Sturgis Bank & Trust Company CEO, Jason J. Hyska stated, "Core business for the Bank has continued to expand in 2023. Most of our increase is attributed to 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. While net interest income has increased, the Bank expects modest margin compression as deposit rates increase. Other components of noninterest income contribute positively to net income diversification. 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 server our customer base. Credit quality has also continued strong, despite national and regional stress from higher interest rates and inflation. The overall franchise value of the Bank is expanding."

Three months ended September 30, 2023, vs. three months ended September 30, 2022 - Net income for the three months ended September 30, 2023, was $3,150,000, or $1.47 per share, compared to net income of $2,097,000, or $0.98 per share, for the same period of the prior year. The tax equivalent net interest margin increased to 3.50% in the third quarter of 2023 from 3.49% in the third quarter of 2022.

Net interest income increased to $7.3 million in the third quarter of 2023 from $6.6 million in the third quarter of 2022. The growth was primarily in loan interest income, which increased $2.9 million to $9.9 million. Total interest income increased $3.0 million to $10.6 million, while interest expense increased $2.3 million to $3.4 million.

The Bank provided ($34,000) to the allowance for credit losses in the third quarter of 2023, compared to no provision in the third quarter of 2022. Net charge-offs (recoveries) were ($8,000) in the third quarter of 2023, compared to $146,000 in the third quarter of 2022. Credit quality remains strong with 99.46% of loans performing in accordance with loan terms.

Noninterest income was $3.4 million in the third quarter of 2023, compared to $1.6 million in the same period of the prior year. Most of the increase in noninterest income was due to one-time events: $793,000 net gain on cash flow hedges; and $488,000 death benefit on bank-owned life insurance. Noninterest income from mortgage banking activities increased $331,000 to $470,000. Brokerage commissions increased $226,000 to $635,000.

Noninterest expense was $6.9 million in the third quarter of 2023, compared to $5.7 million in the third quarter of 2022. Compensation and benefits, the largest component of noninterest expenses, increased $331,000, or 8.9%. The higher compensation expense includes additional staffing for the Bank's expansion in Berrien, Calhoun, and Kalamazoo Counties.

Nine months ended September 30, 2023, vs. nine months ended September 30, 2022 - Net income for the nine months ended September 30, 2023, was $6,398,000, or $2.99 per share, compared to net income of $4,755,000, or $2.23 per share, for the same period of the prior year. The tax equivalent net interest margin increased to 3.56% in the nine months ended September 30, 2023, from 3.15% in the nine months ended September 30, 2022.

Net interest income increased to $21.6 million in the first nine months of 2023 from $17.3 million in the same period of the prior year. The growth was primarily in loan interest income, which increased $9.5 million to $27.9 million. Total interest income increased $9.9 million to $30.0 million, while interest expense increased $5.6 million to $8.4 million.

The Bank provided $193,000 to the allowance for credit losses in the first nine months of 2023, compared to no provision for the same period in the prior year. Net charge-offs (recoveries) were ($230,000) in the first nine months of 2023, compared to ($100,000) in the first nine months of 2022.

Noninterest income was $6.9 million in the first nine months of 2023, compared to $5.4 million in the same period of the prior year. Most of the increase in noninterest income was due to one-time events: $793,000 net gain on cash flow hedges; and $488,000 death benefit on bank-owned life insurance. Brokerage commissions, the largest component of noninterest income, increased $151,000 to $1.6 million.

Noninterest expense was $20.6 million in the first nine months of 2023, compared to $17.0 million in the first nine months of 2022. Compensation and benefits, the largest component of noninterest expenses, increased $1.4 million, or 13.1%. The higher compensation expense includes additional staffing for the Bank's expansion in Berrien, Calhoun, and Kalamazoo Counties.

Balance Sheet - Total assets increased to $897.4 million on September 30, 2023, from $864.8 million on December 31, 2022, primarily the result of the growth in loans. In the nine months ended September 30, 2023, loans increased $35.2 million, to $734.6 million, including an increase of $45.2 million in residential mortgages and a decrease of $10.6 million in CRE.

Interest-bearing deposits increased to $652.6 million on September 30, 2023, from $556.5 million on December 31, 2022. Noninterest-bearing deposit accounts decreased $6.0 million to $157.0 million. The increase in deposit accounts is substantially due to increased market penetration in southwest Michigan. Brokered deposits, a component of interest-bearing deposits, increased $31.8 million in the first nine months of 2023, while borrowed funds decreased $61.0 million.

Total equity was $55.5 million on September 30, 2023, compared to $52.5 million on December 31, 2022. The day-one CECL ACL reduction adjustment to equity was $1,552,000 ($1,964,000 pre-tax) and partially offset retained earnings growth from net income. Total dividends paid in the first nine months of 2023 were $1.1 million, or $0.51 per share. Book value per share was $25.84 ($21.75 tangible) as of September 30, 2023.

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.

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

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CONSOLIDATED STATEMENTS OF INCOME
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