Fentura Financial, Inc. Announces Third Quarter 2021 Earnings

Dollars in thousands except per share amounts. Certain items in the prior period financial statements have been reclassified to conform with the September 30, 2021 presentation.

Figure 1

Stock Performance Five-Year Total Return

Stock Performance Five-Year Total Return

FENTON, Mich., Nov. 01, 2021 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. (OTCQX: FETM) announces quarterly results of net income of $3,855 and $13,237 for the three and nine month periods ended September 30, 2021.

Ronald Justice, President and CEO, stated "I am extremely pleased by our team's tremendous efforts which continue to generate strong operating results. While residential mortgage activity has been trending downward, overall closings and pipelines remain at historically high levels. Additionally, our commercial lending team has done a tremendous job of developing new relationships and expanding existing customer relationships. These efforts have led to increases in gross loans (net of PPP loans) of $59,029 and $160,367 since June 30, 2021 and September 30, 2020, respectively. Asset quality metrics remain strong and the vast majority of borrowers who were granted COVID-19 related payment deferrals have resumed regular payments. Our team remains committed to our mission and we are well positioned and optimistic about our future."

Following is a discussion of the Corporation's financial performance as of, and for the three and nine month periods ended September 30, 2021. At the end of this document is a list of abbreviations and acronyms.

Results of Operations
The following table outlines the Corporation's QTD results of operations and provides certain performance measures as of, and for the three month periods ended:

		9/30/2021					6/30/2021				3/31/2021				12/31/2020				9/30/2020
INCOME STATEMENT DATA
Interest income		$	11,584				$	11,658			$	11,919			$	11,624			$	12,070
Interest expense		653					762				676				972				1,189
Net interest income		10,931					10,896				11,243				10,652				10,881
Provision for loan losses		(436		)			6				212				982				1,109
Noninterest income		2,899					4,230				3,854				4,676				5,159
Noninterest expenses		9,453					9,222				9,031				10,971				8,218
Federal income tax expense		958					1,172				1,198				642				1,377
Net income		$	3,855				$	4,726			$	4,656			$	2,733			$	5,336
PER SHARE
Earnings		$	0.84				$	1.02			$	1.00			$	0.58			$	1.14
Dividends		$	0.080				$	0.080			$	0.080			$	0.075			$	0.075
Tangible book value(1)		$	26.53				$	25.73			$	24.75			$	23.88			$	23.50
Quoted market value
High		$	26.25				$	27.40			$	24.75			$	22.25			$	17.99
Low		$	25.60				$	23.55			$	21.90			$	16.93			$	16.80
Close(1)		$	25.75				$	26.00			$	23.30			$	22.00			$	16.93
PERFORMANCE RATIOS
Return on average assets		1.16			%		1.45		%		1.50		%		0.84		%		1.68		%
Return on average shareholders' equity		12.26			%		15.64		%		15.86		%		9.27		%		18.86		%
Return on average tangible shareholders' equity		12.63			%		16.12		%		16.38		%		9.58		%		19.54		%
Efficiency ratio		68.35			%		60.97		%		59.82		%		71.57		%		51.23		%
Yield on earning assets (FTE)		3.69			%		3.79		%		4.01		%		3.75		%		3.97		%
Rate on interest bearing liabilities		0.34			%		0.41		%		0.37		%		0.50		%		0.63		%
Net interest margin to earning assets (FTE)		3.48			%		3.55		%		3.79		%		3.44		%		3.58		%
BALANCE SHEET DATA(1)
Total investment securities		$	138,476				$	129,944			$	89,772			$	76,111			$	78,179
Gross loans		$	1,015,177				$	986,358			$	1,028,117			$	1,066,562			$	1,060,885
Total assets		$	1,329,300				$	1,309,685			$	1,303,175			$	1,251,446			$	1,284,845
Total deposits		$	1,144,291				$	1,126,496			$	1,122,508			$	1,071,976			$	1,061,470
Borrowed funds		$	50,000				$	49,500			$	49,000			$	49,000			$	96,217
Total shareholders' equity		$	124,809				$	122,986			$	119,360			$	115,868			$	114,081
Net loans to total deposits		87.80			%		86.60		%		90.60		%		98.48		%		98.99		%
Common shares outstanding		4,569,955					4,638,614				4,673,932				4,694,275				4,691,142
QTD BALANCE SHEET AVERAGES
Total assets		$	1,323,912				$	1,309,942			$	1,259,119			$	1,288,199			$	1,264,105
Earning assets		$	1,248,018				$	1,234,827			$	1,206,411			$	1,235,895			$	1,210,274
Interest bearing liabilities		$	756,545				$	753,706			$	735,159			$	773,132			$	750,281
Total shareholders' equity		$	124,720				$	121,235			$	119,034			$	117,263			$	112,565
Total tangible shareholders' equity		$	121,120				$	117,567			$	115,298			$	113,444			$	108,655
Earned common shares outstanding		4,582,401					4,644,833				4,664,893				4,682,063				4,673,629
Unvested stock grants		20,671					20,671				21,922				14,208				14,208
Total common shares outstanding		4,603,072					4,665,504				4,686,815				4,696,271				4,687,837
ASSET QUALITY(1)
Nonperforming loans to gross loans		0.82			%		0.87		%		0.79		%		0.75		%		0.07		%
Nonperforming assets to total assets		0.63			%		0.66		%		0.62		%		0.64		%		0.06		%
Allowance for loan losses to gross loans		1.03			%		1.09		%		1.08		%		1.02		%		0.95		%
Allowance for loan losses to gross loans, net of PPP loans		1.04			%		1.14		%		1.23		%		1.23		%		1.19		%
CAPITAL RATIOS(1)
Total capital to risk weighted assets		13.63			%		14.35		%		15.02		%		15.14		%		15.57		%
Tier 1 capital to risk weighted assets		12.64			%		13.27		%		13.84		%		13.93		%		14.40		%
CET1 capital to risk weighted assets		11.33			%		11.87		%		12.34		%		12.38		%		12.77		%
Tier 1 leverage ratio		10.21			%		10.19		%		10.31		%		9.80		%		9.86		%
(1)At end of period

