MADISON, Wis., July 23, 2015 (GLOBE NEWSWIRE) -- First Business Financial Services, Inc. (the "Company" or "First Business") (NASDAQ:FBIZ), the parent company of First Business Bank, First Business Bank - Milwaukee and Alterra Bank ("Alterra"), today reported second quarter results, including growth in loans and fee income to record levels, while project-related investments in people and technology continued to ensure the franchise is positioned to meet its strategic growth objectives. Organic growth by the Company's Wisconsin operations was complemented by strong contributions from Alterra, its Kansas City-based banking subsidiary acquired in November 2014.
Highlights for the quarter ended June 30, 2015 include:
- Net income for the second quarter of 2015 totaled $3.9 million, an increase of 10%, compared to $3.5 million in the second quarter of 2014.
- Diluted earnings per common share increased to $0.89 for the quarter ended June 30, 2015, compared to $0.88 for the quarter end June 30, 2014.
- Annualized return on average assets and annualized return on average equity measured 0.93% and 10.73%, respectively, for the second quarter of 2015, compared to 1.09% and 12.29%, respectively, for the second quarter of 2014.
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Top line revenue, consisting of net interest income and non-interest income, increased 39% to $18.3 million, compared to the second quarter of 2014.
- Excluding Alterra, second quarter 2015 top line revenue grew 5% organically to $13.8 million, compared to the second quarter of 2014.
- The Company's second quarter efficiency ratio measured 65.3%, including growth-related investments to expand the Small Business Administration ("SBA") business development and support teams in the Kansas City and Milwaukee markets, as well as investments for the ongoing conversion to an industry leading client relationship management platform and business intelligence software implementation.
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Net loans and leases grew for the thirteenth consecutive quarter, reaching a record $1.335 billion at June 30, 2015, up 34% from June 30, 2014.
- Excluding Alterra, net loans and leases grew 11% organically to a record $1.107 billion at June 30, 2015, from June 30, 2014.
- Net interest margin measured 3.61% for the second quarter of 2015, including 14 basis points related to the net accretion/amortization of purchase accounting adjustments on Alterra loans, deposits and borrowings, compared to 3.52% for the second quarter of 2014.
- No material charge offs or recoveries were booked in the second quarters of 2015 and 2014, and non-performing assets as a percent of total assets declined to 1.01% at June 30, 2015 from 1.11% one year prior.
"Exceptional loan growth and record fee income in the second quarter, as well as a healthy pipeline for new business reflect the successful execution of our growth-oriented strategy. Our investment in production talent is paying off," said Corey Chambas, President and Chief Executive Officer. "In addition to production talent, we have invested and continue to invest significantly in the people and technology to refine a scalable franchise that's able to effectively handle our aggressive growth plans."
The Company recorded net income of $3.9 million in the second quarter of 2015, compared to $4.2 million earned in the first quarter of 2015 and $3.5 million earned in the second quarter of 2014. Diluted earnings per common share were $0.89 for the second quarter of 2015, compared to $0.97 for the linked quarter and $0.88 for the prior year quarter. Second quarter 2015 results include the impact of $33,000 in non-recurring, pre-tax merger expenses related to the Company's acquisition of Alterra, compared to $78,000 and $320,000 in merger expenses recorded for the first quarter of 2015 and second quarter of 2014, respectively.
During the second quarter of 2015, Alterra generated $3.0 million in net interest income, including $542,000 related to the net accretion/amortization of purchase accounting adjustments, $1.4 million in non-interest income, $2.4 million in non-interest expense and $770,000 in loan loss provision, contributing a total of $1.3 million in pre-tax income to First Business's second quarter results. In the first quarter of 2015, Alterra produced $3.5 million in net interest income, including $1.2 million related to the net accretion/amortization of purchase accounting adjustments, $1.1 million in non-interest income, $2.4 million in non-interest expense and $362,000 in loan loss provision, contributing a total of $1.9 million in pre-tax income to First Business's first quarter results.
Results of Operations
Net interest income for the second quarter of 2015 totaled $14.2 million, a decrease of $742,000, or 5%, compared to the linked quarter primarily due to the $694,000 decrease in net accretion/amortization of purchase accounting adjustments. Management expects the net accretion/amortization to remain volatile in future quarters due to the uncertain nature of loan prepayments. Excluding the net accretion/amortization of purchase accounting adjustments, net interest income totaled $13.6 million in the second quarter of 2015 and $13.7 million in the linked quarter, a decrease of $48,000, or 1.4%. Excluding Alterra's total impact in both quarters, net interest income declined $259,000, or 2.3%, primarily due to volatility in asset-based loan fees. Compared to the prior year quarter and excluding Alterra, First Business's net interest income increased $342,000, or 3.2%. Net interest income continued to benefit from Alterra's higher average yielding loan portfolio and net accretion/amortization related to purchase accounting adjustments of $542,000, which offset the decline in First Business's earning asset yields attributable to its other bank subsidiaries.
