Sturgis Bancorp Reports Earnings for Second Quarter 2020

STURGIS, Mich., July 24, 2020 (GLOBE NEWSWIRE) -- Sturgis Bancorp, Inc. (OTCQX: STBI) today announced net income of $2.9 million for the first half of 2020 and $1.4 million for the second 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:

• Net income increased 22% for the first half of 2020 to $2,863,000, compared to $2,339,000 for the first half of 2019, primarily due to mortgage banking activities.
  
• Sales of $69.9 million residential mortgages generated $1.9 million of noninterest income in the first half of 2020, compared to $406,000 on $12.6 million of sales in the first half of 2019.
  
• Net loans increased 13.2% to $398.9 million.
  
• The Bank supported 515 borrowers with SBA’s Paycheck Protection Program (PPP) loans, for a total of $34.7 million on June 20, 2020.
  
• Total assets increased 30% to $617.5 million. The Bank's risk-weighted assets were $364.7 million at June 30, 2020.
  
• Total deposits increased 22.2% to $431.3 million.
  
• Allowance for loan losses was 1.13% of loans.

Eric L. Eishen, President and CEO, stated, “I am very pleased to report the Bank remained open during the entire stay-at-home orders in the State of Michigan. Although Bank branch lobbies were operating under an appointment-only system, we successfully served all our customer needs during the height of the COVID pandemic. The Bank’s technology investments over the past few years well prepared the Bank for full service, using drive-thru, night deposit, Telebank, Internet, mobile banking, and remote deposit. The Bank had a strong first half, led by mortgage banking activities. The Bank provided $1.1 million to the Allowance for Loan and Lease Losses (ALLL) under GAAP with an incurred loss model. This increase in ALLL addresses the growth in total loans and COVID-impacted industries, such as hotel loans.  The Bank has proactively deferred loan payments for several affected borrowers.  However, most of 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 Paycheck Protection Program to assist their business. The Bank was able to assist 515 borrowers in obtaining PPP loans, introducing some new commercial clients to the Bank. The Bank has already realized strong deposit growth from these new customers, as well as from existing depositors. Overall 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.”

Six months ended June 30, 2020 vs. six months ended June 30, 2019 – Net income for the six months ended June 30, 2020 was $2,863,000, or $1.35 per share, compared to net income of $2,339,000, or $1.11 per share, for the six months ended June 30, 2019.  The tax-equivalent net interest margin decreased to 3.44% in the first six months of 2020 from 4.01% in the first six months of 2019.

Net interest income increased to $8.3 million in 2020 from $7.8 million in 2019. The growth was primarily in loan interest income, which increased $732,000 to $9.1 million.  Total interest income increased $713,000 to $10.1 million, and interest expense only increased $214,000 to $1.8 million.

The Company provided $1.1 million to the allowance for loan losses in the first six months of 2020, compared to $113,000 in the same period of 2019.  Net charge-offs were $62,000 in 2020 and $0 in 2019.

Noninterest income was $4.1 million in the first half of 2020, compared to $2.6 million in the first half of 2019.  Most of the increase was due to mortgage banking activities, up $1.5 million, to $1.9 million.  Mortgage banking activities included residential loan sales of $69.9 million in 2020, compared to $12.6 million in 2019.  Investment brokerage commission income also increased 12% in 2020 to $685,000 in 2020 from $612,000 in 2019. The Bank also realized $157,000 gain on sale of securities in 2020, compared to $1,000 in 2019.

Noninterest expense was $7.9 million in 2020, compared to $7.5 million 2019.  Salaries and employee benefits, the largest component of noninterest expense, increased $182,000, or 3.9%. 

Three months ended June 30, 2020 vs. three months ended June 30, 2019 - Net income for the three months ended June 30, 2020 was $1,355,000, or $0.64 per share, compared to net income of $1,297,000, or $0.62 per share, for the three months ended June 30, 2019.  The tax equivalent net interest margin decreased to 2.92% in the second quarter of 2020 from 4.02% in the second quarter of 2019. 

