Sturgis Bancorp Reports Earnings for Third Quarter 2021
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Sturgis Bancorp Reports Earnings for Third Quarter 2021

Wednesday, October 20, 2021 9:45 AM
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Sturgis Bancorp, Inc.

STURGIS, MI / ACCESSWIRE / October 20, 2021 / Sturgis Bancorp, Inc. (OTCQX:STBI) today announced net income of $1.8 million for the third quarter of 2021 and $4.6 million for the first nine months of 2021.

Sturgis Bancorp is the holding company for Sturgis Bank & Trust Company (Bank), and its subsidiaries Oakleaf Financial Services, Oak Mortgage, Ayres/Oak Insurance, and Oak Title Services. The Bank provides a full array of trust, commercial and consumer banking services from banking centers in Sturgis, Bangor, Bronson, Centreville, Climax, Colon, Portage, South Haven, St. Joseph, Three Rivers and White Pigeon, MI. Oakleaf Financial Services offers a complete range of investment and financial-advisory services. Oak Mortgage offers residential mortgages in all markets of the Bank. Ayres/Oak Insurance offers various competitive commercial and consumer insurance products. Oak Title Services offers commercial and consumer title insurance.

Key Highlights for the first nine months of 2021:

  • Credit quality is very strong, with 99.85% of loans performing according to loan agreements.
  • The Bank maintained strong capital ratios, exceeding "well-capitalized" requirements, with Tier 1 leverage capital at 8.78%.
  • Sales of $89.1 million residential mortgages generated $2.1 million of noninterest income in 2021, compared to $3.4 million on $111.8 million of sales in 2020.
  • Total assets increased 11.7% to $719.0 million.
  • Net loans increased 14.3% to $508.6 million, including $53.0 million increase in residential mortgages.
  • An interest rate swap was terminated, generating $407,000 gain.
  • Total non-brokered deposits increased 22.0% to $545.1 million.
  • Allowance for loan losses was 1.38% of loans.

Eric L. Eishen, President and CEO, stated, "The Bank had a strong first nine month. Few loans were delinquent and loans with COVID-related accommodations in the past year have paid off or returned to normal payments. Earnings were positively impacted by strong Mortgage Banking activity and the gain on swap termination. Paycheck Protection Program ("PPP") loan originations also continued strong through the Spring of 2021, serving local employers and introducing some new customers to the Bank. At the end of 2020, the Company issued $15 million of subordinated debt and immediately invested $10 million of the proceeds in the Bank. The debt was issued in anticipation of strong growth opportunities in Berrien County, Michigan. Two branch offices have recently been opened in St. Joseph, Michigan to service those opportunities, and the Portage, Michigan loan production office was converted to a full service branch. In 2021, the Company invested an additional $3 million in the Bank, supporting further successful growth in southwest Michigan."

Three months ended September 30, 2021 vs. three months ended September 30, 2020 - Net income for the three months ended September 30, 2021 was $1,826,000, or $0.86 per share, compared to net income of $1,583,000, or $0.75 per share, for the three months ended September 30, 2020. The tax equivalent net interest margin increased to 3.59% in the first three months of 2021 from 3.35% in the first three months of 2020.

Net interest income increased to $6.0 million in 2021 from $4.6 million in 2020. The growth was primarily due to loan interest income, which increased by $1.4 million to $6.3 million. Total interest income increased $1.5 million to $7.0 million in 2021, and interest expense only increased $135,000 to $1.0 million in 2021.

The Company provided $81,000 to the allowance for loan losses in the three months ended September 30, 2021, compared to $947,000 in the same quarter of 2020. The higher 2020 provision was due to COVID uncertainties at that time. Net charge-offs were $1,000 in the third quarter of 2021 and $37,000 in the third quarter of 2020.

Noninterest income was $1.6 million in the third quarter of 2021, compared to $2.6 million in the third quarter of 2020. Most of the decrease was due to mortgage banking activities. Amortization and impairment of mortgage servicing rights reduced mortgage banking activities $570,000 in 2021 and $187,000 in 2020, primarily due to accelerated prepayments. Loan sales were $18.1 million in the third quarter of 2021 and $41.9 million in the third quarter of 2020. Investment brokerage commission income increased to $498,000 in 2021 from $391,000 in 2020.

Noninterest expense was $5.3 million in 2021, compared to $4.4 million in 2020. Salaries and employee benefits, the largest component of noninterest expense, increased $578,000, or 21.5%. The higher compensation expense includes staff for the Bank's expansion into southwest Michigan.

