GlobeNewswire Inc | Aug 4, 2020 12:17PM EDT

August 04, 2020

Dollars in thousands except per share amounts. Certain items in the prior period financial statements have been reclassified to conform with the June30, 2020 presentation.

FENTON, Mich., Aug. 04, 2020 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. (OTCQX: FETM) announces quarterly results of net income of $4,043 and $7,395 for the three and six month periods ended June30, 2020.

Looking back on the second quarter, I am proud of the Fentura team. We worked hard and will continue efforts to serve our clients and help those in need get through the COVID-19 pandemic, stated Ronald Justice, President and Chief Executive Officer of the Corporation. We provided loan payment relief, interest free loans to individuals, significantly lowered and eliminated certain fees, performed daily cash drawings for a month, and provided more than 1,200 PPP loans totaling more than $205,000 to support local communities.

Justice added, Looking forward, as we navigate through these challenging times, we will continue to focus on prudent growth, a strong net interest margin, and maintaining credit quality, while supporting our customers and communities.

Following is a discussion of the Corporation's financial performance as of, and for the quarter ended June30, 2020. 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:

6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019INCOMESTATEMENT DATAInterest $ 11,215 $ 11,070 $ 11,076 $ 11,240 $ 10,788 incomeInterest 1,618 2,145 2,158 2,184 2,195 expenseNet interest 9,597 8,925 8,918 9,056 8,593 incomeProvision for 2,001 1,542 436 422 264 loan lossesNoninterest 5,292 4,513 2,129 2,262 2,250 incomeNoninterest 7,809 7,686 7,415 6,608 6,691 expensesFederalincome tax 1,036 858 644 873 791 expenseNet income $ 4,043 $ 3,352 $ 2,552 $ 3,415 $ 3,097 PER SHARE Earnings $ 0.87 $ 0.72 $ 0.55 $ 0.73 $ 0.67 Dividends $ 0.075 $ 0.075 $ 0.07 $ 0.07 $ 0.07 Tangible book $ 22.44 $ 21.56 $ 20.87 $ 20.37 $ 19.59 value^(1)Quoted market valueHigh $ 18.95 $ 26.00 $ 25.50 $ 21.00 $ 21.00 Low $ 14.90 $ 12.55 $ 20.60 $ 20.45 $ 20.45 Close^(1) $ 17.35 $ 15.50 $ 25.23 $ 21.00 $ 20.60 PERFORMANCE RATIOSReturn onaverage 1.35 % 1.28 % 1.02 % 1.40 % 1.31 %assetsReturn onaverage 15.20 % 13.01 % 10.03 % 13.83 % 13.14 %shareholders'equityReturn onaveragetangible 15.79 % 13.54 % 10.46 % 14.47 % 13.79 %shareholders'equityEfficiency 52.45 % 57.20 % 67.12 % 58.38 % 61.71 %ratioYield onearning 3.94 % 4.47 % 4.66 % 4.85 % 4.81 %assets (FTE)Rate oninterest 0.91 % 1.28 % 1.36 % 1.42 % 1.46 %bearingliabilitiesNet interestmargin to 3.37 % 3.61 % 3.75 % 3.91 % 3.83 %earningassets (FTE)BALANCE SHEET DATA^(1)Totalinvestment $ 75,526 $ 76,312 $ 61,621 $ 62,351 $ 73,285 securitiesGross loans $ 1,044,564 $ 865,577 $ 870,555 $ 826,597 $ 813,547 Total assets $ 1,237,694 $ 1,071,180 $ 1,034,759 $ 978,046 $ 949,790 Total $ 1,018,287 $ 883,837 $ 863,102 $ 801,101 $ 792,555 depositsBorrowed $ 96,217 $ 71,500 $ 61,500 $ 69,000 $ 54,000 fundsTotalshareholders' $ 108,969 $ 104,828 $ 101,444 $ 99,142 $ 95,504 equityNet loans tototal 101.70 % 97.11 % 100.19 % 102.51 % 102.02 %depositsCommon shares 4,680,920 4,675,499 4,664,369 4,658,722 4,653,343 outstandingQTD BALANCESHEET AVERAGESTotal assets $ 1,200,966 $ 1,049,245 $ 994,094 $ 971,074 $ 947,095 Earning $ 1,146,941 $ 997,089 $ 944,692 $ 920,857 $ 900,738 assetsInterestbearing $ 711,500 $ 672,564 $ 629,454 $ 611,804 $ 603,965 liabilitiesTotalshareholders' $ 106,998 $ 103,646 $ 100,991 $ 97,958 $ 94,519 equityTotaltangible $ 102,999 $ 99,558 $ 96,796 $ 93,650 $ 90,098 shareholders'equityEarned commonshares 4,664,946 4,659,279 4,652,569 4,646,835 4,641,161 outstandingUnvested 14,208 13,481 9,947 9,967 9,967 stock grantsTotal commonshares 4,679,154 4,672,760 4,662,516 4,656,802 4,651,128 outstandingASSET QUALITY ^(1)Nonperformingloans to 0.10 % 0.10 % 0.17 % 0.11 % 0.13 %gross loansNonperformingassets to 0.08 % 0.12 % 0.14 % 0.09 % 0.11 %total assetsAllowance forloan losses 0.86 % 0.84 % 0.67 % 0.65 % 0.62 %to grossloansCAPITAL RATIOS^(1)Total capitalto risk 15.06 % 14.42 % 14.03 % 14.42 % 14.18 %weightedassetsTier 1capital to 14.00 % 13.56 % 13.33 % 13.73 % 13.53 %risk weightedassetsCET1 capitalto risk 12.34 % 11.91 % 11.64 % 11.96 % 11.73 %weightedassetsTier 1leverage 9.90 % 10.97 % 11.20 % 11.22 % 11.16 %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 six month periods ended:

6/30/2020 6/30/2019 6/30/2018 6/30/2017 6/30/2016INCOMESTATEMENT DATAInterest $ 22,285 $ 21,225 $ 17,108 $ 13,681 $ 9,036 incomeInterest 3,763 4,285 2,263 1,389 1,158 expenseNet interest 18,522 16,940 14,845 12,292 7,878 incomeProvision for 3,543 477 576 125 ? loan lossesNoninterest 9,805 3,772 3,814 3,372 3,014 incomeNoninterest 15,495 13,200 12,328 10,837 7,972 expensesFederalincome tax 1,894 1,424 1,163 1,476 997 expenseNet income $ 7,395 $ 5,611 $ 4,592 $ 3,226 $ 1,923 PER SHARE Earnings $ 1.59 $ 1.21 $ 1.26 $ 0.89 $ 0.77 Dividends $ 0.15 $ 0.14 $ 0.12 $ 0.10 $ 0.30 Tangible book $ 22.44 $ 19.59 $ 16.00 $ 13.45 $ 13.37 value^(1)Quoted market valueHigh $ 26.00 $ 21.00 $ 21.25 $ 18.50 $ 14.94 Low $ 12.55 $ 20.05 $ 18.88 $ 15.10 $ 12.85 Close^(1) $ 17.35 $ 20.60 $ 21.10 $ 18.25 $ 13.30 PERFORMANCE RATIOSReturn onaverage 1.32 % 1.20 % 1.16 % 0.90 % 0.85 %assetsReturn onaverage 14.13 % 12.14 % 15.13 % 12.36 % 11.58 %shareholders'equityReturn onaveragetangible 14.69 % 12.75 % 16.47 % 13.16 % 11.58 %shareholders'equityEfficiency 54.70 % 63.73 % 66.07 % 69.18 % 73.19 %ratioYield onearning 4.19 % 4.79 % 4.42 % 4.16 % 4.41 %assets (FTE)Rate oninterest 1.09 % 1.43 % 0.90 % 0.57 % 0.78 %bearingliabilitiesNet interestmargin to 3.47 % 3.82 % 3.82 % 3.73 % 3.84 %earningassets (FTE)BALANCE SHEET DATA^(1)Totalinvestment $ 75,526 $ 73,285 $ 49,110 $ 70,699 $ 24,378 securitiesGross loans $ 1,044,564 $ 813,547 $ 707,364 $ 591,753 $ 396,565 Total assets $ 1,237,694 $ 949,790 $ 841,459 $ 730,511 $ 473,714 Total $ 1,018,287 $ 792,555 $ 702,035 $ 614,167 $ 393,578 depositsBorrowed $ 96,217 $ 54,000 $ 74,000 $ 59,000 $ 44,000 fundsTotalshareholders' $ 108,969 $ 95,504 $ 63,078 $ 54,255 $ 33,919 equityNet loans tototal 101.70 % 102.02 % 100.18 % 95.85 % 99.85 %depositsCommon shares 4,680,920 4,653,343 3,640,060 3,629,097 2,536,948 outstandingYTD BALANCESHEET AVERAGESTotal assets $ 1,125,064 $ 940,585 $ 797,594 $ 723,786 $ 454,152 Earning $ 1,072,008 $ 894,357 $ 749,755 $ 631,928 $ 410,313 assetsInterestbearing $ 692,035 $ 604,469 $ 509,294 $ 499,636 $ 297,662 liabilitiesTotalshareholders' $ 105,276 $ 93,239 $ 61,219 $ 52,786 $ 33,393 equityTotaltangible $ 101,233 $ 88,762 $ 56,221 $ 49,586 $ 33,393 shareholders'equityEarned commonshares 4,662,113 4,638,208 3,635,446 3,624,719 2,497,403 outstandingUnvested 13,844 9,878 ? ? ? stock grantsTotal commonshares 4,675,957 4,648,086 3,635,446 3,624,719 2,497,403 outstandingASSET QUALITY ^(1)Nonperformingloans to 0.10 % 0.13 % 0.14 % 0.09 % 0.02 %gross loansNonperformingassets to 0.08 % 0.11 % 0.13 % 0.08 % 0.02 %total assetsAllowance forloan losses 0.86 % 0.62 % 0.57 % 0.52 % 0.90 %to grossloansCAPITAL RATIOS^(1)Total capitalto risk 15.06 % 14.18 % 11.20 % 11.25 % 12.98 %weightedassetsTier 1capital to 14.00 % 13.53 % 10.62 % 10.73 % 12.08 %risk weightedassetsCET1 capitalto risk 12.34 % 11.73 % 8.59 % 8.36 % 8.54 %weightedassetsTier 1leverage 9.90 % 11.16 % 9.14 % 8.99 % 10.40 %ratio ^(1)At end of period

Income Statement Breakdown and Analysis

Quarter to Date 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019GAAP net $ 4,043 $ 3,352 $ 2,552 $ 3,415 $ 3,097 incomeAcquisitionrelated items (net of tax)Accretion onpurchased (110 ) (180 ) (126 ) (189 ) (145 ) loansAmortizationof core 71 71 89 88 90 depositintangiblesAmortizationon acquired 5 5 7 7 7 time depositsAmortizationon purchasedmortgage ? ? 3 3 3 servicingrightsTotalacquisition (34 ) (104 ) (27 ) (91 ) (45 ) related items(net of tax)Othernonrecurring items (net oftax)Interestincome on PPP (771 ) ? ? ? ? loansNet gain fromCOLI death (137 ) ? ? ? ? benefitPrepaymentpenalties (12 ) (36 ) (42 ) (284 ) (9 ) collectedChange infair value ofequityinvestment ? (578 ) ? ? ? due toacquisitiontransactionChange infair value ofmortgage ? (448 ) ? ? ? bankinginstrumentsInterestexpense on 6 ? ? ? ? PPPLFDeferredcosts 58 ? ? ? ? recognizedfor PPP loansMortgageservicing 191 173 ? ? ? rightsimpairmentTotal othernonrecurring (665 ) (889 ) (42 ) (284 ) (9 ) items (net oftax)Adjusted netincome from $ 3,344 $ 2,359 $ 2,483 $ 3,040 $ 3,043 operations GAAP netinterest $ 9,597 $ 8,925 $ 8,918 $ 9,056 $ 8,593 incomeInterestincome on PPP (976 ) ? ? ? ? loansAccretion onpurchased (139 ) (228 ) (160 ) (239 ) (183 ) loansPrepaymentpenalties (15 ) (46 ) (53 ) (360 ) (12 ) collectedAmortizationon acquired 6 6 9 9 9 time depositsInterestexpense on 8 ? ? ? ? PPPLFDeferredcosts 73 ? ? ? ? recognizedfor PPP loansAdjusted netinterest $ 8,554 $ 8,657 $ 8,714 $ 8,466 $ 8,407 income PERFORMANCE RATIOSBased onadjusted net income fromoperationsEarnings per $ 0.72 $ 0.51 $ 0.53 $ 0.65 $ 0.66 shareReturn onaverage 1.12 % 0.90 % 0.99 % 1.24 % 1.29 %assetsReturn onaverage 12.57 % 9.15 % 9.75 % 12.31 % 12.91 %shareholders'equityReturn onaveragetangible 13.06 % 9.53 % 10.18 % 12.88 % 13.55 %shareholders'equity Based onadjusted net interestincomeYield onearning 3.89 % 4.36 % 4.57 % 4.59 % 4.72 %assets (FTE)Rate oninterest 0.91 % 1.28 % 1.37 % 1.43 % 1.47 %bearingliabilitiesNet interestmargin to 3.32 % 3.50 % 3.66 % 3.66 % 3.75 %earningassets (FTE)

Year to Date June 30 Variance 2020 2019 Amount %GAAP net income $ 7,395 $ 5,611 $ 1,784 31.79 %Acquisition related items (net of tax)Accretion on (290 ) (320 ) 30 (9.38 ) %purchased loansAmortization of core 142 179 (37 ) (20.67 ) %deposit intangiblesAmortization onacquired time 10 13 (3 ) (23.08 ) %depositsAmortization onpurchased mortgage ? 6 (6 ) (100.00 ) %servicing rightsTotal acquisitionrelated items (net (138 ) (122 ) (16 ) 13.11 %of tax)Other nonrecurring items (net of tax)Interest income on (771 ) ? (771 ) N/MPPP loansChange in fair valueof equity investment (578 ) ? (578 ) N/Mdue to acquisitiontransactionChange in fair valueof mortgage banking (448 ) ? (448 ) N/MinstrumentsNet gain from COLI (137 ) ? (137 ) N/Mdeath benefitPrepayment penalties (48 ) (22 ) (26 ) 118.18 %collectedInterest expense on 6 ? 6 N/MPPPLFDeferred costsrecognized for PPP 58 ? 58 N/MloansMortgage servicing 364 ? 364 N/Mrights impairmentTotal othernonrecurring items (1,554 ) (22 ) (1,532 ) 6,963.64 %(net of tax)Adjusted net income $ 5,703 $ 5,467 $ 236 4.32 %from operations GAAP net interest $ 18,522 $ 16,940 $ 1,582 9.34 %incomeInterest income on (976 ) ? (976 ) N/MPPP loansAccretion on (367 ) (405 ) 38 (9.38 ) %purchased loansPrepayment penalties (61 ) (28 ) (33 ) 117.86 %collectedAmortization onacquired time 12 17 (5 ) (29.41 ) %depositsInterest expense on 8 ? 8 N/MPPPLFDeferred costsrecognized for PPP 73 ? 73 N/MloansAdjusted net $ 17,211 $ 16,524 $ 687 4.16 %interest income PERFORMANCE RATIOS Based on adjustednet income from operationsEarnings per share $ 1.22 $ 1.18 $ 0.04 3.39 %Return on average 1.02 % 1.17 % (0.15 ) %assetsReturn on average 10.89 % 11.82 % (0.93 ) %shareholders' equityReturn on averagetangible 11.33 % 12.42 % (1.09 ) %shareholders' equity Based on adjusted net interest incomeYield on earning 4.10 % 4.69 % (0.59 ) %assets (FTE)Rate on interest 1.09 % 1.44 % (0.35 ) %bearing liabilitiesNet interest marginto earning assets 3.39 % 3.73 % (0.34 ) %(FTE)

