Howard Bancorp, Inc. Reports Third Quarter 2021 Results

·36 min read

BALTIMORE, October 20, 2021--(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, 2021.

Third Quarter 2021 Highlights

  • Net income:

    • Net income of $6.4 million for the quarter, up 38% from third quarter of 2020 and down 15% from the second quarter of 2021

    • Core net income1 of $7.1 million for the quarter, up 54% from third quarter of 2020 and down 5% from second quarter of 2021

  • Earnings per share:

    • Earnings per share ("EPS"), both basic and diluted, of $0.34 for the quarter, up 37% from third quarter of 2020 and down 15% from second quarter of 2021

    • Core diluted EPS1 of $0.37 for the quarter, up 52% from third quarter of 2020 and down 5% from second quarter of 2021

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

    • PPNR,1 at $8.7 million for the quarter, up 14% from third quarter of 2020 and down 14% from second quarter of 2021

    • Core PPNR,1 at $9.6 million for the quarter, up 25% from third quarter of 2020 and down 5% from second quarter of 2021

    • Core PPNR, as a percentage of average assets,1 was 1.47% for the quarter, up 26 basis points ("BP") from third quarter of 2020 and down 10 BP from second quarter of 2021

  • Loans:

    • Total loans declined by $39.3 million during the quarter, with Paycheck Protection Program ("PPP") loans down $62.7 million

    • Portfolio loan1 growth (which excludes PPP loans) of $23.5 million during the quarter (5.2% annualized growth rate)

  • Net interest margin:

    • Net interest margin, at 3.32% for the quarter, was up 17 BP from third quarter of 2020 and down 7 BP from second quarter of 2021

    • Operating net interest margin,1 which excludes the impact of loan fair value accretion and net interest income from PPP lending, was 3.13% for the quarter, down 1 BP from third quarter of 2020 and down 12 BP from second quarter of 2021

  • Asset quality:

    • COVID-19 related loan deferrals of $25.6 million at September 30, 2021 (1.3% of total loans and 1.4% of portfolio loans), down from $30.4 million at June 30, 2021

    • Nonperforming assets to total assets was 0.64% as of September 30, 2021, down 7 BP from third quarter of 2020 and down 1 BP from second quarter of 2021

    • No provision for credit losses recorded during either the second or third quarters of 2021, compared to $1.7 million in the third quarter of 2020

    • Net loan loss recoveries were $65 thousand for the quarter, compared to net charge-offs of $78 thousand in the third quarter of 2020 and $79 thousand in the second quarter of 2021

    • Allowance for loan losses was 0.96% of total loans and 1.01% of portfolio loans 1 as of September 30, 2021; compared to 0.94% and 1.05%, respectively, at September 30, 2020, and 0.94% and 1.02%, respectively, at June 30, 2021

  • Noninterest expense management:

    • Noninterest expenses were $13.3 million for the quarter, up 5% from third quarter of 2020 and up 8% from second quarter of 2021

    • Merger-related expenses of $880 thousand, resulting from the Company’s proposed merger with F.N.B. Corporation ("FNB"), which was announced on July 13, 2021, were recorded in the third quarter of 2021

    • Core noninterest expenses,1 which excludes merger-related expenses, were $12.4 million for the quarter, down 2% from third quarter of 2020 and up 1% from second quarter of 2021

  • PPP update:

    • $64.2 million of PPP loans forgiven during the quarter

    • Of the total $301.5 million in principal balances of loans originated under the program, $82.1 million in principal balances were outstanding at September 30, 2021

    • Unaccreted net deferred fees were $2.2 million at September 30, 2021

1 These are financial measures not calculated in accordance with generally accepted accounting principles ("GAAP"). 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.

Net Income and EPS

The Company reported net income of $6.4 million, or $0.34 per both basic and diluted common share, for the third quarter of 2021. This compares to net income of $4.6 million, or $0.25 per both basic and diluted common share, for the third quarter of 2020 and net income of $7.5 million, or $0.40 per both basic and diluted common share, for the second quarter of 2021.

Third quarter 2021 basic and diluted EPS increased by $0.09 when compared to the third quarter of 2020 and decreased by $0.06 when compared to the second quarter of 2021. The following table presents an EPS rollforward for the third quarter of 2021 compared to both the third quarter of 2020 and the second quarter of 2021. The column noted as "FN" references each item in the rollforward to a footnote with additional information; reconciling items are presented on an after tax basis.

