First Business Bank Reports Record Net Income of $9.7 Million

Company Release - 4/29/2021 4:00 PM ET

-- Loan growth, strong fee income, and provision benefit drive record performance --

-- Non-performing assets decline 29% --

MADISON, Wis.--(BUSINESS WIRE)-- First Business Financial Services, Inc. (the “Company”, the “Bank”, or “First Business Bank”) (Nasdaq:FBIZ) reported record net income of $9.7 million, or $1.12 diluted earnings per share, in the first quarter 2021, compared to $6.1 million or $0.71 in the fourth quarter of 2020, and $3.3 million or $0.38 in the first quarter of 2020.

“Record earnings for the quarter and exceptional growth across our company are reflections of First Business Bank’s commitment to helping our clients succeed, and consistently expanding our client base,” President and Chief Executive Officer Corey Chambas said. “This performance is a direct result of our long record of investing in innovative niche financial services offerings, technology, and talent as well as our active focus on asset quality improvement. We believe we are very well-positioned for sustained double-digit loan and revenue growth and continued asset quality improvement.”

Quarterly Highlights

  • Record Earnings. Net income hit a record $9.7 million for the quarter. While boosted by the impact of asset quality improvement and net loan recoveries, ongoing fundamental performance was also very strong. Driven by continued loan and fee income growth, top-line revenue was $28.1 million, a 20% increase from this time last year, and pre-tax, pre-provision return on average assets was 1.65% for the quarter.
  • Continued Differentiated Loan Growth. Loans, excluding SBA Paycheck Protection Program (“PPP”) loans, grew $46.9 million, or 10% annualized in the first quarter. This continued the exceptional growth from 2020 driven by investments tied to our strategic plan to expand niche lending business lines and enhance and expand the business development teams across all our business lines and geographies.
  • Asset Quality Continues to Improve. Non-performing assets declined 29% to $19.0 million, the second consecutive quarterly reduction of more than 25%. Over this two-quarter period, non-performing assets have declined $17.6 million from the 2020 peak in the third quarter of $36.7 million. The decrease in non-accrual loans for the quarter was principally due to loan payoffs and loans returning to accrual status.
  • Fee Income. Fee income grew an impressive 23% annualized for the quarter and again exceeded our goal of 25% or more of total revenue. Private wealth continued to lead the way with fees earned on a record $2.4 billion in assets under management and administration. In addition, gain on sale of Small Business Administration loans exceeded $1 million again this quarter.
  • PPP Update. Our participation in PPP has been a tremendous benefit to our clients and we are actively participating in the second phase of the program. As of March 31, 2021, the Company had $272.7 million in gross PPP loans outstanding and deferred processing fees outstanding of $5.1 million yet to be recognized into income. During the quarter, $2.2 million of processing fees were recognized.
  • Tangible Book Value Increases. Tangible Book Value (“TBV”) per share grew by 11% annualized in the quarter. This is a continuation of strong and consistent TBV growth. TBV has increased for 18 consecutive years, at a compound annual growth rate of 8% over that time.

Quarterly Financial Results

(Unaudited)

 

As of and for the Three Months Ended

(Dollars in thousands, except per share amounts)

 

March 31,
2021

 

December 31,
2020

 

March 31,
2020

Net interest income

 

$

20,863

 

 

$

22,512

 

 

$

17,050

 

Adjusted non-interest income (1)

 

7,195

 

 

6,799

 

 

6,418

 

Operating revenue (1)

 

28,058

 

 

29,311

 

 

23,468

 

Operating expense (1)

 

17,449

 

 

17,591

 

 

15,897

 

Pre-tax, pre-provision adjusted earnings (1)

 

10,609

 

 

11,720

 

 

7,571

 

Less:

 

 

 

 

 

 

Provision for loan and lease losses

 

(2,068

)

 

4,322

 

 

3,182

 

Net loss on foreclosed properties

 

3

 

 

54

 

 

102

 

Amortization of other intangible assets

 

8

 

 

8

 

 

9

 

SBA recourse (benefit) provision

 

(130

)

 

(330

)

 

25

 

Impairment on tax credit investments

 

 

 

328

 

 

113

 

Add:

 

 

 

 

 

 

Net loss on sale of securities

 

 

 

 

 

(4

)

Income before income tax expense

 

12,796

 

 

7,338

 

 

4,136

 

Income tax expense

 

3,065

 

 

1,254

 

 

858

 

Net income

 

$

9,731

 

 

$

6,084

 

 

$

3,278

 

Earnings per share, diluted

 

$

1.12

 

 

$

0.71

 

 

$

0.38

 

Book value per share

 

$

24.83

 

 

$

24.06

 

 

$

22.83

 

Tangible book value per share (1)

 

$

23.43

 

 

$

22.66

 

 

$

21.44

 

 

 

 

 

 

 

 

Net interest margin

 

3.44

%

 

3.69

%

 

3.44

%

Adjusted net interest margin (1)

 

3.20

%

 

3.25

%

 

3.32

%

Efficiency ratio (1)

 

62.19

%

 

60.02

%

 

67.74

%

Return on average assets

 

1.51

%

 

0.93

%

 

0.62

%

Pre-tax, pre-provision adjusted return on average assets (1)

 

1.65

%

 

1.80

%

 

1.44

%

Return on average equity

 

18.48

%

 

11.92

%

 

7.14

%

 

 

 

 

 

 

 

Period-end loans and leases receivable

 

$

2,235,112

 

 

$

2,145,970

 

 

$

1,743,399

 

Period-end loans and leases receivable, excluding net PPP loans

 

$

1,967,545

 

 

$

1,920,647

 

 

$

1,743,399

 

Average loans and leases receivable

 

$

2,182,958

 

 

$

2,185,662

 

 

$

1,733,742

 

Period-end in-market deposits

 

$

1,737,226

 

 

$

1,683,008

 

 

$

1,383,299

 

Average in-market deposits

 

$

1,722,107

 

 

$

1,690,433

 

 

$

1,366,142

 

Allowance for loan and lease losses

 

$

28,982

 

 

$

28,521

 

 

$

22,748

 

Non-performing assets

 

$

19,023

 

 

$

26,651

 

 

$

29,566

 

Allowance for loan and lease losses as a percent of total gross loans and leases

 

1.29

%

 

1.33

%

 

1.30

%

Allowance for loan and lease losses as a percent of total gross loans and leases, excluding net PPP loans

 

1.47

%

 

1.48

%

 

1.30

%

Non-performing assets as a percent of total assets

 

0.73

%

 

1.04

%

 

1.35

%

Non-performing assets as a percent of total assets, excluding net PPP loans

 

0.81

%

 

1.14

%

 

1.35

%

(1)

This is a non-GAAP financial measure. Management believes these measures are meaningful because they reflect adjustments commonly made by management, investors, regulators, and analysts to evaluate financial performance, provide greater understanding of ongoing operations, and enhance comparability of results with prior periods. See the section titled Non-GAAP Reconciliations at the end of this release for a reconciliation of GAAP financial measures to non-GAAP financial measures.

COVID-19 Update

Paycheck Protection Program

As of March 31, 2021, the Company had $272.7 million in gross PPP loans outstanding and deferred processing fees outstanding of $5.1 million. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness, as an adjustment of yield using the interest method. During the three months ended March 31, 2021, the Company recognized $2.2 million of processing fees in loans and leases interest income in the unaudited Consolidated Statements of Income. The SBA provides a guaranty to the lender of 100% of principal and interest, unless the lender violated an obligation under the agreement. As loan losses are expected to be immaterial, if any at all, due to the guaranty, management excluded the PPP loans from the allowance for loan and lease losses calculation. Management funded these short-term loans primarily through a combination of excess cash held at the Federal Reserve and from an increase in in-market deposits.

