First Business Bank Reports Strong Third Quarter 2021 Net Income of $9.2 Million
First Business Financial Services, Inc. (the “Company”, the “Bank”, or “First Business Bank”) (Nasdaq:FBIZ) reported net income of $9.2 million, or $1.07 diluted earnings per share, in the third quarter 2021. Third quarter net income grew by 11.7% from $8.2 million, or $0.95 per share, in the second quarter of 2021 and more than doubled from $4.3 million, or $0.50, in the third quarter of 2020.
“First Business Bank’s excellent third quarter results include profitable top line revenue growth illustrating the strength and diversification of our fee generating businesses, net interest margin stability, and our team’s ability to organically grow commercial loans,” President and Chief Executive Officer Corey Chambas said. “Excluding PPP loans, we achieved another quarter of solid loan growth and our record pipelines continue to support our expectation for double-digit organic loan growth for full-year 2021 and 2022. As expected, our discipline around credit resulted in further improvement to our asset quality metrics, with nonperforming assets declining to just 0.29% of total assets, the lowest level since 2006. Our results were further supported by a loan loss provision benefit in the third quarter and, based on current economic trends, we continue to expect no meaningful provision in the fourth quarter and anticipate continued opportunities to release reserves in 2022.”
Quarterly Highlights
Continued Loan Growth. Loans, excluding Paycheck Protection Program (“PPP”) loans, grew $36.0 million, or 7.1% annualized, from the second quarter of 2021 and $214.0 million, or 11.6%, from the third quarter of 2020, as the Company continued to expand specialized lending offerings for commercial clients and focus on growing our businesses across all products and geographies. Sustained Strong Revenue Growth. Driven by net interest margin stability and fee income growth, top line revenue, the sum of net interest income and non-interest income, grew to $28.2 million, up 8.5% from the third quarter of 2020. Third quarter 2021 non-interest income continued to reflect the strength and diversity of our fee income sources, including record revenue from private wealth management of $2.8 million on $2.7 billion in assets under management and administration for the period. Positive Asset Quality Trends. Non-performing assets (“NPAs”) declined 34.4% to $7.6 million, or 0.29% of total assets, marking the fourth consecutive quarterly reduction of more than 25%. NPAs made up 0.30% of total assets, excluding net PPP loans, improving by 12 and 131 basis points from June 30, 2021 and September 30, 2020, respectively. Compounding Tangible Book Value. Tangible Book Value (“TBV”) per share grew by 14% annualized in the quarter to $25.11, which is nearly double the long-term growth rate of 8%.Quarterly Financial Results
(Unaudited)
As of and for the Three Months Ended
As of and for the Nine Months Ended
(Dollars in thousands, except per share amounts)
September 30,
2021
June 30,
2021
September 30,
2020
September 30,
2021
September 30,
2020
Net interest income
$
21,223
$
21,652
$
18,621
$
63,738
$
54,558
Adjusted non-interest income (1)
7,015
6,292
7,408
20,502
20,145
Operating revenue (1)
28,238
27,944
26,029
84,240
74,703
Operating expense (1)
18,546
17,932
16,700
53,928
48,026
Pre-tax, pre-provision adjusted earnings (1)
9,692
10,012
9,329
30,312
26,677
Less:
Provision for loan and lease losses
(2,269
)
(958
)
3,835
(5,295
)
12,487
Net loss (gain) on foreclosed properties
6
(1
)
(121
)
7
329
Amortization of other intangible assets
7
8
9
23
27
SBA recourse (benefit) provision
(69
)
245
57
45
53
Impairment on tax credit investments
—
—
113
—
2,066
Loss on early extinguishment of debt
—
—
—
—
744
Add:
Net gain (loss) on sale of securities
—
29
—
29
(4
)
Income before income tax expense
12,017
10,747
5,436
35,561
10,967
Income tax expense
2,819
2,512
1,143
8,396
73
Net income
$
9,198
$
8,235
$
4,293
$
27,165
$
10,894
Earnings per share, diluted
$
1.07
$
0.95
$
0.50
$
3.15
$
1.27
Book value per share
$
26.56
$
25.70
$
23.45
$
26.56
$
23.45
Tangible book value per share (1)
$
25.11
$
24.28
$
22.05
$
25.11
$
22.05
Net interest margin (2)
3.45
%
3.49
%
3.14
%
3.46
%
3.30
%
Adjusted net interest margin (1)(2)
3.22
%
3.20
%
3.24
%
3.21
%
3.29
%
Efficiency ratio (1)
65.68
%
64.17
%
64.16
%
64.02
%
64.29
%
Return on average assets (2)
1.41
%
1.26
%
0.68
%
1.39
%
0.62
%
Pre-tax, pre-provision adjusted return on average assets (1)(2)
1.49
%
1.53
%
1.47
%
1.55
%
1.51
%
Return on average equity (2)
16.39
%
15.09
%
8.58
%
16.63
%
7.49
%
Period-end loans and leases receivable
$
2,123,306
$
2,143,561
$
2,170,299
$
2,123,306
$
2,170,299
Period-end loans and leases receivable, excluding net PPP loans
$
2,058,852
$
2,022,839
$
1,844,818
$
2,058,852
$
1,844,818
Average loans and leases receivable
$
2,131,099
$
2,223,353
$
2,139,439
$
2,178,947
$
1,952,785
Period-end in-market deposits
$
1,829,644
$
2,016,215
$
1,667,245
$
1,829,644
$
1,667,245
Average in-market deposits
$
1,810,948
$
1,735,393
$
1,644,704
$
1,756,475
$
1,527,561
Allowance for loan and lease losses
$
24,676
$
25,675
$
30,817
$
24,676
$
30,817
Non-performing assets
$
7,605
$
11,601
$
36,663
$
7,605
$
36,663
Allowance for loan and lease losses as a percent of total gross loans and leases
1.16
%
1.20
%
1.41
%
1.16
%
1.41
%
Allowance for loan and lease losses as a percent of total gross loans and leases, excluding net PPP loans
1.20
%
1.27
%
1.67
%
1.20
%
1.67
%
Non-performing assets as a percent of total assets
0.29
%
0.40
%
1.41
%
0.29
%
1.41
%
Non-performing assets as a percent of total assets, excluding net PPP loans
0.30
%
0.42
%
1.61
%
0.30
%
1.61
%
(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.
