Sturgis Bancorp Reports Earnings for 2017

STURGIS, Mich., Jan. 29, 2018 (GLOBE NEWSWIRE) -- Sturgis Bancorp, Inc. (OTCQX:STBI) announced net income of $3.2 million for 2017, and net income of $828,000 for the fourth quarter of 2017, 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., Oak Mortgage, LLC, Oak Insurance Services, LLC, and Oak Title Services, 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, MI. Oakleaf Financial Services offers a complete range of investment and financial-advisory services. Oak Mortgage offers residential mortgages in all markets of the Bank. Oak Insurance Services offers various competitive commercial and consumer insurance products. Oak Title Services offers commercial and consumer title insurance.

Key Highlights for 2017:

  • Net income for 2017 was $3.2 million, or $1.52 per share, compared to net income of $2.7 million, or $1.28 per share, in 2016.
  • The Bank capital ratios exceeded “well-capitalized” requirements and ended 2017 with Tier 1 capital at 8.35% of average assets and 12.55% of risk-weighted assets. Total capital at December 31, 2017 was 13.69% of risk-weighted assets.
  • The allowance for loan losses decreased to 1.09% of total (gross) loans from 1.20% at the end of 2016, primarily due to improvements in asset quality and loss experience. Net charge offs in 2017 were ($43,000), compared to $329,000 in 2016.

Year 2017 vs. 2016 - Net income for the year ended December 31, 2017 increased to $3.2 million, or $1.52 per share from net income of $2.7 million, or $1.28 per share, for 2016. Net interest income increased 5.1% to $12.9 million, from $12.3 million for 2016. The increase in net interest income is primarily due to growth in loans.

The average rate paid on interest-bearing liabilities increased to 0.70% in 2017 from 0.65% in 2016. Average interest-earning assets increased to $361.3 million in 2017 from $342.7 million in 2016. The tax equivalent net interest margin was 3.76% in both 2017 and 2016.

The provision for loan losses was ($213,000) for the year ended December 31, 2017, compared to $357,000 for the year ended December 31, 2016. 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 2017, net of recoveries, were ($43,000), compared to $329,000 in 2016.

Noninterest income was $5.5 million in 2017, compared to $5.2 million in 2016. The Bank increased service charges on deposit accounts to $1.4 million in 2017 from $1.0 million in 2016. The Bank also realized $258,000 net gain on cash flow hedges in 2017, compared to $99,000 in 2016.

Noninterest expense was $15.3 million in 2017, compared to $13.8 million in 2016. Salaries and employee benefits increased $726,000. This increase is primarily due to wages, health insurance benefits and pension expense increases. The Bank realized $441,000 losses on sales of available-for-sale securities in 2017, compared to net gain of ($1,000) in 2016. The additional pension expense and loss on sale of securities were realized to manage the tax rate change enacted in December 2017. Management actively minimizes noninterest expense, although certain noninterest expenses are outside of Management’s direct control.

Total assets increased to $414.4 million at December 31, 2017 from $398.6 million at December 31, 2016, primarily in loans. Net loans increased $13.7 million, to $280.6 million at December 31, 2017. Most of the net loan growth was in home equity lines of credit, commercial real estate loans, and nonresidential construction loans.

Deposits were $337.1 million at December 31, 2017 compared to $297.8 million at December 31, 2016, an increase of $39.3 million. Interest-bearing deposits increased to $255.5 million at December 31, 2017 from $232.3 million at December 31, 2016. Brokered certificates of deposit increased to $43.5 million at December 31, 2017 from $9.6 million at December 31, 2016, as the Bank replaced borrowed funds with brokered deposits. Non-brokered jumbo certificates reduced slightly to $12.9 million at December 31, 2017 from $13.0 million at December 31, 2016. The Bank uses brokered and jumbo certificates as sources of liquidity. 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 decreased $26.7 million. Matured advances were refinanced with new brokered deposits.

