GlobeNewswire Inc | May 3, 2021 07:32PM EDT

May 03, 2021

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 March31, 2021.

Ronald Justice, President and CEO, stated "I am pleased with Fenturas 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 March31, 2021. At the end of this document is a list of abbreviations and acronyms.

Results of OperationsThe 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 3/31/2020INCOMESTATEMENT DATAInterest $ 11,919 $ 11,624 $ 12,070 $ 11,215 $ 11,070 incomeInterest 676 972 1,189 1,618 2,145 expenseNet interest 11,243 10,652 10,881 9,597 8,925 incomeProvision for 212 982 1,109 2,001 1,542 loan lossesNoninterest 3,854 4,676 5,159 5,292 4,513 incomeNoninterest 9,031 10,971 8,218 7,809 7,686 expensesFederalincome tax 1,198 642 1,377 1,036 858 expenseNet 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 $ 24.68 $ 23.88 $ 23.50 $ 22.44 $ 21.56 value^(1)Quoted market valueHigh $ 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 RATIOSReturn onaverage 1.50 % 0.84 % 1.68 % 1.35 % 1.28 %assetsReturn onaverage 15.86 % 9.27 % 18.86 % 15.20 % 13.01 %shareholders'equityReturn onaveragetangible 16.38 % 9.58 % 19.54 % 15.79 % 13.54 %shareholders'equityEfficiency 59.82 % 71.57 % 51.23 % 52.45 % 57.20 %ratioYield onearning 4.01 % 3.75 % 3.97 % 3.94 % 4.47 %assets (FTE)Rate oninterest 0.37 % 0.50 % 0.63 % 0.91 % 1.28 %bearingliabilitiesNet interestmargin to 3.79 % 3.44 % 3.58 % 3.37 % 3.61 %earningassets (FTE)BALANCE SHEET DATA^(1)Totalinvestment $ 89,772 $ 76,111 $ 78,179 $ 75,526 $ 76,312 securitiesGross 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 $ 1,122,508 $ 1,071,976 $ 1,061,470 $ 1,018,287 $ 883,837 depositsBorrowed $ 49,000 $ 49,000 $ 96,217 $ 96,217 $ 71,500 fundsTotalshareholders' $ 119,059 $ 115,868 $ 114,081 $ 108,969 $ 104,828 equityNet loans tototal 90.60 % 98.48 % 98.99 % 101.70 % 97.11 %depositsCommon shares 4,673,932 4,694,275 4,691,142 4,680,920 4,675,499 outstandingQTD BALANCESHEET AVERAGESTotal assets $ 1,259,119 $ 1,288,199 $ 1,264,105 $ 1,200,966 $ 1,049,245 Earning $ 1,206,411 $ 1,235,895 $ 1,210,274 $ 1,146,941 $ 997,089 assetsInterestbearing $ 735,159 $ 773,132 $ 750,281 $ 711,500 $ 672,564 liabilitiesTotalshareholders' $ 119,034 $ 117,263 $ 112,565 $ 106,998 $ 103,646 equityTotaltangible $ 115,298 $ 113,444 $ 108,655 $ 102,999 $ 99,558 shareholders'equityEarned commonshares 4,664,893 4,682,063 4,673,629 4,664,946 4,659,279 outstandingUnvested 21,922 14,208 14,208 14,208 13,481 stock grantsTotal commonshares 4,686,815 4,696,271 4,687,837 4,679,154 4,672,760 outstandingASSET QUALITY ^(1)Nonperformingloans to 0.79 % 0.75 % 0.07 % 0.10 % 0.10 %gross loansNonperformingassets to 0.62 % 0.64 % 0.06 % 0.08 % 0.12 %total assetsAllowance forloan losses 1.08 % 1.02 % 0.95 % 0.86 % 0.84 %to grossloansAllowance forloan lossesto gross 1.23 % 1.23 % 1.19 % 1.07 % 0.84 %loans, net ofPPP loansCAPITAL RATIOS^(1)Total capitalto risk 15.02 % 15.14 % 15.57 % 15.06 % 14.44 %weightedassetsTier 1capital to 13.84 % 13.93 % 14.40 % 14.00 % 13.58 %risk weightedassetsCET1 capitalto risk 12.34 % 12.38 % 12.77 % 12.34 % 11.92 %weightedassetsTier 1leverage 10.31 % 9.80 % 9.86 % 9.91 % 10.97 %ratio ^(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 INCOMESTATEMENT DATAInterest $ 11,919 $ 11,070 $ 10,437 $ 8,379 $ 6,427 incomeInterest 676 2,145 2,090 1,031 687 expenseNet interest 11,243 8,925 8,347 7,348 5,740 incomeProvision for 212 1,542 213 275 ? loan lossesNoninterest 3,854 4,513 1,522 1,801 1,234 incomeNoninterest 9,031 7,686 6,509 6,279 5,095 expensesFederalincome tax 1,198 858 633 521 592 expenseNet 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 $ 24.68 $ 21.56 $ 18.88 $ 15.27 $ 12.86 value^(1)Quoted market valueHigh $ 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 RATIOSReturn onaverage 1.50 % 1.28 % 1.09 % 1.07 % 0.73 %assetsReturn onaverage 15.86 % 13.01 % 11.09 % 13.99 % 10.19 %shareholders'equityReturn onaveragetangible 16.38 % 13.54 % 11.66 % 15.28 % 10.63 %shareholders'equityEfficiency 59.82 % 57.20 % 65.95 % 68.63 % 73.06 %ratioYield onearning 4.01 % 4.47 % 4.77 % 4.51 % 4.19 %assets (FTE)Rate oninterest 0.37 % 1.28 % 1.40 % 0.83 % 0.55 %bearingliabilitiesNet interestmargin to 3.79 % 3.61 % 3.81 % 3.90 % 3.74 %earningassets (FTE)BALANCE SHEET DATA^(1)Totalinvestment $ 89,772 $ 76,312 $ 82,222 $ 49,608 $ 72,472 securitiesGross 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 $ 1,122,508 $ 883,837 $ 789,533 $ 683,775 $ 630,055 depositsBorrowed $ 49,000 $ 71,500 $ 59,000 $ 44,600 $ 45,000 fundsTotalshareholders' $ 119,059 $ 104,828 $ 92,236 $ 60,621 $ 51,816 equityNet loans tototal 90.60 % 97.11 % 101.97 % 99.80 % 87.54 %depositsCommon shares 4,673,932 4,675,499 4,647,978 3,635,098 3,620,964 outstandingYTD BALANCESHEET AVERAGESTotal assets $ 1,259,119 $ 1,049,245 $ 934,078 $ 789,391 $ 716,998 Earning $ 1,206,411 $ 997,089 $ 887,974 $ 755,281 $ 613,904 assetsInterestbearing $ 735,159 $ 672,564 $ 604,973 $ 505,174 $ 499,636 liabilitiesTotalshareholders' $ 119,034 $ 103,646 $ 91,964 $ 60,107 $ 51,241 equityTotaltangible $ 115,298 $ 99,558 $ 87,430 $ 55,041 $ 49,104 shareholders'equityEarned commonshares 4,664,893 4,659,279 4,635,255 3,633,093 3,677,143 outstandingUnvested 21,922 13,481 9,788 ? ? stock grantsTotal commonshares 4,686,815 4,672,760 4,645,043 3,633,093 3,677,143 outstandingASSET QUALITY ^(1)Nonperformingloans to 0.79 % 0.10 % 0.11 % 0.10 % 0.33 %gross loansNonperformingassets to 0.62 % 0.12 % 0.09 % 0.10 % 0.28 %total assetsAllowance forloan losses 1.08 % 0.84 % 0.59 % 0.54 % 0.52 %to grossloansAllowance forloan lossesto gross 1.23 % 0.84 % 0.59 % 0.54 % 0.52 %loans, net ofPPP loansCAPITAL RATIOS^(1)Total capitalto risk 15.02 % 14.44 % 14.01 % 11.03 % 11.72 %weightedassetsTier 1capital to 13.84 % 13.58 % 13.38 % 10.48 % 11.20 %risk weightedassetsCET1 capitalto risk 12.34 % 11.92 % 11.55 % 8.41 % 8.65 %weightedassetsTier 1leverage 10.31 % 10.97 % 11.00 % 9.01 % 8.60 %ratio ^(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 3/31/2020GAAP net income $ 4,656 $ 2,733 $ 5,336 $ 4,043 $ 3,352 Acquisitionrelated items (net of tax)Accretion on (151 ) (82 ) (144 ) (110 ) (180 )purchased loansAmortization ofcore deposit 54 71 72 71 71 intangiblesAmortization onacquired time 2 5 5 5 5 depositsTotalacquisition (95 ) (6 ) (67 ) (34 ) (104 )related items(net of tax)Othernonrecurring items (net oftax)FHLB prepayment ? 1,507 ? ? ? penaltiesChange in fairvalue of equityinvestment due ? ? ? ? (578 )to acquisitiontransactionChange in fairvalue of ? ? ? ? (448 )mortgage bankinginstrumentsInterestwriteoff from ? 265 ? ? ? loan transferredto nonaccrualNet gain fromCOLI death ? ? ? (173 ) ? benefitPrepaymentpenalties (17 ) (97 ) (16 ) (12 ) (36 )collectedMortgageservicing rights ? (188 ) (176 ) 191 173 (reduction of)impairmentTotal othernonrecurring (17 ) 1,487 (192 ) 6 (889 )items (net oftax)Adjusted netincome from $ 4,544 $ 4,214 $ 5,077 $ 4,015 $ 2,359 operations GAAP net $ 11,243 $ 10,652 $ 10,881 $ 9,597 $ 8,925 interest incomeAccretion on (191 ) (104 ) (182 ) (139 ) (228 )purchased loansInterestwriteoff from ? 335 ? ? ? loan transferredto nonaccrualPrepaymentpenalties (21 ) (123 ) (20 ) (15 ) (46 )collectedAmortization onacquired time 3 6 6 6 6 depositsAdjusted net $ 11,034 $ 10,766 $ 10,685 $ 9,449 $ 8,657 interest income PERFORMANCE RATIOSBased onadjusted net income fromoperationsEarnings per $ 0.97 $ 0.90 $ 1.09 $ 0.86 $ 0.51 shareReturn on 1.46 % 1.30 % 1.60 % 1.34 % 0.90 %average assetsReturn onaverage 15.48 % 14.30 % 17.94 % 15.09 % 9.15 %shareholders'equityReturn onaverage tangible 15.98 % 14.78 % 18.59 % 15.68 % 9.53 %shareholders'equityEfficiency ratio 60.20 % 59.02 % 52.03 % 52.12 % 62.83 % Based onadjusted net interest incomeYield on earning 3.94 % 3.78 % 3.91 % 3.89 % 4.39 %assets (FTE)Rate on interestbearing 0.37 % 0.50 % 0.63 % 0.92 % 1.29 %liabilitiesNet interestmargin to 3.71 % 3.47 % 3.52 % 3.32 % 3.52 %earning assets(FTE)

