Value
Fully Taxable
Equivalent Weighted Average Yield
U.S. Government and federal agency
$
2,006
0.95
%
State and municipal
11,199
1.15
%
Collateralized mortgage obligations - agencies
14,471
1.15
%
Mortgage backed residential
54,083
1.37
%
Total
$
81,759
1.29
%

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:

9/30/2021
6/30/2021
3/31/2021
12/31/2020
9/30/2020
Commercial, net of PPP loans
74,308
65,875
60,693
63,579
60,053
PPP loans
4,985
35,195
122,583
177,845
211,060
Commercial real estate
616,358
573,598
541,428
517,054
483,275
Total commercial loans
695,651
674,668
724,704
758,478
754,388
Residential mortgage
273,478
265,323
258,333
262,770
261,375
Home equity
41,902
41,771
40,205
39,900
39,456
Total residential real estate loans
315,380
307,094
298,538
302,670
300,831
Consumer
4,146
4,596
4,875
5,414
5,666
Gross loans
1,015,177
986,358
1,028,117
1,066,562
1,060,885
Allowance for loan and lease losses
(10,500
)
(10,800
)
(11,100
)
(10,900
)
(10,100
)
Loans, net
$
1,004,677
$
975,558
$
1,017,017
$
1,055,662
$
1,050,785
Memo items:
Gross loans, net of PPP loans
$
1,010,192
$
951,163
$
905,534
$
888,717
$
849,825
Residential mortgage loans serviced for others
$
591,399
$
581,984
$
546,836
$
526,416
$
489,247
9/30/2021 vs 6/30/2021
9/30/2021 vs 9/30/2020
Variance
Variance
Amount
%
Amount
%
Commercial, net of PPP loans
$
8,433
12.80
%
$
14,255
23.74
%
PPP loans
(30,210
)
(85.84
)
%
(206,075
)
(97.64
)
%
Commercial real estate
42,760
7.45
%
133,083
27.54
%
Total commercial loans
20,983
3.11
%
(58,737
)
(7.79
)
%
Residential mortgage
8,155
3.07
%
12,103
4.63
%
Home equity
131
0.31
%
2,446
6.20
%
Total residential real estate loans
8,286
2.70
%
14,549
4.84
%
Consumer
(450
)
(9.79
)
%
(1,520
)
(26.83
)
%
Gross loans
28,819
2.92
%
(45,708
)
(4.31
)
%
Allowance for loan losses
300
(2.78
)
%
(400
)
3.96
%
Loans, net
$
29,119
2.98
%
$
(46,108
)
(4.39
)
%
Memo items:
Gross loans, net of PPP loans
$
59,029
6.21
%
$
160,367
18.87
%
Residential mortgage loans serviced for others
$
9,415
1.62
%
$
102,152
20.88
%

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

9/30/2021
6/30/2021
3/31/2021
12/31/2020
9/30/2020
Loans collectively evaluated for impairment
Commercial
$
79,252
$
100,424
$
183,203
$
241,424
$
271,113
Commercial real estate
609,382
564,781
532,294
508,182
481,071
Residential mortgage
272,463
264,448
257,543
262,017
260,665
Home equity
41,840
41,708
40,141
39,874
39,456
Consumer
4,146
4,596
4,875
5,412
5,663
Subtotal
1,007,083
975,957
1,018,056
1,056,909
1,057,968
Loans individually evaluated for impairment
Commercial
$
41
$
646
$
73
$
—
$
—
Commercial real estate
6,976
8,817
9,134
8,872
2,204
Residential mortgage
1,015
875
790
753
710
Home equity
62
63
64
26
—
Consumer
—
—
—
2
3
Subtotal
8,094
10,401
10,061
9,653
2,917
Gross Loans
$
1,015,177
$
986,358
$
1,028,117
$
1,066,562
$
1,060,885

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

9/30/2021
6/30/2021
3/31/2021
12/31/2020
9/30/2020
Loans collectively evaluated for impairment
Commercial
$
613
$
585
$
626
$
673
$
633
Commercial real estate
6,104
6,264
6,026
5,602
5,152
Residential mortgage
3,066
2,814
3,280
3,480
3,479
Home equity
410
440
453
440
438
Consumer
53
85
92
97
101
Subtotal
10,246
10,188
10,477
10,292
9,803
Loans individually evaluated for impairment
Commercial
$
—
$
42
$
—
$
—
$
—
Commercial real estate
250
566
619
602
289
Residential mortgage
4
4
4
4
5
Home equity
—
—
—
—
—
Consumer
—
—
—
2
3
Subtotal
254
612
623
608
297
Allowance for loan losses
$
10,500
$
10,800
$
11,100
$
10,900
$
10,100


