Market Overview

Fentura Financial, Inc. Announces Third Quarter 2017 Results


FENTON, Mich., Nov. 07, 2017 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. announces another record breaking quarter showing pre-tax, pre-provison basis earnings of $4.6 million in the current quarter compared to $2.9 million in the prior quarter and $1.9 million reported for the quarter ended September 30, 2016.  Net income for the three months ended September 30, 2017 was $3.3 million compared to net income of $1.9 million reported for the second quarter of 2017 and $1.3 million reported for the three months ended September 30, 2016. For the nine months ended September 30, 2017 the Company reported net income of $6.5 million compared to net income of $3.2 million for the same period in 2016.  Included in both quarterly and year to date operating results are two non-recurring non-interest income transactions totaling approximately $1.5 million (pre-tax).  The first is a gain on a note payable and the second is proceeds from a bank owned life insurance policy.  Excluding these one-time items, the Company's results would continue to reflect the most profitable quarter on record.    

  • Almost 69.6% growth in net income quarter over quarter  
  • Quarterly earnings per share growth of 68.5% over prior quarter
  • Book value increased 14.3% to $15.75 per share year over year
  • Gross loans grew 6.2% during the quarter
  • Year to date efficiency ratio improved to 63.8% as compared to 71.1% in the same period in the prior year.

Ronald L. Justice, President and CEO said, "Our strong operating results reflect the commitment of our entire team to organically grow our franchise by attracting new and expanding existing client relationships in all business lines.  By expanding client relationships we have enhanced net interest income while improving our efficiency, thus strengthening our bottom line.  We are very excited about our 15.3% improvement in Fentura's stock trading price throughout this year, supported by our financial results.  As noted last quarter, controlled growth continues to be our primary focus, while we remain open to other opportunities to expand and grow."

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

Balance Sheet

Total assets increased 3.6% quarter over quarter increasing $26.4 million from June 30, 2017, ending the quarter at $757.0 million.  When compared to December 31, 2016, assets at September 30, 2017, increased $53.6 million or 7.6%. 

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 $37.0 million or 6.2% quarter over quarter. Commercial and mortgage loan portfolios both grew during the quarter. All portfolios, including consumer showed growth over year end 2016 levels. Gross loans totaled $633.4 million at September 30, 2017.  When compared to the most recent year end, loans increased $113.7 million or 21.9%.  The increase in loans primarily resulted from the Company's efforts to grow its loan portfolio with new and existing clients, with a primary focus on its core markets and assessment area.  Additionally, the Company has continued its 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 commercial and residential mortgage portfolios.  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):

  9/30/2017 6/30/2017 3/31/2017 12/31/2016 9/30/2016
Residential Real Estate $ 235,829 $ 208,724 $ 204,975 $ 180,685 $ 140,962
Commercial Real Estate   272,292   252,076   226,530   233,358   190,155
Consumer   55,345   56,152   47,379   38,186   30,151
Commercial   69,921   79,481   75,885   67,414   52,354
Gross Loans $ 633,387 $ 596,433 $ 554,769 $ 519,644 $ 413,622

Deposit totals of $625.6 million at the end of the quarter, showed an increase of $11.4 million or 1.9% compared to $614.2 million reported at June 30, 2017.  The increases were in the time and interest bearing accounts, with those increases being partially offset by a modest decrease in non-interest bearing deposits. We continue to see 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 overall deposit 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.  Historically the fourth quarter has been a period of inflow of municipal deposits, though that cannot be ensured. For the nine months ended September 30, 2017, deposits increased $22.2 million or 3.7% through growth in non-interest bearing deposits.


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 September 30, 2017 and December 31, 2016.   The decline in the ratios during the year is primarily due to our robust asset growth and an upstream dividend to Fentura Financial, Inc.    

    9/30/2017 12/31/2016 9/30/2016 Regulatory
Tier 1 Leverage Capital Ratio 8.61 % 11.69 % 9.52 % 5.00 %
Tier 1 Risk-Based Capital Ratio 9.70 % 10.72 % 11.37 % 8.00 %
Total Risk-Based Capital Ratio 10.21 % 11.24 % 12.27 % 10.00 %

Credit Quality

The trend of solid credit quality metrics continued into the third 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 September 30, 2017 loan delinquencies to total loans were 0.26% compared to 0.00% at September 30, 2016. Delinquent loans, net of non-accrual loans, were 0.07% of gross loans at September 30, 2017. Total loan delinquencies at December 31, 2016 were 0.74% inclusive of the acquired portfolio.   Loans on non-accrual status and/or 90 or more days delinquent totaled $1.2 million at September 30, 2017, compared to $2.0 million at December 31, 2016. As noted last quarter, 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 $3.3 million or 0.52% 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 September 30, 2017 is $3.9 million, or 5.6% of the remaining balance of the acquired loans. The Allowance for Loan Losses is analyzed on a quarterly basis and at the end of the current quarter the Company believes that the Allowance for Loan Loss is appropriate based on the estimate of incurred losses within the portfolio. 

Net Interest Income

Net interest income of $6.8 million for the quarter ended September 30, 2017 reflects a $221,000 or 3.4% increase compared to the quarter ended June 30, 2017 and a 67.1% increase relative to the $4.1 million reported for the quarter ended September 30, 2016.    The causes of the increases noted are primarily increased volume (largely due to the Community State Bank acquisition), though market rate increases earlier in the year have benefited net interest income with the margin increasing 8 and 11 basis points in the prior year quarter and year to date comparative periods, respectively. Additionally, the significant year to date 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 $3.4 million for the quarter ended September 30, 2017 compared to $2.1 million for the second quarter of 2017 and $1.9 million for the third quarter of 2016.  As previously noted, noninterest income for the third quarter included a gain from a note payable and proceeds from a bank owned life insurance policy totaling $1.5 million.  Additionally, the acquisition of Community State Bank has enhanced service charge income with the additional deposit customers added to our portfolio. Partially offsetting these increases was a decline in gains on sold loans on both a year to year and quarterly basis.  This decline is based on more portfolio held loans in the current period production versus loans sold. 

Noninterest Expense

The Company recorded $5.6 million of noninterest expense in the quarter ended September 30, 2017, a decrease of $161,000 compared to the $5.7 million reported in the second quarter of 2017 and a $1.6 million increase over the $4.0 million reported in the third quarter of 2016.  The current quarter decrease compared to the prior quarter is based on a decline in professional expenses following the acquisition and conversion of Community State Bank and declines in loan and collection expenses. For the nine months ended September 30, 2017, noninterest expense totaled $16.5 million, an increase of $4.5 million or 37.9% over the $12.0 million reported for the same period of 2016.  This increase was primarily due to the additional costs associated with operating the offices in our acquired markets, specifically the additional staff and facilities. 

  Sep-17 Jun-17 Mar-17 Dec-16 Sep-16
  Unaudited Unaudited Unaudited   Unaudited
Balance Sheet Highlights  
Cash and due from banks 15,578   16,715   43,547   78,313   47,229  
Fed funds sold 0   11,900   23,800   0   0  
Investment securities 69,799   73,118   74,311   74,232   23,300  
Commercial loans 358,457   332,071   307,855   324,261   244,171  
Consumer loans 55,345   56,154   53,998   37,700   32,009  
Mortgage loans 219,585   208,192   192,916   157,683   137,442  
Gross loans 633,387   596,417   554,769   519,644   413,622  
ALLL -3,262   -3,092   -2,877   -2,851   -3,645  
Intangible assets 5,272   5,397   5,587   5,745   0  
Other assets 36,215   30,218   32,072   28,267   20,045
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