þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2019 | |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Wisconsin | 39-1576570 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
401 Charmany Drive, Madison, WI | 53719 | |
(Address of principal executive offices) | (Zip Code) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value | FBIZ | The Nasdaq Stock Market LLC |
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company þ | Emerging growth company o |
• | A ratio of minimum Common Equity Tier 1 Capital equal to 4.5% of risk-weighted assets; |
• | An increase in the minimum required amount of Tier 1 Capital from 4% to 6% of risk-weighted assets; |
• | A continuation of the minimum required amount of Total Capital (Tier 1 plus Tier 2) at 8% of risk-weighted assets; and |
• | A minimum leverage ratio of Tier 1 Capital to total quarterly average assets equal to 4% in all circumstances. |
• | A Common Equity Tier 1 Capital ratio to risk-weighted assets of 6.5% or more; |
• | A ratio of Tier 1 Capital to total risk-weighted assets of 8% or more (6% under Basel I); |
• | A ratio of Total Capital to total risk-weighted assets of 10% or more (the same as Basel I); and |
• | A leverage ratio of Tier 1 Capital to total adjusted average quarterly assets of 5% or greater. |
• | Potential exposure to unknown or contingent liabilities of the target company. |
• | Exposure to potential asset quality issues of the target company. |
• | Potential disruption to our business. |
• | Potential diversion of our management’s time and attention. |
• | Possible loss of key employees and clients of the target company. |
• | Difficulty in estimating the value of the target company. |
• | Potential changes in banking or tax laws or regulations that may affect the target company. |
• | Difficulty in integrating operations, personnel, technologies, services, and products of acquired companies. |
• | actual or anticipated variations in our quarterly results of operations; |
• | recommendations by securities analysts; |
• | operating and stock price performance of other companies that investors deem comparable to us; |
• | news reports relating to trends, concerns, and other issues in the financial services industry; |
• | perceptions in the marketplace regarding us or our competitors and other financial services companies; |
• | new technology used, or services offered, by competitors; and |
• | changes in government regulations. |
Location | Function | Expiration Date | ||
401 Charmany Drive, Madison, WI | Full-service banking location of FBB - Madison Region and office of FBFS | 2028 | ||
18500 W. Corporate Drive, Brookfield, WI | Full-service banking location of FBB - Southeast Region | 2020 | ||
11300 Tomahawk Creek Pkwy, Leawood, KS | Full-service banking location of FBB - Kansas City Region | 2023 | ||
3913 West Prospect Avenue, Appleton, WI | Full-service banking location of FBB - Northeast Region | 2025 |
Period | Total Number of Shares Purchased(1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Total Number of Shares that May Yet Be Purchased Under the Plans or Programs(2) | |||||||||
October 1, 2019 - October 31, 2019 | 32,350 | $ | 24.07 | 32,350 | |||||||||
November 1, 2019 - November 30, 2019 | 26,688 | 24.56 | 24,966 | ||||||||||
December 1, 2019 - December 31, 2019 | 16,713 | 25.92 | 16,713 | ||||||||||
Total | 75,751 | 74,029 | 108,313 |
(1) | During the fourth quarter of 2019, the Corporation repurchased an aggregate 75,751 shares of the Corporation’s common stock in open-market transactions, of which 74,029 shares were purchased pursuant to the repurchase program publicly announced on September 20, 2019, and of which 1,722 shares were surrendered to us to satisfy income tax withholding obligations in connection with the vesting of restricted shares. |
(2) | As of December 31, 2019, the maximum number of shares that may yet be purchased under the plan is 108,313 based on the closing price of the Corporation’s common stock on December 31, 2019 of $26.33 per share. |
• | 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 support, 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 portions of SBA loans. |
• | We will identify, attract, develop, and retain high performing talent to positively impact the overall performance and efficiency of the Corporation. |
• | We will increase internal efficiencies, deliver a differentiated client experience, and drive client experience utilizing technology where possible. |
• | We will diversify and grow our deposit base. |
• | We will optimize our business lines for diversification and performance. |
• | Total assets at December 31, 2019 increased $130.3 million, or 6.6%, to $2.097 billion from $1.966 billion at December 31, 2018. |
• | Net income for the year ended December 31, 2019 was $23.3 million, increasing 43.1% compared to $16.3 million for the year ended December 31, 2018. |
• | Diluted earnings per common share were $2.68 for the year ended December 31, 2019, increasing 44.1% compared to $1.86 in the prior year. |
• | Net interest margin was 3.61% for the year ended December 31, 2019, declining 11 basis points from 3.72% for the year ended December 31, 2018. |
• | Top line revenue, which consists of net interest income and non-interest income, grew 9.1% to $93.3 million for the year ended December 31, 2019, compared to $85.5 million for the same period in 2018. |
• | Return on average assets and return on average equity for the year ended December 31, 2019 were 1.14% and 12.55% respectively, compared to 0.86% and 9.41%, respectively, for 2018. |
• | Provision for loan and lease losses was $2.1 million for the year ended December 31, 2019, compared to $5.5 million for the year ended December 31, 2018. Net charge-offs as a percentage of average loans and leases decreased to 0.18% for the year ended December 31, 2019, compared to 0.24% for the year ended December 31, 2018. |
• | SBA recourse provision was $188,000 for the year ended December 31, 2019, compared to $1.9 million for the year ended December 31, 2018. |
• | Period-end gross loans and leases receivable at December 31, 2019 increased $97.0 million, or 6.0%, to $1.715 billion from $1.618 billion as of December 31, 2018. Average gross loans and leases of $1.704 billion increased $120.4 million, or 7.6% for the year ended December 31, 2019, compared to $1.584 billion for the same period in 2018. |
• | Non-performing assets were $23.5 million and 1.12% of total assets as of December 31, 2019, compared to $27.8 million and 1.42% of total assets as of December 31, 2018. |
• | Period-end in-market deposits at December 31, 2019 increased $199.5 million, or 16.9%, to $1.379 billion from $1.179 billion as of December 31, 2018. Average in-market deposits of $1.271 billion increased $173.7 million, or 15.8%, for the year ended December 31, 2019, compared to $1.097 billion for the same period in 2018. |
• | Trust assets under management and administration increased by $261.9 million, or 16.1%, to $1.892 billion at December 31, 2019 compared to $1.630 billion at December 31, 2018. |
• | Private wealth management service fee income increased by $453,000, or 5.8%, to $8.2 million for the year ended December 31, 2019 compared to $7.7 million for the year ended December 31, 2018. |
For the Year Ended December 31, | Change From Prior Year | ||||||||||||||
2019 | 2018 | $ Change | % Change | ||||||||||||
(Dollars in Thousands) | |||||||||||||||
Net interest income | $ | 69,856 | $ | 67,342 | $ | 2,514 | 3.7 | % | |||||||
Non-interest income | 23,423 | 18,167 | 5,256 | 28.9 | |||||||||||
Top line revenue | $ | 93,279 | $ | 85,509 | $ | 7,770 | 9.1 |
For the Year Ended December 31, | Change From Prior Year | ||||||||||||||
2019 | 2018 | $ Change | % Change | ||||||||||||
(Dollars in Thousands) | |||||||||||||||
Total non-interest expense | $ | 66,695 | $ | 62,363 | $ | 4,332 | 6.9 | % | |||||||
Less: | |||||||||||||||
Net loss on foreclosed properties | 224 | 367 | (143 | ) | (39.0 | ) | |||||||||
Amortization of other intangible assets | 40 | 47 | (7 | ) | (14.9 | ) | |||||||||
SBA recourse provision | 188 | 1,913 | (1,725 | ) | (90.2 | ) | |||||||||
Impairment of tax credit investments | 4,094 | 2,083 | 2,011 | 96.5 | |||||||||||
Total operating expense | $ | 62,149 | $ | 57,953 | $ | 4,196 | 7.2 | ||||||||
Net interest income | $ | 69,856 | $ | 67,342 | $ | 2,514 | 3.7 | ||||||||
Total non-interest income | 23,423 | 18,167 | 5,256 | 28.9 | |||||||||||
Less: | |||||||||||||||
Net loss on sale of securities | (46 | ) | (4 | ) | (42 | ) | NM | ||||||||
Total operating revenue | $ | 93,325 | $ | 85,513 | $ | 7,812 | 9.1 | ||||||||
Efficiency ratio | 66.59 | % | 67.77 | % |
For the Year Ended December 31, | ||||||||||||||||||||||
2019 | 2018 | |||||||||||||||||||||
Average Balance | Interest | Average Yield/ Rate | Average Balance | Interest | Average Yield/ Rate | |||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||
Interest-earning assets | ||||||||||||||||||||||
Commercial real estate and other mortgage loans(1) | $ | 1,142,201 | $ | 58,330 | 5.11 | % | $ | 1,074,873 | $ | 53,620 | 4.99 | % | ||||||||||
Commercial and industrial loans(1) | 500,058 | 35,251 | 7.05 | % | 447,687 | 30,043 | 6.71 | % | ||||||||||||||
Direct financing leases(1) | 30,462 | 1,276 | 4.19 | % | 31,276 | 1,268 | 4.05 | % | ||||||||||||||
Consumer and other loans(1) | 31,250 | 1,372 | 4.39 | % | 29,761 | 1,297 | 4.36 | % | ||||||||||||||
