Loan Growth Despite Rising Rates
John R. Buran, President and CEO Commentary
UNIONDALE, N.Y., Oct. 25, 2022 (GLOBE NEWSWIRE) -- The Company reported third quarter 2022 GAAP EPS of $0.76, down 6.2% YoY, with a ROAA of 1.11%, and ROAE of 13.91%. Core 3Q22 EPS was $0.62, a decrease of 29.5% YoY, with a ROAA of 0.90% and the ROAE of 11.24%.
| “We supported customers by achieving loan growth of 3.1% QoQ, excluding the impact of PPP loans, while increasing the origination yield by 68 bps for the quarter, as the quarter was dominated by Fed rate increases. Credit quality, a hallmark of the Company, remained solid with only 2 bps of net charge-offs this quarter. The Company opportunistically raised $65 million of subordinated debt capital to lock in funding at an attractive rate. The Fed rate movements resulted in the NIM compressing 28 bps during the third quarter given the rapid rise in rates. Despite the NIM pressure in the short term, loans are expected to reprice higher over time. Approximately $1.0 billion or 15% of loans reprice within 90 days of index changes and $1.9 billion or 27% of loans are expected to contractually reprice higher by 200 bps through the end of 2024. There are over $500 million of funding swaps that have attractive rates now and will reprice lower by approximately 70 bps through 2023. Our community focus continued to shine this quarter as we supported several events, including the Flushing and Port Jefferson Dragon Boat festivals and our Harvest Moon Reception.”- John R. Buran, President and CEO |
Loan Closings up 90.1% YoY; NIM Declined QoQ. Period end net loans, excluding PPP, increased 3.1% QoQ, with balanced growth between real estate and commercial business and other loans. Loan closings, excluding PPP, were up 90.1% YoY, while repayment speeds declined both YoY and QoQ. Despite the loan closings increasing, net interest income of $61.2 million decreased 3.4% YoY and 5.4% QoQ, primarily due to the increased funding costs. NIM FTE was 3.07% in 3Q22 compared to 3.35% in 2Q22 and 3.34% a year ago. Core NIM FTE decreased by 24 bps to 3.03% YoY and 30 bps QoQ. The Company hired 46 people, including 20 revenue producers, since March 31, 2021 from institutions involved with bank mergers. Returned 40% of Earnings in 3Q22; Tangible Book Value Per Share Increased 3% YoY. The Company repurchased 131,174 shares of common stock at an average price of $20.47 during the quarter. Book value and tangible book value per share were $22.47 and $21.81, respectively, while TCE/TA1 was 7.62% at September 30, 2022 compared to 7.82% at June 30, 2022.
| Key Financial Metrics2 |
| 3Q22 | 2Q22 | 1Q22 | 4Q21 | 3Q21 | ||||||||||||||
| GAAP: | ||||||||||||||||||
| EPS | $0.76 | $0.81 | $0.58 | $0.58 | $0.81 | |||||||||||||
| ROAA (%) | 1.11 | 1.22 | 0.91 | 0.89 | 1.26 | |||||||||||||
| ROAE (%) | 13.91 | 15.00 | 10.83 | 10.77 | 15.42 | |||||||||||||
| NIM FTE3 (%) | 3.07 | 3.35 | 3.36 | 3.29 | 3.34 | |||||||||||||
| Core: | ||||||||||||||||||
| EPS | $0.62 | $0.70 | $0.61 | $0.67 | $0.88 | |||||||||||||
| ROAA (%) | 0.90 | 1.05 | 0.94 | 1.04 | 1.38 | |||||||||||||
| ROAE (%) | 11.24 | 12.90 | 11.27 | 12.49 | 16.88 | |||||||||||||
| Core NIM FTE (%) | 3.03 | 3.33 | 3.31 | 3.21 | 3.27 | |||||||||||||
| Credit Quality: | ||||||||||||||||||
| NPAs/Loans&REO (%) | 0.72 | 0.72 | 0.21 | 0.23 | 0.31 | |||||||||||||
| ACLs/Loans (%) | 0.59 | 0.58 | 0.57 | 0.56 | 0.55 | |||||||||||||
| ACLs/NPLs (%) | 142.29 | 141.06 | 266.12 | 248.66 | 179.86 | |||||||||||||
| NCOs/Avg Loans (%) | 0.02 | (0.03 | ) | 0.06 | - | (0.04 | ) | |||||||||||
| Balance Sheet: | ||||||||||||||||||
| Avg Loans ($B) | $6.9 | $6.6 | $6.6 | $6.6 | $6.6 | |||||||||||||
| Avg Dep ($B) | $6.3 | $6.4 | $6.4 | $6.5 | $6.4 | |||||||||||||
| Book Value/Share | $22.47 | $22.38 | $22.26 | $22.26 | $21.78 | |||||||||||||
| Tangible BV/Share | $21.81 | $21.71 | $21.61 | $21.61 | $21.13 | |||||||||||||
