Dollars in thousands except per share amounts. Certain items in the prior period financial statements have been reclassified to conform with the December 31, 2021 presentation.
FENTON, Mich., Feb. 04, 2022 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. (OTCQX: FETM) announces quarterly results of net income of $3,342 and $16,579 for the three and twelve months periods ended December 31, 2021, respectively.
"I am pleased to report another quarter and year of strong financial performance,” stated Ronald L. Justice, President and CEO. “Loan growth and asset quality both remained solid through the fourth quarter of 2021, contributing to our record earnings for the year and an ROA of 1.26% and NIM of 3.58%. Loan pipelines remain strong and should support solid performance in future periods. I continue to be impressed with our team's commitment to our mission and providing high quality community banking to the markets we serve, especially with the challenges of the COVID-19 pandemic. The completion of the acquisition of Farmers State Bank of Munith allows Fentura to serve the banking needs of an expanded market area and we look forward to continuing and growing the long-standing relationships built on the fine service tradition of the Farmers State Bank of Munith’s team."
On December 1, 2021, the Corporation completed the acquisition of Farmers State Bank of Munith ("FSB"), for cash consideration of $15,500, pursuant to the Agreement and Plan of Merger dated June 22, 2021, at which time FSB was merged into the Bank. Upon completion of the acquisition of FSB, the Corporation added total assets of $106,761, deposits of $96,169 and goodwill of $5,634. The Corporation's financials are inclusive of the impact related to the FSB acquisition.
Following is a discussion of the Corporation's financial performance as of, and for the three and twelve months periods ended December 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 including the impact of the acquisition of FSB, which was completed on December 1, 2021, and provides certain performance measures as of, and for the three month periods ended:
| 12/31/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | 12/31/2020 | ||||||||||||||||
| INCOME STATEMENT DATA | ||||||||||||||||||||
| Interest income | $ | 11,749 | $ | 11,584 | $ | 11,658 | $ | 11,919 | $ | 11,624 | ||||||||||
| Interest expense | 645 | 653 | 762 | 676 | 972 | |||||||||||||||
| Net interest income | 11,104 | 10,931 | 10,896 | 11,243 | 10,652 | |||||||||||||||
| Provision for loan losses | 38 | (436 | ) | 6 | 212 | 982 | ||||||||||||||
| Noninterest income | 3,097 | 2,899 | 4,230 | 3,854 | 4,676 | |||||||||||||||
| Noninterest expenses | 9,957 | 9,453 | 9,222 | 9,031 | 10,971 | |||||||||||||||
| Federal income tax expense | 864 | 958 | 1,172 | 1,198 | 642 | |||||||||||||||
| Net income | $ | 3,342 | $ | 3,855 | $ | 4,726 | $ | 4,656 | $ | 2,733 | ||||||||||
| PER SHARE | ||||||||||||||||||||
| Earnings | $ | 0.74 | $ | 0.84 | $ | 1.02 | $ | 1.00 | $ | 0.58 | ||||||||||
| Dividends | $ | 0.080 | $ | 0.080 | $ | 0.080 | $ | 0.080 | $ | 0.075 | ||||||||||
| Tangible book value(1) | $ | 25.43 | $ | 26.53 | $ | 25.73 | $ | 24.75 | $ | 23.88 | ||||||||||
| Quoted market value | ||||||||||||||||||||
| High | $ | 28.28 | $ | 26.25 | $ | 27.40 | $ | 24.75 | $ | 22.25 | ||||||||||
| Low | $ | 25.75 | $ | 25.60 | $ | 23.55 | $ | 21.90 | $ | 16.93 | ||||||||||
| Close(1) | $ | 28.28 | $ | 25.75 | $ | 26.00 | $ | 23.30 | $ | 22.00 | ||||||||||
| PERFORMANCE RATIOS | ||||||||||||||||||||
| Return on average assets | 0.98 | % | 1.16 | % | 1.45 | % | 1.50 | % | 0.84 | % | ||||||||||
| Return on average shareholders' equity | 10.56 | % | 12.26 | % | 15.64 | % | 15.86 | % | 9.27 | % | ||||||||||
| Return on average tangible shareholders' equity | 10.87 | % | 12.63 | % | 16.12 | % | 16.38 | % | 9.58 | % | ||||||||||
| Efficiency ratio | 70.11 | % | 68.35 | % | 60.97 | % | 59.82 | % | 71.57 | % | ||||||||||
| Yield on earning assets (FTE) | 3.67 | % | 3.69 | % | 3.79 | % | 4.01 | % | 3.75 | % | ||||||||||
| Rate on interest bearing liabilities | 0.33 | % | 0.34 | % | 0.41 | % | 0.37 | % | 0.50 | % | ||||||||||
| Net interest margin to earning assets (FTE) | 3.47 | % | 3.48 | % | 3.55 | % | 3.79 | % | 3.44 | % | ||||||||||
| BALANCE SHEET DATA(1) | ||||||||||||||||||||
| Total investment securities | $ | 164,942 | $ | 138,476 | $ | 129,944 | $ | 89,772 | $ | 76,111 | ||||||||||
| Gross loans | $ | 1,100,092 | $ | 1,015,177 | $ | 986,358 | $ | 1,028,117 | $ | 1,066,562 | ||||||||||
| Total assets | $ | 1,417,931 | $ | 1,329,300 | $ | 1,309,685 | $ | 1,303,175 | $ | 1,251,446 | ||||||||||
| Total deposits | $ | 1,228,298 | $ | 1,144,291 | $ | 1,126,496 | $ | 1,122,508 | $ | 1,071,976 | ||||||||||
| Borrowed funds | $ | 50,000 | $ | 50,000 | $ | 49,500 | $ | 49,000 | $ | 49,000 | ||||||||||
| Total shareholders' equity | $ | 124,455 | $ | 124,809 | $ | 122,986 | $ | 119,360 | $ | 115,868 | ||||||||||
| Net loans to total deposits | 88.71 | % | 87.80 | % | 86.60 | % | 90.60 | % | 98.48 | % | ||||||||||
| Common shares outstanding | 4,496,701 | 4,569,955 | 4,638,614 | 4,673,932 | 4,694,275 | |||||||||||||||
| QTD BALANCE SHEET AVERAGES | ||||||||||||||||||||
| Total assets | $ | 1,353,694 | $ | 1,323,912 | $ | 1,309,942 | $ | 1,259,119 | $ | 1,288,199 | ||||||||||
| Earning assets | $ | 1,273,650 | $ | 1,248,018 | $ | 1,234,827 | $ | 1,206,411 | $ | 1,235,895 | ||||||||||
| Interest bearing liabilities | $ | 773,082 | $ | 756,545 | $ | 753,706 | $ | 735,159 | $ | 773,132 | ||||||||||
| Total shareholders' equity | $ | 125,500 | $ | 124,720 | $ | 121,235 | $ | 119,034 | $ | 117,263 | ||||||||||
| Total tangible shareholders' equity | $ | 121,933 | $ | 121,120 | $ | 117,567 | $ | 115,298 | $ | 113,444 | ||||||||||
| Earned common shares outstanding | 4,520,962 | 4,582,401 | 4,644,833 | 4,664,893 | 4,682,063 | |||||||||||||||
| Unvested stock grants | 20,671 | 20,671 | 20,671 | 21,922 | 14,208 | |||||||||||||||
| Total common shares outstanding | 4,541,633 | 4,603,072 | 4,665,504 | 4,686,815 | 4,696,271 | |||||||||||||||
| ASSET QUALITY(1) | ||||||||||||||||||||
| Nonperforming loans to gross loans | 0.18 | % | 0.82 | % | 0.87 | % | 0.79 | % | 0.75 | % | ||||||||||
| Nonperforming assets to total assets | 0.17 | % | 0.63 | % | 0.66 | % | 0.62 | % | 0.64 | % | ||||||||||
| Allowance for loan losses to gross loans | 0.95 | % | 1.03 | % | 1.09 | % | 1.08 | % | 1.02 | % | ||||||||||
| Allowance for loan losses to gross loans, net of PPP loans | 0.96 | % | 1.04 | % | 1.14 | % | 1.23 | % | 1.23 | % | ||||||||||
| CAPITAL RATIOS(1) | ||||||||||||||||||||
| Total capital to risk weighted assets | 12.23 | % | 13.63 | % | 14.35 | % | 15.02 | % | 15.14 | % | ||||||||||
| Tier 1 capital to risk weighted assets | 11.31 | % | 12.64 | % | 13.27 | % | 13.84 | % | 13.93 | % | ||||||||||
| CET1 capital to risk weighted assets | 10.09 | % | 11.33 | % | 11.87 | % | 12.34 | % | 12.38 | % | ||||||||||
| Tier 1 leverage ratio | 9.14 | % | 10.21 | % | 10.19 | % | 10.31 | % | 9.80 | % | ||||||||||
| (1)At end of period | ||||||||||||||||||||
The following table outlines the Corporation's YTD results of operations including the impact of the acquisition of FSB, which was completed on December 1, 2021, and provides certain performance measures as of, and for the twelve month periods ended:
| 12/31/2021 | 12/31/2020 | 12/31/2019 | 12/31/2018 | 12/31/2017 | ||||||||||||||||
| INCOME STATEMENT DATA | ||||||||||||||||||||
| Interest income | $ | 46,910 | $ | 45,979 | $ | 43,541 | $ | 36,350 | $ | 30,111 | ||||||||||
| Interest expense | 2,736 | 5,924 | 8,627 | 5,827 | 3,120 | |||||||||||||||
| Net interest income | 44,174 | 40,055 | 34,914 | 30,523 | 26,991 | |||||||||||||||
| Provision for loan losses | (180 | ) | 5,634 | 1,335 | 1,057 | 609 | ||||||||||||||
| Noninterest income | 14,080 | 19,640 | 8,163 | 8,277 | 8,988 | |||||||||||||||
| Noninterest expenses | 37,663 | 34,684 | 27,223 | 25,310 | 23,818 | |||||||||||||||
