Fentura Financial, Inc. Announces First Quarter 2019 Earnings - Fentura Financial (OTC:FETM)

Dollars in thousands except per share amounts. Certain items in the prior period financial statements have been reclassified to conform with March 31, 2019 presentation.

FENTON, Mich., April 29, 2019 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. FETM announces continued strong earnings with net income of $2,514 for the three-month period ended March 31, 2019.

21.22% increase in net income over the first quarter of 2018
13.60% increase in net interest income since March 31, 2018
4.87% increase in gross loans since December 31, 2018
18.03% increase in gross loans since March 31, 2018
3.46% increase in total deposits since December 31, 2018
15.47% increase in total deposits since March 31, 2018

Ronald L. Justice, President and CEO said, "The momentum that we built in 2018 has continued into 2019. We have had four consecutive quarters of net interest income growth. I continue to be extremely proud of our team, the results that they continue to produce and the work that they do in the communities we serve."

Following are the Corporation's interim condensed consolidated balance sheets and interim condensed consolidated statements of income as well as a discussion and detailed analysis as of and for the quarter ended March 31, 2019. At the end of this document is a list of abbreviations and acronyms.

Interim Condensed Consolidated Balance Sheets (Unaudited)

	March 31, 2019		December 31, 2018
ASSETS
Cash and due from banks	$	16,509	$	19,412
Federal funds sold	—		4,000

Cash and cash equivalents	16,509		23,412

Securities, AFS	77,347		89,854
Securities, HTM	2,965		2,971
Equity securities	1,910		1,896

Total investment securities	82,222		94,721

Loans held for sale	1,835		903

Gross Loans	809,863		772,227
Less ALLL	4,745		4,488

Net loans	805,118		767,739

Premises and equipment, net	14,838		14,761
BOLI	10,070		10,007
MSR	3,414		3,406
Accrued interest receivable	3,298		3,020
Goodwill	3,219		3,219
FHLB stock	3,150		3,150
Core deposit intangibles	1,241		1,353
OREO	—		32
Other assets	1,258		727

Total assets	$	946,172	$	926,450

LIABILITIES AND SHAREHOLDERS' EQUITY

Noninterest-bearing deposits	$	237,213	$	233,954
Interest-bearing deposits	552,320		529,170

Total deposits	789,533		763,124

FHLB advances	40,000		55,000
Subordinated debentures	14,000		14,000
Federal funds purchased	5,000		—
Accrued interest and other liabilities	5,403		4,810

Total liabilities	853,936		836,934

Shareholders' equity
Common stock, no par value; 5,000,000 shares authorized, 4,648,965 issued and outstanding (4,636,455 in 2018)	79,982		79,863
Retained earnings	12,178		9,988
Accumulated other comprehensive income (loss)	76		(335		)

Total shareholders' equity	92,236		89,516

Total liabilities and shareholders' equity	$	946,172	$	926,450

Interim Condensed Consolidated Statements of Income (Unaudited)

	Three Months Ended March 31
	2019		2018
Interest and dividend income
Loans, including fees	$	9,741	$	8,038
Investments
Taxable	559		193
Tax-exempt	60		64
Cash and cash equivalents	25		23
FHLB Stock	52		61

Total interest and dividend income	10,437		8,379

Interest expense
Deposits	1,601		716
Borrowings	489		315

Total interest expense	2,090		1,031
Net interest income	8,347		7,348
Provision for loan losses	213		275
Net interest income, after provision for loan losses	8,134		7,073

Noninterest income
ATM and debit card income	360		354
Trust and investment services	328		383
Service charges on deposit accounts	234		259
Mortgage servicing fees	211		186
Net gain on sales of mortgage loans	195		215
Net gain on sales of commercial loans	—		150
Other income and fees	194		254

Total noninterest income	1,522		1,801

Noninterest expenses
Compensation	3,630		3,317
Professional services	723		649
Furniture and equipment	491		463
Occupancy	437		427
Advertising and promotional	163		124
Telephone and communication	111		95
Loan and collection	110		129
Other general and administrative	844		1,075

Total noninterest expenses	6,509		6,279
Income before federal income taxes	3,147		2,595
Federal income taxes	633		521
Net income	$	2,514	$	2,074

Earnings per share	$	0.54	$	0.57

Income Statement Breakdown and Analysis

	Quarter to Date
	3/31/2019			12/31/2018			9/30/2018			6/30/2018			3/31/2018
Interest and dividend income
Loans, including fees	$	9,741		$	9,132		$	8,768		$	8,433		$	8,038
Investments	696			799			543			296			341
Total interest and dividend income	10,437			9,931			9,311			8,729			8,379
Total interest expense	2,090			1,926			1,638			1,232			1,031
Net interest income	8,347			8,005			7,673			7,497			7,348
Provision for loan losses	213			290			191			301			275
Net interest income, after provision for loan losses	8,134			7,715			7,482			7,196			7,073
Total noninterest income	1,522			1,703			2,760			2,013			1,801
Total noninterest expenses	6,509			6,907			6,075			6,049			6,279
Income before federal income taxes	3,147			2,511			4,167			3,160			2,595
Federal income taxes	633			502			654			642			521
Net income	$	2,514		$	2,009		$	3,513		$	2,518		$	2,074

