Sturgis Bancorp Reports Earnings For Q1 2011

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Apr 26, 2011, 09:18 ET

STURGIS, Mich., April 26 2011 /PRNewswire/ -- Sturgis Bancorp, Inc. (OTCBB: STBI) posted a $117,000 net loss for the first quarter of 2011, compared to net income of $253,000 for 2010, Eric L. Eishen, President and CEO, announced today. The decrease was primarily due to the higher provisions for loan losses.

Key Highlights for the first three months of 2011:

Bank reports that it continues to exceed "well-capitalized' requirements.
Net income decreased to a loss of $117,000, or $0.06 per share.
Provision for loan losses increased to $882,000 in 2011 from $590,000 in 2010.
Mortgage banking activities increased 27.0% to $249,000.
Total deposits increased 3.8% to $275.7 million.
Noninterest bearing deposits increased 13.0% to $33.5 million
No gain on sale of securities was realized in 2011, compared to $126,000 in the first three months of 2010.
Allowance for loan losses increased to 2.57% of total loans from 2.50% at the end of 2010.
Nonaccrual loans increased $4.1 million and delinquent loans decreased to 2.38% of total loans from 2.52% at December 31, 2010.

First Quarter of 2011 vs. 2010 – The net loss for the quarter ended March 31, 2011 was ($117,000), or ($0.06) per share, compared to net income of $253,000, or $0.13 per share, for the year-earlier quarter. Net interest income decreased $22,000. The tax-equivalent net interest margin for the quarters increased to 3.02% in 2011 from 2.96% in 2010. Average interest-earning assets decreased to $330.3 million for the quarter ended March 31, 2011 from $339.9 million for the same quarter in 2010.

Net charge-offs for the first quarter of 2011 were $734,000, compared to $424,000 a year ago. The Company provided $882,000 for loan losses in the first quarter of 2011, compared to $590,000 in 2010. The provision for loan losses recognized changes in the market economic conditions, increasing the Bank's allowance for loan losses to 2.57% of total loans at March 31, 2011 from 2.50% at December 31, 2010.

Noninterest income was $1.1 million for the first quarter of 2011, compared to $1.3 million for 2010. The primary component of this decrease was realized gains on sales of assets. During the three months ended March 31, 2010, the Company recorded gains on sale of available-for-sale mortgage-backed securities of $126,000 and gains on sales of fixed assets of $109,000. Mortgage banking activities increased 27.0% to $249,000.

Noninterest expense increased $29,000, primarily in professional fees and other expenses. The Company permanently froze its defined benefit plan for employees in the first quarter of 2011.

Mr. Eishen said, "Provisions to the Allowance for Loan and Lease Losses resulted in our loss in 2010 and for the first quarter of 2011. Management has spent the last 15 months analyzing the loan portfolio and addressing any difficulties we have encountered. We believe this quarter represents the end to any significant allocations to the ALLL. We now stand at 2.57% of loans. This is a historic high and we believe that with the improving National economy and positive signs in our local market area, the worst of the last recession is now behind us. As economic conditions improve, we also believe many of the credits we have analyzed and provided for in our ALLL will improve. We are hopeful that a portion of the non-accrual loans will become healthy enough to return to an accrual basis. Short-term this may not result in a reversal of these specific reserves, but long-term we do not expect troubled loans to remain at the current level. Our general allowance has increased due to a few significant charged off loans that we expect were the exception in the loan portfolio.

"Management continues to control expenses and has made adjustments to maintain a healthy core interest and non-interest income stream. With the positive interest rate gap, the Bank is positioned for increasing rates. If the Federal Reserve makes significant interest rate increases, the Bank will realize an increase in the net interest margin.

"The Bank continues to be in the "Well Capitalized" category as defined by Regulators and did not participate in TARP or any other government capital assistance programs. The Company has not issued any Trust Preferred indentures and has not recently been to the capital markets to raise capital. We maintain a modest loan at the Holding Company.

"As we progress though 2011, we hope to see earnings return to more normal levels."

Total assets increased to $379.6 million at March 31, 2011 from $370.0 million at December 31, 2010, primarily in short-term investments. Loans decreased $2.2 million for the quarter.

