FineMark Holdings, Inc. Reports First Quarter Earnings 2023

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
[email protected]
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

BALANCE SHEET

STATEMENT OF EARNINGS

SOURCE: FineMark Holdings, Inc.