Mission Bancorp Reports Annualized Deposit Growth of 7% and All- time Record Quarterly Earnings of $8.0 million for Third Quarter of 2023, an increase of 25% year over year.

BAKERSFIELD, Calif., Oct. 23, 2023 /PRNewswire/ --Mission Bancorp ("Mission" or the "Company") (OTC Pink: MSBC), a bank holding company and parent of Mission Bank (the "Bank"), reported unaudited net income available to common shareholders of $8.0 million, or $3.22 per basic common share, for the third quarter of 2023, compared to net income available to common shareholders of $6.4 million, or $2.63 per basic common share, for the third quarter of 2022, and net income available to common shareholders of $7.7 million, or $3.12 per basic common share, for the linked quarter.

"Mission continues to set new records for earnings despite the challenging interest rate environment and current state of the banking industry. For the third quarter, the Company generated record earnings of $8.0 million," said A.J. Antongiovanni, President, and Chief Executive Officer of Mission Bancorp. Mr. Antongiovanni continued, "Our business banking model generates genuine customer relationships resulting in a stable and growing core deposit base, which holds up well in this rate environment. While many bank's earnings are under pressure due to shrinking net interest margins, our margin has improved significantly over the last year, rising from 4.06% for the third quarter of 2022 to 4.67% for the current quarter." Mr. Antongiovanni concluded, "Deposits grew by a 7.0% annualized rate over the third quarter, and we continue to have ample liquidity to address lending demand for our customers."

Third Quarter 2023 Financial Highlights

• Gross loans increased by $106.9 million, or 10.1%, to $1.16 billion as of September 30, 2023, compared to $1.05 billion at September 30, 2022, and declined by $3.1 million, or 0.3%, compared to $1.16 billion at June 30, 2023.
  
  
• Total deposits decreased by $16.4 million, or 1.2%, to $1.41 billion as of September 30, 2023, compared with $1.42 billion a year earlier, and increased by $24.4 million, or 1.8%, from $1.38 billion as of June 30, 2023. Noninterest-bearing deposits were $655.5 million and represent 46.6% of total deposits at September 30, 2023.
  
  
• The allowance for credit losses ("ACL") as a percentage of gross loans increased from 1.38% at September 30, 2022, to 1.53% at September 30, 2023.
  
  
• Credit quality remains pristine with nonaccrual loans representing 0.00% of total gross loans at September 30, 2023, down from 0.01% as of September 30, 2022.
  
  
• The Community Bank Leverage Ratio for the Bank as of September 30, 2023, was 11.05%, compared to 9.32% at September 30, 2022.

Net Income Available to Common Shareholders

Net income available to common shareholders for the third quarter of 2023 was $8.0 million, or $3.22 per basic common share, compared with $7.7 million, or $3.12 per basic common share, for the linked quarter ended June 30, 2023. Net income available to common shareholders was $6.4 million, or $2.63 per basic common share, for the third quarter of 2022. Net income available to common shareholders increased $0.3 million, or 3.8%, compared to the linked quarter, and $1.6 million, or 25.0%, compared to the same prior year period.

Notable trends comparing to the linked quarter include increases in net interest income, driven primarily by average balance growth and increased yields on loan and interest-bearing cash balances, and decreased provision for credit losses, which were offset by an increase in the provision for income taxes. Compared to the third quarter of 2022, net interest income increased and the provision for credit losses decreased, which were partially offset by increases in non-interest expense and the provision for income taxes.

Net income available to common shareholders for the nine months ended September 30, 2023, increased by $6.0 million, or 36.1%, and was $22.7 million, or $9.22 per basic common share, compared to $16.7 million, or $6.89 per basic common share for the nine months ended September 30, 2022. Compared to the nine months ended September 30, 2022, an increase in net interest income and decline in the provision for credit losses more than offset an increase in non-interest expense and decline in non-interest income. If the net income available to common shareholders for the nine months ended September 30, 2022, was adjusted to remove the gain on sale of our Ridgecrest Business Banking Center, recorded in June of 2022, net income available to common shareholders for the nine months ended September 30, 2023, would have increased by $7.2 million, or 46.1%, compared to the nine months ended September 30, 2022.

