-- Record operating performance partially
offset by a 21% reserve build --
First Business Financial Services, Inc. (the “Company” or “First
Business”) (Nasdaq:FBIZ) reported record net interest income and
strong non-interest income, resulting in net income of $3.3
million, or diluted earnings per share of $0.38, in the second
quarter 2020. First Business’s robust operating performance during
the quarter was offset by a $5.5 million provision for loan and
lease losses and related 20.7% increase in the allowance for loan
and leases losses primarily due to the COVID-19 pandemic.
“The effort and dedication of the entire First Business team to
support our clients since March has been nothing short of
exceptional and I’m incredibly proud,” said Corey Chambas,
President and Chief Executive Officer. “To date, we have funded
$328 million in loans through the Paycheck Protection Program to
small- and mid-sized businesses in our markets, impacting more than
26,000 jobs. Through our ongoing focus on executing our strategic
plan, even in these challenging times, we grew pre-tax,
pre-provision adjusted earnings and total in-market deposits to
record levels in the second quarter. With ample liquidity and
appropriate reserve builds, First Business is well-positioned to
continue providing the highest level of support to the
entrepreneurs and investors we serve.”
Summary results as of and for the quarter ended June 30,
2020:
- Net income totaled $3.3 million, or diluted earnings per share
of $0.38, in the second quarter of 2020, compared to $3.3 million,
or diluted earnings per share of $0.38, in the first quarter of
2020 and $6.6 million, or diluted earnings per share of $0.75, in
the second quarter of 2019.
- During the second quarter of 2020, the Company disbursed $327.9
million in Paycheck Protection Program (“PPP”) loans and received
processing fee income from the Small Business Administration
(“SBA”) of $8.7 million. The processing fee income is deferred and
recognized over the contractual life of the loan, or accelerated at
forgiveness. During the second quarter of 2020, $859,000 was
recognized in interest income.
- Record pre-tax, pre-provision adjusted earnings, which excludes
certain one-time and discrete items as defined in the Non-GAAP
Reconciliations at the end of this release, totaled $9.8 million,
up 29.1% from the first quarter of 2020 and 32.4% from the second
quarter of 2019. Pre-tax, pre-provision adjusted return on average
assets was 1.61% compared to 1.44% and 1.46% for the linked and
prior year quarters, respectively.
- Period-end gross loans and leases receivable were $2.057
billion as of June 30, 2020, up $313.5 million from the first
quarter of 2020 and up $336.9 million from the second quarter of
2019. Line of credit utilization was significantly impacted by PPP
loan proceeds and was $212.6 million as of June 30, 2020, down from
$297.1 million as of the first quarter of 2020 and $317.9 million
as of the second quarter of 2019. Gross loans and leases
receivable, excluding PPP loans and lines of credit, were $1.516
billion as of June 30, 2020, up 19.4% annualized from the first
quarter of 2020 and 8.1% from the second quarter of 2019.
- The allowance for loan and lease losses increased $4.7 million,
or 20.7%, compared to the first quarter of 2020 primarily due to a
$2.4 million and $2.1 million increase in the general and specific
reserves, respectively, driven by the COVID-19 pandemic. The
allowance for loan and lease losses increased to 1.33% of total
loans, compared to 1.30% and 1.15% in the first quarter of 2020 and
second quarter of 2019, respectively. Excluding PPP loans, the
allowance for loan and lease losses increased to 1.58% of total
loans as of June 30, 2020.
- Provision for loan and lease losses totaled $5.5 million in the
second quarter of 2020, compared to $3.2 million in the first
quarter of 2020 and a provision benefit of $784,000 in the second
quarter of 2019.
- Robust liquidity position includes record in-market deposits of
$1.621 billion, total deposits of $1.710 billion, and on-balance
sheet liquidity of $611.6 million, defined as total short-term
investments, unencumbered securities available-for-sale, and
unencumbered pledged loans. In-market deposit balances were
inflated due to PPP loan proceeds.
- Net interest margin was 3.34% in the second quarter of 2020,
compared to 3.44% in the first quarter of 2020 and 3.52% in the
second quarter of 2019. Adjusted net interest margin, which
excludes certain one-time and discrete items as defined in the
Non-GAAP Reconciliations at the end of this release, was 3.33% in
the second quarter of 2020, compared to 3.32% in the first quarter
of 2020 and 3.31% in the second quarter of 2019.
- Fees in lieu of interest, defined as prepayment fees,
asset-based loan fees, non-accrual interest, and loan fee
amortization, totaled $2.3 million in the second quarter of 2020,
compared to $798,000 in the first quarter of 2020 and $1.2 million
in the second quarter of 2019.
- Top line revenue, defined as net interest income plus
non-interest income, totaled $25.2 million, up 29.7% annualized
from the first quarter of 2020 and 11.3% from the second quarter of
2019.
- Non-interest income totaled $6.3 million, or 25.1% of total
revenue, in the second quarter of 2020, surpassing the Company’s
goal of 25% for the fifth consecutive quarter.
- Non-interest expense was $18.3 million in the second quarter of
2020, compared to $16.1 million in the first quarter of 2020 and
$17.5 million in the second quarter of 2019. Operating expense,
which excludes certain one-time and discrete items as defined in
the Non-GAAP Reconciliations at the end of this release, totaled
$15.4 million in the second quarter of 2020, compared to $15.9
million in the first quarter of 2020 and $15.3 million in the
second quarter of 2019.
- The Company incurred a $744,000 loss on the early
extinguishment of $59.5 million in Federal Home Loan Bank (“FHLB”)
term advances late in the second quarter of 2020, as the Company
lowered wholesale funding costs and improved the Company’s funding
position with the expectation of a low interest rate environment
for an extended period of time.
- The efficiency ratio, which excludes certain one-time and
discrete items as defined in the Non-GAAP Reconciliations at the
end of this release, improved to 61.22% in the second quarter of
2020, down from 67.74% and 67.41% in the linked and prior year
quarters, respectively.
- Historic tax credit programs contributed $690,000, or $0.08 per
share, compared to $446,000, or $0.05 per share in the second
quarter of 2019. No historic tax credits were recognized in the
first quarter of 2020.
