FineMark Holdings, Inc. Reports First Quarter Earnings 2023

Rhea-AI Summary

FineMark Holdings, Inc. (OTCQX:FNBT) reported net revenues of $22.4 million for Q1 2023, a decline from $26.3 million in Q1 2022. Net income decreased to $2 million or $0.17 per diluted share, down from $6.9 million or $0.58 per share year-over-year. The significant rise in interest expense, up 348% due to rapid interest rate hikes, compressed the net interest margin to 1.75%, compared to 2.14% in the prior year. Despite challenges, FineMark recorded a 14% growth in net loans, totaling $2.3 billion. Assets under management grew 7% to $6.4 billion, while non-interest income remained stable. The bank maintains a solid balance sheet, with 9.23% Tier 1 leverage ratio and 0.05% non-performing loans.

Positive

• Net loan growth increased by $294 million or 14% year-over-year.
• Assets under management rose to $6.4 billion, a 7% increase.
• New trust assets increased by $816 million or 26% year-over-year.

Negative

• Net revenues decreased by $3.9 million from Q1 2022.
• Net income fell to $2 million, down 71% year-over-year.
• Interest expense rose 348%, significantly impacting profitability.

FORT MYERS, FL / ACCESSWIRE / April 13, 2023 / FineMark Holdings, Inc. (the "Holding Company") (OTCQX:FNBT), the parent company of FineMark National Bank & Trust (the "Bank"; collectively, "FineMark"), today reported net revenues of $22.4 million for the first quarter ended March 31, 2023, compared to $26.3 million in the first quarter of 2022. Net income was $2 million, or $.17 per diluted share, compared with net income of $6.9 million, or $.58 per diluted share, for the same period a year ago.

Joseph R. Catti, Chairman & Chief Executive Officer:

Instability in the banking industry has made headlines over the past month, with widely publicized closures and concerns about the safety of bank deposits. This situation has reminded many of the importance of having trust in their banks and that FDIC insurance does not replace the need for careful stewardship from bank management. We emphasize a conservative credit culture as reflected in our high-quality balance sheet and in the ways that risk is managed. As an example, FineMark is working with more than 300 home and business owners impacted by Hurricane Ian. Despite the financial costs associated with rebuilding, our loan portfolio remains pristine. Successfully navigating challenging times reveals the effectiveness of our overall risk management strategies.

FineMark maintains a culture focused on protecting client interests and, as a result, the recent turmoil had no significant impact on our business. For over 10 years, we have partnered with the IntraFi network, to provide higher-balance FDIC insurance for clients with a desire for additional protection. In addition, we moved $375 million from deposit accounts into higher yielding Treasury bills in our investment area.

Although earnings are lower than Q1 of 2022, the primary cause is the dramatic increase in interest expense (up 348% YoY) due to the remarkably rapid interest rate increases in 2022 by the Federal Reserve Bank. The full effects of these changes were not fully felt until the fourth quarter of 2022 and further compressed our net interest margin in the first quarter of 2023. This compression was a direct result of higher cost of deposits and borrowings. Partly offsetting this higher interest expense, we have continued to achieve significant top line growth. Interest income and non-interest income remained strong year-over year. Interest income increased 40% and non-interest income remained relatively flat, despite the carryover from market declines in 2022.

One of the drivers of recent bank turmoil has been the adverse effect on bond valuations as a result of the significant increase in interest rates. While we did not anticipate the incredibly rapid increases, our conservative approach to risk management resulted in manageable levels of unrealized losses on our bond portfolio. Interest rate risk is controlled partly by keeping duration short. At FineMark, duration is an average of 2.7 years compared to an industry average of approximately 5 years. Another factor in managing risk related to the bond portfolio is the classification of bonds available for sale or held to maturity. Most of FineMark's bond holdings (92%) are classified as available for sale, so the vast majority of unrealized losses are already accounted for in our tangible capital position of 7.76%.

