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First Business Bank Reports Fourth Quarter 2022 Net Income of $9.9 Million

-- Loan growth, net interest margin expansion, and strong asset quality support continued tangible book value growth --

First Business Financial Services, Inc. (the “Company”, the “Bank”, or “First Business Bank”) (Nasdaq:FBIZ) reported quarterly net income available to common shareholders of $9.9 million, or $1.18 diluted earnings per share. This compares to net income available to common shareholders of $10.6 million, or $1.25 per share, in the third quarter of 2022 and $8.6 million, or $1.01 per share, in the fourth quarter of 2021. For the full year 2022, the Company reported net income available to common shareholders of $40.2 million, or $4.75 per share, compared to $35.8 million, or $4.17 per share, in 2021.

“Excellent execution across our commercial lending businesses continued through the fourth quarter, highlighted by 20% annualized loan growth,” Chief Executive Officer Corey Chambas said. “The impact of rising rates and strong balance sheet management, contributed to record net interest margin of 4.15%. We believe our core net interest margin will remain relatively stable in the near-term given the current interest rate environment. We bolstered our funding position with solid in-market deposit expansion, along with the use of wholesale deposits as part of our long-held strategy to match-fund our fixed rate loans.” Chambas added, “This important component of our interest rate risk management strategy resulted in favorable margin expansion compared to peer banks. Outstanding execution led to growth in tangible book value per share of 9% for the year, which compares very favorably to the industry. We enter 2023 with expectations for double-digit loan, deposit, and revenue growth, driving strong earnings performance.”

Quarterly Highlights

  • Robust Loan Growth. Loans, excluding net Paycheck Protection Program (“PPP”) loans, grew $114.2 million, or 19.6% annualized, from the third quarter of 2022 and $230.4 million, or 10.4%, from the fourth quarter of 2021, reflecting balanced growth across the Company’s commercial and industrial (“C&I”) and commercial real estate (“CRE”) portfolios.
  • Strong Deposit Growth. Total deposits grew to $2.168 billion, increasing 15.5% annualized from the linked quarter and 10.7% from the fourth quarter of 2021. In-market deposits grew to $1.966 billion, up $36.7 million, or 7.6% annualized, from the linked quarter.
  • Record Net Interest Income. Net interest income grew to a record $27.5 million, increasing $1.6 million, or 6.1%, from the linked quarter and $6.5 million, or 31.2%, from the prior year quarter. This was driven by a combination of 11.6% annualized increase in average loans and leases as well as a record net interest margin of 4.15%.
  • Exceptional Asset Quality. Continued positive asset quality trends resulted in non-performing assets of $3.8 million, measuring a historically low of 0.13% of total assets and improving from 0.25% of total assets on December 31, 2021.
  • Tangible Book Value Growth. The Company’s strong earnings generation produced a 17.0% annualized increase in tangible book value per share compared to the linked quarter and 8.6% compared to the prior year quarter.

Quarterly Financial Results

 

(Unaudited)

 

As of and for the Three Months Ended

 

As of and for the Year Ended

(Dollars in thousands, except per share amounts)

 

December 31,

2022

 

September 30,

2022

 

December 31,

2021

 

December 31,

2022

 

December 31,

2021

Net interest income

 

$

27,452

 

 

$

25,884

 

 

$

20,924

 

 

$

98,422

 

 

$

84,662

 

Adjusted non-interest income (1)

 

 

6,164

 

 

 

8,197

 

 

 

7,569

 

 

 

28,619

 

 

 

28,071

 

Operating revenue (1)

 

 

33,616

 

 

 

34,081

 

 

 

28,493

 

 

 

127,041

 

 

 

112,733

 

Operating expense (1)

 

 

20,658

 

 

 

19,925

 

 

 

17,644

 

 

 

79,155

 

 

 

71,571

 

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

 

 

12,958

 

 

 

14,156

 

 

 

10,849

 

 

 

47,886

 

 

 

41,162

 

Less:

 

 

 

 

 

 

 

 

 

 

Provision for loan and lease losses

 

 

702

 

 

 

12

 

 

 

(508

)

 

 

(3,868

)

 

 

(5,803

)

Net loss on foreclosed properties

 

 

22

 

 

 

7

 

 

 

7

 

 

 

49

 

 

 

15

 

Amortization of other intangible assets

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

25

 

Contribution to First Business Charitable Foundation

 

 

809

 

 

 

 

 

 

 

 

 

809

 

 

 

 

SBA recourse (benefit) provision

 

 

(322

)

 

 

96

 

 

 

(122

)

 

 

(188

)

 

 

(76

)

Tax credit investment impairment recovery

 

 

 

 

 

 

 

 

 

 

 

(351

)

 

 

 

Add:

 

 

 

 

 

 

 

 

 

 

Bank-owned life insurance claim

 

 

809

 

 

 

 

 

 

 

 

 

809

 

 

 

 

Net gain on sale of securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29

 

Income before income tax expense

 

 

12,556

 

 

 

14,041

 

 

 

11,470

 

 

 

52,244

 

 

 

47,030

 

Income tax expense

 

 

2,400

 

 

 

3,215

 

 

 

2,879

 

 

 

11,386

 

 

 

11,275

 

Net income

 

$

10,156

 

 

$

10,826

 

 

$

8,591

 

 

$

40,858

 

 

$

35,755

 

Preferred stock dividends

 

 

219

 

 

 

218

 

 

 

 

 

 

683

 

 

 

 

Net income available to common shareholders

 

$

9,937

 

 

$

10,608

 

 

$

8,591

 

 

$

40,175

 

 

$

35,755

 

Earnings per share, diluted

 

$

1.18

 

 

$

1.25

 

 

$

1.01

 

 

$

4.75

 

 

$

4.17

 

Book value per share

 

$

29.74

 

 

$

28.58

 

 

$

27.48

 

 

$

29.74

 

 

$

27.48

 

Tangible book value per share (1)

 

$

28.28

 

 

$

27.13

 

 

$

26.03

 

 

$

28.28

 

 

$

26.03

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin (2)

 

 

4.15

%

 

 

4.01

%

 

 

3.39

%

 

 

3.82

%

 

 

3.44

%

Adjusted net interest margin (1)(2)

 

 

3.94

%

 

 

3.89

%

 

 

3.23

%

 

 

3.64

%

 

 

3.21

%

Fee income ratio (non-interest income / total revenue)

 

 

20.26

%

 

 

24.05

%

 

 

26.56

%

 

 

23.02

%

 

 

24.92

%

Efficiency ratio (1)

 

 

61.45

%

 

 

58.46

%

 

 

61.92

%

 

 

62.31

%

 

 

63.49

%

Return on average assets (2)

 

 

1.39

%

 

 

1.54

%

 

 

1.32

%

 

 

1.46

%

 

 

1.37

%

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

 

 

1.81

%

 

 

2.05

%

 

 

1.66

%

 

 

1.74

%

 

 

1.58

%

Return on average common equity (2)

 

 

16.26

%

 

 

17.44

%

 

 

15.04

%

 

 

16.79

%

 

 

16.21

%

 

 

 

 

 

 

 

 

 

 

 

Period-end loans and leases receivable

 

$

2,443,066

 

 

$

2,330,700

 

 

$

2,239,408

 

 

$

2,443,066

 

 

$

2,239,408

 

Average loans and leases receivable

 

$

2,384,091

 

 

$

2,316,621

 

 

$

2,179,769

 

 

$

2,304,990

 

 

$

2,179,154

 

Period-end in-market deposits

 

$

1,965,970

 

 

$

1,929,224

 

 

$

1,928,285

 

 

$

1,965,970

 

 

$

1,928,285

 

Average in-market deposits

 

$

1,950,625

 

 

$

1,930,995

 

 

$

1,866,875

 

 

$

1,928,815

 

 

$

1,784,302

 

Allowance for loan and lease losses

 

$

24,230

 

 

$

24,143

 

 

$

24,336

 

 

$

24,230

 

 

$

24,336

 

Non-performing assets

 

$

3,754

 

 

$

3,796

 

 

$

6,522

 

 

$

3,754

 

 

$

6,522

 

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

 

 

0.99

%

 

 

1.04

%

 

 

1.09

%

 

 

0.99

%

 

 

1.09

%

Non-performing assets as a percent of total assets

 

 

0.13

%

 

 

0.13

%

 

 

0.25

%

 

 

0.13

%

 

 

0.25

%

(1)

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

(2)

Calculation is annualized.