Third Quarter 2021 Compared to Second Quarter 2021
Net interest income decreased $429,000, or 2.0%, to $21.2 million.
Net interest income decreased primarily due to a reduction in fees in lieu of interest. Fees in lieu of interest, which can vary from quarter to quarter based on client-driven activity, totaled $2.8 million, compared to $3.5 million. Excluding fees in lieu of interest, net interest income increased $268,000, or 1.5%. Average loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $49.4 million, or 9.9% annualized, to $2.044 billion. The yield on average interest-earning assets decreased six basis points to 3.90% from 3.96%. Excluding average net PPP loans, the PPP loan interest income of $221,000, and the aforementioned fees in lieu of interest, the yield earned on average interest-earning assets decreased 11 basis points to 3.53% from 3.64%. The rate paid for average total bank funding decreased three basis point to 0.36% from 0.39%. Total bank funding is defined as total deposits plus Federal Home Loan Bank (“FHLB”) advances, and Federal Reserve Discount Window advances. Net interest margin decreased four basis points to 3.45% from 3.49%. Adjusted net interest margin was 3.22%, compared to 3.20% in the linked quarter. 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 such as excess liquidity and non-accrual loans.The Company reported a net benefit to provision for loan and lease losses of $2.3 million, compared to a net benefit of $1.0 million in the second quarter.
The decrease in the provision for loan and lease losses was primarily due to a $923,000 reduction in the general reserve from improving historical loss rates, $1.3 million in net recoveries, and a $451,000 decrease in specific reserves. These decreases were partially offset by a $426,000 increase in the general reserve due to loan growth.Non-interest income increased $694,000, or 11.0%, to $7.0 million.
Private wealth management fee income increased $15,000, or 0.5% to $2.8 million. Private wealth and trust assets under management and administration measured a record $2.694 billion at September 30, 2021, up $129.8 million, or 20.2% annualized, primarily due to growth from new and existing clients. Gains on sale of SBA loans decreased $482,000 to $721,000. Management expects this revenue stream to return to levels consistent with the first half of the year in the coming quarters and continues to believe gains on sale of traditional SBA loans (i.e., SBA loans unrelated to PPP loans), while variable based on timing of closings, will continue to increase annually at a measured pace. During the third and second quarters of 2021 there was no commercial loan interest rate swap fee income. Swap fee income can vary from period to period based on client demand and the interest rate environment in any given quarter. Subsequent to September 30, 2021, the Company completed two commercial loan interest rate swap transactions which generated swap fees totaling $684,000. Other fee income increased $1.0 million to $1.9 million, compared to $835,000 in the second quarter, reflecting higher than typical returns from the Company’s investments in mezzanine funds.Non-interest expense increased $306,000, or 1.7%, to $18.5 million. Operating expense increased $614,000, or 3.4%, to $18.5 million.
Compensation expense, the largest component of the Company’s non-interest expense, increased $96,000, or 0.7%, to $13.4 million, primarily for performance-based incentive compensation accruals reflecting strong company performance relative to bonus criteria. Other non-interest expense increased $543,000 to $719,000. Other non-interest expense for the second quarter of 2021 included a $206,000 and $78,000 benefit in the Company’s swap credit valuation and loan servicing impairment valuation, respectively. The remaining variance was generally attributable to higher travel costs.Total period-end loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $36.0 million, or 7.1% annualized, to $2.059 billion.
Commercial and industrial (“C&I”) loans, excluding net PPP loans, increased $41.9 million, or 29.2% annualized, led by First Business Bank’s specialized lending commercial business lines. Management believes the timely prior-period investments in our specialized lending business lines, such as dealer floorplan financing, small-ticket equipment vendor financing, and accounts receivable financing, have positioned C&I lending to increase throughout the current economic cycle. Commercial real estate (“CRE”) loans decreased by $4.3 million to $1.388 billion, compared to $1.392 billion, as new production was offset by payoffs and paydowns.Total period-end in-market deposits decreased $186.6 million to $1.830 billion, compared to $2.016 billion, and the average rate paid decreased one basis point to 0.14%.
As previously disclosed, in-market deposits on June 30, 2021 included a temporary balance associated with the proceeds of a commercial client’s business sale late in the second quarter, the majority of which was moved off the balance sheet in early July. Excluding this temporary deposit, total period-end in-market deposits increased by $38.4 million, or 8.6% annualized. Excluding the temporary deposit, money market accounts, interest-bearing transaction accounts, and certificates of deposit increased $43.6 million, $5.6 million, and $12.5 million, respectively, while non-interest bearing transaction accounts decreased $23.2 million.Period-end wholesale funding, including FHLB advances, Federal Reserve Discount Window advances, brokered deposits, and deposits gathered through internet deposit listing services, decreased $99.9 million to $432.4 million.
Wholesale deposits decreased $69.9 million to $74.6 million. The average rate paid on wholesale deposits increased 18 basis points to 0.92% and the weighted average original maturity of brokered certificates of deposit increased to 3.7 years from 3.5 years. FHLB advances decreased $30.0 million to $357.8 million. The average rate paid on FHLB advances increased two basis points to 1.29% and the weighted average original maturity increased to 6.2 years from 6.1 years.Non-performing assets decreased $4.0 million, or 34.4%, to $7.6 million, or 0.29% of total assets, compared to $11.6 million, or 0.40% of total assets. The reduction in non-performing assets was due to loan payoffs. Excluding net PPP loans, non-performing assets were 0.30% of total assets as of September 30, 2021, compared to 0.42% as of June 30, 2021.
The allowance for loan and lease losses decreased $1.0 million, or 3.9%, as an increase in the general reserve from loan growth was more than offset by a decrease in the historical loss rate and reduction in specific reserves.
The allowance for loan and lease losses as a percent of total gross loans and leases was 1.16% compared to 1.20% as of June 30, 2021. Excluding net PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.20%, compared to 1.27% as of June 30, 2021.Third Quarter 2021 Compared to Third Quarter 2020
Net interest income increased $2.6 million, or 14.0%, to $21.2 million.
