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| 8-K - FORM 8-K - FIRST BUSINESS FINANCIAL SERVICES, INC. | fbiz20161231earningsreleas.htm |
Exhibit 99.1
[FOR IMMEDIATE RELEASE]
First Business Financial Services, Inc.
401 Charmany Drive
Madison, WI 53719
FIRST BUSINESS REPORTS FOURTH QUARTER 2016 PROFIT OF $4.0 MILLION
-- Record Trust and Investment Services Fee Income and Strong Net Interest Margin Boost Top Line Revenue --
-- Efficiency Initiatives Underway, Including Charter Consolidation --
MADISON, Wis., January 26, 2017 (GLOBE NEWSWIRE) -- First Business Financial Services, Inc. (the "Company" or "First Business") (NASDAQ:FBIZ), the parent company of First Business Bank, First Business Bank - Milwaukee and Alterra Bank (“Alterra”), today reported fourth quarter 2016 results including earnings growth from the prior quarter fueled by record trust and investment services fee income, strong net interest margin, efficient operating expense management and decreased loan loss provision. The Company’s performance supported continued strategic investment, strengthening the Company’s foundation for high-quality growth in 2017 and beyond.
Highlights for the quarter ended December 31, 2016 include:
• | Net income totaled $4.0 million, compared to $4.1 million earned in the fourth quarter of 2015. |
• | Diluted earnings per common share measured $0.46 for the fourth quarter of 2016, compared to $0.47 for the fourth quarter of 2015. |
• | Annualized return on average assets and annualized return on average equity measured 0.89% and 9.82%, respectively, for the fourth quarter of 2016, compared to 0.93% and 10.85%, respectively, for the fourth quarter of 2015. |
• | Top line revenue, consisting of net interest income and total non-interest income, increased to $20.7 million, compared to $19.8 million for the fourth quarter of 2015. |
• | Net interest margin measured 3.91% due to elevated fees collected from loan payoffs during the fourth quarter of 2016, compared to 3.63% for the fourth quarter of 2015. |
• | The Company’s efficiency ratio measured 57.52%, compared to 58.75% for the fourth quarter of 2015, which also benefited from elevated fees collected from loan payoffs during the fourth quarter. |
• | Provision for loan and lease losses was $994,000, including annualized net charge-offs of 0.04%, compared to $1.9 million provision for loan and lease losses and annualized net charge-offs of 0.27% for the fourth quarter of 2015. |
• | Period-end gross loans and leases receivable measured $1.451 billion, compared to $1.431 billion at December 31, 2015. |
• | Non-performing assets as a percent of total assets measured 1.50% at period end, compared to 1.35% at December 31, 2015. |
“Disciplined execution of our strategy helped us grow quarterly earnings to $4 million and post an annual profit of $15 million, even while navigating challenging events and making thoughtful investments in our franchise,” said Corey Chambas, President and Chief Executive Officer. “We intend to continue our efforts to build a quality banking business that uniquely serves our clients and rewards our shareholders.”
“Our recently announced plan to simplify our legal and governance structure by consolidating our charters under one commercial bank subsidiary is another important step in our evolution as a growing commercial bank,” Chambas continued. “We are confident the efficiency gains from this endeavor will create capacity within our existing team to allow for future growth and will benefit our clients and shareholders alike.”
Results of Operations
Net interest income of $16.8 million increased $1.5 million, or 9.5%, compared to the linked quarter and $1.8 million, or 12.3%, compared to the fourth quarter of 2015. This growth primarily reflects elevated fees collected in lieu of interest from loan payoffs during the fourth quarter of 2016, which more than offset continued competitive loan pricing pressure compared to the linked quarter and fourth quarter of 2015. Fees collected in lieu of interest totaled $2.0 million for the fourth quarter of 2016, compared to $720,000 for the third quarter of 2016 and $877,000 for the fourth quarter of 2015. Compared to the prior
1
year period, net interest income additionally benefited from a $57.1 million, or 4.0%, increase in average loan and lease receivable balances and a favorable shift in deposit mix toward lower-cost, relationship-based transaction accounts.
Net interest margin was 3.91% for the fourth quarter of 2016, compared to 3.50% in the third quarter of 2016 and 3.63% in the fourth quarter of 2015. Fourth quarter 2016 net interest margin grew from the linked and prior year quarters principally due to the aforementioned elevated amount of fees collected in lieu of interest. Additionally, the Company continued to counter asset yield compression by pursuing non-interest bearing deposit accounts, adjusting deposit rates and utilizing an efficient mix of wholesale funding sources. Success in these efforts contributed to the Company’s cost of interest-bearing liabilities declining by five basis points from 1.09% for the fourth quarter of 2015 to 1.04% for the fourth quarter of 2016, despite a rising interest rate environment.
Management expects the successful continuation of these efforts will allow the Company to maintain a net interest margin within its target of 3.50% or better. Additionally, management believes the Company’s balance sheet is well-positioned for a rising rate environment. Net interest margin may also experience occasional volatility due to events such as loan fees collected in lieu of interest, the collection of interest on loans previously in non-accrual status or the accumulation of significant short-term deposit inflows.
Non-interest income totaled $3.9 million for the fourth quarter of 2016, compared to $3.6 million in the third quarter of 2016 and $4.9 million in the fourth quarter of 2015. The decrease from the prior year primarily reflects lower gains from Small Business Administration (“SBA”) loan sales resulting from the Company’s previously announced decision to temporarily slow loan production while making investments in the SBA platform. Gains on the sale of SBA loans totaled $546,000 in the fourth quarter of 2016, compared to $347,000 in the linked quarter and $1.7 million in the fourth quarter of 2015. Trust and investment services income totaled a record $1.4 million during the quarter, increasing $158,000, or 13.0%, compared to the same quarter in the prior year. Existing client relationships and business development efforts remained strong as trust assets under management and administration reached a record $1.204 billion at December 31, 2016, up $37.0 million, or 12.7% annualized, from the prior quarter and $183.3 million, or 17.9%, from December 31, 2015.
