-- Robust Commercial Loan and In-Market Deposit
Growth, Combined with Reduction in Credit Costs Contribute to
Strong Quarterly Results --
First Business Financial Services, Inc. (the “Company” or “First
Business”) (Nasdaq:FBIZ) reported second quarter 2019 net income of
$6.6 million, primarily driven by exceptional loan and deposit
growth, strong fee income, stable operating expenses, and a
reduction in credit costs.
Summary results for the quarter ended June 30, 2019 include:
- Net income increased to a record $6.6 million, compared to $5.9
million for the linked quarter and $3.3 million for the second
quarter of 2018.
- Diluted earnings per common share were $0.75, compared to $0.67
and $0.38 for the linked and prior year quarters,
respectively.
- Annualized return on average assets and annualized return on
average equity measured 1.30% and 14.09%, respectively, compared to
1.20% and 13.67% for the linked quarter and 0.70% and 7.59% for the
second quarter of 2018.
- Net interest margin was 3.52%, compared to 3.79% for the linked
quarter and 3.77% for the second quarter of 2018.
- Net interest income was $16.9 million, decreasing by $902,000
from the linked quarter and by $79,000 from the second quarter of
2018.
- Top line revenue, the sum of net interest income and
non-interest income, totaled a record $22.7 million, compared to
$22.4 million for the linked quarter and $20.9 million for the
second quarter of 2018.
- Provision for loan and lease losses was a benefit of $784,000,
compared to expenses of $49,000 and $2.6 million for the linked and
prior year quarters, respectively.
- SBA recourse provision was $113,000, compared to $481,000 for
the linked quarter and $99,000 for the second quarter of 2018.
- Efficiency ratio measured 67.41%, compared to 68.04% for the
linked quarter and 67.07% for the second quarter of 2018.
- Relationship-based historic tax credit programs contributed
$446,000, or $0.05 per share, compared to $846,000, or $0.10 per
share, in the linked quarter and no contribution in the second
quarter of 2018.
- Record period-end gross loans and leases receivable of $1.720
billion grew 15.3% annualized during the second quarter of 2019 and
7.8% from June 30, 2018.
- Non-performing assets were $28.5 million and 1.38% of total
assets, compared to $26.1 million and 1.30% at March 31, 2019 and
$32.6 million and 1.71% at June 30, 2018.
- Record period-end in-market deposits of $1.290 billion
increased 16.4% annualized during the second quarter of 2019 and
22.1% from June 30, 2018.
“Our record quarterly results highlight the strength of our core
operations and the Company’s continued forward progress and
successful execution on both short-term initiatives and long-term
strategies,” said Corey Chambas, President and Chief Executive
Officer. “We are excited about the exceptional growth we have been
able to achieve on both sides of the balance sheet. Combined with
the ongoing success of our trust and investments team, as well as
our other fee income sources, we believe the recurring positive
operating leverage created by this growth will continue to generate
long-term value for our shareholders.”
Results of Operations
Net interest income of $16.9 million decreased by $902,000, or
5.1%, compared to the linked quarter and $79,000, or 0.5%, compared
to the second quarter of 2018. The decrease compared to the linked
and prior year quarters was principally due to net interest margin
compression and a decrease in loan fees received in lieu of
interest, partially offset by an increase in average loans and
leases outstanding. Fees collected in lieu of interest, defined as
prepayment fees, asset-based loan fees, and non-accrual interest,
returned to a more normalized level of $1.2 million in the second
quarter of 2019, compared to the above average $2.2 million in the
linked quarter and $1.4 million in the prior year quarter.
Excluding fees collected in lieu of interest, net interest income
increased $155,000, or 1.0%, compared to the linked quarter and
$182,000, or 1.2%, compared to the second quarter of 2018. Average
gross loans and leases of $1.694 billion increased by $49.8
million, or 12.1% annualized, from the linked quarter and $125.1
million, or 8.0%, compared to the second quarter of 2018.
The yield on average loans and leases was 5.64% for the second
quarter of 2019, down from 5.89% in the linked quarter and up from
5.42% in the prior year quarter. The yield in the linked quarter
benefited primarily from above average fees collected in lieu of
interest. Excluding fees collected in lieu of interest, the yield
on average loans and leases improved to 5.37%, up from 5.35% and
5.05% in the linked and prior year quarter.
The yield on average interest-earning assets was 5.29% for the
second quarter of 2019, compared to 5.48% in the linked quarter and
5.01% in the prior year quarter. Excluding fees collected in lieu
of interest, the yield on average earning assets improved to 5.05%,
up from 5.01% and 4.69% in the linked and prior year quarters,
respectively.
The Company’s cost of average interest-bearing liabilities
increased to 2.19% for the second quarter of 2019 from 2.11% and
1.52% in the linked and prior year quarters, respectively. Average
interest-bearing deposit costs for the second quarter of 2019
increased to 2.01%, up from 1.93% and 1.17% in the linked and prior
year quarters, respectively.
