SOURCE: Empire Bancorp, Inc.

Empire Bancorp, Inc.

July 27, 2016 13:20 ET

Empire Bancorp Announces Second Quarter Operating Results

Positive Earnings Trend for Quarter and Year to Date; Asset Quality Remains Solid- Ratio of Non-Performing Loans to Total Loans of 0.11%

ISLANDIA, NY--(Marketwired - Jul 27, 2016) - Empire Bancorp, Inc. (OTCQB: EMPK), today announced its financial results for the quarter ended June 30, 2016.

"Year-to-date and quarterly consolidated earnings trends are positive," stated Douglas C. Manditch, Chairman and Chief Executive Officer. "Our earnings performance was driven largely by an increase in net interest income attributable to healthy growth in our average earning assets, fueled by strong deposit growth, partially offset by the impact of tightening spreads. Quality loan growth remains a challenge in this market. While our gross loans outstanding at June 30, 2016 represented an increase of 15% compared to June 30, 2015, year-to-date loan growth has been relatively flat. We continue to pass on deals priced outside of our acceptable parameters by our competitors or those that do not satisfy our underwriting standards. Moreover, in contrast to 2015, refinance activity in our markets has decelerated, resulting in reduced revenues from prepayment penalties.

As a result, much of our earning asset growth has been deployed into our investment securities portfolio, which, at lower average yields as compared to loans, has resulted in net interest margin compression. Total assets at June 30, 2016 of $772.8 million reflect a purchase of approximately $41.0 million in investment securities completed just prior to quarter end in anticipation of calls on agency securities held in our portfolio. We remain firmly committed to our underwriting standards, which have continued to produce strong asset quality, as evidenced by our ratio of non-performing loans to quarter-end total loans of 11 basis points at June 30, 2016." 

Mid-Year Highlights

Financial Results

  • Net income, measured on a consolidated basis, for the first six months of 2016 increased $52 thousand, or 4.1%, to $1.3 million, as compared to the same period in 2015;
  • Net income at Empire National Bank for the first six months of 2016, without the impact of the subordinated debt interest expense and other holding company operating expenses, increased $412 thousand, or 32.1%, to $1.7 million, as compared to the same period in 2015;
  • Diluted earnings per common share for the first six months of 2016 were $0.19, compared with $0.18 for the first six months of 2015;
  • Return on average assets and average common stockholders' equity for the first six months of 2016 was 0.38% and 4.00%, respectively, compared with 0.51% and 4.00%, in 2015.

Quarterly Highlights

Financial Results

  • Net income, measured on a consolidated basis, for the second quarter of 2016 was $820 thousand, compared with $486 thousand for the first quarter of 2016 and $667 thousand for second quarter of 2015;
  • Net income at Empire National Bank for the second quarter of 2016, without the impact of the subordinated debt interest expense and other holding company operating expenses, was $1.0 million, compared with $683 thousand for the first quarter of 2016 and $679 thousand for the second quarter of 2015;
  • Diluted earnings per common share for the second quarter of 2016 were $0.12, compared with $0.07 for the first quarter of 2016 and $0.10 for the second quarter of 2015;
  • Return on average assets and average common stockholders' equity for the second quarter of 2016 was 0.46% and 4.98%, respectively, compared with 0.30% and 2.99%, respectively, for the first quarter of 2016 and 0.53% and 4.21%, respectively, for the second quarter of 2015.

Continued Financial and Credit Strength

  • Solid asset quality with an allowance for loan and lease losses of 1.18% of total loans and a ratio of non-performing loans to total loans of 0.11%;
  • "Well capitalized" regulatory capital levels, as of June 30, 20161:
    • Tier 1 leverage capital ratio of 10.69%
    • Common equity tier 1 risk-based capital ratio of 16.27%
    • Tier 1 risk-based capital ratio of 16.27%
    • Total risk-based capital ratio of 17.43%

Franchise Development

  • Total assets were $772.8 million at June 30, 2016, up 49.5% from June 30, 2015;
  • Loans outstanding totaled $457.5 million, up 15.3% from June 30, 2015;
  • Deposits totaled $644.4 million, up 51.1% from June 30, 2015.

"Commercial real estate concentrations continue to dominate the community banking news. Controlling credit and market risks is fundamental to our business. Our use of dynamic modeling, as well as traditional approaches to managing our balance sheet, facilitates the monitoring and mitigation of these risks. Our goal of increased returns for our shareholders remains foremost in our strategy and planning," commented Thomas M. Buonaiuto, President and Chief Operating Officer.

