MADISON, Wis.–()–First Business Financial Services, Inc. (the “Company”, the “Bank”, or “First Business Bank”) (Nasdaq:FBIZ) reported net income of $9.2 million, or $1.07 diluted earnings per share, in the third quarter 2021. Third quarter net income grew by 11.7% from $8.2 million, or $0.95 per share, in the second quarter of 2021 and more than doubled from $4.3 million, or $0.50, in the third quarter of 2020.

“First Business Bank’s excellent third quarter results include profitable top line revenue growth illustrating the strength and diversification of our fee generating businesses, net interest margin stability, and our team’s ability to organically grow commercial loans,” President and Chief Executive Officer Corey Chambas said. “Excluding PPP loans, we achieved another quarter of solid loan growth and our record pipelines continue to support our expectation for double-digit organic loan growth for full-year 2021 and 2022. As expected, our discipline around credit resulted in further improvement to our asset quality metrics, with nonperforming assets declining to just 0.29% of total assets, the lowest level since 2006. Our results were further supported by a loan loss provision benefit in the third quarter and, based on current economic trends, we continue to expect no meaningful provision in the fourth quarter and anticipate continued opportunities to release reserves in 2022.”

Quarterly Highlights

  • Continued Loan Growth. Loans, excluding Paycheck Protection Program (“PPP”) loans, grew $36.0 million, or 7.1% annualized, from the second quarter of 2021 and $214.0 million, or 11.6%, from the third quarter of 2020, as the Company continued to expand specialized lending offerings for commercial clients and focus on growing our businesses across all products and geographies.
  • Sustained Strong Revenue Growth. Driven by net interest margin stability and fee income growth, top line revenue, the sum of net interest income and non-interest income, grew to $28.2 million, up 8.5% from the third quarter of 2020. Third quarter 2021 non-interest income continued to reflect the strength and diversity of our fee income sources, including record revenue from private wealth management of $2.8 million on $2.7 billion in assets under management and administration for the period.
  • Positive Asset Quality Trends. Non-performing assets (“NPAs”) declined 34.4% to $7.6 million, or 0.29% of total assets, marking the fourth consecutive quarterly reduction of more than 25%. NPAs made up 0.30% of total assets, excluding net PPP loans, improving by 12 and 131 basis points from June 30, 2021 and September 30, 2020, respectively.
  • Compounding Tangible Book Value. Tangible Book Value (“TBV”) per share grew by 14% annualized in the quarter to $25.11, which is nearly double the long-term growth rate of 8%.

Quarterly Financial Results

(Unaudited)

 

As of and for the Three Months Ended

 

As of and for the Nine Months Ended

(Dollars in thousands, except per share amounts)

 

September 30,

2021

 

June 30,

2021

 

September 30,

2020

 

September 30,

2021

 

September 30,

2020

Net interest income

 

$

21,223

 

 

$

21,652

 

 

$

18,621

 

 

$

63,738

 

 

$

54,558

 

Adjusted non-interest income (1)

 

7,015

 

 

6,292

 

 

7,408

 

 

20,502

 

 

20,145

 

Operating revenue (1)

 

28,238

 

 

27,944

 

 

26,029

 

 

84,240

 

 

74,703

 

Operating expense (1)

 

18,546

 

 

17,932

 

 

16,700

 

 

53,928

 

 

48,026

 

Pre-tax, pre-provision adjusted earnings (1)

 

9,692

 

 

10,012

 

 

9,329

 

 

30,312

 

 

26,677

 

Less:

 

 

 

 

 

 

 

 

 

 

Provision for loan and lease losses

 

(2,269

)

 

(958

)

 

3,835

 

 

(5,295

)

 

12,487

 

Net loss (gain) on foreclosed properties

 

6

 

 

(1

)

 

(121

)

 

7

 

 

329

 

Amortization of other intangible assets

 

7

 

 

8

 

 

9

 

 

23

 

 

27

 

SBA recourse (benefit) provision

 

(69

)

 

245

 

 

57

 

 

45

 

 

53

 

Impairment on tax credit investments

 

 

 

 

 

113

 

 

 

 

2,066

 

Loss on early extinguishment of debt

 

 

 

 

 

 

 

 

 

744

 

Add:

 

 

 

 

 

 

 

 

 

 

Net gain (loss) on sale of securities

 

 

 

29

 

 

 

 

29

 

 

(4

)

Income before income tax expense

 

12,017

 

 

10,747

 

 

5,436

 

 

35,561

 

 

10,967

 

Income tax expense

 

2,819

 

 

2,512

 

 

1,143

 

 

8,396

 

 

73

 

Net income

 

$

9,198

 

 

$

8,235

 

 

$

4,293

 

 

$

27,165

 

 

$

10,894

 

Earnings per share, diluted

 

$

1.07

 

 

$

0.95

 

 

$

0.50

 

 

$

3.15

 

 

$

1.27

 

Book value per share

 

$

26.56

 

 

$

25.70

 

 

$

23.45

 

 

$

26.56

 

 

$

23.45

 

Tangible book value per share (1)

 

$

25.11

 

 

$

24.28

 

 

$

22.05

 

 

$

25.11

 

 

$

22.05

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin (2)

 

3.45

%

 

3.49

%

 

3.14

%

 

3.46

%

 

3.30

%

Adjusted net interest margin (1)(2)

 

3.22

%

 

3.20

%

 

3.24

%

 

3.21

%

 

3.29

%

Efficiency ratio (1)

 

65.68

%

 

64.17

%

 

64.16

%

 

64.02

%

 

64.29

%

Return on average assets (2)

 

1.41

%

 

1.26

%

 

0.68

%

 

1.39

%

 

0.62

%

Pre-tax, pre-provision adjusted return on average assets (1)(2)

 

1.49

%

 

1.53

%

 

1.47

%

 

1.55

%

 

1.51

%

Return on average equity (2)

 

16.39

%

 

15.09

%

 

8.58

%

 

16.63

%

 

7.49

%

 

 

 

 

 

 

 

 

 

 

 

Period-end loans and leases receivable

 

$

2,123,306

 

 

$

2,143,561

 

 

$

2,170,299

 

 

$

2,123,306

 

 

$

2,170,299

 

Period-end loans and leases receivable, excluding net PPP loans

 

$

2,058,852

 

 

$

2,022,839

 

 

$

1,844,818

 

 

$

2,058,852

 

 

$

1,844,818

 

Average loans and leases receivable

 

$

2,131,099

 

 

$

2,223,353

 

 

$

2,139,439

 

 

$

2,178,947

 

 

$

1,952,785

 

Period-end in-market deposits

 

$

1,829,644

 

 

$

2,016,215

 

 

$

1,667,245

 

 

$

1,829,644

 

 

$

1,667,245

 

Average in-market deposits

 

$

1,810,948

 

 

$

1,735,393

 

 

$

1,644,704

 

 

$

1,756,475

 

 

$

1,527,561

 

Allowance for loan and lease losses

 

$

24,676

 

 

$

25,675

 

 

$

30,817

 

 

$

24,676

 

 

$

30,817

 

Non-performing assets

 

$

7,605

 

 

$

11,601

 

 

$

36,663

 

 

$

7,605

 

 

$

36,663

 

Allowance for loan and lease losses as a percent of total gross loans and leases

 

1.16

%

 

1.20

%

 

1.41

%

 

1.16

%

 

1.41

%

Allowance for loan and lease losses as a percent of total gross loans and leases, excluding net PPP loans

 

1.20

%

 

1.27

%

 

1.67

%

 

1.20

%

 

1.67

%

Non-performing assets as a percent of total assets

 

0.29

%

 

0.40

%

 

1.41

%

 

0.29

%

 

1.41

%

Non-performing assets as a percent of total assets, excluding net PPP loans

 

0.30

%

 

0.42

%

 

1.61

%

 

0.30

%

 

1.61

%

(1)

This is a non-GAAP financial measure. Management believes these measures are meaningful because they reflect adjustments commonly made by management, investors, regulators, and analysts to evaluate financial performance, provide greater understanding of ongoing operations, and enhance comparability of results with prior periods. See the section titled Non-GAAP Reconciliations at the end of this release for a reconciliation of GAAP financial measures to non-GAAP financial measures.

(2)

Calculation is annualized.

Third Quarter 2021 Compared to Second Quarter 2021

Net interest income decreased $429,000, or 2.0%, to $21.2 million.