Net interest income increased to $4.2 million in 2020 from $4.0 million in 2019.  The growth was primarily due to loan interest income, which increased by $264,000 to $9.2 million.  Total interest income increased $255,000 to $5.1 million in 2020, and interest expense only increased $90,000 to $926,000 in 2020.

The Company provided $974,000 to the allowance for loan losses in the second quarter of 2020, compared to $75,000 in the same quarter of 2019.  Net charge-offs were ($2,000) in 2020 and $3,000 in 2019. 

Noninterest income was $2.3 million in the second quarter of 2020, compared to $1.4 million in the second quarter of 2019. Most of the increase was due to mortgage banking activities, up $928,000, to $1.1 million. Mortgage banking activities included residential loan sales of $36.9 million in 2020, compared to $7.5 million in 2019. The Bank also realized $157,000 gain on sale of securities in 2020, compared to $44,000 in 2019.

Noninterest expense was $3.9 million in 2020, compared to $3.8 million 2019.  Salaries and employee benefits, the largest component of noninterest expense, increased $65,000, or 3.0%. 

Total assets increased to $617.5 million at June 30, 2020 from $473.4 million at December 31, 2019, primarily in cash and cash equivalents and loans.  Loans increased $46.4 million from December 31, 2019, primarily in commercial nonmortgage loans, commercial real estate loans and residential mortgages. At June 30, 2020, the Bank had $34.7 million of PPP loans.

Interest-bearing deposits increased to $312.2 million at June 30, 2020 from $263.2 million at December 31, 2019.  Brokered deposits, a component of interest-bearing deposits, decreased $11.9 million in the first half of 2020, to $27.8 million at June 30, 2020. 

Total equity was $43.7 million at June 30, 2020, compared to $43.6 million at December 31, 2019.  The regular quarterly dividend was increased in the first half of 2020 to a record-high $0.16 per share.  Book value per share was $20.62 ($17.05 tangible) at June 30, 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)
	June 30,				Dec. 31,
		2020				2019
ASSETS
Cash and due from banks	$	12,138			$	13,301
Other short-term investments		74,599				9,896
Total cash and cash equivalents		86,737				23,197
Interest-earning deposits in banks		1,979				2,720
Securities - available for sale		79,107				55,850
Securities - held to maturity		-				-
Federal Home Loan Bank stock, at cost		4,917				3,612
Loans held for sale, at fair value		6,786				2,977
Loans, net of allowance of $4,514 and $3,451		398,910				352,531
Premises and equipment, net		10,422				9,367
Goodwill		5,834				5,834
Core deposit intangibles		94				113
Originated mortgage servicing rights		1,634				1,112
Real estate owned		181				193
Bank-owned life insurance		10,943				10,797
Accrued interest receivable		2,507				1,610
Other assets		7,422				3,458
Total assets	$	617,473			$	473,371
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing	$	119,133			$	89,747
Interest-bearing		312,203				263,189
Total deposits		431,336				352,936
Federal Home Loan Bank advances and other borrowings		132,254				70,000
Accrued interest payable		521				438
Other liabilities		9,671				6,425
Total liabilities		573,782				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 2,118,791 shares at June 30, 2020 and 2,113,591 shares at December 31, 2019		2,119				2,114
Additional paid-in capital		7,969				7,893
Retained earnings		36,376				34,190
Accumulated other comprehensive loss		(2,773	)			(625	)
Total stockholders' equity		43,691				43,572
Total liabilities and stockholders' equity	$	617,473			$	473,371

