Sturgis Bancorp Reports Earnings for First Quarter 2021

Topic:

STURGIS, MI / ACCESSWIRE / April 28, 2021 / Sturgis Bancorp, Inc. (OTCQX:STBI) today announced net income of $1.4 million for the first quarter 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 quarter of 2021:

Net income decreased 9.6% for the first quarter of 2021 to $1,363,000, compared to $1,507,000 for the first quarter of 2020, primarily due to higher provision for loan losses. The provision was based on qualitative factors that recognized uncertainty related to the impact of COVID on the overall economy.
Asset quality is very strong, with 99.84% of loans current.
The Bank maintained strong capital ratios, exceeding "well-capitalized" requirements, with Tier 1 leverage capital at 8.59%.
Sales of $51.6 million residential mortgages generated $1.1 million of noninterest income in 2021, compared to $776,000 on $32.3 million of sales in 2020.
Total assets increased 10.2% to $709.0 million.
Net loans increased 6.7% to $475.1 million, including $18.3 million increase in residential mortgages.
An interest rate swap was terminated in the quarter, generating $407,000 gain.
Total deposits increased 10.6% to $561.9 million.
Allowance for loan losses was 1.39% of loans.

Eric L. Eishen, President and CEO, stated, "The Bank had a strong first quarter. Continuing uncertainty regarding the impact of COVID on the overall economy warranted higher provision for loan losses in this quarter. Few loans were delinquent and most residential and consumer loans with COVID-related accommodations in the past year have paid off or returned to normal payments. Hotel loans with COVID-related accommodations also are gradually returning to full payment status. We expect our hotel loans to continue their rebound, especially as summer travel improves vacancy rates. Earnings were positively impacted by strong Mortgage Banking activity and the gain on swap termination. Paycheck Protection Program loan originations also continued strong through the first quarter of 2021."

Three months ended March 31, 2021 vs. three months ended March 31, 2020 - Net income for the three months ended March 31, 2021 was $1,363,000, or $0.64 per share, compared to net income of $1,507,000, or $0.71 per share, for the three months ended March 31, 2020. The tax equivalent net interest margin decreased to 2.78% in the first three months of 2021 from 3.72% in the first three months of 2020.

Net interest income increased to $4.3 million in 2021 from $4.1 million in 2020. The growth was primarily due to loan interest income, which increased by $261,000 to $4.8 million. Total interest income increased $305,000 to $5.4 million in 2021, and interest expense only increased $138,000 to $1.0 million in 2021.

The Company provided $636,000 to the allowance for loan losses in the first three months of 2021, compared to $151,000 in the same quarter of 2020. Net charge-offs were $251,000 in 2021 and $64,000 in 2020.

Noninterest income was $2.7 million in the first quarter of 2021, compared to $1.9 million in the first quarter of 2020. Most of the increase was due to $407,000 gain on termination of an interest rate swap. Mortgage banking activities also increased $341,000, to $1.1 million. Investment brokerage commission income also increased to $448,000 in 2021 from $362,000 in 2020.

Noninterest expense was $4.8 million in 2021, compared to $4.1 million in 2020. Salaries and employee benefits, the largest component of noninterest expense, increased $372,000, or 14.7%. The higher compensation expense includes staff for the Bank's expansion into southwest Michigan.

Total assets increased to $709.0 million on March 31, 2021 from $643.6 million on December 31, 2020, primarily in loans. Loans increased $30.0 million from December 31, 2020, primarily in residential mortgages.

Interest-bearing deposits increased to $423.7 million on March 31, 2021 from $383.5 million on December 31, 2020. The increase in deposit accounts is partially due to typical seasonal patterns for municipalities, as municipalities deposit property tax revenues. Municipalities historically have either used or reinvested those funds elsewhere during the second quarter of the year, and Management expects that pattern to continue for 2021. Brokered deposits of $61.2 million, a component of interest-bearing deposits, remained unchanged during the quarter ended March 31, 2021.