Strong Asset Quality/Provision for Credit Losses

Credit quality remains solid with loans classified as nonaccrual at $525 thousand, or 0.11% of total loans outstanding at June 30, 2016, compared with $536 thousand, or 0.11%, at March 31, 2016 and $660 thousand, or 0.16%, at June 30, 2015. 

Based on management's assessment of the adequacy of the allowance for loan and lease losses, a provision of $17 thousand was recorded for the second quarter of 2016, as compared with $175 thousand for the first quarter of 2016 and $230 thousand for the second quarter of 2015. Expressed as a percentage of outstanding loans, the allowance for loan and lease losses was 1.18% at June 30, 2016, compared with 1.16% at March 31, 2016 and 1.19% at June 30, 2015. 

There were no recorded charge-offs or recoveries during the first or second quarter of 2016, and net charge-offs of $6 thousand during the second quarter of 2015.

Net Interest Margin/Net Interest Income

Net interest income for the second quarter of 2016 increased $286 thousand, or 5.7%, over the first quarter of 2016 and $302 thousand, or 6.0%, over the second quarter of 2015. Net interest margin was 3.04% for the three months ended June 30, 2016, a decrease from 3.18% for the three months ended March 31, 2016, and a decrease from 4.11% for the three months ended June 30, 2015. This decrease from the same period last year primarily resulted from the growth in the percentage of earning assets held as investment securities, as well as materially lower revenues from prepayment fees in 2016.

Interest income for the second quarter of 2016 increased $349 thousand from the first quarter of 2016 and $739 thousand from the second quarter of 2015. The yield on average earning assets for the second quarter of 2016 was 3.51% as compared to 3.66% for the linked quarter and 4.43% for the second quarter of 2015. These decreases primarily resulted from the growth in the percentage of earning assets held as investment securities, which generated an average yield less than loans. Additionally, prepayment fees were materially lower in the second quarter of 2016, as compared to the second quarter of 2015, due to significant refinancing activity occurring in the second quarter of 2015. Prepayment fees for the second quarter of 2016 increased slightly as compared to the prior quarter of 2016. 

Interest expense totaled $818 thousand in the most recent quarter, $755 thousand for the first quarter of 2016, and $382 for the second quarter of 2015. The cost of average interest-bearing liabilities of 0.72% in the second quarter of 2016 decreased from 0.78% in the first quarter of 2016 as the average cost of funds on savings, N.O.W. and money market deposits, which comprise 86.5% of quarterly average interest bearing liabilities, decreased to 0.43% from 0.44%. The increase from the cost of average interest-bearing liabilities of 0.62% in the second quarter of 2015 was primarily attributable to the issuance of subordinated debentures in December 2015 at the holding company level, partially offset by an increase in the percentage of average interest-bearing liabilities held as savings, N.O.W. and money market deposits and a decrease in the cost of these funds from 0.51% in the second quarter of 2015. 

Net interest income increased $694 thousand, or 7.2%, for the first six months of 2016 over the same period in 2015. Net interest margin was 3.11% for the first six months of 2016, a decrease from 3.99% for the same period in 2015. The decrease in net interest margin was primarily attributable to a decrease of 73 basis points in the company's yield on average earning assets for the first six months of 2016, driven largely by two factors. First, the average yield on loans decreased to 4.30% for the first six months of 2016 from 4.81% for the first six months of 2015, primarily due to prepayment fees being materially lower in the first six months of 2016, as compared to the first six months of 2015, due to significant refinancing activity occurring in the first six months of 2015. Second, investment securities represented a greater percentage of the earning asset mix over the first six months of 2016 as compared to the same period of the prior year. Notwithstanding, the decrease in the yield on average earning assets for the first six months of 2016, interest income for the first six months of 2016 increased $1.5 million over the same period in 2015 as a result of the growth in average earning assets.

The decrease in net interest margin was also impacted by an increase of 8 basis points in the cost of average interest-bearing liabilities to 0.74% for the first half of 2016 from 0.62% for the same period in 2015. This increase was primarily attributable to the issuance of subordinated debentures in December 2015 at the holding company level with a weighted average cost of 7.44%. To partially offset this higher cost, the mix of average interest-bearing liabilities was managed to increase the average volume of savings, N.O.W. and money market deposits by $208.8 million, while reducing the average cost of funds on these deposits to 0.44% for the first half of 2016 from 0.50% for the same period in 2015.

