Fentura Financial, Inc. Announces Second Quarter 2021 Earnings

Dollars in thousands except per share amounts. Certain items in the prior period financial statements have been reclassified to conform with the June 30, 2021 presentation.

FENTON, Mich., July 30, 2021 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. (OTCQX: FETM) announces quarterly results of net income of $4,726 and $9,382 for the three and six month periods ended June 30, 2021.

Ronald Justice, President and CEO, stated, "Once again, I am pleased with our operating results for the quarter. Opportunities for new loan and core deposit relationships remain strong. Our team's outstanding efforts generated an increase in total loans (net of PPP loans) of $45,629 during the quarter and $62,446 on a year to date basis. These growth trends, along with continued strong residential mortgage activity and a solid net interest margin actively contributed to our strong operating results. While the COVID-19 pandemic continues to create uncertainties, client relationship growth, consistent asset quality, and stock performance trends are encouraging indicators."

Following is a discussion of the Corporation's financial performance as of, and for the three and six month periods ended June 30, 2021. At the end of this document is a list of abbreviations and acronyms.

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

    6/30/2021   3/31/2021   12/31/2020   9/30/2020   6/30/2020
INCOME STATEMENT DATA                    
Interest income   $ 11,658     $ 11,919     $ 11,624     $ 12,070     $ 11,215  
Interest expense   762     676     972     1,189     1,618  
Net interest income   10,896     11,243     10,652     10,881     9,597  
Provision for loan losses   6     212     982     1,109     2,001  
Noninterest income   4,230     3,854     4,676     5,159     5,292  
Noninterest expenses   9,222     9,031     10,971     8,218     7,809  
Federal income tax expense   1,172     1,198     642     1,377     1,036  
Net income   $ 4,726     $ 4,656     $ 2,733     $ 5,336     $ 4,043  
PER SHARE                    
Earnings   $ 1.02     $ 1.00     $ 0.58     $ 1.14     $ 0.87  
Dividends   $ 0.080     $ 0.080     $ 0.075     $ 0.075     $ 0.075  
Tangible book value(1)   $ 25.73     $ 24.75     $ 23.88     $ 23.50     $ 22.44  
Quoted market value                    
High   $ 27.40     $ 24.75     $ 22.25     $ 17.99     $ 18.95  
Low   $ 23.55     $ 21.90     $ 16.93     $ 16.80     $ 14.90  
Close(1)   $ 26.00     $ 23.30     $ 22.00     $ 16.93     $ 17.35  
PERFORMANCE RATIOS                    
Return on average assets   1.45 %   1.50 %   0.84 %   1.68 %   1.35 %
Return on average shareholders' equity   15.64 %   15.86 %   9.27 %   18.86 %   15.20 %
Return on average tangible shareholders' equity   16.12 %   16.38 %   9.58 %   19.54 %   15.79 %
Efficiency ratio   60.97 %   59.82 %   71.57 %   51.23 %   52.45 %
Yield on earning assets (FTE)   3.79 %   4.01 %   3.75 %   3.97 %   3.94 %
Rate on interest bearing liabilities   0.41 %   0.37 %   0.50 %   0.63 %   0.91 %
Net interest margin to earning assets (FTE)   3.55 %   3.79 %   3.44 %   3.58 %   3.37 %
BALANCE SHEET DATA (1)                    
Total investment securities   $ 129,944     $ 89,772     $ 76,111     $ 78,179     $ 75,526  
Gross loans   $ 986,358     $ 1,028,117     $ 1,066,562     $ 1,060,885     $ 1,044,564  
Total assets   $ 1,309,685     $ 1,303,175     $ 1,251,446     $ 1,284,845     $ 1,237,694  
Total deposits   $ 1,126,496     $ 1,122,508     $ 1,071,976     $ 1,061,470     $ 1,018,287  
Borrowed funds   $ 49,500     $ 49,000     $ 49,000     $ 96,217     $ 96,217  
Total shareholders' equity   $ 122,986     $ 119,360     $ 115,868     $ 114,081     $ 108,969  
Net loans to total deposits   86.60 %   90.60 %   98.48 %   98.99 %   101.70 %
Common shares outstanding   4,638,614     4,673,932     4,694,275     4,691,142     4,680,920  
QTD BALANCE SHEET AVERAGES                    
Total assets   $ 1,309,942     $ 1,259,119     $ 1,288,199     $ 1,264,105     $ 1,200,966  
Earning assets   $ 1,234,827     $ 1,206,411     $ 1,235,895     $ 1,210,274     $ 1,146,941  
Interest bearing liabilities   $ 753,706     $ 735,159     $ 773,132     $ 750,281     $ 711,500  
Total shareholders' equity   $ 121,235     $ 119,034     $ 117,263     $ 112,565     $ 106,998  
Total tangible shareholders' equity   $ 117,567     $ 115,298     $ 113,444     $ 108,655     $ 102,999  
Earned common shares outstanding   4,644,833     4,664,893     4,682,063     4,673,629     4,664,946  
Unvested stock grants   20,671     21,922     14,208     14,208     14,208  
Total common shares outstanding   4,665,504     4,686,815     4,696,271     4,687,837     4,679,154  
ASSET QUALITY (1)                    
Nonperforming loans to gross loans   0.87 %   0.79 %   0.75 %   0.07 %   0.10 %
Nonperforming assets to total assets   0.66 %   0.62 %   0.64 %   0.06 %   0.08 %
Allowance for loan losses to gross loans   1.09 %   1.08 %   1.02 %   0.95 %   0.86 %
Allowance for loan losses to gross loans, net of PPP loans   1.14 %   1.23 %   1.23 %   1.19 %   1.07 %
CAPITAL RATIOS (1)                    
Total capital to risk weighted assets   14.35 %   15.02 %   15.14 %   15.57 %   15.06 %
Tier 1 capital to risk weighted assets   13.27 %   13.84 %   13.93 %   14.40 %   14.00 %
CET1 capital to risk weighted assets   11.87 %   12.34 %   12.38 %   12.77 %   12.34 %
Tier 1 leverage ratio   10.19 %   10.31 %   9.80 %   9.86 %   9.90 %
                     
(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 six month periods ended:

    6/30/2021   6/30/2020   6/30/2019   6/30/2018   6/30/2017
INCOME STATEMENT DATA                    
Interest income   $ 23,577     $ 22,285     $ 21,225     $ 17,108     $ 13,681  
Interest expense     1,438       3,763       4,285       2,263       1,389  
Net interest income     22,139       18,522       16,940       14,845       12,292  
Provision for loan losses     218       3,543       477       576       125  
Noninterest income     8,084       9,805       3,772       3,814       3,372  
Noninterest expenses     18,253       15,495       13,200       12,328       10,837  
Federal income tax expense     2,370       1,894       1,424       1,163       1,476  
Net income   $ 9,382     $ 7,395     $ 5,611     $ 4,592     $ 3,226  
PER SHARE                                        
Earnings   $ 2.02     $ 1.59     $ 1.21     $ 1.26     $ 0.89  
Dividends   $ 0.160     $ 0.150     $ 0.140     $ 0.120     $ 0.100  
Tangible book value(1)   $ 25.73     $ 22.44     $ 19.59     $ 16.00     $ 13.45  
Quoted market value                                        
High   $ 27.40     $ 26.00     $ 21.00     $ 21.25     $ 18.50  
Low   $ 21.90     $ 12.55     $ 20.05     $ 18.88     $ 15.10  
Close(1)   $ 26.00     $ 17.35     $ 20.60     $ 21.10     $ 18.25  
PERFORMANCE RATIOS                                        
Return on average assets   1.47 %   1.32 %   1.20 %   1.16 %   0.90 %
Return on average shareholders' equity   15.75 %   14.13 %   12.14 %   15.13 %   12.32 %
Return on average tangible shareholders' equity   16.25 %   14.69 %   12.75 %   16.47 %   13.12 %
Efficiency ratio   60.39 %   54.70 %   63.73 %   66.07 %   69.18 %
Yield on earning assets (FTE)   3.89 %   4.20 %   4.79 %   4.42 %   4.16 %
Rate on interest bearing liabilities   0.39 %   1.09 %   1.43 %   0.90 %   0.57 %
Net interest margin to earning assets (FTE)   3.65 %   3.49 %   3.82 %   3.82 %   3.73 %
BALANCE SHEET DATA (1)                    
Total investment securities   $ 129,944     $ 75,526     $ 73,285     $ 49,110     $ 70,699  
Gross loans   $ 986,358     $ 1,044,564     $ 813,547     $ 707,364     $ 591,753  
Total assets   $ 1,309,685     $ 1,237,694     $ 949,790     $ 841,459     $ 730,511  
Total deposits   $ 1,126,496     $ 1,018,287     $ 792,555     $ 702,035     $ 614,167  
Borrowed funds   $ 49,500     $ 96,217     $ 54,000     $ 74,000     $ 59,000  
Total shareholders' equity   $ 122,986     $ 108,969     $ 95,504     $ 63,078     $ 54,255  
Net loans to total deposits   86.60 %   101.70 %   102.02 %   100.18 %   95.85 %
Common shares outstanding   4,638,614     4,680,920     4,653,343     3,640,060     3,629,097  
YTD BALANCE SHEET AVERAGES                    
Total assets   $ 1,284,534     $ 1,125,064     $ 940,585     $ 797,594     $ 723,786  
Earning assets   $ 1,225,641     $ 1,068,847     $ 894,357     $ 749,755     $ 631,928  
Interest bearing liabilities   $ 744,434     $ 692,035     $ 604,469     $ 509,294     $ 499,636  
Total shareholders' equity   $ 120,134     $ 105,276     $ 93,239     $ 61,219     $ 52,786  
Total tangible shareholders' equity   $ 116,432     $ 101,233     $ 88,762     $ 56,221     $ 49,586  
Earned common shares outstanding   4,654,863     4,662,113     4,638,208     3,635,446     3,624,719  
Unvested stock grants   21,297     13,844     9,878          
Total common shares outstanding   4,676,160     4,675,957     4,648,086     3,635,446     3,624,719  
ASSET QUALITY (1)                    
Nonperforming loans to gross loans   0.87 %   0.10 %   0.13 %   0.14 %   0.09 %
Nonperforming assets to total assets   0.66 %   0.08 %   0.11 %   0.13 %   0.08 %
Allowance for loan losses to gross loans   1.09 %   0.86 %   0.62 %   0.57 %   0.52 %
Allowance for loan losses to gross loans, net of PPP loans   1.14 %   1.07 %   0.62 %   0.57 %   0.52 %
CAPITAL RATIOS (1)                    
Total capital to risk weighted assets   14.35 %   15.06 %   14.18 %   11.20 %   11.25 %
Tier 1 capital to risk weighted assets   13.27 %   14.00 %   13.53 %   10.62 %   10.73 %
CET1 capital to risk weighted assets   11.87 %   12.34 %   11.73 %   8.59 %   8.36 %
Tier 1 leverage ratio   10.19 %   9.90 %   11.16 %   9.14 %   8.99 %
                     
(1)At end of period                    
                     

Income Statement Breakdown and Analysis

    Quarter to Date
    6/30/2021   3/31/2021   12/31/2020   9/30/2020   6/30/2020
GAAP net income   $ 4,726     $ 4,656     $ 2,733     $ 5,336     $ 4,043  
Acquisition related items (net of tax)                    
Accretion on purchased loans   (152 )   (151 )   (82 )   (144 )   (110 )
Amortization of core deposit intangibles   53     54     71     72     71  
Amortization on acquired time deposits   2     2     5     5     5  
Total acquisition related items (net of tax)   (97 )   (95 )   (6 )   (67 )   (34 )
Other nonrecurring items (net of tax)                    
FHLB prepayment penalties           1,507          
Change in fair value of equity investment due to acquisition transaction                    
Change in fair value of mortgage banking instruments                    
Interest writeoff from loan transferred to nonaccrual           265          
Net gain from COLI death benefit                   (173 )
Prepayment penalties collected   (33 )   (17 )   (97 )   (16 )   (12 )
Mortgage servicing rights impairment (reduction of impairment)           (188 )   (176 )   191  
Total other nonrecurring items (net of tax)   (33 )   (17 )   1,487     (192 )   6  
Adjusted net income from operations   $ 4,596     $ 4,544     $ 4,214     $ 5,077     $ 4,015  
                     
GAAP net interest income   $ 10,896     $ 11,243     $ 10,652     $ 10,881     $ 9,597  
Accretion on purchased loans   (192 )   (191 )   (104 )   (182 )   (139 )
Interest writeoff from loan transferred to nonaccrual           335          
Prepayment penalties collected   (42 )   (21 )   (123 )   (20 )   (15 )
Amortization on acquired time deposits   3     3     6     6     6  
Adjusted net interest income   $ 10,665     $ 11,034     $ 10,766     $ 10,685     $ 9,449  
                     
PERFORMANCE RATIOS                    
Based on adjusted net income from operations                    
Earnings per share   $ 0.99     $ 0.97     $ 0.90     $ 1.09     $ 0.86  
Return on average assets   1.41 %   1.46 %   1.30 %   1.60 %   1.34 %
Return on average shareholders' equity   15.21 %   15.48 %   14.30 %   17.94 %   15.09 %
Return on average tangible shareholders' equity   15.68 %   15.98 %   14.78 %   18.59 %   15.68 %
Efficiency ratio   61.46 %   60.20 %   59.02 %   52.03 %   52.12 %
                     
