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Fentura Financial, Inc Announces First Quarter 2017 Results

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FENTON, Mich., May 08, 2017 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. reported the most profitable quarter since the economic downturn, showing net income for the three months ended March 31, 2017 of $1.4 million compared to earnings of $920,000 reported for the first quarter of 2016. On a pre-tax, pre-provision basis net income was $2.0 million in the current quarter compared to $1.4 million in the prior year.

  • Net Income before tax, provision for loan loss and acquisition expenses showed a 42.0% increase over prior year
  • Total assets increased to the highest level ever recorded at $730 million
  • Commercial loan growth continues to show steady growth
  • Book value per share increased 10.2% over prior year
  • Continued strong credit quality with net recoveries for the 7th consecutive quarter and 9 of the last 10

Ronald L. Justice, President and CEO said, "I am pleased to report another quarter of solid results. These results are very encouraging particularly since we are deep in the process of integrating the former Community State Bank customers into The State Bank's system and environment. In that regard we have achieved the majority of the cost savings that we had projected and continue to progress well towards full integration. We continue to be very excited about the future growth prospects in our new and legacy markets."

Balance Sheet

Total assets increased $27.2 million or 3.9% from December 31, 2016, ending the quarter at $730.7 million.  Cash and due from banks totals, including Federal Funds sold, decreased 14.1%, to $67.3 million at March 31, 2017 compared to the $78.3 million reported at December 31, 2016.  This decrease was primarily attributable to the redeployment of cash into higher earning assets, including the purchase of a pool of diversified installment loans at the end of the quarter. Loan balances increased $33.9 million or 6.5%, to $554.9 million at March 31, 2017 compared to December 31, 2016.  Absent the aforementioned pool, the portfolio continued its recent trajectory showing an annualized growth rate of 18.3%.  All three portfolios showed growth during the quarter, though absent the pool purchase, consumer loans would have been flat. Year over year, loans increased $168.3 million or 43.5% when compared to March 31, 2016.  When the impact of acquiring Community State Bank's portfolio and the aforementioned pool purchase are excluded, the portfolio still grew a robust $73.7 million, or 19.1%. The organic growth in the portfolio was primarily the result of continuing to utilize innovative products and expand customer outreach efforts in current market areas.  The growth in mortgage loans continues to be fueled by strong demand within the bank's primary markets for existing homes and the expansion of single-note close construction loans to homeowners.

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

  3/31/2017   12/31/2016   9/30/2016   6/30/2016   3/31/2016
Residential Real Estate Loans 192,373   180,685   118,961   111,272   106,176
Commercial Real Estate Loans 235,924   233,358   172,849   169,782   166,577
Consumer Loans 47,379   38,186   38,379   36,936   32,092
Commercial Loans 79,119   67,414   51,285   47,748   54,228
  554,795   519,644   381,474   365,738   359,073
                   

Deposit totals of $630.1 million grew 4.4%, or $26.7 million from the $603.4 million reported at December 31, 2016.  Both interest bearing and non-interest bearing non-maturity deposit accounts showed growth, while time deposits shrank during the quarter.  Obviously, the acquisition added significantly to the deposit portfolio, though even excluding that impact, total deposits grew approximately 22.0% over the prior year. We continue to have success in acquiring new municipal cash relationships. While a portion of these accounts can tend to be relatively volatile, no indications have been made that the balances will see material decreases in the near term. We are very comfortable with the Bank's liquidity position both on and off-balance sheet. Additionally, commercial deposit account growth continues to be strong.

Capital

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 March 31, 2017 and December 31, 2016.   The decline in the ratios quarter over quarter is primarily due to the inclusion of the acquired assets in the denominator of the calculation, stronger than anticipated asset growth, and an upstream dividend to the Holding Company, the majority of which is still held there in reserve.  

