FIRST BUSINESS FINANCIAL SERVICES, INC. First Business Financial Services, Inc. (the “Company” or “First Business”) (Nasdaq:FBIZ) reported record net interest income and strong non-interest income, resulting in net income of $3.3 million, or diluted earnings per share of $0.38, in the second quarter 2020. First Business’s robust operating performance during the quarter was offset by a $5.5 million provision for loan and lease losses and related 20.7% increase in the allowance for loan and leases losses primarily due to the COVID-19 pandemic.
“The effort and dedication of the entire First Business team to support our clients since March has been nothing short of exceptional and I’m incredibly proud,” said Corey Chambas, President and Chief Executive Officer. “To date, we have funded $328 million in loans through the Paycheck Protection Program to small- and mid-sized businesses in our markets, impacting more than 26,000 jobs. Through our ongoing focus on executing our strategic plan, even in these challenging times, we grew pre-tax, pre-provision adjusted earnings and total in-market deposits to record levels in the second quarter. With ample liquidity and appropriate reserve builds, First Business is well-positioned to continue providing the highest level of support to the entrepreneurs and investors we serve.”
Summary results as of and for the quarter ended June 30, 2020:
- Net income totaled $3.3 million, or diluted earnings per share of $0.38, in the second quarter of 2020, compared to $3.3 million, or diluted earnings per share of $0.38, in the first quarter of 2020 and $6.6 million, or diluted earnings per share of $0.75, in the second quarter of 2019.
- During the second quarter of 2020, the Company disbursed $327.9 million in Paycheck Protection Program (“PPP”) loans and received processing fee income from the Small Business Administration (“SBA”) of $8.7 million. The processing fee income is deferred and recognized over the contractual life of the loan, or accelerated at forgiveness. During the second quarter of 2020, $859,000 was recognized in interest income.
- Record pre-tax, pre-provision adjusted earnings, which excludes certain one-time and discrete items as defined in the Non-GAAP Reconciliations at the end of this release, totaled $9.8 million, up 29.1% from the first quarter of 2020 and 32.4% from the second quarter of 2019. Pre-tax, pre-provision adjusted return on average assets was 1.61% compared to 1.44% and 1.46% for the linked and prior year quarters, respectively.
- Period-end gross loans and leases receivable were $2.057 billion as of June 30, 2020, up $313.5 million from the first quarter of 2020 and up $336.9 million from the second quarter of 2019. Line of credit utilization was significantly impacted by PPP loan proceeds and was $212.6 million as of June 30, 2020, down from $297.1 million as of the first quarter of 2020 and $317.9 million as of the second quarter of 2019. Gross loans and leases receivable, excluding PPP loans and lines of credit, were $1.516 billion as of June 30, 2020, up 19.4% annualized from the first quarter of 2020 and 8.1% from the second quarter of 2019.
- The allowance for loan and lease losses increased $4.7 million, or 20.7%, compared to the first quarter of 2020 primarily due to a $2.4 million and $2.1 million increase in the general and specific reserves, respectively, driven by the COVID-19 pandemic. The allowance for loan and lease losses increased to 1.33% of total loans, compared to 1.30% and 1.15% in the first quarter of 2020 and second quarter of 2019, respectively. Excluding PPP loans, the allowance for loan and lease losses increased to 1.58% of total loans as of June 30, 2020.
- Provision for loan and lease losses totaled $5.5 million in the second quarter of 2020, compared to $3.2 million in the first quarter of 2020 and a provision benefit of $784,000 in the second quarter of 2019.
- Robust liquidity position includes record in-market deposits of $1.621 billion, total deposits of $1.710 billion, and on-balance sheet liquidity of $611.6 million, defined as total short-term investments, unencumbered securities available-for-sale, and unencumbered pledged loans. In-market deposit balances were inflated due to PPP loan proceeds.
- Net interest margin was 3.34% in the second quarter of 2020, compared to 3.44% in the first quarter of 2020 and 3.52% in the second quarter of 2019. Adjusted net interest margin, which excludes certain one-time and discrete items as defined in the Non-GAAP Reconciliations at the end of this release, was 3.33% in the second quarter of 2020, compared to 3.32% in the first quarter of 2020 and 3.31% in the second quarter of 2019.
- Fees in lieu of interest, defined as prepayment fees, asset-based loan fees, non-accrual interest, and loan fee amortization, totaled $2.3 million in the second quarter of 2020, compared to $798,000 in the first quarter of 2020 and $1.2 million in the second quarter of 2019.
- Top line revenue, defined as net interest income plus non-interest income, totaled $25.2 million, up 29.7% annualized from the first quarter of 2020 and 11.3% from the second quarter of 2019.
- Non-interest income totaled $6.3 million, or 25.1% of total revenue, in the second quarter of 2020, surpassing the Company’s goal of 25% for the fifth consecutive quarter.
- Non-interest expense was $18.3 million in the second quarter of 2020, compared to $16.1 million in the first quarter of 2020 and $17.5 million in the second quarter of 2019. Operating expense, which excludes certain one-time and discrete items as defined in the Non-GAAP Reconciliations at the end of this release, totaled $15.4 million in the second quarter of 2020, compared to $15.9 million in the first quarter of 2020 and $15.3 million in the second quarter of 2019.
- The Company incurred a $744,000 loss on the early extinguishment of $59.5 million in Federal Home Loan Bank (“FHLB”) term advances late in the second quarter of 2020, as the Company lowered wholesale funding costs and improved the Company’s funding position with the expectation of a low interest rate environment for an extended period of time.
- The efficiency ratio, which excludes certain one-time and discrete items as defined in the Non-GAAP Reconciliations at the end of this release, improved to 61.22% in the second quarter of 2020, down from 67.74% and 67.41% in the linked and prior year quarters, respectively.
- Historic tax credit programs contributed $690,000, or $0.08 per share, compared to $446,000, or $0.05 per share in the second quarter of 2019. No historic tax credits were recognized in the first quarter of 2020.
Financial Highlights
(Unaudited) |
| As of and for the Three Months Ended |
| As of and for the Six Months Ended | ||||||||||||||||
(Dollars in thousands, except per share amounts) |
|
June 30,
|
|
March 31,
|
|
June 30,
|
|
June 30,
|
|
June 30,
| ||||||||||
Net interest income |
| $ | 18,888 |
|
| $ | 17,050 |
|
| $ | 16,852 |
|
| $ | 35,937 |
|
| $ | 34,606 |
|
Adjusted non-interest income (1) |
| 6,319 |
|
| 6,418 |
|
| 5,806 |
|
| 12,737 |
|
| 10,444 |
| |||||
Operating revenue (1) |
| 25,207 |
|
| 23,468 |
|
| 22,658 |
|
| 48,674 |
|
| 45,050 |
| |||||
Operating expense (1) |
| 15,431 |
|
| 15,897 |
|
| 15,273 |
|
| 31,327 |
|
| 30,510 |
| |||||
Pre-tax, pre-provision adjusted earnings (1) |
| 9,776 |
|
| 7,571 |
|
| 7,385 |
|
| 17,347 |
|
| 14,540 |
| |||||
Less: |
|
|
|
|
|
|
|
|
|
| ||||||||||
Provision (benefit) for loan and lease losses |
| 5,469 |
|
| 3,182 |
|
| (784 | ) |
| 8,651 |
|
| (736 | ) | |||||
Net loss (gain) on foreclosed properties |
| 348 |
|
| 102 |
|
| (21 | ) |
| 450 |
|
| (21 | ) | |||||
Amortization of other intangible assets |
| 9 |
|
| 9 |
|
| 11 |
|
| 18 |
|
| 21 |
| |||||
SBA recourse (benefit) provision |
| (30 | ) |
| 25 |
|
| 113 |
|
| (5 | ) |
| 594 |
| |||||
Tax credit investment impairment |
| 1,841 |
|
| 113 |
|
| 2,088 |
|
| 1,954 |
|
| 4,102 |
| |||||
Loss on early extinguishment of debt |
| 744 |
|
| — |
|
| — |
|
| 744 |
|
| — |
| |||||
Add: |
|
|
|
|
|
|
|
|
|
| ||||||||||
Net loss on sale of securities |
| — |
|
| (4 | ) |
| (1 | ) |
| (4 | ) |
| (1 | ) | |||||
Income before income tax expense |
| 1,395 |
|
| 4,136 |
|
| 5,977 |
|
| 5,531 |
|
| 10,579 |
| |||||
Income tax (benefit) expense |
| (1,928 | ) |
| 858 |
|
| (595 | ) |
| (1,070 | ) |
| (1,893 | ) | |||||
Net income |
| $ | 3,323 |
|
| $ | 3,278 |
|
| $ | 6,572 |
|
| $ | 6,601 |
|
| $ | 12,472 |
|
Earnings per share, diluted |
| $ | 0.38 |
|
| $ | 0.38 |
|
| $ | 0.75 |
|
| $ | 0.77 |
|
| $ | 1.43 |
|
Book value per share |
| $ | 23.04 |
|
| $ | 22.83 |
|
| $ | 21.71 |
|
| $ | 23.04 |
|
| $ | 21.71 |
|
Tangible book value per share (1) |
| $ | 21.65 |
|
| $ | 21.44 |
|
| $ | 20.33 |
|
| $ | 21.65 |
|
| $ | 20.33 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net interest margin |
| 3.34 | % |
| 3.44 | % |
| 3.52 | % |
| 3.39 | % |
| 3.66 | % | |||||
Adjusted net interest margin (1) |
| 3.33 | % |
| 3.32 | % |
| 3.31 | % |
| 3.33 | % |
| 3.33 | % | |||||
Efficiency ratio (1) |
| 61.22 | % |
| 67.74 | % |
| 67.41 | % |
| 64.36 | % |
| 67.72 | % | |||||
Return on average assets |
| 0.55 | % |
| 0.62 | % |
| 1.30 | % |
| 0.58 | % |
| 1.25 | % | |||||
Pre-tax, pre-provision adjusted return on average assets (1) |
| 1.61 | % |
| 1.44 | % |
| 1.46 | % |
| 1.53 | % |
| 1.46 | % | |||||
Return on average equity |
| 6.70 | % |
| 7.14 | % |
| 14.09 | % |
| 6.92 | % |
| 13.89 | % | |||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Period-end loans and leases receivable |
| $ | 2,056,863 |
|
| $ | 1,743,399 |
|
| $ | 1,719,976 |
|
| $ | 2,056,863 |
|
| $ | 1,719,976 |
|
Period-end loans and leases receivable, excluding PPP loans |
| $ | 1,728,931 |
|
| $ | 1,743,399 |
|
| $ | 1,719,976 |
|
| $ | 1,728,931 |
|
| $ | 1,719,976 |
|
Average loans and leases receivable |
| $ | 1,983,121 |
|
| $ | 1,733,742 |
|
| $ | 1,694,294 |
|
| $ | 1,858,432 |
|
| $ | 1,669,511 |
|
Period-end in-market deposits |
| $ | 1,620,616 |
|
| $ | 1,383,299 |
|
| $ | 1,290,258 |
|
| $ | 1,620,616 |
|
| $ | 1,290,258 |
|
Average in-market deposits |
| $ | 1,570,552 |
|
| $ | 1,366,142 |
|
| $ | 1,246,386 |
|
| $ | 1,468,348 |
|
| $ | 1,217,312 |
|
Allowance for loan and lease losses |
| $ | 27,464 |
|
| $ | 22,748 |
|
| $ | 19,819 |
|
| $ | 27,464 |
|
| $ | 19,819 |
|
Non-performing assets |
| $ | 25,484 |
|
| $ | 29,566 |
|
| $ | 28,524 |
|
| $ | 25,484 |
|
| $ | 28,524 |
|
Allowance for loan and lease losses as a percent of total gross loans and leases |
| 1.33 | % |
| 1.30 | % |
| 1.15 | % |
| 1.33 | % |
| 1.15 | % | |||||
Allowance for loan and lease losses as a percent of total gross loans and leases, excluding PPP loans |
| 1.58 | % |
| 1.30 | % |
| 1.15 | % |
| 1.58 | % |
| 1.15 | % | |||||
Non-performing assets as a percent of total assets |
| 1.03 | % |
| 1.35 | % |
| 1.38 | % |
| 1.03 | % |
| 1.38 | % | |||||
Non-performing assets as a percent of total assets, excluding PPP loans |
| 1.19 | % |
| 1.35 | % |
| 1.38 | % |
| 1.19 | % |
| 1.38 | % | |||||
(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
Business Continuity
The Company continues to strictly adhere to COVID-19 health and safety-related requirements and best practices across all of our locations. During the second quarter of 2020, employees slowly resumed business travel, as necessary, while business development efforts have continued to be somewhat negatively affected by limitations on in-person appointments.
