wfbicorplogo06.jpg
FOR IMMEDIATE RELEASE
October 19, 2017

WashingtonFirst Bankshares, Inc. Reports 13% Increase in Net Income for the Third Quarter 2017



RESTON, VA - WashingtonFirst Bankshares, Inc. (“WashingtonFirst” or the “Company”) (NASDAQ: WFBI), the parent company of WashingtonFirst Bank, WashingtonFirst Mortgage, and 1st Portfolio Inc., reports net income of $5.6 million and $15.3 million for the three and nine months ended September 30, 2017, respectively. This represents an increase of 12.7% and 15.7% compared to the same periods last year, respectively. Earnings per share on a fully-diluted basis were $0.41 and $1.15 per share for the three and nine months ended September 30, 2017, respectively. On October 2, 2017, the Company paid its 16th consecutive quarterly cash dividend to its shareholders.

Core net income for the three and nine months ended September 30, 2017 was $5.7 million and $16.0 million, respectively. This represents an increase of 14.6% and 19.6% compared to the same periods last year, respectively. Core earnings per share fully diluted basis for the three and nine months ended September 30, 2017 were $0.43 and $1.20, respectively. Core net income is calculated as net income adjusted for the after-tax impact of merger expenses.
Commenting on the Company’s third quarter performance, Shaza Andersen, the Company's President and CEO, said “Since the announcement of our decision to merge with Sandy Spring Bancorp in May 2017, the WashingtonFirst team has worked hard to ensure a smooth transition for our customers and employees. We never lost sight of our commitments to deliver exceptional customer service and enhance shareholder value.  I am very pleased to report that even with the added costs and attention associated with the merger, we continue to exceed our earnings performance goals."

Net interest margin decreased 8 basis points to 3.45% for the three months ended September 30, 2017 and increased one basis point to 3.48% for the nine months ended September 30, 2017, compared to the same periods in 2016. Return on average shareholders equity was 10.57% and 10.11% during the three and nine months ended September 30, 2017, respectively, compared to 10.21% and 9.43% for the same periods last year. Management attributed this increase to the continued organic growth of the loan portfolio over the past twelve months. For the three and nine months ended September 30, 2017 net interest income after provision for loan losses increased $2.5 million and $7.0 million, or 17.2% and 16.3%, over the same periods ended September 30, 2016.

For the nine months ended September 30, 2017, total assets increased 2.6% to $2.1 billion, loans held for investment increased by $101.1 million, or 6.6%, to $1.6 billion and total deposits increased $170.5 million, or 11.2%, to $1.7 billion.
About The Company
WashingtonFirst Bankshares, Inc., headquartered in Reston, Virginia, is the holding company for WashingtonFirst Bank, which operates 19 full-service banking offices throughout the Washington, D.C. metropolitan area. In addition, the Company provides wealth management services through its subsidiary, 1st Portfolio Wealth Advisors, and mortgage banking services through the Bank's subsidiary, WashingtonFirst Mortgage Corporation. The Company's common stock is traded on the NASDAQ Stock Market under the quotation symbol "WFBI" and is included in the ABA NASDAQ Community Bank Index and the Russell 2000® index.  For more information about the Company, please visit: www.wfbi.com.
Cautionary Statements About Forward-Looking Information
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements of the goals, intentions, and expectations of the Company as to future trends, plans, events, results

1



of operations and policies and regarding general economic conditions. Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors which include, but are not limited to, factors discussed in our Annual Report on Form 10-K and in other documents we file with the Securities and Exchange Commission from time to time.  In some cases, forward-looking statements can be identified by use of words such as “may,” “will,” “anticipates,” “believes,” “expects,” “plans,” “estimates,” “potential,” “continue,” “should,” and similar words or phrases. These statements are based upon the beliefs of the management of the Company as to the expected outcome of future events, current and anticipated economic conditions, nationally and in the Company’s market, and their impact on the operations, assets and earnings of the Company, interest rates and interest rate policy, competitive factors, judgments about the ability of the Company to successfully integrate its operations following significant transactions including, but not limited to, mergers and acquisitions, the ability to avoid customer dislocation during the period leading up to and following such transactions, and other conditions which by their nature, are not susceptible to accurate forecast and are subject to significant uncertainty. Readers are cautioned against placing undue reliance on such forward-looking statements. The Company assumes no obligation to revise, update, or clarify forward-looking statements to reflect events or conditions after the date of this release.
Additional Information About the Merger and Where to Find It
In connection with the proposed merger transaction, Sandy Spring Bancorp, Inc. ("Sandy Spring") filed with the Securities and Exchange Commission ("SEC") on July 19, 2017, and the SEC declared effective on September 8, 2017, a Registration Statement on Form S-4 which includes a Joint Proxy Statement of Sandy Spring and the Company, and a Prospectus of Sandy Spring, as well as other relevant documents concerning the proposed transaction. Shareholders are urged to read the Registration Statement and the Joint Proxy Statement/Prospectus regarding the merger and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they contain or will contain important information about Sandy Spring, the Company and the proposed merger.
A free copy of the Joint Proxy Statement/Prospectus, as well as other filings containing information about Sandy Spring and the Company, may be obtained at the SEC’s Internet site (http://www.sec.gov). You will also be able to obtain these documents, free of charge, from Sandy Spring at www.sandyspringbank.com under the tab “Investor Relations,” and then under the heading “SEC Filings” or from the Company by accessing the Company’s website at www.wfbi.com under the tab “Investor Relations,” and then selecting “SEC Filings” under the heading “Documents and Filings.” Alternatively, these documents, when available, can be obtained free of charge from Sandy Spring upon written request to Sandy Spring Bancorp, Inc., Corporate Secretary, 17801 Georgia Avenue, Olney, Maryland 20832 or by calling (800) 399-5919, or from the Company, upon written request to WashingtonFirst Bankshares, Inc., Corporate Secretary, 11921 Freedom Drive, Suite 250, Reston, Virginia 20190 or by calling (703) 840-2410.


