Empire Bancorp Announces Second Quarter 2018 Results

ISLANDIA, N.Y., July 24, 2018 (GLOBE NEWSWIRE) -- Empire Bancorp, Inc. (OTCQX:EMPK), today announced its financial results for the quarter ended June 30, 2018.

“Our second quarter results reflected the continuing acceleration of our loan growth.  Of the $80 million or 15.2% growth that we have experienced to date during 2018, $60 million occurred during the second quarter and was driven primarily by our multifamily and residential lending.  Multifamily lending has historically been a strong component of our loan portfolio and has contributed no losses since our inception in 2008. We have recently expanded our loan product offerings to include jumbo residential mortgages and Small Business Administration 7(a) loans, which we expect to continue to enhance loan growth in future periods.  Also noteworthy this quarter, we recognized our first gain from the sale of the guaranteed portion of SBA 7(a) loans.  Net income exceeded $1.0 million for the second quarter, nearly doubling first quarter net income, which included a number of non-recurring expenses,” stated Douglas C. Manditch, Chairman and Chief Executive Officer.

Quarterly Highlights

Financial Results

• Net income, measured on a consolidated basis, for the second quarter of 2018 was $1.0 million, compared with $508 thousand for the first quarter of 2018 and $1.1 million for the second quarter of 2017.
• Diluted earnings per common share for the second quarter of 2018 were $0.13, compared with $0.07 for the first quarter of 2018 and $0.15 for the second quarter of 2017.
• Return on average assets and average common stockholders' equity for the second quarter of 2018 were 0.42% and 6.28%, respectively, compared with 0.21% and 3.11%, respectively, for the first quarter of 2018, and 0.52% and 6.50%, respectively, for the second quarter of 2017.
• Net income at Empire National Bank for the second quarter of 2018, which excludes the impact of subordinated debt interest expense and other holding company operating expenses, was $1.3 million, compared with $750 thousand, for the first quarter of 2018 and $1.3 million for the second quarter of 2017.

Mid-Year Highlights

Financial Results

• Net income, measured on a consolidated basis, for the first six months of 2018 decreased $422 thousand, or 21.7%, to $1.5 million, as compared to the same period in 2017.
• Diluted earnings per common share for the first six months of 2018 were $0.20, compared with $0.27 for the first six months of 2017.
• Return on average assets and average common stockholders' equity for the first six months of 2018 were 0.32% and 4.69%, respectively, compared with 0.48% and 6.02%, for the same period in 2017.
• Net income at Empire National Bank for the first six months of 2018, which excludes the impact of subordinated debt interest expense and other holding company operating expenses, decreased $337 thousand, or 14.4%, to $2.0 million, as compared to the same period in 2017.

Franchise Development

• Total assets were $971.4 million at June 30, 2018, up 16.1% from $836.9 million at June 30, 2017.
• Loans outstanding totaled $598.6 million at June 30, 2018, up 20.9% from $495.0 million at June 30, 2017. In the second quarter of 2018, the Company commenced its jumbo residential real estate lending activities, which accounted for $11.4 million of its growth in the quarter.
• Deposits totaled $885.6 million at June 30, 2018, up 18.3% from $748.8 million at June 30, 2017.

Continued Financial and Credit Strength

• Solid asset quality with an allowance for loan and lease losses of 1.00% of total loans and a ratio of non-performing loans to total loans of 0.94%.
   
• “Well capitalized” regulatory capital levels at Empire National Bank, as of June 30, 2018:
  • Tier 1 leverage capital ratio of 8.97%
  • Common equity tier 1 risk-based capital ratio of 14.36%
  • Tier 1 risk-based capital ratio of 14.36%
  • Total risk-based capital ratio of 15.35%

“We have continued to maintain sound asset quality as we have grown our loan portfolio, as evidenced by the fact that we had no loans past thirty days delinquent at quarter-end.  At June 30, our allowance for loan and lease losses was 1.00% of outstanding loans, a level at which we are comfortable given the quality of our loan portfolio,” commented Thomas M. Buonaiuto, President and Chief Operating Officer.

