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Published in Finance

Sturgis Bank raises $15 million to continue Southwest Michigan expansion

BY Sunday, January 17, 2021 06:40pm

The $15 million Sturgis Bancorp Inc. raised through a debt offering will go to support further growth across Southwestern Michigan.

The parent company of Sturgis Bank & Trust recently converted loan production offices in Portage and St. Joseph into branches and plans to open another branch by June in St. Joseph, a market where the bank is “experiencing tremendous growth,” said President and CEO Eric Eishen.

“There is a lot of opportunity,” Eishen said. “Things are going well. As long as we can grow the bank profitably, why not?”

The growth has come after Sturgis Bank & Trust hired a number of experienced bankers who previously worked at much larger regional banks, Eishen said. Bank consolidation, most notably the August 2019 merger between TCF Financial Corp. and the former Chemical Financial Corp., has enabled Sturgis Bank to attract veteran bankers that were drawn to a smaller bank where “they have the power to make decisions” and greater flexibility, Eishen said.

“As we’ve seen some of this consolidation happening, some of those bankers want to go back to their roots and it’s given us a unique opportunity to hire some people that were market leaders in their community and wanted to get back into community banking,” said Eishen, who sees further talent migration in the market with the pending $22 billion merger between TCF and Huntington Bancshares Inc. that was announced in mid-December.

“Right now the stars are aligned for talent acquisition, and you can just keep doing what you’ve done and not grow, or take advantage of that opportunity right now,” he said. “You strike when the iron’s hot, and right now the iron’s hot. There’s a lot of really high-quality bankers that are looking to come back into the community bank model.”

Converting the Portage loan office into a branch came after Sturgis hired a couple of veteran bankers in that market.

Portage and St. Joseph represent two markets “that we really did not have a very big presence in and where we were able to acquire some of the talent, and that’s where most of our growth is currently happening,” Eishen said.

The planned branch opening later this year on Cleveland Avenue in St. Joseph will give Sturgis Bank & Trust 14 offices across the region.

To support further growth, the corporation (OTCQX:STBI) had two options to raise capital: issuing debt or additional shares. The latter option would have resulted in diluting earnings for shareholders, leading Sturgis Bancorp to opt for issuing subordinate notes, Eishen said.

West Conshohocken, Pa.-based Boenning & Scattergood Inc. served as financial adviser and the placement agent for the debt offering. Grand Rapids-based Warner Norcross + Judd LLP served as legal counsel.

Steady growth

Sturgis Bancorp has enjoyed strong growth in the last year. At the end of the third quarter of 2019, the corporation had $604.7 million in total assets, an increase of 27.7 percent from a year earlier. Deposits grew 37.8 percent in the same period of 2020 to $486.4 million and net loans increased 23.5 percent to $435 million.

Much of the growth was organic and came from strong activity in mortgage loans as consumers refinanced to a lower interest rate, Eishen said. Loans last spring through the federal government’s Payroll Protection Program “ballooned up the balance sheet a little bit,” he said.

Through the third quarter of 2020, the corporation had year-to-date net income of $4.4 million, or $2.10 per share. That compares with $3.7 million, or $1.76 per share, through three quarters in 2019.

Sturgis Bancorp consists of Sturgis Bank & Trust, plus subsidiaries Oakleaf Financial Services Inc., Oak Mortgage LLC, Oak Insurance Services LLC, and Oak Title Services LLC.

While Sturgis Bancorp focuses on driving organic growth, particularly in Portage and Berrien County and surrounding areas, it would consider an acquisition if the right opportunity came along. The corporation is not looking to do a deal, and given present capital levels, “any bank we could take on is pretty limited,” Eishen said.

The corporation last made an acquisition in April 2015 when it bought the former one-office West Michigan Savings Bank in Bangor in Van Buren County.

Sturgis also would consider additional loan production offices that would lead the bank’s entry into a market.

“It’s a very low-cost way to enter a market and kind of puts you (in a place) to see if that market is hungry for the community banking model. If it is, then you can always convert to a full-service branch like we did in Portage and St. Joe,” Eishen said.

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