Third Quarter 2021

Compared to:

FN

Q3 2020

Q2 2021

EPS, Third Quarter 2020 / Second Quarter 2021

$

0.25

$

0.40

Decrease in the provision for credit losses

1

0.07

-

Pretax income from SBA Paycheck Protection Program ("PPP")

2

0.02

-

Merger-related expense

3

(0.04

)

(0.04

)

All other, net

0.04

(0.02

)

EPS, Third Quarter 2021

$

0.34

$

0.34

CHANGE

$

0.09

$

(0.06

)

1

No provision for credit losses was recorded in the third quarter of 2021, a decrease of $1.7 million from the third quarter of 2020, and unchanged from the second quarter of 2021.

2

The Company commenced originating loans under the SBA’s PPP program in the second quarter of 2020 and began the process of loan forgiveness in the fourth quarter of 2020. Third quarter of 2021 pretax income of $1.6 million from this program represented an increase of $567 thousand from the third quarter of 2020 and an increase of $8 thousand from the second quarter of 2021.

3

The third quarter of 2021 included merger-related expenses resulting from the Company’s proposed merger with FNB, which was announced on July 13, 2021 of $880 thousand (pretax). There were no merger-related expenses in the third quarter of 2020 or the second quarter of 2021.

Core net income is a non-GAAP financial measure that excludes, if applicable, merger-related expenses 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 2021 was $7.1 million, or $0.37 per diluted common share.

  • This compares to core net income, which was unchanged from reported net income, of $4.6 million, or $0.25 per diluted common share, for the third quarter of 2020. The $0.12 per share increase in core diluted EPS in the third quarter of 2021, when compared to the third quarter of 2020, was primarily the result of a lower provision for credit losses, which was down $1.7 million (+$0.07 after tax per share), and an increase in the pretax contribution from PPP lending activities of $567 thousand (+$0.02 after tax per share).

  • This also compares to core net income, which was unchanged from reported net income, of $7.5 million, or $0.40 per diluted common share, for the second quarter of 2021. The $0.03 per share decrease in core diluted EPS in the third quarter of 2021, when compared to the second quarter of 2021, was the result of the after tax impact of a $542 thousand decrease in pretax income. Total revenues decreased by $404 thousand (net interest income decreased by $195 thousand, with $214 thousand of this decrease attributable to a decrease in the accretion of fair value adjustments on acquired loans ("FV accretion"), and noninterest income decreased by $209 thousand). In addition, noninterest expenses increased by $138 thousand. *

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, if applicable, merger-related expenses and certain other items, was $9.6 million for the third quarter of 2021. The third quarter of 2021 core PPNR was up $1.9 million, or 25.4%, from $7.7 million for the third quarter of 2020, and was down $542 thousand, or 5.3%, when compared to $10.1 million for the second quarter of 2021.*

The Company reported net income of $20.0 million, or $1.07 and $1.06 per basic and diluted share, respectively, for the nine months ended September 30, 2021. This compared to 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. The net loss for the nine months ended September 30, 2020 included the $34.5 million goodwill impairment charge recorded in the second quarter of 2020. Core net income for the nine months ended September 30, 2021 was $20.7 million, or $1.10 per both basic and diluted share, respectively, compared to $11.0 million, or $0.58 per both basic and diluted share, respectively, for the nine months ended September 30, 2020. Core PPNR for the nine months ended September 30, 2021 was $29.1 million, a $6.5 million, or 29.1% increase from $22.6 million for the nine months ended September 30, 2020.

Paycheck Protection Program Loans

The Company originated 1,653 loans with a total principal balance of $301.5 million under the PPP program prior to its end in May of 2021. As of September 30, 2021, 1,282 loans with a total principal balance of $219.4 million have been forgiven. The Company continues its focus on assisting our customers through the completion of the loan forgiveness process. PPP loans, net of unaccreted net deferred fees, totaled $79.9 million at September 30, 2021, a decrease of $116.5 million from $196.4 million at September 30, 2020 and a decrease of $62.8 million from $142.7 million at June 30, 2021. PPP loan principal balances were $82.1 million at September 30, 2021 while unaccreted net deferred fees were $2.2 million at September 30, 2021.

