-- Total Assets Surpass the $2 Billion
Milestone on Robust First Quarter Growth --
First Business Financial Services, Inc. (the “Company” or “First
Business”) (Nasdaq:FBIZ) reported first quarter 2019 net income of
$5.9 million, driven by exceptional loan and deposit growth, solid
net interest margin, record top line revenue, and reduced credit
costs.
Summary results for the quarter ended March 31, 2019
include:
- Net income increased to a record $5.9
million, compared to $4.1 million in the linked quarter and $3.6
million in the first quarter of 2018.
- Diluted earnings per common share
measured $0.67, compared to $0.46 and $0.42 for the linked and
prior year quarters, respectively.
- Annualized return on average assets and
annualized return on average equity measured 1.20% and 13.67%,
respectively, compared to 0.83% and 9.06% for the linked quarter
and 0.78% and 8.88% for the first quarter of 2018.
- Net interest margin was 3.79%, compared
to 3.69% in the linked quarter and 3.65% for the first quarter of
2018.
- Net interest income was $17.8 million,
increasing by $639,000 from the linked quarter and by $1.6 million
from the first quarter of 2018.
- Top line revenue, the sum of net
interest income and non-interest income, totaled a record $22.4
million, compared to $21.8 million in the linked quarter and $20.9
million in the first quarter of 2018.
- Provision for loan and lease losses was
$49,000, compared to $983,000 for the linked quarter and $2.5
million for the first quarter of 2018.
- SBA recourse provision was $481,000,
compared to $1.8 million in the linked quarter and a recourse
benefit of $295,000 for the first quarter of 2018.
- The Company’s efficiency ratio measured
68.04%, compared to 66.95% for the linked quarter and 67.45% for
the first quarter of 2018.
- The Company’s active in-market historic
tax credit program contributed $846,000, or $0.10 per share,
compared to $752,000, or $0.09 per share, in the linked quarter and
zero contribution in the first quarter of 2018.
- Record period-end, gross loans and
leases receivable of $1.657 billion grew 9.6% annualized during the
first quarter of 2019 and 6.0% from March 31, 2018.
- Non-performing assets were $26.1
million at March 31, 2019, compared to $27.8 million and $21.5
million at December 31, 2018 and March 31, 2018, respectively.
- Record period-end, in-market deposits
of $1.239 billion, which consist of all transaction accounts, money
market accounts, and non-wholesale deposits, increased 20.4%
annualized during the first quarter of 2019 and 5.1% from March 31,
2018.
“The strong fundamental performance combined with lower credit
costs and unusually high levels of certain recurring income items
that can be volatile on a quarterly basis, namely fees in lieu of
interest and historic tax credit benefits, resulted in quarterly
earnings that exceeded expectations,” said Corey Chambas, President
and Chief Executive Officer.
Results of Operations
Net interest income of $17.8 million increased by $639,000, or
3.7%, compared to the linked quarter and $1.6 million, or 9.6%,
compared to the first quarter of 2018. The increase compared to the
linked and prior year quarters was principally due to an increase
in both average loans and leases outstanding and net interest
margin. Average gross loans and leases of $1.644 billion increased
by $27.3 million, or 6.7% annualized, from the linked quarter and
$99.0 million, or 6.4%, compared to the first quarter of 2018. Both
periods of comparison benefited from increases to short-term market
rates, which management defines as the daily average effective
federal funds rate for purposes of estimating interest-earning
asset and interest-bearing liability betas. We present betas, which
represent the change in the yield of our interest-earning assets or
the rate paid on our interest-bearing liabilities over a particular
period, compared to the changes in the daily effective federal
funds rate over that period. The benefit from the increase in
short-term market rates during the first quarter of 2019, compared
to the linked and prior year quarters, was partially offset by an
increase in interest expense resulting from an increase in rates
across various interest-bearing deposit products, combined with the
promotion of deposit campaigns in select local markets designed to
appeal to prospective private wealth management clients.
The yield on average loans and leases improved to 5.89%, up from
5.70% and 5.09% in the linked and prior year quarters,
respectively. The average loans and leases beta was 106% from the
linked quarter and 85% from the prior year quarter. The increase in
yield from the linked and prior year quarters was primarily due to
above average fees collected in lieu of interest and the increase
in short-term market rates. Fees collected in lieu of interest were
$2.2 million in the first quarter of 2019, compared to $1.4 million
in the linked quarter and $1.0 million in the prior year quarter.
Excluding fees collected in lieu of interest, the average loans and
leases beta was -5% from the linked quarter and 54% from the prior
year quarter. Similarly, the yield on average interest-earning
assets improved to 5.48%, up from 5.29% and 4.67% in the linked and
prior year quarter, respectively. The average interest-earning
assets beta was 106% from the linked quarter and 86% from the prior
year quarter. Also, excluding fees collected in lieu of interest,
the average interest-earning assets beta was 10% from the linked
quarter and 59% from the prior year quarter.
