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Fentura Financial, Inc. Announces Second Quarter 2018 Results

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

FENTON, Mich., Aug. 03, 2018 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. (OTCQX:FETM) announces continued strong earnings with net income of $2,518 and $4,592 for the three and six month periods ended June 30, 2018, respectively.

  • Record quarter-to-date adjusted net income from operations of $2,226
  • 42.34% increase in net income over the first six months of 2017
  • Return on average assets of 1.15% in the first six months of 2018 vs 0.92% in the first six months of 2017
  • 41.57% increase in year-to-date earnings per share
  • 27.34% annualized increase in stock trading price in the second quarter of 2018
  • Gross loans increased 3.09% during the quarter and 19.54% since June 30, 2017
  • Total deposits increased 2.67% during the quarter and 18.64% since June 30, 2017

Ronald L. Justice, President and CEO said, "I am extremely proud of our team.  Their dedication to community banking values continually strengthen the communities we serve while delivering strong returns for our shareholders."

Total Shareholder Return

 
    FETM QTD Total Return to Shareholders (Annualized)
    6/30/18   3/31/18   12/31/17   9/30/17   6/30/17
Increase in Price 27.34 %   18.43 %   9.32 %   4.38 %   5.56 %
Cash Dividends   1.22 %   1.27 %   1.08 %   1.10 %   1.11 %
                     
Total Return   28.56 %   19.70 %   10.41 %   5.48 %   6.67 %
                     
                     
    FETM 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
    6/30/18   3/31/18   12/31/17   9/30/17   6/30/17
Interest and dividend income                    
Loans, including fees   $ 8,433     $ 8,038     $ 8,524     $ 7,226     $ 6,931  
Investments     296       341       341       339       323  
Total interest and dividend income     8,729       8,379       8,865       7,565       7,254  
Total interest expense     1,232       1,031       939       792       702  
Net interest income     7,497       7,348       7,926       6,773       6,552  
Provision for loan losses     301       275       348       136       125  
Net interest income, after provision for loan losses     7,196       7,073       7,578       6,637       6,427  
Total noninterest income     2,013       1,801       2,220       3,396       2,138  
Total noninterest expenses     6,049       6,279       7,400       5,581       5,742  
Income before federal income taxes     3,160       2,595       2,398       4,452       2,823  
Federal income taxes     642       521       236       1,164       884  
Net income   $    2,518     $    2,074     $    2,162     $    3,288     $    1,939  
                     
                     
    Quarter to Date
    6/30/18   3/31/18   12/31/17   9/30/17   6/30/17
Based on GAAP net income                    
Return on Average Assets     1.27 %     1.05 %     1.11 %     1.76 %     1.09 %
Efficiency Ratio     63.61 %     68.63 %     72.94 %     54.88 %     66.08 %
Earnings Per Share   $ 0.69     $ 0.57     $ 0.60     $ 0.91     $ 0.53  
Yield on Earning Assets     4.63 %     4.55 %     5.13 %     4.40 %     4.45 %
Rate on Int. Bearing Liabilities     0.96 %     0.82 %     0.82 %     0.67 %     0.57 %
Net Interest Margin to Earning Assets     3.98 %     3.99 %     4.59 %     3.94 %     4.02 %
                     
GAAP net income   $    2,518     $    2,074     $    2,162     $    3,288     $    1,939  
Provision for loan losses (net of tax)     238       217       229       90       83  
Acquisition related items (net of tax)                    
Accretion on purchased loans     (255 )     (250 )     (676 )     (179 )     (175 )
Amortization of core deposit intangible     107       107       105       104       104  
Acquisition related expenses     -       -       296       -       -  
Accretion on acquired OREO     -       -       -       -       (53 )
Amortization on acquired time deposits     9       9       10       10       9  
Amortization on purchased MSRs     6       6       8       8       7  
Total acquisition related items (net of tax)     (133 )     (128 )     (257 )     (57 )     (108 )
One-time and other items (net of tax)                    
Net gain from BOLI death benefit     -       -       -       (1,155 )     -  
Re-valuation of net deferred tax liabilities     -       -       (489 )     -       -  
Net gain from note receivable     -       -       -       (172 )     -  
Impact of The Tax Cuts and Jobs Act     (397 )     (323 )     -       -       -  
Total one-time and other items (net of tax)     (397 )     (323 )     (489 )     (1,327 )     -  
Adjusted net income from operations   $    2,226     $    1,840     $    1,645     $    1,994     $    1,914  
                     
