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.

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 interest income. Total investment securities are expected to continue to grow throughout 2021 as management expects deposits to continue to grow at historically high levels while competition for quality loans remains robust. The following table summarizes information as of March 31, 2021 for investment securities purchased YTD:

		Book Value				Fully Taxable Equivalent Weighted Average Yield
U.S. Government and federal agency		$	—			—	%
State and municipal		1,360				0.96	%
Collateralized mortgage obligations - agencies		4,906				1.08	%
Certificates of deposit		—				—	%
Mortgage backed residential		15,328				1.52	%
Held-to-maturity state and municipal		—				—	%
Total		$	21,594			1.38	%

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

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

Loans and allowance for loan losses

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

		3/31/2021				12/31/2020				9/30/2020				6/30/2020				3/31/2020
Commercial		$	183,276			$	241,424			$	271,113			$	260,440			$	67,731
Commercial real estate		541,428				517,054				483,275				469,039				462,561
Total commercial loans		724,704				758,478				754,388				729,479				530,292
Residential mortgage		258,333				262,770				261,375				268,295				285,392
Home equity		40,205				39,900				39,456				40,114				43,222
Total residential real estate loans		298,538				302,670				300,831				308,409				328,614
Consumer		4,875				5,414				5,666				6,676				6,671
Gross loans		1,028,117				1,066,562				1,060,885				1,044,564				865,577
Allowance for loan losses		(11,100		)		(10,900		)		(10,100		)		(8,991		)		(7,250		)
Loans, net		$	1,017,017			$	1,055,662			$	1,050,785			$	1,035,573			$	858,327
		3/31/2021 vs 12/31/2020												3/31/2021 vs 3/31/2020
		Variance												Variance
		Amount				%								Amount				%
Commercial		$	(58,148	)		(24.09		)%						$	115,545			170.59		%
Commercial real estate		24,374				4.71		%						78,867				17.05		%
Total commercial loans		(33,774		)		(4.45		)%						194,412				36.66		%
Residential mortgage		(4,437		)		(1.69		)%						(27,059		)		(9.48		)%
Home equity		305				0.76		%						(3,017		)		(6.98		)%
Total residential real estate loans		(4,132		)		(1.37		)%						(30,076		)		(9.15		)%
Consumer		(539		)		(9.96		)%						(1,796		)		(26.92		)%
Gross loans		(38,445		)		(3.60		)%						162,540				18.78		%
Allowance for loan losses		(200		)		1.83		%						(3,850		)		53.10		%
Loans, net		$	(38,645	)		(3.66		)%						$	158,690			18.49		%

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

		3/31/2021				12/31/2020				9/30/2020				6/30/2020				3/31/2020
Loans collectively evaluated for impairment
Commercial		$	183,203			$	241,424			$	271,113			$	260,440			$	67,731
Commercial real estate		532,294				508,182				481,071				465,749				460,903
Residential mortgage		257,543				262,017				260,665				267,632				284,662
Home equity		40,141				39,874				39,456				40,114				43,222
Consumer		4,875				5,412				5,663				6,673				6,666
Subtotal		1,018,056				1,056,909				1,057,968				1,040,608				863,184
Loans individually evaluated for impairment
Commercial		73				—				—				—				—
Commercial real estate		9,134				8,872				2,204				3,290				1,658
Residential mortgage		790				753				710				663				730
Home equity		64				26				—				—				—
Consumer		—				2				3				3				5
Subtotal		10,061				9,653				2,917				3,956				2,393
Gross Loans		$	1,028,117			$	1,066,562			$	1,060,885			$	1,044,564			$	865,577

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

		3/31/2021				12/31/2020				9/30/2020				6/30/2020				3/31/2020
Loans collectively evaluated for impairment
Commercial		$	626			$	673			$	633			$	536			$	479
Commercial real estate		6,026				5,602				5,152				4,595				3,655
Residential mortgage		3,280				3,480				3,479				3,278				2,607
Home equity		453				440				438				372				298
Consumer		92				97				101				102				89
Subtotal		10,477				10,292				9,803				8,883				7,128
Loans individually evaluated for impairment
Commercial		—				—				—				—				—
Commercial real estate		619				602				289				100				111
Residential mortgage		4				4				5				5				6
Home equity		—				—				—				—				—
Consumer		—				2				3				3				5
Subtotal		623				608				297				108				122
Allowance for loan losses		$	11,100			$	10,900			$	10,100			$	8,991			$	7,250

