California Republic Bancorp (“CRB” or “Company”) (OTCBB: CRPB), a bank holding company for California Republic Bank (“Bank”), announced net income for the three months ended March 31, 2016 of $241 thousand, or $0.03 per basic common share, compared with net income of $3.5 million, or $0.45 per basic common share for the same period a year earlier. Return on average equity was 0.63% for the three months ended March 31, 2016, compared with 9.87% for the same respective period a year ago. The decline in net income was primarily the result of the Company recording a $3.2 million loss on sale of $440 million in auto loans during the first quarter. The company also announced that it signed a definitive agreement to merge with Mechanics Bank, based in Northern California.
“Although our loans and deposits have grown nicely this quarter, we continued to experience significantly wider credit spreads on auto-backed securities issued, as well as lower residual interest valuations, along with the rest of the structured finance market. Since the execution of our last transaction, we believe that investor demand for auto-backed securities has increased and credit spreads have narrowed. In addition, we believe that residual interest valuations have improved in the second quarter,” stated Jon Wilcox, Chief Executive Officer of California Republic Bancorp. “We are also very excited to have announced yesterday the signing of a definitive agreement to merge with Mechanics Bank out of Northern California. We believe the merger combines our outstanding commercial banking and auto lending businesses with a retail banking franchise with over $2.9 billion in low-cost, core deposits. The combination provides significant benefits for both organizations. But in particular, the merger will allow the combined entity to reduce its overall reliance on the securitization market for auto lending activities.”
John DeCero, President of California Republic Bancorp, commented, “We believe the future prospects of these two outstanding organizations as a combined entity are tremendous. There’s very little overlap between the two institutions and many synergies. We look forward, after receiving the approval from our shareholders and regulators, to a successful integration, which will then give CRB the additional capital and liquidity to excel, to even a greater extent, at providing the same consistent service to our valued customers that has driven our success over the past eight years. The combined bank is expected to have over $8.8 billion in managed assets and total on-balance sheet assets of $5.4 billion, placing us in the top 20 banks headquartered in California.”
Business Performance:
Total commercial loans grew $347 million, or 61%, to $918 million at March 31, 2016 compared with a year earlier. Total commercial commitments, including commercial loans funded, grew 50%, or $412 million to $1.2 billion at March 31, 2016 compared with $816 million at March 31, 2015.
Prime auto loan originations were $422 million for the first quarter, which resulted in total serviced auto loans increasing 54%, or $944 million, to $2.7 billion at March 31, 2016 compared with $1.8 billion a year earlier. The Bank continues to maintain stable and consistent borrower credit attributes, demographics, and loan structure, reaffirming its commitment not to sacrifice credit quality for loan growth.
Noninterest bearing deposits grew $246 million, or 32%, to $1.0 billion at March 31, 2016 compared with $759 million a year earlier. Total deposits grew $425 million, or 37%, to $1.6 billion at March 31, 2016 compared with $1.1 billion a year ago. Noninterest bearing deposits represent 64% of total deposits at March 31, 2016.
The Bank completed a prime automobile loan securitization in the first quarter of 2016 in which $440 million in notes backed by the Bank’s automobile loans were sold. The Bank sold all classes of debt in an underwritten public offering registered with the Securities and Exchange Commission. The Bank sold all remaining residual interest in the securitized receivables through a sale of the underlying ownership certificates of the securitization trust through a private placement transaction under Rule 144A to qualified institutional buyers. Furthermore, this securitization transaction was accounted for as a true sale, which included all future residual interests, therefore leaving no possibility for later adjustments affecting the financial position of the Bank.
Credit Suisse and J.P. Morgan acted as joint book runners, and Citigroup acted as co-manager for the issuance of notes. Credit Suisse was the sole placement agent for the certificates. CRB also retained the right to service the sold loans on which it is paid an annual servicing fee of 1.0% on the outstanding pool balance until the transaction is paid-off.