Based on adjusted net interest income                    
Yield on earning assets (FTE)   3.72 %   3.94 %   3.78 %   3.91 %   3.89 %
Rate on interest bearing liabilities   0.41 %   0.37 %   0.50 %   0.63 %   0.92 %
Net interest margin to earning assets (FTE)   3.47 %   3.71 %   3.47 %   3.52 %   3.32 %


    Year to Date June 30   Variance
    2021   2020   Amount   %
GAAP net income   $ 9,382     $ 7,395     $ 1,987     26.87 %
Acquisition related items (net of tax)                
Accretion on purchased loans   (303 )   (290 )   (13 )   4.48 %
Amortization of core deposit intangibles   107     142     (35 )   (24.65 )%
Amortization on acquired time deposits   4     10     (6 )   (60.00 )%
Total acquisition related items (net of tax)   (192 )   (138 )   (54 )   39.13 %
Other nonrecurring items (net of tax)                
FHLB prepayment penalties               %
Change in fair value of equity investment due to acquisition transaction       (578 )   578     (100.00 )%
Change in fair value of mortgage banking instruments       (448 )   448     (100.00 )%
Interest writeoff from loan transferred to nonaccrual               %
Net gain from COLI death benefit       (173 )   173     (100.00 )%
Prepayment penalties collected   (50 )   (48 )   (2 )   4.17 %
Mortgage servicing rights impairment (reduction of impairment)       364     (364 )   (100.00 )%
Total other nonrecurring items (net of tax)   (50 )   (883 )   833     (94.34 )%
Adjusted net income from operations   $ 9,140     $ 6,374     $ 2,766      43.40  %
                 
GAAP net interest income   $ 22,139     $ 18,522     $ 3,617      19.53  %
Accretion on purchased loans   (383 )   (367 )   (16 )   4.36 %
Interest writeoff from loan transferred to nonaccrual               %
Prepayment penalties collected   (63 )   (61 )   (2 )   3.28 %
Amortization on acquired time deposits   6     12     (6 )   (50.00 )%
Adjusted net interest income   $ 21,699     $ 18,106     $ 3,593      19.84  %
                 
PERFORMANCE RATIOS                
Based on adjusted net income from operations                
Earnings per share   $ 1.96     $ 1.37     $ 0.59     43.07 %
Return on average assets   1.43 %   1.14 %       0.29 %
Return on average shareholders' equity   15.34 %   12.18 %       3.16 %
Return on average tangible shareholders' equity   15.83 %   12.66 %       3.17 %
Efficiency ratio   60.84 %   56.94 %       3.90 %
                 
Based on adjusted net interest income                
Yield on earning assets (FTE)   3.81 %   4.12 %       (0.31 )%
Rate on interest bearing liabilities   0.39 %   1.10 %       (0.71 )%
Net interest margin to earning assets (FTE)   3.58 %   3.41 %       0.17 %


Average Balances, Interest Rate, and Net Interest Income

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

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

    Three Months Ended
    June 30, 2021   March 31, 2021   June 30, 2020
    Average
Balance
  Tax
Equivalent
Interest
  Average
Yield /
Rate
  Average
Balance
  Tax
Equivalent
Interest
  Average
Yield /
Rate
  Average
Balance
  Tax
Equivalent
Interest
  Average
Yield /
Rate
Interest earning assets                                    
Total loans   $ 1,023,620     $ 11,220   4.40 %   $ 1,074,096     $ 11,598   4.38 %   $ 1,048,068     $ 10,788   4.14 %
Taxable investment securities   89,467     322   1.44 %   58,859     202   1.39 %   62,829     323   2.07 %
Nontaxable investment securities   17,234     100   2.33 %   17,165     105   2.48 %   11,449     84   2.95 %
Federal funds sold         %         %         %
Interest earning cash and cash equivalents   101,018     23   0.09 %   52,803     11   0.08 %   21,314     5   0.09 %
Federal Home Loan Bank stock   3,488     14   1.61 %   3,488     25   2.91 %   3,281     33   4.05 %
Total earning assets   1,234,827     11,679   3.79 %   1,206,411     11,941   4.01 %   1,146,941     11,233   3.94 %
                                     
Nonearning assets                                    
Allowance for loan losses   (11,193 )           (11,143 )           (7,753 )        
Fixed assets   16,104             15,757             15,509          
Accrued income and other assets   70,204             48,094             46,269          
Total assets   $ 1,309,942             $ 1,259,119              $ 1,200,966           
                                     
Interest bearing liabilities                                    
Interest bearing demand deposits   $ 223,420     $ 122   0.22 %   $ 206,565     $ 121   0.24 %   $ 189,981     $ 249   0.53 %
Savings deposits   320,000     108   0.14 %   310,830     109   0.14 %   247,687     140   0.23 %
Time deposits   161,197     377   0.94 %   168,764     291   0.70 %   181,661     821   1.82 %
Borrowed funds   49,089     155   1.27 %   49,000     155   1.28 %   92,171     408   1.78 %
Total interest bearing liabilities   753,706     762   0.41 %   735,159     676   0.37 %   711,500     1,618   0.91 %
                                     
Noninterest bearing liabilities                                    
Noninterest bearing deposits   425,353             393,751             371,320          
Accrued interest and other liabilities   9,648             11,175             11,148          
Shareholders' equity   121,235             119,034             106,998          
Total liabilities and shareholders' equity   $ 1,309,942             $ 1,259,119             $ 1,200,966          
Net interest income (FTE)       $ 10,917           $ 11,265           $ 9,615    
Net interest margin to earning assets (FTE)           3.55 %           3.79 %           3.37 %


     
    Six Months Ended
    June 30, 2021   June 30, 2020
    Average
Balance
  Tax
Equivalent
Interest
  Average
Yield /
Rate
  Average
Balance
  Tax
Equivalent
Interest
  Average
Yield /
Rate
Interest earning assets                        
Total loans   $ 1,048,858     $ 22,818   4.39 %   $ 963,400     $ 21,269   4.44 %
Taxable investment securities   74,162     524   1.42 %   59,896     676   2.27 %
Nontaxable investment securities   17,200     205   2.40 %   10,991     165   3.02 %
Federal funds sold         %   16,794     116   1.39 %
Interest earning cash and cash equivalents   81,933     34   0.08 %   14,551     31   0.43 %
Federal Home Loan Bank stock   3,488     39   2.25 %   3,215     63   3.94 %
Total earning assets   1,225,641     23,620   3.89 %   1,068,847     22,320   4.20 %
                         
Nonearning assets                        
Allowance for loan losses   (11,168 )           (6,787 )        
Fixed assets   15,930             15,523          
Accrued income and other assets   54,131             47,481          
Total assets   $ 1,284,534             $ 1,125,064          
                         
