Our 2014 Update, so far!
August 2014 | CEO Letter by Kat Taylor
We are excited to have launched our new name and logo! As you may recall, we rebranded to better reflect our mission and promise. Beneficial State Bank is meant to describe a practice of banking that aspires to benefit all while harming none. That's what we espouse for all banking, not just our bank, as demonstrated in our tagline from the beginning -- "Welcome to Beneficial Banking." There is a double entendre to the name in that we hope to be creating a beneficial state of mind and being. With our new tagline, we wish to enable our customers to "build something beautiful" where "beautiful" signals well-being and balance. Our new logo, the acorn, has been an iconic symbol of saving and resiliency. From tiny acorns mighty oaks grow throughout our three state bio-region. And the "B" inside harkens to our participation in the growing B Corp movement as well as Beneficial Banking. Onward to live out our brand promise!
In July we also completed our conversion to a CA state bank charter with reciprocal arrangements in OR and WA. Because we were born as a federal thrift, we faced the necessity of converting either to a federal or a state bank under Treasury's consolidation of regulatory resources and charters. Upon investigating the options, we discovered that the California State Department of Business Oversight's (DBO) dual mission of supporting the state economy as well as the safety and soundness of the banking system better aligns with our triple bottom-line mission. We know from partner banks that there are very good working relationships across the three states. Furthermore, with new constraints on federal pre-emption, there will be no meaningful loss of privileges by virtue of becoming a state bank. The FDIC will remain our secondary regulator behind the DBO's lead and the Federal Reserve will continue to regulate our two holdings companies -- Beneficial State Bancorp and Beneficial State Foundation. Jan Owen, head of DBO, just addressed our entire company staff earlier this month.
You may already know that we announced the difficult decision, many years in the making, to close the Ilwaco branch. Branch traffic could not justify the building and staffing expense and our efforts to shift customer care there instead were chronically hampered by inconsistent connectivity via internet or cell service. The first concern is that our colleagues and customers there transition to good situations. But we also hope, in spite of no longer having a branch in the region, to redirect resources in partnership with other beneficial financial service providers and actually be more engaged in lending for rural community economic development. The last day of service will be November 7, 2014 and accounts will thereafter be domiciled in our Seattle branch. Thank you for your continued feedback and understanding in this matter.
It's timely to report on our second quarter results across our three bottom lines. As you know, we evaluate our mission impact by tracking loan dollars outstanding in what we consider to be transformative activities like affordable housing, renewable energy, and sustainable food and agriculture. For more detail on specific lending sectors, please follow this link. As we speak, we are reviewing potential new sectors. We are also building up our small Multi-Family lending practice because of its high alignment with low-to-moderate income tenants and its basis for some day bringing energy retrofit and generation to the benefit of those tenants. Our mission impact remains high with 75% of our loan dollars outstanding in the hands of companies and non-profits producing social justice and environmental well-being. We also work hard to ensure the other 24% of outstandings are not doing anything against our mission. And this year, we will be able to report 18 new outcome metrics like living wage jobs created/maintained and renewable kilowatts financed. In future, we will run these output and outcome metrics together for ever better evaluation and transparency.
Our financial results year to date at the end of Q2 are better than plan by a significant amount and we remain cautiously optimistic that we have arrived at financial sustainability for our current scale. Profits are ahead $1.2MM year to date largely from holding onto distressed loans from the merger with ShoreBank Pacific and fine work by the credit team to achieve their payback. These credit recoveries are also part of the reason why loan growth (and therefore net interest income and loan provisioning) are behind for the year. Pipeline has picked back up and we are pressing to meet our growth plan. Expenses are also below plan and our cost of funds has fallen to 40 basis points. Net interest margin improved more than anticipated to 3.89%. Our efficiency ratio -- which is how much expense we incur to produce a dollar of revenue -- has dropped further than plan as well to 79 cents. And the credit team has also managed current asset quality well, reducing classified loans and REO to 33% of tier 1 capital and ALLL. Our Texas Ratio, an indicator of credit health and hopefully always below 1, is at its lowest to date of .18. Financial results as summarized in call reports on the bank are always available at FDIC.gov as well.
We hope you are all enjoying the dog days of summer and prospering in your banking, community and personal relationships.