  • Net interest income decreased primarily due to a reduction in fees in lieu of interest. Fees in lieu of interest, which can vary from quarter to quarter based on client-driven activity, totaled $2.8 million, compared to $3.5 million. Excluding fees in lieu of interest, net interest income increased $268,000, or 1.5%.
  • Average loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $49.4 million, or 9.9% annualized, to $2.044 billion.
  • The yield on average interest-earning assets decreased six basis points to 3.90% from 3.96%. Excluding average net PPP loans, the PPP loan interest income of $221,000, and the aforementioned fees in lieu of interest, the yield earned on average interest-earning assets decreased 11 basis points to 3.53% from 3.64%. The rate paid for average total bank funding decreased three basis point to 0.36% from 0.39%. Total bank funding is defined as total deposits plus Federal Home Loan Bank (“FHLB”) advances, and Federal Reserve Discount Window advances.
  • Net interest margin decreased four basis points to 3.45% from 3.49%. Adjusted net interest margin was 3.22%, compared to 3.20% in the linked quarter. Adjusted net interest margin is a non-GAAP measure representing net interest income excluding the fees in lieu of interest and other recurring but volatile components of net interest margin divided by average interest-earning assets less average net PPP loans, if any, and other recurring but volatile components of average interest-earning assets such as excess liquidity and non-accrual loans.

The Company reported a net benefit to provision for loan and lease losses of $2.3 million, compared to a net benefit of $1.0 million in the second quarter.

  • The decrease in the provision for loan and lease losses was primarily due to a $923,000 reduction in the general reserve from improving historical loss rates, $1.3 million in net recoveries, and a $451,000 decrease in specific reserves. These decreases were partially offset by a $426,000 increase in the general reserve due to loan growth.

Non-interest income increased $694,000, or 11.0%, to $7.0 million.

  • Private wealth management fee income increased $15,000, or 0.5% to $2.8 million. Private wealth and trust assets under management and administration measured a record $2.694 billion at September 30, 2021, up $129.8 million, or 20.2% annualized, primarily due to growth from new and existing clients.
  • Gains on sale of SBA loans decreased $482,000 to $721,000. Management expects this revenue stream to return to levels consistent with the first half of the year in the coming quarters and continues to believe gains on sale of traditional SBA loans (i.e., SBA loans unrelated to PPP loans), while variable based on timing of closings, will continue to increase annually at a measured pace.
  • During the third and second quarters of 2021 there was no commercial loan interest rate swap fee income. Swap fee income can vary from period to period based on client demand and the interest rate environment in any given quarter. Subsequent to September 30, 2021, the Company completed two commercial loan interest rate swap transactions which generated swap fees totaling $684,000.
  • Other fee income increased $1.0 million to $1.9 million, compared to $835,000 in the second quarter, reflecting higher than typical returns from the Company’s investments in mezzanine funds.

Non-interest expense increased $306,000, or 1.7%, to $18.5 million. Operating expense increased $614,000, or 3.4%, to $18.5 million.

  • Compensation expense, the largest component of the Company’s non-interest expense, increased $96,000, or 0.7%, to $13.4 million, primarily for performance-based incentive compensation accruals reflecting strong company performance relative to bonus criteria.
  • Other non-interest expense increased $543,000 to $719,000. Other non-interest expense for the second quarter of 2021 included a $206,000 and $78,000 benefit in the Company’s swap credit valuation and loan servicing impairment valuation, respectively. The remaining variance was generally attributable to higher travel costs.

Total period-end loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $36.0 million, or 7.1% annualized, to $2.059 billion.

  • Commercial and industrial (“C&I”) loans, excluding net PPP loans, increased $41.9 million, or 29.2% annualized, led by First Business Bank’s specialized lending commercial business lines. Management believes the timely prior-period investments in our specialized lending business lines, such as dealer floorplan financing, small-ticket equipment vendor financing, and accounts receivable financing, have positioned C&I lending to increase throughout the current economic cycle.
  • Commercial real estate (“CRE”) loans decreased by $4.3 million to $1.388 billion, compared to $1.392 billion, as new production was offset by payoffs and paydowns.

Total period-end in-market deposits decreased $186.6 million to $1.830 billion, compared to $2.016 billion, and the average rate paid decreased one basis point to 0.14%.

  • As previously disclosed, in-market deposits on June 30, 2021 included a temporary balance associated with the proceeds of a commercial client’s business sale late in the second quarter, the majority of which was moved off the balance sheet in early July. Excluding this temporary deposit, total period-end in-market deposits increased by $38.4 million, or 8.6% annualized.
  • Excluding the temporary deposit, money market accounts, interest-bearing transaction accounts, and certificates of deposit increased $43.6 million, $5.6 million, and $12.5 million, respectively, while non-interest bearing transaction accounts decreased $23.2 million.

Period-end wholesale funding, including FHLB advances, Federal Reserve Discount Window advances, brokered deposits, and deposits gathered through internet deposit listing services, decreased $99.9 million to $432.4 million.

  • Wholesale deposits decreased $69.9 million to $74.6 million. The average rate paid on wholesale deposits increased 18 basis points to 0.92% and the weighted average original maturity of brokered certificates of deposit increased to 3.7 years from 3.5 years.
  • FHLB advances decreased $30.0 million to $357.8 million. The average rate paid on FHLB advances increased two basis points to 1.29% and the weighted average original maturity increased to 6.2 years from 6.1 years.

Non-performing assets decreased $4.0 million, or 34.4%, to $7.6 million, or 0.29% of total assets, compared to $11.6 million, or 0.40% of total assets. The reduction in non-performing assets was due to loan payoffs. Excluding net PPP loans, non-performing assets were 0.30% of total assets as of September 30, 2021, compared to 0.42% as of June 30, 2021.

The allowance for loan and lease losses decreased $1.0 million, or 3.9%, as an increase in the general reserve from loan growth was more than offset by a decrease in the historical loss rate and reduction in specific reserves.

  • The allowance for loan and lease losses as a percent of total gross loans and leases was 1.16% compared to 1.20% as of June 30, 2021.
  • Excluding net PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.20%, compared to 1.27% as of June 30, 2021.

Third Quarter 2021 Compared to Third Quarter 2020

Net interest income increased $2.6 million, or 14.0%, to $21.2 million.

  • The increase in net interest income reflects expanded yields on average gross loans and leases, which were relatively consistent between periods, and lower deposit costs. Excluding fees collected in lieu of interest and interest income from PPP loans, net interest income increased $1.9 million, or 11.4%. Excluding net PPP loans, average gross loans and leases increased $227.2 million, or 12.5%.
  • The yield on average interest-earning assets measured 3.90% compared to 3.75%. Excluding fees collected in lieu of interest, PPP loan interest income and net PPP loans, the yield on average interest-earning assets measured 3.53%, compared to 3.89%. This decrease in yield was primarily due to the decrease in LIBOR and Prime rates and related impact on variable-rate loans, in addition to the renewal of fixed-rate loans and reinvestment of cash flows from the securities portfolio at historically low interest rates. The rate paid for average total bank funding decreased 18 basis points to 0.36% from 0.54%.
  • Net interest margin increased 31 basis points to 3.45% from 3.14%. Adjusted net interest margin decreased 2 basis points to 3.22% from 3.24%.

The Company reported a net benefit to provision for loan and lease losses of $2.3 million, compared to a $3.8 million expense in the third quarter of 2020.

Non-interest income of $7.0 million compares to $7.4 million in the prior year period.

  • Private wealth management fee income increased $592,000, or 27.3%, to $2.8 million. Private wealth and trust assets under management and administration measured a record $2.694 billion at September 30, 2021, up $676.6 million, or 33.5%.
  • Loan fees of $713,000 increased by $235,000, or 49.2%, primarily due to an increase in floorplan financing curtailment fees and miscellaneous asset-based lending fees.
  • Gains on sale of SBA loans decreased $39,000 to $721,000. Management expects this revenue stream to return to levels consistent with the first half of the year in the coming quarters and continues to believe gains on sale of traditional SBA loans (i.e., SBA loans unrelated to PPP loans), while variable based on timing of closings, will continue to increase annually at a measured pace.
  • During the third quarter of 2021, there was no commercial loan interest rate swap fee income activity, compared to $2.4 million in the year-ago period. Swap fee income can vary from period to period based on client demand and the interest rate environment in any given quarter.
  • Other fee income increased $1.2 million, or 176.0%, to $1.9 million compared to $676,000, reflecting higher than typical returns from the Company’s investments in mezzanine funds in the third quarter of 2021.

Non-interest expense increased $1.7 million, or 10.3%, to $18.5 million. Operating expense increased $1.8 million, or 11.1%, to $18.5 million.

  • Compensation expense increased $1.5 million, or 12.6%, to $13.4 million. The increase resulted from new hires and an increase in performance-based incentive compensation accruals reflecting strong company performance relative to bonus criteria.. Average full-time equivalent employees increased to 311, up 5.4% for the quarter ended September 30, 2021, compared to 295 for the quarter ended September 30, 2020.

Total period-end loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $214.0 million, or 11.6%, to $2.059 billion.

  • C&I loans, excluding net PPP loans, increased $151.7 million, or 32.6%.
  • CRE loans increased $61.2 million, or 4.6%, as increases in the non-owner occupied and multi-family portfolios were partially offset by reductions in the land development and 1-4 family portfolios.

