January 22, 2022

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Fentura Financial, Inc. Announces Fourth Quarter 2020 Earnings

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Figure 1

Stock Performance Five-Year Total Return
Stock Performance Five-Year Total Return

Dollars in thousands except per share amounts. Certain items in the prior period financial statements have been reclassified to conform with the December 31, 2020 presentation.

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

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

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

Following is a discussion of the Corporation’s financial performance as of, and for the three and twelve months periods ended December 31, 2020. At the end of this document is a list of abbreviations and acronyms.

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

12/31/2020

9/30/2020

6/30/2020

3/31/2020

12/31/2019

INCOME STATEMENT DATA

Interest income

$

11,624

$

12,070

$

11,215

$

11,070

$

11,076

Interest expense

972

1,189

1,618

2,145

2,158

Net interest income

10,652

10,881

9,597

8,925

8,918

Provision for loan losses

982

1,109

2,001

1,542

436

Noninterest income

4,676

5,159

5,292

4,513

2,129

Noninterest expenses

10,971

8,218

7,809

7,686

7,415

Federal income tax expense

642

1,377

1,036

858

644

Net income

$

2,733

$

5,336

$

4,043

$

3,352

$

2,552

PER SHARE

Earnings

$

0.58

$

1.14

$

0.87

$

0.72

$

0.55

Dividends

$

0.075

$

0.075

$

0.075

$

0.075

$

0.07

Tangible book value(1)

$

24.00

$

23.50

$

22.44

$

21.56

$

20.87

Quoted market value

High

$

22.25

$

17.99

$

18.95

$

26.00

$

25.50

Low

$

16.93

$

16.80

$

14.90

$

12.55

$

20.60

Close(1)

$

22.00

$

16.93

$

17.35

$

15.50

$

25.23

PERFORMANCE RATIOS

Return on average assets

0.84

%

1.68

%

1.35

%

1.28

%

1.02

%

Return on average shareholders’ equity

9.27

%

18.86

%

15.20

%

13.01

%

10.03

%

Return on average tangible shareholders’ equity

9.58

%

19.54

%

15.79

%

13.54

%

10.46

%

Efficiency ratio

71.57

%

51.23

%

52.45

%

57.20

%

67.12

%

Yield on earning assets (FTE)

3.75

%

3.97

%

3.94

%

4.47

%

4.66

%

Rate on interest bearing liabilities

0.50

%

0.63

%

0.91

%

1.28

%

1.36

%

Net interest margin to earning assets (FTE)

3.44

%

3.58

%

3.37

%

3.61

%

3.75

%

BALANCE SHEET DATA(1)

Total investment securities

$

76,501

$

78,179

$

75,526

$

76,312

$

61,621

Gross loans

$

1,066,562

$

1,060,885

$

1,044,564

$

865,577

$

870,555

Total assets

$

1,251,343

$

1,284,845

$

1,237,694

$

1,071,180

$

1,034,759

Total deposits

$

1,071,976

$

1,061,470

$

1,018,287

$

883,837

$

863,102

Borrowed funds

$

49,000

$

96,217

$

96,217

$

71,500

$

61,500

Total shareholders’ equity

$

116,435

$

114,081

$

108,969

$

104,828

$

101,444

Net loans to total deposits

98.48

%

98.99

%

101.70

%

97.11

%

100.19

%

Common shares outstanding

4,694,573

4,691,142

4,680,920

4,675,499

4,664,369

QTD BALANCE SHEET AVERAGES

Total assets

$

1,288,199

$

1,264,105

$

1,200,966

$

1,049,245

$

994,094

Earning assets

$

1,235,895

$

1,210,274

$

1,146,941

$

997,089

$

944,692

Interest bearing liabilities

$

773,132

$

750,281

$

711,500

$

672,564

$

629,454

Total shareholders’ equity

$

117,263

$

112,565

$

106,998

$

103,646

$

100,991

Total tangible shareholders’ equity

$

113,444

$

108,655

$

102,999

$

99,558

$

96,796

Earned common shares outstanding

4,682,113

4,673,629

4,664,946

4,659,279

4,652,569

Unvested stock grants

14,208

14,208

14,208

13,481

9,947

Total common shares outstanding

4,696,321

4,687,837

4,679,154

4,672,760

4,662,516

ASSET QUALITY(1)

Nonperforming loans to gross loans

0.75

%

0.07

%

0.10

%

0.10

%

0.17

%

Nonperforming assets to total assets

0.64

%

0.06

%

0.08

%

0.12

%

0.14

%

Allowance for loan losses to gross loans

1.02

%

0.95

%

0.86

%

0.84

%

0.67

%

Allowance for loan losses to gross loans, net of PPP loans

1.23

%

1.19

%

1.07

%

0.84

%

0.67

%

CAPITAL RATIOS(1)

Total capital to risk weighted assets

15.21

%

15.57

%

15.06

%

14.42

%

14.03

%

Tier 1 capital to risk weighted assets

14.00

%

14.40

%

14.00

%

13.56

%

13.33

%

CET1 capital to risk weighted assets

12.44

%

12.77

%

12.34

%

11.91

%

11.64

%

Tier 1 leverage ratio

9.85

%

9.86

%

9.90

%

10.97

%

11.20

%

(1)At end of period

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

12/31/2020

12/31/2019

12/31/2018

12/31/2017

12/31/2016

INCOME STATEMENT DATA

Interest income

$

45,979

$

43,541

$

36,350

$

30,111

$

18,645

Interest expense

5,924

8,627

5,827

3,120

2,372

Net interest income

40,055

34,914

30,523

26,991

16,273

Provision for loan losses

5,634

1,335

1,057

609

(900

)

Noninterest income

19,640

8,163

8,277

8,988

6,658

Noninterest expenses

34,684

27,223

25,310

23,818

17,097

Federal income tax expense

3,913

2,941

2,319

2,876

2,293

Net income

$

15,464

$

11,578

$

10,114

$

8,676

$

4,441

PER SHARE

Earnings

$

3.31

$

2.49

$

2.65

$

2.39

$

1.70

Dividends

$

0.30

$

0.28

$

0.24

$

0.20

$

0.40

Tangible book value(1)

$

24.00

$

20.87

$

18.32

$

14.96

$

12.41

Quoted market value

High

$

26.00

$

25.50

$

23.00

$

20.65

$

16.00

Low

$

12.55

$

20.05

$

18.88

$

15.10

$

12.85

Close(1)

$

22.00

$

25.23

$

21.00

$

18.88

$

16.00

PERFORMANCE RATIOS

Return on average assets

1.29

%

1.20

%

1.20

%

1.19

%

0.92

%

Return on average shareholders’ equity

14.05

%

12.02

%

15.05

%

15.38

%

10.28

%

Return on average tangible shareholders’ equity

14.57

%

12.59

%

16.23

%

16.63

%

10.28

%

Efficiency ratio

58.10

%

63.20

%

65.23

%

66.20

%

74.56

%

Yield on earning assets (FTE)

4.01

%

4.77

%

4.57

%

4.55

%

4.38

%

Rate on interest bearing liabilities

0.82

%

1.41

%

1.07

%

0.65

%

0.76

%

Net interest margin to earning assets (FTE)