The stockholders’ equity of Bancorp was $37.3 million at December 31, 2017 compared to $34.7 million at December 31, 2016, an increase of $2.5 million, or 7.3%. The primary component of this increase was retained earnings. Cash dividends of $873,000, or $0.42 per share, were paid in 2016. The stockholders’ equity was 8.99% of total assets at December 31, 2017. Book value per share increased to $17.78 at December 31, 2016 from $16.65 at December 31, 2016.

The regular quarterly dividend for Bancorp was maintained at $0.12 per share in 2017, for $0.48 per share total dividends, compared to $0.42 per share in 2016. The increases was 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 2017 vs. 2016 - Net income for the quarter ended December 31, 2017 increased to $828,000, or $0.40 per share, from $695,000, or $0.33 per share, for the fourth quarter of 2016. The primary component of the increase was fourth quarter 2017 benefit from federal income taxes of ($548,000), compared to provision of $157,000 in the fourth quarter of 2016. The Bank revalued its net deferred tax positions in the fourth quarter of 2017, using the lower corporate tax rate. Because the Bank has greater deferred tax liabilities than deferred tax assets, the net of revaluations were a benefit to the Bank.

Net interest income increased $202,000, to $3.3 million in the fourth quarter of 2017. The increase is primarily due to growth in average interest-earning assets. The tax-equivalent net interest margin increased to 3.79 in the fourth quarter of 2017 from 3.68% in the last quarter of 2016, primarily due to growth in loans and market rate increases.

Net charge-offs for the fourth quarter of 2017 were $5,000, compared to $107,000 a year ago. The Company recorded ($31,000) provision for loan losses in the fourth quarter of 2017, compared to $73,000 for the same quarter of 2016.

Noninterest income increased $32,000 in the fourth quarter of 2017 to $1.3 million. The primarily component of noninterest income was commission income, which increased $63,000. The company recorded $99,000 net gain on cash flow hedges in the fourth quarter of 2016.

Noninterest expense increased $855,000 in the fourth quarter of 2017, primarily due to losses on sale of available-for-sale securities and tax strategies implemented in response to the reduction in corporate tax rates for 2018.

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, 2017 and 2016
(Amounts in thousands, except share and per share data)
2017 2016
ASSETS
Cash and due from banks $14,219 $8,150
Other short-term investments 10,293 4,963
Total cash and cash equivalents 24,512 13,113
Interest-earning deposits in banks 11,058 16,068
Securities - available for sale 25,313 32,387
Securities - held to maturity 35,578 33,769
Federal Home Loan Bank stock, at cost 3,393 3,117
Loans held for sale, at fair value 1,117 1,089
Loans, net of allowance of $3,072 and $3,242 280,586 266,871
Premises and equipment, net 8,985 8,360
Goodwill 5,834 5,834
Core deposit intangibles 203 259
Originated mortgage servicing rights 1,160 1,216
Real estate owned 453 687
Bank-owned life insurance 10,261 9,998
Accrued interest receivable 1,536 1,407
Other assets 4,443 4,454
Total assets$414,432 $398,629
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing$81,641 $65,455
Interest-bearing 255,473 232,312
Total deposits 337,114 297,767
Federal Home Loan Bank advances and other borrowings 34,447 61,180
Accrued interest payable 239 243
Other liabilities 5,378 4,712
Total liabilities 377,178 363,902
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 2,094,991 shares at December 31, 2017
and 2,085,991 at December 31, 2016 2,095 2,086
Additional paid-in capital 7,514 7,367
Retained earnings 27,351 25,234
Accumulated other comprehensive loss 294 40
Total stockholders' equity 37,254 34,727
Total liabilities and stockholders' equity$414,432 $398,629

CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2017 and 2016
(Amounts in thousands, except share and per share data)
2017 2016
Interest income
Loans $12,953 $12,458
Investment securities:
Taxable 804 661
Tax-exempt 1,100 909
Dividends 125 104
Total interest income 14,982 14,132
Interest expense
Deposits 777 676
Borrowed funds 1,261 1,140
Total interest expense 2,038 1,816
Net interest income 12,944 12,316
Provision for loan losses (213) 357
Net interest income after provision for loan losses 13,157 11,959
Noninterest income:
Service charges and other fees 1,356 1,003
Interchange income 770 728
Investment brokerage commission income 1,545 1,603
Mortgage banking activities 679 686
Trust fee income 446 462
Increase in cash value of bank owned life insurance 263 263
Gain on sale of real estate owned 34 196
Net gain on cash flow hedges 258 99
Other income 100 160
Total noninterest income 5,451 5,200
Noninterest expenses:
Salaries and employee benefits 8,736 8,010
Occupancy and equipment 1,811 1,698
Interchange expenses 379 424
Data processing 669 772
Professional services 401 268
Real estate owned expense 152 224
Advertising 296 232
FDIC premiums 191 235
Loss (gain) on sale of securities 441 (1)
Other 2,262 1,977
Total noninterest expenses 15,338 13,839
Income before income tax expense 3,270 3,320
Income tax expense 102 658
Net income $3,168 $2,662
Earnings per share $1.52 $1.28
Dividends declared per share $0.48 $0.42

CONSOLIDATED STATEMENTS OF INCOME
Three months ended December 31, 2017 and 2016
(Amounts in thousands, except share and per share data)
2017 2016
Interest income
Loans $3,387 $3,152
Investment securities:
Taxable 185 190
Tax-exempt 280 251
Dividends 34 20
Total interest income 3,886 3,613
Interest expense
Deposits 272 166
Borrowed funds 271 306
Total interest expense 543 472
Net interest income 3,343 3,141
Provision for loan losses (31) 73
Net interest income after provision for loan losses 3,374 3,068
Noninterest income:
Service charges and other fees 355 244
Interchange income 193 184
Investment brokerage commission income 444 381
Mortgage banking activities 101 153
Trust fee income 97 111
Increase in cash value of bank owned life insurance 64 67
Gain on sale of real estate owned 11 -
Net gain on cash flow hedges - 99
Other income 23 17
Total noninterest income 1,288 1,256
Noninterest expenses:
Salaries and employee benefits 2,310 2,181
Occupancy and equipment 467 396
Interchange expenses 95 108
Data processing 174 168
Professional services 89 70
Real estate owned expense 51 14
Advertising 103 51
FDIC premiums 53 43
Loss on sale of securities 421 -
Other 564 440
Total noninterest expenses 4,327 3,471
Income before income tax expense 335 853
Income tax expense (493) 158
Net income $828 $695
Earnings per share $0.40 $0.33
Dividends declared per share $0.12 $0.12

OTHER FINANCIAL INFORMATION
(Amounts in thousands)
Three Months Ended Dec. 31,
2017 2016
Sturgis Bank & Trust Company:
Average noninterest-bearing deposits$ 78,740 $ 72,457
Average interest-bearing deposits 240,899 230,370
Average total assets 408,187 394,295
Total risk-weighted assets, end of period 268,526 252,725
Sturgis Bancorp:
Average equity 36,769 34,280
Average total assets 408,375 394,470
Total risk-weighted assets, end of period 268,801 252,950
Financial ratios for Sturgis Bancorp:
Return on average assets 0.81% 0.70%
Return on average equity 8.94% 8.34%
Net interest margin 3.61% 3.51%
Tax equivalent net interest margin 3.79% 3.68%
Year Ended December 31,
2017 2016
Sturgis Bank & Trust Company:
Average noninterest-bearing deposits$ 73,693 $ 67,590
Average interest-bearing deposits 235,440 230,216
Average total assets 404,215 383,653
Sturgis Bancorp:
Average equity 35,592 33,443
Average total assets 404,387 383,779
Financial ratios for Sturgis Bancorp:
Return on average assets 0.78% 0.69%
Return on average equity 8.83% 8.09%
Net interest margin 3.58% 3.59%
Tax equivalent net interest margin 3.76% 3.76%

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

Source:Sturgis Bancorp, Inc.