Sturgis Bancorp Reports Earnings for First Quarter 2020

STURGIS, Mich., April 29, 2020 (GLOBE NEWSWIRE) -- Sturgis Bancorp, Inc. (OTCQX: STBI) today announced net income of $1.5 million for the first quarter of 2020.

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. The Bank provides a full array of trust, commercial and consumer banking services from banking centers in Sturgis, Bangor, Bronson, Centreville, Climax, Colon, South Haven, Three Rivers and White Pigeon, MI. The Bank also has loan production offices in Portage and St. Joseph, 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.  Oak Insurance Services offers various competitive commercial and consumer insurance products.  Oak Title Services offers commercial and consumer title insurance.

Key Highlights for the first quarter of 2020:

• Net income increased 45% for the first quarter of 2020 to $1,507,000, compared to $1,042,000 for the first quarter of 2019, primarily due to mortgage banking activities.
• The Bank maintained strong capital ratios, exceeding “well-capitalized” requirements, with Tier 1 leverage capital at 8.13%.  Total capital at March 31, 2020 was 12.52% of risk-weighted assets. 
• Total assets increased 12% to $530.5 million. The Bank's risk-weighted assets were $350.4 million at March 31, 2020.
• Net loans increased 1.9% to $359.2 million.
• Total deposits increased 7.1% to $378.0 million.
• Allowance for loan losses was 0.99% of loans.

Eric L. Eishen, President and CEO, stated, “The Bank had a strong first quarter.  Earnings were positively impacted by strong Mortgage Banking activity. The Bank calculates the Allowance for Loan and Lease Losses (ALLL) under GAAP with an incurred loss model. Accordingly, the Bank did not materially change qualitative factors in the ALLL in the first quarter.  This decision was based on discussions with customers and review of the Bank’s loan portfolio. The Bank’s primary exposure to COVID-impacted industries is Hotel loans. The Bank has proactively deferred loan payments for many of these loan clients. However, these borrowers have indicated they believe they will be able to handle a short-term interruption to service.  Many have also utilized the SBA’s PPP program to assist their business.  Credit quality has remained strong.  The Bank constantly analyzes the loan portfolio and economic conditions in our market area to determine the extent of required allocations for unidentified loan losses. Appropriate adjustments are realized every quarter, as market conditions change.”

Three months ended March 31, 2020 vs. three months ended March 31, 2019 - Net income for the three months ended March 31, 2020 was $1,507,000, or $0.71 per share, compared to net income of $1,042,000, or $0.50 per share, for the three months ended March 31, 2019.  The tax equivalent net interest margin decreased to 3.72% in the first three months of 2020 from 3.99% in the first three months of 2019. 

Net interest income increased to $4.1 million in 2020 from $3.8 million in 2019.  The growth was primarily due to loan interest income, which increased by $468,000 to $4.5 million.  Total interest income increased $458,000 to $5.0 million in 2020, and interest expense only increased $123,000 to $902,000 in 2020.

The Company provided $151,000 to the allowance for loan losses in the first three months of 2020, compared to $38,000 in the same quarter of 2019.  Net charge-offs were $64,000 in 2020 and ($2,000) in 2019. 

Noninterest income was $1.9 million in the first quarter of 2020, compared to $1.2 million in the first quarter of 2019.  Most of the increase was due to mortgage banking activities, up $564,000, to $776,000.  Mortgage banking activities included residential loan sales of $33.0 million in 2020, compared to $5.0 million in 2019.  Investment brokerage commission income also increased to $362,000 in 2020 from $291,000 in 2019.  

Noninterest expense was $4.1 million in 2020, compared to $3.7 million 2019.  Salaries and employee benefits, the largest component of noninterest expense, increased $116,000, or 4.8%. 

Total assets increased to $530.5 million at March 31, 2020 from $473.4 million at December 31, 2019, primarily in cash and cash equivalents. Loans increased $6.7 million from December 31, 2019, primarily in commercial real estate loans and residential mortgages.

Interest-bearing deposits increased to $288.1 million at March 31, 2020 from $263.2 million at December 31, 2019.  The increase in deposit accounts is typical for the first quarter of each year, as municipalities deposit property tax revenues.  Municipalities historically have either used or reinvested those funds elsewhere during the second quarter of the year, and Management expects that pattern to continue for 2020.  Brokered deposits, a component of interest-bearing deposits, decreased $4.1 million in the first quarter of 2020, to $11.8 million at March 31, 2020. 