    March 31,   December 31,   Regulatory
    2017   2016   Well Capitalized
Tier 1 Leverage Capital Ratio   7.70 %   9.76 %   5.00 %
Tier 1 Risk-Based Capital Ratio   10.00     11.10     8.00  
Total Risk-Based Capital Ratio   10.53     12.01     10.00  
                   

Credit Quality

As seen in recent periods, the Company continued to show solid credit quality during the 1st quarter of 2017.   The delinquency numbers when compared to 2016 rose due to the acquired portfolio, though the legacy portfolio once again had zero delinquencies as shown last quarter. At March 31, 2017 loan delinquencies to total loans were 0.57% compared to 0.14% at March 31, 2016. Total delinquencies at December 31, 2016 were 0.75% inclusive of the acquired portfolio.   Substandard assets totaled $2.0 million at March 31, 2017, compared to $2.3 million at December 31, 2016. The decline in both of these metrics reflects the implementation of collection processes and procedures for Community State Bank that are consistent with The State Bank.  The overall Allowance for Loan Losses of $2.9 million or .52% of Gross Loans is reflective of the historical performance of The State Bank's loan portfolio and does not reflect the performance of the acquired portfolio. Pursuant to purchase accounting standards the Community State Bank loans were marked to market at the acquisition date of December 31, 2016.  The allowance for loan losses is calculated on a quarterly basis and at the end of the current quarter the Company believes that the allowance for loan loss is adequate to absorb losses inherent in the portfolio.  Continued improvement in credit quality metrics outpacing loan growth could result in further releases of previously provided reserves for loan losses, as seen in the fourth quarter of 2016.

Net Interest Income

Net interest income of $5.7 million for the quarter ended March 31, 2017 increased significantly when compared to the $4.3 million reported in the fourth quarter of 2016 and improved by $1.8 million, or 45.0% relative to the $3.4 million reported in the first quarter of 2016.  Virtually all of the increase is due to the increased volume of earning assets as rates have only seen slight increases very recently and haven't been fully absorbed in the portfolio.  Also contributing to the increase in income was the accretion of the loan mark taken on the loans acquired from Community State Bank, which totaled approximately $250,000 for the quarter. While the portfolios showed increases as noted above over the prior quarter, the net interest margin declined 8 basis points, largely due to the mix of assets and funding sources carried on the balance sheet. Additionally, the rate environment in the marketplace for loans has remained very competitive and thus constrains our ability to charge higher rates.

Noninterest Income

Noninterest income was $1.3 million for the quarter ended March 31, 2017 compared to $1.8 million for the fourth quarter of 2016 and $1.5 million for the first quarter of 2016.  The primary source of the decline is due to decreased income from mortgage banking activities. A conscious decision was made during the quarter to hold some of these loans rather than sell them in order to maximize the efficiency of interest income and utilize a portion of the liquidity derived from the Community State Bank acquisition This decrease was offset in the year to date period by increases in service charges on deposit accounts and other non-interest income.  Other non-interest income, however, contributed to the decline in the comparison to the prior quarter.

Noninterest Expense

The Company recorded $5.1 million of noninterest expense in the quarter ended March 31, 2017, a decrease of $100,000, or 1.9% over the level reported in the fourth quarter of 2016 and increased $1.0 million or 25.0% over the $4.1 million reported in the first quarter of 2016.  On a year over year basis, all categories with the exception of loan and collection expenses showed increases, primarily due to additional costs of acquiring Community State Bank. Quarter over quarter, the large decrease in merger related expenses was offset by increases in occupancy and equipment and other operating expenses. The increase in other operating expenses included approximately $150,000 of amortization of the core deposit intangible asset created upon acquisition of Community State Bank's deposit portfolio. Salary and benefits expense increased year over year based on general annual salary increases, the rising costs of providing medical benefits, the return to historical levels of the Company's 401K match, as well as the addition of the Community State Bank team.

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 for 2015 on that exchange.