Portions of the Company’s workforce started returning to the office, subject to local mandates and restrictions, on a rotating basis. Management will monitor the activity closely and adjust accordingly as the health and safety of our employees and clients remain our highest priority.
The Company had no furloughs or layoffs related to COVID-19 to date.
Paycheck Protection Program
During the second quarter of 2020, the Company processed over 700 applications from existing and new clients, disbursed $327.9 million in funds, and received processing fee income from the SBA of $8.7 million. The processing fee income is 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 second quarter of 2020, $859,000 was recognized in interest 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 through a combination of excess cash held at the Federal Reserve and the increase in in-market deposits.
Liquidity Sources
Management has reviewed all primary and secondary sources of liquidity in preparation for any unforeseen funding needs due to the COVID-19 pandemic and prioritized based on available capacity, term flexibility, and cost. As of June 30, 2020, the Company had the following sources of liquidity, including the Company’s ability to participate in the Federal Reserve’s Paycheck Protection Program Liquidity Facility (“PPPLF”):
(Unaudited) |
| As of | ||
(in thousands) |
| June 30, 2020 | ||
Short-term investments |
| $ | 27,839 |
|
PPPLF availability |
| 298,327 |
| |
Collateral value of unencumbered pledged loans (FHLB borrowing availability) |
| 178,587 |
| |
Market value of unencumbered securities (Fed Discount Window and FHLB borrowing availability) |
| 106,808 |
| |
Total sources of liquidity |
| $ | 611,561 |
|
In addition to the above primary sources of liquidity, as of June 30, 2020, the Company also had access to $53.5 million in federal funds lines with various correspondent banks and significant experience accessing the highly liquid brokered certificate of deposit market.
Capital Strength
The Company’s capital ratios continued to exceed the highest required regulatory benchmark levels.
- Total capital to risk-weighted assets at June 30, 2020, was 11.97%, tier 1 capital to risk-weighted assets was 9.57%, tier 1 leverage capital to adjusted average assets was 8.29%, and common equity tier 1 capital to risk-weighted assets was 9.08%. Tangible common equity to tangible assets was 7.56%. Excluding PPP loans, tier 1 leverage capital to adjusted average assets and tangible common equity to tangible assets were 9.19% and 8.72%, respectively.
- Management suspended the Company’s stock repurchase program in March 2020 due to the uncertainty surrounding the COVID-19 pandemic. As of March 16, 2020, the Company had repurchased 141,137 shares of its common stock at a weighted average price of $24.62 per share, for a total value of $3.5 million. The company has $1.5 million of buyback authority remaining.
- As previously announced, during the second quarter of 2020, the Company’s Board of Directors declared a regular quarterly dividend of $0.165 per share. The dividend was paid on May 14, 2020 to stockholders of record at the close of business on May 4, 2020. Measured against second quarter 2020 diluted earnings per share of $0.38, the dividend represents a 43.4% payout ratio. The Board of Directors routinely considers dividend declarations as part of its normal course of business.
Deferral Requests
The Company provided loan modifications up to six months to certain borrowers impacted by COVID-19 who were current in their payments at the inception of the Company’s loan modification program. As of June 30, 2020, the Company had processed 448 deferral requests on loans totaling $323.2 million, or 18.6% of gross loans and leases. Loan deferrals of six months accounted for 60.2% of the total $323.2 million in deferral requests and the remaining balance were primarily for three months. Management anticipates the loan modifications may continue throughout 2020. The following tables represent a breakdown of the deferred loan balances by industry segment and collateral type:
(Unaudited) |
| As of | ||||||||||||
(Dollars in thousands) |
| June 30, 2020 | ||||||||||||
|
|
|
|
|
| Collateral Type | ||||||||
Industries Description |
| Balance |
| % of Deferred of Total Industry |
| Real Estate |
| Non Real Estate | ||||||
Real Estate and Rental and Leasing |
| $ | 147,584 |
|
| 18.8% |
| $ | 142,519 |
|
| $ | 5,065 |
|
Accommodation and Food Services |
| 52,468 |
|
| 52.7% |
| 49,198 |
|
| 3,270 |
| |||
Manufacturing |
| 34,214 |
|
| 17.5% |
| 20,253 |
|
| 13,961 |
| |||
Health Care and Social Assistance |
| 19,552 |
|
| 15.9% |
| 12,136 |
|
| 7,416 |
| |||
Transportation and Warehousing |
| 19,402 |
|
| 21.3% |
| 422 |
|
| 18,980 |
| |||
Retail Trade |
| 14,851 |
|
| 29.7% |
| 11,355 |
|
| 3,496 |
| |||
Information |
| 11,228 |
|
| 64.1% |
| 2,430 |
|
| 8,798 |
| |||
Utilities |
| 7,129 |
|
| 96.4% |
| — |
|
| 7,129 |
| |||
Construction |
| 6,448 |
|
| 6.7% |
| 6,359 |
|
| 89 |
| |||
Wholesale Trade |
| 5,695 |
|
| 5.7% |
| 569 |
|
| 5,126 |
| |||
Other Services (except Public Administration) |
| 1,673 |
|
| 3.0% |
| 50 |
|
| 1,623 |
| |||
Professional, Scientific, and Technical Services |
| 933 |
|
| 2.3% |
| — |
|
| 933 |
| |||
Administrative and Support and Waste Management and Remediation Services |
| 831 |
|
| 9.9% |
| 728 |
|
| 103 |
| |||
Finance and Insurance |
| 743 |
|
| 1.8% |
| 715 |
|
| 28 |
| |||
Arts, Entertainment, and Recreation |
| 300 |
|
| 1.7% |
| 292 |
|
| 8 |
| |||
Agriculture, Forestry, Fishing and Hunting |
| 165 |
|
| 1.3% |
| — |
|
| 165 |
| |||
Total deferred loan balances |
| $ | 323,216 |
|
|
|
| $ | 247,026 |
|
| $ | 76,190 |
|
Exposure to Stressed Industries
Certain industries are widely expected to be particularly impacted by social distancing, quarantines, and the economic impact of the COVID-19 pandemic, such as the following:
(Unaudited) |
| As of | ||||
(Dollar in thousands) |
| June 30, 2020 | ||||
Industries: |
| Balance |
| % Gross Loans and Leases (1) | ||
Retail (2) |
| $ | 70,028 |
|
| 4.0% |
Hospitality |
| 73,502 |
|
| 4.2% | |
Entertainment |
| 16,675 |
|
| 1.0% | |
Restaurants & food service |
| 24,884 |
|
| 1.4% | |
Total outstanding exposure |
| $ | 185,089 |
|
| 10.7% |
(1) Excluding PPP loans.
| ||||||
As of June 30, 2020, 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 economy as a whole, there can be no assurances as to how the crisis may ultimately affect the Company’s loan portfolio.
Second Quarter 2020 Compared to First Quarter 2020
Net interest income increased $1.8 million, or 10.8%, to $18.9 million.
- Net interest income reflected an increase in average loans and leases, increase in fees received in lieu of interest, and a significant reduction in interest expense. Fees in lieu of interest, which can vary from quarter to quarter based on client-driven activity, totaled $2.3 million, compared to $798,000. Excluding fees in lieu of interest, net interest income increased $379,000, or 2.3%.
