Sturgis Bancorp Reports Earnings for 2020

Topic:

STURGIS, MI / ACCESSWIRE / January 28, 2021 / Sturgis Bancorp, Inc. (OTCQX:STBI) today announced net income of $6.0 million for 2020 and $1.6 million for the fourth quarter of 2020.

Sturgis Bancorp, Inc. is the holding company for the Bank, and the Bank's subsidiaries: Oakleaf Financial Services, Inc., Oak Mortgage, LLC, Oak Insurance Services, LLC, and Oak Title Services, LLC. 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, Michigan. Oakleaf Financial Services offers a complete range of investment and financial-advisory services. Oak Mortgage offers residential mortgages in all markets of the Bank. Oak Insurance Services offers various competitive commercial and consumer insurance products. Oak Title Services offers commercial and consumer title insurance.

Key Highlights:

Earnings per share increased to $2.84 in 2020 from $2.34 in 2019. Earnings per share increased to $0.74 in the three months ended December 31, 2020 from $0.58 in the three months ended December 31, 2019. Net income increased 22% in 2020 to $6,006,000 from 2019 net income of $4,927,000, primarily due to stronger mortgage banking activities in 2020.
Sales of $156.7 million residential mortgages generated $4.8 million of noninterest income in 2020, compared to $860,000 on $40.3 million of sales in 2019.
Net loans increased 26.1% in 2020 to $445.1 million, including $47.8 million of residential mortgages.
The Bank supported 563 employers with SBA's Paycheck Protection Program (PPP) loans, for a total of $35.9 million. Forgiveness and other payments reduced the balance to $22.3 million on December 31, 2020.
Total assets increased 42.7% to $643.6 million. The Bank's risk-weighted assets were $398.4 million on December 31, 2020.
Non-brokered deposits increased 32.5% to $446.7 million.
Sturgis Bancorp successfully issued $15.0 million of subordinated debt and immediately invested $10.0 million of the proceeds in the Bank to support Bank growth.
The Bank converted loan production offices in Portage and St. Joseph, Michigan into full branch offices, and will soon open an additional branch office in St. Joseph, Michigan.
Allowance for loan losses was 1.38% of loans.

Eric L. Eishen, President and CEO, stated, "I am very pleased to report the Bank remained open during the entire stay-at-home orders in the State of Michigan. Although Bank branch lobbies temporarily operated under an appointment-only system, we successfully served all our customer needs during the height of the COVID pandemic. The Bank's technology investments over the past few years well prepared the Bank for full service, using drive-thru, night deposit, Telebank, Internet, mobile banking, and remote deposit. The Bank had a strong year, led by mortgage banking activities. The Bank provided $2.9 million to the Allowance for Loan and Lease Losses (ALLL) under GAAP with an incurred loss model. This increase in ALLL addresses the growth in total loans and COVID-impacted industries, such as hotel loans. The Bank has proactively deferred loan payments for several affected borrowers, and most of those have resumed normal payments and are current. Many of these borrowers have indicated they believe they will be able to handle a short-term interruption to service. Many have also utilized the SBA's Paycheck Protection Program to assist their business, and some are eligible for second-draw PPP loans. During 2020, the Bank was able to assist 563 employers in obtaining PPP loans, introducing some new commercial clients to the Bank. The Bank has realized strong deposit growth from these new customers, as well as from other new and existing depositors. Overall credit quality has remained strong. The Bank constantly analyzes the loan portfolio and economic conditions in our market area to determine the extent of required allocations for unidentified loan losses. Appropriate adjustments are realized every quarter, as market conditions change."

Year ended December 31, 2020 vs. year ended December 31, 2019 - Net income for 2020 was $6.0 million, or $2.84 per share, compared to $4.9 million, or $2.34 per share, for 2019. The tax-equivalent net interest margin decreased to 3.22% in 2020 from 3.96% in 2019.