After the SBA relaunched the program on January 19, 2021, the Company originated $100.5 million of PPP loans in the first and second quarters of 2021, consisting of 591 loans with an average loan size of $170 thousand. Of these 2021 originations, 191 loans, with an aggregate principal balance of $24.6 million, were forgiven during the third quarter of 2021. Of the 591 loans originated in 2021, 227 have been forgiven totaling $27.0 million through September 30, 2021, representing 38.4% of the number of 2021 PPP loans and 26.9% of 2021 principal balances.

During the second and third quarters of 2020, the Company originated a total of $201.0 million in PPP loans, consisting of 1,062 loans with an average loan size of $189 thousand. A total of 168 of those loans, with an aggregate principal balance of $39.6 million, were forgiven during the third quarter of 2021. Of the 1,062 loans originated in 2020, 1,055 have been forgiven totaling $192.4 million through September 30, 2021, representing 99.3% of the number of 2020 PPP loans and 95.7% of 2020 principal balances. As of September 30, 2021, two loans with an aggregate principal balance of $451 thousand were not fully forgiven and are now amortizing loans.

The Company deferred net fees of $9.6 million, consisting of total processing fees of $10.9 million from the SBA for originated PPP loans, less $1.3 million in origination costs. The net deferred fees are being accreted as a yield adjustment over the contractual term of the underlying PPP loans, with accelerated accretion upon forgiveness. PPP lending generated pretax income of $1.6 million, or $0.06 after tax per share, in the third quarter of 2021, an increase of $567 thousand, or $0.02 after tax per share, from the third quarter of 2020 and an increase of $8 thousand from the second quarter of 2021.

Certain information in this earnings release is presented with respect to "portfolio loans," a non-GAAP financial 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 2021 when comparing 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 six months. *

COVID-19 Loan Modifications

COVID-19 related loan modifications to both commercial and retail customers that the Company provided on a case by case basis, in the form of payment deferrals for periods up to six months, continue to trend favorably from their peak of $315 million (17.9% of both total loans and portfolio loans) on April 24, 2020. As of September 30, 2021, deferrals were $25.6 million, or 1.3% of total loans and 1.4% of portfolio loans, down from $30.4 million as of June 30, 2021. Included in total deferrals at September 30, 2021 are second deferrals (including deferrals where the cumulative inception to date deferral is greater than six months) of $13.1 million. Principal only deferrals represent 99.9% of total deferrals. *

Asset Quality and Allowance for Loan and Lease Losses

Nonperforming assets ("NPAs") totaled $16.3 million at September 30, 2021, a decrease of $583 thousand from June 30, 2021 and a decrease of $1.9 million from September 30, 2020. NPAs consisted of $15.9 million of nonperforming loans ("NPLs") and $334 thousand of other real estate owned ("OREO") at September 30, 2021. NPLs were 0.84% of total loans and 0.87% of portfolio loans at September 30, 2021. NPAs represented 0.64% of total assets, 0.85% of total loans and OREO, and 0.89% of portfolio loans and OREO at September 30, 2021. *

  • This compares to NPAs of $18.1 million at September 30, 2020 that consisted of $17.0 million in NPLs and $1.1 million of OREO. NPLs were 0.90% of total loans and 1.01% of portfolio loans at September 30, 2020 while nonperforming assets 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 $16.8 million at June 30, 2021 that consisted of $16.2 million in NPLs and $629 thousand of OREO. NPLs were 0.83% of total loans and 0.90% of portfolio loans at June 30, 2021 while NPAs represented 0.65% of total assets, 0.87% of total loans and OREO, and 0.94% of portfolio loans and OREO at June 30, 2021.

Net loan loss recoveries were $65 thousand in the third quarter of 2021 and represented -0.01% of average loans (annualized). This compares to net charge-offs of $78 thousand, or 0.02% of average loans (annualized) in the third quarter of 2020 and $79 thousand, or 0.02% of average loans (annualized) in the second quarter of 2021. The allowance for loan and lease losses (the "allowance") was $18.4 million on September 30, 2021. No provision for credit losses was recorded in the third quarter of 2021.