Financial Highlights
(Unaudited)
As of and for the Three Months
Ended
As of and for the Six Months
Ended
(Dollars in thousands, except per share
amounts)
June 30, 2020
March 31, 2020
June 30, 2019
June 30, 2020
June 30, 2019
Net interest income
$
18,888
$
17,050
$
16,852
$
35,937
$
34,606
Adjusted non-interest income (1)
6,319
6,418
5,806
12,737
10,444
Operating revenue (1)
25,207
23,468
22,658
48,674
45,050
Operating expense (1)
15,431
15,897
15,273
31,327
30,510
Pre-tax, pre-provision adjusted earnings
(1)
9,776
7,571
7,385
17,347
14,540
Less:
Provision (benefit) for loan and lease
losses
5,469
3,182
(784
)
8,651
(736
)
Net loss (gain) on foreclosed
properties
348
102
(21
)
450
(21
)
Amortization of other intangible
assets
9
9
11
18
21
SBA recourse (benefit) provision
(30
)
25
113
(5
)
594
Tax credit investment impairment
1,841
113
2,088
1,954
4,102
Loss on early extinguishment of debt
744
—
—
744
—
Add:
Net loss on sale of securities
—
(4
)
(1
)
(4
)
(1
)
Income before income tax expense
1,395
4,136
5,977
5,531
10,579
Income tax (benefit) expense
(1,928
)
858
(595
)
(1,070
)
(1,893
)
Net income
$
3,323
$
3,278
$
6,572
$
6,601
$
12,472
Earnings per share, diluted
$
0.38
$
0.38
$
0.75
$
0.77
$
1.43
Book value per share
$
23.04
$
22.83
$
21.71
$
23.04
$
21.71
Tangible book value per share (1)
$
21.65
$
21.44
$
20.33
$
21.65
$
20.33
Net interest margin
3.34
%
3.44
%
3.52
%
3.39
%
3.66
%
Adjusted net interest margin (1)
3.33
%
3.32
%
3.31
%
3.33
%
3.33
%
Efficiency ratio (1)
61.22
%
67.74
%
67.41
%
64.36
%
67.72
%
Return on average assets
0.55
%
0.62
%
1.30
%
0.58
%
1.25
%
Pre-tax, pre-provision adjusted return on
average assets (1)
1.61
%
1.44
%
1.46
%
1.53
%
1.46
%
Return on average equity
6.70
%
7.14
%
14.09
%
6.92
%
13.89
%
Period-end loans and leases receivable
$
2,056,863
$
1,743,399
$
1,719,976
$
2,056,863
$
1,719,976
Period-end loans and leases receivable,
excluding PPP loans
$
1,728,931
$
1,743,399
$
1,719,976
$
1,728,931
$
1,719,976
Average loans and leases receivable
$
1,983,121
$
1,733,742
$
1,694,294
$
1,858,432
$
1,669,511
Period-end in-market deposits
$
1,620,616
$
1,383,299
$
1,290,258
$
1,620,616
$
1,290,258
Average in-market deposits
$
1,570,552
$
1,366,142
$
1,246,386
$
1,468,348
$
1,217,312
Allowance for loan and lease losses
$
27,464
$
22,748
$
19,819
$
27,464
$
19,819
Non-performing assets
$
25,484
$
29,566
$
28,524
$
25,484
$
28,524
Allowance for loan and lease losses as a
percent of total gross loans and leases
1.33
%
1.30
%
1.15
%
1.33
%
1.15
%
Allowance for loan and lease losses as a
percent of total gross loans and leases, excluding PPP loans
1.58
%
1.30
%
1.15
%
1.58
%
1.15
%
Non-performing assets as a percent of
total assets
1.03
%
1.35
%
1.38
%
1.03
%
1.38
%
Non-performing assets as a percent of
total assets, excluding PPP loans
1.19
%
1.35
%
1.38
%
1.19
%
1.38
%
(1) This is a non-GAAP financial measure. Management believes
these measures are meaningful because they reflect adjustments
commonly made by management, investors, regulators, and analysts to
evaluate financial performance, provide greater understanding of
ongoing operations, and enhance comparability of results with prior
periods. See the section titled Non-GAAP Reconciliations at the end
of this release for a reconciliation of GAAP financial measures to
non-GAAP financial measures.
COVID-19 Update
Business Continuity
The Company continues to strictly adhere to COVID-19 health and
safety-related requirements and best practices across all of our
locations. During the second quarter of 2020, employees slowly
resumed business travel, as necessary, while business development
efforts have continued to be somewhat negatively affected by
limitations on in-person appointments.
Portions of the Company’s workforce started returning to the
office, subject to local mandates and restrictions, on a rotating
basis. Management will monitor the activity closely and adjust
accordingly as the health and safety of our employees and clients
remain our highest priority.
The Company had no furloughs or layoffs related to COVID-19 to
date.
Paycheck Protection Program
During the second quarter of 2020, the Company processed over
700 applications from existing and new clients, disbursed $327.9
million in funds, and received processing fee income from the SBA
of $8.7 million. The processing fee income is 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 second quarter of 2020, $859,000 was recognized in
interest income. The SBA provides a guaranty to the lender of 100%
of principal and interest, unless the lender violated an obligation
under the agreement. As loan losses are expected to be immaterial,
if any at all, due to the guaranty, management excluded the PPP
loans from the allowance for loan and lease losses calculation.
Management funded these short-term loans through a combination of
excess cash held at the Federal Reserve and the increase in
in-market deposits.
Liquidity Sources
Management has reviewed all primary and secondary sources of
liquidity in preparation for any unforeseen funding needs due to
the COVID-19 pandemic and prioritized based on available capacity,
term flexibility, and cost. As of June 30, 2020, the Company had
the following sources of liquidity, including the Company’s ability
to participate in the Federal Reserve’s Paycheck Protection Program
Liquidity Facility (“PPPLF”):
(Unaudited)
As of
(in thousands)
June 30, 2020
Short-term investments
$
27,839
PPPLF availability
298,327
Collateral value of unencumbered pledged
loans (FHLB borrowing availability)
178,587
Market value of unencumbered securities
(Fed Discount Window and FHLB borrowing availability)
106,808
Total sources of liquidity
$
611,561
In addition to the above primary sources of liquidity, as of
June 30, 2020, the Company also had access to $53.5 million in
federal funds lines with various correspondent banks and
significant experience accessing the highly liquid brokered
certificate of deposit market.
Capital Strength
The Company’s capital ratios continued to exceed the highest
required regulatory benchmark levels.
- Total capital to risk-weighted assets at June 30, 2020, was
11.97%, tier 1 capital to risk-weighted assets was 9.57%, tier 1
leverage capital to adjusted average assets was 8.29%, and common
equity tier 1 capital to risk-weighted assets was 9.08%. Tangible
common equity to tangible assets was 7.56%. Excluding PPP loans,
tier 1 leverage capital to adjusted average assets and tangible
common equity to tangible assets were 9.19% and 8.72%,
respectively.
- Management suspended the Company’s stock repurchase program in
March 2020 due to the uncertainty surrounding the COVID-19
pandemic. As of March 16, 2020, the Company had repurchased 141,137
shares of its common stock at a weighted average price of $24.62
per share, for a total value of $3.5 million. The company has $1.5
million of buyback authority remaining.
- As previously announced, during the second quarter of 2020, the
Company’s Board of Directors declared a regular quarterly dividend
of $0.165 per share. The dividend was paid on May 14, 2020 to
stockholders of record at the close of business on May 4, 2020.
Measured against second quarter 2020 diluted earnings per share of
$0.38, the dividend represents a 43.4% payout ratio. The Board of
Directors routinely considers dividend declarations as part of its
normal course of business.
Deferral Requests
The Company provided loan modifications up to six months to
certain borrowers impacted by COVID-19 who were current in their
payments at the inception of the Company’s loan modification
program. As of June 30, 2020, the Company had processed 448
deferral requests on loans totaling $323.2 million, or 18.6% of
gross loans and leases. Loan deferrals of six months accounted for
60.2% of the total $323.2 million in deferral requests and the
remaining balance were primarily for three months. Management
anticipates the loan modifications may continue throughout 2020.
