Press Release

Fentura Financial, Inc. Announces Third Quarter 2017 Results

Company Release - 11/7/2017 11:41 AM ET

FENTON, Mich., Nov. 07, 2017 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. announces another record breaking quarter showing pre-tax, pre-provison basis earnings of $4.6 million in the current quarter compared to $2.9 million in the prior quarter and $1.9 million reported for the quarter ended September 30, 2016.  Net income for the three months ended September 30, 2017 was $3.3 million compared to net income of $1.9 million reported for the second quarter of 2017 and $1.3 million reported for the three months ended September 30, 2016. For the nine months ended September 30, 2017 the Company reported net income of $6.5 million compared to net income of $3.2 million for the same period in 2016.  Included in both quarterly and year to date operating results are two non-recurring non-interest income transactions totaling approximately $1.5 million (pre-tax).  The first is a gain on a note payable and the second is proceeds from a bank owned life insurance policy.  Excluding these one-time items, the Company’s results would continue to reflect the most profitable quarter on record.    

  • Almost 69.6% growth in net income quarter over quarter  
  • Quarterly earnings per share growth of 68.5% over prior quarter
  • Book value increased 14.3% to $15.75 per share year over year
  • Gross loans grew 6.2% during the quarter
  • Year to date efficiency ratio improved to 63.8% as compared to 71.1% in the same period in the prior year.

Ronald L. Justice, President and CEO said, “Our strong operating results reflect the commitment of our entire team to organically grow our franchise by attracting new and expanding existing client relationships in all business lines.  By expanding client relationships we have enhanced net interest income while improving our efficiency, thus strengthening our bottom line.  We are very excited about our 15.3% improvement in Fentura’s stock trading price throughout this year, supported by our financial results.  As noted last quarter, controlled growth continues to be our primary focus, while we remain open to other opportunities to expand and grow.”

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

Balance Sheet

Total assets increased 3.6% quarter over quarter increasing $26.4 million from June 30, 2017, ending the quarter at $757.0 million.  When compared to December 31, 2016, assets at September 30, 2017, increased $53.6 million or 7.6%. 

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 $37.0 million or 6.2% quarter over quarter. Commercial and mortgage loan portfolios both grew during the quarter. All portfolios, including consumer showed growth over year end 2016 levels. Gross loans totaled $633.4 million at September 30, 2017.  When compared to the most recent year end, loans increased $113.7 million or 21.9%.  The increase in loans primarily resulted from the Company’s efforts to grow its loan portfolio with new and existing clients, with a primary focus on its core markets and assessment area.  Additionally, the Company has continued its 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 commercial and residential mortgage portfolios.  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):

Residential Real Estate$235,829$208,724$204,975$180,685$140,962
Commercial Real Estate 272,292 252,076 226,530 233,358 190,155
Consumer 55,345 56,152 47,379 38,186 30,151
Commercial 69,921 79,481 75,885 67,414 52,354
Gross Loans$633,387$596,433$554,769$519,644$413,622

Deposit totals of $625.6 million at the end of the quarter, showed an increase of $11.4 million or 1.9% compared to $614.2 million reported at June 30, 2017.  The increases were in the time and interest bearing accounts, with those increases being partially offset by a modest decrease in non-interest bearing deposits. We continue to see 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 overall deposit 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.  Historically the fourth quarter has been a period of inflow of municipal deposits, though that cannot be ensured. For the nine months ended September 30, 2017, deposits increased $22.2 million or 3.7% through growth in non-interest bearing deposits.


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 September 30, 2017 and December 31, 2016.   The decline in the ratios during the year is primarily due to our robust asset growth and an upstream dividend to Fentura Financial, Inc.    

Tier 1 Leverage Capital Ratio8.61%11.69%9.52%5.00%
Tier 1 Risk-Based Capital Ratio9.70%10.72%11.37%8.00%
Total Risk-Based Capital Ratio10.21%11.24%12.27%10.00%

Credit Quality

The trend of solid credit quality metrics continued into the third 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 September 30, 2017 loan delinquencies to total loans were 0.26% compared to 0.00% at September 30, 2016. Delinquent loans, net of non-accrual loans, were 0.07% of gross loans at September 30, 2017. Total loan delinquencies at December 31, 2016 were 0.74% inclusive of the acquired portfolio.   Loans on non-accrual status and/or 90 or more days delinquent totaled $1.2 million at September 30, 2017, compared to $2.0 million at December 31, 2016. As noted last quarter, 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 $3.3 million or 0.52% 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 September 30, 2017 is $3.9 million, or 5.6% of the remaining balance of the acquired loans. The Allowance for Loan Losses is analyzed on a quarterly basis and at the end of the current quarter the Company believes that the Allowance for Loan Loss is appropriate based on the estimate of incurred losses within the portfolio. 

