Fentura Financial, Inc. Announces Second Quarter 2022 Earnings

Dollars in thousands except per share amounts. Certain items in the prior period financial statements have been reclassified to conform with the June 30, 2022 presentation.

| Source: Fentura Financial, Inc. Fentura Financial, Inc.

FENTON, Mich., Aug. 02, 2022 (GLOBE NEWSWIRE) -- FENTON, MICHIGAN, August 2, 2022 - Fentura Financial, Inc. (OTCQX: FETM) announces quarterly results of net income of $3,476 and $6,560 for the three and six month periods ended June 30, 2022.

Ronald L. Justice, President and CEO, stated, "Operating results for the second quarter of 2022 were solid, led by strong commercial and residential mortgage loan growth. Despite a challenging market, the lending teams strengthened loan pipelines and increased loans by $93.5 million, or 8.21%, during the period as they continue to expand client relationships. I am pleased with our results and the team’s commitment to serve our clients and local communities."

Following is a discussion of the Corporation's financial performance as of, and for the three and six month periods ended June 30, 2022. At the end of this document is a list of abbreviations and acronyms.

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

  6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
INCOME STATEMENT DATA          
Interest income $13,411  $12,301  $11,749  $11,584  $11,658 
Interest expense  785   599   645   653   762 
Net interest income  12,626   11,702   11,104   10,931   10,896 
Provision for loan losses  525   502   38   (436)  6 
Noninterest income  2,778   2,792   3,097   2,899   4,230 
Noninterest expenses  10,544   10,151   9,957   9,453   9,222 
Federal income tax expense  859   757   864   958   1,172 
Net income $3,476  $3,084  $3,342  $3,855  $4,726 
PER SHARE          
Earnings $0.79  $0.69  $0.74  $0.84  $1.02 
Dividends $0.09  $0.09  $0.08  $0.08  $0.08 
Tangible book value(1) $24.53  $24.97  $25.43  $26.53  $25.73 
Quoted market value          
High $27.85  $29.25  $28.28  $26.25  $27.40 
Low $24.40  $27.10  $25.75  $25.60  $23.55 
Close(1) $25.00  $27.90  $28.28  $25.75  $26.00 
PERFORMANCE RATIOS          
Return on average assets  0.96%  0.86%  0.98%  1.16%  1.45%
Return on average shareholders' equity  11.56%  10.53%  10.56%  12.26%  15.64%
Return on average tangible shareholders' equity  12.60%  11.49%  10.87%  12.63%  16.12%
Efficiency ratio  68.45%  70.04%  70.11%  68.35%  60.97%
Yield on earning assets (FTE)  3.96%  3.70%  3.67%  3.69%  3.79%
Rate on interest bearing liabilities  0.38%  0.29%  0.33%  0.34%  0.41%
Net interest margin to earning assets (FTE)  3.73%  3.52%  3.47%  3.48%  3.55%
BALANCE SHEET DATA(1)          
Total investment securities $136,725  $151,579  $164,942  $138,476  $129,944 
Gross loans $1,232,892  $1,139,351  $1,100,092  $1,015,177  $986,358 
Total assets $1,474,307  $1,435,501  $1,417,801  $1,329,300  $1,309,685 
Total deposits $1,231,543  $1,252,892  $1,228,298  $1,144,291  $1,126,496 
Borrowed funds $111,000  $52,000  $50,000  $50,000  $49,500 
Total shareholders' equity $118,566  $121,346  $124,455  $124,809  $122,986 
Net loans to total deposits  99.22%  90.06%  88.71%  87.80%  86.60%
Common shares outstanding  4,429,357   4,459,544   4,496,701   4,569,955   4,638,614 
QTD BALANCE SHEET AVERAGES          
Total assets $1,449,874  $1,448,545  $1,353,694  $1,323,912  $1,309,942 
Earning assets $1,360,658  $1,348,647  $1,273,650  $1,248,018  $1,234,827 
Interest bearing liabilities $826,708  $831,200  $773,082  $756,545  $753,706 
Total shareholders' equity $120,659  $118,759  $125,500  $124,720  $121,235 
Total tangible shareholders' equity $110,686  $108,862  $121,933  $121,120  $117,567 
Earned common shares outstanding  4,417,446   4,451,607   4,520,962   4,582,401   4,644,833 
Unvested stock grants  24,460   27,466   20,671   20,671   20,671 
Total common shares outstanding  4,441,906   4,479,073   4,541,633   4,603,072   4,665,504 
ASSET QUALITY(1)          
Nonperforming loans to gross loans  0.16%  0.20%  0.18%  0.82%  0.87%
Nonperforming assets to total assets  0.16%  0.19%  0.17%  0.63%  0.66%
Allowance for loan losses to gross loans  0.89%  0.97%  0.95%  1.03%  1.09%
Allowance for loan losses to gross loans, net of PPP loans  0.89%  0.97%  0.96%  1.04%  1.14%
CAPITAL RATIOS(1)          
Total capital to risk weighted assets  11.36%  12.07%  12.22%  13.63%  14.35%
Tier 1 capital to risk weighted assets  10.50%  11.13%  11.30%  12.64%  13.27%
CET1 capital to risk weighted assets  9.39%  9.94%  10.07%  11.33%  11.87%
Tier 1 leverage ratio  9.30%  9.07%  9.13%  10.21%  10.19%
           
