Empire Bancorp Announces First Quarter 2020 Results

ISLANDIA, N.Y., April 30, 2020 (GLOBE NEWSWIRE) -- Empire Bancorp, Inc. EMPK, the parent holding company for Empire National Bank, today announced its financial results for the quarter ended March 31, 2020.

"The health and welfare of our employees and customers have been at the forefront of our thoughts and actions as we have responded to the COVID-19 pandemic," stated Chief Executive Officer Douglas C. Manditch.  "Our management team meets daily to discuss the most efficient and effective ways to focus our institutional resources in support of their financial needs during these challenging times."

COVID-19 Response

The company has implemented a number of key operational initiatives in response to the pandemic, including the following:

• Activated pandemic response initiatives to keep all offices open, with all drive-throughs and walk ups fully operational, while placing certain limitations on physical access to branch lobbies
• Enhanced and activated remote capabilities for off-site work by employees and initiated staff rotation schedules to mitigate business continuity risks
• Practiced social distancing with both customers and employees working in the company's offices
• Limited work-related travel
• Regularly monitored information from federal, state and local governments and the Centers for Disease Control
• Established an internal working group to implement and oversee the bank's participation in the Paycheck Protection Program, with a view to maximizing the bank's ability to serve the needs of its business customers
• Offered loan deferral and modification agreements to customers impacted by COVID-19
• Evaluated the potential for loan impairment within the bank's portfolio
• Tracked pandemic impacted relationships and general economic conditions in the bank's markets
• Monitored and evaluated the varying governmental responses to the pandemic on the business of the bank and its customers
• Enhanced liquidity position and funding sources to support current and future customer needs

President Thomas M. Buonaiuto noted, "We are closely monitoring and reevaluating the ongoing economic effects of COVID-19 on our organization and customers.  Although we expect an extended recovery period in the New York City metropolitan area, we have positioned the bank to be able to respond nimbly to address changing economic conditions and near-term customer needs, supported by an increased capital position and enhanced balance sheet liquidity." 

Quarterly Highlights

Financial Results

• Net income, measured on a consolidated basis for the first quarter of 2020, was $321 thousand compared to net income of $1.2 million for the fourth quarter of 2019, and net income of $742 thousand for the first quarter of 2019.  First quarter 2020 earnings were materially impacted by a $622 thousand increase in the provision for loan losses due to the economic uncertainty surrounding the impact of COVID-19 on the bank's customers.  The company recorded no provision for loan losses during the fourth quarter of 2019 or the first quarter of 2019.
• Diluted earnings per common share for the first quarter of 2020 were $0.04, compared to $0.15 for the fourth quarter of 2019, and $0.10 for the first quarter of 2019.
• Return on average assets and average common stockholders' equity for the first quarter of 2020 were 0.12% and 1.52%, respectively, compared with 0.47% and 5.76%, respectively, for the fourth quarter of 2019, and 0.29% and 4.15%, respectively, for the first quarter of 2019.
• "Well capitalized" regulatory capital levels at Empire National Bank, as of March 31, 2020:
   º Tier 1 leverage capital ratio of 9.17%
   º Common equity tier 1 risk-based capital ratio of 15.41%
   º Tier 1 risk-based capital ratio of 15.41% 
   º Total risk-based capital ratio of 16.52%

Franchise Development

• Total assets were $1.0 billion at March 31, 2020, up 2.3% from $978.6 at December 31, 2019, down 4.3% from $1.05 billion at March 31, 2019.
• Loans outstanding totaled $669.9 million at March 31, 2020, down 1.3% from $678.7 million at December 31, 2019, down 0.8% from $675.3 million at March 31, 2019.
• Deposits totaled $883.5 million at March 31, 2020, up 2.4% from $863.0 million at December 31, 2019, down 5.8% from $937.6 million at March 31, 2019.

Credit Quality

• Loans classified as nonaccrual dropped to $3.1 million at March 31, 2020, or 0.47%, of total loans outstanding, compared to $3.3 million, or 0.49%, at December 31, 2019.
• Provision expense was elevated for the first quarter of 2020 due to the economic uncertainty surrounding the impact of COVID-19.  A provision of $622 thousand was recorded for loan losses for the first quarter of 2020, compared to no provision for loan losses during the fourth quarter of 2019 or the first quarter of 2019. 
• As of March 31, 2020, the allowance for loan losses was 1.04% of total loans.

