First Business 2019 Net Income Increases 43% to a Record $23.3 Million

Company Release - 1/23/2020 4:02 PM ET

Fourth Quarter 2019 Net Income Up 42% Compared to Prior Year Period

MADISON, Wis.--(BUSINESS WIRE)-- First Business Financial Services, Inc. (the “Company” or “First Business”) (Nasdaq:FBIZ) reported strong fourth quarter and record full year 2019 net income as the Company continued to execute on key initiatives, resulting in an increase in top line revenue, reduction in the level of non-performing assets, improvement in operating efficiency, and strong in-market deposit growth.

Summary results for the year ended December 31, 2019:

  • Record net income of $23.3 million increased by $7.0 million, or 43.1%, compared to $16.3 million in 2018.
  • Diluted earnings per common share measured $2.68 compared to $1.86 in 2018.
  • Return on average assets and return on average equity measured 1.14% and 12.55%, respectively, compared to 0.86% and 9.41%, respectively, in 2018.
  • Net interest margin was 3.61% compared to 3.72% in 2018.
  • Top line revenue, the sum of net interest income and non-interest income, totaled $93.3 million, an increase of 9.1% compared to $85.5 million in 2018.
  • Provision for loan and lease losses was $2.1 million compared to $5.5 million in 2018.
  • SBA recourse provision was $188,000 compared to $1.9 million in 2018.
  • Efficiency ratio improved to 66.59%, down from 67.77% in 2018.

Summary results as of and for the quarter ended December 31, 2019:

  • Net income totaled $5.8 million compared to $5.1 million for the linked quarter and $4.1 million for the fourth quarter of 2018.
  • Diluted earnings per common share measured $0.67 compared to $0.59 and $0.46 for the linked and prior year quarters, respectively.
  • Annualized return on average assets and annualized return on average equity measured 1.09% and 11.93%, respectively, compared to 0.97% and 10.68%, respectively, for the linked quarter and 0.83% and 9.06%, respectively, for the fourth quarter of 2018.
  • Net interest margin was 3.73% compared to 3.40% for the linked quarter and 3.69% for the fourth quarter of 2018.
  • Top line revenue totaled $25.7 million compared to $22.6 million for the linked quarter and $21.8 million for the fourth quarter of 2018.
  • Provision for loan and lease losses was $1.5 million compared to $1.3 million and $983,000 for the linked and prior year quarters, respectively.
  • SBA recourse provision was $21,000 compared to a benefit of $427,000 for the linked quarter and expense of $1.8 million for the fourth quarter of 2018.
  • Efficiency ratio improved to 64.77% from 66.41% for the linked quarter and 66.95% for the fourth quarter of 2018.
  • Average gross loans and leases of $1.744 billion increased by $12.9 million, or 3.0% annualized, from the linked quarter and $127.1 million, or 7.9%, compared to the fourth quarter of 2018. Period-end gross loans and leases receivable of $1.715 billion decreased $5.9 million during the fourth quarter of 2019 and increased $97.0 million, or 6.0%, from $1.618 billion at December 31, 2018.
  • Non-performing assets were $23.5 million, or 1.12% of total assets, compared to $25.7 million, or 1.23%, at September 30, 2019 and $27.8 million, or 1.42%, at December 31, 2018.
  • Average in-market deposits of $1.350 billion increased $52.1 million, or 16.0% annualized, during the fourth quarter of 2019 and $207.8 million, or 18.2%, from December 31, 2018. Record period-end in-market deposits of $1.379 billion increased $57.9 million, or 17.5% annualized, during the fourth quarter of 2019 and $199.5 million, or 16.9%, from December 31, 2018.

“We are extremely pleased to report record earnings for 2019. Through the efforts of our talented team of bankers, we achieved strong loan growth and outstanding in-market deposit growth, while also continuing to improve our operating efficiency,” said Corey Chambas, President and Chief Executive Officer. “Our investments in people and infrastructure are driving these significantly improved quarterly and annual results,” Chambas added.

Fourth Quarter 2019 Results of Operations

Net interest income of $18.5 million increased by $1.7 million, or 10.1%, compared to the linked quarter and $1.4 million, or 7.9%, compared to the fourth quarter of 2018. Net interest income reflected an increase in net interest margin, higher average loans and leases outstanding, and an increase in loan fees received in lieu of interest. 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 $1.8 million, compared to $1.1 million for the linked quarter and $1.4 million for the fourth quarter of 2018. Fourth quarter 2019 net interest income included $67,000 of one-time interest expense related to exercising the call options on brokered deposits. Third quarter 2019 net interest income included $261,000 and $47,000 of one-time interest expense related to exercising the call options on subordinated debt and brokered deposits, respectively. Excluding these one-time interest expense items and fees collected in lieu of interest in all periods of comparison, net interest income increased $713,000, or 4.5%, compared to the linked quarter and $1.0 million, or 6.5%, compared to the fourth quarter of 2018.

