Revere Bank Announces Record Earnings for 2019 – Net Income of $31.70 Million Increased 14.7% Over 2018's Record Earnings

ROCKVILLE, Md., Jan. 28, 2020 (GLOBE NEWSWIRE) -- Revere Bank (the "Bank") REVB today reported quarterly net income of $8.04 million for the quarter ended December 31, 2019, an 11.4% increase compared to net income of $7.21 million for the quarter ended December 31, 2018, and a 2.6% decrease over the quarter ended September 30, 2019.  Net income per diluted common share increased 10.2% to $0.65 for the fourth quarter of 2019, compared to $0.59 for the same period in 2018.  Net income per basic common share for the fourth quarter of 2019 was $0.67 compared to $0.61 for the same period in 2018, an increase of 9.8%. Both diluted and basic earnings per share increased primarily due to higher net interest income.  Compared to the third quarter of 2019, diluted and basic earnings per share decreased by 3.0% and 2.9%, respectively, driven primarily by a lower net interest margin, a decrease in non-interest income, and an increase in salaries and employee benefits expense.

For the year ended December 31, 2019, net income was $31.70 million, a 14.7% increase compared to net income of $27.63 million for the year ended December 31, 2018.  Our year-to-date net income per diluted common share increased $0.07 to $2.59 for the year ended December 31, 2019, compared to $2.52 per diluted common share for the year ended December 31, 2018, driven primarily by higher net interest income and an increase in non-interest income.  Our basic and diluted earnings per share were also impacted by our successful capital raise in September 2018, when we issued 1.6 million additional shares of common stock.

Quarterly Highlights

• Net income grew by 11.4% compared to the fourth quarter of 2018 and decreased by 2.6% compared to the third quarter of 2019.
• Period end loans grew 17.8%, or $370.1 million, compared to the fourth quarter of 2018, and grew 3.7%, or $88.4 million, compared to the third quarter of 2019.
• Period end deposits grew 12.3%, or $256.4 million, compared to the fourth quarter of 2018, and grew 0.3%, or $7.9 million, compared to the third quarter of 2019.
• Net interest margin was 3.40% for the fourth quarter of 2019 compared to 3.75% for the fourth quarter of 2018, and 3.57% for the third quarter of 2019.  The margin decrease in the fourth quarter was due to a material increase in our average cash balances compared to the prior quarter and a decrease in the yield on loans that was greater than the decrease in the cost of deposits.  
• Efficiency ratio increased to 51.44% for the fourth quarter of 2019 compared to 50.61% for the same period last year, and compared to 48.84% for the linked quarter.  This increase in the efficiency ratio was due to the compression in our net interest margin, a decrease in non-interest income, and an increase in incentive compensation related to significant loan production in the second half of the year.
• Return on average equity was 10.62% for the fourth quarter of 2019, compared to 10.95% for the fourth quarter of 2018 and 11.20% for the third quarter of 2019.
• Tangible book value increased to $22.80 as of the quarter ended December 31, 2019, compared to $19.84 for the fourth quarter of 2018 and $22.14 for the third quarter of 2019.
• The previously announced acquisition by Sandy Spring Bancorp, Inc., has progressed as expected and has received Federal Reserve Board approval.  The special meeting of Revere Bank stockholders is scheduled for February 11, 2020. 
• Revere Bank entered into a lease agreement for its first branch in Washington, D.C., which is expected to open during the summer of 2020.  

Drew Flott, Co-President and CEO, said, "We have continued to grow and maintain momentum even with the significant effort required to finalize our transaction with Sandy Spring Bancorp. We are excited about the positive response to the merger from our customers, associates and our market."

Ken Cook, Co-President and CEO, added, "We are pleased to report record annual earnings and loan production. Our continued strong momentum, coupled with a margin we expect to improve in 2020, positions us for a strong first quarter."

Earnings and Growth Highlights

Quarter end highlights

Fourth quarter net income increased $824 thousand ($0.06 per diluted share), or 11.4%, compared to the fourth quarter of 2018, primarily driven by increased net interest income fueled by loan growth and the FDIC small bank premium credit, partially offset by a decrease in our net interest margin and an increase in salaries and employee benefits expense, occupancy expense, legal fees, and merger and acquisition costs.  Fourth quarter net income decreased $211 thousand ($0.02 per diluted share), or 2.6%, compared to the third quarter of 2019, due to a decrease in non-interest income, and an increase in salaries and employee benefits expense, partially offset by an increase in net interest income driven by loan growth, partially offset by a 17 basis point decrease in net interest margin. 

