-- Loan growth, net interest margin expansion,
and strong asset quality support continued tangible book value
growth --
First Business Financial Services, Inc. (the “Company”, the
“Bank”, or “First Business Bank”) (Nasdaq:FBIZ) reported quarterly
net income available to common shareholders of $9.9 million, or
$1.18 diluted earnings per share. This compares to net income
available to common shareholders of $10.6 million, or $1.25 per
share, in the third quarter of 2022 and $8.6 million, or $1.01 per
share, in the fourth quarter of 2021. For the full year 2022, the
Company reported net income available to common shareholders of
$40.2 million, or $4.75 per share, compared to $35.8 million, or
$4.17 per share, in 2021.
“Excellent execution across our commercial lending businesses
continued through the fourth quarter, highlighted by 20% annualized
loan growth,” Chief Executive Officer Corey Chambas said. “The
impact of rising rates and strong balance sheet management,
contributed to record net interest margin of 4.15%. We believe our
core net interest margin will remain relatively stable in the
near-term given the current interest rate environment. We bolstered
our funding position with solid in-market deposit expansion, along
with the use of wholesale deposits as part of our long-held
strategy to match-fund our fixed rate loans.” Chambas added, “This
important component of our interest rate risk management strategy
resulted in favorable margin expansion compared to peer banks.
Outstanding execution led to growth in tangible book value per
share of 9% for the year, which compares very favorably to the
industry. We enter 2023 with expectations for double-digit loan,
deposit, and revenue growth, driving strong earnings
performance.”
Quarterly Highlights
- Robust Loan Growth. Loans, excluding net Paycheck
Protection Program (“PPP”) loans, grew $114.2 million, or 19.6%
annualized, from the third quarter of 2022 and $230.4 million, or
10.4%, from the fourth quarter of 2021, reflecting balanced growth
across the Company’s commercial and industrial (“C&I”) and
commercial real estate (“CRE”) portfolios.
- Strong Deposit Growth. Total deposits grew to $2.168
billion, increasing 15.5% annualized from the linked quarter and
10.7% from the fourth quarter of 2021. In-market deposits grew to
$1.966 billion, up $36.7 million, or 7.6% annualized, from the
linked quarter.
- Record Net Interest Income. Net interest income grew to
a record $27.5 million, increasing $1.6 million, or 6.1%, from the
linked quarter and $6.5 million, or 31.2%, from the prior year
quarter. This was driven by a combination of 11.6% annualized
increase in average loans and leases as well as a record net
interest margin of 4.15%.
- Exceptional Asset Quality. Continued positive asset
quality trends resulted in non-performing assets of $3.8 million,
measuring a historically low of 0.13% of total assets and improving
from 0.25% of total assets on December 31, 2021.
- Tangible Book Value Growth. The Company’s strong
earnings generation produced a 17.0% annualized increase in
tangible book value per share compared to the linked quarter and
8.6% compared to the prior year quarter.
Quarterly
Financial Results
(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,
2022
September 30,
2022
December 31,
2021
December 31,
2022
December 31,
2021
Net interest income
$
27,452
$
25,884
$
20,924
$
98,422
$
84,662
Adjusted non-interest income (1)
6,164
8,197
7,569
28,619
28,071
Operating revenue (1)
33,616
34,081
28,493
127,041
112,733
Operating expense (1)
20,658
19,925
17,644
79,155
71,571
Pre-tax, pre-provision adjusted earnings
(1)
12,958
14,156
10,849
47,886
41,162
Less:
Provision for loan and lease losses
702
12
(508
)
(3,868
)
(5,803
)
Net loss on foreclosed properties
22
7
7
49
15
Amortization of other intangible
assets
—
—
2
—
25
Contribution to First Business Charitable
Foundation
809
—
—
809
—
SBA recourse (benefit) provision
(322
)
96
(122
)
(188
)
(76
)
Tax credit investment impairment
recovery
—
—
—
(351
)
—
Add:
Bank-owned life insurance claim
809
—
—
809
—
Net gain on sale of securities
—
—
—
—
29
Income before income tax expense
12,556
14,041
11,470
52,244
47,030
Income tax expense
2,400
3,215
2,879
11,386
11,275
Net income
$
10,156
$
10,826
$
8,591
$
40,858
$
35,755
Preferred stock dividends
219
218
—
683
—
Net income available to common
shareholders
$
9,937
$
10,608
$
8,591
$
40,175
$
35,755
Earnings per share, diluted
$
1.18
$
1.25
$
1.01
$
4.75
$
4.17
Book value per share
$
29.74
$
28.58
$
27.48
$
29.74
$
27.48
Tangible book value per share (1)
$
28.28
$
27.13
$
26.03
$
28.28
$
26.03
Net interest margin (2)
4.15
%
4.01
%
3.39
%
3.82
%
3.44
%
Adjusted net interest margin (1)(2)
3.94
%
3.89
%
3.23
%
3.64
%
3.21
%
Fee income ratio (non-interest income /
total revenue)
20.26
%
24.05
%
26.56
%
23.02
%
24.92
%
Efficiency ratio (1)
61.45
%
58.46
%
61.92
%
62.31
%
63.49
%
Return on average assets (2)
1.39
%
1.54
%
1.32
%
1.46
%
1.37
%
Pre-tax, pre-provision adjusted return on
average assets (1)(2)
1.81
%
2.05
%
1.66
%
1.74
%
1.58
%
Return on average common equity (2)
16.26
%
17.44
%
15.04
%
16.79
%
16.21
%
Period-end loans and leases receivable
$
2,443,066
$
2,330,700
$
2,239,408
$
2,443,066
$
2,239,408
Average loans and leases receivable
$
2,384,091
$
2,316,621
$
2,179,769
$
2,304,990
$
2,179,154
Period-end in-market deposits
$
1,965,970
$
1,929,224
$
1,928,285
$
1,965,970
$
1,928,285
Average in-market deposits
$
1,950,625
$
1,930,995
$
1,866,875
$
1,928,815
$
1,784,302
Allowance for loan and lease losses
$
24,230
$
24,143
$
24,336
$
24,230
$
24,336
Non-performing assets
$
3,754
$
3,796
$
6,522
$
3,754
$
6,522
Allowance for loan and lease losses as a
percent of total gross loans and leases
0.99
%
1.04
%
1.09
%
0.99
%
1.09
%
Non-performing assets as a percent of
total assets
0.13
%
0.13
%
0.25
%
0.13
%
0.25
%
(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.
(2)
Calculation is annualized.
