First Business Reports First Quarter 2020 Financial Results

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

Record period-end loans and deposits, strong fee income, and prudent operating expense management temper COVID-19 related increase in loan loss provision

MADISON, Wis.--(BUSINESS WIRE)-- First Business Financial Services, Inc. (the “Company” or “First Business”) (Nasdaq:FBIZ) reported first quarter 2020 net income of $3.3 million, or diluted earnings per share of $0.38, highlighted by record period-end loans and deposits, strong private wealth management and swap fee income, and well-managed operating expenses. The quarter’s solid performance was impacted by a $3.2 million provision for loan and lease losses primarily due to the COVID-19 pandemic.

“Given the current environment, we are extremely proud of all of our people, their exceptional support of one another, and their dedication to providing proactive and uninterrupted service to our clients,” said Corey Chambas, President and Chief Executive Officer. “While we had solid fundamental operating performance in the first quarter, what is even more important now is how we were able to assist our small and mid-sized business clients with their need for Paycheck Protection Program loans. Our expertise and experience in SBA lending has proven to be invaluable to our clients as we help them navigate this important source of emergency funding in these extraordinary times.”

Summary results as of and for the quarter ended March 31, 2020:

  • Robust liquidity position includes record in-market deposits of $1.383 billion, total deposits of $1.500 billion, and cash, short-term investments, and securities at their highest level since mid-2016 at $301.3 million at period end, as well as more than $200 million in Federal Home Loan Bank (“FHLB”) borrowing availability.
  • Gross loans and leases receivable grew to a record $1.743 billion at period end, up 6.7% annualized during the first quarter of 2020 and 5.2% from March 31, 2019. Line of credit utilization during these same periods of comparison was relatively unchanged.
  • The allowance for loan and lease losses increased $3.2 million, or 16.5%, compared to December 31, 2019 primarily due to an increase in the general and specific reserves driven by the COVID-19 pandemic. The allowance for loan and lease losses increased to 1.30% of total loans, compared to 1.14% and 1.23% in the linked and first quarter of 2019, respectively.
  • Provision for loan and lease losses totaled $3.2 million in the first quarter of 2020, compared to $1.5 million in the linked quarter and $49,000 in the first quarter of 2019.
  • Fees in lieu of interest, defined as prepayment fees, asset-based loan fees, and non-accrual interest, totaled $722,000 in the first quarter of 2020, compared to $1.8 million in the linked quarter and $2.2 million in the first quarter of 2019.
  • Private wealth management service fees grew to $2.1 million, while swap fees, loan fees, and service charges remained strong in the quarter, partially offsetting lower gains on the sale of SBA loans. Swap fee income totaled $1.7 million in the first quarter of 2020, compared to a record $2.3 million in the linked quarter and $473,000 in the first quarter of 2019.
  • 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 $15.9 million in the first quarter of 2020, compared to $16.6 million in the linked quarter and $15.2 million in the first quarter of 2019.
  • No tax credit activity was recognized during the first quarter of 2020 or the linked quarter, compared to $1.9 million in expense during the first quarter of 2019 due to the impairment of an in-market federal historic tax credit investment, which corresponded with the recognition of a $2.8 million tax credit.

Financial Highlights

As of and for the quarter ended March 31, 2020 compared to the linked quarter and prior year quarter:

 

(Unaudited)

 

As of and for the Three Months Ended

(Dollars in thousands, except per share amounts)

 

March 31,
2020

 

December 31,
2019

 

March 31,
2019

Net interest income

 

$

17,050

 

 

$

18,474

 

 

$

17,754

 

Adjusted non-interest income (1)

 

6,418

 

 

7,231

 

 

4,638

 

Operating revenue (1)

 

23,468

 

 

25,705

 

 

22,392

 

Operating expense (1)

 

15,897

 

 

16,649

 

 

15,236

 

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

 

7,571

 

 

9,056

 

 

7,156

 

Less:

 

 

 

 

 

 

Provision for loan and lease losses

 

3,182

 

 

1,472

 

 

49

 

Net loss (gain) on foreclosed properties

 

102

 

 

(17

)

 

 

Amortization of other intangible assets

 

9

 

 

7

 

 

11

 

SBA recourse provision

 

25

 

 

21

 

 

481

 

Tax credit investment impairment

 

113

 

 

113

 

 

2,014

 

Add:

 

 

 

 

 

 

Net loss on sale of securities

 

(4

)

 

(42

)

 

 

Income before income tax expense

 

4,136

 

 

7,418

 

 

4,601

 

Income tax expense (benefit)

 

858

 

 

1,650

 

 

(1,298

)

Net income

 

$

3,278

 

 

$

5,768

 

 

$

5,899

 

Earnings per share, diluted

 

$

0.38

 

 

$

0.67

 

 

$

0.67

 

Book value per share

 

$

22.83

 

 

$

22.67

 

 

$

21.12

 

Tangible book value per share (1)

 

$

21.44

 

 

$

21.27

 

 

$

19.75

 

 

 

 

 

 

 

 

Net interest margin

 

3.44

%

 

3.73

%

 

3.79

%

Net interest margin, excluding fees in lieu of interest (1)

 

3.30

%

 

3.37

%

 

3.32

%

Efficiency ratio

 

67.74

%

 

64.77

%

 

68.04

%

Return on average assets

 

0.62

%

 

1.09

%

 

1.20

%

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

 

1.44

%

 

1.72

%

 

1.45

%

Return on average equity

 

7.14

%

 

