-- Strong and stable performance supported by
robust growth in loans, deposits, and pre-tax, pre-provision income
--
First Business Financial Services, Inc. (the “Company”, the
“Bank”, or “First Business Bank”) (Nasdaq:FBIZ) reported quarterly
net income available to common shareholders of $8.8 million, or
$1.05 diluted earnings per share. This compares to net income
available to common shareholders of $9.9 million, or $1.18 per
share, in the fourth quarter of 2022 and $8.7 million, or $1.02 per
share, in the first quarter of 2022.
“First Business Bank’s disciplined and effective execution of
its business model drove outstanding performance for the quarter,
delivering double-digit deposit and loan growth during a turbulent
period for our industry,” Chief Executive Officer Corey Chambas
said. “Stable balance sheet positioning and deep client
relationships strengthened our overall profitability, most notably
through increased levels of in-market deposits, which grew at an
annualized pace of 18% during the quarter. Our clients make up a
diverse deposit base, and with an average deposit relationship
tenure of over 10 years, we have a deep understanding of each of
our clients. We are proud to be their sound and trusted partner,
from stewarding deposits to funding the day-to-day needs of these
businesses that are the economic engine of our communities. In the
first quarter, historically a slower quarter for new business, our
loan portfolio increased by an annualized pace of 16% while
maintaining our longstanding and rigorous underwriting standards.
This exceptional performance drove record top line revenue and
continued growth in our tangible book value, up 13% annualized
during the quarter.”
Quarterly Highlights
- Strong Deposit Growth. Total deposits grew to $2.477
billion, increasing 56.9% annualized from the linked quarter and
22.4% from the first quarter of 2022. In-market deposits grew to a
record $2.055 billion, up $88.8 million, or 18.1% annualized, from
the linked quarter. Growth included an increase in wholesale
deposits as management added brokered CDs to build on-balance sheet
liquidity and replace maturing FHLB advances.
- Robust Loan Growth. Loans grew $96.3 million, or 15.8%
annualized, from the fourth quarter of 2022, reflecting ongoing
strength in C&I lending in the first quarter. Balanced
expansion across the Company’s portfolios drove loan growth
totaling $288.1 million, or 12.8%, from the first quarter of
2022.
- Exceptional Pre-tax, Pre-Provision (“PTPP”) Income. PTPP
income grew to $13.3 million, up 2.9% from the prior quarter and
34.4% from the first quarter of 2022. Performance reflects strong
balance sheet growth and diversified non-interest income, partially
offset by non-interest expense growth to support the Company’s
investment in talent.
- Outstanding Asset Quality. Continued positive asset
quality trends resulted in non-performing assets of $3.5 million,
measuring a historically low 0.11% of total assets and improving
from 0.13% of total assets on December 31, 2022 and 0.21% on March
31, 2022. Net charge-offs as a percent of average loans and leases
measured 0.01% for the quarter, compared to 0.10% in the linked
quarter and net recoveries of 0.03% in the prior year quarter.
- Tangible Book Value Growth. The Company’s strong
earnings generation produced a 12.8% annualized increase in
tangible book value per share compared to the linked quarter and
12.2% compared to the prior year quarter.
- Minimal Impact of Fair Value Mark on Held-To-Maturity
(“HTM”) Securities Portfolio. The Bank’s regulatory and
tangible common equity capital ratios would be minimally impacted
by the hypothetical recognition of fair value mark-to-market
adjustments on the HTM securities portfolio. The HTM portfolio had
an amortized cost of $11.5 million and a fair value of $11.2
million as of March 31, 2023. Adjusting the Bank's balance sheet
accordingly would reduce the ratio of tangible common equity to
tangible assets by just one basis point, to 7.68%, as of March 31,
2023.
Response to Banking Liquidity
Events
Two bank failures occurring in March 2023 prompted industry
concern regarding bank deposit funding, liquidity sources, and
capital adequacy. “Our clients and communities view First Business
Bank as a safe and sound partner, and from March 8 to March 31, we
added new clients and our in-market deposit balances increased by
$45 million”, Chambas said. “We believe our deep and longstanding
client relationships are a critical factor in our success. With our
focus on commercial banking clientele, our client deposit balances
are naturally larger in size than those of peer banks with retail
banking operations, and as such, we have long offered extended
deposit insurance products to protect clients’ operating business
assets. Combined with our deep and trusted relationships, this is a
meaningful competitive advantage during recent market
distress.”
DEPOSIT COMPOSITION
(Unaudited)
As of
(in thousands)
March 31, 2023
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
Non-interest-bearing transaction
accounts
$
471,904
$
537,107
$
564,141
$
544,507
$
600,987
Interest-bearing transaction accounts
612,500
576,601
461,883
466,785
539,492
Money market accounts
662,157
698,505
742,545
731,718
806,917
Certificates of deposit
308,191
153,757
160,655
114,000
63,977
Wholesale deposits
422,088
202,236
158,321
12,321
12,321
Total deposits
$
2,476,840
$
2,168,206
$
2,087,545
$
1,869,331
$
2,023,694
Uninsured deposits
941,375
951,739
1,007,935
935,101
1,099,505
Uninsured deposits as a percent of total
deposits
38.0
%
43.9
%
48.3
%
50.0
%
54.3
%
Extended deposit insurance(1)
567,390
495,621
439,092
461,372
470,140
(1)
Included in interest-bearing transaction
accounts and certificates of deposit balances above.
Management regularly reviews all primary and secondary sources
of liquidity in preparation for any unforeseen funding needs, such
as potential fallout from recent market events. These are
prioritized based on available capacity, term flexibility, and
cost. At March 31, 2023, the Company’s liquidity position included
record in-market deposits of $2.055 billion, total deposits of
$2.477 billion, and readily available liquidity of $656.6 million,
which compares favorably to $449.6 million at December 31, 2022.
Management has not accessed the Federal Reserve Bank’s Bank Term
Funding Program.
SOURCES OF LIQUIDITY
(Unaudited)
As of
(in thousands)
March 31, 2023
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
Short-term investments
$
159,859
$
76,871
$
86,707
$
56,233
$
75,514
Collateral value of unencumbered pledged
loans
296,393
184,415
289,513
174,315
361,487
Market value of unencumbered
securities
200,332
188,353
173,013
182,429
201,896
Readily available liquidity
656,584
449,639
549,233
412,977
638,897
Fed fund lines
45,000
45,000
45,000
45,000
45,000
Excess brokered CD capacity(1)
1,027,869
1,162,241
1,100,369
1,112,386
1,275,931
Total liquidity
$
1,729,453
$
1,656,880
$
1,694,602
$
1,570,363
$
1,959,828
Uninsured deposits
941,375
951,739
1,007,935
935,101
1,099,505
(1)
Bank internal policy limits brokered CDs
to 50% of total bank funding when combined with FHLB advances.