Net interest margin measured 3.73% for the fourth quarter of 2019, compared to 3.40% in the linked quarter and 3.69% in the fourth quarter of 2018. Net interest margin reflected a decrease in the rate paid on average interest-bearing liabilities, combined with the aforementioned increase in loan fees in lieu of interest. Excluding fees collected in lieu of interest and one-time interest expense related to exercising the call options on subordinated debt and brokered deposits, net interest margin measured 3.38% for the fourth quarter of 2019, compared to 3.25% in the linked quarter and 3.39% in the fourth quarter of 2018. This improvement in net interest margin compared to the linked quarter is primarily due to the reduction in the rate paid on deposits following the Federal Reserve’s third and final rate cut of 2019, which more than offset the decline in variable loan rates. Management expects the execution of its strategies will allow the Company to maintain a net interest margin, including fees collected in lieu of interest, at or above its target of 3.50%.

The Company recorded a provision for loan and lease losses of $1.5 million in the fourth quarter of 2019, compared to $1.3 million and $983,000 in the linked quarter and prior year quarter, respectively. The increase in provision for the fourth quarter of 2019 was in large part due to increases in specific reserves related to previously impaired legacy SBA relationships. Net charge-offs were $2.1 million in the fourth quarter of 2019, compared to $998,000 in the linked quarter and $1.0 million in the prior year quarter. The increase in net charge-offs was related to existing impaired legacy SBA loans and offset by a reduction in the previously established specific reserves.

Non-interest income totaled $7.2 million, or 28.0% of total revenue, for the fourth quarter of 2019, surpassing the Company’s goal of 25% of total revenue, compared to $5.8 million, or 25.7% of total revenue, in the linked quarter and $4.6 million, or 21.4% of total revenue, in the prior year quarter.

Trust and investment services fee 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 $1.892 billion at December 31, 2019, up $91.7 million, or 20.4% annualized, from the linked quarter and up $261.9 million, or 16.1%, from December 31, 2018. Management expects new business development efforts to remain strong in 2020 and beyond as the Company continues to expand its private wealth management business outside its Madison, Wisconsin, market.

Commercial loan interest rate swap fee income totaled a record $2.3 million in the fourth quarter of 2019, compared to $374,000 in the linked quarter and $662,000 in the fourth quarter of 2018. The above average swap fee income in the quarter was primarily due to one large commercial real estate transaction which generated a $1.1 million fee. 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.

Gains on sale of SBA loans totaled $465,000 in the fourth quarter of 2019, an increase of $11,000, or 9.7% annualized, compared to $454,000 in the linked quarter and an increase of $198,000, or 74.2%, compared to $267,000 in the fourth 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.

Other fee income totaled $1.2 million in the fourth quarter of 2019, a decrease of $488,000, or 29.2%, compared to $1.7 million in the linked quarter and an increase of $560,000, or 89.5%, compared to $626,000 in the fourth quarter of 2018. Returns on the investment in mezzanine funds were $241,000 in the fourth quarter of 2019, compared to $770,000 in the linked quarter and $100,000 in the prior year quarter. The increase compared to the prior year quarter was also due to a $207,000 gain from the sale of a state tax credit and increased fee income from our newly established division, First Business Consulting Services, which provides investment portfolio administrative and asset/liability management services.

Non-interest expense was $16.8 million for the fourth quarter of 2019, compared to $14.7 million for the linked quarter and $18.2 million in the fourth 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 $16.6 million in the fourth quarter of 2019, compared to $15.0 million in the linked quarter and $14.6 million in the prior year quarter.

Compensation expense for the three months ended December 31, 2019 was $11.0 million, an increase of $706,000 compared to the linked and prior year quarters and an increase of $1.6 million compared to the prior year quarter. The increase in compensation expense from the linked quarter reflects a $606,000 increase in the Company’s performance-based incentive compensation accrual based on actual full year 2019 results. Full-time equivalent employees (“FTE”) were 288 at December 31, 2019, compared to 281 at September 30, 2019 and 274 at December 31, 2018. The year-over-year increase in FTEs consists of eight net new production positions and six net new support positions.

Professional fee expense for the three months ended December 31, 2019 was $957,000, an increase of $206,000 compared to the linked quarter and $78,000 compared to the prior year quarter. The increase compared to the linked quarter was due to an increase in audit and consulting fees.

