MADISON, Wis., Oct. 22, 2015 (GLOBE NEWSWIRE) -- First Business Financial Services, Inc. (the “Company” or “First Business”) (NASDAQ:FBIZ), the parent company of First Business Bank, First Business Bank - Milwaukee and Alterra Bank (“Alterra”), today reported record quarterly results for the third quarter highlighted by continued organic loan and deposit growth, strong asset quality and strong Small Business Administration (“SBA”) lending activity, attributed in large part to Alterra, its Kansas City-based banking subsidiary acquired in November 2014. Investments in staffing and technology continued, as the Company continues to successfully execute its strategic growth objectives and further build-out a scalable franchise.
Highlights for the quarter ended September 30, 2015 include:
- Net income grew to a record $4.4 million, marking a 23.3% increase from net income of $3.6 million in the third quarter of 2014 which was prior to the acquisition of Alterra.
- Diluted earnings per common share increased to $0.50 for the quarter ended September 30, 2015, compared to $0.45 for the quarter ended September 30, 2014.
- Annualized return on average assets and annualized return on average equity measured 1.02% and 11.93%, respectively, for the third quarter of 2015, compared to 1.06% and 12.10%, respectively, for the third quarter of 2014.
- Top line revenue, consisting of net interest income and non-interest income, increased 40% to $18.7 million, compared to the third quarter of 2014.
- Excluding Alterra, third quarter 2015 top line revenue grew 7% organically to $14.3 million, compared to the third quarter of 2014.
- The Company’s third quarter efficiency ratio measured 64.8%, including growth-related investments to expand the Small Business Administration ("SBA") business development and support teams in the Kansas City and Wisconsin markets, as well as investments for the conversion to an industry leading client relationship management platform and business intelligence software implementation.
- Period-end net loans and leases - defined as gross loans and leases receivable less allowance for loan and lease losses - grew for the fourteenth consecutive quarter, reaching a record $1.362 billion at September 30, 2015, up 32% from September 30, 2014.
- Excluding Alterra, net loans and leases grew 9% organically to a record $1.122 billion at September 30, 2015, from September 30, 2014.
- Net interest margin measured 3.61% for the third quarter of 2015, including nine basis points related to the net accretion/amortization on purchase accounting adjustments on Alterra loans, deposits and borrowings, compared to 3.44% for the third quarter of 2014.
- Net charge offs were $127,000 in the third quarter of 2015 compared to net recoveries of $4,000 in the third quarter 2014. Non-performing assets as a percent of total assets declined to 0.65% at September 30, 2015 from 1.12% one year prior.
“This quarter’s results validate the success of our relationship-focused strategy and continued investments aimed at growing our franchise, strengthening our team, and enhancing the efficiency and effectiveness of our technology platforms,” said Corey Chambas, President and Chief Executive Officer. “We continue to deliver strong deposit and loan growth, while SBA originations and loan sales have reached new highs and our expanding distribution platform has positioned us well with a seasonally strong pipeline as we approach the end of the year. We expect our relationship-based SBA strategy, which emphasizes client acquisition, to support continued growth in both loans and non-interest bearing deposits and to produce accelerating fee income, creating an earnings catalyst for the Company.”
The Company earned record net income of $4.4 million in the third quarter of 2015, compared to $3.9 million earned in the second quarter of 2015 and $3.6 million earned in the third quarter of 2014. Third quarter 2015 results included no material merger-related expenses, while non-recurring, pre-tax merger expenses related to the Company’s acquisition of Alterra totaled $33,000 and $104,000, respectively, for the second quarter of 2015 and third quarter of 2014. Diluted earnings per common share were $0.50 for the third quarter of 2015, compared to $0.45 for the linked quarter and $0.45 for the third quarter of 2014. Per share data for all periods reflect the previously announced two-for-one stock split in the form of a 100% stock dividend declared and paid by the company in August 2015.
During the third quarter of 2015, Alterra contributed $2.9 million in net interest income, including $385,000 related to the net accretion/amortization of purchase accounting adjustments, $1.5 million in non-interest income, $2.6 million in non-interest expense and $355,000 in loan loss provision, contributing a total of $1.5 million in pre-tax income to First Business's third quarter results. In the second quarter of 2015, Alterra produced $3.0 million in net interest income, including $542,000 related to the net accretion/amortization of purchase accounting adjustments, $1.4 million in non-interest income, $2.4 million in non-interest expense and $770,000 in loan loss provision, contributing a total of $1.3 million in pre-tax income to First Business's second quarter results.
Results of Operations
Net interest income for the third quarter of 2015 totaled $14.6 million, an increase of $422,000, or 3.0%, compared to the linked quarter which included $385,000 in net accretion/amortization of purchase accounting adjustments. Net accretion/amortization totaled $542,000 in the linked second quarter. Management expects the net accretion/amortization to remain volatile in future quarters due to the uncertain nature of loan prepayments. Excluding the impact of net accretion/amortization in both quarters, net interest income increased $579,000, or 4.2%. Compared to the same period last year and excluding Alterra for this quarter, First Business's net interest income increased $768,000, or 7.0%. The increase in net interest income compared to the linked quarter and the same period last year is primarily due to an increase in average earning asset balances, specifically loans and leases receivable.
Net interest margin in the third quarter of 2015 was 3.61%, which remained consistent with the second quarter of 2015 and increased 17 basis points from the third quarter of 2014. Third quarter 2015 net interest margin included nine basis points related to the net accretion/amortization of purchase accounting adjustments, while the linked quarter margin included 14 basis points related to the net accretion/amortization of the purchase accounting adjustments. Excluding the net accretion/amortization of the purchase accounting adjustments, net interest margin improved by five basis points principally due to an increase in loan fees in lieu of interest. Net interest margin may experience occasional volatility due to non-recurring events such as loan fees collected in lieu of interest, the collection of interest on loans previously in non-accrual, the accumulation of significant short-term deposit inflows or the ongoing accretion/amortization of the fair value purchase accounting adjustments related to the acquisition of Alterra.
