Sturgis Bancorp Reports Earnings for First Quarter 2016

STURGIS, MI--(Marketwired - Apr 25, 2016) -   Sturgis Bancorp, Inc. (OTCQX: STBI) today announced net income of $592,000 for the first quarter of 2016.

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, 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 2016:

• Net income for the first quarter of 2016 increased to $592,000, compared to $397,000 for the first quarter of 2015, primarily due to higher net interest income.
• The Bank maintained strong capital ratios, exceeding "well-capitalized" requirements, with Tier 1 leverage capital at 8.60%. Total capital at March 31, 2016 was 14.58% of risk-weighted assets. The Bank's risk-weighted assets were $235.8 million at March 31, 2016.
• Total deposits increased 5.5% to $299.6 million, mostly in temporary municipal deposits.
• Allowance for loan losses was 1.25% of loans, unchanged from December 31, 2016.

Three months ended March 31, 2016 vs. three months ended March 31, 2015 - Net income for the three months ended March 31, 2016 was $592,000, or $0.28 per share, compared to net income of $397,000, or $0.19 per share, for the three months ended March 31, 2015. The tax equivalent net interest margin increased to 3.75% in the first three months of 2016 from 3.53% in the first three months of 2015. 

Noninterest income was $1.2 million in the first quarter of 2016, compared to $1.4 million in the first quarter of 2015. Most of the decrease was in trust fee income, which decreased to $84,000 in 2016 from $151,000 in 2015, with a large one-time fee assessed in the first quarter of 2015. Mortgage banking income decreased $67,000 to $135,000 in 2016, due to slower loan sale activity. Commission income decreased $48,000 to $445,000 in 2016, based on market volatility.

Noninterest expense was $3.4 million in 2016 and 2015. Salaries and employee benefits, the largest component of noninterest expense, decreased $45,000, primarily due to lower pension funding in 2016. Real estate owned expense decreased to $60,000 in 2016, compared to $141,000 in 2015. 

The Company provided $94,000 to the allowance for loan losses in the first three months of 2016, compared to ($85,000) in the same quarter of 2015. Net charge-offs were $69,000 in 2016, compared to ($17,000) in 2015. 

Total assets increased to $377.8 million at March 31, 2016 from $368.6 million at December 31, 2015, primarily in loans. Loans increased $4.8 million from December 31, 2015. Most of the increase in loans was in Commercial loans. 

Noninterest-bearing deposits increased to $67.6 million at March 31, 2016 from $65.0 million at December 31, 2015. Average noninterest-bearing deposits were $62.8 million for the three months ended March 31, 2016. Interest-bearing deposits also increased to $232.0 million at March 31, 2016 from $219.0 million at December 31, 2015. Average interest-bearing deposits were $223.9 million for the three months ended March 31, 2016. These increases in deposit accounts are typical for the first quarter of each year, as municipalities deposit property tax revenues. Municipalities historically have either used or reinvested those funds elsewhere during the second quarter of the year, and Management expects that pattern to continue for 2016. Brokered deposits increased $2.2 million to $9.9 million at March 31, 2016. The growth in deposits allowed borrowed funds to decrease by $7.1 million to $40.7 million at March 31, 2016.

Total equity was $32.9 million at March 31, 2016, compared to $32.6 million at December 31, 2015. Book value per share increased to $15.80 ($12.23 tangible) at March 31, 2016 from $15.70 ($12.08 tangible) at December 31, 2015. Average equity was $32.7 million for the three months ended March 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
March 31, 2016 and December 31, 2015
(Amounts in thousands, except share and per share data)
					March 31, 2016				Dec. 31, 2015
ASSETS
	Cash and due from banks				$	10,781			$	10,786
	Other short-term investments					8,380				5,084
		Total cash and cash equivalents				19,161				15,870
	Interest-earning deposits in banks					16,805				16,805
	Securities - Available for sale					27,225				27,635
	Securities - Held to maturity					21,569				19,245
	Federal Home Loan Bank stock, at cost					2,632				2,632
	Loans held for sale					684				1,575
	Loans, net of allowance of $3,238 and $3,213					258,637				253,830
	Premises and equipment, net					7,990				8,114
	Goodwill					5,834				5,834
	Core deposit intangibles					304				320
	Originated mortgage servicing rights					1,283				1,349
	Real estate owned					1,158				827
	Bank-owned life insurance					9,800				9,735
	Accrued interest receivable					1,363				1,183
	Other assets					3,356				3,605
		Total assets			$	377,801			$	368,559
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
	Deposits
		Noninterest-bearing			$	67,622			$	65,041
		Interest-bearing				232,008				218,998
			Total deposits			299,630				284,039
	Federal Home Loan Bank advances and other borrowings					40,704				47,812
	Accrued interest payable					224				243
	Other liabilities					4,392				3,853
		Total liabilities				344,950				335,947
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 2,079,741 shares at March 31, 2016 and 2,077,791 at December 31, 2015					2,080				2,078
	Additional paid-in capital					7,296				7,277
	Retained earnings					23,871				23,445
	Accumulated other comprehensive income (loss)					(396	)			(188	)
		Total stockholders' equity				32,851				32,612
			Total liabilities and stockholders' equity		$	377,801			$	368,559

CONSOLIDATED STATEMENTS OF INCOME
Three Months ended March 31, 2016 and 2015
(Amounts in thousands, except share and per share data)
				Three Months ended March 31,
				2016				2015
Interest income
	Loans			$	3,007			$	2,702
	Investment securities:
		Taxable			156				91
		Tax-exempt			204				22
	Dividends				28				40
		Total interest income			3,395				2,855
Interest expense
	Deposits				166				159
	Borrowed funds				274				312
		Total interest expense			440				471
Net interest income					2,955				2,384
Provision for loan losses					94				(85	)
Net interest income after provision for loan losses					2,861				2,469
Noninterest income:
	Service charges and other fees				251				246
	Interchange income				167				147
	Investment brokerage commission income				445				493
	Mortgage banking activities				135				202
	Trust fee income				79				151
	Increase in value of bank owned life insurance				65				67
	Gain (loss) on sale of real estate owned				(1	)			71
	Other income				99				13
		Total noninterest income			1,240				1,390
Noninterest expenses:
	Salaries and employee benefits				1,908				1,953
	Occupancy and equipment				405				411
	Interchange expenses				98				87
	Data processing				197				177
	Professional services				61				137
	Real estate owned expense				60				141
	Advertising				61				40
	Other				578				405
		Total noninterest expenses			3,368				3,351
Income before income tax expense (benefit)					733				508
Income tax expense					141				111
Net income				$	592			$	397
Earnings per share				$	0.28			$	0.19
Dividends declared per share				$	0.08			$	0.03
		Key Ratios:
Return on average equity					7.31	%			5.27	%
Return on average assets					0.63	%			0.50	%
Net interest margin (tax equivalent)					3.75	%			3.53	%