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Sturgis Bancorp Reports Earnings for Second Quarter 2021

STBI | July 21, 2021

STURGIS, MI / ACCESSWIRE / July 21, 2021 /Sturgis Bancorp, Inc. (OTCQX:STBI) today announced net income of $1.4 million for the second quarter of 2021 and $2.7 million for the first half of 2021.

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, 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 for the first half of 2021:

Credit quality is very strong, with 99.84% of loans performing according to loan agreements.
The Bank maintained strong capital ratios, exceeding "well-capitalized" requirements, with Tier 1 leverage capital at 8.62%.
Sales of $71.0 million residential mortgages generated $1.9 million of noninterest income in 2021, compared to $1.9 million on $70.0 million of sales in 2020.
Total assets increased 9.8% to $706.7 million.
Net loans increased 12.2% to $499.2 million, including $39.9 million increase in residential mortgages.
An interest rate swap was terminated, generating $407,000 gain.
Total deposits increased 12.4% to $571.0 million.
Allowance for loan losses was 1.39% of loans.

Eric L. Eishen, President and CEO, stated, "The Bank had a strong first half. Few loans were delinquent and loans with COVID-related accommodations in the past year have paid off or returned to normal payments. Earnings were positively impacted by strong Mortgage Banking activity and the gain on swap termination. Paycheck Protection Program loan originations also continued strong through the first half of 2021, serving local employers and introducing some new customers to the Bank. At the end of 2020, the Company issued $15 million of subordinated debt and immediately invested $10 million of the proceeds in the Bank. The debt was issued in anticipation of strong growth opportunities in Berrien County, Michigan. Two branch offices have recently been opened in St. Joseph, Michigan to service those opportunities, and the Portage, Michigan loan production office was converted to a full service branch. In 2021, the Company invested an additional $3 million in the Bank, supporting further successful growth in southwest Michigan."

Three months ended June 30, 2021 vs. three months ended June 30, 2020 - Net income for the three months ended June 30, 2021 was $1,380,000, or $0.65 per share, compared to net income of $1,355,000, or $0.64 per share, for the three months ended June 30, 2020. The tax equivalent net interest margin increased to 2.95% in the first three months of 2021 from 2.92% in the first three months of 2020.

Net interest income increased to $4.7 million in 2021 from $4.2 million in 2020. The growth was primarily due to loan interest income, which increased by $726,000 to $5.3 million. Total interest income increased $713,000 to $5.8 million in 2021, and interest expense only increased $120,000 to $1.0 million in 2021.

The Company provided $357,000 to the allowance for loan losses in the three months ended June 30, 2021, compared to $974,000 in the same quarter of 2020. The higher 2020 provision was due to COVID uncertainties at that time. Net charge-offs were ($43,000) in the second quarter of 2021 and ($2,000) in the second quarter of 2020.

Noninterest income was $2.0 million in the second quarter of 2021, compared to $2.3 million in the second quarter of 2020. Most of the decrease was due to mortgage banking activities. Loan sales were $19.5 million in the second quarter of 2021 and $36.9 million in the second quarter of 2020. Investment brokerage commission income increased to $483,000 in 2021 from $323,000 in 2020.

Noninterest expense was $4.8 million in 2021, compared to $3.9 million in 2020. Salaries and employee benefits, the largest component of noninterest expense, increased $529,000, or 22.8%. The higher compensation expense includes staff for the Bank's expansion into southwest Michigan.

Six months ended June 30, 2021 vs. six months ended June 30, 2020 - Net income for the six months ended June 30, 2021 was $2,743,000, or $1.29 per share, compared to net income of $2,863,000, or $1.35 per share, for the six months ended June 30, 2020. The tax equivalent net interest margin decreased to 2.86% in the first half of 2021 from 3.44% in the first half months of 2020.