Commercial
$
613
$
627
$
626
$
673
$
633
Commercial real estate
6,354
6,830
6,645
6,204
5,441
Residential mortgage
3,070
2,818
3,284
3,484
3,484
Home equity
410
440
453
440
438
Consumer
53
85
92
99
104
Allowance for loan losses
$
10,500
$
10,800
$
11,100
$
10,900
$
10,100

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

9/30/2021
6/30/2021
3/31/2021
12/31/2020
9/30/2020
Accruing interest
Current
$
1,004,220
$
976,852
$
1,018,343
$
1,057,404
$
1,058,437
Past due 30-89 days
2,596
923
1,636
1,165
1,703
Past due 90 days or more
364
36
120
50
86
Total accruing interest
1,007,180
977,811
1,020,099
1,058,619
1,060,226
Nonaccrual
7,997
8,547
8,018
7,943
659
Total loans
$
1,015,177
$
986,358
$
1,028,117
$
1,066,562
$
1,060,885
Total loans past due and in nonaccrual status
$
10,957
$
9,506
$
9,774
$
9,158
$
2,448

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

9/30/2021
6/30/2021
3/31/2021
12/31/2020
9/30/2020
Nonaccrual loans
$
7,997
$
8,547
$
8,018
$
7,943
$
659
Accruing loans past due 90 days or more
364
36
120
50
86
Total nonperforming loans
8,361
8,583
8,138
7,993
745
Other real estate owned
—
—
—
—
—
Total nonperforming assets
$
8,361
$
8,583
$
8,138
$
7,993
$
745

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

9/30/2021
6/30/2021
3/31/2021
12/31/2020
9/30/2020
Nonperforming loans to gross loans
0.82
%
0.87
%
0.79
%
0.75
%
0.07
%
Nonperforming assets to total assets
0.63
%
0.66
%
0.62
%
0.64
%
0.06
%
Allowance for loan losses to gross loans
1.03
%
1.09
%
1.08
%
1.02
%
0.95
%
Allowance for loan losses to gross loans, less PPP loans
1.04
%
1.14
%
1.23
%
1.23
%
1.19
%

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. It was determined in the fourth quarter of 2020 that the hotel's cash flow was insufficient to service the debt in accordance with the contractual terms of the note. However, as COVID-19 restrictions eased in the second quarter of 2021, the hotel began, and continues to make, the regular contractual principal and interest payments. A specific reserve has been established for the estimated collateral deficiency (based on a current appraisal), net of a 70% USDA guarantee and the loan will remain in a nonaccrual status until it is deemed that sufficient improvements in cash flows can be established.

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

9/30/2021
6/30/2021
3/31/2021
12/31/2020
9/30/2020
Net unamortized discount on purchased loans
$
196
$
388
$
580
$
773
$
877

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:

9/30/2021
6/30/2021
3/31/2021
12/31/2020
9/30/2020
Commercial
$
217
$
168
$
206
$
169
$
166
Commercial real estate
791
761
727
707
672
Total commercial loans
608
498
444
351
321
Residential mortgage
203
199
183
182
180
Home equity
47
47
46
45
45
Total residential real estate loans
141
138
131
130
129
Consumer
25
24
22
22
22
Gross loans
$
287
$
262
$
249
$
226
$
215

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.

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 September 30, 2021:

Number of Modifications
Outstanding Balance
% of Portfolio
Commercial real estate
1
104
0.02
%
Portfolio residential mortgage loans
2
366
0.13
%
Total portfolio modifications
3
$
470
0.05
%
Residential mortgage loans serviced for FHLMC
21
$
4,960
0.84
%

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 in 2021. The Corporation has 15 commercial loans in its portfolio in the accommodation industry with a book balance of $19,370. Of these loans, approximately 51% are at least partially government-backed by guarantees from either the SBA or USDA.

The Corporation was extremely active in participating in the PPP loan program. The Corporation funded 1,370 PPP 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 $4,985 as of September 30, 2021.

The Corporation generated $6,799 in fees from the SBA through the first round of the PPP loan program since April 2020. The income is being recognized over the life of the PPP loans (24 to 60 months) based on the level yield method or upon forgiveness. As of September 30, 2021, the Corporation has recognized $6,712 in income since April 2020, with $87 remaining as unearned income.