The following table outlines the Corporation's YTD results of operations and provides certain performance measures as of, and for the nine month periods ended:

		9/30/2021					9/30/2020				9/30/2019				9/30/2018				9/30/2017
INCOME STATEMENT DATA
Interest income		$	35,161				$	34,355			$	32,465			$	26,419			$	21,246
Interest expense		2,091					4,952				6,469				3,901				2,181
Net interest income		33,070					29,403				25,996				22,518				19,065
Provision for loan losses		(218			)		4,652				899				767				261
Noninterest income		10,983					14,964				6,034				6,574				6,768
Noninterest expenses		27,706					23,713				19,808				18,403				16,418
Federal income tax expense		3,328					3,271				2,297				1,817				2,640
Net income		$	13,237				$	12,731			$	9,026			$	8,105			$	6,514
PER SHARE
Earnings		$	2.86				$	2.73			$	1.94			$	2.23			$	1.80
Dividends		$	0.240				$	0.225			$	0.210			$	0.180			$	0.150
Tangible book value(1)		$	26.53				$	23.50			$	20.37			$	16.91			$	14.29
Quoted market value
High		$	27.40				$	26.00			$	21.00			$	23.00			$	20.65
Low		$	21.90				$	12.55			$	20.05			$	18.88			$	15.10
Close(1)		$	25.75				$	16.93			$	21.00			$	21.15			$	18.45
PERFORMANCE RATIOS
Return on average assets		1.36		%			1.45		%		1.27		%		1.32		%		1.21		%
Return on average shareholders' equity		14.55		%			15.79		%		12.73		%		17.29		%		16.20		%
Return on average tangible shareholders' equity		15.00		%			16.40		%		13.35		%		18.77		%		17.48		%
Efficiency ratio		62.89		%			53.45		%		61.84		%		63.26		%		63.55		%
Yield on earning assets (FTE)		3.83		%			4.12		%		4.81		%		4.59		%		4.15		%
Rate on interest bearing liabilities		0.37		%			0.93		%		1.43		%		0.98		%		0.60		%
Net interest margin to earning assets (FTE)		3.60		%			3.52		%		3.85		%		3.91		%		3.72		%
BALANCE SHEET DATA(1)
Total investment securities		$	138,476				$	78,179			$	62,351			$	79,531			$	67,155
Gross loans		$	1,015,177				$	1,060,885			$	826,597			$	728,302			$	628,552
Total assets		$	1,329,300				$	1,284,845			$	978,046			$	909,901			$	756,967
Total deposits		$	1,144,291				$	1,061,470			$	801,101			$	766,587			$	625,588
Borrowed funds		$	50,000				$	96,217			$	69,000			$	74,000			$	68,000
Total shareholders' equity		$	124,809				$	114,081			$	99,142			$	66,340			$	57,161
Net loans to total deposits		87.80		%			98.99		%		102.51		%		94.46		%		99.95		%
Common shares outstanding		4,569,955					4,691,142				4,658,722				3,645,402				3,631,576
YTD BALANCE SHEET AVERAGES
Total assets		$	1,297,657				$	1,171,415			$	950,749			$	820,481			$	718,335
Earning assets		$	1,230,553				$	1,116,861			$	903,192			$	772,111			$	687,175
Interest bearing liabilities		$	748,472				$	711,449			$	606,912			$	528,165			$	481,657
Total shareholders' equity		$	121,659				$	107,711			$	94,815			$	62,662			$	53,760
Total tangible shareholders' equity		$	117,991				$	103,712			$	90,394			$	57,732			$	49,838
Earned common shares outstanding		4,630,709					4,665,951				4,641,084				3,638,123				3,618,889
Unvested stock grants		21,088					13,966				9,907				—				—
Total common shares outstanding		4,651,797					4,679,917				4,650,991				3,638,123				3,618,889
ASSET QUALITY(1)
Nonperforming loans to gross loans		0.82		%			0.07		%		0.11		%		0.01		%		0.03		%
Nonperforming assets to total assets		0.63		%			0.06		%		0.09		%		0.03		%		0.05		%
Allowance for loan losses to gross loans		1.03		%			0.95		%		0.65		%		0.57		%		0.52		%
Allowance for loan losses to gross loans, net of PPP loans		1.04		%			1.19		%		0.65		%		0.57		%		0.52		%
CAPITAL RATIOS(1)
Total capital to risk weighted assets		13.63		%			15.57		%		14.42		%		11.31		%		10.92		%
Tier 1 capital to risk weighted assets		12.64		%			14.40		%		13.73		%		10.73		%		10.41		%
CET1 capital to risk weighted assets		11.33		%			12.77		%		11.96		%		8.77		%		8.23		%
Tier 1 leverage ratio		10.21		%			9.86		%		11.22		%		8.90		%		9.26		%
(1)At end of period

