Sturgis Bancorp Reports Earnings for Third Quarter 2016

STURGIS, MI--(Marketwired - Oct 14, 2016) - Sturgis Bancorp, Inc. (OTCQX: STBI) today announced net income of $670,000 for the third 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 third quarter of 2016:

• Net income for the third quarter of 2016 was $670,000, compared to $534,000 for the third quarter of 2015.
• Net income for the first nine months of 2016 increased to $2.0 million from $1.6 million in the first nine months of 2015. The $331,000 increase was realized despite $700,000 of one-time tax exempt income during 2015 from bank-owned life insurance.
• The Bank maintained strong capital ratios, exceeding "well-capitalized" requirements, with Tier 1 leverage capital at 8.31%. Total capital at September 30, 2016 was 14.11% of risk-weighted assets. The Bank's risk-weighted assets were $249.3 million at September 30, 2016.
• Total assets increased 12.5% from December 31, 2015 to $407.6 million, including $9.1 million growth in loans.
• Total deposits increased 11.4% to $316.6 million, mostly in municipal deposits.
• Allowance for loan losses was 1.25% of gross loans, unchanged from December 31, 2015.
  
  

Three months ended September 30, 2016 vs. three months ended September 30, 2015 - Net income for the three months ended September 30, 2016 was $670,000, or $0.32 per share, compared to net income of $534,000, or $0.26 per share, for the three months ended September 30, 2015. The tax equivalent net interest margin increased to 3.83% in the three months ended September 30, 2016 from 3.66% in 2015. 

Net interest income increased by $402,000 in the three months ended September 30, 2016, primarily due to growth in securities and loans. 

Noninterest income was $1.4 million in the third quarters of 2016 and 2015. Commission income decreased to $267,000, as Oakleaf Financial Services transitions to Raymond James from LPL. 

Noninterest expense was $3.6 million in the third quarter of 2016, compared to $3.5 million in 2015. The Bank expensed $169,000 consultant fees to negotiate for lower data processing expenses over a new six-year contract. 

The Company provided $102,000 to the allowance for loan losses in the third quarter of 2016, compared to ($31,000) in the same quarter of 2015. Net charge-offs were $118,000 in 2016, compared to $15,000 in 2015. 

Nine months ended September 30, 2016 vs. nine months ended September 30, 2015 - Net income for the nine months ended September 30, 2016 was $2.0 million, or $0.95 per share, compared to net income of $1.6 million, or $0.79 per share, for the nine months ended September 30, 2015. The tax equivalent net interest margin increased to 3.79% in the first nine months of 2016 from 3.58% in the first nine months of 2015. 

Net interest income increased by $1.3 million in the first nine months of 2016, primarily due to net earning assets acquired from West Michigan Savings Bank and additional growth in securities and loans. 

Noninterest income was $3.9 million in the first nine months of 2016, compared to $4.7 million in the first half of 2015. The Bank received $700,000 of death benefit in excess of recorded cash value from bank-owned life insurance in the first nine months of 2015. 

Noninterest expense was $10.4 million in the first nine months of 2016, compared to $10.7 million in 2015. Most of the decrease was due to the 2015 acquisition of West Michigan Savings Bank, with most acquisition expenses recorded in the second quarter of 2015. 

The Company provided $284,000 to the allowance for loan losses in the first nine months of 2016, compared to ($4,000) in the nine months of 2015. Net charge-offs were $222,000 in 2016, compared to $138,000 in 2015. 

Total assets increased to $407.6 million at September 30, 2016 from $368.6 million at December 31, 2015, primarily in cash equivalents, securities and loans. Cash equivalents increased $16.1 million from December 31, 2015, due to temporary municipal deposit fluctuations. Securities increased $14.6 million from December 31, 2015, primarily held-to-maturity municipal securities. Loans increased $9.1 million from December 31, 2015. Most of the increase in loans was in Commercial loans. 

Noninterest-bearing deposits increased to $68.7 million at September 30, 2016 from $65.0 million at December 31, 2015. Average noninterest-bearing deposits were $69.9 million for the three months ended September 30, 2016 and $66.0 million for the first nine months of 2016. Interest-bearing deposits also increased to $247.9 million at September 30, 2016 from $219.0 million at December 31, 2015. Average interest-bearing deposits were $232.8 million for the three months ended September 30, 2016 and $230.2 million for the first nine months of 2016. Much of the growth in interest-bearing deposits is temporary municipal deposits, which fluctuate seasonally.

