Sturgis Bancorp Reports Earnings for Second Quarter 2023

*STURGIS, MI / ACCESSWIRE / July 19, 2023 / Sturgis Bancorp, Inc*. (OTCQX:*STBI*) today announced net income of $1.7 million for the quarter ended June 30, 2023 and $3.2 million for the first half of 2023.

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, Marshall, 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 second quarter of 2023 was $1,705,000, an increase of $252,000. The increase from 2022 is primarily due to $1.5 million increase in net interest income. Net income for the first half of 2023 was $3,249,000, an increase of $590,000.
· Credit quality remains strong, with 99.4% of loans performing according to loan agreements. Allowance for credit losses was 1.30% of loans on June 30, 2023, compared to Allowance for Loan and Lease Losses of 1.01% on December 31, 2022. Net charge-offs were ($235,000) in the second quarter of 2023, compared to ($162,000) in 2022.
· The Bank maintained strong capital ratios, exceeding "well-capitalized" requirements, with Tier 1 leverage capital at 8.10%.
· Sales of $14.1 million residential mortgages generated $343,000 of noninterest income in the second quarter of 2023, compared to $376,000 on $9.4 million of sales in the second quarter of 2022. Sales of $22.2 million residential mortgages generated $593,000 of noninterest income in the first half of 2023, compared to $1.0 million on $31.1 million of sales in the first half of 2022.
· Total assets increased 4.6% to $894.5 million.
· Net loans increased $24.1 million in the first half of 2023, primarily in residential mortgages.
· Total non-brokered deposits increased 5.3% to $695.1 million in the first half of 2023.

Eric L. Eishen, President and CEO, stated, "Core business for the Bank has continued to expand in 2023. Most of our increase is attributed to 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 recently opened branches in Portage, Niles, and Marshall Michigan, relocated one of our South Haven branches to better facilities, and added a loan production office in 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 has continued strong, despite national and regional stress from higher interest rates and inflation. The overall franchise value of the Bank is expanding."

*Three months ended June 30, 2023 vs. three months ended June 30, 2022 - *Net income for the three months ended June 30, 2023 was $1,705,000, or $0.80 per share, compared to net income of $1,453,000, or $0.68 per share, for the same period in 2022. The tax equivalent net interest margin increased to 3.59% in the second quarter of 2023 from 3.15% in the second quarter of 2022.

Net interest income increased to $7.2 million in the second quarter of 2023 from $5.7 million in the second quarter of 2022. The growth was primarily in loan interest income, which increased $3.4 million to $9.3 million. Total interest income increased $3.4 million to $9.9 million, while interest expense increased only $1.9 million to $2.7 million.

The Company provided ($12,000) to the allowance for credit losses in the second quarter of 2023, compared to $0 in the second quarter of 2022. Net charge-offs were ($235,000) in the second quarter of 2023, compared to ($162,000) in the second quarter of 2022.

Noninterest income was $1.8 million in the second quarter of 2023, compared to $1.8 million in the same period 2022. Mortgage banking activities decreased $33,000 to $343,000. Commission income, the largest component of noninterest income, increased $49,000 to $541,000.

Noninterest expense was $6.9 million in the second quarter of 2023, compared to $5.7 million in the second quarter of 2022. Compensation and benefits, the largest component of noninterest expenses, increased $445,000, or 12.7%. The higher compensation expense includes additional staffing for the Bank's expansion since the second quarter of 2022 in Berrien, Calhoun, and Kalamazoo Counties. The Bank realized $133,000 loss on sale of securities in the second quarter of 2023.

*Six months ended June 30, 2023 vs. six months ended June 30, 2022 - *Net income for the six months ended June 30, 2023 was $3,249,000, or $1.52 per share, compared to net income of $2,659,000, or $1.25 per share, for the same period in 2022. The tax equivalent net interest margin increased to 3.59% in the first half of 2023 from 3.02% in the first half of 2022.

Net interest income increased to $14.4 million in the first half of 2023 from $10.8 million in the first half of 2022. The growth was primarily in loan interest income, which increased $6.7 million to $18.0 million. Total interest income increased $6.8 million to $19.4 million, while interest expense increased only $3.3 million to $5.0 million.

The Company provided $227,000 to the allowance for credit losses in the first half of 2023, compared to $0 in the first half of 2022. Net charge-offs were ($221,000) in the first half of 2023, compared to ($246,000) in the first half of 2022.

Noninterest income was $3.5 million in the first half of 2023, compared to $3.8 million in the same period of 2022. Most of the decrease was due to mortgage banking activities, which decreased $421,000 to $593,000. Mortgage banking activities included residential loan sales of $22.2 million in the first half of 2023, compared to $31.1 million in the first half of 2022. The Bank realized $114,000 gain on sale of fixed assets in the six months ended June 30, 2023.

Noninterest expense was $14.0 million in the first half of 2023, compared to $11.4 million in the first half of 2022. Compensation and benefits, the largest component of noninterest expenses, increased $1.1 million, or 15.4%. The higher compensation expense includes additional staffing for the Bank's expansion since the first half of 2022 in Berrien, Calhoun, and Kalamazoo Counties.

*Balance Sheet* - Total assets increased to $894.5 million on June 30, 2023, from $864.8 million on December 31, 2022, primarily the result of the growth in loans. In the six months ended June 30, 2023, loans increased $24.0 million, to $723.4 million. Most of the growth was in residential mortgages.

Interest-bearing deposits increased to $636.7 million on June 30, 2023 from $556.5 million on December 31, 2022. Noninterest-bearing deposit accounts decreased $3.4 million to $159.6 million. The increase in deposit accounts is substantially due increased market penetration in southwest Michigan. Brokered deposits, a component of interest-bearing deposits, increased $41.6 million in the first half of 2023, while borrowed funds decreased $51.0 million.

Total equity was $54.5 million on June 30, 2023 and $52.5 million on December 31, 2022. The day-one CECL ACL reduction adjustment to equity was $1,552,000 ($1,964,000 pre-tax) and partially offset retained earnings growth from net income. Quarterly dividends paid in the first and second quarters of 2023 continued at $0.17 per share. Book value per share was $25.40 ($21.32 tangible) as of June 30, 2023.

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.

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) Jun. 30, Dec. 31,
2023 2022
*ASSETS*

Cash and due from banks
$ 12,617 $ 14,008
Other short-term investments
11,518 977
Total cash and cash equivalents
24,135 14,985
Securities - available for sale
53,477 63,159
Securities - held to maturity
21,375 22,070
Federal Home Loan Bank stock
8,381 8,381
Loans held for sale
6,446 664
Net loans
723,407 699,443
Premises and equipment, net
17,597 17,431
Goodwill
5,834 5,834
Mortgage servicing rights
2,908 2,967
Real estate owned
285 380
Bank-owned life insurance
16,185 15,988
Accrued interest receivable
2,763 2,691
Other assets
11,737 10,812
Total assets
$ 894,530 $ 864,805


*LIABILITIES AND STOCKHOLDERS' EQUITY*

Liabilities

Deposits

Noninterest-bearing
$ 159,615 $ 162,978
Interest-bearing
535,444 556,538
Total deposits
101,214 719,516
Federal Home Loan Bank advances and other borrowings
20,000 71,000
Subordinated debentures - $15,000 face amount (less

unamortized debt issuance costs of $205 at Jun. 30, 2023

and $245 at Dec. 31, 2022)
14,795 14,755
Accrued interest payable
1,510 760
Other liabilities
7,460 6,226
Total liabilities
840,038 812,257


Stockholders' equity

Common stock - $1 par value: authorized - 9,000,000 shares

issued and outstanding 2,145,691 shares at Jun. 30, 2023

and 2,141,141 at Dec. 31, 2022
2,146 2,141
Additional paid-in capital
8,477 8,387
Retained earnings
(6,090 ) 48,990
Accumulated other comprehensive loss
49,959 (6,970 )
Total stockholders' equity
54,492 52,548


Total liabilities and stockholders' equity
$ 894,530 $ 864,805

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

Ended June 30,

2023 2022
Interest income

Loans
$ 9,292 $ 5,925
Investment securities:

Taxable
415 400
Tax-exempt
98 125
Dividends
110 70
Total interest income
9,915 6,520
Interest expense

Deposits
2,295 491
Borrowed funds
411 349
Total interest expense
2,706 840
Net interest income
7,209 5,680
Provision (benefit) for loan losses
(12 ) -
Net interest income after provision (benefit) for loan losses

Noninterest income:

Service charges on deposits and other fees
336 315
Interchange income
342 330
Investment brokerage commission income
541 492
Mortgage banking activities
343 376
Trust fee income
110 110
Earnings on cash value of bank-owned life insurance
99 96
Proportionate net income from unconsolidated subsidiaries
26 44
Other income
15 18
Total noninterest income
1,812 1,781
Noninterest expenses:

Compensation and benefits
3,945 3,500
Occupancy and equipment
919 709
Interchange expenses
152 144
Data processing
270 253
Professional services
95 92
Advertising
183 168
FDIC premiums
211 86
Realized loss on AFS securities
133 -
Other expenses
1,041 750
Total noninterest expenses
6,949 5,702
*Income before income tax expense*
2,084 1,759
Income tax expense
379 306
*Net income*
$ 1,705 $ 1,453
Earnings per share
$ 0.80 $ 0.68
Dividends per share
$ 0.17 $ 0.17

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

Ended June 30,

2023 2022
Interest income

Loans
$ 18,010 $ 11,373
Investment securities:

Taxable
914 767
Tax-exempt
222 251
Dividends
217 123
Total interest income
19,363 12,514
Interest expense

Deposits
4,166 881
Borrowed funds
839 873
Total interest expense
5,005 1,754
Net interest income
14,358 10,760
Provision (benefit) for loan losses
227 -
Net interest income after provision (benefit) for loan losses
14,131 10,760
Noninterest income:

Service charges on deposits and other fees
655 622
Interchange income
654 611
Investment brokerage commission income
961 1,036
Mortgage banking activities
593 1,014
Trust fee income
247 206
Earnings on cash value of bank-owned life insurance
197 190
Proportionate net income from unconsolidated subsidiaries
57 102
Other income
158 35
Total noninterest income
3,522 3,816
Noninterest expenses:

Compensation and benefits
7,980 6,915
Occupancy and equipment
1,770 1,404
Interchange expenses
301 272
Data processing
528 492
Professional services
227 181
Advertising
355 258
FDIC premiums
338 158
Realized loss on AFS securities
133 -
Other expenses
2,063 1,694
Total noninterest expenses
13,695 11,374
*Income before income tax expense*
3,958 3,202
Income tax expense
709 543
*Net income*
$ 3,249 $ 2,659
Earnings per share
$ 1.52 $ 1.25
Dividends per share
$ 0.34 $ 0.34

OTHER FINANCIAL INFORMATION
(Amounts in thousands) Three Months

Ended June 30,

2023 2022
Sturgis Bank & Trust Company:

Average noninterest-bearing deposits
$ 159,522 $ 158,335
Average interest-bearing deposits
617,939 518,454
Average total assets
873,278 788,165
Sturgis Bancorp:

Average equity
53,394 50,822
Average total assets
873,553 788,412


Financial ratios for Sturgis Bancorp:

Return on average assets
0.94 % 0.73 %
Return on average equity
15.49 % 11.47 %
Net interest margin
3.57 % 3.13 %
Tax equivalent net interest margin
3.59 % 3.15 % Six Months

Ended June 30,

2023 2022
Sturgis Bank & Trust Company:

Average noninterest-bearing deposits
$ 159,687 $ 157,931
Average interest-bearing deposits
617,939 462,374
Average total assets
872,990 781,777
Sturgis Bancorp:

Average equity
53,009 51,406
Average total assets
873,213 781,999


Financial ratios for Sturgis Bancorp:

Return on average assets
0.74 % 0.69 %
Return on average equity
12.36 % 10.43 %
Net interest margin
3.57 % 3.00 %
Tax equivalent net interest margin
3.60 % 3.02 %

*SOURCE:* Sturgis Bancorp, Inc.
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