Sturgis Bancorp Reports Earnings for 2014
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E-mailSTURGIS, MI -- (Marketwired) -- 03/05/15 -- Sturgis Bancorp, Inc. (OTCQX: STBI) announced a net income of $1.9 million for 2014, and net income of $452,000 for the fourth quarter of 2014, Eric L. Eishen, President and CEO, announced today.
Sturgis Bancorp is the holding company for Sturgis Bank & Trust Company (Bank), 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.
Key Highlights for 2014:
- Net income for 2014 was $1.9 million, or $0.91 per share, compared to net income of $1.6 million, or $0.80 per share, in 2013.
- The Bank increased capital ratios, exceeding "well-capitalized" requirements and ending 2014 with Tier 1 capital at 9.82% and 14.81% of average assets and risk-weighted assets, respectively. Tier 1 capital was 9.80% of December 31, 2014 total assets. Total capital at December 31, 2014 was 16.06% of risk-weighted assets.
- Nonaccrual loans decreased by $2.0 million to $3.7 million.
- Wholesale funding reliance was reduced, as brokered certificates of deposit and other jumbo certificates decreased by $4.8 million and $324,000, respectively.
- Loans charged off, net of recoveries, increased to $813,000 in 2014 from $503,000 in 2013. The allowance for loan losses decreased to 1.43% of total (gross) loans from 1.74% at the end of 2013, primarily due to improvements in credit quality.
President and CEO Eishen stated, "Bank earnings were solid in 2014 with many metrics improving from 2013. Credit Quality, Capital, and Core funding sources all improved in 2014. These improvements were the result of specific actions implemented by the Board of Directors and Management. Earnings continue to be suppressed due to sustained low interest rates and weak loan demand in the Bank's primary market area. Troubled loans have declined over the last several years and this trend continued in 2014. The Bank continues to maintain a solid ALLL. The Bank expects further improvements in credit quality in 2015. Capital levels are at historical highs for the Bank. Regulatory expectations for capital in the banking sector have increased since the financial crisis and the Bank expects to maintain a higher than historical level of capital due to this expectation. Oakleaf Financial Services had a record earnings year and continues to grow its customer base. Mortgage banking income was down in 2014. However, with ever increasing Regulatory burden on the banking industry, the Bank has been able to maintain market share. Oak Mortgage continues to navigate the challenges of the changing mortgage market and has achieved the appropriate scale to manage the many new rules imposed by the Dodd/Frank Act. Real estate values have stabilized and demand appears to be increasing in the purchase market. The Bank will continue to be a major player in the mortgage loan business and has a significant loan servicing portfolio. The Bank continues to seek complimentary lines of business that may enhance long term earnings."
Year 2014 vs. 2013 - Net income for the year ended December 31, 2014 increased to $1.9 million, or $0.91 per share from net income of $1.6 million, or $0.80 per share, for 2013. Net interest income increased 3.2% to $9.6 million, from $9.3 million for 2013. The increase in net interest income is primarily due to the prepayment of borrowings in the fourth quarter of 2013. That prepayment, along with deposit rate reductions, reduced the average rate paid on interest-bearing liabilities to 0.89% in 2014 from 1.07% in 2013. Average interest-earning assets increased to $272.7 million in 2014 from $271.5 million in 2013. The tax equivalent net interest margin increased to 3.59% in 2014 from 3.42% in 2013.
The provision for loan losses was $104,000 for the year ended December 31, 2014 and ($489,000) for the year ended December 31, 2013, an increase of $593,000. The provision for loan losses was based upon management's assessment of relevant factors, including types and amounts of non-performing loans, historical and anticipated loss experience on such types of loans, and economic conditions. Loans charged off during 2014, net of recoveries, were $813,000, compared to $503,000 during 2013.
Noninterest income was $5.2 million in 2014, compared to $5.3 million in 2013. Investment brokerage commission income increased $216,000 to $2.3 million, due to better market performance and annuity sales. Mortgage banking activities decreased $485,000 to $652,000, as loan sale volume decreased.
Noninterest expense was $12.4 million in 2014, compared to $13.3 million in 2013. The largest component of noninterest expense is salaries and employee benefits, which increased $65,000, partially due to higher brokerage commissions paid on the higher commission income. Real estate owned expense decreased $271,000. Bancorp incurred $192,000 professional fees and other expenses in 2014, related to the pending acquisition of another financial institution. Federal Home Loan Bank advances of $7.5 million were prepaid in 2013, incurring a prepayment penalty that year of $668,000 and reducing interest expense for 2014. Management actively minimizes noninterest expense, although certain noninterest expenses are outside of Management's direct control.
Total assets increased to $312.5 million at December 31, 2014 from $305.0 million at December 31, 2013, primarily in securities. Net loans increased $1.8 million, to $236.4 million at December 31, 2014.
