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First Business Bank Reports Third Quarter 2023 Net Income of $9.7 Million

-- Robust pre-tax pre-provision earnings supported by strong balance sheet growth and diversified revenue --

First Business Financial Services, Inc. (the “Company”, the “Bank”, or “First Business Bank”) (Nasdaq:FBIZ) reported quarterly net income available to common shareholders of $9.7 million, or earnings per share of $1.17 on a diluted basis. This compares to net income available to common shareholders of $8.1 million, or $0.98 per share, in the second quarter of 2023 and $10.6 million, or $1.25 per share, in the third quarter of 2022.

“First Business Bank again delivered exceptional double-digit loan and in-market deposit growth during the third quarter, which supports our long-term objectives of revenue expansion and deepening client relationships,” said Corey Chambas, Chief Executive Officer. “We continue to diversify our drivers of profitability, including client deposit initiatives to grow treasury management sales and tax credit opportunities with commercial real estate clients, which have effectively lowered our tax rate while also benefiting the communities where we live and serve. With bottom line earnings up nearly 20% from the second quarter, we are pleased to have generated 13% annualized growth in tangible book value per share, a key measure of shareholder value.”

“Solid strategic planning and outstanding execution have allowed us to grow both loans and deposits in excess of 10% over the last several years,” Chambas added. “Our recent completion of a $15 million subordinated debt offering bolstered our capacity to continue pursuing quality loan and deposit growth. We continue to evaluate loan sale strategies, and we expect overall loan growth to moderate in 2024 as we manage to our long-term target of 10%.”

Quarterly Highlights

  • Strong Deposit Growth. Total deposits grew $128.2 million, increasing 20.3% annualized from the second quarter and $569.5 million, or 27.3% from the third quarter of 2022. In-market deposits grew to a record $2.189 billion, up $115.5 million, or 22.3% annualized, from the second quarter and $260.0 million, or 13.5% from the third quarter of 2022. Strong seasonal client deposit activity contributed to increased gross treasury management service charges, which grew 14.5% to $1.5 million, compared to the third quarter of 2022.
  • Robust Loan Growth. Loans grew $89.4 million, or 13.4% annualized, from the second quarter of 2023, and $433.3 million, or 18.6%, from the third quarter of 2022, reflecting ongoing expansion across the Company’s products and geographies in the third quarter.
  • Net Interest Income Expansion. Net interest income grew 3.1% from the linked quarter and 10.5% from the prior year quarter. Consistent execution of the Company’s strategy to drive diversified loan portfolio growth supported this expansion even as industry-wide net interest margin compression continued. Net interest margin of 3.76% declined five basis points from the linked quarter. Importantly, adjusted1 net interest margin of 3.66% increased three basis points from the linked quarter.
  • Strong Pre-Tax, Pre-Provision (“PTPP”) Income. PTPP income grew to $14.1 million, up 4.5% from the prior quarter. This performance reflects solid growth across the Company’s balance sheet and diversified sources of non-interest income. PTPP adjusted return on average assets measured 1.72% for the current and linked quarter.
  • Tangible Book Value Growth. The Company’s strong earnings generation produced a 13.0% annualized increase in tangible book value per share compared to the linked quarter and 13.8% compared to the prior year quarter.

Quarterly Financial Results

(Unaudited)

 

As of and for the Three Months Ended

 

As of and for the Nine Months Ended

(Dollars in thousands, except per share amounts)

 

September 30,

2023

 

June 30,

2023

 

September 30,

2022

 

September 30,

2023

 

September 30,

2022

Net interest income

 

$

28,596

 

 

$

27,747

 

 

$

25,884

 

 

$

83,049

 

 

$

70,971

 

Adjusted non-interest income (1)

 

 

8,430

 

 

 

7,419

 

 

 

8,197

 

 

 

24,259

 

 

 

22,455

 

Operating revenue (1)

 

 

37,026

 

 

 

35,166

 

 

 

34,081

 

 

 

107,308

 

 

 

93,426

 

Operating expense (1)

 

 

22,943

 

 

 

21,692

 

 

 

19,925

 

 

 

66,414

 

 

 

58,497

 

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

 

 

14,083

 

 

 

13,474

 

 

 

14,156

 

 

 

40,894

 

 

 

34,929

 

Less:

 

 

 

 

 

 

 

 

 

 

Provision for credit losses

 

 

1,817

 

 

 

2,231

 

 

 

12

 

 

 

5,610

 

 

 

(4,569

)

Net loss (gain) on repossessed assets

 

 

4

 

 

 

(2

)

 

 

7

 

 

 

8

 

 

 

27

 

SBA recourse provision

 

 

242

 

 

 

341

 

 

 

96

 

 

 

565

 

 

 

134

 

Tax credit investment impairment recovery

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(351

)

Add:

 

 

 

 

 

 

 

 

 

 

Net loss on sale of securities

 

 

 

 

 

(45

)

 

 

 

 

 

(45

)

 

 

 

Income before income tax expense

 

 

12,020

 

 

 

10,859

 

 

 

14,041

 

 

 

34,666

 

 

 

39,688

 

Income tax expense

 

 

2,079

 

 

 

2,522

 

 

 

3,215

 

 

 

7,409

 

 

 

8,986

 

Net income

 

$

9,941

 

 

$

8,337

 

 

$

10,826

 

 

$

27,257

 

 

$

30,702

 

Preferred stock dividends

 

 

218

 

 

 

219

 

 

 

218

 

 

 

656

 

 

 

464

 

Net income available to common shareholders

 

$

9,723

 

 

$

8,118

 

 

$

10,608

 

 

$

26,601

 

 

$

30,238

 

Earnings per share, diluted

 

$

1.17

 

 

$

0.98

 

 

$

1.25

 

 

$

3.19

 

 

$

3.57

 

Book value per share

 

$

32.32

 

 

$

31.34

 

 

$

28.58

 

 

$

32.32

 

 

$

28.58

 

Tangible book value per share (1)

 

$

30.87

 

 

$

29.89

 

 

$

27.13

 

 

$

30.87

 

 

$

27.13

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin (2)

 

 

3.76

%

 

 

3.81

%

 

 

4.01

%

 

 

3.81

%

 

 

3.71

%

Adjusted net interest margin (1)(2)

 

 

3.66

%

 

 

3.63

%

 

 

3.89

%

 

 

3.68

%

 

 

3.53

%

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

 

 

22.77

%

 

 

21.00

%

 

 

24.05

%

 

 

22.57

%

 

 

24.04

%

Efficiency ratio (1)

 

 

61.96

%

 

 

61.68

%

 

 

58.46

%

 

 

61.89

%

 

 

62.61

%

Return on average assets (2)

 

 

1.19

%

 

 

1.04

%

 

 

1.54

%

 

 

1.13

%

 

 

1.49

%

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

 

 

1.72

%

 

 

1.72

%

 

 

2.05

%

 

 

1.74

%

 

 

1.72

%

Return on average common equity (2)

 

 

14.62

%

 

 

12.58

%

 

 

17.44

%

 

 

13.72

%

 

 

16.97

%

 

 

 

 

 

 

 

 

 

 

 

Period-end loans and leases receivable

 

$

2,764,014

 

 

$

2,674,583

 

 

$

2,330,700

 

 

$

2,764,014

 

 

$

2,330,700

 

Average loans and leases receivable

 

$

2,711,851

 

 

$

2,583,237

 

 

$

2,316,621

 

 

$

2,592,941

 

 

$

2,278,333

 

Period-end in-market deposits

 

$

2,189,264

 

 

$

2,073,744

 

 

$

1,929,224

 

 

$

2,189,264

 

 

$

1,929,224

 

Average in-market deposits

 

$

2,105,716

 

 

$

2,035,856

 

 

$

1,930,995

 

 

$

2,047,776

 

 

$

1,921,465

 

Allowance for credit losses, including unfunded commitment reserves

 

$

31,036

 

 

$

29,697

 

 

$

24,143

 

 

$

31,036

 

 

$

24,143

 

Non-performing assets

 

$

17,689

 

 

$

15,786

 

 

$

3,796

 

 

$

17,689

 

 

$

3,796

 

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

 

 

1.12

%

 

 

1.11

%

 

 

1.04

%

 

 

1.12

%

 

 

1.04

%

Non-performing assets as a percent of total assets

 

 

0.52

%

 

 

0.48

%

 

 

0.13

%

 

 

0.52

%

 

 

0.13

%

(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.