The Company’s cost of average interest-bearing liabilities
increased to 2.11% for the first quarter of 2019 from 1.99% and
1.25% in the linked and prior year quarters, respectively. The
average interest-bearing liabilities beta was 67% from the linked
quarter and 91% from the prior year quarter. Average
interest-bearing deposit costs for the first quarter of 2019
increased to 1.93%, up from 1.77% and 0.95% in the linked and prior
year quarter, respectively. The average interest-bearing deposit
beta was 89% from the linked quarter and 104% from the prior year
quarter. Management believes an increase in funding costs may put
downward pressure on net interest margin as the Company looks to
grow in-market deposits to fund above average loan growth.
Net interest margin measured 3.79% for the first quarter of
2019, compared to 3.69% in the linked quarter and 3.65% in the
first quarter of 2018. The increase compared to both the linked and
prior year quarters was principally due to the aforementioned above
average fees collected in lieu of interest. Excluding fees
collected in lieu of interest, net interest margin measured 3.32%
for the first quarter of 2019, compared to 3.39% in the linked
quarter and 3.44% in the first quarter of 2018. Despite this trend
of downward pressure, management expects the execution of its
strategies will allow the Company to maintain a net interest margin
at or above its target of 3.50%, including fees collected in lieu
of interest.
The Company recorded a provision for loan and lease losses of
$49,000 in the first quarter of 2019, compared to $983,000 in the
linked quarter and $2.5 million in the first quarter of 2018. The
decrease in provision for the first quarter of 2019 was principally
driven by a net reduction in historic loss rates, partially offset
by an increase in provision related to the aforementioned loan
growth. Net charge-offs were $25,000 in the first quarter of 2019,
compared to $1.0 million in the linked quarter and $2.6 million in
the prior year quarter.
While it was not a source of provision for loan and lease losses
during the first quarter of 2019, the legacy on-balance sheet SBA
portfolio, defined as outstanding SBA loans originated prior to
2017, has been a source of elevated non-performing assets. However,
the size of the legacy portfolio continues to decline. As of March
31, 2019, total on-balance sheet legacy loans were $38.9 million,
compared to $39.3 million and $45.8 million at December 31, 2018
and March 31, 2018, respectively. Total performing on-balance sheet
legacy loans were $24.4 million at March 31, 2019, down from $26.3
million and $37.8 million at December 31, 2018 and March 31, 2018,
respectively.
Non-interest income totaled $4.6 million, or 20.7% of total
revenue, in the first quarter of 2019, compared to $4.6 million, or
21.4% of total revenue, in the linked quarter and $4.7 million, or
22.4% of total revenue, in the prior year quarter. Continued
stability in non-interest income was marked by steady trust and
investment service fees, modest SBA gains, and fee income related
to the Company’s commercial loan swap transactions.
Trust and investment services fee income, which remained the
Company’s largest source of non-interest income, totaled $1.9
million in the current, linked, and prior year quarters. Strong
equity markets and successful business development and client
retention efforts propelled trust assets under management and
administration to a record $1.732 billion at March 31,
2019, up $101.6 million, or 24.9% annualized, from
the linked quarter and $152.8 million, or 9.7%, from
March 31, 2018. Management expects new business development efforts
to remain strong throughout 2019 and beyond as the Company
continues to expand the private wealth management business outside
its mature Wisconsin markets.
Gains on sale of SBA loans totaled $242,000 in the
first quarter of 2019, compared to $267,000 in the linked quarter
and $269,000 in the first quarter of 2018. As of March 31,
2019, gross SBA loan commitments closed, but not ready for sale,
increased to $9.2 million, compared to $8.4 million as of December
31, 2018. “Based on our current pipeline of approved and closed SBA
loans, we believe gains on sale of SBA loans will increase
meaningfully during the second quarter of 2019,” said Chambas.
Swap fee income totaled $473,000 in the first quarter of 2019,
compared to $662,000 in the linked quarter and $633,000 in the
first quarter of 2018. While interest rate swaps continue to be a
valuable product for the Bank’s commercial borrowers, the fee
income associated with this product is unpredictable as it is
dependent on client demand and interest rate expectations.
Non-interest expense was $17.7 million for the first quarter of
2019, compared to $18.2 million for the linked quarter and $13.9
million in the first quarter of 2018. Operating expense, as defined
in the Efficiency Ratio table included in the Non-GAAP
Reconciliations at the end of this release, totaled $15.2 million
in the first quarter of 2019, $14.6 million in the linked quarter,
and $14.1 million in the first quarter of 2018.
