Fentura Financial, Inc.
Annual Report 2019

Plain-text annual report

A Better State 2 0 1 9 A N N U A L R E P O R T We are looking forward to the creative ways we can help our clients find their better state. Ronald L. Justice, President and CEO In 2019, we enjoyed success in many ways, and I am excited to share our achievements in this letter and throughout our 2019 Annual Report. The Company grew and celebrated the milestone of Our overall financial performance ranked us 5th reaching $1 billion in total assets, ending the year in the State based on the Financial Management at $1.03 billion. During the year, assets increased Consulting Group’s quarterly ranking of Michigan over $108 million or 11.7%. We achieved this growth banks. Additionally, in May of 2019 the Bank was through our team excelling in attracting new and named to the American Bankers Association’s, Top expanding existing relationships with individuals, 200 Publicly Traded Banks, ranking 20th, the highest families, businesses and public entities from within ranked bank in Michigan. Rankings are based on the communities we serve. Assets have grown the previous three years return on average equity. $589 million or 132% over the past four years. In late 2018, the Company engaged a marketing firm Within assets, our loan portfolio has grown as to assist in creating a more strategic marketing plan. well. We ended 2019 with total loans of more As part of the process, we analyzed the composition than $870 million, an increase of $98 million or of our current customer base, quantified growth 12.7%. Commercial loans had an outstanding year, increasing more than $101 million and residential opportunities within the Bank’s markets, measured our brand awareness both in our markets and in mortgage loans had a record year in loan closings. surrounding areas, and measured the commitment These new assets were funded primarily from deposit growth. Our retail, cash management, and public funds teams had an outstanding year, increasing deposits by approximately $100 million to $863 million at year end. We continue to enhance our product lines to ensure that we offer access to funds, information and other conveniences desired by consumers, and are happy to welcome all of these new deposit relationships to our growing business. Capital increased to $101 million or by approximately $12 million. The increase was primarily from retained earnings. At the beginning of the year our stock was trading at $21.00 per share and closed the year at $25.23 per share. We are excited about this 20% increase in price, recognizing that the market is responding to our continued strong operating results and other efforts to enhance communication and information available to the investment community. Earnings for the year totaled a new record of of our current customers. We used this information to choose a logo, corporate colors and marketing message to enhance awareness and to convey or represent who we are today as a company. The end result is an exciting new brand. You can see it represented on the cover and throughout this report. We chose a bold blue and orange as our colors, modified the font in our logo, reoriented the “a” in St>te, and repositioned our name within the logo to reflect the level of sophistication, expertise, professionalism, and comprehensive services we offer. The campaign leads with What If? and through the campaign, we encourage our clients to explore how we can assist them in the achievement of their dreams today. The brand launch has been successful, and we are looking forward to the creative ways we can help our clients “find their better State”. Once again, I want to thank you for your continued support, and assure you that we will continue to work hard to deliver superior performance. $11.6 million, an increase of $1.5 million or 14.5% compared to 2018. 2019 results represent the third Warmly, consecutive year of record earnings. The earnings Ronald L. Justice, increases are largely from balance sheet growth President and CEO and the resulting increase in net interest income. Net interest income totaled $34.9 million for the year, an increase of $4.4 million compared to 2018. Operating expenses were up in 2019 compared to 2018, ending the year at $27.2 million. PRESIDENT & CEO REPORT 3 FIND YOUR BETTER STATE Find your better state is our commitment to not just be a local bank, but to live it out every day through an approach that looks for solutions, and a belief that together we can overcome any barrier. Throughout our work in 2019 to update the Bank’s and potential new markets, brand awareness