We continued to experience very strong year-over-year loan and deposit growth.  As of December 31, 2019, loans were $2.45 billion, an increase of 17.8% compared to loans of $2.08 billion as of December 31, 2018, and an increase of 3.7% compared to loans of $2.37 billion as of September 30, 2019.  Total deposits increased by 12.3% compared to $2.09 billion as of December 31, 2018, and core deposits, defined as total deposits excluding brokered deposits and listing service deposits, increased by 13.7% compared to the same period.  Total deposits increased 0.3% to $2.35 billion as of December 31, 2019, compared to $2.34 billion as of September 30, 2019.  The Bank has relied less on non-core deposits, which have decreased $21.1 million and $18.9 million compared to the third quarter of 2019 and fourth quarter of 2018, respectively.

Year-to-date highlights

For the year ended December 31, 2019, net income increased $4.07 million, or 14.7%, to $31.70 million compared to $27.63 million for the year ended December 31, 2018.  The increase in net income was primarily due to an increase in net interest income mostly from higher loan growth, an increase in non-interest income, and the FDIC small bank premium credit partially offset by a decrease in our net interest margin, and an increase in salaries and benefits expense, occupancy expense, and merger and acquisition costs.  Diluted earnings per share for the year ended December 31, 2019, increased $0.07 per share compared to the same period last year, primarily due to higher net interest income, an increase in non-interest income and the FDIC small bank premium credit, partially offset by an increase in salaries and employee benefits expense, occupancy expense, merger and acquisition costs, and the impact of our capital raise in September 2018.

Income Statement Review

For the three months ended December 31, 2019

Net interest income

On a year-over-year basis, our net interest income continues to grow and drive increased earnings.  Fourth quarter net interest income increased 10.3% compared to the same period last year, driven primarily by strong loan growth partially offset by an increase in our cost of deposits and a decrease in our yield on interest-earning assets.  Compared to the linked quarter, net interest income improved 1.9%.

Our current quarter's net interest margin decreased 17 basis points from the linked quarter.  The decline in the margin was primarily driven by a 27 basis point decrease in the yield on interest-earning assets which was partially offset by a 15 basis point decrease in the cost of interest-bearing liabilities.  The large decrease in the yield on interest-earning assets was driven by both declining interest rates charged as well as the significant cash balance, due to temporary large deposits, during the quarter which was significantly reduced by the end of the fourth quarter.  Our December 2019 net interest margin showed positive momentum leading into the first quarter of 2020.

When compared to the quarter ended December 31, 2018, our net interest margin decreased 35 basis points.  This decrease was driven by a decrease in the yield on interest-earning assets and an increase in the cost of interest-bearing liabilities.  Our increased cash balance during the fourth quarter of 2019 and a decrease in the yield on loans caused the yield on interest-earning assets to decrease by 25 basis points compared to the fourth quarter of 2018.  The 13 basis point increase in the cost of interest-bearing liabilities was primarily driven by an increase in interest rates for certificates of deposit, and Federal Home Loan Bank ("FHLB") advances, and to a lesser extent, the mix of our interest-bearing liabilities.   

With the reduction of our cash balances towards the end of the fourth quarter of 2019, as well as a normalization of the interest rate spread, we anticipate an increase in our net interest margin during the first quarter of 2020. 

Our non-interest-bearing deposits decreased 6.2% compared to the third quarter of 2019 and increased 14.2% compared to the fourth quarter of 2018, respectively.

Provision for Loan Losses
For the fourth quarter of 2019, the provision for loan losses decreased $195 thousand compared to the third quarter of 2019 and $131 thousand compared to the fourth quarter of 2018.  The provisions were impacted by net charge-offs of $112 thousand, $503 thousand, and $147 thousand in the fourth quarter of 2019, third quarter of 2019, and fourth quarter of 2018, respectively.  The change in our provision also reflects slightly slower loan growth during the fourth quarter of 2019 and our superior credit quality.

Our allowance for loan losses to total loans as of December 31, 2019, was 0.94% compared to 0.90% as of December 31, 2018.  As of December 31, 2019 and 2018, we had purchase accounting discounts, associated with our two bank acquisitions, remaining of $3.34 million and $4.33 million, respectively.  Adjusting for the remaining purchase accounting discounts, our allowance for loan losses to total loans would have been 1.07% and 1.11%, respectively.

