0001521951-19-000002.txt : 20190124 0001521951-19-000002.hdr.sgml : 20190124 20190124160411 ACCESSION NUMBER: 0001521951-19-000002 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20190124 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20190124 DATE AS OF CHANGE: 20190124 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST BUSINESS FINANCIAL SERVICES, INC. CENTRAL INDEX KEY: 0001521951 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 391576570 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-34095 FILM NUMBER: 19540041 BUSINESS ADDRESS: STREET 1: 401 CHARMANY DRIVE CITY: MADISON STATE: WI ZIP: 53719 BUSINESS PHONE: 608-238-8008 MAIL ADDRESS: STREET 1: 401 CHARMANY DRIVE STREET 2: PO BOX 44961 CITY: MADISON STATE: WI ZIP: 53744 FORMER COMPANY: FORMER CONFORMED NAME: First Business Financial Services, Inc. DATE OF NAME CHANGE: 20110527 8-K 1 fbiz4q18earningsreleasefor.htm FORM 8-K Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 24, 2019
fblogo2016a12.jpg
First Business Financial Services, Inc.
(Exact name of registrant as specified in its charter) 
 
 
 
 
 
Wisconsin
 
1-34095
 
39-1576570
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification No.)
401 Charmany Drive
Madison, Wisconsin 53719
(Address of principal executive offices) (Zip code)
(608) 238-8008
(Registrant’s telephone number, including area code)
N/A
(Former name or former address, if changed since last report.)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b- 2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨





Item 2.02. Results of Operations and Financial Condition.

On January 24, 2019, First Business Financial Services, Inc. (the “Company”) announced its earnings for the quarter ended December 31, 2018. A copy of the Company’s press release containing this information is being “furnished” as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.

The information in Item 2.02 of this Current Report on Form 8-K and Exhibit 99.1 attached hereto is being “furnished” and will not, except to the extent required by applicable law or regulation, be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor will any of such information or exhibits be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except as expressly set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
The following exhibit is being “furnished” as part of this Current Report on Form 8-K:





Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
 
 
January 24, 2019
 
 
 
FIRST BUSINESS FINANCIAL SERVICES, INC.
 
 
 
 
 
 
 
 
By:
 
/s/ Edward G. Sloane, Jr.
 
 
 
 
Name:
 
Edward G. Sloane, Jr.
 
 
 
 
Title:
 
Chief Financial Officer



EX-99.1 2 fbiz20181231exhibit991earn.htm EXHIBIT 99.1 Exhibit


Exhibit 99.1

[FOR IMMEDIATE RELEASE]
First Business Financial Services, Inc.
401 Charmany Drive
Madison, WI 53719

FIRST BUSINESS REPORTS FOURTH QUARTER 2018 FINANCIAL RESULTS
-- Robust deposit generation supports record loan balances and strong net interest margin --

MADISON, Wis., January 24, 2019 (GLOBE NEWSWIRE) -- First Business Financial Services, Inc. (the “Company” or “First Business”) (NASDAQ:FBIZ) reported fourth quarter 2018 net income of $4.1 million highlighted by solid balance sheet growth and reduced operating expenses, partially offset by an increase in recourse provision related to certain legacy Small Business Administration (“SBA”) loans previously identified as impaired.

Summary results for the quarter ended December 31, 2018 include:
Net income totaled $4.1 million, compared to $5.3 million in the linked quarter and $4.0 million in the fourth quarter of 2017.
Diluted earnings per common share measured $0.46, compared to $0.60 and $0.46 for the linked and prior year quarters, respectively.
Annualized return on average assets and annualized return on average equity measured 0.83% and 9.06%, respectively, compared to 1.11% and 12.06% for the linked quarter and 0.91% and 9.57% for the fourth quarter of 2017.
Net interest margin was 3.69%, compared to 3.75% in the linked quarter and 3.63% for the fourth quarter of 2017.
Net interest income was $17.1 million, increasing by $21,000 from the linked quarter and by $1.8 million from the fourth quarter of 2017.
Trust and investment services fee income totaled $1.9 million for both the current and linked quarter and $1.7 million in the fourth quarter of 2017.
Top line revenue, the sum of net interest income and non-interest income, totaled $21.8 million, compared to $22.0 million in the linked quarter and $18.9 million in the fourth quarter of 2017.
Provision for loan and lease losses was $983,000, compared to provision benefit of $546,000 for the linked quarter and provision expense of $473,000 for the fourth quarter of 2017.
SBA recourse provision was $1.8 million, compared to $314,000 in the linked quarter and $145,000 for the fourth quarter of 2017.
The Company’s efficiency ratio measured 66.95%, compared to 69.55% for the linked quarter and 63.23% for the fourth quarter of 2017.
Active in-market historic tax credit investing program contributed $752,000, or $0.09 per share, compared to $674,000, or $0.08 per share, in the fourth quarter of 2017.
Record period-end gross loans and leases receivable of $1.618 billion grew 4.8% annualized during the fourth quarter and 7.7% from December 31, 2017.
Non-performing assets were $27.8 million at December 31, 2018, compared to $32.1 million and $27.5 million at September 30, 2018 and December 31, 2017, respectively.
Record period-end in-market deposits of $1.179 billion, which consist of all transaction accounts, money market accounts and non-wholesale deposits, increased 38.1% annualized during the fourth quarter and 8.6% from December 31, 2017.

“Consistent with the first three quarters of 2018, commercial banking operations continued to show positive momentum, including our sixth consecutive quarter of loan growth, record in-market deposit growth, solid fee income, and stable net interest margin,” said Corey Chambas, President and Chief Executive Officer. “While this strong fundamental performance was somewhat offset by the remnants of our acquired legacy SBA portfolio, we are encouraged by the progress of the past year and remain confident the significant investment made across our footprint has built a foundation for sustainable growth in 2019 and beyond.”


