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Income Statement Comparison 

The Bank's net loss totaled $101,000 for the quarter ended March 31, 2024 compared to a net loss of $800,000 for the quarter ended December 31, 2023.  Core operating results, a non-GAAP measurement which excludes the provision for credit losses and taxes, were a loss of $435,000 for the first quarter compared to a loss of $478,000 for the linked quarter ended December 31, 2023.  During the first quarter of 2024, some real estate construction loans, which carry a higher loss reserve rate, were completed and moved to permanent loans.  As a result, the Bank recorded a reduction in the allowance for credit losses by a credit to the provision for credit losses of $334,000.

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 and other sources of funding.  Net interest income increased $47,000 to $2.64 million for the first quarter of 2024 from $2.59 million for the prior quarter.  The Bank's net interest margin for the first quarter of 2024 increased one basis point to 2.10% compared to the previous quarter.  While the yield on earning assets increased in the first quarter of 2024 over the fourth quarter of 2023, the decline in core deposits and the increase in higher cost wholesale funding resulted in the net interest margin remaining fairly stable.

Interest income increased $284,000, or 4%, to $6.71 million in the first quarter of 2024 compared to $6.43 million in the linked quarter.  The growth in interest income was due primarily to the growth in loans, which increased $25.1 million during the quarter to $359.2 million, and an increase in the weighted average yield on average loans to 6.06% in the first quarter of 2024 compared to 5.78% in the fourth quarter of 2023.  However, the weighted average rate on interest-bearing liabilities increased to 4.34% in the first quarter of 2024 compared to 4.19% in the fourth quarter of 2023 due primarily to the increase of wholesale funding.

Noninterest expense was virtually unchanged at $3.38 million for the first quarter of 2024 compared to $3.37 million in the fourth quarter of 2023.  Salaries and benefits expense totaled $2.21 million for the first quarter of 2024, which was a decrease of $67,000, or 3%, over the fourth quarter of 2023 and was primarily due to reductions in accruals.  The Bank had 61 employees at the end of March 2024 compared to 62 at the end of 2023.  Other operating expenses increased $74,000 for the first quarter of 2024 over the previous quarter due principally to an increase in regulatory assessments.

Balance Sheet Comparison 

Total assets increased $16.0 million to $527.2 million at March 31, 2024 from $511.2 million at December 31, 2023.  During the first quarter of 2024, loans increased $25.1 million and deposits increased $17.1 million.  Total core customer deposits decreased $7.1 million during the first quarter of 2024 while there was an increase of $24.2 million in wholesale funding (brokered deposits).

Shareholders' equity declined $640,000 during the first quarter of 2024 to $37.0 million primarily due to the $785,000 increase in the accumulated other comprehensive income ("AOCI") loss to $18.1 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 March 31, 2024:

Loans

The Bank's loans increased $25.1 million, or 7%, to $359.2 million at March 31, 2024 compared to $334.1 million at December 31, 2023 and increased $58.2 million, or 19%, from $301.0 million at March 31, 2023.  While not included in loans outstanding, the Bank also had unfunded loan commitments of $128.1 million, bringing total loans outstanding and unfunded commitments to $487.3 million at March 31, 2024.  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, 2024, approximately 51% of the Bank's outstanding loan portfolio was composed of C&I loans:

Credit Risk and Allowance for Credit Losses

The Bank had no reportable past due loans or nonperforming assets at March 31, 2024.  The Bank's loan portfolio has been underwritten conservatively with a focus on cash flows of prospective borrowers.

The allowance for credit losses on loans at March 31, 2024 was $3.7 million, or 1.03% of outstanding loans.  The allowance for credit losses on unfunded loan commitments, recorded as a liability on the balance sheet, was $392,000, or 0.31% of the unfunded commitments at March 31, 2024.

Deferred Tax Asset and AOCI (Non-GAAP Measures)

The Bank's GAAP tangible book value per share was $5.52 at March 31, 2024.  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 $8.61 at March 31, 2024.

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 $2.6 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 March 31, 2024, the Bank had an aggregate AOCI loss of $18.1 million.  Assuming the underlying investment securities are held to maturity and there are no credit losses, the value of the securities will return to their face values 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 reflecting increases in market rates whereas its loans are repricing more slowly.  If current deposit and market rates remain stable, we expect the repricing of our loan portfolio over the next several quarters will gradually improve the Bank's 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 credit 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.