Net interest margin of 3.61% decreased 18 basis points from the first quarter of 2015 and increased 9 basis points from the second quarter of 2014. Second quarter 2015 net interest margin included 14 basis points, or $542,000, related to the net accretion/amortization of purchase accounting adjustments, while the linked quarter margin included 32 basis points, or $1.2 million, related to the net accretion/amortization of the purchase accounting adjustments. Excluding the net accretion/amortization of the purchase accounting adjustments, net interest margin remains consistent with management's expectations of approximately 3.50%. Net interest margin may experience occasional volatility due to non-recurring events such as prepayment fees collected in lieu of interest, the collection of foregone interest, the accumulation of significant short-term deposit inflows or the ongoing accretion/amortization of the fair value purchase accounting adjustments related to the acquisition of Alterra.
Non-interest income of $4.1 million for the second quarter of 2015 increased $1.8 million, or 75.0%, from the second quarter of 2014, reaching record levels. Alterra contributed $1.4 million in non-interest income during the second quarter of 2015, including $930,000 in gains on the sale of loans originated as held for sale and $182,000 in loan fees, primarily related to continued strength in the SBA lending business. Excluding income directly attributed to the Alterra markets, non-interest income reached a record $2.7 million, growing by $350,000, or 14.8%, from the second quarter of 2014. This growth reflects the continued success of efforts to expand Alterra's SBA lending expertise into First Business's Wisconsin markets, resulting in $134,000 in gains related to the sale of the guaranteed portion of SBA loans. In addition, trust and investment services income, the Company's leading source of fee revenue, reached a record $1.3 million, increasing $169,000, or 15.2%, from the second quarter of 2014. Trust assets under management and administration measured $998.0 million as of June 30, 2015, up 12.2% compared to $889.6 million at June 30, 2014.
Non-interest expense for the second quarter of 2015 was $12.0 million, an increase of $4.2 million, or 54.5%, compared to the second quarter of 2014. Second quarter 2015 included $2.4 million in expenses at Alterra, along with $33,000 in non-recurring merger-related costs. Excluding merger-related costs and expenses generated by Alterra, non-interest expense increased by $1.8 million, or 23.2%, compared to the second quarter of 2014 driven primarily by investments in people and technology. Excluding Alterra, compensation costs grew by $817,000, or 17.2%, reflecting annual merit increases and the continued approach to opportunistically hire new business development officers and operational staff to support growth. All remaining non-interest expense, specifically professional services, increased in line with expectations as we continue to search for a CFO and CAO as well as invest in solutions that will drive operational efficiency. Management expects to continue investing in products and technology to support these strategic growth initiatives.
The Company's efficiency ratio of 65.3% for the second quarter of 2015, compared to 62.5% for the linked quarter and 58.9% for the second quarter of 2014, reflects these increased investments for the future. While management expects the efficiency ratio to remain above the long-term objective of 60% or less for the short-term, the longstanding objective of aligning non-interest expense growth with top line revenue growth remains a key component of the Company's strategic plan.
The Company recorded a provision for loan and lease losses totaling $520,000 for the second quarter of 2015, compared to $684,000 in the first quarter of 2015. During the second quarter of 2014, the Company recorded a negative provision for loan and lease losses of $91,000. Second quarter 2015 provision primarily reflects additions commensurate with growth, partially offset by a reduction of the loss factors applied in calculating the probable losses within the loan and lease portfolio for which a reserve should be established primarily due to improving macro and microeconomic factors. The Company experienced $15,000 in net charge-offs during the second quarter of 2015 and $5,000 of net recoveries during the second quarter of 2014. Net charge-offs totaling $319,000 represented an annualized 0.10% of average loans for the first quarter of 2015.
Balance Sheet and Asset Quality Strength
Period-end net loans and leases grew for the thirteenth consecutive quarter, reaching a record $1.335 billion at June 30, 2015, reflecting strong growth late in the second quarter. Net loans and leases grew $53.1 million, or 17% annualized, from March 31, 2015 and $341.6 million from June 30, 2014. Excluding $228.0 million in loans and leases at Alterra, net loans and leases were a record $1.107 billion at June 30, 2015, increasing $113.7 million, or 11.4%, from the prior year quarter. Growth reflects continued and successful execution in deepening client relationships, attracting new commercial clients, and capitalizing on market opportunities.
Period-end in-market deposits - consisting of all transaction accounts, money market accounts and non-wholesale deposits - totaled $1.027 billion, comprising 69.8% of total deposits at June 30, 2015. Period-end wholesale deposits were $444.5 million at June 30, 2015, consisting of brokered certificates of deposit and deposits gathered through internet deposit listing services of $391.3 million and $53.2 million, respectively. Average in-market deposits were $1.027 billion, or 70.6% of total deposits, for the second quarter of 2015. In order to reduce interest rate risk, the Company uses wholesale deposits to efficiently match-fund fixed-rate loans. Over time, management expects to maintain a ratio of in-market deposits to total deposits in line with the Company's recent historical range of 60%-70%.