Non-interest income of $4.1 million for the third quarter of 2015 increased $1.6 million, or 66.8%, from the third quarter of 2014. Alterra contributed $1.5 million in non-interest income during the third quarter of 2015, including $910,000 in gains on the sale of SBA loans, $243,000 in gains on the sale of residential mortgage loans and $146,000 in loan fees. Alterra’s revenue contribution reflects continued growth in the SBA lending business, including seasonally strong volumes. Expansion of Alterra's SBA lending expertise into First Business's Wisconsin markets continues to be successful. The Company expects to experience variability in the timing of loan sale gains due to seasonal demand. Excluding income directly attributed to Alterra, non-interest income totaled $2.6 million, growing by $103,000, or 4.2%, from the third quarter of 2014. Trust and investment services income, the Company's leading source of fee revenue, totaled $1.3 million, increasing $114,000, or 10.0%, from the third quarter of 2014 despite negative market volatility affecting overall asset values during third quarter 2015. Trust assets under management and administration measured $978.6 million as of September 30, 2015, compared to $998.0 million at June 30, 2015 and $927.4 million at September 30, 2014.
Non-interest expense for the third quarter of 2015 was $12.0 million, an increase of $3.9 million, or 48.9%, compared to the third quarter of 2014. Third quarter 2015 included $2.6 million in expenses at Alterra, while third quarter 2014 included $104,000 in non-recurring merger-related costs. Excluding merger-related costs and expenses incurred by Alterra, non-interest expense increased by $1.4 million, or 18.1%, compared to the third quarter of 2014 driven primarily by investments in people and technology. Excluding Alterra, compensation costs for the third quarter of 2015 grew by $550,000, or 10.6%, compared to the third quarter of 2014 reflecting annual merit increases and the continued approach to opportunistically hire new business development officers and operational staff to support growth. General other non-interest expenses, specifically professional services, increased in line with expectations as the Company continues to invest in solutions that will drive operational efficiency. Management expects to continue investing in products and technology to support these strategic growth initiatives. Expense growth was partially offset by a net gain of $163,000 on the sale of a foreclosed property during the third quarter of 2015.
The Company's efficiency ratio of 64.8% for the third quarter of 2015, compared to 65.3% for the linked quarter and 60.1% for the third quarter of 2014, continues to be influenced by increased investments for the future. While management expects the efficiency ratio to remain above the long-term objective of 60% or less for the short-term, the longstanding objective of aligning non-interest expense growth with top line revenue growth remains a key component of the Company's strategic plan.
The Company recorded a provision for loan and lease losses totaling $287,000 for the third quarter of 2015, compared to $520,000 in the second quarter of 2015. During the third quarter of 2014, the Company recorded a negative provision for loan and lease losses of $89,000. During the third quarter of 2015 the Company recognized net charge-offs of $127,000, representing an annualized 0.04% of average loans and leases. The Company recognized net charge-offs of $15,000 in the second quarter of 2015 and net recoveries of $4,000 during the third quarter of 2014. The remaining increase in third quarter 2015 provision reflects additions commensurate with growth, partially offset by a reduction of the subjective loss factors applied in calculating the probable losses within the loan and lease portfolio.
The Company’s effective tax rate of 31.98% for the third quarter of 2015, compared to 33.71% for the linked quarter and 34.64% for the third quarter of 2014, included a 199 basis points benefit adjustment primarily due to updating state apportionment estimates for actual apportionment rates based on the filing of the 2014 tax returns during the quarter.
Balance Sheet and Asset Quality Strength
Period-end net loans and leases grew for the fourteenth consecutive quarter, reaching a record $1.362 billion at September 30, 2015. Net loans and leases grew $27.7 million, or 8.3% annualized, from June 30, 2015 and $333.9 million from September 30, 2014. Excluding $239.6 million in net loans and leases at Alterra, net loans and leases were a record $1.122 billion at September 30, 2015, increasing $94.3 million, or 9.2%, from the same period last year. On an average basis, gross loans and leases grew an annualized 13.3% during the third quarter of 2015, to $1.363 billion, compared to the linked quarter. Growth reflects continued and successful execution in deepening client relationships, attracting new commercial clients, and capitalizing on market opportunities.
Period-end in-market deposits - consisting of all transaction accounts, money market accounts and non-wholesale deposits - totaled $1.063 billion, comprising 69.0% of total deposits at September 30, 2015. Period-end wholesale deposits were $476.6 million at September 30, 2015, consisting of brokered certificates of deposit and deposits gathered through internet deposit listing services of $409.4 million and $67.2 million, respectively. In total, deposits measured $1.539 billion, growing $68.3 million, or 18.6% annualized, compared to the linked quarter. Average in-market deposits were $1.042 billion, or 69.1% of total deposits, for the third quarter of 2015. In order to reduce interest rate risk, the Company uses wholesale deposits to efficiently match-fund fixed-rate loans. Over time, management expects to maintain a ratio of in-market deposits to total deposits in line with the Company's recent historical range of 60%-70%.
