DURHAM, N.C., Jan. 21, 2015 (GLOBE NEWSWIRE) -- Square 1 Financial, Inc. (Nasdaq:SQBK) today announced results for the fourth quarter and year ended December 31, 2014.
Consolidated net income available to common shareholders for the fourth quarter of 2014 was $9.5 million, or $0.32 per diluted share, compared to $8.8 million, or $0.29 per diluted share, for the third quarter of 2014. Consolidated net income available to common shareholders for the year ended December 31, 2014 was $34.1 million, or $1.18 per diluted share, compared to $22.1 million, or $0.93 per diluted share, for the year ended December 31, 2013.
"We are very pleased with 2014 results. Overall loan and deposit growth were strong in the fourth quarter and the full year," said CEO Doug Bowers. "We are pleased with credit quality, and are well positioned to continue our momentum into 2015."
Full Year Highlights
Highlights of the full year 2014 include:
- Net income available to common shareholders increased 54.2% compared to 2013.
- Return on average common equity of 12.88% and return on average assets of 1.25%.
- Tangible book value per common share of $10.47 as of December 31, 2014.
- Average on-balance sheet deposits grew 30.3% to $2.4 billion.
- Average client investment funds grew 97.9% to $881.8 million.
- Average loan balances increased 28.9% to $1.2 billion and period end loans increased 24.4% to $1.3 billion.
- Net loan charge-offs were $8.1 million, or 0.68%, of average loans for the year ended December 31, 2014, compared to net loan charge-offs of $8.8 million, or 0.95%, of average loans for the year ended December 31, 2013.
- Net interest margin increased to 4.06% from 3.91%.
- Core banking noninterest income increased 24.7% to $16.6 million and total noninterest income was flat.
Fourth Quarter Highlights
Highlights of the fourth quarter of 2014 include:
- Net income available to common shareholders increased 8.9% compared to the third quarter of 2014.
- Return on average common equity of 12.57% and return on average assets of 1.25%.
- Average on-balance sheet deposits of $2.7 billion, up 6.6% from the third quarter of 2014.
- Average client investment funds of $1.2 billion, up 29.7% compared to the third quarter of 2014.
- Average loans grew 7.7% while period-end loans increased 5.9%, compared to the third quarter of 2014.
- Net loan charge-offs were $3.9 million, or 1.18%, of average loans (annualized) for the fourth quarter of 2014. Provision for loan losses expense increased $1.5 million compared to the third quarter of 2014.
- Net interest margin increased to 4.12% from 4.00% for the third quarter of 2014.
- Core banking noninterest income increased to $4.5 million from $4.3 million in the third quarter of 2014, and total noninterest income increased to $6.2 million from $5.5 million.
See "Non-GAAP Financial Measures" at the end of this release for reconciliations of our non-GAAP measures.
Earnings Summary
The $0.8 million increase in net income available to common shareholders compared to the third quarter of 2014 was due primarily to a $2.8 million increase in net interest income and a $0.6 million increase in noninterest income, partially offset by a $1.5 million increase in the provision for loan losses and a $0.7 million increase in noninterest expense.
The $12.0 million increase in net income available to common shareholders for the year ended December 31, 2014 compared to the year ended December 31, 2013, resulted from a $27.4 million increase in net interest income, partially offset by a $10.6 million increase in noninterest expense and a $5.6 million increase 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 "Non-GAAP Financial Measures" section for a reconciliation of these non-GAAP measures to their most comparable GAAP measures.
Net interest income for the quarter increased $2.9 million compared to the third quarter of 2014, primarily driven by an increase in loan interest income of $2.0 million from higher average balances and a higher yield from loan fees. Net interest income increased 35.9% to $107.9 million for the year ended December 31, 2014 compared to the year ended December 31, 2013, which included a 28.4% increase in interest income on loans and a 51.8% increase in interest income on securities.
For the fourth quarter of 2014, our net interest margin increased to 4.12% from 4.00% for the third quarter of 2014. This increase was largely due to the impact of lower cash balances and an increase in the yield earned on our loan portfolio primarily driven by higher loan prepayment fees, which can vary based on the level of prepayments. Loan fees were $3.3 million in the fourth quarter of 2014 compared to loan fees of $2.4 million in the third quarter of 2014.
For the year ended December 31, 2014, our net interest margin increased to 4.06% compared to 3.91% for the year ended December 31, 2013. This increase was primarily due to lower premium amortization on agency mortgage-backed securities resulting from slower prepayments, continued purchases of higher yielding municipal securities, and lower cost of funds resulting from the trust preferred securities conversion and lower rates paid on deposits.
Provision for Loan Losses
The $1.5 million increase in the provision for loan losses compared to the third quarter of 2014 was primarily due to higher net charge-offs. Net loan charge-offs were $3.9 million, or 1.18%, of average loans (annualized) for the fourth quarter of 2014 compared to net loan charge-offs of $1.2 million, or 0.40%, of average loans (annualized) for the third quarter of 2014.
