HBMD
$12.40
Howard Bancorp MD
($.13)
(1.04%)
Earnings Details
3rd Quarter September 2020
Wednesday, October 28, 2020 4:06:00 PM
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Summary

Howard Bancorp MD (HBMD) Recent Earnings

Howard Bancorp MD (HBMD) reported 3rd Quarter September 2020 earnings of $0.25 per share on revenue of $23.0 million. The consensus earnings estimate was $0.19 per share on revenue of $21.0 million. Revenue fell 17.7% compared to the same quarter a year ago.

Results
Reported Earnings
$0.25
Earnings Whisper
-
Consensus Estimate
$0.19
Reported Revenue
$23.0 Mil
Revenue Estimate
$21.0 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Howard Bancorp, Inc. Reports Third Quarter 2020 Results

BALTIMORE--(BUSINESS WIRE)--Howard Bancorp, Inc. (NASDAQ: HBMD) (“Howard Bancorp” or the “Company”), the parent company of Howard Bank (“Howard Bank” or the “Bank”), today reported its financial results for the quarter ended September 30, 2020.

Net Income (Loss) and Income (Loss) per Share

The Company reported net income of $4.6 million, or $0.25 per both basic and diluted common share, for the third quarter of 2020. This compares to net income of $4.6 million, or $0.24 per both basic and diluted common share, for the third quarter of 2019 and a net loss of $29.4 million, or a $1.57 loss per both basic and diluted common share, for the second quarter of 2020.

The increases in third quarter 2020 basic and diluted earnings per common share of $0.01 when compared to the third quarter of 2019 and $1.82 when compared to the second quarter of 2020 were primarily attributable to the following items:

  • The second quarter of 2020 included a $34.5 million goodwill impairment charge, included within noninterest expense. This item, which had no tax impact, reduced second quarter 2020 earnings by $1.84 per share.
  • The third quarter 2020 provision for credit losses was $1.7 million, an increase of $1.1 million (-$0.04 after tax per share) from the third quarter of 2019, and a decrease of $1.3 million (+$0.05 after tax per share) from the second quarter of 2020.
  • The Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) resulted in significant loan originations under this program in the second quarter of 2020. Third quarter 2020 pretax income of $1.1 million ($0.04 after tax per share) from this program represented an increase of $66 thousand (under $0.01 after tax per share) from the second quarter of 2020. The PPP program did not exist prior to the second quarter of 2020.
  • The third quarter of 2019 included $336 thousand ($0.01 per share) in pretax income from the Company’s former mortgage banking activities, which were concluded in the first quarter of 2020.
  • The third quarter of 2019 included a $700 thousand ($0.03 per share) litigation settlement charge stemming from certain mortgages originated by First Mariner Bank before its merger with Howard Bank.
  • The second quarter of 2020 included a $1.0 million ($0.04 per share) litigation accrual for potential litigation claims stemming from certain mortgages originated by First Mariner Bank. This accrual was not related to the $700 thousand litigation settlement charge recorded in the third quarter of 2019.
  • The second quarter of 2020 included securities gains of $3.0 million ($0.12 per share). We did not recognize any securities gains in the third quarters of 2020 or 2019.
  • The second quarter of 2020 included prepayment penalties on Federal Home Loan Bank of Atlanta (“FHLB”) advances of $224 thousand ($0.01 per share). We did not recognize any prepayment penalties in the third quarter of 2020 or 2019.

Core net income is a non-GAAP financial measure that excludes, if applicable, the earnings contribution of the Company’s mortgage banking activities, the goodwill impairment charge, and certain other items to provide a picture of ongoing activities deemed core to the Company’s strategy. Core net income for the third quarter of 2020, which is unchanged from reported net income, was $4.6 million, or $0.25 per both basic and diluted common share. This compares to core net income of $4.9 million, or $0.26 per both basic and diluted common share for the third quarter of 2019. The $0.01 per share decrease in core earnings per share was primarily the result of a higher provision for credit losses, reflecting the changing economic environment, which was up $1.1 million (-$0.04 after tax per share), offset by the pretax contribution from PPP lending activities of $1.1 million (+$0.04 after tax per share). This also compares to core net income of $3.7 million, or $0.20 per both basic and diluted common share, for the second quarter of 2020. The $0.05 per share increase in core earnings per share was primarily the result of the after tax impact of the lower provision for credit losses, which was down $1.3 million (+$0.05 after tax per share). *

Core pre-provision net revenue (“core PPNR”), a non-GAAP financial measure that adds back the provision for credit losses to GAAP pretax income and excludes the pretax earnings contribution of the Company’s mortgage banking activities, the goodwill impairment charge, and certain other items, was $7.7 million for the third quarter of 2020. The third quarter of 2020 core PPNR was up $446 thousand, or 6.2%, from $7.2 million for the third quarter of 2019, and was down $278 thousand, or 3.5%, when compared to the second quarter 2020 core PPNR of $7.9 million. *

The Company reported a net loss of $21.5 million, or a loss of $1.14 per both basic and diluted share, for the nine months ended September 30, 2020. This compared to net income of $11.0 million, or $0.58 per both basic and diluted share, for the nine months ended September 30, 2019. Core net income for the nine months ended September 30, 2020 was $11.0 million, or $0.58 per both basic and diluted share, compared to $13.0 million, or $0.68 per both basic and diluted share, for the nine months ended September 30, 2019. Core PPNR for the nine months ended September 30, 2020 was $22.6 million, a $2.0 million, or 9.8%, increase from $20.6 million for the nine months ended September 30, 2019. *

Paycheck Protection Program Loans

The Company actively participated in the SBA’s PPP program during the second and third quarters of 2020. $201.0 million of loans were originated under the program, with $2.0 million originated during the third quarter. A total of 1,062 loans were originated under the program with an average loan size of $189 thousand. The Company originated 525 loans, totaling $10.4 million, which are eligible under the recently implemented simplified forgiveness rules issued by the SBA. As of October 23, 2020, the SBA had approved three loan forgiveness applications submitted by the Company, with total forgiveness of $134 thousand. The Company will continue to support its customers throughout the forgiveness process.

The Company received and deferred total processing fees from the SBA for originated PPP loans of $6.7 million. In addition, $782 thousand of origination costs were deferred. The net deferred fees are being accreted as a yield adjustment over the contractual term of the underlying PPP loans. The effective yield of the Company’s PPP portfolio is 2.52%. The PPP loans generated pretax income of $1.1 million, or $0.04 after tax per share, in the third quarter of 2020, up $66 thousand from the second quarter of 2020. PPP loans, net of unearned income, totaled $196.4 million at September 30, 2020.

Certain information in this earnings release is presented with respect to “portfolio loans”, a non-GAAP measure defined as total loans and leases, but excluding the PPP loans. The Company believes that portfolio loan related measures provide additional useful information for purposes of evaluating the Company’s results of operations and financial condition with respect to the third quarter of 2020 and comparing it to other periods, since the PPP loans are 100% guaranteed, were not subject to traditional loan underwriting standards, and a substantial portion of these loans are expected to be forgiven and repaid by the SBA within the next nine months. The Company commenced making loans under the PPP program in the second quarter of 2020 and, with the expiration of the program, is no longer making new PPP loans. *

COVID-19 Response

The Company continues to respond to the COVID-19 pandemic in a number of ways, with a focus on protecting our employees, strengthening our communities, and serving our customers. In addition to the funding of $201 million of PPP loans, the Company has provided loan modifications to both commercial and retail customers, on a case by case basis, in the form of payment deferrals for periods up to six months. Deferrals continue to trend favorably from their peak of $315 million (17.9% of portfolio loans) on April 24, 2020, dropping to $228 million (13.4% of portfolio loans) on July 24, 2020, then to $148 million (8.7% of portfolio loans) at September 3, 2020, the most recent date when the Company previously disclosed deferral data. As of October 23, 2020, deferrals have further declined to $73 million, or 4.3% of portfolio loans. Customer requests for second deferrals have been minimal and the Company expects substantially all loans with existing deferrals to have ended deferral status by January 31, 2021. *

Asset Quality and Allowance for Loan and Lease Losses

Nonperforming assets (“NPAs”) totaled $18.1 million at September 30, 2020, a decrease of $2.5 million from June 30, 2020 and a decrease of $5.7 million from September 30, 2019. NPAs consisted of $17.0 million of nonperforming loans (“NPLs”) and $1.1 million of other real estate owned (“OREO”) at September 30, 2020. NPLs were 0.90% of total loans and 1.01% of portfolio loans at September 30, 2020. NPAs represented 0.71% of total assets, 0.96% of total loans and OREO, and 1.07% of portfolio loans and OREO at September 30, 2020. *

  • This compares to NPAs of $23.9 million at September 30, 2019 that consisted of $20.0 million in NPLs and $3.9 million of OREO. NPLs were 1.15% of total loans at September 30, 2019 while nonperforming assets represented 1.04% of total assets and 1.38% of total loans and OREO at September 30, 2019.
  • This compares to NPAs of $20.6 million at June 30, 2020 that consisted of $18.5 million in NPLs and $2.1 million of OREO. NPLs were 0.97% of total loans and 1.08% of portfolio loans at June 30, 2020 while NPAs represented 0.84% of total assets, 1.08% of total loans and OREO, and 1.21% of portfolio loans and OREO at June 30, 2020.

Net charge-offs were $78 thousand in the third quarter of 2020 and represented 0.02% of average portfolio loans (annualized). This compares to net charge-offs of $129 thousand, or 0.03% of average loans (annualized) in the third quarter of 2019 and $28 thousand, or 0.01% of average portfolio loans (annualized) in the second quarter of 2020. For the first nine months of 2020, net charge-offs were $569 thousand, or 0.04% of both average total loans and average portfolio loans (annualized). The allowance for loan and lease losses (the “allowance”) was $17.7 million on September 30, 2020. The provision for credit losses for the third quarter of 2020 of $1.7 million included a $320 thousand addition to the reserve for unfunded commitments which is included in other liabilities. *

Because the Company is a smaller reporting company under SEC rules, the allowance was determined under the incurred loss model. The allowance represented 0.94% of total loans, 1.05% of portfolio loans, and 104.0% of NPLs at September 30, 2020. *

  • This compares to an allowance of $9.6 million at September 30, 2019. The September 30, 2019 allowance represented 0.55% of total loans and 48.1% of NPLs. The $8.1 million increase in the allowance at September 30, 2020 was the result of aggregate provisions for credit losses attributable to the allowance of $8.6 million partially offset by aggregate net charge-offs of $513 thousand during the four quarter period ending September 30, 2020. $7.9 million of the aggregate provisions for credit losses attributable to the allowance were recorded in 2020.
  • This compares to an allowance of $16.4 million at June 30, 2020. The June 30, 2020 allowance represented 0.86% of total loans, 0.96% of portfolio loans, and 88.6% of NPLs. The $1.3 million increase in the allowance at September 30, 2020 was the result of a provision for credit losses attributable to the allowance of $1.4 million partially offset by net charge-offs of $78 thousand during the quarter ended September 30, 2020.

