WASHINGTONFIRST BANKSHARES INC WashingtonFirst Bankshares, Inc. (“WashingtonFirst” or the “Company”) (NASDAQ: WFBI), the parent company of WashingtonFirst Bank, WashingtonFirst Mortgage, and 1st Portfolio Inc., reports net income of $5.6 million and $15.3 million for the three and nine months ended September 30, 2017, respectively. This represents an increase of 12.7% and 15.7% compared to the same periods last year, respectively. Earnings per share on a fully-diluted basis were $0.41 and $1.15 per share for the three and nine months ended September 30, 2017, respectively. On October 2, 2017, the Company paid its 16th consecutive quarterly cash dividend to its shareholders.
Core net income for the three and nine months ended September 30, 2017 was $5.7 million and $16.0 million, respectively. This represents an increase of 14.6% and 19.6% compared to the same periods last year, respectively. Core earnings per share fully diluted basis for the three and nine months ended September 30, 2017 were $0.43 and $1.20, respectively. Core net income is calculated as net income adjusted for the after-tax impact of merger expenses.
Commenting on the Company’s third quarter performance, Shaza Andersen, the Company's President and CEO, said “Since the announcement of our decision to merge with Sandy Spring Bancorp in May 2017, the WashingtonFirst team has worked hard to ensure a smooth transition for our customers and employees. We never lost sight of our commitments to deliver exceptional customer service and enhance shareholder value. I am very pleased to report that even with the added costs and attention associated with the merger, we continue to exceed our earnings performance goals."
Net interest margin decreased 8 basis points to 3.45% for the three months ended September 30, 2017 and increased one basis point to 3.48% for the nine months ended September 30, 2017, compared to the same periods in 2016. Return on average shareholders equity was 10.57% and 10.11% during the three and nine months ended September 30, 2017, respectively, compared to 10.21% and 9.43% for the same periods last year. Management attributed this increase to the continued organic growth of the loan portfolio over the past twelve months. For the three and nine months ended September 30, 2017 net interest income after provision for loan losses increased $2.5 million and $7.0 million, or 17.2% and 16.3%, over the same periods ended September 30, 2016.
For the nine months ended September 30, 2017, total assets increased 2.6% to $2.1 billion, loans held for investment increased by $101.1 million, or 6.6%, to $1.6 billion and total deposits increased $170.5 million, or 11.2%, to $1.7 billion.
About The Company
WashingtonFirst Bankshares, Inc., headquartered in Reston, Virginia, is the holding company for WashingtonFirst Bank, which operates 19 full-service banking offices throughout the Washington, D.C. metropolitan area. In addition, the Company provides wealth management services through its subsidiary, 1st Portfolio Wealth Advisors, and mortgage banking services through the Bank's subsidiary, WashingtonFirst Mortgage Corporation. The Company's common stock is traded on the NASDAQ Stock Market under the quotation symbol "WFBI" and is included in the ABA NASDAQ Community Bank Index and the Russell 2000® index. For more information about the Company, please visit: www.wfbi.com.
Cautionary Statements About Forward-Looking Information
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements of the goals, intentions, and expectations of the Company as to future trends, plans, events, results of operations and policies and regarding general economic conditions. Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors which include, but are not limited to, factors discussed in our Annual Report on Form 10-K and in other documents we file with the Securities and Exchange Commission from time to time. In some cases, forward-looking statements can be identified by use of words such as “may,” “will,” “anticipates,” “believes,” “expects,” “plans,” “estimates,” “potential,” “continue,” “should,” and similar words or phrases. These statements are based upon the beliefs of the management of the Company as to the expected outcome of future events, current and anticipated economic conditions, nationally and in the Company’s market, and their impact on the operations, assets and earnings of the Company, interest rates and interest rate policy, competitive factors, judgments about the ability of the Company to successfully integrate its operations following significant transactions including, but not limited to, mergers and acquisitions, the ability to avoid customer dislocation during the period leading up to and following such transactions, and other conditions which by their nature, are not susceptible to accurate forecast and are subject to significant uncertainty. Readers are cautioned against placing undue reliance on such forward-looking statements. The Company assumes no obligation to revise, update, or clarify forward-looking statements to reflect events or conditions after the date of this release.
Additional Information About the Merger and Where to Find It
In connection with the proposed merger transaction, Sandy Spring Bancorp, Inc. ("Sandy Spring") filed with the Securities and Exchange Commission ("SEC") on July 19, 2017, and the SEC declared effective on September 8, 2017, a Registration Statement on Form S-4 which includes a Joint Proxy Statement of Sandy Spring and the Company, and a Prospectus of Sandy Spring, as well as other relevant documents concerning the proposed transaction. Shareholders are urged to read the Registration Statement and the Joint Proxy Statement/Prospectus regarding the merger and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they contain or will contain important information about Sandy Spring, the Company and the proposed merger.
A free copy of the Joint Proxy Statement/Prospectus, as well as other filings containing information about Sandy Spring and the Company, may be obtained at the SEC’s Internet site (http://www.sec.gov). You will also be able to obtain these documents, free of charge, from Sandy Spring at www.sandyspringbank.com under the tab “Investor Relations,” and then under the heading “SEC Filings” or from the Company by accessing the Company’s website at www.wfbi.com under the tab “Investor Relations,” and then selecting “SEC Filings” under the heading “Documents and Filings.” Alternatively, these documents, when available, can be obtained free of charge from Sandy Spring upon written request to Sandy Spring Bancorp, Inc., Corporate Secretary, 17801 Georgia Avenue, Olney, Maryland 20832 or by calling (800) 399-5919, or from the Company, upon written request to WashingtonFirst Bankshares, Inc., Corporate Secretary, 11921 Freedom Drive, Suite 250, Reston, Virginia 20190 or by calling (703) 840-2410.
