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Fentura Financial, Inc Announces Second Quarter 2017 Results

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FENTON, Mich., Aug. 07, 2017 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. announces the most profitable pre-tax, pre-provision quarter on record showing pre-tax, pre-provision basis earnings of $3.0 million in the current quarter compared to $1.9 million in the prior quarter and $1.5 million reported for the quarter ended June 30, 2016.  Net income for the three months ended June 30, 2017 was $1.9 million compared to net income of $1.3 million reported for the first quarter of 2017 and $1.0 million reported for the three months ended June 30, 2016. For the six months ended June 30, 2016 the Company reported net income of $3.3 million compared to net income of $1.9 million for the same period in 2016.

  • Greater than 50% growth in net income quarter over quarter and year over year
  • Quarterly earnings per share growth of 11.1% over prior quarter
  • Book value increased 11.4% to $14.89 per share year over year
  • Continued growth shown in loans and non-interest bearing deposits
  • Continued strong credit quality with net recoveries for the 7th consecutive quarter and 9 of the last 10
  • Year to date efficiency ratio of 68.79% compared to 73.19% in the same period in the prior year.

Ronald L. Justice, President and CEO said, "We continue to be encouraged by our progress.  We have assembled an outstanding team of bankers across our entire footprint. Our pipelines remain strong, even with uncompromised credit quality. During the quarter along with continuing to integrate the new employees into our culture, we also managed through two system conversions with no material customer impact.  We are also very excited about our 16.32% total return to shareholders in the year to date period. Overall, controlled growth continues to be our primary focus while we are always open to opportunities to expand our franchise."

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

Balance Sheet

Total assets were basically flat quarter over quarter, decreasing $300,000 from March 31, 2017, ending the quarter at $730.5 million.  When compared to December 31, 2016, assets at June 30, 2017, increased $27.2 million or 5.7%.  Cash and due from banks (including Fed Funds sold) totals decreased 57.5%, to $28.6 million at June 30, 2017 compared to the $67.3 million reported at March 31, 2017. 

Cash totals decreased during the quarter primarily due to the Corporation's ability to redeploy liquid assets into the higher yielding loan portfolio.  As such, gross loan balances increased $40.1 million or 7.2% quarter over quarter. Commercial, consumer and mortgage loan portfolios all grew during the quarter. All three portfolios also showed significant growth over year end 2016 levels. Gross loans totaled $596.4 million at June 30, 2017.  When compared to the most recent year end, loans increased $78.3 million or 19.7%.  The increase in loans resulted from the Company's efforts to grow its loan portfolio with new and existing clients, as well as the $10 million consumer loan pool purchase noted in the previous quarter.  Additionally, the Company has continued to have success in offering customers products whose terms help manage interest rate risk in changing interest rate environments. The bulk of the growth was in the mortgage portfolio which has seen significant growth in recent periods. Some of this growth continues to be fueled by the popularity of single-note close construction loans to homeowners along with continued strong demand within the bank's primary markets for existing homes. It is the Bank's intention to continue to monitor the relative sizes of the respective portfolios in order to balance yield and risk.

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

      6/30/2017     3/31/2017     12/31/2016     9/30/2016     6/30/2016
Residential Real Estate Loans     208,724     192,373     180,685     118,961     111,272
Commercial Real Estate Loans     252,076     235,924     233,358     172,849     169,782
Consumer Loans     56,152     47,379     38,186     38,379     36,936
Commercial Loans     79,481     79,119     67,414     51,285     47,748
      554,795     554,795     519,644     381,474     365,738
                               
Note: Amounts prior to December 31, 2016 do not include impact of acquisitions
 

Deposit totals of $614.2 million showed a decrease of $15.9 million or 2.5% compared to $630.1 million reported at March 31, 2017.  The decreases were in the time and interest bearing accounts, with those decreases being partially offset by an increase in non-interest bearing deposits. We have seen very little runoff of the initial DDA balances acquired in the Community State Bank transaction, which we now refer to as the Great Lakes Bay Region, and have actually seen an increase in DDA totals when including new accounts. We continue to have success attracting new municipal account relationships, which has enhanced DDA growth, along with a focus on deposits by our commercial relationship officers.  A portion of municipal deposits can have seasonal volatility, though no indications have been made that the balances will see material decreases in the near term, on the contrary, historically the third and fourth quarters have been periods of inflow, though that can't be ensured. For the six months ended June 30, 2017, deposits increased $10.8 million or 2.7%, with the quarterly variance relationship explained above holding true for that period as well.

