Sturgis Bancorp Reports Earnings for Second Quarter 2023

STURGIS, MI / ACCESSWIRE / July 19, 2023 / Sturgis Bancorp, Inc. (OTCQX:STBI) today announced net income of $1.7 million for the quarter ended June 30, 2023 and $3.2 million for the first half 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 second quarter of 2023 was $1,705,000, an increase of $252,000. The increase from 2022 is primarily due to $1.5 million increase in net interest income. Net income for the first half of 2023 was $3,249,000, an increase of $590,000.
• Credit quality remains strong, with 99.4% of loans performing according to loan agreements. Allowance for credit losses was 1.30% of loans on June 30, 2023, compared to Allowance for Loan and Lease Losses of 1.01% on December 31, 2022. Net charge-offs were ($235,000) in the second quarter of 2023, compared to ($162,000) in 2022.
• The Bank maintained strong capital ratios, exceeding "well-capitalized" requirements, with Tier 1 leverage capital at 8.10%.
• Sales of $14.1 million residential mortgages generated $343,000 of noninterest income in the second quarter of 2023, compared to $376,000 on $9.4 million of sales in the second quarter of 2022. Sales of $22.2 million residential mortgages generated $593,000 of noninterest income in the first half of 2023, compared to $1.0 million on $31.1 million of sales in the first half of 2022.
• Total assets increased 4.6% to $894.5 million.
• Net loans increased $24.1 million in the first half of 2023, primarily in residential mortgages.
• Total non-brokered deposits increased 5.3% to $695.1 million in the first half of 2023.

Eric L. Eishen, President and CEO, 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. We recently opened branches in Portage, Niles, and Marshall Michigan, relocated one of our South Haven branches to better facilities, and added a loan production office in Battle Creek Michigan. While higher rates and low housing inventory have reduced mortgage banking revenue, the net interest income component of earnings continues to expand. Other components of fee revenue also continue to increase. The Bank has grown other sources of fee revenue over the past decade to help mitigate the volatility of the mortgage banking revenue. 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 serve our customer base. Credit quality has 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 June 30, 2023 vs. three months ended June 30, 2022 - Net income for the three months ended June 30, 2023 was $1,705,000, or $0.80 per share, compared to net income of $1,453,000, or $0.68 per share, for the same period in 2022. The tax equivalent net interest margin increased to 3.59% in the second quarter of 2023 from 3.15% in the second quarter of 2022.

Net interest income increased to $7.2 million in the second quarter of 2023 from $5.7 million in the second quarter of 2022. The growth was primarily in loan interest income, which increased $3.4 million to $9.3 million. Total interest income increased $3.4 million to $9.9 million, while interest expense increased only $1.9 million to $2.7 million.

The Company provided ($12,000) to the allowance for credit losses in the second quarter of 2023, compared to $0 in the second quarter of 2022. Net charge-offs were ($235,000) in the second quarter of 2023, compared to ($162,000) in the second quarter of 2022.

Noninterest income was $1.8 million in the second quarter of 2023, compared to $1.8 million in the same period 2022. Mortgage banking activities decreased $33,000 to $343,000. Commission income, the largest component of noninterest income, increased $49,000 to $541,000.

Noninterest expense was $6.9 million in the second quarter of 2023, compared to $5.7 million in the second quarter of 2022. Compensation and benefits, the largest component of noninterest expenses, increased $445,000, or 12.7%. The higher compensation expense includes additional staffing for the Bank's expansion since the second quarter of 2022 in Berrien, Calhoun, and Kalamazoo Counties. The Bank realized $133,000 loss on sale of securities in the second quarter of 2023.

Six months ended June 30, 2023 vs. six months ended June 30, 2022 - Net income for the six months ended June 30, 2023 was $3,249,000, or $1.52 per share, compared to net income of $2,659,000, or $1.25 per share, for the same period in 2022. The tax equivalent net interest margin increased to 3.59% in the first half of 2023 from 3.02% in the first half of 2022.

