Sturgis Bancorp Reports Earnings for Second Quarter 2014

STURGIS, MI--(Marketwired - Jul 16, 2014) - Sturgis Bancorp, Inc. (OTCBB: STBI) today announced net income of $554,000 for the second quarter of 2014. 

Sturgis Bancorp is the holding company for Sturgis Bank & Trust Company (Bank), and its subsidiaries Oakleaf Financial Services, Inc. and Oak Mortgage, LLC. Sturgis Bancorp provides a full array of trust, commercial and consumer banking services from 11 banking centers in Sturgis, Bronson, Centreville, Climax, Colon, South Haven, Three Rivers and White Pigeon, Mich. Oakleaf Financial Services offers a complete range of investment and financial-advisory services. Oak Mortgage offers residential mortgages in all markets of the Bank.

Key Highlights as of June 30, 2014:

• Net income was $554,000 for the second quarter of 2014, compared to $436,000 for the second quarter of 2013.
• The Bank maintained strong capital ratios, exceeding "well-capitalized" requirements, with Tier 1 capital at 9.52%. Total capital at June 30, 2014 was 15.94% of risk-weighted assets.
• Total deposits increased 0.6% to $230.4 million, mostly in noninterest-bearing deposit accounts.
• Allowance for loan losses was 1.53% of loans, down from 1.74% at the end of 2013.

Three months ended June 30, 2014 vs. three months ended June 30, 2013 - Net income for the three months ended June 30, 2014 was $554,000, or $0.27 per share, compared to net income of $436,000, or $0.21 per share, for the three months ended June 30, 2013. The tax equivalent net interest margin increased to 3.62% in 2014 from 3.29% in 2013. 

Noninterest income was $1.3 million in the second quarter of 2014, compared to $1.2 million in the second quarters of 2013. Investment brokerage commission income, the largest component of noninterest income, decreased slightly to $491,000 in the second quarter of 2013, compared to $494,000 in the second quarter of 2013. Loss on sale of other real estate owned decreased net income by only $5,000 in 2014, compared to $62,000 in 2013. Mortgage banking activities decreased to $182,000 in 2014, as loan sale volume slowed. 

Noninterest expense decreased to $3.0 million in 2014, compared to $3.1 million in 2013. Salaries and employee benefits decreased $31,000, or 1.8%, to $1.7 million. Real estate owned expense of $103,000 in 2014 included $54,000 written down for the carrying value of foreclosed assets, compared to $124,000 written down in 2013. The premium for FDIC deposit insurance decreased to $65,000 in the second quarter of 2013 from $110,000 in 2013.

The Company provided $19,000 to the allowance for loan losses in the second quarter of 2014, compared to ($154,000) in the same quarter of 2013. Net charge-offs were $49,000 in the second quarter of 2014, compared to $76,000 in the second quarter of 2013.

Six months ended June 30, 2014 vs. six months ended June 30, 2013 - Net income for the six months ended June 30, 2013 was $1.1 million, or $0.53 per share, compared to $938,000, or $0.46 per share, for the six months ended June 30, 2013. The tax equivalent net interest margin increased to 3.61% in 2014 from 3.42% in 2013. 

Noninterest income was $2.3 million in the first half of 2014, compared to $2.5 million in the first half of 2013. The decrease is primarily in mortgage-banking activities, which decreased $177,000 to $365,000 in 2014. Investment brokerage commission income also decreased to $889,000 in the first half of 2014, compared to $958,000 in the first half of 2013. 

Noninterest expense decreased to $5.9 million in 2014, compared to $6.3 million in 2013. Real estate owned expense of $175,000 included $85,000 written down for the carrying value of foreclosed assets, compared to $326,000 written down in the first half of 2013. The premium for FDIC deposit insurance decreased to $115,000 in the first half of 2014, compared to $215,000 for the first half of 2013.

The Company provided ($195,000) to the allowance for loan losses in the first half of 2014, compared to ($243,000) in the first half of 2013. Net charge-offs were $170,000 in the first half of 2014, compared to $152,000 in the first half of 2013. 

Total assets increased to $307.2 million at June 30, 2014 from $305.0 million at December 31, 2013, primarily in securities held-to-maturity. Loans increased $1.9 million from December 31, 2013, primarily due to purchased loans guaranteed by the U.S. Government. 

Cash and cash equivalents decreased $9.5 million to $11.3 million.

Noninterest-bearing deposits increased by $3.1 million at June 30, 2014 from $41.7 million at December 31, 2013. Interest-bearing deposits decreased to $185.6 million at June 30, 2014 from $187.3 million at December 31, 2013. The decrease in interest-bearing deposits includes $1.6 million decrease in brokered certificates of deposit. 

Total equity was $29.7 million at June 30, 2014, compared to $28.5 million at December 31, 2013. Book value per share increased to $14.41 at June 30, 2014 from $13.89 at December 31, 2013. The Company reinstated regular quarterly dividends in 2014, paying $0.02 per common share in each quarter.

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.sturgisbank.com.