Income Statement Breakdown and Analysis

		Quarter to Date
		9/30/2021					6/30/2021					3/31/2021					12/31/2020					9/30/2020
GAAP net income		$	3,855				$	4,726				$	4,656				$	2,733				$	5,336
Acquisition related items (net of tax)
Accretion on purchased loans		(152			)		(152			)		(151			)		(82			)		(144			)
Amortization of core deposit intangibles		54					53					54					71					72
Amortization on acquired time deposits		2					2					2					5					5
Other acquisition related expenses		51					—					—					—					—
Total acquisition related items (net of tax)		(45			)		(97			)		(95			)		(6			)		(67			)
Other nonrecurring items (net of tax)
FHLB prepayment penalties		—					—					—					1,507					—
Change in fair value of equity investment due to acquisition transaction		—					—					—					—					—
Change in fair value of mortgage banking instruments		—					—					—					—					—
Interest writeoff from loan transferred to nonaccrual		—					—					—					265					—
Net gain from COLI death benefit		—					—					—					—					—
Prepayment penalties collected		(65			)		(33			)		(17			)		(97			)		(16			)
Mortgage servicing rights impairment (reduction of impairment)		—					—					—					(188			)		(176			)
Total other nonrecurring items (net of tax)		(65			)		(33			)		(17			)		1,487					(192			)
Adjusted net income from operations		$	3,745				$	4,596				$	4,544				$	4,214				$	5,077
GAAP net interest income		$	10,931				$	10,896				$	11,243				$	10,652				$	10,881
Accretion on purchased loans		(192			)		(192			)		(191			)		(104			)		(182			)
Interest writeoff from loan transferred to nonaccrual		—					—					—					335					—
Prepayment penalties collected		(82			)		(42			)		(21			)		(123			)		(20			)
Amortization on acquired time deposits		3					3					3					6					6
Adjusted net interest income		$	10,660				$	10,665				$	11,034				$	10,766				$	10,685
PERFORMANCE RATIOS
Based on adjusted net income from operations
Earnings per share		$	0.82				$	0.99				$	0.97				$	0.90				$	1.09
Return on average assets		1.12		%			1.41		%			1.46		%			1.30		%			1.60		%
Return on average shareholders' equity		11.91		%			15.21		%			15.48		%			14.30		%			17.94		%
Return on average tangible shareholders' equity		12.27		%			15.68		%			15.98		%			14.78		%			18.59		%
Efficiency ratio		68.74		%			61.46		%			60.20		%			59.02		%			52.03		%
Based on adjusted net interest income
Yield on earning assets (FTE)		3.60		%			3.72		%			3.94		%			3.78		%			3.91		%
Rate on interest bearing liabilities		0.34		%			0.41		%			0.37		%			0.50		%			0.63		%
Net interest margin to earning assets (FTE)		3.39		%			3.47		%			3.71		%			3.47		%			3.52		%