Balance Sheet

Assets totaled $1.0 billion at March 31, 2020, up $22.4 million, or 2.3%, from December 31, 2019, and down $45.4 million, or 4.3%, from March 31, 2019.  Total cash and cash equivalents increased $13.0 million, or 34.7%, to $50.6 million from $37.6 million at December 31, 2019, and increased $6.1 million, or 13.7%, from $44.5 million at March 31, 2019.  Investment securities available for sale were $242.5 million, up $19.5 million, or 8.8%, from $223.0 million at December 31, 2019, and down $38.8 million, or 13.8%, from March 31, 2019.  Gross loans were $669.9 million at March 31, 2020, a decrease of $8.8 million, or 1.3%, from $678.7 million at December 31, 2019, and a decrease of $5.4 million, or 0.8%, from $675.3 million at March 31, 2019.

Total deposits were $883.5 million, up $20.5 million, or 2.4%, from $863.0 million at December 31, 2019, and down $54.1 million, or 5.8%, from $937.6 million at March 31, 2019.  Demand deposits were $156.7 million, down $469 thousand, or 0.3%, from $157.2 million at December 31, 2019, and down $21.3 million, or 12.0%, from $178.1 million at March 31, 2019.  Savings, N.O.W. and money market deposits totaled $699.1 million, representing an increase of $21.3 million, or 3.1%, from $677.8 million at December 31, 2019, and a decrease of $26.4 million, or 3.6%, from $725.4 million at March 31, 2019.  Certificates of deposits of $100,000 or more and other time deposits totaled $27.7 million, down $314 thousand, or 1.1%, from December 31, 2019, and down $6.4 million, or 18.8%, from March 31, 2019.
                                                                                                                                              
Stockholders' equity increased $3.1 million, or 3.66 %, to $87.3 million, from December 31, 2019, and increased $10.5 million, or 13.67%, from March 31, 2019. The linked quarter increase was primarily attributable to the positive impact of an increase in the unrealized gains on securities available for sale, net of taxes of $2.7 million, net income of $321 thousand, and a net increase of $79 thousand associated with stock compensation plans. The increase in stockholders' equity from March 31, 2019 primarily resulted from a $5.1 million decrease in the unrealized losses on securities available, net of taxes, net income of $3.4 million, and an increase of $2.0 million associated with stock compensation plans as well as the exercise of warrants and stock options.

Net Interest Margin/Net Interest Income

Net interest income for the first quarter of 2020 decreased $66 thousand, or 1.0%, over the fourth quarter of 2019, and increased $19 thousand, or 0.3%, over the first quarter of 2019.  Net interest margin was 2.50% for the three months ended March 31, 2020, down compared to 2.61% for the three months ended December 31, 2019, and down from 2.56% for the three months ended March 31, 2019.

Interest income for the first quarter of 2020 decreased $319 thousand, or 3.4%, from the fourth quarter of 2019, and decreased $517 thousand, or 5.4%, from the first quarter of 2019. The linked quarter decrease was the result of a decrease of $263 thousand in income from loans, a decrease of $188 thousand in total securities offset by an increase of $132 thousand from deposits with banks.  The yield on interest-earning assets decreased to 3.60% for the first quarter of 2020, compared to 3.85% for the fourth quarter of 2019, and compared to 3.91% for the first quarter of 2019. The linked quarter decrease in the yield on interest-earning assets was primarily attributed to a decrease in both the average balance and the yields for both loans and securities, offset by an increase in average balance of deposits in banks outpacing the decline in rates. The decrease in the yield on earning assets, as compared to the first quarter of 2019, resulted primarily from the decline in both the average balance in securities, as well as a decline in the average rate in securities. Additionally, there was a decline in the average rate on loans, which outpaced the increased average balance of loans.

Interest expense was $2.8 million in the first quarter of 2020, $3.0 million for the fourth quarter of 2019, and $3.3 million for the first quarter of 2019. The cost of interest-bearing liabilities was 1.41% for the three months ended March 31, 2020, a decrease from 1.64% for the three months ended December 31, 2019, and a decrease from 1.75% for the three months ended March 31, 2019. The downward trend of the cost of interest-bearing liabilities is the result of lower overall funding costs driven down by, among other things, decreases in market rates.  The reduction in market rates during the first quarter of 2020 resulted in assets repricing more quickly than deposits, which impacted return on assets during the first quarter. 

