Press Release

Fentura Financial, Inc Announces Second Quarter 2017 Results

Company Release - 8/7/2017 2:03 PM ET

FENTON, Mich., Aug. 07, 2017 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. announces the most profitable pre-tax, pre-provision quarter on record showing pre-tax, pre-provision basis earnings of $3.0 million in the current quarter compared to $1.9 million in the prior quarter and $1.5 million reported for the quarter ended June 30, 2016.  Net income for the three months ended June 30, 2017 was $1.9 million compared to net income of $1.3 million reported for the first quarter of 2017 and $1.0 million reported for the three months ended June 30, 2016. For the six months ended June 30, 2016 the Company reported net income of $3.3 million compared to net income of $1.9 million for the same period in 2016.

  • Greater than 50% growth in net income quarter over quarter and year over year
  • Quarterly earnings per share growth of 11.1% over prior quarter
  • Book value increased 11.4% to $14.89 per share year over year
  • Continued growth shown in loans and non-interest bearing deposits
  • Continued strong credit quality with net recoveries for the 7th consecutive quarter and 9 of the last 10
  • Year to date efficiency ratio of 68.79% compared to 73.19% in the same period in the prior year.

Ronald L. Justice, President and CEO said, “We continue to be encouraged by our progress.  We have assembled an outstanding team of bankers across our entire footprint. Our pipelines remain strong, even with uncompromised credit quality. During the quarter along with continuing to integrate the new employees into our culture, we also managed through two system conversions with no material customer impact.  We are also very excited about our 16.32% total return to shareholders in the year to date period. Overall, controlled growth continues to be our primary focus while we are always open to opportunities to expand our franchise.”

Note that in the analysis provided below that all historical information prior to December 31, 2016 excludes any impact of the Community State Bank acquisition.

Balance Sheet

Total assets were basically flat quarter over quarter, decreasing $300,000 from March 31, 2017, ending the quarter at $730.5 million.  When compared to December 31, 2016, assets at June 30, 2017, increased $27.2 million or 5.7%.  Cash and due from banks (including Fed Funds sold) totals decreased 57.5%, to $28.6 million at June 30, 2017 compared to the $67.3 million reported at March 31, 2017. 

Cash totals decreased during the quarter primarily due to the Corporation’s ability to redeploy liquid assets into the higher yielding loan portfolio.  As such, gross loan balances increased $40.1 million or 7.2% quarter over quarter. Commercial, consumer and mortgage loan portfolios all grew during the quarter. All three portfolios also showed significant growth over year end 2016 levels. Gross loans totaled $596.4 million at June 30, 2017.  When compared to the most recent year end, loans increased $78.3 million or 19.7%.  The increase in loans resulted from the Company’s efforts to grow its loan portfolio with new and existing clients, as well as the $10 million consumer loan pool purchase noted in the previous quarter.  Additionally, the Company has continued to have success in offering customers products whose terms help manage interest rate risk in changing interest rate environments. The bulk of the growth was in the mortgage portfolio which has seen significant growth in recent periods. Some of this growth continues to be fueled by the popularity of single-note close construction loans to homeowners along with continued strong demand within the bank’s primary markets for existing homes. It is the Bank’s intention to continue to monitor the relative sizes of the respective portfolios in order to balance yield and risk.

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

   6/30/2017  3/31/2017  12/31/2016  9/30/2016  6/30/2016
Residential Real Estate Loans  208,724  192,373  180,685  118,961  111,272
Commercial Real Estate Loans  252,076  235,924  233,358  172,849  169,782
Consumer Loans  56,152  47,379  38,186  38,379  36,936
Commercial Loans  79,481  79,119  67,414  51,285  47,748
   554,795  554,795  519,644  381,474  365,738
Note: Amounts prior to December 31, 2016 do not include impact of acquisitions

