Howard Bancorp, Inc. Reports Second Quarter 2021 Results

·37 min read

BALTIMORE, July 21, 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 June 30, 2021.

Second Quarter 2021 Highlights

  • Net income:

    • Net income of $7.5 million for the quarter, up 20% from first quarter of 2021

    • Core net income 1 of $7.5 million for the quarter, up 100% from second quarter of 2020 and up 20% from first quarter of 2021

  • Earnings per share:

    • Earnings per share ("EPS"), both basic and diluted, of $0.40 for the quarter, up 20% from first quarter of 2021

    • Core EPS, 1 both basic and diluted, of $0.40 for the quarter, up 100% from second quarter of 2020 and up 20% from first quarter of 2021

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

    • PPNR, 1 at $10.1 million for the quarter, up 8% from first quarter of 2021

    • Core PPNR, 1 at $10.1 million for the quarter, up 28% from second quarter of 2020 and up 8% from first quarter of 2021

    • Core PPNR, as a percentage of average assets, 1 1.57% for the quarter, up 31 basis points ("BP") from second quarter of 2020 and up 7 BP from first quarter of 2021

  • Loans:

    • Total loans declined by $4.9 million during the quarter, with Paycheck Protection Program ("PPP") loans down $58.9 million

    • Portfolio loan 1 growth (which excludes PPP loans) of $54.0 million during the quarter (12.4% annualized growth rate)

  • Net interest margin:

    • Net interest margin, at 3.39% for the quarter, was down 4 BP from first quarter of 2021 due to a decline in PPP loan net interest income

    • Operating net interest margin, 1 which excludes the impact of loan fair value accretion and net interest income from PPP lending, was 3.25% for the quarter, up 5 BP from first quarter of 2021

  • Asset quality:

    • COVID-19 related loan deferrals of $30.4 million at June 30, 2021 (1.6% of total loans and 1.7% of portfolio loans)

    • Nonperforming assets to total assets was 0.65% as of June 30, 2021, down 19 BP from second quarter of 2020 and up 3 BP from first quarter of 2021

    • No provision for credit losses was recorded during the quarter, compared to $3.0 million in the second quarter of 2020 and $1.0 million in the first quarter of 2021

    • Net charge-offs were $80 thousand for the quarter, or 0.02% of average total loans (annualized)

    • Allowance for loan losses was 0.94% of total loans and 1.02% of portfolio loans 1 as of June 30, 2021; compared to 0.86% and 0.96%, respectively, at June 30, 2020, and 0.94% and 1.05%, respectively, at March 31, 2021

  • Noninterest expense management:

    • Noninterest expenses were $12.3 million for the quarter, down 74% from second quarter of 2020 (second quarter of 2020 included a $34.5 million goodwill impairment charge) and unchanged from first quarter of 2021

    • Core noninterest expenses, 1 were $12.3 million for the quarter, up 3% from second quarter of 2020 and unchanged from first quarter of 2021

  • PPP update:

    • $4.8 million of PPP loans funded during the quarter

    • $64.9 million of PPP loans forgiven during the quarter ($62.5 million from 2020 originations)

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 $7.5 million, or $0.40 per both basic and diluted common share, for the second quarter of 2021. This compares to a net loss of $29.4 million, or a loss of $1.57 per both basic and diluted common share, for the second quarter of 2020 and net income of $6.2 million, or $0.33 per both basic and diluted common share, for the first quarter of 2021.

Second quarter 2021 basic and diluted EPS increased by $1.97 when compared to the second quarter of 2020 and $0.07 when compared to the first quarter of 2021. The following table presents an EPS rollforward for the second quarter of 2021 compared to both the second quarter of 2020 and the first 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.

Second Quarter 2021
Compared to:

FN

Q2 2020

Q1 2021

EPS, Second Quarter 2020 / First Quarter 2021

$

(1.57

)

$

0.33

Goodwill impairment charge (second quarter 2020; no tax impact)

1

1.84

-

Decrease in the provision for credit losses

2

0.12

0.04

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

3

0.02

(0.02

)

Litigation accrual (second quarter 2020)

4

0.04

-

Securities gains (second quarter 2020)

5

(0.12

)

-

Prepayment penalties on FHLB advances (second quarter 2020)

6

0.01

-

All other, net

0.06

0.05

EPS, Second Quarter 2021

$

0.40

$

0.40

CHANGE

$

1.97

$

0.07

  1. The second quarter of 2020 included a $34.5 million goodwill impairment charge, included within noninterest expense. There were no goodwill impairment charges in the first or second quarters of 2021.

  2. No provision for credit losses was recorded in the second quarter of 2021, a decrease of $3.0 million from the second quarter of 2020, and a decrease of $1.0 million from the first quarter of 2021.

  3. 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. Second quarter 2021 pretax income of $1.6 million from this program represented an increase of $613 thousand from the second quarter of 2020 and a decrease of $486 thousand from the first quarter of 2021.

  4. The second quarter of 2020 included a $1.0 million accrual, included within noninterest expense, for potential litigation claims stemming from certain mortgages originated by First Mariner Bank before its merger with Howard Bank. The settlement of this potential litigation was completed in January 2021. There were no litigation accruals in the first or second quarters of 2021.

  5. The second quarter of 2020 included securities gains of $3.0 million, which increased second quarter 2020 earnings per share. There were no securities gains recognized in the first or second quarters of 2021.

  6. The second quarter of 2020 included prepayment penalties on Federal Home Loan Bank of Atlanta ("FHLB") advances of $224 thousand, which reduced second quarter 2020 earnings per share. There were no prepayment penalties on FHLB advances in the first or second quarters of 2021.