	Quarter to Date
	3/31/2019			12/31/2018			9/30/2018			6/30/2018			3/31/2018
Average Total Assets	$	934,078		$	917,242		$	866,253		$	805,794		$	789,391
Average Earning Assets	$	902,484		$	884,694		$	833,909		$	773,308		$	755,281
Average Interest Bearing Liabilities	$	604,973		$	592,878		$	565,908		$	514,012		$	505,174
Average Total Equity	$	91,964		$	80,781		$	65,541		$	62,333		$	60,107
Average Tangible Equity	$	84,025		$	72,742		$	57,419		$	54,254		$	51,962
Average earned shares outstanding	4,635,255			4,332,665			3,643,151			3,637,799			3,633,093
Average unvested stock grants	9,788			3,022			—			—			—
Average total shares outstanding	4,645,043			4,335,687			3,643,151			3,637,799			3,633,093

Based on GAAP net income
Return on Average Assets	1.08		%	0.88		%	1.62		%	1.25		%	1.05		%
Return on Average Equity	10.93		%	9.95		%	21.44		%	16.16		%	13.80		%
Return on Average Tangible Equity	11.97		%	11.05		%	24.47		%	18.56		%	15.97		%
Efficiency Ratio	65.95		%	71.15		%	58.23		%	63.61		%	68.63		%
Earnings Per Share	$	0.54		$	0.46		$	0.96		$	0.69		$	0.57
Yield on Earning Assets	4.63		%	4.49		%	4.47		%	4.52		%	4.44		%
Rate on Interest Bearing Liabilities	1.38		%	1.30		%	1.16		%	0.96		%	0.82		%
Net Interest Margin to Earning Assets	3.71		%	3.63		%	3.69		%	3.89		%	3.90		%

	Quarter to Date
	3/31/2019			12/31/2018			9/30/2018			6/30/2018			3/31/2018
GAAP net income	$	2,514		$	2,009		$	3,513		$	2,518		$	2,074
Provision for loan losses (net of tax)	168			229			151			238			217
Acquisition related items (net of tax)
Accretion on purchased loans	(175		)	(167		)	(116		)	(255		)	(250		)
Amortization of core deposit intangible	89			107			107			107			107
Amortization on acquired time deposits	7			9			9			9			9
Amortization on purchased MSRs	3			6			6			6			6
Total acquisition related items (net of tax)	(76		)	(45		)	6			(133		)	(128		)
One-time and other items (net of tax)
Net gain from BOLI death benefit	—			—			(933		)	—			—
Total one-time and other items (net of tax)	—			—			(933		)	—			—
Adjusted net income from operations	$	2,606		$	2,193		$	2,737		$	2,623		$	2,163

GAAP net interest income	$	8,347		$	8,005		$	7,673		$	7,497		$	7,348
Accretion on purchased loans	(222		)	(211		)	(147		)	(323		)	(317		)
Amortization on acquired time deposits	9			12			12			12			12
Adjusted net interest income	$	8,134		$	7,806		$	7,538		$	7,186		$	7,043

Based on adjusted net income from operations
Return on Average Assets	1.12		%	0.96		%	1.26		%	1.30		%	1.10		%
Return on Average Equity	11.33		%	10.86		%	16.70		%	16.83		%	14.39		%
Return on Average Tangible Equity	12.41		%	12.06		%	19.07		%	19.34		%	16.65		%
Efficiency Ratio	66.23		%	71.15		%	63.37		%	64.24		%	69.41		%
Earnings Per Share	$	0.56		$	0.51		$	0.75		$	0.72		$	0.60

Based on adjusted net interest income
Yield on Earning Assets	4.65		%	4.50		%	4.51		%	4.45		%	4.38		%
Rate on Interest Bearing Liabilities	1.39		%	1.31		%	1.17		%	0.97		%	0.83		%
Net Interest Margin to Earning Assets	3.70		%	3.62		%	3.71		%	3.80		%	3.83		%

	Year to Date March 31						Variance
	2019			2018			Amount			%
Interest and dividend income
Loans, including fees	$	9,741		$	8,038		$	1,703		21.19	%
Investments	696			341			355			104.11	%
Total interest and dividend income	10,437			8,379			2,058			24.56	%
Total interest expense	2,090			1,031			1,059			102.72	%
Net interest income	8,347			7,348			999			13.60	%
Provision for loan losses	213			275			(62		)	(22.55	)%
Net interest income, after provision for loan losses	8,134			7,073			1,061			15.00	%
Total noninterest income	1,522			1,801			(279		)	(15.49	)%
Total noninterest expenses	6,509			6,279			230			3.66	%
Income before federal income taxes	3,147			2,595			552			21.27	%
Federal income taxes	633			521			112			21.50	%
Net income	$	2,514		$	2,074		$	440		21.22	%

