Sturgis Bancorp Reports Earnings For Q2 2011

Aug 02, 2011, 10:30 ET from Sturgis Bancorp, Inc.

STURGIS, Mich., Aug. 2, 2011 /PRNewswire/ -- Sturgis Bancorp, Inc. (OTCBB: STBI) posted a $734,000 net loss for the second quarter of 2011, compared to a net loss of $404,000 for the second quarter of 2010, Eric L. Eishen, President and CEO, announced today.  The decrease was primarily due to the higher write-downs on real estate owned.  The net loss for the first half of 2011 was $851,000, compared to a net loss of $151,000 in the first half of 2010.  

Mr. Eishen stated, "The six-month loss is primarily attributable two items.  Management elected to fully charge off the value of one REO (Real Estate Owned) property and to charge off specific reserves related to four land development loans.  These loans represent 77% of the Bank's total exposure to land development projects.  The one REO property charged off is the only land development property in REO.  

"The Bank has maintained strong standards in monitoring concentrations of credit exposure to any one industry.  The Bank does not typically exceed 100% of capital in any one individual industry.  Land development loans are one example of an industry that has caused a great deal of disruption to the entire banking industry.  We are fortunate that our exposure is limited in these loans.  The four land development loans charged down in the second quarter represent 38% of the Bank's nonperforming assets.  We expect these loans to work out over time.  Over the past 12 months, the Bank has set aside specific reserves on three of these land development related loans and charged one down significantly.  Two of these properties are residential condominium properties on the West Coast of the State.  The other two properties are loans secured by fully developed lots in St. Joseph, Michigan and near Ann Arbor, Michigan.  On all four of these loans, the borrower continues to work closely with the Bank on liquidation of remaining units.  Management is confident the principal will be repaid over time. But because these loans have been determined to be collateral dependant, accounting principles require the collateral deficiency be charged off and recognized as a recovery in the future upon payment.  The rest of our loan portfolio has held up very well through this economic crisis.  

"The REO property that was fully charged off in the quarter was $420,000.  This property was not fully developed, and Management has determined it is not in the Bank's best interest to complete the project prior to sale.  The property remains available for sale, and any net proceeds from liquidation will be a gain on sale."

Key Highlights for the first six months of 2011:

  • Bank reports that it continues to exceed "well-capitalized" requirements.
  • Net income decreased to a loss of $851,000, or $0.42 per share.
  • Provision for loan losses increased to $1.9 million in 2011 from $1.7 million in 2010.
  • Professional fees increased for collection efforts and REO write downs increased.
  • Total deposits decreased 3.5% to $256.8 million.  Most of the decrease was due to $8.1 million decrease in brokered CDs, reducing the Bank's reliance on wholesale funding.
  • Noninterest bearing deposits increased 7.5% to $31.8 million.
  • No gain on sale of securities was realized in 2011, compared to $126,000 in the first six months of 2010.  No gain on sale of assets was realized in 2011, compared to $108,000 in the first six months of 2010.
  • Net charge-offs were $1.9 million in the first half of 2011, compared to $703,000 in the first half of 2010.  However the allowance for loan losses was replenished to 2.50% of total loans, unchanged from 2.50% at the end of 2010.
  • Nonaccrual loans increased $9.3 million and delinquent loans decreased to 1.12% of total loans from 2.52% at December 31, 2010.

First Half of 2011 vs. 2010 – The net loss for the first half of 2011 was ($851,000), or ($0.42) per share, compared to net loss of ($151,000), or ($0.07) per share, for the first half of 2010.  The tax-equivalent net interest margin increased to 3.03% in 2011 from 2.99% in 2010.  Average interest-earning assets decreased to $326.2 million for the six months ended June 30, 2011 from $339.5 million for the same period in 2010.

Net charge-offs for the first half of 2011 were $1.9 million, compared to $703,000 a year ago.  The Bank's provision for loan losses was $1.9 million in 2011, compared to $1.7 million in 2010.  The ALLL as a percentage of loans was 2.50% at June 30, 2011.

Noninterest income was $2.0 million in 2011, compared to $2.3 million in 2010.  The primary components of this decrease were $126,000 gain on sale of securities and $108,000 gain on sale of assets, both recorded in 2010.  Mortgage banking activities decreased 5.7% to $378,000, due to slower residential mortgage activity and related sales.  