Noninterest Income
Noninterest income for the fourth quarter of 2014 was $6.2 million, an increase of $0.6 million compared to the third quarter of 2014. Core banking noninterest income represents recurring income from traditional banking services provided to our customers (see "Non-GAAP Financial Measures" section). Core banking noninterest income for the fourth quarter of 2014 was $4.5 million, an increase of $0.2 million, or 3.8%, compared to the third quarter of 2014. The increase in core banking noninterest income was primarily driven by higher foreign exchange fee income, which fluctuates based on our customers' needs for foreign currency-based transactions. The remainder of the increase in noninterest income compared to the third quarter of 2014 was primarily due to a $0.2 million increase in the gain on sale of loans and a $0.2 million decrease in losses on securities driven by third quarter losses from the sale of equity securities obtained through the exercise of warrants.
Noninterest income was $25.2 million for the year ended December 31, 2014, and was flat compared to noninterest income of $25.3 million for the year ended December 31, 2013, as $1.9 million higher foreign exchange fee income and a $1.7 million decrease in investment impairment was offset by a $1.9 million decrease in net gain on securities and a $2.2 million decrease in success fees. Success fees are typically volatile and are contingent upon customer success events, such as an acquisition.
Warrant income was $0.8 million in the fourth quarter of 2014, compared to warrant income of $0.7 million in the third quarter of 2014. Warrant income was $3.7 million for the year ended December 31, 2014, compared to $3.8 million for the year ended December 31, 2013. At December 31, 2014, the valuation of our remaining warrants held was $4.3 million held in 461 companies, which included $0.2 million held in six publicly traded companies.
Noninterest Expense
Noninterest expense for the fourth quarter of 2014 increased $0.7 million, or 4.1%, compared to the third quarter of 2014. The increase primarily resulted from $0.8 million higher personnel expenses. Higher personnel expenses were driven by an increase of 5 full-time equivalent employees from the third quarter of 2014 and higher incentive compensation expense.
Noninterest expense for the year ended December 31, 2014 increased $10.6 million, or 19.01%, compared to the year ended December 31, 2013. This increase was largely due to $7.9 million higher personnel expenses driven by an increase of 28 full-time equivalent employees, $0.8 million increase in the provision for unfunded credit commitments, and $0.2 million from amortization of intangibles obtained as part of our acquisition of Sand Hill Finance LLC in December 2013.
Income Tax Provision
Income tax expense increased $0.4 million, or 10.3%, for the fourth quarter of 2014 as compared to the third quarter of 2014, primarily due to a $1.2 million, or 9.4%, increase in pre-tax income and an income tax true up recorded in the fourth quarter of 2014 related to an increase in our annual effective tax rate to 31.4% from 30.8%.
Income tax expense for the year ended December 31, 2014 increased $5.6 million, or 55.8%, compared to the year ended December 31, 2013, primarily due to a $17.4 million, or 53.7%, increase in pre-tax income. Our effective tax rate increased to 31.4% for the year ended December 31, 2014 from 31.0% for the year ended December 31, 2013, as a result of the tax impact of the one-time gain recorded on the transfer of the contract for the management of Square 1 Venture 1, L.P. to a third party and an increase in the portion of taxable income.
Loans and Credit Quality
Average loans grew $93.7 million while period-end loans increased $75.0 million compared to the third quarter of 2014. The increase in commercial loans occurred in all our major client industry segments, except technology which decreased $2.9 million when compared to the third quarter of 2014. Period-end loans to venture firms increased $9.8 million, or 6.1%, while total loans to venture-backed companies, including life sciences, technology and asset-based loans were up $56.2 million, or 5.5%, at December 31, 2014 compared to September 30, 2014.
At December 31, 2014, nonperforming loans totaled $17.2 million, or 1.28%, of total loans compared to $11.8 million, or 0.93%, of total loans at September 30, 2014 and $14.5 million, or 1.34%, of total loans at December 31, 2013. The allowance for loan losses to nonperforming loans at December 31, 2014, was 132.87%, compared to 193.38% at September 30, 2014, and 127.05% at December 31, 2013.
Period-end loans to venture firms increased $25.7 million, or 17.9%, while total loans to venture-backed companies, including life sciences, technology and asset-based loans were up $204.6 million, or 23.3%, at December 31, 2014 compared to December 31, 2013. Net loan charge-offs were $8.1 million, or 0.68%, of average loans for the year ended December 31, 2014, compared to $8.8 million, or 0.95%, for the year ended December 31, 2013.
Investments
Average investments grew 11.4% compared to the third quarter of 2014 as a result of strong deposit growth. Our available-for-sale securities portfolio totaled $1.3 billion at December 31, 2014, an increase of $107.6 million, or 9.1%, compared to $1.2 billion at September 30, 2014. Our held to maturity securities portfolio had an amortized cost of $300.4 million at December 31, 2014, an increase of $22.3 million, or 8.0%, compared to $278.1 million at September 30, 2014.
Average investments grew 36.7% for the year ended December 31, 2014, compared to the year ended December 31, 2013. Our available-for-sale securities portfolio increased $370.3 million, or 40.1%, compared to $924.2 million at December 31, 2013. Our held to maturity securities portfolio increased $146.2 million, or 94.8%, compared to $154.3 million at December 31, 2013.