The increase in net interest income reflects expanded yields on average gross loans and leases, which were relatively consistent between periods, and lower deposit costs. Excluding fees collected in lieu of interest and interest income from PPP loans, net interest income increased $1.9 million, or 11.4%. Excluding net PPP loans, average gross loans and leases increased $227.2 million, or 12.5%. The yield on average interest-earning assets measured 3.90% compared to 3.75%. Excluding fees collected in lieu of interest, PPP loan interest income and net PPP loans, the yield on average interest-earning assets measured 3.53%, compared to 3.89%. This decrease in yield was primarily due to the decrease in LIBOR and Prime rates and related impact on variable-rate loans, in addition to the renewal of fixed-rate loans and reinvestment of cash flows from the securities portfolio at historically low interest rates. The rate paid for average total bank funding decreased 18 basis points to 0.36% from 0.54%. Net interest margin increased 31 basis points to 3.45% from 3.14%. Adjusted net interest margin decreased 2 basis points to 3.22% from 3.24%.The Company reported a net benefit to provision for loan and lease losses of $2.3 million, compared to a $3.8 million expense in the third quarter of 2020.
Non-interest income of $7.0 million compares to $7.4 million in the prior year period.
Private wealth management fee income increased $592,000, or 27.3%, to $2.8 million. Private wealth and trust assets under management and administration measured a record $2.694 billion at September 30, 2021, up $676.6 million, or 33.5%. Loan fees of $713,000 increased by $235,000, or 49.2%, primarily due to an increase in floorplan financing curtailment fees and miscellaneous asset-based lending fees. Gains on sale of SBA loans decreased $39,000 to $721,000. Management expects this revenue stream to return to levels consistent with the first half of the year in the coming quarters and continues to believe gains on sale of traditional SBA loans (i.e., SBA loans unrelated to PPP loans), while variable based on timing of closings, will continue to increase annually at a measured pace. During the third quarter of 2021, there was no commercial loan interest rate swap fee income activity, compared to $2.4 million in the year-ago period. Swap fee income can vary from period to period based on client demand and the interest rate environment in any given quarter. Other fee income increased $1.2 million, or 176.0%, to $1.9 million compared to $676,000, reflecting higher than typical returns from the Company’s investments in mezzanine funds in the third quarter of 2021.Non-interest expense increased $1.7 million, or 10.3%, to $18.5 million. Operating expense increased $1.8 million, or 11.1%, to $18.5 million.
Compensation expense increased $1.5 million, or 12.6%, to $13.4 million. The increase resulted from new hires and an increase in performance-based incentive compensation accruals reflecting strong company performance relative to bonus criteria.. Average full-time equivalent employees increased to 311, up 5.4% for the quarter ended September 30, 2021, compared to 295 for the quarter ended September 30, 2020.Total period-end loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $214.0 million, or 11.6%, to $2.059 billion.
C&I loans, excluding net PPP loans, increased $151.7 million, or 32.6%. CRE loans increased $61.2 million, or 4.6%, as increases in the non-owner occupied and multi-family portfolios were partially offset by reductions in the land development and 1-4 family portfolios.Total period-end in-market deposits increased $162.4 million, or 9.7%, to $1.830 billion and the average rate paid decreased 13 basis points to 0.14%.
Transaction and money market accounts increased $106.3 million and $91.9 million, respectively, while certificates of deposits decreased $35.7 million.Period-end wholesale funding decreased $180.8 million to $432.4 million.
Wholesale deposits decreased $79.5 million to $74.6 million, compared to $154.1 million, as the existing portfolio runoff was replaced by in-market deposits. The average rate paid on brokered certificates of deposit decreased 41 basis points to 0.92% and the weighted average original maturity decreased to 3.7 years from 4.3 years. FHLB advances decreased $71.7 million to $357.8 million. The average rate paid on FHLB advances increased 14 basis points to 1.29% and the weighted average original maturity increased to 6.2 years from 5.1 years.Non-performing assets decreased to $7.6 million, or 0.29% of total assets, compared to $36.7 million, or 1.41% of total assets. Excluding net PPP loans, non-performing assets were 0.30% of total assets as of September 30, 2021 compared to 1.61% one year prior.
The allowance for loan and lease losses decreased $6.1 million to $24.7 million, compared to $30.8 million.
The allowance for loan and lease losses as a percent of total gross loans and leases was 1.16% compared to 1.41%. Excluding net PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.20% as of September 30, 2021 compared to 1.67% one year prior.COVID-19 Update
In the second quarter of 2021, the Company communicated return to office plans to employees. Based on the national and local guidelines, the Company developed a phased-in approach for returning to the office. Under this phased-in approach, more employees returned to the office in early June 2021. The return to office included enhanced safety protocols and processes to provide the best working environment possible for employees. In addition, the Company has adopted workplace flexibility strategies in response to ever-changing circumstances and expectations. Remote, hybrid and hoteling options are available for most positions. These options cultivate a more flexible work environment that is very attractive to our employees.
Paycheck Protection Program
As of September 30, 2021, the Company had $65.9 million in gross PPP loans outstanding and deferred processing fees outstanding of $1.4 million. 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 nine months ended September 30, 2021, the Company recognized $1.7 million and $6.4 million, respectively, of processing fees in loans and leases interest income in the unaudited Consolidated Statements of Income. The SBA provides a guaranty to the lender of 100% of principal and interest, unless the lender violated an obligation under the agreement. Since loan losses are expected to be immaterial, if at all due to the government guarantee, management excluded the PPP loans from the allowance for loan and lease losses calculation. These short-term loans were funded primarily through a combination of excess cash held at the Federal Reserve and from an increase in in-market deposits.
Deferral Requests
The Company provided loan modifications deferring payments for certain borrowers impacted by COVID-19 who were current in their payments at the inception of the Company’s loan modification program. Excluding gross PPP loans, as of September 30, 2021, the Company had five deferred loans outstanding in an aggregate amount of $24.1 million, or 1.2% of gross loans and leases, compared to $131.5 million, or 7.2% of gross loans and leases as of September 30, 2020. Of the $24.1 million of deferred loans outstanding, $23.5 million is related to three hospitality credits which received principal deferrals and are accruing and current on interest payments. Management believes there will be no losses associated with these credits.