Non-interest expense for the fourth quarter of 2016 was $14.5 million, compared to $15.8 million in the third quarter of 2016 and $11.7 million in the fourth quarter of 2015. During the third quarter of 2016, in accordance with the applicable accounting guidance the Company recognized $3.2 million in nonrecurring expense due to impairment of a historic tax credit investment, which corresponded with the recognition of $3.6 million in tax credits recognized during the quarter, providing a net benefit to after-tax earnings of $430,000. In addition, fourth quarter 2016 expenses included two discrete items totaling $2.4 million, partially offset by $513,000 in performance-related compensation adjustments. The first discrete item was the recognition of $1.6 million in SBA recourse provision for estimated losses in the outstanding guaranteed portion of SBA loans sold, following the Company’s proactive and rigorous review of its SBA loan portfolio, compared to $375,000 in SBA recourse provision recognized in the third quarter of 2016. Changes to SBA recourse reserves may be a source of non-interest expense volatility in future quarters. The second discrete item directly relates to our ongoing efficiency initiatives. Having already integrated most of Alterra’s back office operations, the Company plans to eliminate a duplicative technology vendor relationship by fully centralizing its core banking system with the provider already utilized by its Wisconsin subsidiaries. Accordingly, in the fourth quarter of 2016 the Company recognized $794,000 in one-time fees to terminate Alterra’s existing core banking system vendor agreement.
The Company produced a fourth quarter 2016 efficiency ratio of 57.52%, compared to 63.63% for the linked quarter and 58.75% for the fourth quarter of 2015. “We are taking significant steps toward enhancing the Company’s long-term efficiency ratio,” Chambas said. “While loan fees are a regular part of our business model, unusually elevated loan fees and other non-recurring items meaningfully lowered our efficiency ratio during the fourth quarter. A normalized level of fees and expenses would have resulted in a fourth quarter efficiency ratio in the mid-60% range. Over time we intend to achieve our target efficiency range through our proactive efficiency efforts, including charter consolidation, as well as revenue initiatives, such as our recent hiring of expert SBA talent as part of our plan to ramp up production of SBA lending in late 2017 and into 2018.” The Company continues to take proactive measures to drive positive operating leverage with the objective of moving the efficiency ratio back toward the Company’s long-term operating goal of 58-62%.
In the fourth quarter of 2016, the Company recorded provision for loan and lease losses totaling $994,000, compared to $3.5 million in the linked quarter and $1.9 million in the fourth quarter of 2015. Net charge-offs of $150,000 represented an annualized 0.04% of average loans and leases for the fourth quarter of 2016. This compares to annualized net charge-offs measuring 0.44% and 0.27% of average loans and leases in the linked quarter and fourth quarter of 2015, respectively. For the full year 2016, net charge-offs as a percentage of average loans and leases measured 0.22%, compared to 0.10% for 2015.
The effective tax rate was 23.2% in the fourth quarter 2016, which benefited from the impact of certain deductions during the quarter. Excluding these deductions, the effective tax rate would be approximately 29%.
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Balance Sheet
Period-end gross loans and leases receivable totaled $1.452 billion at December 31, 2016, decreasing $7.6 million, or 0.5%, from September 30, 2016 and increasing $19.8 million, or 1.4%, from December 31, 2015. On an average basis, gross loans and leases of $1.468 billion increased by $57.1 million, or 4.0%, compared to the fourth quarter of 2015. The pace of overall loan growth has slowed in recent quarters, primarily due to elevated payoffs and muted growth across much of the Company’s markets in Madison and Kansas City, partially offset by strong production in the Milwaukee market.
Period-end in-market deposits - consisting of all transaction accounts, money market accounts and non-wholesale deposits - totaled $1.122 billion, or 70.2% of the Company’s total funding sources, at December 31, 2016. Period-end wholesale funds were $476.4 million at December 31, 2016, including brokered certificates of deposit of $355.9 million, deposits gathered through internet deposit listing services of $60.8 million and Federal Home Loan Bank (“FHLB”) advances and other borrowings of $59.7 million. The Company uses wholesale funds to efficiently match-fund fixed rate loans in order to reduce interest-rate risk. As part of this unique funding strategy, during the fourth quarter of 2016, the Company increased its use of FHLB borrowings by $29.0 million. Over time, management intends to maintain a ratio of in-market deposits to total funding sources in line with the Company's recent historical range of 60%-70%.
Asset Quality
While management continues to believe the Company’s credit culture is a core competency, as previously disclosed, deterioration in certain credits originated at Alterra had a significant impact on the Company’s loan loss provision and non-performing asset levels in the second and third quarters of 2016. In response, management took decisive steps to enhance policies, processes, controls, training, talent and reporting structures to ensure future lending meets the high standards long established within the First Business franchise. Non-performing assets at Alterra represented $15.9 million, or 59.6% of the Company's total non-performing assets at December 31, 2016, compared to $14.4 million at September 30, 2016 and $7.3 million at December 31, 2015.
First Business’s total non-performing assets were $26.7 million at December 31, 2016, decreasing by $573,000, or 2.1%, compared to $27.2 million at September 30, 2016 and increasing by $2.7 million, or 11.2%, compared to $24.0 million at December 31, 2015. As a percent of total assets, non-performing assets measured 1.50% at December 31, 2016, compared to 1.54% and 1.35% at the end of the linked quarter and fourth quarter of 2015, respectively.
As of December 31, 2016, the Company’s direct exposure to the energy sector was $6.7 million, or 0.46% of total gross loans and leases, with no remaining unfunded commitments. This reflects a decrease of $51,000, or 0.8%, compared to the linked quarter entirely due to payments received. The associated reserve related to this portfolio was 34.76% of total energy sector loans at December 31, 2016, compared to 8.13% at December 31, 2015. Of this population, $5.7 million was considered non-performing as of December 31, 2016. After considering specific reserves, management believes the portfolio is adequately collateralized as of the end of the reporting period.
Capital Strength
The Company's earnings continue to generate capital and its capital ratios exceed the highest required regulatory benchmark levels. As of December 31, 2016, total capital to risk-weighted assets was 11.74%, tier 1 capital to risk-weighted assets was 9.26%, tier 1 capital to average assets was 9.07% and common equity tier 1 capital to risk-weighted assets was 8.68%.
