Fentura Financial, Inc. Announces First Quarter 2018 Results

(Dollars in thousands except per share amounts. Certain items in the prior period financial statements have been reclassified to conform with March 31, 2018 presentation)

FENTON, Mich., May 08, 2018 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. (OTCQX:FETM) announces another strong quarter with net income of $2,074 for the three-month period ended March 31, 2018.

• 61.15% increase in net income over the first quarter of 2017
• Return on average assets of 1.05% in the first quarter of 2018 vs 0.75% in the first quarter of 2017
• 50.00% increase in earnings per share over the first quarter of 2017
• 18.43% annualized increase in stock trading price over December 31, 2017
• 2.02% increase in gross loans since December 31, 2017
• 1.52% increase in total deposits since December 31, 2017

Ronald L. Justice, President and CEO said, “Once again, I am proud of the momentum created from our team’s continued focus on improving operating results through organic growth within our core markets.  These efforts are clearly reflected in improvement in net interest income from continued balance sheet growth.”

As shown below, our strong financial results have driven strong total returns to the Corporation’s shareholders. 

				FETM Quarter To Date Total Return (Annualized)
				3/31/18			12/31/17			9/30/17			6/30/17			3/31/17
Increase in Price				18.43	%		9.32	%		4.38	%		5.56	%		50.00	%
Cash Dividends				1.27	%		1.08	%		1.10	%		1.11	%		1.25	%
Total Return				19.70	%		10.41	%		5.48	%		6.67	%		51.25	%

Balance Sheet Breakdown and Analysis

		3/31/18				12/31/17				9/30/17				6/30/17				3/31/17
ASSETS
Cash and cash equivalents		$	15,154			$	15,928			$	16,450			$	29,487			$	68,202
Total securities			49,608				55,323				67,155				70,699				72,472
Loans held for sale			4,980				2,067				4,835				4,664				514
Gross loans			686,140				672,530				628,552				591,753				554,415
Less allowance for loan losses			3,725				3,603				3,262				3,092				2,877
Net loans			682,415				668,927				625,290				588,661				551,538
All other assets			37,786				39,198				43,237				37,000				37,910
Total assets		$	789,943			$	781,443			$	756,967			$	730,511			$	730,636
LIABILITIES AND   SHAREHOLDERS' EQUITY
Total deposits		$	683,775			$	673,505			$	625,588			$	614,167			$	630,055
Total borrowed funds			44,600				46,000				68,000				59,000				45,000
Accrued interest and other liabilities			947				2,491				6,218				3,089				3,765
Total liabilities			729,322				721,996				699,806				676,256				678,820
Total shareholders' equity			60,621				59,447				57,161				54,255				51,816
Total liabilities and   shareholders' equity		$	789,943			$	781,443			$	756,967			$	730,511			$	730,636
Selected Ratios
Net loans to total deposits			99.80	%			99.32	%			99.95	%			95.85	%			87.54	%
ALLL to gross loans			0.54	%			0.54	%			0.52	%			0.52	%			0.52	%
Book value per share		$	16.68			$	16.37			$	15.75			$	14.96			$	14.31
Tangible book value per share		$	15.31			$	14.96			$	14.25			$	13.42			$	12.72
Total capital to risk weighted assets*			10.61	%			10.46	%			10.21	%			10.36	%			10.89	%
Tier 1 capital to risk weighted assets*			10.06	%			9.91	%			9.70	%			9.84	%			10.36	%
CET1 capital to risk weighted assets*			10.06	%			9.91	%			9.70	%			9.84	%			10.36	%
Tier 1 capital to average assets*			8.65	%			8.57	%			8.62	%			8.30	%			7.96	%
*The State Bank
		3/31/2018 vs 12/31/2017												3/31/2018 vs 3/31/2017
		$ Variance				% Variance								$ Variance				% Variance
ASSETS
Cash and cash equivalents		$	(774	)			-4.86	%						$	(53,048	)			-77.78	%
Total securities			(5,715	)			-10.33	%							(22,864	)			-31.55	%
Loans held for sale			2,913				140.93	%							4,466				868.87	%
Gross loans			13,610				2.02	%							131,725				23.76	%
Less allowance for loan losses			122				3.39	%							848				29.48	%
Net loans			13,488				2.02	%							130,877				23.73	%
All other assets			(1,412	)			-3.60	%							(124	)			-0.33	%
Total assets		$	8,500				1.09	%						$	59,307				8.12	%
LIABILITIES AND   SHAREHOLDERS' EQUITY
Total deposits		$	10,270				1.52	%						$	53,720				8.53	%
Total borrowed funds			(1,400	)			-3.04	%							(400	)			-0.89	%
Accrued interest and other liabilities			(1,544	)			-61.98	%							(2,818	)			-74.85	%
Total liabilities			7,326				1.01	%							50,502				7.44	%
Total shareholders' equity			1,174				1.97	%							8,805				16.99	%
Total liabilities and   shareholders' equity		$	8,500				1.09	%						$	59,307				8.12	%
Selected Ratios
Net loans to total deposits							0.48	%											12.26	%
ALLL to gross loans							0.00	%											0.02	%
Book value per share		$	0.31				1.89	%						$	2.37				2.17	%
Tangible book value per share		$	0.35				2.34	%						$	2.59				2.75	%
Total capital to risk weighted assets*							0.15	%											-0.28	%
Tier 1 capital to risk weighted assets*							0.15	%											-0.30	%
CET1 capital to risk weighted assets*							0.15	%											-0.30	%
Tier 1 capital to average assets*							0.08	%											0.69	%