Management continues to believe asset quality is a source of strength that differentiates the Company from many of its peers. During the third quarter of 2015, non-performing loans decreased to $9.7 million, compared to $15.2 million at June 30, 2015, primarily due to the successful restructuring of one impaired relationship during the quarter, with no principal loss. As a result, the Company's non-performing loans as a percentage of gross loans and leases declined to 0.70% at September 30, 2015, from 1.12% as of June 30, 2015. Non-performing loans as a percentage of total gross loans and leases measured 1.52% at September 30, 2014. Likewise, the ratio of non-performing assets to total assets decreased to 0.65% at September 30, 2015, compared to 1.01% and 1.12% at June 30, 2015 and September 30, 2014, respectively. Non-performing assets totaled $11.3 million at September 30, 2015, compared to $17.1 million and $15.9 million at June 30, 2015 and September 30, 2014, respectively.
Capital Strength
The Company's earnings continue to generate capital, and its capital ratios exceed the highest required regulatory benchmark levels. As of September 30, 2015, total capital to risk-weighted assets was 11.29%, tier 1 capital to risk-weighted assets was 8.95%, tier 1 capital to average assets was 8.59% and common equity tier 1 capital to risk-weighted assets was 8.34%. Capital ratios as of September 30, 2015 reflect the Company's implementation of the capital guidelines under Basel III, which became effective January 1, 2015.
Two-for-One Stock Split and Quarterly Dividend
As previously announced, during the third quarter of 2015 the Company's Board of Directors declared a two-for-one stock split of its common stock payable in the form of a 100% stock dividend. The stock dividend was paid on August 28, 2015 to shareholders of record at the close of business on August 18, 2015. The trading price of the Company’s common stock on NASDAQ reflected the stock split effective August 31, 2015. Share and per share data have been adjusted for all historical periods.
In addition, as previously announced, during the third quarter of 2015 the Company's Board of Directors declared a regular quarterly cash dividend of $0.22 per share on a pre-split basis. The cash dividend was paid on August 28, 2015 to shareholders of record at the close of business on August 18, 2015. On a post-split basis, the cash dividend represents what the Company believes is a sustainable 22.0% payout ratio, measured against third quarter 2015 earnings per share of $0.50. 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 press release includes “forward-looking” statements related to the Company that can generally be identified as describing the Company’s future plans, expectations, objectives or goals. Such forward-looking statements are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those currently anticipated. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. For further information about the factors that could affect the Company’s future results, please see the Company’s 2014 annual report on Form 10-K, quarterly reports on Form 10-Q and other filings with the Securities and Exchange Commission.
SELECTED FINANCIAL CONDITION DATA
| (Unaudited) | As of | |||||||||||||||||||
| (in thousands) | September 30, 2015 | June 30, 2015 | March 31, 2015 | December 31, 2014 | September 30, 2014 | |||||||||||||||
| ASSETS | ||||||||||||||||||||
| Cash and cash equivalents | $ | 122,671 | $ | 88,848 | $ | 141,887 | $ | 103,237 | $ | 174,498 | ||||||||||
| Securities available-for-sale, at fair value | 143,729 | 146,342 | 142,951 | 144,698 | 142,427 | |||||||||||||||
| Securities held-to-maturity, at amortized cost | 38,364 | 39,428 | 40,599 | 41,563 | 42,522 | |||||||||||||||
| Loans held for sale | 2,910 | 1,274 | 2,396 | 1,340 | — | |||||||||||||||
| Loans and leases receivable | 1,377,172 | 1,349,290 | 1,294,540 | 1,279,427 | 1,041,816 | |||||||||||||||
| Allowance for loan and lease losses | (15,359 | ) | (15,199 | ) | (14,694 | ) | (14,329 | ) | (13,930 | ) | ||||||||||
| Loans and leases, net | 1,361,813 | 1,334,091 | 1,279,846 | 1,265,098 | 1,027,886 | |||||||||||||||
| Premises and equipment, net | 3,889 | 3,998 | 3,883 | 3,943 | 1,198 | |||||||||||||||
| Foreclosed properties | 1,632 | 1,854 | 1,566 | 1,693 | 106 | |||||||||||||||
| Cash surrender value of bank-owned life insurance | 28,029 | 27,785 | 27,548 | 27,314 | 23,772 | |||||||||||||||
| Investment in Federal Home Loan Bank and Federal Reserve Bank stock, at cost | 2,843 | 2,891 | 2,798 | 2,340 | 1,349 | |||||||||||||||
| Goodwill and other intangible assets | 12,244 | 12,133 | 12,011 | 11,944 | — | |||||||||||||||