| Federal income tax expense | 4,192 | 3,913 | 2,941 | 2,319 | 2,876 | |||||||||||||||
| Net income | $ | 16,579 | $ | 15,464 | $ | 11,578 | $ | 10,114 | $ | 8,676 | ||||||||||
| PER SHARE | ||||||||||||||||||||
| Earnings | $ | 3.60 | $ | 3.31 | $ | 2.49 | $ | 2.65 | $ | 2.39 | ||||||||||
| Dividends | $ | 0.320 | $ | 0.300 | $ | 0.280 | $ | 0.240 | $ | 0.200 | ||||||||||
| Tangible book value(1) | $ | 25.43 | $ | 23.88 | $ | 20.87 | $ | 18.32 | $ | 14.96 | ||||||||||
| Quoted market value | ||||||||||||||||||||
| High | $ | 28.28 | $ | 26.00 | $ | 25.50 | $ | 23.00 | $ | 20.65 | ||||||||||
| Low | $ | 21.90 | $ | 12.55 | $ | 20.05 | $ | 18.88 | $ | 15.10 | ||||||||||
| Close(1) | $ | 28.28 | $ | 22.00 | $ | 25.23 | $ | 21.00 | $ | 18.88 | ||||||||||
| PERFORMANCE RATIOS | ||||||||||||||||||||
| Return on average assets | 1.26 | % | 1.29 | % | 1.20 | % | 1.20 | % | 1.19 | % | ||||||||||
| Return on average shareholders' equity | 13.52 | % | 14.05 | % | 12.02 | % | 15.05 | % | 15.38 | % | ||||||||||
| Return on average tangible shareholders' equity | 13.93 | % | 14.57 | % | 12.59 | % | 16.23 | % | 16.63 | % | ||||||||||
| Efficiency ratio | 64.65 | % | 58.10 | % | 63.20 | % | 65.23 | % | 66.20 | % | ||||||||||
| Yield on earning assets (FTE) | 3.80 | % | 4.01 | % | 4.77 | % | 4.57 | % | 4.55 | % | ||||||||||
| Rate on interest bearing liabilities | 0.36 | % | 0.82 | % | 1.41 | % | 1.07 | % | 0.65 | % | ||||||||||
| Net interest margin to earning assets (FTE) | 3.58 | % | 3.50 | % | 3.83 | % | 3.84 | % | 4.08 | % | ||||||||||
| BALANCE SHEET DATA(1) | ||||||||||||||||||||
| Total investment securities | $ | 164,942 | $ | 76,111 | $ | 61,621 | $ | 94,721 | $ | 55,323 | ||||||||||
| Gross loans | $ | 1,100,092 | $ | 1,066,562 | $ | 870,555 | $ | 772,227 | $ | 672,530 | ||||||||||
| Total assets | $ | 1,417,931 | $ | 1,251,446 | $ | 1,034,759 | $ | 926,450 | $ | 781,443 | ||||||||||
| Total deposits | $ | 1,228,298 | $ | 1,071,976 | $ | 863,102 | $ | 763,124 | $ | 673,505 | ||||||||||
| Borrowed funds | $ | 50,000 | $ | 49,000 | $ | 61,500 | $ | 69,000 | $ | 46,000 | ||||||||||
| Total shareholders' equity | $ | 124,455 | $ | 115,868 | $ | 101,444 | $ | 89,516 | $ | 59,447 | ||||||||||
| Net loans to total deposits | 88.71 | % | 98.48 | % | 100.19 | % | 100.60 | % | 99.32 | % | ||||||||||
| Common shares outstanding | 4,496,701 | 4,694,275 | 4,664,369 | 4,636,455 | 3,631,933 | |||||||||||||||
| YTD BALANCE SHEET AVERAGES | ||||||||||||||||||||
| Total assets | $ | 1,311,673 | $ | 1,200,605 | $ | 961,586 | $ | 844,673 | $ | 730,974 | ||||||||||
| Earning assets | $ | 1,237,755 | $ | 1,147,570 | $ | 913,574 | $ | 796,283 | $ | 698,753 | ||||||||||
| Interest bearing liabilities | $ | 754,622 | $ | 726,869 | $ | 612,549 | $ | 544,344 | $ | 485,522 | ||||||||||
| Total shareholders' equity | $ | 122,629 | $ | 110,094 | $ | 96,358 | $ | 67,192 | $ | 56,429 | ||||||||||
| Total tangible shareholders' equity | $ | 118,986 | $ | 106,140 | $ | 91,994 | $ | 62,329 | $ | 52,181 | ||||||||||
| Earned common shares outstanding | 4,603,259 | 4,669,979 | 4,643,955 | 3,811,677 | 3,625,568 | |||||||||||||||
| Unvested stock grants | 20,984 | 14,027 | 9,917 | 756 | — | |||||||||||||||
| Total common shares outstanding | 4,624,243 | 4,684,006 | 4,653,872 | 3,812,433 | 3,625,568 | |||||||||||||||
| ASSET QUALITY(1) | ||||||||||||||||||||
| Nonperforming loans to gross loans | 0.18 | % | 0.75 | % | 0.17 | % | 0.14 | % | — | % | ||||||||||
| Nonperforming assets to total assets | 0.17 | % | 0.64 | % | 0.14 | % | 0.12 | % | 0.02 | % | ||||||||||
| Allowance for loan losses to gross loans | 0.95 | % | 1.02 | % | 0.67 | % | 0.58 | % | 0.54 | % | ||||||||||
| Allowance for loan losses to gross loans, net of PPP loans | 0.96 | % | 1.23 | % | 0.67 | % | 0.58 | % | 0.54 | % | ||||||||||
| CAPITAL RATIOS(1) | ||||||||||||||||||||
| Total capital to risk weighted assets | 12.23 | % | 15.14 | % | 14.03 | % | 14.00 | % | 10.93 | % | ||||||||||
| Tier 1 capital to risk weighted assets | 11.31 | % | 13.93 | % | 13.33 | % | 13.40 | % | 10.39 | % | ||||||||||
| CET1 capital to risk weighted assets | 10.09 | % | 12.38 | % | 11.64 | % | 11.52 | % | 8.27 | % | ||||||||||
| Tier 1 leverage ratio | 9.14 | % | 9.80 | % | 11.20 | % | 10.92 | % | 8.98 | % | ||||||||||
| (1)At end of period | ||||||||||||||||||||
Income Statement Breakdown and Analysis
| Quarter to Date | ||||||||||||||||||||
| 12/31/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | 12/31/2020 | ||||||||||||||||
| GAAP net income | $ | 3,342 | $ | 3,855 | $ | 4,726 | $ | 4,656 | $ | 2,733 | ||||||||||
| Acquisition related items (net of tax) | ||||||||||||||||||||
| Accretion on purchased loans | (154 | ) | (152 | ) | (152 | ) | (151 | ) | (82 | ) | ||||||||||
| Amortization of core deposit intangibles | 54 | 54 | 53 | 54 | 71 | |||||||||||||||
| Amortization on acquired time deposits | 2 | 2 | 2 | 2 | 5 | |||||||||||||||
| Other acquisition related expenses | 178 | 51 | — | — | — | |||||||||||||||
| Total acquisition related items (net of tax) | 80 | (45 | ) | (97 | ) | (95 | ) | (6 | ) | |||||||||||
| Other nonrecurring items (net of tax) | ||||||||||||||||||||
| FHLB prepayment penalties | — | — | — | — | 1,507 | |||||||||||||||
| Change in fair value of equity investment due to acquisition transaction | — | — | — | — | — | |||||||||||||||
| Change in fair value of mortgage banking instruments | — | — | — | — | — | |||||||||||||||
| Interest writeoff from loan transferred to nonaccrual | — | — | — | — | 265 | |||||||||||||||
| Net gain from COLI death benefit | — | — | — | — | — | |||||||||||||||
| Prepayment penalties collected | — | (65 | ) | (33 | ) | (17 | ) | (97 | ) | |||||||||||
| Mortgage servicing rights impairment (reduction of impairment) | — | — | — | — | (188 | ) | ||||||||||||||
| Total other nonrecurring items (net of tax) | — | (65 | ) | (33 | ) | (17 | ) | 1,487 | ||||||||||||
| Adjusted net income from operations | $ | 3,422 | $ | 3,745 | $ | 4,596 | $ | 4,544 | $ | 4,214 | ||||||||||
| GAAP net interest income | $ | 11,104 | $ | 10,931 | $ | 10,896 | $ | 11,243 | $ | 10,652 | ||||||||||
| Accretion on purchased loans | (195 | ) | (192 | ) | (192 | ) | (191 | ) | (104 | ) | ||||||||||
| Interest writeoff from loan transferred to nonaccrual | — | — | — | — | 335 | |||||||||||||||
| Prepayment penalties collected | (115 | ) | (82 | ) | (42 | ) | (21 | ) | (123 | ) | ||||||||||
| Amortization on acquired time deposits | 3 | 3 | 3 | 3 | 6 | |||||||||||||||
| Adjusted net interest income | $ | 10,797 | $ | 10,660 | $ | 10,665 | $ | 11,034 | $ | 10,766 | ||||||||||
| PERFORMANCE RATIOS | ||||||||||||||||||||
| Based on adjusted net income from operations | ||||||||||||||||||||
| Earnings per share | $ | 0.76 | $ | 0.82 | $ | 0.99 | $ | 0.97 | $ | 0.90 | ||||||||||
| Return on average assets | 1.00 | % | 1.12 | % | 1.41 | % | 1.46 | % | 1.30 | % | ||||||||||
| Return on average shareholders' equity | 10.82 | % | 11.91 | % | 15.21 | % | 15.48 | % | 14.30 | % | ||||||||||
| Return on average tangible shareholders' equity | 11.13 | % | 12.27 | % | 15.68 | % | 15.98 | % | 14.78 | % | ||||||||||
| Efficiency ratio | 68.98 | % | 68.74 | % | 61.46 | % | 60.20 | % | 59.02 | % | ||||||||||
| Based on adjusted net interest income | ||||||||||||||||||||
| Yield on earning assets (FTE) | 3.61 | % | 3.60 | % | 3.72 | % | 3.94 | % | 3.78 | % | ||||||||||
| Rate on interest bearing liabilities | 0.33 | % | 0.34 | % | 0.41 | % | 0.37 | % | 0.50 | % | ||||||||||
| Net interest margin to earning assets (FTE) | 3.40 | % | 3.39 | % | 3.47 | % | 3.71 | % | 3.47 | % | ||||||||||
| Year to Date December 31 | Variance | ||||||||||||||
| 2021 | 2020 | Amount | % | ||||||||||||
| GAAP net income | $ | 16,579 | $ | 15,464 | $ | 1,115 | 7.21 | % | |||||||
| Acquisition related items (net of tax) | |||||||||||||||
| Accretion on purchased loans | (609 | ) | (516 | ) | (93 | ) | 18.02 | % | |||||||