Quarterly Dividend
As previously announced, during the fourth quarter of 2016 the Company's Board of Directors declared a regular quarterly dividend of $0.12 per share. The dividend was paid on November 21, 2016 to shareholders of record at the close of business on November 10, 2016. Measured against fourth quarter 2016 diluted earnings per share of $0.46, the dividend represents a 26.1% payout ratio. The Board of Directors routinely considers dividend declarations as part of its normal course of business.
Planned Consolidation of Subsidiary Bank Charters into Single Bank Operating Subsidiary
As previously announced, in January 2017 the Company submitted regulatory applications to consolidate the charters of its three subsidiary banks into First Business Bank’s existing charter in Madison, supervised by the FDIC and the Wisconsin Department of Financial Institutions. Upon completion, the Company expects to eliminate administrative redundancies and increase its flexibility in managing capital, liquidity and funding. The operating efficiencies gained through charter consolidation are expected to free resources and capacity for First Business’s team to drive high-quality growth in 2017 and beyond.
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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 local, national and international economic and business conditions. |
▪ | Increases in defaults by borrowers and other delinquencies. |
▪ | Our inability to manage growth effectively, including the successful expansion of our client service, administrative infrastructure and internal management information systems. |
▪ | Fluctuations in interest rates and market prices. |
▪ | The consequences of continued bank acquisitions and mergers in our market areas, 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 with respect to our internet banking activities. |
▪ | Failure to comply with applicable SBA regulations in order to maintain the eligibility of the guaranteed portion of SBA loans could lead to significant losses from denial of the guaranty. |
For further information about the factors that could affect the Company’s future results, please see the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2016 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 | ||
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SELECTED FINANCIAL CONDITION DATA
(Unaudited) | As of | |||||||||||||||||||
(in thousands) | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | December 31, 2015 | |||||||||||||||
ASSETS | ||||||||||||||||||||
Cash and cash equivalents | $ | 77,517 | $ | 68,764 | $ | 131,611 | $ | 104,854 | $ | 113,564 | ||||||||||
Securities available-for-sale, at fair value | 145,893 | 154,480 | 137,692 | 140,823 | 140,548 | |||||||||||||||
Securities held-to-maturity, at amortized cost | 38,612 | 35,109 | 36,167 | 36,485 | 37,282 | |||||||||||||||
Loans held for sale | 1,111 | 2,627 | 5,548 | 1,697 | 2,702 | |||||||||||||||
Loans and leases receivable | 1,450,675 | 1,458,297 | 1,451,815 | 1,448,586 | 1,430,965 | |||||||||||||||
Allowance for loan and lease losses | (20,912 | ) | (20,067 | ) | (18,154 | ) | (16,684 | ) | (16,316 | ) | ||||||||||
Loans and leases, net | 1,429,763 | 1,438,230 | 1,433,661 | 1,431,902 | 1,414,649 | |||||||||||||||
Premises and equipment, net | 3,772 | 3,898 | 3,969 | 3,868 | 3,954 | |||||||||||||||
Foreclosed properties | 1,472 | 1,527 | 1,548 | 1,677 | 1,677 | |||||||||||||||
Bank-owned life insurance | 39,048 | 29,028 | 28,784 | 28,541 | 28,298 | |||||||||||||||
Federal Home Loan Bank and Federal Reserve Bank stock, at cost | 2,131 | 2,165 | 2,163 | 2,734 | 2,843 | |||||||||||||||
Goodwill and other intangible assets | 12,773 | 12,762 | 12,923 | 12,606 | 12,493 | |||||||||||||||
Accrued interest receivable and other assets | 28,607 | 23,848 | 25,003 | 24,945 | 24,071 | |||||||||||||||
Total assets | $ | 1,780,699 | $ | 1,772,438 | $ | 1,819,069 | $ | 1,790,132 | $ | 1,782,081 | ||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
In-market deposits | $ | 1,122,174 | $ | 1,116,974 | $ | 1,130,890 | $ | 1,105,633 | $ | 1,089,748 | ||||||||||
Wholesale deposits | 416,681 | 449,225 | 477,054 | 475,955 | 487,483 | |||||||||||||||
Total deposits | 1,538,855 | 1,566,199 | 1,607,944 | 1,581,588 | 1,577,231 | |||||||||||||||
Federal Home Loan Bank advances and other borrowings | 59,676 | 29,946 | 33,570 | 35,011 | 34,740 | |||||||||||||||
Junior subordinated notes | 10,004 | 10,001 | 9,997 | 9,993 | 9,990 | |||||||||||||||
Accrued interest payable and other liabilities | 10,514 | 6,361 | 9,164 | 8,341 | 9,288 | |||||||||||||||
Total liabilities | 1,619,049 | 1,612,507 | 1,660,675 | 1,634,933 | 1,631,249 | |||||||||||||||
Total stockholders’ equity | 161,650 | 159,931 | 158,394 | 155,199 | 150,832 | |||||||||||||||
Total liabilities and stockholders’ equity | $ | 1,780,699 | $ | 1,772,438 | $ | 1,819,069 | $ | 1,790,132 | $ | 1,782,081 | ||||||||||