Capital

Fentura Financial, Inc. and The State Bank continue to maintain solid capital ratios in excess of levels considered well 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 during the year 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. 

      6/30/2017
    12/31/2016
    6/30/2016
    Regulatory
Well
Capitalized

Tier 1 Leverage Capital Ratio     8.46 %     11.69 %     9.79 %     5.00 %
Tier 1 Risk-Based Capital Ratio     9.69       10.72       11.37       8.00  
Total Risk-Based Capital Ratio     10.20       11.24       12.28       10.00  
                                 

Credit Quality

The trend of solid credit quality metrics continued into the second quarter of 2017.   The delinquency numbers when compared to 2016 rose due primarily to the acquired portfolio, with the legacy portfolio continuing to have no reportable delinquencies at quarter end. At June 30, 2017 loan delinquencies to total loans were 0.35% compared to 0.02% at June 30, 2016. Delinquent loans, net of non-accrual loans, were 0.02% of total loans at June 30, 2017. Total delinquencies at December 31, 2016 were 0.75% inclusive of the acquired portfolio.   Loans on non-accrual status and/or 90 or more days delinquent totaled $1.8 million at June 30, 2017, compared to $2.2 million at December 31, 2016. The decline in both of these metrics reflects the synchronization of collection processes and procedures on the acquired portfolio with those consistent with The State Bank.  The overall Allowance for Loan Losses of $3.1 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 acquired loans were marked to market at the acquisition date of December 31, 2016.  The balance of the loan mark at June 30, 2017 is $4.9 million, or 5.9% of the remaining balance of the acquired loans. 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. 

Net Interest Income

Net interest income of $6.5 million for the quarter ended June 30, 2017 reflects an $800,000 or 14.0% increase compared to the quarter ended March 31, 2017 and a 66.7% increase relative to the $3.9 million reported for the quarter ended June 30, 2016.    The causes of the increases noted are certainly slanted toward increased volume (largely due to acquired assets), though recent rate increases have benefited net interest income with the margin increasing 4 and 13 basis points in the year to date and quarter to date comparative periods. Additionally, the significant growth in non-interest deposits has also assisted in expanding the net interest margin. Finally, in the year to date period, as noted in the previous quarter's release, the accretion of the loan mark taken on the loans acquired from Community State Bank also added to the margin. We remain somewhat asset sensitive allowing us to capture increased net interest income should short term rates continue to rise.

Noninterest Income

Noninterest income was $2.1 million for the quarter ended June 30, 2017 compared to $1.3 million for the first quarter of 2017 and $1.5 million for the second quarter of 2016.  Every category of non-interest income increased over both comparative periods. The acquisition of Community State Bank had a significant impact on service charge income with the additional deposit customers added to our portfolio. Mortgage volume continues to increase, allowing for increased gains, but our servicing portfolio also continues to grow with servicing related income providing almost 40% of the quarterly revenue. The increase in other income was mostly due to a few smaller one-time items that aggregated to a larger amount. These are not expected to continue.    For the six months ended June 30, 2017, noninterest income of $3.4 million represents an increase of $400,000 or 13.3% over the same period in 2016.  The variances mirror the above mentioned items.

Noninterest Expense

The Company recorded $5.7 million of noninterest expense in the quarter ended June 30, 2017, an increase of $600,000 over the $5.1 million reported in the first quarter of 2017 and $1.8 million over the $3.9 million reported in the second quarter of 2016.  The current quarter increase over the prior quarter and prior year is primarily attributable to salary and benefits, occupancy and other operating expenses. Salaries and benefits increased largely due to commissions paid associated with mortgage loan volumes and severance costs related to the acquisition of Community State Bank. Additionally, property taxes and utilities costs on Company facilities also increased relative to both comparative periods as well. In the year over year period, the occupancy and equipment cost increases are primarily due to the sheer increase in number of facilities, while the property taxes quarter over quarter were due to an accrual adjustment. Finally, the increase in other operating expenses was mostly due to professional services fees, primarily related to system conversions and other Information Technology consulting, increased FDIC insurance premiums, data processing expenses and amortization of the Core Deposit Intangible all related to the acquisition.