Net Interest Income

Net interest income was $17.9 million, or 4.67%, of average earning assets ("net interest margin"), for the third quarter of 2023, compared with $15.0 million, or a net interest margin of 4.06%, for the same period a year earlier, and $17.1 million, or a net interest margin of 4.68%, for the quarter ended June 30, 2023.

Net interest income increased by $2.9 million, or 19.0%, compared to the same prior year period driven by a shift in the Company's earning asset mix to higher yielding loans along with a significant increase in yields on earning assets. Loan interest income and fee accretion from the third quarter of 2022 to the current quarter increased by $5.0 million. In addition to the increase in loan interest income, the Company also experienced increased interest income from investment securities of $1.2 million. Offsetting these increases, interest expense for the current quarter increased $3.6 million, compared to the same prior year period, attributable to a $3.3 million increase in interest expense on deposits and a $0.2 million increase in other borrowing expenses.

Net interest income increased for the quarter ended September 30, 2023, compared to the linked quarter by $0.8 million, or 4.9%, due primarily to increases in loan interest income and other interest income of $0.8 million, each. The increase in loan interest income and other interest income is attributable to an increase in average quarterly balances of loans and interest-bearing cash, and higher yields on each of those asset classes. Interest expense increased $1.0 million, for the current quarter, compared to the linked quarter, due to increased costs on interest-bearing liabilities and higher average balances.

The net interest margin was 4.67% for the quarter ended September 30, 2023, compared to 4.06% for the same prior year period, and 4.68% for the linked quarter ended June 30, 2023. Asset yields have increased 153 basis points, while the cost of funds has only risen 97 basis points leading to the year- over-year 61 basis point increase in the net interest margin. The yield on loans, investment securities, and interest earning deposits in other banks have increased by 104 basis points to 6.26%, 176 basis points to 4.01%, and 314 basis points to 5.30%, respectively. Additionally, average balances on loans increased $146.3 million, or 14.5%, average balances on investment securities increased $24.9 million, or 11.2%, and average balances on interest bearing deposits in other banks declined $121.3 million, or 53.3%, when compared to the same prior year period.

The 1 basis point decrease in the net interest margin for the second quarter of 2023, compared to the linked quarter is primarily attributable to both higher average balances and costs of interest-bearing liabilities. While the Company remains asset sensitive and yields on earning assets increased 19 basis points since the second quarter, average interest-bearing liabilities balances and costs increased by $51.0 million, and 34 basis points, respectively, which led to nominal net interest margin compression during the quarter. The average interest earning deposits in other banks increased by $54.2 million and average balances on loans increased $11.9 million, funded by strong deposit growth during the quarter.

The cost of interest-bearing deposits increased 35 basis points to 2.09% for the quarter ended September 30, 2023, compared to the linked quarter ended June 30, 2023, and 174 basis points, compared to the same prior year period.

In the third quarter of 2023 the Company entered into two pay-fixed, receive floating, interest rate swap contracts totaling $108.0 million, to hedge future interest rate increases. These swap contracts consist of a $50.0 million hedge on the commercial real estate loan portfolio with a three-year maturity and a $58.0 million hedge on the municipal investment security portfolio with a five-year maturity. For the quarter ending on September 30, 2023, the interest rate swap contract associated with the loan portfolio generated an additional $0.1 million in loan interest income, resulting in 4 basis points of additional yield on loans. The interest rate swap contract on the investment securities portfolio added $0.2 million to investment securities interest income, yielding an additional 28 basis points on that portfolio. Combined, the interest rate swap contracts generated $0.3 million of additional interest income and 7 basis points of additional earning asset yield during the quarter ended September 30, 2023.

