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

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Sturgis Bancorp Reports Earnings for Third Quarter 2017

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