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Fentura Financial, Inc. Announces First Quarter 2021 Earnings

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

/EIN News/ -- FENTON, Mich., May 03, 2021 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. (OTCQX: FETM) announces quarterly results of net income of $4,656 for the three month period ended March 31, 2021.

Ronald Justice, President and CEO, stated "I am pleased with Fentura’s strong operating results for the first quarter of 2021. Continued outstanding residential mortgage loan activity, new business loans and core funding levels contributed to solid earnings and strong core balance sheet growth. Asset quality metrics remain strong and COVID-19 related payment deferrals significantly declined as borrowers resumed regular payments. While we continue to navigate the challenges presented by the COVID-19 pandemic, 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 month period ended March 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 and provides certain performance measures as of, and for the three month periods ended:

    3/31/2021   12/31/2020   9/30/2020   6/30/2020   3/31/2020
INCOME STATEMENT DATA                    
Interest income   $ 11,919     $ 11,624     $ 12,070     $ 11,215     $ 11,070  
Interest expense   676     972     1,189     1,618     2,145  
Net interest income   11,243     10,652     10,881     9,597     8,925  
Provision for loan losses   212     982     1,109     2,001     1,542  
Noninterest income   3,854     4,676     5,159     5,292     4,513  
Noninterest expenses   9,031     10,971     8,218     7,809     7,686  
Federal income tax expense   1,198     642     1,377     1,036     858  
Net income   $ 4,656     $ 2,733     $ 5,336     $ 4,043     $ 3,352  
PER SHARE                    
Earnings   $ 1.00     $ 0.58     $ 1.14     $ 0.87     $ 0.72  
Dividends   $ 0.080     $ 0.075     $ 0.075     $ 0.075     $ 0.075  
Tangible book value(1)   $ 24.68     $ 23.88     $ 23.50     $ 22.44     $ 21.56  
Quoted market value                    
High   $ 24.75     $ 22.25     $ 17.99     $ 18.95     $ 26.00  
Low   $ 21.90     $ 16.93     $ 16.80     $ 14.90     $ 12.55  
Close(1)   $ 23.30     $ 22.00     $ 16.93     $ 17.35     $ 15.50  
PERFORMANCE RATIOS                    
Return on average assets   1.50 %   0.84 %   1.68 %   1.35 %   1.28 %
Return on average shareholders' equity   15.86 %   9.27 %   18.86 %   15.20 %   13.01 %
Return on average tangible shareholders' equity   16.38 %   9.58 %   19.54 %   15.79 %   13.54 %
Efficiency ratio   59.82 %   71.57 %   51.23 %   52.45 %   57.20 %
Yield on earning assets (FTE)   4.01 %   3.75 %   3.97 %   3.94 %   4.47 %
Rate on interest bearing liabilities   0.37 %   0.50 %   0.63 %   0.91 %   1.28 %
Net interest margin to earning assets (FTE)   3.79 %   3.44 %   3.58 %   3.37 %   3.61 %
BALANCE SHEET DATA(1)                    
Total investment securities   $ 89,772     $ 76,111     $ 78,179     $ 75,526     $ 76,312  
Gross loans   $ 1,028,117     $ 1,066,562     $ 1,060,885     $ 1,044,564     $ 865,577  
Total assets   $ 1,302,794     $ 1,251,446     $ 1,284,845     $ 1,237,694     $ 1,071,180  
Total deposits   $ 1,122,508     $ 1,071,976     $ 1,061,470     $ 1,018,287     $ 883,837  
Borrowed funds   $ 49,000     $ 49,000     $ 96,217     $ 96,217     $ 71,500  
Total shareholders' equity   $ 119,059     $ 115,868     $ 114,081     $ 108,969     $ 104,828  
Net loans to total deposits   90.60 %   98.48 %   98.99 %   101.70 %   97.11 %
Common shares outstanding   4,673,932     4,694,275     4,691,142     4,680,920     4,675,499  
QTD BALANCE SHEET AVERAGES                    
Total assets   $ 1,259,119     $ 1,288,199     $ 1,264,105     $ 1,200,966     $ 1,049,245  
Earning assets   $ 1,206,411     $ 1,235,895     $ 1,210,274     $ 1,146,941     $ 997,089  
Interest bearing liabilities   $ 735,159     $ 773,132     $ 750,281     $ 711,500     $ 672,564  
Total shareholders' equity   $ 119,034     $ 117,263     $ 112,565     $ 106,998     $ 103,646  
Total tangible shareholders' equity   $ 115,298     $ 113,444     $ 108,655     $ 102,999     $ 99,558  
Earned common shares outstanding   4,664,893     4,682,063     4,673,629     4,664,946     4,659,279  
Unvested stock grants   21,922     14,208     14,208     14,208     13,481  
Total common shares outstanding   4,686,815     4,696,271     4,687,837     4,679,154     4,672,760  
ASSET QUALITY(1)                    
Nonperforming loans to gross loans   0.79 %   0.75 %   0.07 %   0.10 %   0.10 %
Nonperforming assets to total assets   0.62 %   0.64 %   0.06 %   0.08 %   0.12 %
Allowance for loan losses to gross loans   1.08 %   1.02 %   0.95 %   0.86 %   0.84 %
Allowance for loan losses to gross loans, net of PPP loans   1.23 %   1.23 %   1.19 %   1.07 %   0.84 %
CAPITAL RATIOS(1)                    
Total capital to risk weighted assets   15.02 %   15.14 %   15.57 %   15.06 %   14.44 %
Tier 1 capital to risk weighted assets   13.84 %   13.93 %   14.40 %   14.00 %   13.58 %
CET1 capital to risk weighted assets   12.34 %   12.38 %   12.77 %   12.34 %   11.92 %
Tier 1 leverage ratio   10.31 %   9.80 %   9.86 %   9.91 %   10.97 %
                     