Quarterly
Financial Results - Excluding PPP Loans, Interest Income, and
Fees
(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,
2022
September 30,
2022
December 31,
2021
December 31,
2022
December 31,
2021
Net interest income
$
27,444
$
25,812
$
19,898
$
97,816
$
75,826
Adjusted non-interest income (1)
6,164
8,197
7,569
28,619
28,071
Operating revenue (1)
33,608
34,009
27,467
126,435
103,897
Operating expense (1)
20,658
19,925
17,644
79,155
71,571
Pre-tax, pre-provision adjusted earnings
(1)
$
12,950
$
14,084
$
9,823
$
47,280
$
32,326
Net interest margin (2)
4.15
%
4.00
%
3.29
%
3.81
%
3.29
%
Fee income ratio (non-interest income /
total revenue)
20.26
%
24.10
%
27.56
%
23.13
%
27.04
%
Efficiency ratio (1)
61.47
%
58.59
%
64.24
%
62.61
%
68.89
%
Pre-tax, pre-provision adjusted return on
average assets (1)(2)
1.81
%
2.05
%
1.53
%
1.72
%
1.32
%
Period-end loans and leases receivable
$
2,442,560
$
2,328,376
$
2,212,111
$
2,442,560
$
2,212,111
Average loans and leases receivable
$
2,381,958
$
2,312,116
$
2,126,846
$
2,295,250
$
2,026,890
Allowance for loan and lease losses as a
percent of total gross loans and leases
0.99
%
1.04
%
1.10
%
0.99
%
1.10
%
Non-performing assets as a percent of
total assets
0.13
%
0.13
%
0.25
%
0.13
%
0.25
%
(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.
(2)
Calculation is annualized.
Fourth Quarter 2022 Compared to Third
Quarter 2022
Net interest income increased $1.6 million, or 6.1%, to $27.5
million.
- Net interest income growth was driven by an increase in both
average loans and leases and in fees in lieu of interest combined
with net interest margin expansion. Average loans and leases
receivable increased $67.5 million, or 11.6% annualized, to $2.384
billion. Fees in lieu of interest, which can vary from quarter to
quarter based on client-driven activity, totaled $1.3 million,
compared to $807,000 in the prior quarter. Excluding fees in lieu
of interest and interest income from PPP loans, net interest income
increased $1.1 million, or 17.0% annualized.
- The yield on average interest-earning assets increased 87 basis
points to 5.79% from 4.92%. Excluding average net PPP loans, PPP
loan interest income, and fees in lieu of interest, the yield
earned on average interest-earning assets increased 79 basis points
to 5.59% from 4.80%.
- The rate paid for average interest-bearing, in-market deposits
increased 113 basis points to 2.01% from 0.88%. The rate paid for
average total bank funding increased 78 basis points to 1.67% from
0.89%. Total bank funding is defined as total deposits plus Federal
Home Loan Bank (“FHLB”) advances. The daily average effective
federal funds rate increased 147 basis points compared to the
linked quarter, which equates to a total bank funding beta of 53.1%
for the three months ended December 31, 2022.
- Net interest margin was 4.15%, up 14 basis points compared to
4.01% in the linked quarter. Adjusted net interest margin1 was
3.94%, up 5 basis points compared to 3.89% in the linked quarter.
Net interest margin expansion was due to an increase in fees of
lieu of interest and the beta on interest earning assets exceeding
the total bank funding beta.
- The Bank maintains an asset-sensitive balance sheet and ended
the quarter positioned for net interest income to continue to
benefit from rising rates. However, the Bank anticipates deposit
betas will continue to rise at a greater rate, and adjusted net
interest margin may begin to decline at a gradual pace in coming
quarters.
The Bank reported a provision expense of $702,000, compared to
$12,000 in the third quarter of 2022.
- The provision for loan and lease losses expense in the fourth
quarter of 2022 was primarily due to net charge offs of $615,000
and an increase of $982,000 in the general reserve due to loan
growth, partially offset by a $930,000 decrease in the general
reserve due to a decrease in the historical loss factor as elevated
losses during the Great Recession fall outside the model look-back
period.
- The Bank adopted ASU No. 2016-13, “Financial Instruments-
Credit Losses (Topic 326)", which is often referred to as CECL, on
January 1, 2023.
Non-interest income decreased $1.2 million, or 14.9%, to $7.0
million.
- Private Wealth and Retirement assets (“Private Wealth”) fee
income decreased $48,000, or 1.8% to $2.6 million. Private Wealth
assets under management and administration measured $2.660 billion
at December 31, 2022, up $167.4 million from the third quarter,
with a majority of the growth occurring late in the fourth
quarter.
- Gains on sale of Small Business Administration (“SBA”) loans
decreased $463,000, or 63.3%, to $269,000. Premiums on the sale of
SBA loans sold decreased compared to prior quarter and the Company
elected to hold a higher proportion of SBA loans on its balance
sheet in the current interest rate environment.
- Commercial loan swap fee income increased $415,000, or 121.7%,
to $756,000. Swap fee income can vary from period to period based
on loan activity and the interest rate environment.
- Service charges on deposits decreased $227,000, or 22.3%, to
$791,000, driven by an increase in the earnings credit rate
commensurate with the rising rate environment.
- Other fee income decreased $934,000 to $1.7 million, compared
to $2.7 million in the third quarter. The decrease was primarily
due to lower returns on the Company’s investments in mezzanine
funds and lower income in the equipment financing business line.
The fourth quarter decrease was partially offset by the recognition
of a $809,000 bank-owned life insurance claim. Income on mezzanine
funds can vary from period to period based on changes in the value
of underlying investments.
Non-interest expense increased $1.1 million, or 5.7%, to $21.2
million, while operating expense increased $733,000, or 3.7%, to
$20.7 million.
____________________ 1 Adjusted net interest margin is a
non-GAAP measure representing net interest income excluding fees in
lieu of interest and other recurring, but volatile, components of
net interest margin divided by average interest-earning assets less
average net PPP loans and other recurring, but volatile, components
of average interest-earning assets.
- Compensation expense was $15.3 million, reflecting an increase
of $450,000, or 3.0%, from the linked quarter due to a $347,000
adjustment to the annual cash incentive bonus program accrual
driven by above-target current year performance, as well as
expanded hiring to support the Bank’s growth plans. The Bank’s
compensation philosophy is to provide base salaries competitive
with the market. To stay competitive in the tight labor market, the
Company increased its base salaries consistent with 2021. Average
full-time equivalents (FTEs) for the fourth quarter of 2022 were
336, up three from 333 in the linked quarter.
- Equipment expense increased $106,000, or 41.9%, to $359,000
from the linked quarter primarily due to one-time costs associated
with an office relocation.
- Occupancy expense increased $103,000, or 18.2%, to $669,000
from the linked quarter primarily due to an office relocation and
one-time costs associated with building repairs.
- Other non-interest expense increased $354,000, or 62.2%, to
$923,000 from the linked quarter primarily due to a non-recurring
contribution to the First Business Charitable Foundation totaling
$809,000 during the fourth quarter partially offset by a recourse
release of $322,000 and a swap credit valuation benefit of
$153,000.
Income tax expense decreased $815,000, or 25.3%, to $2.4
million. The effective tax rate was 19.1% for the three months
ended December 31, 2022, compared to 22.9% for the linked quarter.
The three months ended December 31, 2022 benefited from low income
housing tax credits and a state return amendment. The Company
expects to report an effective tax rate of 21-22% for 2023.
Total period-end loans and leases receivable increased $112.4
million, or 19.3% annualized, to $2.443 billion. Excluding net PPP
loans, total period-end loans and leases receivable increased
$114.2 million, or 19.6% annualized.
- Commercial real estate loans increased by $57.0 million, or
15.4% annualized, to $1.542 billion, compared to $1.485 billion.
