First Business Reports Third Quarter 2019 Financial Results

Company Release - 10/24/2019 4:02 PM ET

-- Strong Top Line Revenue, Boosted by Diversified Fee Income Sources, Highlight Strong Quarterly Results --

MADISON, Wis.--(BUSINESS WIRE)-- First Business Financial Services, Inc. (the “Company” or “First Business”) (Nasdaq:FBIZ) reported third quarter 2019 net income of $5.1 million, primarily driven by diversified fee income sources, relatively stable operating expenses, and a net benefit in the SBA recourse provision.

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

  • Net income totaled $5.1 million, compared to $6.6 million for the linked quarter and $5.3 million for the third quarter of 2018.
  • Diluted earnings per common share measured $0.59, compared to $0.75 and $0.60 for the linked and prior year quarters, respectively.
  • Annualized return on average assets and annualized return on average equity measured 0.97% and 10.68%, respectively, compared to 1.30% and 14.09% for the linked quarter and 1.11% and 12.06% for the third quarter of 2018.
  • Net interest margin was 3.40%, compared to 3.52% for the linked quarter and 3.75% for the third quarter of 2018.
  • Net interest income was $16.8 million, compared to $16.9 million for the linked quarter and $17.1 million for the third quarter of 2018.
  • Top line revenue, the sum of net interest income and non-interest income, totaled $22.6 million, compared to $22.7 million for the linked quarter and $22.0 million for the third quarter of 2018.
  • Provision for loan and lease losses was $1.3 million, compared to net benefits of $784,000 and $546,000 for the linked and prior year quarters, respectively.
  • SBA recourse provision was a net benefit $427,000, compared to recourse provision expense of $113,000 for the linked quarter and $314,000 for the third quarter of 2018.
  • Efficiency ratio improved to 66.41%, compared to 67.41% for the linked quarter and 69.55% for the third quarter of 2018.
  • Period-end gross loans and leases receivable of $1.721 billion were flat during the third quarter of 2019 and grew $121.9 million, or 7.6%, from $1.599 billion at September 30, 2018. Average gross loans and leases of $1.731 billion increased by $37.1 million, or 8.8% annualized, from the linked quarter and $129.9 million, or 8.1%, compared to the third quarter of 2018.
  • Non-performing assets were $25.7 million, or 1.23% of total assets, compared to $28.5 million, or 1.38%, at June 30, 2019 and $32.1 million, or 1.69%, at September 30, 2018.
  • Record period-end in-market deposits of $1.321 billion increased $30.7 million, or 9.5% annualized, during the third quarter of 2019 and $244.1 million, or 22.7%, from September 30, 2018. Record average in-market deposits of $1.298 billion increased $51.6 million, or 16.6% annualized, during the third quarter of 2019 and $232.7 million, or 21.8%, from September 30, 2018.

“We are pleased to report another quarter of solid results, led by improved asset quality, strong in-market deposit growth, robust and diversified fee income, and continued positive operating leverage,” said Corey Chambas, President and Chief Executive Officer. “Aligned with First Business’s strategic priorities, our relationship-based business model continued to generate significant in-market deposit growth. While we did see compression in our net interest margin during the quarter, we believe our exceptional deposit growth, combined with the ongoing success of our higher yielding specialty finance business lines, will help stabilize margin going forward and continue to deliver solid financial results for our shareholders.”

Results of Operations

Net interest income of $16.8 million decreased by $76,000, or 0.5%, compared to the linked quarter and $318,000, or 1.9%, compared to the third quarter of 2018. Net interest income reflected higher average loans and leases outstanding offset by net interest margin compression, a decrease in loan fees received in lieu of interest, and one-time expense related to exercising call options on subordinated debt and brokered deposits. The one-time expense related to subordinated debt and brokered deposits totaled $261,000 and $47,000, respectively. The decision to exercise call options on subordinated debt and brokered deposits will benefit net interest margin moving forward as the funding was replaced at lower rates. Fees in lieu of interest, defined as prepayment fees, asset-based loan fees, and non-accrual interest, which can be variable from quarter to quarter, totaled $1.1 million, compared to $1.2 million for the linked quarter and $1.4 million for the third quarter of 2018. Excluding the one-time expense and fees collected in lieu of interest, net interest income increased $334,000, or 2.1%, compared to the linked quarter and $356,000, or 2.3%, compared to the third quarter of 2018. Average gross loans and leases of $1.731 billion increased by $37.1 million, or 8.8% annualized, from the linked quarter and $129.9 million, or 8.1%, compared to the third quarter of 2018.

The yield on average loans and leases was 5.53% for the third quarter of 2019, down from 5.64% and 5.56% in the linked and prior year quarters, respectively. Excluding the impact of fees collected in lieu of interest, the yield on average loans and leases measured 5.28%, down from 5.37% in the linked quarter and up from 5.20% in the prior year quarter.

