STURGIS, MI / ACCESSWIRE / February 27, 2024 / Sturgis Bancorp, Inc. (OTCQX:STBI) today announced financial results for the fourth quarter and year ended 2023.
Sturgis Bancorp (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 services.
Key Highlights:
- Net loss for the fourth quarter 2023 was $(350,000).
- Net income for 2023 was $6.0 million, compared to $6.6 million for 2022.
- Credit quality remains strong with 98.60% of loans performing according to loan agreements. Allowance for credit losses was 1.36% of loans on December 31, 2023, compared to 1.01% on December 31, 2022. Net charge-offs (recoveries) were $(167,000) in 2023, compared to $(110,000) in 2022.
- The Bank maintained strong capital ratios, exceeding "well-capitalized" requirements, with Tier 1 leverage capital at 8.05%.
- Sales of residential mortgages generated $420,000 of noninterest income in the fourth quarter of 2023, compared to noninterest income of $236,000 in the fourth quarter of 2022. Sales of residential mortgages generated $1.5 million of noninterest income in 2023, compared to noninterest income of $1.4 million in 2022.
- Total assets increased 6.3% to $919.5 million during 2023.
- Net loans increased 5.7% to $739.5 million during 2023, including a $44.9 million increase in residential mortgages.
- Total deposits increased 11.0% to $798.9 million during 2023.
Bancorp CEO, Jason J. Hyska stated, "The fourth quarter of 2023 showed a loss for Bancorp. Bancorp had one large commercial relationship that elevated nonaccrual loans and required a large allowance for credit loss. However, overall credit quality remains good, and Bancorp expects a full restoration of the relationship in 2024. Bancorp also realized some one-time compensation expenses in the fourth quarter of 2023 associated with the retirement of the former President and CEO. Overall, the franchise value of the Bank continues to expand, primarily in our Western Michigan markets of Berrien and Van Buren Counties, driven by a team of well-seasoned bankers and strong community advisory boards. The Bank also welcomed Jon Werme, a new Market President for our Kalamazoo market. The Bank continues to maintain strong capital ratios exceeding "well-capitalized" requirements. The Bank expects modest net interest margin compression as deposit rates increase. Mortgage banking activities and other components of noninterest income contribute positively to net income diversification. Fee income 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 serve our customer base."
Three months ended December 31, 2023, vs. three months ended December 31, 2022 - Net loss for the three months ended December 31, 2023, was $(350,000), or $(0.16) per share, compared to net income of $1,865,000, or $0.87 per share, for the same period of the prior year. The tax equivalent net interest margin decreased to 3.28% in the fourth quarter of 2023 from 3.60% in the fourth quarter of 2022.
Net interest income decreased to $6.9 million in the fourth quarter of 2023 from $7.1 million in the fourth quarter of 2022. The decline was primarily due to interest expense, which increased $2.2 million to $3.9 million. Total interest and dividend income increased $2.0 million to $10.8 million.
The Bank provided $993,000 to the allowance for credit losses in the fourth quarter of 2023, compared to no provision in the fourth quarter of 2022. Net charge-offs (recoveries) were $63,000 in the fourth quarter of 2023, compared to $(10,000) in the fourth quarter of 2022. Credit quality remains strong with 98.60% of loans performing in accordance with loan terms.
Noninterest income was $2.0 million in the fourth quarter of 2023, compared to $1.6 million in the same period of the prior year. Brokerage commissions, the largest component of noninterest income, increased $171,000. Noninterest income from mortgage banking activities increased $184,000 to $420,000.
Noninterest expense was $8.4 million in the fourth quarter of 2023, compared to $6.4 million in the fourth quarter of 2022. Compensation and benefits, the largest component of noninterest expenses, increased $1.6 million, with most of this increase due to one-time expenses associated with the retirement of the former President and CEO.
Year ended December 31, 2023, vs. year ended December 31, 2022 - Net income for 2023 was $6.0 million, or $2.81 per share, compared to net income of $6.6 million, or $3.10 per share, for 2022. The tax equivalent net interest margin increased to 3.48% in 2023, from 3.30% in 2022.
Net interest income increased to $28.5 million in 2023 from $24.4 million in 2022. The growth was primarily in loan interest income, which increased $11.4 million to $38.0 million. Total interest and dividend income increased $11.9 million to $40.8 million, while interest expense increased $7.8 million to $12.3 million.
The Bank provided $1.3 million to the allowance for credit losses in 2023, compared to no provision for 2022. Net charge-offs (recoveries) were $(167,000) in 2023, compared to $(110,000) in 2022.
Noninterest income was $8.9 million in 2023, compared to $7.0 million in 2022. Most of the increase in noninterest income was due to one-time events: $793,000 gain on termination of interest rate swap; and $488,000 death benefit on bank-owned life insurance. Brokerage commissions, the largest component of noninterest income, increased $322,000 to $2.2 million.
Noninterest expense was $29.0 million in 2023, compared to $23.5 million in 2022. Compensation and benefits, the largest component of noninterest expenses, increased $3.0 million, with a large portion of this increase due to one-time expenses associated with the retirement of the former President and CEO in the fourth quarter.