Quarterly Financial Results - Excluding PPP Loans, Interest Income, and Fees

 

(Unaudited)

 

As of and for the Three Months Ended

 

As of and for the Year Ended

(Dollars in thousands, except per share amounts)

 

December 31,

2022

 

September 30,

2022

 

December 31,

2021

 

December 31,

2022

 

December 31,

2021

Net interest income

 

$

27,444

 

 

$

25,812

 

 

$

19,898

 

 

$

97,816

 

 

$

75,826

 

Adjusted non-interest income (1)

 

 

6,164

 

 

 

8,197

 

 

 

7,569

 

 

 

28,619

 

 

 

28,071

 

Operating revenue (1)

 

 

33,608

 

 

 

34,009

 

 

 

27,467

 

 

 

126,435

 

 

 

103,897

 

Operating expense (1)

 

 

20,658

 

 

 

19,925

 

 

 

17,644

 

 

 

79,155

 

 

 

71,571

 

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

 

$

12,950

 

 

$

14,084

 

 

$

9,823

 

 

$

47,280

 

 

$

32,326

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin (2)

 

 

4.15

%

 

 

4.00

%

 

 

3.29

%

 

 

3.81

%

 

 

3.29

%

Fee income ratio (non-interest income / total revenue)

 

 

20.26

%

 

 

24.10

%

 

 

27.56

%

 

 

23.13

%

 

 

27.04

%

Efficiency ratio (1)

 

 

61.47

%

 

 

58.59

%

 

 

64.24

%

 

 

62.61

%

 

 

68.89

%

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

 

 

1.81

%

 

 

2.05

%

 

 

1.53

%

 

 

1.72

%

 

 

1.32

%

 

 

 

 

 

 

 

 

 

 

 

Period-end loans and leases receivable

 

$

2,442,560

 

 

$

2,328,376

 

 

$

2,212,111

 

 

$

2,442,560

 

 

$

2,212,111

 

Average loans and leases receivable

 

$

2,381,958

 

 

$

2,312,116

 

 

$

2,126,846

 

 

$

2,295,250

 

 

$

2,026,890

 

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

 

 

0.99

%

 

 

1.04

%

 

 

1.10

%

 

 

0.99

%

 

 

1.10

%

Non-performing assets as a percent of total assets

 

 

0.13

%

 

 

0.13

%

 

 

0.25

%

 

 

0.13

%

 

 

0.25

%

(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.

Fourth Quarter 2022 Compared to Third Quarter 2022

Net interest income increased $1.6 million, or 6.1%, to $27.5 million.

  • Net interest income growth was driven by an increase in both average loans and leases and in fees in lieu of interest combined with net interest margin expansion. Average loans and leases receivable increased $67.5 million, or 11.6% annualized, to $2.384 billion. Fees in lieu of interest, which can vary from quarter to quarter based on client-driven activity, totaled $1.3 million, compared to $807,000 in the prior quarter. Excluding fees in lieu of interest and interest income from PPP loans, net interest income increased $1.1 million, or 17.0% annualized.
  • The yield on average interest-earning assets increased 87 basis points to 5.79% from 4.92%. Excluding average net PPP loans, PPP loan interest income, and fees in lieu of interest, the yield earned on average interest-earning assets increased 79 basis points to 5.59% from 4.80%.
  • The rate paid for average interest-bearing, in-market deposits increased 113 basis points to 2.01% from 0.88%. The rate paid for average total bank funding increased 78 basis points to 1.67% from 0.89%. Total bank funding is defined as total deposits plus Federal Home Loan Bank (“FHLB”) advances. The daily average effective federal funds rate increased 147 basis points compared to the linked quarter, which equates to a total bank funding beta of 53.1% for the three months ended December 31, 2022.
  • Net interest margin was 4.15%, up 14 basis points compared to 4.01% in the linked quarter. Adjusted net interest margin1 was 3.94%, up 5 basis points compared to 3.89% in the linked quarter. Net interest margin expansion was due to an increase in fees of lieu of interest and the beta on interest earning assets exceeding the total bank funding beta.
  • The Bank maintains an asset-sensitive balance sheet and ended the quarter positioned for net interest income to continue to benefit from rising rates. However, the Bank anticipates deposit betas will continue to rise at a greater rate, and adjusted net interest margin may begin to decline at a gradual pace in coming quarters.

The Bank reported a provision expense of $702,000, compared to $12,000 in the third quarter of 2022.

  • The provision for loan and lease losses expense in the fourth quarter of 2022 was primarily due to net charge offs of $615,000 and an increase of $982,000 in the general reserve due to loan growth, partially offset by a $930,000 decrease in the general reserve due to a decrease in the historical loss factor as elevated losses during the Great Recession fall outside the model look-back period.
  • The Bank adopted ASU No. 2016-13, “Financial Instruments- Credit Losses (Topic 326)", which is often referred to as CECL, on January 1, 2023.

Non-interest income decreased $1.2 million, or 14.9%, to $7.0 million.

  • Private Wealth and Retirement assets (“Private Wealth”) fee income decreased $48,000, or 1.8% to $2.6 million. Private Wealth assets under management and administration measured $2.660 billion at December 31, 2022, up $167.4 million from the third quarter, with a majority of the growth occurring late in the fourth quarter.
  • Gains on sale of Small Business Administration (“SBA”) loans decreased $463,000, or 63.3%, to $269,000. Premiums on the sale of SBA loans sold decreased compared to prior quarter and the Company elected to hold a higher proportion of SBA loans on its balance sheet in the current interest rate environment.
  • Commercial loan swap fee income increased $415,000, or 121.7%, to $756,000. Swap fee income can vary from period to period based on loan activity and the interest rate environment.
  • Service charges on deposits decreased $227,000, or 22.3%, to $791,000, driven by an increase in the earnings credit rate commensurate with the rising rate environment.
  • Other fee income decreased $934,000 to $1.7 million, compared to $2.7 million in the third quarter. The decrease was primarily due to lower returns on the Company’s investments in mezzanine funds and lower income in the equipment financing business line. The fourth quarter decrease was partially offset by the recognition of a $809,000 bank-owned life insurance claim. Income on mezzanine funds can vary from period to period based on changes in the value of underlying investments.

Non-interest expense increased $1.1 million, or 5.7%, to $21.2 million, while operating expense increased $733,000, or 3.7%, to $20.7 million.

____________________

1 Adjusted net interest margin is a non-GAAP measure representing net interest income excluding fees in lieu of interest and other recurring, but volatile, components of net interest margin divided by average interest-earning assets less average net PPP loans and other recurring, but volatile, components of average interest-earning assets.

  • Compensation expense was $15.3 million, reflecting an increase of $450,000, or 3.0%, from the linked quarter due to a $347,000 adjustment to the annual cash incentive bonus program accrual driven by above-target current year performance, as well as expanded hiring to support the Bank’s growth plans. The Bank’s compensation philosophy is to provide base salaries competitive with the market. To stay competitive in the tight labor market, the Company increased its base salaries consistent with 2021. Average full-time equivalents (FTEs) for the fourth quarter of 2022 were 336, up three from 333 in the linked quarter.
  • Equipment expense increased $106,000, or 41.9%, to $359,000 from the linked quarter primarily due to one-time costs associated with an office relocation.
  • Occupancy expense increased $103,000, or 18.2%, to $669,000 from the linked quarter primarily due to an office relocation and one-time costs associated with building repairs.
  • Other non-interest expense increased $354,000, or 62.2%, to $923,000 from the linked quarter primarily due to a non-recurring contribution to the First Business Charitable Foundation totaling $809,000 during the fourth quarter partially offset by a recourse release of $322,000 and a swap credit valuation benefit of $153,000.

Income tax expense decreased $815,000, or 25.3%, to $2.4 million. The effective tax rate was 19.1% for the three months ended December 31, 2022, compared to 22.9% for the linked quarter. The three months ended December 31, 2022 benefited from low income housing tax credits and a state return amendment. The Company expects to report an effective tax rate of 21-22% for 2023.

Total period-end loans and leases receivable increased $112.4 million, or 19.3% annualized, to $2.443 billion. Excluding net PPP loans, total period-end loans and leases receivable increased $114.2 million, or 19.6% annualized.

  • Commercial real estate loans increased by $57.0 million, or 15.4% annualized, to $1.542 billion, compared to $1.485 billion. Growth spanned all commercial real estate categories, led by increases in non-owner occupied and multi-family loans.
  • C&I loans increased $52.2 million, or 26.4% annualized, to $841.2 million, compared to $789.0 million. Excluding PPP loans, C&I loans increased $54.0 million, or 27.6% annualized, due to growth across products and geographies.

Total period-end in-market deposits increased $36.7 million, or 7.6% annualized, to $1.966 billion, compared to $1.929 billion. The average rate paid was 1.43%, up 82 basis points from 0.61% in the third quarter.

Period-end wholesale funding, including FHLB advances, brokered deposits, and deposits gathered through internet deposit listing services, increased $82.5 million to $618.6 million.