3.50

%

3.83

%

3.84

%

4.08

%

3.83

%

BALANCE SHEET DATA(1)

Total investment securities

$

76,501

$

61,621

$

94,721

$

55,323

$

72,458

Gross loans

$

1,066,562

$

870,555

$

772,227

$

672,530

$

515,775

Total assets

$

1,251,343

$

1,034,759

$

926,450

$

781,443

$

703,350

Total deposits

$

1,071,976

$

863,102

$

763,124

$

673,505

$

603,367

Borrowed funds

$

49,000

$

61,500

$

69,000

$

46,000

$

45,000

Total shareholders’ equity

$

116,435

$

101,444

$

89,516

$

59,447

$

50,660

Net loans to total deposits

98.48

%

100.19

%

100.60

%

99.32

%

85.01

%

Common shares outstanding

4,694,573

4,664,369

4,636,455

3,631,933

3,619,282

YTD BALANCE SHEET AVERAGES

Total assets

$

1,200,605

$

961,586

$

844,673

$

730,974

$

484,042

Earning assets

$

1,147,570

$

913,574

$

796,283

$

698,753

$

429,547

Interest bearing liabilities

$

726,869

$

612,549

$

544,344

$

485,522

$

306,614

Total shareholders’ equity

$

110,094

$

96,358

$

67,192

$

56,429

$

43,218

Total tangible shareholders’ equity

$

106,140

$

91,994

$

62,329

$

52,181

$

43,218

Earned common shares outstanding

4,669,992

4,643,955

3,811,677

3,625,568

2,608,903

Unvested stock grants

14,026

9,917

756

Total common shares outstanding

4,684,018

4,653,872

3,812,433

3,625,568

2,608,903

ASSET QUALITY(1)

Nonperforming loans to gross loans

0.75

%

0.17

%

0.14

%

%

%

Nonperforming assets to total assets

0.64

%

0.14

%

0.12

%

0.02

%

0.04

%

Allowance for loan losses to gross loans

1.02

%

0.67

%

0.58

%

0.54

%

0.55

%

Allowance for loan losses to gross loans, net of PPP loans

1.23

%

0.67

%

0.58

%

0.54

%

0.55

%

CAPITAL RATIOS(1)

Total capital to risk weighted assets

15.21

%

14.03

%

14.00

%

10.93

%

11.47

%

Tier 1 capital to risk weighted assets

14.00

%

13.33

%

13.40

%

10.39

%

10.95

%

CET1 capital to risk weighted assets

12.44

%

11.64

%

11.52

%

8.27

%

8.40

%

Tier 1 leverage ratio

9.85

%

11.20

%

10.92

%

8.98

%

11.93

%

(1)At end of period

Income Statement Breakdown and Analysis

Quarter to Date

12/31/2020

9/30/2020

6/30/2020

3/31/2020

12/31/2019

GAAP net income

$

2,733

$

5,336

$

4,043

$

3,352

$

2,552

Acquisition related items (net of tax)

Accretion on purchased loans

(82

)

(144

)

(110

)

(180

)

(126

)

Amortization of core deposit intangibles

71

72

71

71

89

Amortization on acquired time deposits

5

5

5

5

7

Amortization on purchased mortgage servicing rights

3

Total acquisition related items (net of tax)

(6

)

(67

)

(34

)

(104

)

(27

)

Other nonrecurring items (net of tax)

FHLB prepayment penalties

1,507

Change in fair value of equity investment due to acquisition transaction

(578

)

Change in fair value of mortgage banking instruments(1)

(567

)

Interest writeoff from loan transferred to nonaccrual

265

Net gain from COLI death benefit

(173

)

Prepayment penalties collected

(97

)

(16

)

(12

)

(36

)

(42

)

Mortgage servicing rights (reduction of) impairment

(188

)

(176

)

191

173

Total other nonrecurring items (net of tax)

1,487

(192

)

6

(1,008

)

(42

)

Adjusted net income from operations

$

4,214

$

5,077

$

4,015

$

2,240

$

2,483

GAAP net interest income

$

10,652

$

10,881

$

9,597

$

8,925

$

8,918

Accretion on purchased loans

(104

)

(182

)

(139

)

(228

)

(160

)

Interest writeoff from loan transferred to nonaccrual

335

Prepayment penalties collected

(123

)

(20

)

(15

)

(46

)

(53

)

Amortization on acquired time deposits

6

6

6

6

9

Adjusted net interest income

$

10,766

$

10,685

$

9,449

$

8,657

$

8,714

PERFORMANCE RATIOS

Based on adjusted net income from operations

Earnings per share

$

0.90

$

1.09

$

0.86

$

0.48

$

0.53

Return on average assets

1.30

%

1.60

%

1.34

%

0.86

%

0.99

%

Return on average shareholders’ equity

14.30

%

17.94

%

15.09

%

8.69

%

9.75

%

Return on average tangible shareholders’ equity

14.78

%

18.59

%

15.68

%

9.05

%

10.18

%

Efficiency ratio

59.02

%

52.03

%

52.12

%

62.83

%

67.31

%

Based on adjusted net interest income

Yield on earning assets (FTE)

3.75

%

3.97

%

3.94

%

4.50

%

4.66

%

Rate on interest bearing liabilities

0.50

%

0.63

%

0.92

%

1.29

%

1.37

%

Net interest margin to earning assets (FTE)

3.47

%

3.52

%

3.32

%

3.52

%

3.66

%

Year to Date December 31

Variance

2020

2019

Amount

%

GAAP net income

$

15,464

$

11,578

$

3,886

33.56

%

Acquisition related items (net of tax)

Accretion on purchased loans

(516

)

(635

)

119

(18.74

)%

Amortization of core deposit intangibles

285

356

(71

)

(19.94

)%

Amortization on acquired time deposits

20

28

(8

)

(28.57

)%

Amortization on purchased mortgage servicing rights

12

(12

)

(100.00

)%

Total acquisition related items (net of tax)

(211

)

(239

)

28

(11.72

)%

Other nonrecurring items (net of tax)

FHLB prepayment penalties

1,507

1,507

N/M

Change in fair value of equity investment due to acquisition transaction

(578

)

(578

)

N/M

Change in fair value of mortgage banking instruments(1)

(567

)

(567

)

N/M

Interest writeoff from loan transferred to nonaccrual

265

265

N/M

Net gain from COLI death benefit

(173

)

(173

)

N/M

Prepayment penalties collected

(161

)

(348

)

187

(53.74

)%

Mortgage servicing rights (reduction of) impairment

N/M

Total other nonrecurring items (net of tax)

293

(348

)

641

(184.20

)%

Adjusted net income from operations

$

15,546

$

10,991

$

4,555

41.44

%

GAAP net interest income

$

40,055

$

34,914

$

5,141

14.72

%

Accretion on purchased loans

(653

)

(804

)

151

(18.78

)%

Interest writeoff from loan transferred to nonaccrual

335

335

N/M

Prepayment penalties collected

(204

)

(441

)

237

(53.74

)%

Amortization on acquired time deposits

24

35

(11

)

