Sturgis Bancorp Reports Earnings for 2009
STURGIS, Mich., Feb. 10 /PRNewswire-FirstCall/ -- Sturgis Bancorp, Inc. (OTC Bulletin Board: STBI) announced earnings of $915,000 for 2009, and a loss of $199,000 for the fourth quarter of 2009. The decreases from 2008 were primarily due to higher provisions for loan losses and a significant increase in FDIC premiums, Eric L. Eishen, President and CEO, announced today.
Key Highlights for 2009:
- Bank reports profits and continues to exceed "well-capitalized' requirements.
- Net income decreased 60.3% to $915,000, or $0.45 per share.
- Mortgage banking activities increased 22.1% to $1.1 million.
- Total deposits increased 9.1% to $259.2 million.
- Realized gain on sale of securities was $1.2 million.
- Secured liabilities of the Bank, comprised of Federal Home Loan Bank advances and repurchase agreements, were reduced $33.8 million, or 28.9%.
- Sturgis Bank & Trust Company's regulatory capital ratios were enhanced with additional capital infusion from Sturgis Bancorp.
- Allowance for loan losses increased to 1.41% of total loans from 1.00% at the end of 2008.
- TARP CPP funds of $7.2 million were preliminarily approved by the U.S. Treasury – In April 2009, the Company rejected Treasury's offer.
- Nonaccrual loans increased $3.7 million, while delinquent loans decreased to 1.56% of total loans from 1.59% at December 31, 2008.
President and CEO Eishen further stated: "Although this decrease in earnings is disappointing, given the extensive losses in our industry and the significant economic troubles in Michigan, I am pleased to end the year in a positive income position. In the fourth quarter the Bank made some significant provisions to the allowance for loan and lease losses (ALLL). These provisions, coupled with the increase in FDIC premiums, negatively impacted fourth quarter performance. There have been some positive signs in the Bank's primary market. Employment has stabilized and real estate activity is showing some signs of life. We believe 2010 will continue to present challenges, but the additional provisioning and charge downs taken in 2009 should position us well for the next year."
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 12 banking centers in Sturgis, Bronson, Centreville, Climax, Coldwater, 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 2009 vs. 2008 - Net income for the year ended December 31, 2009 decreased to $915,000, or $0.45 per share, from $2.3 million, or $1.13 per share for 2008. Net interest income decreased 4.9% to $9.7 million, from $10.2 million for 2008. The decrease is primarily due to the reduction in the tax equivalent net interest margin to 2.82% in 2009 from 3.07% in 2008. Average interest-earning assets increased to $349.6 million in 2009 from $336.6 million in 2008.
Noninterest income was $5.6 million for 2009, compared to $4.8 million for 2008. The Company realized $1.2 million of gains on sales of available-for-sale securities in 2009. Income from mortgage banking activities increased $197,000, as lower rates stimulated mortgage refinance activity. Commission income from Oakleaf Financial Services, Inc. decreased $496,000 to $1.1 million, primarily as a result of lower market values of assets that fees are assessed against. Noninterest expense decreased $8,000 for 2009, compared to 2008. Salaries and employee benefits decreased $674,000, or 9.6%. Real estate owned expense increased $207,000, as the Company wrote down the carrying value of foreclosed assets with declines in market values. FDIC deposit insurance expense increased $473,000 to $644,000.
The Company provided $2.5 million to the ALLL in 2009, compared to $489,000 in 2008. Net charge-offs were $1.4 million in 2009, compared to $350,000 in 2008. The activity in the ALLL increased the allowance to 1.41% of gross loans at December 31, 2009, compared to 1.00% of gross loans at December 31, 2008. The additional provisioning and charge-offs are a reflection of the economic conditions present in the National Economy and not the result of weak underwriting criteria.
Total assets decreased to $369.9 million at December 31, 2009 from $383.4 million at December 31, 2008, primarily in available for sale securities. Loans decreased $2.6 million from 2008, primarily in residential mortgages.
Noninterest-bearing deposits decreased to $24.9 million at December 31, 2009 from $25.7 million at December 31, 2008. Interest-bearing deposits increased to $234.3 million at December 31, 2009 from $211.8 million at December 31, 2008. The increase in interest-bearing deposits includes $10.6 million growth in savings accounts and $9.1 million growth in checking accounts. In addition, the number of checking accounts increased through 2009, as the Bank continues to expand its customer base.
During 2009, the Company used growth in savings and checking accounts to reduce reliance on brokered certificates of deposit, borrowed funds, and repurchase agreements. Brokered certificates of deposit were $31.6 million at December 31, 2009, compared to $37.3 million at December 31, 2008. Borrowed funds (primarily advances from Federal Home Loan Bank of Indianapolis) decreased to $57.9 million at December 31, 2009, compared to $86.3 million at December 31, 2008. Repurchase agreements were also reduced by $5.5 million to $25.0 million at December 31, 2009.
In 2009, the Company borrowed $2.3 million to invest in the common stock of its subsidiary Bank. The additional investment expanded the Bank's excess capital, relative to regulatory requirements.
In 2009, the Company paid cash dividends of $0.39 per common share, totaling $787,000. Total equity was $25.4 million at December 31, 2009, compared to $25.8 million at December 31, 2008. Book value per share decreased to $12.60 at December 31, 2009 from $12.76 at December 31, 2008.
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 2009 versus year-end 2008. It is broken down into five categories and reflects percentages of loans and assets. Loans past due one month decreased in 2009. Loans past due two months increased, along with loans past due three or more months. While these categories of loans 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 that may not be paying as initially agreed. This indicates the collection of interest may be doubtful. 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 reflective of loans in this category. The final category is REO, which increased 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 metric. The bottom line is that troubled assets are elevated from 2008, although constant management of the collection process has minimized their growth.
Percentage of Percentage of
Gross Loans at Total Assets
December 31, at December 31,
Past due and still accruing: 2009 2008 2009 2008
---- ---- ---- ----
Past due one month 0.59% 1.07% 0.45% 0.79%
Past due two months 0.51% 0.38% 0.39% 0.28%
Past due three or more months 0.46% 0.14% 0.35% 0.10%
Nonaccrual loans 2.43% 1.12% 1.86% 0.83%
Real Estate Owned 0.74% 0.67% 0.56% 0.50%
Fourth Quarter of 2009 vs. 2008 - Net income for the quarter ended December 31, 2009 decreased to a loss of $199,000, or ($0.10) per share from income of $565,000, or $0.28 per share for the year-earlier quarter. Net interest income decreased 5.0% to $2.4 million in the fourth quarter of 2009, from $2.5 million in 2008. The decrease chiefly reflects the decrease in average interest earning assets for the quarters to $337.9 million in 2009 from $356.4 million in 2008. The tax equivalent net interest margin increased to 2.88% in 2009 from 2.86% in 2008.
Noninterest income was $1.1 million for the fourth quarters of both 2009 and 2008. Mortgage banking income decreased $85,000 for the quarters. In the fourth quarter of 2009, the Company realized $72,000 gain on sale of available-for-sale securities. Noninterest expense increased $336,000 to $3.1 million. The primary component of the increase in noninterest expense was FDIC deposit insurance premium.
Net charge-offs for the fourth quarter of 2009 were $687,000, compared to $243,000 a year ago. The Company provided $473,000 for loan losses in the fourth quarter of 2009, compared to $221,000 in 2008.
Mr. Eishen said, "Unfortunately, our earnings are down for 2009. 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 2010 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.
