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FineMark Holdings, Inc. Reports 2020 Second Quarter Earnings

Thursday, 16 July 2020 04:15 PM

FineMark Holdings, Inc.

Topic:
Earnings

On behalf of FineMark Holdings, Inc.-the Board of Directors, the executive management team, and all of our dedicated associates-I am pleased to report on the company's performance for the second quarter of 2020.

FORT MYERS, FL / ACCESSWIRE / July 16, 2020 / FineMark Holdings, Inc. (OTCQX:FNBT), the parent company of FineMark National Bank & Trust, today announced second quarter 2020 net income of $4.8 million (or $0.54 per diluted share). This compares to net income of $3.4 million (or $0.37 per diluted share) reported for the second quarter of 2019.

SECOND QUARTER FINANCIAL HIGHLIGHTS

FineMark's assets totaled $2.5 billion as of June 30, 2020, compared to $2.0 billion a year earlier. This 27% increase reflects robust growth in an industry where assets typically grow at 4% to 8% annually. Quarterly pre-tax operating income increased to $6.4 million (a 43% increase over the second quarter of 2019).

Highlights of second quarter 2020 performance on a year-over-year basis include:

  • Strong earnings resulting in a ROA of 0.80% and a ROE of 10.16%, up from 0.69% and 8.07%, respectively.
  • Trust and investment fees increased 11% to $4.9 million, representing 23% of total revenue.
  • Assets under management and administration increased 12% to $4.4 billion, including $61 million of net client asset flows in the second quarter.
  • Loans, net of allowance increased 19% to $1.7 billion (13% increase excluding Paycheck Protection Program (PPP) loans).
  • Deposits increased 27% to $1.9 billion.
  • Net interest income increased 33% to $15.0 million.

Please refer to attached abbreviated financial statements.

COVID-19: ONGOING IMPACT AND OUR RESPONSE

As the COVID-19 pandemic continues to impact daily life across the country, the safety of our clients, our associates, and the communities we serve remains our top priority. Despite the immense economic challenges presented by this pandemic, we are pleased to report that FineMark has continued to deliver exceptional service to our clients and strong financial performance to our shareholders. We believe that our ability to continue growing during this challenging period, in combination with our relationship-based approach to banking and wealth management, is a testament to the quality and dedication of our people.

Operations and Safety: As this situation continues to evolve, we are closely following the guidance of health officials and taking numerous steps to protect our clients and associates. We continue to meet with clients on an appointment- or drive-through-only basis and have implemented extensive cleaning measures. While we do not have a forecast for when operations will revert to pre-COVID-19 conditions, we are closely monitoring the health guidelines in each of the communities where FineMark offices are physically located. Most of our associates have returned to work within our offices and our team members are being extremely careful about safety protocols. Associates are encouraged to avoid activities that may expose them to the virus while they are away from the office. We are also using technology, such as DocuSign and virtual client meetings, to improve safety and maintain convenience for our clients and employees without compromising the depth of our personal relationships. We conducted our first virtual shareholder meeting in April, which allowed us to expand our shareholders' participation.

Loan Forbearance: While we are acutely aware of the hardships experienced by business owners and individuals impacted by business and job loss during this difficult time, the credit quality of our loan portfolio remains strong. As the pandemic escalated in the second quarter, we granted 90-day forbearance on $131 million in loans, which accounted for less than 8% of our gross loan portfolio. In the vast majority of these cases, we acted with an abundance of caution to provide our clients with options and flexibility. As of June 30, 2020, only $11 million of these loans may need extended forbearance. Even with our participation in the Paycheck Protection Program (PPP), commercial loans represent only 15% of our loan portfolio; we do not have any significant loan concentration in the hospitality industry (or other sectors) particularly affected by the pandemic.