| TCE/TA (%) | 7.62 | 7.82 | 8.05 | 8.22 | 8.04 | |||||||||||||
1 Tangible Common Equity (“TCE”)/Total Assets (“TA”) 2 See “Reconciliation of GAAP Earnings and Core Earnings”, “Reconciliation of GAAP Revenue and Pre-Provision Pre-Tax Net Revenue”, and “Reconciliation of GAAP Net Interest Margin to Core Net Interest Income and Net Interest Margin.” 3 Net Interest Margin (“NIM”) Fully Taxable Equivalent (“FTE”)
| 3Q22 Highlights |
- Period end net loans, excluding PPP, increased 3.1% QoQ and 6.8% YoY; loan closings were $463.7 million at 4.60% in 3Q22, down 8.0% from record levels QoQ, but up 90.1% YoY while the yield increased 68 bps QoQ and 96 bps YoY
- Loan pipeline decreased 41.8% YoY to $309.1 million as we become more selective in terms of rate and collateral type and borrowers adjusted to higher rates
- Issued $65 million of subordinated notes at 6.00% during the 3Q22
- NPAs increased to $50.0 million from $48.9 million at 2Q22 and from $20.2 million at 3Q21
- Provision for credit losses was $2.1 million in 3Q22 compared to a benefit for credit losses of $6.9 million in 3Q21; net charge-offs were $0.3 million in 3Q22 compared to net recoveries of $0.6 million in 3Q21
- Net interest income decreased 5.4% QoQ and 3.4% YoY to $61.2 million; Core net interest income declined 6.2% QoQ and 2.7% YoY to $60.4 million
- Net interest margin FTE decreased 28 bps QoQ and 27 bps YoY to 3.07%; Core net interest margin FTE decreased 30 bps QoQ and 24 bps YoY to 3.03%; The decline in GAAP and Core NIM QoQ was primarily driven by our liability sensitive balance sheet resulting in liabilities repricing faster than assets over the near term but reversing as loans reprice over the next couple of years
- Average deposits, including mortgage escrow, decreased 2.6% QoQ and 2.1% YoY to $6.3 billion, with core deposits comprising 83.1% of total average deposits
- Signed a lease to open a new branch in Brooklyn expanding our Asian banking footprint
- Tangible Common Equity to Tangible Assets was 7.62% down from 7.82% at 2Q22; the change in accumulated other comprehensive loss, net of taxes (primarily from rising rates) impacted this ratio by 18 bps in 3Q22 compared to 2Q22
- Repurchased 131,174 shares at an average price of $20.47; dividends and share repurchases were 40% of net income in 3Q22
| Income Statement Highlights |
| YoY | QoQ | ||||||||||||||||||||||||||
| ($000s, except EPS) | 3Q22 | 2Q22 | 1Q22 | 4Q21 | 3Q21 | Change | Change | ||||||||||||||||||||
| Net Interest Income | $61,206 | $64,730 | $63,479 | $62,674 | $63,364 | (3.4 | ) | % | (5.4 | ) | % | ||||||||||||||||
| Provision (Benefit) for Credit Losses | 2,145 | 1,590 | 1,358 | 761 | (6,927 | ) | (131.0 | ) | 34.9 | ||||||||||||||||||
| Noninterest Income (Loss) | 8,995 | 7,353 | 1,313 | (280 | ) | 866 | 938.7 | 22.3 | |||||||||||||||||||
| Noninterest Expense | 35,634 | 35,522 | 38,794 | 38,807 | 36,345 | (2.0 | ) | 0.3 | |||||||||||||||||||
| Income Before Income Taxes | 32,422 | 34,971 | 24,640 | 22,826 | 34,812 | (6.9 | ) | (7.3 | ) | ||||||||||||||||||
| Provision for Income Taxes | 8,980 | 9,936 | 6,421 | 4,743 | 9,399 | (4.5 | ) | (9.6 | ) | ||||||||||||||||||
| Net Income | $23,442 | $25,035 | $18,219 | $18,083 | $25,413 | (7.8 | ) | (6.4 | ) | ||||||||||||||||||
| Diluted EPS | $0.76 | $0.81 | $0.58 | $0.58 | $0.81 | (6.2 | ) | (6.2 | ) | ||||||||||||||||||
| Avg. Diluted Shares (000s) | 30,695 | 30,937 | 31,254 | 31,353 | 31,567 | (2.8 | ) | (0.8 | ) | ||||||||||||||||||
| Core Net Income1 | $18,953 | $21,518 | $18,969 | $20,968 | $27,829 | (31.9 | ) | (11.9 | ) | ||||||||||||||||||
| Core EPS1 | $0.62 | $0.70 | $0.61 | $0.67 | $0.88 | (29.5 | ) | (11.4 | ) | ||||||||||||||||||
1 See Reconciliation of GAAP Earnings and Core Earnings
Net interest income totaled $61.2 million in 3Q22 compared to $64.7 million in 2Q22, $63.5 million in 1Q22, $62.7 million in 4Q21, and $63.4 million in 3Q21.