For the six months ended June 30, 2017, noninterest expense totaled $10.8 million, an increase of $2.8 million or 35.0% over the $8.0 million reported for the same period of 2016.  All categories with the exception of loan and collection expenses showed increases, primarily due to additional costs of acquiring Community State Bank. As with income, the variances for the year to date period are similar to those explained in the quarter to date period.

About Fentura Financial and The State Bank

Fentura Financial is the holding company for The State Bank. It was formed in 1987 and is traded on the OTCQX exchange under the symbol FETM, and was recognized as one of the Top 50 performing stocks in 2016 on that exchange.

The State Bank is a full-service, 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-Jun       17-Mar       16-Dec       16-Sep       16-Jun  
  Unaudited       Unaudited               Unaudited       Unaudited  
Balance Sheet Highlights                                    
Cash and due from banks 16,715       43,547       78,313       47,229       35,037  
Fed funds sold 11,900       23,800       0       0       0  
Investment securities 73,118       74,311       74,215       23,300       24,378  
Commercial loans 332,071       308,869       322,792       245,680       235,957  
Consumer loans 56,154       53,916       37,700       32,009       31,388  
Mortgage loans 208,192       193,513       157,644       137,442       129,220  
Gross loans 596,417       556,298       518,136       415,131       396,565  
ALLL -3,092       -2,877       -2,851       -3,645       -3,579  
Intangible assets 5,397       5,587       5,745       0       0  
Other assets 35,490       35,815       35,546       18,536       21,313  
Total assets 730,548       730,894       703,359       500,551       473,714  
 
Non-interest deposits 219,763       214,706       160,903       125,393       128,274  
Interest bearing non-maturity deposits 297,799       312,700       332,204       211,882       186,702  
Time deposits 96,605       102,649       110,261       81,574       78,602  
Total deposits 614,167       630,055       603,368       418,849       393,578  
Borrowings 59,000       44,000       44,000       44,000       44,000  
Other liabilities 3,400       4,598       5,325       2,654       2,217  
Equity 53,981       52,241       50,666       35,048       33,919  
Total Liabilities and Equity 730,548       730,894       703,359       500,551       473,714  
 
Balance Sheet Ratios  
Gross Loans to Deposits 97.11       88.29       85.87       99.11       100.76  
Earning Assets to Total Assets 93.28       89.54       84.22       87.59       88.86  
Securities and Cash to Assets 13.93       19.38       21.69       14.09       12.54  
Deposits to Assets 84.07       86.2       85.78       83.68       83.08  
Loss Reserve to Gross Loans 0.52       0.52       0.55       0.88       0.9  
Net Charge-Offs to Gross Loans -0.01 %     0.00 %     -0.02 %     -0.01 %     -0.02 %
Leverage Ratio - The State Bank 8.3       7.83       12.51       9.54       9.79  
Tangible Book Value per Share 13.42       12.9       12.43       13.78       13.37  
Book Value per Share 14.89       14.42       14       13.78       13.37  
 