11.93

%

 

13.67

%

 

 

 

 

 

 

 

Period-end loans and leases receivable

 

$

1,743,399

 

 

$

1,714,635

 

 

$

1,656,646

 

Average loans and leases receivable

 

$

1,733,742

 

 

$

1,744,308

 

 

$

1,644,453

 

Period-end in-market deposits

 

$

1,383,299

 

 

$

1,378,903

 

 

$

1,239,494

 

Average in-market deposits

 

$

1,366,142

 

 

$

1,350,107

 

 

$

1,187,914

 

Allowance for loan and lease losses

 

$

22,748

 

 

$

19,520

 

 

$

20,449

 

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

 

1.30

%

 

1.14

%

 

1.23

%

Non-performing assets

 

$

29,566

 

 

$

23,532

 

 

$

26,087

 

Non-performing assets as a percent of total assets

 

1.35

%

 

1.12

%

 

1.30

%

(1)

 

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

COVID-19 Update

“First Business’s work to ensure business continuity and responsive client service included proactive engagement by relationship managers with our clients to address their needs in this challenging time, leveraging our comprehensive digital banking and service platforms, and enabling almost all of our employees to serve our clients remotely from the safety of their homes,” Chambas said.

Business Continuity Plan

During March 2020, management activated its previously developed Pandemic Preparedness Plan, taking the following actions to protect the health of employees and clients, while continuing to exceed client needs:

  • Limited lobby hours.
  • Increased, proactive communication with employees and clients via phone, video conferencing, email, and other digital tools, while prohibiting business travel.
  • Transitioned over 90% of employees to remote work.

No furloughs or layoffs have been made to date, nor does management currently anticipate future employee furloughs or layoffs related to COVID-19.

Paycheck Protection Program

A team of nearly 60 employees, over 20% of the Company’s workforce, started accepting and processing applications for loans under the Paycheck Protection Program (“PPP”) on Friday, April 3, 2020, when the program was officially launched by the SBA and Treasury Department under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). As of April 22, 2020, the Company had received over 600 applications from existing clients, received conditional approval from the SBA in excess of $300 million, disbursed approximately $280 million in funds, and is expected to generate processing fee income of approximately $8.5 million. Management expects to fund these short-term loans through a combination of excess cash held at the Federal Reserve, short-term FHLB advances, and participation in the Federal Reserve’s Paycheck Protection Program Liquidity Facility (“PPPLF”).

Liquidity Sources

Management has reviewed all primary and secondary sources of liquidity in preparation for any unforeseen funding needs due to the COVID-19 pandemic and prioritized based on available capacity, term flexibility, and cost. As of March 31, 2020, the Company had the following sources of liquidity (excluding the Company’s ability to participate in the PPPLF):

(Unaudited)

 

As of

(in thousands)

 

March 31, 2020

Excess cash held at the Federal Reserve

 

$

73,303

 

Reciprocal deposits held off-balance sheet

 

50,000

 

Collateral value of unencumbered pledged loans

 

123,030

 

Market value of unencumbered securities

 

138,475

 

Total sources of liquidity

 

$

384,808

 

In addition to the above primary sources of liquidity, as of March 31, 2020, the Company also had access to $53.5 million in federal funds lines with various correspondent banks and significant experience accessing the highly liquid brokered certificate of deposit market.

Capital Strength

The Company’s capital ratios continued to exceed the highest required regulatory benchmark levels.

  • Total capital to risk-weighted assets was 11.74%, tier 1 capital to risk-weighted assets was 9.45%, tier 1 leverage capital to adjusted average assets was 9.33%, and common equity tier 1 capital to risk-weighted assets was 8.96%. Tangible common equity to tangible assets was 8.41%.
  • Effective March 16, 2020, management suspended the Company’s current stock repurchase program due to the uncertainty surrounding the COVID-19 pandemic. As of March 16, 2020, the Company had repurchased 141,137 shares of its common stock at a weighted average price of 24.62 per share, for a total value of $3.5 million. The company has $1.5 million of buyback authority remaining as of March 16, 2020.
  • As previously announced, during the first quarter of 2020, the Company’s Board of Directors declared a regular quarterly dividend of $0.165 per share. The dividend was paid on February 13, 2020 to stockholders of record at the close of business on February 3, 2020. Measured against first quarter 2020 diluted earnings per share of $0.38, the dividend represents a 43.4% payout ratio. The Board of Directors routinely considers dividend declarations as part of its normal course of business.

Deferral Requests

As of March 31, 2020, the Company had processed 64 deferral requests, representing $59.8 million in total outstanding loans. As of April 22, 2020, the Company had processed 267 deferral requests, representing $196.6 million in total outstanding loans. Management anticipates this activity will continue throughout the second quarter of 2020 and beyond.

Exposure to Stressed Industries

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

(Unaudited)

 

As of

(in thousands)

 

March 31, 2020

Industries:

 

Outstanding
Exposure

 

% Gross Loans
and Leases

Retail (1)

 

$

75,442

 

 

4.3

%

Hospitality

 

68,725

 

 

3.9

%

Entertainment

 

11,086

 

 

0.6

%

Restaurants & food service

 

15,992

 

 

0.9

%

Total outstanding exposure

 

$

171,245

 

 

9.8

%

(1)

Includes $42.2 million in loans secured by commercial real estate.

As of March 31, 2020, the Company had no meaningful direct exposure to the energy or airline industries and does not participate in shared national credits.