Deposits and Client Investment Funds
Our December 31, 2014 period-end deposits increased $108.1 million, or 4.1%, from September 30, 2014 and increased $669.8 million, or 31.8%, to $2.8 billion from December 31, 2013. 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 $138.3 million, or 8.1%, while our interest-bearing deposits decreased $30.2 million, or 3.2%, from September 30, 2014. Our period-end noninterest-bearing deposits increased $471.0 million, or 34.1%, and our interest-bearing deposits increased $198.8 million, or 27.4%, from December 31, 2013.
Average on-balance sheet deposits increased $167.9 million compared to the third quarter of 2014. Despite the increase in deposits, the average cost of deposits of 0.02% and 0.02% for the fourth quarter of 2014 and the third quarter of 2014, respectively, yielded interest expense on deposits of $0.2 million and $0.1 million, respectively. Average on-balance sheet deposits increased $566.6 million for the year ended December 31, 2014, compared to the year ended December 31, 2013.
Our period-end client investment funds increased to $1.4 billion at December 31, 2014 from $957.6 million at September 30, 2014, an increase of 50.0%, and from $557.9 million at December 31, 2013, an increase of 157.5%, 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 $276.9 million compared to the third quarter of 2014. Average off-balance sheet client investment funds grew $436.2 million for the year ended December 31, 2014, compared to the year ended December 31, 2013.
Earnings Conference Call
The Company will host a conference call at 10:30 a.m. EST on Wednesday, January 21, 2015, to discuss the financial results for the quarter ended December 31, 2014. Individuals wishing to participate in the conference call may do so by dialing 877.359.9508 from the United States, or 224.357.2393 from outside the United States, and entering Conference ID 71476265. The call will also be available live via webcast on the Investor Relations page of the Company's website, www.square1financial.com. A replay of the call will be available on the Company's website for 90 days beginning on Wednesday, January 21, 2015.
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.
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 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; and (xii) other factors that are discussed in the section titled "Risk Factors," in our registration statement on Form S-1/A, filed with the Securities and Exchange Commission and effective as of March 26, 2014.
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.
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 twelve 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 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.
| SQUARE 1 FINANCIAL, INC. | |||||
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Summary Financial Information |
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| At or For the | |||||
| Three Months Ended | Years Ended | ||||
| (In thousands, except per share data) |
December 31, 2014 |
September 30, 2014 |
December 31, 2013 |
December 31, 2014 |
December 31, 2013 |
| Performance Ratios: | |||||
| Return on average assets | 1.25% | 1.22% | 1.15% | 1.25% | 1.06% |
| Return on average common equity | 12.57 | 12.01 | 14.95 | 12.88 | 12.44 |
| Net interest margin(1) | 4.12 | 4.00 | 3.96 | 4.06 | 3.91 |
| Efficiency ratio(2) | 47.14 | 49.79 | 49.56 | 49.61 | 53.10 |
| Per Share Data: | |||||
| Net income (loss) per basic common share | $ 0.33 | $ 0.31 | $ 0.29 | $ 1.25 | $ 0.94 |
| Net income (loss) per diluted common share | 0.32 | 0.29 | 0.29 | 1.18 | 0.93 |
| Book value per common share | 10.48 | 10.25 | 7.80 | 10.48 | 7.80 |
| Tangible book value per common share | 10.47 | 10.23 | 7.77 | 10.47 | 7.77 |
| Capital Ratios (consolidated): | |||||
| Tier 1 leverage capital(4) | 9.71% | 10.05% | 8.34% | 9.71% | 8.34% |
| Tier 1 risk-based capital(4) | 13.84 | 13.69 | 11.38 | 13.84 | 11.38 |
| Total risk-based capital(4) | 14.96 | 14.84 | 12.46 | 14.96 | 12.46 |
| Total shareholders' equity to assets | 9.78 | 9.85 | 8.13 | 9.78 | 8.13 |
| Tangible common equity to tangible assets(3) | 9.77 | 9.83 | 7.89 | 9.77 | 7.89 |