(1)At end of period          

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

  6/30/2022 6/30/2021 6/30/2020 6/30/2019 6/30/2018
INCOME STATEMENT DATA          
Interest income $25,712  $23,577  $22,285  $21,225  $17,108 
Interest expense  1,384   1,438   3,763   4,285   2,263 
Net interest income  24,328   22,139   18,522   16,940   14,845 
Provision for loan losses  1,027   218   3,543   477   576 
Noninterest income  5,570   8,084   9,805   3,772   3,814 
Noninterest expenses  20,695   18,253   15,495   13,200   12,328 
Federal income tax expense  1,616   2,370   1,894   1,424   1,163 
Net income $6,560  $9,382  $7,395  $5,611  $4,592 
PER SHARE          
Earnings $1.48  $2.02  $1.59  $1.21  $1.26 
Dividends $0.18  $0.16  $0.15  $0.14  $0.12 
Tangible book value(1) $24.53  $25.73  $22.44  $19.59  $16.00 
Quoted market value          
High $29.25  $27.40  $26.00  $21.00  $21.25 
Low $24.40  $21.90  $12.55  $20.05  $18.88 
Close(1) $25.00  $26.00  $17.35  $20.60  $21.10 
PERFORMANCE RATIOS          
Return on average assets  0.91%  1.47%  1.32%  1.20%  1.16%
Return on average shareholders' equity  11.05%  15.75%  14.13%  12.14%  15.13%
Return on average tangible shareholders' equity  12.05%  16.25%  14.69%  12.75%  16.47%
Efficiency ratio  69.22%  60.39%  54.70%  63.73%  66.07%
Yield on earning assets (FTE)  3.83%  3.89%  4.20%  4.79%  4.42%
Rate on interest bearing liabilities  0.34%  0.39%  1.09%  1.43%  0.90%
Net interest margin to earning assets (FTE)  3.63%  3.65%  3.49%  3.82%  3.82%
BALANCE SHEET DATA(1)          
Total investment securities $136,725  $129,944  $75,526  $73,285  $49,110 
Gross loans $1,232,892  $986,358  $1,044,564  $813,547  $707,364 
Total assets $1,474,307  $1,309,685  $1,237,694  $949,790  $841,459 
Total deposits $1,231,543  $1,126,496  $1,018,287  $792,555  $702,035 
Borrowed funds $111,000  $49,500  $96,217  $54,000  $74,000 
Total shareholders' equity $118,566  $122,986  $108,969  $95,504  $63,078 
Net loans to total deposits  99.22%  86.60%  101.70%  102.02%  100.18%
Common shares outstanding  4,429,357   4,638,614   4,680,920   4,653,343   3,640,060 
YTD BALANCE SHEET AVERAGES          
Total assets $1,449,212  $1,284,534  $1,125,064  $940,585  $797,594 
Earning assets $1,354,652  $1,225,641  $1,068,847  $894,357  $749,755 
Interest bearing liabilities $828,955  $744,434  $692,035  $604,469  $509,294 
Total shareholders' equity $119,711  $120,134  $105,276  $93,239  $61,219 
Total tangible shareholders' equity $109,776  $116,432  $101,233  $88,762  $56,221 
Earned common shares outstanding  4,434,527   4,654,863   4,662,113   4,638,208   3,635,446 
Unvested stock grants  25,963   21,297   13,844   9,878   — 
Total common shares outstanding  4,460,490   4,676,160   4,675,957   4,648,086   3,635,446 
ASSET QUALITY(1)          
Nonperforming loans to gross loans  0.16%  0.87%  0.10%  0.13%  0.14%
Nonperforming assets to total assets  0.16%  0.66%  0.08%  0.11%  0.13%
Allowance for loan losses to gross loans  0.89%  1.09%  0.86%  0.62%  0.57%
Allowance for loan losses to gross loans, net of PPP loans  0.89%  1.14%  1.07%  0.62%  0.57%
CAPITAL RATIOS(1)          
Total capital to risk weighted assets  11.36%  14.35%  15.06%  14.18%  11.20%
Tier 1 capital to risk weighted assets  10.50%  13.27%  14.00%  13.53%  10.62%
CET1 capital to risk weighted assets  9.39%  11.87%  12.34%  11.73%  8.59%
Tier 1 leverage ratio  9.30%  10.19%  9.90%  11.16%  9.14%
           
(1)At end of period          

Income Statement Breakdown and Analysis

  Quarter to Date
  6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
GAAP net income $3,476  $3,084  $3,342  $3,855  $4,726 
Acquisition related items (net of tax)          
Accretion on purchased loans  (21)  (20)  (154)  (152)  (152)
Amortization of core deposit intangibles  85   85   54   54   53 
Amortization on acquired time deposits  (21)  (21)  2   2   2 
Other acquisition related expenses  11   202   178   51   — 
Total acquisition related items (net of tax)  54   246   80   (45)  (97)
Other nonrecurring items (net of tax)          
Prepayment penalties collected  (48)  (162)  (91)  (65)  (33)
Total other nonrecurring items (net of tax)  (48)  (162)  (91)  (65)  (33)
    Adjusted net income from operations $3,482  $3,168  $3,331  $3,745  $4,596 
           
GAAP net interest income $12,626  $11,702  $11,104  $10,931  $10,896 
Accretion on purchased loans  (26)  (25)  (195)  (192)  (192)
Prepayment penalties collected  (61)  (205)  (115)  (82)  (42)
Amortization on acquired time deposits  (27)  (27)  3   3   3 
Adjusted net interest income $12,512  $11,445  $10,797  $10,660  $10,665 
           
PERFORMANCE RATIOS          
Based on adjusted net income from operations          
Earnings per share $0.79  $0.71  $0.74  $0.82  $0.99 
Return on average assets  0.96%  0.89%  0.98%  1.12%  1.41%
Return on average shareholders' equity  11.57%  10.82%  10.53%  11.91%  15.21%
Return on average tangible shareholders' equity  12.62%  11.80%  10.84%  12.27%  15.68%
Efficiency ratio  68.17%  68.74%  69.56%  68.74%  61.46%
           
Based on adjusted net interest income          
Yield on earning assets (FTE)  3.93%  3.64%  3.61%  3.60%  3.72%
Rate on interest bearing liabilities  0.37%  0.30%  0.33%  0.34%  0.40%
Net interest margin to earning assets (FTE)  3.71%  3.45%  3.37%  3.40%  3.47%


  Year to Date June 30 Variance
   2022   2021  Amount %
GAAP net income $6,560  $9,382  $(2,822) (30.08)%
Acquisition related items (net of tax)        
Accretion on purchased loans  (41)  (303)  262  (86.47)%
Amortization of core deposit intangibles  170   107   63  58.88%
Amortization on acquired time deposits  (42)  4   (46) (1,150.00)%
Other acquisition related expenses  213   —   213  N/M
Total acquisition related items (net of tax)  300   (192)  492  (256.25)%
Other nonrecurring items (net of tax)        
Prepayment penalties collected  (210)  (50)  (160) 320.00%
Total other nonrecurring items (net of tax)  (210)  (50)  (160) 320.00%
    Adjusted net income from operations $6,650  $9,140  $(2,490) (27.24)%
         
GAAP net interest income $24,328  $22,139  $2,189  9.89%
Accretion on purchased loans  (51)  (383)  332  (86.68)%
Prepayment penalties collected  (266)  (63)  (203) 322.22%
Amortization on acquired time deposits  (54)  6   (60) (1,000.00)%
Adjusted net interest income $23,957  $21,699  $2,258  10.41%
         