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 (151 ) (180 ) 29 (16.11 ) %loansAmortization of core 54 71 (17 ) (23.94 ) %deposit intangiblesAmortization on acquired 2 5 (3 ) (60.00 ) %time depositsTotal acquisition related (95 ) (104 ) 9 (8.65 ) %items (net of tax)Other nonrecurring items (net of tax)FHLB prepayment penalties ? ? ? ? %Change in fair value ofequity investment due to ? (578 ) 578 (100.00 ) %acquisition transactionChange in fair value ofmortgage banking ? (448 ) 448 (100.00 ) %instrumentsInterest writeoff fromloan transferred to ? ? ? ? %nonaccrualNet gain from COLI death ? ? ? ? %benefitPrepayment penalties (17 ) (36 ) 19 (52.78 ) %collectedMortgage servicing rights ? 173 (173 ) (100.00 ) %(reduction of) impairmentTotal other nonrecurring (17 ) (889 ) 872 (98.09 ) %items (net of tax)Adjusted net income from $ 4,544 $ 2,359 $ 2,185 92.62 %operations GAAP net interest income $ 11,243 $ 8,925 $ 2,318 25.97 %Accretion on purchased (191 ) (228 ) 37 (16.23 ) %loansInterest writeoff fromloan transferred to ? ? ? ? %nonaccrualPrepayment penalties (21 ) (46 ) 25 (54.35 ) %collectedAmortization on acquired 3 6 (3 ) (50.00 ) %time depositsAdjusted net interest $ 11,034 $ 8,657 $ 2,377 27.46 %income PERFORMANCE RATIOS Based on adjusted net income from operationsEarnings per share $ 0.97 $ 0.51 $ 0.46 90.20 %Return on average assets 1.46 % 0.90 % 0.56 %Return on average 15.48 % 9.15 % 6.33 %shareholders' equityReturn on averagetangible shareholders' 15.98 % 9.53 % 6.45 %equityEfficiency ratio 60.20 % 62.83 % (2.63 ) % Based on adjusted net interest incomeYield on earning assets 3.94 % 4.39 % (0.45 ) %(FTE)Rate on interest bearing 0.37 % 1.29 % (0.92 ) %liabilitiesNet interest margin to 3.71 % 3.52 % 0.19 %earning assets (FTE)