- Average loans and leases receivable increased $249.4 million to $1.983 billion. Excluding average PPP loans of $259.5 million and average line of credit utilization in both periods of comparison, average loans and leases receivable increased $39.9 million, or 10.8% annualized, to $1.513 billion.
- The yield on average interest-earning assets decreased 69 basis points to 4.03% from 4.72%. Excluding average PPP loans, the PPP loan interest income of $647,000, and the aforementioned fees in lieu of interest, the yield earned on average interest-earning assets decreased 59 basis points to 3.97% from 4.56%. The rate paid for average total bank funding decreased 63 basis points to 0.61% from 1.24%. Total bank funding is defined as total deposits plus FHLB advances, Federal Reserve Discount Window advances, and Federal Reserve PPPLF advances. The average effective federal funds rate decreased 119 basis points to 0.06% from 1.25%.
- Net interest margin decreased 10 basis points to 3.34% from 3.44%. Adjusted net interest margin, excluding fees in lieu of interest and other recurring but volatile components of net interest margin, increased one basis point to 3.33% from 3.32%.
- The Company incurred a $744,000 loss on the early extinguishment of $59.5 million in FHLB term advances late in the second quarter of 2020, as the Company lowered wholesale funding costs and improved the Company’s funding position. Management believes this strategy will help stabilize net interest margin with the expectation of a low interest rate environment for an extended period of time.
Non-interest income decreased $95,000, or 1.5%, to $6.3 million.
- Commercial loan interest rate swap fee income was strong and consistent with the first quarter of 2020 at $1.7 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 increased $309,000, or 116.6%, to $574,000 compared to $265,000. The Company’s pipeline continues to grow period over period and management believes the gain on sale of traditional SBA loans (i.e., SBA loans unrelated to PPP loans) will increase at a measured pace over time. Loans held for sale, consisting entirely of SBA loans closed but not fully funded, increased $7.3 million, or 116.0%, to $13.7 million.
- Private wealth management fee income increased $12,000, or 0.6% to $2.1 million. Trust assets under management and administration measured $1.873 billion at June 30, 2020, up $209.0 million, or 50.2% annualized, primarily due to increased equity market values.
- Other non-interest income decreased $371,000, or 35.1%, to $686,000 primarily due to a $413,000 decrease in returns on the investment in mezzanine funds.
Non-interest expense increased $2.2 million, or 13.6%, to $18.3 million. Operating expense decreased $466,000, or 2.9%, to $15.4 million.
- Compensation expense decreased $256,000, or 2.3%, to $10.8 million due to a reduction in payroll taxes as first quarter payroll taxes are typically elevated commensurate with payment of amounts earned under the annual corporate incentive compensation plans. Average full-time equivalent employees were 281 for the quarter ended June 30, 2020, compared to 286 for the quarter ended March 31, 2020.
- Marketing expense decreased $109,000, or 23.6%, to $352,000, due to a temporary reduction in meals, entertainment, and sponsorships following restrictions put in place during the COVID-19 pandemic.
- The Company recognized $1.7 million in expense due to the impairment of federal historic tax credit investments, which corresponded with the recognition of a $2.5 million in tax credits during the quarter. No federal historic tax credit investments were recognized in the first quarter of 2020.
- The Company incurred a $744,000 loss on the early extinguishment of $59.5 million in FHLB term advances late in the second quarter of 2020.
- Other non-interest expense decreased $271,000, or 33.2%, to $545,000 as business travel related expenses remained low due to restrictions put in place during the COVID-19 pandemic.
Total period-end loans and leases receivable increased $313.5 million to $2.057 billion primarily due to an increase in PPP loans of $327.9 million, partially offset by a $84.5 million decrease in line of credit utilization. Excluding PPP loans and lines of credit in both periods of comparison, total period-end loans and leases receivable increased $70.0 million, or 19.4% annualized, to $1.516 billion.
- Commercial and industrial (“C&I”) loans, excluding PPP loans and lines of credit, increased $17.9 million, or 32.0% annualized.
- Commercial real estate loans increased $61.8 million, or 21.3% annualized, driven primarily by an increase in multi-family loans and non-owner occupied commercial real estate loans.
Total period-end in-market deposits increased $237.3 million to $1.621 billion and the average rate paid decreased 63 basis points to 0.33%.
- Transaction accounts and money market accounts increased $202.3 million and $46.9 million, respectively, as both existing and new clients received PPP loan funds.
- Certificates of deposits decreased $11.8 million as client preferences continued to shift towards more liquid products due to the low interest rate environment.
- Total period-end in-market deposits represent 75.3% of total bank funding compared to 73.2%.
Period-end wholesale funding, including FHLB advances, Federal Reserve Discount Window advances, Federal Reserve PPPLF advances, brokered certificates of deposit, and deposits gathered through internet deposit listing services, increased $25.0 million to $530.4 million.
- Brokered certificates of deposit decreased $27.1 million to $89.8 million, as the existing portfolio run off is replaced by in-market deposits and, as needed, lower cost FHLB advances to match fund long-term fixed-rate loans. The average rate paid on wholesale deposits decreased 15 basis points to 2.42% and the weighted average original maturity decreased to 4.6 years from 4.8 years.
- FHLB advances increased $22.5 million to $411.0 million. The average rate paid on FHLB advances decreased 66 basis points to 1.25% and the weighted average original maturity decreased to 5.3 years from 5.9 years.
- During the second quarter of 2020, management tested the availability of the Federal Reserve PPPLF due to the uncertainty of when PPP loans would be required to close and fund. As of June 30, 2020, the Company had one $29.6 million PPPLF advance outstanding.
Non-performing assets decreased $4.1 million to $25.5 million, or 1.03% of total assets, compared to $29.6 million, or 1.35% of total assets, principally due to the payoff of impaired legacy SBA loans. Excluding PPP loans, non-performing assets were 1.19% of total assets.
The allowance for loan and lease losses increased $4.7 million, or 20.7%, primarily due to a $1.7 million increase in general reserve that resulted from the economic conditions caused by the pandemic, including the increase in the unemployment rate, and an additional $680,000 stemmed from the other qualitative factors, such as management’s ongoing review and grading of the loan and lease portfolios, consideration of delinquency experience, and the level of loans and leases subject to more frequent review by management. Additionally, an increase in specific reserves of $2.1 million was driven by deterioration of two existing legacy SBA impaired relationships.
- The allowance for loan and lease losses as a percent of total gross loans and leases was 1.33% compared to 1.30%.
- Excluding PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.58%.
Second Quarter 2020 Compared to Second Quarter 2019
Net interest income increased $2.0 million, or 12.1%, to $18.9 million.
- Net interest income reflected an increase in average loans and leases, increase in fees received in lieu of interest, and significant reduction in interest expense paid on deposits. Fees in lieu of interest totaled $2.3 million, compared to $1.2 million. Excluding fees in lieu of interest, net interest income increased $1.0 million, or 6.3%.
- Average loans and leases receivable increased $288.8 million, or 17.0%, to $1.983 billion. Excluding average PPP loans of $259.5 million and average line of credit utilization in both periods of comparison, average loans and leases receivable increased $113.0 million, or 8.1%, to $1.513 billion.
- The yield earned on average interest-earning assets decreased 126 basis points to 4.03% from 5.29%. Excluding average PPP loans, related interest income of $647,000, and the aforementioned fees in lieu of interest, the yield earned on average interest-earning assets decreased 106 basis points to 3.97% from 5.03%. The rate paid for average total bank funding decreased 115 basis points to 0.61% from 1.76%. The average effective federal funds rate decreased 234 basis points to 0.06% from 2.40%.
- Net interest margin decreased 18 basis points to 3.34% from 3.52%. Adjusted net interest margin increased two basis points to 3.33% from 3.31%.
Non-interest income increased $514,000, or 8.9%, to $6.3 million.
- Commercial loan interest rate swap fee income increased $604,000, or 57.5%, to $1.7 million compared to $1.1 million.
- Gains on sale of SBA loans increased $277,000, or 93.3%, to $574,000 compared to $297,000.
- Private wealth management fee income decreased $14,000, or 0.7%, to $2.1 million primarily due to decreased values in equity markets during the second quarter 2020 compared to the prior year quarter. Trust assets under management and administration measured $1.873 billion at June 30, 2020, up $118.4 million, or 6.7%.
- Other fee income decreased $427,000, or 38.4%, to $686,000 compared to $1.1 million. The decrease is primarily due to $501,000 in gains recognized in the second quarter of 2019 on end-of-term buyout agreements related to the Company’s equipment financing business line.
Non-interest expense increased $879,000, or 5.0%, to $18.3 million. Operating expense increased $158,000, or 1.0%, to $15.4 million.
- Compensation expense increased $293,000, or 2.8%, to $10.8 million. Average full-time equivalent employees were 281 for the quarter ended June 30, 2020, compared to 274 for the quarter ended June 30, 2019.
- Marketing expense decreased $229,000, or 39.4%, to $352,000. The reasons for the decrease in marketing expense are consistent with the linked quarter variance discussed above.
- The Company recognized $1.7 million in expense due to the impairment of federal historic tax credit investments, which corresponded with the recognition of a $2.5 million in tax credits during the quarter, compared to $2.0 million of impairment and $2.4 million in tax credits.
- The Company incurred a $744,000 loss on the aforementioned early extinguishment of $59.5 million in FHLB term advances.
- Other non-interest expense decreased $133,000, or 19.6%, to $545,000. The reasons for the decrease in other non-interest expense are consistent with the linked quarter variance discussed above.
Total period-end loans and leases receivable increased $336.9 million, or 19.6%, to $2.057 billion primarily due to an increase in PPP loans of $327.9 million, partially offset by a $105.3 million decrease in line of credit utilization. Excluding PPP loans and lines of credit in both periods of comparison, total period-end loans and leases receivable increased $114.2 million, or 8.1%, to $1.516 billion.
- C&I loans, excluding PPP loans and lines of credit, increased $48.1 million, or 25.0%.
