Sturgis Bancorp Reports Earnings for Third Quarter 2022

STURGIS, Mich., October 31, 2022 -- Sturgis Bancorp, Inc. (OTCQX: STBI) today announced net income of $2.1 million for the third quarter of 2022 and $4.8 million for the first nine months of 2022.

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, 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 third quarter of 2022 was $2,097,000, an increase of $271,000. The increase from 2021 was primarily net interest income, which increased $742,000.
• Credit quality is very strong, with 99.79% of loans performing according to loan agreements. Allowance for loan losses was 1.05% of loans on September 30, 2022, compared to 1.28% on December 31, 2021. Net charge-offs were ($100,000) in the first nine months of 2022, compared to $209,000 in the first nine months of 2021. 
• The Bank maintained strong capital ratios, exceeding “well-capitalized” requirements, with Tier 1 leverage capital at 8.25%.  
• Sales of $35.7 million residential mortgages generated $1.2 million of noninterest income in the first nine months of 2022, compared to $2.1 million on $89.1 million of sales the first nine months of 2021.
• Total assets increased 22.7% during the first nine months of 2022, to $842.2 million.
• Net loans increased 47.6% to $669.3 million in the first nine months of 2022, including $69.1 million increase in residential mortgages and $35.3 million in commercial real estate loans.
• Total non-brokered deposits increased 19.4% to $685.8 million on September 30, 2022, compared to $574.2 million on December 31, 2021.

Eric L. Eishen, President and CEO, stated, “Core business for the Bank has expanded significantly in the first nine months of this year.  Both loan and deposit growth have been at historic levels. This is primarily the result of our expansion into 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 were glad to open full-service branches in Portage and Niles Michigan, relocate one of our South Haven branches to better facilities, and add loan production offices in Marshall and 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 is at an all-time high and the overall franchise value of the Bank is expanding.”

Three months ended September 30, 2022 vs. three months ended September 30, 2021 – Net income for the three months ended September 30, 2022 was $2,097,000, or $0.98 per share, compared to net income of $1,826,000, or $0.86 per share, for the three months ended September 30, 2021. The tax equivalent net interest margin decreased to 3.49% in the quarter ended September 30, 2022, from 3.59% in the quarter ended September 30, 2021.

Net interest income increased to $6.6 million in the third quarter of 2022 from $5.8 million in the third quarter of 2021. The growth was primarily in loan interest income, which increased $684,000 to $7.0 million. Total interest income increased $748,000 to $7.6 million, while interest expense increased $6,000 to $1.0 million.

The Company made no provision to the allowance for loan losses in the third quarter of 2022, compared to $81,000 in the third quarter of 2021. Credit quality remains strong, with 99.79% of loans performing in accordance with loan terms.

Noninterest income was $1.6 million in the third quarter of 2022, compared to $1.7 million in the third quarter of 2021. Brokerage commissions, the largest component of noninterest income, decreased to $409,000. Most of the decrease in noninterest income was due to mortgage banking activities, which decreased $96,000, to $139,000. Mortgage banking activities included residential loan sales of $4.6 million in the third quarter of 2022, compared to $18.1 million in the third quarter of 2021. Although residential loan sales decreased, residential loans originated for portfolio increased to $39.6 million in the third quarter of 2022, compared to $35.8 million in the third quarter of 2021.

Noninterest expense was $5.7 million in the third quarter of 2022, compared to $5.3 million in the third quarter of 2021. Compensation and benefits, the largest component of noninterest expenses, increased $565,000, or 17.3%. The higher compensation expense includes additional staffing for the Bank’s expansion into Berrien, Calhoun, and Kalamazoo Counties in southwest Michigan. 

Nine months ended September 30, 2022 vs. nine months ended September 30, 2021 – Net income for the nine months ended September 30, 2022 was $4,755,000, or $2.23 per share, compared to net income of $4,568,000, or $2.15 per share, for the nine months ended September 30, 2021. The tax equivalent net interest margin increased to 3.15% in the nine months ended September 30, 2022 from 3.11% in the nine months ended September 30, 2021.

Net interest income increased to $17.3 million in the first nine months of 2022 from $14.7 million in the first nine months of 2021. The growth was primarily in loan interest income, which increased $2.0 million to $18.4 million. Total interest income increased $2.3 million to $20.1 million, while interest expense decreased $326,000 to $2.8 million.

The Company made no provision to the allowance for loan losses in the first nine months of 2022, compared to $1.1 million in the first nine months of 2021.  Net charge-offs were ($100,000) in the first nine months of 2022, compared to $209,000 in the first nine months of 2021.

Noninterest income was $5.4 million in the first nine months of 2022, compared to $6.7 million in the first nine months of 2021. Most of the decrease was due to mortgage banking activities, which decreased $936,000, to $1.2 million. Mortgage banking activities included residential loan sales of $35.7 million in the first nine months of 2022, compared to $89.1 million in the first nine months of 2021. In addition, in 2021 the Company realized $407,000 gain on termination of an interest rate swap.

Noninterest expense was $17.0 million in the first nine months of 2022, compared to $14.8 million in the first nine months of 2021. Compensation and benefits, the largest component of noninterest expenses, increased $1.9 million, or 21.2%. The higher compensation expense includes additional staffing for the Bank’s expansion in Berrien, Calhoun, and Kalamazoo Counties in southwest Michigan. 

Balance Sheet - Total assets increased to $842.2 million on September 30, 2022, from $751.7 million on December 31, 2021, primarily the result of the growth in loans.  Loans increased $127.1 million to $669.3 million on September 30, 2022, including increases of $69.1 million in residential mortgages and $35.3 million in CRE.

Interest-bearing deposits increased to $586.4 million on September 30, 2022 from $438.7 million on December 31, 2021. Noninterest-bearing deposit accounts also increased $13.8 million to $159.3 million. The increase in deposit accounts is substantially due increased market penetration in southwest Michigan. Brokered deposits, a component of interest-bearing deposits, increased $49.8 million in the nine months ended September 30, 2022, while borrowed funds decreased $64.0 million.

Total equity was $50.7 million on September 30, 2022, compared to $52.4 million on December 31, 2021. The decrease was due to lower market values on available-for-sale securities, recorded in other comprehensive income. Total dividends paid in the first nine months of 2022 were $1.1 million, or $0.51 per share. Book value per share was $23.72 ($19.47 tangible) as of September 30, 2022. 

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.