SOURCE: Empire Bancorp, Inc.

Empire Bancorp, Inc.

October 26, 2016 12:30 ET

Empire Bancorp Announces Third 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 0.07%

ISLANDIA, NY--(Marketwired - Oct 26, 2016) - Empire Bancorp, Inc. (OTCQB: EMPK), today announced its financial results for the quarter ended September 30, 2016.

"Gross loans at quarter end exceeded $472 million," stated Douglas C. Manditch, Chairman and Chief Executive Officer. "As an organization, we are focused on increasing our net yield in this period of tightening spreads, diversifying the mix of our assets and liabilities, and realigning our loan mix. We have experienced strong deposit growth of $192 million, or 33.3%, over the past year, driven in large part by our initiative to actively solicit select municipal deposits. Pending opportunities to utilize these funds to support attractive loan prospects, we have primarily deployed these funds in our investment securities portfolio, which has enhanced our net interest income, but adversely impacted our net interest margin. 

Asset quality remains a priority. Our allowance for loan and lease losses as of quarter end was 1.16% of total loans, and our ratio of non-performing loans to total loans was at 0.07%. We steadfastly held to our core underwriting standards while healthily increasing commercial and industrial loans outstanding this quarter as a percentage of outstanding total loans. We are mindful of potential overheating of commercial real estate in some of our geographic markets, particularly in regard to higher end properties, which has resulted in a greater focus on the growth of our commercial loan portfolio and greater diversification in the composition of our loan portfolio. Our earnings performance continues to be driven chiefly by an increase in net interest income resulting primarily from deliberate balance sheet management."

Year-to-Date Highlights

Financial Results

  • Net income, measured on a consolidated basis, for the first nine months of 2016 increased $70 thousand, or 3.7%, to $1.9 million, as compared to the same period in 2015.
  • Net income at Empire National Bank for the first nine months of 2016, without the impact of the subordinated debt interest expense and other holding company operating expenses, increased $608 thousand, or 31.6%, to $2.5 million, as compared to the same period in 2015.
  • Diluted earnings per common share for the first nine months of 2016 were $0.28, compared with $0.27 for the first nine months of 2015.
  • Return on average assets and average common stockholders' equity for the first nine months of 2016 was 0.37% and 3.91%, respectively, compared with 0.48% and 3.96%, in 2015.

Quarterly Highlights

Financial Results

  • Net income, measured on a consolidated basis, for the third quarter of 2016 was $641 thousand, compared with $820 thousand for the second quarter of 2016 and $623 thousand for third quarter of 2015. The quarter over quarter decline was largely due to net securities gains of $215 thousand in the second quarter of 2016, as compared to $18 thousand in the third quarter of 2016. Additionally, the provision for loan losses totaled $140 thousand in the third quarter of 2016 as compared to $17 thousand in the linked quarter, primarily as a result of loan growth during the third quarter.
  • Net income at Empire National Bank for the third quarter of 2016, without the impact of the subordinated debt interest expense and other holding company operating expenses, was $839 thousand, compared with $1.0 million for the second quarter of 2016 and $642 thousand for the third quarter of 2015.
  • Diluted earnings per common share for the third quarter of 2016 were $0.09, compared with $0.12 for the second quarter of 2016 and $0.09 for the third quarter of 2015.
  • Return on average assets and average common stockholders' equity for the third quarter of 2016 was 0.34% and 3.75%, respectively, compared with 0.46% and 4.98%, respectively, for the second quarter of 2016 and 0.44% and 3.88%, respectively, for the third quarter of 2015.

Franchise Development

  • Total assets were $767.9 million at September 30, 2016, up 33.3% from September 30, 2015;
  • Loans outstanding totaled $467.3 million, up 10.7% from September 30, 2015;
  • Deposits totaled $679.0 million, up 34.0% from September 30, 2015.