Net interest income increased to $17.8 million in 2020 from $16.0 million in 2019. The growth was primarily in loan interest income, which increased $1.9 million to $19.2 million. Total interest income increased $2.0 million to $21.4 million, and interest expense only increased $213,000 to $3.6 million.

The Company provided $2.9 million to the allowance for loan losses in 2020, compared to $284,000 in 2019. Net charge-offs were $118,000 in 2020 and $60,000 in 2019.

Noninterest income was $9.3 million in 2020, compared to $5.3 million in 2019. Most of the increase was due to mortgage banking activities, up $3.9 million, to $4.8 million. Mortgage banking activities included residential loan sales of $156.7 million in 2020, compared to $47.8 million in 2019. Investment brokerage commission income also increased 13.3% in 2020 to $1.5 million in 2020 from $1.3 million in 2019. The Bank also realized $157,000 gain on sale of securities in 2020.

Noninterest expense was $17.0 million in 2020, compared to $15.8 million 2019. Salaries and employee benefits, the largest component of noninterest expense, increased $1.1 million, or 11.6%. The higher compensation expense includes staff for Bank expansion into southwest Michigan.

Three months ended December 31, 2020 vs. three months ended December 31, 2019 - Net income for the three months ended December 31, 2020 was $1,560,000, or $0.74 per share, compared to net income of $1,221,000, or $0.58 per share, for the three months ended December 31, 2019. The tax equivalent net interest margin decreased to 3.47% in the fourth quarter of 2020 from 3.85% in the fourth quarter of 2019.

Net interest income increased to $4.9 million in 2020 from $4.1 million in 2019. The growth was primarily due to loan interest income, which increased by $708,000 to $5.1 million. Total interest income increased $768,000 to $5.8 million in 2020, and interest expense decreased $28,000 to $855,000 in 2020.

The Company provided $825,000 to the allowance for loan losses in the fourth quarter of 2020, compared to $68,000 in the same quarter of 2019. Net charge-offs were $18,000 in 2020 and $4,000 in 2019.

Noninterest income was $2.6 million in the third quarter of 2020, compared to $1.3 million in the third quarter of 2019. Most of the increase was due to mortgage banking activities, up $1.2 million, to $1.4 million. Mortgage banking activities included residential loan sales of $44.9 million in 2020, compared to $12.8 million in 2019.

Noninterest expense was $4.7 million in 2020, compared to $3.9 million 2019. Salaries and employee benefits, the largest component of noninterest expense, increased $493,000, or 22.6%.

Total assets increased to $643.6 million on December 31, 2020 from $473.4 million on December 31, 2019, primarily in cash and cash equivalents, securities available-for-sale, and loans. Cash and cash equivalents increased $44.6 million to $67.8 million. Securities increased $17.2 million to $73.1 million. The strong position of cash and cash equivalents and securities, supplemented by over $70 million of unused collateralized borrowing capacity, position the Bank with liquidity to fund growth and address unanticipated deposit fluctuations.

Loans also increased $92.6 million from December 31, 2019, primarily in commercial nonmortgage loans, commercial real estate loans and residential mortgages. At December 31, 2020, commercial nonmortgage loans included $22.3 million of PPP loans.

In response to the COVID-19 pandemic, the Bank provided prudent accommodations to affected borrowers in a variety of ways to facilitate their ability to work through the immediate impact of the virus. The following table summarizes the 224 loan accommodations provided in 2020, distributed by the status of the loans on December 31, 2020.

	Modified Balance		Number		Paid Off		Current		Real Estate Owned		Continuing Accommodation
Residential	$	9,944		89	$	1,329	$	7,244	$	50	$	1,321
Commercial		11,448		32		2,283		8,470		-		695
Commercial real estate		23,848		53		1,534		21,572		-		742
Hotels		41,843		21		-		11,521		-		30,322
Consumer		465		29		44		386		-		35
Total	$	87,548		224	$	5,190	$	49,193	$	50	$	33,115
Number		224				38		155		1		30

Of the $87.5 million modified loans, only $33.1 million were in active deferral or repayment plans on December 31, 2020. Those $33.1 million modified loans had December 31, 2020 balances of $32.7 million, as summarized in the following table.