The Company’s allowance as a percentage of total loans has historically been lower than peers due to the accounting for acquired loans and their initial impact on the allowance. The allowance for loan and lease losses and unamortized fair value marks as a percentage of portfolio loans, a non-GAAP measure that management uses to assess credit coverage, adds the unamortized fair value marks to total loans, portfolio loans, and the allowance for loan and lease losses. While the fair value marks, unlike the allowance, are not available to absorb general losses but are only available to absorb losses for the specific loan to which they apply, this measure provides the Company with an additional indicator of loss absorption capacity. This non-GAAP measure was 1.32% of total loans at September 30, 2020, an increase of 0.04% from June 30, 2020 and an increase of 0.22% from September 30, 2019. This measure was 1.48% of portfolio loans at September 30, 2020, an increase of 0.05% from June 30, 2020 and an increase of 0.38% from September 30, 2019. *

The Company’s asset quality trends continue to indicate minimal additional stress in the loan portfolio, with the COVID-19 related loan modifications and PPP loans likely reducing the short-term risk in the portfolio. However, management believes it remains prudent, but to a lesser extent than in the first two quarters of 2020, to proactively increase the allowance given the significant stress experienced in the economy due to the COVID-19 pandemic, coupled with the Company’s expectation that these stresses will continue for at least the next several quarters. The Company increased the allowance at September 30, 2020 by $1.3 million over the June 30, 2020 level. The allowance has now been increased by $7.3 million since December 31, 2019. This increase was based on management’s evaluation of certain qualitative factors included in the determination of the allowance, primarily economic factors driven by the unemployment rate and GDP as well as factors driven by the level of loans to potentially highly impacted industries and risk rating downgrades.

While the Maryland economy has fully reopened with some limitations and a substantial amount of economic activity has returned, unemployment, while declining, still remains high, and many businesses are still experiencing significant drops in revenue. The recent rise in new COVID-19 cases and hospitalizations since the end of September may lead to ongoing limitations on economic activity in the future. Management will continue to closely monitor portfolio conditions and reevaluate the adequacy of the allowance. While the level of payment deferrals and PPP loan assistance will reduce the short-term risk in the Company’s loan portfolio, management believes there is the potential for additional risk rating downgrades and an increase in charge-offs in future periods.

Stockholders’ Equity and Regulatory Capital Ratios

Stockholders’ equity at September 30, 2020 was $289.5 million, an increase of $6.2 million from June 30, 2020. The increase was primarily due to third quarter 2020 net income of $4.6 million and a $1.2 million increase in accumulated other comprehensive income, which represents the after tax impact of a $1.7 million increase in the fair value of available-for-sale securities. Book value per common share was $15.45 at September 30, 2020, a decrease of $0.73 per share since September 30, 2019 and an increase of $0.31 per share since June 30, 2020.

Tangible stockholders’ equity, a non-GAAP financial measure that deducts goodwill and other intangible assets, net of any applicable deferred tax liabilities, was $253.2 million at September 30, 2020. This compares to $246.5 million at June 30, 2020, with the $6.7 million increase primarily the result of growth in stockholders’ equity and the $489 thousand after tax effect of core deposit intangible amortization. Tangible stockholders’ equity has increased by $17.2 million since September 30, 2019. Tangible book value per common share, a non-GAAP measure that divides tangible stockholders’ equity by the number of shares outstanding, was $13.51 per share at September 30, 2020, an increase of $1.15 per share since September 30, 2019 and an increase of $0.34 per share since June 30, 2020. *

The Company’s regulatory capital ratios are all well in excess of regulatory “well-capitalized” and internal target minimum levels. The total capital ratio was 14.25% while both the Common Equity Tier 1 (“CET 1”) and Tier 1 capital ratios were 11.78% at September 30, 2020. The Tier 1 to average assets (“leverage”) ratio was 9.07%. A comparison of the Company’s September 30, 2020 regulatory capital ratios to September 30, 2019 and June 30, 2020 is as follows:

  • Regulatory capital ratios at September 30, 2019 consisted of a total capital ratio of 12.87% while both the CET 1 and Tier 1 capital ratios were 10.83%. The leverage ratio was 9.39%. All September 30, 2020 regulatory capital ratios based on risk-weighted assets were above the September 30, 2019 levels. The September 30, 2020 leverage ratio was lower due to PPP loans and their impact on average total assets.
  • Regulatory capital ratios at June 30, 2020 consisted of a total capital ratio of 14.09% while both the CET 1 and Tier 1 capital ratios were 11.66%. The leverage ratio was 8.73%. All September 30, 2020 regulatory capital ratios were above the June 30, 2020 levels.
  • Since the Company utilized the Federal Reserve Bank of Richmond’s (“FRB”) Paycheck Protection Program Lending Facility (“PPPLF”) on a limited basis, only a small portion of PPP loans could be deducted from average total assets for leverage ratio purposes. Had the Company fully utilized the PPPLF, the leverage ratios would have been 9.70% at September 30, 2020 and 9.23% at June 30, 2020..

Mary Ann Scully, Chairman and CEO, commented, “We have all come to expect that there are, right now, no consistently straight up or straight down measures of health markers, macroeconomic indicators or financial market performance but just a series of fundamental improvements in most sectors broken by periods of setback. There are only jagged lines on graphs post COVID. We, like all of our stakeholders, do not expect certainty but we do seek clarity. Clarity requires consistency. Howard Bank has great clarity right now around the longstanding principles and priorities that will continue to guide the choices we make day in and day out - not to mention quarter to quarter. Those prioritized activities and their linked metrics are the best predictors of not just our long term stability but our long term success.

First and foremost, we focus on strong capital levels to support and be supported by strong operating performance - both absolute and relative - and both point in time and directional. Capital ensures we withstand unexpected challenges and inherent volatility, like that we are experiencing today. Capital also ensures support for always sought-after growth opportunities, like those we are seeing today as well. There is a mutual dependency, not a conflict in our business model between growth and capital. Two key metrics for evaluating our capital position are Tangible Book Value per share (“TBV”) and Common Equity Tier 1 (“CET1”). Today, given the need not only to preserve and grow Tier 1 capital but a concurrent need to create larger levels of Tier 2 capital to adequately offset credit volatility, we are using the pretax pre-provision revenue (“PPNR”) metric as a material measure of success in operating performance.

If those two metrics of capital growth and PPNR growth are the priorities that give us clarity at a time of continued uncertainty, we are both generally pleased with the metrics of success in those priorities and also optimistic about the likelihood of continued progress.

The bank’s absolute capital - TBV - has grown by 9% YOY; relative capital is also strong by any regulatory or investor ratio standard with the leverage ratio above 9%, and CET at 11.78%. This capital is now available not only for future credit losses, if they occur, but to support the higher loan growth expected in the fourth quarter.

Since capital must be preserved as well as supplemented, significant time and attention resources are allocated to asset quality. All traditional lagging asset quality measures are showing improvement. YTD six figure net charge offs are essentially flat to 2019 despite the unprecedented short term stress in the economy. NPAs are down $5.7MM from September 30, 2019. The bank is also closely examining leading indicators for signs of future stress as well but we have seen loan deferrals fall from a high of 18% in the second quarter to 4% as of this date with minimal requests for extensions of deferrals past six months and have implemented limited downgrades, most within Pass categories. Our loan portfolio has both modest and dispersed levels of loans in highly impacted industries. All of these metrics suggest that capital will be largely preserved.

Equally focused on growing capital, PPNR will, for us, be driven by revenue growth largely driven by loan growth. Unlike some in our industry, we believe there are always loan growth opportunities. We see and are executing on some higher yielding niche loan portfolio opportunities. However, the thrust of our resource allocation is around place based relationship building. In addition to seeing opportunities always present in down cycles in markets dominated by out of state competitors, we are seeing significant talent acquisition opportunities and have commenced building our Greater Washington team. Both of these activities are bearing fruit .This quarter, a much lower traditional portfolio shrinkage is apparent than in the last quarter. From a portfolio low point in July, both commercial real estate (“CRE”) and C&I balances have started to grow through all three development activities of customer retention, customer expansion and customer acquisition. Our success in gathering and retaining full relationships is evidenced by the metric that our cost of funds is at an all-time low of 48 bps with continued opportunity for further modest drops. The net interest margin headwinds seen this quarter are more related to higher pandemic driven liquidity levels as well as a full quarter of PPP loans but continue to be mitigated by fixed rate loans in our CRE portfolio and the lower funding costs. These factors have allowed net interest income to grow, albeit modestly. Expense control also continues to be a priority given the PPNR focus although unexpected increases in both our FDIC assessment rate and our self-insured health care costs, in addition to an accrual for an additional paid time off benefit, with a carryover provision granted in light of COVID-19, created what we believe to be a temporary headwind. Our vision of the expense run rate in our core Baltimore market is unchanged despite these three movements within the quarter

So as we look to quantitative fundamentals around strong capital levels, organic capital growth, and underlying positive momentum in PPNR, consistent with clear priorities, we believe in our ability to successfully navigate continued uncertainty. We are always grateful for our stakeholders who share a similar clear vision and a similar focus on the long term. We also continue to acknowledge our total reliance on an incredibly dedicated and resilient group of colleagues who keep these principles front and center every day.”

Liquidity

The Company’s liquidity position remains strong. The Company has experienced a large increase in low-cost customer deposits since the end of the first quarter. The Company continues to build stable sources of contingency funding capacity, and management remains confident that it will be able to access these funds in the event that the markets again become restricted.

Borrowings under the PPPLF were $31.1 million at September 30, 2020. While the Company had originally planned to use the PPPLF as the funding source for all PPP loans, strong customer deposit growth and the availability of alternative short-term funding sources at a lower cost resulted in the limited usage of the PPPLF, all during the second quarter. At this time, the Company has no plans to further utilize the PPPLF.

Net Interest Income and Net Interest Margin

Net interest income was $18.3 million for the quarter ended September 30, 2020, an increase of $153 thousand from $18.1 million for the quarter ended June 30, 2020. The net interest margin (net interest income (annualized) as a percentage of average earning assets) was 3.15% for the third quarter of 2020, down 7 basis points (“BP”) from 3.22% in the second quarter of 2020. Compared to the second quarter of 2020, the third quarter of 2020 yield on average loans was 4.04% (a decrease of 14 BP), the yield on average portfolio loans was 4.22% (a decrease of 9 BP), and the yield on average earning assets was 3.62% (a decrease of 19 BP), while the cost of average interest-bearing deposits was 0.56% (a decrease of 21 BP) and the cost of average interest-bearing liabilities was 0.69% (a decrease of 18 BP). The cost of average deposits (including noninterest-bearing deposits) for the third quarter of 2020 was 0.36%, down 15 BP from 0.51% for the second quarter of 2020, while the cost of average interest-bearing liabilities plus noninterest-bearing deposits for the third quarter of 2020 was 0.48%, down 14 BP from 0.62% for the second quarter of 2020. *

Fair value adjustments on acquired loan portfolios increased the loan yield by 14 BP in the third quarter of 2020 compared to 12 BP in the second quarter of 2020, and increased the net interest margin by 10 BP in the third quarter of 2020 compared to 9 BP in the second quarter of 2020. The PPP loans reduced the yield on average loans by 18 BP, the yield on average earning assets by 10 BP, and net interest margin by 9 BP in the third quarter of 2020, and reduced the yield on average loans by 13 BP, the yield on average earning assets by 9 BP, and net interest margin by 7 BP in the second quarter of 2020.

Third quarter 2020 net interest income of $18.3 million was up $1.1 million from $17.2 million for the quarter ended September 30, 2019. The net interest margin for the third quarter of 2020 was down 31 BP from 3.46% in the third quarter of 2019. In the third quarter of 2020, compared to the third quarter of 2019, the yield on average loans was down 81 BP from 4.85%, the yield on average portfolio loans was down 63 BP from 4.85%, and the yield on average earning assets was down 100 BP from 4.62%. The lower yields reflect the significant drop in market interest rates highlighted below. The cost of average interest-bearing deposits for the third quarter of 2020 was down 74 BP from 1.30% for the third quarter of 2019, while the cost of average interest-bearing liabilities was down 85 BP from 1.54%. The cost of average deposits (including noninterest-bearing deposits) for the third quarter of 2020 was down 60 BP from 0.96%, while the cost of average interest-bearing liabilities plus noninterest-bearing deposits was down 71 BP from 1.19%. *

Fair value adjustments on acquired loan portfolios increased the loan yield by 14 BP in the third quarter of 2020, compared to 12 BP in the third quarter of 2019, and increased the net interest margin by 10 BP in the third quarter of 2020, compared to 9 BP in the third quarter of 2019. The PPP loans reduced the yield on average loans by 18 BP, the yield on average earning assets by 10 BP, and net interest margin by 9 BP in the third quarter of 2020. The PPP program did not exist in 2019.