Deferral Requests

The Company provided loan modifications deferring payments for certain borrowers impacted by COVID-19 who were current in their payments at the inception of the Company’s loan modification program. Excluding gross PPP loans, as of March 31, 2021, the Company had deferred loans outstanding of $13.0 million, or 0.7% of gross loans and leases compared to $323.2 million, or 18.6% of gross loans and leases as of June 30, 2020.

The following tables represent a breakdown of the deferred loan balances by industry segment and collateral type:

 

 

As of

(Dollars in thousands)

 

March 31, 2021

 

 

 

 

Collateral Type

Industries Description

 

Balance

 

Real Estate

 

Non-Real
Estate

Real Estate and Rental and Leasing

 

$

9,425

 

 

$

9,425

 

 

$

 

Manufacturing

 

3,000

 

 

 

 

3,000

 

Professional, Scientific, and Technical Services

 

39

 

 

 

 

39

 

Other Services (except Public Administration)

 

328

 

 

212

 

 

116

 

Educational Services

 

195

 

 

195

 

 

 

Administrative and Support and Waste Management and Remediation Services

 

11

 

 

 

 

11

 

Total deferred loan balances

 

$

12,998

 

 

$

9,832

 

 

$

3,166

 

Exposure to Stressed Industries

Certain industries have been and are expected to be particularly impacted by social distancing, quarantines, and the economic impact of the COVID-19 pandemic, such as the following:

 

 

As of

 

 

March 31, 2021

 

December 31, 2020

Industries:

 

Balance

 

% Gross Loans
and Leases (1)

 

Balance

 

% Gross Loans
and Leases (1)

 

 

(Dollars in Thousands)

Retail (2) (3)

 

$

74,534

 

 

3.8

%

 

$

62,719

 

 

3.3

%

Hospitality

 

82,604

 

 

4.2

%

 

80,832

 

 

4.2

%

Entertainment

 

13,943

 

 

0.7

%

 

14,208

 

 

0.7

%

Restaurants & food service

 

23,385

 

 

1.2

%

 

24,854

 

 

1.3

%

Total outstanding exposure

 

$

194,466

 

 

9.9

%

 

$

182,613

 

 

9.5

%

(1)

Excluding net PPP loans.

(2)

Includes $40.2 million and $48.9 million in loans secured by commercial real estate as of March 31, 2021 and December 31, 2020, respectively.

(3)

Includes $21.3 million and $7.7 million in fully collateralized asset-based loans as of March 31, 2021 and December 31, 2020, respectively.

As of March 31, 2021, the Company had no meaningful direct exposure to the energy sector, airline industry or retail consumer, and does not participate in Shared National Credits.

Because of the significant uncertainties related to the ultimate duration of the COVID-19 pandemic and its effects on our clients and prospects, and on the national and local economies as a whole, there can be no assurances as to how the crisis may ultimately affect the Company’s loan portfolio.

First Quarter 2021 Compared to Fourth Quarter 2020

Net interest income decreased $1.6 million, or 7.3%, to $20.9 million.

  • Net interest income decreased primarily due to a reduction in fees in lieu of interest. Fees in lieu of interest, which can vary from quarter to quarter based on client-driven activity, totaled $3.1 million, compared to $4.7 million. Excluding fees in lieu of interest, net interest income increased $15,000, or 0.1%.
  • Average loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $37.3 million, or 7.8% annualized, to $1.941 billion.
  • The yield on average interest-earning assets decreased 29 basis points to 3.93% from 4.22%. Excluding average net PPP loans, the PPP loan interest income of $603,000, and the aforementioned fees in lieu of interest, the yield earned on average interest-earning assets decreased 7 basis points to 3.69% from 3.76%. The rate paid for average total bank funding decreased five basis points to 0.40% from 0.45%. Total bank funding is defined as total deposits plus Federal Home Loan Bank (“FHLB”) advances, Federal Reserve Discount Window advances, and Federal Reserve PPPLF advances.
  • Net interest margin decreased 25 basis points to 3.44% from 3.69%. Adjusted net interest margin, excluding fees in lieu of interest and other recurring but volatile components of net interest margin, decreased to 3.20% from 3.25%.

Provision for loan and lease losses decreased $6.4 million to a net benefit of $2.1 million.

  • The decrease in provision for loan and lease losses included $2.5 million in net recoveries.
  • Changes in the general reserve increased the provision for loan and lease losses $1.1 million principally due to qualitative factor changes in our commercial real estate portfolio related to the rate of growth in the segment and $557,000 due to loan growth. These increases were partially offset by a $984,000 reduction in general reserve due to historical loss rate updates from net recovery activity.

Non-interest income increased $396,000, or 5.8%, to $7.2 million.

  • Private wealth management fee income increased $199,000, or 9.0% to $2.4 million. Private wealth and trust assets under management and administration measured a record $2.387 billion at March 31, 2021, up $137.5 million, or 24.5% annualized, primarily due to growth from new and existing clients and increased equity market values.
  • Commercial loan interest rate swap fee income decreased $394,000 to $684,000 compared to $1.1 million. Interest rate swaps continue to be an attractive product for the Company’s commercial borrowers, although associated fee income can vary from period to period based on client demand and the interest rate environment in any given quarter.
  • Gains on sale of SBA loans decreased $222,000 to $1.1 million compared to $1.3 million. The Company’s pipeline remains strong and management believes the gain on sale of traditional SBA loans (i.e., SBA loans unrelated to PPP loans), while variable based on timing of closings, will continue to increase annually at a measured pace.
  • Other fee income increased $650,000 to $1.6 million compared to $914,000. The increase is primarily due to returns above the historical average from the Company’s investments in mezzanine funds.

Non-interest expense decreased $321,000, or 1.8%, to $17.3 million.

  • Compensation expense increased $512,000, or 4.2%, to $12.7 million. The increase reflects new hires, annual merit increases, and payroll taxes on the annual cash bonus plan paid during the quarter.
  • Other non-interest expense decreased $658,000 to $404,000. The decrease was principally due to a reduction in credit valuation adjustment (“CVA”) related to the commercial loan interest rate swap program. The CVA represents a change in the market value of the Company’s commercial loan interest rate swaps to estimate potential borrower credit risk within the portfolio. The CVA can vary from period to period based on the size of the portfolio, credit metrics, and the interest rate environment in any given quarter. The CVA was $291,000 and $461,000 as of March 31, 2021 and December 31, 2020, respectively.

Total period-end loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $46.9 million, or 9.8% annualized, to $1.968 billion.

  • Commercial and industrial (“C&I”) loans, excluding net PPP loans, increased $9.7 million, or 7.6% annualized, led by an increase in asset-based loans. Management believes the timely investments in producers in our counter cyclical commercial banking products, such as asset-based lending and accounts receivable financing, have positioned C&I lending to increase throughout the current economic cycle.
  • Commercial real estate (“CRE”) loans increased $33.4 million, or 9.8% annualized, with growth coming from non-owner occupied and multi-family properties. Recent above-average CRE growth comes as established commercial lenders hired over the past 18 months were able to add high-quality relationships to the Bank.

Total period-end in-market deposits increased $54.2 million to $1.737 billion, or 12.9% annualized, and the average rate paid decreased four basis points to 0.16%.

  • Transaction accounts increased $81.5 million, while certificates of deposits and money market accounts decreased $17.9 million and $9.4 million, respectively.
  • Client preferences continued to shift away from term deposits due to the low interest rate environment, while management attributes the continued increase in transaction accounts to successful business development efforts and our existing clients’ preference for safety and soundness amid the economic uncertainty created by the COVID-19 pandemic.

Period-end wholesale funding, including FHLB advances, Federal Reserve Discount Window advances, Federal Reserve PPPLF advances, brokered deposit, and deposits gathered through internet deposit listing services, increased $14.3 million to $581.3 million.