Non-interest income and Non-interest expense

Non-interest income was $639 thousand for the fourth quarter of 2019, a slight increase of $7 thousand, or 1.1%, compared to the fourth quarter of 2018, and a decrease of $272 thousand, or 29.9%, compared to the third quarter of 2019.  The decrease compared to the third quarter of 2019 was caused by higher loan referral fee income during the third quarter. 

Non-interest expense increased by $1.36 million, or 11.8%, in the fourth quarter of 2019 compared to the same period last year.  The year-over-year increase was due to higher salaries and employee benefits expense, related to an increase in staff necessary to support our continued growth, merger and acquisition costs, occupancy expense, and legal fees for watch list loans.  Approximately $340 thousand of the increase in salaries and employee benefits expense, compared to the fourth quarter of 2018, was associated with the addition of a team of commercial lenders and support staff who joined the Bank during the second quarter of 2019.  Compared to the third quarter of 2019, non-interest expense increased $744 thousand, or 6.1%, driven by an increase in salaries and employee benefits expense, primarily related to incentive compensation associated with record production in the second half of the year, and advertising expense. 

During the fourth quarter of 2019, our efficiency ratio increased to 51.44% compared to 50.61% in the same period last year.  The increase was primarily due to the increase in salaries and benefits expense and merger and acquisition costs, and flat non-interest income, partially offset by the FDIC small bank premium credit.  Compared to the linked quarter, our efficiency ratio increased to 51.44% from 48.84%, driven by an increase in salaries and employee benefits expense, a decrease in non-interest income as well as comparatively low net interest income growth.

Performance Ratios

Return on average assets decreased 11 basis points and return on average equity decreased 58 basis points compared to the third quarter of 2019.  The decrease for both metrics was driven by the change in our earning asset mix resulting from a larger cash position, a decrease in the net interest margin, a decrease in non-interest income as well as an increase in salaries and employee benefits expense. Return on average assets and return on average equity decreased by 10 basis points and 33 basis points, respectively, compared to the fourth quarter of 2018.  Compared to the fourth quarter of 2018, return on average assets and equity decreased primarily due to a decrease in the net interest margin and higher salaries and employee benefits expense.  When compared to the quarter ended December 31, 2018, the decrease in return on average equity was also impacted by the improvement in the fair value of available-for-sale investment securities, which does not have an impact on earnings.

For the year ended December 31, 2019

Net interest income

Net interest income increased $10.03 million for the year ended December 31, 2019, to $92.87 million as compared to $82.84 million for the year ended December 31, 2018.  The increase was driven by loan growth over the period and higher rates charged on loans, partially offset by a higher cost of interest-bearing liabilities. 

The net interest margin for the year ended December 31, 2019, decreased 19 basis points compared to the year ended December 31, 2018, due primarily to an increase in the cost of interest-bearing liabilities and changes in our earning asset mix.  The cost of interest-bearing liabilities increased 44 basis points compared to the prior year, primarily due to higher rates on certificate of deposit and money market accounts.  The increased cost of interest-bearing liabilities was partially offset by higher yields on interest-earning assets, driven mostly by an increase in rates charged on loans.

Provision for Loan Losses
For the year ended December 31, 2019, the provision for loan losses was $4.81 million, compared to $4.09 million for the same period last year.  The provision was impacted by our loan growth, very strong asset quality, and net charge-offs during the year ended December 31, 2019, of $479 thousand.

Non-interest income and Non-interest expense

For the year ended December 31, 2019, non-interest income increased $606 thousand, or 27.0%, to $2.85 million compared to $2.25 million for the year ended December 31, 2018.  The increase was driven by an increase in deposit account fees, and in loan referral fee income, which is recorded in other non-interest income.

Non-interest expense increased to $47.61 million for the year ended December 31, 2019, compared to $43.95 million for the year ended December 31, 2018.  The increase of $3.66 million, or 8.3%, was primarily driven by increases in salaries and employee benefits expense, occupancy expense, and merger and acquisition costs, partially offset by the FDIC small bank premium credits received in the third and fourth quarters of 2019. 

For the year ended December 31, 2019, the efficiency ratio was 49.74% compared to 51.65% for the year ended December 31, 2018, driven by strong net interest income growth, non-interest income growth and moderate non-interest expense growth over the previous twelve months. 