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 Tax Average Average Tax Average Average Tax Average Balance Equivalent Yield / Balance Equivalent Yield / Balance Equivalent Yield / Interest Rate Interest Rate Interest RateInterest earning assetsTotal loans $ 1,074,096 $ 11,598 4.38 % $ 1,099,779 $ 11,268 4.08 % $ 878,813 $ 10,481 4.80 %Taxable investment 58,859 202 1.39 % 62,866 238 1.51 % 56,963 353 2.49 %securitiesNontaxableinvestment 17,165 105 2.48 % 16,047 103 2.55 % 10,532 81 3.09 %securitiesFederal funds sold ? ? ? % ? ? ? % 33,588 116 1.39 %Interest earningcash and cash 52,803 11 0.08 % 53,715 15 0.11 % 14,043 26 0.74 %equivalentsFederal Home Loan 3,488 25 2.91 % 3,488 22 2.51 % 3,150 30 3.83 %Bank stockTotal earning 1,206,411 11,941 4.01 % 1,235,895 11,646 3.75 % 997,089 11,087 4.47 %assets Nonearning assets Allowance for loan (11,143 ) (10,375 ) (5,821 ) lossesFixed assets 15,757 15,465 15,538 Accrued income and 48,094 47,214 42,439 other assetsTotal assets $ 1,259,119 $ 1,288,199 $ 1,049,245 Interest bearing liabilitiesInterest bearing $ 206,565 $ 121 0.24 % $ 218,627 $ 128 0.23 % $ 170,598 $ 475 1.12 %demand depositsSavings 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 interestbearing 735,159 676 0.37 % 773,132 972 0.50 % 672,564 2,145 1.28 %liabilities Noninterestbearing liabilitiesNoninterest 393,751 385,032 264,699 bearing depositsAccrued interestand other 11,175 12,772 8,336 liabilitiesShareholders' 119,034 117,263 103,646 equityTotal liabilitiesand shareholders' $ 1,259,119 $ 1,288,199 $ 1,049,245 equityNet interest $ 11,265 $ 10,674 $ 8,942 income (FTE)Net interestmargin to earning 3.79 % 3.44 % 3.61 %assets (FTE)

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 NetChanges in interest incomeTotal loans $ (1,511 ) $ 1,841 $ 330 $ 6,098 $ (4,981 ) $ 1,117 Taxable investment (16 ) (20 ) (36 ) 77 (228 ) (151 ) securitiesNontaxable investment 17 (15 ) 2 116 (92 ) 24 securitiesFederal funds sold ? ? ? (58 ) (58 ) (116 ) Interest earning cash ? (4 ) (4 ) 129 (144 ) (15 ) and cash equivalentsFederal Home Loan Bank ? 3 3 16 (21 ) (5 ) stockTotal changes in (1,510 ) 1,805 295 6,378 (5,524 ) 854 interest income Changes in interest expenseInterest bearing (29 ) 22 (7 ) 560 (914 ) (354 ) demand depositsSavings 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 (134 ) (162 ) (296 ) 632 (2,101 ) (1,469 ) interest expenseNet change in net $ (1,376 ) $ 1,967 $ 591 $ 5,746 $ (3,423 ) $ 2,323 interest income (FTE)

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

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

Noninterest Income

Quarter to Date 3/31/2021 12/31/2020 9/30/2020 6/30/2020 3/31/2020Net gain onsales of $ 1,845 $ 2,545 $ 3,064 $ 3,869 $ 1,803 mortgageloansTrust andinvestment 468 445 464 321 389 servicesATM anddebit card 448 437 460 394 355 incomePPPreferral 351 ? ? ? ? feesMortgageservicing 335 325 293 270 262 feesServicecharges on 166 194 177 119 219 depositaccountsNetmortgageservicing 138 509 559 (163 ) (50 ) rightsincomeNet gain onsales of ? ? ? ? 668 commercialloansNet gainfromcorporateowned life ? ? ? 173 ? insurancedeathbenefitChange infair value (19 ) (3 ) 2 7 749 of equityinvestmentsOtherincome and 122 224 140 302 118 feesTotalnoninterest $ 3,854 $ 4,676 $ 5,159 $ 5,292 $ 4,513 income Residentialmortgage $ 2,318 $ 3,379 $ 3,916 $ 3,976 $ 2,015 operations

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

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 3/31/2020Total compensation $ 5,004 $ 4,958 $ 4,531 $ 4,252 $ 4,248 Furniture and 637 607 614 618 610 equipmentProfessional 624 938 524 571 522 servicesData processing 509 501 503 535 442 Occupancy 495 475 491 435 476 Loan and 406 359 292 229 162 collectionAdvertising and 284 184 284 255 252 promotionalFDIC insurance 155 59 55 59 55 premiumsATM and debit card 122 125 109 92 108 Telephone and 94 64 91 86 96 communicationAmortization ofcore deposit 68 90 91 90 90 intangiblesFHLB prepayment ? 1,907 ? ? ? penaltyOther general and 633 704 633 587 625 administrativeTotal noninterest $ 9,031 $ 10,971 $ 8,218 $ 7,809 $ 7,686 expenses