During the first quarter of 2021, the SBA processed applications for a second round of PPP loans. 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 of September 30, 2021, the Corporation generated referral fee income of $431 for the second round of the PPP loan program.
The tables below summarize total PPP fee income as of:

9/30/2021
6/30/2021
3/31/2021
12/31/2020
9/30/2020
PPP fees recognized
$
376
$
999
$
1,777
$
1,199
$
1,757
PPP referral fee income
6
74
351
—
—
Total PPP fees recognized
$
382
$
1,073
$
2,128
$
1,199
$
1,757


Year to Date September 30
Variance
2021
2020
Amount
%
PPP fees recognized
$
3,152
$
2,361
$
791
33.50
%
PPP referral fee income
431
—
431
N/M
Total PPP fees recognized
$
3,583
$
2,361
$
1,222
51.76
%

All other assets

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

9/30/2021
6/30/2021
3/31/2021
12/31/2020
9/30/2020
Corporate owned life insurance
$
25,803
$
25,638
$
10,354
$
10,291
$
10,225
Premises and equipment, net
16,330
16,231
15,969
15,461
15,267
Mortgage servicing rights
6,454
6,523
5,404
4,885
4,376
Accrued interest receivable
4,416
4,423
5,451
5,068
5,645
Federal Home Loan Bank stock
3,488
3,488
3,488
3,488
3,488
Goodwill
3,219
3,219
3,219
3,219
3,219
Right-of-use assets
1,241
1,364
1,139
364
387
Core deposit intangibles
338
406
474
541
632
Derivatives
320
601
1,009
1,331
1,772
Other assets
1,975
1,944
2,080
962
1,005
All other assets
$
63,584
$
63,837
$
48,587
$
45,610
$
46,016
9/30/2021 vs 6/30/2021
9/30/2021 vs 9/30/2020
Variance
Variance
Amount
%
Amount
%
Corporate owned life insurance
$
165
0.64
%
$
15,578
152.35
%
Premises and equipment, net
99
0.61
%
1,063
6.96
%
Mortgage servicing rights
(69
)
(1.06
)
%
2,078
47.49
%
Accrued interest receivable
(7
)
(0.16
)
%
(1,229
)
(21.77
)
%
Federal Home Loan Bank stock
—
—
%
—
—
%
Goodwill
—
—
%
—
—
%
Right-of-use assets
(123
)
(9.02
)
%
854
220.67
%
Core deposit intangibles
(68
)
(16.75
)
%
(294
)
(46.52
)
%
Derivatives
(281
)
(46.76
)
%
(1,452
)
(81.94
)
%
Other assets
31
1.59
%
970
96.52
%
All other assets
$
(253
)
(0.40
)
%
$
17,568
38.18
%

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.

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 throughout the remainder of 2021 as the Corporation continues to add to the serviced portfolio.

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.

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:

9/30/2021
6/30/2021
3/31/2021
12/31/2020
9/30/2020
Noninterest bearing demand
$
442,358
$
435,588
$
422,013
$
378,733
$
391,706
Interest bearing
Savings
320,724
305,409
309,454
290,343
269,051
Money market demand
119,719
113,088
109,101
113,729
99,252
NOW
115,114
102,046
103,342
101,419
120,681
Time deposits
146,376
170,365
178,598
187,752
180,780
Total deposits
$
1,144,291
$
1,126,496
$
1,122,508
$
1,071,976
$
1,061,470
9/30/2021 vs 6/30/2021
9/30/2021 vs 9/30/2020
Variance
Variance
Amount
%
Amount
%
Noninterest bearing demand
$
6,770
1.55
%
$
50,652
12.93
%
Interest bearing
Savings
15,315
5.01
%
51,673
19.21
%
Money market demand
6,631
5.86
%
20,467
20.62
%
NOW
13,068
12.81
%
(5,567
)
(4.61
)
%
Time deposits
(23,989
)
(14.08
)
%
(34,404
)
(19.03
)
%
Total deposits
$
17,795
1.58
%
$
82,821
7.80
%

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. As a result of the liquidity position of the Corporation and rate compression on contractual time deposits, the Corporation may 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

9/30/2021
6/30/2021
3/31/2021
12/31/2020
9/30/2020
Cash and cash equivalents
Noninterest bearing
$
25,693
$
22,454
$
25,698
$
23,102
$
22,108
Interest bearing
87,168
110,222
95,779
23,655
52,924
Cash and cash equivalents
$
112,861
$
132,676
$
121,477
$
46,757
$
75,032
9/30/2021 vs 6/30/2021
9/30/2021 vs 9/30/2020
Variance
Variance
Amount
%
Amount
%
Cash and cash equivalents
Noninterest bearing
$
3,239
14.43
%
$
3,585
16.22
%
Interest bearing
(23,054
)
(20.92
)
%
34,244
64.70
%
Cash and cash equivalents
$
(19,815
)
(14.93
)
%
$
37,829
50.42
%

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:

