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First Business Bank Reports Strong First Quarter 2022 Net Income of $8.7 Million

FBIZ

-- Results include robust in-market deposit growth, strong asset quality metrics, and provision benefit --

First Business Financial Services, Inc. (the “Company”, the “Bank”, or “First Business Bank”) (Nasdaq:FBIZ) reported net income of $8.7 million, or $1.02 diluted earnings per share, in the first quarter of 2022. This compares to net income of $8.6 million, or $1.01 per share, in the fourth quarter of 2021 and $9.7 million, or $1.12 per share, in the first quarter of 2021.

“First Business Bank begins 2022 from a position of strength, with solid operating results, continued organic loan and deposit growth, and exceptional asset quality that again led to a loan loss provision benefit in the first quarter,” President and Chief Executive Officer Corey Chambas said. “Our record loan growth in late-2021 and continued loan production in early-2022 positioned us well, creating a larger earning-asset base that supported strong net interest income in the first quarter, despite elevated payoffs during the period. We remain confident in our ability to grow loans at a low double digit annual rate in 2022, given the strength of our team and the size of our pipelines heading into the second quarter. Together with our diversified fee income streams, the Bank generated solid top line revenue growth in the first quarter. Following the private placement of $32.5 million in new capital last month, we are well positioned for continued success in 2022 and beyond.”

Quarterly Highlights

  • Continued Organic Loan Production. Loans, excluding Paycheck Protection Program (“PPP”) loans, grew $20.9 million, or 3.8% annualized, from the fourth quarter of 2021 and $265.5 million, or 13.5%, from the first quarter of 2021, as the Company continued to expand its traditional lending throughout its geographies. The first quarter of 2022 included elevated loan payoffs of nearly $90 million, compared to just over $30 million in the fourth quarter of 2021.
  • Robust In-Market Deposit Growth. Total period-end in-market deposits grew by $83.1 million, or 17.2% annualized, from the fourth quarter of 2021 and $274.1 million, or 15.8%, from the first quarter of 2021. Period-end in-market deposits represented 84.3% of total Bank funding at March 31, 2022, compared to 82.9% at December 31, 2021 and 74.9% at March 31, 2021.
  • Diversified Fee Income. Non-interest income of $7.4 million for the first quarter made up 25.6% of top line revenue, reflecting the Company’s diversified fee income streams. Revenue of $2.8 million from private wealth management was the leading contributor to non-interest income, while the Company also benefited from $1.4 million in revenue from its investments in mezzanine funds.
  • Strong Asset Quality Metrics. Non-performing assets declined 12.1% to $5.7 million, or 0.21% of total assets, improving from 0.25% and 0.73% of total assets on December 31, 2021 and March 31, 2021, respectively. The Company had no active COVID-19 loan modifications as of March 31, 2022. The Company recorded a provision benefit of $855,000, compared to $508,000 in the fourth quarter of 2021 and $2.1 million in the first quarter of 2021.
  • Capital Restructuring. The Company completed a private placement to institutional investors for $32.5 million in new capital consisting of a $20.0 million subordinated note and $12.5 million of preferred stock. A portion of the proceeds were used to redeem $10.3 million of higher cost trust preferred securities in the first quarter of 2022. Management plans to redeem an additional $9.1 million of subordinated notes in the second quarter of 2022. The remainder of the proceeds will be used for general corporate purposes, including to support the Bank’s growth strategy, and to fund the Company’s previously announced $5 million share repurchase plan.

Quarterly Financial Results

(Unaudited)

As of and for the Three Months Ended

(Dollars in thousands, except per share amounts)

March 31,

2022

December 31,

2021

March 31,

2021

Net interest income

$

21,426

$

20,924

$

20,863

Adjusted non-interest income (1)

7,386

7,569

7,195

Operating revenue (1)

28,812

28,493

28,058

Operating expense (1)

18,887

17,644

17,449

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

9,925

10,849

10,609

Less:

Provision for loan and lease losses

(855

)

(508

)

(2,068

)

Net loss on foreclosed properties

12

7

3

Amortization of other intangible assets

2

8

SBA recourse benefit

(76

)

(122

)

(130

)

Income before income tax expense

10,844

11,470

12,796

Income tax expense

2,172

2,879

3,065

Net income

$

8,672

$

8,591

$

9,731

Earnings per share, diluted

$

1.02

$

1.01

$

1.12

Book value per share

$

27.46

$

27.48

$

24.83

Tangible book value per share (1)

$

26.02

$

26.03

$

23.43

Net interest margin (2)

3.39

%

3.39

%

3.44

%

Adjusted net interest margin (1)(2)

3.24

%

3.23

%

3.20

%

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

25.64

%

26.56

%

25.64

%

Efficiency ratio (1)

65.55

%

61.92

%

62.19

%

Return on average assets (2)

1.30

%

1.32

%

1.51

%

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

1.49

%

1.66

%

1.65

%

Return on average equity (2)

14.47

%

15.04

%

18.48

%

Period-end loans and leases receivable

$

2,251,249

$

2,239,408

$

2,235,112

Specialized lending as a percent of total loans and leases

19.22

%

19.76

%

15.65

%

Average loans and leases receivable

$

2,244,642

$

2,179,769

$

2,182,958

Period-end in-market deposits

$

2,011,373

$

1,928,285

$

1,737,226

Average in-market deposits

$

1,932,576

$

1,866,875

$

1,722,107

Allowance for loan and lease losses

$

23,669

$

24,336

$

28,982

Non-performing assets

$

5,734

$

6,522

$

19,023

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

1.05

%

1.09

%

1.29

%

Non-performing assets as a percent of total assets

0.21

%

0.25

%

0.73

%

(1)

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

(2)

Calculation is annualized.