1



Results of Operations
Net interest income was $17.1 million in the fourth quarter of 2018 and linked quarter, compared to $15.4 million in the fourth quarter of 2017. The increase compared to the prior year quarter was principally due to an increase in both average loans and leases outstanding and average loan and lease yields. Average gross loans and leases of $1.617 billion increased by $149.9 million, or 10.2%, compared to the fourth quarter of 2017. Both periods of comparison benefited from increases to short-term market rates, which management defines as the daily average effective federal funds rate for purposes of estimating interest-earning asset and interest-bearing liability betas. The benefit from the increase in short-term market rates during the fourth quarter of 2018, compared to the linked quarter, was offset by an increase in interest expense resulting from an increase in rates across various interest-bearing products combined with the successful deposit campaigns designed to appeal to prospective private wealth management clients in local markets.
The yield on average loans and leases improved to 5.70%, up from 5.56% and 5.03% in the linked and prior year quarters, respectively. The average loans and leases beta was 48% from the linked quarter and 67% from the prior year quarter. We present betas, which represent the change in the yield of our interest-earning asset or the rate paid on our interest-bearing liabilities over a particular period, compared to the changes in the daily effective federal funds rate over that period. The increase in yield from the linked quarter was primarily due to the increase in short-term market rates. Fees collected in lieu of interest were $1.4 million in both the fourth quarter of 2018 and linked quarter, compared to $1.1 million in the prior year quarter. Excluding fees collected in lieu of interest, the average loans and leases beta was 53% from the linked quarter and 62% from the prior year quarter. Similarly, the yield on average interest-earning assets improved to 5.29%, up from 5.17% and 4.61% in the linked and prior year quarter, respectively. The average interest-earning assets beta was 41% from the linked quarter and 68% from the prior year quarter. Also, excluding fees collected in lieu of interest, the average interest-earning assets beta was 47% from the linked quarter and 63% from the prior year quarter.
The Company’s cost of total average interest-bearing liabilities increased to 1.99% for the fourth quarter of 2018 from 1.75% and 1.22% in the linked and prior year quarters, respectively. The average interest-bearing liabilities beta was 83% from the linked quarter and 77% from the prior year quarter. Average interest-bearing deposit costs for the fourth quarter of 2018 increased to 1.77%, up from 1.47% and 0.96% in the linked and prior year quarter, respectively. The average interest-bearing deposit beta was 103% from the linked quarter and 81% from the prior year quarter. Management believes an increase in funding costs may put downward pressure on net interest margin as the Company looks to grow in-market deposits amid intense competition.
Net interest margin measured 3.69% for the fourth quarter of 2018, compared to 3.75% in the linked quarter and 3.63% in the fourth quarter of 2017. The decrease compared to the linked quarter was principally due to the rate paid on average interest-bearing liabilities increasing at a slightly greater rate than growth in the yield on average interest-earning assets. When comparing the fourth quarter of 2018 to the same period in 2017, the increase in the rate paid on average interest-bearing liabilities was offset by the increase in yield on average interest-earning assets and a $317,000 increase in fees collected in lieu of interest. Management expects the successful continuation of its strategies will allow the Company to maintain a net interest margin at or above its target of 3.50%.
The Company recorded a provision for loan and lease losses of $983,000 in the fourth quarter of 2018, compared to a provision benefit of $546,000 in the linked quarter and provision expense of $473,000 in the fourth quarter of 2017. The increase in provision for the fourth quarter of 2018 was principally due to $1.0 million in net charge-offs, related to the deterioration of collateral associated with certain existing impaired legacy SBA loans and one conventional loan. Net charge-offs were partially offset by a net reduction in specific reserves from improved collateral values of legacy SBA loan relationships previously identified as impaired. The size of the legacy on-balance-sheet portfolio, defined as SBA loans originated prior to 2017, continues to decline. As of December 31, 2018, total on-balance sheet legacy loans were $39.3 million, compared to $41.2 million and $51.7 million at September 30, 2018 and December 31, 2017, respectively. Total performing on-balance sheet legacy loans were $26.3 million at December 31, 2018, down from $29.3 million and $40.6 million at September 30, 2018 and December 31, 2017, respectively.
Non-interest income totaled $4.6 million, or 21.4% of total revenue, in the fourth quarter of 2018, compared to $4.9 million, or 22.2% of total revenue, in the linked quarter and $3.5 million, or 18.7% of total revenue, in the prior year quarter. Non-interest income decreased compared to the linked quarter primarily due to a reduction in SBA gains, partially offset by fee income related to the Company’s commercial loan swap transactions. Non-interest income increased compared to the prior year quarter principally due to trust and investment services fee income growth and an increase in commercial loan swap fee income. In addition, fourth quarter 2017 non-interest income was reduced from the strategic sale of certain securities at a net loss of $409,000.
Trust and investment services fee income, which remained the Company’s largest source of non-interest income, totaled $1.9 million in both the current and linked quarters, compared to $1.7 million in the prior year quarter. Cash additions from existing relationships and successful business development efforts added $93.5 million new trust assets under management

