Financial Results Third Quarter 2020
Forward-Looking Statements & Non-GAAP Financial Measures This presentation may contain forward-looking statements with respect to the financial condition, results of operations, trends in lending policies, plans, objectives, future performance or business of the Company. Forward-looking statements are generally identifiable by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “outlook,” “pending,” “plan,” “position,” “preliminary,” “remain,” “should,” “will,” “would” or other similar expressions. Forward-looking statements are not a guarantee of future performance or results, are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the information in the forward-looking statements. The COVID-19 pandemic has resulted in deterioration of general business and economic conditions and continued to impact us, our customers, counterparties, employees, and third-party service providers. Sustained deterioration in market conditions could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit and further increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways. The ultimate magnitude and duration of the pandemic is still unknown at this time, therefore, the extent of the impact on our business, financial position, results of operations, liquidity and prospects remains uncertain. Other factors that may cause such differences include: failures or breaches of or interruptions in the communications and information systems on which we rely to conduct our business; failure of our plans to grow our commercial real estate, commercial and industrial, public finance, SBA and healthcare finance loan portfolios; competition with national, regional and community financial institutions; the loss of any key members of senior management; fluctuations in interest rates; general economic conditions; risks relating to the regulation of financial institutions; and other factors identified in reports we file with the U.S. Securities and Exchange Commission. All statements in this presentation, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events. This presentation contains financial information determined by methods other than in accordance with U.S. generally accepted accounting principles (“GAAP”). Non-GAAP financial measures, specifically tangible common equity, tangible assets, tangible book value per common share, tangible common equity to tangible assets, net interest income – FTE, net interest margin – FTE, allowance for loan losses to loans, excluding PPP loans, adjusted noninterest expense, adjusted noninterest expense/average assets, adjusted income before income taxes, adjusted income tax provision (benefit), adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average shareholders’ equity, adjusted return on average tangible common equity and adjusted effective income tax rate are used by the Company’s management to measure the strength of its capital and analyze profitability, including its ability to generate earnings on tangible capital invested by its shareholders. Although management believes these non-GAAP measures are useful to investors by providing a greater understanding of its business, they should not be considered a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included on the slide at the end of this presentation entitled “Reconciliation of Non-GAAP Financial Measures.” 2
Third Quarter 2020 Highlights Record diluted EPS of $0.86 Adjusted diluted EPS of $1.03 1 excluding write-down of legacy OREO Earnings Record quarterly net income of $8.4 million Total revenue of $28.7 million, an increase of 48.1% from 2Q20 Cost of interest-bearing deposits declined 43 bps from 2Q20 to 1.51% FTE net interest margin increased 17 bps to 1.67% Key Operating Trends Allowance for loan losses / total loans, excluding PPP, increased to 0.91% 1 Asset quality remained solid with NPAs to total assets of 0.23% Portfolio loan balances increased by $39.2 million, or 1.3% from 2Q20 Disciplined SBA loan sales contributed $1.7 million in fee revenue Balance Sheet Management Sold $12.2 million of single tenant lease financing loans at a gain of $0.4 million Regulatory capital ratios increased from 2Q20 and remain strong Continued strong on- and off-balance sheet liquidity to manage impact of Liquidity and Capital COVID-19 environment Deposit balances relatively stable from 2Q20 3 3 1 See Reconciliation of Non-GAAP Financial Measures in the Appendix
Near-term Profitability Drivers Continued deposit repricing opportunity combined with stabilized asset yields provides significant opportunity to increase net interest income and net interest margin Annual interest expense savings in excess of $22 million expected for 2021 Accelerated build-out of SBA platform is six months ahead of the original plan – sales and operations hiring increased due to competitor dislocation in the marketplace SBA gain on sale revenue expected to be in the range of $12 million - $14 million for 2021 Residential mortgage originations expected to remain strong in the continued low interest rate environment Continue to remain cautiously optimistic regarding the impact of the COVID-19 pandemic on the credit quality of the loan portfolio 4
Loan Portfolio Overview Total portfolio loans increased $39.2 million, or 1.3%, compared to 2Q20, and increased $131.6 million, or 4.6%, year-over-year Commercial loan balances increased $56.2 million, or 2.4%, compared to 2Q20 as growth in healthcare finance and construction lending resumed following limited activity in the second quarter Consumer loan balances declined $15.3 million, or 2.9%, due primarily to increased prepayment activity across the portfolio Loan Portfolio Mix Dollars in millions $3,012.9 $2,963.5 6% $2,716.2 6% 4% 2% 7% 2% 1 Commercial and Industrial 32% $2,091.0 Commercial Real Estate 34% 34% 9% 2% Single Tenant Lease Financing Public Finance 21% 38% $1,250.8 23% Healthcare Finance 26% 13% 5% Small Business Lending 15% 4% 22% 10% 49% 1% Residential Mortgage/HE/HELOCs 2% 4% 2% 16% 11% Consumer 16% 8% 19% 10% 10% 10% 11% 14% 2016 2017 2018 2019 3Q20 5 1 Includes commercial and industrial and owner-occupied commercial real estate balances
Deposit Composition Total deposits declined $8.4 million, or 0.2%, compared to 2Q20, and increased $224.1 million, or 7.1%, year-over-year Quarterly money market growth of $117.3 million, including $87.3 million in small business deposits CD and brokered deposit balances decreased $138.1 million compared to 2Q20 Cost of interest-bearing deposits declined 43 bps from 2Q20 to 1.51% Total Deposits - $3.4 Billion Total Non-Time Deposits - $1.7 Billion As of September 30, 2020 1 As of September 30, 2020 $86.1 3% $251.2 15% $50.0 $155.1 $1,722.0 $546.5 1% $99.2 5% 51% 33% 6% $753.3 $1,359.2 46% 40% Noninterest-bearing deposits Interest-bearing demand deposits Commercial Public funds Small business Consumer Savings accounts Money market accounts Certificates and brokered deposits 6 1 Total non-time deposits excludes brokered non-time deposits
Net Interest Income and Net Interest Margin Net Interest Income – GAAP and FTE 1 FTE net interest margin improved by 17 bps from Dollars in millions 2Q20 GAAP FTE Interest expense on deposits declined as: 1) higher $17.7 $16.8 $16.9 $16.6 cost CDs matured and were either replaced at $15.9 lower rates or not renewed; and 2) money market rates were lowered substantially $16.2 $15.2 $15.4 $15.0 $14.4 Interest income earned on securities was impacted by accelerated premium amortization and continued declines in short term interest rate indices 3Q19 4Q19 1Q20 2Q20 3Q20 Yield on Loans and Cost of Deposits NIM – GAAP and FTE 1 GAAP FTE 4.20% 4.18% 4.11% 4.00% 3.88% 1.70% 1.67% 1.67% 1.65% 1.50% 2.40% 2.35% 2.24% 1.94% 1.54% 1.51% 1.51% 1.53% 1.50% 1.37% 3Q19 4Q19 1Q20 2Q20 3Q20 3Q19 4Q19 1Q20 2Q20 3Q20 Yield on loans Cost of interest-bearing deposits 7 1 See Reconciliation of Non-GAAP Financial Measures in the Appendix
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