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Sturgis Bancorp Reports Earnings for 2016

STURGIS, Mich., Jan. 20, 2017 (GLOBE NEWSWIRE) -- Sturgis Bancorp, Inc. (OTCQX:STBI) announced net income of $2.7 million for 2016, and net income of $695,000 for the fourth quarter of 2016, Eric L. Eishen, President and CEO, announced today.

Sturgis Bancorp is the holding company for Sturgis Bank & Trust Company (Bank), and its subsidiaries Oakleaf Financial Services, Inc. and Oak Mortgage, LLC. Sturgis Bancorp provides a full array of trust, commercial and consumer banking services from 12 banking centers in Sturgis, Bangor, Bronson, Centreville, Climax, Colon, South Haven, Three Rivers and White Pigeon, Mich. Oakleaf Financial Services offers a complete range of investment and financial-advisory services. Oak Mortgage offers residential mortgages in all markets of the Bank.

Key Highlights for 2016:

  • Net income for 2016 was $2.7 million, or $1.28 per share, compared to net income of $2.5 million, or $1.19 per share, in 2015.
  • The Bank increased capital ratios, exceeding “well-capitalized” requirements and ending 2016 with Tier 1 capital at 8.32% of average assets and 12.84% of risk-weighted assets. Total capital at December 31, 2016 was 14.09% of risk-weighted assets.
  • Nonaccrual loans decreased significantly, by $2.2 million, to $917,000.
  • The allowance for loan losses decreased to 1.20% of total (gross) loans from 1.25% at the end of 2015, primarily due to improvements in nonaccrual loans and other measures of credit quality.

Year 2016 vs. 2015 - Net income for the year ended December 31, 2016 increased to $2.7 million, or $1.28 per share from net income of $2.5 million, or $1.19 per share, for 2015. Net interest income increased 14.6% to $12.3 million, from $10.7 million for 2015. The increase in net interest income is primarily due to growth in loans and investments.

The average rate paid on interest-bearing liabilities decreased to 0.65% in 2016 from 0.74% in 2015. Average interest-earning assets increased to $342.7 million in 2016 from $303.5 million in 2015. The tax equivalent net interest margin increased to 3.76% in 2016 from 3.62% in 2015.

The provision for loan losses was $357,000 for the year ended December 31, 2016, compared to ($219,000) for the year ended December 31, 2015. The provision for loan losses was based upon management’s assessment of relevant factors, including types and amounts of non-performing loans, historical and anticipated loss experience on such types of loans, and economic conditions. Loans charged off during 2016, net of recoveries, were $329,000. Net charge-offs were at a historical low of $5,000 in 2015, primarily due to two commercial loan recoveries.

Noninterest income was $5.2 million in 2016, compared to $6.0 million in 2015. The Bank received $700,000 of death benefit in excess of recorded cash value from bank-owned life insurance in 2015. Investment brokerage commission income from subsidiary Oakleaf Financial Services decreased $494,000 to $1.6 million in 2016, primarily due to mid-Summer conversion from LPL to Raymond James. The decrease in first-year revenue and related transition expenses are partially offset by $748,000 of unearned income on December 31, 2016, which will be recognized into income over the next 54 months.

Noninterest expense was $13.8 million in 2016, compared to $14.1 million in 2015. The Bank incurred $825,000 pre-tax expenses in 2015 related to the April 2015 acquisition of another Bank. The largest component of noninterest expense is salaries and employee benefits, which increased $262,000. This increase is primarily due to full-year salaries and employee benefits for the acquired Bank location, health insurance, and other employee benefits. Real estate owned expense decreased $317,000 to $224,000, including $69,000 to write-down values to market prices, compared to $354,000 of similar write-downs in 2015. Management actively minimizes noninterest expense, although certain noninterest expenses are outside of Management’s direct control.

Total assets increased to $398.6 million at December 31, 2016 from $368.6 million at December 31, 2015, primarily in securities. Securities available-for-sale and held-to-maturity increased $4.8 million and $14.5 million, respectively. Net loans increased $13.1 million, to $266.9 million at December 31, 2016.

Deposits were $297.8 million at December 31, 2016 compared to $284.0 million at December 31, 2015, an increase of $13.7 million. Interest-bearing deposits increased to $232.3 million at December 31, 2016 from $219.0 million at December 31, 2015. Brokered certificates of deposit increased to $9.6 million at December 31, 2016 from $7.7 million at December 31, 2015. Non-brokered jumbo certificates remained unchanged at $13.0 million at December 31, 2016 and December 31, 2015. The Bank uses brokered and jumbo certificates as sources of liquidity. Interest-bearing transaction savings accounts and checking accounts increased $13.6 million, or 8.1%. Transaction savings accounts and checking accounts represent 60.9% of deposits at December 31, 2016, compared to 59.1% of deposits at December 31, 2015. Bank management is actively attempting to increase core deposit account relationships. Transaction savings accounts and checking accounts provide relatively inexpensive funding for future growth, compared to alternative certificates of deposit and borrowed funds at higher interest rates. The Bank offers competitive rates on its time deposits and uses brokered certificates or borrowed funds, when that strategy is expected to enhance net interest income.

Federal Home Loan Bank advances and other borrowings increased $13.4 million, to supplement deposits in funding growth in securities and loans.

The stockholders’ equity of Bancorp was $34.6 million at December 31, 2016 compared to $32.6 million at December 31, 2015, an increase of $2.0 million, or 6.7%. The primary component of this increase was retained earnings. Cash dividends of $873,000, or $0.42 per share, were paid in 2016, compared to $0.14 in 2015. The stockholders’ equity was 8.69% of total assets at December 31, 2016. Book value per share increased to $16.61 at December 31, 2016 from $15.70 at December 31, 2015.

Mr. Eishen added, “The Board increased the cash dividend through 2015 and 2016. The regular quarterly dividend is now $0.12 per share, fully restoring quarterly cash dividends to Bancorp's pre-crisis level. The increases are well supported with core earnings improvements and credit quality improvements in recent years, and remains in line with the Company's historical payout ratio."

Fourth Quarter of 2016 vs. 2015 - Net income for the quarter ended December 31, 2016 decreased to $695,000, or $0.33 per share, from $824,000, or $0.40 per share, for the fourth quarter of 2015. The primary component of the decrease was provision for loan losses.

Net interest income increased $188,000, to $3.1 million in the fourth quarter of 2016. The increase is primarily due to growth in average interest-earning assets. The tax-equivalent net interest margin decreased to 3.68% in the fourth quarter of 2016 from 3.73% in the last quarter of 2015, primarily due to growth in securities.

Net charge-offs for the fourth quarter of 2016 were $107,000, compared to ($133,000) a year ago. The Company recorded $73,000 provision for loan losses in the fourth quarter of 2016, compared to ($215,000) for the same quarter of 2015.

Noninterest income increased $113,000 in the fourth quarter of 2016 to $1.3 million. The primarily component of noninterest income was commission income, which decreased $146,000. The company recorded $99,000 net gain on cash flow hedges in the fourth quarter of 2016.

Noninterest expense decreased $3,000 in the fourth quarter of 2016, primarily in real estate owned expenses. Salaries and employee benefits increased $176,000, due to health insurance and other employee benefits. Real estate owned expenses decreased $76,000 in the fourth quarter of 2016 to $14,000. Data processing expenses decreased $47,000 in the fourth quarter of 2016, due to renegotiated contractual pricing.

This release contains statements that constitute forward-looking statements. These statements appear in several places in this release and include statements regarding intent, belief, outlook, objectives, efforts, estimates or expectations of Bancorp, primarily with respect to future events and the future financial performance of the Bancorp. Any such forward-looking statements are not guarantees of future events or performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statement. Factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement include, but are not limited to, changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking laws and regulations; changes in tax laws; changes in prices, levies, and assessments; the impact of technological advances; government and regulatory policy changes; the outcome of any pending and future litigation and contingencies; trends in consumer behavior and ability to repay loans; and changes of the world, national and local economies. Bancorp undertakes no obligation to update, amend or clarify forward-looking statements as a result of new information, future events, or otherwise. The numbers presented herein are unaudited.

