Empire Bancorp Announces First Quarter Operating Results

ISLANDIA, NY--(Marketwired - Apr 27, 2016) -  Empire Bancorp, Inc. (OTCQB: EMPK), today announced its financial results for the quarter ended March 31, 2016.

"With total assets just under $700 million at March 31, 2016, we continue to meet our strategic targets," stated Douglas C. Manditch, Chairman and Chief Executive Officer. "As we develop our franchise, we remain committed to strong risk management practices, including conservative underwriting standards that align with our shareholder interests. We remain watchful of New York City multifamily properties as their historically low capitalization rates may reflect an overheated market. With quality lending opportunities becoming increasingly scarce, we are writing deals cautiously and considering the impact of rising rates and repricing on property valuations and the ability of borrowers to service the debt. By diversifying our loan mix toward a greater proportion of commercial and industrial loans, we anticipate being better positioned to deal with changing economic conditions. 

Quarterly earnings for Empire Bancorp reflect the interest expense relative to the issuance of $15.3 million of subordinated debt in December 2015. Our pace of growth necessitated this capital influx to the Bank, and we anticipate absorbing these additional costs in upcoming quarters with a net outcome that is accretive to future earnings."

Quarterly Highlights

Financial Results

• Net income, measured on a consolidated basis, for the first quarter of 2016 was $486 thousand, compared with $657 thousand in the fourth quarter of 2015 and $587 thousand in first quarter of 2015;
• Net income at Empire National Bank for the first quarter of 2016, without the impact of the subordinated debt interest expense and other miscellaneous Bancorp operating expenses, was $683 thousand, compared with $703 thousand in the fourth quarter of 2015 and $606 thousand in the first quarter of 2015;
• Diluted earnings per common share for the first quarter of 2016 were $0.07, compared with $0.10 for the fourth quarter of 2015 and $0.09 for the first quarter of 2015;
• Return on average assets and average common shareholders' equity, based on consolidated net income for the recent quarter was .30% and 2.99%, respectively, compared with 0.43% and 4.03%, respectively, in the fourth quarter of 2015 and 0.48% and 3.79%, respectively, in 2015's first quarter.
  
  

Continued Financial and Credit Strength

• Solid asset quality with an allowance for loan and lease losses of 1.16% of total loans and a ratio of non-performing loans to total loans of 0.11%;
• "Well capitalized" regulatory capital levels, as of March 31, 2016(1):
  • Tier 1 leverage capital ratio of 11.57%
  • Common equity tier 1 risk-based capital ratio of 16.16%
  • Tier 1 risk-based capital ratio of 16.16%
  • Total risk-based capital ratio of 17.32%
    
    

Franchise Development

• Total assets were $696.4 million at March 31, 2016, up 36.1% from a year ago;
• Loans outstanding totaled $471.5 million, up 22.4% from a year ago;
• Deposits totaled $595.4 million, up 45.6% from a year ago.
  
  

"We continue building our franchise using a traditional community banking model, simple yet scalable, coupled with the accomplishments of our strong management team. While prioritizing our investment of capital we regularly explore opportunities for revenue generation with the goal of increasing long-term returns for our shareholders," commented Thomas M. Buonaiuto, President and Chief Operating Officer.

The annual shareholder meeting for Empire Bancorp, Inc will be held on May 19, 2016 at the Islandia Marriott Long Island at 3635 Express Drive North in Islandia. 

Strong Asset Quality/Provision for Credit Losses

Credit quality remains solid. Loans classified as nonaccrual were $536 thousand or 0.11% of total loans outstanding at March 31, 2016, compared with $548 thousand or 0.12% at December 31, 2015 and $735.4 thousand or 0.19% a year earlier.

A detailed analysis of individual borrowers and portfolios for purposes of assessing the adequacy of the allowance for credit losses is completed quarterly. As a result of this analysis and based upon growth and composition of the loan portfolio, a provision of $175 thousand was recorded for the first quarter of 2016, as compared with $250 thousand in the fourth quarter of 2015 and $127 million in the first quarter of 2015. The allowance expressed as a percentage of outstanding loans was 1.16% at March 31, 2016, compared with 1.14% at December 31, 2015 and 1.18% at March 31, 2015. 

There were no recorded charge offs or recoveries in the first quarter of 2016 and the final quarter of 2015. Net charge-offs of loans were $36 thousand during the first quarter of 2015.

