California Republic Bancorp Announces First Quarter 2016 Results

California Republic Bancorp (“CRB” or “Company”) (OTCBB: CRPB), a bank holding company for California Republic Bank (“Bank”), announced net income for the three months ended March 31, 2016 of $241 thousand, or $0.03 per basic common share, compared with net income of $3.5 million, or $0.45 per basic common share for the same period a year earlier. Return on average equity was 0.63% for the three months ended March 31, 2016, compared with 9.87% for the same respective period a year ago. The decline in net income was primarily the result of the Company recording a $3.2 million loss on sale of $440 million in auto loans during the first quarter. The company also announced that it signed a definitive agreement to merge with Mechanics Bank, based in Northern California.

“Although our loans and deposits have grown nicely this quarter, we continued to experience significantly wider credit spreads on auto-backed securities issued, as well as lower residual interest valuations, along with the rest of the structured finance market. Since the execution of our last transaction, we believe that investor demand for auto-backed securities has increased and credit spreads have narrowed. In addition, we believe that residual interest valuations have improved in the second quarter,” stated Jon Wilcox, Chief Executive Officer of California Republic Bancorp. “We are also very excited to have announced yesterday the signing of a definitive agreement to merge with Mechanics Bank out of Northern California. We believe the merger combines our outstanding commercial banking and auto lending businesses with a retail banking franchise with over $2.9 billion in low-cost, core deposits. The combination provides significant benefits for both organizations. But in particular, the merger will allow the combined entity to reduce its overall reliance on the securitization market for auto lending activities.”

John DeCero, President of California Republic Bancorp, commented, “We believe the future prospects of these two outstanding organizations as a combined entity are tremendous. There’s very little overlap between the two institutions and many synergies. We look forward, after receiving the approval from our shareholders and regulators, to a successful integration, which will then give CRB the additional capital and liquidity to excel, to even a greater extent, at providing the same consistent service to our valued customers that has driven our success over the past eight years. The combined bank is expected to have over $8.8 billion in managed assets and total on-balance sheet assets of $5.4 billion, placing us in the top 20 banks headquartered in California.”

Business Performance:

Total commercial loans grew $347 million, or 61%, to $918 million at March 31, 2016 compared with a year earlier. Total commercial commitments, including commercial loans funded, grew 50%, or $412 million to $1.2 billion at March 31, 2016 compared with $816 million at March 31, 2015.

Prime auto loan originations were $422 million for the first quarter, which resulted in total serviced auto loans increasing 54%, or $944 million, to $2.7 billion at March 31, 2016 compared with $1.8 billion a year earlier. The Bank continues to maintain stable and consistent borrower credit attributes, demographics, and loan structure, reaffirming its commitment not to sacrifice credit quality for loan growth.

Noninterest bearing deposits grew $246 million, or 32%, to $1.0 billion at March 31, 2016 compared with $759 million a year earlier. Total deposits grew $425 million, or 37%, to $1.6 billion at March 31, 2016 compared with $1.1 billion a year ago. Noninterest bearing deposits represent 64% of total deposits at March 31, 2016.

The Bank completed a prime automobile loan securitization in the first quarter of 2016 in which $440 million in notes backed by the Bank’s automobile loans were sold. The Bank sold all classes of debt in an underwritten public offering registered with the Securities and Exchange Commission. The Bank sold all remaining residual interest in the securitized receivables through a sale of the underlying ownership certificates of the securitization trust through a private placement transaction under Rule 144A to qualified institutional buyers. Furthermore, this securitization transaction was accounted for as a true sale, which included all future residual interests, therefore leaving no possibility for later adjustments affecting the financial position of the Bank.

Credit Suisse and J.P. Morgan acted as joint book runners, and Citigroup acted as co-manager for the issuance of notes. Credit Suisse was the sole placement agent for the certificates. CRB also retained the right to service the sold loans on which it is paid an annual servicing fee of 1.0% on the outstanding pool balance until the transaction is paid-off.