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 0.07%;
  • "Well capitalized" regulatory capital levels at Empire National Bank, as of September 30, 2016:
    • Tier 1 leverage capital ratio of 10.31%
    • Common equity tier 1 risk-based capital ratio of 16.67%
    • Tier 1 risk-based capital ratio of 16.67%
    • Total risk-based capital ratio of 17.85%

"Our cash management online conversion is scheduled to go live at the end of October. This new platform provides a refreshed look and enhanced system features. Customers can quickly navigate to their accounts and frequently accessed online features by customizing their homepage or tailored dashboard. We continue to seek safe, simple and secure delivery options to improve our customer experience," commented Thomas M. Buonaiuto, President and Chief Operating Officer.

Balance Sheet

Assets totaled $767.9 million at September 30, 2016, down $4.9 million, or 0.6%, from June 30, 2016 and up $191.9 million, or 33.3%, from September 30, 2015. The year-over-year increase in total assets was driven primarily by increases in securities available for sale and gross loans, while the decrease in total assets over the linked quarter was primarily attributable to a decrease in securities available for sale, partially offset by an increase in gross loans. Investment securities available for sale were $265.2 million at the recent quarter-end, down $17.4 million, or 6.2%, from June 30, 2016 and up $174.7 million, or 193.0%, from September 30, 2015. Gross loans increased 2.1% to $472.8 million from $463.0 million at June 30, 2016 and increased 10.7% from $427.0 million at September 30, 2015.  

Total deposits were $679.0 million at September 30, 2016, up $34.6 million, or 5.4%, from June 30, 2016 and up $172.2 million, or 34.0%, from September 30, 2015. Demand deposits increased to $202.3 million, or 9.2%, from June 30, 2016, and increased $3.3 million, or 1.7%, from September 30, 2015. Savings, N.O.W. and money market deposits totaled $437.8 million at September 30, 2016, an increase of $19 million, or 4.5%, over June 30, 2016, and $173.5 million, or 65.6%, from September 30, 2015. The growth in these deposits was driven in large part by new and existing 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 September 30, 2016, representing 5.7% of total deposits, compared to 8.6% at September 30, 2015.

Stockholders' equity rose to $68.6 million at September 30, 2016 from $67.8 million at June 30, 2016 and $64.5 million at September 30, 2015. At September 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 10.31 %, 16.67%, 16.67% and 17.85% respectively. 

Net Interest Margin/Net Interest Income

Net interest income for the third quarter of 2016 increased $242 thousand, or 4.6%, over the second quarter of 2016 and $440 thousand, or 8.6%, over the third quarter of 2015. Net interest margin was 3.00% for the three months ended September 30, 2016, a decrease from 3.04% for the three months ended June 30, 2016, and a decrease from 3.75% for the three months ended September 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. The percentage of earning assets held as investment securities increased as a result of the significant growth in deposits. 

Interest income for the third quarter of 2016 increased $272 thousand from the second quarter of 2016 and $863 thousand from the third quarter of 2015. The yield on average earning assets for the third quarter of 2016 was 3.46% as compared to 3.51% for the linked quarter and 4.06% for the third 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 for the third quarter of 2016 increased by $62 thousand from $199 thousand in the second quarter of 2016 to $261 thousand. Prepayment fees decreased by $258 thousand as compared to the third quarter of 2015.

Interest expense totaled $848 thousand in the most recent quarter, $818 thousand for the second quarter of 2016, and $425 for the third quarter of 2015. The cost of average interest-bearing liabilities remained at 0.72% in the third quarter of 2016, as compared to the second quarter of 2016. The increase from the cost of average interest-bearing liabilities of 0.57% in the third 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 0.48% in the third quarter of 2015 to 0.45% in the third quarter of 2016.

Net interest income increased $1.1 million, or 7.7%, for the first nine months of 2016 over the same period in 2015. Net interest margin was 3.07% for the first nine months of 2016, a decrease from 3.90% for the same period in 2015. The decrease in net interest margin was primarily attributable to a decrease of 68 basis points in the company's yield on average earning assets for the first nine months of 2016, driven largely by two factors. First, the average yield on loans decreased to 4.32% for the first nine months of 2016 from 4.78% for the nine months of 2015, primarily due to prepayment fees being materially lower in the first nine months of 2016, as compared to the first nine months of 2015, due to significant refinancing activity occurring in the first nine months of 2015. Second, investment securities represented a greater percentage of the earning asset mix over the first nine months of 2016 as compared to the same period of the prior year. The percentage of earning assets held as investment securities increased as a result of the significant growth in deposits. Notwithstanding, the decrease in the yield on average earning assets for the first nine months of 2016, interest income for the first nine months of 2016 increased $2.4 million over the same period in 2015 as a result of the growth in the volume of average earning assets.