	Percent of 12/31/20 Segment			Number		Full Payment Deferral			Interest Only Payments			Repayment Plan			Total
Residential		0.58	%		14	$	729		$	-		$	555		$	1,284
Commercial		0.52	%		2		204			116			-			320
Commercial real estate		0.63	%		3		761			-			-			761
Hotels		73.85	%		7		4,245			26,065			-			30,310
Consumer		0.43	%		4		31			-			-			31
Total					30	$	5,970		$	26,181		$	555		$	32,706
Percent of gross loans							1.32	%		5.81	%		0.12	%		7.25	%

The largest loan segment with continuing payment deferments is hotel loans, primarily a component of commercial real estate loans. The Bank has thoroughly analyzed this segment, evaluating it with stress testing of cashflow, loan-to-value ratios, and historical occupancy. Bank staff also interviewed all of the hotel borrowers on their mitigation plans. We remain confident this portfolio can withstand the recent decline in revenue and is positioned to recover.

Interest-bearing deposits increased to $383.5 million on December 31, 2020 from $263.2 million on December 31, 2019. Brokered deposits, a component of interest-bearing deposits, increased $45.3 million in 2020, to $61.2 million on December 31, 2020. In the same period, borrowings decreased $8.5 million to $61.5 million.

Total equity was $47.1 million on December 31, 2020, compared to $43.6 million on December 31, 2019. The regular quarterly dividend was increased in 2020 to a record-high $0.16 per share. Book value per share was $22.19 ($18.35 tangible) on December 31, 2020.

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
(Amounts in thousands, except share and per share data)


	Dec. 31,			Dec. 31,
	2020			2019
ASSETS
Cash and due from banks	$	12,060		$	13,301
Other short-term investments		55,782			9,896
Total cash and cash equivalents		67,842			23,197
Interest-earning deposits in banks		1,241			2,720
Securities - available for sale		73,072			55,850
Securities - held to maturity		-			-
Federal Home Loan Bank stock, at cost		4,917			3,612
Loans held for sale, at fair value		6,832			2,977
Loans, net of allowance of $6,231 and $3,451		445,091			352,531
Premises and equipment, net		11,844			9,367
Goodwill		5,834			5,834
Core deposit intangibles		77			113
Originated mortgage servicing rights		2,245			1,112
Real estate owned		341			193
Bank-owned life insurance		11,091			10,797
Accrued interest receivable		2,458			1,610
Other assets		10,721			3,458

Total assets	$	643,606		$	473,371

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing	$	124,434		$	89,747
Interest-bearing		383,464			263,189
Total deposits		507,898			352,936
Federal Home Loan Bank advances and other borrowings		76,100			70,000
Accrued interest payable		477			438
Other liabilities		12,019			6,425
Total liabilities		596,494			429,799

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 2,123,291 shares at Dec. 31, 2020 and 2,113,591 shares at December 31, 2019		2,123			2,114
Additional paid-in capital		8,049			7,893
Retained earnings		38,841			34,190
Accumulated other comprehensive loss		(1,901	)		(625	)
Total stockholders' equity		47,112			43,572

Total liabilities and stockholders' equity	$	643,606		$	473,371

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


	Three Months Ended Dec. 31,
	2020		2019
Interest income
Loans	$	5,136	$	4,428
Investment securities:
Taxable		222		245
Tax-exempt		139		210
Dividends		256		102
Total interest income		5,753		4,985

Interest expense
Deposits		667		517
Borrowed funds		188		366
Total interest expense		855		883