GAAP net interest income   $    7,497     $    7,348     $    7,926     $    6,773     $    6,552  
Accretion on purchased loans     (323 )     (317 )     (1,021 )     (272 )     (266 )
Amortization on acquired time deposits     11       12       15       15       14  
Adjusted net interest income   $    7,185     $    7,043     $    6,920     $    6,516     $    6,300  
                     
Based on adjusted net income from operations                    
Return on Average Assets     1.12 %     0.93 %     0.84 %     1.07 %     1.08 %
Efficiency Ratio     64.24 %     69.41 %     74.22 %     63.73 %     66.73 %
Earnings Per Share   $ 0.61     $ 0.51     $ 0.45     $ 0.55     $ 0.53  
                     
Based on adjusted net interest income                    
Yield on Earning Assets     4.46 %     4.38 %     4.54 %     4.24 %     4.29 %
Rate on Int. Bearing Liabilities     0.97 %     0.83 %     0.83 %     0.68 %     0.58 %
Net Interest Margin to Earning Assets     3.81 %     3.83 %     4.01 %     3.79 %     3.87 %
                     


                 
    Year to Date June 30   Variance
    2018   2017   $   %
Interest and dividend income                
Loans, including fees   $ 16,471     $ 13,015     $ 3,456     26.55 %
Investments     637       666       (29 )   -4.35 %
Total interest and dividend income     17,108       13,681       3,427     25.05 %
Total interest expense     2,263       1,389       874     62.92 %
Net interest income     14,845       12,292       2,553     20.77 %
Provision for loan losses     576       125       451     360.80 %
Net interest income, after provision for loan losses     14,269       12,167       2,102     17.28 %
Total noninterest income     3,814       3,372       442     13.11 %
Total noninterest expenses     12,328       10,837       1,491     13.76 %
Income before federal income taxes     5,755       4,702       1,053     22.39 %
Federal income taxes     1,163       1,476       (313 )   -21.21 %
Net income   $    4,592     $    3,226     $    1,366     42.34 %
                 
                 
    Year to Date June 30   Variance
    2018   2017   $   %
Based on GAAP net income                
Return on Average Assets     1.15 %     0.92 %       0.23 %
Efficiency Ratio     66.07 %     69.18 %       -3.11 %
Earnings Per Share   $ 1.26     $ 0.89     $ 0.37     41.57 %
Yield on Earning Assets     4.59 %     4.32 %       0.26 %
Rate on Int. Bearing Liabilities     0.89 %     0.56 %       0.33 %
Net Interest Margin to Earning Assets     3.98 %     3.89 %       0.10 %
                 
GAAP net income   $    4,592     $    3,226     $    1,366     42.34 %
Provision for loan losses (net of tax)     455       83       372     448.19 %
Acquisition related items (net of tax)                
Accretion on purchased loans     (505 )     (349 )     (156 )   44.70 %
Amortization of core deposit intangible     214       209       5     2.39 %
Acquisition related expenses     -       -       -     N/M  
Accretion on acquired OREO     -       (53 )     53     -100.00 %
Amortization on acquired time deposits     18       18       -     0.00 %
Amortization on purchased MSRs     12       15       (3 )   -20.00 %
Total acquisition related items (net of tax)     (261 )     (160 )     (101 )   63.13 %
One-time and other items (net of tax)                
Net gain from BOLI death benefit     -       -       -     N/M  
Re-valuation of net deferred tax liabilities     -       -       -     N/M  
Net gain from note receivable     -       -       -     N/M  
Impact of The Tax Cuts and Jobs Act     (720 )     -       (720 )   N/M  
Total one-time and other items (net of tax)     (720 )     -       (720 )   N/M  
Adjusted net income from operations   $    4,066     $    3,149     $    917     29.12 %
                 
GAAP net interest income   $    14,845     $    12,292     $    2,553     20.77 %
Accretion on purchased loans     (640 )     (529 )     (111 )   20.98 %
Amortization on acquired time deposits     23       28       (5 )   -17.86 %
Adjusted net interest income   $    14,228     $    11,791     $    2,437     20.67 %
                 
