Sturgis Bancorp Reports Earnings for Third Quarter 2014

STURGIS, MI--(Marketwired - Nov 13, 2014) -  Sturgis Bancorp, Inc. (OTCQB: STBI) today announced net income of $330,000 for the third quarter of 2014. 

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 as of September 30, 2014:

• Net income was $330,000 for the third quarter of 2014, compared to $467,000 for the third quarter of 2013.
• The Bank maintained strong capital ratios, exceeding "well-capitalized" requirements, with Tier 1 capital at 9.74%. Total capital at September 30, 2014 was 15.84% of risk-weighted assets.
• Total deposits increased 5.0% from December 31, 2013 to $240.4 million, mostly in noninterest-bearing deposit accounts.
• Allowance for loan losses was 1.47% of loans, down from 1.74% at the end of 2013.

Three months ended September 30, 2014 vs. three months ended September 30, 2013 -- Net income for the three months ended September 30, 2014 was $330,000, or $0.16 per share, compared to net income of $467,000, or $0.23 per share, for the three months ended September 30, 2013. The tax equivalent net interest margin increased to 3.51% in 2014 from 3.37% in 2013. 

Noninterest income was $1.5 million in the third quarter of 2014, compared to $1.3 million in the third quarter of 2013. Investment brokerage commission income, the largest component of noninterest income, increased to $778,000 in the third quarter of 2014, compared to $481,000 in the third quarter of 2013. Mortgage banking activities income decreased to $119,000 in 2014 from $267,000 in 2013, as loan sale volume slowed. 

Noninterest expense increased to $3.2 million in 2014, compared to $3.1 million in 2013. Salaries and employee benefits increased $115,000, or 6.7%, to $1.8 million. The premium for FDIC deposit insurance decreased to $57,000 in the third quarter of 2014 from $108,000 in 2013. Noninterest expense in the third quarter of 2014 included $101,000 of legal, audit, and investment banker fees related to the pending acquisition of West Michigan Savings Bank in Bangor, MI.

The Company provided $307,000 to the allowance for loan losses in the third quarter of 2014, compared to $8,000 in the same quarter of 2013. Net charge-offs were $459,000 in the third quarter of 2014, compared to $208,000 in the third quarter of 2013.

Nine months ended September 30, 2014 vs. nine months ended September 30, 2013 -- Net income for the nine months ended September 30, 2013 was $1.4 million, or $0.69 per share, unchanged from $1.4 million, or $0.69 per share, for the nine months ended September 30, 2013. The tax equivalent net interest margin increased to 3.59% in 2014 from 3.41% in 2013. 

Noninterest income was $3.8 million in the first nine months of 2014, compared to $3.9 million in the first nine months of 2013. The decrease is primarily in mortgage-banking activities, which decreased $325,000 to $484,000 in 2014. Investment brokerage commission income increased to $1.7 million in the first nine months of 2014, compared to $1.4 million in 2013. 

Noninterest expense decreased to $9.2 million in 2014, compared to $9.4 million in 2013. Real estate owned expense of $242,000 in 2014 included $107,000 written down for the carrying value of foreclosed assets, compared to $358,000 written down in the first half of 2013. The premium for FDIC deposit insurance decreased to $172,000 in the first nine months of 2014, compared to $323,000 for the first nine months of 2013. Noninterest expense in the first nine months of 2014 included $102,000 of legal, audit, and investment banker fees related to the pending acquisition of West Michigan Savings Bank in Bangor, MI.

The Company provided $112,000 to the allowance for loan losses in the first nine months of 2014, compared to ($243,000) in the first nine months of 2013. Net charge-offs were $733,000 in the first nine months of 2014, compared to $360,000 in the first nine months of 2013. 

Total assets increased to $318.3 million at September 30, 2014 from $305.0 million at December 31, 2013, primarily in securities held-to-maturity. Loans increased $2.2 million from December 31, 2013, primarily due to purchased loans guaranteed by the U.S. Government. 

Cash and cash equivalents increased $2.7 million to $23.6 million.

Noninterest-bearing deposits increased by $10.2 million at September 30, 2014 from $41.7 million at December 31, 2013. Interest-bearing deposits also increased to $188.5 million at September 30, 2014 from $187.3 million at December 31, 2013. Brokered certificates of deposits decreased by $3.7 million to $4.0 million at September 30, 2014.

Total equity was $30.1 million at September 30, 2014, compared to $28.5 million at December 31, 2013. Book value per share increased to $14.41 at June 30, 2014 from $13.89 at December 31, 2013. The Company reinstated regular quarterly dividends in 2014, paying $0.02 per common share in each quarter and announcing $0.03 for the fourth quarter of 2014.

