STBI Sturgis Bancorp Inc (QX)

STURGIS, Mich., Nov. 1, 2010 /PRNewswire-FirstCall/ -- Sturgis Bancorp, Inc. (OTC Bulletin Board: STBI) recorded net loss of $781,000 for the first nine months of 2010 and $631,000 for the quarter ended September 30, 2010, Eric L. Eishen, President and CEO, announced today.

Key Highlights for the first nine months of 2010:

• Net loss of $781,000, or $0.39 per share – with $0.09 paid in cash dividends
• Total deposits increased 9.2% to $283.1 million.
• Noninterest-bearing deposits increased $8.4 million, or 33.7%.
• Realized gain on sale of securities was $126,000, compared to $1.2 million for the prior year.
• Secured liabilities of the Bank, comprised of Federal Home Loan Bank advances and repurchase agreements, were reduced $4.9 million, or 6.0%.
• Sturgis Bank & Trust Company's regulatory capital ratios remain in the regulatory "well capitalized" status.
• Allowance for loan losses increased to 2.00% of total loans from 1.41% at the end of 2009.
• Nonaccrual loans decreased $864,000 and delinquent loans decreased to 1.25% of total loans from 1.56% at December 31, 2009.

First Nine Months of 2010 vs. 2009 – The net loss for the nine months ended September 30, 2010 was $781,000, or $0.39 per share, compared to net income of $1.1 million, or $0.55 per share for 2009. The decrease was primarily due to higher provisions for loan losses and lower gain on sale of securities.  Net interest income increased $158,000, primarily due to the higher tax-equivalent net interest margin of 2.98% in 2010 from 2.80% in 2009.  Average interest-earning assets decreased to $339.0 million for the nine months ended September 30, 2010 from $353.5 million for the same period in 2009.

Net charge-offs for the first nine months of 2010 were $2.0 million, compared to $702,000 a year ago.  The 2010 charge-offs include one relationship for $1.3 million.  The Company provided $3.6 million for loan losses in the first nine months of 2010, compared to $1.8 million in 2009.  The provision for loan losses in excess of net charge-offs recognizes the deterioration of economic market conditions, increasing the Bank's allowance for loan losses to 2.00% of total loans at September 30, 2010 from 1.41% at December 31, 2009.  The large provision in 2010 also funds allowances for losses related to modified loans.

Noninterest income was $3.4 million for the first nine months of 2010, compared to $4.6 million for same period in 2009.   The primary component of this decrease was realized gain on sale of available-for-sale mortgage-backed securities.  Mortgage banking activities also decreased 20% to $741,000, primarily due to slower residential mortgage activity and related sales.  Much of the decrease in mortgage banking activities relates to more restrictive underwriting standards imposed by the secondary market.  Commission income increased 9% to $857,000, as the market value of brokerage accounts increased.  

Noninterest expense increased $239,000, or 2.8%.  Salaries and employee benefits increased $246,000, primarily due to a decrease in deferral of loan origination expenses with slower loan volume.  Real estate owned expense also increased by $278,000, primarily due to carrying costs and write-downs of the carrying value of real estate owned.

Mr. Eishen stated, "The Bank has followed the desire of Congress and the President to work with borrowers in these difficult times.  This is something we believe is the proper thing for a Community Bank to do even without the urging of our Legislators.  However, the consequences for working with borrowers is that we must place additional money in our allowance for loan and lease losses (ALLL) as required by both Regulatory and Accounting Standards.  The ALLL was significantly increased to recognize concessions granted to those borrowers and the continuing uncertainty in the general economy.  The Company diligently investigates the loan portfolio for early indications of weakness and will make loan modifications, if it is prudent and the modification will minimize the Bank's expected losses."  

Third Quarter of 2010 vs. 2009 – The net loss for the quarter ended September 30, 2010 was $631,000, or $0.31 per share, compared to net income of $209,000, or $0.10 per share, in the third quarter of 2009.  Net interest income increased $21,000, primarily due to the higher tax-equivalent net interest margin of 2.97% in 2010 from 2.90% in 2009.  Average interest-earning assets decreased to $337.8 million for the three months ended September 30, 2010 from $343.7 million for the same period in 2009.

Net charge-offs for the third quarter of 2010 were $1.3 million, compared to $442,000 a year ago.  The Company provided $1.8 million for loan losses in the third quarter of 2010, compared to $359,000 in 2009.  

Noninterest income was $1.2 million for the third quarters of both 2010 and 2009.   The $67,000 increase in mortgage banking activities to $340,000 in 2010 was substantially offset by the $51,000 reduction in realized gains on securities sales.  

Noninterest expense decreased $1,000.  Real estate owned expense increased by $101,000, primarily due to carrying costs and write-downs of the carrying value of real estate owned.

Total assets increased to $389.7 million at September 30, 2010 from $369.9 million at December 31, 2009, primarily in cash and cash equivalents.  Loans decreased $10.0 million during the first nine months of 2010.

Over the last several quarters, we have provided the chart below to help you follow asset quality, in particular, trends in the loan portfolio.  I know shareholders' largest concern relates to risk in the loan portfolio and the trends associated with past due loans.  We have not seen a meaningful improvement in the local economy.  There are a few examples of improvements with local manufacturing companies and real estate values seem to be stabilizing.  However, there continues to be a great deal of stress in both the commercial and mortgage portfolios.  The chart below indicates slight improvement in past due and nonaccrual loans.  We hope to see the continuing improvements in nonperforming assets, but further improvements are highly dependent on concurrent improvements in employment and stability in real estate markets.  

Noninterest-bearing deposits increased to $33.2 million at September 30, 2010 from $24.9 million at December 31, 2009.  Interest-bearing deposits also increased to $249.9 million at September 30, 2010 from $234.3 million at December 31, 2009.  Brokered certificates of deposit and other certificates of deposit in excess of $100,000 increased $2.6 million from December 31, 2009.  Brokered certificates of deposit are used as an alternative to Federal Home Loan Bank ("FHLB") advances, when the total interest cost is lower.  The increase in deposits allowed the Bank to reduce FHLB advances and other borrowings by $4.9 million.

In the nine months ended September 30, 2010, the Company paid cash dividends of $0.09 per common share, totaling $182,000. Total equity was $25.1 million at September 30, 2010, compared to $25.4 million at December 31, 2009.  Book value per share decreased to $12.45 at September 30, 2010 from $12.60 at December 31, 2009.  

SUBSEQUENT EVENT – On October 19, 2010, the Bank sold $23.7 million of mortgage-backed securities at a gain of $657,000, after taxes.  The proceeds were reinvested in mortgage-backed securities.  

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.

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)

SOURCE Sturgis Bancorp, Inc.