| Amortization of core deposit intangibles | 215 | 285 | (70 | ) | (24.56)% | ||||||||||
| Amortization on acquired time deposits | 8 | 18 | (10 | ) | (55.56)% | ||||||||||
| Other acquisition related expenses | 229 | — | 229 | N/M | |||||||||||
| Total acquisition related items (net of tax) | (157 | ) | (213 | ) | 56 | (26.29)% | |||||||||
| Other nonrecurring items (net of tax) | |||||||||||||||
| FHLB prepayment penalties | — | 1,507 | (1,507 | ) | (100.00)% | ||||||||||
| 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 | — | 265 | (265 | ) | (100.00)% | ||||||||||
| Net gain from COLI death benefit | — | (173 | ) | 173 | (100.00)% | ||||||||||
| Prepayment penalties collected | (205 | ) | (161 | ) | (44 | ) | 27.33 | % | |||||||
| Mortgage servicing rights impairment (reduction of impairment) | — | — | — | N/M | |||||||||||
| Total other nonrecurring items (net of tax) | (205 | ) | 412 | (617 | ) | (149.76)% | |||||||||
| Adjusted net income from operations | $ | 16,217 | $ | 15,663 | $ | 554 | 3.54 | % | |||||||
| GAAP net interest income | $ | 44,174 | $ | 40,055 | $ | 4,119 | 10.28 | % | |||||||
| Accretion on purchased loans | (770 | ) | (653 | ) | (117 | ) | 17.92 | % | |||||||
| Interest writeoff from loan transferred to nonaccrual | — | 335 | (335 | ) | (100.00)% | ||||||||||
| Prepayment penalties collected | (260 | ) | (204 | ) | (56 | ) | 27.45 | % | |||||||
| Amortization on acquired time deposits | 12 | 24 | (12 | ) | (50.00)% | ||||||||||
| Adjusted net interest income | $ | 43,156 | $ | 39,557 | $ | 3,599 | 9.10 | % | |||||||
| PERFORMANCE RATIOS | |||||||||||||||
| Based on adjusted net income from operations | |||||||||||||||
| Earnings per share | $ | 3.52 | $ | 3.35 | $ | 0.17 | 5.07 | % | |||||||
| Return on average assets | 1.24 | % | 1.30 | % | (0.06)% | ||||||||||
| Return on average shareholders' equity | 13.22 | % | 14.23 | % | (1.01)% | ||||||||||
| Return on average tangible shareholders' equity | 13.63 | % | 14.76 | % | (1.13)% | ||||||||||
| Efficiency ratio | 64.70 | % | 56.16 | % | 8.54 | % | |||||||||
| Based on adjusted net interest income | |||||||||||||||
| Yield on earning assets (FTE) | 3.72 | % | 3.98 | % | (0.26)% | ||||||||||
| Rate on interest bearing liabilities | 0.36 | % | 0.82 | % | (0.46)% | ||||||||||
| Net interest margin to earning assets (FTE) | 3.50 | % | 3.46 | % | 0.04 | % | |||||||||
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 | ||||||||||||||||||||||||||||||
| December 31, 2021 | September 30, 2021 | December 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 | $ | 1,050,383 | $ | 11,235 | 4.24 | % | $ | 1,000,660 | $ | 11,076 | 4.39 | % | $ | 1,099,779 | $ | 11,268 | 4.08 | % | ||||||||||||
| Taxable investment securities | 129,817 | 389 | 1.19 | % | 113,868 | 372 | 1.30 | % | 62,866 | 238 | 1.51 | % | ||||||||||||||||||
| Nontaxable investment securities | 16,876 | 94 | 2.21 | % | 17,085 | 95 | 2.21 | % | 16,047 | 103 | 2.55 | % | ||||||||||||||||||
| Federal funds sold | — | — | — | % | — | — | — | % | — | — | — | % | ||||||||||||||||||
| Interest earning cash and cash equivalents | 73,022 | 33 | 0.18 | % | 112,917 | 45 | 0.16 | % | 53,715 | 15 | 0.11 | % | ||||||||||||||||||
| Federal Home Loan Bank stock | 3,552 | 18 | 2.01 | % | 3,488 | 16 | 1.82 | % | 3,488 | 22 | 2.51 | % | ||||||||||||||||||
| Total earning assets | 1,273,650 | 11,769 | 3.67 | % | 1,248,018 | 11,604 | 3.69 | % | 1,235,895 | 11,646 | 3.75 | % | ||||||||||||||||||
| Nonearning assets | ||||||||||||||||||||||||||||||
| Allowance for loan losses | (10,773 | ) | (10,889 | ) | (10,375 | ) | ||||||||||||||||||||||||
| Fixed assets | 16,568 | 16,465 | 15,465 | |||||||||||||||||||||||||||
| Accrued income and other assets | 74,249 | 70,318 | 47,214 | |||||||||||||||||||||||||||
| Total assets | $ | 1,353,694 | $ | 1,323,912 | $ | 1,288,199 | ||||||||||||||||||||||||
| Interest bearing liabilities | ||||||||||||||||||||||||||||||
| Interest bearing demand deposits | $ | 250,327 | $ | 132 | 0.21 | % | $ | 228,147 | $ | 121 | 0.21 | % | $ | 218,627 | $ | 128 | 0.23 | % | ||||||||||||
| Savings deposits | 344,180 | 113 | 0.13 | % | 325,161 | 108 | 0.13 | % | 291,856 | 114 | 0.16 | % | ||||||||||||||||||
| Time deposits | 128,574 | 224 | 0.69 | % | 153,694 | 264 | 0.68 | % | 179,076 | 407 | 0.90 | % | ||||||||||||||||||
| Borrowed funds | 50,001 | 176 | 1.40 | % | 49,543 | 160 | 1.28 | % | 83,573 | 323 | 1.54 | % | ||||||||||||||||||
| Total interest bearing liabilities | 773,082 | 645 | 0.33 | % | 756,545 | 653 | 0.34 | % | 773,132 | 972 | 0.50 | % | ||||||||||||||||||
| Noninterest bearing liabilities | ||||||||||||||||||||||||||||||
| Noninterest bearing deposits | 444,929 | 433,057 | 385,032 | |||||||||||||||||||||||||||
| Accrued interest and other liabilities | 10,183 | 9,590 | 12,772 | |||||||||||||||||||||||||||
| Shareholders' equity | 125,500 | 124,720 | 117,263 | |||||||||||||||||||||||||||
| Total liabilities and shareholders' equity | $ | 1,353,694 | $ | 1,323,912 | $ | 1,288,199 | ||||||||||||||||||||||||
| Net interest income (FTE) | $ | 11,124 | $ | 10,951 | $ | 10,674 | ||||||||||||||||||||||||
| Net interest margin to earning assets (FTE) | 3.47 | % | 3.48 | % | 3.44 | % | ||||||||||||||||||||||||
| Twelve Months Ended | ||||||||||||||||||||
| December 31, 2021 | December 31, 2020 | |||||||||||||||||||
| Average Balance | Tax Equivalent Interest | Average Yield / Rate | Average Balance | Tax Equivalent Interest | Average Yield / Rate | |||||||||||||||
| Interest earning assets | ||||||||||||||||||||
| Total loans | $ | 1,037,189 | $ | 45,129 | 4.35 | % | $ | 1,028,303 | $ | 44,238 | 4.30 | % | ||||||||
| Taxable investment securities | 98,002 | 1,285 | 1.31 | % | 61,288 | 1,170 | 1.91 | % | ||||||||||||
| Nontaxable investment securities | 17,090 | 394 | 2.31 | % | 13,463 | 368 | 2.73 | % | ||||||||||||
| Federal funds sold | — | — | — | % | 8,397 | 116 | 1.38 | % | ||||||||||||
| Interest earning cash and cash equivalents | 81,970 | 112 | 0.14 | % | 32,767 | 55 | 0.17 | % | ||||||||||||
| Federal Home Loan Bank stock | 3,504 | 73 | 2.08 | % | 3,352 | 109 | 3.25 | % | ||||||||||||
| Total earning assets | 1,237,755 | 46,993 | 3.80 | % | 1,147,570 | 46,056 | 4.01 | % | ||||||||||||
| Nonearning assets | ||||||||||||||||||||
| Allowance for loan losses | (11,000 | ) | (8,301 | ) | ||||||||||||||||
| Fixed assets | 16,224 | 15,465 | ||||||||||||||||||
| Accrued income and other assets | 68,694 | 45,871 | ||||||||||||||||||
| Total assets | $ | 1,311,673 | $ | 1,200,605 | ||||||||||||||||
| Interest bearing liabilities | ||||||||||||||||||||
| Interest bearing demand deposits | $ | 227,114 | $ | 496 | 0.22 | % | $ | 200,200 | $ | 996 | 0.50 | % | ||||||||
| Savings deposits | 325,043 | 438 | 0.13 | % | 260,498 | 569 | 0.22 | % | ||||||||||||
| Time deposits | 153,057 | 1,156 | 0.76 | % | 181,859 | 2,848 | 1.57 | % | ||||||||||||
| Borrowed funds | 49,408 | 646 | 1.31 | % | 84,312 | 1,511 | 1.79 | % | ||||||||||||
| Total interest bearing liabilities | 754,622 | 2,736 | 0.36 | % | 726,869 | 5,924 | 0.82 | % | ||||||||||||
| Noninterest bearing liabilities | ||||||||||||||||||||
| Noninterest bearing deposits | 424,273 | 352,489 | ||||||||||||||||||
| Accrued interest and other liabilities | 10,149 | 11,153 | ||||||||||||||||||
| Shareholders' equity | 122,629 | 110,094 | ||||||||||||||||||
| Total liabilities and shareholders' equity | $ | 1,311,673 | $ | 1,200,605 | ||||||||||||||||
| Net interest income (FTE) | $ | 44,257 | $ | 40,132 | ||||||||||||||||
| Net interest margin to earning assets (FTE) | 3.58 | % | 3.50 | % | ||||||||||||||||
Volume and Rate Variance Analysis
The following table sets forth the effect of volume and rate changes on interest income and expense for the periods indicated. For the purpose of this table, changes in interest due to volume and rate were determined as follows:
Volume - change in volume multiplied by the previous period's rate.
Rate - change in the FTE rate multiplied by the previous period's volume.