The following tables represent a breakdown of the deferred loan
balances by industry segment and collateral type:
(Unaudited)
As of
(Dollars in thousands)
June 30, 2020
Collateral Type
Industries Description
Balance
% of Deferred of Total
Industry
Real Estate
Non Real Estate
Real Estate and Rental and Leasing
$
147,584
18.8%
$
142,519
$
5,065
Accommodation and Food Services
52,468
52.7%
49,198
3,270
Manufacturing
34,214
17.5%
20,253
13,961
Health Care and Social Assistance
19,552
15.9%
12,136
7,416
Transportation and Warehousing
19,402
21.3%
422
18,980
Retail Trade
14,851
29.7%
11,355
3,496
Information
11,228
64.1%
2,430
8,798
Utilities
7,129
96.4%
—
7,129
Construction
6,448
6.7%
6,359
89
Wholesale Trade
5,695
5.7%
569
5,126
Other Services (except Public
Administration)
1,673
3.0%
50
1,623
Professional, Scientific, and Technical
Services
933
2.3%
—
933
Administrative and Support and Waste
Management and Remediation Services
831
9.9%
728
103
Finance and Insurance
743
1.8%
715
28
Arts, Entertainment, and Recreation
300
1.7%
292
8
Agriculture, Forestry, Fishing and
Hunting
165
1.3%
—
165
Total deferred loan balances
$
323,216
$
247,026
$
76,190
Exposure to Stressed Industries
Certain industries are widely expected to be particularly
impacted by social distancing, quarantines, and the economic impact
of the COVID-19 pandemic, such as the following:
(Unaudited)
As of
(Dollar in thousands)
June 30, 2020
Industries:
Balance
% Gross Loans and Leases
(1)
Retail (2)
$
70,028
4.0%
Hospitality
73,502
4.2%
Entertainment
16,675
1.0%
Restaurants & food service
24,884
1.4%
Total outstanding exposure
$
185,089
10.7%
(1) Excluding PPP loans. (2) Includes $51.7 million in loans
secured by commercial real estate.
As of June 30, 2020, the Company had no meaningful direct
exposure to the energy sector, airline industry or retail consumer,
and does not participate in shared national credits.
Because of the significant uncertainties related to the ultimate
duration of the COVID-19 pandemic and its effects on our clients
and prospects, and on the national and local economy as a whole,
there can be no assurances as to how the crisis may ultimately
affect the Company’s loan portfolio.
Second Quarter 2020 Compared to First
Quarter 2020
Net interest income increased $1.8 million, or 10.8%, to $18.9
million.
- Net interest income reflected an increase in average loans and
leases, increase in fees received in lieu of interest, and a
significant reduction in interest expense. Fees in lieu of
interest, which can vary from quarter to quarter based on
client-driven activity, totaled $2.3 million, compared to $798,000.
Excluding fees in lieu of interest, net interest income increased
$379,000, or 2.3%.
- Average loans and leases receivable increased $249.4 million to
$1.983 billion. Excluding average PPP loans of $259.5 million and
average line of credit utilization in both periods of comparison,
average loans and leases receivable increased $39.9 million, or
10.8% annualized, to $1.513 billion.
- The yield on average interest-earning assets decreased 69 basis
points to 4.03% from 4.72%. Excluding average PPP loans, the PPP
loan interest income of $647,000, and the aforementioned fees in
lieu of interest, the yield earned on average interest-earning
assets decreased 59 basis points to 3.97% from 4.56%. The rate paid
for average total bank funding decreased 63 basis points to 0.61%
from 1.24%. Total bank funding is defined as total deposits plus
FHLB advances, Federal Reserve Discount Window advances, and
Federal Reserve PPPLF advances. The average effective federal funds
rate decreased 119 basis points to 0.06% from 1.25%.
- Net interest margin decreased 10 basis points to 3.34% from
3.44%. Adjusted net interest margin, excluding fees in lieu of
interest and other recurring but volatile components of net
interest margin, increased one basis point to 3.33% from
3.32%.
- The Company incurred a $744,000 loss on the early
extinguishment of $59.5 million in FHLB term advances late in the
second quarter of 2020, as the Company lowered wholesale funding
costs and improved the Company’s funding position. Management
believes this strategy will help stabilize net interest margin with
the expectation of a low interest rate environment for an extended
period of time.
Non-interest income decreased $95,000, or 1.5%, to $6.3
million.
- Commercial loan interest rate swap fee income was strong and
consistent with the first quarter of 2020 at $1.7 million. Interest
rate swaps continue to be an attractive product for the Company’s
commercial borrowers, although associated fee income can vary from
period to period based on client demand and the interest rate
environment in any given quarter.
- Gains on sale of SBA loans increased $309,000, or 116.6%, to
$574,000 compared to $265,000. The Company’s pipeline continues to
grow period over period and management believes the gain on sale of
traditional SBA loans (i.e., SBA loans unrelated to PPP loans) will
increase at a measured pace over time. Loans held for sale,
consisting entirely of SBA loans closed but not fully funded,
increased $7.3 million, or 116.0%, to $13.7 million.
- Private wealth management fee income increased $12,000, or 0.6%
to $2.1 million. Trust assets under management and administration
measured $1.873 billion at June 30, 2020, up $209.0 million, or
50.2% annualized, primarily due to increased equity market
values.
- Other non-interest income decreased $371,000, or 35.1%, to
$686,000 primarily due to a $413,000 decrease in returns on the
investment in mezzanine funds.
Non-interest expense increased $2.2 million, or 13.6%, to $18.3
million. Operating expense decreased $466,000, or 2.9%, to $15.4
million.
- Compensation expense decreased $256,000, or 2.3%, to $10.8
million due to a reduction in payroll taxes as first quarter
payroll taxes are typically elevated commensurate with payment of
amounts earned under the annual corporate incentive compensation
plans. Average full-time equivalent employees were 281 for the
quarter ended June 30, 2020, compared to 286 for the quarter ended
March 31, 2020.
- Marketing expense decreased $109,000, or 23.6%, to $352,000,
due to a temporary reduction in meals, entertainment, and
sponsorships following restrictions put in place during the
COVID-19 pandemic.
- The Company recognized $1.7 million in expense due to the
impairment of federal historic tax credit investments, which
corresponded with the recognition of a $2.5 million in tax credits
during the quarter. No federal historic tax credit investments were
recognized in the first quarter of 2020.
- The Company incurred a $744,000 loss on the early
extinguishment of $59.5 million in FHLB term advances late in the
second quarter of 2020.
- Other non-interest expense decreased $271,000, or 33.2%, to
$545,000 as business travel related expenses remained low due to
restrictions put in place during the COVID-19 pandemic.
Total period-end loans and leases receivable increased $313.5
million to $2.057 billion primarily due to an increase in PPP loans
of $327.9 million, partially offset by a $84.5 million decrease in
line of credit utilization. Excluding PPP loans and lines of credit
in both periods of comparison, total period-end loans and leases
receivable increased $70.0 million, or 19.4% annualized, to $1.516
billion.
- Commercial and industrial (“C&I”) loans, excluding PPP
loans and lines of credit, increased $17.9 million, or 32.0%
annualized.
- Commercial real estate loans increased $61.8 million, or 21.3%
annualized, driven primarily by an increase in multi-family loans
and non-owner occupied commercial real estate loans.
Total period-end in-market deposits increased $237.3 million to
$1.621 billion and the average rate paid decreased 63 basis points
to 0.33%.
