STURGIS, MI / ACCESSWIRE / October 24, 2023 / Sturgis Bancorp, Inc. (OTCQX:STBI) today announced net income of $3.2 million for the third quarter 2023, and $6.4 million for the first nine months of 2023.
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, Marshall, Niles, 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:
- Net income for the third quarter of 2023 was $3,150,000, an increase of $1.1 million compared to the same period from last year. This increase is primarily due to an increase of $1.8 million in noninterest income. Net income for the first nine months of 2023 was $6.4 million, an increase of $1.6 million compared to the same period of the prior year.
- Credit quality remains strong, with 99.46% of loans performing according to loan agreements. Allowance for credit losses was 1.28% of loans on September 30, 2023, compared to 1.01% on December 31, 2022. Net charge-offs (recoveries) were ($8,000) in the third quarter of 2023, compared to $146,000 in the third quarter of 2022.
- The Bank maintained strong capital ratios, exceeding "well-capitalized" requirements, with Tier 1 leverage capital at 8.22%.
- Sales of $15.1 million residential mortgages generated $470,000 of noninterest income in the third quarter of 2023, compared to $139,000 on $4.6 million of sales in the third quarter of 2022. Sales of $38.3 million residential mortgages generated $1.1 million of noninterest income in the first nine months of 2023, compared to $1.2 million on $35.7 million of sales in the first nine months of 2022.
- Total assets increased 3.8% to $897.4 million during the first nine months of 2023.
- Net loans increased 5.0% to $734.6 million during the first nine months of 2023, including a $45.2 million increase in residential mortgages and a $10.6 million decrease in commercial real estate (CRE) loans.
- Total non-brokered deposits increased 8.8% to $718.1 million during the first nine months of 2023.
Sturgis Bank & Trust Company CEO, Jason J. Hyska stated, "Core business for the Bank has continued to expand in 2023. Most of our increase is attributed to the Berrien County area and the success of our Western Market team, a team consisting of well-seasoned bankers and strong community boards. This has allowed the Bank to attract customers served by our staff for many years. While net interest income has increased, the Bank expects modest margin compression as deposit rates increase. Other components of noninterest income contribute positively to net income diversification. This fee revenue includes investment advisory services, title insurance services, and a complete line of commercial, home, and auto insurance. These allow the Bank to leverage existing customer relationships and more effectively server our customer base. Credit quality has also continued strong, despite national and regional stress from higher interest rates and inflation. The overall franchise value of the Bank is expanding."
Three months ended September 30, 2023, vs. three months ended September 30, 2022 - Net income for the three months ended September 30, 2023, was $3,150,000, or $1.47 per share, compared to net income of $2,097,000, or $0.98 per share, for the same period of the prior year. The tax equivalent net interest margin increased to 3.50% in the third quarter of 2023 from 3.49% in the third quarter of 2022.
Net interest income increased to $7.3 million in the third quarter of 2023 from $6.6 million in the third quarter of 2022. The growth was primarily in loan interest income, which increased $2.9 million to $9.9 million. Total interest income increased $3.0 million to $10.6 million, while interest expense increased $2.3 million to $3.4 million.
The Bank provided ($34,000) to the allowance for credit losses in the third quarter of 2023, compared to no provision in the third quarter of 2022. Net charge-offs (recoveries) were ($8,000) in the third quarter of 2023, compared to $146,000 in the third quarter of 2022. Credit quality remains strong with 99.46% of loans performing in accordance with loan terms.
Noninterest income was $3.4 million in the third quarter of 2023, compared to $1.6 million in the same period of the prior year. Most of the increase in noninterest income was due to one-time events: $793,000 net gain on cash flow hedges; and $488,000 death benefit on bank-owned life insurance. Noninterest income from mortgage banking activities increased $331,000 to $470,000. Brokerage commissions increased $226,000 to $635,000.
