Balance Sheet Growth, Solid Asset Quality

ISLANDIA, N.Y., Jan. 28, 2019 (GLOBE NEWSWIRE) -- Empire Bancorp, Inc. (OTCQX: EMPK), today announced its financial results for the quarter and year ended December 31, 2018.

“Net earnings increased over $2 million in 2018 as compared to 2017.  Loans grew approximately $154 million, or 30%, in 2018, our highest annual growth rate in four years.  We anticipate tightening pricing and maintaining rigorous underwriting.  Our asset quality remains strong, and we believe that we are well positioned to weather an economic turndown, should one occur, even while solid economic fundamentals and performance persist in our markets.

On the liability side, rising deposit market rates continue to drive our cost of funds upward. Considering the slope of the yield curve, the repricing of our asset yields will generally continue to lag these upturns in funding costs.  Presently we are considering changes to our strategies and processes with the objective of boosting future returns,” stated Douglas C. Manditch, Chairman and Chief Executive Officer.

Year-to-Date Highlights

Financial Results

• Net income, measured on a consolidated basis for 2018 increased $2.1 million, or 140.6%, to $3.5 million, as compared to 2017 net income which was adversely impacted by the sale of investment securities and the revaluation of our deferred tax assets due to reductions in federal marginal corporate tax rate. Net income, adjusted for the impact of tax reform and the Company’s balance sheet restructuring, measured on a consolidated basis for 2017 totaled $4.3 million.     
• Diluted earnings per common share for 2018 were $0.46, compared with $0.20 for 2017.
• Return on average assets and average common stockholders' equity for 2018 were 0.36% and 5.31%, respectively, compared with 0.17% and 2.16%, for 2017.
• Net income at Empire National Bank for 2018, which excludes the impact of subordinated debt interest expense and other holding company operating expenses, increased $2.3 million, or 98.4%, to $4.5 million, as compared to 2017.

Quarterly Highlights

Financial Results

• Net income, measured on a consolidated basis for the fourth quarter of 2018 was $840 thousand, compared to net income of $1.1 million for the third quarter of 2018 and net loss of $1.4 million for the fourth quarter of 2017.  
• Diluted earnings (loss) per common share for the fourth quarter of 2018 were $0.11, compared with $0.15 for the third quarter of 2018 and ($0.20) for the fourth quarter of 2017.
• Return on average assets and average common stockholders' equity for the fourth quarter of 2018 were 0.34% and 5.09%, respectively, compared with 0.45% and 6.76%, respectively, for the third quarter of 2018, and (0.63)% and (8.16)%, respectively, for the fourth quarter of 2017.
• Net income at Empire National Bank for the fourth quarter of 2018, which excludes the impact of subordinated debt interest expense and other holding company operating expenses, was $1.1 million compared with $1.4 million for the third quarter of 2018, and net loss of $1.2 million for the fourth quarter of 2017.           

Franchise Development

• Total assets were $988.2 million at December 31, 2018, up 9.8% from $900.0 million at December 31, 2017.
• Loans outstanding totaled $673.6 million at December 31, 2018, up 29.7% from $519.5 million at December 31, 2017.
• Deposits totaled $892.9 million at December 31, 2018, up 9.9% from $812.5 million at December 31, 2017.

Continued Financial and Credit Strength

• Solid asset quality with an allowance for loan and lease losses of 0.96% of total loans and a ratio of non-performing loans to total loans of 0.57%. The provision for loan losses was $682 thousand for the year ended December 31, 2018, as compared to $644 thousand for the prior year.
   
• “Well capitalized” regulatory capital levels at Empire National Bank, as of December 31, 2018:
    °  Tier 1 leverage capital ratio of 8.93%
    °  Common equity tier 1 risk-based capital ratio of 13.20%
    °  Tier 1 risk-based capital ratio of 13.20%
    °  Total risk-based capital ratio of 14.15%

“Closing 2018 at just under the billion dollar mark in total assets was an achievement in this fiscal year in which we observed the tenth anniversary of our opening.  Risk management plays an ever important role as we grow.  Paired with technological advances fueled by rising customer expectations, we are expending greater resources to protect our stakeholders from emerging risks such as cyber threats.  At the same time we need to remain mindful of the rapid changes in the banking world, such as the impact of financial technology companies or fintech, as we plan the best course to effectively compete and also manage the risks ahead,” commented Thomas M. Buonaiuto, President and Chief Operating Officer.