studies, brand, we have rediscovered not only our ability, but and workshopping sessions with the Bank’s leadership. our deep passion to overcome barriers for customers by creating products or solutions that may not have existed before. We have also re-energized our commitment to the betterment of customers and communities and feel strongly that our revitalized brand positions The State Bank for long-term growth. The new brand and its launch campaign were introduced in January 2020 following a branding process that included a thorough analysis of existing The end result was a redesign of the logo and launch of a brand campaign that sets The State Bank apart and positions them as a bank that sees things differently than its competitors. Updated Logo for The State Bank Plant 09 Leaf 05 Border The What If Microloan Brochure Static Illustrations from Brand Campaign Animations 4 Brand Launch Microsite: yourbetterstate.com The State Bank’s brand launch was driven by a microsite, YourBetterState.com. The microsite was used to communicate the Bank’s differentiation through seeking solutions and overcoming obstacles for customers. It features customer and community testimonies, as well as information on the What If Microloan, a new product to help parents save for their child’s future. your bank could help you see that anything is possible? At The State Bank, we believe that things don’t have to be just right to get the life you want. Let us help you see things differently. Find Your Better State. THESTATEBANK.COM 800.535.0517 Member FDIC Print Ad - Brand Campaign General Print Ad - Brand Campaign - Small Business Focus The Bank’s new tagline, “Find Your Better State,” was introduced through the brand launch. Brand Launch Teaser Billboard 5 Kevin Neumeyer Great Lakes Bay Market Manager989.865.4025 kevinn@thestatebank.comTHESTATEBANK.COM800.535.0517Preferred SBA Lender 16 Locations Across Michigan2018 Michigan SBA District Community Lender of the Year Equal Housing Lender · Member FDICAt The State Bank, we believe that things don’t have to be just right to expand your business. Let us help you see things differently.your bank could help you see that anything is possible? GROWTH IN NUMBERS Growing Core Deposits Growing Community Retail Accounts Opened in 2019 4,450 $5.42 MILLION in Kasasa Accounts Growing Innovation 12,077 Average Monthly ITM Transactions Serving customers seven days a week with 24 Connect! ITMs throughout our markets Growing Homeownership New Mortgage and Refinance Loans 1,041 $289.6 MILLION 6 $42,000 donated to LOCAL SCHOOL DISTRICTS to support the needs of low to moderate income children and families from the staff-directed fundraising effort through the Change for Kids Program. $30,000 donated to the Food Bank of Eastern Michigan through their 2019 holiday fundraising efforts. This is the 18th year of partnership with Food Bank of Eastern Michigan. We have over 1,500 VOLUNTEER HOURS from our employees to the local communities in 2019 DONATIONS & SPONSORSHIPS $194,141 in 2019 Growing Local Business Growing Wealth GROWTH IN NUMBERS 20.5% INCREASE in Investment Advisory Revenue $12.4MILLION INCREASE in Trust Assets Under Management Growing Public Funds $51 MILLION of deposit growth from the efforts of our Public Funds Management Program in 2019. $29.5 MILLION Small Business Administration (SBA) and US Department of Agriculture Loans $186 MILLION New Commercial Loans ON TOP Feelin’ With an 84% increase in loan volume, The State Bank was recognized as a Top Ten Lender of the Year by the SBA. 7 GROWING AS A FINANCIAL PARTNER 8 COMMERICAL LOAN | Weinstein Electric Company “Our move to The State Bank has turned out to be one of the best business decisions we’ve made. We have realized a cost savings and have experienced exceptional service/support from both Commercial Loan Products/Services and Treasury Services. We are proud to support a locally owned company.” Jeffrey R. Chappelle Former Owner/Senior Engineer COMMERICAL LOAN | 1-800-LAW-FIRM “When I was looking for options to refinance an existing commercial loan, my financial advisor said I should check with Michael Franklin at The State Bank. I was impressed with how easy the entire refinancing process was and at the end of the day, their loan package was better than any of the offers I received from other banks that were competing for my business. I definitely would recommend Michael Franklin at The State Bank to anyone in need of commercial real estate financing.” Ari Kresch Founder COMMERICAL LOAN | The Home Store “Jill White and The State Bank have helped me with several commercial loans to finance my