Net Interest Income

Net interest income of $6.8 million for the quarter ended September 30, 2017 reflects a $221,000 or 3.4% increase compared to the quarter ended June 30, 2017 and a 67.1% increase relative to the $4.1 million reported for the quarter ended September 30, 2016.    The causes of the increases noted are primarily increased volume (largely due to the Community State Bank acquisition), though market rate increases earlier in the year have benefited net interest income with the margin increasing 8 and 11 basis points in the prior year quarter and year to date comparative periods, respectively. Additionally, the significant year to date 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 $3.4 million for the quarter ended September 30, 2017 compared to $2.1 million for the second quarter of 2017 and $1.9 million for the third quarter of 2016.  As previously noted, noninterest income for the third quarter included a gain from a note payable and proceeds from a bank owned life insurance policy totaling $1.5 million.  Additionally, the acquisition of Community State Bank has enhanced service charge income with the additional deposit customers added to our portfolio. Partially offsetting these increases was a decline in gains on sold loans on both a year to year and quarterly basis.  This decline is based on more portfolio held loans in the current period production versus loans sold. 

Noninterest Expense

The Company recorded $5.6 million of noninterest expense in the quarter ended September 30, 2017, a decrease of $161,000 compared to the $5.7 million reported in the second quarter of 2017 and a $1.6 million increase over the $4.0 million reported in the third quarter of 2016.  The current quarter decrease compared to the prior quarter is based on a decline in professional expenses following the acquisition and conversion of Community State Bank and declines in loan and collection expenses. For the nine months ended September 30, 2017, noninterest expense totaled $16.5 million, an increase of $4.5 million or 37.9% over the $12.0 million reported for the same period of 2016.  This increase was primarily due to the additional costs associated with operating the offices in our acquired markets, specifically the additional staff and facilities. 