Commercial		$	626			$	673			$	633			$	536			$	479
Commercial real estate		6,645				6,204				5,441				4,695				3,766
Residential mortgage		3,284				3,484				3,484				3,283				2,613
Home equity		453				440				438				372				298
Consumer		92				99				104				105				94
Allowance for loan losses		$	11,100			$	10,900			$	10,100			$	8,991			$	7,250

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

		3/31/2021				12/31/2020				9/30/2020				6/30/2020				3/31/2020
Accruing interest
Current		$	1,018,343			$	1,057,404			$	1,058,437			$	1,042,589			$	862,581
Past due 30-89 days		1,636				1,165				1,703				948				2,152
Past due 90 days or more		120				50				86				361				166
Total accruing interest		1,020,099				1,058,619				1,060,226				1,043,898				864,899
Nonaccrual		8,018				7,943				659				666				678
Total loans		$	1,028,117			$	1,066,562			$	1,060,885			$	1,044,564			$	865,577
Total loans past due and in nonaccrual status		$	9,774			$	9,158			$	2,448			$	1,975			$	2,996

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

		3/31/2021				12/31/2020				9/30/2020				6/30/2020				3/31/2020
Nonaccrual loans		$	8,018			$	7,943			$	659			$	666			$	678
Accruing loans past due 90 days or more		120				50				86				361				166
Total nonperforming loans		8,138				7,993				745				1,027				844
Other real estate owned		—				—				—				—				400
Total nonperforming assets		$	8,138			$	7,993			$	745			$	1,027			$	1,244

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

		3/31/2021			12/31/2020			9/30/2020			6/30/2020			3/31/2020
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, less PPP loans		1.23	%		1.23	%		1.19	%		1.07	%		0.84	%

During the fourth quarter of 2020, the Corporation transferred one commercial real estate loan with an outstanding principal balance of $7,214 to nonaccrual. The underlying collateral for this loan is an extended stay hotel. 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:

		3/31/2021				12/31/2020				9/30/2020				6/30/2020				3/31/2020
Net unamortized discount on purchased loans		$	580			$	773			$	877			$	1,058			$	1,233

The following table summarizes the balance of PPP loans included in commercial loans as of:

		3/31/2021				12/31/2020				9/30/2020				6/30/2020				3/31/2020
Outstanding PPP loans		$	122,583			$	177,845			$	211,060			$	206,901			$	—

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 $3,850, or 53.10%, since March 31, 2020. 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:

		3/31/2021				12/31/2020				9/30/2020				6/30/2020				3/31/2020
Commercial		$	206			$	169			$	166			$	171			$	214
Commercial real estate		727				707				672				654				644
Total commercial loans		444				351				321				325				513
Residential mortgage		183				182				180				177				194
Home equity		46				45				45				45				46
Total residential real estate loans		131				130				129				128				137
Consumer		22				22				22				25				26
Gross loans		$	249			$	226			$	215			$	213			$	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 March 31, 2021:

		Number of Modifications			Outstanding Balance				% of Portfolio
Commercial		3			$	1,507			0.82	%
Commercial real estate		5			10,506				1.94	%
Total commercial loan modifications		8			12,013				1.66	%
Portfolio residential mortgage loans		6			928				0.36	%
Home equity		1			21				0.05	%
Total residential real estate loan modifications		7			949				0.32	%
Consumer		—			—				—	%
Total portfolio modifications		15			$	12,962			1.26	%
Residential mortgage loans serviced for FHLMC		32			$	7,002			1.29	%

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 18 commercial loans in its portfolio in the accommodation industry with a book balance of $20,033. Of these loans, approximately 53% are government-backed by guarantees from either the SBA or USDA.

The Corporation was extremely active in participating in the PPP loan program. The Corporation funded 1,370 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 $122,583 as of March 31, 2021. As of March 31, 2021, the Corporation received forgiveness payments for 721 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 March 31, 2021, the Corporation has recognized $5,337 in income, with $1,462 remaining as unearned income.

