Third Quarter 2024 Highlights:
- Net income available to common shareholders of $16.2 million, or $0.74 per diluted share
- Adjusted pre-tax, pre-provision earnings of $27.5 million
- Tangible book value per share increased to $24.90, compared to $23.36 at June 30, 2024
- Common equity tier 1 capital ratio improved to 9.00%, compared to 8.64% at June 30, 2024
- Net interest margin of 3.10%, compared to 3.12% in prior quarter
- Efficiency ratio of 62.8%, compared to 65.2% in prior quarter
Provision expense was $5.0 million in the third quarter of 2024 compared to $16.8 million and $5.2 million in the second quarter of 2024 and the third quarter of 2023, respectively. The elevated provision expense in the second quarter of 2024 was primarily due to credit deterioration and servicing issues involving one of our fintech partners, LendingPoint, subsequent to their system conversion in late 2023.
Jeffrey G. Ludwig, President and Chief Executive Officer of the Company, said, "We executed well in the third quarter and delivered a higher level of profitability while making continued progress on our balance sheet management strategies, which resulted in further increases in all of our capital ratios, an increase in our tangible book value per share, and an increase in our level of liquidity with a reduction in our loan-to-deposit ratio. We continue to utilize the payoffs resulting from the intentional reduction of our equipment finance and consumer portfolios to fund high quality loans generated in our community bank and the purchase of investment securities. We are also seeing good results from the investments we have made in the business, such as increasing our presence and business development efforts in the St. Louis market, where our loan balances increased at an annualized rate of 12% during the third quarter, and growth in our Wealth Management revenues due to an increase in assets under administration, partially driven by the new wealth advisors we have added in recent quarters.
Improving our credit quality is a priority and we are taking proactive steps to resolve problem loans in order to reduce our level of non-performing and classified loans going forward. We continue to closely monitor the health of our borrowers and be conservative in downgrading loans where we see the potential for weakness. We also recently added a new Chief Credit Officer whose background and experience is consistent with our increased focus on in-market relationship lending in our community bank, which will continue to result in a higher quality, lower risk loan portfolio.
"While we will remain conservative in new loan production while economic conditions remain uncertain, we are well positioned to benefit from lower interest rates and we expect positive trends in our net interest margin and revenue generated from our Wealth Management business. While maintaining disciplined expense control, we are continuing to make investments in talent and technology that will further enhance our ability to increase our market share, add attractive new client relationships in our community bank, and generate profitable growth. With the stronger balance sheet we are building, including a Total Capital Ratio of approximately 14%, we believe we are well positioned to support the continued growth of our franchise as economic conditions improve in the future and create additional value for our shareholders in the process,” said Mr. Ludwig.
Balance Sheet Highlights
Total assets were $7.75 billion at September 30, 2024, compared to $7.76 billion at June 30, 2024, and $7.97 billion at September 30, 2023. At September 30, 2024, portfolio loans were $5.75 billion, compared to $5.85 billion at June 30, 2024, and $6.28 billion at September 30, 2023.
Loans
During the third quarter of 2024, outstanding loans declined by $103.2 million, or 1.8%, from June 30, 2024, as the Company continued to shrink its equipment financing and consumer loan portfolios, and focus on commercial loan opportunities in our community banking regions.
Equipment finance loan and lease balances decreased $30.0 million during the third quarter of 2024 as the Company continued to reduce its concentration of this product within the overall loan portfolio. Consumer loans decreased $82.8 million due to loan payoffs and a cessation in loans originated through GreenSky. Our Greensky-originated loan balances decreased $63.0 million during the third quarter to $475.3 million at September 30, 2024. In addition, as previously disclosed, during the fourth quarter of 2023, the Company ceased originating loans through LendingPoint. As of September 30, 2024, the Company had $96.5 million in loans that were originated through and serviced by LendingPoint. Equipment financing and consumer loans comprised 15.0% and 11.5%, respectively, of the loan portfolio at September 30, 2024, compared to 15.2% and 12.7%, respectively, at June 30, 2024.
Increases in commercial FHA warehouse lines and commercial real estate loans of $50.2 million and $89.0 million, respectively, were offset by decreases in all other loan categories.