Total period-end in-market deposits increased $162.4 million, or 9.7%, to $1.830 billion and the average rate paid decreased 13 basis points to 0.14%.

  • Transaction and money market accounts increased $106.3 million and $91.9 million, respectively, while certificates of deposits decreased $35.7 million.

Period-end wholesale funding decreased $180.8 million to $432.4 million.

  • Wholesale deposits decreased $79.5 million to $74.6 million, compared to $154.1 million, as the existing portfolio runoff was replaced by in-market deposits. The average rate paid on brokered certificates of deposit decreased 41 basis points to 0.92% and the weighted average original maturity decreased to 3.7 years from 4.3 years.
  • FHLB advances decreased $71.7 million to $357.8 million. The average rate paid on FHLB advances increased 14 basis points to 1.29% and the weighted average original maturity increased to 6.2 years from 5.1 years.

Non-performing assets decreased to $7.6 million, or 0.29% of total assets, compared to $36.7 million, or 1.41% of total assets. Excluding net PPP loans, non-performing assets were 0.30% of total assets as of September 30, 2021 compared to 1.61% one year prior.

The allowance for loan and lease losses decreased $6.1 million to $24.7 million, compared to $30.8 million.

  • The allowance for loan and lease losses as a percent of total gross loans and leases was 1.16% compared to 1.41%.
  • Excluding net PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.20% as of September 30, 2021 compared to 1.67% one year prior.

COVID-19 Update

In the second quarter of 2021, the Company communicated return to office plans to employees. Based on the national and local guidelines, the Company developed a phased-in approach for returning to the office. Under this phased-in approach, more employees returned to the office in early June 2021. The return to office included enhanced safety protocols and processes to provide the best working environment possible for employees. In addition, the Company has adopted workplace flexibility strategies in response to ever-changing circumstances and expectations. Remote, hybrid and hoteling options are available for most positions. These options cultivate a more flexible work environment that is very attractive to our employees.

Paycheck Protection Program

As of September 30, 2021, the Company had $65.9 million in gross PPP loans outstanding and deferred processing fees outstanding of $1.4 million. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness, as an adjustment of yield using the interest method. During the three and nine months ended September 30, 2021, the Company recognized $1.7 million and $6.4 million, respectively, of processing fees in loans and leases interest income in the unaudited Consolidated Statements of Income. The SBA provides a guaranty to the lender of 100% of principal and interest, unless the lender violated an obligation under the agreement. Since loan losses are expected to be immaterial, if at all due to the government guarantee, management excluded the PPP loans from the allowance for loan and lease losses calculation. These short-term loans were funded primarily through a combination of excess cash held at the Federal Reserve and from an increase in in-market deposits.

Deferral Requests

The Company provided loan modifications deferring payments for certain borrowers impacted by COVID-19 who were current in their payments at the inception of the Company’s loan modification program. Excluding gross PPP loans, as of September 30, 2021, the Company had five deferred loans outstanding in an aggregate amount of $24.1 million, or 1.2% of gross loans and leases, compared to $131.5 million, or 7.2% of gross loans and leases as of September 30, 2020. Of the $24.1 million of deferred loans outstanding, $23.5 million is related to three hospitality credits which received principal deferrals and are accruing and current on interest payments. Management believes there will be no losses associated with these credits.

The following tables represent a breakdown of the deferred loan balances by industry segment and collateral type:

 

 

As of

 

 

September 30, 2021

 

 

 

 

Collateral Type

Industries Description

 

Balance

 

Real Estate

 

Non-Real Estate

 

 

(In thousands)

Accommodation and Food Services

 

$

23,521

 

 

$

23,521

 

 

$

 

Manufacturing

 

428

 

 

 

 

428

 

Retail Trade

 

115

 

 

 

 

115

 

Total deferred loan balances

 

$

24,064

 

 

$

23,521

 

 

$

543

 

Exposure to Stressed Industries

Certain industries have been and are expected to be particularly impacted by social distancing, quarantines, and the economic impact of the COVID-19 pandemic, such as the following:

 

 

As of

 

 

September 30, 2021

 

December 31, 2020

Industries:

 

Balance

 

% Gross Loans and Leases (1)

 

Balance

 

% Gross Loans and Leases (1)

 

 

(Dollars in Thousands)

Retail (2) (3)

 

$

76,635

 

 

3.7

%

 

$

62,719

 

 

3.3

%

Hospitality

 

77,286

 

 

3.7

%

 

80,832

 

 

4.2

%

Entertainment

 

13,533

 

 

0.7

%

 

14,208

 

 

0.7

%

Restaurants & food service

 

22,393

 

 

1.1

%

 

24,854

 

 

1.3

%

Total outstanding exposure

 

$

189,847

 

 

9.2

%

 

$

182,613

 

 

9.5

%

(1)

Excluding net PPP loans.

(2)

Includes $39.6 million and $48.9 million in loans secured by commercial real estate as of September 30, 2021 and December 31, 2020, respectively.

(3)

Includes $23.2 million and $7.7 million in fully collateralized asset-based loans as of September 30, 2021 and December 31, 2020, respectively.

Because of the uncertainties related to the ultimate duration of the COVID-19 pandemic and its effects on our clients and prospects, and on the national and local economies as a whole, there can be no assurances as to the future effect of the ongoing pandemic on the Company’s loan portfolio.

Share Repurchase Program Update

During the third quarter the Company repurchased a total of 129,600 shares for approximately $3.5 million at an average cost of $27.40 per share. The Company had $717,000 of repurchase authority as of September 30, 2021 remaining in its previously disclosed share repurchase program.

About First Business Financial Services, Inc.

First Business Financial Services, Inc., (Nasdaq: FBIZ) is the parent company of First Business Bank. First Business Bank specializes in Business Banking, including Commercial Banking and Specialized Lending, Private Wealth, and Bank Consulting services, and through its refined focus, delivers unmatched expertise, accessibility, and responsiveness. Specialized Lending solutions are delivered through First Business Bank’s wholly owned subsidiary First Business Specialty Finance, LLC. For additional information, visit www.firstbusiness.bank.

This release may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which reflect First Business Bank’s current views with respect to future events and financial performance. Forward-looking statements are not based on historical information, but rather are related to future operations, strategies, financial results, or other developments. Forward-looking statements are based on management’s expectations as well as certain assumptions and estimates made by, and information available to, management at the time the statements are made. Those statements are based on general assumptions and are subject to various risks, uncertainties, and other factors that may cause actual results to differ materially from the views, beliefs, and projections expressed in such statements. Such statements are subject to risks and uncertainties, including among other things:

  • Adverse changes in the economy or business conditions, either nationally or in our markets, including, without limitation, the adverse effects of the COVID-19 pandemic on the global, national, and local economy.
  • The effect of the COVID-19 pandemic on the Company’s credit quality, revenue, and business operations.
  • Competitive pressures among depository and other financial institutions nationally and in our markets.
  • Increases in defaults by borrowers and other delinquencies.
  • Our ability to manage growth effectively, including the successful expansion of our client service, administrative infrastructure, and internal management systems.
  • Fluctuations in interest rates and market prices.
  • Changes in legislative or regulatory requirements applicable to us and our subsidiaries.
  • Changes in tax requirements, including tax rate changes, new tax laws, and revised tax law interpretations.
  • Fraud, including client and system failure or breaches of our network security, including our internet banking activities.
  • Failure to comply with the applicable SBA regulations in order to maintain the eligibility of the guaranteed portion of SBA loans.

For further information about the factors that could affect the Company’s future results, please see the Company’s annual report on Form 10-K for the year ended December 31, 2020 and other filings with the Securities and Exchange Commission.