| Asset Quality Ratios: | |||||
| Allowance for loan losses as a percent of total loans | 1.70% | 1.79% | 1.70% | 1.70% | 1.70% |
| Allowance for loan losses as a percent of nonperforming loans | 132.87 | 193.38 | 127.05 | 132.87 | 127.05 |
| Net charge-offs to average outstanding loans (annualized) | 1.18 | 0.40 | 1.38 | 0.68 | 0.95 |
| Nonperforming loans as a percent of total loans | 1.28 | 0.93 | 1.34 | 1.28 | 1.34 |
| Nonperforming assets as a percent of total assets | 0.56 | 0.39 | 0.63 | 0.56 | 0.63 |
| Other Ratios and Statistics: | |||||
| Average loans, net of unearned income, to average deposits | 48.8% | 48.3% | 48.9% | 48.5% | 49.1% |
| Period-end full-time equivalent employees | 258 | 253 | 230 | 258 | 230 |
| Average outstanding shares—basic | 28,795 | 28,681 | 23,544 | 27,401 | 23,508 |
| Average outstanding shares—diluted | 30,204 | 30,080 | 23,972 | 29,101 | 23,859 |
| Period-end outstanding shares—basic | 28,883 | 28,701 | 23,612 | 28,883 | 23,612 |
| Period-end outstanding shares—diluted | 30,307 | 30,129 | 24,056 | 30,307 | 24,056 |
| Financial Condition Data: | |||||
| Average total assets | $ 3,032,595 | $ 2,838,269 | $ 2,380,750 | $ 2,724,506 | $ 2,090,842 |
| Average cash and cash equivalents | 105,705 | 157,129 | 205,462 | 155,894 | 148,059 |
| Average investment securities - available-for-sale | 1,252,625 | 1,133,467 | 928,981 | 1,102,791 | 870,105 |
| Average investment securities - held-to-maturity | 291,648 | 252,289 | 138,641 | 226,310 | 102,437 |
| Average loans, net of unearned income | 1,317,622 | 1,223,906 | 1,052,507 | 1,183,347 | 918,149 |
| Average on-balance sheet deposits | 2,701,630 | 2,533,778 | 2,153,002 | 2,438,017 | 1,871,421 |
| Average total client investment funds | 1,208,638 | 931,780 | 565,106 | 881,837 | 445,588 |
| Average total shareholders' equity | 300,847 | 289,021 | 187,518 | 266,107 | 182,882 |
| (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 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." | |||||
| (4) Tier 1 leverage capital ratio, Tier 1 risk-based capital ratio and Total risk-based capital ratio for December 31, 2014 are estimates. | |||||
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Interim Consolidated Balance Sheets (Unaudited) |
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| (in thousands, except share and per share data) |
December 31, 2014 |
September 30, 2014 |
December 31, 2013 |
| Assets | |||
| Cash and due from banks | $ 14,629 | $ 49,615 | $ 28,648 |
| Interest-bearing deposits in other banks | 72,292 | 125,991 | 76,966 |
| Federal funds sold and securities purchased under resale agreements | — | 10,000 | 116 |
| Total cash and cash equivalents | 86,921 | 185,606 | 105,730 |
| Investment in time deposits | 1,251 | 1,250 | 1,250 |
| Investment securities—available for sale, at fair value | 1,294,533 | 1,186,887 | 924,229 |
| Investment securities—held to maturity, at amortized cost | 300,425 | 278,121 | 154,255 |
| Loans, net of unearned income of $7.9 million, $7.3 million and $4.5 million | 1,346,449 | 1,271,457 | 1,082,536 |
| Less allowance for loan losses | (22,906) | (22,816) | (18,379) |
| Net loans | 1,323,543 | 1,248,641 | 1,064,157 |
| Premises and equipment, net | 4,026 | 3,723 | 3,061 |
| Deferred income tax assets, net | 9,672 | 10,142 | 15,620 |
| Bank owned life insurance | 50,723 | 50,278 | 31,706 |
| Intangible assets | 1,615 | 1,770 | 2,065 |
| Other receivables | 3,226 | 3,619 | 2,592 |
| Warrant valuation | 4,304 | 4,089 | 5,105 |
| Prepaid expenses | 2,063 | 1,690 | 1,309 |
| Accrued interest receivable and other assets | 12,564 | 12,370 | 15,348 |
| Total assets | $ 3,094,866 | $ 2,988,186 | $ 2,326,427 |
| Liabilities and Shareholders' Equity | |||
| Deposits: | |||
| Demand, noninterest-bearing | $ 1,851,004 | $ 1,712,674 | $ 1,380,024 |
| Demand, interest-bearing | 71,598 | 164,859 | 103,638 |
| Money market deposit accounts | 837,630 | 774,405 | 596,247 |
| Time deposits | 16,320 | 16,507 | 26,818 |
| Total deposits | 2,776,552 | 2,668,445 | 2,106,727 |
| Borrowings and repurchase agreements | — | — | 12,737 |
| Junior subordinated debt | — | — | 6,207 |
| Accrued interest payable and other liabilities | 15,610 | 25,539 | 11,607 |