Management continues to believe asset quality is a source of strength that differentiates the Company from many of its peers, despite a recent increase in non-performing assets. During the second quarter of 2015, non-performing loans increased to $15.2 million, compared to $9.4 million at March 31, 2015, due to one $6.2 million relationship classified as impaired in the second quarter. This relationship, which is in the process of being restructured, is well-collateralized, current on all payments and no principal loss is expected. As a result, the Company's non-performing loans as a percentage of total gross loans and leases measured 1.12% at June 30, 2015, increasing from 0.72% as of March 31, 2015. Likewise, the ratio of non-performing assets to total assets increased to 1.01% at June 30, 2015, compared to 0.65% at March 31, 2015. Non-performing assets totaled $17.1 million at June 30, 2015, compared to $10.9 million at March 31, 2015. Management believes this increase is not systemic in nature or indicative of a trend of increasing non-performing loans.
Capital Strength
The Company's earnings continue to generate capital, and its capital ratios are in excess of the highest required regulatory benchmark levels. As of June 30, 2015, total capital to risk-weighted assets was 11.12%, tier 1 capital to risk-weighted assets was 8.78%, tier 1 capital to average assets was 8.66% and common equity tier 1 capital was 8.17%. Capital ratios as of June 30, 2015 reflect the Company's implementation of the capital guidelines under Basel III, which became effective January 1, 2015.
Quarterly Dividend
As previously announced, during the second quarter of 2015 the Company's Board of Directors declared a regular quarterly dividend of $0.22 per share. The dividend was paid on May 29, 2015 to shareholders of record at the close of business on May 15, 2015. Measured against second quarter 2015 earnings per share of $0.89, the dividend represents what the Company believes is a sustainable 24.7% payout ratio. The Board of Directors routinely considers dividend declarations as part of its normal course of business.
About First Business Financial Services, Inc.
First Business Financial Services, Inc. (NASDAQ:FBIZ) is a Wisconsin-based bank holding company, focused on the unique needs of businesses, business executives, and high net worth individuals. First Business offers commercial banking, specialty finance, and private wealth management solutions, and because of its niche focus, is able to provide its clients with unmatched expertise, accessibility, and responsiveness. For additional information, visit www.firstbusiness.com or call 608-238-8008.
This press release includes "forward-looking" statements related to the Company that can generally be identified as describing the Company's future plans, objectives or goals. Such forward-looking statements are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those currently anticipated. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. For further information about the factors that could affect the Company's future results, please see the Company's 2014 annual report on Form 10-K, quarterly reports on Form 10-Q and other filings with the Securities and Exchange Commission.
| SELECTED FINANCIAL CONDITION DATA | |||||
| (Unaudited) | As of | ||||
| June 30, | March 31, | December 31, | September 30, | June 30, | |
| (in thousands) | 2015 | 2015 | 2014 | 2014 | 2014 |
| ASSETS | |||||
| Cash and cash equivalents | $ 88,848 | $ 141,887 | $ 103,237 | $ 174,498 | $ 85,977 |
| Securities available-for-sale, at fair value | 146,342 | 142,951 | 144,698 | 142,427 | 143,642 |
| Securities held-to-maturity, at amortized cost | 39,428 | 40,599 | 41,563 | 42,522 | 43,434 |
| Loans and leases receivable | 1,350,564 | 1,296,936 | 1,280,767 | 1,041,816 | 1,007,736 |
| Allowance for loan and lease losses | (15,199) | (14,694) | (14,329) | (13,930) | (14,015) |