SELECTED FINANCIAL CONDITION DATA

 

(Unaudited)

 

As of

(in thousands)

 

September 30,

2021

 

June 30,

2021

 

March 31,

2021

 

December 31,

2020

 

September 30,

2020

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

110,624

 

 

$

389,977

 

 

$

58,874

 

 

$

56,909

 

 

$

51,728

 

Securities available-for-sale, at fair value

 

194,056

 

 

171,219

 

 

173,261

 

 

183,925

 

 

179,274

 

Securities held-to-maturity, at amortized cost

 

21,196

 

 

22,382

 

 

24,783

 

 

26,374

 

 

28,897

 

Loans held for sale

 

5,603

 

 

6,059

 

 

6,576

 

 

8,695

 

 

15,049

 

Loans and leases receivable

 

2,123,306

 

 

2,143,561

 

 

2,235,112

 

 

2,145,970

 

 

2,170,299

 

Allowance for loan and lease losses

 

(24,676

)

 

(25,675

)

 

(28,982

)

 

(28,521

)

 

(30,817

)

Loans and leases receivable, net

 

2,098,630

 

 

2,117,886

 

 

2,206,130

 

 

2,117,449

 

 

2,139,482

 

Premises and equipment, net

 

1,700

 

 

1,747

 

 

1,923

 

 

1,998

 

 

2,130

 

Foreclosed properties

 

172

 

 

179

 

 

31

 

 

34

 

 

613

 

Right-of-use assets

 

5,263

 

 

5,472

 

 

5,486

 

 

5,814

 

 

6,141

 

Bank-owned life insurance

 

53,244

 

 

52,887

 

 

52,537

 

 

52,188

 

 

51,798

 

Federal Home Loan Bank stock, at cost

 

12,351

 

 

13,451

 

 

14,941

 

 

13,578

 

 

15,153

 

Goodwill and other intangible assets

 

12,229

 

 

12,178

 

 

12,055

 

 

12,018

 

 

12,024

 

Derivatives

 

28,678

 

 

32,377

 

 

26,104

 

 

49,377

 

 

58,210

 

Accrued interest receivable and other assets

 

40,664

 

 

39,855

 

 

38,017

 

 

39,478

 

 

41,348

 

Total assets

 

$

2,584,410

 

 

$

2,865,669

 

 

$

2,620,718

 

 

$

2,567,837

 

 

$

2,601,847

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

In-market deposits

 

$

1,829,644

 

 

$

2,016,215

 

 

$

1,737,226

 

 

$

1,683,008

 

 

$

1,667,245

 

Wholesale deposits

 

74,638

 

 

144,492

 

 

165,492

 

 

172,508

 

 

154,130

 

Total deposits

 

1,904,282

 

 

2,160,707

 

 

1,902,718

 

 

1,855,516

 

 

1,821,375

 

Federal Home Loan Bank advances and other borrowings

 

394,090

 

 

420,113

 

 

448,417

 

 

419,167

 

 

483,517

 

Junior subordinated notes

 

10,072

 

 

10,069

 

 

10,065

 

 

10,062

 

 

10,058

 

Lease liabilities

 

5,780

 

 

6,005

 

 

6,040

 

 

6,386

 

 

6,728

 

Derivatives

 

31,890

 

 

36,109

 

 

29,565

 

 

54,927

 

 

64,403

 

Accrued interest payable and other liabilities

 

13,016

 

 

11,214

 

 

9,422

 

 

15,617

 

 

14,981

 

Total liabilities

 

2,359,130

 

 

2,644,217

 

 

2,406,227

 

 

2,361,675

 

 

2,401,062

 

Total stockholders’ equity

 

225,280

 

 

221,452

 

 

214,491

 

 

206,162

 

 

200,785

 

Total liabilities and stockholders’ equity

 

$

2,584,410

 

 

$

2,865,669

 

 

$

2,620,718

 

 

$

2,567,837

 

 

$

2,601,847

 

STATEMENTS OF INCOME

 

(Unaudited)

 

As of and for the Three Months Ended

 

As of and for the Nine Months Ended

(Dollars in thousands, except per share amounts)

 

September 30,

2021

 

June 30,

2021

 

March 31,

2021

 

December 31,

2020

 

September 30,

2020

 

September 30,

2021

 

September 30,

2020

Total interest income

 

$

24,014

 

 

$

24,599

 

 

$

23,806

 

 

$

25,770

 

 

$

22,276

 

 

$

72,420

 

 

$

68,408

 

Total interest expense

 

2,791

 

 

2,947

 

 

2,943

 

 

3,258

 

 

3,655

 

 

8,682

 

 

13,850

 

Net interest income

 

21,223

 

 

21,652

 

 

20,863

 

 

22,512

 

 

18,621

 

 

63,738

 

 

54,558

 

Provision for loan and lease losses

 

(2,269

)

 

(958

)

 

(2,068

)

 

4,322

 

 

3,835

 

 

(5,295

)

 

12,487

 

Net interest income after provision for loan and lease losses

 

23,492

 

 

22,610

 

 

22,931

 

 

18,190

 

 

14,786

 

 

69,033

 

 

42,071

 

Private wealth management service fees

 

2,759

 

 

2,744

 

 

2,407

 

 

2,208

 

 

2,167

 

 

7,910

 

 

6,402

 

Gain on sale of SBA loans

 

721

 

 

1,203

 

 

1,078

 

 

1,300

 

 

760

 

 

3,002

 

 

1,598

 

Service charges on deposits

 

956

 

 

941

 

 

917

 

 

887

 

 

881

 

 

2,814

 

 

2,527

 

Loan fees

 

713

 

 

569

 

 

545

 

 

412

 

 

478

 

 

1,828

 

 

1,414

 

Net gain (loss) on sale of securities

 

 

 

29

 

 

 

 

 

 

 

 

29

 

 

(4

)

Swap fees

 

 

 

 

 

684

 

 

1,078

 

 

2,446

 

 

684

 

 

5,782

 

Other non-interest income

 

1,866

 

 

835

 

 

1,564

 

 

914

 

 

676

 

 

4,264

 

 

2,422

 

Total non-interest income

 

7,015

 

 

6,321

 

 

7,195

 

 

6,799

 

 

7,408

 

 

20,531

 

 

20,141

 

Compensation

 

13,351

 

 

13,255

 

 

12,657

 

 

12,145

 

 

11,857

 

 

39,263

 

 

33,705

 

Occupancy

 

544

 

 

533

 

 

552

 

 

556

 

 

570

 

 

1,628

 

 

1,696

 

Professional fees

 

1,024

 

 

913

 

 

866

 

 

909

 

 

943

 

 

2,803

 

 

2,621

 

Data processing

 

746

 

 

798

 

 

770

 

 

668

 

 

679

 

 

2,315

 

 

2,066

 

Marketing

 

572

 

 

511

 

 

391

 

 

411

 

 

356

 

 

1,474

 

 

1,169

 

Equipment

 

260

 

 

261

 

 

246

 

 

294

 

 

310

 

 

767

 

 

905

 

Computer software

 

999

 

 

1,129

 

 

1,115

 

 

1,028

 

 

1,017

 

 

3,244

 

 

2,873

 

FDIC insurance

 

291

 

 

280

 

 

362

 

 

479

 

 

312

 

 

933

 

 

760

 

Collateral liquidation cost

 

47

 

 

84

 

 

94

 

 

47

 

 

45

 

 

224

 

 

281

 

Net loss (gain) on foreclosed properties

 

6

 

 

(1

)

 

3

 

 

54

 

 

(121

)

 

7

 

 

329

 

Tax credit investment impairment

 

 

 

 

 

 

 

328

 

 

113

 

 

 

 

2,066

 

SBA recourse (benefit) provision

 

(69

)

 

245

 

 

(130

)

 

(330

)

 

57

 

 

45

 

 

53

 

Loss on early extinguishment of debt

 

 

 

 

 

 

 

 

 

 

 

 

 

744

 

Other non-interest expense

 

719

 

 

176

 

 

404

 

 

1,062

 

 

620

 

 

1,300

 

 

1,977

 

Total non-interest expense

 

18,490

 

 

18,184

 

 

17,330

 

 

17,651

 

 

16,758

 

 

54,003

 

 

51,245

 

Income before income tax expense

 

12,017

 

 

10,747

 

 

12,796

 

 

7,338

 

 

5,436

 

 

35,561

 

 

10,967

 

Income tax expense

 

2,819

 

 

2,512

 

 

3,065

 

 

1,254

 

 

1,143

 

 

8,396

 

 

73

 

Net income

 

$

9,198

 

 

$

8,235

 

 

$

9,731

 

 

$

6,084

 

 

$

4,293

 

 

$

27,165

 

 

$

10,894

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings

 

$

1.07

 

 

$

0.95

 

 

$

1.12

 

 

$

0.71

 

 

$

0.50

 

 

$

3.15

 

 

$

1.27

 

Diluted earnings

 

1.07

 

 

0.95

 

 

1.12

 

 

0.71

 

 

0.50

 

 

3.15

 

 

1.27

 

Dividends declared

 

0.18

 

 

0.18

 

 

0.18

 

 

0.165

 

 

0.165

 

 

0.54

 

 

0.495

 

Book value

 

26.56

 

 

25.70

 

 

24.83

 

 

24.06

 

 

23.45

 

 

26.56

 

 

23.45

 

Tangible book value

 

25.11

 

 

24.28

 

 

23.43

 

 

22.66

 

 

22.05

 

 

25.11

 

 

22.05

 

Weighted-average common shares outstanding(1)

 

8,340,042

 

 

8,385,069

 

 

8,429,149

 

 

8,417,216

 

 

8,404,084

 

 

8,380,591

 

 

8,380,676

 

Weighted-average diluted common shares outstanding(1)

 

8,340,042

 

 

8,385,069

 

 

8,429,149

 

 

8,417,216

 

 

8,404,084

 

 

8,380,591

 

 

8,380,676

 

(1)

Excluding participating securities.

