First Business Bank Reports Record Second Quarter 2022 Net Income of $11.0 Million

Rhea-AI Summary

First Business Financial Services reported a strong second quarter, with net income of $11.0 million, or $1.29 per diluted share, up from $8.7 million in the same period last year. Key drivers included a 10.4% increase in net interest income to $23.7 million and a strong loan portfolio growth of $48.9 million. Non-performing assets declined to $5.7 million, representing 0.21% of total assets. The company achieved a 9.4% increase in tangible book value compared to the linked quarter, showcasing robust profitability metrics.

Positive

• Net income increased by 26.5% year-over-year to $11.0 million.
• Net interest income rose 10.4% to a record $23.7 million.
• Loan growth of $48.9 million (8.8% annualized) excluding PPP loans.
• Non-performing assets decreased to $5.7 million (0.21% of total assets).
• Tangible book value increased by 9.4% annualized compared to the previous quarter.

Negative

• Total period-end in-market deposits decreased by $154.4 million (30.7% annualized).
• Non-interest income decreased by $514,000 (7.0%) compared to the linked quarter.

-- Strong top line revenue and provision benefit drive tangible book value growth --

MADISON, Wis.--(BUSINESS WIRE)-- First Business Financial Services, Inc. (the “Company”, the “Bank”, or “First Business Bank”) (Nasdaq:FBIZ) reported quarterly net income available to common shareholders of $11.0 million, or $1.29 diluted earnings per share. This compares to net income of $8.7 million, or $1.02 per share, in the first quarter of 2022 and $8.2 million, or $0.95 per share, in the second quarter of 2021.

“Our record quarterly net income was driven by a notable increase in net interest income and exceptional commitment to asset quality resulting in a significant loan loss provision benefit,” President and Chief Executive Officer Corey Chambas said. “Despite above-average loan payoffs this year, we remain confident in our ability to produce 10% net loan growth. We believe this sustained loan growth and expanding net interest margin will continue to generate double-digit annual revenue growth.” Chambas added, “With an enhanced capital base, focus on diversified revenue streams, and relentless attention to credit quality, we believe we are well positioned to extend our track record of performance over the long term.”

Quarterly Highlights

• Robust Profitability Metrics. Pre-tax, pre-provision adjusted (“PTPP”) earnings, excluding Paycheck Protection Program (“PPP”) interest and fee income, increased $998,000, or 10.4%, from the linked quarter and $3.7 million, or 53.8%, from the prior year quarter. The improvement in profitability was driven by an increase in top line revenue, which rose $1.8 million, or 6.3%, from the linked quarter and $5.4 million, or 21.9%, from the prior year quarter. With revenue growth outpacing operating expense growth, the Company increased PTPP return on average assets to 1.57% in the second quarter of 2022, compared to 1.46% in linked quarter and 1.15% in the prior year quarter.

• Strong Asset Quality. The Bank continued its strong asset quality trend, highlighted by the team’s ability to proactively work through challenging loans to achieve positive outcomes for the Bank and its shareholders. Non-performing assets declined to $5.7 million, or 0.21% of total assets, improving from 0.40% of total assets on June 30, 2021. The Company recorded a provision benefit of $3.7 million, compared to a benefit of $855,000 in the first quarter of 2022 and $1.0 million in the second quarter of 2021. The provision benefit in the second quarter of 2022 was primarily due to a $4.1 million principal recovery on a legacy SBA relationship originated in May 2016 and fully charged-off in December 2020.

• Record Net Interest Income Reflecting Loan Growth and Net Interest Margin Expansion. Net interest income grew to a record $23.7 million, increasing $2.2 million, or 10.4%, from the linked quarter and $2.0 million, or 9.3%, from the prior year quarter. This increase was primarily due to a 32 and 22 basis point expansion in net interest margin compared to the linked and prior year quarters, respectively. This net interest expansion resulted from rising rates on variable-rate loans and low deposit betas on in-market deposits following the Federal Open Market Committee’s (“FOMC”) decision to raise the target Fed Funds rate 150 basis points during the first half of 2022.

• Increased Organic Loan Production. Loans, excluding net PPP loans, grew $48.9 million, or 8.8% annualized, from the first quarter of 2022 and $259.1 million, or 12.8%, from the second quarter of 2021, as the Company’s previous investments in both conventional and specialized lending continue to generate positive results.

• Compounding Tangible Book Value Growth. The Company’s demonstrated earnings power and diligent credit management more than offset the interest-rate-driven market value decline in the investment portfolio, providing a 9.4% annualized increase in tangible book value compared to the linked quarter and 9.7% compared to the prior year quarter.

Quarterly Financial Results
(Unaudited)		As of and for the Three Months Ended												As of and for the Six Months Ended
(Dollars in thousands, except per share amounts)		June 30, 2022				March 31, 2022				June 30, 2021				June 30, 2022				June 30, 2021
Net interest income		$	23,660			$	21,426			$	21,652			$	45,087			$	42,515
Adjusted non-interest income (1)			6,872				7,386				6,292				14,258				13,487
Operating revenue (1)			30,532				28,812				27,944				59,345				56,002
Operating expense (1)			19,685				18,887				17,932				38,573				35,383
Pre-tax, pre-provision adjusted earnings (1)			10,847				9,925				10,012				20,772				20,619
Less:
Provision for loan and lease losses			(3,727	)			(855	)			(958	)			(4,582	)			(3,026	)
Net loss (gain) on foreclosed properties			8				12				(1	)			20				1
Amortization of other intangible assets			—				—				8				—				15
SBA recourse provision (benefit)			114				(76	)			245				38				115
Impairment (benefit) on tax credit investments			(351	)			—				—				(351	)			—
Add:
Net gain on sale of securities			—				—				29				—				29
Income before income tax expense			14,803				10,844				10,747				25,647				23,543
Income tax expense			3,599				2,172				2,512				5,771				5,577
Net income		$	11,204			$	8,672			$	8,235			$	19,876			$	17,966
Preferred stock dividends			246				—				—				246				—
Net income available to common shareholders		$	10,958			$	8,672			$	8,235			$	19,630			$	17,966
Earnings per share, diluted		$	1.29			$	1.02			$	0.95			$	2.31			$	2.08
Book value per share		$	28.08			$	27.46			$	25.70			$	28.08			$	25.70
Tangible book value per share (1)		$	26.63			$	26.02			$	24.28			$	26.63			$	24.28
Net interest margin (2)			3.71	%			3.39	%			3.49	%			3.55	%			3.46	%
Adjusted net interest margin (1)(2)			3.45	%			3.24	%			3.20	%			3.35	%			3.20	%
Fee income ratio (non-interest income / total revenue)			22.51	%			25.64	%			22.60	%			24.03	%			24.12	%
Efficiency ratio (1)			64.47	%			65.55	%			64.17	%			65.00	%			63.18	%
Return on average assets (2)			1.61	%			1.30	%			1.26	%			1.46	%			1.38	%
Pre-tax, pre-provision adjusted return on average assets (1)(2)			1.60	%			1.49	%			1.53	%			1.54	%			1.59	%
Return on average common equity (2)			18.79	%			14.47	%			15.09	%			16.74	%			16.75	%
Period-end loans and leases receivable		$	2,290,100			$	2,251,249			$	2,143,561			$	2,290,100			$	2,143,561
Specialized lending as a percent of total loans and leases			20.68	%			19.22	%			17.59	%			20.68	%			17.59	%
Average loans and leases receivable		$	2,272,946			$	2,244,642			$	2,223,353			$	2,258,872			$	2,203,267
Period-end in-market deposits		$	1,857,010			$	2,011,373			$	2,016,215			$	1,857,010			$	2,016,215
Average in-market deposits		$	1,900,842			$	1,932,576			$	1,735,393			$	1,916,622			$	1,728,787
Allowance for loan and lease losses		$	24,104			$	23,669			$	25,675			$	24,104			$	25,675
Non-performing assets		$	5,709			$	5,734			$	11,601			$	5,709			$	11,601
Allowance for loan and lease losses as a percent of total gross loans and leases			1.05	%			1.05	%			1.20	%			1.05	%			1.20	%
Non-performing assets as a percent of total assets			0.21	%			0.21	%			0.40	%			0.21	%			0.40	%