Noninterest Income and Expense

Other income of $292 thousand for the second quarter of 2016 represented a slight decrease over the linked quarter and a slight increase over the same period in 2015. The company recognized net securities gains of $215 thousand in the second quarter of 2016 compared to net securities losses of $18 thousand in the first quarter of 2016. There were no securities gains or losses in the second quarter of 2015.

Other income of $593 thousand for the first six months of 2016 represented an increase of $45 thousand, or 8.2%, as compared to the same period in 2015. The company recognized net securities gains of $197 thousand for the first six months of 2016 compared to net securities losses of $71 thousand in the same period in 2015.

Other expense in the second quarter of 2016 totaled $4.5 million, compared with $4.4 million in the first quarter of 2016 and $4.0 million in the second quarter of 2015. The increase in other expense was primarily attributable to an increase in salaries and employee benefits expense of $112 thousand, or 4.8%, over the previous quarter, and $466 thousand, or 23.8%, over the second quarter of 2015, due primarily to the hiring of new employees to support growth and strategic plans. Costs associated with the collateralization of municipal deposits increased $37.2 thousand over the second quarter of 2015. Net occupancy and equipment costs decreased $10 thousand, or 1.5%, over the previous quarter, and increased $31 thousand, or 5.0%, 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. Advertising and business development expense was flat over the previous quarter, and increased $33 thousand, or 16.7%, over the second quarter of 2015. FDIC insurance increased $14 thousand, or 14.9%, over the previous quarter, and $33 thousand, or 44%, over the second quarter of 2015, as a direct result of the increase in average assets.

Other expense in the first half of 2016 totaled $8.9 million, compared with $7.8 million in the first half of 2015. The increase in other expense was primarily attributable to an increase in salaries and employee benefits expense of $848 thousand, or 21.8%, over the previous year, due primarily to the hiring of new employees to support growth and strategic plans. Net occupancy and equipment costs increased $95 thousand, or 7.7%, 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. Costs associated with the collateralization of municipal deposits increased $76.4 thousand over the same period last year. Advertising and business development expense increased $65 thousand, or 16.4%, as compared to the same period in 2015. FDIC insurance increased $51 thousand, or 33.8%, during the first six months of 2016 as compared to same period in 2015, as a direct result of the increase in average assets.

Balance Sheet

Assets totaled $772.8 million at June 30, 2016, up $76.4 million, or 11.0%, from March 31, 2016 and up $255.8 million, or 49.5%, from June 30, 2015. Investment securities available for sale were $282.6 million at the recent quarter-end, up $78.1 million, or 38.2%, from March 31, 2016 and up $188.7 million, or 201.0%, from June 30, 2015. Gross loans decreased 1.8% to $463.0 million from $471.5 million at March 31, 2016 and increased 15.3% from $401.6 million at June 30, 2015.  

Total deposits were $644.4 million at June 30, 2016, up $49.0 million, or 8.2%, from March 31, 2016 and up $217.9 million, or 51.1%, from June 30, 2015. Demand deposits decreased to $185.3 million, or 4.2%, from March 31, 2016, and increased $4.9 million, or 2.7%, from June 30, 2015. Savings, N.O.W. and money market deposits totaled $418.8 million at June 30, 2016, an increase of $56.4 million, or 15.6%, over March 31, 2016, and $228.3 million, or 119.8%, from June 30, 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 as a percentage of total deposits at June 30, 2016. The company had no short-term borrowings at June 30, 2016, a decrease of $10.0 million from March 31, 2016 and $22.6 million from June 30, 2015. At June 30, 2016, net subordinated debentures totaled $14.7 million. Other liabilities of $45.8 million at June 30, 2016 included the funds due to brokers of approximately $41 million resulting from the purchases of investment securities at quarter end. 

Stockholders' equity rose to $67.8 million at June 30, 2016 from $66.0 million at March 31, 2016 and $63.2 million at June 30, 2015. At June 30, 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 10.69 %, 16.27%, 16.27% and 17.43% respectively. 

1 Regulatory capital ratios presented on bank-only basis.

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.