Noninterest expense was $6.9 million in the third quarter of 2023, compared to $5.7 million in the third quarter of 2022. Compensation and benefits, the largest component of noninterest expenses, increased $331,000, or 8.9%. The higher compensation expense includes additional staffing for the Bank's expansion in Berrien, Calhoun, and Kalamazoo Counties.
Nine months ended September 30, 2023, vs. nine months ended September 30, 2022 - Net income for the nine months ended September 30, 2023, was $6,398,000, or $2.99 per share, compared to net income of $4,755,000, or $2.23 per share, for the same period of the prior year. The tax equivalent net interest margin increased to 3.56% in the nine months ended September 30, 2023, from 3.15% in the nine months ended September 30, 2022.
Net interest income increased to $21.6 million in the first nine months of 2023 from $17.3 million in the same period of the prior year. The growth was primarily in loan interest income, which increased $9.5 million to $27.9 million. Total interest income increased $9.9 million to $30.0 million, while interest expense increased $5.6 million to $8.4 million.
The Bank provided $193,000 to the allowance for credit losses in the first nine months of 2023, compared to no provision for the same period in the prior year. Net charge-offs (recoveries) were ($230,000) in the first nine months of 2023, compared to ($100,000) in the first nine months of 2022.
Noninterest income was $6.9 million in the first nine months of 2023, compared to $5.4 million in the same period of the prior year. Most of the increase in noninterest income was due to one-time events: $793,000 net gain on cash flow hedges; and $488,000 death benefit on bank-owned life insurance. Brokerage commissions, the largest component of noninterest income, increased $151,000 to $1.6 million.
Noninterest expense was $20.6 million in the first nine months of 2023, compared to $17.0 million in the first nine months of 2022. Compensation and benefits, the largest component of noninterest expenses, increased $1.4 million, or 13.1%. The higher compensation expense includes additional staffing for the Bank's expansion in Berrien, Calhoun, and Kalamazoo Counties.
Balance Sheet - Total assets increased to $897.4 million on September 30, 2023, from $864.8 million on December 31, 2022, primarily the result of the growth in loans. In the nine months ended September 30, 2023, loans increased $35.2 million, to $734.6 million, including an increase of $45.2 million in residential mortgages and a decrease of $10.6 million in CRE.
Interest-bearing deposits increased to $652.6 million on September 30, 2023, from $556.5 million on December 31, 2022. Noninterest-bearing deposit accounts decreased $6.0 million to $157.0 million. The increase in deposit accounts is substantially due to increased market penetration in southwest Michigan. Brokered deposits, a component of interest-bearing deposits, increased $31.8 million in the first nine months of 2023, while borrowed funds decreased $61.0 million.
Total equity was $55.5 million on September 30, 2023, compared to $52.5 million on December 31, 2022. The day-one CECL ACL reduction adjustment to equity was $1,552,000 ($1,964,000 pre-tax) and partially offset retained earnings growth from net income. Total dividends paid in the first nine months of 2023 were $1.1 million, or $0.51 per share. Book value per share was $25.84 ($21.75 tangible) as of September 30, 2023.
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.