Performance Ratios

For the year ended December 31, 2019, return on average assets decreased three basis points and return on average equity decreased 166 basis points.  Return on average assets decreased, despite higher earnings in 2019, due to a significant increase in cash and due from banks, which impacted our mix of earning assets, and a decrease in the net interest margin, as previously mentioned.  The decline in return on average equity for the year ended December 31, 2019, was impacted by the increase in cash and due from banks, a decrease in the net interest margin, our capital raise late in the third quarter of 2018, and the significant improvement in the fair value of available-for-sale investment securities during the period.

Balance Sheet Review

Asset growth from December 31, 2018, to December 31, 2019, was $396.0 million, or 16.1%, driven by loan growth.  Assets increased $16.0 million compared to the prior quarter, or 0.6%, due to loan growth, partially offset by a decrease in cash and due from banks.

Loans increased $370.1 million, or 17.8%, compared to December 31, 2018, and increased $88.4 million, or 3.7%, compared to September 30, 2019.  Loan increases over both periods continued to be primarily related to commercial real estate and commercial loan growth.

Deposits increased $256.4 million, or 12.3%, and increased $7.9 million, or 0.3%, compared to December 31, 2018, and September 30, 2019, respectively.  The increase compared to the prior year period was primarily driven by increases in money market, certificate of deposit and non-interest bearing accounts. When compared to the third quarter of 2019, the slight deposit increase was due to increases in money market and certificate of deposit accounts, offset by decreases in NOW and non-interest-bearing deposit accounts. 

FHLB advances increased $79.9 million, or 125.9%, compared to the same period last year, and decreased $5.1 million, or 3.4%, compared to the linked quarter.  The increase compared to the prior year was due to a strategic decision to borrow from the FHLB during the first half of 2019, as rates were more favorable than running certificate of deposit specials.  During the third quarter of 2019 deposit rates normalized and FHLB borrowing rates were no longer more favorable.  We added $46.0 million and $106.0 million of new FHLB advances during the first and second quarters of 2019, respectively.  New advances were partially offset by repayments throughout the year on existing advances.

Stockholders' equity increased $38.7 million, or 14.6%, compared to December 31, 2018.  The very strong equity growth compared to the fourth quarter of 2018, was primarily due to achieving record earnings for the year.  Stockholders' equity increased by $8.4 million, or 2.8%, compared to September 30, 2019, driven by earnings for the three months ended December 31, 2019.  The increases in equity were also impacted by activity in the investment portfolio resulting in net unrealized gains of $1.1 million as of December 31, 2019, compared to net unrealized losses of $2.2 million as of December 31, 2018, and net unrealized gains of $1.4 million as of September 30, 2019.

Our capital ratios remain well above regulatory guidelines for well-capitalized banks. As of December 31, 2019, our total risk-based capital ratio and tier 1 leverage ratio were 13.15% and 9.48%, respectively, compared to 13.77% and 10.03%, respectively, as of December 31, 2018.  As of December 31, 2019, our tangible equity to total tangible assets ratio was 9.71% compared to 9.67% as of December 31, 2018.

As of December 31, 2019, our tangible book value per share was $22.80, up 14.9% compared to $19.84 as of December 31, 2018.  The increase in tangible book value per share was due to our record earnings during 2019.

Asset Quality Review

Asset quality continues to remain very strong.  As of December 31, 2019, non-performing assets as a percentage of total assets improved even further to 0.07%, compared to 0.16% and 0.08% as of September 30, 2019, and December 31, 2018, respectively. 

Loans 30-89 days past due and still accruing interest decreased $2.5 million compared to the linked quarter and increased $1.1 million compared to the same period last year. We had $112 thousand of net charge-offs during the fourth quarter of 2019, compared to net charge-offs of $147 thousand during the fourth quarter of 2018, and $503 thousand of net charge-offs during the third quarter of 2019.

We are proactive in monitoring our loan portfolio for any indication of weakness and attempt to mitigate future risks across all lines of business.

Revere Bank is a Maryland state-chartered bank that commenced operations in November 2007.  Our Bank is headquartered in Rockville and we have 11 branches located in the suburban Maryland counties of Anne Arundel, Baltimore, Frederick, Howard, Montgomery, and Prince George's.  Revere Bank is a community-based, full-service commercial bank that emphasizes the banking needs of community-based businesses, professional entities, and individuals.  Further information on Revere Bank can be obtained by visiting our website at www.reverebank.com.

Forward-Looking Statements 
This press release contains forward-looking statements within the meaning of the Securities and Exchange Act of 1934, as amended, including statements of goals, intentions, and expectations as to future trends, plans, events or results of Bank operations and policies and regarding general economic conditions.  In some cases, forward-looking statements can be identified by use of words such as "may," "will," "anticipates," "believes," "expects," "plans," "estimates," "potential," "continue," "should," and similar words or phrases.  These statements are based upon current and anticipated economic conditions, nationally and in the Bank's market, interest rates and interest rate policy, competitive factors, and other conditions which by their nature, are not susceptible to accurate forecast, and are subject to significant uncertainty.  Because of these uncertainties and the assumptions on which this discussion and the forward-looking statements are based, actual future operations and results may differ materially from those indicated herein.  Readers are cautioned against placing undue reliance on any such forward-looking statements.  The Bank's past results are not necessarily indicative of future performance

Non-GAAP Financial Measures
Statements included in this press release include non-GAAP financial measures and should be read along with the Financial Highlights table, which provides a reconciliation of non-GAAP financial measures to GAAP financial measures.  This press release and the accompanying tables discuss financial measures, such as tangible common equity, tangible assets, return on tangible common equity, tangible book value per share and allowance for loan losses, adjusted, which are non-GAAP measures.  We believe that such non-GAAP measures are useful because they enhance the ability of investors and management to evaluate and compare the Bank's operating results from period to period in a meaningful manner.  Non-GAAP measures should not be considered as an alternative to any measure of performance as promulgated under GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other banks.  Investors should consider the Bank's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Bank.  Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Bank's results or financial condition as reported under GAAP.

Revere Bank and Subsidiary
Consolidated Balance Sheets
(Dollars in thousands)

Revere Bank and Subsidiary
Consolidated Income Statements
(Dollars in thousands, except per share data)

Revere Bank and Subsidiary
Average Balance Sheets, Interest and Rate
(Dollars in thousands)
(Unaudited)

(1) Average balances are computed on a daily basis.
(2) Loans are presented net of average non-accrual loans for the period and unearned revenue.
(3) Includes securities available-for-sale.
(4) Includes federal funds sold, FHLB stock and interest-bearing deposits at other banks.
(5) Total interest income less total interest expense.
(6) Net interest margin is net interest income, expressed as a percentage of average interest-earning assets.

Revere Bank and Subsidiary
Average Balance Sheets, Interest and Rate
(Dollars in thousands)
(Unaudited)

(1) Average balances are computed on a daily basis.
(2) Loans are presented net of average non-accrual loans for the period and unearned revenue.
(3) Includes securities available-for-sale.
(4) Includes federal funds sold, FHLB stock and interest-bearing deposits at other banks.
(5) Total interest income less total interest expense.
(6) Net interest margin is net interest income, expressed as a percentage of average interest-earning assets.

 Revere Bank and Subsidiary
Financial Highlights
(Dollars in thousands, except per share data)
(Unaudited)

(1)Tangible common equity, tangible assets, tangible common equity to tangible assets and tangible book value per common share are non-GAAP financial measures.  Tangible common equity is computed as total stockholders' equity excluding intangible assets and goodwill.  Tangible assets is computed as total assets excluding intangible assets and goodwill.  Tangible common equity to tangible assets is the ratio of tangible common equity to tangible assets.  Tangible book value per common share is computed by dividing the total tangible common equity by the common shares issued and outstanding.  The following table provides a reconciliation of total stockholders' equity to tangible stockholders' equity and a reconciliation of total assets to tangible assets:

(2) Efficiency ratio is non-interest expense divided by the sum of net interest income and non-interest income.
(3) Non-performing assets consist of non-accrual loans, loans 90 days or more past due and still accruing interest, and other real estate owned.
(4) Allowance for loan losses, adjusted and the allowance for loan losses, adjusted to total loans are non-GAAP financial measures.  Allowance for loan losses, adjusted is calculated by adding credit marks established for acquired loans to the allowance for loan losses.  The allowance for loan losses, adjusted to total loans is calculated by dividing the allowance for loan losses, adjusted by total loans for the period.  The following table provides a reconciliation of allowance for loan losses to allowance for loan losses, adjusted: