Empire Bancorp Announces Second Quarter Earnings
ISLANDIA, N.Y., July 24, 2020 (GLOBE NEWSWIRE) — Empire Bancorp, Inc. (OTCQX: EMPK), today announced its financial results for the quarter and through mid-year ended June 30, 2020.
“We are pleased to report a substantial increase in quarter over quarter net income resulting in a $2.0 million profit for the quarter ending June 30, 2020. Our second quarter performance yielded significant improvements in several key financial metrics: Return on Average Assets of 0.78%, Return on Average Equity of 9.26% and an Efficiency Ratio of 60.02%. Even so, we recognize that the COVID-19 pandemic continues to present many challenges, and we remain focused on the impact of the pandemic on credit quality. As we move forward, we continue to keep our customers, employees and shareholders at the forefront of our thoughts and overall planning,” stated Chief Executive Officer Douglas C. Manditch.Quarterly HighlightsFinancial ResultsNet income, measured on a consolidated basis, for the second quarter of 2020 was $2.0 million, compared to net income of $321 thousand for the first quarter of 2020, and net income of $863 thousand for the second quarter of 2019.Diluted earnings per common share for the second quarter of 2020 were $0.26, compared to $0.04 for the first quarter of 2020, and $0.11 for the second quarter of 2019.Return on average assets and average common stockholders’ equity for the second quarter of 2020 were 0.78% and 9.26%, respectively, compared with 0.12% and 1.52%, respectively, for the first quarter of 2020, and 0.33% and 4.51%, respectively, for the second quarter of 2019.Efficiency ratio for the second quarter of 2020 was 60.02%, as compared to 85.50% for the first quarter of 2020 and 81.93% for the second quarter of 2019.President Thomas M. Buonaiuto noted, “Our operating performance for the first six months of 2020 reflects the positive impacts of the current interest rate environment on our cost of funds, prepayment penalties and reductions in salaries and benefits reflecting reduced staffing, offset by increases in the allowance for loan losses given the current economic environment. The pandemic has created challenges for many small businesses throughout our market area, and we believe that our ability to continue to serve the financial services needs of our local community during this time, including through our active participation in the SBA’s Paycheck Protection Program, has been critical. As a high touch bank, we have been regularly communicating with our customers to better understand and serve their needs and look forward to working with our PPP borrowers to complete the loan forgiveness process to enable them to convert their loans into grants.”Mid-Year HighlightsFinancial ResultsNet income, measured on a consolidated basis, for the first six months of 2020 increased $728 thousand, or 45.4%, to $2.3 million, as compared to the same period in 2019.Diluted earnings per common share for the first six months of 2020 were $0.30, compared with $0.21 for the same period in of 2019.Return on average assets and average common stockholders’ equity for the first six months of 2020 were 0.45% and 5.45%, respectively, compared with 0.31% and 4.33%, respectively, for the same period in 2019.Efficiency ratio for the first six months of 2020 was 71.89%, as compared to 84.10% for the same period in 2019.Franchise DevelopmentTotal assets were $1.05 billion at June 30, 2020, up 1.5% from $1.04 billion at June 30, 2019.Loans outstanding totaled $697.3 million at June 30, 2020, up 2.4% from $680.8 million at June 30, 2019. Excluding SBA PPP loans, loans outstanding decreased $42.1 million, or 6.2%, from June 30, 2019.Deposits totaled $933.1 million at June 30, 2020, up 0.8% from $925.4 million at June 30, 2019. Credit QualityLoans classified as nonaccrual dropped to $2.8 million at June 30, 2020, or 0.4%, of total loans outstanding, compared to $3.1 million, or 0.5%, at March 30, 2020. Provision expense was elevated for the second and first quarter of 2020 due to the economic uncertainty surrounding the impact of COVID-19. A provision of $600 thousand was recorded for loan losses for the second quarter of 2020, compared to $622 thousand during the first quarter of 2020 and $168 thousand recorded for the second quarter of 2019. As of June 30, 2020, the allowance for loan losses was 1.01% of total loans.Deferred payment loans reached approximately $220 million at the high point in the quarter, while ending the quarter at $209.8 million. These are loans to borrowers that have asked for payment deferments up to six months due to the uncertainty associated with the COVID-19 pandemic virus and how it effects their cash flow.Balance SheetAssets totaled $1.05 billion at June 30, 2020, up $51.3 million, or 5.1%, from March 31, 2020 and up $15.2 million, or 1.47%, from June 30, 2019. Total cash and cash equivalents increased $79.4 million, or 157.0%, to $130.0 million from $50.6 million at March 31, 2020, and increased $91.4 million, or 236.4%, from $38.6 million at June 30, 2019. Gross loans were $697.3 million at June 30, 2020, an increase of $27.4 million, or 4.1%, from $669.9 million