Sturgis Bancorp Reports Earnings for First Quarter 2013

STURGIS, MI--(Marketwired - Apr 23, 2013) -  Sturgis Bancorp, Inc. (OTCBB: STBI) today announced net income of $502,000 for the first quarter of 2013. 

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 the first quarter of 2013:

• Net income for the first quarter of 2013 remained unchanged, at $502,000, compared to $502,000 for the first quarter of 2012.
• The Bank maintained strong capital ratios, exceeding "well-capitalized" requirements, with Tier 1 capital at 8.76%. Total capital at March 31, 2013 was 13.85% of risk-weighted assets.
• Nonaccrual and past due loans decreased.
• Total deposits increased 4.6% to $245.8 million, mostly in temporary municipal deposits.
• Allowance for loan losses was 1.97% of loans, down slightly from 2.03% at the end of 2012.

President and CEO Eric L. Eishen stated: "The Bank's core earnings are stable and credit quality continues to improve. We continue to control expenses and seek quality loan business. While the U. S. Economy seems to be improving, we are still cautious with how aggressively we pursue any loan growth opportunities. There is weakness in loan demand, and the primary business opportunities are related to our mortgage banking business. Credit worthy commercial borrowers remain hesitant to take on additional debt until they are confident the recovery will be sustained. Deposits continue to be strong and customers remain reluctant to commit long-term. Once the economy is back on track, we expect deposits to normalize and maturities to extend. We are keeping our loan origination activity focused on loan types we know best. When we are comfortable the economy is in full recovery, we will look to a more expansionary management of the balance sheet. The Bank enjoys a diversified non-interest income stream and the net interest margin is stable as well.

"The most challenging aspect to our business model will be managing the significant increase in regulatory burden. The Bank is large enough to deal with the increased burden, but all banks are concerned with the increased cost of compliance."

Three months ended March 31, 2013 vs. three months ended March 31, 2012 - Net income for the three months ended March 31, 2013 was $502,000, or $0.25 per share, compared to net income of $502,000, or $0.25 per share, for the three months ended March 31, 2012. The tax equivalent net interest margin increased to 3.54% in 2013 from 3.52% in 2012. 

Noninterest income was $1.3 million in the first quarter of 2013, compared to $1.1 million in the first quarter of 2012. Mortgage banking activities increased to $328,000 in 2013, as loan sale volume continued relatively strong. Commission income also increased to $464,000 in the first three months of 2013, compared to $299,000 in the first three months of 2012.

Noninterest expense increased to $3.2 million in 2013, compared to $2.8 million in 2012. Salaries and employee benefits increased $127,000, or 8.1%, to $1.7 million, due to increased health insurance benefit expense, salary adjustments, and commissions earned. Real estate owned expense increased to $303,000, including $202,000 written down for the carrying value of foreclosed assets. 

The Company provided ($88,000) to the allowance for loan losses in the first three months of 2013, compared to $2,000 in the same quarter or 2012. Net charge-offs were $77,000 in 2013, compared to $95,000 in 2012. 

Total assets increased to $328.2 million at March 31, 2013 from $317.1 million at December 31, 2012, primarily in cash and cash equivalents. Loans decreased $1.2 million from December 31, 2012, primarily in Home Equity Lines of Credit and Commercial Nonmortgage Loans. 

Noninterest-bearing deposits increased to $45.1 million at March 31, 2013 from $41.3 million at December 31, 2012. Interest-bearing deposits also increased to $200.8 million at March 31, 2013 from $193.7 million at December 31, 2012. These increases in deposit accounts are typical for the first quarter of each year, as municipalities deposit property tax revenues. Municipalities historically have reinvested those funds elsewhere during the second quarter of the year, and Management expects that pattern to continue for 2013. The number of checking accounts continues to increase, as the Bank continues to expand its customer base. 

Total equity was $27.3 million at March 31, 2013, compared to $26.9 million at December 31, 2012. Book value per share increased to $13.37 at March 31, 2013 from $13.21 at December 31, 2012.

During the worst part of the national financial crisis, the Company began including expanded ratios for the Bank's asset quality in quarterly press releases. Because the Company believes these ratios have returned to more normal levels, the Company will not present these ratios in subsequent releases.