Total loans and leases receivable(1) | 1,703,971 | 96,229 | 5.65 | % | 1,583,597 | 86,228 | 5.45 | % | ||||||||||||||
Mortgage-related securities(2) | 161,969 | 4,069 | 2.51 | % | 137,145 | 3,185 | 2.32 | % | ||||||||||||||
Other investment securities(3) | 26,661 | 568 | 2.13 | % | 33,929 | 657 | 1.94 | % | ||||||||||||||
FHLB stock | 7,398 | 357 | 4.83 | % | 7,472 | 290 | 3.88 | % | ||||||||||||||
Short-term investments | 35,344 | 817 | 2.31 | % | 49,365 | 915 | 1.85 | % | ||||||||||||||
Total interest-earning assets | 1,935,343 | 102,040 | 5.27 | % | 1,811,508 | 91,275 | 5.04 | % | ||||||||||||||
Non-interest-earning assets | 113,692 | 92,631 | ||||||||||||||||||||
Total assets | $ | 2,049,035 | $ | 1,904,139 | ||||||||||||||||||
Interest-bearing liabilities | ||||||||||||||||||||||
Transaction accounts | $ | 222,244 | 3,408 | 1.53 | % | $ | 269,943 | 2,671 | 0.99 | % | ||||||||||||
Money market | 617,341 | 10,576 | 1.71 | % | 491,756 | 5,375 | 1.09 | % | ||||||||||||||
Certificates of deposit | 156,048 | 3,852 | 2.47 | % | 94,172 | 1,599 | 1.70 | % | ||||||||||||||
Wholesale deposits | 225,302 | 5,122 | 2.27 | % | 302,440 | 5,888 | 1.95 | % | ||||||||||||||
Total interest-bearing deposits | 1,220,935 | 22,958 | 1.88 | % | 1,158,311 | 15,533 | 1.34 | % | ||||||||||||||
FHLB advances | 286,464 | 6,219 | 2.17 | % | 274,382 | 5,640 | 2.06 | % | ||||||||||||||
Other borrowings | 25,236 | 1,895 | 7.51 | % | 24,537 | 1,648 | 6.72 | % | ||||||||||||||
Junior subordinated notes | 10,040 | 1,112 | 11.08 | % | 10,025 | 1,112 | 11.09 | % | ||||||||||||||
Total interest-bearing liabilities | 1,542,675 | 32,184 | 2.09 | % | 1,467,255 | 23,933 | 1.63 | % | ||||||||||||||
Non-interest-bearing demand deposit accounts | 275,495 | 241,529 | ||||||||||||||||||||
Other non-interest-bearing liabilities | 45,047 | 22,076 | ||||||||||||||||||||
Total liabilities | 1,863,217 | 1,730,860 | ||||||||||||||||||||
Stockholders’ equity | 185,818 | 173,279 | ||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 2,049,035 | $ | 1,904,139 | ||||||||||||||||||
Net interest income | $ | 69,856 | $ | 67,342 | ||||||||||||||||||
Net interest spread | 3.19 | % | 3.41 | % | ||||||||||||||||||
Net interest-earning assets | $ | 392,668 | $ | 344,253 | ||||||||||||||||||
Net interest margin | 3.61 | % | 3.72 | % | ||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 125.45 | % | 123.46 | % | ||||||||||||||||||
Return on average assets | 1.14 | % | 0.86 | % | ||||||||||||||||||
Return on average equity | 12.55 | % | 9.41 | % | ||||||||||||||||||
Average equity to average assets | 9.07 | % | 9.10 | % | ||||||||||||||||||
Non-interest expense to average assets | 3.25 | % | 3.28 | % |
(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 securities are not presented on a tax-equivalent basis in this table. |
Increase (Decrease) for the Year Ended December 31, | ||||||||||||
2019 Compared to 2018 | ||||||||||||
Rate | Volume | Net | ||||||||||
(In Thousands) | ||||||||||||
Interest-earning assets | ||||||||||||
Commercial real estate and other mortgage loans(1) | $ | 1,294 | $ | 3,416 | $ | 4,710 | ||||||
Commercial and industrial loans(1) | 1,570 | 3,638 | 5,208 | |||||||||
Direct financing leases(1) | 41 | (33 | ) | 8 | ||||||||
Consumer and other loans(1) | 10 | 65 | 75 | |||||||||
Total loans and leases receivable(1) | 2,915 | 7,086 | 10,001 | |||||||||
Mortgage-related securities(2) | 275 | 609 | 884 | |||||||||
Other investment securities | 62 | (151 | ) | (89 | ) | |||||||
FHLB Stock | 70 | (3 | ) | 67 | ||||||||
Short-term investments | 196 | (294 | ) | (98 | ) | |||||||
Total net change in income on interest-earning assets | 3,518 | 7,247 | 10,765 | |||||||||
Interest-bearing liabilities | ||||||||||||
Transaction accounts | 1,272 | (535 | ) | 737 | ||||||||
Money market | 3,586 | 1,615 | 5,201 | |||||||||
Certificates of deposit | 920 | 1,333 | 2,253 | |||||||||
Wholesale deposits | 888 | (1,654 | ) | (766 | ) | |||||||
Total deposits | 6,666 | 759 | 7,425 | |||||||||
FHLB advances | 325 | 254 | 579 | |||||||||
Other borrowings | 199 | 48 | 247 | |||||||||
Junior subordinated notes | (2 | ) | 2 | — | ||||||||
Total net change in expense on interest-bearing liabilities | 7,188 | 1,063 | 8,251 | |||||||||
Net change in net interest income | $ | (3,670 | ) | $ | 6,184 | $ | 2,514 |
(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. |
December 31, 2019 | December 31, 2018 | |||||||
(In Thousands) | ||||||||
Performing loans: | ||||||||
Off-balance sheet loans | $ | 35,029 | $ | 48,989 | ||||
On-balance sheet loans | 19,697 | 26,260 | ||||||
Gross loans | 54,726 | 75,249 | ||||||
Non-performing loans: | ||||||||
Off-balance sheet loans | 7,290 | 13,036 | ||||||
On-balance sheet loans | 12,037 | 13,028 | ||||||
Gross loans | 19,327 | 26,064 | ||||||
Total loans: | ||||||||
Off-balance sheet loans | 42,319 | 62,025 | ||||||
On-balance sheet loans | 31,734 | 39,288 | ||||||
Gross loans | $ | 74,053 | $ | 101,313 |
For the Year Ended December 31, | Change From Prior Year | |||||||||||||
2019 | 2018 | $ Change | % Change | |||||||||||
(Dollars in Thousands) | ||||||||||||||
Private wealth management services fee income | $ | 8,197 | $ | 7,744 | $ | 453 | 5.8 | % | ||||||
Gain on sale of SBA loans | 1,459 | 1,451 | 8 | 0.6 | ||||||||||
Service charges on deposits | 3,104 | 3,062 | 42 | 1.4 | ||||||||||
Loan fees | 1,767 | 1,783 | (16 | ) | (0.9 | ) | ||||||||
Increase in cash surrender value of bank-owned life insurance | 1,198 | 1,191 | 7 | 0.6 | ||||||||||
Net loss on sale of securities | (46 | ) | (4 | ) | (42 | ) | NM | |||||||
Swap fees | 4,165 | 1,670 | 2,495 | NM | ||||||||||
Other non-interest income | 3,579 | 1,270 | 2,309 | NM | ||||||||||
Total non-interest income | $ | 23,423 | $ | 18,167 | $ | 5,256 | 28.9 | |||||||
Fee income ratio(1) | 25.1 | % | 21.2 | % |
(1) | Fee income ratio is fee income, per the above table, divided by top line revenue (defined as net interest income plus non-interest income). |
For the Year Ended December 31, | Change From Prior Year | |||||||||||||
2019 | 2018 | $ Change | % Change | |||||||||||
(Dollars in Thousands) | ||||||||||||||
Compensation | $ | 42,021 | $ | 37,439 | $ | 4,582 | 12.2 | % | ||||||
Occupancy | 2,293 | 2,192 | 101 | 4.6 | ||||||||||
Professional fees | 3,703 | 3,869 | (166 | ) | (4.3 | ) | ||||||||
Data processing | 2,562 | 2,362 | 200 | 8.5 | ||||||||||
Marketing | 2,221 | 2,135 | 86 | 4.0 | ||||||||||
Equipment | 1,230 | 1,434 | (204 | ) | (14.2 | ) | ||||||||
Computer software | 3,414 | 3,015 | 399 | 13.2 | ||||||||||
FDIC insurance | 641 | 1,478 | (837 | ) | (56.6 | ) | ||||||||
Collateral liquidation costs | 119 | 646 | (527 | ) | (81.6 | ) | ||||||||
Net loss on foreclosed properties | 224 | 367 | (143 | ) | (39.0 | ) | ||||||||
Impairment on tax credit investments | 4,094 | 2,083 | 2,011 | 96.5 | ||||||||||
SBA recourse provision | 188 | 1,913 | (1,725 | ) | (90.2 | ) | ||||||||
Other non-interest expense | 3,985 | 3,430 | 555 | 16.2 | ||||||||||
Total non-interest expense | $ | 66,695 | $ | 62,363 | $ | 4,332 | 6.9 | |||||||
Total operating expense(1) | $ | 62,189 | $ | 58,000 | $ | 4,189 | 7.2 | |||||||
Full-time equivalent employees | 288 | 274 |
(1) | Total operating expense represents total non-interest expense, adjusted to exclude the impact of discrete items as previously defined in the non-GAAP efficiency ratio calculation above. |
As of December 31, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
(In Thousands) | ||||||||||||||||
Available-for-sale: | ||||||||||||||||
U.S. government agency securities - government-sponsored enterprises | $ | 23,616 | $ | 23,758 | $ | 999 | $ | 990 | ||||||||
Municipal securities | 160 | 160 | 5,953 | 5,886 | ||||||||||||
Residential mortgage-backed securities - government issued | 16,119 | 16,348 | 14,594 | 14,495 | ||||||||||||
Residential mortgage-backed securities - government-sponsored enterprises | 111,561 | 112,002 | 105,524 | 104,186 | ||||||||||||
Commercial mortgage-backed securities - government issued | 6,705 | 6,663 | 5,413 | 5,133 | ||||||||||||
Commercial mortgage-backed securities - government-sponsored enterprises | 11,953 | 11,967 | 5,404 | 5,292 | ||||||||||||
Other securities | 2,205 | 2,235 | 2,450 | 2,376 | ||||||||||||
$ | 172,319 | $ | 173,133 | $ | 140,337 | $ | 138,358 |
As of December 31, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
(In Thousands) | ||||||||||||||||
Held-to-maturity: | ||||||||||||||||
Municipal securities | $ | 19,727 | $ | 20,054 | $ | 21,066 | $ | 21,079 | ||||||||
Residential mortgage-backed securities - government issued | 5,776 | 5,786 | 7,358 | 7,186 | ||||||||||||
Residential mortgage-backed securities - government-sponsored issued | 5,183 | 5,211 | 6,524 | 6,368 | ||||||||||||
Commercial mortgage-backed securities - government-sponsored enterprises | 2,014 | 2,137 | 2,783 | 2,776 | ||||||||||||
$ | 32,700 | $ | 33,188 | $ | 37,731 | $ | 37,409 |
Less than One Year | One to Five Years | Five to Ten Years | Over Ten Years | |||||||||||||||||||||||||||||
Fair Value | Weighted Average Yield | Fair Value | Weighted Average Yield | Fair Value | Weighted Average Yield | Fair Value | Weighted Average Yield | Total | ||||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||||||
Available-for-sale: | ||||||||||||||||||||||||||||||||
U.S. government agency securities - government-sponsored enterprises | $ | 1,002 | 2.04 | % | $ | — | — | % | $ | 3,487 | 2.64 | % | $ | 19,269 | 2.57 | % | $ | 23,758 | ||||||||||||||