Net interest income increased to $14.4 million in the first half of 2023 from $10.8 million in the first half of 2022. The growth was primarily in loan interest income, which increased $6.7 million to $18.0 million. Total interest income increased $6.8 million to $19.4 million, while interest expense increased only $3.3 million to $5.0 million.

The Company provided $227,000 to the allowance for credit losses in the first half of 2023, compared to $0 in the first half of 2022. Net charge-offs were ($221,000) in the first half of 2023, compared to ($246,000) in the first half of 2022.

Noninterest income was $3.5 million in the first half of 2023, compared to $3.8 million in the same period of 2022. Most of the decrease was due to mortgage banking activities, which decreased $421,000 to $593,000. Mortgage banking activities included residential loan sales of $22.2 million in the first half of 2023, compared to $31.1 million in the first half of 2022. The Bank realized $114,000 gain on sale of fixed assets in the six months ended June 30, 2023.

Noninterest expense was $14.0 million in the first half of 2023, compared to $11.4 million in the first half of 2022. Compensation and benefits, the largest component of noninterest expenses, increased $1.1 million, or 15.4%. The higher compensation expense includes additional staffing for the Bank's expansion since the first half of 2022 in Berrien, Calhoun, and Kalamazoo Counties.

Balance Sheet - Total assets increased to $894.5 million on June 30, 2023, from $864.8 million on December 31, 2022, primarily the result of the growth in loans. In the six months ended June 30, 2023, loans increased $24.0 million, to $723.4 million. Most of the growth was in residential mortgages.

Interest-bearing deposits increased to $636.7 million on June 30, 2023 from $556.5 million on December 31, 2022. Noninterest-bearing deposit accounts decreased $3.4 million to $159.6 million. The increase in deposit accounts is substantially due increased market penetration in southwest Michigan. Brokered deposits, a component of interest-bearing deposits, increased $41.6 million in the first half of 2023, while borrowed funds decreased $51.0 million.

Total equity was $54.5 million on June 30, 2023 and $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. Quarterly dividends paid in the first and second quarters of 2023 continued at $0.17 per share. Book value per share was $25.40 ($21.32 tangible) as of June 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.

Contacts:

Sturgis Bancorp -- Eric Eishen, President & CEO, or Brian P. Hoggatt, CFO -- P: 269 651-9345

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

		Jun. 30,				Dec. 31,
		2023				2022
ASSETS
Cash and due from banks		$	12,617			$	14,008
Other short-term investments			11,518				977
Total cash and cash equivalents			24,135				14,985
Securities - available for sale			53,477				63,159
Securities - held to maturity			21,375				22,070
Federal Home Loan Bank stock			8,381				8,381
Loans held for sale			6,446				664
Net loans			723,407				699,443
Premises and equipment, net			17,597				17,431
Goodwill			5,834				5,834
Mortgage servicing rights			2,908				2,967
Real estate owned			285				380
Bank-owned life insurance			16,185				15,988
Accrued interest receivable			2,763				2,691
Other assets			11,737				10,812
Total assets		$	894,530			$	864,805
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing		$	159,615			$	162,978
Interest-bearing			535,444				556,538
Total deposits			101,214				719,516
Federal Home Loan Bank advances and other borrowings			20,000				71,000
Subordinated debentures - $15,000 face amount (less
unamortized debt issuance costs of $205 at Jun. 30, 2023
and $245 at Dec. 31, 2022)			14,795				14,755
Accrued interest payable			1,510				760
Other liabilities			7,460				6,226
Total liabilities			840,038				812,257
Stockholders' equity
Common stock - $1 par value: authorized - 9,000,000 shares
issued and outstanding 2,145,691 shares at Jun. 30, 2023
and 2,141,141 at Dec. 31, 2022			2,146				2,141
Additional paid-in capital			8,477				8,387
Retained earnings			(6,090	)			48,990
Accumulated other comprehensive loss			49,959				(6,970	)
Total stockholders' equity			54,492				52,548
Total liabilities and stockholders' equity		$	894,530			$	864,805