		Year to Date September 30										Variance
		2021					2020					Amount					%
GAAP net income		$	13,237				$	12,731				$	506				3.97		%
Acquisition related items (net of tax)
Accretion on purchased loans		(455			)		(434			)		(21		)			4.84		%
Amortization of core deposit intangibles		161					214					(53		)			(24.77	)	%
Amortization on acquired time deposits		6					13					(7		)			(53.85	)	%
Other acquisition related expenses		51					—					51							N/M
Total acquisition related items (net of tax)		(237			)		(207			)		(30		)			14.49		%
Other nonrecurring items (net of tax)
FHLB prepayment penalties		—					—					—					—		%
Change in fair value of equity investment due to acquisition transaction		—					(578			)		578					(100.00	)	%
Change in fair value of mortgage banking instruments		—					(448			)		448					(100.00	)	%
Interest writeoff from loan transferred to nonaccrual		—					—					—					—		%
Net gain from COLI death benefit		—					(173			)		173					(100.00	)	%
Prepayment penalties collected		(115			)		(64			)		(51		)			79.69		%
Mortgage servicing rights impairment (reduction of impairment)		—					188					(188		)			(100.00	)	%
Total other nonrecurring items (net of tax)		(115			)		(1,075			)		960					(89.30	)	%
Adjusted net income from operations		$	12,885				$	11,449				$	1,436				12.54		%
GAAP net interest income		$	33,070				$	29,403				$	3,667				12.47		%
Accretion on purchased loans		(575			)		(549			)		(26		)			4.74		%
Interest writeoff from loan transferred to nonaccrual		—					—					—					—		%
Prepayment penalties collected		(145			)		(81			)		(64		)			79.01		%
Amortization on acquired time deposits		9					17					(8		)			(47.06	)	%
Adjusted net interest income		$	32,359				$	28,790				$	3,569				12.40		%
PERFORMANCE RATIOS
Based on adjusted net income from operations
Earnings per share		$	2.78				$	2.45				$	0.33				13.47		%
Return on average assets		1.33		%			1.31		%								0.02		%
Return on average shareholders' equity		14.16		%			14.20		%								(0.04	)	%
Return on average tangible shareholders' equity		14.60		%			14.75		%								(0.15	)	%
Efficiency ratio		63.31		%			55.13		%								8.18		%
Based on adjusted net interest income
Yield on earning assets (FTE)		3.75		%			4.04		%								(0.29	)	%
Rate on interest bearing liabilities		0.37		%			0.93		%								(0.56	)	%
Net interest margin to earning assets (FTE)		3.52		%			3.45		%								0.07		%

Average Balances, Interest Rate, and Net Interest Income

The following tables present the daily average amount outstanding for each major category of interest earning assets, nonearning 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.

Net interest income is the amount by which interest income on earning assets exceeds the interest expenses on interest bearing liabilities. Net interest income, which includes loan fees, is influenced by changes in the balance and mix of assets and liabilities and market interest rates. The Corporation exerts some control over these factors; however, FRB monetary policy and competition have a significant impact. For analytical purposes, net interest income is adjusted to a FTE basis by adding the income tax savings from interest on tax exempt loans, and nontaxable investment securities, thus making period-to-period comparisons more meaningful.

		Three Months Ended
		September 30, 2021												June 30, 2021												September 30, 2020
		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		$	1,000,660				$	11,076			4.39	%		$	1,023,620				$	11,220			4.40	%		$	1,086,629				$	11,701			4.28	%
Taxable investment securities		113,868					372				1.30	%		89,467					322				1.44	%		62,490					256				1.63	%
Nontaxable investment securities		17,085					95				%