2



and administration during the fourth quarter of 2018, offset by market volatility in the period. Trust assets under management and administration were $1.630 billion at December 31, 2018, compared to $1.721 billion at September 30, 2018 and $1.536 billion at December 31, 2017.
Gains on sale of SBA loans totaled $267,000 in the fourth quarter of 2018, compared to $641,000 in the linked quarter and $90,000 in the fourth quarter of 2017. Gross SBA loan commitments closed for the full year 2018 totaled $26.1 million, compared to $11.6 million for the full year 2017. As of December 31, 2018, gross SBA loan commitments closed, but not ready for sale, totaled $8.4 million.
Swap fee income totaled $662,000 in the fourth quarter of 2018, compared to $306,000 in the linked quarter and $42,000 in the fourth quarter of 2017. While interest rate swaps continue to be a valuable product for the Bank’s commercial borrowers, management expects client demand to moderate if and as the pace of Fed Funds Target Rate hikes slows.
Non-interest expense was $18.2 million for the fourth quarter of 2018, compared to $15.7 million for the linked quarter and $14.9 million in the fourth quarter of 2017. Operating expense, as defined in the Efficiency Ratio table included in the Non-GAAP Reconciliations at the end of this release, totaled $14.6 million in the fourth quarter of 2018, $15.3 million in the linked quarter, and $12.2 million in the fourth quarter of 2017.
Fourth quarter 2018 compensation expense was $9.4 million, a decrease of $387,000 compared to the linked quarter and an increase of $2.5 million compared to the prior year quarter. The decrease in compensation expense from the linked quarter reflects a decrease in the Company’s performance-based incentive compensation accrual based on actual full year 2018 results. The addition of several new producers across multiple business lines, including commercial lending, SBA lending, wealth management, and equipment finance contributed to the increase in compensation expense from the prior year quarter. Full-time equivalent employees were 274 at December 31, 2018, compared to 275 at September 30, 2018 and 251 at December 31, 2017. Management expects to continue strategically investing in talent to drive long-term organic revenue growth.
Non-interest expense includes SBA recourse provision for estimated losses in the outstanding guaranteed portion of SBA loans sold. SBA recourse provision totaled $1.8 million in the fourth quarter of 2018, $314,000 in the linked quarter and $145,000 in the prior year quarter. The increase during the fourth quarter of 2018 was primarily related to $1.6 million in net charge-offs resulting from the repurchase of the sold portion of two legacy SBA loans previously identified as impaired. The total recourse reserve balance was $3.0 million, or 3.6% of total sold SBA loans outstanding at December 31, 2018. The balance of sold legacy SBA loans, which is defined as SBA loans originated prior to 2017, continues to decline. Total sold legacy SBA loans at December 31, 2018 were $62.0 million, compared to $72.1 million and $93.6 million at September 30, 2018 and December 31, 2017, respectively. Total performing sold legacy SBA loans were $49.0 million at December 31, 2018, down from $54.6 million and $84.8 million at September 30, 2018 and December 31, 2017, respectively. Changes to SBA recourse reserves may be a source of non-interest expense volatility in future quarters, though the magnitude of this volatility should diminish over time.
The Company’s fourth quarter 2018 efficiency ratio was 66.95%, compared to 69.55% for the linked quarter and 63.23% for the fourth quarter of 2017. Over time, the Company intends to achieve its target efficiency ratio range of 58-62% through proactive expense management and revenue growth efforts. These include our newly consolidated board membership, as well as efforts to increase SBA lending production and to increase commercial banking market share, particularly in our less mature markets, by continuing to prudently invest in production talent.
During the fourth quarter of 2018, the Company recognized $1.4 million in nonrecurring expense due to partial impairment of in-market federal historic tax credit investments, which corresponded with the recognition of $2.3 million in tax credits during the quarter. The full year 2018 effective tax rate, excluding the discrete items, was 19.0%. For 2019, the Company expects to report an effective tax rate of 20%-22%, excluding discrete items.
“In-market historic tax credit opportunities are not only part of our proactive tax expense management efforts, but allow us to deepen and strengthen commercial and community relationships through our support of high-profile redevelopment projects,” said Chambas. “Consistent with the past three years, we intend to actively pursue in-market historic tax credit opportunities that meet our underwriting criteria, allowing us to partner with high-quality commercial real estate developers on projects designed to make a positive impact on the communities we serve.”

Balance Sheet
Period-end gross loans and leases receivable totaled a record $1.618 billion at December 31, 2018, increasing $19.0 million, or 4.8% annualized, from September 30, 2018 and increasing $116.1 million, or 7.7%, from December 31, 2017.

3



“Commercial banking growth in 2018 reflects a combination of healthy in-market demand and our investments in talent,” said Chambas. “The majority of our fourth quarter growth came in the form of commercial real estate as construction advanced on many of the great local projects we are proud to finance. In addition, we are very pleased with our team’s success in growing the C&I portfolio, including the initial success of our nascent small-ticket vendor equipment finance program. The platform formally launched in the fourth quarter and originated nearly $10 million in new C&I business.”
Period-end in-market deposits, which consist of all transaction accounts, money market accounts, and non-wholesale deposits, increased to $1.179 billion, or 68.2% of total bank funding at December 31, 2018, compared to $1.077 billion, or 64.6%, at September 30, 2018 and $1.086 billion, or 68.9%, at December 31, 2017. Period-end wholesale funding was $550.4 million at December 31, 2018, including FHLB advances of $274.5 million, brokered certificates of deposit of $274.5 million, and deposits gathered through internet deposit listing services of $1.3 million, compared to period-end wholesale funding of $491.5 million at December 31, 2017.
The successful introduction of certificate of deposit campaigns and indexed money market accounts complemented the Company’s traditional strength in commercial banking and wealth management, contributing to its in-market deposit growth during the fourth quarter of 2018. “Strong in-market deposit growth during the fourth quarter highlighted the strength of our relationship-based approach,” commented Chambas. “We will continue to pursue growth of in-market deposits through both additional commercial banking relationships as well as a new focus on executive and high net worth private wealth management relationships.”
Consistent with the Company’s longstanding funding strategy to manage risk and use the most efficient and cost-effective source of wholesale funds, management intends to maintain a ratio of in-market deposits to total bank funding sources in line with the Company’s target range of 60%-70%.
Asset Quality
Non-performing assets declined to 1.42% of total assets at December 31, 2018, compared to 1.69% and 1.53% at the end of the linked quarter and fourth quarter of 2017, respectively. Total non-performing assets were $27.8 million at December 31, 2018, $32.1 million at September 30, 2018 and $27.5 million at December 31, 2017. The decrease from the linked quarter primarily reflects the partial payoff of the previously disclosed $9.1 million fully-collateralized asset-based loan identified as impaired during the second quarter of 2018, which reduced non-performing assets by $5.8 million. We believe we will successfully liquidate the remaining collateral and receive all outstanding contractual principal and interest in the first half of 2019. Non-performing assets also decreased due to $1.0 million of current quarter charge-offs principally related to legacy SBA loans previously identified as impaired. These decreases were partially offset by the repurchase of the sold portion of certain legacy SBA loan relationships, which increased non-performing assets by approximately $4.4 million.
Capital Strength
The Company’s capital ratios continued to exceed the highest required regulatory benchmark levels. As of December 31, 2018, total capital to risk-weighted assets was 11.85%, tier 1 capital to risk-weighted assets was 9.41%, tier 1 leverage capital to adjusted average assets was 9.33%, and common equity tier 1 capital to risk-weighted assets was 8.89%. In addition, as of December 31, 2018, tangible common equity to tangible assets was 8.63%.
Share Repurchases
From December 17, 2018 through January 23, 2019, the Company purchased 36,262 shares of its common stock at a weighted average price of $20.32 per share, for a total value of $737,000. Under the previously disclosed stock repurchase program approved by its Board of Directors, the company has $4.3 million of buyback authority remaining as of January 23, 2019.
Quarterly Dividend
As previously announced, during the fourth quarter of 2018, the Company’s Board of Directors declared a regular quarterly dividend of $0.14 per share. The dividend was paid on November 15, 2018 to stockholders of record at the close of business on November 5, 2018. Measured against fourth quarter 2018 diluted earnings per share of $0.46, the dividend represents a 30.4% payout ratio. The Board of Directors routinely considers dividend declarations as part of its normal course of business.