NET INTEREST INCOME ANALYSIS

 

(Unaudited)

 

For the Three Months Ended

(Dollars in thousands)

 

September 30, 2021

 

June 30, 2021

 

September 30, 2020

 

 

Average

Balance

 

Interest

 

Average

Yield/Rate(4)

 

Average

Balance

 

Interest

 

Average

Yield/Rate(4)

 

Average

Balance

 

Interest

 

Average

Yield/Rate(4)

Interest-earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate and other mortgage loans(1)

 

$

1,388,236

 

$

13,090

 

3.77

%

 

$

1,386,187

 

$

13,087

 

3.78

%

 

$

1,282,132

 

$

12,340

 

3.85

%

Commercial and industrial loans(1)

 

680,563

 

9,259

 

5.44

%

 

772,257

 

9,875

 

5.11

%

 

791,909

 

8,133

 

4.11

%

Direct financing leases(1)

 

18,611

 

207

 

4.45

%

 

19,883

 

222

 

4.47

%

 

26,129

 

258

 

3.95

%

Consumer and other loans(1)

 

43,689

 

391

 

3.58

%

 

45,026

 

407

 

3.62

%

 

39,269

 

374

 

3.81

%

Total loans and leases receivable(1)

 

2,131,099

 

22,947

 

4.31

%

 

2,223,353

 

23,591

 

4.24

%

 

2,139,439

 

21,105

 

3.95

%

Mortgage-related securities(2)

 

154,372

 

659

 

1.71

%

 

149,253

 

631

 

1.69

%

 

167,326

 

833

 

1.99

%

Other investment securities(3)

 

45,196

 

196

 

1.73

%

 

41,569

 

185

 

1.78

%

 

34,004

 

171

 

2.01

%

FHLB stock

 

13,279

 

167

 

5.03

%

 

14,172

 

176

 

4.97

%

 

12,835

 

161

 

5.02

%

Short-term investments

 

116,621

 

45

 

0.15

%

 

55,100

 

16

 

0.12

%

 

21,287

 

6

 

0.11

%

Total interest-earning assets

 

2,460,567

 

24,014

 

3.90

%

 

2,483,447

 

24,599

 

3.96

%

 

2,374,891

 

22,276

 

3.75

%

Non-interest-earning assets

 

147,631

 

 

 

 

 

137,893

 

 

 

 

 

165,844

 

 

 

 

Total assets

 

$

2,608,198

 

 

 

 

 

$

2,621,340

 

 

 

 

 

$

2,540,735

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transaction accounts

 

$

509,089

 

251

 

0.20

%

 

$

499,040

 

248

 

0.20

%

 

$

445,687

 

259

 

0.23

%

Money market

 

703,460

 

306

 

0.17

%

 

662,919

 

282

 

0.17

%

 

642,881

 

318

 

0.20

%

Certificates of deposit

 

42,370

 

71

 

0.67

%

 

45,993

 

112

 

0.97

%

 

110,891

 

513

 

1.85

%

Wholesale deposits

 

89,135

 

206

 

0.92

%

 

162,580

 

301

 

0.74

%

 

160,067

 

533

 

1.33

%

Total interest-bearing deposits

 

1,344,054

 

834

 

0.25

%

 

1,370,532

 

943

 

0.28

%

 

1,359,526

 

1,623

 

0.48

%

FHLB advances

 

381,061

 

1,228

 

1.29

%

 

405,855

 

1,284

 

1.27

%

 

379,915

 

1,356

 

1.43

%

Federal Reserve PPPLF

 

 

 

%

 

 

 

%

 

29,605

 

26

 

0.35

%

Other borrowings

 

32,630

 

449

 

5.50

%

 

32,447

 

443

 

5.46

%

 

24,403

 

370

 

6.06

%

Junior subordinated notes

 

10,070

 

280

 

11.12

%

 

10,066

 

277

 

11.01

%

 

10,056

 

280

 

11.14

%

Total interest-bearing liabilities

 

1,767,815

 

2,791

 

0.63

%

 

1,818,900

 

2,947

 

0.65

%

 

1,803,505

 

3,655

 

0.81

%

Non-interest-bearing demand deposit accounts

 

556,029

 

 

 

 

 

527,441

 

 

 

 

 

445,245

 

 

 

 

Other non-interest-bearing liabilities

 

59,865

 

 

 

 

 

56,691

 

 

 

 

 

91,810

 

 

 

 

Total liabilities

 

2,383,709

 

 

 

 

 

2,403,032

 

 

 

 

 

2,340,560

 

 

 

 

Stockholders’ equity

 

224,489

 

 

 

 

 

218,308

 

 

 

 

 

200,175

 

 

 

 

Total liabilities and stockholders’ equity

 

$

2,608,198

 

 

 

 

 

$

2,621,340

 

 

 

 

 

$

2,540,735

 

 

 

 

Net interest income

 

 

 

$

21,223

 

 

 

 

 

$

21,652

 

 

 

 

 

$

18,621

 

 

Interest rate spread

 

 

 

 

 

3.27

%

 

 

 

 

 

3.31

%

 

 

 

 

 

2.94

%

Net interest-earning assets

 

$

692,752

 

 

 

 

 

$

664,547

 

 

 

 

 

$

571,386

 

 

 

 

Net interest margin

 

 

 

 

 

3.45

%

 

 

 

 

 

3.49

%

 

 

 

 

 

3.14

%

(1)

The average balances of loans and leases include non-accrual loans and leases and loans held for sale. Interest income related to non-accrual loans and leases is recognized when collected. Interest income includes net loan fees collected in lieu of interest.

(2)

Includes amortized cost basis of assets available for sale and held to maturity.

(3)

Yields on tax-exempt municipal obligations are not presented on a tax-equivalent basis in this table.

(4)

Represents annualized yields/rates.

NET INTEREST INCOME ANALYSIS

 

(Unaudited)

 

For the Nine Months Ended

(Dollars in thousands)

 

September 30, 2021

 

September 30, 2020

 

 

Average

Balance

 

Interest

 

Average

Yield/Rate(4)

 

Average

Balance

 

Interest

 

Average

Yield/Rate(4)

Interest-earning assets

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate and other mortgage loans(1)

 

$

1,377,302

 

$

38,704

 

3.75

%

 

$

1,209,810

 

$

38,312

 

4.22

%

Commercial and industrial loans(1)

 

736,623

 

28,759

 

5.21

%

 

678,650

 

24,338

 

4.78

%

Direct financing leases(1)

 

20,242

 

673

 

4.43

%

 

27,065

 

761

 

3.75

%

Consumer and other loans(1)

 

44,780

 

1,197

 

3.56

%

 

37,260

 

1,091

 

3.90

%

Total loans and leases receivable(1)

 

2,178,947

 

69,333

 

4.24

%

 

1,952,785

 

64,502

 

4.40

%

Mortgage-related securities(2)

 

155,617

 

1,955

 

1.67

%

 

173,985

 

2,806

 

2.15

%

Other investment securities(3)

 

42,992

 

569

 

1.76

%

 

29,177

 

456

 

2.08

%

FHLB stock

 

13,308

 

496

 

4.97

%

 

10,558

 

491

 

6.20

%

Short-term investments

 

65,769

 

67

 

0.14

%

 

39,293

 

153

 

0.52

%

Total interest-earning assets

 

2,456,633

 

72,420

 

3.93

%

 

2,205,798

 

68,408

 

4.13

%

Non-interest-earning assets

 

145,714

 

 

 

 

 

151,994

 

 

 

 

Total assets

 

$

2,602,347

 

 

 

 

 

$

2,357,792

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Transaction accounts

 

$

509,709

 

749

 

0.20

%

 

$

362,326

 

1,197

 

0.44

%

Money market

 

674,858

 

862

 

0.17

%

 

649,999

 

2,555

 

0.52

%

Certificates of deposit

 

48,540

 

360

 

0.99

%

 

122,781

 

1,890

 

2.05

%

Wholesale deposits

 

139,205

 

825

 

0.79

%

 

132,811

 

2,021

 

2.03

%

Total interest-bearing deposits

 

1,372,312

 

2,796

 

0.27

%

 

1,267,917

 

7,663

 

0.81

%

FHLB advances

 

384,581

 

3,761

 

1.30

%

 

371,738

 

4,198

 

1.51

%

Federal Reserve PPPLF

 

 

 

%

 

16,855

 

44

 

0.35

%

Other borrowings

 

30,811

 

1,293

 

5.60

%

 

24,490

 

1,110

 

6.04

%

Junior subordinated notes

 

10,066

 

832

 

11.02

%

 

10,052

 

835

 

11.07

%

Total interest-bearing liabilities

 

1,797,770

 

8,682

 

0.64

%

 

1,691,052

 

13,850

 

1.09

%

Non-interest-bearing demand deposit accounts

 

523,368

 

 

 

 

 

392,455

 

 

 

 

Other non-interest-bearing liabilities

 

63,366

 

 

 

 

 

80,270

 

 

 

 

Total liabilities

 

2,384,504

 

 

 

 

 

2,163,777

 

 

 

 

Stockholders’ equity

 

217,843

 

 

 

 

 

194,015

 

 

 

 

Total liabilities and stockholders’ equity

 

$

2,602,347

 

 

 

 

 

$

2,357,792

 

 

 

 

Net interest income

 

 

 

$

63,738

 

 

 

 

 

$

54,558

 

 

Interest rate spread

 

 

 

 

 

3.29

%

 

 

 

 

 

3.04

%

Net interest-earning assets

 

$

658,863

 

 

 

 

 

$

514,746

 

 

 

 

Net interest margin

 

 

 

 

 

3.46

%

 

 

 

 

 

3.30

%

(1)

The average balances of loans and leases include non-accrual loans and leases and loans held for sale. Interest income related to non-accrual loans and leases is recognized when collected. Interest income includes net loan fees collected in lieu of interest.