Our primary focus continues to be to deliver exceptional service and assist our clients in achieving their goals, while maintaining a strong balance sheet. This unwavering commitment to go above and beyond results in satisfied clients, who utilize multiple services. We have also found much of our growth stems from clients who tell their families and friends about FineMark. Several examples include:

• The number of new relationships to FineMark grew by 1079 families year-over-year, bringing the total to 12,079.
• Net loan growth increased year-over-year by $294 million or 14%.
• New trust assets increased by $816 million or 26% year-over-year.

Net Interest Income & Margin

For the first quarter of 2023, FineMark's net interest income totaled $14.7 million, 16% lower than in Q1 of 2022. The decrease is due to higher interest expense caused by the dramatic rise in short term interest rates over the last 12 months. As of March 31, 2022, the Fed Funds Effective Rate was .33%, as compared to 4.83% on March 31, 2023. Higher rates have raised the yields on newly originated and floating rate loans, but not enough to offset the increase in funding expense. The Bank's net interest margin decreased to 1.75% in Q1 2023, down from 2.14% for the same period in 2022. We expect to experience declines in year-over-year comparisons until the fourth quarter of this year.

Non-Interest Income

As of March 31, 2023, assets under management and administration totaled $6.4 billion, up 7% from $6 billion on March 31, 2022. The Bank's investment management and trust fees decreased slightly year-over-year due to the decline in the U.S. equity and bond markets throughout 2022. The Bank added $315 million in assets in the first quarter, a 54% increase in new asset growth from first quarter 2022. We believe the addition of assets from new and existing clients is a testament to the exceptional level of service provided by our associates.

Non-Interest Expense

Non-interest expense increased to $18.9 million for the quarter ended March 31, 2023, up 11% from $17 million in the first quarter of 2022. Much of the increased expense is attributable to the hiring of additional associates to preserve our high service levels as we continue to grow, along with the increased occupancy costs associated with the opening of our newest locations in Naples and Jupiter, Florida.

Credit Quality

Asset quality continues to be pristine, and the Bank is, as always, committed to maintaining its high credit standards through a tailored and relationship-centered approach to lending. Loan decisions are based on an in-depth understanding of each borrower's needs and unique financial situation. As a result, the Bank has experienced minimal loan defaults through various economic cycles.

As of March 31, 2023, non-performing loans totaled $1.2 million, or 0.05% of total loans, a slight increase from $714 thousand, or 0.04% of total loans, in the first quarter of 2022. The increase is due to the default of one borrower adversely effected by Hurricane Ian. The Bank is sufficiently collateralized and expects no loss. The current allowance for credit losses is $24.2 million (1.03% of gross loans).

Balance Sheet Highlights

Despite rising interest rates, loan production totaled $210 million for the quarter, compared to $226 million in Q1 of last year, resulting in net loans of $2.3 billion compared to $2 billion in the first quarter of 2022. Deposits decreased slightly year-over-year, down 3% or $85 million despite more than $375 million being moved to our investment area to acquire higher yielding treasury bills, compared to March 31, 2022. Deposits totaled $2.87 billion, compared to $2.95 billion a year ago. The investment portfolio decreased to approximately $1.1 billion from $1.2 billion at the end of first quarter 2022, which is an 8% or $96 million decrease. A total of $145 million in bonds will be maturing by December 31, 2023. At this time, management does not intend to reinvest these dollars in bonds. Instead, the cash flow from bonds will be used to augment cash levels, reduce existing borrowings or fund loans. In the first quarter of 2023, short-term borrowings increased to $377 million to augment our on-balance sheet liquidity levels.

Capital

All capital ratios continue to exceed regulatory requirements for "well-capitalized" banks. On March 31, 2023, FineMark's Tier 1 leverage ratio, on a consolidated basis, was 9.23% and total risk-based capital ratio was 19.23%. Tangible equity to assets is 7.76% (deducting the net unrealized loss from Tier 1 capital to average assets). This net unrealized loss accounts for 92% of our bond portfolio. The remaining securities are accounted for as held to maturity.
Rising interest rates over the past year resulted in a $62 million net unrealized loss on the Bank's investment portfolio. This unrealized loss does not reflect bond credit quality; rather, it shows how rapidly interest rates have increased. These losses will likely remain unrealized due to the short duration of the portfolio.

