Fentura Financial, Inc. Announces First Quarter 2021 Earnings

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

Fenton, Michigan, UNITED STATES


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

Ronald Justice, President and CEO, stated "I am pleased with Fentura’s strong operating results for the first quarter of 2021. Continued outstanding residential mortgage loan activity, new business loans and core funding levels contributed to solid earnings and strong core balance sheet growth. Asset quality metrics remain strong and COVID-19 related payment deferrals significantly declined as borrowers resumed regular payments. While we continue to navigate the challenges presented by the COVID-19 pandemic, our team remains committed to our mission and we are well positioned and optimistic about our future."

Following is a discussion of the Corporation's financial performance as of, and for the three month period ended March 31, 2021. At the end of this document is a list of abbreviations and acronyms.

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

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

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

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

Income Statement Breakdown and Analysis

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

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

  Year to Date March 31 Variance
  2021 2020 Amount %
GAAP net income $4,656  $3,352  $1,304    38.90  %
Acquisition related items (net of tax)        
Accretion on purchased loans (151) (180) 29   (16.11)%
Amortization of core deposit intangibles 54  71  (17)  (23.94)%
Amortization on acquired time deposits 2  5  (3)  (60.00)%
Total acquisition related items (net of tax) (95) (104) 9   (8.65)%
Other nonrecurring items (net of tax)        
FHLB prepayment penalties         %
Change in fair value of equity investment due to acquisition transaction   (578) 578   (100.00)%
Change in fair value of mortgage banking instruments   (448) 448   (100.00)%
Interest writeoff from loan transferred to nonaccrual         %
Net gain from COLI death benefit         %
Prepayment penalties collected (17) (36) 19   (52.78)%
Mortgage servicing rights (reduction of) impairment   173  (173)  (100.00)%
Total other nonrecurring items (net of tax) (17) (889) 872   (98.09)%
Adjusted net income from operations $4,544  $2,359  $2,185    92.62  %
         
GAAP net interest income $11,243  $8,925  $2,318    25.97  %
Accretion on purchased loans (191) (228) 37   (16.23)%
Interest writeoff from loan transferred to nonaccrual         %
Prepayment penalties collected (21) (46) 25   (54.35)%
Amortization on acquired time deposits 3  6  (3)  (50.00)%
Adjusted net interest income $11,034  $8,657  $2,377    27.46  %
         
PERFORMANCE RATIOS        
Based on adjusted net income from operations        
Earnings per share $0.97  $0.51  $0.46   90.20 %
Return on average assets 1.46% 0.90%   0.56 %
Return on average shareholders' equity 15.48% 9.15%   6.33 %
Return on average tangible shareholders' equity 15.98% 9.53%   6.45 %
Efficiency ratio 60.20% 62.83%   (2.63)%
         
Based on adjusted net interest income        
Yield on earning assets (FTE) 3.94% 4.39%   (0.45)%
Rate on interest bearing liabilities 0.37% 1.29%   (0.92)%
Net interest margin to earning assets (FTE) 3.71% 3.52%   0.19 %

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

Average Balances, Interest Rate, and Net Interest Income

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

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

Net Interest Income

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

Volume and Rate Variance Analysis

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

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

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

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


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


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

Noninterest Income

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


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

Residential Mortgage Operations

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

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

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

Throughout the remainder of 2021, overall revenues from residential mortgage operations (net gain from sale of mortgage loans, mortgage servicing fees, and net mortgage servicing rights income) are not expected to reach the elevated levels experienced during 2020 due to the constrained housing inventory and rising interest rates.

All Other Noninterest Income

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

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

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

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

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

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

Change in fair value of equity investments represents the income earned on equities held in the Corporation's investment portfolio. During the first quarter of 2020, the Corporation recorded a $732 gain from an equity investment in a financial institution that was sold. The Corporation does not anticipate any significant changes in fair value from equity sales in the foreseeable future.

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

Noninterest Expenses

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


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

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

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

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

Data processing primarily includes the expenses relating to the Corporation's core data processor. These expenses are expected to increase throughout 2021 with the size and complexity of the Corporation.
Loan and collection includes expenses related to the origination and collection of loans. The increase in expenses throughout 2020 and into the first quarter of 2021 is a direct result of increased loan volume due to the low interest rate environment created by the Federal Reserve Bank's response to the COVID-19 pandemic. Loan and collection expenses will likely moderate throughout the remainder of 2021, due to diminishing residential mortgage refinancing demand.

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

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

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

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

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

During the fourth quarter of 2020, the Corporation paid off three Federal Home Loan Bank borrowings, totaling $30,000. The Corporation incurred a one-time early payoff fee in the amount $1,907. The payoff was executed to enhance net interest income and net interest margins in each of the next three years. The weighted average rate of the three FHLB borrowings was 2.17%. As a result of the early payoffs, the Corporation is expected to reduce interest expense by approximately $660 during 2021.

