Howard Bancorp, Inc. Announces Second Quarter 2017 Results with a 48% Increase in YTD Net Income Available to Common Shareholders and Continued Strong Organic Commercial Loan Growth

July 19, 2017 4:05 PM | 96 min read |

Howard Bancorp, Inc. HBMD (the "Company"), the parent company of Howard Bank (the "Bank"), today reported its financial results for the three month and six month periods ended June 30, 2017.

A summary of results for the three and six month periods ended June 30, 2017 is as follows:

  • Net income available to common shareholders increased to $3.6 million for the first half of 2017 compared to $2.4 million in the first six months of 2016, representing an increase of $1.2 million or 48%. Earnings per common share (EPS) for the first half of 2017 were $0.39 compared to $0.35 for the same period in 2016, representing an increase of 11%. The disparity between the net income increase of 48% versus the EPS growth of 11% was impacted by a $2.3 million or 33% increase in the average number of shares outstanding for the 2017 period as a result of our issuance of 2.7 million shares of our common stock in the first quarter of 2017 pursuant to our common stock offering.
  • Net income available to common shareholders for the quarter ended June 30, 2017 was $2.0 million, or $0.21 per share, compared to $1.5 million, or $0.22 per share, a year earlier. This represents an increase of $506 thousand, or 33%, in net income available to shareholders, while the quarterly EPS declined by $.01. The second quarter of 2017 EPS results were similarly impacted by a 2.8 million or 40% increase in average shares outstanding for the second quarter of 2017 compared to the same quarter in 2016.
  • Total assets grew to $1.104 billion at June 30, 2017, representing growth of $77 million, or 8%, from assets of $1.027 billion at December 31, 2016 and nearly $116 million or 12% from assets of $989 million at June 30, 2016. Total loans held in our portfolio of $880 million increased $58 million, or 7%, from $822 million at December 31, 2016 and by over $86 million, or 11%, from $794 million at June 30, 2016.
  • Deposits increased to $855 million at June 30, 2017 from $809 million on December 31, 2016 and $798 million on June 30, 2016, representing growth of $46 million, or 6%, since December 31, 2016 and $57 million, or 7%, since June 30, 2016. Demand deposits, which not only represent the lowest cost source of funding available to a bank but also are most reflective of the core customer relationships targeted by the Bank, grew from $180 million at June 30, 2016 and $183 million at December 31, 2016 to $215 million at the end of the first half of 2017, representing growth in this highly coveted deposit category of $35 million or 20% and $32 million or 18%, respectively.
  • Tangible book value per share increased to $12.84 at June 30, 2017 from $11.45 at June 30, 2016. When comparing June 30, 2017 to the same point in 2016, total common equity increased by $45 million or 55%. This was primarily the result of $38.4 million in net proceeds from our 2017 stock offering, with the remainder generated primarily from earnings.

For the first six months of 2017, the Company reported net interest income of $18.2 million compared to $17.0 million for the first six months of 2016, an increase of approximately $1.2 million or 7%. This was driven primarily by a $1.4 million or 7% increase in total interest income for the first six months of 2017 due to the growth in average loans as well as growth in our securities portfolio. Given the overall growth in deposits and borrowing levels, the Company recorded an increase in total interest expense of $181 thousand or 8% for the first half of 2017 versus the same period in 2016. Our net interest margin for the first half of 2017 was 3.73%, which represents a slight decline from the 3.79% for the first half of 2016, and was primarily due to a six basis point drop in our yield on loans. Recent quarterly net interest margins, however, have been improving, as the margin for the second quarter of 2017 was 3.77% compared to 3.68% for the first quarter of 2017 and 3.66% for the second quarter of 2016.