Net interest margin measured 3.52% for the second quarter of
2019, compared to 3.79% in the linked quarter and 3.77% in the
second quarter of 2018. The decrease compared to both the linked
and prior year quarters was principally due to the rate paid on average interest-bearing
liabilities increasing more than the yield on average
interest-earning assets, combined with the aforementioned
above average fees collected in lieu of interest. Excluding fees
collected in lieu of interest, net interest margin measured 3.28%
for the second quarter of 2019, compared to 3.32% in the linked
quarter and 3.46% in the second quarter of 2018. Despite this trend
of downward pressure, management expects the execution of its
strategies will allow the Company to maintain a net interest margin
at or above its target of 3.50%, including fees collected in lieu
of interest.
The Company recorded a
provision for loan and lease loss benefit of $784,000 in the second
quarter of 2019, compared to an expense of $49,000 in the linked
quarter and $2.6 million in the second quarter of 2018. The
decrease in provision for the second quarter of 2019 was
principally driven by a net reduction in specific reserves due to
improved collateral values, net reduction in historic loss rates,
and decrease in net charge-offs, partially offset by an increase in
provision related to the aforementioned loan growth. Net recoveries
were $154,000 in the second quarter of 2019, compared to net
charge-offs of $25,000 in the linked quarter and $285,000 in the
prior year quarter.
While it was not a source of provision for loan and lease losses
during the second quarter of 2019, the legacy on-balance sheet SBA
portfolio, defined as SBA loans originated prior to 2017, has been
a source of elevated non-performing assets. Total performing
on-balance sheet legacy loans were $23.4 million at June 30, 2019,
down from $24.4 million and $37.0 million at March 31, 2019 and
June 30, 2018, respectively. As of June 30, 2019, total on-balance
sheet legacy loans were $40.3 million, compared to $39.3 million
and $46.0 million at March 31, 2019 and June 30, 2018,
respectively. Legacy on-balance sheet SBA loans increased during
the second quarter of 2019 primarily due to repurchase activity
resulting in a $2.5 million net increase in sold loans previously
identified as impaired.
Non-interest income totaled $5.8 million, or 25.6% of total
revenue, in the second quarter of 2019, compared to $4.6 million,
or 20.7% of total revenue, in the linked quarter and $4.0 million,
or 19.0% of total revenue, in the prior year quarter. The increase
in non-interest income was marked by strong trust and investment
service fees, fee income related to the Company’s commercial loan
interest rate swap transactions, and other fee income.
Trust and investment services fee income, which remained the
Company’s largest source of non-interest income, totaled $2.1
million in the second quarter of 2019, compared to $1.9 million in
the linked quarter and $2.0 million in the prior year quarter.
Strong markets, successful business development, and client
retention efforts propelled trust assets under management and
administration to a record $1.755 billion at June 30, 2019, up
$23.1 million, or 5.3% annualized, from the linked quarter and
$109.6 million, or 6.7%, from June 30, 2018. Management expects new
business development efforts to remain strong throughout 2019 and
beyond as the Company continues to expand the private wealth
management business outside its more mature Wisconsin markets.
Commercial loan interest rate swap fee income totaled $1.1
million in the second quarter of 2019, compared to $473,000 in the
linked quarter and $70,000 in the second quarter of 2018. Interest
rate swaps continue to be an attractive product for the Bank’s
commercial borrowers, though associated fee income can be variable,
period to period, based on client demand and the interest rate
environment in any given quarter.
Other fee income totaled $1.1 million in the second quarter of
2019, compared to $805,000 in the linked quarter and $542,000 in
the prior year quarter. The increase is primarily due to $501,000
in gains recognized on end-of-term buyout agreements related to the
Company’s equipment financing business line.
Gains on sale of SBA loans totaled $297,000 in the second
quarter of 2019, compared to $242,000 in the linked quarter and
$274,000 in the second quarter of 2018.
Non-interest expense was $17.5 million for the second quarter of
2019, compared to $17.7 million for the linked quarter and $14.5
million in the second quarter of 2018. Operating expense, as
defined in the Efficiency Ratio table included in the Non-GAAP
Reconciliations at the end of this release, totaled $15.3 million
in the second quarter of 2019, $15.2 million in the linked quarter,
and $14.0 million in the second quarter of 2018.
The Company’s second quarter of 2019 efficiency ratio was
67.41%, compared to 68.04% for the linked quarter and 67.07% for
the prior year quarter. Compensation expense for the three months
ended June 30, 2019 was $10.5 million, an increase of $338,000
compared to the linked quarter and $1.4 million compared to the
prior year quarter. The increase in compensation expense compared
to both the linked and prior year quarters reflects an increase in
employees, as well as an increase in incentive compensation tied to
individual and Company performance. Full-time equivalent employees
were 275 at June 30, 2019, compared to 274 at December 31, 2018 and
265 at June 30, 2018. The producers hired over the past 18 months
are now generating new business, and as a result, management
believes operating revenue will continue to increase at a greater
rate than operating expense, generating positive operating leverage
and moving the efficiency ratio back toward the Company’s long-term
operating goal of 58%-62%.