Core net income is a non-GAAP financial measure that excludes, if applicable, goodwill impairment charges and certain other items to provide a picture of ongoing activities deemed core to the Company’s strategy. Core net income for the second quarter of 2021, which is unchanged from reported net income, was $7.5 million, or $0.40 per both basic and diluted common share. This compares to core net income of $3.7 million, or $0.20 per both basic and diluted common share, for the second quarter of 2020. The $0.20 per share increase in core EPS in the second quarter of 2021, when compared to the second quarter of 2020, was primarily the result of a lower provision for credit losses, which was down $3.0 million (+$0.12 after tax per share), and an increase in the pretax contribution from PPP lending activities of $613 thousand (+$0.02 after tax per share). This also compares to core net income, which was unchanged from reported net income, of $6.2 million, or $0.33 per both basic and diluted common share, for the first quarter of 2021. The $0.07 per share increase in core earnings per share in the second quarter of 2021, when compared to the first quarter of 2021, included the result of a lower provision for credit losses, which was down $1.0 million (+$0.04 after tax per share), and a lower pretax contribution from PPP lending activities of $486 thousand (-$0.02 after tax per share). *

Core pre-provision net revenue ("core PPNR"), a non-GAAP financial measure that adds back the provision for credit losses to GAAP pretax income and excludes, if applicable, goodwill impairment charges and certain other items, was $10.1 million for the second quarter of 2021. The second quarter of 2021 core PPNR was up $2.2 million, or 27.8%, from $7.9 million for the second quarter of 2020, and was up $723 thousand, or 7.7%, when compared to $9.4 million for the first quarter of 2021. *

The Company reported net income of $13.7 million, or $0.73 and $0.72 per basic and diluted share, respectively, for the six months ended June 30, 2021. This compared to a net loss of $26.1 million, or a loss of $1.39 per both basic and diluted share, for the six months ended June 30, 2020. Core net income for the six months ended June 30, 2021 was also $13.7 million, or $0.73 and $0.72 per basic and diluted share, respectively, compared to $6.4 million, or $0.34 per both basic and diluted share, for the six months ended June 30, 2020. Core PPNR for the six months ended June 30, 2021 was $19.6 million, a $4.7 million, or 31.0% increase from $14.9 million for the six months ended June 30, 2020.

Paycheck Protection Program Loans

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; $4.8 million of this total were originated in the second quarter of 2021 before the program ended. Of these 2021 originations, 36 loans, with an aggregate principal balance of $2.4 million, were forgiven during the second quarter of 2021. While the PPP program ended on May 31, 2021, the Company is now focused on assisting our customers through the loan forgiveness process.

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 329 loans, with an aggregate principal balance of $62.5 million, were forgiven during the second quarter of 2021. Of the 1,062 loans originated in 2020, 887 have been forgiven totaling $152.7 million through June 30, 2021, representing 83.5% of the number of 2020 PPP loans and 76.0% of 2020 principal balances.

During 2020, the Company deferred total processing fees of $6.7 million from the SBA for originated PPP loans. In addition, $782 thousand of origination costs were deferred. The PPP originations in the first and second quarters of 2021 resulted in $4.2 million of additional deferred processing fees from the SBA and $547 thousand of additional deferred 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 second quarter of 2021, an increase of $613 thousand, or $0.02 after tax per share, from the second quarter of 2020 and a decrease of $486 thousand, or $0.02 after tax per share, from the first quarter of 2021. PPP loans, net of unaccreted net deferred fees, totaled $142.7 million at June 30, 2021, a decrease of $51.1 million from $193.7 million at June 30, 2020 and a decrease of $58.9 million from $201.6 million at March 31, 2021. PPP loan principal balances were $146.3 million at June 30, 2021 while unaccreted net deferred fees were $3.6 million at June 30, 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 second 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 12 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 June 30, 2021, deferrals were $30.4 million, or 1.6% of total loans and 1.7% of portfolio loans, down from $47.9 million as of May 6, 2021, the most recent date when the Company previously disclosed deferral data. Included in total deferrals at June 30, 2021 are second deferrals (including deferrals where the cumulative inception to date deferral is greater than six months) of $17.6 million. Full payment deferrals represent 5% of total deferrals while principal only deferrals represent 95% of total deferrals. *

Asset Quality and Allowance for Loan and Lease Losses

Nonperforming assets ("NPAs") totaled $16.8 million at June 30, 2021, an increase of $0.4 million from March 31, 2021 and a decrease of $3.8 million from June 30, 2020. NPAs consisted of $16.2 million of nonperforming loans ("NPLs") and $629 thousand of other real estate owned ("OREO") at June 30, 2021. NPLs were 0.83% of total loans and 0.90% of portfolio loans at June 30, 2021. 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. *

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

  • This compares to NPAs of $16.4 million at March 31, 2021 that consisted of $15.7 million in NPLs and $629 thousand of OREO. NPLs were 0.81% of total loans and 0.90% of portfolio loans at March 31, 2021 while NPAs represented 0.62% of total assets, 0.84% of total loans and OREO, and 0.94% of portfolio loans and OREO at March 31, 2021.

Net charge-offs were $80 thousand in the second quarter of 2021 and represented 0.02% of average loans (annualized). This compares to net charge-offs of $28 thousand, or 0.01% of average loans (annualized) in the second quarter of 2020 and $1.8 million, or 0.43% of average loans (annualized) in the first quarter of 2021. The allowance for loan and lease losses (the "allowance") was $18.3 million on June 30, 2021. No provision for credit losses was recorded in the second quarter of 2021.

Because the Company is a smaller reporting company under SEC rules, the allowance was determined under the incurred loss model. The $18.3 million allowance represented 0.94% of total loans, 1.02% of portfolio loans, and 112.8% of NPLs at June 30, 2021. *

  • This compares to an allowance of $16.4 million at June 30, 2020. The June 30, 2020 allowance represented 0.86% of total loans, 0.96% of portfolio loans, and 88.6% of NPLs. The $1.9 million increase in the allowance at June 30, 2021 was the result of aggregate provisions for credit losses attributable to the allowance of $4.1 million partially offset by aggregate net charge-offs of $2.2 million during the four-quarter period ending June 30, 2021.

  • This compares to an allowance of $18.4 million at March 31, 2021. The March 31, 2021 allowance represented 0.94% of total loans, 1.05% of portfolio loans, and 116.8% of NPLs. The $80 thousand decrease in the allowance at June 30, 2021 was the result of net charge-offs of $80 thousand during the quarter ended June 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 June 30, 2021, a decrease of 10 BP from June 30, 2020 and a decrease of 3 BP from March 31, 2021. The allowance and unamortized fair value marks as a percentage of portfolio loans plus fair value marks was 1.27% at June 30, 2021, a decrease of 16 BP from June 30, 2020 and a decrease of 8 BP from March 31, 2021. *

The Company’s asset quality trends indicate very modest 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 will continue to closely monitor portfolio conditions and reevaluate the adequacy of the allowance. While the level of payment deferrals and PPP loan assistance have reduced the short-term risk in the Company’s loan portfolio and traditional lagging indicators of delinquencies and nonperforming loans remain historically modest, 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 June 30, 2021 was $303.3 million, an increase of $10.6 million from March 31, 2021. The increase was primarily due to second quarter 2021 net income of $7.5 million and a $3.0 million increase 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 $16.14 at June 30, 2021, an increase of $0.56 per share since March 31, 2021, with second quarter EPS of $0.40 per share and the change in AOCI representing a $0.16 per share increase.