WashingtonFirst Bankshares, Inc. | ||||||||||||
Consolidated Balance Sheets | ||||||||||||
(unaudited) | ||||||||||||
September 30, |
December 31, |
September 30, | ||||||||||
| ($ in thousands) | ||||||||||||
Assets: | ||||||||||||
| Cash and cash equivalents: | ||||||||||||
| Cash and due from bank balances | $ | 3,426 | $ | 3,614 | $ | 3,262 | ||||||
| Federal funds sold | 34,523 | 93,659 | 127,965 | |||||||||
| Interest bearing deposits | 100 | 100 | 100 | |||||||||
| Cash and cash equivalents | 38,049 | 97,373 | 131,327 | |||||||||
| Investment securities, available-for-sale, at fair value | 296,827 | 280,204 | 238,022 | |||||||||
| Restricted stock, at cost | 11,239 | 11,726 | 7,019 | |||||||||
| Loans held for sale, at lower of cost or fair value | 27,890 | 32,109 | 62,847 | |||||||||
| Loans held for investment: | ||||||||||||
| Loans held for investment, at amortized cost | 1,635,645 | 1,534,543 | 1,431,371 | |||||||||
| Allowance for loan losses | (14,137 | ) | (13,582 | ) | (12,960 | ) | ||||||
| Total loans held for investment, net of allowance | 1,621,508 | 1,520,961 | 1,418,411 | |||||||||
| Premises and equipment, net | 6,012 | 6,955 | 7,301 | |||||||||
| Goodwill | 11,420 | 11,420 | 11,420 | |||||||||
| Identifiable intangibles | 1,417 | 1,619 | 1,686 | |||||||||
| Deferred tax asset, net | 8,097 | 8,944 | 7,333 | |||||||||
| Accrued interest receivable | 6,224 | 5,243 | 4,406 | |||||||||
| Other real estate owned | 636 | 1,428 | 1,969 | |||||||||
| Bank-owned life insurance | 16,676 | 13,880 | 13,791 | |||||||||
| Other assets | 9,481 | 11,049 | 11,406 | |||||||||
| Total Assets | $ | 2,055,476 | $ | 2,002,911 | $ | 1,916,938 | ||||||
Liabilities and Shareholders' Equity: | ||||||||||||
Liabilities: | ||||||||||||
| Non-interest bearing deposits | $ | 463,810 | $ | 381,887 | $ | 410,833 | ||||||
| Interest bearing deposits | 1,229,480 | 1,140,854 | 1,121,422 | |||||||||
| Total deposits | 1,693,290 | 1,522,741 | 1,532,255 | |||||||||
| Other borrowings | 6,439 | 5,852 | 22,479 | |||||||||
| FHLB advances | 97,856 | 232,097 | 121,343 | |||||||||
| Long-term borrowings | 32,817 | 32,638 | 32,988 | |||||||||
| Accrued interest payable | 1,832 | 947 | 1,390 | |||||||||
| Other liabilities | 15,408 | 15,976 | 14,503 | |||||||||
| Total Liabilities | 1,847,642 | 1,810,251 | 1,724,958 | |||||||||
| Commitments and contingent liabilities | — | — | — | |||||||||
Shareholders' Equity: | ||||||||||||
| Common stock: | ||||||||||||
| Common Stock Voting, $0.01 par value, 50,000,000 shares authorized, 12,519,656; 10,987,652; and 10,439,289 shares issued and outstanding, respectively | 124 | 109 | 104 | |||||||||
| Common Stock Non-Voting, $0.01 par value, 10,000,000 shares authorized; 572,835; 1,908,733; and 1,817,842 shares issued and outstanding, respectively | 6 | 19 | 18 | |||||||||
| Additional paid-in capital | 180,257 | 177,924 | 161,918 | |||||||||
| Accumulated earnings | 28,875 | 17,187 | 28,800 | |||||||||
| Accumulated other comprehensive income (loss) | (1,428 | ) | (2,579 | ) | 1,140 | |||||||
| Total Shareholders' Equity | 207,834 | 192,660 | 191,980 | |||||||||
| Total Liabilities and Shareholders' Equity | $ | 2,055,476 | $ | 2,002,911 | $ | 1,916,938 | ||||||
WashingtonFirst Bankshares, Inc. | ||||||||||||
Consolidated Statements of Income | ||||||||||||
(unaudited) | ||||||||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||
September 30, |
September 30, |
September 30, |
September 30, | |||||||||
| ($ in thousands) | ||||||||||||
Interest and dividend income: | ||||||||||||
| Interest and fees on loans | $ | 20,279 | $ | 17,703 | $ | 58,930 | $ | 50,930 | ||||
| Interest and dividends on investments: | ||||||||||||
| Taxable | 1,373 | 1,102 | 3,992 | 3,272 | ||||||||
| Tax-exempt | 61 | 25 | 187 | 66 | ||||||||
| Dividends on other equity securities | 173 | 56 | 530 | 208 | ||||||||
| Interest on Federal funds sold and other short-term investments | 82 | 50 | 237 | 186 | ||||||||
| Total interest and dividend income | 21,968 | 18,936 | 63,876 | 54,662 | ||||||||
Interest expense: | ||||||||||||
| Interest on deposits | 3,078 | 2,232 | 8,397 | 6,427 | ||||||||
| Interest on borrowings | 1,159 | 861 | 3,436 | 2,838 | ||||||||
| Total interest expense | 4,237 | 3,093 | 11,833 | 9,265 | ||||||||
| Net interest income | 17,731 | 15,843 | 52,043 | 45,397 | ||||||||
| Provision for loan losses | 375 | 1,035 | 2,315 | 2,640 | ||||||||
| Net interest income after provision for loan losses | 17,356 | 14,808 | 49,728 | 42,757 | ||||||||
Non-interest income: | ||||||||||||
| Service charges on deposit accounts | 51 | 54 | 139 | 214 | ||||||||
| Earnings on bank-owned life insurance | 105 | 90 | 297 | 270 | ||||||||
