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CST: 24/11/2020 00:37:45   

Fentura Financial, Inc. Announces First Quarter 2019 Earnings

574 Days ago

Dollars in thousands except per share amounts.  Certain items in the prior period financial statements have been reclassified to conform with March 31, 2019 presentation.

FENTON, Mich., April 29, 2019 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. (OTCQX: FETM) announces continued strong earnings with net income of $2,514 for the three-month period ended March 31, 2019.

  • 21.22% increase in net income over the first quarter of 2018
  • 13.60% increase in net interest income since March 31, 2018
  • 4.87% increase in gross loans since December 31, 2018
  • 18.03% increase in gross loans since March 31, 2018
  • 3.46% increase in total deposits since December 31, 2018
  • 15.47% increase in total deposits since March 31, 2018

Ronald L. Justice, President and CEO said, “The momentum that we built in 2018 has continued into 2019. We have had four consecutive quarters of net interest income growth. I continue to be extremely proud of our team, the results that they continue to produce and the work that they do in the communities we serve.”

Following are the Corporation's interim condensed consolidated balance sheets and interim condensed consolidated statements of income as well as a discussion and detailed analysis as of and for the quarter ended March 31, 2019.  At the end of this document is a list of abbreviations and acronyms.


Interim Condensed Consolidated Balance Sheets (Unaudited)

  March 31, 2019   December 31, 2018
ASSETS      
Cash and due from banks $ 16,509     $ 19,412  
Federal funds sold     4,000  
       
Cash and cash equivalents 16,509     23,412  
       
Securities, AFS 77,347     89,854  
Securities, HTM 2,965     2,971  
Equity securities 1,910     1,896  
       
Total investment securities 82,222     94,721  
       
Loans held for sale 1,835     903  
       
Gross Loans 809,863     772,227  
Less ALLL 4,745     4,488  
       
Net loans 805,118     767,739  
       
Premises and equipment, net 14,838     14,761  
BOLI 10,070     10,007  
MSR 3,414     3,406  
Accrued interest receivable 3,298     3,020  
Goodwill 3,219     3,219  
FHLB stock 3,150     3,150  
Core deposit intangibles 1,241     1,353  
OREO     32  
Other assets 1,258     727  
       
Total assets $ 946,172     $ 926,450  
       
LIABILITIES AND SHAREHOLDERS' EQUITY      
       
Noninterest-bearing deposits $ 237,213     $ 233,954  
Interest-bearing deposits 552,320     529,170  
       
Total deposits 789,533     763,124  
       
FHLB advances 40,000     55,000  
Subordinated debentures 14,000     14,000  
Federal funds purchased 5,000      
Accrued interest and other liabilities 5,403     4,810  
       
Total liabilities 853,936     836,934  
       
Shareholders' equity      
Common stock, no par value; 5,000,000 shares authorized, 4,648,965 issued and
outstanding (4,636,455 in 2018)
79,982     79,863  
Retained earnings 12,178     9,988  
Accumulated other comprehensive income (loss) 76     (335 )
       
Total shareholders' equity 92,236     89,516  
       
Total liabilities and shareholders' equity $ 946,172     $ 926,450  


Interim Condensed Consolidated Statements of Income (Unaudited)

  Three Months Ended March 31
  2019   2018
Interest and dividend income      
Loans, including fees $ 9,741     $ 8,038  
Investments      
Taxable 559     193  
Tax-exempt 60     64  
Cash and cash equivalents 25     23  
FHLB Stock 52     61  
       
Total interest and dividend income 10,437     8,379  
       
Interest expense      
Deposits 1,601     716  
Borrowings 489     315  
       
Total interest expense 2,090     1,031  
Net interest income 8,347     7,348  
Provision for loan losses 213     275  
Net interest income, after provision for loan losses 8,134     7,073  
       
Noninterest income      
ATM and debit card income 360     354  
Trust and investment services 328     383  
Service charges on deposit accounts 234     259  
Mortgage servicing fees 211     186  
Net gain on sales of mortgage loans 195     215  
Net gain on sales of commercial loans     150  
Other income and fees 194     254  
       
Total noninterest income 1,522     1,801  
       
Noninterest expenses      
Compensation 3,630     3,317  
Professional services 723     649  
Furniture and equipment 491     463  
Occupancy 437     427  
Advertising and promotional 163     124  
Telephone and communication 111     95  
Loan and collection 110     129  
Other general and administrative 844     1,075  
       
Total noninterest expenses 6,509     6,279  
Income before federal income taxes 3,147     2,595  
Federal income taxes 633     521  
Net income $ 2,514     $ 2,074  
       