(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 three month periods ended:

    3/31/2021     3/31/2020     3/31/2019     3/31/2018     3/31/2017  
INCOME STATEMENT DATA                              
Interest income   $ 11,919     $ 11,070     $ 10,437     $ 8,379     $ 6,427  
Interest expense   676     2,145     2,090     1,031     687  
Net interest income   11,243     8,925     8,347     7,348     5,740  
Provision for loan losses   212     1,542     213     275      
Noninterest income   3,854     4,513     1,522     1,801     1,234  
Noninterest expenses   9,031     7,686     6,509     6,279     5,095  
Federal income tax expense   1,198     858     633     521     592  
Net income   $ 4,656     $ 3,352     $ 2,514     $ 2,074     $ 1,287  
PER SHARE                              
Earnings   $ 1.00     $ 0.72     $ 0.54     $ 0.57     $ 0.35  
Dividends   $ 0.080     $ 0.075     $ 0.070     $ 0.060     $ 0.050  
Tangible book value(1)   $ 24.68     $ 21.56     $ 18.88     $ 15.27     $ 12.86  
Quoted market value                              
High   $ 24.75     $ 26.00     $ 21.00     $ 20.19     $ 18.25  
Low   $ 21.90     $ 12.55     $ 20.05     $ 18.88     $ 15.10  
Close(1)   $ 23.30     $ 15.50     $ 20.89     $ 19.75     $ 18.00  
PERFORMANCE RATIOS                              
Return on average assets   1.50 %   1.28 %   1.09 %   1.07 %   0.73 %
Return on average shareholders' equity   15.86 %   13.01 %   11.09 %   13.99 %   10.19 %
Return on average tangible shareholders' equity   16.38 %   13.54 %   11.66 %   15.28 %   10.63 %
Efficiency ratio   59.82 %   57.20 %   65.95 %   68.63 %   73.06 %
Yield on earning assets (FTE)   4.01 %   4.47 %   4.77 %   4.51 %   4.19 %
Rate on interest bearing liabilities   0.37 %   1.28 %   1.40 %   0.83 %   0.55 %
Net interest margin to earning assets (FTE)   3.79 %   3.61 %   3.81 %   3.90 %   3.74 %
BALANCE SHEET DATA(1)                              
Total investment securities   $ 89,772     $ 76,312     $ 82,222     $ 49,608     $ 72,472  
Gross loans   $ 1,028,117     $ 865,577     $ 809,863     $ 686,140     $ 554,415  
Total assets   $ 1,302,794     $ 1,071,180     $ 946,172     $ 789,943     $ 730,636  
Total deposits   $ 1,122,508     $ 883,837     $ 789,533     $ 683,775     $ 630,055  
Borrowed funds   $ 49,000     $ 71,500     $ 59,000     $ 44,600     $ 45,000  
Total shareholders' equity   $ 119,059     $ 104,828     $ 92,236     $ 60,621     $ 51,816  
Net loans to total deposits   90.60 %   97.11 %   101.97 %   99.80 %   87.54 %
Common shares outstanding   4,673,932     4,675,499     4,647,978     3,635,098     3,620,964  
YTD BALANCE SHEET AVERAGES                              
Total assets   $ 1,259,119     $ 1,049,245     $ 934,078     $ 789,391     $ 716,998  
Earning assets   $ 1,206,411     $ 997,089     $ 887,974     $ 755,281     $ 613,904  
Interest bearing liabilities   $ 735,159     $ 672,564     $ 604,973     $ 505,174     $ 499,636  
Total shareholders' equity   $ 119,034     $ 103,646     $ 91,964     $ 60,107     $ 51,241  
Total tangible shareholders' equity   $ 115,298     $ 99,558     $ 87,430     $ 55,041     $ 49,104  
Earned common shares outstanding   4,664,893     4,659,279     4,635,255     3,633,093     3,677,143  
Unvested stock grants   21,922     13,481     9,788          
Total common shares outstanding   4,686,815     4,672,760     4,645,043     3,633,093     3,677,143  
ASSET QUALITY(1)                              
Nonperforming loans to gross loans   0.79 %   0.10 %   0.11 %   0.10 %   0.33 %
Nonperforming assets to total assets   0.62 %   0.12 %   0.09 %   0.10 %   0.28 %
Allowance for loan losses to gross loans   1.08 %   0.84 %   0.59 %   0.54 %   0.52 %
Allowance for loan losses to gross loans, net of PPP loans   1.23 %   0.84 %   0.59 %   0.54 %   0.52 %
CAPITAL RATIOS(1)                              
Total capital to risk weighted assets   15.02 %   14.44 %   14.01 %   11.03 %   11.72 %
Tier 1 capital to risk weighted assets   13.84 %   13.58 %   13.38 %   10.48 %   11.20 %
CET1 capital to risk weighted assets   12.34 %   11.92 %   11.55 %   8.41 %   8.65 %
Tier 1 leverage ratio   10.31 %   10.97 %   11.00 %   9.01 %   8.60 %
                               