In addition to the growth in net interest income, there was also an increase in noninterest income for the first half of 2017 compared to the first half of 2016. Total noninterest income for the first half of 2017 was $9.8 million, which represents an increase of $2.4 million, or 32%, from $7.4 million during the first half of 2016. Included in noninterest income for the first half of 2016 was the sale of an acquired impaired loan, which resulted in a gain of approximately $675 thousand. The largest increase in noninterest revenue was from our mortgage banking activities, which generated revenue from fees and gains on sales of mortgage loans totaling $8.2 million for the first half of 2017 compared to $5.7 million for the same period in 2016, representing a revenue increase of $2.5 million, or 45%. In addition, service charges on deposits increased by $131 thousand, or 41%, for the first six months of 2017 versus the same period in 2016, due mostly to an increase in overdraft fees. Other noninterest income increased by $88 thousand, or 12%, for the first six months of 2017 compared to the same period in 2016, primarily from higher earnings on our bank owned life insurance program and increased transaction-based fees resulting from the growth in our transaction deposit accounts.

Provision for credit losses was $540 thousand for the six months ended June 30, 2017 compared to $900 thousand for the same period in 2016. The provision level for 2016 was impacted by the migration of acquired loans into our allowance for loan loss (ALLL) measurement process, as well as some specific provisions on individual loans. For 2017, the majority of the acquired loans were already incorporated into our ALLL adequacy measures. Even though we continued to experience organic loan growth, the lower specific provisions, reflecting solid credit quality, resulted in a provision for the first quarter of 2017 that was less than the same period of the prior year.

Total noninterest expenses grew to $21.7 million for the first half of 2017 compared to $19.5 million for the first half of 2016, an increase of $2.2 million or 11%. Compensation related expenses accounted for nearly all of this increase, as compensation expenses increased by $2.1 million or 23% from $9.5 million for the first half of 2016, to $11.6 million for the same period in 2017. The increased compensation costs resulted from a larger business development staff as we have successfully executed upon the team lift-out of two relationship management groups since mid-2016. In addition to enhancing our business development capabilities, we have also added to the support infrastructure to keep pace with the growth in the overall size of the Company. Cumulatively, all other categories of noninterest expense were largely unchanged when comparing the first half of 2017 to the same period in 2016.

Chairman and CEO Mary Ann Scully stated, "Howard Bancorp continues to consistently move forward on our commitments to our stakeholders. We are generating the growth that assures our relevance and impact for shareholders, clients, employees and the communities we serve. Alongside that growth we are generating returns that are reflective of our emerging ability to create positive operating leverage. For the first half of 2017 versus the same period in 2016, we experienced 15% growth in combined net-interest and non-interest revenues while expenses increased by 11%. The expense increase was driven by investments made in talent recruitment and retention, especially over the last twelve months, which are showing strong tangible evidence of a high return on those investments. Our recent inclusion in the Russell 2000 is a recognition of our success in attracting and retaining institutional and individual shareholders and is furthermore, a hallmark of sustainability. It is yet another differentiator for us in the local banking industry. We are as always grateful for all those that have helped to create this story. We have every expectation that we will continue to achieve our goal to be the 'go to' commercial bank in greater Baltimore."

Our capital levels are very strong, and were enhanced with the offering that closed in the first quarter of 2017. The Company's capital position increased dramatically in 2017, as is reflected in the following capital comparisons between June 30, 2017 and December 31, 2016:

           

June 30, 2017

December 31, 2016

• Total common equity

$128,388,000 $85,790,000

• Book value per share

$13.11 $12.27

• Tangible book value per share

$12.84 $11.86

• Tangible common equity ratio

11.42 % 8.10 %

• Leverage ratio

11.78 % 8.36 %

• Tier I risk-based capital ratio

13.39 % 9.71 %

• Total risk-based capital ratio

14.34 % 10.83 %
 

All of our regulatory capital ratios continue to be well in excess of the levels that categorize us as a well-capitalized bank.

