First Business Bank Reports Record Net Income of $9.7 Million

— Loan growth, strong fee income, and provision benefit drive record performance —

— Non-performing assets decline 29% —

First Business Financial Services, Inc. (the “Company”, the “Bank”, or “First Business Bank”) (Nasdaq:FBIZ) reported record net income of $9.7 million, or $1.12 diluted earnings per share, in the first quarter 2021, compared to $6.1 million or $0.71 in the fourth quarter of 2020, and $3.3 million or $0.38 in the first quarter of 2020.

“Record earnings for the quarter and exceptional growth across our company are reflections of First Business Bank’s commitment to helping our clients succeed, and consistently expanding our client base,” President and Chief Executive Officer Corey Chambas said. “This performance is a direct result of our long record of investing in innovative niche financial services offerings, technology, and talent as well as our active focus on asset quality improvement. We believe we are very well-positioned for sustained double-digit loan and revenue growth and continued asset quality improvement.”

Quarterly Highlights

  • Record Earnings. Net income hit a record $9.7 million for the quarter. While boosted by the impact of asset quality improvement and net loan recoveries, ongoing fundamental performance was also very strong. Driven by continued loan and fee income growth, top-line revenue was $28.1 million, a 20% increase from this time last year, and pre-tax, pre-provision return on average assets was 1.65% for the quarter.

  • Continued Differentiated Loan Growth. Loans, excluding SBA Paycheck Protection Program (“PPP”) loans, grew $46.9 million, or 10% annualized in the first quarter. This continued the exceptional growth from 2020 driven by investments tied to our strategic plan to expand niche lending business lines and enhance and expand the business development teams across all our business lines and geographies.

  • Asset Quality Continues to Improve. Non-performing assets declined 29% to $19.0 million, the second consecutive quarterly reduction of more than 25%. Over this two-quarter period, non-performing assets have declined $17.6 million from the 2020 peak in the third quarter of $36.7 million. The decrease in non-accrual loans for the quarter was principally due to loan payoffs and loans returning to accrual status.

  • Fee Income. Fee income grew an impressive 23% annualized for the quarter and again exceeded our goal of 25% or more of total revenue. Private wealth continued to lead the way with fees earned on a record $2.4 billion in assets under management and administration. In addition, gain on sale of Small Business Administration loans exceeded $1 million again this quarter.

  • PPP Update. Our participation in PPP has been a tremendous benefit to our clients and we are actively participating in the second phase of the program. As of March 31, 2021, the Company had $272.7 million in gross PPP loans outstanding and deferred processing fees outstanding of $5.1 million yet to be recognized into income. During the quarter, $2.2 million of processing fees were recognized.

  • Tangible Book Value Increases. Tangible Book Value (“TBV”) per share grew by 11% annualized in the quarter. This is a continuation of strong and consistent TBV growth. TBV has increased for 18 consecutive years, at a compound annual growth rate of 8% over that time.

Quarterly Financial Results

(Unaudited)

As of and for the Three Months Ended

(Dollars in thousands, except per share amounts)

March 31,
2021

December 31,
2020

March 31,
2020

Net interest income

$

20,863

$

22,512

$

17,050

Adjusted non-interest income (1)

7,195

6,799

6,418

Operating revenue (1)

28,058

29,311

23,468

Operating expense (1)

17,449

17,591

15,897

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

10,609

11,720

7,571

Less:

Provision for loan and lease losses

(2,068

)

4,322

3,182

Net loss on foreclosed properties

3

54

102

Amortization of other intangible assets

8

8

9

SBA recourse (benefit) provision

(130

)

(330

)

25

Impairment on tax credit investments

328

113

Add:

Net loss on sale of securities

(4

)

Income before income tax expense

12,796

7,338

4,136

Income tax expense

3,065

1,254

858

Net income

$

9,731

$

6,084

$

3,278

Earnings per share, diluted

$

1.12

$

0.71

$

0.38

Book value per share

$

24.83

$

24.06

$

22.83

Tangible book value per share (1)

$

23.43

$

22.66

$

21.44

Net interest margin

3.44

%

3.69

%

3.44

%

Adjusted net interest margin (1)

3.20

%

3.25

%

3.32

%

Efficiency ratio (1)

62.19

%

60.02

%

67.74

%

Return on average assets

1.51

%

0.93

%

0.62

%

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

1.65

%

1.80

%

1.44

%

Return on average equity

18.48

%

11.92

%

7.14

%

Period-end loans and leases receivable

$

2,235,112

$

2,145,970

$

1,743,399

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

$

1,967,545

$

1,920,647

$

1,743,399

Average loans and leases receivable

$

2,182,958

$

2,185,662

$

1,733,742

Period-end in-market deposits

$

1,737,226

$

1,683,008

$

1,383,299

Average in-market deposits

$

1,722,107

$

1,690,433

$

1,366,142

Allowance for loan and lease losses

$

28,982

$

28,521

$

22,748

Non-performing assets

$

19,023

$

26,651

$

29,566

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

1.29

%

1.33

%

1.30

%

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

1.47

%

1.48

%

1.30

%

Non-performing assets as a percent of total assets

0.73

%

1.04

%

1.35

%

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

0.81

%

1.14

%

1.35

%

(1)

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

COVID-19 Update

Paycheck Protection Program

As of March 31, 2021, the Company had $272.7 million in gross PPP loans outstanding and deferred processing fees outstanding of $5.1 million. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness, as an adjustment of yield using the interest method. During the three months ended March 31, 2021, the Company recognized $2.2 million of processing fees in loans and leases interest income in the unaudited Consolidated Statements of Income. The SBA provides a guaranty to the lender of 100% of principal and interest, unless the lender violated an obligation under the agreement. As loan losses are expected to be immaterial, if any at all, due to the guaranty, management excluded the PPP loans from the allowance for loan and lease losses calculation. Management funded these short-term loans primarily through a combination of excess cash held at the Federal Reserve and from an increase in in-market deposits.