Total on-balance sheet assets increased 31%, or $423 million, to $1.8 billion at March 31, 2016 compared with $1.3 billion for the same period a year earlier. The year-over-year growth in total assets included a $409 million increase, or 49%, in total gross loans held for investment and held for sale due to growth in commercial and automobile loans related to the timing and retention of auto loan securitization activities. In addition, investment securities increased $25 million to $249 million at March 31, 2016 compared with $225 million a year ago.
Financial Performance:
Net interest income grew 47%, or $6.0 million, to $18.9 million for the three months ended March 31, 2016 compared with $12.9 million for the same period a year ago. Net interest margins narrowed 4 basis points to 4.33% for the three months ended March 31, 2016 compared with 4.37% for the same period a year earlier. Net interest margins have declined primarily due to a continued low interest rate environment, flattening of the overall yield curve, and the short duration of the assets held by the Company.
Noninterest income declined $7.4 million to $3.0 million for the three months ended March 31, 2016, compared with $10.5 million for the same period a year earlier as the Company recorded a $3.2 million loss on sale of $440 million in automobile loans in the first quarter of 2016 compared with a $6.7 million gain on sale of $350 million in automobile loans for the same period a year ago. Loan servicing fees increased $2.6 million, or 74% to $6.1 million for the first quarter of 2016 compared with $3.5 million for the same period a year earlier.
Noninterest expense increased $3.0 million, or 18%, to $19.9 million for the first quarter of 2016 compared with $16.8 million the same period a year ago. The year-over-year increase in noninterest expense is the result of the Company continuing to make significant investments in its auto lending and commercial banking platforms to support its strategic growth expansion.
Asset Quality:
California Republic Bank continued to report strong credit quality with no nonperforming or charged-off loans in the commercial loan portfolio since the Company’s inception, and a net annualized charge-off rate for its owned auto loan portfolio of 0.61% for the first quarter of 2016 compared with 0.50% for the same period a year ago.
Regulatory Capital:
The Bank’s and Bancorp’s regulatory capital ratios exceeded those required to be considered a “well capitalized” institution for regulatory purposes. At March 31, 2016, common equity tier 1 capital ratio for the Bank and Bancorp was 11.90% and 12.30%, respectively; tier 1 capital ratio was 11.90% and 12.30%, respectively; total capital ratio was 14.73% and 15.13%, respectively; and the leverage ratio was 8.26% and 8.54%, respectively.
About California Republic Bancorp:
California Republic Bancorp is the holding company for California Republic Bank. California Republic Bank is a full-service commercial bank providing loans, deposit and cash management services to individuals, businesses, investors, and family offices. The Bank offers its clients direct access to decision makers, unparalleled responsiveness, seasoned Relationship Managers and state-of-the-art technology. The Bank has five branch offices serving Southern California, located in Newport Beach, Beverly Hills, Irvine, Westlake Village and San Diego. The Bank also operates CRB Auto, a division of the bank, which is a relationship based, indirect auto lender, which purchases auto contracts from both franchised and select independent automobile dealerships throughout 14 States—Arizona, California, Colorado, Idaho, Illinois, Iowa, Kansas, Missouri, Nevada, Oklahoma, Oregon, Texas, Utah, and Washington.
For more information, contact Jon Wilcox, CEO, or John DeCero, President at 949-270-9719. You can also visit the Company’s website at www.crbnk.com.
California Republic Bancorp’s Board of Directors includes:
Inside Directors: Jon Wilcox, CEO and John DeCero, President.
Outside Directors: Robert Barth, Chairman of the Board of California Republic Bank and CEO of Black Equities Group Ltd.; John Bendheim, President of Bendheim Enterprises, Inc.; Marc Brutten, Entrepreneur and CEO of Westcore Holdings; Bob Din, CEO of Din Cloud; John Hagestad, Managing Partner of SARES-REGIS Group; Warren S. Orlando, First Senior Vice President Valley National Bank; and J. Scott Watt, President and CEO of the Watt Group of Companies.