Municipal securities | 160 | 2.38 | — | — | — | — | — | — | 160 | |||||||||||||||||||||||
Residential mortgage-backed securities - government issued | — | — | — | — | 3,526 | 2.99 | 12,822 | 2.72 | 16,348 | |||||||||||||||||||||||
Residential mortgage-backed securities - government-sponsored enterprises | — | — | 2,535 | 2.39 | 20,048 | 2.66 | 89,419 | 2.50 | 112,002 | |||||||||||||||||||||||
Commercial mortgage-backed securities - government issued | — | — | — | — | — | — | 6,663 | 2.22 | 6,663 | |||||||||||||||||||||||
Commercial mortgage-backed securities - government-sponsored enterprises | — | — | 2,407 | 2.13 | 7,316 | 2.29 | 2,244 | 2.47 | 11,967 | |||||||||||||||||||||||
Other securities | — | — | 2,235 | 2.38 | — | — | — | — | 2,235 | |||||||||||||||||||||||
$ | 1,162 | $ | 7,177 | $ | 34,377 | $ | 130,417 | $ | 173,133 |
Less than One Year | One to Five Years | Five to Ten Years | Over Ten Years | |||||||||||||||||||||||||
Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | Total | ||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
Held-to-maturity: | ||||||||||||||||||||||||||||
Municipal securities | 1,525 | 2.01 | 13,474 | 2.08 | 4,728 | 2.45 | — | — | 19,727 | |||||||||||||||||||
Residential mortgage-backed securities - government issued | — | — | — | — | 2,712 | 1.95 | 3,064 | 2.24 | 5,776 | |||||||||||||||||||
Residential mortgage-backed securities - government-sponsored enterprises | — | — | — | — | 3,531 | 1.67 | 1,652 | 3.31 | 5,183 | |||||||||||||||||||
Commercial mortgage-backed securities - government-sponsored enterprises | — | — | — | — | 2,014 | 3.23 | — | — | 2,014 | |||||||||||||||||||
$ | 1,525 | $ | 13,474 | $ | 12,985 | $ | 4,716 | $ | 32,700 |
As of December 31, | ||||||||||||||
2019 | 2018 | |||||||||||||
Amount Outstanding | % of Total Loans and Leases | Amount Outstanding | % of Total Loans and Leases | |||||||||||
(Dollars in Thousands) | ||||||||||||||
Commercial real estate: | ||||||||||||||
Commercial real estate — owner occupied | $ | 226,614 | 13.2 | % | $ | 203,476 | 12.6 | % | ||||||
Commercial real estate — non-owner occupied | 516,652 | 30.1 | 484,427 | 29.9 | ||||||||||
Land development | 51,097 | 3.0 | 42,666 | 2.6 | ||||||||||
Construction | 109,057 | 6.4 | 161,562 | 10.0 | ||||||||||
Multi-family | 217,322 | 12.7 | 167,868 | 10.4 | ||||||||||
1-4 family | 33,359 | 1.9 | 34,340 | 2.1 | ||||||||||
Total commercial real estate | 1,154,101 | 67.3 | 1,094,339 | 67.6 | ||||||||||
Commercial and industrial | 503,402 | 29.3 | 462,321 | 28.6 | ||||||||||
Direct financing leases, net | 28,203 | 1.7 | 33,170 | 2.0 | ||||||||||
Consumer and other: | ||||||||||||||
Home equity and second mortgage | 7,006 | 0.4 | 8,438 | 0.5 | ||||||||||
Other | 22,664 | 1.3 | 20,789 | 1.3 | ||||||||||
Total consumer and other | 29,670 | 1.7 | 29,227 | 1.8 | ||||||||||
Total gross loans and leases receivable | 1,715,376 | 100.0 | % | 1,619,057 | 100.0 | % | ||||||||
Less: | ||||||||||||||
Allowance for loan and lease losses | 19,520 | 20,425 | ||||||||||||
Deferred loan fees | 741 | 1,402 | ||||||||||||
Loans and leases receivable, net | $ | 1,695,115 | $ | 1,597,230 |
Amounts Due | Interest Terms On Amounts Due after One Year | |||||||||||||||||||||||
In One Year or Less | After One Year through Five Years | After Five Years | Total | Fixed Rate | Variable Rate | |||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Owner-occupied | $ | 21,064 | $ | 142,190 | $ | 63,360 | $ | 226,614 | $ | 144,123 | $ | 61,427 | ||||||||||||
Non-owner occupied | 94,404 | 236,287 | 185,961 | 516,652 | 263,812 | 158,436 | ||||||||||||||||||
Land development | 29,678 | 18,972 | 2,447 | 51,097 | 8,697 | 12,722 | ||||||||||||||||||
Construction | 23,600 | 24,656 | 60,801 | 109,057 | 32,651 | 52,806 | ||||||||||||||||||
Multi-family | 12,726 | 94,676 | 109,920 | 217,322 | 91,357 | 113,239 | ||||||||||||||||||
1-4 family | 17,423 | 11,689 | 4,247 | 33,359 | 12,458 | 3,478 | ||||||||||||||||||
Commercial and industrial | 191,186 | 241,810 | 70,406 | 503,402 | 161,199 | 151,017 | ||||||||||||||||||
Direct financing leases | 3,303 | 17,354 | 7,546 | 28,203 | 24,900 | — | ||||||||||||||||||
Consumer and other | 9,836 | 19,110 | 724 | 29,670 | 15,880 | 3,954 | ||||||||||||||||||
$ | 403,220 | $ | 806,744 | $ | 505,412 | $ | 1,715,376 | $ | 755,077 | $ | 557,079 |
As of December 31, | ||||||||
2019 | 2018 | |||||||
(Dollars in Thousands) | ||||||||
Non-accrual loans and leases | ||||||||
Commercial real estate: | ||||||||
Commercial real estate – owner occupied | $ | 4,032 | $ | 5,663 | ||||
Commercial real estate – non-owner occupied | — | 31 | ||||||
Land development | 1,526 | 2,213 | ||||||
Construction | — | — | ||||||
Multi-family | — | — | ||||||
1-4 family | 333 | — | ||||||
Total non-accrual commercial real estate | 5,891 | 7,907 | ||||||
Commercial and industrial | 14,575 | 17,104 | ||||||
Direct financing leases, net | — | — | ||||||
Consumer and other: | ||||||||
Home equity and second mortgage | — | — | ||||||
Other | 147 | 290 | ||||||
Total non-accrual consumer and other loans | 147 | 290 | ||||||
Total non-accrual loans and leases | 20,613 | 25,301 | ||||||
Foreclosed properties, net | 2,919 | 2,547 | ||||||
Total non-performing assets | 23,532 | 27,848 | ||||||
Performing troubled debt restructurings | 140 | 180 | ||||||
Total impaired assets | $ | 23,672 | $ | 28,028 | ||||
Total non-accrual loans and leases to gross loans and leases | 1.20 | % | 1.56 | % | ||||
Total non-performing assets to gross loans and leases plus foreclosed properties, net | 1.37 | % | 1.72 | % | ||||
Total non-performing assets to total assets | 1.12 | % | 1.42 | % | ||||
Allowance for loan and lease losses to gross loans and leases | 1.14 | % | 1.26 | % | ||||
Allowance for loan and lease losses to non-accrual loans and leases | 94.70 | % | 80.73 | % |
As of December 31, | ||||||||
2019 | 2018 | |||||||
(In Thousands) | ||||||||
Impaired loans and leases with no impairment reserves | $ | 7,312 | $ | 10,802 | ||||
Impaired loans and leases with impairment reserves required | 13,441 | 14,679 | ||||||
Total impaired loans and leases | 20,753 | 25,481 | ||||||
Less: Impairment reserve (included in allowance for loan and lease losses) | 3,365 | 4,396 | ||||||
Net impaired loans and leases | $ | 17,388 | $ | 21,085 | ||||
Average impaired loans and leases | $ | 24,090 | $ | 26,431 | ||||
For the years ended December 31, | ||||||||
2019 | 2018 | |||||||
(In Thousands) | ||||||||
Interest income attributable to impaired loans and leases | $ | 2,693 | $ | 3,478 | ||||
Less: Interest income recognized on impaired loans and leases | 793 | 1,304 | ||||||
Net foregone interest income on impaired loans and leases | $ | 1,900 | $ | 2,174 |
For the Year Ended December 31, | ||||||||
2019 | 2018 | |||||||
(In Thousands) | ||||||||
Balance at the beginning of the period | $ | 2,547 | $ | 1,069 | ||||
Transfer of loans to foreclosed properties, at fair value | 596 | 2,202 | ||||||
Impairment adjustments | (224 | ) | (339 | ) | ||||
Net book value of properties sold | — | (385 | ) | |||||
Balance at the end of the period | $ | 2,919 | $ | 2,547 |
Year Ended December 31, | ||||||||
2019 | 2018 | |||||||
(Dollars in Thousands) | ||||||||
Allowance at beginning of period | $ | 20,425 | $ | 18,763 | ||||
Charge-offs: | ||||||||
Commercial real estate | ||||||||
Commercial real estate — owner occupied | — | (3,124 | ) | |||||
Commercial real estate — non-owner occupied | — | — | ||||||
Construction and land development | — | (1,372 | ) | |||||
Multi-family | — | — | ||||||
1-4 family | — | (5 | ) | |||||
Commercial and industrial | (3,347 | ) | (1,545 | ) | ||||
Direct financing leases | — | — | ||||||
Consumer and other | ||||||||
Home equity and second mortgage | (2 | ) | — | |||||
Other | (7 | ) | (55 | ) | ||||
Total charge-offs | (3,356 | ) | (6,101 | ) | ||||
Recoveries: | ||||||||
Commercial real estate | ||||||||
Commercial real estate — owner occupied | 2 | 4 | ||||||
Commercial real estate — non-owner occupied | 73 | 2 | ||||||
Construction and land development | — | 5 | ||||||
Multi-family | — | — | ||||||
1-4 family | — | 163 | ||||||
Commercial and industrial | 262 | 2,022 | ||||||
Direct financing leases | — | 1 | ||||||
Consumer and other | ||||||||
Home equity and second mortgage | 26 | 73 | ||||||
Other | 3 | 1 | ||||||
Total recoveries | 366 | 2,271 | ||||||
Net charge-offs | (2,990 | ) | (3,830 | ) | ||||
Provision for loan and lease losses | 2,085 | 5,492 | ||||||
Allowance at end of period | $ | 19,520 | $ | 20,425 | ||||
Net charge-offs as a percent of average gross loans and leases | 0.18 | % | 0.24 | % |
As of December 31, | ||||||||||||||
2019 | 2018 | |||||||||||||
Balance | (a) | Balance | (a) | |||||||||||
(Dollars in Thousands) | ||||||||||||||
Loan and lease segments: | ||||||||||||||
Commercial real estate | $ | 10,852 | 0.94 | % | $ | 11,662 | 1.07 | % | ||||||
Commercial and industrial | 8,078 | 1.52 | 8,079 | 1.63 | ||||||||||
Consumer and other | 590 | 1.99 | 684 | 2.34 | ||||||||||
Total allowance for loan and lease losses | $ | 19,520 | 1.14 | % | $ | 20,425 | 1.26 | % |
(a) | Allowance for loan losses category as a percentage of total loans by category. |
As of December 31, | ||||||||||||||
2019 | 2018 | |||||||||||||
Balance | % of Total Deposits | Balance | % of Total Deposits | |||||||||||
(Dollars in Thousands) | ||||||||||||||