Growth spanned all commercial real estate categories, led by
increases in non-owner occupied and multi-family loans.
- C&I loans increased $52.2 million, or 26.4% annualized, to
$841.2 million, compared to $789.0 million. Excluding PPP loans,
C&I loans increased $54.0 million, or 27.6% annualized, due to
growth across products and geographies.
Total period-end in-market deposits increased $36.7 million, or
7.6% annualized, to $1.966 billion, compared to $1.929 billion. The
average rate paid was 1.43%, up 82 basis points from 0.61% in the
third quarter.
Period-end wholesale funding, including FHLB advances, brokered
deposits, and deposits gathered through internet deposit listing
services, increased $82.5 million to $618.6 million.
- Wholesale deposits increased $43.9 million to $202.2 million,
compared to $158.3 million as the Bank continued to replace FHLB
advances with wholesale deposits. The increase in wholesale funding
is consistent with the Company’s long-held philosophy to manage
interest rate risk by utilizing the most efficient and
cost-effective source of wholesale funds to match-fund our
fixed-rate loan portfolio. The average rate paid on wholesale
deposits increased 120 basis points to 3.66% and the weighted
average original maturity increased to 2.1 years from 0.3
years.
- FHLB advances increased $38.6 million to $416.4 million. The
average rate paid on FHLB advances increased 20 basis points to
2.21% and the weighted average original maturity decreased to 3.7
years from 4.8 years.
Non-performing assets were $3.8 million, or 0.13% of total
assets in both periods of comparison.
The allowance for loan and lease losses increased $87,000, or
0.4%, as increases in the general reserve from loan growth and net
charge-offs were partially offset by a decrease in the general
reserve due to a change in loss factors derived from the historical
look-back period. The allowance for loan and lease losses as a
percent of total gross loans and leases was 0.99% compared to 1.04%
in the third quarter.
Fourth Quarter 2022 Compared to Fourth
Quarter 2021
Net interest income increased $6.5 million, or 31.2%, to $27.5
million.
- The increase in net interest income primarily reflects an
increase in average gross loans and leases and net interest margin
expansion, partially offset by lower fees in lieu of interest. Fees
in lieu of interest decreased from $1.7 million to $1.3 million,
primarily due to a $889,000 reduction in PPP loan fee amortization.
Excluding fees in lieu of interest and interest income from PPP
loans, net interest income increased $7.0 million, or 36.9%.
Excluding net PPP loans, average gross loans and leases increased
$255.1 million, or 12.0%.
- Net interest margin increased 76 basis points to 4.15% from
3.39%. Adjusted net interest margin increased 71 basis points to
3.94% from 3.23%.
- The yield on average interest-earning assets measured 5.79%
compared to 3.81%. Excluding fees in lieu of interest, PPP loan
interest income, and net PPP loans, the yield on average
interest-earning assets measured 5.59%, compared to 3.60%. This
increase in yield was primarily due to the increase in short-term
market rates and the reinvestment of cash flows from the securities
and fixed rate loan portfolios in a rising rate environment.
- The rate paid for average interest-bearing in-market deposits
increased 183 basis points to 2.01% from 0.18%. The rate paid for
average total bank funding increased 124 basis points to 1.67% from
0.33%.
The Company reported a provision expense of $702,000, compared
to a provision benefit of $508,000 in the fourth quarter of 2021
primarily due to an increase in net charge-offs in the current
quarter and improvement in subjective factors in the prior year
quarter.
Non-interest income of $7.0 million decreased by $596,000, or
7.9%, from $7.6 million in the prior year period.
- Private Wealth fee income decreased $304,000, or 10.6%, to $2.6
million, due to a decline in market values. Private Wealth assets
under management and administration measured $2.660 billion at
December 31, 2022, down $260.7 million, or 8.9%.
- Gain on sale of SBA loans decreased $773,000, or 74.2%, to
$269,000. Premiums on the sale and notional value of SBA loans sold
decreased compared to prior year quarter, as the Company elected to
hold a higher proportion of SBA loans on its balance sheet in the
current interest rate environment.
- Service charges on deposits decreased $232,000, or 22.7%, to
$791,000. The reasons for the decrease are consistent with the
explanations discussed above in the linked quarter analysis.
- Loan fees of $847,000 increased by $168,000, or 24.7%,
primarily due to an increase in C&I lending activity.
- Other fee income increased $473,000, or 37.4%, to $1.7 million,
due to the recognition of a $809,000 bank owned life insurance
death benefit, partially offset by lower returns on the Company’s
investments in mezzanine funds. Income on mezzanine funds can vary
from period to period based on changes in the value of underlying
investments.
Non-interest expense increased $3.6 million, or 20.7%, to $21.2
million. Operating expense increased $3.0 million, or 17.1%, to
$20.7 million.
- Compensation expense increased $2.8 million, or 22.7%, to $15.3
million. Average FTEs increased 12% to 336 in the fourth quarter of
2022, compared to 301 in the fourth quarter of 2021. The increase
in compensation expense was mainly due to an increase in average
FTEs, annual merit increases and promotions, and an increase in
incentive compensation due to outstanding company performance.
- Full year 2022 compensation included a $6.7 million annual
incentive compensation accrual, which exceeded the Company’s target
payout by $2.5 million.
- Professional fees increased $277,000, or 29.7%, to $1.2
million, primarily due to a general increase in other professional
consulting services associated with various projects and an
increase in audit expenses.
- Equipment expense increased $136,000, or 61.0%, to $359,000.
The reasons for the increase in equipment expense are consistent
with the explanations discussed above in the linked quarter
analysis.
- Occupancy expense increased $118,000, or 21.4%, to $669,000.
The reasons for the increase in occupancy expense are consistent
with the explanations discussed above in the linked quarter
analysis.
- Other non-interest expense increased $94,000, or 11.3%, to
$923,000 primarily due to a non-recurring charitable contribution
totaling $809,000 during the fourth quarter partially offset by a
reduction in expenses related to swap credit valuations and
recourse provision.
Total period-end loans and leases receivable increased $203.7
million, or 9.1%, to $2.443 billion. Excluding net PPP loans, total
period-end loans and leases receivable increased $230.4 million, or
10.4%, to $2.443 billion.
- C&I loans increased $110.4 million, or 15.1% to $841.2
million. Excluding PPP loans, C&I loans increased $137.7
million, or 19.6%, to $840.6 million due to growth across
categories and geographies.
- CRE loans increased $87.3 million, or 6.0%, to $1.542 billion,
due to increases in most CRE categories.
Total period-end in-market deposits increased $37.7 million, or
2.0%, to $1.966 billion, and the average rate paid increased 130
basis points to 1.43%. The increase in in-market deposits was
principally due to a $99.7 million increase in certificates of
deposit, partially offset by a $55.9 million decline in money
market accounts.
Period-end wholesale funding increased $220.2 million to $618.6
million.
- Wholesale deposits increased $172.6 million to $202.2 million,
as the Bank utilized more wholesale deposits in lieu of short-term
FHLB advances. The average rate paid on brokered certificates of
deposit increased 263 basis points to 3.66% and the weighted
average original maturity decreased to 2.1 years from 3.8
years.