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

Quarterly Financial Results - Excluding PPP Loans, Interest Income, and Fees
(Unaudited)		As of and for the Three Months Ended												As of and for the Six Months Ended
(Dollars in thousands, except per share amounts)		June 30, 2022				March 31, 2022				June 30, 2021				June 30, 2022				June 30, 2021
Net interest income		$	23,435			$	21,125			$	18,545			$	44,561			$	36,592
Adjusted non-interest income (1)			6,872				7,386				6,292				14,258				13,487
Operating revenue (1)			30,307				28,511				24,837				58,819				50,079
Operating expense (1)			19,685				18,887				17,932				38,573				35,383
Pre-tax, pre-provision adjusted earnings (1)		$	10,622			$	9,624			$	6,905			$	20,246			$	14,696
Net interest margin (2)			3.69	%			3.37	%			3.29	%			3.53	%			3.30	%
Fee income ratio (non-interest income / total revenue)			22.67	%			25.91	%			25.42	%			24.24	%			26.97	%
Efficiency ratio (1)			64.95	%			66.24	%			72.20	%			65.58	%			70.65	%
Pre-tax, pre-provision adjusted return on average assets (1)(2)			1.57	%			1.46	%			1.15	%			1.51	%			1.24	%
Period-end loans and leases receivable		$	2,281,928			$	2,233,043			$	2,022,839			$	2,281,928			$	2,022,839
Specialized lending as a percent of total loans and leases			20.76	%			19.38	%			18.67	%			20.76	%			18.67	%
Average loans and leases receivable		$	2,261,296			$	2,223,707			$	1,994,188			$	2,242,606			$	1,967,599
Allowance for loan and lease losses as a percent of total gross loans and leases			1.06	%			1.06	%			1.27	%			1.06	%			1.27	%
Non-performing assets as a percent of total assets			0.21	%			0.21	%			0.42	%			0.21	%			0.42	%

(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.

Second Quarter 2022 Compared to First Quarter 2022

Net interest income increased $2.2 million, or 10.4%, to $23.7 million.

• Net interest income growth was driven by an increase in average loans and leases, net interest margin expansion, and an increase in fees in lieu of interest, which included the recovery of $709,000 in interest from a previously charged-off legacy SBA loan relationship. Average loans and leases receivable increased $37.6 million, or 6.8% annualized, to $2.261 billion. Fees in lieu of interest, which can vary from quarter to quarter based on client-driven activity, totaled $1.9 million, compared to $1.3 million, and included $196,000 and $249,000 in PPP fees, respectively. Excluding fees in lieu of interest and interest income from PPP loans, net interest income increased $1.7 million, or 8.4%.

• Net interest margin was 3.71%, up 32 basis points compared to 3.39% in the linked quarter. Adjusted net interest margin was 3.45%, up 21 basis points compared to 3.24% in the linked quarter. The primary driver of improved net interest margin was a low deposit beta and higher earning asset yields in the current rising rate environment. The change in the 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. Management defines short-term market rates as the daily average effective federal funds rate for purposes of estimating interest-earning asset and interest-bearing liability betas. Adjusted net interest margin is a non-GAAP measure representing net interest income excluding fees in lieu of interest and other recurring, but volatile, components of net interest margin divided by average interest-earning assets less average net PPP loans and other recurring, but volatile, components of average interest-earning assets.

• The yield on average interest-earning assets increased 40 basis points to 4.24% from 3.84%. Excluding average net PPP loans, PPP loan interest income, and fees in lieu of interest, the yield earned on average interest-earning assets increased 30 basis points to 3.96% from 3.66%.

• The rate paid for average interest-bearing, in-market deposits increased 10 basis points to 0.29% from 0.19%. The rate paid for average total bank funding increased 15 basis points to 0.46% from 0.31%. Total bank funding is defined as total deposits plus Federal Home Loan Bank (“FHLB”) advances. The daily average effective federal funds rate increased 65 basis points compared to the linked quarter, which equates to an in-market, interest-bearing deposit beta of 15% for the three months ended June 30, 2022.

• The Bank continues to maintain an asset-sensitive balance sheet and ended the quarter appropriately positioned for net interest income to continue to benefit; however, the Bank anticipates deposit betas will rise at a greater rate with further increases in the federal funds rate during the second half of the year, slowing the pace of net interest margin expansion.

The Company reported a net benefit to provision for loan and lease losses of $3.7 million, compared to a $855,000 benefit in the first quarter of 2022.

• The provision benefit in the second quarter of 2022 was primarily due to net recoveries of $4.2 million, partially offset by a $527,000 increase in the general reserve due to loan growth.

Non-interest income decreased $514,000, or 7.0%, to $6.9 million.

• Other fee income decreased $1.2 million to $860,000, compared to $2.1 million in the first quarter. The decrease is primarily due to above-average returns on the Company’s investments in mezzanine funds in the first quarter, which returned to historical levels in the second quarter.

