Triad Business Bank (OTC Pink – “TBBC”), February 9, 2024, Announces Unaudited Results for 2023, Including Fourth Quarter Results

GREENSBORO, N.C., Feb. 9, 2024 /PRNewswire/ —

Overview

CEO Ramsey K. Hamadi commented, “On December 31, 2023, Triad Business Bank (the “Bank”) completed its third full year of operations and achieved the $500 million total asset milestone.  Despite volatility in the interest rate environment, the Bank continues to grow profitable commercial relationships, with sound credit administration, strong capital and a clear vision.  The Bank is narrowly focused on supporting commercial and industrial growth in the Triad.  The Bank processed nearly $5.7 billion of customer deposit transactions during 2023, which is a 12% increase from 2022.  In 2023, the Bank expanded its commercial deposit customers by 131 accounts, which was a 24% increase in its business relationships.  These new customers brought new deposit and loan relationships to the Bank.  For the year, the Bank originated 151 new loans totaling $163 million and resulted in $61 million of growth in outstanding loan balances.  Paramount in the Bank’s business practice is to maintain sound credit administration.  At year end, the Bank had no past due or nonperforming loans.” 

Rate Environment

The rapid rise in interest rates prior to 2023 resulted in improvement in the Bank’s interest income faster than the cost of funds increased.  However, in 2023 this trend reversed with a rise in the cost of interest-bearing funds outpacing the rise in the Bank’s interest income, resulting in a decline in the Bank’s net interest margin.  Interest expense increased 366%, or $10 million, for the year.  Higher market interest rates led many deposit customers to maximize returns on excess liquidity.  So even as the Bank grew its commercial relationships, customer deposit balances declined.  Some of the Bank’s largest deposit customers used funds to purchase businesses, treasury bonds and municipal securities.  Excluding declines in deposit balances of our 15 top customers, deposits grew by $58 million in 2023.  In total, customer deposits declined $36 million for the year.  The Bank replaced the loss of these low-cost deposits with higher-cost brokered deposits. 

Interest income rose $9 million, or 64%, compared to the prior year.  At year end, approximately 33% of the Bank’s interest-earning assets had floating rates and carried current market yields.  In addition, 66% of the Bank’s fixed rate loans at year end are expected to reprice within the next three years.  The Bank’s strong growth rates combined with ongoing repricing of assets is expected to bring improvement in the Bank’s operating performance.

Capital

The Bank’s capital position remains strong.  In 2023, the Bank had a net loss of $4.3 million.  The results were impacted by a $1.75 million loss on an investment in a Signature Bank subordinated debt bond during the March quarter.  The core operating loss totaled $1.4 million for the year.  Despite these losses, regulatory capital remained strong, falling just $2.6 million during the year to $59.3 million, which is more than $12.0 million higher than needed for the Bank to be “Well-Capitalized.”

Fourth Quarter Income Statement Comparison 

The Bank reported a net loss of $800,000, or $(0.12) per diluted share, for the three months ended December 31, 2023, compared to net income of $79,000, or $0.01 per diluted share, for the same period a year ago.  Core operating loss, a non-GAAP measurement which excludes the provision for credit losses and taxes, was $478,000 for the fourth quarter of 2023 compared to core earnings of $365,000 for the fourth quarter of 2022.

The Bank’s net interest margin decreased to 2.09% in the fourth quarter of 2023 from 2.92% in the fourth quarter of 2022.  While the yield on earning assets increased in 2023 over 2022, the decline in customer deposits, the increase in higher-cost wholesale funding, and the increase in the cost of interest-bearing deposit accounts in 2023 resulted in the net interest margin compression.

Total interest income increased $1.8 million, or 40%, to $6.4 million in the fourth quarter of 2023 compared to $4.6 million in the fourth quarter of 2022.  The growth in interest income was due primarily to growth in income on core loans of 51% to $4.9 million.  The weighted average yield on average core loans increased to 5.79% in the fourth quarter of 2023 from 4.79% in the fourth quarter of 2022.  Income on investment securities totaled $1.2 million for the fourth quarter of 2023 compared to $966,000 for the fourth quarter of 2022.