at March 31, 2020, and an increase of $16.5 million, or 2.4%, from $680.8 million at June 30, 2019. The increase in gross loans was attributable solely to the origination of $60.1 million in loans under the SBA’s Payroll Protection Program (PPP) during the second quarter of 2020. The PPP loans bear interest at a rate of 1.0% over a two-year term, although they may be repaid at any time, and generate fee income to the bank ranging from 1% to 5% of the initial principal balance of each loan, based on the loan amount and the fees are amortized as a yield adjustment. The yield on SBA PPP loans for the quarter ended June 30, 2020 was approximately 2.64%. Excluding SBA PPP loans, loans outstanding decreased $42.1 million, or 6.2%, from June 30, 2019. The decrease in gross loans, other than SBA PPP loans, as compared to March 31, 2020 and June 30, 2019 was attributable primarily to an increase in loan prepayments, which was not fully offset by new loan originations. Investment securities available for sale were $186.3 million at June 30, 2020, down $56.2 million, or 23.2%, from March 31, 2020, and down $86.8 million, or 31.8% from June 30, 2019. The decline in the investment securities portfolio is a direct result of large prepayments/calls of investment securities and normal maturities.Total deposits were $933.1 million at June 30, 2020, up $49.6 million, or 5.6%, from March 31, 2020, and up $7.7 million, or 0.8%, from June 30, 2019. Demand deposits were $213.6 million, an increase of $56.9 million, or 36.3%, from March 31, 2020, and up $29.9 million, or 16.3%, from June 30, 2019. The growth in these deposits quarter over quarter was fueled in large part by deposits of SBA PPP loan proceeds. Savings, N.O.W. and money market deposits totaled $689.7 million at June 30, 2020, decreased $9.3 million, or 1.3%, from March 31, 2020, and decreased $20.5 million, or 2.9%, from June 30, 2019 due to seasonal fluctuations. Certificates of deposits of $100,000 or more and other time deposits were $29.8 million at June 30, 2020, down $2.0 million, or 7.4%, from March 31, 2020, and down $1.6 million, or 5.1%, from June 30, 2019.
Stockholders’ equity increased $1.7 million, or 1.9%, to $89.0 million, from March 31, 2020 and increased $9.9 million, or 12.5%, from June 30, 2019. The linked quarter increase was primarily attributable to net income of $2.0 million and a $149 thousand net increase associated with stock compensation plans offset by a decrease in net unrealized gain on securities available for sale, net of taxes, of $480 thousand. The increase in stockholders’ equity from June 30, 2020 was primarily attributable to net income of $4.6 million, the positive impact of a decrease in the net unrealized losses on securities available for sale, net of taxes, of $3.3 million, and a $2.0 million net increase associated with stock compensation plans.Net Interest Margin/Net Interest IncomeNet interest income for the second quarter of 2020 increased by $1.1 million over the first quarter of 2020, and increased by $1.1 million over second quarter of 2019. Net interest margin was 2.98% for the three months ended June 30, 2020; an increase from 2.50% for the three months ended March 31, 2020, and increase from 2.52% for the three months ended June 30, 2019.Interest income for the second quarter of 2020 decreased $407 thousand, or 4.5%, compared to the first quarter of 2020, and decreased $1.1 million, or 11.2%, from the second quarter of 2019. The linked quarter decrease was primarily the result of decreases in income from investment securities and deposits with banks of $400 thousand and $325 thousand, respectively, offset by increases in income from loans of $318 thousand. The increase in income from loans resulted primarily from prepayment penalties associated with payoffs of approximately $23 million in loans. Prepayment penalties for the second quarter of 2020 increased $291 thousand over the first quarter of 2020 and increased by $183 thousand over second quarter of 2019. During the second quarter of 2020, the company recorded $180 thousand in SBA PPP fees and $110 thousand in interest income from PPP loans. The yield on interest earning assets decreased to 3.50% for the second quarter of 2020, as compared to 3.60% for the first quarter of 2020 and compared to 3.92% for the second quarter of 2019. The decrease in the yield on interest earning assets was primarily attributed to a decrease in both the average balance and yield for securities available for sale and deposits with banks. Interest expense for the second quarter decreased $1.4 million, or 53.7%, to $1.3 million, compared to $2.7 million for the first quarter of 2020, and decreased $2.2 million, or 63.1%, as compared to $3.5 million for the second quarter of 2019. The cost of interest bearing liabilities was 0.70% for the three months ended June 30, 2020, a decrease from 1.41% for the three months ended March 31, 2020, and a decrease from 1.83% for the three months ended June 30, 2019. The decrease in the cost of interest bearing liabilities quarter over quarter was attributable to reductions in market interest rates due to the COVID-19 pandemic.Net interest income increased $1.1 