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Share Name | Share Symbol | Market | Type |
---|---|---|---|
First Business Financial Services Inc | NASDAQ:FBIZ | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
1.06 | 2.73% | 39.89 | 39.56 | 39.89 | 39.89 | 39.38 | 39.38 | 2,256 | 15:32:32 |
-- 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:
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.
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.
Non-interest income decreased $95,000, or 1.5%, to $6.3 million.
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.
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.
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%.
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.
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.
Second Quarter 2020 Compared to Second Quarter 2019
Net interest income increased $2.0 million, or 12.1%, to $18.9 million.
Non-interest income increased $514,000, or 8.9%, to $6.3 million.
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.
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.
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%.
Period-end wholesale funding increased $17.5 million to $530.4 million.
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.
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:
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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