Earnings per share $ 0.54     $ 0.57  

Income Statement Breakdown and Analysis

    Quarter to Date
    3/31/2019   12/31/2018   9/30/2018   6/30/2018   3/31/2018
Interest and dividend income                    
Loans, including fees   $ 9,741     $ 9,132     $ 8,768     $ 8,433     $ 8,038  
Investments   696     799     543     296     341  
Total interest and dividend income   10,437     9,931     9,311     8,729     8,379  
Total interest expense   2,090     1,926     1,638     1,232     1,031  
Net interest income   8,347     8,005     7,673     7,497     7,348  
Provision for loan losses   213     290     191     301     275  
Net interest income, after provision for loan losses   8,134     7,715     7,482     7,196     7,073  
Total noninterest income   1,522     1,703     2,760     2,013     1,801  
Total noninterest expenses   6,509     6,907     6,075     6,049     6,279  
Income before federal income taxes   3,147     2,511     4,167     3,160     2,595  
Federal income taxes   633     502     654     642     521  
Net income   $ 2,514     $ 2,009     $ 3,513     $ 2,518     $ 2,074  
                     
    Quarter to Date
    3/31/2019   12/31/2018   9/30/2018   6/30/2018   3/31/2018
Average Total Assets   $ 934,078     $ 917,242     $ 866,253     $ 805,794     $ 789,391  
Average Earning Assets   $ 902,484     $ 884,694     $ 833,909     $ 773,308     $ 755,281  
Average Interest Bearing Liabilities   $ 604,973     $ 592,878     $ 565,908     $ 514,012     $ 505,174  
Average Total Equity   $ 91,964     $ 80,781     $ 65,541     $ 62,333     $ 60,107  
Average Tangible Equity   $ 84,025     $ 72,742     $ 57,419     $ 54,254     $ 51,962  
Average earned shares outstanding   4,635,255     4,332,665     3,643,151     3,637,799     3,633,093  
Average unvested stock grants   9,788     3,022              
Average total shares outstanding   4,645,043     4,335,687     3,643,151     3,637,799     3,633,093  
                     
Based on GAAP net income                    
Return on Average Assets   1.08 %   0.88 %   1.62 %   1.25 %   1.05 %
Return on Average Equity   10.93 %   9.95 %   21.44 %   16.16 %   13.80 %
Return on Average Tangible Equity   11.97 %   11.05 %   24.47 %   18.56 %   15.97 %
Efficiency Ratio   65.95 %   71.15 %   58.23 %   63.61 %   68.63 %
Earnings Per Share   $ 0.54     $ 0.46     $ 0.96     $ 0.69     $ 0.57  
Yield on Earning Assets   4.63 %   4.49 %   4.47 %   4.52 %   4.44 %
Rate on Interest Bearing Liabilities   1.38 %   1.30 %   1.16 %   0.96 %   0.82 %
Net Interest Margin to Earning Assets   3.71 %   3.63 %   3.69 %   3.89 %   3.90 %


    Quarter to Date
    3/31/2019   12/31/2018   9/30/2018   6/30/2018   3/31/2018
GAAP net income   $ 2,514     $ 2,009     $ 3,513     $ 2,518     $ 2,074  
Provision for loan losses (net of tax)   168     229     151     238     217  
Acquisition related items (net of tax)                    
Accretion on purchased loans   (175 )   (167 )   (116 )   (255 )   (250 )
Amortization of core deposit intangible   89     107     107     107     107  
Amortization on acquired time deposits   7     9     9     9     9  
Amortization on purchased MSRs   3     6     6     6     6  
Total acquisition related items (net of tax)   (76 )   (45 )   6     (133 )   (128 )
One-time and other items (net of tax)                    
Net gain from BOLI death benefit           (933 )        
Total one-time and other items (net of tax)           (933 )        
  Adjusted net income from operations   $ 2,606     $ 2,193     $ 2,737     $ 2,623     $ 2,163  
                     
GAAP net interest income   $ 8,347     $ 8,005     $ 7,673     $ 7,497     $ 7,348  
Accretion on purchased loans   (222 )   (211 )   (147 )   (323 )   (317 )
Amortization on acquired time deposits   9     12     12     12     12  
Adjusted net interest income   $ 8,134     $ 7,806     $ 7,538     $ 7,186     $ 7,043  
                     
Based on adjusted net income from operations                    
Return on Average Assets   1.12 %   0.96 %   1.26 %   1.30 %   1.10 %
Return on Average Equity   11.33 %   10.86 %   16.70 %   16.83 %   14.39 %
Return on Average Tangible Equity   12.41 %   12.06 %   19.07 %   19.34 %   16.65 %
Efficiency Ratio   66.23 %   71.15 %   63.37 %   64.24 %   69.41 %
Earnings Per Share   $ 0.56     $ 0.51     $ 0.75     $ 0.72     $ 0.60  
                     
Based on adjusted net interest income                    
Yield on Earning Assets   4.65 %   4.50 %   4.51 %   4.45 %   4.38 %
Rate on Interest Bearing Liabilities   1.39 %   1.31 %   1.17 %   0.97 %   0.83 %
Net Interest Margin to Earning Assets   3.70 %   3.62 %   3.71 %   3.80 %   3.83 %