  • Wholesale deposits decreased $7.0 million to $165.5 million, due to contractual runoff. The average rate paid on wholesale deposits decreased 20 basis points to 0.76% and the weighted average original maturity of brokered certificates of deposit decreased to 3.9 years from 4.1 years.
  • FHLB advances increased $21.3 million to $415.8 million. The average rate paid on FHLB advances increased six basis points to 1.36% and the weighted average original maturity increased to 5.7 years from 5.5 years.

Non-performing assets decreased $7.6 million, or 28.6%, to $19.0 million, or 0.73% of total assets, compared to $26.7 million, or 1.04% of total assets. The reduction in non-performing assets was principally due to loan payoffs and loans returning to accrual status. Excluding net PPP loans, non-performing assets were 0.81% of total assets, compared to 1.14% as of December 31, 2020.

The allowance for loan and lease losses increased $461,000, or 1.6%, due to an increase in the general reserve from loan growth and qualitative factor changes related to the rate of growth in our commercial real estate portfolio, partially offset by historical loss rate updates from net recovery activity. While a degree of uncertainty remains in the economy due to the COVID-19 pandemic, we will take a measured approach to releasing general reserves moving forward.

  • The allowance for loan and lease losses as a percent of total gross loans and leases was 1.29% compared to 1.33%.
  • Excluding net PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.47%, compared to 1.48% as of December 31, 2020.

First Quarter 2021 Compared to First Quarter 2020

Net interest income increased $3.8 million, or 22.4%, to $20.9 million.

  • The increase in net interest income reflects an increase in average gross loans and leases and an increase in fees collected in lieu of interest, partially offset by adjusted net interest margin compression. Fees in lieu of interest, which can vary from quarter to quarter, totaled $3.1 million compared to $798,000. Excluding fees in lieu of interest and interest income from PPP loans, net interest income increased $923,000, or 5.7%. Excluding net PPP loans, average gross loans and leases increased $207.0 million, or 11.9%.
  • The yield on average interest-earning assets measured 3.93% compared to 4.72%. Excluding fees collected in lieu of interest and PPP loan interest income, the yield on average interest-earning assets excluding net PPP loans was 3.69%, compared to 4.56%. The decline in yields was primarily due to the decrease in LIBOR and Prime and related impact on variable-rate loans, in addition to the renewal of fixed-rate loans and reinvestment of security cash flows at historically low interest rates. The rate paid for average total bank funding decreased 84 basis points to 0.40% from 1.24%. The average target federal funds rate decreased 115 basis points during this time period of comparison.
  • Net interest margin was 3.44% in both periods of comparison. Adjusted net interest margin decreased 12 basis points to 3.20% from 3.32%.

Non-interest income increased $781,000, or 12.2%, to $7.2 million.

  • Gains on sale of SBA loans increased $813,000 to $1.1 million compared to $265,000.
  • Private wealth management fee income increased $295,000, or 14.0%, to $2.4 million. Private wealth and trust assets under management and administration measured a record $2.387 billion at March 31, 2021, up $722.1 million, or 43.4%.
  • Other fee income increased $507,000, or 48.0%, to $1.6 million compared to $1.1 million. The increase is primarily due to returns above the historical average from the Company’s investments in mezzanine funds.
  • Commercial loan interest rate swap fee income decreased $997,000 to $684,000 compared to $1.7 million.

Non-interest expense increased $1.2 million, or 7.3%, to $17.3 million. Operating expense increased $1.6 million, or 9.8%, to $17.4 million.

  • Compensation expense increased $1.6 million, or 14.5%, to $12.7 million. Average full-time equivalent employees increased to 305, up 6.6% for the quarter ended March 31, 2021, compared to 286 for the quarter ended March 31, 2020. The increase reflects new hires, annual merit increases, and a $494,000 increase in the annual corporate incentive plan accrual compared to a reduction to the same accrual during the first quarter of 2020 due to uncertainty amid the COVID-19 pandemic.
  • Computer software expense increased $226,000 to $1.1 million compared to $889,000. The increase was principally due to investments in technology platforms to improve the client experience and continued strategic focus on scaling the Bank to efficiently execute our growth strategy.
  • FDIC insurance expense was $362,000, an increase of $154,000. Management expects FDIC insurance expense to increase commensurate with future asset growth.
  • Other non-interest expense decreased $412,000, or 50.5%, to $404,000. The decrease was principally due to a decrease in business-related travel expenses due to the Company’s adherence to COVID-19 restrictions and a reduction in credit valuation adjustment (“CVA”) related to the commercial loan interest rate swap program. There was no CVA as of March 31, 2020.

Total period-end loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $224.1 million, or 12.9%, to $1.968 billion.

  • C&I loans, excluding net PPP loans, decreased $3.2 million, or 0.6%.
  • CRE loans increased $232.1 million, or 20.0%, generally driven by an increase across all CRE categories.

Total period-end in-market deposits increased $353.9 million, or 25.6%, to $1.737 billion and the average rate paid decreased 80 basis points to 0.16%.

  • Transaction accounts and money market accounts increased $413.6 million and $22.2 million, respectively.
  • Certificates of deposits decreased $81.9 million as client preferences continued to shift towards more liquid products due to the low interest rate environment.

Period-end wholesale funding increased $76.0 million to $581.3 million.

  • Wholesale deposits increased $48.7 million to $165.5 million mainly due to adding non-maturity brokered deposits at a favorable rate compared to alternative funding sources. Excluding these deposits, wholesale deposits decreased as the existing portfolio runoff is replaced by in-market deposits and lower cost FHLB advances to match-fund long-term fixed rate loans and fund loan growth. The average rate paid on brokered certificates of deposit decreased 181 basis points to 0.76% and the weighted average original maturity decreased to 3.9 years from 4.8 years.
  • FHLB advances increased $27.3 million to $415.8 million. The average rate paid on FHLB advances decreased 55 basis points to 1.36% and the weighted average original maturity decreased to 5.7 years from 5.9 years.

Non-performing assets decreased to $19.0 million, or 0.73% of total assets, compared to $29.6 million, or 1.35% of total assets. Excluding net PPP loans, non-performing assets were 0.81% of total assets as of March 31, 2021.

The allowance for loan and lease losses increased 27.4% primarily due to an increase in the general and specific reserve driven by the COVID-19 pandemic.

  • The allowance for loan and lease losses as a percent of total gross loans and leases was 1.29% compared to 1.30%.
  • Excluding net PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.47% as of March 31, 2021.

About First Business Financial Services, Inc.

First Business Financial Services, Inc., (Nasdaq: FBIZ) is the parent company of First Business Bank. First Business Bank specializes in Business Banking, including Commercial Banking and Specialty Finance, Private Wealth, and Bank Consulting services, and through its refined focus, delivers unmatched expertise, accessibility, and responsiveness. Specialty Finance solutions are delivered through First Business Bank’s wholly owned subsidiary First Business Specialty Finance, LLC. For additional information, visit www.firstbusiness.bank.

This release may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which reflect First Business Bank’s current views with respect to future events and financial performance. Forward-looking statements are not based on historical information, but rather are related to future operations, strategies, financial results, or other developments. Forward-looking statements are based on management’s expectations as well as certain assumptions and estimates made by, and information available to, management at the time the statements are made. Those statements are based on general assumptions and are subject to various risks, uncertainties, and other factors that may cause actual results to differ materially from the views, beliefs, and projections expressed in such statements. Such statements are subject to risks and uncertainties, including among other things:

  • Adverse changes in the economy or business conditions, either nationally or in our markets, including, without limitation, the adverse effects of the COVID-19 pandemic on the global, national, and local economy.
  • The effect of the COVID-19 pandemic on the Company’s credit quality, revenue, and business operations.
  • Competitive pressures among depository and other financial institutions nationally and in our markets.
  • Increases in defaults by borrowers and other delinquencies.
  • Our ability to manage growth effectively, including the successful expansion of our client service, administrative infrastructure, and internal management systems.
  • Fluctuations in interest rates and market prices.
  • Changes in legislative or regulatory requirements applicable to us and our subsidiaries.
  • Changes in tax requirements, including tax rate changes, new tax laws, and revised tax law interpretations.
  • Fraud, including client and system failure or breaches of our network security, including our internet banking activities.
  • Failure to comply with the applicable SBA regulations in order to maintain the eligibility of the guaranteed portion of SBA loans.