- Transaction accounts and money market accounts increased $202.3
million and $46.9 million, respectively, as both existing and new
clients received PPP loan funds.
- Certificates of deposits decreased $11.8 million as client
preferences continued to shift towards more liquid products due to
the low interest rate environment.
- Total period-end in-market deposits represent 75.3% of total
bank funding compared to 73.2%.
Period-end wholesale funding, including FHLB advances, Federal
Reserve Discount Window advances, Federal Reserve PPPLF advances,
brokered certificates of deposit, and deposits gathered through
internet deposit listing services, increased $25.0 million to
$530.4 million.
- Brokered certificates of deposit decreased $27.1 million to
$89.8 million, as the existing portfolio run off is replaced by
in-market deposits and, as needed, lower cost FHLB advances to
match fund long-term fixed-rate loans. The average rate paid on
wholesale deposits decreased 15 basis points to 2.42% and the
weighted average original maturity decreased to 4.6 years from 4.8
years.
- FHLB advances increased $22.5 million to $411.0 million. The
average rate paid on FHLB advances decreased 66 basis points to
1.25% and the weighted average original maturity decreased to 5.3
years from 5.9 years.
- During the second quarter of 2020, management tested the
availability of the Federal Reserve PPPLF due to the uncertainty of
when PPP loans would be required to close and fund. As of June 30,
2020, the Company had one $29.6 million PPPLF advance
outstanding.
Non-performing assets decreased $4.1 million to $25.5 million,
or 1.03% of total assets, compared to $29.6 million, or 1.35% of
total assets, principally due to the payoff of impaired legacy SBA
loans. Excluding PPP loans, non-performing assets were 1.19% of
total assets.
The allowance for loan and lease losses increased $4.7 million,
or 20.7%, primarily due to a $1.7 million increase in general
reserve that resulted from the economic conditions caused by the
pandemic, including the increase in the unemployment rate, and an
additional $680,000 stemmed from the other qualitative factors,
such as management’s ongoing review and grading of the loan and
lease portfolios, consideration of delinquency experience, and the
level of loans and leases subject to more frequent review by
management. Additionally, an increase in specific reserves of $2.1
million was driven by deterioration of two existing legacy SBA
impaired relationships.
- The allowance for loan and lease losses as a percent of total
gross loans and leases was 1.33% compared to 1.30%.
- Excluding PPP loans, the allowance for loan and leases losses
as a percent of total gross loans and leases was 1.58%.
Second Quarter 2020 Compared to Second
Quarter 2019
Net interest income increased $2.0 million, or 12.1%, to $18.9
million.
- Net interest income reflected an increase in average loans and
leases, increase in fees received in lieu of interest, and
significant reduction in interest expense paid on deposits. Fees in
lieu of interest totaled $2.3 million, compared to $1.2 million.
Excluding fees in lieu of interest, net interest income increased
$1.0 million, or 6.3%.
- Average loans and leases receivable increased $288.8 million,
or 17.0%, to $1.983 billion. Excluding average PPP loans of $259.5
million and average line of credit utilization in both periods of
comparison, average loans and leases receivable increased $113.0
million, or 8.1%, to $1.513 billion.
- The yield earned on average interest-earning assets decreased
126 basis points to 4.03% from 5.29%. Excluding average PPP loans,
related interest income of $647,000, and the aforementioned fees in
lieu of interest, the yield earned on average interest-earning
assets decreased 106 basis points to 3.97% from 5.03%. The rate
paid for average total bank funding decreased 115 basis points to
0.61% from 1.76%. The average effective federal funds rate
decreased 234 basis points to 0.06% from 2.40%.
- Net interest margin decreased 18 basis points to 3.34% from
3.52%. Adjusted net interest margin increased two basis points to
3.33% from 3.31%.
Non-interest income increased $514,000, or 8.9%, to $6.3
million.
- Commercial loan interest rate swap fee income increased
$604,000, or 57.5%, to $1.7 million compared to $1.1 million.
- Gains on sale of SBA loans increased $277,000, or 93.3%, to
$574,000 compared to $297,000.
- Private wealth management fee income decreased $14,000, or
0.7%, to $2.1 million primarily due to decreased values in equity
markets during the second quarter 2020 compared to the prior year
quarter. Trust assets under management and administration measured
$1.873 billion at June 30, 2020, up $118.4 million, or 6.7%.
- Other fee income decreased $427,000, or 38.4%, to $686,000
compared to $1.1 million. The decrease is primarily due to $501,000
in gains recognized in the second quarter of 2019 on end-of-term
buyout agreements related to the Company’s equipment financing
business line.
Non-interest expense increased $879,000, or 5.0%, to $18.3
million. Operating expense increased $158,000, or 1.0%, to $15.4
million.
- Compensation expense increased $293,000, or 2.8%, to $10.8
million. Average full-time equivalent employees were 281 for the
quarter ended June 30, 2020, compared to 274 for the quarter ended
June 30, 2019.
- Marketing expense decreased $229,000, or 39.4%, to $352,000.
The reasons for the decrease in marketing expense are consistent
with the linked quarter variance discussed above.
- The Company recognized $1.7 million in expense due to the
impairment of federal historic tax credit investments, which
corresponded with the recognition of a $2.5 million in tax credits
during the quarter, compared to $2.0 million of impairment and $2.4
million in tax credits.
- The Company incurred a $744,000 loss on the aforementioned
early extinguishment of $59.5 million in FHLB term advances.
- Other non-interest expense decreased $133,000, or 19.6%, to
$545,000. The reasons for the decrease in other non-interest
expense are consistent with the linked quarter variance discussed
above.
Total period-end loans and leases receivable increased $336.9
million, or 19.6%, to $2.057 billion primarily due to an increase
in PPP loans of $327.9 million, partially offset by a $105.3
million decrease in line of credit utilization. Excluding PPP loans
and lines of credit in both periods of comparison, total period-end
loans and leases receivable increased $114.2 million, or 8.1%, to
$1.516 billion.
- C&I loans, excluding PPP loans and lines of credit,
increased $48.1 million, or 25.0%.
- Commercial real estate loans increased $72.6 million, or 6.3%,
driven primarily by an increase in multi-family loans and non-owner
occupied commercial real estate loans.
Total period-end in-market deposits increased $330.4 million, or
25.6%, to $1.621 billion and the average rate paid decreased 123
basis points to 0.33%.
- Transaction accounts increased $300.5 million and money market
accounts decreased $60.2 million.
- Certificates of deposits decreased $30.3 million as client
preferences continued to shift towards more liquid products due to
the low interest rate environment.
- Total period-end in-market deposits represent 75.3% of total
bank funding compared to 71.6%.
Period-end wholesale funding increased $17.5 million to $530.4
million.
- Brokered certificates of deposit decreased $149.6 million to
$89.8 million, as the existing portfolio runs off and is replaced
by in-market deposits and, as needed, lower cost FHLB advances to
match fund long-term fixed-rate loans. The average rate paid on
brokered certificates of deposit increased 20 basis points to 2.42%
and the weighted average original maturity decreased to 4.6 years
from 4.9 years.
