Sturgis Bancorp : Earnings Report - June 30 2022

Contacts:

Sturgis Bancorp -- Eric Eishen, President & CEO, or Brian P. Hoggatt, CFO -- P: 269 651-9345

Sturgis Bancorp Reports Earnings for Second Quarter 2022

For Immediate Release

STURGIS, Mich., July 20, 2022 --Sturgis Bancorp, Inc. (OTCQX: STBI) today announced net income of $1.5 million for the second quarter of 2022 and $2.7 million for the first half of 2022.

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, 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 2022 was $1,453,000, an increase of $73,000. The increase from 2021 was primarily net interest income, which increased $1.0 million.
• Credit quality is very strong, with 99.87% of loans performing according to loan agreements. Allowance for loan losses was 1.17% of loans on June 30, 2022, compared to 1.28% on December 31, 2021.
• The Bank maintained strong capital ratios, exceeding "well-capitalized" requirements, with Tier 1 leverage capital at 8.34%.
• Sales of $30.4 million residential mortgages generated $1.1 million of noninterest income in the first half of 2022, compared to $1.9 million on $71.0 million of sales the first half of 2021.
• Total assets increased 4.9% during the first half of 2022, to $783.0 million.
• Net loans increased 13.4% to $615.1 million in the first half of 2022, including $41.4 million increase in residential mortgages and $20.1 million in commercial real estate loans.
• Total non-brokered deposits increased 13.0% to $648.8 million on June 30, 2022, compared to $574.2 million on December 31, 2021.

Eric L. Eishen, President and CEO, stated, "Core business for the Bank has expanded significantly in the first half of this year. Both loan and deposit growth have been at historic levels. This is primarily the result of our expansion into 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 were glad to open a full-service branch in Portage Michigan, relocate one of our South Haven branches to better facilities, and now anticipate another branch soon in Niles 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 is at an all-time high and the overall franchise value of the Bank is expanding."

Three months ended June 30, 2022 vs. three months ended June 30, 2021- Net income for the three months ended June 30, 2022 was $1,453,000, or $0.68 per share, compared to net income of $1,380,000, or $0.65 per share, for the three months ended June 30, 2021. The tax equivalent net

interest margin increased to 3.13% in the quarter ended June 30, 2022 from 2.91% in the quarter ended June 30, 2021.

Net interest income increased to $5.7 million in the second quarter of 2022 from $4.7 million in the second quarter of 2021. The growth was primarily in loan interest income, which increased $620,000 to $5.9 million. Total interest income increased $753,000 to $6.5 million, while interest expense decreased $206,000 to $840,000.

The Company made no provision to the allowance for loan losses in the second quarter of 2022, compared to $357,000 in the second quarter of 2021. Net charge-offs were ($162,000) in the second quarter of 2022, compared to ($43,000) in the second quarter of 2021.

Noninterest income was $1.8 million in the second quarter of 2022, compared to $2.1 million in the second quarter of 2021. Brokerage commissions, the largest component of noninterest income, increased to $492,000. Most of the decrease in noninterest income was due to mortgage banking activities, which decreased $279,000, to $376,000. Mortgage banking activities included residential loan sales of $9.0 million in the second quarter of 2022, compared to $19.5 million in the second quarter of 2021. Although residential loan sales decreased, residential loans originated for portfolio increased to $41.5 million in the second quarter of 2022, compared to $31.6 million in the second quarter of 2021.

Noninterest expense was $5.7 million in the second quarter of 2022, compared to $4.7 million in the second quarter of 2021. Compensation and benefits, the largest component of noninterest expenses, increased $742,000, or 26.0%. The higher compensation expense includes additional staffing for the Bank's expansion into southwest Michigan.

Six months ended June 30, 2022 vs. six months ended June 30, 2021- Net income for the six months ended June 30, 2022 was $2,659,000, or $1.25 per share, compared to net income of $2,743,000, or $1.29 per share, for the six months ended June 30, 2021. The tax equivalent net interest margin increased to 3.02% in the six months ended June 30, 2022 from 2.86% in the six months ended June 30, 2021.

Net interest income increased to $10.8 million in the first half of 2022 from $8.8 million in the first half of 2021. The growth was primarily in loan interest income, which increased $1.3 million to $11.4 million. Total interest income increased $1.6 million to $12.5 million, while interest expense decreased $332,000 to $1.8 million.

The Company made no provision to the allowance for loan losses in the first half of 2022, compared to $993,000 in the first half of 2021. Net charge-offs were ($246,000) in the first half of 2022, compared to $208,000 in the first half of 2021.