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

(Unaudited)

As of and for the Three Months Ended

(Dollars in thousands, except per share amounts)

March 31,

2022

December 31,

2021

March 31,

2021

Net interest income

$

21,125

$

19,898

$

18,048

Adjusted non-interest income (1)

7,386

7,569

7,195

Operating revenue (1)

28,511

27,467

25,243

Operating expense (1)

18,887

17,644

17,449

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

$

9,624

$

9,823

$

7,794

Net interest margin (2)

3.37

%

3.29

%

3.31

%

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

25.91

%

27.56

%

28.50

%

Efficiency ratio (1)

66.24

%

64.24

%

69.12

%

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

1.46

%

1.53

%

1.34

%

Period-end loans and leases receivable

$

2,233,043

$

2,212,111

$

1,967,545

Specialized lending as a percent of total loans and leases

19.38

%

20.02

%

17.83

%

Average loans and leases receivable

$

2,223,707

$

2,126,846

$

1,940,716

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

1.06

%

1.10

%

1.47

%

Non-performing assets as a percent of total assets

0.21

%

0.25

%

0.81

%

(1)

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

(2)

Calculation is annualized.

First Quarter 2022 Compared to Fourth Quarter 2021

Net interest income increased $502,000, or 2.4%, to $21.4 million.

  • Net interest income growth was driven by an increase in average loans and leases, partially offset by a reduction in fees in lieu of interest and the accelerated amortization of $236,000 in debt issuance costs related to the redemption of trust preferred securities. Average loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $96.9 million, or 18.2% annualized, to $2.224 billion. Fees in lieu of interest, which can vary from quarter to quarter based on client-driven activity, totaled $1.3 million, compared to $1.7 million, and included $249,000 and $892,000 in PPP fees, respectively. Excluding fees in lieu of interest, interest income from PPP loans, and the aforementioned accelerated debt issuance costs, net interest income increased $1.2 million, or 25.7% annualized.
  • The yield on average interest-earning assets increased three basis points to 3.84% from 3.81%. Excluding average net PPP loans, PPP loan interest income, and the aforementioned fees in lieu of interest, the yield earned on average interest-earning assets increased seven basis points to 3.66% from 3.59%. The rate paid for average total bank funding decreased two basis point to 0.31% from 0.33%. Total bank funding is defined as total deposits plus Federal Home Loan Bank (“FHLB”) advances.
  • Net interest margin was 3.39% in both periods of comparison. Adjusted net interest margin was 3.24%, up one basis point compared to 3.23% in the linked quarter. The aforementioned accelerated debt issuance costs reduced first quarter 2022 net interest margin and adjusted net interest margin by four basis points. Adjusted net interest margin is a non-GAAP measure representing net interest income excluding fees in lieu of interest and other recurring but volatile components of net interest margin divided by average interest-earning assets less average net PPP loans and other recurring but volatile components of average interest-earning assets such as excess liquidity and non-accrual loans.
  • The Bank continues to maintain an asset-sensitive balance sheet and ended the quarter appropriately positioned for net interest income to benefit from rising short-term interest rates.

The Company reported a net benefit to provision for loan and lease losses of $855,000, compared to a $508,000 benefit in the fourth quarter of 2021.

  • The provision benefit in the first quarter of 2022 was primarily due to a $416,000 reduction due to qualitative risk factor improvements, a net decrease in specific reserves of $280,000, a $206,000 reduction in the general reserve from improving historical loss rates, and net recoveries of $188,000. These decreases were partially offset by a $235,000 increase in the general reserve due to loan growth.

Non-interest income decreased $183,000, or 2.4%, to $7.4 million.

  • Private wealth management fee income decreased $33,000, or 1.1% to $2.8 million. Private wealth and trust assets under management and administration measured $2.834 billion at March 31, 2022, down $86.7 million, primarily due to a decrease in market valuations, which was partially offset by new business development.
  • Gains on sale of SBA loans decreased $457,000 to $585,000. Management believes SBA 7a loan production, while variable based on timing of closings, will increase on an annual basis at a measured pace.
  • Commercial loan interest rate swap fee income decreased $459,000 to $225,000. Swap fee income can vary from period to period based on client demand and the interest rate environment.
  • Other fee income increased $817,000 to $2.1 million, compared to $1.3 million in the fourth quarter. The increase is primarily due to strong returns on the Company’s investments in mezzanine funds.

Non-interest expense increased $1.3 million, or 7.4%, to $18.8 million, while operating expense increased $1.2 million, or 7.0%, to $18.9 million.