Deferral Requests

The Company provided loan modifications deferring payments for certain borrowers impacted by COVID-19 who were current in their payments at the inception of the Company’s loan modification program. Excluding gross PPP loans, as of March 31, 2021, the Company had deferred loans outstanding of $13.0 million, or 0.7% of gross loans and leases compared to $323.2 million, or 18.6% of gross loans and leases as of June 30, 2020.

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

As of

(Dollars in thousands)

March 31, 2021

Collateral Type

Industries Description

Balance

Real Estate

Non-Real
Estate

Real Estate and Rental and Leasing

$

9,425

$

9,425

$

Manufacturing

3,000

3,000

Professional, Scientific, and Technical Services

39

39

Other Services (except Public Administration)

328

212

116

Educational Services

195

195

Administrative and Support and Waste Management and Remediation Services

11

11

Total deferred loan balances

$

12,998

$

9,832

$

3,166

Exposure to Stressed Industries

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

As of

March 31, 2021

December 31, 2020

Industries:

Balance

% Gross Loans
and Leases (1)

Balance

% Gross Loans
and Leases (1)

(Dollars in Thousands)

Retail (2) (3)

$

74,534

3.8

%

$

62,719

3.3

%

Hospitality

82,604

4.2

%

80,832

4.2

%

Entertainment

13,943

0.7

%

14,208

0.7

%

Restaurants & food service

23,385

1.2

%

24,854

1.3

%

Total outstanding exposure

$

194,466

9.9

%

$

182,613

9.5

%

(1)

Excluding net PPP loans.

(2)

Includes $40.2 million and $48.9 million in loans secured by commercial real estate as of March 31, 2021 and December 31, 2020, respectively.

(3)

Includes $21.3 million and $7.7 million in fully collateralized asset-based loans as of March 31, 2021 and December 31, 2020, respectively.

As of March 31, 2021, the Company had no meaningful direct exposure to the energy sector, airline industry or retail consumer, and does not participate in Shared National Credits.

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

First Quarter 2021 Compared to Fourth Quarter 2020

Net interest income decreased $1.6 million, or 7.3%, to $20.9 million.

  • Net interest income decreased primarily due to a reduction in fees in lieu of interest. Fees in lieu of interest, which can vary from quarter to quarter based on client-driven activity, totaled $3.1 million, compared to $4.7 million. Excluding fees in lieu of interest, net interest income increased $15,000, or 0.1%.

  • Average loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $37.3 million, or 7.8% annualized, to $1.941 billion.

  • The yield on average interest-earning assets decreased 29 basis points to 3.93% from 4.22%. Excluding average net PPP loans, the PPP loan interest income of $603,000, and the aforementioned fees in lieu of interest, the yield earned on average interest-earning assets decreased 7 basis points to 3.69% from 3.76%. The rate paid for average total bank funding decreased five basis points to 0.40% from 0.45%. Total bank funding is defined as total deposits plus Federal Home Loan Bank (“FHLB”) advances, Federal Reserve Discount Window advances, and Federal Reserve PPPLF advances.

  • Net interest margin decreased 25 basis points to 3.44% from 3.69%. Adjusted net interest margin, excluding fees in lieu of interest and other recurring but volatile components of net interest margin, decreased to 3.20% from 3.25%.

Provision for loan and lease losses decreased $6.4 million to a net benefit of $2.1 million.

  • The decrease in provision for loan and lease losses included $2.5 million in net recoveries.

  • Changes in the general reserve increased the provision for loan and lease losses $1.1 million principally due to qualitative factor changes in our commercial real estate portfolio related to the rate of growth in the segment and $557,000 due to loan growth. These increases were partially offset by a $984,000 reduction in general reserve due to historical loss rate updates from net recovery activity.

Non-interest income increased $396,000, or 5.8%, to $7.2 million.

  • Private wealth management fee income increased $199,000, or 9.0% to $2.4 million. Private wealth and trust assets under management and administration measured a record $2.387 billion at March 31, 2021, up $137.5 million, or 24.5% annualized, primarily due to growth from new and existing clients and increased equity market values.

  • Commercial loan interest rate swap fee income decreased $394,000 to $684,000 compared to $1.1 million. Interest rate swaps continue to be an attractive product for the Company’s commercial borrowers, although associated fee income can vary from period to period based on client demand and the interest rate environment in any given quarter.

  • Gains on sale of SBA loans decreased $222,000 to $1.1 million compared to $1.3 million. The Company’s pipeline remains strong and management believes the gain on sale of traditional SBA loans (i.e., SBA loans unrelated to PPP loans), while variable based on timing of closings, will continue to increase annually at a measured pace.