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, 2014 and December 31, 2013
(Amounts in thousands, except share and per share data)
					Sept. 30, 2014				Dec. 31, 2013
ASSETS
	Cash and due from banks				$	16,106			$	14,236
	Other short-term investments					7,456				6,638
		Total cash and cash equivalents				23,562				20,874
	Interest-earning deposits in banks					14,425				14,914
	Securities - Available for sale					2,554				1,575
	Securities - Held to maturity					6,155				-
	Federal Home Loan Bank stock, at cost					4,064				4,064
	Loans held for sale					673				1,034
	Loans, net of allowance of $3,525 and $4,146					236,714				234,549
	Premises and equipment, net					7,268				7,113
	Goodwill					5,109				5,109
	Originated mortgage servicing rights					1,428				1,501
	Real estate owned					1,529				630
	Bank-owned life insurance					9,739				9,537
	Accrued interest receivable					942				828
	Other assets					4,181				3,252
		Total assets			$	318,343			$	304,980
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
	Deposits
		Noninterest-bearing			$	51,916			$	41,706
		Interest-bearing				188,502				187,314
			Total deposits			240,418				229,020
	Federal Home Loan Bank advances and other borrowings					44,311				44,585
	Accrued interest payable					232				272
	Other liabilities					3,287				2,568
		Total liabilities				288,248				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 2,067,741 shares at September 30, 2014 and 2,055,025 at December 31, 2013					2,068				2,055
	Additional paid-in capital					7,188				7,094
	Retained earnings					20,887				19,580
	Accumulated other comprehensive income (loss)					(48	)			(194	)
		Total stockholders' equity				30,095				28,535
			Total liabilities and stockholders' equity		$	318,343			$	304,980

CONSOLIDATED STATEMENTS OF INCOME
Three Months ended September 30, 2014 and 2013
(Amounts in thousands, except share and per share data)
				Three Months ended September 30,
				2014				2013
Interest income
	Loans			$	2,779			$	2,874
	Investment securities:
		Taxable			98				50
		Tax-exempt			22				15
	Dividends				38				39
		Total interest income			2,937				2,978
Interest expense
	Deposits				208				241
	Borrowed funds				321				419
		Total interest expense			529				660
Net interest income					2,408				2,318
Provision for loan losses					307				8
Net interest income after provision for loan losses					2,101				2,310
Noninterest income:
	Service charges and other fees				257				259
	Interchange income				155				145
	Investment brokerage commission income				778				481
	Mortgage banking activities				119				267
	Trust fee income				82				96
	Increase in value of bank owned life insurance				68				71
	Other income				30				-
		Total noninterest income			1,489				1,319
Noninterest expenses:
	Salaries and employee benefits				1,826				1,711
	Occupancy and equipment				379				374
	Interchange expenses				89				76
	Data processing				169				149
	Professional services				180				77
	Real estate owned expense				67				76
	Advertising				37				41
	FDIC premiums				57				108
	Other				418				467
		Total noninterest expenses			3,222				3,079
Income (loss) before income tax expense (benefit)					368				550
Provision for income tax					38				83
Net income (loss)				$	330			$	467
Earnings per share				$	0.16			$	0.23
Dividends declared per share				$	0.02			$	0.00
		Key Ratios:
Return on average equity					4.44	%			6.71	%
Return on average assets					0.43	%			0.59	%
Net interest margin (tax equivalent)					3.64	%			3.37	%

CONSOLIDATED STATEMENTS OF INCOME
Nine Months ended September 30, 2014 and 2013
(Amounts in thousands, except share and per share data)
				Nine Months Ended September 30,
				2014				2013
Interest income
	Loans			$	8,333			$	8,704
	Investment securities:
		Taxable			286				152
		Tax-exempt			58				46
	Dividends				132				117
		Total interest income			8,809				9,019
Interest expense
	Deposits				642				759
	Borrowed funds				954				1,245
		Total interest expense			1,596				2,004
Net interest income					7,213				7,015
Provision for loan losses					112				(234	)
Net interest income after provision for loan losses					7,101				7,249
Noninterest income:
	Service charges and other fees				725				752
	Interchange income				450				421
	Investment brokerage commission income				1,667				1,438
	Mortgage banking activities				484				809
	Trust fee income				294				292
	Increase in value of bank owned life insurance				202				210
	Other income				24				(53	)
		Total noninterest income			3,846				3,869
Noninterest expenses:
	Salaries and employee benefits				5,202				5,123
	Occupancy and equipment				1,162				1,112
	Interchange expenses				255				212
	Data processing				480				440
	Professional services				369				301
	Real estate owned expense				242				561
	Advertising				118				96
	FDIC premiums				172				323
	Other				1,164				1,260
		Total noninterest expenses			9,164				9,428
Income (loss) before income tax expense (benefit)					1,783				1,690
Provision for income tax					353				285
Net income (loss)				$	1,430			$	1,405
Earnings per share				$	0.69			$	0.69
Dividends declared per share				$	0.06			$	0.00
		Key Ratios:
Return on average equity					6.57	%			6.86	%
Return on average assets					0.61	%			0.59	%
Net interest margin (tax equivalent)					3.59	%			3.41	%