• Net Income for the year exceeded levels reported for 2012
  • Book value increased 50.0% over prior year to $9.97 per share
  • Loan growth exceeded expectations for the year
  • Operating results continue to strengthen capital, and our Bank's capital level is considered well capitalized by industry standards
  • Credit quality continues to strengthen, as both loan delinquencies and substandard assets improved significantly over the prior year.


Fentura Financial, Inc. (OTCQB:FETM) reported pre-tax net income for the three months ended December 31, 2013 of $818,000 compared to pre-tax earnings of $650,000 reported for the fourth quarter of 2012. After tax net income for the period was $5.9 million, compared to net income of $453,000 reported for the same period in 2012. After tax net income reflects the reversal of the deferred tax asset valuation allowance of $4.9 million disallowed in previous years. For the year ended December 31, 2013, after tax earnings of $8.5 million compare favorably to the $1.3 million reported for 2012. 

Ronald L. Justice, President and CEO said, "We are proud of the continued improvement of our Company throughout the year and our 2013 operating results. Loan growth continued during the fourth quarter contributing to a $63.5 million increase in total loans for the year. The interest income from this growth, our continued control of funding costs, an increase in noninterest income, and reduction of operating expenses all contributed to our strong core operating results. The impact of the one-time reversal of the deferred tax asset valuation allowance is a reflection of the improvement in our financial condition made possible by the efforts of our entire team.

Balance Sheet

Total assets increased $16.7 million or 5.3% at December 31, 2013 compared to September 30, 2013, ending the year at $335.2 million. Cash and due from banks totals declined 45.6%, to $12.9 million at December 31, 2013 compared to the $23.6 million reported at September 30, 2013. This decrease was primarily due to the funding of new loans.   Loan balances increased $22.3 million or 9.2% during the same period. Loans increased from continued efforts to grow the Bank's client base. During the quarter, the Bank experienced growth in its consumer, mortgage and commercial loan portfolios. Portfolio loans totaled $263.0 million at December 31, 2013.      

Deposit totals of $283.3 million at December 31, 2013, were at the same level reported at the end of the prior quarter. Deposits increased $7.5 million or 2.7% for the year ended December 31, 2013. The increase throughout the year occurred in both non-interest bearing and interest bearing non-maturity deposits as the Company continued efforts to grow its client base.  

Capital

As previously reported, Fentura Financial, Inc. and The State Bank, have achieved their goal to maintain capital in excess of levels considered well capitalized by regulatory agencies. The Bank's regulatory capital ratios are detailed in the table that follows, and indicate strengthening of the Bank's Tier 1 Leverage Capital Ratio at December 31, 2013 compared to December 31, 2012.   The improvement in Tier 1 leverage capital year over year is primarily due to the increase in capital from operating results.

  December 31, 2013 December 31, 2012  Regulatory Well Capitalized
Tier 1 Leverage Capital Ratio  9.47% 8.73% 5.00%
Tier 1 Risk-Based Capital Ratio 11.04 12.06 6.00
Total Risk-Based Capital Ratio  12.30 13.34 10.00

Credit Quality

Throughout 2013, the Company continued to benefit from improvement in credit quality.  At December 31, 2013 loan delinquencies to total loans were 0.60% compared to 1.86% at December 31, 2012. Substandard assets totaled $6.2 million at December 31, 2013, down from $13.2 million reported at December 31, 2012. The low level of loan delinquencies and the improved level of substandard assets eliminated the need for significant additional provisions for the allowance for loan losses during 2013. 

Net Interest Income

Net interest income of $3.0 million for the quarter ended December 31, 2013 improved compared to the $2.8 million reported for both the third quarter of 2013 and the $2.5 million reported for the fourth quarter of 2012. Interest income improved during the three months ended December 31, 2013, from the interest on new loans added during the quarter and throughout the entire year. Interest expense declined modestly comparing the quarter ended December 31, 2013 to the quarter ended September 30, 2013, due to the decrease in the amount of time deposits during the quarter.  

On a year to date basis, net interest income was $11.0 million compared to $10.2 million reported in 2012. The year to year improvement is due to the increase in interest income from loan growth throughout the year and the decline in interest expense as certificates of deposit matured and funds were placed in lower cost savings accounts.