Non-interest expense includes SBA recourse provision for
estimated losses in the outstanding guaranteed portion of SBA loans
sold. SBA recourse provision totaled $113,000 in the second quarter
of 2019, $481,000 in the linked quarter, and $99,000 in the prior
year quarter. The total recourse reserve balance was $2.1 million,
or 2.7% of total sold SBA loans outstanding, at June 30, 2019,
compared to $3.3 million, or 4.0%, in the linked quarter, and $2.4
million, or 2.7%, in the prior year quarter. Total sold legacy SBA
loans at June 30, 2019 were $52.7 million, compared to $58.2
million and $77.5 million at March 31, 2019 and June 30, 2018,
respectively. Total performing sold legacy SBA loans were $44.4
million at June 30, 2019, down from $45.7 million and $65.5 million
at March 31, 2019 and June 30, 2018, respectively. Changes to SBA
recourse reserves may be a source of non-interest expense
volatility in future quarters, though the magnitude of this
volatility should diminish over time as the outstanding balance of
sold legacy SBA loans continues to decline.
During the second quarter of 2019, the Company recognized $2.0
million in expense due to the impairment of relationship-based
federal historic tax credit investments, which corresponded with
the recognition of a $2.4 million in tax credits during the
quarter. The Company’s relationship-based historic tax credit
program contributed $446,000, $0.05 per share, to second quarter
2019 earnings, compared to $846,000, or $0.10 per share, in the
linked quarter. Second quarter 2018 earnings did not benefit from
historic tax credit investments. The second quarter 2019 effective
tax rate, excluding these discrete items, was 22.8%. For 2019, the
Company expects to report an effective tax rate of 21%-23%,
excluding discrete items. Management intends to continue actively
pursuing relationship-based tax credit opportunities throughout
2019 and beyond.
Balance Sheet
Period-end, gross loans and leases receivable totaled a record
$1.720 billion at June 30, 2019, increasing $63.3 million, or 15.3%
annualized, from March 31, 2019 and increasing $125.0 million, or
7.8%, from June 30, 2018. The Company’s emphasis on growing its
commercial and industrial (“C&I”) portfolio continued, with
balances increasing $44.2 million, or 38.0% annualized, compared to
the linked quarter and $62.9 million, or 14.1%, compared to June
30, 2018. While we are seeing significant loan growth opportunities
in our primary geographic areas, management remains committed to
maintaining its strong underwriting standards and will not deviate
from those standards for the sole purpose of growing our loan and
lease portfolio.
“The First Business team has generated exceptional loan growth
through the first six months of the year,” said Chambas. “Due to
the investments made in business development officers and niche
business lines over the last couple of years, we are seeing above
average loan growth across the Company, with C&I lending
serving as the driving force of late.” Chambas added, “While we do
not expect to sustain a 15% growth rate in 2019, we are confident
in our ability to continue producing quality loans and believe high
single-digit growth in 2019 and beyond is achievable and
sustainable with the outstanding team we have in place.”
Period-end, in-market deposits increased to $1.290 billion, or
71.6% of total bank funding at June 30, 2019, compared to $1.239
billion, or 70.9%, at March 31, 2019 and $1.056 billion, or 62.9%,
at June 30, 2018. Total bank funding is defined as total deposits
plus FHLB advances. Transaction accounts and money market accounts
were the largest contributors to in-market deposit growth during
the quarter, increasing $53.8 million and $17.0 million compared to
the linked quarter, respectively. The increase compared to the
linked quarter was partially offset by a $20.0 million reduction in
certificates of deposit.
“In-market deposit growth of 22.1% over the past 12 months is
another example of how successful execution and investments in
people, product, and technology have been paying off for First
Business,” Chambas commented. “We are growing our in-market deposit
base through strategic deposit campaigns and traditional lower-cost
treasury management efforts, which are proving to be attractive to
growing numbers of businesses, business executives, and high net
worth individuals. Importantly, we have achieved this above average
growth while maintaining pricing discipline and limiting our
deposit rates to those at or below our alternative sources of
wholesale funding.”
Period-end wholesale funding was $512.9 million at June 30,
2019, including FHLB advances of $273.5 million, brokered
certificates of deposit of $238.9 million, and deposits gathered
through internet deposit listing services of $498,000, compared to
period-end wholesale funding of $507.7 million at March 31, 2019
and $622.4 million at June 30, 2018.
Consistent with the Company’s longstanding funding strategy to
manage risk and use the most efficient and cost-effective source of
wholesale funds, management intends to maintain a ratio of
in-market deposits to total bank funding sources in line with the
Company’s target range of 60%-75%. Management recently updated this
range from the previously disclosed 60%-70% to reflect a reduced
need for on-balance sheet wholesale funding to match-fund
long-term, fixed rate loans due to greater client demand for
interest rate swaps, which results in a floating rate loan on our
balance sheet.
Asset Quality
Non-performing assets were $28.5 million, or 1.38% of total
assets, at June 30, 2019, compared to $26.1 million, or 1.30% of
total assets, and $32.6 million, or 1.71% of total assets, at the
end of the linked quarter and second quarter of 2018, respectively.
The increase from the linked quarter was primarily due to legacy
SBA loan repurchase activity resulting in a $2.5 million net
increase in sold loans previously identified as impaired.
Capital Strength
As of June 30, 2019, total capital to risk-weighted assets was
11.92%, tier 1 capital to risk-weighted assets was 9.60%, tier 1
leverage capital to adjusted average assets was 9.36%, and common
equity tier 1 capital to risk-weighted assets was 9.09%. In
addition, as of June 30, 2019, tangible common equity to tangible
assets was 8.59%.
Share Repurchases
As of July 24, 2019, the Company had purchased 217,688 shares of
its common stock, since the adoption of its previously disclosed
stock repurchase program, at a weighted average price of $22.31 per
share, for a total value of $4.9 million. The company has $100,000
of buyback authority remaining under the program as of July 24,
2019.
Quarterly Dividend
As previously announced, during the second quarter of 2019, the
Company’s Board of Directors declared a regular quarterly dividend
of $0.15 per share. The dividend was paid on May 16, 2019 to
stockholders of record at the close of business on May 6, 2019.
Measured against second quarter 2019 diluted earnings per share of
$0.75, the dividend represents a 20.0% payout ratio. The Board of
Directors routinely considers dividend declarations as part of its
normal course of business.
About First Business Financial Services, Inc.
First Business Financial Services, Inc. (Nasdaq:FBIZ) is a
Wisconsin-based bank holding company focused on the unique needs of
businesses, business executives, and high net worth individuals.
First Business offers commercial banking, specialty finance, and
private wealth management solutions, and because of its niche
focus, is able to provide its clients with unmatched expertise,
accessibility, and responsiveness. For additional information,
visit www.firstbusiness.com or call 608-238-8008.
This release may include forward-looking statements as defined
in the Private Securities Litigation Reform Act of 1995, which
reflect First Business’s current views with respect to future
events and financial performance. Forward-looking statements are
not based on historical information, but rather are related to
future operations, strategies, financial results, or other
developments. Forward-looking statements are based on management’s
expectations as well as certain assumptions and estimates made by,
and information available to, management at the time the statements
are made. Those statements are based on general assumptions and are
subject to various risks, uncertainties, and other factors that may
cause actual results to differ materially from the views, beliefs,
and projections expressed in such statements. Such statements are
subject to risks and uncertainties, including among other
things:
- Competitive pressures among depository and other financial
institutions nationally and in our markets.
- Adverse changes in the economy or business conditions, either
nationally or in our markets.
- Increases in defaults by borrowers and other
delinquencies.
- Our ability to manage growth effectively, including the
successful expansion of our client service, administrative
infrastructure, and internal management systems.
- Fluctuations in interest rates and market prices.
- Changes in legislative or regulatory requirements applicable to
us and our subsidiaries.
- Changes in tax requirements, including tax rate changes, new
tax laws, and revised tax law interpretations.
- Fraud, including client and system failure or breaches of our
network security, including our internet banking activities.
- Failure to comply with the applicable SBA regulations in order
to maintain the eligibility of the guaranteed portion of SBA
loans.
For further information about the factors that could affect the
Company’s future results, please see the Company’s annual report on
Form 10-K for the year ended December 31, 2018 and other filings
with the Securities and Exchange Commission.
SELECTED FINANCIAL CONDITION DATA
(Unaudited)
As of
(in thousands)
June 30, 2019
March 31, 2019
December 31, 2018
September 30, 2018
June 30, 2018
Assets
Cash and cash equivalents
$
45,875
$
56,335
$
86,546
$
40,293
$
45,803
Securities available-for-sale, at fair
