Sturgis Bancorp, Inc. Reports Financial Results for 2023

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Sturgis Bancorp, Inc. (STBI) announced financial results for Q4 and year-end 2023, revealing a net loss in Q4 but a net income for the year. Credit quality remains strong, with 98.60% of loans performing. The Bank maintained strong capital ratios and saw increases in total assets, net loans, and total deposits. CEO Jason J. Hyska highlighted challenges faced, including a loss due to a large commercial relationship, one-time compensation expenses, and expectations for 2024. Noninterest income from mortgage banking activities and fee income contributed positively to net income diversification.

Positive

• Strong credit quality with 98.60% of loans performing according to agreements.
• Net loss of $(350,000) in Q4 2023, but net income of $6.0 million for 2023.
• Total assets increased by 6.3% to $919.5 million in 2023.
• Net loans increased by 5.7% to $739.5 million, including a $44.9 million increase in residential mortgages.
• Total deposits increased by 11.0% to $798.9 million in 2023.
• CEO highlighted challenges faced in Q4, including a loss due to a large commercial relationship and one-time compensation expenses.
• Noninterest income from mortgage banking activities and fee income contributed positively to net income diversification.

Negative

• Net loss of $(350,000) in Q4 2023.
• Decrease in net interest income in Q4 2023 compared to Q4 2022.
• Increase in interest expense in Q4 2023.
• Increase in noninterest expense in Q4 2023.
• One-time expenses associated with the retirement of the former President and CEO in Q4 2023.
• Modest net interest margin compression expected as deposit rates increase.

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.

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FAQ

What was the net loss for Sturgis Bancorp in the fourth quarter of 2023?

The net loss for the fourth quarter of 2023 was $(350,000).

How much did net income decrease in 2023 compared to 2022?

Net income for 2023 was $6.0 million, compared to $6.6 million for 2022.

What was the percentage of loans performing according to agreements in 2023?

Credit quality remains strong with 98.60% of loans performing.

What was the increase in total assets in 2023?

Total assets increased by 6.3% to $919.5 million in 2023.

Who is the CEO of Sturgis Bancorp?

Jason J. Hyska is the CEO of Sturgis Bancorp.

What contributed positively to net income diversification?

Noninterest income from mortgage banking activities and fee income contributed positively to net income diversification.

What challenges did Sturgis Bancorp face in Q4 2023?

Sturgis Bancorp faced challenges such as a loss due to a large commercial relationship and one-time compensation expenses in Q4 2023.