| Total liabilities | $ 2,792,162 | $ 2,693,984 | $ 2,137,278 |
| Commitments and contingencies | |||
| Shareholders' equity: | |||
| Convertible preferred stock, $.01 par value; 10,000,000 shares authorized, 0 shares, 0 shares and 5,000 shares issued and outstanding, respectively | — | — | — |
| Common stock, $.01 par value; 70,000,000, 70,000,000 and 45,000,000 shares authorized, 28,882,678 shares, 28,700,825 shares and 23,611,746 shares issued and outstanding, respectively | 289 | 287 | 236 |
| Additional paid in capital | 251,597 | 251,841 | 183,716 |
| Accumulated other comprehensive income (loss) | 7,404 | 8,193 | (4,096) |
| Retained earnings | 43,414 | 33,881 | 9,293 |
| Total shareholders' equity | 302,704 | 294,202 | 189,149 |
| Total liabilities and shareholders' equity | $ 3,094,866 | $ 2,988,186 | $ 2,326,427 |
| SQUARE 1 FINANCIAL, INC. | |||||
| Interim Consolidated Statements of Operations (Unaudited) | |||||
| (in thousands, except per share data) | Three Months Ended | Years Ended | |||
|
December 31, 2014 |
September 30, 2014 |
December 31, 2013 |
December 31, 2014 |
December 31, 2013 |
|
| Interest income: | |||||
| Loans including fees on loans | $ 21,315 | $ 19,326 | $ 16,655 | $ 74,763 | $ 58,230 |
| Investment securities: | |||||
| Taxable | 6,184 | 5,568 | 4,081 | 21,696 | 13,369 |
| Non-taxable | 2,172 | 1,960 | 1,724 | 7,740 | 5,702 |
| Federal funds and other short-term investments | 77 | 104 | 128 | 382 | 361 |
| Total interest income | 29,748 | 26,958 | 22,588 | 104,581 | 77,662 |
| Interest expense: | |||||
| Deposits | 150 | 150 | 180 | 573 | 656 |
| Borrowings and repurchase agreements | 15 | — | 12 | 19 | 42 |
| Junior subordinated debt | — | — | 155 | 215 | 630 |
| Total interest expense | 165 | 150 | 347 | 807 | 1,328 |
| Net interest income | 29,583 | 26,808 | 22,241 | 103,774 | 76,334 |
| Provision for loan losses | 4,000 | 2,500 | 3,960 | 12,614 | 13,300 |
| Net interest income after provision for loan losses | 25,583 | 24,308 | 18,281 | 91,160 | 63,034 |
| Noninterest income: | |||||
| Service charges and fees | 1,188 | 1,150 | 1,050 | 4,533 | 4,071 |
| Foreign exchange fees | 1,951 | 1,792 | 1,229 | 6,746 | 4,864 |
| Credit card and merchant income | 932 | 914 | 678 | 3,246 | 2,464 |
| Investment impairment | — | — | (195) | (43) | (1,720) |
| Net (loss) gain on securities | (24) | (235) | — | (212) | 1,696 |
| Letter of credit fees | 242 | 293 | 463 | 1,347 | 1,247 |
| Warrant income | 792 | 721 | 488 | 3,729 | 3,750 |
| Gain on sale of loans | 439 | 248 | 367 | 1,189 | 2,033 |
| Bank owned life insurance | 445 | 330 | 301 | 1,382 | 1,073 |
| Other | 209 | 319 | 2,588 | 3,300 | 5,830 |
| Total noninterest income | 6,174 | 5,532 | 6,969 | 25,217 | 25,308 |
| Noninterest expense: | |||||
| Personnel | 11,543 | 10,790 | 9,632 | 43,691 | 35,759 |
| Occupancy | 863 | 713 | 695 | 3,090 | 2,779 |
| Data processing | 928 | 1,090 | 868 | 3,757 | 3,097 |
| Furniture and equipment | 808 | 769 | 686 | 2,939 | 2,536 |
| Advertising and promotions | 495 | 223 | 364 | 1,335 | 1,255 |
| Professional fees | 993 | 976 | 952 | 3,356 | 3,232 |
| Telecommunications | 308 | 246 | 306 | 1,099 | 1,172 |
| Travel | 287 | 259 | 337 | 1,004 | 1,099 |
| FDIC assessment | 429 | 393 | 345 | 1,573 | 1,293 |
| Other | 878 | 1,376 | 930 | 4,707 | 3,699 |
| Total noninterest expense | 17,532 | 16,835 | 15,115 | 66,551 | 55,921 |
| Income before income tax expense | 14,225 | 13,005 | 10,135 | 49,826 | 32,421 |
| Income tax expense | 4,693 | 4,253 | 3,193 | 15,643 | 10,038 |
| Net income | 9,532 | 8,752 | 6,942 | 34,183 | 22,383 |
| Dividends on preferred stock | — | — | 62 | 63 | 250 |
| Net income available to common shareholders | $ 9,532 | $ 8,752 | $ 6,880 | $ 34,120 | $ 22,133 |
| Earnings per share—basic | $ 0.33 | $ 0.31 | $ 0.29 | $ 1.25 | $ 0.94 |
| Earnings per share—diluted | $ 0.32 | $ 0.29 | $ 0.29 | $ 1.18 | $ 0.93 |
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| Interim Net Interest Margin Analysis (Unaudited) | |||||||||
| Three Months Ended | |||||||||
| December 31, 2014 | September 30, 2014 | December 31, 2013 | |||||||
|
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 | $ 90,032 | $ 69 | 0.30% | $ 132,817 | $ 72 | 0.21% | $ 194,764 | $ 127 | 0.26% |