4



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 release may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which reflect First Business’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:
Competitive pressures among depository and other financial institutions nationally and in our markets.
Adverse changes in the economy or business conditions, either nationally or in our markets.
Increases in defaults by borrowers and other delinquencies.
Our 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.
The consequences of continued bank acquisitions and mergers in our markets, resulting in fewer but much larger and financially stronger competitors.
Changes in legislative or regulatory requirements applicable to us and our 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 our 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, 2017 and other filings with the Securities and Exchange Commission.
 
 
 
CONTACT:
 
First Business Financial Services, Inc.
 
 
Edward G. Sloane, Jr.
 
 
Chief Financial Officer
 
 
608-232-5970
 
 
esloane@firstbusiness.com

5



SELECTED FINANCIAL CONDITION DATA
(Unaudited)
 
As of
(in thousands)
 
December 31,
2018
 
September 30,
2018
 
June 30,
2018
 
March 31,
2018
 
December 31,
2017
Assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
86,546

 
$
40,293

 
$
45,803

 
$
61,322

 
$
52,539

Securities available-for-sale, at fair value
 
138,358

 
134,995

 
135,470

 
127,961

 
126,005

Securities held-to-maturity, at amortized cost
 
37,731

 
39,950

 
40,946

 
41,885

 
37,778

Loans held for sale
 
5,287

 
4,712

 
4,976

 
3,429

 
2,194

Loans and leases receivable
 
1,617,655

 
1,598,607

 
1,594,953

 
1,563,490

 
1,501,595

Allowance for loan and lease losses
 
(20,425
)
 
(20,455
)
 
(20,932
)
 
(18,638
)
 
(18,763
)
Loans and leases receivable, net
 
1,597,230

 
1,578,152

 
1,574,021

 
1,544,852

 
1,482,832

Premises and equipment, net
 
3,284

 
3,247

 
3,358

 
3,247

 
3,156

Foreclosed properties
 
2,547

 
1,454

 
1,484

 
1,484

 
1,069

Bank-owned life insurance
 
41,538

 
41,212

 
40,912

 
40,614

 
40,323

Federal Home Loan Bank stock, at cost
 
7,240

 
6,890

 
9,295

 
8,650

 
5,670

Goodwill and other intangible assets
 
12,045

 
12,132

 
12,380

 
12,579

 
12,652

Accrued interest receivable and other assets
 
34,651

 
31,293

 
31,142

 
32,194

 
29,848

Total assets
 
$
1,966,457

 
$
1,894,330

 
$
1,899,787

 
$
1,878,217

 
$
1,794,066

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
In-market deposits
 
$
1,179,448

 
$
1,076,851

 
$
1,056,294

 
$
1,078,605

 
$
1,086,346

Wholesale deposits
 
275,851

 
332,052

 
281,431

 
292,553

 
307,985

Total deposits
 
1,455,299

 
1,408,903

 
1,337,725

 
1,371,158

 
1,394,331

Federal Home Loan Bank advances and other borrowings
 
298,944

 
281,430

 
365,416

 
308,912

 
207,898

Junior subordinated notes
 
10,033

 
10,029

 
10,026

 
10,022

 
10,019

Accrued interest payable and other liabilities
 
21,474

 
16,426

 
12,948

 
16,645

 
12,540

Total liabilities
 
1,785,750

 
1,716,788

 
1,726,115

 
1,706,737

 
1,624,788

Total stockholders’ equity
 
180,707

 
177,542

 
173,672

 
171,480

 
169,278

Total liabilities and stockholders’ equity
 
$
1,966,457

 
$
1,894,330

 
$
1,899,787

 
$
1,878,217

 
$
1,794,066
















6



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)
 
December 31,
2018
 
September 30,
2018
 
June 30,
2018
 
March 31,
2018
 
December 31,
2017
 
December 31,
2018
 
December 31,
2017
Total interest income
 
$
24,522

 
$
23,563

 
$
22,468

 
$
20,722

 
$
19,504

 
$
91,275

 
$
75,811

Total interest expense
 
7,407

 
6,469

 
5,537

 
4,520

 
4,146

 
23,933

 
15,202

Net interest income
 
17,115

 
17,094

 
16,931

 
16,202

 
15,358

 
67,342

 
60,609

Provision for loan and lease losses
 
983

 
(546
)
 
2,579

 
2,476

 
473

 
5,492

 
6,172

Net interest income after provision for loan and lease losses
 
16,132

 
17,640

 
14,352

 
13,726

 
14,885

 
61,850

 
54,437

Trust and investment service fees
 
1,919

 
1,941

 
1,987

 
1,898

 
1,739

 
7,744

 
6,670

Gain on sale of SBA loans
 
267

 
641

 
274

 
269

 
90

 
1,451

 
1,591

Service charges on deposits
 
770

 
788

 
720

 
784

 
727

 
3,062

 
3,013

Loan fees
 
408

 
459

 
389

 
527

 
463

 
1,783

 
1,988

Net loss on sale of securities
 
(4
)
 

 

 

 
(409
)
 
(4
)
 