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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, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | December 31, 2015 | December 31, 2016 | December 31, 2015 | |||||||||||||||||||||
Total interest income | $ | 20,321 | $ | 18,898 | $ | 19,555 | $ | 19,343 | $ | 18,600 | $ | 78,117 | $ | 72,471 | ||||||||||||||
Total interest expense | 3,568 | 3,603 | 3,814 | 3,804 | 3,688 | 14,789 | 13,831 | |||||||||||||||||||||
Net interest income | 16,753 | 15,295 | 15,741 | 15,539 | 14,912 | 63,328 | 58,640 | |||||||||||||||||||||
Provision for loan and lease losses | 994 | 3,537 | 2,762 | 525 | 1,895 | 7,818 | 3,386 | |||||||||||||||||||||
Net interest income after provision for loan and lease losses | 15,759 | 11,758 | 12,979 | 15,014 | 13,017 | 55,510 | 55,254 | |||||||||||||||||||||
Trust and investment services fee income | 1,375 | 1,364 | 1,344 | 1,273 | 1,217 | 5,356 | 4,954 | |||||||||||||||||||||
Gain on sale of SBA loans | 546 | 347 | 2,131 | 1,376 | 1,725 | 4,400 | 3,999 | |||||||||||||||||||||
Gain on sale of residential mortgage loans | 49 | 198 | 198 | 145 | 115 | 590 | 729 | |||||||||||||||||||||
Service charges on deposits | 743 | 772 | 733 | 742 | 718 | 2,990 | 2,812 | |||||||||||||||||||||
Loan fees | 639 | 506 | 676 | 609 | 700 | 2,430 | 2,187 | |||||||||||||||||||||
Other non-interest income | 579 | 453 | 741 | 449 | 460 | 2,222 | 2,330 | |||||||||||||||||||||
Total non-interest income | 3,931 | 3,640 | 5,823 | 4,594 | 4,935 | 17,988 | 17,011 | |||||||||||||||||||||
Compensation | 7,091 | 7,637 | 8,447 | 8,370 | 6,945 | 31,545 | 28,543 | |||||||||||||||||||||
Occupancy | 481 | 530 | 500 | 508 | 501 | 2,019 | 1,973 | |||||||||||||||||||||
Professional fees | 1,144 | 1,065 | 961 | 861 | 1,121 | 4,031 | 4,893 | |||||||||||||||||||||
Data processing | 1,327 | 623 | 697 | 651 | 606 | 3,298 | 2,378 | |||||||||||||||||||||
Marketing | 628 | 528 | 448 | 734 | 549 | 2,338 | 2,585 | |||||||||||||||||||||
Equipment | 276 | 292 | 341 | 280 | 316 | 1,189 | 1,230 | |||||||||||||||||||||
FDIC Insurance | 483 | 444 | 254 | 291 | 227 | 1,472 | 920 | |||||||||||||||||||||
Collateral liquidation costs | 58 | 89 | 68 | 47 | 70 | 262 | 472 | |||||||||||||||||||||
Net loss (gain) on foreclosed properties | 29 | — | 93 | — | 7 | 122 | (171 | ) | ||||||||||||||||||||
Impairment of tax credit investments | 171 | 3,314 | 94 | 112 | — | 3,691 | — | |||||||||||||||||||||
SBA recourse provision | 1,619 | 375 | 74 | — | — | 2,068 | — | |||||||||||||||||||||
Other non-interest expense | 1,216 | 856 | 1,481 | 845 | 1,342 | 4,398 | 4,551 | |||||||||||||||||||||
Total non-interest expense | 14,523 | 15,753 | 13,458 | 12,699 | 11,684 | 56,433 | 47,374 | |||||||||||||||||||||
Income (loss) before income tax expense | 5,167 | (355 | ) | 5,344 | 6,909 | 6,268 | 17,065 | 24,891 | ||||||||||||||||||||
Income tax expense (benefit)(2) | 1,199 | (3,020 | ) | 1,621 | 2,356 | 2,185 | 2,156 | 8,377 | ||||||||||||||||||||
Net income(2) | $ | 3,968 | $ | 2,665 | $ | 3,723 | $ | 4,553 | $ | 4,083 | $ | 14,909 | $ | 16,514 | ||||||||||||||
Per common share: | ||||||||||||||||||||||||||||
Basic earnings(2) | $ | 0.46 | $ | 0.31 | $ | 0.43 | $ | 0.52 | $ | 0.47 | $ | 1.71 | $ | 1.90 | ||||||||||||||
Diluted earnings(2) | 0.46 | 0.31 | 0.43 | 0.52 | 0.47 | 1.71 | 1.90 | |||||||||||||||||||||
Dividends declared | 0.12 | 0.12 | 0.12 | 0.12 | 0.11 | 0.48 | 0.44 | |||||||||||||||||||||
Book value | 18.55 | 18.35 | 18.20 | 17.84 | 17.34 | 18.55 | 17.34 | |||||||||||||||||||||
Tangible book value | 17.08 | 16.88 | 16.71 | 16.39 | 15.90 | 17.08 | 15.90 | |||||||||||||||||||||
Weighted-average common shares outstanding(1) | 8,587,814 | 8,582,836 | 8,566,718 | 8,565,050 | 8,558,810 | 8,573,722 | 8,549,176 | |||||||||||||||||||||
Weighted-average diluted common shares outstanding(1) | 8,587,814 | 8,582,836 | 8,566,718 | 8,565,050 | 8,558,810 | 8,573,722 | 8,550,322 | |||||||||||||||||||||
(1) | Excluding participating securities. |
(2) | Results as of and for the three months ended September 30, 2016, June 30, 2016, and March 31, 2016, have been adjusted to reflect early adoption of ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” |
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NET INTEREST INCOME ANALYSIS
(Unaudited) | For the Three Months Ended | ||||||||||||||||||||||||||||||||
(Dollars in thousands) | December 31, 2016 | September 30, 2016 | December 31, 2015 | ||||||||||||||||||||||||||||||
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) | $ | 950,168 | $ | 11,561 | 4.87 | % | $ | 947,167 | $ | 10,656 | 4.50 | % | $ | 896,198 | $ | 10,471 | 4.67 | % | |||||||||||||||
Commercial and industrial loans(1) | 462,778 | 7,309 | 6.32 | % | 459,871 | 6,651 | 5.79 | % | 461,295 | 6,695 | 5.81 | % | |||||||||||||||||||||
Direct financing leases(1) | 29,476 | 325 | 4.41 | % | 30,231 | 341 | 4.51 | % | 30,227 | 341 | 4.51 | % | |||||||||||||||||||||