For further information about the factors that could affect the Company’s future results, please see the Company’s annual report on Form 10-K for the year ended December 31, 2020 and other filings with the Securities and Exchange Commission.

SELECTED FINANCIAL CONDITION DATA

 

(Unaudited)

 

As of

(in thousands)

 

March 31,
2021

 

December 31,
2020

 

September 30,
2020

 

June 30,
2020

 

March 31,
2020

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

58,874

 

 

$

56,909

 

 

$

51,728

 

 

$

42,391

 

 

$

94,986

 

Securities available-for-sale, at fair value

 

173,261

 

 

183,925

 

 

179,274

 

 

171,680

 

 

175,564

 

Securities held-to-maturity, at amortized cost

 

24,783

 

 

26,374

 

 

28,897

 

 

29,826

 

 

30,774

 

Loans held for sale

 

6,576

 

 

8,695

 

 

15,049

 

 

13,672

 

 

6,331

 

Loans and leases receivable

 

2,235,112

 

 

2,145,970

 

 

2,170,299

 

 

2,056,863

 

 

1,743,399

 

Allowance for loan and lease losses

 

(28,982

)

 

(28,521

)

 

(30,817

)

 

(27,464

)

 

(22,748

)

Loans and leases receivable, net

 

2,206,130

 

 

2,117,449

 

 

2,139,482

 

 

2,029,399

 

 

1,720,651

 

Premises and equipment, net

 

1,923

 

 

1,998

 

 

2,130

 

 

2,266

 

 

2,427

 

Foreclosed properties

 

31

 

 

34

 

 

613

 

 

1,389

 

 

1,669

 

Right-of-use assets

 

5,486

 

 

5,814

 

 

6,141

 

 

6,272

 

 

6,590

 

Bank-owned life insurance

 

52,537

 

 

52,188

 

 

51,798

 

 

51,433

 

 

51,056

 

Federal Home Loan Bank stock, at cost

 

14,941

 

 

13,578

 

 

15,153

 

 

13,470

 

 

9,733

 

Goodwill and other intangible assets

 

12,055

 

 

12,018

 

 

12,024

 

 

11,925

 

 

11,872

 

Derivatives

 

26,104

 

 

49,377

 

 

58,210

 

 

58,808

 

 

53,096

 

Accrued interest receivable and other assets

 

38,017

 

 

39,478

 

 

41,348

 

 

36,283

 

 

31,625

 

Total assets

 

$

2,620,718

 

 

$

2,567,837

 

 

$

2,601,847

 

 

$

2,468,814

 

 

$

2,196,374

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

In-market deposits

 

$

1,737,226

 

 

$

1,683,008

 

 

$

1,667,245

 

 

$

1,620,616

 

 

$

1,383,299

 

Wholesale deposits

 

165,492

 

 

172,508

 

 

154,130

 

 

89,759

 

 

116,827

 

Total deposits

 

1,902,718

 

 

1,855,516

 

 

1,821,375

 

 

1,710,375

 

 

1,500,126

 

Federal Home Loan Bank advances and other borrowings

 

448,417

 

 

419,167

 

 

483,517

 

 

465,007

 

 

412,892

 

Junior subordinated notes

 

10,065

 

 

10,062

 

 

10,058

 

 

10,054

 

 

10,051

 

Lease liabilities

 

6,040

 

 

6,386

 

 

6,728

 

 

6,877

 

 

7,211

 

Derivatives

 

29,565

 

 

54,927

 

 

64,403

 

 

65,390

 

 

59,260

 

Accrued interest payable and other liabilities

 

9,422

 

 

15,617

 

 

14,981

 

 

13,549

 

 

11,177

 

Total liabilities

 

2,406,227

 

 

2,361,675

 

 

2,401,062

 

 

2,271,252

 

 

2,000,717

 

Total stockholders’ equity

 

214,491

 

 

206,162

 

 

200,785

 

 

197,562

 

 

195,657

 

Total liabilities and stockholders’ equity

 

$

2,620,718

 

 

$

2,567,837

 

 

$

2,601,847

 

 

$

2,468,814

 

 

$

2,196,374

 

STATEMENTS OF INCOME

 

(Unaudited)

 

As of and for the Three Months Ended

(Dollars in thousands, except per share amounts)

 

March 31,
2021

 

December 31,
2020

 

September 30,
2020

 

June 30,
2020

 

March 31,
2020

Total interest income

 

$

23,806

 

 

$

25,770

 

 

$

22,276

 

 

$

22,761

 

 

$

23,372

 

Total interest expense

 

2,943

 

 

3,258

 

 

3,655

 

 

3,873

 

 

6,322

 

Net interest income

 

20,863

 

 

22,512

 

 

18,621

 

 

18,888

 

 

17,050

 

Provision for loan and lease losses

 

(2,068

)

 

4,322

 

 

3,835

 

 

5,469

 

 

3,182

 

Net interest income after provision for loan and lease losses

 

22,931

 

 

18,190

 

 

14,786

 

 

13,419

 

 

13,868

 

Private wealth management service fees

 

2,407

 

 

2,208

 

 

2,167

 

 

2,124

 

 

2,112

 

Gain on sale of SBA loans

 

1,078

 

 

1,300

 

 

760

 

 

574

 

 

265

 

Service charges on deposits

 

917

 

 

887

 

 

881

 

 

829

 

 

818

 

Loan fees

 

545

 

 

412

 

 

478

 

 

451

 

 

485

 

Net loss on sale of securities

 

 

 

 

 

 

 

 

 

(4

)

Swap fees

 

684

 

 

1,078

 

 

2,446

 

 

1,655

 

 

1,681

 

Other non-interest income

 

1,564

 

 

914

 

 

676

 

 

686

 

 

1,057

 

Total non-interest income

 

7,195

 

 

6,799

 

 

7,408

 

 

6,319

 

 

6,414

 

Compensation

 

12,657

 

 

12,145

 

 

11,857

 

 

10,796

 

 

11,052

 

Occupancy

 

552

 

 

556

 

 

570

 

 

554

 

 

572

 

Professional fees

 

866

 

 

909

 

 

943

 

 

859

 

 

819

 

Data processing

 

770

 

 

668

 

 

679

 

 

710

 

 

677

 

Marketing

 

391

 

 

411

 

 

356

 

 

352

 

 

461

 

Equipment

 

246

 

 

294

 

 

310

 

 

304

 

 

291

 

Computer software

 

1,115

 

 

1,028

 

 

1,017

 

 

966

 

 

889

 

FDIC insurance

 

362

 

 

479

 

 

312

 

 

239

 

 

208

 

Collateral liquidation cost

 

94

 

 

47

 

 

45

 

 

115

 

 

121

 

Net loss (gain) on foreclosed properties

 

3

 

 

54

 

 

(121

)

 

348

 

 

102

 

Tax credit investment impairment

 

 

 

328

 

 

113

 

 

1,841

 

 

113

 

SBA recourse (benefit) provision

 

(130

)

 

(330

)

 

57

 

 

(30

)

 

25

 

Loss on early extinguishment of debt

 

 

 

 

 

 

 

744

 

 

 

Other non-interest expense

 

404

 

 

1,062

 

 

620

 

 

545

 

 

816

 

Total non-interest expense

 

17,330

 

 

17,651

 

 

16,758

 

 

18,343

 

 

16,146

 

Income before income tax expense (benefit)

 

12,796

 

 

7,338

 

 

5,436

 

 

1,395

 

 

4,136

 

Income tax expense (benefit)

 

3,065

 