	Year to Date March 31						Variance
	2019			2018			Amount			%
Average Total Assets	$	934,078		$	789,391		$	144,687		18.33	%
Average Earning Assets	$	902,484		$	755,281		$	147,203		19.49	%
Average Interest Bearing Liabilities	$	604,973		$	505,174		$	99,799		19.76	%
Average Total Equity	$	91,964		$	60,107		$	31,857		53.00	%
Average Tangible Equity	$	84,025		$	51,962		$	32,063		61.70	%
Average earned shares outstanding	4,635,255			3,633,093			1,002,162			27.58	%
Average unvested stock grants	9,788			—			9,788			N/M
Average total shares outstanding	4,645,043			3,633,093			1,011,950			27.85	%

Based on GAAP net income
Return on Average Assets	1.08		%	1.05		%				0.03	%
Return on Average Equity	10.93		%	13.80		%				(2.87	)%
Return on Average Tangible Equity	11.97		%	15.97		%				(4	)%
Efficiency Ratio	54.43		%	61.68		%				(7.25	)%
Earnings Per Share	$	0.54		$	0.57		$	(0.03	)	(5.26	)%
Yield on Earning Assets	4.63		%	4.44		%				0.19	%
Rate on Interest Bearing Liabilities	1.38		%	0.82		%				0.56	%
Net Interest Margin to Earning Assets	3.71		%	3.90		%				(0.19	)%

	Year to Date March 31						Variance
	2019			2018			Amount			%
GAAP net income	$	2,514		$	2,074		$	440		21.22	%
Provision for loan losses (net of tax)	168			217			(49		)	(22.58	)%
Acquisition related items (net of tax)
Accretion on purchased loans	(175		)	(250		)	75			(30.00	)%
Amortization of core deposit intangible	89			107			(18		)	(16.82	)%
Amortization on acquired time deposits	7			9			(2		)	(22.22	)%
Amortization on purchased MSRs	3			6			(3		)	(50.00	)%
Total acquisition related items (net of tax)	(76		)	(128		)	52			(40.63	)%
One-time and other items (net of tax)
Net gain from BOLI death benefit	—			—			—			N/M
Total one-time and other items (net of tax)	—			—			—			N/M
Adjusted net income from operations	$	2,606		$	2,163		443			20.48	%

GAAP net interest income	$	8,347		$	7,348		$	999		13.60	%
Accretion on purchased loans	(222		)	(317		)	95			(29.97	)%
Amortization on acquired time deposits	9			12			(3		)	(25.00	)%
Adjusted net interest income	$	8,134		$	7,043		$	1,091		15.49	%

Based on adjusted net income from operations
Return on Average Assets	1.12		%	1.10		%				0.02	%
Return on Average Equity	11.33		%	14.39		%				(3.06	)%
Return on Average Tangible Equity	12.41		%	16.65		%				(4.24	)%
Efficiency Ratio	66.23		%	69.41		%				(3.18	)%
Earnings Per Share	$	0.56		$	0.60		$	(0.04	)	(6.67	)%

Based on adjusted net interest income
Yield on Earning Assets	4.65		%	4.38		%				0.27	%
Rate on Interest Bearing Liabilities	1.39		%	0.83		%				0.56	%
Net Interest Margin to Earning Assets	3.70		%	3.83		%				(0.13	)%

To effectively compare core operating results from period to period, the impact of the provision for loan losses and acquisition related 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. The Corporation's net interest income and adjusted net interest income have grown in each of the last four quarters.

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 healthy interest margins. Through 2019, the Corporation expects to see a continued increase in net interest income. This increase will primarily be driven by loan growth. The Corporation expects net interest margin to earning assets to decrease as the rates paid on interest bearing liabilities are expected to increase faster than those earned on interest earning assets. The Corporation's strategy of continuing growth in non-maturity deposits will help to flatten the growth in rates paid on interest bearing liabilities.

Noninterest Income

	Quarter to Date
	3/31/2019		12/31/2018		9/30/2018		6/30/2018		3/31/2018
ATM and debit card income	$	360	$	397	$	386	$	388	$	354
Trust and investment services	328		372		444		392		383
Service charges on deposit accounts	234		259		273		253		259
Mortgage servicing fees	211		208		199		192		186
Net gain on sales of mortgage loans	195		162		277		187		215
Net gain on sales of commercial loans	—		—		—		368		150
Other income and fees	194		305		1,181		233		254
Total noninterest income	$	1,522	$	1,703	$	2,760	$	2,013	$	1,801

	Year to Date March 31				Variance
	2019		2018		Amount			%
ATM and debit card income	$	360	$	354	$	6		1.69	%
Trust and investment services	328		383		(55		)	(14.36	)%
Service charges on deposit accounts	234		259		(25		)	(9.65	)%
Mortgage servicing fees	211		186		25			13.44	%
Net gain on sales of mortgage loans	195		215		(20		)	(9.30	)%
Net gain on sales of commercial loans	—		150		(150		)	(100.00	)%
Other income and fees	194		254		(60		)	(23.62	)%
Total noninterest income	$	1,522	$	1,801	$	(279	)	(15.49	)%

ATM and debit card income are fees earned on ATM and debit card transactions. The Corporation expects these fees to increase modestly throughout 2019.

