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Manhattan Bancorp Reports Profitable Year of Operations

Published on Tuesday, March 11, 2014 | 9:03 am
 

Manhattan Bancorp (OTCQB:MNHN), holding company for subsidiary Bank of Manhattan, N.A. and which has offices in Pasadena, announced today its financial results for the year ended December 31, 2013.

For the year ended December 31, 2013, earnings were $1.9 million, or $0.15 per diluted share, compared to $686 thousand, or $0.08 per diluted share, for the comparable period in 2012.

Additional highlights for 2013 include the following:

Total assets were $503 million as of December 31, 2013 compared with $465 million at the beginning of the year.
Total loans outstanding were $327 million as of December 31, 2013 compared with $371 million at the beginning of the year.
Net interest margin for the year was 4.24% compared with 4.80%.
The efficiency ratio for the year was 91.1% compared with 95.1%.
Non-performing loans of $2.1 million represented 0.71% of the total loans held for investment outstanding as of December 31, 2013 compared with $1.8 million.
The Bank’s Tier 1 Leverage Ratio and Total Risk-Based Capital Ratio as of December 31, 2013 were 10.1% and 15.0%, respectively, compared with 10.4% and 13.2%.
Terry Robinson, Chief Executive Officer, stated, “The results of operations for 2013 represent Manhattan Bancorp’s second consecutive profitable year. Our profits were negatively impacted throughout the second half of the year by the dramatic nationwide drop in mortgage volume. Fortunately, Commercial Division profits exceeded our projections on a ‘normalized earnings’ basis as well as for reported earnings. Our management team did an excellent job of growing commercial business and adjusting to the realities of the mortgage market in 2013.”

Richard Pimentel, Chief Financial Officer, went on to explain, “In 2013, the Company continued to build upon synergies from the Merger through strong growth in both commercial loans and customer deposits. Although Manhattan Bancorp and Bank of Manhattan were the surviving entities in the Merger, the transaction was treated as a ‘reverse acquisition’ for accounting purposes, resulting in the Bank of Manhattan’s balance sheet being subjected to ‘fair value’ accounting. As a result, earnings for the year ended December 31, 2013 reflect the results of operations for the combined banks, while the reported earnings for the same period in 2012 include the results of operations of Professional Business Bank for the entire period and only seven months of operating results for Manhattan. Thus, comparisons of the year to date 2013 results with the comparable period in the prior year are difficult to analyze, at best.”

Net Interest Income and Margin

The Company’s net interest income totaled $18.3 million for the year ended December 31, 2013, an increase of $2.7 million, or 17%, compared with 2012. The increase in net interest income was largely due to an increase in earning assets as a result of the Merger partially offset by increased interest bearing liabilities and a decrease in our net interest margin and spread. Average interest earning assets increased to $431.9 million in 2013 from $325.0 million in 2012 – an increase of $106.9 million, or 33%. Similarly, average interest bearing liabilities increased to $271.0 million in 2013 from $203.4 million in 2012 – an increase of $67.6 million, or 33%. At this same time the interest spread decreased 56 basis points to 4.23% and the net interest margin decreased 56 basis points to 4.24%.

The decrease in the spread and net interest margin during 2013 as compared to 2012 was largely due to a decrease in the yield on interest earning assets. The yield on earning assets decreased 50 basis points to 4.57% in 2013 compared to 5.07% in 2012. The cost of interest bearing liabilities increased 10 basis points to 0.54% in 2013 compared to 0.44% in 2012. The principal contributor to the decrease in the yield on earning assets was a decrease in loan yields of 34 basis points to 5.37% in 2013 compared to 5.71% in 2012. Lower loan yields were reflective of a greater amount of yield accretion in 2012 with loans accounted for under FASB ASC 310-30.