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

		Three Months
		Ended June 30,
		2023				2022
Interest income
Loans		$	9,292			$	5,925
Investment securities:
Taxable			415				400
Tax-exempt			98				125
Dividends			110				70
Total interest income			9,915				6,520
Interest expense
Deposits			2,295				491
Borrowed funds			411				349
Total interest expense			2,706				840
Net interest income			7,209				5,680
Provision (benefit) for loan losses			(12	)			-
Net interest income after provision (benefit) for loan losses
Noninterest income:
Service charges on deposits and other fees			336				315
Interchange income			342				330
Investment brokerage commission income			541				492
Mortgage banking activities			343				376
Trust fee income			110				110
Earnings on cash value of bank-owned life insurance			99				96
Proportionate net income from unconsolidated subsidiaries			26				44
Other income			15				18
Total noninterest income			1,812				1,781
Noninterest expenses:
Compensation and benefits			3,945				3,500
Occupancy and equipment			919				709
Interchange expenses			152				144
Data processing			270				253
Professional services			95				92
Advertising			183				168
FDIC premiums			211				86
Realized loss on AFS securities			133				-
Other expenses			1,041				750
Total noninterest expenses			6,949				5,702
Income before income tax expense			2,084				1,759
Income tax expense			379				306
Net income		$	1,705			$	1,453
Earnings per share		$	0.80			$	0.68
Dividends per share		$	0.17			$	0.17

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

		Six Months
		Ended June 30,
		2023				2022
Interest income
Loans		$	18,010			$	11,373
Investment securities:
Taxable			914				767
Tax-exempt			222				251
Dividends			217				123
Total interest income			19,363				12,514
Interest expense
Deposits			4,166				881
Borrowed funds			839				873
Total interest expense			5,005				1,754
Net interest income			14,358				10,760
Provision (benefit) for loan losses			227				-
Net interest income after provision (benefit) for loan losses			14,131				10,760
Noninterest income:
Service charges on deposits and other fees			655				622
Interchange income			654				611
Investment brokerage commission income			961				1,036
Mortgage banking activities			593				1,014
Trust fee income			247				206
Earnings on cash value of bank-owned life insurance			197				190
Proportionate net income from unconsolidated subsidiaries			57				102
Other income			158				35
Total noninterest income			3,522				3,816
Noninterest expenses:
Compensation and benefits			7,980				6,915
Occupancy and equipment			1,770				1,404
Interchange expenses			301				272
Data processing			528				492
Professional services			227				181
Advertising			355				258
FDIC premiums			338				158
Realized loss on AFS securities			133				-
Other expenses			2,063				1,694
Total noninterest expenses			13,695				11,374
Income before income tax expense			3,958				3,202
Income tax expense			709				543
Net income		$	3,249			$	2,659
Earnings per share		$	1.52			$	1.25
Dividends per share		$	0.34			$	0.34

OTHER FINANCIAL INFORMATION
(Amounts in thousands)

		Three Months
		Ended June 30,
		2023				2022
Sturgis Bank & Trust Company:
Average noninterest-bearing deposits		$	159,522			$	158,335
Average interest-bearing deposits			617,939				518,454
Average total assets			873,278				788,165
Sturgis Bancorp:
Average equity			53,394				50,822
Average total assets			873,553				788,412
Financial ratios for Sturgis Bancorp:
Return on average assets			0.94	%			0.73	%
Return on average equity			15.49	%			11.47	%
Net interest margin			3.57	%			3.13	%
Tax equivalent net interest margin			3.59	%			3.15	%

		Six Months
		Ended June 30,
		2023				2022
Sturgis Bank & Trust Company:
Average noninterest-bearing deposits		$	159,687			$	157,931
Average interest-bearing deposits			617,939				462,374
Average total assets			872,990				781,777
Sturgis Bancorp:
Average equity			53,009				51,406
Average total assets			873,213				781,999
Financial ratios for Sturgis Bancorp:
Return on average assets			0.74	%			0.69	%
Return on average equity			12.36	%			10.43	%
Net interest margin			3.57	%			3.00	%
Tax equivalent net interest margin			3.60	%			3.02	%

SOURCE: Sturgis Bancorp, Inc.

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