Tangible stockholders’ equity, a non-GAAP financial measure that deducts goodwill and other intangible assets, net of any applicable deferred tax liabilities, was $268.3 million at June 30, 2021. This compares to $257.3 million at March 31, 2021, with the $11.0 million increase primarily due to second quarter net income of $7.5 million, a $3.0 million increase in AOCI, and $594 thousand of core deposit intangible amortization. Tangible book value per common share, a non-GAAP measure that divides tangible stockholders’ equity by the number of shares outstanding, was $14.28 per share at June 30, 2021, an increase of $0.58 per share since March 31, 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 14.62% while both the Common Equity Tier 1 ("CET 1") and Tier 1 capital ratios were 12.26% at June 30, 2021. The Tier 1 to average assets ("leverage") ratio was 9.74%. A comparison of the Company’s June 30, 2021 regulatory capital ratios to June 30, 2020 and March 31, 2021 is as follows:

  • Regulatory capital ratios at June 30, 2020 consisted of a total capital ratio of 14.09% while both the CET 1 and Tier 1 capital ratios were 11.66%. The leverage ratio was 8.73%. All June 30, 2021 regulatory capital ratios were above the June 30, 2020 levels.

  • Regulatory capital ratios at March 31, 2021 consisted of a total capital ratio of 14.47% while both the CET 1 and Tier 1 capital ratios were 12.06%. The leverage ratio was 9.53%. All June 30, 2021 regulatory capital ratios were above the March 31, 2021 levels.

Net Interest Income and Net Interest Margin

Net interest income was $20.1 million for the second quarter of 2021, an increase of $394 thousand from $19.7 million for the first quarter of 2021, and an increase of $2.0 million, or 10.8%, from $18.1 million in the second quarter of 2020. PPP net interest income decreased by $421 thousand from the first quarter of 2021 but increased by $849 thousand from the second quarter of 2020. Non-PPP related changes in net interest income were attributable to the impact of portfolio loan growth and lower funding costs, partially offset by lower yields on earning assets.

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

Second Quarter 2021
Change from:

Second
Quarter
2021

Second
Quarter
2020

First
Quarter
2021

Second
Quarter
2020

First
Quarter
2021

Selected yields and rates:

Net interest margin

3.39%

3.22%

3.43%

0.17%

-0.04%

Operating net interest margin *

3.25%

3.20%

3.20%

0.05%

0.05%

Earning asset yield

3.61%

3.81%

3.70%

-0.20%

-0.09%

Total loan yield

4.07%

4.18%

4.22%

-0.11%

-0.15%

Cost of total IBL + demand deposits

0.23%

0.62%

0.28%

-0.39%

-0.05%

Impact of fair value adjustments on acquired loans:

Net interest margin

0.12%

0.10%

0.14%

0.02%

-0.02%

Earning asset yield

0.12%

0.10%

0.15%

0.02%

-0.03%

Total loan yield

0.13%

0.12%

0.17%

0.01%

-0.04%

Impact of PPP loans:

Net interest margin

0.02%

-0.08%

0.09%

0.10%

-0.07%

Earning asset yield

0.03%

-0.09%

0.09%

0.12%

-0.06%

Total loan yield

-0.01%

-0.13%

0.07%

0.12%

-0.08%

The second quarter 2021 net interest margin of 3.39% was up 17 BP from the second quarter of 2020 and down 4 BP from the first quarter of 2021. The impact of the accretion of fair value adjustments on acquired loans ("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 second quarter 2021 operating net interest margin of 3.25% was up 5 BP from the second quarter of 2020. While the cost of funds (defined as average total interest-bearing liabilities ("IBL") + demand deposits) decreased by 39 BP, the yield on earning assets, as adjusted for FV accretion and interest income from PPP lending, decreased by 34 BP, with these decreases due to the significant drop in market interest rates. The second quarter 2021 operating net interest margin of 3.25% is also up 5 BP from 3.20% in the first quarter of 2021. The cost of funds decreased by 5 BP while the yield on earning assets, as adjusted for FV accretion and interest income from PPP lending, was unchanged.

Noninterest Income

Noninterest income was $2.4 million for the second quarter of 2021, a decrease of $2.4 million from the $4.8 million reported in the second quarter of 2020, and an increase of $284 thousand from the $2.1 million reported in the first quarter of 2021. There were no securities gains in either the first or second quarters of 2021 compared to $3.0 million in the second quarter of 2020.

Core noninterest income, a non-GAAP financial measure that excludes noninterest income attributable to securities gains in the second quarter of 2020, was $2.4 million for the first quarter of 2021, a $638 thousand increase from $1.7 million for the second quarter of 2020, and a $284 thousand increase from the first quarter of 2021. *

  • The $638 thousand increase when compared to the second quarter of 2020 primarily consisted of the following: an increase in interchange fees, as card activity volumes continue to improve, included in other income (+$225 thousand), an increase in service charges on deposit accounts (+$221 thousand), and an increase in loan related fees and service charges (+$96 thousand).

    The $284 thousand increase when compared to the first quarter of 2021 was primarily due to an increase in interchange fees (+$147 thousand), and an increase in service charges on deposit accounts (+$115 thousand).

Noninterest Expenses

Noninterest expenses totaled $12.3 million for the second quarter of 2021, a decrease of $35.3 million from the $47.6 million reported in the second quarter of 2020, and a decrease of $45 thousand from the $12.3 million reported in the first quarter of 2021. A goodwill impairment charge of $34.5 million was included in noninterest expenses in the second quarter of 2020.

Core noninterest expenses is a non-GAAP financial measure that, with respect to the second quarter of 2020, excludes noninterest expenses attributable to the following: the $34.5 million goodwill impairment charge, a $1.0 million accrual for potential litigation claims stemming from certain mortgages originated by First Mariner Bank before its merger with Howard Bank (included within other operating expense), and prepayment penalties on FHLB advances of $224 thousand (included within other operating expense). There were no related adjustments to reported noninterest expense in the first and second quarter of 2021.