Closing Remarks from Chairman & Chief Executive Officer, Joseph R. Catti

The last year has been difficult for many of our clients and for the communities we serve. Major stock and bond indexes have fallen, accompanied by high inflation and rapidly rising interest rates, not to mention the enormous disruptions from Hurricane Ian. As we continue to navigate a challenging year, I value the trust our clients and our shareholders have placed in us. I am also deeply grateful for the commitment shown by our associates. They are dedicated to upholding our mission to make a positive impact on the families, individuals, and communities we serve while also being good stewards of FineMark's resources. I believe this unwavering commitment will continue to create shareholder value. On behalf of the entire FineMark team, I want to thank you for your support and loyalty.

CONTACT:
Ryan Roberts
Investor Relations
239-461-3850
investorrelations@finemarkbank.com
8695 College Pkwy Suite 100
Fort Myers, FL 33919

website: www.finemarkbank.com

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, lending services, 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.

FIN HIGH

FineMark Holdings, Inc. Consolidated Financial Highlights First Quarter 2023 Unaudited
																	YTD
$ in thousands except for share data		1st Qtr 2023			4th Qtr 2022			3rd Qtr 2022			2nd Qtr 2022			1st Qtr 2022			2023			2022
$ Earnings
Net Interest Income		$	14,699			15,889			18,079			18,386			17,539			14,699			17,539
Credit Loss Expense		$	1,057			1,039			121			836			449			1,057			449
Non-interest Income (excl. gains and losses)		$	7,720			7,224			7,342			7,648			8,191			7,720			8,191
Gain on sale of debt securities available for sale		$	-			-			-			-			-			-			-
Gain (loss) on debt extinguishment		$	-			-			505			1,226			618			-			618
Gain on termination of swap		$	-			-			-			-			-			-			-
Non-interest Expense		$	18,916			18,011			18,660			17,700			17,000			18,916			17,000
Earnings before income taxes			2,446			4,063			7,145			8,724			8,899			2,446			8,899
Income Taxes		$	441			933			1,757			1,747			2,027			441			2,027
Net Earnings		$	2,005			3,130			5,388			6,977			6,872			2,005			6,872
Basic earnings per share		$	0.17			0.27			0.46			0.60			0.59			0.17			0.59
Diluted earnings per share		$	0.17			0.26			0.45			0.59			0.58			0.17			0.58
Performance Ratios
Return on average assets*			0.22%			0.36%			0.62%			0.80%			0.80%			0.22%			0.80%
Return on risk weighted assets*			0.39%			0.63%			1.12%			1.43%			1.46%			0.39%			1.46%
Return on average equity*			3.01%			4.92%			7.97%			10.28%			9.17%			3.01%			9.17%
Yield on earning assets*			3.39%			3.17%			2.92%			2.66%			2.52%			3.39%			2.52%
Cost of funds*			1.74%			1.27%			0.76%			0.46%			0.41%			1.74%			0.41%
Net Interest Margin*			1.75%			1.90%			2.16%			2.22%			2.14%			1.75%			2.14%
Efficiency ratio			84.37%			77.93%			71.98%			64.93%			64.52%			84.37%			64.52%
Capital
Tier 1 leverage capital ratio			9.23%			9.36%			9.35%			9.16%			9.22%			9.23%			9.22%
Common equity risk-based capital ratio			16.45%			17.01%			17.41%			16.81%			16.96%			16.45%			16.96%