Net Interest Margin/Net Interest Income

Net interest margin was 3.18% for the three months ended March 31, 2016, a decrease from 3.36% for the three months ended December 31, 2015, and a decrease from 3.87% for the three months ended March 31, 2015. The decreases from prior quarters partly resulted from lower prepayment fees recognized in the first quarter of 2016, partially offset by a change in the mix of average earning assets into loans, the highest yielding asset. The cost of average interest bearing liabilities increased to 0.78% in the first quarter of 2016 as compared to 0.62% in the first quarter of 2015. This increase is largely driven by subordinated debentures issued in December 2015 with a weighted average cost of 7.53%. To partially offset this higher cost, the mix of average interest bearing liabilities was managed to increase the average volume of savings and time deposits by $152.8 million while reducing the average cost of savings and time deposits from 0.66% in the first quarter of 2015 to 0.51% in the first quarter of 2016. Net interest income increased $391 thousand, or 8.4%, over the same period in 2015. Revenues recognized from loan prepayment penalties, written into the bank's loan agreements as protection against early loan payoffs, helped offset the lower loan yields. Although accretive to current earnings, these payoffs continue to offset much of the generated new loan growth.

Noninterest Income and Expense

Noninterest income increased to $283 thousand in the recently completed quarter, compared with $242 thousand in the fourth quarter of 2015 and $198 thousand in the first quarter of 2015. The modest increase resulted primarily from net securities losses of $18 thousand in the first quarter of 2016 compared to net securities losses of $71 thousand in the first quarter of 2015. There were no securities gains or losses in the fourth quarter of 2015.

Noninterest expenses in the first quarter of 2016 totaled $4.4 million, compared with $4.0 million in the fourth quarter of 2015 and $3.8 million in the year-earlier quarter. The most significant factor in the higher level of operating expenses was the increase in salaries and employee benefits expense of $218 thousand or 10.4 % over the previous quarter, and $382 thousand, or 19.8% over the first quarter of 2015, due primarily to the hiring of new employees to support growth and strategic plans. Net occupancy and equipment costs increased $14 thousand or 2.1% over the previous quarter, and $64 thousand, or 10.6% over the same period last year, primarily as a result of the increased footprint of the bank's main office lease and the opening of a loan and deposit production office in Manhattan. Increase in other expenses also reflected the New York State and New York City capital based taxes introduced in 2015, which replaced the Company's New York State and New York City income tax liability.

Income Tax Rate

The combined effective tax rate for 2016 remained at 36.1% in the most recent quarter as compared to the previous quarter and increased from 35.8% for the quarter ended March 31, 2015.

Balance Sheet

Assets totaled $696.4 million at March 31, 2016, up $67.3 million or 10.7% from December 31, 2015 and up $184.8 million or 36.1% from $511.6 million from a year earlier. Investment securities available for sale were $204.5 million at the recent quarter-end, up $53.5 million or 35.4% from December 31, 2015 and up $105.1 million or 105.7% from March 31, 2015. Gross loans rose 2.1% to $471.5 million from $461.8 million at December 31, 2015 and increased 22.4 % from $385.1 million at March 31, 2015.  

Total deposits were $595.4 million at March 31, 2016, up $77.4 million or 14.9% from December 31, 2015 and up $186.4 million or 45.6% from $409.0 million from a year earlier. Demand deposits totaling $193.5 increased $4.3 million or 2.3% over December 31, 2015, and $9.8 million or 5.3% from March 31, 2015. Savings, N.O.W. and money market deposits totaling $362.4 million increased $75.8 million or 26.4% over December 31, 2015, and $203.9 million or 128.6% from March 31, 2015. The growth in these deposits was driven in large part by new municipal banking relationships. Higher cost certificates of deposit of $100,000 or more and other time deposits continued to trend downward. Short-term borrowings, which primarily represent Federal Home Loan Bank borrowing, decreased to a total of $10.0 million at quarter end. At the recent quarter end, the net subordinated debentures totaled $14.7 million.

Stockholders' equity rose to $66.0 million at March 31, 2016 from $64.2 million at December 31, 2015 and $63.3 million at March 31, 2015. At March 31, 2016, the bank was "well capitalized" as defined by OCC regulation, with tier 1 leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios of 11.57%, 16.16%, 16.16% and 17.32% respectively. 

About Empire Bancorp, Inc.