Core noninterest expenses were $12.3 million for the second quarter of 2021, a $393 thousand increase from $11.9 million in the second quarter of 2020, and a $45 thousand decrease from $12.3 million in the first quarter of 2021. *

  • The $393 thousand increase when compared to the second quarter of 2020 resulted primarily from higher compensation and benefits expenses (+$884 thousand) partially offset by lower other real estate owned expenses (-$268 thousand), and lower expenses in the aggregate in all other categories (-$221 thousand). The higher level of compensation and benefits expense included an increase in staff costs and benefits (+$544 thousand), resulting from talent acquisitions since the second quarter of 2020, including staff increases in connection with the Company’s Greater Washington initiative. In addition, the second quarter of 2021 included a lower level of loan origination internal cost deferrals (+$231 thousand), as the second quarter of 2020 included $242 thousand of internal cost deferrals attributable to the PPP program.

  • The $45 thousand decrease when compared to the first quarter of 2021 resulted primarily from higher compensation and benefits expenses (+$221 thousand), partially driven by staff increases in connection with the Greater Washington initiative, more than offset by lower expenses in the aggregate in all other categories (-$266 thousand).

Loans

Loans totaled $1.94 billion at June 30, 2021, a decrease of $4.9 million, or 0.3%, from total loans at March 31, 2021. Compared to June 30, 2020, total loans grew by $43.9 million, or 2.3%.

Portfolio loans, a non-GAAP measure defined as total loans and leases, but excluding PPP loans, totaled $1.80 billion at June 30, 2021, an increase of $54.0 million, or 3.1%, from portfolio loans at March 31, 2021. Compared to June 30, 2020, portfolio loans increased by $94.9 million, or 5.6%. Changes in portfolio loans were as follows: *

  • Compared to March 31, 2021, the $54.0 million increase (12.4% annualized growth rate) in portfolio loans was primarily driven by growth in our commercial lending portfolio totaling $1.25 billion at June 30, 2021, a $20.9 million increase (6.8% annualized growth rate) from $1.23 billion at March 31, 2021:

    • Commercial real estate ("CRE") loans were up $23.7 million, or 3.2%, while commercial and industrial ("C&I") loans and construction and land loans were down slightly. New loan originations of $88.2 million during the second quarter of 2021 were partially offset by $67.3 million in loan maturities, payoffs, partial paydowns, and lower line utilization.

    • Consumer loans were up $10.7 million, or 14.3%, reflecting continued growth in some niche lending activities.

    • Residential real estate loans were up $22.4 million, or 5.1%. Secondary market loan purchases were $58.6 million during the second quarter of 2021, partially offset by $36.2 million of prepayments.

  • Compared to June 30, 2020, the $94.9 million increase in portfolio loans was a result of the following:

    • The commercial lending portfolio increased by $69.5 million, or 5.9%, with CRE loans up $74.9 million, or 10.7%, C&I loans up $4.8 million, or 1.3%, despite lower line utilization, and construction and land loans down $10.1 million, or 7.9%, due partially to transfers to CRE upon completion of construction.

    • Consumer loans were up $38.7 million, or 83.0%, reflecting strong growth in some niche lending activities such as marine lending.

    • Residential real estate loans were down $13.3 million, or 2.8%.

Average total loans were $1.94 billion for the second quarter of 2021, an increase of $44.8 million, or 2.4%, over average loans for the first quarter of 2021, and an increase of $56.5 million, or 3.0%, over average loans for the second quarter of 2020. Average portfolio loans were $1.76 billion for the second quarter of 2021, an increase of $54.0 million, or 3.2%, from average loans for the first quarter of 2021. Compared to the second quarter of 2020, average portfolio loans increased by $21.6 million, or 1.2%.

Deposits

Total deposits were $2.03 billion at June 30, 2021, a decrease of $19.4 million, or 0.9%, from the March 31, 2021 balance of $2.04 billion. Compared to June 30, 2020, total deposits grew by $194.9 million, or 10.6%. Changes in deposits were as follows:

  • Customer deposits, which exclude brokered and other non-customer deposits, were $1.79 billion at June 30, 2021, compared to $1.78 billion at March 31, 2021, an increase of $17.5 million, or 1.0%.

    • Low-cost, non-maturity deposits increased by $27.3 million, or 1.7%, during the second quarter of 2021. $17.9 million of the growth was in transaction accounts, with noninterest-bearing transaction accounts up $51.7 million, or 7.1%.

    • The increase in non-maturity deposits was partially offset by the continued managed decline in customer CD balances, down $9.8 million, or 5.0%. 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 June 30, 2020, customer deposits increased by $124.9 million, or 7.5%.

    • The increase in customer deposits was primarily the result of strong growth in low-cost, non-maturity deposits, which increased by $219.0 million, or 15.8%. $129.1 million of the growth was in transaction accounts, with noninterest-bearing transaction accounts up $106.8 million, or 15.9%.

    • Customer CD balances declined by $94.2 million, or 33.5%.

  • Brokered and other non-customer deposits were $231.8 million at June 30, 2021, compared to $268.7 million at March 31, 2021 and $161.8 million at June 30, 2020. Non-customer deposits continue to be the Company’s lowest-cost incremental funding source.

Average customer deposits for the second quarter of 2021 were $1.80 billion, an increase of $82.1 million, or 4.8%, from the first quarter 2021 average balance. Customer non-maturity deposit balances increased by $102.1 million, or 6.8%, with transaction accounts up $84.0 million; $74.8 million of the transaction account growth was in noninterest-bearing deposits. Compared to the second quarter of 2020, average customer deposits were up by $189.5 million, or 11.7%. Customer non-maturity deposit balances increased by $284.8 million, or 21.5%, with transaction accounts up $182.2 million; $141.7 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, the boards of directors of F.N.B. Corporation (NYSE: 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 second 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 SIX MONTHS ENDED

FOR THE THREE MONTHS ENDED

June 30,

June 30,

June 30,

March 31,

June 30,

2021

2020

2021

2021

2020

Income Statement Data:

Interest income

$

42,617

$

43,700

$

21,382

$

21,235

$

21,474

Interest expense

2,847

8,055

1,300

1,547

3,354

Net interest income

39,770

35,645

20,082

19,688

18,120

Provision for credit losses

1,000

6,445

-

1,000

3,000

Net interest income after provision for credit losses

38,770

29,200

20,082

18,688

15,120

Noninterest income

4,422

8,125

2,353

2,069

4,759

Noninterest expense

24,639

62,187

12,297

12,342

47,628

Income (loss) before income taxes

18,553

(24,862

)

