SOURCE: Sturgis Bancorp Inc.

July 19, 2012 15:01 ET

Sturgis Bancorp Reports Earnings for Second Quarter 2012

STURGIS, MI--(Marketwire - Jul 19, 2012) - Sturgis Bancorp, Inc. (OTCBB: STBI) today announced a net income of $502,000 for the second quarter of 2012, and $1.0 million year-to-date.

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:

  • Net income for the second quarter of 2012 increased to $502,000, or $0.25 per share, compared to a loss of $734,000, or $0.36 per share, in the second quarter of 2011.
  • Net income for the first half of 2012 increased to $1.0 million, or $0.50 per share, compared to a loss of $851,000, or $0.42 per share, in the first half of 2011.
  • The Bank further increased capital ratios, continuing to exceed "well-capitalized" requirements, with Tier 1 capital at 8.53%. Total capital at June 30, 2012 was 13.14% of risk-weighted assets.
  • Provision for loan losses was down significantly.
  • Total deposits decreased $2.7 million, or 1.1%, primarily due to $2.1 million reduction in brokered CDs.
  • Allowance for loan losses was 2.13% of loans, down slightly from 2.28% at the end of 2011, due to asset quality improvements.

Nonaccrual loans peaked in June 2011 at $14.5 million, up $9.3 million from December 31, 2010. Since June 2011, nonaccrual loans were reduced to $10.5 million at December 31, 2011 and further to $7.3 million at June 30, 2012.

President and CEO Eric L. Eishen stated: "I am pleased to provide a very positive first half financial performance. Loan quality is improving and core earnings are stable. The net interest income, non-interest income and non-interest expense have all been managed very closely. Our 2012 first half income is already double the full year income for 2011. Interest income continues to be suppressed by sustained low interest rates and poor loan demand. However, fewer credit quality issues resulted in a significant reduction in the provision for loan losses in 2012. The Bank continues to maintain a significant reserve in our Allowance for Loan and Lease Losses. It was only modestly reduced in the first six months of 2012. As the economy improves, the Bank expects continued improvement in credit quality, and therefore earnings. Management continues to focus on our core business. Earnings in the first half were also enhanced by strong mortgage refinance activity, as rates continue to remain at historic lows."

President Eishen added, "Consumer and Commercial loan demand continues to be weak. This is being experienced by the industry as a whole. Mortgage origination volume has been strong in the first half, due to historically low rates. This low rate scenario is positive for the mortgage origination segment of the Bank's business, but creates a very challenging environment for the banking industry. I am concerned that the ever increasing regulations and much tighter credit standards imposed by actions of Congress, Freddie Mac, Fannie Mae and the new Consumer Financial Protection Agency, primarily related to mortgage finance, pose significant risk to this business line and the economic recovery as a whole. I am pleased we have increased our interest margin on loans originated for portfolio. But I expect this is going to be exceedingly more difficult in the coming months if rates continue at the current levels. The Bank is not going to change its risk profile in an attempt to maintain the interest margin, and as a result we may see pressure on this margin in late 2012 and 2013, due to our adherence to rational pricing and loan quality."

President Eishen concluded, "Bank management continues to focus on building our franchise value and capital, in preparation for the proposed capital rules under consideration. We continue to be focused on controlling expenses as evidenced in our performance."

Three months ended June 30, 2012 vs. three months ended June 30, 2011 -- Net income for the three months ended June 30, 2012 was $502,000, or $0.25 per share, compared to a net loss of $734,000, or $0.36 per share, for the three months ended June 30, 2011. The tax equivalent net interest margin increased to 3.55% in 2012 from 3.04% in 2011. The increase in tax equivalent net interest margin is primarily due to the Bank's sales of low-margin investment securities, mostly in the third quarter of 2011.

Noninterest income was $1.2 million in the second quarter of 2012, compared to $960,000 in the second quarter of 2011. Mortgage banking activities increased to $305,000, as loan sale volume continued relatively strong.

Noninterest expense decreased $698,000 in 2012, compared to 2011. Salaries and employee benefits decreased $202,000, or 11.4%, to $1.6 million. Real estate owned expense decreased to $212,000, as the Company's write downs of the carrying value of foreclosed assets reduced.

The Company recorded a negative provision for loan losses of $11,000 in the three months ended June 30, 2012, compared to a positive provision of $974,000 in the same quarter of 2011. Net charge-offs were $316,000 in 2012, compared to $1.2 million in 2011. The net activity in the ALLL decreased the total allowance to 2.13% of gross loans at June 30, 2012, compared to 2.28% at December 31, 2011.

Six months ended June 30, 2012 vs. six months ended June 30, 2011 -- Net income for the six months ended June 30, 2012 was $1.0 million, or $0.50 per share, compared to a net loss of $851,000, or $0.42 per share, for the six months ended June 30, 2011. The tax equivalent net interest margin increased to 3.53% in 2012 from 3.03% in 2011. The increase in tax equivalent net interest margin is primarily due to the Bank's sales of low-margin investment securities, mostly in the third quarter of 2011.

Noninterest income was $2.2 million in the first half of 2012, compared to $2.0 million in the first half of 2011. Mortgage banking activities increased $186,000 to $564,000, as loan sale volume continued relatively strong. Investment brokerage commission income also increased by $117,000 to $716,000.

Noninterest expense decreased $783,000 in 2012, compared to 2011. Salaries and employee benefits decreased $283,000, or 8.3%, to $3.1 million. Real estate owned expense decreased by $348,000, to $347,000, as the Company's write downs of the carrying value of foreclosed assets reduced.

The Company recorded a negative provision for loan losses of $9,000 in the first half of 2012, compared to a positive provision of $1.9 million in the first half of 2011. Net charge-offs were $411,000 in 2012, compared to $1.9 million in 2011.

Total assets decreased to $312.3 million at June 30, 2012 from $314.3 million at December 31, 2011, primarily in cash and cash equivalents. Loans also decreased $1.6 million from December 31, 2011, primarily in Home Equity Lines of Credit and Commercial Loans.

Noninterest-bearing deposits increased to $37.0 million at June 30, 2012 from $33.6 million at December 31, 2011. Interest-bearing deposits decreased to $194.9 million at June 30, 2012 from $201.0 million at December 31, 2011. The decreases in deposits included $2.1 million decrease in brokered CDs. The number of checking accounts continues to increase, as the Bank continues to expand its customer base.

Total equity was $26.0 million at June 30, 2012, compared to $24.9 million at December 31, 2011. Book value per share increased to $12.79 at June 30, 2012 from $12.34 at December 31, 2011.

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 remain meaningful and relevant to investors, the Company has elected to continue providing them.

    Percentage of Gross Loans     Percentage of Total Assets  
Past due and still accruing:   June 30 2012     Dec. 31 2011     June 30, 2012     Dec. 31 2011  
  Past due one month   0.64 %   0.53 %   0.53 %   0.43 %
  Past due two months   0.12 %   0.18 %   0.10 %   0.15 %
  Past due three or more months   0.05 %   0.14 %   0.04 %   0.12 %
Nonaccrual loans   2.85 %   4.07 %   2.33 %   3.34 %
Real Estate Owned   0.53 %   0.81 %   0.43 %   0.66 %

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  
June 30, 2012 and December 31, 2011  
(Amounts in thousands, except share and per share data)  
             
    June 30, 2012     Dec. 31, 2011  
ASSETS                
  Cash and due from banks   $ 9,393     $ 7,297  
  Other short-term investments     9,377       15,443  
    Total cash and cash equivalents     18,770       22,740  
                   
  Interest-earning deposits in banks     8,467       4,760  
  Securities - Available for sale     1,222       265  
  Federal Home Loan Bank stock, at cost     4,064       4,064  
  Loans held for sale     800       986  
  Loans, net of allowance of $5,455 and $5,875     250,442       252,001  
  Premises and equipment, net     7,657       7,855  
  Goodwill     5,109       5,109  
  Originated mortgage servicing rights     1,306       1,279  
  Real estate owned     1,351       2,082  
  Bank-owned life insurance     9,116       8,976  
  Accrued interest receivable     1,135       1,191  
  Prepaid FDIC assessment     612       814  
  Other assets     2,259       2,136  
                   
    Total assets   $ 312,310     $ 314,258  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Liabilities                
  Deposits                
    Noninterest-bearing   $ 37,024     $ 33,642  
    Interest-bearing     194,892       200,957  
      Total deposits     231,916       234,599  
  Federal Home Loan Bank advances and other borrowings     52,500       52,575  
  Accrued interest payable     298       344  
  Other liabilities     1,625       1,830  
    Total liabilities     286,339       289,348  
                 
