Press Release

Fentura Financial, Inc Announces First Quarter 2017 Results

Company Release - 5/8/2017 3:17 PM ET

FENTON, Mich., May 08, 2017 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. reported the most profitable quarter since the economic downturn, showing net income for the three months ended March 31, 2017 of $1.4 million compared to earnings of $920,000 reported for the first quarter of 2016. On a pre-tax, pre-provision basis net income was $2.0 million in the current quarter compared to $1.4 million in the prior year.

  • Net Income before tax, provision for loan loss and acquisition expenses showed a 42.0% increase over prior year
  • Total assets increased to the highest level ever recorded at $730 million
  • Commercial loan growth continues to show steady growth
  • Book value per share increased 10.2% over prior year
  • Continued strong credit quality with net recoveries for the 7th consecutive quarter and 9 of the last 10

Ronald L. Justice, President and CEO said, “I am pleased to report another quarter of solid results. These results are very encouraging particularly since we are deep in the process of integrating the former Community State Bank customers into The State Bank’s system and environment. In that regard we have achieved the majority of the cost savings that we had projected and continue to progress well towards full integration. We continue to be very excited about the future growth prospects in our new and legacy markets.”

Balance Sheet

Total assets increased $27.2 million or 3.9% from December 31, 2016, ending the quarter at $730.7 million.  Cash and due from banks totals, including Federal Funds sold, decreased 14.1%, to $67.3 million at March 31, 2017 compared to the $78.3 million reported at December 31, 2016.  This decrease was primarily attributable to the redeployment of cash into higher earning assets, including the purchase of a pool of diversified installment loans at the end of the quarter. Loan balances increased $33.9 million or 6.5%, to $554.9 million at March 31, 2017 compared to December 31, 2016.  Absent the aforementioned pool, the portfolio continued its recent trajectory showing an annualized growth rate of 18.3%.  All three portfolios showed growth during the quarter, though absent the pool purchase, consumer loans would have been flat. Year over year, loans increased $168.3 million or 43.5% when compared to March 31, 2016.  When the impact of acquiring Community State Bank’s portfolio and the aforementioned pool purchase are excluded, the portfolio still grew a robust $73.7 million, or 19.1%. The organic growth in the portfolio was primarily the result of continuing to utilize innovative products and expand customer outreach efforts in current market areas.  The growth in mortgage loans continues to be fueled by strong demand within the bank’s primary markets for existing homes and the expansion of single-note close construction loans to homeowners.

The composition of the loan portfolio is shown below (dollars in thousands):

 3/31/2017 12/31/2016 9/30/2016 6/30/2016 3/31/2016
Residential Real Estate Loans192,373 180,685 118,961 111,272 106,176
Commercial Real Estate Loans235,924 233,358 172,849 169,782 166,577
Consumer Loans47,379 38,186 38,379 36,936 32,092
Commercial Loans79,119 67,414 51,285 47,748 54,228
 554,795 519,644 381,474 365,738 359,073
          

Deposit totals of $630.1 million grew 4.4%, or $26.7 million from the $603.4 million reported at December 31, 2016.  Both interest bearing and non-interest bearing non-maturity deposit accounts showed growth, while time deposits shrank during the quarter.  Obviously, the acquisition added significantly to the deposit portfolio, though even excluding that impact, total deposits grew approximately 22.0% over the prior year. We continue to have success in acquiring new municipal cash relationships. While a portion of these accounts can tend to be relatively volatile, no indications have been made that the balances will see material decreases in the near term. We are very comfortable with the Bank’s liquidity position both on and off-balance sheet. Additionally, commercial deposit account growth continues to be strong.

Capital

Fentura Financial, Inc. and The State Bank continue to maintain solid capital ratios in excess of levels considered adequately capitalized by regulatory agencies. The Bank’s regulatory capital ratios are detailed in the table that follows, and indicate the Bank’s strong Tier 1 Leverage Capital Ratio at March 31, 2017 and December 31, 2016.   The decline in the ratios quarter over quarter is primarily due to the inclusion of the acquired assets in the denominator of the calculation, stronger than anticipated asset growth, and an upstream dividend to the Holding Company, the majority of which is still held there in reserve.  