10,138

8,415

(27,749

)

Income tax expense (benefit)

4,895

1,204

2,682

2,213

1,660

Net income (loss)

$

13,658

$

(26,066

)

$

7,456

$

6,202

$

(29,409

)

Per Share Data and Shares Outstanding:

Net income (loss) per common share - basic

$

0.73

$

(1.39

)

$

0.40

$

0.33

$

(1.57

)

Net income (loss) per common share - diluted

$

0.72

$

(1.39

)

$

0.40

$

0.33

$

(1.57

)

Book value per common share, at period end

$

16.14

$

15.14

$

16.14

$

15.58

$

15.14

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

$

14.28

$

13.17

$

14.28

$

13.70

$

13.17

Average common shares outstanding

18,777

18,791

18,787

18,768

18,716

Diluted average common shares outstanding

18,847

18,791

18,871

18,797

18,716

Shares outstanding, at period end

18,795

18,716

18,795

18,782

18,716

Balance Sheet Data:

Total assets

$

2,599,541

$

2,463,450

$

2,599,541

$

2,625,550

$

2,463,450

Portfolio loans, net of unearned income (1)

1,799,847

1,704,911

1,799,847

1,745,862

1,704,911

Paycheck Protection Program loans, net of unearned income

142,660

193,719

142,660

201,588

193,719

Total loans and leases, net of unearned income

1,942,507

1,898,630

1,942,507

1,947,450

1,898,630

Allowance for loan losses

18,288

16,356

18,288

18,368

16,356

Other interest-earning assets

442,583

343,149

442,583

461,818

343,149

Total deposits

2,025,557

1,830,674

2,025,557

2,044,926

1,830,674

Total borrowings

247,126

312,173

247,126

263,838

312,173

Common and total stockholders' equity

303,263

283,281

303,263

292,675

283,281

Average total assets

2,563,631

2,449,822

2,587,151

2,539,849

2,529,797

Average common and total stockholders' equity

298,765

316,980

300,234

297,280

319,152

Selected Performance Metrics:

Return on average assets (2)

1.07

%

(2.14

)%

1.16

%

0.99

%

(4.68

)%

Return on average common equity (2)

9.22

%

(16.54

)%

9.96

%

8.46

%

(37.06

)%

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

$

19,553

$

(18,417

)

$

10,138

$

9,415

$

(24,749

)

PPNR to average assets (1)

1.54

%

1.22

%

1.57

%

1.50

%

1.26

%

Net interest margin (2),(3)

3.41

%

3.28

%

3.39

%

3.43

%

3.22

%

Efficiency ratio (4)

55.75

%

142.08

%

54.81

%

56.73

%

208.17

%

Core efficiency ratio (1)

55.75

%

61.90

%

54.81

%

56.73

%

60.01

%

Asset Quality Ratios:

Nonperforming loans to portfolio loans (1)

0.90

%

1.08

%

0.90

%

0.90

%

1.08

%

Nonperforming assets to portfolio loans and OREO (1)

0.94

%

1.21

%

0.94

%

0.94

%

1.21

%

Nonperforming assets to total assets

0.65

%

0.84

%

0.65

%

0.62

%

0.84

%

Allowance for loan losses to total loans

0.94

%

0.86

%

0.94

%

0.94

%

0.86

%

Allowance for loan losses to portfolio loans (1)

1.02

%

0.96

%

1.02

%

1.05

%

0.96

%

Allowance for loan losses to nonperforming loans

112.76

%

88.56

%

112.76

%

116.82

%

88.56

%

Net chargeoffs to average total loans and leases (2)

0.20

%

0.05

%

0.02

%

0.43

%

0.01

%

Capital Ratios (Bancorp):

Tier 1 capital to average assets (leverage ratio)

9.74

%

8.73

%

9.74

%

9.53

%

8.73

%

Common equity tier 1 capital to risk-weighted assets

12.26

%

11.66

%

12.26

%

12.06

%

11.66

%

Tier 1 capital to risk-weighted assets

12.26

%

11.66

%

12.26

%

12.06

%

11.66

%

Total capital to risk-weighted assets

14.62

%

14.09

%

14.62

%

14.47

%

14.09

%

Average equity to average assets

11.65

%

12.94

%

11.60

%

11.70

%

12.62

%

(1) This is a non-GAAP measure. See the GAAP to Non-GAAP Reconciliation at the end of the financial statements.

(2) Annualized

(3) Net interest income divided by average earning assets

(4) Noninterest expense divided by the sum of net interest income and noninterest income

HOWARD BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Statements of Income (Loss)

(in thousands except per share data)

FOR THE SIX MONTHS ENDED

FOR THE THREE MONTHS ENDED

June 30,

June 30,

June 30,

March 31,

June 30,

2021

2020

2021

2021

2020

Interest income

$

42,617

$

43,700

$

21,382

$

21,235

$

21,474

Interest expense

2,847

8,055

1,300

1,547

3,354

Net interest income

39,770

35,645

20,082

19,688

18,120

Provision for credit losses

1,000

6,445

-

1,000

3,000

Net interest income after provision for credit losses

29,200

20,082

18,688

15,120

Noninterest income:

Service charges on deposit accounts

1,193

1,075

654

539

433

Realized and unrealized gains from mortgage banking

...