  • Compensation expense was $13.6 million, reflecting an increase of $1.2 million, or 9.6%, from the linked quarter primarily due to above average annual merit increases, reflecting the competitive job market, as well as payroll taxes paid in the quarter on a record annual cash bonus plan payout, and an expanded workforce. Management believes the increase in compensation expense will decline from this seasonally high rate and stabilize to a modestly lower rate during the remainder of the year. Average full-time equivalent employees (“FTE”) for the first quarter of 2022 were 310, up nine from 301 in the linked quarter.
  • Professional fees were $1.2 million, increasing $237,000, or 25.4%, from the linked quarter primarily due to legal fees associated with tax credit investments, moderate increases in audit fees, and other professional and consulting services.
  • FDIC insurance expense was $313,000, increasing $103,000, or 49.0%, from the linked quarter primarily due to an increase in both the assessment rate and the assessable base.
  • Other non-interest expense decreased $269,000 to $513,000. During the linked quarter the Company recorded a $106,000 increase in the credit valuation adjustment (“CVA”) related to its commercial loan interest rate swap program, while no adjustment was recorded in the current period. 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 remaining variance was mainly due to a seasonal increase in charitable donations in the linked quarter, as well as a current quarter increase in reimbursements received for loan expenses.

Income tax expense decreased $707,000. or 24.6%, to $2.2 million. The effective tax rate, excluding discrete items, was 23.5%, compared to 24.0% for the full year 2021. For 2022, the Corporation expects to report an effective tax rate of 23%-24%, excluding discrete items, as management intends to continue actively pursuing tax credit opportunities.

Total period-end loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $20.9 million, or 3.8% annualized, to $2.233 billion. The first quarter of 2022 included elevated loan payoffs of nearly $90 million, compared to just over $30 million in the fourth quarter of 2021. These elevated levels of payoffs primarily stem from the sales of businesses and real estate properties, which can be variable depending on market conditions.

  • Commercial real estate (“CRE”) loans increased by $15.1 million, or 4.1% annualized, to $1.470 billion, compared to $1.455 billion, as increases in construction financing and owner-occupied real estate offset payoffs and paydowns in multi-family and non-owner occupied loans.
  • Commercial and industrial (“C&I”) loans decreased $10.1 million, primarily due to the aforementioned payoffs and PPP loan forgiveness. C&I loans, excluding net PPP loans, decreased $1.0 million.

Total period-end in-market deposits increased $83.1 million, or 17.2% annualized, to $2.011 billion, compared to $1.928 billion, and the average rate paid was 0.13% in both periods. The Bank’s deposit-centric sales strategy, led by treasury management sales, contributed to growth across all in-market deposit categories.

Period-end wholesale funding, including FHLB advances, brokered deposits, and deposits gathered through internet deposit listing services, decreased $24.7 million to $373.7 million.

  • Wholesale deposits decreased $17.3 million to $12.3 million. The average rate paid on wholesale deposits increased 188 basis points to 2.91% and the weighted average original maturity of brokered certificates of deposit increased to 4.8 years from 3.8 years.
  • FHLB advances decreased $7.4 million to $361.4 million. The average rate paid on FHLB advances decreased 22 basis point to 1.08% and the weighted average original maturity increased to 6.0 years from 5.9 years.

Non-performing assets decreased $788,000, or 12.1%, to $5.7 million, or 0.21% of total assets, compared to $6.5 million, or 0.25% of total assets. The reduction in non-performing assets was primarily due to loan payoffs and paydowns.

The allowance for loan and lease losses decreased $667,000, or 2.7%, as an increase in the general reserve from loan growth was more than offset by a decrease in the historical loss rates, qualitative risk factors, and specific reserves.

  • The allowance for loan and lease losses as a percent of total gross loans and leases was 1.05%, compared to 1.09% as of December 31, 2021.
  • Excluding net PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.06%, compared to 1.10% as of December 31, 2021.

First Quarter 2022 Compared to First Quarter 2021

Net interest income increased $563,000, or 2.7%, to $21.4 million.

  • The increase in net interest income primarily reflects an increase in average gross loans and leases, partially offset by lower fees in lieu of interest and the accelerated amortization of $236,000 in debt issuance costs related to the redemption of trust preferred securities. Fees in lieu of interest decreased from $3.1 million to $1.3 million, primarily due to a $2.0 million reduction in PPP loan fee amortization. Excluding fees in lieu of interest, interest income from PPP loans, and the aforementioned accelerated debt issuance costs, net interest income increased $3.1 million, or 18.3%. Excluding net PPP loans, average gross loans and leases increased $283.0 million, or 14.6%.
  • The yield on average interest-earning assets measured 3.84% compared to 3.93%. Excluding fees in lieu of interest, PPP loan interest income, and net PPP loans, the yield on average interest-earning assets measured 3.66%, compared to 3.69%. This decrease in yield was primarily due to the renewal of fixed-rate loans and reinvestment of cash flows from the securities portfolio at historically low interest rates. The rate paid for average total bank funding decreased nine basis points to 0.31% from 0.40%.
  • Net interest margin decreased five basis points to 3.39% from 3.44%. Adjusted net interest margin increased four basis points to 3.24% from 3.20%.

The Company reported a net benefit to provision for loan and lease losses of $855,000, compared to provision benefit of $2.1 million in the first quarter of 2021. The reasons for the provision benefit are consistent with the explanations discussed above in the linked quarter comparison.

Non-interest income of $7.4 million increased by $191,000, or 2.7%, from $7.2 million in the prior year period.

  • Private wealth management fee income increased $434,000, or 18.0%, to $2.8 million. Private wealth and trust assets under management and administration measured $2.834 billion at March 31, 2022, up $447.5 million, or 18.8%.
  • Gains on sale of SBA loans decreased $493,000 to $585,000. Management believes SBA 7a loan production, while variable based on timing of closings, will increase on an annual basis at a measured pace.
  • Loan fees of $652,000 increased by $107,000, or 19.6%, primarily due to an increase in conventional, SBA, and floorplan financing activity generating additional processing and service fee income.
  • Commercial loan interest rate swap fee income was $225,000, compared to $684,000 in the prior year period. Swap fee income varies from period to period based on client demand and the interest rate environment in any given quarter.
  • Other fee income increased $520,000, or 33.2%, to $2.1 million compared to $1.6 million, primarily due to higher returns from the Company’s investments in mezzanine funds.