Other non-interest expense for the three months ended December 31, 2019 was $1.6 million, an increase of $683,000 compared to the linked quarter and $770,000 compared to the prior year quarter. The increase in other non-interest expense compared to both the linked and prior year quarters was principally due to a one-time right-of-use impairment of $299,000 from vacating and subleasing unused office space in our Kansas City market. The Company also experienced an increase in business travel and training costs consistent with the increase in FTEs referenced above.

Exceptional operating revenue resulted in a reduction in the Company’s fourth quarter 2019 efficiency ratio to 64.77%, compared to 66.41% for the linked quarter and 66.95% for the prior year quarter. The increase in operating revenue was principally attributable to the improvement in net interest margin and above average fee income generated by the Company’s commercial loan interest rate swap program. This increase in operating revenue was partially offset by the increase in incentive compensation expense related to the Company’s strong full year 2019 performance.

Balance Sheet

Period-end gross loans and leases receivable totaled $1.715 billion at December 31, 2019, decreasing $5.9 million from September 30, 2019 and increasing $97.0 million, or 6.0%, from December 31, 2018. Average gross loans and leases receivable totaled $1.744 billion at December 31, 2019, increasing $12.9 million, or 3.0% annualized, from September 30, 2019 and increasing $127.1 million, or 7.9%, from December 31, 2018. The decrease in period-end loans and leases receivable compared to the linked quarter was primarily due to above average prepayments, which generated the substantial increase in fees collected in lieu of interest during the quarter.

“Commercial loan production was very strong this year, however, our loan payoff activity was elevated, particularly in the second half of the year, which tempered our year-over-year ending loan growth,” said Chambas. “We don’t believe these above average payoffs were due to any ongoing trend as they occurred across multiple loan types, geographies, and business lines. We remain optimistic about our team’s ability to grow loans in line with the high single-digit levels our average loan balances grew this year.”

Period-end in-market deposits increased to a record $1.379 billion, or 75.5% of total bank funding at December 31, 2019, compared to $1.321 billion, or 72.7%, at September 30, 2019 and $1.179 billion, or 68.2%, at December 31, 2018. Total bank funding is defined as total deposits plus FHLB advances. The largest contributors to in-market deposit growth in 2019 were transaction accounts and money markets, increasing $57.1 million and $158.4 million, respectively, compared to the prior year quarter. Importantly, this above average growth was achieved while maintaining pricing discipline and setting deposit rates below the alternative sources of wholesale funding. The rate paid on average in-market deposits was 1.14% for the fourth quarter of 2019, compared to 1.47% in the linked quarter and 1.27% in the prior year quarter.

“It was an extraordinary year at First Business for in-market deposit growth,” said Chambas. “In 2019, not only did we grow deposits to record levels and more than fully fund our net loan growth for the year, but we did so while maintaining a strong net interest margin amid a very turbulent and uncertain interest rate environment. We remain focused on retaining and growing these relationships further in 2020 to continue supporting our expectations of above market loan growth.”

Period-end wholesale funding was $446.5 million at December 31, 2019, including FHLB advances of $295.0 million, brokered certificates of deposit of $150.5 million, and deposits gathered through internet deposit listing services of $1.0 million, compared to period-end wholesale funding of $496.4 million at September 30, 2019 and $550.4 million at December 31, 2018. The rate paid on average wholesale funding was 2.21% for the fourth quarter of 2019, compared to 2.25% in the linked quarter and 2.18% in the prior year quarter. The rate paid on average wholesale funding is greater than the cost of in-market deposits and changes more gradually because the portfolio includes longer original maturities as the Company match-funds its longer-term fixed rate loans to mitigate interest rates risk. The weighted average original maturity for wholesale funds as of December 31, 2019 and September 30, 2019 was 5.3 years, compared to 4.2 years at December 31, 2018.

Asset Quality

Non-performing assets were $23.5 million, or 1.12% of total assets, at December 31, 2019, compared to $25.7 million, or 1.23% of total assets, and $27.8 million, or 1.42% of total assets, at the end of the linked quarter and fourth quarter of 2018, respectively. The decrease from the linked quarter was primarily due to current quarter charge-offs of $2.2 million, the majority of which related to legacy SBA relationships previously classified as impaired for which we were fully reserved, as well as payments received on non-performing loans.

Capital Strength

The Company’s capital ratios continued to exceed the highest required regulatory benchmark levels. As of December 31, 2019, total capital to risk-weighted assets was 12.01%, tier 1 capital to risk-weighted assets was 9.77%, tier 1 leverage capital to adjusted average assets was 9.27%, and common equity tier 1 capital to risk-weighted assets was 9.27%. In addition, as of December 31, 2019, tangible common equity to tangible assets was 8.74%.