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

Balance Sheet Breakdown and Analysis

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


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

Cash and cash equivalents

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

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

Primary and secondary liquidity sources

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

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

Total investment securities

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

The amortized cost and fair value of AFS investment securities as of March 31, 2021 were as follows:

  Maturing    
  Due in One Year or Less After One Year But Within Five Years After Five Years But Within Ten Years After Ten Years Securities with Variable Monthly Payments or Noncontractual Maturities Total
U.S. Government and federal agency $4,975  $967  $  $  $  $5,942 
State and municipal 3,239  5,952  6,005  1,884    17,080 
Mortgage backed residential         32,135  32,135 
Certificates of deposit 1,726  3,206        4,932 
Collateralized mortgage obligations - agencies         25,505  25,505 
Total amortized cost $9,940  $10,125  $6,005  $1,884  $57,640  $85,594 
Fair value $10,125  $10,728  $6,066  $2,110  $57,682  $86,711 

The amortized cost and fair value of HTM investment securities as of March 31, 2021 were as follows:

  Maturing    
  Due in One Year or Less After One Year But Within Five Years After Five Years But Within Ten Years After Ten Years Securities with Variable Monthly Payments or Noncontractual Maturities Total
State and municipal $783  $805  $380  $  $  $1,968 
Fair value $792  $840  $400  $  $  $2,032 

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

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

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

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

Loans and allowance for loan losses

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

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

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

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

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

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


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

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

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

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

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

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

  3/31/2021 12/31/2020 9/30/2020 6/30/2020 3/31/2020
Nonperforming loans to gross loans 0.79% 0.75% 0.07% 0.10% 0.10%
Nonperforming assets to total assets 0.62% 0.64% 0.06% 0.08% 0.12%
Allowance for loan losses to gross loans 1.08% 1.02% 0.95% 0.86% 0.84%
Allowance for loan losses to gross loans, less PPP loans 1.23% 1.23% 1.19% 1.07% 0.84%

During the fourth quarter of 2020, the Corporation transferred one commercial real estate loan with an outstanding principal balance of $7,214 to nonaccrual. The underlying collateral for this loan is an extended stay hotel. The hotel's current cash flow is insufficient to service the debt in accordance with the contractual terms of the note and, as such, the loan continues to be on payment deferrals. A specific reserve has been established for the estimated collateral deficiency (based on a current appraisal), net of a 70% USDA guarantee.

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

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

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

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

Despite historically strong credit quality indicators, there continues to be significant uncertainty surrounding the overall impact of the COVID-19 pandemic on the loan portfolio. This uncertainty resulted in the Corporation increasing the ALLL by $3,850, or 53.10%, since March 31, 2020. Management will continue to monitor the loan portfolio to ensure that the ALLL remains appropriate.

The following table summarizes the average loan size as of:

  3/31/2021 12/31/2020 9/30/2020 6/30/2020 3/31/2020
Commercial $206  $169  $166  $171  $214 
Commercial real estate 727  707  672  654  644 
Total commercial loans 444  351  321  325  513 
Residential mortgage 183  182  180  177  194 
Home equity 46  45  45  45  46 
Total residential real estate loans 131  130  129  128  137 
Consumer 22  22  22  25  26 
Gross loans $249  $226  $215  $213  $234 

COVID-19, CARES Act and SBA activity

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

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

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

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

The table below outlines the active COVID-19 related loan modifications as of March 31, 2021:

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

The accommodation industry was particularly impacted by the COVID-19 pandemic. Due to executive action put in place by the government, including stay-at-home orders and travel restrictions, hotel occupancy rates were reduced drastically. The Corporation has 18 commercial loans in its portfolio in the accommodation industry with a book balance of $20,033. Of these loans, approximately 53% are government-backed by guarantees from either the SBA or USDA.

The Corporation was extremely active in participating in the PPP loan program. The Corporation funded 1,370 loans totaling $216,205. During the fourth quarter of 2020, the SBA began processing PPP forgiveness applications, which reduced the outstanding balance of PPP loans to $122,583 as of March 31, 2021. As of March 31, 2021, the Corporation received forgiveness payments for 721 PPP loans from the SBA.
The Corporation generated $6,799 in fees from the SBA through the PPP loan program. The income is being recognized over the life of the PPP loans (24 to 60 months) based on the level yield method. As of March 31, 2021, the Corporation has recognized $5,337 in income, with $1,462 remaining as unearned income.

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

All other assets

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

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

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

Right-of-use assets were established pursuant to the adoption of ASU 2016-02, "Leases (Topic 842)", on January 1, 2019. Right-of-use assets are recognized at the lease commencement date based on the estimated present value of the lease payments over the lease term, for leases that are longer than 12 months. The increase in the Corporation's right-of-use assets in the first quarter of 2021 is due to the recognition of two additional lease obligations.
Derivatives represent the fair value of interest rate lock commitments and mandatory forward loan sales commitments that are in a gain position. These balances can fluctuate from period to period based on changes in interest rates and the volume of the Corporation's loan pipeline.

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

Total deposits

The following tables outline the composition and changes in the deposit portfolio a