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| 8-K - 8-K - SQUARE 1 FINANCIAL INC | a2015q1sqbk8kearningsrelea.htm |
Exhibit 99.1
Press Release
For Release: | For More Information Contact: | |||
April 16, 2015 | Patrick Oakes, Executive Vice President and Chief Financial Officer | |||
919.627.6366, poakes@square1bank.com | ||||
SQUARE 1 FINANCIAL REPORTS FIRST QUARTER 2015 RESULTS
Durham, NC, April 16, 2015 - Square 1 Financial, Inc. (Nasdaq: SQBK) today announced results for the quarter ended March 31, 2015.
Consolidated net income available to common shareholders for the first quarter of 2015 was $8.2 million, or $0.27 per diluted share, compared to $9.5 million, or $0.32 per diluted share, for the fourth quarter of 2014.
“We continue to benefit from our growing brand along with a robust venture economy,” said Doug Bowers, President and Chief Executive Officer of Square 1 Financial. “This has led to another strong quarter for loan and deposit growth. We remain focused on providing the best banking services to our clients in the innovation economy.”
First Quarter Highlights
Highlights of the first quarter of 2015 include:
• | Return on average common equity of 10.66% and return on average assets of 1.04%. |
• | Tangible book value per share of $10.70 as of March 31, 2015. |
• | Average loans grew 3.9% while period-end loans increased 9.8% compared to the fourth quarter of 2014. Average loans grew 28.1% while period-end loans increased 39.3% compared to the first quarter of 2014. |
• | Average on-balance sheet deposits of $2.8 billion, up 4.2% from the fourth quarter of 2014 and up 30.8% from the first quarter of 2014. |
• | Average client investment funds of $1.4 billion, up 19.1% compared to the fourth quarter of 2014 and up 128.5% from the first quarter of 2014. |
• | Net loan charge-offs were $3.6 million, or 1.07%, of average loans (annualized) for the first quarter of 2015. |
• | Net interest margin of 3.96% for the first quarter of 2015. |
See "Non-GAAP Financial Measures" at the end of this release for reconciliations of our non-GAAP measures.
Earnings Summary
The decrease in net income available to common shareholders compared to the fourth quarter of 2014 was due primarily to a $1.4 million increase in the provision for loan losses, a $0.8 million increase in noninterest expense and a $0.4 million decrease in net interest income, partially offset by a $1.3 million decrease in income tax expense.
Net Interest Income and Margin (Fully Tax Equivalent Basis)
The information set forth below contains certain financial information determined by methods other than in accordance with GAAP. Net interest income and the net interest margin are presented on a fully taxable equivalent basis based on the federal statutory rate of 35% to consistently reflect income from taxable loans and securities and tax-exempt securities. See the "Non-GAAP Financial Measures" section for a reconciliation of these non-GAAP measures to their most comparable GAAP measures.
Net interest income for the first quarter of 2015 decreased $0.4 million compared to the fourth quarter of 2014, primarily driven by a decrease in loan interest income of $1.2 million, partially offset by an increase in investment interest income of $1.0 million. Lower loan yields and two less days in the quarter resulted in lower loan interest income despite a higher average balance of our loan portfolio. The increase in investment interest income was driven by the higher average balance of our investment securities portfolio and higher yields. Average deposits grew $112.3 million, or 4.2%, and lower average cash balances supported a 3.9% increase in the average balance of our loan portfolio and an 8.1% increase in the average balance of our investment securities portfolio.
For the first quarter of 2015, our net interest margin decreased to 3.96% from 4.12% for the fourth quarter of 2014. This decrease was largely due to the lower yield earned on our loan portfolio, slightly offset by the impact of lower cash balances. The lower yield earned on our loan portfolio was driven by lower loan fees and a lower interest yield. Loan fees were $2.0 million in the first quarter of 2015 compared to loan fees of $3.4 million in the fourth quarter of 2014.
Provision for Loan Losses
The $1.4 million increase in the provision for loan losses compared to the fourth quarter of 2014 was primarily due to the impact of overall loan growth. Net loan charge-offs were $3.6 million, or 1.07%, of average loans (annualized) for the first quarter of 2015 compared to net loan charge-offs of $3.9 million, or 1.18%, of average loans (annualized) for the fourth quarter of 2014.
Noninterest Income
Noninterest income of $6.2 million for the first quarter of 2015 was flat compared to the fourth quarter of 2014 as a $0.4 million increase in the gain on sale of SBA loans was largely offset by a decrease in warrant income. The $4.5 million of core banking noninterest income within noninterest income was also flat compared to the fourth quarter of 2014. Core banking noninterest income represents recurring income from traditional banking services provided to our customers (see "Non-GAAP Financial Measures" section). Within core banking noninterest income, lower foreign exchange fee income, which was $0.2 million lower compared to the fourth quarter of 2014, was offset by $0.1 million higher service charges and fees income and $0.1 million higher credit card and merchant income.
Warrant income was $0.5 million in the first quarter of 2015, compared to warrant income of $0.8 million in the fourth quarter of 2014. The decrease in warrant income compared to the fourth quarter of 2014 was primarily due to the higher magnitude of private company liquidity events during the fourth quarter of 2014. At March 31, 2015, the valuation of our remaining warrants was $4.6 million held in 473 companies, which included $0.6 million held in seven publicly traded companies.
Noninterest Expense
Noninterest expense for the first quarter of 2015 increased $0.8 million compared to the fourth quarter of 2014. The increase primarily resulted from $0.7 million higher personnel expenses and a $0.4 million increase in the provision for unfunded credit commitments, partially offset by a $0.3 million decrease in advertising and promotions expense. Higher personnel expenses were driven by an increase of 12 full-time equivalent employees from the fourth quarter of 2014 and higher incentive compensation expense as well as seasonal tax and benefits expenses. The first quarter of 2015 included $0.2 million in merger related expenses.
Income Tax Provision
Our projected annual effective tax rate for 2015 decreased to 29.6% from an annual effective tax rate of 31.4% for 2014 due to an increase in the portion of nontaxable income to taxable income.
Loans and Credit Quality
Average loans grew $51.8 million while period-end loans increased $132.1 million compared to the fourth quarter of 2014. Period-end loans to venture firms increased $20.9 million, or 12.4%, while total loans to venture-backed companies, including life sciences, technology and asset-based loans, were up $103.8 million, or 9.6%, at March 31, 2015 compared to December 31, 2014. Average loans grew $300.6 million while period-end loans increased $417.3 million compared to the first quarter of 2014. Period-end loans to venture firms increased $98.4 million, or 107.48%, while total loans to venture-backed companies, including life sciences, technology and asset-based loans were up $285.5 million, or 31.7%, at March 31, 2015 compared to March 31, 2014.
At March 31, 2015, nonperforming loans totaled $18.3 million, or 1.24%, of total loans compared to $17.2 million, or 1.28%, of total loans at December 31, 2014 and $9.6 million, or 0.91%, of total loans at March 31, 2014. The allowance for loan losses
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to nonperforming loans at March 31, 2015, was 135.34%, compared to 132.87% at December 31, 2014 and 198.65% at March 31, 2014.
Investments
Average investments grew 8.1% compared to the fourth quarter of 2014 as a result of continued deposit growth. Our available-for-sale securities portfolio totaled $1.3 billion at March 31, 2015, which was flat compared to December 31, 2014. Our held to maturity securities portfolio increased $65.3 million, or 21.8%, to an amortized cost of $365.8 million at March 31, 2015, compared to $300.4 million at December 31, 2014.
Deposits and Client Investment Funds
Our March 31, 2015 period-end deposits increased $232.9 million, or 8.4%, to $3.0 billion from December 31, 2014 and increased $811.3 million, or 36.9%, from March 31, 2014. These increases were primarily due to growth of our client base and a continued strong funding environment for venture-backed firms. Our period-end noninterest-bearing deposits increased $100.2 million, or 5.4%, while our interest-bearing deposits increased $132.7 million, or 14.3%, from December 31, 2014.
Average on-balance sheet deposits increased $112.3 million compared to the fourth quarter of 2014 and increased $663.4 million compared to the first quarter of 2014. The average cost of deposits was 0.03%, 0.02% and 0.02% for the first quarter of 2015, the fourth quarter of 2014 and first quarter of 2014, respectively, which yielded interest expense on deposits of $0.2 million, $0.2 million and $0.1 million for the same periods, respectively.
Our period-end client investment funds increased to $1.5 billion at March 31, 2015 from $1.4 billion at December 31, 2014, an increase of 1.7%, and increased 127.2% from $643.5 million at March 31, 2014, as our clients took advantage of alternative cash investment vehicles offered by Square 1 Asset Management, our registered investment adviser subsidiary. Average off-balance sheet client investment funds grew $231.2 million compared to the fourth quarter of 2014 and grew $809.8 million compared to the first quarter of 2014.
Capital Ratios
On January 1, 2015, the Basel III regulatory standard on bank capital adequacy became effective. The rule includes changes in what constitutes regulatory capital, some of which are subject to a two-year transition period, as well as the phasing-out of certain instruments as qualifying capital. The new capital requirements also include changes in the risk-weights of assets to better reflect credit risk and other risk exposures. Our Risk-Based Capital ratios decreased as a result of the changes to both qualifying regulatory capital and risk-weighted assets under the new rules. We believe that at March 31, 2015 we meet all capital requirements to which we are subject and are "well-capitalized."
Additional Events
On March 2, 2015, PacWest Bancorp and Square 1 announced the signing of a definitive agreement and plan of merger under which PacWest Bancorp will acquire Square 1 in a transaction valued at approximately $849 million.
Subject to the satisfaction or waiver of the closing conditions contained in the merger agreement, including the approval of bank regulatory authorities and approval of the merger agreement by Square 1’s stockholders, PacWest Bancorp and Square 1 expect that the merger will be completed during the fourth quarter of 2015. However, it is possible that factors outside the control of both companies, including whether or when the required regulatory approvals will be received, could result in the merger being completed at a different time or not at all.
Forward-Looking Statements
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.
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There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following: (i) market and economic conditions (including the interest rate environment, levels of public offerings, mergers and acquisitions and venture capital financing activities) and the associated impact on us; (ii) the sufficiency of our capital, including sources of capital (such as funds generated through retained earnings) and the extent to which capital may be used or required; (iii) our overall investment plans, strategies and activities, including our investment of excess cash/liquidity; (iv) operational, liquidity and credit risks associated with our business; (v) deterioration of our asset quality; (vi) our overall management of interest rate risk; (vii) our ability to execute our strategy and to achieve organic loan and deposit growth; (viii) increased competition in the financial services industry, nationally, regionally or locally, which may adversely affect pricing and terms; (ix) the adequacy of reserves (including allowance for loan and lease losses) and the appropriateness of our methodology for calculating such reserves; (x) volatility and direction of market interest rates; (xi) changes in the regulatory or legal environment; (xii) the ability to complete the proposed merger transaction, including obtaining regulatory approvals and approval by the stockholders of the Square 1, and business disruption caused by the proposed transaction and (xiii) other factors that are discussed in the section titled “Risk Factors,” in our Form 10-K for the fiscal year ended December 31, 2014, filed with the Securities and Exchange Commission on March 20, 2015.
The foregoing factors should not be construed as exhaustive. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Any forward-looking statement speaks only as of the date on which it is made, and we do not intend, or undertake any obligation to publicly update these forward-looking statements.
Additional Information About the Proposed Transaction and Where to Find It
Investors and security holders are urged to carefully review and consider each of PacWest Bancorp’s and Square 1’s public filings with the SEC, including but not limited to their Annual Reports on Form 10-K, their proxy statements, their Current Reports on Form 8-K and their Quarterly Reports on Form 10-Q. The documents filed by PacWest with the SEC may be obtained free of charge at PacWest’s website at www.pacwestbancorp.com or at the SEC’s website at www.sec.gov. These documents may also be obtained free of charge from PacWest by requesting them in writing to PacWest Bancorp, c/o Pacific Western Bank, 130 S. State College Blvd., Brea, CA 92821, Attention: Investor Relations, telephone (714) 671-6800, or via e-mail to investor-relations@pacwestbancorp.com.
The documents filed by Square 1 with the SEC may be obtained free of charge at Square 1’s website at www.square1bank.com or at the SEC’s website at www.sec.gov. These documents may also be obtained free of charge from Square 1 by requesting them in writing to Square 1 Financial, c/o Square 1 Bank, 406 Blackwell Street, Suite 240, Durham, NC 27701; Attention: Investor Relations, or by telephone at Phone: (866) 355-0468.
PacWest intends to file a registration statement with the SEC which will include a proxy statement of Square 1 and a prospectus of PacWest, and each party will file other documents regarding the proposed transaction with the SEC. Before making any voting or investment decision, investors and security holders of Square 1 are urged to carefully read the entire registration statement and proxy statement/prospectus, when they become available, as well as any amendments or supplements to these documents, because they will contain important information about the proposed transaction. A definitive proxy statement/prospectus will be sent to the stockholders of Square 1 seeking any required stockholder approvals. Investors and security holders will be able to obtain the registration statement and the proxy statement/prospectus free of charge from the SEC’s website or from PacWest or Square 1 by writing to the addresses provided for each company set forth in the paragraphs above.
PacWest, Square 1, their directors, executive officers and certain other persons may be deemed to be participants in the solicitation of proxies from Square 1 stockholders in favor of the approval of the transaction. Information about the directors and executive officers of PacWest and their ownership of PacWest common stock is set forth in the proxy statement for PacWest’s 2014 annual meeting of stockholders, as previously filed with the SEC. Information about the directors and executive officers of Square 1 and their ownership of Square 1 common stock is set forth in Square 1’s Form 10-K for the fiscal year ended December 31, 2014, filed with the SEC on March 20, 2015. Stockholders may obtain additional information regarding the interests of such participants by reading the registration statement and the proxy statement/prospectus when they become available.
About Square 1 Financial
Square 1 Financial is a financial services company focused primarily on serving entrepreneurs and their investors. Square 1 Financial (Nasdaq: SQBK) is headquartered in Durham, North Carolina with thirteen loan production offices located in key innovation hubs across the United States. Through Square 1 Bank, which was formed by experienced venture bankers, commercial bankers and entrepreneurs, we offer a full range of banking and financial products focused on the entrepreneurial
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community and their venture capital and private equity investors. Since inception, we have operated as a highly-focused venture bank and have provided a broad range of financial services to entrepreneurs, growing entrepreneurial companies and the venture capital and private equity communities. We provide banking services to our clients, including venture, commercial and international banking services, asset-based lending programs, and SBA and USDA commercial and real estate loan programs. We also provide investment advisory and asset management services to our clients through Square 1 Asset Management, a subsidiary of Square 1 Bank. More information can be found at www.square1financial.com.
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SQUARE 1 FINANCIAL, INC.
Summary Financial Information | At or For the | |||||||||||
Three Months Ended | ||||||||||||
(In thousands, except per share data) | March 31, 2015 | December 31, 2014 | March 31, 2014 | |||||||||
Performance Ratios: | ||||||||||||
Return on average assets | 1.04 | % | 1.25 | % | 1.33 | % | ||||||
Return on average common equity | 10.66 | 12.57 | 16.34 | |||||||||
Net interest margin(1) | 3.96 | 4.12 | 4.12 | |||||||||
Efficiency ratio(2) | 49.49 | 47.14 | 50.61 | |||||||||
Per Share Data: | ||||||||||||
Net income per basic common share | $ | 0.28 | $ | 0.33 | $ | 0.33 | ||||||
Net income per diluted common share | 0.27 | 0.32 | 0.31 | |||||||||
Book value per common share | 10.71 | 10.48 | 9.29 | |||||||||
Tangible book value per common share(3) | 10.70 | 10.47 | 9.26 | |||||||||
Capital Ratios (consolidated): | ||||||||||||
Tier 1 leverage capital(4) | 9.61 | % | 9.71 | % | 10.67 | % | ||||||
Common equity Tier 1 capital(4) | 11.77 | 13.84 | 14.22 | |||||||||
Tier 1 risk-based capital(4) | 11.77 | 13.84 | 14.51 | |||||||||
Total risk-based capital(4) | 12.78 | 14.96 | 15.61 | |||||||||
Total shareholders’ equity to assets | 9.55 | 9.78 | 10.45 | |||||||||
Tangible common equity to tangible assets(5) | 9.54 | 9.77 | 10.23 | |||||||||
Asset Quality Ratios: | ||||||||||||
Allowance for loan losses as a percent of total loans | 1.67 | % | 1.70 | % | 1.80 | % | ||||||
Allowance for loan losses as a percent of nonperforming loans | 135.34 | 132.87 | 198.65 | |||||||||
Net charge-offs to average outstanding loans (annualized) | 1.07 | 1.18 | 0.85 | |||||||||
Nonperforming loans as a percent of total loans | 1.24 | 1.28 | 0.91 | |||||||||
Nonperforming assets as a percent of total assets | 0.55 | 0.56 | 0.39 | |||||||||
Other Ratios and Statistics: | ||||||||||||
Average loans, net of unearned income, to average deposits | 48.7 | % | 48.8 | % | 49.7 | % | ||||||
Period-end full-time equivalent employees | 270 | 258 | 239 | |||||||||
Average outstanding shares—basic | 29,270 | 28,795 | 23,726 | |||||||||
Average outstanding shares—diluted | 30,281 | 30,204 | 25,740 | |||||||||
Period-end outstanding shares—basic | 29,758 | 28,883 | 27,234 | |||||||||
Period-end outstanding shares—diluted | 30,533 | 30,307 | 29,083 | |||||||||
Financial Condition Data: | ||||||||||||
Average total assets | $ | 3,190,370 | $ | 3,032,595 | $ | 2,374,169 | ||||||
Average cash and cash equivalents | 85,076 | 105,705 | 119,430 | |||||||||
Average investment securities - available-for-sale | 1,309,450 | 1,252,625 | 967,161 | |||||||||
Average investment securities - held-to-maturity | 359,341 | 291,648 | 164,844 | |||||||||
Average loans, net of unearned income | 1,369,428 | 1,317,622 | 1,068,814 | |||||||||
Average on-balance sheet deposits | 2,813,912 | 2,701,630 | 2,150,508 | |||||||||
Average total client investment funds | 1,439,848 | 1,208,638 | 630,042 | |||||||||
Average total shareholders' equity | 310,104 | 300,847 | 198,171 | |||||||||
(1) | Represents net interest income as a percent of average interest-earning assets. |
(2) | Represents noninterest expense divided by the sum of net interest income and other income, excluding gains or losses on the impairment and sale of securities. Efficiency ratio, as calculated, is a non-GAAP financial measure. See “Non-GAAP Financial Measures.” |
(3) | Tangible book value per common share is a non-GAAP financial measure. Tangible common equity is computed as total shareholders’ equity, excluding preferred stock, less intangible assets. Tangible book value per common share is calculated as tangible common equity divided by common shares outstanding. We believe that the most directly comparable GAAP financial measure is book value per common share. See “Non-GAAP Financial Measures.” |
(4) | Tier 1 leverage, Tier 1 risk-based and Total risk-based capital ratios for March 31, 2015 and Common equity Tier 1 capital ratios for March 31, 2015, December 31, 2014 and March 31, 2014 are estimates. |
(5) | Tangible common equity to tangible assets is a non-GAAP financial measure. Tangible common equity is computed as total shareholders’ equity, excluding preferred stock, less intangible assets. Tangible assets are calculated as total assets less intangible assets. We believe that the most directly comparable GAAP financial measure is total shareholders’ equity to assets. See “Non-GAAP Financial Measures.” |
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SQUARE 1 FINANCIAL, INC.
Interim Consolidated Balance Sheets
(in thousands, except share and per share data) | March 31, 2015 | December 31, 2014 | March 31, 2014 | |||||||||
Assets | (Unaudited) | (Unaudited) | ||||||||||
Cash and due from banks | $ | 32,236 | $ | 14,629 | $ | 39,704 | ||||||
Interest-bearing deposits in other banks | 93,994 | 72,292 | 157,576 | |||||||||
Federal funds sold and securities purchased under resale agreements | — | — | 259 | |||||||||
Total cash and cash equivalents | 126,230 | 86,921 | 197,539 | |||||||||
Investment in time deposits | 1,001 | 1,251 | 1,250 | |||||||||
Investment securities—available for sale, at fair value | 1,292,931 | 1,294,533 | 980,669 | |||||||||
Investment securities—held to maturity, at amortized cost | 365,771 | 300,425 | 169,521 | |||||||||
Loans, net of unearned income of $8.6 million, $7.9 million and $4.6 million | 1,478,582 | 1,346,449 | 1,061,287 | |||||||||
Less allowance for loan losses | (24,739 | ) | (22,906 | ) | (19,094 | ) | ||||||
Net loans | 1,453,843 | 1,323,543 | 1,042,193 | |||||||||
Premises and equipment, net | 3,993 | 4,026 | 3,185 | |||||||||
Deferred income tax assets, net | 7,786 | 9,672 | 12,110 | |||||||||
Bank owned life insurance | 51,157 | 50,723 | 34,631 | |||||||||
Intangible assets | 1,737 | 1,615 | 1,996 | |||||||||
Other receivables | 11,408 | 3,226 | 2,856 | |||||||||
Warrant valuation | 4,649 | 4,304 | 6,596 | |||||||||
Prepaid expenses | 1,695 | 2,063 | 1,311 | |||||||||
Accrued interest receivable and other assets | 14,823 | 12,564 | 13,285 | |||||||||
Total assets | $ | 3,337,024 | $ | 3,094,866 | $ | 2,467,142 | ||||||
Liabilities and Shareholders’ Equity | ||||||||||||
Deposits: | ||||||||||||
Demand, noninterest-bearing | $ | 1,951,176 | $ | 1,851,004 | $ | 1,371,149 | ||||||
Demand, interest-bearing | 91,635 | 71,598 | 130,660 | |||||||||
Money market deposit accounts | 952,186 | 837,630 | 666,485 | |||||||||
Time deposits | 14,466 | 16,320 | 29,905 | |||||||||
Total deposits | 3,009,463 | 2,776,552 | 2,198,199 | |||||||||
Junior subordinated debt | — | — | 3,186 | |||||||||
Accrued interest payable and other liabilities | 8,790 | 15,610 | 7,876 | |||||||||
Total liabilities | 3,018,253 | 2,792,162 | 2,209,261 | |||||||||
Commitments and contingencies | ||||||||||||
Shareholders’ equity: | ||||||||||||
Common stock, $.01 par value; 70,000,000 and 45,000,000 shares authorized, respectively: | ||||||||||||
Class A common stock, $.01 par value; 26,362,618 shares, 25,487,568 shares and 23,771,776 shares issued and outstanding, respectively | 263 | 255 | 238 | |||||||||
Class B convertible common stock, $.01 par value; 3,395,110 shares, 3,395,110 shares and 3,462,610 shares issued and outstanding, respectively | 34 | 34 | 34 | |||||||||
Additional paid in capital | 254,630 | 251,597 | 239,306 | |||||||||
Accumulated other comprehensive income | 12,277 | 7,404 | 1,223 | |||||||||
Retained earnings | 51,567 | 43,414 | 17,080 | |||||||||
Total shareholders’ equity | 318,771 | 302,704 | 257,881 | |||||||||
Total liabilities and shareholders’ equity | $ | 3,337,024 | $ | 3,094,866 | $ | 2,467,142 | ||||||
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SQUARE 1 FINANCIAL, INC.
Interim Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data) | Three Months Ended | |||||||||||
March 31, 2015 | December 31, 2014 | March 31, 2014 | ||||||||||
Interest income: | ||||||||||||
Loans including fees on loans | $ | 20,134 | $ | 21,315 | $ | 16,403 | ||||||
Investment securities: | ||||||||||||
Taxable | 6,898 | 6,184 | 4,561 | |||||||||
Non-taxable | 2,329 | 2,172 | 1,772 | |||||||||
Federal funds and other short-term investments | 40 | 77 | 64 | |||||||||
Total interest income | 29,401 | 29,748 | 22,800 | |||||||||
Interest expense: | ||||||||||||
Deposits | 211 | 150 | 130 | |||||||||
Borrowings and repurchase agreements | 45 | 15 | 4 | |||||||||
Junior subordinated debt | — | — | 159 | |||||||||
Total interest expense | 256 | 165 | 293 | |||||||||
Net interest income | 29,145 | 29,583 | 22,507 | |||||||||
Provision for loan losses | 5,447 | 4,000 | 2,964 | |||||||||
Net interest income after provision for loan losses | 23,698 | 25,583 | 19,543 | |||||||||
Noninterest income: | ||||||||||||
Service charges and fees | 1,258 | 1,188 | 1,068 | |||||||||
Foreign exchange fees | 1,718 | 1,951 | 1,641 | |||||||||
Credit card and merchant income | 1,021 | 932 | 636 | |||||||||
Investment impairment | — | — | (43 | ) | ||||||||
Net (loss) gain on securities | (204 | ) | (24 | ) | 9 | |||||||
Letter of credit fees | 242 | 242 | 515 | |||||||||
Warrant income | 462 | 792 | 2,195 | |||||||||
Gain on sale of loans | 806 | 439 | 253 | |||||||||
Bank owned life insurance | 435 | 445 | 290 | |||||||||
Other | 474 | 209 | 575 | |||||||||
Total noninterest income | 6,212 | 6,174 | 7,139 | |||||||||
Noninterest expense: | ||||||||||||
Personnel | 12,227 | 11,543 | 10,634 | |||||||||
Occupancy | 823 | 863 | 740 | |||||||||
Data processing | 937 | 928 | 822 | |||||||||
Furniture and equipment | 765 | 808 | 702 | |||||||||
Advertising and promotions | 241 | 495 | 275 | |||||||||
Professional fees | 1,001 | 993 | 601 | |||||||||
Telecommunications | 291 | 308 | 260 | |||||||||
Travel | 210 | 287 | 166 | |||||||||
FDIC assessment | 419 | 429 | 405 | |||||||||
Other | 1,423 | 878 | 978 | |||||||||
Total noninterest expense | 18,337 | 17,532 | 15,583 | |||||||||
Income before income tax expense | 11,573 | 14,225 | 11,099 | |||||||||
Income tax expense | 3,420 | 4,693 | 3,251 | |||||||||
Net income | 8,153 | 9,532 | 7,848 | |||||||||
Dividends on preferred stock | — | — | 62 | |||||||||
Net income available to common shareholders | $ | 8,153 | $ | 9,532 | $ | 7,786 | ||||||
Earnings per share—basic | $ | 0.28 | $ | 0.33 | $ | 0.33 | ||||||
Earnings per share—diluted | $ | 0.27 | $ | 0.32 | $ | 0.31 | ||||||
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SQUARE 1 FINANCIAL, INC.
Interim Net Interest Margin Analysis (Unaudited)
The following table presents information regarding average balances for assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. Net interest income and the net interest margin are presented on a fully taxable equivalent basis based on the federal statutory rate of 35% to consistently reflect income from taxable loans and securities and tax-exempt securities. Yields are also presented on a tax equivalent basis.
Three Months Ended | |||||||||||||||||||||||||||||||||
March 31, 2015 | December 31, 2014 | March 31, 2014 | |||||||||||||||||||||||||||||||
Average Balance | Interest and Dividends | Yield/ Cost | Average Balance | Interest and Dividends | Yield/ Cost | Average Balance | Interest and Dividends | Yield/ Cost | |||||||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||||||||||
Interest-earning assets: | |||||||||||||||||||||||||||||||||
Interest-bearing deposits in other banks | $ | 75,022 | $ | 39 | 0.21 | % | $ | 90,032 | $ | 69 | 0.30 | % | $ | 106,261 | $ | 62 | 0.24 | % | |||||||||||||||
Federal funds sold and other short-term investments | 1,248 | 1 | 0.29 | 7,011 | 8 | 0.48 | 1,428 | 2 | 0.55 | ||||||||||||||||||||||||
Loans, net of unearned income | 1,369,428 | 20,134 | 5.96 | 1,317,622 | 21,315 | 6.42 | 1,068,814 | 16,403 | 6.22 | ||||||||||||||||||||||||
Nontaxable securities | 287,216 | 3,583 | 5.06 | 271,459 | 3,342 | 4.88 | 228,094 | 2,724 | 4.84 | ||||||||||||||||||||||||
Taxable securities | 1,381,575 | 6,898 | 2.02 | 1,272,814 | 6,184 | 1.93 | 903,911 | 4,560 | 2.05 | ||||||||||||||||||||||||
Total interest-earning assets | 3,114,489 | 30,655 | 3.99 | 2,958,938 | 30,918 | 4.15 | 2,308,508 | 23,751 | 4.17 | ||||||||||||||||||||||||
Less: Allowance for loan losses | (23,521 | ) | (23,966 | ) | (19,471 | ) | |||||||||||||||||||||||||||
Noninterest-earning assets | 99,402 | 97,623 | 85,132 | ||||||||||||||||||||||||||||||
Total assets | $ | 3,190,370 | $ | 3,032,595 | $ | 2,374,169 | |||||||||||||||||||||||||||
Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||
Demand deposits | $ | 92,397 | 27 | 0.12 | $ | 78,946 | 20 | 0.10 | $ | 116,647 | 24 | 0.08 | |||||||||||||||||||||
Money market | 841,030 | 179 | 0.09 | 764,062 | 122 | 0.06 | 616,834 | 92 | 0.06 | ||||||||||||||||||||||||
Time deposits | 16,666 | 5 | 0.11 | 16,852 | 8 | 0.19 | 26,121 | 14 | 0.22 | ||||||||||||||||||||||||
Total interest-bearing deposits | 950,093 | 211 | 0.09 | 859,860 | 150 | 0.07 | 759,602 | 130 | 0.07 | ||||||||||||||||||||||||
FHLB advances | 49,111 | 44 | 0.37 | 15,163 | 15 | 0.39 | 2,000 | 2 | 0.41 | ||||||||||||||||||||||||
Repurchase agreements | 333 | — | 0.30 | 113 | — | 0.32 | 6,092 | 1 | — | ||||||||||||||||||||||||
Junior subordinated debt | — | — | — | — | — | — | 6,173 | 160 | 10.46 | ||||||||||||||||||||||||
Total interest-bearing liabilities | 999,537 | 255 | 0.10 | 875,136 | 165 | 0.07 | 773,867 | 293 | 0.15 | ||||||||||||||||||||||||
Noninterest-bearing deposits | 1,863,819 | 1,841,770 | 1,390,906 | ||||||||||||||||||||||||||||||
Other noninterest-bearing liabilities | 16,910 | 14,842 | 11,225 | ||||||||||||||||||||||||||||||
Total liabilities | 2,880,266 | 2,731,748 | 2,175,998 | ||||||||||||||||||||||||||||||
Total shareholders’ equity | 310,104 | 300,847 | 198,171 | ||||||||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 3,190,370 | $ | 3,032,595 | $ | 2,374,169 | |||||||||||||||||||||||||||
Net interest income | $ | 30,400 | $ | 30,753 | $ | 23,458 | |||||||||||||||||||||||||||
Interest rate spread | 3.89 | % | 4.08 | % | 4.02 | % | |||||||||||||||||||||||||||
Net interest margin | 3.96 | % | 4.12 | % | 4.12 | % | |||||||||||||||||||||||||||
Ratio of average interest-earning assets to average interest-bearing liabilities | 311.59 | % | 338.11 | % | 298.31 | % | |||||||||||||||||||||||||||
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SQUARE 1 FINANCIAL, INC.
Loans and Unfunded Commitments
March 31, 2015 | December 31, 2014 | March 31, 2014 | |||||||||||||||||||
Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||
Commercial loans: | |||||||||||||||||||||
Technology | $ | 732,840 | 49.28 | % | $ | 631,979 | 46.66 | % | $ | 553,258 | 51.91 | % | |||||||||
Life sciences | 291,700 | 19.61 | 274,057 | 20.24 | 226,617 | 21.27 | |||||||||||||||
Asset-based loans | 163,004 | 10.96 | 177,701 | 13.12 | 122,151 | 11.46 | |||||||||||||||
Venture capital/private equity | 190,037 | 12.78 | 169,143 | 12.49 | 91,595 | 8.59 | |||||||||||||||
SBA and USDA | 35,588 | 2.39 | 35,609 | 2.63 | 24,864 | 2.33 | |||||||||||||||
Other | 11,149 | 0.75 | 6,854 | 0.50 | 4,624 | 0.43 | |||||||||||||||
Total commercial loans | 1,424,318 | 95.77 | 1,295,343 | 95.64 | 1,023,109 | 95.99 | |||||||||||||||
Real estate loans: | |||||||||||||||||||||
SBA and USDA | 36,896 | 2.48 | 36,978 | 2.73 | 29,558 | 2.77 | |||||||||||||||
Total real estate loans | 36,896 | 2.48 | 36,978 | 2.73 | 29,558 | 2.77 | |||||||||||||||
Construction: | |||||||||||||||||||||
SBA and USDA | 5,453 | 0.37 | 4,035 | 0.30 | 286 | 0.03 | |||||||||||||||
Total construction loans | 5,453 | 0.37 | 4,035 | 0.30 | 286 | 0.03 | |||||||||||||||
Credit cards | 20,465 | 1.38 | 17,980 | 1.33 | 12,916 | 1.21 | |||||||||||||||
Total loans | 1,487,132 | 100.00 | % | 1,354,336 | 100.00 | % | 1,065,869 | 100.00 | % | ||||||||||||
Less unearned income(1) | (8,550 | ) | (7,887 | ) | (4,582 | ) | |||||||||||||||
Total loans, net of unearned income | $ | 1,478,582 | $ | 1,346,449 | $ | 1,061,287 | |||||||||||||||
Total unfunded loan commitments | $ | 1,297,505 | $ | 1,232,078 | $ | 1,036,497 | |||||||||||||||
(1) | Unearned income consists of unearned loan fees, the discount on SBA loans and the unearned initial warrant value. |
Client Investment Funds
We offer our clients alternative cash investment vehicles such as sweep accounts and investment in the Certificates of Deposit Account Registry Service (“CDARS”), the latter of which allows us to place client deposits in one or more insured depository institutions.
March 31, 2015 | December 31, 2014 | March 31, 2014 | ||||||||||
Period-end: | (Dollars in thousands) | |||||||||||
Client investment assets under management | $ | 967,868 | $ | 976,075 | $ | 173,927 | ||||||
Sweep money market funds | 453,505 | 404,357 | 303,135 | |||||||||
CDARS | 40,382 | 56,201 | 166,452 | |||||||||
Total period-end client investment funds | $ | 1,461,755 | $ | 1,436,633 | $ | 643,514 | ||||||
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SQUARE 1 FINANCIAL, INC.
Credit Quality
Three Months Ended | ||||||||||||
March 31, 2015 | December 31, 2014 | March 31, 2014 | ||||||||||
(Dollars in thousands) | ||||||||||||
Allowance at beginning of period | $ | 22,906 | $ | 22,816 | $ | 18,379 | ||||||
Provision for loan losses | 5,447 | 4,000 | 2,964 | |||||||||
Charge-offs: | ||||||||||||
Commercial loans: | ||||||||||||
Technology | 2,061 | 3,408 | 1,834 | |||||||||
Life sciences | 1,361 | 507 | — | |||||||||
SBA and USDA | 38 | — | 518 | |||||||||
Total commercial loans | 3,460 | 3,915 | 2,352 | |||||||||
Real estate loans: | ||||||||||||
SBA and USDA | 540 | — | — | |||||||||
Total real estate loans | 540 | — | — | |||||||||
Total charge offs | 4,000 | 3,915 | 2,352 | |||||||||
Recoveries: | ||||||||||||
Commercial loans: | ||||||||||||
Technology | (386 | ) | (1 | ) | (103 | ) | ||||||
Life sciences | — | (4 | ) | — | ||||||||
Total commercial loans | (386 | ) | (5 | ) | (103 | ) | ||||||
Total recoveries | (386 | ) | (5 | ) | (103 | ) | ||||||
Net charge offs | 3,614 | 3,910 | 2,249 | |||||||||
Allowance at end of period | $ | 24,739 | $ | 22,906 | $ | 19,094 | ||||||
Total nonaccrual loans | $ | 18,280 | $ | 17,239 | $ | 9,612 | ||||||
Credit Quality Ratios: | ||||||||||||
Allowance for loan losses as a percent of total loans | 1.67 | % | 1.70 | % | 1.80 | % | ||||||
Allowance for loan losses as a percent of nonperforming loans | 135.34 | 132.87 | 198.65 | |||||||||
Net charge-offs to average outstanding loans (annualized) | 1.07 | 1.18 | 0.85 | |||||||||
Nonperforming loans as a percent of total loans | 1.24 | 1.28 | 0.91 | |||||||||
Nonperforming assets as a percent of total assets | 0.55 | 0.56 | 0.39 | |||||||||
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SQUARE 1 FINANCIAL, INC.
Non-GAAP Financial Measures
The information set forth in this release contains certain financial information determined by methods other than in accordance with GAAP. Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. These non-GAAP financial measures for us are “efficiency ratio,” “tangible common equity to tangible assets,” "tangible book value per common share," “net operating income,” "net interest income (fully tax equivalent basis)," and "core banking noninterest income." Although we believe these non-GAAP financial measures provide a greater understanding of our business, these measures are not necessarily comparable to similar measures that may be presented by other companies. The non-GAAP financial measures should be viewed as a supplement to, and not a substitute for, financial measures presented in accordance with GAAP.
Efficiency ratio represents noninterest expense divided by the sum of net interest income and other income, excluding gains or losses on the impairment and sale of securities. This measure is used by management to evaluate our operational efficiency.
Tangible common equity to tangible assets ratio is used by management to evaluate the adequacy of our capital levels. Tangible common equity is computed as total shareholders’ equity, excluding preferred stock, less intangible assets. Tangible assets are calculated as total assets less intangible assets other than loan servicing intangible assets. We believe that the most directly comparable GAAP financial measure is total shareholders’ equity to assets.
Tangible common equity is computed as total shareholders’ equity, excluding preferred stock, less intangible assets. Tangible book value per common share is calculated as tangible common equity divided by common shares outstanding. We believe that the most directly comparable GAAP financial measure is book value per common share.
Non-GAAP net operating income represents net operating income before income tax expense on a fully tax equivalent basis excluding the impact of gains and losses on the sale of securities and impairments. We believe that the most directly comparable GAAP financial measure is income before income tax expense.
Our discussions of net interest income and the net interest margin are presented on a fully taxable equivalent basis based on the federal statutory rate of 35% to consistently reflect income from taxable loans and securities and tax-exempt securities.We believe that the most directly comparable GAAP financial measure is net interest income.
Core banking noninterest income represents recurring income from traditional banking services provided to our customers and excludes line items where results are typically subject to market or other conditions beyond our control. We believe that the most directly comparable GAAP financial measure is noninterest income.
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The information provided below reconciles each non-GAAP measure to its most comparable GAAP measure.
(Dollars in thousands) | Three Months Ended | |||||||||||
March 31, 2015 | December 31, 2014 | March 31, 2014 | ||||||||||
Efficiency Ratio | ||||||||||||
Noninterest expense (GAAP) | $ | 18,337 | $ | 17,532 | $ | 15,583 | ||||||
Net interest taxable equivalent income | 30,400 | 30,753 | 23,458 | |||||||||
Noninterest taxable equivalent income | 6,446 | 6,414 | 7,297 | |||||||||
Less: (loss) gain on sale of securities and impairment | (204 | ) | (24 | ) | (34 | ) | ||||||
Adjusted operating revenue | $ | 37,050 | $ | 37,191 | $ | 30,789 | ||||||
Efficiency ratio | 49.49 | % | 47.14 | % | 50.61 | % | ||||||
Tangible Common Equity/Tangible Assets | ||||||||||||
Total equity | $ | 318,771 | $ | 302,704 | $ | 257,880 | ||||||
Less: preferred stock | — | — | 4,950 | |||||||||
Intangible assets(1) | 344 | 393 | 698 | |||||||||
Tangible common equity | $ | 318,427 | $ | 302,311 | $ | 252,232 | ||||||
Total assets | $ | 3,337,024 | $ | 3,094,866 | $ | 2,467,142 | ||||||
Less: intangible assets(1) | 344 | 393 | 698 | |||||||||
Tangible assets | $ | 3,336,680 | $ | 3,094,473 | $ | 2,466,444 | ||||||
Tangible common equity/tangible assets | 9.54 | % | 9.77 | % | 10.23 | % | ||||||
Net Operating Income | ||||||||||||
GAAP income before taxes | $ | 11,573 | $ | 14,225 | $ | 11,099 | ||||||
Add: (loss) gain on sale of securities and impairment | (204 | ) | (24 | ) | (34 | ) | ||||||
Add: tax equivalent adjustment | 1,488 | 1,409 | 1,108 | |||||||||
Non-GAAP net operating income before taxes | $ | 13,265 | $ | 15,658 | $ | 12,241 | ||||||
Net Interest Income | ||||||||||||
GAAP net interest income | $ | 29,145 | $ | 29,583 | $ | 22,507 | ||||||
Add: tax equivalent adjustment | 1,255 | 1,170 | 951 | |||||||||
Non-GAAP net interest income (fully tax equivalent basis) | $ | 30,400 | $ | 30,753 | $ | 23,458 | ||||||
Core Banking Noninterest Income | ||||||||||||
GAAP noninterest income | $ | 6,212 | $ | 6,174 | $ | 7,139 | ||||||
Less: net (loss) gain on securities | (204 | ) | (24 | ) | (34 | ) | ||||||
Warrant income | 462 | 792 | 2,195 | |||||||||
Gain on sale of loans | 806 | 439 | 253 | |||||||||
Bank owned life insurance | 435 | 445 | 290 | |||||||||
Other | 260 | 27 | 398 | |||||||||
Non-GAAP core banking noninterest income | $ | 4,453 | $ | 4,495 | $ | 4,037 | ||||||
(1) | Does not include a loan servicing asset of $1.4 million, $1.3 million and $1.3 million at March 31, 2015, December 31, 2014, and March 31, 2014, respectively. |
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