Interest bearing liabilities                        
Interest bearing demand deposits   $ 214,993     $ 243   0.23 %   $ 180,291     $ 724   0.81 %
Savings deposits   315,415     217   0.14 %   239,438     339   0.28 %
Time deposits   164,981     668   0.82 %   193,574     1,874   1.95 %
Borrowed funds   49,045     310   1.27 %   78,732     826   2.11 %
Total interest bearing liabilities   744,434     1,438   0.39 %   692,035     3,763   1.09 %
                         
Noninterest bearing liabilities                        
Noninterest bearing deposits   409,553             318,010          
Accrued interest and other liabilities   10,413             9,743          
Shareholders' equity   120,134             105,276          
Total liabilities and shareholders' equity   $ 1,284,534             $ 1,125,064          
Net interest income (FTE)       $ 22,182           $ 18,557    
Net interest margin to earning assets (FTE)           3.65 %           3.49 %


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   Six Months Ended
    June 30, 2021   June 30, 2021   June 30, 2021
    Compared To   Compared To   Compared To
    March 31, 2021   June 30, 2020   June 30, 2020
    Increase (Decrease) Due to   Increase (Decrease) Due to   Increase (Decrease) Due to
    Volume   Rate   Net   Volume   Rate   Net   Volume   Rate   Net
Changes in interest income                                    
Total loans   $ (736 )   $ 358     $ (378 )   $ (1,359 )   $ 1,791     $ 432     $ 2,230     $ (681 )   $ 1,549  
Taxable investment securities   112     8     120     460     (461 )   (1 )   337     (489 )   (152 )
Nontaxable investment securities   3     (8 )   (5 )   112     (96 )   16     129     (89 )   40  
Federal funds sold                           (58 )   (58 )   (116 )
Interest earning cash and cash equivalents   11     1     12     18         18     89     (86 )   3  
Federal Home Loan Bank stock       (11 )   (11 )   13     (32 )   (19 )   14     (38 )   (24 )
Total changes in interest income   (610 )   348     (262 )   (756 )   1,202     446     2,741     (1,441 )   1,300  
                                     
Changes in interest expense                                    
Interest bearing demand deposits   41     (40 )   1     243     (370 )   (127 )   341     (822 )   (481 )
Savings deposits   (1 )       (1 )   177     (209 )   (32 )   213     (335 )   (122 )
Time deposits   (84 )   170     86     (84 )   (360 )   (444 )   (245 )   (961 )   (1,206 )
Borrowed funds   2     (2 )       (157 )   (96 )   (253 )   (251 )   (265 )   (516 )
Total changes in interest expense   (42 )   128     86     179     (1,035 )   (856 )   58     (2,383 )   (2,325 )
Net change in net interest income (FTE)   $ (568 )   $ 220     $ (348 )   $ (935 )   $ 2,237     $ 1,302     $ 2,683     $ 942     $ 3,625  


    Average Yield/Rate for the Three Month Periods Ended
    6/30/2021   3/31/2021   12/31/2020   9/30/2020   6/30/2020
Total earning assets   3.79 %   4.01 %   3.75 %   3.97 %   3.94 %
Total interest bearing liabilities   0.41 %   0.37 %   0.50 %   0.63 %   0.91 %
Net interest margin to earning assets (FTE)   3.55 %   3.79 %   3.44 %   3.58 %   3.37 %


    Quarter to Date Net Interest Income (FTE)
    6/30/2021   3/31/2021   12/31/2020   9/30/2020   6/30/2020
Interest income   $ 11,658     $ 11,919     $ 11,624     $ 12,070     $ 11,215  
FTE adjustment   21     22     22     21     18  
Total interest income (FTE)   11,679     11,941     11,646     12,091     11,233  
Total interest expense   762     676     972     1,189     1,618  
Net interest income (FTE)   $ 10,917     $ 11,265      $ 10,674     $ 10,902     $ 9,615  


Noninterest Income

    Quarter to Date
    6/30/2021   3/31/2021   12/31/2020   9/30/2020   6/30/2020
Net gain on sales of mortgage loans   $ 1,253   $ 1,845     $ 2,545     $ 3,064   $ 3,869  
Net mortgage servicing rights income   1,119   138     509     559   (163 )
ATM and debit card income   511   448     437     460   394  
Trust and investment services   403   468     445     464   321  
Mortgage servicing fees   362   335     325     293   270  
PPP referral fees   74   351            
Service charges on deposit accounts   168   166     194     177   119  
Net gain on sales of commercial loans                
Net gain from corporate owned life insurance death benefit               173  
Change in fair value of equity investments   2   (19 )   (3 )   2   7  
Other income and fees   338   122     224     140   302  
Total noninterest income   $ 4,230   $ 3,854     $ 4,676     $ 5,159   $ 5,292  
                     
Residential mortgage operations   $ 2,734   $ 2,318     $ 3,379     $ 3,916   $ 3,976  


    Year to Date June 30   Variance
    2021   2020   Amount   %
Net gain on sales of mortgage loans   $ 3,098     $ 5,672     $ (2,574 )   (45.38 )%
Net mortgage servicing rights income   1,257     (214 )   1,471     (687.38 )%
ATM and debit card income   959     749     210     28.04 %
Trust and investment services   871     710     161     22.68 %
Mortgage servicing fees   697     532     165     31.02 %
PPP referral fees   425         425     %
Service charges on deposit accounts   334     338     (4 )   (1.18 )%
Net gain on sales of commercial loans       668     (668 )   (100.00 )%
Net gain from corporate owned life insurance death benefit       173     (173 )   (100.00 )%
Change in fair value of equity investments   (17 )   756     (773 )   (102.25 )%
Other income and fees   460     421     39     9.26 %
Total noninterest income   $ 8,084     $ 9,805     $ (1,721 )   (17.55 ) %
                 
Residential mortgage operations   $ 5,052     $ 5,990     (938 )   (15.66 )%

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. While residential mortgage originations and refinancing activity continues to be strong during the first half of 2021, it is likely to slow down due to lower housing inventory and expected increases in interest rates.

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

In 2021 the Corporation elected to adopt the fair value measurement option for all MSR pursuant to ASC 860. This election resulted in a transfer of $301 to retained earnings to reflect the difference between the fair value and the carrying amount of MSR as of January 1, 2021, net of tax. Changes in the fair value of MSR are highly correlated to changes in interest rates. As a significant portion of the serviced loan portfolio has been originated over the past two years at low interest rates, management expects the value of the servicing portfolio to remain strong.

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. During the second quarter of 2021, the Corporations added a net $35,268 to its serviced loan 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 expected to remain strong, but are not expected to reach the elevated levels experienced during 2020 due to the constrained housing inventory and rising interest rates.

All Other Noninterest Income

ATM and debit card income represents fees earned on ATM and debit card transactions. The Corporation expects these fees to increase modestly throughout 2021, as customers begin to venture out with the easing of COVID restrictions and spend more freely.