    Year to Date March 31   Variance
    2019   2018   Amount   %
Interest and dividend income                
Loans, including fees   $ 9,741     $ 8,038     $ 1,703     21.19 %
Investments   696     341     355     104.11 %
Total interest and dividend income   10,437     8,379     2,058     24.56 %
Total interest expense   2,090     1,031     1,059     102.72 %
Net interest income   8,347     7,348     999     13.60 %
Provision for loan losses   213     275     (62 )   (22.55 )%
Net interest income, after provision for loan losses   8,134     7,073     1,061     15.00 %
Total noninterest income   1,522     1,801     (279 )   (15.49 )%
Total noninterest expenses   6,509     6,279     230     3.66 %
Income before federal income taxes   3,147     2,595     552     21.27 %
Federal income taxes   633     521     112     21.50 %
Net income   $ 2,514     $ 2,074     $ 440     21.22 %
                 
    Year to Date March 31   Variance
    2019   2018   Amount   %
Average Total Assets   $ 934,078     $ 789,391     $ 144,687         18.33 %
Average Earning Assets   $ 902,484     $ 755,281     $ 147,203     19.49 %
Average Interest Bearing Liabilities   $ 604,973     $ 505,174     $ 99,799     19.76 %
Average Total Equity   $ 91,964     $ 60,107     $ 31,857     53.00 %
Average Tangible Equity   $ 84,025     $ 51,962     $ 32,063     61.70 %
Average earned shares outstanding   4,635,255     3,633,093     1,002,162     27.58 %
Average unvested stock grants   9,788         9,788     N/M  
Average total shares outstanding   4,645,043     3,633,093     1,011,950     27.85 %
                 
Based on GAAP net income                
Return on Average Assets   1.08 %   1.05 %       0.03 %
Return on Average Equity   10.93 %   13.80 %       (2.87 )%
Return on Average Tangible Equity   11.97 %   15.97 %       (4 )%
Efficiency Ratio   54.43 %   61.68 %       (7.25 )%
Earnings Per Share   $ 0.54     $ 0.57     $ (0.03 )   (5.26 )%
Yield on Earning Assets   4.63 %   4.44 %       0.19 %
Rate on Interest Bearing Liabilities   1.38 %   0.82 %       0.56 %
Net Interest Margin to Earning Assets   3.71 %   3.90 %       (0.19 )%


    Year to Date March 31   Variance
    2019   2018   Amount   %
GAAP net income   $ 2,514     $ 2,074     $ 440        21.22 %
Provision for loan losses (net of tax)   168     217     (49 )   (22.58 )%
Acquisition related items (net of tax)                
Accretion on purchased loans   (175 )   (250 )   75     (30.00 )%
Amortization of core deposit intangible   89     107     (18 )   (16.82 )%
Amortization on acquired time deposits   7     9     (2 )   (22.22 )%
Amortization on purchased MSRs   3     6     (3 )   (50.00 )%
Total acquisition related items (net of tax)   (76 )   (128 )   52     (40.63 )%
One-time and other items (net of tax)                
Net gain from BOLI death benefit               N/M  
Total one-time and other items (net of tax)               N/M  
  Adjusted net income from operations   $ 2,606     $ 2,163     443     20.48 %
                 
GAAP net interest income   $ 8,347     $ 7,348     $ 999     13.60 %
Accretion on purchased loans   (222 )   (317 )   95     (29.97 )%
Amortization on acquired time deposits   9     12     (3 )   (25.00 )%
Adjusted net interest income   $ 8,134     $ 7,043     $ 1,091     15.49 %
                 
Based on adjusted net income from operations                
Return on Average Assets   1.12 %   1.10 %       0.02 %
Return on Average Equity   11.33 %   14.39 %       (3.06 )%
Return on Average Tangible Equity   12.41 %   16.65 %       (4.24 )%
Efficiency Ratio   66.23 %   69.41 %       (3.18 )%
Earnings Per Share   $ 0.56     $ 0.60     $ (0.04 )   (6.67 )%
                 
Based on adjusted net interest income                
Yield on Earning Assets   4.65 %   4.38 %       0.27 %
Rate on Interest Bearing Liabilities   1.39 %   0.83 %       0.56 %
Net Interest Margin to Earning Assets   3.70 %   3.83 %       (0.13 )%

To effectively compare core operating results from period to period, the impact of the provision for loan losses and acquisition related 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. The Corporation's net interest income and adjusted net interest income have grown in each of the last four quarters.

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 healthy interest margins. Through 2019, the Corporation expects to see a continued increase in net interest income. This increase will primarily be driven by loan growth. The Corporation expects net interest margin to earning assets to decrease as the rates paid on interest bearing liabilities are expected to increase faster than those earned on interest earning assets. The Corporation's strategy of continuing growth in non-maturity deposits will help to flatten the growth in rates paid on interest bearing liabilities.

Noninterest Income

    Quarter to Date
    3/31/2019   12/31/2018   9/30/2018   6/30/2018   3/31/2018
ATM and debit card income   $ 360     $ 397     $ 386     $ 388     $ 354  
Trust and investment services   328     372     444     392     383  
Service charges on deposit accounts   234     259     273     253     259  
Mortgage servicing fees   211     208     199     192     186  
Net gain on sales of mortgage loans   195     162     277     187     215  
Net gain on sales of commercial loans               368     150  
Other income and fees   194     305     1,181     233     254  
Total noninterest income   $ 1,522     $ 1,703     $ 2,760     $ 2,013     $ 1,801  


    Year to Date March 31   Variance
    2019   2018   Amount   %
ATM and debit card income   $ 360     $ 354     $ 6            1.69 %
Trust and investment services   328     383     (55 )   (14.36 )%
Service charges on deposit accounts   234     259     (25 )   (9.65 )%
Mortgage servicing fees   211     186     25     13.44 %
Net gain on sales of mortgage loans   195     215     (20 )   (9.30 )%
Net gain on sales of commercial loans       150     (150 )   (100.00 )%
Other income and fees   194     254     (60 )   (23.62 )%
Total noninterest income   $ 1,522     $ 1,801     $ (279 )   (15.49 )%

ATM and debit card income are fees earned on ATM and debit card transactions. The Corporation expects these fees to increase modestly throughout 2019.

