Sturgis Bancorp Reports Earnings for First Quarter 2023

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STURGIS, MI / ACCESSWIRE / April 26, 2023 / Sturgis Bancorp, Inc. (OTCQX:STBI) today announced net income of $1.5 million for the first quarter 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:

Earnings per share increased to $0.72 in 2023 from $0.57 in 2022. Net income increased to $1,544,000, or 28.1%, in first quarter of 2023 from $1,205,000 in the first quarter of 2022. Most of the increase is due to $2.1 million increase in net interest income.
Credit quality remains strong, with 99.8% of loans performing according to loan agreements. Allowance for credit losses was 1.31% of loans on March 31, 2023, compared to Allowance for Loan and Lease Losses of 1.01% on December 31, 2022. Net charge-offs were $14,000 in the first quarter of 2023, compared to ($84,000) in 2022.
The Bank maintained strong capital ratios, exceeding “well-capitalized” requirements, with Tier 1 leverage capital at 7.95%.
Sales of $8.1 million residential mortgages generated $251,000 of noninterest income in the first quarter of 2023, compared to $638,000 on $21.7 million of sales in the first quarter of 2022. The slowdown in loan sales was due to higher market interest rates in 2023.
Total assets increased 1.1% to $873.9 million.
Net loans increased $5.5 million in the first quarter of 2023, primarily in residential mortgages.
Total non-brokered deposits increased 6.4% to $702.1 million in the first quarter 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 March 31, 2023 vs. three months ended March 31, 2022 – Net income for the three months ended March 31, 2023 was $1,544,000, or $0.72 per share, compared to net income of $1,205,000, or $0.57 per share, for the same period in 2022. The tax equivalent net interest margin increased to 3.60% in the first quarter of 2023 from 2.89% in the first three months of 2022.

Net interest income increased to $7.1 million in the first quarter of 2023 from $5.1 million in the first quarter of 2022. The growth was primarily in loan interest income, which increased $3.3 million to $8.7 million. Total interest income increased $3.5 million to $9.4 million, while interest expense increased only $1.4 million to $2.3 million.

The Company provided $239,000 to the allowance for credit losses in the first quarter of 2023, compared to $0 in the first quarter of 2022. Net charge-offs were $14,000 in the first three months of 2023, compared to ($84,000) in the first three months of 2022.

Noninterest income was $1.7 million in the first quarter of 2023, compared to $2.0 million in the same period 2022. Most of the decrease was due to mortgage banking activities, which decreased $387,000 to $251,000. Mortgage banking activities included residential loan sales of $8.1 million in the first quarter of 2023, compared to $21.7 million in the first quarter 2022. The Bank realized $114,000 gain on sale of fixed assets in the quarter ended March 31, 2023.

Noninterest expense was $6.7 million in the first quarter of 2023, compared to $5.7 million in the first quarter of 2022. Compensation and benefits, the largest component of noninterest expenses, increased $619,000, or 18.1%. The higher compensation expense includes additional staffing for the Bank’s expansion since the first quarter of 2022 in Berrien, Calhoun, and Kalamazoo Counties.

Balance Sheet – Total assets increased to $873.9 million on March 31, 2023, from $864.8 million on December 31, 2022, primarily the result of the growth in loans. Loans increased $5.5 million to $705.0 million on December 31, 2022, including increases of $15.8 million in residential mortgages and $6.4 million reduction in commercial real estate loans.

Interest-bearing deposits increased to $630.9 million on March 31, 2023 from $556.5 million on December 31, 2022. Noninterest-bearing deposit accounts decreased $4.2 million to $158.8 million. The increase in deposit accounts is substantially due increased market penetration in southwest Michigan. Brokered deposits, a component of interest-bearing deposits, increased $28.0 million in the first quarter of 2023, while borrowed funds decreased $61.0 million.