Third Quarter 2023 Compared to Second Quarter 2023

Net interest income increased $849,000, or 3.1%, to $28.6 million.

  • The increase in net interest income was driven by an increase in average loans and leases receivable, partially offset by a decrease in fees in lieu of interest. Average loans and leases receivable increased $128.6 million, or 19.9% annualized, to $2.712 billion. Fees in lieu of interest, which vary from quarter to quarter based on client-driven activity, totaled $582,000, compared to $936,000 in the prior quarter. Excluding fees in lieu of interest, net interest income increased $1.2 million, or 4.5%.
  • The yield on average interest-earning assets increased 24 basis points to 6.71% from 6.47%. Excluding fees in lieu of interest, the yield earned on average interest-earning assets increased 28 basis points to 6.63% from 6.35%. The daily average effective federal funds rate increased 27 basis points compared to the linked quarter, which equates to an average adjusted interest-earning asset beta of 104.8% for the three months ended September 30, 2023, compared to 73.9% in the linked quarter. The cumulative adjusted interest-earning asset beta since December 31, 2021 was 59.7%. The change in yield of the respective interest-earning asset or the rate paid on interest-bearing liability compared to the change in short-term market rates is commonly referred to as a beta.
  • The rate paid for average interest-bearing, in-market deposits increased 49 basis points to 3.74% from 3.25% due to the acceleration of exception pricing and the shift of client balances from non-interest bearing deposits to certificates of deposit and interest-bearing demand deposit accounts. Similarly, the rate paid for average total bank funding increased 29 basis points to 3.07% from 2.78%. Total bank funding is defined as total deposits plus Federal Home Loan Bank (“FHLB”) advances. The total bank funding beta was 107.5% for the three months ended September 30, 2023, compared to 98.9% in the linked quarter. The cumulative bank funding beta since December 31, 2021 was 52.9%.
  • Net interest margin was 3.76%, down 5 basis points compared to 3.81% in the linked quarter. Adjusted net interest margin1 was 3.66%, up 3 basis points compared to 3.63% in the linked quarter. The increase in adjusted net interest margin was due to an increase in the yield on average adjusted interest earning assets, partially offset by the rate paid on total bank funding.
  • The Bank anticipates deposit betas may continue to rise and 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. Based on current trends, we believe our net interest margin should stabilize above our existing strategic plan goal of 3.50%.

The Bank reported a provision expense of $1.8 million, compared to $2.2 million in the second quarter of 2023. The third quarter provision expense included increases of $1.3 million in net specific reserves, $817,000 due to exceptional loan growth, net charge-offs of $478,000, and qualitative factor changes of $506,000. This expense was partially offset by a $1.4 million reduction in general reserve due to an improved economic outlook in our model forecast compared to the prior period. Similar to the second quarter, the increase in specific reserves, charge-offs, and qualitative factors was primarily related to the Equipment Finance and SBA Lending loan pools, which management believes is consistent with the cyclical nature of these commercial lending niches.

Non-interest income increased $1.1 million, or 14.3%, to $8.4 million.

  • Private Wealth and Company Retirement Plan (“Private Wealth”) fee income increased $52,000, or 1.8% to $2.9 million. Private Wealth assets under management and administration measured $2.915 billion on September 30, 2023, up $7.5 million from the prior quarter.
  • Gains on sale of SBA loans increased $407,000, or 91.7%, to $851,000 driven by volume of loan sales.
  • Other fee income increased $587,000 to $2.0 million, compared to $1.4 million in the prior quarter. The increase was primarily due to higher returns on the Company’s investments in mezzanine funds in the third quarter. Income from mezzanine funds was $1.2 million in the third quarter, compared to $389,000 in the linked quarter. Income from mezzanine funds varies from period to period based on changes in the value of underlying investments. Investment values are primarily reflected in our results semiannually, in the first and third quarters.
  • Loan fee income decreased $119,000, or 13.1%, to $786,000 primarily due to a decrease in Asset-Based Lending (“ABL”) audit fee income.
_____________

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 $1.2 million, or 5.3%, to $23.2 million, while operating expense increased $1.3 million, or 5.8%, to $22.9 million.

  • Compensation expense was $15.6 million, reflecting an increase of $444,000, or 2.9%, from the linked quarter primarily due to a $510,000 increase in the annual cash incentive bonus and profit sharing accruals and an increase in employee salaries. This increase was partially offset by a decrease in share-based compensation following the second quarter vesting of performance-based restricted stock units (“PRSU”). Average full-time equivalents (FTEs) for the third quarter of 2023 were 349, up from 341 in the linked quarter.
  • Professional fees were $1.4 million, increasing $189,000, or 15.2%, from the linked quarter primarily due to an increase in recruiting expenses.
  • FDIC insurance expense was $680,000, increasing $100,000, or 17.2%, from the linked quarter primarily due to an increase in the assessment rate and the assessable base.
  • Other non-interest expense increased $496,000, or 45.6%, to $1.6 million from the linked quarter primarily due to a $693,000 increase in liquidation expense related to an ABL loan relationship. In past resolutions, the Bank has been able to recover similar liquidation expenses. These increases were partially offset by a decrease in travel expense and a loss on disposal of fixed assets in the prior quarter.

Income tax expense decreased $443,000, or 17.6%, to $2.1 million. The effective tax rate was 17.3% for the three months ended September 30, 2023, compared to 23.2% for the linked quarter. Both periods benefited from net tax credits of $797,000 and $150,000 in the current and linked quarters, respectively. Based on expected earnings and future tax credit investments, the Company expects to report an effective tax rate between 21% and 22% for 2023 and between 20% and 21% for 2024.

Total period-end loans and leases receivable increased $89.4 million, or 13.4% annualized, to $2.764 billion. Management expects loan growth to moderate to our long term target of 10% in future quarters. Additionally, management is evaluating loan sale and participation strategies as a means of adding to and further diversifying fee income. The average rate earned on average loans and leases receivable was 7.06%, up 20 basis points from 6.86% in the prior quarter.

  • Commercial Real Estate (“CRE”) loans increased by $43.6 million, or 11.0% annualized, to $1.635 billion. The increase was primarily due to an increase in non-owner occupied CRE and multi-family loans.
  • Commercial & Industrial (“C&I”) loans increased $46.8 million, or 18.0% annualized, to $1.084 billion. The increase was due to growth across the majority of the Bank’s C&I products and geographies.

Total period-end in-market deposits increased $115.5 million, or 22.3% annualized, to $2.189 billion, compared to $2.074 billion. The average rate paid was 2.97%, up 41 basis points from 2.56% in the prior quarter.

  • The increase was due to growth in interest-bearing transaction accounts, money market accounts, and non-interest bearing transaction accounts, partially offset by a decrease in certificates of deposit.

Period-end wholesale funding, including FHLB advances, brokered deposits, and deposits gathered through internet deposit listing services, decreased $8.6 million, or 4.4% annualized, to $782.2 million.

  • Wholesale deposits increased $12.6 million to $467.7 million, compared to $455.1 million as the Bank continued to replace FHLB advances with wholesale deposits 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 fixed-rate loans. The average rate paid on wholesale deposits decreased 17 basis points to 4.07% and the weighted average original maturity increased to 4.0 years from 3.7 years.
  • FHLB advances decreased $21.2 million to $314.5 million. The average rate paid on FHLB advances decreased 19 basis points to 2.48% and the weighted average original maturity was 5.2 years for both periods.

Non-performing assets increased $1.9 million to $17.7 million, or 0.52% of total assets, up from 0.48% in the prior quarter driven by Equipment Finance loans within the C&I portfolio. We continue to expect full repayment of the one ABL loan that defaulted during the second quarter of 2023. Excluding the ABL loan, non-performing assets totaled $8.1 million, or 0.24% of total assets in the current quarter and $4.9 million, or 0.15% of total assets in the linked quarter. The increase in the Equipment Finance pool, for which defaults and liquidations are not atypical, was due to a cyclical increase in past-due balances.

The allowance for credit losses, including unfunded credit commitments reserve, increased $1.3 million, or 4.5%, as increases in specific reserves, the general reserve from loan growth, and qualitative factors were partially offset by a decrease in the general reserve due to an improved economic outlook in our model forecast. The allowance for credit losses, including unfunded credit commitment reserves, as a percent of total gross loans and leases was 1.12% compared to 1.11% in the prior quarter.

