Press Release

Fentura Financial, Inc. Announces Record Earnings

Company Release - 11/1/2018 3:53 PM ET

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

FENTON, Mich., Nov. 01, 2018 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. (OTCQX: FETM) (“Fentura”) announces another record quarter with net income of $3,513 and $8,105 for the three and nine month periods ended September 30, 2018, respectively.

  • Record quarter-to-date adjusted net income from operations of $2,332
  • 24.42% increase in net income over the first nine months of 2017
  • Return on average assets of 1.32% in the first nine months of 2018 vs 1.21% in the first nine months of 2017
  • 23.89% increase in year-to-date earnings per share over the first nine months of 2017
  • 15.88% total return to shareholders over the previous 12 months
  • Gross loans increased 2.96% during the quarter and 15.87% since September 30, 2017
  • Total deposits increased 9.19% during the quarter and 22.54% since September 30, 2017

Ronald L. Justice, President and CEO said, “I am extremely proud of our team and our record earnings.  Our robust earnings are a direct result of our focus on sustainable, above-average organic growth.”

Total Shareholder Return

 
  9/30/18 6/30/18 3/31/18 12/31/17 9/30/17
Closing Stock Price $  21.15  $  21.10  $  19.75  $  18.88  $  18.45 
QTD Cash Dividends Per Share$  0.06  $  0.06  $  0.06  $  0.05  $  0.05 
 
  QTD Total Return to Shareholders (Annualized)
  9/30/18 6/30/18 3/31/18 12/31/17 9/30/17
Increase in Price  0.95%  27.34%  18.43%  9.32%  4.38%
Cash Dividends  1.14%  1.22%  1.27%  1.08%  1.10%
           
Total Return  2.09%  28.56%  19.70%  10.41%  5.48%
           
  12/31/17 12/31/16 12/31/15 12/31/14 12/31/13
Closing Stock Price $  18.88  $  16.00  $  13.86  $  9.90  $  6.97 
YTD Cash Dividends Per Share $  0.20  $  0.40  $  0.12  $  0.09  $  -  
           
  Annual Total Return to Shareholders
  12/31/17 12/31/16 12/31/15 12/31/14 12/31/13
Increase in Price  18.00%  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
  9/30/18 6/30/18 3/31/18 12/31/17 9/30/17
Interest and dividend income          
Loans, including fees $8,768  $8,433  $8,038  $8,524  $7,226 
Investments  543   296   341   341   339 
Total interest and dividend income  9,311   8,729   8,379   8,865   7,565 
Total interest expense  1,638   1,232   1,031   939   792 
Net interest income  7,673   7,497   7,348   7,926   6,773 
Provision for loan losses  191   301   275   348   136 
Net interest income, after provision for loan losses  7,482   7,196   7,073   7,578   6,637 
Total noninterest income  2,760   2,013   1,801   2,220   3,396 
Total noninterest expenses  6,075   6,049   6,279   7,400   5,581 
Income before federal income taxes  4,167   3,160   2,595   2,398   4,452 
Federal income taxes  654   642   521   236   1,164 
Net income $   3,513   $   2,518   $   2,074   $   2,162   $   3,288  
           


           
  Quarter to Date
  9/30/18 6/30/18 3/31/18 12/31/17 9/30/17
Based on GAAP net income          
Average Total Assets $  865,576  $  792,912  $  788,735  $  779,000  $  747,000 
Average Earning Assets $  813,464  $  757,175  $  737,469  $  693,951  $  691,175 
Average Int. Bearing Liabilities $  565,908  $  514,485  $  504,633  $  457,937  $  474,437 
Return on Average Assets  1.62%  1.27%  1.05%  1.11%  1.76%
Efficiency Ratio  58.23%  63.61%  68.63%  72.94%  54.88%
Earnings Per Share $  0.96  $  0.69  $  0.57  $  0.60  $  0.91 
Yield on Earning Assets  4.59%  4.62%  4.55%  5.13%  4.40%
Rate on Int. Bearing Liabilities  1.16%  0.96%  0.82%  0.82%  0.67%
Net Interest Margin to Earning Assets  3.78%  3.97%  3.99%  4.59%  3.94%
           
