First Business Bank Reports Record Second Quarter 2022 Net Income of $11.0 Million
First Business Financial Services, Inc. (the “Company”, the “Bank”, or “First Business Bank”) (Nasdaq:FBIZ) reported quarterly net income available to common shareholders of $11.0 million, or $1.29 diluted earnings per share. This compares to net income of $8.7 million, or $1.02 per share, in the first quarter of 2022 and $8.2 million, or $0.95 per share, in the second quarter of 2021.
“Our record quarterly net income was driven by a notable increase in net interest income and exceptional commitment to asset quality resulting in a significant loan loss provision benefit,” President and Chief Executive Officer Corey Chambas said. “Despite above-average loan payoffs this year, we remain confident in our ability to produce 10% net loan growth. We believe this sustained loan growth and expanding net interest margin will continue to generate double-digit annual revenue growth.” Chambas added, “With an enhanced capital base, focus on diversified revenue streams, and relentless attention to credit quality, we believe we are well positioned to extend our track record of performance over the long term.”
Quarterly Highlights
Robust Profitability Metrics. Pre-tax, pre-provision adjusted (“PTPP”) earnings, excluding Paycheck Protection Program (“PPP”) interest and fee income, increased $998,000, or 10.4%, from the linked quarter and $3.7 million, or 53.8%, from the prior year quarter. The improvement in profitability was driven by an increase in top line revenue, which rose $1.8 million, or 6.3%, from the linked quarter and $5.4 million, or 21.9%, from the prior year quarter. With revenue growth outpacing operating expense growth, the Company increased PTPP return on average assets to 1.57% in the second quarter of 2022, compared to 1.46% in linked quarter and 1.15% in the prior year quarter. Strong Asset Quality. The Bank continued its strong asset quality trend, highlighted by the team’s ability to proactively work through challenging loans to achieve positive outcomes for the Bank and its shareholders. Non-performing assets declined to $5.7 million, or 0.21% of total assets, improving from 0.40% of total assets on June 30, 2021. The Company recorded a provision benefit of $3.7 million, compared to a benefit of $855,000 in the first quarter of 2022 and $1.0 million in the second quarter of 2021. The provision benefit in the second quarter of 2022 was primarily due to a $4.1 million principal recovery on a legacy SBA relationship originated in May 2016 and fully charged-off in December 2020. Record Net Interest Income Reflecting Loan Growth and Net Interest Margin Expansion. Net interest income grew to a record $23.7 million, increasing $2.2 million, or 10.4%, from the linked quarter and $2.0 million, or 9.3%, from the prior year quarter. This increase was primarily due to a 32 and 22 basis point expansion in net interest margin compared to the linked and prior year quarters, respectively. This net interest expansion resulted from rising rates on variable-rate loans and low deposit betas on in-market deposits following the Federal Open Market Committee’s (“FOMC”) decision to raise the target Fed Funds rate 150 basis points during the first half of 2022. Increased Organic Loan Production. Loans, excluding net PPP loans, grew $48.9 million, or 8.8% annualized, from the first quarter of 2022 and $259.1 million, or 12.8%, from the second quarter of 2021, as the Company’s previous investments in both conventional and specialized lending continue to generate positive results. Compounding Tangible Book Value Growth. The Company’s demonstrated earnings power and diligent credit management more than offset the interest-rate-driven market value decline in the investment portfolio, providing a 9.4% annualized increase in tangible book value compared to the linked quarter and 9.7% compared to the prior year quarter.Quarterly Financial Results
(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,
2022
March 31,
2022
June 30,
2021
June 30,
2022
June 30,
2021
Net interest income
$
23,660
$
21,426
$
21,652
$
45,087
$
42,515
Adjusted non-interest income (1)
6,872
7,386
6,292
14,258
13,487
Operating revenue (1)
30,532
28,812
27,944
59,345
56,002
Operating expense (1)
19,685
18,887
17,932
38,573
35,383
Pre-tax, pre-provision adjusted earnings (1)
10,847
9,925
10,012
20,772
20,619
Less:
Provision for loan and lease losses
(3,727
)
(855
)
(958
)
(4,582
)
(3,026
)
Net loss (gain) on foreclosed properties
8
12
(1
)
20
1
Amortization of other intangible assets
—
—
8
—
15
SBA recourse provision (benefit)
114
(76
)
245
38
115
Impairment (benefit) on tax credit investments
(351
)
—
—
(351
)
—
Add:
Net gain on sale of securities
—
—
29
—
29
Income before income tax expense
14,803
10,844
10,747
25,647
23,543
Income tax expense
3,599
2,172
2,512
5,771
5,577
Net income
$
11,204
$
8,672
$
8,235
$
19,876
$
17,966
Preferred stock dividends
246
—
—
246
—
Net income available to common shareholders
$
10,958
$
8,672
$
8,235
$
19,630
$
17,966
Earnings per share, diluted
$
1.29
$
1.02
$
0.95
$
2.31
$
2.08
Book value per share
$
28.08
$
27.46
$
25.70
$
28.08
$
25.70
Tangible book value per share (1)
$
26.63
$
26.02
$
24.28
$
26.63
$
24.28
Net interest margin (2)
3.71
%
3.39
%
3.49
%
3.55
%
3.46
%
Adjusted net interest margin (1)(2)
3.45
%
3.24
%
3.20
%
3.35
%
3.20
%
Fee income ratio (non-interest income / total revenue)
22.51
%
25.64
%
22.60
%
24.03
%
24.12
%
Efficiency ratio (1)
64.47
%
65.55
%
64.17
%
65.00
%
63.18
%
Return on average assets (2)
1.61
%
1.30
%
1.26
%
1.46
%
1.38
%
Pre-tax, pre-provision adjusted return on average assets (1)(2)
1.60
%
1.49
%
1.53
%
1.54
%
1.59
%
Return on average common equity (2)
18.79
%
14.47
%
15.09
%
16.74
%
16.75
%
Period-end loans and leases receivable
$
2,290,100
$
2,251,249
$
2,143,561
$
2,290,100
$
2,143,561
Specialized lending as a percent of total loans and leases
20.68
%
19.22
%
17.59
%
20.68
%
17.59
%
Average loans and leases receivable
$
2,272,946
$
2,244,642
$
2,223,353
$
2,258,872
$
2,203,267
Period-end in-market deposits
$
1,857,010
$
2,011,373
$
2,016,215
$
1,857,010
$
2,016,215
Average in-market deposits
$
1,900,842
$
1,932,576
$
1,735,393
$
1,916,622
$
1,728,787
Allowance for loan and lease losses
$
24,104
$
23,669
$
25,675
$
24,104
$
25,675
Non-performing assets
$
5,709
$
5,734
$
11,601
$
5,709
$
11,601
Allowance for loan and lease losses as a percent of total gross loans and leases
1.05
%
1.05
%
1.20
%
1.05
%
1.20
%
Non-performing assets as a percent of total assets
0.21
%
0.21
%
0.40
%
0.21
%
0.40
%
(1)
This is a non-GAAP financial measure. Management believes these measures are meaningful because they reflect adjustments commonly made by management, investors, regulators, and analysts to evaluate financial performance, provide greater understanding of ongoing operations, and enhance comparability of results with prior periods. See the section titled Non-GAAP Reconciliations at the end of this release for a reconciliation of GAAP financial measures to non-GAAP financial measures.