2



WashingtonFirst Bankshares, Inc.
Consolidated Balance Sheets
(unaudited)
 
September 30, 2017
 
December 31, 2016
 
September 30, 2016
 
($ in thousands)
Assets:
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
Cash and due from bank balances
$
3,426

 
$
3,614

 
$
3,262

Federal funds sold
34,523

 
93,659

 
127,965

Interest bearing deposits
100

 
100

 
100

Cash and cash equivalents
38,049

 
97,373

 
131,327

Investment securities, available-for-sale, at fair value
296,827

 
280,204

 
238,022

Restricted stock, at cost
11,239

 
11,726

 
7,019

Loans held for sale, at lower of cost or fair value
27,890

 
32,109

 
62,847

Loans held for investment:


 
 
 
 
Loans held for investment, at amortized cost
1,635,645

 
1,534,543

 
1,431,371

Allowance for loan losses
(14,137
)
 
(13,582
)
 
(12,960
)
Total loans held for investment, net of allowance
1,621,508

 
1,520,961

 
1,418,411

Premises and equipment, net
6,012

 
6,955

 
7,301

Goodwill
11,420

 
11,420

 
11,420

Identifiable intangibles
1,417

 
1,619

 
1,686

Deferred tax asset, net
8,097

 
8,944

 
7,333

Accrued interest receivable
6,224

 
5,243

 
4,406

Other real estate owned
636

 
1,428

 
1,969

Bank-owned life insurance
16,676

 
13,880

 
13,791

Other assets
9,481

 
11,049

 
11,406

Total Assets
$
2,055,476

 
$
2,002,911

 
$
1,916,938

Liabilities and Shareholders' Equity:
 
 
 
 
 
Liabilities:
 
 
 
 
 
Non-interest bearing deposits
$
463,810

 
$
381,887

 
$
410,833

Interest bearing deposits
1,229,480

 
1,140,854

 
1,121,422

Total deposits
1,693,290

 
1,522,741

 
1,532,255

Other borrowings
6,439

 
5,852

 
22,479

FHLB advances
97,856

 
232,097

 
121,343

Long-term borrowings
32,817

 
32,638

 
32,988

Accrued interest payable
1,832

 
947

 
1,390

Other liabilities
15,408

 
15,976

 
14,503

Total Liabilities
1,847,642

 
1,810,251

 
1,724,958

Commitments and contingent liabilities

 

 

Shareholders' Equity:
 
 
 
 
 
Common stock:
 
 
 
 
 
Common Stock Voting, $0.01 par value, 50,000,000 shares authorized, 12,519,656; 10,987,652; and 10,439,289 shares issued and outstanding, respectively
124

 
109

 
104

Common Stock Non-Voting, $0.01 par value, 10,000,000 shares authorized; 572,835; 1,908,733; and 1,817,842 shares issued and outstanding, respectively
6

 
19

 
18

Additional paid-in capital
180,257

 
177,924

 
161,918

Accumulated earnings
28,875

 
17,187

 
28,800

Accumulated other comprehensive income (loss)
(1,428
)
 
(2,579
)
 
1,140

Total Shareholders' Equity
207,834

 
192,660

 
191,980

Total Liabilities and Shareholders' Equity
$
2,055,476

 
$
2,002,911

 
$
1,916,938


3



WashingtonFirst Bankshares, Inc.
Consolidated Statements of Income
(unaudited)
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
 
($ in thousands)
Interest and dividend income:
 
 
 
 
 
 
 
Interest and fees on loans
$
20,279

 
$
17,703

 
$
58,930

 
$
50,930

Interest and dividends on investments:
 
 
 
 
 
 
 