  • Wholesale deposits increased $43.9 million to $202.2 million, compared to $158.3 million as the Bank continued to replace FHLB advances with wholesale deposits. The increase in wholesale funding is consistent with the Company’s long-held philosophy to manage interest rate risk by utilizing the most efficient and cost-effective source of wholesale funds to match-fund our fixed-rate loan portfolio. The average rate paid on wholesale deposits increased 120 basis points to 3.66% and the weighted average original maturity increased to 2.1 years from 0.3 years.
  • FHLB advances increased $38.6 million to $416.4 million. The average rate paid on FHLB advances increased 20 basis points to 2.21% and the weighted average original maturity decreased to 3.7 years from 4.8 years.

Non-performing assets were $3.8 million, or 0.13% of total assets in both periods of comparison.

The allowance for loan and lease losses increased $87,000, or 0.4%, as increases in the general reserve from loan growth and net charge-offs were partially offset by a decrease in the general reserve due to a change in loss factors derived from the historical look-back period. The allowance for loan and lease losses as a percent of total gross loans and leases was 0.99% compared to 1.04% in the third quarter.

Fourth Quarter 2022 Compared to Fourth Quarter 2021

Net interest income increased $6.5 million, or 31.2%, to $27.5 million.

  • The increase in net interest income primarily reflects an increase in average gross loans and leases and net interest margin expansion, partially offset by lower fees in lieu of interest. Fees in lieu of interest decreased from $1.7 million to $1.3 million, primarily due to a $889,000 reduction in PPP loan fee amortization. Excluding fees in lieu of interest and interest income from PPP loans, net interest income increased $7.0 million, or 36.9%. Excluding net PPP loans, average gross loans and leases increased $255.1 million, or 12.0%.
  • Net interest margin increased 76 basis points to 4.15% from 3.39%. Adjusted net interest margin increased 71 basis points to 3.94% from 3.23%.
  • The yield on average interest-earning assets measured 5.79% compared to 3.81%. Excluding fees in lieu of interest, PPP loan interest income, and net PPP loans, the yield on average interest-earning assets measured 5.59%, compared to 3.60%. This increase in yield was primarily due to the increase in short-term market rates and the reinvestment of cash flows from the securities and fixed rate loan portfolios in a rising rate environment.
  • The rate paid for average interest-bearing in-market deposits increased 183 basis points to 2.01% from 0.18%. The rate paid for average total bank funding increased 124 basis points to 1.67% from 0.33%.

The Company reported a provision expense of $702,000, compared to a provision benefit of $508,000 in the fourth quarter of 2021 primarily due to an increase in net charge-offs in the current quarter and improvement in subjective factors in the prior year quarter.

Non-interest income of $7.0 million decreased by $596,000, or 7.9%, from $7.6 million in the prior year period.

  • Private Wealth fee income decreased $304,000, or 10.6%, to $2.6 million, due to a decline in market values. Private Wealth assets under management and administration measured $2.660 billion at December 31, 2022, down $260.7 million, or 8.9%.
  • Gain on sale of SBA loans decreased $773,000, or 74.2%, to $269,000. Premiums on the sale and notional value of SBA loans sold decreased compared to prior year quarter, as the Company elected to hold a higher proportion of SBA loans on its balance sheet in the current interest rate environment.
  • Service charges on deposits decreased $232,000, or 22.7%, to $791,000. The reasons for the decrease are consistent with the explanations discussed above in the linked quarter analysis.
  • Loan fees of $847,000 increased by $168,000, or 24.7%, primarily due to an increase in C&I lending activity.
  • Other fee income increased $473,000, or 37.4%, to $1.7 million, due to the recognition of a $809,000 bank owned life insurance death benefit, partially offset by lower returns on the Company’s investments in mezzanine funds. Income on mezzanine funds can vary from period to period based on changes in the value of underlying investments.

Non-interest expense increased $3.6 million, or 20.7%, to $21.2 million. Operating expense increased $3.0 million, or 17.1%, to $20.7 million.

  • Compensation expense increased $2.8 million, or 22.7%, to $15.3 million. Average FTEs increased 12% to 336 in the fourth quarter of 2022, compared to 301 in the fourth quarter of 2021. The increase in compensation expense was mainly due to an increase in average FTEs, annual merit increases and promotions, and an increase in incentive compensation due to outstanding company performance.
  • Full year 2022 compensation included a $6.7 million annual incentive compensation accrual, which exceeded the Company’s target payout by $2.5 million.
  • Professional fees increased $277,000, or 29.7%, to $1.2 million, primarily due to a general increase in other professional consulting services associated with various projects and an increase in audit expenses.
  • Equipment expense increased $136,000, or 61.0%, to $359,000. The reasons for the increase in equipment expense are consistent with the explanations discussed above in the linked quarter analysis.
  • Occupancy expense increased $118,000, or 21.4%, to $669,000. The reasons for the increase in occupancy expense are consistent with the explanations discussed above in the linked quarter analysis.
  • Other non-interest expense increased $94,000, or 11.3%, to $923,000 primarily due to a non-recurring charitable contribution totaling $809,000 during the fourth quarter partially offset by a reduction in expenses related to swap credit valuations and recourse provision.

Total period-end loans and leases receivable increased $203.7 million, or 9.1%, to $2.443 billion. Excluding net PPP loans, total period-end loans and leases receivable increased $230.4 million, or 10.4%, to $2.443 billion.

  • C&I loans increased $110.4 million, or 15.1% to $841.2 million. Excluding PPP loans, C&I loans increased $137.7 million, or 19.6%, to $840.6 million due to growth across categories and geographies.
  • CRE loans increased $87.3 million, or 6.0%, to $1.542 billion, due to increases in most CRE categories.

Total period-end in-market deposits increased $37.7 million, or 2.0%, to $1.966 billion, and the average rate paid increased 130 basis points to 1.43%. The increase in in-market deposits was principally due to a $99.7 million increase in certificates of deposit, partially offset by a $55.9 million decline in money market accounts.

Period-end wholesale funding increased $220.2 million to $618.6 million.

  • Wholesale deposits increased $172.6 million to $202.2 million, as the Bank utilized more wholesale deposits in lieu of short-term FHLB advances. The average rate paid on brokered certificates of deposit increased 263 basis points to 3.66% and the weighted average original maturity decreased to 2.1 years from 3.8 years.
  • FHLB advances increased $47.6 million to $416.4 million. The average rate paid on FHLB advances increased 91 basis points to 2.21% and the weighted average original maturity decreased to 3.7 years from 5.9 years.

Non-performing assets decreased to $3.8 million, or 0.13% of total assets, compared to $6.5 million, or 0.25% of total assets.

The allowance for loan and lease losses decreased $106,000 to $24.2 million, compared to $24.3 million. The allowance for loan and lease losses as a percent of total gross loans and leases was 0.99%, compared to 1.09%.

Paycheck Protection Program

As of December 31, 2022, the Company had $554,000 in gross PPP loans outstanding and deferred processing fees outstanding of $48,000. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness, as an adjustment of yield using the interest method. During the three and twelve months ended December 31, 2022, the Company recognized $3,000 and $509,000 of PPP processing fees in interest income, respectively, compared to $892,000 and $7.3 million for the three and twelve months ended December 31, 2021. The SBA provides a guaranty to the lender of 100% of principal and interest unless the lender violated an obligation under the agreement.

Share Repurchase Program Update

As previously announced, effective March 4, 2022, the Company’s Board of Directors authorized the repurchase by the Company of shares of its common stock with a maximum aggregate purchase price of $5.0 million, effective March 4, 2022 through March 4, 2023. As of December 16, 2022, the Company had completed the share repurchase program, purchasing a total of 142,074 shares for approximately $5.0 million at an average cost of $35.14 per share.

About First Business Financial Services, Inc.

First Business Financial Services, Inc., (Nasdaq: FBIZ) is the parent company of First Business Bank. First Business Bank specializes in business banking, including commercial banking and specialized lending, private wealth, and bank consulting services, and through its refined focus, delivers unmatched expertise, accessibility, and responsiveness. Specialized lending solutions are delivered through First Business Bank’s wholly owned subsidiary First Business Specialty Finance, LLC. For additional information, visit firstbusiness.bank.

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

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

For further information about the factors that could affect the Company’s future results, please see the Company’s annual report on Form 10-K for the year ended December 31, 2021 and other filings with the Securities and Exchange Commission.