Trust and investment services include income the Corporation earns from its contracts with customers to manage assets for investment, and/or to transact on their accounts. The wealth management component is strongly correlated to changes in the stock market and as such, can vary from period to period. Trust and investment services income is expected to increase throughout 2019.

Service charges on deposit accounts include fees earned from the Corporation's deposit customers for transaction-based, account maintenance and overdraft services. The decrease in service charges on deposit accounts is a result of declines in NSF fees as well as a shift of customer demand toward deposit accounts with no or reduced service charges. Service charges on deposit accounts are expected to approximate current levels throughout the remainder of the year.

Mortgage servicing fees include the fees that the Corporation earns for servicing loans that have been sold into the secondary market. The increase in mortgage servicing fees is directly related to the increases in the size of the serviced portfolio. Mortgage servicing fees are expected to continue to increase throughout the year as mortgage demand remains strong.

Net gain on sales of mortgage loans represents the income earned on the sale of residential mortgage loans into the secondary market. The first three months of the year are typically the lowest in terms of mortgage activity. In the first quarter of 2018, the Corporation sold a pool of residential mortgages that was previously held in its loan portfolio which generated a gain of $47. Excluding the impact of this sale, net gains from the sales of mortgage loans increased by $27 when the first three months of 2019 are compared to the same period in 2019 and this trend is expected to continue throughout the remainder of the year.

Net gain on sales of commercial loans includes the income earned on the sale of commercial loans into the secondary market. There were no sales for the three months ending March 31, 2019. The Corporation continues to analyze the portfolio for opportunities and will sell commercial loans into the secondary market when deemed financially beneficial.

Other income and fees include rental income, net originated MSR, and the increase in the cash surrender value of BOLI, among other miscellaneous income items. The 23.62% decrease in other income and fees is largely due to a decline in MSR income. Other income and fees are expected to increase modestly throughout the remainder of the year.

Noninterest Expenses

	Quarter to Date
	3/31/2019		12/31/2018		9/30/2018		6/30/2018		3/31/2018
Compensation	$	3,630	$	3,429	$	3,359	$	3,316	$	3,317
Professional services	723		1,030		545		531		649
Furniture and equipment	491		508		486		441		463
Occupancy	437		416		379		417		427
Advertising and promotional	163		198		177		219		124
Telephone and communication	111		107		106		105		95
Loan and collection	110		134		135		139		129
Other general and administrative	844		1,085		888		881		1,075
Total noninterest expenses	$	6,509	$	6,907	$	6,075	$	6,049	$	6,279

	Year to Date March 31				Variance
	2019		2018		Amount			%
Compensation	$	3,630	$	3,317	$	313		9.44	%
Professional services	723		649		74			11.40	%
Furniture and equipment	491		463		28			6.05	%
Occupancy	437		427		10			2.34	%
Advertising and promotional	163		124		39			31.45	%
Telephone and communication	111		95		16			16.84	%
Loan and collection	110		129		(19		)	(14.73	)%
Other general and administrative	844		1,075		(231		)	(21.49	)%
Total noninterest expenses	$	6,509	$	6,279	$	230		3.66	%

Compensation includes all compensation and benefits paid to the Corporation's employees. Compensation has increased, and is expected to continue to increase, due to the continued growth in size and complexity of the organization.

Professional services include expenses relating to third-party professional services. These services include, but are not limited to, data processing, regulatory, auditing, consulting, and legal. These fees, much like compensation related expenses, are attributable to the growing size and complexity of the Corporation. The increase is largely attributable to increases in audit and accounting expenses and other outside services. These expenses are expected to approximate their current levels for the remainder of the year.

Furniture and equipment and occupancy expenses primarily consist of depreciation, repairs and maintenance, property taxes, utilities, insurance, and other related items. These expenses are expected to approximate current levels throughout the remainder of the year.

Advertising and promotional includes the Corporation's media costs and any donations or sponsorships made on behalf of the Corporation. The increase in expenses is a direct result of the Corporation enhancing its marketing to attract new and expand existing customer loans and deposit accounts. These expenses are expected to approximate current levels throughout the remainder of the year.

Telephone and communication include expenses relating to the Corporation's communication systems. These expenses have also increased due to the growth in size and complexity of the organization and are expected to approximate current levels for the remainder of the year.