Net interest income increased to $9.1 million in 2021 from $8.3 million in 2020. The growth was primarily due to loan interest income, which increased by $986,000 to $10.1 million. Total interest income increased $1.0 million to $11.2 million in 2021, and interest expense only increased $257,000 to $2.0 million in 2021.

The Company provided $993,000 to the allowance for loan losses in the six months ended June 30, 2021, compared to $1.1 million in the first half of 2020. Provisions in 2021 were primarily due to growth of the loan portfolio. The 2020 provision was primarily due to COVID uncertainties at that time. Net charge-offs were $208,000 in the first half of 2021 and $62,000 in the first half of 2020.

Noninterest income was $4.8 million in the first half of 2021, compared to $4.1 million in the first half of 2020. Most of the increase was due to $407,000 gain on termination of an interest rate swap. Investment brokerage commission income increased to $931,000 in 2021 from $685,000 in 2020.

Noninterest expense was $9.5 million in the first half of 2021, compared to $7.9 million in the first half of 2020. Salaries and employee benefits, the largest component of noninterest expense, increased $900,000, or 18.6%. The higher compensation expense includes staff for the Bank's expansion into southwest Michigan.

Total assets increased to $706.7 million on June 30, 2021 from $643.6 million on December 31, 2020, primarily in loans. Loans increased $54.1 million from December 31, 2020, primarily in residential mortgages.

Interest-bearing deposits increased to $427.2 million on June 30, 2021 from $383.5 million on December 31, 2020. The increase in deposit accounts is partially due increased market penetration in southwest Michigan. Brokered deposits, a component of interest-bearing deposits, decreased $20.0 million to $41.2 million in the first half of 2021.

Total equity was $49.8 million on June 30, 2021, compared to $47.1 million on December 31, 2020. The regular quarterly dividend was maintained during 2020 and into the first half of 2021 at a record-high $0.16 per share. Book value per share was $23.40 ($19.34 tangible) on June 30, 2021.

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.

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)


	June 30,			Dec. 31,
	2021			2020
ASSETS
Cash and due from banks	$	12,692		$	12,060
Other short-term investments		48,897			55,782
Total cash and cash equivalents		61,589			67,842
Interest-earning deposits in banks		1,241			1,241
Securities - available for sale		92,549			73,072
Federal Home Loan Bank stock, at cost		6,026			4,917
Loans held for sale, at fair value		5,058			6,832
Loans, net of allowance of $7,016 and $6,231		499,182			445,091
Premises and equipment, net		12,265			11,844
Goodwill		5,834			5,834
Core deposit intangibles		62			77
Originated mortgage servicing rights		2,735			2,245
Real estate owned		210			341
Bank-owned life insurance		11,234			11,091
Accrued interest receivable		2,163			2,458
Other assets		6,586			10,721
Total assets	$	706,734		$	643,606

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing	$	143,783		$	124,434
Interest-bearing		427,215			383,464
Total deposits		570,998			507,898
Federal Home Loan Bank advances and other borrowings		61,500			61,500
Subordinated debentures - $15,000 face amount (less unamortized
debt issuance costs of $369 at June 30, 2021 and $400 at
December 31, 2020)		14,631			14,600
Accrued interest payable		429			477
Other liabilities		9,391			12,019
Total liabilities		656,949			596,494

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 2,127,791 shares at June 30, 2021
and 2,123,291 at December 31, 2020		2,128			2,123
Additional paid-in capital		8,130			8,050
Retained earnings		40,903			38,840
Accumulated other comprehensive loss		(1,376	)		(1,901	)
Total stockholders' equity		49,785			47,112

Total liabilities and stockholders' equity	$	706,734		$	643,606

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


	Three Months
	Ended June 30,
	2021		2020
Interest income
Loans	$	5,304	$	4,578
Investment securities:
Taxable		289		232
Tax-exempt		134		165
Dividends		84		123
Total interest income		5,811		5,098

Interest expense
Deposits		654		484
Borrowed funds		392		442
Total interest expense		1,046		926

