Fentura Financial, Inc. Announces Second Quarter 2021 Earnings

·11 min read

Figure 1

Stock Performance Five-Year Total Return
Stock Performance Five-Year Total Return
Stock Performance Five-Year Total Return

Dollars in thousands except per share amounts. Certain items in the prior period financial statements have been reclassified to conform with the June 30, 2021 presentation.

FENTON, Mich., July 30, 2021 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. (OTCQX: FETM) announces quarterly results of net income of $4,726 and $9,382 for the three and six month periods ended June 30, 2021.

Ronald Justice, President and CEO, stated, "Once again, I am pleased with our operating results for the quarter. Opportunities for new loan and core deposit relationships remain strong. Our team's outstanding efforts generated an increase in total loans (net of PPP loans) of $45,629 during the quarter and $62,446 on a year to date basis. These growth trends, along with continued strong residential mortgage activity and a solid net interest margin actively contributed to our strong operating results. While the COVID-19 pandemic continues to create uncertainties, client relationship growth, consistent asset quality, and stock performance trends are encouraging indicators."

Following is a discussion of the Corporation's financial performance as of, and for the three and six month periods ended June 30, 2021. At the end of this document is a list of abbreviations and acronyms.

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

6/30/2021

3/31/2021

12/31/2020

9/30/2020

6/30/2020

INCOME STATEMENT DATA

Interest income

$

11,658

$

11,919

$

11,624

$

12,070

$

11,215

Interest expense

762

676

972

1,189

1,618

Net interest income

10,896

11,243

10,652

10,881

9,597

Provision for loan losses

6

212

982

1,109

2,001

Noninterest income

4,230

3,854

4,676

5,159

5,292

Noninterest expenses

9,222

9,031

10,971

8,218

7,809

Federal income tax expense

1,172

1,198

642

1,377

1,036

Net income

$

4,726

$

4,656

$

2,733

$

5,336

$

4,043

PER SHARE

Earnings

$

1.02

$

1.00

$

0.58

$

1.14

$

0.87

Dividends

$

0.080

$

0.080

$

0.075

$

0.075

$

0.075

Tangible book value(1)

$

25.73

$

24.75

$

23.88

$

23.50

$

22.44

Quoted market value

High

$

27.40

$

24.75

$

22.25

$

17.99

$

18.95

Low

$

23.55

$

21.90

$

16.93

$

16.80

$

14.90

Close(1)

$

26.00

$

23.30

$

22.00

$

16.93

$

17.35

PERFORMANCE RATIOS

Return on average assets

1.45

%

1.50

%

0.84

%

1.68

%

1.35

%

Return on average shareholders' equity

15.64

%

15.86

%

9.27

%

18.86

%

15.20

%

Return on average tangible shareholders' equity

16.12

%

16.38

%

9.58

%

19.54

%

15.79

%

Efficiency ratio

60.97

%

59.82

%

71.57

%

51.23

%

52.45

%

Yield on earning assets (FTE)

3.79

%

4.01

%

3.75

%

3.97

%

3.94

%

Rate on interest bearing liabilities

0.41

%

0.37

%

0.50

%

0.63

%

0.91

%

Net interest margin to earning assets (FTE)

3.55

%

3.79

%

3.44

%

3.58

%

3.37

%

BALANCE SHEET DATA(1)

Total investment securities

$

129,944

$

89,772

$

76,111

$

78,179

$

75,526

Gross loans

$

986,358

$

1,028,117

$

1,066,562

$

1,060,885

$

1,044,564

Total assets

$

1,309,685

$

1,303,175

$

1,251,446

$

1,284,845

$

1,237,694

Total deposits

$

1,126,496

$

1,122,508

$

1,071,976

$

1,061,470

$

1,018,287

Borrowed funds

$

49,500

$

49,000

$

49,000

$

96,217

$

96,217

Total shareholders' equity

$

122,986

$

119,360

$

115,868

$

114,081

$

108,969

Net loans to total deposits

86.60

%

90.60

%

98.48

%

98.99

%

101.70

%

Common shares outstanding

4,638,614

4,673,932

4,694,275

4,691,142

4,680,920

QTD BALANCE SHEET AVERAGES

Total assets

$

1,309,942

$

1,259,119

$

1,288,199

$

1,264,105

$

1,200,966

Earning assets

$

1,234,827

$

1,206,411

$

1,235,895

$

1,210,274

$

1,146,941

Interest bearing liabilities

$

753,706

$

735,159

$

773,132

$

750,281

$

711,500

Total shareholders' equity

$

121,235

$

119,034

$

117,263

$

112,565

$

106,998

Total tangible shareholders' equity

$

117,567

$

115,298

$

113,444

$

108,655

$

102,999

Earned common shares outstanding

4,644,833

4,664,893

4,682,063

4,673,629

4,664,946

Unvested stock grants

20,671

21,922

14,208

14,208

14,208

Total common shares outstanding

4,665,504

4,686,815

4,696,271

4,687,837

4,679,154

ASSET QUALITY(1)

Nonperforming loans to gross loans

0.87

%

0.79

%

0.75

%

0.07

%

0.10

%

Nonperforming assets to total assets

0.66

%

0.62

%

0.64

%

0.06

%

0.08

%

Allowance for loan losses to gross loans

1.09

%

1.08

%

1.02

%

0.95

%

0.86

%

Allowance for loan losses to gross loans, net of PPP loans

1.14

%

1.23

%

1.23

%

1.19

%

1.07

%

CAPITAL RATIOS(1)