Even with the growth in our assets, loans and deposits, and the increases in our revenues, earnings and performance metrics, asset quality measures continue to remain a major focus of attention for management and the Board of Directors. One of the Company's primary measures of asset quality is the ratio of non-performing assets to total assets. This asset quality measure decreased to 1.04% at June 30, 2017, from 1.12% at March 31, 2017 and 1.11% at the end of June 2016. Overall, the levels of our non-performing loans and other real estate owned have been relatively unchanged over the last few quarters.

Additional information is available at www.howardbank.com.

 
HOWARD BANCORP, INC.
         
Six months ended Three months ended
(Dollars in thousands, except per share data.) June 30, Jun 30 Mar 31 Jun 30
Income Statement Data: 2017 2016 2017 2017 2016
Interest income $ 20,576 $ 19,165 $ 10,708 $ 9,868 $ 9,553
Interest expense   2,328     2,147     1,211     1,117     1,178  
Net interest income 18,248 17,018 9,497 8,751 8,375
Provision for credit losses 540 900 340 200 515
Noninterest income 9,770 7,422 5,311 4,459 4,570
Noninterest expense   21,734     19,537     11,234     10,500     9,861  
Pre-tax income   5,744     4,003     3,234     2,510     2,570  
Federal and state income tax expense   2,140     1,402     1,196     944     928  
Net income   3,604     2,601     2,038     1,566     1,641  
Preferred stock dividends   -     166     -     -     109  
Net income available to common shareholders $ 3,604   $ 2,435   $ 2,038   $ 1,566   $ 1,532  
 
Per share data and shares outstanding:
Net income per common share, basic $ 0.39 $ 0.35 $ 0.21 $ 0.18 $ 0.22
Book value per common share at period end $ 13.11 $ 11.68 $ 13.11 $ 12.27 $ 11.68
Tangible book value per common share at period end $ 12.84 $ 11.45 $ 12.84 $ 12.63 $ 11.45
Average common shares outstanding 9,295,777 6,963,199 9,779,772 8,806,404 6,970,876
Shares outstanding at period end 9,796,103 6,978,217 9,796,103 9,763,318 6,978,217
 
Financial Condition data:
Total assets $ 1,104,322 $ 988,818 $ 1,104,322 $ 1,048,752 $ 988,818
Loans receivable (gross) 880,137 793,896 880,137 845,945 793,896
Allowance for credit losses (5,385 ) (5,744 ) (5,385 ) (5,360 ) (5,744 )
Other interest-earning assets 164,683 137,785 164,683 147,276 137,785
Total deposits 854,709 798,118 854,709 851,972 798,118
Borrowings 116,311 101,373 116,311 64,328 101,373
Total shareholders' equity 128,388 83,068 128,388 126,011 83,068
Common equity 128,388 83,068 128,388 126,011 83,068
 
Average assets $ 1,043,496 $ 956,322 $ 1,069,830 $ 1,016,871 $ 974,355
Average shareholders' equity 118,633 89,065 126,687 110,490 85,922
Average common shareholders' equity 118,633 80,368 126,687 110,490 81,090
 
Selected performance ratios:
Return on average assets 0.70 % 0.55 % 0.76 % 0.62 % 0.68 %
Return on average common equity 6.14 % 6.54 % 6.45 % 5.75 % 8.12 %
Net interest margin(1) 3.73 % 3.79 % 3.77 % 3.68 % 3.66 %
Efficiency ratio(2) 77.57 % 79.94 % 75.87 % 79.48 % 76.17 %
 
Asset quality ratios:
Nonperforming loans to gross loans 1.06 % 1.09 % 1.06 % 1.11 % 1.09 %
Allowance for credit losses to loans 0.61 % 0.72 % 0.61 % 0.63 % 0.72 %
Allowance for credit losses to nonperforming loans 57.86 % 65.90 % 57.86 % 56.93 % 65.90 %
Nonperforming assets to loans and other real estate 1.30 % 1.38 % 1.30 % 1.39 % 1.38 %
Nonperforming assets to total assets 1.04 % 1.11 % 1.04 % 1.12 % 1.11 %
 
Capital ratios:
Leverage ratio 11.78 % 8.36 % 11.78 % 12.16 % 8.36 %
Tier I risk-based capital ratio 13.39 % 9.70 % 13.39 % 13.96 % 9.70 %
Total risk-based capital ratio 14.34 % 10.80 % 14.34 % 14.96 % 10.80 %
Average equity to average assets 11.37 % 9.31 % 11.84 % 10.87 % 8.82 %
 

(1)

 

Net interest margin is net interest income divided by average earning assets.