Third Quarter 2023 Compared to Third Quarter 2022

Net interest income increased $2.7 million, or 10.5%, to $28.6 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 net interest margin compression. Fees in lieu of interest decreased from $807,000 to $582,000. Excluding fees in lieu of interest, net interest income increased $2.9 million, or 11.7%.
  • The yield on average interest-earning assets measured 6.71% compared to 4.92%. Excluding fees in lieu of interest, the yield on average interest-earning assets measured 6.63%, compared to 4.80%. 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 308 basis points compared to the prior year quarter, which equates to an average adjusted interest-earning asset beta of 59.5% for the three months ended September 30, 2023, compared to the prior year period.
  • The rate paid for average interest-bearing in-market deposits increased 286 basis points to 3.74% from 0.88%. The rate paid for average total bank funding increased 218 basis points to 3.07% from 0.89%. The total bank funding beta was 70.8% for the three months ended September 30, 2023, compared to the prior year period.
  • Net interest margin decreased 25 basis points to 3.76% from 4.01%. Adjusted net interest margin decreased 23 basis points to 3.66% from 3.89%.

The Company reported a provision expense of $1.8 million, compared to $12,000 in the third quarter of 2022. The prior year period provision benefited from net recoveries.

Non-interest income of $8.4 million increased by $233,000, or 2.8%, from $8.2 million in the prior year period.

  • Private Wealth fee income increased $327,000, or 12.5%, to $2.9 million. Private Wealth assets under management and administration measured $2.915 billion at September 30, 2023, up $422.0 million, or 16.9%.
  • Commercial loan swap fee income of $992,000 increased by $651,000, or 190.9%. Swap fee income varies from period to period based on loan activity and the interest rate environment.
  • Gain on sale of SBA loans increased $119,000, or 16.3%, to $851,000.
  • Service charges on deposits decreased $183,000, or 18.0%, to $835,000, driven by an increase in the earnings credit rate commensurate with the rising rate environment.
  • Other fee income decreased $653,000, or 24.4%, to $2.0 million, primarily due to higher returns on the Company’s investments in mezzanine funds and a gain on customer lease restructuring in the prior year quarter. Income from mezzanine funds was $1.2 million in the third quarter, compared to $1.4 million in the prior year quarter. Income on mezzanine funds varies from period to period based on changes in the value of underlying investments.

Non-interest expense increased $3.2 million, or 15.8%, to $23.2 million. Operating expense increased $3.0 million, or 15.1%, to $22.9 million.

  • Compensation expense increased $756,000, or 5.1%, to $15.6 million. The increase in compensation expense was primarily due to an increase in average FTEs, annual merit increases and promotions, and incentive compensation due to outstanding production, partially offset by a lower estimated annual incentive cash bonus program accrual. Average FTEs increased 5% to 349 in the third quarter of 2023, compared to 333 in the third quarter of 2022, as a result of expanded hiring efforts that have successfully driven growth while maintaining positive operating leverage.
  • FDIC insurance increased $450,000, or 195.7%, to $680,000, primarily due to an increase in the assessment rate and the assessable base.
  • Data processing expense increased $234,000, or 32.5%, to $953,000, primarily due to an increase in core processing costs commensurate with loan and deposit account growth, as well as various project implementations.
  • Professional fees expense increased $226,000, or 18.8%, to $1.4 million, primarily due to an increase in recruiting expense and a general increase in other professional consulting services for various projects.
  • Marketing expense increased $215,000, or 39.6%, to $758,000, primarily due to an increase in business development efforts and advertising projects commensurate with our expanded sales force.

Total period-end loans and leases receivable increased $433.3 million, or 18.6%, to $2.764 billion.

  • C&I loans increased $283.6 million, or 35.4% to $1.084 billion, due to growth across all products and geographies.
  • CRE loans increased $150.4 million, or 10.1%, to $1.635 billion, primarily due to increases in non-owner occupied CRE and multi-family loans.

Total period-end in-market deposits grew $260.0 million, or 13.5%, to $2.189 billion, and the average rate paid increased 236 basis points to 2.97%. The increase in in-market deposits was principally due to a $317.9 million and $124.6 million increase in interest bearing transaction accounts and certificates of deposits, respectively. This increase was partially offset by a $134.1 million and $48.3 million decrease in non-interest bearing deposit accounts and money market accounts, respectively.

Period-end wholesale funding increased $246.1 million to $782.2 million.

  • Wholesale deposits increased $309.4 million to $467.7 million, as the Bank utilized more wholesale deposits in lieu of FHLB advances to build excess liquidity and to match-fund fixed rate assets. The average rate paid on wholesale deposits increased 161 basis points to 4.07% and the weighted average original maturity increased to 4.0 years from 0.3 years. Consistent with our balance sheet strategy to use the most efficient and cost effective source of wholesale funding, the Company has entered into several derivative contracts hedging a portion of the wholesale deposits to reduce the fixed rate funding costs.
  • FHLB advances decreased $63.3 million to $314.5 million. The average rate paid on FHLB advances increased 47 basis points to 2.48% and the weighted average original maturity increased to 5.2 years from 4.8 years.

Non-performing assets increased to $17.7 million, or 0.52% of total assets, compared to $3.8 million, or 0.13% of total assets, driven by one loan in the ABL portfolio and Equipment Finance loans within the C&I portfolio. Excluding the one ABL loan, which defaulted during the second quarter of 2023, non-performing assets totaled $8.1 million, or 0.24% of total assets.

The allowance for credit losses, including unfunded commitment reserves, increased $6.9 million to $31.0 million, compared to $24.1 million due to loan growth, an increase in specific reserves, and a change in accounting standard. The allowance for credit losses as a percent of total gross loans and leases was 1.12%, compared to the allowance for loan losses of 1.04% 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 September 30, 2023, the Company had repurchased a total of 65,112 shares for approximately $2.0 million at an average cost of $30.72 per share. The Company expects to continue its pause of 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 firstbusiness.bank and will also be furnished to the U.S. Securities and Exchange Commission on October 27, 2023.

About First Business Bank

First Business Bank® specializes in Business Banking, including Commercial Banking and Specialty Finance, Private Wealth, and Bank Consulting services, and through its refined focus delivers unmatched expertise, accessibility, and responsiveness. Specialty Finance solutions are delivered through First Business Bank’s wholly owned subsidiary First Business Specialty Finance, LLC®. First Business Bank is a wholly owned subsidiary of First Business Financial Services, Inc®. (Nasdaq: FBIZ). 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, or any future public health epidemics.
  • 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)

 

September 30,

2023

 

June 30,

2023

 

March 31,

2023

 

December 31,

2022

 

September 30,

2022

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

132,915

 

 

$

112,809

 

 

$

185,973

 

 

$

102,682

 

 

$

110,965

 

Securities available-for-sale, at fair value

 

 

272,163

 

 

 

253,626

 

 

 

236,989

 

 

 

212,024

 

 

 

196,566

 

Securities held-to-maturity, at amortized cost

 

 

8,689

 

 

 

9,830

 

 

 

11,461

 

 

 

12,635

 

 

 

13,531

 

Loans held for sale

 

 

4,168

 

 

 

2,191

 

 

 

2,697

 

 

 

2,632

 

 

 

773

 

Loans and leases receivable

 

 

2,764,014

 

 

 

2,674,583

 

 

 

2,539,363

 

 

 

2,443,066

 

 

 

2,330,700

 

Allowance for credit losses

 

 

(29,331

)

 

 

(28,115

)

 

 

(26,140

)

 

 

(24,230

)

 

 

(24,143

)

Loans and leases receivable, net

 

 

2,734,683

 

 

 

2,646,468

 

 

 

2,513,223

 

 

 

2,418,836

 

 

 

2,306,557

 

Premises and equipment, net

 

 

6,157

 

 

 

5,094

 

 

 

4,933

 

 

 

4,340

 

 

 

3,143

 

Repossessed assets

 

 

61

 

 

 

65

 

 

 

89

 

 

 

95

 

 

 

151

 

Right-of-use assets

 

 

6,800

 

 

 

7,049

 

 

 

7,355

 

 

 

7,690

 

 

 

5,424

 

Bank-owned life insurance

 

 

55,123

 

 

 

54,747

 

 

 

54,383

 

 

 

54,018

 

 

 

54,683

 

Federal Home Loan Bank stock, at cost

 

 

13,528

 

 

 

14,482

 

 

 

13,088

 

 

 

17,812

 

 

 

15,701

 

Goodwill and other intangible assets

 

 

12,110

 

 

 

12,073

 

 

 

12,160

 

 

 

12,159

 

 

 

12,218

 

Derivatives

 

 

93,702

 

 

 

70,440

 

 

 

54,612

 

 

 

68,581

 

 

 

73,718

 

Accrued interest receivable and other assets

 

 

78,751

 

 

 

76,864

 

 

 

67,448

 

 

 

63,107

 

 

 

57,372

 

Total assets

 

$

3,418,850

 

 

$

3,265,738

 

 

$

3,164,411

 

 

$

2,976,611

 

 

$

2,850,802

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

In-market deposits

 

$

2,189,264

 

 

$

2,073,744

 

 

$

2,054,752

 

 

$

1,965,970

 

 

$

1,929,224

 

Wholesale deposits

 

 

467,743

 

 

 

455,108

 

 

 

422,088

 

 

 

202,236

 

 

 

158,321

 

Total deposits

 

 

2,657,007

 

 

 

2,528,852

 

 

 

2,476,840

 

 

 

2,168,206

 

 

 

2,087,545

 

Federal Home Loan Bank advances and other borrowings

 

 

363,891

 

 

 

370,113

 

 

 

341,859

 

 

 

456,808

 

 

 

420,297

 

Lease liabilities

 

 

9,236

 

 

 

9,499

 

 

 

9,822

 

 

 

10,175

 

 

 

6,827

 

Derivatives

 

 

78,696

 

 

 

61,147

 

 

 

49,012

 

 

 

61,419

 

 

 

66,162

 

Accrued interest payable and other liabilities

 

 

29,262

 

 

 

23,495

 

 

 

20,297

 

 

 

19,363

 

 

 

16,967

 

Total liabilities

 

 

3,138,092

 

 

 

2,993,106

 

 

 

2,897,830

 

 

 

2,715,971

 

 

 

2,597,798

 

Total stockholders’ equity

 

 

280,758

 

 

 

272,632

 

 

 

266,581

 

 

 

260,640

 

 

 

253,004

 

Total liabilities and stockholders’ equity

 

$

3,418,850

 

 

$

3,265,738

 

 

$

3,164,411

 

 

$

2,976,611

 

 

$

2,850,802

 

STATEMENTS OF INCOME

 

(Unaudited)

 

As of and for the Three Months Ended

 

As of and for the Nine Months Ended

(Dollars in thousands, except per share amounts)

 

September 30,

2023

 

June 30,

2023

 

March 31,

2023

 

December 31,

2022

 

September 30,

2022

 

September 30,

2023

 

September 30,

2022

Total interest income

 

$

50,941

 

$

47,161

 

 

$

42,064

 

$

38,319

 

$

31,786

 

$

140,167

 

 

$

83,053

 

Total interest expense

 

 

22,345

 

 

19,414

 

 

 

15,359

 

 

10,867

 

 

5,902

 

 

57,118

 

 

 

12,082

 

Net interest income

 

 

28,596

 

 

27,747

 

 

 

26,705

 

 

27,452

 

 

25,884

 

 

83,049

 

 

 

70,971

 

Provision for credit losses

 

 

1,817

 

 

2,231

 

 

 

1,561

 

 

702

 

 

12

 

 

5,610

 

 

 

(4,569

)

Net interest income after provision for credit losses

 

 

26,779

 

 

25,516

 

 

 

25,144

 

 

26,750

 

 

25,872

 

 

77,439

 

 

 

75,540

 

Private wealth management service fees

 

 

2,945

 

 

2,893

 

 

 

2,654

 

 

2,570

 

 

2,618

 

 

8,492

 

 

 

8,311

 

Gain on sale of SBA loans

 

 

851

 

 

444

 

 

 

476

 

 

269

 

 

732

 

 

1,771

 

 

 

2,269

 

Service charges on deposits

 

 

835

 

 

766

 

 

 

682

 

 

791

 

 

1,018

 

 

2,283

 

 

 

3,058

 

Loan fees

 

 

786

 

 

905

 

 

 

803

 

 

847

 

 

814

 

 

2,495

 

 

 

2,163

 

Loss on sale of securities

 

 

 

 

(45

)

 

 

 

 

 

 

 

 

(45

)

 

 

 

Swap fees

 

 

992

 

 

977

 

 

 

557

 

 

756

 

 

341

 

 

2,526

 

 

 

1,038

 

Other non-interest income

 

 

2,021

 

 

1,434

 

 

 

3,238

 

 

1,740

 

 

2,674

 

 

6,692

 

 

 

5,616

 

Total non-interest income

 

 

8,430

 

 

7,374

 

 

 

8,410

 

 

6,973

 

 

8,197

 

 

24,214

 

 

 

22,455

 

Compensation

 

 

15,573

 

 

15,129

 

 

 

15,908

 

 

15,267

 

 

14,817

 

 

46,610

 

 

 

42,475

 

Occupancy

 

 

575

 

 

603

 

 

 

631

 

 

669

 

 

566

 

 

1,809

 

 

 

1,689

 

Professional fees

 

 

1,429

 

 

1,240

 

 

 

1,343

 

 

1,210

 

 

1,203

 

 

4,012

 

 

 

3,671

 

Data processing

 

 

953

 

 

1,061

 

 

 

875

 

 

806

 

 

719

 

 

2,889

 

 

 

2,391

 

Marketing

 

 

758

 

 

779

 

 

 

628

 

 

641

 

 

543

 

 

2,165

 

 

 

1,713

 

Equipment

 

 

349

 

 

355

 

 

 

295

 

 

359

 

 

253

 

 

1,000

 

 

 

732

 

Computer software

 

 

1,289

 

 

1,197

 

 

 

1,183

 

 

1,089

 

 

1,128

 

 

3,668

 

 

 

3,327

 

FDIC insurance

 

 

680

 

 

580

 

 

 

394

 

 

203

 

 

230

 

 

1,653

 

 

 

840

 

Other non-interest expense

 

 

1,583

 

 

1,087

 

 

 

510

 

 

923

 

 

569

 

 

3,181

 

 

 

1,469

 

Total non-interest expense

 

 

23,189

 

 

22,031

 

 

 

21,767

 

 

21,167

 

 

20,028

 

 

66,987

 

 

 

58,307

 

Income before income tax expense

 

 

12,020

 

 

10,859

 

 

 

11,787

 

 

12,556

 

 

14,041

 

 

34,666

 

 

 

39,688

 

Income tax expense

 

 

2,079

 

 

2,522

 

 

 

2,808

 

 

2,400

 

 

3,215

 

 

7,409

 

 

 

8,986

 

Net income

 

$

9,941

 

$

8,337

 

 

$

8,979

 

$

10,156

 

$

10,826

 

$

27,257

 

 

$

30,702

 

Preferred stock dividends

 

 

218

 

 

219

 

 

 

219

 

 

219

 

 

218

 

 

656

 

 

 

464

 

Net income available to common shareholders

 

$

9,723

 

$

8,118

 

 

$

8,760

 

$

9,937

 

$

10,608

 

$

26,601

 

 

$

30,238

 

Per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings

 

$

1.17

 

$

0.98

 

 

$

1.05

 

$

1.18

 

$

1.25

 

$

3.19

 

 

$

3.57

 

Diluted earnings

 

 

1.17

 

 

0.98

 

 

 

1.05

 

 

1.18

 

 

1.25

 

 

3.19

 

 

 

3.57

 

Dividends declared

 

 

0.2275

 

 

0.2275

 

 

 

0.2275

 

 

0.1975

 

 

0.1975

 

 

0.6825

 

 

 

0.5925

 

Book value

 

 

32.32

 

 

31.34

 

 

 

30.65

 

 

29.74

 

 

28.58

 

 

32.32

 

 

 

28.58

 

Tangible book value

 

 

30.87

 

 

29.89

 

 

 

29.19

 

 

28.28

 

 

27.13

 

 

30.87

 

 

 

27.13

 

Weighted-average common shares outstanding(1)

 

 

8,107,641

 

 

8,061,841

 

 

 

8,148,525

 

 

8,180,531

 

 

8,230,902

 

 

8,134,587

 

 

 

8,237,879

 

Weighted-average diluted common shares outstanding(1)

 

 

8,107,641

 

 

8,061,841

 

 

 

8,148,525

 

 

8,180,531

 

 

8,230,902

 

 

8,134,587

 

 

 

8,237,879

 

(1)  

Excluding participating securities.

NET INTEREST INCOME ANALYSIS

 

(Unaudited)

 

For the Three Months Ended

(Dollars in thousands)

 

September 30, 2023

 

June 30, 2023

 

September 30, 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)

 

$

1,605,464

 

$

25,623

 

6.38

%

 

$

1,546,487

 

$

23,671

 

6.12

%

 

$

1,486,530

 

$

17,280

 

4.65

%

Commercial and industrial loans(1)

 

 

1,059,512

 

 

21,635

 

8.17

%

 

 

987,534

 

 

20,020

 

8.11

%

 

 

780,533

 

 

12,426

 

6.37

%

Consumer and other loans(1)

 

 

46,875

 

 

610

 

5.21

%

 

 

49,216

 

 

588

 

4.78

%

 

 

49,558

 

 

468

 

3.78

%

Total loans and leases receivable(1)

 

 

2,711,851

 

 

47,868

 

7.06

%

 

 

2,583,237

 

 

44,279

 

6.86

%

 

 

2,316,621

 

 

30,174

 

5.21

%

Mortgage-related securities(2)

 

 

204,291

 

 

1,681

 

3.29

%

 

 

192,564

 

 

1,421

 

2.95

%

 

 

168,433

 

 

915

 

2.17

%

Other investment securities(3)

 

 

67,546

 

 

517

 

3.06

%

 

 

60,790

 

 

392

 

2.58

%

 

 

51,812

 

 

250

 

1.93

%

FHLB stock

 

 

14,770

 

 

323

 

8.75

%

 

 

15,844

 

 

302

 

7.62

%

 

 

18,167

 

 

289

 

6.36

%

Short-term investments

 

 

40,318

 

 

552

 

5.48

%

 

 

61,316

 

 

767

 

5.00

%

 

 

27,912

 

 

158

 

2.26

%

Total interest-earning assets

 

 

3,038,776

 

 

50,941

 

6.71

%

 

 

2,913,751

 

 

47,161

 

6.47

%

 

 

2,582,945

 

 

31,786

 

4.92

%

Non-interest-earning assets

 

 

237,464

 

 

 

 

 

 

213,483

 

 

 

 

 

 

176,016

 

 

 

 

Total assets

 

$

3,276,240

 

 

 

 

 

$

3,127,234

 

 

 

 

 

$

2,758,961

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transaction accounts

 

$

731,529

 

 

6,774

 

3.70

%

 

$

670,698

 

 

5,455

 

3.25

%

 

$

486,704

 

 

1,005

 

0.83

%

Money market

 

 

657,183

 

 

5,871

 

3.57

%

 

 

633,817

 

 

4,617

 

2.91

%

 

 

746,227

 

 

1,610

 

0.86

%

Certificates of deposit

 

 

282,674

 

 

2,986

 

4.23

%

 

 

295,785

 

 

2,946

 

3.98

%

 

 

113,529

 

 

340

 

1.20

%

Wholesale deposits

 

 

410,494

 

 

4,172

 

4.07

%

 

 

332,387

 

 

3,523

 

4.24

%

 

 

36,702

 

 

226

 

2.46

%

Total interest-bearing deposits

 

 

2,081,880

 

 

19,803

 

3.80

%

 

 

1,932,687

 

 

16,541

 

3.42

%

 

 

1,383,162

 

 

3,181

 

0.92

%

FHLB advances

 

 

342,117

 

 

2,117

 

2.48

%

 

 

367,129

 

 

2,452

 

2.67

%

 

 

432,528

 

 

2,173

 

2.01

%

Other borrowings

 

 

34,745

 

 

425

 

4.89

%

 

 

34,538

 

 

421

 

4.88

%

 

 

42,800

 

 

548

 

5.12

%

Total interest-bearing liabilities

 

 

2,458,742

 

 

22,345

 

3.64

%

 

 

2,334,354

 

 

19,414

 

3.33

%

 

 

1,858,490

 

 

5,902

 

1.27

%

Non-interest-bearing demand deposit accounts

 

 

434,330

 

 

 

 

 

 

435,556

 

 

 

 

 

 

584,535

 

 

 

 

Other non-interest-bearing liabilities

 

 

105,079

 

 

 

 

 

 

87,148

 

 

 

 

 

 

60,705

 

 

 

 

Total liabilities

 

 

2,998,151

 

 

 

 

 

 

2,857,058

 

 

 

 

 

 

2,503,730

 

 

 

 

Stockholders’ equity

 

 

278,089

 

 

 

 

 

 

270,176

 

 

 

 

 

 

255,231

 

 

 

 

Total liabilities and stockholders’ equity

 

$

3,276,240

 

 

 

 

 

$

3,127,234

 

 

 

 

 

$

2,758,961

 

 

 

 

Net interest income

 

 

 

$

28,596

 

 

 

 

 

$

27,747

 

 

 

 

 

$

25,884

 

 

Interest rate spread

 

 

 

 

 

3.07

%

 

 

 

 

 

3.15

%

 

 

 

 

 

3.65

%

Net interest-earning assets

 

$

580,034

 

 

 

 

 

$

579,397

 

 

 

 

 

$

724,455

 

 

 

 

Net interest margin

 

 

 

 

 

3.76

%

 

 

 

 

 

3.81

%

 

 

 

 

 

4.01

%

(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.

NET INTEREST INCOME ANALYSIS

 

(Unaudited)

 

For the Nine Months Ended

(Dollars in thousands)

 

September 30, 2023

 

September 30, 2022

 

 

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)

 

$

1,556,988

 

$

71,011

 

6.08

%

 

$

1,472,930

 

$

45,969

 

4.16

%

Commercial and industrial loans(1)

 

 

988,359

 

 

59,213

 

7.99

%

 

 

755,254

 

 

31,603

 

5.58

%

Consumer and other loans(1)

 

 

47,594

 

 

1,738

 

4.87

%

 

 

50,149

 

 

1,362

 

3.62

%

Total loans and leases receivable(1)

 

 

2,592,941

 

 

131,962

 

6.79

%

 

 

2,278,333

 

 

78,934

 

4.62

%

Mortgage-related securities(2)

 

 

193,196

 

 

4,372

 

3.02

%

 

 

176,654

 

 

2,479

 

1.87

%

Other investment securities(3)

 

 

61,396

 

 

1,229

 

2.67

%

 

 

52,324

 

 

725

 

1.85

%

FHLB stock

 

 

15,904

 

 

952

 

7.98

%

 

 

16,523

 

 

688

 

5.55

%

Short-term investments

 

 

43,437

 

 

1,652

 

5.07

%

 

 

29,509

 

 

227

 

1.03

%

Total interest-earning assets

 

 

2,906,874

 

 

140,167

 

6.43

%

 

 

2,553,343

 

 

83,053

 

4.34

%

Non-interest-earning assets

 

 

223,552

 

 

 

 

 

 

160,966

 

 

 

 

Total assets

 

$

3,130,426

 

 

 

 

 

$

2,714,309

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Transaction accounts

 

$

657,155

 

 

16,070

 

3.26

%

 

$

507,402

 

 

1,602

 

0.42

%

Money market

 

 

663,284

 

 

14,984

 

3.01

%

 

 

765,839

 

 

2,458

 

0.43

%

Certificates of deposit

 

 

271,684

 

 

8,049

 

3.95

%

 

 

80,093

 

 

509

 

0.85

%

Wholesale deposits

 

 

311,038

 

 

9,671

 

4.14

%

 

 

21,838

 

 

436

 

2.66

%

Total interest-bearing deposits

 

 

1,903,161

 

 

48,774

 

3.42

%

 

 

1,375,172

 

 

5,005

 

0.49

%

FHLB advances

 

 

368,913

 

 

7,030

 

2.54

%

 

 

422,576

 

 

4,875

 

1.54

%

Other borrowings

 

 

35,351

 

 

1,314

 

4.96

%

 

 

44,719

 

 

1,698

 

5.06

%

Junior subordinated notes(5)

 

 

 

 

 

%

 

 

3,247

 

 

504

 

20.69

%

Total interest-bearing liabilities

 

 

2,307,425

 

 

57,118

 

3.30

%

 

 

1,845,714

 

 

12,082

 

0.87

%

Non-interest-bearing demand deposit accounts

 

 

455,653

 

 

 

 

 

 

568,131

 

 

 

 

Other non-interest-bearing liabilities

 

 

96,883

 

 

 

 

 

 

53,685

 

 

 

 

Total liabilities

 

 

2,859,961

 

 

 

 

 

 

2,467,530

 

 

 

 

Stockholders’ equity

 

 

270,465

 

 

 

 

 

 

246,779

 

 

 

 

Total liabilities and stockholders’ equity

 

$

3,130,426

 

 

 

 

 

$

2,714,309

 

 

 

 

Net interest income

 

 

 

$

83,049

 

 

 

 

 

$

70,971

 

 

Interest rate spread

 

 

 

 

 

3.13

%

 

 

 

 

 

3.46

%

Net interest-earning assets

 

$

599,449

 

 

 

 

 

$

707,629

 

 

 

 

Net interest margin

 

 

 

 

 

3.81

%

 

 

 

 

 

3.71

%

(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 nine months ended September 30, 2022, includes $236,000 in accelerated amortization of debt issuance costs.

ASSET AND LIABILITY BETA ANALYSIS

 

 

For the Three Months Ended

 

For the Nine Months Ended

(Unaudited)

September

30, 2023

 

June 30,

2023

 

 

 

September

30, 2022

 

 

 

September

30, 2023

 

September

30, 2022

 

 

 

Average

Yield/Rate (3)

 

Average

Yield/Rate (3)

 

Increase

(Decrease)

 

Average

Yield/Rate (3)

 

Increase

(Decrease)

 

Average

Yield/Rate

 

Average

Yield/Rate

 

Increase

(Decrease)

Total loans and leases receivable (a)

7.06

%

 

6.86

%

 

0.20

%

 

5.21

%

 

1.85

%

 

6.79

%

 

4.62

%

 

2.17

%

Total interest-earning assets(b)

6.71

%

 

6.47

%

 

0.24

%

 

4.92

%

 

1.79

%

 

6.43

%

 

4.34

%

 

2.09

%

Adjusted total loans and leases receivable (1)(c)

6.97

%

 

6.71

%

 

0.26

%

 

5.07

%

 

1.90

%

 

6.67

%

 

4.39

%

 

2.28

%

Adjusted total interest-earning assets (1)(d)

6.63

%

 

6.35

%

 

0.28

%

 

4.80

%

 

1.83

%

 

6.33

%

 

4.13

%

 

2.20

%

Total in-market deposits(e)

2.97

%

 

2.56

%

 

0.41

%

 

0.61

%

 

2.36

%

 

2.55

%

 

0.32

%

 

2.23

%

Total bank funding(f)

3.07

%

 

2.78

%

 

0.29

%

 

0.89

%

 

2.18

%

 

2.73

%

 

0.56

%

 

2.17

%

Net interest margin(g)

3.76

%

 

3.81

%

 

(0.05

)%

 

4.01

%

 

(0.25

)%

 

3.81

%

 

3.71

%

 

0.10

%

Adjusted net interest margin(h)

3.66

%

 

3.63

%

 

0.03

%

 

3.89

%

 

(0.23

)%

 

3.68

%

 

3.53

%

 

0.15

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective fed funds rate (2)(i)

5.26

%

 

4.99

%

 

0.27

%

 

2.18

%

 

3.08

%

 

4.92

%

 

1.03

%

 

3.89

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beta Calculations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans and leases receivable(a)/(i)

 

 

 

 

75.6

%

 

 

 

60.1

%

 

 

 

 

 

55.78

%

Total interest-earning assets(b)/(i)

 

 

 

 

85.6

%

 

 

 

57.9

%

 

 

 

 

 

53.77

%

Adjusted total loans and leases receivable (1)(c)/(i)

 

 

 

 

97.5

%

 

 

 

61.8

%

 

 

 

 

 

58.61

%

Adjusted total interest-earning assets (1)(d)/(i)

 

 

 

 

104.8

%

 

 

 

59.5

%

 

 

 

 

 

56.53

%

Total in-market deposits(e/i)

 

 

 

 

151.9

%

 

 

 

76.6

%

 

 

 

 

 

57.33

%

Total bank funding(f)/(i)

 

 

 

 

107.5

%

 

 

 

70.8

%

 

 

 

 

 

55.78

%

Net interest margin(g/i)

 

 

 

 

(18.5

)%

 

 

 

(8.1

)%

 

 

 

 

 

2.57

%

Adjusted net interest margin(h/i)

 

 

 

 

11.1

%

 

 

 

(7.5

)%

 

 

 

 

 

3.86

%

(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

 

For the Nine Months Ended

(Dollars in thousands)

 

September 30,

2023

 

June 30,

2023

 

March 31,

2023

 

December 31,

2022

 

September 30,

2022

 

September 30,

2023

 

September 30,

2022

Change due to qualitative factor changes

 

$

506

 

 

$

(50

)

 

$

9

 

 

$

85

 

 

$

132

 

 

$

465

 

 

$

(469

)

Change due to quantitative factor changes

 

 

(1,372

)

 

 

(295

)

 

 

474

 

 

 

(930

)

 

 

(940

)

 

 

(1,193

)

 

 

(1,082

)

Charge-offs

 

 

562

 

 

 

329

 

 

 

166

 

 

 

818

 

 

 

54

 

 

 

1,057

 

 

 

161

 

Recoveries

 

 

(84

)

 

 

(245

)

 

 

(107

)

 

 

(203

)

 

 

(81

)

 

 

(435

)

 

 

(4,537

)

Change in reserves on individually evaluated loans, net

 

 

1,265

 

 

 

1,093

 

 

 

(36

)

 

 

(50

)

 

 

447

 

 

 

2,322

 

 

 

196

 

Change due to loan growth, net

 

 

817

 

 

 

1,227

 

 

 

979

 

 

 

982

 

 

 

400

 

 

 

3,023

 

 

 

1,162

 

Change in unfunded commitment reserves

 

 

123

 

 

 

172

 

 

 

76

 

 

 

 

 

 

 

 

 

371

 

 

 

 

Total provision for credit losses

 

$

1,817

 

 

$

2,231

 

 

$

1,561

 

 

$

702

 

 

$

12

 

 

$

5,610

 

 

$

(4,569

)

PERFORMANCE RATIOS

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

(Unaudited)

 

September 30,

2023

 

June 30,

2023

 

March 31,

2023

 

December 31,

2022

 

September 30,

2022

 

September 30,

2023

 

September 30,

2022

Return on average assets (annualized)

 

1.19

%

 

1.04

%

 

1.17

%

 

1.39

%

 

1.54

%

 

1.13

%

 

1.49

%

Return on average common equity (annualized)

 

14.62

%

 

12.58

%

 

13.96

%

 

16.26

%

 

17.44

%

 

13.72

%

 

16.97

%

Efficiency ratio

 

61.96

%

 

61.68

%

 

62.02

%

 

61.45

%

 

58.46

%

 

61.89

%

 

62.61

%

Interest rate spread

 

3.07

%

 

3.15

%

 

3.19

%

 

3.56

%

 

3.65

%

 

3.13

%

 

3.46

%

Net interest margin

 

3.76

%

 

3.81

%

 

3.86

%

 

4.15

%

 

4.01

%

 

3.81

%

 

3.71

%

Average interest-earning assets to average interest-bearing liabilities

 

123.59

%

 

124.82

%

 

130.09

%

 

135.90

%

 

138.98

%

 

125.98

%

 

138.34

%

ASSET QUALITY RATIOS

 

(Unaudited)

 

As of

(Dollars in thousands)

 

September 30,

2023

 

June 30,

2023

 

March 31,

2023

 

December 31,

2022

 

September 30,

2022

Non-accrual loans and leases

 

$

17,628

 

 

$

15,721

 

 

$

3,412

 

 

$

3,659

 

 

$

3,645

 

Repossessed assets

 

 

61

 

 

 

65

 

 

 

89

 

 

 

95

 

 

 

151

 

Total non-performing assets

 

 

17,689

 

 

 

15,786

 

 

 

3,501

 

 

 

3,754

 

 

 

3,796

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

0.64

%

 

 

0.59

%

 

 

0.13

%

 

 

0.15

%

 

 

0.16

%

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

 

 

0.64

%

 

 

0.59

%

 

 

0.14

%

 

 

0.15

%

 

 

0.16

%

Non-performing assets as a percent of total assets

 

 

0.52

%

 

 

0.48

%

 

 

0.11

%

 

 

0.13

%

 

 

0.13

%

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

 

 

1.12

%

 

 

1.11

%

 

 

1.08

%

 

 

0.99

%

 

 

1.04

%

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

 

 

176.06

%

 

 

188.90

%

 

 

807.44

%

 

 

662.20

%

 

 

662.36

%

NET CHARGE-OFFS (RECOVERIES)

 

(Unaudited)

 

For the Three Months Ended

 

For the Nine Months Ended

(Dollars in thousands)

 

September 30,

2023

 

June 30,

2023

 

March 31,

2023

 

December 31,

2022

 

September 30,

2022

 

September 30,

2023

 

September 30,

2022

Charge-offs

 

$

562

 

 

$

329

 

 

$

166

 

 

$

818

 

 

$

54

 

 

$

1,057

 

 

$

161

 

Recoveries

 

 

(84

)

 

 

(245

)

 

 

(107

)

 

 

(203

)

 

 

(81

)

 

 

(435

)

 

 

(4,537

)

Net charge-offs (recoveries)

 

$

478

 

 

$

84

 

 

$

59

 

 

$

615

 

 

$

(27

)

 

$

622

 

 

$

(4,376

)

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

 

 

0.07

%

 

 

0.01

%

 

 

0.01

%

 

 

0.10

%

 

 

%

 

 

0.03

%

 

 

(0.26

)%

CAPITAL RATIOS

 

 

 

As of and for the Three Months Ended

(Unaudited)

 

September 30,

2023

 

June 30,

2023

 

March 31,

2023

 

December 31,

2022

 

September 30,

2022

Total capital to risk-weighted assets

 

11.20

%

 

10.70

%

 

11.04

%

 

11.26

%

 

11.66

%

Tier I capital to risk-weighted assets

 

8.74

%

 

8.70

%

 

9.01

%

 

9.20

%

 

9.48

%

Common equity tier I capital to risk-weighted assets

 

8.37

%

 

8.32

%

 

8.61

%

 

8.79

%

 

9.04

%

Tier I capital to adjusted assets

 

8.65

%

 

8.80

%

 

9.00

%

 

9.17

%

 

9.34

%

Tangible common equity to tangible assets

 

7.53

%

 

7.64

%

 

7.69

%

 

7.98

%

 

8.06

%

LOAN AND LEASE RECEIVABLE COMPOSITION

 

(Unaudited)

 

As of

(in thousands)

 

September 30,

2023

 

June 30,

2023

 

March 31,

2023

 

December 31,

2022

 

September 30,

2022

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

Commercial real estate - owner occupied (1)

 

$

236,058

 

 

$

244,039

 

 

$

233,725

 

 

$

268,354

 

$

265,989

Commercial real estate - non-owner occupied (1)

 

 

753,517

 

 

 

715,309

 

 

 

675,087

 

 

 

687,091

 

 

657,975

Construction (1)

 

 

211,828

 

 

 

217,069

 

 

 

212,916

 

 

 

218,751

 

 

211,509

Multi-family (1)

 

 

409,714

 

 

 

392,297

 

 

 

384,043

 

 

 

350,026

 

 

332,782

1-4 family (1)

 

 

24,235

 

 

 

23,063

 

 

 

23,404

 

 

 

17,728

 

 

16,678

Total commercial real estate

 

 

1,635,352

 

 

 

1,591,777

 

 

 

1,529,175

 

 

 

1,541,950

 

 

1,484,933

Commercial and industrial (1)

 

 

1,083,698

 

 

 

1,036,921

 

 

 

963,328

 

 

 

853,327

 

 

800,092

Consumer and other (1)

 

 

44,808

 

 

 

45,743

 

 

 

46,773

 

 

 

47,938

 

 

46,123

Total gross loans and leases receivable

 

 

2,763,858

 

 

 

2,674,441

 

 

 

2,539,276

 

 

 

2,443,215

 

 

2,331,148

Less:

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses

 

 

29,331

 

 

 

28,115

 

 

 

26,140

 

 

 

24,230

 

 

24,143

Deferred loan fees

 

 

(156

)

 

 

(142

)

 

 

(87

)

 

 

149

 

 

448

Loans and leases receivable, net

 

$

2,734,683

 

 

$

2,646,468

 

 

$

2,513,223

 

 

$

2,418,836

 

$

2,306,557

(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)

 

September 30,

2023

 

June 30,

2023

 

March 31,

2023

 

December 31,

2022

 

September 30,

2022

Non-interest-bearing transaction accounts

 

$

430,011

 

 

$

419,294

 

 

$

471,904

 

 

$

537,107

 

 

$

564,141

 

Interest-bearing transaction accounts

 

 

779,789

 

 

 

719,198

 

 

 

612,500

 

 

 

576,601

 

 

 

461,883

 

Money market accounts

 

 

694,199

 

 

 

641,969

 

 

 

662,157

 

 

 

698,505

 

 

 

742,545

 

Certificates of deposit

 

 

285,265

 

 

 

293,283

 

 

 

308,191

 

 

 

153,757

 

 

 

160,655

 

Wholesale deposits

 

 

467,743

 

 

 

455,108

 

 

 

422,088

 

 

 

202,236

 

 

 

158,321

 

Total deposits

 

$

2,657,007

 

 

$

2,528,852

 

 

$

2,476,840

 

 

$

2,168,206

 

 

$

2,087,545

 

 

 

 

 

 

 

 

 

 

 

 

Uninsured deposits

 

$

916,083

 

 

$

867,397

 

 

$

974,242

 

 

$

967,465

 

 

$

1,007,935

 

Less: uninsured deposits collateralized by pledged assets

 

 

28,873

 

 

 

37,670

 

 

 

32,468

 

 

 

14,326

 

 

 

34,264

 

Total uninsured, net of collateralized deposits

 

 

887,210

 

 

 

829,727

 

 

 

941,774

 

 

 

953,139

 

 

 

973,671

 

% of total deposits

 

 

33.4

%

 

 

32.8

%

 

 

38.0

%

 

 

44.0

%

 

 

46.6

%

SOURCES OF LIQUIDITY

 

(Unaudited)

 

As of

(in thousands)

 

September 30,

2023

 

June 30,

2023

 

March 31,

2023

 

December 31,

2022

 

September 30,

2022

Short-term investments

 

$

109,612

 

$

80,510

 

$

159,859

 

$

76,871

 

$

86,707

Collateral value of unencumbered pledged loans

 

 

315,067

 

 

265,884

 

 

296,393

 

 

184,415

 

 

289,513

Market value of unencumbered securities

 

 

236,618

 

 

217,074

 

 

200,332

 

 

188,353

 

 

173,013

Readily available liquidity

 

 

661,297

 

 

563,468

 

 

656,584

 

 

449,639

 

 

549,233

 

 

 

 

 

 

 

 

 

 

 

Fed fund lines

 

 

45,000

 

 

45,000

 

 

45,000

 

 

45,000

 

 

45,000

Excess brokered CD capacity(1)

 

 

1,090,864

 

 

1,017,590

 

 

1,027,869

 

 

1,162,241

 

 

1,100,369

Total liquidity

 

$

1,797,161

 

$

1,626,058

 

$

1,729,453

 

$

1,656,880

 

$

1,694,602

Total uninsured, net of collateralized deposits

 

 

887,210

 

 

829,727

 

 

941,774

 

 

953,139

 

 

973,671

(1)  

Bank internal policy limits brokered CDs to 50% of total bank funding when combined with FHLB advances.

PRIVATE WEALTH OFF-BALANCE SHEET COMPOSITION

 

(Unaudited)

 

As of

(in thousands)

 

September 30,

2023

 

June 30,

2023

 

March 31,

2023

 

December 31,

2022

 

September 30,

2022

Trust assets under management

 

$

2,715,801

 

$

2,707,390

 

$

2,615,670

 

$

2,483,811

 

$

2,332,448

Trust assets under administration

 

 

198,864

 

 

199,729

 

 

188,458

 

 

176,225

 

 

160,171

Total trust assets

 

$

2,914,665

 

$

2,907,119

 

$

2,804,128

 

$

2,660,036

 

$

2,492,619

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)

 

September 30,

2023

 

June 30,

2023

 

March 31,

2023

 

December 31,

2022

 

September 30,

2022

Common stockholders’ equity

 

$

268,766

 

 

$

260,640

 

 

$

254,589

 

 

$

248,648

 

 

$

241,012

 

Less: Goodwill and other intangible assets

 

 

(12,110

)

 

 

(12,073

)

 

 

(12,160

)

 

 

(12,159

)

 

 

(12,218

)

Tangible common equity

 

$

256,656

 

 

$

248,567

 

 

$

242,429

 

 

$

236,489

 

 

$

228,794

 

Common shares outstanding

 

 

8,315,186

 

 

 

8,315,465

 

 

 

8,306,270

 

 

 

8,362,085

 

 

 

8,432,048

 

Book value per share

 

$

32.32

 

 

$

31.34

 

 

$

30.65

 

 

$

29.74

 

 

$

28.58

 

Tangible book value per share

 

 

30.87

 

 

 

29.89

 

 

 

29.19

 

 

 

28.28

 

 

 

27.13

 

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)

 

September 30,

2023

 

June 30,

2023

 

March 31,

2023

 

December 31,

2022

 

September 30,

2022

Common stockholders’ equity

 

$

268,766

 

 

$

260,640

 

 

$

254,589

 

 

$

248,648

 

 

$

241,012

 

Less: Goodwill and other intangible assets

 

 

(12,110

)

 

 

(12,073

)

 

 

(12,160

)

 

 

(12,159

)

 

 

(12,218

)

Tangible common equity (a)

 

$

256,656

 

 

$

248,567

 

 

$

242,429

 

 

$

236,489

 

 

$

228,794

 

Total assets

 

$

3,418,850

 

 

$

3,265,738

 

 

$

3,164,411

 

 

$

2,976,611

 

 

$

2,850,802

 

Less: Goodwill and other intangible assets

 

 

(12,110

)

 

 

(12,073

)

 

 

(12,160

)

 

 

(12,159

)

 

 

(12,218

)

Tangible assets (b)

 

$

3,406,740

 

 

$

3,253,665

 

 

$

3,152,251

 

 

$

2,964,452

 

 

$

2,838,584

 

Tangible common equity to tangible assets

 

 

7.53

%

 

 

7.64

%

 

 

7.69

%

 

 

7.98

%

 

 

8.06

%

 

 

 

 

 

 

 

 

 

 

 

Fair Value Adjustments:

 

 

 

 

 

 

 

 

 

 

Financial assets - MTM (c)

 

$

(45,489

)

 

$

(43,403

)

 

$

(24,764

)

 

$

(24,302

)

 

$

(7,650

)

Financial liabilities - MTM (d)

 

$

23,436

 

 

$

21,916

 

 

$

17,334

 

 

$

17,328

 

 

$

11,230

 

Net MTM, after-tax e = (c-d)*(1-21%)

 

$

(17,422

)

 

$

(16,975

)

 

$

(5,870

)

 

$

(5,509

)

 

$

2,828

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted tangible equity f = (a-e)

 

$

239,234

 

 

$

231,592

 

 

$

236,559

 

 

$

230,980

 

 

$

231,622

 

Adjusted tangible assets g = (b-c)

 

$

3,361,251

 

 

$

3,210,262

 

 

$

3,127,487

 

 

$

2,940,150

 

 

$

2,830,934

 

Adjusted TCE ratio (f/g)

 

 

7.12

%

 

 

7.21

%

 

 

7.56

%

 

 

7.86

%

 

 

8.18

%

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

 

For the Nine Months Ended

(Dollars in thousands)

September 30,

2023

 

June 30,

2023

 

March 31,

2023

 

December 31,

2022

 

September 30,

2022

 

September 30,

2023

 

September 30,

2022

Total non-interest expense

$

23,189

 

 

$

22,031

 

 

$

21,767

 

 

$

21,167

 

 

$

20,028

 

 

$

66,987

 

 

$

58,307

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss (gain) on repossessed assets

 

4

 

 

 

(2

)

 

 

6

 

 

 

22

 

 

 

7

 

 

 

8

 

 

 

27

 

SBA recourse provision (benefit)

 

242

 

 

 

341

 

 

 

(18

)

 

 

(322

)

 

 

96

 

 

 

565

 

 

 

134

 

Contribution to First Business Charitable Foundation

 

 

 

 

 

 

 

 

 

 

809

 

 

 

 

 

 

 

 

 

 

Tax credit investment impairment recovery

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(351

)

Total operating expense (a)

$

22,943

 

 

$

21,692

 

 

$

21,779

 

 

$

20,658

 

 

$

19,925

 

 

$

66,414

 

 

$

58,497

 

Net interest income

$

28,596

 

 

$

27,747

 

 

$

26,705

 

 

$

27,452

 

 

$

25,884

 

 

$

83,049

 

 

$

70,971

 

Total non-interest income

 

8,430

 

 

 

7,374

 

 

 

8,410

 

 

 

6,973

 

 

 

8,197

 

 

 

24,214

 

 

 

22,455

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank-owned life insurance claim

 

 

 

 

 

 

 

 

 

 

809

 

 

 

 

 

 

 

 

 

 

Net loss on sale of securities

 

 

 

 

(45

)

 

 

 

 

 

 

 

 

 

 

 

(45

)

 

 

 

Adjusted non-interest income

 

8,430

 

 

 

7,419

 

 

 

8,410

 

 

 

6,164

 

 

 

8,197

 

 

 

24,259

 

 

 

22,455

 

Total operating revenue (b)

$

37,026

 

 

$

35,166

 

 

$

35,115

 

 

$

33,616

 

 

$

34,081

 

 

$

107,308

 

 

$

93,426

 

Efficiency ratio

 

61.96

%

 

 

61.68

%

 

 

62.02

%

 

 

61.45

%

 

 

58.46

%

 

 

61.89

%

 

 

62.61

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

$

14,083

 

 

$

13,474

 

 

$

13,336

 

 

$

12,958

 

 

$

14,156

 

 

$

40,894

 

 

$

34,929

 

Average total assets

$

3,276,240

 

 

$

3,127,234

 

 

$

2,984,600

 

 

$

2,867,475

 

 

$

2,758,961

 

 

$

3,130,426

 

 

$

2,714,309

 

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

 

1.72

%

 

 

1.72

%

 

 

1.79

%

 

 

1.81

%

 

 

2.05

%

 

 

1.74

%

 

 

1.72

%

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

 

For the Nine Months Ended

(Dollars in thousands)

September 30,

2023

 

June 30,

2023

 

March 31,

2023

 

December 31,

2022

 

September 30,

2022

 

September 30,

2023

 

September 30,

2022

Interest income

$

50,941

 

 

$

47,161

 

 

$

42,064

 

 

$

38,319

 

 

$

31,786

 

 

$

140,167

 

 

$

83,053

 

Interest expense

 

22,345

 

 

 

19,414

 

 

 

15,359

 

 

 

10,867

 

 

 

5,902

 

 

 

57,118

 

 

 

12,082

 

Net interest income (a)

 

28,596

 

 

 

27,747

 

 

 

26,705

 

 

 

27,452

 

 

 

25,884

 

 

 

83,049

 

 

 

70,971

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

Fees in lieu of interest

 

582

 

 

 

936

 

 

 

651

 

 

 

1,318

 

 

 

807

 

 

 

2,169

 

 

 

3,962

 

FRB interest income and FHLB dividend income

 

870

 

 

 

1,064

 

 

 

656

 

 

 

613

 

 

 

445

 

 

 

2,590

 

 

 

913

 

Adjusted net interest income (b)

$

27,144

 

 

$

25,747

 

 

$

25,398

 

 

$

25,521

 

 

$

24,632

 

 

$

78,290

 

 

$

66,096

 

Average interest-earning assets (c)

$

3,038,776

 

 

$

2,913,751

 

 

$

2,765,087

 

 

$

2,649,149

 

 

$

2,582,945

 

 

$

2,906,874

 

 

$

2,553,343

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

Average FRB cash and FHLB stock

 

54,677

 

 

 

76,678

 

 

 

45,150

 

 

 

50,522

 

 

 

45,351

 

 

 

58,870

 

 

 

45,423

 

Average non-accrual loans and leases

 

15,775

 

 

 

3,781

 

 

 

3,536

 

 

 

3,591

 

 

 

4,416

 

 

 

7,702

 

 

 

5,532

 

Adjusted average interest-earning assets (d)

$

2,968,324

 

 

$

2,833,292

 

 

$

2,716,401

 

 

$

2,595,036

 

 

$

2,533,178

 

 

$

2,840,302

 

 

$

2,502,388

 

Net interest margin (a / c)

 

3.76

%

 

 

3.81

%

 

 

3.86

%

 

 

4.15

%

 

 

4.01

%

 

 

3.81

%

 

 

3.71

%

Adjusted net interest margin (b / d)

 

3.66

%

 

 

3.63

%

 

 

3.74

%

 

 

3.93

%

 

 

3.89

%

 

 

3.68

%

 

 

3.52

%

 

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