Paycheck Protection Program (PPP): Our success in helping business owners navigate the PPP further solidified our reputation as a bank that gets things done for our clients. We served clients in all of our communities, as well as businesses that were not yet banking with FineMark, to meet their PPP needs. We closed 525 PPP loans totaling $98 million thanks to the outstanding efforts of our people, who worked long hours to guide clients through the application process. These efforts showcased our ability to provide an exceptional level of service and also allowed us to connect with many new businesses and their management teams.

Impact on Financial Performance: Despite the challenges presented by COVID-19, FineMark delivered exceptional financial performance in the second quarter. We continue to grow our loan portfolio in a difficult environment while maintaining high credit standards. Our funding costs declined while deposits and our loan portfolio increased significantly. Our trust business also continues to grow even in the midst of extremely volatile equity markets. Still, it is important to remember that the full impact of COVID-19 on the bank's performance remains to be seen. The end of the second quarter was marked by a surge of infections in Florida and elsewhere; businesses and consumers will continue to be affected by this evolving crisis in the coming months.

NET INTEREST INCOME AND MARGIN

The Federal Reserve's low interest rate target, which is expected to remain in place for the foreseeable future, has allowed FineMark to reduce funding costs. We lowered our deposit rates and generated $37,000 in monthly interest savings by restructuring Federal Home Loan Bank advances totaling $39 million. Even with strong deposit growth, interest expense declined in the second quarter on a year-over-year basis, helped by a $25 million advance under the Federal Reserve's PPP Liquidity Facility for banks at a cost of only 0.35% annually. FineMark is liability sensitive and to protect against rising rates we entered into two interest rate swaps in April. These swaps are expected to serve as an "insurance policy" in the event that a faster-than-expected economic recovery occurs, which could prompt the Federal Reserve to increase short-term rates.

Quarterly net interest income increased 33% year-over-year and 19% from the previous quarter. This improvement was driven largely by a substantial decrease in the cost of funds (which dropped from 1.48% a year earlier to 0.77% in the second quarter) coupled with the continued growth of the loan portfolio. This offset the decrease in the yield on earning assets to 3.32%, which had been 3.90% the year before, reflecting the declining rate environment. FineMark's quarterly net interest margin was 2.58% for the second quarter, compared with 2.48% a year ago and 2.39% in the previous quarter.

NON-INTEREST INCOME

FineMark realized gains of $1.4 million from its portfolio of debt securities. These gains were realized mostly in an effort to maintain FineMark's balance sheet within policy levels.

An important area of FineMark's growth continues to be the impressive expansion of our trust and investment business, as measured by assets under management and administration. As of June 30, 2020, FineMark had a total of $4.4 billion in assets under management and administration, up 12% on a year-over-year basis. During the second quarter, we added $61 million of client assets, resulting from new clients and also existing clients who added to their accounts.

On the heels of the first quarter's downturn, U.S. equity markets experienced a strong rally in the second quarter. As a result, net appreciation and income from investments for our clients' assets were $390 million in the second quarter. Trust fees for the second quarter totaled $4.9 million, up 11% on a year-over-year basis but down 3% from the previous quarter. The quarter-over-quarter decline in fees reflects the timing of the precipitous decline and subsequent recovery that occurred in the equity markets during the second quarter.

NON-INTEREST EXPENSES

As FineMark's overall business has grown, we continue to increase certain expenses needed to maintain the bank's high levels of client service. Non-interest expenses totaled $13 million in the second quarter, a 9% increase year-over-year. This increase, which reflects the addition of new associates to the team and investments in technology to improve client service, is in line with the steady expansion FineMark has experienced over the past several years.

CREDIT QUALITY

The overall credit quality of the bank's loan portfolio remained strong during the second quarter, with low levels of classified loans relative to capital and total assets. As of June 30, 2020, classified loans-loans that may potentially default-totaled $2.63 million (or just 1.09% of total capital and reserves). This level compares favorably to the industry average of 14.80% (at March 31, 2020); management believes the probability of any losses associated with these loans to be very low.