The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
| Three Months Ended | Three Months Ended | Twelve Months Ended | ||||||||||||||||||||||||||||||||||
| December 31, 2021 | December 31, 2021 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
| Compared To | Compared To | Compared To | ||||||||||||||||||||||||||||||||||
| September 30, 2021 | December 31, 2020 | December 31, 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 | $ | 1,873 | $ | (1,714 | ) | $ | 159 | $ | (1,897 | ) | $ | 1,864 | $ | (33 | ) | $ | 380 | $ | 511 | $ | 891 | |||||||||||||||
| Taxable investment securities | 166 | (149 | ) | 17 | 461 | (310 | ) | 151 | 558 | (443 | ) | 115 | ||||||||||||||||||||||||
| Nontaxable investment securities | (1 | ) | — | (1 | ) | 28 | (37 | ) | (9 | ) | 89 | (63 | ) | 26 | ||||||||||||||||||||||
| Federal funds sold | — | — | — | — | — | — | (58 | ) | (58 | ) | (116 | ) | ||||||||||||||||||||||||
| Interest earning cash and cash equivalents | (43 | ) | 31 | (12 | ) | 6 | 12 | 18 | 69 | (12 | ) | 57 | ||||||||||||||||||||||||
| Federal Home Loan Bank stock | — | 2 | 2 | 3 | (7 | ) | (4 | ) | 5 | (41 | ) | (36 | ) | |||||||||||||||||||||||
| Total changes in interest income | 1,995 | (1,830 | ) | 165 | (1,399 | ) | 1,522 | 123 | 1,043 | (106 | ) | 937 | ||||||||||||||||||||||||
| Changes in interest expense | ||||||||||||||||||||||||||||||||||||
| Interest bearing demand deposits | 11 | — | 11 | 57 | (53 | ) | 4 | 121 | (621 | ) | (500 | ) | ||||||||||||||||||||||||
| Savings deposits | 5 | — | 5 | 85 | (86 | ) | (1 | ) | 127 | (258 | ) | (131 | ) | |||||||||||||||||||||||
| Time deposits | (64 | ) | 24 | (40 | ) | (100 | ) | (83 | ) | (183 | ) | (397 | ) | (1,295 | ) | (1,692 | ) | |||||||||||||||||||
| Borrowed funds | 1 | 15 | 16 | (120 | ) | (27 | ) | (147 | ) | (525 | ) | (340 | ) | (865 | ) | |||||||||||||||||||||
| Total changes in interest expense | (47 | ) | 39 | (8 | ) | (78 | ) | (249 | ) | (327 | ) | (674 | ) | (2,514 | ) | (3,188 | ) | |||||||||||||||||||
| Net change in net interest income (FTE) | $ | 2,042 | $ | (1,869 | ) | $ | 173 | $ | (1,321 | ) | $ | 1,771 | $ | 450 | $ | 1,717 | $ | 2,408 | $ | 4,125 | ||||||||||||||||
| Average Yield/Rate for the Three Month Periods Ended | |||||||||||||||
| 12/31/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | 12/31/2020 | |||||||||||
| Total earning assets | 3.67 | % | 3.69 | % | 3.79 | % | 4.01 | % | 3.75 | % | |||||
| Total interest bearing liabilities | 0.33 | % | 0.34 | % | 0.41 | % | 0.37 | % | 0.50 | % | |||||
| Net interest margin to earning assets (FTE) | 3.47 | % | 3.48 | % | 3.55 | % | 3.79 | % | 3.44 | % | |||||
| Quarter to Date Net Interest Income (FTE) | |||||||||||||||
| 12/31/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | 12/31/2020 | |||||||||||
| Interest income | $ | 11,749 | $ | 11,584 | $ | 11,658 | $ | 11,919 | $ | 11,624 | |||||
| FTE adjustment | 20 | 20 | 21 | 22 | 22 | ||||||||||
| Total interest income (FTE) | 11,769 | 11,604 | 11,679 | 11,941 | 11,646 | ||||||||||
| Total interest expense | 645 | 653 | 762 | 676 | 972 | ||||||||||
| Net interest income (FTE) | $ | 11,124 | $ | 10,951 | $ | 10,917 | $ | 11,265 | $ | 10,674 | |||||
Noninterest Income
| Quarter to Date | |||||||||||||||||||
| 12/31/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | 12/31/2020 | |||||||||||||||
| Net gain on sales of mortgage loans | $ | 838 | $ | 1,096 | $ | 1,253 | $ | 1,845 | $ | 2,545 | |||||||||
| ATM and debit card income | 496 | 495 | 511 | 448 | 437 | ||||||||||||||
| Trust and investment services | 399 | 562 | 403 | 468 | 445 | ||||||||||||||
| Net mortgage servicing rights income | 407 | (69 | ) | 1,119 | 138 | 509 | |||||||||||||
| Mortgage servicing fees | 394 | 369 | 362 | 335 | 325 | ||||||||||||||
| Service charges on deposit accounts | 218 | 199 | 168 | 166 | 194 | ||||||||||||||
| Change in cash surrender value of corporate owned life insurance | 168 | 165 | 237 | 64 | 65 | ||||||||||||||
| PPP referral fees | — | 6 | 74 | 351 | — | ||||||||||||||
| Net gain on sales of commercial loans | — | — | — | — | — | ||||||||||||||
| Net gain from corporate owned life insurance death benefit | — | — | — | — | — | ||||||||||||||
| Change in fair value of equity investments | (9 | ) | (4 | ) | 2 | (19 | ) | (3 | ) | ||||||||||
| Other income and fees | 186 | 80 | 101 | 58 | 159 | ||||||||||||||
| Total noninterest income | $ | 3,097 | $ | 2,899 | $ | 4,230 | $ | 3,854 | $ | 4,676 | |||||||||
| Memo items: | |||||||||||||||||||
| Residential mortgage operations | $ | 1,639 | $ | 1,396 | $ | 2,734 | $ | 2,318 | $ | 3,379 | |||||||||
| Year to Date December 31 | Variance | |||||||||||||
| 2021 | 2020 | Amount | % | |||||||||||
| Net gain on sales of mortgage loans | $ | 5,032 | $ | 11,281 | $ | (6,249 | ) | (55.39)% | ||||||
| ATM and debit card income | 1,950 | 1,646 | 304 | 18.47 | % | |||||||||
| Trust and investment services | 1,832 | 1,619 | 213 | 13.16 | % | |||||||||
| Net mortgage servicing rights income | 1,595 | 855 | 740 | 86.55 | % | |||||||||
| Mortgage servicing fees | 1,460 | 1,150 | 310 | 26.96 | % | |||||||||
| Service charges on deposit accounts | 751 | 709 | 42 | 5.92 | % | |||||||||
| Change in cash surrender value of corporate owned life insurance | 634 | — | 634 | N/M | ||||||||||
| PPP referral fees | 431 | — | 431 | — | % | |||||||||
| Net gain on sales of commercial loans | — | 668 | (668 | ) | (100.00)% | |||||||||
| Net gain from corporate owned life insurance death benefit | — | 173 | (173 | ) | (100.00)% | |||||||||
| Change in fair value of equity investments | (30 | ) | 755 | (785 | ) | (103.97)% | ||||||||
| Other income and fees | 425 | 784 | (359 | ) | (45.79)% | |||||||||
| Total noninterest income | $ | 14,080 | $ | 19,640 | $ | (5,560 | ) | (28.31)% | ||||||
| Memo items: | ||||||||||||||
| Residential mortgage operations | $ | 8,087 | $ | 13,286 | (5,199 | ) | (39.13)% | |||||||
Residential Mortgage Operations
Net gain on sales of mortgage loans represents the income earned on the sale of residential mortgage loans into the secondary market. Throughout 2020 and 2021, the interest rate environment was advantageous for residential mortgage originations and refinancing, resulting in record gains. While residential mortgage originations and refinancing activity remained strong in 2021, it decreased from the elevated levels of activity in 2020. Residential mortgage originations and refinancing activity are likely to slow down due to lower housing inventory and expected interest rate increases in 2022.
In 2021, the Corporation elected to adopt the fair value measurement option for all MSR pursuant to FASB ASC 860 ("Transfers and Servicing"). Previously, the Corporation utilized the amortization method option for MSR. Changes in the fair value of MSR are highly correlated to changes in interest rates. As a significant portion of the serviced loan portfolio has been originated over the past two years at low interest rates, management expects the value of the servicing portfolio to remain strong. In addition, the Corporation continues to see a shift from refinancing activity to purchase activity in mortgage originations, which should positively impact the servicing portfolio value.
The primary driver utilized in the fair value of MSR is prepayment speeds. Prepayment speed assumptions are derived from a combination of recent industry-wide pool speeds and Bloomberg's dealer estimates. Faster prepayment speeds result in lower value, due to cash flow being shorter.
Mortgage servicing fees includes the fees earned for servicing loans that have been sold into the secondary market. The annual increase in mortgage servicing fees is directly related to the increase in the size of the serviced portfolio. The MSR portfolio has continued to grow throughout 2021 and the mortgage servicing fees increased throughout 2021 as the Corporation continues to add to the serviced portfolio.
Throughout 2021, overall revenues from residential mortgage operations (net gain on sales of mortgage loans, net mortgage servicing rights income, and mortgage servicing fees) remained strong, but did not reach the elevated levels experienced during 2020 due to the constrained housing inventory and rising interest rates.
All Other Noninterest Income
ATM and debit card income represents fees earned on ATM and debit card transactions. The Corporation expects these fees to increase moderately into 2022, as economic activity begins to normalize to pre-pandemic levels.
Trust and investment services includes income the Corporation earned from contracts with customers to manage assets for investment and/or to transact on their accounts through the wealth management and trust department. Income generated from trust services has remained stable from fiduciary fees for estate settlement services and portfolio management. Revenue from wealth management 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 in 2022.
Service charges on deposit accounts includes fees earned from deposit customers for transaction-based, account maintenance and overdraft services. The increase in the fourth quarter of 2021 is a result of more deposit customers utilizing overdraft services. Service charges on deposit accounts are expected to approximate current levels in 2022.
Change in cash surrender value of corporate owned life insurance increased in 2021 as a result of the purchase of $15,000 in additional corporate owned life insurance policies in the second quarter of 2021. The Corporation expects the change in cash surrender value of corporate owned life insurance to approximate current earnings levels in 2022.
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 recorded minimal PPP referral fees in the second half of 2021 and no future revenues are anticipated.
Net gain on sales of commercial loans represents the income earned from the sale of commercial loans into the secondary market. During the first quarter of 2020, the Corporation sold the guaranteed portion of one SBA loan and one USDA loan. The Corporation continually analyzes its commercial loan portfolio for opportunistic sales strategies. In 2021, the Corporation did not sell the guaranteed portion of SBA or USDA loans.
Net gain from corporate owned life insurance death benefit is recognized in the event of the death of an insured individual. The death of an insured individual occurred in the second quarter of 2020 and the Corporation. The Corporation does not expect to receive any gains from COLI death benefits in 2022.
Change in fair value of equity investments represents the income earned on equities held in the Corporation's investment portfolio. During the first quarter of 2020, the Corporation recorded a $732 gain from an equity investment in a financial institution that was sold. The Corporation does not anticipate any significant changes in fair value from investment equity sales in the foreseeable future.
Other income and fees includes miscellaneous other income items, none of which are individually significant.
Noninterest Expenses
| Quarter to Date | |||||||||||||||
| 12/31/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | 12/31/2020 | |||||||||||
| Total compensation | $ | 5,054 | $ | 5,001 | $ | 5,000 | $ | 5,004 | $ | 4,958 | |||||
| Professional services | 948 | 790 | 703 | 624 | 938 | ||||||||||
| Furniture and equipment | 794 | 761 | 712 | 637 | 607 | ||||||||||
| Data processing | 622 | 557 | 583 | 509 | 501 | ||||||||||
| Occupancy | 491 | 522 | 508 | 495 | 475 | ||||||||||
| Advertising and promotional | 356 | 384 | 304 | 284 | 184 | ||||||||||
| Loan and collection | 286 | 264 | 337 | 406 | 359 | ||||||||||
| ATM and debit card | 158 | 131 | 144 | 122 | 125 | ||||||||||
| FDIC insurance premiums | 138 | 153 | 79 | 155 | 59 | ||||||||||
| Telephone and communication | 96 | 80 | 130 | 94 | 64 | ||||||||||
| Other acquisition related expenses | 225 | 64 | — | — | — | ||||||||||
| Amortization of core deposit intangibles | 67 | 68 | 67 | 68 | 90 | ||||||||||
| FHLB prepayment penalty | — | — | — | — | 1,907 | ||||||||||
| Other general and administrative | 722 | 678 | 655 | 633 | 704 | ||||||||||
| Total noninterest expenses | $ | 9,957 | $ | 9,453 | $ | 9,222 | $ | 9,031 | $ | 10,971 | |||||
| Year to Date December 31 | Variance | ||||||||||||
| 2021 | 2020 | Amount | % | ||||||||||
| Total compensation | $ | 20,059 | $ | 17,989 | $ | 2,070 | 11.51 | % | |||||
| Professional services | 3,065 | 2,555 | 510 | 19.96 | % | ||||||||
| Furniture and equipment | 2,904 | 2,449 | 455 | 18.58 | % | ||||||||
| Data processing | 2,271 | 1,981 | 290 | 14.64 | % | ||||||||
| Occupancy | 2,016 | 1,877 | 139 | 7.41 | % | ||||||||
| Advertising and promotional | 1,328 | 975 | 353 | 36.21 | % | ||||||||
| Loan and collection | 1,293 | 1,042 | 251 | 24.09 | % | ||||||||
| ATM and debit card | 555 | 434 | 121 | 27.88 | % | ||||||||
| FDIC insurance premiums | 525 | 228 | 297 | 130.26 | % | ||||||||
| Telephone and communication | 400 | 337 | 63 | 18.69 | % | ||||||||
| Other acquisition related expenses | 289 | — | 289 | N/M | |||||||||
| Amortization of core deposit intangibles | 270 | 361 | (91 | ) | (25.21)% | ||||||||
| FHLB prepayment penalty | — | 1,907 | (1,907 | ) | (100.00)% | ||||||||
| Other general and administrative | 2,688 | 2,549 | 139 | 5.45 | % | ||||||||
| Total noninterest expenses | $ | 37,663 | $ | 34,684 | $ | 2,979 | 8.59 | % | |||||
Total compensation includes salaries, commissions and incentives, employee benefits, and payroll taxes. Total compensation has increased in 2021 due to an increase in the number of employees, a reduction of deferred loan costs, annual merit increases and an increase in employee benefits. Fluctuations in commissions and incentives are primarily driven by residential mortgage originations, which can vary significantly from period to period.