| Gain on sale of other real estate owned, net | — | 11 | — | 11 | ||||||||
| Gain on sale of loans, net | 3,772 | 6,327 | 11,022 | 14,356 | ||||||||
| Mortgage banking activities | 825 | 1,215 | 2,694 | 3,772 | ||||||||
| Wealth management income | 526 | 467 | 1,545 | 1,338 | ||||||||
| Gain on sale of available-for-sale investment securities, net | — | 135 | — | 1,287 | ||||||||
| Gain on debt extinguishment | — | — | 301 | — | ||||||||
| Other operating income | 386 | 367 | 1,064 | 689 | ||||||||
| Total non-interest income | 5,665 | 8,666 | 17,062 | 21,937 | ||||||||
Non-interest expense: | ||||||||||||
| Compensation and employee benefits | 7,169 | 7,395 | 21,737 | 21,344 | ||||||||
| Mortgage commission | 1,682 | 2,657 | 5,092 | 5,865 | ||||||||
| Premises and equipment | 1,827 | 1,802 | 5,390 | 5,482 | ||||||||
| Data processing | 1,084 | 1,058 | 3,254 | 3,183 | ||||||||
| Professional fees | 337 | 377 | 802 | 1,046 | ||||||||
| Merger expenses | 133 | 30 | 665 | 30 | ||||||||
| Mortgage loan processing expenses | 265 | 444 | 782 | 994 | ||||||||
| Debt extinguishment | — | 155 | — | 1,199 | ||||||||
| Other operating expenses | 1,795 | 1,693 | 5,334 | 4,504 | ||||||||
| Total non-interest expense | 14,292 | 15,611 | 43,056 | 43,647 | ||||||||
| Income before provision for income taxes | 8,729 | 7,863 | 23,734 | 21,047 | ||||||||
| Provision for income taxes | 3,162 | 2,922 | 8,394 | 7,784 | ||||||||
| Net income | $ | 5,567 | $ | 4,941 | $ | 15,340 | $ | 13,263 | ||||
| Earnings per common share: (1) | ||||||||||||
| Basic earnings per common share | $ | 0.43 | $ | 0.38 | $ | 1.18 | $ | 1.03 | ||||
| Diluted earnings per common share | $ | 0.41 | $ | 0.37 | $ | 1.15 | $ | 1.01 | ||||
(1) Prior periods adjusted for 5% stock dividend issued in December 2016 | ||||||||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, |
September 30, |
September 30, |
September 30, | |||||||||||||
| ($ in thousands, except per share data) | ||||||||||||||||
Performance Ratios: | ||||||||||||||||
| Return on average assets | 1.07 | % | 1.09 | % | 1.01 | % | 1.01 | % | ||||||||
| Return on average shareholders' equity | 10.57 | % | 10.21 | % | 10.11 | % | 9.43 | % | ||||||||
| Yield on average interest-earning assets | 4.28 | % | 4.23 | % | 4.27 | % | 4.19 | % | ||||||||
| Rate on average interest-earning liabilities | 1.19 | % | 1.00 | % | 1.14 | % | 1.02 | % | ||||||||
| Net interest spread | 3.09 | % | 3.22 | % | 3.13 | % | 3.17 | % | ||||||||
| Net interest margin | 3.45 | % | 3.53 | % | 3.48 | % | 3.47 | % | ||||||||
| Efficiency ratio (1) | 61.09 | % | 63.41 | % | 62.58 | % | 64.27 | % | ||||||||
| Net charge-offs to average loans held for investment (2) | 0.08 | % | 0.18 | % | 0.15 | % | 0.19 | % | ||||||||
| Mortgage origination volume | $ | 166,337 | $ | 263,611 | $ | 480,682 | $ | 603,174 | ||||||||
| Assets under management | $ | 326,989 | $ | 280,843 | $ | 326,989 | $ | 280,843 | ||||||||
Per Share Data: (3) | ||||||||||||||||
| Basic earnings per common share | $ | 0.43 | $ | 0.38 | $ | 1.18 | $ | 1.03 | ||||||||
| Fully diluted earnings per common share | $ | 0.41 | $ | 0.37 | $ | 1.15 | $ | 1.01 | ||||||||
| Weighted average basic shares outstanding | 13,082,620 | 12,865,698 | 13,037,880 | 12,846,167 | ||||||||||||
| Weighted average diluted shares outstanding | 13,325,162 | 13,109,253 | 13,332,145 | 13,078,764 | ||||||||||||
| ||||||||||||||||
(1) | The efficiency ratio is calculated as total non-interest expense (less debt extinguishment costs) divided by the sum of net interest income and total non-interest income (less gain on sale of AFS securities and gain on debt extinguishment). This non-GAAP financial measure is presented to facilitate an understanding of the Company's performance. | |
(2) | Annualized | |
(3) | 2016 amounts have been adjusted to reflect the 5% stock dividend paid in December 2016 | |
| September 30, 2017 | December 31, 2016 | September 30, 2016 | ||||||||||
Capital Ratios: | ||||||||||||
| Total risk-based capital ratio | 14.15 | % | 13.99 | % | 14.65 | % | ||||||
| Tier 1 risk-based capital ratio | 11.86 | % | 11.61 | % | 12.15 | % | ||||||
| Common equity tier 1 risk-based capital ratio | 11.41 | % | 11.15 | % | 11.63 | % | ||||||
| Tier 1 leverage ratio | 10.00 | % | 10.14 | % | 10.33 | % | ||||||
| Tangible common equity to tangible assets (1) | 9.55 | % | 9.03 | % | 9.40 | % | ||||||
Per Share Capital Data: (2) | ||||||||||||
| Book value per common share | $ | 15.87 | $ | 14.94 | $ | 14.92 | ||||||
| Tangible book value per common share | $ | 14.89 | $ | 13.93 | $ | 13.90 | ||||||
| Common shares outstanding | 13,092,491 | 12,896,385 | 12,869,523 | |||||||||
| ||||||||||||
(1) | This is a non-GAAP financial measure. Refer to the table below outlining the reconciliation of tangible common equity to tangible assets. | |