Non-interest-bearing transaction accounts | $ | 293,573 | 19.2 | % | $ | 280,769 | 19.3 | % | ||||||
Interest-bearing transaction accounts | 273,909 | 17.9 | 229,612 | 15.8 | ||||||||||
Money market accounts | 674,409 | 44.1 | 516,045 | 35.4 | ||||||||||
Certificates of deposit | 137,012 | 8.9 | 153,022 | 10.5 | ||||||||||
Wholesale deposits | 151,476 | 9.9 | 275,851 | 19.0 | ||||||||||
Total deposits | 1,530,379 | 100.0 | % | 1,455,299 | 100.0 | % |
Interest Rate | Three Months and Less | Over Three Months Through Six Months | Over Six Months Through Twelve Months | Over Twelve Months | Total | |||||||||||||||
(In Thousands) | ||||||||||||||||||||
0.00% to 0.99% | $ | 549 | $ | 830 | $ | 251 | $ | 15 | $ | 1,645 | ||||||||||
1.00% to 1.99% | 26,095 | 16,910 | 48,918 | 29,580 | 121,503 | |||||||||||||||
2.00% to 2.99% | 26,602 | 20,931 | 47,375 | 35,089 | 129,997 | |||||||||||||||
3.00% to 3.99% | 325 | 277 | 6,825 | 27,916 | 35,343 | |||||||||||||||
$ | 53,571 | $ | 38,948 | $ | 103,369 | $ | 92,600 | $ | 288,488 |
December 31, 2019 | December 31, 2018 | |||||||||||||||||||||
Balance | Weighted Average Balance | Weighted Average Rate | Balance | Weighted Average Balance | Weighted Average Rate | |||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||
Federal funds purchased | $ | — | $ | 59 | 2.45 | % | $ | — | $ | 119 | 2.43 | % | ||||||||||
FHLB advances | 295,000 | 286,464 | 2.17 | 274,500 | 274,382 | 2.06 | ||||||||||||||||
Line of credit | — | — | — | — | 3 | 4.47 | ||||||||||||||||
Other borrowings | 675 | 675 | 8.11 | 675 | 675 | 7.94 | ||||||||||||||||
Subordinated notes payable(1) | 23,707 | 24,502 | 7.45 | 23,769 | 23,739 | 6.64 | ||||||||||||||||
Junior subordinated notes | 10,047 | 10,040 | 11.08 | 10,033 | 10,025 | 11.10 | ||||||||||||||||
$ | 329,429 | $ | 321,740 | 2.87 | $ | 308,977 | $ | 308,943 | 2.72 | |||||||||||||
Short-term borrowings | $ | 118,500 | $ | 136,500 | ||||||||||||||||||
Long-term borrowings | 210,929 | 172,477 | ||||||||||||||||||||
$ | 329,429 | $ | 308,977 |
(1) | Weighted average rate of subordinated notes payable reflects the accelerated amortization of subordinated debt issuance costs as a result of the early redemption of a subordinated note during the third quarter of 2019. |
Year Ended December 31, | ||||||||
2019 | 2018 | |||||||
(In Thousands) | ||||||||
Maximum month-end balance: | ||||||||
FHLB advances | $ | 25,000 | $ | 52,500 |
Consolidated Financial Statements | Page No. | |
December 31, 2019 | December 31, 2018 | |||||||
(In Thousands, Except Share Data) | ||||||||
Assets | ||||||||
Cash and due from banks | $ | 16,107 | $ | 23,319 | ||||
Short-term investments | 50,995 | 63,227 | ||||||
Cash and cash equivalents | 67,102 | 86,546 | ||||||
Securities available-for-sale, at fair value | 173,133 | 138,358 | ||||||
Securities held-to-maturity, at amortized cost | 32,700 | 37,731 | ||||||
Loans held for sale | 5,205 | 5,287 | ||||||
Loans and leases receivable, net of allowance for loan and lease losses of $19,520 and $20,425, respectively | 1,695,115 | 1,597,230 | ||||||
Premises and equipment, net | 2,557 | 3,284 | ||||||
Foreclosed properties | 2,919 | 2,547 | ||||||
Right-of-use assets, net | 6,906 | — | ||||||
Bank-owned life insurance | 42,761 | 41,538 | ||||||
Federal Home Loan Bank stock, at cost | 7,953 | 7,240 | ||||||
Goodwill and other intangible assets | 11,922 | 12,045 | ||||||
Accrued interest receivable and other assets | 48,506 | 34,651 | ||||||
Total assets | $ | 2,096,779 | $ | 1,966,457 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Deposits | $ | 1,530,379 | $ | 1,455,299 | ||||
Federal Home Loan Bank advances and other borrowings | 319,382 | 298,944 | ||||||
Junior subordinated notes | 10,047 | 10,033 | ||||||
Lease liabilities | 7,541 | — | ||||||
Accrued interest payable and other liabilities | 35,274 | 21,474 | ||||||
Total liabilities | 1,902,623 | 1,785,750 | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.01 par value, 2,500,000 shares authorized, none issued or outstanding | — | — | ||||||
Common stock, $0.01 par value, 25,000,000 shares authorized, 9,162,720 and 9,069,199 shares issued, 8,566,044 and 8,785,480 shares outstanding at December 31, 2019 and 2018, respectively | 92 | 91 | ||||||
Additional paid-in capital | 81,188 | 79,623 | ||||||
Retained earnings | 129,105 | 110,310 | ||||||
Accumulated other comprehensive loss | (1,348 | ) | (1,684 | ) | ||||
Treasury stock, 596,676 and 283,719 shares at December 31, 2019 and 2018, respectively, at cost | (14,881 | ) | (7,633 | ) | ||||
Total stockholders’ equity | 194,156 | 180,707 | ||||||
Total liabilities and stockholders’ equity | $ | 2,096,779 | $ | 1,966,457 |
For the Year Ended December 31, | ||||||||
2019 | 2018 | |||||||
(In Thousands, Except Share Data) | ||||||||
Interest income | ||||||||
Loans and leases | $ | 96,229 | $ | 86,228 | ||||
Securities | 4,637 | 3,842 | ||||||
Short-term investments | 1,174 | 1,205 | ||||||
Total interest income | 102,040 | 91,275 | ||||||
Interest expense | ||||||||
Deposits | 22,958 | 15,533 | ||||||
Federal Home Loan Bank advances and other borrowings | 8,114 | 7,288 | ||||||
Junior subordinated notes | 1,112 | 1,112 | ||||||
Total interest expense | 32,184 | 23,933 | ||||||
Net interest income | 69,856 | 67,342 | ||||||
Provision for loan and lease losses | 2,085 | 5,492 | ||||||
Net interest income after provision for loan and lease losses | 67,771 | 61,850 | ||||||
Non-interest income | ||||||||
Private wealth management service fees | 8,197 | 7,744 | ||||||
Gain on sale of Small Business Administration loans | 1,459 | 1,451 | ||||||
Service charges on deposits | 3,104 | 3,062 | ||||||
Loan fees | 1,767 | 1,783 | ||||||
Increase in cash surrender value of bank-owned life insurance | 1,198 | 1,191 | ||||||
Net loss on sale of securities | (46 | ) | (4 | ) | ||||
Swap fees | 4,165 | 1,670 | ||||||
Other non-interest income | 3,579 | 1,270 | ||||||
Total non-interest income | 23,423 | 18,167 | ||||||
Non-interest expense | ||||||||
Compensation | 42,021 | 37,439 | ||||||
Occupancy | 2,293 | 2,192 | ||||||
Professional fees | 3,703 | 3,869 | ||||||
Data processing | 2,562 | 2,362 | ||||||
Marketing | 2,221 | 2,135 | ||||||
Equipment | 1,230 | 1,434 | ||||||
Computer software | 3,414 | 3,015 | ||||||
FDIC insurance | 641 | 1,478 | ||||||
Collateral liquidation costs | 119 | 646 | ||||||
Net loss on foreclosed properties | 224 | 367 | ||||||
Impairment of tax credit investments | 4,094 | 2,083 | ||||||
SBA recourse provision | 188 | 1,913 | ||||||
Other non-interest expense | 3,985 | 3,430 | ||||||
Total non-interest expense | 66,695 | 62,363 | ||||||
Income before income tax expense | 24,499 | 17,654 | ||||||
Income tax expense | 1,175 | 1,351 | ||||||
Net income | $ | 23,324 | $ | 16,303 | ||||
Earnings per common share: | ||||||||
Basic | $ | 2.68 | $ | 1.86 | ||||
Diluted | 2.68 | 1.86 | ||||||
Dividends declared per share | 0.60 | 0.56 |
For the Year Ended December 31, | ||||||||
2019 | 2018 | |||||||
(In Thousands) | ||||||||
Net income | $ | 23,324 | $ | 16,303 | ||||
Other comprehensive loss, before tax | ||||||||
Securities available-for-sale: | ||||||||
Unrealized securities gains (losses) arising during the period | 2,747 | (662 | ) | |||||
Reclassification adjustment for net loss realized in net income | 46 | 4 | ||||||
Securities held-to-maturity: | ||||||||
Amortization of net unrealized losses transferred from available-for-sale | 54 | 70 | ||||||
Interest rate swaps: | ||||||||
Unrealized losses on interest rate swaps arising during the period | (2,396 | ) | (20 | ) | ||||
Income tax (expense) benefit | (115 | ) | 179 | |||||
Total other comprehensive gain (loss) | 336 | (429 | ) | |||||
Comprehensive income | $ | 23,660 | $ | 15,874 |
Common Shares Outstanding | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive (Loss) Income | Treasury Stock | Total | |||||||||||||||||||||
(In Thousands, Except Share Data) | |||||||||||||||||||||||||||
Balance at January 1, 2018 | 8,763,539 | $ | 90 | $ | 78,620 | $ | 98,906 | $ | (1,238 | ) | $ | (7,100 | ) | $ | 169,278 | ||||||||||||
Net income | — | — | — | 16,303 | — | — | 16,303 | ||||||||||||||||||||
Other comprehensive loss | — | — | — | — | (429 | ) | — | (429 | ) | ||||||||||||||||||
Share-based compensation - restricted shares | 47,214 | 1 | 1,003 | — | — | — | 1,004 | ||||||||||||||||||||
Cash dividends ($0.56 per share) | — | — | — | (4,916 | ) | — | — | (4,916 | ) | ||||||||||||||||||
Treasury stock purchased | (25,273 | ) | — | — | — | — | (533 | ) | (533 | ) | |||||||||||||||||
Deferred tax revaluation adjustment | — | — | — | 17 | (17 | ) | — | — | |||||||||||||||||||
Balance at December 31, 2018 | 8,785,480 | 91 | 79,623 | 110,310 | (1,684 | ) | (7,633 | ) | 180,707 | ||||||||||||||||||
Cumulative effect of adoption of ASC Topic 842 | — | — | — | 687 | — | — | 687 | ||||||||||||||||||||
Net income | — | — | — | 23,324 | — | — | 23,324 | ||||||||||||||||||||
Other comprehensive income | — | — | — | — | 336 | — | 336 | ||||||||||||||||||||
Share-based compensation - restricted shares | 93,521 | 1 | 1,565 | — | — | — | 1,566 | ||||||||||||||||||||
Cash dividends ($0.60 per share) | — | — | — | (5,216 | ) | — | — | (5,216 | ) | ||||||||||||||||||
Treasury stock purchased | (312,957 | ) | — | — | — | — | (7,248 | ) | (7,248 | ) | |||||||||||||||||
Balance at December 31, 2019 | 8,566,044 | $ | 92 | $ | 81,188 | $ | 129,105 | $ | (1,348 | ) | $ | (14,881 | ) | $ | 194,156 |