GAAP net income $   3,513   $   2,518   $   2,074   $   2,162   $   3,288  
Provision for loan losses (net of tax)    151     238     217     229     90 
Acquisition related items (net of tax)          
Accretion on purchased loans    (116)    (255)    (250)    (676)    (179)
Amortization of core deposit intangible    107     107     107     105     104 
Acquisition related expenses    -      -      -      296     -  
Accretion on acquired OREO    -      -      -      -      -  
Amortization on acquired time deposits    9     9     9     10     10 
Amortization on purchased MSRs    6     6     6     8     8 
Total acquisition related items (net of tax)    6     (133)    (128)    (257)    (57)
One-time and other items (net of tax)          
Net gain from BOLI death benefit    (933)    -      -      -      (1,155)
Re-valuation of net deferred tax liabilities    -      -      -      (489)    -  
Net gain from note receivable    -      -      -      -      (172)
Impact of The Tax Cuts and Jobs Act    (405)    (397)    (323)    -      -  
Total one-time and other items (net of tax)    (1,338)    (397)    (323)    (489)    (1,327)
Adjusted net income from operations $   2,332   $   2,226   $   1,840   $   1,645   $   1,994  
           
GAAP net interest income $   7,673   $   7,497   $   7,348   $   7,926   $   6,773  
Accretion on purchased loans    (147)    (323)    (317)    (1,021)    (272)
Amortization on acquired time deposits    12     11     12     15     15 
Adjusted net interest income $   7,538   $   7,185   $   7,043   $   6,920   $   6,516  
           
Based on adjusted net income from operations          
Return on Average Assets  1.08%  1.12%  0.93%  0.84%  1.07%
Efficiency Ratio  63.37%  64.24%  69.41%  74.22%  63.73%
Earnings Per Share $  0.64  $  0.61  $  0.51  $  0.45  $  0.55 
           
Based on adjusted net interest income          
Yield on Earning Assets  4.51%  4.45%  4.38%  4.54%  4.24%
Rate on Int. Bearing Liabilities  1.17%  0.97%  0.83%  0.83%  0.68%
Net Interest Margin to Earning Assets  3.71%  3.80%  3.83%  4.01%  3.79%
           


          
  Year to Date September 30 Variance 
   2018   2017  $ % 
Interest and dividend income         
Loans, including fees $  25,239  $  20,241  $  4,998  24.69% 
Investments    1,180     1,005     175  17.41% 
Total interest and dividend income    26,419     21,246     5,173  24.35% 
Total interest expense    3,901     2,181     1,720  78.86% 
Net interest income    22,518     19,065     3,453  18.11% 
Provision for loan losses    767     261     506  193.87% 
Net interest income, after provision for loan losses    21,751     18,804     2,947  15.67% 
Total noninterest income    6,574     6,768     (194) -2.87% 
Total noninterest expenses    18,403     16,418     1,985  12.09% 
Income before federal income taxes    9,922     9,154     768  8.39% 
Federal income taxes    1,817     2,640     (823) -31.17% 
Net income $   8,105   $   6,514   $   1,591   24.42% 
          
  Year to Date September 30 Variance 
   2018   2017  $ % 
Based on GAAP net income         
Average Total Assets $  820,038  $  718,335  $  101,703  14.16% 
Average Earning Assets $  769,488  $  687,175  $  82,313  11.98% 
Average Int. Bearing Liabilities $  528,291  $  481,657  $  46,634  9.68% 
Return on Average Assets  1.32%  1.21%     0.11% 
Efficiency Ratio  63.26%  63.55%     -0.30% 
Earnings Per Share $  2.23  $  1.80  $  0.43  23.89% 
Yield on Earning Assets  4.59%  4.15%     0.44% 
Rate on Int. Bearing Liabilities  0.98%  0.60%     0.38% 
Net Interest Margin to Earning Assets  3.91%  3.72%     0.19% 
                
GAAP net income $   8,105   $   6,514   $   1,591   24.42% 
Provision for loan losses (net of tax)    606     172    434  252.33% 
Acquisition related items (net of tax)         
Accretion on purchased loans    (622)  (529)     (93) 17.58% 
Amortization of core deposit intangible    321   313   8  2.56% 
Acquisition related expenses    -         -   N/M 
Accretion on acquired OREO    -    (53)   53  -100.0% 
Amortization on acquired time deposits    28   28     0.00% 
Amortization on purchased MSRs    18   22
   (4 -18.18% 
Total acquisition related items (net of tax)    (255)  (219)     (36) 16.44% 
One-time and other items (net of tax)         
Net gain from BOLI death benefit    (933)   (1,155  222  -19.22% 
Re-valuation of net deferred tax liabilities    -      -      -   N/M 
Net gain from note receivable    -     (172  (172 -100.00
% 
Impact of The Tax Cuts and Jobs Act    (1,125)    -      (1,125) N/M 
Total one-time and other items (net of tax)    (2,058)  (1,327  (731) 55.09
% 
Adjusted net income from operations $   6,398   $  5,140  $   (1,258) 24.47% 
          
GAAP net interest income $   22,518   $   19,065   $   3,453  18.11% 
Accretion on purchased loans    (787)    (801  14  -1.75% 
Amortization on acquired time deposits    35     43   (8 -18.60% 
Adjusted net interest income $   21,766   $   18,307  $   3,459  18.89
% 
          
Based on adjusted net income from operations         
Return on Average Assets  1.04%  0.95%     0.09% 
Efficiency Ratio  65.61%  63.55%     2.06% 
Earnings Per Share $  1.76  $  1.42  $  0.34  23.94% 
          
Based on adjusted net interest income         
Yield on Earning Assets  4.45%  3.99%     0.46% 
Rate on Int. Bearing Liabilities  0.99%  0.62%     0.38% 
Net Interest Margin to Earning Assets  3.78%  3.58%     0.20% 
          

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, Fentura 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 Fentura’s Federal income tax rate from 34% to 21%, adjusted net income from operations, which excludes the impact of the reduction in tax rates, remained strong.

Fentura 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 Fentura expects to grow its loan portfolio throughout the remainder of 2018 and through 2019, net interest income is expected to continue to increase.  While net interest income is expected to continue to increase, net interest margin to earning assets is expected to decrease as the rates paid on interest bearing liabilities are expected to increase faster than those earned on interest earning assets.

Noninterest Income

            
  Quarter to Date 
  9/30/18 6/30/18 3/31/18 12/31/17 9/30/17 
Noninterest income           
Service charges on deposit accounts $  273  $  253  $  259  $  307  $  324  
ATM and debit card income    386     388     354     373     369  
Net gain on sales of loans    277     555     365     333     230  
Trust and investment services    444     392     383     330     371  
Other income and fees    1,380     425     440     877     2,102  
            
Total noninterest income $   2,760   $   2,013   $   1,801   $   2,220   $   3,396   
            


Noninterest income         
Service charges on deposit accounts $  785  $  910  $  (125) -13.74% 
ATM and debit card income    1,128     1,101     27  2.45% 
Net gain on sales of loans    1,197     898     299  33.30% 
Trust and investment services    1,219     1,094     125  11.43% 
Other income and fees    2,245     2,765     (520) -18.81% 
          
Total noninterest income $   6,574   $   6,768   $   (194) -2.87% 
          

As shown in the preceding tables, Fentura has experienced a slight decline in noninterest income.  The declines in service charges on deposit accounts are a result of declines in NSF fees as well as a shift of customer demand toward deposit accounts with no or reduced service charges.  The declines in other income and fees was primarily the result of the net gain from BOLI death benefit being less in 2018 than 2017.  The remainder of the decline in other income and fees is spread across a variety of accounts.  Partially offsetting these declines were increases in ATM and debit card income, net gain on sales of loans, and trust and investment services.  Total noninterest income is expected to increase modestly over the remainder of 2018 and through 2019.

Noninterest Expenses

  Quarter to Date 
  9/30/18 6/30/18 3/31/18 12/31/17 9/30/17 
            
Noninterest expenses           
Compensation $  3,359  $  3,316  $  3,317  $  3,689  $  3,016  
Occupancy    379     417     427     379     424  
Furniture and equipment    486     441     463     372     589  
Loan and collection    135     139     129     202     98  
Advertising and promotional    177     219     124     166     133  
Telephone and communication    106     105     95     109     125  
Acquisition related    -      -      -      449     -   
Professional services    545     531     649     1,014     554  
Other general and administrative    888     881     1,075     1,020     642  
            
Total noninterest expenses $   6,075   $   6,049   $   6,279   $   7,400   $   5,581   
            


  Year to Date September 30 Variance
   2018   2017  $ %
         
Noninterest expenses        
Compensation $  9,992  $  8,748  $  1,244  14.22%
Occupancy    1,223     1,190     33  2.77%
Furniture and equipment    1,390     1,334     56  4.20%
Loan and collection    403     346     57  16.47%
Advertising and promotional    520     432     88  20.37%
Telephone and communication    306     324     (18) -5.56%
Acquisition related    -      197     (197) -100.00%
Professional services    1,725     1,519     206  13.56%
Other general and administrative    2,844     2,328     516  22.16%
         
Total noninterest expenses $   18,403   $   16,418   $   1,985   12.09%
         

While total noninterest expenses have leveled off in the past three quarters, they have increased during 2018 primarily as a result of the increase in size and complexity of Fentura.  Total noninterest expenses are expected to modestly increase in future periods.

Balance Sheet Breakdown and Analysis 

  9/30/18 6/30/18 3/31/18 12/31/17 9/30/17
           
ASSETS          
           
Cash and cash equivalents $  63,469  $  44,280  $  15,154  $  15,928  $  16,450 
Total securities    79,531     49,110     49,608     55,323     67,155 
Loans held for sale    2,021     4,936     4,980     2,067     4,835 
           
Gross loans    728,302     707,364     686,140     672,530     628,552 
Less allowance for loan losses    4,146     4,033     3,725     3,603     3,262 
Net loans    724,156     703,331     682,415     668,927     625,290 
All other assets  40,724   39,802   37,786   39,198   43,237 
           
Total assets $  909,901  $  841,459  $  789,943  $  781,443  $  756,967 
           
LIABILITIES AND
          
SHAREHOLDERS' EQUITY          
           
Total deposits $  766,587  $  702,035  $  683,775  $  673,505  $  625,588 
Total borrowed funds    74,000     74,000     44,600     46,000     68,000 
Accrued interest and other liabilities    2,974     2,346     947     2,491     6,218 
Total liabilities    843,561     778,381     729,322     721,996     699,806 
           
Total shareholders' equity    66,340     63,078     60,621     59,447     57,161 
Total liabilities and
  shareholders' equity
 $  909,901  $  841,459  $  789,943  $  781,443  $  756,967 
           
Selected Ratios          
Net loans to total deposits  94.46%  100.18%  99.80%  99.32%  99.95%
ALLL to gross loans  0.57%  0.57%  0.54%  0.54%  0.52%
Book value per share $  18.20  $  17.33  $  16.68  $  16.35  $  15.74 
Tangible book value per share $  16.91  $  16.00  $  15.31  $  14.95  $  14.24 
Total capital to risk weighted assets*  10.80%  10.70%  10.61%  10.46%  10.21%
Tier 1 capital to risk weighted assets*  10.22%  10.11%  10.06%  9.91%  9.70%
CET1 capital to risk weighted assets*  10.22%  10.11%  10.06%  9.91%  9.70%
Tier 1 capital to average assets*  8.48%  8.70%  8.65%  8.57%  8.62%
           
*The State Bank          
           
           
  9/30/2018 vs 6/31/2018   9/30/2018 vs 9/30/2017
  $ Variance % Variance   $ Variance % Variance
           
ASSETS          
           
Cash and cash equivalents $  19,189   43.34%   $  47,019   285.83%
Total securities    30,421   61.94%      12,376   18.43%
Loans held for sale    (2,915)  -59.06%      (2,814)  -58.20%
           
Gross loans    20,938   2.96%      99,750   15.87%
Less allowance for loan losses    113   2.80%      884   27.10%
Net loans    20,825   2.96%      98,866   15.81%
All other assets    922   2.32%      (2,513)  -5.81%
           
Total assets $  68,442   8.13%   $  152,934   20.20%
           
LIABILITIES AND
          
SHAREHOLDERS' EQUITY          
           
Total deposits $  64,552   9.19%   $  140,999   22.54%
Total borrowed funds    -    0.00%      6,000   8.82%
Accrued interest and other liabilities    628   26.77%      (3,244)  -52.17%
Total liabilities    65,180   8.37%      143,755   20.54%
           
Total shareholders' equity    3,262   5.17%      9,179   16.06%
Total liabilities and                  
shareholders' equity $  68,442   8.13%   $  152,934   20.20%
           
Selected Ratios          
Net loans to total deposits    -5.72%      -5.49%
ALLL to gross loans    0.00%      0.05%
Book value per share $  0.87   5.02%   $  2.46   5.53%
Tangible book value per share $  0.91   5.69%   $  2.67   6.39%
Total capital to risk weighted assets*    0.10%      0.59%
Tier 1 capital to risk weighted assets*    0.11%      0.52%
CET1 capital to risk weighted assets*    0.11%      0.52%
Tier 1 capital to average assets*    -0.22%      -0.14%
           

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

  9/30/18 6/30/18 3/31/18 12/31/17 9/30/17
Commercial real estate $351,739 $
344,658 $343,265 $333,463 $298,821
Residential real estate  274,035  257,776  237,677  234,190  228,143
Commercial  48,594  49,776  47,812  47,931  49,897
Home equity  41,136  41,736  42,879  41,318  39,861
Installment  12,798  13,418  14,507  15,628  11,830
                
Total loans $728,302 $707,364 $686,140 $672,530 $628,552


   9/30/2018 vs 6/30/2018
   9/30/2018 vs 9/30/2017
 
   $ Variance % Variance   $ Variance % Variance 
Commercial real estate $7,081 2.05% $52,918 17.71%
Residential real estate  16,259 6.31%  45,892 20.12%
Commercial  (1,182) -2.37%  (1,303) -2.61%
Home equity  (600) -1.44%  1,275 3.20%
Installment  (620) -4.62%  968 8.18%
             
Total loans $20,938 2.96% $99,750 15.87%

During the quarter, Fentura drove loan growth through actively pursuing prudent opportunities in existing market areas.  Most of the growth in the portfolio over the quarter continued to come in the form of residential real estate loans.

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

           
  9/30/18 6/30/18 3/31/18 12/31/17 9/30/17
Demand $  235,208  $  236,899  $  224,486 $  216,607  $  208,494 
Savings  221,028   218,512   227,987  224,558     229,471 
Money market demand  60,836   53,654   59,370  67,387     68,567 
NOW  8,952   6,346   2,984  2,253     3,565 
Time deposits  240,563   186,624   168,948  162,700     115,491 
           
Total deposits $   766,587   $   702,035   $   683,775  $   673,505   $   625,588  
           
           
  9/30/2018 vs 6/30/2018   9/30/2018 vs 9/30/2017
  $ Variance % Variance   $ Variance % Variance
Demand $  (1,691)  -0.71%   $  26,714   12.81%
Savings    2,516   1.15%      (8,443)  -3.68%
Money market demand    7,182   13.39%      (7,731)  -11.28%
NOW    2,606   41.07%      5,387   151.11%
Time deposits    53,939   28.90%      125,072   108.30%
           
Total deposits $   64,552    9.19%   $   140,999    22.54%
           

Total deposits, like loans, have grown both quarter over quarter and year over year.  Most of the growth in the third quarter of 2018 came in the form of time deposits.  The increase in time deposits was the direct result of an initiative to enhance our municipal deposits in local markets.  This strategy, as well as several other deposit growth initiatives, are expected to continue to help provide organic funding to meet loan demand in future periods.

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 a loan production office in Saginaw County. 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 or www.fentura.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

Fentura Financial Inc.

Source: Fentura Financial, Inc.