(403
)
Swap fees
 
662

 
306

 
70

 
633

 
42

 
1,670

 
909

Other non-interest income
 
626

 
736

 
542

 
556

 
873

 
2,461

 
2,897

Total non-interest income
 
4,648

 
4,871

 
3,982

 
4,667

 
3,525

 
18,167

 
16,665

Compensation
 
9,432

 
9,819

 
9,116

 
9,071

 
6,953

 
37,439

 
31,663

Occupancy
 
560

 
560

 
544

 
529

 
567

 
2,192

 
2,088

Professional fees
 
879

 
1,027

 
928

 
1,035

 
1,017

 
3,869

 
4,063

Data processing
 
614

 
512

 
626

 
611

 
891

 
2,362

 
2,701

Marketing
 
617

 
593

 
591

 
333

 
563

 
2,135

 
2,109

Equipment
 
345

 
403

 
343

 
343

 
342

 
1,434

 
1,211

Computer software
 
780

 
814

 
679

 
742

 
686

 
3,015

 
2,723

FDIC insurance
 
353

 
457

 
369

 
299

 
307

 
1,478

 
1,388

Collateral liquidation costs
 
193

 
230

 
222

 
1

 
273

 
646

 
829

Net loss (gain) on foreclosed properties
 
337

 
30

 

 

 
(143
)
 
367

 
(143
)
Impairment of tax credit investments
 
1,529

 
113

 
329

 
113

 
2,447

 
2,083

 
2,784

SBA recourse provision (benefit)
 
1,795

 
314

 
99

 
(295
)
 
145

 
1,913

 
2,240

Other non-interest expense
 
810

 
874

 
621

 
1,125

 
811

 
3,430

 
3,215

Total non-interest expense
 
18,244

 
15,746

 
14,467

 
13,907

 
14,859

 
62,363

 
56,871

Income before income tax (benefit) expense
 
2,536

 
6,765

 
3,867

 
4,486

 
3,551

 
17,654

 
14,231

Income tax (benefit) expense
 
(1,528
)
 
1,464

 
578

 
837

 
(486
)
 
1,351

 
2,326

Net income
 
$
4,064

 
$
5,301

 
$
3,289

 
$
3,649

 
$
4,037

 
$
16,303

 
$
11,905

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings
 
$
0.46

 
$
0.60

 
$
0.38

 
$
0.42

 
$
0.46

 
$
1.86

 
$
1.36

Diluted earnings
 
0.46

 
0.60

 
0.38

 
0.42

 
0.46

 
1.86

 
1.36

Dividends declared
 
0.14

 
0.14

 
0.14

 
0.14

 
0.13

 
0.56

 
0.52

Book value
 
20.57

 
20.19

 
19.83

 
19.57

 
19.32

 
20.57

 
19.32

Tangible book value
 
19.20

 
18.81

 
18.41

 
18.13

 
17.87

 
19.20

 
17.87

Weighted-average common shares outstanding(1)
 
8,662,025

 
8,650,057

 
8,631,189

 
8,633,278

 
8,631,554

 
8,640,198

 
8,612,770

Weighted-average diluted common shares outstanding(1)
 
8,662,025

 
8,650,057

 
8,631,189

 
8,633,278

 
8,631,554

 
8,640,198

 
8,612,770


(1)
Excluding participating securities.


7



NET INTEREST INCOME ANALYSIS
(Unaudited)
 
For the Three Months Ended
(Dollars in thousands)
 
December 31, 2018
 
September 30, 2018
 
December 31, 2017
 
 
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)
 
$
1,093,472

 
$
14,259

 
5.22
%
 
$
1,085,315

 
$
13,755

 
5.07
%
 
$
973,929

 
$
11,591

 
4.76
%
Commercial and industrial loans(1)
 
461,041

 
8,129

 
7.05
%
 
455,242

 
7,865

 
6.91
%
 
437,804

 
6,303

 
5.76
%
Direct financing leases(1)
 
32,721

 
339

 
4.14
%
 
31,197

 
313

 
4.01
%
 
28,476

 
299

 
4.20
%
Consumer and other loans(1)
 
29,963

 
330

 
4.41
%
 
29,798

 
333

 
4.47
%
 
27,110

 
274

 
4.04
%
Total loans and leases receivable(1)
 
1,617,197

 
23,057

 
5.70
%
 
1,601,552

 
22,266

 
5.56
%
 
1,467,319

 
18,467

 
5.03
%
Mortgage-related securities(2)
 
143,109

 
891

 
2.49
%
 
140,227

 
833

 
2.38
%
 
132,067

 
621

 
1.88
%
Other investment securities(3)
 
30,851

 
156

 
2.02
%
 
34,140

 
169

 
1.98
%
 
35,956

 
202

 
2.25
%
FHLB stock
 
7,049

 
87

 
4.94
%
 
7,722

 
89

 
4.61
%
 
5,572

 
30

 
2.15
%
Short-term investments
 
54,625

 
331

 
2.42
%
 
40,201

 
206

 
2.05
%
 
51,303

 
184

 
1.43
%
Total interest-earning assets
 
1,852,831

 
24,522

 
5.29
%
 
1,823,842

 
23,563

 
5.17
%
 
1,692,217

 
19,504

 
4.61
%
Non-interest-earning assets
 
95,523

 
 
 
 
 
91,359

 
 
 
 
 
91,361

 
 
 
 
Total assets
 
$
1,948,354

 
 
 
 
 
$
1,915,201

 
 
 
 
 
$
1,783,578

 
 
 
 
Interest-bearing liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Transaction accounts
 
$
245,910

 
850

 
1.38
%
 
$
263,928

 
785

 
1.19
%
 
$
241,421

 
450

 
0.75
%
Money market
 
504,698

 
2,044

 
1.62
%
 
472,866

 
1,413

 
1.20
%
 
529,195

 
727

 
0.55
%
Certificates of deposit
 
134,356

 
738

 
2.20
%
 
88,903

 
384

 
1.73
%
 
58,977

 
154

 
1.04
%
Wholesale deposits
 
302,968

 
1,631

 
2.15
%
 
327,146

 
1,650

 
2.02
%
 
325,000

 
1,435

 
1.77
%
Total interest-bearing deposits
 
1,187,932

 
5,263

 
1.77
%
 
1,152,843

 
4,232

 
1.47
%
 
1,154,593

 
2,766

 
0.96
%
FHLB advances
 
264,043

 
1,454

 
2.20
%
 
292,465

 
1,546

 
2.11
%
 
168,451

 
689

 
1.64
%
Other borrowings
 
24,435

 
410

 
6.71
%
 
24,420

 
411

 
6.73
%
 
24,389

 
411

 
6.74
%
Junior subordinated notes
 
10,031

 
280

 
11.17
%
 
10,027

 
280

 
11.17
%
 
10,016

 
280

 
11.18
%
Total interest-bearing liabilities
 
1,486,441

 
7,407

 
1.99
%
 
1,479,755

 
6,469

 
1.75
%
 
1,357,449

 
4,146

 
1.22
%
Non-interest-bearing demand deposit accounts
 
257,320

 
 