(1)At end of period                              

Income Statement Breakdown and Analysis

    Quarter to Date
    3/31/2021   12/31/2020   9/30/2020   6/30/2020   3/31/2020
GAAP net income   $ 4,656     $ 2,733     $ 5,336     $ 4,043     $ 3,352  
Acquisition related items (net of tax)                    
Accretion on purchased loans   (151 )   (82 )   (144 )   (110 )   (180 )
Amortization of core deposit intangibles   54     71     72     71     71  
Amortization on acquired time deposits   2     5     5     5     5  
Total acquisition related items (net of tax)   (95 )   (6 )   (67 )   (34 )   (104 )
Other nonrecurring items (net of tax)                    
FHLB prepayment penalties       1,507              
Change in fair value of equity investment due to acquisition transaction                   (578 )
Change in fair value of mortgage banking instruments                   (448 )
Interest writeoff from loan transferred to nonaccrual       265              
Net gain from COLI death benefit               (173 )    
Prepayment penalties collected   (17 )   (97 )   (16 )   (12 )   (36 )
Mortgage servicing rights (reduction of) impairment       (188 )   (176 )   191     173  
Total other nonrecurring items (net of tax)   (17 )   1,487     (192 )   6     (889 )
Adjusted net income from operations   $ 4,544     $ 4,214     $ 5,077     $ 4,015     $ 2,359  
                     
GAAP net interest income   $ 11,243     $ 10,652     $ 10,881     $ 9,597     $ 8,925  
Accretion on purchased loans   (191 )   (104 )   (182 )   (139 )   (228 )
Interest writeoff from loan transferred to nonaccrual       335              
Prepayment penalties collected   (21 )   (123 )   (20 )   (15 )   (46 )
Amortization on acquired time deposits   3     6     6     6     6  
Adjusted net interest income   $ 11,034     $ 10,766     $ 10,685     $ 9,449     $ 8,657  
                     
PERFORMANCE RATIOS                    
Based on adjusted net income from operations                    
Earnings per share   $ 0.97     $ 0.90     $ 1.09     $ 0.86     $ 0.51  
Return on average assets   1.46 %   1.30 %   1.60 %   1.34 %   0.90 %
Return on average shareholders' equity   15.48 %   14.30 %   17.94 %   15.09 %   9.15 %
Return on average tangible shareholders' equity   15.98 %   14.78 %   18.59 %   15.68 %   9.53 %
Efficiency ratio   60.20 %   59.02 %   52.03 %   52.12 %   62.83 %
                     
Based on adjusted net interest income                    
Yield on earning assets (FTE)   3.94 %   3.78 %   3.91 %   3.89 %   4.39 %
Rate on interest bearing liabilities   0.37 %   0.50 %   0.63 %   0.92 %   1.29 %
Net interest margin to earning assets (FTE)   3.71 %   3.47 %   3.52 %   3.32 %   3.52 %