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

First Quarter 2020 Compared to Fourth Quarter 2019

Net interest income decreased $1.4 million, or 7.7%, to $17.1 million.

  • Net interest income reflected a decrease in average loans and leases, net interest margin, and loan fees received in lieu of interest. Fees in lieu of interest, which can vary from quarter to quarter based on client-driven activity, totaled $722,000, compared to $1.8 million. Excluding fees in lieu of interest, net interest income decreased $339,000, or 2.0%.
  • Net interest margin decreased 29 basis points to 3.44% from 3.73%. Excluding fees in lieu of interest, net interest margin decreased seven basis points to 3.30% from 3.37% primarily due to a decline in average loan yields following the Federal Open Market Committee’s (“FOMC”) decision to reduce the target federal funds interest rate 150 basis points during the first quarter of 2020, which more than offset the decline in the average rate paid on deposits. The average yield on loans and leases receivable decreased 51 basis points to 5.04% and the average rate paid on in-market deposits decreased 19 basis points to 0.96%, compared to the average decrease in the target federal funds interest rate of 42 basis points.
  • The yield on variable-rate loans tied to LIBOR dropped in anticipation of the FOMC’s decision to decrease the target federal funds rate, while the reduction in deposit rates generally coincided with the timing of the actual federal funds rate decrease. Management believes this decrease in yield 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.
  • Average loans and leases receivable decreased $10.6 million, or 2.4%, to $1.734 billion.

Non-interest income decreased $775,000, or 10.8% to $6.4 million.

  • Private wealth management fee income increased $39,000, or 1.9% to $2.1 million. Trust assets under management and administration measured $1.664 billion at March 31, 2020, down $227.7 million, or 12.0%, due to the precipitous drop in equity prices in late March 2020.
  • Commercial loan interest rate swap fee income decreased $586,000, or 25.8%, to $1.7 million compared to a record $2.3 million. Interest rate swaps continue to be an attractive product for the Company’s commercial borrowers, although associated fee income can vary from period to period based on client demand and the interest rate environment in any given quarter.
  • Gains on sale of SBA loans decreased $200,000, or 43.0%, to $265,000 compared to $465,000. While there were interruptions to closings due to the COVID-19 pandemic, the Company’s pipeline continues to grow period over period and management believes the gain on sale of traditional SBA loans (i.e., SBA loans unrelated to the recently launched PPP) will increase at a measured pace over time, assuming uninterrupted access to the regular 7(a) loan program.

Non-interest expense decreased $627,000, or 3.7%, to $16.1 million. Operating expense decreased $752,000, or 4.5%, to $15.9 million.

  • Compensation expense increased $22,000, or 0.2%, to $11.1 million. The increase in compensation reflects annual merit increases partially offset by a decrease in the Company’s performance-based incentive compensation accrual based on estimated full year 2020 results in light of the economic impact of the COVID-19 pandemic.
  • Professional fee expense decreased $138,000, or 14.4%, to $819,000, primarily due to lower audit and consulting fees.
  • Marketing expense decreased $149,000, or 24.4%, to $461,000, due to temporary postponement of various marketing plans due to the COVID-19 pandemic.
  • FDIC insurance expense increased $162,000 to $208,000. The Company received an assessment credit of $458,000 in 2019, $143,000 in the linked quarter and $315,000 in the third quarter of 2019, 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.
  • Other non-interest expense decreased $764,000, or 48.4%, to $816,000. The linked quarter included a one-time right-of-use impairment of $299,000 from vacating and subleasing unused office space in our Kansas City market. The decline also included a decrease in business travel and training costs due to the Company’s adherence to COVID-19 stay-at-home orders.

Total period-end loans and leases receivable increased $28.8 million, or 6.7% annualized, to $1.743 billion.

  • Commercial and industrial (“C&I”) loans increased $16.5 million, or 13.2% annualized. This includes a $8.7 million, or 136.8% annualized, increase in purchased receivables from the Company’s nationwide accounts receivable financing division, First Business Growth Funding.
  • Commercial real estate loans increased $6.3 million, or 2.2% annualized, driven primarily by an increase in construction loans.

Total period-end in-market deposits increased $4.4 million, or 1.3% annualized, to $1.383 billion.

  • Transaction accounts increased $77.2 million and money market accounts decreased $64.5 million as clients started to favor the safety and soundness of the Company’s full FDIC insured reciprocal deposit product over interest rate.
  • Similarly, certificates of deposits decreased $8.3 million as client preferences continued to shift towards more liquid products.
  • Total period-end in-market deposits represent 73.2% of total bank funding compared to 75.5%. Total bank funding is defined as total deposits plus FHLB advances.

Period-end wholesale funding, including FHLB advances, brokered certificates of deposit, and deposits gathered through internet deposit listing services, increased $58.9 million to $505.3 million.

  • Brokered certificates of deposit decreased $34.6 million to $116.8 million, as the existing portfolio runs off and is replaced as needed by lower cost FHLB advances to match fund long-term fixed-rate loans. The average rate paid on brokered certificates of deposit increased 16 basis points to 2.57% and the weighted average original maturity decreased to 4.8 years from 5.3 years.
  • FHLB advances increased $93.5 million to $388.5 million. The average rate paid on FHLB advances decreased 18 basis points to 1.91% and the weighted average original maturity increased to 5.9 years from 5.4 years. The Company extended maturities during the first quarter of 2020 by entering into pay-fixed swaps, with terms to pay fixed rates and receive 3-month LIBOR, to partially pre-fund the Company’s loan originations with historically low cost funding.

