MADISON, Wis., July 27, 2017 (GLOBE NEWSWIRE) -- First Business Financial Services, Inc. (the “Company” or “First Business”) (NASDAQ:FBIZ), the parent company of First Business Bank, today reported second quarter 2017 results highlighted by net interest margin expansion, improved efficiency and record trust and investment services fee income. The quarter was negatively impacted by elevated provision expense and net charge-offs related to two previously disclosed impaired loans. Overall performance trends continue to reflect the Company’s previously disclosed decision to temporarily slow Small Business Administration (“SBA”) loan production, in order to make significant investments in the platform.
Summary results for the quarter ended June 30, 2017 include:
- Net income totaled $1.9 million, compared to $3.4 million in the linked quarter and $3.7 million in the second quarter of 2016.
- Diluted earnings per common share measured $0.22, compared to $0.39 and $0.43 for the linked and prior year quarters, respectively.
- Annualized return on average assets and annualized return on average equity measured 0.42% and 4.50%, respectively, for the second quarter of 2017, compared to 0.77% and 8.31% for linked quarter and 0.82% and 9.45% for the second quarter of 2016.
- Net interest margin increased to 3.64%, compared to 3.51% in the linked quarter and 3.59% for the second quarter of 2016.
- Trust and investment services fee income totaled $1.6 million in both the first and second quarters of 2017, compared to $1.3 million for the second quarter of 2016.
- The Company’s efficiency ratio measured 65.39%, compared to 70.85% for the linked quarter and 61.14% for the second quarter of 2016.
- Provision for loan and lease losses was $3.7 million, compared to $572,000 for the linked quarter and $2.8 million for the second quarter of 2016.
- Net charge-offs measured an annualized 0.99% of average loans and leases, primarily related to the Company’s remaining energy sector exposure for which a specific reserve was previously recorded for the majority of the charge-off. This compared to annualized net recoveries measuring 0.05% of average loans and leases in the linked quarter and annualized net charge-offs measuring 0.35% of average loans and leases in the second quarter of 2016.
- Period-end gross loans and leases receivable measured $1.458 billion at June 30, 2017, compared to $1.481 billion at March 31, 2017 and $1.452 billion at June 30, 2016.
- Non-performing loans as a percent of total gross loans and leases receivable measured 2.55% at period end, compared to 2.53% and 1.56% at the end of the linked and prior year quarters, respectively.
“Our organizational focus remains on moving credit quality metrics toward the Bank’s historical levels, building on the operating efficiency gains we’ve made to date and laying the foundation to generate sustainable and high-quality revenue growth,” said Corey Chambas, President and Chief Executive Officer. “Our efforts today are designed to bring First Business back to levels of profitability that generate returns on average assets and equity in excess of 1% and 12%, respectively, along with above-market levels of revenue growth.”
Results of Operations
Net interest income of $15.5 million increased $591,000, or 4.0%, compared to the linked quarter and decreased $262,000, or 1.7%, compared to the second quarter of 2016. The linked quarter comparison primarily reflects higher fees collected in lieu of interest from loan payoffs during the second quarter of 2017 and higher average loan balances. Compared to the prior year period, net interest income in the second quarter of 2017 reflected competitive loan pricing pressure, partially offset by successful efforts to manage deposit rates and increased rates on certain variable-rate loans stemming from the Federal Open Market Committee raising the targeted federal funds rate by 25 basis points in December 2016, March 2017 and June 2017.
Net interest margin increased to 3.64% for the second quarter of 2017, compared to 3.51% in the first quarter of 2017 and 3.59% in the second quarter of 2016. Second quarter 2017 net interest margin improved from the linked quarter principally due to higher fees collected in lieu of interest. Compared to the prior year period, net interest margin reflected successful efforts to manage deposit rates and utilize an efficient mix of wholesale funding sources, and the aforementioned targeted federal funds rate increases. The Company’s cost of interest-bearing liabilities measured 1.09% for the second quarter of 2017, essentially flat compared to 1.08% for the second quarter of 2016 despite a rising interest rate environment. Continued competitive pressures tempered net interest margin expansion compared to the prior year, principally due to a shift in the mix of loan originations toward lower-yielding conventional commercial loans in recent quarters.
Management believes the successful efforts to optimize funding costs and profitably expand loan balances will allow the Company to continue to maintain a net interest margin of 3.50% or better. However, the collection of loan fees in lieu of interest is an expected source of volatility to quarterly net interest income and net interest margin, given the nature of the Company’s asset-based lending business. Net interest margin may also experience volatility due to events such as the collection of interest on loans previously in non-accrual status or the accumulation of significant short-term deposit inflows.
Non-interest income of $4.7 million for the second quarter of 2017 increased 16.6% from the first quarter of 2017 and decreased 18.6% from the second quarter of 2016. Correspondingly, non-interest income represented 23.4% of total revenue for the second quarter of 2017 compared to 21.4% and 27.0% for the linked and prior year quarters, respectively. Linked quarter growth reflected higher loan fees, as well as increased gains from SBA loan sales as the Company seeks to grow sustainable and high-quality production. The decrease in non-interest income from the prior year primarily reflects lower gains from SBA loan sales resulting from the Company’s previously announced decision to slow production while rebuilding its SBA platform. Gains on the sale of SBA loans totaled $535,000 in the second quarter of 2017, compared to $360,000 in the linked quarter and $2.1 million in the second quarter of 2016. Trust and investment services fee income totaled a record $1.6 million in the second quarter of 2017, increasing $19,000, or 1.2%, and $304,000, or 22.6%, compared to the linked and prior year quarters, respectively. Existing client relationships and business development efforts remained strong as trust assets under management and administration reached a record $1.338 billion at June 30, 2017, up $34.6 million, or 10.6% annualized, from the prior quarter and $204.3 million, or 18.0%, from June 30, 2016.
Non-interest expense was $14.2 million in the second quarter of 2017, $13.6 million in the first quarter of 2017 and $13.5 million in the second quarter of 2016. Second quarter 2017 non-interest expense included a $774,000 SBA recourse provision for estimated losses in the outstanding guaranteed portion of SBA loans sold. No material SBA recourse provision was recognized in the first quarter of 2017 and $74,000 was recognized in the second quarter of 2016. Changes to SBA recourse reserves may be a source of non-interest expense volatility in future quarters.
