Press Release

Fentura Financial, Inc. Announces Second Quarter 2018 Results

Company Release - 8/3/2018 11:34 AM ET

Dollars in thousands except per share amounts.  Certain items in the prior period financial statements have been reclassified to conform with June 30, 2018 presentation.

FENTON, Mich., Aug. 03, 2018 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. (OTCQX: FETM) announces continued strong earnings with net income of $2,518 and $4,592 for the three and six month periods ended June 30, 2018, respectively.

  • Record quarter-to-date adjusted net income from operations of $2,226
  • 42.34% increase in net income over the first six months of 2017
  • Return on average assets of 1.15% in the first six months of 2018 vs 0.92% in the first six months of 2017
  • 41.57% increase in year-to-date earnings per share
  • 27.34% annualized increase in stock trading price in the second quarter of 2018
  • Gross loans increased 3.09% during the quarter and 19.54% since June 30, 2017
  • Total deposits increased 2.67% during the quarter and 18.64% since June 30, 2017

Ronald L. Justice, President and CEO said, “I am extremely proud of our team.  Their dedication to community banking values continually strengthen the communities we serve while delivering strong returns for our shareholders.”

Total Shareholder Return

 
  FETM QTD Total Return to Shareholders (Annualized)
  6/30/18 3/31/18 12/31/17 9/30/17 6/30/17
Increase in Price27.34% 18.43% 9.32% 4.38% 5.56%
Cash Dividends 1.22% 1.27% 1.08% 1.10% 1.11%
           
Total Return 28.56% 19.70% 10.41% 5.48% 6.67%
           
           
  FETM Annual Total Return to Shareholders
  12/31/17 12/31/16 12/31/15 12/31/14 12/31/13
Increase in Price18.00% 15.44% 40.00% 42.04% 99.14%
Cash Dividends 1.25% 2.89% 1.21% 1.29% 0.00%
           
Total Return 19.25% 18.33% 41.21% 43.33% 99.14%
           

Income Statement Breakdown and Analysis

           
  Quarter to Date
  6/30/18 3/31/18 12/31/17 9/30/17 6/30/17
Interest and dividend income          
Loans, including fees $8,433  $8,038  $8,524  $7,226  $6,931 
Investments  296   341   341   339   323 
Total interest and dividend income  8,729   8,379   8,865   7,565   7,254 
Total interest expense  1,232   1,031   939   792   702 
Net interest income  7,497   7,348   7,926   6,773   6,552 
Provision for loan losses  301   275   348   136   125 
Net interest income, after provision for loan losses  7,196   7,073   7,578   6,637   6,427 
Total noninterest income  2,013   1,801   2,220   3,396   2,138 
Total noninterest expenses  6,049   6,279   7,400   5,581   5,742 
Income before federal income taxes  3,160   2,595   2,398   4,452   2,823 
Federal income taxes  642   521   236   1,164   884 
Net income $   2,518   $   2,074   $   2,162   $   3,288   $   1,939  
           
           
  Quarter to Date
  6/30/18 3/31/18 12/31/17 9/30/17 6/30/17
Based on GAAP net income          
Return on Average Assets  1.27%  1.05%  1.11%  1.76%  1.09%
Efficiency Ratio  63.61%  68.63%  72.94%  54.88%  66.08%
Earnings Per Share $0.69  $0.57  $0.60  $0.91  $0.53 
Yield on Earning Assets  4.63%  4.55%  5.13%  4.40%  4.45%
Rate on Int. Bearing Liabilities  0.96%  0.82%  0.82%  0.67%  0.57%
Net Interest Margin to Earning Assets  3.98%  3.99%  4.59%  3.94%  4.02%
           
GAAP net income $   2,518   $   2,074   $   2,162   $   3,288   $   1,939  
Provision for loan losses (net of tax)  238   217   229   90   83 
Acquisition related items (net of tax)          
Accretion on purchased loans  (255)  (250)  (676)  (179)  (175)
Amortization of core deposit intangible  107   107   105   104   104 
Acquisition related expenses  -   -   296   -   - 
Accretion on acquired OREO  -   -   -   -   (53)
Amortization on acquired time deposits  9   9   10   10   9 
Amortization on purchased MSRs  6   6   8   8   7 
Total acquisition related items (net of tax)  (133)  (128)  (257)  (57)  (108)
One-time and other items (net of tax)          
Net gain from BOLI death benefit  -   -   -   (1,155)  - 
Re-valuation of net deferred tax liabilities  -   -   (489)  -   - 
Net gain from note receivable  -   -   -   (172)  - 
Impact of The Tax Cuts and Jobs Act  (397)  (323)  -   -   - 
Total one-time and other items (net of tax)  (397)  (323)  (489)  (1,327)  - 
Adjusted net income from operations $   2,226   $   1,840   $   1,645   $   1,994   $   1,914  
           