(2)

Includes amortized cost basis of assets available for sale and held to maturity.

(3)

Yields on tax-exempt municipal obligations are not presented on a tax-equivalent basis in this table.

(4)

Represents annualized yields/rates.

PROVISION FOR LOAN AND LEASE LOSS COMPOSITION

 

(Unaudited)

 

For the Three Months Ended

 

For the Nine Months Ended

(Dollars in thousands)

 

September 30,

2021

 

June 30,

2021

 

March 31,

2021

 

December 31,

2020

 

September 30,

2020

 

September 30,

2021

 

September 30,

2020

Change in general reserve due to subjective factor changes

 

$

(51

)

 

$

(652

)

 

$

1,082

 

 

$

1,008

 

 

$

(766

)

 

$

379

 

 

$

4,697

 

Change in general reserve due to historical loss factor changes

 

(923

)

 

(1,687

)

 

(984

)

 

1,274

 

 

(16

)

 

(3,594

)

 

(380

)

Charge-offs

 

364

 

 

2,894

 

 

144

 

 

6,685

 

 

505

 

 

3,402

 

 

1,454

 

Recoveries

 

(1,634

)

 

(545

)

 

(2,673

)

 

(68

)

 

(23

)

 

(4,852

)

 

(264

)

Change in specific reserves on impaired loans, net

 

(451

)

 

(1,466

)

 

(194

)

 

(5,216

)

 

2,974

 

 

(2,111

)

 

5,533

 

Change due to loan growth, net

 

426

 

 

498

 

 

557

 

 

639

 

 

1,161

 

 

1,481

 

 

1,447

 

Total provision for loan and lease losses

 

$

(2,269

)

 

$

(958

)

 

$

(2,068

)

 

$

4,322

 

 

$

3,835

 

 

$

(5,295

)

 

$

12,487

 

PERFORMANCE RATIOS

 

 

For the Three Months Ended

 

For the Nine Months Ended

(Unaudited)

 

September 30,

2021

 

June 30,

2021

 

March 31,

2021

 

December 31,

2020

 

September 30,

2020

 

September 30,

2021

 

September 30,

2020

Return on average assets (annualized)

 

1.41

%

 

1.26

%

 

1.51

%

 

0.93

%

 

0.68

%

 

1.39

%

 

0.62

%

Return on average equity (annualized)

 

16.39

%

 

15.09

%

 

18.48

%

 

11.92

%

 

8.58

%

 

16.63

%

 

7.49

%

Efficiency ratio

 

65.68

%

 

64.17

%

 

62.19

%

 

60.02

%

 

64.16

%

 

64.02

%

 

64.29

%

Interest rate spread

 

3.27

%

 

3.31

%

 

3.27

%

 

3.51

%

 

2.94

%

 

3.29

%

 

3.04

%

Net interest margin

 

3.45

%

 

3.49

%

 

3.44

%

 

3.69

%

 

3.14

%

 

3.46

%

 

3.30

%

Average interest-earning assets to average interest-bearing liabilities

 

139.19

%

 

136.54

%

 

134.23

%

 

132.88

%

 

131.68

%

 

136.65

%

 

130.44

%

ASSET QUALITY RATIOS

 

(Unaudited)

 

As of

(Dollars in thousands)

 

September 30,

2021

 

June 30,

2021

 

March 31,

2021

 

December 31,

2020

 

September 30,

2020

Non-accrual loans and leases

 

$

7,433

 

 

$

11,422

 

 

$

18,992

 

 

$

26,617

 

 

$

36,050

 

Foreclosed properties

 

172

 

 

179

 

 

31

 

 

34

 

 

613

 

Total non-performing assets

 

7,605

 

 

11,601

 

 

19,023

 

 

26,651

 

 

36,663

 

Performing troubled debt restructurings

 

53

 

 

56

 

 

59

 

 

46

 

 

47

 

Total impaired assets

 

$

7,658

 

 

$

11,657

 

 

$

19,082

 

 

$

26,697

 

 

$

36,710

 

 

 

 

 

 

 

 

 

 

 

 

Non-accrual loans and leases as a percent of total gross loans and leases

 

0.35

%

 

0.53

%

 

0.85

%

 

1.24

%

 

1.66

%

Non-performing assets as a percent of total gross loans and leases plus foreclosed properties

 

0.36

%

 

0.54

%

 

0.85

%

 

1.24

%

 

1.68

%

Non-performing assets as a percent of total assets

 

0.29

%

 

0.40

%

 

0.73

%

 

1.04

%

 

1.41

%

Allowance for loan and lease losses as a percent of total gross loans and leases

 

1.16

%

 

1.20

%

 

1.29

%

 

1.33

%

 

1.41

%

Allowance for loan and lease losses as a percent of non-accrual loans and leases

 

331.98

%

 

224.79

%

 

152.60

%

 

107.15

%

 

85.48

%

ASSET QUALITY RATIOS – EXCLUDING NET PPP LOANS

 

(Unaudited)

 

As of

(Dollars in thousands)

 

September 30,

2021

 

June 30,

2021

 

March 31,

2021

 

December 31,

2020

 

September 30,

2020

Non-accrual loans and leases as a percent of total gross loans and leases

 

0.36

%

 

0.56

%

 

0.96

%

 

1.38

%

 

1.95

%

Non-performing assets as a percent of total gross loans and leases plus foreclosed properties

 

0.37

%

 

0.57

%

 

0.96

%

 

1.38

%

 

1.98

%

Non-performing assets as a percent of total assets

 

0.30

%

 

0.42

%

 

0.81

%

 

1.14

%

 

1.61

%

Allowance for loan and lease losses as a percent of total gross loans and leases

 

1.20

%

 

1.27

%

 

1.47

%

 

1.48

%

 

1.67

%

PPP loans outstanding, net

 

$

64,454

 

 

$

120,723

 

 

$

267,567

 

 

$

225,323

 

 

$

325,481

 

 

NET CHARGE-OFFS (RECOVERIES)

 

(Unaudited)

 

For the Three Months Ended

 

For the Nine Months Ended

(Dollars in thousands)

 

September 30,

2021

 

June 30,

2021

 

March 31,

2021

 

December 31,

2020

 

September 30,

2020

 

September 30,

2021

 

September 30,

2020

Charge-offs

 

$

364

 

 

$

2,894

 

 

$

144

 

 

$

6,685

 

 

$

505

 

 

$

3,402

 

 

$

1,454

 

Recoveries

 

(1,634

)

 

(545

)

 

(2,673

)

 

(68

)

 

(23

)

 

(4,852

)

 

(264

)

Net (recoveries) charge-offs

 

$

(1,270

)

 

$

2,349

 

 

$

(2,529

)

 

$

6,617

 

 

$

482

 

 

$

(1,450

)

 

$

1,190

 

Net (recoveries) charge-offs as a percent of average gross loans and leases (annualized)

 

(0.24

)%

 

0.42

%

 

(0.46

)%

 

1.21

%

 

0.09

%

 

(0.09

)%

 

0.08

%

Annualized (recoveries) charge-offs as a percent of average gross loans and leases, excluding average net PPP loans

 

(0.25

)%

 

0.47

%

 

(0.52

)%

 

1.39

%

 

0.11

%

 

(0.10

)%

 

0.09

%

Average PPP loans outstanding, net

 

$

87,517

 

 

$

229,165

 

 

$

242,242

 

 

$

282,259

 

 

$

323,082

 

 

$

185,742

 

 

$

192,451

 

CAPITAL RATIOS

 

 

 

As of and for the Three Months Ended

(Unaudited)

 

September 30,

2021

 

June 30,

2021

 

March 31,

2021

 

December 31,

2020

 

September 30,

2020

Total capital to risk-weighted assets

 

11.14

%

 

11.22

%

 

11.52

%

 

11.25

%

 

11.42

%

Tier I capital to risk-weighted assets

 

9.14

%

 

9.14

%

 

9.24

%

 

8.96

%

 

