Howard Bancorp, Inc. (Nasdaq:HBMD), the parent company of Howard Bank, today reported its financial results for the fiscal year ending December 31, 2017. A summary of results for and other developments during the year ended December 31, 2017 is as follows:

  • During 2017 total assets increased by $123 million or 12% from $1.03 billion at December 31, 2016 to $1.15 billion at December 31, 2017. Total loans held in our portfolio at the end of 2017 were $937 million, representing growth of $115 million or 14%, from $822 million at December 31, 2016. Total commercial loans which include both commercial loans and lines of credit along with owner occupied commercial real estate loans increased by $63 million or 21% to $360 million at December 31, 2017 compared to $297 million to end 2016. This double digit growth in both total assets, total loans and commercial loans was derived solely from organic activities throughout 2017. Total deposits at December 31, 2017 increased to $864 million from $809 million at December 31, 2016, representing growth of $55 million or 7%, all of which is also attributable to organic growth activities. Included in this $55 million in deposit growth for 2017 was an increase in noninterest bearing demand deposits of $35 million or 19%, as this core source of deposits increased from $183 million at December 31, 2016 to $218 million at the end of 2017.
  • Total common shareholders’ equity increased by $46 million or 53% from $86 million at December 31, 2016 to $132 million at December 31, 2017, primarily as a result of our sale of 2,760,000 shares of our common stock for gross proceeds of $41.4 million in an underwritten public offering on February 1, 2017. Even with the 12% asset growth and the 14% loan growth experienced during 2017, the Company’s capital position increased significantly during 2017, as reflected in the following capital comparisons between December 31, 2017 and December 31, 2016:
 

December 31, 2017

  

December 31, 2016

Total common equity $132,253,000 $85,790,000
Book value per share $13.47 $12.27
Tangible book value per share $13.23 $11.86
Tangible common equity ratio 11.32% 8.10%
Leverage ratio 11.70% 8.36%
Tier I risk-based capital ratio 12.77% 9.71%
Total risk-based capital ratio 13.72% 10.83%
  • On August 14, 2017, the Company announced the signing of a definitive agreement and plan of reorganization whereby Howard Bank will acquire First Mariner Bank (“First Mariner”). Upon the closing of the transaction, First Mariner will merge with Howard Bank, and the combined bank will operate under the Howard Bank name and be headquartered in First Mariner’s existing Baltimore City location. All required stockholder approvals have been received and we anticipate that the merger will close in the first quarter of 2018, subject to receipt of required regulatory approvals and satisfaction of other customary closing conditions.
  • Net income available to common shareholders increased to $7.2 million for 2017 compared to $5.1 million for 2016, representing an increase of $2.1 million. Basic earnings per common share (EPS) for 2017 were $0.75 compared to $0.74 for 2016, representing an increase of $.01 or 2%. Even though net earnings for 2017 were more than 40% higher than for 2016, EPS only slightly increased due to both $567 thousand in merger-related expenses incurred during 2017 that, net of taxes, reduced net income by $351 thousand or $.04, and to the larger number of average shares outstanding for 2017.

For the Year Ended December 31, 2017

As noted above, during 2017 Howard Bancorp continued with its strategic growth plan by organically growing assets, loans, and noninterest bearing deposits by 12%, 14%, and 19%, respectively. This balance sheet growth led to an increase in net interest income of $3.7 million or 11% when comparing net interest income of $38 million for 2017 to $34 million recorded in 2016. This net interest income growth was supplemented by increased revenue generated from our mortgage banking division, which recorded noninterest income of $16.2 million for 2017 compared to $11.9 million in 2016, an increase of $4.3 million or 36%. In 2017, the provision for credit loss expense of $1.8 million was lower than the $2.0 million recorded in 2016 despite higher loan balances due to a different mix of general and specific provisions for the two years. Excluding the $567 thousand in merger-related expenses in 2017, our noninterest expenses increased by $5.9 million or 15%. Approximately $4.5 million of this increase was compensation-related, with a $2.1 million or 60% increase in compensation expenses from our mortgage division related to increased staff and higher tax and benefit expenses driven by higher 2017 originations levels, and a $1.5 million or 13% increase in banking-related compensation expenses largely influenced by the mid-2016 and early 2017 additions to our business development teams and supporting staff levels. Occupancy expenses for 2017 were $468 thousand or 10% lower for 2017 than for 2016 as we closed three branch offices in the middle of 2016. Marketing and business development expenses for 2017 were $856 thousand or 25% higher than in 2016, with most of this increase driven by mortgage-related marketing and business development expenses increasing $559 thousand or 26% as a result of our purchasing additional leads for the Consumer Direct unit of our mortgage division. In addition, bank-related marketing and business development expenses increased $267 thousand or 25% as a result of our decision to substantially increase our promotional initiatives for a short period of time after the announcement of our execution of the agreement to acquire First Mariner. We have recently renegotiated our contracts for certain loan-related services and eliminated certain loan-related expenses through process enhancements that were collectively responsible for over $500 thousand in loan-related expenses incurred by the mortgage division in 2017, which we expect will reduce noninterest expenses, and therefore increase earnings going forward. Our other real estate owned (“OREO”) expenses of $655 thousand for 2017 were $558 thousand higher than the $97 thousand incurred in 2016. This increase was primarily driven by valuation adjustments on OREO properties upon receipt of updated appraisals. We have contracts for the sale of two OREO properties that we expect, upon closing, to reduce our OREO by $1 million, which would represent a 68% reduction from 2017 OREO levels. We anticipate that these two sales will occur in the second quarter of 2018.