(2)
Calculation is annualized.
Quarterly Financial Results - Excluding PPP Loans, Interest Income, and Fees
(Unaudited)
As of and for the
Three Months Ended
As of and for the
Six Months Ended
(Dollars in thousands, except per share amounts)
June 30,
2022
March 31,
2022
June 30,
2021
June 30,
2022
June 30,
2021
Net interest income
$
23,435
$
21,125
$
18,545
$
44,561
$
36,592
Adjusted non-interest income (1)
6,872
7,386
6,292
14,258
13,487
Operating revenue (1)
30,307
28,511
24,837
58,819
50,079
Operating expense (1)
19,685
18,887
17,932
38,573
35,383
Pre-tax, pre-provision adjusted earnings (1)
$
10,622
$
9,624
$
6,905
$
20,246
$
14,696
Net interest margin (2)
3.69
%
3.37
%
3.29
%
3.53
%
3.30
%
Fee income ratio (non-interest income / total revenue)
22.67
%
25.91
%
25.42
%
24.24
%
26.97
%
Efficiency ratio (1)
64.95
%
66.24
%
72.20
%
65.58
%
70.65
%
Pre-tax, pre-provision adjusted return on average assets (1)(2)
1.57
%
1.46
%
1.15
%
1.51
%
1.24
%
Period-end loans and leases receivable
$
2,281,928
$
2,233,043
$
2,022,839
$
2,281,928
$
2,022,839
Specialized lending as a percent of total loans and leases
20.76
%
19.38
%
18.67
%
20.76
%
18.67
%
Average loans and leases receivable
$
2,261,296
$
2,223,707
$
1,994,188
$
2,242,606
$
1,967,599
Allowance for loan and lease losses as a percent of total gross loans and leases
1.06
%
1.06
%
1.27
%
1.06
%
1.27
%
Non-performing assets as a percent of total assets
0.21
%
0.21
%
0.42
%
0.21
%
0.42
%
(1)
This is a non-GAAP financial measure. Management believes these measures are meaningful because they reflect adjustments commonly made by management, investors, regulators, and analysts to evaluate financial performance, provide greater understanding of ongoing operations, and enhance comparability of results with prior periods. See the section titled Non-GAAP Reconciliations at the end of this release for a reconciliation of GAAP financial measures to non-GAAP financial measures.
(2)
Calculation is annualized.
Second Quarter 2022 Compared to First Quarter 2022
Net interest income increased $2.2 million, or 10.4%, to $23.7 million.
Net interest income growth was driven by an increase in average loans and leases, net interest margin expansion, and an increase in fees in lieu of interest, which included the recovery of $709,000 in interest from a previously charged-off legacy SBA loan relationship. Average loans and leases receivable increased $37.6 million, or 6.8% annualized, to $2.261 billion. Fees in lieu of interest, which can vary from quarter to quarter based on client-driven activity, totaled $1.9 million, compared to $1.3 million, and included $196,000 and $249,000 in PPP fees, respectively. Excluding fees in lieu of interest and interest income from PPP loans, net interest income increased $1.7 million, or 8.4%. Net interest margin was 3.71%, up 32 basis points compared to 3.39% in the linked quarter. Adjusted net interest margin was 3.45%, up 21 basis points compared to 3.24% in the linked quarter. The primary driver of improved net interest margin was a low deposit beta and higher earning asset yields in the current rising rate environment. The change in the yield of the respective interest-earning asset or the rate paid on interest-bearing liability compared to the change in short-term market rates is commonly referred to as a beta. Management defines short-term market rates as the daily average effective federal funds rate for purposes of estimating interest-earning asset and interest-bearing liability betas. Adjusted net interest margin is a non-GAAP measure representing net interest income excluding fees in lieu of interest and other recurring, but volatile, components of net interest margin divided by average interest-earning assets less average net PPP loans and other recurring, but volatile, components of average interest-earning assets. The yield on average interest-earning assets increased 40 basis points to 4.24% from 3.84%. Excluding average net PPP loans, PPP loan interest income, and fees in lieu of interest, the yield earned on average interest-earning assets increased 30 basis points to 3.96% from 3.66%. The rate paid for average interest-bearing, in-market deposits increased 10 basis points to 0.29% from 0.19%. The rate paid for average total bank funding increased 15 basis points to 0.46% from 0.31%. Total bank funding is defined as total deposits plus Federal Home Loan Bank (“FHLB”) advances. The daily average effective federal funds rate increased 65 basis points compared to the linked quarter, which equates to an in-market, interest-bearing deposit beta of 15% for the three months ended June 30, 2022. The Bank continues to maintain an asset-sensitive balance sheet and ended the quarter appropriately positioned for net interest income to continue to benefit; however, the Bank anticipates deposit betas will rise at a greater rate with further increases in the federal funds rate during the second half of the year, slowing the pace of net interest margin expansion.The Company reported a net benefit to provision for loan and lease losses of $3.7 million, compared to a $855,000 benefit in the first quarter of 2022.
The provision benefit in the second quarter of 2022 was primarily due to net recoveries of $4.2 million, partially offset by a $527,000 increase in the general reserve due to loan growth.Non-interest income decreased $514,000, or 7.0%, to $6.9 million.
Other fee income decreased $1.2 million to $860,000, compared to $2.1 million in the first quarter. The decrease is primarily due to above-average returns on the Company’s investments in mezzanine funds in the first quarter, which returned to historical levels in the second quarter. Private Wealth management fee income increased $11,000, or 0.4% to $2.9 million, despite lower market values during the second quarter. Private Wealth and trust assets under management and administration measured $2.554 billion at June 30, 2022, down $280.3 million, primarily due to a decrease in market valuations, which was partially offset by new business development. Gains on sale of SBA loans increased $366,000 to $951,000. Commercial loan swap fee income increased $246,000 to $471,000. Swap fee income can vary from period to period based on loan activity and the interest rate environment.Non-interest expense increased $633,000, or 3.4%, to $19.5 million, while operating expense increased $798,000, or 4.2%, to $19.7 million.
