Triad Business Bank (OTC Pink - "TBBC") Announces Unaudited First Quarter Results

GREENSBORO, N.C., May 4, 2022 /PRNewswire/ -- Triad Business Bank (the "Bank") began operations in March of 2020 with a vision to reinvest local wealth back into the Triad's business community.  The period ended March 31, 2022 was the Bank's eighth quarter since inception and the Bank's first quarter of profitable core operations (net income before provision for loan losses and taxes).  Core operating income totaled $61,000 which was a $149,000 improvement from the previous quarter.  Core loans expanded at a record pace of $50.0 million for the quarter, a 30% increase over the balance at December 31, 2021.  The loan increase drove a 23% increase in interest income on core loans (the Bank's primary source of revenue) over the previous quarter, whereas operating expenses increased only 1%.

"In two years of operations, Triad Business Bank has grown to $392 million in total assets and has become an important economic catalyst for small and midsize businesses in the Triad.  Following on the Bank's early successes, strong capital position and positive growth trends, the Bank is well positioned for continued expansion," commented CEO Ramsey K. Hamadi.  Hamadi continued, "The Bank's net interest margin expanded 14 basis points in the first quarter of 2022.  We expect the federal funds rate to continue to rise in the near term, and the rates the Bank receives on its interest-earning assets are expected to increase faster than the rates it pays on its interest-bearing liabilities.  This will cause the gross earnings spread between these assets and liabilities to increase thereby providing the Bank with a greater opportunity for increased core operating profitability.  While the Bank's core earnings are expected to benefit from higher interest rates, the rapid change in market conditions has caused a decline in the value of the Bank's investment portfolio.  For accounting purposes, this is reflected in shareholders' equity as accumulated other comprehensive loss and totaled $8.3 million at March 31, 2022.  This is expected to be a temporary loss and should return to $0 if the underlying investments are held to maturity.  There are no current credit concerns in the investment portfolio.  Comprehensive income fluctuations are excluded from the Bank's regulatory capital and therefore will not impact the Bank's capacity for growth."

Bank's First Quarter 2022 Compared to Fourth Quarter 2021:

Balance Sheet Highlights:

• Core loans increased $50.0 million to $217.7 million, or 30%
• Total assets increased $19.2 million to $392.2 million, or 5%
• Deposits increased $27.6 million to $332.9 million, or 9%
• Allowance for loan losses increased $626,000 to $2.7 million, or 1.25% of core loans
• No classified, nonperforming or past due assets reported
• New loan pipeline remains robust at approximately $112 million
• Regulatory total risk-based capital increased $145,000 to $60.4 million

Income Statement Highlights:

• Core operating earnings (net income before provision for loan loss and taxes) increased $149,000 to $61,000 compared to a loss of $88,000 in the previous quarter
• Net interest income increased 9% to $2.3 million
• Interest income on core loans increased $316,000, or 23%, but was partially offset by a $224,000 decline in Paycheck Protection Program ("PPP") loan income
• Noninterest income increased $15,000, or 13%
• Noninterest expense increased $35,000, or 1%

First Quarter Results

The Bank reported a net loss of $569,000, or $0.09 per share, in the first quarter of 2022 compared to a net loss of $537,000, or $0.08 per share, for the fourth quarter of 2021.  However, when excluding the provision for loan losses and taxes, the first quarter of 2022 resulted in net core operating income of $61,000 compared to fourth quarter 2021 core operating loss of $88,000. 

The Bank's primary source of income is the spread between the interest it earns on loans and investments and the interest it pays on deposits.  Total interest income increased $136,000 to $2.7 million in the first quarter of 2022 compared to $2.5 million in the fourth quarter of 2021.  Income on core loans increased 23% to $1.7 million but was partially offset by a $224,000 decline in PPP revenue.  PPP revenue totaled $143,000 for the first quarter, down from $367,000 in the fourth quarter of 2021.  Income on Investment securities totaled $805,000 for the first quarter compared to $751,000 for the fourth quarter.  Interest expense declined $65,000 in the first quarter to $303,000 from $368,000 in the fourth quarter.  The Bank's net interest margin increased to 2.50% in the first quarter from 2.36% in the fourth quarter, due primarily to the growth in loan balances and the decline in the cost of funds.  In the first quarter, the average balance of core loans increased to $195.0 million from $152.5 million in the 2021 fourth quarter.  The weighted average yield on core loans decreased to 3.50% in the first quarter from 3.55% in the preceding quarter.  The cost of interest-bearing liabilities declined from 0.67% in the fourth quarter of 2021 to 0.55% during the first quarter due to lower rates offered by the Bank. 

Total assets increased $19.2 million to $392.2 million at March 31, 2022.  During the first quarter, cash balances declined by $18.4 million as excess cash and cash from deposit increases were used to fund the $50.0 million increase in loan balances.  Deposit balances increased $27.6 million in the first quarter.  The Bank issued $36 million of wholesale time deposits to support the Bank's funding of increased loan balances.  Although continued growth in new core deposit accounts occurred during the first quarter, core deposit balances did not maintain the same pace of first quarter loan growth. 