Delinquent loans changed from December 31, 2010, as follows:


	Percentage of Gross Loans		Percentage of Total Assets
Past due and still accruing:	Mar. 31, 2011	Dec. 31 2010	Mar. 31, 2011	Dec. 31 2010
Past due one month	1.58%	0.94%	1.11%	0.69%
Past due two months	0.74%	1.12%	0.52%	0.82%
Past due three or more months	0.07%	0.46%	0.05%	0.34%
Nonaccrual loans	3.53%	1.95%	2.47%	1.42%
Real Estate Owned	0.59%	0.75%	0.41%	0.55%

Noninterest-bearing deposits increased to $33.5 million at March 31, 2011 from $29.6 million at December 31, 2010. Interest-bearing deposits also increased to $242.3 million at March 31, 2011 from $236.3 million at December 31, 2010. Brokered certificates of deposit decreased $3.7 million to $22.0 million at March 31, 2011. Brokered certificates of deposit are used as an alternative to Federal Home Loan Bank ("FHLB") advances, when the total interest cost is lower.

In the quarter ended March 31, 2011, the Company paid cash dividends of $0.01 per common share, totaling $20,000. Total equity was $23.1 million at March 31, 2011, compared to $23.3 million at December 31, 2010. Book value per share decreased to $11.47 at March 31, 2011 from $11.56 at December 31, 2010.

Sturgis Bancorp is the holding company for Sturgis Bank & Trust Company, 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.

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.

(Financial statements follow)

CONSOLIDATED BALANCE SHEETS
	Mar. 31, 2011	Dec. 31, 2010
	(In Thousands)
Assets
Cash and due from banks	$ 16,985	$ 16,146
Other short-term investments	24,374	10,338
Total cash and cash equivalents	41,359	26,484
Interest-earning deposits in banks	8,234	10,376
Securities - Available for sale	28,522	27,669
Securities – Held-to-maturity	6,145	6,452
Federal Home Loan Bank stock, at cost	4,424	4,424
Loans held for sale	560	2,191
Loans, net of allowance of $6,839 and $6,691	259,231	261,416
Premises and equipment, net	7,656	7,739
Goodwill, net of accumulated amortization	5,109	5,109
Originated mortgage servicing rights	1,397	1,381
Real estate owned	1,571	1,730
Bank owned life insurance	8,765	8,696
Accrued interest receivable	1,563	1,602
Prepaid FDIC assessment	1,075	1,175
Other assets	3,991	3,517
Total assets	$ 379,602	$ 369,961

Liabilities and Stockholders' Equity
Liabilities
Deposits
Noninterest-bearing	$ 33,458	$ 29,609
Interest bearing	242,329	236,342
Total Deposits	275,787	265,951
Federal Home Loan Bank advances	53,000	53,000
Repurchase agreements	25,000	25,000
Accrued interest payable	400	466
Other liabilities	2,283	2,229
Total liabilities	356,470	346,646

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 – 2,017,245 shares
at March 31, 2011 and December 31, 2010	2,017	2,017
Additional paid-in capital	6,872	6,872
Accumulated other comprehensive income (loss)	(1,266)	(1,220)
Retained earnings	15,509	15,646
Total stockholders' equity	23,132	23,315
Total liabilities and stockholders' equity	$ 379,602	$ 369,961

Consolidated Statements of Income
	Three Months Ended March 31,
	2011	2010
Interest income	(In Thousands, Except Per Share Data)
Loans	$ 3,193	$ 3,626
Investment securities:
Taxable	338	317
Tax-exempt	15	15
Dividends	30	31
Total interest income	3,576	3,989
Interest expense
Deposits	689	909
Borrowed funds	454	625
Total interest expense	1,143	1,534
Net interest income	2,433	2,455
Provision for loan losses	882	590
Net interest income - After provision for loan losses	1,551	1,865
Noninterest income:
Service charges and other fees	345	356
Investment brokerage commission income	278	286
Mortgage banking activities	249	196
Trust fee income	91	90
Increase in value of bank owned life insurance	69	75
Gain on sale of securities	-	126
Gain on sale of fixed assets	-	108
Other income	26	35
Total noninterest income	1,058	1,272
Noninterest expenses:
Salaries and employee benefits	1,650	1,655
Occupancy and equipment	371	374
Data processing	171	168
Professional services	112	96
Real estate owned expense	66	79
Advertising	35	33
FDIC insurance premium	110	113
Other	371	339
Total noninterest expenses	2,886	2,857

Income - Before income tax expense	(277)	280
Provision for federal income tax	(160)	27
Net income	$ (117)	$ 253

Earnings per share	$ (0.06)	$ 0.13
Dividends declared per share	$ 0.01	$ 0.03
Return on average equity	(2.04%)	3.99%
Return on average assets	(0.13%)	0.27%
Net interest margin (tax equivalent)	3.02%	2.96%