Attached files
| file | filename |
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| EX-99.1 - EX-99.1 - First Internet Bancorp | inbk-3q2020xex991.htm |
| 8-K - 8-K - First Internet Bancorp | inbk-3q2020xer8k.htm |
Financial Results Third Quarter 2020 Exhibit 99.2
Forward-Looking Statements & Non-GAAP Financial Measures This presentation may contain forward-looking statements with respect to the financial condition, results of operations, trends in lending policies, plans, objectives, future performance or business of the Company. Forward-looking statements are generally identifiable by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “outlook,” “pending,” “plan,” “position,” “preliminary,” “remain,” “should,” “will,” “would” or other similar expressions. Forward-looking statements are not a guarantee of future performance or results, are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the information in the forward-looking statements. The COVID-19 pandemic has resulted in deterioration of general business and economic conditions and continued to impact us, our customers, counterparties, employees, and third-party service providers. Sustained deterioration in market conditions could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit and further increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways. The ultimate magnitude and duration of the pandemic is still unknown at this time, therefore, the extent of the impact on our business, financial position, results of operations, liquidity and prospects remains uncertain. Other factors that may cause such differences include: failures or breaches of or interruptions in the communications and information systems on which we rely to conduct our business; failure of our plans to grow our commercial real estate, commercial and industrial, public finance, SBA and healthcare finance loan portfolios; competition with national, regional and community financial institutions; the loss of any key members of senior management; fluctuations in interest rates; general economic conditions; risks relating to the regulation of financial institutions; and other factors identified in reports we file with the U.S. Securities and Exchange Commission. All statements in this presentation, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events. This presentation contains financial information determined by methods other than in accordance with U.S. generally accepted accounting principles (“GAAP”). Non-GAAP financial measures, specifically tangible common equity, tangible assets, tangible book value per common share, tangible common equity to tangible assets, net interest income – FTE, net interest margin – FTE, allowance for loan losses to loans, excluding PPP loans, adjusted noninterest expense, adjusted noninterest expense/average assets, adjusted income before income taxes, adjusted income tax provision (benefit), adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average shareholders’ equity, adjusted return on average tangible common equity and adjusted effective income tax rate are used by the Company’s management to measure the strength of its capital and analyze profitability, including its ability to generate earnings on tangible capital invested by its shareholders. Although management believes these non-GAAP measures are useful to investors by providing a greater understanding of its business, they should not be considered a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included on the slide at the end of this presentation entitled “Reconciliation of Non-GAAP Financial Measures.” 2