(2) | September 30, 2016, amounts have been adjusted to reflect the 5% stock dividend issued in December 2016 | |
| Average Balances, Interest Income and Expense and Average Yield and Rates | ||||||||||||||||||||||||||
| For the Three Months Ended | ||||||||||||||||||||||||||
| September 30, 2017 | September 30, 2016 | |||||||||||||||||||||||||
|
Average Balance |
Income/ Expense |
Yield/ Rate (6) |
Average Balance |
Income/ Expense |
Yield/ Rate (6) | |||||||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Interest-earning assets: | ||||||||||||||||||||||||||
| Loans held for sale | $ | 34,881 | $ | 362 | 4.06 | % | $ | 66,337 | $ | 635 | 3.74 | % | ||||||||||||||
| Loans held for investment (1) | $ | 1,620,363 | $ | 19,917 | 4.81 | % | $ | 1,402,087 | $ | 17,068 | 4.76 | % | ||||||||||||||
| Investment securities - taxable | 291,207 | 1,373 | 1.84 | % | 239,119 | 1,102 | 1.80 | % | ||||||||||||||||||
| Investment securities - tax-exempt (2) | 14,475 | 90 | 2.45 | % | 6,006 | 30 | 1.98 | % | ||||||||||||||||||
| Other equity securities | 13,268 | 174 | 5.20 | % | 5,494 | 56 | 4.07 | % | ||||||||||||||||||
| Interest-bearing balances | 100 | — | 0.98 | % | 100 | — | 0.60 | % | ||||||||||||||||||
| Federal funds sold | 35,863 | 82 | 0.90 | % | 34,806 | 50 | 0.57 | % | ||||||||||||||||||
| Total interest earning assets | 2,010,157 | 21,998 | 4.28 | % | 1,753,949 | 18,941 | 4.23 | % | ||||||||||||||||||
| Non-interest earning assets: | ||||||||||||||||||||||||||
| Cash and due from banks | 3,529 | 2,849 | ||||||||||||||||||||||||
| Premises and equipment | 6,268 | 7,477 | ||||||||||||||||||||||||
| Other real estate owned | 695 | 2,121 | ||||||||||||||||||||||||
| Other assets (3) | 51,806 | 47,373 | ||||||||||||||||||||||||
| Less: allowance for loan losses | (14,101 | ) | (12,627 | ) | ||||||||||||||||||||||
| Total non-interest earning assets | 48,197 | 47,193 | ||||||||||||||||||||||||
| Total Assets | $ | 2,058,354 | $ | 1,801,142 | ||||||||||||||||||||||
| Liabilities and Shareholders’ Equity | ||||||||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||||
| Interest-bearing demand deposits | $ | 143,475 | $ | 96 | 0.27 | % | $ | 127,801 | $ | 93 | 0.29 | % | ||||||||||||||
| Money market deposit accounts | 294,026 | 705 | 0.95 | % | 262,080 | 395 | 0.60 | % | ||||||||||||||||||
| Savings accounts | 198,440 | 351 | 0.70 | % | 228,047 | 409 | 0.71 | % | ||||||||||||||||||
| Time deposits | 587,995 | 1,926 | 1.30 | % | 477,763 | 1,335 | 1.11 | % | ||||||||||||||||||
| Total interest-bearing deposits | 1,223,936 | 3,078 | 1.00 | % | 1,095,691 | 2,232 | 0.81 | % | ||||||||||||||||||
| FHLB advances | 145,639 | 604 | 1.62 | % | 85,407 | 318 | 1.46 | % | ||||||||||||||||||
| Other borrowings and long-term borrowings | 39,401 | 556 | 5.57 | % | 39,840 | 543 | 5.40 | % | ||||||||||||||||||
| Total interest-bearing liabilities | 1,408,976 | 4,238 | 1.19 | % | 1,220,938 | 3,093 | 1.01 | % | ||||||||||||||||||
| Non-interest-bearing liabilities: | ||||||||||||||||||||||||||
| Demand deposits | 428,254 | 375,629 | ||||||||||||||||||||||||
| Other liabilities | 12,179 | 12,126 | ||||||||||||||||||||||||
| Total non-interest-bearing liabilities | 440,433 | 387,755 | ||||||||||||||||||||||||
| Total Liabilities | 1,849,409 | 1,608,693 | ||||||||||||||||||||||||
| Shareholders’ Equity | 208,945 | 192,449 | ||||||||||||||||||||||||
| Total Liabilities and Shareholders’ Equity | $ | 2,058,354 | $ | 1,801,142 | ||||||||||||||||||||||
| Interest Spread (4) | $ | 17,760 | 3.09 | % | $ | 15,848 | 3.22 | % | ||||||||||||||||||
| Net Interest Margin (2)(5) | 3.45 | % | 3.53 | % | ||||||||||||||||||||||
(1) | Includes loans placed on non-accrual status. | |
(2) | Yield and income presented on a fully taxable equivalent basis using a federal statutory rate of 35 percent. | |
(3) | Includes intangibles, deferred tax asset, accrued interest receivable, bank-owned life insurance and other assets. | |
(4) | Interest spread is the average yield earned on earning assets, less the average rate incurred on interest bearing liabilities. | |
(5) | Net interest margin is net interest income, expressed as a percentage of average earning assets. | |
(6) | Annualized income/expense is used for the yield/rate. | |
| Average Balances, Interest Income and Expense and Average Yield and Rates | ||||||||||||||||||||||||||
| For the Nine Months Ended | ||||||||||||||||||||||||||
| September 30, 2017 | September 30, 2016 | |||||||||||||||||||||||||
|
Average Balance |
Income/ Expense |
Yield/ Rate (6) |
Average Balance |
Income/ Expense |
Yield/ Rate (6) | |||||||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||||