Consumer and other loans(1) | 25,714 | 271 | 4.22 | % | 23,662 | 368 | 6.22 | % | 23,349 | 300 | 5.14 | % | |||||||||||||||||||||
Total loans and leases receivable(1) | 1,468,136 | 19,466 | 5.30 | % | 1,460,931 | 18,016 | 4.93 | % | 1,411,069 | 17,807 | 5.05 | % | |||||||||||||||||||||
Mortgage-related securities(2) | 152,894 | 607 | 1.59 | % | 149,414 | 567 | 1.52 | % | 148,576 | 594 | 1.60 | % | |||||||||||||||||||||
Other investment securities(3) | 34,414 | 136 | 1.58 | % | 34,042 | 131 | 1.54 | % | 31,089 | 122 | 1.57 | % | |||||||||||||||||||||
FHLB and FRB stock | 2,702 | 18 | 2.66 | % | 2,163 | 21 | 3.88 | % | 2,841 | 21 | 3.07 | % | |||||||||||||||||||||
Short-term investments | 56,364 | 94 | 0.67 | % | 103,549 | 163 | 0.63 | % | 50,850 | 56 | 0.44 | % | |||||||||||||||||||||
Total interest-earning assets | 1,714,510 | 20,321 | 4.74 | % | 1,750,099 | 18,898 | 4.32 | % | 1,644,425 | 18,600 | 4.52 | % | |||||||||||||||||||||
Non-interest-earning assets | 67,719 | 67,884 | 103,574 | ||||||||||||||||||||||||||||||
Total assets | $ | 1,782,229 | $ | 1,817,983 | $ | 1,747,999 | |||||||||||||||||||||||||||
Interest-bearing liabilities | |||||||||||||||||||||||||||||||||
Transaction accounts | $ | 185,336 | 184 | 0.40 | % | $ | 182,743 | 113 | 0.25 | % | $ | 150,234 | 92 | 0.24 | % | ||||||||||||||||||
Money market | 618,723 | 659 | 0.43 | % | 632,415 | 758 | 0.48 | % | 593,749 | 808 | 0.54 | % | |||||||||||||||||||||
Certificates of deposit | 60,149 | 145 | 0.96 | % | 63,581 | 152 | 0.96 | % | 87,110 | 182 | 0.84 | % | |||||||||||||||||||||
Wholesale deposits | 437,412 | 1,767 | 1.62 | % | 465,273 | 1,847 | 1.59 | % | 482,258 | 1,848 | 1.53 | % | |||||||||||||||||||||
Total interest-bearing deposits | 1,301,620 | 2,755 | 0.85 | % | 1,344,012 | 2,870 | 0.85 | % | 1,313,351 | 2,930 | 0.89 | % | |||||||||||||||||||||
FHLB advances | 30,995 | 72 | 0.93 | % | 4,991 | 18 | 1.44 | % | 9,467 | 25 | 1.08 | % | |||||||||||||||||||||
Other borrowings | 25,387 | 461 | 7.26 | % | 24,976 | 435 | 6.97 | % | 26,484 | 453 | 6.84 | % | |||||||||||||||||||||
Junior subordinated notes | 10,002 | 280 | 11.20 | % | 9,998 | 280 | 11.20 | % | 9,988 | 280 | 11.21 | % | |||||||||||||||||||||
Total interest-bearing liabilities | 1,368,004 | 3,568 | 1.04 | % | 1,383,977 | 3,603 | 1.04 | % | 1,359,290 | 3,688 | 1.09 | % | |||||||||||||||||||||
Non-interest-bearing demand deposit accounts | 246,016 | 263,627 | 227,965 | ||||||||||||||||||||||||||||||
Other non-interest-bearing liabilities | 6,655 | 11,098 | 10,260 | ||||||||||||||||||||||||||||||
Total liabilities | 1,620,675 | 1,658,702 | 1,597,515 | ||||||||||||||||||||||||||||||
Stockholders’ equity | 161,554 | 159,281 | 150,484 | ||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 1,782,229 | $ | 1,817,983 | $ | 1,747,999 | |||||||||||||||||||||||||||
Net interest income | $ | 16,753 | $ | 15,295 | $ | 14,912 | |||||||||||||||||||||||||||
Interest rate spread | 3.70 | % | 3.28 | % | 3.43 | % | |||||||||||||||||||||||||||
Net interest-earning assets | $ | 346,506 | $ | 366,122 | $ | 285,135 | |||||||||||||||||||||||||||
Net interest margin | 3.91 | % | 3.50 | % | 3.63 | % | |||||||||||||||||||||||||||
(1) | The average balances of loans and leases include non-performing loans and leases and loans held for sale. Interest income related to non-performing 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. |
7
NET INTEREST INCOME ANALYSIS (CONTINUED)
(Unaudited) | For the Year Ended | |||||||||||||||||||||
(Dollars in thousands) | December 31, 2016 | December 31, 2015 | ||||||||||||||||||||
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) | $ | 938,524 | $ | 43,927 | 4.68 | % | $ | 848,213 | $ | 40,006 | 4.72 | % | ||||||||||
Commercial and industrial loans(1) | 465,736 | 28,143 | 6.04 | % | 445,659 | 26,668 | 5.98 | % | ||||||||||||||
Direct financing leases(1) | 30,379 | 1,364 | 4.49 | % | 30,228 | 1,394 | 4.61 | % | ||||||||||||||
Consumer and other loans(1) | 25,615 | 1,193 | 4.66 | % | 23,996 | 1,067 | 4.45 | % | ||||||||||||||
Total loans and leases receivable(1) | 1,460,254 | 74,627 | 5.11 | % | 1,348,096 | 69,135 | 5.13 | % | ||||||||||||||
Mortgage-related securities(2) | 147,433 | 2,328 | 1.58 | % | 153,182 | 2,490 | 1.63 | % | ||||||||||||||
Other investment securities(3) | 32,995 | 517 | 1.57 | % | 29,686 | 472 | 1.59 | % | ||||||||||||||
FHLB and FRB stock | 2,537 | 79 | 3.11 | % | 2,886 | 81 | 2.82 | % | ||||||||||||||
Short-term investments | 94,548 | 566 | 0.60 | % | 69,264 | 293 | 0.42 | % | ||||||||||||||
Total interest-earning assets | 1,737,767 | 78,117 | 4.50 | % | 1,603,114 | 72,471 | 4.52 | % | ||||||||||||||
Non-interest-earning assets | 73,905 | 97,932 | ||||||||||||||||||||
Total assets | $ | 1,811,672 | $ | 1,701,046 | ||||||||||||||||||
Interest-bearing liabilities | ||||||||||||||||||||||