• Private Wealth management fee income increased $11,000, or 0.4% to $2.9 million, despite lower market values during the second quarter. Private Wealth and trust assets under management and administration measured $2.554 billion at June 30, 2022, down $280.3 million, primarily due to a decrease in market valuations, which was partially offset by new business development.

• Gains on sale of SBA loans increased $366,000 to $951,000.

• Commercial loan swap fee income increased $246,000 to $471,000. Swap fee income can vary from period to period based on loan activity and the interest rate environment.

Non-interest expense increased $633,000, or 3.4%, to $19.5 million, while operating expense increased $798,000, or 4.2%, to $19.7 million.

• Compensation expense was $14.0 million, reflecting an increase of $382,000, or 2.8%, from the linked quarter due to a $474,000 one-time increase to the annual cash incentive bonus program accrual, as well as expanded hiring to support the Bank’s growth plans. Management believes there will be upward pressure on compensation throughout the remainder of the year as the Bank continues to opportunistically invest in new talent and retain existing talent in the competitive market. Average FTEs for the second quarter of 2022 were 321, up eleven from 310 in the linked quarter as management continued to focus on talent acquisition to support the Bank’s growth initiatives.

• Marketing expense increased $170,000, or 34.0%, to $670,000 primarily due to the increase in client entertainment and sponsorships as business development activities continue to increase towards pre-pandemic levels.

• Professional fees increased $128,000, or 10.9%, to $1.3 million from the linked quarter primarily due to an increase in recruiting expense.

• Data processing expense increased $112,000, or 14.4%, to $892,000 primarily due to the recurring annual expense related to tax processing on behalf of the Bank’s Private Wealth clients.

Income tax expense increased $1.4 million, or 65.7%, to $3.6 million. The effective tax rate was 23.7% for the six months ended June 30, 2022, compared to 23.6% for the same period in 2021. For 2022, the Company expects to report an effective tax rate of approximately 23% as management intends to continue actively pursuing tax credit opportunities.

Total period-end loans and leases receivable increased $38.9 million, or 6.9% annualized, to $2.290 billion. Excluding net PPP loans, total period-end loans and leases receivable increased $48.9 million, or 8.8% annualized, to $2.282 billion.

• Commercial and industrial (“C&I”) loans increased $20.7 million, or 11.6% annualized, to $741.4 million, compared to $720.7 million. Excluding PPP loans, C&I loans increased $30.9 million, or 17.6% annualized, due to an increase in specialized lending.

• Commercial real estate (“CRE”) loans increased by $18.8 million, or 5.1% annualized, to $1.488 billion, compared to $1.470 billion. Increases in construction financing, owner-occupied CRE, multi-family, and land development were offset by a decrease in non-owner occupied CRE loans.

Total period-end in-market deposits decreased $154.4 million, or 30.7% annualized, to $1.857 billion, compared to $2.011 billion. The average rate paid was 0.20%, up seven basis points from 0.13% in the first quarter. The decline in balances was due to movement of client deposits to investment alternatives, seasonality within the Bank’s municipality clients, tax payments, and normal course of business for continuing client relationships.

”On the deposit front, the second quarter is typically seasonally weaker, due to tax payments and other business cycle reasons – just as the first quarter was seasonally strong,” said Corey Chambas. “What was unusual this quarter was several clients moved large amounts of deposits into investments and there were some large client distributions to investors, as well. Importantly, we have not lost any meaningful client relationships associated with these decreases in deposits. We believe a better measure of our deposit picture is that average deposits are up 10% from a year ago, and due to our Treasury Management sales success, service charge fee income is up 11% from a year ago.”

Period-end wholesale funding, including FHLB advances, brokered deposits, and deposits gathered through internet deposit listing services, increased $192.7 million to $566.4 million.

• Wholesale deposits were $12.3 million in both periods. The average rate paid on wholesale deposits increased seven basis points to 2.98% and the weighted average original maturity was 4.8 years.

• FHLB advances increased $192.7 million to $554.1 million. The average rate paid on FHLB advances increased 40 basis points to 1.48% and the weighted average original maturity decreased to 3.2 years from 6.0 years.

Non-performing assets were $5.7 million, or 0.21% of total assets, in both periods of comparison.

The allowance for loan and lease losses increased $435,000, or 1.8%, as an increase in the general reserve from loan growth was partially offset by a decrease in general reserve driven by a change in qualitative risk factors.

• The allowance for loan and lease losses as a percent of total gross loans and leases was 1.05% in both periods of comparison (1.06% excluding net PPP loans).

Second Quarter 2022 Compared to Second Quarter 2021

Net interest income increased $2.0 million, or 9.3%, to $23.7 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. Fees in lieu of interest decreased from $3.5 million to $1.9 million, primarily due to a $2.3 million reduction in PPP loan fee amortization. Excluding fees in lieu of interest and interest income from PPP loans, net interest income increased $4.2 million, or 24.0%. Excluding net PPP loans, average gross loans and leases increased $267.1 million, or 13.4%.

• Net interest margin increased 22 basis points to 3.71% from 3.49%. Adjusted net interest margin increased 25 basis points to 3.45% from 3.20%.

• The yield on average interest-earning assets measured 4.24% compared to 3.96%. Excluding fees in lieu of interest, PPP loan interest income, and net PPP loans, the yield on average interest-earning assets measured 3.96%, compared to 3.64%. 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 rate paid for average interest-bearing in-market deposits increased eight basis points to 0.29% from 0.21%. The rate paid for average total bank funding increased seven basis points to 0.46% from 0.39%.

The Company reported a net benefit to provision for loan and lease losses of $3.7 million, compared to provision benefit of $958,000 in the second quarter of 2021. The reasons for the provision benefit are consistent with the explanations discussed above in the linked quarter comparison.

Non-interest income of $6.9 million increased by $551,000, or 8.7%, from $6.3 million in the prior year period.

• Private Wealth management fee income increased $108,000, or 3.9%, to $2.9 million, despite a decline in market values, due to the addition of new money from existing clients. Private Wealth and trust assets under management and administration measured $2.554 billion at June 30, 2022, down $10.6 million, or 0.4%.

• Gains on sale of SBA loans decreased $252,000 to $951,000.

• Loan fees of $697,000 increased by $128,000, or 22.5%, primarily due to an increase in conventional, SBA, and Floorplan Financing activity generating additional service fee income.

• Commercial loan swap fee income was $471,000. There was no swap fee activity in the prior year quarter. Swap fee income varies from period to period based on loan activity and the interest rate environment in any given quarter.