As a result of the decrease in the corporate federal tax rate from 34% to 21% beginning in 2018 as a result of the Tax Cuts and Jobs Act of 2017, which was signed into law on December 22, 2017, we reduced the carrying amount of our deferred tax assets as of December 31, 2017 by $268 thousand, which resulted in an increase in our income tax expense by the same amount. Offsetting this 2017 increase in tax expense were reductions resulting from changes to certain tax accounts related to adjustments in our application of purchase accounting guidelines related to our acquisition of Patapsco Bancorp.

For the Three Months Ended December 31, 2017

Similar to the full year results for 2017, the fourth quarter of 2017 represented a continuation of our organic growth initiatives as total assets increased by $17 million or 2%, portfolio loans grew by $44 million or 5%, and noninterest bearing deposits increased by $6 million or 3% from the third quarter of 2017. Net income available to common shareholders of $1.9 million was $930 thousand or 98% higher than the same period of 2016, and also increased from the $1.7 million recorded during the third quarter of 2017. Our net interest income of $9.9 million for the fourth quarter of 2017 compared favorably to both the $8.5 million in the same quarter of 2016, and the $9.8 million in the third quarter of 2017. Our provision for credit losses of $800 thousand for the fourth quarter of 2017 was higher than the two comparable periods, and included approximately $400 thousand in specific reserves largely related to two non-accrual loans. Fourth quarter 2017 noninterest revenues of $4.7 million, which were largely driven by our mortgage banking revenues, were $1.7 million or 56% higher than the same period in 2016, but experienced a seasonal decline of nearly $0.5 million from the third quarter of 2017 due to a normal slow-down in mortgage originations in the fourth quarter of each year. Excluding the $189 thousand in merger-related expenses in the fourth quarter of 2017, our noninterest expenses increased by $2.4 million or 26% compared to the fourth quarter of 2016, while reflecting a $400 thousand or 4% increase compared to the third quarter of 2017. Included in fourth quarter 2017 expenses were nearly $500 thousand in OREO valuation write-downs on two OREO properties, both of which are under contract, as noted above. Thus, fourth quarter results were impacted by $1.1 million in expenses consisting of $189 thousand in merger-related expenses, $400 thousand in specific reserves on certain loans and $500 thousand in OREO valuation adjustments. This $1.1 million reduction in pretax income, net of taxes, reduced net income by $682 thousand and EPS by $.07. The additional provisions and OREO valuation adjustments during the quarter resulted from our conservative asset quality management to accurately reflect our asset quality position. A portion of the increased advertising and professional fees incurred were to capitalize on the strong reception and positive publicity surrounding our announcement of the merger agreement with First Mariner. Influenced by all of the above items, our fourth quarter EPS was $0.19 compared to $0.14 for the same quarter in 2016 and $0.17 for the third quarter of 2017.