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

    Year to Date March 31   Variance
    2021   2020   Amount   %
GAAP net income   $ 4,656     $ 3,352     $ 1,304        38.90    %
Acquisition related items (net of tax)                
Accretion on purchased loans   (151 )   (180 )   29       (16.11 ) %
Amortization of core deposit intangibles   54     71     (17 )     (23.94 ) %
Amortization on acquired time deposits   2     5     (3 )     (60.00 ) %
Total acquisition related items (net of tax)   (95 )   (104 )   9       (8.65 ) %
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                   %
Prepayment penalties collected   (17 )   (36 )   19       (52.78 ) %
Mortgage servicing rights (reduction of) impairment       173     (173 )     (100.00 ) %
Total other nonrecurring items (net of tax)   (17 )   (889 )   872       (98.09 ) %
Adjusted net income from operations   $ 4,544     $ 2,359     $ 2,185        92.62    %
                 
GAAP net interest income   $ 11,243     $ 8,925     $ 2,318        25.97    %
Accretion on purchased loans   (191 )   (228 )   37       (16.23 ) %
Interest writeoff from loan transferred to nonaccrual                   %
Prepayment penalties collected   (21 )   (46 )   25       (54.35 ) %
Amortization on acquired time deposits   3     6     (3 )     (50.00 ) %
Adjusted net interest income   $ 11,034     $ 8,657     $ 2,377        27.46    %
                 
PERFORMANCE RATIOS                
Based on adjusted net income from operations                
Earnings per share   $ 0.97     $ 0.51     $ 0.46       90.20   %
Return on average assets   1.46 %   0.90 %       0.56   %
Return on average shareholders' equity   15.48 %   9.15 %       6.33   %
Return on average tangible shareholders' equity   15.98 %   9.53 %       6.45   %
Efficiency ratio   60.20 %   62.83 %       (2.63 ) %
                 
Based on adjusted net interest income                
Yield on earning assets (FTE)   3.94 %   4.39 %       (0.45 ) %
Rate on interest bearing liabilities   0.37 %   1.29 %       (0.92 ) %
Net interest margin to earning assets (FTE)   3.71 %   3.52 %       0.19   %

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

Average Balances, Interest Rate, and Net Interest Income

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

    Three Months Ended
    March 31, 2021   December 31, 2020   March 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   $ 1,074,096     $ 11,598     4.38 %   $ 1,099,779     $ 11,268     4.08 %   $ 878,813     $ 10,481     4.80 %
Taxable investment securities   58,859     202     1.39 %   62,866     238     1.51 %   56,963     353     2.49 %
Nontaxable investment securities   17,165     105     2.48 %   16,047     103     2.55 %   10,532     81     3.09 %
Federal funds sold           %           %   33,588     116     1.39 %
Interest earning cash and cash equivalents   52,803     11     0.08 %   53,715     15     0.11 %   14,043     26     0.74 %
Federal Home Loan Bank stock   3,488     25     2.91 %   3,488     22     2.51 %   3,150     30     3.83 %
Total earning assets   1,206,411     11,941     4.01 %   1,235,895     11,646     3.75 %   997,089     11,087     4.47 %
                                     
Nonearning assets                                    
Allowance for loan losses   (11,143 )           (10,375 )           (5,821 )        
Fixed assets   15,757             15,465             15,538          
Accrued income and other assets   48,094             47,214             42,439          
Total assets   $ 1,259,119             $ 1,288,199             $ 1,049,245          
                                     
Interest bearing liabilities                                    
Interest bearing demand deposits   $ 206,565     $ 121     0.24 %   $ 218,627     $ 128     0.23 %   $ 170,598     $ 475     1.12 %
Savings deposits   310,830     109     0.14 %   291,856     114     0.16 %   231,188     199     0.35 %
Time deposits   168,764     291     0.70 %   179,076     407     0.90 %   205,485     1,053     2.06 %
Borrowed funds   49,000     155     1.28 %   83,573     323     1.54 %   65,293     418     2.57 %
Total interest bearing liabilities   735,159     676     0.37 %   773,132     972     0.50 %   672,564     2,145     1.28 %
                                     
Noninterest bearing liabilities                                    
Noninterest bearing deposits   393,751             385,032             264,699          
Accrued interest and other liabilities   11,175             12,772             8,336          
Shareholders' equity   119,034             117,263             103,646          
Total liabilities and shareholders' equity   $ 1,259,119             $ 1,288,199             $ 1,049,245          
Net interest income (FTE)       $ 11,265             $ 10,674             $ 8,942      
Net interest margin to earning assets (FTE)           3.79 %           3.44 %           3.61 %

Net Interest Income

Net interest income is the amount by which interest income on earning assets exceeds the interest expenses on interest bearing liabilities. Net interest income, which includes loan fees, is influenced by changes in the balance and mix of assets and liabilities and market interest rates. The Corporation exerts some control over these factors; however, FRB monetary policy and competition have a significant impact. For analytical purposes, net interest income is adjusted to a FTE basis by adding the income tax savings from interest on tax exempt loans, and nontaxable investment securities, thus making year-to-year comparisons more meaningful.