The Company’s first quarter 2019 efficiency ratio was 68.04%,
compared to 66.95% for the linked quarter and 67.45% for the prior
year quarter. This decrease in efficiency for the period of
comparison was primarily due to an increase in compensation
expense. Compensation expense for the three months ended
March 31, 2019 was $10.2 million, an increase of $733,000
compared to the linked quarter and $1.1 million compared to the
prior year quarter. The increase in compensation expense compared
to both the linked and prior year quarters reflects annual merit
increases as well as the net addition of 19 new producers over the
past 12 months across multiple business lines. Full-time equivalent
employees were 278 at March 31, 2019, compared to 274 at
December 31, 2018 and 256 at March 31, 2018. As these producers
begin to generate new business, we expect operating revenue to
increase at a greater rate than operating expense, creating
positive operating leverage and moving the efficiency ratio back to
within the Corporation’s long-term operating goal of 58%-62%.
Management expects to continue strategically investing in
production and support talent to drive long-term organic revenue
growth.
Non-interest expense includes SBA recourse provision for
estimated losses in the outstanding guaranteed portion of SBA loans
sold. SBA recourse provision totaled $481,000 in the first quarter
of 2019, $1.8 million in the linked quarter, and a recourse benefit
of $295,000 in the prior year quarter. The total recourse reserve
balance was $3.3 million, or 4.0% of total sold SBA loans
outstanding, at March 31, 2019, compared to $3.0 million, or
3.6%, in the linked quarter, and $2.5 million, or 2.6%, in the
prior year quarter. The balance of sold legacy SBA loans continues
to decline. Total sold legacy SBA loans at March 31, 2019 were
$58.2 million, compared to $62.0 million and $88.3 million at
December 31, 2018 and March 31, 2018, respectively. Total
performing sold legacy SBA loans were $45.7 million at
March 31, 2019, down from $49.0 million and $79.2 million at
December 31, 2018 and March 31, 2018, respectively. Changes to SBA
recourse reserves may be a source of non-interest expense
volatility in future quarters, though the magnitude of this
volatility should diminish over time as the outstanding balance of
sold legacy SBA loans continues to decline.
During the first quarter of 2019, the Company recognized $1.9
million in nonrecurring expense due to the impairment of an
in-market federal historic tax credit investment, which
corresponded with the recognition of a $2.8 million tax credit
during the quarter. The first quarter 2019 effective tax rate,
excluding the discrete items, was 22%. For 2019, the Company
expects to report an effective tax rate of 20%-22%, excluding
discrete items. Management intends to continue actively pursuing
in-market tax credit opportunities throughout 2019 and beyond.
Balance Sheet
Period-end, gross loans and leases receivable totaled a record
$1.657 billion at March 31, 2019, increasing $39.0 million, or
9.6% annualized, from December 31, 2018 and increasing $93.2
million, or 6.0%, from March 31, 2018.
“For the second consecutive year, we grew loans in the first
quarter during what has historically been a seasonally slow period
for First Business,” commented Chambas. “We believe the earnings
momentum fueled by six consecutive quarters of record loan balances
substantiates our strategy to proactively add strong producers
across our business lines and markets.”
Period-end, in-market deposits increased to $1.239 billion, or
70.9% of total bank funding at March 31, 2019, compared to
$1.179 billion, or 68.2%, at December 31, 2018 and $1.079 billion,
or 65.1%, at March 31, 2018. Money market accounts and certificates
of deposit were the largest contributors to in-market deposit
growth during the quarter, increasing $63.5 million and $14.2
million compared to the linked quarter, respectively.
“The ongoing promotion of strategic deposit campaigns in select
markets continued to complement the Company’s traditional strength
in commercial banking, contributing to exceptional in-market
deposit growth for the second consecutive quarter,” commented
Chambas. “Effective business development efforts across the
franchise have enabled us to fully fund our above average loan
growth during the past two quarters with local in-market deposits
priced at or below the alternative cost of wholesale funding.”
Period-end wholesale funding was $507.7 million at
March 31, 2019, including FHLB advances of $245.5 million,
brokered certificates of deposit of $261.3 million, and deposits
gathered through internet deposit listing services of $870,000,
compared to period-end wholesale funding of $550.4 million at
December 31, 2018.
Consistent with the Company’s longstanding funding strategy to
manage risk and use the most efficient and cost-effective source of
wholesale funds, management intends to maintain a ratio of
in-market deposits to total bank funding sources in line with the
Company’s target range of 60%-75%. Management recently updated this
range from the previously disclosed 60%-70% to reflect a reduced
need for on-balance sheet wholesale funding to match-fund
long-term, fixed rate loans due to greater client demand for
interest rate swaps, which results in a floating rate loan on our
balance sheet.