Because the Company is a smaller reporting company under SEC rules, the allowance was determined under the incurred loss model. The $18.4 million allowance represented 0.96% of total loans, 1.01% of portfolio loans, and 115.2% of NPLs at September 30, 2021. *

  • This compares to an allowance of $17.7 million at September 30, 2020. The September 30, 2020 allowance represented 0.94% of total loans, 1.05% of portfolio loans, and 104.0% of NPLs. The $696 thousand increase in the allowance at September 30, 2021 was the result of aggregate provisions for credit losses attributable to the allowance of $2.7 million partially offset by aggregate net charge-offs of $2.0 million during the four-quarter period ending September 30, 2021 (with $1.8 million of the net charge-offs recorded in the first quarter of 2021).

  • This compares to an allowance of $18.3 million at June 30, 2021. The June 30, 2021 allowance represented 0.94% of total loans, 1.02% of portfolio loans, and 112.8% of NPLs. The $65 thousand increase in the allowance at September 30, 2021 was the result of net loan loss recoveries of $65 thousand during the quarter ended September 30, 2021 and no provision for credit losses.

The Company’s allowance as a percentage of total loans has historically been lower than certain of our peers due to the accounting for acquired loans and their initial impact on the allowance. The allowance and unamortized fair value marks as a percentage of portfolio loans, a non-GAAP measure used by management to assess credit coverage, adds the unamortized fair value marks to total loans, portfolio loans, and the allowance. 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. However, this measure provides the Company with an additional indicator of potential loss absorption capacity. The allowance and unamortized fair value marks as a percentage of total loans plus fair value marks was 1.18% at September 30, 2021, a decrease of 14 BP from September 30, 2020 and unchanged from June 30, 2021. The allowance and unamortized fair value marks as a percentage of portfolio loans plus fair value marks was 1.24% at September 30, 2021, a decrease of 24 BP from September 30, 2020 and a decrease of 3 BP from June 30, 2021. *

The Company’s asset quality trends indicate minimal additional stress in the loan portfolio; we believe our ongoing active management of the portfolio, COVID-19 related loan modifications, and PPP loan relief have reduced the risk in the portfolio. Management continues to closely monitor portfolio conditions and reevaluate the adequacy of the allowance. While traditional lagging indicators of delinquencies and nonperforming loans remain historically modest, the pandemic continues to adversely impact the economy. As a result, management believes there still 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, 2021 was $308.2 million, an increase of $4.9 million from June 30, 2021. The increase was primarily due to third quarter 2021 net income of $6.4 million partially offset by a $1.9 million decrease in accumulated other comprehensive income ("AOCI"), which represents the after tax impact of changes in the fair value of available-for-sale securities. Book value per common share was $16.38 at September 30, 2021, an increase of $0.24 per share since June 30, 2021, with third quarter EPS of $0.34 per share partially offset by the change in AOCI representing a decrease of $0.10 per share.

Tangible stockholders’ equity, a non-GAAP financial measure that deducts goodwill and other intangible assets, net of any applicable deferred tax liabilities, was $273.7 million at September 30, 2021. This compares to $268.3 million at June 30, 2021, with the $5.3 million increase primarily due to third quarter net income of $6.4 million and $425 thousand of core deposit intangible amortization, partially offset by the $1.9 million decrease in AOCI. Tangible book value per common share, a non-GAAP measure that divides tangible stockholders’ equity by the number of shares outstanding, was $14.55 per share at September 30, 2021, an increase of $0.27 per share since June 30, 2021. *

The Company’s regulatory capital ratios are all well in excess of regulatory "well-capitalized" and internal target minimum levels. Note that the Company had adopted the regulatory AOCI opt-out election; as a result, AOCI is not a component of regulatory capital and, therefore, changes in AOCI do not impact regulatory capital ratios. The total capital ratio was 14.99% while both the Common Equity Tier 1 ("CET 1") and Tier 1 capital ratios were 12.63% at September 30, 2021. The Tier 1 to average assets ("leverage") ratio was 10.03%. A comparison of the Company’s September 30, 2021 regulatory capital ratios to September 30, 2020 and June 30, 2021 is as follows:

  • Regulatory capital ratios at September 30, 2020 consisted of a total capital ratio of 14.11% while both the CET 1 and Tier 1 capital ratios were 11.65%. The leverage ratio was 9.07%. All September 30, 2021 regulatory capital ratios were above the September 30, 2020 levels.