CONSOLIDATED BALANCE SHEETS
December 31, 2016 and 2015
(Amounts in thousands, except share and per share data)
2016 2015
ASSETS
Cash and due from banks $8,150 $10,786
Other short-term investments 4,964 5,084
Total cash and cash equivalents 13,114 15,870
Interest-earning deposits in banks 16,068 16,805
Securities - available for sale 32,387 27,635
Securities - held to maturity 33,769 19,245
Federal Home Loan Bank stock, at cost 3,117 2,632
Loans held for sale, at fair value 1,089 1,575
Loans, net of allowance of $3,242 and $3,213 266,871 253,830
Premises and equipment, net 8,360 8,114
Goodwill 5,834 5,834
Core deposit intangibles 259 320
Originated mortgage servicing rights 1,216 1,349
Real estate owned 687 827
Bank-owned life insurance 9,998 9,735
Accrued interest receivable 1,407 1,183
Other assets 4,453 3,605
Total assets $398,629 $368,559
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $65,455 $65,041
Interest-bearing 232,312 218,998
Total deposits 297,767 284,039
Federal Home Loan Bank advances and other borrowings 61,180 47,812
Accrued interest payable 243 243
Other liabilities 4,796 3,853
Total liabilities 363,986 335,947
Stockholders' equity
Preferred stock - $1 par value: authorized - 1,000,000 shares
issued and outstanding – 0 shares - -
Common stock – $1 par value: authorized – 9,000,000 shares
issued and outstanding 2,085,991 shares at December 31, 2016
and 2,077,791 at December 31, 2015 2,086 2,078
Additional paid-in capital 7,367 7,277
Retained earnings 25,233 23,445
Accumulated other comprehensive loss (43) (188)
Total stockholders' equity 34,643 32,612
Total liabilities and stockholders' equity $398,629 $368,559

CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2016 and 2015
(Amounts in thousands, except share and per share data)
2016 2015
Interest income
Loans $12,458 $11,658
Investment securities:
Taxable 661 521
Tax-exempt 909 316
Dividends 104 135
Total interest income 14,132 12,630
Interest expense
Deposits 676 669
Borrowed funds 1,140 1,212
Total interest expense 1,816 1,881
Net interest income 12,316 10,749
Provision for loan losses 357 (219)
Net interest income after provision for loan losses 11,959 10,968
Noninterest income:
Service charges and other fees 1,003 967
Interchange income 728 669
Investment brokerage commission income 1,603 2,097
Mortgage banking activities 686 700
Trust fee income 462 426
Increase in cash value of bank owned life insurance 263 973
Gain on sale of real estate owned 196 113
Gain (loss) on sale of securities 1 (2)
Net gain on cash flow hedges 99 -
Other income 160 98
Total noninterest income 5,201 6,041
Noninterest expenses:
Salaries and employee benefits 8,010 7,748
Occupancy and equipment 1,698 1,601
Interchange expenses 424 376
Data processing 772 872
Professional services 268 513
Real estate owned expense 224 541
Advertising 232 187
FDIC premiums 235 258
Other 1,977 2,007
Total noninterest expenses 13,840 14,103
Income before income tax expense 3,320 2,906
Income tax expense 658 446
Net income $2,662 $2,460
Earnings per share $1.28 $1.19
Dividends declared per share $0.42 $0.14
Key Ratios:
Return on average equity 8.09% 7.86%
Return on average assets 0.69% 0.70%
Net interest margin (tax equivalent) 3.76% 3.62%
Efficiency ratio 79.02% 84.09%


CONSOLIDATED STATEMENTS OF INCOME
Three months ended December 31, 2016 and 2015
(Amounts in thousands, except share and per share data)
2016 2015
Interest income
Loans $3,152 $3,045
Investment securities:
Taxable 190 155
Tax-exempt 251 162
Dividends 20 28
Total interest income 3,613 3,390
Interest expense
Deposits 166 167
Borrowed funds 306 270
Total interest expense 472 437
Net interest income 3,141 2,953
Provision for loan losses 73 (215)
Net interest income after provision for loan losses 3,068 3,168
Noninterest income:
Service charges and other fees 244 237
Interchange income 184 175
Investment brokerage commission income 381 527
Mortgage banking activities 153 175
Trust fee income 111 104
Increase in cash value of bank owned life insurance 67 67
Gain on sale of available-for-sale securities - 4
Gain on sale of real estate owned - 20
Net gain on cash flow hedges 99 -
Other income 17 60
Total noninterest income 1,256 1,369
Noninterest expenses:
Salaries and employee benefits 2,181 2,005
Occupancy and equipment 396 398
Interchange expenses 108 94
Data processing 168 215
Professional services 70 126
Real estate owned expense 14 90
Advertising 51 72
FDIC premiums 43 60
Other 440 414
Total noninterest expenses 3,471 3,474
Income before income tax expense 853 1,063
Income tax expense 158 239
Net income $695 $824
Earnings per share $0.33 $0.40
Dividends declared per share $0.12 $0.05
Key Ratios:
Return on average equity 8.34% 10.16%
Return on average assets 0.70% 0.90%
Net interest margin (tax equivalent) 3.68% 3.73%
Efficiency ratio 78.95% 80.38%

Contacts: Sturgis Bancorp -- Eric Eishen, President & CEO, or Brian P. Hoggatt, CFO -- P: 269 651-9345

Source:Sturgis Bancorp, Inc.