First Business Reports Record Quarterly Net Income of $6.6 Million

Company Release - 7/25/2019 4:02 PM ET

-- Robust Commercial Loan and In-Market Deposit Growth, Combined with Reduction in Credit Costs Contribute to Strong Quarterly Results --

MADISON, Wis.--(BUSINESS WIRE)-- First Business Financial Services, Inc. (the “Company” or “First Business”) (Nasdaq:FBIZ) reported second quarter 2019 net income of $6.6 million, primarily driven by exceptional loan and deposit growth, strong fee income, stable operating expenses, and a reduction in credit costs.

Summary results for the quarter ended June 30, 2019 include:

  • Net income increased to a record $6.6 million, compared to $5.9 million for the linked quarter and $3.3 million for the second quarter of 2018.
  • Diluted earnings per common share were $0.75, compared to $0.67 and $0.38 for the linked and prior year quarters, respectively.
  • Annualized return on average assets and annualized return on average equity measured 1.30% and 14.09%, respectively, compared to 1.20% and 13.67% for the linked quarter and 0.70% and 7.59% for the second quarter of 2018.
  • Net interest margin was 3.52%, compared to 3.79% for the linked quarter and 3.77% for the second quarter of 2018.
  • Net interest income was $16.9 million, decreasing by $902,000 from the linked quarter and by $79,000 from the second quarter of 2018.
  • Top line revenue, the sum of net interest income and non-interest income, totaled a record $22.7 million, compared to $22.4 million for the linked quarter and $20.9 million for the second quarter of 2018.
  • Provision for loan and lease losses was a benefit of $784,000, compared to expenses of $49,000 and $2.6 million for the linked and prior year quarters, respectively.
  • SBA recourse provision was $113,000, compared to $481,000 for the linked quarter and $99,000 for the second quarter of 2018.
  • Efficiency ratio measured 67.41%, compared to 68.04% for the linked quarter and 67.07% for the second quarter of 2018.
  • Relationship-based historic tax credit programs contributed $446,000, or $0.05 per share, compared to $846,000, or $0.10 per share, in the linked quarter and no contribution in the second quarter of 2018.
  • Record period-end gross loans and leases receivable of $1.720 billion grew 15.3% annualized during the second quarter of 2019 and 7.8% from June 30, 2018.
  • Non-performing assets were $28.5 million and 1.38% of total assets, compared to $26.1 million and 1.30% at March 31, 2019 and $32.6 million and 1.71% at June 30, 2018.
  • Record period-end in-market deposits of $1.290 billion increased 16.4% annualized during the second quarter of 2019 and 22.1% from June 30, 2018.

“Our record quarterly results highlight the strength of our core operations and the Company’s continued forward progress and successful execution on both short-term initiatives and long-term strategies,” said Corey Chambas, President and Chief Executive Officer. “We are excited about the exceptional growth we have been able to achieve on both sides of the balance sheet. Combined with the ongoing success of our trust and investments team, as well as our other fee income sources, we believe the recurring positive operating leverage created by this growth will continue to generate long-term value for our shareholders.”

Results of Operations

Net interest income of $16.9 million decreased by $902,000, or 5.1%, compared to the linked quarter and $79,000, or 0.5%, compared to the second quarter of 2018. The decrease compared to the linked and prior year quarters was principally due to net interest margin compression and a decrease in loan fees received in lieu of interest, partially offset by an increase in average loans and leases outstanding. Fees collected in lieu of interest, defined as prepayment fees, asset-based loan fees, and non-accrual interest, returned to a more normalized level of $1.2 million in the second quarter of 2019, compared to the above average $2.2 million in the linked quarter and $1.4 million in the prior year quarter. Excluding fees collected in lieu of interest, net interest income increased $155,000, or 1.0%, compared to the linked quarter and $182,000, or 1.2%, compared to the second quarter of 2018. Average gross loans and leases of $1.694 billion increased by $49.8 million, or 12.1% annualized, from the linked quarter and $125.1 million, or 8.0%, compared to the second quarter of 2018.

The yield on average loans and leases was 5.64% for the second quarter of 2019, down from 5.89% in the linked quarter and up from 5.42% in the prior year quarter. The yield in the linked quarter benefited primarily from above average fees collected in lieu of interest. Excluding fees collected in lieu of interest, the yield on average loans and leases improved to 5.37%, up from 5.35% and 5.05% in the linked and prior year quarter.

The yield on average interest-earning assets was 5.29% for the second quarter of 2019, compared to 5.48% in the linked quarter and 5.01% in the prior year quarter. Excluding fees collected in lieu of interest, the yield on average earning assets improved to 5.05%, up from 5.01% and 4.69% in the linked and prior year quarters, respectively.

The Company’s cost of average interest-bearing liabilities increased to 2.19% for the second quarter of 2019 from 2.11% and 1.52% in the linked and prior year quarters, respectively. Average interest-bearing deposit costs for the second quarter of 2019 increased to 2.01%, up from 1.93% and 1.17% in the linked and prior year quarters, respectively.

Net interest margin measured 3.52% for the second quarter of 2019, compared to 3.79% in the linked quarter and 3.77% in the second quarter of 2018. The decrease compared to both the linked and prior year quarters was principally due to the rate paid on average interest-bearing liabilities increasing more than the yield on average interest-earning assets, combined with the aforementioned above average fees collected in lieu of interest. Excluding fees collected in lieu of interest, net interest margin measured 3.28% for the second quarter of 2019, compared to 3.32% in the linked quarter and 3.46% in the second quarter of 2018. Despite this trend of downward pressure, management expects the execution of its strategies will allow the Company to maintain a net interest margin at or above its target of 3.50%, including fees collected in lieu of interest.