CONSOLIDATED STATEMENTS OF INCOME  (Amounts in thousands, except share and per share data)
	Three Months Ended June 30,
		2020			2019
Interest income
Loans	$	4,578		$	4,314
Investment securities:
Taxable		232			259
Tax-exempt		165			215
Dividends		123			55
Total interest income		5,098			4,843
Interest expense
Deposits		484			511
Borrowed funds		442			325
Total interest expense		926			836
Net interest income		4,172			4,007
Provision (benefit) for loan losses		974			75
Net interest income after provision (benefit) for loan losses		3,198			3,932
Noninterest income:
Service charges and other fees		270			313
Interchange income		219			220
Investment brokerage commission income		323			321
Mortgage banking activities		1,122			194
Trust fee income		103			164
Earnings on cash value of bank-owned life insurance		73			72
Gain (loss) on sale of real estate owned		-			59
Loss on sale of securities		157			44
Other income		15			22
Total noninterest income		2,282			1,409
Noninterest expenses:
Salaries and employee benefits		2,322			2,257
Occupancy and equipment		499			477
Interchange expenses		97			99
Data processing		220			198
Professional services		52			70
Real estate owned expense		1			3
Advertising		58			76
FDIC premiums		41			46
Other expenses		566			569
Total noninterest expenses		3,856			3,795
Income before income tax expense		1,624			1,546
Income tax expense		269			249
Net income	$	1,355		$	1,297
Earnings per share	$	0.64		$	0.61
Dividends per share	$	0.16		$	0.15

CONSOLIDATED STATEMENTS OF INCOME  (Amounts in thousands, except share and per share data)
	Six Months Ended
		2020				2019
Interest income
Loans	$	9,087			$	8,355
Investment securities:
Taxable		489				539
Tax-exempt		394				437
Dividends		174				100
Total interest income		10,144				9,431
Interest expense
Deposits		999				1,013
Borrowed funds		830				602
Total interest expense		1,829				1,615
Net interest income		8,315				7,816
Provision (benefit) for loan losses		1,125				113
Net interest income after provision (benefit) for loan losses		7,190				7,703
Noninterest income:
Service charges and other fees		595				637
Interchange income		430				413
Investment brokerage commission income		685				612
Mortgage banking activities		1,898				406
Trust fee income		201				258
Earnings on cash value of bank-owned life insurance		146				134
Gain (loss) on sale of real estate owned		(2	)			61
Loss on sale of securities		157				1
Other income		36				52
Total noninterest income		4,146				2,574
Noninterest expenses:
Salaries and employee benefits		4,847				4,665
Occupancy and equipment		1,009				949
Interchange expenses		198				186
Data processing		422				394
Professional services		185				180
Real estate owned expense		3				8
Advertising		127				134
FDIC premiums		86				89
Other expenses		1,033				920
Total noninterest expenses		7,910				7,525
Income before income tax expense		3,426				2,752
Income tax expense		563				413
Net income	$	2,863			$	2,339
Earnings per share	$	1.35			$	1.11
Dividends per share	$	0.32			$	0.30

OTHER FINANCIAL INFORMATION (Amounts in thousands)
	Three Months Ended June 30,
		2020				2019
Sturgis Bank & Trust Company:
Average noninterest-bearing deposits	$	109,060			$	83,926
Average interest-bearing deposits		298,697				265,464
Average total assets		579,891				446,180
Total risk-weighted assets		364,497				311,843
Sturgis Bancorp:
Average equity		43,013				41,437
Average total assets		580,008				446,279
Total risk-weighted assets		364,599				311,923
Financial ratios for Sturgis Bancorp:
Return on average assets		0.94	%			1.17	%
Return on average equity		12.67	%			12.55	%
Net interest margin		2.87	%			3.96	%
Tax equivalent net interest margin		2.92	%			4.02	%
	Six Months Ended June 30,
		2020				2019
Sturgis Bank & Trust Company:
Average noninterest-bearing deposits	$	97,916			$	86,772
Average interest-bearing deposits		285,925				273,152
Average total assets		540,293				500,636
Sturgis Bancorp:
Average equity		43,250				43,343
Average total assets		540,364				500,719
Financial ratios for Sturgis Bancorp:
Return on average assets		1.07	%			1.21	%
Return on average equity		13.31	%			13.99	%
Net interest margin		3.39	%			3.65	%
Tax equivalent net interest margin		3.44	%			3.72	%