TYSONS CORNER, Va., August 17, 2022 - The first half of 2022 has been an exciting time for our bank as we built on the positive momentum of 2021 to expand the numbers of business operators, owners, professionals and community leaders we serve. The second quarter of 2022 marked 10 consecutive quarters of profitability and total assets reached a record high. As ODNB executes its growth strategy, we continue to generate meaningful earnings for shareholders. In the second quarter of 2022, ODNB reported pretax income of $1.8 million compared to $1.5 million in the linked quarter and $1.4 million in the second quarter of 2021. Net income in the second quarter of 2022 was $3.5 million, compared to $1.2 million in the linked quarter and $911 thousand in the year-ago quarter. Earnings in the second quarter of 2022 were enhanced by an income tax benefit of $1.7 million, which included the reversal of a $2.0 million deferred tax asset (DTA) valuation allowance that became fully realizable as a result of sustained profitability experienced over the prior periods and continued profitability forecasted in future periods.
Effective July 1, 2022, we completed the formation of our bank holding company, ODNB Financial Corporation, which will provide additional flexibility to access the capital markets in the future to support our growth strategy. We are well positioned to leverage the benefits of the bank holding company structure.
From mid-2016, we embraced a vision of building a community bank to deliver concierge-level service to our clients, supported by team members fully committed to this vision. Our client-focused model has supported our ability to organically grow the number of clients we serve while deepening relationships with existing customers. ODNB continues to battle two significant loan-growth headwinds facing banks this year. First, U.S. mortgage production has been affected by the significant increases in interest rates reducing overall demand in the industry. Second, the Paycheck Protection Program (PPP) continues to wane as the federal government forgives these stimulus-program loans over time. In spite of the reduction in mortgage lending demand and the wind-down of PPP, we were able to generate significant improvement in our earnings and loan growth while maintaining strong asset quality.
Growing Loan and Deposit Relationships
Excluding PPP loans, ODNB’s gross loans totaled $731.4 million on June 30, 2022, growing 49.6% on an annualized basis during the second quarter and 38.4% from a year ago. Like many banks throughout the country and within our markets, we have seen rising rates impact demand for residential mortgages. As a result of our diversified lending strategies and full-service product offerings, commercial lending served as a primary driver of our expansion in the second quarter of 2022, with strong contributions from our teams, who continue to serve the communities in which we operate.
Our loan growth also remains primarily funded through locally sourced and relationship-driven deposit gathering activities. Total deposits increased to $811.6 million at the end of the second quarter of 2022, up 10.4% on an annualized basis during the second quarter and 19.7% from June 30, 2021. Noninterest- bearing customer deposits, which represented $340.4 million or 41.9% of total deposits on June 30, 2022, continue to represent an increasingly important part of our funding capability. As a result, our net interest margin has expanded in this rising-rate environment.
Total assets grew to a record level of $941.4 million at the end of the second quarter of 2022, up 5.4% from March 31, 2022, and 13.8% from June 30, 2021. We remain focused on quality loan growth, as we deploy our strong cash position into higher-yielding loans and investment securities.
Profitable Growth
Our second quarter revenues remained strong, even with the reduced PPP fee income and lower mortgage lending revenue. Lower mortgage revenue is reflected in total noninterest income of $343 thousand in the second quarter of 2022, compared to $324 thousand in the linked first quarter of 2022 and $1.5 million in the second quarter of 2021. With continued strong commercial lending and our overall loan volume, we generated positive net interest income growth, up to $7.1 million in the second quarter of 2022 from $6.5 million in the linked quarter and $6.2 million in the year-ago quarter, despite declining PPP fee contributions. Total net revenue, which includes net interest income and noninterest income, was $7.5 million for the second quarter 2022, compared to $6.8 million in the linked quarter and $6.9 million in the second quarter of 2021.
Net interest margin (NIM) of 3.50% improved in the second quarter of 2022, compared to 3.20% in the linked quarter and 3.13% in the second quarter of 2021. We are committed to deploying excess liquidity into higher yielding loans and investment securities in the current rising rate environment, which should be reflected in further sequential-quarter NIM expansion in the second half of 2022. The magnitude of NIM expansion will also be dependent upon our ability to keep deposit costs low as interest rates rise, highlighting the importance of our efforts to maintain and grow noninterest-bearing deposits.
As we consider our organic growth plans, we remain committed to investing in high-performing talent, and investing in banking technology. Noninterest expense in the second quarter of 2022 reflected moderate inflationary increases in wages and other expenses, partially offset by our longstanding commitment to tightly managing operating costs. Noninterest expense was $5.1 million in the second quarter of 2022, compared to $5.0 million in the linked quarter and $4.9 million in the second quarter of 2021. The current quarter improvement in operating leverage is a direct result of our ability to increase the rate of growth in net revenue in excess of the rate of growth in noninterest expense. As a result, the efficiency ratio improved from 73.67% in the first quarter of 2022 to 67.93% in the current quarter.
Capital and Asset Quality Strength
With the current rising rate environment, many banks saw their tangible book value (TBV) per share decline due to the impact of rising interest rates on the value of bond portfolios. This has resulted in significant unrealized losses on securities available for sale (AFS). Accounting for these unrealized losses reduces other comprehensive income as a component of stockholders’ equity on the balance sheet, which in turn affects TBV per share, even though there is no impact on the income statement or earnings. While application of these accounting rules may create volatility in our TBV per share, given our intent to hold these bonds to maturity, we anticipate a full recovery of TBV related to these temporary unrealized losses. TBV per share at the end of the second quarter was $10.62, compared to $10.31 at the end of the first quarter of 2022 and $10.08 on June 30, 2021, reflecting ODNB’s retained earnings growth, partially offset by unrealized losses on securities AFS. Excluding the $0.52 impact of the unrealized losses on securities AFS, the TBV per share would have been $11.14 on June 30, 2022.
ODNB’s capital ratios remain well above regulatory thresholds at the end of the second quarter of 2022. The Bank’s tier 1 leverage ratio was 11.33% and its total risk-based capital ratio was 13.75% at June 30, 2022. Asset quality remains strong with nonperforming loans representing only 0.06% of total assets at the end of the second quarter of 2022, unchanged from March 31, 2022, and down from 0.13% at June 30, 2021. The Bank did not have any net charge-offs and recorded loan loss provision expense of $582 thousand in the second quarter of 2022 to support continued loan growth and maintain a healthy allowance for loan losses, which represented 1.20% of gross loans at June 30, 2022.
In summary, we are very pleased by our continued solid performance in the second quarter of 2022. We start the second half of 2022 with strong capital, liquidity and balance sheet positioning, along with a growing team of high-performing employees building on our robust pipeline to execute our growth strategy.