Trust and investment services include income the Corporation earns from its contracts with customers to manage assets for investment, and/or to transact on their accounts. The wealth management component is strongly correlated to changes in the stock market and as such, can vary from period to period.  Trust and investment services income is expected to increase throughout 2019.

Service charges on deposit accounts include fees earned from the Corporation's deposit customers for transaction-based, account maintenance and overdraft services. The decrease in service charges on deposit accounts is a result of declines in NSF fees as well as a shift of customer demand toward deposit accounts with no or reduced service charges. Service charges on deposit accounts are expected to approximate current levels throughout the remainder of the year.

Mortgage servicing fees include the fees that the Corporation earns for servicing loans that have been sold into the secondary market. The increase in mortgage servicing fees is directly related to the increases in the size of the serviced portfolio.  Mortgage servicing fees are expected to continue to increase throughout the year as mortgage demand remains strong.

Net gain on sales of mortgage loans represents the income earned on the sale of residential mortgage loans into the secondary market.  The first three months of the year are typically the lowest in terms of mortgage activity.  In the first quarter of 2018, the Corporation sold a pool of residential mortgages that was previously held in its loan portfolio which generated a gain of $47.  Excluding the impact of this sale, net gains from the sales of mortgage loans increased by $27 when the first three months of 2019 are compared to the same period in 2019 and this trend is expected to continue throughout the remainder of the year.

Net gain on sales of commercial loans includes the income earned on the sale of commercial loans into the secondary market. There were no sales for the three months ending March 31, 2019. The Corporation continues to analyze the portfolio for opportunities and will sell commercial loans into the secondary market when deemed financially beneficial.

Other income and fees include rental income, net originated MSR, and the increase in the cash surrender value of BOLI, among other miscellaneous income items. The 23.62% decrease in other income and fees is largely due to a decline in MSR income.  Other income and fees are expected to increase modestly throughout the remainder of the year.

Noninterest Expenses

    Quarter to Date
    3/31/2019   12/31/2018   9/30/2018   6/30/2018   3/31/2018
Compensation   $ 3,630     $ 3,429     $ 3,359     $ 3,316     $ 3,317  
Professional services   723     1,030     545     531     649  
Furniture and equipment   491     508     486     441     463  
Occupancy   437     416     379     417     427  
Advertising and promotional   163     198     177     219     124  
Telephone and communication   111     107     106     105     95  
Loan and collection   110     134     135     139     129  
Other general and administrative   844     1,085     888     881     1,075  
Total noninterest expenses   $ 6,509     $ 6,907     $ 6,075     $ 6,049     $ 6,279  


    Year to Date March 31   Variance
    2019   2018   Amount   %
Compensation   $ 3,630     $ 3,317     $ 313           9.44 %
Professional services   723     649     74     11.40 %
Furniture and equipment   491     463     28     6.05 %
Occupancy   437     427     10     2.34 %
Advertising and promotional   163     124     39     31.45 %
Telephone and communication   111     95     16     16.84 %
Loan and collection   110     129     (19 )   (14.73 )%
Other general and administrative   844     1,075     (231 )   (21.49 )%
Total noninterest expenses   $ 6,509     $ 6,279     $ 230     3.66 %

Compensation includes all compensation and benefits paid to the Corporation's employees. Compensation has increased, and is expected to continue to increase, due to the continued growth in size and complexity of the organization.

Professional services include expenses relating to third-party professional services. These services include, but are not limited to, data processing, regulatory, auditing, consulting, and legal. These fees, much like compensation related expenses, are attributable to the growing size and complexity of the Corporation. The increase is largely attributable to increases in audit and accounting expenses and other outside services. These expenses are expected to approximate their current levels for the remainder of the year.

Furniture and equipment and occupancy expenses primarily consist of depreciation, repairs and maintenance, property taxes, utilities, insurance, and other related items. These expenses are expected to approximate current levels throughout the remainder of the year.

Advertising and promotional includes the Corporation's media costs and any donations or sponsorships made on behalf of the Corporation. The increase in expenses is a direct result of the Corporation enhancing its marketing to attract new and expand existing customer loans and deposit accounts. These expenses are expected to approximate current levels throughout the remainder of the year.

Telephone and communication include expenses relating to the Corporation's communication systems. These expenses have also increased due to the growth in size and complexity of the organization and are expected to approximate current levels for the remainder of the year.

Loan and collection include expenses related to the origination and collection of loans, as well as expenses related to OREO. The Corporation does not expect any significant fluctuations in 2019.