 

1,254

 

 

1,143

 

 

(1,928

)

 

858

 

Net income

 

$

9,731

 

 

$

6,084

 

 

$

4,293

 

 

$

3,323

 

 

$

3,278

 

 

 

 

 

 

 

 

 

 

 

 

Per common share:

 

 

 

 

 

 

 

 

 

 

Basic earnings

 

$

1.12

 

 

$

0.71

 

 

$

0.50

 

 

$

0.38

 

 

$

0.38

 

Diluted earnings

 

1.12

 

 

0.71

 

 

0.50

 

 

0.38

 

 

0.38

 

Dividends declared

 

0.18

 

 

0.165

 

 

0.165

 

 

0.165

 

 

0.165

 

Book value

 

24.83

 

 

24.06

 

 

23.45

 

 

23.04

 

 

22.83

 

Tangible book value

 

23.43

 

 

22.66

 

 

22.05

 

 

21.65

 

 

21.44

 

Weighted-average common shares outstanding(1)

 

8,429,149

 

 

8,417,216

 

 

8,404,084

 

 

8,392,197

 

 

8,388,666

 

Weighted-average diluted common shares outstanding(1)

 

8,429,149

 

 

8,417,216

 

 

8,404,084

 

 

8,392,197

 

 

8,388,666

 

(1)

Excluding participating securities.

NET INTEREST INCOME ANALYSIS

 

(Unaudited)

 

For the Three Months Ended

(Dollars in thousands)

 

March 31, 2021

 

December 31, 2020

 

March 31, 2020

 

 

Average
Balance

 

Interest

 

Average
Yield/Rate(4)

 

Average
Balance

 

Interest

 

Average
Yield/Rate(4)

 

Average
Balance

 

Interest

 

Average
Yield/Rate(4)

Interest-earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate and other mortgage loans(1)

 

$

1,357,141

 

 

$

12,528

 

 

3.69

%

 

$

1,353,333

 

 

$

12,875

 

 

3.81

%

 

$

1,153,972

 

 

$

13,523

 

 

4.69

%

Commercial and industrial loans(1)

 

757,898

 

 

9,625

 

 

5.08

%

 

768,869

 

 

11,149

 

 

5.80

%

 

515,935

 

 

7,857

 

 

6.09

%

Direct financing leases(1)

 

22,271

 

 

244

 

 

4.38

%

 

25,071

 

 

278

 

 

4.44

%

 

27,961

 

 

108

 

 

1.55

%

Consumer and other loans(1)

 

45,648

 

 

398

 

 

3.49

%

 

38,389

 

 

355

 

 

3.70

%

 

35,874

 

 

361

 

 

4.03

%

Total loans and leases receivable(1)

 

2,182,958

 

 

22,795

 

 

4.18

%

 

2,185,662

 

 

24,657

 

 

4.51

%

 

1,733,742

 

 

21,849

 

 

5.04

%

Mortgage-related securities(2)

 

163,324

 

 

666

 

 

1.63

%

 

170,400

 

 

742

 

 

1.74

%

 

180,590

 

 

1,061

 

 

2.35

%

Other investment securities(3)

 

42,177

 

 

187

 

 

1.77

%

 

39,647

 

 

183

 

 

1.85

%

 

23,280

 

 

127

 

 

2.18

%

FHLB stock

 

12,465

 

 

152

 

 

4.88

%

 

14,608

 

 

179

 

 

4.90

%

 

8,512

 

 

205

 

 

9.63

%

Short-term investments

 

24,575

 

 

6

 

 

0.10

%

 

31,418

 

 

9

 

 

0.11

%

 

35,763

 

 

130

 

 

1.45

%

Total interest-earning assets

 

2,425,499

 

 

23,806

 

 

3.93

%

 

2,441,735

 

 

25,770

 

 

4.22

%

 

1,981,887

 

 

23,372

 

 

4.72

%

Non-interest-earning assets

 

151,665

 

 

 

 

 

 

162,010

 

 

 

 

 

 

122,975

 

 

 

 

 

Total assets

 

$

2,577,164

 

 

 

 

 

 

$

2,603,745

 

 

 

 

 

 

$

2,104,862

 

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transaction accounts

 

$

521,130

 

 

250

 

 

0.19

%

 

$

482,670

 

 

250

 

 

0.21

%

 

$

271,531

 

 

647

 

 

0.95

%

Money market

 

657,690

 

 

274

 

 

0.17

%

 

655,581

 

 

287

 

 

0.18

%

 

669,482

 

 

1,869

 

 

1.12

%

Certificates of deposit

 

57,424

 

 

177

 

 

1.23

%

 

78,693

 

 

308

 

 

1.57

%

 

134,000

 

 

750

 

 

2.24

%

Wholesale deposits

 

166,752

 

 

318

 

 

0.76

%

 

171,718

 

 

414

 

 

0.96

%

 

132,468

 

 

850

 

 

2.57

%

Total interest-bearing deposits

 

1,402,996

 

 

1,019

 

 

0.29

%

 

1,388,662

 

 

1,259

 

 

0.36

%

 

1,207,481

 

 

4,116

 

 

1.36

%

FHLB advances

 

366,670

 

 

1,249

 

 

1.36

%

 

404,174

 

 

1,309

 

 

1.30

%

 

325,929

 

 

1,559

 

 

1.91

%

Federal Reserve PPPLF

 

 

 

 

 

%

 

10,297

 

 

9

 

 

0.35

%

 

 

 

 

 

%

Other borrowings

 

27,296

 

 

401

 

 

5.88

%

 

24,419

 

 

400

 

 

6.55

%

 

24,385

 

 

370

 

 

6.07

%

Junior subordinated notes

 

10,063

 

 

274

 

 

10.89

%

 

10,059

 

 

281

 

 

11.17

%

 

10,048

 

 

277

 

 

11.03

%

Total interest-bearing liabilities

 

1,807,025

 

 

2,943

 

 

0.65

%

 

1,837,611

 

 

3,258

 

 

0.71

%

 

1,567,843

 

 

6,322

 

 

1.61

%

Non-interest-bearing demand deposit accounts

 

485,863

 

 

 

 

 

 

473,489

 

 

 

 

 

 

291,129

 

 

 

 

 

Other non-interest-bearing liabilities

 

73,695

 

 

 

 

 

 

88,496

 

 

 

 

 

 

62,367

 

 

 

 

 

Total liabilities

 

2,366,583

 

 

 

 

 

 

2,399,596

 

 

 

 

 

 

1,921,339

 

 

 

 

 

Stockholders’ equity

 

210,581

 

 

 

 

 

 

204,149

 

 

 

 

 

 

183,523

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

2,577,164

 

 

 

 

 

 

$

2,603,745

 

 

 

 

 

 

$

2,104,862

 

 

 

 

 

Net interest income

 

 

 

$

20,863

 

 

 

 

 

 

$

22,512

 

 

 

 

 

 

$

17,050

 

 

 

Interest rate spread

 

 

 

 

 

3.27

%

 

 

 

 

 

3.51

%

 

 

 

 

 

3.10

%

Net interest-earning assets

 

$

618,474

 

 

 

 

 

 

$

604,124

 

 

 

 

 

 

$

414,044

 

 

 

 

 

Net interest margin

 

 

 

 

 

3.44

%

 

 

 

 

 

3.69

%

 

 

 

 

 

3.44

%

(1)

The average balances of loans and leases include non-accrual loans and leases and loans held for sale. Interest income related to non-accrual loans and leases is recognized when collected. Interest income includes net loan fees collected in lieu of interest.

(2)

Includes amortized cost basis of assets available for sale and held to maturity.

(3)

Yields on tax-exempt municipal obligations are not presented on a tax-equivalent basis in this table.

(4)

Represents annualized yields/rates.