The following tables represent a breakdown of the deferred loan balances by industry segment and collateral type:
As of
September 30, 2021
Collateral Type
Industries Description
Balance
Real Estate
Non-Real Estate
(In thousands)
Accommodation and Food Services
$
23,521
$
23,521
$
—
Manufacturing
428
—
428
Retail Trade
115
—
115
Total deferred loan balances
$
24,064
$
23,521
$
543
Exposure to Stressed Industries
Certain industries have been and are expected to be particularly impacted by social distancing, quarantines, and the economic impact of the COVID-19 pandemic, such as the following:
As of
September 30, 2021
December 31, 2020
Industries:
Balance
% Gross Loans and Leases (1)
Balance
% Gross Loans and Leases (1)
(Dollars in Thousands)
Retail (2) (3)
$
76,635
3.7
%
$
62,719
3.3
%
Hospitality
77,286
3.7
%
80,832
4.2
%
Entertainment
13,533
0.7
%
14,208
0.7
%
Restaurants & food service
22,393
1.1
%
24,854
1.3
%
Total outstanding exposure
$
189,847
9.2
%
$
182,613
9.5
%
(1)
Excluding net PPP loans.
(2)
Includes $39.6 million and $48.9 million in loans secured by commercial real estate as of September 30, 2021 and December 31, 2020, respectively.
(3)
Includes $23.2 million and $7.7 million in fully collateralized asset-based loans as of September 30, 2021 and December 31, 2020, respectively.
Because of the uncertainties related to the ultimate duration of the COVID-19 pandemic and its effects on our clients and prospects, and on the national and local economies as a whole, there can be no assurances as to the future effect of the ongoing pandemic on the Company’s loan portfolio.
Share Repurchase Program Update
During the third quarter the Company repurchased a total of 129,600 shares for approximately $3.5 million at an average cost of $27.40 per share. The Company had $717,000 of repurchase authority as of September 30, 2021 remaining in its previously disclosed share repurchase program.
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 www.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, the adverse effects of the COVID-19 pandemic on the global, national, and local economy. The effect of the COVID-19 pandemic on the Company’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, 2020 and other filings with the Securities and Exchange Commission.
SELECTED FINANCIAL CONDITION DATA
(Unaudited)
As of
(in thousands)
September 30,
2021
June 30,
2021
March 31,
2021
December 31,
2020
September 30,
2020
Assets
Cash and cash equivalents
$
110,624
$
389,977
$
58,874
$
56,909
$
51,728
Securities available-for-sale, at fair value
194,056
171,219
173,261
183,925
179,274
Securities held-to-maturity, at amortized cost
21,196
22,382
24,783
26,374
28,897
Loans held for sale
5,603
6,059
6,576
8,695
15,049
Loans and leases receivable
2,123,306
2,143,561
2,235,112
2,145,970
2,170,299
Allowance for loan and lease losses
(24,676
)
(25,675
)
(28,982
)
(28,521
)
(30,817
)
Loans and leases receivable, net
2,098,630
2,117,886
2,206,130
2,117,449
2,139,482
Premises and equipment, net
1,700
1,747
1,923
1,998
2,130
Foreclosed properties
172
179
31
34
613
Right-of-use assets
5,263
5,472
5,486
5,814
6,141
Bank-owned life insurance
53,244
52,887
52,537
52,188
51,798
Federal Home Loan Bank stock, at cost
12,351
13,451
14,941
13,578
15,153
Goodwill and other intangible assets
12,229
12,178
12,055
12,018
12,024
Derivatives
28,678
32,377
26,104
49,377
58,210
Accrued interest receivable and other assets
40,664
39,855
38,017
39,478
41,348
Total assets
$
2,584,410
$
2,865,669
$
2,620,718
$
2,567,837
$
2,601,847
Liabilities and Stockholders’ Equity
In-market deposits
$
1,829,644
$
2,016,215
$
1,737,226
$
1,683,008
$
1,667,245
Wholesale deposits
74,638
144,492
165,492
172,508
154,130
Total deposits
1,904,282
2,160,707
1,902,718
1,855,516
1,821,375
Federal Home Loan Bank advances and other borrowings
394,090
420,113
448,417
419,167
483,517
Junior subordinated notes
10,072
10,069
10,065
10,062
10,058
Lease liabilities
5,780
6,005
6,040
6,386
6,728
Derivatives
31,890
36,109
29,565
54,927
64,403
Accrued interest payable and other liabilities
13,016
11,214
9,422
15,617
14,981
Total liabilities
2,359,130
2,644,217
2,406,227
2,361,675
2,401,062
Total stockholders’ equity
225,280
221,452
214,491
206,162
200,785
Total liabilities and stockholders’ equity
$
2,584,410
$
2,865,669
$
2,620,718
$
2,567,837
$
2,601,847
STATEMENTS OF INCOME
(Unaudited)
As of and for the Three Months Ended
As of and for the Nine Months Ended
(Dollars in thousands, except per share amounts)
September 30,
2021
June 30,
2021
March 31,
2021
December 31,
2020
September 30,
2020
September 30,
2021
September 30,
2020
Total interest income
$
24,014
$
24,599
$
23,806
$
25,770
$
22,276
$
72,420
$
68,408
Total interest expense
2,791
2,947
2,943
3,258
3,655
8,682
13,850
Net interest income
21,223
21,652
20,863
22,512
18,621
63,738
54,558
Provision for loan and lease losses
(2,269
)
(958
)
(2,068
)
4,322
3,835
(5,295
)
12,487
Net interest income after provision for loan and lease losses
23,492
22,610
22,931
18,190
14,786
69,033
42,071