The Company recorded a provision for loan and lease loss benefit of $784,000 in the second quarter of 2019, compared to an expense of $49,000 in the linked quarter and $2.6 million in the second quarter of 2018. The decrease in provision for the second quarter of 2019 was principally driven by a net reduction in specific reserves due to improved collateral values, net reduction in historic loss rates, and decrease in net charge-offs, partially offset by an increase in provision related to the aforementioned loan growth. Net recoveries were $154,000 in the second quarter of 2019, compared to net charge-offs of $25,000 in the linked quarter and $285,000 in the prior year quarter.

While it was not a source of provision for loan and lease losses during the second quarter of 2019, the legacy on-balance sheet SBA portfolio, defined as SBA loans originated prior to 2017, has been a source of elevated non-performing assets. Total performing on-balance sheet legacy loans were $23.4 million at June 30, 2019, down from $24.4 million and $37.0 million at March 31, 2019 and June 30, 2018, respectively. As of June 30, 2019, total on-balance sheet legacy loans were $40.3 million, compared to $39.3 million and $46.0 million at March 31, 2019 and June 30, 2018, respectively. Legacy on-balance sheet SBA loans increased during the second quarter of 2019 primarily due to repurchase activity resulting in a $2.5 million net increase in sold loans previously identified as impaired.

Non-interest income totaled $5.8 million, or 25.6% of total revenue, in the second quarter of 2019, compared to $4.6 million, or 20.7% of total revenue, in the linked quarter and $4.0 million, or 19.0% of total revenue, in the prior year quarter. The increase in non-interest income was marked by strong trust and investment service fees, fee income related to the Company’s commercial loan interest rate swap transactions, and other fee income.

Trust and investment services fee income, which remained the Company’s largest source of non-interest income, totaled $2.1 million in the second quarter of 2019, compared to $1.9 million in the linked quarter and $2.0 million in the prior year quarter. Strong markets, successful business development, and client retention efforts propelled trust assets under management and administration to a record $1.755 billion at June 30, 2019, up $23.1 million, or 5.3% annualized, from the linked quarter and $109.6 million, or 6.7%, from June 30, 2018. Management expects new business development efforts to remain strong throughout 2019 and beyond as the Company continues to expand the private wealth management business outside its more mature Wisconsin markets.

Commercial loan interest rate swap fee income totaled $1.1 million in the second quarter of 2019, compared to $473,000 in the linked quarter and $70,000 in the second quarter of 2018. Interest rate swaps continue to be an attractive product for the Bank’s commercial borrowers, though associated fee income can be variable, period to period, based on client demand and the interest rate environment in any given quarter.

Other fee income totaled $1.1 million in the second quarter of 2019, compared to $805,000 in the linked quarter and $542,000 in the prior year quarter. The increase is primarily due to $501,000 in gains recognized on end-of-term buyout agreements related to the Company’s equipment financing business line.

Gains on sale of SBA loans totaled $297,000 in the second quarter of 2019, compared to $242,000 in the linked quarter and $274,000 in the second quarter of 2018.

Non-interest expense was $17.5 million for the second quarter of 2019, compared to $17.7 million for the linked quarter and $14.5 million in the second quarter of 2018. Operating expense, as defined in the Efficiency Ratio table included in the Non-GAAP Reconciliations at the end of this release, totaled $15.3 million in the second quarter of 2019, $15.2 million in the linked quarter, and $14.0 million in the second quarter of 2018.

The Company’s second quarter of 2019 efficiency ratio was 67.41%, compared to 68.04% for the linked quarter and 67.07% for the prior year quarter. Compensation expense for the three months ended June 30, 2019 was $10.5 million, an increase of $338,000 compared to the linked quarter and $1.4 million compared to the prior year quarter. The increase in compensation expense compared to both the linked and prior year quarters reflects an increase in employees, as well as an increase in incentive compensation tied to individual and Company performance. Full-time equivalent employees were 275 at June 30, 2019, compared to 274 at December 31, 2018 and 265 at June 30, 2018. The producers hired over the past 18 months are now generating new business, and as a result, management believes operating revenue will continue to increase at a greater rate than operating expense, generating positive operating leverage and moving the efficiency ratio back toward the Company’s long-term operating goal of 58%-62%.

Non-interest expense includes SBA recourse provision for estimated losses in the outstanding guaranteed portion of SBA loans sold. SBA recourse provision totaled $113,000 in the second quarter of 2019, $481,000 in the linked quarter, and $99,000 in the prior year quarter. The total recourse reserve balance was $2.1 million, or 2.7% of total sold SBA loans outstanding, at June 30, 2019, compared to $3.3 million, or 4.0%, in the linked quarter, and $2.4 million, or 2.7%, in the prior year quarter. Total sold legacy SBA loans at June 30, 2019 were $52.7 million, compared to $58.2 million and $77.5 million at March 31, 2019 and June 30, 2018, respectively. Total performing sold legacy SBA loans were $44.4 million at June 30, 2019, down from $45.7 million and $65.5 million at March 31, 2019 and June 30, 2018, respectively. Changes to SBA recourse reserves may be a source of non-interest expense volatility in future quarters, though the magnitude of this volatility should diminish over time as the outstanding balance of sold legacy SBA loans continues to decline.