First Business Financial Services, Inc. Consolidated Statements of Cash Flows | ||||||||
For the Year Ended December 31, | ||||||||
2019 | 2018 | |||||||
(In Thousands) | ||||||||
Operating activities | ||||||||
Net income | $ | 23,324 | $ | 16,303 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Deferred income taxes, net | (2,296 | ) | (432 | ) | ||||
Impairment of tax credit investments | 4,094 | 2,083 | ||||||
Provision for loan and lease losses | 2,085 | 5,492 | ||||||
SBA recourse provision | 188 | 1,913 | ||||||
Depreciation, amortization and accretion, net | 3,049 | 1,477 | ||||||
Share-based compensation | 1,566 | 1,004 | ||||||
Net loss on sale of securities | 46 | 4 | ||||||
Gain on sale of historic development entity state tax credit | (413 | ) | — | |||||
Increase in value of bank-owned life insurance policies | (1,198 | ) | (1,191 | ) | ||||
Origination of loans for sale | (61,348 | ) | (91,122 | ) | ||||
Sale of loans originated for sale | 62,889 | 89,480 | ||||||
Gain on sale of loans originated for sale | (1,459 | ) | (1,451 | ) | ||||
Net loss on foreclosed properties, including impairment valuation | 224 | 367 | ||||||
Loan servicing right impairment valuation | 25 | 69 | ||||||
Right-of-use asset impairment | 299 | — | ||||||
Excess tax benefit from share-based compensation | (102 | ) | (46 | ) | ||||
Payments on operating lease liabilities | (1,527 | ) | — | |||||
Payments received on operating leases | 9 | — | ||||||
Net increase in accrued interest receivable and other assets | (15,159 | ) | (4,428 | ) | ||||
Net increase in accrued interest payable and other liabilities | 14,689 | 5,759 | ||||||
Net cash provided by operating activities | 28,985 | 25,281 | ||||||
Investing activities | ||||||||
Proceeds from maturities, redemptions and paydowns of available-for-sale securities | 30,085 | 33,225 | ||||||
Proceeds from maturities, redemptions and paydowns of held-to-maturity securities | 4,969 | 4,860 | ||||||
Proceeds from sale of available-for-sale securities | 22,452 | 6,207 | ||||||
Purchases of available-for-sale securities | (84,740 | ) | (52,763 | ) | ||||
Purchases of held-to-maturity securities | — | (4,867 | ) | |||||
Proceeds from sale of foreclosed properties | — | 357 | ||||||
Net increase in loans and leases | (100,444 | ) | (122,014 | ) | ||||
Investments in limited partnerships | (1,250 | ) | (188 | ) | ||||
Returns of investments in limited partnerships | 2,188 | 729 | ||||||
Investment in historic development entities | (8,134 | ) | (905 | ) | ||||
Distribution from historic development entities | — | 69 | ||||||
Proceeds from sale of historic development entity state tax credit | 4,340 | — | ||||||
Investment in Federal Home Loan Bank and Federal Reserve Bank Stock | (5,943 | ) | (9,018 | ) | ||||
Proceeds from the sale of Federal Home Loan Bank Stock | 5,230 | 7,448 | ||||||
Purchases of leasehold improvements and equipment, net | (225 | ) | (969 | ) | ||||
Premium payment on bank owned life insurance policies | (25 | ) | (24 | ) | ||||
Net cash used in investing activities | (131,497 | ) | (137,853 | ) | ||||
Financing activities | ||||||||
Net increase in deposits | 75,080 | 60,968 | ||||||
Repayment of Federal Home Loan Bank advances | (536,500 | ) | (804,100 | ) | ||||
Proceeds from Federal Home Loan Bank advances | 557,000 | 895,100 | ||||||
Proceeds from issuance of subordinated notes payable | 15,000 | — | ||||||
Repayment of subordinated notes payable | (15,000 | ) | — |
First Business Financial Services, Inc. Consolidated Statements of Cash Flows | ||||||||
For the Year Ended December 31, | ||||||||
2019 | 2018 | |||||||
(In Thousands) | ||||||||
Net (decrease) increase in long-term borrowed funds | (48 | ) | 60 | |||||
Cash dividends paid | (5,216 | ) | (4,916 | ) | ||||
Purchase of treasury stock | (7,248 | ) | (533 | ) | ||||
Net cash provided by financing activities | 83,068 | 146,579 | ||||||
Net (decrease) increase in cash and cash equivalents | (19,444 | ) | 34,007 | |||||
Cash and cash equivalents at the beginning of the period | 86,546 | 52,539 | ||||||
Cash and cash equivalents at the end of the period | $ | 67,102 | $ | 86,546 | ||||
Supplementary cash flow information | ||||||||
Cash paid during the period for: | ||||||||
Interest paid on deposits and borrowings | $ | 32,999 | $ | 22,332 | ||||
Income taxes paid | 1,294 | 1,055 | ||||||
Non-cash investing and financing activities: | ||||||||
Transfer of loans to foreclosed properties | 596 | 2,202 |
As of December 31, 2019 | ||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
(In Thousands) | ||||||||||||||||
Available-for-sale: | ||||||||||||||||
U.S. government agency securities - government-sponsored enterprises | $ | 23,616 | $ | 152 | $ | (10 | ) | $ | 23,758 | |||||||
Municipal securities | 160 | — | — | 160 | ||||||||||||
Residential mortgage-backed securities - government issued | 16,119 | 234 | (5 | ) | 16,348 | |||||||||||
Residential mortgage-backed securities - government-sponsored enterprises | 111,561 | 847 | (406 | ) | 112,002 | |||||||||||
Commercial mortgage-backed securities - government issued | 6,705 | 45 | (87 | ) | 6,663 | |||||||||||
Commercial mortgage-backed securities - government-sponsored enterprises | 11,953 | 23 | (9 | ) | 11,967 | |||||||||||
Other securities | 2,205 | 30 | — | 2,235 | ||||||||||||
$ | 172,319 | $ | 1,331 | $ | (517 | ) | $ | 173,133 |
As of December 31, 2018 | ||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
(In Thousands) | ||||||||||||||||
Available-for-sale: | ||||||||||||||||
U.S. government agency securities - government-sponsored enterprises | $ | 999 | $ | — | $ | (9 | ) | $ | 990 | |||||||
Municipal securities | 5,953 | 2 | (69 | ) | 5,886 | |||||||||||
Residential mortgage-backed securities - government issued | 14,594 | 47 | (146 | ) | 14,495 | |||||||||||
Residential mortgage-backed securities - government-sponsored enterprises | 105,524 | 279 | (1,617 | ) | 104,186 | |||||||||||
Commercial mortgage-backed securities - government issued | 5,413 | — | (280 | ) | 5,133 | |||||||||||
Commercial mortgage-backed securities - government-sponsored enterprises | 5,404 | — | (112 | ) | 5,292 | |||||||||||
Other securities | 2,450 | — | (74 | ) | 2,376 | |||||||||||
$ | 140,337 | $ | 328 | $ | (2,307 | ) | $ | 138,358 |
As of December 31, 2019 | ||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
(In Thousands) | ||||||||||||||||
Held-to-maturity: | ||||||||||||||||
Municipal securities | $ | 19,727 | $ | 335 | $ | (8 | ) | $ | 20,054 | |||||||
Residential mortgage-backed securities - government issued | 5,776 | 19 | (9 | ) | 5,786 | |||||||||||
Residential mortgage-backed securities - government-sponsored enterprises | 5,183 | 51 | (23 | ) | 5,211 | |||||||||||
Commercial mortgage-backed securities - government-sponsored enterprises | 2,014 | 123 | — | 2,137 | ||||||||||||
$ | 32,700 | $ | 528 | $ | (40 | ) | $ | 33,188 |
As of December 31, 2018 | ||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
(In Thousands) | ||||||||||||||||
Held-to-maturity: | ||||||||||||||||
Municipal securities | $ | 21,066 | $ | 72 | $ | (59 | ) | $ | 21,079 | |||||||
Residential mortgage-backed securities - government issued | 7,358 | — | (172 | ) | 7,186 | |||||||||||
Residential mortgage-backed securities - government-sponsored enterprises | 6,524 | — | (156 | ) | 6,368 | |||||||||||
Commercial mortgage-backed securities - government-sponsored enterprises | $ | 2,783 | $ | 2 | $ | (9 | ) | 2,776 | ||||||||
$ | 37,731 | $ | 74 | $ | (396 | ) | $ | 37,409 |
For the Year Ended December 31, | ||||||||
2019 | 2018 | |||||||
(In Thousands) | ||||||||
Gross gains | $ | 58 | $ | 22 | ||||
Gross losses | (104 | ) | (26 | ) | ||||
Net losses on sale of available-for-sale securities | $ | (46 | ) | $ | (4 | ) | ||
Proceeds from sale of available-for-sale securities | $ | 22,452 | $ | 6,207 |
Available-for-Sale | Held-to-Maturity | |||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
(In Thousands) | ||||||||||||||||
Due in one year or less | $ | 1,160 | $ | 1,162 | $ | 1,525 | $ | 1,531 | ||||||||
Due in one year through five years | 7,143 | 7,177 | 13,474 | 13,643 | ||||||||||||
Due in five through ten years | 33,970 | 34,377 | 12,985 | 13,241 | ||||||||||||
Due in over ten years | 130,046 | 130,417 | 4,716 | 4,773 | ||||||||||||
$ | 172,319 | $ | 173,133 | $ | 32,700 | $ | 33,188 |
December 31, 2019 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
Available-for-sale: | ||||||||||||||||||||||||
U.S. Government agency securities - government-sponsored enterprises | $ | 4,363 | $ | 10 | $ | — | $ | — | $ | 4,363 | $ | 10 | ||||||||||||
Residential mortgage-backed securities - government issued | 4,619 | 5 | — | — | 4,619 | 5 | ||||||||||||||||||
Residential mortgage-backed securities - government-sponsored enterprises | 36,972 | 253 | 11,304 | 153 | 48,276 | 406 | ||||||||||||||||||
Commercial mortgage-backed securities - government issued | — | — | 4,727 | 87 | 4,727 | 87 | ||||||||||||||||||
Commercial mortgage-backed securities - government-sponsored enterprises | 2,245 | 4 | 1,047 | 5 | 3,292 | 9 | ||||||||||||||||||
$ | 48,199 | $ | 272 | $ | 17,078 | $ | 245 | $ | 65,277 | $ | 517 |
December 31, 2018 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
Available-for-sale: | ||||||||||||||||||||||||
U.S. government agency obligations - government-sponsored enterprises | $ | — | $ | — | $ | 990 | $ | 9 | $ | 990 | $ | 9 | ||||||||||||
