WFBI Washingtonfirst Bankshares

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 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.

 

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      

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

      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

                          Average Balances, Interest Income and Expense and Average Yield and Rates For the Three Months Ended September 30, 2017 September 30, 2016 AverageBalance Income/Expense Yield/Rate (6) AverageBalance 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.

                          Average Balances, Interest Income and Expense and Average Yield and Rates For the Nine Months Ended September 30, 2017 September 30, 2016 AverageBalance Income/Expense Yield/Rate (6) AverageBalance 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.

              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       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.

    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   Mortgage   Wealth     Consolidated Bank Bank Management

Other (1)

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

    Segment Reporting - 2016 (QTD)   As of and for the Three Months Ended September 30, 2016 Commercial   Mortgage   Wealth     Consolidated Bank Bank Management

Other (1)

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

 

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.

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WashingtonFirst Bankshares Inc.Matthew R. Johnson, 703-840-2410Executive Vice President & Chief Financial OfficerMJohnson@wfbi.com