SOURCE: Sturgis Bancorp Inc.

January 28, 2014 11:53 ET

Sturgis Bancorp Reports Earnings for 2013

STURGIS, MI--(Marketwired - Jan 28, 2014) - Sturgis Bancorp, Inc. (OTCBB: STBI) announced a net income of $1.6 million for 2013, and net income of $222,000 for the fourth quarter of 2013, 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. and Oak Mortgage, LLC. Sturgis Bancorp provides a full array of trust, commercial and consumer banking services from 11 banking centers in Sturgis, Bronson, Centreville, Climax, Colon, South Haven, Three Rivers and White Pigeon, Mich. 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 2013:

  • Net income for 2013 was $1.6 million, or $0.80 per share, compared to net income of $1.9 million, or $0.92 per share, in 2012.
  • The Bank increased capital ratios, exceeding "well-capitalized" requirements and ending 2013 with Tier 1 capital at 9.44% and 14.24% of average assets and risk-weighted assets, respectively. Tier 1 capital was 9.59% of December 31, 2013 total assets. Total capital at December 31, 2013 was 15.50% of risk-weighted assets. 
  • Provision for loan losses decreased by $1.0 million.
  • Prepayment penalties on debt extinguishment were $668,000.
  • Wholesale funding reliance was reduced, as brokered certificates of deposit and other jumbo certificates decreased by $5.8 million and $2.1 million, respectively.
  • Loans charged off, net of recoveries, decreased to $503,000 in 2013. The allowance for loan losses decreased to 1.74% of total (gross) loans from 2.03% at the end of 2012, due to improvements in credit quality and declining loss experience.

Nonaccrual loans decreased to $5.7 million, or 2.39% of gross loans on December 31, 2013. 

President and CEO Eishen stated: "Although earnings are down from 2012, net income for the past 24 months is up significantly from the prior few years and is returning to more normal levels, given the rate environment. Credit quality is improving and the interest margin is stable. Commissions and mortgage banking activity have been a strong part of the Bank's earnings streams, diversifying our income. Sturgis Bank & Trust Company and its wholly-owned subsidiary Oak Mortgage continue to dominate our home mortgage market in St. Joseph County Michigan. Since the Bank retains 100% of the mortgage servicing, we are building additional relationships while maintaining existing relationships in our market. This provides the opportunity to offer other financial services to our customers. The Bank reversed $231,000 of mortgage servicing rights impairment in 2013, which was included in mortgage banking activities. Oakleaf Financial Services, another wholly-owned subsidiary, had a very successful year. Oakleaf commission income was higher in 2013, due to the positive performance of the stock market and other sales. Many of the accounts managed are fee based relationships, providing a more stable income stream to the Bank. The Bank has also continued to decrease its reliance on non-core funding sources, with consistent growth of core deposits. All of these factors have made your Bank more valuable at the end of 2013."

Year 2013 vs. 2012 - Net income for the year ended December 31, 2013 decreased to $1.6 million, or $0.80 per share from net income of $1.9 million, or $0.92 per share, for 2012. Net interest income decreased 3.1% to $9.3 million, from $9.6 million for 2012. The decrease in net interest income is primarily due to the decrease in average earning assets to $271.5 million in 2013 from $276.4 million in 2012. The tax equivalent net interest margin decreased to 3.42% in 2013 from 3.52% in 2012. 

Noninterest income was $5.3 million for 2013, compared to $4.7 million for 2012. Commission income from Oakleaf Financial Services, a Bank-owned subsidiary, increased $496,000 to $2.0 million in 2013. Mortgage banking activities were $1.1 million in 2013, down slightly from $1.2 million in 2012.

Noninterest expense increased $1.7 million for 2013, compared to 2012. Noninterest expense includes brokerage commissions paid on the higher commission income. Real estate owned expense decreased by $152,000. FHLB advances of $7.5 million were prepaid in the fourth quarter of 2013, incurring a prepay penalty of $668,000. The prepayment of FHLB advances reduces future interest expense.

The Bank recorded $489,000 negative provision to the allowance for loan losses in 2013, compared to $545,000 positive provision in 2012. The reduction to reserves was due to improvements in credit quality and net charge-offs. Net charge-offs were $503,000 in 2013, compared to $1.3 million in 2012 and $2.4 million in 2011. The net activity in the ALLL decreased the total allowance to 1.74% of gross loans at December 31, 2013, compared to 2.03% of gross loans at December 31, 2012. 