Sturgis Bancorp, Inc. Contacts:
Eric Eishen, President & CEO, or Brian P. Hoggatt, CFO - (269) 651-9345
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
ASSETS | ||||||||
Cash and due from banks | $ | 11,768 | $ | 14,008 | ||||
Other short-term investments | 12,823 | 977 | ||||||
Total cash and cash equivalents | 24,591 | 14,985 | ||||||
Securities - available for sale | 50,078 | 63,159 | ||||||
Securities - held to maturity | 21,104 | 22,070 | ||||||
Federal Home Loan Bank stock | 6,675 | 8,381 | ||||||
Loans held for sale | 2,548 | 664 | ||||||
Net loans | 734,648 | 699,443 | ||||||
Premises and equipment, net | 17,747 | 17,431 | ||||||
Goodwill | 5,834 | 5,834 | ||||||
Mortgage servicing rights | 2,946 | 2,967 | ||||||
Real estate owned | 126 | 380 | ||||||
Bank-owned life insurance | 15,732 | 15,988 | ||||||
Accrued interest receivable | 3,046 | 2,691 | ||||||
Other assets | 12,327 | 10,812 | ||||||
Total assets | $ | 897,402 | $ | 864,805 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Liabilities | ||||||||
Deposits | ||||||||
Noninterest-bearing | $ | 156,984 | $ | 162,978 | ||||
Interest-bearing | 652,558 | 556,538 | ||||||
Total deposits | 809,542 | 719,516 | ||||||
Federal Home Loan Bank advances and other borrowings | 10,000 | 71,000 | ||||||
Subordinated debentures - $15,000 face amount (less | ||||||||
unamortized debt issuance costs of $184 at September 30, 2023 | ||||||||
and $245 at December 31, 2022) | 14,816 | 14,755 | ||||||
Accrued interest payable | 1,427 | 760 | ||||||
Other liabilities | 6,114 | 6,226 | ||||||
Total liabilities | 841,899 | 812,257 | ||||||
Stockholders' equity | ||||||||
Common stock - $1 par value: authorized - 9,000,000 shares; | ||||||||
issued and outstanding - 2,147,941 shares at September 30, 2023 | ||||||||
and 2,141,141 shares at December 31, 2022 | 2,148 | 2,141 | ||||||
Additional paid-in capital | 8,517 | 8,387 | ||||||
Retained earnings | 52,745 | 48,990 | ||||||
Accumulated other comprehensive gain (loss) | (7,907) | (6,970) | ||||||
Total stockholders' equity | 55,503 | 52,548 | ||||||
Total liabilities and stockholders' equity | $ | 897,402 | $ | 864,805 | ||||
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per share data)
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
Interest income | ||||||||
Loans | $ | 9,898 | $ | 6,995 | ||||
Investment securities: | ||||||||
Taxable | 545 | 417 | ||||||
Tax-exempt | 70 | 125 | ||||||
Dividends | 122 | 81 | ||||||
Total interest income | 10,635 | 7,618 | ||||||
Interest expense | ||||||||
Deposits | 3,062 | 698 | ||||||
Borrowed funds | 293 | 338 | ||||||
Total interest expense | 3,355 | 1,036 | ||||||
Net interest income | 7,280 | 6,582 | ||||||
Provision (benefit) for loan losses | (34) | - | ||||||
Net interest income after provision (benefit) for loan losses | 7,314 | 6,582 | ||||||
Noninterest income | ||||||||
Service charges on deposits and other fees | 356 | 314 | ||||||
Interchange income | 367 | 349 | ||||||
Investment brokerage commission income | 635 | 409 | ||||||
Mortgage banking activities | 470 | 139 | ||||||
Trust fee income | 42 | 118 | ||||||
Net gain on cash flow hedges | 793 | - | ||||||
Earnings on cash value of bank-owned life insurance | 590 | 100 | ||||||
Proportionate net income from unconsolidated subsidiaries | 100 | 141 | ||||||
Other income | 74 | 32 | ||||||
Total noninterest income | 3,427 | 1,602 | ||||||
Noninterest expenses | ||||||||
Compensation and benefits | 4,070 | 3,739 | ||||||
Occupancy and equipment | 977 | 842 | ||||||
Interchange expenses | 169 | 154 | ||||||
Data processing | 273 | (241) | ||||||
Professional services | 122 | 67 | ||||||
Advertising | 183 | 144 | ||||||