Taxable
1,373

 
1,102

 
3,992

 
3,272

Tax-exempt
61

 
25

 
187

 
66

Dividends on other equity securities
173

 
56

 
530

 
208

Interest on Federal funds sold and other short-term investments
82

 
50

 
237

 
186

Total interest and dividend income
21,968

 
18,936

 
63,876

 
54,662

Interest expense:
 
 
 
 
 
 
 
Interest on deposits
3,078

 
2,232

 
8,397

 
6,427

Interest on borrowings
1,159

 
861

 
3,436

 
2,838

Total interest expense
4,237

 
3,093

 
11,833

 
9,265

Net interest income
17,731

 
15,843

 
52,043

 
45,397

Provision for loan losses
375

 
1,035

 
2,315

 
2,640

Net interest income after provision for loan losses
17,356

 
14,808

 
49,728

 
42,757

Non-interest income:
 
 
 
 
 
 
 
Service charges on deposit accounts
51

 
54

 
139

 
214

Earnings on bank-owned life insurance
105

 
90

 
297

 
270

Gain on sale of other real estate owned, net

 
11

 

 
11

Gain on sale of loans, net
3,772

 
6,327

 
11,022

 
14,356

Mortgage banking activities
825

 
1,215

 
2,694

 
3,772

Wealth management income
526

 
467

 
1,545

 
1,338

Gain on sale of available-for-sale investment securities, net

 
135

 

 
1,287

Gain on debt extinguishment

 

 
301

 

Other operating income
386

 
367

 
1,064

 
689

Total non-interest income
5,665

 
8,666

 
17,062

 
21,937

Non-interest expense:
 
 
 
 
 
 
 
Compensation and employee benefits
7,169

 
7,395

 
21,737

 
21,344

Mortgage commission
1,682

 
2,657

 
5,092

 
5,865

Premises and equipment
1,827

 
1,802

 
5,390

 
5,482

Data processing
1,084

 
1,058

 
3,254

 
3,183

Professional fees
337

 
377

 
802

 
1,046

Merger expenses
133

 
30

 
665

 
30

Mortgage loan processing expenses
265

 
444

 
782

 
994

Debt extinguishment

 
155

 

 
1,199

Other operating expenses
1,795

 
1,693

 
5,334

 
4,504

Total non-interest expense
14,292

 
15,611

 
43,056

 
43,647

Income before provision for income taxes
8,729

 
7,863

 
23,734

 
21,047

Provision for income taxes
3,162

 
2,922

 
8,394

 
7,784

Net income
$
5,567

 
$
4,941

 
$
15,340

 
$
13,263

 
 
 
 
 
 
 
 
Earnings per common share: (1)
 
 
 
 
 
 
 
Basic earnings per common share
$
0.43

 
$
0.38

 
$
1.18

 
$
1.03

Diluted earnings per common share
$
0.41

 
$
0.37

 
$
1.15

 
$
1.01

(1) Prior periods adjusted for 5% stock dividend issued in December 2016
 
 
 

4



 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
 
($ in thousands, except per share data)
Performance Ratios:
 
 
 
 
 
 
 
Return on average assets
1.07
%
 
1.09
%
 
1.01
%
 
1.01
%
Return on average shareholders' equity
10.57
%
 
10.21
%
 
10.11
%
 
9.43
%
Yield on average interest-earning assets
4.28
%
 
4.23
%
 
4.27
%
 
4.19
%
Rate on average interest-earning liabilities
1.19
%
 
1.00
%
 
1.14
%
 
1.02
%
Net interest spread
3.09
%
 
3.22
%
 
3.13
%
 
3.17
%
Net interest margin
3.45
%
 
3.53
%
 
3.48
%
 
3.47
%
Efficiency ratio (1)
61.09
%
 
63.41
%
 
62.58
%
 
64.27
%
Net charge-offs to average loans held for investment (2)
0.08
%
 
0.18
%
 
0.15
%
 
0.19
%
 
 
 
 
 
 
 
 
Mortgage origination volume
$
166,337

 
$
263,611

 
$
480,682

 
$
603,174

 
 
 
 
 
 
 
 
Assets under management
$
326,989

 
$
280,843

 
$
326,989

 
$
280,843

 
 
 
 
 
 
 
 
Per Share Data: (3)
 
 
 
 
 
 
 
Basic earnings per common share
$
0.43

 
$
0.38

 
$
1.18

 
$
1.03

Fully diluted earnings per common share
$
0.41

 
$
0.37

 
$
1.15

 
$
1.01

Weighted average basic shares outstanding
13,082,620

 
12,865,698

 
13,037,880

 
12,846,167

Weighted average diluted shares outstanding
13,325,162

 
13,109,253

 
13,332,145

 
13,078,764

(1) The efficiency ratio is calculated as total non-interest expense (less debt extinguishment costs) divided by the sum of net interest income and total non-interest income (less gain on sale of AFS securities and gain on debt extinguishment). This non-GAAP financial measure is presented to facilitate an understanding of the Company's performance.
(2) Annualized
(3) 2016 amounts have been adjusted to reflect the 5% stock dividend paid in December 2016