| Loans and leases, net | 1,335,365 | 1,282,242 | 1,266,438 | 1,027,886 | 993,721 |
| Premises and equipment, net | 3,998 | 3,883 | 3,943 | 1,198 | 1,152 |
| Foreclosed properties | 1,854 | 1,566 | 1,693 | 106 | 329 |
| Cash surrender value of bank-owned life insurance | 27,785 | 27,548 | 27,314 | 23,772 | 23,558 |
| Investment in Federal Home Loan Bank and Federal Reserve Bank stock, at cost | 2,891 | 2,798 | 2,340 | 1,349 | 1,349 |
| Goodwill and other intangible assets | 12,133 | 12,011 | 11,944 | — | — |
| Accrued interest receivable and other assets | 24,920 | 25,192 | 26,217 | 13,809 | 13,341 |
| Total assets | $ 1,683,564 | $ 1,680,677 | $ 1,629,387 | $ 1,427,567 | $ 1,306,503 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
| In-market deposits | $ 1,026,588 | $ 1,054,828 | $ 1,010,928 | $ 859,114 | $ 729,400 |
| Wholesale deposits | 444,480 | 430,973 | 427,340 | 410,086 | 437,297 |
| Total deposits | 1,471,068 | 1,485,801 | 1,438,268 | 1,269,200 | 1,166,697 |
| Federal Home Loan Bank and other borrowings | 47,401 | 34,448 | 33,994 | 22,936 | 7,936 |
| Junior subordinated notes | 10,315 | 10,315 | 10,315 | 10,315 | 10,315 |
| Accrued interest payable and other liabilities | 10,493 | 8,424 | 9,062 | 6,924 | 5,907 |
| Total liabilities | 1,539,277 | 1,538,988 | 1,491,639 | 1,309,375 | 1,190,855 |
| Total stockholders' equity | 144,287 | 141,689 | 137,748 | 118,192 | 115,648 |
| Total liabilities and stockholders' equity | $ 1,683,564 | $ 1,680,677 | $ 1,629,387 | $ 1,427,567 | $ 1,306,503 |
| STATEMENTS OF INCOME | |||||||
| (Unaudited) |
As of and for the Three Months Ended |
As of and for the Six Months Ended |
|||||
| June 30, | March 31, | December 31, | September 30, | June 30, | June 30, | June 30, | |
| (in thousands, except per share amounts) | 2015 | 2015 | 2014 | 2014 | 2014 | 2015 | 2014 |
| Total interest income | $ 17,520 | $ 18,216 | $ 16,863 | $ 13,871 | $ 13,565 | $ 35,736 | $ 26,966 |
| Total interest expense | 3,332 | 3,286 | 3,268 | 2,936 | 2,766 | 6,618 | 5,367 |
| Net interest income | 14,188 | 14,930 | 13,595 | 10,935 | 10,799 | 29,118 | 21,599 |
| Provision for loan and lease losses | 520 | 684 | 1,236 | (89) | (91) | 1,204 | 89 |
| Net interest income after provision for loan and lease losses | 13,668 | 14,246 | 12,359 | 11,024 | 10,890 | 27,914 | 21,510 |
| Trust and investment services fee income | 1,279 | 1,207 | 1,119 | 1,137 | 1,110 | 2,486 | 2,178 |
| Service charges on deposits | 693 | 696 | 682 | 620 | 600 | 1,389 | 1,167 |
| Loan fees | 499 | 502 | 421 | 386 | 380 | 1,001 | 769 |
| Gain on sale of loans and leases | 1,064 | 653 | 392 | 24 | 3 | 1,717 | — |
| Other | 591 | 790 | 351 | 292 | 265 | 1,381 | 565 |
| Total non-interest income | 4,126 | 3,848 | 2,965 | 2,459 | 2,358 | 7,974 | 4,679 |
| Compensation | 6,924 | 7,354 | 6,486 | 5,193 | 4,741 | 14,278 | 9,798 |
| Occupancy | 486 | 500 | 428 | 324 | 315 | 986 | 638 |
| Professional fees | 1,482 | 911 | 638 | 570 | 575 | 2,393 | 1,207 |
| Data processing | 655 | 530 | 483 | 389 | 423 | 1,185 | 839 |
| Marketing | 701 | 642 | 542 | 409 | 364 | 1,343 | 711 |
| Equipment | 298 | 308 | 250 | 145 | 125 | 606 | 255 |
| FDIC Insurance | 220 | 213 | 216 | 179 | 173 | 433 | 363 |
| Net collateral liquidation costs | 78 | 302 | 44 | 32 | 85 | 380 | 243 |
| Net loss (gain) on foreclosed properties | 1 | (16) | (5) | (9) | 4 | (15) | 4 |
| Merger-related costs | 33 | 78 | 566 | 104 | 320 | 111 | 320 |
| Other | 1,096 | 910 | 479 | 711 | 624 | 2,006 | 1,222 |
| Total non-interest expense | 11,974 | 11,732 | 10,127 | 8,047 | 7,749 | 23,706 | 15,600 |
| Income before tax expense | 5,820 | 6,362 | 5,197 | 5,436 | 5,499 | 12,182 | 10,589 |
| Income tax expense | 1,962 | 2,170 | 1,453 | 1,883 | 1,994 | 4,132 | 3,747 |
| Net income | $ 3,858 | $ 4,192 | $ 3,744 | $ 3,553 | $ 3,505 | $ 8,050 | $ 6,842 |
| Per common share: | |||||||