Share Repurchases

As of January 17, 2020, the Company had repurchased 98,356 shares of its common stock at a weighted average price of $24.78 per share, for a total value of $2.4 million. Under the previously disclosed stock repurchase program approved by its Board of Directors on September 20, 2019 and ending on September 30, 2020, the company has $2.6 million of buyback authority remaining as of January 17, 2020.

Quarterly Dividend

As previously announced, during the fourth quarter of 2019, the Company’s Board of Directors declared a regular quarterly dividend of $0.15 per share. The dividend was paid on November 14, 2019 to stockholders of record at the close of business on November 4, 2019. Measured against fourth quarter 2019 diluted earnings per share of $0.67, the dividend represents a 22.4% 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)

 

December 31,
2019

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

67,102

 

 

$

60,958

 

 

$

45,875

 

 

$

56,335

 

 

$

86,546

 

Securities available-for-sale, at fair value

 

173,133

 

 

160,665

 

 

158,933

 

 

156,783

 

 

138,358

 

Securities held-to-maturity, at amortized cost

 

32,700

 

 

33,400

 

 

34,519

 

 

35,914

 

 

37,731

 

Loans held for sale

 

5,205

 

 

3,070

 

 

4,786

 

 

5,447

 

 

5,287

 

Loans and leases receivable

 

1,714,635

 

 

1,720,542

 

 

1,719,976

 

 

1,656,646

 

 

1,617,655

 

Allowance for loan and lease losses

 

(19,520

)

 

(20,170

)

 

(19,819

)

 

(20,449

)

 

(20,425

)

Loans and leases receivable, net

 

1,695,115

 

 

1,700,372

 

 

1,700,157

 

 

1,636,197

 

 

1,597,230

 

Premises and equipment, net

 

2,557

 

 

2,740

 

 

2,866

 

 

3,043

 

 

3,284

 

Foreclosed properties

 

2,919

 

 

2,902

 

 

2,660

 

 

2,547

 

 

2,547

 

Right-of-use assets

 

7,205

 

 

7,524

 

 

7,853

 

 

8,180

 

 

 

Bank-owned life insurance

 

42,761

 

 

42,432

 

 

42,127

 

 

41,830

 

 

41,538

 

Federal Home Loan Bank stock, at cost

 

7,953

 

 

8,315

 

 

6,720

 

 

6,635

 

 

7,240

 

Goodwill and other intangible assets

 

11,922

 

 

11,946

 

 

12,000

 

 

12,017

 

 

12,045

 

Accrued interest receivable and other assets

 

48,207

 

 

58,469

 

 

51,808

 

 

40,714

 

 

34,651

 

Total assets

 

$

2,096,779

 

 

$

2,092,793

 

 

$

2,070,304

 

 

$

2,005,642

 

 

$

1,966,457

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

In-market deposits

 

$

1,378,903

 

 

$

1,320,957

 

 

$

1,290,258

 

 

$

1,239,494

 

 

$

1,179,448

 

Wholesale deposits

 

151,476

 

 

187,859

 

 

239,387

 

 

262,212

 

 

275,851

 

Total deposits

 

1,530,379

 

 

1,508,816

 

 

1,529,645

 

 

1,501,706

 

 

1,455,299

 

Federal Home Loan Bank advances and other borrowings

 

319,382

 

 

332,897

 

 

297,972

 

 

269,958

 

 

298,944

 

Junior subordinated notes

 

10,047

 

 

10,044

 

 

10,040

 

 

10,037

 

 

10,033

 

Lease liabilities

 

7,541

 

 

7,866

 

 

8,187

 

 

8,504

 

 

 

Accrued interest payable and other liabilities

 

35,274

 

 

42,378

 

 

35,605

 

 

30,337

 

 

21,474

 

Total liabilities

 

1,902,623

 

 

1,902,001

 

 

1,881,449

 

 

1,820,542

 

 

1,785,750

 

Total stockholders’ equity

 

194,156

 

 

190,792

 

 

188,855

 

 

185,100

 

 

180,707

 

Total liabilities and stockholders’ equity

 

$

2,096,779

 

 

$

2,092,793

 

 

$

2,070,304

 

 

$

2,005,642

 

 

$

1,966,457

 

STATEMENTS OF INCOME

(Unaudited)

 

As of and for the Three Months Ended

 

As of and for the Year Ended

(Dollars in thousands, except per share amounts)

 