Non-Interest Income

Non-interest income for the years ended December 31, 2013 and 2012 was $25.1 million and $24.4 million, respectively. This $709 thousand increase was due primarily to revenue provided by mortgage division activity and commercial division income, partially offset by decreases in revenue from Manhattan Bancorp’s subsidiary, Manhattan Capital Markets, LLC (“MCM”), which was divested on November 9, 2012.

As a result of the Merger, non-interest income includes revenues generated from the mortgage division, which totaled $21.1 million, compared to $15.9 million in 2012. The mortgage division began originating loans in the fourth quarter of 2010, but due to the accounting treatment in the Merger, these revenues are not reflected in the historic earnings of the Company prior to the Merger on May 31, 2012. The mortgage division revenue is a function of the volume of loan originations during the period, which totaled $857 million for 2013 compared to $653 million in 2012, which only included seven months of operations due to the Merger. The loans originated during 2013 were comprised of approximately 58% in loans made to refinance existing mortgages and 42% to finance the purchase of a home. For the year ended December 31, 2013, non-interest income from the commercial division totaled $4 million, up $785 thousand (25%) from 2012. The increase was partly related to gains on the recovery of acquired loans totaling $1.4 million in 2013, compared to $749 thousand in 2012. The increase was also related to incremental earnings from the Bank’s participation in the MIMS-1 limited partnership fund, service charges on customer accounts and banking service charges and other fees. These increases were partially offset by decreases in gains from the sale of investment securities.

The Company did not have any revenue from broker-dealer activities in 2013 compared to $5.3 million during the comparable period of 2012, which is a result of the broker-dealer subsidiary spin off that occurred during the fourth quarter of 2012.

Non-Interest Expense

Non-interest expense for the years ended December 31, 2013 and 2012 was $41.3 million and $38.0 million, respectively, an increase of $3.3 million (9%). Most of the $3.3 million increase in non-interest expenses was driven by growth in the Company’s staffing levels due to the Merger, including the increase in infrastructure to support expansions in the mortgage and commercial divisions. The Company also experienced increases in other categories of non-interest expense that were largely the result of the Merger.

Four expense categories comprised 88% and 90% of the Company’s operating expenses in 2013 and 2012, respectively: compensation and benefits, occupancy and equipment, technology and communication, and professional fees. These four expense categories, which totaled $36.2 million in 2013, increased by $1.9 million (5%) compared with 2012 and accounted for more than half of the total increase in non-interest expenses in 2013 compared with 2012.

Compensation and Benefits

Compensation and benefits expense totaled $26.9 million and $25.0 million in the years ended December 31, 2013 and 2012, respectively. These expenses comprised 65% and 66% of total non-interest expenses in 2013 and 2012, respectively, the largest category of operating expenses.

Occupancy and Equipment

Occupancy and equipment costs totaled $3.6 million and $2.7 million in 2013 and 2012, respectively. These expenses, which comprised 9% and 7% of total operating expenses in 2013 and 2012, respectively, increased by $855 thousand (31%) in 2013 compared with the prior year. This increase primarily reflected the additional offices acquired in the Merger along with the requisite growth in the Company’s infrastructure to support expansions in the mortgage and commercial divisions.

Technology and Communication

Technology and communication expense, which totaled $2.6 million and $2.6 million in 2013 and 2012, respectively, comprised 6% and 7% of the Company’s total operating expenses in 2013 and 2012, respectively. These expenses increased by $24 thousand (1%) in 2013 compared with the prior year.

Professional Fees

Professional fees, which totaled $3.1 million and $4.0 million in 2013 and 2012, respectively, comprised 8% and 11% of the Company’s total operating expenses during these same respective periods. This category of expense decreased by $916 thousand (23%) in 2013 compared with the prior year. These decreases primarily reflect synergies resulting from the Merger and no expenses associated with broker-dealer activities during 2013 compared to 2012.

Balance Sheet

Assets at December 31, 2013 totaled $503.4 million, up $38.0 million, or 8%, from December 31, 2012. The increase in our total assets was driven by the growth in our core deposits that increased our cash and cash equivalents and funded an increase in our loans held for investment, partially offset by decreases in our loan held for sale portfolio.