Non-performing assets increased $6.0 million to $29.6 million, or 1.35% of total assets, compared to $23.5 million, or 1.12% of total assets.

  • The increase in non-performing assets was principally due to the impairment of one $5.0 million commercial relationship and the repurchase of $2.0 million of impaired legacy SBA loans.
  • The increase in non-performing assets was partially offset by a $1.3 million decrease in foreclosed properties, net of impairment, principally due to the sale of one legacy SBA property.

The allowance for loan and lease losses increased 16.5% primarily due to an increase in the general and specific reserve driven by the COVID-19 pandemic.

  • The Company recorded a provision for loan and lease losses of $3.2 million compared to $1.5 million. As a result of the anticipated effects of the COVID-19 pandemic, the Company increased the allowance for loan and lease losses by $3.1 million during the first quarter of 2020.
  • The allowance for loan and lease losses as a percent of total gross loans and leases was 1.30% compared to 1.14%.
  • Net recoveries were $46,000 compared to net charge-offs of $2.1 million.

First Quarter 2020 Compared to First Quarter 2019

Net interest income decreased $704,000, or 4%, to $17.1 million.

  • Net interest income reflected a decrease in net interest margin and a decrease in loan fees received in lieu of interest, partially offset by higher average loans and leases outstanding. Fees in lieu of interest totaled $722,000, compared to $2.2 million. Excluding fees in lieu of interest, net interest income increased $796,000, or 5.1%.
  • Net interest margin decreased 35 basis points to 3.44% from 3.79%. Excluding fees collected in lieu of interest, net interest margin decreased two basis points to 3.30% from 3.32%.
  • The average yield on loans and leases receivable decreased 85 basis points to 5.04% and the average rate paid on in-market deposits decreased 51 basis points to 0.96%, compared to an average decrease in the target federal funds interest rate of 207 basis points.
  • Average loans and leases receivable increased $89.3 million, or 5.4%, to $1.734 billion.

Non-interest income increased $1.8 million, or 38.3%, to $6.4 million.

  • Private wealth management fee income increased $185,000, or 9.6% to $2.1 million. Trust assets under management and administration measured $1.664 billion at March 31, 2020, down $67.5 million, or 3.9%, due to the precipitous drop in equity prices in late March 2020.
  • Commercial loan interest rate swap fee income totaled $1.7 million compared to $473,000.
  • Other fee income increased $252,000, or 31.3%, to $1.1 million compared to $805,000. Returns on the investment in mezzanine funds were $462,000 compared to $232,000. In addition, fee income from the Company’s newly established bank consulting division, First Business Consulting Services, totaled $63,000 compared to $10,000.

Non-interest expense decreased $1.6 million, or 9.0%, to $16.1 million. Operating expense increased $661,000, or 4.3%, to $15.9 million.

  • Compensation expense increased $887,000, or 8.7%, to $11.1 million. The increase in compensation reflects annual merit increases and an increase in staff as average full-time equivalent employees were 286 for the quarter ended March 31, 2020, compared to 277 for the quarter ended March 31, 2019.
  • Professional fee expense decreased $391,000, or 32.3%, to $819,000. The decrease was primarily due to decrease in consulting and recruiting expense.
  • No tax credit activity was recognized during the first quarter of 2020 compared to $1.9 million in expense during the first quarter of 2019 due to the impairment of an in-market federal historic tax credit investment, which corresponded with the recognition of a $2.8 million tax credit.

Total period-end loans and leases receivable increased $86.8 million, or 5.2%, to $1.743 billion.

  • Commercial and industrial loans increased $53.6 million, or 11.5%. This includes a $17.6 million, or 108.4% increase in purchased receivables from the Company’s nationwide accounts receivable financing division, First Business Growth Funding.
  • Commercial real estate loans increased $33.5 million, or 3.0%, driven primarily by an increase in multi-family and non-owner occupied real estate.

Total period-end in-market deposits increased $143.8 million, or 11.6%, to $1.383 billion.

  • Transaction and money market accounts increased $152.0 million, and $30.3 million, respectively.
  • Certificates of deposits decreased $38.6 million as client preferences continued to shift towards more liquid products.
  • Total period-end in-market deposits represent 73.2% of total Bank funding compared to 70.9%.

Period-end wholesale funding decreased $2.4 million, or 0.5%, to $505.3 million.

  • Brokered certificates of deposit decreased $145.4 million, or 55.4%, to $116.8 million as the existing portfolio runs off and is replaced as needed by lower cost FHLB advances to match fund long-term fixed-rate loans. The average rate paid on brokered certificates of deposit increased 41 basis points to 2.57% and the weighted average original maturity was 4.8 years in both periods.
  • FHLB advances increased $143.0 million, or 58.2%, to $388.5 million. The average rate paid on FHLB advances decreased 25 basis points to 1.91% and the weighted average original maturity increased to 5.9 years from 3.9 years.

Non-performing assets increased $3.5 million to $29.6 million, or 1.35% of total assets, compared to $26.1 million or 1.30%. The reasons for the increase in non-performing assets compared to the prior year quarter are consistent with the explanations discussed above with respect to the linked quarter.

The allowance for loan and lease losses increased 11.2% due to an increase in the general and specific reserve driven by the COVID-19 pandemic.

  • The Company recorded a provision for loan and lease losses of $3.2 million compared to $49,000.
  • The allowance for loan and lease losses as a percent of total gross loans and leases was 1.30% compared to 1.23%.
  • Net recoveries were $46,000 compared to net charge-offs of $25,000.