| As of | |||||||||||||||
| September 30, | June 30, | March 31, | December 31, | September 30, | |||||||||||
| (in thousands) | 2024 | 2024 | 2024 | 2023 | 2023 | ||||||||||
| Loan Portfolio | |||||||||||||||
| Commercial loans | $ | 863,922 | $ | 939,458 | $ | 913,564 | $ | 951,387 | $ | 943,761 | |||||
| Equipment finance loans | 442,552 | 461,409 | 494,068 | 531,143 | 578,931 | ||||||||||
| Equipment finance leases | 417,531 | 428,659 | 455,879 | 473,350 | 485,460 | ||||||||||
| Commercial FHA warehouse lines | 50,198 | - | 8,035 | - | 48,547 | ||||||||||
| Total commercial loans and leases | 1,774,203 | 1,829,526 | 1,871,546 | 1,955,880 | 2,056,699 | ||||||||||
| Commercial real estate | 2,510,472 | 2,421,505 | 2,397,113 | 2,406,845 | 2,412,164 | ||||||||||
| Construction and land development | 422,253 | 476,528 | 474,128 | 452,593 | 416,801 | ||||||||||
| Residential real estate | 378,657 | 378,393 | 378,583 | 380,583 | 375,211 | ||||||||||
| Consumer | 663,234 | 746,042 | 837,092 | 935,178 | 1,020,008 | ||||||||||
| Total loans | $ | 5,748,819 | $ | 5,851,994 | $ | 5,958,462 | $ | 6,131,079 | $ | 6,280,883 | |||||
Loan Quality
Overall, credit quality metrics remained consistent this quarter compared to the second quarter of 2024, albeit, nonperforming loans were still at elevated levels. Non-performing loans increased $2.4 million to $114.6 million at September 30, 2024, compared to $112.1 million as of June 30, 2024. Substandard loans increased $32.0 million to $167.5 million at September 30, 2024, as compared to June 30, 2024, primarily due to two multi-family projects that were downgraded this past quarter.
| As of and for the Three Months Ended | ||||||||||||||||||||
| (in thousands) | September 30, | June 30, | March 31, | December 31, | September 30, | |||||||||||||||
| 2024 | 2024 | 2024 | 2023 | 2023 | ||||||||||||||||
| Asset Quality | ||||||||||||||||||||
| Loans 30-89 days past due | $ | 55,329 | $ | 54,045 | $ | 58,854 | $ | 82,778 | $ | 46,608 | ||||||||||
| Nonperforming loans | 114,556 | 112,124 | 104,979 | 56,351 | 55,981 | |||||||||||||||
| Nonperforming assets | 126,771 | 123,774 | 116,721 | 67,701 | 58,677 | |||||||||||||||
| Substandard loans | 167,549 | 135,555 | 149,049 | 184,224 | 143,793 | |||||||||||||||
| Net charge-offs | 11,379 | 2,874 | 4,445 | 5,117 | 3,449 | |||||||||||||||
| Loans 30-89 days past due to total loans | 0.96 | % | 0.92 | % | 0.99 | % | 1.35 | % | 0.74 | % | ||||||||||
| Nonperforming loans to total loans | 1.99 | % | 1.92 | % | 1.76 | % | 0.92 | % | 0.89 | % | ||||||||||
| Nonperforming assets to total assets | 1.64 | % | 1.60 | % | 1.49 | % | 0.86 | % | 0.74 | % | ||||||||||
| Allowance for credit losses to total loans | 1.49 | % | 1.58 | % | 1.31 | % | 1.12 | % | 1.06 | % | ||||||||||
| Allowance for credit losses to nonperforming loans | 74.90 | % | 82.22 | % | 74.35 | % | 121.56 | % | 119.09 | % | ||||||||||
| Net charge-offs to average loans | 0.78 | % | 0.20 | % | 0.30 | % | 0.33 | % | 0.22 | % | ||||||||||
The allowance for credit losses on loans totaled $85.8 million at September 30, 2024, compared to $92.2 million at June 30, 2024, and $66.7 million at September 30, 2023. The allowance as a percentage of total loans was 1.49% at September 30, 2024, compared to 1.58% at June 30, 2024, and 1.06% at September 30, 2023.
Notably, the Company recognized provision expense of $14.0 million in the second quarter of 2024 related to the loans originated and serviced by LendingPoint, increasing the allowance to $14.6 million on this portfolio. Credit deterioration and servicing issues following their system conversion have resulted in increased losses within this portfolio. In the third quarter of 2024, loans totaling $6.2 million were charged off. At September 30, 2024, the Company had an allowance of $8.3 million on the $96.5 million of loans serviced by LendingPoint.
Deposits
Total deposits were $6.26 billion at September 30, 2024, compared with $6.12 billion at June 30, 2024. Noninterest-bearing deposits decreased $57.9 million to $1.05 billion at September 30, 2024, while interest-bearing deposits increased $196.7 million to $5.21 billion at September 30, 2024. Brokered time deposits increased $138.0 million to $269.4 million, and represented 4.31% of total deposits at September 30, 2024.
| As of | |||||||||||||||
| September 30, | June 30, | March 31, | December 31, | September 30, | |||||||||||
| (in thousands) | 2024 | 2024 | 2024 | 2023 | 2023 | ||||||||||
| Deposit Portfolio | |||||||||||||||
| Noninterest-bearing demand | $ | 1,050,617 | $ | 1,108,521 | $ | 1,212,382 | $ | 1,145,395 | $ | 1,154,515 | |||||
| Interest-bearing: | |||||||||||||||
| Checking | 2,389,970 | 2,343,533 | 2,394,163 | 2,511,840 | 2,572,224 | ||||||||||
| Money market | 1,187,139 | 1,143,668 | 1,128,463 | 1,135,629 |
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