  • Regulatory capital ratios at June 30, 2021 consisted of a total capital ratio of 14.62% while both the CET 1 and Tier 1 capital ratios were 12.26%. The leverage ratio was 9.74%. All September 30, 2021 regulatory capital ratios were above the June 30, 2021 levels.

Net Interest Income and Net Interest Margin

Net interest income was $19.9 million for the third quarter of 2021, a decrease of $195 thousand, or 1.0%, from $20.1 million for the second quarter of 2021, and an increase of $1.6 million, or 8.8%, from $18.3 million in the third quarter of 2020. PPP net interest income increased by $8 thousand from the second quarter of 2021 and increased by $567 thousand from the third quarter of 2020. Non-PPP related changes in net interest income were attributable to the impact of portfolio loan growth, lower funding costs, and lower yields on earning assets.

The following table presents selected yields and rates for the third quarters of 2021 and 2020 as well as the second quarter of 2021. Changes in the third quarter 2021 yields and rates from the third quarter of 2020 and the second quarter of 2021 are also included in the table.

Third Quarter 2021

Change from:

Third

Quarter

2021

Third

Quarter

2020

Second

Quarter

2021

Third

Quarter

2020

Second

Quarter

2021

Selected yields and rates:

Net interest margin

3.32

%

3.15

%

3.39

%

0.17

%

-0.07

%

Operating net interest margin *

3.13

%

3.14

%

3.25

%

-0.01

%

-0.12

%

Earning asset yield

3.53

%

3.62

%

3.61

%

-0.09

%

-0.08

%

Total loan yield

4.03

%

4.04

%

4.07

%

-0.01

%

-0.04

%

Cost of total IBL + demand deposits

0.22

%

0.48

%

0.23

%

-0.26

%

-0.01

%

Impact of fair value adjustments on acquired loans:

Net interest margin

0.07

%

0.11

%

0.12

%

-0.04

%

-0.05

%

Earning asset yield

0.08

%

0.12

%

0.12

%

-0.04

%

-0.04

%

Total loan yield

0.09

%

0.13

%

0.13

%

-0.04

%

-0.04

%

Impact of PPP loans:

Net interest margin

0.12

%

-0.10

%

0.02

%

0.22

%

0.10

%

Earning asset yield

0.12

%

-0.10

%

0.03

%

0.22

%

0.09

%

Total loan yield

0.12

%

-0.18

%

-0.01

%

0.30

%

0.13

%

The third quarter 2021 net interest margin of 3.32% was up 17 BP from the third quarter of 2020 and down 7 BP from the second quarter of 2021. The impact of FV accretion and net interest income from PPP lending had a significant impact on the reported net interest margin. Operating net interest margin is a non-GAAP financial measure defined as net interest income excluding both FV accretion and net interest income from PPP lending divided by average earning assets excluding both the average balance of fair value adjustments on acquired loans and the average balance of PPP loans. The Company believes that operating net interest margin related measures provide additional useful information for purposes of evaluating the Company’s results of operations, by eliminating the non-sustainable contribution from PPP lending and the volatility from FV accretion. *

The third quarter 2021 operating net interest margin of 3.13% was down 1 BP from the third quarter of 2020. While the cost of funds (defined as average total interest-bearing liabilities ("IBL") + demand deposits) decreased by 26 BP, the yield on earning assets, as adjusted for FV accretion and interest income from PPP lending, decreased by 27 BP, with these decreases due to the impact of lower market interest rates. The third quarter 2021 operating net interest margin of 3.13% was down 12 BP from 3.25% in the second quarter of 2021. The yield on earning assets, as adjusted for FV accretion and interest income from PPP lending, decreased by 12 BP while the cost of funds decreased by 1 BP from the second quarter of 2021.

Noninterest Income

Noninterest income was $2.1 million for the third quarter of 2021, an increase of $55 thousand from the $2.1 million reported in the third quarter of 2020, and a decrease of $209 thousand from the $2.4 million reported in the second quarter of 2021.

  • The $55 thousand increase when compared to the third quarter of 2020 primarily consisted of the following: an increase in service charges on deposit accounts (+$213 thousand) and an increase in interchange fees, as card activity volumes have improved since 2020, included in other income (+$114 thousand), partially offset by a decrease in loan related fees and service charges (-$140 thousand) and a decrease in the components of other income excluding interchange fees (-$112 thousand).

    The $209 thousand decrease when compared to the second quarter of 2021 was primarily due to a decrease in other income (-$228 thousand), which included interchange fees (-$54 thousand), and a decrease in loan related fees and service charges (-$46 thousand), partially offset by an increase in service charges on deposit accounts (+$65 thousand).

Noninterest Expenses

Noninterest expenses totaled $13.3 million for the third quarter of 2021, an increase of $606 thousand from the $12.7 million reported in the third quarter of 2020, and an increase of $1.0 million from the $12.3 million reported in the second quarter of 2021. Merger-related expenses of $880 thousand were included in noninterest expenses in the third quarter of 2021.

Core noninterest expenses is a non-GAAP financial measure that, with respect to the third quarter of 2021, excludes merger-related noninterest expenses. There were no related adjustments to reported noninterest expense in the third quarter of 2020 and the second quarter of 2021.

Core noninterest expenses were $12.4 million for the third quarter of 2021, a $274 thousand decrease from $12.7 million in the third quarter of 2020, and a $138 thousand increase from $12.3 million in the second quarter of 2021.*

  • The $274 thousand decrease when compared to the third quarter of 2020 resulted primarily from lower compensation and benefits expenses (-$388 thousand), lower professional fees (-$218 thousand), and lower FDIC assessment expense (-$206 thousand); these items were partially offset by higher other operating expense (+$474 thousand) and higher marketing and business development expenses (+$244 thousand). All other noninterest expense categories in the aggregate were lower in the third quarter of 2021 (-$180 thousand).

  • The $138 thousand increase when compared to the second quarter of 2021 resulted primarily from higher other operating expense (+$700 thousand), partially offset by lower compensation and benefits expenses (-$395 thousand) and lower professional fees (-$204 thousand). All other noninterest expense categories in the aggregate were higher in the third quarter of 2021 (+$37 thousand).

Loans

Loans totaled $1.90 billion at September 30, 2021, a decrease of $39.3 million, or 2.0%, from total loans at June 30, 2021. Compared to September 30, 2020, total loans grew by $18.9 million, or 1.0%.

Portfolio loans, a non-GAAP measure defined as total loans and leases, but excluding PPP loans, totaled $1.82 billion at September 30, 2021, an increase of $23.5 million, or 1.3%, from portfolio loans at June 30, 2021. Compared to September 30, 2020, portfolio loans increased by $135.3 million, or 8.0%. The changes in portfolio loans were as follows: *

  • Compared to June 30, 2021, the $23.5 million increase (5.2% annualized growth rate) in portfolio loans was a result of the following:

    • The commercial lending portfolio, totaling $1.25 billion at September 30, 2021, decreased by $683 thousand from June 30, 2021. Increases in construction and land loans (+$6.5 million), were more than offset by decreases in commercial and industrial ("C&I") loans (-$5.5 million) and commercial real estate ("CRE") loans (-$1.7 million). New loan originations of $38.4 million during the third quarter of 2021 were offset by $39.1 million in loan maturities, payoffs, partial paydowns, and lower line utilization.

    • Residential real estate loans were up $22.1 million, or 4.8%. Secondary market loan purchases were $44.5 million during the third quarter of 2021, partially offset by $22.4 million of prepayments.

    • Consumer loans were up $2.1 million, or 2.4%.

  • Compared to September 30, 2020, the $135.3 million increase in portfolio loans was a result of the following:

    • The commercial lending portfolio increased by $69.7 million, or 5.9%, with CRE loans up $50.8 million, or 7.0%, construction and land loans up $20.6 million, or 19.7%, while C&I loans were down $1.6 million, or 0.5%.

    • Consumer loans were up $33.7 million, or 62.8%, reflecting strong growth in some niche lending activities such as marine lending.

    • Residential real estate loans were up $31.8 million, or 7.0%.

Average total loans were $1.92 billion for the third quarter of 2021, a decrease of $17.2 million, or 0.9%, over average loans for the second quarter of 2021, and an increase of $40.1 million, or 2.1%, over average loans for the third quarter of 2020. Average portfolio loans were $1.81 billion for the third quarter of 2021, an increase of $44.6 million, or 2.5%, from average loans for the second quarter of 2021. Compared to the third quarter of 2020, average portfolio loans increased by $120.0 million, or 7.1%.

Deposits

Total deposits were $1.94 billion at September 30, 2021, a decrease of $84.1 million, or 4.2%, from the June 30, 2021 balance of $2.03 billion. Compared to September 30, 2020, total deposits decreased by $31.3 million, or 1.6%. Changes in deposits were as follows:

  • Customer deposits, which exclude brokered and other non-customer deposits, were $1.78 billion at September 30, 2021, compared to $1.79 billion at June 30, 2021, a decrease of $10.8 million, or 0.6%.

    • Low-cost, non-maturity deposits decreased by $2.8 million, or 0.2%, during the third quarter of 2021. Within non-maturity deposits, transaction accounts increased by $2.0 million, or 0.2%, with noninterest-bearing transaction accounts up $4.9 million, or 0.6%, while interest-bearing transaction accounts decreased by $2.9 million, or 1.4%.

    • The increase in non-maturity deposits was partially offset by the continued managed decline in customer CD balances, down $8.0 million, or 4.3%. The Company continues to manage for lower retention rates on maturing CDs that have substantially higher rates than current market rates. Management’s strategy is to not offer above-market renewal rates on non-transactional, non-relationship deposits.

  • Compared to September 30, 2020, customer deposits increased by $144.2 million, or 8.8%.

    • The increase in customer deposits was primarily the result of strong growth in non-maturity deposits, which increased by $221.0 million, or 16.0%. Within non-maturity deposits, transaction accounts increased by $146.9 million, or 17.4%, with noninterest-bearing transaction accounts up $126.3 million, or 19.2%.

    • Customer CD balances declined by $76.8 million, or 30.0%.

  • Brokered and other non-customer deposits were $158.4 million at September 30, 2021, compared to $231.8 million at June 30, 2021 and $207.1 million at September 30, 2020.

Average customer deposits for the third quarter of 2021 were $1.81 billion, an increase of $9.3 million, or 0.5%, from the second quarter 2021 average balance. Customer non-maturity deposit balances increased by $19.5 million, or 1.2%, with transaction accounts up $5.7 million; within transaction accounts, noninterest-bearing deposits were up $21.5 million. Compared to the third quarter of 2020, average customer deposits were up by $173.1 million, or 10.6%. Customer non-maturity deposit balances increased by $256.4 million, or 18.7%, with transaction accounts up $167.0 million; $145.8 million of the transaction account growth was in noninterest-bearing deposits.

* 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.

Pending Merger

On July 13, 2021, FNB, the holding company for First National Bank of Pennsylvania, and the Company announced the execution of a definitive merger agreement for F.N.B. Corporation to acquire Howard Bancorp, including its wholly-owned banking subsidiary, Howard Bank, in an all-stock transaction. The completion of the merger remains subject to receipt of regulatory approvals, approval of the Company’s stockholders and satisfaction of other customary closing conditions.

Due to the pending merger, the Company will not be holding an earnings call to review its third quarter 2021 financial results.

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 13 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," "look forward" 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 global COVID-19 pandemic 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 Consolidated Appropriations Act, 2021), 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; risks related to the Company’s proposed merger with F.N.B. Corporation, 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 potential inability to replace income lost from exiting our mortgage banking activities with new revenues; 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; 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)

FOR THE NINE MONTHS ENDED

FOR THE THREE MONTHS ENDED

September 30,

September 30,

September 30,

June 30,

September 30,

2021

2020

2021

2021

2020

Income Statement Data:

Interest income

$

63,758

$

64,651

$

21,141

$

21,382

$

20,951

Interest expense

4,101

10,734

1,254

1,300

2,679

Net interest income

59,657

53,917

19,887

20,082

18,272

Provision for credit losses

1,000

8,145

-

-

1,700

Net interest income after provision for credit losses

58,657

45,772

19,887

20,082

16,572

Noninterest income

6,566

10,214

2,144

2,353

2,089

Noninterest expense

37,954

74,896

13,315

12,297

12,709

Income (loss) before income taxes

27,269

(18,910

)

8,716

10,138

5,952

Income tax expense (benefit)

7,251

2,552

2,356

2,682

1,348

Net income (loss)

$

20,018

$

(21,462

)

$

6,360

$

7,456

$

4,604

Per Share Data and Shares Outstanding:

Net income (loss) per common share - basic

$

1.07

$

(1.14

)

$

0.34

$

0.40

$

0.25

Net income (loss) per common share - diluted

$

1.06

$

(1.14

)

$

0.34

$

0.40

$

0.25

Book value per common share, at period end

$

16.38

$

15.45

$

16.38

$

16.14

$

15.45

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

$

14.55

$

13.51

$

14.55

$

14.28

$

13.51

Average common shares outstanding

18,788

18,773

18,807

18,787

18,737

Diluted average common shares outstanding

18,872

18,773

18,896

18,871

18,737

Shares outstanding, at period end

18,812

18,742

18,812

18,795

18,742

Balance Sheet Data:

Total assets

$

2,527,258

$

2,559,184

$

2,527,258

$

2,599,541

$

2,559,184

Portfolio loans, net of unearned income (1)

1,823,337

1,688,030

1,823,337

1,799,847

1,688,030

Paycheck Protection Program loans, net of unearned income

79,918

196,375

79,918

142,660

196,375

Total loans and leases, net of unearned income

1,903,255

1,884,405

1,903,255

1,942,507

1,884,405

Allowance for loan losses

18,353

17,657

18,353

18,288

17,657

Other interest-earning assets

411,732

454,897

411,732

442,583

454,897

Total deposits

1,941,418

1,972,738

1,941,418

2,025,557

1,972,738

Total borrowings

254,224

269,861

254,224

247,126

269,861

Common and total stockholders' equity

308,177

289,500

308,177

303,263

289,500

Average total assets

2,571,694

2,474,988

2,587,555

2,587,151

2,524,773

Average common and total stockholders' equity

302,234

307,493

309,058

300,234

288,727

Selected Performance Metrics:

Return on average assets (2)

1.04

%

(1.16

)%

0.98

%

1.16

%

0.73

%

Return on average common equity (2)

8.86

%

(9.32

)%

8.16

%

9.96

%

6.34

%

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

$

28,269

$

(10,765

)

$

8,716

$

10,138

$

7,652

PPNR to average assets (1)

1.52

%

1.22

%

1.47

%

1.57

%

1.50

%

Net interest margin (2),(3)

3.38

%

3.23

%

3.32

%

3.39

%

3.15

%

Efficiency ratio (4)

57.31

%

116.79

%

60.44

%

54.81

%

62.42

%

Core efficiency ratio (1)

55.98

%

62.07

%

56.44

%

54.81

%

62.42

%

Asset Quality Ratios:

Nonperforming loans to portfolio loans (1)

0.87

%

1.01

%

0.87

%

0.90

%

1.01

%

Nonperforming assets to portfolio loans and OREO (1)

0.89

%

1.07

%

0.89

%

0.94

%

1.07

%

Nonperforming assets to total assets

0.64

%

0.71

%

0.64

%

0.65

%

0.71

%

Allowance for loan losses to total loans

0.96

%

0.94

%

0.96

%

0.94

%

0.94

%

Allowance for loan losses to portfolio loans (1)

1.01

%

1.05

%

1.01

%

1.02

%

1.05

%

Allowance for loan losses to nonperforming loans

115.20

%

103.96

%

115.20

%

112.76

%

103.96

%

Net chargeoffs to average total loans and leases (2)

0.13

%

0.04

%

(0.01

)%

0.02

%

0.02

%

Capital Ratios (Bancorp):

Tier 1 capital to average assets (leverage ratio)

10.03

%

9.07

%

10.03

%

9.74

%

9.07

%

Common equity tier 1 capital to risk-weighted assets

12.63

%

11.65

%

12.63

%

12.26

%

11.65

%

Tier 1 capital to risk-weighted assets

12.63

%

11.65

%

12.63

%

...

12.26

%

11.65

%

Total capital to risk-weighted assets

14.99

%

14.11

%

14.99

%

14.62

%

14.11

%

Average equity to average assets

11.75

%

12.42

%

11.94

%

11.60

%

11.44

%

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