PROVISION FOR LOAN AND LEASE LOSS COMPOSITION

 

(Unaudited)

 

For the Three Months Ended

(Dollars in thousands)

 

March 31,
2021

 

December 31,
2020

 

September 30,
2020

 

June 30,
2020

 

March 31,
2020

Change in general reserve due to subjective factor changes

 

$

1,082

 

 

$

1,008

 

 

$

(766

)

 

$

2,388

 

 

$

2,831

 

Change in general reserve due to historical loss factor changes

 

(984

)

 

1,274

 

 

(16

)

 

(54

)

 

(255

)

Charge-offs

 

144

 

 

6,685

 

 

505

 

 

817

 

 

131

 

Recoveries

 

(2,673

)

 

(68

)

 

(23

)

 

(64

)

 

(177

)

Change in specific reserves on impaired loans, net

 

(194

)

 

(5,216

)

 

2,974

 

 

2,122

 

 

436

 

Change due to loan growth, net

 

557

 

 

639

 

 

1,161

 

 

260

 

 

216

 

Total provision for loan and lease losses

 

$

(2,068

)

 

$

4,322

 

 

$

3,835

 

 

$

5,469

 

 

$

3,182

 

PERFORMANCE RATIOS

 

 

 

For the Three Months Ended

(Unaudited)

 

March 31,
2021

 

December 31,
2020

 

September 30,
2020

 

June 30,
2020

 

March 31,
2020

Return on average assets (annualized)

 

1.51

%

 

0.93

%

 

0.68

%

 

0.55

%

 

0.62

%

Return on average equity (annualized)

 

18.48

%

 

11.92

%

 

8.58

%

 

6.70

%

 

7.14

%

Efficiency ratio

 

62.19

%

 

60.02

%

 

64.16

%

 

61.22

%

 

67.74

%

Interest rate spread

 

3.27

%

 

3.51

%

 

2.94

%

 

3.12

%

 

3.10

%

Net interest margin

 

3.44

%

 

3.69

%

 

3.14

%

 

3.34

%

 

3.44

%

Average interest-earning assets to average interest-bearing liabilities

 

134.23

%

 

132.88

%

 

131.68

%

 

132.82

%

 

126.41

%

ASSET QUALITY RATIOS

 

(Unaudited)

 

As of

(Dollars in thousands)

 

March 31,
2021

 

December 31,
2020

 

September 30,
2020

 

June 30,
2020

 

March 31,
2020

Non-accrual loans and leases

 

$

18,992

 

 

$

26,617

 

 

$

36,050

 

 

$

24,095

 

 

$

27,897

 

Foreclosed properties

 

31

 

 

34

 

 

613

 

 

1,389

 

 

1,669

 

Total non-performing assets

 

19,023

 

 

26,651

 

 

36,663

 

 

25,484

 

 

29,566

 

Performing troubled debt restructurings

 

59

 

 

46

 

 

47

 

 

49

 

 

134

 

Total impaired assets

 

$

19,082

 

 

$

26,697

 

 

$

36,710

 

 

$

25,533

 

 

$

29,700

 

 

 

 

 

 

 

 

 

 

 

 

Non-accrual loans and leases as a percent of total gross loans and leases

 

0.85

%

 

1.24

%

 

1.66

%

 

1.17

%

 

1.60

%

Non-performing assets as a percent of total gross loans and leases plus foreclosed properties

 

0.85

%

 

1.24

%

 

1.68

%

 

1.23

%

 

1.69

%

Non-performing assets as a percent of total assets

 

0.73

%

 

1.04

%

 

1.41

%

 

1.03

%

 

1.35

%

Allowance for loan and lease losses as a percent of total gross loans and leases

 

1.29

%

 

1.33

%

 

1.41

%

 

1.33

%

 

1.30

%

Allowance for loan and lease losses as a percent of non-accrual loans and leases

 

152.60

%

 

107.15

%

 

85.48

%

 

113.98

%

 

81.54

%

ASSET QUALITY RATIOS - EXCLUDING NET PPP LOANS (1)

 

(Unaudited)

 

As of

 

 

March 31,
2021

 

December 31,
2020

 

September 30,
2020

 

June 30,
2020

 

March 31,
2020

Non-accrual loans and leases as a percent of total gross loans and leases

 

0.96

%

 

1.38

%

 

1.95

%

 

1.38

%

 

1.60

%

Non-performing assets as a percent of total gross loans and leases plus foreclosed properties

 

0.96

%

 

1.38

%

 

1.98

%

 

1.46

%

 

1.69

%

Non-performing assets as a percent of total assets

 

0.81

%

 

1.14

%

 

1.61

%

 

1.19

%

 

1.35

%

Allowance for loan and lease losses as a percent of total gross loans and leases

 

1.47

%

 

1.48

%

 

1.67

%

 

1.57

%

 

1.30

%

(1)

Net PPP loans outstanding as of March 31, 2021, December 31, 2020, September 30, 2020, and June 30, 2020, were $267.6 million, $225.3 million, $325.5 million, and $320.0 million, respectively. There were no PPP loans outstanding as of March 31, 2020.

NET CHARGE-OFFS (RECOVERIES)

 

(Unaudited)

 

For the Three Months Ended

(Dollars in thousands)

 

March 31,
2021

 

December 31,
2020

 

September 30,
2020

 

June 30,
2020

 

March 31,
2020

Charge-offs

 

$

144

 

 

$

6,685

 

 

$

505

 

 

$

817

 

 

$

131

 

Recoveries

 

(2,673

)

 

(68

)

 

(23

)

 

(64

)

 

(177

)

Net (recoveries) charge-offs

 

$

(2,529

)

 

$

6,617

 

 

$

482

 

 

$

753

 

 

$

(46

)

Net (recoveries) charge-offs as a percent of average gross loans and leases (annualized)

 

(0.46

)%

 

1.21

%

 

0.09

%

 

0.15

%

 

(0.01

)%

Annualized (recoveries) charge-offs as a percent of average gross loans and leases, excluding average net PPP loans(1)

 

(0.52

)%

 

1.39

%

 

0.11

%

 

0.17

%

 

(0.01

)%

(1)

Average net PPP loans outstanding for the three months ended March 31, 2021, December 31, 2020, September 30, 2020, and June 30, 2020 were $242.2 million, $282.3 million, $323.1 million, and $252.8 million, respectively. The three months ended March 31, 2020 did not have any PPP loans outstanding.

CAPITAL RATIOS

 

 

 

As of and for the Three Months Ended

(Unaudited)

 

March 31,
2021

 

December 31,
2020

 

September 30,
2020

 

June 30,
2020

 

March 31,
2020

Total capital to risk-weighted assets

 

11.52

%

 

11.25

%

 

11.42

%

 

11.97

%

 

11.74

%

Tier I capital to risk-weighted assets

 

9.24

%

 

8.96

%

 

9.09

%

 

9.57

%

 

9.45

%

Common equity tier I capital to risk-weighted assets

 

8.81

%

 

8.53

%

 

8.64

%

 

9.08

%

 

8.96

%

Tier I capital to adjusted assets

 

8.37

%

 

7.99

%

 

8.04

%

 

8.29

%

 

9.33

%

Tangible common equity to tangible assets

 

7.76

%

 

7.60

%

 

7.29

%

 

7.56

%

 

8.41

%

Tangible common equity to tangible assets, excluding net PPP loans

 

8.65

%

 

8.33

%

 

8.34

%

 

8.69

%

 

8.41

%

LOAN AND LEASE RECEIVABLE COMPOSITION

 

(Unaudited)

 

As of

(in thousands)

 

March 31,
2021

 

December 31,
2020

 

September 30,
2020

 

June 30,
2020

 

March 31,
2020

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

Commercial real estate - owner occupied

 

$

256,812

 

 

$

253,882

 

 

$

240,706

 

 

$

229,994

 

 

$

224,075

 

Commercial real estate - non-owner occupied

 

592,090

 

 

564,532

 

 

565,781

 

 