The allowance for loan losses at the end of the second quarter was $19.6 million, up 29% from June 30, 2019 (an increase of 15% versus the first quarter). This increase was driven by two factors: 1) we increased the allowance to account for the growth of the loan portfolio and 2) we added $2.1 million in the second quarter as a special COVID-19-related loan loss provision resulting in a total special COVID-19 provision amount of $2.5 million for the year.

The allowance for loan losses was 1.12% of the total loans outstanding as of June 30, 2020. Management believes that this level of reserve is sufficient to support the risks in the bank's loan portfolio. As noted above, only 15% of the portfolio is represented by commercial loans; there is no concentration in hospitality (or other sectors) particularly affected by the pandemic. We will continue to monitor economic conditions closely to determine whether additional provisions should be made.

FineMark's management team continues to be pleased with the credit quality of the bank's loan portfolio. Management believes that our commitment to knowing our clients personally and working with them proactively will continue to serve our shareholders well.

CAPITAL AND LIQUIDITY

All of FineMark's capital ratios continue to be in excess of regulatory requirements for "well-capitalized" banks. As of June 30, 2020, the bank's tier 1 leverage ratio was 9.22%. The company's tier 1 leverage ratio was 7.89% and the total risk-based capital ratio was 16.56%.

HEADQUARTERS CONSTRUCTION UPDATE

As noted in previous quarterly letters, FineMark is in the process of building a new headquarters office in Fort Myers, Florida, to support the bank's growth and serve as a home for our expanding team. The new office includes a significant investment in video teleconferencing technology. As the COVID-19 pandemic has escalated, FineMark has worked closely with the building contractor to ensure that workers' safety is prioritized over the meeting of any construction deadlines. The contractor has assured FineMark that all appropriate safety measures recommended by health officials have been implemented on the job site. Construction continues with a projected completion date of year-end 2020.

CLOSING REMARKS

As we continue to navigate through these difficult times, we appreciate the trust that our clients and our investors have placed in us. We are also deeply grateful for the commitment shown by our associates every day. They are dedicated to upholding FineMark's standards and providing the highest level of service to our clients and the communities we serve, all while putting our resources to their best use.

While the pandemic has enormous economic implications, the health of our associates, clients, and communities will always be our top priority. We remain hopeful that positive news on the medical front will lead to a rapid improvement in both physical health and economic prosperity for communities around the world. As we wait for these developments to unfold, we remain steadfast in our commitment to-and support of-our associates and our clients.

Kind regards,

FineMark Holdings, Inc., Thursday, July 16, 2020, Press release picture

Joseph R. Catti
President & CEO

Background

FineMark Holdings, Inc. is the parent company of FineMark National Bank & Trust. Founded in 2007, FineMark National Bank & Trust is a nationally chartered bank, headquartered in Florida. Through its offices located in Florida, Arizona and South Carolina, FineMark offers a full range of financial services including personal and business banking and lending, trust and investment services. The Corporation's common stock trades on the OTCQX under the symbol FNBT. Investor information is available on the Corporation's website at www.finemarkbank.com.

Forward-Looking Statements

This press release contains statements that are "forward-looking statements." You can identify forward-looking statements by the use of the words "believe," "expect," "anticipate," "intend," "estimate," "assume," "outlook," "will," "should," and other expressions that predict or indicate future events and trends and which do not relate to historical matters. You should not rely on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. These risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different from the anticipated future results, performance or achievements expressed or implied by the forward-looking statements.

Some of the factors that might cause these differences include: weakness in national, regional or international economic conditions or conditions affecting the banking or financial services industries or financial capital markets; volatility in national and international financial markets; reductions in net interest income resulting from interest rate volatility as well as changes in the balance and mix of loans and deposits; reductions in the market value or outflows of assets under administration; changes in the value of securities and other assets; reductions in loan demand; changes in loan collectability, default and charge-off rates; changes in the size and nature of our competition; changes in legislation or regulation and accounting principles, policies and guidelines; occurrences of cyber-attacks, hacking and identity theft; natural disasters; and changes in the assumptions used in making such forward-looking statements. You should carefully review all of these factors and you should be aware that there might be other factors that could cause these differences.