(31.43

)%

Adjusted net interest income

$

39,557

$

33,704

$

5,853

17.37

%

PERFORMANCE RATIOS

Based on adjusted net income from operations

Earnings per share

$

3.33

$

2.37

$

0.96

40.51

%

Return on average assets

1.29

%

1.14

%

0.15

%

Return on average shareholders’ equity

14.12

%

11.41

%

2.71

%

Return on average tangible shareholders’ equity

14.65

%

11.95

%

2.70

%

Efficiency ratio

56.16

%

63.92

%

(7.76

)%

Based on adjusted net interest income

Yield on earning assets (FTE)

3.97

%

4.64

%

(0.67

)%

Rate on interest bearing liabilities

0.82

%

1.41

%

(0.59

)%

Net interest margin to earning assets (FTE)

3.45

%

3.69

%

(0.24

)%

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

(1)The Corporation adopted Staff Accounting Bulletin No. 109 as of January 1, 2020. This standard required the Corporation to record the servicing assets of interest rate lock commitments and loans held for sale at fair value. Changes in the fair value of these instruments is recognized as a component of noninterest income. Subsequent to the adoption of Staff Accounting Bulletin No. 109, changes in fair value related to mortgage banking are recurring in nature.

Average Balances, Interest Rate, and Net Interest Income

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

Three Months Ended

December 31, 2020

September 30, 2020

December 31, 2019

Average Balance

Tax Equivalent Interest

Average Yield / Rate

Average Balance

Tax Equivalent Interest

Average Yield / Rate

Average Balance

Tax Equivalent Interest

Average Yield / Rate

Interest earning assets

Total loans

$

1,099,779

$

11,268

4.08

%

$

1,086,629

$

11,701

4.28

%

$

857,474

$

10,581

4.90

%

Taxable investment securities

62,866

238

1.51

%

62,490

256

1.6…3

%

49,982

307

2.44

%

Nontaxable investment securities

16,047

103

2.55

%

15,822

101

2.54

%

10,366

80

3.06

%

Federal funds sold

%

%

16,833

66

1.56

%

Interest earning cash and cash equivalents

53,715

15

0.11

%

41,845

9

0.09

%

6,887

28

1.61

%

Federal Home Loan Bank stock

3,488

22

2.51

%

3,488

24

2.74

%

3,150

31

3.90

%

Total earning assets

1,235,895

11,646

3.75

%

1,210,274

12,091

3.97

%

944,692

11,093

4.66

%

Nonearning assets

Allowance for loan losses

(10,375

)

(9,255

)

(5,519

)

Fixed assets

15,465

15,349

15,395

Accrued income and other assets

47,214

47,737

39,526

Total assets

$

1,288,199

$

1,264,105

$

994,094

Interest bearing liabilities

Interest bearing demand deposits

$

218,627

$

128

0.23

%

$

221,592

$

144

0.26

%

$

140,368

$

410

1.16

%

Savings deposits

291,856

114

0.16

%

271,260

116

0.17

%

225,219

217

0.38

%

Time deposits

179,076

407

0.90

%

161,212

567

1.40

%

201,640

1,089

2.14

%

Borrowed funds

83,573

323

1.54

%

96,217

362

1.50

%

62,227

442

2.82

%

Total interest bearing liabilities

773,132

972

0.50

%

750,281

1,189

0.63

%

629,454

2,158

1.36

%

Noninterest bearing liabilities

Noninterest bearing deposits

385,032

388,904

254,858

Accrued interest and other liabilities

12,772

12,355

8,791

Shareholders’ equity

117,263

112,565

100,991

Total liabilities and shareholders’ equity

$

1,288,199

$

1,264,105

$

994,094

Net interest income (FTE)

$

10,674

$

10,902

$

8,935

Net interest margin to earning assets (FTE)

3.44

%

3.58

%

3.75

%

Twelve Months Ended

December 31, 2020

December 31, 2019

Average Balance

Tax Equivalent Interest

Average Yield / Rate

Average Balance

Tax Equivalent Interest

Average Yield / Rate

Interest earning assets

Total loans

$

1,028,303

$

44,238

4.30

%

$

820,489

$

41,102

5.01

%

Taxable investment securities

61,288

1,170

1.91

%

63,661

1,703

2.68

%

Nontaxable investment securities

13,463

368

2.73

%

9,951

297

2.98

%

Federal funds sold

8,397

116

1.38

%

10,904

216

1.98

%

Interest earning cash and cash equivalents

32,767

55

0.17

%

5,419

116

2.14

%

Federal Home Loan Bank stock

3,352

109

3.25

%

3,150

169

5.37

%

Total earning assets

1,147,570

46,056

4.01

%

913,574

43,603

4.77

%

Nonearning assets

Allowance for loan losses

(8,301

)

(5,018

)

Fixed assets

15,465

14,998

Accrued income and other assets

45,871

38,032

Total assets

$

1,200,605

$

961,586

Interest bearing liabilities

Interest bearing demand deposits

$

200,200

$

996

0.50

%

$

96,713

$

855

0.88

%

Savings deposits

260,498

569

0.22

%

238,656

1,115

0.47

%

Time deposits

181,859

2,848

1.57

%

216,839

4,835

2.23

%

Borrowed funds

84,312

1,511

1.79

%

60,341

1,822

3.02

%

Total interest bearing liabilities

726,869

5,924

0.82

%

612,549

8,627

1.41

%

Noninterest bearing liabilities

Noninterest bearing deposits

352,489

246,357

Accrued interest and other liabilities

11,153

6,322

Shareholders’ equity

110,094

96,358

Total liabilities and shareholders’ equity

$

1,200,605

$

961,586

Net interest income (FTE)

$

40,132

$

34,976

Net interest margin to earning assets (FTE)

3.50

%

3.83

%

Net Interest Income

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

Volume and Rate Variance Analysis

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

Volume – change in volume multiplied by the previous period’s rate.
Rate – change in the FTE rate multiplied by the previous period’s volume.

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

Three Months Ended

Three Months Ended

Twelve Months Ended

December 31, 2020

December 31, 2020

December 31, 2020

Compared To

Compared To

Compared To

September 30, 2020

December 31, 2019

December 31, 2019

Increase (Decrease) Due to

Increase (Decrease) Due to

Increase (Decrease) Due to

Volume

Rate

Net

Volume

Rate

Net

Volume

Rate

Net

Changes in interest income

Total loans

$

805

$

(1,238

)

$

(433

)

$

9,263

$

(8,576

)

$

687

$

9,481

$

(6,345

)

$

3,136

Taxable investment securities

10

(28

)

(18

)

347

(416

)

(69

)

(62

)

(471

)

(533

)

Nontaxable investment securities

2

2

99

(76

)

23

98

(27

)

71

Federal funds sold

(33

)

(33

)

(66

)

(43

)

(57

)

(100

)

Interest earning cash and cash equivalents

3

3

6

170

(183

)

(13

)

129

(190

)

(61

)

Federal Home Loan Bank stock

(2

)

(2

)

18

(27

)

(9

)

10

(70

)

(60

)

Total changes in interest income

820

(1,265

)