Forward-looking Statements
Certain matters discussed in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and are subject to the safe harbors created by the act. These forward-looking statements refer to California Republic’s current expectations regarding future operating results, and growth in loans, deposits, and assets. These forward-looking statements are subject to certain risks and uncertainties that could cause the actual results, performance or achievements to differ materially from those expressed, suggested or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to (1) the ability to obtain regulatory approvals and meet other closing conditions to the merger on the expected terms and schedule; (2) delay in closing the merger; (3) difficulties and delays in integrating the Mechanics and CRB businesses or fully realizing cost savings and other benefits associated with the merger; (4) business disruption following the proposed merger transaction; changes in asset quality and credit risk; (5) the inability to sustain revenue and earnings growth after the merger; (6) Mechanics’ and CRB’s businesses experiencing disruptions due to transaction-related uncertainty or other factors making it more difficult to maintain relationships with employees, customers, other business partners or governmental entities associated with the merger; (7) economic and capital market conditions; (8) the impact, extent and timing of technological changes, capital management activities, and other actions of regulatory agencies (9) the impact of changes in interest rates, a decline in economic conditions and increased competition by financial service providers on California Republic’s results of operations; (10) California Republic’s ability to continue its internal growth rate; (11) California Republic’s ability to build net interest spread; (12) California Republic’s ability to access the public securitization market for automobile loans; (13) the credit spread or cost of funds for auto-backed securities; (14) the quality of California Republic’s earning assets; (15) changes in the level of non-performing assets and charge-offs; (16) the effect of changes in laws and regulations with which California Republic must comply; (17) changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory authorities and accounting requirements; (18) acts of war or terrorism or natural disasters; (19) the timely development of new banking products and services; (20) the success of products and services, such as the indirect auto loan business; (21) technological changes; (22) cyber-security threats, including loss of system functionality or theft or loss of data; (23) the ability to increase market share and control expenses; and (24) California Republic’s success at managing the risks involved in the foregoing items.
California Republic does not undertake, and specifically disclaims any obligation to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements except as required by law.
California Republic Bancorp and Subsidiaries | ||||||||||
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||
(Dollars and shares in thousands) | ||||||||||
Three Months Ended | ||||||||||
3/31/2016 | 3/31/2015 | |||||||||
Interest income | ||||||||||
Loans, including fees | $ | 18,601 | $ | 12,666 | ||||||
Investment securities | 1,275 | 810 | ||||||||
Other | 420 | 219 | ||||||||
TOTAL INTEREST INCOME | 20,297 | 13,695 | ||||||||
Interest expense | ||||||||||
Deposits | 752 | 456 | ||||||||
Other borrowings | 620 | 361 | ||||||||
TOTAL INTEREST EXPENSE | 1,372 | 817 | ||||||||