The decrease in net interest margin was also impacted by an increase of 14 basis points in the cost of average interest-bearing liabilities to 0.74% for the first nine months of 2016 from 0.60% 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 7.43%. 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 $197.9 million, while reducing the average cost of funds on these deposits to 0.44% for the first nine months of 2016 from 0.49% for the same period in 2015.

Noninterest Income and Expense

Other income of $270 thousand for the third quarter of 2016 represented a decrease of $22 thousand over the linked quarter and a decrease of $16 thousand over the same period in 2015. The company recognized net securities gains of $18 thousand in the third quarter of 2016 compared to net securities gains of $215 thousand in the second quarter of 2016. There were no securities gains or losses in the third quarter of 2015.

Other income of $863 thousand for the first nine months of 2016 represented an increase of $29 thousand, or 3.5%, as compared to the same period in 2015. The company recognized net securities gains of $215 thousand for the first nine months of 2016 compared to net securities losses of $71 thousand in the same period in 2015.

Other expense in the third quarter of 2016 totaled $4.7 million, compared with $4.5 million in the second quarter of 2016 and $4.2 million in the third quarter of 2015. The increase in other expense was primarily attributable to an increase in salaries and employee benefits expense of $127 thousand, or 5.2%, over the previous quarter, and $419 thousand, or 19.6%, over the third quarter of 2015, due primarily to the hiring of new employees to support growth and strategic plans. Net occupancy and equipment costs increased $84 thousand, or 12.8%, over the previous quarter, and increased $46 thousand, or 6.6%, over the same quarter 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 third quarter of 2015. FDIC insurance decreased $16 thousand, or 14.8%, over the previous quarter, and increased $17 thousand, or 22.7%, over the third quarter of 2015.

Other expense in the first nine months of 2016 totaled $13.6 million, compared with $12.0 million in the same period of 2015. The increase in other expense was primarily attributable to an increase in salaries and employee benefits expense of $1.3 million, or 21.0%, over the previous year, due primarily to the hiring of new employees to support growth and strategic plans. Net occupancy and equipment costs increased $141 thousand, or 7.3%, 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 $90.2 thousand over the same period last year. Advertising and business development expense increased $98 thousand, or 16.5%, as compared to the same period in 2015. FDIC insurance increased $68 thousand, or 30.1%, during the first nine months of 2016 as compared to same period in 2015, as a direct result of the increase in average assets.

Strong Asset Quality/Provision for Loan Losses

Credit quality remains solid with loans classified as nonaccrual at $325 thousand, or 0.07% of total loans outstanding at September 30, 2016, compared with $525 thousand, or 0.11%, at June 30, 2016 and $616 thousand, or 0.14%, at September 30, 2015. 

Based on management's assessment of the adequacy of the allowance for loan and lease losses, a provision of $140 thousand was recorded for the third quarter of 2016, as compared with $17 thousand for the second quarter of 2016 and $260 thousand for the third quarter of 2015. Expressed as a percentage of outstanding loans, the allowance for loan and lease losses was 1.16% at September 30, 2016, compared with 1.18% at June 30, 2016 and 1.18% at September 30, 2015. 

In the third quarter of 2016 net charge-offs were $111 thousand. In the second quarter of 2016 there were no charge-offs or recoveries. In the third quarter of 2015 net charge-offs were $11 thousand. 

Subsequent Events

Subsequent to September 30, 2016, the Company entered into an agreement with Patriot Financial Partners II, LP and Patriot Financial Partners Parallel II, LP to exchange an aggregate of 500,000 shares of voting common stock of the Company held by them for an equivalent number of shares of nonvoting common stock of the Company.