Empire Bancorp, Inc. is a bank holding company for Empire National Bank, a Long Island-based independent bank that specializes in serving the financial needs of small and medium sized businesses, professionals, nonprofit organizations, municipalities, real estate investors, and consumers. The bank has four full-service banking offices located in Islandia, Shirley, Port Jefferson Station and Mineola, New York, and a loan and deposit production office located in Manhattan, New York. Our bankers take pride in understanding the needs of each customer so the bank can deliver the highest quality service with a sense of urgency.

This release may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in this press release that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "estimate" or "continue," or comparable terminology, are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within the control of the Company. The forward-looking statements included in this press release are made only as of the date of this press release. The Company has no intention, and does not assume any obligation, to update these forward- looking statements.

(1) Regulatory capital ratios presented on bank-only basis.

Consolidated Statements of Condition (unaudited)
(dollars in thousands)
			March 31,				December 31,				March 31,
			2016				2015				2015
ASSETS
Total cash and cash equivalents			$	10,762			$	5,621			$	16,930
Securities available for sale, at fair value				204,473				151,043				99,414
Securities, restricted				3,287				3,712				4,019
Loans, net				466,106				456,512				380,586
Premises and equipment, net				6,508				6,687				5,969
Other assets and accrued interest receivable				5,264				5,558				4,728
Total Assets			$	696,400			$	629,133			$	511,646
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand Deposits			$	193,505			$	189,200			$	183,734
Savings, N.O.W. and money market deposits				362,353				286,635				158,539
Certificates of deposit of $100,000 or more and other time deposits				39,589				42,198				66,768
	Total Deposits		$	595,447			$	518,033			$	409,041
Short-term borrowings				9,956				26,064				34,406
Subordinated debentures, net				14,711				14,697				-
Other liabilities and accrued expenses				10,311				6,185				4,854
Total Liabilities			$	630,425				564,979			$	448,301
Total Stockholders' Equity				65,975				64,154				63,345
Total Liabilities and Stockholders' Equity			$	696,400			$	629,133			$	511,646
Selected Financial Data (unaudited)
Allowance for Loan Losses to Total Loans				1.16	%			1.14	%			1.18	%
Non-performing Loans to Total Loans				0.11	%			0.12	%			0.19	%
Non-performing Assets to Total Assets				0.08	%			0.09	%			0.14	%
Capital Ratios (unaudited)(1)
Tier 1 Leverage Ratio				11.57	%			12.22	%			12.55	%
Common Equity Tier 1 Risk Based Capital Ratio				16.16	%			16.83	%			16.33	%
Tier 1 Risk-Based Capital Ratio				16.16	%			16.83	%			16.33	%
Total Risk-Based Capital Ratio				17.32	%			18.01	%			17.52	%
Book Value, as converted			$	9.51			$	9.32			$	9.21
(1) Regulatory capital ratios presented on bank-only basis.

Consolidated Statements of Operations (unaudited)
(dollars in thousands, except per share data)
		For the three months ended
		March 31,				December 31,				March 31,
		2016				2015				2015
Interest income		$	5,784			$	5,553			$	5,015
Interest expense			755				505				377
Net interest income		$	5,029			$	5,048			$	4,638
Provision for loan losses			175				250				127
Net interest income after provision for loan losses		$	4,854			$	4,798			$	4,511
Net securities losses			(18	)			-				(71	)
Other income			301				242				269
Other expense			4,377				4,012				3,795
Income before income taxes		$	760			$	1,028			$	914
Income tax			274				371				327
Net income		$	486			$	657			$	587
Basic earnings per share		$	0.07			$	0.10			$	0.10
Diluted earnings per share		$	0.07			$	0.09			$	0.09
Weighted average common shares outstanding (1)			6,923,028				6,879,970				5,723,720
Weighted average common and common
equivalent shares outstanding (1)			6,937,261				6,890,323				6,879,970
Selected Financial Data (unaudited)
Return on Average Assets			0.30	%			0.43	%			0.48	%
Return on Average Equity			2.99	%			4.03	%			3.79	%
Net Interest Margin			3.18	%			3.36	%			3.87	%
Efficiency Ratio			82.13	%			75.84	%			77.36	%
(1) During the third quarter of 2015, the Company converted all of its issued and outstanding Series A preferred stock for an equivalent number of shares of the Company's non-voting common stock.