9/30/2021
6/30/2021
3/31/2021
12/31/2020
9/30/2020
Cash and cash equivalents
$
112,861
$
132,676
$
121,477
$
46,757
$
75,032
Unpledged investment securities
127,913
118,019
76,384
59,025
58,739
FHLB borrowing availability
140,000
140,000
140,000
140,000
97,500
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
7,500
8,000
8,000
8,000
PPPLF
4,985
35,195
122,583
177,845
206,343
Total liquidity sources
$
424,259
$
464,890
$
499,944
$
463,127
$
477,114

Total borrowed funds

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

9/30/21
6/30/21
3/31/21
12/31/20
9/30/20
Federal Home Loan Bank borrowings
$
35,000
$
35,000
$
35,000
$
35,000
$
77,500
Subordinated debentures
14,000
14,000
14,000
14,000
14,000
PPPLF
—
—
—
—
4,717
Other borrowings
1,000
500
—
—
—
Total borrowed funds
$
50,000
$
49,500
$
49,000
$
49,000
$
96,217
9/30/2021 vs 6/30/2021
9/30/2021 vs 9/30/2020
Variance
Variance
Amount
%
Amount
%
Federal Home Loan Bank borrowings
$
—
—
%
$
(42,500
)
(54.84
)
%
Subordinated debentures
—
—
%
—
—
%
PPPLF
—
—
%
(4,717
)
(100.00
)
%
Other borrowings
500
100.00
%
1,000
N/M
Total borrowed funds
$
500
1.01
%
$
(46,217
)
(48.03
)
%

The Corporation utilizes a mix of borrowed funds and organic deposit growth to fund loan demand. 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. Other borrowings is comprised of the outstanding balance on the holding company line of credit.

Total borrowed funds are expected to approximate current levels throughout the remainder of 2021. The Corporation continually analyzes the market for opportunities and will borrow funds when deemed financially beneficial.

Wholesale funding sources

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

9/30/21
6/30/21
3/31/21
12/31/20
9/30/20
Federal Home Loan Bank borrowings
$
35,000
$
35,000
$
35,000
$
35,000
$
77,500
Subordinated debentures
14,000
14,000
14,000
14,000
14,000
PPPLF
—
—
—
—
4,717
Other borrowings
1,000
500
—
—
—
Brokered money market demand
—
—
—
—
25,029
Brokered time deposits
20,000
20,000
20,234
20,000
28,605
Internet time deposits
2,739
2,739
2,739
2,839
10,208
Total wholesale funds
$
72,739
$
72,239
$
71,973
$
71,839
$
160,059
9/30/2021 vs 6/30/2021
9/30/2021 vs 9/30/2020
Variance
Variance
Amount
%
Amount
%
Federal Home Loan Bank borrowings
$
—
—
%
$
(42,500
)
(54.84
)
%
Subordinated debentures
—
—
%
—
—
%
PPPLF
—
—
%
(4,717
)
(100.00
)
%
Other borrowings
500
100.00
%
1,000
N/M
Brokered money market demand
—
—
%
(25,029
)
(100.00
)
%
Brokered time deposits
—
—
%
(8,605
)
(30.08
)
%
Internet time deposits
—
—
%
(7,469
)
(73.17
)
%
Total wholesale funds
$
500
0.69
%
$
(87,320
)
(54.55
)
%

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 the remainder of 2021 through the Corporation's earnings. As of September 30, 2021, the Corporation's capital ratios remained strong and are expected to exceed well capitalized provisions for the foreseeable future, inclusive of the projected impact of the acquisition of Farmers State Bank of Munith in the fourth quarter of 2021.

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. As of September 30, 2021, the Corporation has $1,022 of common stock available to repurchase. The following tables outline the number shares, dollar amount and weighted average share price associated with the Corporation's common stock repurchase plan for the following periods:

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


Year to Date September 30
2021
2020
Number of Shares Repurchased
151,412
5,342
Dollar Amount of Shares Repurchased
$
3,868
$
110
Weighted Average Share Price
$
25.55
$
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 September 30, 2016 and all dividends were reinvested.

The graph accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/b1d51f61-f019-4687-9c48-919225bee0de


Date
FETM
ABAQ Index
9/30/2016
100.00
100.00
9/30/2017
131.17
129.03
9/30/2018
152.07
131.53
9/30/2019
152.90
118.70
9/30/2020
126.90
79.22
9/30/2021
189.86
139.04

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
FTE: Fully taxable equivalent
USDA: United States Department of Agriculture
GAAP: Generally Accepted Accounting Principles
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 Best 50 performing stocks in 2018 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 17 full-service branches in Genesee, 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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