  • Other fee income increased $650,000 to $1.6 million compared to $914,000. The increase is primarily due to returns above the historical average from the Company’s investments in mezzanine funds.

Non-interest expense decreased $321,000, or 1.8%, to $17.3 million.

  • Compensation expense increased $512,000, or 4.2%, to $12.7 million. The increase reflects new hires, annual merit increases, and payroll taxes on the annual cash bonus plan paid during the quarter.

  • Other non-interest expense decreased $658,000 to $404,000. The decrease was principally due to a reduction in credit valuation adjustment (“CVA”) related to the commercial loan interest rate swap program. The CVA represents a change in the market value of the Company’s commercial loan interest rate swaps to estimate potential borrower credit risk within the portfolio. The CVA can vary from period to period based on the size of the portfolio, credit metrics, and the interest rate environment in any given quarter. The CVA was $291,000 and $461,000 as of March 31, 2021 and December 31, 2020, respectively.

Total period-end loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $46.9 million, or 9.8% annualized, to $1.968 billion.

  • Commercial and industrial (“C&I”) loans, excluding net PPP loans, increased $9.7 million, or 7.6% annualized, led by an increase in asset-based loans. Management believes the timely investments in producers in our counter cyclical commercial banking products, such as asset-based lending and accounts receivable financing, have positioned C&I lending to increase throughout the current economic cycle.

  • Commercial real estate (“CRE”) loans increased $33.4 million, or 9.8% annualized, with growth coming from non-owner occupied and multi-family properties. Recent above-average CRE growth comes as established commercial lenders hired over the past 18 months were able to add high-quality relationships to the Bank.

Total period-end in-market deposits increased $54.2 million to $1.737 billion, or 12.9% annualized, and the average rate paid decreased four basis points to 0.16%.

  • Transaction accounts increased $81.5 million, while certificates of deposits and money market accounts decreased $17.9 million and $9.4 million, respectively.

  • Client preferences continued to shift away from term deposits due to the low interest rate environment, while management attributes the continued increase in transaction accounts to successful business development efforts and our existing clients’ preference for safety and soundness amid the economic uncertainty created by the COVID-19 pandemic.

Period-end wholesale funding, including FHLB advances, Federal Reserve Discount Window advances, Federal Reserve PPPLF advances, brokered deposit, and deposits gathered through internet deposit listing services, increased $14.3 million to $581.3 million.

  • Wholesale deposits decreased $7.0 million to $165.5 million, due to contractual runoff. The average rate paid on wholesale deposits decreased 20 basis points to 0.76% and the weighted average original maturity of brokered certificates of deposit decreased to 3.9 years from 4.1 years.

  • FHLB advances increased $21.3 million to $415.8 million. The average rate paid on FHLB advances increased six basis points to 1.36% and the weighted average original maturity increased to 5.7 years from 5.5 years.

Non-performing assets decreased $7.6 million, or 28.6%, to $19.0 million, or 0.73% of total assets, compared to $26.7 million, or 1.04% of total assets. The reduction in non-performing assets was principally due to loan payoffs and loans returning to accrual status. Excluding net PPP loans, non-performing assets were 0.81% of total assets, compared to 1.14% as of December 31, 2020.

The allowance for loan and lease losses increased $461,000, or 1.6%, due to an increase in the general reserve from loan growth and qualitative factor changes related to the rate of growth in our commercial real estate portfolio, partially offset by historical loss rate updates from net recovery activity. While a degree of uncertainty remains in the economy due to the COVID-19 pandemic, we will take a measured approach to releasing general reserves moving forward.

  • The allowance for loan and lease losses as a percent of total gross loans and leases was 1.29% compared to 1.33%.

  • Excluding net PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.47%, compared to 1.48% as of December 31, 2020.

First Quarter 2021 Compared to First Quarter 2020

Net interest income increased $3.8 million, or 22.4%, to $20.9 million.

  • The increase in net interest income reflects an increase in average gross loans and leases and an increase in fees collected in lieu of interest, partially offset by adjusted net interest margin compression. Fees in lieu of interest, which can vary from quarter to quarter, totaled $3.1 million compared to $798,000. Excluding fees in lieu of interest and interest income from PPP loans, net interest income increased $923,000, or 5.7%. Excluding net PPP loans, average gross loans and leases increased $207.0 million, or 11.9%.

  • The yield on average interest-earning assets measured 3.93% compared to 4.72%. Excluding fees collected in lieu of interest and PPP loan interest income, the yield on average interest-earning assets excluding net PPP loans was 3.69%, compared to 4.56%. The decline in yields was primarily due to the decrease in LIBOR and Prime and related impact on variable-rate loans, in addition to the renewal of fixed-rate loans and reinvestment of security cash flows at historically low interest rates. The rate paid for average total bank funding decreased 84 basis points to 0.40% from 1.24%. The average target federal funds rate decreased 115 basis points during this time period of comparison.

  • Net interest margin was 3.44% in both periods of comparison. Adjusted net interest margin decreased 12 basis points to 3.20% from 3.32%.

Non-interest income increased $781,000, or 12.2%, to $7.2 million.

  • Gains on sale of SBA loans increased $813,000 to $1.1 million compared to $265,000.

  • Private wealth management fee income increased $295,000, or 14.0%, to $2.4 million. Private wealth and trust assets under management and administration measured a record $2.387 billion at March 31, 2021, up $722.1 million, or 43.4%.