  March 31, December 31, Regulatory
  2017 2016 Well Capitalized
Tier 1 Leverage Capital Ratio 7.70% 9.76% 5.00%
Tier 1 Risk-Based Capital Ratio 10.00  11.10  8.00 
Total Risk-Based Capital Ratio 10.53  12.01  10.00 
          

Credit Quality

As seen in recent periods, the Company continued to show solid credit quality during the 1st quarter of 2017.   The delinquency numbers when compared to 2016 rose due to the acquired portfolio, though the legacy portfolio once again had zero delinquencies as shown last quarter. At March 31, 2017 loan delinquencies to total loans were 0.57% compared to 0.14% at March 31, 2016. Total delinquencies at December 31, 2016 were 0.75% inclusive of the acquired portfolio.   Substandard assets totaled $2.0 million at March 31, 2017, compared to $2.3 million at December 31, 2016. The decline in both of these metrics reflects the implementation of collection processes and procedures for Community State Bank that are consistent with The State Bank.  The overall Allowance for Loan Losses of $2.9 million or .52% of Gross Loans is reflective of the historical performance of The State Bank’s loan portfolio and does not reflect the performance of the acquired portfolio. Pursuant to purchase accounting standards the Community State Bank loans were marked to market at the acquisition date of December 31, 2016.  The allowance for loan losses is calculated on a quarterly basis and at the end of the current quarter the Company believes that the allowance for loan loss is adequate to absorb losses inherent in the portfolio.  Continued improvement in credit quality metrics outpacing loan growth could result in further releases of previously provided reserves for loan losses, as seen in the fourth quarter of 2016.

Net Interest Income

Net interest income of $5.7 million for the quarter ended March 31, 2017 increased significantly when compared to the $4.3 million reported in the fourth quarter of 2016 and improved by $1.8 million, or 45.0% relative to the $3.4 million reported in the first quarter of 2016.  Virtually all of the increase is due to the increased volume of earning assets as rates have only seen slight increases very recently and haven’t been fully absorbed in the portfolio.  Also contributing to the increase in income was the accretion of the loan mark taken on the loans acquired from Community State Bank, which totaled approximately $250,000 for the quarter. While the portfolios showed increases as noted above over the prior quarter, the net interest margin declined 8 basis points, largely due to the mix of assets and funding sources carried on the balance sheet. Additionally, the rate environment in the marketplace for loans has remained very competitive and thus constrains our ability to charge higher rates.

Noninterest Income

Noninterest income was $1.3 million for the quarter ended March 31, 2017 compared to $1.8 million for the fourth quarter of 2016 and $1.5 million for the first quarter of 2016.  The primary source of the decline is due to decreased income from mortgage banking activities. A conscious decision was made during the quarter to hold some of these loans rather than sell them in order to maximize the efficiency of interest income and utilize a portion of the liquidity derived from the Community State Bank acquisition This decrease was offset in the year to date period by increases in service charges on deposit accounts and other non-interest income.  Other non-interest income, however, contributed to the decline in the comparison to the prior quarter.

Noninterest Expense

The Company recorded $5.1 million of noninterest expense in the quarter ended March 31, 2017, a decrease of $100,000, or 1.9% over the level reported in the fourth quarter of 2016 and increased $1.0 million or 25.0% over the $4.1 million reported in the first quarter of 2016.  On a year over year basis, all categories with the exception of loan and collection expenses showed increases, primarily due to additional costs of acquiring Community State Bank. Quarter over quarter, the large decrease in merger related expenses was offset by increases in occupancy and equipment and other operating expenses. The increase in other operating expenses included approximately $150,000 of amortization of the core deposit intangible asset created upon acquisition of Community State Bank’s deposit portfolio. Salary and benefits expense increased year over year based on general annual salary increases, the rising costs of providing medical benefits, the return to historical levels of the Company’s 401K match, as well as the addition of the Community State Bank team.