Chairman and CEO Mary Ann Scully stated, “2017 has been a transformational year. Actual results reflect the tangible fruit of consistent and sustainable investment in activities that first and foremost drove double digit small and middle market commercial loan growth funded by transaction deposits and secondarily resulted in noninterest income related to residential mortgage origination activities. These ongoing activities were supplemented by a well-timed capital raise resulting in an over 50% increase in tangible common equity for 2017. This capital was raised from a diversified group of highly regarded institutional investors and has clearly positioned us both for further organic growth and for opportunistic acquisition activities. The initial, but very substantial, result of this enhanced capital position was the announced acquisition of First Mariner which we expect to close in the first quarter of 2018. Traditional growth opportunities will be further enhanced post-closing with the combined well-regarded group of commercial relationship managers, an expanded treasury management staff and product set, larger lending limits that expand greatly the universe of prospective clients and exceptionally positive market reception to the first locally headquartered business bank in this very attractive region in decades. Challenges of course remain to ensure that these opportunities are suitably leveraged. These include the normal systems conversions and people and location integration, the planning for which has progressed quickly and seamlessly since the transaction announcement. The acquisition also will necessitate a right sizing and restructuring of the combined mortgage operation to ensure that the most strategically appropriate, sustainable and profitable segments are emphasized in the right mix of activities. After an exhaustive review of both companies’ mortgage operations, we believe that we have clearly identified the best path forward for this optimization. We are excited about the next steps in the first half of the year to realize all this potential to position us to undertake our role as the best business bank in Baltimore. As always, we are continually grateful to our supporting stakeholders.”

The statements in this press release regarding the anticipated timing of the First Mariner acquisition and the anticipated results thereof, anticipated decreases in noninterest expenses, the timing and anticipated impact on financial results of the pending sale of two OREO properties, and future organic growth and acquisition opportunities are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995 or the Securities and Exchange Commission in its rules, regulations, and releases. Howard Bancorp intends that such forward-looking statement be subject to the safe harbors created thereby. Such forward-looking statements are based on current expectations regarding important risks, including but not limited to receipt of all required regulatory approvals for the First Mariner merger; expected revenue synergies and cost savings from the merger may not be fully realized; revenues following the merger may be lower than expected; customer and employee relationships of both Howard Bank and First Mariner may be disrupted by the merger; anticipated cost savings from the renegotiated service contracts and new process enhancements may not be realized; real estate values, local and national economic conditions, and the impact of interest rates on financing, as well as other risks detailed from time to time in filings made by Howard Bancorp with the Securities and Exchange Commission. Accordingly, actual results may differ from those expressed in these forward-looking statements, and the making of such statements should not be regarded as a representation by Howard Bancorp or any other person that results expressed therein will be achieved. Howard Bancorp does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Additional information is available at www.howardbank.com.

 
HOWARD BANCORP, INC.
         
Twelve months ended Three months ended
(Dollars in thousands, except per share data.) Dec 31, Dec 31     Sep 30     Dec 31
Income Statement Data: 2017 2016 2017 2017 2016
Interest income $ 43,026 $ 38,741 $ 11,338 $ 11,112 $ 9,752
Interest expense   5,167   4,562   1,482   1,357   1,239
Net interest income 37,859 34,179 9,856 9,755 8,513
Provision for credit losses 1,831 2,037 800 491 735
Noninterest income 19,524 14,796 4,669 5,104 2,976
Merger and restructuring expenses 567 - 189 378 -
Other noninterest expense   44,633   38,699   11,659   11,259   9,268
Pre-tax income   10,352   8,239   1,877   2,731   1,486
Federal and state income tax expense   3,152   2,936  

(6

)

  1,018   533
Net income   7,200   5,303   1,884   1,713   953
Preferred stock dividends   -   166   -   -   -
Net income available to common shareholders $ 7,200 $ 5,137 $ 1,884 $ 1,713 $ 953
 
Per share data and shares outstanding:
Net income per common share, basic $ 0.75 $ 0.74 $ 0.19 $ 0.17 $ 0.14
Book value per common share at period end $ 13.47 $ 12.27 $ 13.47 $ 13.28 $ 12.27
Tangible book value per common share at period end $ 13.23 $ 11.86 $ 13.23 $ 13.03 $ 11.86
Average common shares outstanding 9,555,952 6,975,662 9,815,228 9,808,542 6,990,390
Shares outstanding at period end 9,820,592 6,991,072 9,820,592 9,811,992 6,991,072
 
Financial Condition data:
Total assets $ 1,149,950 $ 1,026,957 $ 1,149,950 $ 1,132,533 $ 1,026,957
Loans receivable (gross) 936,608 821,524 936,608 892,213 821,524
Allowance for credit losses

(6,159

)

(6,428

)

(6,159

)

(5,661

)

(6,428

)

Other interest-earning assets 152,343 167,551 152,343 176,210 167,551
Total deposits 863,908 808,734 863,908 862,085 808,734
Borrowings 148,920 127,574 148,920 135,023 127,574
Total shareholders' equity 132,253 85,790 132,253 130,313 85,790
Common equity 132,253 85,790 132,253 130,313 85,790
 