  • Other fee income increased $507,000, or 48.0%, to $1.6 million compared to $1.1 million. The increase is primarily due to returns above the historical average from the Company’s investments in mezzanine funds.

  • Commercial loan interest rate swap fee income decreased $997,000 to $684,000 compared to $1.7 million.

Non-interest expense increased $1.2 million, or 7.3%, to $17.3 million. Operating expense increased $1.6 million, or 9.8%, to $17.4 million.

  • Compensation expense increased $1.6 million, or 14.5%, to $12.7 million. Average full-time equivalent employees increased to 305, up 6.6% for the quarter ended March 31, 2021, compared to 286 for the quarter ended March 31, 2020. The increase reflects new hires, annual merit increases, and a $494,000 increase in the annual corporate incentive plan accrual compared to a reduction to the same accrual during the first quarter of 2020 due to uncertainty amid the COVID-19 pandemic.

  • Computer software expense increased $226,000 to $1.1 million compared to $889,000. The increase was principally due to investments in technology platforms to improve the client experience and continued strategic focus on scaling the Bank to efficiently execute our growth strategy.

  • FDIC insurance expense was $362,000, an increase of $154,000. Management expects FDIC insurance expense to increase commensurate with future asset growth.

  • Other non-interest expense decreased $412,000, or 50.5%, to $404,000. The decrease was principally due to a decrease in business-related travel expenses due to the Company’s adherence to COVID-19 restrictions and a reduction in credit valuation adjustment (“CVA”) related to the commercial loan interest rate swap program. There was no CVA as of March 31, 2020.

Total period-end loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $224.1 million, or 12.9%, to $1.968 billion.

  • C&I loans, excluding net PPP loans, decreased $3.2 million, or 0.6%.

  • CRE loans increased $232.1 million, or 20.0%, generally driven by an increase across all CRE categories.

Total period-end in-market deposits increased $353.9 million, or 25.6%, to $1.737 billion and the average rate paid decreased 80 basis points to 0.16%.

  • Transaction accounts and money market accounts increased $413.6 million and $22.2 million, respectively.

  • Certificates of deposits decreased $81.9 million as client preferences continued to shift towards more liquid products due to the low interest rate environment.

Period-end wholesale funding increased $76.0 million to $581.3 million.

  • Wholesale deposits increased $48.7 million to $165.5 million mainly due to adding non-maturity brokered deposits at a favorable rate compared to alternative funding sources. Excluding these deposits, wholesale deposits decreased as the existing portfolio runoff is replaced by in-market deposits and lower cost FHLB advances to match-fund long-term fixed rate loans and fund loan growth. The average rate paid on brokered certificates of deposit decreased 181 basis points to 0.76% and the weighted average original maturity decreased to 3.9 years from 4.8 years.

  • FHLB advances increased $27.3 million to $415.8 million. The average rate paid on FHLB advances decreased 55 basis points to 1.36% and the weighted average original maturity decreased to 5.7 years from 5.9 years.

Non-performing assets decreased to $19.0 million, or 0.73% of total assets, compared to $29.6 million, or 1.35% of total assets. Excluding net PPP loans, non-performing assets were 0.81% of total assets as of March 31, 2021.

The allowance for loan and lease losses increased 27.4% primarily due to an increase in the general and specific reserve driven by the COVID-19 pandemic.

  • The allowance for loan and lease losses as a percent of total gross loans and leases was 1.29% compared to 1.30%.

  • Excluding net PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.47% as of March 31, 2021.

About First Business Financial Services, Inc.

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

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

  • Adverse changes in the economy or business conditions, either nationally or in our markets, including, without limitation, the adverse effects of the COVID-19 pandemic on the global, national, and local economy.

  • The effect of the COVID-19 pandemic on the Company’s credit quality, revenue, and business operations.

  • Competitive pressures among depository and other financial institutions nationally and in our markets.

  • Increases in defaults by borrowers and other delinquencies.

  • Our ability to manage growth effectively, including the successful expansion of our client service, administrative infrastructure, and internal management systems.

  • Fluctuations in interest rates and market prices.

  • Changes in legislative or regulatory requirements applicable to us and our subsidiaries.

  • Changes in tax requirements, including tax rate changes, new tax laws, and revised tax law interpretations.

  • Fraud, including client and system failure or breaches of our network security, including our internet banking activities.

  • Failure to comply with the applicable SBA regulations in order to maintain the eligibility of the guaranteed portion of SBA loans.

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

SELECTED FINANCIAL CONDITION DATA

(Unaudited)

As of

(in thousands)

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

Assets

Cash and cash equivalents

$

58,874

$

56,909

$

51,728

$

42,391

$

94,986

Securities available-for-sale, at fair value

173,261

183,925

179,274

171,680

175,564

Securities held-to-maturity, at amortized cost

24,783

26,374

28,897

29,826

30,774

Loans held for sale

6,576

8,695

15,049

13,672

6,331

Loans and leases receivable

2,235,112

2,145,970

2,170,299

2,056,863

1,743,399

Allowance for loan and lease losses

(28,982

)

(28,521

)

(30,817

)

(27,464

)

(22,748

)