         
         
Consolidated Statements of Condition (unaudited)        
(dollars in thousands, except per share data)        
    June 30,     March 31,     December 31,     June 30,  
    2016     2016     2015     2015  
ASSETS                                
Total cash and cash equivalents   $ 18,066     $ 10,762     $ 5,621     $ 11,596  
Securities available for sale, at fair value     282,577       204,473       151,043       93,906  
Securities, restricted     2,935       3,287       3,712       3,543  
Loans, net     457,541       466,106       456,512       396,811  
Premises and equipment, net     6,408       6,508       6,687       6,290  
Other assets and accrued interest receivable     5,240       5,264       5,558       4,812  
  Total Assets   $ 772,767     $ 696,400     $ 629,133     $ 516,958  
                                 
LIABILITIES AND STOCKHOLDERS' EQUITY                                
Demand Deposits   $ 185,307     $ 193,505     $ 189,200     $ 180,398  
Savings, N.O.W. and money market deposits     418,801       362,353       286,635       190,492  
Certificates of deposit of $100,000 or more and other time deposits     40,329       39,589       42,198       55,625  
  Total Deposits   $ 644,437     $ 595,447     $ 518,033     $ 426,515  
Short-term borrowings     -       9,956       26,064       22,593  
Subordinated debentures, net     14,715       14,711       14,697       -  
Other liabilities and accrued expenses     45,789       10,311       6,185       4,641  
Total Liabilities   $ 704,941     $ 630,425     $ 564,979     $ 453,749  
Total Stockholders' Equity     67,826       65,975       64,154       63,209  
Total Liabilities and Stockholders' Equity   $ 772,767     $ 696,400     $ 629,133     $ 516,958  
                                 
Selected Financial Data (unaudited)                                
Allowance for Loan Losses to Total Loans     1.18 %     1.16 %     1.14 %     1.19 %
Non-performing Loans to Total Loans     0.11 %     0.11 %     0.12 %     0.16 %
Non-performing Assets to Total Assets     0.07 %     0.08 %     0.09 %     0.13 %
Book Value per Share, as converted (1)   $ 9.77     $ 9.51     $ 9.32     $ 9.19  
                                 
Capital Ratios (unaudited)(2)                                
Tier 1 Leverage Ratio     10.69 %     11.57 %     12.22 %     12.63 %
Common Equity Tier 1 Risk-Based Capital Ratio     16.27 %     16.16 %     16.83 %     15.97 %
Tier 1 Risk-Based Capital Ratio     16.27 %     16.16 %     16.83 %     15.97 %
Total Risk-Based Capital Ratio     17.43 %     17.32 %     18.01 %     17.17 %
                                 
(1)   Book value, as converted, treats the Series A preferred stock as having been converted into common stock because it has been structured as a nonvoting common stock equivalent.
(2)   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     For the six months ended  
    June 30,     March 31,     June 30,     June 30,     June 30,  
    2016     2016     2015     2016     2015  
Interest income   $ 6,133     $ 5,784     $ 5,394     $ 11,917     $ 10,409  
Interest expense     818       755       382       1,573       759  
Net interest income   $ 5,315     $ 5,029     $ 5,012     $ 10,344     $ 9,650  
Provision for loan losses     17       175       230       192       357  
Net interest income after provision for loan losses     5,298       4,854       4,782       10,152       9,293  
Net securities gains (losses)     215       (18 )     -       197       (71 )
Other income     292       301       279       593       548  
Other expense     4,536       4,377       4,022       8,913       7,817  
Income before income taxes     1,269       760       1,039       2,029       1,953  
Income tax expense     449       274       372       723       699  
Net income   $ 820     $ 486     $ 667     $ 1,306     $ 1,254  
                                         
Basic earnings per share   $ 0.12     $ 0.07     $ 0.12     $ 0.19     $ 0.22  
Diluted earnings per share   $ 0.12     $ 0.07     $ 0.10     $ 0.19     $ 0.18  
Weighted average common shares outstanding (1)     6,940,702       6,923,028       5,723,720       6,931,865       5,723,720  
Weighted average common and common equivalent shares outstanding (1)     6,955,850       6,937,261       6,879,970       6,946,277       6,879,970  
                                         
Selected Financial Data (unaudited)                                        
Return on Average Assets     0.46 %     0.30 %     0.53 %     0.38 %     0.51 %
Return on Average Equity     4.98 %     2.99 %     4.21 %     4.00 %     4.00 %
Net Interest Margin     3.04 %     3.18 %     4.11 %     3.11 %     3.99 %
Efficiency Ratio     80.89 %     82.13 %     76.02 %     81.49 %     76.66 %
                                         
(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.

Contact Information

  • Contact:
    William Franz
    VP, Director of Marketing & Investor Relations
    (631) 348-4444