Interest expense increased $2.5 million in the fourth quarter of 2023 to $3.8 million from $1.3 million in the fourth quarter of 2022 primarily as a result of Federal Reserve rate hikes.  The weighted average rate on interest-bearing liabilities increased to 4.19% in the fourth quarter of 2023 from 2.05% in the fourth quarter of 2022 due to higher deposit rates paid by the Bank resulting from the increase in market interest rates. 

Noninterest expense increased $413,000, or 14%, in the fourth quarter of 2023 to $3.4 million from $3.0 million in the fourth quarter of 2022.  Salaries and benefits expense totaled $2.3 million for the fourth quarter of 2023, which was an increase of $190,000, or 9%, over the fourth quarter of 2022 primarily due to staff additions.  The Bank had 62 employees at the end of 2023 compared to 56 at the end of 2022.

Annual Income Statement Comparison

The Bank reported a net loss of $4.3 million, or $(0.65) per diluted share, for the year ended December 31, 2023, compared to a net loss of $364,000, or $(0.06) per diluted share, for 2022.  Core operating loss, a non-GAAP measurement which excludes the provision for credit losses and taxes, was $1.4 million for the twelve-month period ended December 31, 2023, compared to core earnings of $1.0 million for the twelve-month period ended December 31, 2022.

The Bank’s net interest margin decreased to 2.22% for 2023 from 2.78% for 2022.

Total interest income increased $9.1 million, or 64%, to $23.2 million for 2023 compared to $14.2 million for 2022.  The increase in interest income was due primarily to growth in income on core loans of 77% to $17.1 million.  The weighted average yield on average core loans increased to 5.52% for 2023 from 4.11% for 2022.  Income on investment securities totaled $4.4 million for 2023 compared to $3.6 million for 2022.

Interest expense increased $10.0 million in 2023 to $12.7 million from $2.7 million in 2022.  The weighted average rate on interest-bearing liabilities increased to 3.72% for 2023 from 1.10% for 2022.

In addition, the Bank’s 2023 annual operating performance was negatively impacted by the $1.75 million loss in the first quarter on the Signature Bank subordinated debt bond which had been purchased in 2020.

Noninterest expense increased in 2023 to $12.9 million from $11.0 million, due in large part to the growth of the Bank and increased personnel to support the growth.

Annual Balance Sheet Comparison 

Total assets increased $66.1 million from $445.1 million at December 31, 2022 to $511.2 million at December 31, 2023.  Core loans increased $61.5 million to $333.7 million at December 31, 2023. 

Total deposit balances increased $67.6 million to $460.4 million at December 31, 2023.  Customer deposits decreased by a net amount of $36.1 million during the twelve-month period ended December 31, 2023, with an estimated $57.8 million of growth overshadowed by a $93.9 million decline in balances of the 15 top customers.  Brokered deposits increased $103.6 million.

Shareholders’ equity declined $837,000 to $37.6 million at year end.  This decline reflected the combined impact of the $1.75 million charge-off on the Signature Bank subordinated debt bond, the $1.4 million core operating loss and the decrease in the AOCI loss of $2.7 million.  The charge-off represented less than 3% of the Bank’s regulatory capital.  Accumulated other comprehensive income/loss (“AOCI”) at December 31, 2023 was a loss $17.3 million.  The AOCI loss is expected to reverse as the bond portfolio shortens in life and is assumed to mature at par value.

Regulatory Capital

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.  Tier 1 and tier 2 capital ratios are measured against total assets and risk-weighted assets.

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 December 31, 2023:

Capital and Capital Ratios

Loans

The Bank’s core loans increased $61.5 million, or 23%, to $333.7 million at December 31, 2023.  While not included in loans outstanding, the Bank also had unfunded loan commitments of $136.0 million, bringing total core loans outstanding and unfunded commitments to $469.7 million at year end.  For internal monitoring purposes, the Bank considers owner-occupied real estate loans to be part of commercial and industrial (“C&I”) loans.  At December 31, 2023, approximately 51% 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 at December 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 $5.62 at December 31, 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 $8.58 at December 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 from the beginning of operations created a deferred tax asset of $2.5 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 December 31, 2023, the Bank had an AOCI loss of $17.3 million.  Assuming the underlying investment securities are held to 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 loans are 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 improve 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.

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