SOURCE: Sturgis Bancorp Inc.

Sturgis Bancorp Inc.

March 05, 2015 11:28 ET

Sturgis Bancorp Reports Earnings for 2014

STURGIS, MI--(Marketwired - Mar 5, 2015) -  Sturgis Bancorp, Inc. (OTCQX: STBI) announced a net income of $1.9 million for 2014, and net income of $452,000 for the fourth quarter of 2014, 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 2014:

  • Net income for 2014 was $1.9 million, or $0.91 per share, compared to net income of $1.6 million, or $0.80 per share, in 2013.
  • The Bank increased capital ratios, exceeding "well-capitalized" requirements and ending 2014 with Tier 1 capital at 9.82% and 14.81% of average assets and risk-weighted assets, respectively. Tier 1 capital was 9.80% of December 31, 2014 total assets. Total capital at December 31, 2014 was 16.06% of risk-weighted assets. 
  • Nonaccrual loans decreased by $2.0 million to $3.7 million.
  • Wholesale funding reliance was reduced, as brokered certificates of deposit and other jumbo certificates decreased by $4.8 million and $324,000, respectively.
  • Loans charged off, net of recoveries, increased to $813,000 in 2014 from $503,000 in 2013. The allowance for loan losses decreased to 1.43% of total (gross) loans from 1.74% at the end of 2013, primarily due to improvements in credit quality.

President and CEO Eishen stated, "Bank earnings were solid in 2014 with many metrics improving from 2013. Credit Quality, Capital, and Core funding sources all improved in 2014. These improvements were the result of specific actions implemented by the Board of Directors and Management. Earnings continue to be suppressed due to sustained low interest rates and weak loan demand in the Bank's primary market area. Troubled loans have declined over the last several years and this trend continued in 2014. The Bank continues to maintain a solid ALLL. The Bank expects further improvements in credit quality in 2015. Capital levels are at historical highs for the Bank. Regulatory expectations for capital in the banking sector have increased since the financial crisis and the Bank expects to maintain a higher than historical level of capital due to this expectation. Oakleaf Financial Services had a record earnings year and continues to grow its customer base. Mortgage banking income was down in 2014. However, with ever increasing Regulatory burden on the banking industry, the Bank has been able to maintain market share. Oak Mortgage continues to navigate the challenges of the changing mortgage market and has achieved the appropriate scale to manage the many new rules imposed by the Dodd/Frank Act. Real estate values have stabilized and demand appears to be increasing in the purchase market. The Bank will continue to be a major player in the mortgage loan business and has a significant loan servicing portfolio. The Bank continues to seek complimentary lines of business that may enhance long term earnings."

Year 2014 vs. 2013 - Net income for the year ended December 31, 2014 increased to $1.9 million, or $0.91 per share from net income of $1.6 million, or $0.80 per share, for 2013. Net interest income increased 3.2% to $9.6 million, from $9.3 million for 2013. The increase in net interest income is primarily due to the prepayment of borrowings in the fourth quarter of 2013. That prepayment, along with deposit rate reductions, reduced the average rate paid on interest-bearing liabilities to 0.89% in 2014 from 1.07% in 2013. Average interest-earning assets increased to $272.7 million in 2014 from $271.5 million in 2013. The tax equivalent net interest margin increased to 3.59% in 2014 from 3.42% in 2013. 

 The provision for loan losses was $104,000 for the year ended December 31, 2014 and ($489,000) for the year ended December 31, 2013, an increase of $593,000. The provision for loan losses was based upon management's assessment of relevant factors, including types and amounts of non-performing loans, historical and anticipated loss experience on such types of loans, and economic conditions. Loans charged off during 2014, net of recoveries, were $813,000, compared to $503,000 during 2013.

Noninterest income was $5.2 million in 2014, compared to $5.3 million in 2013. Investment brokerage commission income increased $216,000 to $2.3 million, due to better market performance and annuity sales. Mortgage banking activities decreased $485,000 to $652,000, as loan sale volume decreased. 

Noninterest expense was $12.4 million in 2014, compared to $13.3 million in 2013. The largest component of noninterest expense is salaries and employee benefits, which increased $65,000, partially due to higher brokerage commissions paid on the higher commission income. Real estate owned expense decreased $271,000. Bancorp incurred $192,000 professional fees and other expenses in 2014, related to the pending acquisition of another financial institution. Federal Home Loan Bank advances of $7.5 million were prepaid in 2013, incurring a prepayment penalty that year of $668,000 and reducing interest expense for 2014. Management actively minimizes noninterest expense, although certain noninterest expenses are outside of Management's direct control. 

Total assets increased to $312.5 million at December 31, 2014 from $305.0 million at December 31, 2013, primarily in securities. Net loans increased $1.8 million, to $236.4 million at December 31, 2014.