Average assets $ 1,072,943 $ 970,710 $ 1,113,539 $ 1,090,277 $ 1,003,100
Average shareholders' equity 123,763 86,221 129,829 127,787 84,616
Average common shareholders' equity 123,763 81,896 129,829 127,787 84,616
 
Selected performance ratios:
Return on average assets 0.67 % 0.55 % 0.67 % 0.62 % 0.38 %
Return on average common equity 5.82 % 6.15 % 5.76 % 5.32 % 4.48 %
Net interest margin(1) 3.73 % 3.73 % 3.71 % 3.76 % 3.56 %
Efficiency ratio(2) 78.77 % 79.01 % 81.56 % 78.32 % 80.67 %
 
Asset quality ratios:
Nonperforming loans to gross loans 1.41 % 1.17 % 1.41 % 1.46 % 1.17 %
Allowance for credit losses to loans 0.66 % 0.78 % 0.66 % 0.63 % 0.78 %
Allowance for credit losses to nonperforming loans 46.70 % 67.11 % 46.70 % 43.50 % 67.11 %
Nonperforming assets to loans and other real estate 1.57 % 1.41 % 1.57 % 1.69 % 1.41 %
Nonperforming assets to total assets 1.28 % 1.16 % 1.28 % 1.34 % 1.16 %
 
Capital ratios:
Leverage ratio 11.70 % 8.36 % 11.70 % 11.74 % 8.36 %
Tier I risk-based capital ratio 12.77 % 9.71 % 12.77 % 13.40 % 9.71 %
Total risk-based capital ratio 13.72 % 10.83 % 13.72 % 14.36 % 10.83 %
Average equity to average assets 11.53 % 8.88 % 11.66 % 11.72 % 8.44 %
 

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

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

         
Unaudited Consolidated Statements of Financial Condition
(Dollars in thousands, except per share amounts) PERIOD ENDED
December 31, Sept 30, June 30, March 31, December 31,
2017 2017 2017 2017 2016
ASSETS:
Cash and Cash Equivalents:
Cash and due from banks $ 28,856 $ 50,715 $ 41,536 $ 48,170 $ 29,675
Federal Funds Sold   116     495     294     314     9,691  
Total cash and cash equivalents   28,972     51,210     41,830     48,484     39,366  
 
Interest Bearing Deposits with Banks - 494 9,633 14,326 19,513
 
Investment Securities:
Available-for-sale 74,256 67,883 52,151 46,059 38,728
Held-to-maturity 9,250 9,250 9,250 8,750 6,250
Federal Home Loan Bank stock, at cost   6,492     5,982     5,196     2,943     5,103  
Total investment securities   89,998     83,115     66,597     57,752     50,081  
 
Loans held-for-sale 42,153 52,683 53,872 35,666 51,054
 
Loans: 936,608 892,213 880,137 845,945 821,524
Allowance for credit losses   (6,159 )   (5,661 )   (5,385 )   (5,360 )   (6,428 )
Net loans   930,449     886,552     874,752     840,585     815,096  
 
Accrued interest receivable 3,465 3,137 2,860 2,790 2,793
 
Bank premises and equipment, net 19,189 19,556 19,599 19,864 20,080
 
Other assets:
Goodwill 603 603 603 603 603
Bank owned life insurance 28,631 28,427 28,216 21,517 21,371
Other intangibles 1,743 1,849 1,977 2,113 2,248
Other assets   4,747     4,907     4,383     5,052     4,752  
Total other assets   35,724     35,786     35,179     29,285     28,974  
Total assets $ 1,149,950   $ 1,132,533   $ 1,104,322   $ 1,048,752   $ 1,026,957  
 
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Non-interest bearing deposits $ 218,139 $ 212,519 $ 215,124 $ 244,408 $ 182,880
Interest bearing deposits   645,769     649,566     639,585     607,564     625,854  
Total deposits   863,908     862,085     854,709     851,972     808,734  
Borrowed funds 148,920 135,023 116,311 64,328 127,573
Other liabilities   4,869     5,112     4,914     6,441     4,860  
Total liabilities   1,017,697     1,002,220     975,934     922,741     941,167  
Shareholders' equity:
Common stock – $.01 par value 98 98 98 98 70
Additional paid-in capital 110,387 110,183 109,956 109,647 71,021
Retained earnings 22,049 20,166 18,453 16,415 14,849
Accumulated other comprehensive income/(loss), net   (281 )   (134 )   (119 )   (149 )   (150 )
Total shareholders' equity   132,253     130,313     128,388     126,011     85,790  
Total liabilities and shareholders' equity $ 1,149,950   $ 1,132,533   $ 1,104,322   $ 1,048,752   $ 1,026,957  
 