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

The Corporation adopted Staff Accounting Bulletin No. 109 as of January 1, 2020. This standard required the Corporation to record the servicing assets of interest rate lock commitments and loans held for sale at fair value. The Corporation also opted to recognize the interest rate lock commitments, loans held for sale, and forward commitments at fair value. Changes in the fair value of these instruments is recognized as a component of noninterest income. As forward loan sales commitments were previously recorded at fair value, the nonrecurring item impact disclosed above represents the change in fair value of interest rate lock commitments and loans held for sale.

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 June 30, 2020 March 31, 2020 June 30, 2019 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 $ 1,048,068 $ 10,788 4.14 % $ 878,813 $ 10,481 4.80 % $ 805,954 $ 10,141 5.05 %Taxableinvestment 62,829 323 2.07 % 56,963 353 2.49 % 67,237 462 2.76 %securitiesNontaxableinvestment 11,449 84 2.95 % 10,532 81 3.09 % 9,374 70 3.00 %securitiesFederal funds ? ? ? % 33,588 116 1.39 % 10,195 61 2.40 %soldInterest earningcash and cash 21,314 5 0.09 % 14,043 26 0.74 % 4,828 28 2.33 %equivalentsFederal Home 3,281 33 4.05 % 3,150 30 3.83 % 3,150 41 5.22 %Loan Bank stockTotal earning 1,146,941 11,233 3.94 % 997,089 11,087 4.47 % 900,738 10,803 4.81 %assets Nonearning assetsAllowance for (7,753 ) (5,821 ) (4,822 ) loan lossesFixed assets 15,509 15,538 14,837 Accrued income 46,269 42,439 36,342 and other assetsTotal assets $ 1,200,966 $ 1,049,245 $ 947,095 Interest bearing liabilitiesInterest bearing $ 189,981 $ 249 0.53 % $ 170,598 $ 475 1.12 % $ 75,495 $ 117 0.62 %demand depositsSavings deposits 247,687 140 0.23 % 231,188 199 0.35 % 243,795 319 0.52 %Time deposits 181,661 821 1.82 % 205,485 1,053 2.06 % 229,863 1,319 2.30 %Borrowed funds 92,171 408 1.78 % 65,293 418 2.57 % 54,812 440 3.22 %Total interestbearing 711,500 1,618 0.91 % 672,564 2,145 1.28 % 603,965 2,195 1.46 %liabilities Noninterestbearing liabilitiesNoninterest 371,320 264,699 243,010 bearing depositsAccrued interestand other 11,148 8,336 5,601 liabilitiesShareholders' 106,998 103,646 94,519 equityTotalliabilities and $ 1,200,966 $ 1,049,245 $ 947,095 shareholders'equityNet interest $ 9,615 $ 8,942 $ 8,608 income (FTE)Net interestmargin to 3.37 % 3.61 % 3.83 %earning assets(FTE)

Six Months Ended June 30, 2020 June 30, 2019 Average Tax Average Average Tax Average Balance Equivalent Yield / Balance Equivalent Yield / Interest Rate Interest RateInterestearning assetsTotal loans $ 963,400 $ 21,269 4.44 % $ 798,511 $ 19,882 5.02 %Taxableinvestment 59,896 676 2.27 % 73,303 1,021 2.81 %securitiesNontaxableinvestment 10,991 165 3.02 % 9,977 146 2.95 %securitiesFederal funds 16,794 116 1.39 % 5,119 61 2.40 %soldInterestearning cash 17,712 31 0.35 % 4,297 53 2.49 %and cashequivalentsFederal HomeLoan Bank 3,215 63 3.94 % 3,150 93 5.95 %stockTotal earning 1,072,008 22,320 4.19 % 894,357 21,256 4.79 %assets Nonearning assetsAllowance for (6,787 ) (4,706 ) loan lossesFixed assets 15,523 14,827 Accruedincome and 44,320 36,107 other assetsTotal assets $ 1,125,064 $ 940,585 Interestbearing liabilitiesInterestbearing $ 180,291 $ 724 0.81 % $ 74,454 $ 201 0.54 %demanddepositsSavings 239,438 339 0.28 % 242,805 616 0.51 %depositsTime deposits 193,574 1,874 1.95 % 227,865 2,539 2.25 %Borrowed 78,732 826 2.11 % 59,345 929 3.16 %fundsTotalinterest 692,035 3,763 1.09 % 604,469 4,285 1.43 %bearingliabilities Noninterestbearing liabilitiesNoninterestbearing 318,010 238,640 depositsAccruedinterest and 9,743 4,237 otherliabilitiesShareholders' 105,276 93,239 equityTotalliabilitiesand $ 1,125,064 $ 940,585 shareholders'equityNet interest $ 18,557 $ 16,971 income (FTE)Net interestmargin to 3.48 % 3.83 %earningassets (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 Six Months Ended June 30, 2020 June 30, 2020 June 30, 2020 Compared To Compared To Compared To March 31, 2020 June 30, 2019 June 30, 2019 Increase (Decrease) Due to Increase (Decrease) Due to Increase (Decrease) Due to Volume Rate Net Volume Rate Net Volume Rate NetChanges ininterest incomeTotal loans $ 6,947 $ (6,640 ) $ 307 $ 9,573 $ (8,926 ) $ 647 $ 6,828 $ (5,441 ) $1,387Taxableinvestment 170 (200 ) (30 ) (29 ) (110 ) (139 ) (168 ) (177 ) (345)securitiesNontaxableinvestment 21 (18 ) 3 20 (8 ) 12 15 4 19securitiesFederal (58 ) (58 ) (116 ) (30 ) (30 ) (60 ) 134 (79 ) 55funds soldInterestearningcash and 60 (81 ) (21 ) 151 (174 ) (23 ) 127 (149 ) (22)cashequivalentsFederalHome Loan 1 2 3 11 (18 ) (7 ) 6 (36 ) (30)Bank stockTotalchanges in 7,141 (6,995 ) 146 9,696 (9,266 ) 430 6,942 (5,878 ) 1,064interestincome Changes ininterest expenseInterestbearing 317 (543 ) (226 ) 245 (113 ) 132 387 136 523demanddepositsSavings 86 (145 ) (59 ) 34 (213 ) (179 ) (8 ) (269 ) (277)depositsTime (116 ) (116 ) (232 ) (250 ) (248 ) (498 ) (353 ) (312 ) (665)depositsBorrowed 585 (595 ) (10 ) 934 (966 ) (32 ) 567 (670 ) (103)fundsTotalchanges in 872 (1,399 ) (527 ) 963 (1,540 ) (577 ) 593 (1,115 ) (522)interestexpenseNet changein netinterest $ 6,269 $ (5,596 ) $ 673 $ 8,733 $ (7,726 ) $ 1,007 $ 6,349 $ (4,763 ) $1,586income(FTE)