Deposits were $234.3 million at December 31, 2014 compared to $229.0 million at December 31, 2013, an increase of $5.3 million. Interest-bearing deposits decreased to $182.9 million at December 31, 2014 from $187.3 million at December 31, 2013. The decrease in interest-bearing deposits includes $4.8 million in brokered deposits and $324,000 in non-brokered certificates of deposit with balance greater than $100,000. Brokered certificates of deposit, mostly included in the certificates under $100,000, decreased to $2.7 million at December 31, 2014 from $7.6 million at December 31, 2013. Non-brokered jumbo certificates decreased to $11.1 million at December 31, 2014 from $11.4 million at December 31, 2013. The Bank uses brokered and jumbo certificates as sources of liquidity. Interest-bearing transaction savings accounts and checking accounts increased $3.8 million, or 2.7%. Transaction savings accounts and checking accounts represent 60.46% of deposits at December 31, 2014, compared to 60.21% of deposits at December 31, 2013. Bank management is actively attempting to increase core deposit account relationships. Transaction savings accounts and checking accounts provide relatively inexpensive funding for future growth, compared to alternative certificates of deposit and borrowed funds at higher interest rates. The Bank offers competitive rates on its time deposits and uses brokered certificates or borrowed funds, when that strategy enhances net interest income.

The stockholders' equity of Bancorp was $30.4 million at December 31, 2014 compared to $28.5 million at December 31, 2013, an increase of $1.9 million, or 6.36%. The primary component of this increase was retained earnings. Cash dividends of $186,000, or $0.09 per share, were paid in 2014, and no cash dividend was paid in 2013. The stockholders' equity was 9.71% of total assets at December 31, 2014. Book value per share increased to $14.66 at December 31, 2014 from $13.89 at December 31, 2013. 

Mr. Eishen added, "The Bank is in process of completing the purchase of West Michigan Savings Bank in Bangor Michigan. This acquired bank will become a branch office and expands the Bank's presence in the Van Buren County market. West Michigan brings solid core deposits and the prospect of additional lending opportunities. Bank earnings were impacted in 2014 by expenses related to this acquisition, and additional expenses will be realized in 2015. However once fully integrated, this acquisition will be accretive to earnings and provides opportunities for the Bank's investment, trust and mortgage subsidiaries. These are services West Michigan was not currently offering. The Bank expects to close the transaction in the first quarter of 2015. Bank capital levels will continue to be above historical levels subsequent to the transaction. The Bank does not intend to issue any more shares related to this purchase and will rely on core earnings to replenish capital levels."

Fourth Quarter of 2014 vs. 2013 - Net income for the quarter ended December 31, 2014 increased to $452,000, or $0.22 per share, from $222,000, or $0.11 per share, for the fourth quarter of 2013. The primary component of the increase is the FHLB advance prepayment penalty in 2013. 

Net interest income increased $101,000, to $2.4 million in the fourth quarter of 2014. The increase is primarily due to reductions in rates paid on average interest-bearing liabilities and growth in securities. The tax-equivalent net interest margin increased to 3.58% in 2014 from 3.46% in the last quarter of 2013.

Net charge-offs for the fourth quarter of 2014 were $79,000, compared to $143,000 a year ago. The Company recorded ($8,000) provision tor loan losses in the fourth quarter of 2014, compared to ($255,000) for the same quarter of 2013.

Noninterest income decreased $113,000, to $1.4 million in the fourth quarter of 2014. The largest component of this decrease was mortgage banking activities, which decreased $161,000 to $168,000. 

Noninterest expense decreased $630,000, primarily due to the $668,000 prepayment penalty on FHLB advances in the third quarter of 2014. Salaries and employee benefits, the largest component of noninterest expense, decreased $14,000. Noninterest expense in the fourth quarter of 2014 also included $80,000 of professional fees and other expenses related to the pending acquisition of another financial institution.

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, 2014 and 2013
(Amounts in thousands, except share and per share data)
 
    2014     2013  
ASSETS                
  Cash and due from banks   $ 7,680     $ 14,236  
  Other short-term investments     4,369       6,638  
    Total cash and cash equivalents     12,049       20,874  
                 
  Interest-earning deposits in banks     16,575       14,914  
  Securities - available for sale     7,044       1,575  
  Securities - held to maturity     5,792       -  
  Federal Home Loan Bank stock, at cost     3,409       4,064  
  Loans held for sale, at fair value     1,716       1,034  
  Loans, net of allowance of $3,437 and $4,146     236,371       234,549  
  Premises and equipment, net     7,504       7,113  
  Goodwill     5,109       5,109  
  Originated mortgage servicing rights     1,413       1,501  
  Real estate owned     1,608       630  
  Bank-owned life insurance     9,808       9,537  
  Accrued interest receivable     868       828  
  Other assets     3,189       3,252  
                 