| Loans held for sale | $ | 30,198 | $ | 935 | 4.08 | % | $ | 47,067 | $ | 1,363 | 3.80 | % | ||||||||||||||
| Loans held for investment (1) | $ | 1,593,745 | $ | 57,995 | 4.80 | % | $ | 1,367,222 | $ | 49,567 | 4.76 | % | ||||||||||||||
| Investment securities - taxable | 283,258 | 3,992 | 1.86 | % | 246,686 | 3,272 | 1.74 | % | ||||||||||||||||||
| Investment securities - tax-exempt (2) | 14,482 | 278 | 2.53 | % | 4,644 | 81 | 2.27 | % | ||||||||||||||||||
| Other equity securities | 13,799 | 530 | 5.14 | % | 6,115 | 208 | 4.55 | % | ||||||||||||||||||
| Interest-bearing balances | 100 | 1 | 0.85 | % | 81 | 1 | 1.98 | % | ||||||||||||||||||
| Federal funds sold | 38,072 | 236 | 0.83 | % | 44,005 | 185 | 0.56 | % | ||||||||||||||||||
| Total interest earning assets | 1,973,654 | 63,967 | 4.27 | % | 1,715,820 | 54,677 | 4.19 | % | ||||||||||||||||||
Non-interest earning assets: | ||||||||||||||||||||||||||
| Cash and due from banks | 3,366 | 2,515 | ||||||||||||||||||||||||
| Premises and equipment | 6,620 | 7,607 | ||||||||||||||||||||||||
| Other real estate owned | 856 | 1,534 | ||||||||||||||||||||||||
| Other assets (3) | 51,611 | 47,375 | ||||||||||||||||||||||||
| Less: allowance for loan losses | (14,206 | ) | (12,399 | ) | ||||||||||||||||||||||
| Total non-interest earning assets | 48,247 | 46,632 | ||||||||||||||||||||||||
| Total Assets | $ | 2,021,901 | $ | 1,762,452 | ||||||||||||||||||||||
Liabilities and Shareholders’ Equity | ||||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||||
| Interest-bearing demand deposits | $ | 139,133 | $ | 319 | 0.31 | % | $ | 122,218 | $ | 269 | 0.29 | % | ||||||||||||||
| Money market deposit accounts | 276,393 | 1,793 | 0.87 | % | 275,039 | 1,226 | 0.60 | % | ||||||||||||||||||
| Savings accounts | 202,843 | 1,072 | 0.71 | % | 205,095 | 1,090 | 0.71 | % | ||||||||||||||||||
| Time deposits | 565,703 | 5,213 | 1.23 | % | 467,384 | 3,842 | 1.10 | % | ||||||||||||||||||
| Total interest-bearing deposits | 1,184,072 | 8,397 | 0.95 | % | 1,069,736 | 6,427 | 0.80 | % | ||||||||||||||||||
| FHLB advances | 164,870 | 1,789 | 1.43 | % | 103,783 | 1,216 | 1.54 | % | ||||||||||||||||||
| Other borrowings and long-term borrowings | 39,412 | 1,647 | 5.57 | % | 39,284 | 1,622 | 5.49 | % | ||||||||||||||||||
| Total interest-bearing liabilities | 1,388,354 | 11,833 | 1.14 | % | 1,212,803 | 9,265 | 1.02 | % | ||||||||||||||||||
Non-interest-bearing liabilities: | ||||||||||||||||||||||||||
| Demand deposits | 418,201 | 348,836 | ||||||||||||||||||||||||
| Other liabilities | 12,429 | 12,885 | ||||||||||||||||||||||||
| Total non-interest-bearing liabilities | 430,630 | 361,721 | ||||||||||||||||||||||||
| Total Liabilities | 1,818,984 | 1,574,524 | ||||||||||||||||||||||||
| Shareholders’ Equity | 202,917 | 187,928 | ||||||||||||||||||||||||
| Total Liabilities and Shareholders’ Equity | $ | 2,021,901 | $ | 1,762,452 | ||||||||||||||||||||||
| Interest Spread (4) | $ | 52,134 | 3.13 | % | $ | 45,412 | 3.17 | % | ||||||||||||||||||
| Net Interest Margin (2)(5) | 3.48 | % | 3.47 | % | ||||||||||||||||||||||
(1) | Includes loans placed on non-accrual status. | |
(2) | Yield and income presented on a fully taxable equivalent basis using a federal statutory rate of 35 percent. | |
(3) | Includes intangibles, deferred tax asset, accrued interest receivable, bank-owned life insurance and other assets. | |
(4) | Interest spread is the average yield earned on earning assets, less the average rate incurred on interest bearing liabilities. | |
(5) | Net interest margin is net interest income, expressed as a percentage of average earning assets. | |
(6) | Annualized income/expense is used for the yield/rate. | |
| Composition of Loans Held for Investment | |||||||||||||||
| September 30, 2017 | December 31, 2016 | September 30, 2016 | |||||||||||||
| ($ in thousands) | |||||||||||||||
| Construction and development | $ | 269,981 | $ | 288,193 | $ | 272,171 | |||||||||
| Commercial real estate- owner occupied | 259,963 | 231,414 | 224,343 | ||||||||||||
| Commercial real estate- non-owner occupied | 603,147 | 557,846 | 484,677 | ||||||||||||
| Residential real estate | 315,423 | 287,250 | 279,442 | ||||||||||||
| Real estate loans | 1,448,514 | 1,364,703 | 1,260,633 | ||||||||||||
| Commercial and industrial | 182,830 | 165,172 | 166,145 | ||||||||||||
| Consumer | 4,301 | 4,668 | 4,593 | ||||||||||||
| Total loans | 1,635,645 | 1,534,543 | 1,431,371 | ||||||||||||
| Less: allowance for loan losses | 14,137 | 13,582 | 12,960 | ||||||||||||
| Net loans | $ | 1,621,508 | $ | 1,520,961 | $ | 1,418,411 | |||||||||
| Composition of Deposits | |||||||||||||||
| September 30, 2017 | December 31, 2016 | September 30, 2016 | |||||||||||||