-

1,036

-

-

-

Gain (loss) on sale of securities

-

3,044

-

-

3,044

Gain (loss) on the disposal of premises & equipment

-

6

-

-

6

Income from bank owned life insurance

845

886

421

424

441

Loan related fees and service charges

568

755

271

297

175

Other income

1,816

1,323

1,007

809

660

Total noninterest income

4,422

8,125

2,353

2,069

4,759

Noninterest expense:

Compensation and benefits

14,065

14,700

7,143

6,922

6,259

Occupancy and equipment

2,643

2,275

1,318

1,325

1,242

Marketing and business development

638

903

341

297

453

Professional fees

1,543

1,360

809

734

634

Data processing fees

1,866

1,776

982

884

849

FDIC assessment

466

499

171

295

236

Other real estate owned

40

346

-

40

268

Loan production expense

335

660

181

154

192

Amortization of core deposit intangible

1,209

1,379

594

615

680

Goodwill impairment charge

-

34,500

-

-

34,500

Other operating expense

1,834

3,789

758

1,076

2,315

Total noninterest expense

24,639

62,187

12,297

12,342

47,628

Income (loss) before income taxes

18,553

(24,862

)

10,138

8,415

(27,749

)

Income tax expense (benefit)

4,895

1,204

2,682

2,213

1,660

Net income (loss)

$

13,658

$

(26,066

)

$

7,456

$

6,202

$

(29,409

)

Net income (loss) per common share:

Basic

$

0.73

$

(1.39

)

$

0.40

$

0.33

$

(1.57

)

Diluted

$

0.72

$

(1.39

)

$

0.40

$

0.33

$

(1.57

)

Average common shares outstanding:

Basic

18,777

18,791

18,787

18,768

18,716

Diluted

18,847

18,791

18,871

18,797

18,716

Selected Performance Metrics:

Return on average assets

1.07

%

-2.14

%

1.16

%

0.99

%

-4.68

%

Return on average common equity

9.22

%

-16.54

%

9.96

%

8.46

%

-37.06

%

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

$

19,553

$

14,921

$

10,138

$

9,415

$

7,931

Core PPNR to average assets (1)

1.54

%

1.22

%

1.57

%

1.50

%

1.26

%

Net interest margin

3.41

%

3.28

%

3.39

%

3.43

%

3.22

%

Efficiency ratio

55.75

%

142.08

%

54.81

%

56.73

%

208.17

%

Core efficiency ratio (1)

55.75

%

61.90

%

54.81

%

56.73

%

60.01

%

(1) This is a non-GAAP measure. See the GAAP to Non-GAAP Reconciliation at the end of the financial statements.

HOWARD BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Balance Sheets

(in thousands except per share data)

PERIOD ENDED

June 30,

March 31,

December 31,

September 30,

June 30,

2021

2021

2020

2020

2020

ASSETS

Cash and due from banks

$

12,681

$

10,750

$

9,415

$

11,043

$

12,652

Interest bearing deposits with banks

59,754

68,822

65,204

59,539

46,418

Total cash and cash equivalents

72,435

79,572

74,619

70,582

59,070

Securities available for sale, at fair value

367,873

377,040

375,397

377,471

276,889

Securities held to maturity, at amortized cost

6,000

6,250

7,250

7,250

7,250

Federal Home Loan Bank of Atlanta stock, at cost

8,956

9,706

10,637

10,637

12,592

Portfolio loans, net of unearned income (1)

1,799,847

1,745,862

1,698,322

1,688,030

1,704,911

Paycheck Protection Program loans, net of unearned inc

142,660

201,588

167,639

196,375

193,719

Total loans and leases, net of unearned income

1,942,507

1,947,450

1,865,961

1,884,405

1,898,630

Allowance for loan losses

(18,288

)

(18,368

)

(19,162

)

(17,657

)

(16,356

)

Net loans and leases

1,924,219

1,929,082

1,846,799

1,866,748

1,882,274

Bank premises and equipment, net

40,290

40,700

41,142

42,147

42,434

Goodwill

31,449

31,449

31,449

31,449

31,449

Core deposit intangible

4,586

5,180

5,795

6,431

7,090

Bank owned life insurance

78,443

78,021

77,597

77,157

76,716

Other real estate owned

629

629

743

1,155

2,137

Deferred tax assets, net

28,324

32,175

31,254

34,687

35,034

Interest receivable and other assets

36,337

35,746

35,309

33,470

30,515

Total assets

$

2,599,541

$

2,625,550

$

2,537,991

$

2,559,184

$

2,463,450

LIABILITIES

Noninterest-bearing deposits

$

778,388

$

726,643

$

676,801

$

657,028

$

671,598

Interest-bearing deposits

1,247,169

1,318,283

1,298,613

1,315,710

1,159,076

Total deposits

2,025,557

2,044,926

1,975,414

1,972,738

1,830,674

FHLB advances

205,000

225,000

200,000

200,000

246,000

Fed funds and repos

13,436

10,353

13,634

41,473

37,834

Subordinated debt

28,690

28,485

28,437

28,388

28,339

Total borrowings

247,126

263,838

242,071

269,861

312,173

Accrued expenses and other liabilities

23,595

24,111

25,874

27,085

37,322

Total liabilities

2,296,278

2,332,875

2,243,359

2,269,684

2,180,169

STOCKHOLDERS' EQUITY

Common stock - $0.01 par value

188

188

187

187

187

Additional paid in capital

271,086

270,934

270,591

270,445

270,057

Retained earnings

31,825

24,369

18,167

13,696

9,090

Accumulated other comprehensive income

164

(2,816

)

5,687

5,172

3,947

Total stockholders' equity

303,263

292,675

294,632

289,500

283,281

Total liabilities and stockholders' equity

$

2,599,541

$

2,625,550

$

2,537,991

$

2,559,184

$

2,463,450

Capital Ratios (Bancorp)

Tier 1 capital to average assets (leverage ratio)

9.74

%

9.53

%

9.26

%

9.07

%

8.73

%

Common equity tier 1 capital to risk-weighted assets

12.26

%

12.06

%

11.83

%

11.65

%

11.66

%

Tier 1 capital to risk-weighted assets

12.26

%

12.06

%

11.83

%

11.65

%

11.66

%

Total capital to risk-weighted assets

14.62

%

14.47

%

14.32

%

14.11

%

14.09

%

Asset Quality Measures

Nonperforming loans

$

16,219

$

15,723

$

19,430

$

16,984

$

18,469

Other real estate owned (OREO)

629

629

743

1,155

2,137

Total nonperforming assets

$

16,848

$

16,352

$

20,173

$

18,139

$

20,606

Nonperforming loans to portfolio loans (1)

0.90

%

0.90

%

1.14

%

1.01

%

1.08

%

Nonperforming assets to portfolio loans and OREO (1)

0.94

%

0.94

%

1.19

%

1.07

%

1.21

%

Nonperforming assets to total assets

0.65

%

0.62

%

0.79

%

0.71

%

0.84

%

Allowance for loan losses to total loans

0.94

%

0.94

%

1.03

%

0.94

%

0.86

%

Allowance for loan losses to portfolio loans (1)

1.02

%

1.05

%

1.13

%

1.05

%

0.96

%

Allowance for loan losses to nonperforming loans

112.76

%

116.82

%

98.62

%

103.96

%

88.56

%

Net chargeoffs to average portfolio loans and leases (1), (2)

0.02

%

0.43

%

0.05

%

0.02

%

0.01

%

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

0.00

%

0.24

%

0.40

%

0.40

%

0.69

%

(1) This is a non-GAAP measure. See the GAAP to Non-GAAP Reconciliation at the end of the financial statements.