• Service charges on deposits increased $100,000, or 10.6%, to $1.0 million compared to $941,000, due to an increase in existing and new deposit client relationships.

Non-interest expense increased $1.3 million, or 7.0%, to $19.5 million. Operating expense increased $1.8 million, or 9.8%, to $19.7 million.

• Compensation expense increased $765,000, or 5.8%, to $14.0 million. Average FTEs were 321 in the second quarter of 2022, compared to 312 in the second quarter of 2021. The reasons for the increase in compensation expense are consistent with the explanations discussed above in the linked quarter analysis.

• Professional fees increased $385,000, or 42.2%, to $1.3 million, primarily due to an increase in recruiting expense, audit expenses, and a general increase in other professional consulting services for various projects.

• Marketing expense increased $159,000, or 31.1%, to $670,000 mainly due to an increase in business development activities as the Company continues to return to pre-pandemic spending levels.

Total period-end loans and leases receivable increased $146.5 million, or 6.8%, to $2.290 billion. Excluding net PPP loans, total period-end loans and leases receivable increased $259.1 million, or 12.8%, to $2.282 billion.

• C&I loans increased $45.9 million, or 6.6% to $741.4 million. Excluding PPP loans, C&I loans increased $161.5 million, or 28.2%, to $733.1 million due to an increase in conventional and specialized Commercial Lending. Management believes this growth rate will moderate to lower double-digits as the Company’s specialized lending products scale over time.

• CRE loans increased $96.5 million, or 6.9%, primarily due to an increase in non-owner-occupied real estate and construction financing.

Total period-end in-market deposits decreased $159.2 million, or 7.9%, to $1.857 billion and the average rate paid increased five basis points to 0.20%. This decrease in deposits was principally due to a $274.7 million decrease in transaction accounts, partially offset by a $68.9 million and $46.6 million increase in certificates of deposit and money market accounts, respectively. The reasons for the decrease in deposits are consistent with the explanations discussed above in the linked quarter comparison.

Period-end wholesale funding increased $34.1 million to $566.4 million.

• Wholesale deposits decreased $132.2 million to $12.3 million, compared to $144.5 million, as the existing portfolio runoff was replaced by FHLB advances. The average rate paid on brokered certificates of deposit increased 224 basis points to 2.98% and the weighted average original maturity increased to 4.8 years from 3.5 years.

• FHLB advances increased $166.3 million to $554.1 million. The average rate paid on FHLB advances increased 21 basis points to 1.48% and the weighted average original maturity decreased to 3.2 years from 6.1 years.

Non-performing assets decreased to $5.7 million, or 0.21% of total assets, compared to $11.6 million, or 0.40% of total assets. Excluding net PPP loans, non-performing assets decreased to 0.21% of total assets compared to 0.42%.

The allowance for loan and lease losses decreased $1.6 million to $24.1 million, compared to $25.7 million.

• The allowance for loan and lease losses as a percent of total gross loans and leases was 1.05% compared to 1.20%.

• Excluding net PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.06% compared to 1.27%.

Paycheck Protection Program

As of June 30, 2022, the Company had $8.3 million in gross PPP loans outstanding and deferred processing fees outstanding of $113,000. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness, as an adjustment of yield using the interest method. During the three months ended June 30, 2022, the Company recognized $196,000 of PPP processing fees in interest income. The SBA provides a guaranty to the lender of 100% of principal and interest, unless the lender violated an obligation under the agreement.

Share Repurchase Program Update

As previously announced, effective March 4, 2022, the Company’s Board of Directors authorized the repurchase by the Company of shares of its common stock with a maximum aggregate purchase price of $5.0 million, effective March 4, 2022 through March 4, 2023. For the six months ended June 30, 2022, the Company repurchased a total of 30,600 shares for approximately $1.0 million at an average cost of $33.28 per share.

About First Business Financial Services, Inc.

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

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

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

• Competitive pressures among depository and other financial institutions nationally and in the Company’s markets.

• Increases in defaults by borrowers and other delinquencies.

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

• Fluctuations in interest rates and market prices.

• Changes in legislative or regulatory requirements applicable to the Company and its subsidiaries.

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

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

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

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

SELECTED FINANCIAL CONDITION DATA
(Unaudited)		As of
(in thousands)		June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021
Assets
Cash and cash equivalents		$	95,484			$	95,603			$	57,110			$	110,624			$	389,977
Securities available-for-sale, at fair value			208,643				223,631				205,702				194,056				171,219
Securities held-to-maturity, at amortized cost			13,968				17,267				19,746				21,196				22,382
Loans held for sale			2,256				2,418				3,570				5,603				6,059
Loans and leases receivable			2,290,100				2,251,249				2,239,408				2,123,306				2,143,561
Allowance for loan and lease losses			(24,104	)			(23,669	)			(24,336	)			(24,676	)			(25,675	)
Loans and leases receivable, net			2,265,996				2,227,580				2,215,072				2,098,630				2,117,886
Premises and equipment, net			1,899				1,621				1,694				1,700				1,747
Foreclosed properties			124				117				164				172				179
Right-of-use assets			5,772				6,118				4,910				5,263				5,472
Bank-owned life insurance			54,324				53,974				53,600				53,244				52,887
Federal Home Loan Bank stock, at cost			22,959				12,863				13,336				12,351				13,451
Goodwill and other intangible assets			12,262				12,184				12,268				12,229				12,178
Derivatives			44,461				26,890				26,343				28,678				32,377
Accrued interest receivable and other assets			48,868				43,816				39,390				40,664				39,855
Total assets		$	2,777,016			$	2,724,082			$	2,652,905			$	2,584,410			$	2,865,669
Liabilities and Stockholders’ Equity
In-market deposits		$	1,857,010			$	2,011,373			$	1,928,285			$	1,829,644			$	2,016,215
Wholesale deposits			12,321				12,321				29,638				74,638				144,492
Total deposits			1,869,331				2,023,694				1,957,923				1,904,282				2,160,707
Federal Home Loan Bank advances and other borrowings			596,642				414,487				403,451				394,090				420,113
Junior subordinated notes			—				—				10,076				10,072				10,069
Lease liabilities			7,207				7,580				5,406				5,780				6,005
Derivatives			40,357				24,961				28,283				31,890				36,109
Accrued interest payable and other liabilities			13,556				8,309				15,344				13,016				11,214
Total liabilities			2,527,093				2,479,031				2,420,483				2,359,130				2,644,217
Total stockholders’ equity			249,923				245,051				232,422				225,280				221,452
Total liabilities and stockholders’ equity		$	2,777,016			$	2,724,082			$	2,652,905			$	2,584,410			$	2,865,669

STATEMENTS OF INCOME
(Unaudited)		As of and for the Three Months Ended																				As of and for the Year Ended
(Dollars in thousands, except per share amounts)		June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021				June 30, 2022				June 30, 2021
Total interest income		$	27,031			$	24,235			$	23,576			$	24,014			$	24,599			$	51,266			$	48,406
Total interest expense			3,371				2,809				2,652				2,791				2,947				6,179				5,891
Net interest income			23,660				21,426				20,924				21,223				21,652				45,087				42,515
Provision for loan and lease losses			(3,727	)			(855	)			(508	)			(2,269	)			(958	)			(4,582	)			(3,026	)
Net interest income after provision for loan and lease losses			27,387				22,281				21,432				23,492				22,610				49,669				45,541
Private wealth management service fees			2,852				2,841				2,874				2,759				2,744				5,693				5,151
Gain on sale of SBA loans			951				585				1,042				721				1,203				1,537				2,281
Service charges on deposits			1,041				999				1,023				956				941				2,040				1,859
Loan fees			697				652				679				713				569				1,349				1,114
Net gain on sale of securities			—				—				—				—				29				—				29
Swap fees			471				225				684				—				—				697				684
Other non-interest income			860				2,084				1,267				1,866				835				2,942				2,398
Total non-interest income			6,872				7,386				7,569				7,015				6,321				14,258				13,516
Compensation			14,020				13,638				12,447				13,351				13,255				27,658				25,912
Occupancy			568				555				551				544				533				1,123				1,085
Professional fees			1,298				1,170				933				1,024				913				2,468				1,778
Data processing			892				780				773				746				798				1,673				1,569
Marketing			670				500				548				572				511				1,170				902
Equipment			235				244				223				260				261				479				506
Computer software			1,117				1,082				1,017				999				1,129				2,199				2,244
FDIC insurance			296				313				210				291				280				610				642
Other non-interest expense			360				541				829				703				504				900				876
Total non-interest expense			19,456				18,823				17,531				18,490				18,184				38,280				35,514
Income before income tax expense			14,803				10,844				11,470				12,017				10,747				25,647				23,543
Income tax expense			3,599				2,172				2,879				2,819				2,512				5,771				5,577
Net income		$	11,204			$	8,672			$	8,591			$	9,198			$	8,235			$	19,876			$	17,966
Preferred stock dividends			246				—				—				—				—				246				—
Net income available to common shareholders		$	10,958			$	8,672			$	8,591			$	9,198			$	8,235			$	19,630			$	17,966
Per common share:
Basic earnings		$	1.29			$	1.02			$	1.01			$	1.07			$	0.95			$	2.31			$	2.08
Diluted earnings			1.29				1.02				1.01				1.07				0.95				2.31				2.08
Dividends declared			0.1975				0.1975				0.18				0.18				0.18				0.395				0.36
Book value			28.08				27.46				27.48				26.56				25.70				28.08				25.70
Tangible book value			26.63				26.02				26.03				25.11				24.28				26.63				24.28
Weighted-average common shares outstanding(1)			8,225,838				8,232,142				8,228,311				8,340,042				8,385,069				8,245,317				8,381,868
Weighted-average diluted common shares outstanding(1)			8,225,838				8,232,142				8,228,311				8,340,042				8,385,069				8,245,317				8,381,868

(1)

Excluding participating securities.

NET INTEREST INCOME ANALYSIS
(Unaudited)		For the Three Months Ended
(Dollars in thousands)		June 30, 2022									March 31, 2022									June 30, 2021
		Average Balance			Interest			Average Yield/Rate(4)			Average Balance			Interest			Average Yield/Rate(4)			Average Balance			Interest			Average Yield/Rate(4)
Interest-earning assets
Commercial real estate and other mortgage loans(1)		$	1,472,075		$	15,343		4.17	%		$	1,459,891		$	13,346		3.66	%		$	1,386,187		$	13,087		3.78	%
Commercial and industrial loans(1)			734,299			9,710		5.29	%			718,364			9,101		5.07	%			772,257			9,875		5.11	%
Direct financing leases(1)			15,527			176		4.53	%			16,540			189		4.57	%			19,883			222		4.47	%
Consumer and other loans(1)			51,045			458		3.59	%			49,847			436		3.50	%			45,026			407		3.62	%
Total loans and leases receivable(1)			2,272,946			25,687		4.52	%			2,244,642			23,072		4.11	%			2,223,353			23,591		4.24	%
Mortgage-related securities(2)			176,747			804		1.82	%			184,962			760		1.64	%			149,253			631		1.69	%
Other investment securities(3)			54,591			260		1.91	%			50,555			215		1.70	%			41,569			185		1.78	%
FHLB stock			17,355			226		5.21	%			14,002			172		4.91	%			14,172			176		4.97	%
Short-term investments			29,541			54		0.73	%			31,111			16		0.21	%			55,100			16		0.12	%
Total interest-earning assets			2,551,180			27,031		4.24	%			2,525,272			24,235		3.84	%			2,483,447			24,599		3.96	%
Non-interest-earning assets			165,527									140,969									137,893
Total assets		$	2,716,707								$	2,666,241								$	2,621,340
Interest-bearing liabilities
Transaction accounts		$	502,763			343		0.27	%		$	533,251			255		0.19	%		$	499,040			248		0.20	%
Money market			767,433			509		0.27	%			784,276			338		0.17	%			662,919			282		0.17	%
Certificates of deposit			73,560			114		0.62	%			52,519			55		0.42	%			45,993			112		0.97	%
Wholesale deposits			12,350			92		2.98	%			16,236			118		2.91	%			162,580			301		0.74	%
Total interest-bearing deposits			1,356,106			1,058		0.31	%			1,386,282			766		0.22	%			1,370,532			943		0.28	%
FHLB advances			449,599			1,666		1.48	%			385,080			1,036		1.08	%			405,855			1,284		1.27	%
Other borrowings			51,018			647		5.07	%			40,311			503		4.99	%			32,447			443		5.46	%
Junior subordinated notes(5)			—			—		—	%			9,850			504		20.47	%			10,066			277		11.01	%
Total interest-bearing liabilities			1,856,723			3,371		0.73	%			1,821,523			2,809		0.62	%			1,818,900			2,947		0.65	%
Non-interest-bearing demand deposit accounts			557,086									562,530									527,441
Other non-interest-bearing liabilities			57,615									42,537									56,691
Total liabilities			2,471,424									2,426,590									2,403,032
Stockholders’ equity			245,283									239,651									218,308
Total liabilities and stockholders’ equity		$	2,716,707								$	2,666,241								$	2,621,340
Net interest income					$	23,660								$	21,426								$	21,652
Interest rate spread								3.51	%								3.22	%								3.31	%
Net interest-earning assets		$	694,457								$	703,749								$	664,547
Net interest margin								3.71	%								3.39	%								3.49	%

(1)		The average balances of loans and leases include non-accrual loans and leases and loans held for sale. Interest income related to non-accrual loans and leases is recognized when collected. Interest income includes net loan fees collected in lieu of interest.
(2)		Includes amortized cost basis of assets available for sale and held to maturity.
(3)		Yields on tax-exempt municipal obligations are not presented on a tax-equivalent basis in this table.
(4)		Represents annualized yields/rates.
(5)		The calculation for the three months ended June 30, 2022 and March 31, 2022 includes $12,000 and $236,000, respectively, in accelerated amortization of debt issuance costs.

NET INTEREST INCOME ANALYSIS
(Unaudited)		For the Six Months Ended
(Dollars in thousands)		June 30, 2022									June 30, 2021
		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)		$	1,466,017		$	28,689		3.91	%		$	1,371,744		$	25,615		3.73	%
Commercial and industrial loans(1)			726,376			18,811		5.18	%			765,117			19,500		5.10	%
Direct financing leases(1)			16,030			365		4.55	%			21,071			466		4.42	%
Consumer and other loans(1)			50,449			894		3.54	%			45,335			805		3.55	%
Total loans and leases receivable(1)			2,258,872			48,759		4.32	%			2,203,267			46,386		4.21	%
Mortgage-related securities(2)			180,832			1,564		1.73	%			156,249			1,297		1.66	%
Other investment securities(3)			52,584			475		1.81	%			41,871			372		1.78	%
FHLB stock			15,688			398		5.07	%			13,323			329		4.94	%
Short-term investments			30,321			70		0.46	%			39,922			22		0.11	%
Total interest-earning assets			2,538,297			51,266		4.04	%			2,454,632			48,406		3.94	%
Non-interest-earning assets			153,316									144,741
Total assets		$	2,691,613								$	2,599,373
Interest-bearing liabilities
Transaction accounts		$	517,923			597		0.23	%		$	510,024			498		0.20	%
Money market			775,808			848		0.22	%			660,319			557		0.17	%
Certificates of deposit			63,098			169		0.54	%			51,677			288		1.11	%
Wholesale deposits			14,282			210		2.94	%			164,654			619		0.75	%
Total interest-bearing deposits			1,371,111			1,824		0.27	%			1,386,674			1,962		0.28	%
FHLB advances			417,518			2,702		1.29	%			386,371			2,533		1.31	%
Other borrowings			45,694			1,149		5.03	%			29,886			844		5.65	%
Junior subordinated notes(5)			4,898			504		20.58	%			10,064			552		10.97	%
Total interest-bearing liabilities			1,839,221			6,179		0.67	%			1,812,995			5,891		0.65	%
Non-interest-bearing demand deposit accounts			559,793									506,767
Other non-interest-bearing liabilities			50,117									65,146
Total liabilities			2,449,131									2,384,908
Stockholders’ equity			242,482									214,465
Total liabilities and stockholders’ equity		$	2,691,613								$	2,599,373
Net interest income					$	45,087								$	42,515
Interest rate spread								3.37	%								3.29	%
Net interest-earning assets		$	699,076								$	641,637
Net interest margin								3.55	%								3.46	%

(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 six months ended June 30, 2022, 2022 includes $248,000 in accelerated amortization of debt issuance costs.

PROVISION FOR LOAN AND LEASE LOSS COMPOSITION
(Unaudited)		For the Three Months Ended																				For the Six Months Ended
(Dollars in thousands)		June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021				June 30, 2022				June 30, 2021
Change in general reserve due to subjective factor changes		$	(185	)		$	(416	)		$	(805	)		$	(51	)		$	(652	)		$	(601	)		$	430
Change in general reserve due to historical loss factor changes			64				(206	)			(862	)			(923	)			(1,687	)			(142	)			(2,671	)
Charge-offs			85				22				106				364				2,894				107				3,038
Recoveries			(4,247	)			(210	)			(274	)			(1,634	)			(545	)			(4,457	)			(3,218	)
Change in specific reserves on impaired loans, net			29				(280	)			(64	)			(451	)			(1,466	)			(251	)			(1,660	)
Change due to loan growth, net			527				235				1,391				426				498				762				1,055
Total provision for loan and lease losses		$	(3,727	)		$	(855	)		$	(508	)		$	(2,269	)		$	(958	)		$	(4,582	)		$	(3,026	)

PERFORMANCE RATIOS
		For the Three Months Ended															For the Six Months Ended
(Unaudited)		June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021			June 30, 2021			June 30, 2022			June 30, 2021
Return on average assets (annualized)		1.61	%		1.30	%		1.32	%		1.41	%		1.26	%		1.46	%		1.38	%
Return on average common equity (annualized)		18.79	%		14.47	%		15.04	%		16.39	%		15.09	%		16.74	%		16.75	%
Efficiency ratio		64.47	%		65.55	%		61.92	%		65.68	%		64.17	%		65.00	%		63.18	%
Interest rate spread		3.51	%		3.22	%		3.21	%		3.27	%		3.31	%		3.37	%		3.29	%
Net interest margin		3.71	%		3.39	%		3.39	%		3.45	%		3.49	%		3.55	%		3.46	%
Average interest-earning assets to average interest-bearing liabilities		137.40	%		138.64	%		141.19	%		139.19	%		136.54	%		138.01	%		135.39	%

ASSET QUALITY RATIOS
(Unaudited)		As of
(Dollars in thousands)		June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021
Non-accrual loans and leases		$	5,585			$	5,617			$	6,358			$	7,433			$	11,422
Foreclosed properties			124				117				164				172				179
Total non-performing assets			5,709				5,734				6,522				7,605				11,601
Performing troubled debt restructurings			188				203				217				53				56
Total impaired assets		$	5,897			$	5,937			$	6,739			$	7,658			$	11,657
Non-accrual loans and leases as a percent of total gross loans and leases			0.24	%			0.25	%			0.28	%			0.35	%			0.53	%
Non-performing assets as a percent of total gross loans and leases plus foreclosed properties			0.25	%			0.25	%			0.29	%			0.36	%			0.54	%
Non-performing assets as a percent of total assets			0.21	%			0.21	%			0.25	%			0.29	%			0.40	%
Allowance for loan and lease losses as a percent of total gross loans and leases			1.05	%			1.05	%			1.09	%			1.16	%			1.20	%
Allowance for loan and lease losses as a percent of non-accrual loans and leases			431.58	%			421.38	%			382.76	%			331.98	%			224.79	%