533,211

 

 

511,363

 

Land development

 

46,544

 

 

49,839

 

 

50,864

 

 

44,299

 

 

48,045

 

Construction

 

151,345

 

 

141,043

 

 

142,726

 

 

133,375

 

 

131,060

 

Multi-family

 

322,384

 

 

311,556

 

 

287,583

 

 

244,496

 

 

211,594

 

1-4 family

 

23,319

 

 

38,284

 

 

38,857

 

 

36,823

 

 

34,220

 

Total commercial real estate

 

1,392,494

 

 

1,359,136

 

 

1,326,517

 

 

1,222,198

 

 

1,160,357

 

Commercial and industrial

 

784,305

 

 

732,318

 

 

790,349

 

 

781,239

 

 

519,900

 

Direct financing leases, net

 

19,616

 

 

22,331

 

 

24,743

 

 

25,525

 

 

26,833

 

Consumer and other:

 

 

 

 

 

 

 

 

 

 

Home equity and second mortgages

 

6,719

 

 

7,833

 

 

7,106

 

 

6,706

 

 

6,513

 

Other

 

38,266

 

 

28,897

 

 

29,341

 

 

29,737

 

 

30,416

 

Total consumer and other

 

44,985

 

 

36,730

 

 

36,447

 

 

36,443

 

 

36,929

 

Total gross loans and leases receivable

 

2,241,400

 

 

2,150,515

 

 

2,178,056

 

 

2,065,405

 

 

1,744,019

 

Less:

 

 

 

 

 

 

 

 

 

 

Allowance for loan and lease losses

 

28,982

 

 

28,521

 

 

30,817

 

 

27,464

 

 

22,748

 

Deferred loan fees

 

6,288

 

 

4,545

 

 

7,757

 

 

8,542

 

 

620

 

Loans and leases receivable, net

 

$

2,206,130

 

 

$

2,117,449

 

 

$

2,139,482

 

 

$

2,029,399

 

 

$

1,720,651

 

LEGACY SBA 7(a) AND EXPRESS LOAN COMPOSITION (1)

 

(Unaudited)

 

As of

(in thousands)

 

March 31,
2021

 

December 31,
2020

 

September 30,
2020

 

June 30,
2020

 

March 31,
2020

Performing loans:

 

 

 

 

 

 

 

 

 

 

Off-balance sheet loans

 

$

17,523

 

 

$

23,354

 

 

$

26,017

 

 

$

28,843

 

 

$

31,212

 

On-balance sheet loans

 

7,340

 

 

11,117

 

 

15,175

 

 

16,554

 

 

17,935

 

Gross loans

 

24,863

 

 

34,471

 

 

41,192

 

 

45,397

 

 

49,147

 

Non-performing loans:

 

 

 

 

 

 

 

 

 

 

Off-balance sheet loans

 

1,835

 

 

1,931

 

 

2,574

 

 

1,640

 

 

4,887

 

On-balance sheet loans

 

6,832

 

 

7,435

 

 

9,561

 

 

9,725

 

 

13,833

 

Gross loans

 

8,667

 

 

9,366

 

 

12,135

 

 

11,365

 

 

18,720

 

Total loans:

 

 

 

 

 

 

 

 

 

 

Off-balance sheet loans

 

19,358

 

 

25,285

 

 

28,591

 

 

30,483

 

 

36,099

 

On-balance sheet loans

 

14,172

 

 

18,552

 

 

24,736

 

 

26,279

 

 

31,768

 

Gross loans

 

$

33,530

 

 

$

43,837

 

 

$

53,327

 

 

$

56,762

 

 

$

67,867

 

(1)

Defined as SBA 7(a) and Express loans originated in 2016 and prior.

DEPOSIT COMPOSITION

 

(Unaudited)

 

As of

(in thousands)

 

March 31,
2021

 

December 31,
2020

 

September 30,
2020

 

June 30,
2020

 

March 31,
2020

Non-interest-bearing transaction accounts

 

$

496,877

 

 

$

472,818

 

 

$

452,268

 

 

$

433,760

 

 

$

301,657

 

Interest-bearing transaction accounts

 

561,466

 

 

503,992

 

 

484,761

 

 

413,214

 

 

343,064

 

Money market accounts

 

632,065

 

 

641,504

 

 

636,872

 

 

656,741

 

 

609,883

 

Certificates of deposit

 

46,818

 

 

64,694

 

 

93,344

 

 

116,901

 

 

128,695

 

Wholesale deposits

 

165,492

 

 

172,508

 

 

154,130

 

 

89,759

 

 

116,827

 

Total deposits

 

$

1,902,718

 

 

$

1,855,516

 

 

$

1,821,375

 

 

$

1,710,375

 

 

$

1,500,126

 

TRUST ASSETS COMPOSITION

 

(Unaudited)

 

As of

(in thousands)

 

March 31,
2021

 

December 31,
2020

 

September 30,
2020

 

June 30,
2020

 

March 31,
2020

Trust assets under management

 

$

2,195,804

 

 

$

2,061,772

 

 

$

1,841,986

 

 

$

1,704,019

 

 

$

1,519,632

 

Trust assets under administration

 

190,721

 

 

187,228

 

 

175,521

 

 

169,388

 

 

144,822

 

Total trust assets

 

$

2,386,525

 

 

$

2,249,000

 

 

$

2,017,507

 

 

$

1,873,407

 

 

$

1,664,454

 

NON-GAAP RECONCILIATIONS

Certain financial information provided in this release is determined by methods other than in accordance with generally accepted accounting principles (United States) (“GAAP”). Although the Company’s management believes that these non-GAAP financial measures provide a greater understanding of its business, these measures are not necessarily comparable to similar measures that may be presented by other companies.

TANGIBLE BOOK VALUE

“Tangible book value per share” is a non-GAAP measure representing tangible common equity divided by total common shares outstanding. “Tangible common equity” itself is a non-GAAP measure representing common stockholders’ equity reduced by intangible assets, if any. The Company’s management believes that this measure is important to many investors in the marketplace who are interested in period-to-period changes in book value per common share exclusive of changes in intangible assets. The information provided below reconciles tangible book value per share and tangible common equity to their most comparable GAAP measures.

(Unaudited)

 

As of

(Dollars in thousands, except per share amounts)

 

March 31,
2021

 

December 31,
2020

 

September 30,
2020

 

June 30,
2020

 

March 31,
2020

Common stockholders’ equity

 

$

214,491

 

 

$

206,162

 

 

$

200,785

 

 

$

197,562

 

 

$

195,657

 

Goodwill and other intangible assets

 

(12,055

)

 

(12,018

)

 

(12,024

)

 

(11,925

)

 

(11,872

)

Tangible common equity

 

$

202,436

 

 

$

194,144

 

 

$

188,761

 

 

$

185,637

 

 

$

183,785

 

Common shares outstanding

 

8,638,195

 

 

8,566,960

 

 

8,561,714

 

 

8,575,134

 

 

8,571,134

 

Book value per share

 

$

24.83

 

 

$

24.06

 

 

$

23.45

 

 

$

23.04

 

 

$

22.83

 

Tangible book value per share

 

23.43

 

 

22.66

 

 

22.05

 

 

21.65

 

 

21.44

 

TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS

“Tangible common equity to tangible assets’’ is defined as the ratio of common stockholders’ equity reduced by intangible assets, if any, divided by total assets reduced by intangible assets, if any. The Company’s management believes that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period in common equity and total assets, each exclusive of changes in intangible assets. The information below reconciles tangible common equity and tangible assets to their most comparable GAAP measures.