 UnauditedUnauditedUnaudited Unaudited
Balance Sheet Highlights 
Cash and due from banks15,578 16,715 43,547 78,313 47,229 
Fed funds sold0 11,900 23,800 0 0 
Investment securities69,799 73,118 74,311 74,232 23,300 
Commercial loans358,457 332,071 307,855 324,261 244,171 
Consumer loans55,345 56,154 53,998 37,700 32,009 
Mortgage loans219,585 208,192 192,916 157,683 137,442 
Gross loans633,387 596,417 554,769 519,644 413,622 
ALLL-3,262 -3,092 -2,877 -2,851 -3,645 
Intangible assets5,272 5,397 5,587 5,745 0 
Other assets36,215 30,218 32,072 28,267 20,045 
Total assets756,989 730,548 730,894 703,350 500,551 
Non-interest deposits213,523 219,763 214,706 160,903 125,393 
Interest bearing non-maturity deposits314,264 297,799 312,700 332,203 211,882 
Time deposits97,801 96,605 102,649 110,261 81,574 
Total deposits625,588 614,167 630,055 603,367 418,849 
Borrowings64,000 59,000 44,000 44,000 44,000 
Other liabilities6,240 3,400 4,598 5,323 2,654 
Equity57,161 53,981 52,241 50,660 35,048 
 756,989 730,548 730,894 703,350 500,551 
Gross Loans to Deposits101.25 97.11 88.05 86.12 98.75 
Earning Assets to Total Assets92.89 93.28 89.33 84.44 87.29 
Securities and Cash to Assets11.28 13.93 19.38 21.69 14.09 
Deposits to Assets82.64 84.07 86.2 85.78 83.68 
Loss Reserve to Gross Loans0.52 0.52 0.52 0.55 0.88 
Net Charge-Offs to Gross Loans-0.01%-0.01%-0.02%-0.01%-0.02%
Leverage Ratio - The State Bank8.61 8.3 7.83 12.51 9.54 
Tangible Book Value per Share14.32 13.42 12.9 12.43 13.78 
Book Value per Share15.75 14.89 14.42 14 13.78 
Income Statement Highlights - QTDSep-17Jun-17Mar-17Dec-16Sep-16
Interest income7,565 7,254 6,427 4,952 4,657 
Interest expense792 702 687 614 601 
Net interest income6,773 6,552 5,740 4,338 4,056 
Provision for loan loss136 125 0 -900 0 
Service charges on deposit accounts290 303 235 228 192 
Gain on sale of mortgage loans628 802 356 789 872 
Wealth management income370 403 321 288 396 
Other non-interest income2,108 630 322 487 417 
Total non-interest income3,396 2,138 1,234 1,792 1,877 
Salaries and benefits3,028 3,028 2,705 2,700 2,209 
Occupancy and equipment790 793 736 581 610 
Loan and collection97 131 117 189 135 
Merger transaction expenses97 50 33 728 0 
Other operating expenses1,569 1,740 1,504 993 1,035 
Total non-interest expense5,581 5,742 5,095 5,191 3,989 
Net Income before tax4,452 2,823 1,879 1,839 1,944 
Income Taxes1,164 884 592 636 659 
Net Income3,288 1,939 1,287 1,203 1,285 
"Core" Net Income4,685 2,998 1,912 1,667 1,944 
Basic earnings per share0.91 0.53 0.37 0.41 0.51 
Pre-tax pre-provision earnings4,588 2,948 1,879 939 1,944 
Net Charge offs-34 -67 -59 -65 -52 
Return on Equity (ROE)17.08%14.49%9.51%7.03%14.57%
Return on Assets (ROA)1.76%1.09%0.75%0.92%1.05%
Efficiency Ratio54.88%66.08%73.06%84.68%67.23%
Average Bank Prime4.25%4.25%3.85%3.50%3.50%
Average Earning Asset Yield4.34%4.37%4.27%4.28%4.32%
Average Cost of Funds0.69%0.61%0.56%0.75%0.78%
Net impact of free funds0.24%0.18%0.11%0.22%0.21%
Net Interest Margin3.89%3.95%3.82%3.75%3.78%
Income Statement Highlights - YTDSep-17Sep-16 Dec-16Dec-15
Interest income21,246 13,693  18,645 16,652 
Interest expense2,182 1,758  2,372 2,152 
Net interest income19,064 11,935  16,273 14,500 
Provision for loan loss261 0  -900 -1,000 
Service charges on deposit accounts829 551  779 806 
Gain on sale of mortgage loans1,787 1,947  3,038 1,975 
Wealth management income1,093 1,079  1,367 1,255 
Other non-interest income3,085 1,303  1,474 2,065 
Total non-interest income6,794 4,880  6,658 6,101 
Salaries and benefits8,760 6,844  9,544 8,826 
Occupancy and equipment2,319 1,753  2,334 2,262 
Merger transaction expenses294 0  728 0 
Loan and collection346 371  561 565 
Other operating expenses4,769 2,992  3,930 3,324 
Total non-interest expenses16,488 11,960  17,097 14,977 
Net Income before tax9,109 4,855  6,734 6,624 
Income Taxes2,640 1,657  2,293 2,407 
Net Income from continuing operations6,469 3,198  4,441 4,217 
Basic earnings per share1.78 1.27  1.7 1.87 
Pre-tax pre-provision earnings9,370 4,855  5,834 5,624 
Net Charge offs-127 -26  -26 -59 
Return on Equity (ROE)13.70%12.55% 10.26%11.44%
Return on Assets (ROA)1.18%0.92% 0.92%1.00%
Efficiency Ratio63.76%71.13% 74.56%72.70%
Average Bank Prime4.10%3.50% 3.50%3.50%
Average Earning Asset Yield4.33%4.38% 4.35%4.48%
Average Cost of Funds0.62%0.77% 0.76%0.77%
Spread3.71%3.61% 3.59%3.71%
Net impact of free funds0.18%0.21% 0.21%0.19%
Net Interest Margin3.89%3.81% 3.80%3.90%

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, 4-Star Bauer Financial rated commercial, retail and trust bank headquartered in Fenton, Michigan. It has assets of approximately $757 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 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. 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. 

Contact:    Ronald L. Justice

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

Source: Fentura Financial, Inc.