Loans and leases receivable, net

2,206,130

2,117,449

2,139,482

2,029,399

1,720,651

Premises and equipment, net

1,923

1,998

2,130

2,266

2,427

Foreclosed properties

31

34

613

1,389

1,669

Right-of-use assets

5,486

5,814

6,141

6,272

6,590

Bank-owned life insurance

52,537

52,188

51,798

51,433

51,056

Federal Home Loan Bank stock, at cost

14,941

13,578

15,153

13,470

9,733

Goodwill and other intangible assets

12,055

12,018

12,024

11,925

11,872

Derivatives

26,104

49,377

58,210

58,808

53,096

Accrued interest receivable and other assets

38,017

39,478

41,348

36,283

31,625

Total assets

$

2,620,718

$

2,567,837

$

2,601,847

$

2,468,814

$

2,196,374

Liabilities and Stockholders’ Equity

In-market deposits

$

1,737,226

$

1,683,008

$

1,667,245

$

1,620,616

$

1,383,299

Wholesale deposits

165,492

172,508

154,130

89,759

116,827

Total deposits

1,902,718

1,855,516

1,821,375

1,710,375

1,500,126

Federal Home Loan Bank advances and other borrowings

448,417

419,167

483,517

465,007

412,892

Junior subordinated notes

10,065

10,062

10,058

10,054

10,051

Lease liabilities

6,040

6,386

6,728

6,877

7,211

Derivatives

29,565

54,927

64,403

65,390

59,260

Accrued interest payable and other liabilities

9,422

15,617

14,981

13,549

11,177

Total liabilities

2,406,227

2,361,675

2,401,062

2,271,252

2,000,717

Total stockholders’ equity

214,491

206,162

200,785

197,562

195,657

Total liabilities and stockholders’ equity

$

2,620,718

$

2,567,837

$

2,601,847

$

2,468,814

$

2,196,374

STATEMENTS OF INCOME

(Unaudited)

As of and for the Three Months Ended

(Dollars in thousands, except per share amounts)

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

Total interest income

$

23,806

$

25,770

$

22,276

$

22,761

$

23,372

Total interest expense

2,943

3,258

3,655

3,873

6,322

Net interest income

20,863

22,512

18,621

18,888

17,050

Provision for loan and lease losses

(2,068

)

4,322

3,835

5,469

3,182

Net interest income after provision for loan and lease losses

22,931

18,190

14,786

13,419

13,868

Private wealth management service fees

2,407

2,208

2,167

2,124

2,112

Gain on sale of SBA loans

1,078

1,300

760

574

265

Service charges on deposits

917

887

881

829

818

Loan fees

545

412

478

451

485

Net loss on sale of securities

(4

)

Swap fees

684

1,078

2,446

1,655

1,681

Other non-interest income

1,564

914

676

686

1,057

Total non-interest income

7,195

6,799

7,408

6,319

6,414

Compensation

12,657

12,145

11,857

10,796

11,052

Occupancy

552

556

570

554

572

Professional fees

866

909

943

859

819

Data processing

770

668

679

710

677

Marketing

391

411

356

352

461

Equipment

246

294

310

304

291

Computer software

1,115

1,028

1,017

966

889

FDIC insurance

362

479

312

239

208

Collateral liquidation cost

94

47

45

115

121

Net loss (gain) on foreclosed properties

3

54

(121

)

348

102

Tax credit investment impairment

328

113

1,841

113

SBA recourse (benefit) provision

(130

)

(330

)

57

(30

)

25

Loss on early extinguishment of debt

744

Other non-interest expense

404

1,062

620

545

816

Total non-interest expense

17,330

17,651

16,758

18,343

16,146

Income before income tax expense (benefit)

12,796

7,338

5,436

1,395

4,136

Income tax expense (benefit)

3,065

1,254

1,143

(1,928

)

858

Net income

$

9,731

$

6,084

$

4,293

$

3,323

$

3,278

Per common share:

Basic earnings

$

1.12

$

0.71

$

0.50

$

0.38

$

0.38

Diluted earnings

1.12

0.71

0.50

0.38

0.38

Dividends declared

0.18

0.165

0.165

0.165

0.165

Book value

24.83

24.06

23.45

23.04

22.83

Tangible book value

23.43

22.66

22.05

21.65

21.44

Weighted-average common shares outstanding(1)

8,429,149

8,417,216

8,404,084

8,392,197

8,388,666

Weighted-average diluted common shares outstanding(1)

8,429,149

8,417,216

8,404,084

8,392,197

8,388,666

(1)

Excluding participating securities.

NET INTEREST INCOME ANALYSIS

(Unaudited)

For the Three Months Ended

(Dollars in thousands)

March 31, 2021

December 31, 2020

March 31, 2020

Average
Balance

Interest

Average
Yield/Rate(4)

Average
Balance

Interest

Average
Yield/Rate(4)

Average
Balance

Interest

Average
Yield/Rate(4)

Interest-earning assets

Commercial real estate and other mortgage loans(1)

$

1,357,141

$

12,528

3.69

%

$

1,353,333

$

12,875

3.81

%

$

1,153,972

$

13,523

4.69

%

Commercial and industrial loans(1)

757,898

9,625

5.08

%

768,869

11,149

5.80

%

515,935

7,857

6.09

%

Direct financing leases(1)

22,271

244

4.38

%

25,071

278

4.44

%

27,961

108

1.55

%

Consumer and other loans(1)

45,648

398

3.49

%

38,389

355

3.70

%

35,874

361

4.03

%

Total loans and leases receivable(1)