Net interest income		4,765		4,172

Provision (benefit) for loan losses		357		974

Net interest income after provision (benefit) for loan losses		4,408		3,198

Noninterest income:
Service charges and other fees		295		270
Interchange income		305		219
Investment brokerage commission income		483		323
Mortgage banking activities		737		1,122
Trust fee income		101		103
Earnings on cash value of bank-owned life insurance		72		73
Gain (loss) on sale of real estate owned		2		-
Gain on sale of securities		-		157
Gain on termination of interest rate swap		-		-
Other income		14		15
Total noninterest income		2,009		2,282

Noninterest expenses:
Salaries and employee benefits		2,851		2,322
Occupancy and equipment		596		499
Interchange expenses		126		97
Data processing		226		220
Professional services		71		52
Real estate owned expense		3		1
Advertising		124		58
FDIC premiums		77		41
Other expenses		675		566
Total noninterest expenses		4,749		3,856

Income before income tax expense		1,668		1,624

Income tax expense		288		269

Net income	$	1,380	$	1,355

Earnings per share	$	0.65	$	0.64
Dividends per share	$	0.16	$	0.16

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


	Six Months
	Ended June 30,
	2021		2020
Interest income
Loans	$	10,073	$	9,087
Investment securities:
Taxable		500		489
Tax-exempt		274		394
Dividends		315		174
Total interest income		11,162		10,144

Interest expense
Deposits		1,309		999
Borrowed funds		777		830
Total interest expense		2,086		1,829

Net interest income		9,076		8,315

Provision (benefit) for loan losses		993		1,125

Net interest income after provision (benefit) for loan losses		8,083		7,190

Noninterest income:
Service charges and other fees		593		595
Interchange income		556		430
Investment brokerage commission income		931		685
Mortgage banking activities		1,854		1,898
Trust fee income		185		201
Earnings on cash value of bank-owned life insurance		143		146
Gain (loss) on sale of real estate owned		41		(2	)
Gain on sale of securities		-		157
Gain on termination of interest rate swap		407		-
Other income		40		36
Total noninterest income		4,750		4,146

Noninterest expenses:
Salaries and employee benefits		5,747		4,847
Occupancy and equipment		1,204		1,009
Interchange expenses		239		198
Data processing		440		422
Professional services		185		185
Real estate owned expense		6		3
Advertising		230		127
FDIC premiums		141		86
Other expenses		1,331		1,033
Total noninterest expenses		9,523		7,910

Income before income tax expense		3,310		3,426

Income tax expense		567		563

Net income	$	2,743	$	2,863

Earnings per share	$	1.29	$	1.35
Dividends per share	$	0.32	$	0.32

OTHER FINANCIAL INFORMATION
(Amounts in thousands)

	Three Months
	Ended June 30,
	2021			2020
Sturgis Bank & Trust Company:
Average noninterest-bearing deposits	$	141,526		$	109,060
Average interest-bearing deposits		427,529			298,697
Average total assets		705,217			579,891
Sturgis Bancorp:
Average equity		49,089			43,013
Average total assets		705,376			580,008

Financial ratios for Sturgis Bancorp:
Return on average assets		0.78	%		0.94	%
Return on average equity		11.15	%		12.67	%
Net interest margin		2.91	%		2.87	%
Tax equivalent net interest margin		2.95	%		2.92	%

	Six Months
	Ended June 30,
	2021			2020
Sturgis Bank & Trust Company:
Average noninterest-bearing deposits	$	136,487		$	97,916
Average interest-bearing deposits		423,729			285,925
Average total assets		696,284			540,293
Sturgis Bancorp:
Average equity		48,423			43,250
Average total assets		696,421			540,364

Financial ratios for Sturgis Bancorp:
Return on average assets		0.79	%		1.07	%
Return on average equity		11.36	%		13.31	%
Net interest margin		2.83	%		3.39	%
Tax equivalent net interest margin		2.86	%		3.44	%