SELECTED FINANCIAL CONDITION DATA

 

(Unaudited)

 

As of

(in thousands)

 

December 31,

2022

 

September 30,

2022

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

102,682

 

 

$

110,965

 

 

$

95,484

 

 

$

95,603

 

 

$

57,110

 

Securities available-for-sale, at fair value

 

 

212,024

 

 

 

196,566

 

 

 

208,643

 

 

 

223,631

 

 

 

205,702

 

Securities held-to-maturity, at amortized cost

 

 

12,635

 

 

 

13,531

 

 

 

13,968

 

 

 

17,267

 

 

 

19,746

 

Loans held for sale

 

 

2,632

 

 

 

773

 

 

 

2,256

 

 

 

2,418

 

 

 

3,570

 

Loans and leases receivable

 

 

2,443,066

 

 

 

2,330,700

 

 

 

2,290,100

 

 

 

2,251,249

 

 

 

2,239,408

 

Allowance for loan and lease losses

 

 

(24,230

)

 

 

(24,143

)

 

 

(24,104

)

 

 

(23,669

)

 

 

(24,336

)

Loans and leases receivable, net

 

 

2,418,836

 

 

 

2,306,557

 

 

 

2,265,996

 

 

 

2,227,580

 

 

 

2,215,072

 

Premises and equipment, net

 

 

4,340

 

 

 

3,143

 

 

 

1,899

 

 

 

1,621

 

 

 

1,694

 

Foreclosed properties

 

 

95

 

 

 

151

 

 

 

124

 

 

 

117

 

 

 

164

 

Right-of-use assets

 

 

7,690

 

 

 

5,424

 

 

 

5,772

 

 

 

6,118

 

 

 

4,910

 

Bank-owned life insurance

 

 

54,018

 

 

 

54,683

 

 

 

54,324

 

 

 

53,974

 

 

 

53,600

 

Federal Home Loan Bank stock, at cost

 

 

17,812

 

 

 

15,701

 

 

 

22,959

 

 

 

12,863

 

 

 

13,336

 

Goodwill and other intangible assets

 

 

12,159

 

 

 

12,218

 

 

 

12,262

 

 

 

12,184

 

 

 

12,268

 

Derivatives

 

 

68,581

 

 

 

73,718

 

 

 

44,461

 

 

 

26,890

 

 

 

26,343

 

Accrued interest receivable and other assets

 

 

63,107

 

 

 

57,372

 

 

 

48,868

 

 

 

43,816

 

 

 

39,390

 

Total assets

 

$

2,976,611

 

 

$

2,850,802

 

 

$

2,777,016

 

 

$

2,724,082

 

 

$

2,652,905

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

In-market deposits

 

$

1,965,970

 

 

$

1,929,224

 

 

$

1,857,010

 

 

$

2,011,373

 

 

$

1,928,285

 

Wholesale deposits

 

 

202,236

 

 

 

158,321

 

 

 

12,321

 

 

 

12,321

 

 

 

29,638

 

Total deposits

 

 

2,168,206

 

 

 

2,087,545

 

 

 

1,869,331

 

 

 

2,023,694

 

 

 

1,957,923

 

Federal Home Loan Bank advances and other borrowings

 

 

456,808

 

 

 

420,297

 

 

 

596,642

 

 

 

414,487

 

 

 

403,451

 

Junior subordinated notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,076

 

Lease liabilities

 

 

10,175

 

 

 

6,827

 

 

 

7,207

 

 

 

7,580

 

 

 

5,406

 

Derivatives

 

 

61,419

 

 

 

66,162

 

 

 

40,357

 

 

 

24,961

 

 

 

28,283

 

Accrued interest payable and other liabilities

 

 

19,363

 

 

 

16,967

 

 

 

13,556

 

 

 

8,309

 

 

 

15,344

 

Total liabilities

 

 

2,715,971

 

 

 

2,597,798

 

 

 

2,527,093

 

 

 

2,479,031

 

 

 

2,420,483

 

Total stockholders’ equity

 

 

260,640

 

 

 

253,004

 

 

 

249,923

 

 

 

245,051

 

 

 

232,422

 

Total liabilities and stockholders’ equity

 

$

2,976,611

 

 

$

2,850,802

 

 

$

2,777,016

 

 

$

2,724,082

 

 

$

2,652,905

 

STATEMENTS OF INCOME

 

(Unaudited)

 

As of and for the Three Months Ended

 

As of and for the Year Ended

(Dollars in thousands, except per share amounts)

 

December 31,

2022

 

September 30,

2022

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

 

December 31,

2022

 

December 31,

2021

Total interest income

 

$

38,319

 

$

31,786

 

$

27,031

 

 

$

24,235

 

 

$

23,576

 

 

$

121,371

 

 

$

95,995

 

Total interest expense

 

 

10,867

 

 

5,902

 

 

3,371

 

 

 

2,809

 

 

 

2,652

 

 

 

22,949

 

 

 

11,333

 

Net interest income

 

 

27,452

 

 

25,884

 

 

23,660

 

 

 

21,426

 

 

 

20,924

 

 

 

98,422

 

 

 

84,662

 

Provision for loan and lease losses

 

 

702

 

 

12

 

 

(3,727

)

 

 

(855

)

 

 

(508

)

 

 

(3,868

)

 

 

(5,803

)

Net interest income after provision for loan and lease losses

 

 

26,750

 

 

25,872

 

 

27,387

 

 

 

22,281

 

 

 

21,432

 

 

 

102,290

 

 

 

90,465

 

Private wealth management service fees

 

 

2,570

 

 

2,618

 

 

2,852

 

 

 

2,841

 

 

 

2,874

 

 

 

10,881

 

 

 

10,784

 

Gain on sale of SBA loans

 

 

269

 

 

732

 

 

951

 

 

 

585

 

 

 

1,042

 

 

 

2,537

 

 

 

4,044

 

Service charges on deposits

 

 

791

 

 

1,018

 

 

1,041

 

 

 

999

 

 

 

1,023

 

 

 

3,849

 

 

 

3,837

 

Loan fees

 

 

847

 

 

814

 

 

697

 

 

 

652

 

 

 

679

 

 

 

3,010

 

 

 

2,506

 

Net gain on sale of securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29

 

Swap fees

 

 

756

 

 

341

 

 

471

 

 

 

225

 

 

 

684

 

 

 

1,793

 

 

 

1,368

 

Other non-interest income

 

 

1,740

 

 

2,674

 

 

860

 

 

 

2,084

 

 

 

1,267

 

 

 

7,358

 

 

 

5,532

 

Total non-interest income

 

 

6,973

 

 

8,197

 

 

6,872

 

 

 

7,386

 

 

 

7,569

 

 

 

29,428

 

 

 

28,100

 

Compensation

 

 

15,267

 

 

14,817

 

 

14,020

 

 

 

13,638

 

 

 

12,447

 

 

 

57,742

 

 

 

51,710

 

Occupancy

 

 

669

 

 

566

 

 

568

 

 

 

555

 

 

 

551

 

 

 

2,358

 

 

 

2,180

 

Professional fees

 

 

1,210

 

 

1,203

 

 

1,298

 

 

 

1,170

 

 

 

933

 

 

 

4,881

 

 

 

3,736

 

Data processing

 

 

806

 

 

719

 

 

892

 

 

 

780

 

 

 

773

 

 

 

3,197

 

 

 

3,087

 

Marketing

 

 

641

 

 

543

 

 

670

 

 

 

500

 

 

 

548

 

 

 

2,354

 

 

 

2,022

 

Equipment

 

 

359

 

 

253

 

 

235

 

 

 

244

 

 

 

223

 

 

 

1,091

 

 

 

990

 

Computer software

 

 

1,089

 

 

1,128

 

 

1,117

 

 

 

1,082

 

 

 

1,017

 

 

 

4,416

 

 

 

4,260

 

FDIC insurance

 

 

203

 

 

230

 

 

296

 

 

 

313

 

 

 

210

 

 

 

1,042

 

 

 

1,143

 

Other non-interest expense

 

 

923

 

 

569

 

 

360

 

 

 

541

 

 

 

829

 

 

 

2,393

 

 

 

2,407

 

Total non-interest expense

 

 

21,167

 

 

20,028

 

 

19,456

 

 

 

18,823

 

 

 

17,531

 

 

 

79,474

 

 

 

71,535

 

Income before income tax expense

 

 

12,556

 

 

14,041

 

 

14,803

 

 

 

10,844

 

 

 

11,470

 

 

 

52,244

 

 

 

47,030

 

Income tax expense

 

 

2,400

 

 

3,215

 

 

3,599

 

 

 

2,172

 

 

 

2,879

 

 

 

11,386

 

 

 

11,275

 

Net income

 

$

10,156

 

$

10,826

 

$

11,204

 

 

$

8,672

 

 

$

8,591

 

 

$

40,858

 

 

$

35,755

 

Preferred stock dividends

 

 

219

 

 

218

 

 

246

 

 

 

 

 

 

 

 

 

683

 

 

 

 

Net income available to common shareholders

 

$

9,937

 

$

10,608

 

$

10,958

 

 

$

8,672

 

 

$

8,591

 

 

$

40,175

 

 

$

35,755

 

Per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings

 

$

1.18

 

$

1.25

 

$

1.29

 

 

$

1.02

 

 

$

1.01

 

 

$

4.75

 

 

$

4.17

 

Diluted earnings

 

 

1.18

 

 

1.25

 

 

1.29

 

 

 

1.02

 

 

 

1.01

 

 

 

4.75

 

 

 

4.17

 

Dividends declared

 

 

0.1975

 

 

0.1975

 

 

0.1975

 

 

 

0.1975

 

 

 

0.18

 

 

 

0.79

 

 

 

0.72

 

Book value

 

 

29.74

 

 

28.58

 

 

28.08

 

 

 

27.46

 

 

 

27.48

 

 

 

29.74

 

 

 

27.48

 

Tangible book value

 

 

28.28

 

 

27.13

 

 

26.63

 

 

 

26.02

 

 

 

26.03

 

 

 

28.28

 

 

 

26.03

 

Weighted-average common shares outstanding(1)

 

 

8,180,531

 

 

8,230,902

 

 

8,225,838

 

 

 

8,232,142

 

 

 

8,228,311

 

 

 

8,226,943

 

 

 

8,314,921

 

Weighted-average diluted common shares outstanding(1)

 

 

8,180,531

 

 

8,230,902

 

 

8,225,838

 

 

 

8,232,142

 

 

 

8,228,311

 

 

 

8,226,943

 

 

 

8,314,921

 

(1)

Excluding participating securities.

NET INTEREST INCOME ANALYSIS

 

(Unaudited)

 

For the Three Months Ended

(Dollars in thousands)

 

December 31, 2022

 

September 30, 2022

 

December 31, 2021

 

 

Average

Balance

 

Interest

 

Average

Yield/Rate(4)

 

Average

Balance

 

Interest

 

Average

Yield/Rate(4)

 

Average

Balance

 

Interest

 

Average

Yield/Rate(4)

Interest-earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate and other mortgage loans(1)

 

$

1,515,975

 

$

20,948

 

5.53

%

 

$

1,486,530

 

$

17,280

 

4.65

%

 

$

1,417,498

 

$

13,225

 

3.73

%

Commercial and industrial loans(1)

 

 

806,019

 

 

14,816

 

7.35

%

 

 

765,440

 

 

12,266

 

6.41

%

 

 

702,108

 

 

8,711

 

4.96

%

Direct financing leases(1)

 

 

13,747

 

 

156

 

4.54

%

 

 

15,093

 

 

160

 

4.24

%

 

 

17,662

 

 

200

 

4.53

%

Consumer and other loans(1)

 

 

48,350

 

 

514

 

4.25

%

 

 

49,558

 

 

468

 

3.78

%

 

 

42,501

 

 

376

 

3.54

%

Total loans and leases receivable(1)

 

 

2,384,091

 

 

36,434

 

6.11

%

 

 

2,316,621

 

 

30,174

 

5.21

%

 

 

2,179,769

 

 

22,512

 

4.13

%

Mortgage-related securities(2)

 

 

164,120

 

 

1,008

 

2.46

%

 

 

168,433

 

 

915

 

2.17

%

 

 

170,002

 

 

677

 

1.59

%

Other investment securities(3)

 

 

49,850

 

 

261

 

2.09

%

 

 

51,812

 

 

250

 

1.93

%

 

 

49,927

 

 

209

 

1.67

%

FHLB stock

 

 

16,281

 

 

301

 

7.40

%

 

 

18,167

 

 

289

 

6.36

%

 

 

12,345

 

 

155

 

5.02

%

Short-term investments

 

 

34,807

 

 

315

 

3.62

%

 

 

27,912

 

 

158

 

2.26

%

 

 

59,970

 

 

23

 

0.15

%

Total interest-earning assets

 

 

2,649,149

 

 

38,319

 

5.79

%

 

 

2,582,945

 

 

31,786

 

4.92

%

 

 

2,472,013

 

 

23,576

 

3.81

%

Non-interest-earning assets

 

 

218,326

 

 

 

 

 

 

176,016

 

 

 

 

 

 

140,892

 

 

 

 

Total assets

 

$

2,867,475

 

 

 

 

 

$

2,758,961

 

 

 

 

 

$

2,612,905

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transaction accounts

 

$

492,586

 

 

2,360

 

1.92

%

 

$

486,704

 

 

1,005

 

0.83

%

 

$

497,743

 

 

239

 

0.19

%

Money market

 

 

748,502

 

 

3,784

 

2.02

%

 

 

746,227

 

 

1,610

 

0.86

%

 

 

749,247

 

 

321

 

0.17

%

Certificates of deposit

 

 

148,949

 

 

849

 

2.28

%

 

 

113,529

 

 

340

 

1.20

%

 

 

42,507

 

 

36

 

0.34

%

Wholesale deposits

 

 

128,908

 

 

1,180

 

3.66

%

 

 

36,702

 

 

226

 

2.46

%

 

 

62,342

 

 

161

 

1.03

%

Total interest-bearing deposits

 

 

1,518,945

 

 

8,173

 

2.15

%

 

 

1,383,162

 

 

3,181

 

0.92

%

 

 

1,351,839

 

 

757

 

0.22

%

FHLB advances

 

 

389,310

 

 

2,149

 

2.21

%

 

 

432,528

 

 

2,173

 

2.01

%

 

 

353,637

 

 

1,149

 

1.30

%

Other borrowings

 

 

41,143

 

 

545

 

5.30

%

 

 

42,800

 

 

548

 

5.12

%

 

 

35,270

 

 

466

 

5.28

%

Junior subordinated notes

 

 

 

 

 

%

 

 

 

 

 

%

 

 

10,073

 

 

280

 

11.12

%

Total interest-bearing liabilities

 

 

1,949,398

 

 

10,867

 

2.23

%

 

 

1,858,490

 

 

5,902

 

1.27

%

 

 

1,750,819

 

 

2,652

 

0.61

%

Non-interest-bearing demand deposit accounts

 

 

560,588

 

 

 

 

 

 

584,535

 

 

 

 

 

 

577,378

 

 

 

 

Other non-interest-bearing liabilities

 

 

100,998

 

 

 

 

 

 

60,705

 

 

 

 

 

 

56,280

 

 

 

 

Total liabilities

 

 

2,610,984

 

 

 

 

 

 

2,503,730

 

 

 

 

 

 

2,384,477

 

 

 

 

Stockholders’ equity

 

 

256,491

 

 

 

 

 

 

255,231

 

 

 

 

 

 

228,428

 

 

 

 

Total liabilities and stockholders’ equity

 

$

2,867,475

 

 

 

 

 

$

2,758,961

 

 

 

 

 

$

2,612,905

 

 

 

 

Net interest income

 

 

 

$

27,452

 

 

 

 

 

$

25,884

 

 

 

 

 

$

20,924

 

 

Interest rate spread

 

 

 

 

 

3.56

%

 

 

 

 

 

3.65

%

 

 

 

 

 

3.21

%

Net interest-earning assets

 

$

699,751

 

 

 

 

 

$

724,455

 

 

 

 

 

$

721,194

 

 

 

 

Net interest margin

 

 

 

 

 

4.15

%

 

 

 

 

 

4.01

%

 

 

 

 

 

3.39

%

(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 Year Ended

(Dollars in thousands)

 

December 31, 2022

 

December 31, 2021

 

 

Average

Balance

 

Interest

 

Average

Yield/Rate

 

Average

Balance

 

Interest

 

Average

Yield/Rate

Interest-earning assets

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate and other mortgage loans(1)

 

$

1,484,239

 

$

66,917

 

4.51

%

 

$

1,387,434

 

$

51,930

 

3.74

%

Commercial and industrial loans(1)

 

 

755,837

 

 

45,893

 

6.07

%

 

 

727,923

 

 

37,470

 

5.15

%

Direct financing leases(1)

 

 

15,219

 

 

682

 

4.48

%

 

 

19,591

 

 

872

 

4.45

%

Consumer and other loans(1)

 

 

49,695

 

 

1,876

 

3.78

%

 

 

44,206

 

 

1,572

 

3.56

%

Total loans and leases receivable(1)

 

 

2,304,990

 

 

115,368

 

5.01

%

 

 

2,179,154

 

 

91,844

 

4.21

%

Mortgage-related securities(2)

 

 

173,495

 

 

3,486

 

2.01

%

 

 

159,242

 

 

2,633

 

1.65

%

Other investment securities(3)

 

 

51,700

 

 

986

 

1.91

%

 

 

44,739

 

 

777

 

1.74

%

FHLB stock

 

 

16,462

 

 

989

 

6.01

%

 

 

13,066

 

 

651

 

4.98

%

Short-term investments

 

 

30,845

 

 

542

 

1.76

%

 

 

64,308

 

 

90

 

0.14

%

Total interest-earning assets

 

 

2,577,492

 

 

121,371

 

4.71

%

 

 

2,460,509

 

 

95,995

 

3.90

%

Non-interest-earning assets

 

 

175,424

 

 

 

 

 

 

144,499

 

 

 

 

Total assets

 

$

2,752,916

 

 

 

 

 

$

2,605,008

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Transaction accounts

 

$

503,668

 

 

3,963

 

0.79

%

 

$

506,693

 

 

988

 

0.19

%

Money market

 

 

761,469

 

 

6,241

 

0.82

%

 

 

693,608

 

 

1,183

 

0.17

%

Certificates of deposit

 

 

97,448

 

 

1,358

 

1.39

%

 

 

47,020

 

 

396

 

0.84

%

Wholesale deposits

 

 

48,825

 

 

1,616

 

3.31

%

 

 

119,831

 

 

986

 

0.82

%

Total interest-bearing deposits

 

 

1,411,410

 

 

13,178

 

0.93

%

 

 

1,367,152

 

 

3,553

 

0.26

%

FHLB advances

 

 

414,191

 

 

7,024

 

1.70

%

 

 

376,781

 

 

4,908

 

1.30

%

Other borrowings

 

 

43,818

 

 

2,243

 

5.12

%

 

 

31,935

 

 

1,759

 

5.51

%

Junior subordinated notes(4)

 

 

2,429

 

 

504

 

20.75

%

 

 

10,068

 

 

1,113

 

11.05

%

Total interest-bearing liabilities

 

 

1,871,848

 

 

22,949

 

1.23

%

 

 

1,785,936

 

 

11,333

 

0.63

%

Non-interest-bearing demand deposit accounts

 

 

566,230

 

 

 

 

 

 

536,981

 

 

 

 

Other non-interest-bearing liabilities

 

 

65,611

 

 

 

 

 

 

61,580

 

 

 

 

Total liabilities

 

 

2,503,689

 

 

 

 

 

 

2,384,497

 

 

 

 

Stockholders’ equity

 

 

249,227

 

 

 

 

 

 

220,511

 

 

 

 

Total liabilities and stockholders’ equity

 

$

2,752,916

 

 

 

 

 

$

2,605,008

 

 

 

 

Net interest income

 

 

 

$

98,422

 

 

 

 

 

$

84,662

 

 

Interest rate spread

 

 

 

 

 

3.48

%

 

 

 

 

 

3.27

%

Net interest-earning assets

 

$

705,644

 

 

 

 

 

$

674,573

 

 

 

 

Net interest margin

 

 

 

 

 

3.82

%

 

 

 

 

 

3.44

%

(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)

The calculation for the year ended December 31, 2022 includes $236,000 in accelerated amortization of debt issuance costs.

ASSET AND LIABILITY BETA ANALYSIS

 

 

For the Three Months Ended

For the Year Ended

(Unaudited)

December 31, 2022

 

September 30, 2022

 

 

 

December 31, 2021

 

 

 

December 31, 2022

 

December 31, 2021

 

 

 

Average Yield/Rate (3)

 

Average Yield/Rate (3)

 

Increase (Decrease)

 

Average Yield/Rate (3)

 

Increase (Decrease)

 

Average Yield/Rate

 

Average Yield/Rate

 

Increase (Decrease)

Total loans and leases receivable (a)

6.11

%

 

5.21

%

 

0.90

%

 

4.13

%

 

1.98

%

 

5.01

%

 

4.21

%

 

0.80

%

Total interest-earning assets(b)

5.79

%

 

4.92

%

 

0.87

%

 

3.81

%

 

1.98

%

 

4.71

%

 

3.90

%

 

0.81

%

Adjusted total loans and leases receivable (1)(c)

5.90

%

 

5.08

%

 

0.82

%

 

3.89

%

 

2.01

%

 

4.79

%

 

3.91

%

 

0.88

%

Adjusted total interest-earning assets (1)(d)

5.59

%

 

4.80

%

 

0.79

%

 

3.60

%

 

1.99

%

 

4.52

%

 

3.61

%

 

0.91

%

Total in-market deposits(e)

1.43

%

 

0.61

%

 

0.82

%

 

0.13

%

 

1.30

%

 

0.60

%

 

0.14

%

 

0.46

%

Total bank funding(f)

1.67

%

 

0.89

%

 

0.78

%

 

0.33

%

 

1.34

%

 

0.84

%

 

0.37

%

 

0.47

%

Net interest margin(g)

4.15

%

 

4.01

%

 

0.14

%

 

3.39

%

 

0.76

%

 

3.82

%

 

3.44

%

 

0.38

%

Adjusted net interest margin(h)

3.94

%

 

3.89

%

 

0.05

%

 

3.23

%

 

0.71

%

 

3.64

%

 

3.21

%

 

0.43

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective fed funds rate (2)(i)

3.65

%

 

2.18

%

 

1.47

%

 

0.09

%

 

3.56

%

 

1.69

%

 

0.08

%

 

1.61

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beta Calculations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans and leases receivable(a)/(i)

 

 

 

 

61.42

%

 

 

 

55.67

%

 

 

 

 

 

49.69

%

Total interest-earning assets(b)/(i)

 

 

 

 

58.74

%

 

 

 

55.36

%

 

 

 

 

 

50.15

%

Adjusted total loans and leases receivable (1)(c)/(i)

 

 

 

 

55.61

%

 

 

 

56.38

%

 

 

 

 

 

54.66

%

Adjusted total interest-earning assets (1)(d)/(i)

 

 

 

 

53.50

%

 

 

 

56.05

%

 

 

 

 

 

56.39

%

Total in-market deposits(e/i)

 

 

 

 

55.78

%

 

 

 

36.52

%

 

 

 

 

 

28.57

%

Total bank funding(f)/(i)

 

 

 

 

53.06

%

 

 

 

37.64

%

 

 

 

 

 

29.19

%

Net interest margin(g/i)

 

 

 

 

9.52

%

 

 

 

21.35

%

 

 

 

 

 

23.60

%

Adjusted Net interest margin(h/i)

 

 

 

 

3.40

%

 

 

 

19.94

%

 

 

 

 

 

26.71

%

(1)

Excluding average net PPP loans, PPP loan interest income, and fees in lieu of interest.

(2)

Board of Governors of the Federal Reserve System (US), Effective Federal Funds Rate [DFF]. Retrieved from FRED, Federal Reserve Bank of St. Louis. Represents average daily rate.

(3)

Represents annualized yields/rates.

PROVISION FOR LOAN AND LEASE LOSS COMPOSITION

 

(Unaudited)

 

For the Three Months Ended

 

For the Year Ended

(Dollars in thousands)

 

December 31,

2022

 

September 30,

2022

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

 

December 31,

2022

 

December 31,

2021

Change in general reserve due to qualitative factor changes

 

$

85

 

 

$

132

 

 

$

(185

)

 

$

(416

)

 

$

(805

)

 

$

(384

)

 

$

(426

)

Change in general reserve due to historical loss factor changes

 

 

(930

)

 

 

(940

)

 

 

64

 

 

 

(206

)

 

 

(862

)

 

 

(2,012

)

 

 

(4,456

)

Charge-offs

 

 

818

 

 

 

54

 

 

 

85

 

 

 

22

 

 

 

106

 

 

 

979

 

 

 

3,508

 

Recoveries

 

 

(203

)

 

 

(81

)

 

 

(4,247

)

 

 

(210

)

 

 

(274

)

 

 

(4,741

)

 

 

(5,126

)

Change in specific reserves on impaired loans, net

 

 

(50

)

 

 

447

 

 

 

29

 

 

 

(280

)

 

 

(64

)

 

 

146

 

 

 

(2,175

)

Change due to loan growth, net

 

 

982

 

 

 

400

 

 

 

527

 

 

 

235

 

 

 

1,391

 

 

 

2,144

 

 

 

2,872

 

Total provision for loan and lease losses

 

$

702

 

 

$

12

 

 

$

(3,727

)

 

$

(855

)

 

$

(508

)

 

$

(3,868

)

 

$

(5,803

)

PERFORMANCE RATIOS

 

 

 

For the Three Months Ended

 

For the Year Ended

(Unaudited)

 

December 31,

2022

 

September 30,

2022

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

 

December 31,

2022

 

December 31,

2021

Return on average assets (annualized)

 

1.39

%

 

1.54

%

 

1.61

%

 

1.30

%

 

1.32

%

 

