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

GREENSBORO, N.C., Feb. 14, 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.  In less than two years, the reality is that the Bank is fulfilling its vision.  The Bank hired 47 highly talented and diverse employees and rapidly expanded to $373 million in assets.  In the fourth quarter, core loans outstanding increased $35.5 million, or 27%.  Importantly, the Bank's growth in operating revenue has continued to outpace expenses.  Within seven quarters, we have almost reached pre-provision, pre-tax profitability.  Our operating loss in the fourth quarter totaled $88,000.  Excluding securities gains, the fourth quarter reflected an improvement of $285,000 from the third quarter of 2021.

"We are proud of the Bank's early accomplishments, and we believe the Bank is well positioned to achieve profitability in 2022 while continuing to be an economic catalyst for growth in our community," commented CEO Ramsey K. Hamadi.  Hamadi continued, "the Bank should benefit from a rising interest rate environment.  As a result of recent announcements by the Federal Reserve, we are already beginning to experience the positive impact of rising interest rates.  Interest income is expected to rise faster than interest expense as interest rates rise.  We anticipate that not only will cash flow increase as our existing balance sheet reprices with greater spreads, but that newly generated assets and liabilities will also have higher margins as well.  In the outlook section of this release, we provide a qualitative and quantitative disclosure on the Bank's interest rate risk profile."

Highlights of the Bank's fourth quarter results including comparisons to the third quarter of 2021:

Fourth Quarter Balance Sheet Highlights:

• Core loans increased $35.5 million to $167.7 million, or 27%
• Demand deposits increased $10.5 million to $101.0 million, or 12%
• Deposits increased $17.8 million to $305.3 million, or 6%
• Allowance for loan losses increased $449,000 to $2.1 million, or 1.25% of core loans
• No classified, nonperforming or past due assets reported
• New loan pipeline remains robust at $140 million
• Regulatory total risk-based capital increased modestly to $60.2 million

 Fourth Quarter Income Statement Highlights:

• Pre-provision loss increased to $88,000 in the fourth quarter compared to a loss of $23,000 in the third quarter due to a reduction in securities gains of $350,000 from the third quarter
• Net Interest income increased 17% to $2.1 million for the quarter
• Noninterest expense increased 5% from the third quarter due primarily to increased personnel and FDIC insurance costs

Fourth Quarter Results

The Bank reported a net loss of $537,000, or $0.08 per share, in the fourth quarter of 2021 compared to $319,000, or $0.05 per share, for the third quarter.  However, when considering results before the provision for loan losses, the fourth quarter operating loss totaled $88,000, compared to an operating loss of $23,000 in the third quarter.  Excluding securities gains of $21,000 for the fourth quarter and $371,000 in the previous quarter, the pre-provision operating loss was lower by $285,000 from the third quarter.

The Bank's primary source of income is the spread between the interest it earns on loans and investments and pays on deposits.  Net interest income was $2.1 million in the fourth quarter compared to $1.8 million in the third quarter.  The Bank's net interest margin declined from 2.46% in the third quarter to 2.36% in the fourth quarter.  In the third quarter, the Bank benefitted from a loan prepayment fee of $169,000 which improved the quarterly net interest margin.  The Bank's core net interest margin is rising as cash flow from investments are converted into loan balances.  The Bank continues to benefit from residual Paycheck Protection Program (PPP) revenue, although declining as a percentage of interest income.  In the fourth quarter, PPP revenue totaled $367,000, representing 15% of total interest income down from 37% of interest income in the second quarter of 2021.  The Bank segregates PPP loans from all other loans in its financial statements and refers to all other loans as core loans.  In the fourth quarter, the average balance of core loans increased to $152.5 million from $117.8 million in the third quarter.  The weighted average yield on core loans decreased to 3.55% in the fourth quarter from 4.10% in the third quarter due principally to the $169,000 prepayment fee recognized in the third quarter.  The Bank applies a disciplined pricing model that it believes will yield consistent results over time.  In recent months interest rates have been rising at various points on the yield curve, which is resulting in higher rates on newer originated loans.

Total assets increased $7.3 million to $373.0 million at December 31, 2021.  During the fourth quarter, cash balances declined by $34.4 million as excess cash and cash flow was used to fund the $35.5 million increase in loan balances and $16.8 million increase in investment securities.  Deposit balances increased $17.8 million for the fourth quarter.  Shareholders' equity declined $1.3 million during the fourth quarter to $57.0 million at December 31, 2021.  Changes in the market value of securities resulted in a $940,000 decline in accumulated other comprehensive income ("AOCI"). 

