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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 $56,000 to $2.7 million for the second quarter of 2024 from $2.6 million for the prior quarter.  The Bank's net interest margin for the second quarter of 2024 decreased slightly by two basis points to 2.08% compared to the previous quarter.  While the yield on earning assets increased in the second quarter over the first quarter of 2024, the increase in the cost of interest-bearing liabilities resulted in the net interest margin remaining fairly stable.

Interest income increased $312,000, or 5%, to $7.0 million in the second quarter of 2024 compared to $6.7 million in the linked quarter.  The growth in interest income was due primarily to the growth in average loans, which increased $12.8 million during the quarter to $361.8 million, and an increase in the weighted average yield on average loans to 6.10% in the second quarter of 2024 compared to 6.06% in the first quarter of 2024.  However, the weighted average rate on interest-bearing liabilities increased to 4.51% in the second quarter of 2024 compared to 4.34% in the first quarter.

In the second quarter of 2024, the Bank sold an investment in a SBIC and incurred a one-time loss of $136,000.  This loss is reflected in the total gain (loss) on securities in the income statement.

Noninterest expense increased $30,000 in the second quarter of 2024 over the prior quarter.  In connection with the Bank's expense reduction initiative, there was a one-time severance expense of $87,000 in the second quarter.  Salaries and benefits expense decreased $120,000, or 5%, in the second quarter of 2024 compared to the linked quarter due to the elimination of personnel positions.  The Bank had 56 employees at the end of June 2024 compared to 61 at the end of March 2024.  Other operating expenses increased $68,000 for the second quarter of 2024 over the previous quarter due principally to an increase in regulatory assessments.

Balance Sheet Comparison 

Total assets declined $5.7 million to $521.4 million at June 30, 2024 from $527.1 million at March 31, 2024.  During the second quarter of 2024, loans increased $4.2 million and deposits decreased $33.1 million.  Core customer deposits decreased $12.9 million during the second quarter of 2024 while wholesale funding (brokered deposits) decreased $20.2 million.  Core time deposits, including CDARS reciprocal deposits, increased $13.0 million, or 40%, in the second quarter over the linked quarter.  Other borrowings increased $21.0 million to $30.0 million at June 30, 2024 from $9.0 million at March 31, 2024.

Shareholders' equity increased $6.5 million during the second quarter of 2024 to $43.4 million primarily due to the $6.0 million capital raise.  Accumulated other comprehensive income ("AOCI") loss improved by $1.0 million in the second quarter to a loss of $17.1 million from a loss of $18.1 million in the prior quarter.  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 June 30, 2024:

Capital and Capital Ratios

Loans

The Bank's loans increased $4.2 million, or 1%, to $363.4 million at March 31, 2024 compared to $359.2 million at March 31, 2024 and increased $47.2 million, or 15%, from $316.2 million at June 30, 2023.  While not included in loans outstanding, the Bank also had unfunded loan commitments of $127.4 million, bringing total loans outstanding and unfunded commitments to $490.8 million at June 30, 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 June 30, 2024, approximately 50% of the Bank's outstanding loan portfolio was composed of C&I loans:

Loan Diversification

Credit Risk and Allowance for Credit Losses

The Bank had no reportable past due loans or nonperforming assets at June 30, 2024 or at the prior quarter end.  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 was $3.7 million at June 30 and March 31, 2024, which was 1.02% and 1.03% of outstanding loans, respectively.  The allowance for credit losses on unfunded loan commitments, recorded as a liability on the balance sheet, was $366,000, or 0.29% of the unfunded commitments, at June 30, 2024 compared to $392,000, or 0.31%, at March 31, 2024.

Deferred Tax Asset and AOCI (Non-GAAP Measures)

The Bank's GAAP tangible book value per share was $5.44 at June 30, 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 $7.90 at June 30, 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 June 30, 2024, the Bank had an aggregate AOCI loss of $17.1 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 its liabilities quickly 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.