The yield on average interest-earning assets was 5.16% for the third quarter of 2019, compared to 5.29% in the linked quarter and 5.17% in the prior year quarter. Excluding fees collected in lieu of interest, the yield on average earning assets measured 4.94%, down from 5.05% in the linked quarter and up from 4.85% in the prior year quarter.

The Company’s cost of average interest-bearing liabilities increased to 2.21% for the third quarter of 2019 from 2.19% and 1.75% in the linked and prior year quarters, respectively. Excluding the one-time expense related to subordinated debt and brokered deposits, the cost of average interest-bearing liabilities for the third quarter of 2019 was 2.13%. The cost of average interest-bearing deposits for the third quarter of 2019 was 1.96%, down from 2.01% in the linked quarter and up from 1.47% in the prior year quarter.

Net interest margin measured 3.40% for the third quarter of 2019, compared to 3.52% in the linked quarter and 3.75% in the third quarter of 2018. Net interest margin reflected an increase in the rate paid on average interest-bearing liabilities, combined with the aforementioned one-time expense and a decrease in fees collected in lieu of interest. Excluding the one-time expense and fees collected in lieu of interest, net interest margin measured 3.25% for the third quarter of 2019, compared to 3.28% in the linked quarter and 3.44% in the third quarter of 2018. Management expects the execution of its strategies will allow the Company to return to a net interest margin, including fees collected in lieu of interest, at or above its target of 3.50% as short-term rates stabilize.

“Our net interest margin contracted slightly during the quarter primarily due to the decrease in target fed funds rate,” said Chambas. “The yield on our variable-rate loans tied to LIBOR dropped in anticipation of the Fed’s decision to decrease the target fed funds rate, while the reduction in deposit rates generally coincided with the timing of the actual fed funds rate decrease. We believe this decrease is temporary given our active balance sheet management, expected continued reduction in deposit costs, and improved loan mix driven by strong production in our higher yielding specialty finance business lines.”

The Company recorded a provision for loan and lease loss of $1.3 million in the third quarter of 2019, compared to benefits of $784,000 and $546,000 in the linked quarter and prior year quarters, respectively. The increase in provision for the third quarter of 2019 was in large part due to increases in specific reserves related to the impaired legacy SBA portfolio. Net charge-offs were $998,000 in the third quarter of 2019, compared to net recoveries of $154,000 in the linked quarter and $69,000 in the prior year quarter. The increase in net charge-offs was related to an existing impaired legacy SBA loan and offset by a reduction in the previously established specific reserve.

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 non-performing on-balance sheet legacy loans were $14.7 million at September 30, 2019, compared to $16.9 million and $11.9 million at June 30, 2019 and September 30, 2018, respectively. Total performing on-balance sheet legacy loans were $21.8 million at September 30, 2019, compared to $23.4 million and $29.3 million at June 30, 2019 and September 30, 2018, respectively. As of September 30, 2019, total on-balance sheet legacy loans were $36.5 million, down from $40.3 million and $41.2 million at June 30, 2019 and September 30, 2018, respectively.

Non-interest income totaled $5.8 million, or 25.7% of total revenue, for the third quarter of 2019, surpassing the Company’s goal of 25% of total revenue, compared to 5.8 million, or 25.6% of total revenue, in the linked quarter and $4.9 million, or 22.2% of total revenue, in the prior year quarter.

Trust and investment services fee income, which remained the Company’s largest source of non-interest income, totaled $2.1 million in the current and linked quarters compared to $1.9 million in the prior year quarter. Trust assets under management and administration measured a record $1.801 billion at September 30, 2019, up $45.5 million, or 10.4% annualized, from the linked quarter and up $79.6 million, or 4.6%, from September 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 Madison, Wisconsin market.

Gains on sale of SBA loans totaled $454,000 in the third quarter of 2019, compared to $297,000 in the linked quarter and $641,000 in the third quarter of 2018. Based on the Company’s enhanced business development team and growing pipeline of new business, management believes the gain on sale of SBA loans will continue to increase at a measured pace moving forward.

Commercial loan interest rate swap fee income totaled $374,000 in the third quarter of 2019, compared to $1.1 million in the linked quarter and $306,000 in the third quarter of 2018. Interest rate swaps continue to be an attractive product for the Company’s commercial borrowers, although associated fee income can be variable from period to period based on client demand and the interest rate environment in any given quarter.

Other fee income totaled $1.7 million in the third quarter of 2019, compared to $1.1 million in the linked quarter and $736,000 in the prior year quarter. The increase is primarily due to above average returns on investments in mezzanine funds totaling $770,000 and a $206,000 gain from the sale of a state tax credit. The linked quarter includes $501,000 in gains recognized on end-of-term buyout agreements related to the Company’s equipment financing business line.