Trust and investment services includes income the Corporation earned from contracts with customers to manage assets for investment and/or to transact on their accounts through the wealth management and trust department. Income generated from trust services has remained stable from fiduciary fees for estate settlement services and portfolio management. Revenue from wealth management has increased in 2021 due to strong demand from customers for annuities. Both the trust services and wealth management programs are subject to market fluctuations and interest rate changes. Trust and investment services income is expected to increase modestly throughout the remainder of 2021.

PPP referral fees represent referral fees the Corporation earned from the second round of the PPP loan program through the SBA. Due to strong portfolio loan demand, management elected to refer the second round of PPP requests to a third party for processing and funding. As such, the associated referral fees were recognized as a component of noninterest income. As the second round of the PPP loan program ended on May 31, 2021, the Corporation does not expect to earn additional PPP referral fees throughout the remainder of 2021.

Service charges on deposit accounts includes fees earned from deposit customers for transaction-based, account maintenance and overdraft services. Service charges on deposit accounts are expected to approximate current levels throughout the remainder of 2021.

Net gain on sales of commercial loans represents the income earned from the sale of commercial loans into the secondary market. During the first quarter of 2020, the Corporation sold the guaranteed portion of one SBA loan and one USDA loan. The Corporation does not expect to sell any commercial loans over the remainder of 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
    6/30/2021   3/31/2021   12/31/2020   9/30/2020   6/30/2020
Total compensation   $ 5,000     $ 5,004     $ 4,958     $ 4,531     $ 4,252  
Furniture and equipment   712     637     607     614     618  
Professional services   703     624     938     524     571  
Data processing   583     509     501     503     535  
Occupancy   508     495     475     491     435  
Loan and collection   337     406     359     292     229  
Advertising and promotional   304     284     184     284     255  
ATM and debit card   144     122     125     109     92  
FDIC insurance premiums   79     155     59     55     59  
Telephone and communication   130     94     64     91     86  
Amortization of core deposit intangibles   67     68     90     91     90  
FHLB prepayment penalty           1,907          
Other general and administrative   655     633     704     633     587  
Total noninterest expenses   $ 9,222     $ 9,031     $ 10,971     $ 8,218     $ 7,809  


    Year to Date June 30   Variance
    2021   2020   Amount   %
Total compensation   $ 10,004   $ 8,500   $ 1,504     17.69 %
Furniture and equipment   1,349   1,228   121     9.85 %
Professional services   1,327   1,093   234     21.41 %
Data processing   1,092   977   115     11.77 %
Occupancy   1,003   911   92     10.10 %
Loan and collection   743   391   352     90.03 %
Advertising and promotional   588   507   81     15.98 %
ATM and debit card   266   200   66     33.00 %
FDIC insurance premiums   234   114   120     105.26 %
Telephone and communication   224   182   42     23.08 %
Amortization of core deposit intangibles   135   180   (45 )   (25.00 )%
FHLB prepayment penalty           %
Other general and administrative   1,288   1,212   76     6.27 %
Total noninterest expenses   $ 18,253   $ 15,495   $ 2,758     17.80 %

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

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 continue 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 continue to increase in future periods to ensure compliance with audit and regulatory requirements. Professional services are also expected to be temporarily elevated over the remainder of 2021 from expenditures related to the acquisition of the Farmers State Bank of Munith.

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

Loan and collection includes expenses related to the origination and collection of loans. The increase in expenses throughout 2020 and into 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 collections cost are expected to decline through the remainder of 2021, due to the declining loan volumes.

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 account relationships. In addition to traditional marketing strategies, the Corporation rolled out a new branding strategy in 2020, which resulted in elevated advertising and promotional expenses in both 2020 and 2021. Total advertising and promotional expenses are expected to increase modestly throughout the remainder of 2021 due to the growth of the Corporation.

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

FDIC insurance premiums typically fluctuate based on the size of the Corporation's balance sheet, capital position, overall risk profile, and examination ratings. FDIC insurance premiums are expected to moderate throughout the remainder of 2021.

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

Amortization of core deposit intangibles relates to the core deposits acquired from Community Bancorp, Inc. on December 31, 2016 and is expected to continue to decline 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

    6/30/2021   3/31/2021   12/31/2020   9/30/2020   6/30/2020
ASSETS                    
Cash and cash equivalents   $ 132,676   $ 121,477   $ 46,757   $ 75,032   $ 35,190
Total investment securities   129,944   89,772   76,111   78,179   75,526
Residential mortgage loans held-for-sale, at fair value   7,670   26,322   27,306   34,833   46,354
Gross loans   986,358   1,028,117   1,066,562   1,060,885   1,044,564
Less allowance for loan and lease losses   10,800   11,100   10,900   10,100   8,991
Net loans   975,558   1,017,017   1,055,662   1,050,785   1,035,573
All other assets   63,837   48,587   45,610   46,016   45,051
Total assets   $ 1,309,685   $ 1,303,175   $ 1,251,446   $ 1,284,845   $ 1,237,694
                     
LIABILITIES AND SHAREHOLDERS' EQUITY                    
Total deposits   $ 1,126,496   $ 1,122,508   $ 1,071,976   $ 1,061,470   $ 1,018,287
Total borrowed funds   49,500   49,000   49,000   96,217   96,217
Accrued interest payable and other liabilities   10,703   12,307   14,602   13,077   14,221
Total liabilities   1,186,699   1,183,815   1,135,578   1,170,764   1,128,725
Total shareholders' equity   122,986   119,360   115,868   114,081   108,969
Total liabilities and shareholders' equity   $ 1,309,685   $ 1,303,175   $ 1,251,446   $ 1,284,845   $ 1,237,694


    6/30/2021 vs 3/31/2021   6/30/2021 vs 6/30/2020
    Variance   Variance
    Amount   %   Amount   %
ASSETS                
Cash and cash equivalents   $ 11,199     9.22 %   $ 97,486     277.03 %
Total investment securities   40,172     44.75 %   54,418     72.05 %
Residential mortgage loans held-for-sale, at fair value   (18,652 )   (70.86 )%   (38,684 )   (83.45 )%
Gross loans   (41,759 )   (4.06 )%   (58,206 )   (5.57 )%
Less allowance for loan and lease losses   (300 )   (2.70 )%   1,809     20.12 %
Net loans   (41,459 )   (4.08 )%   (60,015 )   (5.80 )%
All other assets   15,250     31.39 %   18,786     41.70 %
Total assets   $ 6,510     0.50 %   $ 71,991     5.82 %
                 
LIABILITIES AND SHAREHOLDERS' EQUITY                
Total deposits   $ 3,988     0.36 %   $ 108,209     10.63 %
Total borrowed funds   500     1.02 %   (46,717 )   (48.55 )%
Accrued interest payable and other liabilities   (1,604 )   (13.03 )%   (3,518 )   (24.74 )%
Total liabilities   2,884     0.13 %   57,974     2.70 %
Total shareholders' equity   3,626     3.04 %   14,017     12.86 %
Total liabilities and shareholders' equity   $ 6,510     0.50 %   $ 71,991     5.82 %

Cash and cash equivalents

    6/30/2021   3/31/2021   12/31/2020   9/30/2020   6/30/2020
Cash and cash equivalents                                      
Noninterest bearing   $ 22,454     $ 25,698     $ 23,102     $ 22,108   $ 20,369  
Interest bearing     110,222       95,779       23,655       52,924     14,821  
Cash and cash equivalents   $ 132,676     $ 121,477     $ 46,757     $ 75,032   $ 35,190  
                                       
    6/30/2021 vs 3/31/2021
          6/30/2021 vs 6/30/2020
    Variance
          Variance
    Amount
  %
          Amount
  %
Cash and cash equivalents                                      
Noninterest bearing   $ (3,244 )     (12.62 )%           $ 2,085     10.24 %
Interest bearing     14,443       15.08 %             95,401     643.69 %
Cash and cash equivalents   $ 11,199       9.22 %           $ 97,486     277.03 %

Cash and cash equivalents, which is comprised of cash and due from banks, fluctuate from period to period based on loan demand and variances in deposit accounts. 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 and second quarters 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 throughout the remainder of the year primarily due to additional forgiveness of outstanding PPP loans totaling $35,195 as of June 30, 2021.

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:

    6/30/2021   3/31/2021   12/31/2020   9/30/2020   6/30/2020
Cash and cash equivalents   $ 132,676     $ 121,477     $ 46,757     $ 75,032     $ 35,190  
Unpledged investment securities   118,019     76,384     59,025     58,739     52,647  
FHLB borrowing availability   140,000     140,000     140,000     97,500     97,500  
Federal funds purchased lines of credit   21,500     21,500     21,500     21,500     21,500  
Funds available through the Fed Discount Window   10,000     10,000     10,000     10,000     10,000  
PPPLF   35,195     122,583     177,845     206,343     202,184  
Total liquidity sources   $ 457,390     $ 491,944     $ 455,127     $ 469,114     $ 419,021  

Total investment securities

    6/30/2021   3/31/2021   12/31/2020   9/30/2020   6/30/2020
Available-for-sale                                  
U.S. Government and federal agency   $ 5,917     $ 5,942     $ 7,935   $ 19,311     $ 21,339  
State and municipal   23,096       17,080       15,768     15,729       14,115  
Mortgage backed residential   60,390       32,135       19,101     20,886       12,335  
Certificates of deposit   4,932       4,932       5,180     5,921       6,665  
Collateralized mortgage obligations - agencies   31,281       25,505       23,110     11,141       15,736  
Unrealized gain/(loss) on available-for-sale securities   1,334       1,117       1,932     2,099       2,242  
Total available-for-sale   126,950       86,711       73,026     75,087       72,432  
Held-to-maturity state and municipal   1,859       1,968       1,973     1,977       1,981  
Equity securities   1,135       1,093       1,112     1,115       1,113  
Total investment securities   $ 129,944     $ 89,772     $ 76,111    $ 78,179      $ 75,526  
                                   
    6/30/2021 vs 3/31/2021       6/30/2021 vs 6/30/2020
    Variance       Variance
    Amount   %       Amount   %
Available-for-sale                    
U.S. Government and federal agency   $ (25 )   (0.42 )%       $ (15,422 )   (72.27 )%
State and municipal   6,016     35.22 %       8,981     63.63 %
Mortgage backed residential   28,255     87.93 %       48,055     389.58 %
Certificates of deposit       %       (1,733 )   (26.00 )%
Collateralized mortgage obligations - agencies   5,776     22.65 %       15,545     98.79 %
Unrealized gain/(loss) on available-for-sale securities   217     19.43 %       (908 )   (40.50 )%
Total available-for-sale   40,239     46.41 %       54,518     75.27 %
Held-to-maturity state and municipal   (109 )   (5.54 )%       (122 )   (6.16 )%
Equity securities   42     3.84 %       22     1.98 %
Total investment securities   $ 40,172     44.75 %       $ 54,418     72.05 %

The amortized cost and fair value of AFS investment securities as of June 30, 2021 were as follows:

    Maturing        
    Due in One
Year or Less
  After One Year
But Within Five
Years
  After Five
Years But
Within Ten
Years
  After Ten Years   Securities with
Variable
Monthly
Payments or
Noncontractual
Maturities
  Total
U.S. Government and federal agency   $ 3,981     $ 971     $ 965     $     $     $ 5,917  
State and municipal   2,301     8,272     10,639     1,884         23,096  
Mortgage backed residential                   60,390     60,390  
Certificates of deposit   1,726     3,206                 4,932  
Collateralized mortgage obligations - agencies                   31,281     31,281  
Total amortized cost   $ 8,008     $ 12,449     $ 11,604     $ 1,884     $ 91,671     $ 125,616  
Fair value   $ 8,141     $ 13,015     $ 11,719     $ 2,147     $ 91,928     $ 126,950  

The amortized cost and fair value of HTM investment securities as of June 30, 2021 were as follows:

    Maturing        
    Due in One
Year or Less
  After One Year
But Within Five
Years
  After Five
Years But
Within Ten
Years
  After Ten Years   Securities with
Variable
Monthly
Payments or
Noncontractual
Maturities
  Total
State and municipal   $ 676     $ 803     $ 380     $     $     $ 1,859  
Fair value   $ 682     $ 840     $ 402     $     $     $ 1,924  

During the first and second quarters of 2021, the Corporation expanded its investment portfolio to generate additional interest income. Total investment securities are expected to continue to grow throughout the remainder of 2021 as management expects deposits to continue to grow at historically high levels. The following table summarizes information as of June 30, 2021 for investment securities purchased YTD:

    Book Value   Fully Taxable
Equivalent Weighted
Average Yield
U.S. Government and federal agency   $ 965     1.04 %
State and municipal   8,967     1.15 %
Collateralized mortgage obligations - agencies   12,760     1.28 %
Mortgage backed residential   45,447     1.50 %
Total   $ 68,139     1.41 %

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:

    6/30/2021     3/31/2021     12/31/2020     9/30/2020     6/30/2020
Commercial $ 101,070     $ 183,276     $ 241,424     $ 271,113     $ 260,440  
Commercial real estate   573,598       541,428       517,054       483,275       469,039  
Total commercial loans   674,668       724,704       758,478        754,388       729,479  
Residential mortgage   265,323       258,333       262,770       261,375       268,295  
Home equity   41,771       40,205       39,900       39,456       40,114  
Total residential real estate loans   307,094       298,538       302,670        300,831       308,409  
Consumer   4,596       4,875       5,414       5,666       6,676  
Gross loans   986,358       1,028,117       1,066,562        1,060,885       1,044,564  
Allowance for loan and lease losses   (10,800 )     (11,100 )     (10,900 )     (10,100 )     (8,991 )
Loans, net $ 975,558     $ 1,017,017     $ 1,055,662     $ 1,050,785     $ 1,035,573  
                                       
    6/30/2021 vs 3/31/2021           6/30/2021 vs 6/30/2020
    Variance           Variance
    Amount     %           Amount     %
Commercial $ (82,206 )     (44.85 )%           $ (159,370 )     (61.19 )%
Commercial real estate   32,170       5.94 %             104,559       22.29 %
Total commercial loans   (50,036 )     (6.90 ) %             (54,811 )     (7.51 ) %
Residential mortgage   6,990       2.71 %             (2,972 )     (1.11 )%
Home equity   1,566       3.90 %             1,657       4.13 %
Total residential real estate loans   8,556       2.87 %             (1,315 )     (0.43 ) %
Consumer   (279 )     (5.72 )%             (2,080 )     (31.16 )%
Gross loans   (41,759 )     (4.06 ) %             (58,206 )     (5.57 ) %
Allowance for loan losses   300       (2.70 )%             (1,809 )     20.12 %
Loans, net $ (41,459 )     (4.08 ) %           $ (60,015 )     (5.80 ) %

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

    6/30/2021   3/31/2021   12/31/2020   9/30/2020   6/30/2020
Loans collectively evaluated for impairment                    
Commercial   $ 100,424     $ 183,203     $ 241,424     $ 271,113     $ 260,440  
Commercial real estate   564,781     532,294     508,182     481,071     465,749  
Residential mortgage   264,448     257,543     262,017     260,665     267,632  
Home equity   41,708     40,141     39,874     39,456     40,114  
Consumer   4,596     4,875     5,412     5,663     6,673  
Subtotal   975,957     1,018,056     1,056,909     1,057,968     1,040,608  
Loans individually evaluated for impairment                    
Commercial   $ 646     $ 73     $     $     $  
Commercial real estate   8,817     9,134     8,872     2,204     3,290  
Residential mortgage   875     790     753     710     663  
Home equity   63     64     26          
Consumer           2     3     3  
Subtotal   10,401     10,061     9,653     2,917     3,956  
Gross Loans   $ 986,358     $ 1,028,117     $ 1,066,562     $ 1,060,885     $ 1,044,564  
                     

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

    6/30/2021   3/31/2021   12/31/2020   9/30/2020   6/30/2020
Loans collectively evaluated for impairment                    
Commercial   $ 585     $ 626     $ 673     $ 633     $ 536  
Commercial real estate   6,264     6,026     5,602     5,152     4,595  
Residential mortgage   2,814     3,280     3,480     3,479     3,278  
Home equity   440     453     440     438     372  
Consumer   85     92     97     101     102  
Subtotal   10,188     10,477     10,292     9,803     8,883  
Loans individually evaluated for impairment                    
Commercial   $ 42     $     $     $     $  
Commercial real estate   566     619     602     289     100  
Residential mortgage   4     4     4     5     5  
Home equity                    
Consumer           2     3     3  
Subtotal   612     623     608     297     108  
Allowance for loan losses   $ 10,800     $ 11,100     $ 10,900     $ 10,100     $ 8,991  


Commercial   $ 627     $ 626     $ 673     $ 633     $ 536  
Commercial real estate   6,830     6,645     6,204     5,441     4,695  
Residential mortgage   2,818     3,284     3,484     3,484     3,283  
Home equity   440     453     440     438     372  
Consumer   85     92     99     104     105  
Allowance for loan losses   $ 10,800     $ 11,100     $ 10,900     $ 10,100     $ 8,991  

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

    6/30/2021   3/31/2021   12/31/2020   9/30/2020   6/30/2020
Accruing interest                    
Current   $ 976,852     $ 1,018,343     $ 1,057,404     $ 1,058,437     $ 1,042,589  
Past due 30-89 days   923     1,636     1,165     1,703     948  
Past due 90 days or more   36     120     50     86     361  
Total accruing interest   977,811     1,020,099     1,058,619     1,060,226     1,043,898  
Nonaccrual   8,547     8,018     7,943     659     666  
Total loans   $ 986,358     $ 1,028,117     $ 1,066,562     $ 1,060,885     $ 1,044,564  
Total loans past due and in nonaccrual status   $ 9,506     $ 9,774     $ 9,158     $ 2,448     $ 1,975  

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

    6/30/2021   3/31/2021   12/31/2020   9/30/2020   6/30/2020
Nonaccrual loans   $ 8,547     $ 8,018     $ 7,943     $ 659     $ 666  
Accruing loans past due 90 days or more   36     120     50     86     361  
Total nonperforming loans   8,583     8,138     7,993     745     1,027  
Other real estate owned                    
Total nonperforming assets   $ 8,583     $ 8,138     $ 7,993     $ 745     $ 1,027  

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

    6/30/2021   3/31/2021   12/31/2020   9/30/2020   6/30/2020
Nonperforming loans to gross loans   0.87 %   0.79 %   0.75 %   0.07 %   0.10 %
Nonperforming assets to total assets   0.66 %   0.62 %   0.64 %   0.06 %   0.08 %
Allowance for loan losses to gross loans   1.09 %   1.08 %   1.02 %   0.95 %   0.86 %
Allowance for loan losses to gross loans, less PPP loans   1.14 %   1.23 %   1.23 %   1.19 %   1.07 %

During the fourth quarter of 2020, the Corporation transferred one commercial real estate loan with an outstanding principal balance of $7,214 to nonaccrual. The underlying collateral for this loan is an extended stay hotel. It was determined in the fourth quarter of 2020 that the hotel's cash flow was insufficient to service the debt in accordance with the contractual terms of the note. However, as COVID-19 restrictions eased in the second quarter of 2021, the hotel has begun making regular, consecutive principal and interest payments. A specific reserve has been established for the estimated collateral deficiency (based on a current appraisal), net of a 70% USDA guarantee and the loan will remain in a nonaccrual status until it is deemed that sufficient improvements in cash flows can be established.