Non-interest expense increased $1.5 million, or 8.6%, to $18.8 million. Operating expense increased $1.4 million, or 8.2%, to $18.9 million.

  • Compensation expense increased $981,000, or 7.8%, to $13.6 million. Average FTEs were 310 in the first quarter of 2022, compared to 305 in the first quarter of 2021. The reasons for the increase in compensation expense are consistent with the explanations discussed above in the linked quarter analysis.
  • Professional fees increased $304,000, or 35.1%, to $1.2 million, primarily due to an increase in legal expenses related to historic tax credit investments, an increase in audit expenses, and a general increase in other professional consulting services for various projects.
  • Marketing expense increased $109,000, or 27.9%, to $500,000 mainly due to an increase in business development activities as the Company continues to return to pre-pandemic spending levels.
  • Other non-interest expense increased $239,000, or 87.2%, to $513,000, partially due to an increase in travel expense. In addition, the first quarter of 2021 included a reduction in CVA related to the commercial loan interest rate swap program, while no adjustment was recorded in the current period.

Total period-end loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $265.5 million, or 13.5%, to $2.233 billion.

  • C&I loans, excluding net PPP loans, increased $185.8 million, or 35.9%, due to an increase in both conventional commercial lending, as well as specialized commercial lending, which represents 19.4% of total gross loans, up from 17.8% last year. Management believes this growth rate will moderate to lower double-digits as the Company’s specialized lending products scale over time.
  • CRE loans increased $77.2 million, or 5.5%, primarily due to an increase in non-owner-occupied real estate and construction financing.

Total period-end in-market deposits increased $274.1 million, or 15.8%, to $2.011 billion and the average rate paid decreased three basis points to 0.13%. This increase in deposits was principally due to an $82.1 million and $174.9 million increase in transaction and money market accounts, respectively.

Period-end wholesale funding decreased $207.6 million to $373.7 million.

  • Wholesale deposits decreased $153.2 million to $12.3 million, compared to $165.5 million, as the existing portfolio runoff was replaced by in-market deposits. The average rate paid on brokered certificates of deposit increased 215 basis points to 2.91% and the weighted average original maturity increased to 4.8 years from 3.9 years.
  • FHLB advances decreased $54.4 million to $361.4 million. The average rate paid on FHLB advances decreased 28 basis points to 1.08% and the weighted average original maturity increased to 6.0 years from 5.7 years.

Non-performing assets decreased to $5.7 million, or 0.21% of total assets, compared to $19.0 million, or 0.73% of total assets. Excluding net PPP loans, non-performing assets decreased to 0.21% of total assets as of March 31, 2022 compared to 0.81% one year prior.

The allowance for loan and lease losses decreased $5.3 million to $23.7 million, compared to $29.0 million.

  • The allowance for loan and lease losses as a percent of total gross loans and leases was 1.05% compared to 1.29%.
  • Excluding net PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.06% as of March 31, 2022, compared to 1.47% one year prior.

Paycheck Protection Program

As of March 31, 2022, the Company had $18.5 million in gross PPP loans outstanding and deferred processing fees outstanding of $308,000. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness, as an adjustment of yield using the interest method. During the three months ended March 31, 2022, the Company recognized $249,000 of PPP processing fees in interest income. The SBA provides a guaranty to the lender of 100% of principal and interest, unless the lender violated an obligation under the agreement. Since loan losses are expected to be immaterial, if at all, due to the government guarantee, management excluded the PPP loans from the allowance for loan and lease losses calculation. These short-term loans were funded primarily through a combination of excess cash held at the Federal Reserve and from an increase in in-market deposits.

Share Repurchase Program Update

As previously announced, effective March 4, 2022, the Company’s Board of Directors authorized the repurchase by the Company of shares of its common stock with a maximum aggregate purchase price of $5.0 million, effective March 4, 2022 through March 4, 2023. During March, the Company repurchased a total of 4,502 shares for approximately $148,000 at an average cost of $32.87 per share.

About First Business Financial Services, Inc.

First Business Financial Services, Inc., (Nasdaq: FBIZ) is the parent company of First Business Bank. First Business Bank specializes in Business Banking, including Commercial Banking and Specialized Lending, Private Wealth, and Bank Consulting services, and through its refined focus, delivers unmatched expertise, accessibility, and responsiveness. Specialized Lending solutions are delivered through First Business Bank’s wholly owned subsidiary First Business Specialty Finance, LLC. For additional information, visit 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, inflation, supply chain issues, labor shortages, and the adverse effects of the COVID-19 pandemic on the global, national, and local economy, which may effect the Corporation’s credit quality, revenue, and business operations.
  • Competitive pressures among depository and other financial institutions nationally and in the Company’s markets.
  • Increases in defaults by borrowers and other delinquencies.
  • Management’s ability to manage growth effectively, including the successful expansion of our client service, administrative infrastructure, and internal management systems.
  • Fluctuations in interest rates and market prices.
  • Changes in legislative or regulatory requirements applicable to the Company and its subsidiaries.
  • Changes in tax requirements, including tax rate changes, new tax laws, and revised tax law interpretations.
  • Fraud, including client and system failure or breaches of our network security, including the Company’s internet banking activities.
  • Failure to comply with the applicable SBA regulations in order to maintain the eligibility of the guaranteed portion of SBA loans.