2,182,958

22,795

4.18

%

2,185,662

24,657

4.51

%

1,733,742

21,849

5.04

%

Mortgage-related securities(2)

163,324

666

1.63

%

170,400

742

1.74

%

180,590

1,061

2.35

%

Other investment securities(3)

42,177

187

1.77

%

39,647

183

1.85

%

23,280

127

2.18

%

FHLB stock

12,465

152

4.88

%

14,608

179

4.90

%

8,512

205

9.63

%

Short-term investments

24,575

6

0.10

%

31,418

9

0.11

%

35,763

130

1.45

%

Total interest-earning assets

2,425,499

23,806

3.93

%

2,441,735

25,770

4.22

%

1,981,887

23,372

4.72

%

Non-interest-earning assets

151,665

162,010

122,975

Total assets

$

2,577,164

$

2,603,745

$

2,104,862

Interest-bearing liabilities

Transaction accounts

$

521,130

250

0.19

%

$

482,670

250

0.21

%

$

271,531

647

0.95

%

Money market

657,690

274

0.17

%

655,581

287

0.18

%

669,482

1,869

1.12

%

Certificates of deposit

57,424

177

1.23

%

78,693

308

1.57

%

134,000

750

2.24

%

Wholesale deposits

166,752

318

0.76

%

171,718

414

0.96

%

132,468

850

2.57

%

Total interest-bearing deposits

1,402,996

1,019

0.29

%

1,388,662

1,259

0.36

%

1,207,481

4,116

1.36

%

FHLB advances

366,670

1,249

1.36

%

404,174

1,309

1.30

%

325,929

1,559

1.91

%

Federal Reserve PPPLF

%

10,297

9

0.35

%

%

Other borrowings

27,296

401

5.88

%

24,419

400

6.55

%

24,385

370

6.07

%

Junior subordinated notes

10,063

274

10.89

%

10,059

281

11.17

%

10,048

277

11.03

%

Total interest-bearing liabilities

1,807,025

2,943

0.65

%

1,837,611

3,258

0.71

%

1,567,843

6,322

1.61

%

Non-interest-bearing demand deposit accounts

485,863

473,489

291,129

Other non-interest-bearing liabilities

73,695

88,496

62,367

Total liabilities

2,366,583

2,399,596

1,921,339

Stockholders’ equity

210,581

204,149

183,523

Total liabilities and stockholders’ equity

$

2,577,164

$

2,603,745

$

2,104,862

Net interest income

$

20,863

$

22,512

$

17,050

Interest rate spread

3.27

%

3.51

%

3.10

%

Net interest-earning assets

$

618,474

$

604,124

$

414,044

Net interest margin

3.44

%

3.69

%

3.44

%

(1)

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

(2)

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

(3)

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

(4)

Represents annualized yields/rates.

PROVISION FOR LOAN AND LEASE LOSS COMPOSITION

(Unaudited)

For the Three Months Ended

(Dollars in thousands)

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

Change in general reserve due to subjective factor changes

$

1,082

$

1,008

$

(766

)

$

2,388

$

2,831

Change in general reserve due to historical loss factor changes

(984

)

1,274

(16

)

(54

)

(255

)

Charge-offs

144

6,685

505

817

131

Recoveries

(2,673

)

(68

)

(23

)

(64

)

(177

)

Change in specific reserves on impaired loans, net

(194

)

(5,216

)

2,974

2,122

436

Change due to loan growth, net

557

639

1,161

260

216

Total provision for loan and lease losses

$

(2,068

)

$

4,322

$

3,835

$

5,469

$

3,182

PERFORMANCE RATIOS

For the Three Months Ended

(Unaudited)

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

Return on average assets (annualized)

1.51

%

0.93

%

0.68

%

0.55

%

0.62

%

Return on average equity (annualized)

18.48

%

11.92

%

8.58

%

6.70

%

7.14

%

Efficiency ratio

62.19

%

60.02

%

64.16

%

61.22

%

67.74

%

Interest rate spread

3.27

%

3.51

%

2.94

%

3.12

%

3.10

%

Net interest margin

3.44

%

3.69

%

3.14

%

3.34

%

3.44

%

Average interest-earning assets to average interest-bearing liabilities

134.23

%

132.88

%

131.68

%

132.82

%

126.41

%

ASSET QUALITY RATIOS

(Unaudited)

As of

(Dollars in thousands)

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

Non-accrual loans and leases

$

18,992

$

26,617

$

36,050

$

24,095

$

27,897

Foreclosed properties

31

34

613

1,389

1,669

Total non-performing assets

19,023

26,651

36,663

25,484

29,566

Performing troubled debt restructurings

59

46

47

49

134

Total impaired assets

$

19,082

$

26,697

$

36,710

$

25,533

$

29,700

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

0.85

%

1.24

%

1.66

%

1.17

%

1.60

%

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

0.85

%

1.24

%

1.68

%

1.23

%

1.69

%

Non-performing assets as a percent of total assets

0.73

%

1.04

%

1.41

%

1.03

%

1.35

%

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

1.29

%

1.33

%

1.41

%

1.33

%

1.30

%

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

152.60

%

107.15

%

85.48

%

113.98

%

81.54

%

ASSET QUALITY RATIOS – EXCLUDING NET PPP LOANS (1)

(Unaudited)

As of

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

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

0.96

%

1.38

%

1.95

%

1.38

%

1.60

%

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

0.96

%

1.38

%

1.98

%

1.46

%

1.69

%

Non-performing assets as a percent of total assets

0.81

%

1.14

%

1.61

%

1.19

%

1.35

%

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

1.47

%

1.48

%

1.67

%

1.57

%

1.30

%

(1)

Net PPP loans outstanding as of March 31, 2021, December 31, 2020, September 30, 2020, and June 30, 2020, were $267.6 million, $225.3 million, $325.5 million, and $320.0 million, respectively. There were no PPP loans outstanding as of March 31, 2020.