Third Quarter 2020 Highlights . Record diluted EPS of $0.86 . Adjusted diluted EPS of $1.031 excluding write-down of legacy OREO Earnings . Record quarterly net income of $8.4 million . Total revenue of $28.7 million, an increase of 48.1% from 2Q20 . Cost of interest-bearing deposits declined 43 bps from 2Q20 to 1.51% Key Operating . FTE net interest margin increased 17 bps to 1.67% Trends . Allowance for loan losses / total loans, excluding PPP, increased to 0.91%1 . Asset quality remained solid with NPAs to total assets of 0.23% . Disciplined Portfolio loan balances increased by $39.2 million, or 1.3% from 2Q20 Balance Sheet . SBA loan sales contributed $1.7 million in fee revenue Management . Sold $12.2 million of single tenant lease financing loans at a gain of $0.4 million . Regulatory capital ratios increased from 2Q20 and remain strong Liquidity and . Continued strong on- and off-balance sheet liquidity to manage impact of Capital COVID-19 environment . Deposit balances relatively stable from 2Q20 1 See Reconciliation of Non-GAAP Financial Measures in the Appendix 3 3
Near-term Profitability Drivers . Continued deposit repricing opportunity combined with stabilized asset yields provides significant opportunity to increase net interest income and net interest margin . Annual interest expense savings in excess of $22 million expected for 2021 . Accelerated build-out of SBA platform is six months ahead of the original plan – sales and operations hiring increased due to competitor dislocation in the marketplace . SBA gain on sale revenue expected to be in the range of $12 million - $14 million for 2021 . Residential mortgage originations expected to remain strong in the continued low interest rate environment . Continue to remain cautiously optimistic regarding the impact of the COVID-19 pandemic on the credit quality of the loan portfolio 4
Loan Portfolio Overview . Total portfolio loans increased $39.2 million, or 1.3%, compared to 2Q20, and increased $131.6 million, or 4.6%, year-over-year . Commercial loan balances increased $56.2 million, or 2.4%, compared to 2Q20 as growth in healthcare finance and construction lending resumed following limited activity in the second quarter . Consumer loan balances declined $15.3 million, or 2.9%, due primarily to increased prepayment activity across the portfolio Loan Portfolio Mix Dollars in millions $2,963.5 $3,012.9 6% $2,716.2 6% 4% 7% 2% Commercial and Industrial1 2% 32% Commercial Real Estate $2,091.0 34% 9% 34% Single Tenant Lease Financing 2% Public Finance 38% 21% Healthcare Finance $1,250.8 23% 13% 26% Small Business Lending 5% 15% 22% 4% 10% Residential Mortgage/HE/HELOCs 49% 1% 2% 4% 2% 16% Consumer 16% 11% 8% 19% 14% 11% 10% 10% 10% 2016 2017 2018 2019 3Q20 5 1 Includes commercial and industrial and owner-occupied commercial real estate balances
Deposit Composition . Total deposits declined $8.4 million, or 0.2%, compared to 2Q20, and increased $224.1 million, or 7.1%, year-over-year . Quarterly money market growth of $117.3 million, including $87.3 million in small business deposits . CD and brokered deposit balances decreased $138.1 million compared to 2Q20 . Cost of interest-bearing deposits declined 43 bps from 2Q20 to 1.51% Total Deposits - $3.4 Billion Total Non-Time Deposits - $1.7 Billion As of September 30, 2020 As of September 30, 20201 $86.1 3% $251.2 $155.1 $50.0 15% $1,722.0 5% 1% $546.5 $99.2 51% 33% 6% $1,359.2 $753.3 40% 46% Noninterest-bearing deposits Interest-bearing demand deposits Savings accounts Money market accounts Commercial Public funds Small business Consumer Certificates and brokered deposits 1 Total non-time deposits excludes brokered non-time deposits 6