(445

)

9,864

(9,311

)

553

9,613

(7,160

)

2,453

Changes in interest expense

Interest bearing demand deposits

(2

)

(14

)

(16

)

955

(1,237

)

(282

)

625

(484

)

141

Savings deposits

29

(31

)

(2

)

300

(403

)

(103

)

95

(641

)

(546

)

Time deposits

344

(504

)

(160

)

(110

)

(572

)

(682

)

(701

)

(1,286

)

(1,987

)

Borrowed funds

(96

)

57

(39

)

635

(754

)

(119

)

579

(890

)

(311

)

Total changes in interest expense

275

(492

)

(217

)

1,780

(2,966

)

(1,186

)

598

(3,301

)

(2,703

)

Net change in net interest income (FTE)

$

545

$

(773

)

$

(228

)

$

8,084

$

(6,345

)

$

1,739

$

9,015

$

(3,859

)

$

5,156

Average Yield/Rate for the Three Month Periods Ended

12/31/2020

9/30/2020

6/30/2020

3/31/2020

12/31/2019

Total earning assets

3.75

%

3.97

%

3.94

%

4.47

%

4.66

%

Total interest bearing liabilities

0.50

%

0.63

%

0.91

%

1.28

%

1.36

%

Net interest margin to earning assets (FTE)

3.44

%

3.58

%

3.37

%

3.61

%

3.75

%

Quarter to Date Net Interest Income (FTE)

12/31/2020

9/30/2020

6/30/2020

3/31/2020

12/31/2019

Interest income

$

11,624

$

12,070

$

11,215

$

11,070

$

11,076

FTE adjustment

22

21

18

17

17

Total interest income (FTE)

11,646

12,091

11,233

11,087

11,093

Total interest expense

972

1,189

1,618

2,145

2,158

Net interest income (FTE)

$

10,674

$

10,902

$

9,615

$

8,942

$

8,935

Noninterest Income

Quarter to Date

12/31/2020

9/30/2020

6/30/2020

3/31/2020

12/31/2019

Net gain on sales of mortgage loans

$

2,994

$

3,130

$

2,644

$

970

$

650

ATM and debit card income

437

460

394

355

399

Trust and investment services

445

464

321

389

337

Change in fair value of mortgage banking instruments

(449

)

(66

)

1,225

833

Mortgage servicing fees

325

293

270

262

256

Net mortgage servicing rights income

509

559

(163

)

(50

)

130

Change in fair value of equity investments

(3

)

2

7

749

(5

)

Service charges on deposit accounts

194

177

119

219

245

Net gain on sales of commercial loans

668

Net gain from corporate owned life insurance death benefit

173

Other income and fees

224

140

302

118

117

Total noninterest income

$

4,676

$

5,159

$

5,292

$

4,513

$

2,129

Residential mortgage operations

$

3,379

$

3,916

$

3,976

$

2,015

$

1,036

Year to Date December 31

Variance

2020

2019

Amount

%

Net gain on sales of mortgage loans

$

9,738

$

1,932

$

7,806

404.04

%

ATM and debit card income

1,646

1,581

65

4.11

%

Trust and investment services

1,619

1,519

100

6.58

%

Change in fair value of mortgage banking instruments

1,543

1,543

N/M

Mortgage servicing fees

1,150

940

210

22.34

%

Net mortgage servicing rights income

855

624

231

37.02

%

Change in fair value of equity investments

755

46

709

1541.30

%

Service charges on deposit accounts

709

940

(231

)

(24.57

)%

Net gain on sales of commercial loans

668

668

N/M

Net gain from corporate owned life insurance death benefit

173

173

N/M

Other income and fees

784

581

203

34.94

%

Total noninterest income

$

19,640

$

8,163

$

11,477

140.60

%

Residential mortgage operations

$

13,286

$

3,496

9,790

280.03

%

Residential Mortgage Operations

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

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

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

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

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

All Other Noninterest Income

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

Trust and investment services includes income the Corporation earned from contracts with customers to manage assets for investment and/or to transact on their accounts. The wealth management component is strongly correlated to changes in the stock market and as such, can vary from period to period. Trust and investment services income is expected to increase modestly in 2021.

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

Service charges on deposit accounts includes fees earned from deposit customers for transaction-based, account maintenance and overdraft services. The year-over-year decrease in service charges on deposit accounts is primarily due to a shift of customer demand toward deposit accounts with no or reduced service charges, as well as a temporary reduction in fees charged due to the COVID-19 pandemic. Service charges on deposit accounts are expected to approximate current levels into 2021.

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

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

Other income and fees includes miscellaneous other income items, none of which are individually significant. Other income and fees are expected to approximate current levels throughout 2021.

Noninterest Expenses

Quarter to Date

12/31/2020

9/30/2020

6/30/2020

3/31/2020

12/31/2019

Total compensation

$

4,958

$

4,531

$

4,252

$

4,248

$

4,037

Professional services

938

524

571

522

582

Furniture and equipment

607

614

618

610

575

Data processing

501

503

535

442

362

FHLB prepayment penalty

1,907

Occupancy

475

491

435

476

467

Loan and collection

359

292

229

162

203

Advertising and promotional

184

284

255

252

232

ATM and debit card

125

109

92

108

98

Amortization of core deposit intangibles

90

91

90

90

113

Telephone and communication

64

91

86

96

115

FDIC insurance premiums

59

55

59

55

6

Other general and administrative

704

633

587

625

625

Total noninterest expenses

$

10,971

$

8,218

$

7,809

$

7,686

$

7,415

Year to Date December 31

Variance

2020

2019

Amount

%

Total compensation

$

17,989

$

14,946

$

3,043

20.36

%

Professional services

2,555

1,960

595

30.36

%

Furniture and equipment

2,449

1,998

451

22.57

%

Data processing

1,981

1,416

565

39.90

%

FHLB prepayment penalty

1,907

1,907

N/M

Occupancy

1,877

1,774

103

5.81

%

Loan and collection

1,042

552

490

88.77

%

Advertising and promotional

975

908

67

7.38

%

ATM and debit card

434

402

32

7.96

%

Amortization of core deposit intangibles

361

451

(90

)

(19.96

)%

Telephone and communication

337

444

(107

)

(24.10

)%

FDIC insurance premiums

228

144

84

58.33

%

Other general and administrative

2,549

2,228

321

14.41

%

Total noninterest expenses

$

34,684

$

27,223

$

7,461

27.41

%

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

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

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

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

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

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

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

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

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

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

FDIC insurance premiums typically fluctuate based on the size of the Corporation’s balance sheet, capital position, overall risk profile, and examination ratings. FDIC insurance premiums decreased significantly in 2019 due to a Small Bank Assessment Credit issued by the FDIC. FDIC insurance premiums are expected to increase in 2021 primarily due to the Corporation’s growth in total assets.