(2)

Efficiency ratio is noninterest expense divided by the sum of net interest income and noninterest income.

 
         
Unaudited Consolidated Statements of Financial Condition
(Dollars in thousands, except per share amounts) PERIOD ENDED
June 30, March 31, December 31, Sept 30, June 30,
2017 2017 2016 2016 2016
ASSETS:
Cash and Cash Equivalents:
Cash and due from banks $ 41,536 $ 48,170 $ 29,675 $ 33,553 $ 24,618
Federal Funds Sold   294     314     9,691     10,325     8,190  
Total cash and cash equivalents   41,830     48,484     39,366     43,878     32,808  
 
Interest Bearing Deposits with Banks 9,633 14,326 19,513 19,513 -
 
Investment Securities:
Available-for-sale 52,151 46,059 38,728 37,718 57,693
Held-to-maturity 9,250 8,750 6,250 6,250 3,250
Federal Home Loan Bank stock, at cost   5,196     2,943     5,103     4,741     3,934  
Total investment securities   66,597     57,752     50,081     48,709     64,877  
 
Loans held-for-sale 53,872 35,666 51,054 46,342 51,010
 
Loans: 880,137 845,945 821,524 810,340 793,896
Allowance for credit losses   (5,385 )   (5,360 )   (6,428 )   (5,634 )   (5,744 )
Net loans   874,752     840,585     815,096     804,706     788,152  
 
Accrued interest receivable 2,860 2,790 2,793 2,398 2,484
 
Bank premises and equipment, net 19,599 19,864 20,080 20,287 20,481
 
Other assets:
Goodwill 603 603 603 603 603
Bank owned life insurance 28,216 21,517 21,371 21,208 21,053
Other intangibles 1,977 2,113 2,248 2,384 2,550
Other assets   4,383     5,052     4,752     4,759     4,800  
Total other assets   35,179     29,285     28,974     28,954     29,006  
Total assets $ 1,104,322   $ 1,048,752   $ 1,026,957   $ 1,014,787   $ 988,818  
 
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Non-interest bearing deposits $ 215,124 $ 244,408 $ 182,880 $ 183,118 $ 179,699
Interest bearing deposits   639,585     607,564     625,854     620,655     618,419  
Total deposits   854,709     851,972     808,734     803,773     798,118  
Borrowed funds 116,311 64,328 127,573 119,906 101,373
Other liabilities   4,914     6,441     4,860     6,217     6,259  
Total liabilities   975,934     922,741     941,167     929,896     905,750  
Shareholders' equity:
Common stock – $.01 par value 98 98 70 70 70
Additional paid-in capital 109,956 109,647 71,021 70,897 70,824
Retained earnings 18,453 16,415 14,849 13,895 12,147
Accumulated other comprehensive income/(loss), net   (119 )   (149 )   (150 )   29     27  
Total shareholders' equity   128,388     126,011     85,790     84,891     83,068  
Total liabilities and shareholders' equity $ 1,104,322   $ 1,048,752   $ 1,026,957   $ 1,014,787   $ 988,818  
 

Capital Ratios - Howard Bancorp, Inc.

