STURGIS, Mich., Jan. 20 /PRNewswire-FirstCall/ -- Sturgis Bancorp,
Inc. (OTC:STBI) (BULLETIN BOARD: STBI) announced earnings of $2.3
million for 2008, and $565,000 for the fourth quarter of 2008. The
decrease from 2007 was primarily due to lower interest margin, Eric
L. Eishen, President and CEO, announced today. 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.
Fourth Quarter of 2008 vs. 2007 - Net income for the quarter ended
December 31, 2008 decreased to $565,000, or $0.28 per share, basic
and diluted, from $692,000, or $0.30 per share, basic and diluted,
for the year-earlier quarter. Net interest income decreased 9.1% to
$2.5 million in the fourth quarter of 2008, from $2.8 million in
2007. The decrease chiefly reflects the decrease in net interest
margin for the quarters to 2.86% in 2008 from 3.69% in 2007.
Noninterest income was $1.1 million for the fourth quarter of 2008
and $1.2 million 2007. Mortgage banking income increased $108,000
for the quarters. Noninterest expense decreased $84,000 to $2.8
million. Net charge-offs for the fourth quarter of 2008 were
$243,000, compared to $154,000 a year ago. The Company provided
$221,000 for loan losses in the fourth quarter of 2008, compared to
$124,000 in 2007. Mr. Eishen said, "Unfortunately, our earnings are
down for 2008. This is primarily due to compression of our interest
rate margin. The Federal Reserve rate cuts in 2008 have negatively
impacted our interest rate margin. We have also witnessed
irrational pricing in our market on deposits. There are many
reasons a bank may offer higher than market rates on deposits. I
will not attempt to explain them in this release, but this
irrational pricing has driven up costs and is impacting the net
interest margin of many banks. We continue to consider the lowest
cost sources of funds to support our assets and will continue to
use this strategy, when "in market" deposits exceed National rates.
"While I will not describe the loan activity as normal, we continue
to originate quality loans. As with many banks, we are carefully
examining new and existing relationships to detect weaknesses
early. We have also used the interest rate volatility to our
advantage, by purchasing Government guaranteed securities and
funding them with Repurchase Agreements. While this is not part of
our long-term business strategy, it has enhanced net income and
therefore earnings per share. As the economy recovers and we find
additional quality lending relationships, we will be able to unwind
this strategy and re-deploy our capital for higher margin loans."
Year 2008 vs. 2007 - Net income for the year ended December 31,
2008 decreased to $2.3 million, or $1.13 per share, basic and
diluted, from $3.3 million, or $1.43 per share, basic and diluted,
for 2007. Net interest income decreased 10.4% to $10.2 million,
from $11.4 million for 2007. The decrease is primarily due to the
reduction in the tax equivalent net interest margin to 3.06% in
2008 from 3.91% in 2007. Average interest-earning assets increased
to $336.6 million in 2008 from $294.9 million in 2007. Noninterest
income was $4.8 million for 2008, compared to $4.9 million for
2007. Service charges and other fee income decreased $173,000, or
10.0%, to $1.6 million. Income from mortgage banking activities
increased $257,000, as lower rates spurred mortgage refinance
activity. Noninterest expense increased $645,000, primarily in
compensation and employee benefits. Net charge-offs in 2008 were
$350,000, compared to $337,000 a year ago. The Company provided
$489,000 for loan losses in 2008, compared to $513,000 in 2007.
Total assets increased to $383.4 million at December 31, 2008 from
$347.2 million at December 31, 2007, primarily in available for
sale securities. Loans also increased $10.7 million for 2008,
primarily in commercial loans. Noninterest-bearing deposits
increased to $25.7 million at December 31, 2008 from $18.6 million
at December 31, 2007. Interest-bearing deposits also increased to
$211.8 million at December 31, 2008 from $201.5 million at December
31, 2007. The increase in interest-bearing deposits includes $10.8
million growth in money market savings accounts. In addition, the
number of checking accounts increased every month in 2008, as the
Bank continues to expand its customer base. Brokered certificates
of deposit were $37.3 million at December 31, 2008, compared to
$29.8 million at December 31, 2007. During 2008, other certificates
of deposit greater than $100,000 decreased by $5.3 million to $21.3
million. In 2008, the Company redeemed 253,243 shares of common
stock for $3.8 million and paid cash dividends of $0.48 per common
share, totaling $972,000. Total equity was $25.8 million at
December 31, 2008, compared to $27.7 million at December 31, 2007.
Book value per share increased to $12.76 at December 31, 2008 from
$12.20 at December 31, 2007. The Company concluded its Stock
Repurchase Plan on March 27, 2008 to preserve capital. Under the
Stock Repurchase Plan announced in October 2005, the Company had
repurchased 508,709 shares, about 20% of the common stock
outstanding at announcement. 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. Loan quality is of greater
interest. The table below compares the Bank's nonperforming loans
and Real Estate Owned (REO) for year-end 2008 versus year-end 2007.
It is broken down into five categories and reflects percentages of
loans and assets. Loans past due one month decreased from 2007, and
loans past due two months were unchanged. Loans past due three or
more months also decreased from 2007. These are typically the loans
that may end in litigation. These improvements in delinquent loans
are due to elevated collection efforts, and Management's desire 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.
The 2008 increase from 2007 relates primarily to one loan
relationship. This $1.7 million relationship is secured by real
estate. The collateral has been re-evaluated, and Management
believes the Bank is well secured. The borrower is working with the
Bank to liquidate the collateral. 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 loan delinquencies are largely unchanged
from 2007. In today's economic environment, we are pleased with
this fact. If the economy in our market area deteriorates, we would
expect delinquencies to elevate. Percentage of Percentage of Gross
Loans at Total Assets at December 31, December 31, Past due and
still accruing: 2008 2007 2008 2007 Past due one month 1.07% 1.14%
0.79% 0.90% Past due two months 0.38% 0.38% 0.28% 0.30% Past due
three or more months 0.14% 0.22% 0.10% 0.18% Nonaccrual loans 1.12%
0.80% 0.83% 0.63% Real Estate Owned 0.67% 0.62% 0.50% 0.49% A
second question many shareholders may have relates to TARP and the
CPP component of this legislation. Sturgis Bancorp has applied
under the "Private Bank Terms" for funds available under the CPP
program. The Bank is currently profitable and "well capitalized"
under Regulatory guidelines. Current performance indicates the Bank
does not need this additional capital, but with the uncertainty
related to the economy, the Board felt it was prudent to apply. The
Board will make a determination on participation once the Treasury
responds to our application. 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 http://www.sturgisbank.com/ . (Financial
statements follow) Consolidated Balance Sheets Dec. 31, 2008 Dec.
31, 2007 (In Thousands) Assets Cash and due from banks $6,930
$11,781 Other short-term investments 9 2,349 Total cash and cash
equivalents 6,939 14,130 Interest-earning deposits in banks 9,334
11,160 Securities - Available for sale 41,896 14,380 Securities -
Held-to-maturity 8,777 4,401 Federal Home Loan Bank stock, at cost
4,784 4,611 Loans held for sale 1,578 645 Loans, net 280,867
270,200 Premises and equipment, net 8,710 7,404 Goodwill, net of
accumulated amortization 5,109 5,109 Originated mortgage servicing
rights 1,409 1,367 Real estate owned 1,913 1,702 Bank owned life
insurance 8,072 7,748 Accrued interest receivable 2,286 2,313
Investment in limited partnerships 618 759 Other assets 1,102 1,273
Total assets $383,394 $347,202 Liabilities and Stockholders' Equity
Liabilities Deposits Noninterest-bearing $25,710 $18,598 Interest
bearing 211,807 201,524 Total Deposits 237,517 220,122 Federal Home
Loan Bank advances and fed funds purchased 86,287 83,000 Repurchase
agreements 30,500 13,000 Accrued interest payable 868 1,150 Other
liabilities 2,472 2,249 Total liabilities 357,644 319,521
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 and 2,268,607 shares at December 31, 2008 and
2007, respectively 2,017 2,269 Additional paid-in capital 6,872
10,377 Accumulated other comprehensive income (loss) 391 (100)
Retained earnings 16,470 15,135 Total stockholders' equity 25,750
27,681 Total liabilities and stockholders' equity $383,394 $347,202
Consolidated Statements of Income Three Months Ended December 31,
2008 2007 Interest income (In Thousands) Loans $4,221 $5,010
Investment securities: Taxable 819 415 Tax-exempt 9 29 Dividends -
48 Total interest income 5,049 5,502 Interest expense Deposits
1,307 1,586 Borrowed funds 1,194 1,113 Total interest expense 2,501
2,699 Net interest income 2,548 2,803 Provision for loan losses 221
124 Net interest income - After provision for loan losses 2,327
2,679 Noninterest income: Service charges and other fees 379 440
Investment brokerage commission income 342 396 Mortgage banking
activities 243 135 Trust fee income 73 90 Increase in value of bank
owned life insurance 82 82 Other income 22 12 Total noninterest
income 1,141 1,155 Noninterest expenses: Salaries and employee
benefits 1,606 1,700 Occupancy and equipment 366 335 Data
processing 204 178 Professional services 69 89 Real estate owned
expense 77 58 Advertising 56 55 Other 382 429 Total noninterest
expenses 2,760 2,844 Income - Before income tax expense 708 990
Provision for federal income tax 143 298 Net income $565 $692 Basic
earnings per share $0.28 $0.30 Diluted earnings per share $0.28
$0.30 Dividends declared per share $0.12 $0.17 Key Ratios: Return
on average equity 8.92 % 9.90 % Return on average assets 0.57 %
0.81 % Net interest margin (tax equivalent) 2.86 % 3.69 %
Efficiency ratio 74.80 % 73.55 % Consolidated Statements of Income
Year Ended December 31, 2008 2007 Interest income Loans $17,817
$19,493 Investment securities: Taxable 2,403 1,909 Tax-exempt 49
111 Dividends 214 190 Total interest income 20,483 21,703 Interest
expense Deposits 5,779 6,374 Borrowed funds 4,460 3,893 Total
interest expense 10,239 10,267 Net interest income 10,244 11,436
Provision for loan losses 489 513 Net interest income - After
provision for loan losses 9,755 10,923 Noninterest income: Service
charges and other fees 1,555 1,728 Investment brokerage commission
income 1,587 1,606 Mortgage banking activities 892 635 Trust fee
income 380 430 Increase in value of bank owned life insurance 324
319 Other income 37 167 Total noninterest income 4,775 4,885
Noninterest expenses: Salaries and employee benefits 7,038 6,836
Occupancy and equipment 1,414 1,329 Data processing 818 684
Professional services 332 289 Real estate owned expense 233 250
Advertising 197 191 Other 1,596 1,404 Total noninterest expenses
11,628 10,983 Income - Before income tax expense 2,902 4,825
Provision for federal income tax 596 1,481 Net income $2,306 $3,344
Basic earnings per share $1.13 $1.43 Diluted earnings per share
$1.13 $1.43 Dividends declared per share $0.48 $0.53 Key Ratios:
Return on average equity 9.14 % 12.04 % Return on average assets
0.62 % 1.00 % Net interest margin (tax equivalent) 3.06 % 3.91 %
Efficiency ratio 77.42 % 67.30 % DATASOURCE: Sturgis Bancorp, Inc.
CONTACT: Eric Eishen, President & CEO, or Brian P. Hoggatt,
CFO, both of Sturgis Bancorp, Inc., +1-269-651-9345 Web site:
http://www.sturgisbank.com/
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