The decreases in the net interest margin are a continuing trend as market interest rates, after falling to historically low levels through the second quarter of 2020, have stabilized. For example:

  • Average Prime rate was 3.25% for the third quarter of 2020, unchanged from the second quarter of 2020 and down 205 BP from 5.30% in the third quarter of 2019.
  • Average effective fed funds rate was 0.09% for the third quarter of 2020, up 3 BP from 0.06% for the second quarter of 2020 and down 210 BP from 2.19% in the third quarter of 2019.
  • Average 10 year Treasury rate was 0.65% for the third quarter of 2020, down 4 BP from 0.69% for the second quarter of 2020 and down 115 BP from 1.80% in the third quarter of 2019.
  • Average 30 day LIBOR rate was 0.16% for the third quarter of 2020, down 20 BP from 0.36% for the second quarter of 2020 and down 201 BP from 2.17% in the third quarter of 2019.

Noninterest Income

Noninterest income was $2.1 million for the third quarter of 2020, a decrease of $2.9 million from the $5.0 million reported in the third quarter of 2019, and a decrease of $2.7 million from the $4.8 million reported in the second quarter of 2020. There were no securities gains in the third quarter of 2020 or 2019 compared to $3.0 million in the second quarter of 2020. There was no noninterest income attributable to the Company’s former mortgage banking activities in either the second or third quarter of 2020 compared to $2.9 million in the third quarter of 2019.

Core noninterest income, a non-GAAP financial measure that excludes noninterest income attributable to the Company’s mortgage banking activities and securities gains in each quarter, was $2.1 million for the third quarter of 2020, an $87 thousand decrease from the third quarter of 2019, and a $374 thousand increase from the second quarter of 2020. *

  • The $87 thousand decrease when compared to the third quarter of 2019 primarily consisted of the following: lower levels of nonsufficient funds (“NSF”) and overdraft charges, included in service charges on deposit accounts (-$251 thousand) partially due to accommodations to COVID-19 impacted customers in the current economic environment and higher liquidity maintained by other customers; this item was partially offset by an increase in swap fee income, included in loan related fees and service charges (+$197 thousand).
  • The $374 thousand increase when compared to the second quarter of 2020 primarily consisted of the following: an increase in service charges on deposit accounts due primarily to a growing volume of NSF and overdraft charges (+$73 thousand); an increase in interchange fees, as card activity volumes gradually continue to improve, included in other income (+$56 thousand); and the increase in swap fee income, included in loan related fees and service charges (+$197 thousand).

Noninterest Expenses

Noninterest expenses totaled $12.7 million for the third quarter of 2020, a decrease of $2.7 million from the $15.4 million reported in the third quarter of 2019, and a decrease of $34.9 million from the $47.6 million reported in the second quarter of 2020. A goodwill impairment charge of $34.5 million was included in noninterest expenses in the second quarter of 2020. There were no noninterest expenses attributable to the Company’s former mortgage banking activities in either the second or third quarter of 2020 compared to $2.7 million in the third quarter of 2019.

Core noninterest expenses is a non-GAAP financial measure that excludes noninterest expenses attributable to the Company’s mortgage banking activities in each quarter, the $34.5 million goodwill impairment charge in the second quarter of 2020, a $1.0 million accrual in the second quarter of 2020 for potential litigation claims stemming from certain mortgages originated by First Mariner Bank before its merger with Howard Bank, prepayment penalties on FHLB advances recorded in the second quarter of 2020 of $224 thousand, and a $700 thousand litigation settlement charge in the third quarter of 2019 stemming from certain mortgages originated by First Mariner Bank before its merger with Howard Bank. This settlement was not related to the $1.0 million litigation accrual that we recorded in the second quarter of 2020. Core noninterest expenses were $12.7 million for the third quarter of 2020, a $715 thousand increase from $12.0 million in the third quarter of 2019, and an $805 thousand increase from $11.9 million in the second quarter of 2020. *

  • The $715 thousand increase when compared to the third quarter of 2019 consisted of the following: higher FDIC insurance expense (+$379 thousand) as the second and third quarter 2020 assessment rate increased due to the impact of the goodwill impairment charge in the second quarter of 2020 and the benefit of the FDIC’s small bank assessment credits in the third quarter of 2019 that did not recur in 2020; higher compensation and benefits expenses (+$1.2 million), with $549 thousand of the increase attributable to higher claims experience in the Company’s self-insured healthcare plan, $221 thousand of the increase a result of a lower level of loan origination cost deferrals driven by a decline in non-PPP lending activities, $195 thousand attributable to an accrual for an additional paid time off benefit, with a carryover provision granted in light of COVID-19, and $201 thousand attributable to increased staff costs.

The above items were partially offset by the following: lower data processing fees due to savings generated from a core processing contract renegotiated in late 2019 (-$275 thousand); lower other real estate owned expenses (-$278 thousand), as the third quarter of 2019 included increases in valuation allowances of $302 thousand; and lower marketing and business development expenses, driven primarily by the impact of COVID-19 (-$306 thousand).

  • The $805 thousand increase when compared to the second quarter of 2020 consisted of the following: higher FDIC insurance expense (+$129 thousand) due to the second and third quarter 2020 assessment rate increase; higher compensation and benefits expenses (+$877 thousand), with $200 thousand of the increase attributable to higher healthcare costs, $230 thousand of the increase a result of a lower level of origination cost deferrals attributable to PPP loans, $170 thousand attributable to increased staff costs, and $195 thousand attributable to the accrual for additional paid time off.

Income Taxes

The Company reported an income tax expense of $1.3 million for the quarter ended September 30, 2020. The effective tax rate for the third quarter of 2020 was 22.6%. The effective tax rate for the second quarter of 2020 was -6.0%; excluding the non-taxable goodwill impairment charge from pretax income, the effective tax rate would have been 24.6%. The effective tax rate for the third quarter of 2019 was 25.6%.

Loans

Loans totaled $1.88 billion at September 30, 2020, a decrease of $14.2 million, or 3.0% annualized, from total loans at June 30, 2020. Compared to September 30, 2019, the loan portfolio grew by $154.5 million, or 8.9%. During the third quarter, the Company originated $2.0 million of loans under the SBA PPP program. Net of deferred processing fees and origination costs, the balance of PPP loans at September 30, 2020 was $196.1 million, a $2.4 million increase from June 30, 2020. While the Company supported its customers through participation in this program, the Company anticipates that a substantial portion of these loans will be forgiven and repaid by the SBA within the next nine months.

Portfolio loans totaled $1.69 billion at September 30, 2020, a decrease of $16.6 million, or 3.9% annualized, from total loans at June 30, 2020. Compared to September 30, 2019, portfolio loans decreased by $41.6 million, or 2.4%. Changes in portfolio loans were as follows: *

  • Compared to September 30, 2019, the $41.6 million decrease in portfolio loans was primarily driven by residential real estate loans down $38.2 million, or 7.8%, commercial loans down $29.7 million, or 7.7%, primarily due to lower line utilization, and construction and land loans down $20.0 million, or 16.1%. These portfolio decreases were partially offset by commercial real estate loans up $40.0 million, or 5.9%.

  • Compared to June 30, 2020, the $16.6 million decrease in portfolio loans was primarily driven by residential real estate loans down $23.0 million, or 19.3% annualized, and construction and land loans down $24.2 million, or 75.3% annualized. These portfolio decreases were partially offset by commercial real estate loans up $22.4 million, or 12.8%.

    • The decrease in construction and land loans as well as the increase in commercial real estate loans was the result of the transfer of $25.1 million of construction and land loans to commercial real estate loans upon the completion of the construction phase and commencement of amortization.

    • Despite $12.1 million of secondary market loan purchases during the third quarter, the net decrease in residential real estate loans was a result of a continued substantially higher level of prepayments due to lower interest rates that led to another strong mortgage refinance quarter. As a result of the exit of the Company’s mortgage banking activities that concluded in the first quarter of 2020 and the desire to manage loan run-off within its residential mortgage loan portfolio, the Company commenced buying first lien residential mortgage loans on a servicing released basis during the third quarter of 2020.

Average loans were $1.88 billion for the third quarter of 2020, a decrease of $924 thousand, or 0.20% annualized, over average loans for the second quarter of 2020, and an increase of $174.7 million, or 10.2%, over average loans for the third quarter of 2019. Average PPP loans for the third quarter of 2020 were $195.6 million, an increase of $52.9 million from $142.7 million in the second quarter of 2020. Average portfolio loans were $1.69 billion for the third quarter of 2020, a decrease of $53.8 million, or 12.4% annualized, from average loans for the second quarter of 2020. The decline was primarily in residential real estate and commercial loans. Compared to the third quarter of 2019, average portfolio loans declined by $20.9 million, or 1.2%, with the decline primarily in residential real estate and commercial loans partially offset by commercial real estate growth. *

Deposits

Total deposits were $1.97 billion at September 30, 2020, an increase of $142.1 million, or 31.0% annualized, over the June 30, 2020 balance of $1.83 billion. Compared to September 30, 2019, total deposits grew by $317.1 million, or 19.2%. Changes in deposits were as follows:

  • Customer deposits, which exclude brokered and other non-customer deposits, were $1.64 billion at September 30, 2020, compared to $1.67 billion at June 30, 2020, a decrease of $30.1 million or 7.2% annualized.

    • The decrease in customer deposits was primarily the result of the continued managed decline in customer CD balances, down $25.3 million, or 36.0% annualized, due to the Company experiencing lower retention rates on CDs maturing at substantially higher rates than current market rates. Management made a conscious decision to not offer above-market renewal rates.

    • Low-cost, non-maturity deposits, which increased by $239.8 million during the second quarter of 2020, dropped by only $4.8 million during the third quarter. The Company expected the lack of additional government stimulus, the utilization of PPP funds, and an improvement in consumer and business spending to erode these balances at a faster pace than experienced during the quarter.

  • Compared to September 30, 2019, customer deposits increased by $190.3 million, or 13.1%.

    • The increase in customer deposits was primarily the result of strong growth in low-cost, non-maturity deposits, which increased by $274.3 million, or 24.7%. $225.4 million of the growth was in transaction accounts, and $214.5 million of the transaction account growth was in noninterest-bearing deposits.

    • Customer CD balances declined by $84.1 million, or 24.7%.

  • Brokered and other non-customer deposits were $333.9 million at September 30, 2020, compared to $161.8 million at June 30, 2020 and $207.1 million at September 30, 2019. The increase during the third quarter of 2020 was used to fund balance sheet growth, primarily in the investment securities portfolio, and to replace short-term borrowings from the Federal Home Loan Bank of Atlanta. Non-customer deposits are currently the Company’s lowest-cost incremental funding source.

Average customer deposits for the third quarter of 2020 were $1.64 billion, an increase of $25.7 million, or 6.4% annualized, from the second quarter 2020 average balance. Excluding customer CDs, customer non-maturity deposit balances increased by $47.9 million, or 14.4% annualized, with transaction accounts up $20.9 million; $17.4 million of the transaction account growth was in noninterest-bearing deposits.

Compared to the third quarter of 2019, average customer deposits were up by $188.7 million, or 13.0%. Excluding customer CDs, customer non-maturity deposit balances increased by $266.0 million, or 24.0%, with transaction accounts up $226.1 million; $214.8 million of the transaction account growth was in noninterest-bearing deposits.