Total assets decreased to $305.0 million at December 31, 2013 from $317.0 million at December 31, 2012, primarily in commercial real estate loans. 

Noninterest-bearing deposits increased to $41.7 million at December 31, 2013 from $41.3 million at December 31, 2012. Interest-bearing deposits decreased to $187.3 million at December 31, 2013 from $193.7 million at December 31, 2012. The decrease in interest-bearing deposits includes $5.8 million in brokered deposits and $2.1 million in non-brokered certificates of deposit with balances of $100,000 and greater. 

Total equity was $28.5 million at December 31, 2013, compared to $26.9 million at December 31, 2012. Book value per share increased to $13.89 at December 31, 2013 from $13.21 at December 31, 2012. 

Mr. Eishen added, "During the last few years, I have discussed capital requirements, credit quality, and Sturgis Bancorp's cash dividend several times. The Bank weathered the financial crisis very well, with only one small loss year. The Bank did not accept any assistance from the U.S. Federal Government. We have provided appropriately in our ALLL and increased capital to historical highs. Credit quality has improved markedly.

"When visiting Washington, DC subsequent to the 2008 financial crisis, I learned Regulatory expectations for capital adequacy had increased from historical levels. I set a goal of achieving Tier One Capital of 10.0%, and Sturgis Bancorp suspended the cash dividend to accelerate progress toward that goal. The Bank ended 2013 at 9.44% Tier One Capital ratio, with Total Risk Based Capital of 15.50%. The Sturgis Bancorp Board has determined this is sufficient progress toward my goal of 10.0% to reinstate a regular cash dividend in 2014. We will be announcing the cash dividend in a separate first quarter release."

Fourth Quarter of 2013 vs. 2012 - Net income for the quarter ended December 31, 2013 decreased to $222,000, or $0.11 per share, from $345,000, or $0.17 per share, for the fourth quarter of 2012. The primary component of the decrease is the FHLB advance prepayment penalty, offset by the lower provision for loan losses. 

Net interest income decreased $80,000, to $2.3 million in the fourth quarter of 2013. The decrease is primarily due to reductions in average interest-earning assets. The tax-equivalent net interest margin decreased to 3.46% in 2013 from 3.48% in the last quarter of 2012.

Noninterest income was $1.5 million in the fourth quarter of 2013, compared to $1.3 million for the fourth quarter of 2012. The largest component of this increase was commission income, which increased $184,000 to $599,000. 

Noninterest expense increased $962,000, primarily due to the $668,000 prepayment penalty on FHLB advances. Salaries and employee benefits also increased $194,000, partially due to increased brokerage commissions paid on the higher commission income. Real estate owned expense decreased $175,000 in 2013, compared to the fourth quarter of 2012.

Net charge-offs for the fourth quarter of 2013 were $143,000, compared to $827,000 a year ago. The Company recorded $255,000 negative provision for the allowance for loan losses in the fourth quarter of 2013, compared to $491,000 positive provision for the same quarter of 2012.

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  
December 31, 2013 and 2012  
(Amounts in thousands, except share and per share data)  
             
    2013     2012  
ASSETS            
  Cash and due from banks   $ 14,236     $ 10,237  
  Other short-term investments     6,638       9,611  
    Total cash and cash equivalents     20,874       19,848  
                   
  Interest-earning deposits in banks     14,914       12,196  
  Securities - Available for sale     1,575       1,242  
  Federal Home Loan Bank stock, at cost     4,064       4,064  
  Loans held for sale     1,034       2,261  
  Loans, net of allowance of $4,146 and $5,138     234,549       248,520  
  Premises and equipment, net     7,113       7,044  
  Goodwill     5,109       5,109  
  Originated mortgage servicing rights     1,501       1,273  
  Real estate owned     630       1,252  
  Bank-owned life insurance     9,537       9,259  
  Accrued interest receivable     828       861  
  Prepaid FDIC assessment     -       414  
  Other assets     3,251       3,702  
                   
    Total assets   $ 304,979     $ 317,045  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Liabilities                
  Deposits                
    Noninterest-bearing   $ 41,706     $ 41,261  
    Interest-bearing     187,314       193,662  
      Total deposits     229,020       234,923  
  Federal Home Loan Bank advances and other borrowings     44,585       52,440  
  Accrued interest payable     272       333  
  Other liabilities     2,567       2,425  
    Total liabilities     276,444       290,121  
                 
