STURGIS, Mich., Oct. 17, 2018 (GLOBE NEWSWIRE) -- Sturgis Bancorp, Inc. (OTCQX: STBI) today announced net income of $3.2 million for the first nine months of 2018 and $1.3 million for the third quarter of 2018.

Sturgis Bancorp is the holding company for Sturgis Bank & Trust Company (Bank), and its subsidiaries Oakleaf Financial Services, Inc. and Oak Mortgage, 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, Michigan.  The Bank also has a loan production office in Portage, 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 third quarter of 2018:

• Net income increased 70% for the third quarter of 2018 to $1.3 million, compared to $739,000 for the third quarter of 2017, primarily due to higher net interest income.
• The Bank maintained strong capital ratios, exceeding “well-capitalized” requirements, with Tier 1 leverage capital at 8.36%.  Total capital at September 30, 2018 was 13.09% of risk-weighted assets.  The Bank's risk-weighted assets were $299.6 million at September 30, 2018.
• Total deposits increased 6.3% to $358.4 million from December 31, 2017.
• Allowance for loan losses was 1.03% of loans.

Three months ended September 30, 2018 vs. three months ended September 30, 2017 - Net income for the three months ended September 30, 2018 was $1.3 million, or $0.60 per share, compared to net income of $739,000, or $0.35 per share, for the three months ended September 30, 2017.  The tax equivalent net interest margin increased to 3.95% in the third quarter of 2018 from 3.72% in the third quarter 2017. 

Net interest income increased to $3.7 million in the third quarter of 2018 from $3.2 million in the third quarter of 2017.  The growth was primarily due to loan interest income, which increased by $645,000 to $3.9 million.  Total interest income increased $681,000 to $4.5 million in the third quarter of 2018, and interest expense only increased $167,000 to $711,000 in the third quarter of 2018.

The Company provided $30,000 to the allowance for loan losses in the third quarter of 2018, compared to $59,000 in the third quarter of 2017.  The provision for 2018 was primarily due to growth in total loans.  Net charge-offs were ($8,000) in the third quarter of 2018, compared to $47,000 in the third quarter of 2017. 

Noninterest income was $1.4 million in the third quarter of 2018, compared to $1.3 million in the third quarter of 2017.  Most of the increase was due to $69,000 gain on sale of real estate owned in the third quarter of 2018, compared to $15,000 in the third quarter of 2017.  Mortgage banking income increased to $180,000 in the third quarter of 2018 from $161,000 in the third quarter of 2017. 

Noninterest expense was $3.7 million in third quarter of 2018 and $3.6 million in the third quarter of 2017.  Advertising expense increased $92,000 to $179,000 in 2018, primarily due to the Bank’s engagement of a marketing research firm to better understand customer needs and expectations.

Nine months ended September 30, 2018 vs. nine months ended September 30, 2017 - Net income for the first nine months of 2018 was $3.2 million, or $1.51 per share, compared to net income of $2.3 million, or $1.12 per share, for the first nine months of 2017.  The tax equivalent net interest margin increased to 3.88% in the first nine months of 2018 from 3.75% in the first nine months of 2017. 

Net interest income increased $1.2 million to $10.8 million in the first nine months of 2018.  The growth was primarily due to loan interest income, which increased by $1.4 million to $11.0 million.  Total interest income increased $1.6 million to $12.7 million in the first nine months of 2018, and interest expense only increased $409,000 to $1.9 million in the same period.

The Company provided $169,000 to the allowance for loan losses in the first nine months of 2018, compared to ($182,000) in the first nine months of 2017.  The increase for 2018 was primarily due to growth in total loans and significant recoveries in 2017.  Net charge-offs were ($13,000) in the first nine months of 2018, compared to ($48,000) in the first nine months of 2017. 

Noninterest income was $4.0 million in the first nine months of 2018, compared to $4.2 million in the first nine months 2017.  Most of the decrease was due to $258,000 gain on cash flow hedges in the first nine months of 2017.  Gain on sales of real estate owned increased $113,000 in the first nine months of 2018 to $136,000.

Noninterest expense was $11.0 million in the first nine months of 2018 and 2017.  Salaries and employee benefits, the largest component of noninterest expense, decreased by $8,000, or 0.1%.  Data processing expenses increased $50,000, due to software enhancements that are beneficial to the Bank and its customers. 

Total assets increased to $447.6 million at September 30, 2018 from $414.4 million at December 31, 2017, primarily in loans.  Loans increased $34.6 million from December 31, 2017, primarily due to $26.2 million increase in commercial real estate loans.

Noninterest-bearing deposits increased to $83.6 million at September 30, 2018 from $81.6 million at December 31, 2017.  Interest-bearing deposits increased to $274.8 million at September 30, 2018 from $255.5 million at December 31, 2017, including only $151,000 growth in brokered deposits.  Some of the growth in deposits is cyclical and transitory.  The growth in borrowings and deposits, including brokered deposits, funded the loan growth realized in the first nine months of 2018.

Total equity was $40.2 million at September 30, 2018, compared to $37.3 million at December 31, 2017.  Book value per share increased to $19.15 ($15.72 tangible) at September 30, 2018 from $17.78 ($14.35 tangible) at December 31, 2017. 