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

    6/30/2021   3/31/2021   12/31/2020   9/30/2020   6/30/2020
Net unamortized discount on purchased loans   $ 388     $ 580     $ 773     $ 877     $ 1,058  

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

    6/30/2021   3/31/2021   12/31/2020   9/30/2020   6/30/2020
Outstanding PPP loans   $ 35,195     $ 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 $1,809, or 20.12%, since June 30, 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:

    6/30/2021   3/31/2021   12/31/2020   9/30/2020   6/30/2020
Commercial   $ 168     $ 206     $ 169     $ 166     $ 171  
Commercial real estate   761     727     707     672     654  
Total commercial loans   498     444     351     321     325  
Residential mortgage   199     183     182     180     177  
Home equity   47     46     45     45     45  
Total residential real estate loans   138     131     130     129     128  
Consumer   24     22     22     22     25  
Gross loans   $ 262     $ 249     $ 226     $ 215     $ 213  

COVID-19, CARES Act and SBA activity

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

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

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

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

The table below outlines the active COVID-19 related loan modifications as of June 30, 2021:

    Number of
Modifications
  Outstanding
Balance
  % of Portfolio
Commercial real estate   1     104     0.02 %
Portfolio residential mortgage loans   5     1,356     0.51 %
Total portfolio modifications   6     $ 1,460     0.15 %
Residential mortgage loans serviced for FHLMC   25     $ 5,922     1.02 %

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 $19,634. Of these loans, approximately 52% are at least partially government-backed by guarantees from either the SBA or USDA.

The Corporation was extremely active in participating in the PPP loan program. The Corporation funded 1,370 PPP loans totaling $216,205. During the fourth quarter of 2020, the SBA began processing PPP forgiveness applications, which reduced the outstanding balance of PPP loans to $35,195 as of June 30, 2021.

The Corporation generated $6,799 in fees from the SBA through the first round of the PPP loan program since April 2020. The income is being recognized over the life of the PPP loans (24 to 60 months) based on the level yield method or upon forgiveness. As of June 30, 2021, the Corporation has recognized $6,337 in income, with $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 June 30, 2021, the Corporation generated $425 in referral fees.

All other assets

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

      6/30/2021     3/31/2021     12/31/2020     9/30/2020     6/30/2020
Corporate owned life insurance   $ 25,638     $ 10,354     $ 10,291   $ 10,225     $ 10,115  
Premises and equipment, net     16,231       15,969       15,461     15,267       15,323  
Mortgage servicing rights     6,523       5,404       4,885     4,376       3,816  
Accrued interest receivable     4,423       5,451       5,068     5,645       5,266  
Federal Home Loan Bank stock     3,488       3,488       3,488     3,488       3,488  
Goodwill     3,219       3,219       3,219     3,219       3,219  
Right-of-use assets     1,364       1,139       364     387       409  
Derivatives     601       1,009       1,331     1,772       1,311  
Core deposit intangibles     406       474       541     632       722  
Other assets     1,944       2,080       962     1,005       1,382  
All other assets   $ 63,837     $ 48,587     $ 45,610   $ 46,016     $ 45,051  
                               
      6/30/2021 vs 3/31/2021           6/30/2021 vs 6/30/2020
      Variance           Variance
      Amount     %           Amount     %
Corporate owned life insurance   $ 15,284       147.61 %         $ 15,523       153.47 %
Premises and equipment, net     262       1.64 %           908       5.93 %
Mortgage servicing rights     1,119       20.71 %           2,707       70.94 %
Accrued interest receivable     (1,028 )     (18.86 )%           (843 )     (16.01 )%
Federal Home Loan Bank stock           %                 %
Goodwill           %                 %
Right-of-use assets     225       19.75 %           955       233.50 %
Derivatives     (408 )     (40.44 )%           (710 )     (54.16 )%
Core deposit intangibles     (68 )     (14.35 )%           (316 )     (43.77 )%
Other assets     (136 )     (6.54 )%           562       40.67 %
All other assets   $ 15,250       31.39 %         $ 18,786       41.70 %

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

Mortgage servicing rights are servicing assets that are recognized from the sales of mortgage loans. The increase in mortgage servicing rights 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 as mortgage loan demand has remained elevated.

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:

      6/30/2021     3/31/2021     12/31/2020     9/30/2020     6/30/2020
Noninterest bearing demand   $ 435,588     $ 422,013     $ 378,733   $ 391,706     $ 383,452  
Interest bearing                                      
Savings     305,409       309,454       290,343     269,051       245,957  
Money market demand     113,088       109,101       113,729     99,252       90,504  
NOW     102,046       103,342       101,419     120,681       122,477  
Time deposits     170,365       178,598       187,752     180,780       175,897  
Total deposits   $ 1,126,496     $ 1,122,508     $ 1,071,976   $ 1,061,470     $ 1,018,287  
                                       
      6/30/2021 vs 3/31/2021           6/30/2021 vs 6/30/2020
      Variance           Variance
      Amount     %           Amount     %
Noninterest bearing demand   $ 13,575       3.22 %         $ 52,136       13.60 %
Interest bearing                                      
Savings     (4,045 )     (1.31 )%           59,452       24.17 %
Money market demand     3,987       3.65 %           22,584       24.95 %
NOW     (1,296 )     (1.25 )%           (20,431 )     (16.68 )%
Time deposits     (8,233 )     (4.61 )%           (5,532 )     (3.15 )%
Total deposits   $ 3,988       0.36 %         $ 108,209       10.63 %

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 June 30, 2021:

    Maturity Buckets
    3 Months or
Less
  3 to 6
Months
  6 to 9
Months
  9 to 12
Months
  Beyond 12
Months
Balance   $ 72,467     $ 23,247     $ 17,262     $ 30,222     $ 27,167  
Weighted average yield   0.44 %   0.46 %   0.55 %   0.48 %   0.90 %
                     
    Cumulative Maturities
    3 Months or
Less
  Up to 6
Months
  Up to 9
Months
  Up to 12
Months
  Total
Balance   $ 72,467     $ 95,714     $ 112,976     $ 143,198     $ 170,365  
Weighted average yield   0.44 %   0.44 %   0.46 %   0.46 %   0.53 %

Included in balances of 3 months or less is a brokered time deposit for $20,000, related to the Corporation's derivatives. 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:

    6/30/21   3/31/21   12/31/20   9/30/20   6/30/20
Federal Home Loan Bank borrowings   $ 35,000   $ 35,000     $ 35,000   $ 77,500     $ 77,500  
Subordinated debentures   14,000     14,000     14,000   14,000       14,000  
PPPLF             4,717       4,717  
Other borrowings   500                  
Total borrowed funds   $ 49,500   $ 49,000     $ 49,000   $ 96,217     $ 96,217  
                             
    6/30/2021 vs 3/31/2021       6/30/2021 vs 6/30/2020
    Variance       Variance
    Amount   %       Amount   %
Federal Home Loan Bank borrowings   $     %       $ (42,500 )     (54.84 )%
Subordinated debentures       %             %
PPPLF       %       (4,717 )     (100.00 )%
Other borrowings   500     N/M         500       N/M  
Total borrowed funds   $ 500     1.02 %       $ (46,717 )     (48.55 ) %

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

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:

    6/30/21   3/31/21   12/31/20