million, or 8.9%, for the first six months in 2020 over the same period in 2019, due primarily to a decrease in the cost of interest bearing liabilities. Net interest margin was 2.74% for the first six months ended June 30, 2020, an increase from 2.54% for the same period in 2019.Interest income decreased $1.6 million, or 8.3%, for the first six months of 2020 over the same period in 2019. The decrease was attributable to a decline in income from securities of $1.7 million, partially offset by increases in income from deposits with banks and income from loans of $58 thousand and $16 thousand, respectively. The yield on interest earning assets decreased to 3.55% for the first six months of 2020, compared to 3.92% for the same period in 2019. The decrease in the yield on interest earning assets primarily resulted from a year over year decline in the percentage of earning assets held in securities available for sale coupled with lower average rates on all interest earning assets as a result of reductions in market interest rates due to the COVID-19 pandemic. The average balance of securities available for sale declined $66.8 million or 23.6%, and the average balance of interest earning deposits increased $65.7 million, year over year. The yield on securities available for sale decreased by 64 basis points to 1.96% for the first six months of 2020, as compared to 2.60% for the same period in 2019. The yield on interest earning deposits decreased by 126 basis points to 0.78% for the first six months of 2020, as compared to 2.04% for the same period in 2019, and the yield on loans decreased by ten basis points to 4.44% for the first six months of 2020, as compared to 4.54% for the same period of 2019.Interest expense was $4.0 million, representing a decrease of $2.7 million, or 40.2%, for the first six months of 2020, compared to the same period in 2019. The decrease was the result of lower interest expense relative to savings, N.O.W. and money market accounts of $2.6 million, or 45.0%. The decrease in net interest margin was impacted by a decrease of 72 basis points in the cost of average interest bearing liabilities to 1.07% for the first six months of 2020 compared to 1.79% for the same period in 2019. The fluctuation in the cost of interest bearing liabilities was attributable to reductions in market interest rates due to the COVID-19 pandemic, especially within the competitive public fund deposit base.Noninterest Income and ExpenseThere were no security gains or losses on sales of securities for the second quarter of 2020 or the second quarter of 2019. The company recognized gains on sales of securities of $15 thousand for the first quarter of 2020. Other income was $412 thousand in the second quarter of 2020, compared to $495 thousand in the first quarter of 2020, and $578 thousand for the second quarter of 2019. The linked quarter decrease of $83 thousand resulted primarily from a decrease of $65 thousand in gains recognized on the sale of Small Business Administration (SBA) loans, specifically SBA 7(a), as well as a $66 thousand decrease in customer related fees and service charges, offset by a $43 thousand increase in miscellaneous loan fees. The decrease of $166 thousand in the second quarter of 2020 compared to the second quarter of 2019 was primarily driven by a $131 thousand decrease in gains recognized on the sale of SBA 7(a) loans and a decrease of $34 thousand in customer related fees and service charges.Other income of $907 thousand represented a year over year decrease of $105 thousand, or 10.4%, as compared to the same period in 2019. The decrease for the second quarter of 2020 resulted primarily from an $88 thousand decrease in gains recognized on the sale of SBA 7(a) loans.Other expense in the second quarter of 2020 totaled $4.7 million, compared with $5.8 million in the first quarter of 2020, and $5.6 million in the second quarter of 2019. The $1.1 million, or 19.5%, decrease from the linked quarter was primarily attributable to a decrease of $680 thousand, or 20.9%, in salaries and employee benefits, a decrease of $251 thousand, or 29.2%, in other operating expense, a decrease of $114 thousand, or 33.5%, in professional fees, a decrease of $104 thousand, or 23.4%, in software services and a decrease of $18 thousand, or 3.2%, in occupancy and equipment fees. These decreases were offset by an increase in FDIC insurance of $37 thousand. Other expense decreased $942 thousand, or 16.8%, in the second quarter of 2020 over the second quarter of 2019, primarily as a result of lower salaries and employee benefits, software services, other operating expenses, and occupancy and equipment fees of $497 thousand, $180 thousand, $138 thousand, and $79 thousand, respectively. The linked quarter decrease in salary and employee benefits was primarily a result of reductions in the number of employees and expenses related to the company’s incentive compensation plans. The number of full time equivalent employees was 63 at June 30, 2020, compared to 73 at December 31, 2019, a decrease of 13.7%.Other expense for the first six months of 2020 totaled $10.5 million, compared with $11.4 million over the same period in 