CONSOLIDATED BALANCE SHEETS
June 30, 2014 and December 31, 2013
(Amounts in thousands, except share and per share data)
					June 30, 2014				Dec. 31, 2013
ASSETS
	Cash and due from banks				$	8,240			$	14,236
	Other short-term investments					3,089				6,638
		Total cash and cash equivalents				11,329				20,874
	Interest-earning deposits in banks					16,408				14,914
	Securities - Available for sale					2,515				1,575
	Securities - Held to maturity					6,457				-
	Federal Home Loan Bank stock, at cost					4,064				4,064
	Loans held for sale					2,015				1,034
	Loans, net of allowance of $3,676 and $4,146					236,459				234,549
	Premises and equipment, net					7,073				7,113
	Goodwill					5,109				5,109
	Originated mortgage servicing rights					1,486				1,501
	Real estate owned					725				630
	Bank-owned life insurance					9,671				9,537
	Accrued interest receivable					879				828
	Other assets					3,022				3,252
		Total assets			$	307,212			$	304,980
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
	Deposits
		Noninterest-bearing			$	44,784			$	41,706
		Interest-bearing				185,621				187,314
			Total deposits			230,405				229,020
	Federal Home Loan Bank advances and other borrowings					44,403				44,585
	Accrued interest payable					239				272
	Other liabilities					2,420				2,568
		Total liabilities				277,467				276,445
Stockholders' equity
	Preferred stock - $1 par value: authorized - 1,000,000 shares issued and outstanding - 0 shares
	Common stock - $1 par value: authorized - 9,000,000 shares issued and outstanding 2,063,607 shares at June 30, 2014 and 2,055,025 at December 31, 2013					2,064				2,055
	Additional paid-in capital					7,158				7,094
	Retained earnings					20,598				19,580
	Accumulated other comprehensive income (loss)					(75	)			(194	)
		Total stockholders' equity				29,745				28,535
			Total liabilities and stockholders' equity		$	307,212			$	304,980

CONSOLIDATED STATEMENTS OF INCOME
Three Months ended June 30, 2014 and 2013
(Amounts in thousands, except share and per share data)
				Three Months ended June 30,
				2014				2013
Interest income
	Loans			$	2,796			$	2,857
	Investment securities:
		Taxable			109				53
		Tax-exempt			22				15
	Dividends				38				47
		Total interest income			2,965				2,972
Interest expense
	Deposits				211				252
	Borrowed funds				318				415
		Total interest expense			529				667
Net interest income					2,436				2,305
Provision for loan losses					19				(154	)
Net interest income after provision for loan losses					2,417				2,459
Noninterest income:
	Service charges and other fees				394				372
	Investment brokerage commission income				491				494
	Mortgage banking activities				182				213
	Trust fee income				124				111
	Increase in value of bank owned life insurance				67				70
	Other income				-				(62	)
		Total noninterest income			1,258				1,198
Noninterest expenses:
	Salaries and employee benefits				1,685				1,716
	Occupancy and equipment				462				426
	Data processing				197				177
	Professional services				81				107
	Real estate owned expense				103				182
	Advertising				31				27
	FDIC premiums				65				110
	Other				340				394
		Total noninterest expenses			2,964				3,139
Income (loss) before income tax expense (benefit)					711				518
Provision for income tax					157				82
Net income (loss)				$	554			$	436
Earnings per share				$	0.27			$	0.21
Dividends declared per share				$	0.02			$	0.00
		Key Ratios:
Return on average equity					7.63	%			6.35	%
Return on average assets					0.71	%			0.54	%
Net interest margin (tax equivalent)					3.65	%			3.29	%

CONSOLIDATED STATEMENTS OF INCOME
Six Months ended June 30, 2014 and 2013
(Amounts in thousands, except share and per share data)
				Six Months Ended June 20
				2014				2013
Interest income
	Loans			$	5,554			$	5,831
	Investment securities:
	Taxable				188				93
	Tax-exempt				36				31
	Dividends				94				87
		Total interest income			5,872				6,042
Interest expense
	Deposits				433				519
	Borrowed funds				634				826
		Total interest expense			1,067				1,345
Net interest income					4,805				4,697
Provision for loan losses					(195	)			(243	)
Net interest income after provision for loan losses					5,000				4,940
Noninterest income:
	Service charges and other fees				732				716
	Investment brokerage commission income				889				958
	Mortgage banking activities				365				542
	Trust fee income				212				196
	Increase in value of bank owned life insurance				134				140
	Other income				(6	)			(56	)
		Total noninterest income			2,326				2,496
Noninterest expenses:
	Salaries and employee benefits				3,376				3,412
	Occupancy and equipment				926				829
	Data processing				373				353
	Professional services				188				224
	Real estate owned expense				175				485
	Advertising				62				55
	FDIC premiums				115				215
	Other				696				723
		Total noninterest expenses			5,911				6,296
Income (loss) before income tax expense (benefit)					1,415				1,140
Provision for income tax					314				202
Net income (loss)				$	1,101			$	938
Earnings per share				$	0.53			$	0.46
Dividends declared per share				$	0.04			$	0.00
		Key Ratios:
Return on average equity					7.62	%			6.92	%
Return on average assets					0.70	%			0.59	%
Net interest margin (tax equivalent)					3.61	%			3.43	%