Noninterest Income

Noninterest income was $1.3 million for the quarter ended December 31, 2013 compared to $1.6 million for the third quarter of 2013. The decline in the volume of mortgage loans sold in the secondary market and accordingly, the gain on sale from those loans, contributed to the decline in the current period compared to the third quarter of 2013.          

For the twelve months ended December 31, 2013, noninterest income totaled $5.6 million compared to $4.8 million reported for the prior year. The increase in 2013 is primarily attributable to gains on the sale of mortgage loans due to increased volume based on a favorable interest rate environment and gains from sales of other real estate owned.

Noninterest Expense

The Company recorded $3.4 million of noninterest expense in the quarter ended December 31, 2013, flat compared with the $3.4 million reported in the third quarter of 2013. For the year, noninterest expense was $13.2 million in 2013 and $14.3 million during 2012. The decline in noninterest expense in 2013 is based on several factors. FDIC assessment expense was lower in 2013 compared to 2012 due to the Bank's release from its consent agreement with both the FDIC and the State's Department of Insurance and Financial Services.   Additionally, noninterest expense improved in 2013 due to the nonrecurring nature of several operating losses recognized in the same time period of 2012 and a decline in loan and collection expenses as asset quality and loan delinquencies improved. 

Fentura Financial, Inc. is a bank holding company headquartered in Fenton, Michigan.  Its subsidiary bank, The State Bank, is also headquartered in Fenton with offices serving Fenton, Linden, Holly, Grand Blanc and Brighton. The Bank offers comprehensive financial services including commercial, consumer, mortgage, trust and financial planning services, and deposit products.  The Bank proudly provides services from its community offices in Genesee, Oakland and Livingston Counties and through on-line and mobile banking services.  More information about The State Bank is available at www.thestatebank.com.

CAUTIONARY STATEMENT: This press release contains certain forward-looking statements that involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements concerning future growth in earning assets and net income. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including, but not limited to, economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services, interest rates and fees for services. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release.

Fentura Financial Inc.          
           
  Dec-13 Sep-13 Jun-13 Mar-13 Dec-12
  Unaudited Unaudited Unaudited Unaudited  
Balance Sheet Highlights          
Cash and due from banks  12,856  23,647  21,109  45,272  45,712
Fed funds sold  --   --   --   --   -- 
Investment securities  36,574  38,147  41,379  42,582  48,249
Commercial loans  176,796  167,204  160,720  154,223  146,482
Consumer loans  25,336  24,907  24,462  24,017  23,423
Mortgage loans  61,846  49,554  43,182  34,791  30,623
Gross loans  263,978  241,665  228,364  213,031  200,528
ALLL  (4,900)  (4,790)  (4,699)  (4,682)  (4,962)
Other assets  26,717  19,816  20,817  21,284  21,195
Total assets  335,225  318,485  306,970  317,487  310,722
           
Non-interest deposits  82,585  81,195  84,366  84,490  80,550
Interest bearing non-maturity deposits  154,838  154,675  139,584  146,838  145,471
Time deposits  45,918  47,383  46,822  50,380  49,818
Total deposits  283,341  283,253  270,772  281,708  275,839
Fed funds purchased  --   --   --   --   -- 
Borrowings  24,855  14,855  14,855  14,891  14,891
Other liabilities  2,267  1,958  3,994  3,901  3,789
Equity  24,762  18,419  17,349  16,987  16,203
   335,225  318,485  306,970  317,487  310,722
BALANCE SHEET RATIOS (unaudited)          
Gross Loans to Deposits 93.17% 85.32% 84.34% 75.62% 72.70%
Earning Assets to Total Assets 89.66% 87.86% 87.87% 80.51% 80.06%
Securities and Cash to Assets 14.75% 19.40% 20.36% 27.67% 30.24%
Deposits to Assets 84.52% 88.94% 88.21% 88.73% 88.77%
Loan Loss Reserve to Gross Loans  1.86  1.99  2.07  2.20  2.48
Net Charge-Offs to Gross Loans -4.10% -3.84% -0.76% 13.43% 34.71%
Leverage Ratio - The State Bank 9.47% 9.21% 9.02% 8.70% 8.73%
Book Value per Share  $ 9.97  $ 7.45  $ 7.04  $ 6.92  $ 6.63
           