Total on-balance sheet assets increased 31%, or $423 million, to $1.8 billion at March 31, 2016 compared with $1.3 billion for the same period a year earlier. The year-over-year growth in total assets included a $409 million increase, or 49%, in total gross loans held for investment and held for sale due to growth in commercial and automobile loans related to the timing and retention of auto loan securitization activities. In addition, investment securities increased $25 million to $249 million at March 31, 2016 compared with $225 million a year ago.

Financial Performance:

Net interest income grew 47%, or $6.0 million, to $18.9 million for the three months ended March 31, 2016 compared with $12.9 million for the same period a year ago. Net interest margins narrowed 4 basis points to 4.33% for the three months ended March 31, 2016 compared with 4.37% for the same period a year earlier. Net interest margins have declined primarily due to a continued low interest rate environment, flattening of the overall yield curve, and the short duration of the assets held by the Company.

Noninterest income declined $7.4 million to $3.0 million for the three months ended March 31, 2016, compared with $10.5 million for the same period a year earlier as the Company recorded a $3.2 million loss on sale of $440 million in automobile loans in the first quarter of 2016 compared with a $6.7 million gain on sale of $350 million in automobile loans for the same period a year ago. Loan servicing fees increased $2.6 million, or 74% to $6.1 million for the first quarter of 2016 compared with $3.5 million for the same period a year earlier.

Noninterest expense increased $3.0 million, or 18%, to $19.9 million for the first quarter of 2016 compared with $16.8 million the same period a year ago. The year-over-year increase in noninterest expense is the result of the Company continuing to make significant investments in its auto lending and commercial banking platforms to support its strategic growth expansion.

Asset Quality:

California Republic Bank continued to report strong credit quality with no nonperforming or charged-off loans in the commercial loan portfolio since the Company’s inception, and a net annualized charge-off rate for its owned auto loan portfolio of 0.61% for the first quarter of 2016 compared with 0.50% for the same period a year ago.

Regulatory Capital:

The Bank’s and Bancorp’s regulatory capital ratios exceeded those required to be considered a “well capitalized” institution for regulatory purposes. At March 31, 2016, common equity tier 1 capital ratio for the Bank and Bancorp was 11.90% and 12.30%, respectively; tier 1 capital ratio was 11.90% and 12.30%, respectively; total capital ratio was 14.73% and 15.13%, respectively; and the leverage ratio was 8.26% and 8.54%, respectively.

About California Republic Bancorp:

California Republic Bancorp is the holding company for California Republic Bank. California Republic Bank is a full-service commercial bank providing loans, deposit and cash management services to individuals, businesses, investors, and family offices. The Bank offers its clients direct access to decision makers, unparalleled responsiveness, seasoned Relationship Managers and state-of-the-art technology. The Bank has five branch offices serving Southern California, located in Newport Beach, Beverly Hills, Irvine, Westlake Village and San Diego. The Bank also operates CRB Auto, a division of the bank, which is a relationship based, indirect auto lender, which purchases auto contracts from both franchised and select independent automobile dealerships throughout 14 States—Arizona, California, Colorado, Idaho, Illinois, Iowa, Kansas, Missouri, Nevada, Oklahoma, Oregon, Texas, Utah, and Washington.

For more information, contact Jon Wilcox, CEO, or John DeCero, President at 949-270-9719. You can also visit the Company’s website at www.crbnk.com.

California Republic Bancorp’s Board of Directors includes:

Inside Directors: Jon Wilcox, CEO and John DeCero, President.

Outside Directors: Robert Barth, Chairman of the Board of California Republic Bank and CEO of Black Equities Group Ltd.; John Bendheim, President of Bendheim Enterprises, Inc.; Marc Brutten, Entrepreneur and CEO of Westcore Holdings; Bob Din, CEO of Din Cloud; John Hagestad, Managing Partner of SARES-REGIS Group; Warren S. Orlando, First Senior Vice President Valley National Bank; and J. Scott Watt, President and CEO of the Watt Group of Companies.