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

		3/31/18				12/31/17				9/30/17			6/30/17				3/31/17
Commercial real estate		$	339,666			$	330,337			$	297,292		$	265,627			$	251,530
Residential real estate			237,677				234,032				230,994			220,000				204,461
Commercial			51,411				51,250				48,553			54,063				50,916
Home equity			46,026				44,602				39,951			38,434				31,135
Installment			11,360				12,309				11,754			13,628				16,213
Total loans		$	686,140			$	672,530			$	628,544		$	591,752			$	554,255
		3/31/2018 vs 12/31/2017											3/31/2018 vs 3/31/2017
		$ Variance				% Variance							$ Variance				% Variance
Commercial real estate		$	9,329				2.82	%					$	88,136				35.04	%
Residential real estate			3,645				1.56	%						33,216				16.25	%
Commercial			161				0.31	%						495				0.97	%
Home equity			1,424				3.19	%						14,891				47.83	%
Installment			(949	)			-7.71	%						(4,853	)			-29.93	%
Total loans		$	13,610				2.02	%					$	131,885				23.80	%

During the first quarter of 2018, the Corporation continued to drive loan growth through actively pursuing opportunities in existing market areas without sacrificing underwriting standards.  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:

		3/31/18				12/31/17				9/30/17			6/30/17				3/31/17
Demand		$	224,486			$	216,607			$	208,494		$	217,504			$	213,538
Savings			227,987				224,558				229,471			223,274				230,235
Money market demand			59,370				67,387				68,567			55,736				62,229
NOW			2,984				2,253				3,565			2,810				2,554
Time deposits			168,948				162,700				115,491			114,843				121,499
Total deposits		$	683,775			$	673,505			$	625,588		$	614,167			$	630,055
		3/31/2018 vs 12/31/2017											3/31/2018 vs 3/31/2017
		$ Variance				% Variance							$ Variance				% Variance
Demand		$	7,879				3.64	%					$	10,948				5.13	%
Savings			3,429				1.53	%						(2,248	)			-0.98	%
Money market demand			(8,017	)			-11.90	%						(2,859	)			-4.59	%
NOW			731				32.45	%						430				16.84	%
Time deposits			6,248				3.84	%						47,449				39.05	%
Total deposits		$	10,270				1.52	%					$	53,720				8.53	%

Like loans, total deposits 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.  The Corporation is implementing several strategic initiatives geared at accelerating deposit growth in upcoming periods to ensure that we have sufficient organic funding to meet loan demands.

