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Sturgis Bancorp Reports Earnings for Second Quarter 2017

STURGIS, Mich., July 25, 2017 (GLOBE NEWSWIRE) --

Sturgis Bancorp, Inc. (OTCQX:STBI) today announced net income of $1.6 million for the first half of 2017 and $939,000 for the second quarter of 2017.

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, Michigan. 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 the second quarter of 2017:

  • Net income increased 33% for the second quarter of 2017 to $939,000, compared to $705,000 for the second quarter of 2016, primarily due to higher net interest income, lower provisions for ALLL, and net gain on cash flow hedges.
  • The Bank maintained strong capital ratios, exceeding “well-capitalized” requirements, with Tier 1 leverage capital at 8.42%. Total capital at June 30, 2017 was 14.42% of risk-weighted assets. The Bank's risk-weighted assets were $252.9 million at June 30, 2017.
  • Total deposits increased 2.6% to $305.5 million, mostly noninterest-bearing deposits.
  • Allowance for loan losses was 1.15% of gross loans, down slightly from 1.20% on December 31, 2016.
  • Asset quality improved, with 0.30% of loans in nonaccrual status on June 30, 2017, compared to 0.34% on December 31, 2016. Loans past due 90 days and accruing were 0.04% of loans on June 30, 2017, compared to 0.10% on December 31, 2016.

Three months ended June 30, 2017 vs. three months ended June 30, 2016 - Net income for the three months ended June 30, 2017 was $939,000, or $0.45 per share, compared to net income of $705,000, or $0.34 per share, for the three months ended June 30, 2016. The tax equivalent net interest margin decreased to 3.75% in the second quarter of 2017 from 3.78% in the second quarter of 2016.

Noninterest income was $1.7 million in the second quarter of 2017, compared to $1.4 million in the second quarter of 2016. Most of the increase was $242,000 net gain on cash flow hedges. Service charges and other fees also increased $105,000, to $354,000, primarily due to changes in checking account fee income. Investment brokerage commission income decreased to $403,000 in 2017 from $510,000 in 2016. The decrease in commission income was primarily due to the Department of Labor's Fiduciary Rule and the 2016 conversion to Raymond James Financial Inc. from LPL Financial.

Noninterest expense was $3.8 million in 2017 and $3.4 million in 2016. Salaries and employee benefits, the largest component of noninterest expense, increased $275,000, primarily due to higher pension funding in 2017 and cost of living increases. Real estate owned expense decreased to $47,000 in 2017, compared to $107,000 in 2016.

The Company provided ($106,000) to the allowance for loan losses in the second quarter of 2017, compared to $88,000 in the same quarter of 2016. Net charge-offs were ($24,000) in 2017, compared to $35,000 in 2016.

Six months ended June 30, 2017 vs. six months ended June 30, 2016 - Net income for the first half of 2017 was $1.6 million, or $0.77 per share, compared to net income of $1.3 million, or $0.62 per share, for the first half of 2016. The tax equivalent net interest margin increased to 3.77% in the first half of 2017 from 3.76% in the first half of 2016.

Noninterest income was $2.8 million in the first half of 2017, compared to $2.6 million in the first half of 2016. Most of the increase was $258,000 net gain on cash flow hedges. Service charges and other fees also increased $113,000, to $614,000, primarily due to changes in checking account fee income. Investment brokerage commission income decreased to $732,000 in 2017 from $954,000 in 2016. The decrease in commission income was primarily due to the Department of Labor's Fiduciary Rule and the 2016 conversion to Raymond James Financial Inc. from LPL Financial.

Noninterest expense was $7.4 million in 2017 and $6.8 million in 2016. Salaries and employee benefits, the largest component of noninterest expense, increased $553,000, primarily due to higher pension funding in 2017 and cost of living increases. Real estate owned expense decreased to $63,000 in 2017, compared to $167,000 in 2016.

The Company provided ($241,000) to the allowance for loan losses in the first half of 2017, compared to $182,000 in the first half of 2016. Net charge-offs were ($95,000) in 2017, compared to $104,000 in 2016.

Total assets increased to $406.4 million at June 30, 2017 from $398.6 million at December 31, 2016, primarily in cash and cash equivalents. Loans decreased $1.8 million from December 31, 2016. Most of the decrease in loans was in commercial loans.

Noninterest-bearing deposits increased to $75.9 million at June 30, 2017 from $65.5 million at December 31, 2016. Interest-bearing deposits decreased to $229.6 million at June 30, 2017 from $232.3 million at December 31, 2016. Brokered deposits increased to $10.0 million in the first half of 2017 from $9.6 million at December 31, 2016.

Total equity was $35.8 million at June 30, 2017, compared to $34.7 million at December 31, 2016. Book value per share increased to $17.14 ($13.63 tangible) at June 30, 2017 from $16.65 ($13.14 tangible) at December 31, 2016.

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.

For additional information, visit our website at www.sturgisbank.com.

CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)

June. 30, Dec. 31,
2017
2016
ASSETS
Cash and due from banks$14,525 $8,150
Other short-term investments 11,488 4,963
Total cash and cash equivalents26,013 13,113
Interest-earning deposits in banks 13,585 16,068
Securities - available for sale 30,289 32,387
Securities - held to maturity 35,078 33,769
Federal Home Loan Bank stock, at cost 3,117 3,117
Loans held for sale, at fair value 1,237 1,089
Loans, net of allowance of $3,096 and $3,242 265,052 266,871
Premises and equipment, net 9,018 8,360
Goodwill 5,834 5,834
Core deposit intangibles 230 259
Originated mortgage servicing rights 1,268 1,216
Real estate owned 469 687
Bank-owned life insurance 10,130 9,998
Accrued interest receivable 1,354 1,407
Other assets 3,770 4,454
Total assets$406,444 $398,629
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing$75,897 $65,455
Interest-bearing 229,612 232,312
Total deposits 305,509 297,767
Federal Home Loan Bank advances and other borrowings60,163 61,180
Accrued interest payable250 243
Other liabilities 4,689 4,712
Total liabilities370,611 363,902
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 2,090,491 shares at June 30, 2017
and 2,085,991 at December 31, 20162,090 2,086
Additional paid-in capital7,435 7,367
Retained earnings26,334 25,234
Accumulated other comprehensive loss (26) 40
Total stockholders' equity 35,833 34,727
Total liabilities and stockholders' equity$406,444 $398,629

CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per share data)

Three Months Ended June 30,
2017
2016
Interest income
Loans$3,145 $3,079
Investment securities:
Taxable 198 147
Tax-exempt 275 220
Dividends 33 28
Total interest income 3,651 3,474
Interest expense
Deposits167 172
Borrowed funds 316 270
Total interest expense 483 442
Net interest income 3,168 3,032
Provision (benefit) for loan losses (106) 88
Net interest income after provision (benefit) for loan losses 3,274 2,944
Noninterest income:
Service charges and other fees354 249
Interchange income200 187
Investment brokerage commission income 403 510
Mortgage banking activities294 196
Trust fee income124 129
Earnings on cash value of bank-owned life insurance66 65
Gain on sale of real estate owned17 -
Net gain on cash flow hedges242 -
Other income 19 17
Total noninterest income 1,719 1,353
Noninterest expenses:
Salaries and employee benefits2,179 1,904
Occupancy and equipment447 488
Interchange expenses90 114
Data processing156 198
Professional services89 45
Real estate owned expense47 107
Advertising59 55
FDIC premiums48 64
Other expenses 659 433
Total noninterest expenses 3,774 3,408
Income before income tax expense 1,219 889
Income tax expense 280 184
Net income$939 $705
Earnings per share$0.45 $0.34
Dividends per share 0.12 0.10

CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per share data)

Six Months Ended June 30,
20172016
Interest income
Loans$6,310 $6,086
Investment securities:
Taxable 411 303
Tax-exempt 542 424
Dividends 61 56
Total interest income 7,324 6,869
Interest expense
Deposits330 338
Borrowed funds 621 544
Total interest expense 951 882
Net interest income 6,373 5,987
Provision (benefit) for loan losses (241) 182
Net interest income after provision (benefit) for loan losses6,614 5,805
Noninterest income:
Service charges and other fees614 501
Interchange income382 354
Investment brokerage commission income732 954
Mortgage banking activities418 332
Trust fee income232 208
Earnings on cash value of bank-owned life insurance132 130
Gain (loss) on sale of real estate owned8 (1)
Gain on securities- 1
Net gain on cash flow hedges258 -
Other income 44 115
Total noninterest income 2,820 2,594
Noninterest expenses:
Salaries and employee benefits4,365 3,812
Occupancy and equipment892 894
Interchange expenses187 212
Data processing313 395
Professional services203 106
Real estate owned expense63 167
Advertising106 115
FDIC premiums95 127
Other expenses 1,188 949
Total noninterest expenses 7,412 6,777
Income before income tax expense2,022 1,622
Income tax expense 421 324
Net income$1,601 $1,298
Earnings per share$0.77 $0.62
Dividends per share0.24 0.18

OTHER FINANCIAL INFORMATION
(Amounts in thousands)

Three Months Ended June 30,
20172016
Sturgis Bank & Trust Company:
Average noninterest-bearing deposits$69,694 $65,169
Average interest-bearing deposits 236,416 233,784
Average total assets 400,718 370,003
Total risk-weighted assets 252,892 235,810
Sturgis Bancorp:
Average equity 35,731 33,139
Average total assets 400,884 379,808
Total risk-weighted assets, end of period 253,094 242,113
Financial ratios for Sturgis Bancorp:
Return on average assets 0.94% 0.75%
Return on average equity 10.55% 8.56%
Net interest margin 3.57% 3.61%
Tax equivalent net interest margin 3.75% 3.78%
Six Months Ended June 30,
20172016
Sturgis Bank & Trust Company:
Average noninterest-bearing deposits$68,920 $63,980
Average interest-bearing deposits 236,879 228,834
Average total assets 401,045 374,861
Total risk-weighted assets, end of period 252,892 242,022
Sturgis Bancorp:
Average equity 35,381 32,908
Average total assets 401,215 374,961
Total risk-weighted assets 253,094 242,113
Financial ratios for Sturgis Bancorp:
Return on average assets 0.80% 0.70%
Return on average equity 9.12% 7.93%
Net interest margin 3.59% 3.60%
Tax equivalent net interest margin3.77% 3.76%

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

Source:Sturgis Bancorp, Inc.

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