Other general and administrative includes the amortization of core deposit intangibles, FDIC assessment, ATM & debit card expenses, miscellaneous office supplies, among other miscellaneous expense items. These expenses are expected to approximate current levels for the reminder of the year.

Average Balances, Interest Rate, and Net Interest Income

The following table present the daily average amount outstanding for each major category of interest earning assets, non-earning assets, interest bearing liabilities, and noninterest bearing liabilities. These tables also present an analysis of interest income and interest expense for the periods indicated. All interest income is reported on a FTE basis using a federal income tax rate of 21%. Loans in nonaccrual status, for the purpose of the following computations, are included in the average loan balances.

    Three Months Ended
    March 31, 2019   December 31, 2018   March 31, 2018
     Average
Balance
   Tax
Equivalent
Interest
  Average
Yield /
Rate
   Average
Balance
   Tax
Equivalent
Interest
  Average
Yield /
Rate
   Average
Balance
   Tax
Equivalent
Interest
  Average
Yield /
Rate
Interest earning assets                                    
Total loans   $ 791,069     $ 9,741     4.99 %   $ 746,934     $ 9,132     4.85 %   $ 678,591     $ 8,038     4.80 %
Taxable investment
   securities (1)
  79,367     559     2.86 %   78,496     541     2.73 %   39,443     193     1.98 %
Nontaxable investment
   securities
  10,582     76     2.91 %   10,732     76     2.81 %   12,978     81     2.53 %
Federal funds sold   43         %   25,269     141     2.21 %   3,775     14     1.50 %
Cash   18,273     25     0.55 %   20,113     19     0.37 %   17,569     9     0.21 %
Federal Home Loan Bank
   stock
  3,150     52     6.69 %   3,150     38     4.79 %   2,925     61     8.46 %
Total earning assets   902,484     10,453     4.70 %   884,694     9,947     4.46 %   755,281     8,396     4.51 %
                                     
Non-earning assets                                    
ALLL   (4,591 )           (4,215 )           (3,645 )        
Fixed assets   14,818             14,874             14,582          
Accrued income and
   other assets
  21,367             21,889             23,173          
Total assets   $ 934,078             $ 917,242             $ 789,391          
                                     
Interest bearing liabilities                                    
Interest bearing demand
   deposits
  $ 73,414     $ 84     0.46 %   $ 64,805     $ 53     0.32 %   $ 64,724     $ 22     0.14 %
Savings deposits   241,815     297     0.50 %   237,486     215     0.36 %   243,706     123     0.20 %
Time deposits   225,866     1,220     2.19 %   228,953     1,204     2.09 %   149,397     571     1.55 %
Borrowed funds   63,878     489     3.10 %   61,634     454     2.92 %   47,347     315     2.70 %
Total interest bearing
   liabilities
  604,973     2,090     1.40 %   592,878     1,926     1.30 %   505,174     1,031     0.83 %
                                     
Noninterest bearing
   liabilities
                                   
Noninterest bearing deposits   234,268             240,253             221,255          
Accrued interest and
   other liabilities
  2,873             3,330             2,855          
Shareholders' equity   91,964             80,781             60,107          
Total liabilities and
   shareholders' equity
  $ 934,078             $ 917,242             $ 789,391          
Net interest income (FTE)       $ 8,363             $ 8,021             $ 7,365      
Net yield on interest
   earning assets (FTE)
          3.76 %           3.60 %           3.95 %

(1) Includes taxable AFS securities and equity securities.


Volume and Rate Variance Analysis

The following table sets forth the effect of volume and rate changes on interest income and expense for the periods indicated. For the purpose of this table, changes in interest due to volume and rate were determined as follows:

Volume - change in volume multiplied by the previous period's rate.
Rate - change in the FTE rate multiplied by the previous period's volume.

The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.

    Three Months Ended   Three Months Ended
    March 31, 2019   March 31, 2019
    Compared To   Compared To
    December 31, 2018   March 31, 2018
    Increase (Decrease) Due to   Increase (Decrease) Due to
     Volume    Rate   Net    Volume    Rate   Net
Changes in interest income                        
Total Loans   $ 534     $ 75     $ 609     $ 1,356     $ 347     $ 1,703  
Taxable Investment Securities   8     10     18     257     109     366  
Nontaxable Investment Securities   (1 )   1         (38 )   33     (5 )
Fed Funds Sold   (70 )   (71 )   (141 )   (7 )   (7 )   (14 )
Cash   (1 )   7     6         16     16  
FHLB Stock       14     14     6     (15 )   (9 )
Total changes in interest income   470     36     506     1,574     483     2,057  
                         
Changes in interest expense                        
Interest Bearing Demand Deposits   8     23     31     3     59     62  
Savings Deposits   4     78     82     (1 )   175     174  
Time Deposits   (37 )   53     16     356     293     649  
Borrowed Funds   17     18     35     122     52     174  
Total changes in interest expense   (8 )   172     164     480     579     1,059  
Net change in net interest income (FTE)   $ 478     $ (136 )   $ 342     $ 1,094     $ (96 )   $ 998  