Second quarter 2017 compensation expense decreased by $301,000 compared to the linked quarter and $65,000 compared to the year-ago quarter, primarily due to incentive compensation adjustments made to more closely align these expenses to the Company’s full year 2017 performance expectations.
Marketing expenses increased as expected, growing by $212,000 and $134,000 compared to the linked and year ago periods, respectively, reflecting rebranding efforts related to the completed consolidation of the Company’s bank charters in the second quarter of 2017. The Company anticipates marketing expenses will remain elevated in the second half of 2017.
The Company’s second quarter 2017 efficiency ratio was 65.39%, compared to 70.85% for the linked quarter and 61.14% for the first quarter of 2016. Higher loan prepayment fees and gains from SBA loan sales benefited the efficiency ratio compared to the linked quarter. The decrease in operating efficiency from the prior year primarily reflects lower gains from SBA loan sales resulting from the Company’s previously announced decision to slow production while rebuilding its SBA platform. Over time the Company intends to achieve its target efficiency ratio range of 58-62% through proactive expense management efforts, including its recently completed charter consolidation, as well as revenue initiatives such as efforts to increase sustainable and high-quality SBA lending production in the second half of 2017 and into 2018.
The Company recorded provision for loan and lease losses totaling $3.7 million in the second quarter of 2017, compared to $572,000 in the linked quarter and $2.8 million in the second quarter of 2016. Provision for the second quarter of 2017 reflected a $3.7 million specific reserve related to the previously disclosed $6.7 million Wisconsin-based commercial and industrial impaired loan due to degradation of repayment sources during the quarter. The provision also included a $3.4 million charge-off related to the Corporation’s remaining energy sector exposure, for which a previously recorded specific reserve offset the majority of the provision impact. These increases were partially offset by a reduction in provision commensurate with the application of our allowance for loan and lease loss methodology and positive credit trends in our performing non-SBA commercial real estate portfolio. As of June 30, 2017, our accruing non-SBA commercial real estate portfolio consisted of approximately 66.6% of our total accruing loan and lease portfolio.
Net charge-offs represented an annualized 0.99% of average loans and leases for the second quarter of 2017. This compares to annualized net recoveries measuring 0.05% of average loans and leases in the linked quarter and annualized net charge-offs measuring 0.35% of average loans and leases in the second quarter of 2016.
The effective tax rate was 19.4% in the second quarter 2017, compared to 29.5% in the linked quarter and 30.3% in the second quarter of 2016.
Balance Sheet
Period-end gross loans and leases receivable totaled $1.458 billion at June 30, 2017, decreasing $22.8 million, or 1.5%, from March 31, 2017 and increasing $6.4 million, or 0.4%, from June 30, 2016. Unusually strong first quarter loan growth totaling $30.3 million largely occurred late in that quarter, tempering second quarter loan growth but increasing average loans and leases for the quarter. Second quarter loan growth was additionally limited by loan prepayments in the asset-based lending portfolio, reflecting typical volatility inherent in the specialty financing business. On an average basis, gross loans and leases of $1.470 billion increased by $14.1 million, or 1.0%, and $9.8 million, or 0.7%, compared to the first quarter of 2017 and second quarter of 2016, respectively.
“Second quarter 2017 loan balances reflect continued competitive pressure and soft commercial loan demand overall,” said Chambas. “However, we do anticipate high-quality loan growth will resume at a modest pace in the second half of 2017, in tandem with the steady and gradual expansion of our rebuilt SBA lending program. Of course, quality trumps quantity, and we continue to exercise caution and patience.”
Period-end in-market deposits - consisting of all transaction accounts, money market accounts and non-wholesale deposits - totaled $1.120 billion, or 72.0% of total bank funding at June 30, 2017, compared to $1.104 billion, or 69.5% at March 31, 2017 and $1.131 billion, or 70.1% at June 30, 2016. The increase in in-market deposits compared to the linked quarter was primarily due to expected seasonality of our non-transaction accounts. Period-end wholesale bank funds were $436.4 million at June 30, 2017, including brokered certificates of deposit of $321.1 million, deposits gathered through internet deposit listing services of $33.3 million and Federal Home Loan Bank (“FHLB”) advances of $82.0 million. Consistent with the Company’s longstanding funding strategy to use the most efficient and cost effective source of wholesale funds, management continues to replace maturing wholesale deposits with fixed rate FHLB advances at various terms to meet our balance sheet management needs. Over time, management intends to maintain a ratio of in-market deposits to total bank funding sources in line with the Company's historical range of 60%-70%.
Subordinated Debt Issued
As previously disclosed, on June 15, 2017, the Company issued $9.1 million in 6.00% fixed rate subordinated debt, using the net proceeds to redeem $7.9 million of existing subordinated debt that carried a weighted average fixed rate of 7.18%. The remaining net proceeds were used to increase the capital position of the Company and for general corporate purposes.
Asset Quality
Total non-performing loans were $37.2 million at June 30, 2017, decreasing by $357,000, or 1.0%, compared to $37.5 million at March 31, 2017 and increasing by $14.5 million, or 63.9%, compared to $22.7 million at June 30, 2016. As a percent of total gross loans and leases receivable, non-performing loans measured 2.55% at June 30, 2017, compared to 2.53% and 1.56% at the end of the linked quarter and second quarter of 2016, respectively. Included in these totals are non-performing loans originated in our Kansas City office which totaled $20.9 million at June 30, 2017, compared to $20.2 million at March 31, 2017 and $9.5 million at June 30, 2016.
Deterioration in a $2.8 million asset-based lending relationship during the second quarter partially offset the decline in non-performing loans associated with the aforementioned energy sector charge-off of $3.4 million. The loan is fully-collateralized and management believes they will successfully liquidate the collateral by year-end and receive all contractual principal and interest.
As of June 30, 2017, our direct exposure to the energy sector consisted of $2.9 million in loans and leases receivable, or 0.20% of total gross loans and leases receivable, with no remaining unfunded commitments. Of this population, $2.2 million was considered non-performing as of June 30, 2017. Management believes the portfolio is adequately collateralized as of the end of the reporting period.
Following the planned discontinuation of all banking activities at the Company’s Overland Park branch in the second quarter of 2017, the building and land were reclassified to other real estate owned. Management is in the process of selling the property, which is expected to be completed by the end of the year.