 
September 30, 2017
 
December 31, 2016
 
September 30, 2016
Capital Ratios:
 
 
 
 
 
Total risk-based capital ratio
14.15
%
 
13.99
%
 
14.65
%
Tier 1 risk-based capital ratio
11.86
%
 
11.61
%
 
12.15
%
Common equity tier 1 risk-based capital ratio
11.41
%
 
11.15
%
 
11.63
%
Tier 1 leverage ratio
10.00
%
 
10.14
%
 
10.33
%
Tangible common equity to tangible assets (1)
9.55
%
 
9.03
%
 
9.40
%
Per Share Capital Data: (2)
 
 
 
 
 
Book value per common share
$
15.87

 
$
14.94

 
$
14.92

Tangible book value per common share
$
14.89

 
$
13.93

 
$
13.90

Common shares outstanding
13,092,491

 
12,896,385

 
12,869,523

(1) This is a non-GAAP financial measure. Refer to the table below outlining the reconciliation of tangible common equity to tangible assets.
(2) September 30, 2016, amounts have been adjusted to reflect the 5% stock dividend issued in December 2016




5



Average Balances, Interest Income and Expense and Average Yield and Rates
 
For the Three Months Ended
 
September 30, 2017
 
September 30, 2016
 
Average
Balance
 
Income/
Expense
 
Yield/
Rate
(6)
 
Average
Balance
 
Income/
Expense
 
Yield/
Rate
(6)
 
($ in thousands)
Assets
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Loans held for sale
$
34,881

 
$
362

 
4.06
%
 
$
66,337

 
$
635

 
3.74
%
Loans held for investment (1)
$
1,620,363

 
$
19,917

 
4.81
%
 
$
1,402,087

 
$
17,068

 
4.76
%
Investment securities - taxable
291,207

 
1,373

 
1.84
%
 
239,119

 
1,102

 
1.80
%
Investment securities - tax-exempt (2)
14,475

 
90

 
2.45
%
 
6,006

 
30

 
1.98
%
Other equity securities
13,268

 
174

 
5.20
%
 
5,494

 
56

 
4.07
%
Interest-bearing balances
100

 

 
0.98
%
 
100

 

 
0.60
%
Federal funds sold
35,863

 
82

 
0.90
%
 
34,806

 
50

 
0.57
%
Total interest earning assets
2,010,157

 
21,998

 
4.28
%
 
1,753,949

 
18,941

 
4.23
%
Non-interest earning assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
3,529

 
 
 
 
 
2,849

 
 
 
 
Premises and equipment
6,268

 
 
 
 
 
7,477

 
 
 
 
Other real estate owned
695

 
 
 
 
 
2,121

 
 
 
 
Other assets (3)
51,806

 
 
 
 
 
47,373

 
 
 
 
Less: allowance for loan losses
(14,101
)
 
 
 
 
 
(12,627
)
 
 
 
 
Total non-interest earning assets
48,197

 
 
 
 
 
47,193

 
 
 
 
Total Assets
$
2,058,354

 
 
 
 
 
$
1,801,142

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand deposits
$
143,475

 
$
96

 
0.27
%
 
$
127,801

 
$
93

 
0.29
%
Money market deposit accounts
294,026

 
705

 
0.95
%
 
262,080

 
395

 
0.60
%
Savings accounts
198,440

 
351

 
0.70
%
 
228,047

 
409

 
0.71
%
Time deposits
587,995

 
1,926

 
1.30
%
 
477,763

 
1,335

 
1.11
%
Total interest-bearing deposits
1,223,936

 
3,078

 
1.00
%
 
1,095,691

 
2,232

 
0.81
%
FHLB advances
145,639

 
604

 
1.62
%
 
85,407

 
318

 
1.46
%
Other borrowings and long-term borrowings
39,401

 
556

 
5.57
%
 
39,840

 
543

 
5.40
%
Total interest-bearing liabilities
1,408,976

 
4,238

 
1.19
%
 
1,220,938

 
3,093

 
1.01
%
Non-interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
428,254

 
 
 
 
 
375,629

 
 
 
 
Other liabilities
12,179

 
 
 
 
 
12,126

 
 
 
 
Total non-interest-bearing liabilities
440,433

 
 
 
 
 
387,755

 
 
 
 
Total Liabilities
1,849,409

 
 
 
 
 
1,608,693

 
 
 
 
Shareholders’ Equity
208,945

 
 
 
 
 
192,449

 
 
 
 
Total Liabilities and Shareholders’ Equity
$
2,058,354

 
 