Noninterest Income and Expense 

The company recognized gains on sales of securities of $15 thousand for the first quarter of 2020, as compared to $10 thousand for the fourth quarter of 2019.  There were no security gains or losses on sales of securities for the first quarter of 2019.

Other income was $495 thousand at March 31, 2020, compared to $462 thousand at December 31, 2019, and compared to $434 thousand at March 31, 2019. The linked quarter increase resulted primarily from an increase of $25 thousand, or 75.4% on gains on the sale of SBA loans.  The increase of $61 thousand, or 14.0%, compared to the first quarter of 2019 was driven by a $33 thousand, or 133.6%, increase on gains on the sale of SBA loans, and a $28 thousand increase in customer related fees and service charges.

Other expense was $5.8 million at March 31, 2020, compared to $5.4 million at December 31, 2019, and $5.8 million at March 31, 2019. The $353 thousand, or 6.5%, increase from the linked quarter was attributable to an increase in salaries and employee benefits, other operating expenses, advertising and business development, and FDIC insurance expense of $318 thousand, $227 thousand, $83 thousand, and $67 thousand, respectively. These expenses were offset by decreases in professional fees, occupancy and equipment expenses, and software services of $230 thousand, $70 thousand, and $42 thousand respectively. The increase of $14 thousand, or 0.2%, in other expenses year over year was the result of an increase of $123 thousand, or 16.7%, in other operating expense, an increase of $54 thousand, or 18.9% in professional fees and an increase of $26 thousand, or 0.8% salaries and employee benefits, offset by lower occupancy and equipment expenses, software services, FDIC insurance expense, and advertising and business development of $72 thousand, $60 thousand, $29 thousand, and $28 thousand, respectively.

Income Tax Rate

The effective income tax rate was 14.9% for the three months ended March 31, 2020, compared to 13.8% for the three months ended December 31, 2019, and 19.2% for the three months ended March 31, 2019.

Credit Quality

The 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 $622 thousand to bolster its reserves.  As a 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.  The company recorded no provision for loan losses in the fourth or first quarter of 2019. 

Expressed as a percentage of outstanding loans, the allowance for loan losses was 1.04% at March 31, 2020, and 0.94% at December 31, 2019, compared to 0.96% at March 31, 2019.  The company continues to gather the latest information available to perform and update its analysis as to the adequacy of its allowance for loan losses.  As more information becomes available, including the economic impact of the COVID-19 pandemic, the company will update its analysis, which could lead to further increases in its allowance for loan losses.

Loans classified as nonaccrual dropped to $3.1 million at March 31, 2020, or 0.47%, of total loans outstanding, compared to $3.3 million, or 0.50%, at December 31, 2019.  The linked quarter decrease in total nonaccrual loans reflected management's experience and ability with working with the bank's borrowers.  Loans classified as nonaccrual were $2.4 million, or 0.36%, of total loans outstanding, at March 31, 2019.  The company attributes its asset quality performance to the continued application of rigorous underwriting standards.   

There were no charge-offs and recoveries recorded in the first quarter of 2020 and 2019, while in the fourth quarter of 2019, $13 thousand of net charge-offs were recorded.

Merger with Flushing Financial Corporation 

Empire Bancorp, Inc. 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.  The parties have previously stated that the merger would be more likely to occur at the end of the second quarter or early in the third quarter of 2020.

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. 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.  Furthermore, many of the risks and uncertainties to which the company is subject are currently amplified by and may continue to be amplified by or may, in the future, be amplified by, the recent outbreak of the COVID-19 pandemic and the impact of varying governmental responses that affect our customers and the economies where they operate.  The effects of the ongoing COVID-19 pandemic may impact, among other things, the extent and duration of closures of businesses, including the bank's branches, vendors and customers; the operation of financial markets; employment levels; market liquidity; the impact of various actions taken in response by the U.S. federal government, the Federal Reserve, other banking regulators, state and local governments; the adequacy of the bank's allowance for loan losses in relation to potential losses in its loan portfolio; and the impact that all of these factors have on the bank's borrowers, other customers, vendors and counterparties.  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.