Tier 1 risk-based capital ratio			16.45%			17.01%			17.41%			16.81%			16.96%			16.45%			16.96%
Total risk-based capital ratio			19.23%			19.86%			20.30%			20.03%			20.25%			19.23%			20.25%
Book value per share		$	23.61		$	22.11		$	21.81		$	22.73		$	23.82		$	23.61		$	23.82
Tangible book value per share		$	23.61		$	22.11		$	21.81		$	22.73		$	23.82		$	23.61		$	23.82
Asset Quality
Net (recoveries) charge-offs		$	(10)			(227)			(176)			(24)			(13)			-10			(13)
Net (recoveries) charge-offs to average total loans			-0.00%			-0.01%			-0.01%			-0.00%			-0.00%			-0.00%			-0.00%
Allowance for credit losses		$	24,193			23,168			21,902			21,605			20,745			24,193			20,745
Allowance to total loans			1.03%			1.03%			1.02%			1.01%			1.01%			1.03%			1.01%
Nonperforming loans		$	1,215			730			692			706			714			1,215			714
Other real estate owned		$	-			-			-			-			-			-			-
Nonperforming loans to total loans			0.05%			0.03%			0.03%			0.03%			0.04%			0.05%			0.04%
Nonperforming assets to total assets			0.03%			0.02%			0.02%			0.02%			0.02%			0.03%			0.02%
Loan Composition (% of Total Gross Loans)
1-4 Family			48.8%			49.0%			50.2%			49.5%			50.7%			48.8%			50.7%
Commercial Loans			9.4%			9.5%			9.1%			9.5%			10.4%			9.4%			10.4%
Commercial Real Estate			26.3%			24.4%			24.1%			24.3%			23.2%			26.3%			23.2%
Construction Loans			7.9%			9.0%			8.3%			8.5%			7.8%			7.9%			7.8%
Other Loans			7.6%			8.1%			8.3%			8.2%			7.9%			7.6%			7.9%
End of Period Balances
Assets		$	3,784,609			3,554,370			3,455,462			3,527,841			3,489,146			3,784,609			3,489,146
Debt securities		$	1,099,613			1,113,981			1,129,272			1,164,449			1,209,357			1,099,613			1,209,357
Loans, net of allowance		$	2,325,912			2,228,236			2,125,751			2,115,137			2,032,426			2,325,912			2,032,426
Deposits		$	2,868,954			2,818,491			2,919,206			2,951,656			2,954,042			2,868,954			2,954,042
Other borrowings		$	106,253			118,444			40,760			2,543			1,507			106,253			1,507
Subordinated Debt		$	33,626			33,545			33,483			40,961			40,940			33,626			40,940
FHLB Advances		$	470,000			286,100			175,000			240,000			192,951			470,000			192,951
Shareholders' Equity		$	279,547			260,307			256,348			266,800			277,814			279,547			277,814
Trust and Investment
Fee Income		$	6,573			6,390			6,477			6,752			6,998			6,573			6,998
Assets Under Administration
Balance at beginning of period		$	5,944,772			5,392,768			5,464,847			6,009,657			6,200,406			5,944,772			6,200,406
Net investment appreciation (depreciation) & income		$	175,566			314,992			(204,456)			(675,883)			(395,124)			175,566			(395,124)
Net client asset flows		$	315,224			237,012			132,377			131,073			204,375			315,224			204,375
Balance at end of period		$	6,435,562			5,944,772			5,392,768			5,464,847			6,009,657			6,435,562			6,009,657
Percentage of AUA that are managed			87.58%			88.08%			87.99%			87.88%			87.80%			87.58%			87.80%
Stock Valuation
Closing Market Price (OTCQX)		$	28.15			29.75			29.25			29.05			33.25		$	28.15		$	33.25
Multiple of Tangible Book Value			1.19			1.35			1.34			1.3			1.4		$	1.19		$	1.4
*annualized