Professional services include expenses relating to third-party professional services. These services include, but are not limited to, regulatory, auditing, consulting, and legal. The increase in professional services is primarily due to audit and accounting and other outside services, which include professional services related to the Interactive Teller Machine project. These expenses are expected to continue to increase in future periods to ensure compliance with audit and regulatory requirements and legal expenses related to the acquisition of FSB.
Furniture and equipment and occupancy expenses primarily consist of depreciation, repairs and maintenance, certain service contracts, and other related items. The increase in furniture and equipment relate to the Interactive Teller Machine integration within the Corporation. These expenses are expected to continue to increase with the size and complexity of the Corporation..
Data processing primarily includes the expenses relating to the Corporation's core data processor. These expenses increased in the fourth quarter in relation to the acquisition of FSB and are expected to increase with the size and complexity of the Corporation.
Occupancy expenses primarily consist of depreciation of buildings, property taxes, repairs and maintenance, utilities, insurance, and other related items. The increase in these expenses in 2021 is due to branch remodels. These expenses are expected to continue to increase with the size and complexity of the Corporation.
Advertising and promotional includes the Corporation's media costs and any donations or sponsorships made on behalf of the Corporation. The increase in advertising and promotional expenses in the third quarter of 2021 is due to the Corporation's sponsorship for a portion of the Linden, Argentine Township, Fenton, and Fenton Township Pathway group. The annual increase in such expenses is a result of the Corporation enhancing its marketing efforts to attract new and expand existing customer loan and deposit account relationships. In addition to traditional marketing strategies, the Corporation rolled out a new branding strategy in 2020, which resulted in elevated advertising and promotional expenses in both 2020 and 2021. Total advertising and promotional expenses are expected to approximate current levels in 2022.
Loan and collection includes expenses related to the origination and collection of loans. The increase in expenses throughout 2020 and into the first half of 2021 is a direct result of increased loan volume due to the low interest rate environment created by the Federal Reserve Bank's response to the COVID-19 pandemic.
ATM and debit card expenses fluctuate based on customer and non-customer utilization of ATMs and customer debit card volumes. The Corporation expects these fees to approximate current levels into 2022.
FDIC insurance premiums typically fluctuate based on the size of the Corporation's balance sheet, capital position, overall risk profile, and examination ratings. The fluctuation is attributed to the increased asset size and composition of the Corporation's balance sheet. FDIC insurance premiums are expected to normalize throughout 2022.
Telephone and communication includes expenses relating to the Corporation's communication systems. These expenses are expected to increase into 2022 primarily due to the growth of the Corporation.
Other acquisition related expenses includes expenses related to the Corporation's acquisition of FSB, which closed in the fourth quarter of 2021.
Amortization of core deposit intangibles relates to the core deposits acquired from Community Bancorp, Inc. on December 31, 2016 and FSB on December 1, 2021. These core deposit intangibles are being amortized based on the sum-of-years-digits method. Amortization of core deposit intangibles is expected to increase into 2022 as a result of the core deposit intangible generated in relation to acquisition of FSB.
During the fourth quarter of 2020, the Corporation paid off three Federal Home Loan Bank borrowings, totaling $30,000. The Corporation incurred a one-time early payoff fee in the amount $1,907. The payoff was executed to enhance net interest income and net interest margins in 2021, 2022, and 2023. The weighted average rate of the three FHLB borrowings was 2.17%. As a result of the early payoffs, the Corporation reduced 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
| 12/31/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | 12/31/2020 | |||||||||||
| ASSETS | |||||||||||||||
| Cash and cash equivalents | $ | 83,446 | $ | 112,861 | $ | 132,676 | $ | 121,477 | $ | 46,757 | |||||
| Total investment securities | 164,942 | 138,476 | 129,944 | 89,772 | 76,111 | ||||||||||
| Residential mortgage loans held-for-sale, at fair value | 6,783 | 9,702 | 7,670 | 26,322 | 27,306 | ||||||||||
| Gross loans | 1,100,092 | 1,015,177 | 986,358 | 1,028,117 | 1,066,562 | ||||||||||
| Less allowance for loan and lease losses | 10,500 | 10,500 | 10,800 | 11,100 | 10,900 | ||||||||||
| Net loans | 1,089,592 | 1,004,677 | 975,558 | 1,017,017 | 1,055,662 | ||||||||||
| All other assets | 73,168 | 63,584 | 63,837 | 48,587 | 45,610 | ||||||||||
| Total assets | $ | 1,417,931 | $ | 1,329,300 | $ | 1,309,685 | $ | 1,303,175 | $ | 1,251,446 | |||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||||||
| Total deposits | $ | 1,228,298 | $ | 1,144,291 | $ | 1,126,496 | $ | 1,122,508 | $ | 1,071,976 | |||||
| Total borrowed funds | 50,000 | 50,000 | 49,500 | 49,000 | 49,000 | ||||||||||
| Accrued interest payable and other liabilities | 15,178 | 10,200 | 10,703 | 12,307 | 14,602 | ||||||||||
| Total liabilities | 1,293,476 | 1,204,491 | 1,186,699 | 1,183,815 | 1,135,578 | ||||||||||
| Total shareholders' equity | 124,455 | 124,809 | 122,986 | 119,360 | 115,868 | ||||||||||
| Total liabilities and shareholders' equity | $ | 1,417,931 | $ | 1,329,300 | $ | 1,309,685 | $ | 1,303,175 | $ | 1,251,446 | |||||
| 12/31/2021 vs 9/30/2021 | 12/31/2021 vs 12/31/2020 | |||||||||||||
| Variance | Variance | |||||||||||||
| Amount | % | Amount | % | |||||||||||
| ASSETS | ||||||||||||||
| Cash and cash equivalents | $ | (29,415 | ) | (26.06)% | $ | 36,689 | 78.47 | % | ||||||
| Total investment securities | 26,466 | 19.11 | % | 88,831 | 116.71 | % | ||||||||
| Residential mortgage loans held-for-sale, at fair value | (2,919 | ) | (30.09)% | (20,523 | ) | (75.16)% | ||||||||
| Gross loans | 84,915 | 8.36 | % | 33,530 | 3.14 | % | ||||||||
| Less allowance for loan and lease losses | — | — | % | (400 | ) | (3.67)% | ||||||||
| Net loans | 84,915 | 8.45 | % | 33,930 | 3.21 | % | ||||||||
| All other assets | 9,584 | 15.07 | % | 27,558 | 60.42 | % | ||||||||
| Total assets | $ | 88,631 | 6.67 | % | $ | 166,485 | 13.30 | % | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||
| Total deposits | $ | 84,007 | 7.34 | % | $ | 156,322 | 14.58 | % | ||||||
| Total borrowed funds | — | — | % | 1,000 | 2.04 | % | ||||||||
| Accrued interest payable and other liabilities | 4,978 | 48.80 | % | 576 | 3.94 | % | ||||||||
| Total liabilities | 88,985 | 3.79 | % | 157,898 | 7.15 | % | ||||||||
| Total shareholders' equity | (354 | ) | (0.28)% | 8,587 | 7.41 | % | ||||||||
| Total liabilities and shareholders' equity | $ | 88,631 | 6.67 | % | $ | 166,485 | 13.30 | % | ||||||
Total investment securities
| 12/31/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | 12/31/2020 | |||||||||||||||
| Available-for-sale | |||||||||||||||||||
| U.S. Government and federal agency | $ | 30,406 | $ | 5,967 | $ | 5,917 | $ | 5,942 | $ | 7,935 | |||||||||
| State and municipal | 25,010 | 25,227 | 23,096 | 17,080 | 15,768 | ||||||||||||||
| Mortgage backed residential | 66,874 | 67,199 | 60,390 | 32,135 | 19,101 | ||||||||||||||
| Certificates of deposit | 10,172 | 4,190 | 4,932 | 4,932 | 5,180 | ||||||||||||||
| Collateralized mortgage obligations - agencies | 30,180 | 31,732 | 31,281 | 25,505 | 23,110 | ||||||||||||||
| Unrealized gain/(loss) on available-for-sale securities | (468 | ) | 1,432 | 1,334 | 1,117 | 1,932 | |||||||||||||
| Total available-for-sale | 162,174 | 135,747 | 126,950 | 86,711 | 73,026 | ||||||||||||||
| Held-to-maturity state and municipal | 1,512 | 1,515 | 1,859 | 1,968 | 1,973 | ||||||||||||||
| Equity securities | 1,256 | 1,214 | 1,135 | 1,093 | 1,112 | ||||||||||||||
| Total investment securities | $ | 164,942 | $ | 138,476 | $ | 129,944 | $ | 89,772 | $ | 76,111 | |||||||||
| 12/31/2021 vs 9/30/2021 | 12/31/2021 vs 12/31/2020 | ||||||||||||||||||
| Variance | Variance | ||||||||||||||||||
| Amount | % | Amount | % | ||||||||||||||||
| Available-for-sale | |||||||||||||||||||
| U.S. Government and federal agency | 24,439 | 409.57 | % | $ | 22,471 | 283.19 | % | ||||||||||||
| State and municipal | (217 | ) | (0.86)% | 9,242 | 58.61 | % | |||||||||||||
| Mortgage backed residential | (325 | ) | (0.48)% | 47,773 | 250.11 | % | |||||||||||||
| Certificates of deposit | 5,982 | 142.77 | % | 4,992 | 96.37 | % | |||||||||||||
| Collateralized mortgage obligations - agencies | (1,552 | ) | (4.89)% | 7,070 | 30.59 | % | |||||||||||||
| Unrealized gain/(loss) on available-for-sale securities | (1,900 | ) | (132.68)% | (2,400 | ) | (124.22)% | |||||||||||||
| Total available-for-sale | 26,427 | 19.47 | % | 89,148 | 122.08 | % | |||||||||||||