1.46

%

 

1.37

%

Return on average common equity (annualized)

 

16.26

%

 

17.44

%

 

18.79

%

 

14.70

%

 

15.04

%

 

16.79

%

 

16.21

%

Efficiency ratio

 

61.45

%

 

58.46

%

 

64.47

%

 

65.55

%

 

61.92

%

 

62.31

%

 

63.49

%

Interest rate spread

 

3.56

%

 

3.65

%

 

3.51

%

 

3.22

%

 

3.21

%

 

3.48

%

 

3.27

%

Net interest margin

 

4.15

%

 

4.01

%

 

3.71

%

 

3.39

%

 

3.39

%

 

3.82

%

 

3.44

%

Average interest-earning assets to average interest-bearing liabilities

 

135.90

%

 

138.98

%

 

137.40

%

 

138.64

%

 

141.19

%

 

137.70

%

 

137.77

%

ASSET QUALITY RATIOS

 

(Unaudited)

 

As of

(Dollars in thousands)

 

December 31,

2022

 

September 30,

2022

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

Non-accrual loans and leases

 

$

3,659

 

 

$

3,645

 

 

$

5,585

 

 

$

5,617

 

 

$

6,358

 

Foreclosed properties

 

 

95

 

 

 

151

 

 

 

124

 

 

 

117

 

 

 

164

 

Total non-performing assets

 

 

3,754

 

 

 

3,796

 

 

 

5,709

 

 

 

5,734

 

 

 

6,522

 

Performing troubled debt restructurings

 

 

156

 

 

 

172

 

 

 

188

 

 

 

203

 

 

 

217

 

Total impaired assets

 

$

3,910

 

 

$

3,968

 

 

$

5,897

 

 

$

5,937

 

 

$

6,739

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

0.15

%

 

 

0.16

%

 

 

0.24

%

 

 

0.25

%

 

 

0.28

%

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

 

 

0.15

%

 

 

0.16

%

 

 

0.25

%

 

 

0.25

%

 

 

0.29

%

Non-performing assets as a percent of total assets

 

 

0.13

%

 

 

0.13

%

 

 

0.21

%

 

 

0.21

%

 

 

0.25

%

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

 

 

0.99

%

 

 

1.04

%

 

 

1.05

%

 

 

1.05

%

 

 

1.09

%

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

 

 

662.20

%

 

 

662.36

%

 

 

431.58

%

 

 

421.38

%

 

 

382.76

%

ASSET QUALITY RATIOS - EXCLUDING NET PPP LOANS

 

(Unaudited)

 

As of

(Dollars in thousands)

 

December 31,

2022

 

September 30,

2022

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

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

 

 

0.15

%

 

 

0.16

%

 

 

0.24

%

 

 

0.25

%

 

 

0.29

%

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

 

 

0.15

%

 

 

0.16

%

 

 

0.25

%

 

 

0.26

%

 

 

0.29

%

Non-performing assets as a percent of total assets

 

 

0.13

%

 

 

0.13

%

 

 

0.21

%

 

 

0.21

%

 

 

0.25

%

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

 

 

0.99

%

 

 

1.04

%

 

 

1.06

%

 

 

1.06

%

 

 

1.10

%

PPP loans outstanding, net

 

$

506

 

 

$

2,324

 

 

$

8,172

 

 

$

18,206

 

 

$

27,297

 

NET CHARGE-OFFS (RECOVERIES)

 

(Unaudited)

 

For the Three Months Ended

 

For the Year Ended

(Dollars in thousands)

 

December 31,

2022

 

September 30,

2022

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

 

December 31,

2022

 

December 31,

2021

Charge-offs

 

$

818

 

 

$

54

 

 

$

85

 

 

$

22

 

 

$

106

 

 

$

979

 

 

$

3,508

 

Recoveries

 

 

(203

)

 

 

(81

)

 

 

(4,247

)

 

 

(210

)

 

 

(274

)

 

 

(4,741

)

 

 

(5,126

)

Net charge-offs (recoveries)

 

$

615

 

 

$

(27

)

 

$

(4,162

)

 

$

(188

)

 

$

(168

)

 

$

(3,762

)

 

$

(1,618

)

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

 

 

0.10

%

 

 

%

 

 

(0.73

) %

 

 

(0.03

) %

 

 

(0.03

) %

 

 

(0.16

) %

 

 

(0.07

) %

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

 

 

0.10

%

 

 

%

 

 

(0.74

) %

 

 

(0.03

) %

 

 

(0.03

) %

 

 

(0.16

) %

 

 

(0.08

) %

Average PPP loans outstanding, net

 

$

2,133

 

 

$

4,505

 

 

$

11,650

 

 

$

20,935

 

 

$

52,923

 

 

$

9,740

 

 

$

152,264

 

CAPITAL RATIOS

 

 

 

As of and for the Three Months Ended

(Unaudited)

 

December 31,

2022

 

September 30,

2022

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

Total capital to risk-weighted assets

 

11.26

%

 

11.66

%

 

11.56

%

 

11.87

%

 

10.82

%

Tier I capital to risk-weighted assets

 

9.20

%

 

9.48

%

 

9.34

%

 

9.27

%

 

8.94

%

Common equity tier I capital to risk-weighted assets

 

8.79

%

 

9.04

%

 

8.90

%

 

8.81

%

 

8.55

%

Tier I capital to adjusted assets

 

9.17

%

 

9.34

%

 

9.19

%

 

9.09

%

 

8.94

%

Tangible common equity to tangible assets

 

7.98

%

 

8.06

%

 

8.16

%

 

8.14

%

 

8.34

%

Tangible common equity to tangible assets, excluding net PPP loans

 

7.98

%

 

8.07

%

 

8.19

%

 

8.20

%

 

8.42

%

LOAN AND LEASE RECEIVABLE COMPOSITION

 

(Unaudited)

 

As of

(in thousands)

 

December 31,

2022

 

September 30,

2022

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

Commercial real estate - owner occupied

 

$

268,354

 

$

265,989

 

$

258,375

 

$

254,237

 

$

235,589

Commercial real estate - non-owner occupied

 

 

687,091

 

 

657,975

 

 

651,920

 

 

656,185

 

 

661,423

Land development

 

 

50,803

 

 

49,458

 

 

42,545

 

 

40,092

 

 

42,792

Construction

 

 

167,948

 

 

162,051

 

 

203,913

 

 

200,472

 

 

179,841

Multi-family

 

 

350,026

 

 

332,782

 

 

314,392

 

 

302,494

 

 

320,072

1-4 family

 

 

17,728

 

 

16,678

 

 

17,335

 

 

16,198

 

 

14,911

Total commercial real estate

 

 

1,541,950

 

 

1,484,933

 

 

1,488,480

 

 

1,469,678

 

 

1,454,628

Commercial and industrial

 

 

841,178

 

 

788,983

 

 

741,363

 

 

720,695

 

 

730,819

Direct financing leases, net

 

 

12,149

 

 

11,109

 

 

13,718

 

 

14,551

 

 

15,743

Consumer and other:

 

 

 

 

 

 

 

 

 

 

Home equity and second mortgages

 

 

6,761

 

 

5,413

 

 

5,132

 

 

4,523

 

 

4,223

Other

 

 

41,177

 

 

40,710

 

 

42,387

 

 

43,066

 

 

35,518

Total consumer and other

 

 

47,938

 

 

46,123

 

 

47,519

 

 

47,589

 

 

39,741

Total gross loans and leases receivable

 

 

2,443,215

 

 

2,331,148

 

 

2,291,080

 

 

2,252,513

 

 

2,240,931

Less:

 

 

 

 

 

 

 

 

 

 

Allowance for loan and lease losses

 

 

24,230

 

 

24,143

 

 

24,104

 

 

23,669

 

 

24,336

Deferred loan fees

 

 

149

 

 

448

 

 

980

 

 

1,264

 

 

1,523

Loans and leases receivable, net

 

$

2,418,836

 

$

2,306,557

 

$

2,265,996

 

$

2,227,580

 

$

2,215,072

DEPOSIT COMPOSITION

 

(Unaudited)

 

As of

(in thousands)

 

December 31,

2022

 

September 30,

2022

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

Non-interest-bearing transaction accounts

 

$

537,107

 

$

564,141

 

$

544,507

 

$

600,987

 

$

589,559

Interest-bearing transaction accounts

 

 

576,601

 

 

461,883

 

 

466,785

 

 

539,492

 

 

530,225

Money market accounts

 

 

698,505

 

 

742,545

 

 

731,718

 

 

806,917

 

 

754,410

Certificates of deposit

 

 

153,757

 

 

160,655

 

 

114,000

 

 

63,977

 

 

54,091

Wholesale deposits

 

 

202,236

 