During the second quarter of 2019, the Company recognized $2.0 million in expense due to the impairment of relationship-based federal historic tax credit investments, which corresponded with the recognition of a $2.4 million in tax credits during the quarter. The Company’s relationship-based historic tax credit program contributed $446,000, $0.05 per share, to second quarter 2019 earnings, compared to $846,000, or $0.10 per share, in the linked quarter. Second quarter 2018 earnings did not benefit from historic tax credit investments. The second quarter 2019 effective tax rate, excluding these discrete items, was 22.8%. For 2019, the Company expects to report an effective tax rate of 21%-23%, excluding discrete items. Management intends to continue actively pursuing relationship-based tax credit opportunities throughout 2019 and beyond.

Balance Sheet

Period-end, gross loans and leases receivable totaled a record $1.720 billion at June 30, 2019, increasing $63.3 million, or 15.3% annualized, from March 31, 2019 and increasing $125.0 million, or 7.8%, from June 30, 2018. The Company’s emphasis on growing its commercial and industrial (“C&I”) portfolio continued, with balances increasing $44.2 million, or 38.0% annualized, compared to the linked quarter and $62.9 million, or 14.1%, compared to June 30, 2018. While we are seeing significant loan growth opportunities in our primary geographic areas, management remains committed to maintaining its strong underwriting standards and will not deviate from those standards for the sole purpose of growing our loan and lease portfolio.

“The First Business team has generated exceptional loan growth through the first six months of the year,” said Chambas. “Due to the investments made in business development officers and niche business lines over the last couple of years, we are seeing above average loan growth across the Company, with C&I lending serving as the driving force of late.” Chambas added, “While we do not expect to sustain a 15% growth rate in 2019, we are confident in our ability to continue producing quality loans and believe high single-digit growth in 2019 and beyond is achievable and sustainable with the outstanding team we have in place.”

Period-end, in-market deposits increased to $1.290 billion, or 71.6% of total bank funding at June 30, 2019, compared to $1.239 billion, or 70.9%, at March 31, 2019 and $1.056 billion, or 62.9%, at June 30, 2018. Total bank funding is defined as total deposits plus FHLB advances. Transaction accounts and money market accounts were the largest contributors to in-market deposit growth during the quarter, increasing $53.8 million and $17.0 million compared to the linked quarter, respectively. The increase compared to the linked quarter was partially offset by a $20.0 million reduction in certificates of deposit.

“In-market deposit growth of 22.1% over the past 12 months is another example of how successful execution and investments in people, product, and technology have been paying off for First Business,” Chambas commented. “We are growing our in-market deposit base through strategic deposit campaigns and traditional lower-cost treasury management efforts, which are proving to be attractive to growing numbers of businesses, business executives, and high net worth individuals. Importantly, we have achieved this above average growth while maintaining pricing discipline and limiting our deposit rates to those at or below our alternative sources of wholesale funding.”

Period-end wholesale funding was $512.9 million at June 30, 2019, including FHLB advances of $273.5 million, brokered certificates of deposit of $238.9 million, and deposits gathered through internet deposit listing services of $498,000, compared to period-end wholesale funding of $507.7 million at March 31, 2019 and $622.4 million at June 30, 2018.

Consistent with the Company’s longstanding funding strategy to manage risk and use the most efficient and cost-effective source of wholesale funds, management intends to maintain a ratio of in-market deposits to total bank funding sources in line with the Company’s target range of 60%-75%. Management recently updated this range from the previously disclosed 60%-70% to reflect a reduced need for on-balance sheet wholesale funding to match-fund long-term, fixed rate loans due to greater client demand for interest rate swaps, which results in a floating rate loan on our balance sheet.

Asset Quality

Non-performing assets were $28.5 million, or 1.38% of total assets, at June 30, 2019, compared to $26.1 million, or 1.30% of total assets, and $32.6 million, or 1.71% of total assets, at the end of the linked quarter and second quarter of 2018, respectively. The increase from the linked quarter was primarily due to legacy SBA loan repurchase activity resulting in a $2.5 million net increase in sold loans previously identified as impaired.

Capital Strength

As of June 30, 2019, total capital to risk-weighted assets was 11.92%, tier 1 capital to risk-weighted assets was 9.60%, tier 1 leverage capital to adjusted average assets was 9.36%, and common equity tier 1 capital to risk-weighted assets was 9.09%. In addition, as of June 30, 2019, tangible common equity to tangible assets was 8.59%.

Share Repurchases

As of July 24, 2019, the Company had purchased 217,688 shares of its common stock, since the adoption of its previously disclosed stock repurchase program, at a weighted average price of $22.31 per share, for a total value of $4.9 million. The company has $100,000 of buyback authority remaining under the program as of July 24, 2019.

Quarterly Dividend

As previously announced, during the second quarter of 2019, the Company’s Board of Directors declared a regular quarterly dividend of $0.15 per share. The dividend was paid on May 16, 2019 to stockholders of record at the close of business on May 6, 2019. Measured against second quarter 2019 diluted earnings per share of $0.75, the dividend represents a 20.0% payout ratio. The Board of Directors routinely considers dividend declarations as part of its normal course of business.