Non-interest expense was $14.7 million for the third quarter of 2019, compared to $17.5 million for the linked quarter and $15.7 million in the third quarter of 2018. Operating expense, which excludes certain one-time and discrete items as defined in the Efficiency Ratio table included in the Non-GAAP Reconciliations at the end of this release, totaled $15.0 million in the third quarter of 2019 and $15.3 million in the linked quarter and prior year quarters.

Relatively stable operating expenses coupled with strong operating revenue resulted in a reduction in the Company’s third quarter 2019 efficiency ratio to 66.41%, compared to 67.41% for the linked quarter and 69.55% for the prior year quarter. Compensation expense for the three months ended September 30, 2019 was $10.3 million, a decrease of $179,000 compared to the linked quarter and an increase of $505,000 compared to the prior year quarter. The decrease in compensation expense compared to the linked quarter reflects a decrease in incentive compensation tied to individual and Company performance, offset slightly by an increase in employees. Compared to the prior year, performance-based incentive compensation increased to reflect achievement of production and performance targets in 2019. Full-time equivalent employees were 281 at September 30, 2019, compared to 275 at June 30, 2019 and September 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%.

Operating expense during the third quarter of 2019 also benefited from a reduction in FDIC insurance expense as the Deposit Insurance Fund (“DIF”) reached 1.38%, exceeding the statutorily required minimum ratio of 1.35% and requiring the FDIC to distribute assessment credits to small banks for their portion of their assessments that contributed to the growth in the reserve ratio. The Company received a credit of $315,000 in the third quarter of 2019 and management expects another reduction in FDIC insurance, but to a lesser extent, during the fourth quarter of 2019 due to the remaining portion of the Company’s assessment credit.

Non-interest expense includes SBA recourse provision for estimated losses in the outstanding guaranteed portion of SBA loans sold. SBA recourse provision was a net benefit of $427,000 in the third quarter of 2019, compared to provision of $113,000 and $314,000 in the linked and prior year quarters, respectively. The net benefit in the current quarter was primarily due to the declining balance of the outstanding legacy SBA loan sold portfolio, a reduction in the loss rate applied to the portfolio, and payments received resulting in a reduction in specific recourse reserves required. The total recourse reserve balance was $1.6 million, or 2.2% of total sold SBA loans outstanding, at September 30, 2019, compared to $2.1 million, or 2.7%, in the linked quarter, and $2.7 million, or 3.0%, in the prior year quarter. Total sold legacy SBA loans at September 30, 2019 were $47.6 million, down from $52.7 million and $72.1 million at June 30, 2019 and September 30, 2018, respectively. Total performing sold legacy SBA loans were $40.3 million at September 30, 2019, compared to $44.4 million and $54.6 million at June 30, 2019 and September 30, 2018, respectively. Total non-performing sold legacy SBA loans were $7.3 million at September 30, 2019, compared to $8.3 million and $17.5 million at June 30, 2019 and September 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 third quarter of 2019, we benefited from a recovery in tax credit investments as a result of discounts received on previously impaired tax credit investments. During the second quarter of 2019, the Company recognized $2.0 million in expense due to the impairment of federal historic tax credit investments, which corresponded with the recognition of $2.4 million in federal tax credits during the quarter. The Company’s historic tax credit program contributed $446,000, $0.05 per share, to second quarter 2019 earnings. Third quarter 2018 earnings did not benefit from historic tax credit investments. 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 $1.721 billion at September 30, 2019, increasing $566,000 from June 30, 2019 and increasing $121.9 million, or 7.6%, from September 30, 2018. Average gross loans and leases receivable totaled a record $1.731 billion at September 30, 2019, increasing $37.1 million, or 8.8% annualized, from June 30, 2019 and increasing $129.9 million, or 8.1%, from September 30, 2018.

“Although period-end loan growth was muted by loan payoffs late in the quarter, strong production early in the quarter resulted in average loan balances increasing 8.8% annualized compared to the second quarter,” said Chambas. “We continue to remain confident in our ability to generate high single-digit loan growth throughout 2019 and 2020.”

Period-end in-market deposits increased to $1.321 billion, or 72.7% of total bank funding at September 30, 2019, compared to $1.290 billion, or 71.6%, at June 30, 2019 and $1.077 billion, or 64.6%, at September 30, 2018. Total bank funding is defined as total deposits plus FHLB advances. Money market accounts, the largest contributors to in-market deposit growth, increased $82.5 million compared to the linked quarter, partially due to some inflows from transaction accounts, which in turn decreased by $59.2 million compared to the linked quarter.

“In-market deposit growth of 22.7% over the past year is the result of our company-wide focus on deposits, investments in people, and successful execution of our strategies,” Chambas commented. “Importantly, we continue to achieve 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 $496.4 million at September 30, 2019, including FHLB advances of $308.5 million, brokered certificates of deposit of $186.9 million, and deposits gathered through internet deposit listing services of $1.0 million, compared to period-end wholesale funding of $512.9 million at June 30, 2019 and $589.1 million at September 30, 2018.