Deposits were $234.3 million at December 31, 2014 compared to $229.0 million at December 31, 2013, an increase of $5.3 million. Interest-bearing deposits decreased to $182.9 million at December 31, 2014 from $187.3 million at December 31, 2013. The decrease in interest-bearing deposits includes $4.8 million in brokered deposits and $324,000 in non-brokered certificates of deposit with balance greater than $100,000. Brokered certificates of deposit, mostly included in the certificates under $100,000, decreased to $2.7 million at December 31, 2014 from $7.6 million at December 31, 2013. Non-brokered jumbo certificates decreased to $11.1 million at December 31, 2014 from $11.4 million at December 31, 2013. The Bank uses brokered and jumbo certificates as sources of liquidity. Interest-bearing transaction savings accounts and checking accounts increased $3.8 million, or 2.7%. Transaction savings accounts and checking accounts represent 60.46% of deposits at December 31, 2014, compared to 60.21% of deposits at December 31, 2013. Bank management is actively attempting to increase core deposit account relationships. Transaction savings accounts and checking accounts provide relatively inexpensive funding for future growth, compared to alternative certificates of deposit and borrowed funds at higher interest rates. The Bank offers competitive rates on its time deposits and uses brokered certificates or borrowed funds, when that strategy enhances net interest income.
The stockholders' equity of Bancorp was $30.4 million at December 31, 2014 compared to $28.5 million at December 31, 2013, an increase of $1.9 million, or 6.36%. The primary component of this increase was retained earnings. Cash dividends of $186,000, or $0.09 per share, were paid in 2014, and no cash dividend was paid in 2013. The stockholders' equity was 9.71% of total assets at December 31, 2014. Book value per share increased to $14.66 at December 31, 2014 from $13.89 at December 31, 2013.
Mr. Eishen added, "The Bank is in process of completing the purchase of West Michigan Savings Bank in Bangor Michigan. This acquired bank will become a branch office and expands the Bank's presence in the Van Buren County market. West Michigan brings solid core deposits and the prospect of additional lending opportunities. Bank earnings were impacted in 2014 by expenses related to this acquisition, and additional expenses will be realized in 2015. However once fully integrated, this acquisition will be accretive to earnings and provides opportunities for the Bank's investment, trust and mortgage subsidiaries. These are services West Michigan was not currently offering. The Bank expects to close the transaction in the first quarter of 2015. Bank capital levels will continue to be above historical levels subsequent to the transaction. The Bank does not intend to issue any more shares related to this purchase and will rely on core earnings to replenish capital levels."
Fourth Quarter of 2014 vs. 2013 - Net income for the quarter ended December 31, 2014 increased to $452,000, or $0.22 per share, from $222,000, or $0.11 per share, for the fourth quarter of 2013. The primary component of the increase is the FHLB advance prepayment penalty in 2013.
Net interest income increased $101,000, to $2.4 million in the fourth quarter of 2014. The increase is primarily due to reductions in rates paid on average interest-bearing liabilities and growth in securities. The tax-equivalent net interest margin increased to 3.58% in 2014 from 3.46% in the last quarter of 2013.
Net charge-offs for the fourth quarter of 2014 were $79,000, compared to $143,000 a year ago. The Company recorded ($8,000) provision tor loan losses in the fourth quarter of 2014, compared to ($255,000) for the same quarter of 2013.
Noninterest income decreased $113,000, to $1.4 million in the fourth quarter of 2014. The largest component of this decrease was mortgage banking activities, which decreased $161,000 to $168,000.
Noninterest expense decreased $630,000, primarily due to the $668,000 prepayment penalty on FHLB advances in the third quarter of 2014. Salaries and employee benefits, the largest component of noninterest expense, decreased $14,000. Noninterest expense in the fourth quarter of 2014 also included $80,000 of professional fees and other expenses related to the pending acquisition of another financial institution.
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.