(2) Annualized

HOWARD BANCORP, INC. AND SUBSIDIARY

Average Balances, Yields, and Rates

(in thousands)

Three Months Ended June 30, 2021

Three Months Ended March 31, 2021

Three Months Ended June 30, 2020

Average

Balance

Income /

Expense

Yield /

Rate

Average

Balance

Income /

Expense

Yield /

Rate

Average

Balance

Income /

Expense

Yield /

Rate

Earning assets

Loans and leases:

Commercial loans and leases

$

358,980

$

3,271

3.65

%

$

344,841

$

3,085

3.63

%

$

375,835

$

3,730

3.99

%

Commercial real estate

755,815

8,528

4.53

736,282

8,556

4.71

694,613

8,143

4.71

Construction and land

118,704

1,116

3.77

117,251

1,109

3.84

132,899

1,287

3.89

Residential real estate

446,784

4,249

3.81

443,225

4,072

3.73

490,110

4,948

4.06

Consumer

80,418

748

3.73

65,136

658

4.09

45,619

536

4.73

Total portfolio loans

1,760,701

17,912

4.08

1,706,735

17,479

4.15

1,739,076

18,644

4.31

Paycheck Protection Program loans

177,546

1,776

4.01

186,728

2,203

4.79

142,715

896

2.53

Total loans and leases

1,938,247

19,688

4.07

1,893,463

19,682

4.22

1,881,791

19,540

4.18

Securities available for sale:

U.S Gov agencies

45,256

274

2.43

48,253

288

2.42

80,217

532

2.67

Mortgage-backed

320,960

1,088

1.36

319,063

929

1.18

189,419

945

2.01

Corporate debentures

9,294

139

6.00

9,152

140

6.20

5,507

92

6.72

Total available for sale securities

375,510

1,501

1.60

376,467

1,357

1.46

275,143

1,569

2.29

Securities held to maturity

6,206

88

5.69

6,283

89

5.72

7,745

112

5.82

FHLB Atlanta stock, at cost

9,008

99

4.39

10,687

101

3.85

13,015

220

6.80

Interest bearing deposits in banks

45,741

6

0.06

38,297

6

0.06

86,181

20

0.09

Loans held for sale

-

-

-

-

-

-

1,365

13

3.83

Total earning assets

2,374,712

21,382

3.61

%

2,325,198

21,235

3.70

%

2,265,240

21,474

3.81

%

Cash and due from banks

10,781

10,586

16,056

Bank premises and equipment, net

40,593

40,993

42,431

Goodwill

31,449

31,449

65,570

Core deposit intangible

4,956

5,563

7,522

Other assets

143,052

145,158

146,395

Less: allowance for loan losses

(18,392

)

(19,098

)

(13,417

)

Total assets

$

2,587,151

$

2,539,849

$

2,529,797

Interest-bearing liabilities

Deposits:

Interest-bearing demand accounts

$

227,272

$

19

0.03

%

$

218,053

$

22

0.04

%

$

186,781

$

57

0.12

%

Money market

428,169

66

0.06

442,930

83

0.08

365,658

342

0.38

Savings

180,992

15

0.03

171,508

12

0.03

140,904

25

0.07

Time deposits

409,404

310

0.30

438,545

543

0.50

557,401

1,959

1.41

Total interest-bearing deposits

1,245,837

410

0.13

1,271,036

660

0.21

1,250,744

2,383

0.77

Borrowings:

FHLB advances

206,231

443

0.86

207,696

441

0.86

255,945

506

0.80

Fed funds and repos

10,751

1

0.04

12,983

1

0.03

16,747

13

0.31

Subordinated debt

28,608

446

6.25

28,455

446

6.35

28,307

452

6.42

Total borrowings

245,590

890

1.45

249,133

888

1.44

300,999

971

1.30

Total interest-bearing funds

1,491,427

1,300

0.35

%

1,520,169

1,547

0.41

%

1,551,743

3,354

0.87

%

Noninterest-bearing deposits

773,825

699,021

632,080

Other liabilities

21,665

23,379

26,822

Total liabilities

2,286,917

2,242,569

2,210,645

Stockholders' equity

300,234

297,280

319,152

Total liabilities & equity

$

2,587,151

$

2,539,849

$

2,529,797

Net interest rate spread (1)

$

20,082

3.26

%

$

19,688

3.29

%

$

18,120

2.94

%

Effect of noninterest-bearing funds

0.13

0.14

0.27

Net interest margin on earning assets (2)

3.39

%

3.43

%

3.22

%

(1) The difference between the annualized yield on average total earning assets and the annualized cost of average total interest-bearing liabilities

(2) Annualized net interest income divided by average total earning assets

HOWARD BANCORP, INC. AND SUBSIDIARY

Average Balances, Yields, and Rates

(in thousands)

Six Months Ended June 30, 2021

Six Months Ended June 30, 2020

Average

Balance

Income /

Expense

Yield /

Rate

Average

Balance

Income /

Expense

Yield /

Rate

Earning assets

Loans and leases:

Commercial loans and leases

$

351,950

$

6,356

3.64

%

$

376,517

$

8,034

4.29

%

Commercial real estate

746,102

17,084

4.62

692,772

16,589

4.82

Construction and land

117,982

2,225

3.80

132,194

2,750

4.18

Residential real estate

445,014

8,321

3.77

499,572

10,193

4.10

Consumer

72,819

1,405

3.89

45,641

1,056

4.65

Total portfolio loans

1,733,867

35,391

4.12

1,746,696

38,622

4.45

Paycheck Protection Program loans

182,112

3,979

4.41

71,357

896

2.53

Total loans and leases

1,915,979

39,370

4.14

1,818,053

39,518

4.37

Securities available for sale:

U.S Gov agencies

46,746

562

2.42

75,523

1,024

2.73

Mortgage-backed

320,017

2,017

1.27

170,409

1,923

2.27

Corporate debentures

9,224

279

6.11

5,515

184

6.71

Total available for sale securities

375,986

2,858

1.53

251,447

3,131

2.50

Securities held to maturity

6,244

177

5.71

7,747

225

5.84

FHLB Atlanta stock, at cost

9,843

200

4.09

14,361

393

5.50

Interest bearning deposits in banks

42,039

12

0.06

85,521

254

0.60

Loans held for sale

-

-

-

9,894

179

3.64

Total earning assets

2,350,092

42,617

3.66

%

2,187,023

43,700

4.02

%

Cash and due from banks

10,684

14,833

Bank premises and equipment, net

40,792

42,560

Goodwill

31,449

65,760

Core deposit intangible

5,258

7,871

Other assets

144,099

143,843

Less: allowance for loan losses

(18,743

)

(12,068

)

Total assets

$

2,563,631

$

2,449,822

Interest-bearing liabilities

Deposits:

Interest-bearing demand accounts

$

222,688

$

41

0.04

%

$

185,043

$

214

0.23

%

Money market

435,509

149

0.07

367,218

1,047

0.57

Savings

176,276

27

0.03

137,240

70

0.10

Time deposits

423,894

853

0.41

540,691

4,262

1.59

Total interest-bearing deposits

1,258,367

1,070

0.17

1,230,192

5,593

0.91

Borrowings:

FHLB advances

206,959

884

0.86

288,407

1,532

1.07

Fed funds and other borrowings

11,860

2

0.03

11,707

17

0.29

Subordinated debt

28,532

891

6.30

28,282

913

6.49

Total borrowings

247,351

1,777

1.45

328,396

2,462

1.51

Total interest-bearing funds

1,505,718

2,847

0.38

%

1,558,588

8,055

1.04

%

Noninterest-bearing deposits

736,630

548,390

Other liabilities

22,518

25,864

Total liabilities

2,264,866

2,132,842

Stockholders' equity

298,765

316,980

Total liabilities & equity

$

2,563,631

$

2,449,822

Net interest rate spread (1)

$

39,770

3.28

%

$

35,645

2.98

%

Effect of noninterest-bearing funds

0.13

0.30

Net interest margin on earning assets (2)

3.41

%

3.28

%

(1) The difference between the annualized yield on average total earning assets and the annualized cost of average total interest-bearing liabilities

(2) Annualized net interest income divided by average total earning assets

Reconciliation of Non-GAAP Financial Measures

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

The Company considers the use of select non-GAAP financial measures and ratios to be useful for financial and operational decision making and useful in evaluating period-to-period comparisons. The Company believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expenditures or assets that we believe are not indicative of our primary business operating results. We believe these measures provide investors with information regarding balance sheet profitability, and we believe that management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, analyzing and comparing past, present and future periods.

The Company has excluded the after tax impact of its former mortgage banking activities, the goodwill impairment charge, and certain other items, as well as the income tax benefit of the change in net operating loss carryback rules as a result of the CARES Act. The reconciliation is presented on the following pages.

HOWARD BANCORP, INC. AND SUBSIDIARY

GAAP TO NON-GAAP RECONCILIATION - CORE NET INCOME AND EPS

(in thousands except per share data)

FOR THE SIX MONTHS ENDED

FOR THE THREE MONTHS ENDED

June 30,

June 30,

June 30,

March 31,

December 31,

September 30,

June 30,

2021

2020

2021

2021

2020

2020

2020

Net income (loss) (GAAP)

$

13,658

$

(26,066

)

$

7,456

$

6,202

$

4,471

$

4,604

$

(29,409

)

Adjustments:

Mortgage banking activities:

Net interest income

-

(143

)

-

-

-

-

-

Noninterest income

-

(1,425

)

-

-

-

-

-

Noninterest expenses

-

1,438

-

-

-

-

-

Total pretax - mortgage banking activities

-

(130

)

-

-

-

-

-

Certain other items:

Securities gains

-

(3,044

)

-

-

-

-

(3,044

)

Prepayment penalty - FHLB advances

-

224

-

-

-

-

224

Branch optimization charge

-

-

-

-

554

-

-

Litigation expense

-

1,000

-

-

980

-

1,000

CFO departure

-

788

-

-

-

-

-

Goodwill impairment charge

-

34,500

-

-

-

-

34,500

Total pretax - certain other items

-

33,468

-

-

1,534

-

32,680

Total core pretax income adjustments

-

33,338

-

-

1,534

-

32,680

Income tax expense (benefit) of adjustments

-

(276

)

-

-

414

-

(454

)

Total core pretax income adjustments, net of tax

-

33,614

-

-

1,120

-

33,134

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

-

(1,177

)

-

-

(94

)

-

-

Total core adjustments to net income

-

32,437

-

-

1,026

-

33,134

Core net income (Non-GAAP)

$

13,658

$

6,371

$

7,456

$

6,202

$

5,497

$

4,604

$

3,725

Diluted average common shares

18,847

18,791

18,871

18,797

18,748

18,737

18,716

Diluted EPS (GAAP)

$

0.72

$

(1.39

)

$

0.40

$

0.33

$

0.24

$

0.25

$

(1.57

)

Total core adjustments to net income

$

-

1.73

-

-

0.05

-

1.77

Core diluted EPS (Non-GAAP)

$

0.72

$

0.34

$

0.40

$

0.33

$

0.29

$

0.25

$

0.20

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

(in thousands)

FOR THE SIX MONTHS ENDED

FOR THE THREE MONTHS ENDED

June 30,

June 30,

June 30,

March 31,

December 31,

September 30,

June 30,

2021

2020

2021

2021

2020

2020

2020

Net income (loss) (GAAP)

$

13,658

$

(26,066

)

$

7,456

$

6,202

$

4,471

$

4,604

$

(29,409

)

Plus: provision for credit losses

1,000

6,445

-

1,000

1,700

1,700

3,000

Plus: income tax expense

4,895

1,204

2,682

2,213

1,093

1,348

1,660

Pre-provision net revenue (Non-GAAP)

$

19,553

$

(18,417

)

$

10,138

$

9,415

$

7,264

$

7,652

$

(24,749

)

Adjustments to net revenue:

Mortgage banking activities

-

(130

)

-

-

-

-

-

Securities gains

-

(3,044

)

-

-

-

-

(3,044

)

Prepayment penalty - FHLB advances

-

224

-