Income Statement Breakdown and Analysis

		Quarter to Date
		3/31/18				12/31/17				9/30/17				6/30/17				3/31/17
Interest and dividend income
Loans, including fees		$	8,038			$	8,524			$	7,226			$	6,931			$	6,084
Investments			341				341				339				323				343
Total interest and dividend income			8,379				8,865				7,565				7,254				6,427
Total interest expense			1,031				939				792				702				687
Net interest income			7,348				7,926				6,773				6,552				5,740
Provision for loan losses			275				348				136				125				-
Net interest income, after provision for loan losses			7,073				7,578				6,637				6,427				5,740
Total noninterest income			1,801				2,220				3,396				2,138				1,234
Total noninterest expenses			6,279				7,400				5,581				5,742				5,095
Income before federal income taxes			2,595				2,398				4,452				2,823				1,879
Federal income taxes			521				236				1,164				884				592
Net income		$	2,074			$	2,162			$	3,288			$	1,939			$	1,287
		Quarter to Date
		3/31/18				12/31/17				9/30/17				6/30/17				3/31/17
Based on GAAP net income
Return on Average Assets			1.05	%			1.11	%			1.76	%			1.09	%			0.75	%
Efficiency Ratio			68.63	%			72.94	%			54.88	%			66.08	%			73.06	%
Earnings Per Share		$	0.57			$	0.60			$	0.91			$	0.53			$	0.35
Yield on Earning Assets			4.55	%			5.13	%			4.40	%			4.45	%			4.19	%
Rate on Int. Bearing Liabilities			0.82	%			0.82	%			0.67	%			0.57	%			0.55	%
Net Interest Margin to Earning Assets			3.99	%			4.59	%			3.94	%			4.02	%			3.74	%
GAAP net income		$	2,074			$	2,162			$	3,288			$	1,939			$	1,287
Provision for loan losses (net of tax)			217				229				90				83				-
Acquisition related items (net of tax)
Accretion on purchased loans			(250	)			(676	)			(179	)			(175	)			(173	)
Amortization of core deposit intangible			107				105				104				104				104
Acquisition related expenses			-				296				-				-				-
Accretion on acquired OREO			-				-				-				(53	)			-
Amortization on acquired time deposits			9				10				10				9				9
Amortization on purchased MSRs			6				8				8				7				7
Total acquisition related items (net of tax)			(128	)			(257	)			(57	)			(108	)			(53	)
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			(323	)			-				-				-				-
Total one-time and other items (net of tax)			(323	)			(489	)			(1,327	)			-				-
Adjusted net income from operations		$	1,840			$	1,645			$	1,994			$	1,914			$	1,234
GAAP net interest income		$	7,348			$	7,926			$	6,773			$	6,552			$	5,740
Accretion on purchased loans			(317	)			(1,021	)			(272	)			(266	)			(263	)
Amortization on acquired time deposits			12				15				15				14				14
Adjusted net interest income		$	7,043			$	6,920			$	6,516			$	6,300			$	5,491
Based on adjusted net income from operations
Return on Average Assets			0.93	%			0.84	%			1.07	%			1.08	%			0.72	%
Efficiency Ratio			69.41	%			74.22	%			63.73	%			66.73	%			73.29	%
Earnings Per Share		$	0.51			$	0.45			$	0.55			$	0.53			$	0.34
Based on adjusted net interest income
Yield on Earning Assets			4.38	%			4.54	%			4.24	%			4.29	%			4.01	%
Rate on Int. Bearing Liabilities			0.83	%			0.83	%			0.68	%			0.58	%			0.56	%
Net Interest Margin to Earning Assets			3.83	%			4.01	%			3.79	%			3.87	%			3.58	%

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.  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, increased in the first quarter of 2018 when compared to the fourth quarter of 2017.

The Corporation has also been successful at consistently increasing adjusted net interest income.  This increase continues to be primarily driven through increases in loans.  Despite the strong growth in the loan portfolio, the Corporation has maintained relatively strong interest margins.  As the Corporation expects to grow its loan portfolio throughout 2018, net interest income is expected to continue to increase.

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.

Contact:                 Ronald L. Justice
                                President & CEO
                                Fentura Financial, Inc.
                                810.714.3902