Volume and Rate Variance Analysis

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

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

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

    Three Months Ended   Three Months Ended
    March 31, 2021   March 31, 2021
    Compared To   Compared To
    December 31, 2020   March 31, 2020
    Increase (Decrease) Due to   Increase (Decrease) Due to
    Volume   Rate   Net   Volume   Rate   Net
Changes in interest income                        
Total loans   $ (1,511 )     $ 1,841       $ 330       $ 6,098       $ (4,981 )     $ 1,117    
Taxable investment securities   (16 )     (20 )     (36 )     77       (228 )     (151 )  
Nontaxable investment securities   17       (15 )     2       116       (92 )     24    
Federal funds sold                     (58 )     (58 )     (116 )  
Interest earning cash and cash equivalents         (4 )     (4 )     129       (144 )     (15 )  
Federal Home Loan Bank stock         3       3       16       (21 )     (5 )  
Total changes in interest income   (1,510 )     1,805       295       6,378       (5,524 )     854    
                         
Changes in interest expense                        
Interest bearing demand deposits   (29 )     22       (7 )     560       (914 )     (354 )  
Savings deposits   38       (43 )     (5 )     321       (411 )     (90 )  
Time deposits   (24 )     (92 )     (116 )     (162 )     (600 )     (762 )  
Borrowed funds   (119 )     (49 )     (168 )     (87 )     (176 )     (263 )  
Total changes in interest expense   (134 )     (162 )     (296 )     632        (2,101 )     (1,469 )  
Net change in net interest income (FTE)   $ (1,376 )     $ 1,967       $ 591       $ 5,746       $ (3,423 )     $ 2,323    


    Average Yield/Rate for the Three Month Periods Ended
    3/31/2021   12/31/2020   9/30/2020   6/30/2020   3/31/2020
Total earning assets   4.01 %   3.75 %   3.97 %   3.94 %   4.47 %
Total interest bearing liabilities   0.37 %   0.50 %   0.63 %   0.91 %   1.28 %
Net interest margin to earning assets (FTE)   3.79 %   3.44 %   3.58 %   3.37 %   3.61 %


    Quarter to Date Net Interest Income (FTE)
    3/31/2021   12/31/2020   9/30/2020   6/30/2020   3/31/2020
Interest income   $ 11,919     $ 11,624     $ 12,070     $ 11,215     $ 11,070  
FTE adjustment   22     22     21     18     17  
Total interest income (FTE)   11,941     11,646     12,091     11,233     11,087  
Total interest expense   676     972     1,189     1,618     2,145  
Net interest income (FTE)   $ 11,265     $ 10,674     $ 10,902     $ 9,615     $ 8,942  

Noninterest Income

    Quarter to Date
    3/31/2021   12/31/2020   9/30/2020   6/30/2020   3/31/2020
Net gain on sales of mortgage loans   $ 1,845       $ 2,545       $ 3,064     $ 3,869       $ 1,803    
Trust and investment services   468       445       464     321       389    
ATM and debit card income   448       437       460     394       355    
PPP referral fees   351                          
Mortgage servicing fees   335       325       293     270       262    
Service charges on deposit accounts   166       194       177     119       219    
Net mortgage servicing rights income   138       509       559     (163 )     (50 )  
Net gain on sales of commercial loans                         668    
Net gain from corporate owned life insurance death benefit                   173          
Change in fair value of equity investments   (19 )     (3 )     2     7       749    
Other income and fees   122       224       140     302       118    
Total noninterest income   $ 3,854       $ 4,676       $ 5,159     $ 5,292       $ 4,513    
                     
Residential mortgage operations   $ 2,318       $ 3,379       $ 3,916     $ 3,976       $ 2,015    


    Year to Date March 31   Variance
    2021   2020   Amount   %
Net gain on sales of mortgage loans   $ 1,845       $ 1,803       $ 42       2.33   %
Trust and investment services   468       389       79       20.31   %
ATM and debit card income   448       355       93       26.20   %
PPP referral fees   351             351         %
Mortgage servicing fees   335       262       73       27.86   %
Service charges on deposit accounts   166       219       (53 )     (24.20 ) %
Net mortgage servicing rights income   138       (50 )     188       (376.00 ) %
Net gain on sales of commercial loans         668       (668 )     (100.00 ) %
Net gain from corporate owned life insurance death benefit                       %
Change in fair value of equity investments   (19 )     749       (768 )     (102.54 ) %
Other income and fees   122       118       4       3.39   %
Total noninterest income   $ 3,854       $ 4,513       $ (659 )     (14.60 ) %
                 
Residential mortgage operations   $ 2,318       $ 2,015       303       15.04   %

Residential Mortgage Operations

Net gain on sales of mortgage loans represents the income earned on the sale of residential mortgage loans into the secondary market. Throughout 2020, the interest rate environment was advantageous for residential mortgage originations and refinancing, resulting in record gains. Although many consumers continue to face uncertainty related to the overall impact of the COVID-19 pandemic, residential mortgage originations and refinancing activity was robust throughout 2020 and into the first quarter of 2021. Through March 31, 2021, home values continue to rise primarily due to inventory shortages.