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, Mineola and 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)  
   
  September 30,     June 30,     December 31,     September 30,  
  2016     2016     2015     2015  
ASSETS                              
Total cash and cash equivalents $ 21,028     $ 18,066     $ 5,621     $ 49,616  
Securities available for sale, at fair value   265,168       282,577       151,043       90,518  
Securities, restricted   2,937       2,935       3,712       2,522  
Loans, net   467,335       457,541       456,512       422,009  
Premises and equipment, net   6,242       6,408       6,687       6,758  
Other assets and accrued interest receivable   5,157       5,240       5,558       4,563  
  Total Assets $ 767,867     $ 772,767     $ 629,133     $ 575,986  
                               
LIABILITIES AND STOCKHOLDERS' EQUITY                              
Demand Deposits $ 202,263     $ 185,307     $ 189,200     $ 198,975  
Savings, N.O.W. and money market deposits   437,808       418,801       286,635       264,317  
Certificates of deposit of $100,000 or more and other time deposits   38,910       40,329       42,198       43,536  
  Total Deposits $ 678,981     $ 644,437     $ 518,033     $ 506,828  
Short-term borrowings   -       -       26,064       -  
Subordinated debentures, net   14,725       14,715       14,697       -  
Other liabilities and accrued expenses   5,611       45,789       6,185       4,630  
Total Liabilities $ 699,317     $ 704,941     $ 564,979     $ 511,458  
Total Stockholders' Equity   68,550       67,826       64,154       64,528  
Total Liabilities and Stockholders' Equity $ 767,867     $ 772,767     $ 629,133     $ 575,986  
                               
Selected Financial Data (unaudited)                              
Allowance for Loan Losses to Total Loans   1.16 %     1.18 %     1.14 %     1.18 %
Non-performing Loans to Total Loans   0.07 %     0.11 %     0.12 %     0.14 %
Non-performing Assets to Total Assets   0.04 %     0.07 %     0.09 %     0.11 %
Book Value per Share, as converted (1) $ 9.88     $ 9.77     $ 9.32     $ 9.38  
                               
Capital Ratios (unaudited)(2)                              
Tier 1 Leverage Ratio   10.31 %     10.69 %     12.22 %     11.45 %
Common Equity Tier 1 Risk-Based Capital Ratio   16.67 %     16.27 %     16.83 %     15.41 %
Tier 1 Risk-Based Capital Ratio   16.67 %     16.27 %     16.83 %     15.41 %
Total Risk-Based Capital Ratio   17.85 %     17.43 %     18.01 %     16.51 %
                               
(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 nine months ended  
  September 30,   June 30,   September 30,   September 30,   September 30,  
  2016   2016   2015   2016   2015  
Interest income $ 6,405   $ 6,133   $ 5,542   $ 18,322   $ 15,952  
Interest expense   848     818     425     2,421     1,185  
Net interest income $ 5,557   $ 5,315   $ 5,117   $ 15,901   $ 14,767  
Provision for loan losses   140     17     260     332     617  
Net interest income after provision for loan losses   5,417     5,298     4,857     15,569     14,150  
Net securities gains (losses)   18     215     -     215     (71 )
Other income   270     292     286     863     834  
Other expense   4,706     4,536     4,169     13,619     11,986  
Income before income taxes   999     1,269     974     3,028     2,927  
Income tax expense   358     449     351     1,081     1,050  
Net income $ 641   $ 820   $ 623   $ 1,947   $ 1,877  
                               
Basic earnings per share $ 0.09   $ 0.12   $ 0.10   $ 0.28   $ 0.32  
Diluted earnings per share $ 0.09   $ 0.12   $ 0.09   $ 0.28   $ 0.27  
Weighted average common shares outstanding (1)   6,940,702     6,940,702     6,063,054     6,934,832     5,838,074  
Weighted average common and common equivalent shares outstanding (1)   6,942,421     6,955,850     6,882,015     6,941,824     6,879,970  
                               
Selected Financial Data (unaudited)                              
Return on Average Assets   0.34 %   0.46 %   0.44 %   0.37 %   0.48 %
Return on Average Equity   3.75 %   4.98 %   3.88 %   3.91 %   3.96 %
Net Interest Margin   3.00 %   3.04 %   3.75 %   3.07 %   3.90 %
Efficiency Ratio   80.76 %   80.89 %   77.16 %   81.24 %   76.84 %
                               
(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