Balance Sheet

Assets totaled $988.2 million at December 31, 2018, up $2.6 million, or 0.3%, from September 30, 2018 and up $88.2 million, or 9.8%, from December 31, 2017.  Total cash and cash equivalents decreased $20.7 million, or 66.4%, to $10.5 million from $31.2 million at September 30, 2018, and decreased $35.4 million, or 77.1%, from $45.9 million at December 31, 2017. Gross loans were $673.6 million at December 31, 2018, an increase of $36.0 million, or 5.7%, from $637.6 million at September 30, 2018 and an increase of $154.1 million, or 29.6%, from $519.5 million at December 31, 2017. Investment securities available for sale were $269.0 million at December 31, 2018, down $11.0 million, or 3.9%, from September 30, 2018 and down $31.0 million, or 10.3%, from December 31, 2017.  

Total deposits were $892.9 million at December 31, 2018, down $7.0 million, or 0.8%, from September 30, 2018 and up $80.4 million, or 9.9%, from December 31, 2017.  Demand deposits were $169.3 million, an increase of $2.5 million, or 1.5%, from September 30, 2018, and up $4.5 million, or 2.7%, from December 31, 2017.  Savings, N.O.W. and money market deposits totaled $689.1 million at December 31, 2018, a decrease of $4.5 million, or 0.7%, over September 30, 2018, and an increase of $67.4 million, or 10.8%, from December 31, 2017. The growth in these deposits year over year was fueled in large part by new and existing municipal banking relationships.  Certificates of deposits of $100,000 or more and other time deposits were $34.5 million at December 31, 2018, down $5.0 million, or 12.6%, from September 30, 2018 and up $8.5 million, or 33.2%, from December 31, 2017.

Stockholders’ equity increased $6.5 million, or 10.1%, to $71.7 million, from September 30, 2018 and increased $4.1 million, or 6.1%, from December 31, 2017. The linked quarter increase was primarily attributable to the positive impact of a decrease in the net unrealized losses on securities available for sale, net of taxes of $5.5 million, an increase of net income of $840 thousand, and a $198 thousand net increase associated with stock compensation plans. The increase in stockholders’ equity from December 31, 2017 primarily resulted from a $3.6 million net increase associated with stock compensation plans as well as the exercise of warrants and stock options, and net income of $3.5 million, partially offset by an increase in the net unrealized losses on securities available for sale, net of taxes of $3.0 million.

Net Interest Margin/Net Interest Income

Net interest income for the fourth quarter of 2018 increased $86 thousand, or 1.4%, over the third quarter of 2018 and increased $389 thousand, or 6.4%, over the fourth quarter of 2017.  Net interest margin was 2.62% for the three months ended December 31, 2018, up slightly as compared to 2.61% for the three months ended September 30, 2018, and a decrease from 2.77% for the three months ended December 31, 2017.

Interest income for the fourth quarter of 2018 increased $385 thousand, or 4.2%, from the third quarter of 2018, and $1.9 million, or 24.5%, from the fourth quarter of 2017. The linked quarter increase was the result of an increase of $470 thousand in income from loans, partially offset by decreases in income from deposits with banks and income from investment securities of $67 thousand and $20 thousand, respectively.  The yield on interest earning assets increased to 3.86% for the fourth quarter of 2018, as compared to 3.74% for the third quarter of 2018 and compared to 3.49% for the fourth quarter of 2017. The increase from the third quarter of 2018 and from the fourth quarter of 2017 resulted primarily from the growth in the average balance of loans, an increase in the percentage of total assets composed of loans, an increase in the average yield on loans and the impact of higher prepayment penalties with respect to loans.

Interest expense was $3.0 million in the most recent quarter and $2.7 million for the third quarter of 2018, as compared to $1.6 million for the fourth quarter of 2017. The cost of interest bearing liabilities was 1.60% for the three months ended December 31, 2018, an increase from 1.46% for the three months ended September 30, 2018, and an increase from 0.96% for the three months ended December 31, 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 increased $525 thousand, or 2.1%, for year ended of 2018 over the same period in 2017. Net interest margin was 2.64% for 2018, a decrease from 2.98% for 2017.

Interest income increased $5.5 million, or 18.7%, for year ended December 31, 2018 over the year ended December 31, 2017. The increase was attributable to growth in income from loans, deposits with banks, and investment securities of $4.4 million, $705 thousand, and $449 thousand, respectively.  The yield on interest earning assets increased to 3.68% for 2018, compared to 3.57% for the same period in 2017. The increase in the yield on interest earning assets over the same period of 2017 primarily resulted from growth in the percentage of earning assets held as loans, which generated an average yield greater than investment securities and deposits held with banks.