Consistent with the Company’s longstanding funding strategy to manage interest rate 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%.

Asset Quality

Non-performing assets were $25.7 million, or 1.23% of total assets, at September 30, 2019, compared to $28.5 million, or 1.38% of total assets, and $32.1 million, or 1.69% of total assets, at the end of the linked quarter and third quarter of 2018, respectively. The decrease from the linked quarter was primarily due to payments received and current quarter charge-offs of $1.1 million, the majority of which related to one legacy SBA relationship previously classified as impaired for which we were fully reserved.

Capital Strength

As of September 30, 2019, total capital to risk-weighted assets was 11.90%, tier 1 capital to risk-weighted assets was 9.62%, tier 1 leverage capital to adjusted average assets was 9.18%, and common equity tier 1 capital to risk-weighted assets was 9.11%. In addition, as of September 30, 2019, tangible common equity to tangible assets was 8.59%.

Share Repurchases

In August 2019, the Company completed a $5 million share repurchase program initiated in December 2018, repurchasing 223,149 shares at an average price of $22.36 per share.

In September 2019, the Company’s Board of Directors approved a new share repurchase program authorizing the repurchase of up to $5 million of its total outstanding shares of common stock over a period of approximately 12 months, ending on September 30, 2020. As of October 23, 2019, the Company had repurchased 37,205 shares of its common stock at a weighted average price of $24.10 per share, for a total value of $897,000.

Quarterly Dividend

As previously announced, during the third quarter of 2019, the Company’s Board of Directors declared a regular quarterly dividend of $0.15 per share. The dividend was paid on August 15, 2019 to stockholders of record at the close of business on August 5, 2019. Measured against third quarter 2019 diluted earnings per share of $0.59, the dividend represents a 25.4% 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)

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

60,958

 

 

$

45,875

 

 

$

56,335

 

 

$

86,546

 

 

$

40,293

 

Securities available-for-sale, at fair value

 

160,665

 

 

158,933

 

 

156,783

 

 

138,358

 

 

134,995

 

Securities held-to-maturity, at amortized cost

 

33,400

 

 

34,519

 

 

35,914

 

 

37,731

 

 

39,950

 

Loans held for sale

 

3,070

 

 

4,786

 

 

5,447

 

 

5,287

 

 

4,712

 

Loans and leases receivable

 

1,720,542

 

 

1,719,976

 

 

1,656,646

 

 

1,617,655

 

 

1,598,607

 

Allowance for loan and lease losses

 

(20,170

)

 

(19,819

)

 

(20,449

)

 

(20,425

)

 

(20,455

)

Loans and leases receivable, net

 

1,700,372

 

 

1,700,157

 

 

1,636,197

 

 

1,597,230

 

 

1,578,152

 

Premises and equipment, net

 

2,740

 

 

2,866

 

 

3,043

 

 

3,284

 

 

3,247

 

Foreclosed properties

 

2,902

 

 

2,660

 

 

2,547

 

 

2,547

 

 

1,454

 

Right-of-use assets

 

7,524

 

 

7,853

 

 

8,180

 

 

 

 

 

Bank-owned life insurance

 

42,432

 

 

42,127

 

 

41,830

 

 

41,538

 

 

41,212

 

Federal Home Loan Bank stock, at cost

 

8,315

 

 

6,720

 

 

6,635

 

 

7,240

 

 

6,890

 

Goodwill and other intangible assets

 

11,946

 

 

12,000

 

 

12,017

 

 

12,045

 

 

12,132

 

Accrued interest receivable and other assets

 

58,469

 

 

51,808

 

 

40,714

 

 

34,651

 

 

31,293

 

Total assets

 

$

2,092,793

 

 

$

2,070,304

 

 

$

2,005,642

 

 

$

1,966,457

 

 

$

1,894,330

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

In-market deposits

 

$

1,320,957

 

 

$

1,290,258

 

 

$

1,239,494

 

 

$

1,179,448

 

 

$

1,076,851

 

Wholesale deposits

 

187,859

 

 

239,387

 

 

262,212

 

 

275,851

 

 

332,052

 

Total deposits

 

1,508,816

 

 

1,529,645

 

 

1,501,706

 

 

1,455,299

 

 

1,408,903

 

Federal Home Loan Bank advances and other borrowings

 

332,897

 

 

297,972

 

 

269,958

 

 

298,944

 

 

281,430

 

Junior subordinated notes

 

10,044

 

 

10,040

 

 

10,037

 

 

10,033

 

 

10,029

 

Lease liabilities

 

7,866

 

 

8,187

 

 

8,504

 

 

 

 

 

Accrued interest payable and other liabilities

 

42,378

 