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

Balance Sheet Breakdown and Analysis

12/31/2020

9/30/2020

6/30/2020

3/31/2020

12/31/2019

ASSETS

Cash and cash equivalents

$

46,367

$

75,032

$

35,190

$

71,140

$

46,803

Total investment securities

76,501

78,179

75,526

76,312

61,621

Loans held-for-sale

27,306

34,833

46,354

21,154

19,491

Gross loans

1,066,562

1,060,885

1,044,564

865,577

870,555

Less allowance for loan losses

10,900

10,100

8,991

7,250

5,813

Net loans

1,055,662

1,050,785

1,035,573

858,327

864,742

All other assets

45,507

46,016

45,051

44,247

42,102

Total assets

$

1,251,343

$

1,284,845

$

1,237,694

$

1,071,180

$

1,034,759

LIABILITIES AND SHAREHOLDERS’ EQUITY

Total deposits

$

1,071,976

$

1,061,470

$

1,018,287

$

883,837

$

863,102

Total borrowed funds

49,000

96,217

96,217

71,500

61,500

Accrued interest payable and other liabilities

13,932

13,077

14,221

11,015

8,713

Total liabilities

1,134,908

1,170,764

1,128,725

966,352

933,315

Total shareholders’ equity

116,435

114,081

108,969

104,828

101,444

Total liabilities and shareholders’ equity

$

1,251,343

$

1,284,845

$

1,237,694

$

1,071,180

$

1,034,759

12/31/2020 vs 9/30/2020

12/31/2020 vs 12/31/2019

Variance

Variance

Amount

%

Amount

%

ASSETS

Cash and cash equivalents

$

(28,665

)

(38.20

)%

$

(436

)

(0.93

)%

Total investment securities

(1,678

)

(2.15

)%

14,880

24.15

%

Loans held-for-sale

(7,527

)

(21.61

)%

7,815

40.10

%

Gross loans

5,677

0.54

%

196,007

22.52

%

Less allowance for loan losses

800

7.92

%

5,087

87.51

%

Net loans

4,877

0.46

%

190,920

22.08

%

All other assets

(509

)

(1.11

)%

3,405

8.09

%

Total assets

$

(33,502

)

(2.61

)%

$

216,584

20.93

%

LIABILITIES AND SHAREHOLDERS’ EQUITY

Total deposits

$

10,506

0.99

%

$

208,874

24.20

%

Total borrowed funds

(47,217

)

(49.07

)%

(12,500

)

(20.33

)%

Accrued interest payable and other liabilities

855

6.54

%

5,219

59.90

%

Total liabilities

(35,856

)

(1.61

)%

201,593

11.22

%

Total shareholders’ equity

2,354

2.06

%

14,991

14.78

%

Total liabilities and shareholders’ equity

$

(33,502

)

(2.61

)%

$

216,584

20.93

%

Cash and cash equivalents

12/31/2020

9/30/2020

6/30/2020

3/31/2020

12/31/2019

Cash and cash equivalents

Noninterest bearing

$

22,712

$

22,108

$

20,369

$

33,312

$

17,754

Interest bearing

23,655

52,924

14,821

37,828

6,049

Federal funds sold

23,000

Cash and cash equivalents

$

46,367

$

75,032

$

35,190

$

71,140

$

46,803

12/31/2020 vs 9/30/2020

12/31/2020 vs 12/31/2019

Variance

Variance

Amount

%

Amount

%

Cash and cash equivalents

Noninterest bearing

$

604

2.73

%

$

4,958

27.93

%

Interest bearing

(29,269

)

(55.30

)%

17,606

291.06

%

Federal funds sold

N/M

(23,000

)

(100.00

)%

Cash and cash equivalents

$

(28,665

)

(38.20

)%

$

(436

)

(0.93

)%

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

Primary and secondary liquidity sources

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

12/31/2020

9/30/2020

6/30/2020

3/31/2020

12/31/2019

Cash and cash equivalents

$

46,367

$

75,032

$

35,190

$

71,140

$

46,803

Unpledged investment securities

59,025

58,739

52,647

51,889

40,094

FHLB borrowing availability

140,000

97,500

97,500

42,500

52,500

Federal funds purchased lines of credit

21,500

21,500

21,500

17,500

17,500

Funds available through the Fed Discount Window

10,000

10,000

10,000

10,000

10,000

PPPLF

177,845

206,343

202,184

Total liquidity sources

$

454,737

$

469,114

$

419,021

$

193,029

$

166,897

Total investment securities

12/31/2020

9/30/2020

6/30/2020

3/31/2020

12/31/2019

Available-for-sale

U.S. Government and federal agency

$

7,935

$

19,311

$

21,339

$

23,610

$

18,867

State and municipal

15,768

15,729

14,115

10,657

10,691

Mortgage backed residential

19,101

20,886

12,335

10,176

10,748

Certificates of deposit

5,180

5,921

6,665

8,644

6,659

Collateralized mortgage obligations – agencies

23,110

11,141

15,736

18,288

9,527

Unrealized gain/(loss) on available-for-sale securities

1,932

2,099

2,242

1,735

1,092

Total available-for-sale

73,026

75,087

72,432

73,110

57,584

Held-to-maturity state and municipal

1,973

1,977

1,981

2,091

2,096

Equity securities

1,502

1,115

1,113

1,111

1,941

Total investment securities

$

76,501

$

78,179

$

75,526

$

76,312

$

61,621

12/31/2020 vs 9/30/2020

12/31/2020 vs 12/31/2019

Variance

Variance

Amount

%

Amount

%

Available-for-sale

U.S. Government and federal agency

$

(11,376

)

(58.91

)%

$

(10,932

)

(57.94

)%

State and municipal

39

0.25

%

5,077

47.49

%

Mortgage backed residential

(1,785

)

(8.55

)%

8,353

77.72

%

Certificates of deposit

(741

)

(12.51

)%

(1,479

)

(22.21

)%

Collateralized mortgage obligations – agencies

11,969

107.43

%

13,583

142.57

%

Unrealized gain/(loss) on available-for-sale securities

(167

)

(7.96

)%

840

76.92

%

Total available-for-sale

(2,061

)

(2.74

)%

15,442

26.82

%

Held-to-maturity state and municipal

(4

)

(0.20

)%

(123

)

(5.87

)%

Equity securities

387

34.71

%

(439

)

(22.62

)%

Total investment securities

$

(1,678

)

(2.15

)%

$

14,880

24.15

%

The amortized cost and fair value of AFS investment securities as of December 31, 2020 were as follows:

Maturing

Due in One Year or Less

After One Year But Within Five Years

After Five Years But Within Ten Years

After Ten Years

Securities with Variable Monthly Payments or Noncontractual Maturities

Total

U.S. Government and federal agency

$

4,994

$

2,941

$

$

$

$

7,935

State and municipal

1,784

6,237

5,665

2,082

15,768

Mortgage backed residential

19,101

19,101

Certificates of deposit

990

4,190

5,180

Collateralized mortgage obligations – agencies

23,110

23,110

Total amortized cost

$

7,768

$

13,368

$

5,665

$

2,082

$

42,211

$

71,094

Fair value

$

7,847

$

14,166

$

5,909

$

2,420

$

42,684

$

73,026

The amortized cost and fair value of HTM investment securities as of December 31, 2020 were as follows:

Maturing

Due in One Year or Less

After One Year But Within Five Years

After Five Years But Within Ten Years

After Ten Years

Securities with Variable Monthly Payments or Noncontractual Maturities

Total

State and municipal

$

413

$

1,110

$

370

$

80

$

$

1,973

Fair value

$

416

$

1,154

$

398

$

86

$

$

2,054

Throughout 2020, yields on bonds that met the Corporation’s investment standards declined significantly. An influx of liquidity during the year led the Corporation to make investment security purchases in order to stabilize net interest margin and generate additional net interest income. Total investment securities are expected to grow with overall balance sheet growth as it is an important source of liquidity and consistent earnings. The following table summarizes information as of December 31, 2020 for investment securities purchased YTD:

Book Value

Fully Taxable Equivalent Weighted Average Yield

U.S. Government and federal agency

$

%

State and municipal

7,087

1.69

%

Collateralized mortgage obligations – agencies

20,902

1.09

%

Certificates of deposit

%

Mortgage backed residential

12,556

1.09

%

Held-to-maturity state and municipal

%

Total

$

40,545

1.19

%

Loans held-for-sale

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

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

Loans and allowance for loan losses

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

12/31/2020

9/30/2020

6/30/2020

3/31/2020

12/31/2019

Commercial

$

241,424

$

271,113

$

260,440

$

67,731

$

71,689

Commercial real estate

517,054

483,275

469,039

462,561

455,289

Total commercial loans

758,478

754,388

729,479

530,292

526,978

Residential mortgage

262,770

261,375

268,295

285,392

292,946

Home equity

39,900

39,456

40,114

43,222

41,987

Total residential real estate loans

302,670

300,831

308,409

328,614

334,933

Consumer

5,414

5,666

6,676

6,671

8,644

Gross loans

1,066,562

1,060,885

1,044,564

865,577

870,555

Allowance for loan losses

(10,900

)

(10,100

)

(8,991

)

(7,250

)

(5,813

)

Loans, net

$

1,055,662

$

1,050,785

$

1,035,573

$

858,327

$

864,742

12/31/2020 vs 9/30/2020

12/31/2020 vs 12/31/2019

Variance

Variance

Amount

%

Amount

%

Commercial

$

(29,689

)

(10.95

)%

$

169,735

236.77

%

Commercial real estate

33,779

6.99

%

61,765

13.57

%

Total commercial loans

4,090

0.54

%

231,500

43.93

%

Residential mortgage

1,395

0.53

%

(30,176

)

(10.30

)%

Home equity

444

1.13

%

(2,087

)

(4.97

)%

Total residential real estate loans

1,839

0.61

%

(32,263

)

(9.63

)%

Consumer

(252

)

(4.45

)%

(3,230

)

(37.37

)%

Gross loans

5,677

0.54

%

196,007

22.52

%

Allowance for loan losses

(800

)

7.92

%

(5,087

)

87.51

%

Loans, net

$

4,877

0.46

%

$

190,920

22.08

%

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

12/31/2020

9/30/2020

6/30/2020

3/31/2020

12/31/2019

Originated loans collectively evaluated for impairment

Commercial

$

241,009

$

270,174

$

259,384

$

66,524

$

70,322

Commercial real estate

497,133

469,353

452,084

446,713

436,626

Residential mortgage

259,080

257,395

263,997

280,265

286,635

Home equity

37,701

37,022

37,663

40,459

39,023

Consumer

5,248

5,477

6,445

6,391

8,330

Subtotal

1,040,171

1,039,421

1,019,573

840,352

840,936

Originated loans individually evaluated for impairment

Commercial

Commercial real estate

8,872

2,204

3,290

1,658

1,668

Residential mortgage

699

655

663

672

1,362

Home equity

Consumer

2

3

3

5

Subtotal

9,573

2,862

3,956

2,335

3,030

Acquired loans collectively evaluated for impairment

Commercial

387

910

1,057

1,204

1,362

Commercial real estate

10,755

11,368

13,293

13,630

16,346

Residential mortgage

2,073

2,335

2,683

3,459

3,911

Home equity

2,173

2,415

2,432

2,743

2,943

Consumer

163

185

226

273

314

Subtotal

15,551

17,213

19,691

21,309

24,876

Acquired loans individually evaluated for impairment

Commercial

Commercial real estate

Residential mortgage

54

55

58

58

Home equity

26

Consumer

Subtotal

80

55

58

58

Acquired loans with deteriorated credit quality

Commercial

28

29

(1

)