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:

  • Competitive pressures among depository and other financial institutions nationally and in our markets.
  • Adverse changes in the economy or business conditions, either nationally or 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, 2018 and other filings with the Securities and Exchange Commission.

SELECTED FINANCIAL CONDITION DATA

(Unaudited)

 

As of

(in thousands)

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

 

June 30,
2018

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

45,875

 

 

$

56,335

 

 

$

86,546

 

 

$

40,293

 

 

$

45,803

 

Securities available-for-sale, at fair value

 

158,933

 

 

156,783

 

 

138,358

 

 

134,995

 

 

135,470

 

Securities held-to-maturity, at amortized cost

 

34,519

 

 

35,914

 

 

37,731

 

 

39,950

 

 

40,946

 

Loans held for sale

 

4,786

 

 

5,447

 

 

5,287

 

 

4,712

 

 

4,976

 

Loans and leases receivable

 

1,719,976

 

 

1,656,646

 

 

1,617,655

 

 

1,598,607

 

 

1,594,953

 

Allowance for loan and lease losses

 

(19,819

)

 

(20,449

)

 

(20,425

)

 

(20,455

)

 

(20,932

)

Loans and leases receivable, net

 

1,700,157

 

 

1,636,197

 

 

1,597,230

 

 

1,578,152

 

 

1,574,021

 

Premises and equipment, net

 

2,866

 

 

3,043

 

 

3,284

 

 

3,247

 

 

3,358

 

Foreclosed properties

 

2,660

 

 

2,547

 

 

2,547

 

 

1,454

 

 

1,484

 

Right-of-use assets

 

7,853

 

 

8,180

 

 

 

 

 

 

 

Bank-owned life insurance

 

42,127

 

 

41,830

 

 

41,538

 

 

41,212

 

 

40,912

 

Federal Home Loan Bank stock, at cost

 

6,720

 

 

6,635

 

 

7,240

 

 

6,890

 

 

9,295

 

Goodwill and other intangible assets

 

12,000

 

 

12,017

 

 

12,045

 

 

12,132

 

 

12,380

 

Accrued interest receivable and other assets

 

51,808

 

 

40,714

 

 

34,651

 

 

31,293

 

 

31,142

 

Total assets

 

$

2,070,304

 

 

$

2,005,642

 

 

$

1,966,457

 

 

$

1,894,330

 

 

$

1,899,787

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

In-market deposits

 

$

1,290,258

 

 

$

1,239,494

 

 

$

1,179,448

 

 

$

1,076,851

 

 

$

1,056,294

 

Wholesale deposits

 

239,387

 

 

262,212

 

 

275,851

 

 

332,052

 

 

281,431

 

Total deposits

 

1,529,645

 

 

1,501,706

 

 

1,455,299

 

 

1,408,903

 

 

1,337,725

 

Federal Home Loan Bank advances and other borrowings

 

297,972

 

 

269,958

 

 

298,944

 

 

281,430

 

 

365,416

 

Junior subordinated notes

 

10,040

 

 

10,037

 

 

10,033

 

 

10,029

 

 

10,026

 

Lease liabilities

 

8,187

 

 

8,504

 

 

 

 

 

 

 

Accrued interest payable and other liabilities

 

35,605

 

 

30,337

 

 

21,474

 

 

16,426

 

 

12,948

 

Total liabilities

 

1,881,449

 

 

1,820,542

 

 

1,785,750

 

 

1,716,788

 

 

1,726,115

 

Total stockholders’ equity

 

188,855

 

 

185,100

 

 

180,707

 

 

177,542

 

 

173,672

 

Total liabilities and stockholders’ equity

 

$

2,070,304

 

 

$

2,005,642

 

 

$

1,966,457

 

 

$

1,894,330

 

 

$

1,899,787

 

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,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

 

June 30,
2018

 

June 30,
2019

 

June 30,
2018

Total interest income

 

$

25,309

 

 

$

25,679

 

 

$

24,522

 

 

$

23,563

 

 

$

22,468

 

 

$

50,989

 

 

$

43,189

 

Total interest expense

 

8,457

 

 

7,925

 

 

7,407

 

 

6,469

 

 

5,537

 

 

16,383

 

 

10,057

 

Net interest income

 

16,852

 

 

17,754

 

 

17,115

 

 

17,094

 

 

16,931

 

 

34,606

 

 

33,132

 

Provision for loan and lease losses

 

(784

)

 

49

 

 

983

 

 

(546

)

 

2,579

 

 

(736

)

 

5,054

 

Net interest income after provision for loan and lease losses

 

17,636

 

 

17,705

 

 

16,132

 

 

17,640

 

 

14,352

 

 

35,342

 

 

28,078

 

Trust and investment service fees

 

2,138

 

 

1,927

 

 

1,919

 

 

1,941

 

 

1,987

 

 

4,065

 

 

3,884

 

Gain on sale of SBA loans

 

297

 

 

242

 

 

267

 

 

641

 

 

274

 

 

539

 

 

543

 

Service charges on deposits

 

743

 

 

777

 

 

770

 

 

788

 

 

720

 

 

1,520

 

 

1,504

 

Loan fees

 

464

 

 

414

 

 

408

 

 

459

 

 

389

 

 

877

 

 

917

 

Net loss on sale of securities

 

 

 

 

 

(4

)

 

 

 

 

 

 

 

 

Swap fees

 

1,051

 

 

473

 

 