Private wealth management service fees
2,759
2,744
2,407
2,208
2,167
7,910
6,402
Gain on sale of SBA loans
721
1,203
1,078
1,300
760
3,002
1,598
Service charges on deposits
956
941
917
887
881
2,814
2,527
Loan fees
713
569
545
412
478
1,828
1,414
Net gain (loss) on sale of securities
—
29
—
—
—
29
(4
)
Swap fees
—
—
684
1,078
2,446
684
5,782
Other non-interest income
1,866
835
1,564
914
676
4,264
2,422
Total non-interest income
7,015
6,321
7,195
6,799
7,408
20,531
20,141
Compensation
13,351
13,255
12,657
12,145
11,857
39,263
33,705
Occupancy
544
533
552
556
570
1,628
1,696
Professional fees
1,024
913
866
909
943
2,803
2,621
Data processing
746
798
770
668
679
2,315
2,066
Marketing
572
511
391
411
356
1,474
1,169
Equipment
260
261
246
294
310
767
905
Computer software
999
1,129
1,115
1,028
1,017
3,244
2,873
FDIC insurance
291
280
362
479
312
933
760
Collateral liquidation cost
47
84
94
47
45
224
281
Net loss (gain) on foreclosed properties
6
(1
)
3
54
(121
)
7
329
Tax credit investment impairment
—
—
—
328
113
—
2,066
SBA recourse (benefit) provision
(69
)
245
(130
)
(330
)
57
45
53
Loss on early extinguishment of debt
—
—
—
—
—
—
744
Other non-interest expense
719
176
404
1,062
620
1,300
1,977
Total non-interest expense
18,490
18,184
17,330
17,651
16,758
54,003
51,245
Income before income tax expense
12,017
10,747
12,796
7,338
5,436
35,561
10,967
Income tax expense
2,819
2,512
3,065
1,254
1,143
8,396
73
Net income
$
9,198
$
8,235
$
9,731
$
6,084
$
4,293
$
27,165
$
10,894
Per common share:
Basic earnings
$
1.07
$
0.95
$
1.12
$
0.71
$
0.50
$
3.15
$
1.27
Diluted earnings
1.07
0.95
1.12
0.71
0.50
3.15
1.27
Dividends declared
0.18
0.18
0.18
0.165
0.165
0.54
0.495
Book value
26.56
25.70
24.83
24.06
23.45
26.56
23.45
Tangible book value
25.11
24.28
23.43
22.66
22.05
25.11
22.05
Weighted-average common shares outstanding(1)
8,340,042
8,385,069
8,429,149
8,417,216
8,404,084
8,380,591
8,380,676
Weighted-average diluted common shares outstanding(1)
8,340,042
8,385,069
8,429,149
8,417,216
8,404,084
8,380,591
8,380,676
(1)
Excluding participating securities.
NET INTEREST INCOME ANALYSIS
(Unaudited)
For the Three Months Ended
(Dollars in thousands)
September 30, 2021
June 30, 2021
September 30, 2020
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)
$
1,388,236
$
13,090
3.77
%
$
1,386,187
$
13,087
3.78
%
$
1,282,132
$
12,340
3.85
%
Commercial and industrial loans(1)
680,563
9,259
5.44
%
772,257
9,875
5.11
%
791,909
8,133
4.11
%
Direct financing leases(1)
18,611
207
4.45
%
19,883
222
4.47
%
26,129
258
3.95
%
Consumer and other loans(1)
43,689
391
3.58
%
45,026
407
3.62
%
39,269
374
3.81
%
Total loans and leases receivable(1)
2,131,099
22,947
4.31
%
2,223,353
23,591
4.24
%
2,139,439
21,105
3.95
%
Mortgage-related securities(2)
154,372
659
1.71
%
149,253
631
1.69
%
167,326
833
1.99
%
Other investment securities(3)
45,196
196
1.73
%
41,569
185
1.78
%
34,004
171
2.01
%
FHLB stock
13,279
167
5.03
%
14,172
176
4.97
%
12,835
161
5.02
%
Short-term investments
116,621
45
0.15
%
55,100
16
0.12
%
21,287
6
0.11
%
Total interest-earning assets
2,460,567
24,014
3.90
%
2,483,447
24,599
3.96
%
2,374,891
22,276
3.75
%
Non-interest-earning assets
147,631
137,893
165,844
Total assets
$
2,608,198
$
2,621,340
$
2,540,735
Interest-bearing liabilities
Transaction accounts
$
509,089
251
0.20
%
$
499,040
248
0.20
%
$
445,687
259
0.23
%
Money market
703,460
306
0.17
%
662,919
282
0.17
%
642,881
318
0.20
%
Certificates of deposit
42,370
71
0.67
%
45,993
112
0.97
%
110,891
513
1.85
%
Wholesale deposits
89,135
206
0.92
%
162,580
301
0.74
%
160,067
533
1.33
%
Total interest-bearing deposits
1,344,054
834
0.25
%
1,370,532
943
0.28
%
1,359,526
1,623
0.48
%
FHLB advances
381,061
1,228
1.29
%
405,855
1,284
1.27
%
379,915
1,356
1.43
%
Federal Reserve PPPLF
—
—
—
%
—
—
—
%
29,605
26
0.35
%
Other borrowings
32,630
449
5.50
%
32,447
443
5.46
%
24,403
370
6.06
%
Junior subordinated notes
10,070
280
11.12
%
10,066
277
11.01
%
10,056
280
11.14
%
Total interest-bearing liabilities
1,767,815
2,791
0.63
%
1,818,900
2,947
0.65
%
1,803,505
3,655
0.81
%
Non-interest-bearing demand deposit accounts
556,029
527,441
445,245
Other non-interest-bearing liabilities
59,865
56,691
91,810
Total liabilities
2,383,709
2,403,032
2,340,560
Stockholders’ equity
224,489
218,308
200,175
Total liabilities and stockholders’ equity
$
2,608,198
$
2,621,340
$
2,540,735
Net interest income
$
21,223
$
21,652
$
18,621
Interest rate spread
3.27
%
3.31
%
2.94
%
Net interest-earning assets
$
692,752
$
664,547
$
571,386
Net interest margin
3.45
%
3.49
%
3.14
%
(1)
The average balances of loans and leases include non-accrual loans and leases and loans held for sale. Interest income related to non-accrual loans and leases is recognized when collected. Interest income includes net loan fees collected in lieu of interest.
(2)
Includes amortized cost basis of assets available for sale and held to maturity.
(3)
Yields on tax-exempt municipal obligations are not presented on a tax-equivalent basis in this table.
(4)
Represents annualized yields/rates.
NET INTEREST INCOME ANALYSIS
(Unaudited)
For the Nine Months Ended
(Dollars in thousands)
September 30, 2021
September 30, 2020
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)
$
1,377,302
$
38,704
3.75
%
$
1,209,810
$
38,312
4.22
%
Commercial and industrial loans(1)
736,623
28,759
5.21
%
678,650
24,338
4.78
%
Direct financing leases(1)
20,242
673
4.43
%
27,065
761
3.75
%
Consumer and other loans(1)
44,780
1,197
3.56
%
37,260
1,091
3.90
%
Total loans and leases receivable(1)
2,178,947
69,333
4.24
%
1,952,785
64,502
4.40
%
Mortgage-related securities(2)
155,617
1,955
1.67
%
173,985
2,806
2.15
%
Other investment securities(3)
42,992
569
1.76
%
29,177
456
2.08
%
FHLB stock
13,308
496
4.97
%
10,558
491
6.20
%
Short-term investments
65,769
67
0.14
%
39,293
153
0.52
%
Total interest-earning assets
2,456,633
72,420
3.93
%
2,205,798
68,408
4.13
%
Non-interest-earning assets
145,714
151,994
Total assets
$
2,602,347
$
2,357,792
Interest-bearing liabilities
Transaction accounts
$
509,709
749
0.20
%
$
362,326
1,197
0.44
%
Money market
674,858
862
0.17
%
649,999
2,555
0.52
%
Certificates of deposit
48,540
360
0.99
%
122,781
1,890
2.05
%
Wholesale deposits
139,205
825
0.79
%
132,811
2,021
2.03
%
Total interest-bearing deposits
1,372,312
2,796
0.27
%
1,267,917
7,663
0.81
%
FHLB advances
384,581
3,761
1.30
%
371,738
4,198
1.51
%
Federal Reserve PPPLF
—
—
—
%
16,855
44
0.35
%
Other borrowings
30,811
1,293
5.60
%
24,490
1,110
6.04
%
Junior subordinated notes
10,066
832
11.02
%
10,052
835
11.07
%
Total interest-bearing liabilities
1,797,770
8,682
0.64
%
1,691,052
13,850
1.09
%
Non-interest-bearing demand deposit accounts
523,368
392,455
Other non-interest-bearing liabilities
63,366
80,270
Total liabilities
2,384,504
2,163,777
Stockholders’ equity
217,843
194,015
Total liabilities and stockholders’ equity
$
2,602,347
$
2,357,792
Net interest income
$
63,738
$
54,558
Interest rate spread
3.29
%
3.04
%
Net interest-earning assets
$
658,863
$
514,746
Net interest margin
3.46
%
3.30
%
(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.
PROVISION FOR LOAN AND LEASE LOSS COMPOSITION
(Unaudited)
For the Three Months Ended
For the Nine Months Ended
(Dollars in thousands)
September 30,
2021
June 30,
2021
March 31,
2021
December 31,
2020
September 30,
2020
September 30,
2021
September 30,
2020
Change in general reserve due to subjective factor changes
$
(51
)
$
(652
)
$
1,082
$
1,008
$
(766
)
$
379
$
4,697
Change in general reserve due to historical loss factor changes
(923
)
(1,687
)
(984
)
1,274
(16
)
(3,594
)
(380
)
Charge-offs
364
2,894
144
6,685
505
3,402
1,454
Recoveries
(1,634
)
(545
)
(2,673
)
(68
)
(23
)
(4,852
)
(264
)
Change in specific reserves on impaired loans, net
(451
)
(1,466
)
(194
)
(5,216
)
2,974
(2,111
)
5,533
Change due to loan growth, net
426
498
557
639
1,161
1,481
1,447
Total provision for loan and lease losses
$
(2,269
)
$
(958
)
$
(2,068
)
$
4,322
$
3,835
$
(5,295
)
$
12,487
PERFORMANCE RATIOS
For the Three Months Ended
For the Nine Months Ended
(Unaudited)
September 30,
2021
June 30,
2021
March 31,
2021
December 31,
2020
September 30,
2020
September 30,
2021
September 30,
2020
Return on average assets (annualized)
1.41
%
1.26
%
1.51
%
0.93
%
0.68
%
1.39
%
0.62
%
Return on average equity (annualized)
16.39
%
15.09
%
18.48
%
11.92
%
8.58
%
16.63
%
7.49
%
Efficiency ratio
65.68
%
64.17
%
62.19
%
60.02
%
64.16
%
64.02
%
64.29
%
Interest rate spread
3.27
%
3.31
%
3.27
%
3.51
%
2.94
%
3.29
%
3.04
%
Net interest margin
3.45
%
3.49
%
3.44
%
3.69
%
3.14
%
3.46
%
3.30
%
Average interest-earning assets to average interest-bearing liabilities
139.19
%
136.54
%
134.23
%
132.88
%
131.68
%
136.65
%
130.44
%
ASSET QUALITY RATIOS
(Unaudited)
As of
(Dollars in thousands)
September 30,
2021
June 30,
2021
March 31,
2021
December 31,
2020
September 30,
2020
Non-accrual loans and leases
$
7,433
$
11,422
$
18,992
$
26,617
$
36,050
Foreclosed properties
172
179
31
34
613
Total non-performing assets
7,605
11,601
19,023
26,651
36,663
Performing troubled debt restructurings
53
56
59
46
47
Total impaired assets
$
7,658
$
11,657
$
19,082
$
26,697
$
36,710
Non-accrual loans and leases as a percent of total gross loans and leases
0.35
%
0.53
%
0.85
%
1.24
%
1.66
%
Non-performing assets as a percent of total gross loans and leases plus foreclosed properties
0.36
%
0.54
%
0.85
%
1.24
%
1.68
%
Non-performing assets as a percent of total assets
0.29
%
0.40
%
0.73
%
1.04
%
1.41
%