Balance Sheet - Total assets increased to $919.5 million on December 31, 2023, from $864.8 million on December 31, 2022, primarily in loans. In the year ended December 31, 2023, loans increased $40.0 million, to $739.5 million, including an increase of $44.9 million in residential mortgages.
Interest-bearing deposits increased to $639.0 million on December 31, 2023, from $556.5 million on December 31, 2022. Noninterest-bearing deposit accounts decreased $3.1 million to $159.9 million. Brokered deposits, a component of interest-bearing deposits, increased $24.6 million in 2023, while borrowed funds decreased $31.0 million.
Total equity was $55.8 million on December 31, 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. Dividends paid in 2023 were $0.68 ($0.17 each quarter) per share. Book value per share was $25.94 ($21.84 tangible) as of December 31, 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:
Jason J. Hyska, CEO, or Brian P. Hoggatt, CFO - (269) 651-9345
CONSOLIDATED BALANCE SHEETS
(Unaudited - Amounts in thousands, except share and per share data)
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
ASSETS | ||||||||
Cash and due from banks | $ | 10,243 | $ | 14,008 | ||||
Other short-term investments | 29,766 | 977 | ||||||
Total cash and cash equivalents | 40,009 | 14,985 | ||||||
Securities - available for sale | 52,658 | 63,159 | ||||||
Securities - held to maturity | 20,866 | 22,070 | ||||||
Federal Home Loan Bank stock | 7,295 | 8,381 | ||||||
Loans held for sale | 2,259 | 664 | ||||||
Loans, net of allowance for credit losses of $10,198 and $7,141 | ||||||||
at December 31, 2023 and 2022, respectively | 739,461 | 699,443 | ||||||
Premises and equipment, net | 19,136 | 17,431 | ||||||
Goodwill | 5,834 | 5,834 | ||||||
Mortgage servicing rights | 2,979 | 2,967 | ||||||
Real estate owned | 130 | 380 | ||||||
Bank-owned life insurance | 15,832 | 15,988 | ||||||
Accrued interest receivable | 3,099 | 2,691 | ||||||
Other assets | 9,914 | 10,812 | ||||||
Total assets | $ | 919,472 | $ | 864,805 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Liabilities | ||||||||
Deposits | ||||||||
Noninterest-bearing | $ | 159,899 | $ | 162,978 | ||||
Interest-bearing | 639,039 | 556,538 | ||||||
Total deposits | 798,938 | 719,516 | ||||||
Federal Home Loan Bank advances and other borrowings | 40,000 | 71,000 | ||||||
Subordinated debentures - $15,000 face amount (less unamortized | ||||||||
debt issuance costs of $164 and $245 at December 31, 2023 | ||||||||
and 2022) | 14,836 | 14,755 | ||||||
Accrued interest payable | 1,654 | 760 | ||||||
Other liabilities | 8,276 | 6,226 | ||||||
Total liabilities | 863,704 | 812,257 | ||||||
Stockholders' equity | ||||||||
Common stock - $1 par value: authorized - 9,000,000 shares; | ||||||||
issued and outstanding - 2,150,191 shares at December 31, 2023 | ||||||||
and 2,141,191 shares at December 31, 2022 | 2,150 | 2,141 | ||||||
Additional paid-in capital | 8,556 | 8,387 | ||||||
Retained earnings | 52,029 | 48,990 | ||||||
Accumulated other comprehensive (loss) | (6,967 | ) | (6,970 | ) | ||||
Total stockholders' equity | 55,768 | 52,548 | ||||||
Total liabilities and stockholders' equity | $ | 919,472 | $ | 864,805 | ||||
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - Amounts in thousands, except share and per share data)
| Three Months Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
Interest and dividend income | ||||||||
Loans (including fees) | $ | 10,056 | $ | 8,180 | ||||
Investment securities: | ||||||||
Taxable | 506 | 398 | ||||||
Tax-exempt | 69 | 124 | ||||||
Dividends | 139 | 76 | ||||||
Total interest and dividend income | 10,770 | 8,778 | ||||||
Interest expense | ||||||||
Deposits | 3,496 | 1,073 | ||||||
Borrowed funds | 410 | 623 | ||||||
Total interest expense | 3,906 | 1,696 | ||||||
Net interest income | 6,864 | 7,082 | ||||||
Credit loss expense | 993 | - | ||||||
Net interest income, after credit loss expense | 5,871 | 7,082 | ||||||
Noninterest income | ||||||||
Service charges on deposits and other fees | 345 | 317 | ||||||
Interchange income | 328 | 326 | ||||||
Investment brokerage commission income | 606 | 435 | ||||||
Mortgage banking activities | 420 | 236 | ||||||
Trust fee income | 76 | 87 | ||||||
Earnings on cash value of bank-owned life insurance | 100 | 100 | ||||||
Gain on sale of real estate owned, net | 2 | 1 | ||||||