Noninterest expense was $6.5 million in 2011, compared to $5.9 million in 2010.  This increase was primarily due to increased professional fees (collection expenses) and write downs of REO.  Salaries and employee benefits increased $65,000 to $3.4 million.  The Bank's defined benefit plan was permanently frozen in the first half of 2011, as part of Management ongoing cost containment initiatives. Salaries and employee benefits will not realize improvement from freezing the defined benefit plan until after the new plan year begins in July 2011.

Second Quarter of 2011 vs. 2010 – The net loss for the quarter ended June 30, 2011 was ($734,000), or ($0.36) per share, compared to net loss of ($404,000), or ($0.20) per share, for the year-earlier quarter. Net interest income decreased $108,000. The tax-equivalent net interest margin for the quarters increased to 3.04% in 2011 from 3.01% in 2010.  Average interest-earning assets decreased to $322.1 million for the quarter ended June 30, 2011 from $339.1 million for the same quarter in 2010.

Net charge-offs for the second quarter of 2011 were $1.2 million, compared to $279,000 a year ago.  The Bank provided $974,000 for loan losses in the second quarter of 2011, compared to $1.2 million in 2010.  

Noninterest income was $960,000 for the second quarter of 2011, compared to $994,000 for 2010.  The primary component of this decrease was mortgage banking activities.  Mortgage banking activities decreased 37.1% to $129,000.  Commission income increased 6.6% to $321,000, as market values increased for advisory accounts.

Noninterest expense increased $533,000, primarily due to REO write-downs.  Salaries and employee benefits will not realize improvement from freezing the defined benefit plan until after the new plan year begins in July 2011.

Mr. Eishen said, "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 through 2011, we hope to see earnings return to more normal levels."

Total assets decreased to $360.4 million at June 30, 2011 from $370.0 million at December 31, 2010, primarily in short-term investments.  Loans decreased $2.5 million during the first half of 2011.

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


Percentage of
Gross Loans


Percentage of
Total Assets

Past due and still accruing:

Jun. 30,
2011

Dec. 31
2010


Jun. 30,
2011

Dec. 31
2010

    Past due one month

0.76%

0.94%


0.56%

0.69%

    Past due two months

0.26%

1.12%


0.19%

0.82%

    Past due three or more months

0.10%

0.46%


0.07%

0.34%

Nonaccrual loans

5.47%

1.95%


4.03%

1.42%

Real Estate Owned

0.99%

0.75%


0.73%

0.55%



Noninterest-bearing deposits increased to $31.8 million at June 30, 2011 from $29.6 million at December 31, 2010.  Interest-bearing deposits decreased to $224.9 million at June 30, 2011 from $236.3 million at December 31, 2010.  Brokered certificates of deposit decreased $7.9 million to $17.7 million at June 30, 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 addition, other certificates of deposit in excess of $100,000 decreased $1.9 million.  The decreases in brokered and other jumbo certificates of deposits indicate the Bank's decreased reliance on wholesale (out-of-market) funding.

In the six months ended June 30, 2011, the Company paid cash dividends of $0.02 per common share, totaling $40,000. Total equity was $23.1 million at June 30, 2011, compared to $23.3 million at December 31, 2010.  Book value per share decreased to $11.44 at June 30, 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


June 30, 2011

Dec. 31, 2010


(In Thousands)

Assets

Cash and due from banks  

$        17,397

$        16,146

Other short-term investments

3,774

10,338

  Total cash and cash equivalents

21,171

26,484

Interest-earning deposits in banks

8,234

10,376

Securities - Available for sale

29,391

27,669

Securities – Held-to-maturity

5,946

6,452

Federal Home Loan Bank stock, at cost

4,064

4,424

Loans held for sale

260

2,191

Loans, net of allowance of $6,839 and $6,691

258,929

261,416

Premises and equipment, net

7,721

7,739

Goodwill, net of accumulated amortization

5,109

5,109

Originated mortgage servicing rights

1,339

1,381

Real estate owned

2,641

1,730

Bank owned life insurance

8,834

8,696

Accrued interest receivable

1,427

1,602

Prepaid FDIC assessment

957

1,175

Other assets

4,359

3,517

Total assets

$     360,382

$     369,961




Liabilities and Stockholders' Equity

Liabilities



Deposits



Noninterest-bearing

$       31,836

$       29,609

Interest bearing

224,921

236,342

    Total Deposits

256,757

265,951

Federal Home Loan Bank advances and other borrowings

52,500

53,000

Repurchase agreements

25,000

25,000

Accrued interest payable

348

466

Other liabilities

2,708

2,229

Total liabilities

337,313

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 June 30, 2011 and December 31, 2010

2,017

2,017

Additional paid-in capital

6,872

6,872

Accumulated other comprehensive income (loss)

(576)

(1,220)

Retained earnings

14,756

15,646

Total stockholders' equity

23,069

23,315

Total liabilities and stockholders' equity

$     360,382

$     369,961




Consolidated Statements of Income


Six Months Ended June 30,


2011

2010

Interest income

(In Thousands, Except Per Share Data)

    Loans

$      6,293

$      7,192

    Investment securities:



         Taxable

665

678

         Tax-exempt

29

31

    Dividends

60

57

         Total interest income

7,047

7,958

Interest expense



    Deposits

1,299

1,763

    Borrowed funds

904

1,221

         Total interest expense

2,203

2,984

    Net interest income

4,844

4,974

Provision for loan losses

1,855

1,746

    Net interest income - After provision for loan losses

2,989

3,228

Noninterest income:



    Service charges and other fees

698

704

    Investment brokerage commission income

599

587

    Mortgage banking activities

378

401

    Trust fee income

186

175

    Increase in value of bank owned life insurance

138

149

    Gain on sale of securities

-

126

    Gain on sale of fixed assets

-

108

    Other income

19

16

         Total noninterest income

2,018

2,266

Noninterest expenses:



    Salaries and employee benefits

3,421

3,356

    Occupancy and equipment

739

715

    Data processing

344

333

    Professional services

249

179

    Real estate owned expense

695

352

    Advertising

65

63

    FDIC insurance premium

234

237

    Other

648

696

         Total noninterest expenses

6,495

5,931




         Income - Before income tax expense

(1,488)

(437)

         Provision for federal income tax

(637)

(286)

         Net income

$        (851)

$           (151)




Earnings per share

$       (0.42)

$          (0.07)

Dividends declared per share

$         0.02

$            0.06

Return on average equity

(7.35%)

(1.18%)

Return on average assets

(0.46%)

(0.08%)

Net interest margin (tax equivalent)

3.03%

2.99%




Consolidated Statements of Income


Three Months Ended June 30,


2011

2010

Interest income

(In Thousands, Except Per Share Data)

    Loans

$      3,099

$      3,565

    Investment securities:



         Taxable

327

361

         Tax-exempt

15

17

    Dividends

30

26

         Total interest income

3,471

3,969

Interest expense



    Deposits

609

853

    Borrowed funds

451

597

         Total interest expense

1,060

1,450

    Net interest income

2,411

2,519

Provision for loan losses

974

1,156

    Net interest income - After provision for loan losses

1,437

1,363

Noninterest income:



    Service charges and other fees

353

348

    Investment brokerage commission income

321

301

    Mortgage banking activities

129

205

    Trust fee income

95

85

    Increase in value of bank owned life insurance

69

74

    Gain on sale of securities

-

-

    Gain on sale of fixed assets

-

-

    Other income

(7)

(19)

         Total noninterest income

960

994

Noninterest expenses:



    Salaries and employee benefits

1,771

1,701

    Occupancy and equipment

367

341

    Data processing

173

165

    Professional services

137

83

    Real estate owned expense

629

274

    Advertising

30

30

    FDIC insurance premium

124

124

    Other

377

357

         Total noninterest expenses

3,608

3,075




         Income - Before income tax expense

(1,211)

(718)

         Provision for federal income tax

(477)

(314)

         Net income

$        (734)

$           (404)




Earnings per share

$       (0.36)

$          (0.20)

Dividends declared per share

$         0.01

$            0.03

Return on average equity

(12.60%)

(6.25%)

Return on average assets

(0.79%)

(0.43%)

Net interest margin (tax equivalent)

3.04%

3.01%




SOURCE Sturgis Bancorp, Inc.



RELATED LINKS

http://www.sturgisbank.com