About First Business Financial Services, Inc.

First Business Financial Services, Inc. (Nasdaq:FBIZ) is a Wisconsin-based bank holding company focused on the unique needs of businesses, business executives, and high net worth individuals. First Business offers commercial banking, specialty finance, and private wealth management solutions, and because of its niche focus, is able to provide its clients with unmatched expertise, accessibility, and responsiveness. For additional information, visit www.firstbusiness.com or call 608-238-8008.

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

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

For further information about the factors that could affect the Company’s future results, please see the Company’s annual report on Form 10-K for the year ended December 31, 2019 and other filings with the Securities and Exchange Commission.

SELECTED FINANCIAL CONDITION DATA

(Unaudited)

 

As of

(in thousands)

 

March 31,
2020

 

December 31,
2019

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

94,986

 

 

$

67,102

 

 

$

60,958

 

 

$

45,875

 

 

$

56,335

 

Securities available-for-sale, at fair value

 

175,564

 

 

173,133

 

 

160,665

 

 

158,933

 

 

156,783

 

Securities held-to-maturity, at amortized cost

 

30,774

 

 

32,700

 

 

33,400

 

 

34,519

 

 

35,914

 

Loans held for sale

 

6,331

 

 

5,205

 

 

3,070

 

 

4,786

 

 

5,447

 

Loans and leases receivable

 

1,743,399

 

 

1,714,635

 

 

1,720,542

 

 

1,719,976

 

 

1,656,646

 

Allowance for loan and lease losses

 

(22,748

)

 

(19,520

)

 

(20,170

)

 

(19,819

)

 

(20,449

)

Loans and leases receivable, net

 

1,720,651

 

 

1,695,115

 

 

1,700,372

 

 

1,700,157

 

 

1,636,197

 

Premises and equipment, net

 

2,427

 

 

2,557

 

 

2,740

 

 

2,866

 

 

3,043

 

Foreclosed properties

 

1,669

 

 

2,919

 

 

2,902

 

 

2,660

 

 

2,547

 

Right-of-use assets

 

6,590

 

 

6,906

 

 

7,524

 

 

7,853

 

 

8,180

 

Bank-owned life insurance

 

51,056

 

 

42,761

 

 

42,432

 

 

42,127

 

 

41,830

 

Federal Home Loan Bank stock, at cost

 

9,733

 

 

7,953

 

 

8,315

 

 

6,720

 

 

6,635

 

Goodwill and other intangible assets

 

11,872

 

 

11,922

 

 

11,946

 

 

12,000

 

 

12,017

 

Accrued interest receivable and other assets

 

84,721

 

 

48,506

 

 

58,469

 

 

51,808

 

 

40,714

 

Total assets

 

$

2,196,374

 

 

$

2,096,779

 

 

$

2,092,793

 

 

$

2,070,304

 

 

$

2,005,642

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

In-market deposits

 

$

1,383,299

 

 

$

1,378,903

 

 

$

1,320,957

 

 

$

1,290,258

 

 

$

1,239,494

 

Wholesale deposits

 

116,827

 

 

151,476

 

 

187,859

 

 

239,387

 

 

262,212

 

Total deposits

 

1,500,126

 

 

1,530,379

 

 

1,508,816

 

 

1,529,645

 

 

1,501,706

 

Federal Home Loan Bank advances and other borrowings

 

412,892

 

 

319,382

 

 

332,897

 

 

297,972

 

 

269,958

 

Junior subordinated notes

 

10,051

 

 

10,047

 

 

10,044

 

 

10,040

 

 

10,037

 

Lease liabilities

 

7,211

 

 

7,541

 

 

7,866

 

 

8,187

 

 

8,504

 

Accrued interest payable and other liabilities

 

70,437

 

 

35,274

 

 

42,378

 

 

35,605

 

 

30,337

 

Total liabilities

 

2,000,717

 

 

1,902,623

 

 

1,902,001

 

 

1,881,449

 

 

1,820,542

 

Total stockholders’ equity

 

195,657

 

 

194,156

 

 

190,792

 

 

188,855

 

 

185,100

 

Total liabilities and stockholders’ equity

 

$

2,196,374

 

 

$

2,096,779

 

 

$

2,092,793

 

 

$

2,070,304

 

 

$

2,005,642

 

STATEMENTS OF INCOME

(Unaudited)

 

As of and for the Three Months Ended

(Dollars in thousands, except per share amounts)

 

March 31,
2020

 

December 31,
2019

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

Total interest income

 

$

23,372

 

 

$

25,613

 

 

$

25,438

 

 

$

25,309

 

 

$

25,679

 

Total interest expense

 

6,322

 

 

7,139

 

 

8,662

 

 

8,457

 

 

7,925

 

Net interest income

 

17,050

 

 

18,474

 

 

16,776

 

 

16,852

 

 

17,754

 

Provision for loan and lease losses

 

3,182

 

 

1,472

 

 

1,349

 

 

(784

)

 

49

 

Net interest income after provision for loan and lease losses

 

13,868

 

 

17,002

 

 

15,427

 

 

17,636

 

 

17,705

 

Private wealth management service fees

 

2,112

 

 

2,073

 

 

2,060

 

 

2,138

 

 

1,927

 

Gain on sale of SBA loans

 

265

 

 

465

 

 

454

 

 

297

 

 

242

 

Service charges on deposits

 

818

 

 

789

 

 

795

 

