STBI Sturgis Bancorp Inc (QX)

STURGIS, Mich., Feb. 8, 2011 /PRNewswire/ -- Sturgis Bancorp, Inc. (OTC Bulletin Board: STBI) announced a loss of $709,000 for 2010, and earnings of $72,000 for the fourth quarter of 2010.  The decrease from 2009 was primarily due to higher provisions for loan losses, Eric L. Eishen, President and CEO, announced today.  

Key Highlights for 2010:

• Net income decreased to a loss of $709,000, or $0.34 per share.
• Bank continues to exceed "well-capitalized' requirements.
• Net interest income increased $315,000
• Provision for loan losses increased by $2.9 million to $5.4 million
• Total deposits increased 2.6% to $266.0 million, including $4.8 million increase in noninterest-bearing deposits.
• Realized gain on sale of securities was $1.1 million, compared to $1.2 million in 2009.
• Secured liabilities of the Bank, comprised of Federal Home Loan Bank advances and repurchase agreements, were reduced $4.9 million, or 6.0%.
• Allowance for loan losses increased to 2.48% of loans from 1.41% at the end of 2009.
• Nonaccrual loans decreased $1.6 million to 1.95% of total loans, while delinquent loans increased to 2.52% of total loans from 1.56% at December 31, 2009.
  
  
  
  President and CEO Eishen further stated:  "While a loss year is disappointing, the Bank remained profitable in 2008 and 2009.  The last three years were some of the most troubling years for the banking industry in many decades.  A majority of the loss was attributable to additional provisioning in the Allowance for Loan and Lease Losses (ALLL).  The Bank has a history of recognizing troubled loans and acting swiftly to either provision for possible losses or charge off expected losses.  The Bank has made some changes to the credit department and expects troubled loans to mitigate as the economy improves in 2011.  I am pleased that the interest margin has improved and core earnings remain stable.  The Bank has reduced loan balances in the last year due to weak demand.  The economic conditions in the Bank's primary market area appear to have stabilized.  However, real estate values continue to be depressed and employment remains weak.  The Bank continues to exceed the Regulatory definition of 'Well Capitalized'."  

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.



Year 2010 vs. 2009 - Net income for the year ended December 31, 2009 decreased to a loss of $709,000, or $0.34 per share from earnings of $915,000, or $0.45 per share, for 2009. Net interest income increased 3.2% to $10.1 million, from $9.7 million for 2009. The increase is primarily due to the increase in the tax equivalent net interest margin to 3.01% in 2010 from 2.82% in 2009.  Average interest-earning assets decreased to $338.3 million in 2010 from $349.6 million in 2009.  



Noninterest income was $5.7 million for 2010, compared to $5.6 million for 2009.  The Company realized $1.1 million of gains on sales of available-for-sale securities in 2010, compared to $1.2 million in 2009.  Commission income from Oakleaf Financial Services, Inc. increased $133,000 to $1.2 million, partially due to higher market values of assets against which fees are assessed.  Noninterest expense increased $198,000 for 2010, compared to 2009.  Salaries and employee benefits increased $325,000, or 5.1%, primarily due to a decrease in deferral of loan origination expenses with slower loan volume.  Real estate owned expense increased $253,000, as the Company wrote down the carrying value of foreclosed assets with declines in market values.  



The Company provided $5.4 million to the ALLL in 2010, compared to $2.5 million in 2009.  Net charge-offs were $2.7 million in 2010, compared to $1.4 million in 2009.  The activity in the ALLL increased the allowance to 2.48% of gross loans at December 31, 2010, compared to 1.41% of gross loans at December 31, 2009.  The additional provisioning and charge-offs are a reflection of the economic conditions present in the local economy.



Total assets increased to $370.0 million at December 31, 2010 from $369.9 million at December 31, 2009, primarily in available for sale securities.  Loans decreased $16.8 million from 2009.  Net decreases in loans were realized in residential, commercial and consumer loans.  



Noninterest-bearing deposits increased to $29.6 million at December 31, 2010 from $24.8 million at December 31, 2009.  Interest-bearing deposits increased to $236.3 million at December 31, 2010 from $234.3 million at December 31, 2009.  The increase in interest-bearing deposits includes $8.7 million growth in savings accounts and $7.2 million growth in checking accounts.  In addition, the number of checking accounts increased through 2010, as the Bank continues to expand its customer base.  



During 2010, the Company used growth in savings and checking accounts to reduce reliance on brokered certificates of deposit and borrowed funds.  Brokered certificates of deposit were $25.7 million at December 31, 2010, compared to $31.6 million at December 31, 2009.  Borrowed funds (primarily advances from Federal Home Loan Bank of Indianapolis) decreased to $53.0 million at December 31, 2010, compared to $57.9 million at December 31, 2009.  



In 2010, the Company paid cash dividends of $0.12 per common share, totaling $242,000. Total equity was $23.3 million at December 31, 2010, compared to $25.4 million at December 31, 2009.  Book value per share decreased to $11.56 at December 31, 2010 from $12.60 at December 31, 2009.  



Mr. Eishen added, "Our earnings releases usually include limited commentary from me to describe the cause of differences in earnings from year to year.  In this release I wish to add a few additional comments that may answer some of your questions on banking and how the current environment is impacting Sturgis Bank & Trust Company and in turn Sturgis Bancorp, Inc.



"One concern for many bank stockholders is asset quality.  In today's environment, this is a legitimate concern.  The Bank's investment portfolio consists primarily of government guaranteed mortgage-backed securities and fully insured deposits.  It is of the highest asset quality.  As a result of credit quality concerns, I have provided more detailed loan quality information in our quarterly earnings releases this year.

"Loan quality is of greater interest because it has posed the biggest challenges for small community banks.  The table below compares the Bank's nonperforming loans and Real Estate Owned (REO) for year-end 2010 versus year-end 2009.  It is broken down into five categories and reflects percentages of loans and assets.  Loans past due one and two months increased in 2010.  Loans past due three or more months remained relatively unchanged.  While the loan delinquencies increased, the increase is relatively small given the extent of the economic downturn.  Management works to keep borrowers from falling into the next category of delinquency.  Nonaccrual loans are loans for which collection of interest is questionable.  When a loan enters the nonaccrual category, the Bank analyzes the underlying collateral and adjusts the carrying amount of the loan amount to reflect the expected cashflow.  Part of the increase in the ALLL is related to loans in this nonaccrual status.  The final category is REO, which changed only slightly.  Management makes every effort to liquidate REO properties in a timely basis, and writes these assets down to a marketable level.  Management does not believe it is prudent to sell REO properties below market value, simply to reduce this ratio."  

Fourth Quarter of 2010 vs. 2009 - Net income for the quarter ended December 31, 2010 increased to earnings of $72,000, or $0.03 per share, from a loss of $199,000, or ($0.10) per share for the year-earlier quarter. Net interest income increased 6.2% to $2.6 million in the fourth quarter of 2010, from $2.4 million in 2009. The increase is primarily due to the increase in the tax equivalent net interest margin to 3.07% in 2010 from 2.88% in 2009.

Noninterest income was $2.2 million for the fourth quarters of 2010, compared to $1.1 million in 2009.  The largest component of this increase was realized gain on sale of available-for-sale securities of $1.0 million in 2010 and $72,000 in 2009.  Mortgage banking income increased $156,000.  Noninterest expense decreased $40,000 to $3.0 million.  The primary component of the decrease in noninterest expense was FHLB advance prepayment penalties recorded in 2009.  

Net charge-offs for the fourth quarter of 2010 were $632,000, compared to $687,000 a year ago.  The Company provided $1.8 million for loan losses in the fourth quarter of 2010, compared to $694,000 in 2009.

Mr. Eishen said, "Unfortunately, our earnings are down for 2010.  This is primarily due to increasing the Company's provision for loan losses.  Credit losses have continued to erode net income, although Management is hopeful that the worst is behind us. We look forward to 2011 with hopes we will return to a more normal economic environment."

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.

SOURCE Sturgis Bancorp, Inc.