GAAP net interest income $   7,497   $   7,348   $   7,926   $   6,773   $   6,552  
Accretion on purchased loans  (323)  (317)  (1,021)  (272)  (266)
Amortization on acquired time deposits  11   12   15   15   14 
Adjusted net interest income $   7,185   $   7,043   $   6,920   $   6,516   $   6,300  
           
Based on adjusted net income from operations          
Return on Average Assets  1.12%  0.93%  0.84%  1.07%  1.08%
Efficiency Ratio  64.24%  69.41%  74.22%  63.73%  66.73%
Earnings Per Share $0.61  $0.51  $0.45  $0.55  $0.53 
           
Based on adjusted net interest income          
Yield on Earning Assets  4.46%  4.38%  4.54%  4.24%  4.29%
Rate on Int. Bearing Liabilities  0.97%  0.83%  0.83%  0.68%  0.58%
Net Interest Margin to Earning Assets  3.81%  3.83%  4.01%  3.79%  3.87%
           


         
  Year to Date June 30 Variance
  2018 2017 $ %
Interest and dividend income        
Loans, including fees $16,471  $13,015  $3,456  26.55%
Investments  637   666   (29) -4.35%
Total interest and dividend income  17,108   13,681   3,427  25.05%
Total interest expense  2,263   1,389   874  62.92%
Net interest income  14,845   12,292   2,553  20.77%
Provision for loan losses  576   125   451  360.80%
Net interest income, after provision for loan losses  14,269   12,167   2,102  17.28%
Total noninterest income  3,814   3,372   442  13.11%
Total noninterest expenses  12,328   10,837   1,491  13.76%
Income before federal income taxes  5,755   4,702   1,053  22.39%
Federal income taxes  1,163   1,476   (313) -21.21%
Net income $   4,592   $   3,226   $   1,366   42.34%
         
         
  Year to Date June 30 Variance
  2018 2017 $ %
Based on GAAP net income        
Return on Average Assets  1.15%  0.92%   0.23%
Efficiency Ratio  66.07%  69.18%   -3.11%
Earnings Per Share $1.26  $0.89  $0.37  41.57%
Yield on Earning Assets  4.59%  4.32%   0.26%
Rate on Int. Bearing Liabilities  0.89%  0.56%   0.33%
Net Interest Margin to Earning Assets  3.98%  3.89%   0.10%
         
GAAP net income $   4,592   $   3,226   $   1,366   42.34%
Provision for loan losses (net of tax)  455   83   372  448.19%
Acquisition related items (net of tax)        
Accretion on purchased loans  (505)  (349)  (156) 44.70%
Amortization of core deposit intangible  214   209   5  2.39%
Acquisition related expenses  -   -   -  N/M 
Accretion on acquired OREO  -   (53)  53  -100.00%
Amortization on acquired time deposits  18   18   -  0.00%
Amortization on purchased MSRs  12   15   (3) -20.00%
Total acquisition related items (net of tax)  (261)  (160)  (101) 63.13%
One-time and other items (net of tax)        
Net gain from BOLI death benefit  -   -   -  N/M 
Re-valuation of net deferred tax liabilities  -   -   -  N/M 
Net gain from note receivable  -   -   -  N/M 
Impact of The Tax Cuts and Jobs Act  (720)  -   (720) N/M 
Total one-time and other items (net of tax)  (720)  -   (720) N/M 
Adjusted net income from operations $   4,066   $   3,149   $   917   29.12%
         
GAAP net interest income $   14,845   $   12,292   $   2,553   20.77%
Accretion on purchased loans  (640)  (529)  (111) 20.98%
Amortization on acquired time deposits  23   28   (5) -17.86%
Adjusted net interest income $   14,228   $   11,791   $   2,437   20.67%
         
Based on adjusted net income from operations        
Return on Average Assets  1.02%  0.90%   0.12%
Efficiency Ratio  66.77%  69.18%   -2.41%
Earnings Per Share $1.12  $0.87  $0.25  28.74%
         
Based on adjusted net interest income        
Yield on Earning Assets  4.42%  4.16%   0.26%
Rate on Int. Bearing Liabilities  0.90%  0.57%   0.32%
Net Interest Margin to Earning Assets  3.82%  3.73%   0.09%
         

To effectively compare core operating results from period to period, the impact of the provision for loan losses, acquisition related items, and one-time and other items have been isolated.