Income Statement Highlights - QTD Dec-13 Sep-13 Jun-13 Mar-13 Dec-12
  Unaudited Unaudited Unaudited Unaudited  
Interest income  3,298  3,214  3,017  2,953  2,924
Interest expense  348  373  361  371  394
Net interest income  2,950  2,841  2,656  2,582  2,530
Provision for loan loss  --   --   --   7  (600)
Service charges on deposit accounts  230  231  215  220  268
Gain on sale of mortgage loans  186  419  433  575  389
Wealth management income  274  275  217  231  212
Other non-interest income  566  638  445  428  331
Salaries and benefits  1,745  1,788  1,736  1,656  1,900
Occupancy and equipment  527  561  531  533  550
Loan and collection  112  217  186  173  212
Other operating expenses  1,004  864  791  812  1,018
Net Income before tax  818  974  722  855  650
Income Taxes  (5,118)  --   --   --   197
Net Income  5,936  974  722  855  453
           
INCOME STATEMENT RATIOS/DATA (unaudited)        
Basic earnings per share  $ 2.40  $ 0.40  $ 0.29  $ 0.35  $ 0.19
Pre-tax pre-provision earnings  818  974  722  862  50
Net Charge offs  (108)  (92)  (17)  286  694
Return on Equity (ROE) 46.78% 19.19% 17.89% 19.29% 7.26%
Return on Assets (ROA) 2.71% 1.10% 1.03% 1.12% 0.42%
Efficiency Ratio 80.83% 80.56% 81.32% 79.87% 94.64%
Average Bank Prime 3.25% 3.25% 3.25% 3.25% 3.25%
Average Earning Asset Yield 4.60% 4.69% 4.70% 4.85% 4.70%
Average Cost of Funds 0.64% 0.71% 0.71% 0.71% 0.76%
Spread 3.96% 3.99% 3.99% 4.14% 3.94%
Net impact of free funds 0.20% 0.19% 0.20% 0.11% 0.06%
Net Interest Margin 4.16% 4.18% 4.19% 4.25% 4.00%
           
Income Statement Highlights - YTD Dec-13 Dec-12   Dec-12 Dec-11
  Unaudited        
Interest income  12,481  12,193    12,193  13,142
Interest expense  1,454  1,945    1,945  2,983
Net interest income  11,027  10,248    10,248  10,159
Provision for loan loss  7  (508)    (508)  3,142
Service charges on deposit accounts  897  1,030    1,030  1,157
Gain on sale of mortgage loans  1,613  961    961  348
Wealth management income  996  1,071    1,071  960
Other non-interest income  2,077  1,775    1,775  2,393
Salaries and benefits  6,925  6,775    6,775  6,763
Occupancy and equipment  2,152  2,155    2,155  2,158
Loan and collection  688  944    944  1,217
Other operating expenses  3,471  4,381    4,381  3,687
Net Income before tax  3,367  1,338    1,338  (1,950)
Income Taxes  (5,118)  73    73  52
Net Income from continuing operations  8,485  1,265    1,265  (2,002)
           
INCOME STATEMENT RATIOS/DATA (unaudited)        
Basic earnings per share  $ 3.44  $ 0.52    $ 0.52  $ (0.86)
Pre-tax pre-provision earnings  3,374  830    830  1,192
Net Charge offs  68  2,694    2,694  5,005
Return on Equity (ROE) 46.78% 7.26%   7.26% -12.95%
Return on Assets (ROA) 2.71% 0.42%   0.42% -0.66%
Efficiency Ratio 80.83% 94.64%   94.64% 91.95%
Average Bank Prime 3.25% 3.25%   3.25% 3.25%
Average Earning Asset Yield 4.71% 4.75%   4.75% 4.89%
Average Cost of Funds 0.69% 0.92%   0.92% 1.33%
Spread 4.02% 3.83%   3.83% 3.56%
Net impact of free funds 0.15% 0.17%   0.17% 0.22%
Net Interest Margin 4.16% 4.00%   4.00% 3.78%
CONTACT: Ronald L. Justice
         President & CEO
         Fentura Financial, Inc.
         (810) 714-3902
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