(Financial statements follow)
Consolidated Balance Sheets
Dec. 31, 2009 Dec. 31, 2008
------------- -------------
(In Thousands)
Assets
Cash and due from banks $8,448 $6,930
Other short-term investments 528 9
--- ---
Total cash and cash equivalents 8,976 6,939
Interest-earning deposits in banks 7,565 9,334
Securities -Available for sale 31,908 41,896
Securities - Held-to-maturity 7,607 8,777
Federal Home Loan Bank stock, at cost 4,784 4,784
Loans held for sale 595 1,578
Loans, net 278,227 280,867
Premises and equipment, net 8,010 8,710
Premises and equipment held for sale 317 -
Goodwill, net of accumulated amortization 5,109 5,109
Originated mortgage servicing rights 1,277 1,409
Real estate owned 2,086 1,913
Bank owned life insurance 8,401 8,072
Accrued interest receivable 1,795 2,286
Investment in limited partnerships 511 618
Other assets 2,753 1,102
Total assets $369,921 $383,394
======== ========
Liabilities and Stockholders' Equity
Liabilities
Deposits
Noninterest-bearing $24,855 $25,710
Interest bearing 234,296 211,807
Total Deposits 259,151 237,517
Federal Home Loan Bank advances
and other borrowings 57,942 86,287
Repurchase agreements 25,000 30,500
Accrued interest payable 687 868
Other liabilities 1,714 2,472
Total liabilities 344,494 357,644
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 outstanding
shares at December 31, 2009
and 2008 2,017 2,017
Additional paid-in capital 6,872 6,872
Accumulated other comprehensive
income (loss) (60) 391
Retained earnings 16,598 16,470
Total stockholders' equity 25,427 25,750
Total liabilities and
stockholders' equity $369,921 $383,394
======== ========
Consolidated Statements of Income
Year Ended December 31,
2009 2008
Interest income
Loans $15,384 $17,817
Investment securities:
Taxable 1,702 2,403
Tax-exempt 55 49
Dividends 155 214
--- ---
Total interest income 17,296 20,483
Interest expense
Deposits 4,184 5,779
Borrowed funds 3,374 4,460
----- -----
Total interest expense 7,558 10,239
Net interest income 9,738 10,244
Provision for loan losses 2,534 489
----- ---
Net interest income -After provision for
loan losses 7,204 9,755
Noninterest income:
Service charges and other fees 1,550 1,555
Investment brokerage commission income 1,091 1,587
Mortgage banking activities 1,089 892
Trust fee income 319 380
Increase in value of bank owned life
insurance 329 324
Gain on sale of securities 1,244 -
Other income 2 37
--- ---
Total noninterest income 5,624 4,775
Noninterest expenses:
Salaries and employee benefits 6,365 7,038
Occupancy and equipment 1,488 1,414
Data processing 735 818
Professional services 301 332
Real estate owned expense 440 233
Advertising 132 197
FDIC deposit insurance premium 644 171
Other 1,515 1,425
----- -----
Total noninterest expenses 11,620 11,628
Income -Before income tax expense 1,208 2,902
Provision for federal income tax 293 596
Net income $915 $2,306
==== ======
Earnings per share $0.45 $1.13
Dividends declared per share $0.39 $0.48
Key Ratios:
-----------
Return on average equity 3.55% 9.14%
Return on average assets 0.24% 0.62%
Net interest margin (tax equivalent) 2.82% 3.07%
Efficiency ratio 75.64% 77.42%
Consolidated Statements of Income
Three Months Ended
December 31,
2009 2008
Interest income (In Thousands)
Loans $3,762 $4,221
Investment securities:
Taxable 237 819
Tax-exempt 14 9
Dividends 29 -
-- -
Total interest income 4,042 5,049
Interest expense
Deposits 983 1,307
Borrowed funds 639 1,194
--- -----
Total interest expense 1,622 2,501
Net interest income 2,420 2,548
Provision for loan losses 694 221
--- ---
Net interest income -After provision for
loan losses 1,726 2,327
Noninterest income:
Service charges and other fees 372 379
Investment brokerage commission income 305 342
Mortgage banking activities 158 243
Trust fee income 84 73
Increase in value of bank owned life
insurance 80 82
Gain on sale of securities 72 -
Other income 60 22
--- ---
Total noninterest income 1,131 1,141
Noninterest expenses:
Salaries and employee benefits 1,643 1,606
Occupancy and equipment 343 366
Data processing 161 204
Professional services 57 69
Real estate owned expense 144 77
Advertising 41 56
FDIC deposit insurance premium 171 46
Other 536 336
--- ---
Total noninterest expenses 3,096 2,760
----- -----
Income -Before income tax expense (239) 708
Provision for federal income tax (40) 143
--- ---
Net income $(199) $565
===== ====
Earnings per share $(0.10) $0.28
Dividends declared per share $0.03 $0.12
Key Ratios:
-----------
Return on average equity (3.07%) 8.92%
Return on average assets (0.21%) 0.57%
Net interest margin (tax equivalent) 2.88% 2.86%
Efficiency ratio 86.94% 74.80%
SOURCE Sturgis Bancorp, Inc.
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