value
158,933
156,783
138,358
134,995
135,470
Securities held-to-maturity, at amortized
cost
34,519
35,914
37,731
39,950
40,946
Loans held for sale
4,786
5,447
5,287
4,712
4,976
Loans and leases receivable
1,719,976
1,656,646
1,617,655
1,598,607
1,594,953
Allowance for loan and lease losses
(19,819
)
(20,449
)
(20,425
)
(20,455
)
(20,932
)
Loans and leases receivable, net
1,700,157
1,636,197
1,597,230
1,578,152
1,574,021
Premises and equipment, net
2,866
3,043
3,284
3,247
3,358
Foreclosed properties
2,660
2,547
2,547
1,454
1,484
Right-of-use assets
7,853
8,180
—
—
—
Bank-owned life insurance
42,127
41,830
41,538
41,212
40,912
Federal Home Loan Bank stock, at cost
6,720
6,635
7,240
6,890
9,295
Goodwill and other intangible assets
12,000
12,017
12,045
12,132
12,380
Accrued interest receivable and other
assets
51,808
40,714
34,651
31,293
31,142
Total assets
$
2,070,304
$
2,005,642
$
1,966,457
$
1,894,330
$
1,899,787
Liabilities and Stockholders’
Equity
In-market deposits
$
1,290,258
$
1,239,494
$
1,179,448
$
1,076,851
$
1,056,294
Wholesale deposits
239,387
262,212
275,851
332,052
281,431
Total deposits
1,529,645
1,501,706
1,455,299
1,408,903
1,337,725
Federal Home Loan Bank advances and other
borrowings
297,972
269,958
298,944
281,430
365,416
Junior subordinated notes
10,040
10,037
10,033
10,029
10,026
Lease liabilities
8,187
8,504
—
—
—
Accrued interest payable and other
liabilities
35,605
30,337
21,474
16,426
12,948
Total liabilities
1,881,449
1,820,542
1,785,750
1,716,788
1,726,115
Total stockholders’ equity
188,855
185,100
180,707
177,542
173,672
Total liabilities and stockholders’
equity
$
2,070,304
$
2,005,642
$
1,966,457
$
1,894,330
$
1,899,787
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, 2019
March 31, 2019
December 31, 2018
September 30, 2018
June 30, 2018
June 30, 2019
June 30, 2018
Total interest income
$
25,309
$
25,679
$
24,522
$
23,563
$
22,468
$
50,989
$
43,189
Total interest expense
8,457
7,925
7,407
6,469
5,537
16,383
10,057
Net interest income
16,852
17,754
17,115
17,094
16,931
34,606
33,132
Provision for loan and lease losses
(784
)
49
983
(546
)
2,579
(736
)
5,054
Net interest income after provision for
loan and lease losses
17,636
17,705
16,132
17,640
14,352
35,342
28,078
Trust and investment service fees
2,138
1,927
1,919
1,941
1,987
4,065
3,884
Gain on sale of SBA loans
297
242
267
641
274
539
543
Service charges on deposits
743
777
770
788
720
1,520
1,504
Loan fees
464
414
408
459
389
877
917
Net loss on sale of securities
—
—
(4
)
—
—
—
—
Swap fees
1,051
473
662
306
70
1,523
703
Other non-interest income
1,112
805
626
736
542
1,919
1,097
Total non-interest income
5,805
4,638
4,648
4,871
3,982
10,443
8,648
Compensation
10,503
10,165
9,432
9,819
9,116
20,667
18,187
Occupancy
559
590
560
560
544
1,149
1,073
Professional fees
784
1,210
879
1,027
928
1,994
1,963
Data processing
689
581
614
512
626
1,269
1,236
Marketing
581
482
617
593
591
1,063
925
Equipment
272
389
345
403
343
661
686
Computer software
827
799
780
814
679
1,626
1,420
FDIC insurance
302
293
353
457
369
595
668
Collateral liquidation costs
89
(91
)
193
230
222
(1
)
223
Net (gain) loss on foreclosed
properties
(21
)
—
337
30
—
(21
)
—
Impairment of tax credit investments
2,088
2,014
1,529
113
329
4,102
442
SBA recourse provision (benefit)
113
481
1,795
314
99
594
(196
)
Other non-interest expense
678
829
810
874
621
1,508
1,747
Total non-interest expense
17,464
17,742
18,244
15,746
14,467
35,206
28,374
Income before income tax (benefit)
expense
5,977
4,601
2,536
6,765
3,867
10,579
8,352
Income tax (benefit) expense
(595
)
(1,298
)
(1,528
)
1,464
578
(1,893
)
1,414
Net income
$
6,572
$
5,899
$
4,064
$
5,301
$
3,289
$
12,472
$
6,938
Per common share:
Basic earnings
$
0.75
$
0.67
$
0.46
$
0.60
$
0.38
$
1.43
$
0.79
Diluted earnings
0.75
0.67
0.46
0.60
0.38
1.43
0.79
Dividends declared
0.15
0.15
0.14
0.14
0.14
0.30
0.28
Book value
21.71
21.12
20.57
20.19
19.83
21.71
19.83
Tangible book value
20.33
19.75
19.20
18.81
18.41
20.33
18.41
Weighted-average common shares
outstanding(1)
8,569,581
8,621,221
8,662,025
8,650,057
8,631,189
8,584,444
8,631,664
Weighted-average diluted common shares
outstanding(1)
8,569,581
8,621,221
8,662,025
8,650,057
8,631,189
8,584,444
8,631,664
(1) Excluding participating securities.