During the first quarter of 2021, the SBA began processing applications for a second round of PPP loans. The Corporation is utilizing a third-party for the processing of applications and funding of these loans. The Corporation is generating referral fee income for the second round of the PPP loan program. As of March 31, 2021, the Corporation generated $351 in referral fees.

All other assets

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

		3/31/2021				12/31/2020				9/30/2020				6/30/2020				3/31/2020
Premises and equipment, net		$	15,969			$	15,461			$	15,267			$	15,323			$	15,533
Corporate owned life insurance		10,354				10,291				10,225				10,115				10,380
Accrued interest receivable		5,451				5,068				5,645				5,266				3,124
Mortgage servicing rights		5,023				4,885				4,376				3,816				3,980
Federal Home Loan Bank stock		3,488				3,488				3,488				3,488				3,150
Goodwill		3,219				3,219				3,219				3,219				3,219
Right-of-use assets		1,139				364				387				409				432
Derivatives		1,009				1,331				1,772				1,311				1,063
Core deposit intangibles		474				541				632				722				812
Other real estate owned		—				—				—				—				400
Other assets		2,080				962				1,005				1,382				2,154
All other assets		$	48,206			$	45,610			$	46,016			$	45,051			$	44,247
		3/31/2021 vs 12/31/2020												3/31/2021 vs 3/31/2020
		Variance												Variance
		Amount				%								Amount				%
Premises and equipment, net		$	508			3.29		%						$	436			2.81		%
Corporate owned life insurance		63				0.61		%						(26		)		(0.25		)%
Accrued interest receivable		383				7.56		%						2,327				74.49		%
Mortgage servicing rights		138				2.82		%						1,043				26.21		%
Federal Home Loan Bank stock		—				—		%						338				10.73		%
Goodwill		—				—		%						—				—		%
Right-of-use assets		775				212.91		%						707				163.66		%
Derivatives		(322		)		(24.19		)%						(54		)		(5.08		)%
Core deposit intangibles		(67		)		(12.38		)%						(338		)		(41.63		)%
Other real estate owned		—				—		%						(400		)		(100.00		)%
Other assets		1,118				116.22		%						(74		)		(3.44		)%
All other assets		$	2,596			5.69		%						$	3,959			8.95		%

Mortgage servicing rights are servicing assets that are recognized from the sales of mortgage loans. The increase in mortgage servicing rights is due to the increased volume of residential mortgage loan sales. The Corporation expects the serviced loan portfolio to continue to grow throughout the remainder of 2021.

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. The increase in the Corporation's right-of-use assets in the first quarter of 2021 is due to the recognition of two additional lease obligations.
Derivatives represent the fair value of interest rate lock commitments and mandatory forward loan sales commitments that are in a gain position. These balances can fluctuate from period to period based on changes in interest rates and the volume of the Corporation's loan pipeline.

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

Total deposits

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

		3/31/2021					12/31/2020				9/30/2020				6/30/2020					3/31/2020
Noninterest bearing demand		$	422,013				$	378,733			$	391,706			$	383,452				$	281,848
Interest bearing
Savings		309,454					290,343				269,051				245,957					215,748
Money market demand		109,101					113,729				99,252				90,504					79,070
NOW		103,342					101,419				120,681				122,477					83,910
Time deposits		178,598					187,752				180,780				175,897					223,261
Total deposits		$	1,122,508				$	1,071,976			$	1,061,470			$	1,018,287				$	883,837
		3/31/2021 vs 12/31/2020													3/31/2021 vs 3/31/2020
		Variance													Variance
		Amount					%								Amount					%
Noninterest bearing demand		$	43,280				11.43		%						$	140,165				49.73		%
Interest bearing
Savings		19,111					6.58		%						93,706					43.43		%
Money market demand		(4,628		)			(4.07		)%						30,031					37.98		%
NOW		1,923					1.90		%						19,432					23.16		%
Time deposits		(9,154		)			(4.88		)%						(44,663		)			(20.00		)%
Total deposits		$	50,532				4.71		%						$	238,671				27.00		%

The Corporation has continued its focus of growing non-contractual deposits while supplementing funding with time deposits. The Corporation has been able to drive this meaningful increase through enhanced organic growth strategies. Total deposits also increased due to government related stimulus programs. 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 March 31, 2021:

		Maturity Buckets
		3 Months or Less				3 to 6 Months				6 to 9 Months				9 to 12 Months				Beyond 12 Months
Balance		$	55,976			$	41,742			$	17,035			$	17,217			$	46,628
Weighted average yield		0.50		%		0.69		%		0.53		%		0.55		%		0.77		%
		Cumulative Maturities
		3 Months or Less				Up to 6 Months				Up to 9 Months				Up to 12 Months				Total
Balance		$	55,976			$	97,718			$	114,753			$	131,970			$	178,598
Weighted average yield		0.50		%		0.58		%		0.57		%		0.57		%		0.62		%

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:

		3/31/21				12/31/20				9/30/20				6/30/20					3/31/20
Federal Home Loan Bank borrowings		$	35,000			$	35,000			$	77,500			$	77,500				$	57,500
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			$	49,000			$	96,217			$	96,217				$	71,500
		3/31/2021 vs 12/31/2020												3/31/2021 vs 3/31/2020
		Variance												Variance
		Amount				%								Amount					%
Federal Home Loan Bank borrowings		$	—			—		%						$	(22,500	)			(39.13		)%
Subordinated debentures		—				—		%						—					—		%
PPPLF		—				—		%						—					—		%
Federal funds purchased		—				—		%						—					—		%
Total borrowed funds		$	—			—		%						$	(22,500	)			(31.47		)%

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 throughout 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:

		3/31/21					12/31/20					9/30/20				6/30/20					3/31/20
Federal Home Loan Bank borrowings		$	35,000				$	35,000				$	77,500			$	77,500				$	57,500
Brokered money market demand		—						—				25,029				25,010						—
Brokered time deposits		20,234						20,000				28,605				28,837						28,605
Subordinated debentures		14,000						14,000				14,000				14,000						14,000
Internet time deposits		2,739						2,839				10,208				11,690						18,005
PPPLF		—						—				4,717				4,717						—
Total wholesale funds		$	71,973				$	71,839				$	160,059			$	161,754				$	118,110
		3/31/2021 vs 12/31/2020														3/31/2021 vs 3/31/2020
		Variance														Variance
		Amount					%									Amount					%
Federal Home Loan Bank borrowings		$	—				—			%						$	(22,500	)			(39.13		)	%
Brokered money market demand		—					—			%						—					—			%
Brokered time deposits		234					1.17			%						(8,371		)			(29.26		)	%
Subordinated debentures		—					—			%						—					—			%
Internet time deposits		(100		)			(3.52		)	%						(15,266		)			(84.79		)	%
PPPLF		—					—			%						—					—			%
Total wholesale funds		$	134				0.19			%						$	(46,137	)			(39.06		)	%

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 first quarter of 2021 and the fourth quarter of 2020, the Corporation repurchased 37,315 and 5,342 shares for $880 and $110, respectively.

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 March 31, 2016 and all dividends were reinvested.

The graph accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/bc09497d-59b0-40f3-8bfa-af059451c581

Date		FETM			ABAQ Index
3/31/2016		100.00			100.00
3/31/2017		125.90			138.33
3/31/2018		139.19			146.54
3/31/2019		148.61			128.85
3/31/2020		114.03			91.79
3/31/2021		168.95			156.10

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: U.S. Small Business Administration
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 Best 50 performing stocks in 2018 on that exchange.

The State Bank is a full-service, 5-Star Bauer Financial rated commercial, retail and trust bank headquartered in Fenton, Michigan. It currently operates 17 full-service branches in Genesee, Livingston, Oakland, Saginaw, and Shiawassee Counties. The State Bank’s commercial department provides a complete array of products including lines of credit, term loans, commercial mortgages, SBA loans and a full-suite of cash management products. The retail department offers personal checking, savings, time and IRA deposit accounts and a wide array of loan products including home equity, auto and personal loans. The residential loan department offers construction, purchase and refinance residential mortgage loans. The wealth management department offers a full-service suite of trust and portfolio management services. More information can be found at www.thestatebank.com or www.fentura.com.

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

Contacts:

Ronald L. Justice President & CEO Fentura Financial, Inc. 810.714.3902 ronj@thestatebank.com

Aaron D. Wirsing Chief Financial Officer Fentura Financial, Inc. 810.714.3925 aaronw@thestatebank.com

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