NET CHARGE-OFFS (RECOVERIES)

(Unaudited)

For the Three Months Ended

(Dollars in thousands)

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

Charge-offs

$

144

$

6,685

$

505

$

817

$

131

Recoveries

(2,673

)

(68

)

(23

)

(64

)

(177

)

Net (recoveries) charge-offs

$

(2,529

)

$

6,617

$

482

$

753

$

(46

)

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

(0.46

)%

1.21

%

0.09

%

0.15

%

(0.01

)%

Annualized (recoveries) charge-offs as a percent of average gross loans and leases, excluding average net PPP loans(1)

(0.52

)%

1.39

%

0.11

%

0.17

%

(0.01

)%

(1)

Average net PPP loans outstanding for the three months ended March 31, 2021, December 31, 2020, September 30, 2020, and June 30, 2020 were $242.2 million, $282.3 million, $323.1 million, and $252.8 million, respectively. The three months ended March 31, 2020 did not have any PPP loans outstanding.

CAPITAL RATIOS

As of and for the Three Months Ended

(Unaudited)

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

Total capital to risk-weighted assets

11.52

%

11.25

%

11.42

%

11.97

%

11.74

%

Tier I capital to risk-weighted assets

9.24

%

8.96

%

9.09

%

9.57

%

9.45

%

Common equity tier I capital to risk-weighted assets

8.81

%

8.53

%

8.64

%

9.08

%

8.96

%

Tier I capital to adjusted assets

8.37

%

7.99

%

8.04

%

8.29

%

9.33

%

Tangible common equity to tangible assets

7.76

%

7.60

%

7.29

%

7.56

%

8.41

%

Tangible common equity to tangible assets, excluding net PPP loans

8.65

%

8.33

%

8.34

%

8.69

%

8.41

%

LOAN AND LEASE RECEIVABLE COMPOSITION

(Unaudited)

As of

(in thousands)

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

Commercial real estate:

Commercial real estate – owner occupied

$

256,812

$

253,882

$

240,706

$

229,994

$

224,075

Commercial real estate – non-owner occupied

592,090

564,532

565,781

533,211

511,363

Land development

46,544

49,839

50,864

44,299

48,045

Construction

151,345

141,043

142,726

133,375

131,060

Multi-family

322,384

311,556

287,583

244,496

211,594

1-4 family

23,319

38,284

38,857

36,823

34,220

Total commercial real estate

1,392,494

1,359,136

1,326,517

1,222,198

1,160,357

Commercial and industrial

784,305

732,318

790,349

781,239

519,900

Direct financing leases, net

19,616

22,331

24,743

25,525

26,833

Consumer and other:

Home equity and second mortgages

6,719

7,833

7,106

6,706

6,513

Other

38,266

28,897

29,341

29,737

30,416

Total consumer and other

44,985

36,730

36,447

36,443

36,929

Total gross loans and leases receivable

2,241,400

2,150,515

2,178,056

2,065,405

1,744,019

Less:

Allowance for loan and lease losses

28,982

28,521

30,817

27,464

22,748

Deferred loan fees

6,288

4,545

7,757

8,542

620

Loans and leases receivable, net

$

2,206,130

$

2,117,449

$

2,139,482

$

2,029,399

$

1,720,651

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

(Unaudited)

As of

(in thousands)

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

Performing loans:

Off-balance sheet loans

$

17,523

$

23,354

$

26,017

$

28,843

$

31,212

On-balance sheet loans

7,340

11,117

15,175

16,554

17,935

Gross loans

24,863

34,471

41,192

45,397

49,147

Non-performing loans:

Off-balance sheet loans

1,835

1,931

2,574

1,640

4,887

On-balance sheet loans

6,832

7,435

9,561

9,725

13,833

Gross loans

8,667

9,366

12,135

11,365

18,720

Total loans:

Off-balance sheet loans

19,358

25,285

28,591

30,483

36,099

On-balance sheet loans

14,172

18,552

24,736

26,279

31,768

Gross loans

$

33,530

$

43,837

$

53,327

$

56,762

$

67,867

(1)

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

DEPOSIT COMPOSITION

(Unaudited)

As of

(in thousands)

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

Non-interest-bearing transaction accounts

$

496,877

$

472,818

$

452,268

$

433,760

$

301,657

Interest-bearing transaction accounts

561,466

503,992

484,761

413,214

343,064

Money market accounts

632,065

641,504

636,872

656,741

609,883

Certificates of deposit

46,818

64,694

93,344

116,901

128,695

Wholesale deposits

165,492

172,508

154,130

89,759

116,827

Total deposits

$

1,902,718

$

1,855,516

$

1,821,375

$

1,710,375

$

1,500,126

TRUST ASSETS COMPOSITION

(Unaudited)