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

SELECTED FINANCIAL CONDITION DATA

(Unaudited)

As of

(in thousands)

March 31,

2022

December 31,

2021

September 30,

2021

June 30,

2021

March 31,

2021

Assets

Cash and cash equivalents

$

95,603

$

57,110

$

110,624

$

389,977

$

58,874

Securities available-for-sale, at fair value

223,631

205,702

194,056

171,219

173,261

Securities held-to-maturity, at amortized cost

17,267

19,746

21,196

22,382

24,783

Loans held for sale

2,418

3,570

5,603

6,059

6,576

Loans and leases receivable

2,251,249

2,239,408

2,123,306

2,143,561

2,235,112

Allowance for loan and lease losses

(23,669

)

(24,336

)

(24,676

)

(25,675

)

(28,982

)

Loans and leases receivable, net

2,227,580

2,215,072

2,098,630

2,117,886

2,206,130

Premises and equipment, net

1,621

1,694

1,700

1,747

1,923

Foreclosed properties

117

164

172

179

31

Right-of-use assets

6,118

4,910

5,263

5,472

5,486

Bank-owned life insurance

53,974

53,600

53,244

52,887

52,537

Federal Home Loan Bank stock, at cost

12,863

13,336

12,351

13,451

14,941

Goodwill and other intangible assets

12,184

12,268

12,229

12,178

12,055

Derivatives

26,890

26,343

28,678

32,377

26,104

Accrued interest receivable and other assets

43,816

39,390

40,664

39,855

38,017

Total assets

$

2,724,082

$

2,652,905

$

2,584,410

$

2,865,669

$

2,620,718

Liabilities and Stockholders’ Equity

In-market deposits

$

2,011,373

$

1,928,285

$

1,829,644

$

2,016,215

$

1,737,226

Wholesale deposits

12,321

29,638

74,638

144,492

165,492

Total deposits

2,023,694

1,957,923

1,904,282

2,160,707

1,902,718

Federal Home Loan Bank advances and other borrowings

414,487

403,451

394,090

420,113

448,417

Junior subordinated notes

10,076

10,072

10,069

10,065

Lease liabilities

7,580

5,406

5,780

6,005

6,040

Derivatives

24,961

28,283

31,890

36,109

29,565

Accrued interest payable and other liabilities

8,309

15,344

13,016

11,214

9,422

Total liabilities

2,479,031

2,420,483

2,359,130

2,644,217

2,406,227

Total stockholders’ equity

245,051

232,422

225,280

221,452

214,491

Total liabilities and stockholders’ equity

$

2,724,082

$

2,652,905

$

2,584,410

$

2,865,669

$

2,620,718

STATEMENTS OF INCOME

(Unaudited)

As of and for the Three Months Ended

(Dollars in thousands, except per share amounts)

March 31,

2022

December 31,

2021

September 30,

2021

June 30,

2021

March 31,

2021

Total interest income

$

24,235

$

23,576

$

24,014

$

24,599

$

23,806

Total interest expense

2,809

2,652

2,791

2,947

2,943

Net interest income

21,426

20,924

21,223

21,652

20,863

Provision for loan and lease losses

(855

)

(508

)

(2,269

)

(958

)

(2,068

)

Net interest income after provision for loan and lease losses

22,281

21,432

23,492

22,610

22,931

Private wealth management service fees

2,841

2,874

2,759

2,744

2,407

Gain on sale of SBA loans

585

1,042

721

1,203

1,078

Service charges on deposits

999

1,023

956

941

917

Loan fees

652

679

713

569

545

Net gain on sale of securities

29

Swap fees

225

684

684

Other non-interest income

2,084

1,267

1,866

835

1,564

Total non-interest income

7,386

7,569

7,015

6,321

7,195

Compensation

13,638

12,447

13,351

13,255

12,657

Occupancy

555

551

544

533

552

Professional fees

1,170

933

1,024

913

866

Data processing

780

773

746

798

770

Marketing

500

548

572

511

391

Equipment

244

223

260

261

246

Computer software

1,082

1,017

999

1,129

1,115

FDIC insurance

313

210

291

280

362

Collateral liquidation cost

16

40

47

84

94

Net loss (gain) on foreclosed properties

12

7

6

(1

)

3

Other non-interest expense

513

782

650

421

274

Total non-interest expense

18,823

17,531

18,490

18,184

17,330

Income before income tax expense

10,844

11,470

12,017

10,747

12,796

Income tax expense

2,172

2,879

2,819

2,512

3,065

Net income

$

8,672

$

8,591

$

9,198

$

8,235

$

9,731

Per common share:

Basic earnings

$

1.02

$

1.01

$

1.07

$

0.95

$

1.12

Diluted earnings

1.02

1.01

1.07

0.95

1.12

Dividends declared

0.1975

0.18

0.18

0.18

0.18

Book value

27.46

27.48

26.56

25.70

24.83

Tangible book value

26.02

26.03

25.11

24.28

23.43

Weighted-average common shares outstanding(1)

8,232,142

8,228,311

8,340,042

8,385,069

8,429,149

Weighted-average diluted common shares outstanding(1)

8,232,142

8,228,311

8,340,042

8,385,069

8,429,149

(1)

Excluding participating securities.