Capital Strength
The Company's capital ratios continued to exceed the highest required regulatory benchmark levels. As of June 30, 2017, total capital to risk-weighted assets was 11.91%, tier 1 capital to risk-weighted assets was 9.33%, tier 1 leverage capital to adjusted average assets was 9.28% and common equity tier 1 capital to risk-weighted assets was 8.77%.
Quarterly Dividend
As previously announced, during second quarter of 2017 the Company's Board of Directors declared a regular quarterly dividend of $0.13 per share. The dividend was paid on May 25, 2017 to shareholders of record at the close of business on May 9, 2017. Measured against second quarter 2017 diluted earnings per share of $0.22, the dividend represents a 60.1% payout ratio. The Board of Directors routinely considers dividend declarations as part of its normal course of business.
About First Business Financial Services, Inc.
First Business Financial Services, Inc. (NASDAQ:FBIZ) is a Wisconsin-based bank holding company focused on the unique needs of businesses, business executives and high net worth individuals. First Business offers commercial banking, specialty finance and private wealth management solutions, and because of its niche focus, is able to provide its clients with unmatched expertise, accessibility and responsiveness. For additional information, visit www.firstbusiness.com or call 608-238-8008.
This release may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which reflect First Business’s current views with respect to future events and financial performance. Forward-looking statements are not based on historical information, but rather are related to future operations, strategies, financial results or other developments. Forward-looking statements are based on management’s expectations as well as certain assumptions and estimates made by, and information available to, management at the time the statements are made. Those statements are based on general assumptions and are subject to various risks, uncertainties and other factors that may cause actual results to differ materially from the views, beliefs and projections expressed in such statements. Such statements are subject to risks and uncertainties, including among other things:
- Competitive pressures among depository and other financial institutions nationally and in our markets.
- Adverse changes in the economy or business conditions, either nationally or in our markets.
- Increases in defaults by borrowers and other delinquencies.
- Our ability to manage growth effectively, including the successful expansion of our client support, administrative infrastructure and internal management systems.
- Fluctuations in interest rates and market prices.
- The consequences of continued bank acquisitions and mergers in our markets, resulting in fewer but much larger and financially stronger competitors.
- Changes in legislative or regulatory requirements applicable to us and our subsidiaries.
- Changes in tax requirements, including tax rate changes, new tax laws and revised tax law interpretations.
- Fraud, including client and system failure or breaches of our network security, including with respect to our internet banking activities.
- Failure to comply with the applicable SBA regulations in order to maintain the eligibility of the guaranteed portion of SBA loans.
For further information about the factors that could affect the Company’s future results, please see the Company’s annual report on Form 10-K for the year ended December 31, 2016 and other filings with the Securities and Exchange Commission.
SELECTED FINANCIAL CONDITION DATA
| (Unaudited) | As of | |||||||||||||||||||||||||||||
| (in thousands) | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | |||||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 63,745 | $ | 60,899 | $ | 77,517 | $ | 68,764 | $ | 131,611 | ||||||||||||||||||||
| Securities available-for-sale, at fair value | 136,834 | 147,058 | 145,893 | 154,480 | 137,692 | |||||||||||||||||||||||||
| Securities held-to-maturity, at amortized cost | 37,806 | 38,485 | 38,612 | 35,109 | 36,167 | |||||||||||||||||||||||||
| Loans held for sale | 3,491 | 3,924 | 1,111 | 2,627 | 5,548 | |||||||||||||||||||||||||
| Loans and leases receivable | 1,458,175 | 1,480,971 | 1,450,675 | 1,458,297 | 1,451,815 | |||||||||||||||||||||||||
| Allowance for loan and lease losses | (21,677 | ) | (21,666 | ) | (20,912 | ) | (20,067 | ) | (18,154 | ) | ||||||||||||||||||||
| Loans and leases, net | 1,436,498 | 1,459,305 | 1,429,763 | 1,438,230 | 1,433,661 | |||||||||||||||||||||||||
| Premises and equipment, net | 2,930 | 3,955 | 3,772 | 3,898 | 3,969 | |||||||||||||||||||||||||
| Foreclosed properties | 2,585 | 1,472 | 1,472 | 1,527 | 1,548 | |||||||||||||||||||||||||
| Bank-owned life insurance | 39,674 | 39,358 | 39,048 | 29,028 | 28,784 | |||||||||||||||||||||||||
| Federal Home Loan Bank and Federal Reserve Bank stock, at cost | 2,815 | 4,782 | 2,131 | 2,165 | 2,163 | |||||||||||||||||||||||||
| Goodwill and other intangible assets | 12,760 | 12,774 | 12,773 | 12,762 | 12,923 | |||||||||||||||||||||||||
| Accrued interest receivable and other assets | 29,790 | 28,578 | 28,607 | 23,848 | 25,003 | |||||||||||||||||||||||||
| Total assets | $ | 1,768,928 | $ | 1,800,590 | $ | 1,780,699 | $ | 1,772,438 | $ | 1,819,069 | ||||||||||||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||||||||