Total capital to risk weighted assets

14.35

%

15.02

%

15.14

%

15.57

%

15.06

%

Tier 1 capital to risk weighted assets

13.27

%

13.84

%

13.93

%

14.40

%

14.00

%

CET1 capital to risk weighted assets

11.87

%

12.34

%

12.38

%

12.77

%

12.34

%

Tier 1 leverage ratio

10.19

%

10.31

%

9.80

%

9.86

%

9.90

%

(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:

6/30/2021

6/30/2020

6/30/2019

6/30/2018

6/30/2017

INCOME STATEMENT DATA

Interest income

$

23,577

$

22,285

$

21,225

$

17,108

$

13,681

Interest expense

1,438

3,763

4,285

2,263

1,389

Net interest income

22,139

18,522

16,940

14,845

12,292

Provision for loan losses

218

3,543

477

576

125

Noninterest income

8,084

9,805

3,772

3,814

3,372

Noninterest expenses

18,253

15,495

13,200

12,328

10,837

Federal income tax expense

2,370

1,894

1,424

1,163

1,476

Net income

$

9,382

$

7,395

$

5,611

$

4,592

$

3,226

PER SHARE

Earnings

$

2.02

$

1.59

$

1.21

$

1.26

$

0.89

Dividends

$

0.160

$

0.150

$

0.140

$

0.120

$

0.100

Tangible book value(1)

$

25.73

$

22.44

$

19.59

$

16.00

$

13.45

Quoted market value

High

$

27.40

$

26.00

$

21.00

$

21.25

$

18.50

Low

$

21.90

$

12.55

$

20.05

$

18.88

$

15.10

Close(1)

$

26.00

$

17.35

$

20.60

$

21.10

$

18.25

PERFORMANCE RATIOS

Return on average assets

1.47

%

1.32

%

1.20

%

1.16

%

0.90

%

Return on average shareholders' equity

15.75

%

14.13

%

12.14

%

15.13

%

12.32

%

Return on average tangible shareholders' equity

16.25

%

14.69

%

12.75

%

16.47

%

13.12

%

Efficiency ratio

60.39

%

54.70

%

63.73

%

66.07

%

69.18

%

Yield on earning assets (FTE)

3.89

%

4.20

%

4.79

%

4.42

%

4.16

%

Rate on interest bearing liabilities

0.39

%

1.09

%

1.43

%

0.90

%

0.57

%

Net interest margin to earning assets (FTE)

3.65

%

3.49

%

3.82

%

3.82

%

3.73

%

BALANCE SHEET DATA(1)

Total investment securities

$

129,944

$

75,526

$

73,285

$

49,110

$

70,699

Gross loans

$

986,358

$

1,044,564

$

813,547

$

707,364

$

591,753

Total assets

$

1,309,685

$

1,237,694

$

949,790

$

841,459

$

730,511

Total deposits

$

1,126,496

$

1,018,287

$

792,555

$

702,035

$

614,167

Borrowed funds

$

49,500

$

96,217

$

54,000

$

74,000

$

59,000

Total shareholders' equity

$

122,986

$

108,969

$

95,504

$

63,078

$

54,255

Net loans to total deposits

86.60

%

101.70

%

102.02

%

100.18

%

95.85

%

Common shares outstanding

4,638,614

4,680,920

4,653,343

3,640,060

3,629,097

YTD BALANCE SHEET AVERAGES

Total assets

$

1,284,534

$

1,125,064

$

940,585

$

797,594

$

723,786

Earning assets

$

1,225,641

$

1,068,847

$

894,357

$

749,755

$

631,928

Interest bearing liabilities

$

744,434

$

692,035

$

604,469

$

509,294

$

499,636

Total shareholders' equity

$

120,134

$

105,276

$

93,239

$

61,219

$

52,786

Total tangible shareholders' equity

$

116,432

$

101,233

$

88,762

$

56,221

$

49,586

Earned common shares outstanding

4,654,863

4,662,113

4,638,208

3,635,446

3,624,719

Unvested stock grants

21,297

13,844

9,878

Total common shares outstanding

4,676,160

4,675,957

4,648,086

3,635,446

3,624,719

ASSET QUALITY(1)

Nonperforming loans to gross loans

0.87

%

0.10

%

0.13

%

0.14

%

0.09

%

Nonperforming assets to total assets

0.66

%

0.08

%

0.11

%

0.13

%

0.08

%

Allowance for loan losses to gross loans

1.09

%

0.86

%

0.62

%

0.57

%

0.52

%

Allowance for loan losses to gross loans, net of PPP loans

1.14

%

1.07

%

0.62

%

0.57

%

0.52

%

CAPITAL RATIOS(1)

Total capital to risk weighted assets

14.35

%

15.06

%

14.18

%

11.20

%

11.25

%

Tier 1 capital to risk weighted assets

13.27

%

14.00

%

13.53

%

10.62

%

10.73

%

CET1 capital to risk weighted assets

11.87

%

12.34

%

11.73

%

8.59

%

8.36

%

Tier 1 leverage ratio

10.19

%

9.90

%

11.16

%

9.14

%

8.99

%

(1)At end of period

Income Statement Breakdown and Analysis

Quarter to Date

6/30/2021

3/31/2021

12/31/2020

9/30/2020

6/30/2020

GAAP net income

$

4,726

$

4,656

$

2,733

$

5,336

$

4,043

Acquisition related items (net of tax)

Accretion on purchased loans

(152

)

(151

)

(82

)

(144

)

(110

)

Amortization of core deposit intangibles

53

54

71

72

71

Amortization on acquired time deposits

2

2

5

5

5

Total acquisition related items (net of tax)

(97

)

(95

)

(6

)

(67

)

(34

)

Other nonrecurring items (net of tax)

FHLB prepayment penalties

1,507

Change in fair value of equity investment due to acquisition transaction

Change in fair value of mortgage banking instruments

Interest writeoff from loan transferred to nonaccrual

265

Net gain from COLI death benefit

(173

)