Loan and collection include expenses related to the origination and collection of loans, as well as expenses related to OREO. The Corporation does not expect any significant fluctuations in 2019.

Other general and administrative includes the amortization of core deposit intangibles, FDIC assessment, ATM & debit card expenses, miscellaneous office supplies, among other miscellaneous expense items. These expenses are expected to approximate current levels for the reminder of the year.

Average Balances, Interest Rate, and Net Interest Income

The following table present the daily average amount outstanding for each major category of interest earning assets, non-earning assets, interest bearing liabilities, and noninterest bearing liabilities. These tables also present an analysis of interest income and interest expense for the periods indicated. All interest income is reported on a FTE basis using a federal income tax rate of 21%. Loans in nonaccrual status, for the purpose of the following computations, are included in the average loan balances.

	Three Months Ended
	March 31, 2019							December 31, 2018							March 31, 2018
	Average Balance			Tax Equivalent Interest		Average Yield / Rate		Average Balance			Tax Equivalent Interest		Average Yield / Rate		Average Balance			Tax Equivalent Interest		Average Yield / Rate
Interest earning assets
Total loans	$	791,069		$	9,741	4.99	%	$	746,934		$	9,132	4.85	%	$	678,591		$	8,038	4.80	%
Taxable investment securities ⁽¹⁾	79,367			559		2.86	%	78,496			541		2.73	%	39,443			193		1.98	%
Nontaxable investment securities	10,582			76		2.91	%	10,732			76		2.81	%	12,978			81		2.53	%
Federal funds sold	43			—		—	%	25,269			141		2.21	%	3,775			14		1.50	%
Cash	18,273			25		0.55	%	20,113			19		0.37	%	17,569			9		0.21	%
Federal Home Loan Bank stock	3,150			52		6.69	%	3,150			38		4.79	%	2,925			61		8.46	%
Total earning assets	902,484			10,453		4.70	%	884,694			9,947		4.46	%	755,281			8,396		4.51	%

Non-earning assets
ALLL	(4,591		)					(4,215		)					(3,645		)
Fixed assets	14,818							14,874							14,582
Accrued income and other assets	21,367							21,889							23,173
Total assets	$	934,078						$	917,242						$	789,391

Interest bearing liabilities
Interest bearing demand deposits	$	73,414		$	84	0.46	%	$	64,805		$	53	0.32	%	$	64,724		$	22	0.14	%
Savings deposits	241,815			297		0.50	%	237,486			215		0.36	%	243,706			123		0.20	%
Time deposits	225,866			1,220		2.19	%	228,953			1,204		2.09	%	149,397			571		1.55	%
Borrowed funds	63,878			489		3.10	%	61,634			454		2.92	%	47,347			315		2.70	%
Total interest bearing liabilities	604,973			2,090		1.40	%	592,878			1,926		1.30	%	505,174			1,031		0.83	%

Noninterest bearing liabilities
Noninterest bearing deposits	234,268							240,253							221,255
Accrued interest and other liabilities	2,873							3,330							2,855
Shareholders' equity	91,964							80,781							60,107
Total liabilities and shareholders' equity	$	934,078						$	917,242						$	789,391
Net interest income (FTE)				$	8,363						$	8,021						$	7,365
Net yield on interest earning assets (FTE)						3.76	%						3.60	%						3.95	%

⁽¹⁾ Includes taxable AFS securities and equity securities.

Volume and Rate Variance Analysis

The following table sets forth the effect of volume and rate changes on interest income and expense for the periods indicated. For the purpose of this table, changes in interest due to volume and rate were determined as follows:

Volume - change in volume multiplied by the previous period's rate.
Rate - change in the FTE rate multiplied by the previous period's volume.

The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.

	Three Months Ended									Three Months Ended
	March 31, 2019									March 31, 2019
	Compared To									Compared To
	December 31, 2018									March 31, 2018
	Increase (Decrease) Due to									Increase (Decrease) Due to
	Volume			Rate			Net			Volume			Rate			Net
Changes in interest income
Total Loans	$	534		$	75		$	609		$	1,356		$	347		$	1,703
Taxable Investment Securities	8			10			18			257			109			366
Nontaxable Investment Securities	(1		)	1			—			(38		)	33			(5		)
Fed Funds Sold	(70		)	(71		)	(141		)	(7		)	(7		)	(14		)
Cash	(1		)	7			6			—			16			16
FHLB Stock	—			14			14			6			(15		)	(9		)
Total changes in interest income	470			36			506			1,574			483			2,057

Changes in interest expense
Interest Bearing Demand Deposits	8			23			31			3			59			62
Savings Deposits	4			78			82			(1		)	175			174
Time Deposits	(37		)	53			16			356			293			649
Borrowed Funds	17			18			35			122			52			174
Total changes in interest expense	(8		)	172			164			480			579			1,059
Net change in net interest income (FTE)	$	478		$	(136	)	$	342		$	1,094		$	(96	)	$	998