NET INTEREST INCOME ANALYSIS
(Unaudited)
For the Three Months
Ended
(Dollars in thousands)
June 30, 2019
March 31, 2019
June 30, 2018
Average
Balance
Interest
Average
Yield/Rate(4)
Average Balance
Interest
Average
Yield/Rate(4)
Average
Balance
Interest
Average
Yield/Rate(4)
Interest-earning assets
Commercial real estate and other mortgage
loans(1)
$
1,139,036
$
14,755
5.18
%
$
1,113,723
$
14,689
5.28
%
$
1,073,326
$
13,264
4.94
%
Commercial and industrial loans(1)
493,093
8,477
6.88
%
466,046
8,839
7.59
%
434,657
7,347
6.76
%
Direct financing leases(1)
31,610
324
4.10
%
32,248
326
4.04
%
31,284
313
4.00
%
Consumer and other loans(1)
30,555
348
4.56
%
32,436
353
4.35
%
29,914
319
4.27
%
Total loans and leases receivable(1)
1,694,294
23,904
5.64
%
1,644,453
24,207
5.89
%
1,569,181
21,243
5.42
%
Mortgage-related securities(2)
161,827
1,024
2.53
%
146,048
939
2.57
%
136,982
775
2.26
%
Other investment securities(3)
28,723
151
2.10
%
30,131
156
2.07
%
34,391
163
1.90
%
FHLB stock
6,875
86
5.00
%
7,055
89
5.05
%
8,392
66
3.15
%
Short-term investments
22,570
144
2.55
%
45,190
288
2.55
%
45,473
221
1.94
%
Total interest-earning assets
1,914,289
25,309
5.29
%
1,872,877
25,679
5.48
%
1,794,419
22,468
5.01
%
Non-interest-earning assets
110,516
95,796
94,923
Total assets
$
2,024,805
$
1,968,673
$
1,889,342
Interest-bearing liabilities
Transaction accounts
$
234,241
989
1.69
%
$
215,400
871
1.62
%
$
272,840
628
0.92
%
Money market
593,431
2,850
1.92
%
555,692
2,524
1.82
%
474,943
1,067
0.90
%
Certificates of deposit
164,537
1,025
2.49
%
159,600
957
2.40
%
71,994
239
1.33
%
Wholesale deposits
251,060
1,394
2.22
%
267,791
1,444
2.16
%
278,496
1,275
1.83
%
Total interest-bearing deposits
1,243,269
6,258
2.01
%
1,198,483
5,796
1.93
%
1,098,273
3,209
1.17
%
FHLB advances
266,137
1,511
2.27
%
267,989
1,444
2.16
%
322,791
1,637
2.03
%
Other borrowings
24,463
411
6.72
%
24,449
411
6.72
%
24,889
414
6.65
%
Junior subordinated notes
10,038
277
11.04
%
10,034
274
10.92
%
10,023
277
11.05
%
Total interest-bearing liabilities
1,543,907
8,457
2.19
%
1,500,955
7,925
2.11
%
1,455,976
5,537
1.52
%
Non-interest-bearing demand deposit
accounts
254,177
257,222
240,352
Other non-interest-bearing liabilities
40,110
37,912
19,752
Total liabilities
1,838,194
1,796,089
1,716,080
Stockholders’ equity
186,611
172,584
173,262
Total liabilities and stockholders’
equity
$
2,024,805
$
1,968,673
$
1,889,342
Net interest income
$
16,852
$
17,754
$
16,931
Interest rate spread
3.10
%
3.37
%
3.49
%
Net interest-earning assets
$
370,382
$
371,922
$
338,443
Net interest margin
3.52
%
3.79
%
3.77
%
(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.
(Unaudited)
For the Six Months
Ended
(Dollars in thousands)
June 30, 2019
June 30, 2018
Average Balance
Interest
Average
Yield/Rate(4)
Average
Balance
Interest
Average
Yield/Rate(4)
Interest-earning assets
Commercial real estate and other mortgage
loans(1)
$
1,126,449
$
29,444
5.23
%
$
1,060,112
$
25,605
4.83
%
Commercial and industrial loans(1)
479,644
17,315
7.22
%
437,061
14,049
6.43
%
Direct financing leases(1)
31,927
651
4.08
%
30,582
617
4.04
%
Consumer and other loans(1)
31,491
701
4.45
%
29,639
633
4.27
%
Total loans and leases receivable(1)
1,669,511
48,111
5.76
%
1,557,394
40,904
5.25
%
Mortgage-related securities(2)
153,981
1,963
2.55
%
132,546
1,462
2.21
%
Other investment securities(3)
29,423
307
2.09
%
35,386
332
1.88
%
FHLB and FRB stock
6,965
175
5.03
%
7,559
114
3.02
%
Short-term investments
33,818
433
2.56
%
51,349
377
1.47
%
Total interest-earning assets
1,893,698
50,989
5.39
%
1,784,234
43,189
4.84
%
Non-interest-earning assets
103,196
91,853
Total assets
$
1,996,894
$
1,876,087
Interest-bearing liabilities
Transaction accounts
$
224,873
1,860
1.65
%
$
285,216
1,036
0.73
%
Money market
574,666
5,373
1.87
%
494,779
1,918
0.78
%
Certificates of deposit
162,082
1,983
2.45
%
76,424
478
1.25
%
Wholesale deposits
259,379
2,838
2.19
%
289,614
2,606
1.80
%
Total interest-bearing deposits
1,221,000
12,054
1.97
%
1,146,033
6,038
1.05
%
FHLB advances
267,058
2,955
2.21
%
270,445
2,641
1.95
%
Other borrowings
24,456
822
6.72
%
24,647
826
6.70
%
Junior subordinated notes