Capital Ratios - Howard Bancorp, Inc.
Tangible Capital $ 129,907 $ 127,861 $ 125,807 $ 123,295 $ 82,939
Tier 1 Leverage (to average assets) 11.70 % 11.74 % 11.78 % 12.16 % 8.36 %
Common Equity Tier 1 Capital (to risk weighted assets) 12.77 % 13.40 % 13.39 % 13.96 % 9.71 %
Tier 1 Capital (to risk weighted assets) 12.77 % 13.40 % 13.39 % 13.96 % 9.71 %
Total Capital Ratio (to risk weighted assets) 13.72 % 14.36 % 14.34 % 14.96 % 10.83 %
 
ASSET QUALITY INDICATORS
Non-performing assets:
Total non-performing loans $ 13,188 $ 13,013 $ 9,307 $ 9,415 $ 9,578
Real estate owned   1,549     2,133     2,135     2,350     2,350  
Total non-performing assets $ 14,737   $ 15,146   $ 11,442   $ 11,765   $ 11,928  
 
Non-performing loans to total loans 1.41 % 1.46 % 1.06 % 1.11 % 1.17 %
Non-performing assets to total assets 1.28 % 1.34 % 1.04 % 1.12 % 1.16 %
ALLL to total loans 0.66 % 0.63 % 0.61 % 0.63 % 0.78 %
ALLL to non-performing loans 46.70 % 43.50 % 57.86 % 56.93 % 67.11 %
 
 
Unaudited Consolidated Statements of Income FOR THE THREE MONTHS ENDED
(Dollars in thousands, except per share amounts)
December 31, Sept 30, June 30, March 31, December 31,
2017 2017 2017 2017 2016
 
Total interest income $ 11,338 $ 11,112 $ 10,708 $ 9,868 $ 9,752
Total interest expense   1,482     1,357     1,211     1,117     1,239  
Net interest income   9,856     9,755     9,497     8,751     8,513  
Provision for credit losses   (800 )   (491 )   (340 )   (200 )   (735 )
Net interest income after provision for credit losses   9,056     9,264     9,157     8,551     7,778  
 
NON-INTEREST INCOME:
Service charges and other income 1,138 1,018 885 637 (50 )
Mortgage banking income 3,531 4,086 4,407 3,822 3,026
         
Total non-interest income   4,669     5,104     5,292     4,459     2,976  
 
NON-INTEREST EXPENSE:
Salaries and employee benefits 5,981 5,972 6,063 5,557 4,653
Occupancy expense 1,033 1,025 1,034 1,062 997
Marketing expense 1,114 991 1,185 941 900
FDIC insurance 177 180 76 217 176
Professional fees 522 606 417 423 419
Other real estate owned related expense 506 32 93 24 12
Merger and restructuring 189 378 - - -
Other   2,325     2,453     2,347     2,276     2,111  
Total non-interest expense   11,847     11,637     11,215     10,500     9,268  
 
Income before income taxes 1,878 2,731 3,234 2,510 1,486
 
Income tax expense (6 ) 1,018 1,196 944 533
         
NET INCOME $ 1,884   $ 1,713   $ 2,038   $ 1,566   $ 953  
 
 
EARNINGS PER SHARE – Basic $ 0.19 $ 0.17 $ 0.21 $ 0.18 $ 0.14
EARNINGS PER SHARE – Diluted $ 0.19 $ 0.17 $ 0.21 $ 0.18 $ 0.13
 
Average common shares outstanding – Basic 9,815,228 9,808,542 9,779,772 8,806,404 6,990,390
Average common shares outstanding – Diluted 9,858,809 9,854,822 9,822,165 8,856,763 7,020,733
 
PERFORMANCE RATIOS:
(annualized)
Return on average assets 0.67 % 0.62 % 0.76 % 0.62 % 0.38 %
Return on average common equity 5.76 % 5.32 % 6.45 % 5.75 % 4.48 %
Net interest margin 3.71 % 3.76 % 3.77 % 3.68 % 3.56 %
Efficiency ratio 81.56 % 78.32 % 75.87 % 79.48 % 80.67 %
Tangible common equity 11.32 % 11.31 % 11.42 % 11.79 % 8.10 %