Total equity was $33.8 million at September 30, 2016, compared to $32.6 million at December 31, 2015. Book value per share increased to $16.21 ($12.68 tangible) at September 30, 2016 from $15.70 ($12.08 tangible) at December 31, 2015. Average equity was $33.6 million for the three months ended September 30, 2016 and $33.1 million for the first nine months of 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
June 30, 2016 and December 31, 2015
(Amounts in thousands, except share and per share data)
					Sept. 30, 2016				Dec. 31, 2015
ASSETS
	Cash and due from banks				$	19,714			$	10,786
	Other short-term investments					12,237				5,084
		Total cash and cash equivalents				31,951				15,870
	Interest-earning deposits in banks					16,312				16,805
	Securities - Available for sale					29,986				27,635
	Securities - Held to maturity					31,510				19,245
	Federal Home Loan Bank stock, at cost					2,632				2,632
	Loans held for sale					1,271				1,575
	Loans, net of allowance of $3,275 and $3,213					262,961				253,830
	Premises and equipment, net					8,329				8,114
	Goodwill					5,834				5,834
	Core deposit intangibles					273				320
	Originated mortgage servicing rights					1,249				1,349
	Real estate owned					627				827
	Bank-owned life insurance					9,932				9,735
	Accrued interest receivable					1,461				1,183
	Other assets					3,241				3,605
		Total assets			$	407,569			$	368,559
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
	Deposits
		Noninterest-bearing			$	68,721			$	65,041
		Interest-bearing				247,880				218,998
			Total deposits			316,601				284,039
	Federal Home Loan Bank advances and other borrowings					50,488				47,812
	Accrued interest payable					244				243
	Other liabilities					6,455				3,853
		Total liabilities				373,788				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 2,083,741 shares at Sept. 30, 2016 and 2,077,791 at December 31, 2015					2,084				2,078
	Additional paid-in capital					7,339				7,277
	Retained earnings					24,788				23,445
	Accumulated other comprehensive income (loss)					(430	)			(188	)
		Total stockholders' equity				33,781				32,612
			Total liabilities and stockholders' equity		$	407,569			$	368,559

CONSOLIDATED STATEMENTS OF INCOME
Three Months ended September 30, 2016 and 2015
(Amounts in thousands, except share and per share data)
				Three Months ended Sept. 30,
				2016				2015
Interest income
	Loans			$	3,220			$	3,024
	Investment securities:
		Taxable			168				137
		Tax-exempt			234				77
	Dividends				28				33
		Total interest income			3,650				3,271
Interest expense
	Deposits				171				169
	Borrowed funds				290				315
		Total interest expense			461				484
Net interest income					3,189				2,787
Provision for loan losses					102				(31	)
Net interest income after provision for loan losses					3,087				2,818
Noninterest income:
	Service charges and other fees				259				257
	Interchange income				190				174
	Investment brokerage commission income				267				611
	Mortgage banking activities				201				190
	Trust fee income				143				75
	Increase in value of bank owned life insurance				66				72
	Gain (loss) on sale of real estate owned				197				(1	)
	Other income				28				14
		Total noninterest income			1,351				1,392
Noninterest expenses:
	Salaries and employee benefits				2,016				1,932
	Occupancy and equipment				409				360
	Interchange expenses				105				100
	Data processing				209				204
	Professional services				93				100
	Real estate owned expense				42				242
	Advertising				66				33
	Other				655				539
		Total noninterest expenses			3,595				3,510
Income before income tax expense (benefit)					843				700
Income tax expense					173				166
Net income				$	670			$	534
Earnings per share				$	0.32			$	0.26
Dividends declared per share				$	0.12			$	0.03
		Key Ratios:
Return on average equity					8.04	%			6.70	%
Return on average assets					0.68	%			0.59	%
Net interest margin (tax equivalent)					3.83	%			3.66	%

CONSOLIDATED STATEMENTS OF INCOME
Nine Months ended September 30, 2016 and 2015
(Amounts in thousands, except share and per share data)
				Nine Months ended Sept. 30,
				2016				2015
Interest income
	Loans			$	9,306			$	8,613
	Investment securities:
		Taxable			471				366
		Tax-exempt			658				154
	Dividends				84				107
		Total interest income			10,519				9,240
Interest expense
	Deposits				509				502
	Borrowed funds				834				942
		Total interest expense			1,343				1,444
Net interest income					9,176				7,796
Provision for loan losses					284				(4	)
Net interest income after provision for loan losses					8,892				7,800
Noninterest income:
	Service charges and other fees				759				730
	Interchange income				544				494
	Investment brokerage commission income				1,222				1,570
	Mortgage banking activities				533				525
	Trust fee income				351				322
	Increase in value of bank owned life insurance				196				906
	Gain (loss) on sale of real estate owned				196				92
	Other income				143				39
		Total noninterest income			3,944				4,678
Noninterest expenses:
	Salaries and employee benefits				5,828				5,743
	Occupancy and equipment				1,302				1,179
	Interchange expenses				317				283
	Data processing				604				657
	Professional services				198				387
	Real estate owned expense				209				451
	Advertising				182				114
	Other				1,731				1,836
		Total noninterest expenses			10,371				10,650
Income before income tax expense (benefit)					2,465				1,828
Income tax expense					498				192
Net income				$	1,967			$	1,636
Earnings per share				$	0.95			$	0.79
Dividends declared per share				$	0.30			$	0.09
		Key Ratios:
Return on average equity					7.98	%			7.06	%
Return on average assets					0.69	%			0.64	%
Net interest margin (tax equivalent)					3.79	%			3.58	%