 

35,605

 

 

30,337

 

 

21,474

 

 

16,426

 

Total liabilities

 

1,902,001

 

 

1,881,449

 

 

1,820,542

 

 

1,785,750

 

 

1,716,788

 

Total stockholders’ equity

 

190,792

 

 

188,855

 

 

185,100

 

 

180,707

 

 

177,542

 

Total liabilities and stockholders’ equity

 

$

2,092,793

 

 

$

2,070,304

 

 

$

2,005,642

 

 

$

1,966,457

 

 

$

1,894,330

 

STATEMENTS OF INCOME

(Unaudited)

 

As of and for the Three Months Ended

 

As of and for the Nine Months Ended

(Dollars in thousands, except per share amounts)

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

 

September 30,
2019

 

September 30,
2018

Total interest income

 

$

25,438

 

 

$

25,309

 

 

$

25,679

 

 

$

24,522

 

 

$

23,563

 

 

$

76,427

 

 

$

66,754

 

Total interest expense

 

8,662

 

 

8,457

 

 

7,925

 

 

7,407

 

 

6,469

 

 

25,045

 

 

16,527

 

Net interest income

 

16,776

 

 

16,852

 

 

17,754

 

 

17,115

 

 

17,094

 

 

51,382

 

 

50,227

 

Provision for loan and lease losses

 

1,349

 

 

(784

)

 

49

 

 

983

 

 

(546

)

 

613

 

 

4,508

 

Net interest income after provision for loan and lease losses

 

15,427

 

 

17,636

 

 

17,705

 

 

16,132

 

 

17,640

 

 

50,769

 

 

45,719

 

Trust and investment service fees

 

2,060

 

 

2,138

 

 

1,927

 

 

1,919

 

 

1,941

 

 

6,125

 

 

5,826

 

Gain on sale of SBA loans

 

454

 

 

297

 

 

242

 

 

267

 

 

641

 

 

993

 

 

1,184

 

Service charges on deposits

 

795

 

 

743

 

 

777

 

 

770

 

 

788

 

 

2,314

 

 

2,292

 

Loan fees

 

439

 

 

464

 

 

414

 

 

408

 

 

459

 

 

1,316

 

 

1,375

 

Net loss on sale of securities

 

(4

)

 

 

 

 

 

(4

)

 

 

 

(5

)

 

 

Swap fees

 

374

 

 

1,051

 

 

473

 

 

662

 

 

306

 

 

1,898

 

 

1,009

 

Other non-interest income

 

1,674

 

 

1,112

 

 

805

 

 

626

 

 

736

 

 

3,593

 

 

1,833

 

Total non-interest income

 

5,792

 

 

5,805

 

 

4,638

 

 

4,648

 

 

4,871

 

 

16,234

 

 

13,519

 

Compensation

 

10,324

 

 

10,503

 

 

10,165

 

 

9,432

 

 

9,819

 

 

30,991

 

 

28,006

 

Occupancy

 

580

 

 

559

 

 

590

 

 

560

 

 

560

 

 

1,730

 

 

1,632

 

Professional fees

 

751

 

 

784

 

 

1,210

 

 

879

 

 

1,027

 

 

2,745

 

 

2,990

 

Data processing

 

654

 

 

689

 

 

581

 

 

614

 

 

512

 

 

1,923

 

 

1,748

 

Marketing

 

548

 

 

581

 

 

482

 

 

617

 

 

593

 

 

1,611

 

 

1,518

 

Equipment

 

277

 

 

272

 

 

389

 

 

345

 

 

403

 

 

938

 

 

1,089

 

Computer software

 

859

 

 

827

 

 

799

 

 

780

 

 

814

 

 

2,485

 

 

2,235

 

FDIC insurance

 

1

 

 

302

 

 

293

 

 

353

 

 

457

 

 

595

 

 

1,125

 

Collateral liquidation costs

 

110

 

 

89

 

 

(91

)

 

193

 

 

230

 

 

108

 

 

454

 

Net loss (gain) on foreclosed properties

 

262

 

 

(21

)

 

 

 

337

 

 

30

 

 

241

 

 

30

 

Tax credit investment (recovery) impairment

 

(120

)

 

2,088

 

 

2,014

 

 

1,529

 

 

113

 

 

3,982

 

 

554

 

SBA recourse (benefit) provision

 

(427

)

 

113

 

 

481

 

 

1,795

 

 

314

 

 

167

 

 

118

 

Other non-interest expense

 

897

 

 

678

 

 

829

 

 

810

 

 

874

 

 

2,406

 

 

2,621

 

Total non-interest expense

 

14,716

 

 

17,464

 

 

17,742

 

 

18,244

 

 

15,746

 

 

49,922

 

 

44,120

 

Income before income tax expense (benefit)

 

6,503

 

 

5,977

 

 

4,601

 

 