Net interest income		4,898		4,102

Provision (benefit) for loan losses		825		68

Net interest income after provision (benefit) for loan losses		4,073		4,034

Noninterest income:
Service charges and other fees		292		315
Interchange income		261		211
Investment brokerage commission income		398		352
Mortgage banking activities		1,421		189
Trust fee income		101		127
Earnings on cash value of bank-owned life insurance		74		75
Gain (loss) on sale of real estate owned		1		44
Gain on sale of securities		-		(4	)
Other income		16		24
Total noninterest income		2,564		1,333

Noninterest expenses:
Salaries and employee benefits		2,818		2,325
Occupancy and equipment		582		479
Interchange expenses		117		105
Data processing		221		197
Professional services		113		95
Real estate owned expense		5		8
Advertising		102		81
FDIC premiums		180		36
Other expenses		587		569
Total noninterest expenses		4,725		3,895

Income before income tax expense		1,912		1,472

Income tax expense		352		251

Net income	$	1,560	$	1,221

Earnings per share	$	0.74	$	0.58
Dividends per share	$	0.16	$	0.15

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


	Year Ended Dec. 31,
	2020		2019
Interest income
Loans	$	19,150	$	17,203
Investment securities:
Taxable		954		1,075
Tax-exempt		673		850
Dividends		646		280
Total interest income		21,423		19,408

Interest expense
Deposits		2,262		2,056
Borrowed funds		1,318		1,311
Total interest expense		3,580		3,367

Net interest income		17,843		16,041

Provision (benefit) for loan losses		2,897		284

Net interest income after provision (benefit) for loan losses		14,946		15,757

Noninterest income:
Service charges and other fees		1,195		1,274
Interchange income		970		862
Investment brokerage commission income		1,473		1,300
Mortgage banking activities		4,788		860
Trust fee income		371		485
Earnings on cash value of bank-owned life insurance		294		282
Gain (loss) on sale of real estate owned		-		104
Gain on sale of securities		157		-
Other income		82		116
Total noninterest income		9,330		5,283

Noninterest expenses:
Salaries and employee benefits		10,353		9,280
Occupancy and equipment		2,146		1,971
Interchange expenses		427		394
Data processing		869		776
Professional services		373		340
Real estate owned expense		15		24
Advertising		313		314
FDIC premiums		323		78
Other expenses		2,198		2,004
Total noninterest expenses		17,017		15,181

Income before income tax expense		7,259		5,859

Income tax expense		1,253		932

Net income	$	6,006	$	4,927

Earnings per share	$	2.84	$	2.34
Dividends per share	$	0.64	$	0.60

OTHER FINANCIAL INFORMATION
(Amounts in thousands)

	Three Months Ended Dec. 31,
	2020			2019

Sturgis Bank & Trust Company:
Average noninterest-bearing deposits	$	126,119		$	95,914
Average interest-bearing deposits		371,387			262,879
Average total assets		614,379			470,724
Total risk-weighted assets		398,394			336,608
Sturgis Bancorp:
Average equity		46,190			42,758
Average total assets		614,495			470,790
Total risk-weighted assets		398,485			336,542

Financial ratios for Sturgis Bancorp:
Return on average assets		1.01	%		1.03	%
Return on average equity		13.43	%		11.61	%
Net interest margin		3.43	%		3.79	%
Tax equivalent net interest margin		3.47	%		3.85	%


	Year Ended Dec. 31,
		2020			2019

Sturgis Bank & Trust Company:
Average noninterest-bearing deposits	$	123,696		$	88,173
Average interest-bearing deposits		350,321			264,615
Average total assets		608,064			452,821
Sturgis Bancorp:
Average equity		44,376			41,683
Average total assets		608,177			452,924

Financial ratios for Sturgis Bancorp:
Return on average assets		0.99	%		1.20	%
Return on average equity		13.53	%		11.84	%
Net interest margin		3.18	%		3.89	%
Tax equivalent net interest margin		3.22	%		3.96	%