2019. The decrease of $928 thousand, or 8.1%, in other expense year over year was largely attributable to the lower salaries and employee benefits, software services, occupancy and equipment fees, advertising and business development, FDIC insurance and other operating expenses of $471 thousand, $240 thousand, $151 thousand, $56 thousand, $46 thousand and $15 thousand, respectively, offset by an increase in professional fees of $51 thousand. The decrease in salary and employee benefits was primarily a result of reductions in the number of employees. The decline in software services was due to the decline of the federal funds rate, as some of the service charges are based on this rate. The reduction in occupancy and equipment fees was primarily a result of the sublease of the bank’s New York City office space.As a result of its second quarter operating performance, the company’s efficiency ratio decreased to 60.02%, from 85.30% for the first quarter of 2020 and 81.93% for the same period in 2019. The company’s efficiency ratio for the first six months of 2020 was 71.89%, which represented a decrease from 84.10% for the same period in 2019. The company’s efficiency ratio was impacted most significantly by the decrease in salaries and employee benefits for the three and six months ended June 30, 2020, as compared to prior periods. The effective income tax rate was 19.9% for the second quarter ended June 30, 2020 compared to an effective income tax rate of 14.9% for the first quarter ended March 31, 2020, and 19.4% for the second quarter of 2019. The effective income tax rate was 19.3% for the first six months ended June 30, 2020 and the first six months ended June 30, 2019.Solid Asset Quality/Provision for Loan LossesThe pandemic has resulted in significant disruptions to business activity and travel, economic weakness and market volatility, among other things. As a result of the level of uncertainty surrounding the impact of COVID-19, the company recorded a provision for loan losses of $600 thousand for the quarter ended June 30, 2020, as compared to $168 thousand for the same period in 2019. The provision for loan losses of $1.2 million for the first six months of 2020 represented an increase of $1.1 million as compared to the same period in 2019. As part of its analysis of the appropriate level of provision, the bank increased the qualitative factors related to underlying economic conditions and the magnitude of that increase was based upon the characteristics of each loan segment. Expressed as a percentage of outstanding loans, the allowance for loan losses was 1.01% at June 30, 2020 and 1.04% at March 31, 2020, compared to 0.96% at June 30, 2019. The quarter over quarter decrease in the Company’s allowance for loan losses was primarily attributable to the quarter over quarter decrease in gross loans, other than the $60.1 million in SBA PPP loans originated during the quarter. SBA PPP loans are 100% guaranteed by the U.S. government and therefore do not carry a reserve in the allowance. Excluding the SBA PPP loans, the allowance for loan losses was 1.11% at June 30, 2020.Credit quality remained sound at June 30, 2020. Loans classified as nonaccrual dropped to $2.8 million at June 30, 2020, or 0.40%, of total loans outstanding, compared to $3.1 million, or 0.47%, at March 30, 2020. The decrease in total nonaccrual loans reflects the company’s experience and ability to work with borrowers. During the second quarter of 2020 one loan in the amount of approximately $1.0 million moved from non-accrual to accrual based upon its improved credit quality. Two taxi medallion loans were written down totaling approximately $500 thousand and the remaining balance totaling approximately $700 thousand was downgraded and moved to non-accrual due to cash flow issues related to the impact of COVID-19. As of June 30, 2020, $209.8 million in loan balances had been granted loan deferral and modification agreements due to the COVID-19 pandemic. At its high point during the second quarter of 2020, 175 loans totaling $220.1 million in aggregate principal amount had been granted loan deferral and modification agreements; as of July 21, 2020, the bank had outstanding 122 loans with aggregate principal balances of $164.3 million for which such agreements had been granted.During the second quarter of 2020, there were charge-offs for $526 thousand resulting from cash flow issues caused by the pandemic, including two taxi medallion loans totaling approximately $500 thousand and no recoveries were recorded. There were no charge-offs or recoveries recorded in the first quarter of 2020. During the second quarter of 2019, there were charge-offs for $74 thousand and no recoveries were recorded.Merger with Flushing Financial Corporation Empire Bancorp remains a party to a merger transaction with Flushing Financial Corporation, the closing of which has been delayed as disclosed in a prior press release. 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. 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 charge 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.Contact:
William Franz – SVP, Director of Marketing & Investor Relations
(631) 348-4444