2,536

 

 

6,765

 

 

17,081

 

 

15,118

 

Income tax expense (benefit)

 

1,418

 

 

(595

)

 

(1,298

)

 

(1,528

)

 

1,464

 

 

(475

)

 

2,879

 

Net income

 

$

5,085

 

 

$

6,572

 

 

$

5,899

 

 

$

4,064

 

 

$

5,301

 

 

$

17,556

 

 

$

12,239

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings

 

$

0.59

 

 

$

0.75

 

 

$

0.67

 

 

$

0.46

 

 

$

0.60

 

 

$

2.01

 

 

$

1.40

 

Diluted earnings

 

0.59

 

 

0.75

 

 

0.67

 

 

0.46

 

 

0.60

 

 

2.01

 

 

1.40

 

Dividends declared

 

0.15

 

 

0.15

 

 

0.15

 

 

0.14

 

 

0.14

 

 

0.45

 

 

0.42

 

Book value

 

22.09

 

 

21.71

 

 

21.12

 

 

20.57

 

 

20.19

 

 

22.09

 

 

20.19

 

Tangible book value

 

20.71

 

 

20.33

 

 

19.75

 

 

19.20

 

 

18.81

 

 

20.71

 

 

18.81

 

Weighted-average common shares outstanding(1)

 

8,492,445

 

 

8,569,581

 

 

8,621,221

 

 

8,662,025

 

 

8,650,057

 

 

8,546,192

 

 

8,634,890

 

Weighted-average diluted common shares outstanding(1)

 

8,492,445

 

 

8,569,581

 

 

8,621,221

 

 

8,662,025

 

 

8,650,057

 

 

8,546,192

 

 

8,634,890

 

(1)

Excluding participating securities.

NET INTEREST INCOME ANALYSIS

(Unaudited)

 

For the Three Months Ended

(Dollars in thousands)

 

September 30, 2019

 

June 30, 2019

 

September 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)

 

$

1,153,591

 

 

$

14,568

 

 

5.05

%

 

$

1,139,036

 

 

$

14,755

 

 

5.18

%

 

$

1,085,315

 

 

$

13,755

 

 

5.07

%

Commercial and industrial loans(1)

 

517,043

 

 

8,697

 

 

6.73

%

 

493,093

 

 

8,477

 

 

6.88

%

 

455,242

 

 

7,865

 

 

6.91

%

Direct financing leases(1)

 

29,600

 

 

316

 

 

4.27

%

 

31,610

 

 

324

 

 

4.10

%

 

31,197

 

 

313

 

 

4.01

%

Consumer and other loans(1)

 

31,195

 

 

341

 

 

4.37

%

 

30,555

 

 

348

 

 

4.56

%

 

29,798

 

 

333

 

 

4.47

%

Total loans and leases receivable(1)

 

1,731,429

 

 

23,922

 

 

5.53

%

 

1,694,294

 

 

23,904

 

 

5.64

%

 

1,601,552

 

 

22,266

 

 

5.56

%

Mortgage-related securities(2)

 

167,113

 

 

1,060

 

 

2.54

%

 

161,827

 

 

1,024

 

 

2.53

%

 

140,227

 

 

833

 

 

2.38

%

Other investment securities(3)

 

24,755

 

 

134

 

 

2.17

%

 

28,723

 

 

151

 

 

2.10

%

 

34,140

 

 

169

 

 

1.98

%

FHLB stock

 

7,692

 

 

85

 

 

4.42

%

 

6,875

 

 

86

 

 

5.00

%

 

7,722

 

 

89

 

 

4.61

%

Short-term investments

 

40,707

 

 

237

 

 

2.33

%

 

22,570

 

 

144

 

 

2.55

%

 

40,201

 

 

206

 

 

2.05

%

Total interest-earning assets

 

1,971,696

 

 

25,438

 

 

5.16

%

 

1,914,289

 

 

25,309

 

 

5.29

%

 

1,823,842

 

 

23,563

 

 

5.17

%

Non-interest-earning assets

 

121,589

 

 

 

 

 

 

110,516

 

 

 

 

 

 

91,359

 

 

 

 

 

Total assets

 

$

2,093,285

 

 

 

 

 

 

$

2,024,805

 

 

 

 

 

 

$

1,915,201

 

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transaction accounts

 

$

217,870

 

 

919

 

 

1.69

%

 

$

234,241

 

 

989

 

 

1.69

%

 

$

263,928

 

 

785

 

 

1.19

%

Money market

 

642,385

 

 

2,857

 

 

1.78

%

 

593,431

 

 

2,850

 

 

1.92

%

 

472,866

 

 

1,413

 

 

1.20

%

Certificates of deposit

 

154,095

 

 

983

 

 

2.55

%

 

164,537

 

 

1,025

 

 

2.49

%

 

88,903

 

 

384

 

 