Balance Sheet

Assets totaled $971.4 million at June 30, 2018, up $24.4 million, or 2.6%, from March 31, 2018 and up $134.6 million, or 16.1%, from June 30, 2017.  Total cash and cash equivalents decreased 41.6% to $45.5 million from $77.8 million at March 31, 2018 and increased 107.0% from $22.0 million at June 30, 2017. Gross loans increased 11.2% to $598.6 million from $538.2 million at March 31, 2018 and increased 20.9% from $495.0 million at June 30, 2017. Investment securities available for sale were $290.9 million at the recent quarter end, down $4.0 million, or 1.4%, from March 31, 2018 and down $14.0 million, or 4.6%, from June 30, 2017.  

Total deposits were $885.6 million at June 30, 2018, up $24.6 million, or 2.9%, from March 31, 2018 and up $136.9 million, or 18.3%, from June 30, 2017.  Demand deposits were $167.6 million, an increase of $7.5 million, or 4.7%, from March 31, 2018, and down $4.8 million, or 2.8%, from June 30, 2017.  Savings, N.O.W. and money market deposits totaled $680.3 million at June 30, 2018, an increase of $11.8 million, or 1.8%, over March 31, 2018, and $123.0 million, or 22.1%, from June 30, 2017. The growth in these deposits was driven in large part by municipal banking relationships.  Certificates of deposits of $100,000 or more and other time deposits were $37.7 million at June 30, 2018, up $5.3 million, or 16.5%, from March 31, 2018 and up $18.7 million, or 98.3%, from June 30, 2017.
                                                                                                                                              
Stockholders’ equity decreased $0.2 million, or 0.3%, to $65.8 million, from March 31, 2018 and decreased $2.1 million, or 3.1%, from June 30, 2017. The linked quarter decrease was primarily attributable to the increase in the net unrealized losses on securities available for sale, net of taxes of $1.8 million, partially offset by net income of $1.0 million and a $0.6 million net increase associated with stock compensation plans and the exercise of warrants and stock options. The decrease in stockholders’ equity from June 30, 2017 primarily resulted from the increase in the net unrealized losses on securities available for sale, net of taxes of $7.2 million, partially offset by net income of $3.5 million and a $1.6 million net increase associated with stock compensation plans and the exercise of warrants and stock options.

Net Interest Margin/Net Interest Income

Net interest income for the second quarter of 2018 increased $127 thousand, or 2.1%, over the first quarter of 2018 and decreased $127 thousand, or 2.0%, over the second quarter of 2017.  Net interest margin was 2.68% for the three months ended June 30, 2018, an increase from 2.65% for the three months ended March 31, 2018, and a decrease from 3.14% for the three months ended June 30, 2017.

Interest income for the second quarter of 2018 increased $436 thousand, or 5.4%, from the first quarter of 2018, and $1.0 million, or 13.3%, from the second quarter of 2017.  The linked quarter increase was principally a result of an increase in income from loans of $532 thousand offset by a decrease in interest income of $98 thousand from average deposits with banks. The yield on interest earning assets increased to 3.64% for the second quarter of 2018, compared to 3.47% for the first quarter of 2018, and decreased from 3.68% for the second quarter of 2017.  The linked quarter increase in yield on interest earning assets was primarily attributed to an increase in both the average balance and yield on loans, coupled with an increase of 17 basis points in the yield of average deposits with banks, which was reflective of the increase in short term market rates. The decrease in the yield on interest earning assets over second quarter of 2017 primarily resulted from a higher percentage growth in earning assets held as deposits with banks, which generate a lower average yield as compared to assets held as loans. Lower prepayment penalties were recorded in the second quarter of 2018, as compared to the second quarter of 2017. Higher average loan balances and average loan yields partially offset these changes.