Compensation expense was $14.0 million, reflecting an increase of $382,000, or 2.8%, from the linked quarter due to a $474,000 one-time increase to the annual cash incentive bonus program accrual, as well as expanded hiring to support the Bank’s growth plans. Management believes there will be upward pressure on compensation throughout the remainder of the year as the Bank continues to opportunistically invest in new talent and retain existing talent in the competitive market. Average FTEs for the second quarter of 2022 were 321, up eleven from 310 in the linked quarter as management continued to focus on talent acquisition to support the Bank’s growth initiatives. Marketing expense increased $170,000, or 34.0%, to $670,000 primarily due to the increase in client entertainment and sponsorships as business development activities continue to increase towards pre-pandemic levels. Professional fees increased $128,000, or 10.9%, to $1.3 million from the linked quarter primarily due to an increase in recruiting expense. Data processing expense increased $112,000, or 14.4%, to $892,000 primarily due to the recurring annual expense related to tax processing on behalf of the Bank’s Private Wealth clients.Income tax expense increased $1.4 million, or 65.7%, to $3.6 million. The effective tax rate was 23.7% for the six months ended June 30, 2022, compared to 23.6% for the same period in 2021. For 2022, the Company expects to report an effective tax rate of approximately 23% as management intends to continue actively pursuing tax credit opportunities.
Total period-end loans and leases receivable increased $38.9 million, or 6.9% annualized, to $2.290 billion. Excluding net PPP loans, total period-end loans and leases receivable increased $48.9 million, or 8.8% annualized, to $2.282 billion.
Commercial and industrial (“C&I”) loans increased $20.7 million, or 11.6% annualized, to $741.4 million, compared to $720.7 million. Excluding PPP loans, C&I loans increased $30.9 million, or 17.6% annualized, due to an increase in specialized lending. Commercial real estate (“CRE”) loans increased by $18.8 million, or 5.1% annualized, to $1.488 billion, compared to $1.470 billion. Increases in construction financing, owner-occupied CRE, multi-family, and land development were offset by a decrease in non-owner occupied CRE loans.Total period-end in-market deposits decreased $154.4 million, or 30.7% annualized, to $1.857 billion, compared to $2.011 billion. The average rate paid was 0.20%, up seven basis points from 0.13% in the first quarter. The decline in balances was due to movement of client deposits to investment alternatives, seasonality within the Bank’s municipality clients, tax payments, and normal course of business for continuing client relationships.
”On the deposit front, the second quarter is typically seasonally weaker, due to tax payments and other business cycle reasons – just as the first quarter was seasonally strong,” said Corey Chambas. “What was unusual this quarter was several clients moved large amounts of deposits into investments and there were some large client distributions to investors, as well. Importantly, we have not lost any meaningful client relationships associated with these decreases in deposits. We believe a better measure of our deposit picture is that average deposits are up 10% from a year ago, and due to our Treasury Management sales success, service charge fee income is up 11% from a year ago.”
Period-end wholesale funding, including FHLB advances, brokered deposits, and deposits gathered through internet deposit listing services, increased $192.7 million to $566.4 million.
Wholesale deposits were $12.3 million in both periods. The average rate paid on wholesale deposits increased seven basis points to 2.98% and the weighted average original maturity was 4.8 years. FHLB advances increased $192.7 million to $554.1 million. The average rate paid on FHLB advances increased 40 basis points to 1.48% and the weighted average original maturity decreased to 3.2 years from 6.0 years.Non-performing assets were $5.7 million, or 0.21% of total assets, in both periods of comparison.
The allowance for loan and lease losses increased $435,000, or 1.8%, as an increase in the general reserve from loan growth was partially offset by a decrease in general reserve driven by a change in qualitative risk factors.
The allowance for loan and lease losses as a percent of total gross loans and leases was 1.05% in both periods of comparison (1.06% excluding net PPP loans).Second Quarter 2022 Compared to Second Quarter 2021
Net interest income increased $2.0 million, or 9.3%, to $23.7 million.
The increase in net interest income primarily reflects an increase in average gross loans and leases, partially offset by lower fees in lieu of interest. Fees in lieu of interest decreased from $3.5 million to $1.9 million, primarily due to a $2.3 million reduction in PPP loan fee amortization. Excluding fees in lieu of interest and interest income from PPP loans, net interest income increased $4.2 million, or 24.0%. Excluding net PPP loans, average gross loans and leases increased $267.1 million, or 13.4%. Net interest margin increased 22 basis points to 3.71% from 3.49%. Adjusted net interest margin increased 25 basis points to 3.45% from 3.20%. The yield on average interest-earning assets measured 4.24% compared to 3.96%. Excluding fees in lieu of interest, PPP loan interest income, and net PPP loans, the yield on average interest-earning assets measured 3.96%, compared to 3.64%. This increase in yield was primarily due to the increase in short-term market rates and the reinvestment of cash flows from the securities and fixed rate loan portfolios in a rising rate environment. The rate paid for average interest-bearing in-market deposits increased eight basis points to 0.29% from 0.21%. The rate paid for average total bank funding increased seven basis points to 0.46% from 0.39%.The Company reported a net benefit to provision for loan and lease losses of $3.7 million, compared to provision benefit of $958,000 in the second quarter of 2021. The reasons for the provision benefit are consistent with the explanations discussed above in the linked quarter comparison.
Non-interest income of $6.9 million increased by $551,000, or 8.7%, from $6.3 million in the prior year period.
Private Wealth management fee income increased $108,000, or 3.9%, to $2.9 million, despite a decline in market values, due to the addition of new money from existing clients. Private Wealth and trust assets under management and administration measured $2.554 billion at June 30, 2022, down $10.6 million, or 0.4%. Gains on sale of SBA loans decreased $252,000 to $951,000. Loan fees of $697,000 increased by $128,000, or 22.5%, primarily due to an increase in conventional, SBA, and Floorplan Financing activity generating additional service fee income. Commercial loan swap fee income was $471,000. There was no swap fee activity in the prior year quarter. Swap fee income varies from period to period based on loan activity and the interest rate environment in any given quarter. Service charges on deposits increased $100,000, or 10.6%, to $1.0 million compared to $941,000, due to an increase in existing and new deposit client relationships.Non-interest expense increased $1.3 million, or 7.0%, to $19.5 million. Operating expense increased $1.8 million, or 9.8%, to $19.7 million.
Compensation expense increased $765,000, or 5.8%, to $14.0 million. Average FTEs were 321 in the second quarter of 2022, compared to 312 in the second quarter of 2021. The reasons for the increase in compensation expense are consistent with the explanations discussed above in the linked quarter analysis. Professional fees increased $385,000, or 42.2%, to $1.3 million, primarily due to an increase in recruiting expense, audit expenses, and a general increase in other professional consulting services for various projects. Marketing expense increased $159,000, or 31.1%, to $670,000 mainly due to an increase in business development activities as the Company continues to return to pre-pandemic spending levels.Total period-end loans and leases receivable increased $146.5 million, or 6.8%, to $2.290 billion. Excluding net PPP loans, total period-end loans and leases receivable increased $259.1 million, or 12.8%, to $2.282 billion.