| Accrued interest receivable and other assets | 26,029 | 24,920 | 25,192 | 26,217 | 13,809 | |||||||||||||||
| Total assets | $ | 1,744,153 | $ | 1,683,564 | $ | 1,680,677 | $ | 1,629,387 | $ | 1,427,567 | ||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
| In-market deposits | $ | 1,062,753 | $ | 1,026,588 | $ | 1,054,828 | $ | 1,010,928 | $ | 859,114 | ||||||||||
| Wholesale deposits | 476,617 | 444,480 | 430,973 | 427,340 | 410,086 | |||||||||||||||
| Total deposits | 1,539,370 | 1,471,068 | 1,485,801 | 1,438,268 | 1,269,200 | |||||||||||||||
| Federal Home Loan Bank and other borrowings | 36,354 | 47,401 | 34,448 | 33,994 | 22,936 | |||||||||||||||
| Junior subordinated notes | 10,315 | 10,315 | 10,315 | 10,315 | 10,315 | |||||||||||||||
| Accrued interest payable and other liabilities | 10,147 | 10,493 | 8,424 | 9,062 | 6,924 | |||||||||||||||
| Total liabilities | 1,596,186 | 1,539,277 | 1,538,988 | 1,491,639 | 1,309,375 | |||||||||||||||
| Total stockholders’ equity | 147,967 | 144,287 | 141,689 | 137,748 | 118,192 | |||||||||||||||
| Total liabilities and stockholders’ equity | $ | 1,744,153 | $ | 1,683,564 | $ | 1,680,677 | $ | 1,629,387 | $ | 1,427,567 | ||||||||||
STATEMENTS OF INCOME
| (Unaudited) | As of and for the Three Months Ended | As of and for the Nine Months Ended | |||||||||||||||||||||||||||
| (Dollars in thousands, except per share amounts) | September 30, 2015 | June 30, 2015 | March 31, 2015 | December 31, 2014 | September 30, 2014 | September 30, 2015 | September 30, 2014 | ||||||||||||||||||||||
| Total interest income | $ | 18,135 | $ | 17,520 | $ | 18,216 | $ | 16,863 | $ | 13,871 | $ | 53,871 | $ | 40,838 | |||||||||||||||
| Total interest expense | 3,525 | 3,332 | 3,286 | 3,268 | 2,936 | 10,143 | 8,303 | ||||||||||||||||||||||
| Net interest income | 14,610 | 14,188 | 14,930 | 13,595 | 10,935 | 43,728 | 32,535 | ||||||||||||||||||||||
| Provision for loan and lease losses | 287 | 520 | 684 | 1,236 | (89 | ) | 1,491 | — | |||||||||||||||||||||
| Net interest income after provision for loan and lease losses | 14,323 | 13,668 | 14,246 | 12,359 | 11,024 | 42,237 | 32,535 | ||||||||||||||||||||||
| Trust and investment services fee income | 1,251 | 1,279 | 1,207 | 1,119 | 1,137 | 3,737 | 3,315 | ||||||||||||||||||||||
| Gain on sale of SBA loans | 927 | 842 | 505 | 318 | — | 2,274 | — | ||||||||||||||||||||||
| Gain on sale of residential mortgage loans | 244 | 222 | 148 | 74 | — | 614 | — | ||||||||||||||||||||||
| Service charges on deposits | 705 | 693 | 696 | 682 | 620 | 2,094 | 1,787 | ||||||||||||||||||||||
| Loan fees | 486 | 499 | 502 | 421 | 386 | 1,487 | 1,156 | ||||||||||||||||||||||
| Other | 489 | 591 | 790 | 351 | 316 | 1,870 | 880 | ||||||||||||||||||||||
| Total non-interest income | 4,102 | 4,126 | 3,848 | 2,965 | 2,459 | 12,076 | 7,138 | ||||||||||||||||||||||
| Compensation | 7,320 | 6,924 | 7,354 | 6,486 | 5,193 | 21,598 | 14,991 | ||||||||||||||||||||||
| Occupancy | 486 | 486 | 500 | 428 | 324 | 1,472 | 963 | ||||||||||||||||||||||
| Professional fees | 1,268 | 1,482 | 911 | 638 | 570 | 3,661 | 1,777 | ||||||||||||||||||||||
| Data processing | 587 | 655 | 530 | 483 | 389 | 1,772 | 1,227 | ||||||||||||||||||||||
| Marketing | 693 | 701 | 642 | 542 | 409 | 2,036 | 1,120 | ||||||||||||||||||||||
| Equipment | 308 | 298 | 308 | 250 | 145 | 914 | 400 | ||||||||||||||||||||||
| FDIC Insurance | 260 | 220 | 213 | 216 | 179 | 693 | 542 | ||||||||||||||||||||||
| Net collateral liquidation costs | 22 | 78 | 302 | 44 | 32 | 402 | 276 | ||||||||||||||||||||||
| Net (gain) loss on foreclosed properties | (163 | ) | 1 | (16 | ) | (5 | ) | (9 | ) | (178 | ) | (5 | ) | ||||||||||||||||
| Merger-related costs | — | 33 | 78 | 566 | 104 | 111 | 424 | ||||||||||||||||||||||
| Other | 1,203 | 1,096 | 910 | 479 | 711 | 3,209 | 1,933 | ||||||||||||||||||||||
| Total non-interest expense | 11,984 | 11,974 | 11,732 | 10,127 | 8,047 | 35,690 | 23,648 | ||||||||||||||||||||||
| Income before tax expense | 6,441 | 5,820 | 6,362 | 5,197 | 5,436 | 18,623 | 16,025 | ||||||||||||||||||||||
| Income tax expense | 2,060 | 1,962 | 2,170 | 1,453 | 1,883 | 6,192 | 5,630 | ||||||||||||||||||||||
| Net income | $ | 4,381 | $ | 3,858 | $ | 4,192 | $ | 3,744 | $ | 3,553 | $ | 12,431 | $ | 10,395 | |||||||||||||||
| Per common share: | |||||||||||||||||||||||||||||
| Basic earnings | $ | 0.50 | $ | 0.45 | $ | 0.48 | $ | 0.44 | $ | 0.45 | $ | 1.43 | $ | 1.32 | |||||||||||||||
| Diluted earnings | 0.50 | 0.45 | 0.48 | 0.44 | 0.45 | 1.43 | 1.31 | ||||||||||||||||||||||
| Dividends declared | 0.11 | 0.11 | 0.11 | 0.105 | 0.105 | 0.33 | 0.315 | ||||||||||||||||||||||
| Book value | 17.01 | 16.64 | 16.34 | 15.88 | 14.93 | 17.01 | 14.93 | ||||||||||||||||||||||
| Tangible book value | 15.60 | 15.24 | 14.95 | 14.51 | 14.93 | 15.60 | 14.93 | ||||||||||||||||||||||
| Weighted-average common shares outstanding(1) | 8,546,563 | 8,523,418 | 8,525,127 | 8,282,999 | 7,739,918 | 8,538,219 | 7,727,300 | ||||||||||||||||||||||
| Weighted-average diluted common shares outstanding(1) | 8,546,563 | 8,523,418 | 8,529,658 | 8,297,508 | 7,783,612 | 8,539,705 | 7,771,485 | ||||||||||||||||||||||
(1) Excluding participating securities
NET INTEREST INCOME ANALYSIS
| (Unaudited) | For the Three Months Ended | ||||||||||||||||||||||||||||||||
| (Dollars in thousands) | September 30, 2015 | June 30, 2015 | September 30, 2014 | ||||||||||||||||||||||||||||||
| 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) | $ | 856,488 | $ | 9,994 | 4.67 | % | $ | 824,250 | $ | 9,672 | 4.69 | % | $ | 641,522 | $ | 7,705 | 4.80 | % | |||||||||||||||
| Commercial and industrial loans(1) | 454,184 | 6,741 | 5.94 | % | 439,986 | 6,408 | 5.83 | % | 326,579 | 4,769 | 5.84 | % | |||||||||||||||||||||
| Direct financing leases(1) | 28,352 | 328 | 4.63 | % | 29,631 | 342 | 4.62 | % | 30,278 | 351 | 4.64 | % | |||||||||||||||||||||
| Consumer and other loans(1) | 23,647 | 260 | 4.40 | % | 24,888 | 258 | 4.15 | % | 15,696 | 143 | 3.64 | % | |||||||||||||||||||||
| Total loans and leases receivable(1) | 1,362,671 | 17,323 | 5.09 | % | 1,318,755 | 16,680 | 5.06 | % | 1,014,075 | 12,968 | 5.12 | % | |||||||||||||||||||||
| Mortgage-related securities(2) | 152,763 | 602 | 1.57 | % | 156,137 | 632 | 1.62 | % | 158,832 | 716 | 1.80 | % | |||||||||||||||||||||
| Other investment securities(3) | 30,431 | 120 | 1.58 | % | 28,912 | 116 | 1.60 | % | 26,284 | 105 | 1.60 | % | |||||||||||||||||||||
| FHLB and FRB stock | 3,175 | 22 | 2.69 | % | 2,926 | 20 | 2.73 | % | 1,349 | 2 | 0.57 | % | |||||||||||||||||||||
| Short-term investments | 67,716 | 68 | 0.41 | % | 66,035 | 72 | 0.44 | % | 70,633 | 80 | 0.45 | % | |||||||||||||||||||||
| Total interest-earning assets | 1,616,756 | 18,135 | 4.49 | % | 1,572,765 | 17,520 | 4.46 | % | 1,271,173 | 13,871 | 4.36 | % | |||||||||||||||||||||
| Non-interest-earning assets | 100,863 | 93,477 | 63,485 | ||||||||||||||||||||||||||||||
| Total assets | $ | 1,717,619 | $ | 1,666,242 | $ | 1,334,658 | |||||||||||||||||||||||||||
| Interest-bearing liabilities | |||||||||||||||||||||||||||||||||
| Transaction accounts | $ | 138,489 | 84 | 0.24 | % | $ | 105,582 | 63 | 0.24 | % | $ | 84,434 | 47 | 0.22 | % | ||||||||||||||||||
| Money market | 587,063 | 829 | 0.56 | % | 605,195 | 841 | 0.56 | % | 484,402 | 627 | 0.52 | % | |||||||||||||||||||||
| Certificates of deposit | 102,477 | 204 | 0.80 | % | 111,192 | 219 | 0.79 | % | 44,423 | 115 | 1.04 | % | |||||||||||||||||||||
| Wholesale deposits | 466,516 | 1,668 | 1.43 | % | 428,080 | 1,470 | 1.37 | % | 422,618 | 1,616 | 1.53 | % | |||||||||||||||||||||
| Total interest-bearing deposits | 1,294,545 | 2,785 | 0.86 | % | 1,250,049 | 2,593 | 0.83 | % | 1,035,877 | 2,405 | 0.93 | % | |||||||||||||||||||||
| FHLB advances | 17,503 | 30 | 0.67 | % | 22,749 | 31 | 0.55 | % | 1,304 | 1 | 0.16 | % | |||||||||||||||||||||
| Other borrowings | 25,154 | 430 | 6.84 | % | 25,556 | 430 | 6.73 | % | 13,806 | 250 | 7.24 | % | |||||||||||||||||||||
| Junior subordinated notes | 10,315 | 280 | 10.86 | % | 10,315 | 278 | 10.78 | % | 10,315 | 280 | 10.86 | % | |||||||||||||||||||||
| Total interest-bearing liabilities | 1,347,517 | 3,525 | 1.05 | % | 1,308,669 | 3,332 | 1.02 | % | 1,061,302 | 2,936 | 1.11 | % | |||||||||||||||||||||
| Non-interest-bearing demand deposit accounts | 213,712 | 205,508 | 148,017 | ||||||||||||||||||||||||||||||
| Other non-interest-bearing liabilities | 9,520 | 8,252 | 7,908 | ||||||||||||||||||||||||||||||
| Total liabilities | 1,570,749 | 1,522,429 | 1,217,227 | ||||||||||||||||||||||||||||||
| Stockholders’ equity | 146,870 | 143,813 | 117,431 | ||||||||||||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 1,717,619 | $ | 1,666,242 | $ | 1,334,658 | |||||||||||||||||||||||||||
| Net interest income | $ | 14,610 | $ | 14,188 | $ | 10,935 | |||||||||||||||||||||||||||
| Interest rate spread | 3.44 | % | 3.44 | % | 3.25 | % | |||||||||||||||||||||||||||
| Net interest-earning assets | $ | 269,239 | $ | 264,096 | $ | 209,871 | |||||||||||||||||||||||||||
| Net interest margin | 3.61 | % | 3.61 | % | 3.44 | % | |||||||||||||||||||||||||||
(1) The average balances of loans and leases include non-performing loans and leases. Interest income related to non-performing loans and leases is recognized when collected.
(2) Includes amortized cost basis of assets available for sale and held to maturity.
(3) Yields on tax-exempt municipal obligations are not presented on a tax-equivalent basis in this table.
(4) Represents annualized yields/rates.
NET INTEREST INCOME ANALYSIS (CONTINUED)
| (Unaudited) | For the Nine Months Ended September 30, | |||||||||||||||||||||
| (Dollars in thousands) | 2015 | 2014 | ||||||||||||||||||||
| 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) | $ | 832,042 | $ | 29,535 | 4.73 | % | $ | 638,187 | $ | 22,904 | 4.79 | % | ||||||||||
| Commercial and industrial loans(1) | 440,390 | 19,973 | 6.05 | % | 316,209 | 13,769 | 5.81 | % | ||||||||||||||
| Direct financing leases(1) | 30,229 | 1,053 | 4.64 | % | 27,945 | 965 | 4.60 | % | ||||||||||||||
| Consumer and other loans(1) | 24,213 | 767 | 4.22 | % | 16,603 | 456 | 3.66 | % | ||||||||||||||
| Total loans and leases receivable(1) | 1,326,874 | 51,328 | 5.16 | % | 998,944 | 38,094 | 5.08 | % | ||||||||||||||
| Mortgage-related securities(2) | 154,734 | 1,896 | 1.63 | % | 155,488 | 2,208 | 1.89 | % | ||||||||||||||
| Other investment securities(3) | 29,213 | 350 | 1.60 | % | 28,556 | 335 | 1.56 | % | ||||||||||||||
| FHLB and FRB stock | 2,902 | 60 | 2.74 | % | 1,346 | 4 | 0.44 | % | ||||||||||||||
| Short-term investments | 75,469 | 237 | 0.42 | % | 50,768 | 197 | 0.52 | % | ||||||||||||||
| Total interest-earning assets | 1,589,192 | 53,871 | 4.52 | % | 1,235,102 | 40,838 | 4.41 | % | ||||||||||||||
| Non-interest-earning assets | 96,889 | 59,104 | ||||||||||||||||||||
| Total assets | $ | 1,686,081 | $ | 1,294,206 | ||||||||||||||||||
| Interest-bearing liabilities | ||||||||||||||||||||||
| Transaction accounts | $ | 117,242 | 205 | 0.23 | % | $ | 81,039 | 137 | 0.23 | % | ||||||||||||
| Money market | 605,906 | 2,523 | 0.56 | % | 465,708 | 1,785 | 0.51 | % | ||||||||||||||
| Certificates of deposit | 112,602 | 643 | 0.76 | % | 47,536 | 350 | 0.98 | % | ||||||||||||||
| Wholesale deposits | 439,744 | 4,576 | 1.39 | % | 410,757 | 4,639 | 1.51 | % | ||||||||||||||
| Total interest-bearing deposits | 1,275,494 | 7,947 | 0.83 | % | 1,005,040 | 6,911 | 0.92 | % | ||||||||||||||
| FHLB advances | 16,569 | 85 | 0.68 | % | 4,604 | 6 | 0.16 | % | ||||||||||||||
| Other borrowings | 24,948 | 1,279 | 6.84 | % | 10,297 | 555 | 7.19 | % | ||||||||||||||
| Junior subordinated notes | 10,315 | 832 | 10.76 | % | 10,315 | 831 | 10.76 | % | ||||||||||||||
| Total interest-bearing liabilities | 1,327,326 | 10,143 | 1.02 | % | 1,030,256 | 8,303 | 1.07 | % | ||||||||||||||
| Non-interest-bearing demand deposit accounts | 206,547 | 142,302 | ||||||||||||||||||||
| Other non-interest-bearing liabilities | 8,646 | 7,406 | ||||||||||||||||||||
| Total liabilities | 1,542,519 | 1,179,964 | ||||||||||||||||||||
| Stockholders’ equity | 143,562 | 114,242 | ||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 1,686,081 | $ | 1,294,206 | ||||||||||||||||||
| Net interest income | $ | 43,728 | $ | 32,535 | ||||||||||||||||||
| Interest rate spread | 3.50 | % | 3.34 | % | ||||||||||||||||||
| Net interest-earning assets | $ | 261,866 | $ | 204,846 | ||||||||||||||||||
| Net interest margin | 3.67 | % | 3.51 | % | ||||||||||||||||||
(1) The average balances of loans and leases include non-performing loans and leases. Interest income related to non-performing loans and leases is recognized when collected.
(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.
SELECTED FINANCIAL TRENDS
PERFORMANCE RATIOS
| For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||
| (Unaudited) | September 30, 2015 | June 30, 2015 | March 31, 2015 | December 31, 2014 | September 30, 2014 | September 30, 2015 | September 30, 2014 | ||||||||||||||
| Return on average assets (annualized) | 1.02 | % | 0.93 | % | 1.00 | % | 0.95 | % | 1.06 | % | 0.98 | % | 1.07 | % | |||||||
| Return on average equity (annualized) | 11.93 | % | 10.73 | % | 11.98 | % | 10.92 | % | 12.10 | % | 11.55 | % | 12.13 | % | |||||||
| Efficiency ratio | 64.82 | % | 65.28 | % | 62.47 | % | 61.11 | % | 60.15 | % | 64.18 | % | 59.62 | % | |||||||
| Interest rate spread | 3.44 | % | 3.44 | % | 3.63 | % | 3.49 | % | 3.25 | % | 3.50 | % | 3.34 | % | |||||||
| Net interest margin | 3.61 | % | 3.61 | % | 3.79 | % | 3.67 | % | 3.44 | % | 3.67 | % | 3.51 | % | |||||||
| Average interest-earning assets to average interest-bearing liabilities | 119.98 | % | 120.18 | % | 119.02 | % | 119.86 | % | 119.77 | % | 119.73 | % | 119.88 | % | |||||||
ASSET QUALITY RATIOS
| (Unaudited) | As of | |||||||||||||||||||
| (Dollars in thousands) | September 30, 2015 | June 30, 2015 | March 31, 2015 | December 31, 2014 | September 30, 2014 | |||||||||||||||
| Non-performing loans and leases | $ | 9,707 | $ | 15,198 | $ | 9,352 | $ | 9,792 | $ | 15,837 | ||||||||||
| Foreclosed properties, net | 1,632 | 1,854 | 1,566 | 1,693 | 106 | |||||||||||||||
| Total non-performing assets | 11,339 | 17,052 | 10,918 | 11,485 | 15,943 | |||||||||||||||
| Performing troubled debt restructurings | 7,852 | 1,944 | 1,972 | 2,003 | 556 | |||||||||||||||
| Total impaired assets | $ | 19,191 | $ | 18,996 | $ | 12,890 | $ | 13,488 | $ | 16,499 | ||||||||||
| Non-performing loans and leases as a percent of total gross loans and leases | 0.70 | % | 1.12 | % | 0.72 | % | 0.76 | % | 1.52 | % | ||||||||||
| Non-performing assets as a percent of total gross loans and leases plus foreclosed properties | 0.82 | % | 1.26 | % | 0.84 | % | 0.89 | % | 1.53 | % | ||||||||||
| Non-performing assets as a percent of total assets | 0.65 | % | 1.01 | % | 0.65 | % | 0.70 | % | 1.12 | % | ||||||||||
| Allowance for loan and lease losses as a percent of total gross loans and leases | 1.11 | % | 1.12 | % | 1.13 | % | 1.12 | % | 1.34 | % | ||||||||||
| Allowance for loan and lease losses as a percent of non-performing loans | 158.22 | % | 100.01 | % | 157.12 | % | 146.33 | % | 87.96 | % | ||||||||||
| Criticized assets: | ||||||||||||||||||||
| Special mention | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
| Substandard | 11,144 | 10,633 | 22,626 | 25,493 | 26,147 | |||||||||||||||
| Doubtful | — | — | — | — | — | |||||||||||||||
| Foreclosed properties, net | 1,632 | 1,854 | 1,566 | 1,693 | 106 | |||||||||||||||
| Total criticized assets | $ | 12,776 | $ | 12,487 | $ | 24,192 | $ | 27,186 | $ | 26,253 | ||||||||||
| Criticized assets to total assets | 0.73 | % | 0.74 | % | 1.44 | % | 1.67 | % | 1.84 | % | ||||||||||
NET CHARGE-OFFS (RECOVERIES)
| (Unaudited) | For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||||||
| (Dollars in thousands) | September 30, 2015 | June 30, 2015 | March 31, 2015 | December 31, 2014 | September 30, 2014 | September 30, 2015 | September 30, 2014 | ||||||||||||||||||||||
| Charge-offs | $ | 138 | $ | 84 | $ | 324 | $ | 1,231 | $ | 2 | $ | 546 | $ | 2 | |||||||||||||||
| Recoveries | (11 | ) | (69 | ) | (5 | ) | (393 | ) | (6 | ) | (85 | ) | (31 | ) | |||||||||||||||
| Net charge-offs (recoveries) | $ | 127 | $ | 15 | $ | 319 | $ | 838 | $ | (4 | ) | $ | 461 | $ | (29 | ) | |||||||||||||
| Net charge-offs (recoveries) as a percent of average gross loans and leases (annualized) | 0.04 | % | — | % | 0.10 | % | 0.28 | % | — | % | 0.05 | % | — | % | |||||||||||||||
CAPITAL RATIOS
| As of and for the Three Months Ended | |||||||||||||||
| (Unaudited) | September 30, 2015 | June 30, 2015 | March 31, 2015 | December 31, 2014 | September 30, 2014 | ||||||||||
| Total capital to risk-weighted assets (1) | 11.29 | % | 11.11 | % | 11.40 | % | 12.13 | % | 13.97 | % | |||||
| Tier I capital to risk-weighted assets (1) | 8.95 | % | 8.78 | % | 8.98 | % | 9.52 | % | 10.84 | % | |||||
| Common equity tier I capital to risk-weighted assets (1) | 8.34 | % | 8.16 | % | 8.34 | % | N/A | N/A | |||||||
| Tier I capital to average assets (1) | 8.59 | % | 8.66 | % | 8.42 | % | 8.71 | % | 9.56 | % | |||||
| Tangible common equity to tangible assets | 7.84 | % | 7.91 | % | 7.77 | % | 7.78 | % | 8.28 | % | |||||
(1) The September 30, 2015 data is estimated.
SELECTED OTHER INFORMATION
| (Unaudited) | As of | |||||||||||||||||||
| (in thousands) | September 30, 2015 | June 30, 2015 | March 31, 2015 | December 31, 2014 | September 30, 2014 | |||||||||||||||
| Trust assets under management | $ | 791,150 | $ | 800,615 | $ | 814,226 | $ | 773,192 | $ | 741,210 | ||||||||||
| Trust assets under administration | 187,495 | 197,343 | 195,148 | 186,505 | 186,212 | |||||||||||||||
| Total trust assets | $ | 978,645 | $ | 997,958 | $ | 1,009,374 | $ | 959,697 | $ | 927,422 | ||||||||||
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 believes that these non-GAAP financial measures provide a greater understanding of its business, these measures are not necessarily comparable to similar measures that may be presented by other companies.