| Held-to-maturity state and municipal | (3 | ) | (0.20)% | (461 | ) | (23.37)% | |||||||||||||
| Equity securities | 42 | 3.46 | % | 144 | 12.95 | % | |||||||||||||
| Total investment securities | $ | 26,466 | 19.11 | % | $ | 88,831 | 116.71 | % | |||||||||||
The amortized cost and fair value of AFS investment securities as of December 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 | $ | 6,044 | $ | 19,487 | $ | 4,875 | $ | — | $ | — | $ | 30,406 | ||||||
| State and municipal | 2,085 | 8,600 | 12,491 | 1,834 | — | 25,010 | ||||||||||||
| Mortgage backed residential | — | — | — | — | 66,874 | 66,874 | ||||||||||||
| Certificates of deposit | 2,745 | 7,427 | — | — | — | 10,172 | ||||||||||||
| Collateralized mortgage obligations - agencies | — | — | — | — | 30,180 | 30,180 | ||||||||||||
| Total amortized cost | $ | 10,874 | $ | 35,514 | $ | 17,366 | $ | 1,834 | $ | 97,054 | $ | 162,642 | ||||||
| Fair value | $ | 10,934 | $ | 35,778 | $ | 17,330 | $ | 2,080 | $ | 96,052 | $ | 162,174 | ||||||
The amortized cost and fair value of HTM investment securities as of December 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 | $ | 333 | $ | 799 | $ | 380 | $ | — | $ | — | $ | 1,512 | ||||||
| Fair value | $ | 336 | $ | 828 | $ | 399 | $ | — | $ | — | $ | 1,563 | ||||||
Throughout 2021, the Corporation expanded its investment portfolio to generate additional interest income. Total investment securities, which increased as a part of the acquisition of FSB in the amount of $35,749, are expected to stabilize through 2022. The following table summarizes information as of December 31, 2021 for investment securities purchased YTD:
| Book Value | Fully Taxable Equivalent Weighted Average Yield | |||||
| U.S. Government and federal agency | $ | 2,005 | 0.95 | % | ||
| State and municipal | 11,182 | 1.15 | % | |||
| Collateralized mortgage obligations - agencies | 14,009 | 1.13 | % | |||
| Mortgage backed residential | 51,321 | 1.17 | % | |||
| Total | $ | 78,517 | 1.15 | % | ||
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:
| 12/31/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | 12/31/2020 | ||||||||||||||||
| Commercial, net of PPP loans | $ | 91,529 | $ | 74,308 | $ | 65,875 | $ | 60,693 | $ | 63,579 | ||||||||||
| PPP loans | 2,172 | 4,985 | 35,195 | 122,583 | 177,845 | |||||||||||||||
| Commercial real estate | 656,818 | 616,358 | 573,598 | 541,428 | 517,054 | |||||||||||||||
| Total commercial loans | 750,519 | 695,651 | 674,668 | 724,704 | 758,478 | |||||||||||||||
| Residential mortgage | 298,799 | 273,478 | 265,323 | 258,333 | 262,770 | |||||||||||||||
| Home equity | 42,220 | 41,902 | 41,771 | 40,205 | 39,900 | |||||||||||||||
| Total residential real estate loans | 341,019 | 315,380 | 307,094 | 298,538 | 302,670 | |||||||||||||||
| Consumer | 8,554 | 4,146 | 4,596 | 4,875 | 5,414 | |||||||||||||||
| Gross loans | 1,100,092 | 1,015,177 | 986,358 | 1,028,117 | 1,066,562 | |||||||||||||||
| Allowance for loan and lease losses | (10,500 | ) | (10,500 | ) | (10,800 | ) | (11,100 | ) | (10,900 | ) | ||||||||||
| Loans, net | $ | 1,089,592 | $ | 1,004,677 | $ | 975,558 | $ | 1,017,017 | $ | 1,055,662 | ||||||||||
| Memo items: | ||||||||||||||||||||
| Gross loans, net of PPP loans | $ | 1,097,920 | $ | 1,010,192 | $ | 951,163 | $ | 905,534 | $ | 888,717 | ||||||||||
| Residential mortgage loans serviced for others | $ | 639,757 | $ | 591,399 | $ | 581,984 | $ | 546,836 | $ | 526,416 | ||||||||||
| 12/31/2021 vs 9/30/2021 | 12/31/2021 vs 12/31/2020 | |||||||||||||||||||
| Variance | Variance | |||||||||||||||||||
| Amount | % | Amount | % | |||||||||||||||||
| Commercial, net of PPP loans | $ | 17,221 | 23.18 | % | $ | 27,950 | 43.96 | % | ||||||||||||
| PPP loans | (2,813 | ) | (56.43)% | (175,673 | ) | (98.78)% | ||||||||||||||
| Commercial real estate | 40,460 | 6.56 | % | 139,764 | 27.03 | % | ||||||||||||||
| Total commercial loans | 54,868 | 7.89 | % | (7,959 | ) | (1.05)% | ||||||||||||||
| Residential mortgage | 25,321 | 9.26 | % | 36,029 | 13.71 | % | ||||||||||||||
| Home equity | 318 | 0.76 | % | 2,320 | 5.81 | % | ||||||||||||||
| Total residential real estate loans | 25,639 | 8.13 | % | 38,349 | 12.67 | % | ||||||||||||||
| Consumer | 4,408 | 106.32 | % | 3,140 | 58.00 | % | ||||||||||||||
| Gross loans | 84,915 | 8.36 | % | 33,530 | 3.14 | % | ||||||||||||||
| Allowance for loan losses | — | — | % | 400 | (3.67)% | |||||||||||||||
| Loans, net | $ | 84,915 | 8.45 | % | $ | 33,930 | 3.21 | % | ||||||||||||
| Memo items: | ||||||||||||||||||||
| Gross loans, net of PPP loans | $ | 87,728 | 8.68 | % | $ | 209,203 | 23.54 | % | ||||||||||||
| Residential mortgage loans serviced for others | $ | 48,358 | 8.18 | % | $ | 113,341 | 21.53 | % | ||||||||||||
The following table presents historical loan balances by portfolio segment and impairment evaluation as of:
| 12/31/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | 12/31/2020 | |||||||||||
| Loans collectively evaluated for impairment | |||||||||||||||
| Commercial | $ | 93,207 | $ | 79,252 | $ | 100,424 | $ | 183,203 | $ | 241,424 | |||||
| Commercial real estate | 656,818 | 609,382 | 564,781 | 532,294 | 508,182 | ||||||||||
| Residential mortgage | 297,626 | 272,463 | 264,448 | 257,543 | 262,017 | ||||||||||
| Home equity | 42,138 | 41,840 | 41,708 | 40,141 | 39,874 | ||||||||||
| Consumer | 8,554 | 4,146 | 4,596 | 4,875 | 5,412 | ||||||||||
| Subtotal | 1,098,343 | 1,007,083 | 975,957 | 1,018,056 | 1,056,909 | ||||||||||
| Loans individually evaluated for impairment | |||||||||||||||
| Commercial | 494 | 41 | 646 | 73 | — | ||||||||||
| Commercial real estate | — | 6,976 | 8,817 | 9,134 | 8,872 | ||||||||||
| Residential mortgage | 1,173 | 1,015 | 875 | 790 | 753 | ||||||||||
| Home equity | 82 | 62 | 63 | 64 | 26 | ||||||||||
| Consumer | — | — | — | — | 2 | ||||||||||
| Subtotal | 1,749 | 8,094 | 10,401 | 10,061 | 9,653 | ||||||||||
| Gross Loans | $ | 1,100,092 | $ | 1,015,177 | $ | 986,358 | $ | 1,028,117 | $ | 1,066,562 | |||||
The following table presents historical allowance for loan losses allocations by portfolio segment and impairment evaluation as of:
| 12/31/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | 12/31/2020 | |||||||||||
| Loans collectively evaluated for impairment | |||||||||||||||
| Commercial | $ | 743 | $ | 613 | $ | 585 | $ | 626 | $ | 673 | |||||
| Commercial real estate | 6,350 | 6,104 | 6,264 | 6,026 | 5,602 | ||||||||||
| Residential mortgage | 2,940 | 3,066 | 2,814 | 3,280 | 3,480 | ||||||||||
| Home equity | 379 | 410 | 440 | 453 | 440 | ||||||||||
| Consumer | 77 | 53 | 85 | 92 | 97 | ||||||||||
| Subtotal | 10,489 | 10,246 | 10,188 | 10,477 | 10,292 | ||||||||||
| Loans individually evaluated for impairment | |||||||||||||||
| Commercial | — | — | 42 | — | — | ||||||||||
| Commercial real estate | — | 250 | 566 | 619 | 602 | ||||||||||
| Residential mortgage | 11 | 4 | 4 | 4 | 4 | ||||||||||
| Home equity | — | — | — | — | — | ||||||||||
| Consumer | — | — | — | — | 2 | ||||||||||
| Subtotal | 11 | 254 | 612 | 623 | 608 | ||||||||||
| Allowance for loan losses | $ | 10,500 | $ | 10,500 | $ | 10,800 | $ | 11,100 | $ | 10,900 | |||||
| Commercial | $ | 743 | $ | 613 | $ | 627 | $ | 626 | $ | 673 | |||||
| Commercial real estate | 6,350 | 6,354 | 6,830 | 6,645 | 6,204 | ||||||||||
| Residential mortgage | 2,951 | 3,070 | 2,818 | 3,284 | 3,484 | ||||||||||
| Home equity | 379 | 410 | 440 | 453 | 440 | ||||||||||
| Consumer | 77 | 53 | 85 | 92 | 99 | ||||||||||
| Allowance for loan losses | $ | 10,500 | $ | 10,500 | $ | 10,800 | $ | 11,100 | $ | 10,900 | |||||
The following table summarizes the Corporation's current, past due, and nonaccrual loans as of:
| 12/31/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | 12/31/2020 | |||||||||||
| Accruing interest | |||||||||||||||
| Current | $ | 1,094,141 | $ | 1,004,220 | $ | 976,852 | $ | 1,018,343 | $ | 1,057,404 | |||||
| Past due 30-89 days | 3,971 | 2,596 | 923 | 1,636 | 1,165 | ||||||||||
| Past due 90 days or more | 276 | 364 | 36 | 120 | 50 | ||||||||||
| Total accruing interest | 1,098,388 | 1,007,180 | 977,811 | 1,020,099 | 1,058,619 | ||||||||||
| Nonaccrual | 1,704 | 7,997 | 8,547 | 8,018 | 7,943 | ||||||||||
| Total loans | $ | 1,100,092 | $ | 1,015,177 | $ | 986,358 | $ | 1,028,117 | $ | 1,066,562 | |||||
| Total loans past due and in nonaccrual status | $ | 5,951 | $ | 10,957 | $ | 9,506 | $ | 9,774 | $ | 9,158 | |||||
The following table summarizes the Corporation's nonperforming assets as of:
| 12/31/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | 12/31/2020 | |||||||||||
| Nonaccrual loans | $ | 1,704 | $ | 7,997 | $ | 8,547 | $ | 8,018 | $ | 7,943 | |||||
| Accruing loans past due 90 days or more | 276 | 364 | 36 | 120 | 50 | ||||||||||
| Total nonperforming loans | 1,980 | 8,361 | 8,583 | 8,138 | 7,993 | ||||||||||
| Other real estate owned | 382 | — | — | — | — | ||||||||||
| Total nonperforming assets | $ | 2,362 | $ | 8,361 | $ | 8,583 | $ | 8,138 | $ | 7,993 | |||||
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. In the second quarter of 2021, the hotel began and continued to make regular contractual principal and interest payments. During the fourth quarter of 2021, the loan returned to good standing, resulting in a decrease in total nonaccrual loans.