These forward-looking statements were based on information, plans and estimates at the date of this report. We assume no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

FINEMARK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
($ in thousands, except per share amounts)
Unaudited

 
  At June 30,  
Assets
  2020     2019  
 
           
Cash and due from banks
  $ 57,448       83,897  
Debt securities available for sale
    556,598       333,798  
Debt securities held to maturity
    61,971       28,152  
Loans, net of allowance for loan losses of $19,582 in 2020
               
and $15,167 in 2019
    1,727,853       1,448,152  
Federal Home Loan Bank stock
    15,311       12,641  
Federal Reserve Bank stock
    4,210       3,806  
Premises and equipment, net
    34,469       24,060  
Operating lease right-of-use assets
    8,347       7,455  
Accrued interest receivable
    8,178       6,290  
Deferred tax asset
    2,892       2,188  
Bank-owned life insurance
    34,540       33,675  
Other assets
    9,014       6,813  
 
               

Total assets
  $ 2,520,831       1,990,927  
 
               
Liabilities and Shareholders' Equity
               
 
               
Liabilities:
               
Noninterest-bearing demand deposits
    288,883       202,045  
Savings, NOW and money-market deposits
    1,548,672       1,221,474  
Time deposits
    82,411       90,517  
 
               
Total deposits
    1,919,966       1,514,036  
 
               
Official checks
    3,460       3,235  
Other borrowings
    9,121       1,661  
PPPLF advances
    25,008       -  
Federal Home Loan Bank advances
    314,396       258,142  
Operating lease liabilities
    8,543       7,713  
Subordinated debt
    29,610       29,562  
Other liabilities
    13,553       5,841  
 
               
Total liabilities
    2,323,657       1,820,190  
 
               
 
               
 
               
Shareholders' equity:
               
Common stock, $.01 par value; 50,000,000 shares authorized,
               
8,932,069 and 8,863,319 shares issued and outstanding in 2020 and 2019
    89       89  
Additional paid-in capital
    121,885       120,807  
Retained earnings
    68,098       49,317  
Accumulated other comprehensive income
    7,102       524  
 
               
Total shareholders' equity
    197,174       170,737  
 
               
Total liabilities and shareholders' equity
  $ 2,520,831       1,990,927  
 
               

Book Value per Share
    22.08       19.26  
                 



FINEMARK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
($ in thousands, except per share amounts)
Unaudited

 
  June 30,  
 
  2020     2019  
Interest income:
           
Loans
  $ 31,409       30,105  
Debt securities
    5,896       4,458  
Dividends on Federal Home Loan Bank stock
    373       262  
Other
    594       169  
 
               
Total interest income
    38,272       34,994  
 
               
Interest expense:
               
Deposits
    5,701       8,851  
Federal Home Loan Bank advances
    4,008       2,677  
Subordinated debt
    906       906  
 
               
Total interest expense
    10,615       12,434  
 
               
Net interest income
    27,657       22,560  
 
               
Provision for loan losses
    3,746       826  
 
               
Net interest income after provision for loan losses
    23,911       21,734  
 
               
Noninterest income:
               
Trust fees
    9,952       8,623  
Income from bank-owned life insurance
    422       443  
Income from solar farms
    155       165  
Gain on sale of debt securities available for sale
    4,062       494  
Other fees and service charges
    402       531  
 
               
Total noninterest income
    14,993       10,256  
 
               
Noninterest expenses:
               
Salaries and employee benefits
    15,424       14,220  
Occupancy
    2,918       2,882  
Information systems
    2,521       2,201  
Professional fees
    719       678  
Marketing and business development
    760       933  
Regulatory assessments
    617       598  
Other
    2,881       2,082  
 