| In-market deposits | $ | 1,120,205 | $ | 1,104,281 | $ | 1,122,174 | $ | 1,116,974 | $ | 1,130,890 | ||||||||||||||||||||
| Wholesale deposits | 354,393 | 388,433 | 416,681 | 449,225 | 477,054 | |||||||||||||||||||||||||
| Total deposits | 1,474,598 | 1,492,714 | 1,538,855 | 1,566,199 | 1,607,944 | |||||||||||||||||||||||||
| Federal Home Loan Bank advances and other borrowings | 106,395 | 121,841 | 59,676 | 29,946 | 33,570 | |||||||||||||||||||||||||
| Junior subordinated notes | 10,012 | 10,008 | 10,004 | 10,001 | 9,997 | |||||||||||||||||||||||||
| Accrued interest payable and other liabilities | 12,689 | 11,893 | 10,514 | 6,361 | 9,164 | |||||||||||||||||||||||||
| Total liabilities | 1,603,694 | 1,636,456 | 1,619,049 | 1,612,507 | 1,660,675 | |||||||||||||||||||||||||
| Total stockholders’ equity | 165,234 | 164,134 | 161,650 | 159,931 | 158,394 | |||||||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 1,768,928 | $ | 1,800,590 | $ | 1,780,699 | $ | 1,772,438 | $ | 1,819,069 | ||||||||||||||||||||
STATEMENTS OF INCOME
| (Unaudited) | As of and for the Three Months Ended | As of and for the Six Months Ended | ||||||||||||||||||||||||||
| (Dollars in thousands, except per share amounts) | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | June 30, 2017 | June 30, 2016 | |||||||||||||||||||||
| Total interest income | $ | 19,225 | $ | 18,447 | $ | 20,321 | $ | 18,898 | $ | 19,555 | $ | 37,672 | $ | 38,898 | ||||||||||||||
| Total interest expense | 3,746 | 3,559 | 3,568 | 3,603 | 3,814 | 7,305 | 7,619 | |||||||||||||||||||||
| Net interest income | 15,479 | 14,888 | 16,753 | 15,295 | 15,741 | 30,367 | 31,279 | |||||||||||||||||||||
| Provision for loan and lease losses | 3,656 | 572 | 994 | 3,537 | 2,762 | 4,228 | 3,287 | |||||||||||||||||||||
| Net interest income after provision for loan and lease losses | 11,823 | 14,316 | 15,759 | 11,758 | 12,979 | 26,139 | 27,992 | |||||||||||||||||||||
| Trust and investment services fee income | 1,648 | 1,629 | 1,375 | 1,364 | 1,344 | 3,277 | 2,618 | |||||||||||||||||||||
| Gain on sale of SBA loans | 535 | 360 | 546 | 347 | 2,131 | 895 | 3,506 | |||||||||||||||||||||
| Service charges on deposits | 766 | 765 | 743 | 772 | 733 | 1,531 | 1,475 | |||||||||||||||||||||
| Loan fees | 675 | 458 | 639 | 506 | 676 | 1,133 | 1,285 | |||||||||||||||||||||
| Other non-interest income | 1,114 | 851 | 628 | 651 | 939 | 1,965 | 1,532 | |||||||||||||||||||||
| Total non-interest income | 4,738 | 4,063 | 3,931 | 3,640 | 5,823 | 8,801 | 10,416 | |||||||||||||||||||||
| Compensation | 8,382 | 8,683 | 7,091 | 7,637 | 8,447 | 17,065 | 16,818 | |||||||||||||||||||||
| Occupancy | 519 | 475 | 481 | 530 | 500 | 994 | 1,008 | |||||||||||||||||||||
| Professional fees | 1,041 | 1,010 | 1,144 | 1,065 | 961 | 2,051 | 1,822 | |||||||||||||||||||||
| Data processing | 635 | 584 | 1,327 | 623 | 697 | 1,219 | 1,348 | |||||||||||||||||||||
| Marketing | 582 | 370 | 628 | 528 | 448 | 952 | 1,182 | |||||||||||||||||||||
| Equipment | 300 | 283 | 276 | 292 | 341 | 583 | 621 | |||||||||||||||||||||
| Computer software | 639 | 683 | 553 | 539 | 574 | 1,322 | 1,068 | |||||||||||||||||||||
| FDIC insurance | 381 | 380 | 483 | 444 | 254 | 761 | 545 | |||||||||||||||||||||
| Collateral liquidation costs | 77 | 92 | 58 | 89 | 68 | 185 | 114 | |||||||||||||||||||||
| Net loss on foreclosed properties | — | — | 29 | — | 93 | — | 93 | |||||||||||||||||||||
| Impairment of tax credit investments | 112 | 113 | 171 | 3,314 | 94 | 225 | 206 | |||||||||||||||||||||
| SBA recourse provision | 774 | 6 | 1,619 | 375 | 74 | 780 | 160 | |||||||||||||||||||||
| Other non-interest expense | 779 | 881 | 663 | 317 | 907 | 1,644 | 1,171 | |||||||||||||||||||||
| Total non-interest expense | 14,221 | 13,560 | 14,523 | 15,753 | 13,458 | 27,781 | 26,156 | |||||||||||||||||||||
| Income (loss) before income tax expense | 2,340 | 4,819 | 5,167 | (355 | ) | 5,344 | 7,159 | 12,252 | ||||||||||||||||||||
| Income tax expense (benefit)(1) | 454 | 1,422 | 1,199 | (3,020 | ) | 1,621 | 1,876 | 3,976 | ||||||||||||||||||||
| Net income(1) | $ | 1,886 | $ | 3,397 | $ | 3,968 | $ | 2,665 | $ | 3,723 | $ | 5,283 | $ | 8,276 | ||||||||||||||
| Per common share: | ||||||||||||||||||||||||||||
| Basic earnings(1) | $ | 0.22 | $ | 0.39 | $ | 0.46 | $ | 0.31 | $ | 0.43 | $ | 0.61 | $ | 0.95 | ||||||||||||||
| Diluted earnings(1) | 0.22 | 0.39 | 0.46 | 0.31 | 0.43 | 0.61 | 0.95 | |||||||||||||||||||||
| Dividends declared | 0.13 | 0.13 | 0.12 | 0.12 | 0.12 | 0.26 | 0.24 | |||||||||||||||||||||
| Book value | 18.96 | 18.83 | 18.55 | 18.35 | 18.20 | 18.96 | 18.20 | |||||||||||||||||||||
| Tangible book value | 17.49 | 17.36 | 17.08 | 16.88 | 16.71 | 17.49 | 16.71 | |||||||||||||||||||||
| Weighted-average common shares outstanding(2) | 8,601,379 | 8,600,620 | 8,587,814 | 8,582,836 | 8,566,718 | 8,601,002 | 8,565,933 | |||||||||||||||||||||
| Weighted-average diluted common shares outstanding(2) | 8,601,379 | 8,600,620 | 8,587,814 | 8,582,836 | 8,566,718 | 8,601,002 | 8,565,933 | |||||||||||||||||||||
(1) Results as of and for the three months ended September 30, 2016 and as of and for the three and six months ended June 30, 2016 have been adjusted to reflect early adoption of ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.”
(2) Excluding participating securities.