The following table summarizes the Corporation's primary asset quality measures as of:
| 12/31/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | 12/31/2020 | |||||||||||
| Nonperforming loans to gross loans | 0.18 | % | 0.82 | % | 0.87 | % | 0.79 | % | 0.75 | % | |||||
| Nonperforming assets to total assets | 0.17 | % | 0.63 | % | 0.66 | % | 0.62 | % | 0.64 | % | |||||
| Allowance for loan losses to gross loans | 0.95 | % | 1.03 | % | 1.09 | % | 1.08 | % | 1.02 | % | |||||
| Allowance for loan losses to gross loans, less PPP loans | 0.96 | % | 1.04 | % | 1.14 | % | 1.23 | % | 1.23 | % | |||||
The following table summarizes the balance of net unamortized discounts on purchased loans as of:
| 12/31/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | 12/31/2020 | |||||||||||
| Net unamortized discount on purchased loans | $ | 101 | $ | 196 | $ | 388 | $ | 580 | $ | 773 | |||||
Despite historically strong credit quality indicators, there continues to be significant uncertainty surrounding the overall impact of the COVID-19 pandemic on the loan portfolio. Management continues to actively enhance the analysis of the ALLL as client impact and broader economic data from the pandemic becomes more clear.
The following table summarizes the average loan size as of:
| 12/31/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | 12/31/2020 | |||||||||||
| Commercial | $ | 192 | $ | 217 | $ | 168 | $ | 206 | $ | 169 | |||||
| Commercial real estate | 715 | 791 | 761 | 727 | 707 | ||||||||||
| Total commercial loans | 533 | 608 | 498 | 444 | 351 | ||||||||||
| Residential mortgage | 188 | 203 | 199 | 183 | 182 | ||||||||||
| Home equity | 38 | 47 | 47 | 46 | 45 | ||||||||||
| Total residential real estate loans | 126 | 141 | 138 | 131 | 130 | ||||||||||
| Consumer | 15 | 25 | 24 | 22 | 22 | ||||||||||
| Gross loans | $ | 235 | $ | 287 | $ | 262 | $ | 249 | $ | 226 | |||||
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.
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 tables below summarize total PPP fee income for the periods ended:
| Quarter to Date | |||||||||||||||
| 12/31/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | 12/31/2020 | |||||||||||
| PPP fees recognized | $ | 56 | $ | 376 | $ | 999 | $ | 1,777 | $ | 1,199 | |||||
| PPP referral fee income | — | 6 | 74 | 351 | — | ||||||||||
| Total PPP fees recognized | $ | 56 | $ | 382 | $ | 1,073 | $ | 2,128 | $ | 1,199 | |||||
| Year to Date December 31 | Variance | |||||||||||||||
| 2021 | 2020 | Amount | % | |||||||||||||
| PPP fees recognized | $ | 3,208 | $ | 3,560 | $ | (352 | ) | (9.89)% | ||||||||
| PPP referral fee income | 431 | — | 431 | N/M | ||||||||||||
| Total PPP fees recognized | $ | 3,639 | $ | 3,560 | $ | 79 | 2.22 | % | ||||||||
All other assets
The following tables outline the composition and changes in other assets as of:
| 12/31/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | 12/31/2020 | |||||||||||||||
| Corporate owned life insurance | $ | 25,970 | $ | 25,803 | $ | 25,638 | $ | 10,354 | $ | 10,291 | |||||||||
| Premises and equipment, net | 16,957 | 16,330 | 16,231 | 15,969 | 15,461 | ||||||||||||||
| Goodwill | 8,853 | 3,219 | 3,219 | 3,219 | 3,219 | ||||||||||||||
| Mortgage servicing rights | 7,836 | 6,454 | 6,523 | 5,404 | 4,885 | ||||||||||||||
| Accrued interest receivable | 4,663 | 4,416 | 4,423 | 5,451 | 5,068 | ||||||||||||||
| Federal Home Loan Bank stock | 3,708 | 3,488 | 3,488 | 3,488 | 3,488 | ||||||||||||||
| Core deposit intangibles | 1,266 | 338 | 406 | 474 | 541 | ||||||||||||||
| Right-of-use assets | 1,150 | 1,241 | 1,364 | 1,139 | 364 | ||||||||||||||
| Other real estate owned | 382 | — | — | — | — | ||||||||||||||
| Derivatives | 156 | 320 | 601 | 1,009 | 1,331 | ||||||||||||||
| Other assets | 2,227 | 1,975 | 1,944 | 2,080 | 962 | ||||||||||||||
| All other assets | $ | 73,168 | $ | 63,584 | $ | 63,837 | $ | 48,587 | $ | 45,610 | |||||||||
| 12/31/2021 vs 9/30/2021 | 12/31/2021 vs 12/31/2020 | ||||||||||||||||||
| Variance | Variance | ||||||||||||||||||
| Amount | % | Amount | % | ||||||||||||||||
| Corporate owned life insurance | $ | 167 | 0.65 | % | $ | 15,679 | 152.36 | % | |||||||||||
| Premises and equipment, net | 627 | 3.84 | % | 1,496 | 9.68 | % | |||||||||||||
| Goodwill | 5,634 | 175.02 | % | 5,634 | 175.02 | % | |||||||||||||
| Mortgage servicing rights | 1,382 | 21.41 | % | 2,951 | 60.41 | % | |||||||||||||
| Accrued interest receivable | 247 | 5.59 | % | (405 | ) | (7.99)% | |||||||||||||
| Federal Home Loan Bank stock | 220 | 6.31 | % | 220 | 6.31 | % | |||||||||||||
| Core deposit intangibles | 928 | 274.56 | % | 725 | 134.01 | % | |||||||||||||
| Right-of-use assets | (91 | ) | (7.33)% | 786 | 215.93 | % | |||||||||||||
| Other real estate owned | 382 | N/M | 382 | N/M | |||||||||||||||
| Derivatives | (164 | ) | (51.25)% | (1,175 | ) | (88.28)% | |||||||||||||
| Other assets | 252 | 12.76 | % | 1,265 | 131.50 | % | |||||||||||||
| All other assets | $ | 9,584 | 15.07 | % | $ | 27,558 | 60.42 | % | |||||||||||
Corporate owned life insurance represents the cash surrender value of life insurance policies owned by the Corporation on the lives of key members of management. The increase in Corporate owned life insurance in the second quarter of 2021 was due to the purchase of $15,000 in additional policies.
Goodwill represents the premium paid over the fair market value for a company the Corporation purchases in merger and acquisition activity. The increase in goodwill is a result of acquisition of FSB, which had a purchase price of $15,500, resulting in $5,634 of additional goodwill for the Corporation.
Mortgage servicing rights are servicing assets that are recognized from the sales of mortgage loans. The increase in mortgage servicing rights throughout 2021 is due to the increased volume of residential mortgage loan sales. The serviced loan portfolio has continued to grow in 2021 and the Corporation expects the serviced loan portfolio to increase into 2022 as the Corporation continues to add to the serviced portfolio.
The increase in core deposit intangibles in the fourth quarter of 2021 relates to the acquisition of FSB. As a part of the transaction, a core deposit intangible of $995 was recorded by the Corporation. Core deposit intangibles are being amortized using the sum-of-the-years digits method and will decline into 2022 as they are amortized.
Right-of-use assets were established pursuant to the adoption of FASB ASU 2016-02, "Leases (Topic 842)", on January 1, 2019. Right-of-use assets are recognized at the lease commencement date based on the estimated present value of the lease payments over the lease term, for leases that are longer than 12 months. The increase in the Corporation's right-of-use assets in the first quarter of 2021 was due to the recognition of two additional lease obligations.
Other real estate owned represents real estate property that the Corporation acquires through foreclosure. The increase in other real estate owned is primarily due to properties acquired in connection with the acquisition of FSB.
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:
| 12/31/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | 12/31/2020 | |||||||||||||||
| Noninterest bearing demand | $ | 459,254 | $ | 442,358 | $ | 435,588 | $ | 422,013 | $ | 378,733 | |||||||||
| Interest bearing | |||||||||||||||||||
| Savings | 360,204 | 320,724 | 305,409 | 309,454 | 290,343 | ||||||||||||||
| Money market demand | 125,391 | 119,719 | 113,088 | 109,101 | 113,729 | ||||||||||||||
| NOW | 141,480 | 115,114 | 102,046 | 103,342 | 101,419 | ||||||||||||||
| Time deposits | 141,969 | 146,376 | 170,365 | 178,598 | 187,752 | ||||||||||||||
| Total deposits | $ | 1,228,298 | $ | 1,144,291 | $ | 1,126,496 | $ | 1,122,508 | $ | 1,071,976 | |||||||||
| 12/31/2021 vs 9/30/2021 | 12/31/2021 vs 12/31/2020 | ||||||||||||||||||
| Variance | Variance | ||||||||||||||||||
| Amount | % | Amount | % | ||||||||||||||||
| Noninterest bearing demand | $ | 16,896 | 3.82 | % | $ | 80,521 | 21.26 | % | |||||||||||
| Interest bearing | |||||||||||||||||||
| Savings | 39,480 | 12.31 | % | 69,861 | 24.06 | % | |||||||||||||
| Money market demand | 5,672 | 4.74 | % | 11,662 | 10.25 | % | |||||||||||||
| NOW | 26,366 | 22.90 | % | 40,061 | 39.50 | % | |||||||||||||
| Time deposits | (4,407 | ) | (3.01)% | (45,783 | ) | (24.38)% | |||||||||||||
| Total deposits | $ | 84,007 | 7.34 | % | $ | 156,322 | 14.58 | % | |||||||||||
The Corporation has continued its focus of growing non-contractual deposits while supplementing funding with time deposits. The Corporation has been able to drive this meaningful increase through enhanced organic growth strategies. Total deposits have also increased due to government related stimulus programs. The decrease in time deposits throughout 2021 is primarily due to maturities of municipal time deposits which were partially offset by the addition of time deposits from the acquisition of FSB in the amount of $11,375. As a result of the Corporation's liquidity position and rate compression on contractual time deposits, the Corporation will continue to allow higher priced time deposits to exit. The Corporation will continue to monitor deposit growth and adjust interest rates in order to minimize downward pressure on margins.
