TYSONS CORNER, Va., May 13, 2022 - Old Dominion National Bank (ODNB) had its ninth consecutive quarter of profitability in the first three months of 2022, as exceptional levels of quality loan production and low cost deposit generation drove net interest income growth, while strong asset quality continued to lead to low credit costs.
In 2016, we began the process of building a bank around great people who embrace doing whatever it takes to deliver concierge-level service to our clients. Our client focused service model has enabled us to organically expand the numbers of business operators, owners, professionals and community leaders we serve.
Today, ODNB’s performance reflects the strength of the foundation we started laying six years ago, and as proud as we are with our results in the first quarter of 2022, it is clear to us that we are just getting started.
Nowhere is the potential of our business model more apparent than in our ability to grow banking relationships with accomplished businesses and proven project sponsors across Northern Virginia, metropolitan Washington, D.C. and Central Pennsylvania.
Growing Loan and Deposit Relationships
ODNB overcame two significant loan-growth headwinds facing banks this year. First, U.S. mortgage production, while still strong, is coming off back-to-back record years in 2020 and 2021. Second, all lenders participating in the Paycheck Protection Program are expecting PPP-balances to pay down as the federal government forgives these stimulus-program loans made to small business borrowers in 2020 and 2021.
Excluding PPP loans, ODNB’s gross loans totaled $650.7 million on March 31, 2022, growing 22.0% annualized during the first quarter and 34.3% from one year prior. While residential loans continue to contribute to our success and remain an important part of our full-service offering, commercial lending was the primary driver of our expansion in early 2022, with contributions from our teams and strong pipelines throughout the diverse communities and industries we serve.
ODNB’s loan growth also remains primarily funded through locally sourced and relationship-driven deposit gathering activities. Total deposits increased to $791.2 million at the end of the first quarter of 2022, up 7.3% from December 31, 2021 and 19.1% from March 31, 2021. Noninterest-bearing deposits, which represented $301.0 million or 38.0% of total deposits on March 31, 2022, are expected to be an increasingly important part of our funding capability and net interest margin expansion in a rising rate environment.
Total assets grew to $893.4 million at the end of the first quarter of 2022, up 6.7% from December 31, 2021 and 2.5% from March 31, 2021. While we expect to maintain our loan growth trajectory, we intend to temper total asset growth in the near- to mid-terms as we deploy excess liquidity from cash into higher-yielding loans and investment securities, which should serve to further enhance our profitability and the efficient use of capital in the quarters ahead.
Profitable Growth
ODNB’s first quarter revenues remained strong, even with the wind-down of PPP loan forgiveness fees earned through net interest income, as well as lower mortgage lending related revenues coming off last year’s record contributions to noninterest income. Lower mortgage revenues are reflected in total noninterest income of $324 thousand in the first quarter of 2022, compared to $410 thousand in the linked fourth quarter of 2021 and $851 thousand in the first quarter of 2021. Thanks to strong commercial and total loan production volume, and in spite of declining PPP fee contributions, we generated positive net interest income growth, up to $6.5 million in the first quarter of 2022 from $6.4 million in the linked and year-ago quarters. Total net revenue, which includes net interest income and noninterest income, was $6.8 million for the first quarter 2022 and the linked quarter, compared to $7.2 million in the first quarter of 2021.
Net interest margin (NIM) in the first quarter of 2022 was 3.20% on continued reductions in PPP loan forgiveness fee recognition and excess liquidity from relationship deposits, compared to 3.22% in the linked quarter and 3.41% in the first quarter of 2021. We expect to increasingly deploy excess liquidity into higher yielding loans and investment securities in a rising rate environment, which should be reflected in sequential-quarter NIM expansion in the quarters ahead. The level of NIM expansion in the near term will also be determined by our ability to keep deposit costs low as interest rates rise.
To support our organic growth plans, we intend to continue investing in the retention of high performing talent, opportunistic additions of key producers, and banking technology. Noninterest expense in early 2022 reflected typical first-quarter payroll tax-related items, as well moderate inflationary increases in wages and other expenses that are to be expected in the current environment, countered by ODNB’s longstanding commitment to tightly managing operating costs. Noninterest expense was $5.0 million in the first quarter of 2022, compared to $4.7 million in the linked quarter and $4.4 million in the first quarter of 2021.
ODNB continues to execute its growth strategy while generating meaningful earnings for shareholders, with net income of $1.2 million in the first quarter of 2022. Earnings in the comparable periods reflected last year’s income tax benefit, higher PPP fee recognition and record mortgage revenue, with net income of $1.8 million in the fourth and first quarters of 2021. Pretax income increased from $1.4 million in the fourth quarter of 2021 to $1.5 million in the first quarter of 2022. In the second quarter of 2022, we anticipate releasing our valuation allowance and recognizing our deferred tax asset which we estimate will add approximately $1.8 million to net income and stockholders’ equity.
Capital and Asset Quality Strength
The rising rate environment should remain favorable for ODNB’s net interest margin and profitability. At the same time, many banks saw their tangible book value (TBV) per share reduced in the first quarter by sharp declines in bond prices. Accounting rules require the recognition of unrealized losses on securities available for sale (AFS), which in turn lowers other comprehensive income as a component stockholders’ equity on the balance sheet, without impacting the income statement or earnings. Application of this accounting rule to ODNB’s predominantly AAA portfolio of agency sponsored and government-guaranteed bonds led to a $0.21 decline in the Bank’s TBV per share during the first quarter to $10.31 at period end. Given our intent to hold these bonds to maturity, we anticipate a full recovery of book value related to these temporary unrealized losses reflected in stockholders’ equity. Notably, TBV per share of $10.31 at the end of the first quarter was $0.36 higher than the $9.95 we reported on March 31, 2021, reflecting ODNB’s retained earnings growth, partially offset by unrealized losses on securities. Excluding the $0.41 impact of the unrealized loss on tangible book value, the Bank’s TBV would have been $10.72 on March 31, 2022.
Importantly, the effect of mark-to-market securities on TBV has no bearing on our ability to fund continued loan growth or ODNB’s regulatory capital ratios, which remain well above regulatory thresholds. The Bank’s tier 1 leverage ratio was 11.20% and its total risk-based capital ratio was 12.71% at March 31, 2022.
Asset quality and low credit costs also continued to serve as a source of strength for ODNB in the first quarter of 2022. Total nonperforming assets, comprised entirely of four legacy Charlottesville-area loans originated prior to mid-2016, were nearly half of the $1.0 million we reported on December 31, 2021, at just $566 thousand on March 31, 2022. Nonperforming assets represented 0.06% of total assets at the end of the first quarter of 2022, declining by six basis points from December 31, 2021 and 69 basis points from March 31, 2021. The Bank reported $22 thousand in net charge-offs and recorded loan loss provision expense of $277 thousand in the first quarter of 2022 to accommodate continued loan growth and maintain a healthy allowance for loan losses, which represented 1.25% of total loans at period end, excluding remaining PPP balances.
We are very pleased with our start to 2022, entering the second quarter with very strong capital, liquidity and balance sheet positioning, along with robust pipelines as we continue to execute our growth strategy.