Triad Business Bank (OTC Pink - "TBBC"), August 8, 2023, Announces Unaudited Second Quarter 2023 Results

GREENSBORO, N.C., Aug. 8, 2023 /PRNewswire/ -- 

Overview

Triad Business Bank ("the Bank") was formed in 2020 to serve small and mid-size businesses in the Triad.  Since then, the Bank has become a financial partner to over 600 business customers, and in the last six months, the Bank facilitated more than $2.8 billion of transactions, including $1.4 billion in the second quarter.  At June 30, 2023, the Bank's total assets exceeded one half billion dollars, and the Bank had a strong capital foundation with over $60.0 million of total regulatory capital.  Asset quality remains strong with no nonperforming or past due loans.  Recent market conditions accelerated the rise in cost of deposits, which resulted in a decline in the Bank's net interest margin and an operating loss of $362,000.  This loss (adjusted for equity related compensation expense) lowered the Bank's regulatory capital by only 0.32%.  In the second quarter 2023, the Bank's net interest margin largely stabilized at 2.29%, down 9 basis points from 2.38% in the first quarter 2023 and 63 basis points from 2.92% in the fourth quarter 2022.  The decline was a result of deposits repricing at a greater pace and amount than loans and investments.  Our $315.6 million core loan portfolio has a 2.5 to 3-year average duration, which may result in an expansion of its margin as loan assets continually reprice.

Other Events

The Bank has expanded its product offering to include Small Business Administration ("SBA") guaranteed loans, originating one SBA guaranteed loan for $245,000 in the second quarter 2023.  The current SBA pipeline is $13.7 million of loan prospects.  The Bank intends to sell the SBA guaranteed portions of these loans to bolster the Bank's fee income.  The Bank is using a third-party underwriter and loan servicer to assist in the origination of SBA loans. 

Also during the second quarter 2023, the Bank strengthened its leadership team through the appointment of Richard Cobb as Chief Financial Officer ("CFO") and the addition of Jonathan Kelly to the Board of Directors.  Mr. Cobb has over 30 years of banking experience in the Triad, including serving as the CFO and Controller of multiple billion-dollar public companies.  Mr. Kelly is the founder and Chief Executive Officer of Asymmetric Holdings Worldwide, a Greensboro, North Carolina-based investment holding company focused on investment strategy and capital allocation.

Balance Sheet Highlights Comparing June 30, 2023 and March 31, 2023

• Total assets increased 6% to $513.1 million
• Core loans increased 5% to $315.6 million
• Deposits increased 9% to $468.0 million
• Allowance for funded and unfunded credit losses remained stable at $4.1 million
• No nonperforming or past due assets reported
• Regulatory total risk-based capital of $60.0 million

Income Statement Highlights Comparing the Quarters Ended June 30, 2023 and June 30, 2022

• Core operating loss totaled $362,000 compared to earnings of $146,000 (non-GAAP measurement) in the prior year
• Net interest income declined 3%, or $74,000, to $2.72 million
• Noninterest income, excluding gain (loss) on securities, increased 11% to $164,000
• Noninterest expense increased 18% to $3.25 million

Balance Sheet Comparison 

Total assets increased $28.2 million to $513.1 million during the second quarter of 2023 from $484.9 million at March 31, 2023.  During the quarter ended June 30, 2023, core loans increased $15.4 million and deposits increased $39.1 million.  Although new core deposit accounts continued to grow during the quarter ended June 30, 2023, core deposit balances did not maintain the same pace of second quarter 2023 loan growth.  Core deposits grew $6.1 million during the second quarter of 2023, supplemented by an increase of $33.0 million in brokered deposits and a decrease of $10.0 million in borrowings.

Shareholders' equity declined $1.3 million during the second quarter of 2023 to $36.6 million primarily due to the $1.0 million increase in the accumulated other comprehensive income ("AOCI") loss to $19.2 million.  The AOCI loss is expected to reverse as the bond portfolio shortens in duration and is assumed to mature at par value.  At June 30, 2023, the AOCI loss is believed to be the result of interest rate changes since the investment securities were acquired, and no credit losses are expected.

Income Statement Comparison 

Net loss totaled $436,000 for the quarter ended June 30, 2023, compared to a loss of $101,000 for the quarter ended June 30, 2022.  Core operating results, a non-GAAP measurement which excludes the provision for credit losses and taxes, were a net loss of $362,000 for the quarter ended June 30, 2023, compared to earnings of $146,000 for the quarter ended June 30, 2022.

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.  Net interest income declined $74,000 to $2.72 million for the second quarter of 2023 from $2.80 million for the same period a year ago.  The Bank's net interest margin for the second quarter of 2023 declined 48 basis points to 2.29% compared to the same period in 2022.  While the yield on earning assets increased in 2023 over 2022, the addition of higher cost brokered deposits and the rapid increase in the cost of interest-bearing accounts in 2023 resulted in the net interest margin compression.

