2022 continues to be a very strong year with our third quarter performance exceeding expectations. Year-to-date revenue of $25.9 million is an increase of $4.4 million from the first nine months of 2021, and well above our budgeted revenue. We are spending some of this extra revenue, investing in future growth. Year-to-date overhead of $18.6 million is also up from last year, reflecting a $3.6 million increase over the same period in 2021.

Personnel expense makes up a vast majority of the year-over-year increase in overhead as we continue to invest heavily, building our calling and support staff per our strategic plan. At our 2022 shareholder meeting, we shared with you our intention to invest in new employees in all areas, setting us up to achieve rapid growth in future years. We thought it would take the better part of two years, through year-end 2023, to accomplish this goal. We are fortunate enough to have accelerated most of those additions into 2022.

One item of note on our financial statements: One may wonder why the Stockholders Equity account is down $6.6 million when we earned $5.7 million so far this year. Some of the decrease is due to the shareholder dividends and stock repurchase earlier this year. However, most of the decrease is because of the temporary decline in the value of our bond portfolio due to interest rate increases. It reflected changes in the value of our bonds as an adjustment to the equity. Since the value changes are temporary, we excluded them from regulatory capital calculations. The bank capital is materially above well capitalized levels in all regulatory measures.

Bank Division Update

The banking division is having an exceptional year. Excellent year-over-year loan growth of $104 million, equally strong client deposit growth of over $100 million, and a very favorable deposit mix (meaning low-cost deposits) are driving YTD net interest income to an all-time high. Increases in interest rates by the Federal Reserve are helping as well, providing an additional tailwind to an already strong growth year. Asset quality remains very good with no loan charge-offs and $183 thousand in recoveries through September 30th. Year-to-date banking division net income of $6.7 million reflects a $1.5 million, or 29%, increase over the same period last year.

The effect of this year’s strong loan and deposit growth should continue driving much better than expected banking division revenue and net income through year-end. The extra volume is also setting us up well for 2023, helping offset what I expect to be less of a tailwind from the Fed. With interest rates already at 15+/- year highs, I expect the Fed to pause their rate increases for most of 2023. I also expect clients to aggressively manage their extra cash, moving money into higher rate deposits and/or using their extra cash to pay down lines of credit, as is typically done when interest rates materially increase. The exceptional 2022 banking division growth should help shield us from some effects of the market reaction. 

Trust & Family Office Division Update

The Trust & Family Office (“TFO”) division is also having a good year. However, very little of that success is showing up in the financial statements. Our main objectives in 2022 were to rebuild TFO after the departure of several RMs during COVID, build a best-in-class fiduciary division within TFO, and open TFO in Denver all while taking great care of existing clients and adding a record number of new clients. All the above has been accomplished, except for creating a TFO presence in Denver—stay tuned.

While the Fed interest rate increases are augmenting the banking division success, the opposite is happening in TFO. Year-to-date TFO division revenue is up $279 thousand from last year. That it’s up at all is an accomplishment. We added approximately $700 thousand in new client revenue so far this year, most of which has been offset by the worst combined stock and bond bear markets in over four decades. As of the end of September, the stock and bond bear markets are reducing monthly reoccurring revenue by approximately $90 thousand.

As Ronald Reagan said after the 1987 crash, “markets go up and markets go down”. In the long run, markets go up. That’s why we keep building TFO for the long run. Through September 30, we’ve added eight employees in TFO, a 25% increase from year-end 2022. Our in-house legal, tax, investment, and estate expertise are all more robust than ever. We are staffed to manage hundreds of millions more in fiduciary assets. Our Family Office practice has more relationship management and support capabilities than ever before. We are set up for growth and success, even if the markets aren’t ready to help us just yet.

Our Growing Team

Financial Information