December 31,
2019

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

December 31,
2019

 

December 31,
2018

Total interest income

 

$

25,613

 

 

$

25,438

 

 

$

25,309

 

 

$

25,679

 

 

$

24,522

 

 

$

102,040

 

 

$

91,275

 

Total interest expense

 

7,139

 

 

8,662

 

 

8,457

 

 

7,925

 

 

7,407

 

 

32,184

 

 

23,933

 

Net interest income

 

18,474

 

 

16,776

 

 

16,852

 

 

17,754

 

 

17,115

 

 

69,856

 

 

67,342

 

Provision for loan and lease losses

 

1,472

 

 

1,349

 

 

(784

)

 

49

 

 

983

 

 

2,085

 

 

5,492

 

Net interest income after provision for loan and lease losses

 

17,002

 

 

15,427

 

 

17,636

 

 

17,705

 

 

16,132

 

 

67,771

 

 

61,850

 

Trust and investment service fees

 

2,073

 

 

2,060

 

 

2,138

 

 

1,927

 

 

1,919

 

 

8,197

 

 

7,744

 

Gain on sale of SBA loans

 

465

 

 

454

 

 

297

 

 

242

 

 

267

 

 

1,459

 

 

1,451

 

Service charges on deposits

 

789

 

 

795

 

 

743

 

 

777

 

 

770

 

 

3,104

 

 

3,062

 

Loan fees

 

451

 

 

439

 

 

464

 

 

414

 

 

408

 

 

1,767

 

 

1,783

 

Net loss on sale of securities

 

(42

)

 

(4

)

 

 

 

 

 

(4

)

 

(46

)

 

(4

)

Swap fees

 

2,267

 

 

374

 

 

1,051

 

 

473

 

 

662

 

 

4,165

 

 

1,670

 

Other non-interest income

 

1,186

 

 

1,674

 

 

1,112

 

 

805

 

 

626

 

 

4,777

 

 

2,461

 

Total non-interest income

 

7,189

 

 

5,792

 

 

5,805

 

 

4,638

 

 

4,648

 

 

23,423

 

 

18,167

 

Compensation

 

11,030

 

 

10,324

 

 

10,503

 

 

10,165

 

 

9,432

 

 

42,021

 

 

37,439

 

Occupancy

 

563

 

 

580

 

 

559

 

 

590

 

 

560

 

 

2,293

 

 

2,192

 

Professional fees

 

957

 

 

751

 

 

784

 

 

1,210

 

 

879

 

 

3,703

 

 

3,869

 

Data processing

 

639

 

 

654

 

 

689

 

 

581

 

 

614

 

 

2,562

 

 

2,362

 

Marketing

 

610

 

 

548

 

 

581

 

 

482

 

 

617

 

 

2,221

 

 

2,135

 

Equipment

 

292

 

 

277

 

 

272

 

 

389

 

 

345

 

 

1,230

 

 

1,434

 

Computer software

 

929

 

 

859

 

 

827

 

 

799

 

 

780

 

 

3,414

 

 

3,015

 

FDIC insurance

 

46

 

 

1

 

 

302

 

 

293

 

 

353

 

 

641

 

 

1,478

 

Collateral liquidation cost (recovery)

 

10

 

 

110

 

 

89

 

 

(91

)

 

193

 

 

119

 

 

646

 

Net (gain) loss on foreclosed properties

 

(17

)

 

262

 

 

(21

)

 

 

 

337

 

 

224

 

 

367

 

Tax credit investment impairment (recovery)

 

113

 

 

(120

)

 

2,088

 

 

2,014

 

 

1,529

 

 

4,094

 

 

2,083

 

SBA recourse provision (benefit)

 

21

 

 

(427

)

 

113

 

 

481

 

 

1,795

 

 

188

 

 

1,913

 

Other non-interest expense

 

1,580

 

 

897

 

 

678

 

 

829

 

 

810

 

 

3,985

 

 

3,430

 

Total non-interest expense

 

16,773

 

 

14,716

 

 

17,464

 

 

17,742

 

 

18,244

 

 

66,695

 

 

62,363

 

Income before income tax expense (benefit)

 

7,418

 

 

6,503

 

 

5,977

 

 

4,601

 

 

2,536

 

 

24,499

 

 

17,654

 

Income tax expense (benefit)

 

1,650

 

 

1,418

 

 

(595

)

 

(1,298

)

 

(1,528

)

 

1,175

 

 

1,351

 

Net income

 

$

5,768

 

 

$

5,085

 

 

$

6,572

 

 

$

5,899

 

 

$

4,064

 

 

$

23,324

 

 

$

16,303

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings

 