C&I loans increased $45.9 million, or 6.6% to $741.4 million. Excluding PPP loans, C&I loans increased $161.5 million, or 28.2%, to $733.1 million due to an increase in conventional and specialized Commercial Lending. Management believes this growth rate will moderate to lower double-digits as the Company’s specialized lending products scale over time. CRE loans increased $96.5 million, or 6.9%, primarily due to an increase in non-owner-occupied real estate and construction financing.Total period-end in-market deposits decreased $159.2 million, or 7.9%, to $1.857 billion and the average rate paid increased five basis points to 0.20%. This decrease in deposits was principally due to a $274.7 million decrease in transaction accounts, partially offset by a $68.9 million and $46.6 million increase in certificates of deposit and money market accounts, respectively. The reasons for the decrease in deposits are consistent with the explanations discussed above in the linked quarter comparison.
Period-end wholesale funding increased $34.1 million to $566.4 million.
Wholesale deposits decreased $132.2 million to $12.3 million, compared to $144.5 million, as the existing portfolio runoff was replaced by FHLB advances. The average rate paid on brokered certificates of deposit increased 224 basis points to 2.98% and the weighted average original maturity increased to 4.8 years from 3.5 years. FHLB advances increased $166.3 million to $554.1 million. The average rate paid on FHLB advances increased 21 basis points to 1.48% and the weighted average original maturity decreased to 3.2 years from 6.1 years.Non-performing assets decreased to $5.7 million, or 0.21% of total assets, compared to $11.6 million, or 0.40% of total assets. Excluding net PPP loans, non-performing assets decreased to 0.21% of total assets compared to 0.42%.
The allowance for loan and lease losses decreased $1.6 million to $24.1 million, compared to $25.7 million.
The allowance for loan and lease losses as a percent of total gross loans and leases was 1.05% compared to 1.20%. Excluding net PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.06% compared to 1.27%.Paycheck Protection Program
As of June 30, 2022, the Company had $8.3 million in gross PPP loans outstanding and deferred processing fees outstanding of $113,000. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness, as an adjustment of yield using the interest method. During the three months ended June 30, 2022, the Company recognized $196,000 of PPP processing fees 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.
Share Repurchase Program Update
As previously announced, effective March 4, 2022, the Company’s Board of Directors authorized the repurchase by the Company of shares of its common stock with a maximum aggregate purchase price of $5.0 million, effective March 4, 2022 through March 4, 2023. For the six months ended June 30, 2022, the Company repurchased a total of 30,600 shares for approximately $1.0 million at an average cost of $33.28 per share.
About First Business Financial Services, Inc.
First Business Financial Services, Inc., (Nasdaq: FBIZ) is the parent company of First Business Bank. First Business Bank specializes in Business Banking, including Commercial Banking and Specialized Lending, Private Wealth, and Bank Consulting services, and through its refined focus, delivers unmatched expertise, accessibility, and responsiveness. Specialized Lending solutions are delivered through First Business Bank’s wholly owned subsidiary First Business Specialty Finance, LLC. For additional information, visit www.firstbusiness.bank.
This release may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which reflect First Business Bank’s current views with respect to future events and financial performance. Forward-looking statements are not based on historical information, but rather are related to future operations, strategies, financial results, or other developments. Forward-looking statements are based on management’s expectations as well as certain assumptions and estimates made by, and information available to, management at the time the statements are made. Those statements are based on general assumptions and are subject to various risks, uncertainties, and other factors that may cause actual results to differ materially from the views, beliefs, and projections expressed in such statements. Such statements are subject to risks and uncertainties, including among other things:
Adverse changes in the economy or business conditions, either nationally or in our markets including, without limitation, inflation, supply chain issues, labor shortages, and the adverse effects of the COVID-19 pandemic on the global, national, and local economy. Competitive pressures among depository and other financial institutions nationally and in the Company’s markets. Increases in defaults by borrowers and other delinquencies. Management’s ability to manage growth effectively, including the successful expansion of our client service, administrative infrastructure, and internal management systems. Fluctuations in interest rates and market prices. Changes in legislative or regulatory requirements applicable to the Company and its subsidiaries. Changes in tax requirements, including tax rate changes, new tax laws, and revised tax law interpretations. Fraud, including client and system failure or breaches of our network security, including the Company’s internet banking activities. Failure to comply with the applicable SBA regulations in order to maintain the eligibility of the guaranteed portion of SBA loans.For further information about the factors that could affect the Company’s future results, please see the Company’s annual report on Form 10-K for the year ended December 31, 2021 and other filings with the Securities and Exchange Commission.