Net Interest Income and Net Interest Margin . FTE net interest margin improved by 17 bps from Net Interest Income – GAAP and FTE1 2Q20 Dollars in millions GAAP FTE . Interest expense on deposits declined as: 1) higher $17.7 $16.8 $16.9 cost CDs matured and were either replaced at $16.6 $15.9 lower rates or not renewed; and 2) money market rates were lowered substantially $16.2 $15.2 $15.4 $15.0 $14.4 . Interest income earned on securities was impacted by accelerated premium amortization and continued declines in short term interest rate indices 3Q19 4Q19 1Q20 2Q20 3Q20 Yield on Loans and Cost of Deposits NIM – GAAP and FTE1 GAAP FTE 4.18% 4.20% 4.11% 4.00% 3.88% 1.70% 1.67% 1.65% 1.67% 1.50% 2.40% 2.35% 2.24% 1.94% 1.54% 1.51% 1.53% 1.51% 1.50% 1.37% 3Q19 4Q19 1Q20 2Q20 3Q20 Yield on loans Cost of interest-bearing deposits 3Q19 4Q19 1Q20 2Q20 3Q20 7 1 See Reconciliation of Non-GAAP Financial Measures in the Appendix
Net Interest Margin Drivers . Linked quarter NIM improvement was primarily attributable to the continued impact of lower deposit costs . Interest-earning asset yields expected to stabilize . Significant opportunity to continue lowering deposit costs . $931 million of CDs with a weighted average cost of 2.02% mature in the next twelve months – replacement cost is currently in the range of 0.50% . Lowered money market rates 30 - 50 bps during the quarter and another 10 bps so far in 4Q20 NIM – FTE1 Linked-Quarter Change Monthly Rate Paid on Interest-Bearing Deposits +32 bps 2.16% -3 bps 2.10% 1.93% 1.67% -11 bps 1.80% -1 bp 1.50% 1.59% 1.50% 1.42% Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 8 1 See Reconciliation of Non-GAAP Financial Measures in the Appendix
Noninterest Income . Noninterest income of $12.5 million compared to $5.0 million in 2Q20 and $5.6 million in 3Q19 . Mortgage banking revenue of $9.6 million on strong origination volumes and higher margins . Gain on sale of loans of $2.0 million, up $1.3 million from 2Q20 . Revenue of $1.7 million for SBA 7(a) guaranteed loans in 3Q20, up $0.9 million from 2Q20 . Sold $12.2 million of single tenant lease financing loans at a gain of $0.4 million Noninterest Income Noninterest Income 3Q20 Dollars in millions $12.5 $0.2 $0.5 $0.2 $9.6 $2.0 $6.2 $5.6 $5.4 $5.0 Mortgage banking activities Gain on sale of loans Service charges and fees Net loan servicing revenue 3Q19 4Q19 1Q20 2Q20 3Q20 Other 9
Noninterest Expense . Noninterest expense of $16.4 million compared to $13.2 million in 2Q20 and $11.2 million in 3Q19 . Includes $2.1 million write-down of legacy OREO . Higher salaries and employee benefits due mainly to higher incentive compensation and growth in SBA platform . Partially offset by lower consulting and professional fees and other expenses . Noninterest expense / average assets remains well below the industry average Noninterest Expense Noninterest Expense / Average Assets Dollars in millions Core OREO write-down 1 Core OREO write-down $16.4 1 1.52% $13.5 $12.6 $13.2 1.32% 1.22% 1.22% $11.2 1.11% $14.3 1.33% 3Q19 4Q19 1Q20 2Q20 3Q20 3Q19 4Q19 1Q20 2Q20 3Q20 1 Noninterest expense includes the $2.1 million write-down of other real estate owned; see Reconciliation of Non-GAAP Financial Measures in 10 the Appendix