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 68 90 (22 ) (24.44 ) %intangiblesFHLB 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 3/31/2020ASSETS Cash and cash $ 121,477 $ 46,757 $ 75,032 $ 35,190 $ 71,140 equivalentsTotalinvestment 89,772 76,111 78,179 75,526 76,312 securitiesResidentialmortgage loans 26,322 27,306 34,833 46,354 21,154 held-for-sale,at fair valueGross loans 1,028,117 1,066,562 1,060,885 1,044,564 865,577 Less allowancefor loan 11,100 10,900 10,100 8,991 7,250 lossesNet loans 1,017,017 1,055,662 1,050,785 1,035,573 858,327 All other 48,206 45,610 46,016 45,051 44,247 assetsTotal assets $ 1,302,794 $ 1,251,446 $ 1,284,845 $ 1,237,694 $ 1,071,180 LIABILITIESAND SHAREHOLDERS'EQUITYTotal deposits $ 1,122,508 $ 1,071,976 $ 1,061,470 $ 1,018,287 $ 883,837 Total borrowed 49,000 49,000 96,217 96,217 71,500 fundsAccruedinterestpayable and 12,227 14,602 13,077 14,221 11,015 otherliabilitiesTotal 1,183,735 1,135,578 1,170,764 1,128,725 966,352 liabilitiesTotalshareholders' 119,059 115,868 114,081 108,969 104,828 equityTotalliabilitiesand $ 1,302,794 $ 1,251,446 $ 1,284,845 $ 1,237,694 $ 1,071,180 shareholders'equity

3/31/2021 vs 12/31/2020 3/31/2021 vs 3/31/2020 Variance Variance Amount % Amount %ASSETS Cash and cash $ 74,720 159.80 % $ 50,337 70.76 %equivalentsTotal investment 13,661 17.95 % 13,460 17.64 %securitiesResidential mortgageloans held-for-sale, (984 ) (3.60 ) % 5,168 24.43 %at fair valueGross loans (38,445 ) (3.60 ) % 162,540 18.78 %Less allowance for 200 1.83 % 3,850 53.10 %loan lossesNet 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' EQUITYTotal deposits $ 50,532 4.71 % $ 238,671 27.00 %Total borrowed funds ? ? % (22,500 ) (31.47 ) %Accrued interestpayable and other (2,375 ) (16.26 ) % 1,212 11.00 %liabilitiesTotal liabilities 48,157 2.18 % 217,383 11.75 %Total shareholders' 3,191 2.75 % 14,231 13.58 %equityTotal liabilities and $ 51,348 4.10 % $ 231,614 21.62 %shareholders' equity

Cash and cash equivalents

3/31/2021 12/31/2020 9/30/2020 6/30/2020 3/31/2020Cash and cash equivalentsNoninterest 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 $ 121,477 $ 46,757 $ 75,032 $ 35,190 $ 71,140 equivalents 3/31/2021 vs 12/31/2020 3/31/2021 vs 3/31/2020 Variance Variance Amount % Amount %Cash and cash equivalentsNoninterest 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 $ 74,720 159.80 % $ 50,337 70.76 %equivalents

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 3/31/2020Cash andcash $ 121,477 $ 46,757 $ 75,032 $ 35,190 $ 71,140 equivalentsUnpledgedinvestment 76,384 59,025 58,739 52,647 51,889 securitiesFHLBborrowing 140,000 140,000 97,500 97,500 42,500 availabilityFederalfundspurchased 21,500 21,500 21,500 21,500 17,500 lines ofcreditFundsavailablethrough the 10,000 10,000 10,000 10,000 10,000 Fed DiscountWindowPPPLF 122,583 177,845 206,343 202,184 ? Totalliquidity $ 491,944 $ 455,127 $ 469,114 $ 419,021 $ 193,029 sources

Total investment securities

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

The amortized cost and fair value of AFS investment securities as of March31, 2021 were as follows:

Maturing After Securities Due in One After One Five with Variable Year or Year But Years But After Ten Monthly Total Less Within Within Years Payments or Five Years Ten Years Noncontractual MaturitiesU.S.Government and $ 4,975 $ 967 $ ? $ ? $ ? $ 5,942 federal agencyState and 3,239 5,952 6,005 1,884 ? 17,080 municipalMortgagebacked ? ? ? ? 32,135 32,135 residentialCertificates 1,726 3,206 ? ? ? 4,932 of depositCollateralizedmortgage ? ? ? ? 25,505 25,505 obligations -agenciesTotal $ 9,940 $ 10,125 $ 6,005 $ 1,884 $ 57,640 $ 85,594 amortized costFair 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 March31, 2021 were as follows:

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

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 March31, 2021 for investment securities purchased YTD:

Fully Taxable Book Value Equivalent Weighted Average YieldU.S. Government and federal agency $ ? ? %State and municipal 1,360 0.96 %Collateralized mortgage obligations - 4,906 1.08 %agenciesCertificates 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 3/31/2020Commercial $ 183,276 $ 241,424 $ 271,113 $ 260,440 $ 67,731 Commercial 541,428 517,054 483,275 469,039 462,561 real estateTotalcommercial 724,704 758,478 754,388 729,479 530,292 loansResidential 258,333 262,770 261,375 268,295 285,392 mortgageHome equity 40,205 39,900 39,456 40,114 43,222 Totalresidential 298,538 302,670 300,831 308,409 328,614 real estateloansConsumer 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 Allowancefor loan (11,100 ) (10,900 ) (10,100 ) (8,991 ) (7,250 )lossesLoans, 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 24,374 4.71 % 78,867 17.05 %real estateTotalcommercial (33,774 ) (4.45 )% 194,412 36.66 %loansResidential (4,437 ) (1.69 )% (27,059 ) (9.48 )%mortgageHome equity 305 0.76 % (3,017 ) (6.98 )%Totalresidential (4,132 ) (1.37 )% (30,076 ) (9.15 )%real estateloansConsumer (539 ) (9.96 )% (1,796 ) (26.92 )%Gross loans (38,445 ) (3.60 )% 162,540 18.78 %Allowancefor loan (200 ) 1.83 % (3,850 ) 53.10 %lossesLoans, 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 3/31/2020Loanscollectivelyevaluated forimpairmentCommercial $ 183,203 $ 241,424 $ 271,113 $ 260,440 $ 67,731 Commercial 532,294 508,182 481,071 465,749 460,903 real estateResidential 257,543 262,017 260,665 267,632 284,662 mortgageHome 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 Loansindividuallyevaluated forimpairmentCommercial 73 ? ? ? ? Commercial 9,134 8,872 2,204 3,290 1,658 real estateResidential 790 753 710 663 730 mortgageHome 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 3/31/2020Loanscollectively evaluated forimpairmentCommercial $ 626 $ 673 $ 633 $ 536 $ 479 Commercial real 6,026 5,602 5,152 4,595 3,655 estateResidential 3,280 3,480 3,479 3,278 2,607 mortgageHome equity 453 440 438 372 298 Consumer 92 97 101 102 89 Subtotal 10,477 10,292 9,803 8,883 7,128 Loansindividually evaluated forimpairmentCommercial ? ? ? ? ? Commercial real 619 602 289 100 111 estateResidential 4 4 5 5 6 mortgageHome equity ? ? ? ? ? Consumer ? 2 3 3 5 Subtotal 623 608 297 108 122 Allowance for $ 11,100 $ 10,900 $ 10,100 $ 8,991 $ 7,250 loan losses

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

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 3/31/2020Accruing interestCurrent $ 1,018,343 $ 1,057,404 $ 1,058,437 $ 1,042,589 $ 862,581 Past due 1,636 1,165 1,703 948 2,152 30-89 daysPast due90 days or 120 50 86 361 166 moreTotalaccruing 1,020,099 1,058,619 1,060,226 1,043,898 864,899 interestNonaccrual 8,018 7,943 659 666 678 Total $ 1,028,117 $ 1,066,562 $ 1,060,885 $ 1,044,564 $ 865,577 loansTotalloans pastdue and in $ 9,774 $ 9,158 $ 2,448 $ 1,975 $ 2,996 nonaccrualstatus

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

3/31/2021 12/31/ 9/30/ 6/30/2020 3/31/2020 2020 2020Nonaccrual loans $ 8,018 $ 7,943 $ 659 $ 666 $ 678 Accruing loans past due 90 120 50 86 361 166 days or moreTotal 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/ 12/31/ 9/30/ 6/30/ 3/31/ 2021 2020 2020 2020 2020Nonperforming loans to gross 0.79 % 0.75 % 0.07 % 0.10 % 0.10 %loansNonperforming assets to total 0.62 % 0.64 % 0.06 % 0.08 % 0.12 %assetsAllowance for loan losses to 1.08 % 1.02 % 0.95 % 0.86 % 0.84 %gross loansAllowance for loan losses to 1.23 % 1.23 % 1.19 % 1.07 % 0.84 %gross loans, less PPP loans

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

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/ 2020Outstanding PPP $ 122,583 $ 177,845 $ 211,060 $ 206,901 $ ? loans

