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Fentura Financial, Inc Announces Second Quarter 2017 Results

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 banks16,715 43,547 78,313 47,229 35,037
Fed funds sold11,900 23,800 0 0 0
Investment securities73,118 74,311 74,215 23,300 24,378
Commercial loans332,071 308,869 322,792 245,680 235,957
Consumer loans56,154 53,916 37,700 32,009 31,388
Mortgage loans208,192 193,513 157,644 137,442 129,220
Gross loans596,417 556,298 518,136 415,131 396,565
ALLL-3,092 -2,877 -2,851 -3,645 -3,579
Intangible assets5,397 5,587 5,745 0 0
Other assets35,490 35,815 35,546 18,536 21,313
Total assets730,548 730,894 703,359 500,551 473,714
Non-interest deposits219,763 214,706 160,903 125,393 128,274
Interest bearing non-maturity deposits297,799 312,700 332,204 211,882 186,702
Time deposits96,605 102,649 110,261 81,574 78,602
Total deposits614,167 630,055 603,368 418,849 393,578
Borrowings59,000 44,000 44,000 44,000 44,000
Other liabilities3,400 4,598 5,325 2,654 2,217
Equity53,981 52,241 50,666 35,048 33,919
Total Liabilities and Equity730,548 730,894 703,359 500,551 473,714
Balance Sheet Ratios
Gross Loans to Deposits97.11 88.29 85.87 99.11 100.76
Earning Assets to Total Assets93.28 89.54 84.22 87.59 88.86
Securities and Cash to Assets13.93 19.38 21.69 14.09 12.54
Deposits to Assets84.07 86.2 85.78 83.68 83.08
Loss Reserve to Gross Loans0.52 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 Bank8.3 7.83 12.51 9.54 9.79
Tangible Book Value per Share13.42 12.9 12.43 13.78 13.37
Book Value per Share14.89 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 income7,254 6,427 4,952 4,657 4,510
Interest expense702 687 614 601 585
Net interest income6,552 5,740 4,338 4,056 3,925
Provision for loan loss125 0 -900 0 0
Service charges on deposit accounts303 235 228 192 181
Gain on sale of mortgage loans802 356 789 872 706
Wealth management income403 321 288 396 333
Other non-interest income630 322 487 417 306
Total non-interest income2,138 1,234 1,792 1,877 1,526
Salaries and benefits3,028 2,705 2,700 2,209 2,230
Occupancy and equipment793 736 581 610 580
Loan and collection131 117 189 135 130
Merger transaction expenses50 33 728 0 0
Other operating expenses1,740 1,504 993 1,035 986
Total non-interest expense5,742 5,095 5,191 3,989 3,926
Net Income before tax2,823 1,879 1,839 1,944 1,525
Income Taxes884 592 636 659 523
Net Income1,939 1,287 1,203 1,285 1,002
Pre-tax, pre-provision Net Income2,998 1,912 1,667 1,944 1,525
Income Statement Ratios/Data
Basic earnings per share0.53 0.37 0.41 0.51 0.39
Pre-tax pre-provision earnings2,948 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 Ratio66.08% 67.20% 84.68% 67.23% 72.02%
Average Bank Prime4.25% 3.85% 3.50% 3.50% 3.35%
Average Earning Asset Yield4.37% 4.27% 4.28% 4.32% 4.38%
Average Cost of Funds0.61% 0.56% 0.75% 0.76% 0.78%
Spread3.77% 3.71% 3.53% 3.57% 3.59%
Net impact of free funds0.18% 0.11% 0.22% 0.21% 0.22%
Net Interest Margin3.95% 3.82% 3.75% 3.78% 3.82%
17-Jun 16-Jun 16-Dec 15-Dec
Unaudited Unaudited
Income Statement Highlights - YTD
Interest income13,681 9,036 18,645 16,652
Interest expense1,390 1,158 2,372 2,152
Net interest income12,291 7,878 16,273 14,500
Provision for loan loss125 0 -900 -1,000
Service charges on deposit accounts539 359 779 806
Gain on sale of mortgage loans1,158 1,186 3,038 1,975
Wealth management income724 683 1,367 1,255
Other non-interest income976 786 1,474 2,065
Total non-interest income3,397 3,014 6,658 6,101
Salaries and benefits5,732 4,635 9,544 8,826
Occupancy and equipment1,529 1,143 2,334 2,262
Merger transaction expenses82 0 728 0
Loan and collection248 237 561 565
Other operating expenses3,200 1,957 3,930 3,324
Total non-interest expenses10,791 7,972 17,097 14,977
Net Income before tax4,772 2,920 6,734 6,624
Income Taxes1,476 997 2,293 2,407
Net Income from continuing operations3,296 1,923 4,441 4,217
Income Statement Ratios/Data
Basic earnings per share0.91 0.77 1.7 1.87
Pre-tax pre-provision earnings4,897 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 Ratio68.79% 73.19% 74.56% 72.70%
Average Bank Prime4.10% 3.50% 3.50% 3.50%
Average Earning Asset Yield4.32% 4.41% 4.35% 4.48%
Average Cost of Funds0.58% 0.78% 0.76% 0.77%
Spread3.74% 3.63% 3.59% 3.71%
Net impact of free funds0.14% 0.21% 0.21% 0.19%
Net Interest Margin3.89% 3.84% 3.80% 3.90%


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

Source:Fentura Financial, Inc.