Prepayment penalties collected

(33

)

(17

)

(97

)

(16

)

(12

)

Mortgage servicing rights impairment (reduction of impairment)

(188

)

(176

)

191

Total other nonrecurring items (net of tax)

(33

)

(17

)

1,487

(192

)

6

Adjusted net income from operations

$

4,596

$

4,544

$

4,214

$

5,077

$

4,015

GAAP net interest income

$

10,896

$

11,243

$

10,652

$

10,881

$

9,597

Accretion on purchased loans

(192

)

(191

)

(104

)

(182

)

(139

)

Interest writeoff from loan transferred to nonaccrual

335

Prepayment penalties collected

(42

)

(21

)

(123

)

(20

)

(15

)

Amortization on acquired time deposits

3

3

6

6

6

Adjusted net interest income

$

10,665

$

11,034

$

10,766

$

10,685

$

9,449

PERFORMANCE RATIOS

Based on adjusted net income from operations

Earnings per share

$

0.99

$

0.97

$

0.90

$

1.09

$

0.86

Return on average assets

1.41

%

1.46

%

1.30

%

1.60

%

1.34

%

Return on average shareholders' equity

15.21

%

15.48

%

14.30

%

17.94

%

15.09

%

Return on average tangible shareholders' equity

15.68

%

15.98

%

14.78

%

18.59

%

15.68

%

Efficiency ratio

61.46

%

60.20

%

59.02

%

52.03

%

52.12

%

Based on adjusted net interest income

Yield on earning assets (FTE)

3.72

%

3.94

%

3.78

%

3.91

%

3.89

%

Rate on interest bearing liabilities

0.41

%

0.37

%

0.50

%

0.63

%

0.92

%

Net interest margin to earning assets (FTE)

3.47

%

3.71

%

3.47

%

3.52

%

3.32

%


Year to Date June 30

Variance

2021

2020

Amount

%

GAAP net income

$

9,382

$

7,395

$

1,987

26.87

%

Acquisition related items (net of tax)

Accretion on purchased loans

(303

)

(290

)

(13

)

4.48

%

Amortization of core deposit intangibles

107

142

(35

)

(24.65

)%

Amortization on acquired time deposits

4

10

(6

)

(60.00

)%

Total acquisition related items (net of tax)

(192

)

(138

)

(54

)

39.13

%

Other nonrecurring items (net of tax)

FHLB prepayment penalties

%

Change in fair value of equity investment due to acquisition transaction

(578

)

578

(100.00

)%

Change in fair value of mortgage banking instruments

(448

)

448

(100.00

)%

Interest writeoff from loan transferred to nonaccrual

%

Net gain from COLI death benefit

(173

)

173

(100.00

)%

Prepayment penalties collected

(50

)

(48

)

(2

)

4.17

%

Mortgage servicing rights impairment (reduction of impairment)

364

(364

)

(100.00

)%

Total other nonrecurring items (net of tax)

(50

)

(883

)

833

(94.34

)%

Adjusted net income from operations

$

9,140

$

6,374

$

2,766

43.40

%

GAAP net interest income

$

22,139

$

18,522

$

3,617

19.53

%

Accretion on purchased loans

(383

)

(367

)

(16

)

4.36

%

Interest writeoff from loan transferred to nonaccrual

%

Prepayment penalties collected

(63

)

(61

)

(2

)

3.28

%

Amortization on acquired time deposits

6

12

(6

)

(50.00

)%

Adjusted net interest income

$

21,699

$

18,106

$

3,593

19.84

%

PERFORMANCE RATIOS

Based on adjusted net income from operations

Earnings per share

$

1.96

$

1.37

$

0.59

43.07

%

Return on average assets

1.43

%

1.14

%

0.29

%

Return on average shareholders' equity

15.34

%

12.18

%

3.16

%

Return on average tangible shareholders' equity

15.83

%

12.66

%

%

Efficiency ratio

60.84

%

56.94

%

3.90

%

Based on adjusted net interest income

Yield on earning assets (FTE)

3.81

%

4.12

%

(0.31

)%

Rate on interest bearing liabilities

0.39

%

1.10

%

(0.71

)%

Net interest margin to earning assets (FTE)

3.58

%

3.41

%

0.17

%


Average Balances, Interest Rate, and Net Interest Income

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

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

Three Months Ended

June 30, 2021

March 31, 2021

June 30, 2020

Average
Balance

Tax
Equivalent
Interest

Average
Yield /
Rate

Average
Balance

Tax
Equivalent
Interest

Average
Yield /
Rate

Average
Balance

Tax
Equivalent
Interest

Average
Yield /
Rate

Interest earning assets

Total loans

$

1,023,620

$

11,220

4.40

%

$

1,074,096

$

11,598

4.38

%

$

1,048,068

$

10,788

4.14

%

Taxable investment securities

89,467

322

1.44

%

58,859

202

1.39

%

62,829

323

2.07

%

Nontaxable investment securities

17,234

100

2.33

%

17,165

105

2.48

%

11,449

84

2.95

%

Federal funds sold

%

%

%

Interest earning cash and cash equivalents

101,018

23

0.09

%

52,803

11

0.08

%

21,314

5

0.09

%

Federal Home Loan Bank stock

3,488

14

1.61

%

3,488

25

2.91

%

3,281

33

4.05

%

Total earning assets

1,234,827

11,679

3.79

%

1,206,411

11,941

4.01

%

1,146,941

11,233

3.94

%

Nonearning assets

Allowance for loan losses

(11,193

)

(11,143

)

(7,753

)