(Unaudited)

 

As of

(Dollars in thousands)

 

March 31,
2021

 

December 31,
2020

 

September 30,
2020

 

June 30,
2020

 

March 31,
2020

Common stockholders’ equity

 

$

214,491

 

 

$

206,162

 

 

$

200,785

 

 

$

197,562

 

 

$

195,657

 

Goodwill and other intangible assets

 

(12,055

)

 

(12,018

)

 

(12,024

)

 

(11,925

)

 

(11,872

)

Tangible common equity

 

$

202,436

 

 

$

194,144

 

 

$

188,761

 

 

$

185,637

 

 

$

183,785

 

Total assets

 

$

2,620,718

 

 

$

2,567,837

 

 

$

2,601,847

 

 

$

2,468,814

 

 

$

2,196,374

 

Goodwill and other intangible assets

 

(12,055

)

 

(12,018

)

 

(12,024

)

 

(11,925

)

 

(11,872

)

Tangible assets

 

$

2,608,663

 

 

$

2,555,819

 

 

$

2,589,823

 

 

$

2,456,889

 

 

$

2,184,502

 

Tangible common equity to tangible assets

 

7.76

%

 

7.60

%

 

7.29

%

 

7.56

%

 

8.41

%

Period-end net PPP loans

 

267,567

 

 

225,323

 

 

325,481

 

 

320,036

 

 

 

Tangible assets, excluding net PPP loans

 

$

2,341,096

 

 

$

2,330,496

 

 

$

2,264,342

 

 

$

2,136,853

 

 

$

2,184,502

 

Tangible common equity to tangible assets, excluding net PPP loans

 

8.65

%

 

8.33

%

 

8.34

%

 

8.69

%

 

8.41

%

EFFICIENCY RATIO & PRE-TAX, PRE-PROVISION ADJUSTED EARNINGS

“Efficiency ratio” is a non-GAAP measure representing non-interest expense excluding the effects of the SBA recourse provision, impairment of tax credit investments, losses or gains on foreclosed properties, amortization of other intangible assets and other discrete items, if any, divided by operating revenue, which is equal to net interest income plus non-interest income less realized gains or losses on securities, if any. “Pre-tax, pre-provision adjusted earnings” is defined as operating revenue less operating expense. In the judgment of the Company’s management, the adjustments made to non-interest expense and non-interest income allow investors and analysts to better assess the Company’s operating expenses in relation to its core operating revenue by removing the volatility that is associated with certain one-time items and other discrete items. The information provided below reconciles the efficiency ratio and pre-tax, pre-provision adjusted earnings to its most comparable GAAP measure.

(Unaudited)

 

For the Three Months Ended

(Dollars in thousands)

 

March 31,
2021

 

December 31,
2020

 

September 30,
2020

 

June 30,
2020

 

March 31,
2020

Total non-interest expense

 

$

17,330

 

 

$

17,651

 

 

$

16,758

 

 

$

18,343

 

 

$

16,146

 

Less:

 

 

 

 

 

 

 

 

 

 

Net loss (gain) on foreclosed properties

 

3

 

 

54

 

 

(121

)

 

348

 

 

102

 

Amortization of other intangible assets

 

8

 

 

8

 

 

9

 

 

9

 

 

9

 

SBA recourse (benefit) provision

 

(130

)

 

(330

)

 

57

 

 

(30

)

 

25

 

Tax credit investment impairment

 

 

 

328

 

 

113

 

 

1,841

 

 

113

 

Loss on early extinguishment of debt

 

 

 

 

 

 

 

744

 

 

 

Total operating expense (a)

 

$

17,449

 

 

$

17,591

 

 

$

16,700

 

 

$

15,431

 

 

$

15,897

 

Net interest income

 

$

20,863

 

 

$

22,512

 

 

$

18,621

 

 

$

18,888

 

 

$

17,050

 

Total non-interest income

 

7,195

 

 

6,799

 

 

7,408

 

 

6,319

 

 

6,414

 

Less:

 

 

 

 

 

 

 

 

 

 

Net loss on sale of securities

 

 

 

 

 

 

 

 

 

(4

)

Adjusted non-interest income

 

7,195

 

 

6,799

 

 

7,408

 

 

6,319

 

 

6,418

 

Total operating revenue (b)

 

$

28,058

 

 

$

29,311

 

 

$

26,029

 

 

$

25,207

 

 

$

23,468

 

Efficiency ratio

 

62.19

%

 

60.02

%

 

64.16

%

 

61.22

%

 

67.74

%

 

 

 

 

 

 

 

 

 

 

 

Pre-tax, pre-provision adjusted earnings (b - a)

 

$

10,609

 

 

$

11,720

 

 

$

9,329

 

 

$

9,776

 

 

$

7,571

 

Average total assets

 

$

2,577,164

 

 

$

2,603,745

 

 

$

2,540,735

 

 

$

2,425,767

 

 

$

2,104,862

 

Pre-tax, pre-provision adjusted return on average assets

 

1.65

%

 

1.80

%

 

1.47

%

 

1.61

%

 

1.44

%

ADJUSTED NET INTEREST MARGIN

“Adjusted Net Interest Margin” is a non-GAAP measure representing net interest income excluding the fees in lieu of interest and other recurring but volatile components of net interest margin divided by average interest-earning assets less average net PPP loans, if any, and other recurring but volatile components of average interest-earning assets. Fees in lieu of interest are defined as prepayment fees, asset-based loan fees, non-accrual interest, and loan fee amortization. In the judgment of the Company’s management, the adjustments made to net interest income allow investors and analysts to better assess the Company’s net interest income in relation to its core client-facing loan and deposit rate changes by removing the volatility that is associated with these recurring but volatile components. The information provided below reconciles the net interest margin to its most comparable GAAP measure.

(Unaudited)

For the Three Months Ended

(Dollars in thousands)

March 31,
2021

 

December 31,
2020

 

September 30,
2020

 

June 30,
2020

 

March 31,
2020

Interest income

$

23,806

 

 

$

25,770

 

 

$

22,276

 

 

$

22,761

 

 

$

23,372

 

Interest expense

2,943

 

 

3,258

 

 

3,655

 

 

3,873

 

 

6,322

 

Net interest income (a)

20,863

 

 

22,512

 

 

18,621

 

 

18,888

 

 

17,050

 

Less:

 

 

 

 

 

 

 

 

 

Fees in lieu of interest

3,085

 

 

4,749

 

 

1,511

 

 

2,257

 

 

798

 

PPP loan interest income

603

 

 

718

 

 

833

 

 

647

 

 

 

FRB interest income and FHLB dividend income

158

 

 

188

 

 

167

 

 

134

 

 

301

 

Add:

 

 

 

 

 

 

 

 

 

FRB PPPLF interest expense

 

 

9

 

 

26

 

 

18

 

 

 

Adjusted net interest income (b)

$

17,017

 

 

$

16,866

 

 

$

16,136

 

 

$

15,868

 

 

$

15,951

 

Average interest-earning assets (c)

$

2,425,499

 

 

$

2,441,735

 

 

$

2,374,891

 

 

$

2,258,759

 

 

$

1,981,887

 

Less:

 

 

 

 

 

 

 

 

 

Average net PPP loans

242,242

 

 

282,259

 

 

323,082

 

 

252,834

 

 

 

Average FRB cash and FHLB stock

36,643

 

 

45,611

 

 

33,756

 

 

69,176

 

 

37,989

 

Average non-accrual loans and leases

22,069

 

 

36,013

 

 

26,931

 

 

25,386

 

 

22,209

 

Adjusted average interest-earning assets (d)

$

2,124,545

 

 

$

2,077,852

 

 

$

1,991,122

 

 

$

1,911,363

 

 

$

1,921,689

 

Net interest margin (a / c)

3.44

%

 

3.69

%

 

3.14

%

 

3.34

%

 

3.44

%

Adjusted net interest margin (b / d)

3.20

%

 

3.25

%

 

3.24

%

 

3.32

%

 

3.32

%

 

First Business Financial Services, Inc.
Edward G. Sloane, Jr.
Chief Financial Officer
608-232-5970
esloane@firstbusiness.bank

Source: First Business Financial Services, Inc.