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 March31, 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/ 12/31/ 9/30/ 6/30/ 3/31/ 2021 2020 2020 2020 2020Commercial $ 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 131 130 129 128 137 estate loansConsumer 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 March31, 2021:

Number of Outstanding % of Modifications Balance PortfolioCommercial 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 7 949 0.32 %modificationsConsumer ? ? ? %Total portfolio modifications 15 $ 12,962 1.26 % Residential mortgage loans serviced 32 $ 7,002 1.29 %for FHLMC

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 March31, 2021. As of March31, 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 March31, 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 March31, 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 3/31/2020Premises and $ 15,969 $ 15,461 $ 15,267 $ 15,323 $ 15,533 equipment, netCorporateowned life 10,354 10,291 10,225 10,115 10,380 insuranceAccruedinterest 5,451 5,068 5,645 5,266 3,124 receivableMortgageservicing 5,023 4,885 4,376 3,816 3,980 rightsFederal HomeLoan Bank 3,488 3,488 3,488 3,488 3,150 stockGoodwill 3,219 3,219 3,219 3,219 3,219 Right-of-use 1,139 364 387 409 432 assetsDerivatives 1,009 1,331 1,772 1,311 1,063 Core deposit 474 541 632 722 812 intangiblesOther real ? ? ? ? 400 estate ownedOther assets 2,080 962 1,005 1,382 2,154 All other $ 48,206 $ 45,610 $ 46,016 $ 45,051 $ 44,247 assets 3/31/2021 vs 12/31/2020 3/31/2021 vs 3/31/2020 Variance Variance Amount % Amount %Premises and $ 508 3.29 % $ 436 2.81 %equipment, netCorporate )owned life 63 0.61 % (26 ) (0.25 %insuranceAccruedinterest 383 7.56 % 2,327 74.49 %receivableMortgageservicing 138 2.82 % 1,043 26.21 %rightsFederal HomeLoan Bank ? ? % 338 10.73 %stockGoodwill ? ? % ? ? %Right-of-use 775 212.91 % 707 163.66 %assetsDerivatives (322 ) (24.19 ) (54 ) (5.08 ) % %Core deposit (67 ) (12.38 ) (338 ) (41.63 )intangibles % %Other real ? ? % (400 ) (100.00 )estate owned %Other assets 1,118 116.22 % (74 ) (3.44 ) %All other $ 2,596 5.69 % $ 3,959 8.95 %assets

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

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

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

Total deposits

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

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

The Corporation has continued its focus of growing non-contractual deposits while supplementing funding with time deposits. The Corporation has been able to drive this meaningful increase through enhanced organic growth strategies. Total deposits also increased due to government related stimulus programs. The Corporation will continue to monitor deposit growth and adjust interest rates in order to minimize downward pressure on margins.

Schedule of time deposit maturities

The following table summarizes the contractual maturities of the time deposits as of March31, 2021:

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

The repricing of time deposits will have a significant impact on their weighted average yield. Current rates offered by the Corporation have time deposit rates ranging from 0.05% to 0.55% depending on the term and opening balance.

Total borrowed funds

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

3/31/21 12/31/20 9/30/20 6/30/20 3/31/20Federal HomeLoan Bank $ 35,000 $ 35,000 $ 77,500 $ 77,500 $ 57,500 borrowingsSubordinated 14,000 14,000 14,000 14,000 14,000 debenturesPPPLF ? ? 4,717 4,717 ? Federalfunds ? ? ? ? ? purchasedTotalborrowed $ 49,000 $ 49,000 $ 96,217 $ 96,217 $ 71,500 funds 3/31/2021 vs 12/31/2020 3/31/2021 vs 3/31/2020 Variance Variance Amount % Amount %Federal Home )Loan Bank $ ? ? % $ (22,500 ) (39.13 %borrowingsSubordinated ? ? % ? ? %debenturesPPPLF ? ? % ? ? %Federalfunds ? ? % ? ? %purchasedTotal )borrowed $ ? ? % $ (22,500 ) (31.47 %funds

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

Total borrowed funds are expected to approximate current levels throughout 2021 as there are no scheduled maturities. The Corporation continually analyzes the market for opportunities and will borrow funds when deemed financially beneficial.