Total equity was $52.5 million on March 31, 2023 and December 31, 2022. The day-one CECL ACL reduction adjustment to equity was $1,552,000 ($1,964,000 pre-tax) and offset retained earnings growth from net income. Total dividends paid in the first quarter of 2023 continued at $0.17 per share. Book value per share was $24.48 ($20.40 tangible) as of March 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.

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

	Mar. 31,			Dec. 31,
	2023			2022
ASSETS
Cash and due from banks	$	11,963		$	14,008
Other short-term investments		7,290			977
Total cash and cash equivalents		19,253			14,985
Securities – available for sale		63,435			63,159
Securities – held to maturity		21,640			22,070
Federal Home Loan Bank stock		8,381			8,381
Loans held for sale		1,023			664
Net loans		704,978			699,443
Premises and equipment, net		17,294			17,431
Goodwill		5,834			5,834
Mortgage servicing rights		2,914			2,967
Real estate owned		285			380
Bank-owned life insurance		16,086			15,988
Accrued interest receivable		2,674			2,691
Other assets		10,141			10,812
Total assets	$	873,938		$	864,805

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits
Noninterest-bearing	$	158,761		$	162,978
Interest-bearing		630,904			556,538
Total deposits		789,665			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 $225 at Mar. 31, 2023 and $245 at Dec. 31, 2022)		14,775			14,755
Accrued interest payable		1,146			760
Other liabilities		5,882			6,226
Total liabilities		821,468			812,257

Stockholders’ equity
Common stock – $1 par value: authorized – 9,000,000 shares issued and outstanding 2,143,441 shares at Mar. 31, 2023 and 2,141,141 at Dec. 31, 2022		2,143			2,141
Additional paid-in capital		8,433			8,387
Retained earnings		48,620			48,990
Accumulated other comprehensive loss		(6,726	)		(6,970	)
Total stockholders’ equity		52,470			52,548

Total liabilities and stockholders’ equity	$	873,938		$	864,805

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

	Three Months
	Ended March 31,
	2023		2022
Interest income
Loans	$	8,717	$	5,447
Investment securities:
Taxable		499		367
Tax-exempt		125		126
Dividends		107		54
Total interest income		9,448		5,994
Interest expense
Deposits		1,871		390
Borrowed funds		428		524
Total interest expense		2,299		914
Net interest income		7,149		5,080
Provision (benefit) for loan losses		239		–
Net interest income after provision (benefit) for loan losses		6,910		5,080
Noninterest income:
Service charges on deposits and other fees		318		307
Interchange income		312		282
Investment brokerage commission income		420		544
Mortgage banking activities		251		638
Trust fee income		137		96
Earnings on cash value of bank-owned life insurance		98		94
Proportionate net income from unconsolidated subsidiaries		31		58
Other income		143		16
Total noninterest income		1,710		2,035
Noninterest expenses:
Compensation and benefits		4,034		3,415
Occupancy and equipment		851		695
Interchange expenses		150		128
Data processing		259		239
Professional services		132		89
Advertising		172		90
FDIC premiums		127		72
Other expenses		1,021		944
Total noninterest expenses		6,746		5,672
Income before income tax expense		1,874		1,443
Income tax expense		330		238
Net income	$	1,544	$	1,205
Earnings per share	$	0.72	$	0.57
Dividends per share	$	0.17	$	0.17

OTHER FINANCIAL INFORMATION
(Amounts in thousands)

	Three Months
	Ended March 31,
	2023			2022
Sturgis Bank & Trust Company:
Average noninterest-bearing deposits	$	160,664		$	157,562
Average interest-bearing deposits		617,482			459,134
Average total assets		875,205			775,887
Sturgis Bancorp:
Average equity		52,488			51,942
Average total assets		875,376			775,215

Financial ratios for Sturgis Bancorp:
Return on average assets		0.71	%		0.63	%
Return on average equity		11.93	%		9.41	%
Net interest margin		3.58	%		2.86	%
Tax equivalent net interest margin		3.60	%		2.89	%