SOURCE: Sturgis Bancorp Inc.

October 30, 2012 13:11 ET

Sturgis Bancorp Reports Earnings for Third Quarter 2012

STURGIS, MI--(Marketwire - Oct 30, 2012) - Sturgis Bancorp, Inc. (OTCBB: STBI) today announced a net income of $517,000 for the third quarter of 2012, and $1.5 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 third quarter of 2012 was $517,000, or $0.25 per share, compared to net income of $792,000, or $0.39 per share, in the third quarter of 2011. The Company recorded $225,000 net income from securities sales in the third quarter of 2011.
  • Net income for the first nine months of 2012 increased to $1.5 million, or $0.75 per share, compared to a loss of $59,000, or ($0.03) per share, in the first nine months of 2011.
  • The Bank further increased capital ratios, continuing to exceed "well-capitalized" requirements, with Tier 1 capital at 8.69%. Total capital at September 30, 2012 was 13.26% of risk-weighted assets.
  • Provision for loan losses was down significantly for the nine months.
  • Total deposits increased $1.5 million, primarily due to $9.0 million increase in noninterest bearing accounts. Brokered CDs were reduced by $3.4 million.
  • Allowance for loan losses was 2.12% 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 $6.7 million at September 30, 2012.

President and CEO Eric L. Eishen stated: "I am pleased to provide another positive quarterly earnings announcement. 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 high reserve in our Allowance for Loan and Lease Losses. It was only modestly reduced in the first nine 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 2012 have been 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. 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 Bureau, 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. There continues to be much uncertainty on the economy, future regulations and capital standards for the banking industry."

Three months ended September 30, 2012 vs. three months ended September 30, 2011 - Net income for the three months ended September 30, 2012 was $517,000, or $0.25 per share, compared to net income of $792,000, or $0.39 per share, for the three months ended September 30, 2011. Most of the decrease is attributed to gains on sales of securities recorded in the three months ended September 30, 2011. The tax equivalent net interest margin increased to 3.54% in 2012 from 3.33% 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 third quarter of 2012, compared to $1.6 million in the third quarter of 2011. Most of the decrease is attributable to $536,000 (pre-tax) of gains on sales of securities recorded in the third quarter of 2011. Investment brokerage commission income increased to $412,000 in the third quarter of 2012, compared to $308,000 in the third quarter of 2011. Mortgage banking activities also increased to $286,000 from $235,000, as loan sale volume continued relatively strong.

Noninterest expense decreased $266,000 in 2012, compared to 2011, primarily due to $195,000 of prepayment penalties on repurchase agreements recorded in 2011. Salaries and employee benefits decreased $167,000, or 9.7%, to $1.6 million. 

The Company recorded $63,000 provision for loan losses of in the three months ended September 30, 2012, compared to a negative provision of $156,000 in the same quarter of 2011. Net charge-offs were $43,000 in 2012, compared to $118,000 in 2011. The net activity in the ALLL decreased the total allowance to 2.12% of gross loans at September 30, 2012, compared to 2.28% at December 31, 2011. 

Nine months ended September 30, 2012 vs. nine months ended September 30, 2011 - Net income for the nine months ended September 30, 2012 was $1.5 million, or $0.75 per share, compared to a net loss of $59,000, or ($0.03) per share, for the nine months ended September 30, 2011. The tax equivalent net interest margin increased to 3.53% in 2012 from 3.14% 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 $3.4 million in the first nine months of 2012, compared to $3.6 million in the first nine months of 2011, primarily due to $536,000 (pre-tax) gains on sales of securities recorded in 2011. Mortgage banking activities increased $237,000 to $850,000, as loan sale volume continued relatively strong. Investment brokerage commission income also increased by $220,000 to $1.1 million.