| Basic earnings | $ 0.89 | $ 0.97 | $ 0.89 | $ 0.90 | $ 0.89 | $ 1.86 | $ 1.73 |
| Diluted earnings | 0.89 | 0.97 | 0.89 | 0.89 | 0.88 | 1.86 | 1.72 |
| Dividends declared | 0.22 | 0.22 | 0.21 | 0.21 | 0.21 | 0.44 | 0.42 |
| Book value | 33.28 | 32.68 | 31.77 | 29.85 | 29.31 | 0.03 | 29.31 |
| Tangible book value | 30.49 | 29.91 | 29.01 | 29.85 | 29.31 | 0.03 | 29.31 |
| Weighted-average common shares outstanding(1) | 4,261,127 | 4,260,249 | 4,130,158 | 3,867,835 | 3,860,087 | 4,261,218 | 3,859,795 |
| Weighted-average diluted common shares outstanding(1) | 4,261,127 | 4,262,514 | 4,137,411 | 3,889,679 | 3,883,355 | 4,262,339 | 3,881,998 |
| (1) Excluding participating securities | |||||||
| NET INTEREST INCOME ANALYSIS | |||||||||
| (Unaudited) | For the Three Months Ended | ||||||||
| (Dollars in thousands) | June 30, 2015 | March 31, 2015 | June 30, 2014 | ||||||
| Average | Average | Average | Average | Average | Average | ||||
| balance | Interest | yield/rate | balance | Interest | yield/rate | balance | Interest | yield/rate | |
| Interest-earning assets | |||||||||
| Commercial real estate and other mortgage loans(1) | $ 824,250 | $ 9,672 | 4.69% | $ 814,933 | $ 9,869 | 4.84% | $ 636,174 | $ 7,702 | 4.84% |
| Commercial and industrial loans(1) | 439,986 | 6,408 | 5.83% | 426,697 | 6,824 | 6.40% | 323,045 | 4,476 | 5.54% |
| Direct financing leases(1) | 29,631 | 342 | 4.62% | 32,752 | 383 | 4.68% | 27,457 | 316 | 4.60% |
| Consumer and other loans(1) | 24,888 | 258 | 4.15% | 24,110 | 249 | 4.13% | 17,044 | 157 | 3.68% |
| Total loans and leases receivable(1) | 1,318,755 | 16,680 | 5.06% | 1,298,492 | 17,325 | 5.34% | 1,003,720 | 12,651 | 5.04% |
| Mortgage-related securities(2) | 156,137 | 632 | 1.62% | 155,330 | 662 | 1.70% | 156,073 | 746 | 1.91% |
| Other investment securities(3) | 28,912 | 116 | 1.60% | 28,273 | 114 | 1.61% | 27,497 | 109 | 1.59% |
| FHLB and FRB stock | 2,926 | 20 | 2.73% | 2,597 | 18 | 2.70% | 1,427 | 1 | 0.44% |
| Short-term investments | 66,035 | 72 | 0.44% | 92,934 | 97 | 0.42% | 37,451 | 58 | 0.62% |
| Total interest-earning assets | 1,572,765 | 17,520 | 4.46% | 1,577,626 | 18,216 | 4.62% | 1,226,168 | 13,565 | 4.43% |
| Non-interest-earning assets | 93,477 | 96,278 | 56,063 | ||||||
| Total assets | $ 1,666,242 | $ 1,673,904 | $ 1,282,231 | ||||||
| Interest-bearing liabilities | |||||||||
| Transaction accounts | $ 105,582 | 63 | 0.24% | $ 107,311 | 58 | 0.22% | $ 80,027 | 45 | 0.22% |
| Money market | 605,195 | 841 | 0.56% | 625,888 | 853 | 0.55% | 449,907 | 571 | 0.51% |
| Certificates of deposit | 111,192 | 219 | 0.79% | 124,377 | 220 | 0.71% | 47,332 | 115 | 0.97% |
| Wholesale deposits | 428,080 | 1,470 | 1.37% | 424,172 | 1,438 | 1.36% | 422,024 | 1,606 | 1.52% |
| Total interest-bearing deposits | 1,250,049 | 2,593 | 0.83% | 1,281,748 | 2,569 | 0.80% | 999,290 | 2,337 | 0.94% |
| FHLB advances | 22,749 | 31 | 0.55% | 9,367 | 24 | 1.04% | 9,418 | 4 | 0.17% |
| Other borrowings | 25,556 | 430 | 6.73% | 24,122 | 419 | 6.95% | 8,381 | 148 | 7.06% |
| Junior subordinated notes | 10,315 | 278 | 10.78% | 10,315 | 274 | 10.63% | 10,315 | 277 | 10.74% |
| Total interest-bearing liabilities | 1,308,669 | 3,332 | 1.02% | 1,325,552 | 3,286 | 0.99% | 1,027,404 | 2,766 | 1.08% |
| Non-interest-bearing demand deposit accounts | 205,508 | 200,274 | 134,892 | ||||||
| Other non-interest-bearing liabilities | 8,252 | 8,151 | 5,882 | ||||||
| Total liabilities | 1,522,429 | 1,533,977 | 1,168,178 | ||||||
| Stockholders' equity | 143,813 | 139,927 | 114,053 | ||||||
| Total liabilities and stockholders' equity | $ 1,666,242 | $ 1,673,904 | $ 1,282,231 | ||||||
| Net interest income | $ 14,188 | $ 14,930 | $ 10,799 | ||||||
| Interest rate spread | 3.44% | 3.63% | 3.35% | ||||||
| Net interest-earning assets | $ 264,096 | $ 252,074 | $ 198,764 | ||||||
| Net interest margin | 3.61% | 3.79% | 3.52% | ||||||