Deposit totals of $614.2 million showed a decrease of $15.9 million or 2.5% compared to $630.1 million reported at March 31, 2017.  The decreases were in the time and interest bearing accounts, with those decreases being partially offset by an increase in non-interest bearing deposits. We have seen very little runoff of the initial DDA balances acquired in the Community State Bank transaction, which we now refer to as the Great Lakes Bay Region, and have actually seen an increase in DDA totals when including new accounts. We continue to have success attracting new municipal account relationships, which has enhanced DDA growth, along with a focus on deposits by our commercial relationship officers.  A portion of municipal deposits can have seasonal volatility, though no indications have been made that the balances will see material decreases in the near term, on the contrary, historically the third and fourth quarters have been periods of inflow, though that can’t be ensured. For the six months ended June 30, 2017, deposits increased $10.8 million or 2.7%, with the quarterly variance relationship explained above holding true for that period as well.


Fentura Financial, Inc. and The State Bank continue to maintain solid capital ratios in excess of levels considered well 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 during the year 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. 


Tier 1 Leverage Capital Ratio  8.46%  11.69%  9.79%  5.00%
Tier 1 Risk-Based Capital Ratio  9.69   10.72   11.37   8.00 
Total Risk-Based Capital Ratio  10.20   11.24   12.28   10.00 

Credit Quality

The trend of solid credit quality metrics continued into the second quarter of 2017.   The delinquency numbers when compared to 2016 rose due primarily to the acquired portfolio, with the legacy portfolio continuing to have no reportable delinquencies at quarter end. At June 30, 2017 loan delinquencies to total loans were 0.35% compared to 0.02% at June 30, 2016. Delinquent loans, net of non-accrual loans, were 0.02% of total loans at June 30, 2017. Total delinquencies at December 31, 2016 were 0.75% inclusive of the acquired portfolio.   Loans on non-accrual status and/or 90 or more days delinquent totaled $1.8 million at June 30, 2017, compared to $2.2 million at December 31, 2016. The decline in both of these metrics reflects the synchronization of collection processes and procedures on the acquired portfolio with those consistent with The State Bank.  The overall Allowance for Loan Losses of $3.1 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 acquired loans were marked to market at the acquisition date of December 31, 2016.  The balance of the loan mark at June 30, 2017 is $4.9 million, or 5.9% of the remaining balance of the acquired loans. 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. 

Net Interest Income

Net interest income of $6.5 million for the quarter ended June 30, 2017 reflects an $800,000 or 14.0% increase compared to the quarter ended March 31, 2017 and a 66.7% increase relative to the $3.9 million reported for the quarter ended June 30, 2016.    The causes of the increases noted are certainly slanted toward increased volume (largely due to acquired assets), though recent rate increases have benefited net interest income with the margin increasing 4 and 13 basis points in the year to date and quarter to date comparative periods. Additionally, the significant growth in non-interest deposits has also assisted in expanding the net interest margin. Finally, in the year to date period, as noted in the previous quarter’s release, the accretion of the loan mark taken on the loans acquired from Community State Bank also added to the margin. We remain somewhat asset sensitive allowing us to capture increased net interest income should short term rates continue to rise.

Noninterest Income

Noninterest income was $2.1 million for the quarter ended June 30, 2017 compared to $1.3 million for the first quarter of 2017 and $1.5 million for the second quarter of 2016.  Every category of non-interest income increased over both comparative periods. The acquisition of Community State Bank had a significant impact on service charge income with the additional deposit customers added to our portfolio. Mortgage volume continues to increase, allowing for increased gains, but our servicing portfolio also continues to grow with servicing related income providing almost 40% of the quarterly revenue. The increase in other income was mostly due to a few smaller one-time items that aggregated to a larger amount. These are not expected to continue.    For the six months ended June 30, 2017, noninterest income of $3.4 million represents an increase of $400,000 or 13.3% over the same period in 2016.  The variances mirror the above mentioned items.