$

0.67

 

 

$

0.59

 

 

$

0.75

 

 

$

0.67

 

 

$

0.46

 

 

$

2.68

 

 

$

1.86

 

Diluted earnings

 

0.67

 

 

0.59

 

 

0.75

 

 

0.67

 

 

0.46

 

 

2.68

 

 

1.86

 

Dividends declared

 

0.15

 

 

0.15

 

 

0.15

 

 

0.15

 

 

0.14

 

 

0.60

 

 

0.56

 

Book value

 

22.67

 

 

22.09

 

 

21.71

 

 

21.12

 

 

20.57

 

 

22.67

 

 

20.57

 

Tangible book value

 

21.27

 

 

20.71

 

 

20.33

 

 

19.75

 

 

19.20

 

 

21.27

 

 

19.20

 

Weighted-average common shares outstanding(1)

 

8,442,675

 

 

8,492,445

 

 

8,569,581

 

 

8,621,221

 

 

8,662,025

 

 

8,515,375

 

 

8,640,198

 

Weighted-average diluted common shares outstanding(1)

 

8,442,675

 

 

8,492,445

 

 

8,569,581

 

 

8,621,221

 

 

8,662,025

 

 

8,515,375

 

 

8,640,198

 

(1)

Excluding participating securities.

NET INTEREST INCOME ANALYSIS

(Unaudited)

 

For the Three Months Ended

(Dollars in thousands)

 

December 31, 2019

 

September 30, 2019

 

December 31, 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)

 

$

1,161,802

 

 

$

14,319

 

 

4.93

%

 

$

1,153,591

 

 

$

14,568

 

 

5.05

%

 

$

1,093,472

 

 

$

14,259

 

 

5.22

%

Commercial and industrial loans(1)

 

523,237

 

 

9,239

 

 

7.06

%

 

517,043

 

 

8,697

 

 

6.73

%

 

461,041

 

 

8,129

 

 

7.05

%

Direct financing leases(1)

 

28,439

 

 

308

 

 

4.33

%

 

29,600

 

 

316

 

 

4.27

%

 

32,721

 

 

339

 

 

4.14

%

Consumer and other loans(1)

 

30,830

 

 

330

 

 

4.28

%

 

31,195

 

 

341

 

 

4.37

%

 

29,963

 

 

330

 

 

4.41

%

Total loans and leases receivable(1)

 

1,744,308

 

 

24,196

 

 

5.55

%

 

1,731,429

 

 

23,922

 

 

5.53

%

 

1,617,197

 

 

23,057

 

 

5.70

%

Mortgage-related securities(2)

 

172,539

 

 

1,047

 

 

2.43

%

 

167,113

 

 

1,060

 

 

2.54

%

 

143,109

 

 

891

 

 

2.49

%

Other investment securities(3)

 

23,132

 

 

126

 

 

2.18

%

 

24,755

 

 

134

 

 

2.17

%

 

30,851

 

 

156

 

 

2.02

%

FHLB stock

 

7,958

 

 

97

 

 

4.88

%

 

7,692

 

 

85

 

 

4.42

%

 

7,049

 

 

87

 

 

4.94

%

Short-term investments

 

32,985

 

 

147

 

 

1.78

%

 

40,707

 

 

237

 

 

2.33

%

 

54,625

 

 

331

 

 

2.42

%

Total interest-earning assets

 

1,980,922

 

 

25,613

 

 

5.17

%

 

1,971,696

 

 

25,438

 

 

5.16

%

 

1,852,831

 

 

24,522

 

 

5.29

%

Non-interest-earning assets

 

126,443

 

 

 

 

 

 

121,589

 

 

 

 

 

 

95,523

 

 

 

 

 

Total assets

 

$

2,107,365

 

 

 

 

 

 

$

2,093,285

 

 

 

 

 

 

$

1,948,354

 

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transaction accounts

 

$

221,446

 

 

629

 

 

1.14

%

 

$

217,870

 

 

919

 

 

1.69

%

 

$

245,910

 

 

850

 

 

1.38

%

Money market

 

676,255

 

 

2,345

 

 

1.39

%

 

642,385

 

 

2,857

 

 

1.78

%

 

504,698

 

 

2,044

 

 

1.62

%

Certificates of deposit

 

146,128

 

 

888

 

 

2.43

%

 

154,095

 

 

983

 

 

2.55

%

 

134,356

 

 

738

 

 

2.20

%

Wholesale deposits

 

172,033

 

 

1,036

 

 

2.41

%

 

211,528

 

 

1,247

 

 

2.36

%

 

302,968

 

 

1,631

 