NET INTEREST INCOME ANALYSIS

(Unaudited)

For the Three Months Ended

(Dollars in thousands)

March 31, 2022

December 31, 2021

March 31, 2021

Average

Balance

Interest

Average

Yield/

Rate(4)

Average

Balance

Interest

Average

Yield/

Rate(4)

Average

Balance

Interest

Average

Yield/

Rate(4)

Interest-earning assets

Commercial real estate and other mortgage loans(1)

$

1,459,891

$

13,346

3.66

%

$

1,417,498

$

13,225

3.73

%

$

1,357,141

$

12,528

3.69

%

Commercial and industrial loans(1)

718,364

9,101

5.07

%

702,108

8,711

4.96

%

757,898

9,625

5.08

%

Direct financing leases(1)

16,540

189

4.57

%

17,662

200

4.53

%

22,271

244

4.38

%

Consumer and other loans(1)

49,847

436

3.50

%

42,501

376

3.54

%

45,648

398

3.49

%

Total loans and leases receivable(1)

2,244,642

23,072

4.11

%

2,179,769

22,512

4.13

%

2,182,958

22,795

4.18

%

Mortgage-related securities(2)

184,962

760

1.64

%

170,002

677

1.59

%

163,324

666

1.63

%

Other investment securities(3)

50,555

215

1.70

%

49,927

209

1.67

%

42,177

187

1.77

%

FHLB stock

14,002

172

4.91

%

12,345

155

5.02

%

12,465

152

4.88

%

Short-term investments

31,111

16

0.21

%

60,018

23

0.15

%

24,575

6

0.10

%

Total interest-earning assets

2,525,272

24,235

3.84

%

2,472,061

23,576

3.81

%

2,425,499

23,806

3.93

%

Non-interest-earning assets

140,969

140,844

151,665

Total assets

$

2,666,241

$

2,612,905

$

2,577,164

Interest-bearing liabilities

Transaction accounts

$

533,251

255

0.19

%

$

497,743

239

0.19

%

$

521,130

250

0.19

%

Money market

784,276

338

0.17

%

749,247

321

0.17

%

657,690

274

0.17

%

Certificates of deposit

52,519

55

0.42

%

42,507

36

0.34

%

57,424

177

1.23

%

Wholesale deposits

16,236

118

2.91

%

62,342

161

1.03

%

166,752

318

0.76

%

Total interest-bearing deposits

1,386,282

766

0.22

%

1,351,839

757

0.22

%

1,402,996

1,019

0.29

%

FHLB advances

385,080

1,036

1.08

%

353,637

1,149

1.30

%

366,670

1,249

1.36

%

Other borrowings

40,311

503

4.99

%

35,270

466

5.28

%

27,296

401

5.88

%

Junior subordinated notes(5)

9,850

504

20.47

%

10,073

280

11.12

%

10,063

274

10.89

%

Total interest-bearing liabilities

1,821,523

2,809

0.62

%

1,750,819

2,652

0.61

%

1,807,025

2,943

0.65

%

Non-interest-bearing demand deposit accounts

562,530

577,378

485,863

Other non-interest-bearing liabilities

42,537

56,280

73,695

Total liabilities

2,426,590

2,384,477

2,366,583

Stockholders’ equity

239,651

228,428

210,581

Total liabilities and stockholders’ equity

$

2,666,241

$

2,612,905

$

2,577,164

Net interest income

$

21,426

$

20,924

$

20,863

Interest rate spread

3.22

%

3.21

%

3.27

%

Net interest-earning assets

$

703,749

$

721,242

$

618,474

Net interest margin

3.39

%

3.39

%

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.

(5)

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

PROVISION FOR LOAN AND LEASE LOSS COMPOSITION

(Unaudited)

For the Three Months Ended

(Dollars in thousands)

March 31,

2022

December 31,

2021

September 30,

2021

June 30,

2021

March 31,

2021

Change in general reserve due to subjective factor changes

$

(416

)

$

(805

)

$

(51

)

$

(652

)

$

1,082

Change in general reserve due to historical loss factor changes

(206

)

(862

)

(923

)

(1,687

)

(984

)

Charge-offs

22

106

364

2,894

144

Recoveries

(210

)

(274

)

(1,634

)

(545

)

(2,673

)

Change in specific reserves on impaired loans, net

(280

)

(64

)

(451

)

(1,466

)

(194

)

Change due to loan growth, net

235

1,391

426

498

557

Total provision for loan and lease losses

$

(855

)

$

(508

)

$

(2,269

)

$

(958

)

$

(2,068

)

PERFORMANCE RATIOS

For the Three Months Ended

(Unaudited)

March 31,

2022

December 31,

2021

September 30,

2021

June 30,

2021

March 31,

2021

Return on average assets (annualized)

1.30

%

1.32

%

1.41

%

1.26

%

1.51

%

Return on average equity (annualized)

14.47

%

15.04

%

16.39

%

15.09

%

18.48

%

Efficiency ratio

65.55

%

61.92

%

65.68

%

64.17

%

62.19

%

Interest rate spread

3.22

%

3.21

%

3.27

%

3.31

%

3.27

%

Net interest margin

3.39

%

3.39

%

3.45

%

3.49

%

3.44

%

Average interest-earning assets to average interest-bearing liabilities

138.64

%

141.19

%

139.19

%

136.54

%

134.23

%

ASSET QUALITY RATIOS

(Unaudited)