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 2,029,898 shares at June 30, 2012 and 2,019,235 at December 31, 2011     2,030       2,019  
  Additional paid-in capital     6,931       6,881  
  Retained earnings     17,090       16,087  
  Accumulated other comprehensive income (loss)     (80 )     (77 )
    Total stockholders' equity     25,971       24,910  
                   
      Total liabilities and stockholders' equity   $ 312,310     $ 314,258  
             
             
CONSOLIDATED STATEMENTS OF INCOME  
Three Months ended June 30, 2012 and 2011  
(Amounts in thousands, except share and per share data)  
             
    Three Months ended June 30,  
    2012     2011  
Interest income                
  Loans   $ 3,080     $ 3,099  
  Investment securities:                
    Taxable     26       327  
    Tax-exempt     12       15  
  Dividends     34       30  
    Total interest income     3,152       3,471  
Interest expense                
  Deposits     337       609  
  Borrowed funds     426       451  
    Total interest expense     763       1,060  
                 
Net interest income     2,389       2,411  
                 
Provision for loan losses     (11 )     974  
                 
Net interest income after provision for loan losses     2,400       1,437  
                 
Noninterest income:                
  Service charges and other fees     319       353  
  Investment brokerage commission income     417       321  
  Mortgage banking activities     305       129  
  Trust fee income     80       95  
  Increase in value of bank owned life insurance     70       69  
  Other income     (16 )     (7 )
    Total noninterest income     1,175       960  
Noninterest expenses:                
  Salaries and employee benefits     1,569       1,771  
  Occupancy and equipment     361       367  
  Data processing     181       173  
  Professional services     69       137  
  Real estate owned expense     212       629  
  Advertising     24       30  
  FDIC premiums     211       124  
  Other     283       377  
    Total noninterest expenses     2,910       3,608  
                 
Income (loss) before income tax expense (benefit)     665       (1,211 )
                 
Provision for income tax     163       (477 )
                 
Net income (loss)   $ 502     $ (734 )
                 
Earnings per share   $ 0.25     $ (0.36 )
Dividends declared per share   $ 0.00     $ 0. 01  
    Key Ratios:                
Return on average equity     7.77 %     (12.60 %)
Return on average assets     0.64 %     (0.79 %)
Net interest margin (tax equivalent)     3.55 %     3.04 %
             
             
CONSOLIDATED STATEMENTS OF INCOME  
Six Months ended June 30, 2012 and 2011  
(Amounts in thousands, except share and per share data)  
             
    Six Months ended June 30,  
    2012     2011  
Interest income                
  Loans   $ 6,218     $ 6,293  
  Investment securities:                
    Taxable     48       665  
    Tax-exempt     15       29  
  Dividends     71       60  
    Total interest income     6,352       7,047  
Interest expense                
  Deposits     708       1,299  
  Borrowed funds     850       904  
    Total interest expense     1,558       2,203  
                 
Net interest income     4,794       4,844  
                 
Provision for loan losses     (9 )     1,855  
                 
Net interest income after provision for loan losses     4,803       2,989  
                 
Noninterest income:                
  Service charges and other fees     693       698  
  Investment brokerage commission income     716       599  
  Mortgage banking activities     564       378  
  Trust fee income     158       186  
  Increase in value of bank owned life insurance     139       138  
  Other income     (27 )     19  
    Total noninterest income     2,243       2,018  
Noninterest expenses:                
  Salaries and employee benefits     3,138       3,421  
  Occupancy and equipment     714       739  
  Data processing     356       344  
  Professional services     187       249  
  Real estate owned expense     347       695  
  Advertising     51       65  
  FDIC premiums     211       234  
  Other     708       748  
    Total noninterest expenses     5,712       6,495  
                 
Income (loss) before income tax expense (benefit)     1,334       (1,488 )
                 
Provision for income tax     331       (637 )
                 
Net income (loss)   $ 1,003     $ (851 )
                 
Earnings per share   $ 0.50     $ (0.42 )
Dividends declared per share   $ 0.00     $ 0.02  
    Key Ratios:                
Return on average equity     7.93 %     (7.35 %)
Return on average assets     0.63 %     (0.46 %)
Net interest margin (tax equivalent)     3.53 %     3.03 %

Contact Information

  • Contacts:

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