 
 
 
239,594

 
 
 
 
 
238,846

 
 
 
 
Other non-interest-bearing liabilities
 
25,101

 
 
 
 
 
19,989

 
 
 
 
 
18,632

 
 
 
 
Total liabilities
 
1,768,862

 
 
 
 
 
1,739,338

 
 
 
 
 
1,614,927

 
 
 
 
Stockholders’ equity
 
179,492

 
 
 
 
 
175,863

 
 
 
 
 
168,651

 
 
 
 
Total liabilities and stockholders’ equity
 
$
1,948,354

 
 
 
 
 
$
1,915,201

 
 
 
 
 
$
1,783,578

 
 
 
 
Net interest income
 
 
 
$
17,115

 
 
 
 
 
$
17,094

 
 
 
 
 
$
15,358

 
 
Interest rate spread
 
 
 
 
 
3.30
%
 
 
 
 
 
3.42
%
 
 
 
 
 
3.39
%
Net interest-earning assets
 
$
366,390

 
 
 
 
 
$
344,087

 
 
 
 
 
$
334,768

 
 
 
 
Net interest margin
 
 
 
 
 
3.69
%
 
 
 
 
 
3.75
%
 
 
 
 
 
3.63
%

(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.



8



NET INTEREST INCOME ANALYSIS
(Unaudited)
 
For the Year Ended
(Dollars in thousands)
 
December 31, 2018
 
December 31, 2017
 
 
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)
 
$
1,074,873

 
$
53,620

 
4.99
%
 
$
961,572

 
$
43,452

 
4.52
%
Commercial and industrial loans(1)
 
447,687

 
30,043

 
6.71
%
 
447,937

 
26,165

 
5.84
%
Direct financing leases(1)
 
31,276

 
1,268

 
4.05
%
 
28,988

 
1,231

 
4.25
%
Consumer and other loans(1)
 
29,761

 
1,297

 
4.36
%
 
27,612

 
1,112

 
4.03
%
Total loans and leases receivable(1)
 
1,583,597

 
86,228

 
5.45
%
 
1,466,109

 
71,960

 
4.91
%
Mortgage-related securities(2)
 
137,145

 
3,185

 
2.32
%
 
138,528

 
2,466

 
1.78
%
Other investment securities(3)
 
33,929

 
657

 
1.94
%
 
37,085

 
682

 
1.84
%
FHLB and FRB stock
 
7,472

 
290

 
3.88
%
 
4,231

 
103

 
2.43
%
Short-term investments
 
49,365

 
915

 
1.85
%
 
49,113

 
600

 
1.22
%
Total interest-earning assets
 
1,811,508

 
91,275

 
5.04
%
 
1,695,066

 
75,811

 
4.47
%
Non-interest-earning assets
 
92,631

 
 
 
 
 
84,829

 
 
 
 
Total assets
 
$
1,904,139

 
 
 
 
 
$
1,779,895

 
 
 
 
Interest-bearing liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Transaction accounts
 
$
269,943

 
2,671

 
0.99
%
 
$
226,540

 
1,335

 
0.59
%
Money market
 
491,756

 
5,375

 
1.09
%
 
583,241

 
2,746

 
0.47
%
Certificates of deposit
 
94,172

 
1,599

 
1.70
%
 
56,667

 
569

 
1.00
%
Wholesale deposits
 
302,440

 
5,888

 
1.95
%
 
361,712

 
6,155

 
1.70
%
Total interest-bearing deposits
 
1,158,311

 
15,533

 
1.34
%
 
1,228,160

 
10,805

 
0.88
%
FHLB advances
 
274,382

 
5,640

 
2.06
%
 
105,276

 
1,472

 
1.40
%
Other borrowings
 
24,537

 
1,648

 
6.72
%
 
24,796

 
1,813

 
7.31
%
Junior subordinated notes
 
10,025

 
1,112

 
11.09
%
 
10,011

 
1,112

 
11.11
%
Total interest-bearing liabilities
 
1,467,255

 
23,933

 
1.63
%
 
1,368,243

 
15,202

 
1.11
%
Non-interest-bearing demand deposit accounts
 
241,529

 
 
 
 
 
230,907

 
 
 
 
Other non-interest-bearing liabilities
 
22,076

 
 
 
 
 
14,375

 
 
 
 
Total liabilities
 
1,730,860

 
 
 
 
 
1,613,525

 
 
 
 
Stockholders’ equity
 
173,279

 
 
 
 
 
166,370

 
 
 
 
Total liabilities and stockholders’ equity
 
$
1,904,139

 
 
 
 
 
$
1,779,895

 
 
 
 
Net interest income
 
 
 
$
67,342

 
 
 
 
 
$
60,609

 
 
Interest rate spread
 
 
 
 
 
3.41
%
 
 
 
 
 
3.36
%
Net interest-earning assets
 
$
344,253

 
 
 
 
 
$
326,823

 
 
 
 
Net interest margin
 
 
 
 
 
3.72
%
 
 
 
 
 
3.58
%

(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.

9



PERFORMANCE RATIOS
 
 
For the Three Months Ended
 
For the Year Ended
(Unaudited)
 
December 31,
2018
 
September 30,
2018
 
June 30,
2018
 
March 31,
2018
 
December 31,
2017
 
December 31,
2018
 
December 31,
2017
Return on average assets (annualized)
 
0.83
%
 
1.11
%
 
0.70
%
 
0.78
%
 
0.91
%
 
0.86
%
 
0.67
%
Return on average equity (annualized)
 
9.06
%
 
12.06
%
 
7.59
%
 
8.88
%
 
9.57
%
 
9.41
%
 
7.16
%
Efficiency ratio
 
66.95
%
 
69.55
%
 
67.07
%
 
67.45
%
 
63.23
%
 
67.77
%
 
66.48
%
Interest rate spread
 
3.30
%
 
3.42
%
 
3.49
%
 
3.42
%
 
3.39
%
 
3.41
%
 
3.36
%
Net interest margin
 
3.69
%
 
3.75
%
 
3.77
%
 
3.65
%
 
3.63
%
 
3.72
%
 
3.58
%
Average interest-earning assets to average interest-bearing liabilities
 
124.65
%
 
123.25
%
 
123.25
%
 
122.66
%
 
124.66
%
 
123.46
%
 
123.89
%

ASSET QUALITY RATIOS
(Unaudited)
 
As of
(Dollars in thousands)
 
December 31,
2018
 
September 30,
2018
 
June 30,
2018
 
March 31,
2018
 
December 31,
2017
Non-accrual loans and leases
 
$
25,301

 
$
30,613

 
$
31,091

 
$
20,030

 
$
26,389

Foreclosed properties
 
2,547

 
1,454

 
1,484

 
1,484

 
1,069

Total non-performing assets
 
27,848

 
32,067

 
32,575

 
21,514

 
27,458

Performing troubled debt restructurings
 
180

 
187

 
249

 
261

 
332

Total impaired assets
 
$
28,028

 
$
32,254

 
$
32,824

 
$
21,775

 
$
27,790

 
 
 
 
 
 
 
 
 
 
 
Non-accrual loans and leases as a percent of total gross loans and leases
 
1.56
%
 
1.91
%
 
1.95
%
 
1.28
%
 
1.76
%
Non-performing assets as a percent of total gross loans and leases plus foreclosed properties
 
1.72
%
 
2.00
%
 
2.04
%
 
1.37
%
 
1.83
%
Non-performing assets as a percent of total assets
 
1.42
%
 
1.69
%
 
1.71
%
 
1.15
%
 
1.53
%
Allowance for loan and lease losses as a percent of total gross loans and leases
 
1.26
%
 
1.28
%
 
1.31
%
 
1.19
%
 
1.25
%
Allowance for loan and lease losses as a percent of non-accrual loans and leases
 
80.73
%
 
66.82
%
 
67.32
%
 
93.05
%
 
71.10
%
 
 
 
 
 
 
 
 
 
 
 
Criticized assets:
 
 
 
 
 
 
 
 
 
 
Substandard
 
$
32,968

 
$
38,752

 
$
42,477

 
$
30,622

 
$
32,687

Doubtful
 

 

 

 

 
4,692

Foreclosed properties
 
2,547

 
1,454

 
1,484

 
1,484

 
1,069

Total criticized assets
 
$
35,515

 
$
40,206

 
$
43,961

 
$
32,106

 
$
38,448

Criticized assets to total assets
 
1.81
%
 
2.12
%
 
2.31
%
 
1.71
%
 
2.14
%


10



NET CHARGE-OFFS (RECOVERIES)
(Unaudited)
 
For the Three Months Ended
 
For the Year Ended
(Dollars in thousands)
 
December 31,
2018
 
September 30,
2018
 
June 30,
2018
 
March 31,
2018
 
December 31,
2017
 
December 31,
2018
 
December 31,
2017
Charge-offs
 
$
1,197

 
$
1,914

 
$
306

 
$
2,685

 
$
1,643

 
$
6,101

 
$
8,840

Recoveries
 
(184
)
 
(1,983
)
 
(21
)
 
(84
)
 
(11
)
 
(2,271
)
 
(519
)
Net charge-offs (recoveries)
 
$
1,013

 
$
(69
)
 
$
285

 
$
2,601

 
$
1,632

 
$
3,830

 
$
8,321

Net charge-offs (recoveries) as a percent of average gross loans and leases (annualized)
 
0.25
%
 
(0.02
)%
 
0.07
%
 
0.67
%
 
0.44
%
 
0.24
%
 
0.57
%

CAPITAL RATIOS
 
 
As of and for the Three Months Ended
(Unaudited)
 
December 31,
2018
 
September 30,
2018
 
June 30,
2018
 
March 31,
2018
 
December 31,
2017
Total capital to risk-weighted assets
 
11.85
%
 
12.05
%
 
11.87
%
 
11.78
%
 
11.98
%
Tier I capital to risk-weighted assets
 
9.41
%
 
9.54
%
 
9.34
%
 
9.33
%
 
9.45
%
Common equity tier I capital to risk-weighted assets
 
8.89
%
 
9.00
%
 
8.80
%
 
8.79
%
 
8.89
%
Tier I capital to adjusted assets
 
9.33
%
 
9.34
%
 
9.25
%
 
9.26
%
 
9.54
%
Tangible common equity to tangible assets
 
8.63
%
 
8.79
%
 
8.55
%
 
8.52
%
 
8.79
%

LOAN AND LEASE RECEIVABLE COMPOSITION
(Unaudited)
 
As of
(in thousands)
 
December 31,
2018
 
September 30,
2018
 
June 30,
2018
 
March 31,
2018
 
December 31,
2017
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
Commercial real estate - owner occupied
 
$
203,476

 
$
203,733

 
$
196,032

 
$
197,268

 
$
200,387

Commercial real estate - non-owner occupied
 
484,427

 
487,842

 
485,962

 
484,151

 
470,236

Land development
 
42,666

 
45,009

 
45,033

 
46,379

 
40,154

Construction
 
161,562

 
132,271

 
188,036

 
156,020

 
125,157

Multi-family
 
167,868

 
174,664

 
137,388

 
136,098

 
136,978

1-4 family
 
34,340

 
35,729

 
35,569

 
41,866

 
44,976

Total commercial real estate
 
1,094,339

 
1,079,248

 
1,088,020

 
1,061,782

 
1,017,888

Commercial and industrial
 
462,321

 
457,932

 
447,540

 
443,005

 
429,002

Direct financing leases, net
 
33,170

 
31,090

 
32,001

 
31,387

 
30,787

Consumer and other:
 
 
 
 
 
 
 
 
 