Asset Quality . Asset quality metrics remain among the industry’s best, driven by a strong credit culture and lower-risk asset classes . Allowance for loan losses to total loans increased to 0.89% in 3Q20, or 0.91% excluding PPP loans1, due primarily to adjustments to qualitative factors . Quarterly provision for loan losses of $2.5 million . Net charge-offs to average loans of 0.01%, down from 0.12% in 2Q20 . Delinquencies 30 days or more past due declined to 0.22%. NPLs / Total Loans NPAs / Total Assets Net Charge-Offs / Average Loans 0.32% 0.27% 0.26% 0.23% 0.24% 0.23% 0.21% 0.22% 0.23% 0.20% 0.15% 0.12% 0.06% 0.04% 0.01% 3Q19 4Q19 1Q20 2Q20 3Q20 3Q19 4Q19 1Q20 2Q20 3Q20 3Q19 4Q19 1Q20 2Q20 3Q20 1 See Reconciliation of Non-GAAP Financial Measures in the Appendix 11
Liquidity and Capital . Regulatory capital ratios remained strong at the Company and Bank levels . Strong capital generation during the quarter resulted in the tangible common equity to tangible assets ratio increasing 23 bps to 7.24% . Continue to have sufficient liquidity to handle the current economic impact of COVID-19 Tangible Book Value Per Share1 Regulatory Capital Ratios – September 30, 20202 $31.98 Company Bank $30.82 Total shareholders' equity to assets 7.34% 8.12% $27.93 $26.09 Tangible common equity to tangible assets1 7.24% 8.02% $23.04 Tier 1 leverage ratio 7.72% 8.50% $22.24 $20.74 Common equity tier 1 capital ratio 11.13% 12.27% $19.38 Tier 1 capital ratio 11.13% 12.27% Total risk-based capital ratio 14.38% 13.17% 2013 2014 2015 2016 2017 2018 2019 3Q20 1 See Reconciliation of Non-GAAP Financial Measures 2 Regulatory capital ratios are preliminary pending filing of the Company’s and Bank’s regulatory reports 12
Loan Deferral Summary . Loan deferral balances are now less than 1% of total loans since peaking in late-May at 22% . All borrowers coming off deferral programs have resumed making scheduled loan payments without delinquency Deferrals As of As of As of As of As of April 17, May 15, July 17, August 28, October 16, % of Balances (Dollars in millions) 2020 2020 2020 2020 2020 with Deferrals1 Commercial and industrial $15.4 $15.9 $1.7 $0.5 $0.7 0.9% Single tenant lease financing $11.8 $259.0 $276.8 $27.8 $5.4 0.6% Owner-occupied CRE $6.0 $16.2 $19.3 $5.7 $6.2 7.0% Investor CRE $0.0 $0.4 $0.4 $0.4 - - Healthcare finance $289.1 $297.0 $57.8 $7.7 $2.3 0.5% Small business $21.7 $23.7 $1.8 - $3.4 2.7% Total commercial $344.0 $612.2 $357.8 $42.1 $18.0 0.7% Residential mortgage $8.9 $12.0 $5.6 $2.2 $2.3 1.1% Home equity $0.3 $0.4 $0.2 $0.1 - - Other consumer $7.8 $9.0 $2.2 $0.8 $0.5 0.2% Total consumer $17.0 $21.4 $8.0 $3.1 $2.8 0.5% Total loans with deferrals $361.0 $633.6 $365.8 $45.2 $20.8 0.7% As a % of total loans 12.5% 21.9% 12.6% 1.6% 0.7% 13 1 Deferral balances as of October 16, 2020 and total loan balances as of September 30, 2020
Single Tenant Lease Financing Portfolio mix by major tenant . $960.5 million in balances as of September 30, 2020 Red Lobster . Long term financing of single tenant properties occupied 7% ICWG by historically strong national and regional tenants 7% Wendy's . Burger King Weighted-average portfolio LTV of 49% 6% Walgreens . Weighted-average loan size of $1.4 million 5% Bob Evans . 55% Strong historical credit performance 4% Dollar General . Only $5.4 million in loan balances remain on deferral; all 4% CVS other loans came off deferral and resumed payments 4% United Pacific . No delinquencies for performing loans 4% Caliber 2% Collision 2% Other Portfolio mix by major vertical Portfolio mix by geography 2% 1% 1% Quick Service Restaurants Full Service 6% Restaurants 9% 23% Auto Parts/ Repair/Car Wash 12% 6% Convenience/Fuel 21% Pharmacies 9% Specialty Retailers Dollar Stores 24% 37% 11% 22% Medical Bank Branches 16% Other 14