Nine months ended September 30, 2021 vs. nine months ended September 30, 2020 - Net income for the nine months ended September 30, 2021 was $4,568,000, or $2.15 per share, compared to net income of $4,446,000, or $2.10 per share, for the nine months ended September 30, 2020. The tax equivalent net interest margin decreased to 3.11% in the first nine months of 2021 from 3.41% in the first nine months of 2020.

Net interest income increased to $15.1 million in 2021 from $12.9 million in 2020. The growth was primarily due to loan interest income, which increased by $2.1 million to $16.4 million. Total interest income increased $2.5 million to $18.2 million in 2021, and interest expense only increased $391,000 to $3.1 million in 2021.

The Company provided $1.1 million to the allowance for loan losses in the nine months ended September 30, 2021, compared to $2.1 million in the first nine months of 2020. Provisions in 2021 were primarily due to growth of the loan portfolio. The 2020 provision was primarily due to COVID uncertainties at that time. Net charge-offs were $209,000 in the first nine months of 2021 and $100,000 in the first nine months of 2020.

Noninterest income was $6.3 million in the first nine months of 2021, compared to $6.8 million in the first nine months of 2020. Most of the decrease was in mortgage banking activities, which decreased $1.3 million to $2.1 million. Amortization and impairment of mortgage servicing rights reduced mortgage banking activities $915,000 in 2021 and $435,000 in 2020, primarily due to accelerated prepayments. Loan sales were $89.1 million in the first nine months of 2021 and $111.8 million in the first nine months of 2020. The Company realized $407,000 gain on termination of an interest rate swap in the first nine months of 2021. Investment brokerage commission income increased to $1.4 million in 2021 from $1.1 million in 2020.

Noninterest expense was $14.8 million in the first nine months of 2021, compared to $12.3 million in the first nine months of 2020. Salaries and employee benefits, the largest component of noninterest expense, increased $1.5 million, or 19.6%. The higher compensation expense includes staff for the Bank's expansion into southwest Michigan.

Total assets increased to $719.0 million on September 30, 2021 from $643.6 million on December 31, 2020, primarily in loans. Loans increased $63.5 million from December 31, 2020, primarily in residential mortgages.

Interest-bearing deposits increased to $433.7 million on September 30, 2021 from $383.5 million on December 31, 2020. The increase in deposit accounts is partially due increased market penetration in southwest Michigan. Brokered deposits, a component of interest-bearing deposits, decreased $23.7 million to $37.5 million in the first nine months of 2021.

Total equity was $50.8 million on September 30, 2021, compared to $47.1 million on December 31, 2020. The regular quarterly dividend was maintained during 2020 and into the first half of 2021 at a record-high $0.16 per share. Book value per share was $23.86 ($19.98 tangible) on September 30, 2021.

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.sturgis.bank.

Contacts:

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

CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)

Sept. 30, Dec. 31,
2021 2020
ASSETS
Cash and due from banks
$10,228 $12,060
Other short-term investments
29,267 55,782
Total cash and cash equivalents
39,495 67,842
Interest-earning deposits in banks
494 1,241
Securities - available for sale
88,099 73,072
Securities - held to maturity
24,954 -
Federal Home Loan Bank stock, at cost
6,151 4,917
Loans held for sale, at fair value
10,243 6,832
Loans, net of allowance of $7,097 and $6,231
508,576 445,091
Premises and equipment, net
12,310 11,844
Goodwill
5,834 5,834
Core deposit intangibles
55 77
Originated mortgage servicing rights
2,373 2,245
Real estate owned
- 341
Bank-owned life insurance
11,307 11,091
Accrued interest receivable
2,042 2,458
Other assets
7,093 10,721
Total assets
$719,026 $643,606
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing
$148,883 $124,434
Interest-bearing
433,740 383,464
Total deposits
582,623 507,898
Federal Home Loan Bank advances and other borrowings
61,500 61,500
Subordinated debentures - $15,000 face amount (less unamortized debt issuance costs of $348 at Sept. 30, 2021 and $400 at December 31, 2020)
14,652 14,600
Accrued interest payable
400 477
Other liabilities
9,031 12,019
Total liabilities
668,206 596,494

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 2,130,041 shares at Sept. 30, 2021 and 2,123,291 at December 31, 2020
2,130 2,123
Additional paid-in capital
8,170 8,050
Retained earnings
(1,869) 38,840
Accumulated other comprehensive loss
42,389 (1,901)
Total stockholders' equity
50,820 47,112