SELECTED FINANCIAL CONDITION DATA
(Unaudited)
As of
(in thousands)
June 30,
2022
March 31,
2022
December 31,
2021
September 30,
2021
June 30,
2021
Assets
Cash and cash equivalents
$
95,484
$
95,603
$
57,110
$
110,624
$
389,977
Securities available-for-sale, at fair value
208,643
223,631
205,702
194,056
171,219
Securities held-to-maturity, at amortized cost
13,968
17,267
19,746
21,196
22,382
Loans held for sale
2,256
2,418
3,570
5,603
6,059
Loans and leases receivable
2,290,100
2,251,249
2,239,408
2,123,306
2,143,561
Allowance for loan and lease losses
(24,104
)
(23,669
)
(24,336
)
(24,676
)
(25,675
)
Loans and leases receivable, net
2,265,996
2,227,580
2,215,072
2,098,630
2,117,886
Premises and equipment, net
1,899
1,621
1,694
1,700
1,747
Foreclosed properties
124
117
164
172
179
Right-of-use assets
5,772
6,118
4,910
5,263
5,472
Bank-owned life insurance
54,324
53,974
53,600
53,244
52,887
Federal Home Loan Bank stock, at cost
22,959
12,863
13,336
12,351
13,451
Goodwill and other intangible assets
12,262
12,184
12,268
12,229
12,178
Derivatives
44,461
26,890
26,343
28,678
32,377
Accrued interest receivable and other assets
48,868
43,816
39,390
40,664
39,855
Total assets
$
2,777,016
$
2,724,082
$
2,652,905
$
2,584,410
$
2,865,669
Liabilities and Stockholders’ Equity
In-market deposits
$
1,857,010
$
2,011,373
$
1,928,285
$
1,829,644
$
2,016,215
Wholesale deposits
12,321
12,321
29,638
74,638
144,492
Total deposits
1,869,331
2,023,694
1,957,923
1,904,282
2,160,707
Federal Home Loan Bank advances and other borrowings
596,642
414,487
403,451
394,090
420,113
Junior subordinated notes
—
—
10,076
10,072
10,069
Lease liabilities
7,207
7,580
5,406
5,780
6,005
Derivatives
40,357
24,961
28,283
31,890
36,109
Accrued interest payable and other liabilities
13,556
8,309
15,344
13,016
11,214
Total liabilities
2,527,093
2,479,031
2,420,483
2,359,130
2,644,217
Total stockholders’ equity
249,923
245,051
232,422
225,280
221,452
Total liabilities and stockholders’ equity
$
2,777,016
$
2,724,082
$
2,652,905
$
2,584,410
$
2,865,669
STATEMENTS OF INCOME
(Unaudited)
As of and for the Three Months Ended
As of and for the
Year Ended
(Dollars in thousands, except per share amounts)
June 30,
2022
March 31,
2022
December 31,
2021
September 30,
2021
June 30,
2021
June 30,
2022
June 30,
2021
Total interest income
$
27,031
$
24,235
$
23,576
$
24,014
$
24,599
$
51,266
$
48,406
Total interest expense
3,371
2,809
2,652
2,791
2,947
6,179
5,891
Net interest income
23,660
21,426
20,924
21,223
21,652
45,087
42,515
Provision for loan and lease losses
(3,727
)
(855
)
(508
)
(2,269
)
(958
)
(4,582
)
(3,026
)
Net interest income after provision for loan and lease losses
27,387
22,281
21,432
23,492
22,610
49,669
45,541
Private wealth management service fees
2,852
2,841
2,874
2,759
2,744
5,693
5,151
Gain on sale of SBA loans
951
585
1,042
721
1,203
1,537
2,281
Service charges on deposits
1,041
999
1,023
956
941
2,040
1,859
Loan fees
697
652
679
713
569
1,349
1,114
Net gain on sale of securities
—
—
—
—
29
—
29
Swap fees
471
225
684
—
—
697
684
Other non-interest income
860
2,084
1,267
1,866
835
2,942
2,398
Total non-interest income
6,872
7,386
7,569
7,015
6,321
14,258
13,516
Compensation
14,020
13,638
12,447
13,351
13,255
27,658
25,912
Occupancy
568
555
551
544
533
1,123
1,085
Professional fees
1,298
1,170
933
1,024
913
2,468
1,778
Data processing
892
780
773
746
798
1,673
1,569
Marketing
670
500
548
572
511
1,170
902
Equipment
235
244
223
260
261
479
506
Computer software
1,117
1,082
1,017
999
1,129
2,199
2,244
FDIC insurance
296
313
210
291
280
610
642
Other non-interest expense
360
541
829
703
504
900
876
Total non-interest expense
19,456
18,823
17,531
18,490
18,184
38,280
35,514
Income before income tax expense
14,803
10,844
11,470
12,017
10,747
25,647
23,543
Income tax expense
3,599
2,172
2,879
2,819
2,512
5,771
5,577
Net income
$
11,204
$
8,672
$
8,591
$
9,198
$
8,235
$
19,876
$
17,966
Preferred stock dividends
246
—
—
—
—
246
—
Net income available to common shareholders
$
10,958
$
8,672
$
8,591
$
9,198
$
8,235
$
19,630
$
17,966
Per common share:
Basic earnings
$
1.29
$
1.02
$
1.01
$
1.07
$
0.95
$
2.31
$
2.08
Diluted earnings
1.29
1.02
1.01
1.07
0.95
2.31
2.08
Dividends declared
0.1975
0.1975
0.18
0.18
0.18
0.395
0.36
Book value
28.08
27.46
27.48
26.56
25.70
28.08
25.70
Tangible book value
26.63
26.02
26.03
25.11
24.28
26.63
24.28
Weighted-average common shares outstanding(1)
8,225,838
8,232,142
8,228,311
8,340,042
8,385,069
8,245,317
8,381,868
Weighted-average diluted common shares outstanding(1)
8,225,838
8,232,142
8,228,311
8,340,042
8,385,069
8,245,317
8,381,868
(1)
Excluding participating securities.
NET INTEREST INCOME ANALYSIS
(Unaudited)
For the Three Months Ended
(Dollars in thousands)
June 30, 2022
March 31, 2022
June 30, 2021
Average
Balance
Interest
Average
Yield/Rate(4)
Average
Balance
Interest
Average
Yield/Rate(4)
Average
Balance
Interest
Average
Yield/Rate(4)
Interest-earning assets
Commercial real estate and other mortgage loans(1)
$
1,472,075
$
15,343
4.17
%
$
1,459,891
$
13,346
3.66
%
$
1,386,187
$
13,087
3.78
%
Commercial and industrial loans(1)
734,299
9,710
5.29
%
718,364
9,101
5.07
%
772,257
9,875
5.11
%
Direct financing leases(1)
15,527
176
4.53
%
16,540
189
4.57
%
19,883
222
4.47
%
Consumer and other loans(1)
51,045
458
3.59
%
49,847
436
3.50
%
45,026
407
3.62
%
Total loans and leases receivable(1)
2,272,946
25,687
4.52
%
2,244,642
23,072
4.11
%
2,223,353
23,591
4.24
%
Mortgage-related securities(2)
176,747
804
1.82
%
184,962
760
1.64
%
149,253
631
1.69
%
Other investment securities(3)
54,591
260
1.91
%
50,555
215
1.70
%
41,569
185
1.78
%
FHLB stock
17,355
226
5.21
%
14,002
172
4.91
%
14,172
176
4.97
%
Short-term investments
29,541
54
0.73
%
31,111
16
0.21
%
55,100
16
0.12
%
Total interest-earning assets
2,551,180
27,031
4.24
%
2,525,272
24,235
3.84
%
2,483,447
24,599
3.96
%
Non-interest-earning assets
165,527
140,969
137,893
Total assets
$
2,716,707
$
2,666,241
$
2,621,340
Interest-bearing liabilities
Transaction accounts
$
502,763
343
0.27
%
$
533,251
255
0.19
%
$
499,040
248
0.20
%
Money market
767,433
509
0.27
%
784,276
338
0.17
%
662,919
282
0.17
%
Certificates of deposit
73,560
114
0.62
%
52,519
55
0.42
%
45,993
112
0.97
%
Wholesale deposits
12,350
92
2.98
%
16,236
118
2.91
%
162,580
301
0.74
%
Total interest-bearing deposits
1,356,106
1,058
0.31
%
1,386,282
766
0.22
%
1,370,532
943
0.28
%
FHLB advances
449,599
1,666
1.48
%
385,080
1,036
1.08
%
405,855
1,284
1.27
%
Other borrowings
51,018
647
5.07
%
40,311
503
4.99
%
32,447
443
5.46
%
Junior subordinated notes(5)
—
—
—
%
9,850
504
20.47
%
10,066
277
11.01
%
Total interest-bearing liabilities
1,856,723
3,371
0.73
%
1,821,523
2,809
0.62
%
1,818,900
2,947
0.65
%
Non-interest-bearing demand deposit accounts
557,086
562,530
527,441
Other non-interest-bearing liabilities
57,615
42,537
56,691
Total liabilities
2,471,424
2,426,590
2,403,032
Stockholders’ equity
245,283
239,651
218,308
Total liabilities and stockholders’ equity
$
2,716,707
$
2,666,241
$
2,621,340
Net interest income
$
23,660
$
21,426
$
21,652
Interest rate spread
3.51
%
3.22
%
3.31
%
Net interest-earning assets
$
694,457
$
703,749
$
664,547
Net interest margin
3.71
%
3.39
%
3.49
%
(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.
(5)
The calculation for the three months ended June 30, 2022 and March 31, 2022 includes $12,000 and $236,000, respectively, in accelerated amortization of debt issuance costs.
NET INTEREST INCOME ANALYSIS
(Unaudited)
For the Six Months Ended
(Dollars in thousands)
June 30, 2022
June 30, 2021
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)
$
1,466,017
$
28,689
3.91
%
$
1,371,744
$
25,615
3.73
%
Commercial and industrial loans(1)
726,376
18,811
5.18
%
765,117
19,500
5.10
%
Direct financing leases(1)
16,030
365
4.55
%
21,071
466
4.42
%
Consumer and other loans(1)
50,449
894
3.54
%
45,335
805
3.55
%
Total loans and leases receivable(1)
2,258,872
48,759
4.32
%
2,203,267
46,386
4.21
%
Mortgage-related securities(2)
180,832
1,564
1.73
%
156,249
1,297
1.66
%
Other investment securities(3)
52,584
475
1.81
%
41,871
372
1.78
%
FHLB stock
15,688
398
5.07
%
13,323
329
4.94
%
Short-term investments
30,321
70
0.46
%
39,922
22
0.11
%
Total interest-earning assets
2,538,297
51,266
4.04
%
2,454,632
48,406
3.94
%
Non-interest-earning assets
153,316
144,741
Total assets
$
2,691,613
$
2,599,373
Interest-bearing liabilities
Transaction accounts
$
517,923
597
0.23
%
$
510,024
498
0.20
%
Money market
775,808
848
0.22
%
660,319
557
0.17
%
Certificates of deposit
63,098
169
0.54
%
51,677
288
1.11
%
Wholesale deposits
14,282
210
2.94
%
164,654
619
0.75
%
Total interest-bearing deposits
1,371,111
1,824
0.27
%
1,386,674
1,962
0.28
%
FHLB advances
417,518
2,702
1.29
%
386,371
2,533
1.31
%
Other borrowings
45,694
1,149
5.03
%
29,886
844
5.65
%
Junior subordinated notes(5)
4,898
504
20.58
%
10,064
552
10.97
%
Total interest-bearing liabilities
1,839,221
6,179
0.67
%
1,812,995
5,891
0.65
%
Non-interest-bearing demand deposit accounts
559,793
506,767
Other non-interest-bearing liabilities
50,117
65,146
Total liabilities
2,449,131
2,384,908
Stockholders’ equity
242,482
214,465
Total liabilities and stockholders’ equity
$
2,691,613
$
2,599,373
Net interest income
$
45,087
$
42,515
Interest rate spread
3.37
%
3.29
%
Net interest-earning assets
$
699,076
$
641,637
Net interest margin
3.55
%
3.46
%
(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.
(5)
The calculation for the six months ended June 30, 2022, 2022 includes $248,000 in accelerated amortization of debt issuance costs.
PROVISION FOR LOAN AND LEASE LOSS COMPOSITION
(Unaudited)
For the Three Months Ended
For the Six Months Ended
(Dollars in thousands)
June 30,
2022
March 31,
2022
December 31,
2021
September 30,
2021
June 30,
2021
June 30,
2022
June 30,
2021
Change in general reserve due to subjective factor changes
$
(185
)
$
(416
)
$
(805
)
$
(51
)
$
(652
)
$
(601
)
$
430
Change in general reserve due to historical loss factor changes
64
(206
)
(862
)
(923
)
(1,687
)
(142
)
(2,671
)
Charge-offs
85
22
106
364
2,894
107
3,038
Recoveries
(4,247
)
(210
)
(274
)
(1,634
)
(545
)
(4,457
)
(3,218
)
Change in specific reserves on impaired loans, net
29
(280
)
(64
)
(451
)
(1,466
)
(251
)
(1,660
)
Change due to loan growth, net
527
235
1,391
426
498
762
1,055
Total provision for loan and lease losses
$
(3,727
)
$
(855
)
$
(508
)
$
(2,269
)
$
(958
)
$
(4,582
)
$
(3,026
)
PERFORMANCE RATIOS
For the Three Months Ended
For the Six Months Ended
(Unaudited)
June 30,
2022
March 31,
2022
December 31,
2021
September 30,
2021
June 30,
2021
June 30,
2022
June 30,
2021
Return on average assets (annualized)
1.61
%
1.30
%
1.32
%
1.41
%
1.26
%
1.46
%
1.38
%
Return on average common equity (annualized)
18.79
%
14.47
%
15.04
%
16.39
%
15.09
%
16.74
%
16.75
%
Efficiency ratio
64.47
%
65.55
%
61.92
%
65.68
%
64.17
%
65.00
%
63.18
%
Interest rate spread
3.51
%
3.22
%
3.21
%
3.27
%
3.31
%
3.37
%
3.29
%
Net interest margin
3.71
%
3.39
%
3.39
%
3.45
%
3.49
%
3.55
%
3.46
%
Average interest-earning assets to average interest-bearing liabilities
137.40
%
138.64
%
141.19
%
139.19
%
136.54
%
138.01
%
135.39
%
ASSET QUALITY RATIOS
(Unaudited)
As of
(Dollars in thousands)
June 30,
2022
March 31,
2022
December 31,
2021
September 30,
2021
June 30,
2021
Non-accrual loans and leases
$
5,585
$
5,617
$
6,358
$
7,433
$
11,422
Foreclosed properties
124
117
164
172
179
Total non-performing assets
5,709
5,734
6,522
7,605
11,601
Performing troubled debt restructurings
188
203
217
53
56
Total impaired assets
$
5,897
$
5,937
$
6,739
$
7,658
$
11,657
Non-accrual loans and leases as a percent of total gross loans and leases
0.24
%
0.25
%
0.28
%
0.35
%
0.53
%
Non-performing assets as a percent of total gross loans and leases plus foreclosed properties
0.25
%
0.25
%
0.29
%
0.36
%
0.54
%
Non-performing assets as a percent of total assets
0.21
%
0.21
%
0.25
%
0.29
%
0.40
%
Allowance for loan and lease losses as a percent of total gross loans and leases
1.05
%
1.05
%
1.09
%
1.16
%
1.20
%
Allowance for loan and lease losses as a percent of non-accrual loans and leases
431.58
%
421.38
%
382.76
%
331.98
%
224.79
%
ASSET QUALITY RATIOS - EXCLUDING NET PPP LOANS
(Unaudited)
As of
(Dollars in thousands)
June 30,
2022
March 31,
2022