Interest expense was $2.2 million in the most recent quarter and $2.0 million for the first quarter of 2018, as compared to $1.1 million for the second quarter of 2017. The cost of interest bearing liabilities was 1.24% for the three months ended June 30, 2018, an increase from 1.07% for the three months ended March 31, 2018 and an increase from 0.76% for the three months ended June 30, 2017. The upward trend of the cost of interest bearing liabilities, especially within the competitive public fund deposit base, is the result of higher overall funding costs driven up by, among other things, increases in market rates.

Net interest income decreased $9 thousand, or 0.1%, for the first six months of 2018 over the same period in 2017. Net interest margin was 2.67% for the six months ended June 30, 2018, a decrease from 3.13% for the same period in 2017.

Interest income increased $2.2 million, or 15.0%, for the first six months of 2018 over the same period in 2017. The increase was attributable to growth in income from loans, deposits with banks and investment securities, of $1.1 million, $603 thousand and $494 thousand, respectively.  The yield on interest earning assets decreased to 3.55% for the first six months of 2018, compared to 3.63% for the same period in 2017. The decrease in yield on interest earning assets primarily resulted from a change in the mix of average earning assets with a higher percentage being held in deposits with banks, which has a lower yield, as compared to the average balance of loans.

Interest expense was $4.2 million, an increase of $2.2 million, or 109.1%, for the first six months of 2018 compared to the same period in 2017. The increase was principally a result of an increase in interest expense relative to Savings, N.O.W. and money market of $2.1 million, and $150 thousand in certificates of deposit, offset by a decrease of $65 thousand for borrowed funds. The cost of interest bearing liabilities was 1.16% for the six months ended June 30, 2018, an increase from 0.71% for the six months ended June 30, 2017.  The cost of interest bearing liabilities, especially within the competitive public fund deposit base, is the result of higher overall funding costs in the market.

Noninterest Income and Expense

Other income was $499 thousand in the second quarter of 2018 compared with $432 thousand in the first quarter of 2018, and $344 thousand over the same period in 2017. The linked quarter increase resulted primarily from higher miscellaneous loan fees recognized, coupled with a $48 thousand gain recognized on the sale of Small Business Administration (SBA) loans, specifically SBA 7(a) loans. The increase of $155 thousand in the second quarter of 2018 over the second quarter of 2017 resulted from $161 thousand income on bank-owned life insurance and a $48 thousand gain recognized on the sale of SBA 7(a) loans, partially offset by lower miscellaneous loan fee income.

Other income of $931 thousand for the first six months of 2018 represented an increase of $279 thousand, or 42.8%, as compared to the same period in 2017. The net increase for the first six months of 2018, resulted from a $320 thousand gain recognized on income from bank-owned life insurance, a $48 thousand gain recognized on the sale of SBA 7(a) loans in 2018, partially offset by a $66 thousand decrease in professional practice revenue.

Other expense in the second quarter of 2018 totaled $5.5 million, compared with $5.8 million in the first quarter of 2018 and $5.0 million in the second quarter of 2017.  The $261 thousand, or 4.5%, decrease from the linked quarter was primarily attributable to a decrease of $234 thousand, or 7.0%, in salaries and employee benefits as a result of a $200 thousand one time accelerated expense recognized in the first quarter of 2018 relative to the employee recognition and retention program. The other expense increase of $574 thousand or 11.6%, in the second quarter of 2018 over the second quarter of 2017 resulted primarily from $451 thousand increase in salaries and employee benefits. This reflects the hiring of new employees to implement strategic initiatives such as expansion of the SBA 7(a) loan program and entry into the jumbo residential mortgage market, as well as changes to the overall compensation structure.  Additionally, software services increased $114 thousand, or 31.2%, FDIC insurance increased $37 thousand or 42.5% and, professional fees increased $35 thousand, or 18.5%; these increases were offset by lower occupancy and equipment expenses.