1.73

%

Wholesale deposits

 

211,528

 

 

1,247

 

 

2.36

%

 

251,060

 

 

1,394

 

 

2.22

%

 

327,146

 

 

1,650

 

 

2.02

%

Total interest-bearing deposits

 

1,225,878

 

 

6,006

 

 

1.96

%

 

1,243,269

 

 

6,258

 

 

2.01

%

 

1,152,843

 

 

4,232

 

 

1.47

%

FHLB advances

 

307,060

 

 

1,673

 

 

2.18

%

 

266,137

 

 

1,511

 

 

2.27

%

 

292,465

 

 

1,546

 

 

2.11

%

Other borrowings

 

27,545

 

 

703

 

 

10.21

%

 

24,463

 

 

411

 

 

6.72

%

 

24,420

 

 

411

 

 

6.73

%

Junior subordinated notes

 

10,041

 

 

280

 

 

11.15

%

 

10,038

 

 

277

 

 

11.04

%

 

10,027

 

 

280

 

 

11.17

%

Total interest-bearing liabilities

 

1,570,524

 

 

8,662

 

 

2.21

%

 

1,543,907

 

 

8,457

 

 

2.19

%

 

1,479,755

 

 

6,469

 

 

1.75

%

Non-interest-bearing demand deposit accounts

 

283,675

 

 

 

 

 

 

254,177

 

 

 

 

 

 

239,594

 

 

 

 

 

Other non-interest-bearing liabilities

 

48,688

 

 

 

 

 

 

40,110

 

 

 

 

 

 

19,989

 

 

 

 

 

Total liabilities

 

1,902,887

 

 

 

 

 

 

1,838,194

 

 

 

 

 

 

1,739,338

 

 

 

 

 

Stockholders’ equity

 

190,398

 

 

 

 

 

 

186,611

 

 

 

 

 

 

175,863

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

2,093,285

 

 

 

 

 

 

$

2,024,805

 

 

 

 

 

 

$

1,915,201

 

 

 

 

 

Net interest income

 

 

 

$

16,776

 

 

 

 

 

 

$

16,852

 

 

 

 

 

 

$

17,094

 

 

 

Interest rate spread

 

 

 

 

 

2.95

%

 

 

 

 

 

3.10

%

 

 

 

 

 

3.42

%

Net interest-earning assets

 

$

401,172

 

 

 

 

 

 

$

370,382

 

 

 

 

 

 

$

344,087

 

 

 

 

 

Net interest margin

 

 

 

 

 

3.40

%

 

 

 

 

 

3.52

%

 

 

 

 

 

3.75

%

(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.

NET INTEREST INCOME ANALYSIS

(Unaudited)

 

For the Nine Months Ended

(Dollars in thousands)

 

September 30, 2019

 

September 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)

 

$

1,135,596

 

 

$

44,012

 

 

5.17

%

 

$

1,068,605

 

 

$

39,360

 

 

4.91

%

Commercial and industrial loans(1)

 

492,247

 

 

26,012

 

 

7.05

%

 

443,188

 

 

21,915

 

 

6.59

%

Direct financing leases(1)

 

31,143

 

 

967

 

 

4.14

%

 

30,789

 

 

929

 

 

4.02

%

Consumer and other loans(1)

 

31,391

 

 

1,042

 

 

4.43

%

 

29,693

 

 

967

 

 

4.34

%

Total loans and leases receivable(1)

 

1,690,377

 

 

72,033

 

 

5.68

%

 

1,572,275

 

 

63,171

 

 

5.36

%

Mortgage-related securities(2)

 

158,407

 

 

3,022

 

 

2.54

%

 

135,135

 

 

2,295

 

 

2.26

%

Other investment securities(3)

 

27,849

 

 

442

 

 

2.12

%

 

34,966

 

 

501

 

 

1.91

%

FHLB and FRB stock

 

7,210

 

 

261

 

 

4.83

%

 

7,614

 

 

203

 

 

3.55

%

Short-term investments

 

36,139

 

 

669

 

 

2.47

%

 

47,592

 

 

584

 

 

1.64

%

Total interest-earning assets

 

1,919,982

 

 

76,427

 

 

5.31

%

 

1,797,582

 

 

66,754

 

 

4.95

%

Non-interest-earning assets

 

109,395

 

 

 

 

 

 

91,657

 

 

 

 

 

Total assets

 

$

2,029,377

 

 

 

 

 

 

$

1,889,239

 

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Transaction accounts

 

$

222,513

 

 

2,779

 

 

1.67

%

 

$

278,042

 

 

1,821

 

 

0.87

%

Money market

 

597,487

 

 

8,231

 

 

1.84

%

 

487,395

 

 

3,331

 

 

0.91

%

Certificates of deposit

 

159,390

 

 

2,965

 

 

2.48

%

 

80,630

 

 

862

 