Total liabilities and stockholders' equity
$719,026 $643,606

CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per share data)

Three Months
Ended Sept. 30,
2021 2020
Interest income
Loans
$6,312 $4,927
Investment securities:
Taxable
383 243
Tax-exempt
129 140
Dividends
187 216
Total interest income
7,011 5,526
Interest expense
Deposits
637 597
Borrowed funds
394 299
Total interest expense
1,031 896
Net interest income
5,980 4,630
Provision (benefit) for loan losses
81 947
Net interest income after provision (benefit) for loan losses
5,899 3,683
Noninterest income:
Service charges and other fees
298 308
Interchange income
317 278
Investment brokerage commission income
498 391
Mortgage banking activities
235 1,469
Trust fee income
96 69
Earnings on cash value of bank-owned life insurance
73 74
Gain (loss) on sale of real estate owned
17 1
Other income
24 30
Total noninterest income
1,558 2,620
Noninterest expenses:
Salaries and employee benefits
3,266 2,688
Occupancy and equipment
669 555
Interchange expenses
126 111
Data processing
228 226
Professional services
50 76
Real estate owned expense
1 7
Advertising
218 84
FDIC premiums
53 59
Other expenses
660 576
Total noninterest expenses
5,271 4,382
Income before income tax expense
2,186 1,921
Income tax expense
360 338
Net income
$1,826 $1,583
Earnings per share
$0.86 $0.75
Dividends per share
$0.16 $0.16

CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per share data)

Nine Months
Ended Sept. 30,
2021 2020
Interest income
Loans
$16,386 $14,015
Investment securities:
Taxable
882 732
Tax-exempt
402 534
Dividends
503 390
Total interest income
18,173 15,671
Interest expense
Deposits
1,946 1,597
Borrowed funds
1,171 1,129
Total interest expense
3,117 2,726
Net interest income
15,056 12,945
Provision (benefit) for loan losses
1,074 2,072
Net interest income after provision (benefit) for loan losses
13,982 10,873
Noninterest income:
Service charges and other fees
892 903
Interchange income
872 709
Investment brokerage commission income
1,429 1,075
Mortgage banking activities
2,089 3,367
Trust fee income
281 270
Earnings on cash value of bank-owned life insurance
216 220
Gain (loss) on sale of real estate owned
58 (1)
Gain on sale of securities
- 157
Gain on termination of interest rate swap
407 -
Other income
64 66
Total noninterest income
6,308 6,766
Noninterest expenses:
Salaries and employee benefits
9,013 7,535
Occupancy and equipment
1,873 1,564
Interchange expenses
365 310
Data processing
668 647
Professional services
236 261
Real estate owned expense
7 10
Advertising
448 211
FDIC premiums
193 145
Other expenses
1,991 1,609
Total noninterest expenses
14,794 12,292
Income before income tax expense
5,496 5,347
Income tax expense
928 901
Net income
$4,568 $4,446
Earnings per share
$2.15 $2.10
Dividends per share
$0.48 $0.48

OTHER FINANCIAL INFORMATION
(Amounts in thousands)

Three Months
Ended Sept. 30,
2021 2020
Sturgis Bank & Trust Company:
Average noninterest-bearing deposits
$149,670 $121,273
Average interest-bearing deposits
428,433 329,256
Average total assets
716,912 601,750
Sturgis Bancorp:
Average equity
50,445 44,576
Average total assets
717,074 601,859
Financial ratios for Sturgis Bancorp:
Return on average assets
1.01% 1.05%
Return on average equity
14.36% 14.13%
Net interest margin
3.56% 3.31%
Tax equivalent net interest margin
3.59% 3.35%

Nine Months
Ended Sept. 30,
2021 2020
Sturgis Bank & Trust Company:
Average noninterest-bearing deposits
$140,930 $105,759
Average interest-bearing deposits
425,314 300,474
Average total assets
703,235 560,909
Sturgis Bancorp:
Average equity
49,095 43,736
Average total assets
703,381 561,013
Financial ratios for Sturgis Bancorp:
Return on average assets
0.87% 1.06%
Return on average equity
12.40% 13.58%
Net interest margin
3.08% 3.36%
Tax equivalent net interest margin
3.11% 3.41%

SOURCE: Sturgis Bancorp, Inc.

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