NET INTEREST INCOME ANALYSIS
| (Unaudited) | For the Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | June 30, 2017 | March 31, 2017 | June 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||
| Average Balance | Interest | Average Yield/Rate(4) | Average Balance | Interest | Average Yield/Rate(5) | Average Balance | Interest | Average Yield/Rate(4) | ||||||||||||||||||||||||||||||||||||||||
| Interest-earning assets | ||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate and other mortgage loans(1) | $ | 959,176 | $ | 10,620 | 4.43 | % | $ | 946,110 | $ | 10,318 | 4.36 | % | $ | 933,681 | $ | 10,980 | 4.70 | % | ||||||||||||||||||||||||||||||
| Commercial and industrial loans(1) | 453,578 | 7,081 | 6.24 | % | 451,552 | 6,595 | 5.84 | % | 469,888 | 7,100 | 6.04 | % | ||||||||||||||||||||||||||||||||||||
| Direct financing leases(1) | 28,728 | 306 | 4.26 | % | 30,123 | 323 | 4.29 | % | 30,977 | 355 | 4.58 | % | ||||||||||||||||||||||||||||||||||||
| Consumer and other loans(1) | 28,580 | 277 | 3.88 | % | 28,202 | 286 | 4.06 | % | 25,675 | 266 | 4.14 | % | ||||||||||||||||||||||||||||||||||||
| Total loans and leases receivable(1) | 1,470,062 | 18,284 | 4.98 | % | 1,455,987 | 17,522 | 4.81 | % | 1,460,221 | 18,701 | 5.12 | % | ||||||||||||||||||||||||||||||||||||
| Mortgage-related securities(2) | 140,086 | 615 | 1.76 | % | 145,804 | 618 | 1.70 | % | 142,443 | 556 | 1.56 | % | ||||||||||||||||||||||||||||||||||||
| Other investment securities(3) | 37,765 | 161 | 1.70 | % | 38,554 | 161 | 1.67 | % | 32,169 | 126 | 1.57 | % | ||||||||||||||||||||||||||||||||||||
| FHLB and FRB stock | 4,229 | 24 | 2.26 | % | 3,150 | 24 | 3.05 | % | 2,485 | 19 | 3.06 | % | ||||||||||||||||||||||||||||||||||||
| Short-term investments | 49,584 | 141 | 1.14 | % | 51,136 | 122 | 0.95 | % | 117,180 | 153 | 0.52 | % | ||||||||||||||||||||||||||||||||||||
| Total interest-earning assets | 1,701,726 | 19,225 | 4.52 | % | 1,694,631 | 18,447 | 4.35 | % | 1,754,498 | 19,555 | 4.46 | % | ||||||||||||||||||||||||||||||||||||
| Non-interest-earning assets | 81,798 | 80,254 | 70,947 | |||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 1,783,524 | $ | 1,774,885 | $ | 1,825,445 | ||||||||||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||
| Transaction accounts | $ | 231,720 | 288 | 0.50 | % | $ | 192,297 | 232 | 0.48 | % | $ | 147,095 | 71 | 0.19 | % | |||||||||||||||||||||||||||||||||
| Money market | 588,787 | 659 | 0.45 | % | 627,188 | 660 | 0.42 | % | 674,015 | 868 | 0.52 | % | ||||||||||||||||||||||||||||||||||||
| Certificates of deposit | 54,530 | 133 | 0.98 | % | 55,393 | 132 | 0.95 | % | 65,619 | 144 | 0.88 | % | ||||||||||||||||||||||||||||||||||||
| Wholesale deposits | 375,530 | 1,578 | 1.68 | % | 400,672 | 1,649 | 1.65 | % | 471,707 | 1,955 | 1.66 | % | ||||||||||||||||||||||||||||||||||||
| Total interest-bearing deposits | 1,250,567 | 2,658 | 0.85 | % | 1,275,550 | 2,673 | 0.84 | % | 1,358,436 | 3,038 | 0.89 | % | ||||||||||||||||||||||||||||||||||||
| FHLB advances | 87,386 | 279 | 1.28 | % | 60,703 | 154 | 1.01 | % | 14,338 | 31 | 0.86 | % | ||||||||||||||||||||||||||||||||||||
| Other borrowings(4) | 24,494 | 532 | 8.69 | % | 25,921 | 458 | 7.07 | % | 28,510 | 468 | 6.57 | % | ||||||||||||||||||||||||||||||||||||
| Junior subordinated notes | 10,009 | 277 | 11.08 | % | 10,006 | 274 | 10.97 | % | 9,995 | 277 | 11.09 | % | ||||||||||||||||||||||||||||||||||||
| Total interest-bearing liabilities | 1,372,456 | 3,746 | 1.09 | % | 1,372,180 | 3,559 | 1.04 | % | 1,411,279 | 3,814 | 1.08 | % | ||||||||||||||||||||||||||||||||||||
| Non-interest-bearing demand deposit accounts | 229,051 | 228,015 | 246,604 | |||||||||||||||||||||||||||||||||||||||||||||
| Other non-interest-bearing liabilities | 14,531 | 11,223 | 9,944 | |||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities | 1,616,038 | 1,611,418 | 1,667,827 | |||||||||||||||||||||||||||||||||||||||||||||
| Stockholders’ equity | 167,486 | 163,467 | 157,618 | |||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 1,783,524 | $ | 1,774,885 | $ | 1,825,445 | ||||||||||||||||||||||||||||||||||||||||||
| Net interest income | $ | 15,479 | $ | 14,888 | $ | 15,741 | ||||||||||||||||||||||||||||||||||||||||||
| Interest rate spread | 3.43 | % | 3.31 | % | 3.38 | % | ||||||||||||||||||||||||||||||||||||||||||
| Net interest-earning assets | $ | 329,270 | $ | 322,451 | $ | 343,219 | ||||||||||||||||||||||||||||||||||||||||||
| Net interest margin | 3.64 | % | 3.51 | % | 3.59 | % | ||||||||||||||||||||||||||||||||||||||||||
(1) The average balances of loans and leases include non-performing loans and leases and loans held for sale. Interest income related to non-performing 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) Average rate of other borrowings reflects the cost of prepaying a secured borrowing during the second quarter of 2017.
(5) Represents annualized yields/rates.