- FHLB advances increased $137.5 million to $411.0 million. The
average rate paid on FHLB advances decreased 102 basis points to
1.25% and the weighted average original maturity increased to 5.3
years from 3.9 years. The Company extended maturities during the
first half of 2020 by entering into pay-fixed swaps, with terms to
pay fixed rates and receive 3-month LIBOR, to partially pre-fund
the Company’s loan originations with historically low cost
funding.
Non-performing assets decreased $3.0 million to $25.5 million,
or 1.03% of total assets, compared to $28.5 million, or 1.38% of
total assets, principally due to the payoff of impaired legacy SBA
loans. Excluding PPP loans, non-performing assets were 1.19% of
total assets.
The allowance for loan and lease losses increased 38.6%
primarily due to an increase in the general and specific reserve
driven by the COVID-19 pandemic.
- The allowance for loan and lease losses as a percent of total
gross loans and leases was 1.33% compared to 1.15%.
- Excluding PPP loans, the allowance for loan and leases losses
as a percent of total gross loans and leases was 1.58%.
About First Business Financial Services, Inc.
First Business Financial Services, Inc. (Nasdaq:FBIZ) is a
Wisconsin-based bank holding company focused on the unique needs of
businesses, business executives, and high net worth individuals.
First Business offers commercial banking, specialty finance, and
private wealth management solutions, and because of its niche
focus, is able to provide its clients with unmatched expertise,
accessibility, and responsiveness. For additional information,
visit www.firstbusiness.com or call 608-238-8008.
This release may include forward-looking statements as defined
in the Private Securities Litigation Reform Act of 1995, which
reflect First Business’s current views with respect to future
events and financial performance. Forward-looking statements are
not based on historical information, but rather are related to
future operations, strategies, financial results, or other
developments. Forward-looking statements are based on management’s
expectations as well as certain assumptions and estimates made by,
and information available to, management at the time the statements
are made. Those statements are based on general assumptions and are
subject to various risks, uncertainties, and other factors that may
cause actual results to differ materially from the views, beliefs,
and projections expressed in such statements. Such statements are
subject to risks and uncertainties, including among other
things:
- Adverse changes in the economy or business conditions, either
nationally or in our markets, including, without limitation, the
adverse effects of the COVID-19 pandemic on the global, national,
and local economy.
- The effect of the COVID-19 pandemic on the Corporation’s credit
quality, revenue, and business operations.
- Competitive pressures among depository and other financial
institutions nationally and in our markets.
- Increases in defaults by borrowers and other
delinquencies.
- Our ability to manage growth effectively, including the
successful expansion of our client service, administrative
infrastructure, and internal management systems.
- Fluctuations in interest rates and market prices.
- Changes in legislative or regulatory requirements applicable to
us and our subsidiaries.
- Changes in tax requirements, including tax rate changes, new
tax laws, and revised tax law interpretations.
- Fraud, including client and system failure or breaches of our
network security, including our internet banking activities.
- Failure to comply with the applicable SBA regulations in order
to maintain the eligibility of the guaranteed portion of SBA
loans.
For further information about the factors that could affect the
Company’s future results, please see the Company’s annual report on
Form 10-K for the year ended December 31, 2019, the Company’s
quarterly report on Form 10-Q for the quarter ended March 31, 2020,
and other filings with the Securities and Exchange Commission.
SELECTED FINANCIAL CONDITION DATA
(Unaudited)
As of
(in thousands)
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
June 30, 2019
Assets
Cash and cash equivalents
$
42,391
$
94,986
$
67,102
$
60,958
$
45,875
Securities available-for-sale, at fair
value
171,680
175,564
173,133
160,665
158,933
Securities held-to-maturity, at amortized
cost
29,826
30,774
32,700
33,400
34,519
Loans held for sale
13,672
6,331
5,205
3,070
4,786
Loans and leases receivable
2,056,863
1,743,399
1,714,635
1,720,542
1,719,976
Allowance for loan and lease losses
(27,464
)
(22,748
)
(19,520
)
(20,170
)
(19,819
)
Loans and leases receivable, net
2,029,399
1,720,651
1,695,115
1,700,372
1,700,157
Premises and equipment, net
2,266
2,427
2,557
2,740
2,866
Foreclosed properties
1,389
1,669
2,919
2,902
2,660
Right-of-use assets
6,272
6,590
6,906
7,524
7,853
Bank-owned life insurance
51,433
51,056
42,761
42,432
42,127
Federal Home Loan Bank stock, at cost
13,470
9,733
7,953
8,315
6,720
Goodwill and other intangible assets
11,925
11,872
11,922
11,946
12,000
Accrued interest receivable and other
assets
95,091
84,721
48,506
58,469
51,808
Total assets
$
2,468,814
$
2,196,374
$
2,096,779
$
2,092,793
$
2,070,304
Liabilities and Stockholders’
Equity
In-market deposits
$
1,620,616
$
1,383,299
$
1,378,903
$
1,320,957
$
1,290,258
Wholesale deposits
89,759
116,827
151,476
187,859
239,387
Total deposits
1,710,375
1,500,126
1,530,379
1,508,816
1,529,645
Federal Home Loan Bank advances and other
borrowings
465,007
412,892
319,382
332,897
297,972
Junior subordinated notes
10,054
10,051
10,047
10,044
10,040
Lease liabilities
6,877
7,211
7,541
7,866
8,187
Accrued interest payable and other
liabilities
78,939
70,437
35,274
42,378
35,605
Total liabilities
2,271,252
2,000,717
1,902,623
1,902,001
1,881,449
Total stockholders’ equity
197,562
195,657
194,156
190,792
188,855
Total liabilities and stockholders’
equity
$
2,468,814
$
2,196,374
$
2,096,779
$
2,092,793
$
2,070,304
STATEMENTS OF INCOME
(Unaudited)
As of and for the Three Months
Ended
As of and for the Six Months
Ended
(Dollars in thousands, except per share
amounts)
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
June 30, 2019
June 30, 2020
June 30, 2019
Total interest income
$
22,761
$
23,372
$
25,613
$
25,438
$
25,309
$
46,132
$
50,989
Total interest expense
3,873
6,322
7,139
8,662
8,457
10,195
16,383
Net interest income
18,888
17,050
18,474
16,776
16,852
35,937
34,606
Provision for loan and lease losses
5,469
3,182
1,472
1,349
(784
)
8,651
(736
)
Net interest income after provision for
loan and lease losses
13,419
13,868
17,002
15,427
17,636
27,286
35,342
Private wealth management service fees
2,124
2,112
2,073
2,060
2,138
4,235
4,065
Gain on sale of SBA loans
574
265
465
454
297
839
539
Service charges on deposits
829
818
789
795
743
1,647
1,520
Loan fees
451
485
451
439
464
936
877
Net loss on sale of securities
—
(4
)
(42
)
(4
)
(1
)
(4
)
(1
)
Swap fees
1,655
1,681
2,267
374
1,051
3,336
1,523
Other non-interest income
686
1,057
1,186
1,674
1,113
1,744
1,920
Total non-interest income
6,319
6,414
7,189
5,792
5,805
12,733
10,443
Compensation
10,796
11,052
11,030
10,324
10,503
21,848
20,667
Occupancy
554
572
563
580
559
1,126
1,149
Professional fees
859
819
957
751
784
1,678
1,994
Data processing
710
677
639
654
689
1,386
1,269
Marketing
352
461
610
548
581
813
1,063
Equipment
304
291
292
277
272
595
661
Computer software
966
889
929
859
827
1,856
1,626
FDIC insurance
239
208
46
1
302
448
595
Collateral liquidation cost (recovery)
115
121
10
110
89
236
(1
)
Net loss (gain) on foreclosed
properties
348
102
(17
)
262
(21
)
450
(21
)
Tax credit investment impairment
(recovery)
1,841
113
113
(120
)
2,088
1,954
4,102
SBA recourse (benefit) provision
(30
)
25
21
(427
)
113
(5
)
594
Loss on early extinguishment of debt
744
—
—
—
—
744
—
Other non-interest expense
545
816
1,580
897
678
1,359
1,508
Total non-interest expense
18,343
16,146
16,773
14,716
17,464
34,488
35,206
Income before income tax (benefit)
expense
1,395
4,136
7,418
6,503
5,977
5,531
10,579
Income tax (benefit) expense
(1,928
)
858
1,650
1,418
(595
)
(1,070
)
(1,893
)
Net income
$
3,323
$
3,278
$
5,768
$
5,085
$
6,572
$
6,601
$
12,472
Per common share:
Basic earnings
$
0.38
$
0.38
$
0.67
$
0.59
$
0.75
$
0.77
$
1.43
Diluted earnings
0.38
0.38
0.67
0.59
0.75
0.77
1.43
Dividends declared
0.165
0.165
0.15
0.15
0.15
0.34
0.30
Book value
23.04
22.83
22.67
22.09
21.71
23.04
21.71
Tangible book value
21.65
21.44
21.27
20.71
20.33
21.65
20.33
Weighted-average common shares
outstanding(1)
8,392,197
8,388,666
8,442,675
8,492,445
8,569,581
8,379,696
8,584,444
Weighted-average diluted common shares
outstanding(1)
8,392,197
8,388,666
8,442,675
8,492,445
8,569,581
8,379,696
8,584,444
(1) Excluding participating securities.