- Net interest margin, FTE (“NIM”) of 3.07% decreased 27 bps YoY and 28 bps QoQ
- Prepayment penalty income from loans and securities, net reversals and recoveries of interest from nonaccrual loans, net gains and losses from fair value adjustments on qualifying hedges, and purchase accounting accretion totaled $2.2 million (11 bps to the NIM) in 3Q22 compared to $2.6 million (13 bps) in 2Q22, $2.6 million (14 bps) in 1Q22, $3.1 million (16 bps) in 4Q21, and $3.4 million (19 bps) in 3Q21
- Excluding the items in the previous bullet, net interest margin was 2.96% in 3Q22, 3.22% in 2Q22 and in 1Q22, 3.13% in 4Q21, and 3.15% in 3Q21
The Company recorded a provision for credit losses of $2.1 million in 3Q22, $1.6 million in 2Q22, $1.4 million in 1Q22, and $0.8 million in 4Q21 compared to a benefit for credit losses of $6.9 million in 3Q21.
- 3Q22 provision for credit losses of $2.1 million was primarily due to increased reserves on two previously identified credits and loan growth
- Net charge-offs (recoveries) were $0.3 million in 3Q22 (2 bps of average loans), $(0.5) million in 2Q22 ((3) bps of average loans), $0.9 million in 1Q22 (6 bps of average loans), $(29) thousand in 4Q21 (negligible as compared to average loans), and $(0.6) million in 3Q21 ((4) bps of average loans)
Noninterest income (loss) was $9.0 million in 3Q22, $7.4 million in 2Q22, $1.3 million in 1Q22, $(0.3) million in 4Q21, and $0.9 million in 3Q21.
- Noninterest income included net gains (losses) from fair value adjustments of $5.6 million in 3Q22 or $0.13 per share, net of tax, $2.5 million in 2Q22 or $0.06 per share, net of tax, $(1.8) million in 1Q22 or $(0.04) per share, net of tax, $(5.1) million in 4Q21 or $(0.13) per share, net of tax, and $(2.3) million in 3Q21 or $(0.05) per share, net of tax
- Life insurance proceeds were $1.5 million ($0.05 per share) in 2Q22
- Absent all above items and other immaterial adjustments, core noninterest income was $3.4 million in 3Q22, up 6.4% YoY, and 2.6% QoQ
- Included in 4Q21 core noninterest income was a one-time $2.0 million ($0.05 per share, net of tax) dividend received on retirement plan investments
Noninterest expense totaled $35.6 million in 3Q22 (a decrease of 2.0% YoY, but an increase of 0.3% QoQ) compared to $35.5 million in 2Q22, $38.8 million in 1Q22, $38.8 million in 4Q21, and $36.3 million in 3Q21.
- Other operating expenses include $0.6 million reduction in reserves for unfunded commitments in 3Q22
- Included in 1Q22 noninterest expense was $4.3 million of seasonal compensation expense; 4Q21 noninterest expense included a one-time $4.3 million ($0.11 per share, net of tax) of increased compensation and benefits for all employees due to a record year of earnings in 2021 and employee performance through the pandemic
- Noninterest expense included $17 thousand pre-tax merger benefit (