Noninterest Expense

The Company recorded $5.7 million of noninterest expense in the quarter ended June 30, 2017, an increase of $600,000 over the $5.1 million reported in the first quarter of 2017 and $1.8 million over the $3.9 million reported in the second quarter of 2016.  The current quarter increase over the prior quarter and prior year is primarily attributable to salary and benefits, occupancy and other operating expenses. Salaries and benefits increased largely due to commissions paid associated with mortgage loan volumes and severance costs related to the acquisition of Community State Bank. Additionally, property taxes and utilities costs on Company facilities also increased relative to both comparative periods as well. In the year over year period, the occupancy and equipment cost increases are primarily due to the sheer increase in number of facilities, while the property taxes quarter over quarter were due to an accrual adjustment. Finally, the increase in other operating expenses was mostly due to professional services fees, primarily related to system conversions and other Information Technology consulting, increased FDIC insurance premiums, data processing expenses and amortization of the Core Deposit Intangible all related to the acquisition.

For the six months ended June 30, 2017, noninterest expense totaled $10.8 million, an increase of $2.8 million or 35.0% over the $8.0 million reported for the same period of 2016.  All categories with the exception of loan and collection expenses showed increases, primarily due to additional costs of acquiring Community State Bank. As with income, the variances for the year to date period are similar to those explained in the quarter to date period.

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 in 2016 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