Provision for Credit Losses

A $0.2 million provision for credit losses was recorded for the quarter ended September 30, 2023, compared to $0.5 million for the linked-quarter and $1.1 million for the same period a year ago. The Company's quarterly credit loss provisions over the past year have been recorded primarily to account for growth in the loan portfolio and changes in macro-economic conditions which impact the calculated ACL under the current expected credit loss ("CECL") model, rather than in response to changing conditions in the Company's loan portfolio, which have remained stable, demonstrating a low credit risk profile during the past twelve months. Additionally, loan recoveries of $0.3 million recorded during the current quarter reduced the amount of required provision for credit losses.

Non-Interest Income

Non-interest income for the third quarter of 2023 was $1.4 million, relatively unchanged when compared to the linked quarter, and the same period a year earlier. Notable variances comparing to the same prior year period were decreases in service charges, fees, and other income, offset by increased SBA servicing fees, and gain on sale of loans and Farmer Mac referral and servicing fees.

Non-interest income decreased $2.3 million, or 36.3%, to $4.1 million during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. The decrease in non- interest income is primarily due to the recording of the $1.6 million gain on sale of our Ridgecrest Business Banking Center in the prior year period. When adjusted for the gain on sale of the business banking center, non-interest income decreased $0.7 million, which is primarily due to decreased service charges, fees, and other income, and the loss on sale of securities, which were partially offset by increased gain on sale premises and equipment, SBA servicing fees, and the gain on sale of loans.

Non-Interest Expense

Non-interest expense was stable and remained at $7.9 million for the quarter ended September 30, 2023, when compared to the linked quarter, and increased by $1.4 million, or 21.7%, compared to $6.5 million for the quarter ended September 30, 2022. Notable variances comparing to the linked quarter were decreased salaries and benefits expense, offset by increases in professional services expenses and occupancy and equipment expenses.

The increase in non-interest expense for the third quarter of 2023 compared to the third quarter of 2022 was primarily due to a $0.7 million increase in salaries and benefits expense and a $0.4 million increase in professional services expense. The largest component of the increase in salaries and benefits expense was increased base compensation expense and associated payroll taxes. The year over year quarterly increase in professional services is primarily attributable to an increase in legal fees and marketing expenses.

Operating Efficiency

The Company's operating efficiency ratio increased to 40.9% for the third quarter of 2023, compared to 39.5% for the third quarter of 2022, and decreased from 42.9% compared to the linked quarter. Total non-interest expense as a percentage of average assets, another measure of the Company's efficiency, was 1.95% for the third quarter of 2023, compared to 1.66% for the third quarter of 2022, and 2.06% for the quarter ended June 30, 2023.

Income Taxes

Income tax expense was $3.3 million for the third quarter of 2023, compared to $2.5 million for the quarter ended September 30, 2022, and $2.4 million for the linked quarter ended June 30, 2023. The Company's effective tax rate for the third quarter of 2023 was 29.1%, compared to 28.1% for the same period a year ago, and 24.1% for the quarter ended June 30, 2023. Income tax expense and the effective tax rate for the linked quarter were reduced due to tax deductions attributable to the exercise of stock options.

Asset and Equity Returns

The return on average equity for the third quarter of 2023 was 22.1%, up from 21.7% for the same prior year period, and down from 22.7% for the linked quarter. The quarterly return on average assets for the third quarter of 2023 was 1.97%, increasing from 1.63% for the same prior year period, and declining from 1.99% for the linked quarter.

The rise in returns on both average equity and average assets for the quarter ended September 30, 2023, compared to the third quarter of 2022, are primarily attributable to the 25.0% increase in net income for the current quarter, compared to the same prior year period, which has outpaced the growth in both average assets and average equity.