Mortgage servicing fees includes the fees earned for servicing loans that have been sold into the secondary market. The increase in mortgage servicing fees is directly related to the increase in the size of the serviced portfolio. Mortgage servicing fees are expected to increase throughout the remainder of 2021 as the Corporation continues to add to the serviced portfolio.

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

Throughout the remainder of 2021, overall revenues from residential mortgage operations (net gain from sale of mortgage loans, mortgage servicing fees, and net mortgage servicing rights income) 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

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. Income generated from trust services has remained stable from fiduciary fees for estate settlement services and portfolio management. Revenue from wealth management has increased due to strong demand from customers for annuities and long-term care insurance products. 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 2021.

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

PPP referral fees represents the income earned from the second round of the PPP loan program through the SBA. During the first quarter of 2021, the SBA began processing applications for a second round of PPP loans. The Corporation utilized a third-party vendor to process applications and fund these loans. The Corporation is generating referral fee income for the second round of the PPP loan program. The second round of the PPP loan program ends May 31, 2021. The Corporation expects to earn a nominal amount of PPP referral fees during the second quarter of 2021.

Service charges on deposit accounts includes fees earned from deposit customers for transaction-based, account maintenance and overdraft services. The year-over-year decrease in service charges on deposit accounts is primarily due to a temporary reduction in fees charged due to the COVID-19 pandemic. Service charges on deposit accounts are expected to approximate current levels throughout 2021.

Net gain on sales of commercial loans represents the income earned from the sale of commercial loans into the secondary market. During the first quarter of 2020, the Corporation sold the guaranteed portion of one SBA loan and one USDA loan. The Corporation does not expect to receive any gains from the sale of commercial loans in 2021.

Net gain from corporate owned life insurance death benefit is recognized in the event of the death of an insured individual. The death of an insured individual occurred in the second quarter of 2020. The Corporation does not expect to receive any gains from COLI death benefits in 2021.

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 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
    3/31/2021   12/31/2020   9/30/2020   6/30/2020   3/31/2020
Total compensation   $ 5,004     $ 4,958     $ 4,531     $ 4,252     $ 4,248  
Furniture and equipment   637     607     614     618     610  
Professional services   624     938     524     571     522  
Data processing   509     501     503     535     442  
Occupancy   495     475     491     435     476  
Loan and collection   406     359     292     229     162  
Advertising and promotional   284     184     284     255     252  
FDIC insurance premiums   155     59     55     59     55  
ATM and debit card   122     125     109     92     108  
Telephone and communication   94     64     91     86     96  
Amortization of core deposit intangibles   68     90     91     90     90  
FHLB prepayment penalty       1,907              
Other general and administrative   633     704     633     587     625  
Total noninterest expenses   $ 9,031     $ 10,971     $ 8,218     $ 7,809     $ 7,686  


    Year to Date March 31   Variance
    2021   2020   Amount   %
Total compensation   $ 5,004     $ 4,248     $ 756       17.80   %
Furniture and equipment   637     610     27       4.43   %
Professional services   624     522     102       19.54   %
Data processing   509     442     67       15.16   %
Occupancy   495     476     19       3.99   %
Loan and collection   406     162     244       150.62   %
Advertising and promotional   284     252     32       12.70   %
FDIC insurance premiums   155     55     100       181.82   %
ATM and debit card   122     108     14       12.96   %
Telephone and communication   94     96     (2 )     (2.08 ) %
Amortization of core deposit intangibles   68     90     (22 )     (24.44 ) %
FHLB prepayment penalty                   %
Other general and administrative   633     625     8       1.28   %
Total noninterest expenses   $ 9,031     $ 7,686     $ 1,345       17.50   %

Total compensation includes salaries, commissions and incentives, employee benefits, and payroll taxes. Total compensation has increased due to annual merit increases and an increase in commissions and incentives paid. Fluctuations in commissions and incentives are primarily driven by residential mortgage originations, which can vary significantly from period to period, however, commissions are expected to decline throughout 2021 as mortgage originations decline.