Asset Quality
Non-performing assets were $26.1 million, or 1.30% of total
assets, at March 31, 2019, compared to $27.8 million, or 1.42%
of total assets, and $21.5 million, or 1.15% of total assets, at
the end of the linked quarter and first quarter of 2018,
respectively. The decrease from the linked quarter primarily
reflects the remaining payoff of the previously disclosed $9.1
million fully-collateralized asset-based loan identified as
impaired during the second quarter of 2018, which reduced
non-performing assets by $3.3 million. The successful liquidation
of the remaining collateral during the first quarter resulted in
the full collection of all remaining contractual principal,
interest, fees, and legal expenses. This decrease was partially
offset by the repurchase of the sold portion of one legacy SBA loan
and the downgrade of certain loans, primarily other legacy SBA loan
relationships, which increased non-performing assets by
approximately $1.7 million.
Capital Strength
The Company is no longer subject to the capital requirements of
the Basel III Rule due to recent revisions to the Small Bank
Holding Company Policy Statement. However, the Corporation
continues to calculate consolidated capital ratios in accordance
with the regulatory framework. As of March 31, 2019, total
capital to risk-weighted assets was 12.18%, tier 1 capital to
risk-weighted assets was 9.69%, tier 1 leverage capital to adjusted
average assets was 9.45%, and common equity tier 1 capital to
risk-weighted assets was 9.17%. In addition, as of March 31,
2019, tangible common equity to tangible assets was 8.68%.
Share Repurchases
As of April 23, 2019, the Company had purchased 99,584 shares of
its common stock at a weighted average price of $20.94 per share,
for a total value of $2.1 million. Under the previously disclosed
stock repurchase program approved by its Board of Directors, the
company has $2.9 million of buyback authority remaining as of April
23, 2019.
Quarterly Dividend
As previously announced, during the first quarter of 2019, the
Company’s Board of Directors declared a regular quarterly dividend
of $0.15 per share. The dividend was paid on February 14, 2019 to
stockholders of record at the close of business on February 4,
2019. Measured against first quarter 2019 diluted earnings per
share of $0.67, the dividend represents a 22.4% payout ratio. The
Board of Directors routinely considers dividend declarations as
part of its normal course of business.
About First Business Financial Services, Inc.
First Business Financial Services, Inc. (Nasdaq:FBIZ) is a
Wisconsin-based bank holding company focused on the unique needs of
businesses, business executives, and high net worth individuals.
First Business offers commercial banking, specialty finance, and
private wealth management solutions, and because of its niche
focus, is able to provide its clients with unmatched expertise,
accessibility, and responsiveness. For additional information,
visit www.firstbusiness.com or call 608-238-8008.
This release may include forward-looking statements as defined
in the Private Securities Litigation Reform Act of 1995, which
reflect First Business’s current views with respect to future
events and financial performance. Forward-looking statements are
not based on historical information, but rather are related to
future operations, strategies, financial results, or other
developments. Forward-looking statements are based on management’s
expectations as well as certain assumptions and estimates made by,
and information available to, management at the time the statements
are made. Those statements are based on general assumptions and are
subject to various risks, uncertainties, and other factors that may
cause actual results to differ materially from the views, beliefs,
and projections expressed in such statements. Such statements are
subject to risks and uncertainties, including among other
things:
- Competitive pressures among depository
and other financial institutions nationally and in our
markets.
- Adverse changes in the economy or
business conditions, either nationally or in our markets.
- Increases in defaults by borrowers and
other delinquencies.
- Our ability to manage growth
effectively, including the successful expansion of our client
service, administrative infrastructure, and internal management
systems.
- Fluctuations in interest rates and
market prices.
- Changes in legislative or regulatory
requirements applicable to us and our subsidiaries.
- Changes in tax requirements, including
tax rate changes, new tax laws, and revised tax law
interpretations.
- Fraud, including client and system
failure or breaches of our network security, including our internet
banking activities.
- Failure to comply with the applicable
SBA regulations in order to maintain the eligibility of the
guaranteed portion of SBA loans.
For further information about the factors that could affect the
Company’s future results, please see the Company’s annual report on
Form 10-K for the year ended December 31, 2018 and other filings
with the Securities and Exchange Commission.