Municipal securities | — | — | 4,371 | 69 | 4,371 | 69 | ||||||||||||||||||
Residential mortgage-backed securities - government issued | — | — | 8,615 | 146 | 8,615 | 146 | ||||||||||||||||||
Residential mortgage-backed securities - government-sponsored enterprises | 8,178 | 46 | 64,310 | 1,571 | 72,488 | 1,617 | ||||||||||||||||||
Commercial mortgage-backed securities - government issued | — | — | 5,133 | 280 | 5,133 | 280 | ||||||||||||||||||
Commercial mortgage-backed securities - government-sponsored enterprises | — | — | 5,292 | 112 | 5,292 | 112 | ||||||||||||||||||
Other securities | 238 | 7 | 2,138 | 67 | 2,376 | 74 | ||||||||||||||||||
$ | 8,416 | $ | 53 | $ | 90,849 | $ | 2,254 | $ | 99,265 | $ | 2,307 |
December 31, 2019 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
Held-to-maturity: | ||||||||||||||||||||||||
Municipal securities | $ | 499 | $ | 8 | $ | — | $ | — | $ | 499 | $ | 8 | ||||||||||||
Residential mortgage-backed securities - government issued | — | — | 1,887 | 9 | 1,887 | 9 | ||||||||||||||||||
Residential mortgage-backed securities - government-sponsored enterprises | 1,364 | 5 | 2,144 | 18 | 3,508 | 23 | ||||||||||||||||||
$ | 1,863 | $ | 13 | $ | 4,031 | $ | 27 | $ | 5,894 | $ | 40 |
December 31, 2018 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
Held-to-maturity: | ||||||||||||||||||||||||
Municipal securities | $ | 6,876 | $ | 14 | $ | 4,364 | $ | 45 | $ | 11,240 | $ | 59 | ||||||||||||
Residential mortgage-backed securities - government issued | — | — | 7,186 | 172 | 7,186 | 172 | ||||||||||||||||||
Residential mortgage-backed securities - government-sponsored enterprises | 2,029 | 15 | 4,338 | 141 | 6,367 | 156 | ||||||||||||||||||
Commercial mortgage-backed securities - government-sponsored enterprises | 2,009 | 9 | — | — | 2,009 | 9 | ||||||||||||||||||
$ | 10,914 | $ | 38 | $ | 15,888 | $ | 358 | $ | 26,802 | $ | 396 |
December 31, 2019 | December 31, 2018 | |||||||
(In Thousands) | ||||||||
Commercial real estate: | ||||||||
Commercial real estate — owner occupied | $ | 226,614 | $ | 203,476 | ||||
Commercial real estate — non-owner occupied | 516,652 | 484,427 | ||||||
Land development | 51,097 | 42,666 | ||||||
Construction | 109,057 | 161,562 | ||||||
Multi-family | 217,322 | 167,868 | ||||||
1-4 family | 33,359 | 34,340 | ||||||
Total commercial real estate | 1,154,101 | 1,094,339 | ||||||
Commercial and industrial | 503,402 | 462,321 | ||||||
Direct financing leases, net | 28,203 | 33,170 | ||||||
Consumer and other: | ||||||||
Home equity and second mortgages | 7,006 | 8,438 | ||||||
Other | 22,664 | 20,789 | ||||||
Total consumer and other | 29,670 | 29,227 | ||||||
Total gross loans and leases receivable | 1,715,376 | 1,619,057 | ||||||
Less: | ||||||||
Allowance for loan and lease losses | 19,520 | 20,425 | ||||||
Deferred loan fees | 741 | 1,402 | ||||||
Loans and leases receivable, net | $ | 1,695,115 | $ | 1,597,230 |
December 31, 2019 | December 31, 2018 | |||||||
(In Thousands) | ||||||||
SBA 7(a) loans | $ | 40,402 | $ | 44,201 | ||||
SBA 504 loans | 20,592 | 10,574 | ||||||
SBA Express loans and lines of credit | 1,781 | 1,721 | ||||||
Total SBA loans | $ | 62,775 | $ | 56,496 |
December 31, 2019 | December 31, 2018 | |||||||
(In Thousands) | ||||||||
Balance at beginning of year | $ | 1,855 | $ | 10,513 | ||||
New loans | 412 | 5,014 | ||||||
Repayments | (584 | ) | (6,304 | ) | ||||
Change due to status of executive officers and directors | — | (7,368 | ) | |||||
Balance at end of year | $ | 1,683 | $ | 1,855 |
December 31, 2019 | ||||||||||||||||||||
Category | ||||||||||||||||||||
I | II | III | IV | Total | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||
Commercial real estate — owner occupied | $ | 187,728 | $ | 18,455 | $ | 16,399 | $ | 4,032 | $ | 226,614 | ||||||||||
Commercial real estate — non-owner occupied | 459,821 | 55,524 | 1,307 | — | 516,652 | |||||||||||||||
Land development | 49,132 | 439 | — | 1,526 | 51,097 | |||||||||||||||
Construction | 108,959 | — | 98 | — | 109,057 | |||||||||||||||
Multi-family | 205,750 | 11,572 | — | — | 217,322 | |||||||||||||||
1-4 family | 29,284 | 1,843 | 1,759 | 473 | 33,359 | |||||||||||||||
Total commercial real estate | 1,040,674 | 87,833 | 19,563 | 6,031 | 1,154,101 | |||||||||||||||
Commercial and industrial | 398,445 | 34,478 | 55,904 | 14,575 | 503,402 | |||||||||||||||
Direct financing leases, net | 21,282 | 579 | 6,342 | — | 28,203 | |||||||||||||||
Consumer and other: | ||||||||||||||||||||
Home equity and second mortgages | 6,307 | 610 | 89 | — | 7,006 | |||||||||||||||
Other | 22,517 | — | — | 147 | 22,664 | |||||||||||||||
Total consumer and other | 28,824 | 610 | 89 | 147 | 29,670 | |||||||||||||||
Total gross loans and leases receivable | $ | 1,489,225 | $ | 123,500 | $ | 81,898 | $ | 20,753 | $ | 1,715,376 | ||||||||||
Category as a % of total portfolio | 86.82 | % | 7.20 | % | 4.77 | % | 1.21 | % | 100.00 | % |
December 31, 2018 | ||||||||||||||||||||
Category | ||||||||||||||||||||
I | II | III | IV | Total | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||
Commercial real estate — owner occupied | $ | 177,222 | $ | 15,085 | $ | 5,506 | $ | 5,663 | $ | 203,476 | ||||||||||
Commercial real estate — non-owner occupied | 458,185 | 24,873 | 1,338 | 31 | 484,427 | |||||||||||||||
Land development | 39,472 | 981 | — | 2,213 | 42,666 | |||||||||||||||
Construction | 161,360 | — | 202 | — | 161,562 | |||||||||||||||
Multi-family | 167,868 | — | — | — | 167,868 | |||||||||||||||
1-4 family | 32,004 | 1,451 | 707 | 178 | 34,340 | |||||||||||||||
Total commercial real estate | 1,036,111 | 42,390 | 7,753 | 8,085 | 1,094,339 | |||||||||||||||
Commercial and industrial | 374,371 | 19,370 | 51,474 | 17,106 | 462,321 | |||||||||||||||
Direct financing leases, net | 26,013 | 6,090 | 1,067 | — | 33,170 | |||||||||||||||
Consumer and other: | ||||||||||||||||||||
Home equity and second mortgages | 8,385 | 3 | 50 | — | 8,438 | |||||||||||||||
Other | 20,499 | — | — | 290 | 20,789 | |||||||||||||||
Total consumer and other | 28,884 | 3 | 50 | 290 | 29,227 | |||||||||||||||
Total gross loans and leases receivable | $ | 1,465,379 | $ | 67,853 | $ | 60,344 | $ | 25,481 | $ | 1,619,057 | ||||||||||
Category as a % of total portfolio | 90.51 | % | 4.19 | % | 3.73 | % | 1.57 | % | 100.00 | % |
December 31, 2019 | ||||||||||||||||||||||||
30-59 Days Past Due | 60-89 Days Past Due | Greater Than 90 Days Past Due | Total Past Due | Current | Total Loans and Leases | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Accruing loans and leases | ||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Owner occupied | $ | — | $ | — | $ | — | $ | — | $ | 222,582 | $ | 222,582 | ||||||||||||
Non-owner occupied | — | — | — | — | 516,652 | 516,652 | ||||||||||||||||||
Land development | — | 990 | — | 990 | 48,581 | 49,571 | ||||||||||||||||||
Construction | 309 | — | — | 309 | 108,748 | 109,057 | ||||||||||||||||||
Multi-family | — | — | — | — | 217,322 | 217,322 | ||||||||||||||||||
1-4 family | — | — | — | — | 33,026 | 33,026 | ||||||||||||||||||
Commercial and industrial | 2,707 | 52 | — | 2,759 | 486,068 | 488,827 | ||||||||||||||||||
Direct financing leases, net | — | — | — | — | 28,203 | 28,203 | ||||||||||||||||||
Consumer and other: | ||||||||||||||||||||||||
Home equity and second mortgages | — | — | — | — | 7,006 | 7,006 | ||||||||||||||||||
Other | — | — | — | — | 22,517 | 22,517 | ||||||||||||||||||
Total | 3,016 | 1,042 | — | 4,058 | 1,690,705 | 1,694,763 | ||||||||||||||||||
Non-accruing loans and leases | ||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Owner occupied | — | — | 342 | 342 | 3,690 | 4,032 | ||||||||||||||||||
Non-owner occupied | — | — | — | — | — | — | ||||||||||||||||||
Land development | — | — | — | — | 1,526 | 1,526 | ||||||||||||||||||
Construction | — | — | — | — | — | — | ||||||||||||||||||
Multi-family | — | — | — | — | — | — | ||||||||||||||||||
1-4 family | — | 333 | — | 333 | — | 333 | ||||||||||||||||||
Commercial and industrial | 4,368 | 2,717 | 3,123 | 10,208 | 4,367 | 14,575 | ||||||||||||||||||
Direct financing leases, net | — | — | — | — | — | — | ||||||||||||||||||
Consumer and other: | ||||||||||||||||||||||||
Home equity and second mortgages | — | — | — | — | — | — | ||||||||||||||||||
Other | — | — | 147 | 147 | — | 147 | ||||||||||||||||||
Total | 4,368 | 3,050 | 3,612 | 11,030 | 9,583 | 20,613 | ||||||||||||||||||
Total loans and leases | ||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Owner occupied | — | — | 342 | 342 | 226,272 | 226,614 | ||||||||||||||||||
Non-owner occupied | — | — | — | — | 516,652 | 516,652 | ||||||||||||||||||
Land development | — | 990 | — | 990 | 50,107 | 51,097 | ||||||||||||||||||
Construction | 309 | — | — | 309 | 108,748 | 109,057 | ||||||||||||||||||
Multi-family | — | — | — | — | 217,322 | 217,322 | ||||||||||||||||||
1-4 family | — | 333 | — | 333 | 33,026 | 33,359 | ||||||||||||||||||
Commercial and industrial | 7,075 | 2,769 | 3,123 | 12,967 | 490,435 | 503,402 | ||||||||||||||||||
Direct financing leases, net | — | — | — | — | 28,203 | 28,203 | ||||||||||||||||||
Consumer and other: | ||||||||||||||||||||||||
Home equity and second mortgages | — | — | — | — | 7,006 | 7,006 | ||||||||||||||||||
Other | — | — | 147 | 147 | 22,517 | 22,664 | ||||||||||||||||||
Total | $ | 7,384 | $ | 4,092 | $ | 3,612 | $ | 15,088 | $ | 1,700,288 | $ | 1,715,376 | ||||||||||||