PERFORMANCE RATIOS        
Based on adjusted net income from operations        
Earnings per share $1.50  $1.96  $(0.46) (23.47)%
Return on average assets  0.93%  1.43%   (0.50)%
Return on average shareholders' equity  11.20%  15.34%   (4.14)%
Return on average tangible shareholders' equity  12.22%  15.83%   (3.61)%
Efficiency ratio  68.44%  60.84%   7.60%
         
Based on adjusted net interest income        
Yield on earning assets (FTE)  3.79%  3.81%   (0.02)%
Rate on interest bearing liabilities  0.32%  0.39%   (0.07)%
Net interest margin to earning assets (FTE)  3.59%  3.58%   0.01%

Average Balances, Interest Rate, and Net Interest Income

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

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

  Three Months Ended
  June 30, 2022 March 31, 2022 June 30, 2021
  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 $1,189,812  $12,843 4.33% $1,110,755  $11,739 4.29% $1,023,620  $11,220 4.40%
Taxable investment securities  129,727   441 1.36%  143,945   440 1.24%  89,467   322 1.44%
Nontaxable investment securities  15,305   86 2.25%  16,711   92 2.23%  17,234   100 2.33%
Interest earning cash and cash equivalents  22,269   40 0.72%  73,669   29 0.16%  101,018   23 0.09%
Federal Home Loan Bank stock  3,545   19 2.15%  3,567   20 2.27%  3,488   14 1.61%
Total earning assets  1,360,658   13,429 3.96%  1,348,647   12,320 3.70%  1,234,827   11,679 3.79%
                   
Nonearning assets                  
Allowance for loan losses  (11,217)      (10,509)      (11,193)    
Fixed assets  16,695       16,941       16,104     
Accrued income and other assets  83,738       93,466       70,204     
Total assets $1,449,874      $1,448,545      $1,309,942     
                   
Interest bearing liabilities                  
Interest bearing demand deposits $256,856  $185 0.29% $275,856  $137 0.20% $223,420  $122 0.22%
Savings deposits  367,917   113 0.12%  364,820   120 0.13%  306,503   108 0.14%
Time deposits  113,026   140 0.50%  139,463   187 0.54%  174,694   377 0.87%
Borrowed funds  88,909   347 1.57%  51,061   155 1.23%  49,089   155 1.27%
Total interest bearing liabilities  826,708   785 0.38%  831,200   599 0.29%  753,706   762 0.41%
                   
Noninterest bearing liabilities                  
Noninterest bearing deposits  490,863       472,595       425,353     
Accrued interest and other liabilities  11,644       25,991       9,648     
Shareholders' equity  120,659       118,759       121,235     
Total liabilities and shareholders' equity $1,449,874      $1,448,545      $1,309,942     
Net interest income (FTE)   $12,644     $11,721     $10,917  
Net interest margin to earning assets (FTE)     3.73%     3.52%     3.55%


  Six Months Ended
  June 30, 2022 June 30, 2021
  Average
Balance		 Tax
Equivalent
Interest		 Average
Yield
/ Rate		 Average
Balance		 Tax
Equivalent
Interest		 Average
Yield/
Rate
Interest earning assets            
Total loans $1,150,284  $24,582 4.31% $1,048,858  $22,818 4.39%
Taxable investment securities  136,835   881 1.30%  74,162   524 1.42%
Nontaxable investment securities  16,008   178 2.24%  17,200   205 2.40%
Interest earning cash and cash equivalents  47,969   69 0.29%  81,933   34 0.08%
Federal Home Loan Bank stock  3,556   39 2.21%  3,488   39 2.25%
Total earning assets  1,354,652   25,749 3.83%  1,225,641   23,620 3.89%
             
Nonearning assets            
Allowance for loan losses  (10,863)      (11,168)    
Fixed assets  16,818       15,930     
Accrued income and other assets  88,605       54,131     
Total assets $1,449,212      $1,284,534     
             
Interest bearing liabilities            
Interest bearing demand deposits $266,356  $322 0.24% $214,993  $243 0.23%
Savings deposits  366,369   233 0.13%  301,816   217 0.14%
Time deposits  126,245   327 0.52%  178,580   668 0.75%
Borrowed funds  69,985   502 1.45%  49,045   310 1.27%
Total interest bearing liabilities  828,955   1,384 0.34%  744,434   1,438 0.39%
             
Noninterest bearing liabilities            
Noninterest bearing deposits  481,729       409,553     
Accrued interest and other liabilities  18,817       10,413     
Shareholders' equity  119,711       120,134     
Total liabilities and shareholders' equity $1,449,212      $1,284,534     
             
Net interest income (FTE)   $24,365     $22,182  
             
Net interest margin to earning assets (FTE)     3.63%     3.65%
             

Volume and Rate Variance Analysis

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

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

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

  Three Months Ended Three Months Ended Six Months Ended
  June 30, 2022 June 30, 2022 June 30, 2022
  Compared To Compared To Compared To
  March 31, 2022 June 30, 2021 June 30, 2021
  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 $976  $128  $1,104  $2,784  $(1,161) $1,623  $2,896  $(1,132) $1,764 
Taxable investment securities  (174)  175   1   234   (115)  119   486   (129)  357 
Nontaxable investment securities  (11)  5   (6)  (11)  (3)  (14)  (14)  (13)  (27)
Interest earning cash and cash equivalents  (135)  146   11   (126)  143   17   (42)  77   35 
Federal Home Loan Bank stock  —   (1)  (1)  —   5   5   1   (1)  — 
Total changes in interest income  656   453   1,109   2,881   (1,131)  1,750   3,327   (1,198)  2,129 
                   
Changes in interest expense                  
Interest bearing demand deposits  (60)  108   48   20   43   63   67   12   79 
Savings deposits  7   (14)  (7)  74   (69)  5   57   (41)  16 
Time deposits  (34)  (13)  (47)  (108)  (129)  (237)  (167)  (174)  (341)
Borrowed funds  140   52   192   145   47   192   144   48   192 
Total changes in interest expense  53   133   186   131   (108)  23   101   (155)  (54)
Net change in net interest income (FTE) $603  $320  $923  $2,750  $(1,023) $1,727  $3,226  $(1,043) $2,183 
                   