  17-Jun       17-Mar       16-Dec       16-Sep       16-Jun  
  Unaudited       Unaudited       Unaudited       Unaudited       Unaudited  
Income Statement Highlights - QTD                                    
Interest income 7,254       6,427       4,952       4,657       4,510  
Interest expense 702       687       614       601       585  
Net interest income 6,552       5,740       4,338       4,056       3,925  
Provision for loan loss 125       0       -900       0       0  
Service charges on deposit accounts 303       235       228       192       181  
Gain on sale of mortgage loans 802       356       789       872       706  
Wealth management income 403       321       288       396       333  
Other non-interest income 630       322       487       417       306  
Total non-interest income 2,138       1,234       1,792       1,877       1,526  
Salaries and benefits 3,028       2,705       2,700       2,209       2,230  
Occupancy and equipment 793       736       581       610       580  
Loan and collection 131       117       189       135       130  
Merger transaction expenses 50       33       728       0       0  
Other operating expenses 1,740       1,504       993       1,035       986  
Total non-interest expense 5,742       5,095       5,191       3,989       3,926  
Net Income before tax 2,823       1,879       1,839       1,944       1,525  
Income Taxes 884       592       636       659       523  
Net Income 1,939       1,287       1,203       1,285       1,002  
Pre-tax, pre-provision Net Income 2,998       1,912       1,667       1,944       1,525  
 
Income Statement Ratios/Data  
Basic earnings per share 0.53       0.37       0.41       0.51       0.39  
Pre-tax pre-provision earnings 2,948       1,879       939       1,944       1,525  
Net Charge offs -67       -59       -65       -52       -66  
Return on Equity (ROE) 14.49 %     9.51 %     7.03 %     14.57 %     11.87 %
Return on Assets (ROA) 1.09 %     0.75 %     0.92 %     1.05 %     0.87 %
Efficiency Ratio 66.08 %     67.20 %     84.68 %     67.23 %     72.02 %
Average Bank Prime 4.25 %     3.85 %     3.50 %     3.50 %     3.35 %
Average Earning Asset Yield 4.37 %     4.27 %     4.28 %     4.32 %     4.38 %
Average Cost of Funds 0.61 %     0.56 %     0.75 %     0.76 %     0.78 %
Spread 3.77 %     3.71 %     3.53 %     3.57 %     3.59 %
Net impact of free funds 0.18 %     0.11 %     0.22 %     0.21 %     0.22 %
Net Interest Margin 3.95 %     3.82 %     3.75 %     3.78 %     3.82 %
 
  17-Jun       16-Jun               16-Dec       15-Dec  
  Unaudited       Unaudited                          
Income Statement Highlights - YTD  
Interest income 13,681       9,036         18,645       16,652  
Interest expense 1,390       1,158         2,372       2,152  
Net interest income 12,291       7,878         16,273       14,500  
Provision for loan loss 125       0         -900       -1,000  
Service charges on deposit accounts 539       359         779       806  
Gain on sale of mortgage loans 1,158       1,186         3,038       1,975  
Wealth management income 724       683         1,367       1,255  
Other non-interest income 976       786         1,474       2,065  
Total non-interest income 3,397       3,014         6,658       6,101  
Salaries and benefits 5,732       4,635         9,544       8,826  
Occupancy and equipment 1,529       1,143         2,334       2,262  
Merger transaction expenses 82       0         728       0  
Loan and collection 248       237         561       565  
Other operating expenses 3,200       1,957         3,930       3,324  
Total non-interest expenses 10,791       7,972         17,097       14,977  
Net Income before tax 4,772       2,920         6,734       6,624  
Income Taxes 1,476       997         2,293       2,407  
Net Income from continuing operations 3,296       1,923         4,441       4,217  
 
Income Statement Ratios/Data  
Basic earnings per share 0.91       0.77         1.7       1.87  
Pre-tax pre-provision earnings 4,897       2,920         5,834       5,624  
Net Charge offs -93       -26         -26       -59  
Return on Equity (ROE) 11.89 %     11.54 %       10.26 %     11.44 %
Return on Assets (ROA) 0.92 %     0.85 %       0.92 %     1.00 %
Efficiency Ratio 68.79 %     73.19 %       74.56 %     72.70 %
Average Bank Prime 4.10 %     3.50 %       3.50 %     3.50 %
Average Earning Asset Yield 4.32 %     4.41 %       4.35 %     4.48 %
Average Cost of Funds 0.58 %     0.78 %       0.76 %     0.77 %
Spread 3.74 %     3.63 %       3.59 %     3.71 %
Net impact of free funds 0.14 %     0.21 %       0.21 %     0.19 %
Net Interest Margin 3.89 %     3.84 %       3.80 %     3.90 %


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

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