			Percentage of Gross Loans						Percentage of Total Assets
Past due and still accruing:			Mar. 31 2013			Dec. 31 2012			Mar. 31 2013			Dec. 31 2012
	Past due one month		0.44	%		0.66	%		0.34	%		0.53	%
	Past due two months		0.16	%		0.23	%		0.12	%		0.19	%
	Past due three or more months		0.01	%		0.08	%		0.01	%		0.06	%
Nonaccrual loans			2.53	%		2.83	%		1.95	%		2.26	%
Real Estate Owned			0.54	%		0.49	%		0.42	%		0.39	%

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
March 31, 2013 and December 31, 2012
(Amounts in thousands, except share and per share data)
						March 31, 2013				Dec. 31, 2012
ASSETS
		Cash and due from banks				$	17,030			$	10,237
		Other short-term investments					15,363				9,611
			Total cash and cash equivalents				32,393				19,848
		Interest-earning deposits in banks					12,196				12,196
		Securities - Available for sale					1,770				1,242
		Federal Home Loan Bank stock, at cost					4,064				4,064
		Loans held for sale					2,023				2,261
		Loans, net of allowance of $4,974 and $5,138					247,323				248,520
		Premises and equipment, net					7,175				7,044
		Goodwill					5,109				5,109
		Originated mortgage servicing rights					1,315				1,273
		Real estate owned					1,363				1,252
		Bank-owned life insurance					9,328				9,259
		Accrued interest receivable					1,062				861
		Prepaid FDIC assessment					314				414
		Other assets					2,761				3,702
			Total assets			$	328,196			$	317,045
LIABILITIES AND STOCKHOLDERS' EQUITY
	Liabilities
		Deposits
			Noninterest-bearing			$	45,062			$	41,261
			Interest-bearing				200,751				193,662
				Total deposits			245,813				234,923
		Federal Home Loan Bank advances and other borrowings					52,352				52,440
		Accrued interest payable					284				333
		Other liabilities					2,423				2,425
			Total liabilities				300,872				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 2,043,112 shares at March 31, 2013 and 2,038,395 at December 31, 2012					2,043				2,038
		Additional paid-in capital					7,009				6,979
		Retained earnings					18,455				17,953
		Accumulated other comprehensive income (loss)					(183	)			(46	)
			Total stockholders' equity				27,324				26,924
				Total liabilities and stockholders' equity		$	328,196			$	317,045

CONSOLIDATED STATEMENTS OF INCOME
Three Months ended March 31, 2013 and 2012
(Amounts in thousands, except share and per share data)
				Three Months ended March 31,
				2013				2012
Interest income
	Loans			$	2,974			$	3,138
	Investment securities:
		Taxable			41				22
		Tax-exempt			16				4
	Dividends				39				36
		Total interest income			3,070				3,200
Interest expense
	Deposits				267				371
	Borrowed funds				411				424
		Total interest expense			678				795
Net interest income					2,392				2,405
Provision for loan losses					(88	)			2
Net interest income after provision for loan losses					2,480				2,403
Noninterest income:
	Service charges and other fees				344				374
	Investment brokerage commission income				464				299
	Mortgage banking activities				328				259
	Trust fee income				85				79
	Increase in value of bank owned life insurance				70				69
	Other income				7				(12	)
		Total noninterest income			1,298				1,068
Noninterest expenses:
	Salaries and employee benefits				1,696				1,569
	Occupancy and equipment				403				354
	Data processing				176				175
	Professional services				117				118
	Real estate owned expense				303				135
	Advertising				28				27
	FDIC premiums				105				98
	Other				328				326
		Total noninterest expenses			3,156				2,802
Income (loss) before income tax expense (benefit)					622				669
Provision for income tax					120				167
Net income (loss)				$	502			$	502
Earnings per share				$	0.25			$	0.25
Dividends declared per share				$	0.00			$	0.00
		Key Ratios:
Return on average equity					7.59	%			7.93	%
Return on average assets					0.63	%			0.63	%
Net interest margin (tax equivalent)					3.54	%			3.52	%