About Fentura Financial and The State Bank

Fentura Financial 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 for 2015 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 has assets of approximately $730 million. It currently operates fifteen full-service branches located in Genesee, Livingston, Oakland, Saginaw and Shiawassee Counties and loan production offices in Washtenaw and Saginaw Counties. The State Bank’s commercial department provides a complete array of products including lines of credit, term loans, commercial mortgages, SBA loans and a full-suite of cash management products. The retail department offers personal checking, savings, time and IRA deposit accounts and all types 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. The aim of The State Bank is to become and remain “Your Financial Partner for Life.” More information can be found at www.thestatebank.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.

 

      
 17-Mar 16-Dec 16-Sep 16-Jun 16-Mar 
 Unaudited    Unaudited Unaudited Unaudited 
Balance Sheet Highlights         
Cash and due from banks$43,547 $78,313 $47,229 $35,037 $27,734 
Fed funds sold 23,800  0  0  0  0 
Investment securities 74,641  73,902  23,283  24,378  23,440 
Commercial loans 337,855  325,275  244,211  235,957  239,409 
Consumer loans 47,998  37,618  32,009  31,388  28,790 
Mortgage loans 169,089  158,107  137,403  129,220  118,486 
Gross loans 554,942  521,000  413,623  396,565  386,685 
ALLL -2,877  -2,851  -3,645  -3,579  -3,562 
Intangible assets 5,588  5,745  0  0  0 
Other assets 36,650  33,177  20,070  21,313  21,306 
Total assets 730,703  703,541  500,560  473,714  455,603 
 
Non-interest deposits 175,622  160,903  125,393  128,274  116,141 
Interest bearing non-maturity deposits 351,784  332,203  211,883  186,702  175,805 
Time deposits 102,649  110,261  81,574  78,602  84,451 
Total deposits 630,055  603,367  418,850  393,578  376,397 
Borrowings 44,000  44,000  44,000  44,000  44,775 
Other liabilities 4,598  5,323  2,656  2,217  1,435 
Equity 52,050  50,851  35,054  33,919  32,996 
Total liabilities and equity 730,703  703,541  500,560  473,714  455,603 
 
BALANCE SHEET RATIOS 
Gross Loans to Deposits 88.08  86.35  98.75  100.76  102.73 
Earning Assets to Total Assets 89.42  84.56  87.28  88.86  90.02 
Securities and Cash to Assets 19.43  21.64  14.09  12.54  11.23 
Deposits to Assets 86.23  85.76  83.68  83.08  82.62 
Loss Reserve to Gross Loans 0.52  0.55  0.88  0.9  0.92 
Net Charge-Offs to Gross Loans 0.00% -0.01% -0.02% -0.01% -0.02%
Leverage Ratio - The State Bank 8.6  12.51  9.54  9.79  9.75 
Tangible Book Value per Share 12.85  12.48  13.78  13.37  13.02 
Book Value per Share 14.37  14.05  13.78  13.37  13.02 
 
Income Statement Highlights - QTD17-Mar 16-Dec 16-Sep 16-Jun 16-Mar 
 Unaudited    Unaudited Unaudited Unaudited 
Interest income 6,427  4,952  4,657  4,510  4,526 
Interest expense 688  613  601  585  573 
Net interest income 5,739  4,339  4,056  3,925  3,953 
Provision for loan loss 0  -900  0  0  0 
Service charges on deposit accounts 236  227  192  181  179 
Gain on sale of mortgage loans 356  789  872  706  671 
Wealth management income 321  288  396  333  350 
Other non-interest income 353  449  420  317  288 
Total non-interest income 1,266  1,753  1,880  1,537  1,488 
Salaries and benefits 2,705  2,700  2,209  2,230  2,405 
Occupancy and equipment 736  581  610  580  563 
Loan and collection 117  189  135  130  107 
Merger transaction expenses 33  728  0  0  0 
Other operating expenses 1,467  980  993  986  971 
Total non-interest expense 5,058  5,178  3,947  3,926  4,046 
Net Income before tax 1,947  1,814  1,989  1,536  1,395 
Income Taxes 592  636  659  523  475 
Net Income 1,355  1,178  1,330  1,013  920 
"Core" Net Income 1,980  1,642  1,989  1,536  1,395 
 