	Average Yield/Rate for the Three Month Periods Ended:
	3/31/2019		12/31/2018		9/30/2018		6/30/2018		3/31/2018
Total earning assets	4.70	%	4.46	%	4.44	%	4.54	%	4.51	%
Total interest bearing liabilities	1.40	%	1.30	%	1.15	%	0.96	%	0.83	%
Net yield on interest earning assets (FTE)	3.76	%	3.60	%	3.66	%	3.90	%	3.95	%

	Quarter to Date Net Interest Income (FTE)
	3/31/2019		12/31/2018		9/30/2018		6/30/2018		3/31/2018
Total interest income (FTE)	10,453		9,947		9,327		8,744		8,396
Total interest expense	2,090		1,926		1,638		1,232		1,031
Net interest income (FTE)	$	8,363	$	8,021	$	7,689	$	7,512	$	7,365

As outlined in the previous tables, the Corporation has increased net interest income primarily through increases in volume. Despite recent increases in funding costs, the Corporation has been able to increase the net yield on interest earning assets for the three month period ended March 31, 2019 through increases in yields on loans. Net interest margins are expected to approximate current levels for the remainder of the year.
Balance Sheet Breakdown and Analysis

	3/31/2019			12/31/2018			9/30/2018			6/30/2018			3/31/2018
ASSETS
Cash and cash equivalents	$	16,509		$	23,412		$	63,469		$	44,280		$	15,154
Total investment securities	82,222			94,721			79,531			49,110			49,608
Loans held for sale	1,835			903			2,021			4,936			4,980
Gross Loans	809,863			772,227			728,302			707,364			686,140
Less ALLL	4,745			4,488			4,146			4,033			3,725
Net loans	805,118			767,739			724,156			703,331			682,415
All other assets	40,488			39,675			40,724			39,802			37,786
Total assets	$	946,172		$	926,450		$	909,901		$	841,459		$	789,943

LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits	$	789,533		$	763,124		$	766,587		$	702,035		$	683,775
Total borrowed funds	59,000			69,000			74,000			74,000			44,600
Accrued interest and other liabilities	5,403			4,810			2,974			2,346			947
Total liabilities	853,936			836,934			843,561			778,381			729,322

Total shareholders' equity	92,236			89,516			66,340			63,078			60,621
Total liabilities and shareholders' equity	$	946,172		$	926,450		$	909,901		$	841,459		$	789,943

Ending number of shares outstanding	4,647,978			4,636,455			3,645,402			3,640,060			3,635,098

Selected Ratios
Net loans to total deposits	101.97		%	100.60		%	94.46		%	100.18		%	99.80		%
ALLL to gross loans	0.59		%	0.58		%	0.57		%	0.57		%	0.54		%
Book value per share	$	19.84		$	19.31		$	18.20		$	17.33		$	16.68
Tangible book value per share	$	19.58		$	19.01		$	17.75		$	16.86		$	16.17
Total capital to risk weighted assets*	12.85		%	12.76		%	10.80		%	10.70		%	10.61		%
Tier 1 capital to risk weighted assets*	12.23		%	12.15		%	10.22		%	10.11		%	10.06		%
CET1 capital to risk weighted assets*	12.23		%	12.15		%	10.22		%	10.11		%	10.06		%
Tier 1 capital to average assets*	10.05		%	9.90		%	8.48		%	8.70		%	8.65		%

*The State Bank

	Variance
	3/31/2019 vs 12/31/2018					3/31/2019 vs 3/31/2018
	Amount			%		Amount			%
ASSETS
Cash and cash equivalents	$	(6,903	)	(29.48	)%	$	1,355		8.94	%
Total investment securities	(12,499		)	(13.20	)%	32,614			65.74	%
Loans held for sale	932			103.21	%	(3,145		)	(63.15	)%
Gross Loans	37,636			4.87	%	123,723			18.03	%
Less ALLL	257			5.73	%	1,020			27.38	%
Net loans	37,379			4.87	%	122,703			17.98	%
All other assets	813			2.05	%	2,702			7.15	%
Total assets	$	19,722		2.13	%	$	156,229		19.78	%

LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits	$	26,409		3.46	%	$	105,758		15.47	%
Total borrowed funds	(10,000		)	(14.49	)%	14,400			32.29	%
Accrued interest and other liabilities	593			12.33	%	4,456			470.54	%
Total liabilities	17,002			2.03	%	124,614			17.09	%

Total shareholders' equity	2,720			3.04	%	31,615			52.15	%
Total liabilities and shareholders' equity	$	19,722		2.13	%	$	156,229		19.78	%

Ending number of shares outstanding	11,523			0.25	%	1,012,880			27.86	%

Selected Ratios
Net loans to total deposits				1.37	%				2.17	%
ALLL to gross loans				0.01	%				0.05	%
Book value per share	$	0.53		2.74	%	$	3.16		18.94	%
Tangible book value per share	$	0.57		3.00	%	$	3.41		21.09	%
Total capital to risk weighted assets*				0.09	%				2.24	%
Tier 1 capital to risk weighted assets*				0.08	%				2.17	%
CET1 capital to risk weighted assets*				0.08	%				2.17	%
Tier 1 capital to average assets*				0.15	%				1.40	%

*The State Bank

Cash and cash equivalents

Cash and cash equivalents fluctuate from period to period based on loan demand and variances in deposit accounts. Cash and cash equivalents are expected to approximate current levels for the foreseeable future.