9.09

%

Common equity tier I capital to risk-weighted assets

 

8.73

%

 

8.72

%

 

8.81

%

 

8.53

%

 

8.64

%

Tier I capital to adjusted assets

 

8.69

%

 

8.48

%

 

8.37

%

 

7.99

%

 

8.04

%

Tangible common equity to tangible assets

 

8.28

%

 

7.33

%

 

7.76

%

 

7.60

%

 

7.29

%

Tangible common equity to tangible assets, excluding net PPP loans

 

8.50

%

 

7.66

%

 

8.65

%

 

8.33

%

 

8.34

%

LOAN AND LEASE RECEIVABLE COMPOSITION

 

(Unaudited)

 

As of

(in thousands)

 

September 30,

2021

 

June 30,

2021

 

March 31,

2021

 

December 31,

2020

 

September 30,

2020

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

Commercial real estate – owner occupied

 

$

241,977

 

 

$

253,600

 

 

$

256,812

 

 

$

253,882

 

 

$

240,706

 

Commercial real estate – non-owner occupied

 

639,423

 

 

614,289

 

 

592,090

 

 

564,532

 

 

565,781

 

Land development

 

39,119

 

 

45,056

 

 

46,544

 

 

49,839

 

 

50,864

 

Construction

 

139,933

 

 

139,943

 

 

151,345

 

 

141,043

 

 

142,726

 

Multi-family

 

313,787

 

 

319,351

 

 

322,384

 

 

311,556

 

 

287,583

 

1-4 family

 

13,487

 

 

19,769

 

 

23,319

 

 

38,284

 

 

38,857

 

Total commercial real estate

 

1,387,726

 

 

1,392,008

 

 

1,392,494

 

 

1,359,136

 

 

1,326,517

 

Commercial and industrial

 

681,065

 

 

695,442

 

 

784,305

 

 

732,318

 

 

790,349

 

Direct financing leases, net

 

16,810

 

 

18,142

 

 

19,616

 

 

22,331

 

 

24,743

 

Consumer and other:

 

 

 

 

 

 

 

 

 

 

Home equity and second mortgages

 

4,576

 

 

5,740

 

 

6,719

 

 

7,833

 

 

7,106

 

Other

 

35,645

 

 

36,567

 

 

38,266

 

 

28,897

 

 

29,341

 

Total consumer and other

 

40,221

 

 

42,307

 

 

44,985

 

 

36,730

 

 

36,447

 

Total gross loans and leases receivable

 

2,125,822

 

 

2,147,899

 

 

2,241,400

 

 

2,150,515

 

 

2,178,056

 

Less:

 

 

 

 

 

 

 

 

 

 

Allowance for loan and lease losses

 

24,676

 

 

25,675

 

 

28,982

 

 

28,521

 

 

30,817

 

Deferred loan fees

 

2,516

 

 

4,338

 

 

6,288

 

 

4,545

 

 

7,757

 

Loans and leases receivable, net

 

$

2,098,630

 

 

$

2,117,886

 

 

$

2,206,130

 

 

$

2,117,449

 

 

$

2,139,482

 

LEGACY SBA 7(a) AND EXPRESS LOAN COMPOSITION (1)

 

(Unaudited)

 

As of

(in thousands)

 

September 30,

2021

 

June 30,

2021

 

March 31,

2021

 

December 31,

2020

 

September 30,

2020

Performing loans:

 

 

 

 

 

 

 

 

 

 

Off-balance sheet loans

 

$

13,340

 

 

$

14,161

 

 

$

17,523

 

 

$

23,354

 

 

$

26,017

 

On-balance sheet loans

 

3,905

 

 

6,836

 

 

7,340

 

 

11,117

 

 

15,175

 

Gross loans

 

17,245

 

 

20,997

 

 

24,863

 

 

34,471

 

 

41,192

 

Non-performing loans:

 

 

 

 

 

 

 

 

 

 

Off-balance sheet loans

 

3,689

 

 

3,943

 

 

1,835

 

 

1,931

 

 

2,574

 

On-balance sheet loans

 

624

 

 

1,800

 

 

6,832

 

 

7,435

 

 

9,561

 

Gross loans

 

4,313

 

 

5,743

 

 

8,667

 

 

9,366

 

 

12,135

 

Total loans:

 

 

 

 

 

 

 

 

 

 

Off-balance sheet loans

 

17,029

 

 

18,104

 

 

19,358

 

 

25,285

 

 

28,591

 

On-balance sheet loans

 

4,529

 

 

8,636

 

 

14,172

 

 

18,552

 

 

24,736

 

Gross loans

 

$

21,558

 

 

$

26,740

 

 

$

33,530

 

 

$

43,837

 

 

$

53,327

 

(1)

Defined as SBA 7(a) and Express loans originated in 2016 and prior.

DEPOSIT COMPOSITION

 

(Unaudited)

 

As of

(in thousands)

 

September 30,

2021

 

June 30,

2021

 

March 31,

2021

 

December 31,

2020

 

September 30,

2020

Non-interest-bearing transaction accounts

 

$

526,047

 

 

$

774,253

 

 

$

496,877

 

 

$

472,818

 

 

$

452,268

 

Interest-bearing transaction accounts

 

517,248

 

 

511,698

 

 

561,466

 

 

503,992

 

 

484,761

 

Money market accounts

 

728,751

 

 

685,127

 

 

632,065

 

 

641,504

 

 

636,872

 

Certificates of deposit

 

57,598

 

 

45,137

 

 

46,818

 

 

64,694

 

 

93,344

 

Wholesale deposits

 

74,638

 

 

144,492

 

 

165,492

 

 

172,508

 

 

154,130

 

Total deposits

 

$

1,904,282

 

 

$

2,160,707

 

 

$

1,902,718

 

 

$

1,855,516

 

 

$

1,821,375

 

TRUST ASSETS COMPOSITION

 

(Unaudited)

 

As of

(in thousands)

 

September 30,

2021

 

June 30,

2021

 

March 31,

2021

 

December 31,

2020

 

September 30,

2020

Trust assets under management

 

$

2,491,498

 

 

$

2,362,257

 

 

$

2,195,804

 

 

$

2,061,772

 

 

$

1,841,986

 

Trust assets under administration

 

202,657

 

 

202,116

 

 

190,721

 

 

187,228

 

 

175,521

 

Total trust assets

 

$

2,694,155

 

 

$

2,564,373

 

 

$

2,386,525

 

 

$

2,249,000

 

 

$

2,017,507

 

NON-GAAP RECONCILIATIONS

Certain financial information provided in this release is determined by methods other than in accordance with generally accepted accounting principles (United States) (“GAAP”). Although the Company’s management believes that these non-GAAP financial measures provide a greater understanding of its business, these measures are not necessarily comparable to similar measures that may be presented by other companies.

TANGIBLE BOOK VALUE

“Tangible book value per share” is a non-GAAP measure representing tangible common equity divided by total common shares outstanding. “Tangible common equity” itself is a non-GAAP measure representing common stockholders’ equity reduced by intangible assets, if any. The Company’s management believes that this measure is important to many investors in the marketplace who are interested in period-to-period changes in book value per common share exclusive of changes in intangible assets. The information provided below reconciles tangible book value per share and tangible common equity to their most comparable GAAP measures.

(Unaudited)

 

As of

(Dollars in thousands, except per share amounts)

 

September 30,

2021

 

June 30,

2021

 

March 31,

2021

 

December 31,

2020

 

September 30,

2020

Common stockholders’ equity

 

$

225,280

 

 

$

221,452

 

 

$

214,491

 

 

$

206,162

 

 

$

200,785

 

Goodwill and other intangible assets

 

(12,229

)

 

(12,178

)

 

(12,055

)

 

(12,018

)

 

(12,024

)

Tangible common equity

 

$

213,051

 

 

$

209,274

 

 

$

202,436

 

 

$

194,144

 

 

$

188,761

 

Common shares outstanding

 

8,483,099

 

 

8,617,761

 

 

8,638,195

 

 

8,566,960

 

 

8,561,714

 

Book value per share

 

$

26.56

 

 

$

25.70

 

 

$

24.83

 

 

$

24.06

 

 

$

23.45

 

Tangible book value per share

 

25.11

 

 

24.28

 

 

23.43

 

 

22.66

 

 

22.05

 

TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS

“Tangible common equity to tangible assets” is defined as the ratio of common stockholders’ equity reduced by intangible assets, if any, divided by total assets reduced by intangible assets, if any. The Company’s management believes that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period in common equity and total assets, each exclusive of changes in intangible assets. The information below reconciles tangible common equity and tangible assets to their most comparable GAAP measures.

(Unaudited)

 

As of

(Dollars in thousands)

 

September 30,

2021

 

June 30,

2021

 

March 31,

2021

 

December 31,

2020

 

September 30,

2020

Common stockholders’ equity

 

$

225,280

 

 

$

221,452

 

 

$

214,491

 

 

$

206,162

 

 

$

200,785

 

Goodwill and other intangible assets

 

(12,229

)

 

(12,178

)

 

(12,055

)

 

(12,018

)

 

(12,024

)

Tangible common equity

 

$

213,051

 

 

$

209,274

 

 

$

202,436

 

 

$

194,144

 

 

$

188,761

 

Total assets

 

$

2,584,410

 

 

$

2,865,669

 

 

$

2,620,718

 

 

$

2,567,837

 

 

$

2,601,847

 

Goodwill and other intangible assets

 

(12,229

)

 

(12,178

)

 

(12,055

)

 

(12,018

)

 

(12,024

)

Tangible assets

 

$

2,572,181

 

 

$

2,853,491

 

 

$

2,608,663

 

 

$

2,555,819

 

 

$

2,589,823

 

Tangible common equity to tangible assets

 

8.28

%

 

7.33

%

 

7.76

%

 

7.60

%

 

7.29

%

Period-end net PPP loans

 

64,454

 

 

120,722

 

 

267,567

 

 

225,323

 

 

325,481

 

Tangible assets, excluding net PPP loans

 

$

2,507,727

 

 

$

2,732,769

 

 

$

2,341,096

 

 

$

2,330,496

 

 

$

2,264,342

 

Tangible common equity to tangible assets, excluding net PPP loans

 

8.50

%

 

7.66

%

 

8.65

%

 

8.33

%

 

8.34

%

EFFICIENCY RATIO & PRE-TAX, PRE-PROVISION ADJUSTED EARNINGS

“Efficiency ratio” is a non-GAAP measure representing non-interest expense excluding the effects of the SBA recourse provision, impairment of tax credit investments, losses or gains on foreclosed properties, amortization of other intangible assets and other discrete items, if any, divided by operating revenue, which is equal to net interest income plus non-interest income less realized gains or losses on securities, if any. “Pre-tax, pre-provision adjusted earnings” is defined as operating revenue less operating expense. In the judgment of the Company’s management, the adjustments made to non-interest expense and non-interest income allow investors and analysts to better assess the Company’s operating expenses in relation to its core operating revenue by removing the volatility that is associated with certain one-time items and other discrete items. The information provided below reconciles the efficiency ratio and pre-tax, pre-provision adjusted earnings to its most comparable GAAP measure.

(Unaudited)

 

For the Three Months Ended

 

For the Nine Months Ended

(Dollars in thousands)

 

September 30,

2021

 

June 30,

2021

 

March 31,

2021

 

December 31,

2020

 

September 30,

2020

 

September 30,

2021

 

September 30,

2020

Total non-interest expense

 

$

18,490

 

 

$

18,184

 

 

$

17,330

 

 

$

17,651

 

 

$

16,758

 

 

$

54,003

 

 

$

51,245

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss (gain) on foreclosed properties

 

6

 

 

(1

)

 

3

 

 

54

 

 

(121

)

 

7

 

 

329

 

Amortization of other intangible assets

 

7

 

 

8

 

 

8

 

 

8

 

 

9

 

 

23

 

 

27

 

SBA recourse (benefit) provision

 

(69

)

 

245

 

 

(130

)

 

(330

)

 

57

 

 

45

 

 

53

 

Tax credit investment impairment

 

 

 

 

 

 

 

328

 

 

113

 

 

 

 

2,066

 

Loss on early extinguishment of debt

 

 

 

 

 

 

 

 

 

 

 

 

 

744

 

Total operating expense (a)

 

$

18,546

 

 

$

17,932

 

 

$

17,449

 

 

$

17,591

 

 

$

16,700

 

 

$

53,928

 

 

$

48,026

 

Net interest income

 

$

21,223

 

 

$

21,652

 

 

$

20,863

 

 

$

22,512

 

 

$

18,621

 

 

$

63,738

 

 

$

54,558

 

Total non-interest income

 

7,015

 

 

6,321

 

 

7,195

 

 

6,799

 

 

7,408

 

 

20,531

 

 

20,141

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gain (loss) on sale of securities

 

 

 

29

 

 

 

 

 

 

 

 

29

 

 

(4

)

Adjusted non-interest income

 

7,015

 

 

6,292

 

 

7,195

 

 

6,799

 

 

7,408

 

 

20,502

 

 

20,145

 

Total operating revenue (b)

 

$

28,238

 

 

$

27,944

 

 

$

28,058

 

 

$

29,311

 

 

$

26,029

 

 

$

84,240

 

 

$

74,703

 

Efficiency ratio

 

65.68

%

 

64.17

%

 

62.19

%

 

60.02

%

 

64.16

%

 

64.02

%

 

64.29

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax, pre-provision adjusted earnings (b – a)

 

$

9,692

 

 

$

10,012

 

 

$

10,609

 

 

$

11,720

 

 

$

9,329

 

 

$

30,312

 

 

$

26,677

 

Average total assets

 

$

2,608,198

 

 

$

2,621,340

 

 

$

2,577,164

 

 

$

2,603,745

 

 

$

2,540,735

 

 

$

2,602,347

 

 

$

2,357,792

 

Pre-tax, pre-provision adjusted return on average assets

 

1.49

%

 

1.53

%

 

1.65

%

 

1.80

%

 

1.47

%

 

1.55

%

 

1.51

%

ADJUSTED NET INTEREST MARGIN

“Adjusted Net Interest Margin” is a non-GAAP measure representing net interest income excluding the fees in lieu of interest and other recurring but volatile components of net interest margin divided by average interest-earning assets less average net PPP loans, if any, and other recurring but volatile components of average interest-earning assets. Fees in lieu of interest are defined as prepayment fees, asset-based loan fees, non-accrual interest, and loan fee amortization. In the judgment of the Company’s management, the adjustments made to net interest income allow investors and analysts to better assess the Company’s net interest income in relation to its core client-facing loan and deposit rate changes by removing the volatility that is associated with these recurring but volatile components. The information provided below reconciles the net interest margin to its most comparable GAAP measure.

(Unaudited)

For the Three Months Ended

 

For the Nine Months Ended

(Dollars in thousands)

September 30,

2021

 

June 30,

2021

 

March 31,

2021

 

December 31,

2020

 

September 30,

2020

 

September 30,

2021

 

September 30,

2020

Interest income

$

24,014

 

 

$

24,599

 

 

$

23,806

 

 

$

25,770

 

 

$

22,276

 

 

$

72,420

 

 

$

68,408

 

Interest expense

2,791

 

 

2,947

 

 

2,943

 

 

3,258

 

 

3,655

 

 

8,682

 

 

13,850

 

Net interest income (a)

21,223

 

 

21,652

 

 

20,863

 

 

22,512

 

 

18,621

 

 

63,738

 

 

54,558

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

Fees in lieu of interest

2,839

 

 

3,536

 

 

3,085

 

 

4,749

 

 

1,511

 

 

9,459

 

 

4,566

 

PPP loan interest income

221

 

 

566

 

 

603

 

 

718

 

 

833

 

 

1,391

 

 

1,481

 

FRB interest income and FHLB dividend income

212

 

 

192

 

 

158

 

 

188

 

 

167

 

 

563

 

 

602

 

Add:

 

 

 

 

 

 

 

 

 

 

 

 

 

FRB PPPLF interest expense

 

 

 

 

 

 

9

 

 

26

 

 

 

 

44

 

Adjusted net interest income (b)

$

17,951

 

 

$

17,358

 

 

$

17,017

 

 

$

16,866

 

 

$

16,136

 

 

$

52,325

 

 

$

47,953

 

Average interest-earning assets (c)

$

2,460,567

 

 

$

2,483,447

 

 

$

2,425,499

 

 

$

2,441,735

 

 

$

2,374,891

 

 

$

2,456,633

 

 

$

2,205,798

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

Average net PPP loans

87,517

 

 

229,165

 

 

242,242

 

 

282,259

 

 

323,082

 

 

185,741

 

 

192,451

 

Average FRB cash and FHLB stock

129,469

 

 

68,503

 

 

36,643

 

 

45,611

 

 

33,756

 

 

78,545

 

 

46,925

 

Average non-accrual loans and leases

11,298

 

 

16,744

 

 

22,069

 

 

36,013

 

 

26,931

 

 

16,657

 

 

24,849

 

Adjusted average interest-earning assets (d)

$

2,232,283

 

 

$

2,169,035

 

 

$

2,124,545

 

 

$

2,077,852

 

 

$

1,991,122

 

 

$

2,175,690

 

 

$

1,941,573

 

Net interest margin (a / c)

3.45

%

 

3.49

%

 

3.44

%

 

3.69

%

 

3.14

%

 

3.46

%

 

3.30

%

Adjusted net interest margin (b / d)

3.22

%

 

3.20

%

 

3.20

%

 

3.25

%

 

3.24

%

 

3.21

%

 

3.29

%