CONSOLIDATED BALANCE SHEETS
December 31, 2014 and 2013
(Amounts in thousands, except share and per share data)
2014 2013
----------- -----------
ASSETS
Cash and due from banks $ 7,680 $ 14,236
Other short-term investments 4,369 6,638
----------- -----------
Total cash and cash equivalents 12,049 20,874
Interest-earning deposits in banks 16,575 14,914
Securities - available for sale 7,044 1,575
Securities - held to maturity 5,792 -
Federal Home Loan Bank stock, at cost 3,409 4,064
Loans held for sale, at fair value 1,716 1,034
Loans, net of allowance of $3,437 and $4,146 236,371 234,549
Premises and equipment, net 7,504 7,113
Goodwill 5,109 5,109
Originated mortgage servicing rights 1,413 1,501
Real estate owned 1,608 630
Bank-owned life insurance 9,808 9,537
Accrued interest receivable 868 828
Other assets 3,189 3,252
----------- -----------
Total assets $ 312,455 $ 304,980
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 51,383 $ 41,706
Interest-bearing 182,907 187,314
----------- -----------
Total deposits 234,290 229,020
Federal Home Loan Bank advances and other
borrowings 44,218 44,585
Accrued interest payable 238 272
Other liabilities 3,359 2,568
----------- -----------
Total liabilities 282,105 276,445
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
2,069,891 shares at December 31, 2014 and
2,055,025 at December 31, 2013 2,070 2,055
Additional paid-in capital 7,204 7,094
Retained earnings 21,276 19,580
Accumulated other comprehensive loss (200) (194)
----------- -----------
Total stockholders' equity 30,350 28,535
----------- -----------
Total liabilities and stockholders' equity $ 312,455 $ 304,980
=========== ===========
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2014 and 2013
(Amounts in thousands, except share and per share data)
2014 2013
----------- -----------
Interest income
Loans $ 11,101 $ 11,500
Investment securities:
Taxable 386 208
Tax-exempt 80 61
Dividends 170 153
----------- -----------
Total interest income 11,737 11,922
Interest expense
Deposits 820 992
Borrowed funds 1,274 1,586
----------- -----------
Total interest expense 2,094 2,578
----------- -----------
Net interest income 9,643 9,344
Provision for loan losses 104 (489)
----------- -----------
Net interest income after provision for loan
losses 9,539 9,833
Noninterest income:
Service charges and other fees 946 1,486
Interchange income 630 -
Investment brokerage commission income 2,254 2,038
Mortgage banking activities 652 1,137
Trust fee income 379 364
Increase in cash value of bank owned life
insurance 271 278
Gain (loss) on sale of real estate owned 41 (53)
Other income 28 7
----------- -----------
Total noninterest income 5,201 5,257
Noninterest expenses:
Salaries and employee benefits 6,948 6,883
Occupancy and equipment 1,543 1,729
Interchange expenses 379 -
Data processing 648 728
Professional services 554 372
Real estate owned expense 322 593
Advertising 159 119
FDIC premiums 235 426
Prepayment penalty on borrowings - 668
Other 1,616 1,694
----------- -----------
Total noninterest expenses 12,404 13,212
----------- -----------
Income before income tax expense 2,336 1,878
Income tax expense 454 251
----------- -----------
Net income $ 1,882 $ 1,627
=========== ===========
Earnings per share $ 0.91 $ 0.80
Dividends declared per share $ 0.09 $ -
Key Ratios:
Return on average equity 6.46% 5.88%
Return on average assets 0.60% 0.51%
Net interest margin (tax equivalent) 3.59% 3.42%
Efficiency ratio 83.56% 90.52%
CONSOLIDATED STATEMENTS OF INCOME
Three months ended December 31, 2014 and 2013
(Amounts in thousands, except share and per share data)
2014 2013
----------- -----------
Interest income
Loans $ 2,768 $ 2,796
Investment securities:
Taxable 100 56
Tax-exempt 22 15
Dividends 38 36
----------- -----------
Total interest income 2,928 2,903
Interest expense
Deposits 178 233
Borrowed funds 320 341
----------- -----------
Total interest expense 498 574
----------- -----------
Net interest income 2,430 2,329
Provision for loan losses (8) (255)
----------- -----------
Net interest income after provision for loan
losses 2,438 2,584
Noninterest income:
Service charges and other fees 221 253
Interchange income 179 139
Investment brokerage commission income 587 599
Mortgage banking activities 168 329
Trust fee income 85 72
Increase in cash value of bank owned life
insurance 69 68
Loss on sale of real estate owned 30 5
Other income 16 3
----------- -----------
Total noninterest income 1,355 1,468
Noninterest expenses:
Salaries and employee benefits 1,745 1,759
Occupancy and equipment 381 396
Interchange expenses 124 73
Data processing 168 165
Professional services 186 71
Real estate owned expense 80 32
Advertising 41 52
FDIC premiums 63 103
Prepayment penalty on borrowings - 668
Other 451 550
----------- -----------
Total noninterest expenses 3,239 3,869
----------- -----------
Income before income tax expense 554 183
Income tax expense 102 (39)
----------- -----------
Net income $ 452 $ 222
=========== ===========
Earnings per share $ 0.22 $ 0.11
Dividends declared per share $ 0.03 $ -
Key Ratios:
Return on average equity 5.92% 3.13%
Return on average assets 0.57% 0.28%
Net interest margin (tax equivalent) 3.58% 3.46%
Efficiency ratio 85.58% 101.90%
Contacts: Sturgis Bancorp Eric Eishen President & CEO or Brian P. Hoggatt CFO P: 269-651-9345
Source: Sturgis Bancorp Inc.
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