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 2,055,025 shares at December 31, 2013 and 2,038,395 at December 31, 2012     2,055       2,038  
  Additional paid-in capital     7,094       6,979  
  Retained earnings     19,579       17,953  
  Accumulated other comprehensive income (loss)     (193 )     (46 )
    Total stockholders' equity     28,535       26,924  
                   
      Total liabilities and stockholders' equity   $ 304,979     $ 317,045  
                       
                       
   
CONSOLIDATED STATEMENTS OF INCOME  
Years ended December 31, 2013 and 2012  
(Amounts in thousands, except share and per share data)  
             
    2013     2012  
Interest income                
  Loans   $ 11,500     $ 12,362  
  Investment securities:                
    Taxable     208       131  
    Tax-exempt     61       36  
  Dividends     153       150  
    Total interest income     11,922       12,679  
Interest expense                
  Deposits     992       1,341  
  Borrowed funds     1,586       1,694  
    Total interest expense     2,578       3,035  
                 
Net interest income     9,344       9,644  
                 
Provision for loan losses     (489 )     545  
                 
Net interest income after provision for loan losses     9,833       9,099  
                 
Noninterest income:                
  Service charges and other fees     1,486       1,344  
  Investment brokerage commission income     2,038       1,542  
  Mortgage banking activities     1,137       1,219  
  Trust fee income     364       310  
  Increase in value of bank owned life insurance     278       282  
  Gain (loss) on sale of real estate owned     (53 )     (24 )
  Other income     7       55  
    Total noninterest income     5,257       4,728  
Noninterest expenses:                
  Salaries and employee benefits     6,883       6,257  
  Occupancy and equipment     1,729       1,422  
  Data processing     728       707  
  Professional services     372       369  
  Real estate owned expense     593       745  
  Advertising     119       109  
  FDIC premiums     426       418  
  Prepayment penalty on early debt extinguishment     668       -  
  Other     1,699       1,430  
    Total noninterest expenses     13,217       11,457  
                 
Income (loss) before income tax expense (benefit)     1,873       2,370  
                 
Provision for income tax     246       504  
                 
Net income (loss)   $ 1,627     $ 1,866  
                 
Earnings per share   $ 0.80     $ 0.92  
Dividends declared per share   $ -     $ -  
    Key Ratios:                
Return on average equity     5.88 %     7.18 %
Return on average assets     0.51 %     0.59 %
Net interest margin (tax equivalent)     3.42 %     3.52 %
Efficiency ratio     90.52 %     79.80 %
                 
                 
   
CONSOLIDATED STATEMENTS OF INCOME  
Three months ended December 31, 2013 and 2012  
(Amounts in thousands, except share and per share data)  
             
    2013     2012  
Interest income                
  Loans   $ 2,796     $ 3,049  
  Investment securities:                
    Taxable     56       43  
    Tax-exempt     15       9  
  Dividends     36       38  
    Total interest income     2,903       3,139  
Interest expense                
  Deposits     233       309  
  Borrowed funds     341       421  
    Total interest expense     574       730  
                 
Net interest income     2,329       2,409  
                 
Provision for loan losses     (255 )     491  
                 
Net interest income after provision for loan losses     2,584       1,918  
                 
Noninterest income:                
  Service charges and other fees     379       328  
  Investment brokerage commission income     599       415  
  Mortgage banking activities     329       369  
  Trust fee income     72       82  
  Increase in value of bank owned life insurance     68       72  
  Gain (loss) on sale of real estate owned     5       27  
  Other income     3       18  
    Total noninterest income     1,455       1,311  
Noninterest expenses:                
  Salaries and employee benefits     1,759       1,565  
  Occupancy and equipment     460       347  
  Data processing     196       175  
  Professional services     71       77  
  Real estate owned expense     32       207  
  Advertising     38       33  
  FDIC premiums     103       104  
  Prepayment penalty on early debt extinguishment     668       -  
  Other     529       386  
    Total noninterest expenses     3,856       2,894  
                 
Income (loss) before income tax expense (benefit)     183       335  
                 
Provision for income tax     (39 )     (10 )
                 
Net income (loss)   $ 222     $ 345  
                 
Earnings per share   $ 0.11     $ 0. 17  
Dividends declared per share   $ -     $ -  
    Key Ratios:                
Return on average equity     3.13 %     5.11 %
Return on average assets     0.28 %     0.44 %
Net interest margin (tax equivalent)     3.46 %     3.48 %
Efficiency ratio     101.90 %     77.79 %
                 

Contact Information

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