SELECTED FINANCIAL CONDITION DATA
(Unaudited) As of (in thousands)
March 31, 2019 December 31, 2018
September 30, 2018 June 30,
2018 March 31, 2018 Assets Cash
and cash equivalents $ 56,335 $ 86,546 $ 40,293 $ 45,803 $ 61,322
Securities available-for-sale, at fair value 156,783 138,358
134,995 135,470 127,961 Securities held-to-maturity, at amortized
cost 35,914 37,731 39,950 40,946 41,885 Loans held for sale 5,447
5,287 4,712 4,976 3,429 Loans and leases receivable 1,656,646
1,617,655 1,598,607 1,594,953 1,563,490 Allowance for loan and
lease losses (20,449 ) (20,425 ) (20,455 ) (20,932 ) (18,638 )
Loans and leases receivable, net 1,636,197 1,597,230 1,578,152
1,574,021 1,544,852 Premises and equipment, net 3,043 3,284 3,247
3,358 3,247 Foreclosed properties 2,547 2,547 1,454 1,484 1,484
Right-of-use assets 8,180 — — — — Bank-owned life insurance 41,830
41,538 41,212 40,912 40,614 Federal Home Loan Bank stock, at cost
6,635 7,240 6,890 9,295 8,650 Goodwill and other intangible assets
12,017 12,045 12,132 12,380 12,579 Accrued interest receivable and
other assets 40,714 34,651 31,293 31,142
32,194 Total assets $ 2,005,642 $ 1,966,457
$ 1,894,330 $ 1,899,787 $ 1,878,217
Liabilities and Stockholders’ Equity In-market deposits $
1,239,494 $ 1,179,448 $ 1,076,851 $ 1,056,294 $ 1,078,605 Wholesale
deposits 262,212 275,851 332,052 281,431
292,553 Total deposits 1,501,706 1,455,299 1,408,903
1,337,725 1,371,158 Federal Home Loan Bank advances and other
borrowings 269,958 298,944 281,430 365,416 308,912 Junior
subordinated notes 10,037 10,033 10,029 10,026 10,022 Lease
liabilities 8,504 — — — — Accrued interest payable and other
liabilities 30,337 21,474 16,426 12,948
16,645 Total liabilities 1,820,542 1,785,750
1,716,788 1,726,115 1,706,737 Total stockholders’ equity 185,100
180,707 177,542 173,672 171,480
Total liabilities and stockholders’ equity $ 2,005,642 $
1,966,457 $ 1,894,330 $ 1,899,787 $ 1,878,217
STATEMENTS OF INCOME
(Unaudited) As of and for the Three Months
Ended (Dollars in thousands, except per share amounts)
March 31, 2019 December 31, 2018
September 30, 2018 June 30,
2018 March 31, 2018 Total interest
income $ 25,679 $ 24,522 $ 23,563 $ 22,468 $ 20,722 Total interest
expense 7,925 7,407 6,469 5,537 4,520
Net interest income 17,754 17,115 17,094 16,931 16,202
Provision for loan and lease losses 49 983 (546 )
2,579 2,476 Net interest income after provision for
loan and lease losses 17,705 16,132 17,640 14,352 13,726 Trust and
investment service fees 1,927 1,919 1,941 1,987 1,898 Gain on sale
of SBA loans 242 267 641 274 269 Service charges on deposits 777
770 788 720 784 Loan fees 414 408 459 389 527 Net loss on sale of
securities — (4 ) — — — Swap fees 473 662 306 70 633 Other
non-interest income 805 626 736 542 556
Total non-interest income 4,638 4,648 4,871
3,982 4,667 Compensation 10,165 9,432 9,819
9,116 9,071 Occupancy 590 560 560 544 529 Professional fees 1,210
879 1,027 928 1,035 Data processing 581 614 512 626 611 Marketing
482 617 593 591 333 Equipment 389 345 403 343 343 Computer software
799 780 814 679 742 FDIC insurance 293 353 457 369 299 Collateral
liquidation costs (91 ) 193 230 222 1 Net loss on foreclosed
properties — 337 30 — — Impairment of tax credit investments 2,014
1,529 113 329 113 SBA recourse provision (benefit) 481 1,795 314 99
(295 ) Other non-interest expense 829 810 874
621 1,125 Total non-interest expense 17,742
18,244 15,746 14,467 13,907 Income
before income tax (benefit) expense 4,601 2,536 6,765 3,867 4,486
Income tax (benefit) expense (1,298 ) (1,528 ) 1,464 578
837 Net income $ 5,899 $ 4,064 $ 5,301
$ 3,289 $ 3,649 Per common share: Basic
earnings $ 0.67 $ 0.46 $ 0.60 $ 0.38 $ 0.42 Diluted earnings 0.67
0.46 0.60 0.38 0.42 Dividends declared 0.15 0.14 0.14 0.14 0.14
Book value 21.12 20.57 20.19 19.83 19.57 Tangible book value 19.75
19.20 18.81 18.41 18.13 Weighted-average common shares
outstanding(1) 8,621,221 8,662,025 8,650,057 8,631,189 8,633,278
Weighted-average diluted common shares outstanding(1) 8,621,221
8,662,025 8,650,057 8,631,189 8,633,278
(1) Excluding participating
securities.