NET INTEREST INCOME ANALYSIS
(Unaudited)
For the Three Months
Ended
(Dollars in thousands)
June 30, 2020
March 31, 2020
June 30, 2019
Average
Balance
Interest
Average
Yield/Rate(4)
Average Balance
Interest
Average
Yield/Rate(4)
Average
Balance
Interest
Average
Yield/Rate(4)
Interest-earning assets
Commercial real estate and other mortgage
loans(1)
$
1,192,530
$
12,450
4.18%
$
1,153,972
$
13,523
4.69%
$
1,139,036
$
14,755
5.18%
Commercial and industrial loans(1)
726,862
8,347
4.59%
515,935
7,857
6.09%
493,093
8,477
6.88%
Direct financing leases(1)
27,115
395
5.83%
27,961
108
1.55%
31,610
324
4.10%
Consumer and other loans(1)
36,614
356
3.89%
35,874
361
4.03%
30,555
348
4.56%
Total loans and leases receivable(1)
1,983,121
21,548
4.35%
1,733,742
21,849
5.04%
1,694,294
23,904
5.64%
Mortgage-related securities(2)
174,113
912
2.10%
180,590
1,061
2.35%
161,827
1,024
2.53%
Other investment securities(3)
30,194
158
2.09%
23,280
127
2.18%
28,723
151
2.10%
FHLB stock
10,301
127
4.93%
8,512
205
9.63%
6,875
86
5.00%
Short-term investments
61,030
16
0.10%
35,763
130
1.45%
22,570
144
2.55%
Total interest-earning assets
2,258,759
22,761
4.03%
1,981,887
23,372
4.72%
1,914,289
25,309
5.29%
Non-interest-earning assets
167,008
122,975
110,516
Total assets
$
2,425,767
$
2,104,862
$
2,024,805
Interest-bearing liabilities
Transaction accounts
$
368,844
291
0.32%
$
271,531
647
0.95%
$
234,241
989
1.69%
Money market
637,714
368
0.23%
669,482
1,869
1.12%
593,431
2,850
1.92%
Certificates of deposit
123,581
627
2.03%
134,000
750
2.24%
164,537
1,025
2.49%
Wholesale deposits
105,597
638
2.42%
132,468
850
2.57%
251,060
1,394
2.22%
Total interest-bearing deposits
1,235,736
1,924
0.62%
1,207,481
4,116
1.36%
1,243,269
6,258
2.01%
FHLB advances
409,281
1,283
1.25%
325,929
1,559
1.91%
266,137
1,511
2.27%
Federal Reserve PPPLF
20,821
18
0.35%
—
—
—%
—
—
—%
Other borrowings
24,681
371
6.01%
24,385
370
6.07%
24,463
411
6.72%
Junior subordinated notes
10,052
277
11.02%
10,048
277
11.03%
10,038
277
11.04%
Total interest-bearing liabilities
1,700,571
3,873
0.91%
1,567,843
6,322
1.61%
1,543,907
8,457
2.19%
Non-interest-bearing demand deposit
accounts
440,413
291,129
254,177
Other non-interest-bearing liabilities
86,504
62,367
40,110
Total liabilities
2,227,488
1,921,339
1,838,194
Stockholders’ equity
198,279
183,523
186,611
Total liabilities and stockholders’
equity
$
2,425,767
$
2,104,862
$
2,024,805
Net interest income
$
18,888
$
17,050
$
16,852
Interest rate spread
3.12%
3.10%
3.10%
Net interest-earning assets
$
558,188
$
414,044
$
370,382
Net interest margin
3.34%
3.44%
3.52%
(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 (CONTINUED)
(Unaudited)
For the Six Months
Ended
(Dollars in thousands)
June 30, 2020
June 30, 2019
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)
$
1,173,251
$
25,973
4.43%
$
1,126,449
$
29,444
5.23%
Commercial and industrial loans(1)
621,399
16,204
5.22%
479,644
17,315
7.22%
Direct financing leases(1)
27,538
503
3.65%
31,927
651
4.08%
Consumer and other loans(1)
36,244
717
3.96%
31,491
701
4.45%
Total loans and leases receivable(1)
1,858,432
43,397
4.67%
1,669,511
48,111
5.76%
Mortgage-related securities(2)
177,352
1,973
2.22%
153,981
1,963
2.55%
Other investment securities(3)
26,737
285
2.13%
29,423
307
2.09%
FHLB and FRB stock
9,407
331
7.04%
6,965
175
5.03%
Short-term investments
48,396
146
0.60%
33,818
433
2.56%
Total interest-earning assets
2,120,324
46,132
4.35%
1,893,698
50,989
5.39%
Non-interest-earning assets
144,991
103,196
Total assets
$
2,265,315
$
1,996,894
Interest-bearing liabilities
Transaction accounts
$
320,188
938
0.59%
$
224,873
1,860
1.65%
Money market
653,598
2,237
0.68%
574,666
5,373
1.87%
Certificates of deposit
128,791
1,377
2.14%
162,082
1,983
2.45%
Wholesale deposits
119,032
1,488
2.50%
259,379
2,838
2.19%
Total interest-bearing deposits
1,221,609
6,040
0.99%
1,221,000
12,054
1.97%
FHLB advances
367,604
2,842
1.55%
267,058
2,955
2.21%
Federal Reserve PPPLF
10,410
18
0.35%
—
—
—%
Other borrowings
24,533
740
6.03%
24,456
822
6.72%
Junior subordinated notes
10,050
555
11.04%
10,036
552
11.00%
Total interest-bearing liabilities
1,634,206
10,195
1.25%
1,522,550
16,383
2.15%
Non-interest-bearing demand deposit
accounts
365,771
255,691
Other non-interest-bearing liabilities
74,436
39,017
Total liabilities
2,074,413
1,817,258
Stockholders’ equity
190,902
179,636
Total liabilities and stockholders’
equity
$
2,265,315
$
1,996,894
Net interest income
$
35,937
$
34,606
Interest rate spread
3.10%
3.23%
Net interest-earning assets
$
486,118
$
371,148
Net interest margin
3.39%
3.66%
(1) The average balances of loans and leases include non-accrual
loans and leases and loans held for sale. Interest income related
to non-accrual loans and leases is recognized when collected.