Forward-looking Statements

Certain matters discussed in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and are subject to the safe harbors created by the act. These forward-looking statements refer to California Republic’s current expectations regarding future operating results, and growth in loans, deposits, and assets. These forward-looking statements are subject to certain risks and uncertainties that could cause the actual results, performance or achievements to differ materially from those expressed, suggested or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to (1) the ability to obtain regulatory approvals and meet other closing conditions to the merger on the expected terms and schedule; (2) delay in closing the merger; (3) difficulties and delays in integrating the Mechanics and CRB businesses or fully realizing cost savings and other benefits associated with the merger; (4) business disruption following the proposed merger transaction; changes in asset quality and credit risk; (5) the inability to sustain revenue and earnings growth after the merger; (6) Mechanics’ and CRB’s businesses experiencing disruptions due to transaction-related uncertainty or other factors making it more difficult to maintain relationships with employees, customers, other business partners or governmental entities associated with the merger; (7) economic and capital market conditions; (8) the impact, extent and timing of technological changes, capital management activities, and other actions of regulatory agencies (9) the impact of changes in interest rates, a decline in economic conditions and increased competition by financial service providers on California Republic’s results of operations; (10) California Republic’s ability to continue its internal growth rate; (11) California Republic’s ability to build net interest spread; (12) California Republic’s ability to access the public securitization market for automobile loans; (13) the credit spread or cost of funds for auto-backed securities; (14) the quality of California Republic’s earning assets; (15) changes in the level of non-performing assets and charge-offs; (16) the effect of changes in laws and regulations with which California Republic must comply; (17) changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory authorities and accounting requirements; (18) acts of war or terrorism or natural disasters; (19) the timely development of new banking products and services; (20) the success of products and services, such as the indirect auto loan business; (21) technological changes; (22) cyber-security threats, including loss of system functionality or theft or loss of data; (23) the ability to increase market share and control expenses; and (24) California Republic’s success at managing the risks involved in the foregoing items.

California Republic does not undertake, and specifically disclaims any obligation to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements except as required by law.