 

743

 

 

777

 

Loan fees

 

485

 

 

451

 

 

439

 

 

464

 

 

414

 

Net loss on sale of securities

 

(4

)

 

(42

)

 

(4

)

 

 

 

 

Swap fees

 

1,681

 

 

2,267

 

 

374

 

 

1,051

 

 

473

 

Other non-interest income

 

1,057

 

 

1,186

 

 

1,674

 

 

1,112

 

 

805

 

Total non-interest income

 

6,414

 

 

7,189

 

 

5,792

 

 

5,805

 

 

4,638

 

Compensation

 

11,052

 

 

11,030

 

 

10,324

 

 

10,503

 

 

10,165

 

Occupancy

 

572

 

 

563

 

 

580

 

 

559

 

 

590

 

Professional fees

 

819

 

 

957

 

 

751

 

 

784

 

 

1,210

 

Data processing

 

677

 

 

639

 

 

654

 

 

689

 

 

581

 

Marketing

 

461

 

 

610

 

 

548

 

 

581

 

 

482

 

Equipment

 

291

 

 

292

 

 

277

 

 

272

 

 

389

 

Computer software

 

889

 

 

929

 

 

859

 

 

827

 

 

799

 

FDIC insurance

 

208

 

 

46

 

 

1

 

 

302

 

 

293

 

Collateral liquidation cost (recovery)

 

121

 

 

10

 

 

110

 

 

89

 

 

(91

)

Net loss (gain) on foreclosed properties

 

102

 

 

(17

)

 

262

 

 

(21

)

 

 

Tax credit investment impairment (recovery)

 

113

 

 

113

 

 

(120

)

 

2,088

 

 

2,014

 

SBA recourse provision (benefit)

 

25

 

 

21

 

 

(427

)

 

113

 

 

481

 

Other non-interest expense

 

816

 

 

1,580

 

 

897

 

 

678

 

 

829

 

Total non-interest expense

 

16,146

 

 

16,773

 

 

14,716

 

 

17,464

 

 

17,742

 

Income before income tax expense (benefit)

 

4,136

 

 

7,418

 

 

6,503

 

 

5,977

 

 

4,601

 

Income tax expense (benefit)

 

858

 

 

1,650

 

 

1,418

 

 

(595

)

 

(1,298

)

Net income

 

$

3,278

 

 

$

5,768

 

 

$

5,085

 

 

$

6,572

 

 

$

5,899

 

 

 

 

 

 

 

 

 

 

 

 

Per common share:

 

 

 

 

 

 

 

 

 

 

Basic earnings

 

$

0.38

 

 

$

0.67

 

 

$

0.59

 

 

$

0.75

 

 

$

0.67

 

Diluted earnings

 

0.38

 

 

0.67

 

 

0.59

 

 

0.75

 

 

0.67

 

Dividends declared

 

0.165

 

 

0.15

 

 

0.15

 

 

0.15

 

 

0.15

 

Book value

 

22.83

 

 

22.67

 

 

22.09

 

 

21.71

 

 

21.12

 

Tangible book value

 

21.44

 

 

21.27

 

 

20.71

 

 

20.33

 

 

19.75

 

Weighted-average common shares outstanding(1)

 

8,388,666

 

 

8,442,675

 

 

8,492,445

 

 

8,569,581

 

 

8,621,221

 

Weighted-average diluted common shares outstanding(1)

 

8,388,666

 

 

8,442,675

 

 

8,492,445

 

 

8,569,581

 

 

8,621,221

 

(1)

Excluding participating securities.

NET INTEREST INCOME ANALYSIS

(Unaudited)

 

For the Three Months Ended

(Dollars in thousands)

 

March 31, 2020

 

December 31, 2019

 

March 31, 2019

 

 

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)

 

$

1,153,972

 

 

$

13,523

 

 

4.69

%

 

$

1,161,802

 

 

$

14,319

 

 

4.93

%

 

$

1,113,723

 

 

$

14,689

 

 

5.28

%

Commercial and industrial loans(1)

 

515,935

 

 

7,857

 

 

6.09

%

 

523,237

 

 

9,239

 

 

7.06

%

 

466,046

 

 

8,839

 

 

7.59

%

Direct financing leases(1)

 

27,961

 

 

108

 

 

1.55

%

 

28,439

 

 

308

 

 

4.33

%

 

32,248

 

 

326

 

 

4.04

%

Consumer and other loans(1)

 

35,874

 

 

361

 

 

4.03

%

 

30,830

 

 

330

 

 

4.28

%

 

32,436

 

 

353

 

 

4.35

%

Total loans and leases receivable(1)

 

1,733,742

 

 

21,849

 

 

5.04

%

 

1,744,308

 

 

24,196

 

 

5.55

%

 

1,644,453

 

 

24,207

 

 

5.89

%

Mortgage-related securities(2)

 

180,590

 

 

1,061

 

 

2.35

%

 

172,539

 

 

1,047

 

 

2.43

%

 

146,048

 

 

939

 

 

2.57

%

Other investment securities(3)

 

23,280

 

 

127

 

 

2.18

%

 

23,132

 

 

126

 

 

2.18

%

 

30,131

 

 

156

 

 

2.07

%

FHLB stock

 

8,512

 

 

205

 

 

9.63

%

 

7,958

 

 

97

 

 

4.88

%

 

7,055

 

 

89

 

 

5.05

%

Short-term investments

 

35,763

 

 

130

 

 

1.45

%

 

32,985

 

 

147

 

 

1.78

%

 

45,190

 

 

288

 

 

2.55

%

Total interest-earning assets

 

1,981,887

 

 

23,372

 

 

4.72

%

 

1,980,922

 

 

25,613

 

 

5.17

%

 

1,872,877

 

 

25,679

 

 

5.48

%

Non-interest-earning assets

 

122,975

 

 

 

 

 

 

126,443

 

 

 

 

 

 

95,796

 

 

 

 

 

Total assets

 

$

2,104,862

 

 

 

 

 

 

$

2,107,365

 

 

 

 

 

 

$

1,968,673

 

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transaction accounts

 

$

271,531

 

 

647

 

 

0.95

%

 

$

221,446

 

 

629

 

 

1.14

%

 

$

215,400

 

 

871

 

 

1.62

%

Money market

 

669,482

 

 

1,869

 

 

1.12

%

 

676,255

 

 

2,345

 

 

1.39

%

 

555,692

 

 

2,524

 

 

1.82

%

Certificates of deposit

 

134,000

 

 

750

 

 

2.24

%

 

146,128

 

 

888

 

 

2.43

%

 

159,600

 

 

957

 

 

2.40

%

Wholesale deposits

 

132,468

 

 

850

 

 

2.57

%

 

172,033

 

 

1,036

 

 

2.41

%

 

267,791

 

 

1,444

 

 

2.16

%

Total interest-bearing deposits

 

1,207,481

 

 

4,116

 

 

1.36

%

 

1,215,862

 

 

4,898

 

 

1.61

%

 

1,198,483

 

 

5,796

 

 

1.93

%

FHLB advances

 

325,929

 

 

1,559

 

 

1.91

%

 

304,049

 

 

1,590

 

 

2.09

%

 

267,989

 

 

1,444

 

 

2.16

%

Other borrowings

 

24,385

 

 

370

 

 

6.07

%

 

24,462

 

 

371

 

 

6.07

%

 

24,449

 

 

411

 

 

6.72

%

Junior subordinated notes

 

10,048

 

 

277

 

 

11.03

%

 

10,045

 

 

280

 

 

11.15

%

 

10,034

 

 

274

 

 

10.92

%

Total interest-bearing liabilities

 

1,567,843

 

 

6,322

 

 

1.61

%

 

1,554,418

 

 

7,139

 

 

1.84

%

 

1,500,955

 

 

7,925

 

 

2.11

%

Non-interest-bearing demand deposit accounts

 

291,129

 

 

 

 

 

 

306,278

 

 

 

 

 

 

257,222

 

 

 

 

 

Other non-interest-bearing liabilities

 

62,367

 

 

 

 

 

 

53,271

 

 

 

 

 

 

37,912

 

 

 

 

 

Total liabilities

 

1,921,339

 

 

 

 

 

 

1,913,967

 

 

 

 

 

 

1,796,089

 

 

 

 

 

Stockholders’ equity

 

183,523

 

 

 

 

 

 

193,398

 

 

 

 

 

 

172,584

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

2,104,862

 

 

 

 

 

 

$

2,107,365

 

 

 

 

 

 

$

1,968,673

 

 

 

 

 

Net interest income

 

 

 

$

17,050

 

 

 

 

 

 

$

18,474

 

 

 

 

 

 

$

17,754

 

 

 

Interest rate spread

 

 

 

 

 

3.10

%

 

 

 

 

 

3.33

%

 

 

 

 

 

3.37

%

Net interest-earning assets

 

$

414,044

 

 

 

 

 

 

$

426,504

 

 

 

 

 

 

$

371,922

 

 

 

 

 

Net interest margin

 

 

 

 

 

3.44

%

 

 

 

 

 

3.73

%

 

 

 

 

 

3.79

%

(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

(Unaudited)

 

March 31,
2020

 

December 31,
2019

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

Return on average assets (annualized)

 

0.62

%

 

1.09

%

 

0.97

%

 

1.30

%

 

1.20

%

Return on average equity (annualized)

 

7.14

%

 

11.93

%

 

10.68

%

 

14.09

%

 

13.67

%

Efficiency ratio

 

67.74

%

 

64.77

%

 

66.41

%

 

67.41

%

 

68.04

%

Interest rate spread

 

3.10

%

 

3.33

%

 

2.95

%

 

3.10

%

 

3.37

%

Net interest margin

 

3.44

%

 

3.73

%

 

3.40

%

 

3.52

%

 

3.79

%

Average interest-earning assets to average interest-bearing liabilities

 

126.41

%

 

127.44

%

 

125.54

%

 

123.99

%

 

124.78

%

ASSET QUALITY RATIOS

(Unaudited)

 

As of

(Dollars in thousands)

 

March 31,
2020

 

December 31,
2019

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

Non-accrual loans and leases

 

$

27,897

 

 

$

20,613

 

 

$

22,789

 

 

$

25,864

 

 

$

23,540

 

Foreclosed properties

 

1,669

 

 

2,919

 

 

2,902

 

 

2,660

 

 

2,547

 

Total non-performing assets

 

29,566

 

 

23,532

 

 

25,691

 

 

28,524

 

 

26,087

 

Performing troubled debt restructurings

 

134

 

 

140

 

 

146

 

 

151

 

 

169

 

Total impaired assets

 

$

29,700

 

 

$

23,672

 

 

$

25,837

 

 

$

28,675

 

 

$

26,256

 

 

 

 

 

 

 

 

 

 

 

 

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

 

1.60

%

 

1.20

%

 

1.32

%

 

1.50

%

 

1.42

%

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

 

1.69

%

 

1.37

%

 

1.49

%

 

1.66

%

 

1.57

%

Non-performing assets as a percent of total assets

 

1.35

%

 

1.12

%

 

1.23

%

 

1.38

%

 

1.30

%

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

 

1.30

%

 

1.14

%

 

1.17

%

 

1.15

%

 

1.23

%

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

 

81.54

%

 

94.70

%

 

88.51

%

 

76.64

%

 

86.87

%

NET CHARGE-OFFS (RECOVERIES)

(Unaudited)

 

For the Three Months Ended

(Dollars in thousands)

 

March 31,
2020

 

December 31,
2019

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

Charge-offs

 

$

131

 

 

$

2,194

 

 

$

1,099

 

 

$

15

 

 

$

48

 

Recoveries

 

(177

)

 

(73

)

 

(101

)

 

(169

)

 

(23

)

Net (recoveries) charge-offs

 

$

(46

)

 

$

2,121

 

 

$

998

 

 

$

(154

)

 

$

25

 

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

 

(0.01

)%

 

0.49

%

 

0.23

%

 

(0.04

)%

 

0.01

%

CAPITAL RATIOS

 

 

As of and for the Three Months Ended

(Unaudited)

 

March 31,
2020

 

December 31,
2019

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

Total capital to risk-weighted assets

 

11.74

%

 

12.01

%

 

11.90

%

 

11.92

%

 

12.18

%

Tier I capital to risk-weighted assets

 

9.45

%

 

9.77

%

 

9.62

%

 

9.60

%

 

9.69

%

Common equity tier I capital to risk-weighted assets

 

8.96

%

 

9.27

%

 

9.11

%

 

9.09

%

 

9.17

%

Tier I capital to adjusted assets

 

9.33

%

 

9.27

%

 

9.18

%

 

9.36

%

 

9.45

%

Tangible common equity to tangible assets

 

8.41

%

 

8.74

%

 

8.59

%

 

8.59

%

 

8.68

%

LOAN AND LEASE RECEIVABLE COMPOSITION

(Unaudited)

 

As of

(in thousands)

 

March 31,
2020

 

December 31,
2019

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

Commercial real estate - owner occupied

 

$

224,075

 

 

$

226,614

 

 

$

226,307

 

 

$

210,471

 

 

$

212,698

 

Commercial real estate - non-owner occupied

 

511,363

 

 

516,652

 

 

503,102

 

 

477,740

 

 

479,061

 

Land development

 

48,045

 

 

51,097

 

 

49,184

 

 

49,000

 

 

47,503

 

Construction

 

131,060

 

 

109,057

 

 

111,848

 

 

185,347

 

 

169,894

 

Multi-family

 

211,594

 

 

217,322

 

 

227,330

 

 

195,363

 

 

184,490

 

1-4 family

 

34,220

 

 

33,359

 

 

31,226

 

 

31,656

 

 

33,255

 

Total commercial real estate

 

1,160,357

 

 

1,154,101

 

 

1,148,997

 

 

1,149,577

 

 

1,126,901

 

Commercial and industrial

 

519,900

 

 

503,402

 

 

513,672

 

 

510,448

 

 

466,277

 

Direct financing leases, net

 

26,833

 

 

28,203

 

 

28,987

 

 

30,365

 

 

32,724

 

Consumer and other:

 

 

 

 

 

 

 

 

 

 

Home equity and second mortgages

 

6,513

 

 

7,006

 

 

7,373

 

 

7,513

 

 

8,377

 

Other

 

30,416

 

 

22,664

 

 

22,140

 

 

22,896

 

 

23,367

 

Total consumer and other

 

36,929

 

 

29,670

 

 

29,513

 

 

30,409

 

 

31,744

 

Total gross loans and leases receivable

 

1,744,019

 

 

1,715,376

 

 

1,721,169

 

 

1,720,799

 

 

1,657,646

 

Less:

 

 

 

 

 

 

 

 

 

 

Allowance for loan and lease losses

 

22,748

 

 

19,520

 

 

20,170

 

 

19,819

 

 

20,449

 

Deferred loan fees

 

620

 

 

741

 

 

627

 

 

823

 

 

1,000

 

Loans and leases receivable, net

 

$

1,720,651

 

 

$

1,695,115

 

 

$

1,700,372

 

 

$

1,700,157

 

 

$

1,636,197

 

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

(Unaudited)

 

As of

(in thousands)

 

March 31,
2020

 

December 31,
2019

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

Performing loans:

 

 

 

 

 

 

 

 

 

 

Off-balance sheet loans

 

$

31,212

 

 

$

35,029

 

 

$

40,288

 

 

$

44,385

 

 

$

45,735

 

On-balance sheet loans

 

17,935

 

 

19,697

 

 

21,814

 

 

23,406

 

 

24,396

 

Gross loans

 

49,147

 

 

54,726

 

 

62,102

 

 

67,791

 

 

70,131

 

Non-performing loans:

 

 

 

 

 

 

 

 

 

 

Off-balance sheet loans

 

4,887

 

 

7,290

 

 

7,287

 

 

8,294

 

 

12,471

 

On-balance sheet loans

 

13,833

 

 

12,037

 

 

14,663

 

 

16,940

 

 

14,510

 

Gross loans

 

18,720

 

 

19,327

 

 

21,950

 

 

25,234

 

 

26,981

 

Total loans: