Endeavor Bancorp Reports Net Income of $407,000 for Q1 2024

Endeavor Bancorp (OTCQX: EDVR) (the “Company,” or “Bancorp”), the holding company for Endeavor Bank (the “Bank”), today reported net income of $407,000, or $0.10 per diluted share, for the first quarter of 2024, compared to net income of $852,000, or $0.20 per diluted share, for the fourth quarter of 2023, and $899,000, or $0.17 per diluted share, for the first quarter of 2023. All financial results are unaudited.

Results for the first quarter of 2024 included a $450,000 provision for credit losses, compared to a $181,000 provision for credit losses in the fourth quarter of 2023, and a $292,000 provision for credit losses in the first quarter of 2023. The increase in the provision for credit losses during the current quarter was due to projected future loan growth and not due to any credit quality concerns. Excluding taxes and loan loss provisions, the Company’s core pretax, pre-provision earnings were $1.04 million in the first quarter of 2024, compared to $1.42 million in the preceding quarter and $1.58 million in the first quarter of 2023. Higher costs associated with the company’s expansion also impacted first quarter 2024 results.

“Our first quarter 2024 operating results were highlighted by net interest margin expansion and steady loan growth. As the high interest rate environment continues and deposit competition remains fierce, we are encouraged that our earning assets yield continues to increase, up 23 basis points in the first quarter, reaching an all-time high of 6.23% at quarter end,” said Julie Glance, CFO. “The Company strategic focus has shifted to growth and profit as there continues to be strong lending opportunities. As a result, we strengthened our allowance for loan losses during the quarter by adding to our loan loss reserves. Liquidity continues to be high with on-balance sheet cash of 18.8%, and a loan to deposit ratio of 90.1% at quarter end. We operate in one of the highest growth markets in the nation, and we are well positioned to capitalize on growth opportunities in the year ahead.”

“A highlight of the first quarter was our successful capital raise and our expansion into the greater Los Angeles and Inland Empire markets,” said Dan Yates, CEO. “This successful capital raise gives us an opportunity to build out our business plan and is an affirmation of the tremendous opportunities in our greater Southern California market. The additional capital provides us with the foundation to expand our team, increase our ability to profitably expand our client base regionally, and achieve much stronger returns over the next several years.”

Income Statement

Net interest income was $5.0 million in the first quarter of 2024, which was unchanged compared to the preceding quarter and an 8.7% increase compared to the first quarter of 2023. Strong core earnings were driven by higher rates on earning assets. Total interest income on loans and bank deposits and investments was $8.5 million, an increase of $73,000 compared to the preceding quarter, while total interest expenses increased $65,000 during the same timeframe, increasing net interest income by $8,000 during the first quarter of 2024, compared to the preceding quarter.

Net interest margin (NIM) increased 11 basis points to 3.68% in the first quarter of 2024 compared to 3.57% in the fourth quarter of 2023 and decreased 14 basis points compared to 3.82% in the first quarter of 2023. “Higher asset yields outpaced the increase in our cost of funds during the quarter, contributing to net interest margin expansion. Also encouraging was a five basis point decrease in the cost of deposits during the month of March, as deposit costs are beginning to stabilize,” said Glance. The yield on total earning assets increased 23 basis points during the first quarter of 2024 to 6.23%, compared to 6.00% in the preceding quarter. New borrowings increased the overall cost of funds by 14 basis points during the first quarter of 2024 to 2.76%, compared to 2.62% in the preceding quarter.

“As we focus on growth and market expansion, the most notable increase during the quarter was in salaries and benefits expense, which increased $208,000 in the first quarter 2024, compared to the linked quarter and $590,000 over the first quarter of 2023. We added 14 additional employees over the past year, with seven of those positions added in the first quarter of 2024,” added Glance. The Company’s first quarter 2024 earnings were also impacted by higher non-interest expense connected to $284,000 in annual board related stock compensation that is paid out one-time annually during the first quarter of each year. This compared to $270,000 in annual board related stock compensation during the first quarter of 2023.

The Company’s annualized return on average equity for the first quarter of 2024 was 3.79%, compared to 7.99% in the fourth quarter of 2023 and 9.35% in the first quarter of 2023. The annualized return on average assets for the first quarter of 2024 was 0.29%, compared to 0.60% in the fourth quarter of 2023 and 0.73% in the first quarter of 2023.

Balance Sheet

Total assets decreased $4.3 million, or 0.8%, during the first quarter of 2024 to $565.9 million at March 31, 2024, compared to $570.2 million at December 31, 2023, and increased $50.0 million, or 9.7%, compared to March 31, 2023. Balance sheet liquidity remains very strong with cash balances of $102.3, which represents 18.1% of total assets as of March 31, 2024. The Company’s bond portfolio remains minimal, representing only $13.4 million, or 2.4% of total assets at March 31, 2024. In addition, total available borrowing capacity through the Federal Home Loan Bank and the Federal Reserve discount window exceeded $126.9 million as of quarter end.

“Loan growth continues to be solid, as we focus on lending opportunities in our market where many banks are pulling back and restricting lending,” said Steve Sefton, President. “In addition to growing the loan portfolio, we remained selective on the loans we added during the quarter, adding only high quality credits to the balance sheet with disciplined loan pricing. As of quarter end, there were minimal office building loans in the portfolio, and half of the commercial real estate loans were owner-occupied.”

Total loans outstanding increased $6.9 million, or 1.6%, during the first quarter of 2024 to $443.2 million at March 31, 2024, compared to $436.3 million three months earlier, and increased $66.4 million, or 17.6%, when compared to $376.8 million a year earlier. Total non-performing loans were only 0.07% of the total loan portfolio as of March 31, 2024, unchanged compared to three months earlier. The Company had no net charge offs during the first quarter of 2024. This compared to net charge offs of $800,000 in the prior quarter.

As anticipated, total deposits decreased $15.4 million during the quarter to $492.2 million at March 31, 2024, compared to $507.6 million three months earlier, mainly due to anticipated client investments outside of the bank. Compared to a year ago, deposits increased by $35.3 million, up 7.7%. The loan to deposit ratio was 90.1% at March 31, 2024, compared to 85.9% at December 31, 2024.

As a result of its participation in a reciprocal deposit placement network, the Bank accepted “reciprocal” deposits from other institutions, enabling the Bank to offer customers FDIC insurance on accounts in excess of the typical $250,000 FDIC insurance limit. Although the reciprocal deposit accounts maintained through the network are core deposits seeking FDIC insurance, the FDIC rules indicate that reciprocal deposits aggregating over 20% of total liabilities are classified as deposits obtained by or through a deposit broker. The total reciprocal deposits reported as brokered deposits were $126.7 million at March 31, 2024, and $134.9 million as of December 31, 2023.

Shareholders’ equity was $43.2 million at March 31, 2024, compared to $42.5 million at December 31, 2023, and $39.5 million at March 31, 2023. Tangible book value per share increased to $12.64 at March 31, 2024, compared to $12.48 three months earlier and $11.48 a year earlier.

Recent Events

On March 5, the Company announced that it had completed the issuance of $12.5 million in fixed-to-floating rate subordinated notes. The subordinated debt was structured such that it qualified as Tier 2 capital at the holding company and will be down streamed to the Bank as Tier 1 capital. The Company intends to use the net proceeds primarily to support its strategic expansion into the greater Los Angeles and Inland Empire markets and for general corporate purposes. Performance Trust Capital Partners, LLC acted as placement agent.

The Company also announced its plans to enter the greater Los Angeles Metro and Inland Empire markets, with key hire Duncan Hughes leading the efforts. Hughes, who recently joined the Company as Senior Vice President - Regional Manager, will be establishing a presence in the San Gabriel Valley area as the Company lays the groundwork for a full-service Regional Office, with plans for expansion later this year and into 2025. His team includes an Eastern Inland Empire focus led by Kathryn Gutierrez.

Capital

Largely due to the subordinated debt capital raise completed during the first quarter of 2024, the Bank’s Tier 1 leverage ratio increased to 12.18% at March 31, 2024, compared to 10.14% at December 31, 2023. The Tier 1 risk-based capital ratio was 12.49% as of March 31, 2024, compared to 10.92% on December 31, 2023, and the Total risk-based capital ratio was 13.69% compared to 12.09% three months earlier, all of which were well above regulatory minimums.