| Federal funds sold and other short-term investments | 7,011 | 8 | 0.48 | 19,191 | 32 | 0.67 | 1,352 | 1 | 0.40 |
| Loans, net of unearned income | 1,317,622 | 21,315 | 6.42 | 1,223,906 | 19,326 | 6.26 | 1,052,507 | 16,655 | 6.28 |
| Nontaxable securities | 271,459 | 3,342 | 4.88 | 248,629 | 3,020 | 4.82 | 224,344 | 2,651 | 4.69 |
| Taxable securities | 1,272,814 | 6,184 | 1.93 | 1,137,127 | 5,567 | 1.94 | 843,273 | 4,082 | 1.92 |
| Total interest-earning assets | 2,958,938 | 30,918 | 4.15 | 2,761,670 | 28,017 | 4.02 | 2,316,240 | 23,516 | 4.03 |
| Less: Allowance for loan losses | (23,966) | (22,888) | (18,702) | ||||||
| Noninterest-earning assets | 97,623 | 99,487 | 83,212 | ||||||
| Total assets | $ 3,032,595 | $ 2,838,269 | $ 2,380,750 | ||||||
| Interest-bearing liabilities: | |||||||||
| Demand deposits | $ 78,946 | 20 | 0.10 | $ 87,957 | 18 | 0.08 | $ 99,853 | 36 | 0.14 |
| Money market | 764,062 | 122 | 0.06 | 765,338 | 115 | 0.06 | 713,684 | 128 | 0.07 |
| Time deposits | 16,852 | 8 | 0.19 | 27,997 | 16 | 0.22 | 27,378 | 16 | 0.23 |
| Total interest-bearing deposits | 859,860 | 150 | 0.07 | 881,292 | 149 | 0.07 | 840,915 | 180 | 0.08 |
| FHLB advances | 15,163 | 15 | 0.39 | 543 | 1 | 0.14 | 3,101 | 7 | 0.88 |
| Repurchase agreements | 113 | — | 0.32 | — | — | — | 19,813 | 5 | — |
| Junior subordinated debt | — | — | — | — | — | — | 6,210 | 154 | 9.89 |
| Total interest-bearing liabilities | 875,136 | 165 | 0.07 | 881,835 | 150 | 0.07 | 870,039 | 346 | 0.16 |
| Noninterest-bearing deposits | 1,841,770 | 1,652,486 | 1,312,085 | ||||||
| Other noninterest-bearing liabilities | 14,842 | 14,927 | 11,108 | ||||||
| Total liabilities | 2,731,748 | 2,549,248 | 2,193,232 | ||||||
| Total shareholders' equity | 300,847 | 289,021 | 187,518 | ||||||
| Total liabilities and shareholders' equity | $ 3,032,595 | $ 2,838,269 | $ 2,380,750 | ||||||
| Net interest income | $ 30,753 | $ 27,867 | $ 23,170 | ||||||
| Interest rate spread | 4.08% | 3.95% | 3.87% | ||||||
| Net interest margin | 4.12% | 4.00% | 3.96% | ||||||
| Ratio of average interest-earning assets to average interest-bearing liabilities | 338.11% | 313.17% | 266.22% | ||||||
| SQUARE 1 FINANCIAL, INC. | ||||||
| Interim Net Interest Margin Analysis (Unaudited) | ||||||
| Years Ended December 31, | ||||||
| 2014 | 2013 | |||||
|
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 | $ 133,328 | $ 337 | 0.25% | $ 134,026 | $ 356 | 0.27% |
| Federal funds sold and other short-term investments | 7,367 | 46 | 0.62 | 1,346 | 5 | 0.39 |
| Loans, net of unearned income | 1,183,347 | 74,763 | 6.32 | 918,149 | 58,230 | 6.34 |
| Nontaxable securities | 245,458 | 11,908 | 4.85 | 193,363 | 8,772 | 4.54 |
| Taxable securities | 1,083,643 | 21,695 | 2.00 | 779,179 | 13,369 | 1.72 |
| Total interest-earning assets | 2,653,143 | 108,749 | 4.10 | 2,026,063 | 80,732 | 3.98 |
| Less: Allowance for loan losses | (21,618) | (17,057) | ||||
| Noninterest-earning assets | 92,981 | 81,836 | ||||
| Total assets | $ 2,724,506 | $ 2,090,842 | ||||
| Interest-bearing liabilities: | ||||||
| Demand deposits | $ 100,136 | 83 | 0.08 | $ 67,059 | 96 | 0.14 |
| Money market | 710,296 | 436 | 0.06 | 624,281 | 499 | 0.08 |
| Time deposits | 25,258 | 54 | 0.21 | 31,552 | 61 | 0.19 |
| Total interest-bearing deposits | 835,690 | 573 | 0.07 | 722,892 | 656 | 0.09 |
| FHLB advances | 4,452 | 17 | 0.39 | 8,015 | 31 | 0.39 |
| Repurchase agreements | 1,502 | 1 | — | 10,672 | 11 | — |
| Junior subordinated debt | 2,108 | 216 | 10.23 | 6,206 | 630 | 10.15 |
| Total interest-bearing liabilities | 843,752 | 807 | 0.10 | 747,785 | 1,328 | 0.18 |
| Noninterest-bearing deposits | 1,602,327 | 1,148,529 | ||||
| Other noninterest-bearing liabilities | 12,320 | 11,646 | ||||
| Total liabilities | 2,458,399 | 1,907,960 | ||||
| Total shareholders' equity | 266,107 | 182,882 | ||||
| Total liabilities and shareholders' equity | $ 2,724,506 | $ 2,090,842 | ||||
| Net interest income | $ 107,942 | $ 79,404 | ||||
| Interest rate spread | 4.00% | 3.80% | ||||
| Net interest margin | 4.06% | 3.91% | ||||
| Ratio of average interest-earning assets to average interest-bearing liabilities | 314.45% | 270.94% | ||||