Allowance for loan and lease losses as a percent of total gross loans and leases
1.16
%
1.20
%
1.29
%
1.33
%
1.41
%
Allowance for loan and lease losses as a percent of non-accrual loans and leases
331.98
%
224.79
%
152.60
%
107.15
%
85.48
%
ASSET QUALITY RATIOS - EXCLUDING NET PPP LOANS
(Unaudited)
As of
(Dollars in thousands)
September 30,
2021
June 30,
2021
March 31,
2021
December 31,
2020
September 30,
2020
Non-accrual loans and leases as a percent of total gross loans and leases
0.36
%
0.56
%
0.96
%
1.38
%
1.95
%
Non-performing assets as a percent of total gross loans and leases plus foreclosed properties
0.37
%
0.57
%
0.96
%
1.38
%
1.98
%
Non-performing assets as a percent of total assets
0.30
%
0.42
%
0.81
%
1.14
%
1.61
%
Allowance for loan and lease losses as a percent of total gross loans and leases
1.20
%
1.27
%
1.47
%
1.48
%
1.67
%
PPP loans outstanding, net
$
64,454
$
120,723
$
267,567
$
225,323
$
325,481
NET CHARGE-OFFS (RECOVERIES)
(Unaudited)
For the Three Months Ended
For the Nine Months Ended
(Dollars in thousands)
September 30,
2021
June 30,
2021
March 31,
2021
December 31,
2020
September 30,
2020
September 30,
2021
September 30,
2020
Charge-offs
$
364
$
2,894
$
144
$
6,685
$
505
$
3,402
$
1,454
Recoveries
(1,634
)
(545
)
(2,673
)
(68
)
(23
)
(4,852
)
(264
)
Net (recoveries) charge-offs
$
(1,270
)
$
2,349
$
(2,529
)
$
6,617
$
482
$
(1,450
)
$
1,190
Net (recoveries) charge-offs as a percent of average gross loans and leases (annualized)
(0.24
)%
0.42
%
(0.46
)%
1.21
%
0.09
%
(0.09
)%
0.08
%
Annualized (recoveries) charge-offs as a percent of average gross loans and leases, excluding average net PPP loans
(0.25
)%
0.47
%
(0.52
)%
1.39
%
0.11
%
(0.10
)%
0.09
%
Average PPP loans outstanding, net
$
87,517
$
229,165
$
242,242
$
282,259
$
323,082
$
185,742
$
192,451
CAPITAL RATIOS
As of and for the Three Months Ended
(Unaudited)
September 30,
2021
June 30,
2021
March 31,
2021
December 31,
2020
September 30,
2020
Total capital to risk-weighted assets
11.14
%
11.22
%
11.52
%
11.25
%
11.42
%
Tier I capital to risk-weighted assets
9.14
%
9.14
%
9.24
%
8.96
%
9.09
%
Common equity tier I capital to risk-weighted assets
8.73
%
8.72
%
8.81
%
8.53
%
8.64
%
Tier I capital to adjusted assets
8.69
%
8.48
%
8.37
%
7.99
%
8.04
%
Tangible common equity to tangible assets
8.28
%
7.33
%
7.76
%
7.60
%
7.29
%
Tangible common equity to tangible assets, excluding net PPP loans
8.50
%
7.66
%
8.65
%
8.33
%
8.34
%
LOAN AND LEASE RECEIVABLE COMPOSITION
(Unaudited)
As of
(in thousands)
September 30,
2021
June 30,
2021
March 31,
2021
December 31,
2020
September 30,
2020
Commercial real estate:
Commercial real estate - owner occupied
$
241,977
$
253,600
$
256,812
$
253,882
$
240,706
Commercial real estate - non-owner occupied
639,423
614,289
592,090
564,532
565,781
Land development
39,119
45,056
46,544
49,839
50,864
Construction
139,933
139,943
151,345
141,043
142,726
Multi-family
313,787
319,351
322,384
311,556
287,583
1-4 family
13,487
19,769
23,319
38,284
38,857
Total commercial real estate
1,387,726
1,392,008
1,392,494
1,359,136
1,326,517
Commercial and industrial
681,065
695,442
784,305
732,318
790,349
Direct financing leases, net
16,810
18,142
19,616
22,331
24,743
Consumer and other:
Home equity and second mortgages
4,576
5,740
6,719
7,833
7,106
Other
35,645
36,567
38,266
28,897
29,341
Total consumer and other
40,221
42,307
44,985
36,730
36,447
Total gross loans and leases receivable
2,125,822
2,147,899
2,241,400
2,150,515
2,178,056
Less:
Allowance for loan and lease losses
24,676
25,675
28,982
28,521
30,817
Deferred loan fees
2,516
4,338
6,288
4,545
7,757
Loans and leases receivable, net
$
2,098,630
$
2,117,886
$
2,206,130
$
2,117,449
$
2,139,482
LEGACY SBA 7(a) AND EXPRESS LOAN COMPOSITION (1)
(Unaudited)
As of
(in thousands)
September 30,
2021
June 30,
2021
March 31,
2021
December 31,
2020
September 30,
2020
Performing loans:
Off-balance sheet loans
$
13,340
$
14,161
$
17,523
$
23,354
$
26,017
On-balance sheet loans
3,905
6,836
7,340
11,117
15,175
Gross loans
17,245
20,997
24,863
34,471
41,192
Non-performing loans:
Off-balance sheet loans
3,689
3,943
1,835
1,931
2,574
On-balance sheet loans
624
1,800
6,832
7,435
9,561
Gross loans
4,313
5,743
8,667
9,366
12,135
Total loans:
Off-balance sheet loans
17,029
18,104
19,358
25,285
28,591
On-balance sheet loans
4,529
8,636
14,172
18,552
24,736
Gross loans
$
21,558
$
26,740
$
33,530
$
43,837
$
53,327
(1)
Defined as SBA 7(a) and Express loans originated in 2016 and prior.
DEPOSIT COMPOSITION
(Unaudited)
As of
(in thousands)
September 30,
2021
June 30,
2021
March 31,
2021
December 31,
2020
September 30,
2020
Non-interest-bearing transaction accounts
$
526,047
$
774,253
$
496,877
$
472,818
$
452,268
Interest-bearing transaction accounts
517,248
511,698
561,466
503,992
484,761
Money market accounts
728,751
685,127
632,065
641,504
636,872
Certificates of deposit
57,598
45,137
46,818
64,694
93,344
Wholesale deposits
74,638
144,492
165,492
172,508
154,130
Total deposits
$
1,904,282
$
2,160,707
$
1,902,718
$
1,855,516
$
1,821,375
TRUST ASSETS COMPOSITION
(Unaudited)
As of
(in thousands)
September 30,
2021
June 30,
2021
March 31,
2021
December 31,
2020
September 30,
2020
Trust assets under management
$
2,491,498
$
2,362,257
$
2,195,804
$
2,061,772
$
1,841,986
Trust assets under administration
202,657
202,116
190,721
187,228
175,521
Total trust assets
$
2,694,155
$
2,564,373
$
2,386,525
$
2,249,000
$
2,017,507
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)
September 30,
2021
June 30,
2021
March 31,
2021
December 31,
2020
September 30,
2020
Common stockholders’ equity
$
225,280
$
221,452
$
214,491
$
206,162
$
200,785
Goodwill and other intangible assets
(12,229
)
(12,178
)
(12,055
)
(12,018
)
(12,024
)
Tangible common equity
$
213,051
$
209,274
$
202,436
$
194,144
$
188,761
Common shares outstanding
8,483,099
8,617,761
8,638,195
8,566,960
8,561,714
Book value per share
$
26.56
$
25.70
$
24.83
$
24.06
$
23.45
Tangible book value per share
25.11
24.28
23.43
22.66
22.05
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)
September 30,
2021
June 30,
2021
March 31,
2021
December 31,
2020
September 30,
2020
Common stockholders’ equity
$
225,280
$
221,452
$
214,491
$
206,162
$
200,785
Goodwill and other intangible assets
(12,229
)
(12,178
)
(12,055
)
(12,018
)
(12,024
)
Tangible common equity
$
213,051
$
209,274
$
202,436
$
194,144
$
188,761
Total assets
$
2,584,410
$
2,865,669
$
2,620,718
$
2,567,837
$
2,601,847
Goodwill and other intangible assets
(12,229
)
(12,178
)
(12,055
)
(12,018
)
(12,024
)
Tangible assets
$
2,572,181
$
2,853,491
$
2,608,663
$
2,555,819
$
2,589,823
Tangible common equity to tangible assets
8.28
%
7.33
%
7.76
%
7.60
%
7.29
%
Period-end net PPP loans
64,454
120,722
267,567
225,323
325,481
Tangible assets, excluding net PPP loans
$
2,507,727
$
2,732,769
$
2,341,096
$
2,330,496
$
2,264,342
Tangible common equity to tangible assets, excluding net PPP loans
8.50
%
7.66
%
8.65
%
8.33
%
8.34
%
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 Nine Months Ended
(Dollars in thousands)
September 30,
2021
June 30,
2021
March 31,
2021
December 31,
2020
September 30,
2020
September 30,
2021
September 30,
2020
Total non-interest expense
$
18,490
$
18,184
$
17,330
$
17,651
$
16,758
$
54,003
$
51,245
Less:
Net loss (gain) on foreclosed properties
6
(1
)
3
54
(121
)
7
329
Amortization of other intangible assets
7
8
8
8
9
23
27
SBA recourse (benefit) provision
(69
)
245
(130
)
(330
)
57
45
53
Tax credit investment impairment
—
—
—
328
113
—
2,066
Loss on early extinguishment of debt
—
—
—
—
—
—
744
Total operating expense (a)
$
18,546
$
17,932
$
17,449
$
17,591
$
16,700
$
53,928
$
48,026
Net interest income
$
21,223
$
21,652
$
20,863
$
22,512
$
18,621
$
63,738
$
54,558
Total non-interest income
7,015
6,321
7,195
6,799
7,408
20,531
20,141
Less:
Net gain (loss) on sale of securities
—
29
—
—
—
29
(4
)
Adjusted non-interest income
7,015
6,292
7,195
6,799
7,408
20,502
20,145
Total operating revenue (b)
$
28,238
$
27,944
$
28,058
$
29,311
$
26,029
$
84,240
$
74,703
Efficiency ratio
65.68
%
64.17
%
62.19
%
60.02
%
64.16
%
64.02
%
64.29
%
Pre-tax, pre-provision adjusted earnings (b - a)
$
9,692
$
10,012
$
10,609
$
11,720
$
9,329
$
30,312
$
26,677
Average total assets
$
2,608,198
$
2,621,340
$
2,577,164
$
2,603,745
$
2,540,735
$
2,602,347
$
2,357,792
Pre-tax, pre-provision adjusted return on average assets
1.49
%
1.53
%
1.65
%
1.80
%
1.47
%
1.55
%
1.51
%
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 Nine Months Ended
(Dollars in thousands)
September 30,
2021
June 30,
2021
March 31,
2021
December 31,
2020
September 30,
2020
September 30,
2021
September 30,
2020
Interest income
$
24,014
$
24,599
$
23,806
$
25,770
$
22,276
$
72,420
$
68,408
Interest expense
2,791
2,947
2,943
3,258
3,655
8,682
13,850
Net interest income (a)
21,223
21,652
20,863
22,512
18,621
63,738
54,558
Less:
Fees in lieu of interest
2,839
3,536
3,085
4,749
1,511
9,459
4,566
PPP loan interest income
221
566
603
718
833
1,391
1,481
FRB interest income and FHLB dividend income
212
192
158
188
167
563
602
Add:
FRB PPPLF interest expense
—
—
—
9
26
—
44
Adjusted net interest income (b)
$
17,951
$
17,358
$
17,017
$
16,866
$
16,136
$
52,325
$
47,953
Average interest-earning assets (c)
$
2,460,567
$
2,483,447
$
2,425,499
$
2,441,735
$
2,374,891
$
2,456,633
$
2,205,798
Less:
Average net PPP loans
87,517
229,165
242,242
282,259
323,082
185,741
192,451
Average FRB cash and FHLB stock
129,469
68,503
36,643
45,611
33,756
78,545
46,925
Average non-accrual loans and leases
11,298
16,744
22,069
36,013
26,931
16,657
24,849
Adjusted average interest-earning assets (d)
$
2,232,283
$
2,169,035
$
2,124,545
$
2,077,852
$
1,991,122
$
2,175,690
$
1,941,573
Net interest margin (a / c)
3.45
%
3.49
%
3.44
%
3.69
%
3.14
%
3.46
%
3.30
%
Adjusted net interest margin (b / d)
3.22
%
3.20
%
3.20
%
3.25
%
3.24
%
3.21
%
3.29
%
View source version on businesswire.com: https://www.businesswire.com/news/home/20211028006112/en/