  Average Yield/Rate for the Three Month Periods Ended
  6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
Total earning assets 3.96% 3.70% 3.67% 3.69% 3.79%
Total interest bearing liabilities 0.38% 0.29% 0.33% 0.34% 0.41%
Net interest margin to earning assets (FTE) 3.73% 3.52% 3.47% 3.48% 3.55%
           


  Quarter to Date Net Interest Income (FTE)
  6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
Interest income $13,411 $12,301 $11,749 $11,584 $11,658
FTE adjustment  18  19  20  20  21
Total interest income (FTE)  13,429  12,320  11,769  11,604  11,679
Total interest expense  785  599  645  653  762
Net interest income (FTE) $12,644 $11,721 $11,124 $10,951 $10,917
           

Noninterest Income

  Quarter to Date
  6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
Net gain on sales of loans $182  $483  $838  $1,096  $1,253
Service charges and fees          
ATM and debit card income  577   485   496   495   511
Trust and investment services  458   598   399   562   403
Service charges on deposit accounts  246   241   218   199   168
Total  1,281   1,324   1,113   1,256   1,082
Net mortgage servicing rights income  433   319   407   (69)  1,119
Change in fair value of equity investments  (31)  (48)  (9)  (4)  2
Other          
Mortgage servicing fees  435   444   394   369   362
Change in cash surrender value of corporate owned life insurance  168   166   168   165   237
PPP referral fees  —   —   —   6   74
Other  310   104   186   80   101
Total  913   714   748   620   774
Total noninterest income $2,778  $2,792  $3,097  $2,899  $4,230
           
Memo items:          
Residential mortgage operations $1,050  $1,246  $1,639  $1,396  $2,734


  Year to Date June 30 Variance
   2022   2021  Amount %
Net gain on sales of loans $665  $3,098  $(2,433) (78.53)%
Service charges and fees        
ATM and debit card income  1,062   959   103  10.74%
Trust and investment services  1,056   871   185  21.24%
Service charges on deposit accounts  487   334   153  45.81%
Total $2,605  $2,164  $441  20.38%
Net mortgage servicing rights income  752   1,257   (505) (40.18)%
Change in fair value of equity investments  (79)  (17)  (62) 364.71%
Other        
Mortgage servicing fees  879   697   182  26.11%
Change in cash surrender value of corporate owned life insurance  334   301   33  10.96%
PPP referral fees  —   425   (425) (100.00)%
Other  414   159   255  160.38%
Total  1,627   1,582   45  2.84%
Total noninterest income $5,570  $8,084  $(2,514) (31.10)%
         
Memo items:        
Residential mortgage operations $2,296  $5,052   (2,756) (54.55)        %
         

Residential Mortgage Operations

Residential mortgage operations includes net gains on sales of loans, net mortgage servicing rights income, and mortgage servicing fees.

Net gain on sales of mortgage loans represents the income earned on the sale of residential mortgage loans into the secondary market. Throughout 2021, the interest rate environment was advantageous for residential mortgage originations and refinancing, resulting in significantly elevated gains from sales of loans. Increases in interest rates and limited inventories have driven gains down during 2022. Additionally, approximately 70% of all residential mortgage loans originated in the second quarter of 2022 were portfolio loans (adjustable rate mortgages, construction loans, etc.).

Changes in the fair value of MSR are highly correlated to changes in interest rates. As a significant portion of the serviced loan portfolio was originated during 2020 and 2021 at lower interest rates, management expects the value of the servicing portfolio to remain strong.

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

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 throughout the remainder of 2022.

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. The annual increase in trust and investment services is directly related to a shift in customer demand to annuity products. The decline in income during the second quarter of 2022 is primarily due to exceptionally strong annuity production during the first quarter of 2022. Trust services and wealth management fees are subject to market fluctuations and interest rate changes.

Service charges on deposit accounts includes fees earned from deposit customers for transaction-based charges, account maintenance and overdraft services. Revenue from service charges has increased in 2022 as a result of an increase in transaction volume as well as more customers utilizing overdraft services offered by the Corporation. Service charges on deposit accounts are expected to approximate current levels throughout 2022.

Change in cash surrender value of corporate owned life insurance increased in 2022 as a result of the purchase of $15,000 in additional corporate owned life insurance policies during the second quarter of 2021. The Corporation expects the change in cash surrender value of corporate owned life insurance to approximate current earnings levels throughout the remainder of 2022.

PPP referral fees earned in 2021 represent fees the Corporation earned from the second round of the PPP loan program through the SBA. As the PPP loan program has ended, the Corporation does not anticipate to record any future revenues from PPP referral fees.

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

Noninterest Expenses

  Quarter to Date
  6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
Compensation and benefits $5,453 $5,347 $5,054 $5,001 $5,000
Furniture and equipment  805  818  794  761  712
Professional services  777  812  948  790  703
Occupancy  579  604  491  522  508
Data processing  665  412  622  557  583
Loan and collection  584  311  286  264  337
Advertising and promotional  326  278  356  384  304
Other          
FDIC insurance premiums  172  150  138  153  79
ATM and debit card  160  143  158  131  144
Other acquisition related expenses  14  256  225  64  —
Telephone and communication  112  105  96  80  130
Amortization of core deposit intangibles  107  108  68  68  67
Other general and administrative  790  807  721  678  655
Total  1,355  1,569  1,406  1,174  1,075
Total noninterest expenses $10,544 $10,151 $9,957 $9,453 $9,222
           


  Year to Date June 30 Variance
   2022  2021 Amount %
Compensation and benefits $10,800 $10,004 $796  7.96%
Furniture and equipment  1,623  1,349  274  20.31%
Professional services  1,589  1,327  262  19.74%
Occupancy  1,183  1,003  180  17.95%
Data processing  1,077  1,092  (15) (1.37)%
Loan and collection  895  743  152  20.46%
Advertising and promotional  604  588  16  2.72%
Other        
FDIC insurance premiums  322  234  88  37.61%
ATM and debit card  303  266  37  13.91%
Other acquisition related expenses  270  —  270  N/M
Telephone and communication  217  224  (7) (3.13)%
Amortization of core deposit intangibles  215  135  80  59.26%
Other general and administrative  1,597  1,288  309  23.99%
Total  2,924  2,147  777  36.19%
Total noninterest expenses $20,695 $18,253 $2,442  13.38%
         

Compensation and benefits includes salaries, commissions and incentives, employee benefits, and payroll taxes. Compensation and benefits has increased in 2022 due to an increase in the size of the organization, merit increases, and market based adjustments.

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

Professional services include expenses relating to third-party professional services. These services include, but are not limited to, regulatory, auditing, consulting, and legal. The increase in professional services is primarily due to audit and accounting and other outside services. These expenses are expected to approximate current levels for the foreseeable future.

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

Loan and collection includes expenses related to the origination and collection of loans. These expenses were elevated in the second quarter of 2022 due to the high level of loan production.

Advertising and promotional includes the Corporation's media costs and any donations or sponsorships made on behalf of the Corporation. 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. Total advertising and promotional expenses are expected to approximate current levels for the remainder of 2022.

FDIC insurance premiums typically fluctuate based on the size of the Corporation's balance sheet, capital position and overall risk profile.

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 in 2022.

Other acquisition related expenses includes expenses relates to the Corporation's acquisition of FSB, which closed in the fourth quarter of 2021. The Corporation incurred expenses related to the acquisition of FSB in the first and second quarters of 2022. The Corporation does not anticipate to record additional expenses related to the acquisition of FSB in future periods.

Telephone and communication includes expenses relating to the Corporation's communication systems. These expenses are expected to approximate current levels throughout the remainder of 2022.

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 using an accelerated sum-of-years-digits method over their estimated useful lives of seven years.

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

Balance Sheet Breakdown and Analysis

  6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
ASSETS          
Cash and due from banks $38,510 $80,133 $83,446 $112,861 $132,676
Total investment securities  136,725  151,579  164,942  138,476  129,944
Residential mortgage loans held-for-sale, at fair value  664  3,038  6,783  9,702  7,670
Gross loans  1,232,892  1,139,351  1,100,092  1,015,177  986,358
Less allowance for loan losses  11,000  11,000  10,500  10,500  10,800
Net Loans  1,397,791  1,363,101  1,344,763  1,265,716  1,245,848
All other assets  76,516  72,400  73,038  63,584  63,837
Total assets $1,474,307 $1,435,501 $1,417,801 $1,329,300 $1,309,685
           
LIABILITIES AND SHAREHOLDERS EQUITY          
Total deposits $1,231,543 $1,252,892 $1,228,298 $1,144,291 $1,126,496
Total borrowed funds  111,000  52,000  50,000  50,000  49,500
Accrued interest payable and other liabilities  13,198  9,263  15,048  10,200  10,703
Total liabilities  1,355,741  1,314,155  1,293,346  1,204,491  1,186,699
Total shareholders' equity  118,566  121,346  124,455  124,809  122,986
Total liabilities and shareholders' equity $1,474,307 $1,435,501 $1,417,801 $1,329,300 $1,309,685
           


  6/30/2022 vs 3/31/2022 6/30/2022 vs 6/30/2021
  Variance Variance
  Amount % Amount %
ASSETS        
Cash and due from banks $(41,623) (51.94)% $(94,166) (70.97)%
Total investment securities  (14,854) (9.80)%  6,781  5.22%
Residential mortgage loans held-for-sale, at fair value  (2,374) (78.14)%  (7,006) (91.34)%
Gross loans  93,541  8.21%  246,534  24.99%
Less allowance for loan losses  —  —%  200  1.85%
Net Loans  93,541  8.29%  246,334  25.25%
All other assets  4,116  5.69%  12,679  19.86%
Total assets $38,806  2.70% $164,622  12.57%
         
LIABILITIES AND SHAREHOLDERS EQUITY        
Total deposits $(21,349) (1.70)% $105,047  9.33%
Total borrowed funds  59,000  113.46%  61,500  124.24%
Accrued interest payable and other liabilities  3,935  42.48%  2,495  23.31%
Total liabilities  41,586  3.16%  169,042  14.24%
Total shareholders' equity  (2,780) (2.29)%  (4,420) (3.59)%
Total liabilities and shareholders' equity $38,806  2.70% $164,622  12.57%
         

Cash and cash equivalents

  6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
Cash and due from banks          
Noninterest bearing $26,085  $23,715  $28,475 $25,693  $22,454 
Interest bearing  12,425   56,418   54,971  87,168   110,222 
Total $38,510  $80,133  $83,446 $112,861  $132,676 
           
  6/30/2022 vs 3/31/2022   6/30/2022 vs 6/30/2021
  Variance   Variance
  Amount %   Amount %
Cash and due from banks          
Noninterest bearing $2,370   9.99%   $3,631   16.17%
Interest bearing  (43,993) (77.98)%    (97,797) (88.73)%
Total $(41,623) (51.94)%   $(94,166) (70.97)%
           

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.

Primary and secondary liquidity sources

The following table outlines the Corporation's primary and secondary sources of liquidity as of:

  6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
Cash and cash equivalents $38,510 $80,133 $83,446 $112,861 $132,676
Fair value of unpledged investment securities  115,586  132,364  143,431  127,913  118,019
FHLB borrowing availability  83,000  140,000  140,000  140,000  140,000
Federal funds purchased lines of credit  26,500  21,500  21,500  21,500  21,500
Funds available through the Fed Discount Window  125  125  200  1,000  1,500
Parent company line of credit  3,000  5,000  7,000  7,000  7,500
PPPLF  429  583  2,172  4,985  35,195
Total liquidity sources $267,150 $379,705 $397,749 $415,259 $456,390
           

Total investment securities

  6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
Available-for-sale          
U.S. Government and federal agency $27,391  $28,396  $30,406  $5,967  $5,917 
State and municipal  22,863   24,949   25,010   25,227   23,096 
Mortgage backed residential  60,672   63,532   66,874   67,199   60,390 
Certificates of deposit  8,914   9,917   10,172   4,190   4,932 
Collateralized mortgage obligations - agencies  27,733   28,968   30,180   31,732   31,281 
Unrealized gain/(loss) on available-for-sale securities  (13,509)  (6,900)  (468)  1,432   1,334 
Total available-for-sale  134,064   148,862   162,174   135,747   126,950 
Held-to-maturity state and municipal  1,386   1,509   1,512   1,515   1,859 
Equity securities  1,275   1,208   1,256   1,214   1,135 
Total investment securities $136,725  $151,579  $164,942  $138,476  $129,944 
           
  6/30/2022 vs 3/31/2022   6/30/2022 vs 6/30/2021
  Variance   Variance
  Amount %   Amount %
Available-for-sale          
U.S. Government and federal agency  (1,005) (3.54)%   $21,474   362.92%
State and municipal  (2,086) (8.36)%    (233) (1.01)%
Mortgage backed residential  (2,860) (4.50)%    282   0.47%
Certificates of deposit  (1,003) (10.11)%    3,982   80.74%
Collateralized mortgage obligations - agencies  (1,235) (4.26)%    (3,548) (11.34)%
Unrealized gain/(loss) on available-for-sale securities  (6,609)  95.78%    (14,843) (1,112.67)%
Total available-for-sale  (14,798) (9.94)%    7,114   5.60%
Held-to-maturity state and municipal  (123) (8.15)%    (473) (25.44)%
Equity securities  67   5.55%    140   12.33%
Total investment securities $(14,854) (9.80)%   $6,781   5.22%
           

The amortized cost and fair value of AFS investment securities as of June 30, 2022 were as follows:

  Maturing    
  Due in One
Year or Less		 After One Year
But Within
Five Years		 After Five
Years But
Within Ten
Years		 After Ten Years Securities with
Variable
Monthly
Payments or
Noncontractual
Maturities		 Total
U.S. Government and federal agency $4,994 $22,397 $— $— $— $27,391
State and municipal  2,084  10,892  8,250  1,637  —  22,863
Mortgage backed residential  —        60,672  60,672
Certificates of deposit  6,190  2,724  —  —  —  8,914
Collateralized mortgage obligations - agencies  —  —  —  —  27,733  27,733
Total amortized cost $13,268 $36,013 $8,250 $1,637 $88,405 $147,573
Fair value $13,209 $33,459 $7,374 $1,484 $78,538 $134,064
             

The amortized cost and fair value of HTM investment securities as of June 30, 2022 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 $501 $580 $305 $— $— $1,386
Fair value $501 $575 $290 $— $— $1,366
             

Throughout 2021, the Corporation expanded its investment portfolio to generate additional interest income. Total investment securities increased as a part of the acquisition of FSB on December 1, 2021 in the amount of $35,749. There were no purchases YTD of investment securities as of June 30, 2022, which has resulted in a reduction of the overall size of the investment portfolio due to maturing securities. In addition, total investment securities declined in the first and second quarters of 2022 due to an increase in unrealized losses resulting from recent increases in market interest rates.

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

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

Loans and allowance for loan losses

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

  6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
Commercial, net of PPP loans $108,054  $94,810  $91,529  $74,308  $65,875 
PPP loans  429   583   2,172   4,985   35,195 
Commercial real estate  745,416   698,275   656,818   616,358   573,598 
Total commercial loans  853,899   793,668   750,519   695,651   674,668 
Residential mortgage  327,574   297,940   298,799   273,478   265,323 
Home equity  44,648   40,609   42,220   41,902   41,771 
Total residential real estate loans  372,222   338,549   341,019   315,380   307,094 
Consumer  6,771   7,134   8,554   4,146   4,596 
Gross loans  1,232,892   1,139,351   1,100,092   1,015,177   986,358 
Allowance for loan and lease losses  (11,000)  (11,000)  (10,500)  (10,500)  (10,800)
Loans, net $1,221,892  $1,128,351  $1,089,592  $1,004,677  $975,558 
           
Memo items:          
Gross loans, net of PPP loans $1,232,463  $1,138,768  $1,097,920  $1,010,192  $951,163 
Residential mortgage loans serviced for others $678,117  $688,745  $687,233  $591,399  $581,984 
           
  6/30/2022 vs 3/31/2022   6/30/2022 vs 6/30/2021
  Variance   Variance
  Amount %   Amount %
Commercial, net of PPP loans $13,244   13.97%   $42,179   64.03%
PPP loans  (154) (26.42)%    (34,766) (98.78)%
Commercial real estate  47,141   6.75%    171,818   29.95%
Total commercial loans  60,231   7.59%    179,231   26.57%
Residential mortgage  29,634   9.95%    62,251   23.46%
Home equity  4,039   9.95%    2,877   6.89%
Total residential real estate loans  33,673   9.95%    65,128   21.21%
Consumer  (363) (5.09)%    2,175   47.32%
Gross loans  93,541   8.21%    246,534   24.99%
Allowance for loan losses  —   —%    (200)  1.85%
Loans, net $93,541   8.29%   $246,334   25.25%
           
Memo items:          
Gross loans, net of PPP loans $93,695   8.23%   $281,300   29.57%
Residential mortgage loans serviced for others $(10,628) (1.54)%   $96,133   16.52%
           

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

  6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
Loans collectively evaluated for impairment          
Commercial and industrial $108,483 $94,899 $93,207 $79,252 $100,424
Commercial real estate  745,025  698,275  656,818  609,382  564,781
Residential mortgage  326,481  296,883  297,626  272,463  264,448
Home equity  44,607  40,568  42,138  41,840  41,708
Consumer  6,771  7,134  8,554  4,146  4,596
Subtotal  1,231,367  1,137,759  1,098,343  1,007,083  975,957
Loans individually evaluated for impairment          
Commercial and industrial  —  494  494  41  646
Commercial real estate  391  —  —  6,976  8,817
Residential mortgage  1,093  1,057  1,173  1,015  875
Home equity  41  41  82  62  63
Consumer  —  —  —  —  —
Subtotal  1,525  1,592  1,749  8,094  10,401
Gross Loans $1,232,892 $1,139,351 $1,100,092 $1,015,177 $986,358
           

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

  6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
Loans collectively evaluated for impairment          
Commercial and industrial $1,074 $837 $743 $613 $585
Commercial real estate  6,437  6,716  6,350  6,104  6,264
Residential mortgage  3,061  3,007  2,940  3,066  2,814
Home equity  345  364  379  410  440
Consumer  74  63  77  53  85
Unallocated  —  —  —  —  —
Subtotal  10,991  10,987  10,489  10,246  10,188
Loans individually evaluated for impairment          
Commercial and industrial  —  —  —  —  42
Commercial real estate  —  —  —  250  566
Residential mortgage  9  13  11  4  4
Home equity  —  —  —  —  —
Consumer  —  —  —  —  —
Unallocated  —  —  —  —  —
Subtotal  9  13  11  254  612
Allowance for loan losses $11,000 $11,000 $10,500 $10,500 $10,800
           