Transaction accounts | $ | 169,571 | 456 | 0.27 | % | $ | 125,558 | 297 | 0.24 | % | ||||||||||||
Money market | 642,784 | 3,112 | 0.48 | % | 602,842 | 3,331 | 0.55 | % | ||||||||||||||
Certificates of deposit | 65,608 | 592 | 0.90 | % | 106,177 | 825 | 0.78 | % | ||||||||||||||
Wholesale deposits | 467,826 | 7,556 | 1.62 | % | 450,460 | 6,424 | 1.43 | % | ||||||||||||||
Total interest-bearing deposits | 1,345,789 | 11,716 | 0.87 | % | 1,285,037 | 10,877 | 0.85 | % | ||||||||||||||
FHLB advances | 14,485 | 140 | 0.97 | % | 14,779 | 110 | 0.75 | % | ||||||||||||||
Other borrowings | 26,581 | 1,818 | 6.84 | % | 24,944 | 1,732 | 6.94 | % | ||||||||||||||
Junior subordinated notes | 10,076 | 1,115 | 11.07 | % | 9,982 | 1,112 | 11.14 | % | ||||||||||||||
Total interest-bearing liabilities | 1,396,931 | 14,789 | 1.06 | % | 1,334,742 | 13,831 | 1.04 | % | ||||||||||||||
Non-interest-bearing demand deposit accounts | 246,182 | 211,945 | ||||||||||||||||||||
Other non-interest-bearing liabilities | 10,013 | 9,049 | ||||||||||||||||||||
Total liabilities | 1,653,126 | 1,555,736 | ||||||||||||||||||||
Stockholders’ equity | 158,546 | 145,310 | ||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 1,811,672 | $ | 1,701,046 | ||||||||||||||||||
Net interest income | $ | 63,328 | $ | 58,640 | ||||||||||||||||||
Interest rate spread | 3.44 | % | 3.48 | % | ||||||||||||||||||
Net interest-earning assets | $ | 340,836 | $ | 268,372 | ||||||||||||||||||
Net interest margin | 3.64 | % | 3.66 | % | ||||||||||||||||||
(1) | The average balances of loans and leases include non-performing loans and leases and loans held for sale. Interest income related to non-performing 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
SELECTED FINANCIAL TRENDS
PERFORMANCE RATIOS
For the Three Months Ended | For the Year Ended | ||||||||||||||||||||
(Unaudited) | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | December 31, 2015 | December 31, 2016 | December 31, 2015 | ||||||||||||||
Return on average assets (annualized)(1) | 0.89 | % | 0.59 | % | 0.82 | % | 1.00 | % | 0.93 | % | 0.82 | % | 0.97 | % | |||||||
Return on average equity (annualized)(1) | 9.82 | % | 6.69 | % | 9.45 | % | 11.70 | % | 10.85 | % | 9.40 | % | 11.36 | % | |||||||
Efficiency ratio | 57.52 | % | 63.63 | % | 61.14 | % | 62.44 | % | 58.75 | % | 61.12 | % | 62.75 | % | |||||||
Interest rate spread | 3.70 | % | 3.28 | % | 3.38 | % | 3.40 | % | 3.43 | % | 3.44 | % | 3.48 | % | |||||||
Net interest margin | 3.91 | % | 3.50 | % | 3.59 | % | 3.59 | % | 3.63 | % | 3.64 | % | 3.66 | % | |||||||
Average interest-earning assets to average interest-bearing liabilities | 125.33 | % | 126.45 | % | 124.32 | % | 121.62 | % | 120.98 | % | 124.40 | % | 120.11 | % | |||||||
(1) | Results for the three months ended September 30, 2016, June 30, 2016, and March 31, 2016, have been adjusted to reflect early adoption of ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” |
ASSET QUALITY RATIOS
(Unaudited) | As of | |||||||||||||||||||
(Dollars in thousands) | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | December 31, 2015 | |||||||||||||||
Non-performing loans and leases | $ | 25,194 | $ | 25,712 | $ | 22,680 | $ | 17,861 | $ | 22,298 | ||||||||||
Foreclosed properties | 1,472 | 1,527 | 1,548 | 1,677 | 1,677 | |||||||||||||||
Total non-performing assets | 26,666 | 27,239 | 24,228 | 19,538 | 23,975 | |||||||||||||||
Performing troubled debt restructurings | 717 | 732 | 788 | 1,628 | 1,735 | |||||||||||||||
Total impaired assets | $ | 27,383 | $ | 27,971 | $ | 25,016 | $ | 21,166 | $ | 25,710 | ||||||||||
Non-performing loans and leases as a percent of total gross loans and leases | 1.74 | % | 1.76 | % | 1.56 | % | 1.23 | % | 1.56 | % | ||||||||||
Non-performing assets as a percent of total gross loans and leases plus foreclosed properties | 1.83 | % | 1.87 | % | 1.67 | % | 1.35 | % | 1.67 | % | ||||||||||
Non-performing assets as a percent of total assets | 1.50 | % | 1.54 | % | 1.33 | % | 1.09 | % | 1.35 | % | ||||||||||
Allowance for loan and lease losses as a percent of total gross loans and leases | 1.44 | % | 1.38 | % | 1.25 | % | 1.15 | % | 1.14 | % | ||||||||||
Allowance for loan and lease losses as a percent of non-performing loans and leases | 83.00 | % | 78.05 | % | 80.04 | % | 93.41 | % | 73.17 | % | ||||||||||
Criticized assets: | ||||||||||||||||||||
Special mention | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Substandard | 34,299 | 32,135 | 25,723 | 33,875 | 26,797 | |||||||||||||||
Doubtful | — | — | — | — | — | |||||||||||||||
Foreclosed properties | 1,472 | 1,527 | 1,548 | 1,677 | 1,677 | |||||||||||||||
Total criticized assets | $ | 35,771 | $ | 33,662 | $ | 27,271 | $ | 35,552 | $ | 28,474 | ||||||||||
Criticized assets to total assets | 2.01 | % | 1.90 | % | 1.50 | % | 1.99 | % | 1.60 | % | ||||||||||
9
NET CHARGE-OFFS (RECOVERIES)
(Unaudited) | For the Three Months Ended | For the Year Ended | ||||||||||||||||||||||||||