Average Yield/Rate for the Three Month Periods Ended 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019Totalearning 3.94 % 4.47 % 4.66 % 4.85 % 4.81 %assetsTotalinterest 0.91 % 1.28 % 1.36 % 1.42 % 1.46 %bearingliabilitiesNetinterestmargin to 3.37 % 3.61 % 3.75 % 3.91 % 3.83 %earningassets(FTE)Netinterestmargin toearningassets 3.52 % 3.61 % 3.75 % 3.91 % 3.83 %(FTE)withoutimpact ofPPP loans Quarter to Date Net Interest Income (FTE) 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019Interest $ 11,215 $ 11,070 $ 11,076 $ 11,240 $ 10,788 incomeFTE 18 17 17 15 15 adjustmentTotalinterest 11,233 11,087 11,093 11,255 10,803 income(FTE)Totalinterest 1,618 2,145 2,158 2,184 2,195 expenseNetinterest $ 9,615 $ 8,942 $ 8,935 $ 9,071 $ 8,608 income(FTE)

The current low interest rate environment continues to create pressure on the Corporation's net interest margin. At the end of the first quarter of 2020, and into the second quarter of 2020, the Corporation made a concentrated effort to decrease the interest rates on deposit products.

Noninterest Income

Quarter to Date 6/30/2020 3/31/2020 12/31/ 9/30/2019 6/30/2019 2019Net gain on sales of mortgage $ 2,644 $ 970 $ 650 $ 665 $ 422 loansChange in fair value of 1,225 833 ? ? ? mortgage banking instrumentsATM and debit card income 394 355 399 418 404 Trust and investment services 321 389 337 395 459 Mortgage servicing fees 270 262 256 243 230 Net gain from corporate owned 173 ? ? ? ? life insurance death benefitService charges on deposit 119 219 245 239 222 accountsChange in fair value of 7 749 (5 ) 16 21 equity investmentsNet gain on sales of ? 668 ? ? ? commercial loansNet mortgage servicing rights (164 ) (50 ) 130 142 344 incomeOther income and fees 303 118 117 144 148 Total noninterest income $ 5,292 $ 4,513 $ 2,129 $ 2,262 $ 2,250

Year to Date June 30 Variance 2020 2019 Amount %Net gain on sales of $ 3,614 $ 617 $ 2,997 485.74 %mortgage loansChange in fair value ofmortgage banking 2,058 ? 2,058 N/MinstrumentsATM and debit card income 749 764 (15 ) (1.96 ) %Trust and investment 710 787 (77 ) (9.78 ) %servicesMortgage servicing fees 532 441 91 20.63 %Net gain from corporateowned life insurance 173 ? 173 N/Mdeath benefitService charges on 338 456 (118 ) (25.88 ) %deposit accountsChange in fair value of 756 35 721 2060.00 %equity investmentsNet gain on sales of 668 ? 668 N/Mcommercial loansNet mortgage servicing (214 ) 352 (566 ) (160.80 ) %rights incomeOther income and fees 421 320 101 31.56 %Total noninterest income $ 9,805 $ 3,772 $ 6,033 159.94 %

Net gain on sales of mortgage loans represents the income earned on the sale of residential mortgage loans into the secondary market. During 2019, and into 2020, the interest rate environment was very advantageous for residential mortgage originations and refinancing. While the interest rate environment is historically attractive for residential mortgage origination, the uncertainty that many consumers are facing due to the COVID-19 global pandemic is expected to reduce residential mortgage originations. As such, gains from the sales of mortgage loans are expected to decrease through 2020.

On January 1, 2020, the Corporation adopted SAB 109. Because of this adoption, the Corporation now recognizes the value of servicing at the time of commitment, which resulted in an increase in retained earnings of $78 at January 1, 2020. The Corporation also elected the fair value option for its residential mortgage loans HFS on January 1, 2020, which resulted in an increase in retained earnings of $436. Pursuant to this adoption, changes in the fair value of mortgage banking instruments and loans held for sale are included in noninterest income. Change in fair value of mortgage banking instruments will fluctuate with the Corporation's residential mortgage loan originations and interest rate fluctuations. As such, the change in fair value of mortgage banking instruments is expected to decrease through 2020.

ATM and debit card income represents fees earned on ATM and debit card transactions. The Corporation expects these fees to increase modestly throughout the remainder of 2020.

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. The wealth management component is strongly correlated to changes in the stock market and as such, can vary from period to period. Trust and investment services income is expected to approximate current levels throughout the remainder of the year.

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 increases in the size of the serviced portfolio. Mortgage servicing fees are expected to continue to increase throughout the year.

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

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 shift of customer demand toward deposit accounts with no or reduced service charges, as well as a reduction in fees charged. In order to provide relief to customers during the COVID-19 global pandemic, the Corporation reduced fees charged on NSF transactions by more than 50% through May 31, 2020. Now that this program has ended, service charges on deposit accounts are expected to slightly increase in the foreseeable future.

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, an equity position held by the Corporation was bought out through an acquisition, and that transaction generated a gain of $732. The Corporation does not anticipate any significant changes in fair value from equity sales throughout the remainder of 2020.

Net gain on sales of commercial loans represents the income earned from the sale of commercial loans into the secondary market. During the first quarter of 2020, the Corporation sold the guaranteed portion of one SBA loan and one USDA loan. The Corporation continually analyzes its commercial loan portfolio for opportunistic sales strategies.

Net mortgage servicing rights income represents income generated from the capitalization of mortgage servicing rights, net of amortization and impairment. During the second quarter of 2019, the Corporation sold a pool of residential mortgage loans out of its loan portfolio, but retained servicing. This sale generated $266 of net MSR income. During 2020, the Corporation recognized MSR impairments of $219 and $241 for the quarters ended March 31, 2020 and June 30, 2020, respectively. As interest rates remain at historically low levels, refinance opportunities continue to be very attractive to borrowers, thus driving down the value of MSR associated with the current portfolio.

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 2020.

Noninterest Expenses

Quarter to Date 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019Total $ 4,252 $ 4,248 $ 4,037 $ 3,530 $ 3,749 compensationFurniture and 618 610 665 579 525 equipmentProfessional 571 522 582 494 439 servicesData 535 442 272 323 281 processingOccupancy 435 476 467 444 426 Advertisingand 255 252 232 222 291 promotionalLoan and 229 162 203 120 119 collectionATM and debit 92 108 98 109 100 cardAmortizationof core 90 90 113 112 114 depositintangiblesFDIC insurance 59 55 6 20 17 premiumsTelephone and 86 96 115 110 108 communicationOther generaland 587 625 625 545 522 administrativeTotalnoninterest $ 7,809 $ 7,686 $ 7,415 $ 6,608 $ 6,691 expenses

Year to Date June 30 Variance 2020 2019 Amount %Total $ 8,500 $ 7,379 $ 1,121 15.19 %compensationFurniture and 1,228 1,016 212 20.87 %equipmentProfessional 1,093 908 185 20.37 %servicesData 977 454 523 115.20 %processingOccupancy 911 863 48 5.56 %Advertisingand 507 535 (28 ) (5.23 ) %promotionalLoan and 391 229 162 70.74 %collectionATM and debit 200 195 5 2.56 %cardAmortizationof core 180 226 (46 ) (20.35 ) %depositintangiblesFDIC insurance 114 118 (4 ) (3.39 ) %premiumsTelephone and 182 219 (37 ) (16.89 ) %communicationOther generaland 1,212 1,058 154 14.56 %administrativeTotalnoninterest $ 15,495 $ 13,200 $ 2,295 17.39 %expenses

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. Total compensation is expected to moderate throughout 2020 as increases related to the growth in size and complexity of the Corporation will likely be offset by reductions in commissions and incentives.

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 2020 with the size and complexity of the Corporation.

Advertising and promotional includes the Corporation's media costs and any donations or sponsorships made on behalf of the Corporation. The increase in expenses is a direct result of the Corporation enhancing its marketing efforts to attract new and expand existing customer loans and deposit accounts. These expenses are expected to increase throughout 2020 due to the Corporation's re-branding strategy and continued growth strategy.

Loan and collection includes expenses related to the origination and collection of loans, as well as expenses related to OREO. Given the impact that COVID-19 has had on the economy, the Corporation may experience elevated levels of these expenses in 2020.

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 maintain current levels throughout 2020.

Amortization of core deposit intangibles relates to the core deposits acquired from Community Bancorp, Inc. on December 31, 2016 and is expected to approximate current levels throughout 2020.

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 decreased significantly in 2019 due to a Small Bank Assessment Credit issued by the FDIC in the second quarter of 2019. The credit was fully applied during the first quarter of 2020. Due to a combination of the Small Bank Assessment Credit, and increased asset size largely due to PPP loans, the Corporation expects FDIC insurance premiums to approximate current levels throughout 2020.

Telephone and communication includes expenses relating to the Corporation's communication systems. These expenses are expected to maintain current levels for the remainder of 2020.

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

Balance Sheet Breakdown and Analysis

6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019ASSETS Cash and cash $ 35,190 $ 71,140 $ 46,803 $ 37,572 $ 20,067 equivalentsTotalinvestment 75,526 76,312 61,621 62,351 73,285 securitiesLoans 46,354 21,154 19,491 15,111 6,771 held-for-saleGross loans 1,044,564 865,577 870,555 826,597 813,547 Lessallowance for 8,991 7,250 5,813 5,413 5,014 loan lossesNet loans 1,035,573 858,327 864,742 821,184 808,533 All other 45,051 44,247 42,102 41,828 41,134 assetsTotal assets $ 1,237,694 $ 1,071,180 $ 1,034,759 $ 978,046 $ 949,790 LIABILITIESAND SHAREHOLDERS'EQUITYTotal $ 1,018,287 $ 883,837 $ 863,102 $ 801,101 $ 792,555 depositsTotalborrowed 96,217 71,500 61,500 69,000 54,000 fundsAccruedinterestpayable and 14,221 11,015 8,713 8,803 7,731 otherliabilitiesTotal 1,128,725 966,352 933,315 878,904 854,286 liabilitiesTotalshareholders' 108,969 104,828 101,444 99,142 95,504 equityTotalliabilitiesand $ 1,237,694 $ 1,071,180 $ 1,034,759 $ 978,046 $ 949,790 shareholders'equity

6/30/2020 vs 3/31/2020 6/30/2020 vs 6/30/2019 Variance Variance Amount % Amount %ASSETS Cash and cash $ (35,950 ) (50.53 ) % $ 15,123 75.36 %equivalentsTotal investment (786 ) (1.03 ) % 2,241 3.06 %securitiesLoans 25,200 119.13 % 39,583 584.60 %held-for-saleGross loans 178,987 20.68 % 231,017 28.40 %Less allowance 1,741 24.01 % 3,977 79.32 %for loan lossesNet loans 177,246 20.65 % 227,040 28.08 %All other assets 804 1.82 % 3,917 9.52 %Total assets $ 166,514 15.54 % $ 287,904 30.31 % LIABILITIES ANDSHAREHOLDERS' EQUITYTotal deposits $ 134,450 15.21 % $ 225,732 28.48 %Total borrowed 24,717 34.57 % 42,217 78.18 %fundsAccrued interestpayable and 3,206 29.11 % 6,490 83.95 %otherliabilitiesTotal 162,373 8.78 % 274,439 16.66 %liabilities Totalshareholders' 4,141 3.95 % 13,465 14.10 %equityTotalliabilities and $ 166,514 15.54 % $ 287,904 30.31 %shareholders'equity

Cash and cash equivalents

6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019Cash and due from banksNoninterest bearing $ 20,369 $ 33,312 $ 17,754 $ 21,808 $ 12,143 Interest bearing 14,821 37,828 6,049 6,764 4,924 Federal funds sold ? ? 23,000 9,000 3,000 Cash and cash $ 35,190 $ 71,140 $ 46,803 $ 37,572 $ 20,067 equivalents 6/30/2020 vs 3/31/2020 6/30/2020 vs 6/30/2019 Variance Variance Amount % Amount %Cash and due from banksNoninterest bearing $ (12,943 ) (38.85 ) % $ 8,226 67.74 %Interest bearing (23,007 ) (60.82 ) % 9,897 201.00 %Federal funds sold ? N/M (3,000 ) (100.00 ) %Cash and cash $ (35,950 ) (50.53 ) % $ 15,123 75.36 %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.

Primary and secondary liquidity sources

While the Corporation continues maintain a strong liquidity position, it is important to monitor all liquidity sources. Because of the funding of PPP loans, the Corporation may have to make significant draws on these sources of liquidity in the near term. The following table outlines the Corporation's primary and secondary sources of liquidity as of:

6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019Cash andcash $ 35,190 $ 71,140 $ 46,803 $ 37,572 $ 20,067 equivalentsUnpledgedinvestment 52,647 51,889 40,094 40,675 50,729 securitiesFHLBborrowing 97,500 42,500 52,500 45,000 60,000 availabilityFederalfundspurchased 21,500 17,500 17,500 17,500 17,500 lines ofcreditFundsavailablethrough the 10,000 10,000 10,000 10,000 10,000 Fed DiscountWindowPPPLF 202,184 ? ? ? ? Totalliquidity $ 419,021 $ 193,029 $ 166,897 $ 150,747 $ 158,296 sources

Total investment securities

6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019Available-for-sale U.S. Government $ 21,339 $ 23,610 $ 18,867 $ 22,854 $ 33,842 and federal agencyState and 14,115 10,657 10,691 10,194 8,889 municipalMortgage backed 12,335 10,176 10,748 6,227 6,733 residentialCertificates of 6,665 8,644 6,659 7,155 7,154 depositCollateralizedmortgage 15,736 18,288 9,527 10,826 11,856 obligations -agenciesUnrealized gain/(loss) on 2,242 1,735 1,092 1,048 776 available-for-salesecuritiesTotal 72,432 73,110 57,584 58,304 69,250 available-for-saleHeld-to-maturitystate and 1,981 2,091 2,096 2,100 2,104 municipalEquity securities 1,113 1,111 1,941 1,947 1,931 Total investment $ 75,526 $ 76,312 $ 61,621 $ 62,351 $ 73,285 securities 6/30/2020 vs 3/31/2020 6/30/2020 vs 6/30/2019 Variance Variance Amount % Amount %Available-for-sale U.S. Government $ (2,271 ) (9.62 ) % $ (12,503 ) (36.95 ) %and federal agencyState and 3,458 32.45 % 5,226 58.79 %municipalMortgage backed 2,159 21.22 % 5,602 83.20 %residentialCertificates of (1,979 ) (22.89 ) % (489 ) (6.84 ) %depositCollateralizedmortgage (2,552 ) (13.95 ) % 3,880 32.73 %obligations -agenciesUnrealized gain/(loss) on 507 29.22 % 1,466 188.92 %available-for-salesecuritiesTotal (678 ) (0.93 ) % 3,182 4.59 %available-for-saleHeld-to-maturitystate and (110 ) (5.26 ) % (123 ) (5.85 ) %municipalEquity securities 2 0.18 % (818 ) (42.36 ) %Total investment $ (786 ) (1.03 ) % $ 2,241 3.06 %securities

The amortized cost and fair value of AFS investment securities as of June30, 2020 were as follows:

Maturing After Securities After One Five with Due in One Year Years But After Ten Variable Year or But Within Within Years Monthly Total Less Five Years Ten Payments or Years Noncontractual MaturitiesU.S.Government and $ 16,411 $ 4,928 $ ? $ ? $ ? $ 21,339 federal agencyState and 2,474 5,772 3,777 2,092 ? 14,115 municipalMortgagebacked ? ? ? ? 12,335 12,335 residentialCertificates 2,475 4,190 ? ? ? 6,665 of depositCollateralizedmortgage ? ? ? ? 15,736 15,736 obligations -agenciesTotal $ 21,360 $ 14,890 $ 3,777 $ 2,092 $ 28,071 $ 70,190 amortized costFair value $ 21,553 $ 15,756 $ 3,933 $ 2,371 $ 28,819 $ 72,432

The amortized cost and fair value of HTM investment securities as of June30, 2020 were as follows:

Maturing After One After Securities Due in Year Five with One But Years After Variable Year or Within But Ten Monthly Total Less Five Within Years Payments or Years Ten Noncontractual Years MaturitiesState and $ 415 $ 1,116 $ 370 $ 80 $ ? $ 1,981 municipalFair $ 421 $ 1,162 $ 396 $ 85 $ ? $ 2,064 value

Throughout 2019, yields on bonds that met the Corporation's investment standards declined significantly. As such, the Corporation did not replace the majority of maturing investments in 2019. However, an influx of liquidity in late 2019 and into 2020 led the Corporation to make investment security purchases in order to stabilize net interest margin and generate additional net interest income. Total investment securities are expected to grow with overall balance sheet growth as it is an important source of liquidity and consistent earnings. The following table summarizes information as of June30, 2020 for investment securities purchased YTD:

Fully Weighted Taxable Average Book Value Equivalent Remaining Weighted Maturity Average (Months) YieldU.S. Government and federal agency $ 10,421 0.46 % 5 State and municipal 4,510 1.66 % 86 Collateralized mortgage obligations 8,663 1.80 % 289 - agenciesCertificates of deposit 1,240 1.05 % 3 Mortgage backed residential 3,132 1.05 % 136 Held-to-maturity state and ? ? % ? municipalTotal $ 27,966 1.16 % 121

Loans held-for-sale

Loans HFS represent the balance 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. As residential mortgage activity is likely to decrease for the remainder of 2020, the balance of loans HFS will also likely decline.

During the first quarter of 2020, the Corporation opted to recognize loans HFS at fair value. The Corporation believes that fair value is the price at which the loans could be sold in the principal market at the measurement date.

Loans and allowance for loan losses

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

6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019Commercial $ 260,440 $ 67,731 $ 71,689 $ 63,747 $ 63,998 Commercial 469,039 462,561 455,289 420,127 408,103 real estateTotalcommercial 729,479 530,292 526,978 483,874 472,101 loansResidential 268,295 285,392 292,946 291,401 289,944 mortgageHome equity 40,114 43,222 41,987 43,061 42,890 Totalresidential 308,409 328,614 334,933 334,462 332,834 real estateloansConsumer 6,676 6,671 8,644 8,261 8,612 Gross loans 1,044,564 865,577 870,555 826,597 813,547 Allowancefor loan (8,991 ) (7,250 ) (5,813 ) (5,413 ) (5,014 ) lossesLoans, net $ 1,035,573 $ 858,327 $ 864,742 $ 821,184 $ 808,533 6/30/2020 vs 3/31/2020 6/30/2020 vs 6/30/2019 Variance Variance Amount % Amount %Commercial $ 192,709 284.52 % $ 196,442 306.95 %Commercial 6,478 1.40 % 60,936 14.93 %real estateTotalcommercial 199,187 37.56 % 257,378 54.52 %loansResidential (17,097 ) (5.99 ) % (21,649 ) (7.47 ) %mortgageHome equity (3,108 ) (7.19 ) % (2,776 ) (6.47 ) %Totalresidential (20,205 ) (6.15 ) % (24,425 ) (7.34 ) %real estateloansConsumer 5 0.07 % (1,936 ) (22.48 ) %Gross loans 178,987 20.68 % 231,017 28.40 %Allowancefor loan (1,741 ) 24.01 % (3,977 ) 79.32 %lossesLoans, net $ 177,246 20.65 % $ 227,040 28.08 %

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

6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019Originatedloanscollectively evaluatedforimpairmentCommercial $ 259,384 $ 66,524 $ 70,322 $ 61,970 $ 61,122 Commercial 452,084 446,713 436,626 400,470 386,970 real estateResidential 263,997 280,265 286,635 285,499 283,638 mortgageHome equity 37,663 40,459 39,023 39,586 39,243 Consumer 6,445 6,391 8,330 7,902 8,169 Subtotal 1,019,573 840,352 840,936 795,427 779,142 Originatedloansindividually evaluatedforimpairmentCommercial ? ? ? ? ? Commercial 3,290 1,658 1,668 1,677 1,703 real estateResidential 663 672 1,362 631 660 mortgageHome equity ? ? ? 240 218 Consumer 3 5 ? ? ? Subtotal 3,956 2,335 3,030 2,548 2,581 Acquiredloanscollectively evaluatedforimpairmentCommercial 1,057 1,204 1,362 1,753 2,806 Commercial 13,293 13,630 16,346 17,194 18,526 real estateResidential 2,683 3,459 3,911 4,139 4,388 mortgageHome equity 2,432 2,743 2,943 3,213 3,399 Consumer 226 273 314 358 441 Subtotal 19,691 21,309 24,876 26,657 29,560 Acquiredloansindividually evaluatedforimpairmentCommercial ? ? ? ? ? Commercial ? ? ? ? ? real estateResidential ? 58 58 61 113 mortgageHome equity ? ? ? ? ? Consumer ? ? ? ? ? Subtotal ? 58 58 61 113 Acquiredloans withdeteriorated creditqualityCommercial (1 ) 3 5 24 70 Commercial 372 560 649 786 904 real estateResidential 952 938 980 1,071 1,145 mortgageHome equity 19 20 21 22 30 Consumer 2 2 ? 1 2 Subtotal 1,344 1,523 1,655 1,904 2,151 Gross Loans $ 1,044,564 $ 865,577 $ 870,555 $ 826,597 $ 813,547 Totaloriginated $ 1,023,529 $ 842,687 $ 843,966 $ 797,975 $ 781,723 loansTotalacquired 21,035 22,890 26,589 28,622 31,824 loansGross loans $ 1,044,564 $ 865,577 $ 870,555 $ 826,597 $ 813,547