Commercial and industrial $1,074 $837 $743 $613 $627
Commercial real estate  6,437  6,716  6,350  6,354  6,830
Residential mortgage  3,070  3,020  2,951  3,070  2,818
Home equity  345  364  379  410  440
Consumer  74  63  77  53  85
Unallocated  —  —  —  —  —
Allowance for loan losses $11,000 $11,000 $10,500 $10,500 $10,800
           

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

  6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
Accruing interest          
Current $1,228,082 $1,132,961 $1,094,141 $1,004,220 $976,852
Past due 30-89 days  2,802  4,099  3,971  2,596  923
Past due 90 days or more  525  284  276  364  36
Total accruing interest  1,231,409  1,137,344  1,098,388  1,007,180  977,811
Nonaccrual  1,483  2,007  1,704  7,997  8,547
Total loans $1,232,892 $1,139,351 $1,100,092 $1,015,177 $986,358
Total loans past due and in nonaccrual status $4,810 $6,390 $5,951 $10,957 $9,506
           

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

  6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
Nonaccrual loans $1,483 $2,007 $1,704 $7,997 $8,547
Accruing loans past due 90 days or more  525  284  276  364  36
Total nonperforming loans  2,008  2,291  1,980  8,361  8,583
Other real estate owned  383  383  383  —  —
Total nonperforming assets $2,391 $2,674 $2,363 $8,361 $8,583
           

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

  6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
Nonperforming loans to gross loans 0.16% 0.20% 0.18% 0.82% 0.87%
Nonperforming assets to total assets 0.16% 0.19% 0.17% 0.63% 0.66%
Allowance for loan losses to gross loans 0.89% 0.97% 0.95% 1.03% 1.09%
Allowance for loan losses to gross loans, net of PPP loans 0.89% 0.97% 0.96% 1.04% 1.14%

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

  6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
Net unamortized discount on purchased loans $51 $76 $101 $196 $388

The following table summarizes the average loan size as of:

  6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
Commercial and industrial $309 $264 $192 $217 $168
Commercial real estate  802  756  715  791  761
Total commercial loans  667  618  533  608  498
Residential mortgage  208  193  188  203  199
Home equity  50  46  38  47  47
Total residential real estate loans  151  140  126  141  138
Consumer  15  14  15  25  24
Gross loans $292 $271 $235 $287 $262
           

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 resources 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
  6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
PPP fees recognized $— $24 $56 $376 $999
PPP referral fee income  —  —  —  6  74
Total PPP fees recognized $— $24 $56 $382 $1,073
           


  Year to Date June 30 Variance
   2022  2021 Amount %
PPP fees recognized $24 $2,776 $(2,752) (99.14)%
PPP referral fee income  —  425  (425) (100.00)%
Total PPP fees recognized $24 $3,201 $(3,177) (99.25)%
         

All other assets

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

  6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
Premises and equipment, net $16,459 $16,696 $16,957 $16,330 $16,231
Federal Home Loan Bank stock  4,140  3,337  3,708  3,488  3,488
Corporate owned life insurance  26,350  26,136  25,970  25,803  25,638
Mortgage servicing rights  8,588  8,155  7,836  6,454  6,523
Accrued interest receivable  2,798  2,784  2,817  2,776  3,040
Goodwill  8,853  8,853  8,853  3,219  3,219
Other assets          
Core deposit intangibles  1,051  1,158  1,266  338  406
Right-of-use assets  1,159  1,110  1,150  1,241  1,364
Other real estate owned  383  383  383  —  —
Derivatives  26  164  156  320  601
Other  6,709  3,624  3,942  3,615  3,327
Total  9,328  6,439  6,897  5,514  5,698
All other assets $76,516 $72,400 $73,038 $63,584 $63,837
           


  6/30/2022 vs 3/31/2022   6/30/2022 vs 6/30/2021
  Variance   Variance
  Amount %   Amount %
Premises and equipment, net $(237) (1.42)%   $228  1.40%
Federal Home Loan Bank stock  803  24.06%    652  18.69%
Corporate owned life insurance  214  0.82%    712  2.78%
Mortgage servicing rights  433  5.31%    2,065  31.66%
Accrued interest receivable  14  0.50%    (242) (7.96)%
Goodwill  —  —%    5,634  175.02%
Other assets          
Core deposit intangibles  (107) (9.24)%    645  158.87%
Right-of-use assets  49  4.41%    (205) (15.03)        %
Other real estate owned  —  —%    383  N/M
Derivatives  (138) (84.15)%    (575) (95.67)%
Other  3,085  85.13%    3,382  101.65%
Total  2,889  44.87%    3,630  63.71%
All other assets $4,116  5.69%   $12,679  19.86%
           

The increase in FHLB stock in the second quarter of 2022 is a direct result of an increase of $57,000 of FHLB borrowings.

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. Increases in corporate owned life are primarily driven from increases in the cash surrender value of the underlying insurance policies.

Over the past twelve months, the Corporation's residential mortgage servicing portfolio has grown by $96,133. The growth of the servicing portfolio and recent increases in residential mortgage rates have directly contributed to increases in the value of mortgage servicing rights.

Goodwill represents the premium paid over the fair market value for a company the Corporation purchases in merger and acquisition activity. The acquisition of FSB in the fourth quarter of 2021 generated an additional $5,634 of goodwill.

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.

Other assets have primarily increased due to an increase in deferred tax assets related to unrealized losses in the Corporation's available-for-sale investment portfolio.

Total deposits

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

  6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
Noninterest bearing demand $493,262  $480,230  $459,254 $442,358  $435,588 
Interest bearing          
Savings  368,849   377,170   360,204  320,724   305,409 
Money market demand  144,606   135,051   125,391  119,719   113,088 
NOW  118,707   126,461   141,480  115,114   102,046 
Time deposits  106,119   133,980   141,969  146,376   170,365 
Total deposits $1,231,543  $1,252,892  $1,228,298 $1,144,291  $1,126,496 
           
  6/30/2022 vs 3/31/2022   6/30/2022 vs 6/30/2021
  Variance   Variance
  Amount %   Amount %
Noninterest bearing demand $13,032   2.71%   $57,674   13.24%
Interest bearing          
Savings  (8,321) (2.21)%    63,440   20.77%
Money market demand  9,555   7.08%    31,518   27.87%
NOW  (7,754) (6.13)%    16,661   16.33%
Time deposits  (27,861) (20.79)%    (64,246) (37.71)%
Total deposits $(21,349) (1.70)%   $105,047   9.33%
           

The Corporation has continued its focus of growing non-contractual deposits while supplementing funding with time deposits. The decrease in time deposits throughout 2021 and into 2022 is primarily due to maturities of municipal time deposits that were not renewed as a result of the current interest rate environment.