662

 

 

306

 

 

70

 

 

1,523

 

 

703

 

Other non-interest income

 

1,112

 

 

805

 

 

626

 

 

736

 

 

542

 

 

1,919

 

 

1,097

 

Total non-interest income

 

5,805

 

 

4,638

 

 

4,648

 

 

4,871

 

 

3,982

 

 

10,443

 

 

8,648

 

Compensation

 

10,503

 

 

10,165

 

 

9,432

 

 

9,819

 

 

9,116

 

 

20,667

 

 

18,187

 

Occupancy

 

559

 

 

590

 

 

560

 

 

560

 

 

544

 

 

1,149

 

 

1,073

 

Professional fees

 

784

 

 

1,210

 

 

879

 

 

1,027

 

 

928

 

 

1,994

 

 

1,963

 

Data processing

 

689

 

 

581

 

 

614

 

 

512

 

 

626

 

 

1,269

 

 

1,236

 

Marketing

 

581

 

 

482

 

 

617

 

 

593

 

 

591

 

 

1,063

 

 

925

 

Equipment

 

272

 

 

389

 

 

345

 

 

403

 

 

343

 

 

661

 

 

686

 

Computer software

 

827

 

 

799

 

 

780

 

 

814

 

 

679

 

 

1,626

 

 

1,420

 

FDIC insurance

 

302

 

 

293

 

 

353

 

 

457

 

 

369

 

 

595

 

 

668

 

Collateral liquidation costs

 

89

 

 

(91

)

 

193

 

 

230

 

 

222

 

 

(1

)

 

223

 

Net (gain) loss on foreclosed properties

 

(21

)

 

 

 

337

 

 

30

 

 

 

 

(21

)

 

 

Impairment of tax credit investments

 

2,088

 

 

2,014

 

 

1,529

 

 

113

 

 

329

 

 

4,102

 

 

442

 

SBA recourse provision (benefit)

 

113

 

 

481

 

 

1,795

 

 

314

 

 

99

 

 

594

 

 

(196

)

Other non-interest expense

 

678

 

 

829

 

 

810

 

 

874

 

 

621

 

 

1,508

 

 

1,747

 

Total non-interest expense

 

17,464

 

 

17,742

 

 

18,244

 

 

15,746

 

 

14,467

 

 

35,206

 

 

28,374

 

Income before income tax (benefit) expense

 

5,977

 

 

4,601

 

 

2,536

 

 

6,765

 

 

3,867

 

 

10,579

 

 

8,352

 

Income tax (benefit) expense

 

(595

)

 

(1,298

)

 

(1,528

)

 

1,464

 

 

578

 

 

(1,893

)

 

1,414

 

Net income

 

$

6,572

 

 

$

5,899

 

 

$

4,064

 

 

$

5,301

 

 

$

3,289

 

 

$

12,472

 

 

$

6,938

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings

 

$

0.75

 

 

$

0.67

 

 

$

0.46

 

 

$

0.60

 

 

$

0.38

 

 

$

1.43

 

 

$

0.79

 

Diluted earnings

 

0.75

 

 

0.67

 

 

0.46

 

 

0.60

 

 

0.38

 

 

1.43

 

 

0.79

 

Dividends declared

 

0.15

 

 

0.15

 

 

0.14

 

 

0.14

 

 

0.14

 

 

0.30

 

 

0.28

 

Book value

 

21.71

 

 

21.12

 

 

20.57

 

 

20.19

 

 

19.83

 

 

21.71

 

 

19.83

 

Tangible book value

 

20.33

 

 

19.75

 

 

19.20

 

 

18.81

 

 

18.41

 

 

20.33

 

 

18.41

 

Weighted-average common shares outstanding(1)

 

8,569,581

 

 

8,621,221

 

 

8,662,025

 

 

8,650,057

 

 

8,631,189

 

 

8,584,444

 

 

8,631,664

 

Weighted-average diluted common shares outstanding(1)

 

8,569,581

 

 

8,621,221

 

 

8,662,025

 

 

8,650,057

 

 

8,631,189

 

 

8,584,444

 

 

8,631,664

 

(1) Excluding participating securities.

NET INTEREST INCOME ANALYSIS

(Unaudited)

 

For the Three Months Ended

(Dollars in thousands)

 

June 30, 2019

 

March 31, 2019

 

June 30, 2018

 

 

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)

 

$

1,139,036

 

 

$

14,755

 

 

5.18

%

 

$

1,113,723

 

 

$

14,689

 

 

5.28

%

 

$

1,073,326

 

 

$

13,264

 

 

4.94

%

Commercial and industrial loans(1)

 

493,093

 

 

8,477

 

 

6.88

%

 

466,046

 

 

8,839

 

 

7.59

%

 

434,657

 

 

7,347

 

 

6.76

%

Direct financing leases(1)

 

31,610

 

 

324

 

 

4.10

%

 

32,248

 

 

326

 

 

4.04

%

 

31,284

 

 

313

 

 

4.00

%

Consumer and other loans(1)

 

30,555

 

 

348

 

 

4.56

%

 

32,436

 

 

353

 

 

4.35

%

 

29,914

 

 

319

 

 

4.27

%

Total loans and leases receivable(1)

 

1,694,294

 

 

23,904

 

 

5.64

%

 

1,644,453

 

 

24,207

 

 

5.89

%

 

1,569,181

 

 

21,243

 

 

5.42

%

Mortgage-related securities(2)

 

161,827

 

 

1,024

 

 

2.53

%

 

146,048

 

 

939

 

 

2.57

%

 

136,982

 

 

775

 

 

2.26

%

Other investment securities(3)

 

28,723

 

 

151

 

 

2.10

%

 

30,131

 

 

156

 

 

2.07

%

 

34,391

 

 

163

 

 

1.90

%

FHLB stock

 

6,875

 

 

86

 

 

5.00

%

 

7,055

 

 

89

 

 

5.05

%

 

8,392

 

 

66

 

 

3.15

%

Short-term investments

 

22,570

 

 

144

 

 

2.55

%

 

45,190

 

 

288

 

 

2.55

%

 

45,473

 

 

221

 

 

1.94

%

Total interest-earning assets

 

1,914,289

 

 

25,309

 

 

5.29

%

 

1,872,877

 

 

25,679

 

 

5.48

%

 

1,794,419

 

 

22,468

 

 

5.01

%

Non-interest-earning assets

 

110,516

 

 

 

 

 

 

95,796

 

 

 

 

 

 

94,923

 

 

 

 

 

Total assets

 

$

2,024,805

 

 

 

 

 

 

$

1,968,673

 

 

 

 

 

 

$

1,889,342

 

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transaction accounts

 

$

234,241

 

 

989

 

 

1.69

%

 

$

215,400

 

 

871

 

 

1.62

%

 

$

272,840

 

 

628

 

 

0.92

%

Money market

 

593,431

 

 

2,850

 

 

1.92

%

 

555,692

 

 

2,524

 

 

1.82

%

 

474,943

 

 

1,067

 

 

0.90

%

Certificates of deposit

 

164,537

 

 

1,025

 

 

2.49

%

 

159,600

 

 

957

 

 

2.40

%

 

71,994

 

 

239

 

 

1.33

%

Wholesale deposits

 

251,060

 

 

1,394

 

 

2.22

%

 

267,791

 

 

1,444

 

 

2.16

%

 

278,496

 

 

1,275

 

 

1.83

%

Total interest-bearing deposits

 

1,243,269

 

 

6,258

 

 

2.01

%

 

1,198,483

 

 

5,796

 

 

1.93

%

 

1,098,273

 

 

3,209

 

 

1.17

%

FHLB advances

 

266,137

 

 

1,511

 

 

2.27

%

 

267,989

 

 

1,444

 

 

2.16

%

 

322,791

 

 

1,637

 

 

2.03

%

Other borrowings

 

24,463

 

 

411

 

 

6.72

%

 

24,449

 

 

411

 

 

6.72

%

 

24,889

 

 

414

 

 

6.65

%

Junior subordinated notes

 

10,038

 

 

277

 

 

11.04

%

 

10,034

 

 

274

 

 

10.92

%

 

10,023

 

 

277

 

 

11.05

%

Total interest-bearing liabilities

 

1,543,907

 

 

8,457

 

 

2.19

%

 

1,500,955

 

 

7,925

 

 

2.11

%

 

1,455,976

 

 

5,537

 

 

1.52

%

Non-interest-bearing demand deposit accounts

 

254,177

 

 

 

 

 

 

257,222

 

 

 

 

 

 

240,352

 

 

 

 

 

Other non-interest-bearing liabilities

 

40,110

 

 

 

 

 

 

37,912

 

 

 

 

 

 

19,752

 

 

 

 

 

Total liabilities

 

1,838,194

 

 

 

 

 

 

1,796,089

 

 

 

 

 

 

1,716,080

 

 

 

 

 

Stockholders’ equity

 

186,611

 

 

 

 

 

 

172,584

 

 

 

 

 

 

173,262

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

2,024,805

 

 

 

 

 

 

$

1,968,673

 

 

 

 

 

 

$

1,889,342

 

 

 

 

 

Net interest income

 

 

 

$

16,852

 

 

 

 

 

 

$

17,754

 

 

 

 

 

 

$

16,931

 

 

 

Interest rate spread

 

 

 

 

 

3.10

%

 

 

 

 

 

3.37

%

 

 

 

 

 

3.49

%

Net interest-earning assets

 

$

370,382

 

 

 

 

 

 

$

371,922

 

 

 

 

 

 

$

338,443

 

 

 

 

 

Net interest margin

 

 

 

 

 

3.52

%

 

 

 

 

 

3.79

%

 

 

 

 

 

3.77

%

(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.

(Unaudited)

 

For the Six Months Ended

(Dollars in thousands)

 

June 30, 2019

 

June 30, 2018

 

 

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)

 

$

1,126,449

 

 

$

29,444

 

 

5.23

%

 

$

1,060,112

 

 

$

25,605

 

 

4.83

%

Commercial and industrial loans(1)

 

479,644

 

 

17,315

 

 

7.22

%

 

437,061

 

 

14,049

 

 

6.43

%

Direct financing leases(1)

 

31,927

 

 

651

 

 

4.08

%

 

30,582

 

 

617

 

 

4.04

%

Consumer and other loans(1)

 

31,491

 

 

701

 

 

4.45

%

 

29,639

 

 

633

 

 

4.27

%

Total loans and leases receivable(1)

 

1,669,511

 

 

48,111

 

 

5.76

%

 

1,557,394

 

 

40,904

 

 

5.25

%

Mortgage-related securities(2)

 