NET INTEREST INCOME ANALYSIS (CONTINUED)
| (Unaudited) | For the Six Months Ended | |||||||||||||||||||||
| (Dollars in thousands) | June 30, 2017 | June 30, 2016 | ||||||||||||||||||||
| Average Balance | Interest | Average Yield/Rate(5) | Average Balance | Interest | Average Yield/Rate(4) | |||||||||||||||||
| Interest-earning assets | ||||||||||||||||||||||
| Commercial real estate and other mortgage loans(1) | $ | 952,679 | $ | 20,939 | 4.40 | % | $ | 928,270 | $ | 21,710 | 4.68 | % | ||||||||||
| Commercial and industrial loans(1) | 452,570 | 13,675 | 6.04 | % | 470,196 | 14,183 | 6.03 | % | ||||||||||||||
| Direct financing leases(1) | 29,422 | 629 | 4.28 | % | 30,911 | 698 | 4.52 | % | ||||||||||||||
| Consumer and other loans(1) | 28,392 | 563 | 3.97 | % | 26,551 | 554 | 4.17 | % | ||||||||||||||
| Total loans and leases receivable(1) | 1,463,063 | 35,806 | 4.89 | % | 1,455,928 | 37,145 | 5.10 | % | ||||||||||||||
| Mortgage-related securities(2) | 142,929 | 1,233 | 1.73 | % | 143,671 | 1,154 | 1.61 | % | ||||||||||||||
| Other investment securities(3) | 38,157 | 322 | 1.69 | % | 31,748 | 250 | 1.57 | % | ||||||||||||||
| FHLB and FRB stock | 3,693 | 47 | 2.57 | % | 2,643 | 40 | 3.03 | % | ||||||||||||||
| Short-term investments | 50,356 | 264 | 1.05 | % | 109,300 | 309 | 0.57 | % | ||||||||||||||
| Total interest-earning assets | 1,698,198 | 37,672 | 4.44 | % | 1,743,290 | 38,898 | 4.46 | % | ||||||||||||||
| Non-interest-earning assets | 81,031 | 79,657 | ||||||||||||||||||||
| Total assets | $ | 1,779,229 | $ | 1,822,947 | ||||||||||||||||||
| Interest-bearing liabilities | ||||||||||||||||||||||
| Transaction accounts | $ | 212,118 | 520 | 0.49 | % | $ | 154,944 | 160 | 0.21 | % | ||||||||||||
| Money market | 607,882 | 1,319 | 0.43 | % | 660,189 | 1,696 | 0.51 | % | ||||||||||||||
| Certificates of deposit | 54,959 | 265 | 0.96 | % | 69,391 | 294 | 0.83 | % | ||||||||||||||
| Wholesale deposits | 388,031 | 3,227 | 1.66 | % | 484,491 | 3,941 | 1.63 | % | ||||||||||||||
| Total interest-bearing deposits | 1,262,990 | 5,331 | 0.84 | % | 1,369,015 | 6,091 | 0.89 | % | ||||||||||||||
| FHLB advances | 74,118 | 432 | 1.17 | % | 10,937 | 50 | 0.92 | % | ||||||||||||||
| Other borrowings(4) | 25,204 | 990 | 7.86 | % | 27,758 | 923 | 6.65 | % | ||||||||||||||
| Junior subordinated notes | 10,007 | 552 | 11.03 | % | 9,993 | 555 | 11.11 | % | ||||||||||||||
| Total interest-bearing liabilities | 1,372,319 | 7,305 | 1.06 | % | 1,417,703 | 7,619 | 1.07 | % | ||||||||||||||
| Non-interest-bearing demand deposit accounts | 228,536 | 237,449 | ||||||||||||||||||||
| Other non-interest-bearing liabilities | 12,886 | 11,140 | ||||||||||||||||||||
| Total liabilities | 1,613,741 | 1,666,292 | ||||||||||||||||||||
| Stockholders’ equity | 165,488 | 156,655 | ||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 1,779,229 | $ | 1,822,947 | ||||||||||||||||||
| Net interest income | $ | 30,367 | $ | 31,279 | ||||||||||||||||||
| Interest rate spread | 3.37 | % | 3.39 | % | ||||||||||||||||||
| Net interest-earning assets | $ | 325,879 | $ | 325,587 | ||||||||||||||||||
| Net interest margin | 3.58 | % | 3.59 | % | ||||||||||||||||||
(1) The average balances of loans and leases include non-performing loans and leases and loans held for sale. Interest income related to non-performing 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) Average rate of other borrowings reflects the cost of prepaying a secured borrowing during the second quarter of 2017.
(5) Represents annualized yields/rates.
SELECTED FINANCIAL TRENDS
PERFORMANCE RATIOS
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||||||||||||||||||||||
| (Unaudited) | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | June 30, 2017 | June 30, 2016 | ||||||||||||||||||||||||||||||||||||
| Return on average assets (annualized)(1) | 0.42 | % | 0.77 | % | 0.89 | % | 0.59 | % | 0.82 | % | 0.59 | % | 0.91 | % | |||||||||||||||||||||||||||||
| Return on average equity (annualized)(1) | 4.50 | % | 8.31 | % | 9.82 | % | 6.69 | % | 9.45 | % | 6.38 | % | 10.57 | % | |||||||||||||||||||||||||||||
| Efficiency ratio | 65.39 | % | 70.85 | % | 57.52 | % | 63.63 | % | 61.14 | % | 68.03 | % | 61.56 | % | |||||||||||||||||||||||||||||
| Interest rate spread | 3.43 | % | 3.31 | % | 3.70 | % | 3.28 | % | 3.38 | % | 3.37 | % | 3.39 | % | |||||||||||||||||||||||||||||
| Net interest margin | 3.64 | % | 3.51 | % | 3.91 | % | 3.50 | % | 3.59 | % | 3.58 | % | 3.59 | % | |||||||||||||||||||||||||||||
| Average interest-earning assets to average interest-bearing liabilities | 123.99 | % | 123.50 | % | 125.33 | % | 126.45 | % | 124.32 | % | 123.75 | % | 122.97 | % | |||||||||||||||||||||||||||||
(1) Results for the three months ended September 30, 2016 and three and six months ended June 30, 2016 have been adjusted to reflect early adoption of ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.”