| ($ in thousands) | |||||||||||||||
| Demand deposit accounts | $ | 463,810 | $ | 381,887 | $ | 410,833 | |||||||||
| NOW accounts | 153,592 | 134,938 | 136,319 | ||||||||||||
| Money market accounts | 284,787 | 270,794 | 290,750 | ||||||||||||
| Savings accounts | 201,387 | 209,961 | 216,552 | ||||||||||||
| Time deposits up to $250,000 | 407,200 | 386,095 | 335,780 | ||||||||||||
| Time deposits over $250,000 | 182,514 | 139,066 | 142,021 | ||||||||||||
| Total deposits | $ | 1,693,290 | $ | 1,522,741 | $ | 1,532,255 | |||||||||
| Allowance and Asset Quality Ratios | |||||||||||||||
| Allowance for loan losses to loans held for investment | 0.86 | % | 0.89 | % | 0.91 | % | |||||||||
| Adjusted allowance for loan losses to loans held for investment (1) | 1.04 | % | 1.11 | % | 1.17 | % | |||||||||
| Allowance for loan losses to non-accrual loans | 143.12 | % | 236.37 | % | 220.15 | % | |||||||||
| Allowance for loan losses to non-performing assets | 57.89 | % | 159.10 | % | 117.39 | % | |||||||||
| Non-performing assets to total assets | 1.19 | % | 0.43 | % | 0.58 | % | |||||||||
(1) This is a non-GAAP financial measure. Refer to the table below outlining the reconciliation of GAAP Allowance Ratio to Adjusted Allowance Ratio. | |||||||||||||||
| Non-Performing Assets | |||||||||||||||
| September 30, 2017 | December 31, 2016 | September 30, 2016 | |||||||||||||
| ($ in thousands) | |||||||||||||||
| Non-accrual loans | $ | 9,878 | $ | 5,746 | $ | 5,887 | |||||||||
| 90+ days still accruing | 12,676 | 2 | — | ||||||||||||
| Trouble debt restructurings still accruing | 1,231 | 1,361 | 3,184 | ||||||||||||
| Other real estate owned | 636 | 1,428 | 1,969 | ||||||||||||
| Total non-performing assets | $ | 24,421 | $ | 8,537 | $ | 11,040 | |||||||||
| Reconciliation of Net Income to Core Net Income (1) | ||||||||||||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||
| ($ in thousands) | ||||||||||||||||
| Net Income | $ | 5,567 | $ | 4,941 | $ | 15,340 | 13,263 | |||||||||
| Add: Merger Expenses | 133 | 30 | 665 | 30 | ||||||||||||
| Less: Estimated Tax Effect | (16 | ) | (11 | ) | (114 | ) | (11 | ) | ||||||||
| Core Net Income | $ | 5,684 | $ | 4,960 | $ | 15,891 | $ | 13,282 | ||||||||
(1) | Core net income is calculated as net income adjusted for the after-tax impact of merger expenses and is a non-GAAP financial measure that is presented to facilitate a comparison of the Company's earnings without merger expenses. This table provides a reconciliation between GAAP Net Income amounts and this non-GAAP financial measure. | |
| Reconciliation of Tangible Common Equity to Tangible Assets Ratio (1) | ||||||||||||
| September 30, 2017 | December 31, 2016 | September 30, 2016 | ||||||||||
| ($ in thousands) | ||||||||||||
Tangible Common Equity: | ||||||||||||
| Common Stock Voting | $ | 123 | $ | 109 | $ | 104 | ||||||
| Common Stock Non-Voting | 7 | 19 | 18 | |||||||||
| Additional paid-in capital - common | 180,257 | 177,924 | 161,918 | |||||||||
| Accumulated earnings | 28,875 | 17,187 | 28,800 | |||||||||
| Accumulated other comprehensive income (loss) | (1,428 | ) | (2,579 | ) | 1,140 | |||||||
| Total Common Equity | $ | 207,834 | $ | 192,660 | $ | 191,980 | ||||||
Less Intangibles: | ||||||||||||
| Goodwill | 11,420 | 11,420 | 11,420 | |||||||||
| Identifiable intangibles | 1,417 | 1,619 | 1,686 | |||||||||
| Total Intangibles | 12,837 | 13,039 | 13,106 | |||||||||
| Tangible Common Equity | $ | 194,997 | $ | 179,621 | $ | 178,874 | ||||||
Tangible Assets: | ||||||||||||
| Total Assets | $ | 2,055,476 | $ | 2,002,911 | $ | 1,916,938 | ||||||
Less Intangibles: | ||||||||||||
| Goodwill | 11,420 | 11,420 | 11,420 | |||||||||
| Identifiable intangibles | 1,417 | 1,619 | 1,686 | |||||||||
| Total Intangibles | 12,837 | 13,039 | 13,106 | |||||||||
| Tangible Assets | $ | 2,042,639 | $ | 1,989,872 | $ | 1,903,832 | ||||||
| Tangible Common Equity to Tangible Assets (1) | 9.55 | % | 9.03 | % | 9.40 | % | ||||||
(1) | Tangible common equity to tangible assets ratio is a non-GAAP financial measure that is presented to facilitate an understanding of the Company's capital structure. This table provides a reconciliation between certain GAAP amounts and this non-GAAP financial measure. | |
| Reconciliation of GAAP Allowance Ratio to Adjusted Allowance Ratio (1) | ||||||||||||
| September 30, 2017 | December 31, 2016 | September 30, 2016 | ||||||||||
| ($ in thousands) | ||||||||||||
| GAAP allowance for loan losses | $ | 14,137 | $ | 13,582 | $ | 12,960 | ||||||
| GAAP loans held for investment, at amortized cost | 1,635,644 | 1,534,543 | 1,431,371 | |||||||||
| GAAP allowance for loan losses to total loans held for investment | 0.86 | % | 0.89 | % | 0.91 | % | ||||||
| GAAP allowance for loan losses | $ | 14,137 | $ | 13,582 | $ | 12,960 | ||||||
| Plus: Credit purchase accounting marks | 2,903 | 3,537 | 3,784 | |||||||||
| Adjusted allowance for loan losses | $ | 17,040 | $ | 17,119 | $ | 16,744 | ||||||
| GAAP loans held for investment, at amortized cost | $ | 1,635,644 | $ | 1,534,543 | $ | 1,431,371 | ||||||
| Plus: Credit purchase accounting marks | 2,903 | 3,537 | 3,784 | |||||||||
| Adjusted loans held for investment, at amortized cost | $ | 1,638,547 | $ | 1,538,080 | $ | 1,435,155 | ||||||
| Adjusted allowance for loan losses to total loans held for investment (1) | 1.04 | % | 1.11 | % | 1.17 | % | ||||||
(1) | This is a non-GAAP financial measure. Credit purchase accounting marks are GAAP marks under purchase accounting guidance. | |
| Segment Reporting - 2017 (QTD) | |||||||||||||||||||
| As of and for the Three Months Ended September 30, 2017 | |||||||||||||||||||
| Commercial | Mortgage | Wealth | Consolidated | ||||||||||||||||
| Bank | Bank | Management | Other (1) | Totals | |||||||||||||||
| ($ in thousands) | |||||||||||||||||||
| Interest and dividend income | $ | 21,606 | $ | 362 | $ | — | $ | — | $ | 21,968 | |||||||||
| Interest expense | 3,686 | — | — | 551 | 4,237 | ||||||||||||||
| Net interest income | 17,920 | 362 | — | (551 | ) | 17,731 | |||||||||||||
| Provision for loan losses | 375 | — | — | — | 375 | ||||||||||||||
| Net interest income after provision for loan losses | 17,545 | 362 | — | (551 | ) | 17,356 | |||||||||||||
| Non-interest income | 535 | 4,598 | 533 | (1 | ) | 5,665 | |||||||||||||
| Compensation and employee benefits | 5,043 | 1,599 | 260 | 267 | 7,169 | ||||||||||||||
| Mortgage commission | — | 1,682 | — | — | 1,682 | ||||||||||||||
| Premises and equipment | 1,586 | 167 | 32 | 42 | 1,827 | ||||||||||||||
| Data processing | 1,014 | 56 | 14 | — | 1,084 | ||||||||||||||
| Professional fees | 231 | 13 | 3 | 90 | 337 | ||||||||||||||
| Merger expenses | — | — | — | 133 | 133 | ||||||||||||||
| Mortgage loan processing expenses | — | 265 | — | — | 265 | ||||||||||||||
| Other operating expenses | 1,424 | 275 | 60 | 36 | 1,795 | ||||||||||||||
| Income/(loss) before provision for income taxes | $ | 8,782 | $ | 903 | $ | 164 | $ | (1,120 | ) | $ | 8,729 | ||||||||
| Total assets | $ | 2,008,137 | $ | 41,844 | $ | 3,880 | $ | 1,615 | $ | 2,055,476 | |||||||||
(1) | Includes parent company and intercompany eliminations | |
| Segment Reporting - 2016 (QTD) | |||||||||||||||||||
| As of and for the Three Months Ended September 30, 2016 | |||||||||||||||||||
| Commercial | Mortgage | Wealth | Consolidated | ||||||||||||||||
| Bank | Bank | Management | Other (1) | Totals | |||||||||||||||
| ($ in thousands) | |||||||||||||||||||
| Interest and dividend income | $ | 18,301 | $ | 635 | $ | — | $ | — | $ | 18,936 | |||||||||
| Interest expense | 2,560 | — | — | 533 | 3,093 | ||||||||||||||
| Net interest income | 15,741 | 635 | — | (533 | ) | 15,843 | |||||||||||||
| Provision for loan losses | 1,035 | — | — | — | 1,035 | ||||||||||||||
| Net interest income after provision for loan losses | 14,706 | 635 | — | (533 | ) | 14,808 | |||||||||||||
| Non-interest income | 601 | 7,535 | 467 | 63 | 8,666 | ||||||||||||||
| Compensation and employee benefits | 4,839 | 2,090 | 241 | 225 | 7,395 | ||||||||||||||
| Mortgage commission | — | 2,657 | — | — | 2,657 | ||||||||||||||
| Premises and equipment | 1,561 | 169 | 32 | 40 | 1,802 | ||||||||||||||
| Data processing | 981 | 74 | 3 | — | 1,058 | ||||||||||||||
| Professional fees | 266 | 29 | 2 | 80 | 377 | ||||||||||||||
| Merger expenses | 30 | — | — | — | 30 | ||||||||||||||
| Mortgage loan processing expenses | — | 444 | — | — | 444 | ||||||||||||||
| Debt extinguishment | 155 | — | — | — | 155 | ||||||||||||||
| Other operating expenses | 1,259 | 300 | 65 | 69 | 1,693 | ||||||||||||||
| Income/(loss) before provision for income taxes | $ | 6,216 | $ | 2,407 | $ | 124 | $ | (884 | ) | $ | 7,863 | ||||||||
| Total assets | $ | 1,828,543 | $ | 83,644 | $ | 3,604 | $ | 1,147 | $ | 1,916,938 | |||||||||
(1) | Includes parent company and intercompany eliminations | |
Additional Discussion and Analysis
Consolidated net income for the three and nine months ended September 30, 2017, was $5.6 million and $15.3 million, respectively, representing increases of $0.6 million and $2.1 million, or 12.7% and 15.7%, respectively, over the $4.9 million and $13.3 million earned during the three and nine months ended September 30, 2016, respectively. Net income per diluted common share for the three and nine months ended September 30, 2017 was $0.41 and $1.15, respectively, representing increases of 10.8% and 13.9%, respectively, over the $0.37 and $1.01 per diluted common share earning during the three and nine months ended September 30, 2016, respectively.