Total equity was $42.7 million at March 31, 2020, compared to $43.6 million at December 31, 2019.  The regular quarterly dividend was increased in the first quarter of 2020 to a record-high $0.16 per share.  Book value per share was $20.16 ($16.75 tangible) at March 31, 2020. 

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.

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

CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
		Mar. 31, 2020				Dec. 31, 2019
ASSETS
Cash and due from banks	$	26,257			$	13,301
Other short-term investments		21,160				9,896
Total cash and cash equivalents		47,417				23,197
Interest-earning deposits in banks		22,720				2,720
Securities - available for sale		57,387				55,850
Securities - held to maturity		-				-
Federal Home Loan Bank stock, at cost		4,917				3,612
Loans held for sale, at fair value		3,066				2,977
Loans, net of allowance of $3,539 and $3,451		359,229				352,531
Premises and equipment, net		10,322				9,367
Goodwill		5,834				5,834
Core deposit intangibles		103				113
Originated mortgage servicing rights		1,299				1,112
Real estate owned		94				193
Bank-owned life insurance		10,870				10,797
Accrued interest receivable		1,950				1,610
Other assets		5,316				3,458
Total assets	$	530,524			$	473,371
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing	$	89,856			$	89,747
Interest-bearing		288,125				263,189
Total deposits		377,981				352,936
Federal Home Loan Bank advances and other borrowings		99,000				70,000
Accrued interest payable		450				438
Other liabilities		10,420				6,425
Total liabilities		487,851				429,799
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 2,116,241 shares at March 31, 2020 and 2,113,691 at December 31, 2019		2,116				2,114
Additional paid-in capital		7,934				7,893
Retained earnings		35,359				34,190
Accumulated other comprehensive loss		(2,736	)			(625	)
Total stockholders' equity		42,673				43,572
Total liabilities and stockholders' equity	$	530,524			$	473,371

CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per share data)
	Three Months Ended March 31,
		2020				2019
Interest income
Loans	$	4,509			$	4,041
Investment securities:
Taxable		257				280
Tax-exempt		229				222
Dividends		51				45
Total interest income		5,046				4,588
Interest expense
Deposits		514				502
Borrowed funds		388				277
Total interest expense		902				779
Net interest income		4,144				3,809
Provision (benefit) for loan losses		151				38
Net interest income after provision (benefit) for loan losses		3,993				3,771
Noninterest income:
Service charges and other fees		324				324
Interchange income		211				192
Investment brokerage commission income		362				291
Mortgage banking activities		776				212
Trust fee income		98				93
Earnings on cash value of bank-owned life insurance		73				61
Gain (loss) on sale of real estate owned		(2	)			2
Loss on sale of securities		-				(43	)
Other income		22				33
Total noninterest income		1,864				1,165
Noninterest expenses:
Salaries and employee benefits		2,524				2,408
Occupancy and equipment		510				471
Interchange expenses		102				88
Data processing		202				196
Professional services		133				110
Real estate owned expense		2				5
Advertising		69				58
FDIC premiums		44				43
Other expenses		469				353
Total noninterest expenses		4,055				3,732
Income before income tax expense		1,802				1,204
Income tax expense		295				162
Net income	$	1,507			$	1,042
Earnings per share	$	0.71			$	0.50
Dividends per share		0.16				0.15

OTHER FINANCIAL INFORMATION
(Amounts in thousands)
	Three Months Ended March 31,
		2020				2019
Sturgis Bank & Trust Company:
Average noninterest-bearing deposits	$	86,772			$	79,677
Average interest-bearing deposits		273,152				267,121
Average total assets		500,636				434,943
Total risk-weighted assets		350,439				302,938
Sturgis Bancorp:
Average equity		43,343				40,735
Average total assets		500,719				435,120
Total risk-weighted assets		350,574				303,105
Financial ratios for Sturgis Bancorp:
Return on average assets		1.21	%			0.97	%
Return on average equity		13.99	%			10.37	%
Net interest margin		3.65	%			3.92	%
Tax equivalent net interest margin		3.72	%			3.99	%