Sturgis Bancorp Reports Earnings for Third Quarter 2020

STURGIS, MI / ACCESSWIRE / October 26, 2020 /Sturgis Bancorp, Inc. (OTCQX:STBI) today announced net income of $4.4 million for the first nine months of 2020 and $1.6 million for the third quarter of 2020.

Sturgis Bancorp is the holding company for Sturgis Bank & Trust Company (Bank), and its subsidiaries Oakleaf Financial Services, Inc., Oak Mortgage, LLC, Oak Insurance Services, LLC, and Oak Title Services, LLC. The Bank provides a full array of trust, commercial and consumer banking services from banking centers in Sturgis, Bangor, Bronson, Centreville, Climax, Colon, South Haven, Three Rivers and White Pigeon, MI. The Bank also has loan production offices in Portage and St. Joseph, Michigan. Oakleaf Financial Services offers a complete range of investment and financial-advisory services. Oak Mortgage offers residential mortgages in all markets of the Bank. Oak Insurance Services offers various competitive commercial and consumer insurance products. Oak Title Services offers commercial and consumer title insurance.

Key Highlights:

• Net income increased 20% for the first nine months of 2020 to $4,446,000, compared to $3,706,000 for the first nine months of 2019, primarily due to mortgage banking activities.
• Sales of $111.8 million residential mortgages generated $3.4 million of noninterest income in the first nine months of 2020, compared to $672,000 on $27.4 million of sales in the first nine months of 2019.
• Net loans increased 23.4% in the first nine months of 2020 to $435.1 million.
• The Bank supported 563 borrowers with SBA's Paycheck Protection Program (PPP) loans, for a total of $35.9 million on September 30, 2020.
• Total assets increased 27.8% to $604.7 million. The Bank's risk-weighted assets were $385.6 million on September 30, 2020.
• Total deposits increased 37.8% to $486.4 million.
• Allowance for loan losses was 1.25% of loans.

Eric L. Eishen, President and CEO, stated, "I am very pleased to report the Bank remained open during the entire stay-at-home orders in the State of Michigan. Although Bank branch lobbies were operating under an appointment-only system, we successfully served all our customer needs during the height of the COVID pandemic. The Bank's technology investments over the past few years well prepared the Bank for full service, using drive-thru, night deposit, Telebank, Internet, mobile banking, and remote deposit. The Bank had a strong first half, led by mortgage banking activities. The Bank provided $2.1 million to the Allowance for Loan and Lease Losses (ALLL) under GAAP with an incurred loss model. This increase in ALLL addresses the growth in total loans and COVID-impacted industries, such as hotel loans. The Bank has proactively deferred loan payments for several affected borrowers, and most of those have resumed normal payments and are current. Many of these borrowers have indicated they believe they will be able to handle a short-term interruption to service. Many have also utilized the SBA's Paycheck Protection Program to assist their business. The Bank was able to assist 563 borrowers in obtaining PPP loans, introducing some new commercial clients to the Bank. The Bank has already realized strong deposit growth from these new customers, as well as from existing depositors. Overall credit quality has remained strong. The Bank constantly analyzes the loan portfolio and economic conditions in our market area to determine the extent of required allocations for unidentified loan losses. Appropriate adjustments are realized every quarter, as market conditions change."

Nine months ended September 30, 2020 vs. nine months ended September 30, 2019-Net income for the nine months ended September 30, 2020 was $4.4 million, or $2.10 per share, compared to $3.7 million, or $1.76 per share, for the nine months ended September 30, 2019. The tax-equivalent net interest margin decreased to 3.41% in the first nine months of 2020 from 4.00% in the first nine months of 2019.

Net interest income increased to $12.9 million in 2020 from $11.9 million in 2019. The growth was primarily in loan interest income, which increased $1.2 million to $14.0 million. Total interest income increased $1.2 million to $15.7 million, and interest expense only increased $242,000 to $2.7 million.

The Company provided $2.1 million to the allowance for loan losses in the first nine months of 2020, compared to $215,000 in the same period of 2019. Net charge-offs were $100,000 in 2020 and $56,000 in 2019.

Noninterest income was $6.8 million in the first nine months of 2020, compared to $3.9 million in the first nine months of 2019. Most of the increase was due to mortgage banking activities, up $2.7 million, to $3.4 million. Mortgage banking activities included residential loan sales of $111.8 million in 2020, compared to $27.4 million in 2019. Investment brokerage commission income also increased 13% in 2020 to $1.1 million in 2020 from $948,000 in 2019. The Bank also realized $157,000 gain on sale of securities in 2020, compared to $4,000 in 2019.

Noninterest expense was $12.3 million in 2020, compared to $11.3 million 2019. Salaries and employee benefits, the largest component of noninterest expense, increased $580,000, or 8.3%.

Three months ended September 30, 2020 vs. three months ended September 30, 2019 - Net income for the three months ended September 30, 2020 was $1,583,000, or $0.75 per share, compared to net income of $1,367,000, or $0.65 per share, for the three months ended September 30, 2019. The tax equivalent net interest margin decreased to 3.35% in the third quarter of 2020 from 3.99% in the third quarter of 2019.

Net interest income increased to $4.6 million in 2020 from $4.1 million in 2019. The growth was primarily due to loan interest income, which increased by $509,000 to $4.9 million. Total interest income increased $534,000 to $5.5 million in 2020, and interest expense only increased $28,000 to $896,000 in 2020.

The Company provided $947,000 to the allowance for loan losses in the third quarter of 2020, compared to $102,000 in the same quarter of 2019. Net charge-offs were $37,000 in 2020 and $56,000 in 2019.

Noninterest income was $2.6 million in the third quarter of 2020, compared to $1.4 million in the third quarter of 2019. Most of the increase was due to mortgage banking activities, up $1.2 million, to $1.5 million. Mortgage banking activities included residential loan sales of $41.9 million in 2020, compared to $14.9 million in 2019.

Noninterest expense was $4.4 million in 2020, compared to $3.8 million 2019. Salaries and employee benefits, the largest component of noninterest expense, increased $398,000, or 18.2%.

Total assets increased to $604.8 million on September 30, 2020 from $473.4 million on December 31, 2019, primarily in loans. Loans increased $82.5 million from December 31, 2019, primarily in commercial nonmortgage loans, commercial real estate loans and residential mortgages. At September 30, 2020, the Bank had $35.1 million of PPP loans.

In response to the COVID-19 pandemic, the Bank deferred payments for 222 loans with total March 31, 2020 balances of $85.3 million. Of those loans, the following table shows their status as of September 30, 2020.

The primary loan segment with continuing payment deferments is hotel loans, a component of commercial real estate loans. The Bank has thoroughly analyzed this segment, evaluating it with stress testing of cashflow, loan-to-value ratios, and historical occupancy. Bank staff also interviewed all of the hotel borrowers on their mitigation plans. We remain confident this portfolio can withstand the recent decline in revenue and is positioned to recover.

Interest-bearing deposits increased to $366.4 million on September 30, 2020 from $263.2 million on December 31, 2019. Brokered deposits, a component of interest-bearing deposits, increased $49.4 million in the first nine months of 2020, to $65.3 million on September 30, 2020. In the same period, borrowings decreased $8.5 million to $61.5 million.

Total equity was $45.2 million on September 30, 2020, compared to $43.6 million on December 31, 2019. The regular quarterly dividend was increased in the first nine months of 2020 to a record-high $0.16 per share. Book value per share was $21.33 ($17.61 tangible) on September 30, 2020.

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.

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SOURCE: Sturgis Bancorp, Inc.