    Average Yield/Rate for the Three Month Periods Ended:
    3/31/2019   12/31/2018   9/30/2018   6/30/2018   3/31/2018
Total earning assets     4.70 %     4.46 %     4.44 %     4.54 %     4.51 %
Total interest bearing liabilities   1.40 %   1.30 %   1.15 %   0.96 %   0.83 %
Net yield on interest earning assets (FTE)   3.76 %   3.60 %   3.66 %   3.90 %   3.95 %


    Quarter to Date Net Interest Income (FTE)
    3/31/2019   12/31/2018   9/30/2018   6/30/2018   3/31/2018
Total interest income (FTE)   10,453     9,947     9,327     8,744     8,396  
Total interest expense   2,090     1,926     1,638     1,232     1,031  
Net interest income (FTE)   $ 8,363     $ 8,021     $ 7,689     $ 7,512     $ 7,365  

As outlined in the previous tables, the Corporation has increased net interest income primarily through increases in volume.  Despite recent increases in funding costs, the Corporation has been able to increase the net yield on interest earning assets for the three month period ended March 31, 2019 through increases in yields on loans. Net interest margins are expected to approximate current levels for the remainder of the year.
Balance Sheet Breakdown and Analysis

    3/31/2019   12/31/2018   9/30/2018   6/30/2018   3/31/2018
ASSETS                    
Cash and cash equivalents   $ 16,509     $ 23,412     $ 63,469     $ 44,280     $ 15,154  
Total investment securities   82,222     94,721     79,531     49,110     49,608  
Loans held for sale   1,835     903     2,021     4,936     4,980  
Gross Loans   809,863     772,227     728,302     707,364     686,140  
Less ALLL   4,745     4,488     4,146     4,033     3,725  
Net loans   805,118     767,739     724,156     703,331     682,415  
All other assets   40,488     39,675     40,724     39,802     37,786  
Total assets   $ 946,172     $ 926,450     $ 909,901     $ 841,459     $ 789,943  
                     
LIABILITIES AND SHAREHOLDERS' EQUITY                    
Total deposits   $ 789,533     $ 763,124     $ 766,587     $ 702,035     $ 683,775  
Total borrowed funds   59,000     69,000     74,000     74,000     44,600  
Accrued interest and other liabilities   5,403     4,810     2,974     2,346     947  
Total liabilities   853,936     836,934     843,561     778,381     729,322  
                     
Total shareholders' equity   92,236     89,516     66,340     63,078     60,621  
Total liabilities and shareholders' equity   $ 946,172     $ 926,450     $ 909,901     $ 841,459     $ 789,943  
                     
Ending number of shares outstanding   4,647,978     4,636,455     3,645,402     3,640,060     3,635,098  
                     
Selected Ratios                    
Net loans to total deposits   101.97 %   100.60 %   94.46 %   100.18 %   99.80 %
ALLL to gross loans   0.59 %   0.58 %   0.57 %   0.57 %   0.54 %
Book value per share   $ 19.84     $ 19.31     $ 18.20     $ 17.33     $ 16.68  
Tangible book value per share   $ 19.58     $ 19.01     $ 17.75     $ 16.86     $ 16.17  
Total capital to risk weighted assets*   12.85 %   12.76 %   10.80 %   10.70 %   10.61 %
Tier 1 capital to risk weighted assets*   12.23 %   12.15 %   10.22 %   10.11 %   10.06 %
CET1 capital to risk weighted assets*   12.23 %   12.15 %   10.22 %   10.11 %   10.06 %
Tier 1 capital to average assets*   10.05 %   9.90 %   8.48 %   8.70 %   8.65 %
                     
*The State Bank                    


    Variance
    3/31/2019 vs 12/31/2018   3/31/2019 vs 3/31/2018
    Amount   %   Amount   %
ASSETS                
Cash and cash equivalents   $ (6,903 )   (29.48 )%   $ 1,355     8.94  %
Total investment securities   (12,499 )   (13.20 )%   32,614     65.74  %
Loans held for sale   932     103.21  %   (3,145 )   (63.15 )%
Gross Loans   37,636     4.87  %   123,723     18.03  %
Less ALLL   257     5.73  %   1,020     27.38  %
Net loans   37,379     4.87  %   122,703     17.98  %
All other assets   813     2.05  %   2,702     7.15  %
Total assets   $ 19,722     2.13  %   $ 156,229     19.78  %
                 
LIABILITIES AND SHAREHOLDERS' EQUITY                
Total deposits   $ 26,409     3.46  %   $ 105,758     15.47  %
Total borrowed funds   (10,000 )   (14.49 )%   14,400     32.29  %
Accrued interest and other liabilities   593     12.33  %   4,456     470.54  %
Total liabilities   17,002     2.03  %   124,614     17.09  %
                 
Total shareholders' equity   2,720     3.04  %   31,615     52.15  %
Total liabilities and shareholders' equity   $ 19,722     2.13  %   $ 156,229     19.78  %
                 
Ending number of shares outstanding   11,523     0.25  %   1,012,880     27.86  %
                 
Selected Ratios                
Net loans to total deposits       1.37  %       2.17  %
ALLL to gross loans       0.01  %       0.05  %
Book value per share   $ 0.53     2.74  %   $ 3.16     18.94  %
Tangible book value per share   $ 0.57     3.00  %   $ 3.41     21.09  %
Total capital to risk weighted assets*       0.09  %       2.24  %
Tier 1 capital to risk weighted assets*       0.08  %       2.17  %
CET1 capital to risk weighted assets*       0.08  %       2.17  %
Tier 1 capital to average assets*       0.15  %       1.40  %
                 
*The State Bank                

Cash and cash equivalents

Cash and cash equivalents fluctuate from period to period based on loan demand and variances in deposit accounts. Cash and cash equivalents are expected to approximate current levels for the foreseeable future.

Total investment securities

During 2018, the Corporation increased total investment securities due to advantageous pricing opportunities. However, since late 2018, yields on bonds that meet the Corporation's investment standards have declined significantly. As such, the Corporation has not replaced maturing investments. Total investment securities are expected to approximate current levels or decline slightly over the remainder of 2019.

Loans held for sale

Loans held for sale  represent the balance of loans that have been committed to be sold to the secondary market, but have not yet been delivered. Loans held for sale  are expected to approximate current levels for the foreseeable future.

Net loans

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

    3/31/2019   12/31/2018   9/30/2018   6/30/2018   3/31/2018
Commercial real estate   $ 394,462     $ 369,043     $ 351,739     $ 344,658     $ 343,265  
Residential real estate   306,466     293,271     274,035     257,776     237,677  
Commercial   56,790     56,583     48,594     49,776     47,812  
Home equity   43,130     43,597     41,136     41,736     42,879  
Installment   9,015     9,733     12,798     13,418     14,507  
Gross loans   $ 809,863     $ 772,227     $ 728,302     $ 707,364     $ 686,140  
                     
    3/31/2019 vs 12/31/2018       3/31/2019 vs 3/31/2018
    Variance       Variance
    Amount   %       Amount   %
Commercial real estate   $ 25,419     6.89 %       $ 51,197     14.91  %
Residential real estate   13,195     4.50 %       68,789     28.94  %
Commercial   207     0.37 %       8,978     18.78  %
Home equity   (467 )   (1.07 )%       251     0.59  %
Installment   (718 )   (7.38 )%       (5,492 )   (37.86 )%
Gross loans   $ 37,636     4.87 %       $ 123,723     18.03  %

The following table summarizes the Corporation's current, past due, and nonaccrual loans as of:

    3/31/2019   12/31/2018   9/30/2018   6/30/2018   3/31/2018
Accruing interest                    
Current   $ 807,671     $ 769,799     $ 725,954     $ 705,331     $ 683,753  
Past due 30-89 days   1,009     1,325     1,689     1,052     1,720  
Past due 90 days or more   310     191     150     726     558  
Total accruing interest   808,990     771,315     727,793     707,109     686,031  
Nonaccrual   873     912     509     255     109  
Total loans   $ 809,863     $ 772,227     $ 728,302     $ 707,364     $ 686,140  
Total loans past due and in nonaccrual status   $ 2,192     $ 2,428     $ 2,348     $ 2,033     $ 2,387  
                     

The following table summarizes the Corporation's nonperforming assets as of:

    3/31/2019   12/31/2018   9/30/2018   6/30/2018   3/31/2018
Nonaccrual loans   $ 873     $ 912     $ 509     $ 255     $ 109  
Accruing loans past due 90 days or more   310     191     150     726     558  
Total nonperforming loans   1,183     1,103     659     981     667  
OREO       32     143     92     92  
Total nonperforming assets   $ 1,183     $ 1,135     $ 802     $ 1,073     $ 759  
                     

The following table summarizes the Corporation's primary asset quality measures as of:

    3/31/2019   12/31/2018   9/30/2018   6/30/2018   3/31/2018
Nonperforming loans to gross loans   0.15 %   0.14 %   0.09 %   0.14 %   0.10 %
Nonperforming assets to total assets   0.13 %   0.12 %   0.09 %   0.13 %   0.10 %
ALLL to gross loans   0.59 %   0.58 %   0.57 %   0.57 %   0.54 %
                     

As outlined in the preceding tables, the Corporation  has been successful in growing its loan portfolio over the past 12 months with most of the growth coming in the form of commercial real estate and residential real estate loans. Despite the above peer growth, the Corporation has not relaxed its underwriting standards as evidenced by the low level of nonperforming loans. This comparatively low level of non performing loans has also resulted in an ALLL to gross loans  at a level below many of the Corporation's peers. While the Corporation's  ALLL to gross loans is below its peers, it is important to keep in mind that the the ALLL  does not include the net unamortized discount on purchased loans as it is a component of gross loans.

The following table summarizes the balance of net unamortized discounts on purchased loans as of:

    3/31/2019   12/31/2018   9/30/2018   6/30/2018   3/31/2018
Net unamortized discount on purchased loans   2,095     2,317     2,529     2,675     2,997  
                     

All other assets

All other assets  is comprised of premises and equipment, bank owned life insurance, mortgage servicing rights, goodwill, FHLB stock, accrued interest receivable, core deposit intangibles, other real estate owned, and other miscellaneous assets.  All other assets is expected to increase commensurate with the overall growth of the Corporation.

Total deposits

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

    3/31/19   12/31/18   9/30/18   6/30/18   3/31/18
Time deposits   $ 243,570     $ 233,839     $ 240,563     $ 186,624     $ 168,948  
Demand   235,305     233,954     235,208     236,899     224,486  
Savings   230,006     223,728     221,028     218,512     227,987  
Money market demand   61,294     61,369     60,836     53,654     59,370  
NOW   19,358     10,234     8,952     6,346     2,984  
  Total deposits   $ 789,533     $ 763,124     $ 766,587     $ 702,035     $ 683,775  
                     
    3/31/2019 vs 12/31/2018       3/31/2019 vs 3/31/2018
    Variance       Variance
    Amount   %       Amount   %
Time deposits   $ 9,731     4.16 %       $ 74,622     44.17 %
Demand   1,351     0.58 %       10,819     4.82 %
Savings   6,278     2.81 %       2,019     0.89 %
Money market demand   (75 )   (0.12 )%       1,924     3.24 %
NOW   9,124     89.15 %       16,374     548.73 %
  Total deposits   $ 26,409     3.46 %       $ 105,758     15.47 %

The Corporation continues its trend of surpassing its peers in terms of deposit growth. This growth was the direct result of an initiative to enhance municipal deposits in local markets. In addition to time deposits, the Corporation has also been able to drive meaningful increases in demand and NOW accounts through enhanced organic growth strategies. The Corporation expects that deposit growth will continue to be strong with the majority of the growth coming in the form of time deposits.

Total borrowed funds

Borrowed funds include FHLB advances, subordinated debt, and federal funds purchased. While the Corporation increased its reliance on borrowed funds in 2018 to fund its strong loan demand, borrowed funds have declined in the last two quarters as the Corporation has been able to substantially increase deposits.  Borrowed funds are expected to approximate current levels for the remainder of 2019.

Total shareholders' equity

Shareholders' equity includes common stock, retained earnings, and accumulated other comprehensive income. During the fourth quarter of 2018, the Corporation increased its capital position through a private placement of common stock to both retail and accredited individual investors. The private placement generated net proceeds of $20,500. These proceeds were used to fund the Corporation's strong organic growth, opportunistic strategic growth, and enhance its capital position. The balance of growth in retained earnings was the result of the Corporation's strong earnings.  Shareholders' equity is expected to continue to grow throughout 2019 through the Corporation's earnings and as no significant changes in dividend strategy are anticipated.

Total Shareholder Return

    3/31/2019   12/31/2018   9/30/2018   6/30/2018   3/31/2018
Closing Stock Price   $ 20.89     $ 21.00     $ 21.15     $ 21.10     $ 19.75  
QTD Cash Dividends Per Share   $ 0.07     $ 0.06     $ 0.06     $ 0.06     $ 0.06  
                     
    FETM QTD Total Return to Shareholders (Annualized)
    3/31/2019   12/31/2018   9/30/2018   6/30/2018   3/31/2018
Increase (Decrease) in Price   (2.10 )%   (2.84 )%   0.95 %   27.34 %   18.43 %
Cash Dividends   1.33  %   1.13  %   1.14 %   1.22 %   1.27 %
Total Return   (0.77 )%   (1.71 )%   2.09 %   28.56 %   19.70 %

The Corporation's closing stock price increased 5.77% from March 31, 2018 to March 31, 2019. The stock outperformed the ABA NASDAQ Community Bank Index (NASDAQ: XX:ABAQ) as that index price decreased 12.07% over the same time period. The ABA NASDAQ Community Bank Index includes banks and thrifts or their holding companies listed on The NASDAQ Stock Market as selected by the ABA.

Abbreviations and Acronyms

ABA: American Bankers Association GAAP: Generally Accepted Accounting Principles
ALLL: Allowance for loan and lease losses HFS: Held-for-sale
AFS: Available-for-sale HTM: Held-to-maturity
AOCI: Accumulated other comprehensive income IRA: Individual retirement account
ASC: Accounting Standards Codification MSR: Mortgage servicing rights
ASU: Accounting Standards Update NASDAQ: National Association of Securities Dealers Automated Quotations
ATM: Automated teller machine N/M: Not meaningful
BOLI: Bank owned life insurance NOW: Negotiable order of withdrawal
CET1: Common equity tier 1 NSF: Non-sufficient funds
FDIC: Federal Deposit Insurance Corporation OREO: Other real estate owned
FHLB: Federal Home Loan Bank QTD: Quarter to date
FTE: Fully taxable equivalent SBA: Small Business Association


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 and 2018 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 currently operates 15 full-service branches in Genesee, Livingston, Oakland, Saginaw, and Shiawassee Counties and a loan production office in Saginaw County. 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 or www.fentura.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                              Aaron D. Wirsing
                                President & CEO                               Chief Financial Officer
                                Fentura Financial, Inc.                      Fentura Financial, Inc.
                                810.714.3902                                      810.714.3925
                                ronj@thestatebank.com                   aaronw@thestatebank.com

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