Percent of portfolio | 0.43 | % | 0.24 | % | 0.21 | % | 0.88 | % | 99.12 | % | 100.00 | % |
December 31, 2018 | ||||||||||||||||||||||||
30-59 Days Past Due | 60-89 Days Past Due | Greater Than 90 Days Past Due | Total Past Due | Current | Total Loans and Leases | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Accruing loans and leases | ||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Owner occupied | $ | 157 | $ | — | $ | — | $ | 157 | $ | 197,656 | $ | 197,813 | ||||||||||||
Non-owner occupied | — | 2,272 | — | 2,272 | 482,124 | 484,396 | ||||||||||||||||||
Land development | — | — | — | — | 40,453 | 40,453 | ||||||||||||||||||
Construction | 14,824 | — | — | 14,824 | 146,738 | 161,562 | ||||||||||||||||||
Multi-family | — | — | — | — | 167,868 | 167,868 | ||||||||||||||||||
1-4 family | 363 | 60 | — | 423 | 33,917 | 34,340 | ||||||||||||||||||
Commercial and industrial | 826 | 247 | — | 1,073 | 444,144 | 445,217 | ||||||||||||||||||
Direct financing leases, net | — | — | — | — | 33,170 | 33,170 | ||||||||||||||||||
Consumer and other: | ||||||||||||||||||||||||
Home equity and second mortgages | — | — | — | — | 8,438 | 8,438 | ||||||||||||||||||
Other | — | — | — | — | 20,499 | 20,499 | ||||||||||||||||||
Total | 16,170 | 2,579 | — | 18,749 | 1,575,007 | 1,593,756 | ||||||||||||||||||
Non-accruing loans and leases | ||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Owner occupied | 483 | — | 5,180 | 5,663 | — | 5,663 | ||||||||||||||||||
Non-owner occupied | — | — | 31 | 31 | — | 31 | ||||||||||||||||||
Land development | — | — | 119 | 119 | 2,094 | 2,213 | ||||||||||||||||||
Construction | — | — | — | — | — | — | ||||||||||||||||||
Multi-family | — | — | — | — | — | — | ||||||||||||||||||
1-4 family | — | — | — | — | — | — | ||||||||||||||||||
Commercial and industrial | 2,322 | — | 12,108 | 14,430 | 2,674 | 17,104 | ||||||||||||||||||
Direct financing leases, net | — | — | — | — | — | — | ||||||||||||||||||
Consumer and other: | ||||||||||||||||||||||||
Home equity and second mortgages | — | — | — | — | — | — | ||||||||||||||||||
Other | — | — | 279 | 279 | 11 | 290 | ||||||||||||||||||
Total | 2,805 | — | 17,717 | 20,522 | 4,779 | 25,301 | ||||||||||||||||||
Total loans and leases | ||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Owner occupied | 640 | — | 5,180 | 5,820 | 197,656 | 203,476 | ||||||||||||||||||
Non-owner occupied | — | 2,272 | 31 | 2,303 | 482,124 | 484,427 | ||||||||||||||||||
Land development | — | — | 119 | 119 | 42,547 | 42,666 | ||||||||||||||||||
Construction | 14,824 | — | — | 14,824 | 146,738 | 161,562 | ||||||||||||||||||
Multi-family | — | — | — | — | 167,868 | 167,868 | ||||||||||||||||||
1-4 family | 363 | 60 | — | 423 | 33,917 | 34,340 | ||||||||||||||||||
Commercial and industrial | 3,148 | 247 | 12,108 | 15,503 | 446,818 | 462,321 | ||||||||||||||||||
Direct financing leases, net | — | — | — | — | 33,170 | 33,170 | ||||||||||||||||||
Consumer and other: | ||||||||||||||||||||||||
Home equity and second mortgages | — | — | — | — | 8,438 | 8,438 | ||||||||||||||||||
Other | — | — | 279 | 279 | 20,510 | 20,789 | ||||||||||||||||||
Total | $ | 18,975 | $ | 2,579 | $ | 17,717 | $ | 39,271 | $ | 1,579,786 | $ | 1,619,057 | ||||||||||||
Percent of portfolio | 1.17 | % | 0.16 | % | 1.09 | % | 2.42 | % | 97.58 | % | 100.00 | % |
December 31, 2019 | December 31, 2018 | |||||||
(In Thousands) | ||||||||
Non-accrual loans and leases | ||||||||
Commercial real estate: | ||||||||
Commercial real estate — owner occupied | $ | 4,032 | $ | 5,663 | ||||
Commercial real estate — non-owner occupied | — | 31 | ||||||
Land development | 1,526 | 2,213 | ||||||
Construction | — | — | ||||||
Multi-family | — | — | ||||||
1-4 family | 333 | — | ||||||
Total non-accrual commercial real estate | 5,891 | 7,907 | ||||||
Commercial and industrial | 14,575 | 17,104 | ||||||
Direct financing leases, net | — | — | ||||||
Consumer and other: | ||||||||
Home equity and second mortgages | — | — | ||||||
Other | 147 | 290 | ||||||
Total non-accrual consumer and other loans | 147 | 290 | ||||||
Total non-accrual loans and leases | 20,613 | 25,301 | ||||||
Foreclosed properties, net | 2,919 | 2,547 | ||||||
Total non-performing assets | 23,532 | 27,848 | ||||||
Performing troubled debt restructurings | 140 | 180 | ||||||
Total impaired assets | $ | 23,672 | $ | 28,028 |
December 31, 2019 | December 31, 2018 | |||||
Total non-accrual loans and leases to gross loans and leases | 1.20 | % | 1.56 | % | ||
Total non-performing assets to total gross loans and leases plus foreclosed properties, net | 1.37 | 1.72 | ||||
Total non-performing assets to total assets | 1.12 | 1.42 | ||||
Allowance for loan and lease losses to gross loans and leases | 1.14 | 1.26 | ||||
Allowance for loan and lease losses to non-accrual loans and leases | 94.70 | 80.73 |
For the Year Ended December 31, 2019 | |||||||||||
Number of Loans | Pre-Modification Recorded Investment | Post-Modification Recorded Investment | |||||||||
(Dollars in Thousands) | |||||||||||
Commercial real estate: | |||||||||||
Commercial real estate — owner occupied | 2 | $ | 3,774 | $ | 3,614 | ||||||
Commercial and industrial | 15 | $ | 13,372 | $ | 9,845 | ||||||
Total | 17 | $ | 17,146 | $ | 13,459 |
As of and for the Year Ended December 31, 2019 | ||||||||||||||||||||||||||||
Recorded Investment(1) | Unpaid Principal Balance | Impairment Reserve | Average Recorded Investment(2) | Foregone Interest Income | Interest Income Recognized | Net Foregone Interest Income | ||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||||||
With no impairment reserve recorded: | ||||||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||
Owner occupied | $ | 387 | $ | 387 | $ | — | $ | 3,285 | $ | 64 | $ | 355 | $ | (291 | ) | |||||||||||||
Non-owner occupied | — | — | — | 58 | 1 | — | 1 | |||||||||||||||||||||
Land development | 1,526 | 5,823 | — | 1,843 | 52 | 6 | 46 | |||||||||||||||||||||
Construction | — | — | — | — | — | — | — | |||||||||||||||||||||
Multi-family | — | — | — | — | — | — | — | |||||||||||||||||||||
1-4 family | 473 | 478 | — | 356 | 19 | 46 | (27 | ) | ||||||||||||||||||||
Commercial and industrial | 4,779 | 6,549 | — | 14,479 | 1,073 | 379 | 694 | |||||||||||||||||||||
Direct financing leases, net | — | — | — | — | — | — | — | |||||||||||||||||||||
Consumer and other: | ||||||||||||||||||||||||||||
Home equity and second mortgages | — | — | — | — | — | 7 | (7 | ) | ||||||||||||||||||||
Other | 147 | 813 | — | 191 | 48 | — | 48 | |||||||||||||||||||||
Total | 7,312 | 14,050 | — | 20,212 | 1,257 | 793 | 464 | |||||||||||||||||||||
With impairment reserve recorded: | ||||||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||
Owner occupied | 3,645 | 5,004 | 1,082 | 1,511 | 414 | — | 414 | |||||||||||||||||||||
Non-owner occupied | — | — | — | — | — | — | — | |||||||||||||||||||||
Land development | — | — | — | — | — | — | — | |||||||||||||||||||||
Construction | — | — | — | — | — | — | — | |||||||||||||||||||||
Multi-family | — | — | — | — | — | — | — | |||||||||||||||||||||
1-4 family | — | — | — | — | — | — | — | |||||||||||||||||||||
Commercial and industrial | 9,796 | 11,179 | 2,283 | 2,367 | 1,022 | — | 1,022 | |||||||||||||||||||||
Direct financing leases, net | — | — | — | — | — | — | — | |||||||||||||||||||||
Consumer and other: | ||||||||||||||||||||||||||||
Home equity and second mortgages | — | — | — | — | — | — | — | |||||||||||||||||||||
Other | — | — | — | — | — | — | — | |||||||||||||||||||||
Total | 13,441 | 16,183 | 3,365 | 3,878 | 1,436 | — | 1,436 | |||||||||||||||||||||
Total: | ||||||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||
Owner occupied | 4,032 | 5,391 | 1,082 | 4,796 | 478 | 355 | 123 | |||||||||||||||||||||
Non-owner occupied | — | — | — | 58 | 1 | — | 1 | |||||||||||||||||||||
Land development | 1,526 | 5,823 | — | 1,843 | 52 | 6 | 46 | |||||||||||||||||||||
Construction | — | — | — | — | — | — | — | |||||||||||||||||||||
Multi-family | — | — | — | — | — | — | — | |||||||||||||||||||||
1-4 family | 473 | 478 | — | 356 | 19 | 46 | (27 | ) | ||||||||||||||||||||
Commercial and industrial | 14,575 | 17,728 | 2,283 | 16,846 | 2,095 | 379 | 1,716 | |||||||||||||||||||||
Direct financing leases, net | — | — | — | — | — | — | — | |||||||||||||||||||||
Consumer and other: | ||||||||||||||||||||||||||||
Home equity and second mortgages | — | — | — | — | — | 7 | (7 | ) | ||||||||||||||||||||
Other | 147 | 813 | — | 191 | 48 | — | 48 | |||||||||||||||||||||
Grand total | $ | 20,753 | $ | 30,233 | $ | 3,365 | $ | 24,090 | $ | 2,693 | $ | 793 | $ | 1,900 |
(1) | The recorded investment represents the unpaid principal balance net of any partial charge-offs. |
(2) | Average recorded investment is calculated primarily using daily average balances. |
As of and for the Year Ended December 31, 2018 | ||||||||||||||||||||||||||||||||
Recorded Investment(1) | Unpaid Principal Balance | Impairment Reserve | Average Recorded Investment(2) | Foregone Interest Income | Interest Income Recognized | Net Foregone Interest Income | ||||||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||||||||||
With no impairment reserve recorded: | ||||||||||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||||||
Owner occupied | $ | 1,273 | $ | 1,273 | $ | — | $ | 6,638 | $ | 756 | $ | 197 | $ | 559 | ||||||||||||||||||
Non-owner occupied | 31 | 72 | — | 33 | 2 | — | 2 | |||||||||||||||||||||||||
