Howard Bancorp (HBMD) Misses Q4 EPS by 1c

Howard Bancorp (NASDAQ: HBMD) reported Q4 EPS of $0.21, $0.01 worse than the analyst estimate of $0.22. Revenue for the quarter came in at $17.94 million versus the consensus estimate of $18.19 million.

Chairman and CEO Mary Ann Scully stated, “The acquisition of First Mariner announced in the third quarter of 2017 and consummated in the first quarter of 2018 continues to present huge opportunities that must be, and are being realized. The transaction was transformational not for size only but for the ability that it provides Howard Bancorp to create greater, higher quality and more sustainable impact in our marketplace and higher returns for our shareholders, as measured by core EPS.

"Showing higher commercial originations to more borrowers funded by higher levels of core deposits, especially transactional deposits, measures impact and the return on that impact. Solid commercial origination activity, including a modest rebound in the CRE sector in the fourth quarter and higher average balances outstanding, as well as point to point balances was welcomed. Unusual pay down activity in a couple of sectors continues to pressure the growth numbers but the position we’ve achieved as the largest local business bank in Greater Baltimore has helped to offset that. Our focus on funding mix throughout our history has allowed us to preserve a better than peer net interest margin. This net interest margin has been supplemented with higher quality noninterest income. The absolute size of the revenue platform and the trajectory of growth has certainly lagged behind our own expectations. But, we see this trajectory changing and we are very pleased with the repositioning of the revenue sources. We continue to see the possibilities created by the merger in both leveraging a greater capacity to lend and to fund ourselves that came with the acquisition of First Mariner and to supplement with better balanced and sustainable noninterest income sources.

"The scale achievable by a $2 billion asset bank versus a $1 billion asset bank has led and will continue to lead to cost savings opportunities unavailable to a smaller institution. We’ve made significant cost reduction progress in this quarter to add to the progress in quarters two and three on creating a platform for higher returns and have exceeded all estimates of cost reductions. The large majority of the personnel related savings sought in the acquisition have been achieved. That is apparent in the fourth quarter 2018 compensation expenses levels compared to the third quarter of 2018.

"The occupancy cost opportunities as noted throughout 2018 will take longer and require upfront lease termination charges and write-offs of leasehold improvements. But these costs already incurred just in the fourth quarter of 2018 we expect to lead to $1.4 million in annualized costs savings in 2019. We are anticipating even greater savings as we now focus less on back office operations and mortgage facilities and turn to the branch optimization project announced in the third quarter. This reset will not only result in lower occupancy costs but will allow us to acknowledge different customer behaviors in transacting business and ensure we are relevant in the customer segments and geographies that we have targeted.

"We continue to focus on service and software contracts as well as the returns in our rightsized mortgage operations and believe that reduced costs in the former and higher bottom line income in the latter is achievable.

"Asset quality is always a focus and we have an excellent grasp of the combined loan portfolio, have realized the need to make certain adjustments in specific provisions, OREO valuations and are seeing a steady but gradual improvement in the delinquency and non performing ratios after making those assessments and valuations. These asset quality measures are more important than ever as the economy inches closer to a probable normal cyclical adjustment.

"The Company remains pleased with our very strong capital position. The successful $25 million subordinated debt raised at a very attractive rate reflects investor confidence in the Bank and provides the always important buffer and platform for new growth.

"We are encouraged by the improvements in core results that are the fruit of all these efforts- revenue repositioning, low cost funding, cost savings, as well as asset quality and capital strengthening. We are just as excited by the activities underway to grow these results even more. We are always grateful for the customer loyalty, employee hard work and shareholder support that has allowed us to better position this Company for sustainable growth.”

For earnings history and earnings-related data on Howard Bancorp (HBMD) click here.

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