December 31,
2021
September 30,
2021
June 30,
2021
Non-accrual loans and leases as a percent of total gross loans and leases
0.24
%
0.25
%
0.29
%
0.36
%
0.56
%
Non-performing assets as a percent of total gross loans and leases plus foreclosed properties
0.25
%
0.26
%
0.29
%
0.37
%
0.57
%
Non-performing assets as a percent of total assets
0.21
%
0.21
%
0.25
%
0.30
%
0.42
%
Allowance for loan and lease losses as a percent of total gross loans and leases
1.06
%
1.06
%
1.10
%
1.20
%
1.27
%
PPP loans outstanding, net
$
8,172
$
18,206
$
27,297
$
64,454
$
120,723
NET CHARGE-OFFS (RECOVERIES)
(Unaudited)
For the Three Months Ended
For the Six Months Ended
(Dollars in thousands)
June 30,
2022
March 31,
2022
December 31,
2021
September 30,
2021
June 30,
2021
June 30,
2022
June 30,
2021
Charge-offs
$
85
$
22
$
106
$
364
$
2,894
$
107
$
3,038
Recoveries
(4,247
)
(210
)
(274
)
(1,634
)
(545
)
(4,457
)
(3,218
)
Net (recoveries) charge-offs
$
(4,162
)
$
(188
)
$
(168
)
$
(1,270
)
$
2,349
$
(4,350
)
$
(180
)
Net (recoveries) charge-offs as a percent of average gross loans and leases (annualized)
(0.73
)%
(0.03
)%
(0.03
)%
(0.24
)%
0.42
%
(0.39
)%
(0.02
)%
Annualized (recoveries) charge-offs as a percent of average gross loans and leases, excluding average net PPP loans
(0.74
)%
(0.03
)%
(0.03
)%
(0.25
)%
0.47
%
(0.39
)%
(0.02
)%
Average PPP loans outstanding, net
$
11,650
$
20,935
$
52,923
$
87,517
$
229,165
$
16,266
$
235,668
CAPITAL RATIOS
As of and for the Three Months Ended
(Unaudited)
June 30,
2022
March 31,
2022
December 31,
2021
September 30,
2021
June 30,
2021
Total capital to risk-weighted assets
11.56
%
11.87
%
10.82
%
11.14
%
11.22
%
Tier I capital to risk-weighted assets
9.34
%
9.27
%
8.94
%
9.14
%
9.14
%
Common equity tier I capital to risk-weighted assets
8.90
%
8.81
%
8.55
%
8.73
%
8.72
%
Tier I capital to adjusted assets
9.19
%
9.09
%
8.94
%
8.69
%
8.48
%
Tangible common equity to tangible assets
8.16
%
8.14
%
8.34
%
8.28
%
7.33
%
Tangible common equity to tangible assets, excluding net PPP loans
8.19
%
8.20
%
8.42
%
8.50
%
7.66
%
LOAN AND LEASE RECEIVABLE COMPOSITION
(Unaudited)
As of
(in thousands)
June 30,
2022
March 31,
2022
December 31,
2021
September 30,
2021
June 30,
2021
Commercial real estate:
Commercial real estate - owner occupied
$
258,375
$
254,237
$
235,589
$
241,977
$
253,600
Commercial real estate - non-owner occupied
651,920
656,185
661,423
639,423
614,289
Land development
42,545
40,092
42,792
39,119
45,056
Construction
203,913
200,472
179,841
139,933
139,943
Multi-family
314,392
302,494
320,072
313,787
319,351
1-4 family
17,335
16,198
14,911
13,487
19,769
Total commercial real estate
1,488,480
1,469,678
1,454,628
1,387,726
1,392,008
Commercial and industrial
741,363
720,695
730,819
681,065
695,442
Direct financing leases, net
13,718
14,551
15,743
16,810
18,142
Consumer and other:
Home equity and second mortgages
5,132
4,523
4,223
4,576
5,740
Other
42,387
43,066
35,518
35,645
36,567
Total consumer and other
47,519
47,589
39,741
40,221
42,307
Total gross loans and leases receivable
2,291,080
2,252,513
2,240,931
2,125,822
2,147,899
Less:
Allowance for loan and lease losses
24,104
23,669
24,336
24,676
25,675
Deferred loan fees
980
1,264
1,523
2,516
4,338
Loans and leases receivable, net
$
2,265,996
$
2,227,580
$
2,215,072
$
2,098,630
$
2,117,886
DEPOSIT COMPOSITION
(Unaudited)
As of
(in thousands)
June 30,
2022
March 31,
2022
December 31,
2021
September 30,
2021
June 30,
2021
Non-interest-bearing transaction accounts
$
544,507
$
600,987
$
589,559
$
526,047
$
774,253
Interest-bearing transaction accounts
466,785
539,492
530,225
517,248
511,698
Money market accounts
731,718
806,917
754,410
728,751
685,127
Certificates of deposit
114,000
63,977
54,091
57,598
45,137
Wholesale deposits
12,321
12,321
29,638
74,638
144,492
Total deposits
$
1,869,331
$
2,023,694
$
1,957,923
$
1,904,282
$
2,160,707
TRUST ASSETS COMPOSITION
(Unaudited)
As of
(in thousands)
June 30,
2022
March 31,
2022
December 31,
2021
September 30,
2021
June 30,
2021
Trust assets under management
$
2,386,637
$
2,636,896
$
2,711,760
$
2,545,089
$
2,362,257
Trust assets under administration
167,095
197,160
208,954
202,657
202,116
Total trust assets
$
2,553,732
$
2,834,056
$
2,920,714
$
2,747,746
$
2,564,373
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,
2022
March 31,
2022
December 31,
2021
September 30,
2021
June 30,
2021
Common stockholders’ equity
$
237,931
$
233,059
$
232,422
$
225,280
$
221,452
Goodwill and other intangible assets
(12,262
)
(12,184
)
(12,268
)
(12,229
)
(12,178
)
Tangible common equity
$
225,669
$
220,875
$
220,154
$
213,051
$
209,274
Common shares outstanding
8,474,699
8,488,585
8,457,564
8,483,099
8,617,761
Book value per share
$
28.08
$
27.46
$
27.48
$
26.56
$
25.70
Tangible book value per share
26.63
26.02
26.03
25.11
24.28
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,
2022
March 31,
2022
December 31,
2021
September 30,
2021
June 30,
2021
Common stockholders’ equity
$
237,931
$
233,052
$
232,422