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-Jun   17-Mar   16-Dec   16-Sep   16-Jun 
 Unaudited   Unaudited       Unaudited   Unaudited 
Balance Sheet Highlights                  
Cash and due from banks16,715   43,547   78,313   47,229   35,037 
Fed funds sold11,900   23,800   0   0   0 
Investment securities73,118   74,311   74,215   23,300   24,378 
Commercial loans332,071   308,869   322,792   245,680   235,957 
Consumer loans56,154   53,916   37,700   32,009   31,388 
Mortgage loans208,192   193,513   157,644   137,442   129,220 
Gross loans596,417   556,298   518,136   415,131   396,565 
ALLL-3,092   -2,877   -2,851   -3,645   -3,579 
Intangible assets5,397   5,587   5,745   0   0 
Other assets35,490   35,815   35,546   18,536   21,313 
Total assets730,548   730,894   703,359   500,551   473,714 
Non-interest deposits219,763   214,706   160,903   125,393   128,274 
Interest bearing non-maturity deposits297,799   312,700   332,204   211,882   186,702 
Time deposits96,605   102,649   110,261   81,574   78,602 
Total deposits614,167   630,055   603,368   418,849   393,578 
Borrowings59,000   44,000   44,000   44,000   44,000 
Other liabilities3,400   4,598   5,325   2,654   2,217 
Equity53,981   52,241   50,666   35,048   33,919 
Total Liabilities and Equity730,548   730,894   703,359   500,551   473,714 
Balance Sheet Ratios 
Gross Loans to Deposits97.11   88.29   85.87   99.11   100.76 
Earning Assets to Total Assets93.28   89.54   84.22   87.59   88.86 
Securities and Cash to Assets13.93   19.38   21.69   14.09   12.54 
Deposits to Assets84.07   86.2   85.78   83.68   83.08 
Loss Reserve to Gross Loans0.52   0.52   0.55   0.88   0.9 
Net Charge-Offs to Gross Loans-0.01%  0.00%  -0.02%  -0.01%  -0.02%
Leverage Ratio - The State Bank8.3   7.83   12.51   9.54   9.79 
Tangible Book Value per Share13.42   12.9   12.43   13.78   13.37 
Book Value per Share14.89   14.42   14   13.78   13.37 
 17-Jun   17-Mar   16-Dec   16-Sep   16-Jun 
 Unaudited   Unaudited   Unaudited   Unaudited   Unaudited 
Income Statement Highlights - QTD                  
Interest income7,254   6,427   4,952   4,657   4,510 
Interest expense702   687   614   601   585 
Net interest income6,552   5,740   4,338   4,056   3,925 
Provision for loan loss125   0   -900   0   0 
Service charges on deposit accounts303   235   228   192   181 
Gain on sale of mortgage loans802   356   789   872   706 
Wealth management income403   321   288   396   333 
Other non-interest income630   322   487   417   306 
Total non-interest income2,138   1,234   1,792   1,877   1,526 
Salaries and benefits3,028   2,705   2,700   2,209   2,230 
Occupancy and equipment793   736   581   610   580 
Loan and collection131   117   189   135   130 
Merger transaction expenses50   33   728   0   0 
Other operating expenses1,740   1,504   993   1,035   986 
Total non-interest expense5,742   5,095   5,191   3,989   3,926 
Net Income before tax2,823   1,879   1,839   1,944   1,525 
Income Taxes884   592   636   659   523 
Net Income1,939   1,287   1,203   1,285   1,002 
Pre-tax, pre-provision Net Income2,998   1,912   1,667   1,944   1,525 
Income Statement Ratios/Data 
Basic earnings per share0.53   0.37   0.41   0.51   0.39 
Pre-tax pre-provision earnings2,948   1,879   939   1,944   1,525 
Net Charge offs-67   -59   -65   -52   -66 
Return on Equity (ROE)14.49%  9.51%  7.03%  14.57%  11.87%
Return on Assets (ROA)1.09%  0.75%  0.92%  1.05%  0.87%
Efficiency Ratio66.08%  67.20%  84.68%  67.23%  72.02%
Average Bank Prime4.25%  3.85%  3.50%  3.50%  3.35%
Average Earning Asset Yield4.37%  4.27%  4.28%  4.32%  4.38%
Average Cost of Funds0.61%  0.56%  0.75%  0.76%  0.78%
Spread3.77%  3.71%  3.53%  3.57%  3.59%
Net impact of free funds0.18%  0.11%  0.22%  0.21%  0.22%
Net Interest Margin3.95%  3.82%  3.75%  3.78%  3.82%
 17-Jun   16-Jun       16-Dec   15-Dec 
 Unaudited   Unaudited             
Income Statement Highlights - YTD 
Interest income13,681   9,036    18,645   16,652 
Interest expense1,390   1,158    2,372   2,152 
Net interest income12,291   7,878    16,273   14,500 
Provision for loan loss125   0    -900   -1,000 
Service charges on deposit accounts539   359    779   806 
Gain on sale of mortgage loans1,158   1,186    3,038   1,975 
Wealth management income724   683    1,367   1,255 
Other non-interest income976   786    1,474   2,065 
Total non-interest income3,397   3,014    6,658   6,101 
Salaries and benefits5,732   4,635    9,544   8,826 
Occupancy and equipment1,529   1,143    2,334   2,262 
Merger transaction expenses82   0    728   0 
Loan and collection248   237    561   565 
Other operating expenses3,200   1,957    3,930   3,324 
Total non-interest expenses10,791   7,972    17,097   14,977 
Net Income before tax4,772   2,920    6,734   6,624 
Income Taxes1,476   997    2,293   2,407 
Net Income from continuing operations3,296   1,923    4,441   4,217 
Income Statement Ratios/Data 
Basic earnings per share0.91   0.77    1.7   1.87 
Pre-tax pre-provision earnings4,897   2,920    5,834   5,624 
Net Charge offs-93   -26    -26   -59 
Return on Equity (ROE)11.89%  11.54%   10.26%  11.44%
Return on Assets (ROA)0.92%  0.85%   0.92%  1.00%
Efficiency Ratio68.79%  73.19%   74.56%  72.70%
Average Bank Prime4.10%  3.50%   3.50%  3.50%
Average Earning Asset Yield4.32%  4.41%   4.35%  4.48%
Average Cost of Funds0.58%  0.78%   0.76%  0.77%
Spread3.74%  3.63%   3.59%  3.71%
Net impact of free funds0.14%  0.21%   0.21%  0.19%
Net Interest Margin3.89%  3.84%   3.80%  3.90%

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

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Source: Fentura Financial, Inc.