- Commercial real estate loans increased $72.6 million, or 6.3%, driven primarily by an increase in multi-family loans and non-owner occupied commercial real estate loans.
Total period-end in-market deposits increased $330.4 million, or 25.6%, to $1.621 billion and the average rate paid decreased 123 basis points to 0.33%.
- Transaction accounts increased $300.5 million and money market accounts decreased $60.2 million.
- Certificates of deposits decreased $30.3 million as client preferences continued to shift towards more liquid products due to the low interest rate environment.
- Total period-end in-market deposits represent 75.3% of total bank funding compared to 71.6%.
Period-end wholesale funding increased $17.5 million to $530.4 million.
- Brokered certificates of deposit decreased $149.6 million to $89.8 million, as the existing portfolio runs off and is replaced by in-market deposits and, as needed, lower cost FHLB advances to match fund long-term fixed-rate loans. The average rate paid on brokered certificates of deposit increased 20 basis points to 2.42% and the weighted average original maturity decreased to 4.6 years from 4.9 years.
- FHLB advances increased $137.5 million to $411.0 million. The average rate paid on FHLB advances decreased 102 basis points to 1.25% and the weighted average original maturity increased to 5.3 years from 3.9 years. The Company extended maturities during the first half of 2020 by entering into pay-fixed swaps, with terms to pay fixed rates and receive 3-month LIBOR, to partially pre-fund the Company’s loan originations with historically low cost funding.
Non-performing assets decreased $3.0 million to $25.5 million, or 1.03% of total assets, compared to $28.5 million, or 1.38% of total assets, principally due to the payoff of impaired legacy SBA loans. Excluding PPP loans, non-performing assets were 1.19% of total assets.
The allowance for loan and lease losses increased 38.6% 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 1.33% compared to 1.15%.
- Excluding PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.58%.
About First Business Financial Services, Inc.
First Business Financial Services, Inc. (Nasdaq:FBIZ) is a Wisconsin-based bank holding company focused on the unique needs of businesses, business executives, and high net worth individuals. First Business offers commercial banking, specialty finance, and private wealth management solutions, and because of its niche focus, is able to provide its clients with unmatched expertise, accessibility, and responsiveness. For additional information, visit www.firstbusiness.com or call 608-238-8008.
This release may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which reflect First Business’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 Corporation’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, 2019, the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2020, and other filings with the Securities and Exchange Commission.
SELECTED FINANCIAL CONDITION DATA
(Unaudited) |
| As of | ||||||||||||||||||
(in thousands) |
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
| ||||||||||
Assets |
|
|
|
|
|
|
|
|
|
| ||||||||||
Cash and cash equivalents |
| $ | 42,391 |
|
| $ | 94,986 |
|
| $ | 67,102 |
|
| $ | 60,958 |
|
| $ | 45,875 |
|
Securities available-for-sale, at fair value |
| 171,680 |
|
| 175,564 |
|
| 173,133 |
|
| 160,665 |
|
| 158,933 |
| |||||
Securities held-to-maturity, at amortized cost |
| 29,826 |
|
| 30,774 |
|
| 32,700 |
|
| 33,400 |
|
| 34,519 |
| |||||
Loans held for sale |
| 13,672 |
|
| 6,331 |
|
| 5,205 |
|
| 3,070 |
|
| 4,786 |
| |||||
Loans and leases receivable |
| 2,056,863 |
|
| 1,743,399 |
|
| 1,714,635 |
|
| 1,720,542 |
|
| 1,719,976 |
| |||||
Allowance for loan and lease losses |
| (27,464 | ) |
| (22,748 | ) |
| (19,520 | ) |
| (20,170 | ) |
| (19,819 | ) | |||||
Loans and leases receivable, net |
| 2,029,399 |
|
| 1,720,651 |
|
| 1,695,115 |
|
| 1,700,372 |
|
| 1,700,157 |
| |||||
Premises and equipment, net |
| 2,266 |
|
| 2,427 |
|
| 2,557 |
|
| 2,740 |
|
| 2,866 |
| |||||
Foreclosed properties |
| 1,389 |
|
| 1,669 |
|
| 2,919 |
|
| 2,902 |
|
| 2,660 |
| |||||
Right-of-use assets |
| 6,272 |
|
| 6,590 |
|
| 6,906 |
|
| 7,524 |
|
| 7,853 |
| |||||
Bank-owned life insurance |
| 51,433 |
|
| 51,056 |
|
| 42,761 |
|
| 42,432 |
|
| 42,127 |
| |||||
Federal Home Loan Bank stock, at cost |
| 13,470 |
|
| 9,733 |
|
| 7,953 |
|
| 8,315 |
|
| 6,720 |
| |||||
Goodwill and other intangible assets |
| 11,925 |
|
| 11,872 |
|
| 11,922 |
|
| 11,946 |
|
| 12,000 |
| |||||
Accrued interest receivable and other assets |
| 95,091 |
|
| 84,721 |
|
| 48,506 |
|
| 58,469 |
|
| 51,808 |
| |||||
Total assets |
| $ | 2,468,814 |
|
| $ | 2,196,374 |
|
| $ | 2,096,779 |
|
| $ | 2,092,793 |
|
| $ | 2,070,304 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
| ||||||||||
In-market deposits |
| $ | 1,620,616 |
|
| $ | 1,383,299 |
|
| $ | 1,378,903 |
|
| $ | 1,320,957 |
|
| $ | 1,290,258 |
|
Wholesale deposits |
| 89,759 |
|
| 116,827 |
|
| 151,476 |
|
| 187,859 |
|
| 239,387 |
| |||||
Total deposits |
| 1,710,375 |
|
| 1,500,126 |
|
| 1,530,379 |
|
| 1,508,816 |
|
| 1,529,645 |
| |||||
Federal Home Loan Bank advances and other borrowings |
| 465,007 |
|
| 412,892 |
|
| 319,382 |
|
| 332,897 |
|
| 297,972 |
| |||||
Junior subordinated notes |
| 10,054 |
|
| 10,051 |
|
| 10,047 |
|
| 10,044 |
|
| 10,040 |
| |||||
Lease liabilities |
| 6,877 |
|
| 7,211 |
|
| 7,541 |
|
| 7,866 |
|
| 8,187 |
| |||||
Accrued interest payable and other liabilities |
| 78,939 |
|
| 70,437 |
|
| 35,274 |
|
| 42,378 |
|
| 35,605 |
| |||||
Total liabilities |
| 2,271,252 |
|
| 2,000,717 |
|
| 1,902,623 |
|
| 1,902,001 |
|
| 1,881,449 |
| |||||
Total stockholders’ equity |
| 197,562 |
|
| 195,657 |
|
| 194,156 |
|
| 190,792 |
|
| 188,855 |
| |||||
Total liabilities and stockholders’ equity |
| $ | 2,468,814 |
|
| $ | 2,196,374 |
|
| $ | 2,096,779 |
|
| $ | 2,092,793 |
|
| $ | 2,070,304 |
|
STATEMENTS OF INCOME
(Unaudited) |
| As of and for the Three Months Ended |
| As of and for the Six Months Ended | ||||||||||||||||||||||||
(Dollars in thousands, except per share amounts) |
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
|
|
June 30,
|
|
June 30,
| ||||||||||||||
Total interest income |
| $ | 22,761 |
|
| $ | 23,372 |
|
| $ | 25,613 |
|
| $ | 25,438 |
|
| $ | 25,309 |
|
| $ | 46,132 |
|
| $ | 50,989 |
|
Total interest expense |
| 3,873 |
|
| 6,322 |
|
| 7,139 |
|
| 8,662 |
|
| 8,457 |
|
| 10,195 |
|
| 16,383 |
| |||||||
Net interest income |
| 18,888 |
|
| 17,050 |
|
| 18,474 |
|
| 16,776 |
|
| 16,852 |
|
| 35,937 |
|
| 34,606 |
| |||||||
Provision for loan and lease losses |
| 5,469 |
|
| 3,182 |
|
| 1,472 |
|
| 1,349 |
|
| (784 | ) |
| 8,651 |
|
| (736 | ) | |||||||
Net interest income after provision for loan and lease losses |
| 13,419 |
|
| 13,868 |
|
| 17,002 |
|
| 15,427 |
|
| 17,636 |
|
| 27,286 |
|
| 35,342 |
| |||||||
Private wealth management service fees |
| 2,124 |
|
| 2,112 |
|
| 2,073 |
|
| 2,060 |
|
| 2,138 |
|
| 4,235 |
|
| 4,065 |
| |||||||
Gain on sale of SBA loans |
| 574 |
|
| 265 |
|
| 465 |
|
| 454 |
|
| 297 |
|
| 839 |
|
| 539 |
| |||||||
Service charges on deposits |
| 829 |
|
| 818 |
|
| 789 |
|
| 795 |
|
| 743 |
|
| 1,647 |
|
| 1,520 |
| |||||||
Loan fees |
| 451 |
|
| 485 |
|
| 451 |
|
| 439 |
|
| 464 |
|
| 936 |
|
| 877 |
| |||||||
Net loss on sale of securities |
| — |
|
| (4 | ) |
| (42 | ) |
| (4 | ) |
| (1 | ) |
| (4 | ) |
| (1 | ) | |||||||
Swap fees |
| 1,655 |
|
| 1,681 |
|
| 2,267 |
|
| 374 |
|
| 1,051 |
|
| 3,336 |
|
| 1,523 |
| |||||||
Other non-interest income |
| 686 |
|
| 1,057 |
|
| 1,186 |
|
| 1,674 |
|
| 1,113 |
|
| 1,744 |
|
| 1,920 |
| |||||||