ASSET QUALITY RATIOS - EXCLUDING NET PPP LOANS
(Unaudited)		As of
(Dollars in thousands)		June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021
Non-accrual loans and leases as a percent of total gross loans and leases			0.24	%			0.25	%			0.29	%			0.36	%			0.56	%
Non-performing assets as a percent of total gross loans and leases plus foreclosed properties			0.25	%			0.26	%			0.29	%			0.37	%			0.57	%
Non-performing assets as a percent of total assets			0.21	%			0.21	%			0.25	%			0.30	%			0.42	%
Allowance for loan and lease losses as a percent of total gross loans and leases			1.06	%			1.06	%			1.10	%			1.20	%			1.27	%
PPP loans outstanding, net		$	8,172			$	18,206			$	27,297			$	64,454			$	120,723

NET CHARGE-OFFS (RECOVERIES)
(Unaudited)		For the Three Months Ended																				For the Six Months Ended
(Dollars in thousands)		June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021				June 30, 2022				June 30, 2021
Charge-offs		$	85			$	22			$	106			$	364			$	2,894			$	107			$	3,038
Recoveries			(4,247	)			(210	)			(274	)			(1,634	)			(545	)			(4,457	)			(3,218	)
Net (recoveries) charge-offs		$	(4,162	)		$	(188	)		$	(168	)		$	(1,270	)		$	2,349			$	(4,350	)		$	(180	)
Net (recoveries) charge-offs as a percent of average gross loans and leases (annualized)			(0.73	)%			(0.03	)%			(0.03	)%			(0.24	)%			0.42	%			(0.39	)%			(0.02	)%
Annualized (recoveries) charge-offs as a percent of average gross loans and leases, excluding average net PPP loans			(0.74	)%			(0.03	)%			(0.03	)%			(0.25	)%			0.47	%			(0.39	)%			(0.02	)%
Average PPP loans outstanding, net		$	11,650			$	20,935			$	52,923			$	87,517			$	229,165			$	16,266			$	235,668

CAPITAL RATIOS
		As of and for the Three Months Ended
(Unaudited)		June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021			June 30, 2021
Total capital to risk-weighted assets		11.56	%		11.87	%		10.82	%		11.14	%		11.22	%
Tier I capital to risk-weighted assets		9.34	%		9.27	%		8.94	%		9.14	%		9.14	%
Common equity tier I capital to risk-weighted assets		8.90	%		8.81	%		8.55	%		8.73	%		8.72	%
Tier I capital to adjusted assets		9.19	%		9.09	%		8.94	%		8.69	%		8.48	%
Tangible common equity to tangible assets		8.16	%		8.14	%		8.34	%		8.28	%		7.33	%
Tangible common equity to tangible assets, excluding net PPP loans		8.19	%		8.20	%		8.42	%		8.50	%		7.66	%

LOAN AND LEASE RECEIVABLE COMPOSITION
(Unaudited)		As of
(in thousands)		June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021			June 30, 2021
Commercial real estate:
Commercial real estate - owner occupied		$	258,375		$	254,237		$	235,589		$	241,977		$	253,600
Commercial real estate - non-owner occupied			651,920			656,185			661,423			639,423			614,289
Land development			42,545			40,092			42,792			39,119			45,056
Construction			203,913			200,472			179,841			139,933			139,943
Multi-family			314,392			302,494			320,072			313,787			319,351
1-4 family			17,335			16,198			14,911			13,487			19,769
Total commercial real estate			1,488,480			1,469,678			1,454,628			1,387,726			1,392,008
Commercial and industrial			741,363			720,695			730,819			681,065			695,442
Direct financing leases, net			13,718			14,551			15,743			16,810			18,142
Consumer and other:
Home equity and second mortgages			5,132			4,523			4,223			4,576			5,740
Other			42,387			43,066			35,518			35,645			36,567
Total consumer and other			47,519			47,589			39,741			40,221			42,307
Total gross loans and leases receivable			2,291,080			2,252,513			2,240,931			2,125,822			2,147,899
Less:
Allowance for loan and lease losses			24,104			23,669			24,336			24,676			25,675
Deferred loan fees			980			1,264			1,523			2,516			4,338
Loans and leases receivable, net		$	2,265,996		$	2,227,580		$	2,215,072		$	2,098,630		$	2,117,886

DEPOSIT COMPOSITION
(Unaudited)		As of
(in thousands)		June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021			June 30, 2021
Non-interest-bearing transaction accounts		$	544,507		$	600,987		$	589,559		$	526,047		$	774,253
Interest-bearing transaction accounts			466,785			539,492			530,225			517,248			511,698
Money market accounts			731,718			806,917			754,410			728,751			685,127
Certificates of deposit			114,000			63,977			54,091			57,598			45,137
Wholesale deposits			12,321			12,321			29,638			74,638			144,492
Total deposits		$	1,869,331		$	2,023,694		$	1,957,923		$	1,904,282		$	2,160,707

TRUST ASSETS COMPOSITION
(Unaudited)		As of
(in thousands)		June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021			June 30, 2021
Trust assets under management		$	2,386,637		$	2,636,896		$	2,711,760		$	2,545,089		$	2,362,257
Trust assets under administration			167,095			197,160			208,954			202,657			202,116
Total trust assets		$	2,553,732		$	2,834,056		$	2,920,714		$	2,747,746		$	2,564,373

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)		June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021
Common stockholders’ equity		$	237,931			$	233,059			$	232,422			$	225,280			$	221,452
Goodwill and other intangible assets			(12,262	)			(12,184	)			(12,268	)			(12,229	)			(12,178	)
Tangible common equity		$	225,669			$	220,875			$	220,154			$	213,051			$	209,274
Common shares outstanding			8,474,699				8,488,585				8,457,564				8,483,099				8,617,761
Book value per share		$	28.08			$	27.46			$	27.48			$	26.56			$	25.70
Tangible book value per share			26.63				26.02				26.03				25.11				24.28

TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS

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

(Unaudited)		As of
(Dollars in thousands)		June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021
Common stockholders’ equity		$	237,931			$	233,052			$	232,422			$	225,280			$	221,452
Goodwill and other intangible assets			(12,262	)			(12,184	)			(12,268	)			(12,229	)			(12,178	)
Tangible common equity		$	225,669			$	220,875			$	220,154			$	213,051			$	209,274
Total assets		$	2,777,016			$	2,724,082			$	2,652,905			$	2,584,410			$	2,865,669
Goodwill and other intangible assets			(12,262	)			(12,184	)			(12,268	)			(12,229	)			(12,178	)
Tangible assets		$	2,764,754			$	2,711,898			$	2,640,637			$	2,572,181			$	2,853,491
Tangible common equity to tangible assets			8.16	%			8.14	%			8.34	%			8.28	%			7.33	%
Period-end net PPP loans			8,172				18,206				27,297				64,454				120,722
Tangible assets, excluding net PPP loans		$	2,756,582			$	2,693,692			$	2,613,340			$	2,507,727			$	2,732,769
Tangible common equity to tangible assets, excluding net PPP loans			8.19	%			8.20	%			8.42	%			8.50	%			7.66	%

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

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

(Unaudited)	For the Three Months Ended																				For the Six Months Ended
(Dollars in thousands)	June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021				June 30, 2022				June 30, 2021
Total non-interest expense	$	19,456			$	18,823			$	17,531			$	18,490			$	18,184			$	38,280			$	35,514
Less:
Net loss (gain) on foreclosed properties		8				12				7				6				(1	)			20				1
Amortization of other intangible assets		—				—				2				7				8				—				15
SBA recourse provision (benefit)		114				(76	)			(122	)			(69	)			245				38				115
Tax credit investment impairment recovery		(351	)			—				—				—				—				(351	)			—
Total operating expense (a)	$	19,685			$	18,887			$	17,644			$	18,546			$	17,932			$	38,573			$	35,383
Net interest income	$	23,660			$	21,426			$	20,924			$	21,223			$	21,652			$	45,087			$	42,515
Total non-interest income		6,872				7,386				7,569				7,015				6,321				14,258				13,516
Less:
Net gain on sale of securities		—				—				—				—				29				—				29
Adjusted non-interest income		6,872				7,386				7,569				7,015				6,292				14,258				13,487
Total operating revenue (b)	$	30,532			$	28,812			$	28,493			$	28,238			$	27,944			$	59,345			$	56,002
Efficiency ratio		64.47	%			65.55	%			61.92	%			65.68	%			64.17	%			65.00	%			63.18	%
Pre-tax, pre-provision adjusted earnings (b - a)	$	10,847			$	9,925			$	10,849			$	9,692			$	10,012			$	20,772			$	20,619
Less:
PPP fee income		196				249				892				1,666				2,541				445				4,754
PPP loan interest income		29				52				134				221				566				81				1,169
Pre-tax, pre-provision adjusted earnings, excluding PPP	$	10,622			$	9,624			$	9,823			$	7,805			$	6,905			$	20,246			$	14,696
Average total assets	$	2,716,707			$	2,666,241			$	2,612,905			$	2,608,198			$	2,621,340			$	2,691,613			$	2,599,373
Less:
Average net PPP loans		11,650				20,935				52,923				87,517				229,165				16,266				235,668
Adjusted average total assets	$	2,705,057			$	2,645,306			$	2,559,982			$	2,520,681			$	2,392,175			$	2,675,347			$	2,363,705
Pre-tax, pre-provision adjusted return on average assets		1.60	%			1.49	%			1.66	%			1.49	%			1.53	%			1.54	%			1.59	%
Pre-tax, pre-provision adjusted return on average assets, excluding PPP		1.57	%			1.46	%			1.53	%			1.24	%			1.15	%			1.51	%			1.24	%

ADJUSTED NET INTEREST MARGIN

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

(Unaudited)	For the Three Months Ended																				For the Six Months Ended
(Dollars in thousands)	June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021				June 30, 2022				June 30, 2021
Interest income	$	27,031			$	24,235			$	23,576			$	24,014			$	24,599			$	51,266			$	48,406
Interest expense		3,371				2,809				2,652				2,791				2,947				6,179				5,891
Net interest income (a)		23,660				21,426				20,924				21,223				21,652				45,087				42,515
Less:
Fees in lieu of interest		1,865				1,293				1,700				2,839				3,536				3,158				6,621
PPP loan interest income		29				52				134				221				566				81				1,169
FRB interest income and FHLB dividend income		279				188				179				212				192				467				350
Adjusted net interest income (b)	$	21,487			$	19,893			$	18,911			$	17,951			$	17,358			$	41,381			$	34,375
Average interest-earning assets (c)	$	2,551,180			$	2,525,272			$	2,472,013			$	2,460,567			$	2,483,447			$	2,538,297			$	2,454,632
Less:
Average net PPP loans		11,650				20,935				52,923				87,517				229,165				16,266				235,668
Average FRB cash and FHLB stock		46,334				44,577				71,939				129,469				68,503				45,461				52,661
Average non-accrual loans and leases		5,429				6,195				6,796				11,298				16,744				5,810				19,392
Adjusted average interest-earning assets (d)	$	2,487,767			$	2,453,565			$	2,340,355			$	2,232,283			$	2,169,035			$	2,470,760			$	2,146,911
Net interest margin (a / c)		3.71	%			3.39	%			3.39	%			3.45	%			3.49	%			3.55	%			3.46	%
Adjusted net interest margin (b / d)		3.45	%			3.24	%			3.23	%			3.22	%			3.20	%			3.35	%			3.20	%

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20220728005643/en/

First Business Financial Services, Inc.

Edward G. Sloane, Jr.

Chief Financial Officer

608-232-5970

esloane@firstbusiness.bank

Source: First Business Financial Services, Inc.

FAQ

What was the net income reported by FBIZ for the second quarter of 2022?

FBIZ reported a net income of $11.0 million, or $1.29 per diluted share, for the second quarter of 2022.

How much did net interest income increase for FBIZ in Q2 2022?

Net interest income for FBIZ increased by 10.4% to $23.7 million in Q2 2022.

What was the loan growth reported by FBIZ in the second quarter of 2022?

FBIZ reported a loan growth of $48.9 million, or 8.8% annualized, excluding PPP loans.

How did non-performing assets change for FBIZ in Q2 2022?

Non-performing assets decreased to $5.7 million, representing 0.21% of total assets for FBIZ in Q2 2022.

What was the increase in tangible book value for FBIZ compared to the previous quarter?

FBIZ achieved a 9.4% increase in tangible book value compared to the linked quarter.