NET INTEREST INCOME ANALYSIS
(Unaudited) For the Three Months Ended
(Dollars in thousands) March 31, 2019
December 31, 2018 March 31, 2018
Average
Balance
Interest Average
Yield/Rate(4)
AverageBalance Interest
Average
Yield/Rate(4)
Average
Balance
Interest Average
Yield/Rate(4)
Interest-earning assets Commercial real estate and other
mortgage loans(1) $ 1,113,723 $ 14,689 5.28 % $ 1,093,472 $ 14,259
5.22 % $ 1,046,751 $ 12,341 4.72 % Commercial and industrial
loans(1) 466,046 8,839 7.59 % 461,041 8,129 7.05 % 439,491 6,702
6.10 % Direct financing leases(1) 32,248 326 4.04 % 32,721 339 4.14
% 29,871 303 4.06 % Consumer and other loans(1) 32,436 353
4.35 % 29,963 330 4.41 % 29,361 315
4.29 % Total loans and leases receivable(1) 1,644,453 24,207
5.89 % 1,617,197 23,057 5.70 % 1,545,474 19,661 5.09 %
Mortgage-related securities(2) 146,048 939 2.57 % 143,109 891 2.49
% 128,061 687 2.15 % Other investment securities(3) 30,131 156 2.07
% 30,851 156 2.02 % 36,392 169 1.86 % FHLB stock 7,055 89 5.05 %
7,049 87 4.94 % 6,717 49 2.92 % Short-term investments 45,190
288 2.55 % 54,625 331 2.42 % 57,291
156 1.09 % Total interest-earning assets 1,872,877
25,679 5.48 % 1,852,831 24,522 5.29 % 1,773,935
20,722 4.67 % Non-interest-earning assets 95,796
95,523 88,750 Total assets $ 1,968,673 $
1,948,354 $ 1,862,685
Interest-bearing
liabilities Transaction accounts $ 215,400 871 1.62 % $ 245,910
850 1.38 % $ 297,730 408 0.55 % Money market 555,692 2,524 1.82 %
504,698 2,044 1.62 % 514,837 851 0.66 % Certificates of deposit
159,600 957 2.40 % 134,356 738 2.20 % 80,904 239 1.18 % Wholesale
deposits 267,791 1,444 2.16 % 302,968 1,631
2.15 % 300,855 1,332 1.77 % Total
interest-bearing deposits 1,198,483 5,796 1.93 % 1,187,932 5,263
1.77 % 1,194,326 2,830 0.95 % FHLB advances 267,989 1,444 2.16 %
264,043 1,454 2.20 % 217,517 1,003 1.84 % Other borrowings 24,449
411 6.72 % 24,435 410 6.71 % 24,403 413 6.77 % Junior subordinated
notes 10,034 274 10.92 % 10,031 280
11.17 % 10,020 274 10.94 % Total interest-bearing
liabilities 1,500,955 7,925 2.11 % 1,486,441 7,407
1.99 % 1,446,266 4,520 1.25 % Non-interest-bearing demand
deposit accounts 257,222 257,320 228,557 Other non-interest-bearing
liabilities 37,912 25,101 23,553 Total
liabilities 1,796,089 1,768,862 1,698,376 Stockholders’ equity
172,584 179,492 164,309 Total liabilities and
stockholders’ equity $ 1,968,673 $ 1,948,354 $
1,862,685 Net interest income $ 17,754 $ 17,115
$ 16,202 Interest rate spread 3.37 % 3.30 % 3.42 %
Net interest-earning assets $ 371,922 $ 366,390 $
327,669 Net interest margin 3.79 % 3.69 % 3.65 % (1)
The average balances of loans and leases include non-accrual
loans and leases and loans held for sale. Interest income related
to non-accrual loans and leases is recognized when collected.
Interest income includes net loan fees collected in lieu of
interest. (2) Includes amortized cost basis of assets available for
sale and held to maturity. (3) Yields on tax-exempt municipal
obligations are not presented on a tax-equivalent basis in this
table. (4) Represents annualized yields/rates.
PERFORMANCE RATIOS
For the Three Months Ended (Unaudited)
March 31, 2019 December 31, 2018
September 30, 2018 June 30,
2018 March 31, 2018 Return on average
assets (annualized) 1.20 % 0.83 % 1.11 % 0.70 % 0.78 % Return on
average equity (annualized) 13.67 % 9.06 % 12.06 % 7.59 % 8.88 %
Efficiency ratio 68.04 % 66.95 % 69.55 % 67.07 % 67.45 % Interest
rate spread 3.37 % 3.30 % 3.42 % 3.49 % 3.42 % Net interest margin
3.79 % 3.69 % 3.75 % 3.77 % 3.65 % Average interest-earning assets
to average interest-bearing liabilities 124.78 % 124.65 % 123.25 %
123.25 % 122.66 %
ASSET QUALITY RATIOS
(Unaudited) As of (Dollars in
thousands) March 31, 2019 December
31, 2018 September 30, 2018
June 30, 2018 March 31, 2018
Non-accrual loans and leases $ 23,540 $ 25,301 $ 30,613 $ 31,091 $
20,030 Foreclosed properties 2,547 2,547 1,454
1,484 1,484 Total non-performing assets 26,087 27,848
32,067 32,575 21,514 Performing troubled debt restructurings 169
180 187 249 261 Total impaired
assets $ 26,256 $ 28,028 $ 32,254 $ 32,824
$ 21,775 Non-accrual loans and leases as a
percent of total gross loans and leases 1.42 % 1.56 % 1.91 % 1.95 %
1.28 % Non-performing assets as a percent of total gross loans and
leases plus foreclosed properties 1.57 % 1.72 % 2.00 % 2.04 % 1.37
% Non-performing assets as a percent of total assets 1.30 % 1.42 %
1.69 % 1.71 % 1.15 % Allowance for loan and lease losses as a
percent of total gross loans and leases 1.23 % 1.26 % 1.28 % 1.31 %
1.19 % Allowance for loan and lease losses as a percent of
non-accrual loans and leases 86.87 % 80.73 % 66.82 % 67.32 % 93.05
%
NET CHARGE-OFFS (RECOVERIES)
(Unaudited) For the Three Months Ended
(Dollars in thousands) March 31, 2019
December 31, 2018 September 30,
2018 June 30, 2018 March
31, 2018 Charge-offs $ 48 $ 1,197 $ 1,914 $ 306 $ 2,685
Recoveries (23 ) (184 ) (1,983 ) (21 ) (84 ) Net charge-offs
(recoveries) $ 25 $ 1,013 $ (69 ) $ 285 $
2,601 Net charge-offs (recoveries) as a percent of average
gross loans and leases (annualized) 0.01 % 0.25 % (0.02 )% 0.07 %
0.67 %
CAPITAL RATIOS
As of and for the Three Months Ended
(Unaudited) March 31, 2019 December
31, 2018 September 30, 2018
June 30, 2018 March 31, 2018
Total capital to risk-weighted assets 12.18 % 11.85 % 12.05 % 11.87
% 11.78 % Tier I capital to risk-weighted assets 9.69 % 9.41 % 9.54
% 9.34 % 9.33 % Common equity tier I capital to risk-weighted
assets 9.17 % 8.89 % 9.00 % 8.80 % 8.79 % Tier I capital to
adjusted assets 9.45 % 9.33 % 9.34 % 9.25 % 9.26 % Tangible common
equity to tangible assets 8.68 % 8.63 % 8.79 % 8.55 % 8.52 %
LOAN AND LEASE RECEIVABLE COMPOSITION
(Unaudited) As of (in thousands)
March 31, 2019 December 31, 2018
September 30, 2018 June 30,
2018 March 31, 2018 Commercial real
estate: Commercial real estate - owner occupied $ 212,698 $ 203,476
$ 203,733 $ 196,032 $ 197,268 Commercial real estate - non-owner
occupied 479,061 484,427 487,842 485,962 484,151 Land development
47,503 42,666 45,009 45,033 46,379 Construction 169,894 161,562
132,271 188,036 156,020 Multi-family 184,490 167,868 174,664
137,388 136,098 1-4 family 33,255 34,340 35,729
35,569 41,866
Total commercial real estate
1,126,901 1,094,339 1,079,248 1,088,020 1,061,782 Commercial and
industrial 466,277 462,321 457,932 447,540 443,005 Direct financing
leases, net 32,724 33,170 31,090 32,001 31,387 Consumer and other:
Home equity and second mortgages 8,377 8,438 8,388 7,962 8,270
Other 23,367 20,789 23,451 21,075
20,717 Total consumer and other 31,744 29,227 31,839
29,037 28,987 Total gross loans and leases receivable
1,657,646 1,619,057 1,600,109 1,596,598 1,565,161 Less: Allowance
for loan and lease losses 20,449 20,425 20,455 20,932 18,638
Deferred loan fees 1,000 1,402 1,502 1,645
1,671 Loans and leases receivable, net $ 1,636,197 $
1,597,230 $ 1,578,152 $ 1,574,021 $ 1,544,852
DEPOSIT COMPOSITION
(Unaudited) As of (in thousands)
March 31, 2019 December 31, 2018
September 30, 2018 June 30,
2018 March 31, 2018
Non-interest-bearing transaction accounts $ 286,345 $ 280,769 $