ASSET QUALITY RATIOS
| (Unaudited) | As of | |||||||||||||||||||
| (Dollars in thousands) | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | |||||||||||||||
| Non-performing loans and leases | $ | 37,162 | $ | 37,519 | $ | 25,194 | $ | 25,712 | $ | 22,680 | ||||||||||
| Foreclosed properties | 2,585 | 1,472 | 1,472 | 1,527 | 1,548 | |||||||||||||||
| Total non-performing assets | 39,747 | 38,991 | 26,666 | 27,239 | 24,228 | |||||||||||||||
| Performing troubled debt restructurings | 702 | 702 | 717 | 732 | 788 | |||||||||||||||
| Total impaired assets | $ | 40,449 | $ | 39,693 | $ | 27,383 | $ | 27,971 | $ | 25,016 | ||||||||||
| Non-performing loans and leases as a percent of total gross loans and leases | 2.55 | % | 2.53 | % | 1.74 | % | 1.76 | % | 1.56 | % | ||||||||||
| Non-performing assets as a percent of total gross loans and leases plus foreclosed properties | 2.72 | % | 2.63 | % | 1.83 | % | 1.86 | % | 1.67 | % | ||||||||||
| Non-performing assets as a percent of total assets | 2.25 | % | 2.17 | % | 1.50 | % | 1.54 | % | 1.33 | % | ||||||||||
| Allowance for loan and lease losses as a percent of total gross loans and leases | 1.49 | % | 1.46 | % | 1.44 | % | 1.37 | % | 1.25 | % | ||||||||||
| Allowance for loan and lease losses as a percent of non-performing loans and leases | 58.33 | % | 57.75 | % | 83.00 | % | 78.05 | % | 80.04 | % | ||||||||||
| Criticized assets: | ||||||||||||||||||||
| Special mention | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
| Substandard | 39,011 | 46,299 | 34,299 | 32,135 | 25,723 | |||||||||||||||
| Doubtful | 6,658 | — | — | — | — | |||||||||||||||
| Foreclosed properties | 2,585 | 1,472 | 1,472 | 1,527 | 1,548 | |||||||||||||||
| Total criticized assets | $ | 48,254 | $ | 47,771 | $ | 35,771 | $ | 33,662 | $ | 27,271 | ||||||||||
| Criticized assets to total assets | 2.73 | % | 2.65 | % | 2.01 | % | 1.90 | % | 1.50 | % | ||||||||||
NET CHARGE-OFFS (RECOVERIES)
| (Unaudited) | For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||||||
| (Dollars in thousands) | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | June 30, 2017 | June 30, 2016 | |||||||||||||||||||||
| Charge-offs | $ | 3,757 | $ | 209 | $ | 344 | $ | 1,656 | $ | 1,350 | $ | 3,966 | $ | 1,594 | ||||||||||||||
| Recoveries | (112 | ) | (391 | ) | (194 | ) | (32 | ) | (58 | ) | (503 | ) | (145 | ) | ||||||||||||||
| Net charge-offs (recoveries) | $ | 3,645 | $ | (182 | ) | $ | 150 | $ | 1,624 | $ | 1,292 | $ | 3,463 | $ | 1,449 | |||||||||||||
| Net charge-offs (recoveries) as a percent of average gross loans and leases (annualized) | 0.99 | % | (0.05 | )% | 0.04 | % | 0.44 | % | 0.35 | % | 0.47 | % | 0.20 | % | ||||||||||||||
CAPITAL RATIOS
| As of and for the Three Months Ended | ||||||||||||||||||||||||||||||||
| (Unaudited) | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | |||||||||||||||||||||||||||
| Total capital to risk-weighted assets | 11.91 | % | 11.55 | % | 11.74 | % | 11.44 | % | 11.44 | % | ||||||||||||||||||||||
| Tier I capital to risk-weighted assets | 9.33 | % | 9.16 | % | 9.26 | % | 9.02 | % | 9.08 | % | ||||||||||||||||||||||
| Common equity tier I capital to risk-weighted assets | 8.77 | % | 8.60 | % | 8.68 | % | 8.45 | % | 8.50 | % | ||||||||||||||||||||||
| Tier I capital to adjusted assets | 9.28 | % | 9.26 | % | 9.07 | % | 8.75 | % | 8.63 | % | ||||||||||||||||||||||
| Tangible common equity to tangible assets | 8.68 | % | 8.47 | % | 8.42 | % | 8.36 | % | 8.05 | % | ||||||||||||||||||||||
SELECTED OTHER INFORMATION
Loan and Lease Receivable Composition
| (Unaudited) | As of | |||||||||||||||||||
| (in thousands) | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | |||||||||||||||
| Commercial real estate: | ||||||||||||||||||||
| Commercial real estate - owner occupied | $ | 183,161 | $ | 183,016 | $ | 176,459 | $ | 169,170 | $ | 167,936 | ||||||||||
| Commercial real estate - non-owner occupied | 468,778 | 492,366 | 473,158 | 483,540 | 502,378 | |||||||||||||||
| Land development | 46,500 | 52,663 | 56,638 | 60,348 | 60,599 | |||||||||||||||
| Construction | 104,515 | 91,343 | 101,206 | 110,426 | 88,339 | |||||||||||||||
| Multi-family | 124,488 | 107,669 | 92,762 | 73,081 | 73,239 | |||||||||||||||
| 1-4 family | 38,922 | 40,036 | 45,651 | 46,341 | 47,289 | |||||||||||||||
| Total commercial real estate | 966,364 | 967,093 | 945,874 | 942,906 | 939,780 | |||||||||||||||
| Commercial and industrial | 437,955 | 458,778 | 450,298 | 464,920 | 456,297 | |||||||||||||||
| Direct financing leases, net | 29,216 | 29,330 | 30,951 | 29,638 | 30,698 | |||||||||||||||
| Consumer and other: | ||||||||||||||||||||
| Home equity and second mortgages | 7,973 | 8,237 | 8,412 | 5,390 | 7,372 | |||||||||||||||
| Other | 17,976 | 18,859 | 16,329 | 16,610 | 18,743 | |||||||||||||||
| Total consumer and other | 25,949 | 27,096 | 24,741 | 22,000 | 26,115 | |||||||||||||||
| Total gross loans and leases receivable | 1,459,484 | 1,482,297 | 1,451,864 | 1,459,464 | 1,452,890 | |||||||||||||||
| Less: | ||||||||||||||||||||
| Allowance for loan and lease losses | 21,677 | 21,666 | 20,912 | 20,067 | 18,154 | |||||||||||||||
| Deferred loan fees | 1,309 | 1,326 | 1,189 | 1,167 | 1,075 | |||||||||||||||
| Loans and leases receivable, net | $ | 1,436,498 | $ | 1,459,305 | $ | 1,429,763 | $ | 1,438,230 | $ | 1,433,661 | ||||||||||