 

1.43

%

Wholesale deposits

 

243,254

 

 

4,085

 

 

2.24

%

 

302,262

 

 

4,257

 

 

1.88

%

Total interest-bearing deposits

 

1,222,644

 

 

18,060

 

 

1.97

%

 

1,148,329

 

 

10,271

 

 

1.19

%

FHLB advances

 

280,538

 

 

4,629

 

 

2.20

%

 

277,866

 

 

4,186

 

 

2.01

%

Other borrowings

 

25,497

 

 

1,524

 

 

7.97

%

 

24,571

 

 

1,238

 

 

6.72

%

Junior subordinated notes

 

10,038

 

 

832

 

 

11.05

%

 

10,023

 

 

832

 

 

11.07

%

Total interest-bearing liabilities

 

1,538,717

 

 

25,045

 

 

2.17

%

 

1,460,789

 

 

16,527

 

 

1.51

%

Non-interest-bearing demand deposit accounts

 

265,121

 

 

 

 

 

 

236,208

 

 

 

 

 

Other non-interest-bearing liabilities

 

42,276

 

 

 

 

 

 

21,055

 

 

 

 

 

Total liabilities

 

1,846,114

 

 

 

 

 

 

1,718,052

 

 

 

 

 

Stockholders’ equity

 

183,263

 

 

 

 

 

 

171,187

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

2,029,377

 

 

 

 

 

 

$

1,889,239

 

 

 

 

 

Net interest income

 

 

 

$

51,382

 

 

 

 

 

 

$

50,227

 

 

 

Interest rate spread

 

 

 

 

 

3.14

%

 

 

 

 

 

3.44

%

Net interest-earning assets

 

$

381,265

 

 

 

 

 

 

$

336,793

 

 

 

 

 

Net interest margin

 

 

 

 

 

3.57

%

 

 

 

 

 

3.73

%

(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 Nine Months Ended

(Unaudited)

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

 

September 30,
2019

 

September 30,
2018

Return on average assets (annualized)

 

0.97

%

 

1.30

%

 

1.20

%

 

0.83

%

 

1.11

%

 

1.15

%

 

0.86

%

Return on average equity (annualized)

 

10.68

%

 

14.09

%

 

13.67

%

 

9.06

%

 

12.06

%

 

12.77

%

 

9.53

%

Efficiency ratio

 

66.41

%

 

67.41

%

 

68.04

%

 

66.95

%

 

69.55

%

 

67.29

%

 

68.05

%

Interest rate spread

 

2.95

%

 

3.10

%

 

3.37

%

 

3.30

%

 

3.42

%

 

3.14

%

 

3.44

%

Net interest margin

 

3.40

%

 

3.52

%

 

3.79

%

 

3.69

%

 

3.75

%

 

3.57

%

 

3.73

%

Average interest-earning assets to average interest-bearing liabilities

 

125.54

%

 

123.99

%

 

124.78

%

 

124.65

%

 

123.25

%

 

124.78

%

 

123.06

%

ASSET QUALITY RATIOS

(Unaudited)

 

As of

(Dollars in thousands)

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

Non-accrual loans and leases

 

$

22,789

 

 

$

25,864

 

 

$

23,540

 

 

$

25,301

 

 

$

30,613

 

Foreclosed properties

 

2,902

 

 

2,660

 

 

2,547

 

 

2,547

 

 

1,454

 

Total non-performing assets

 

25,691

 

 

28,524

 

 

26,087

 

 

27,848

 

 

32,067

 

Performing troubled debt restructurings

 

146

 

 

151

 

 

169

 

 

180

 

 

187

 

Total impaired assets

 

$

25,837

 

 

$

28,675

 

 

$

26,256

 

 

$

28,028

 

 

$

32,254

 

 

 

 

 

 

 

 

 

 

 

 

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

 

1.32

%

 

1.50

%

 

1.42

%

 

1.56

%

 

1.91

%

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

 

1.49

%

 

1.66

%

 

1.57

%

 

1.72

%

 

2.00

%

Non-performing assets as a percent of total assets

 

1.23

%

 

1.38

%

 

1.30

%

 

1.42

%

 

1.69

%

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

 

1.17

%

 

1.15

%

 

1.23

%

 

1.26

%

 

1.28

%

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

 

88.51

%

 

76.64

%

 

86.87

%

 

80.73

%

 

66.82

%

NET CHARGE-OFFS (RECOVERIES)

(Unaudited)

 

For the Three Months Ended

 

For the Nine Months Ended

(Dollars in thousands)

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

 

September 30,
2019

 

September 30,
2018

Charge-offs

 

$

1,099

 

 

$

15

 

 

$

48

 

 

$

1,197

 

 

$

1,914

 

 

$

1,162

 

 

$

4,904

 

Recoveries

 

(101

)

 

(169

)

 

(23

)