(Dollars in thousands) | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | December 31, 2015 | December 31, 2016 | December 31, 2015 | |||||||||||||||||||||
Charge-offs | $ | 344 | $ | 1,656 | $ | 1,350 | $ | 244 | $ | 967 | $ | 3,594 | $ | 1,513 | ||||||||||||||
Recoveries | (194 | ) | (32 | ) | (58 | ) | (87 | ) | (29 | ) | (371 | ) | (114 | ) | ||||||||||||||
Net charge-offs | $ | 150 | $ | 1,624 | $ | 1,292 | $ | 157 | $ | 938 | $ | 3,223 | $ | 1,399 | ||||||||||||||
Net charge-offs as a percent of average gross loans and leases (annualized) | 0.04 | % | 0.44 | % | 0.35 | % | 0.04 | % | 0.27 | % | 0.22 | % | 0.10 | % | ||||||||||||||
CAPITAL RATIOS
As of and for the Three Months Ended | |||||||||||||||
(Unaudited) | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | December 31, 2015 | ||||||||||
Total capital to risk-weighted assets | 11.74 | % | 11.44 | % | 11.44 | % | 11.24 | % | 11.11 | % | |||||
Tier I capital to risk-weighted assets | 9.26 | % | 9.02 | % | 9.08 | % | 8.96 | % | 8.81 | % | |||||
Common equity tier I capital to risk-weighted assets | 8.68 | % | 8.45 | % | 8.50 | % | 8.37 | % | 8.22 | % | |||||
Tier I capital to adjusted assets | 9.07 | % | 8.75 | % | 8.63 | % | 8.44 | % | 8.63 | % | |||||
Tangible common equity to tangible assets | 8.42 | % | 8.36 | % | 8.05 | % | 8.02 | % | 7.82 | % | |||||
SELECTED OTHER INFORMATION
Loan and Lease Receivable Composition
(Unaudited) | As of | |||||||||||||||||||
(in thousands) | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | December 31, 2015 | |||||||||||||||
Commercial real estate | ||||||||||||||||||||
Commercial real estate - owner occupied | $ | 176,459 | $ | 169,170 | $ | 167,936 | $ | 174,286 | $ | 176,322 | ||||||||||
Commercial real estate - non-owner occupied | 473,158 | 483,540 | 502,378 | 441,539 | 436,901 | |||||||||||||||
Construction | 101,206 | 110,426 | 88,339 | 117,825 | 100,625 | |||||||||||||||
Land development | 56,638 | 60,348 | 60,599 | 61,953 | 59,779 | |||||||||||||||
Multi-family | 92,762 | 73,081 | 73,239 | 84,004 | 80,254 | |||||||||||||||
1-4 family | 45,651 | 46,341 | 47,289 | 50,923 | 50,304 | |||||||||||||||
Total commercial real estate | 945,874 | 942,906 | 939,780 | 930,530 | 904,185 | |||||||||||||||
Commercial and industrial | 450,298 | 464,920 | 456,297 | 461,573 | 472,193 | |||||||||||||||
Direct financing leases, net | 30,951 | 29,638 | 30,698 | 31,617 | 31,093 | |||||||||||||||
Consumer and other | ||||||||||||||||||||
Home equity and second mortgages | 8,412 | 5,390 | 7,372 | 7,366 | 8,237 | |||||||||||||||
Other | 16,329 | 16,610 | 18,743 | 18,510 | 16,319 | |||||||||||||||
Total consumer and other | 24,741 | 22,000 | 26,115 | 25,876 | 24,556 | |||||||||||||||
Total gross loans and leases receivable | 1,451,864 | 1,459,464 | 1,452,890 | 1,449,596 | 1,432,027 | |||||||||||||||
Less: | ||||||||||||||||||||
Allowance for loan and lease losses | 20,912 | 20,067 | 18,154 | 16,684 | 16,316 | |||||||||||||||
Deferred loan fees | 1,189 | 1,167 | 1,075 | 1,010 | 1,062 | |||||||||||||||
Loans and leases receivable, net | $ | 1,429,763 | $ | 1,438,230 | $ | 1,433,661 | $ | 1,431,902 | $ | 1,414,649 | ||||||||||
10
SELECTED OTHER INFORMATION (CONTINUED)
Deposit Composition
(Unaudited) | As of | |||||||||||||||||||
(in thousands) | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | December 31, 2015 | |||||||||||||||
Non-interest-bearing transaction accounts | $ | 252,638 | $ | 258,423 | $ | 243,370 | $ | 236,662 | $ | 231,199 | ||||||||||
Interest-bearing transaction accounts | 183,992 | 192,482 | 151,865 | 154,351 | 165,921 | |||||||||||||||
Money market accounts | 627,090 | 603,872 | 671,420 | 646,336 | 612,642 | |||||||||||||||
Certificates of deposit | 58,454 | 62,197 | 64,235 | 68,284 | 79,986 | |||||||||||||||
Wholesale deposits | 416,681 | 449,225 | 477,054 | 475,955 | 487,483 | |||||||||||||||
Total deposits | $ | 1,538,855 | $ | 1,566,199 | $ | 1,607,944 | $ | 1,581,588 | $ | 1,577,231 | ||||||||||
Trust Assets
(Unaudited) | As of | |||||||||||||||||||
(in thousands) | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | December 31, 2015 | |||||||||||||||
Trust assets under management | $ | 977,015 | $ | 935,584 | $ | 906,239 | $ | 896,414 | $ | 817,926 | ||||||||||
Trust assets under administration | 227,360 | 231,825 | 227,864 | 210,357 | 203,181 | |||||||||||||||
Total trust assets | $ | 1,204,375 | $ | 1,167,409 | $ | 1,134,103 | $ | 1,106,771 | $ | 1,021,107 | ||||||||||
11
NON-GAAP RECONCILIATIONS
Certain financial information provided in this release is determined by methods other than in accordance with generally accepted accounting principles (United States) (“GAAP”). Although the Company believes that these non-GAAP financial measures provide a greater understanding of its business, these measures are not necessarily comparable to similar measures that may be presented by other companies.
