DEAR VALUED SHAREHOLDERS:
On behalf of FineMark Holdings, Inc.—the Board of Directors, the executive management team, and all our dedicated associates—I am pleased to report on the company’s performance for the third quarter of 2021.
FineMark Holdings, Inc. (the “Holding Company”) (OTCQX: FNBT), the parent company of FineMark National Bank & Trust (the “Bank”) (collectively, “FineMark”), today announced third quarter 2021 net income of $7.1 million ($0.61 per diluted share). This compares to net income of $5.7 million ($0.63 per diluted share) reported for the third quarter of 2020.
THIRD QUARTER FINANCIAL HIGHLIGHTS
FineMark’s net income rose 23% in the third quarter to $7.1 million, a new quarterly record. This performance reflects growth in the Bank’s loan portfolio and trust business, as well as the reversal of $1.25 million in loan loss provision to cover potential pandemic-related write-downs that never materialized. Excluding this one-time event, net income would have totaled $6.1 million, just shy of the previous record of $6.3 million, set in the fourth quarter of 2020.
In the third quarter, the Bank’s loan portfolio expanded by 12% year-over-year, net interest income increased by 8.5%, and cost of funds declined. Assets under management and administration increased 24% year-over-year, reflecting strong inflows from new and existing trust clients, as well as gains in the value of investments.
As of September 30, 2021, total bank assets stood at $3.1 billion compared to $2.6 billion a year earlier. Having crossed the $3 billion threshold, FineMark’s leverage ratios are now calculated on a consolidated basis. To augment the targeted consolidated Tier 1 capital leverage ratio, a capital raise was completed in the beginning of the third quarter with $27 million of new equity. This was in addition to $55.5 million raised in June, resulting in a total capital raise of $82.5 million. Major categories affecting third quarter 2021 performance on a year-over-year basis:
- Net income increased 23% to a record $7.1 million
- Diluted earnings per share decreased 3% to $0.61 (due to additional shares outstanding from capital raise)
- Loans, net of allowance, increased 12% to $2.0 billion
- Total deposits increased 23% to $2.4 billion
- Net interest income increased 8.5% to $16.5 million
- Cost of funds decreased 16 basis points
- Trust fees increased 31% to $7.0 million, representing 29% of total revenue for the period
- Assets under management and administration increased 24% to $5.7 billion (including $123 million of new assets, a 67% increase from third quarter 2020)
Return on average equity was 9.39% (down from 11.35%) due to a 48% increase in shareholders’ equity which includes the capital raised to meet increased regulatory oversight.
Please refer to the abbreviated financial statements for details.
NET INTEREST INCOME AND MARGIN
Net interest income for the third quarter rose 8.5% year-over-year to $16.5 million, as the Bank’s outstanding loans continued to grow while reducing the cost of funds. Year-to-date, net interest income is $47.5 million, up almost 11% compared to the third quarter 2020. Deposits increased 23% year-over-year while the Bank’s loan portfolio grew 12% year-over-year to $2.0 billion. This growth is particularly strong considering that Paycheck Protection Program (PPP) loan balances continue to decline, and clients are paying down loans with gains realized from the strong equity and real estate markets.
The Bank’s average cost of funds declined to 0.51% in the third quarter, compared to 0.57% in the second quarter and 0.67% in the third quarter of 2020. Bond holdings increased to 28% of assets, improving the yield beyond what is available on cash deposited with the Federal Reserve. However, yield on earning assets fell to 2.71% versus 2.79% in the second quarter resulting in a net interest margin of 2.24% for the third quarter, unchanged from the previous quarter. These changes are primarily the result of lower yields on newly purchased bonds and originated loans.
Trust and investment earnings remained strong in the third quarter. As of September 30, 2021, assets under management and administration totaled $5.7 billion, up 24% year-over-year. During the third quarter, nearly $123 million was added from both existing relationships and new clients to the Bank.
The U.S. equity markets saw muted returns in the third quarter, with the S&P 500 returning 0.60%, while bond prices were adversely impacted by rising interest rates. Despite the foregoing, fee income from trust business increased 31% to $7.0 million in the third quarter, representing 29% of total revenue.
The Bank did not recognize gains from the sale of debt securities in the third quarter 2021, compared to net gains of $1.1 million realized in the third quarter 2020.
As FineMark’s loan portfolio, deposit base, and trust business continue to grow, operating overhead has also increased to maintain our high level of client service. Non-interest expenses totaled $15.6 million in the third quarter, an 11% increase over third quarter 2020. This uptick, due largely to the hiring of new professionals and investing in technology, is in line with the Bank’s steady expansion. FineMark’s efficiency ratio, which measures non-interest expense as a percent of revenues, improved in the third quarter to 64.69% from 66.37% in the second quarter.
FineMark’s asset quality remains strong. As of September 30, 2021, the allowance for loan losses was $20.8 million, representing 1.0% of total loans, compared to $21.6 million or 1.1% of total loans in the second quarter. No new provisions were made for potential, but not expected COVID-related loan losses and half of the $2.5 million held in COVID-related reserves was released. This release was partly offset by an addition of $416,000 in new provisions associated with recent growth in the loan portfolio.
Management believes the Bank’s reserves continue to be sufficient to support risks in the loan portfolio, as the residential real estate market, which represents over half of the Bank’s portfolio, continues to be exceptionally strong. Commercial loans, which include declining PPP loan balances, comprise only 11% of total loans. The Bank’s ratio of classified loans to total loans is particularly low at 0.9% compared to an industry average of 14.6%. Total non-performing loans declined to 0.05% of total loans in the third quarter compared to 0.1% in the previous quarter. No COVID-related loans are in forbearance.
As expected, the Bank’s PPP loan portfolio continues to run off as borrowers obtain loan forgiveness under the program. As of September 30, 2021, the Bank had $23.3 million in PPP loans, compared to $40.8 million at the end of the second quarter.
Management is satisfied with the credit quality of the Bank’s loan portfolio and continually monitors conditions to determine whether additional provisions are necessary. Above all, we remain committed to maintaining credit quality through a relationship-based approach to lending that relies on an in-depth understanding of each potential borrower’s needs and financial situation.
CAPITAL AND LIQUIDITY
All capital ratios exceed regulatory requirements for “well-capitalized” banks. As of September 30, 2021, FineMark’s Tier 1 leverage ratio on a consolidated basis was 9.88%, up from the previous quarter due to the $27 million in additional equity capital raised in the third quarter. The Bank’s total risk-based capital ratio as of September 30, 2021 was 20.22%. Bank assets now exceed $3 billion. As previously mentioned, having crossed the $3 billion threshold in assets, we are prepared for the increased regulatory scrutiny reserved for larger banks and we intend to maintain capital levels consistent with peers of our size.
Construction delays have moved the opening of FineMark’s newest location in Jupiter, Florida to the first quarter of 2022. The office was originally expected to open this fall. FineMark’s 14th location, in the heart of Old Naples, remains on schedule to open in late March or early April of 2022.
We sincerely appreciate the trust our clients, and each of you, have placed in FineMark. Our ability to achieve the results reported in this letter, stems from our relationship-based approach and our commitment to provide creative solutions that meet our clients’ needs. Without the commitment of our dedicated associates, this would not be possible. We recognize the pandemic is still affecting lives around the world, and we are grateful to hold an optimistic outlook that strong economic growth will continue for the remainder of the year.
Joseph R. Catti
Chairman & CEO
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.
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.
Earnings Release 2021 Q3 (.pdf)
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