 

158,321

 

 

12,321

 

 

12,321

 

 

29,638

Total deposits

 

$

2,168,206

 

$

2,087,545

 

$

1,869,331

 

$

2,023,694

 

$

1,957,923

PRIVATE WEALTH OFF BALANCE SHEET COMPOSITION

 

(Unaudited)

 

As of

(in thousands)

 

December 31,

2022

 

September 30,

2022

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

Trust assets under management

 

$

2,483,811

 

$

2,332,448

 

$

2,386,637

 

$

2,636,896

 

$

2,711,760

Trust assets under administration

 

 

176,225

 

 

160,171

 

 

167,095

 

 

197,160

 

 

208,954

Total trust assets

 

$

2,660,036

 

$

2,492,619

 

$

2,553,732

 

$

2,834,056

 

$

2,920,714

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)

 

December 31,

2022

 

September 30,

2022

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

Common stockholders’ equity

 

$

248,648

 

 

$

241,012

 

 

$

237,931

 

 

$

233,059

 

 

$

232,422

 

Goodwill and other intangible assets

 

 

(12,159

)

 

 

(12,218

)

 

 

(12,262

)

 

 

(12,184

)

 

 

(12,268

)

Tangible common equity

 

$

236,489

 

 

$

228,794

 

 

$

225,669

 

 

$

220,875

 

 

$

220,154

 

Common shares outstanding

 

 

8,362,085

 

 

 

8,432,048

 

 

 

8,474,699

 

 

 

8,488,585

 

 

 

8,457,564

 

Book value per share

 

$

29.74

 

 

$

28.58

 

 

$

28.08

 

 

$

27.46

 

 

$

27.48

 

Tangible book value per share

 

 

28.28

 

 

 

27.13

 

 

 

26.63

 

 

 

26.02

 

 

 

26.03

 

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)

 

December 31,

2022

 

September 30,

2022

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

Common stockholders’ equity

 

$

248,648

 

 

$

241,012

 

 

$

237,931

 

 

$

233,059

 

 

$

232,422

 

Goodwill and other intangible assets

 

 

(12,159

)

 

 

(12,218

)

 

 

(12,262

)

 

 

(12,184

)

 

 

(12,268

)

Tangible common equity

 

$

236,489

 

 

$

228,794

 

 

$

225,669

 

 

$

220,875

 

 

$

220,154

 

Total assets

 

$

2,976,611

 

 

$

2,850,802

 

 

$

2,777,016

 

 

$

2,724,082

 

 

$

2,652,905

 

Goodwill and other intangible assets

 

 

(12,159

)

 

 

(12,218

)

 

 

(12,262

)

 

 

(12,184

)

 

 

(12,268

)

Tangible assets

 

$

2,964,452

 

 

$

2,838,584

 

 

$

2,764,754

 

 

$

2,711,898

 

 

$

2,640,637

 

Tangible common equity to tangible assets

 

 

7.98

%

 

 

8.06

%

 

 

8.16

%

 

 

8.14

%

 

 

8.34

%

Period-end net PPP loans

 

 

506

 

 

 

2,324

 

 

 

8,172

 

 

 

18,206

 

 

 

27,297

 

Tangible assets, excluding net PPP loans

 

$

2,963,946

 

 

$

2,836,260

 

 

$

2,756,582

 

 

$

2,693,692

 

 

$

2,613,340

 

Tangible common equity to tangible assets, excluding net PPP loans

 

 

7.98

%

 

 

8.07

%

 

 

8.19

%

 

 

8.20

%

 

 

8.42

%

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 Year Ended

(Dollars in thousands)

December 31,

2022

 

September 30,

2022

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

 

December 31,

2022

 

December 31,

2021

Total non-interest expense

$

21,167

 

 

$

20,028

 

 

$

19,456

 

 

$

18,823

 

 

$

17,531

 

 

$

79,474

 

 

$

71,535

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss on foreclosed properties

 

22

 

 

 

7

 

 

 

8

 

 

 

12

 

 

 

7

 

 

 

49

 

 

 

15

 

Amortization of other intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

25

 

SBA recourse provision (benefit)

 

(322

)

 

 

96

 

 

 

114

 

 

 

(76

)

 

 

(122

)

 

 

(188

)

 

 

(76

)

Contribution to First Business Charitable Foundation

 

809

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

809

 

 

 

 

Tax credit investment impairment recovery

 

 

 

 

 

 

 

(351

)

 

 

 

 

 

 

 

 

(351

)

 

 

 

Total operating expense (a)

$

20,658

 

 

$

19,925

 

 

$

19,685

 

 

$

18,887

 

 

$

17,644

 

 

$

79,155

 

 

$

71,571

 

Net interest income

$

27,452

 

 

$

25,884

 

 

$

23,660

 

 

$

21,426

 

 

$

20,924

 

 

$

98,422

 

 

$

84,662

 

Total non-interest income

 

6,973

 

 

 

8,197

 

 

 

6,872

 

 

 

7,386

 

 

 

7,569

 

 

 

29,428

 

 

 

28,100

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank-owned life insurance claim

 

809

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

809

 

 

 

 

Net gain on sale of securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29

 

Adjusted non-interest income

 

6,164

 

 

 

8,197

 

 

 

6,872

 

 

 

7,386

 

 

 

7,569

 

 

 

28,619

 

 

 

28,071

 

Total operating revenue (b)

$

33,616

 

 

$

34,081

 

 

$

30,532

 

 

$

28,812

 

 

$

28,493

 

 

$

127,041

 

 

$

112,733

 

Efficiency ratio

 

61.45

%

 

 

58.46

%

 

 

64.47

%

 

 

65.55

%

 

 

61.92

%

 

 

62.31

%

 

 

63.49

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

$

12,958

 

 

$

14,156

 

 

$

10,847

 

 

$

9,925

 

 

$

10,849

 

 

$

47,886

 

 

$

41,162

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

PPP fee income

 

3

 

 

 

61

 

 

 

196

 

 

 

249

 

 

 

892

 

 

 

509

 

 

 

7,312

 

PPP loan interest income

 

5

 

 

 

11

 

 

 

29

 

 

 

52

 

 

 

134

 

 

 

97

 

 

 

1,524

 

Pre-tax, pre-provision adjusted earnings, excluding PPP

$

12,950

 

 

$

14,084

 

 

$

10,622

 

 

$

9,624

 

 

$

9,823

 

 

$

47,280

 

 

$

32,326

 

Average total assets

$

2,867,475

 

 

$

2,758,961

 

 

$

2,716,707

 

 

$

2,666,241

 

 

$

2,612,905

 

 

$

2,752,916

 

 

$

2,605,008

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

Average net PPP loans

 

2,133

 

 

 

4,505

 

 

 

11,650

 

 

 

20,935

 

 

 

52,923

 

 

 

9,740

 

 

 

152,264

 

Adjusted average total assets

$

2,865,342

 

 

$

2,754,456

 

 

$

2,705,057

 

 

$

2,645,306

 

 

$

2,559,982

 

 

$

2,743,176

 

 

$

2,452,744

 

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

 

1.81

%

 

 

2.05

%

 

 

1.60

%

 

 

1.49

%

 

 

1.66

%

 

 

1.74

%

 

 

1.58

%

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

 

1.81

%

 

 

2.05

%

 

 

1.57

%

 

 

1.46

%

 

 

1.53

%

 

 

1.72

%

 

 

1.32

%

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 Year Ended

(Dollars in thousands)

December 31,

2022

 

September 30,

2022

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

 

December 31,

2022

 

December 31,

2021

Interest income

$

38,319

 

 

$

31,786

 

 

$

27,031

 

 

$

24,235

 

 

$

23,576

 

 

$

121,371

 

 

$

95,995

 

Interest expense

 

10,867

 

 

 

5,902

 

 

 

3,371

 

 

 

2,809

 

 

 

2,652

 

 

 

22,949

 

 

 

11,333

 

Net interest income (a)

 

27,452

 

 

 

25,884

 

 

 

23,660

 

 

 

21,426

 

 

 

20,924

 

 

 

98,422

 

 

 

84,662

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

Fees in lieu of interest

 

1,318

 

 

 

807

 

 

 

1,865

 

 

 

1,293

 

 

 

1,700

 

 

 

5,283

 

 

 

11,160

 

PPP loan interest income

 

5

 

 

 

11

 

 

 

29

 

 

 

52

 

 

 

134

 

 

 

97

 

 

 

1,524

 

FRB interest income and FHLB dividend income

 

613

 

 

 

445

 

 

 

279

 

 

 

188

 

 

 

179

 

 

 

1,525

 

 

 

741

 

Adjusted net interest income (b)

$

25,516

 

 

$

24,621

 

 

$

21,487