Wholesale funding sources

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

3/31/21 12/31/20 9/30/20 6/30/20 3/31/20Federal HomeLoan Bank $ 35,000 $ 35,000 $ 77,500 $ 77,500 $ 57,500 borrowingsBrokeredmoney market ? ? 25,029 25,010 ? demandBrokeredtime 20,234 20,000 28,605 28,837 28,605 depositsSubordinated 14,000 14,000 14,000 14,000 14,000 debenturesInternettime 2,739 2,839 10,208 11,690 18,005 depositsPPPLF ? ? 4,717 4,717 ? Totalwholesale $ 71,973 $ 71,839 $ 160,059 $ 161,754 $ 118,110 funds 3/31/2021 vs 12/31/2020 3/31/2021 vs 3/31/2020 Variance Variance Amount % Amount %Federal HomeLoan Bank $ ? ? % $ (22,500 ) (39.13 ) %borrowingsBrokeredmoney market ? ? % ? ? %demandBrokeredtime 234 1.17 % (8,371 ) (29.26 ) %depositsSubordinated ? ? % ? ? %debenturesInternettime (100 ) (3.52 ) % (15,266 ) (84.79 ) %depositsPPPLF ? ? % ? ? %Totalwholesale $ 134 0.19 % $ (46,137 ) (39.06 ) %funds

The Corporation utilizes wholesale funds to manage balance sheet growth. Wholesale funding has historically been more expensive than core deposits, however, due to the COVID-19 pandemic, the FRB has kept Fed funds rates near zero. The Corporation continually analyzes sources of wholesale funding when the increases in interest earning assets out-pace the increases in core deposits.

Accrued interest payable and other liabilities

Accrued interest payable and other liabilities includes accrued interest payable, federal income taxes payable, deferred federal income taxes payable, and all other liabilities (none of which are individually significant). Accrued interest payable and other liabilities are not expected to fluctuate significantly in future periods.

Total shareholders' equity

Total shareholders' equity includes common stock, retained earnings, and AOCI. Total shareholders' equity is expected to continue to grow throughout 2021 through the Corporation's earnings. In April 2020, the Corporation's Board of Directors amended its common stock repurchase plan to authorize the repurchase of up to $5,000 of common stock. During the first quarter of 2021 and the fourth quarter of 2020, the Corporation repurchased 37,315 and 5,342 shares for $880 and $110, respectively.

Stock Performance

The following graph compares the cumulative total shareholder return on the Corporation's common stock for the last five years with the cumulative total return on the ABA NASDAQ Community Bank Index (NASDAQ: XX:ABAQ) over the same period. The graph assumes the value of an investment in the Corporation's common stock and the ABA NASDAQ Community Bank Index was $100 atMarch31, 2016and all dividends were reinvested.

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

Date FETM ABAQ Index3/31/2016 100.00 100.00 3/31/2017 125.90 138.33 3/31/2018 139.19 146.54 3/31/2019 148.61 128.85 3/31/2020 114.03 91.79 3/31/2021 168.95 156.10

Abbreviations and Acronyms

ABA: American Bankers Association HTM: Held-to-maturityAFS: Available-for-sale IRA: Individual retirement accountALLL: Allowance for loan losses ITM: Interactive teller machineAOCI: Accumulated other MSR: Mortgage servicing rightscomprehensive incomeASU: Accounting Standards Update N/M: Not meaningfulATM: Automated teller machine NASDAQ: National Association of Securities Dealers Automated QuotationsCARES Act: Coronavirus Aid, Relief, NOW: Negotiable order of withdrawaland Economic Security ActCET1: Common equity tier 1 NSF: Non-sufficient fundsCOVID-19: Coronavirus Disease 2019 OREO: Other real estate ownedFDIC: Federal Deposit Insurance PPP: Paycheck Protection ProgramCorporationFHLB: Federal Home Loan Bank PPPLF: Paycheck Protection Program Liquidity FacilityFHLMC: Federal Home Loan Mortgage QTD: Quarter-to-dateCorporationFRB: Federal Reserve Bank SAB: Staff Accounting BulletinFTE: Fully taxable equivalent SBA: U.S. Small Business AdministrationGAAP: Generally Accepted Accounting USDA: United States Department ofPrinciples AgricultureHFS: Held-for-sale YTD: Year-to-date

AboutFentura Financial, Inc.andThe State Bank

Fentura Financial, Inc. is the holding company for The State Bank. It was formed in 1987 and is traded on the OTCQX exchange under the symbol FETM, and was recognized as one of the Best 50 performing stocks in 2018 on that exchange.

The State Bank is a full-service, 5-Star Bauer Financial rated commercial, retail and trust bank headquartered in Fenton, Michigan. It currently operates 17 full-service branches in Genesee, Livingston, Oakland, Saginaw, and Shiawassee Counties. The State Banks 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.

Ronald L. Justice Aaron D. Wirsing President & CEO Chief Financial OfficerContacts: Fentura Financial, Inc. Fentura Financial, Inc. 810.714.3902 810.714.3925 ronj@thestatebank.com aaronw@thestatebank.com