real estate portfolio. Jill and her team are knowledgeable, responsive, reliable, and easy to work with. Most impressive however, was that Jill demonstrated a solid understanding of my real estate business and the bank’s business of lending, which allowed us to solve problems and optimize the loans and the process in each case to meet my needs.” Bradley Cohen President COMMERICAL LOAN | Sharp Funeral Homes “The State Bank and Tom Bertschy are, hands down, the most professional and helpful in their industry. From the beginning of our business, State Bank has been there to assist Sharp Funeral Homes with banking services and commercial loans to help us succeed as a hometown family-owned funeral home. Much like my profession, having a personal relationship with the professionals you are working with helps to ease any burdens and elevates the level of trust. That is why we chose to work with a local bank and local banking professionals.” Roger Sharp C.E.O. and Founder MORTGAGE | Morgan Milzow & Ford Realtors “The State Bank offers so much to us as top real estate professionals but, more importantly, to our clients. Their commonsense lending approach, savvy financial guidance, personal service, and unmatched rates and fees deliver the ultimate package in what can seem like a daunting process to even the most seasoned home buyer. The State Bank has and continues to deliver what they promise to all of our clients. We so value The State Bank and look forward to our continued and wonderful business relationship!” Emily Ford Associate Broker BANKING SERVICES | The City of Montrose “The City of Montrose has been with The State Bank for many years and continue to be very happy with their service. We use online banking for everything. The website is easy to maneuver, making transfers between accounts extremely easy. I can print off bank statements immediately rather than waiting for them to come in the mail. The customer service at the bank is awesome.” Chrystal Raible City Treasurer, City of Montrose GROWING AS A FINANCIAL PARTNER 9 2019 GROWTH HIGHLIGHTS Dollars in Thousands Except Per Share Amounts Balance Sheet and Asset Quality Ratios 12/31/19 12/31/18 12/31/17 12/31/16 12/31/15 Net Loans to Total Deposits 100.19% 100.60% 99.32% 85.01% 99.98% ALLL to Gross Loans Net Loan Charge offs to Gross Loans Nonperforming Loans to Gross Loans 0.67% 0.00% 0.17% 0.58% 0.02% 0.14% 0.54% 0.55% 0.93% -0.02% -0.05% -0.03% 0.00% 0.00% 0.09% Per Share Data Earnings per Share Book Value per Share 12/31/19 12/31/18 12/31/17 12/31/16 12/31/15 $2.49 $2.65 $2.39 $1.70 $1.87 $21.75 $19.31 $16.37 $14.00 $12.90 Tangible Book Value per Share $20.87 $18.32 $14.96 $12.41 $12.90 Market Price per Share Dividends per Share $25.23 $21.00 $18.88 $16.00 $13.86 $0.28 $0.24 $0.20 $0.40 $0.12 Total 1 Year Return to Shareholders (%) 21.48% 12.50% 19.25% 18.33% 41.21% Common Shares Outstanding 4,664,369 4,636,455 3,631,933 3,619,282 2,517,748 Average Common Shares Outstanding 4,653,872 3,812,433 3,625,568 2,608,903 2,511,817 Performance Ratios 12/31/19 12/31/18 12/31/17 12/31/16 12/31/15 Return on Average Assets 1.20% 1.20% 1.19% 0.93% 1.12% Return on Average Shareholders' Equity 12.02% 15.05% 15.38% 10.28% 12.73% Net Interest Margin Yield (FTE) 3.83% 3.84% 4.08% 3.83% 3.90% Efficiency Ratio 63.20% 65.23% 66.20% 74.56% 71.06% Capital Ratios 12/31/19 12/31/18 12/31/17 12/31/16 12/31/15 Total Capital to Risk Weighted Assets 14.03% 14.00% 10.93% 11.47% 12.90% Tier 1 Capital to Risk Weighted Assets 13.33% 13.40% 10.39% 10.95% 12.00% CET1 Capital to Risk Weighted Assets 11.64% 11.52% Tier 1 Capital to Average Assets 11.20% 10.92% 8.27% 8.98% 8.40% 8.39% 11.93% 10.80% 10 2019 GROWTH HIGHLIGHTS CONDENSED CONSOLIDATED BALANCE SHEETS Assets 12/31/19 12/31/18 12/31/17 12/31/16 12/31/15 Cash and Cash Equivalents $46,803 $23,412 $15,928 $78,313 $19,425 Total Securities Loans Held for Sale Gross Loans 61,621 19,491 94,721 55,323 72,458 25,708 903 2,067 3,869 2,905 870,555 772,227 672,530 515,775 378,655 Less Allowance for Loan Losses 5,813 4,488 3,603 2,851 3,505 Net Loans All Other Assets Total Assets 864,742 767,739 668,927 512,924 375,150 42,102 39,675 39,198 35,786 23,214 $1,034,759 $926,450 $781,443 $703,350 $446,402 Liabilities and Shareholders’ Equity Total Deposits Total Borrowed Funds 12/31/19 12/31/18 12/31/17 12/31/16 12/31/15 $863,102 $763,124 $673,505 $603,367 $375,971 61,500 69,000 46,000 45,000 34,775 Accrued Interest and Other Liabilities 8,713 4,810 2,491 4,323 3,182 Total Liabilities 933,315 836,934 721,996 652,690 413,928 Total Shareholders' Equity 101,444 89,516 59,447 50,660 32,474 Total Liabilities