- FHLB advances increased $47.6 million to $416.4 million. The
average rate paid on FHLB advances increased 91 basis points to
2.21% and the weighted average original maturity decreased to 3.7
years from 5.9 years.
Non-performing assets decreased to $3.8 million, or 0.13% of
total assets, compared to $6.5 million, or 0.25% of total
assets.
The allowance for loan and lease losses decreased $106,000 to
$24.2 million, compared to $24.3 million. The allowance for loan
and lease losses as a percent of total gross loans and leases was
0.99%, compared to 1.09%.
Paycheck Protection
Program
As of December 31, 2022, the Company had $554,000 in gross PPP
loans outstanding and deferred processing fees outstanding of
$48,000. The processing fees are deferred and recognized over the
contractual life of the loan, or accelerated at forgiveness, as an
adjustment of yield using the interest method. During the three and
twelve months ended December 31, 2022, the Company recognized
$3,000 and $509,000 of PPP processing fees in interest income,
respectively, compared to $892,000 and $7.3 million for the three
and twelve months ended December 31, 2021. The SBA provides a
guaranty to the lender of 100% of principal and interest unless the
lender violated an obligation under the agreement.
Share Repurchase Program
Update
As previously announced, effective March 4, 2022, the Company’s
Board of Directors authorized the repurchase by the Company of
shares of its common stock with a maximum aggregate purchase price
of $5.0 million, effective March 4, 2022 through March 4, 2023. As
of December 16, 2022, the Company had completed the share
repurchase program, purchasing a total of 142,074 shares for
approximately $5.0 million at an average cost of $35.14 per
share.
About First Business Financial Services, Inc.
First Business Financial Services, Inc., (Nasdaq: FBIZ) is the
parent company of First Business Bank. First Business Bank
specializes in business banking, including commercial banking and
specialized lending, private wealth, and bank consulting services,
and through its refined focus, delivers unmatched expertise,
accessibility, and responsiveness. Specialized lending solutions
are delivered through First Business Bank’s wholly owned subsidiary
First Business Specialty Finance, LLC. For additional information,
visit firstbusiness.bank.
This release may include forward-looking statements as defined
in the Private Securities Litigation Reform Act of 1995, which
reflect First Business Bank’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,
inflation, supply chain issues, labor shortages, and the adverse
effects of the COVID-19 pandemic on the global, national, and local
economy.
- Competitive pressures among depository and other financial
institutions nationally and in the Company’s markets.
- Increases in defaults by borrowers and other
delinquencies.
- Management’s 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
the Company and its 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 the Company’s 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, 2021 and other filings
with the Securities and Exchange Commission.
SELECTED FINANCIAL CONDITION
DATA
(Unaudited)
As of
(in thousands)
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
December 31,
2021
Assets
Cash and cash equivalents
$
102,682
$
110,965
$
95,484
$
95,603
$
57,110
Securities available-for-sale, at fair
value
212,024
196,566
208,643
223,631
205,702
Securities held-to-maturity, at amortized
cost
12,635
13,531
13,968
17,267
19,746
Loans held for sale
2,632
773
2,256
2,418
3,570
Loans and leases receivable
2,443,066
2,330,700
2,290,100
2,251,249
2,239,408
Allowance for loan and lease losses
(24,230
)
(24,143
)
(24,104
)
(23,669
)
(24,336
)
Loans and leases receivable, net
2,418,836
2,306,557
2,265,996
2,227,580
2,215,072
Premises and equipment, net
4,340
3,143
1,899
1,621
1,694
Foreclosed properties
95
151
124
117
164
Right-of-use assets
7,690
5,424
5,772
6,118
4,910
Bank-owned life insurance
54,018
54,683
54,324
53,974
53,600
Federal Home Loan Bank stock, at cost
17,812
15,701
22,959
12,863
13,336
Goodwill and other intangible assets
12,159
12,218
12,262
12,184
12,268
Derivatives
68,581
73,718
44,461
26,890
26,343
Accrued interest receivable and other
assets
63,107
57,372
48,868
43,816
39,390
Total assets
$
2,976,611
$
2,850,802
$
2,777,016
$
2,724,082
$
2,652,905
Liabilities and Stockholders’
Equity
In-market deposits
$
1,965,970
$
1,929,224
$
1,857,010
$
2,011,373
$
1,928,285
Wholesale deposits
202,236
158,321
12,321
12,321
29,638
Total deposits
2,168,206
2,087,545
1,869,331
2,023,694
1,957,923
Federal Home Loan Bank advances and other
borrowings
456,808
420,297
596,642
414,487
403,451
Junior subordinated notes
—
—
—
—
10,076
Lease liabilities
10,175
6,827
7,207
7,580
5,406
Derivatives
61,419
66,162
40,357
24,961
28,283
Accrued interest payable and other
liabilities
19,363
16,967
13,556
8,309
15,344
Total liabilities
2,715,971
2,597,798
2,527,093
2,479,031
2,420,483
Total stockholders’ equity
260,640
253,004
249,923
245,051
232,422
Total liabilities and stockholders’
equity
$
2,976,611
$
2,850,802
$
2,777,016
$
2,724,082
$
2,652,905
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,
2022
September 30,
2022
June 30, 2022
March 31, 2022
December 31,
2021
December 31,
2022
December 31,
2021
Total interest income
$
38,319
$
31,786
$
27,031
$
24,235
$
23,576
$
121,371
$
95,995
Total interest expense
10,867
5,902
3,371
2,809
2,652
22,949
11,333
Net interest income
27,452
25,884
23,660
21,426
20,924
98,422
84,662
Provision for loan and lease losses
702
12
(3,727
)
(855
)
(508
)
(3,868
)
(5,803
)
Net interest income after provision for
loan and lease losses
26,750
25,872
27,387
22,281
21,432
102,290
90,465
Private wealth management service fees
2,570
2,618
2,852
2,841
2,874
10,881
10,784
Gain on sale of SBA loans
269
732
951
585
1,042
2,537
4,044
Service charges on deposits
791
1,018
1,041
999
1,023
3,849
3,837
Loan fees
847
814
697
652
679
3,010
2,506
Net gain on sale of securities
—
—
—
—
—
—
29
Swap fees
756
341
471
225
684
1,793
1,368
Other non-interest income
1,740
2,674
860
2,084
1,267
7,358
5,532
Total non-interest income
6,973
8,197
6,872
7,386
7,569
29,428
28,100
Compensation
15,267
14,817
14,020
13,638
12,447
57,742
51,710
Occupancy
669
566
568
555
551
2,358
2,180
Professional fees
1,210
1,203
1,298
1,170
933
4,881
3,736
Data processing
806
719
892
780
773
3,197
3,087
Marketing
641
543
670
500
548
2,354
2,022
Equipment
359
253
235
244
223
1,091
990
Computer software
1,089
1,128
1,117
1,082
1,017
4,416
4,260
FDIC insurance
203
230
296
313
210
1,042
1,143
Other non-interest expense
923
569
360
541
829
2,393
2,407
Total non-interest expense
21,167
20,028
19,456
18,823
17,531
79,474
71,535
Income before income tax expense
12,556
14,041
14,803
10,844
11,470
52,244
47,030
Income tax expense
2,400
3,215
3,599
2,172
2,879
11,386
11,275
Net income
$
10,156
$
10,826
$
11,204
$
8,672
$
8,591
$
40,858
$
35,755
Preferred stock dividends
219
218
246
—
—
683
—
Net income available to common
shareholders
$
9,937
$
10,608
$
10,958
$
8,672
$
8,591
$
40,175
$
35,755
Per common share:
Basic earnings
$
1.18
$
1.25
$
1.29
$
1.02
$
1.01
$
4.75
$
4.17
Diluted earnings
1.18
1.25
1.29
1.02
1.01
4.75
4.17
Dividends declared
0.1975
0.1975
0.1975
0.1975
0.18
0.79
0.72
Book value
29.74
28.58
28.08
27.46
27.48
29.74
27.48
Tangible book value
28.28
27.13
26.63
26.02
26.03
28.28
26.03
Weighted-average common shares
outstanding(1)
8,180,531
8,230,902
8,225,838
8,232,142
8,228,311
8,226,943
8,314,921
Weighted-average diluted common shares
outstanding(1)
8,180,531
8,230,902
8,225,838
8,232,142
8,228,311
8,226,943
8,314,921
(1)
Excluding participating securities.
NET INTEREST INCOME ANALYSIS
(Unaudited)
For the Three Months
Ended
(Dollars in thousands)
December 31, 2022
September 30, 2022
December 31, 2021
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)
$
1,515,975
$
20,948
5.53
%
$
1,486,530
$
17,280
4.65
%
$
1,417,498
$
13,225
3.73
%
Commercial and industrial loans(1)
806,019
14,816
7.35
%
765,440
12,266
6.41
%
702,108
8,711
4.96
%
Direct financing leases(1)
13,747
156
4.54
%
15,093
160
4.24
%
17,662
200
4.53
%
Consumer and other loans(1)
48,350
514
4.25
%
49,558
468
3.78
%
42,501
376
3.54
%
Total loans and leases receivable(1)
2,384,091
36,434
6.11
%
2,316,621
30,174
5.21
%
2,179,769
22,512
4.13
%
Mortgage-related securities(2)
164,120
1,008
2.46
%
168,433
915
2.17
%
170,002
677
1.59
%
Other investment securities(3)
49,850
261
2.09
%
51,812
250
1.93
%
49,927
209
1.67
%
FHLB stock
16,281
301
7.40
%
18,167
289
6.36
%
12,345
155
5.02
%
Short-term investments
34,807
315
3.62
%
27,912
158
2.26
%
59,970
23
0.15
%
Total interest-earning assets
2,649,149
38,319
5.79
%
2,582,945
31,786
4.92
%
2,472,013
23,576
3.81
%
Non-interest-earning assets
218,326
176,016
140,892
Total assets
$
2,867,475
$
2,758,961
$
2,612,905
Interest-bearing liabilities
Transaction accounts
$
492,586
2,360
1.92
%
$
486,704
1,005
0.83
%
$
497,743
239
0.19
%
Money market
748,502
3,784
2.02
%
746,227
1,610
0.86
%
749,247
321
0.17
%
Certificates of deposit
148,949
849
2.28
%
113,529
340
1.20
%
42,507
36
0.34
%
Wholesale deposits
128,908
1,180
3.66
%
36,702
226
2.46
%
62,342
161
1.03
%
Total interest-bearing deposits
1,518,945
8,173
2.15
%
1,383,162
3,181
0.92
%
1,351,839
757
0.22
%
FHLB advances
389,310
2,149
2.21
%
432,528
2,173
2.01
%
353,637
1,149
1.30
%
Other borrowings
41,143
545
5.30
%
42,800
548
5.12
%
35,270
466
5.28
%
Junior subordinated notes
—
—
—
%
—
—
—
%
10,073
280
11.12
%
Total interest-bearing liabilities
1,949,398
10,867
2.23
%
1,858,490
5,902
1.27
%
1,750,819
2,652
0.61
%
Non-interest-bearing demand deposit
accounts
560,588
584,535
577,378
Other non-interest-bearing liabilities
100,998
60,705
56,280
Total liabilities
2,610,984
2,503,730
2,384,477
Stockholders’ equity
256,491
255,231
228,428
Total liabilities and stockholders’
equity
$
2,867,475
$
2,758,961
$
2,612,905
Net interest income
$
27,452
$
25,884
$
20,924
Interest rate spread
3.56
%
3.65
%
3.21
%
Net interest-earning assets
$
699,751
$
724,455
$
721,194
Net interest margin
4.15
%
4.01
%
3.39
%
(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, 2022
December 31, 2021
Average
Balance
Interest
Average
Yield/Rate
Average
Balance
Interest
Average
Yield/Rate
Interest-earning assets
Commercial real estate and other mortgage
loans(1)
$
1,484,239
$
66,917
4.51
%
$
1,387,434
$
51,930
3.74
%
Commercial and industrial loans(1)
755,837
45,893
6.07
%
727,923
37,470
5.15
%
Direct financing leases(1)
15,219
682
4.48
%
19,591
872
4.45
%
Consumer and other loans(1)
49,695
1,876
3.78
%
44,206
1,572
3.56
%
Total loans and leases receivable(1)
2,304,990
115,368
5.01
%
2,179,154
91,844
4.21
%
Mortgage-related securities(2)
173,495
3,486
2.01
%
159,242
2,633
1.65
%
Other investment securities(3)
51,700
986
1.91
%
44,739
777
1.74
%
FHLB stock
16,462
989
6.01
%
13,066
651
4.98
%
Short-term investments
30,845
542
1.76
%
64,308
90
0.14
%
Total interest-earning assets
2,577,492
121,371
4.71
%
2,460,509
95,995
3.90
%
Non-interest-earning assets
175,424
144,499
Total assets
$
2,752,916
$
2,605,008
Interest-bearing liabilities
Transaction accounts
$
503,668
3,963
0.79
%
$
506,693
988
0.19
%
Money market
761,469
6,241
0.82
%
693,608
1,183
0.17
%
Certificates of deposit
97,448
1,358
1.39
%
47,020
396
0.84
%
Wholesale deposits
48,825
1,616
3.31
%
119,831
986
0.82
%
Total interest-bearing deposits
1,411,410
13,178
0.93
%
1,367,152
3,553
0.26
%
FHLB advances
414,191
7,024
1.70
%
376,781
4,908
1.30
%
Other borrowings
43,818
2,243
5.12
%
31,935
1,759
5.51
%
Junior subordinated notes(4)
2,429
504
20.75
%
10,068
1,113
11.05
%
Total interest-bearing liabilities
1,871,848
22,949
1.23
%
1,785,936
11,333
0.63
%
Non-interest-bearing demand deposit
accounts
566,230
536,981
Other non-interest-bearing liabilities
65,611
61,580
Total liabilities
2,503,689
2,384,497
Stockholders’ equity
249,227
220,511
Total liabilities and stockholders’
equity
$
2,752,916
$
2,605,008
Net interest income
$
98,422
$
84,662
Interest rate spread
3.48
%
3.27
%
Net interest-earning assets
$
705,644
$
674,573
Net interest margin
3.82
%
3.44
%
(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)
The calculation for the year ended
December 31, 2022 includes $236,000 in accelerated amortization of
debt issuance costs.
ASSET AND LIABILITY BETA
ANALYSIS
For the Three Months
Ended
For the Year Ended
(Unaudited)
December 31, 2022
September 30, 2022
December 31, 2021
December 31, 2022
December 31, 2021
Average Yield/Rate (3)
Average Yield/Rate (3)
Increase (Decrease)
Average Yield/Rate (3)
Increase (Decrease)
Average Yield/Rate
Average Yield/Rate
Increase (Decrease)
Total loans and leases receivable (a)
6.11
%
5.21
%
0.90
%
4.13
%
1.98
%
5.01
%
4.21
%
0.80
%
Total interest-earning assets(b)
5.79
%
4.92
%
0.87
%
3.81
%
1.98
%
4.71
%
3.90
%
0.81
%
Adjusted total loans and leases receivable
(1)(c)
5.90
%
5.08
%
0.82
%
3.89
%
2.01
%
4.79
%
3.91
%
0.88
%
Adjusted total interest-earning assets
(1)(d)
5.59
%
4.80
%
0.79
%
3.60
%
1.99
%
4.52
%
3.61
%
0.91
%
Total in-market deposits(e)
1.43
%
0.61
%
0.82
%
0.13
%
1.30
%
0.60
%
0.14
%
0.46
%
Total bank funding(f)
1.67
%
0.89
%
0.78
%
0.33
%
1.34
%
0.84
%
0.37
%
0.47
%
Net interest margin(g)
4.15
%
4.01
%
0.14
%
3.39
%
0.76
%
3.82
%
3.44
%
0.38
%
Adjusted net interest margin(h)
3.94
%
3.89
%
0.05
%
3.23
%
0.71
%
3.64
%
3.21
%
0.43
%
Effective fed funds rate (2)(i)
3.65
%
2.18
%
1.47
%
0.09
%
3.56
%
1.69
%
0.08
%
1.61
%
Beta
Calculations:
Total loans and leases
receivable(a)/(i)
61.42
%
55.67
%
49.69
%
Total interest-earning assets(b)/(i)
58.74
%
55.36
%
50.15
%
Adjusted total loans and leases receivable
(1)(c)/(i)
55.61
%
56.38
%
54.66
%
Adjusted total interest-earning assets
(1)(d)/(i)
53.50
%
56.05
%
56.39
%
Total in-market deposits(e/i)
55.78
%
36.52
%
28.57
%
Total bank funding(f)/(i)
53.06
%
37.64
%
29.19
%
Net interest margin(g/i)
9.52
%
21.35
%
23.60
%
Adjusted Net interest margin(h/i)
3.40
%
19.94
%
26.71
%
(1)
Excluding average net PPP loans, PPP loan
interest income, and fees in lieu of interest.
(2)
Board of Governors of the Federal Reserve
System (US), Effective Federal Funds Rate [DFF]. Retrieved from
FRED, Federal Reserve Bank of St. Louis. Represents average daily
rate.
(3)
Represents annualized yields/rates.
PROVISION FOR LOAN AND LEASE LOSS
COMPOSITION
(Unaudited)
For the Three Months
Ended
For the Year Ended
(Dollars in thousands)
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
December 31,
2021
December 31,
2022
December 31,
2021
Change in general reserve due to
qualitative factor changes
$
85
$
132
$
(185
)
$
(416
)
$
(805
)
$
(384
)
$
(426
)
Change in general reserve due to
historical loss factor changes
(930
)
(940
)
64
(206
)
(862
)
(2,012
)
(4,456
)
Charge-offs
818
54
85
22
106
979
3,508
Recoveries
(203
)
(81
)
(4,247
)
(210
)
(274
)
(4,741
)
(5,126
)
Change in specific reserves on impaired
loans, net
(50
)
447
29
(280
)
(64
)
146
(2,175
)
Change due to loan growth, net
982
400
527
235
1,391
2,144
2,872
Total provision for loan and lease
losses
$
702
$
12
$
(3,727
)
$
(855
)
$
(508
)
$
(3,868
)
$
(5,803
)
PERFORMANCE RATIOS
For the Three Months
Ended
For the Year Ended
(Unaudited)
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
December 31,
2021
December 31,
2022
December 31,
2021
Return on average assets (annualized)
1.39
%
1.54
%
1.61
%
1.30
%
1.32
%
1.46
%
1.37
%
Return on average common equity
(annualized)
16.26
%
17.44
%
18.79
%
14.70
%
15.04
%
16.79
%
16.21
%
Efficiency ratio
61.45
%
58.46
%
64.47
%
65.55
%
61.92
%
62.31
%
63.49
%
Interest rate spread
3.56
%
3.65
%
3.51
%
3.22
%
3.21
%
3.48
%
3.27
%
Net interest margin
4.15
%
4.01
%
3.71
%
3.39
%
3.39
%
3.82
%
3.44
%
Average interest-earning assets to average
interest-bearing liabilities
135.90
%
138.98
%
137.40
%
138.64
%
141.19
%
137.70
%
137.77
%
ASSET QUALITY RATIOS
(Unaudited)
As of
(Dollars in thousands)
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
December 31,
2021
Non-accrual loans and leases
$
3,659
$
3,645
$
5,585
$
5,617
$
6,358
Foreclosed properties
95
151
124
117
164
Total non-performing assets
3,754
3,796
5,709
5,734
6,522
Performing troubled debt
restructurings
156
172
188
203
217
Total impaired assets
$
3,910
$
3,968
$
5,897
$
5,937
$
6,739
Non-accrual loans and leases as a percent
of total gross loans and leases
0.15
%
0.16
%
0.24
%
0.25
%
0.28
%
Non-performing assets as a percent of
total gross loans and leases plus foreclosed properties
0.15
%
0.16
%
0.25
%
0.25
%
0.29
%
Non-performing assets as a percent of
total assets
0.13
%
0.13
%
0.21
%
0.21
%
0.25
%
Allowance for loan and lease losses as a
percent of total gross loans and leases
0.99
%
1.04
%
1.05
%
1.05
%
1.09
%
Allowance for loan and lease losses as a
percent of non-accrual loans and leases
662.20
%
662.36
%
431.58
%
421.38
%
382.76
%
ASSET QUALITY RATIOS - EXCLUDING NET
PPP LOANS
(Unaudited)
As of
(Dollars in thousands)
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
December 31,
2021
Non-accrual loans and leases as a percent
of total gross loans and leases
0.15
%
0.16
%
0.24
%
0.25
%
0.29
%
Non-performing assets as a percent of
total gross loans and leases plus foreclosed properties
0.15
%
0.16
%
0.25
%
0.26
%
0.29
%
Non-performing assets as a percent of
total assets
0.13
%
0.13
%
0.21
%
0.21
%
0.25
%
Allowance for loan and lease losses as a
percent of total gross loans and leases
0.99
%
1.04
%
1.06
%
1.06
%
1.10
%
PPP loans outstanding, net
$
506
$
2,324
$
8,172
$
18,206
$
27,297
NET CHARGE-OFFS (RECOVERIES)
(Unaudited)
For the Three Months
Ended
For the Year Ended
(Dollars in thousands)
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
December 31,
2021
December 31,
2022
December 31,
2021
Charge-offs
$
818
$
54
$
85
$
22
$
106
$
979
$
3,508
Recoveries
(203
)
(81
)
(4,247
)
(210
)
(274
)
(4,741
)
(5,126
)
Net charge-offs (recoveries)
$
615
$
(27
)
$
(4,162
)
$
(188
)
$
(168
)
$
(3,762
)
$
(1,618
)
Net charge-offs (recoveries) as a percent
of average gross loans and leases (annualized)
0.10
%
—
%
(0.73
) %
(0.03
) %
(0.03
) %
(0.16
) %
(0.07
) %
Annualized charge-offs (recoveries) as a
percent of average gross loans and leases, excluding average net
PPP loans
0.10
%
—
%
(0.74
) %
(0.03
) %
(0.03
) %
(0.16
) %
(0.08
) %
Average PPP loans outstanding, net
$
2,133
$
4,505
$
11,650
$
20,935
$
52,923
$
9,740
$
152,264
CAPITAL RATIOS
As of and for the Three Months
Ended
(Unaudited)
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
December 31,
2021
Total capital to risk-weighted assets
11.26
%
11.66
%
11.56
%
11.87
%
10.82
%
Tier I capital to risk-weighted assets
9.20
%
9.48
%
9.34
%
9.27
%
8.94
%
Common equity tier I capital to
risk-weighted assets
8.79
%
9.04
%
8.90
%
8.81
%
8.55
%
Tier I capital to adjusted assets
9.17
%
9.34
%
9.19
%
9.09
%
8.94
%
Tangible common equity to tangible
assets
7.98
%
8.06
%
8.16
%
8.14
%
8.34
%
Tangible common equity to tangible assets,
excluding net PPP loans
7.98
%
8.07
%
8.19
%
8.20
%
8.42
%
LOAN AND LEASE RECEIVABLE
COMPOSITION
(Unaudited)
As of
(in thousands)
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
December 31,
2021
Commercial real estate:
Commercial real estate - owner
occupied
$
268,354
$
265,989
$
258,375
$
254,237
$
235,589
Commercial real estate - non-owner
occupied
687,091
657,975
651,920
656,185
661,423
Land development
50,803
49,458
42,545
40,092
42,792
Construction
167,948
162,051
203,913
200,472
179,841
Multi-family
350,026
332,782
314,392
302,494
320,072
1-4 family
17,728
16,678
17,335
16,198
14,911
Total commercial real estate
1,541,950
1,484,933
1,488,480
1,469,678
1,454,628
Commercial and industrial
841,178
788,983
741,363
720,695
730,819
Direct financing leases, net
12,149
11,109
13,718
14,551
15,743
Consumer and other:
Home equity and second mortgages
6,761
5,413
5,132
4,523
4,223
Other
41,177
40,710
42,387
43,066
35,518
Total consumer and other
47,938
46,123
47,519
47,589
39,741
Total gross loans and leases
receivable
2,443,215
2,331,148
2,291,080
2,252,513
2,240,931
Less:
Allowance for loan and lease losses
24,230
24,143
24,104
23,669
24,336
Deferred loan fees
149
448
980
1,264
1,523
Loans and leases receivable, net
$
2,418,836
$
2,306,557
$
2,265,996
$
2,227,580
$
2,215,072
DEPOSIT COMPOSITION
(Unaudited)
As of
(in thousands)
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
December 31,
2021
Non-interest-bearing transaction
accounts
$
537,107
$
564,141
$
544,507
$
600,987
$
589,559
Interest-bearing transaction accounts
576,601
461,883
466,785
539,492
530,225
Money market accounts
698,505
742,545
731,718
806,917
754,410
Certificates of deposit
153,757
160,655
114,000
63,977
54,091
Wholesale deposits
202,236
158,321
12,321
12,321
29,638
Total deposits
$
2,168,206
$
2,087,545
$
1,869,331
$
2,023,694
$
1,957,923
PRIVATE WEALTH OFF BALANCE SHEET
COMPOSITION
(Unaudited)
As of
(in thousands)
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
December 31,
2021
Trust assets under management
$
2,483,811
$
2,332,448
$
2,386,637
$
2,636,896
$
2,711,760
Trust assets under administration
176,225
160,171
167,095
197,160
208,954
Total trust assets
$
2,660,036
$
2,492,619
$
2,553,732
$
2,834,056
$
2,920,714
NON-GAAP RECONCILIATIONS
Certain financial information provided in this release is
determined by methods other than in accordance with generally
accepted accounting principles (United States) (“GAAP”). Although
the Company’s management believes that these non-GAAP financial
measures provide a greater understanding of its business, these
measures are not necessarily comparable to similar measures that
may be presented by other companies.
TANGIBLE BOOK VALUE
“Tangible book value per share” is a non-GAAP measure
representing tangible common equity divided by total common shares
outstanding. “Tangible common equity” itself is a non-GAAP measure
representing common stockholders’ equity reduced by intangible
assets, if any. The Company’s management believes that this measure
is important to many investors in the marketplace who are
interested in period-to-period changes in book value per common
share exclusive of changes in intangible assets. The information
provided below reconciles tangible book value per share and
tangible common equity to their most comparable GAAP measures.
(Unaudited)
As of
(Dollars in thousands, except per share
amounts)
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
December 31,
2021
Common stockholders’ equity
$
248,648
$
241,012
$
237,931
$
233,059
$
232,422
Goodwill and other intangible assets
(12,159
)
(12,218
)
(12,262
)
(12,184
)
(12,268
)
Tangible common equity
$
236,489
$
228,794
$
225,669
$
220,875
$
220,154
Common shares outstanding
8,362,085
8,432,048
8,474,699
8,488,585
8,457,564
Book value per share
$
29.74
$
28.58
$
28.08
$
27.46
$
27.48
Tangible book value per share
28.28
27.13
26.63
26.02
26.03
TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS
“Tangible common equity to tangible assets” is defined as the
ratio of common stockholders’ equity reduced by intangible assets,
if any, divided by total assets reduced by intangible assets, if
any. The Company’s management believes that this measure is
important to many investors in the marketplace who are interested
in the relative changes from period to period in common equity and
total assets, each exclusive of changes in intangible assets. The
information below reconciles tangible common equity and tangible
assets to their most comparable GAAP measures.
(Unaudited)
As of
(Dollars in thousands)
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
December 31,
2021
Common stockholders’ equity
$
248,648
$
241,012
$
237,931
$
233,059
$
232,422
Goodwill and other intangible assets
(12,159
)
(12,218
)
(12,262
)
(12,184
)
(12,268
)
Tangible common equity
$
236,489
$
228,794
$
225,669
$
220,875
$
220,154
Total assets
$
2,976,611
$
2,850,802
$
2,777,016
$
2,724,082
$
2,652,905
Goodwill and other intangible assets
(12,159
)
(12,218
)
(12,262
)
(12,184
)
(12,268
)
Tangible assets
$
2,964,452
$
2,838,584
$
2,764,754
$
2,711,898
$
2,640,637
Tangible common equity to tangible
assets
7.98
%
8.06
%
8.16
%
8.14
%
8.34
%
Period-end net PPP loans
506
2,324
8,172
18,206
27,297
Tangible assets, excluding net PPP
loans
$
2,963,946
$
2,836,260
$
2,756,582
$
2,693,692
$
2,613,340
Tangible common equity to tangible assets,
excluding net PPP loans
7.98
%
8.07
%
8.19
%
8.20
%
8.42
%
EFFICIENCY RATIO & PRE-TAX, PRE-PROVISION ADJUSTED
EARNINGS
“Efficiency ratio” is a non-GAAP measure representing
non-interest expense excluding the effects of the SBA recourse
provision, impairment of tax credit investments, losses or gains on
foreclosed properties, amortization of other intangible assets and
other discrete items, if any, divided by operating revenue, which
is equal to net interest income plus non-interest income less
realized gains or losses on securities, if any. “Pre-tax,
pre-provision adjusted earnings” is defined as operating revenue
less operating expense. In the judgment of the Company’s
management, the adjustments made to non-interest expense and
non-interest income allow investors and analysts to better assess
the Company’s operating expenses in relation to its core operating
revenue by removing the volatility that is associated with certain
one-time items and other discrete items. The information provided
below reconciles the efficiency ratio and pre-tax, pre-provision
adjusted earnings to its most comparable GAAP measure.
(Unaudited)
For the Three Months
Ended
For the Year Ended
(Dollars in thousands)
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
December 31,
2021
December 31,
2022
December 31,
2021
Total non-interest expense
$
21,167
$
20,028
$
19,456
$
18,823
$
17,531
$
79,474
$
71,535
Less:
Net loss on foreclosed properties
22
7
8
12
7
49
15
Amortization of other intangible
assets
—
—
—
—
2
—
25
SBA recourse provision (benefit)
(322
)
96
114
(76
)
(122
)
(188
)
(76
)
Contribution to First Business Charitable
Foundation
809
—
—
—
—
809
—
Tax credit investment impairment
recovery
—
—
(351
)
—
—
(351
)
—
Total operating expense (a)
$
20,658
$
19,925
$
19,685
$
18,887
$
17,644
$
79,155
$
71,571
Net interest income
$
27,452
$
25,884
$
23,660
$
21,426
$
20,924
$
98,422
$
84,662
Total non-interest income
6,973
8,197
6,872
7,386
7,569
29,428
28,100
Less:
Bank-owned life insurance claim
809
—
—
—
—
809
—
Net gain on sale of securities
—
—
—
—
—
—
29
Adjusted non-interest income
6,164
8,197
6,872
7,386
7,569
28,619
28,071
Total operating revenue (b)
$
33,616
$
34,081
$
30,532
$
28,812
$
28,493
$
127,041
$
112,733
Efficiency ratio
61.45
%
58.46
%
64.47
%
65.55
%
61.92
%
62.31
%
63.49
%
Pre-tax, pre-provision adjusted earnings
(b - a)
$
12,958
$
14,156
$
10,847
$
9,925
$
10,849
$
47,886
$
41,162
Less:
PPP fee income
3
61
196
249
892
509
7,312
PPP loan interest income
5
11
29
52
134
97
1,524
Pre-tax, pre-provision adjusted earnings,
excluding PPP
$
12,950
$
14,084
$
10,622
$
9,624
$
9,823
$
47,280
$
32,326
Average total assets
$
2,867,475
$
2,758,961
$
2,716,707
$
2,666,241
$
2,612,905
$
2,752,916
$
2,605,008
Less:
Average net PPP loans
2,133
4,505
11,650
20,935
52,923
9,740
152,264
Adjusted average total assets
$
2,865,342
$
2,754,456
$
2,705,057
$
2,645,306
$
2,559,982
$
2,743,176
$
2,452,744
Pre-tax, pre-provision adjusted return on
average assets
1.81
%
2.05
%
1.60
%
1.49
%
1.66
%
1.74
%
1.58
%
Pre-tax, pre-provision adjusted return on
average assets, excluding PPP
1.81
%
2.05
%
1.57
%
1.46
%
1.53
%
1.72
%
1.32
%
ADJUSTED NET INTEREST MARGIN
“Adjusted Net Interest Margin” is a non-GAAP measure
representing net interest income excluding the fees in lieu of
interest and other recurring, but volatile, components of net
interest margin divided by average interest-earning assets less
average net PPP loans, if any, and other recurring, but volatile,
components of average interest-earning assets. Fees in lieu of
interest are defined as prepayment fees, asset-based loan fees,
non-accrual interest, and loan fee amortization. In the judgment of
the Company’s management, the adjustments made to net interest
income allow investors and analysts to better assess the Company’s
net interest income in relation to its core client-facing loan and
deposit rate changes by removing the volatility that is associated
with these recurring but volatile components. The information
provided below reconciles the net interest margin to its most
comparable GAAP measure.
(Unaudited)
For the Three Months
Ended
For the Year Ended
(Dollars in thousands)
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
December 31,
2021
December 31,
2022
December 31,
2021
Interest income
$
38,319
$
31,786
$
27,031
$
24,235
$
23,576
$
121,371
$
95,995
Interest expense
10,867
5,902
3,371
2,809
2,652
22,949
11,333
Net interest income (a)
27,452
25,884
23,660
21,426
20,924
98,422
84,662
Less:
Fees in lieu of interest
1,318
807
1,865
1,293
1,700
5,283
11,160
PPP loan interest income
5
11
29
52
134
97
1,524
FRB interest income and FHLB dividend
income
613
445
279
188
179
1,525
741
Adjusted net interest income (b)
$
25,516
$
24,621
$
21,487
$
19,893
$
18,911
$
91,517
$
71,237
Average interest-earning assets (c)
$
2,649,149
$
2,582,945
$
2,551,180
$
2,525,272
$
2,472,013
$
2,577,492
$
2,460,509
Less:
Average net PPP loans
2,133
4,505
11,650
20,935
52,923
9,740
152,264
Average FRB cash and FHLB stock
50,522
45,351
46,334
44,577
71,939
46,708
76,880
Average non-accrual loans and leases
3,591
4,416
5,429
6,195
6,796
5,011
14,172
Adjusted average interest-earning assets
(d)
$
2,592,903
$
2,528,673
$
2,487,767
$
2,453,565
$
2,340,355
$
2,516,033
$
2,217,193
Net interest margin (a / c)
4.15
%
4.01
%
3.71
%
3.39
%
3.39
%
3.82
%
3.44
%
Adjusted net interest margin (b / d)
3.94
%
3.89
%
3.45
%
3.24
%
3.23
%
3.64
%
3.21
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230126005726/en/
First Business Financial Services, Inc. Edward G. Sloane, Jr.
Chief Financial Officer 608-232-5970 esloane@firstbusiness.bank
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