California Republic Bancorp and Subsidiaries
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands)
Three Months Ended
3/31/20163/31/2015
Interest income
Loans, including fees $ 18,601 $ 12,666
Investment securities 1,275 810
Other 420 219
TOTAL INTEREST INCOME 20,297 13,695
Interest expense
Deposits 752 456
Other borrowings 620 361
TOTAL INTEREST EXPENSE 1,372 817
Net interest income 18,925 12,878
Provision for loan losses 1,660 703
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 17,265 12,175
Noninterest income
Gain on sale of loans (3,180 ) 6,694
Loan servicing fees 6,062 3,491
Other 151 299
TOTAL NONINTEREST INCOME 3,034 10,483
Noninterest expense
Salaries and employee benefits 12,276 11,327
Other 7,605 5,509
TOTAL NONINTEREST EXPENSE 19,881 16,836
INCOME BEFORE INCOME TAXES 418 5,822
Income tax expense 177 2,358
NET INCOME $ 241 $ 3,464
Earnings per common share:
Basic $ 0.03 $ 0.45
Weighted average number of common shares
Basic 7,787 7,722
California Republic Bancorp and Subsidiaries
UNAUDITED CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
3/31/20163/31/2015
ASSETS
Cash and cash equivalents $ 252,978 $ 263,329
Investment securities available for sale 249,289 224,553
Auto loans held for sale 184,776 173,234
Auto loans held for investment 138,718 88,875
Commercial loans held for investment 918,130 570,725
Gross loans held for investment 1,056,848 659,600
Allowance for loan and lease losses (10,386 ) (6,228 )
Loans held for investment, net 1,046,462 653,372
Premises and equipment, net 7,768 6,711
FHLB stock and other investments 8,698 10,605
Other assets 17,906 13,466
TOTAL ASSETS $ 1,767,877 $ 1,345,269
LIABILITIES
Deposits:
Noninterest bearing $ 1,005,072 $ 758,839
Interest bearing 568,510 389,949
Total deposits 1,573,582 1,148,788
Other borrowings - -
Subordinated debentures 24,658 25,000
Other liabilities 16,690 28,788
TOTAL LIABILITIES 1,614,930 1,202,576
SHAREHOLDERS' EQUITY
Common stock 117,303 116,922
Paid in capital 6,677 5,299
Retained earnings 29,474 20,628
Accumulated other comprehensive income (506 ) (155 )
TOTAL SHAREHOLDERS' EQUITY 152,947 142,694
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,767,877 $ 1,345,269
California Republic Bancorp and Subsidiaries
UNAUDITED CONSOLIDATED AVERAGE BALANCES AND ANNUALIZED YIELDS
(Dollars in thousands)
Three Months Ended
3/31/20163/31/2015
AverageAverage
BalanceIncomeRateBalanceIncomeRate
ASSETS
Cash $ 92,605 $ 125 0.54 % $ 125,899 $ 80 0.26 %
Investment securities 256,288 1,275 2.00 % 184,269 810 1.78 %
Commercial loans 888,912 9,944 4.49 % 545,696 6,314 4.69 %
Auto loans 498,953 8,657 6.96 % 327,675 6,352 7.86 %
Total loans 1,387,865 18,601 5.38 % 873,371 12,666 5.88 %
Other interest earning assets 14,765 296 8.04 % 9,910 139 5.67 %
Total interest earning assets 1,751,523 20,297 4.65 % 1,193,448 13,695 4.64 %
Other assets 41,076 26,852
Total Assets $ 1,792,598 $ 1,220,301
LIABILITIES & EQUITY
Interest bearing transaction accts $ 472,081 $ 586 0.50 % $ 391,557 $ 452 0.47 %
Time certificate of deposits 118,220 166 0.56 % 3,252 5 0.57 %
Total Interest Bearing Deposits 590,301 752 0.51 % 394,809 456 0.47 %
Other borrowings 260,324 282 0.43 % 56,510 23 0.16 %
Subordinated debentures 24,860 338 5.45 % 25,000 338 5.41 %
Total interest bearing liabilities 875,485 1,371 0.63 % 476,319 817 0.69 %
Non-interest bearing demand accts 748,927 583,874
Total funding 1,624,411 1,371 0.34 % 1,060,193 817 0.31 %
Other liabilities 15,641 20,610
Shareholders' equity 152,546 139,498
Total liabilities & shareholders' equity $ 1,792,598 $ 1,220,301
Net interest spread 4.02 % 3.95 %
Net interest income / margin $ 18,926 4.33 % $ 12,878 4.37 %
At and For
Three Months Ended
3/31/20163/31/2015
Auto Loans:
Beginning balance $ 381,289 $ 216,876
Purchases 422,371 417,303
Sales (440,000 ) (350,001 )
Principal reductions (40,166 ) (22,069 )
Auto loans owned 323,494 262,109
Auto loans serviced for others 2,379,018 1,496,275
Total auto loans serviced $ 2,702,512 $ 1,758,384
Commercial bank loans 918,130 570,725
Total managed loans $ 3,620,642 $ 2,329,109
New commercial commitments $ 87,274 $ 92,460
Outstanding commercial commitments $ 1,228,112 $ 816,078
Return on average equity 0.63 % 9.87 %
Return on average assets 0.05 % 1.15 %
Book value per share $ 19.63 $ 18.47
30 day plus delinquent loans (1) 0.35 % 0.20 %
Nonperforming loans to total loans (1) 0.10 % 0.05 %
Allowance for loan losses to total loans HFI (2) 0.98 % 0.94 %
Net chargeoffs on commercial banking loans (3) - -
Net chargeoffs on auto loans owned 0.61 % 0.50 %
(1) No commercial loans are delinquent or nonperforming
(2) Excludes $252.5 million of auto loans held for sale
(3) No life-to-date net chargeoffs on commercial banking loans
Bancorp:
Common equity tier 1 capital ratio 11.90 % 11.66 %
Tier 1 capital ratio 11.90 % 11.66 %
Total capital ratio 14.73 % 16.62 %
Leverage ratio 8.26 % 20.28 %
Bank:
Common equity tier 1 capital ratio 12.30 % 10.47 %
Tier 1 capital ratio 12.30 % 10.47 %
Total capital ratio 15.13 % 14.93 %
Leverage ratio 8.54 % 18.59 %

Contacts:

California Republic Bancorp
John DeCero, President
949-270-9797

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