Total non-interest income |
| 6,319 |
|
| 6,414 |
|
| 7,189 |
|
| 5,792 |
|
| 5,805 |
|
| 12,733 |
|
| 10,443 |
| |||||||
Compensation |
| 10,796 |
|
| 11,052 |
|
| 11,030 |
|
| 10,324 |
|
| 10,503 |
|
| 21,848 |
|
| 20,667 |
| |||||||
Occupancy |
| 554 |
|
| 572 |
|
| 563 |
|
| 580 |
|
| 559 |
|
| 1,126 |
|
| 1,149 |
| |||||||
Professional fees |
| 859 |
|
| 819 |
|
| 957 |
|
| 751 |
|
| 784 |
|
| 1,678 |
|
| 1,994 |
| |||||||
Data processing |
| 710 |
|
| 677 |
|
| 639 |
|
| 654 |
|
| 689 |
|
| 1,386 |
|
| 1,269 |
| |||||||
Marketing |
| 352 |
|
| 461 |
|
| 610 |
|
| 548 |
|
| 581 |
|
| 813 |
|
| 1,063 |
| |||||||
Equipment |
| 304 |
|
| 291 |
|
| 292 |
|
| 277 |
|
| 272 |
|
| 595 |
|
| 661 |
| |||||||
Computer software |
| 966 |
|
| 889 |
|
| 929 |
|
| 859 |
|
| 827 |
|
| 1,856 |
|
| 1,626 |
| |||||||
FDIC insurance |
| 239 |
|
| 208 |
|
| 46 |
|
| 1 |
|
| 302 |
|
| 448 |
|
| 595 |
| |||||||
Collateral liquidation cost (recovery) |
| 115 |
|
| 121 |
|
| 10 |
|
| 110 |
|
| 89 |
|
| 236 |
|
| (1 | ) | |||||||
Net loss (gain) on foreclosed properties |
| 348 |
|
| 102 |
|
| (17 | ) |
| 262 |
|
| (21 | ) |
| 450 |
|
| (21 | ) | |||||||
Tax credit investment impairment (recovery) |
| 1,841 |
|
| 113 |
|
| 113 |
|
| (120 | ) |
| 2,088 |
|
| 1,954 |
|
| 4,102 |
| |||||||
SBA recourse (benefit) provision |
| (30 | ) |
| 25 |
|
| 21 |
|
| (427 | ) |
| 113 |
|
| (5 | ) |
| 594 |
| |||||||
Loss on early extinguishment of debt |
| 744 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 744 |
|
| — |
| |||||||
Other non-interest expense |
| 545 |
|
| 816 |
|
| 1,580 |
|
| 897 |
|
| 678 |
|
| 1,359 |
|
| 1,508 |
| |||||||
Total non-interest expense |
| 18,343 |
|
| 16,146 |
|
| 16,773 |
|
| 14,716 |
|
| 17,464 |
|
| 34,488 |
|
| 35,206 |
| |||||||
Income before income tax (benefit) expense |
| 1,395 |
|
| 4,136 |
|
| 7,418 |
|
| 6,503 |
|
| 5,977 |
|
| 5,531 |
|
| 10,579 |
| |||||||
Income tax (benefit) expense |
| (1,928 | ) |
| 858 |
|
| 1,650 |
|
| 1,418 |
|
| (595 | ) |
| (1,070 | ) |
| (1,893 | ) | |||||||
Net income |
| $ | 3,323 |
|
| $ | 3,278 |
|
| $ | 5,768 |
|
| $ | 5,085 |
|
| $ | 6,572 |
|
| $ | 6,601 |
|
| $ | 12,472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Basic earnings |
| $ | 0.38 |
|
| $ | 0.38 |
|
| $ | 0.67 |
|
| $ | 0.59 |
|
| $ | 0.75 |
|
| $ | 0.77 |
|
| $ | 1.43 |
|
Diluted earnings |
| 0.38 |
|
| 0.38 |
|
| 0.67 |
|
| 0.59 |
|
| 0.75 |
|
| 0.77 |
|
| 1.43 |
| |||||||
Dividends declared |
| 0.165 |
|
| 0.165 |
|
| 0.15 |
|
| 0.15 |
|
| 0.15 |
|
| 0.34 |
|
| 0.30 |
| |||||||
Book value |
| 23.04 |
|
| 22.83 |
|
| 22.67 |
|
| 22.09 |
|
| 21.71 |
|
| 23.04 |
|
| 21.71 |
| |||||||
Tangible book value |
| 21.65 |
|
| 21.44 |
|
| 21.27 |
|
| 20.71 |
|
| 20.33 |
|
| 21.65 |
|
| 20.33 |
| |||||||
Weighted-average common shares outstanding(1) |
| 8,392,197 |
|
| 8,388,666 |
|
| 8,442,675 |
|
| 8,492,445 |
|
| 8,569,581 |
|
| 8,379,696 |
|
| 8,584,444 |
| |||||||
Weighted-average diluted common shares outstanding(1) |
| 8,392,197 |
|
| 8,388,666 |
|
| 8,442,675 |
|
| 8,492,445 |
|
| 8,569,581 |
|
| 8,379,696 |
|
| 8,584,444 |
| |||||||
(1) Excluding participating securities. | ||||||||||||||||||||||||||||
NET INTEREST INCOME ANALYSIS
(Unaudited) |
| For the Three Months Ended | ||||||||||||||||||||||||||||
(Dollars in thousands) |
| June 30, 2020 |
| March 31, 2020 |
| June 30, 2019 | ||||||||||||||||||||||||
|
| Average Balance |
| Interest |
| Average Yield/Rate(4) |
|
Average
|
| Interest |
| Average Yield/Rate(4) |
| Average Balance |
| Interest |
| Average Yield/Rate(4) | ||||||||||||
Interest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Commercial real estate and other mortgage loans(1) |
| $ | 1,192,530 |
|
| $ | 12,450 |
|
| 4.18% |
| $ | 1,153,972 |
|
| $ | 13,523 |
|
| 4.69% |
| $ | 1,139,036 |
|
| $ | 14,755 |
|
| 5.18% |
Commercial and industrial loans(1) |
| 726,862 |
|
| 8,347 |
|
| 4.59% |
| 515,935 |
|
| 7,857 |
|
| 6.09% |
| 493,093 |
|
| 8,477 |
|
| 6.88% | ||||||
Direct financing leases(1) |
| 27,115 |
|
| 395 |
|
| 5.83% |
| 27,961 |
|
| 108 |
|
| 1.55% |
| 31,610 |
|
| 324 |
|
| 4.10% | ||||||
Consumer and other loans(1) |
| 36,614 |
|
| 356 |
|
| 3.89% |
| 35,874 |
|
| 361 |
|
| 4.03% |
| 30,555 |
|
| 348 |
|
| 4.56% | ||||||
Total loans and leases receivable(1) |
| 1,983,121 |
|
| 21,548 |
|
| 4.35% |
| 1,733,742 |
|
| 21,849 |
|
| 5.04% |
| 1,694,294 |
|
| 23,904 |
|
| 5.64% | ||||||
Mortgage-related securities(2) |
| 174,113 |
|
| 912 |
|
| 2.10% |
| 180,590 |
|
| 1,061 |
|
| 2.35% |
| 161,827 |
|
| 1,024 |
|
| 2.53% | ||||||
Other investment securities(3) |
| 30,194 |
|
| 158 |
|
| 2.09% |
| 23,280 |
|
| 127 |
|
| 2.18% |
| 28,723 |
|
| 151 |
|
| 2.10% | ||||||
FHLB stock |
| 10,301 |
|
| 127 |
|
| 4.93% |
| 8,512 |
|
| 205 |
|
| 9.63% |
| 6,875 |
|
| 86 |
|
| 5.00% | ||||||
Short-term investments |
| 61,030 |
|
| 16 |
|
| 0.10% |
| 35,763 |
|
| 130 |
|
| 1.45% |
| 22,570 |
|
| 144 |
|
| 2.55% | ||||||
Total interest-earning assets |
| 2,258,759 |
|
| 22,761 |
|
| 4.03% |
| 1,981,887 |
|
| 23,372 |
|
| 4.72% |
| 1,914,289 |
|
| 25,309 |
|
| 5.29% | ||||||
Non-interest-earning assets |
| 167,008 |
|
|
|
|
|
| 122,975 |
|
|
|
|
|
| 110,516 |
|
|
|
|
| |||||||||
Total assets |
| $ | 2,425,767 |
|
|
|
|
|
| $ | 2,104,862 |
|
|
|
|
|
| $ | 2,024,805 |
|
|
|
|
| ||||||
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Transaction accounts |
| $ | 368,844 |
|
| 291 |
|
| 0.32% |
| $ | 271,531 |
|
| 647 |
|
| 0.95% |
| $ | 234,241 |
|
| 989 |
|
| 1.69% | |||
Money market |
| 637,714 |
|
| 368 |
|
| 0.23% |
| 669,482 |
|
| 1,869 |
|
| 1.12% |
| 593,431 |
|
| 2,850 |
|
| 1.92% | ||||||
Certificates of deposit |
| 123,581 |
|
| 627 |
|
| 2.03% |
| 134,000 |
|
| 750 |
|
| 2.24% |
| 164,537 |
|
| 1,025 |
|
| 2.49% | ||||||
Wholesale deposits |
| 105,597 |
|
| 638 |
|
| 2.42% |
| 132,468 |
|
| 850 |
|
| 2.57% |
| 251,060 |
|
| 1,394 |
|
| 2.22% | ||||||
Total interest-bearing deposits |
| 1,235,736 |
|
| 1,924 |
|
| 0.62% |
| 1,207,481 |
|
| 4,116 |
|
| 1.36% |
| 1,243,269 |
|
| 6,258 |
|
| 2.01% | ||||||
FHLB advances |
| 409,281 |
|
| 1,283 |
|
| 1.25% |
| 325,929 |
|
| 1,559 |
|
| 1.91% |
| 266,137 |
|
| 1,511 |
|
| 2.27% | ||||||
Federal Reserve PPPLF |
| 20,821 |
|
| 18 |
|
| 0.35% |
| — |
|
| — |
|
| —% |
| — |
|
| — |
|
| —% | ||||||
Other borrowings |
| 24,681 |
|
| 371 |
|
| 6.01% |
| 24,385 |
|
| 370 |
|
| 6.07% |
| 24,463 |
|
| 411 |
|
| 6.72% | ||||||
Junior subordinated notes |
| 10,052 |
|
| 277 |
|
| 11.02% |
| 10,048 |
|
| 277 |
|
| 11.03% |
| 10,038 |
|
| 277 |
|
| 11.04% | ||||||
Total interest-bearing liabilities |
| 1,700,571 |
|
| 3,873 |
|
| 0.91% |
| 1,567,843 |
|
| 6,322 |
|
| 1.61% |
| 1,543,907 |
|
| 8,457 |
|
| 2.19% | ||||||
Non-interest-bearing demand deposit accounts |
| 440,413 |
|
|
|
|
|
| 291,129 |
|
|
|
|
|
| 254,177 |
|
|
|
|
| |||||||||
Other non-interest-bearing liabilities |
| 86,504 |
|
|
|
|
|
| 62,367 |
|
|
|
|
|
| 40,110 |
|
|
|
|
| |||||||||
Total liabilities |
| 2,227,488 |
|
|
|
|
|
| 1,921,339 |
|
|
|
|
|
| 1,838,194 |
|
|
|
|
| |||||||||
Stockholders’ equity |
| 198,279 |
|
|
|
|
|
| 183,523 |
|
|
|
|
|
| 186,611 |
|
|
|
|
| |||||||||
Total liabilities and stockholders’ equity |
| $ | 2,425,767 |
|
|
|
|
|
| $ | 2,104,862 |
|
|
|
|
|
| $ | 2,024,805 |
|
|
|
|
| ||||||
Net interest income |
|
|
| $ | 18,888 |
|
|
|
|
|
| $ | 17,050 |
|
|
|
|
|
| $ | 16,852 |
|
|
| ||||||
Interest rate spread |
|
|
|
|
| 3.12% |
|
|
|
|
| 3.10% |
|
|
|
|
| 3.10% | ||||||||||||
Net interest-earning assets |
| $ | 558,188 |
|
|
|
|
|
| $ | 414,044 |
|
|
|
|
|
| $ | 370,382 |
|
|
|
|
| ||||||
Net interest margin |
|
|
|
|
| 3.34% |
|
|
|
|
| 3.44% |
|
|
|
|
| 3.52% | ||||||||||||
(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.