INCOME STATEMENT RATIOS/DATA 
Basic earnings per share$0.37 $0.42 $0.52 $0.40 $0.36 
Pre-tax pre-provision earnings 1,947  914  1,989  1,536  1,395 
Net Charge offs -19  -59  -65  -52  -66 
Return on Equity (ROE) 9.51% 7.03% 14.57% 11.87% 11.15%
Return on Assets (ROA) 0.75% 0.92% 1.05% 0.87% 0.82%
Efficiency Ratio 72.21% 67.20% 66.49% 71.88% 74.36%
Average Bank Prime 3.85% 3.63% 3.50% 3.50% 3.35%
Average Earning Asset Yield 4.27% 4.28% 4.32% 4.38% 4.43%
Average Cost of Funds 0.56% 0.75% 0.76% 0.78% 0.77%
Spread 3.71% 3.53% 3.57% 3.59% 3.66%
Net impact of free funds 0.11% 0.22% 0.21% 0.22% 0.21%
Net Interest Margin 3.82% 3.75% 3.78% 3.82% 3.88%
 
Income Statement Highlights - YTD17-Mar 16-Mar    16-Dec 15-Dec 
 Unaudited Unaudited          
Interest income 6,427  4,526   18,645  16,652 
Interest expense 688  573   2,372  2,152 
Net interest income 5,739  3,953   16,273  14,500 
Provision for loan loss 0  0   -900  -1,000 
Service charges on deposit accounts 236  179   779  806 
Gain on sale of mortgage loans 356  587   3,038  1,975 
Wealth management income 321  350   1,367  1,255 
Other non-interest income 353  372   1,474  2,065 
Total non-interest income 1,266  1,488   6,658  6,101 
Salaries and benefits 2,705  2,405   9,544  8,826 
Occupancy and equipment 736  563   2,334  2,262 
Merger transaction expenses 33  0   728  0 
Loan and collection 117  107   561  565 
Other operating expenses 1,467  971   3,930  3,324 
Total non-interest expenses 5,058  4,046   17,097  14,977 
Net Income before tax 1,947  1,395   6,734  6,624 
Income Taxes 592  475   2,293  2,407 
Net Income from continuing operations 1,355  920   4,441  4,217 
 
INCOME STATEMENT RATIOS/DATA 
Basic earnings per share$0.37 $0.37  $1.70 $1.87 
Pre-tax pre-provision earnings 1,947  1,395   5,834  5,624 
Net Charge offs -19  -26   -26  -59 
Return on Equity (ROE) 9.51% 11.18%  10.26% 11.44%
Return on Assets (ROA) 0.75% 0.82%  0.92% 1.00%
Efficiency Ratio 72.21% 74.36%  74.56% 72.70%
Average Bank Prime 3.85% 3.50%  3.50% 3.50%
Average Earning Asset Yield 4.27% 4.43%  4.35% 4.48%
Average Cost of Funds 0.56% 0.77%  0.76% 0.77%
Spread 3.71% 3.66%  3.59% 3.71%
Net impact of free funds 0.11% 0.21%  0.21% 0.19%
Net Interest Margin 3.82% 3.87%  3.80% 3.90%


Contact:

Ronald L. Justice
President & CEO
Fentura Financial, Inc.
(810) 714-3902

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Source: Fentura Financial, Inc.