As outlined in the preceding tables, the Corporation has been able to generate strong net income and adjusted net income from operations.  While a portion of the increase in net income was driven by the Tax Cuts and Jobs Act of 2017, which reduced the Corporation’s Federal income tax rate from 34% to 21%, adjusted net income from operations, which excludes the impact of the reduction in tax rates, represented the highest level of core earnings in the Corporation’s history.

The Corporation has also been successful at consistently increasing adjusted net interest income.  This increase continues to be primarily driven through increases in loans while maintaining relatively strong interest margins.  As the Corporation expects to grow its loan portfolio throughout 2018, net interest income is expected to continue to increase.

Balance Sheet Breakdown and Analysis

           
  6/30/18 3/31/18 12/31/17 9/30/17 6/30/17
           
ASSETS          
           
Cash and cash equivalents $44,280  $15,154  $15,928  $16,450  $29,487 
Total securities  49,110   49,608   55,323   67,155   70,699 
Loans held for sale  4,936   4,980   2,067   4,835   4,664 
           
Gross loans  707,364   686,140   672,530   628,552   591,753 
Less allowance for loan losses  4,033   3,725   3,603   3,262   3,092 
Net loans  703,331   682,415   668,927   625,290   588,661 
All other assets  39,802   37,786   39,198   43,237   37,000 
           
Total assets $841,459  $789,943  $781,443  $756,967  $730,511 
           
LIABILITIES AND SHAREHOLDERS' EQUITY          
           
Total deposits $702,035  $683,775  $673,505  $625,588  $614,167 
Total borrowed funds  74,000   44,600   46,000   68,000   59,000 
Accrued interest and other liabilities  2,346   947   2,491   6,218   3,089 
Total liabilities  778,381   729,322   721,996   699,806   676,256 
           
Total shareholders' equity  63,078   60,621   59,447   57,161   54,255 
Total liabilities and shareholders' equity $841,459  $789,943  $781,443  $756,967  $730,511 
           
Selected Ratios          
Net loans to total deposits  100.18%  99.80%  99.32%  99.95%  95.85%
ALLL to gross loans  0.57%  0.54%  0.54%  0.52%  0.52%
Book value per share $17.34  $16.68  $16.35  $15.74  $14.95 
Tangible book value per share $16.01  $15.31  $14.95  $14.24  $13.41 
Total capital to risk weighted assets*  10.70%  10.61%  10.46%  10.21%  10.36%
Tier 1 capital to risk weighted assets*  10.11%  10.06%  9.91%  9.70%  9.84%
CET1 capital to risk weighted assets*  10.11%  10.06%  9.91%  9.70%  9.84%
Tier 1 capital to average assets*  8.70%  8.65%  8.57%  8.62%  8.30%
           
*The State Bank          
           
           
  6/30/2018 vs 3/31/2018   6/30/2018 vs 6/30/2017
  $ Variance % Variance   $ Variance % Variance
           
ASSETS          
           
Cash and cash equivalents $29,126   192.20%   $14,793   50.17%
Total securities  (498)  -1.00%    (21,589)  -30.54%
Loans held for sale  (44)  -0.88%    272   5.83%
           
Gross loans  21,224   3.09%    115,611   19.54%
Less allowance for loan losses  308   8.27%    941   30.43%
Net loans  20,916   3.06%    114,670   19.48%
All other assets  2,016   5.34%    2,802   7.57%
           
Total assets $51,516   6.52%   $110,948   15.19%
           
LIABILITIES AND SHAREHOLDERS' EQUITY          
           
Total deposits $18,260   2.67%   $87,868   14.31%
Total borrowed funds  29,400   65.92%    15,000   25.42%
Accrued interest and other liabilities  1,399   147.73%    (743)  -24.05%
Total liabilities  49,059   6.73%    102,125   15.10%
           
Total shareholders' equity  2,457   4.05%    8,823   16.26%
Total liabilities and shareholders' equity $51,516   6.52%   $110,948   15.19%
           