The decrease in net interest margin was impacted by an increase of 53 basis points in the cost of average interest bearing liabilities to 1.35% for the year ended 2018 from 0.82% for 2017. Interest expense was $9.9 million, an increase of $5.0 million, or 102.2%, for 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 accounts of $4.6 million, or 131.8%. 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 

The Company recognized net securities losses of $50 thousand in the fourth quarter of 2018 compared to no securities gains or losses in the third quarter of 2018, and net securities losses of $1.6 million in the fourth quarter of 2017.  For the year ended December 31, 2018, the Company recognized a net loss of $50 thousand on sale of investment securities compared to net securities losses of $1.6 for the same period in 2017.  For the year ended December 31, 2017, the Company recognized a net loss of $1.6 million on sale of investment securities as the Company sold a portion of its available for sale securities portfolio to execute specific tax strategies and better position the balance sheet in response to reductions in federal marginal corporate tax rates.

Other income was $415 thousand in the fourth quarter of 2018 compared with $436 thousand in the third quarter of 2018, and $440 thousand in the fourth quarter of 2017. The linked quarter decline resulted primarily from a decrease of $37 thousand, or 127.6%, in professional practice revenue and a decrease of $10 thousand, or 7.8%, in customer related fees and service charges, offset by an increase of $26 thousand, or 9.3%, in other operating income primarily as a result of higher gains recognized on the sale of Small Business Administration (SBA) loans. The decrease of $25 thousand, or 5.7%, in the fourth quarter of 2018 over the fourth quarter of 2017 resulted from a decrease of $59 thousand, or 115.7%, in professional practice revenue, a decrease of $12 thousand, or 9.2%, in customer related fees and service charges, offset by an increase of $46 thousand, or 17.8%, in other operating income. Other operating income was higher as a result of a $32 thousand gain recognized on the sale of SBA loans, and an increase of $14 thousand in fee income.   

Other income of $1.8 million in 2018 represented an increase of $304 thousand, or 20.6%, as compared to the same period in 2017. The net increase for 2018 resulted from a $378 thousand increase recognized on income from bank-owned life insurance, $89 thousand in gains recognized on the sale of SBA loans, and an increase of $32 thousand in customer related fees and service charges, partially offset by a $149 thousand decrease in professional practice revenue, and a $24 thousand decrease in miscellaneous loan fee income.

Other expense in the fourth quarter of 2018 totaled $5.5 million, compared with $5.2 million in the third quarter of 2018 and $4.6 million in the fourth quarter of 2017.  The $326 thousand, or 6.3%, increase from the linked quarter was primarily attributable to an increase of $330 thousand, or 11.9%, in salaries and employee benefits, offset by lower advertising and business development expenses, and lower FDIC insurance expense.  The other expense increase of $943 thousand, or 20.5%, in the fourth quarter of 2018 over the fourth quarter of 2017 resulted primarily from an increase in salaries and employee benefits, software services, and FDIC insurance, of $686 thousand, $130 thousand, and $115 thousand, respectively.

Other expense for 2018 totaled $22.1 million, compared with $19.5 million over 2017. The increase in other expense year over year was largely attributable to higher salaries and employee benefits expense of $1.9 million, or 17.8%, largely due to base salary increases as well as employee recognition and retention plans. Additionally, software services, FDIC insurance, as well as other operating expenses increased $416 thousand, or 28.9%, $212 thousand, or 75.7%, and $178 thousand, or 7.2%, respectively.

Income Tax Rate

The effective income tax rate was 19.0% for the three months ended December 31, 2018. The effective income tax rate for the year ended December 31, 2018 was 17.0% as compared to 67.6% for the same period in 2017. The lower rate in 2018 compared to the prior year was a result of the significant reductions in federal marginal tax rates for corporations enacted at the end of 2017, as well as the positive impact of owning tax-exempt bank-owned life insurance for the full year in 2018.  Additionally, during 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. Furthermore, in 2017, the higher rate of 67.6% was due to a one-time income tax provision of $1.8 million, as a result of a one-time downward revaluation of deferred tax assets in the fourth quarter of 2017.

Solid Asset Quality/Provision for Loan Losses

A provision of $230 thousand was recorded for the fourth quarter of 2018 as compared to a provision of $225 thousand for the third quarter of 2018, and $210 thousand for the fourth quarter of 2017. The provision for loan losses was $682 thousand for the year ended December 31, 2018, as compared to $644 thousand for the prior year. Expressed as a percentage of outstanding loans, the allowance for loan and lease losses was 0.96% at December 31, 2018, compared to 0.98% at September 30, 2018 and 1.13% at December 31, 2017.  

Credit quality remained solid at December 31, 2018. Loans classified as nonaccrual were at $3.8 million, or 0.57%, of total loans outstanding at December 31, 2018, compared with $3.9 million, or 0.61%, at September 30, 2018 and $5.9 million or 1.14%, at December 31, 2017.   The Company’s allowance for loan losses to total loans of 0.96% decreased two basis points from 0.98% at September 30, 2018.  The Company’s allowance for loan losses to total loans decreased seventeen basis points from 1.13% at year-end 2017. The decrease was mainly attributable to a decrease in the specific reserve on an impaired loan, as well as the partial charge-off of an impaired loan against the allowance for loan losses that was specifically reserved for at year-end. These adjustments were partially offset by increases related primarily to growth in loans outstanding.