Net loans totaled $326.8 million at December 31, 2013, down $44.2 million, or 12%, from December 31, 2012. Most of the decrease in loans is attributable to the mortgage division, as loans held for sale decreased by $62.1 million, or 65%, to $33.9 million at December 31, 2013 compared to $96.0 million at December 31, 2012. The loans attributable to the commercial division, as loans held for investment increased $18.1 million, or 6.5%, to $295.6 million at December 31, 2013 compared to $277.4 million at December 31, 2013. The net increase in loans held for investment also reflects the effect of a decrease in residential mortgage warehouse loans that decreased to zero during 2013 from $24.8 million at December 31, 2012; the Company ceased actively lending to this market segment and the associated loan balances have matured and paid off with no losses ever having been incurred.

The principal source of funding for the Company comes from depository accounts that increased by $49.2 million, or 13%, to $432.6 million at December 31, 2013 from $383.3 million at December 31, 2012. Most of the increase in deposits resulted in non-interest bearing demand accounts.

During the year ended December 31, 2013, the Company was able to obtain lower cost certificates of deposit that allowed for a decrease in short-term borrowings with the Federal Home Loan Bank (“FHLB”). The Company did not have any short-term borrowing from the FHLB at December 31, 2013, which was down from $15.1 million at December 31, 2012. Total FHLB borrowings at December 31, 2013 were $6 million, a decrease of $13.6 million from $19.6 million at December 31, 2012.

As a result of the increase in funding liabilities in excess of loan growth, cash and investable balances (Federal funds sold, interest bearing deposits and investment securities) increased by $87.6 million, or 177.4%, to $136.9 million at December 31, 2013, compared with $49.4 million at December 31, 2012. The Company maintains most of these balances in interest bearing accounts at other banks, including the Federal Reserve, in order to support the day-to-day fluctuating cash requirements during the month in its deposit accounts and the funding and sale of mortgage loans in its mortgage division.

Credit Quality

At December 31, 2013, the Company’s allowance for loan losses totaled $2.7 million, or 0.90%, of gross loans held for investment, compared with $2.4 million, or 0.87%, of gross loans held for investment at December 31, 2012. There were no commercial loans past due 90 days or more that had not been placed on non-accrual at December 31, 2013. However, the Company had $2.1 million in non-accrual loans at year-end 2013 consisting of six loans held for investment. There were no non-performing loans held for sale. The non-performing loans held for investment were current as of December 31, 2013. As of December 31, 2012, the Bank had $1.8 million in non-accrual loans.

Capital Adequacy

Stockholders’ equity totaled $58.9 million at December 31, 2013, an increase of $1.8 million, or 3.3%, from December 31, 2012.

Capital ratios for the Company and the Bank continue to exceed levels required by banking regulators to be considered “well-capitalized” (the highest level specified by regulators). As of December 31, 2013, the Bank’s total risk-adjusted capital ratio, tier 1 risk-adjusted capital ratio, and tier 1 capital ratio were 15.02%, 14.02%, and 10.07%, respectively, well above the regulatory requirements of 10%, 6%, and 5%, respectively, to be considered “well-capitalized.”

About Manhattan Bancorp/Bank of Manhattan

Manhattan Bancorp is a bank holding company with $503 million in assets. Its principal subsidiary, Bank of Manhattan, N.A., is a full service bank headquartered in the South Bay area of Los Angeles, California. Founded in 2007, Bank of Manhattan specializes in delivering relationship banking services and residential mortgages to entrepreneurs, family-owned and closely-held middle market businesses, real estate investors and professional service firms. The Bank has five full-service offices in El Segundo, Manhattan Beach, Pasadena, Glendale and Montebello as well as eight mortgage loan production offices in Southern California. For more information about Manhattan Bancorp, please visit www.thebankofmanhattan.com.

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