Chambas added, “Our uniquely disciplined approach to interest
rate risk management is another key point of differentiation in the
current banking environment. Through robust earnings generation and
limited mark-to-market adjustments, we’ve grown our tangible book
value by 12.2% over the past twelve months, in stark contrast to
many of our peers. Modeling in the HTM mark-to-market and full
balance sheet mark-to-market adjustments produced a similarly
strong capital result as of March 31, 2023. Tangible common equity
to tangible assets (“TCE”) adjusted for HTM and full balance sheet
mark-to-market adjustments totaled 7.68% and 7.56%, respectively,
compared to our reported ratio of 7.69%. Even after these
adjustments, the results still fall within our target TCE range of
7.5%-8.5%.”
The Company’s capital ratios continued to exceed the highest
required regulatory benchmark levels. Capital ratios remain strong
with the voluntary inclusion of mark-to-market adjustments on the
full balance sheet.
CAPITAL RATIOS
As of and for the Three Months
Ended
(Unaudited)
March 31, 2023
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
Total capital to risk-weighted assets
11.04
%
11.26
%
11.66
%
11.56
%
11.87
%
Tier I capital to risk-weighted assets
9.01
%
9.20
%
9.48
%
9.34
%
9.27
%
Common equity tier I capital to
risk-weighted assets
8.61
%
8.79
%
9.04
%
8.90
%
8.81
%
Tier I capital to adjusted assets
9.00
%
9.17
%
9.34
%
9.19
%
9.09
%
Tangible common equity to tangible assets
(TCE ratio)
7.69
%
7.98
%
8.06
%
8.16
%
8.14
%
Adjusted TCE ratio
7.56
%
7.86
%
8.18
%
8.25
%
8.09
%
Quarterly
Financial Results
(Unaudited)
As of and for the Three Months
Ended
(Dollars in thousands, except per share
amounts)
March 31, 2023
December 31,
2022
March 31, 2022
Net interest income
$
26,705
$
27,452
$
21,426
Adjusted non-interest income (1)
8,410
6,164
7,386
Operating revenue (1)
35,115
33,616
28,812
Operating expense (1)
21,779
20,658
18,887
Pre-tax, pre-provision adjusted earnings
(1)
13,336
12,958
9,925
Less:
Provision for credit losses
1,561
702
(855
)
Net loss on repossessed assets
6
22
12
Contribution to First Business Charitable
Foundation
—
809
—
SBA recourse benefit
(18
)
(322
)
(76
)
Add:
Bank-owned life insurance claim
—
809
—
Income before income tax expense
11,787
12,556
10,844
Income tax expense
2,808
2,400
2,172
Net income
$
8,979
$
10,156
$
8,672
Preferred stock dividends
219
219
—
Net income available to common
shareholders
$
8,760
$
9,937
$
8,672
Earnings per share, diluted
$
1.05
$
1.18
$
1.02
Book value per share
$
30.65
$
29.74
$
27.46
Tangible book value per share (1)
$
29.19
$
28.28
$
26.02
Net interest margin (2)
3.86
%
4.15
%
3.39
%
Adjusted net interest margin (1)(2)
3.74
%
3.93
%
3.22
%
Fee income ratio (non-interest income /
total revenue)
23.95
%
20.26
%
25.64
%
Efficiency ratio (1)
62.02
%
61.45
%
65.55
%
Return on average assets (2)
1.17
%
1.39
%
1.30
%
Pre-tax, pre-provision adjusted return on
average assets (1)(2)
1.79
%
1.81
%
1.49
%
Return on average common equity (2)
13.96
%
16.26
%
14.47
%
Period-end loans and leases receivable
$
2,539,363
$
2,443,066
$
2,251,249
Average loans and leases receivable
$
2,481,200
$
2,384,091
$
2,244,642
Period-end in-market deposits
$
2,054,752
$
1,965,970
$
2,011,373
Average in-market deposits
$
2,000,602
$
1,950,625
$
1,932,576
Allowance for credit losses, including
unfunded commitment reserves
$
27,550
$
24,230
$
23,669
Non-performing assets
$
3,501
$
3,754
$
5,734
Allowance for credit losses as a percent
of total gross loans and leases
1.08
%
0.99
%
1.05
%
Non-performing assets as a percent of
total assets
0.11
%
0.13
%
0.21
%
(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 2023 Compared to Fourth
Quarter 2022
Net interest income decreased $747,000, or 2.7%, to $26.7
million.
- The decrease in net interest income was driven by a decrease in
both net interest margin and fees in lieu of interest, partially
offset by an increase in average loans and leases receivable.
Average loans and leases receivable increased $97.1 million, or
16.3% annualized, to $2.481 billion. Fees in lieu of interest,
which can vary from quarter to quarter based on client-driven
activity, totaled $651,000, compared to $1.3 million in the prior
quarter. Excluding fees in lieu of interest, net interest income
decreased $80,000, or 1.2% annualized.
- The yield on average interest-earning assets increased 30 basis
points to 6.09% from 5.79%. Excluding fees in lieu of interest, the
yield earned on average interest-earning assets increased 40 basis
points to 5.99% from 5.59%. The daily average effective federal
funds rate increased 86 basis points compared to the linked
quarter, which equates to an average adjusted interest-earning
asset beta of 47.0% for the three months ended March 31, 2023,
compared to 53.5% in the linked quarter. The cumulative adjusted
interest earning asset beta since December 31, 2021 was 55.3%.
- The rate paid for average interest-bearing, in-market deposits
increased 77 basis points to 2.78% from 2.01% due to the
acceleration of exception pricing and the migration of client
balances from non-maturity deposits to certificates of deposit.
Similarly, the rate paid for average total bank funding increased
63 basis points to 2.30% from 1.67%. Total bank funding is defined
as total deposits plus Federal Home Loan Bank (“FHLB”) advances.
The total bank funding beta was 73.3% for the three months ended
March 31, 2023, compared to 53.1% in the linked quarter. The
cumulative bank funding beta since December 31, 2021 was
44.5%.
- Net interest margin was 3.86%, down 29 basis points compared to
4.15% in the linked quarter. Adjusted net interest margin1 was
3.74%, down 19 basis points compared to 3.93% in the linked
quarter. The decline in net interest margin was due to a decrease
in fees in lieu of interest and an increase in the rate paid on
total bank funding, partially offset by an increase in the yield on
average adjusted interest earning assets.