Net interest income | 18,925 | 12,878 | ||||||||
Provision for loan losses | 1,660 | 703 | ||||||||
NET INTEREST INCOME AFTER | ||||||||||
PROVISION FOR LOAN LOSSES | 17,265 | 12,175 | ||||||||
Noninterest income | ||||||||||
Gain on sale of loans | (3,180 | ) | 6,694 | |||||||
Loan servicing fees | 6,062 | 3,491 | ||||||||
Other | 151 | 299 | ||||||||
TOTAL NONINTEREST INCOME | 3,034 | 10,483 | ||||||||
Noninterest expense | ||||||||||
Salaries and employee benefits | 12,276 | 11,327 | ||||||||
Other | 7,605 | 5,509 | ||||||||
TOTAL NONINTEREST EXPENSE | 19,881 | 16,836 | ||||||||
INCOME BEFORE INCOME TAXES | 418 | 5,822 | ||||||||
Income tax expense | 177 | 2,358 | ||||||||
NET INCOME | $ | 241 | $ | 3,464 | ||||||
Earnings per common share: | ||||||||||
Basic | $ | 0.03 | $ | 0.45 | ||||||
Weighted average number of common shares | ||||||||||
Basic | 7,787 | 7,722 | ||||||||
California Republic Bancorp and Subsidiaries | ||||||||||||
UNAUDITED CONSOLIDATED BALANCE SHEET | ||||||||||||
(Dollars in thousands) | ||||||||||||
3/31/2016 | 3/31/2015 | |||||||||||
ASSETS | ||||||||||||
Cash and cash equivalents | $ | 252,978 | $ | 263,329 | ||||||||
Investment securities available for sale | 249,289 | 224,553 | ||||||||||
Auto loans held for sale | 184,776 | 173,234 | ||||||||||
Auto loans held for investment | 138,718 | 88,875 | ||||||||||
Commercial loans held for investment | 918,130 | 570,725 | ||||||||||
Gross loans held for investment | 1,056,848 | 659,600 | ||||||||||
Allowance for loan and lease losses | (10,386 | ) | (6,228 | ) | ||||||||
Loans held for investment, net | 1,046,462 | 653,372 | ||||||||||
Premises and equipment, net | 7,768 | 6,711 | ||||||||||
FHLB stock and other investments | 8,698 | 10,605 | ||||||||||
Other assets | 17,906 | 13,466 | ||||||||||
TOTAL ASSETS | $ | 1,767,877 | $ | 1,345,269 | ||||||||
LIABILITIES | ||||||||||||
Deposits: | ||||||||||||
Noninterest bearing | $ | 1,005,072 | $ | 758,839 | ||||||||
Interest bearing | 568,510 | 389,949 | ||||||||||
Total deposits | 1,573,582 | 1,148,788 | ||||||||||
Other borrowings | - | - | ||||||||||
Subordinated debentures | 24,658 | 25,000 | ||||||||||
Other liabilities | 16,690 | 28,788 | ||||||||||
TOTAL LIABILITIES | 1,614,930 | 1,202,576 | ||||||||||
SHAREHOLDERS' EQUITY | ||||||||||||
Common stock | 117,303 | 116,922 | ||||||||||
Paid in capital | 6,677 | 5,299 | ||||||||||
Retained earnings | 29,474 | 20,628 | ||||||||||
Accumulated other comprehensive income | (506 | ) | (155 | ) | ||||||||
TOTAL SHAREHOLDERS' EQUITY | 152,947 | 142,694 | ||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 1,767,877 | $ | 1,345,269 | ||||||||
California Republic Bancorp and Subsidiaries | |||||||||||||||||||||
UNAUDITED CONSOLIDATED AVERAGE BALANCES AND ANNUALIZED YIELDS | |||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||
Three Months Ended | |||||||||||||||||||||
3/31/2016 | 3/31/2015 | ||||||||||||||||||||
Average | Average | ||||||||||||||||||||
Balance | Income | Rate | Balance | Income | Rate | ||||||||||||||||
ASSETS | |||||||||||||||||||||
Cash | $ | 92,605 | $ | 125 | 0.54 | % | $ | 125,899 | $ | 80 | 0.26 | % | |||||||||
Investment securities | 256,288 | 1,275 | 2.00 | % | 184,269 | 810 | 1.78 | % | |||||||||||||
Commercial loans | 888,912 | 9,944 | 4.49 | % | 545,696 | 6,314 | 4.69 | % | |||||||||||||
Auto loans | 498,953 | 8,657 | 6.96 | % | 327,675 | 6,352 | 7.86 | % | |||||||||||||
Total loans | 1,387,865 | 18,601 | 5.38 | % | 873,371 | 12,666 | 5.88 | % | |||||||||||||
Other interest earning assets | 14,765 | 296 | 8.04 | % | 9,910 | 139 | 5.67 | % | |||||||||||||
Total interest earning assets | 1,751,523 | 20,297 | 4.65 | % | 1,193,448 | 13,695 | 4.64 | % | |||||||||||||
Other assets | 41,076 | 26,852 | |||||||||||||||||||
Total Assets | $ | 1,792,598 | $ | 1,220,301 | |||||||||||||||||
LIABILITIES & EQUITY | |||||||||||||||||||||
Interest bearing transaction accts | $ | 472,081 | $ | 586 | 0.50 | % | $ | 391,557 | $ | 452 | 0.47 | % | |||||||||
Time certificate of deposits | 118,220 | 166 | 0.56 | % | 3,252 | 5 | 0.57 | % | |||||||||||||
Total Interest Bearing Deposits | 590,301 | 752 | 0.51 | % | 394,809 | 456 | 0.47 | % | |||||||||||||
Other borrowings | 260,324 | 282 | 0.43 | % | 56,510 | 23 | 0.16 | % | |||||||||||||
Subordinated debentures | 24,860 | 338 | 5.45 | % | 25,000 | 338 | 5.41 | % | |||||||||||||
Total interest bearing liabilities | 875,485 | 1,371 | 0.63 | % | 476,319 | 817 | 0.69 | % | |||||||||||||
Non-interest bearing demand accts | 748,927 | 583,874 | |||||||||||||||||||
Total funding | 1,624,411 | 1,371 | 0.34 | % | 1,060,193 | 817 | 0.31 | % | |||||||||||||
Other liabilities | 15,641 | 20,610 | |||||||||||||||||||
Shareholders' equity | 152,546 | 139,498 | |||||||||||||||||||
Total liabilities & shareholders' equity | $ | 1,792,598 | $ | 1,220,301 | |||||||||||||||||
Net interest spread | 4.02 | % | 3.95 | % | |||||||||||||||||
Net interest income / margin | $ | 18,926 | 4.33 | % | $ | 12,878 | 4.37 | % | |||||||||||||
At and For | |||||||||||
Three Months Ended | |||||||||||
3/31/2016 | 3/31/2015 | ||||||||||
Auto Loans: | |||||||||||
Beginning balance | $ | 381,289 | $ | 216,876 | |||||||
Purchases | 422,371 | 417,303 | |||||||||
Sales | (440,000 | ) | (350,001 | ) | |||||||
Principal reductions | (40,166 | ) | (22,069 | ) | |||||||
Auto loans owned | 323,494 | 262,109 | |||||||||
Auto loans serviced for others | 2,379,018 | 1,496,275 | |||||||||
Total auto loans serviced | $ | 2,702,512 | $ | 1,758,384 | |||||||
Commercial bank loans | 918,130 | 570,725 | |||||||||
Total managed loans | $ | 3,620,642 | $ | 2,329,109 | |||||||
New commercial commitments | $ | 87,274 | $ | 92,460 | |||||||
Outstanding commercial commitments | $ | 1,228,112 | $ | 816,078 | |||||||
Return on average equity | 0.63 | % | 9.87 | % | |||||||
Return on average assets | 0.05 | % | 1.15 | % | |||||||
Book value per share | $ | 19.63 | $ | 18.47 | |||||||
30 day plus delinquent loans (1) | 0.35 | % | 0.20 | % | |||||||
Nonperforming loans to total loans (1) | 0.10 | % | 0.05 | % | |||||||
Allowance for loan losses to total loans HFI (2) | 0.98 | % | 0.94 | % | |||||||
Net chargeoffs on commercial banking loans (3) | - | - | |||||||||
Net chargeoffs on auto loans owned | 0.61 | % | 0.50 | % | |||||||
(1) No commercial loans are delinquent or nonperforming | |||||||||||
(2) Excludes $252.5 million of auto loans held for sale | |||||||||||
(3) No life-to-date net chargeoffs on commercial banking loans | |||||||||||
Bancorp: | |||||||||||
Common equity tier 1 capital ratio | 11.90 | % | 11.66 | % | |||||||
Tier 1 capital ratio | 11.90 | % | 11.66 | % | |||||||
Total capital ratio | 14.73 | % | 16.62 | % | |||||||
Leverage ratio | 8.26 | % | 20.28 | % | |||||||
Bank: | |||||||||||
Common equity tier 1 capital ratio | 12.30 | % | 10.47 | % | |||||||
Tier 1 capital ratio | 12.30 | % | 10.47 | % | |||||||
Total capital ratio | 15.13 | % | 14.93 | % | |||||||
Leverage ratio | 8.54 | % | 18.59 | % | |||||||
View source version on businesswire.com: http://www.businesswire.com/news/home/20160429006100/en/
Contacts:
John DeCero, President
949-270-9797