SELECTED OTHER INFORMATION (CONTINUED)
Deposit Composition
| (Unaudited) | As of | |||||||||||||||||||
| (in thousands) | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | |||||||||||||||
| Non-interest-bearing transaction accounts | $ | 241,577 | $ | 227,947 | $ | 252,638 | $ | 258,423 | $ | 243,370 | ||||||||||
| Interest-bearing transaction accounts | 231,074 | 205,912 | 183,992 | 192,482 | 151,865 | |||||||||||||||
| Money market accounts | 593,487 | 616,557 | 627,090 | 603,872 | 671,420 | |||||||||||||||
| Certificates of deposit | 54,067 | 53,865 | 58,454 | 62,197 | 64,235 | |||||||||||||||
| Wholesale deposits | 354,393 | 388,433 | 416,681 | 449,225 | 477,054 | |||||||||||||||
| Total deposits | $ | 1,474,598 | $ | 1,492,714 | $ | 1,538,855 | $ | 1,566,199 | $ | 1,607,944 | ||||||||||
Trust Assets
| (Unaudited) | As of | |||||||||||||||||||
| (in thousands) | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | |||||||||||||||
| Trust assets under management | $ | 1,164,433 | $ | 1,126,835 | $ | 977,015 | $ | 935,584 | $ | 906,239 | ||||||||||
| Trust assets under administration | 173,931 | 176,976 | 227,360 | 231,825 | 227,864 | |||||||||||||||
| Total trust assets | $ | 1,338,364 | $ | 1,303,811 | $ | 1,204,375 | $ | 1,167,409 | $ | 1,134,103 | ||||||||||
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) | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | |||||||||||||||
| Common stockholders’ equity | $ | 165,234 | $ | 164,134 | $ | 161,650 | $ | 159,931 | $ | 158,394 | ||||||||||
| Goodwill and other intangible assets | (12,760 | ) | (12,774 | ) | (12,773 | ) | (12,762 | ) | (12,923 | ) | ||||||||||
| Tangible common equity | $ | 152,474 | $ | 151,360 | $ | 148,877 | $ | 147,169 | $ | 145,471 | ||||||||||
| Common shares outstanding | 8,716,018 | 8,718,307 | 8,715,856 | 8,717,299 | 8,703,942 | |||||||||||||||
| Book value per share | $ | 18.96 | $ | 18.83 | $ | 18.55 | $ | 18.35 | $ | 18.20 | ||||||||||
| Tangible book value per share | 17.49 | 17.36 | 17.08 | 16.88 | 16.71 | |||||||||||||||
TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS
‘‘Tangible common equity to tangible assets’’ is defined as the ratio of common stockholders’ equity reduced by intangible assets, if any, divided by total assets reduced by intangible assets, if any. The Company’s management believes that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period in common equity and total assets, each exclusive of changes in intangible assets. The information below reconciles tangible common equity and tangible assets to their most comparable GAAP measures.
| (Unaudited) | As of | |||||||||||||||||||
| (Dollars in thousands) | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | |||||||||||||||
| Common stockholders’ equity | $ | 165,234 | $ | 164,134 | $ | 161,650 | $ | 159,931 | $ | 158,394 | ||||||||||
| Goodwill and other intangible assets | (12,760 | ) | (12,774 | ) | (12,773 | ) | (12,762 | ) | (12,923 | ) | ||||||||||
| Tangible common equity | $ | 152,474 | $ | 151,360 | $ | 148,877 | $ | 147,169 | $ | 145,471 | ||||||||||
| Total assets | $ | 1,768,928 | $ | 1,800,590 | $ | 1,780,699 | $ | 1,772,438 | $ | 1,819,069 | ||||||||||
| Goodwill and other intangible assets | (12,760 | ) | (12,774 | ) | (12,773 | ) | (12,762 | ) | (12,923 | ) | ||||||||||
| Tangible assets | $ | 1,756,168 | $ | 1,787,816 | $ | 1,767,926 | $ | 1,759,676 | $ | 1,806,146 | ||||||||||
| Tangible common equity to tangible assets | 8.68 | % | 8.47 | % | 8.42 | % | 8.36 | % | 8.05 | % | ||||||||||
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. The information provided below reconciles the efficiency ratio to its most comparable GAAP measure.
| (Unaudited) | For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||||||
| (Dollars in thousands) | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | June 30, 2017 | June 30, 2016 | |||||||||||||||||||||
| Total non-interest expense | $ | 14,221 | $ | 13,560 | $ | 14,523 | $ | 15,753 | $ | 13,458 | $ | 27,781 | $ | 26,156 | ||||||||||||||
| Less: | ||||||||||||||||||||||||||||
| Net loss on foreclosed properties | — | — | 29 | — | 93 | — | 93 | |||||||||||||||||||||
| Amortization of other intangible assets | 14 | 14 | 14 | 16 | 16 | 28 | 32 | |||||||||||||||||||||
| SBA recourse provision | 774 | 6 | 1,619 | 375 | 74 | 780 | 160 | |||||||||||||||||||||
| Impairment of tax credit investments | 112 | 113 | 171 | 3,314 | 94 | 225 | 206 | |||||||||||||||||||||
| Deconversion fees | 101 | — | 794 | — | — | 101 | — | |||||||||||||||||||||
| Total operating expense | $ | 13,220 | $ | 13,427 | $ | 11,896 | $ | 12,048 | $ | 13,181 | $ | 26,647 | $ | 25,665 | ||||||||||||||
| Net interest income | $ | 15,479 | $ | 14,888 | $ | 16,753 | $ | 15,295 | $ | 15,741 | $ | 30,367 | $ | 31,279 | ||||||||||||||
| Total non-interest income | 4,738 | 4,063 | 3,931 | 3,640 | 5,823 | 8,801 | 10,416 | |||||||||||||||||||||
| Less: | ||||||||||||||||||||||||||||
| Gain on sale of securities | 1 | — | 3 | — | 7 | 1 | 7 | |||||||||||||||||||||
| Total operating revenue | $ | 20,216 | $ | 18,951 | $ | 20,681 | $ | 18,935 | $ | 21,557 | $ | 39,167 | $ | 41,688 | ||||||||||||||
| Efficiency ratio | 65.39 | % | 70.85 | % | 57.52 | % | 63.63 | % | 61.14 | % | 68.03 | % | 61.56 | % | ||||||||||||||