| ||||||||||||||||||||||||||||||
NET INTEREST INCOME ANALYSIS (CONTINUED)
(Unaudited) |
| For the Six Months Ended | ||||||||||||||||||
(Dollars in thousands) |
| June 30, 2020 |
| June 30, 2019 | ||||||||||||||||
|
| 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) |
| $ | 1,173,251 |
|
| $ | 25,973 |
|
| 4.43% |
| $ | 1,126,449 |
|
| $ | 29,444 |
|
| 5.23% |
Commercial and industrial loans(1) |
| 621,399 |
|
| 16,204 |
|
| 5.22% |
| 479,644 |
|
| 17,315 |
|
| 7.22% | ||||
Direct financing leases(1) |
| 27,538 |
|
| 503 |
|
| 3.65% |
| 31,927 |
|
| 651 |
|
| 4.08% | ||||
Consumer and other loans(1) |
| 36,244 |
|
| 717 |
|
| 3.96% |
| 31,491 |
|
| 701 |
|
| 4.45% | ||||
Total loans and leases receivable(1) |
| 1,858,432 |
|
| 43,397 |
|
| 4.67% |
| 1,669,511 |
|
| 48,111 |
|
| 5.76% | ||||
Mortgage-related securities(2) |
| 177,352 |
|
| 1,973 |
|
| 2.22% |
| 153,981 |
|
| 1,963 |
|
| 2.55% | ||||
Other investment securities(3) |
| 26,737 |
|
| 285 |
|
| 2.13% |
| 29,423 |
|
| 307 |
|
| 2.09% | ||||
FHLB and FRB stock |
| 9,407 |
|
| 331 |
|
| 7.04% |
| 6,965 |
|
| 175 |
|
| 5.03% | ||||
Short-term investments |
| 48,396 |
|
| 146 |
|
| 0.60% |
| 33,818 |
|
| 433 |
|
| 2.56% | ||||
Total interest-earning assets |
| 2,120,324 |
|
| 46,132 |
|
| 4.35% |
| 1,893,698 |
|
| 50,989 |
|
| 5.39% | ||||
Non-interest-earning assets |
| 144,991 |
|
|
|
|
|
| 103,196 |
|
|
|
|
| ||||||
Total assets |
| $ | 2,265,315 |
|
|
|
|
|
| $ | 1,996,894 |
|
|
|
|
| ||||
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Transaction accounts |
| $ | 320,188 |
|
| 938 |
|
| 0.59% |
| $ | 224,873 |
|
| 1,860 |
|
| 1.65% | ||
Money market |
| 653,598 |
|
| 2,237 |
|
| 0.68% |
| 574,666 |
|
| 5,373 |
|
| 1.87% | ||||
Certificates of deposit |
| 128,791 |
|
| 1,377 |
|
| 2.14% |
| 162,082 |
|
| 1,983 |
|
| 2.45% | ||||
Wholesale deposits |
| 119,032 |
|
| 1,488 |
|
| 2.50% |
| 259,379 |
|
| 2,838 |
|
| 2.19% | ||||
Total interest-bearing deposits |
| 1,221,609 |
|
| 6,040 |
|
| 0.99% |
| 1,221,000 |
|
| 12,054 |
|
| 1.97% | ||||
FHLB advances |
| 367,604 |
|
| 2,842 |
|
| 1.55% |
| 267,058 |
|
| 2,955 |
|
| 2.21% | ||||
Federal Reserve PPPLF |
| 10,410 |
|
| 18 |
|
| 0.35% |
| — |
|
| — |
|
| —% | ||||
Other borrowings |
| 24,533 |
|
| 740 |
|
| 6.03% |
| 24,456 |
|
| 822 |
|
| 6.72% | ||||
Junior subordinated notes |
| 10,050 |
|
| 555 |
|
| 11.04% |
| 10,036 |
|
| 552 |
|
| 11.00% | ||||
Total interest-bearing liabilities |
| 1,634,206 |
|
| 10,195 |
|
| 1.25% |
| 1,522,550 |
|
| 16,383 |
|
| 2.15% | ||||
Non-interest-bearing demand deposit accounts |
| 365,771 |
|
|
|
|
|
| 255,691 |
|
|
|
|
| ||||||
Other non-interest-bearing liabilities |
| 74,436 |
|
|
|
|
|
| 39,017 |
|
|
|
|
| ||||||
Total liabilities |
| 2,074,413 |
|
|
|
|
|
| 1,817,258 |
|
|
|
|
| ||||||
Stockholders’ equity |
| 190,902 |
|
|
|
|
|
| 179,636 |
|
|
|
|
| ||||||
Total liabilities and stockholders’ equity |
| $ | 2,265,315 |
|
|
|
|
|
| $ | 1,996,894 |
|
|
|
|
| ||||
Net interest income |
|
|
| $ | 35,937 |
|
|
|
|
|
| $ | 34,606 |
|
|
| ||||
Interest rate spread |
|
|
|
|
| 3.10% |
|
|
|
|
| 3.23% | ||||||||
Net interest-earning assets |
| $ | 486,118 |
|
|
|
|
|
| $ | 371,148 |
|
|
|
|
| ||||
Net interest margin |
|
|
|
|
| 3.39% |
|
|
|
|
| 3.66% | ||||||||
(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.