10,036
552
11.00
%
10,022
552
11.02
%
Total interest-bearing liabilities
1,522,550
16,383
2.15
%
1,451,147
10,057
1.39
%
Non-interest-bearing demand deposit
accounts
255,691
234,487
Other non-interest-bearing liabilities
39,017
21,643
Total liabilities
1,817,258
1,707,277
Stockholders’ equity
179,636
168,810
Total liabilities and stockholders’
equity
$
1,996,894
$
1,876,087
Net interest income
$
34,606
$
33,132
Interest rate spread
3.23
%
3.45
%
Net interest-earning assets
$
371,148
$
333,087
Net interest margin
3.66
%
3.71
%
(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, 2019
March 31, 2019
December 31, 2018
September 30, 2018
June 30, 2018
June 30, 2019
June 30, 2018
Return on average assets (annualized)
1.30
%
1.20
%
0.83
%
1.11
%
0.70
%
1.25
%
0.74
%
Return on average equity (annualized)
14.09
%
13.67
%
9.06
%
12.06
%
7.59
%
13.89
%
8.22
%
Efficiency ratio
67.41
%
68.04
%
66.95
%
69.55
%
67.07
%
67.73
%
67.27
%
Interest rate spread
3.10
%
3.37
%
3.30
%
3.42
%
3.49
%
3.23
%
3.45
%
Net interest margin
3.52
%
3.79
%
3.69
%
3.75
%
3.77
%
3.66
%
3.71
%
Average interest-earning assets to average
interest-bearing liabilities
123.99
%
124.78
%
124.65
%
123.25
%
123.25
%
124.38
%
122.95
%
ASSET QUALITY RATIOS
(Unaudited)
As of
(Dollars in thousands)
June 30, 2019
March 31, 2019
December 31, 2018
September 30, 2018
June 30, 2018
Non-accrual loans and leases
$
25,864
$
23,540
$
25,301
$
30,613
$
31,091
Foreclosed properties
2,660
2,547
2,547
1,454
1,484
Total non-performing assets
28,524
26,087
27,848
32,067
32,575
Performing troubled debt
restructurings
151
169
180
187
249
Total impaired assets
$
28,675
$
26,256
$
28,028
$
32,254
$
32,824
Non-accrual loans and leases as a percent
of total gross loans and leases
1.50
%
1.42
%
1.56
%
1.91
%
1.95
%
Non-performing assets as a percent of
total gross loans and leases plus foreclosed properties
1.66
%
1.57
%
1.72
%
2.00
%
2.04
%
Non-performing assets as a percent of
total assets
1.38
%
1.30
%
1.42
%
1.69
%
1.71
%
Allowance for loan and lease losses as a
percent of total gross loans and leases
1.15
%
1.23
%
1.26
%
1.28
%
1.31
%
Allowance for loan and lease losses as a
percent of non-accrual loans and leases
76.64
%
86.87
%
80.73
%
66.82
%
67.32
%
NET CHARGE-OFFS (RECOVERIES)
(Unaudited)
For the Three Months
Ended
For the Six Months
Ended
(Dollars in thousands)
June 30, 2019
March 31, 2019
December 31, 2018
September 30, 2018
June 30, 2018
June 30, 2019
June 30, 2018
Charge-offs
$
15
$
48
$
1,197
$
1,914
$
306
$
63
$
2,990
Recoveries
(169
)
(23
)
(184
)
(1,983
)
(21
)
(193
)
(105
)
Net (recoveries) charge-offs
$
(154
)
$
25
$
1,013
$
(69
)
$
285
$
(130
)
$
2,885
Net (recoveries) charge-offs as a percent
of average gross loans and leases (annualized)
(0.04
)%
0.01
%
0.25
%
(0.02
)%
0.07
%
(0.02
)%
0.37
%
CAPITAL RATIOS
As of and for the Three Months
Ended
(Unaudited)
June 30, 2019
March 31, 2019
December 31, 2018
September 30, 2018
June 30, 2018
Total capital to risk-weighted assets
11.92
%
12.18
%
11.85
%
12.05
%
11.87
%
Tier I capital to risk-weighted assets
9.60
%
9.69
%
9.41
%
9.54
%
9.34
%
Common equity tier I capital to
risk-weighted assets
9.09
%
9.17
%
8.89
%
9.00
%
8.80
%
Tier I capital to adjusted assets
9.36
%
9.45
%
9.33
%
9.34
%
9.25
%
Tangible common equity to tangible
assets
8.59
%
8.68
%
8.63
%
8.79
%
8.55
%
LOAN AND LEASE RECEIVABLE COMPOSITION
(Unaudited)
As of
(in thousands)
June 30, 2019
March 31, 2019
December 31, 2018
September 30, 2018
June 30, 2018
Commercial real estate:
Commercial real estate - owner
occupied
$
210,471
$
212,698
$
203,476
$
203,733
$
196,032
Commercial real estate - non-owner
occupied
477,740
479,061
484,427
487,842
485,962
Land development
49,000
47,503
42,666
45,009
45,033
Construction
185,347
169,894
161,562
132,271
188,036
Multi-family
195,363
184,490
167,868
174,664
137,388
1-4 family
31,656
33,255
34,340
35,729
35,569
Total commercial real estate
1,149,577
1,126,901
1,094,339
1,079,248
1,088,020
Commercial and industrial
510,448
466,277
462,321
457,932
447,540
Direct financing leases, net
30,365
32,724
33,170
31,090
32,001
Consumer and other:
Home equity and second mortgages