The State Bank is a full-service, 5-Star Bauer Financial rated commercial, retail and trust bank headquartered in Fenton, Michigan. It has assets of approximately $730 million. It currently operates fifteen full-service branches located in Genesee, Livingston, Oakland, Saginaw and Shiawassee Counties and loan production offices in Washtenaw and Saginaw Counties. The State Bank's commercial department provides a complete array of products including lines of credit, term loans, commercial mortgages, SBA loans and a full-suite of cash management products. The retail department offers personal checking, savings, time and IRA deposit accounts and all types of loan products including home equity, auto and personal loans. The residential loan department offers construction, purchase and refinance residential mortgage loans. The wealth management department offers a full-service suite of trust and portfolio management services. The aim of The State Bank is to become and remain "Your Financial Partner for Life." More information can be found at 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.

 

           
  17-Mar   16-Dec   16-Sep   16-Jun   16-Mar  
  Unaudited         Unaudited   Unaudited   Unaudited  
Balance Sheet Highlights                  
Cash and due from banks $ 43,547   $ 78,313   $ 47,229   $ 35,037   $ 27,734  
Fed funds sold   23,800     0     0     0     0  
Investment securities   74,641     73,902     23,283     24,378     23,440  
Commercial loans   337,855     325,275     244,211     235,957     239,409  
Consumer loans   47,998     37,618     32,009     31,388     28,790  
Mortgage loans   169,089     158,107     137,403     129,220     118,486  
Gross loans   554,942     521,000     413,623     396,565     386,685  
ALLL   -2,877     -2,851     -3,645     -3,579     -3,562  
Intangible assets   5,588     5,745     0     0     0  
Other assets   36,650     33,177     20,070     21,313     21,306  
Total assets   730,703     703,541     500,560     473,714     455,603  
 
Non-interest deposits   175,622     160,903     125,393     128,274     116,141  
Interest bearing non-maturity deposits   351,784     332,203     211,883     186,702     175,805  
Time deposits   102,649     110,261     81,574     78,602     84,451  
Total deposits   630,055     603,367     418,850     393,578     376,397  
Borrowings   44,000     44,000     44,000     44,000     44,775  
Other liabilities   4,598     5,323     2,656     2,217     1,435  
Equity   52,050     50,851     35,054     33,919     32,996  
Total liabilities and equity   730,703     703,541     500,560     473,714     455,603  
 
BALANCE SHEET RATIOS  
Gross Loans to Deposits   88.08     86.35     98.75     100.76     102.73  
Earning Assets to Total Assets   89.42     84.56     87.28     88.86     90.02  
Securities and Cash to Assets   19.43     21.64     14.09     12.54     11.23  
Deposits to Assets   86.23     85.76     83.68     83.08     82.62  
Loss Reserve to Gross Loans   0.52     0.55     0.88     0.9     0.92  
Net Charge-Offs to Gross Loans   0.00 %   -0.01 %   -0.02 %   -0.01 %   -0.02 %
Leverage Ratio - The State Bank   8.6     12.51     9.54     9.79     9.75  
Tangible Book Value per Share   12.85     12.48     13.78     13.37     13.02  
Book Value per Share   14.37     14.05     13.78     13.37     13.02  
 
Income Statement Highlights - QTD 17-Mar   16-Dec   16-Sep   16-Jun   16-Mar  
  Unaudited         Unaudited   Unaudited   Unaudited  
Interest income   6,427     4,952     4,657     4,510     4,526  
Interest expense   688     613     601     585     573  
Net interest income   5,739     4,339     4,056     3,925     3,953  
Provision for loan loss   0     -900     0     0     0  
Service charges on deposit accounts   236     227     192     181     179  
Gain on sale of mortgage loans   356     789     872     706     671  
Wealth management income   321     288     396     333     350  
Other non-interest income   353     449     420     317     288  
Total non-interest income   1,266     1,753     1,880     1,537     1,488  
Salaries and benefits   2,705     2,700     2,209     2,230     2,405  
Occupancy and equipment   736     581     610     580     563  
Loan and collection   117     189     135     130     107  
Merger transaction expenses   33     728     0     0     0  
Other operating expenses   1,467     980     993     986     971  
Total non-interest expense   5,058     5,178     3,947     3,926     4,046  
Net Income before tax   1,947     1,814     1,989     1,536     1,395  
Income Taxes   592     636     659     523     475  
Net Income   1,355     1,178     1,330     1,013     920  
"Core" Net Income   1,980     1,642     1,989     1,536     1,395  
 
INCOME STATEMENT RATIOS/DATA  
Basic earnings per share $ 0.37   $ 0.42   $ 0.52   $ 0.40   $ 0.36  
Pre-tax pre-provision earnings   1,947     914     1,989     1,536     1,395  
Net Charge offs   -19     -59     -65     -52     -66  
Return on Equity (ROE)   9.51 %   7.03 %   14.57 %   11.87 %   11.15 %
Return on Assets (ROA)   0.75 %   0.92 %   1.05 %   0.87 %   0.82 %
Efficiency Ratio   72.21 %   67.20 %   66.49 %   71.88 %   74.36 %
Average Bank Prime   3.85 %   3.63 %   3.50 %   3.50 %   3.35 %
Average Earning Asset Yield   4.27 %   4.28 %   4.32 %   4.38 %   4.43 %
Average Cost of Funds   0.56 %   0.75 %   0.76 %   0.78 %   0.77 %
Spread   3.71 %   3.53 %   3.57 %   3.59 %   3.66 %
Net impact of free funds   0.11 %   0.22 %   0.21 %   0.22 %   0.21 %
Net Interest Margin   3.82 %   3.75 %   3.78 %   3.82 %   3.88 %
 
Income Statement Highlights - YTD 17-Mar   16-Mar         16-Dec   15-Dec  
  Unaudited   Unaudited                    
Interest income   6,427     4,526       18,645     16,652  
Interest expense   688     573       2,372     2,152  
Net interest income   5,739     3,953       16,273     14,500  
Provision for loan loss   0     0       -900     -1,000  
Service charges on deposit accounts   236     179       779     806  
Gain on sale of mortgage loans   356     587       3,038     1,975  
Wealth management income   321     350       1,367     1,255  
Other non-interest income   353     372       1,474     2,065  
Total non-interest income   1,266     1,488       6,658     6,101  
Salaries and benefits   2,705     2,405       9,544     8,826  
Occupancy and equipment   736     563       2,334     2,262  
Merger transaction expenses   33     0       728     0  
Loan and collection   117     107       561     565  
Other operating expenses   1,467     971       3,930     3,324  
Total non-interest expenses   5,058     4,046       17,097     14,977  
Net Income before tax   1,947     1,395       6,734     6,624  
Income Taxes   592     475       2,293     2,407  
Net Income from continuing operations   1,355     920       4,441     4,217  
 
INCOME STATEMENT RATIOS/DATA  
Basic earnings per share $ 0.37   $ 0.37     $ 1.70   $ 1.87  
Pre-tax pre-provision earnings   1,947     1,395       5,834     5,624  
Net Charge offs   -19     -26       -26     -59  
Return on Equity (ROE)   9.51 %   11.18 %     10.26 %   11.44 %
Return on Assets (ROA)   0.75 %   0.82 %     0.92 %   1.00 %
Efficiency Ratio   72.21 %   74.36 %     74.56 %   72.70 %
Average Bank Prime   3.85 %   3.50 %     3.50 %   3.50 %
Average Earning Asset Yield   4.27 %   4.43 %     4.35 %   4.48 %
Average Cost of Funds   0.56 %   0.77 %     0.76 %   0.77 %
Spread   3.71 %   3.66 %     3.59 %   3.71 %
Net impact of free funds   0.11 %   0.21 %     0.21 %   0.19 %
Net Interest Margin   3.82 %   3.87 %     3.80 %   3.90 %


Contact:

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

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