Noninterest income was $3.8 million in the first half of 2022, compared to $5.0 million in the first half of 2021. Most of the decrease was due to mortgage banking activities, which decreased $840,000, to $1.0 million. Mortgage banking activities included residential loan sales of $30.4 million in the first half of 2022, compared to $71.0 million in the first half of 2021. In addition, in 2021 the Company realized $407,000 gain on termination of an interest rate swap.

Noninterest expense was $11.4 million in the first half of 2022, compared to $9.5 million in the first half of 2021. Compensation and benefits, the largest component of noninterest expenses, increased $1.3 million, or 23.4%. The higher compensation expense includes additional staffing for the Bank's expansion into southwest Michigan.

Balance Sheet- Total assets increased to $783.0 million on June 30, 2022 from $751.7 million on December 31, 2021, primarily as a result of the growth in loans. Loans increased $72.9 million to $615.1 million on June 30, 2022, including increases of $41.4 million in residential mortgages and $20.1

million in CRE.

Interest-bearing deposits increased to $525.0 million on June 30, 2022 from $438.7 million on December 31, 2021. Noninterest-bearing deposit accounts also increased $15.9 million to $161.4 million. The increase in deposit accounts is substantially due increased market penetration in southwest Michigan. Brokered deposits, a component of interest-bearing deposits, increased $27.6 million in the six months ended June 30, 2022, while borrowed funds decreased $64.0 million.

Total equity was $50.6 million on June 30, 2022, compared to $52.4 million on December 31, 2021. The decrease was due to lower market values on available-for-sale securities, recorded in other comprehensive income. Total dividends paid in the first half of 2022 were $725,000, or $0.34 per share. Book value per share was $23.69 ($19.48 tangible) as of June 30, 2022.

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.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share data)

		June 30,	Dec. 31,
		2022				2021
ASSETS
Cash and due from banks	$	11,586				$ 15,793
Other short-term investments		3,018					23,731
Total cash and cash equivalents		14,604				39,524
Interest-earning deposits in banks		-				494
Securities - available for sale		69,305				83,134
Securities - held to maturity		22,935				24,347
Federal Home Loan Bank stock, at cost		8,381				7,951
Loans held for sale, at fair value		780				7,287
Loans, net of allowance of $7,287 and $7,031		615,081				542,196
Premises and equipment, net		16,543				13,231
Goodwill		5,834				5,834
Core deposit intangibles		36				49
Originated mortgage servicing rights		3,124				2,963
Real estate owned		240				-
Bank-owned life insurance		15,788				15,598
Accrued interest receivable		1,837				1,894
Other assets		8,559					7,233
Total assets	$	783,047				$751,735
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing	$	161,372			$145,503
Interest-bearing		524,988				438,690
Total deposits		686,360		584,193
Federal Home Loan Bank advances and other borrowings		25,000		89,000
Subordinated debentures - $15,000 face amount (less
unamortized debt issuance costs of $287 at June 30, 2022
and $327 at Dec. 31, 2021)		14,713				14,673
Accrued interest payable		336				425
Other liabilities		6,029					11,008
Total liabilities		732,438				699,299
Stockholders' equity
Common stock - $1 par value: authorized - 9,000,000 shares
issued and outstanding 2,136,691 shares at June 30, 2022
and 2,132,291 at Dec. 31, 2021		2,137				2,132
Additional paid-in capital		8,298				8,210
Retained earnings		45,756				43,823
Accumulated other comprehensive loss		(5,582)		(1,729)
Total stockholders' equity		50,609					52,436
Total liabilities and stockholders' equity	$	783,047				$751,735

CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per share data)
		Three Months
		Ended June 30,
		2022			2021
Interest income
Loans	$	5,925		$	5,305
Investment securities:
Taxable		400			289
Tax-exempt		125			134
Dividends		70			39
Total interest income		6,520			5,767
Interest expense
Deposits		491			654
Borrowed funds		349			392
Total interest expense		840			1,046
Net interest income		5,680			4,721
Provision (benefit) for loan losses		-				357
Net interest income after provision (benefit) for loan losses		5,680			4,364
Noninterest income:
Service charges and other fees		315			295
Interchange income		330			305
Investment brokerage commission income		492			483
Mortgage banking activities		376			737
Trust fee income		110			101
Earnings on cash value of bank-owned life insurance		96			72
Other income		62			60
Total noninterest income		1,781			2,053
Noninterest expenses:
Compensation and benefits		3,593			2,851
Occupancy and equipment		709			596
Interchange expenses		144			126
Data processing		253			226
Professional services		92			71
Real estate owned expense		-				3
Advertising		168			124
FDIC premiums		86			77
Other expenses		657			675
Total noninterest expenses		5,702			4,749
Income before income tax expense		1,759			1,668
Income tax expense		306			288
Net income	$	1,453		$	1,380
Earnings per share	$	0.68		$	0.65
Dividends per share	$	0.17		$	0.16