Total borrowed funds

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

  6/30/22 3/31/22 12/31/21 9/30/21 6/30/21
Federal Home Loan Bank borrowings $92,000 $35,000 $35,000 $35,000 $35,000
Subordinated debentures  14,000  14,000  14,000  14,000  14,000
Other borrowings  5,000  3,000  1,000  1,000  500
Total borrowed funds $111,000 $52,000 $50,000 $50,000 $49,500
           


  6/30/2022 vs 3/31/2022 6/30/2022 vs 6/30/2021
  Variance Variance
  Amount % Amount %
Federal Home Loan Bank borrowings $57,000 162.86% $57,000 162.86%
Subordinated debentures  — —%  — —%
Other borrowings  2,000 66.67%  4,500 900.00%
Total borrowed funds $59,000 113.46% $61,500 124.24%
         

The Corporation utilizes a mix of borrowed funds and organic deposit growth to fund loan demand. The increase in Federal Home Loan Bank borrowings during the second quarter of 2022 is primarily due to the growth of the Corporation's loan portfolio, which grew $93,695, or 8.23%, net of PPP loans, compared to the first quarter of 2022.

Wholesale funding sources

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

  6/30/22 3/31/22 12/31/21 9/30/21 6/30/21
Federal Home Loan Bank borrowings $92,000 $35,000 $35,000 $35,000 $35,000
Subordinated debentures  14,000  14,000  14,000  14,000  14,000
Other borrowings  5,000  3,000  1,000  1,000  500
Brokered time deposits  20,000  20,000  20,000  20,000  20,000
Internet time deposits  1,743  1,743  1,743  2,739  2,739
Total wholesale funds $132,743 $73,743 $71,743 $72,739 $72,239
           


  6/30/2022 vs 3/31/2022 6/30/2022 vs 6/30/2021
  Variance Variance
  Amount % Amount %
Federal Home Loan Bank borrowings $57,000 162.86%  57,000  162.86%
Subordinated debentures  — —%  —  —%
Other borrowings  2,000 66.67%  4,500  900.00%
Brokered time deposits  — —%  —  —%
Internet time deposits  — —%  (996) (36.36)%
Total wholesale funds $59,000 80.01% $60,504  83.76%
         

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).

Total shareholders' equity

The following tables outline the composition and changes in shareholders equity as of:

  6/30/22 3/31/22 12/31/21 9/30/21 6/30/21
Common stock, no par value; 10,000,000 shares authorized $73,324  $74,132  $75,366  $77,418 $79,215
Retained earnings  55,469   52,393   49,714   46,735  43,250
Accumulated other comprehensive (loss) income  (10,227)  (5,179)  (625)  656  521
Total shareholders' equity $118,566  $121,346  $124,455  $124,809 $122,986
           


  6/30/2022 vs 3/31/2022 6/30/2022 vs 6/30/2021
  Variance Variance
  Amount % Amount %
Common stock, no par value; 10,000,000 shares authorized $(808) (1.09)% $(5,891) (7.44)%
Retained earnings  3,076  5.87%  12,219  28.25%
Accumulated other comprehensive (loss) income  (5,048) 97.47%  (10,748) (2062.96)%
Total shareholders' equity $(2,780) (2.29)% $(4,420) (3.59)%
         

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 to repurchase 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 June 30, 2022, the Corporation has $1,393 of common stock available to repurchase through the program. 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
  6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021
Number of Shares Repurchased  35,000  51,461  78,285  73,714  40,383
Dollar Amount of Shares Repurchased $935 $1,501 $2,193 $1,929 $1,059
Weighted Average Share Price $26.71 $29.17 $28.01 $26.17 $26.22


  Year to Date June 30
   2022  2021
Number of Shares Repurchased  86,461  77,698
Dollar Amount of Shares Repurchased $2,436 $1,939
Weighted Average Share Price $28.17 $24.96
     

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 June 30, 2017 and all dividends were reinvested.

The graph accompanying this announcement: https://www.globenewswire.com/NewsRoom/AttachmentNg/a2b339b4-98eb-4ac1-9416-e872d72d0714

Date FETM ABAQ Index
6/30/2017 100.00 100.00
6/30/2018 116.82 108.97
6/30/2019 115.51 96.19
6/30/2020 99.29 71.10
6/30/2021 148.38 110.19
6/30/2022 144.77 100.97

Abbreviations and Acronyms

ABA: American Bankers AssociationHFS: Held-for-sale
AFS: Available-for-saleHTM: Held-to-maturity
ALLL: Allowance for loan and lease lossesIRA: Individual retirement account
AOCI: Accumulated other comprehensive incomeITM: Interactive teller machine
ASC: Accounting Standards CodificationMSR: Mortgage servicing rights
ASU: Accounting Standards UpdateN/M: Not meaningful
ATM: Automated teller machineNASDAQ: National Association of Securities Dealers Automated Quotations
CARES Act: Coronavirus Aid, Relief, and Economic Security ActNOW: Negotiable order of withdrawal
CET1: Common equity tier 1NSF: Non-sufficient funds
COVID-19: Coronavirus Disease 2019OREO: Other real estate owned
FASB: Financial Accounting Standards BoardPPP: Paycheck Protection Program
FDIC: Federal Deposit Insurance CorporationPPPLF: Paycheck Protection Program Liquidity Facility
FHLB: Federal Home Loan BankQTD: Quarter-to-date
FHLMC: Federal Home Loan Mortgage CorporationSAB: Staff Accounting Bulletin
FRB: Federal Reserve BankSBA: U.S. Small Business Administration
FSB: Farmers State Bank of MunithUSDA: United States Department of Agriculture
FTE: Fully taxable equivalentYTD: 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 19 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. JusticeAaron D. Wirsing
 President & CEOChief Financial Officer
 Fentura Financial, Inc.Fentura Financial, Inc.
 810.714.3902810.714.3925
 ron.justice@thestatebank.com aaron.wirsing@thestatebank.com 

Figure 1