TANGIBLE BOOK VALUE
“Tangible book value per share” is a non-GAAP measure representing tangible common equity divided by total common shares outstanding. “Tangible common equity” itself is a non-GAAP measure representing common stockholders’ equity reduced by intangible assets, if any. The Company’s management believes that this measure is important to many investors in the marketplace who are interested in period-to-period changes in book value per common share exclusive of changes in intangible assets. The information provided below reconciles tangible book value per share and tangible common equity to their most comparable GAAP measures.
| (Unaudited) | As of | |||||||||||||||||||
| (Dollars in thousands, except per share amounts) | September 30, 2015 | June 30, 2015 | March 31, 2015 | December 31, 2014 | September 30, 2014 | |||||||||||||||
| Common stockholders’ equity | $ | 147,967 | $ | 144,287 | $ | 141,689 | $ | 137,748 | $ | 118,192 | ||||||||||
| Goodwill and other intangible assets | (12,244 | ) | (12,133 | ) | (12,011 | ) | (11,944 | ) | — | |||||||||||
| Tangible common equity | $ | 135,723 | $ | 132,154 | $ | 129,678 | $ | 125,804 | $ | 118,192 | ||||||||||
| Common shares outstanding | 8,698,775 | 8,669,836 | 8,672,322 | 8,671,854 | 7,918,230 | |||||||||||||||
| Book value per share | $ | 17.01 | $ | 16.64 | $ | 16.34 | $ | 15.88 | $ | 14.93 | ||||||||||
| Tangible book value per share | 15.60 | 15.24 | 14.95 | 14.51 | 14.93 | |||||||||||||||
TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS
‘‘Tangible common equity to tangible assets’’ is defined as the ratio of common stockholders’ equity reduced by intangible assets, if any, divided by total assets reduced by intangible assets, if any. The Company’s management believes that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period in common equity and total assets, each exclusive of changes in intangible assets. The information below reconciles tangible common equity and tangible assets to their most comparable GAAP measures.
| (Unaudited) | As of | |||||||||||||||||||
| (Dollars in thousands) | September 30, 2015 | June 30, 2015 | March 31, 2015 | December 31, 2014 | September 30, 2014 | |||||||||||||||
| Common stockholders’ equity | $ | 147,967 | $ | 144,287 | $ | 141,689 | $ | 137,748 | $ | 118,192 | ||||||||||
| Goodwill and other intangible assets | (12,244 | ) | (12,133 | ) | (12,011 | ) | (11,944 | ) | — | |||||||||||
| Tangible common equity | $ | 135,723 | $ | 132,154 | $ | 129,678 | $ | 125,804 | $ | 118,192 | ||||||||||
| Total assets | $ | 1,744,153 | $ | 1,683,564 | $ | 1,680,677 | $ | 1,629,387 | $ | 1,427,567 | ||||||||||
| Goodwill and other intangible assets | (12,244 | ) | (12,133 | ) | (12,011 | ) | (11,944 | ) | — | |||||||||||
| Tangible assets | $ | 1,731,909 | $ | 1,671,431 | $ | 1,668,666 | $ | 1,617,443 | $ | 1,427,567 | ||||||||||
| Tangible common equity to tangible assets | 7.84 | % | 7.91 | % | 7.77 | % | 7.78 | % | 8.28 | % | ||||||||||
EFFICIENCY RATIO
“Efficiency ratio” is a non-GAAP measure representing non-interest expense excluding the effects of losses or gains on foreclosed properties, other discrete items that are unrelated to the Company’s primary business activities and amortization of other intangible assets, 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 that are unrelated to its business. The information provided below reconciles the efficiency ratio to its most comparable GAAP measure.
| (Unaudited) | For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||||||||
| (Dollars in thousands) | September 30, 2015 | June 30, 2015 | March 31, 2015 | December 31, 2014 | September 30, 2014 | September 30, 2015 | September 30, 2014 | |||||||||||||||||||||
| Total non-interest expense | $ | 11,984 | $ | 11,974 | $ | 11,732 | $ | 10,127 | $ | 8,047 | $ | 35,690 | $ | 23,648 | ||||||||||||||
| Less: | ||||||||||||||||||||||||||||
| Net loss (gain) on foreclosed properties | (163 | ) | 1 | (16 | ) | (5 | ) | (9 | ) | (178 | ) | (5 | ) | |||||||||||||||
| Amortization of other intangible assets | 18 | 18 | 18 | 12 | — | 55 | — | |||||||||||||||||||||
| Total operating expense | $ | 12,129 | $ | 11,955 | $ | 11,730 | $ | 10,120 | $ | 8,056 | $ | 35,813 | $ | 23,653 | ||||||||||||||
| Net interest income | $ | 14,610 | $ | 14,188 | $ | 14,930 | $ | 13,595 | $ | 10,935 | $ | 43,728 | $ | 32,535 | ||||||||||||||
| Total non-interest income | 4,102 | 4,126 | 3,848 | 2,965 | 2,459 | 12,076 | 7,138 | |||||||||||||||||||||
| Total operating revenue | $ | 18,712 | $ | 18,314 | $ | 18,778 | $ | 16,560 | $ | 13,394 | $ | 55,804 | $ | 39,673 | ||||||||||||||
| Efficiency ratio | 64.82 | % | 65.28 | % | 62.47 | % | 61.11 | % | 60.15 | % | 64.18 | % | 59.62 | % | ||||||||||||||