The decrease in returns on both average equity and average assets for the quarter ended September 30, 2023, compared to the linked quarter is primarily attributable to average asset and average equity growth, which outpaced the 3.8% increase in net income.

Balance Sheet

Total assets increased by $43.8 million, or 2.8%, to $1.62 billion at September 30, 2023, compared to September 30, 2022, and increased by $35.7 million, or 2.3%, compared to June 30, 2023. Cash and cash equivalents decreased by $79.7 million, or 32.3%, to $167.2 million at September 30, 2023, compared to the same prior year period, and increased by $48.5 million, or 40.8%, compared to June 30, 2023. The decline in the Company's cash position over the last year is primarily the result of loan growth, and to a lesser extent, growth in the investment securities portfolio, which significantly outpaced deposit growth. The increase in the Company's cash position over the past quarter is primarily due to strong deposit growth and continued strong earnings.

Investment securities increased by $9.8 million or 4.3%, to $238.1 million at September 30, 2023, compared to $228.3 million at September 30, 2022, and decreased by $14.1 million, or 5.6%, compared to $252.2 million at June 30, 2023. The decrease in the investment securities portfolio during the third quarter of 2023, compared to the linked quarter, is primarily attributable to repayments, amortization, and the increase in unrealized losses on the investment portfolio attributable to the continued increase in capital market interest rates of various terms across the yield curve. The increase in the investment securities portfolio over the past year is attributable to new bond purchases, net of repayments, amortization, and the increase in unrealized losses of the investment portfolio attributable to the rise in interest rates. The rise in interest rates has made it attractive to deploy excess liquidity to purchase higher yielding variable rate bonds over the past year.

Loans increased by $106.9 million, or 10.1%, to $1.16 billion at September 30, 2023, compared to September 30, 2022, and declined by $3.1 million, or 0.3%, compared to June 30, 2023. Loan growth during the last year has been concentrated in the owner and non-owner occupied commercial real estate, secured by farmland, and commercial and industrial segments of the loan portfolio, which were partially offset by the contraction in construction and land development loans. Loans declined during the current quarter with decreases concentrated in construction and land development, non-owner occupied commercial real estate, and agricultural production segments of the loan portfolio, partially offset by growth in owner occupied commercial real estate and commercial and industrial loans. As of September 30, 2023, a negative adjustment of $0.6 million was applied to the carrying value of the loans associated with the interest rate swap contract.

Total deposits decreased by $16.4 million, or 1.2%, to $1.41 billion as of September 30, 2023, from $1.42 billion as of September 30, 2022, and increased by $24.4 million, or 1.8%, from $1.38 billion at June 30, 2023. Noninterest-bearing deposits decreased by $115.2 million, or 14.9%, during the last year, and by $7.9 million, or 1.2%, since June 30, 2023. The decrease in noninterest bearing deposits experienced over the last year is attributable to both cash utilization by business customers as well as the migration of funds in search of higher yields. Noninterest-bearing deposits represented 46.6% of total deposits on September 30, 2023.

Total shareholders' equity was $144.7 million at September 30, 2023, an increase of $29.6 million, or 25.8%, compared to September 30, 2022, and an increase of $5.5 million, or 3.9%, compared to June 30, 2023, due primarily to quarterly earnings, net of changes in accumulated other comprehensive income or loss. The accumulated other comprehensive loss component of equity increased $2.8 million during the past quarter, due to a $3.8 million increase in the accumulated other comprehensive loss on the investment securities portfolio, partially offset by a $1.0 million increase in the accumulated other comprehensive income associated with the interest rate swap contract on the investment securities portfolio. The accumulated other comprehensive loss increased by $0.2 million during the past year. The increase in accumulated other comprehensive loss is the result of a decline in the fair market value of our securities portfolio attributable to the rise in interest rates and not related to credit quality.