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

6/30/2020 3/31/2020 12/31/ 9/30/2019 6/30/2019 2019Originated loanscollectively evaluated forimpairmentCommercial $ 535 $ 478 $ 358 $ 301 $ 278 Commercial real 4,564 3,609 2,790 2,539 2,381 estateResidential 3,080 2,442 1,917 1,820 1,662 mortgageHome equity 353 280 195 198 191 Consumer 102 89 87 87 90 Subtotal 8,634 6,898 5,347 4,945 4,602 Originated loansindividually evaluated forimpairmentCommercial ? ? ? ? ? Commercial real 100 111 127 26 ? estateResidential 5 6 128 27 28 mortgageHome equity ? ? ? 213 218 Consumer 3 5 ? ? ? Subtotal 108 122 255 266 246 Acquired loanscollectively evaluated forimpairmentCommercial 1 1 1 2 5 Commercial real 9 7 5 5 5 estateResidential 9 9 8 9 9 mortgageHome equity 15 14 12 13 14 Consumer ? ? ? ? ? Subtotal 34 31 26 29 33 Acquired loans withdeteriorated credit qualityCommercial ? ? ? ? ? Commercial real 22 39 34 31 15 estateResidential 189 156 147 137 114 mortgageHome equity 4 4 4 5 4 Consumer ? ? ? ? ? Subtotal 215 199 185 173 133 Allowance for loan $ 8,991 $ 7,250 $ 5,813 $ 5,413 $ 5,014 losses Total originated $ 8,742 $ 7,020 $ 5,602 $ 5,211 $ 4,848 loansTotal acquired 249 230 211 202 166 loansAllowance for loan $ 8,991 $ 7,250 $ 5,813 $ 5,413 $ 5,014 lossesCommercial $ 536 $ 479 $ 359 $ 303 $ 283 Commercial real 4,695 3,766 2,956 2,601 2,401 estateResidential 3,283 2,613 2,200 1,993 1,813 mortgageHome equity 372 298 211 429 427 Consumer 105 94 87 87 90 Allowance for loan $ 8,991 $ 7,250 $ 5,813 $ 5,413 $ 5,014 losses

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

6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019Accruing interestCurrent $ 1,042,589 $ 862,581 $ 867,901 $ 824,587 $ 811,184 Past due 948 2,152 1,213 1,089 1,275 30-89 daysPast due90 days or 361 166 239 209 301 moreTotalaccruing 1,043,898 864,899 869,353 825,885 812,760 interestNonaccrual 666 678 1,202 712 787 Total $ 1,044,564 $ 865,577 $ 870,555 $ 826,597 $ 813,547 loansTotalloans pastdue and in $ 1,975 $ 2,996 $ 2,654 $ 2,010 $ 2,363 nonaccrualstatus

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

6/30/2020 3/31/2020 12/31/ 9/30/ 6/30/2019 2019 2019Nonaccrual loans $ 666 $ 678 $ 1,202 $ 712 $ 787 Accruing loans past due 90 361 166 239 209 301 days or moreTotal nonperforming loans 1,027 844 1,441 921 1,088 Other real estate owned ? 400 ? ? ? Total nonperforming assets $ 1,027 $ 1,244 $ 1,441 $ 921 $ 1,088

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

6/30/ 3/31/ 12/31/ 9/30/ 6/30/ 2020 2020 2019 2019 2019Nonperforming loans to 0.10 % 0.10 % 0.17 % 0.11 % 0.13 %gross loansNonperforming assets to 0.08 % 0.12 % 0.14 % 0.09 % 0.11 %total assetsAllowance for loan losses 0.86 % 0.84 % 0.67 % 0.65 % 0.62 %to gross loans

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

6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019Netunamortizeddiscount on $ 1,058 $ 1,233 $ 1,462 $ 1,626 $ 1,914 purchasedloans

As outlined in the preceding tables, the Corporation has grown its loan portfolio over the past 12 months with most of the growth coming in the form of commercial and commercial real estate loans. During the second quarter of 2020, the Corporation funded 1,239 PPP loans totaling $206,901. The vast majority of these loans were non-real estate Commercial loans. Despite the significant growth, the Corporation has not relaxed its underwriting standards.

Despite historically strong credit quality indicators, there continues to be significant uncertainty surrounding the overall impact of COVID-19 on the loan portfolio. This uncertainty resulted in the Corporation increasing the ALLL by $3,178, or 54.67%, since December 31, 2019. Management will continue to monitor the loan portfolio to ensure that the ALLL remains at an appropriate level.

The following table summarizes the average loan size as of:

6/30/2020 3/31/2020 12/31/ 9/30/2019 6/30/2019 2019Commercial $ 171 $ 214 $ 228 $ 204 $ 195 Commercial 654 644 641 605 609 real estateTotalcommercial 325 513 514 481 473 loansResidential 177 194 198 200 206 mortgageHome equity 45 46 44 45 45 Totalresidential 128 137 138 139 140 real estateloansConsumer 25 26 32 31 32 Gross loans $ 213 $ 234 $ 234 $ 225 $ 223

COVID-19, CARES Act and SBA activity

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

The Corporation was extremely active in participating in the PPP loan program. As of June30, 2020 the Corporation funded 1,239 loans totaling $206,901.

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 all foreclosure actions and evictions of borrowers until at least May 17, 2020, -- Offering loan modification options that lower payments or keep payments the same after the forbearance period.

The table below outlines the COVID-19 related loan modifications issued by the Corporation through June30, 2020:

Number of Outstanding Modifications BalanceCommercial 123 $ 29,380 Commercial real estate 227 152,724 Total commercial loan modifications 350 182,104 Residential mortgage loans serviced for FHLMC 131 28,656 Portfolio residential mortgage loans 157 40,411 Home equity 25 1,982 Total residential real estate loan 313 71,049 modificationsConsumer 8 183 Total modifications 671 $ 253,336

The Corporation considers 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 3 months.

In regards to commercial loan modifications, loan officers are contacting the borrowers to determine and appropriate strategy for the next 3 months. If an additional 3 months of principal deferral is warranted, the Corporation is generally collecting accrued interest.

Portfolio residential mortgage loans may have their deferral extended an additional 3 months if the borrower is experiencing a hardship. If the borrower has an escrow established, the Corporation is generally continuing to collect escrow payments.

All other assets

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

6/30/20 3/31/20 12/31/19 9/30/19 6/30/19Premises andequipment, $ 15,323 $ 15,533 $ 15,245 $ 15,443 $ 14,792 netMortgageservicing 3,816 3,980 4,030 3,900 3,758 rightsAccruedinterest 5,266 3,124 2,877 2,954 3,350 receivableCorporateowned life 10,115 10,380 10,316 10,248 10,181 insuranceFederal HomeLoan Bank 3,488 3,150 3,150 3,150 3,150 stockGoodwill 3,219 3,219 3,219 3,219 3,219 Core deposit 722 812 902 1,015 1,128 intangiblesOther real ? 400 ? ? ? estate ownedDerivatives 1,311 1,063 125 172 ? Right-of-use 409 432 475 105 119 assetsOther assets 1,382 2,154 1,763 1,622 1,437 All other $ 45,051 $ 44,247 $ 42,102 $ 41,828 $ 41,134 assets 6/30/2020 vs 3/31/2020 6/30/2020 vs 6/30/2019 Variance Variance Amount % Amount %Premises andequipment, $ (210 ) (1.35 ) % $ 531 3.59 %netMortgageservicing (164 ) (4.12 ) % 58 1.54 %rightsAccruedinterest 2,142 68.57 % 1,916 57.19 %receivableCorporateowned life (265 ) (2.55 ) % (66 ) (0.65 ) %insuranceFederal HomeLoan Bank 338 10.73 % 338 10.73 %stockGoodwill ? ? % ? ? %Core deposit (90 ) (11.08 ) % (406 ) (35.99 ) %intangiblesOther real (400 ) (100.00 ) ? N/Mestate ownedDerivatives 248 23.33 % 1,311 N/MRight-of-use (23 ) (5.32 ) % 290 243.70 %assetsOther assets (772 ) (35.84 ) % (55 ) (3.83 ) %All other 804 1.82 % $ 3,917 9.52 %assets

MSR are servicing assets that are recognized from the sales of mortgage loans. A portion of the cost of originating the loan is allocated to the servicing right based on relative fair value. While the volume of residential mortgage loan sales through June 30, 2020 has nearly exceeded the residential mortgage loan sales volume for all of 2019, MSR have decreased in 2020 due to total impairments of $460. As interest rates remain at historically low levels, refinance opportunities continue to be very attractive to borrowers, thus driving down the value of MSR associated with the current portfolio.