Proportionate net income from unconsolidated subsidiaries | 67 | 109 | ||||||
Other income | 14 | 20 | ||||||
Total noninterest income | 1,958 | 1,631 | ||||||
Noninterest expenses | ||||||||
Compensation and benefits | 5,412 | 3,796 | ||||||
Occupancy and equipment | 992 | 893 | ||||||
Interchange expenses | 179 | 152 | ||||||
Data processing | 187 | 239 | ||||||
Professional services | 177 | 100 | ||||||
Advertising | 185 | 123 | ||||||
FDIC premiums | 152 | 108 | ||||||
Other expenses | 1,082 | 1,025 | ||||||
Total noninterest expenses | 8,366 | 6,436 | ||||||
(Loss) income before income tax (benefit) expense | (537 | ) | 2,277 | |||||
Income tax (benefit) expense | (187 | ) | 412 | |||||
Net (loss) income | $ | (350 | ) | $ | 1,865 | |||
(Loss) earnings per share | $ | (0.16 | ) | $ | 0.87 | |||
Dividends per share | $ | 0.17 | $ | 0.17 | ||||
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - Amounts in thousands, except share and per share data)
| Year Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
Interest and dividend income | ||||||||
Loans (including fees) | $ | 37,964 | $ | 26,548 | ||||
Investment securities: | ||||||||
Taxable | 1,965 | 1,582 | ||||||
Tax-exempt | 361 | 500 | ||||||
Dividends | 479 | 281 | ||||||
Total interest and dividend income | 40,769 | 28,911 | ||||||
Interest expense | ||||||||
Deposits | 10,725 | 2,652 | ||||||
Borrowed funds | 1,542 | 1,835 | ||||||
Total interest expense | 12,267 | 4,487 | ||||||
Net interest income | 28,502 | 24,424 | ||||||
Credit loss expense | 1,269 | - | ||||||
Net interest income, after credit loss expense | 27,233 | 24,424 | ||||||
Noninterest income | ||||||||
Service charges on deposits and other fees | 1,356 | 1,253 | ||||||
Interchange income | 1,349 | 1,286 | ||||||
Investment brokerage commission income | 2,203 | 1,881 | ||||||
Mortgage banking activities | 1,484 | 1,389 | ||||||
Trust fee income | 365 | 411 | ||||||
Earnings on cash value of bank-owned life insurance | 887 | 390 | ||||||
Gain on sale of real estate owned, net | 56 | 6 | ||||||
Gain on termination of interest rate swap | 793 | - | ||||||
Proportionate net income from unconsolidated subsidiaries | 224 | 352 | ||||||
Other income | 190 | 81 | ||||||
Total noninterest income | 8,907 | 7,049 | ||||||
Noninterest expenses | ||||||||
Compensation and benefits | 17,459 | 14,450 | ||||||
Occupancy and equipment | 3,739 | 3,139 | ||||||
Interchange expenses | 650 | 578 | ||||||
Data processing | 988 | 490 | ||||||
Professional services | 525 | 348 | ||||||
Advertising | 723 | 525 | ||||||
FDIC premiums | 675 | 364 | ||||||
Other expenses | 4,224 | 3,585 | ||||||
Total noninterest expenses | 28,983 | 23,479 | ||||||
Income before income tax expense | 7,157 | 7,994 | ||||||
Income tax expense | 1,139 | 1,374 | ||||||
Net income | $ | 6,018 | $ | 6,620 | ||||
Earnings per share | $ | 2.81 | $ | 3.10 | ||||
Dividends per share | $ | 0.68 | $ | 0.68 | ||||
OTHER FINANCIAL INFORMATION
(Unaudited - Amounts in thousands)
| Three Months Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
Sturgis Bank & Trust Company: | ||||||||
Average noninterest-bearing deposits | $ | 159,269 | $ | 166,116 | ||||
Average interest-bearing deposits | 641,553 | 563,325 | ||||||
Average total assets | 899,290 | 859,217 | ||||||
Sturgis Bancorp: | ||||||||
Average equity | 55,826 | 51,684 | ||||||
Average total assets | 899,650 | 864,750 | ||||||
Financial ratios for Sturgis Bancorp: | ||||||||
Return on average assets | (0.15 | )% | 0.86 | % | ||||
Return on average equity | (2.49 | )% | 14.32 | % | ||||
Net interest margin | 3.27 | % | 3.58 | % | ||||
Tax equivalent net interest margin | 3.28 | % | 3.60 | % | ||||
| Year Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
Sturgis Bank & Trust Company: | ||||||||
Average noninterest-bearing deposits | $ | 160,925 | $ | 161,307 | ||||
Average interest-bearing deposits | 634,350 | 524,747 | ||||||
Average total assets | 889,830 | 807,546 | ||||||
Sturgis Bancorp: | ||||||||
Average equity | 54,170 | 51,617 | ||||||
Average total assets | 890,134 | 807,758 | ||||||
Financial ratios for Sturgis Bancorp: | ||||||||
Return on average assets | 0.67 | % | 0.82 | % | ||||
Return on average equity | 11.11 | % | 12.83 | % | ||||
Net interest margin | 3.45 | % | 3.27 | % | ||||
Tax equivalent net interest margin | 3.48 | % | 3.30 | % | ||||
SOURCE: Sturgis Bancorp, Inc.