Triad Business Bank (OTC Pink - "TBBC"), November 9, 2023, Announces Unaudited Third Quarter 2023 Results

GREENSBORO, N.C., Nov. 9, 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 nine months, the Bank facilitated more than $4.2 billion of transactions, including $1.4 billion in the third quarter.  At September 30, 2023, the Bank's assets were $498.3 million, and the Bank had a strong capital foundation with $59.9 million of total regulatory capital.  Asset quality remains strong with no nonperforming or past due loans.

Ramsey Hamadi, Chief Executive Officer, commented, "Recent market conditions have caused a decline in the Bank's net interest margin, and for the third quarter the Bank had a core operating loss of $403,000.  This loss (adjusted for expense items that are included in other regulatory capital components) lowered the Bank's regulatory capital by 0.27% to $59.9 million from $60.0 million at the prior quarter end. 

In the third quarter 2023, the Bank's interest income rose $492,000 to $6.2 million compared to the prior quarter of $5.7 million.  The Bank continues to increase its primary source of income, interest earned, through growth in loans outstanding and the repricing of existing interest-earning assets.  New loan growth is resulting in incremental net interest income with approximately a 3% spread over the incremental cost of funds, and as our interest-earning assets reprice to match the deposit repricing that has already occurred, net interest margin should return to levels that lead to sustained profitability. 

Interest expense increased $571,000 in the third quarter of 2023 to $3.6 million compared to the prior quarter of $3.0 million.  The decline in core deposits, the increase in higher cost wholesale funding, and the increase in the cost of interest-bearing accounts from earlier in the year continued to impact our net interest margin in the third quarter.  We continue to grow the number of relationships and believe that the decline in core deposits is driven by excess deposits leaving the bank to higher yielding alternatives rather than a loss of core customers. 

Management believes the cost of interest-bearing liabilities has largely stabilized and anticipates a slow, steady improvement in the Bank's overall margin over the next several quarters.  Of the Bank's $491.2 million of interest-earning assets at September 30, 2023, 43% of those assets reprice in one year or less, and 68% reprice in three years or less."

Balance Sheet Highlights Comparing September 30, 2023 and June 30, 2023

• Total assets decreased 3% to $498.3 million
• Core loans increased 4% to $328.4 million
• Deposits decreased 3% to $452.0 million
• Allowance for funded and unfunded credit losses increased 6% to $4.4 million
• No nonperforming or past due assets reported
• Regulatory total risk-based capital of $59.9 million

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

• Core operating loss (non-GAAP measurement) totaled $403,000 compared to core earnings of $449,000 in the prior year
• Net interest income declined 14%, or $424,000, to $2.64 million
• Noninterest income, excluding gain (loss) on securities, decreased 39% to $186,000
• Noninterest expense increased 11% to $3.23 million

Balance Sheet Comparison 

Total assets decreased $14.8 million to $498.3 million at September 30, 2023 from $513.1 million at June 30, 2023.  During the quarter ended September 30, 2023, core loans increased $12.8 million and deposits decreased $16.0 million.  Core deposits decreased $25.4 million during the third quarter of 2023 while there was an increase of $9.4 million in brokered deposits and an increase of $4.0 million in borrowings.

Shareholders' equity declined $2.8 million during the third quarter of 2023 to $33.8 million primarily due to the $2.4 million increase in the accumulated other comprehensive income ("AOCI") loss to $21.6 million.  The Bank's total regulatory capital was $59.9 million at September 30, 2023 compared to $60.0 million at June 30, 2023.

Income Statement Comparison 

Net loss totaled $659,000 for the quarter ended September 30, 2023 compared to net income of $228,000 for the quarter ended September 30, 2022.  Core operating results, a non-GAAP measurement which excludes the provision for credit losses and taxes, were a net loss of $403,000 for the quarter ended September 30, 2023 compared to core earnings of $449,000 for the quarter ended September 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 $424,000 to $2.64 million for the third quarter of 2023 from $3.07 million for the same period a year ago.  The Bank's net interest margin for the third quarter of 2023 declined 73 basis points to 2.15% compared to the same period in 2022.  While the yield on earning assets increased in 2023 over 2022, the decline in core deposits, the increase in higher cost wholesale funding, and the rapid increase in the cost of interest-bearing accounts in 2023 resulted in the net interest margin compression.

Interest income increased $2.43 million, or 64%, to $6.21 million in the third quarter of 2023 compared to $3.78 million in the third quarter of 2022.  The growth in interest income was due primarily to the growth in core loans, which increased $75.5 million to $328.4 million, and an increase in the weighted average yield on average core loans to 5.66% in the third quarter of 2023 compared to 4.20% in the third quarter of 2022.  However, the weighted average rate on interest-bearing liabilities increased to 3.99% in the third quarter of 2023 compared to 1.08% in the third quarter of 2022 due to the increase of wholesale funding and higher market interest rates.  

Noninterest expense increased $311,000, or 11%, to $3.23 million for the third quarter of 2023 compared to $2.92 million in the third quarter of 2022.  Salaries and benefits expense totaled $2.16 million for the third quarter of 2023, which was an increase of $103,000, or 5%, over the third quarter of 2022 primarily due to staff additions.  The Bank had 60 employees at the end of September 2023 compared to 53 at the end of September 2022.  Other operating expenses increased $208,000 for the third quarter of 2023 over the prior year same quarter, due principally to increases in professional fees, stock grant expense, and regulatory assessments.

Regulatory Capital

The Bank's regulatory capital, which is the primary factor that allows for growth, was $59.9 million at September 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 shareholders' 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 $55.5 million at September 30, 2023 while tier 2 capital was $4.4 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 September 30, 2023:

Loans

The Bank's core loans increased $75.5 million, or 30%, to $328.4 million at September 30, 2023 compared to $252.9 million at September 30, 2022.  While not included in loans outstanding, the Bank also had unfunded loan commitments of $139.0 million, bringing total core loans outstanding and unfunded commitments to $467.4 million at September 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 September 30, 2023, approximately 53% of the Bank's outstanding core loan portfolio was composed of C&I loans:

Credit Risk and Allowance for Credit Losses

The Bank had no past due loans or nonperforming assets at September 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 September 30, 2023 was $3.74 million, or 1.14 % of outstanding loans.  The ACL for unfunded loan commitments, recorded as a liability on the balance sheet, was $647,000, or 0.47% of the unfunded commitments at September 30, 2023.

Deferred Tax Asset and AOCI (Non-GAAP Measures)

The Bank's GAAP tangible book value per share was $5.06 at September 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 $8.64 at September 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 September 30, 2023, the Bank had an AOCI loss of $21.6 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 from its tangible book value 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