| (1) The average balances of loans and leases include non-performing loans and leases. Interest income related to non-performing loans and leases is recognized when collected. | |||||||||
| (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. | |||||||||
| NET INTEREST INCOME ANALYSIS (CONTINUED) | ||||||
| (Unaudited) | For the Six Months Ended June 30, | |||||
| (Dollars in thousands) | 2015 | 2014 | ||||
| Average | Average | |||||
| Average | yield/ | Average | yield/ | |||
| balance | Interest | cost | balance | Interest | cost | |
| Interest-earning assets | ||||||
| Commercial real estate and other mortgage loans(1) | $ 819,617 | $ 19,541 | 4.77% | $ 636,491 | $ 15,199 | 4.78% |
| Commercial and industrial loans(1) | 433,379 | 13,232 | 6.11% | 310,938 | 9,000 | 5.79% |
| Direct financing leases(1) | 31,183 | 725 | 4.65% | 26,760 | 614 | 4.59% |
| Consumer and other loans(1) | 24,501 | 507 | 4.14% | 17,064 | 313 | 3.67% |
| Total loans and leases receivable(1) | 1,308,680 | 34,005 | 5.20% | 991,253 | 25,126 | 5.07% |
| Mortgage-related securities(2) | 155,735 | 1,294 | 1.66% | 153,788 | 1,491 | 1.94% |
| Other investment securities(3) | 28,594 | 230 | 1.61% | 29,711 | 230 | 1.55% |
| FHLB and FRB stock | 2,763 | 38 | 2.75% | 1,344 | 2 | 0.30% |
| Short-term investments | 79,410 | 169 | 0.43% | 40,671 | 117 | 0.58% |
| Total interest-earning assets | 1,575,182 | 35,736 | 4.54% | 1,216,767 | 26,966 | 4.43% |
| Non-interest-earning assets | 94,869 | 56,878 | ||||
| Total assets | $ 1,670,051 | $ 1,273,645 | ||||
| Interest-bearing liabilities | ||||||
| Transaction accounts | $ 106,442 | 121 | 0.23% | $ 79,313 | 90 | 0.23% |
| Money market | 615,485 | 1,694 | 0.55% | 456,206 | 1,157 | 0.51% |
| Certificates of deposit | 117,748 | 439 | 0.75% | 49,119 | 236 | 0.96% |
| Wholesale deposits | 426,136 | 2,908 | 1.36% | 404,728 | 3,023 | 1.49% |
| Total interest-bearing deposits | 1,265,811 | 5,162 | 0.82% | 989,366 | 4,506 | 0.91% |
| FHLB advances | 16,095 | 55 | 0.68% | 6,282 | 5 | 0.16% |
| Other borrowings | 24,843 | 849 | 6.83% | 8,513 | 305 | 7.17% |
| Junior subordinated notes | 10,315 | 552 | 10.70% | 10,315 | 551 | 10.68% |
| Total interest-bearing liabilities | 1,317,064 | 6,618 | 1.00% | 1,014,476 | 5,367 | 1.06% |
| Non-interest-bearing demand deposit accounts | 202,905 | 139,397 | ||||
| Other non-interest-bearing liabilities | 8,202 | 7,150 | ||||
| Total liabilities | 1,528,171 | 1,161,023 | ||||
| Stockholders' equity | 141,880 | 112,622 | ||||
| Total liabilities and stockholders' equity | $ 1,670,051 | $ 1,273,645 | ||||
| Net interest income | $ 29,118 | $ 21,599 | ||||
| Interest rate spread | 3.54% | 3.37% | ||||
| Net interest-earning assets | $ 258,118 | $ 202,291 | ||||
| Net interest margin | 3.70% | 3.55% | ||||
| (1) The average balances of loans and leases include non-performing loans and leases. Interest income related to non-performing loans and leases is recognized when collected. | ||||||
| (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. | ||||||
| SELECTED FINANCIAL TRENDS | |||||||
| PERFORMANCE RATIOS | |||||||
| For the Three Months Ended | For the Six Months Ended | ||||||
| June 30, | March 31, | December 31, | September 30, | June 30, | June 30, | June 30, | |
| (Unaudited) | 2015 | 2015 | 2014 | 2014 | 2014 | 2015 | 2014 |
| Return on average assets (annualized) | 0.93% | 1.00% | 0.95% | 1.06% | 1.09% | 0.96% | 1.07% |
| Return on average equity (annualized) | 10.73% | 11.98% | 10.92% | 12.10% | 12.29% | 11.35% | 12.15% |
| Efficiency ratio | 65.28% | 62.47% | 61.11% | 60.15% | 58.87% | 63.85% | 59.35% |
| Interest rate spread | 3.44% | 3.63% | 3.49% | 3.25% | 3.35% | 3.54% | 3.37% |
| Net interest margin | 3.61% | 3.79% | 3.67% | 3.44% | 3.52% | 3.70% | 3.55% |
| Average interest-earning assets to average interest-bearing liabilities | 120.18% | 119.02% | 119.86% | 119.77% | 119.35% | 119.60% | 119.94% |
| ASSET QUALITY RATIOS | |||||
| (Unaudited) | As of | ||||
| June 30, | March 31, | December 31, | September 30, | June 30, | |
| (Dollars in thousands) | 2015 | 2015 | 2014 | 2014 | 2014 |
| Non-performing loans and leases(1) | $ 15,198 | $ 9,352 | $ 9,792 | $ 15,837 | $ 14,180 |
| Foreclosed properties, net | 1,854 | 1,566 | 1,693 | 106 | 329 |
| Total non-performing assets | 17,052 | 10,918 | 11,485 | 15,943 | 14,509 |
| Performing troubled debt restructurings | 1,944 | 1,972 | 2,003 | 556 | 602 |
| Total impaired assets | $ 18,996 | $ 12,890 | $ 13,488 | $ 16,499 | $ 15,111 |
| Non-performing loans and leases as a percent of total gross loans and leases | 1.12% | 0.72% | 0.76% | 1.52% | 1.41% |
| Non-performing assets as a percent of total gross loans and leases plus foreclosed properties | 1.26% | 0.84% | 0.89% | 1.53% | 1.44% |
| Non-performing assets as a percent of total assets | 1.01% | 0.65% | 0.70% | 1.12% | 1.11% |
| Allowance for loan and lease losses as a percent of total gross loans and leases | 1.12% | 1.13% | 1.12% | 1.34% | 1.39% |
| Allowance for loan and lease losses as a percent of non-performing loans | 100.01% | 157.12% | 146.33% | 87.96% | 98.84% |
| Criticized assets: | |||||
| Special mention | $ — | $ — | $ — | $ — | $ — |
| Substandard | 10,633 | 22,626 | 25,493 | 26,147 | 29,337 |
| Doubtful | — | — | — | — | — |
| Foreclosed properties, net | 1,854 | 1,566 | 1,693 | 106 | 329 |
| Total criticized assets | $ 12,487 | $ 24,192 | $ 27,186 | $ 26,253 | $ 29,666 |
| Criticized assets to total assets | 0.74% | 1.44% | 1.67% | 1.84% | 2.27% |
| (1) The June 30, 2015 balance includes $6.2 million classified as a performing impaired loan with interest income recognized on a cash basis. | |||||
| NET CHARGE-OFFS (RECOVERIES) | |||||||
| (Unaudited) | For the Three Months Ended | For the Six Months Ended | |||||
| June 30, | March 31, | December 31, | September 30, | June 30, | June 30, | June 30, | |
| (Dollars in thousands) | 2015 | 2015 | 2014 | 2014 | 2014 | 2015 | 2014 |
| Charge-offs | $ 84 | $ 324 | $ 1,231 | $ 2 | $ — | $ 408 | $ — |
| Recoveries | (69) | (5) | (393) | (6) | (5) | (74) | (25) |
| Net charge-offs (recoveries) | $ 15 | $ 319 | $ 838 | $ (4) | $ (5) | $ 334 | $ (25) |
| Net charge-offs (recoveries) as a percent of average gross loans and leases (annualized) | —% | 0.10% | 0.28% | —% | —% | 0.05% | (0.01)% |
| CAPITAL RATIOS | |||||
| As of and for the Three Months Ended | |||||
| June 30, | March 31, | December 31, | September 30, | June 30, | |
| (Unaudited) | 2015 | 2015 | 2014 | 2014 | 2014 |
| Total capital to risk-weighted assets (1) | 11.12% | 11.40% | 12.13% | 13.97% | 12.80% |
| Tier I capital to risk-weighted assets (1) | 8.78% | 8.98% | 9.52% | 10.84% | 10.89% |
| Common equity tier I capital to risk-weighted assets (1) | 8.17% | 8.34% | N/A | N/A | N/A |
| Tier I capital to average assets (1) | 8.66% | 8.42% | 8.71% | 9.56% | 9.73% |
| Tangible common equity to tangible assets | 7.91% | 7.77% | 7.78% | 8.28% | 8.85% |
| (1) The June 30, 2015 data is estimated. | |||||
| SELECTED OTHER INFORMATION | |||||
| (Unaudited) | As of | ||||
| June 30, | March 31, | December 31, | September 30, | June 30, | |
| (in thousands) | 2015 | 2015 | 2014 | 2014 | 2014 |
| Trust assets under management | $ 800,615 | $ 814,226 | $ 773,192 | $ 741,210 | $ 703,626 |
| Trust assets under administration | 197,343 | 195,148 | 186,505 | 186,212 | 186,014 |
| Total trust assets | $ 997,958 | $ 1,009,374 | $ 959,697 | $ 927,422 | $ 889,640 |
NON-GAAP RECONCILIATIONS
Certain financial information provided in this release is determined by methods other than in accordance with generally accepted accounting principles (United States) ("GAAP"). Although the Company believes that these non-GAAP financial measures provide a greater understanding of its business, these measures are not necessarily comparable to similar measures that may be presented by other companies.
TANGIBLE BOOK VALUE
"Tangible book value per share" is a non-GAAP measure representing tangible common equity divided by total common shares outstanding. "Tangible common equity" itself is a non-GAAP measure representing common stockholders' equity reduced by intangible assets, if any. The Company's management believes that this measure is important to many investors in the marketplace who are interested in period-to-period changes in book value per common share exclusive of changes in intangible assets. The information provided below reconciles tangible book value per share and tangible common equity to their most comparable GAAP measures.
| (Unaudited) | As of | ||||
| June 30, | March 31, | December 31, | September 30, | June 30, | |
| (in thousands, except per share amounts) | 2015 | 2015 | 2014 | 2014 | 2014 |
| Common stockholders' equity | $ 144,287 | $ 141,689 | $ 137,748 | $ 118,192 | $ 115,648 |
| Goodwill and other intangible assets | (12,133) | (12,011) | (11,944) | — | — |
| Tangible common equity | $ 132,154 | $ 129,678 | $ 125,804 | $ 118,192 | $ 115,648 |
| Common shares outstanding | 4,334,918 | 4,336,161 | 4,335,927 | 3,959,115 | 3,945,220 |
| Book value per share | $ 33.28 | $ 32.68 | $ 31.77 | $ 29.85 | $ 29.31 |
| Tangible book value per share | 30.49 | 29.91 | 29.01 | 29.85 | 29.31 |
TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS
''Tangible common equity to tangible assets'' is defined as the ratio of common stockholders' equity reduced by intangible assets, if any, divided by total assets reduced by intangible assets, if any. The Company's management believes that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period in common equity and total assets, each exclusive of changes in intangible assets. The information below reconciles tangible common equity and tangible assets to their most comparable GAAP measures.
| (Unaudited) | As of | ||||
| June 30, | March 31, | December 31, | September 30, | June 30, | |
| (Dollars in thousands) | 2015 | 2015 | 2014 | 2014 | 2014 |
| Common stockholders' equity | $ 144,287 | $ 141,689 | $ 137,748 | $ 118,192 | $ 115,648 |
| Goodwill and other intangible assets | (12,133) | (12,011) | (11,944) | — | — |
| Tangible common equity | $ 132,154 | $ 129,678 | $ 125,804 | $ 118,192 | $ 115,648 |
| Total assets | $ 1,683,564 | $ 1,680,677 | $ 1,629,387 | $ 1,427,567 | $ 1,306,503 |
| Goodwill and other intangible assets | (12,133) | (12,011) | (11,944) | — | — |
| Tangible assets | $ 1,671,431 | $ 1,668,666 | $ 1,617,443 | $ 1,427,567 | $ 1,306,503 |
| Tangible common equity to tangible assets | 7.91% | 7.77% | 7.78% | 8.28% | 8.85% |
EFFICIENCY RATIO
"Efficiency ratio" is a non-GAAP measure representing non-interest expense excluding the effects of losses or gains on foreclosed properties, other discrete items that are unrelated to the Company's primary business activities and amortization of other intangible assets, if any, divided by operating revenue, which is equal to net interest income plus non-interest income less realized gains or losses on securities, if any. In the judgment of the Company's management, the adjustments made to non-interest expense and operating revenue allow investors and analysts to better assess the Company's operating expenses in relation to its core operating revenue by removing the volatility that is associated with certain one-time items and other discrete items that are unrelated to its business. The information provided below reconciles the efficiency ratio to its most comparable GAAP measure.
| (Unaudited) | For the Three Months Ended | For the Six Months Ended | |||||
| June 30, | March 31, | December 31, | September 30, | June 30, | June 30, | June 30, | |
| (Dollars in thousands) | 2015 | 2015 | 2014 | 2014 | 2014 | 2015 | 2014 |
| Total non-interest expense | $ 11,974 | $ 11,732 | $ 10,127 | $ 8,047 | $ 7,749 | $ 23,706 | $ 15,600 |
| Less: | |||||||
| Net loss (gain) on foreclosed properties | 1 | (16) | (5) | (9) | 4 | (15) | 4 |
| Amortization of other intangible assets | 18 | 18 | 12 | — | — | 36 | — |
| Total operating expense | $ 11,955 | $ 11,730 | $ 10,120 | $ 8,056 | $ 7,745 | $ 23,685 | $ 15,596 |
| Net interest income | $ 14,188 | $ 14,930 | $ 13,595 | $ 10,935 | $ 10,799 | $ 29,118 | $ 21,599 |
| Total non-interest income | 4,126 | 3,848 | 2,965 | 2,459 | 2,358 | 7,974 | 4,679 |
| Total operating revenue | $ 18,314 | $ 18,778 | $ 16,560 | $ 13,394 | $ 13,157 | $ 37,092 | $ 26,278 |
| Efficiency ratio | 65.28% | 62.47% | 61.11% | 60.15% | 58.87% | 63.85% | 59.35% |