FDIC premiums | 185 | 98 | ||||||
Other expenses | 962 | 865 | ||||||
Total noninterest expenses | 6,941 | 5,668 | ||||||
Income before income tax expense | 3,800 | 2,516 | ||||||
Income tax expense | 650 | 419 | ||||||
Net income | $ | 3,150 | $ | 2,097 | ||||
Earnings per share | $ | 1.47 | $ | 0.98 | ||||
Dividends per share | $ | 0.17 | $ | 0.17 | ||||
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per share data)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
Interest income | ||||||||
Loans | $ | 27,908 | $ | 18,367 | ||||
Investment securities: | ||||||||
Taxable | 1,459 | 1,184 | ||||||
Tax-exempt | 292 | 376 | ||||||
Dividends | 339 | 205 | ||||||
Total interest income | 29,998 | 20,132 | ||||||
Interest expense | ||||||||
Deposits | 7,229 | 1,578 | ||||||
Borrowed funds | 1,131 | 1,212 | ||||||
Total interest expense | 8,360 | 2,790 | ||||||
Net interest income | 21,638 | 17,342 | ||||||
Provision (benefit) for loan losses | 193 | - | ||||||
Net interest income after provision (benefit) for loan losses | 21,445 | 17,342 | ||||||
Noninterest income | ||||||||
Service charges on deposits and other fees | 1,011 | 936 | ||||||
Interchange income | 1,021 | 960 | ||||||
Investment brokerage commission income | 1,596 | 1,445 | ||||||
Mortgage banking activities | 1,063 | 1,153 | ||||||
Trust fee income | 289 | 324 | ||||||
Net gain on cash flow hedges | 793 | - | ||||||
Earnings on cash value of bank-owned life insurance | 787 | 290 | ||||||
Proportionate net income from unconsolidated subsidiaries | 157 | 243 | ||||||
Other income | 232 | 67 | ||||||
Total noninterest income | 6,949 | 5,418 | ||||||
Noninterest expenses | ||||||||
Compensation and benefits | 12,050 | 10,654 | ||||||
Occupancy and equipment | 2,746 | 2,246 | ||||||
Interchange expenses | 470 | 426 | ||||||
Data processing | 801 | 251 | ||||||
Professional services | 348 | 248 | ||||||
Advertising | 538 | 402 | ||||||
FDIC premiums | 523 | 256 | ||||||
Realized loss on AFS securities | 133 | - | ||||||
Other expenses | 3,027 | 2,560 | ||||||
Total noninterest expenses | 20,636 | 17,043 | ||||||
Income before income tax expense | 7,758 | 5,717 | ||||||
Income tax expense | 1,360 | 962 | ||||||
Net income | $ | 6,398 | $ | 4,755 | ||||
Earnings per share | $ | 2.99 | $ | 2.23 | ||||
Dividends per share | $ | 0.51 | $ | 0.51 | ||||
OTHER FINANCIAL INFORMATION
(Amounts in thousands)
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
Sturgis Bank & Trust Company: | ||||||||
Average noninterest-bearing deposits | $ | 163,970 | $ | 163,797 | ||||
Average interest-bearing deposits | 643,050 | 556,580 | ||||||
Average total assets | 896,036 | 817,780 | ||||||
Sturgis Bancorp: | ||||||||
Average equity | 55,364 | 51,449 | ||||||
Average total assets | 896,313 | 817,995 | ||||||
Financial ratios for Sturgis Bancorp: | ||||||||
Return on average assets | 1.39% | 1.01% | ||||||
Return on average equity | 22.57% | 16.17% | ||||||
Net interest margin | 3.48% | 3.46% | ||||||
Tax equivalent net interest margin | 3.50% | 3.49% | ||||||
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
Sturgis Bank & Trust Company: | ||||||||
Average noninterest-bearing deposits | $ | 161,219 | $ | 160,821 | ||||
Average interest-bearing deposits | 626,362 | 537,622 | ||||||
Average total assets | 881,587 | 803,179 | ||||||
Sturgis Bancorp: | ||||||||
Average equity | 53,802 | 51,503 | ||||||
Average total assets | 881,829 | 803,410 | ||||||
Financial ratios for Sturgis Bancorp: | ||||||||
Return on average assets | 0.97% | 0.79% | ||||||
Return on average equity | 15.90% | 12.34% | ||||||
Net interest margin | 3.54% | 3.12% | ||||||
Tax equivalent net interest margin | 3.56% | 3.15% | ||||||