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
Quarter Ended
12/31/2023
Amount
Ratio
Actual
(dollars in thousands)
Total Capital (to risk-weighted assets)
$ 59,322
12.70 %
Tier 1 Capital (to risk-weighted assets)
$ 54,913
11.76 %
Tier 1 Capital (to average assets)
$ 54,913
10.52 %
Minimum To Be Well-Capitalized Under
Prompt Corrective Action Provisions
(dollars in thousands)
Total Capital (to risk-weighted assets)
$ 47,000
10.00 %
Tier 1 Capital (to risk-weighted assets)
$ 37,000
8.00 %
Tier 1 Capital (to average assets)
$ 26,000
5.00 %
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
Percentage of
Quarter Ended
Core Loan
Loan Category
12/31/2023
Portfolio
Other Construction & Land Development
$ 62,479,933
Nonowner-occupied Commercial Real Estate
98,481,498
Total Commercial Real Estate
160,961,431
48 %
Owner-occupied Real Estate
89,081,870
C&I
82,180,190
Total C&I
171,262,060
51 %
Other Revolving Loans
1,436,482
1 %
Total
$ 333,659,973
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.
Triad Business Bank
Balance Sheet (Unaudited)
December 31, 2023
December 31, 2022
$ Change
% Change
Assets
Cash & Due from Banks
$ 33,610,971
$ 30,177,676
$ 3,433,295
11 %
Securities
137,537,443
137,158,352
379,091
0 %
Federal Funds Sold
–
–
–
0 %
PPP Loans
482,100
848,172
(366,072)
-43 %
Core Loans
333,659,973
272,200,717
61,459,256
23 %
Allowance for Credit Losses (“ACL”)
(3,729,925)
(3,418,841)
(311,084)
-9 %
Loans, Net
330,412,148
269,630,048
60,782,100
23 %
Other Assets
9,591,119
8,142,741
1,448,378
18 %
Total Assets
$ 511,151,681
$ 445,108,817
$ 66,042,864
15 %
Liabilities
Demand Deposits
$ 99,389,815
$ 176,820,321
$ (77,430,506)
-44 %
ICS Reciprocal – Checking
14,204,733
–
14,204,733
100 %
Commercial Operating Accounts
113,594,548
176,820,321
(63,225,773)
-36 %
Interest-bearing NOW
22,518,830
13,209,174
9,309,656
70 %
Core MMA & Savings
85,891,021
159,857,410
(73,966,389)
-46 %
ICS Reciprocal – MMA
76,963,368
–
76,963,368
100 %
Total MMA & Savings
162,854,389
159,857,410
2,996,979
2 %
Core Time Deposits
11,019,913
3,748,773
7,271,140
194 %
CDARS – Reciprocal
10,601,322
3,012,964
7,588,358
252 %
Brokered CDs
139,859,453
36,213,632
103,645,821
286 %
Total Time Deposits
161,480,688
42,975,369
118,505,319
276 %
Total Deposits
460,448,455
392,862,274
67,586,181
17 %
Other Borrowings
9,000,000
10,000,000
(1,000,000)
-10 %
Federal Funds Purchased
–
–
–
0 %
ACL on Unfunded Commitments
678,444
–
678,444
100 %
Other Liabilities
3,422,078
3,807,240
(385,162)
-10 %
Total Liabilities
473,548,977
406,669,514
66,879,463
16 %
Shareholders’ Equity
Common Stock
66,692,747
65,824,785
867,962
1 %
Accumulated Deficit
(11,779,488)
(7,334,490)
(4,444,998)
-61 %
Accumulated Other Comprehensive Loss
(17,310,555)
(20,050,992)
2,740,437
14 %
Total Shareholders’ Equity
37,602,704
38,439,303
(836,599)
-2 %
Total Liabilities & Shareholders’ Equity
$ 511,151,681
$ 445,108,817
$ 66,042,864
15 %
Shares Outstanding
6,695,121
6,602,984
92,137
1 %
Tangible Book Value per Share
$ 5.62
$ 5.82
$ (0.20)
-4 %
Triad Business Bank
Income Statement (Unaudited)
For the Year Ended
For the Year Ended
December 31, 2023
December 31, 2022
$ Change
% Change
Interest Income
Interest & Fees on PPP Loans
$ 6,854
$ 289,109
$ (282,255)
-98 %
Interest & Fees on Core Loans
17,086,578
9,651,275
7,435,303
77 %
Interest & Dividend Income on Securities
4,444,100
3,570,880
873,220
24 %
Interest Income on Balances Due from Banks
1,427,873
584,639
843,234
144 %
Other Interest Income
302,034
84,859
217,175
256 %
Total Interest Income
23,267,439
14,180,762
9,086,677
64 %
Interest Expense
Interest on NOW Deposits
729,355
250,955
478,400
191 %
Interest on Savings & MMA Deposits
5,664,205
1,798,129
3,866,076
215 %
Interest on Time Deposits
5,258,833
495,824
4,763,009
961 %
Interest on Federal Funds Purchased
169
2,104
(1,935)
-92 %
Interest on Borrowings
752,474
99,704
652,770
655 %
Other Interest Expense
252,775
70,657
182,118
258 %
Total Interest Expense
12,657,811
2,717,373
9,940,438
366 %
Net Interest Income
10,609,628
11,463,389
(853,761)
-7 %
Provision for Credit Losses
2,915,181
1,317,726
1,597,455
121 %
Net Interest Income After Provision for CL
7,694,447
10,145,663
(2,451,216)
-24 %
Total Noninterest Income
837,921
743,381
94,540
13 %
Total Gain (Loss) on Securities
35,000
(156,156)
191,156
122 %
Noninterest Expense
Salaries & Benefits
8,604,883
7,699,839
905,044
12 %
Premises & Equipment
533,857
504,901
28,956
6 %
Total Other Noninterest Expense
3,748,468
2,824,577
923,891
33 %
Total Noninterest Expense
12,887,208
11,029,317
1,857,891
17 %
Income (Loss) Before Income Tax
(4,319,840)
(296,429)
(4,023,411)
-1357 %
Income Tax
–
67,244
(67,244)
-100 %
Net Income (Loss)
$ (4,319,840)
$ (363,673)
$ (3,956,167)
-1088 %
Net Income (Loss) per Share
Basic
$ (0.65)
$ (0.06)
$ (0.59)
-1079 %
Diluted
$ (0.65)
$ (0.06)
$ (0.59)
-1079 %
Weighted Average Shares Outstanding
Basic
6,653,922
6,602,984
50,938
1 %
Diluted
6,653,922
6,602,984
50,938
1 %
Pre-provision, Pre-tax Income (Loss)
$ (1,404,659)
$ 1,021,297
$ (2,425,956)
-238 %
Triad Business Bank
Key Ratios & Other Information (Unaudited)