233,915 $ 255,521 $ 240,422 Interest-bearing transaction accounts
206,360 229,612 256,303 272,057 262,766 Money market accounts
579,539 516,045 475,322 450,654 498,310 Certificates of deposit
167,250 153,022 111,311 78,062 77,107 Wholesale deposits 262,212
275,851 332,052 281,431 292,553 Total
deposits $ 1,501,706 $ 1,455,299 $ 1,408,903 $
1,337,725 $ 1,371,158
TRUST ASSETS COMPOSITION
(Unaudited) As of (in thousands)
March 31, 2019 December 31, 2018
September 30, 2018 June 30,
2018 March 31, 2018 Trust assets under
management $ 1,564,821 $ 1,452,911 $ 1,534,395 $ 1,465,101 $
1,393,654 Trust assets under administration 167,124 177,416
186,530 180,320 185,463 Total trust assets $
1,731,945 $ 1,630,327 $ 1,720,925 $ 1,645,421
$ 1,579,117
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) March 31, 2019
December 31, 2018 September 30,
2018 June 30, 2018 March
31, 2018 Common stockholders’ equity $ 185,100 $ 180,707
$ 177,542 $ 173,672 $ 171,480 Goodwill and other intangible assets
(12,017 ) (12,045 ) (12,132 ) (12,380 ) (12,579 ) Tangible common
equity $ 173,083 $ 168,662 $ 165,410 $ 161,292
$ 158,901 Common shares outstanding 8,765,136
8,785,480 8,793,941 8,760,103 8,764,420 Book value per share $
21.12 $ 20.57 $ 20.19 $ 19.83 $ 19.57 Tangible book value per share
19.75 19.20 18.81 18.41 18.13
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) March 31, 2019 December
31, 2018 September 30, 2018
June 30, 2018 March 31, 2018
Common stockholders’ equity $ 185,100 $ 180,707 $ 177,542 $ 173,672
$ 171,480 Goodwill and other intangible assets (12,017 ) (12,045 )
(12,132 ) (12,380 ) (12,579 ) Tangible common equity $ 173,083
$ 168,662 $ 165,410 $ 161,292 $ 158,901
Total assets $ 2,005,642 $ 1,966,457 $ 1,894,330 $ 1,899,787
$ 1,878,217 Goodwill and other intangible assets (12,017 ) (12,045
) (12,132 ) (12,380 ) (12,579 ) Tangible assets $ 1,993,625
$ 1,954,412 $ 1,882,198 $ 1,887,407 $
1,865,638 Tangible common equity to tangible assets 8.68 %
8.63 % 8.79 % 8.55 % 8.52 %
EFFICIENCY RATIO
“Efficiency ratio” is a non-GAAP measure representing
non-interest expense excluding the effects of the SBA recourse
provision, impairment of tax credit investments, losses or gains on
foreclosed properties, amortization of other intangible assets and
other discrete items, if any, divided by operating revenue, which
is equal to net interest income plus non-interest income less
realized gains or losses on securities, if any. In the judgment of
the Company’s management, the adjustments made to non-interest
expense and operating revenue allow investors and analysts to
better assess the Company’s operating expenses in relation to its
core operating revenue by removing the volatility that is
associated with certain one-time items and other discrete items.
The information provided below reconciles the efficiency ratio to
its most comparable GAAP measure.
(Unaudited) For the Three Months Ended
(Dollars in thousands) March 31, 2019
December 31, 2018 September 30,
2018 June 30, 2018 March
31, 2018 Total non-interest expense $ 17,742 $ 18,244 $
15,746 $ 14,467 $ 13,907 Less: Net loss on foreclosed properties —
337 30 — — Amortization of other intangible assets 11 11 12 12 12
SBA recourse provision (benefit) 481 1,795 314 99 (295 ) Impairment
of tax credit investments 2,014 1,529 113 329
113 Total operating expense $ 15,236 $ 14,572
$ 15,277 $ 14,027 $ 14,077 Net interest
income $ 17,754 $ 17,115 $ 17,094 $ 16,931 $ 16,202 Total
non-interest income 4,638 4,648 4,871 3,982 4,667 Less: Net loss on
sale of securities — (4 ) — — — Total
operating revenue $ 22,392 $ 21,767 $ 21,965 $
20,913 $ 20,869 Efficiency ratio 68.04 % 66.95 %
69.55 % 67.07 % 67.45 %
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version on businesswire.com: https://www.businesswire.com/news/home/20190425005967/en/
First Business Financial Services, Inc.Edward G. Sloane,
Jr.Chief Financial Officer608-232-5970esloane@firstbusiness.com
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