As of September 30, 2017, total assets were $2.1 billion, compared to $2.0 billion as of December 31, 2016, and $1.9 billion as of September 30, 2016. During the nine months ended September 30, 2017, total loans held for investment increased $101.1 million or 6.6% to $1.6 billion. This increase is attributable to organic loan growth from our existing lending team. During the nine months ended September 30, 2017, total deposits increased $170.5 million or 11.2% to $1.7 billion. The increase in deposits is primarily attributable to deposit growth in our branch network and commercial customers.
The net interest margin was 3.45% and 3.48% for the three and nine months ended September 30, 2017, respectively, compared to 3.53% and 3.47% for the same periods in 2016. The decrease is primarily attributable to increases in market rates on deposits. On a linked quarter basis, our net interest margin decreased from 3.51% for the three months ended June 30, 2017, to 3.45% for the three months ended September 30, 2017. The Company remains focused on its pricing discipline on both sides of the balance sheet and on all factors contributing to net income.
The adjusted allowance for loan losses to adjusted total loans held for investment, which includes credit purchase accounting marks, was 1.04% as of September 30, 2017, compared to 1.17% as of September 30, 2016. This decrease is attributable to net charge-offs of $0.3 million, which had been substantially reserved for previously, and credit mark accretion. A reconciliation of the allowance for loan losses and related ratios to the adjusted allowance for loan losses and related ratios is included herein. Since December 31, 2016, non-performing assets have increased by $15.9 million primarily due to the default of two commercial real estate loans, related to a common guarantor, totaling $13.1 million. As a result, the ratio of non-performing assets to total assets increased to 1.19% as of September 30, 2017, compared to 0.58% as of September 30, 2016. Of the $13.1 million increase in non-performing loans, $10.5 million was over 90 days past due and still accruing interest as of September 30, 2017. The Company is pursuing collection efforts on this loan which remains on accrual as management believes the collateral to be of sufficient value to protect the Company against loss and tenant rent payments being collected that are sufficient to service the loan.
Non-interest income for the three and nine months ended September 30, 2017, was $5.7 million and $17.1 million, respectively, each representing a decrease of $3.0 million and $4.9 million compared to the $8.7 million and $21.9 million of non-interest income for the three and nine month periods ended September 30, 2016, respectively. Non-interest income was negatively impacted by higher interest rates which resulted in lower mortgage origination volume during the first nine months of 2017, compared to the same period last year. During the three and nine months ended September 30, 2017, the mortgage subsidiary originated $166.3 million and $480.7 million in total mortgage loan volume, a slight decrease from the $263.6 million and $603.2 million in total mortgage volume originated during the three and nine months ended September 30, 2016, respectively. As of September 30, 2017, the Company's wealth management business unit had $327.0 million in assets under management, an increase of 16.4% over the same period last year. The Company did not sell any investment securities during 2017; however, during the three and nine months ended September 30, 2016, the Company sold investment securities resulting in $0.1 million and $1.3 million, respectively, of gains on the sale of investments.
Non-interest expense decreased during the three months ended September 30, 2017, by $1.3 million, and decreased during the nine months ended September 30, 2017, by $0.6 million compared to the same periods ended September 30, 2016, primarily as a result of $0.4 million in lower compensation and employee benefits incurred during the first nine months of 2017.
During the nine months ended September 30, 2017, total shareholders’ equity increased $15.2 million, or 7.9%, to $207.8 million due primarily to earnings and additional paid in capital from the exercise of stock options offset by dividends of $2.7 million and changes in accumulated other comprehensive loss. Tangible book value per common share increased to $14.89 as of September 30, 2017, compared to $13.90 as of September 30, 2016. The Company remains "well-capitalized" under the regulatory framework.
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