Derivatives are used in the process of hedging the Corporation's mortgage banking activities. The derivatives are recorded at fair value. The Corporation does not expect significant growth in derivatives as residential real estate lending is expected to tighten in 2020.

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.

Total deposits

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

6/30/20 3/31/20 12/31/19 9/30/19 6/30/19Noninterestbearing $ 383,452 $ 281,848 $ 260,503 $ 253,784 $ 248,795 demandInterest bearingSavings 245,957 215,748 215,218 213,494 232,130 Moneymarket 90,504 79,070 88,350 80,873 69,374 demandNOW 122,477 83,910 75,976 39,286 14,925 Time 175,897 223,261 223,055 213,664 227,331 depositsTotal $ 1,018,287 $ 883,837 $ 863,102 $ 801,101 $ 792,555 deposits 6/30/2020 vs 3/31/2020 6/30/2020 vs 6/30/2019 Variance Variance Amount % Amount %Noninterestbearing $ 101,604 36.05 % $ 134,657 54.12 %demandInterest bearingSavings 30,209 14.00 % 13,827 5.96 %Moneymarket 11,434 14.46 % 21,130 30.46 %demandNOW 38,567 45.96 % 107,552 720.62 %Time (47,364 ) (21.21 ) % (51,434 ) (22.63 ) %depositsTotal $ 134,450 15.21 % $ 225,732 28.48 %deposits

PPP loans are funded into a deposit account for the borrowers. The vast majority of these deposit accounts are noninterest bearing demand accounts. As of June30, 2020, $37,521 of deposits were attributable to funds from PPP loans. In the second quarter of 2020, the Corporation also brought in $25,000 of FDIC insured deposits from one relationship.

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. For 2020, the Corporation expects to monitor deposit growth and adjust interest rates to minimize downward pressure on margins.

Schedule of time deposit maturities

The following table summarizes the contractual maturities of the time deposits as of June30, 2020:

Maturity Buckets 3 Months or 3 to 6 6 to 9 9 to 12 Beyond 12 Less Months Months Months MonthsBalance $ 66,295 $ 36,107 $ 29,297 $ 12,394 $ 31,804 Weightedaverage 1.42 % 1.89 % 1.27 % 1.53 % 1.58 %yield Cumulative Maturities 3 Months or Up to 6 Up to 9 Up to 12 Total Less Months Months MonthsBalance $ 66,295 $ 102,402 $ 131,699 $ 144,093 $ 175,897 Weightedaverage 1.42 % 1.59 % 1.52 % 1.52 % 1.53 %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 of the term and opening balance.

Total borrowed funds

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

6/30/20 3/31/20 12/31/19 9/30/19 6/30/19Federal HomeLoan Bank $ 77,500 $ 57,500 $ 47,500 $ 55,000 $ 40,000 borrowingsSubordinated 14,000 14,000 14,000 14,000 14,000 debenturesPPPLF 4,717 ? ? ? ? Federal funds ? ? ? ? ? purchasedTotal borrowed $ 96,217 $ 71,500 $ 61,500 $ 69,000 $ 54,000 funds 6/30/2020 vs 3/31/2020 6/30/2020 vs 6/30/2019 Variance Variance Amount % Amount %Federal HomeLoan Bank $ 20,000 34.78 % $ 37,500 93.75 %borrowingsSubordinated ? ? % ? ? %debenturesPPPLF 4,717 N/M 4,717 N/MFederal funds ? ? % ? ? %purchasedTotal borrowed $ 24,717 34.57 % $ 42,217 78.18 %funds

The Corporation utilizes a mix of borrowed funds and organic deposit growth to fund loan demand. There are times when Federal Home Loan Bank borrowings have extremely attractive interest rates and the Corporation will add to borrow funds for future deployment of funds. The increase in Federal Home Loan Bank borrowings in the second quarter of 2020 is solely due to the Corporation's participation in a PPP loan funding program through the FHLB.

Total borrowed funds are expected to decrease as current Federal Home Loan Bank borrowings mature. The Corporation continually analyzes the market for opportunities and will borrow funds when deemed financially beneficial.

Wholesale funding sources

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

6/30/20 3/31/20 12/31/19 9/30/19 6/30/19Federal HomeLoan Bank $ 77,500 $ 57,500 $ 47,500 $ 55,000 $ 40,000 borrowingsBrokeredtime 28,837 28,605 28,605 16,326 23,484 depositsSubordinated 14,000 14,000 14,000 14,000 14,000 debenturesInternettime 11,690 18,005 18,009 21,977 25,058 depositsPPPLF 4,717 ? ? ? ? Totalwholesale $ 136,744 $ 118,110 $ 108,114 $ 107,303 $ 102,542 funds 6/30/2020 vs 3/31/2020 6/30/2020 vs 6/30/2019 Variance Variance Amount % Amount %Federal HomeLoan Bank $ 20,000 34.78 % $ 37,500 93.75 %borrowingsBrokeredtime 232 0.81 % 5,353 22.79 %depositsSubordinated ? ? % ? ? %debenturesInternettime (6,315 ) (35.07 ) % (13,368 ) (53.35 ) %depositsPPPLF 4,717 N/M 4,717 N/MTotalwholesale $ 18,634 15.78 % $ 34,202 33.35 %funds

The Corporation utilizes wholesale funds to fund balance sheet growth. While wholesale funding has historically been more expensive than core deposits, there have been times in 2020 where that is not the case. 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 in 2020 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.

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 atJune30, 2015and all dividends were reinvested.

A graph accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/4e71e085-6a4c-4e45-9fce-f13d60034839

Date FETM ABQ Index6/30/2015 100.00 100.006/30/2016 96.00 97.316/30/2017 132.14 131.046/30/2018 153.68 142.796/30/2019 152.00 126.056/30/2020 131.23 93.17

Abbreviations and Acronyms

ABA: American Bankers Association HTM: Held-to-maturity AFS: Available-for-sale IRA: Individual retirement account ALLL: Allowance for loan losses ITM: Interactive teller machine AOCI: Accumulated other MSR: Mortgage servicing rights comprehensive incomeASU: Accounting Standards Update N/M: Not meaningful ATM: Automated teller machine NASDAQ: National Association of CARES Act: Coronavirus Aid, Securities Dealers Automated Quotations Relief, and Economic Security Act NOW: Negotiable order of withdrawal CET1: Common equity tier 1 NSF: Non-sufficient funds COVID-19: Coronavirus Disease OREO: Other real estate owned 2019FDIC: Federal Deposit Insurance PPP: Paycheck Protection Program CorporationFHLB: Federal Home Loan Bank PPPLF: Paycheck Protection Program Liquidity FacilityFHLMC: Federal Home Loan Mortgage QTD: Quarter-to-date CorporationFRB: Federal Reserve Bank SAB: Staff Accounting Bulletin FTE: Fully taxable equivalent SBA: Small Business Association GAAP: Generally Accepted USDA: United States Department of Accounting Principles 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 Top 50 performing stocks in 2018 and 2019 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 15 full-service branches in Genesee, Livingston, Oakland, Saginaw, and Shiawassee Counties and a loan production office in Saginaw County. The State Bank was ranked #22 by S&P Global in terms of 2019 performance for banks under $2 billion in assets. 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.

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