3

5

Commercial real estate

294

350

372

560

649

Residential mortgage

864

935

952

938

980

Home equity

19

19

20

21

Consumer

1

1

2

2

Subtotal

1,187

1,334

1,344

1,523

1,655

Gross Loans

$

1,066,562

$

1,060,885

$

1,044,564

$

865,577

$

870,555

Total originated loans

$

1,049,744

$

1,042,283

$

1,023,529

$

842,687

$

843,966

Total acquired loans

16,818

18,602

21,035

22,890

26,589

Gross loans

$

1,066,562

$

1,060,885

$

1,044,564

$

865,577

$

870,555

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

12/31/2020

9/30/2020

6/30/2020

3/31/2020

12/31/2019

Originated loans collectively evaluated for impairment

Commercial

$

673

$

632

$

535

$

478

$

358

Commercial real estate

5,561

5,113

4,564

3,609

2,790

Residential mortgage

3,282

3,281

3,080

2,442

1,917

Home equity

424

416

353

280

195

Consumer

97

101

102

89

87

Subtotal

10,037

9,543

8,634

6,898

5,347

Originated loans individually evaluated for impairment

Commercial

Commercial real estate

602

289

100

111

127

Residential mortgage

4

5

5

6

128

Home equity

Consumer

2

3

3

5

Subtotal

608

297

108

122

255

Acquired loans collectively evaluated for impairment

Commercial

1

1

1

1

Commercial real estate

9

7

9

7

5

Residential mortgage

8

9

9

9

8

Home equity

16

18

15

14

12

Consumer

Subtotal

33

35

34

31

26

Acquired loans with deteriorated credit quality

Commercial

Commercial real estate

32

32

22

39

34

Residential mortgage

190

189

189

156

147

Home equity

4

4

4

4

Consumer

Subtotal

222

225

215

199

185

Allowance for loan losses

$

10,900

$

10,100

$

8,991

$

7,250

$

5,813

Total originated loans

$

10,645

$

9,840

$

8,742

$

7,020

$

5,602

Total acquired loans

255

260

249

230

211

Allowance for loan losses

$

10,900

$

10,100

$

8,991

$

7,250

$

5,813

Commercial

$

673

$

633

$

536

$

479

$

359

Commercial real estate

6,204

5,441

4,695

3,766

2,956

Residential mortgage

3,484

3,484

3,283

2,613

2,200

Home equity

440

438

372

298

211

Consumer

99

104

105

94

87

Allowance for loan losses

$

10,900

$

10,100

$

8,991

$

7,250

$

5,813

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

12/31/2020

9/30/2020

6/30/2020

3/31/2020

12/31/2019

Accruing interest

Current

$

1,057,404

$

1,058,437

$

1,042,589

$

862,581

$

867,901

Past due 30-89 days

1,165

1,703

948

2,152

1,213

Past due 90 days or more

50

86

361

166

239

Total accruing interest

1,058,619

1,060,226

1,043,898

864,899

869,353

Nonaccrual

7,943

659

666

678

1,202

Total loans

$

1,066,562

$

1,060,885

$

1,044,564

$

865,577

$

870,555

Total loans past due and in nonaccrual status

$

9,158

$

2,448

$

1,975

$

2,996

$

2,654

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

12/31/2020

9/30/2020

6/30/2020

3/31/2020

12/31/2019

Nonaccrual loans

$

7,943

$

659

$

666

$

678

$

1,202

Accruing loans past due 90 days or more

50

86

361

166

239

Total nonperforming loans

7,993

745

1,027

844

1,441

Other real estate owned

400

Total nonperforming assets

$

7,993

$

745

$

1,027

$

1,244

$

1,441

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

12/31/2020

9/30/2020

6/30/2020

3/31/2020

12/31/2019

Nonperforming loans to gross loans

0.75

%

0.07

%

0.10

%

0.10

%

0.17

%

Nonperforming assets to total assets

0.64

%

0.06

%

0.08

%

0.12

%

0.14

%

Allowance for loan losses to gross loans

1.02

%

0.95

%

0.86

%

0.84

%

0.67

%

Allowance for loan losses to gross loans, less PPP loans

1.23

%

1.19

%

1.07

%

0.84

%

0.67

%

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

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

12/31/2020

9/30/2020

6/30/2020

3/31/2020

12/31/2019

Net unamortized discount on purchased loans

$

773

$

877

$

1,058

$

1,233

$

1,462

As outlined in the preceding tables, the Corporation has grown its loan portfolio over the past 12 months with most of the growth coming in the form of commercial and commercial real estate loans. Despite the significant growth, the Corporation has not relaxed its underwriting standards. Included in the increase in commercial loans since December 31, 2019 were $177,845 of PPP loans.

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

The following table summarizes the average loan size as of:

12/31/2020

9/30/2020

6/30/2020

3/31/2020

12/31/2019

Commercial

$

169

$

166

$

171

$

214

$

228

Commercial real estate

707

672

654

644

641

Total commercial loans

351

321

325

513

514

Residential mortgage

182

180

177

194

198

Home equity

45

45

45

46

44

Total residential real estate loans

130

129

128

137

138

Consumer

22

22

25

26

32

Gross loans

$

226

$

215

$

213

$

234

$

234

COVID-19, CARES Act and SBA activity

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

The Corporation considered the modification type on a loan-by-loan basis. Most modifications for loans held within the Corporation’s loan portfolio resulted in the deferment of principal and interest payments for 6 months or less.

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

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

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

Number of Modifications

Outstanding Balance

% of Portfolio

Commercial

2

$

1,303

0.54

%

Commercial real estate

8

15,504

3.00

%

Total commercial loan modifications

10

16,807

2.22

%

Portfolio residential mortgage loans

5

333

0.13

%

Home equity

1

21

0.05

%

Total residential real estate loan modifications

6

354

0.12

%

Consumer

%

Total portfolio modifications

16

$

17,161

1.61

%

Residential mortgage loans serviced for FHLMC

55

$

9,423

1.80

%

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

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

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

All other assets

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

12/31/2020

9/30/2020

6/30/2020

3/31/2020

12/31/2019

Premises and equipment, net

$

15,461

$

15,267

$

15,323

$

15,533

$

15,245

Corporate owned life insurance

10,291

10,225

10,115

10,380

10,316

Accrued interest receivable

5,068

5,645

5,266

3,124

2,877

Mortgage servicing rights

4,885

4,376

3,816

3,980

4,030

Federal Home Loan Bank stock

3,488

3,488

3,488

3,150

3,150

Goodwill

3,219

3,219

3,219

3,219

3,219

Derivatives

1,331

1,772

1,311

1,063

125

Core deposit intangibles

541

632

722

812

902

Right-of-use assets

364

387

409

432

475

Other real estate owned

400

Other assets

859

1,005

1,382

2,154

1,763

All other assets

$

45,507

$

46,016

$

45,051

$

44,247

$

42,102

12/31/2020 vs 9/30/2020

12/31/2020 vs 12/31/2019

Variance

Variance

Amount

%

Amount

%

Premises and equipment, net

$

194

1.27

%

$

216

1.42

%

Corporate owned life insurance

66

0.65

%

(25

)

(0.24

)%

Accrued interest receivable

(577

)

(10.22

)%

2,191

76.16

%

Mortgage servicing rights

509

11.63

%

855

21.22

%

Federal Home Loan Bank stock

%

338

10.73

%

Goodwill

%

%

Derivatives

(441

)

(24.89

)%

1,206

964.80

%

Core deposit intangibles

(91

)

(14.40

)%

(361

)

(40.02

)%

Right-of-use assets

(23

)

(5.94

)%

(111

)

(23.37

)%

Other real estate owned

N/M

N/M

Other assets

(146

)

(14.53

)%

(904

)

(51.28

)%

All other assets

$

(509

)

(1.11

)%

$

3,405

8.09

%

Mortgage servicing rights are servicing assets that are recognized from the sales of mortgage loans. A portion of the cost of originating the loan is allocated to the servicing right based on relative fair value. The increase in mortgage servicing rights is due to the increased volume of residential mortgage loan sales. The Corporation expects mortgage servicing rights to increase, as residential real estate lending is expected to continue to remain strong into 2021.

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

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

Total deposits

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

12/31/2020

9/30/2020

6/30/2020

3/31/2020

12/31/2019

Noninterest bearing demand

$

378,733

$

391,706

$

383,452

$

281,848

$

260,503

Interest bearing

Savings

290,343

269,051

245,957

215,748

215,218

Money market demand

113,729

99,252

90,504

79,070

88,350

NOW

101,419

120,681

122,477

83,910

75,976

Time deposits

187,752

180,780

175,897

223,261

223,055

Total deposits

$

1,071,976

$

1,061,470

$

1,018,287

$

883,837

$

863,102

12/31/2020 vs 9/30/2020

12/31/2020 vs 12/31/2019

Variance

Variance

Amount

%

Amount

%

Noninterest bearing demand

$

(12,973

)

(3.31

)%

$

118,230

45.39

%

Interest bearing

Savings

21,292

7.91

%

75,125

34.91

%

Money market demand

14,477

14.59

%

25,379

28.73

%

NOW

(19,262

)

(15.96

)%

25,443

33.49

%

Time deposits

6,972

3.86

%

(35,303

)

(15.83

)%

Total deposits

$

10,506

0.99

%

$

208,874

24.20

%

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

Schedule of time deposit maturities

The following table summarizes the contractual maturities of the time deposits as of December 31, 2020:

Maturity Buckets

3 Months or Less

3 to 6 Months

6 to 9 Months

9 to 12 Months

Beyond 12 Months

Balance

$

70,975

$

31,251

$

33,057

$

16,780

$

35,689

Weighted average yield

0.63

%

0.82

%

0.77

%

0.54

%

0.99

%

Cumulative Maturities

3 Months or Less

Up to 6 Months

Up to 9 Months

Up to 12 Months

Total

Balance

$

70,975

$

102,226

$

135,283

$

152,063

$

187,752

Weighted average yield

0.63

%

0.69

%

0.71

%

0.69

%

0.75

%

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

Total borrowed funds

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

12/31/20

9/30/20

6/30/20

3/31/20

12/31/19

Federal Home Loan Bank borrowings

$

35,000

$

77,500

$

77,500

$

57,500

$

47,500

Subordinated debentures

14,000

14,000

14,000

14,000

14,000

PPPLF

4,717

4,717

Federal funds purchased

Total borrowed funds

$

49,000

$

96,217

$

96,217

$

71,500

$

61,500

12/31/2020 vs 9/30/2020

12/31/2020 vs 12/31/2019

Variance

Variance

Amount

%

Amount

%

Federal Home Loan Bank borrowings

$

(42,500

)

(54.84

)%

$

(12,500

)

(26.32

)%

Subordinated debentures

%

%

PPPLF

(4,717

)

(100.00

)%

N/M

Federal funds purchased

%

%

Total borrowed funds

$

(47,217

)

(49.07

)%

$

(12,500

)

(20.33

)%

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

Total borrowed funds are expected to approximate current levels in 2021 as there are no scheduled maturities. The Corporation continually analyzes the market for opportunities and will borrow funds when deemed financially beneficial.

Wholesale funding sources

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

12/31/20

9/30/20

6/30/20

3/31/20

12/31/19

Federal Home Loan Bank borrowings

$

35,000

$

77,500

$

77,500

$

57,500

$

47,500

Brokered money market demand

25,029

25,010

Brokered time deposits

20,000

28,605

28,837

28,605

28,605

Subordinated debentures

14,000

14,000

14,000

14,000

14,000

Internet time deposits

2,839

10,208

11,690

18,005

18,009

PPPLF

4,717

4,717

Total wholesale funds

$

71,839

$

160,059

$

161,754

$

118,110

$

108,114

12/31/2020 vs 9/30/2020

12/31/2020 vs 12/31/2019

Variance

Variance

Amount

%

Amount

%

Federal Home Loan Bank borrowings

$

(42,500

)

(54.84

)%

$

(12,500

)

(26.32

)%

Brokered money market demand

(25,029

)

(100.00

)%

N/M

Brokered time deposits

(8,605

)

(30.08

)%

(8,605

)

(30.08

)%

Subordinated debentures

%

Internet time deposits

(7,369

)

(72.19

)%

(15,170

)

(84.24

)%

PPPLF

(4,717

)

(100.00

)%

N/M

Total wholesale funds

$

(88,220

)

(55.12

)%

$

(36,275

)

(33.55

)%

The Corporation utilizes wholesale funds to manage balance sheet growth. Wholesale funding has historically been more expensive than core deposits, however, due to the COVID-19 pandemic, the FRB has kept Fed funds rates near zero. The Corporation continually analyzes sources of wholesale funding when the increases in interest earning assets out-pace the increases in core deposits.

Accrued interest payable and other liabilities

Accrued interest payable and other liabilities includes accrued interest payable, federal income taxes payable, deferred federal income taxes payable, and all other liabilities (none of which are individually significant). Accrued interest payable and other liabilities are not expected to fluctuate significantly in future periods.

Total shareholders’ equity

Total shareholders’ equity includes common stock, retained earnings, and AOCI. Total shareholders’ equity is expected to continue to grow throughout 2021 through the Corporation’s earnings. In April 2020, the Corporation’s Board of Directors amended its common stock repurchase plan to authorize the repurchase of up to $5,000 of common stock. During the fourth quarter of 2020, the Corporation repurchased 5,640 shares for $110.

Stock Performance

The following graph compares the cumulative total shareholder return on the Corporation’s common stock for the last five years with the cumulative total return on the ABA NASDAQ Community Bank Index (NASDAQ: XX:ABAQ) over the same period. The graph assumes the value of an investment in the Corporation’s common stock and the ABA NASDAQ Community Bank Index was $100 at December 31, 2015 and all dividends were reinvested.

The graph accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/d09cbdf7-6e1d-421d-b74d-c95960b6fe9a

Date

FETM

ABAQ Index

12/31/2015

100.00

100.00

12/31/2016

119.19

135.98

12/31/2017

141.41

136.98

12/31/2018

158.44

114.22

12/31/2019

190.98

137.44

12/31/2020

169.84

117.60

Abbreviations and Acronyms

ABA: American Bankers Association

HTM: Held-to-maturity

AFS: Available-for-sale

IRA: Individual retirement account

ALLL: Allowance for loan losses

ITM: Interactive teller machine

AOCI: Accumulated other comprehensive income

MSR: Mortgage servicing rights

ASU: Accounting Standards Update

N/M: Not meaningful

ATM: Automated teller machine

NASDAQ: National Association of Securities Dealers Automated Quotations

CARES Act: Coronavirus Aid, Relief, and Economic Security Act

NOW: Negotiable order of withdrawal

CET1: Common equity tier 1

NSF: Non-sufficient funds

COVID-19: Coronavirus Disease 2019

OREO: Other real estate owned

FDIC: Federal Deposit Insurance Corporation

PPP: Paycheck Protection Program

FHLB: Federal Home Loan Bank

PPPLF: Paycheck Protection Program Liquidity Facility

FHLMC: Federal Home Loan Mortgage Corporation

QTD: Quarter-to-date

FRB: Federal Reserve Bank

SAB: Staff Accounting Bulletin

FTE: Fully taxable equivalent

SBA: Small Business Association

GAAP: Generally Accepted Accounting Principles

USDA: United States Department of Agriculture

HFS: Held-for-sale

YTD: Year-to-date

About Fentura Financial, Inc. and The State Bank

Fentura Financial, Inc. is the holding company for The State Bank. It was formed in 1987 and is traded on the OTCQX exchange under the symbol FETM, and was recognized as one of the Top 50 performing stocks in 2018 and 2019 on that exchange.

The State Bank is a full-service, 5-Star Bauer Financial rated commercial, retail and trust bank headquartered in Fenton, Michigan. It currently operates 15 full-service branches in Genesee, Livingston, Oakland, Saginaw, and Shiawassee Counties and a loan production office in Saginaw County. The State Bank was ranked #22 by S&P Global in terms of 2019 performance for banks under $2 billion in assets. The State Bank’s commercial department provides a complete array of products including lines of credit, term loans, commercial mortgages, SBA loans and a full-suite of cash management products. The retail department offers personal checking, savings, time and IRA deposit accounts and a wide array of loan products including home equity, auto and personal loans. The residential loan department offers construction, purchase and refinance residential mortgage loans. The wealth management department offers a full-service suite of trust and portfolio management services. More information can be found at www.thestatebank.com or www.fentura.com.

Cautionary Statement: This press release contains certain forward-looking statements that involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements concerning future growth in earning assets and net income. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including, but not limited to, economic, competitive, governmental and technological factors affecting the Company’s operations, markets, products, services, interest rates and fees for services. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release.

Originally published

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