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,
	2018		2017
ASSETS
Cash and due from banks	$12,495		$14,219
Other short-term investments	13,278		10,293
Total cash and cash equivalents	25,773		24,512
Interest-earning deposits in banks	7,350		11,058
Securities - available for sale	25,178		25,313
Securities - held to maturity	35,016		35,578
Federal Home Loan Bank stock, at cost	3,393		3,393
Loans held for sale, at fair value	1,108		1,117
Loans, net of allowance of $3,254 and $3,072	315,215		280,586
Premises and equipment, net	9,161		8,985
Goodwill	5,834		5,834
Core deposit intangibles	166		203
Originated mortgage servicing rights	1,211		1,160
Real estate owned	74		453
Bank-owned life insurance	10,451		10,261
Accrued interest receivable	1,907		1,536
Other assets	5,784		4,443
Total assets	$447,621		$414,432
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing	$83,561		$81,641
Interest-bearing	274,829		255,473
Total deposits	358,390		337,114
Federal Home Loan Bank advances and other borrowings	44,339		34,447
Accrued interest payable	274		239
Other liabilities	4,373		5,378
Total liabilities	407,376		377,178
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 2,101,741 shares at Sept. 30, 2018 and 2,094,741 at December 31, 2017	2,102		2,095
Additional paid-in capital	7,639		7,514
Retained earnings	29,638		27,351
Accumulated other comprehensive loss	866		294
Total stockholders' equity	40,245		37,254
Total liabilities and stockholders' equity	$447,621		$414,432

CONSOLIDATED STATEMENTS OF INCOME
 (Amounts in thousands, except share and per share data) 

	Three Months Ended Sept. 30,
	2018		2017
Interest income
Loans	$3,900		$3,255
Investment securities:
Taxable	237		208
Tax-exempt	275		278
Dividends	45		35
Total interest income	4,457		3,776
Interest expense
Deposits	462		176
Borrowed funds	249		368
Total interest expense	711		544
Net interest income	3,746		3,232
Provision (benefit) for loan losses	30		59
Net interest income after provision (benefit) for loan losses	3,716		3,173
Noninterest income:
Service charges and other fees	342		388
Interchange income	219		195
Investment brokerage commission income	316		368
Mortgage banking activities	180		161
Trust fee income	126		117
Earnings on cash value of bank-owned life insurance	65		68
Gain on sale of real estate owned	69		15
Other income	35		33
Total noninterest income	1,352		1,345
Noninterest expenses:
Salaries and employee benefits	2,066		2,062
Occupancy and equipment	412		461
Interchange expenses	98		97
Data processing	182		182
Professional services	104		110
Real estate owned expense	30		39
Advertising	179		87
FDIC premiums	69		43
Other expenses	520		503
Total noninterest expenses	3,660		3,604
Income before income tax expense	1,408		914
Income tax expense	151		175
Net income	$1,257		$739
Earnings per share	$0.60		$0.35
Dividends per share	0.14		0.12

CONSOLIDATED STATEMENTS OF INCOME
 (Amounts in thousands, except share and per share data)

	Nine Months Ended Sept. 30,
	2018		2017
Interest income
Loans	$10,955		$9,565
Investment securities:
Taxable	743		620
Tax-exempt	828		820
Dividends	138		91
Total interest income	12,664		11,096
Interest expense
Deposits	1,253		506
Borrowed funds	652		990
Total interest expense	1,905		1,496
Net interest income	10,759		9,600
Provision (benefit) for loan losses	169		(182)
Net interest income after provision (benefit) for loan losses	10,590		9,782
Noninterest income:
Service charges and other fees	1,017		1,001
Interchange income	609		577
Investment brokerage commission income	1,044		1,101
Mortgage banking activities	550		578
Trust fee income	365		350
Earnings on cash value of bank-owned life insurance	190		199
Gain on sale of real estate owned	136		23
Net gain on cash flow hedges	-		258
Other income	86		76
Total noninterest income	3,997		4,163
Noninterest expenses:
Salaries and employee benefits	6,418		6,426
Occupancy and equipment	1,288		1,344
Interchange expenses	274		284
Data processing	545		495
Professional services	315		312
Real estate owned expense	104		102
Advertising	296		193
FDIC premiums	202		139
Other expenses	1,557		1,694
Total noninterest expenses	10,999		11,009
Income before income tax expense	3,588		2,936
Income tax expense	420		596
Net income	$3,168		$2,340
Earnings per share	$1.51		$1.12
Dividends per share	0.42		0.36

OTHER FINANCIAL INFORMATION
(Amounts in thousands)

				Three Months Ended Sept. 30,
				2018			2017
Sturgis Bank & Trust Company:
Average noninterest-bearing deposits				$86,063			$78,019
Average interest-bearing deposits				265,620			227,151
Average total assets				434,856			406,536
Total risk-weighted assets				299,564			262,358
Sturgis Bancorp:
Average equity				39,632			36,021
Average total assets				435,049			406,695
Total risk-weighted assets				299,783			262,569
Financial ratios for Sturgis Bancorp:
Return on average assets				1.15%			0.72%
Return on average equity				12.58%			8.14%
Net interest margin				3.79%			3.54%
Tax equivalent net interest margin				3.95%			3.72%
				Nine Months Ended Sept. 30,
				2018			2017
Sturgis Bank & Trust Company:
Average noninterest-bearing deposits				$83,002			$71,987
Average interest-bearing deposits				270,645			233,601
Average total assets				432,328			402,865
Sturgis Bancorp:
Average equity				38,714			35,592
Average total assets				432,519			403,031
Financial ratios for Sturgis Bancorp:
Return on average assets				0.98%			0.78%
Return on average equity				11.07%			8.79%
Net interest margin				3.72%			3.57%
Tax equivalent net interest margin				3.88%			3.75%

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

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