153,981

 

 

1,963

 

 

2.55

%

 

132,546

 

 

1,462

 

 

2.21

%

Other investment securities(3)

 

29,423

 

 

307

 

 

2.09

%

 

35,386

 

 

332

 

 

1.88

%

FHLB and FRB stock

 

6,965

 

 

175

 

 

5.03

%

 

7,559

 

 

114

 

 

3.02

%

Short-term investments

 

33,818

 

 

433

 

 

2.56

%

 

51,349

 

 

377

 

 

1.47

%

Total interest-earning assets

 

1,893,698

 

 

50,989

 

 

5.39

%

 

1,784,234

 

 

43,189

 

 

4.84

%

Non-interest-earning assets

 

103,196

 

 

 

 

 

 

91,853

 

 

 

 

 

Total assets

 

$

1,996,894

 

 

 

 

 

 

$

1,876,087

 

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Transaction accounts

 

$

224,873

 

 

1,860

 

 

1.65

%

 

$

285,216

 

 

1,036

 

 

0.73

%

Money market

 

574,666

 

 

5,373

 

 

1.87

%

 

494,779

 

 

1,918

 

 

0.78

%

Certificates of deposit

 

162,082

 

 

1,983

 

 

2.45

%

 

76,424

 

 

478

 

 

1.25

%

Wholesale deposits

 

259,379

 

 

2,838

 

 

2.19

%

 

289,614

 

 

2,606

 

 

1.80

%

Total interest-bearing deposits

 

1,221,000

 

 

12,054

 

 

1.97

%

 

1,146,033

 

 

6,038

 

 

1.05

%

FHLB advances

 

267,058

 

 

2,955

 

 

2.21

%

 

270,445

 

 

2,641

 

 

1.95

%

Other borrowings

 

24,456

 

 

822

 

 

6.72

%

 

24,647

 

 

826

 

 

6.70

%

Junior subordinated notes

 

10,036

 

 

552

 

 

11.00

%

 

10,022

 

 

552

 

 

11.02

%

Total interest-bearing liabilities

 

1,522,550

 

 

16,383

 

 

2.15

%

 

1,451,147

 

 

10,057

 

 

1.39

%

Non-interest-bearing demand deposit accounts

 

255,691

 

 

 

 

 

 

234,487

 

 

 

 

 

Other non-interest-bearing liabilities

 

39,017

 

 

 

 

 

 

21,643

 

 

 

 

 

Total liabilities

 

1,817,258

 

 

 

 

 

 

1,707,277

 

 

 

 

 

Stockholders’ equity

 

179,636

 

 

 

 

 

 

168,810

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

1,996,894

 

 

 

 

 

 

$

1,876,087

 

 

 

 

 

Net interest income

 

 

 

$

34,606

 

 

 

 

 

 

$

33,132

 

 

 

Interest rate spread

 

 

 

 

 

3.23

%

 

 

 

 

 

3.45

%

Net interest-earning assets

 

$

371,148

 

 

 

 

 

 

$

333,087

 

 

 

 

 

Net interest margin

 

 

 

 

 

3.66

%

 

 

 

 

 

3.71

%

(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.

PERFORMANCE RATIOS

 

 

For the Three Months Ended

 

For the Six Months Ended

(Unaudited)

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

 

June 30,
2018

 

June 30,
2019

 

June 30,
2018

Return on average assets (annualized)

 

1.30

%

 

1.20

%

 

0.83

%

 

1.11

%

 

0.70

%

 

1.25

%

 

0.74

%

Return on average equity (annualized)

 

14.09

%

 

13.67

%

 

9.06

%

 

12.06

%

 

7.59

%

 

13.89

%

 

8.22

%

Efficiency ratio

 

67.41

%

 

68.04

%

 

66.95

%

 

69.55

%

 

67.07

%

 

67.73

%

 

67.27

%

Interest rate spread

 

3.10

%

 

3.37

%

 

3.30

%

 

3.42

%

 

3.49

%

 

3.23

%

 

3.45

%

Net interest margin

 

3.52

%

 

3.79

%

 

3.69

%

 

3.75

%

 

3.77

%

 

3.66

%

 

3.71

%

Average interest-earning assets to average interest-bearing liabilities

 

123.99

%

 

124.78

%

 

124.65

%

 

123.25

%

 

123.25

%

 

124.38

%

 

122.95

%

ASSET QUALITY RATIOS

(Unaudited)

 

As of

(Dollars in thousands)

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

 

June 30,
2018

Non-accrual loans and leases

 

$

25,864

 

 

$

23,540

 

 

$

25,301

 

 

$

30,613

 

 

$

31,091

 

Foreclosed properties

 

2,660

 

 

2,547

 

 

2,547

 

 

1,454

 

 

1,484

 

Total non-performing assets

 

28,524

 

 

26,087

 

 

27,848

 

 

32,067

 

 

32,575

 

Performing troubled debt restructurings

 

151

 

 

169

 

 

180

 

 

187

 

 

249

 

Total impaired assets

 

$

28,675

 

 

$

26,256

 

 

$

28,028

 

 

$

32,254

 

 

$

32,824

 

 

 

 

 

 

 

 

 

 

 

 

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

 

1.50

%

 

1.42

%

 

1.56

%

 

1.91

%

 

1.95

%

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

 

1.66

%

 

1.57

%

 

1.72

%

 

2.00

%

 

