C1 Financial Reports 2015 Second Quarter Results

ST. PETERSBURG, Fla., July 16, 2015 /PRNewswire/ -- C1 Financial, Inc. (NYSE: BNK) today reported net income of $4.7 million, or $0.29 per diluted common share for the second quarter of 2015 ("2Q15"), compared to net income of $3.2 million, or $0.20 per diluted common share for the first quarter of 2015 ("1Q15"). The net income for 2Q15 included a $2.6 million pre-tax gain on sale of land, a $1.2 million pre-tax provision for loan loss expense related to the general reserve and in addition to the allowance for net loan growth, a $393 thousand recovery related to a single loan, and a $163 thousand tax adjustment made in conjunction with our 2012 and 2013 tax audit.

MESSAGE FROM PRESIDENT & CHIEF EXECUTIVE OFFICER

Trevor Burgess, President & Chief Executive Officer of C1 Financial, Inc. stated, "We continue to execute on our plan to build the best business-focused bank in Florida, originating $177 million in new loans in the quarter and making significant progress in reducing the amount of acquired classified assets.  Entrepreneurs are choosing C1 Bank because of our speed, our differentiated service, and for our certainty of execution. Extra land purchased around our Wynwood branch appreciated greatly in a very short amount of time and we took the opportunity to book a gain that reflected positively in our tangible book value. In this extraordinary quarter, we also strengthened our balance sheet with an important increase in our allowance for loan losses related to performing loans. With the first half now behind us, we are excited to enter the second half with a strong pipeline of new clients and several great new additions to the C1 Bank management and sales teams."

2Q15 showed several positive trends in our results and included some special events:

1. We originated $177 million in new loans in the quarter, resulting in C1 Bank originated loans outstanding up $121 million (+13%) from the prior quarter and $381 million (+57%) year-over-year. Overall loans outstanding (including acquired loans) were $1.361 billion at the end of 2Q15 (up 8.3% from the prior quarter and up 28.1% year-over-year);
2. Unfunded commitments were $238 million at the end of 2Q15, down $7.2 million (-2.9%) during the quarter and continue to present a clear opportunity for near-term loan funding;
3. The quarter saw $28 million growth in core deposits. Core deposits reached 78.5% of total deposits at the end of 2Q15, compared to 77.2% at the end of 1Q15. Noninterest-bearing deposits represented 26.5% of total deposits at the end of 2Q15, in line with the previous quarter. Cost of total deposits fell 3 basis points ("bps") to 0.44% when compared to 1Q15;
4. Adjusted net interest margin (a non-GAAP measure which excludes the impact of purchase accounting accretion income) improved by 19 bps (from 4.41% for 1Q15 to 4.60% for 2Q15), reflecting the use of excess cash and enhanced by higher loan fees (resulting primarily from loan prepayment related fees);
5. Net interest income was up $1.2 million when compared to 1Q15, driven mainly by an increase in average loan balances (despite late funding in the quarter) and higher loan fees;
6. In 2Q15, sales of other real estate owned ("OREO") reduced our OREO balance by $2.6 million. Including the improvement in nonperforming loans, total nonperforming assets declined $4.9 million when compared to the previous quarter. Our Texas Ratio was 22.4% at the end of 2Q15, improved from 25.7% at the end of 1Q15;
7. C1 Bank originated nonperforming assets accounted for less than 1% of our total nonperforming assets (with C1 Bank originated nonperforming loans below 0.1% of C1 Bank originated loans outstanding);  
8. Our allowance for loan losses was up 10 bps to 0.56% of total loans at the end of 2Q15, from 0.46% at the end of 1Q15;
9. Special events in this quarter included: (i) we sold our excess parking lots surrounding our Wynwood branch in Miami for a $2.6 million pre-tax gain; (ii) we booked a $163 thousand tax expense adjustment as a result of an IRS audit (related primarily to years 2012-2013); and (iii) we increased the general reserve for performing loans of our allowance for loan losses approximately $1.2 million in addition to the allowance for net loan growth, which was partially funded by a $393 thousand large recovery (related to the shared national credit loan charged off in 2Q14), resulting in an additional net pre-tax provision for loan loss expense of $808 thousand in 2Q15.

ASSETS

Total assets at the end of 2Q15 were $1.678 billion, $81.1 million higher (+5.1%) than at the end of 1Q15, primarily funded by deposit growth ($16.2 million) and additional longer term Federal Home Loan Bank ("FHLB") borrowings ($59.0 million).

LOANS

Total loans at the end of 2Q15 were $1.361 billion, up $104.9 million (+8.3%) from the end of 1Q15. Loan growth in 2Q15 was mainly driven by strong loan originations of $177.1 million and funding of unfunded commitments, partially offset by loans paying off in the acquired portfolio, which decreased $15.9 million (-4.8%) from the end of 1Q15 to $315.2 million at the end of 2Q15. The outstanding balance of C1 Bank originated loans grew $120.7 million (+13.0%) during 2Q15. At the end of 2Q15, C1 Bank originated loans represented 77% of the loan portfolio, up from 74% at the end of 1Q15. 

DEPOSITS

Total deposits at the end of 2Q15 were $1.216 billion, an increase of $16.2 million (+1.3%) from the end of 1Q15. Core deposits were $954.1 million, or 78.5% of total deposits at the end of 2Q15, compared to $926.3 million, or 77.2% of total deposits at the end of 1Q15. The shift in the deposit mix provided for a 3 bps decline in the cost of total deposits to 0.44% in 2Q15 from 0.47% in 1Q15.

ASSET QUALITY

Nonperforming assets totaled $45.1 million at the end of 2Q15, declining $4.8 million (-9.7%) when compared to the end of 1Q15. The decline in 2Q15 was driven primarily by a reduction of $2.6 million in OREO balances as we continued to sell properties. As a percentage of total assets, nonperforming assets decreased to 2.69% at the end of 2Q15 when compared to 3.13% at the end of 1Q15. Our Texas Ratio improved to 22.4% at the end of 2Q15 from 25.7% at the end of 1Q15. At the end of 2Q15, only $340 thousand, or less than 1.0% of total nonperforming assets, were related to loans originated by C1 Bank.

Total recoveries of $681 thousand, net of charge-offs of $69 thousand, resulted in net recoveries of $612 thousand in 2Q15 (0.19% of total average loans on an annualized basis), which reflected our continued effort to collect deficiencies, excellent credit quality on originated loans and a lower level of charge-offs on the acquired portfolio. The $1.3 million provision for loan losses was primarily driven by net loan growth and the above mentioned addition to general reserves for existing loans, and partially funded by our net recoveries.

Our allowance for loan losses at the end of 2Q15 was $7.7 million (representing 0.56% of total loans), compared to $5.8 million (representing 0.46% of total loans) at the end of 1Q15. On a non-GAAP basis (including remaining loan discount from acquired performing loans), the allowance plus discount amount totaled $10.7 million (representing 0.79% of total loans) at the end of 2Q15, compared to $9.0 million (representing 0.72% of total loans) at the end of 1Q15.

NET INTEREST INCOME AND MARGIN

Net interest income for 2Q15 totaled $16.8 million, up $1.2 million (+7.9%) from 1Q15, mainly driven by growth of our average loans balance combined with an improvement in our earnings assets mix.

Net interest margin for 2Q15 increased 15 bps to 4.71% from 4.56% in 1Q15, mainly driven by a 15 bps higher yield on average earning assets as we redeployed lower-yielding cash investments into higher-yielding loans, and an improvement in the deposit mix (which resulted in a 3 bps decline in the cost of total deposits when compared to the previous quarter), partially offset by higher FHLB interest expense (as we continue to borrow longer term to extend the duration of our liabilities). Strong loan fees (driven primarily by prepayments) enhanced our yield on loans in the quarter, helping to offset the effect of late quarter loan funding. Adjusted net interest margin (which excludes the effect of purchase accounting) for 2Q15 was 4.60%, or 19 bps up from 4.41% in 1Q15.

Our excess cash (defined as our average available cash above our target liquidity level – See explanation of non-GAAP financial measures) was down to $5.6 million at the end of 2Q15, as we successfully deployed it into loans during the quarter. However, this was not fully reflected in the quarter's earning assets mix, as our average excess cash was $27.6 million for 2Q15.

NONINTEREST INCOME

Noninterest income for 2Q15 totaled $4.3 million, $2.7 million higher when compared to 1Q15. The increase was primarily due to a $2.6 million gain on the sale of land (included in gains on disposals of premises and equipment). Also impacting the increase were higher gains on sales of loans of $354 thousand (due to a higher volume of Small Business Administration ("SBA") loans sold) and income from bank-owned life insurance ("BOLI") of $166 thousand (the income from which was not fully reflected in 1Q15 as the ramp-up investment period was completed in early 2Q15). Partially offsetting the increase in noninterest income was a $300 thousand decline in gains on sales of OREO.

NONINTEREST EXPENSE & TAXES

Noninterest expense totaled $11.8 million in 2Q15, relatively flat when compared to 1Q15. Included in noninterest expense for 2Q15 were higher occupancy expenses, primarily due to our new Doral branch, and advertising expenses, primarily due to various promotional items and seasonal events. These higher expenses were mainly offset by declines in OREO related expense and professional fees. Lower OREO related expense was due to fewer OREO properties and lower professional fees were mainly due to less activity relating to OREO properties.

Our income tax expense was $3.3 million for 2Q15 and $2.0 million for 1Q15. Included in income tax expense for 2Q15 was a $163 thousand audit related tax adjustment, which increased the effective tax rate to 40.9% from 38.4% for 1Q15. Excluding this adjustment, our effective tax rate for 2Q15 was 38.9%, in line with 1Q15.

EFFICIENCY

Our efficiency ratio improved to 56.0% in 2Q15 from 68.9% in 1Q15. The efficiency ratio for 2Q15 was down from 1Q15 due to the gain on sale of land and our growth in net interest income. We also closely track annualized revenue per employee and average assets per employee, as measures of efficiency. Annualized revenue per employee was $384 thousand in 2Q15, compared to $326 thousand in 1Q15, while average assets per employee were $6.6 million in 2Q15, compared to $6.5 million in 1Q15, which reflected our efforts to achieve productivity gains as we grow our balance sheet.

NET INCOME

Net income was $4.7 million for 2Q15, compared to $3.2 million for 1Q15. This corresponded to a return on average assets of 1.18% and 0.82% for 2Q15 and 1Q15, respectively, and a return on average equity of 9.88% and 6.81% for 2Q15 and 1Q15, respectively.

CAPITAL

Our consolidated Tier 1 leverage ratio was 12.01% and total risk-based capital ratio was 13.60% as of the end of 2Q15, reflecting that we remained well capitalized under Interim Final Basel III rules. Additional capital ratios are presented in the financial tables.

OTHER EVENTS DURING 2Q15

On April 14, C1 Bank opened in Doral, its 31^st banking center and fourth in Miami-Dade County.

On April 30, C1 Bank unveiled its Client Service Vehicle ("C1 Bankmobile"), primarily to be used for disaster recovery and community outreach, and at sporting and community events throughout Florida.

On June 12, C1 Bank announced that Rita Lowman, C1 Bank's Executive Vice President and Chief Operating Officer, was elected the 2017 Chairwoman elect of the Florida Bankers Association.

WEBCAST AND CONFERENCE CALL INFORMATION

C1 Financial, Inc. will host a webcast and conference call at 8:30 a.m. (ET) on July 17, 2015 to discuss second quarter 2015 results and other matters.  To access the conference call, please dial 1-888-317-6016. The live webcast audio can be heard at http://services.choruscall.com/links/bnk150717.

C1 Financial, Inc. Information

Our name expresses our ideals to put our Clients 1^st and our Community 1^st. We are focused on serving the needs of entrepreneurs, tailoring a wide range of relationship banking services to entrepreneurs and their families, including commercial loans and a full line of depository products. We are based in St. Petersburg, Florida and operate from 31 banking centers and one loan production office on the West Coast of Florida and in Miami-Dade and Orange Counties. As of December 31, 2014, we were the 18^th largest bank headquartered in the state of Florida by assets and the 16^th largest by equity, having grown both organically and through acquisitions, and we were the sixth fastest-growing bank in the country as measured by asset growth for the five-year period ending June 30, 2014. Additional information is available at www.c1bank.com.

Forward-Looking Statements

In addition to historical information, this earnings release contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management's expectations. In some cases, you can identify these statements by forward-looking words such as "may," "might," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue" or "may," the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. There are a number of potential factors, risks and uncertainties that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. These potential factors, risks and uncertainties are discussed in Item 1A of Part I of the Annual Report of C1 Financial, Inc. on Form 10-K for the year ended December 31, 2014.

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, we do not assume responsibility for the accuracy and completeness of any of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this earnings release to conform our prior statements to actual results or revised expectations.

C1 Financial, Inc.

Generally Accepted Accounting Principles (GAAP) Reconciliation and
  Explanation of Non-GAAP Financial Measures
(In thousands, except per share and employee data)

Some of the financial measures included in this earnings release are not measures of financial performance recognized by GAAP. We believe these non-GAAP financial measures provide useful information to management and investors that is supplementary to our financial condition and results of operations computed in accordance with GAAP; however, we acknowledge that our non-GAAP financial measures have a number of limitations. As such, you should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP measures that other companies use. The following tables provide a more detailed analysis of these non-GAAP financial measures.

Definitions of Non-GAAP financial measures

Allowance for loan losses plus performing loans discount to total loans receivable adds the remaining discount on acquired performing loans to the allowance for loan losses to determine the total reserves and loan discounts established against our loans.  Our management believes that this metric provides useful information for investors to analyze the overall level of reserves in banks that have completed acquisitions with no allowance carryover.

Efficiency ratio is defined as total noninterest expense divided by the sum of taxable-equivalent net interest income and noninterest income.  Noninterest income is adjusted for nonrecurring gains and losses on sales of securities.  This ratio is important to investors looking for a measure of efficiency in the Company's productivity measured by the amount of revenue generated for each dollar spent.

Revenue per average number of employees is annualized total interest income and total noninterest income divided by the average number of employees during the period and measures the Company's productivity by calculating the average amount of revenue generated per employee.  Average assets per average number of employees is average assets divided by the average number of employees during the period and measures the average value of assets per employee.

Tangible stockholders' equity is defined as total equity reduced by goodwill and other intangible assets.  Tangible book value per share is tangible stockholders' equity divided by total common shares outstanding.  This measure is important to investors interested in changes from period-to-period in book value per share exclusive of changes in intangible assets. We have not considered loan servicing rights as an intangible asset for purposes of this calculation.

Adjusted yield earned on loans is our yield on loans after excluding loan accretion from our acquired loan portfolio.  Our management uses this metric to better assess the impact of purchase accounting on yield on loans, as the effect of loan discounts accretion is expected to decrease as the acquired loans mature or roll off of our balance sheet.

Adjusted rate paid on total deposits is our cost of deposits after excluding amortization of premiums for acquired time deposits.  Our management uses this metric to better assess the impact of purchase accounting on cost of deposits, as the effect of amortization of premiums related to deposits is expected to decrease as the acquired deposits mature or roll off of our balance sheet.

Adjusted net interest margin is net interest margin after excluding loan accretion from the acquired loan portfolio and amortization of premiums for acquired time deposits and Federal Home Loan Bank advances.  Our management uses this metric to better assess the impact of purchase accounting on net interest margin, as the effect of loan discounts accretion and amortization of premiums related to deposits or borrowings is expected to decrease as the acquired loans and deposits mature or roll off of our balance sheet.

Average excess cash represents the cash and cash equivalents in excess of our minimum liquidity level (defined as 10% of average total deposits plus borrowings due in one year or less), minus Company estimated short-term deposits. In 2015, based on an historical analysis, we changed our methodology for estimating short-term deposits, which reduced the results beginning in 1Q15.

Tangible equity to tangible assets is defined as total equity reduced by goodwill and other intangible assets, divided by total assets reduced by goodwill and other intangible assets.  This measure is important to investors interested in relative changes from period-to-period in total equity and total assets, each exclusive of changes in intangible assets.  We have not considered loan servicing rights as an intangible asset for purposes of this calculation.

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SOURCE C1 Financial, Inc.