 
 
 
$
1,801,142

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Spread (4)
 
 
$
17,760

 
3.09
%
 
 
 
$
15,848

 
3.22
%
Net Interest Margin (2)(5)
 
 


 
3.45
%
 
 
 


 
3.53
%

(1) 
Includes loans placed on non-accrual status.
(2) 
Yield and income presented on a fully taxable equivalent basis using a federal statutory rate of 35 percent.
(3) 
Includes intangibles, deferred tax asset, accrued interest receivable, bank-owned life insurance and other assets.
(4) 
Interest spread is the average yield earned on earning assets, less the average rate incurred on interest bearing liabilities.
(5) 
Net interest margin is net interest income, expressed as a percentage of average earning assets.
(6) 
Annualized income/expense is used for the yield/rate.




6



Average Balances, Interest Income and Expense and Average Yield and Rates
 
For the Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
Average
Balance
 
Income/
Expense
 
Yield/
Rate
(6)
 
Average
Balance
 
Income/
Expense
 
Yield/
Rate
(6)
 
($ in thousands)
Assets
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Loans held for sale
$
30,198

 
$
935

 
4.08
%
 
$
47,067

 
$
1,363

 
3.80
%
Loans held for investment (1)
$
1,593,745

 
$
57,995

 
4.80
%
 
$
1,367,222

 
$
49,567

 
4.76
%
Investment securities - taxable
283,258

 
3,992

 
1.86
%
 
246,686

 
3,272

 
1.74
%
Investment securities - tax-exempt (2)
14,482

 
278

 
2.53
%
 
4,644

 
81

 
2.27
%
Other equity securities
13,799

 
530

 
5.14
%
 
6,115

 
208

 
4.55
%
Interest-bearing balances
100

 
1

 
0.85
%
 
81

 
1

 
1.98
%
Federal funds sold
38,072

 
236

 
0.83
%
 
44,005

 
185

 
0.56
%
Total interest earning assets
1,973,654

 
63,967

 
4.27
%
 
1,715,820

 
54,677

 
4.19
%
Non-interest earning assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
3,366

 
 
 
 
 
2,515

 
 
 
 
Premises and equipment
6,620

 
 
 
 
 
7,607

 
 
 
 
Other real estate owned
856

 
 
 
 
 
1,534

 
 
 
 
Other assets (3)
51,611

 
 
 
 
 
47,375

 
 
 
 
Less: allowance for loan losses
(14,206
)
 
 
 
 
 
(12,399
)
 
 
 
 
Total non-interest earning assets
48,247

 
 
 
 
 
46,632

 
 
 
 
Total Assets
$
2,021,901

 
 
 
 
 
$
1,762,452

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand deposits
$
139,133

 
$
319

 
0.31
%
 
$
122,218

 
$
269

 
0.29
%
Money market deposit accounts
276,393

 
1,793

 
0.87
%
 
275,039

 
1,226

 
0.60
%
Savings accounts
202,843

 
1,072

 
0.71
%
 
205,095

 
1,090

 
0.71
%
Time deposits
565,703

 
5,213

 
1.23
%
 
467,384

 
3,842

 
1.10
%
Total interest-bearing deposits
1,184,072

 
8,397

 
0.95
%
 
1,069,736

 
6,427

 
0.80
%
FHLB advances
164,870

 
1,789

 
1.43
%
 
103,783

 
1,216

 
1.54
%
Other borrowings and long-term borrowings
39,412

 
1,647

 
5.57
%
 
39,284

 
1,622

 
5.49
%
Total interest-bearing liabilities
1,388,354

 
11,833

 
1.14
%
 
1,212,803

 
9,265

 
1.02
%
Non-interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
418,201

 
 
 
 
 
348,836

 
 
 
 
Other liabilities
12,429

 
 
 
 
 
12,885

 
 
 
 
Total non-interest-bearing liabilities
430,630

 
 
 
 
 
361,721

 
 
 
 
Total Liabilities
1,818,984

 
 
 
 
 
1,574,524

 
 
 
 
Shareholders’ Equity
202,917

 
 
 
 
 
187,928

 
 
 
 
Total Liabilities and Shareholders’ Equity
$
2,021,901

 
 
 
 
 
$
1,762,452

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Spread (4)
 
 
$
52,134

 
3.13
%
 
 
 
$
45,412

 
3.17
%
Net Interest Margin (2)(5)
 
 


 
3.48
%
 
 
 


 
3.47
%

(1) 
Includes loans placed on non-accrual status.
(2) 
Yield and income presented on a fully taxable equivalent basis using a federal statutory rate of 35 percent.
(3) 
Includes intangibles, deferred tax asset, accrued interest receivable, bank-owned life insurance and other assets.
(4) 
Interest spread is the average yield earned on earning assets, less the average rate incurred on interest bearing liabilities.
(5) 
Net interest margin is net interest income, expressed as a percentage of average earning assets.
(6) 
Annualized income/expense is used for the yield/rate.


7



Composition of Loans Held for Investment
 
September 30, 2017
 
December 31, 2016
 
September 30, 2016
 
($ in thousands)
Construction and development
$
269,981

 
$
288,193

 
$
272,171

Commercial real estate- owner occupied
259,963

 
231,414

 
224,343

Commercial real estate- non-owner occupied
603,147

 
557,846

 
484,677

Residential real estate
315,423

 
287,250

 
279,442

Real estate loans
1,448,514

 
1,364,703

 
1,260,633

Commercial and industrial
182,830

 
165,172

 
166,145

Consumer
4,301

 
4,668

 
4,593

Total loans
1,635,645

 
1,534,543

 
1,431,371

Less: allowance for loan losses
14,137

 
13,582

 
12,960

Net loans
$
1,621,508

 
$
1,520,961

 
$
1,418,411


Composition of Deposits
 
 
 
September 30, 2017
 
December 31, 2016
 
September 30, 2016
 
($ in thousands)
Demand deposit accounts
$
463,810

 
$
381,887

 
$
410,833

NOW accounts
153,592

 
134,938

 
136,319

Money market accounts
284,787

 
270,794

 
290,750

Savings accounts
201,387

 
209,961

 
216,552

Time deposits up to $250,000
407,200

 
386,095

 
335,780

Time deposits over $250,000
182,514

 
139,066

 
142,021

Total deposits
$
1,693,290

 
$
1,522,741

 
$
1,532,255


Allowance and Asset Quality Ratios
Allowance for loan losses to loans held for investment
0.86
%
 
0.89
%
 
0.91
%
Adjusted allowance for loan losses to loans held for investment (1)
1.04
%
 
1.11
%
 
1.17
%
Allowance for loan losses to non-accrual loans
143.12
%
 
236.37
%
 
220.15
%
Allowance for loan losses to non-performing assets
57.89
%
 
159.10
%
 
117.39
%
Non-performing assets to total assets
1.19
%
 
0.43
%
 
0.58
%
(1) This is a non-GAAP financial measure. Refer to the table below outlining the reconciliation of GAAP Allowance Ratio to Adjusted Allowance Ratio.

Non-Performing Assets
 
September 30, 2017
 
December 31, 2016
 
September 30, 2016
 
($ in thousands)
Non-accrual loans
$
9,878

 
$
5,746

 
$
5,887

90+ days still accruing
12,676

 
2

 

Trouble debt restructurings still accruing
1,231

 
1,361

 
3,184

Other real estate owned
636

 
1,428

 
1,969

Total non-performing assets
$
24,421

 
$
8,537

 
$
11,040





8



Reconciliation of Net Income to Core Net Income (1)
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
 
($ in thousands)
Net Income
$
5,567

 
$
4,941

 
$
15,340

 
13,263

Add: Merger Expenses
133

 
30

 
665

 
30

Less: Estimated Tax Effect
(16
)
 
(11
)
 
(114
)
 
(11
)
Core Net Income
$
5,684

 
$
4,960

 
$
15,891

 
$
13,282

(1) Core net income is calculated as net income adjusted for the after-tax impact of merger expenses and is a non-GAAP financial measure that is presented to facilitate a comparison of the Company's earnings without merger expenses. This table provides a reconciliation between GAAP Net Income amounts and this non-GAAP financial measure.

Reconciliation of Tangible Common Equity to Tangible Assets Ratio (1)
 
September 30, 2017
 
December 31, 2016
 
September 30, 2016
 
($ in thousands)
Tangible Common Equity:
 
 
 
 
 
Common Stock Voting
$
123

 
$
109

 
$
104

Common Stock Non-Voting
7

 
19

 
18

Additional paid-in capital - common
180,257

 
177,924

 
161,918

Accumulated earnings
28,875

 
17,187

 
28,800

Accumulated other comprehensive income (loss)
(1,428
)
 
(2,579
)
 
1,140

Total Common Equity
$
207,834

 
$
192,660

 
$
191,980

 
 
 
 
 
 
Less Intangibles:
 
 
 
 
 
Goodwill
11,420

 
11,420

 
11,420

Identifiable intangibles
1,417

 
1,619

 
1,686

Total Intangibles
12,837

 
13,039

 
13,106

 
 
 
 
 
 
Tangible Common Equity
$
194,997

 
$
179,621

 
$
178,874

 
 
 
 
 
 
Tangible Assets:
 
 
 
 
 
Total Assets
$
2,055,476

 
$
2,002,911

 
$
1,916,938

 
 
 
 
 
 
Less Intangibles:
 
 
 
 
 
Goodwill
11,420

 
11,420

 
11,420

Identifiable intangibles
1,417

 
1,619

 
1,686

Total Intangibles
12,837

 
13,039

 
13,106

 
 
 
 
 
 
Tangible Assets
$
2,042,639

 
$
1,989,872

 
$
1,903,832

 
 
 
 
 
 
Tangible Common Equity to Tangible Assets (1)
9.55
%
 
9.03
%
 
9.40
%
(1)  Tangible common equity to tangible assets ratio is a non-GAAP financial measure that is presented to facilitate an understanding of the Company's capital structure. This table provides a reconciliation between certain GAAP amounts and this non-GAAP financial measure.


9



Reconciliation of GAAP Allowance Ratio to Adjusted Allowance Ratio (1)
 
September 30, 2017
 
December 31, 2016
 
September 30, 2016
 
($ in thousands)
GAAP allowance for loan losses
$
14,137

 
$
13,582

 
$
12,960

GAAP loans held for investment, at amortized cost
1,635,644

 
1,534,543

 
1,431,371

 
 
 
 
 
 
GAAP allowance for loan losses to total loans held for investment
0.86
%
 
0.89
%
 
0.91
%
 
 
 
 
 
 
GAAP allowance for loan losses
$
14,137

 
$
13,582

 
$
12,960

Plus: Credit purchase accounting marks
2,903

 
3,537

 
3,784

Adjusted allowance for loan losses
$
17,040

 
$
17,119

 
$
16,744

 
 
 
 
 
 
GAAP loans held for investment, at amortized cost
$
1,635,644

 
$
1,534,543

 
$
1,431,371

Plus: Credit purchase accounting marks
2,903

 
3,537

 
3,784

Adjusted loans held for investment, at amortized cost
$
1,638,547

 
$
1,538,080

 
$
1,435,155

 
 
 
 
 
 
Adjusted allowance for loan losses to total loans held for investment (1)
1.04
%
 
1.11
%
 
1.17
%
(1) This is a non-GAAP financial measure. Credit purchase accounting marks are GAAP marks under purchase accounting guidance.


Segment Reporting - 2017 (QTD)
 
As of and for the Three Months Ended September 30, 2017
 
Commercial Bank
 
Mortgage Bank
 
Wealth Management
 
Other (1)
 
Consolidated Totals
 
($ in thousands)
Interest and dividend income
$
21,606

 
$
362

 
$

 
$

 
$
21,968

Interest expense
3,686

 

 

 
551

 
4,237

Net interest income
17,920

 
362

 

 
(551
)
 
17,731

Provision for loan losses
375

 

 

 

 
375

Net interest income after provision for loan losses
17,545

 
362

 

 
(551
)
 
17,356

 
 
 
 
 
 
 
 
 
 
Non-interest income
535

 
4,598

 
533

 
(1
)
 
5,665

Compensation and employee benefits
5,043

 
1,599

 
260

 
267

 
7,169

Mortgage commission

 
1,682

 

 

 
1,682

Premises and equipment
1,586

 
167

 
32

 
42

 
1,827

Data processing
1,014

 
56

 
14

 

 
1,084

Professional fees
231

 
13

 
3

 
90

 
337

Merger expenses

 

 

 
133

 
133

Mortgage loan processing expenses

 
265

 

 

 
265

Other operating expenses
1,424

 
275

 
60

 
36

 
1,795

Income/(loss) before provision for income taxes
$
8,782

 
$
903

 
$
164

 
$
(1,120
)
 
$
8,729

 
 
 
 
 
 
 
 
 
 
Total assets
$
2,008,137

 
$
41,844

 
$
3,880

 
$
1,615

 
$
2,055,476

(1) Includes parent company and intercompany eliminations



10



Segment Reporting - 2016 (QTD)
 
As of and for the Three Months Ended September 30, 2016
 
Commercial Bank
 
Mortgage Bank
 
Wealth Management
 
Other (1)
 
Consolidated Totals
 
($ in thousands)
Interest and dividend income
$
18,301

 
$
635

 
$

 
$

 
$
18,936

Interest expense
2,560

 

 

 
533

 
3,093

Net interest income
15,741

 
635

 

 
(533
)
 
15,843

Provision for loan losses
1,035

 

 

 

 
1,035

Net interest income after provision for loan losses
14,706

 
635

 

 
(533
)
 
14,808

 
 
 
 
 
 
 
 
 
 
Non-interest income
601

 
7,535

 
467

 
63

 
8,666

Compensation and employee benefits
4,839

 
2,090

 
241

 
225

 
7,395

Mortgage commission

 
2,657

 

 

 
2,657

Premises and equipment
1,561

 
169

 
32

 
40

 
1,802

Data processing
981

 
74

 
3

 

 
1,058

Professional fees
266

 
29

 
2

 
80

 
377

Merger expenses
30

 

 

 

 
30

Mortgage loan processing expenses

 
444

 