Investment Securities

During the quarter ended September 30, 2020, the Company completed a leveraging strategy that resulted in a $102.4 million increase in the mortgage-backed securities (“MBS”) portfolio from the June 30, 2020 level. The leveraging strategy was designed to replace the decline in the MBS portfolio’s net interest income that resulted from the Company’s decision in the second quarter 2020 to monetize certain unrealized gains in the Company’s MBS portfolio. During the second quarter of 2020, $105 million of MBS with high prepayment speeds were identified and sold, resulting in net gains of $3.0 million. These securities were then replaced with current coupon MBS with lower yields during the second quarter of 2020.

Exit of Mortgage Banking Activities

The Company completed its previously announced exit of mortgage banking activities during the second quarter of 2020, with no pretax income contribution in either the second or third quarter of 2020. The contribution of mortgage banking activities for the third quarter of 2019, which are excluded from the Company’s core results, are as follows:

  • Total revenues of $3.0 million ($177 thousand of net interest income and $2.9 million of noninterest income),
  • Noninterest expenses of $2.7 million, and
  • Pretax income of $336 thousand.

* Please refer to the section entitled “Reconciliation of Non-GAAP Financial Measures” in this press release and to the financial tables entitled “GAAP to Non-GAAP reconciliation” for a reconciliation to the most directly comparable GAAP financial measures.

Earnings Conference Call

The Company will host a conference call on Thursday, October 29, 2020, at 10:00 a.m. (EDT) to discuss the results and presentation slides and to answer questions. Those who wish to participate may do so by calling 1-877-269-7756 and asking for the Howard Bancorp conference call. We encourage participants to call at least ten minutes prior to the scheduled start time so that you can be sure to be entered into the conference before it begins. You may also connect to the live conference and ask questions via an instant call-back from the automated conference host to the phone number you specify.

The Call-Back link will be available on our website at www.howardbank.com/InvestorCall until the call has ended.

A presentation will be used during the earnings call and will be available on the Investor Relations section of our website at www.howardbank.com/InvestorCall.

An internet-based audio replay of the call will be available on the Investor Relations page of our website at www.howardbank.com/InvestorCall shortly following the conclusion of the call and will be available until November 27, 2020.

Company management will not be available to discuss the third quarter 2020 results prior to the earnings conference call.

About the Company

Howard Bancorp, Inc. is the parent company of Howard Bank, a Maryland-chartered trust company operating as a commercial bank. Headquartered in Baltimore City, Maryland, Howard Bank operates a general commercial banking business through its 15 branches located throughout the Greater Baltimore Metropolitan Area. Additional information about Howard Bancorp, Inc. and Howard Bank are available on its website at www.howardbank.com.

Cautionary Note Regarding Forward-Looking Statements

This press release and statements by the Company’s management contains “forward-looking statements” as that phrase is defined in the Private Securities Litigation Reform Act of 1995. Forward looking statements can be identified by words such as “anticipated,” “expects,” “intends,” “believes,” “may,” “likely,” “will” or other statements that indicate future periods. Such statements include, without limitation, statements regarding management’s predictions or expectations about future economic conditions, statements about the Company’s business or financial performance, as well as management’s outlook or expectations for earnings, revenues, expenses, capital levels, liquidity levels, asset quality or other future financial or business performance, strategies or expectations. Such forward-looking statements are based on various assumptions (some of which may be beyond the Company’s control) and are subject to risks and uncertainties which change over time and other factors which could cause actual results to differ materially from those currently anticipated. These risks and uncertainties include, but are not limited to: the impact of the recent outbreak of COVID-19 on our business, including the impact of the actions taken by governmental authorities to try and contain the virus or address the impact of the virus on the United States economy (including, without limitation, the CARES Act), and the resulting effect of these items on our operations, liquidity and capital position, and on the financial condition of the Company’s borrowers and other customers; conditions in the financial markets and economic conditions generally and in the bank and non-bank financial services industries, nationally and within our local market areas, including the effects of declines in housing markets, an increase in unemployment levels and slowdowns in economic growth; the Company’s level of nonperforming assets and the costs associated with resolving problem loans including litigation and other costs; the impact of changes in interest rates; credit quality and strength of underlying collateral; the credit risk associated with the substantial amount of commercial real estate, construction and land development, and commercial and industrial loans in the Company’s loan portfolio; the extensive federal and state regulation, supervision and examination governing almost every aspect of the Company’s operations and potential expenses associated with complying with such regulations; possible additional loan losses and impairment of the collectability of loans; the Company’s ability to comply with applicable capital and liquidity requirements; any further impairment of the Company’s goodwill or other intangible assets; losses resulting from pending or potential litigation claims may exceed amounts accrued with respect to such matters; system failure or cybersecurity breaches of the Company’s network security; the Company’s ability to recruit and retain key employees; the effects of weather and natural disasters such as floods, droughts, wind, tornadoes and hurricanes as well as effects from geopolitical instability and man-made disasters including terrorist attacks; the effects of any reputation, credit, interest rate, market, operational, legal, liquidity, regulatory and compliance risk resulting from developments related to any of the risks discussed above; litigation and other risks and uncertainties. Additional risks and uncertainties are contained in the “Risk Factors” and forward-looking statements disclosure in the Company’s most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The inclusion of this forward-looking information should not be construed as a representation by us or any person that future events, plans, or expectations contemplated by us will be achieved. Forward-looking statements are as of the date they are made, and the Company does not undertake to update any forward-looking statement, whether written or oral, whether as a result of new information, future events, or otherwise, except as required by law.

Additional information is available at www.howardbank.com.

HOWARD BANCORP, INC. AND SUBSIDIARY
Selected Unaudited Financial Data
(in thousands except per share data)

NINE MONTHS ENDED

 

THREE MONTHS ENDED

September 30,

September 30,

 

September 30,

 

June 30,

September 30,

2020

2019

 

2020

 

2020

2019

 

Income Statement Data:
Interest income

$

64,651

 

$

68,884

$

20,951

$

21,473

 

$

22,955

Interest expense

 

10,734

 

 

16,841

 

2,679

 

3,354

 

 

5,740

Net interest income

 

53,917

 

 

52,043

 

18,272

 

18,119

 

 

17,215

Provision for credit losses

 

8,145

 

 

3,443

 

1,700

 

3,000

 

 

608

Net interest income after provision for credit losses

 

45,772

 

 

48,600

 

16,572

 

15,119

 

 

16,607

Noninterest income

 

10,214

 

 

15,410

 

2,089

 

4,759

 

 

5,033

Noninterest expense

 

74,896

 

 

49,717

 

12,709

 

47,627

 

 

15,405

(Loss) income before income taxes

 

(18,910

)

 

14,293

 

5,952

 

(27,749

)

 

6,235

Income tax expense (benefit)

 

2,552

 

 

3,312

 

1,348

 

1,660

 

 

1,598

Net (loss) income

$

(21,462

)

$

10,981

$

4,604

$

(29,409

)

$

4,637

 
Per Share Data and Shares Outstanding:
Net (loss) income per common share - basic

$

(1.14

)

$

0.58

$

0.25

$

(1.57

)

$

0.24

Net (loss) income per common share - diluted

$

(1.14

)

$

0.58

$

0.25

$

(1.57

)

$

0.24

Book value per common share, at period end

$

15.45

 

$

16.18

$

15.45

$

15.14

 

$

16.18

Tangible book value per common share, at period end (1)

$

13.51

 

$

12.36

$

13.51

$

13.17

 

$

12.36

Average common shares outstanding

 

18,773

 

 

19,064

 

18,737

 

18,716

 

 

19,079

Diluted average common shares outstanding

 

18,773

 

 

19,072

 

18,737

 

18,716

 

 

19,082

Shares outstanding, at period end

 

18,742

 

 

19,082

 

18,742

 

18,716

 

 

19,082

 
Balance Sheet Data:
Total assets

$

2,559,184

 

$

2,293,475

$

2,559,184

$

2,463,450

 

$

2,293,475

Portfolio loans, net of unearned income (1)

 

1,688,030

 

 

1,729,880

 

1,688,030

 

1,704,911

 

 

1,729,880

Paycheck Protection Program loans, net of unearned inc.

 

196,375

 

 

-

 

196,375

 

193,719

 

 

-

Total loans and leases, net of unearned income

 

1,884,405

 

 

1,729,880

 

1,884,405

 

1,898,630

 

 

1,729,880

Allowance for loan losses

 

17,657

 

 

9,598

 

17,657

 

16,356

 

 

9,598

Other interest-earning assets

 

454,897

 

 

296,577

 

454,897

 

343,149

 

 

296,577

Total deposits

 

1,972,738

 

 

1,655,623

 

1,972,738

 

1,830,674

 

 

1,655,623

Total borrowings

 

269,861

 

 

302,352

 

269,861

 

312,173

 

 

302,352

Common and total stockholders' equity

 

289,500

 

 

308,752

 

289,500

 

283,281

 

 

308,752

Average total assets

 

2,474,988

 

 

2,236,168

 

2,524,773

 

2,529,797

 

 

2,244,259

Average common and total stockholders' equity

 

307,493

 

 

302,616

 

288,727

 

319,152

 

 

306,636

 
Selected Performance Metrics:
Return on average assets (2)

 

(1.16

)%

 

0.66

%

 

0.73

%

 

(4.68

)%

 

0.82

%

Return on average common equity (2)

 

(9.32

)%

 

4.85

%

 

6.34

%

 

(37.06

)%

 

6.00

%

Pre-provision net revenue ("PPNR") (1)

$

22,572

 

$

20,562

$

7,652

$

7,931

 

$

7,207

PPNR to average assets (1)

 

1.22

%

 

1.23

%

 

1.21

%

 

1.26

%

 

1.27

%

Net interest margin (2),(3)

 

3.23

%

 

3.54

%

 

3.15

%

 

3.22

%

 

3.46

%

Efficiency ratio (4)

 

116.79

%

 

73.71

%

 

62.42

%

 

208.18

%

 

69.24

%

Core efficiency ratio (1)

 

62.07

%

 

64.76

%

 

62.42

%

 

60.01

%

 

62.46

%

 
Asset Quality Ratios:
Nonperforming loans to portfolio loans (1)

 

1.01

%

 

1.15

%

 

1.01

%

 

1.08

%

 

1.15

%

Nonperforming assets to portfolio loans and OREO (1)

 

1.07

%

 

1.38

%

 

1.07

%

 

1.21

%

 

1.38

%

Nonperforming assets to total assets

 

0.71

%

 

1.04

%

 

0.71

%

 

0.84

%

 

1.04

%

Allowance for loan losses to total loans

 

0.94

%

 

0.55

%

 

0.94

%

 

0.86

%

 

0.55

%

Allowance for loan losses to portfolio loans (1)

 

1.05

%

 

0.55

%

 

1.05

%

 

0.96

%

 

0.55

%

Allowance for loan losses to nonperforming loans

 

103.96

%

 

48.09

%

 

103.96

%

 

88.56

%

 

48.09

%

Net chargeoffs to average total loans and leases (2)

 

0.04

%

 

0.30

%

 

0.02

%

 

0.01

%

 

0.03

%

 
Capital Ratios (Bancorp):
Tier 1 capital to average assets (leverage ratio)

 

9.07

%

 

9.39

%

 

9.07

%

 

8.73

%

 

9.39

%

Common equity tier 1 capital to risk-weighted assets

 

11.78

%

 

10.83

%

 

11.78

%

 

11.66

%

 

10.83

%

Tier 1 capital to risk-weighted assets

 

11.78

%

 

10.83

%

 

11.78

%

 

11.66

%

 

10.83

%

Total capital to risk-weighted assets

 

14.25

%

 

12.87

%

 

14.25

%

 

14.09

%

 

12.87

%

Average equity to average assets

 

