SOURCE: Sturgis Bancorp Inc.

December 14, 2011 09:30 ET

Sturgis Bancorp Suspends Cash Dividends

STURGIS, MI--(Marketwire - Dec 14, 2011) - Sturgis Bancorp, Inc. (OTCBB: STBI) suspended quarterly cash dividends, as announced to stockholders with the following letter from Eric Eishen, President & CEO:

November 25, 2011

Dear Fellow Shareholders,

This letter is to inform you of a decision made by our Board of Directors related to cash dividends. In my third quarter earnings release I indicated that bank investors seem more interested in stronger capital levels. I also indicated our Bank was going to reduce non-core business assets to increase capital. We continue to execute this plan and have reduced assets to approximately $320.0 million. This was accomplished without impacting our core business. We have sold a portion of the investment portfolio and reduced other cash holdings that were earning a very low return. The Board of Directors does not intend to reduce assets any further at this time. A bank must lend to maintain earnings and any further reduction in assets would negatively impact the lending function of the Bank and therefore our core business. Our capital level has increased significantly but is not yet at our intended goal of 8.00% for Tier One Capital. This level of capital is significantly above the 5.00% level to be considered "Well Capitalized" by regulatory definition.

Over the past several years the Board has publicly stated that we will manage the capital position of the Bank to maintain a level of at least "Well Capitalized" or 5.00%. We have successfully managed the Bank to be above this level. During the last six years we have also managed capital through share repurchases and cash dividends. When the Bank has exceeded earnings expectations we have paid special cash dividends and repurchased outstanding shares. Since 2005 we have repurchased approximately 500,000 shares of outstanding stock. This increased book value per share and allowed asset growth without any new capital formation. Our equity to assets level was reduced from 8.65% in 2005 to 7.16% as of September 30, 2011. We have reduced cash dividends in the last few years given the economic challenges the entire country has faced. These reductions have not been done without great deliberation at the Board. We recognize that Shareholders may have diverse reasons for holding bank stock. Some Shareholders are interested in the cash dividend while others are interested in long-term appreciation. Still other investors are short-term investors and are looking for gains in price over a shorter holding period. We must balance the needs of investors but at the same time keep the long-term health of the organization a top priority. There are also regulatory changes impacting this decision-making.

Over the last few years I had the unique opportunity to serve in a leadership role with the Michigan Bankers Association. This is the leading bank trade organization in the State of Michigan. This Association represents a majority of banks in the State and is also very active at a National level representing the views of the Michigan banking industry. This role gave me the opportunity to meet several times with leadership at the FDIC, Federal Reserve and with Congressional Leaders. There is a philosophical disconnect between these groups. Congress would like banks to aggressively lend to small business and consumers in an effort to help in economic recovery. Congress and the President have also urged banks to work with consumers and business entities that are having difficulty in these uncertain economic times. Our Bank views working with our community and customers as the appropriate method of running the Bank. At the same time we recognize loans that have little hope of recovery and take the appropriate action on these loans. The FDIC believes that Congress and Financial Accounting Standards Board (FASB) set the rules for credit and capital management. They are aggressively applying these rules to the banking industry. The FDIC has also made it clear that the term "Well Capitalized" should be considered a minimum level of capitalization for the banking industry. There is a definite push for the industry to carry higher levels of capital going forward. There has also been significant discussion related to holding company capital levels. Even though institutions with less than $10.0 billion in assets were to be largely exempted from certain provisions of the Dodd/Frank Act, this does not seem to be the view of the Federal Regulatory bodies. Management and the Board expect Regulators to subject small banks to similar provisions outlined in the Dodd/Frank Act that apply to large bank holding companies.

I share all this with you so you may understand the perspective of Management and the Board of Directors in making a very difficult decision at our last board meeting. We have decided to suspend our cash dividend. Our holding company currently has a loan of $4.0 million dollars. This loan was used to repurchase shares and to capitalize the bank. Given the information provided above the Board has decided the repayment of this debt should be a top priority. To do this we must direct earnings to debt reduction versus cash dividends. We realize this may have a negative impact on some Shareholders who had invested in our stock interested in a cash return on their investment. The alternatives to this action would be too damaging to long-term value of the institution in our opinion. The alternative to repayment of this debt from earnings would be to raise capital by issuing additional shares. In the current environment this would be damaging to our existing shareholder value since new stock would be issued below book value. This would also reduce future dividends per share since they would be divided by a larger shareholder base.

I remain committed to serving your interests and I am available for comment. You may call me at (269)651-9345 to share your thoughts and comments.

Sincerely,

Eric L. Eishen
President/CEO

This letter contains statements that constitute forward-looking statements. These statements appear in several places in this letter 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.

Contact Information

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