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Sturgis Bancorp Reports Earnings for Third Quarter 2017

STURGIS, Mich., Oct. 25, 2017 (GLOBE NEWSWIRE) -- Sturgis Bancorp, Inc. (OTCQX:STBI) today announced net income of $2.3 million for the first nine months of 2017 and $739,000 for the third 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 19% for the first nine months of 2017 to $2.3 million, compared to $2.0 million for the first nine months 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 September 30, 2017 was 14.10% of risk-weighted assets. The Bank's risk-weighted assets were $262.4 million at September 30, 2017.
  • Total deposits increased 1.0% to $300.7 million, mostly noninterest-bearing deposits.
  • Allowance for loan losses was 1.12% of gross loans, down slightly from 1.20% on December 31, 2016.
  • Asset quality improved, with 0.29% of loans in nonaccrual status on September 30, 2017, compared to 0.34% on December 31, 2016. Loans past due 90 days and accruing were 0.04% of loans on September 30, 2017, compared to 0.10% on December 31, 2016.

Three months ended September 30, 2017 vs. three months ended September 30, 2016 - Net income for the three months ended September 30, 2017 was $739,000, or $0.35 per share, compared to net income of $670,000, or $0.32 per share, for the three months ended September 30, 2016. The tax equivalent net interest margin decreased to 3.72% in the third quarter of 2017 from 3.83% in the third quarter of 2016.

Noninterest income was $1.3 million in the third quarter of 2017, compared to $1.4 million in the third quarter of 2016. Most of the decrease was due to $15,000 gain on sale of real estate owned in 2017, compared to $196,000 in 2016. Service charges and other fees increased $132,000, to $391,000, primarily due to changes in checking account fee income.

Noninterest expense was $3.6 million in 2017 and $3.6 million in 2016. Salaries and employee benefits, the largest component of noninterest expense, increased $48,000, primarily due to higher pension funding in 2017 and cost of living increases.

The Company provided $59,000 to the allowance for loan losses in the third quarter of 2017, compared to $102,000 in the same quarter of 2016. Net charge-offs were $47,000 in 2017, compared to $118,000 in 2016.

Nine months ended September 30, 2017 vs. nine months ended September 30, 2016 - Net income for the first nine months of 2017 was $2.3 million, or $1.12 per share, compared to net income of $2.0 million, or $0.95 per share, for the first nine months of 2016. The tax equivalent net interest margin decreased to 3.75% in the first nine months of 2017 from 3.79% in the first nine months of 2016.

Noninterest income was $4.2 million in the first nine months of 2017, compared to $3.9 million in the first nine months of 2016. Most of the increase was $258,000 net gain on cash flow hedges. Service charges and other fees also increased $247,000, to $1.0 million, primarily due to changes in checking account fee income. Investment brokerage commission income decreased to $1.1 million in 2017 from $1.2 million 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. Gain on sale of real estate owned also decreased to $23,000 in 2017 from $196,000 in 2016.

Noninterest expense was $11.0 million in 2017 and $10.4 million in 2016. Salaries and employee benefits, the largest component of noninterest expense, increased $601,000, primarily due to higher pension funding in 2017 and cost of living increases.

The Company provided ($182,000) to the allowance for loan losses in the first nine months of 2017, compared to $284,000 in the first nine months of 2016. Net charge-offs were ($48,000) in 2017, compared to $329,000 in 2016.

Total assets increased to $404.7 million at September 30, 2017 from $398.6 million at December 31, 2016, primarily in loans. Loans increased $11.0 million from December 31, 2016. Most of the increase in loans was in commercial loans.

Noninterest-bearing deposits increased to $75.1 million at September 30, 2017 from $65.5 million at December 31, 2016. Interest-bearing deposits decreased to $225.5 million at September 30, 2017 from $232.3 million at December 31, 2016. The decrease in interest-bearing deposits includes $3.0 million decrease in brokered deposits.

Total equity was $36.3 million at September 30, 2017, compared to $34.7 million at December 31, 2016. Book value per share increased to $17.37 ($13.88 tangible) at September 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)
Sept. 30, Dec. 31,
2017 2016
ASSETS
Cash and due from banks $8,355 $8,150
Other short-term investments 4,730 4,963
Total cash and cash equivalents 13,085 13,113
Interest-earning deposits in banks 13,585 16,068
Securities - available for sale 29,033 32,387
Securities - held to maturity 35,504 33,769
Federal Home Loan Bank stock, at cost 3,169 3,117
Loans held for sale, at fair value 412 1,089
Loans, net of allowance of $3,108 and $3,242 277,875 266,871
Premises and equipment, net 8,962 8,360
Goodwill 5,834 5,834
Core deposit intangibles 217 259
Originated mortgage servicing rights 1,238 1,216
Real estate owned 395 687
Bank-owned life insurance 10,198 9,998
Accrued interest receivable 1,642 1,407
Other assets 3,539 4,454
Total assets $404,688 $398,629
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $75,155 $65,455
Interest-bearing 225,526 232,312
Total deposits 300,681 297,767
Federal Home Loan Bank advances and other borrowings 62,987 61,180
Accrued interest payable 246 243
Other liabilities 4,429 4,712
Total liabilities 368,343 363,902
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 2,092,741 shares at Sept. 30, 2017
and 2,085,991 at December 31, 2016 2,093 2,086
Additional paid-in capital 7,473 7,367
Retained earnings 26,821 25,234
Accumulated other comprehensive loss (42) 40
Total stockholders' equity 36,345 34,727
Total liabilities and stockholders' equity $404,688 $398,629


CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per share data)
Three Months Ended Sept. 30,
2017 2016
Interest income
Loans $3,255 $3,220
Investment securities:
Taxable 208 168
Tax-exempt 278 234
Dividends 35 28
Total interest income 3,776 3,650
Interest expense
Deposits 177 171
Borrowed funds 368 290
Total interest expense 545 461
Net interest income 3,231 3,189
Provision (benefit) for loan losses 59 102
Net interest income after provision (benefit) for loan losses 3,172 3,087
Noninterest income:
Service charges and other fees 391 259
Interchange income 195 190
Investment brokerage commission income 368 267
Mortgage banking activities 161 201
Trust fee income 117 143
Earnings on cash value of bank-owned life insurance 68 66
Gain on sale of real estate owned 15 197
Other income 33 28
Total noninterest income 1,348 1,351
Noninterest expenses:
Salaries and employee benefits 2,064 2,016
Occupancy and equipment 461 409
Interchange expenses 97 105
Data processing 182 209
Professional services 110 93
Real estate owned expense 39 42
Advertising 87 66
FDIC premiums 43 65
Realized loss (gain) on available for sale securities 20 (1)
Other expenses 503 591
Total noninterest expenses 3,606 3,595
Income before income tax expense 914 843
Income tax expense 175 173
Net income $739 $670
Earnings per share $0.35 $0.32
Dividends per share 0.12 0.12


CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per share data)
Nine Months Ended Sept. 30,
2017 2016
Interest income
Loans $9,564 $9,306
Investment securities:
Taxable 620 471
Tax-exempt 820 658
Dividends 96 84
Total interest income 11,100 10,519
Interest expense
Deposits 506 509
Borrowed funds 990 834
Total interest expense 1,496 1,343
Net interest income 9,604 9,176
Provision (benefit) for loan losses (182) 284
Net interest income after provision (benefit) for loan losses 9,786 8,892
Noninterest income:
Service charges and other fees 1,006 759
Interchange income 577 544
Investment brokerage commission income 1,101 1,222
Mortgage banking activities 578 533
Trust fee income 350 351
Earnings on cash value of bank-owned life insurance 199 196
Net gain on cash flow hedges 258 -
Gain (loss) on sale of real estate owned 23 196
Other income 76 143
Total noninterest income 4,168 3,944
Noninterest expenses:
Salaries and employee benefits 6,429 5,828
Occupancy and equipment 1,348 1,302
Interchange expenses 284 317
Data processing 495 604
Professional services 313 198
Real estate owned expense 102 209
Advertising 193 182
FDIC premiums 139 192
Realized loss (gain) on available for sale securities 20 (1)
Other expenses 1,695 1,540
Total noninterest expenses 11,018 10,371
Income before income tax expense 2,936 2,465
Income tax expense 596 498
Net income $2,340 $1,967
Earnings per share $1.12 $0.95
Dividends per share 0.36 0.30


OTHER FINANCIAL INFORMATION
(Amounts in thousands)
Three Months Ended Sept. 30,
2017 2016
Sturgis Bank & Trust Company:
Average noninterest-bearing deposits $78,019 $69,865
Average interest-bearing deposits 227,151 232,795
Average total assets 406,536 390,372
Total risk-weighted assets, end of period 262,358 249,328
Sturgis Bancorp:
Average equity 36,021 33,616
Average total assets 406,695 390,489
Total risk-weighted assets, end of period 262,569 249,582
Financial ratios for Sturgis Bancorp:
Return on average assets 0.72% 0.68%
Return on average equity 8.14% 8.04%
Net interest margin 3.54% 3.67%
Tax equivalent net interest margin 3.72% 3.83%
Nine Months Ended Sept. 30,
2017 2016
Sturgis Bank & Trust Company:
Average noninterest-bearing deposits $71,987 $65,956
Average interest-bearing deposits 233,601 230,164
Average total assets 402,865 380,111
Sturgis Bancorp:
Average equity 35,592 33,142
Average total assets 403,031 380,217
Financial ratios for Sturgis Bancorp:
Return on average assets 0.78% 0.69%
Return on average equity 8.79% 7.98%
Net interest margin 3.57% 3.62%
Tax equivalent net interest margin 3.75% 3.79%

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

Source:Sturgis Bancorp, Inc.