12.42

%

 

13.53

%

 

11.44

%

 

12.62

%

 

13.66

%

(1) This is a non-GAAP measure. See the GAAP to Non-GAAP Reconciliation at the end of the financial statements.
(2) Annualized
(3) Net interest income divided by average earning assets
(4) Noninterest expense divided by the sum of net interest income and noninterest income
HOWARD BANCORP, INC. AND SUBSIDIARY
Unaudited Consolidated Statements of Income (Loss)
(in thousands except per share data)

FOR THE THREE MONTHS ENDED

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

2020

 

2020

 

2020

 

2019

 

2019

Interest income

$

20,951

 

$

21,473

 

$

22,226

 

$

22,550

 

$

22,955

 

Interest expense

 

2,679

 

 

3,354

 

 

4,701

 

 

5,283

 

 

5,740

 

Net interest income

 

18,272

 

 

18,119

 

 

17,525

 

 

17,267

 

 

17,215

 

Provision for credit losses

 

1,700

 

 

3,000

 

 

3,445

 

 

750

 

 

608

 

Net interest income after provision for credit losses

 

16,572

 

 

15,119

 

 

14,080

 

 

16,517

 

 

16,607

 

Noninterest income:
Service charges on deposit accounts

 

506

 

 

433

 

 

642

 

 

710

 

 

726

 

Mortgage banking income

 

-

 

 

-

 

 

1,036

 

 

1,951

 

 

2,054

 

Gain (loss) on sale of securities

 

-

 

 

3,044

 

 

-

 

 

-

 

 

-

 

Gain (loss) on the disposal of premises and equipment

 

-

 

 

6

 

 

-

 

 

-

 

 

-

 

Income from bank owned life insurance

 

441

 

 

441

 

 

445

 

 

466

 

 

485

 

Loan related fees and service charges

 

365

 

 

175

 

 

581

 

 

912

 

 

984

 

Other income

 

777

 

 

660

 

 

662

 

 

1,586

 

 

784

 

Total noninterest income

 

2,089

 

 

4,759

 

 

3,366

 

 

5,625

 

 

5,033

 

Noninterest expense:
Compensation and benefits

 

7,136

 

 

6,259

 

 

8,441

 

 

7,811

 

 

7,939

 

Occupancy and equipment

 

1,301

 

 

1,242

 

 

1,033

 

 

880

 

 

1,442

 

Marketing and business development

 

189

 

 

453

 

 

450

 

 

853

 

 

545

 

Professional fees

 

823

 

 

633

 

 

727

 

 

704

 

 

747

 

Data processing fees

 

897

 

 

850

 

 

926

 

 

1,217

 

 

1,172

 

FDIC assessment

 

416

 

 

287

 

 

212

 

 

63

 

 

36

 

Other real estate owned

 

115

 

 

269

 

 

77

 

 

321

 

 

393

 

Loan production expense

 

247

 

 

192

 

 

468

 

 

719

 

 

761

 

Amortization of core deposit intangible

 

659

 

 

680

 

 

699

 

 

717

 

 

745

 

Goodwill impairment charge

 

-

 

 

34,500

 

 

-

 

 

-

 

 

-

 

Other operating expense

 

926

 

 

2,262

 

 

1,527

 

 

1,077

 

 

1,625

 

Total noninterest expense

 

12,709

 

 

47,627

 

 

14,560

 

 

14,362

 

 

15,405

 

Income (loss) before income taxes

 

5,952

 

 

(27,749

)

 

2,886

 

 

7,780

 

 

6,235

 

Income tax expense (benefit)

 

1,348

 

 

1,660

 

 

(457

)

 

1,880

 

 

1,598

 

Net income (loss)

$

4,604

 

$

(29,409

)

$

3,343

 

$

5,900

 

$

4,637

 

 
Net income (loss) per common share:
Basic

$

0.25

 

$

(1.57

)

$

0.18

 

$

0.31

 

$

0.24

 

Diluted

$

0.25

 

$

(1.57

)

$

0.18

 

$

0.31

 

$

0.24

 

 
Average common shares outstanding:
Basic

 

18,737

 

 

18,716

 

 

18,867

 

 

19,080

 

 

19,079

 

Diluted

 

18,737

 

 

18,716

 

 

18,915

 

 

19,083

 

 

19,082

 

 
Selected Performance Metrics:
Return on average assets

 

0.73

%

 

-4.68

%

 

0.57

%

 

1.02

%

 

0.82

%

Return on average common equity

 

6.34

%

 

-37.06

%

 

4.27

%

 

7.51

%

 

6.00

%

Core Pre-provision net revenue ("PPNR") (1)

$

7,652

 

$

7,931

 

$

6,989

 

$

6,635

 

$

7,207

 

Core PPNR to average assets (1)

 

1.21

%

 

1.26

%

 

1.19

%

 

1.15

%

 

1.27

%

Net interest margin

 

3.15

%

 

3.22

%

 

3.34

%

 

3.38

%

 

3.46

%

Efficiency ratio

 

62.42

%

 

208.18

%

 

69.70

%

 

62.74

%

 

69.24

%

Core efficiency ratio (1)

 

62.42

%

 

60.01

%

 

63.83

%

 

65.58

%

 

62.46

%

(1) This is a non-GAAP measure. See the GAAP to Non-GAAP Reconciliation at the end of the financial statements.
HOWARD BANCORP, INC. AND SUBSIDIARY
Unaudited Consolidated Statements of (Loss) Income
(in thousands except per share data)

FOR THE NINE MONTHS ENDED

September 30,

 

September 30,

2020

 

2019

Interest income

$

64,651

 

$

68,884

 

Interest expense

 

10,734

 

 

16,841

 

Net interest income

 

53,917

 

 

52,043

 

Provision for credit losses

 

8,145

 

 

3,443

 

Net interest income after provision for credit losses

 

45,772

 

 

48,600

 

Noninterest income:
Service charges on deposit accounts

 

1,581

 

 

2,037

 

Mortgage banking income

 

1,036

 

 

5,847

 

Gain (loss) on sale of securities

 

3,044

 

 

658

 

Gain (loss) on the disposal of premises and equipment

 

6

 

 

(83

)

Income from bank owned life insurance

 

1,327

 

 

1,392

 

Loan related fees and service charges

 

1,121

 

 

3,022

 

Other income

 

2,099

 

 

2,537

 

Total noninterest income

 

10,214

 

 

15,410

 

Noninterest expense:
Compensation and benefits

 

21,836

 

 

24,245

 

Occupancy and equipment

 

3,576

 

 

8,196

 

Marketing and business development

 

1,092

 

 

1,486

 

Professional fees

 

2,183

 

 

2,250

 

Data processing fees

 

2,673

 

 

3,697

 

FDIC assessment

 

915

 

 

604

 

Other real estate owned

 

461

 

 

524

 

Loan production expense

 

907

 

 

1,981

 

Amortization of core deposit intangible

 

2,038

 

 

2,296

 

Goodwill impairment charge

 

34,500

 

 

-

 

Other operating expense

 

4,715

 

 

4,438

 

Total noninterest expense

 

74,896

 

 

49,717

 

(Loss) income before income taxes

 

(18,910

)

 

14,293

 

Income tax expense

 

2,552

 

 

3,312

 

Net (loss) income

$

(21,462

)

$

10,981

 

 
Net (loss) income per common share:
Basic

$

(1.14

)

$

0.58

 

Diluted

$

(1.14

)

$

0.58

 

 
Average common shares outstanding:
Basic

 

18,773

 

 

19,064

 

Diluted

 

18,773

 

 

19,072

 

 
Selected Performance Metrics:
Return on average assets

 

-1.16

%

 

0.66

%

Return on average common equity

 

-9.32

%

 

4.85

%

Core pre-provision net revenue ("PPNR") (1)

$

22,572

 

$

20,562

 

Core PPNR to average assets (1)

 

1.22

%

 

1.23

%

Net interest margin

 

3.23

%

 

3.54

%

Efficiency ratio

 

116.79

%

 

73.71

%

Core efficiency ratio (1)

 

62.07

%

 

64.76

%

(1) This is a non-GAAP measure. See the GAAP to Non-GAAP Reconciliation at the end of the financial statements.
HOWARD BANCORP, INC. AND SUBSIDIARY
Unaudited Consolidated Balance Sheets
(in thousands except per share data)
PERIOD ENDED

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

2020

 

2020

 

2020

 

2019

 

2019

ASSETS
Cash and due from banks

$

11,043

 

$

12,652

 

$

15,951

 

$

12,992

 

$

12,563

 

Interest bearing deposits with banks

 

59,539

 

 

46,418

 

 

179,999

 

 

96,985

 

 

62,446

 

Total cash and cash equivalents

 

70,582

 

 

59,070

 

 

195,950

 

 

109,977

 

 

75,009

 

Securities available for sale, at fair value

 

377,471

 

 

276,889

 

 

275,252

 

 

215,505

 

 

164,026

 

Securities held to maturity, at amortized cost

 

7,250

 

 

7,250

 

 

7,750

 

 

7,750

 

 

9,750

 

Federal Home Loan Bank of Atlanta stock, at cost

 

10,637

 

 

12,592

 

 

16,757

 

 

14,152

 

 

13,642

 

Loans held for sale, at fair value

 

-

 

 

-

 

 

3,795

 

 

30,710

 

 

46,713

 

Portfolio loans, net of unearned income (1)

 

1,688,030

 

 

1,704,911

 

 

1,761,419

 

 

1,745,513

 

 

1,729,880

 

Paycheck Protection Program loans, net of unearned inc (1)

 

196,375

 

 

193,719

 

 

-

 

 

-

 

 

-

 

Total loans and leases, net of unearned income

 

1,884,405

 

 

1,898,630

 

 

1,761,419

 

 

1,745,513

 

 

1,729,880

 

Allowance for loan losses

 

(17,657

)

 

(16,356

)

 

(13,384

)

 

(10,401

)

 

(9,598

)

Net loans and leases

 

1,866,748

 

 

1,882,274

 

 

1,748,035

 

 

1,735,112

 

 

1,720,282

 

Bank premises and equipment, net

 

42,147

 

 

42,434

 

 

42,543

 

 

42,724

 

 

42,693

 

Goodwill

 

31,449

 

 

31,449

 

 

65,949

 

 

65,949

 

 

65,949

 

Core deposit intangible

 

6,431

 

 

7,090

 

 

7,770

 

 

8,469

 

 

9,186

 

Bank owned life insurance

 

77,157

 

 

76,716

 

 

76,275

 

 

75,830

 

 

75,364

 

Other real estate owned

 

1,155

 

 

2,137

 

 

2,322

 

 

3,098

 

 

3,926

 

Deferred tax assets, net

 

34,687

 

 

35,034

 

 

33,529

 

 

36,010

 

 

36,049

 

Interest receivable and other assets

 

33,470

 

 

30,515

 

 

31,967

 

 

29,333

 

 

30,886

 

Total assets

$

2,559,184

 

$

2,463,450

 

$

2,507,894

 

$

2,374,619

 

$

2,293,475

 

 
LIABILITIES
Noninterest-bearing deposits

$

657,028

 

$

671,598

 

$

483,499

 

$

468,975

 

$

442,549

 

Interest-bearing deposits

 

1,315,710

 

 

1,159,076

 

 

1,305,400

 

 

1,245,390

 

 

1,213,074

 

Total deposits

 

1,972,738

 

 

1,830,674

 

 

1,788,899

 

 

1,714,365

 

 

1,655,623

 

FHLB advances

 

200,000

 

 

246,000

 

 

344,000

 

 

285,000

 

 

273,000

 

Fed funds and repos

 

41,473

 

 

37,834

 

 

5,321

 

 

6,127

 

 

1,161

 

Subordinated debt

 

28,388

 

 

28,339

 

 

28,290

 

 

28,241

 

 

28,191

 

Total borrowings

 

269,861

 

 

312,173

 

 

377,611

 

 

319,368

 

 

302,352

 

Accrued expenses and other liabilities

 

27,085

 

 

37,322

 

 

26,026

 

 

26,738

 

 

26,748

 

Total liabilities

 

2,269,684

 

 

2,180,169

 

 

2,192,536

 

 

2,060,471

 

 

1,984,723

 

 
STOCKHOLDERS' EQUITY
Common stock - $0.01 par value

 

187

 

 

187

 

 

187

 

 

191

 

 

191

 

Additional paid in capital

 

270,445

 

 

270,057

 

 

269,918

 

 

276,156

 

 

276,431

 

Retained earnings

 

13,696

 

 

9,090

 

 

38,501

 

 

35,158

 

 

29,258

 

Accumulated other comprehensive income

 

5,172

 

 

3,947

 

 

6,752

 

 

2,643

 

 

2,872

 

Total stockholders' equity

 

289,500

 

 

283,281

 

 

315,358

 

 

314,148

 

 

308,752

 

Total liabilities and stockholders' equity

$

2,559,184

 

$

2,463,450

 

$

2,507,894

 

$

2,374,619

 

$

2,293,475

 

 
Capital Ratios (Bancorp)
Tier 1 capital to average assets (leverage ratio)

 

9.07

%

 

8.73

%

 

9.10

%

 

9.55

%

 

9.39

%

Common equity tier 1 capital to risk-weighted assets

 

11.78

%

 

11.66

%

 

10.95

%

 

11.09

%

 

10.83

%

Tier 1 capital to risk-weighted assets

 

11.78

%

 

11.66

%

 

10.95

%

 

11.09

%

 

10.83

%

Total capital to risk-weighted assets

 

14.25

%

 

14.09

%

 

13.16

%

 

13.14

%

 

12.87

%

 
Asset Quality Measures
Nonperforming loans

$

16,984

 

$

18,469

 

$

17,203

 

$

19,143

 

$

19,960

 

Other real estate owned (OREO)

 

1,155

 

 

2,137

 

 

2,322

 

 

3,098

 

 

3,926

 

Total nonperforming assets

$

18,139

 

$

20,606

 

$

19,525

 

$

22,241

 

$

23,886

 

 
Nonperforming loans to portfolio loans (1)

 

1.01

%

 

1.08

%

 

0.98

%

 

1.10

%

 

1.15

%

Nonperforming assets to portfolio loans and OREO (1)

 

1.07

%

 

1.21

%

 

1.11

%

 

1.27

%

 

1.38

%

Nonperforming assets to total assets

 

0.71

%

 

0.84

%

 

0.78

%

 

0.94

%

 

1.04

%

Allowance for loan losses to total loans

 

0.94

%

 

0.86

%

 

0.76

%

 

0.60

%

 

0.55

%

Allowance for loan losses to portfolio loans (1)

 

1.05

%

 

0.96

%

 

0.76

%

 

0.60

%

 

0.55

%

Allowance for loan losses to nonperforming loans

 

103.96

%

 

88.56

%

 

77.80

%

 

54.33

%

 

48.09

%

Net chargeoffs to average total loans and leases (2)

 

0.02

%

 

0.01

%

 

0.11

%

 

-0.01

%

 

0.03

%

Provision for credit losses to average portfolio loans (1), (2)

 

0.40

%

 

0.69

%

 

0.79

%

 

0.17

%

 

0.14

%

(1) This is a non-GAAP measure. See the GAAP to Non-GAAP Reconciliation at the end of the financial statements.
(2) Annualized
HOWARD BANCORP, INC. AND SUBSIDIARY
Average Balances, Yields, and Rates
(in thousands)

Three Months Ended September 30, 2020

Three Months Ended June 30, 2020

Three Months Ended September 30, 2019

Average
Balance

Income /
Expense

Yield /
Rate

Average
Balance

Income /
Expense

Yield /
Rate

Average
Balance

Income /
Expense

Yield /
Rate

Earning assets
Loans and leases:
Commercial loans and leases

$

343,991

 

$

3,981

4.60

%

$

371,518

 

$

4,260

4.61

%

$

371,745

 

$

4,646

4.96

%

Commercial real estate

 

702,633

 

 

7,768

4.40

 

698,930

 

 

7,613

4.38

 

676,046

 

 

8,481

4.98

Construction and land

 

125,059

 

 

1,188

3.78

 

132,899

 

 

1,287

3.89

 

121,296

 

 

1,701

5.56

Residential real estate

 

463,874

 

 

4,382

3.76

 

490,110

 

 

4,948

4.06

 

488,053

 

 

5,405

4.39

Consumer

 

49,722

 

 

565

4.52

 

45,619

 

 

536

4.73

 

49,068

 

 

606

4.90

Total portfolio loans

 

1,685,279

 

 

17,884

4.22

 

1,739,076

 

 

18,644

4.31

 

1,706,208

 

 

20,839

4.85

Paycheck Protection Program loans

 

195,588

 

 

1,240

2.52

 

142,715

 

 

896

2.53

 

-

 

 

-

-

Total loans and leases

 

1,880,867

 

 

19,124

4.04

 

1,881,791

 

 

19,540

4.18

 

1,706,208

 

 

20,839

4.85

Securities available for sale:
U.S Gov agencies

 

79,391

 

 

531

2.66

 

80,217

 

 

532

2.67

 

62,154

 

 

450

2.87

Mortgage-backed

 

272,495

 

 

942

1.38

 

189,419

 

 

945

2.01

 

86,539

 

 

665

3.05

Corporate debentures

 

5,932

 

 

100

6.71

 

5,507

 

 

92

6.72

 

2,990

 

 

62

8.23

Total available for sale securities

 

357,818

 

 

1,573

1.75

 

275,143

 

 

1,569

2.29

 

151,683

 

 

1,177

3.08

Securities held to maturity

 

7,250

 

 

106

5.83

 

7,745

 

 

112

5.82

 

9,750

 

 

149

6.06

FHLB Atlanta stock, at cost

 

13,221

 

 

140

4.21

 

13,015

 

 

220

6.80

 

10,840

 

 

173

6.33

Interest bearing deposits in banks

 

46,049

 

 

8

0.07

 

86,181

 

 

20

0.09

 

57,604

 

 

273

1.88

Loans held for sale

 

-

 

 

-

-

 

1,365

 

 

13

3.83

 

36,326

 

 

344

3.76

Total earning assets

 

2,305,205

 

 

20,951

3.62

%

 

2,265,240

 

 

21,474

3.81

%

 

1,972,411

 

 

22,955

4.62

%

Cash and due from banks

 

11,772

 

 

16,056

 

 

15,570

 

Bank premises and equipment, net

 

42,376

 

 

42,431

 

 

42,929

 

Goodwill and other intangible assets

 

38,290

 

 

73,093

 

 

75,619

 

Other assets

 

143,565

 

 

146,394

 

 

147,049

 

Less: allowance for loan losses

 

(16,435

)

 

(13,417

)

 

(9,319

)

Total assets

$

2,524,773

 

$

2,529,797

 

$

2,244,259

 

 
Interest-bearing liabilities
Deposits:
Interest-bearing demand accounts

$

190,272

 

$

36

0.08

%

$

186,781

 

$

57

0.12

%

$

179,038

 

$

181

0.40

%

Money market

 

386,189

 

 

261

0.27

 

365,658

 

 

342

0.38

 

359,295

 

 

761

0.84

Savings

 

149,973

 

 

27

0.07

 

140,904

 

 

25

0.07

 

134,312

 

 

63

0.19

Time deposits

 

493,827

 

 

1,390

1.12

 

557,401

 

 

1,959

1.41

 

565,568

 

 

3,057

2.14

Total interest-bearing deposits

 

1,220,261

 

 

1,714

0.56

 

1,250,744

 

 

2,383

0.77

 

1,238,213

 

 

4,062

1.30

Borrowings:
FHLB advances

 

260,807

 

 

483

0.74

 

255,945

 

 

506

0.80

 

207,033

 

 

1,202

2.30

Fed funds and repos

 

40,492

 

 

35

0.34

 

16,747

 

 

13

0.31

 

4,282

 

 

2

0.19

Subordinated debt

 

28,356

 

 

447

6.27

 

28,307

 

 

452

6.42

 

28,161

 

 

474

6.68

Total borrowings

 

329,655

 

 

965

1.17

 

300,999

 

 

971

1.30

 

239,476

 

 

1,678

2.78

Total interest-bearing funds

 

1,549,916

 

 

2,679

0.69

%

 

1,551,743

 

 

3,354

0.87

%

 

1,477,689

 

 

5,740

1.54

%

Noninterest-bearing deposits

 

649,525

 

 

632,080

 

 

434,701

 

Other liabilities

 

36,605

 

 

26,822

 

 

25,233

 

Total liabilities

 

2,236,046

 

 

2,210,645

 

 

1,937,623

 

Stockholders' equity

 

288,727

 

 

319,152

 

 

306,636

 

Total liabilities & equity

$

2,524,773

 

$

2,529,797

 

$

2,244,259

 

Net interest rate spread (1)

$

18,272

2.93

%

$

18,120

2.94

%

$

17,215

3.08

%

Effect of noninterest-bearing funds

0.22

0.28

0.38

Net interest margin on earning assets (2)

3.15

%

3.22

%

3.46

%

(1) The difference between the annualized yield on average total earning assets and the annualized cost of average total interest-bearing liabilities
(2) Annualized net interest income divided by average total earning assets
HOWARD BANCORP, INC. AND SUBSIDIARY
Average Balances, Yields, and Rates
(in thousands)
Nine Months Ended September 30, 2020Nine Months Ended September 30, 2019
Average
Balance
Income /
Expense
Yield /
Rate
Average
Balance
Income /
Expense
Yield /
Rate
Earning assets
Loans and leases:
Commercial loans and leases

$

365,596

 

$

12,545

4.58

%

$

348,928

 

$

13,350

5.12

%

Commercial real estate

 

696,083

 

 

23,827

4.57

 

663,442

 

 

24,998

5.04

Construction and land

 

129,798

 

 

3,938

4.05

 

121,337

 

 

5,208

5.74

Residential real estate

 

487,586

 

 

14,575

3.99

 

487,277

 

 

16,575

4.55

Consumer

 

47,011

 

 

1,621

4.60

 

51,293

 

 

1,893

4.93

Total portfolio loans

 

1,726,074

 

 

56,506

4.37

 

1,672,277

 

 

62,024

4.96

Paycheck Protection Program loans

 

113,070

 

 

2,136

2.52

 

-

 

 

-

-

Total loans and leases

 

1,839,144

 

 

58,642

4.26

 

1,672,277

 

 

62,024

4.96

Securities available for sale:
U.S Gov agencies

 

76,822

 

 

1,555

2.70

 

90,053

 

 

1,881

2.79

Mortgage-backed

 

204,686

 

 

2,865

1.87

 

88,014

 

 

2,092

3.18

Corporate debentures

 

5,655

 

 

284

6.71

 

2,990

 

 

186

8.32

Total available for sale securities

 

287,163

 

 

4,704

2.19

 

181,057

 

 

4,159

3.07

Securities held to maturity

 

7,580

 

 

331

5.84

 

9,428

 

 

434

6.15

FHLB Atlanta stock, at cost

 

13,979

 

 

533

5.09

 

10,579

 

 

502

6.34

Interest bearing deposits in banks

 

72,267

 

 

262

0.48

 

63,043

 

 

909

1.93

Loans held for sale

 

6,572

 

 

179

3.64

 

27,842

 

 

856

4.11

Total earning assets

 

2,226,705

 

 

64,651

3.88

%

 

1,964,226

 

 

68,884

4.69

%

Cash and due from banks

 

13,806

 

 

14,178

 

Bank premises and equipment, net

 

42,498

 

 

44,163

 

Goodwill and other intangible assets

 

61,764

 

 

77,902

 

Other assets

 

143,750

 

 

145,118

 

Less: allowance for loan losses

 

(13,535

)

 

(9,419

)

Total assets

$

2,474,988

 

$

2,236,168

 

 
Interest-bearing liabilities
Deposits:
Interest-bearing demand accounts

$

186,799

 

$

250

0.18

%

$

203,746

 

$

722

0.47

%

Money market

 

373,588

 

 

1,308

0.47

 

356,732

 

 

2,043

0.77

Savings

 

141,516

 

 

97

0.09

 

137,223

 

 

187

0.18

Time deposits

 

524,955

 

 

5,652

1.44

 

553,427

 

 

8,678

2.10

Total interest-bearing deposits

 

1,226,858

 

 

7,307

0.80

 

1,251,128

 

 

11,630

1.24

Borrowings:
FHLB advances

 

279,140

 

 

2,015

0.96

 

200,886

 

 

3,751

2.50

Fed funds and repos

 

21,372

 

 

52

0.32

 

8,703

 

 

28

0.43

Subordinated debt

 

28,307

 

 

1,360

6.42

 

28,117

 

 

1,432

6.81

Total borrowings

 

328,819

 

 

3,427

1.39

 

237,706

 

 

5,211

2.93

Total interest-bearing funds

 

1,555,676

 

 

10,734

0.92

%

 

1,488,834

 

 

16,841

1.51

%

Noninterest-bearing deposits

 

582,348

 

 

422,731

 

Other liabilities

 

29,470

 

 

21,987

 

Total liabilities

 

2,167,494

 

 

1,933,552

 

Stockholders' equity

 

307,493

 

 

302,616

 

Total liabilities & equity

$

2,474,988

 

$

2,236,168

 

Net interest rate spread (1)

$

53,917

2.96

%

$

52,043

3.18

%

Effect of noninterest-bearing funds

0.27

0.36

Net interest margin on earning assets (2)

3.23

%

3.54

%

(1) The difference between the annualized yield on average total earning assets and the annualized cost of average total interest-bearing liabilities
(2) Annualized net interest income divided by average total earning assets

Reconciliation of Non-GAAP Financial Measures

This press release contains references to financial measures that are not defined in generally accepted accounting principles (“GAAP”). Such non-GAAP financial measures should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss in this press release may differ from that of other companies reporting measures with similar names. You should understand how such other banking organizations calculate their financial measures with names similar to the non-GAAP financial measures we have discussed in this press release when comparing such non-GAAP financial measures.

The Company’s management uses non-GAAP financial measures as management believes that non-GAAP financial measures provide additional useful information that allows readers to evaluate the ongoing performance of the Company and provide meaningful comparison to its peers. Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the Company's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company.

The Company has excluded the after tax impact of its recently exited mortgage banking activities, the goodwill impairment charge, and items determined to be infrequently occurring, as well as a one-time income tax benefit as a result of the CARES Act. The reconciliation is presented on the following pages.

HOWARD BANCORP, INC. AND SUBSIDIARY
GAAP TO NON-GAAP RECONCILIATION - CORE NET INCOME AND EPS
(in thousands except per share data)

FOR THE NINE MONTHS ENDED

 

FOR THE THREE MONTHS ENDED

September 30,

 

September 30,

 

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

2020

 

2019

 

2020

 

2020

 

2020

 

2019

 

2019

 
Net (loss) income (GAAP)

$

(21,462

)

$

10,981

 

$

4,604

 

$

(29,409

)

$

3,343

 

$

5,900

 

$

4,637

 

Adjustments:
Mortgage banking activities:
Net interest income

 

(143

)

 

(517

)

 

-

 

 

-

 

 

(143

)

 

(164

)

 

(177

)

Noninterest income

 

(1,425

)

 

(7,929

)

 

-

 

 

-

 

 

(1,425

)

 

(2,699

)

 

(2,871

)

Noninterest expenses

 

1,438

 

 

6,979

 

 

-

 

 

-

 

 

1,438

 

 

2,056

 

 

2,712

 

Total pretax - mortgage banking activities

 

(130

)

 

(1,467

)

 

-

 

 

-

 

 

(130

)

 

(807

)

 

(336

)

Certain other items:
Securities gains

 

(3,044

)

 

(658

)

 

-

 

 

(3,044

)

 

-

 

 

-

 

 

-

 

Proceeds from agreement to exit mortgage banking activities

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(750

)

 

-

 

Prepayment penalty - FHLB advances

 

224

 

 

651

 

 

-

 

 

224

 

 

-

 

 

-

 

 

-

 

Branch optimization charge

 

-

 

 

3,600

 

 

-

 

 

-

 

 

-

 

 

(338

)

 

-

 

Litigation expense

 

1,000

 

 

700

 

 

-

 

 

1,000

 

 

-

 

 

-

 

 

700

 

CFO departure

 

788

 

 

-

 

 

-

 

 

-

 

 

788

 

 

-

 

 

-

 

Goodwill impairment charge

 

34,500

 

 

-

 

 

-

 

 

34,500

 

 

-

 

 

-

 

 

-

 

Total pretax - certain other items

 

33,468

 

 

4,293

 

 

-

 

 

32,680

 

 

788

 

 

(1,088

)

 

700

 

Total core pretax income adjustments

 

33,338

 

 

2,826

 

 

-

 

 

32,680

 

 

658

 

 

(1,895

)

 

364

 

Income tax expense (benefit) of adjustments

 

(276

)

 

763

 

 

-

 

 

(454

)

 

178

 

 

(512

)

 

98

 

Total core pretax income adjustments, net of tax

 

33,614

 

 

2,063

 

 

-

 

 

33,134

 

 

480

 

 

(1,383

)

 

266

 

Less: One-time benefit of NOL carryback (CARES Act)

 

(1,177

)

 

-

 

 

-

 

 

-

 

 

(1,177

)

 

-

 

 

-

 

Total core adjustments to net income

 

32,437

 

 

2,063

 

 

-

 

 

33,134

 

 

(697

)

 

(1,383

)

 

266

 

Core net income (Non-GAAP)

$

10,975

 

$

13,044

 

$

4,604

 

$

3,725

 

$

2,646

 

$

4,517

 

$

4,903

 

 
Diluted average common shares

 

18,773

 

 

19,072

 

 

18,737

 

 

18,716

 

 

18,915

 

 

19,083

 

 

19,082

 

 
Diluted EPS (GAAP)

$

(1.14

)

$

0.58

 

$

0.25

 

$

(1.57

)

$

0.18

 

$

0.31

 

$

0.24

 

Total core adjustments to net income

 

1.73

 

 

0.11

 

 

-

 

 

1.77

 

 

(0.04

)

 

(0.07

)

 

0.01

 

Core diluted EPS (Non-GAAP)

$

0.58

 

$

0.68

 

$

0.25

 

$

0.20

 

$

0.14

 

$

0.24

 

$

0.26

 

 
 
GAAP TO NON-GAAP RECONCILIATION - PRE-PROVISION NET REVENUE ("PPNR")
(in thousands)

FOR THE NINE MONTHS ENDED

 

FOR THE THREE MONTHS ENDED

September 30,

 

September 30,

 

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

2020

 

2019

 

2020

 

2020

 

2020

 

2019

 

2019

 
Net (loss) income (GAAP)

$

(21,462

)

$

10,981

 

$

4,604

 

$

(29,409

)

$

3,343

 

$

5,900

 

$

4,637

 

Plus: provision for credit losses

 

8,145

 

 

3,443

 

 

1,700

 

 

3,000

 

 

3,445

 

 

750

 

 

608

 

Plus: income tax expense

 

2,551

 

 

3,312

 

 

1,348

 

 

1,660

 

 

(457

)

 

1,880

 

 

1,598

 

Pre-provision net revenue (Non-GAAP)

$

(10,766

)

$

17,736

 

$

7,652

 

$

(24,749

)

$

6,331

 

$

8,530

 

$

6,843

 

 
Adjustments to net revenue:
Mortgage banking activities

 

(130

)

 

(1,467

)

 

-

 

 

-

 

 

(130

)

 

(807

)

 

(336

)

Securities gains

 

(3,044

)

 

(658

)

 

-

 

 

(3,044

)

 

-

 

 

-

 

 

-

 

Proceeds from agreement to exit mortgage banking activities

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(750

)

 

-

 

Prepayment penalty - FHLB advances

 

224

 

 

651

 

 

-

 

 

224

 

 

-

 

 

-

 

 

-

 

Branch optimization charge

 

-

 

 

3,600

 

 

-

 

 

-

 

 

-

 

 

(338

)

 

-

 

Litigation accrual

 

1,000

 

 

700

 

 

-

 

 

1,000

 

 

-

 

 

-

 

 

700

 

CFO departure

 

788

 

 

-

 

 

-

 

 

-

 

 

788

 

 

-

 

 

-

 

Goodwill impairment charge

 

34,500

 

 

-

 

 

-

 

 

34,500

 

 

-

 

 

-

 

 

-

 

Total core pretax net revenue adjustments

 

33,338

 

 

2,826

 

 

-

 

 

32,680

 

 

658

 

 

(1,895

)

 

364

 

Core pre-provision net revenue (PPNR)

$

22,572

 

$

20,562

 

$

7,652

 

$

7,931

 

$

6,989

 

$

6,635

 

$

7,207

 

 
 
GAAP TO NON-GAAP RECONCILIATION - PPNR / AVERAGE TANGIBLE COMMON EQUITY
(in thousands)

FOR THE NINE MONTHS ENDED

 

FOR THE THREE MONTHS ENDED

September 30,

 

September 30,

 

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

2020

 

2019

 

2020

 

2020

 

2020

 

2019

 

2019

 
Core PPNR (Non-GAAP)

$

22,572

 

$

20,562

 

$

7,652

 

$

7,931

 

$

6,989

 

$

6,635

 

$

7,207

 

 
Average common equity (GAAP)

$

307,493

 

$

302,616

 

$

288,727

 

$

319,152

 

$

314,805

 

$

311,777

 

$

306,636

 

Less average goodwill

 

(54,239

)

 

(67,477

)

 

(31,450

)

 

(65,570

)

 

(65,950

)

 

(65,949

)

 

(65,949

)

Less average core deposit intangible, net

 

(5,639

)

 

(7,809

)

 

(5,075

)

 

(5,672

)

 

(6,170

)

 

(6,702

)

 

(7,251

)

Average tangible common equity (non-GAAP)

$

247,615

 

$

227,329

 

$

252,202

 

$

247,910

 

$

242,685

 

$

239,125

 

$

233,436

 

 
Core PPNR / average tangible common equity (Non-GAAP)

 

12.18

%

 

12.09

%

 

12.07

%

 

12.87

%

 

11.58

%

 

11.01

%

 

12.25

%

 
Annualized ratio based on days in quarter divided by days in year
HOWARD BANCORP, INC. AND SUBSIDIARY
GAAP TO NON-GAAP RECONCILIATION - PPNR / AVERAGE TOTAL ASSETS
(in thousands)

FOR THE NINE MONTHS ENDED

 

FOR THE THREE MONTHS ENDED

September 30,

 

September 30,

 

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

2020

 

2019

 

2020

 

2020

 

2020

 

2019

 

2019

 
Core PPNR (Non-GAAP)

$

22,572

 

$

20,562

 

$

7,652

 

$

7,931

 

$

6,989

 

$

6,635

 

$

7,207

 

 
Average total assets (GAAP)

 

2,474,988

 

 

2,236,168

 

 

2,524,773

 

 

2,529,797

 

 

2,369,847

 

 

2,292,369

 

 

2,244,259

 

 
Core PPNR / average total assets (Non-GAAP)

 

1.22

%

 

1.23

%

 

1.21

%

 

1.26

%

 

1.19

%

 

1.15

%

 

1.27

%

 
Annualized ratio based on days in quarter divided by days in year
 
 
GAAP TO NON-GAAP RECONCILIATION - EFFICIENCY RATIO
(in thousands)

FOR THE NINE MONTHS ENDED

 

FOR THE THREE MONTHS ENDED

September 30,

 

September 30,

 

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

2020

 

2019

 

2020

 

2020

 

2020

 

2019

 

2019

 
Net interest income (GAAP)

$

53,917

 

$

52,043

 

$

18,272

 

$

18,119

 

$

17,525

 

$

17,267

 

$

17,215

 

Adjustments:
Mortgage banking activities

 

(143

)

 

(517

)

 

-

 

 

-

 

 

(143

)

 

(164

)

 

(177

)

Total core net interest income adjustments

 

(143

)

 

(517

)

 

-

 

 

-

 

 

(143

)

 

(164

)

 

(177

)

Core net interest income (Non-GAAP)

$

53,774

 

$

51,526

 

$

18,272

 

$

18,119

 

$

17,382

 

$

17,103

 

$

17,038

 

 
Noninterest income (GAAP)

$

10,214

 

$

15,410

 

$

2,089

 

$

4,759

 

$

3,366

 

$

5,625

 

$

5,033

 

Adjustments:
Mortgage banking activities

 

(1,425

)

 

(7,929

)

 

-

 

 

-

 

 

(1,425

)

 

(2,699

)

 

(2,871

)

Securities gains

 

(3,044

)

 

(658

)

 

-

 

 

(3,044

)

 

-

 

 

-

 

 

-

 

Proceeds from agreement to exit mortgage banking activities

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(750

)

 

-

 

Total core noninterest income adjustments

 

(4,469

)

 

(8,587

)

 

-

 

 

(3,044

)

 

(1,425

)

 

(3,449

)

 

(2,871

)

Core noninterest income (Non-GAAP)

$

5,745

 

$

6,823

 

$

2,089

 

$

1,715

 

$

1,941

 

$

2,176

 

$

2,162

 

 
Total net interest income and noninterest income (GAAP)

$

64,131

 

$

67,453

 

$

20,361

 

$

22,878

 

$

20,891

 

$

22,892

 

$

22,248

 

Adjustments:
Total core net interest income adjustments

 

(143

)

 

(517

)

 

-

 

 

-

 

 

(143

)

 

(164

)

 

(177

)

Total core noninterest income adjustments

 

(4,469

)

 

(8,587

)

 

-

 

 

(3,044

)

 

(1,425

)

 

(3,449

)

 

(2,871

)

Total core net interest income and noninterest income adjustments

 

(4,612

)

 

(9,104

)

 

-

 

 

(3,044

)

 

(1,568

)

 

(3,613

)

 

(3,048

)

Core net interest income + noninterest income (Non-GAAP)

$

59,519

 

$

58,349

 

$

20,361

 

$

19,834

 

$

19,323

 

$

19,279

 

$

19,200

 

 
Noninterest expense (GAAP)

$

74,896

 

$

49,717

 

$

12,709

 

$

47,627

 

$

14,560

 

$

14,362

 

$

15,405

 

Adjustments:
Mortgage banking activities

 

(1,438

)

 

(6,979

)

 

-

 

 

-

 

 

(1,438

)

 

(2,056

)

 

(2,712

)

Prepayment penalty - FHLB advances

 

(224

)

 

(651

)

 

-

 

 

(224

)

 

-

 

 

-

 

 

-

 

Branch optimization charge

 

-

 

 

(3,600

)

 

-

 

 

-

 

 

-

 

 

338

 

 

-

 

Litigation accrual

 

(1,000

)

 

(700

)

 

-

 

 

(1,000

)

 

-

 

 

-

 

 

(700

)

CFO departure

 

(788

)

 

-

 

 

-

 

 

-

 

 

(788

)

 

-

 

 

-

 

Goodwill impairment charge

 

(34,500

)

 

-

 

 

-

 

 

(34,500

)

 

-

 

 

-

 

 

-

 

Total core noninterest expense adjustments

 

(37,950

)

 

(11,930

)

 

-

 

 

(35,724

)

 

(2,226

)

 

(1,718

)

 

(3,412

)

Core noninterest expense (Non-GAAP)

$

36,946

 

$

37,787

 

$

12,709

 

$

11,903

 

$

12,334

 

$

12,644

 

$

11,993

 

 
Efficiency ratio (GAAP)

 

116.79

%

 

73.71

%

 

62.42

%

 

208.18

%

 

69.70

%

 

62.74

%

 

69.24

%

 
Core efficiency ratio (Non-GAAP)

 

62.07

%

 

64.76

%

 

62.42

%

 

60.01

%

 

63.83

%

 

65.58

%

 

62.46

%

 
 
GAAP TO NON-GAAP RECONCILIATION - TANGIBLE BOOK VALUE PER COMMON SHARE
(in thousands except per share data)
 

FOR THE NINE MONTHS ENDED

 

FOR THE THREE MONTHS ENDED

September 30,

 

September 30,

 

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

2020

 

2019

 

2020

 

2020

 

2020

 

2019

 

2019

 
Common and total stockholder's equity (GAAP)

$

289,500

 

$

308,752

 

$

289,500

 

$

283,281

 

$

315,358

 

$

314,148

 

$

308,752

 

 
Total shares outstanding at period end

 

18,742

 

 

19,082

 

 

18,742

 

 

18,716

 

 

18,715

 

 

19,067

 

 

19,082

 

 
Book value per common share at period end (GAAP)

$

15.45

 

$

16.18

 

$

15.45

 

$

15.14

 

$

16.85

 

$

16.48

 

$

16.18

 

 
Common and total stockholder's equity (GAAP)

$

289,500

 

$

308,752

 

$

289,500

 

$

283,281

 

$

315,358

 

$

314,148

 

$

308,752

 

Less goodwill

 

(31,449

)

 

(65,949

)

 

(31,449

)

 

(31,449

)

 

(65,949

)

 

(65,949

)

 

(65,949

)

Less deposit intangible, net of deferred tax liability

 

(4,869

)

 

(6,866

)

 

(4,869

)

 

(5,358

)

 

(5,802

)

 

(6,339

)

 

(6,866

)

Tangible common equity (non-GAAP)

$

253,182

 

$

235,937

 

$

253,182

 

$

246,474

 

$

243,607

 

$

241,860

 

$

235,937

 

 
Total shares outstanding at period end

 

18,742

 

 

19,082

 

 

18,742

 

 

18,716

 

 

18,715

 

 

19,067

 

 

19,082

 

 
Tangible book value per common share (Non GAAP)

$

13.51

 

$

12.36

 

$

13.51

 

$

13.17

 

$

13.02

 

$

12.68

 

$

12.36

 

HOWARD BANCORP, INC. AND SUBSIDIARY
GAAP TO NON-GAAP RECONCILIATION - TANGIBLE COMMON EQUITY / TANGIBLE ASSETS
(in thousands except per share data)
 

FOR THE NINE MONTHS ENDED

 

FOR THE THREE MONTHS ENDED

September 30,

 

September 30,

 

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

2020

 

2019

 

2020

 

2020

 

2020

 

2019

 

2019

 
Common (and total) stockholder's equity (GAAP)

$

289,500

 

$

308,752

 

$

289,500

 

$

283,281

 

$

315,358

 

$

314,148

 

$

308,752

 

Less goodwill

 

(31,449

)

 

(65,949

)

 

(31,449

)

 

(31,449

)

 

(65,949

)

 

(65,949

)

 

(65,949

)

Less deposit intangible, net of deferred tax liability

 

(4,869

)

 

(6,866

)

 

(4,869

)

 

(5,358

)

 

(5,802

)

 

(6,339

)

 

(6,866

)

Tangible common equity (non-GAAP)

$

253,182

 

$

235,937

 

$

253,182

 

$

246,474

 

$

243,607

 

$

241,860

 

$

235,937

 

 
Total assets (GAAP)

$

2,559,184

 

$

2,293,475

 

$

2,559,184

 

$

2,463,450

 

$

2,507,894

 

##

$

2,374,619

 

##

$

2,293,475

 

Less goodwill

 

(31,449

)

 

(65,949

)

 

(31,449

)

 

(31,449

)

 

(65,949

)

##

 

(65,949

)

##

 

(65,949

)

Less deposit intangible, net of deferred tax liability

 

(4,869

)

 

(6,866

)

 

(4,869

)

 

(5,358

)

 

(5,802

)

##

 

(6,339

)

##

 

(6,866

)

Tangible assets (non-GAAP)

$

2,522,866

 

$

2,220,660

 

$

2,522,866

 

$

2,426,643

 

$

2,436,143

 

$

2,302,331

 

$

2,220,660

 

 
Tangible common equity / tangible assets (period end)

 

10.04

%

 

10.62

%

 

10.04

%

 

10.16

%

 

10.00

%

 

10.51

%

 

10.62

%

 
 
HOWARD BANCORP, INC. AND SUBSIDIARY
GAAP TO NON-GAAP RECONCILIATION - RETURN ON AVERAGE COMMON EQUITY
(in thousands)

FOR THE NINE MONTHS ENDED

 

FOR THE THREE MONTHS ENDED

September 30,

 

September 30,

 

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

2020

 

2019

 

2020

 

2020

 

2020

 

2019

 

2019

 
Net (loss) income (GAAP)

$

(21,462

)

$

10,981

 

$

4,604

 

$

(29,409

)

$

3,343

 

$

5,900

 

$

4,637

 

 
Average common (and total) equity (GAAP)

 

307,493

 

 

302,616

 

 

288,727

 

 

319,152

 

 

314,805

 

 

311,777

 

 

306,636

 

 
Return on average common equity (GAAP)

 

-9.32

%

 

4.85

%

 

6.34

%

 

-37.06

%

 

4.27

%

 

7.51

%

 

6.00

%

 
Net (loss) income (GAAP)

$

(21,462

)

$

10,981

 

$

4,604

 

$

(29,409

)

$

3,343

 

$

5,900

 

$

4,637

 

Total core adjustments to net income

 

32,437

 

 

2,063

 

 

-

 

 

33,134

 

 

(697

)

 

(1,383

)

 

266

 

Core net income (Non-GAAP)

$

10,975

 

$

13,044

 

$

4,604

 

$

3,725

 

$

2,646

 

$

4,517

 

$

4,903

 

 
Average common equity

 

307,493

 

 

302,616

 

 

288,727

 

 

319,152

 

 

314,805

 

 

311,777

 

 

306,636

 

 
Core return on average common equity (Non-GAAP)

 

4.77

%

 

5.76

%

 

6.34

%

 

4.69

%

 

3.38

%

 

5.75

%

 

6.34

%

 
Annualized ratio based on days in quarter divided by days in year
 
 
GAAP TO NON-GAAP RECONCILIATION - TANGIBLE RETURN ON AVERAGE TANGIBLE COMMON EQUITY
(in thousands)

FOR THE NINE MONTHS ENDED

 

FOR THE THREE MONTHS ENDED

September 30,

 

September 30,

 

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

2020

 

2019

 

2020

 

2020

 

2020

 

2019

 

2019

 
Net (loss) income (GAAP)

$

(21,462

)

$

10,981

 

$

4,604

 

$

(29,409

)

$

3,343

 

$

5,900

 

$

4,637

 

 
Goodwill impairment charge

 

34,500

 

 

-

 

 

-

 

 

34,500

 

 

-