TANGIBLE BOOK VALUE
“Tangible book value per share” is a non-GAAP measure representing tangible common equity divided by total common shares outstanding. “Tangible common equity” itself is a non-GAAP measure representing common stockholders’ equity reduced by intangible assets, if any. The Company’s management believes that this measure is important to many investors in the marketplace who are interested in period-to-period changes in book value per common share exclusive of changes in intangible assets. The information provided below reconciles tangible book value per share and tangible common equity to their most comparable GAAP measures.
(Unaudited) | As of | |||||||||||||||||||
(Dollars in thousands, except per share amounts) | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | December 31, 2015 | |||||||||||||||
Common stockholders’ equity | $ | 161,650 | $ | 159,931 | $ | 158,394 | $ | 155,199 | $ | 150,832 | ||||||||||
Goodwill and other intangible assets | (12,773 | ) | (12,762 | ) | (12,923 | ) | (12,606 | ) | (12,493 | ) | ||||||||||
Tangible common equity | $ | 148,877 | $ | 147,169 | $ | 145,471 | $ | 142,593 | $ | 138,339 | ||||||||||
Common shares outstanding | 8,715,856 | 8,717,299 | 8,703,942 | 8,700,172 | 8,699,410 | |||||||||||||||
Book value per share | $ | 18.55 | $ | 18.35 | $ | 18.20 | $ | 17.84 | $ | 17.34 | ||||||||||
Tangible book value per share | 17.08 | 16.88 | 16.71 | 16.39 | 15.90 | |||||||||||||||
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, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | December 31, 2015 | |||||||||||||||
Common stockholders’ equity | $ | 161,650 | $ | 159,931 | $ | 158,394 | $ | 155,199 | $ | 150,832 | ||||||||||
Goodwill and other intangible assets | (12,773 | ) | (12,762 | ) | (12,923 | ) | (12,606 | ) | (12,493 | ) | ||||||||||
Tangible common equity | $ | 148,877 | $ | 147,169 | $ | 145,471 | $ | 142,593 | $ | 138,339 | ||||||||||
Total assets | $ | 1,780,699 | $ | 1,772,438 | $ | 1,819,069 | $ | 1,790,132 | $ | 1,782,081 | ||||||||||
Goodwill and other intangible assets | (12,773 | ) | (12,762 | ) | (12,923 | ) | (12,606 | ) | (12,493 | ) | ||||||||||
Tangible assets | $ | 1,767,926 | $ | 1,759,676 | $ | 1,806,146 | $ | 1,777,526 | $ | 1,769,588 | ||||||||||
Tangible common equity to tangible assets | 8.42 | % | 8.36 | % | 8.05 | % | 8.02 | % | 7.82 | % | ||||||||||
12
EFFICIENCY RATIO
“Efficiency ratio” is a non-GAAP measure representing non-interest expense excluding the effects of losses or gains on foreclosed properties, other discrete items that are unrelated to the Company’s primary business activities and amortization of other intangible assets, if any, divided by operating revenue, which is equal to net interest income plus non-interest income less realized gains or losses on securities, if any. In the judgment of the Company’s management, the adjustments made to non-interest expense and operating revenue allow investors and analysts to better assess the Company’s operating expenses in relation to its core operating revenue by removing the volatility that is associated with certain one-time items and other discrete items that are unrelated to its business. The information provided below reconciles the efficiency ratio to its most comparable GAAP measure.
(Unaudited) | For the Three Months Ended | For the Year Ended | ||||||||||||||||||||||||||
(Dollars in thousands) | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | December 31, 2015 | December 31, 2016 | December 31, 2015 | |||||||||||||||||||||
Total non-interest expense | $ | 14,523 | $ | 15,753 | $ | 13,458 | $ | 12,699 | $ | 11,684 | $ | 56,433 | $ | 47,374 | ||||||||||||||
Less: | ||||||||||||||||||||||||||||
Net loss (gain) on foreclosed properties | 29 | — | 93 | — | 7 | 122 | (171 | ) | ||||||||||||||||||||
Amortization of other intangible assets | 14 | 16 | 16 | 16 | 17 | 62 | 71 | |||||||||||||||||||||
SBA recourse provision | 1,619 | 375 | 74 | — | — | 2,068 | — | |||||||||||||||||||||
Impairment of tax credit investments | 171 | 3,314 | 94 | 112 | — | 3,691 | — | |||||||||||||||||||||
Deconversion fees | 794 | — | — | — | — | 794 | — | |||||||||||||||||||||
Total operating expense | $ | 11,896 | $ | 12,048 | $ | 13,181 | $ | 12,571 | $ | 11,660 | $ | 49,696 | $ | 47,474 | ||||||||||||||
Net interest income | $ | 16,753 | $ | 15,295 | $ | 15,741 | $ | 15,539 | $ | 14,912 | $ | 63,328 | $ | 58,640 | ||||||||||||||
Total non-interest income | 3,931 | 3,640 | 5,823 | 4,594 | 4,935 | 17,988 | 17,011 | |||||||||||||||||||||
Less: | ||||||||||||||||||||||||||||
Gain on sale of securities | 3 | — | 7 | — | — | 10 | — | |||||||||||||||||||||
Total operating revenue | $ | 20,681 | $ | 18,935 | $ | 21,557 | $ | 20,133 | $ | 19,847 | $ | 81,306 | $ | 75,651 | ||||||||||||||
Efficiency ratio | 57.52 | % | 63.63 | % | 61.14 | % | 62.44 | % | 58.75 | % | 61.12 | % | 62.75 | % | ||||||||||||||
13