 

 
444

Debt extinguishment
155

 

 

 

 
155

Other operating expenses
1,259

 
300

 
65

 
69

 
1,693

Income/(loss) before provision for income taxes
$
6,216

 
$
2,407

 
$
124

 
$
(884
)
 
$
7,863

 
 
 
 
 
 
 
 
 
 
Total assets
$
1,828,543

 
$
83,644

 
$
3,604

 
$
1,147

 
$
1,916,938

(1) Includes parent company and intercompany eliminations


































11





Additional Discussion and Analysis

Consolidated net income for the three and nine months ended September 30, 2017, was $5.6 million and $15.3 million, respectively, representing increases of $0.6 million and $2.1 million, or 12.7% and 15.7%, respectively, over the $4.9 million and $13.3 million earned during the three and nine months ended September 30, 2016, respectively. Net income per diluted common share for the three and nine months ended September 30, 2017 was $0.41 and $1.15, respectively, representing increases of 10.8% and 13.9%, respectively, over the $0.37 and $1.01 per diluted common share earning during the three and nine months ended September 30, 2016, respectively.
As of September 30, 2017, total assets were $2.1 billion, compared to $2.0 billion as of December 31, 2016, and $1.9 billion as of September 30, 2016. During the nine months ended September 30, 2017, total loans held for investment increased $101.1 million or 6.6% to $1.6 billion. This increase is attributable to organic loan growth from our existing lending team. During the nine months ended September 30, 2017, total deposits increased $170.5 million or 11.2% to $1.7 billion. The increase in deposits is primarily attributable to deposit growth in our branch network and commercial customers.
The net interest margin was 3.45% and 3.48% for the three and nine months ended September 30, 2017, respectively, compared to 3.53% and 3.47% for the same periods in 2016. The decrease is primarily attributable to increases in market rates on deposits. On a linked quarter basis, our net interest margin decreased from 3.51% for the three months ended June 30, 2017, to 3.45% for the three months ended September 30, 2017. The Company remains focused on its pricing discipline on both sides of the balance sheet and on all factors contributing to net income.
The adjusted allowance for loan losses to adjusted total loans held for investment, which includes credit purchase accounting marks, was 1.04% as of September 30, 2017, compared to 1.17% as of September 30, 2016. This decrease is attributable to net charge-offs of $0.3 million, which had been substantially reserved for previously, and credit mark accretion. A reconciliation of the allowance for loan losses and related ratios to the adjusted allowance for loan losses and related ratios is included herein. Since December 31, 2016, non-performing assets have increased by $15.9 million primarily due to the default of two commercial real estate loans, related to a common guarantor, totaling $13.1 million. As a result, the ratio of non-performing assets to total assets increased to 1.19% as of September 30, 2017, compared to 0.58% as of September 30, 2016. Of the $13.1 million increase in non-performing loans, $10.5 million was over 90 days past due and still accruing interest as of September 30, 2017. The Company is pursuing collection efforts on this loan which remains on accrual as management believes the collateral to be of sufficient value to protect the Company against loss and tenant rent payments being collected that are sufficient to service the loan.
Non-interest income for the three and nine months ended September 30, 2017, was $5.7 million and $17.1 million, respectively, each representing a decrease of $3.0 million and $4.9 million compared to the $8.7 million and $21.9 million of non-interest income for the three and nine month periods ended September 30, 2016, respectively. Non-interest income was negatively impacted by higher interest rates which resulted in lower mortgage origination volume during the first nine months of 2017, compared to the same period last year. During the three and nine months ended September 30, 2017, the mortgage subsidiary originated $166.3 million and $480.7 million in total mortgage loan volume, a slight decrease from the $263.6 million and $603.2 million in total mortgage volume originated during the three and nine months ended September 30, 2016, respectively. As of September 30, 2017, the Company's wealth management business unit had $327.0 million in assets under management, an increase of 16.4% over the same period last year. The Company did not sell any investment securities during 2017; however, during the three and nine months ended September 30, 2016, the Company sold investment securities resulting in $0.1 million and $1.3 million, respectively, of gains on the sale of investments.
Non-interest expense decreased during the three months ended September 30, 2017, by $1.3 million, and decreased during the nine months ended September 30, 2017, by $0.6 million compared to the same periods ended September 30, 2016, primarily as a result of $0.4 million in lower compensation and employee benefits incurred during the first nine months of 2017.
During the nine months ended September 30, 2017, total shareholders’ equity increased $15.2 million, or 7.9%, to $207.8 million due primarily to earnings and additional paid in capital from the exercise of stock options offset by dividends of $2.7 million and changes in accumulated other comprehensive loss. Tangible book value per common share increased to $14.89 as of September 30, 2017, compared to $13.90 as of September 30, 2016. The Company remains "well-capitalized" under the regulatory framework.


12

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