Public Finance Borrower mix by credit rating . $625.6 million in balances as of September 30, 2020 1.2% . Provides a range of credit solutions for government and 2.9%5.0% AAA/Aaa 4.6% not-for-profit entities AA+/Aa1 . Borrowers’ needs include short-term financing, debt AA/Aa2 AA-/Aa3 refinancing, infrastructure improvements, economic 47.0% A+/A1 development and equipment financing 21.4% A/A2 . Federal stimulus funds provide relief from tax revenue A-/A3 declines and/or delays caused by the COVID-19 crisis BBB+/Baa1 BBB/Baa2 . No delinquencies or losses since inception 6.3% 4.7% BB+/Ba1 BB/Ba2 . No borrowers currently receiving payment deferrals 1.3% Non-Rated 3.0% 1.9% 0.7% Portfolio mix by repayment source Portfolio mix by state General Obligation 2.7%5.2% 2.8% Essential use equipment 12.4% IN OK 3.0% loans Utilities Revenue 3.3% Lease rental revenue 3.3% IA OH 5.1% 31.8% Public higher ed facilities - 3.6% Revenue 6.1% Tax Incremental Financing 4.0% 55.2% MO MI (TIF) districts 6.2% Sales tax, food and bev tax, 5.7% hotel tax MS GA Income Tax supported loans 5.9% 10.4% Public higher ed facilities - 15.9% G.O. Other Municipally owned health 6.6% 10.8% care facilities Others 15
Healthcare Finance Portfolio mix by borrower . $461.7 million in balances as of September 30, 2020 1% 2% . Loan portfolio focused primarily on dental practices with 7% some exposure to veterinary practices and other specialties Dentists . Borrowers’ needs include practice finance or acquisition, acquiring or refinancing owner-occupied CRE, equipment Veterinarians purchases and project loans . Average loan size of $630,000 Physicians . Balances on deferral programs less than 1% of portfolio 90% down from late-May peak of approximately 79% Other Portfolio mix by borrower use Portfolio mix by State 1% 4% CA TX Practice Refi or 14% Acquisition 39% 28% NY AZ Owner 81% Occupied CRE FL NJ Project 12% Other Equipment and 3% 4% 6% other 5% 16
C&I and Owner-Occupied Commercial Real Estate . $166.2 million in combined balances as of September 30, 2020 Portfolio Mix by State . Current C&I LOC utilization of 46% 2% 8% IN . Average loan sizes 5% . C&I: $354,000 AZ 6% IL . Owner-occupied CRE: $958,000 52% . Exited relationships totaling in excess of $65 million over the OH last two years to de-risk the portfolio 27% MD . 4.4% of balances are on payment deferral programs as of October 16, 2020 Other Portfolio by Loan Type Portfolio Mix by Major Industry Services 10% 25% Construction Owner Occupied 31% CRE Real Estate and C&I - Term Loans Rental and Leasing 36% 54% Retail Trade C&I - Lines of 9% Credit 10% 14% Manufacturing 11% Other 17
Small Business Lending . $123.2 million in balances as of September 30, 2020 Portfolio Mix by State . Current balance of $58.3 million outstanding under the Paycheck Protection Program consisting of 447 loans made to existing IN IL clients 22% 41% CA AZ . 2.7% of balances are on payment deferral programs as of 4% October 16, 2020 4% FL TX . SBA sales team now consists of 11 Business Development 4% Officers and origination volumes are ramping up 9% Other 17% Managed SBA 7(a) Loans1 Dollars in millions $231.1 Portfolio Mix by Major Industry $34.8 $173.5 $157.9 $151.8 Services $131.5 24% 24% $113.9 Health Care and $104.0 $103.9 Social Assistance Accommodation and Food Services $64.9 $11.6 $47.8 $54.1 $59.6 9% Retail Trade 16% 3Q19 4Q19 1Q20 2Q20 3Q20 11% Construction Retained Balance Servicing Portfolio Held For Sale 16% Other 1 Excludes PPP loans 18