In the fourth quarter of 2018, there were no charge-offs and a recovery of $7 thousand was recorded, as compared to a charge-off of $12 thousand and no recoveries recorded in the third quarter of 2018, and compared to net charge-offs of $17 thousand in the fourth quarter of 2017. Net charge-offs for 2018 were $94 thousand, as compared to net charge-offs of $568 thousand recorded in 2017.

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 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.

Consolidated Statements of Condition (unaudited)
(dollars in thousands, except per share data)
	December 31,				September 30,				December 31,
		2018				2018				2017
ASSETS
Total cash and cash equivalents	$	10,511			$	31,236			$	45,879
Securities available for sale, at fair value		268,999				279,971				299,969
Securities held to maturity		4,945				4,750				4,750
Securities, restricted		3,170				3,073				2,946
Loans		673,568				637,557				519,540
Allowance for loan losses		(6,463	)			(6,227	)			(5,875	)
Loans, net		667,105				631,330				513,665
Premises and equipment, net		4,691				4,891				5,506
Bank-owned life insurance		20,886				20,731				20,254
Other assets and accrued interest receivable		7,920				9,616				7,062
Total Assets	$	988,227			$	985,598			$	900,031
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand Deposits	$	169,275			$	166,750			$	164,790
Savings, N.O.W. and money market deposits		689,050				693,561				621,742
Certificates of deposit of $100,000 or more
and other time deposits		34,541				39,522				25,932
Total Deposits		892,866				899,833				812,464
Short-term borrowings		2,595				-				-
Subordinated debentures, net		14,823				14,811				14,778
Other liabilities and accrued expenses		6,234				5,800				5,204
Total Liabilities		916,518				920,444				832,446
Total Stockholders' Equity		71,709				65,154				67,585
Total Liabilities and Stockholders' Equity	$	988,227			$	985,598			$	900,031
Selected Financial Data (unaudited)
Allowance for Loan Losses to Total Loans		0.96	%			0.98	%			1.13	%
Non-performing Loans to Total Loans		0.57	%			0.61	%			1.14	%
Non-performing Assets to Total Assets		0.39	%			0.40	%			0.66	%
Book Value per Share	$	9.37			$	8.51			$	9.26
Capital Ratios (unaudited)(1)
Tier 1 Leverage Ratio		8.93	%			8.87	%			9.06	%
Common Equity Tier 1 Risk-Based Capital Ratio		13.20	%			13.43	%			14.93	%
Tier 1 Risk-Based Capital Ratio		13.20	%			13.43	%			14.93	%
Total Risk-Based Capital Ratio		14.15	%			14.37	%			16.01	%
(1) 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 year ended
	December 31,				September 30,				December 31,				December 31,				December 31,
		2018				2018				2017				2018				2017
Interest income	$	9,487			$	9,102			$	7,618			$	35,181			$	29,632
Interest expense		3,043				2,744				1,563				9,940				4,916
Net interest income		6,444				6,358				6,055				25,241				24,716
Provision for loan losses		230				225				210				682				644
Net interest income after
provision for loan losses		6,214				6,133				5,845				24,559				24,072
Net securities (losses)		(50	)			-				(1,568	)			(50	)			(1,596	)
Other income		415				436				440				1,782				1,478
Other expense		5,542				5,216				4,599				22,099				19,492
Income before income taxes		1,037				1,353				118				4,192				4,462
Income tax expense		197				231				1,536				710				3,015
Net income (loss)	$	840			$	1,122			$	(1,418	)		$	3,482			$	1,447
Basic earnings (loss) per share	$	0.11			$	0.15			$	(0.20	)		$	0.46			$	0.20
Diluted earnings (loss) per share	$	0.11			$	0.15			$	(0.20	)		$	0.46			$	0.20
Weighted average common and equivalent
shares outstanding		7,493,115				7,505,265				7,273,077				7,454,843				7,214,399
Selected Financial Data (unaudited)
Return on Average Assets		0.34	%			0.45	%			(0.63	)%			0.36	%			0.17	%
Return on Average Equity		5.09	%			6.76	%			(8.16	)%			5.31	%			2.16	%
Net Interest Margin		2.62	%			2.61	%			2.77	%			2.64	%			2.98	%
Efficiency Ratio		80.80	%			76.77	%			70.81	%			81.96	%			74.42	%

Contact:     
William Franz - SVP, Director of Marketing & Investor Relations
(631) 348-4444