FETM - Fentura Financial Inc. Announces First Quarter 2019 Earnings

April, 29 2019 03:40 PM Fentura Financial Inc

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

Company Name:	Fentura Financial Inc
Stock Symbol:	FETM
Market:	OTC
Website:	fentura.com

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