Tangible Capital $ 125,807 $ 123,295 $ 82,939 $ 81,904 $ 79,915
Tier 1 Leverage (to average assets) 11.78 % 12.16 % 8.36 % 8.55 % 8.36 %
Common Equity Tier 1 Capital (to risk weighted assets) 13.39 % 13.96 % 9.71 % 9.65 % 9.70 %
Tier 1 Capital (to risk weighted assets) 13.39 % 13.96 % 9.71 % 9.65 % 9.70 %
Total Capital Ratio (to risk weighted assets) 14.34 % 14.96 % 10.83 % 10.71 % 10.80 %
 
ASSET QUALITY INDICATORS
Non-performing assets:
Total non-performing loans $ 9,307 $ 9,415 $ 9,578 $ 9,383 $ 8,717
Real estate owned   2,135     2,350     2,350     2,543     2,286  
Total non-performing assets $ 11,442   $ 11,765   $ 11,928   $ 11,926   $ 11,003  
 
Non-performing loans to total loans 1.06 % 1.11 % 1.17 % 1.16 % 1.09 %
Non-performing assets to total assets 1.04 % 1.12 % 1.16 % 1.18 % 1.11 %
ALLL to total loans 0.61 % 0.63 % 0.78 % 0.70 % 0.72 %
ALLL to non-performing loans 57.86 % 56.93 % 67.12 % 60.04 % 65.90 %
 
         
Unaudited Consolidated Statements of Income FOR THE THREE MONTHS ENDED
(Dollars in thousands, except per share amounts)
June 30, March 31, December 31, Sept 30, June 30,
2017 2017 2016 2016 2016
 
Total interest income $ 10,708 $ 9,868 $ 9,752 $ 9,824 $ 9,553
Total interest expense   1,211     1,117     1,239     1,176     1,178  
Net interest income   9,497     8,751     8,513     8,648     8,375  
Provision for credit losses   (340 )   (200 )   (735 )   (402 )   (515 )
Net interest income after provision for credit losses   9,157     8,551     7,778     8,246     7,860  
 
NON-INTEREST INCOME:
Service charges and other income 1,109 432 535 555 1,198
Mortgage banking income 4,202 4,027 2,441 3,829 3,372
         
Total non-interest income   5,311     4,459     2,976     4,384     4,570  
 
NON-INTEREST EXPENSE:
Salaries and employee benefits 6,063 5,557 4,653 4,927 4,870
Occupancy expense 1,034 1,062 997 1,062 949
Marketing expense 1,185 941 900 864 888
FDIC insurance 76 217 176 199 198
Professional fees 417 423 419 669 665
Other real estate owned related expense 112 24 12 43 109
Other   2,347     2,276     2,111     2,116     2,182  
Total non-interest expense   11,234     10,500     9,268     9,880     9,861  
 
Income before income taxes 3,234 2,510 1,486 2,750 2,569
 
Income tax expense 1,196 944 533 1,002 928
         
NET INCOME   2,038     1,566     953     1,748     1,641  
 
PREFERRED DIVIDENDS - - - - (109 )
         

NET INCOME AVAILABLE TO COMMON SHAREHOLDERS

$ 2,038   $ 1,566   $ 953   $ 1,748   $ 1,532  
 
EARNINGS PER SHARE – Basic $ 0.21 $ 0.18 $ 0.14 $ 0.25 $ 0.22
EARNINGS PER SHARE – Diluted $ 0.21 $ 0.18 $ 0.13 $ 0.25 $ 0.22
 
Average common shares outstanding – Basic 9,779,772 8,806,404 6,990,390 6,985,559 6,970,876
Average common shares outstanding – Diluted 9,822,165 8,856,763 7,020,733 7,077,420 7,061,867
 
PERFORMANCE RATIOS:
(annualized)
Return on average assets 0.76 % 0.62 % 0.38 % 0.72 % 0.68 %
Return on average common equity 6.45 % 5.75 % 4.48 % 8.50 % 8.12 %
Net interest margin 3.77 % 3.68 % 3.56 % 3.76 % 3.66 %
Efficiency ratio 75.87 % 79.48 % 80.67 % 75.82 % 76.17 %
Tangible common equity 11.42 % 11.79 % 8.10 % 8.09 % 8.11 %
 

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