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

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

Data processing primarily includes the expenses relating to the Corporation's core data processor. These expenses are expected to increase throughout 2021 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 quarter 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. Loan and collection expenses will likely moderate throughout the remainder of 2021, due to diminishing residential mortgage refinancing demand.

Advertising and promotional includes the Corporation's media costs and any donations or sponsorships made on behalf of the Corporation. The annual increase in expenses is a direct result of the Corporation enhancing its marketing efforts to attract new and expand existing customer loan and deposit accounts. In addition to traditional marketing strategies, the Corporation rolled out a new branding strategy in 2020, which resulted in elevated advertising and promotional expenses. Total advertising and promotional expenses are expected to increase in 2021 due to the growth of the Corporation.

FDIC insurance premiums typically fluctuate based on the size of the Corporation's balance sheet, capital position, overall risk profile, and examination ratings. FDIC insurance premiums are expected to increase throughout the remainder of 2021 primarily due to the Corporation's growth in total assets.

ATM and debit card expenses fluctuate based on customer and non-customer utilization of ATMs and customer debit card volumes. The Corporation expects these fees to increase modestly throughout 2021.

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 as the core deposit intangible is being amortized based on the sum-of-years-digits method.

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

    3/31/2021   12/31/2020   9/30/2020   6/30/2020   3/31/2020
ASSETS                    
Cash and cash equivalents   $ 121,477     $ 46,757     $ 75,032     $ 35,190     $ 71,140  
Total investment securities   89,772     76,111     78,179     75,526     76,312  
Residential mortgage loans held-for-sale, at fair value   26,322     27,306     34,833     46,354     21,154  
Gross loans   1,028,117     1,066,562     1,060,885     1,044,564     865,577  
Less allowance for loan losses   11,100     10,900     10,100     8,991     7,250  
Net loans   1,017,017     1,055,662     1,050,785     1,035,573     858,327  
All other assets   48,206     45,610     46,016     45,051     44,247  
Total assets   $ 1,302,794     $ 1,251,446     $ 1,284,845     $ 1,237,694     $ 1,071,180  
                     
LIABILITIES AND SHAREHOLDERS' EQUITY                    
Total deposits   $ 1,122,508     $ 1,071,976     $ 1,061,470     $ 1,018,287     $ 883,837  
Total borrowed funds   49,000     49,000     96,217     96,217     71,500  
Accrued interest payable and other liabilities   12,227     14,602     13,077     14,221     11,015  
Total liabilities   1,183,735     1,135,578     1,170,764     1,128,725     966,352  
Total shareholders' equity   119,059     115,868     114,081     108,969     104,828  
Total liabilities and shareholders' equity   $ 1,302,794     $ 1,251,446     $ 1,284,845     $ 1,237,694     $ 1,071,180  


    3/31/2021 vs 12/31/2020   3/31/2021 vs 3/31/2020
    Variance   Variance
    Amount   %   Amount   %
ASSETS                
Cash and cash equivalents   $ 74,720       159.80   %   $ 50,337       70.76   %
Total investment securities   13,661       17.95   %   13,460       17.64   %
Residential mortgage loans held-for-sale, at fair value   (984 )     (3.60 ) %   5,168       24.43   %
Gross loans   (38,445 )     (3.60 ) %   162,540       18.78   %
Less allowance for loan losses   200       1.83   %   3,850       53.10   %
Net loans   (38,645 )     (3.66 ) %   158,690       18.49   %
All other assets   2,596       5.69   %   3,959       8.95   %
Total assets   $ 51,348       4.10   %   $ 231,614       21.62   %
                 
LIABILITIES AND SHAREHOLDERS' EQUITY                
Total deposits   $ 50,532       4.71   %   $ 238,671       27.00   %
Total borrowed funds           %   (22,500 )     (31.47 ) %
Accrued interest payable and other liabilities   (2,375 )     (16.26 ) %   1,212       11.00   %
Total liabilities   48,157       2.18   %   217,383       11.75   %
Total shareholders' equity   3,191       2.75   %   14,231       13.58   %
Total liabilities and shareholders' equity   $ 51,348       4.10   %   $ 231,614       21.62   %

Cash and cash equivalents

    3/31/2021   12/31/2020   9/30/2020   6/30/2020   3/31/2020
Cash and cash equivalents                          
Noninterest bearing   $ 25,698     $ 23,102     $ 22,108     $ 20,369     $ 33,312  
Interest bearing     95,779       23,655       52,924     14,821     37,828  
Federal funds sold                          
Cash and cash equivalents   $ 121,477     $ 46,757     $ 75,032     $ 35,190     $ 71,140  
                           
    3/31/2021 vs 12/31/2020       3/31/2021 vs 3/31/2020
    Variance       Variance
    Amount   %       Amount   %
Cash and cash equivalents                          
Noninterest bearing   $ 2,596     11.24 %       $ (7,614 )   (22.86 )%
Interest bearing     72,124     304.90 %       57,951     153.20 %
Federal funds sold         %           %
Cash and cash equivalents   $ 74,720     159.80 %       $ 50,337     70.76 %

Cash and cash equivalents, which is comprised of cash and due from banks and federal funds sold, fluctuate from period to period based on loan demand and variances in deposit accounts. In recent periods, the Corporation has experienced an inflow of customer deposits resulting in historically high levels of cash and cash equivalents. The increase in interest bearing cash in the first quarter of 2021 is primarily due to funds received from the SBA for forgiveness of PPP loans. The Corporation expects cash and cash equivalents to remain elevated over the remainder of the year due to additional forgiveness of outstanding PPP loans and the current interest rate environment.

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:

    3/31/2021   12/31/2020   9/30/2020   6/30/2020   3/31/2020
Cash and cash equivalents   $ 121,477     $ 46,757     $ 75,032     $ 35,190     $ 71,140  
Unpledged investment securities   76,384     59,025     58,739     52,647     51,889  
FHLB borrowing availability   140,000     140,000     97,500     97,500     42,500  
Federal funds purchased lines of credit   21,500     21,500     21,500     21,500     17,500  
Funds available through the Fed Discount Window   10,000     10,000     10,000     10,000     10,000  
PPPLF   122,583     177,845     206,343     202,184      
Total liquidity sources   $ 491,944     $ 455,127     $ 469,114     $ 419,021     $ 193,029  

Total investment securities

    3/31/2021   12/31/2020   9/30/2020   6/30/2020   3/31/2020
Available-for-sale                    
U.S. Government and federal agency   $ 5,942       $ 7,935       $ 19,311     $ 21,339       $ 23,610    
State and municipal   17,080         15,768       15,729     14,115         10,657    
Mortgage backed residential   32,135         19,101       20,886     12,335         10,176    
Certificates of deposit   4,932         5,180       5,921     6,665         8,644    
Collateralized mortgage obligations - agencies   25,505         23,110       11,141     15,736         18,288    
Unrealized gain/(loss) on available-for-sale securities   1,117         1,932       2,099     2,242         1,735    
Total available-for-sale   86,711         73,026       75,087     72,432         73,110    
Held-to-maturity state and municipal   1,968         1,973       1,977     1,981         2,091    
Equity securities   1,093         1,112       1,115     1,113         1,111    
Total investment securities   $ 89,772       $ 76,111       $ 78,179     $ 75,526       $ 76,312    
                     
    3/31/2021 vs 12/31/2020       3/31/2021 vs 3/31/2020
    Variance       Variance
    Amount   %       Amount   %
Available-for-sale                    
U.S. Government and federal agency   $ (1,993 )     (25.12 ) %       $ (17,668 )     (74.83 ) %
State and municipal   1,312       8.32   %       6,423       60.27   %
Mortgage backed residential   13,034       68.24   %       21,959       215.79   %
Certificates of deposit   (248 )     (4.79 ) %       (3,712 )     (42.94 ) %
Collateralized mortgage obligations - agencies   2,395       10.36   %       7,217       39.46   %
Unrealized gain/(loss) on available-for-sale securities   (815 )     (42.18 ) %       (618 )     (35.62 ) %
Total available-for-sale   13,685       18.74   %       13,601       18.60   %
Held-to-maturity state and municipal   (5 )     (0.25 ) %       (123 )     (5.88 ) %
Equity securities   (19 )     (1.71 ) %       (18 )     (1.62 ) %
Total investment securities   $ 13,661       17.95   %       $ 13,460       17.64   %

The amortized cost and fair value of AFS investment securities as of March 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   $ 4,975     $ 967     $     $     $     $ 5,942  
State and municipal   3,239     5,952     6,005     1,884         17,080  
Mortgage backed residential                   32,135     32,135  
Certificates of deposit   1,726     3,206                 4,932  
Collateralized mortgage obligations - agencies                   25,505     25,505  
Total amortized cost   $ 9,940     $ 10,125     $ 6,005     $ 1,884     $ 57,640     $ 85,594  
Fair value   $ 10,125     $ 10,728     $ 6,066     $ 2,110     $ 57,682     $ 86,711  

The amortized cost and fair value of HTM investment securities as of March 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   $ 783     $ 805     $ 380     $     $     $ 1,968  
Fair value   $ 792     $ 840     $ 400     $     $     $ 2,032  

During the first quarter of 2021, the the Corporation expanded its investment portfolio to generate additional inte