7,513
8,377
8,438
8,388
7,962
Other
22,896
23,367
20,789
23,451
21,075
Total consumer and other
30,409
31,744
29,227
31,839
29,037
Total gross loans and leases
receivable
1,720,799
1,657,646
1,619,057
1,600,109
1,596,598
Less:
Allowance for loan and lease losses
19,819
20,449
20,425
20,455
20,932
Deferred loan fees
823
1,000
1,402
1,502
1,645
Loans and leases receivable, net
$
1,700,157
$
1,636,197
$
1,597,230
$
1,578,152
$
1,574,021
DEPOSIT COMPOSITION
(Unaudited)
As of
(in thousands)
June 30, 2019
March 31, 2019
December 31, 2018
September 30, 2018
June 30, 2018
Non-interest-bearing transaction
accounts
$
301,914
$
286,345
$
280,769
$
233,915
$
255,521
Interest-bearing transaction accounts
244,608
206,360
229,612
256,303
272,057
Money market accounts
596,520
579,539
516,045
475,322
450,654
Certificates of deposit
147,216
167,250
153,022
111,311
78,062
Wholesale deposits
239,387
262,212
275,851
332,052
281,431
Total deposits
$
1,529,645
$
1,501,706
$
1,455,299
$
1,408,903
$
1,337,725
TRUST ASSETS COMPOSITION
(Unaudited)
As of
(in thousands)
June 30, 2019
March 31, 2019
December 31, 2018
September 30, 2018
June 30, 2018
Trust assets under management
$
1,590,508
$
1,564,821
$
1,452,911
$
1,534,395
$
1,465,101
Trust assets under administration
164,517
167,124
177,416
186,530
180,320
Total trust assets
$
1,755,025
$
1,731,945
$
1,630,327
$
1,720,925
$
1,645,421
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, 2019
March 31, 2019
December 31, 2018
September 30, 2018
June 30, 2018
Common stockholders’ equity
$
188,855
$
185,100
$
180,707
$
177,542
$
173,672
Goodwill and other intangible assets
(12,000
)
(12,017
)
(12,045
)
(12,132
)
(12,380
)
Tangible common equity
$
176,855
$
173,083
$
168,662
$
165,410
$
161,292
Common shares outstanding
8,699,456
8,765,136
8,785,480
8,793,941
8,760,103
Book value per share
$
21.71
$
21.12
$
20.57
$
20.19
$
19.83
Tangible book value per share
20.33
19.75
19.20
18.81
18.41
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, 2019
March 31, 2019
December 31, 2018
September 30, 2018
June 30, 2018
Common stockholders’ equity
$
188,855
$
185,100
$
180,707
$
177,542
$
173,672
Goodwill and other intangible assets
(12,000
)
(12,017
)
(12,045
)
(12,132
)
(12,380
)
Tangible common equity
$
176,855
$
173,083
$
168,662
$
165,410
$
161,292
Total assets
$
2,070,304
$
2,005,642
$
1,966,457
$
1,894,330
$
1,899,787
Goodwill and other intangible assets
(12,000
)
(12,017
)
(12,045
)
(12,132
)
(12,380
)
Tangible assets
$
2,058,304
$
1,993,625
$
1,954,412
$
1,882,198
$
1,887,407
Tangible common equity to tangible
assets
8.59
%
8.68
%
8.63
%
8.79
%
8.55
%
EFFICIENCY RATIO
“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. In the judgment of
the Company’s management, the adjustments made to non-interest
expense and operating revenue 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 to
its most comparable GAAP measure.
(Unaudited)
For the Three Months
Ended
For the Six Months
Ended
(Dollars in thousands)
June 30, 2019
March 31, 2019
December 31, 2018
September 30, 2018
June 30, 2018
June 30, 2019
June 30, 2018
Total non-interest expense
$
17,464
$
17,742
$
18,244
$
15,746
$
14,467
$
35,206
$
28,374
Less:
Net (gain) loss on foreclosed
properties
(21
)
—
337
30
—
(21
)
—
Amortization of other intangible
assets
11
11
11
12
12
21
24
SBA recourse provision (benefit)
113
481
1,795
314
99
594
(196
)
Impairment of tax credit investments
2,088
2,014
1,529
113
329
4,102
442
Total operating expense
$
15,273
$
15,236
$
14,572
$
15,277
$
14,027
$
30,510
$
28,104
Net interest income
$
16,852
$
17,754
$
17,115
$
17,094
$
16,931
$
34,606
$
33,132
Total non-interest income
5,805
4,638
4,648
4,871
3,982
10,443
8,648
Less:
Net loss on sale of securities
—
—
(4
)
—
—
—
—
Total operating revenue
$
22,657
$
22,392
$
21,767
$
21,965
$
20,913
$
45,049
$
41,780
Efficiency ratio
67.41
%
68.04
%
66.95
%
69.55
%
67.07
%
67.73
%
67.27
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190725005851/en/
First Business Financial Services, Inc. Edward G. Sloane, Jr.
Chief Financial Officer 608-232-5970 esloane@firstbusiness.com
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