Total investment securities

During 2018, the Corporation increased total investment securities due to advantageous pricing opportunities. However, since late 2018, yields on bonds that meet the Corporation's investment standards have declined significantly. As such, the Corporation has not replaced maturing investments. Total investment securities are expected to approximate current levels or decline slightly over the remainder of 2019.

Loans held for sale

Loans held for sale represent the balance of loans that have been committed to be sold to the secondary market, but have not yet been delivered. Loans held for sale are expected to approximate current levels for the foreseeable future.

Net loans

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

	3/31/2019			12/31/2018			9/30/2018		6/30/2018			3/31/2018
Commercial real estate	$	394,462		$	369,043		$	351,739	$	344,658		$	343,265
Residential real estate	306,466			293,271			274,035		257,776			237,677
Commercial	56,790			56,583			48,594		49,776			47,812
Home equity	43,130			43,597			41,136		41,736			42,879
Installment	9,015			9,733			12,798		13,418			14,507
Gross loans	$	809,863		$	772,227		$	728,302	$	707,364		$	686,140

	3/31/2019 vs 12/31/2018								3/31/2019 vs 3/31/2018
	Variance								Variance
	Amount			%					Amount			%
Commercial real estate	$	25,419		6.89		%			$	51,197		14.91		%
Residential real estate	13,195			4.50		%			68,789			28.94		%
Commercial	207			0.37		%			8,978			18.78		%
Home equity	(467		)	(1.07		)%			251			0.59		%
Installment	(718		)	(7.38		)%			(5,492		)	(37.86		)%
Gross loans	$	37,636		4.87		%			$	123,723		18.03		%

The following table summarizes the Corporation's current, past due, and nonaccrual loans as of:

	3/31/2019		12/31/2018		9/30/2018		6/30/2018		3/31/2018
Accruing interest
Current	$	807,671	$	769,799	$	725,954	$	705,331	$	683,753
Past due 30-89 days	1,009		1,325		1,689		1,052		1,720
Past due 90 days or more	310		191		150		726		558
Total accruing interest	808,990		771,315		727,793		707,109		686,031
Nonaccrual	873		912		509		255		109
Total loans	$	809,863	$	772,227	$	728,302	$	707,364	$	686,140
Total loans past due and in nonaccrual status	$	2,192	$	2,428	$	2,348	$	2,033	$	2,387

The following table summarizes the Corporation's nonperforming assets as of:

	3/31/2019		12/31/2018		9/30/2018		6/30/2018		3/31/2018
Nonaccrual loans	$	873	$	912	$	509	$	255	$	109
Accruing loans past due 90 days or more	310		191		150		726		558
Total nonperforming loans	1,183		1,103		659		981		667
OREO	—		32		143		92		92
Total nonperforming assets	$	1,183	$	1,135	$	802	$	1,073	$	759

The following table summarizes the Corporation's primary asset quality measures as of:

	3/31/2019		12/31/2018		9/30/2018		6/30/2018		3/31/2018
Nonperforming loans to gross loans	0.15	%	0.14	%	0.09	%	0.14	%	0.10	%
Nonperforming assets to total assets	0.13	%	0.12	%	0.09	%	0.13	%	0.10	%
ALLL to gross loans	0.59	%	0.58	%	0.57	%	0.57	%	0.54	%

As outlined in the preceding tables, the Corporation has been successful in growing its loan portfolio over the past 12 months with most of the growth coming in the form of commercial real estate and residential real estate loans. Despite the above peer growth, the Corporation has not relaxed its underwriting standards as evidenced by the low level of nonperforming loans. This comparatively low level of non performing loans has also resulted in an ALLL to gross loans at a level below many of the Corporation's peers. While the Corporation's ALLL to gross loans is below its peers, it is important to keep in mind that the the ALLL does not include the net unamortized discount on purchased loans as it is a component of gross loans.

The following table summarizes the balance of net unamortized discounts on purchased loans as of:

	3/31/2019	12/31/2018	9/30/2018	6/30/2018	3/31/2018
Net unamortized discount on purchased loans	2,095	2,317	2,529	2,675	2,997

All other assets

All other assets is comprised of premises and equipment, bank owned life insurance, mortgage servicing rights, goodwill, FHLB stock, accrued interest receivable, core deposit intangibles, other real estate owned, and other miscellaneous assets. All other assets is expected to increase commensurate with the overall growth of the Corporation.

Total deposits

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

	3/31/19			12/31/18			9/30/18		6/30/18		3/31/18
Time deposits	$	243,570		$	233,839		$	240,563	$	186,624	$	168,948
Demand	235,305			233,954			235,208		236,899		224,486
Savings	230,006			223,728			221,028		218,512		227,987
Money market demand	61,294			61,369			60,836		53,654		59,370
NOW	19,358			10,234			8,952		6,346		2,984
Total deposits	$	789,533		$	763,124		$	766,587	$	702,035	$	683,775

	3/31/2019 vs 12/31/2018								3/31/2019 vs 3/31/2018
	Variance								Variance
	Amount			%					Amount		%
Time deposits	$	9,731		4.16		%			$	74,622	44.17		%
Demand	1,351			0.58		%			10,819		4.82		%
Savings	6,278			2.81		%			2,019		0.89		%
Money market demand	(75		)	(0.12		)%			1,924		3.24		%
NOW	9,124			89.15		%			16,374		548.73		%
Total deposits	$	26,409		3.46		%			$	105,758	15.47		%

The Corporation continues its trend of surpassing its peers in terms of deposit growth. This growth was the direct result of an initiative to enhance municipal deposits in local markets. In addition to time deposits, the Corporation has also been able to drive meaningful increases in demand and NOW accounts through enhanced organic growth strategies. The Corporation expects that deposit growth will continue to be strong with the majority of the growth coming in the form of time deposits.

Total borrowed funds

Borrowed funds include FHLB advances, subordinated debt, and federal funds purchased. While the Corporation increased its reliance on borrowed funds in 2018 to fund its strong loan demand, borrowed funds have declined in the last two quarters as the Corporation has been able to substantially increase deposits. Borrowed funds are expected to approximate current levels for the remainder of 2019.

Total shareholders' equity

Shareholders' equity includes common stock, retained earnings, and accumulated other comprehensive income. During the fourth quarter of 2018, the Corporation increased its capital position through a private placement of common stock to both retail and accredited individual investors. The private placement generated net proceeds of $20,500. These proceeds were used to fund the Corporation's strong organic growth, opportunistic strategic growth, and enhance its capital position. The balance of growth in retained earnings was the result of the Corporation's strong earnings. Shareholders' equity is expected to continue to grow throughout 2019 through the Corporation's earnings and as no significant changes in dividend strategy are anticipated.

Total Shareholder Return

	3/31/2019			12/31/2018			9/30/2018			6/30/2018			3/31/2018
Closing Stock Price	$	20.89		$	21.00		$	21.15		$	21.10		$	19.75
QTD Cash Dividends Per Share	$	0.07		$	0.06		$	0.06		$	0.06		$	0.06

	FETM QTD Total Return to Shareholders (Annualized)
	3/31/2019			12/31/2018			9/30/2018			6/30/2018			3/31/2018
Increase (Decrease) in Price	(2.10		)%	(2.84		)%	0.95		%	27.34		%	18.43		%
Cash Dividends	1.33		%	1.13		%	1.14		%	1.22		%	1.27		%
Total Return	(0.77		)%	(1.71		)%	2.09		%	28.56		%	19.70		%

The Corporation's closing stock price increased 5.77% from March 31, 2018 to March 31, 2019. The stock outperformed the ABA NASDAQ Community Bank Index XX as that index price decreased 12.07% over the same time period. The ABA NASDAQ Community Bank Index includes banks and thrifts or their holding companies listed on The NASDAQ Stock Market as selected by the ABA.

Abbreviations and Acronyms

ABA: American Bankers Association	GAAP: Generally Accepted Accounting Principles
ALLL: Allowance for loan and lease losses	HFS: Held-for-sale
AFS: Available-for-sale	HTM: Held-to-maturity
AOCI: Accumulated other comprehensive income	IRA: Individual retirement account
ASC: Accounting Standards Codification	MSR: Mortgage servicing rights
ASU: Accounting Standards Update	NASDAQ: National Association of Securities Dealers Automated Quotations
ATM: Automated teller machine	N/M: Not meaningful
BOLI: Bank owned life insurance	NOW: Negotiable order of withdrawal
CET1: Common equity tier 1	NSF: Non-sufficient funds
FDIC: Federal Deposit Insurance Corporation	OREO: Other real estate owned
FHLB: Federal Home Loan Bank	QTD: Quarter to date
FTE: Fully taxable equivalent	SBA: Small Business Association

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 and 2018 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 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   Aaron D. Wirsing
                                President & CEO                               Chief Financial Officer
                                Fentura Financial, Inc.   Fentura Financial, Inc.
                                810.714.3902   810.714.3925
                                ronj@thestatebank.com aaronw@thestatebank.com

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