BALANCE SHEET

FINEMARK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
($ in thousands, except share amounts)
		March 31,			December 31,
Assets		2023			2022
		(Unaudited)
Cash and due from banks		$	162,055			18,374
Debt securities available for sale			1,006,918			1,020,612
Debt securities held to maturity			92,695			93,369
Loans, net of allowance for credit losses of $24,193 in 2023 and $23,168 in 2022			2,325,912			2,228,236
Federal Home Loan Bank stock			21,751			13,859
Federal Reserve Bank stock			6,294			6,277
Premises and equipment, net			41,256			41,009
Operating lease right-of-use assets			12,350			12,825
Accrued interest receivable			10,532			10,220
Deferred tax asset			24,995			29,955
Bank-owned life insurance			72,553			72,138
Other assets			7,298			7,496
Total assets		$	3,784,609			3,554,370
Liabilities and Shareholders' Equity
Liabilities:
Noninterest-bearing demand deposits			741,888			652,671
Savings, NOW and money-market deposits			2,082,174			2,122,561
Time deposits			44,892			43,259
Total deposits			2,868,954			2,818,491
Official checks			6,884			13,312
Other borrowings			106,253			118,444
Federal Home Loan Bank advances			470,000			286,100
Operating lease liabilities			12,452			12,900
Subordinated debt			33,626			33,545
Other liabilities			6,893			11,271
Total liabilities			3,505,062			3,294,063
Shareholders' equity:
Common stock, $.01 par value 50,000,000 shares authorized,
11,839,619 and 11,773,050 shares issued and outstanding in 2023 and 2022			118			118
Additional paid-in capital			212,287			210,953
Retained earnings			129,491			127,514
Accumulated other comprehensive loss			(62,349)			(78,278)
Total shareholders' equity			279,547			260,307
Total liabilities and shareholders' equity		$	3,784,609			3,554,370
Book Value per Share		$	23.61			22.11

STATEMENT OF EARNINGS

FINEMARK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings (Unaudited)
($ in thousands, except per share amounts)
			Three Months Ended
			March 31,
			2023			2022
Interest income:
Loans			$	24,458		17,032
Debt securities				3,815		3,510
Dividends on Federal Home Loan Bank stock				318		117
Other				333		52
Total interest income				28,924		20,711
Interest expense:
Deposits				10,131		991
Federal Home Loan Bank advances				3,094		1,640
Subordinated debt				491		541
Other borrowings				509		-
Total interest expense				14,225		3,172
Net interest income				14,699		17,539
Credit loss expense				1,057		449
Net interest income after credit loss expense				13,642		17,090
Noninterest income:
Trust fees				6,573		6,998
Income from bank-owned life insurance				665		614
Income from solar farms				67		74
Gain on extinguishment of debt				-		618
Other fees and service charges				415		505
Total noninterest income				7,720		8,809
Noninterest expenses:
Salaries and employee benefits				11,592		10,501
Occupancy				2,449		1,908
Information systems				1,565		1,522
Professional fees				638		560
Marketing and business development				580		693
Regulatory assessments				368		456
Other				1,724		1,360
Total noninterest expense				18,916		17,000
Earnings before income taxes				2,446		8,899
Income taxes				441		2,027
Net earnings				2,005		6,872
Weighted average common shares outstanding - basic (in thousands)				11,822		11,639
Weighted average common shares outstanding - diluted (in thousands)				11,878		11,829
Per share information:	Basic earnings per common share		$	0.17		0.59
	Diluted earnings per common share		$	0.17		0.58

SOURCE: FineMark Holdings, Inc.

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https://www.accesswire.com/748918/FineMark-Holdings-Inc-Reports-First-Quarter-Earnings-2023

FAQ

What were the earnings results for FNBT in Q1 2023?

FineMark Holdings, Inc. reported net revenues of $22.4 million and net income of $2 million, or $0.17 per diluted share for Q1 2023.

How did the interest rates affect FNBT's performance?

The dramatic increase in interest expense, up 348% year-over-year, compressed FineMark's net interest margin to 1.75% in Q1 2023.

What is the outlook for FNBT after Q1 2023?

FineMark expects to experience declines in year-over-year comparisons until the fourth quarter of 2023 due to current economic conditions.