Interest income increased $2.55 million, or 81%, to $5.71 million in the second quarter of 2023 compared to $3.16 million in the second quarter of 2022.  The growth in interest income was due primarily to the growth in core loans, which increased $79.0 million to $315.6 million, and an increase in the weighted average yield on average core loans to 5.45% in the second quarter of 2023 compared to 3.72% in the second quarter of 2022.  However, the weighted average rate on interest-bearing liabilities increased to 3.51% in the second quarter of 2023 compared to 0.59% in the second quarter of 2022 due to the increase of brokered deposits and higher market interest rates.  

Noninterest expense increased $502,000, or 18%, to $3.25 million for the second quarter of 2023 compared to $2.75 million in the second quarter of 2022.  Salaries and benefits expense totaled $2.11 million for the second quarter of 2023, which was an increase of $209,000, or 11%, over the second quarter of 2022 primarily due to staff additions.  The Bank had 59 employees at the end of June 2023 compared to 51 at the end of June 2022.  The Bank continues to position itself for growth and is pleased with its progress since opening in 2020.  Other operating expenses increased $293,000 for the second quarter of 2023 over the prior year same quarter, due principally to increases in professional fees, stock grant expense, customer check fraud charge offs and regulatory assessments.

Regulatory Capital

The Bank's regulatory capital, which is the primary factor that allows for growth, was $60.0 million at June 30, 2023.  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 shareholder equity as calculated under GAAP but eliminates certain volatile elements such as AOCI loss.  Tier 2 capital is primarily the allowance for funded and unfunded credit losses.  The Bank's tier 1 capital was $55.9 million at June 30, 2023, while tier 2 capital was $4.1 million.  Tier 1 and tier 2 capital ratios are measured against total assets and risk-weighted assets.  Our capital ratios remain well above the levels required to meet "well-capitalized" standards under regulatory guidelines. 

The following is a summary presentation of the Bank's total regulatory 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 at June 30, 2023:

Capital and Capital Ratios

Loans

The Bank's core loans increased $79.0 million, or 33%, to $315.6 million at June 30, 2023, compared to $236.6 million at June 30, 2022.  While not included in loans outstanding, the Bank also had unfunded loan commitments of $132.6 million, bringing total core loans outstanding and unfunded commitments to $448.2 million at June 30, 2023.  For internal monitoring purposes, the Bank considers owner occupied real estate loans to be part of commercial and industrial ("C&I") loans.  As of June 30, 2023, approximately 51% of the Bank's outstanding core loan portfolio was composed of C&I loans:

Loan Diversification

Credit Risk and Allowance for Credit Losses

The Bank had no past due loans or nonperforming assets at June 30, 2023.  Since inception, the Bank has followed conservative underwriting practices with a focus on cash flows and debt service coverage analyses of prospective borrowers.

The allowance for credit losses ("ACL") at June 30, 2023 was $3.51 million, or 1.11 % of outstanding loans.  The ACL for unfunded loan commitments, recorded as a liability on the balance sheet, was $621,000, or 0.47% of the unfunded commitments at June 30, 2023.

Deferred Tax Asset and AOCI (Non-GAAP Measures)

The Bank's GAAP tangible book value per share was $5.47 at June 30, 2023.  On a non-GAAP basis, excluding the AOCI loss and the impairment on the Bank's deferred tax asset (two reductions in capital the Bank anticipates it will recover over time), adjusted tangible book value per share was $8.69 at June 30, 2023.

The organization and startup costs incurred during the Bank's organizational period and net operating losses from the beginning of operations created a deferred tax asset of $2.3 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 in AOCI as a gain or loss, based on current circumstances, and constitutes an unrealized component of equity.  At June 30, 2023, the Bank had an AOCI loss of $19.2 million.  Assuming the underlying investment securities are held until maturity and there are no credit losses, the value of the securities will return to the face value at maturity.  Therefore, as a non-GAAP measure, the Bank eliminates its current AOCI loss to reflect an adjusted tangible book value.  

Outlook

The fixed versus floating rate mix of the Bank's assets and liabilities has resulted in a substantial portion of the liabilities already reflecting increases in market rates whereas the loan portfolio, which has a 2.5 to 3-year average duration, is repricing more slowly.  If current deposit and market rates remain stable, we expect the repricing of our core loan portfolio over the next several quarters will gradually expand the net interest margin.

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.

Non-GAAP Financial Measures

This release contains financial information determined by methods other than in accordance with generally accepted accounting principles in the United States ("GAAP").  The management of Triad Business Bank uses these non-GAAP financial measures in its analysis of the Bank's performance.  These measures typically adjust GAAP performance measures to exclude the effects of the provision for loan losses, income tax, deferred tax asset, and AOCI.  Management believes presentations of these non-GAAP financial measures provide useful supplemental information that is essential to a proper understanding of the operating results of the Bank.  These non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

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