- The Bank anticipates deposit betas may continue to rise and
adjusted net interest margin may continue to decline at a gradual
pace in coming quarters as the Federal Open Market Committee
approaches a terminal federal funds rate.
The Bank reported a provision expense of $1.6 million, compared
to $702,000 in the fourth quarter of 2022.
- The Bank adopted ASU No. 2016-13, Financial Instruments- Credit
Losses (“ASC 326”), which is often referred to as CECL, on January
1, 2023. The adoption increased the reserve by $1.8 million,
primarily driven by recognition of reserves on unfunded,
off-balance sheet credit commitments. The after-tax adoption impact
to retained earnings of $1.4 million will be phased into regulatory
capital over a three-year period as permitted by the federal
banking regulatory agencies.
- Under ASC 326, the first quarter provision expense increase
consisted of an additional $979,000 due to loan growth and $474,000
due to modest deterioration in forecasted economic outlook compared
to adoption date.
Non-interest income increased $1.4 million, or 20.6%, to $8.4
million.
- Private Wealth and Retirement assets (“Private Wealth”) fee
income increased $84,000, or 3.3% to $2.7 million. Private Wealth
assets under management and administration measured $2.804 billion
at March 31, 2023, up $144.1 million from the prior quarter.
- Gains on sale of Small Business Administration (“SBA”) loans
increased $207,000, or 77.0%, to $476,000.
- Commercial loan swap fee income decreased $199,000, or 26.3%,
to $557,000. Swap fee income can vary from period to period based
on loan activity and the interest rate environment.
- Service charges on deposits decreased $109,000, or 13.8%, to
$682,000, driven by an increase in the earnings credit rate
commensurate with the rising rate environment.
- Other fee income increased $1.5 million to $3.2 million,
compared to $1.7 million in the prior quarter. The increase was
primarily due to higher returns on the Company’s investments in
mezzanine funds. Income from mezzanine funds was $2.4 million in
the first quarter, compared to $92,000 in the linked quarter.
Income from mezzanine funds can vary from period to period based on
changes in the value of underlying investments.
1
Adjusted net interest margin is a non-GAAP
measure representing net interest income excluding fees in lieu of
interest and other recurring, but volatile, components of net
interest margin divided by average interest-earning assets less
other recurring, but volatile, components of average
interest-earning assets.
Non-interest expense increased $600,000, or 2.8%, to $21.8
million, while operating expense increased $1.1 million, or 5.4%,
to $21.8 million.
- Compensation expense was $15.9 million, reflecting an increase
of $641,000, or 4.2%, from the linked quarter due to payroll taxes
paid in the quarter on a record annual cash bonus payout, annual
merit increases reflecting a competitive job market, and an
expanded workforce. Management believes the increase in
compensation expense will decline modestly from this seasonally
high rate and stabilize to a lower rate during the remainder of the
year. Average full-time equivalents (FTEs) for the first quarter of
2023 were 340, up from 336 in the linked quarter.
- Professional fees were $1.3 million, increasing $133,000, or
11.0%, from the linked quarter primarily due to expenses related to
an office relocation.
- FDIC insurance expense was $394,000, increasing $191,000, or
94.1%, from the linked quarter primarily due to an increase in the
assessment rate and the assessable base.
- Other non-interest expense decreased $413,000, or 44.7%, to
$510,000 from the linked quarter primarily due to a non-recurring
contribution to the First Business Charitable Foundation totaling
$809,000 during the prior quarter. This was partially offset by a
recourse release of $322,000 and a swap credit valuation benefit of
153,000 in the prior quarter.
Income tax expense increased $408,000, or 17.0%, to $2.8
million. The effective tax rate was 23.8% for the three months
ended March 31, 2023, compared to 19.1% for the linked quarter. The
prior quarter benefited from low income housing tax credits and a
state return amendment. Based on expected earnings and future tax
credit investments, the Company expects to report an effective tax
rate of 21-22% for 2023.
Total period-end loans and leases receivable increased $96.3
million, or 15.8% annualized, to $2.539 billion. Due to the
adoption of ASC 326, the current quarter included a change to our
portfolio segmentation. The balances as of March 31, 2023 reflect
reclassifications of $43 million to commercial and industrial
(“C&I”) from commercial real estate (“CRE”) and $7 million from
consumer and other to CRE.
- Including the reclassification impact of adopting ASC 326 in
the period of comparison, CRE loans increased by $22.5 million, or
6.0% annualized, to $1.529 billion. The increase was primarily due
to an increase in multi-family loans, partially offset by a
decrease in CRE non-owner occupied loans and construction
loans.
- Including the reclassification impact of adopting ASC 326 in
the period of comparison, C&I loans increased $66.2 million, or
29.5% annualized, to $963.3 million. The increase was due to growth
across the majority of the Bank’s C&I products and geographies.
Management does not believe this level of C&I loan growth is
sustainable and expects growth to moderate to lower double-digit
levels in subsequent quarters.
Total period-end in-market deposits increased $88.8 million, or
18.1% annualized, to $2.055 billion, compared to $1.966 billion.
The average rate paid was 2.09%, up 66 basis points from 1.43% in
the prior quarter.
- Growth in interest-bearing transaction accounts and
certificates of deposits, driven by client movement into extended
insurance products, was partially offset by a decrease in
non-interest bearing transaction accounts and money market
accounts.
Period-end wholesale funding, including FHLB advances, brokered
deposits, and deposits gathered through internet deposit listing
services, increased $111.0 million to $729.6 million.
- Wholesale deposits increased $219.9 million to $422.1 million,
compared to $202.2 million as the Bank continued to replace FHLB
advances with wholesale deposits while also prudently adding excess
liquidity to the balance sheet in response to recent banking
industry events. Management will replace this excess funding, as
needed, with term funding throughout the second quarter consistent
with the Company’s long-held philosophy to manage interest rate
risk by utilizing the most efficient and cost-effective source of
wholesale funds to match-fund our fixed-rate loan portfolio. The
average rate paid on wholesale deposits increased 55 basis points
to 4.21% and the weighted average original maturity decreased to
1.8 years from 2.1 years.
- FHLB advances decreased $108.9 million to $307.5 million. The
average rate paid on FHLB advances increased 26 basis points to
2.47% and the weighted average original maturity increased to 4.7
years from 3.7 years.
Non-performing assets decreased $253,000 to $3.5 million, or
0.11% of total assets down from 0.13% in the prior quarter.
The allowance for credit losses, including unfunded credit
commitments reserve, increased $3.3 million, or 13.7%, primarily
driven by the adoption of CECL, loan growth, and modest
deterioration in forecasted economic outlook. The allowance for
credit losses, including unfunded credit commitment reserves, as a
percent of total gross loans and leases was 1.08% compared to 0.99%
in the prior quarter under the incurred loss model.
First Quarter 2023 Compared to First
Quarter 2022
Net interest income increased $5.3 million, or 24.6%, to $26.7
million.
- The increase in net interest income primarily reflects an
increase in average gross loans and leases and net interest margin
expansion, partially offset by lower fees in lieu of interest. Fees
in lieu of interest decreased from $1.3 million to $651,000,
primarily due to a decrease in prepayment fees. Excluding fees in
lieu of interest, net interest income increased $5.9 million, or
29.4%.
- The yield on average interest-earning assets measured 6.09%
compared to 3.84%. Excluding fees in lieu of interest, the yield on
average interest-earning assets measured 5.99%, compared to 3.63%.
This increase in yield was primarily due to the increase in
short-term market rates and the reinvestment of cash flows from the
securities and fixed rate loan portfolios in a rising rate
environment. The daily average effective federal funds rate
increased 442 basis points compared to the prior year quarter,
which equates to a average adjusted interest-earning asset beta of
53.3% for the three months ended March 31, 2023, compared to the
prior year period.
- The rate paid for average interest-bearing in-market deposits
increased 259 basis points to 2.78% from 0.19%. The rate paid for
average total bank funding increased 199 basis points to 2.30% from
0.31%. The total bank funding beta was 45.0% for the three months
ended March 31, 2023, compared to the prior year period.
- Net interest margin increased 47 basis points to 3.86% from
3.39%. Adjusted net interest margin increased 52 basis points to
3.74% from 3.22%.
The Company reported a provision expense of $1.6 million,
compared to a provision benefit of $855,000 in the first quarter of
2022 primarily due to loan growth and quantitative factor changes.
The prior year quarter benefited from improvement in subjective
factors, improvement in quantitative factors, and a decrease in
specific reserves.
Non-interest income of $8.4 million increased by $1.0 million,
or 13.9%, from $7.4 million in the prior year period.
- Private Wealth fee income decreased $187,000, or 6.6%, to $2.7
million, due to a decline in market values. Private Wealth assets
under management and administration measured $2.804 billion at
March 31, 2023, down $29.9 million, or 1.1%.
- Gain on sale of SBA loans decreased $109,000, or 18.6%, to
$476,000. Premiums on the sale and notional value of SBA loans sold
decreased compared to prior year quarter, as the Company elected to
hold a higher number of SBA loans on its balance sheet in the
current interest rate environment.
- Service charges on deposits decreased $317,000, or 31.7%, to
$682,000. The reasons for the decrease are consistent with the
explanations discussed above in the linked quarter analysis.
- Loan fees of $803,000 increased by $151,000, or 23.2%,
primarily due to an increase in C&I lending activity.
- Other fee income increased $1.2 million, or 65.5%, to $3.2
million, due to higher returns on the Company’s investments in
mezzanine funds. Income from mezzanine funds was $2.4 million in
the first quarter, compared to $1.4 million in the linked quarter.
Income on mezzanine funds can vary from period to period based on
changes in the value of underlying investments.
Non-interest expense increased $2.9 million, or 15.6%, to $21.8
million. Operating expense increased $2.9 million, or 15.3%, to
$21.8 million.
- Compensation expense increased $2.3 million, or 16.6%, to $15.9
million. The increase in compensation expense was mainly due to an
increase in average FTEs, annual merit increases and promotions,
and an increase in incentive compensation due to outstanding
production. Average FTEs increased 10% to 340 in the first quarter
of 2023, compared to 310 in the first quarter of 2022, as a result
of expanded hiring efforts that have successfully driven growth
while maintaining positive operating leverage.
- Professional fees increased $173,000, or 14.8%, to $1.3
million, primarily due to an increase in the use of professional
staffing services and costs associated with an office
relocation.
- Marketing expense increased $128,000, or 25.6%, to $628,000,
primarily due to an increase in business development efforts and
advertising projects commensurate with our expanded sales force and
national footprint.
- Computer software expense increased $101,000, or 9.3%, to $1.2
million, primarily due to continued investments in existing
technologies commensurate with the Company’s growth.
Total period-end loans and leases receivable increased $288.1
million, or 12.8%, to $2.539 billion.
- Including the reclassification impact of adopting ASC 326 in
the period of comparison, C&I loans increased $189.5 million,
or 24.5% to $963.3 million, due to growth across all categories and
geographies.
- Including the reclassification impact of adopting ASC 326 in
the period of comparison, CRE loans increased $91.8 million, or
6.4%, to $1.529 billion, due to increases in most CRE categories
and geographies.
Total period-end in-market deposits increased $43.4 million, or
2.2%, to $2.055 billion, and the average rate paid increased 196
basis points to 2.09%. The increase in in-market deposits was
principally due to a $244.2 million increase in certificates of
deposit, partially offset by a $144.8 million decrease in money
market accounts.
Period-end wholesale funding increased $355.9 million to $729.6
million.
- Wholesale deposits increased $409.8 million to $422.1 million,
as the Bank utilized more wholesale deposits in lieu of FHLB
advances to build additional borrowing capacity during the recent
banking industry events. The average rate paid on brokered
certificates of deposit increased 130 basis points to 4.21% and the
weighted average original maturity decreased to 1.8 years from 4.8
years.
- FHLB advances decreased $53.9 million to $307.5 million. The
average rate paid on FHLB advances increased 139 basis points to
2.47% and the weighted average original maturity decreased to 4.7
years from 6.0 years.
Non-performing assets decreased to $3.5 million, or 0.11% of
total assets, compared to $5.7 million, or 0.21% of total
assets.
The allowance for credit losses, including unfunded commitment
reserves, increased $3.9 million to $27.6 million, compared to
$23.7 million. The allowance for credit losses as a percent of
total gross loans and leases was 1.08%, compared to the allowance
for loan losses of 1.05% under the incurred loss model.
Share Repurchase Program
Update
As previously announced, effective January 27, 2023, 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 January 31, 2023 through
January 31, 2024. As of March 31, 2023, the Company had repurchased
a total of 41,526 shares for approximately $1.3 million at an
average cost of $31.75 per share. The Company expects to pause the
repurchase program, instead allocating capital to support continued
exceptional balance sheet growth.
Investor Presentation
The Company has prepared investor presentation materials that
management intends to use from time to time in discussions about
the Company’s operations and performance. The presentation will be
available for viewing in the Investor Relations section of the
Company’s website at www.firstbusiness.bank and will also be
furnished to the U.S. Securities and Exchange Commission on April
28, 2023.
About First Business Financial Services, Inc.
First Business Financial Services, Inc., (Nasdaq: FBIZ) is the
parent company of First Business Bank. First Business Bank
specializes in business banking, including commercial banking and
specialized lending, private wealth, and bank consulting services,
and through its refined focus, delivers unmatched expertise,
accessibility, and responsiveness. Specialized lending solutions
are delivered through First Business Bank’s wholly owned subsidiary
First Business Specialty Finance, LLC. For additional information,
visit firstbusiness.bank.
This release may include forward-looking statements as defined
in the Private Securities Litigation Reform Act of 1995, which
reflect First Business Bank’s current views with respect to future
events and financial performance. Forward-looking statements are
not based on historical information, but rather are related to
future operations, strategies, financial results, or other
developments. Forward-looking statements are based on management’s
expectations as well as certain assumptions and estimates made by,
and information available to, management at the time the statements
are made. Those statements are based on general assumptions and are
subject to various risks, uncertainties, and other factors that may
cause actual results to differ materially from the views, beliefs,
and projections expressed in such statements. Such statements are
subject to risks and uncertainties, including among other
things:
- Adverse changes in the economy or business conditions, either
nationally or in our markets including, without limitation,
inflation, supply chain issues, labor shortages, and the adverse
effects of the COVID-19 pandemic on the global, national, and local
economy.
- Competitive pressures among depository and other financial
institutions nationally and in the Company’s markets.
- Increases in defaults by borrowers and other
delinquencies.
- Management’s ability to manage growth effectively, including
the successful expansion of our client service, administrative
infrastructure, and internal management systems.
- Fluctuations in interest rates and market prices.
- Changes in legislative or regulatory requirements applicable to
the Company and its subsidiaries.
- Changes in tax requirements, including tax rate changes, new
tax laws, and revised tax law interpretations.
- Fraud, including client and system failure or breaches of our
network security, including the Company’s internet banking
activities.
- Failure to comply with the applicable SBA regulations in order
to maintain the eligibility of the guaranteed portion of SBA
loans.
- Recent volatility in the banking sector may result in new
legislation, regulations or policy changes that could subject the
Corporation and the Bank to increased government regulation and
supervision.
- The proportion of the Corporation’s deposit account balances
that exceed FDIC insurance limits may expose the Bank to enhanced
liquidity risk.
- The Corporation may be subject to increases in FDIC insurance
assessments as a result of the recent bank failures.
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, 2022 and other filings
with the Securities and Exchange Commission.
SELECTED FINANCIAL CONDITION
DATA
(Unaudited)
As of
(in thousands)
March 31, 2023
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
Assets
Cash and cash equivalents
$
185,973
$
102,682
$
110,965
$
95,484
$
95,603
Securities available-for-sale, at fair
value
236,989
212,024
196,566
208,643
223,631
Securities held-to-maturity, at amortized
cost
11,461
12,635
13,531
13,968
17,267
Loans held for sale
2,697
2,632
773
2,256
2,418
Loans and leases receivable
2,539,363
2,443,066
2,330,700
2,290,100
2,251,249
Allowance for credit losses
(26,140
)
(24,230
)
(24,143
)
(24,104
)
(23,669
)
Loans and leases receivable, net
2,513,223
2,418,836
2,306,557
2,265,996
2,227,580
Premises and equipment, net
4,933
4,340
3,143
1,899
1,621
Repossessed assets
89
95
151
124
117
Right-of-use assets
7,355
7,690
5,424
5,772
6,118
Bank-owned life insurance
54,383
54,018
54,683
54,324
53,974
Federal Home Loan Bank stock, at cost
13,088
17,812
15,701
22,959
12,863
Goodwill and other intangible assets
12,160
12,159
12,218
12,262
12,184
Derivatives
54,612
68,581
73,718
44,461
26,890
Accrued interest receivable and other
assets
67,448
63,107
57,372
48,868
43,816
Total assets
$
3,164,411
$
2,976,611
$
2,850,802
$
2,777,016
$
2,724,082
Liabilities and Stockholders’
Equity
In-market deposits
$
2,054,752
$
1,965,970
$
1,929,224
$
1,857,010
$
2,011,373
Wholesale deposits
422,088
202,236
158,321
12,321
12,321
Total deposits
2,476,840
2,168,206
2,087,545
1,869,331
2,023,694
Federal Home Loan Bank advances and other
borrowings
341,859
456,808
420,297
596,642
414,487
Lease liabilities
9,822
10,175
6,827
7,207
7,580
Derivatives
49,012
61,419
66,162
40,357
24,961
Accrued interest payable and other
liabilities
20,297
19,363
16,967
13,556
8,309
Total liabilities
2,897,830
2,715,971
2,597,798
2,527,093
2,479,031
Total stockholders’ equity
266,581
260,640
253,004
249,923
245,051
Total liabilities and stockholders’
equity
$
3,164,411
$
2,976,611
$
2,850,802
$
2,777,016
$
2,724,082
STATEMENTS OF INCOME
(Unaudited)
As of and for the Three Months
Ended
(Dollars in thousands, except per share
amounts)
March 31, 2023
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
Total interest income
$
42,064
$
38,319
$
31,786
$
27,031
$
24,235
Total interest expense
15,359
10,867
5,902
3,371
2,809
Net interest income
26,705
27,452
25,884
23,660
21,426
Provision for credit losses
1,561
702
12
(3,727
)
(855
)
Net interest income after provision for
credit losses
25,144
26,750
25,872
27,387
22,281
Private wealth management service fees
2,654
2,570
2,618
2,852
2,841
Gain on sale of SBA loans
476
269
732
951
585
Service charges on deposits
682
791
1,018
1,041
999
Loan fees
803
847
814
697
652
Swap fees
557
756
341
471
225
Other non-interest income
3,238
1,740
2,674
860
2,084
Total non-interest income
8,410
6,973
8,197
6,872
7,386
Compensation
15,908
15,267
14,817
14,020
13,638
Occupancy
631
669
566
568
555
Professional fees
1,343
1,210
1,203
1,298
1,170
Data processing
875
806
719
892
780
Marketing
628
641
543
670
500
Equipment
295
359
253
235
244
Computer software
1,183
1,089
1,128
1,117
1,082
FDIC insurance
394
203
230
296
313
Other non-interest expense
510
923
569
360
541
Total non-interest expense
21,767
21,167
20,028
19,456
18,823
Income before income tax expense
11,787
12,556
14,041
14,803
10,844
Income tax expense
2,808
2,400
3,215
3,599
2,172
Net income
$
8,979
$
10,156
$
10,826
$
11,204
$
8,672
Preferred stock dividends
219
219
218
246
—
Net income available to common
shareholders
$
8,760
$
9,937
$
10,608
$
10,958
$
8,672
Per common share:
Basic earnings
$
1.05
$
1.18
$
1.25
$
1.29
$
1.02
Diluted earnings
1.05
1.18
1.25
1.29
1.02
Dividends declared
0.2275
0.1975
0.1975
0.1975
0.1975
Book value
30.65
29.74
28.58
28.08
27.46
Tangible book value
29.19
28.28
27.13
26.63
26.02
Weighted-average common shares
outstanding(1)
8,148,525
8,180,531
8,230,902
8,225,838
8,232,142
Weighted-average diluted common shares
outstanding(1)
8,148,525
8,180,531
8,230,902
8,225,838
8,232,142
(1)
Excluding participating securities.
NET INTEREST INCOME ANALYSIS
(Unaudited)
For the Three Months
Ended
(Dollars in thousands)
March 31, 2023
December 31, 2022
March 31, 2022
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)
$
1,518,053
$
21,717
5.72
%
$
1,515,975
$
20,948
5.53
%
$
1,459,891
$
13,346
3.66
%
Commercial and industrial loans(1)
916,457
17,557
7.66
%
819,766
14,972
7.31
%
734,904
9,290
5.06
%
Consumer and other loans(1)
46,690
540
4.63
%
48,350
514
4.25
%
49,847
436
3.50
%
Total loans and leases receivable(1)
2,481,200
39,814
6.42
%
2,384,091
36,434
6.11
%
2,244,642
23,072
4.11
%
Mortgage-related securities(2)
182,494
1,270
2.78
%
164,120
1,008
2.46
%
184,962
760
1.64
%
Other investment securities(3)
55,722
320
2.30
%
49,850
261
2.09
%
50,555
215
1.70
%
FHLB stock
17,125
327
7.64
%
16,281
301
7.40
%
14,002
172
4.91
%
Short-term investments
28,546
333
4.67
%
34,807
315
3.62
%
31,111
16
0.21
%
Total interest-earning assets
2,765,087
42,064
6.09
%
2,649,149
38,319
5.79
%
2,525,272
24,235
3.84
%
Non-interest-earning assets
219,513
218,326
140,969
Total assets
$
2,984,600
$
2,867,475
$
2,666,241
Interest-bearing liabilities
Transaction accounts
$
567,435
3,840
2.71
%
$
492,586
2,360
1.92
%
$
533,251
255
0.19
%
Money market
699,314
4,497
2.57
%
748,502
3,784
2.02
%
784,276
338
0.17
%
Certificates of deposit
236,083
2,117
3.59
%
148,949
849
2.28
%
52,519
55
0.42
%
Wholesale deposits
187,784
1,976
4.21
%
128,908
1,180
3.66
%
16,236
118
2.91
%
Total interest-bearing deposits
1,690,616
12,430
2.94
%
1,518,945
8,173
2.15
%
1,386,282
766
0.22
%
FHLB advances
398,109
2,461
2.47
%
389,310
2,149
2.21
%
385,080
1,036
1.08
%
Other borrowings
36,794
468
5.09
%
41,143
545
5.30
%
40,311
503
4.99
%
Junior subordinated notes(5)
—
—
—
%
—
—
—
%
9,850
504
20.47
%
Total interest-bearing liabilities
2,125,519
15,359
2.89
%
1,949,398
10,867
2.23
%
1,821,523
2,809
0.62
%
Non-interest-bearing demand deposit
accounts
497,770
560,588
562,530
Other non-interest-bearing liabilities
98,347
100,998
42,537
Total liabilities
2,721,636
2,610,984
2,426,590
Stockholders’ equity
262,964
256,491
239,651
Total liabilities and stockholders’
equity
$
2,984,600
$
2,867,475
$
2,666,241
Net interest income
$
26,705
$
27,452
$
21,426
Interest rate spread
3.19
%
3.56
%
3.22
%
Net interest-earning assets
$
639,568
$
699,751
$
703,749
Net interest margin
3.86
%
4.15
%
3.39
%
(1)
The average balances of loans and
leases include non-accrual loans and leases and loans held for
sale. Interest income related to non-accrual loans and leases is
recognized when collected. Interest income includes net loan fees
collected in lieu of interest.
(2)
Includes amortized cost basis of
assets available for sale and held to maturity.
(3)
Yields on tax-exempt municipal
obligations are not presented on a tax-equivalent basis in this
table.
(4)
Represents annualized
yields/rates.
(5)
The rate column for the three months ended
March 31, 2022 included $236,000 in accelerated amortization of
debt issuance costs.
ASSET AND LIABILITY BETA
ANALYSIS
For the Three Months
Ended
(Unaudited)
March 31, 2023
December 31, 2022
March 31, 2022
December 31, 2021
Average Yield/Rate (3)
Average Yield/Rate (3)
Increase (Decrease)
Average Yield/Rate (3)
Increase (Decrease)
Average Yield/Rate (3)
Increase (Decrease)
Total loans and leases receivable (a)
6.42 %
6.11 %
0.31 %
4.11 %
2.31 %
4.13 %
2.29 %
Total interest-earning assets(b)
6.09 %
5.79 %
0.30 %
3.84 %
2.25 %
3.81 %
2.28 %
Adjusted total loans and leases receivable
(1)(c)
6.31 %
5.89 %
0.42 %
3.88 %
2.43 %
3.82 %
2.49 %
Adjusted total interest-earning assets
(1)(d)
5.99 %
5.59 %
0.40 %
3.63 %
2.36 %
3.54 %
2.45 %
Total in-market deposits(e)
2.09 %
1.43 %
0.66 %
0.13 %
1.96 %
0.13 %
1.96 %
Total bank funding(f)
2.30 %
1.67 %
0.63 %
0.31 %
1.99 %
0.33 %
1.97 %
Net interest margin(g)
3.86 %
4.15 %
(0.29) %
3.39 %
0.47 %
3.39 %
0.47 %
Adjusted net interest margin(h)
3.74 %
3.93 %
(0.19) %
3.22 %
0.52 %
3.18 %
0.56 %
Effective fed funds rate (2)(i)
4.51 %
3.65 %
0.86 %
0.09 %
4.42 %
0.08 %
4.43 %
Beta
Calculations:
Total loans and leases
receivable(a)/(i)
35.5 %
52.2 %
51.7 %
Total interest-earning assets(b)/(i)
34.8 %
50.8 %
51.5 %
Adjusted total loans and leases receivable
(1)(c)/(i)
49.1 %
55.0 %
56.2 %
Adjusted total interest-earning assets
(1)(d)/(i)
47.0 %
53.3 %
55.3 %
Total in-market deposits(e/i)
76.7 %
44.3 %
44.2 %
Total bank funding(f)/(i)
73.3 %
45.0 %
44.5 %
Net interest margin(g/i)
(33.7) %
10.6 %
10.6 %
Adjusted net interest margin(h/i)
(22.1) %
11.8 %
12.6 %
(1)
Excluding fees in lieu of interest.
(2)
Board of Governors of the Federal Reserve
System (US), Effective Federal Funds Rate [DFF]. Retrieved from
FRED, Federal Reserve Bank of St. Louis. Represents average daily
rate.
(3)
Represents annualized yields/rates.
PROVISION FOR CREDIT LOSS
COMPOSITION
(Unaudited)
For the Three Months
Ended
(Dollars in thousands)
March 31, 2023
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
Change due to qualitative factor
changes
$
9
$
85
$
132
$
(185
)
$
(416
)
Change due to quantitative factor
changes
474
(930
)
(940
)
64
(206
)
Charge-offs
166
818
54
85
22
Recoveries
(107
)
(203
)
(81
)
(4,247
)
(210
)
Change in reserves on individually
evaluated loans, net
(36
)
(50
)
447
29
(280
)
Change due to loan growth, net
979
982
400
527
235
Change in unfunded commitment reserves
76
—
—
—
—
Total provision for credit losses
$
1,561
$
702
$
12
$
(3,727
)
$
(855
)
PERFORMANCE RATIOS
For the Three Months
Ended
(Unaudited)
March 31, 2023
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
Return on average assets (annualized)
1.17 %
1.39 %
1.54 %
1.61 %
1.30 %
Return on average common equity
(annualized)
13.96 %
16.26 %
17.44 %
18.79 %
14.70 %
Efficiency ratio
62.02 %
61.45 %
58.46 %
64.47 %
65.55 %
Interest rate spread
3.19 %
3.56 %
3.65 %
3.51 %
3.22 %
Net interest margin
3.86 %
4.15 %
4.01 %
3.71 %
3.39 %
Average interest-earning assets to average
interest-bearing liabilities
130.09 %
135.90 %
138.98 %
137.40 %
138.64 %
ASSET QUALITY RATIOS
(Unaudited)
As of
(Dollars in thousands)
March 31, 2023
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
Non-accrual loans and leases
$
3,412
$
3,659
$
3,645
$
5,585
$
5,617
Repossessed assets
89
95
151
124
117
Total non-performing assets
3,501
3,754
3,796
5,709
5,734
Non-accrual loans and leases as a percent
of total gross loans and leases
0.13
%
0.15
%
0.16
%
0.24
%
0.25
%
Non-performing assets as a percent of
total gross loans and leases plus repossessed assets
0.14
%
0.15
%
0.16
%
0.25
%
0.25
%
Non-performing assets as a percent of
total assets
0.11
%
0.13
%
0.13
%
0.21
%
0.21
%
Allowance for credit losses as a percent
of total gross loans and leases
1.08
%
0.99
%
1.04
%
1.05
%
1.05
%
Allowance for credit losses as a percent
of non-accrual loans and leases
807.44
%
662.20
%
662.36
%
431.58
%
421.38
%
NET CHARGE-OFFS (RECOVERIES)
(Unaudited)
For the Three Months
Ended
(Dollars in thousands)
March 31, 2023
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
Charge-offs
$
166
$
818
$
54
$
85
$
22
Recoveries
(107
)
(203
)
(81
)
(4,247
)
(210
)
Net charge-offs (recoveries)
$
59
$
615
$
(27
)
$
(4,162
)
$
(188
)
Net charge-offs (recoveries) as a percent
of average gross loans and leases (annualized)
0.01
%
0.10
%
—
%
(0.73
) %
(0.03
) %
CAPITAL RATIOS
As of and for the Three Months
Ended
(Unaudited)
March 31, 2023
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
Total capital to risk-weighted assets
11.04
%
11.26
%
11.66
%
11.56
%
11.87
%
Tier I capital to risk-weighted assets
9.01
%
9.20
%
9.48
%
9.34
%
9.27
%
Common equity tier I capital to
risk-weighted assets
8.61
%
8.79
%
9.04
%
8.90
%
8.81
%
Tier I capital to adjusted assets
9.00
%
9.17
%
9.34
%
9.19
%
9.09
%
Tangible common equity to tangible
assets
7.69
%
7.98
%
8.06
%
8.16
%
8.14
%
LOAN AND LEASE RECEIVABLE
COMPOSITION
(Unaudited)
As of
(in thousands)
March 31, 2023
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
Commercial real estate:
Commercial real estate - owner occupied
(1)
$
233,725
$
268,354
$
265,989
$
258,375
$
254,237
Commercial real estate - non-owner
occupied (1)
675,087
687,091
657,975
651,920
656,185
Construction (1)
212,916
218,751
211,509
246,458
240,564
Multi-family (1)
384,043
350,026
332,782
314,392
302,494
1-4 family (1)
23,404
17,728
16,678
17,335
16,198
Total commercial real estate
1,529,175
1,541,950
1,484,933
1,488,480
1,469,678
Commercial and industrial (1)
963,328
853,327
800,092
755,081
735,246
Consumer and other (1)
46,773
47,938
46,123
47,519
47,589
Total gross loans and leases
receivable
2,539,276
2,443,215
2,331,148
2,291,080
2,252,513
Less:
Allowance for credit losses
26,140
24,230
24,143
24,104
23,669
Deferred loan fees
(87
)
149
448
980
1,264
Loans and leases receivable, net
$
2,513,223
$
2,418,836
$
2,306,557
$
2,265,996
$
2,227,580
(1)
On January 1, 2023, the Bank adopted ASU
2016-03 Financial Instruments - Credit losses (“ASC 326”). The Bank
adopted ASC 326 using the modified retrospective method which does
not require restatement of prior periods. The balances as of March
31, 2023 reflect a reclassification of $43 million to commercial
and industrial from commercial real estate, and $7 million from
consumer and other to commercial real estate.
DEPOSIT COMPOSITION
(Unaudited)
As of
(in thousands)
March 31, 2023
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
Non-interest-bearing transaction
accounts
$
471,904
$
537,107
$
564,141
$
544,507
$
600,987
Interest-bearing transaction accounts
612,500
576,601
461,883
466,785
539,492
Money market accounts
662,157
698,505
742,545
731,718
806,917
Certificates of deposit
308,191
153,757
160,655
114,000
63,977
Wholesale deposits
422,088
202,236
158,321
12,321
12,321
Total deposits
$
2,476,840
$
2,168,206
$
2,087,545
$
1,869,331
$
2,023,694
PRIVATE WEALTH OFF BALANCE SHEET
COMPOSITION
(Unaudited)
As of
(in thousands)
March 31, 2023
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
Trust assets under management
$
2,615,670
$
2,483,811
$
2,332,448
$
2,386,637
$
2,636,896
Trust assets under administration
188,458
176,225
160,171
167,095
197,160
Total trust assets
$
2,804,128
$
2,660,036
$
2,492,619
$
2,553,732
$
2,834,056
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, 2023
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
Common stockholders’ equity
$
254,589
$
248,648
$
241,012
$
237,931
$
233,059
Less: Goodwill and other intangible
assets
(12,160
)
(12,159
)
(12,218
)
(12,262
)
(12,184
)
Tangible common equity
$
242,429
$
236,489
$
228,794
$
225,669
$
220,875
Common shares outstanding
8,306,270
8,362,085
8,432,048
8,474,699
8,488,585
Book value per share
$
30.65
$
29.74
$
28.58
$
28.08
$
27.46
Tangible book value per share
29.19
28.28
27.13
26.63
26.02
TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS
“Tangible common equity to tangible assets” (“TCE”) 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. Adjusted TCE ratio is defined as TCE adjusted for
net fair value adjustments of financial assets and liabilities. For
more information on fair value adjustments please refer to Note 19
- Fair Value Disclosures in the annual report on Form 10-K for the
year ended December 31, 2022. 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, 2023
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
Common stockholders’ equity
$
254,589
$
248,648
$
241,012
$
237,931
$
233,059
Less: Goodwill and other intangible
assets
(12,160
)
(12,159
)
(12,218
)
(12,262
)
(12,184
)
Tangible common equity (a)
$
242,429
$
236,489
$
228,794
$
225,669
$
220,875
Total assets
$
3,164,411
$
2,976,611
$
2,850,802
$
2,777,016
$
2,724,082
Less: Goodwill and other intangible
assets
(12,160
)
(12,159
)
(12,218
)
(12,262
)
(12,184
)
Tangible assets (b)
$
3,152,251
$
2,964,452
$
2,838,584
$
2,764,754
$
2,711,898
Tangible common equity to tangible
assets
7.69
%
7.98
%
8.06
%
8.16
%
8.14
%
Fair Value
Adjustments:
Financial assets - MTM (c)
$
(24,764
)
$
(24,302
)
$
(7,650
)
$
(7,206
)
$
(1,025
)
Financial liabilities - MTM (d)
$
17,334
$
17,328
$
11,230
$
9,474
$
(911
)
Net MTM, after-tax e = (c-d)*(1-21%)
$
(5,870
)
$
(5,509
)
$
2,828
$
1,792
$
(1,529
)
Adjusted tangible equity f = (a-e)
$
236,559
$
230,980
$
231,622
$
227,461
$
219,346
Adjusted tangible assets g = (b-c)
$
3,127,487
$
2,940,150
$
2,830,934
$
2,757,548
$
2,710,873
Adjusted TCE ratio (f/g)
7.56
%
7.86
%
8.18
%
8.25
%
8.09
%
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
repossessed assets, 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, 2023
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
Total non-interest expense
$
21,767
$
21,167
$
20,028
$
19,456
$
18,823
Less:
Net loss on repossessed assets
6
22
7
8
12
SBA recourse (benefit) provision
(18
)
(322
)
96
114
(76
)
Contribution to First Business Charitable
Foundation
—
809
—
—
—
Tax credit investment impairment
recovery
—
—
—
(351
)
—
Total operating expense (a)
$
21,779
$
20,658
$
19,925
$
19,685
$
18,887
Net interest income
$
26,705
$
27,452
$
25,884
$
23,660
$
21,426
Total non-interest income
8,410
6,973
8,197
6,872
7,386
Less:
Bank-owned life insurance claim
—
809
—
—
—
Adjusted non-interest income
8,410
6,164
8,197
6,872
7,386
Total operating revenue (b)
$
35,115
$
33,616
$
34,081
$
30,532
$
28,812
Efficiency ratio
62.02
%
61.45
%
58.46
%
64.47
%
65.55
%
Pre-tax, pre-provision adjusted earnings
(b - a)
$
13,336
$
12,958
$
14,156
$
10,847
$
9,925
Average total assets
$
2,984,600
$
2,867,475
$
2,758,961
$
2,716,707
$
2,666,241
Pre-tax, pre-provision adjusted return on
average assets
1.79
%
1.81
%
2.05
%
1.60
%
1.49
%
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
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, 2023
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
Interest income
$
42,064
$
38,319
$
31,786
$
27,031
$
24,235
Interest expense
15,359
10,867
5,902
3,371
2,809
Net interest income (a)
26,705
27,452
25,884
23,660
21,426
Less:
Fees in lieu of interest
651
1,318
807
1,865
1,293
FRB interest income and FHLB dividend
income
656
613
445
279
188
Adjusted net interest income (b)
$
25,398
$
25,521
$
24,632
$
21,516
$
19,945
Average interest-earning assets (c)
$
2,765,087
$
2,649,149
$
2,582,945
$
2,551,180
$
2,525,272
Less:
Average FRB cash and FHLB stock
45,150
50,522
45,351
46,334
44,577
Average non-accrual loans and leases
3,536
3,591
4,416
5,429
6,195
Adjusted average interest-earning assets
(d)
$
2,716,401
$
2,595,036
$
2,533,178
$
2,499,417
$
2,474,500
Net interest margin (a / c)
3.86
%
4.15
%
4.01
%
3.71
%
3.39
%
Adjusted net interest margin (b / d)
3.74
%
3.93
%
3.89
%
3.44
%
3.22
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230427005721/en/
First Business Financial Services, Inc. Brian D. Spielmann Chief
Financial Officer 608-232-5977 bspielmann@firstbusiness.bank
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