Total equity was $48.5 million on March 31, 2021, compared to $47.8 million on December 31, 2020. The regular quarterly dividend was maintained during 2020 and into the first quarter of 2021 at a record-high $0.16 per share. Book value per share was $22.81 ($18.84 tangible) on March 31, 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.sturgisbank.com.

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


	Mar. 31,		Dec. 31,
	2021		2020
ASSETS
Cash and due from banks	$	10,632	$	12,060
Other short-term investments		65,709		55,782
Total cash and cash equivalents		76,341		67,842
Interest-earning deposits in banks		1,241		1,241
Securities - available for sale		96,230		73,072
Federal Home Loan Bank stock, at cost		5,476		4,917
Loans held for sale, at fair value		13,419		6,832
Loans, net of allowance of $6,615 and $6,231		475,054		445,091
Premises and equipment, net		11,977		11,844
Goodwill		5,834		5,834
Core deposit intangibles		69		77
Originated mortgage servicing rights		2,547		2,245
Real estate owned		210		341
Bank-owned life insurance		11,162		11,091
Accrued interest receivable		2,464		2,458
Other assets		6,939		10,721

Total assets	$	708,963	$	643,606

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing	$	138,250	$	124,434
Interest-bearing		423,672		383,464
Total deposits		561,922		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 $389 at March 31, 2021 and $400 at
December 31, 2020)		14,611		14,600
Accrued interest payable		430		477
Other liabilities		22,009		12,019
Total liabilities		660,472		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 2,125,541 shares at March 31, 2021
and 2,123,291 at December 31, 2020		2,126		2,123
Additional paid-in capital		8,090		8,050
Retained earnings		39,862		38,840
Accumulated other comprehensive loss		(1,587)		(1,901)
Total stockholders' equity		48,491		47,112

Total liabilities and stockholders' equity	$	708,963	$	643,606

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


	Three Months Ended March 31,
	2021		2020
Interest income
Loans	$	4,770	$	4,509
Investment securities:
Taxable		210		257
Tax-exempt		139		229
Dividends		232		51
Total interest income		5,351		5,046

Interest expense
Deposits		655		514
Borrowed funds		385		388
Total interest expense		1,040		902

Net interest income		4,311		4,144

Provision (benefit) for loan losses		636		151

Net interest income after provision (benefit) for loan losses		3,675		3,993

Noninterest income:
Service charges and other fees		298		324
Interchange income		250		211
Investment brokerage commission income		448		362
Mortgage banking activities		1,117		776
Trust fee income		84		98
Earnings on cash value of bank-owned life insurance		72		73
Gain (loss) on sale of real estate owned		39		(2)
Gain on termination of interest rate swap		407		-
Other income		26		22
Total noninterest income		2,741		1,864

Noninterest expenses:
Salaries and employee benefits		2,896		2,524
Occupancy and equipment		609		510
Interchange expenses		113		102
Data processing		215		202
Professional services		114		133
Real estate owned expense		3		2
Advertising		106		69
FDIC premiums		63		44
Other expenses		656		469
Total noninterest expenses		4,775		4,055

Income before income tax expense		1,641		1,802

Income tax expense		278		295

Net income	$	1,363	$	1,507

Earnings per share	$	0.64	$	0.71
Dividends per share		0.16		0.16

OTHER FINANCIAL INFORMATION

(Amounts in thousands)


	Three Months Ended March 31,
	2021			2020
Sturgis Bank & Trust Company:
Average noninterest-bearing deposits	$	135,974		$	86,772
Average interest-bearing deposits		419,886			273,152
Average total assets		687,254			500,719
Sturgis Bancorp:
Average equity		47,774			43,343
Average total assets		687,368			500,719

Financial ratios for Sturgis Bancorp:
Return on average assets		0.79	%		1.21	%
Return on average equity		11.32	%		13.99	%
Net interest margin		2.74	%		3.65	%
Tax equivalent net interest margin		2.78	%		3.72	%