As of

(in thousands)

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

Trust assets under management

$

2,195,804

$

2,061,772

$

1,841,986

$

1,704,019

$

1,519,632

Trust assets under administration

190,721

187,228

175,521

169,388

144,822

Total trust assets

$

2,386,525

$

2,249,000

$

2,017,507

$

1,873,407

$

1,664,454

NON-GAAP RECONCILIATIONS

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

TANGIBLE BOOK VALUE

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

(Unaudited)

As of

(Dollars in thousands, except per share amounts)

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

Common stockholders’ equity

$

214,491

$

206,162

$

200,785

$

197,562

$

195,657

Goodwill and other intangible assets

(12,055

)

(12,018

)

(12,024

)

(11,925

)

(11,872

)

Tangible common equity

$

202,436

$

194,144

$

188,761

$

185,637

$

183,785

Common shares outstanding

8,638,195

8,566,960

8,561,714

8,575,134

8,571,134

Book value per share

$

24.83

$

24.06

$

23.45

$

23.04

$

22.83

Tangible book value per share

23.43

22.66

22.05

21.65

21.44

TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS

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

(Unaudited)

As of

(Dollars in thousands)

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

Common stockholders’ equity

$

214,491

$

206,162

$

200,785

$

197,562

$

195,657

Goodwill and other intangible assets

(12,055

)

(12,018

)

(12,024

)

(11,925

)

(11,872

)

Tangible common equity

$

202,436

$

194,144

$

188,761

$

185,637

$

183,785

Total assets

$

2,620,718

$

2,567,837

$

2,601,847

$

2,468,814

$

2,196,374

Goodwill and other intangible assets

(12,055

)

(12,018

)

(12,024

)

(11,925

)

(11,872

)

Tangible assets

$

2,608,663

$

2,555,819

$

2,589,823

$

2,456,889

$

2,184,502

Tangible common equity to tangible assets

7.76

%

7.60

%

7.29

%

7.56

%

8.41

%

Period-end net PPP loans

267,567

225,323

325,481

320,036

Tangible assets, excluding net PPP loans

$

2,341,096

$

2,330,496

$

2,264,342

$

2,136,853

$

2,184,502

Tangible common equity to tangible assets, excluding net PPP loans

8.65

%

8.33

%

8.34

%

8.69

%

8.41

%

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

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

(Unaudited)

For the Three Months Ended

(Dollars in thousands)

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

Total non-interest expense

$

17,330

$

17,651

$

16,758

$

18,343

$

16,146

Less:

Net loss (gain) on foreclosed properties

3

54

(121

)

348

102

Amortization of other intangible assets

8

8

9

9

9

SBA recourse (benefit) provision

(130

)

(330

)

57

(30

)

25

Tax credit investment impairment

328

113

1,841

113

Loss on early extinguishment of debt

744

Total operating expense (a)

$

17,449

$

17,591

$

16,700

$

15,431

$

15,897

Net interest income

$

20,863

$

22,512

$

18,621

$

18,888

$

17,050

Total non-interest income

7,195

6,799

7,408

6,319

6,414

Less:

Net loss on sale of securities

(4

)

Adjusted non-interest income

7,195

6,799

7,408

6,319

6,418

Total operating revenue (b)

$

28,058

$

29,311

$

26,029

$

25,207

$

23,468

Efficiency ratio

62.19

%

60.02

%

64.16

%

61.22

%

67.74

%

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

$

10,609

$

11,720

$

9,329

$

9,776

$

7,571

Average total assets

$

2,577,164

$

2,603,745

$

2,540,735

$

2,425,767

$

2,104,862

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

1.65

%

1.80

%

1.47

%

1.61

%

1.44

%

ADJUSTED NET INTEREST MARGIN

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

(Unaudited)

For the Three Months Ended

(Dollars in thousands)

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

Interest income

$

23,806

$

25,770

$

22,276

$

22,761

$

23,372

Interest expense

2,943

3,258

3,655

3,873

6,322

Net interest income (a)

20,863

22,512

18,621

18,888

17,050

Less:

Fees in lieu of interest

3,085

4,749

1,511

2,257

798

PPP loan interest income

603

718

833

647

FRB interest income and FHLB dividend income

158

188

167

134

301

Add:

FRB PPPLF interest expense

9

26

18

Adjusted net interest income (b)

$

17,017

$

16,866

$

16,136

$

15,868

$

15,951

Average interest-earning assets (c)

$

2,425,499

$

2,441,735

$

2,374,891

$

2,258,759

$

1,981,887

Less:

Average net PPP loans

242,242

282,259

323,082

252,834

Average FRB cash and FHLB stock

36,643

45,611

33,756

69,176

37,989

Average non-accrual loans and leases

22,069

36,013

26,931

25,386

22,209

Adjusted average interest-earning assets (d)

$

2,124,545

$

2,077,852

$

1,991,122

$

1,911,363

$

1,921,689

Net interest margin (a / c)

3.44

%

3.69

%

3.14

%

3.34

%

3.44

%

Adjusted net interest margin (b / d)

3.20

%

3.25

%

3.24

%

3.32

%

3.32

%

View source version on businesswire.com: https://www.businesswire.com/news/home/20210429006036/en/

Contacts

First Business Financial Services, Inc.
Edward G. Sloane, Jr.
Chief Financial Officer
608-232-5970
[email protected]