               
Total noninterest expense
    25,840       23,594  
 
               
Earnings before income taxes
    13,064       8,396  
 
               
Income taxes
    3,130       2,035  
 
               
Net earnings
  $ 9,934       6,361  
Basic earnings per common share
    1.11       0.72  
Diluted earnings per common share
    1.10       0.70  



FINEMARK HOLDINGS, INC.
Consolidated Financial Highlights
Second Quarter 2020
Unaudited

 
                                Year to Date  
$ in thousands except for share data
  2nd Qtr 2020     1st Qtr 2020     4th Qtr 2019     3rd Qtr 2019     2nd Qtr 2019     2020     2019  
$ Earnings
                                         
Net Interest Income
  $ 15,032       12,625       12,125       11,359       11,330       27,657       22,560  
Provision for loan loss
  $ 2,563       1,183       429       233       354       3,746       826  
Non-interest Income
  $ 5,341       5,590       5,629       5,607       5,001       10,931       9,762  
Debt securities gains/(losses)
  $ 1,371       2,691       233       833       262       4,062       494  
Debt extinguishment gains/(losses)
  $ -       -       413       272       -       -       -  
Non-interest Expense
  $ 12,814       13,026       12,489       11,808       11,792       25,840       23,594  
Earnings before income taxes
  $ 6,368       6,696       5,483       6,029       4,447       13,064       8,396  
Taxes
  $ 1,520       1,610       1,163       1,505       1,095       3,130       2,035  
Net Income
  $ 4,847       5,087       4,321       4,525       3,352       9,934       6,361  
Basic earnings per share
  $ 0.54       0.57       0.49       0.51       0.38       1.11       0.72  
Diluted earnings per share
  $ 0.54       0.56       0.49       0.50       0.37       1.10       0.70  
Performance Ratios
                                                       
Return on average assets*
    0.80 %     0.92 %     0.82 %     0.89 %     0.69 %     0.85 %     0.67 %
Return on average equity*
    10.16 %     11.11 %     9.72 %     10.47 %     8.07 %     10.62 %     7.78 %
Yield on earning assets*
    3.32 %     3.59 %     3.74 %     3.81 %     3.90 %     3.45 %     3.86 %
Cost of funds*
    0.77 %     1.26 %     1.40 %     1.55 %     1.48 %     1.00 %     1.44 %
Net Interest Margin*
    2.58 %     2.39 %     2.41 %     2.34 %     2.48 %     2.49 %     2.49 %
Efficiency ratio
    58.92 %     62.31 %     67.87 %     65.35 %     71.07 %     60.59 %     71.90 %
Capital
                                                       
Tier 1 leverage capital ratio
    7.89 %     8.35 %     8.51 %     8.59 %     8.80 %     7.89 %     8.80 %
Common equity risk-based capital ratio
    13.15 %     14.10 %     13.70 %     14.00 %     13.85 %     13.15 %     13.85 %
Tier 1 risk-based capital ratio
    13.15 %     14.10 %     13.70 %     14.00 %     13.85 %     13.15 %     13.85 %
Total risk-based capital ratio
    16.56 %     17.67 %     17.18 %     17.61 %     17.49 %     16.56 %     17.49 %
Book value per share
  $ 22.08       20.74       20.15       19.81       19.26       22.08       19.26  
Tangible book value per share
  $ 22.08       20.74       20.15       19.81       19.26       22.08       19.26  
Outstanding shares
    8,932,069       8,924,244       8,856,646       8,854,557       8,863,319       8,932,069       8,863,319  
Average outstanding shares (diluted)
    9,032,047       9,057,632       8,905,066       9,035,916       8,962,731       9,045,130       9,035,885  
Asset Quality
                                                       