Based on adjusted net income from operations                
Return on Average Assets     1.02 %     0.90 %       0.12 %
Efficiency Ratio     66.77 %     69.18 %       -2.41 %
Earnings Per Share   $ 1.12     $ 0.87     $ 0.25     28.74 %
                 
Based on adjusted net interest income                
Yield on Earning Assets     4.42 %     4.16 %       0.26 %
Rate on Int. Bearing Liabilities     0.90 %     0.57 %       0.32 %
Net Interest Margin to Earning Assets     3.82 %     3.73 %       0.09 %
                 

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, the Corporation 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 the Corporation's Federal income tax rate from 34% to 21%, adjusted net income from operations, which excludes the impact of the reduction in tax rates, represented the highest level of core earnings in the Corporation's history.

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 strong interest margins.  As the Corporation expects to grow its loan portfolio throughout 2018, net interest income is expected to continue to increase.

Balance Sheet Breakdown and Analysis

                     
    6/30/18   3/31/18   12/31/17   9/30/17   6/30/17
                     
ASSETS                    
                     
Cash and cash equivalents   $ 44,280     $ 15,154     $ 15,928     $ 16,450     $ 29,487  
Total securities     49,110       49,608       55,323       67,155       70,699  
Loans held for sale     4,936       4,980       2,067       4,835       4,664  
                     
Gross loans     707,364       686,140       672,530       628,552       591,753  
Less allowance for loan losses     4,033       3,725       3,603       3,262       3,092  
Net loans     703,331       682,415       668,927       625,290       588,661  
All other assets     39,802       37,786       39,198       43,237       37,000  
                     
Total assets   $ 841,459     $ 789,943     $ 781,443     $ 756,967     $ 730,511  
                     
LIABILITIES AND SHAREHOLDERS' EQUITY                    
                     
Total deposits   $ 702,035     $ 683,775     $ 673,505     $ 625,588     $ 614,167  
Total borrowed funds     74,000       44,600       46,000       68,000       59,000  
Accrued interest and other liabilities     2,346       947       2,491       6,218       3,089  
Total liabilities     778,381       729,322       721,996       699,806       676,256  
                     
Total shareholders' equity     63,078       60,621       59,447       57,161       54,255  
Total liabilities and shareholders' equity   $ 841,459     $ 789,943     $ 781,443     $ 756,967     $ 730,511  
                     
Selected Ratios                    
Net loans to total deposits     100.18 %     99.80 %     99.32 %     99.95 %     95.85 %
ALLL to gross loans     0.57 %     0.54 %     0.54 %     0.52 %     0.52 %
Book value per share   $ 17.34     $ 16.68     $ 16.35     $ 15.74     $ 14.95  
Tangible book value per share   $ 16.01     $ 15.31     $ 14.95     $ 14.24     $ 13.41  
Total capital to risk weighted assets*     10.70 %     10.61 %     10.46 %     10.21 %     10.36 %
Tier 1 capital to risk weighted assets*     10.11 %     10.06 %     9.91 %     9.70 %     9.84 %
CET1 capital to risk weighted assets*     10.11 %     10.06 %     9.91 %     9.70 %     9.84 %
Tier 1 capital to average assets*     8.70 %     8.65 %     8.57 %     8.62 %     8.30 %
                     
*The State Bank                    
                     
                     
    6/30/2018 vs 3/31/2018       6/30/2018 vs 6/30/2017
    $ Variance   % Variance       $ Variance   % Variance
                     
ASSETS                    
                     
Cash and cash equivalents   $ 29,126       192.20 %       $ 14,793       50.17 %
Total securities     (498 )     -1.00 %         (21,589 )     -30.54 %
Loans held for sale     (44 )     -0.88 %         272       5.83 %
                     
Gross loans     21,224       3.09 %         115,611       19.54 %
Less allowance for loan losses     308       8.27 %         941       30.43 %
Net loans     20,916       3.06 %         114,670       19.48 %
All other assets     2,016       5.34 %         2,802       7.57 %
                     
Total assets   $ 51,516       6.52 %       $ 110,948       15.19 %
                     
LIABILITIES AND SHAREHOLDERS' EQUITY                    
                     
Total deposits   $ 18,260       2.67 %       $ 87,868       14.31 %
Total borrowed funds     29,400       65.92 %         15,000       25.42 %
Accrued interest and other liabilities     1,399       147.73 %         (743 )     -24.05 %
Total liabilities     49,059       6.73 %         102,125       15.10 %
                     