Fixed assets

16,104

15,757

15,509

Accrued income and other assets

70,204

48,094

46,269

Total assets

$

1,309,942

$

1,259,119

$

1,200,966

Interest bearing liabilities

Interest bearing demand deposits

$

223,420

$

122

0.22

%

$

206,565

$

121

0.24

%

$

189,981

$

249

0.53

%

Savings deposits

320,000

108

0.14

%

310,830

109

0.14

%

247,687

140

0.23

%

Time deposits

161,197

377

0.94

%

168,764

291

0.70

%

181,661

821

1.82

%

Borrowed funds

49,089

155

1.27

%

49,000

155

1.28

%

92,171

408

1.78

%

Total interest bearing liabilities

753,706

762

0.41

%

735,159

676

0.37

%

711,500

1,618

0.91

%

Noninterest bearing liabilities

Noninterest bearing deposits

425,353

393,751

371,320

Accrued interest and other liabilities

9,648

11,175

11,148

Shareholders' equity

121,235

119,034

106,998

Total liabilities and shareholders' equity

$

1,309,942

$

1,259,119

$

1,200,966

Net interest income (FTE)

$

10,917

$

11,265

$

9,615

Net interest margin to earning assets (FTE)

3.55

%

3.79

%

3.37

%


Six Months Ended

June 30, 2021

June 30, 2020

Average
Balance

Tax
Equivalent
Interest

Average
Yield /
Rate

Average
Balance

Tax
Equivalent
Interest

Average
Yield /
Rate

Interest earning assets

Total loans

$

1,048,858

$

22,818

4.39

%

$

963,400

$

21,269

4.44

%

Taxable investment securities

74,162

524

1.42

%

59,896

676

2.27

%

Nontaxable investment securities

17,200

205

2.40

%

10,991

165

3.02

%

Federal funds sold

%

16,794

116

1.39

%

Interest earning cash and cash equivalents

81,933

34

0.08

%

14,551

31

0.43

%

Federal Home Loan Bank stock

3,488

39

2.25

%

3,215

63

3.94

%

Total earning assets

1,225,641

23,620

3.89

%

1,068,847

22,320

4.20

%

Nonearning assets

Allowance for loan losses

(11,168

)

(6,787

)

Fixed assets

15,930

15,523

Accrued income and other assets

54,131

47,481

Total assets

$

1,284,534

$

1,125,064

Interest bearing liabilities

Interest bearing demand deposits

$

214,993

$

243

0.23

%

$

180,291

$

724

0.81

%

Savings deposits

315,415

217

0.14

%

239,438

339

0.28

%

Time deposits

164,981

668

0.82

%

193,574

1,874

1.95

%

Borrowed funds

49,045

310

1.27

%

78,732

826

2.11

%

Total interest bearing liabilities

744,434

1,438

0.39

%

692,035

3,763

1.09

%

Noninterest bearing liabilities

Noninterest bearing deposits

409,553

318,010

Accrued interest and other liabilities

10,413

9,743

Shareholders' equity

120,134

105,276

Total liabilities and shareholders' equity

$

1,284,534

$

1,125,064

Net interest income (FTE)

$

22,182

$

18,557

Net interest margin to earning assets (FTE)

3.65

%

3.49

%


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, 2021

June 30, 2021

June 30, 2021

Compared To

Compared To

Compared To

March 31, 2021

June 30, 2020

June 30, 2020

Increase (Decrease) Due to

Increase (Decrease) Due to

Increase (Decrease) Due to

Volume

Rate

Net

Volume

Rate

Net

Volume

Rate

Net

Changes in interest income

Total loans

$

(736

)

$

358

$

(378

)

$

(1,359

)

$

1,791

$

432

$

2,230

$

(681

)

$

1,549

Taxable investment securities

112

8

120

460

(461

)

(1

)

337

(489

)

(152

)

Nontaxable investment securities

3

(8

)

(5

)

112

(96

)

16

129

(89

)

40

Federal funds sold

(58

)

(58

)

(116

)

Interest earning cash and cash equivalents

11

1

12

18

18

89

(86

)

3

Federal Home Loan Bank stock

(11

)

(11

)

13

(32

)

(19

)

14

(38

)

(24

)

Total changes in interest income

(610

)

348

(262

)

(756

)

1,202

446

2,741

(1,441

)

1,300

Changes in interest expense

Interest bearing demand deposits

41

(40

)

1

243

(370

)

(127

)

341

(822

)

(481

)

Savings deposits

(1

)

(1

)

177

(209

)

(32

)

213

(335

)

(122

)

Time deposits

(84

)

170

86

(84

)

(360

)

(444

)

(245

)

(961

)

(1,206

)

Borrowed funds

2

(2

)

(157

)

(96

)

(253

)

(251

)

(265

)

(516

)

Total changes in interest expense

(42

)

128

86

179

(1,035

)

(856

)

58

(2,383

)

(2,325

)

Net change in net interest income (FTE)

$

(568

)

$

220

$

(348

)

$

(935

)

$

2,237

$

1,302

$

2,683

$

942

$

3,625


Average Yield/Rate for the Three Month Periods Ended

6/30/2021

3/31/2021

12/31/2020

9/30/2020

6/30/2020

Total earning assets

3.79

%

4.01

%

3.75

%

3.97

%

3.94

%

Total interest bearing liabilities

0.41

%

0.37

%

0.50

%

0.63

%

0.91

%

Net interest margin to earning assets (FTE)

3.55

%

3.79

%

3.44

%

3.58

%

3.37

%


Quarter to Date Net Interest Income (FTE)

6/30/2021

3/31/2021

12/31/2020

9/30/2020

6/30/2020

Interest income

$

11,658

$

11,919

$

11,624

$

12,070

$

11,215

FTE adjustment

21

22

22

21

18

Total interest income (FTE)

11,679

11,941

11,646

12,091

11,233

Total interest expense

762

676

972

1,189

1,618

Net interest income (FTE)

$

10,917

$

11,265

$

10,674

$

10,902

$

9,615


Noninterest Income

Quarter to Date

6/30/2021

3/31/2021

12/31/2020

9/30/2020

6/30/2020

Net gain on sales of mortgage loans

$

1,253

$

1,845

$

2,545

$

3,064

$

3,869

Net mortgage servicing rights income

1,119

138

509

559

(163

)

ATM and debit card income

511

448

437

460

394

Trust and investment services

403

468

445

464

321

Mortgage servicing fees

362

335

325

293

270

PPP referral fees

74

351

Service charges on deposit accounts

168

166

194

177

119

Net gain on sales of commercial loans

Net gain from corporate owned life insurance death benefit

173

Change in fair value of equity investments

2

(19

)

(3

)

2

7

Other income and fees

338

122

224

140

302

Total noninterest income

$

4,230

$

3,854

$

4,676

$

5,159

$

5,292

Residential mortgage operations

$

2,734

$

2,318

$

3,379

$

3,916

$

3,976


Year to Date June 30

Variance

2021

2020

Amount

%

Net gain on sales of mortgage loans

$

3,098

$

5,672

$

(2,574

)

(45.38

)%

Net mortgage servicing rights income

1,257

(214

)

1,471

(687.38

)%

ATM and debit card income

959

749

210

28.04

%

Trust and investment services

871

710

161

22.68

%

Mortgage servicing fees

697

532

165

31.02

%

PPP referral fees

425

425

%

Service charges on deposit accounts

334

338

(4

)

(1.18

)%

Net gain on sales of commercial loans

668

(668

)

(100.00

)%

Net gain from corporate owned life insurance death benefit

173

(173

)

(100.00

)%

Change in fair value of equity investments

(17

)

756

(773

)

(102.25

)%

Other income and fees

460

421

39

9.26

%

Total noninterest income

$

8,084

$

9,805

$

(1,721

)

(17.55

)%

Residential mortgage operations

$

5,052

$

5,990

(938

)

(15.66

)%

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. While residential mortgage originations and refinancing activity continues to be strong during the first half of 2021, it is likely to slow down due to lower housing inventory and expected increases in interest rates.

Net mortgage servicing rights income represents income generated from the capitalization of MSR, net of amortization. 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 a record level of refinancing activity. During the third and fourth quarters of 2020, these impairments had recovered.

In 2021 the Corporation elected to adopt the fair value measurement option for all MSR pursuant to ASC 860. This election resulted in a transfer of $301 to retained earnings to reflect the difference between the fair value and the carrying amount of MSR as of January 1, 2021, net of tax. Changes in the fair value of MSR are highly correlated to changes in interest rates. As a significant portion of the serviced loan portfolio has been originated over the past two years at low interest rates, management expects the value of the servicing portfolio to remain strong.

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. During the second quarter of 2021, the Corporations added a net $35,268 to its serviced loan 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 expected to remain strong, but 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

ATM and debit card income represents fees earned on ATM and debit card transactions. The Corporation expects these fees to increase modestly throughout 2021, as customers begin to venture out with the easing of COVID restrictions and spend more freely.

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

PPP referral fees represent referral fees the Corporation earned from the second round of the PPP loan program through the SBA. Due to strong portfolio loan demand, management elected to refer the second round of PPP requests to a third party for processing and funding. As such, the associated referral fees were recognized as a component of noninterest income. As the second round of the PPP loan program ended on May 31, 2021, the Corporation does not expect to earn additional PPP referral fees throughout the remainder of 2021.

Service charges on deposit accounts includes fees earned from deposit customers for transaction-based, account maintenance and overdraft services. Service charges on deposit accounts are expected to approximate current levels throughout the remainder of 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 sell any commercial loans over the remainder of 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

6/30/2021

3/31/2021

12/31/2020

9/30/2020

6/30/2020

Total compensation

$

5,000

$

5,004

$

4,958

$

4,531

$

4,252

Furniture and equipment

712

637

607

614

618

Professional services

703

624

938

524

571

Data processing

583

509

501

503

535

Occupancy

508

495

475

491

435

Loan and collection

337

406

359

292

229

Advertising and promotional

304

284

184

284

255

ATM and debit card

144

122

125

109

92

FDIC insurance premiums

79

155

59

55

59

Telephone and communication

130

94

64

91

86

Amortization of core deposit intangibles

67

68

90

91

90

FHLB prepayment penalty

1,907

Other general and administrative

655

633

704

633

587

Total noninterest expenses

$

9,222

$

9,031

$

10,971

$

8,218

$

7,809


Year to Date June 30

Variance

2021

2020

Amount

%

Total compensation

$

10,004

$

8,500

$

1,504

17.69

%

Furniture and equipment

1,349

1,228

121

9.85

%

Professional services

1,327

1,093

234

21.41

%

Data processing

1,092

977

115

11.77

%

Occupancy

1,003

911

92

10.10

%

Loan and collection

743

391

352

90.03

%

Advertising and promotional

588

507

81

15.98

%

ATM and debit card

266

200

66

33.00

%

FDIC insurance premiums

234

114

120

105.26

%

Telephone and communication

224

182

42

23.08

%

Amortization of core deposit intangibles

135

180

(45

)

(25.00

)%

FHLB prepayment penalty

%

Other general and administrative

1,288

1,212

76

6.27

%

Total noninterest expenses

$

18,253

$

15,495

$

2,758

17.80

%

Total compensation includes salaries, commissions and incentives, employee benefits, and payroll taxes. Total compensation has increased due to additional employees, a reduction of deferred loan costs, annual merit increases and an increase in employee benefits. Fluctuations in commissions and incentives are primarily driven by residential mortgage originations, which can vary significantly from period to period, however, commissions are expected to decline throughout the remainder of 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 continue to increase with the size and complexity of the Corporation.

Professional services include expenses relating to third-party professional services. These services include, but are not limited to, regulatory, auditing, consulting, and legal. These expenses are expected to continue to increase in future periods to ensure compliance with audit and regulatory requirements. Professional services are also expected to be temporarily elevated over the remainder of 2021 from expenditures related to the acquisition of the Farmers State Bank of Munith.

Data processing primarily includes the expenses relating to the Corporation's core data processor. These expenses are expected to increase throughout the remainder of 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 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 collections cost are expected to decline through the remainder of 2021, due to the declining loan volumes.

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 account relationships. In addition to traditional marketing strategies, the Corporation rolled out a new branding strategy in 2020, which resulted in elevated advertising and promotional expenses in both 2020 and 2021. Total advertising and promotional expenses are expected to increase modestly throughout the remainder of 2021 due to the growth of the Corporation.

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 the remainder of 2021.

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 moderate throughout the remainder of 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

6/30/2021

3/31/2021

12/31/2020

9/30/2020

6/30/2020

ASSETS

Cash and cash equivalents

$

132,676

$

121,477

$

46,757

$

75,032

$

35,190

Total investment securities

129,944

89,772

76,111

78,179

75,526

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

7,670

26,322

27,306

34,833

46,354

Gross loans

986,358

1,028,117

1,066,562

1,060,885

1,044,564

Less allowance for loan and lease losses

10,800

11,100

10,900

10,100

8,991

Net loans

975,558

1,017,017

1,055,662

1,050,785

1,035,573

All other assets

63,837

48,587

45,610

46,016

45,051

Total assets

$

1,309,685

$

1,303,175

$

1,251,446

$

1,284,845

$

1,237,694

LIABILITIES AND SHAREHOLDERS' EQUITY

Total deposits

$

1,126,496

$

1,122,508

$

1,071,976

$

1,061,470

$

1,018,287

Total borrowed funds

49,500

49,000

49,000

96,217

96,217

Accrued interest payable and other liabilities

10,703

12,307

14,602

13,077

14,221

Total liabilities

1,186,699

1,183,815

1,135,578

1,170,764

1,128,725

Total shareholders' equity

122,986

119,360

115,868

114,081

108,969

Total liabilities and shareholders' equity

$

1,309,685

$

1,303,175

$

1,251,446

$

1,284,845

$

1,237,694


6/30/2021 vs 3/31/2021

6/30/2021 vs 6/30/2020

Variance

Variance

Amount

%

Amount

%

ASSETS

Cash and cash equivalents

$

11,199

9.22

%

$

97,486

277.03

%

Total investment securities

40,172

44.75

%

54,418

72.05

%

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

(18,652

)

(70.86

)%

(38,684

)

(83.45

)%

Gross loans

(41,759

)

(4.06

)%

(58,206

)

(5.57

)%

Less allowance for loan and lease losses

(300

)

(2.70

)%

1,809

20.12

%

Net loans

(41,459

)

(4.08

)%

(60,015

)

(5.80

)%

All other assets

15,250

31.39

%

18,786

41.70

%

Total assets

$

6,510

0.50

%

$

71,991

5.82

%

LIABILITIES AND SHAREHOLDERS' EQUITY

Total deposits

$

3,988

0.36

%

$

108,209

10.63

%

Total borrowed funds

500

1.02

%

(46,717

)

(48.55

)%

Accrued interest payable and other liabilities

(1,604

)

(13.03

)%

(3,518

)

(24.74

)%

Total liabilities

2,884

0.13

%

57,974

2.70

%

Total shareholders' equity

3,626

3.04

%

14,017

12.86

%

Total liabilities and shareholders' equity

$

6,510

0.50

%

$

71,991

5.82

%

Cash and cash equivalents

6/30/2021

3/31/2021

12/31/2020

9/30/2020

6/30/2020

Cash and cash equivalents

Noninterest bearing

$

22,454

$

25,698

$

23,102

$

22,108

$

20,369

Interest bearing

110,222

95,779

23,655

52,924

14,821

Cash and cash equivalents

$

132,676

$

121,477

$

46,757

$

75,032

$

35,190

6/30/2021 vs 3/31/2021

6/30/2021 vs 6/30/2020

Variance

Variance

Amount

%

Amount

%

Cash and cash equivalents

Noninterest bearing

$

(3,244

)

(12.62

)%

$

2,085

10.24

%

Interest bearing

14,443

15.08

%

95,401

643.69

%

Cash and cash equivalents

$

11,199

9.22

%

$

97,486

277.03

%

Cash and cash equivalents, which is comprised of cash and due from banks, fluctuate from period to period based on loan demand and variances in deposit accounts. 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 and second quarters 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 throughout the remainder of the year primarily due to additional forgiveness of outstanding PPP loans totaling $35,195 as of June 30, 2021.

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:

6/30/2021

3/31/2021

12/31/2020

9/30/2020

6/30/2020

Cash and cash equivalents

$

132,676

$

121,477

$

46,757

$

75,032

$

35,190

Unpledged investment securities

118,019

76,384

59,025

58,739

52,647

FHLB borrowing availability

140,000

140,000

140,000

97,500

97,500

Federal funds purchased lines of credit

21,500

21,500

21,500

21,500

21,500

Funds available through the Fed Discount Window

10,000

10,000

10,000

10,000

10,000

PPPLF

35,195

122,583

177,845

206,343

202,184

Total liquidity sources

$

457,390

$

491,944

$

455,127

$

469,114

$

419,021

Total investment securities

6/30/2021

3/31/2021

12/31/2020

9/30/2020

6/30/2020

Available-for-sale

U.S. Government and federal agency

$

5,917

$

5,942

$

7,935

$

19,311

$

21,339

State and municipal

23,096

17,080

15,768

15,729

14,115

Mortgage backed residential

60,390

32,135

19,101

20,886

12,335

Certificates of deposit

4,932

4,932

5,180

5,921

6,665

Collateralized mortgage obligations - agencies

31,281

25,505

23,110

11,141

15,736

Unrealized gain/(loss) on available-for-sale securities

1,334

1,117

1,932

2,099

2,242

Total available-for-sale

126,950

86,711

73,026

75,087

72,432

Held-to-maturity state and municipal

1,859

1,968

1,973

1,977

1,981

Equity securities

1,135

1,093

1,112

1,115

1,113

Total investment securities

$

129,944

$

89,772

$

76,111

$

78,179

$

75,526

6/30/2021 vs 3/31/2021

6/30/2021 vs 6/30/2020

Variance

Variance

Amount

%

Amount

%

Available-for-sale

U.S. Government and federal agency

$

(25

)

(0.42

)%

$

(15,422

)

(72.27

)%

State and municipal

6,016

35.22

%

8,981

63.63

%

Mortgage backed residential

28,255

87.93

%

48,055

389.58

%

Certificates of deposit

%

(1,733

)

(26.00

)%

Collateralized mortgage obligations - agencies

5,776

22.65

%

15,545

98.79

%

Unrealized gain/(loss) on available-for-sale securities

217

19.43

%

(908

)

(40.50

)%

Total available-for-sale

40,239

46.41

%

54,518

75.27

%

Held-to-maturity state and municipal

(109

)

(5.54

)%

(122

)

(6.16

)%

Equity securities

42

3.84

%

22

1.98

%

Total investment securities

$

40,172

44.75

%

$

54,418

72.05

%

The amortized cost and fair value of AFS investment securities as of June 30, 2021 were as follows:

Maturing

Due in One
Year or Less

After One Year
But Within Five
Years

After Five
Years But
Within Ten
Years

After Ten Years

Securities with
Variable
Monthly
Payments or
Noncontractual
Maturities

Total

U.S. Government and federal agency

$

3,981

$

971

$

965

$

$

$

5,917

State and municipal

2,301

8,272

10,639

1,884

23,096

Mortgage backed residential

60,390

60,390

Certificates of deposit

1,726

3,206

4,932

Collateralized mortgage obligations - agencies

31,281

31,281

Total amortized cost

$

8,008

$

12,449

$

11,604

$

1,884

$

91,671

$

125,616

Fair value

$

8,141

$

13,015

$

11,719

$

2,147

$

91,928

$

126,950

The amortized cost and fair value of HTM investment securities as of June 30, 2021 were as follows:

Maturing

Due in One
Year or Less

After One Year
But Within Five
Years

After Five
Years But
Within Ten
Years

After Ten Years

Securities with
Variable
Monthly
Payments or
Noncontractual
Maturities

Total

State and municipal

$

676

$

803

$

380

$

$

$

1,859

Fair value

$

682

$

840

$

402

$

$

$

1,924

During the first and second quarters of 2021, the Corporation expanded its investment portfolio to generate additional interest income. Total investment securities are expected to continue to grow throughout the remainder of 2021 as management expects deposits to continue to grow at historically high levels. The following table summarizes information as of June 30, 2021 for investment securities purchased YTD:

Book Value

Fully Taxable
Equivalent Weighted
Average Yield

U.S. Government and federal agency

$

965

1.04

%

State and municipal

8,967

1.15

%

Collateralized mortgage obligations - agencies

12,760

1.28

%

Mortgage backed residential

45,447

1.50

%

Total

$

68,139

1.41

%

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

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

Loans and allowance for loan losses

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

6/30/2021

3/31/2021

12/31/2020

9/30/2020

6/30/2020

Commercial

$

101,070

$

183,276

$

241,424

$

271,113

$

260,440

Commercial real estate

573,598

541,428

517,054

483,275

469,039

Total commercial loans

674,668

724,704

758,478

754,388

729,479

Residential mortgage

265,323

258,333

262,770

261,375

268,295

Home equity

41,771

40,205

39,900

39,456

40,114

Total residential real estate loans

307,094

298,538

302,670

300,831

308,409

Consumer

4,596

4,875

5,414

5,666

6,676

Gross loans

986,358

1,028,117

1,066,562

1,060,885

1,044,564

Allowance for loan and lease losses

(10,800

)

(11,100

)

(10,900

)

(10,100

)

(8,991

)

Loans, net

$

975,558

$

1,017,017

$

1,055,662

$

1,050,785

$

1,035,573

6/30/2021 vs 3/31/2021

6/30/2021 vs 6/30/2020

Variance

Variance

Amount

%

Amount

%

Commercial

$

(82,206

)

(44.85

)%

$

(159,370

)

(61.19

)%

Commercial real estate

32,170

5.94

%

104,559

22.29

%

Total commercial loans

(50,036

)

(6.90

)%

(54,811

)

(7.51

)%

Residential mortgage

6,990

2.71

%

(2,972

)

(1.11

)%

Home equity

1,566

3.90

%

1,657

4.13

%

Total residential real estate loans

8,556

2.87

%

(1,315

)

(0.43

)%

Consumer

(279

)

(5.72

)%

(2,080

)

(31.16

)%

Gross loans

(41,759

)

(4.06

)%

(58,206

)

(5.57

)%

Allowance for loan losses

300

(2.70

)%

(1,809

)

20.12

%

Loans, net

$

(41,459

)

(4.08

)%

$

(60,015

)

(5.80

)%

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

6/30/2021

3/31/2021

12/31/2020

9/30/2020

6/30/2020

Loans collectively evaluated for impairment

Commercial

$

100,424

$

183,203

$

241,424

$

271,113

$

260,440

Commercial real estate

564,781

532,294

508,182

481,071

465,749

Residential mortgage

264,448

257,543

262,017

260,665

267,632

Home equity

41,708

40,141

39,874

39,456

40,114

Consumer

4,596

4,875

5,412

5,663

6,673

Subtotal

975,957

1,018,056

1,056,909

1,057,968

1,040,608

Loans individually evaluated for impairment

Commercial

$

646

$

73

$

$

$

Commercial real estate

8,817

9,134

8,872

2,204

3,290

Residential mortgage

875

790

753

710

663

Home equity

63

64

26

Consumer

2

3

3

Subtotal

10,401

10,061

9,653

2,917

3,956

Gross Loans

$

986,358

$

1,028,117

$

1,066,562

$

1,060,885

$

1,044,564

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

6/30/2021

3/31/2021

12/31/2020

9/30/2020

6/30/2020

Loans collectively evaluated for impairment

Commercial

$

585

$

626

$

673

$

633

$

536

Commercial real estate

6,264

6,026

5,602

5,152

4,595

Residential mortgage

2,814

3,280

3,480

3,479

3,278

Home equity

440

453

440

438

372

Consumer

85

92

97

101

102

Subtotal

10,188

10,477

10,292

9,803

8,883

Loans individually evaluated for impairment

Commercial

$

42

$

$

$

$

Commercial real estate

566

619

602

289

100

Residential mortgage

4

4

4

5

5

Home equity

Consumer

2

3

3

Subtotal

612

623

608

297

108

Allowance for loan losses

$

10,800

$

11,100

$

10,900

$

10,100

$

8,991


Commercial

$

627

$

626

$

673

$

633

$

536

Commercial real estate

6,830

6,645

6,204

5,441

4,695

Residential mortgage

2,818

3,284

3,484

3,484

3,283

Home equity

440

453

440

438

372

Consumer

85

92

99

104

105

Allowance for loan losses

$

10,800

$

11,100

$

10,900

$

10,100

$

8,991

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

6/30/2021

3/31/2021

12/31/2020

9/30/2020

6/30/2020

Accruing interest

Current

$

976,852

$

1,018,343

$

1,057,404

$

1,058,437

$

1,042,589

Past due 30-89 days

923

1,636

1,165

1,703

948

Past due 90 days or more

36

120

50

86

361

Total accruing interest

977,811

1,020,099

1,058,619

1,060,226

1,043,898

Nonaccrual

8,547

8,018

7,943

659

666

Total loans

$

986,358

$

1,028,117

$

1,066,562

$

1,060,885

$

1,044,564

Total loans past due and in nonaccrual status

$

9,506

$

9,774

$

9,158

$

2,448

$

1,975

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

6/30/2021

3/31/2021

12/31/2020

9/30/2020

6/30/2020

Nonaccrual loans

$

8,547

$

8,018

$

7,943

$

659

$

666

Accruing loans past due 90 days or more

36

120

50

86

361

Total nonperforming loans

8,583

8,138

7,993

745

1,027

Other real estate owned

Total nonperforming assets

$

8,583

$

8,138

$

7,993

$

745

$

1,027

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

6/30/2021

3/31/2021

12/31/2020

9/30/2020

6/30/2020

Nonperforming loans to gross loans

0.87

%

0.79

%

0.75

%

0.07

%

0.10

%

Nonperforming assets to total assets

0.66

%

0.62

%

0.64

%

0.06

%

0.08

%

Allowance for loan losses to gross loans

1.09

%

1.08

%

1.02

%

0.95

%

0.86

%

Allowance for loan losses to gross loans, less PPP loans

1.14

%

1.23

%

1.23

%

1.19

%

1.07

%

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. It was determined in the fourth quarter of 2020 that the hotel's cash flow was insufficient to service the debt in accordance with the contractual terms of the note. However, as COVID-19 restrictions eased in the second quarter of 2021, the hotel has begun making regular, consecutive principal and interest payments. A specific reserve has been established for the estimated collateral deficiency (based on a current appraisal), net of a 70% USDA guarantee and the loan will remain in a nonaccrual status until it is deemed that sufficient improvements in cash flows can be established.

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

6/30/2021

3/31/2021

12/31/2020

9/30/2020

6/30/2020

Net unamortized discount on purchased loans

$

388

$

580

$

773

$

877

$

1,058

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

6/30/2021

3/31/2021

12/31/2020

9/30/2020

6/30/2020

Outstanding PPP loans

$

35,195

$

122,583

$

177,845

$

211,060

$

206,901

Despite historically strong credit quality indicators, there continues to be significant uncertainty surrounding the overall impact of the COVID-19 pandemic on the loan portfolio. This uncertainty resulted in the Corporation increasing the ALLL by $1,809, or 20.12%, since June 30, 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:

6/30/2021

3/31/2021

12/31/2020

9/30/2020

6/30/2020

Commercial

$

168

$

206

$

169

$

166

$

171

Commercial real estate

761

727

707

672

654

Total commercial loans

498

444

351

321

325

Residential mortgage

199

183

182

180

177

Home equity

47

46

45

45

45

Total residential real estate loans

138

131

130

129

128

Consumer

24

22

22

22

25

Gross loans

$

262

$

249

$

226

$

215

$

213

COVID-19, CARES Act and SBA activity

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

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

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

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 June 30, 2021:

Number of
Modifications

Outstanding
Balance

% of Portfolio

Commercial real estate

1

104

0.02

%

Portfolio residential mortgage loans

5