Regulatory Capital

The Bank's regulatory capital, which is the primary measure that allows for bank growth, increased during the fourth quarter with total risk-based capital increasing by a modest $45,000 to $60.2 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 GAAP equity but eliminates certain volatile elements such as AOCI on the changes in value of investments.  The Bank's tier 1 capital declined $404,000 from $58.5 million at September 30, 2021 to $58.1 million at the end of the fourth quarter, but due to the provision for loan losses, tier 2 capital increased by $449,000.  Tier 1 and tier 2 capital ratios are measured as ratios 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.  Following is a summary 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, Investment Securities and Deposits

The Bank's core loans increased $35.5 million, or 27%, during the fourth quarter to $167.7 million compared to $132.1 million at September 30, 2021.  While not included in loans outstanding, the Bank also increased its unfunded loan commitments by $13.2 million to $86.7 million, bringing total core loans outstanding and unfunded commitments to $254.4 million.  At December 31, 2021, 50% of the Bank's outstanding core loan portfolio was composed of Commercial and Industrial ("C&I") loans:

Loan Diversification

The average balance of investment securities increased $44.5 million in the fourth quarter to an average of $140.5 million.  Interest income on investment securities was $751,000 in the fourth quarter, a $203,000 increase from the third quarter.  The yield on the portfolio declined from 2.27% for the third quarter of 2021 to 2.12% for the fourth quarter.  Total investment securities were $149.6 million at December 31, 2021, an increase of $16.8 million from the balance at September 30, 2021.  The decline in yield on the investment portfolio was due primarily to the purchase of short duration mortgage-backed agency securities that were purchased to maintain strong liquidity levels while minimizing interest rate risk in a potentially rising rate environment.  The investment portfolio for earnings and cash flow considerations is based upon the risk profile of the balance sheet. 

Total deposits increased 6% to $305.3 million at December 31, 2021 from $287.5 million at September 30, 2021.  Noninterest-bearing demand deposit accounts increased 12% to $101.0 million in the fourth quarter.  Noninterest-bearing deposits are driven by business customers who manage their core operating accounts through the Bank's treasury systems.  During 2021, the Bank added 65 new treasury customers for a total of 141 treasury relationships.  The balance of core deposits includes interest-bearing checking, savings and money market account balances which increased $9.6 million to $198.6 million at December 31, 2021.  Time deposits decreased $2.3 million and totaled $5.7 million at December 31, 2021.

Reduced PPP Fee Reliance

In the fourth quarter, the SBA made $11.1 million of principal forgiveness payments on the Bank's PPP loan portfolio compared to $17.6 million in the third quarter.  At December 31, 2021, PPP loans totaled $11.6 million.  During the fourth quarter, the Bank realized $367,000 of interest and fees on the PPP portfolio, an increase of $18,000 from the prior quarter.  At December 31, 2021, the Bank had $316,000 remaining in unrealized PPP fees ($256,000 net of unrealized costs).  Since inception of the PPP program, the Bank has originated 458 PPP loans totaling over $139 million.  PPP revenue as a percentage of total interest income declined from 16% in the third quarter to 15% in the fourth quarter.  The growth in core earnings of the Bank continues to reduce the Bank's reliance on PPP revenue. 

Noninterest Expense

Noninterest expense was $2.4 million in the fourth quarter, an increase of $105,000 or 5% compared to the prior quarter.  The increase in expense was due primarily to increased compensation expense and FDIC insurance expense.  The increase in compensation expense related to personnel additions.  During the fourth quarter, the total number of employees increased 7% to 47 at December 31, 2021.  The growth in compensation and FDIC insurance costs is in line with the Bank's continued growth and future growth opportunities.

Credit Risk

The Bank had no nonperforming assets and reported no criticized or substandard assets at December 31, 2021.  The Bank's loan portfolio has been underwritten with an eye on the impact COVID-19 is having on cash flows of prospective businesses.  Many of these businesses are prospering in the current environment and have either stable or expanding revenues. 

Deferred Tax Asset and AOCI (Non-GAAP Measures)

The Bank's GAAP tangible book value declined from $8.83 at September 30, 2021 to $8.63 at December 31, 2021.  On a non-GAAP basis, excluding AOCI 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 $9.07 at December 31, 2021 compared to $9.08 at September 30, 2021.

The organization and startup costs incurred during the Bank's organizational period and net operating losses the first twenty-one months of operations have created a deferred tax asset of $1.7 million.  This asset is currently fully impaired and will be carried at $0 until sufficient, verifiable evidence exists 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 held for sale is recorded as an unrealized value as a component of equity.  If the investment securities perform as agreed, the value of the securities will always return to the face value at maturity.  Measuring the market value changes of the securities portfolio without considering the market value changes of the Bank's deposits and loan portfolio gives an incomplete presentation of value.  Therefore, as a non-GAAP measure, the Bank eliminates the AOCI to reflect an adjusted tangible book value.  At December 31, 2021, AOCI was a loss of $1.2 million. 

Outlook

As stated, the Bank expects to be a net beneficiary of a rising interest rate environment.  With recent announcements by the Federal Reserve, 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 six months earlier.  The Bank uses a third-party consulting company to help manage these changes in interest rate risk.  While the Bank maintains an awareness of changes in value through these asset liability management tools, the Bank primarily manages interest rate risk by performing earnings simulations to consider changes in net interest income based upon changes in the interest rate environment. 

In a rising rate environment, management anticipates in an up 2% rate environment, net interest income is expected to increase 3% to 5% over the next year compared to a static interest rate environment.  The longer the Bank remains in a higher interest rate environment, the greater the Bank's margins 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