Residential Mortgage . $225.2 million in balances as of September 30, 2020 National Portfolio with (includes home equity balances) Midwest Concentration . Direct-to-consumer originations centrally located at corporate headquarters . Focused on high quality borrowers 23% 9% 59% . Avg. loan size of $182,000 . Avg. credit score at orig. of 756 . Avg. LTV at origination of 68% . Strong historical credit performance 3% 6% . Approximately 1% of balances are on payment deferral programs as of October 16, 2020 Concentration by State Concentration by Loan Type State Percentage Loan Type Percentage Indiana 54% Single Family Residential 73% California 17% SFR Construction to New York 4% Permanent 17% Florida 2% Home Equity – LOC 8% Colorado 2% Home Equity – Closed End 2% All other states 21% 19
Specialty Consumer . $282.5 million in balances as of September 30, 2020 Geographically Diverse Portfolio . Direct-to-consumer and nationwide dealer network originations . Focused on high quality borrowers 22% 10% . Avg. credit score at orig. of 778 18% . Avg. loan size of $19,370 . Strong historical credit performance . Less than 0.5% of balances are on payment deferral 22% 28% programs as of October 16, 2020 Concentration by State Concentration by Loan Type State Percentage Loan Type Percentage Texas 15% Trailers 52% California 12% Recreational Vehicles 34% Florida 6% Other consumer 14% North Carolina 4% Colorado 4% All other states 59% 20
Appendix 21
Loan Portfolio Composition Dollars in thousands 2017 2018 2019 1Q20 2Q20 3Q20 Commercial loans Commercial and industrial $ 122,940 $ 107,405 $ 96,420 $ 95,227 $ 81,687 $ 77,116 Owner-occupied commercial real estate 75,768 77,569 86,726 87,956 86,897 89,095 Investor commercial real estate 7,273 5,391 12,567 13,421 13,286 13,084 Construction 49,213 39,916 60,274 64,581 77,591 92,154 Single tenant lease financing 803,299 919,440 995,879 972,275 980,292 960,505 Public finance 438,341 706,342 687,094 627,678 647,107 625,638 Healthcare finance 31,573 117,007 300,612 372,266 380,956 461,740 Small business lending 4,870 17,370 47,787 54,056 118,526 123,168 Total commercial loans 1,528,407 1,990,440 2,287,359 2,287,460 2,386,342 2,442,500 Consumer loans Residential mortgage 299,935 399,898 313,849 218,730 208,728 203,041 Home equity 30,554 28,735 24,306 23,855 22,640 22,169 Trailers 101,369 136,620 146,734 148,700 147,326 145,775 Recreational vehicles 69,196 91,912 102,702 103,868 102,088 96,910 Other consumer loans 56,968 51,239 45,873 44,037 42,218 39,765 Total consumer loans 558,022 708,404 633,464 539,190 523,000 507,660 Net def. loan fees, prem., disc. and other1 4,764 17,384 42,724 65,443 64,332 62,754 Total Loans $ 2,091,193 $ 2,716,228 $ 2,963,547 $ 2,892,093 $ 2,973,674 $ 3,012,914 1 Includes carrying value adjustments of $44.3 million and $46.0 million related to terminated interest rate swaps associated with public finance loans as of September 30, 2020 and June 30, 2020, respectively, and $44.6 million, $21.4 million, $5.0 million and $0.3 million as of March 31, 2020, December 31, 2019, December 31, 2018 and December 31, 2017, respectively, related to interest rate swaps associated with public finance loans. 22
Reconciliation of Non-GAAP Financial Measures Dollars in thousands 3Q19 4Q19 1Q20 2Q20 3Q20 Total equity - GAAP $295,140 $304,913 $305,127 $307,711 $318,102 Adjustments: Goodwill (4,687) (4,687) (4,687) (4,687) (4,687) Tangible common equity $290,453 $300,226 $300,440 $303,024 $313,415 Tota l a sse ts - GAAP $4,095,491 $4,100,083 $4,168,146 $4,324,600 $4,333,624 Adjustments: Goodwill (4,687) (4,687) (4,687) (4,687) (4,687) Tangible assets $4,090,804 $4,095,396 $4,163,459 $4,319,913 $4,328,937 Common shares outstanding 9,741,800 9,741,800 9,801,825 9,799,047 9,800,569 Book value per common share $30.30 $31.30 $31.13 $31.40 $32.46 Effect of goodwill (0.48) (0.48) (0.48) (0.48) (0.48) Tangible book value per common share $29.82 $30.82 $30.65 $30.92 $31.98 Total shareholders' equity to assets 7.21% 7.44% 7.32% 7.12% 7.34% Effect of goodwill (0.11%) (0.11%) (0.10%) (0.11%) (0.10%) Tangible common equity to tangible assets 7.10% 7.33% 7.22% 7.01% 7.24% Net interest income $15,244 $15,374 $15,018 $14,426 $16,232 Adjustments: Fully-taxable equivalent adjustments 1 1,595 1,570 1,535 1,437 1,424 Net interest income - FTE $16,839 $16,944 $16,553 $15,863 $17,656 Net interest margin 1.54% 1.51% 1.50% 1.37% 1.53% Adjustments: Effect of fully-taxable equivalent adjustments 1 0.16% 0.16% 0.15% 0.13% 0.14% Net interest margin - FTE 1.70% 1.67% 1.65% 1.50% 1.67% 1 Assuming a 21% tax rate 23
Reconciliation of Non-GAAP Financial Measures Dollars in thousands 3Q19 4Q19 1Q20 2Q20 3Q20 Allowance for loan losses $21,683 $21,840 $22,857 $24,465 $26,917 Loans $2,881,272 $2,963,547 $2,892,093 $2,973,674 $3,012,914 Adjustments: PPP loans - - - (58,948) (58,337) Loans, excluding PPP loans $2,881,272 $2,963,547 $2,892,093 $2,914,726 $2,954,577 Allowance for loan losses to loans 0.75% 0.74% 0.79% 0.82% 0.89% Effect of PPP loans 0.00% 0.00% 0.00% 0.02% 0.02% Allowance for loan losses to loans, excluding PPP loans 0.75% 0.74% 0.79% 0.84% 0.91% Noninterest expense $11,203 $12,613 $13,486 $13,244 $16,412 Adjustments: Write-down of other real estate owned - - - - 2,065 Adjusted noninterest expense $11,203 $12,613 $13,486 $13,244 $14,347 Noninterest expense/average assets 1.11% 1.22% 1.32% 1.22% 1.53% Effect of write-down of other real estate owned 0.00% 0.00% 0.00% 0.00% 0.19% Adjusted noninterest expense/average assets 1.11% 1.22% 1.32% 1.22% 1.34% 1 Assuming a 21% tax rate 24
Reconciliation of Non-GAAP Financial Measures Dollars in thousands 3Q19 4Q19 1Q20 2Q20 3Q20 Income before income taxes - GAAP $6,775 $7,698 $6,282 $3,664 $9,806 Adjustments: Write-down of other real estate owned - - - - 2,065 Adjusted income before income taxes $6,775 $7,698 $6,282 $3,664 $11,871 Income tax provision (benefit) - GAAP $ 449 $ 602 $ 263 $ (268) $ 1,395 Adjustments: Write-down of other real estate owned - - - - 434 Adjusted income tax provision (benefit) $ 449 $ 602 $ 263 $ (268) $ 1,829 Net income - GAAP $6,326 $7,096 $6,019 $3,932 $8,411 Adjustments: Write-down of other real estate owned - - - - 1,631 Adjusted net income $6,326 $7,096 $6,019 $3,932 $10,042 Diluted average common shares outstanding 9,980,612 9,843,829 9,750,528 9,768,227 9,773,224 Diluted earnings per share - GAAP $ 0.63 $ 0.72 $ 0.62 $ 0.40 $ 0.86 Adjustments: Effect of write-down of other real estate owned - - - - 0.17 Adjusted diluted earnings per share $0.63 $0.72 $0.62 $0.40 $1.03 1 Assuming a 21% tax rate 25
Reconciliation of Non-GAAP Financial Measures Dollars in thousands 3Q19 4Q19 1Q20 2Q20 3Q20 Return on average assets 0.63% 0.69% 0.59% 0.37% 0.78% Effect of write-down of other real estate owned 0.00% 0.00% 0.00% 0.00% 0.15% Adjusted return on average assets 0.63% 0.69% 0.59% 0.37% 0.93% Return on average shareholders' equity 8.40% 9.46% 7.78% 5.15% 10.67% Effect of write-down of other real estate owned 0.00% 0.00% 0.00% 0.00% 2.07% Adjusted return on average shareholders' equity 8.40% 9.46% 7.78% 5.15% 12.74% Return on average tangible common equity 8.53% 9.61% 7.90% 5.23% 10.83% Effect of write-down of other real estate owned 0.00% 0.00% 0.00% 0.00% 2.10% Adjusted return on average tangible common equity 8.53% 9.61% 7.90% 5.23% 12.93% Effective income tax rate 6.6% 7.8% 4.2% (7.3%) 14.2% Effect of write-down of other real estate owned 0.0% 0.0% 0.0% 0.0% 1.2% Adjusted effective income tax rate 6.6% 7.8% 4.2% (7.3%) 15.4% 1 Assuming a 21% tax rate 26