Net charge-offs (recoveries)
  $ 9       (7 )     (10 )     (5 )     11       3       125  
Net charge-offs (recoveries) to average total loans
    0.00 %     0.00 %     0.00 %     0.00 %     0.00 %     - %     0.01 %
Allowance for loan losses
  $ 19,582       17,028       15,838       15,404       15,167       19,582       15,167  
Allowance to total loans
    1.12 %     1.06 %     1.04 %     1.05 %     1.04 %     1.12 %     1.04 %
Nonperforming loans
  $ 1,560       1,184       1,798       1,183       410       1,560       410  
Other real estate owned
  $ -       -       -       -       -       -       -  
Nonperforming loans to total loans
    0.09 %     0.07 %     0.12 %     0.08 %     0.03 %     0.09 %     0.03 %
Nonperforming assets to total assets
    0.06 %     0.05 %     0.08 %     0.06 %     0.02 %     0.06 %     0.02 %
Loan Composition (% of Total Gross Loans)
                                                       
1-4 Family
    52.8 %     55.9 %     57.3 %     56.0 %     55.0 %     52.8 %     55.0 %
Commercial Loans
    15.3 %     10.9 %     10.0 %     9.7 %     10.6 %     15.3 %     10.6 %
Commercial Real Estate
    19.9 %     21.0 %     20.9 %     20.9 %     21.7 %     19.9 %     21.7 %
Construction Loans
    6.7 %     6.6 %     6.1 %     7.6 %     6.7 %     6.7 %     6.7 %
Other Loans
    5.3 %     5.6 %     5.7 %     5.9 %     5.9 %     5.3 %     5.9 %
End of Period Balances
                                                       
Assets
  $ 2,520,831       2,464,677       2,168,983       2,108,066       1,990,927       2,520,831       1,990,927  
Debt securities
  $ 618,569       577,917       505,170       413,792       361,950       618,569       361,950  
Loans, net of allowance
  $ 1,727,853       1,584,767       1,512,466       1,458,700       1,448,152       1,727,853       1,448,152  
Deposits
  $ 1,919,966       1,824,174       1,670,419       1,597,018       1,514,036       1,919,966       1,514,036  
Other borrowings
  $ 9,121       102,527       2,390       2,499       1,661       9,121       1,661  
Subordinated Debt
  $ 29,610       29,749       29,586       29,574       29,562       29,610       29,562  
FHLB Advances
  $ 314,396       294,458       264,520       284,581       258,142       314,396       258,142  
Total Shareholders Equity
  $ 197,174       185,119       178,453       175,423       170,737       197,174       170,737  
Trust and Investment
                                                       
Fee Income
  $ 4,897       5,055       5,023       4,968       4,407       9,952       8,623  
Assets Under Administration
                                                       
Balance at beginning of period
  $ 3,932,309       4,472,585       4,175,715       3,930,319       3,771,473       4,472,585       3,391,455  
Net investment appreciation (depreciation) & income
  $ 389,677       (706,530 )     180,466       71,545       34,298       (316,853 )     283,227  
Net client asset flows
  $ 60,824       166,253       116,404       173,852       124,548       227,077       255,636  
Balance at end of period
  $ 4,382,810       3,932,309       4,472,585       4,175,715       3,930,319       4,382,810       3,930,319  
Percentage of AUA that are managed
    89 %     88 %     88 %     89 %     90 %     89 %     90 %
Stock Valuation
                                                       
Closing Market Price (OTCQX)
  $ 21.60       21.00       25.10       25.10       24.80     $ 21.60     $ 24.80  
Multiple of Tangible Book Value
  $ 0.98       1.01       1.25       1.27       1.29     $ 0.98     $ 1.29  
*annualized
                                                       

CONTACT:

Meagan Beyer, Investor Relations
12681 Creekside Lane
Fort Myers, FL 33919
239-461-3850
[email protected]

SOURCE: FineMark Holdings, Inc.

Topic:
Earnings
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