| ||||||||||||||||||||
PERFORMANCE RATIOS
|
| For the Three Months Ended |
| For the Six Months Ended | ||||||||||
(Unaudited) |
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
Return on average assets
|
| 0.55% |
| 0.62% |
| 1.09% |
| 0.97% |
| 1.30% |
| 0.58% |
| 1.25% |
Return on average equity
|
| 6.70% |
| 7.14% |
| 11.93% |
| 10.68% |
| 14.09% |
| 6.92% |
| 13.89% |
Efficiency ratio |
| 61.22% |
| 67.74% |
| 64.77% |
| 66.41% |
| 67.41% |
| 64.36% |
| 67.72% |
Interest rate spread |
| 3.12% |
| 3.10% |
| 3.33% |
| 2.95% |
| 3.10% |
| 3.10% |
| 3.23% |
Net interest margin |
| 3.34% |
| 3.44% |
| 3.73% |
| 3.40% |
| 3.52% |
| 3.39% |
| 3.66% |
Average interest-earning assets to average interest-bearing liabilities |
| 132.82% |
| 126.41% |
| 127.44% |
| 125.54% |
| 123.99% |
| 129.75% |
| 124.38% |
ASSET QUALITY RATIOS
(Unaudited) |
| As of | ||||||||||||||||||
(Dollars in thousands) |
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
| ||||||||||
Non-accrual loans and leases |
| $ | 24,095 |
|
| $ | 27,897 |
|
| $ | 20,613 |
|
| $ | 22,789 |
|
| $ | 25,864 |
|
Foreclosed properties |
| 1,389 |
|
| 1,669 |
|
| 2,919 |
|
| 2,902 |
|
| 2,660 |
| |||||
Total non-performing assets |
| 25,484 |
|
| 29,566 |
|
| 23,532 |
|
| 25,691 |
|
| 28,524 |
| |||||
Performing troubled debt restructurings |
| 49 |
|
| 134 |
|
| 140 |
|
| 146 |
|
| 151 |
| |||||
Total impaired assets |
| $ | 25,533 |
|
| $ | 29,700 |
|
| $ | 23,672 |
|
| $ | 25,837 |
|
| $ | 28,675 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Non-accrual loans and leases as a percent of total gross loans and leases |
| 1.17% |
| 1.60% |
| 1.20% |
| 1.32% |
| 1.50% | ||||||||||
Non-performing assets as a percent of total gross loans and leases plus foreclosed properties |
| 1.23% |
| 1.69% |
| 1.37% |
| 1.49% |
| 1.66% | ||||||||||
Non-performing assets as a percent of total assets |
| 1.03% |
| 1.35% |
| 1.12% |
| 1.23% |
| 1.38% | ||||||||||
Allowance for loan and lease losses as a percent of total gross loans and leases |
| 1.33% |
| 1.30% |
| 1.14% |
| 1.17% |
| 1.15% | ||||||||||
Allowance for loan and lease losses as a percent of non-accrual loans and leases |
| 113.98% |
| 81.54% |
| 94.70% |
| 88.51% |
| 76.64% | ||||||||||
ASSET QUALITY RATIOS - EXCLUDING PPP LOANS (1)
(Unaudited) |
| As of | ||||||||
|
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
|
Non-accrual loans and leases as a percent of total gross loans and leases |
| 1.39% |
| 1.60% |
| 1.20% |
| 1.32% |
| 1.50% |
Non-performing assets as a percent of total gross loans and leases plus foreclosed properties |
| 1.47% |
| 1.69% |
| 1.37% |
| 1.49% |
| 1.66% |
Non-performing assets as a percent of total assets |
| 1.19% |
| 1.35% |
| 1.12% |
| 1.23% |
| 1.38% |
Allowance for loan and lease losses as a percent of total gross loans and leases |
| 1.58% |
| 1.30% |
| 1.14% |
| 1.17% |
| 1.15% |
(1) PPP loans outstanding as of June 30, 2020, were $327.9 million. The other periods presented did not have any PPP loans outstanding. | ||||||||||
NET CHARGE-OFFS (RECOVERIES)
(Unaudited) |
| For the Three Months Ended |
| For the Six Months Ended | ||||||||||||||||||||||||
(Dollars in thousands) |
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
|
|
June 30,
|
|
June 30,
| ||||||||||||||
Charge-offs |
| $ | 817 |
|
| $ | 131 |
|
| $ | 2,194 |
|
| $ | 1,099 |
|
| $ | 15 |
|
| $ | 948 |
|
| $ | 63 |
|
Recoveries |
| (64 | ) |
| (177 | ) |
| (73 | ) |
| (101 | ) |
| (169 | ) |
| (241 | ) |
| (193 | ) | |||||||
Net charge-offs (recoveries) |
| $ | 753 |
|
| $ | (46 | ) |
| $ | 2,121 |
|
| $ | 998 |
|
| $ | (154 | ) |
| $ | 707 |
|
| $ | (130 | ) |
Net charge-offs (recoveries) as a percent of average gross loans and leases (annualized) |
| 0.15 | % |
| (0.01 | )% |
| 0.49 | % |
| 0.23 | % |
| (0.04 | )% |
| 0.08 | % |
| (0.02 | )% | |||||||
Annualized net charge-offs (recoveries) as a percent of average gross loans and leases, excluding average PPP loans (1) |
| 0.17 | % |
| (0.01 | )% |
| 0.49 | % |
| 0.23 | % |
| (0.04 | )% |
| 0.08 | % |
| (0.02 | )% | |||||||
| (1) Average PPP loans outstanding for the three and six months ended June 30, 2020, were $259.5 million and $129.8 million, respectively. The other periods presented did not have any PPP loans outstanding. | ||||||||||||||||||||||||||||
CAPITAL RATIOS
|
| As of and for the Three Months Ended | ||||||||
(Unaudited) |
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
|
Total capital to risk-weighted assets |
| 11.97% |
| 11.74% |
| 12.01% |
| 11.90% |
| 11.92% |
Tier I capital to risk-weighted assets |
| 9.57% |
| 9.45% |
| 9.77% |
| 9.62% |
| 9.60% |
Common equity tier I capital to risk-weighted assets |
| 9.08% |
| 8.96% |
| 9.27% |
| 9.11% |
| 9.09% |
Tier I capital to adjusted assets |
| 8.29% |
| 9.33% |
| 9.27% |
| 9.18% |
| 9.36% |
Tangible common equity to tangible assets |
| 7.56% |
| 8.41% |
| 8.74% |
| 8.59% |
| 8.59% |
LOAN AND LEASE RECEIVABLE COMPOSITION
(Unaudited) |
| As of | ||||||||||||||||||
(in thousands) |
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
| ||||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
| ||||||||||
Commercial real estate - owner occupied |
| $ | 229,994 |
|
| $ | 224,075 |
|
| $ | 226,614 |
|
| $ | 226,307 |
|
| $ | 210,471 |
|
Commercial real estate - non-owner occupied |
| 533,211 |
|
| 511,363 |
|
| 516,652 |
|
| 503,102 |
|
| 477,740 |
| |||||
Land development |
| 44,299 |
|
| 48,045 |
|
| 51,097 |
|
| 49,184 |
|
| 49,000 |
| |||||
Construction |
| 133,375 |
|
| 131,060 |
|
| 109,057 |
|
| 111,848 |
|
| 185,347 |
| |||||
Multi-family |
| 244,496 |
|
| 211,594 |
|
| 217,322 |
|
| 227,330 |
|
| 195,363 |
| |||||
1-4 family |
| 36,823 |
|
| 34,220 |
|
| 33,359 |
|
| 31,226 |
|
| 31,656 |
| |||||
Total commercial real estate |
| 1,222,198 |
|
| 1,160,357 |
|
| 1,154,101 |
|
| 1,148,997 |
|
| 1,149,577 |
| |||||
Commercial and industrial |
| 781,239 |
|
| 519,900 |
|
| 503,402 |
|
| 513,672 |
|
| 510,448 |
| |||||
Direct financing leases, net |
| 25,525 |
|
| 26,833 |
|
| 28,203 |
|
| 28,987 |
|
| 30,365 |
| |||||
Consumer and other: |
|
|
|
|
|
|
|
|
|
| ||||||||||
Home equity and second mortgages |
| 6,706 |
|
| 6,513 |
|
| 7,006 |
|
| 7,373 |
|
| 7,513 |
| |||||
Other |
| 29,737 |
|
| 30,416 |
|
| 22,664 |
|
| 22,140 |
|
| 22,896 |
| |||||
Total consumer and other |
| 36,443 |
|
| 36,929 |
|
| 29,670 |
|
| 29,513 |
|
| 30,409 |
| |||||
Total gross loans and leases receivable |
| 2,065,405 |
|
| 1,744,019 |
|
| 1,715,376 |
|
| 1,721,169 |
|
| 1,720,799 |
| |||||
Less: |
|
|
|
|
|
|
|
|
|
| ||||||||||
Allowance for loan and lease losses |
| 27,464 |
|
| 22,748 |
|
| 19,520 |
|
| 20,170 |
|
| 19,819 |
| |||||
Deferred loan fees |
| 8,542 |
|
| 620 |
|
| 741 |
|
| 627 |
|
| 823 |
| |||||
Loans and leases receivable, net |
| $ | 2,029,399 |
|
| $ | 1,720,651 |
|
| $ | 1,695,115 |
|
| $ | 1,700,372 |
|
| $ | 1,700,157 |
|
LEGACY SBA 7(a) AND EXPRESS LOAN COMPOSITION (1)
(Unaudited) |
| As of | ||||||||||||||||||
(in thousands) |
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
| ||||||||||
Performing loans: |
|
|
|
|
|
|
|
|
|
| ||||||||||
Off-balance sheet loans |
| $ | 28,843 |
|
| $ | 31,212 |
|
| $ | 35,029 |
|
| $ | 40,288 |
|
| $ | 44,385 |
|
On-balance sheet loans |
| 16,554 |
|
| 17,935 |
|
| 19,697 |
|
| 21,814 |
|
| 23,406 |
| |||||
Gross loans |
| 45,397 |
|
| 49,147 |
|
| 54,726 |
|
| 62,102 |
|
| 67,791 |
| |||||
Non-performing loans: |
|
|
|
|
|
|
|
|
|
| ||||||||||
Off-balance sheet loans |
| 1,640 |
|
| 4,887 |
|
| 7,290 |
|
| 7,287 |
|
| 8,294 |
| |||||
On-balance sheet loans |
| 9,725 |
|
| 13,833 |
|
| 12,037 |
|
| 14,663 |
|
| 16,940 |
| |||||
Gross loans |
| 11,365 |
|
| 18,720 |
|
| 19,327 |
|
| 21,950 |
|
| 25,234 |
| |||||
Total loans: |
|
|
|
|
|
|
|
|
|
| ||||||||||
Off-balance sheet loans |
| 30,483 |
|
| 36,099 |
|
| 42,319 |
|
| 47,575 |
|
| 52,679 |
| |||||
On-balance sheet loans |
| 26,279 |
|
| 31,768 |
|
| 31,734 |
|
| 36,477 |
|
| 40,346 |
| |||||
Gross loans |
| $ | 56,762 |
|
| $ | 67,867 |
|
| $ | 74,053 |
|
| $ | 84,052 |
|
| $ | 93,025 |
|
(1) Defined as SBA 7(a) and Express loans originated in 2016 and prior. | ||||||||||||||||||||