 
Home equity and second mortgages
 
8,438

 
8,388

 
7,962

 
8,270

 
7,262

Other
 
20,789

 
23,451

 
21,075

 
20,717

 
18,099

Total consumer and other
 
29,227

 
31,839

 
29,037

 
28,987

 
25,361

Total gross loans and leases receivable
 
1,619,057

 
1,600,109

 
1,596,598

 
1,565,161

 
1,503,038

Less:
 
 
 
 
 
 
 
 
 
 
Allowance for loan and lease losses
 
20,425

 
20,455

 
20,932

 
18,638

 
18,763

Deferred loan fees
 
1,402

 
1,502

 
1,645

 
1,671

 
1,443

Loans and leases receivable, net
 
$
1,597,230


$
1,578,152

 
$
1,574,021

 
$
1,544,852

 
$
1,482,832




11



DEPOSIT COMPOSITION
(Unaudited)
 
As of
(in thousands)
 
December 31,
2018
 
September 30,
2018
 
June 30,
2018
 
March 31,
2018
 
December 31,
2017
Non-interest-bearing transaction accounts
 
$
280,769

 
$
233,915

 
$
255,521

 
$
240,422

 
$
277,445

Interest-bearing transaction accounts
 
229,612

 
256,303

 
272,057

 
262,766

 
217,625

Money market accounts
 
516,045

 
475,322

 
450,654

 
498,310

 
515,077

Certificates of deposit
 
153,022

 
111,311

 
78,062

 
77,107

 
76,199

Wholesale deposits
 
275,851

 
332,052

 
281,431

 
292,553

 
307,985

Total deposits
 
$
1,455,299

 
$
1,408,903

 
$
1,337,725

 
$
1,371,158

 
$
1,394,331

TRUST ASSETS COMPOSITION
(Unaudited)
 
As of
(in thousands)
 
December 31,
2018
 
September 30,
2018
 
June 30,
2018
 
March 31,
2018
 
December 31,
2017
Trust assets under management
 
$
1,452,911

 
$
1,534,395

 
$
1,465,101

 
$
1,393,654

 
$
1,350,025

Trust assets under administration
 
177,416

 
186,530

 
180,320

 
185,463

 
186,383

Total trust assets
 
$
1,630,327

 
$
1,720,925

 
$
1,645,421

 
$
1,579,117

 
$
1,536,408



12



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)
 
December 31,
2018
 
September 30,
2018
 
June 30,
2018
 
March 31,
2018
 
December 31,
2017
Common stockholders’ equity
 
$
180,707

 
$
177,542

 
$
173,672

 
$
171,480

 
$
169,278

Goodwill and other intangible assets
 
(12,045
)
 
(12,132
)
 
(12,380
)
 
(12,579
)
 
(12,652
)
Tangible common equity
 
$
168,662

 
$
165,410

 
$
161,292

 
$
158,901

 
$
156,626

Common shares outstanding
 
8,785,480

 
8,793,941

 
8,760,103

 
8,764,420

 
8,763,539

Book value per share
 
$
20.57

 
$
20.19

 
$
19.83

 
$
19.57

 
$
19.32

Tangible book value per share
 
19.20

 
18.81

 
18.41

 
18.13

 
17.87


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)
 
December 31,
2018
 
September 30,
2018
 
June 30,
2018
 
March 31,
2018
 
December 31,
2017
Common stockholders’ equity
 
$
180,707

 
$
177,542

 
$
173,672

 
$
171,480

 
$
169,278

Goodwill and other intangible assets
 
(12,045
)
 
(12,132
)
 
(12,380
)
 
(12,579
)
 
(12,652
)
Tangible common equity
 
$
168,662

 
$
165,410

 
$
161,292

 
$
158,901

 
$
156,626

Total assets
 
$
1,966,457

 
$
1,894,330

 
$
1,899,787

 
$
1,878,217

 
$
1,794,066

Goodwill and other intangible assets
 
(12,045
)
 
(12,132
)
 
(12,380
)
 
(12,579
)
 
(12,652
)
Tangible assets
 
$
1,954,412

 
$
1,882,198

 
$
1,887,407

 
$
1,865,638

 
$
1,781,414

Tangible common equity to tangible assets
 
8.63
%
 
8.79
%
 
8.55
%
 
8.52
%
 
8.79
%


13



EFFICIENCY RATIO
“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. 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. The information provided below reconciles the efficiency ratio to its most comparable GAAP measure.
(Unaudited)
 
For the Three Months Ended
 
For the Year Ended
(Dollars in thousands)
 
December 31,
2018
 
September 30,
2018
 
June 30,
2018
 
March 31,
2018
 
December 31,
2017
 
December 31,
2018
 
December 31,
2017
Total non-interest expense
 
$
18,244

 
$
15,746

 
$
14,467

 
$
13,907

 
$
14,859

 
$
62,363

 
$
56,871

Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss (gain) on foreclosed properties
 
337

 
30

 

 

 
(143
)
 
367

 
(143
)
Amortization of other intangible assets
 
11

 
12

 
12

 
12

 
13

 
47

 
54

SBA recourse provision (benefit)
 
1,795

 
314

 
99

 
(295
)
 
145

 
1,913

 
2,240

Impairment of tax credit investments
 
1,529

 
113

 
329

 
113

 
2,447

 
2,083

 
2,784

Deconversion fees
 

 

 

 

 
199

 

 
300

Total operating expense
 
$
14,572

 
$
15,277

 
$
14,027

 
$
14,077

 
$
12,198

 
$
57,953

 
$
51,636

Net interest income
 
$
17,115

 
$
17,094

 
$
16,931

 
$
16,202

 
$
15,358

 
$
67,342

 
$
60,609

Total non-interest income
 
4,648

 
4,871

 
3,982

 
4,667

 
3,525

 
18,167

 
16,665

Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss on sale of securities
 
(4
)
 

 

 

 
(409
)
 
(4
)
 
(403
)
Total operating revenue
 
$
21,767

 
$
21,965

 
$
20,913

 
$
20,869

 
$
19,292

 
$
85,513

 
$
77,677

Efficiency ratio
 
66.95
%
 
69.55
%
 
67.07
%
 
67.45
%
 
63.23
%
 
67.77
%
 
66.48
%

14
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