The Company continues to have excellent credit quality with zero nonperforming assets at September 30,  2023,  unchanged  from  June  30,  2023,  and  down  from  0.01%  at  September  30, 2022. Nonperforming assets remain at the lowest level reached in the last several years, at 0.00% of total assets as of September 30, 2023, unchanged from both June 30, 2023, and September 30, 2022.

Allowance for Credit Losses

The Company recognized a one-time cumulative adjustment to retained earnings of $1.4 million associated with the January 1, 2023, transition to the current expected credit loss ("CECL") model. The transition adjustment is the difference between the allowance for loan losses and allowance for unfunded commitments calculated under the incurred loss model at December 31, 2022, and the new allowance for credit losses ("ACL") and allowance for unfunded commitments calculated under the CECL methodology at the beginning of 2023. The ACL transition adjustment represents 4.8% of the total allowance for credit losses, or 7 basis points as a percentage of gross loans, as of the quarter ended September 30, 2023.

The ACL as a percentage of gross loans increased to 1.53% at September 30, 2023, from 1.48% at June 30, 2023, due to relatively stable economic conditions and loan portfolio credit quality over the past quarter.

Regulatory Capital

The Bank's reported regulatory capital ratio exceeded the ratio generally required to be considered a "well capitalized" financial institution for regulatory purposes. The Community Bank Leverage Ratio for the Bank was 11.05%, at September 30, 2023, compared with the requirement of 9.00% to generally be considered a "well capitalized" financial institution for regulatory purposes. The Bank's Community Bank Leverage ratio has increased by 173 basis points from 9.32%, and increased by 8 basis points from 10.97%, as of the periods ended September 30, 2022, and June 30, 2023, respectively. Strong earnings over the past year and quarter outpaced the growth in average assets, resulting in an increase in regulatory capital ratios.

Stock Repurchase Program

The Company announced on May 2, 2023, the extension of its plan Rule 10b5-1 (the "2022 10b5-1 Plan") to facilitate the repurchase of its common stock. Pursuant to the 2022 10b5-1 Plan, a maximum of $1.0 million of the Company's common stock may be repurchased by the Company. The Plan extension will expire on October 27, 2023, and the Company plans to extend the Plan for an additional six months, through April 26, 2024. The Company may suspend or discontinue the Plan at any time. Hilltop Securities, Inc. is acting as the Company's agent to purchase its shares on pre-arranged terms pursuant to the 2022 10b5-1 Plan.

During the third quarter of 2023 the Company repurchased 77 shares under the 2022 10b5-1 Plan at an average price of $79.50. Since Plan inception the Company has repurchased 3,566 shares at an average price of $83.06.

About Mission Bancorp and Mission Bank

With $1.6 billion in assets, Mission Bancorp is headquartered in Bakersfield, California and is the holding company of four wholly owned subsidiaries, Mission Bank, Mission 1031 Exchange, LLC, Mission Community Development, LLC, and Nosbig 88, Inc. Mission Bank has eight Business Banking Centers, serving the greater areas of Bakersfield, Lancaster, San Luis Obispo, Stockton, Ventura, and Visalia, California. Visit Mission Bank online at www.missionbank.bank. By including the foregoing website address, Mission Bancorp does not intend to, and shall not be deemed to incorporate by reference any material contained therein.

Forward Looking Statements

This press release may contain forward-looking statements that are subject to risks and uncertainties. Such risks and uncertainties may include but are not necessarily limited to fluctuations in interest rates, inflation, rapid and/or unanticipated deposit withdrawals, the unavailability of sources of liquidity, additional regulatory requirements that may be imposed on community banks or banks in general, general and industry-specific changes in market conditions, investor reaction to industry developments, government regulations and general economic conditions, and competition within the business areas in which the bank is conducting its operations, including the real estate market in California and other factors beyond the bank's control. Such risks and uncertainties could cause results for subsequent interim periods or for the entire year to differ materially from those indicated. Readers should not place undue reliance on the forward-looking statements, which reflect management's view only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.

SOURCE Mission Bank

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