$
225,280
$
221,452
Goodwill and other intangible assets
(12,262
)
(12,184
)
(12,268
)
(12,229
)
(12,178
)
Tangible common equity
$
225,669
$
220,875
$
220,154
$
213,051
$
209,274
Total assets
$
2,777,016
$
2,724,082
$
2,652,905
$
2,584,410
$
2,865,669
Goodwill and other intangible assets
(12,262
)
(12,184
)
(12,268
)
(12,229
)
(12,178
)
Tangible assets
$
2,764,754
$
2,711,898
$
2,640,637
$
2,572,181
$
2,853,491
Tangible common equity to tangible assets
8.16
%
8.14
%
8.34
%
8.28
%
7.33
%
Period-end net PPP loans
8,172
18,206
27,297
64,454
120,722
Tangible assets, excluding net PPP loans
$
2,756,582
$
2,693,692
$
2,613,340
$
2,507,727
$
2,732,769
Tangible common equity to tangible assets, excluding net PPP loans
8.19
%
8.20
%
8.42
%
8.50
%
7.66
%
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,
2022
March 31,
2022
December 31,
2021
September 30,
2021
June 30,
2021
June 30,
2022
June 30,
2021
Total non-interest expense
$
19,456
$
18,823
$
17,531
$
18,490
$
18,184
$
38,280
$
35,514
Less:
Net loss (gain) on foreclosed properties
8
12
7
6
(1
)
20
1
Amortization of other intangible assets
—
—
2
7
8
—
15
SBA recourse provision (benefit)
114
(76
)
(122
)
(69
)
245
38
115
Tax credit investment impairment recovery
(351
)
—
—
—
—
(351
)
—
Total operating expense (a)
$
19,685
$
18,887
$
17,644
$
18,546
$
17,932
$
38,573
$
35,383
Net interest income
$
23,660
$
21,426
$
20,924
$
21,223
$
21,652
$
45,087
$
42,515
Total non-interest income
6,872
7,386
7,569
7,015
6,321
14,258
13,516
Less:
Net gain on sale of securities
—
—
—
—
29
—
29
Adjusted non-interest income
6,872
7,386
7,569
7,015
6,292
14,258
13,487
Total operating revenue (b)
$
30,532
$
28,812
$
28,493
$
28,238
$
27,944
$
59,345
$
56,002
Efficiency ratio
64.47
%
65.55
%
61.92
%
65.68
%
64.17
%
65.00
%
63.18
%
Pre-tax, pre-provision adjusted earnings (b - a)
$
10,847
$
9,925
$
10,849
$
9,692
$
10,012
$
20,772
$
20,619
Less:
PPP fee income
196
249
892
1,666
2,541
445
4,754
PPP loan interest income
29
52
134
221
566
81
1,169
Pre-tax, pre-provision adjusted earnings, excluding PPP
$
10,622
$
9,624
$
9,823
$
7,805
$
6,905
$
20,246
$
14,696
Average total assets
$
2,716,707
$
2,666,241
$
2,612,905
$
2,608,198
$
2,621,340
$
2,691,613
$
2,599,373
Less:
Average net PPP loans
11,650
20,935
52,923
87,517
229,165
16,266
235,668
Adjusted average total assets
$
2,705,057
$
2,645,306
$
2,559,982
$
2,520,681
$
2,392,175
$
2,675,347
$
2,363,705
Pre-tax, pre-provision adjusted return on average assets
1.60
%
1.49
%
1.66
%
1.49
%
1.53
%
1.54
%
1.59
%
Pre-tax, pre-provision adjusted return on average assets, excluding PPP
1.57
%
1.46
%
1.53
%
1.24
%
1.15
%
1.51
%
1.24
%
ADJUSTED NET INTEREST MARGIN
“Adjusted Net Interest Margin” is a non-GAAP measure representing net interest income excluding the fees in lieu of interest and other recurring, but volatile, components of net interest margin divided by average interest-earning assets less average net PPP loans, if any, and other recurring, but volatile, components of average interest-earning assets. Fees in lieu of interest are defined as prepayment fees, asset-based loan fees, non-accrual interest, and loan fee amortization. In the judgment of the Company’s management, the adjustments made to net interest income allow investors and analysts to better assess the Company’s net interest income in relation to its core client-facing loan and deposit rate changes by removing the volatility that is associated with these recurring but volatile components. The information provided below reconciles the net interest margin to its most comparable GAAP measure.
(Unaudited)
For the Three Months Ended
For the Six Months Ended
(Dollars in thousands)
June 30,
2022
March 31,
2022
December 31,
2021
September 30,
2021
June 30,
2021
June 30,
2022
June 30,
2021
Interest income
$
27,031
$
24,235
$
23,576
$
24,014
$
24,599
$
51,266
$
48,406
Interest expense
3,371
2,809
2,652
2,791
2,947
6,179
5,891
Net interest income (a)
23,660
21,426
20,924
21,223
21,652
45,087
42,515
Less:
Fees in lieu of interest
1,865
1,293
1,700
2,839
3,536
3,158
6,621
PPP loan interest income
29
52
134
221
566
81
1,169
FRB interest income and FHLB dividend income
279
188
179
212
192
467
350
Adjusted net interest income (b)
$
21,487
$
19,893
$
18,911
$
17,951
$
17,358
$
41,381
$
34,375
Average interest-earning assets (c)
$
2,551,180
$
2,525,272
$
2,472,013
$
2,460,567
$
2,483,447
$
2,538,297
$
2,454,632
Less:
Average net PPP loans
11,650
20,935
52,923
87,517
229,165
16,266
235,668
Average FRB cash and FHLB stock
46,334
44,577
71,939
129,469
68,503
45,461
52,661
Average non-accrual loans and leases
5,429
6,195
6,796
11,298
16,744
5,810
19,392
Adjusted average interest-earning assets (d)
$
2,487,767
$
2,453,565
$
2,340,355
$
2,232,283
$
2,169,035
$
2,470,760
$
2,146,911
Net interest margin (a / c)
3.71
%
3.39
%
3.39
%
3.45
%
3.49
%
3.55
%
3.46
%
Adjusted net interest margin (b / d)
3.45
%
3.24
%
3.23
%
3.22
%
3.20
%
3.35
%
3.20
%
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