Other expense in the first six months of 2018 totaled $11.3 million, compared with $9.9 million over the same period in 2017. The increase in other expense was primarily attributable to an increase in salaries and employee benefits expense of $1.1 million, or 21.4%, over the same period in 2017 largely due to base salary increases and benefits plans to support strategic plans and employee recognition and retention.  During the first quarter of 2018, the Company made several changes to its employee compensation structure to salaries and employee benefits to share a portion of the benefit that the Company received as a result of the Tax Cut and Jobs Act.  The increase in these expenses for the first six months of 2018, as compared to the first six months of 2017, also reflected the hiring of new employees to implement strategic initiatives such as expansion of the SBA 7(a) loan program and entry into the jumbo residential mortgage market. In addition, accelerated expenses relative to the employee recognition and retention program totaled $200 thousand in the first quarter of 2018. Additionally, software services increased $158 thousand, or 21.9%, other operating expenses increased $113 thousand, or 9.0%, and advertising and business development increased $40 thousand, or 6.5%, over the first six months of 2017, principally as a result of additional services associated with the Company’s organic growth.

Income Tax Rate

The effective income tax rate was 18.5% for the three months ended June 30, 2018, compared to 9.3% for the three months ended March 31, 2018 and 34.8% for the three months ended June 30, 2017. The lower rates in the first and second quarter of 2018 compared to the prior year were recognized as a result of the reduction from 34% to 21% in the federal marginal tax rate for corporations enacted at the end of 2017, as well as the positive impact of tax-exempt bank-owned life insurance. Additionally, during the first quarter of 2018, excess tax benefits were recognized relative to the exercise of stock options and compensatory warrants as well as the vesting of restricted stock grants. There were no excess tax benefits recognized by the Company in the second quarter of 2018.

The effective income tax rate was 15.6% for the first six months of 2018, compared to 34.6% over the same period in 2017. The lower tax rate was as a result of the reduction in marginal federal income tax rates for corporations and the effect of tax-exempt income on bank-owned life insurance purchased in the third quarter of 2017.  Additionally, excess tax benefits were recognized during the first quarter in 2018 relative to the exercise of stock options and compensatory warrants, as well as the vesting of restricted stock grants.

Strong Asset Quality/Provision for Loan Losses

There was no provision recorded for the second quarter of 2018 as compared to a provision of $227 thousand recorded for the first quarter of 2018, and compared to $140 thousand for the second quarter of 2017. Expressed as a percentage of outstanding loans, the allowance for loan and lease losses was 1.00% at June 30, 2018, compared to 1.13% at March 31, 2018 and 1.19% at June 30, 2017.

Credit quality remained solid as the Company had no delinquencies over thirty days past due in the loan portfolio at June 30, 2018. Loans classified as nonaccrual were at $5.7 million, or 0.94%, of total loans outstanding at June 30, 2018, compared with $5.8 million, or 1.08%, at March 31, 2018 and $2.0 million or 0.40%, at June 30, 2017.  The Company’s allowance for loan losses to total loans decreased thirteen basis points from 1.13% at year-end 2017 to 1.0% at June 30, 2018.  The decrease was mainly attributable to a decrease in the probable loss on an impaired loan, as well as the charge off against the allowance for loan losses of the reasonably quantifiable portion of a loss on an impaired loan that was specifically reserved for at year end.  These adjustments were partially offset by increases related primarily to growth in loans outstanding.

In the second quarter of 2018 the Company recorded a charge off of $78 thousand as compared to a charge off of $11 thousand in the first quarter of 2018, and a charge off for $264 thousand recorded in the second quarter of 2017. There were no recoveries recorded for any of the three periods presented above.

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 a private banking branch office in Manhattan.  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.

Empire Bancorp Inc. (OTCQX:EMPK) is traded on OTCQX® Best Market which is the top tier of OTC Markets Group Inc.

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.