    Total assets   $ 312,455     $ 304,980  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Liabilities                
  Deposits                
    Noninterest-bearing   $ 51,383     $ 41,706  
    Interest-bearing     182,907       187,314  
      Total deposits     234,290       229,020  
  Federal Home Loan Bank advances and other borrowings     44,218       44,585  
  Accrued interest payable     238       272  
  Other liabilities     3,359       2,568  
      Total liabilities     282,105       276,445  
                 
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 2,069,891 shares at December 31, 2014 and 2,055,025 at December 31, 2013     2,070       2,055  
  Additional paid-in capital     7,204       7,094  
  Retained earnings     21,276       19,580  
  Accumulated other comprehensive loss     (200 )     (194 )
    Total stockholders' equity     30,350       28,535  
                 
      Total liabilities and stockholders' equity   $ 312,455     $ 304,980  
                       
 
 
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2014 and 2013
(Amounts in thousands, except share and per share data)
 
    2014     2013  
Interest income                
  Loans   $ 11,101     $ 11,500  
  Investment securities:                
    Taxable     386       208  
    Tax-exempt     80       61  
  Dividends     170       153  
    Total interest income     11,737       11,922  
                 
Interest expense                
  Deposits     820       992  
  Borrowed funds     1,274       1,586  
    Total interest expense     2,094       2,578  
                 
Net interest income     9,643       9,344  
                 
Provision for loan losses     104       (489 )
                 
Net interest income after provision for loan losses     9,539       9,833  
                 
Noninterest income:                
  Service charges and other fees     946       1,486  
  Interchange income     630       -  
  Investment brokerage commission income     2,254       2,038  
  Mortgage banking activities     652       1,137  
  Trust fee income     379       364  
  Increase in cash value of bank owned life insurance     271       278  
  Gain (loss) on sale of real estate owned     41       (53 )
  Other income     28       7  
    Total noninterest income     5,201       5,257  
                 
Noninterest expenses:                
  Salaries and employee benefits     6,948       6,883  
  Occupancy and equipment     1,543       1,729  
  Interchange expenses     379       -  
  Data processing     648       728  
  Professional services     554       372  
  Real estate owned expense     322       593  
  Advertising     159       119  
  FDIC premiums     235       426  
  Prepayment penalty on borrowings     -       668  
  Other     1,616       1,694  
    Total noninterest expenses     12,404       13,212  
                 
Income before income tax expense     2,336       1,878  
                 
Income tax expense     454       251  
                 
Net income   $ 1,882     $ 1,627  
                 
Earnings per share   $ 0.91     $ 0.80  
Dividends declared per share   $ 0.09     $ -  
    Key Ratios:                
Return on average equity     6.46 %     5.88 %
Return on average assets     0.60 %     0.51 %
Net interest margin (tax equivalent)     3.59 %     3.42 %
Efficiency ratio     83.56 %     90.52 %
                 
 
 
CONSOLIDATED STATEMENTS OF INCOME
Three months ended December 31, 2014 and 2013
(Amounts in thousands, except share and per share data)
 
    2014     2013  
Interest income                
  Loans   $ 2,768     $ 2,796  
  Investment securities:                
    Taxable     100       56  
    Tax-exempt     22       15  
  Dividends     38       36  
    Total interest income     2,928       2,903  
                 
Interest expense                
  Deposits     178       233  
  Borrowed funds     320       341  
    Total interest expense     498       574  
                 
Net interest income     2,430       2,329  
                 
Provision for loan losses     (8 )     (255 )
                 
Net interest income after provision for loan losses     2,438       2,584  
                 
Noninterest income:                
  Service charges and other fees     221       253  
  Interchange income     179       139  
  Investment brokerage commission income     587       599  
  Mortgage banking activities     168       329  
  Trust fee income     85       72  
  Increase in cash value of bank owned life insurance     69       68  
  Loss on sale of real estate owned     30       5  
  Other income     16       3  
    Total noninterest income     1,355       1,468  
                 
Noninterest expenses:                
  Salaries and employee benefits     1,745       1,759  
  Occupancy and equipment     381       396  
  Interchange expenses     124       73  
  Data processing     168       165  
  Professional services     186       71  
  Real estate owned expense     80       32  
  Advertising     41       52  
  FDIC premiums     63       103  
  Prepayment penalty on borrowings     -       668  
  Other     451       550  
    Total noninterest expenses     3,239       3,869  
                 
Income before income tax expense     554       183  
                 
Income tax expense     102       (39 )
                 
Net income   $ 452     $ 222  
                 
Earnings per share   $ 0.22     $ 0.11  
Dividends declared per share   $ 0.03     $ -  
    Key Ratios:                
Return on average equity     5.92 %     3.13 %
Return on average assets     0.57 %     0.28 %
Net interest margin (tax equivalent)     3.58 %     3.46 %
Efficiency ratio     85.58 %     101.90 %
                 

Contact Information

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