Selected Ratios          
Net loans to total deposits    0.38%      4.33%
ALLL to gross loans    0.03%      0.05%
Book value per share $0.66   3.96%   $2.39   4.41%
Tangible book value per share $0.70   4.57%   $2.60   5.22%
Total capital to risk weighted assets*    0.09%      0.34%
Tier 1 capital to risk weighted assets*    0.05%      0.27%
CET1 capital to risk weighted assets*    0.05%      0.27%
Tier 1 capital to average assets*    0.05%      0.40%
           

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

           
  6/30/18 3/31/18 12/31/17 9/30/17 6/30/17
Commercial real estate$344,658  $343,265  $333,463  $298,821  $276,640 
Residential real estate 257,776   237,677   234,190   228,143   214,870 
Commercial  49,776   47,812   47,931   49,897   48,022 
Home equity  41,736   42,879   41,318   39,861   38,335 
Installment  13,418   14,507   15,628   11,830   13,886 
           
Total loans $707,364  $686,140  $672,530  $628,552  $591,753 
           
           
  6/30/2018 vs 3/31/2018   6/30/2018 vs 6/30/2017
  $ Variance % Variance   $ Variance % Variance
Commercial real estate$1,393   0.41%   $68,018   24.59%
Residential real estate 20,099   8.46%    42,906   19.97%
Commercial  1,964   4.11%    1,754   3.65%
Home equity  (1,143)  -2.67%    3,401   8.87%
Installment  (1,089)  -7.51%    (468)  -3.37%
           
Total loans $21,224   3.09%   $115,611   19.54%
           

During the quarter, the Corporation continued to drive loan growth through actively pursuing prudent opportunities in existing market areas.  Most of the growth in the portfolio over the quarter has come in the form of residential real estate.  Over the past 12 months the Corporation has been successful in growing the loan portfolio in all segments, except for installment loans.  Installment loans have declined because of the sale of the Corporation’s credit card portfolio which was acquired from The Community State Bank of St. Charles in December 2016. 

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

           
  6/30/18 3/31/18 12/31/17 9/30/17 6/30/17
Demand $236,899  $224,486  $216,607 $208,494  $217,504 
Savings  218,512   227,987   224,558  229,471   223,274 
Money market demand  53,654   59,370   67,387  68,567   55,736 
NOW  6,346   2,984   2,253  3,565   2,810 
Time deposits  186,624   168,948   162,700  115,491   114,843 
           
Total deposits $   702,035   $   683,775   $   673,505  $   625,588   $   614,167  
           
           
  6/30/2018 vs 3/31/2018   6/30/2018 vs 6/30/2017
  $ Variance % Variance   $ Variance % Variance
Demand $12,413   5.53%   $19,395   8.92%
Savings  (9,475)  -4.16%    (4,762)  -2.13%
Money market demand  (5,716)  -9.63%    (2,082)  -3.74%
NOW  3,362   112.67%    3,536   125.84%
Time deposits  17,676   10.46%    71,781   62.50%
           
Total deposits $   18,260    2.67%   $   87,868    14.31%
           

Total deposits, like loans, have grown both quarter over quarter and year over year.  Most of the growth continues to come in the form of demand and time deposits.  The increase in demand deposits has been the direct result of our treasury management team working with municipalities and small business customers to ensure that we have the appropriate mix of products and services at a competitive price.  The increase in time deposits has been the result of targeted CD specials and an increase in brokered and internet deposits to fund the remaining growth in the loan portfolio.  We have implemented several strategic initiatives geared at accelerating deposit growth in upcoming periods to help provide organic funding to meet loan demands.

About Fentura Financial, Inc. and The State Bank

Fentura Financial, Inc. is the holding company for The State Bank. It was formed in 1987 and is traded on the OTCQX exchange under the symbol FETM, and was recognized as one of the Top 50 performing stocks in 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 currently operates 15 full-service branches in Genesee, Livingston, Oakland, Saginaw, and Shiawassee Counties and loan production offices in Washtenaw and Saginaw Counties. The State Bank was ranked #41 by S&P Global in terms of 2017 performance for banks under $1 billion in assets. 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 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.

Contacts:

Ronald L. Justice
President & CEO
Fentura Financial, Inc.
810.714.3902

Aaron D. Wirsing
Chief Financial Officer
Fentura Financial, Inc.
810.714.3925

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Source: Fentura Financial, Inc.