 

2.15

%

Total interest-bearing deposits

 

1,215,862

 

 

4,898

 

 

1.61

%

 

1,225,878

 

 

6,006

 

 

1.96

%

 

1,187,932

 

 

5,263

 

 

1.77

%

FHLB advances

 

304,049

 

 

1,590

 

 

2.09

%

 

307,060

 

 

1,673

 

 

2.18

%

 

264,043

 

 

1,454

 

 

2.20

%

Other borrowings

 

24,462

 

 

371

 

 

6.07

%

 

27,545

 

 

703

 

 

10.21

%

 

24,435

 

 

410

 

 

6.71

%

Junior subordinated notes

 

10,045

 

 

280

 

 

11.15

%

 

10,041

 

 

280

 

 

11.15

%

 

10,031

 

 

280

 

 

11.17

%

Total interest-bearing liabilities

 

1,554,418

 

 

7,139

 

 

1.84

%

 

1,570,524

 

 

8,662

 

 

2.21

%

 

1,486,441

 

 

7,407

 

 

1.99

%

Non-interest-bearing demand deposit accounts

 

306,278

 

 

 

 

 

 

283,675

 

 

 

 

 

 

257,320

 

 

 

 

 

Other non-interest-bearing liabilities

 

53,271

 

 

 

 

 

 

48,688

 

 

 

 

 

 

25,101

 

 

 

 

 

Total liabilities

 

1,913,967

 

 

 

 

 

 

1,902,887

 

 

 

 

 

 

1,768,862

 

 

 

 

 

Stockholders’ equity

 

193,398

 

 

 

 

 

 

190,398

 

 

 

 

 

 

179,492

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

2,107,365

 

 

 

 

 

 

$

2,093,285

 

 

 

 

 

 

$

1,948,354

 

 

 

 

 

Net interest income

 

 

 

$

18,474

 

 

 

 

 

 

$

16,776

 

 

 

 

 

 

$

17,115

 

 

 

Interest rate spread

 

 

 

 

 

3.33

%

 

 

 

 

 

2.95

%

 

 

 

 

 

3.30

%

Net interest-earning assets

 

$

426,504

 

 

 

 

 

 

$

401,172

 

 

 

 

 

 

$

366,390

 

 

 

 

 

Net interest margin

 

 

 

 

 

3.73

%

 

 

 

 

 

3.40

%

 

 

 

 

 

3.69

%

(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 Year Ended

(Dollars in thousands)

 

December 31, 2019

 

December 31, 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)

 

$

1,142,201

 

 

$

58,330

 

 

5.11

%

 

$

1,074,873

 

 

$

53,620

 

 

4.99

%

Commercial and industrial loans(1)

 

500,058

 

 

35,251

 

 

7.05

%

 

447,687

 

 

30,043

 

 

6.71

%

Direct financing leases(1)

 

30,462

 

 

1,276

 

 

4.19

%

 

31,276

 

 

1,268

 

 

4.05

%

Consumer and other loans(1)

 

31,250

 

 

1,372

 

 

4.39

%

 

29,761

 

 

1,297

 

 

4.36

%

Total loans and leases receivable(1)

 

1,703,971

 

 

96,229

 

 

5.65

%

 

1,583,597

 

 

86,228

 

 

5.45

%

Mortgage-related securities(2)

 

161,969

 

 

4,069

 

 

2.51

%

 

137,145

 

 

3,185

 

 

2.32

%

Other investment securities(3)

 

26,661

 

 

568

 

 

2.13

%

 

33,929

 

 

657

 

 

1.94

%

FHLB and FRB stock

 

7,398

 

 

357

 

 

4.83

%

 

7,472

 

 

290

 

 

3.88

%

Short-term investments

 

35,344

 

 

817

 

 

2.31

%

 

49,365

 

 

915

 

 

1.85

%

Total interest-earning assets

 

1,935,343

 

 

102,040

 

 

5.27

%

 

1,811,508

 

 

91,275

 

 

5.04

%

Non-interest-earning assets

 

113,692

 

 

 

 

 

 

92,631

 

 

 

 

 

Total assets

 

$

2,049,035

 

 

 

 

 

 

$

1,904,139

 

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Transaction accounts

 

$

222,244

 

 

3,408

 

 

1.53

%

 

$

269,943

 

 

2,671

 

 

0.99

%

Money market

 

617,341

 

 

10,576

 

 

1.71

%

 

491,756

 

 

5,375

 

 

1.09

%

Certificates of deposit

 

156,048

 

 

3,852

 

 

2.47

%

 

94,172

 

 

1,599

 

 