Interest income includes net loan fees collected in lieu of
interest. (2) Includes amortized cost basis of assets available for
sale and held to maturity. (3) Yields on tax-exempt municipal
obligations are not presented on a tax-equivalent basis in this
table. (4) Represents annualized yields/rates.
PERFORMANCE RATIOS
For the Three Months
Ended
For the Six Months
Ended
(Unaudited)
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
June 30, 2019
June 30, 2020
June 30, 2019
Return on average assets
(annualized)
0.55%
0.62%
1.09%
0.97%
1.30%
0.58%
1.25%
Return on average equity
(annualized)
6.70%
7.14%
11.93%
10.68%
14.09%
6.92%
13.89%
Efficiency ratio
61.22%
67.74%
64.77%
66.41%
67.41%
64.36%
67.72%
Interest rate spread
3.12%
3.10%
3.33%
2.95%
3.10%
3.10%
3.23%
Net interest margin
3.34%
3.44%
3.73%
3.40%
3.52%
3.39%
3.66%
Average interest-earning assets to average
interest-bearing liabilities
132.82%
126.41%
127.44%
125.54%
123.99%
129.75%
124.38%
ASSET QUALITY RATIOS
(Unaudited)
As of
(Dollars in thousands)
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
June 30, 2019
Non-accrual loans and leases
$
24,095
$
27,897
$
20,613
$
22,789
$
25,864
Foreclosed properties
1,389
1,669
2,919
2,902
2,660
Total non-performing assets
25,484
29,566
23,532
25,691
28,524
Performing troubled debt
restructurings
49
134
140
146
151
Total impaired assets
$
25,533
$
29,700
$
23,672
$
25,837
$
28,675
Non-accrual loans and leases as a percent
of total gross loans and leases
1.17%
1.60%
1.20%
1.32%
1.50%
Non-performing assets as a percent of
total gross loans and leases plus foreclosed properties
1.23%
1.69%
1.37%
1.49%
1.66%
Non-performing assets as a percent of
total assets
1.03%
1.35%
1.12%
1.23%
1.38%
Allowance for loan and lease losses as a
percent of total gross loans and leases
1.33%
1.30%
1.14%
1.17%
1.15%
Allowance for loan and lease losses as a
percent of non-accrual loans and leases
113.98%
81.54%
94.70%
88.51%
76.64%
ASSET QUALITY RATIOS - EXCLUDING PPP LOANS (1)
(Unaudited)
As of
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
June 30, 2019
Non-accrual loans and leases as a percent
of total gross loans and leases
1.39%
1.60%
1.20%
1.32%
1.50%
Non-performing assets as a percent of
total gross loans and leases plus foreclosed properties
1.47%
1.69%
1.37%
1.49%
1.66%
Non-performing assets as a percent of
total assets
1.19%
1.35%
1.12%
1.23%
1.38%
Allowance for loan and lease losses as a
percent of total gross loans and leases
1.58%
1.30%
1.14%
1.17%
1.15%
(1) PPP loans outstanding as of June 30,
2020, were $327.9 million. The other periods presented did not have
any PPP loans outstanding.
NET CHARGE-OFFS (RECOVERIES)
(Unaudited)
For the Three Months
Ended
For the Six Months
Ended
(Dollars in thousands)
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
June 30, 2019
June 30, 2020
June 30, 2019
Charge-offs
$
817
$
131
$
2,194
$
1,099
$
15
$
948
$
63
Recoveries
(64
)
(177
)
(73
)
(101
)
(169
)
(241
)
(193
)
Net charge-offs (recoveries)
$
753
$
(46
)
$
2,121
$
998
$
(154
)
$
707
$
(130
)
Net charge-offs (recoveries) as a percent
of average gross loans and leases (annualized)
0.15
%
(0.01
)%
0.49
%
0.23
%
(0.04
)%
0.08
%
(0.02
)%
Annualized net charge-offs (recoveries) as
a percent of average gross loans and leases, excluding average PPP
loans (1)
0.17
%
(0.01
)%
0.49
%
0.23
%
(0.04
)%
0.08
%
(0.02
)%
(1) Average PPP loans outstanding for the three and six
months ended June 30, 2020, were $259.5 million and $129.8 million,
respectively. The other periods presented did not have any PPP
loans outstanding.
CAPITAL RATIOS
As of and for the Three Months
Ended
(Unaudited)
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
June 30, 2019
Total capital to risk-weighted assets
11.97%
11.74%
12.01%
11.90%
11.92%
Tier I capital to risk-weighted assets
9.57%
9.45%
9.77%
9.62%
9.60%
Common equity tier I capital to
risk-weighted assets
9.08%
8.96%
9.27%
9.11%
9.09%
Tier I capital to adjusted assets
8.29%
9.33%
9.27%
9.18%
9.36%
Tangible common equity to tangible
assets
7.56%
8.41%
8.74%
8.59%
8.59%
LOAN AND LEASE RECEIVABLE COMPOSITION
(Unaudited)
As of
(in thousands)
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
June 30, 2019
Commercial real estate:
Commercial real estate - owner
occupied
$
229,994
$
224,075
$
226,614
$
226,307
$
210,471
Commercial real estate - non-owner
occupied
533,211
511,363
516,652
503,102
477,740
Land development
44,299
48,045
51,097
49,184
49,000
Construction
133,375
131,060
109,057
111,848
185,347
Multi-family
244,496
211,594
217,322
227,330
195,363
1-4 family
36,823
34,220
33,359
31,226
31,656
Total commercial real estate
1,222,198
1,160,357
1,154,101
1,148,997
1,149,577
Commercial and industrial
781,239
519,900
503,402
513,672
510,448
Direct financing leases, net
25,525
26,833
28,203
28,987
30,365
Consumer and other:
Home equity and second mortgages
6,706
6,513
7,006
7,373
7,513
Other
29,737
30,416
22,664
22,140
22,896
Total consumer and other
36,443
36,929
29,670
29,513
30,409
Total gross loans and leases
receivable
2,065,405
1,744,019
1,715,376
1,721,169
1,720,799
Less:
Allowance for loan and lease losses
27,464
22,748
19,520
20,170
19,819
Deferred loan fees
8,542
620
741
627
823
Loans and leases receivable, net
$
2,029,399
$
1,720,651
$
1,695,115
$
1,700,372
$
1,700,157
LEGACY SBA 7(a) AND EXPRESS LOAN COMPOSITION (1)
(Unaudited)
As of
(in thousands)
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
June 30, 2019
Performing loans:
Off-balance sheet loans
$
28,843
$
31,212
$
35,029
$
40,288
$
44,385
On-balance sheet loans
16,554
17,935
19,697
21,814
23,406
Gross loans
45,397
49,147
54,726
62,102
67,791
Non-performing loans:
Off-balance sheet loans
1,640
4,887
7,290
7,287
8,294
On-balance sheet loans
9,725
13,833
12,037
14,663
16,940
Gross loans
11,365
18,720
19,327
21,950
25,234
Total loans:
Off-balance sheet loans
30,483
36,099
42,319
47,575
52,679
On-balance sheet loans
26,279
31,768
31,734
36,477
40,346
Gross loans
$
56,762
$
67,867
$
74,053
$
84,052
$
93,025
(1) Defined as SBA 7(a) and Express loans originated in 2016 and
prior.
DEPOSIT COMPOSITION
(Unaudited)
As of
(in thousands)
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
June 30, 2019
Non-interest-bearing transaction
accounts
$
433,760
$
301,657
$
293,573
$
280,990
$
301,914
Interest-bearing transaction accounts
413,214
343,064
273,909
206,267
244,608
Money market accounts
656,741
609,883
674,409
678,993
596,520
Certificates of deposit
116,901
128,695
137,012
154,707
147,216
Wholesale deposits
89,759
116,827
151,476
187,859
239,387
Total deposits
$
1,710,375
$
1,500,126
$
1,530,379
$
1,508,816
$
1,529,645
TRUST ASSETS COMPOSITION
(Unaudited)
As of
(in thousands)
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
June 30, 2019
Trust assets under management
$
1,704,019
$
1,519,632
$
1,726,538
$
1,651,809
$
1,590,508
Trust assets under administration
169,388
144,822
165,660
148,711
164,517
Total trust assets
$
1,873,407
$
1,664,454
$
1,892,198
$
1,800,520
$
1,755,025
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)
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
June 30, 2019
Common stockholders’ equity
$
197,562
$
195,657
$
194,156
$
190,792
$
188,855
Goodwill and other intangible assets
(11,925
)
(11,872
)
(11,922
)
(11,946
)
(12,000
)
Tangible common equity
$
185,637
$
183,785
$
182,234
$
178,846
$
176,855
Common shares outstanding
8,575,134
8,571,134
8,566,044
8,636,085
8,699,456
Book value per share
$
23.04
$
22.83
$
22.67
$
22.09
$
21.71
Tangible book value per share
21.65
21.44
21.27
20.71
20.33
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)
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
June 30, 2019
Common stockholders’ equity
$
197,562
$
195,657
$
194,156
$
190,792
$
188,855
Goodwill and other intangible assets
(11,925
)
(11,872
)
(11,922
)
(11,946
)
(12,000
)
Tangible common equity
$
185,637
$
183,785
$
182,234
$
178,846
$
176,855
Total assets
$
2,468,814
$
2,196,374
$
2,096,779
$
2,092,793
$
2,070,304
Goodwill and other intangible assets
(11,925
)
(11,872
)
(11,922
)
(11,946
)
(12,000
)
Tangible assets
$
2,456,889
$
2,184,502
$
2,084,857
$
2,080,847
$
2,058,304
Tangible common equity to tangible
assets
7.56
%
8.41
%
8.74
%
8.59
%
8.59
%
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 Six Months
Ended
(Dollars in thousands)
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
June 30, 2019
June 30, 2020
June 30, 2019
Total non-interest expense
$
18,343
$
16,146
$
16,773
$
14,716
$
17,464
$
34,488
$
35,206
Less:
Net loss (gain) on foreclosed
properties
348
102
(17
)
262
(21
)
450
(21
)
Amortization of other intangible
assets
9
9
7
11
11
18
21
SBA recourse (benefit) provision
(30
)
25
21
(427
)
113
(5
)
594
Tax credit investment impairment
(recovery)
1,841
113
113
(120
)
2,088
1,954
4,102
Loss on early extinguishment of debt
744
—
—
—
—
744
—
Total operating expense (a)
$
15,431
$
15,897
$
16,649
$
14,990
$
15,273
$
31,327
$
30,510
Net interest income
$
18,888
$
17,050
$
18,474
$
16,776
$
16,852
$
35,937
$
34,606
Total non-interest income
6,319
6,414
7,189
5,792
5,805
12,733
10,443
Less:
Net loss on sale of securities
—
(4
)
(42
)
(4
)
(1
)
(4
)
(1
)
Adjusted non-interest income
6,319
6,418
7,231
5,796
5,806
12,737
10,444
Total operating revenue (b)
$
25,207
$
23,468
$
25,705
$
22,572
$
22,658
$
48,674
$
45,050
Efficiency ratio
61.22%
67.74%
64.77%
66.41%
67.41%
64.36%
67.72%
Pre-tax, pre-provision adjusted earnings
(b - a)
$
9,776
$
7,571
$
9,056
$
7,582
$
7,385
$
17,347
$
14,540
Average total assets
$
2,425,767
$
2,104,862
$
2,107,365
$
2,093,285
$
2,024,805
$
2,265,315
$
1,996,894
Pre-tax, pre-provision adjusted return on
average assets
1.61%
1.44%
1.72%
1.45%
1.46%
1.53%
1.46%
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 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 Six Months
Ended
(Dollars in thousands)
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
June 30, 2019
June 30, 2020
June 30, 2019
Interest income
$
22,761
$
23,372
$
25,613
$
25,438
$
25,309
$
46,132
$
50,989
Interest expense
3,873
6,322
7,139
8,662
8,457
10,195
16,383
Net interest income (a)
18,888
17,050
18,474
16,776
16,852
35,937
34,606
Less:
Fees in lieu of interest
2,257
798
1,840
1,090
1,214
3,055
3,549
PPP loan interest income
647
—
—
—
—
647
—
FRB interest income and FHLB dividend
income
134
301
208
278
176
435
449
Add:
FRB PPPLF interest expense
18
—
—
—
—
18
—
Adjusted net interest income (b)
$
15,868
$
15,951
$
16,426
$
15,408
$
15,462
$
31,818
$
30,608
Average interest-earning assets (c)
$
2,258,759
$
1,981,887
$
1,980,922
$
1,971,696
$
1,914,289
$
2,120,324
$
1,893,698
Less:
Average PPP loans
259,518
—
—
—
—
129,759
—
Average FRB cash and FHLB stock
69,176
37,989
34,565
42,040
22,113
53,583
29,927
Average non-accrual loans and leases
25,386
22,209
21,738
25,331
24,607
23,797
24,345
Adjusted average interest-earning assets
(d)
$
1,904,679
$
1,921,689
$
1,924,619
$
1,904,325
$
1,867,569
$
1,913,185
$
1,839,426
Net interest margin (a / c)
3.34
%
3.44
%
3.73
%
3.40
%
3.52
%
3.39
%
3.66
%
Adjusted net interest margin (b / d)
3.33
%
3.32
%
3.41
%
3.24
%
3.31
%
3.33
%
3.33
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200723005854/en/
First Business Financial Services, Inc. Edward G. Sloane, Jr.
Chief Financial Officer 608-232-5970 esloane@firstbusiness.com
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