| SQUARE 1 FINANCIAL, INC. | ||||||
| Loans and Unfunded Commitments | ||||||
| December 31, 2014 | September 30, 2014 | December 31, 2013 | ||||
| Amount | Percent | Amount | Percent | Amount | Percent | |
| (Dollars in thousands) | ||||||
| Commercial loans: | ||||||
| Technology | $ 631,979 | 47.01% | $ 634,908 | 49.65% | $ 543,788 | 50.02% |
| Life sciences | 274,057 | 20.39 | 240,375 | 18.80 | 224,069 | 20.61 |
| Asset-based loans | 177,701 | 13.22 | 152,282 | 11.91 | 111,251 | 10.24 |
| Venture capital/private equity | 169,143 | 12.58 | 159,349 | 12.46 | 143,468 | 13.20 |
| SBA and USDA | 35,609 | 2.65 | 33,245 | 2.60 | 23,719 | 2.18 |
| Other | 6,854 | 0.51 | 5,468 | 0.42 | 1,424 | 0.13 |
| Total commercial loans | 1,295,343 | 96.36 | 1,225,627 | 95.84 | 1,047,719 | 96.38 |
| Real estate loans: | ||||||
| SBA and USDA | 36,978 | 2.75 | 31,532 | 2.47 | 27,504 | 2.53 |
| Total real estate loans | 36,978 | 2.75 | 31,532 | 2.47 | 27,504 | 2.53 |
| Construction: | ||||||
| SBA and USDA | 4,035 | 0.30 | 2,290 | 0.18 | 287 | 0.03 |
| Total construction loans | 4,035 | 0.30 | 2,290 | 0.18 | 287 | 0.03 |
| Credit cards | 7,980 | 0.59 | 19,345 | 1.51 | 11,575 | 1.06 |
| Total loans | 1,344,336 | 100.00% | 1,278,794 | 100.00% | 1,087,085 | 100.00% |
| Less unearned income(1) | (7,887) | (7,337) | (4,549) | |||
| Total loans, net of unearned income | $ 1,336,449 | $ 1,271,457 | $ 1,082,536 | |||
| Total unfunded loan commitments | $ 1,232,078 | $ 1,167,115 | $ 977,262 | |||
| (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. |
| December 31, 2014 | September 30, 2014 | December 31, 2013 | |
| Period-end: | (Dollars in thousands) | ||
| Client investment assets under management | $ 976,075 | $ 609,284 | $ 108,105 |
| Sweep money market funds | 404,357 | 241,274 | 271,823 |
| CDARS | 56,201 | 107,076 | 177,955 |
| Total period-end client investment funds | $ 1,436,633 | $ 957,634 | $ 557,883 |
| SQUARE 1 FINANCIAL, INC. | |||||||
| Credit Quality | |||||||
| Three Months Ended | Years Ended | ||||||
|
December 31, 2014 |
September 30, 2014 |
December 31, 2013 |
December 31, 2014 |
December 31, 2013 |
|||
| (Dollars in thousands) | |||||||
| Allowance at beginning of period | $ 22,816 | $ 21,556 | $ 18,093 | $ 18,379 | $ 13,843 | ||
| Provision for loan losses | 4,000 | 2,500 | 3,960 | 12,614 | 13,300 | ||
| Charge-offs: | |||||||
| Commercial loans: | |||||||
| Technology | 3,408 | 382 | 3,411 | 5,956 | 9,344 | ||
| Life sciences | 507 | 1,107 | — | 2,023 | — | ||
| SBA and USDA | — | — | 269 | 518 | 269 | ||
| Total commercial loans | 3,915 | 1,489 | 3,680 | 8,497 | 9,613 | ||
| Total charge offs | 3,915 | 1,489 | 3,680 | 8,497 | 9,613 | ||
| Recoveries: | |||||||
| Commercial loans: | |||||||
| Technology | (1) | (13) | (6) | (170) | (699) | ||
| Life sciences | (4) | (5) | — | (9) | — | ||
| SBA and USDA | — | (14) | — | (14) | (150) | ||
| Total commercial loans | (5) | (32) | (6) | (193) | (849) | ||
| Real estate loans: | |||||||
| SBA and USDA | — | (217) | — | (217) | — | ||
| Total real estate loans | — | (217) | — | (217) | — | ||
| Total recoveries | (5) | (249) | (6) | (410) | (849) | ||
| Net charge offs | $ 3,910 | $ 1,240 | $ 3,674 | $ 8,087 | $ 8,764 | ||
| Allowance at end of period | $ 22,906 | $ 22,816 | $ 18,379 | $ 22,906 | $ 18,379 | ||
| Total nonaccrual loans | $ 17,239 | $ 11,798 | $ 14,466 | $ 17,239 | $ 14,466 | ||
| Credit Quality Ratios: | |||||||
| Allowance for loan losses as a percent of total loans | 1.70% | 1.79% | 1.70% | 1.70% | 1.70% | ||
| Allowance for loan losses as a percent of nonperforming loans | 132.87 | 193.38 | 127.05 | 132.87 | 127.05 | ||
| Net charge-offs to average outstanding loans (annualized) | 1.18 | 0.40 | 1.38 | 0.68 | 0.95 | ||
| Nonperforming loans as a percent of total loans | 1.28 | 0.93 | 1.34 | 1.28 | 1.34 | ||
| Nonperforming assets as a percent of total assets | 0.56 | 0.39 | 0.63 | 0.56 | 0.63 | ||
| 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," "net operating income," "net interest income," 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 is a non-GAAP financial measure. This 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. |
| 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. |
| The information provided below reconciles each non-GAAP measure to its most comparable GAAP measure. |
| (Dollars in thousands) | Three Months Ended | ||
|
December 31, 2014 |
September 30, 2014 |
December 31, 2013 |
|
| Efficiency Ratio | |||
| Noninterest expense (GAAP) | $ 17,532 | $ 16,835 | $ 15,115 |
| Net interest taxable equivalent income | 30,753 | 27,867 | 23,170 |
| Noninterest taxable equivalent income | 6,414 | 5,709 | 7,131 |
| Less: (loss) gain on sale of securities and impairment | (24) | (235) | (195) |
| Adjusted operating revenue | $ 37,191 | $ 33,811 | $ 30,496 |
| Efficiency ratio | 47.14% | 49.79% | 49.56% |
| Tangible Common Equity/Tangible Assets | |||
| Total equity | $ 302,704 | $ 294,202 | $ 189,149 |
| Less: preferred stock | — | — | 4,950 |
| Intangible assets(1) | 393 | 495 | 800 |
| Tangible common equity | $ 302,311 | $ 293,707 | $ 183,399 |
| Total assets | $ 3,094,866 | $ 2,988,186 | $ 2,326,427 |
| Less: intangible assets(1) | 393 | 495 | 800 |
| Tangible assets | $ 3,094,473 | $ 2,987,691 | $ 2,325,627 |
| Tangible common equity/tangible assets | 9.77% | 9.83% | 7.89% |
| (1) Does not include a loan servicing asset of $1.2 million, $1.3 million and $1.3 million at December 31, 2014, September 30, 2014, and December 31, 2013, respectively. | |||
| (Dollars in thousands) | Three Months Ended | ||
|
December 31, 2014 |
September 30, 2014 |
December 31, 2013 |
|
| Net Operating Income | |||
| GAAP income before taxes | $ 14,225 | $ 13,005 | $ 10,135 |
| Less: (loss) gain on sale of securities and impairment | (24) | (235) | (195) |
| Add: tax equivalent adjustment | 1,409 | 1,237 | 1,090 |
| Non-GAAP net operating income before taxes | $ 15,658 | $ 14,477 | $ 11,420 |
| Net Interest Income | |||
| GAAP net interest income | $ 29,583 | $ 26,808 | $ 22,241 |
| Add: tax equivalent adjustment | 1,170 | 1,059 | 929 |
| Non-GAAP net interest income (fully tax equivalent basis) | $ 30,753 | $ 27,867 | $ 23,170 |
| Core Banking Noninterest Income | |||
| GAAP noninterest income | $ 6,174 | $ 5,532 | $ 6,969 |
| Less: net (loss) gain on securities | (24) | (235) | (195) |
| Warrant income | 792 | 721 | 488 |
| Gain on sale of loans | 439 | 248 | 367 |
| Bank owned life insurance | 445 | 330 | 301 |
| Other | 27 | 137 | 2,445 |
| Non-GAAP core banking noninterest income | $ 4,495 | $ 4,331 | $ 3,563 |
| (Dollars in thousands) | Years Ended | |
|
December 31, 2014 |
December 31, 2013 |
|
| Efficiency Ratio | ||
| Noninterest expense (GAAP) | $ 66,551 | $ 55,921 |
| Net interest taxable equivalent income | 107,942 | 79,404 |
| Noninterest taxable equivalent income | 25,963 | 25,886 |
| Less: (loss) gain on sale of securities and impairment | (255) | (24) |
| Adjusted operating revenue | $ 134,160 | $ 105,314 |
| Efficiency ratio | 49.61% | 53.10% |
| Tangible Common Equity/Tangible Assets | ||
| Total equity | $ 302,704 | $ 189,149 |
| Less: preferred stock | — | 4,950 |
| Intangible assets(1) | 393 | 800 |
| Tangible common equity | $ 302,311 | $ 183,399 |
| Total assets | $ 3,094,866 | $ 2,326,427 |
| Less: intangible assets(1) | 393 | 800 |
| Tangible assets | $ 3,094,473 | $ 2,325,627 |
| Tangible common equity/tangible assets | 9.77% | 7.89% |
| Net Operating Income | ||
| GAAP income before taxes | $ 49,826 | $ 32,421 |
| Less: (loss) gain on sale of securities and impairment | (255) | (24) |
| Add: tax equivalent adjustment | 4,912 | 3,647 |
| Non-GAAP net operating income before taxes | $ 54,993 | $ 36,092 |
| Net Interest Income | ||
| GAAP net interest income | $ 103,774 | $ 76,334 |
| Add: tax equivalent adjustment | 4,168 | 3,070 |
| Non-GAAP net interest income (fully tax equivalent basis) | $ 107,942 | $ 79,404 |
| Core Banking Noninterest Income | ||
| GAAP noninterest income | $ 25,217 | $ 25,308 |
| Less: net (loss) gain on securities | (255) | (24) |
| Warrant income | 3,729 | 3,750 |
| Gain on sale of loans | 1,189 | 2,033 |
| Bank owned life insurance | 1,382 | 1,073 |
| Other | 2,596 | 5,183 |
| Non-GAAP core banking noninterest income | $ 16,576 | $ 13,293 |
| (1) Does not include a loan servicing asset of $1.2 million and $1.3 million at December 31, 2014 and December 31, 2013, respectively. | ||