Shareholders' equity declined $7.6 million to $49.4 million at March 31, 2022.  This decline was primarily driven by changes in the market value of the Bank's investment portfolio which resulted in a $7.1 million increase in accumulated other comprehensive loss.    

Regulatory Capital

The Bank's regulatory capital, which is the primary factor that allows for bank growth, increased during the first quarter with total risk-based capital increasing by $145,000 to $60.4 million.  Total risk-based capital consists of tier 1 capital and tier 2 capital.  The Bank's tier 1 capital is largely a measure of the Bank's generally accepted accounting principles ("GAAP") equity but eliminates certain volatile elements such as accumulated other comprehensive income (loss).  The Bank's tier 1 capital declined $437,000 from $58.1 million at December 31, 2021 to $57.7 million at the end of the first quarter due primarily to the provision for loan losses.  The Bank's tier 2 capital increased by $582,000.  Tier 1 and tier 2 capital ratios are measured against total assets and risk-weighted assets.  For the Bank to be able to grow, the Bank must maintain capital ratios that meet a "well-capitalized" standard under regulatory guidelines.  The following is a summary presentation of the Bank's total capital to risk-weighted assets, tier 1 capital to risk-weighted assets and tier 1 capital to average assets in comparison with the regulatory guidelines:

Capital and Capital Ratios

Loans

The Bank's core loans increased $50.0 million, or 30%, during the first quarter to $217.7 million compared to $167.7 million at December 31, 2021.  While not included in loans outstanding, the Bank also increased its unfunded loan commitments by $13.6 million to $100.4 million, bringing total core loans outstanding and unfunded commitments to $318.1 million.  At March 31, 2022, approximately 47% of the Bank's outstanding core loan portfolio was composed of commercial and industrial ("C&I") loans:

Loan Diversification

Noninterest Expense

Noninterest expense increased $35,000, or 1%, and was $2.4 million in both the first quarter of 2022 and the prior quarter.  Salaries and benefits expense totaled $1.7 million in the first quarter and increased $85,000, or 5%, over the prior quarter. 

Credit Risk

The Bank had no nonperforming assets and reported no criticized or substandard assets at March 31, 2022.  The Bank's loan portfolio has been underwritten conservatively with a focus on cash flows of prospective borrowers.   

Deferred Tax Asset and AOCI (Non-GAAP Measures)

The Bank's GAAP tangible book value declined from $8.63 at December 31, 2021 to $7.49 at March 31, 2022.  On a non-GAAP basis, excluding the accumulated other comprehensive loss recorded in the first quarter and the impairment on the deferred tax asset (two reductions in capital the Bank anticipates it will recover over time), adjusted tangible book value was $8.98 at March 31, 2022 compared to $9.07 at December 31, 2021.

The organization and startup costs incurred during the Bank's organizational period and net operating losses the first twenty-four months of operations have created a deferred tax asset of $1.6 million.  This asset is currently fully impaired and will be carried at $0 until sufficient, verifiable evidence exists (generally, sustained profitability) to demonstrate that the deferred tax asset will more likely than not be realized.  At that time, the valuation allowance will be reversed.

The change in value of the Bank's investment securities that are available for sale is recorded as an unrealized component of equity.  Assuming the underlying investment securities are held to maturity and there is no credit loss, the value of the securities will return to the face value at maturity.  Therefore, as a non-GAAP measure, the Bank eliminates the accumulated other comprehensive loss to reflect an adjusted tangible book value.  At March 31, 2022, the accumulated other comprehensive loss was $8.3 million. 

Outlook

Over the long-term horizon, the Bank expects to be a net beneficiary of a rising interest rate environment.  With the mid-March 2022 announcement by the Federal Reserve to increase the federal funds rate, we are beginning to experience the positive impact of rising interest rates.  Because of changes in the yield curve, our newly originated loans are starting with higher rates than loans originated several months earlier.  The Bank uses a third-party consultant to assist in managing these changes in interest rate risk.  While the Bank maintains an awareness of changes in value through various asset and liability management tools, it primarily manages interest rate risk by performing earnings simulations to consider changes in net interest income based upon changes in the interest rate environment.  The most recent simulation indicates that over the next twelve months, the Bank is interest rate neutral and well positioned for rising or falling interest rates.  Our expectation is that the longer the higher interest rate environment continues, the greater the Bank's net interest income should be.

About Triad Business Bank

With three co-equal offices located in Winston-Salem, High Point and Greensboro, Triad Business Bank focuses on meeting the needs of small to midsize businesses and their owners by providing loans, treasury management and private banking, all with a high level of personal attention and best-in-class technology.  For more information, visit www.triadbusinessbank.com 

Forward Looking Language

This release contains certain forward-looking statements with respect to the financial condition, results of operations and business of Triad Business Bank.  These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of management of Triad Business Bank and on the information available to management at the time that these disclosures were prepared.  These statements can be identified by the use of words like "expect," "anticipate," "estimate" and "believe," variations of these words and other similar expressions.  Readers should not place undue reliance on forward-looking statements as a number of important factors could cause actual results to differ materially from those in the forward-looking statements.  Triad Business Bank undertakes no obligation to update any forward-looking statements.

SOURCE Triad Business Bank