Cash and cash equivalents
| 12/31/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | 12/31/2020 | ||||||||||||||
| Cash and cash equivalents | ||||||||||||||||||
| Noninterest bearing | $ | 28,475 | $ | 25,693 | $ | 22,454 | $ | 25,698 | $ | 23,102 | ||||||||
| Interest bearing | 54,971 | 87,168 | 110,222 | 95,779 | 23,655 | |||||||||||||
| Cash and cash equivalents | $ | 83,446 | $ | 112,861 | $ | 132,676 | $ | 121,477 | $ | 46,757 | ||||||||
| 12/31/2021 vs 9/30/2021 | 12/31/2021 vs 12/31/2020 | |||||||||||||||||
| Variance | Variance | |||||||||||||||||
| Amount | % | Amount | % | |||||||||||||||
| Cash and cash equivalents | ||||||||||||||||||
| Noninterest bearing | $ | 2,782 | 10.83 | % | $ | 5,373 | 23.26 | % | ||||||||||
| Interest bearing | (32,197 | ) | (36.94)% | 31,316 | 132.39 | % | ||||||||||||
| Cash and cash equivalents | $ | (29,415 | ) | (26.06)% | $ | 36,689 | 78.47 | % | ||||||||||
Cash and cash equivalents, which is comprised of cash and due from banks, fluctuate from period to period based on loan demand and variances in deposit accounts. The Corporation expects cash and cash equivalents to decline from its current elevated levels as the funds are redeployed into the loan and investment portfolios.
Primary and secondary liquidity sources
While the Corporation continues to maintain a strong liquidity position, it is important to monitor all liquidity sources. The following table outlines the Corporation's primary and secondary sources of liquidity as of:
| 12/31/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | 12/31/2020 | |||||||||||
| Cash and cash equivalents | $ | 83,446 | $ | 112,861 | $ | 132,676 | $ | 121,477 | $ | 46,757 | |||||
| Unpledged investment securities | 143,431 | 127,913 | 118,019 | 76,384 | 59,025 | ||||||||||
| FHLB borrowing availability | 140,000 | 140,000 | 140,000 | 140,000 | 140,000 | ||||||||||
| Federal funds purchased lines of credit | 21,500 | 21,500 | 21,500 | 21,500 | 21,500 | ||||||||||
| Funds available through the Fed Discount Window | 10,000 | 10,000 | 10,000 | 10,000 | 10,000 | ||||||||||
| Parent company line of credit | 7,000 | 7,000 | 7,500 | 8,000 | 8,000 | ||||||||||
| PPPLF | 2,172 | 4,985 | 35,195 | 122,583 | 177,845 | ||||||||||
| Total liquidity sources | $ | 407,549 | $ | 424,259 | $ | 464,890 | $ | 499,944 | $ | 463,127 | |||||
Total borrowed funds
The following tables outline the composition and changes in borrowed funds as of:
| 12/31/21 | 9/30/21 | 6/30/21 | 3/31/21 | 12/31/20 | |||||||||||||
| Federal Home Loan Bank borrowings | $ | 35,000 | $ | 35,000 | $ | 35,000 | $ | 35,000 | $ | 35,000 | |||||||
| Subordinated debentures | 14,000 | 14,000 | 14,000 | 14,000 | 14,000 | ||||||||||||
| Federal funds purchased | — | — | — | — | — | ||||||||||||
| Other borrowings | 1,000 | 1,000 | 500 | — | — | ||||||||||||
| Total borrowed funds | $ | 50,000 | $ | 50,000 | $ | 49,500 | $ | 49,000 | $ | 49,000 | |||||||
| 12/31/2021 vs 9/30/2021 | 12/31/2021 vs 12/31/2020 | ||||||||||||||||
| Variance | Variance | ||||||||||||||||
| Amount | % | Amount | % | ||||||||||||||
| Federal Home Loan Bank borrowings | $ | — | — | % | $ | — | — | % | |||||||||
| Subordinated debentures | — | — | % | — | — | % | |||||||||||
| Other borrowings | — | — | % | 1,000 | N/M | ||||||||||||
| Total borrowed funds | $ | — | — | % | $ | 1,000 | 2.04 | % | |||||||||
The Corporation utilizes a mix of borrowed funds and organic deposit growth to fund loan demand. Other borrowings is comprised of the outstanding balance on the holding company line of credit. Total borrowed funds are expected to approximate current levels into 2022. The Corporation continually analyzes the market for opportunities and will borrow funds when deemed financially beneficial.
Wholesale funding sources
The following tables outline the composition and changes in wholesale funding sources as of:
| 12/31/21 | 9/30/21 | 6/30/21 | 3/31/21 | 12/31/20 | |||||||||||||||
| Federal Home Loan Bank borrowings | $ | 35,000 | $ | 35,000 | $ | 35,000 | $ | 35,000 | $ | 35,000 | |||||||||
| Subordinated debentures | 14,000 | 14,000 | 14,000 | 14,000 | 14,000 | ||||||||||||||
| Other borrowings | 1,000 | 1,000 | 500 | — | — | ||||||||||||||
| Brokered time deposits | 20,000 | 20,000 | 20,000 | 20,234 | 20,000 | ||||||||||||||
| Internet time deposits | 1,743 | 2,739 | 2,739 | 2,739 | 2,839 | ||||||||||||||
| Total wholesale funds | $ | 71,743 | $ | 72,739 | $ | 72,239 | $ | 71,973 | $ | 71,839 | |||||||||
| 12/31/2021 vs 9/30/2021 | 12/31/2021 vs 12/31/2020 | ||||||||||||||||||
| Variance | Variance | ||||||||||||||||||
| Amount | % | Amount | % | ||||||||||||||||
| Federal Home Loan Bank borrowings | $ | — | — | % | $ | — | — | % | |||||||||||
| Subordinated debentures | — | — | % | — | — | % | |||||||||||||
| Other borrowings | — | — | % | 1,000 | N/M | ||||||||||||||
| Brokered time deposits | — | — | % | — | — | % | |||||||||||||
| Internet time deposits | (996 | ) | (36.36)% | (1,096 | ) | (38.61)% | |||||||||||||
| Total wholesale funds | $ | (996 | ) | (1.37)% | $ | (96 | ) | (0.13)% | |||||||||||
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 2022 through the Corporation's earnings. As of December 31, 2021, the Corporation's capital ratios remained strong and are expected to exceed well capitalized provisions for the foreseeable future, inclusive of the impact of the acquisition of FSB in the fourth quarter of 2021.
In November 2021, the Corporation's Board of Directors approved an amendment to the Corporation's common stock repurchase program, initially authorized in April 2020 for the repurchase of up to $5,000 of the Corporation's common stock. The amendment allows the Corporation to repurchase up to $10,000 in aggregate of the currently outstanding shares of the Corporation's common stock. As of December 31, 2021, the Corporation has $3,829 of common stock available to repurchase. The following tables outline the number of shares, dollar amount and weighted average share price associated with the Corporation's common stock repurchase plan for the following periods:
| Quarter to Date | |||||||||||||||
| 12/31/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | 12/31/2020 | |||||||||||
| Number of Shares Repurchased | 78,285 | 73,714 | 40,383 | 37,315 | 5,342 | ||||||||||
| Dollar Amount of Shares Repurchased | $ | 2,193 | $ | 1,929 | $ | 1,059 | $ | 880 | $ | 110 | |||||
| Weighted Average Share Price | $ | 28.01 | $ | 26.17 | $ | 26.22 | $ | 23.58 | $ | 20.59 | |||||
| Year to Date December 31 | ||||||
| 2021 | 2020 | |||||
| Number of Shares Repurchased | 229,697 | 5,342 | ||||
| Dollar Amount of Shares Repurchased | $ | 6,061 | $ | 110 | ||
| Weighted Average Share Price | $ | 26.39 | $ | 20.59 | ||
Stock Performance
The following graph compares the cumulative total shareholder return on the Corporation's common stock for the last five years with the cumulative total return on the ABA NASDAQ Community Bank Index (NASDAQ: ABAQ) over the same period. The graph assumes the value of an investment in the Corporation's common stock and the ABA NASDAQ Community Bank Index was $100 at December 31, 2016 and all dividends were reinvested.
The graph accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/544ea7ea-b187-4302-ad28-833fed87c37f
| Date | FETM | ABAQ Index | ||
| 12/31/2016 | 100.00 | 100.00 | ||
| 12/31/2017 | 121.56 | 100.73 | ||
| 12/31/2018 | 137.25 | 83.99 | ||
| 12/31/2019 | 165.44 | 101.07 | ||
| 12/31/2020 | 147.13 | 86.48 | ||
| 12/31/2021 | 188.38 | 114.46 | ||
Abbreviations and Acronyms
| ABA: American Bankers Association | HFS: Held-for-sale |
| AFS: Available-for-sale | HTM: Held-to-maturity |
| ALLL: Allowance for loan and lease losses | IRA: Individual retirement account |
| AOCI: Accumulated other comprehensive income | ITM: Interactive teller machine |
| ASC: Accounting Standards Codification | MSR: Mortgage servicing rights |
| ASU: Accounting Standards Update | N/M: Not meaningful |
| ATM: Automated teller machine | NASDAQ: National Association of Securities Dealers Automated Quotations |
| CARES Act: Coronavirus Aid, Relief, and Economic Security Act | NOW: Negotiable order of withdrawal |
| CET1: Common equity tier 1 | NSF: Non-sufficient funds |
| COVID-19: Coronavirus Disease 2019 | OREO: Other real estate owned |
| FASB: Financial Accounting Standards Board | PPP: Paycheck Protection Program |
| FDIC: Federal Deposit Insurance Corporation | PPPLF: Paycheck Protection Program Liquidity Facility |
| FHLB: Federal Home Loan Bank | QTD: Quarter-to-date |
| FHLMC: Federal Home Loan Mortgage Corporation | SAB: Staff Accounting Bulletin |
| FRB: Federal Reserve Bank | SBA: U.S. Small Business Administration |
| FSB: Farmers State Bank of Munith | USDA: United States Department of Agriculture |
| FTE: Fully taxable equivalent | YTD: Year-to-date |
| GAAP: Generally Accepted Accounting Principles | |
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 has been recognized as one of the Top 50 performing stocks 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 20 full-service branches in Genesee, Ingham, Jackson, Livingston, Oakland, Saginaw, and Shiawassee Counties. The State Bank’s commercial department provides a complete array of products including lines of credit, term loans, commercial mortgages, SBA loans and a full-suite of cash management products. The retail department offers personal checking, savings, time and IRA deposit accounts and a wide array of loan products including home equity, auto and personal loans. The residential loan department offers construction, purchase and refinance residential mortgage loans. The wealth management department offers a full-service suite of trust and portfolio management services. More information can be found at www.thestatebank.com or www.fentura.com.
Cautionary Statement: This press release contains certain forward-looking statements that involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements concerning future growth in earning assets and net income. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including, but not limited to, economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services, interest rates and fees for services. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release.
| Contacts: | Ronald L. Justice | Aaron D. Wirsing |
| President & CEO | Chief Financial Officer | |
| Fentura Financial, Inc. | Fentura Financial, Inc. | |
| 810.714.3902 | 810.714.3925 | |
| ron.justice@thestatebank.com | aaron.wirsing@thestatebank.com |