1.70

%

Wholesale deposits

 

225,302

 

 

5,122

 

 

2.27

%

 

302,440

 

 

5,888

 

 

1.95

%

Total interest-bearing deposits

 

1,220,935

 

 

22,958

 

 

1.88

%

 

1,158,311

 

 

15,533

 

 

1.34

%

FHLB advances

 

286,464

 

 

6,219

 

 

2.17

%

 

274,382

 

 

5,640

 

 

2.06

%

Other borrowings

 

25,236

 

 

1,895

 

 

7.51

%

 

24,537

 

 

1,648

 

 

6.72

%

Junior subordinated notes

 

10,040

 

 

1,112

 

 

11.08

%

 

10,025

 

 

1,112

 

 

11.09

%

Total interest-bearing liabilities

 

1,542,675

 

 

32,184

 

 

2.09

%

 

1,467,255

 

 

23,933

 

 

1.63

%

Non-interest-bearing demand deposit accounts

 

275,495

 

 

 

 

 

 

241,529

 

 

 

 

 

Other non-interest-bearing liabilities

 

45,047

 

 

 

 

 

 

22,076

 

 

 

 

 

Total liabilities

 

1,863,217

 

 

 

 

 

 

1,730,860

 

 

 

 

 

Stockholders’ equity

 

185,818

 

 

 

 

 

 

173,279

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

2,049,035

 

 

 

 

 

 

$

1,904,139

 

 

 

 

 

Net interest income

 

 

 

$

69,856

 

 

 

 

 

 

$

67,342

 

 

 

Interest rate spread

 

 

 

 

 

3.19

%

 

 

 

 

 

3.41

%

Net interest-earning assets

 

$

392,668

 

 

 

 

 

 

$

344,253

 

 

 

 

 

Net interest margin

 

 

 

 

 

3.61

%

 

 

 

 

 

3.72

%

(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 Year Ended

(Unaudited)

 

December 31,
2019

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

December 31,
2019

 

December 31,
2018

Return on average assets (annualized)

 

1.09

%

 

0.97

%

 

1.30

%

 

1.20

%

 

0.83

%

 

1.14

%

 

0.86

%

Return on average equity (annualized)

 

11.93

%

 

10.68

%

 

14.09

%

 

13.67

%

 

9.06

%

 

12.55

%

 

9.41

%

Efficiency ratio

 

64.77

%

 

66.41

%

 

67.41

%

 

68.04

%

 

66.95

%

 

66.59

%

 

67.77

%

Interest rate spread

 

3.33

%

 

2.95

%

 

3.10

%

 

3.37

%

 

3.30

%

 

3.19

%

 

3.41

%

Net interest margin

 

3.73

%

 

3.40

%

 

3.52

%

 

3.79

%

 

3.69

%

 

3.61

%

 

3.72

%

Average interest-earning assets to average interest-bearing liabilities

 

127.44

%

 

125.54

%

 

123.99

%

 

124.78

%

 

124.65

%

 

125.45

%

 

123.46

%

ASSET QUALITY RATIOS

(Unaudited)

 

As of

(Dollars in thousands)

 

December 31,
2019

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

Non-accrual loans and leases

 

$

20,613

 

 

$

22,789

 

 

$

25,864

 

 

$

23,540

 

 

$

25,301

 

Foreclosed properties

 

2,919

 

 

2,902

 

 

2,660

 

 

2,547

 

 

2,547

 

Total non-performing assets

 

23,532

 

 

25,691

 

 

28,524

 

 

26,087

 

 

27,848

 

Performing troubled debt restructurings

 

140

 

 

146

 

 

151

 

 

169

 

 

180

 

Total impaired assets

 

$

23,672

 

 

$

25,837

 

 

$

28,675

 

 

$

26,256

 

 

$

28,028

 

 

 

 

 

 

 

 

 

 

 

 

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

 

1.20

%

 

1.32

%

 

1.50

%

 

1.42

%

 

1.56

%

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

 

1.37

%

 

1.49

%

 

1.66

%

 

1.57

%

 

1.72

%

Non-performing assets as a percent of total assets

 

1.12

%

 

1.23

%

 

1.38

%

 

1.30

%

 

1.42

%

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

 

1.14

%

 

1.17

%

 

1.15

%

 

1.23

%

 

1.26

%

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

 

94.70

%

 

88.51

%

 

76.64

%

 

86.87

%

 

80.73

%

NET CHARGE-OFFS (RECOVERIES)

(Unaudited)

 

For the Three Months Ended

 

For the Year Ended

(Dollars in thousands)

 

December 31,
2019

 

September 30,
2019