Total shareholders' equity     2,457       4.05 %         8,823       16.26 %
Total liabilities and shareholders' equity   $ 51,516       6.52 %       $ 110,948       15.19 %
                     
Selected Ratios                    
Net loans to total deposits         0.38 %             4.33 %
ALLL to gross loans         0.03 %             0.05 %
Book value per share   $ 0.66       3.96 %       $ 2.39       4.41 %
Tangible book value per share   $ 0.70       4.57 %       $ 2.60       5.22 %
Total capital to risk weighted assets*         0.09 %             0.34 %
Tier 1 capital to risk weighted assets*         0.05 %             0.27 %
CET1 capital to risk weighted assets*         0.05 %             0.27 %
Tier 1 capital to average assets*         0.05 %             0.40 %
                     

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

                     
    6/30/18   3/31/18   12/31/17   9/30/17   6/30/17
Commercial real estate $ 344,658     $ 343,265     $ 333,463     $ 298,821     $ 276,640  
Residential real estate   257,776       237,677       234,190       228,143       214,870  
Commercial     49,776       47,812       47,931       49,897       48,022  
Home equity     41,736       42,879       41,318       39,861       38,335  
Installment     13,418       14,507       15,628       11,830       13,886  
                     
Total loans   $ 707,364     $ 686,140     $ 672,530     $ 628,552     $ 591,753  
                     
                     
    6/30/2018 vs 3/31/2018       6/30/2018 vs 6/30/2017
    $ Variance   % Variance       $ Variance   % Variance
Commercial real estate $ 1,393       0.41 %       $ 68,018       24.59 %
Residential real estate   20,099       8.46 %         42,906       19.97 %
Commercial     1,964       4.11 %         1,754       3.65 %
Home equity     (1,143 )     -2.67 %         3,401       8.87 %
Installment     (1,089 )     -7.51 %         (468 )     -3.37 %
                     
Total loans   $ 21,224       3.09 %       $ 115,611       19.54 %
                     

During the quarter, the Corporation continued to drive loan growth through actively pursuing prudent opportunities in existing market areas.  Most of the growth in the portfolio over the quarter has come in the form of residential real estate.  Over the past 12 months the Corporation has been successful in growing the loan portfolio in all segments, except for installment loans.  Installment loans have declined because of the sale of the Corporation's credit card portfolio which was acquired from The Community State Bank of St. Charles in December 2016. 

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

                     
    6/30/18   3/31/18   12/31/17   9/30/17   6/30/17
Demand   $ 236,899     $ 224,486     $ 216,607   $ 208,494     $ 217,504  
Savings     218,512       227,987       224,558     229,471       223,274  
Money market demand     53,654       59,370       67,387     68,567       55,736  
NOW     6,346       2,984       2,253     3,565       2,810  
Time deposits     186,624       168,948       162,700     115,491       114,843  
                     
Total deposits   $    702,035     $    683,775     $    673,505   $    625,588     $    614,167  
                     
                     
    6/30/2018 vs 3/31/2018       6/30/2018 vs 6/30/2017
    $ Variance   % Variance       $ Variance   % Variance
Demand   $ 12,413       5.53 %       $ 19,395       8.92 %
Savings     (9,475 )     -4.16 %         (4,762 )     -2.13 %
Money market demand     (5,716 )     -9.63 %         (2,082 )     -3.74 %
NOW     3,362       112.67 %         3,536       125.84 %
Time deposits     17,676       10.46 %         71,781       62.50 %
                     
Total deposits   $    18,260       2.67 %       $    87,868       14.31 %
                     

Total deposits, like loans, have grown both quarter over quarter and year over year.  Most of the growth continues to come in the form of demand and time deposits.  The increase in demand deposits has been the direct result of our treasury management team working with municipalities and small business customers to ensure that we have the appropriate mix of products and services at a competitive price.  The increase in time deposits has been the result of targeted CD specials and an increase in brokered and internet deposits to fund the remaining growth in the loan portfolio.  We have implemented several strategic initiatives geared at accelerating deposit growth in upcoming periods to help provide organic funding to meet loan demands.

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 loan production offices in Washtenaw and Saginaw Counties. 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.

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

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