As of

(Dollars in thousands)

March 31,

2022

December 31,

2021

September 30,

2021

June 30,

2021

March 31,

2021

Non-accrual loans and leases

$

5,617

$

6,358

$

7,433

$

11,422

$

18,992

Foreclosed properties

117

164

172

179

31

Total non-performing assets

5,734

6,522

7,605

11,601

19,023

Performing troubled debt restructurings

203

217

53

56

59

Total impaired assets

$

5,937

$

6,739

$

7,658

$

11,657

$

19,082

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

0.25

%

0.28

%

0.35

%

0.53

%

0.85

%

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

0.25

%

0.29

%

0.36

%

0.54

%

0.85

%

Non-performing assets as a percent of total assets

0.21

%

0.25

%

0.29

%

0.40

%

0.73

%

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

1.05

%

1.09

%

1.16

%

1.20

%

1.29

%

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

421.38

%

382.76

%

331.98

%

224.79

%

152.60

%

ASSET QUALITY RATIOS - EXCLUDING NET PPP LOANS

(Unaudited)

As of

(Dollars in thousands)

March 31,

2022

December 31,

2021

September 30,

2021

June 30,

2021

March 31,

2021

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

0.25

%

0.29

%

0.36

%

0.56

%

0.96

%

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

0.26

%

0.29

%

0.37

%

0.57

%

0.96

%

Non-performing assets as a percent of total assets

0.21

%

0.25

%

0.30

%

0.42

%

0.81

%

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

1.06

%

1.10

%

1.20

%

1.27

%

1.47

%

PPP loans outstanding, net

$

18,206

$

27,297

$

64,454

$

120,723

$

267,567

NET CHARGE-OFFS (RECOVERIES)

(Unaudited)

For the Three Months Ended

(Dollars in thousands)

March 31,
2022

December 31,
2021

September 30,
2021

June 30,
2021

March 31,
2021

Charge-offs

$

22

$

106

$

364

$

2,894

$

144

Recoveries

(210

)

(274

)

(1,634

)

(545

)

(2,673

)

Net (recoveries) charge-offs

$

(188

)

$

(168

)

$

(1,270

)

$

2,349

$

(2,529

)

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

(0.03

)%

(0.03

)%

(0.24

)%

0.42

%

(0.46

)%

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

(0.03

)%

(0.03

)%

(0.25

)%

0.47

%

(0.52

)%

Average PPP loans outstanding, net

$

20,935

$

52,923

$

87,517

$

229,165

$

242,242

CAPITAL RATIOS

As of and for the Three Months Ended

(Unaudited)

March 31,
2022

December 31,
2021

September 30,
2021

June 30,
2021

March 31,
2021

Total capital to risk-weighted assets

11.87

%

10.82

%

11.14

%

11.22

%

11.52

%

Tier I capital to risk-weighted assets

9.27

%

8.94

%

9.14

%

9.14

%

9.24

%

Common equity tier I capital to risk-weighted assets

8.81

%

8.55

%

8.73

%

8.72

%

8.81

%

Tier I capital to adjusted assets

9.09

%

8.94

%

8.69

%

8.48

%

8.37

%

Tangible common equity to tangible assets

8.14

%

8.34

%

8.28

%

7.33

%

7.76

%

Tangible common equity to tangible assets, excluding net PPP loans

8.20

%

8.42

%

8.50

%

7.66

%

8.65

%

LOAN AND LEASE RECEIVABLE COMPOSITION

(Unaudited)

As of

(in thousands)

March 31,
2022

December 31,
2021

September 30,
2021

June 30,
2021

March 31,
2021

Commercial real estate:

Commercial real estate - owner occupied

$

254,237

$

235,589

$

241,977

$

253,600

$

256,812

Commercial real estate - non-owner occupied

656,185

661,423

639,423

614,289

592,090

Land development

40,092

42,792

39,119

45,056

46,544

Construction

200,472

179,841

139,933

139,943

151,345

Multi-family

302,494

320,072

313,787

319,351

322,384

1-4 family

16,198

14,911

13,487

19,769

23,319

Total commercial real estate

1,469,678

1,454,628

1,387,726

1,392,008

1,392,494

Commercial and industrial

720,695

730,819

681,065

695,442

784,305

Direct financing leases, net

14,551

15,743

16,810

18,142

19,616

Consumer and other:

Home equity and second mortgages

4,523

4,223

4,576

5,740

6,719

Other

43,066

35,518

35,645

36,567

38,266

Total consumer and other

47,589

39,741

40,221

42,307

44,985

Total gross loans and leases receivable

2,252,513

2,240,931

2,125,822

2,147,899

2,241,400

Less:

Allowance for loan and lease losses

23,669

24,336

24,676

25,675

28,982

Deferred loan fees

1,264

1,523

2,516

4,338

6,288

Loans and leases receivable, net

$

2,227,580

$

2,215,072

$

2,098,630

$

2,117,886

$

2,206,130

DEPOSIT COMPOSITION

(Unaudited)

As of

(in thousands)

March 31,
2022

December 31,
2021

September 30,
2021

June 30,
2021

March 31,
2021

Non-interest-bearing transaction accounts

$

600,987

$

589,559

$

526,047

$

774,253

$

496,877

Interest-bearing transaction accounts

539,492

530,225

517,248

511,698

561,466

Money market accounts

806,917

754,410

728,751

685,127

632,065

Certificates of deposit

63,977

54,091

57,598

45,137

46,818

Wholesale deposits

12,321

29,638

74,638

144,492

165,492

Total deposits

$

2,023,694

$

1,957,923

$

1,904,282

$

2,160,707

$

1,902,718

TRUST ASSETS COMPOSITION

(Unaudited)

As of

(in thousands)

March 31,
2022

December 31,
2021

September 30,
2021

June 30,
2021

March 31,
2021

Trust assets under management

$

2,636,896

$

2,711,760

$

2,545,089

$

2,362,257

$

2,195,804

Trust assets under administration

197,160

208,954

202,657

202,116

190,721

Total trust assets

$

2,834,056

$

2,920,714

$

2,747,746

$

2,564,373

$

2,386,525

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,
2022

December 31,
2021

September 30,
2021

June 30,
2021

March 31,
2021

Common stockholders’ equity

$

233,059

$

232,422

$

225,280

$

221,452

$

214,491

Goodwill and other intangible assets

(12,184

)

(12,268

)

(12,229

)

(12,178

)

(12,055

)

Tangible common equity

$

220,875

$

220,154

$

213,051

$

209,274

$

202,436

Common shares outstanding

8,488,585

8,457,564

8,483,099

8,617,761

8,638,195

Book value per share

$

27.46

$

27.48

$

26.56

$

25.70

$

24.83

Tangible book value per share

26.02

26.03

25.11

24.28

23.43

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,
2022

December 31,
2021

September 30,
2021

June 30,
2021

March 31,
2021

Common stockholders’ equity

$

233,059

$

232,422

$

225,280

$

221,452

$

214,491

Goodwill and other intangible assets

(12,184

)

(12,268

)

(12,229

)

(12,178

)

(12,055

)

Tangible common equity

$

220,875

$

220,154

$

213,051

$

209,274

$

202,436

Total assets

$

2,724,082

$

2,652,905

$

2,584,410

$

2,865,669

$

2,620,718

Goodwill and other intangible assets

(12,184

)

(12,268

)

(12,229

)

(12,178

)

(12,055

)

Tangible assets

$

2,711,898

$

2,640,637

$

2,572,181

$

2,853,491

$

2,608,663

Tangible common equity to tangible assets

8.14

%

8.34

%

8.28

%

7.33

%

7.76

%

Period-end net PPP loans

18,206

27,297

64,454

120,722

267,567

Tangible assets, excluding net PPP loans

$

2,693,692

$

2,613,340

$

2,507,727

$

2,732,769

$

2,341,096

Tangible common equity to tangible assets, excluding net PPP loans

8.20

%

8.42

%

8.50

%

7.66

%

8.65

%

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,
2022

December 31,
2021

September 30,
2021

June 30,
2021

March 31,
2021

Total non-interest expense

$

18,823

$

17,531

$

18,490

$

18,184

$

17,330

Less:

Net loss (gain) on foreclosed properties

12

7

6

(1

)

3

Amortization of other intangible assets

2

7

8

8

SBA recourse (benefit) provision

(76

)

(122

)

(69

)

245

(130

)

Total operating expense (a)

$

18,887

$

17,644

$

18,546

$

17,932

$

17,449

Net interest income

$

21,426

$

20,924

$

21,223

$

21,652

$

20,863

Total non-interest income

7,386

7,569

7,015

6,321

7,195

Less:

Net gain (loss) on sale of securities

29

Adjusted non-interest income

7,386

7,569

7,015

6,292

7,195

Total operating revenue (b)

$

28,812

$

28,493

$

28,238

$

27,944

$

28,058

Efficiency ratio

65.55

%

61.92

%

65.68

%

64.17

%

62.19

%

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

$

9,925

$

10,849

$

9,692

$

10,012

$

10,609

Average total assets

$

2,666,241

$

2,612,905

$

2,608,198

$

2,621,340

$

2,577,164

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

1.49

%

1.66

%

1.49

%

1.53

%

1.65

%

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,
2022

December 31,
2021

September 30,
2021

June 30,
2021

March 31,
2021

Interest income

$

24,235

$

23,576

$

24,014

$

24,599

$

23,806

Interest expense

2,809

2,652

2,791

2,947

2,943

Net interest income (a)

21,426

20,924

21,223

21,652

20,863

Less:

Fees in lieu of interest

1,293

1,700

2,839

3,536

3,085

PPP loan interest income

52

134

221

566

603

FRB interest income and FHLB dividend income

188

179

212

192

158

Adjusted net interest income (b)

$

19,893

$

18,911

$

17,951

$

17,358

$

17,017

Average interest-earning assets (c)

$

2,525,272

$

2,472,013

$

2,460,567

$

2,483,447

$

2,425,499

Less:

Average net PPP loans

20,935

52,923

87,517

229,165

242,242

Average FRB cash and FHLB stock

44,577

71,939

129,469

68,503

36,643

Average non-accrual loans and leases

6,195

6,796

11,298

16,744

22,069

Adjusted average interest-earning assets (d)

$

2,453,565

$

2,340,355

$

2,232,283

$

2,169,035

$

2,124,545

Net interest margin (a / c)

3.39

%

3.39

%

3.45

%

3.49

%

3.44

%

Adjusted net interest margin (b / d)

3.24

%

3.23

%

3.22

%

3.20

%

3.20

%