DEPOSIT COMPOSITION
(Unaudited) |
| As of | ||||||||||||||||||
(in thousands) |
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
| ||||||||||
Non-interest-bearing transaction accounts |
| $ | 433,760 |
|
| $ | 301,657 |
|
| $ | 293,573 |
|
| $ | 280,990 |
|
| $ | 301,914 |
|
Interest-bearing transaction accounts |
| 413,214 |
|
| 343,064 |
|
| 273,909 |
|
| 206,267 |
|
| 244,608 |
| |||||
Money market accounts |
| 656,741 |
|
| 609,883 |
|
| 674,409 |
|
| 678,993 |
|
| 596,520 |
| |||||
Certificates of deposit |
| 116,901 |
|
| 128,695 |
|
| 137,012 |
|
| 154,707 |
|
| 147,216 |
| |||||
Wholesale deposits |
| 89,759 |
|
| 116,827 |
|
| 151,476 |
|
| 187,859 |
|
| 239,387 |
| |||||
Total deposits |
| $ | 1,710,375 |
|
| $ | 1,500,126 |
|
| $ | 1,530,379 |
|
| $ | 1,508,816 |
|
| $ | 1,529,645 |
|
TRUST ASSETS COMPOSITION
(Unaudited) |
| As of | ||||||||||||||||||
(in thousands) |
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
| ||||||||||
Trust assets under management |
| $ | 1,704,019 |
|
| $ | 1,519,632 |
|
| $ | 1,726,538 |
|
| $ | 1,651,809 |
|
| $ | 1,590,508 |
|
Trust assets under administration |
| 169,388 |
|
| 144,822 |
|
| 165,660 |
|
| 148,711 |
|
| 164,517 |
| |||||
Total trust assets |
| $ | 1,873,407 |
|
| $ | 1,664,454 |
|
| $ | 1,892,198 |
|
| $ | 1,800,520 |
|
| $ | 1,755,025 |
|
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) |
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
| ||||||||||
Common stockholders’ equity |
| $ | 197,562 |
|
| $ | 195,657 |
|
| $ | 194,156 |
|
| $ | 190,792 |
|
| $ | 188,855 |
|
Goodwill and other intangible assets |
| (11,925 | ) |
| (11,872 | ) |
| (11,922 | ) |
| (11,946 | ) |
| (12,000 | ) | |||||
Tangible common equity |
| $ | 185,637 |
|
| $ | 183,785 |
|
| $ | 182,234 |
|
| $ | 178,846 |
|
| $ | 176,855 |
|
Common shares outstanding |
| 8,575,134 |
|
| 8,571,134 |
|
| 8,566,044 |
|
| 8,636,085 |
|
| 8,699,456 |
| |||||
Book value per share |
| $ | 23.04 |
|
| $ | 22.83 |
|
| $ | 22.67 |
|
| $ | 22.09 |
|
| $ | 21.71 |
|
Tangible book value per share |
| 21.65 |
|
| 21.44 |
|
| 21.27 |
|
| 20.71 |
|
| 20.33 |
| |||||
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) |
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
| ||||||||||
Common stockholders’ equity |
| $ | 197,562 |
|
| $ | 195,657 |
|
| $ | 194,156 |
|
| $ | 190,792 |
|
| $ | 188,855 |
|
Goodwill and other intangible assets |
| (11,925 | ) |
| (11,872 | ) |
| (11,922 | ) |
| (11,946 | ) |
| (12,000 | ) | |||||
Tangible common equity |
| $ | 185,637 |
|
| $ | 183,785 |
|
| $ | 182,234 |
|
| $ | 178,846 |
|
| $ | 176,855 |
|
Total assets |
| $ | 2,468,814 |
|
| $ | 2,196,374 |
|
| $ | 2,096,779 |
|
| $ | 2,092,793 |
|
| $ | 2,070,304 |
|
Goodwill and other intangible assets |
| (11,925 | ) |
| (11,872 | ) |
| (11,922 | ) |
| (11,946 | ) |
| (12,000 | ) | |||||
Tangible assets |
| $ | 2,456,889 |
|
| $ | 2,184,502 |
|
| $ | 2,084,857 |
|
| $ | 2,080,847 |
|
| $ | 2,058,304 |
|
Tangible common equity to tangible assets |
| 7.56 | % |
| 8.41 | % |
| 8.74 | % |
| 8.59 | % |
| 8.59 | % | |||||
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 |
| For the Six Months Ended | ||||||||||||||||||||||||
(Dollars in thousands) |
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
|
|
June 30,
|
|
June 30,
| ||||||||||||||
Total non-interest expense |
| $ | 18,343 |
|
| $ | 16,146 |
|
| $ | 16,773 |
|
| $ | 14,716 |
|
| $ | 17,464 |
|
| $ | 34,488 |
|
| $ | 35,206 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Net loss (gain) on foreclosed properties |
| 348 |
|
| 102 |
|
| (17 | ) |
| 262 |
|
| (21 | ) |
| 450 |
|
| (21 | ) | |||||||
Amortization of other intangible assets |
| 9 |
|
| 9 |
|
| 7 |
|
| 11 |
|
| 11 |
|
| 18 |
|
| 21 |
| |||||||
SBA recourse (benefit) provision |
| (30 | ) |
| 25 |
|
| 21 |
|
| (427 | ) |
| 113 |
|
| (5 | ) |
| 594 |
| |||||||
Tax credit investment impairment (recovery) |
| 1,841 |
|
| 113 |
|
| 113 |
|
| (120 | ) |
| 2,088 |
|
| 1,954 |
|
| 4,102 |
| |||||||
Loss on early extinguishment of debt |
| 744 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 744 |
|
| — |
| |||||||
Total operating expense (a) |
| $ | 15,431 |
|
| $ | 15,897 |
|
| $ | 16,649 |
|
| $ | 14,990 |
|
| $ | 15,273 |
|
| $ | 31,327 |
|
| $ | 30,510 |
|
Net interest income |
| $ | 18,888 |
|
| $ | 17,050 |
|
| $ | 18,474 |
|
| $ | 16,776 |
|
| $ | 16,852 |
|
| $ | 35,937 |
|
| $ | 34,606 |
|
Total non-interest income |
| 6,319 |
|
| 6,414 |
|
| 7,189 |
|
| 5,792 |
|
| 5,805 |
|
| 12,733 |
|
| 10,443 |
| |||||||
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Net loss on sale of securities |
| — |
|
| (4 | ) |
| (42 | ) |
| (4 | ) |
| (1 | ) |
| (4 | ) |
| (1 | ) | |||||||
Adjusted non-interest income |
| 6,319 |
|
| 6,418 |
|
| 7,231 |
|
| 5,796 |
|
| 5,806 |
|
| 12,737 |
|
| 10,444 |
| |||||||
Total operating revenue (b) |
| $ | 25,207 |
|
| $ | 23,468 |
|
| $ | 25,705 |
|
| $ | 22,572 |
|
| $ | 22,658 |
|
| $ | 48,674 |
|
| $ | 45,050 |
|
Efficiency ratio |
| 61.22% |
| 67.74% |
| 64.77% |
| 66.41% |
| 67.41% |
| 64.36% |
| 67.72% | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Pre-tax, pre-provision adjusted earnings (b - a) |
| $ | 9,776 |
|
| $ | 7,571 |
|
| $ | 9,056 |
|
| $ | 7,582 |
|
| $ | 7,385 |
|
| $ | 17,347 |
|
| $ | 14,540 |
|
Average total assets |
| $ | 2,425,767 |
|
| $ | 2,104,862 |
|
| $ | 2,107,365 |
|
| $ | 2,093,285 |
|
| $ | 2,024,805 |
|
| $ | 2,265,315 |
|
| $ | 1,996,894 |
|
Pre-tax, pre-provision adjusted return on average assets |
| 1.61% |
| 1.44% |
| 1.72% |
| 1.45% |
| 1.46% |
| 1.53% |
| 1.46% | ||||||||||||||
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 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 |
| For the Six Months Ended | ||||||||||||||||||||||||
(Dollars in thousands) |
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
|
|
June 30,
|
|
June 30,
| ||||||||||||||
Interest income | $ | 22,761 |
|
| $ | 23,372 |
|
| $ | 25,613 |
|
| $ | 25,438 |
|
| $ | 25,309 |
|
| $ | 46,132 |
|
| $ | 50,989 |
|
Interest expense | 3,873 |
|
| 6,322 |
|
| 7,139 |
|
| 8,662 |
|
| 8,457 |
|
| 10,195 |
|
| 16,383 |
| |||||||
Net interest income (a) | 18,888 |
|
| 17,050 |
|
| 18,474 |
|
| 16,776 |
|
| 16,852 |
|
| 35,937 |
|
| 34,606 |
| |||||||
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Fees in lieu of interest | 2,257 |
|
| 798 |
|
| 1,840 |
|
| 1,090 |
|
| 1,214 |
|
| 3,055 |
|
| 3,549 |
| |||||||
PPP loan interest income | 647 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 647 |
|
| — |
| |||||||
FRB interest income and FHLB dividend income | 134 |
|
| 301 |
|
| 208 |
|
| 278 |
|
| 176 |
|
| 435 |
|
| 449 |
| |||||||
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
FRB PPPLF interest expense | 18 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 18 |
|
| — |
| |||||||
Adjusted net interest income (b) | $ | 15,868 |
|
| $ | 15,951 |
|
| $ | 16,426 |
|
| $ | 15,408 |
|
| $ | 15,462 |
|
| $ | 31,818 |
|
| $ | 30,608 |
|
Average interest-earning assets (c) | $ | 2,258,759 |
|
| $ | 1,981,887 |
|
| $ | 1,980,922 |
|
| $ | 1,971,696 |
|
| $ | 1,914,289 |
|
| $ | 2,120,324 |
|
| $ | 1,893,698 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Average PPP loans | 259,518 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 129,759 |
|
| — |
| |||||||
Average FRB cash and FHLB stock | 69,176 |
|
| 37,989 |
|
| 34,565 |
|
| 42,040 |
|
| 22,113 |
|
| 53,583 |
|
| 29,927 |
| |||||||
Average non-accrual loans and leases | 25,386 |
|
| 22,209 |
|
| 21,738 |
|
| 25,331 |
|
| 24,607 |
|
| 23,797 |
|
| 24,345 |
| |||||||
Adjusted average interest-earning assets (d) | $ | 1,904,679 |
|
| $ | 1,921,689 |
|
| $ | 1,924,619 |
|
| $ | 1,904,325 |
|
| $ | 1,867,569 |
|
| $ | 1,913,185 |
|
| $ | 1,839,426 |
|
Net interest margin (a / c) | 3.34 | % |
| 3.44 | % |
| 3.73 | % |
| 3.40 | % |
| 3.52 | % |
| 3.39 | % |
| 3.66 | % | |||||||
Adjusted net interest margin (b / d) | 3.33 | % |
| 3.32 | % |
| 3.41 | % |
| 3.24 | % |
| 3.31 | % |
| 3.33 | % |
| 3.33 | % | |||||||
View source version on businesswire.com: https://www.businesswire.com/news/home/20200723005854/en/