and Shareholders' Equity $1,034,759 $926,450 $781,443 $703,350 $446,402 CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED Interest & Dividend Income Loans, Including Fees Investments 12/31/19 12/31/18 12/31/17 12/31/16 12/31/15 $41,102 $34,371 $28,765 $18,119 $15,983 2,439 1,979 1,346 526 670 Total Interest and Dividend Income 43,541 36,350 30,111 18,645 16,653 Total Interest Expense Net Interest Income Provision for Loan Losses Net Interest Income, After Provision for Loan Losses 8,627 5,827 3,120 2,372 2,153 34,914 30,523 26,991 16,273 14,500 1,335 1,057 609 (900) (1,000) 33,579 29,466 26,382 17,173 15,500 Total Non-Interest Income 8,163 8,277 8,988 6,658 6,575 Total Non-Interest Expenses 27,223 25,310 23,818 17,097 14,976 Income Before Federal Income Taxes 14,519 12,433 11,552 2,941 2,319 2,876 6,734 2,293 7,099 2,407 Federal Income Taxes Net Income $11,578 $10,114 $8,676 $4,441 $4,692 11 2019 GROWTH HIGHLIGHTS MARKET PRICE PER SHARE BALANCE SHEET (Dollars in Thousands) $25.23 $21.00 $18.88 $16.00 $13.86 0 5 4 6 2 9 , 5 5 5 0 7 8 , , 2 0 1 3 6 8 3 4 4 1 8 7 , , 7 2 2 2 7 7 , 4 2 1 3 6 7 0 5 3 3 0 7 , 0 3 5 2 7 6 , 5 0 5 3 7 6 , Gross Loans Total Deposits Total Assets , 7 6 3 3 0 6 5 7 7 5 1 5 , , 2 0 4 6 4 4 4 8 3 9 7 3 , , 1 7 9 5 7 3 , 9 5 7 4 3 0 1 , 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 RETURN ON AVERAGE ASSETS TOTAL ONE YEAR RETURN TO SHAREHOLDERS (%) 1.12% 0.93% 1.19% 1.20% 1.20% 21.48% 18.33% 19.25% 15.48 12.50% 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 EFFICIENCY RATIO NET INCOME (Dollars in Thousands) 71.06% 74.56% 66.20% 65.23% 63.20% 11,578 10,114 8,676 4,692 4,441 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 12 Bauer Financial 5-Star Rating The State Bank is honored to announce it has earned Bauer Financial, Inc.’s highest 5-Star Superior rating. Bauer Financial, Inc. is the nation’s leading independent bank and credit union rating firm, and awards star-ratings on a quarterly basis. A 5-Star rating indicates that The State Bank is one of the strongest banks in the nation, excelling in such areas as capital, loan quality, profitability and much more. Earning a 5-Star rating is an outstanding achievement and the result of sound financial management, financial strength and performance. We are proud to maintain our rating as one of the strongest banks in the nation. Ron Justice, President and Chief Executive Officer at The State Bank Top 200 Community Bank The State Bank was recognized by American Banker magazine as the 20th top performing community bank in the nation in their yearly Top 200 Community Bank rankings. Of all of the banks rated in the state of Michigan, The State Bank received the highest rating. The State Bank Surpasses $1 Billion in Assets In the fourth quarter of 2019, The State Bank surpassed $1 billion in assets. “As we look back on 2019, we are proud to say it was another record setting year,” said Ronald L. Justice, President and CEO. “It was not only a year of growth in itself, it was a year of planning and preparing for growth in years to come.” GROWTH & PERFORMANCE RECOGNIZED 13 LOCATIONS 14 ATM Only Locations THOMPSON ROAD 3237 W. Thompson Road Fenton, MI 48430 ALPINE FOOD PLAZA 606 W. Broad Street Linden, MI 48451 CHESANING 148 Chapman Street Chesaning, MI 48616 Loan Production Offices SAGINAW LOAN CENTER 301 E. Genesee Avenue Suite 01 Saginaw, MI 48607 FLINT LOAN CENTER Flint Ferris Wheel Building 615 S. Saginaw St 7th Floor Flint, MI 48502 Branches MAIN BRANCH 175 N. Leroy Street Fenton, MI 48430 810.629.2263 BRIGHTON BRANCH 134 N. First Street Brighton, MI 48116 810.534.0800 SILVER PARKWAY NEW LOTHROP BRANCH BRANCH 9380 Genesee Street 15095 Silver Parkway New Lothrop, MI 48460 Fenton, MI 48430 810.750.5605 VG’S FOOD CENTER BRANCH 810.638.3003 MONTROSE BRANCH 200 W. State Street Montrose, MI 48457 18005 Silver Parkway 810.639.6101 Fenton, MI 48430 810.750.8781 LINDEN BRANCH 107 Main Street Linden, MI 48451 810.750.8794 HOLLY BRANCH 4043 Grange Hall Road Holly, MI 48442 810.750.8701 GRAND BLANC SOUTH BRANCH 7606 S. Saginaw Street Grand Blanc, MI 48439 810.695.9601 GRAND BLANC NORTH BRANCH 1401 E. Hill Road BIRCH RUN BRANCH 8412 Main Street Birch Run, MI 48415 989.624.6280 BURT BRANCH 10811 Albee Road Burt, MI 48417 989.770.4050 CHESANING BRANCH 12771 Brady Road Chesaning, MI 48616 989.845.7070 ST. CHARLES BRANCH 207 S. Saginaw Street St. Charles, MI 48655 989.865.9434 THOMAS TOWNSHIP Grand Blanc, MI 48439 BRANCH 810.603.9500 7590 Gratiot Road Saginaw, MI 48609 989.781.2350 800.535.0517 | FENTURA.COM | THESTATEBANK.COM 16 

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