Noninterest expense decreased $1.0 million in 2012, compared to 2011. Salaries and employee benefits decreased $451,000, or 8.8%, to $4.7 million. Real estate owned expense decreased by $340,000, to $538,000, as the Company's write downs of the carrying value of foreclosed assets reduced. The Company also recorded $195,000 in 2011 for prepayment penalties on repurchase agreements.

The Company recorded a $54,000 provision for loan losses in the first nine months of 2012, compared to $1.7 million in the first nine months of 2011. Net charge-offs were $454,000 in 2012, compared to $2.0 million in 2011. 

Total assets increased to $317.4 million at September 30, 2012 from $314.3 million at December 31, 2011, primarily in interest-earning deposits. Loans also increased $1.0 million from December 31, 2011, primarily in residential mortgage loans. 

Noninterest-bearing deposits increased to $42.7 million at September 30, 2012 from $33.6 million at December 31, 2011. Interest-bearing deposits decreased to $193.5 million at September 30, 2012 from $201.0 million at December 31, 2011. The decreases in deposits included $3.4 million decrease in brokered CDs. The number of checking accounts continues to increase, as the Bank continues to expand its customer base. Most consumer checking account customers prefer the Bank's "Free Checking" (noninterest-bearing) account, which charges no monthly account fee.

Total equity was $26.5 million at September 30, 2012, compared to $24.9 million at December 31, 2011. Book value per share increased to $13.04 at September 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:   Sept. 30 2012     Dec. 31 2011     Sept. 30 2012     Dec. 31 2011  
  Past due one month   0.76 %   0.53 %   0.62 %   0.43 %
  Past due two months   0.57 %   0.18 %   0.46 %   0.15 %
  Past due three or more months   0.07 %   0.14 %   0.06 %   0.12 %
Nonaccrual loans   2.57 %   4.07 %   2.10 %   3.34 %
Real Estate Owned   0.59 %   0.81 %   0.48 %   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  
September 30, 2012 and December 31, 2011  
(Amounts in thousands, except share and per share data)  
             
    Sept. 30, 2012         Dec. 31, 2011  
ASSETS                
  Cash and due from banks   $ 7,125     $ 7,297  
  Other short-term investments     9,271       15,443  
    Total cash and cash equivalents     16,396       22,740  
                 
  Interest-earning deposits in banks     12,199       4,760  
  Securities - Available for sale     1,244       265  
  Federal Home Loan Bank stock, at cost     4,064       4,064  
  Loans held for sale     1,819       986  
  Loans, net of allowance of $5,474 and $5,875     253,000       252,001  
  Premises and equipment, net     7,660       7,855  
  Goodwill     5,109       5,109  
  Originated mortgage servicing rights     1,289       1,279  
  Real estate owned     1,531       2,082  
  Bank-owned life insurance     9,187       8,976  
  Accrued interest receivable     1,162       1,191  
  Prepaid FDIC assessment     514       814  
  Other assets     2,231       2,136  
                 
    Total assets   $ 317,405     $ 314,258  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Liabilities                
  Deposits                
    Noninterest-bearing   $ 42,619     $ 33,642  
    Interest-bearing     193,510       200,957  
      Total deposits     236,129       234,599  
  Federal Home Loan Bank advances and other borrowings     52,500       52,575  
  Accrued interest payable     270       344  
  Other liabilities     1,968       1,830  
    Total liabilities     290,867       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 2,034,395 shares at Sept. 30, 2012 and 2,019,235 at December 31, 2011     2,034       2,019  
  Additional paid-in capital     6,955       6,881  
  Retained earnings     17,609       16,087  
  Accumulated other comprehensive income (loss)     (60 )     (77 )
    Total stockholders' equity     26,538       24,910  
                 
      Total liabilities and stockholders' equity   $ 317,405     $ 314,258  
                       
                       
   
CONSOLIDATED STATEMENTS OF INCOME  
Three Months ended September 30, 2012 and 2011  
(Amounts in thousands, except share and per share data)  
             
    Three Months ended
September 30,
 
    2012     2011  
Interest income                
  Loans   $ 3,095     $ 3,238  
  Investment securities:                
    Taxable     41       207  
    Tax-exempt     11       8  
  Dividends     41       30  
    Total interest income     3,188       3,483  
Interest expense                
  Deposits     324       545  
  Borrowed funds     423       433  
    Total interest expense     747       978  
                 
Net interest income     2,441       2,505  
                 
Provision for loan losses     63       (156 )
                 
Net interest income after provision for loan losses     2,378       2,661  
                 
Noninterest income:                
  Service charges and other fees     323       351  
  Investment brokerage commission income     412       308  
  Mortgage banking activities     286       235  
  Trust fee income     69       69  
  Increase in value of bank owned life insurance     71       71  
  Gain on securities     -       536  
  Other income     13       -  
    Total noninterest income     1,174       1,570  
Noninterest expenses:                
  Salaries and employee benefits     1,554       1,721  
  Occupancy and equipment     361       355  
  Data processing     176       170  
  Professional services     105       111  
  Real estate owned expense     191       183  
  Advertising     25       32  
  FDIC premiums     103       51  
  Prepayment penalties on repurchase agreements     -       195  
  Other     347       310  
    Total noninterest expenses     2,862       3,128  
                 
Income (loss) before income tax expense (benefit)     690       1,103  
                 
Provision for income tax     173       311  
                 
Net income (loss)   $ 517     $ 792  
                 
Earnings per share   $ 0.25     $ 0.39  
Dividends declared per share   $ 0.00     $ 0. 01  
    Key Ratios:                
Return on average equity     7.87 %     12.91 %
Return on average assets     0.66 %     0.91 %
Net interest margin (tax equivalent)     3.54 %     3.33 %
                 
                 
   
CONSOLIDATED STATEMENTS OF INCOME  
Nine Months ended September 30, 2012 and 2011  
(Amounts in thousands, except share and per share data)  
   
    Nine Months ended Sept. 30,  
    2012     2011  
Interest income                
  Loans   $ 9,313     $ 9,531  
  Investment securities:                
    Taxable     89       871  
    Tax-exempt     27       38  
  Dividends     111       90  
    Total interest income     9,540       10,530  
Interest expense                
  Deposits     1,032       1,844  
  Borrowed funds     1,273       1,337  
    Total interest expense     2,305       3,181  
                 
Net interest income     7,235       7,349  
                 
Provision for loan losses     54       1,699  
                 
Net interest income after provision for loan losses     7,181       5,650  
                 
Noninterest income:                
  Service charges and other fees     1,016       1,049  
  Investment brokerage commission income     1,127       907  
  Mortgage banking activities     850       613  
  Trust fee income     228       255  
  Increase in value of bank owned life insurance     211       209  
  Gain on securities     -       536  
  Other income     (14 )     20  
    Total noninterest income     3,418       3,589  
Noninterest expenses:                
  Salaries and employee benefits     4,692       5,143  
  Occupancy and equipment     1,075       1,094  
  Data processing     532       514  
  Professional services     293       361  
  Real estate owned expense     538       878  
  Advertising     76       97  
  FDIC premiums     314       285  
  Prepayment penalties on repurchase agreements     -       195  
  Other     1,056       1,057  
    Total noninterest expenses     8,576       9,624  
                 
Income (loss) before income tax expense (benefit)     2,023       (385 )
                 
Provision for income tax     503       (326 )
                 
Net income (loss)   $ 1,520     $ (59 )
                 
Earnings per share   $ 0.75     $ (0.03 )
Dividends declared per share   $ 0.00     $ 0. 03  
    Key Ratios:                
Return on average equity     7.98 %     (0.25 %)
Return on average assets     0.64 %     (0.02 %)
Net interest margin (tax equivalent)     3.53 %     3.14 %
                 

Contact Information

  • Contacts:

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