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

GREENSBORO, N.C., April 27, 2023 /PRNewswire/ --

Overview

Triad Business Bank ("the Bank") continues to serve and support the Triad's business communities and meet the needs of our customers.  The Bank remains highly liquid as core deposits are stable.  Total deposits increased by $36.0 million during the first quarter of 2023.  Maintaining a stable deposit base in this environment resulted in rapid increases in the Bank's deposit costs and a reduced net interest margin.  The Bank processed over $1.4 billion of business transactions while also continuing to extend credit and increasing the loan portfolio by $28.0 million during the quarter.  The Bank's asset quality remains strong with no nonperforming or past due loans.  Our $300.2 million core loan portfolio is repricing to current market rates with a 2.5-year average duration, which we believe will result in the Bank having a prolonged expansion of its margin as loan assets continually reprice.  The $136.8 million investment portfolio will also work to expand margins given the 4.5-year duration and serves as an on-balance sheet source of liquidity. 

The Bank reported a net loss of $2.42 million for the quarter ended March 31, 2023.  The results were negatively impacted by a $1.75 million charge-off of a corporate bond issued by Signature Bank which was purchased by the Bank in November 2020.  This charge-off represented less than 3% of the Bank's regulatory capital, which totaled $60.2 million at March 31, 2023.

The Bank also adopted the new Current Expected Credit Loss ("CECL") accounting standard effective January 1, 2023.  The overall effect of the adoption was an immaterial change from the December 31, 2022 amounts but did result in the establishment of a new Allowance for Credit Loss ("ACL") on Unfunded Commitments in other liabilities on the balance sheet.

In the first quarter of 2023, the Bank increased the ACL on Loans and Unfunded Commitments by $512,000.  There was no ACL on Held-To-Maturity Securities.  The $4.0 million in total ACL on March 31, 2023 is included in the Bank's total regulatory capital.

Balance Sheet Highlights Comparing March 31, 2023, and December 31, 2022

• Core loans increased $28.0 million to $300.2 million
• Deposits increased $36.0 million to $428.9 million
• Allowance for funded and unfunded credit losses increased $700,000 to $4.0 million
• No non-performing or past due assets reported
• Duration of loan portfolio and investment portfolio is 2.5 years and 4.5 years, respectively
• Regulatory total risk-based capital of $60.2 million

Income Statement Highlights Comparing the Quarters Ended March 31, 2023, and March 31, 2022

• Core operating loss totaled $162,000 compared to earnings of $61,000 (non-GAAP measurement)
• Net interest income increased 13%, or $306,000, to $2.65 million
• Noninterest income increased 87% to $221,000

Balance Sheet Comparison 

Total assets increased $39.8 million during the first quarter of 2023 from $445.1 million on December 31, 2022, to $484.9 million at March 31, 2023.  Core loans increased $28.0 million and deposits increased $36.0 million.  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.  The core deposits decline of $14.9 million during the first quarter was offset by an increase of $51.0 million in brokered deposits.

Shareholders' equity declined $540,000 during the quarter to $37.9 million.  This decline was primarily due to the $1.75 million charge-off on the Signature Bank bond.  The AOCI loss on March 31, 2023 was $18.3 million.  The AOCI loss is expected to reverse as the bond portfolio shortens in duration and is assumed to mature at par value.

Income Statement Comparison 

Net loss totaled $2.42 million for the quarter ending March 31, 2023, compared to a loss of $569,000 for the three months ending March 31, 2022.  Core operating results, a non-GAAP measurement which excludes the provision for credit losses and taxes, were a net loss of $162,000 for the three months ending March 31, 2023, compared to earnings of $61,000 for the three months ending March 31, 2022.  Provision for credit losses was elevated during the quarter due to the effect of applying CECL to the loan portfolio as of March 31, 2023 combined with the charge-off on the bond issued by Signature Bank which the Bank had purchased in November of 2020.

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 increased $306,000 to $2.65 million for the first quarter of 2023 from $2.34 million for the same period a year ago.  Compared to the fourth quarter of 2022, net interest income declined $599,000 from $3.25 million.  The Bank's net interest margin for the first quarter of 2023 declined 12 basis points to 2.38% compared to the same period a year ago, but on a linked quarter basis, the margin declined 54 basis points due to the addition of high cost brokered deposits combined with the rapid increase in the cost of interest-bearing money market accounts.

Interest income increased $2.26 million, or 85%, to $4.92 million in the first quarter of 2023 compared to $2.65 million in the first quarter of 2022.  The growth in interest income was due primarily to growth in core loans which increased $82.5 million to $300.2 million at the end of March 2023.  The weighted average yield on average core loans increased to 5.12% in the first quarter of 2023 from 3.50% in the first quarter of 2022.  The weighted average rate on interest-bearing deposits increased to 3.05% in the first quarter of 2023 from 0.55% in the first quarter of 2022 due to the increase of brokered deposits and higher market interest rates.  

Noninterest expense increased $632,000, or 26%, to $3.04 million for the first quarter of 2023 compared to $2.41 million in the first quarter of 2022.  Salaries and benefits expense totaled $2.06 million for the first quarter of 2023, which was an increase of $403,000, or 24%, over the first quarter of 2022.  Most of this increase was due to growth in compensation expense resulting from staff additions.  The Bank had 58 employees at the end of the March 2023 quarter compared to 49 at the end of the March 2022 quarter.  We continue to position the Bank for growth and are pleased with the progress we have made since opening in 2020.

Regulatory Capital

The Bank's regulatory capital, which is the primary factor that allows for growth, declined by $1.7 million to $60.2 million on March 31, 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.  The Bank's tier 1 capital decreased from operations by $2.3 million to $56.2 million at March 31, 2023.  The Bank's tier 2 capital increased to $4.0 million.  Tier 1 and tier 2 capital ratios are measured against total assets and risk-weighted assets.  Our capital ratios have remained 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 on March 31, 2023:

Capital and Capital Ratios

Loans

The Bank's core loans increased $28.0 million, or 10%, to $300.2 million during the first quarter of 2023.  While not included in loans outstanding, the Bank also had unfunded loan commitments of $116.8 million, bringing total core loans outstanding and unfunded commitments to $417.0 million on March 31, 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 March 31, 2023, approximately 53% of the Bank's outstanding core loan portfolio was composed of C&I loans:

Loan Diversification

Credit Risk

The Bank had no past due loans or nonperforming assets as of March 31, 2023.  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 per share declined from $5.82 at December 31, 2022 to $5.74 at March 31, 2023 primarily as a result of the operating loss.  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 $8.83 at March 31, 2023 compared to $9.09 at December 31, 2022.

The organization and startup costs incurred during the Bank's organizational period and net operating losses in the first three years of operations created a deferred tax asset of $2.2 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 quarter-end the Bank had an AOCI loss of $18.3 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 Bank's $300.2 million core loan portfolio has an average duration of 2.5 years whereas the Bank's deposit base has repriced more rapidly.  If current market rates remain stable or increase with another increase from the Federal Reserve, we expect our core loan portfolio to reprice over the next several quarters, gradually expanding net 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.