2.04

%

Non-performing assets as a percent of total assets

 

1.38

%

 

1.30

%

 

1.42

%

 

1.69

%

 

1.71

%

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

 

1.15

%

 

1.23

%

 

1.26

%

 

1.28

%

 

1.31

%

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

 

76.64

%

 

86.87

%

 

80.73

%

 

66.82

%

 

67.32

%

NET CHARGE-OFFS (RECOVERIES)

(Unaudited)

 

For the Three Months Ended

 

For the Six Months Ended

(Dollars in thousands)

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

 

June 30,
2018

 

June 30,
2019

 

June 30,
2018

Charge-offs

 

$

15

 

 

$

48

 

 

$

1,197

 

 

$

1,914

 

 

$

306

 

 

$

63

 

 

$

2,990

 

Recoveries

 

(169

)

 

(23

)

 

(184

)

 

(1,983

)

 

(21

)

 

(193

)

 

(105

)

Net (recoveries) charge-offs

 

$

(154

)

 

$

25

 

 

$

1,013

 

 

$

(69

)

 

$

285

 

 

$

(130

)

 

$

2,885

 

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

 

(0.04

)%

 

0.01

%

 

0.25

%

 

(0.02

)%

 

0.07

%

 

(0.02

)%

 

0.37

%

CAPITAL RATIOS

 

 

As of and for the Three Months Ended

(Unaudited)

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

 

June 30,
2018

Total capital to risk-weighted assets

 

11.92

%

 

12.18

%

 

11.85

%

 

12.05

%

 

11.87

%

Tier I capital to risk-weighted assets

 

9.60

%

 

9.69

%

 

9.41

%

 

9.54

%

 

9.34

%

Common equity tier I capital to risk-weighted assets

 

9.09

%

 

9.17

%

 

8.89

%

 

9.00

%

 

8.80

%

Tier I capital to adjusted assets

 

9.36

%

 

9.45

%

 

9.33

%

 

9.34

%

 

9.25

%

Tangible common equity to tangible assets

 

8.59

%

 

8.68

%

 

8.63

%

 

8.79

%

 

8.55

%

LOAN AND LEASE RECEIVABLE COMPOSITION

(Unaudited)

 

As of

(in thousands)

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

 

June 30,
2018

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

Commercial real estate - owner occupied

 

$

210,471

 

 

$

212,698

 

 

$

203,476

 

 

$

203,733

 

 

$

196,032

 

Commercial real estate - non-owner occupied

 

477,740

 

 

479,061

 

 

484,427

 

 

487,842

 

 

485,962

 

Land development

 

49,000

 

 

47,503

 

 

42,666

 

 

45,009

 

 

45,033

 

Construction

 

185,347

 

 

169,894

 

 

161,562

 

 

132,271

 

 

188,036

 

Multi-family

 

195,363

 

 

184,490

 

 

167,868

 

 

174,664

 

 

137,388

 

1-4 family

 

31,656

 

 

33,255

 

 

34,340

 

 

35,729

 

 

35,569

 

Total commercial real estate

 

1,149,577

 

 

1,126,901

 

 

1,094,339

 

 

1,079,248

 

 

1,088,020

 

Commercial and industrial

 

510,448

 

 

466,277

 

 

462,321

 

 

457,932

 

 

447,540

 

Direct financing leases, net

 

30,365

 

 

32,724

 

 

33,170

 

 

31,090

 

 

32,001

 

Consumer and other:

 

 

 

 

 

 

 

 

 

 

Home equity and second mortgages

 

7,513

 

 

8,377

 

 

8,438

 

 

8,388

 

 

7,962

 

Other

 

22,896

 

 

23,367

 

 

20,789

 

 

23,451

 

 

21,075

 

Total consumer and other

 

30,409

 

 

31,744

 

 

29,227

 

 

31,839

 

 

29,037

 

Total gross loans and leases receivable

 

1,720,799

 

 

1,657,646

 

 

1,619,057

 

 

1,600,109

 

 

1,596,598

 

Less:

 

 

 

 

 

 

 

 

 

 

Allowance for loan and lease losses

 

19,819

 

 

20,449

 

 

20,425

 

 

20,455

 

 

20,932

 

Deferred loan fees

 

823

 

 

1,000

 

 

1,402

 

 

1,502

 

 

1,645

 

Loans and leases receivable, net

 

$

1,700,157

 

 

$

1,636,197

 

 

$

1,597,230

 

 

$

1,578,152

 

 

$

1,574,021

 

DEPOSIT COMPOSITION

(Unaudited)

 

As of

(in thousands)

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

 

June 30,
2018

Non-interest-bearing transaction accounts

 

$

301,914

 

 

$

286,345

 

 

$

280,769

 

 

$

233,915

 

 

$

255,521

 

Interest-bearing transaction accounts

 

244,608

 

 

206,360

 

 

229,612

 

 

256,303

 

 

272,057

 

Money market accounts

 

596,520

 

 

579,539

 

 

516,045

 

 

475,322

 

 

450,654

 

Certificates of deposit

 

147,216

 

 

167,250

 

 

153,022

 

 

111,311

 

 

78,062

 

Wholesale deposits

 

239,387

 

 

262,212

 

 

275,851

 

 

332,052

 

 

281,431

 

Total deposits

 

$

1,529,645

 

 

$

1,501,706

 

 

$

1,455,299

 

 

$

1,408,903