Land development | 2,213 | 6,510 | — | 2,366 | 68 | — | 68 | |||||||||||||||||||||||||
Construction | — | — | — | — | — | 2,148 | — | 219 | — | — | 219 | |||||||||||||||||||||
Multi-family | — | — | — | — | — | — | — | |||||||||||||||||||||||||
1-4 family | 178 | 183 | — | 808 | 42 | 81 | (39 | ) | ||||||||||||||||||||||||
Commercial and industrial | 6,828 | 7,527 | — | 8,809 | 1,058 | 980 | 78 | |||||||||||||||||||||||||
Direct financing leases, net | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Consumer and other: | ||||||||||||||||||||||||||||||||
Home equity and second mortgages | — | — | — | 1 | — | 46 | (46 | ) | ||||||||||||||||||||||||
Other | 279 | 945 | — | 305 | 55 | — | 55 | |||||||||||||||||||||||||
Total | 10,802 | 16,510 | — | 21,108 | 2,200 | 1,304 | 896 | |||||||||||||||||||||||||
With impairment reserve recorded: | ||||||||||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||||||
Owner occupied | 4,390 | 5,749 | 675 | 635 | 182 | — | 182 | |||||||||||||||||||||||||
Non-owner occupied | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Land development | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||
Construction | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||
Multi-family | — | — | — | — | — | — | — | |||||||||||||||||||||||||
1-4 family | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Commercial and industrial | 10,278 | 10,278 | 3,710 | 4,687 | 1,096 | — | 1,096 | |||||||||||||||||||||||||
Direct financing leases, net | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Consumer and other: | ||||||||||||||||||||||||||||||||
Home equity and second mortgages | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Other | 11 | 11 | 11 | 1 | — | — | — | |||||||||||||||||||||||||
Total | 14,679 | 16,038 | 4,396 | 5,323 | 1,278 | — | 1,278 | |||||||||||||||||||||||||
Total: | ||||||||||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||||||
Owner occupied | 5,663 | 7,022 | 675 | 7,273 | 938 | 197 | 741 | |||||||||||||||||||||||||
Non-owner occupied | 31 | 72 | — | 33 | 2 | — | 2 | |||||||||||||||||||||||||
Land development | 2,213 | 6,510 | — | 2,366 | 68 | — | 68 | |||||||||||||||||||||||||
Construction | — | — | — | 2,148 | 219 | — | 219 | |||||||||||||||||||||||||
Multi-family | — | — | — | — | — | — | — | |||||||||||||||||||||||||
1-4 family | 178 | 183 | — | 808 | 42 | 81 | (39 | ) | ||||||||||||||||||||||||
Commercial and industrial | 17,106 | 17,805 | 3,710 | 13,496 | 2,154 | 980 | 1,174 | |||||||||||||||||||||||||
Direct financing leases, net | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Consumer and other: | ||||||||||||||||||||||||||||||||
Home equity and second mortgages | — | — | — | 1 | — | 46 | (46 | ) | ||||||||||||||||||||||||
Other | 290 | 956 | 11 | 306 | 55 | — | 55 | |||||||||||||||||||||||||
Grand total | $ | 25,481 | $ | 32,548 | $ | 4,396 | $ | 26,431 | $ | 3,478 | $ | 1,304 | $ | 2,174 |
(1) | The recorded investment represents the unpaid principal balance net of any partial charge-offs. |
(2) | Average recorded investment is calculated primarily using daily average balances. |
As of and for the Year Ended December 31, 2019 | ||||||||||||||||
Commercial Real Estate | Commercial and Industrial | Consumer and Other | Total | |||||||||||||
(In Thousands) | ||||||||||||||||
Beginning balance | $ | 11,662 | $ | 8,079 | $ | 684 | $ | 20,425 | ||||||||
Charge-offs | — | (3,347 | ) | (9 | ) | (3,356 | ) | |||||||||
Recoveries | 75 | 262 | 29 | 366 | ||||||||||||
Net recoveries (charge-offs) | 75 | (3,085 | ) | 20 | (2,990 | ) | ||||||||||
Provision for loan and lease losses | (885 | ) | 3,084 | (114 | ) | 2,085 | ||||||||||
Ending balance | $ | 10,852 | $ | 8,078 | $ | 590 | $ | 19,520 |
As of and for the Year Ended December 31, 2018 | ||||||||||||||||
Commercial Real Estate | Commercial and Industrial | Consumer and Other | Total | |||||||||||||
(In Thousands) | ||||||||||||||||
Beginning balance | $ | 10,131 | $ | 8,225 | $ | 407 | $ | 18,763 | ||||||||
Charge-offs | (4,501 | ) | (1,545 | ) | (55 | ) | (6,101 | ) | ||||||||
Recoveries | 174 | 2,023 | 74 | 2,271 | ||||||||||||
Net (charge-offs) recoveries | (4,327 | ) | 478 | 19 | (3,830 | ) | ||||||||||
Provision for loan and lease losses | 5,858 | (624 | ) | 258 | 5,492 | |||||||||||
Ending balance | $ | 11,662 | $ | 8,079 | $ | 684 | $ | 20,425 |
December 31, 2019 | ||||||||||||||||
Commercial Real Estate | Commercial and Industrial | Consumer and Other | Total | |||||||||||||
(In Thousands) | ||||||||||||||||
Allowance for loan and lease losses: | ||||||||||||||||
Collectively evaluated for impairment | $ | 9,770 | $ | 5,795 | $ | 590 | $ | 16,155 | ||||||||
Individually evaluated for impairment | 1,082 | 2,283 | — | 3,365 | ||||||||||||
Total | $ | 10,852 | $ | 8,078 | $ | 590 | $ | 19,520 | ||||||||
Loans and lease receivables: | ||||||||||||||||
Collectively evaluated for impairment | $ | 1,148,070 | $ | 517,030 | $ | 29,523 | 1,694,623 | |||||||||
Individually evaluated for impairment | 6,031 | 14,575 | 147 | 20,753 | ||||||||||||
Total | $ | 1,154,101 | $ | 531,605 | $ | 29,670 | $ | 1,715,376 |
December 31, 2018 | ||||||||||||||||
Commercial Real Estate | Commercial and Industrial | Consumer and Other | Total | |||||||||||||
(In Thousands) | ||||||||||||||||
Allowance for loan and lease losses: | ||||||||||||||||
Collectively evaluated for impairment | $ | 10,987 | $ | 4,369 | $ | 673 | $ | 16,029 | ||||||||
Individually evaluated for impairment | 675 | 3,710 | 11 | 4,396 | ||||||||||||
Loans acquired with deteriorated credit quality | — | — | — | — | ||||||||||||
Total | $ | 11,662 | $ | 8,079 | $ | 684 | $ | 20,425 | ||||||||
Loans and lease receivables: | ||||||||||||||||
Collectively evaluated for impairment | $ | 1,086,254 | $ | 478,385 | $ | 28,937 | $ | 1,593,576 | ||||||||
Individually evaluated for impairment | 7,914 | 17,104 | 290 | 25,308 | ||||||||||||
Loans acquired with deteriorated credit quality | 171 | 2 | — | 173 | ||||||||||||
Total | $ | 1,094,339 | $ | 495,491 | $ | 29,227 | $ | 1,619,057 |
December 31, 2019 | December 31, 2018 | |||||||
(In Thousands) | ||||||||
Minimum lease payments receivable | $ | 24,165 | $ | 26,700 | ||||
Estimated unguaranteed residual values in leased property | 6,732 | 9,330 | ||||||
Initial direct costs | 111 | 73 | ||||||
Unearned lease and residual income | (2,805 | ) | (2,933 | ) | ||||
Investment in commercial direct financing leases | $ | 28,203 | $ | 33,170 |
(In Thousands) | ||||
Maturities during year ended December 31, | ||||
2020 | $ | 8,115 | ||
2021 | 5,771 | |||
2022 | 4,648 | |||
2023 | 3,211 | |||
2024 | 1,781 | |||
Thereafter | 639 | |||
$ | 24,165 |
As of December 31, | ||||||||
2019 | 2018 | |||||||
(In Thousands) | ||||||||
Leasehold improvements | $ | 2,670 | $ | 2,622 | ||||
Furniture and equipment | 6,718 | 7,021 | ||||||
Total premises and equipment | 9,388 | 9,643 | ||||||
Less: accumulated depreciation | (6,831 | ) | (6,359 | ) | ||||
Total premises and equipment, net | $ | 2,557 | $ | 3,284 |
For the Year Ended December 31, 2019 | ||||
(In Thousands) | ||||
Operating lease cost | $ | 1,551 | ||
Short-term lease cost | 257 | |||
Variable lease cost | 493 | |||
Less: sublease income | (9 | ) | ||
Total lease cost, net | $ | 2,292 |
December 31, 2019 | |||
Weighted-average remaining lease term (in years) | 6.56 | ||
Weighted-average discount rate | 3.09 | % |
(In Thousands) | |||
2020 | $ | 1,541 | |
2021 | 1,382 | ||
2022 | 1,373 | ||
2023 | 1,015 | ||
2024 | 756 | ||
Thereafter | 2,307 | ||
Total undiscounted cash flows | 8,374 | ||
Discount on cash flows | (833 | ) | |
Total lease liability | $ | 7,541 |
December 31, 2019 | December 31, 2018 | |||||||
(In Thousands) | ||||||||
Accrued interest receivable | $ | 5,760 | $ | 5,684 | ||||
Net deferred tax asset | 5,353 | 3,172 | ||||||
Investment in historic development entities | 2,216 | 1,653 | ||||||
Investment in a community development entity | 5,571 | 6,081 | ||||||
Investment in limited partnerships | 4,476 | 4,176 | ||||||
Investment in Trust II | 315 | 315 | ||||||
Fair value of interest rate swaps | 18,346 | 4,637 | ||||||
Prepaid expenses | 2,285 | 2,894 | ||||||
Other assets | 4,184 | 6,039 | ||||||
Total accrued interest receivable and other assets | $ | 48,506 | $ | 34,651 |
December 31, 2019 | December 31, 2018 | |||||||||||||||||||||
Balance | Average Balance | Average Rate | Balance | Average Balance | Average Rate | |||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||
Non-interest-bearing transaction accounts | $ | 293,573 | $ | 275,495 | — | % | $ | 280,769 | $ | 241,529 | — | % | ||||||||||
Interest-bearing transaction accounts | 273,909 | 222,244 | 1.53 | 229,612 | 269,943 | 0.99 | ||||||||||||||||
Money market accounts | 674,409 | 617,341 | 1.71 | 516,045 | 491,756 | 1.09 | ||||||||||||||||
Certificates of deposit | 137,012 | 156,048 | 2.47 | 153,022 | 94,172 | 1.70 | ||||||||||||||||
Wholesale deposits | 151,476 | 225,302 | 2.27 | 275,851 | 302,440 | 1.95 | ||||||||||||||||
Total deposits | $ | 1,530,379 | $ | 1,496,430 | 1.53 | $ | 1,455,299 | $ | 1,399,840 | 1.11 |
(In Thousands) | ||||
Maturities during the year ended December 31, | ||||
2020 | $ | 195,888 | ||
2021 | 56,744 | |||
2022 | 24,387 | |||
2023 | 867 | |||
2024 | 269 | |||
Thereafter | 10,333 | |||
$ | 288,488 |
December 31, 2019 | December 31, 2018 | |||||||||||||||||||||
Balance | Weighted Average Balance | Weighted Average Rate | Balance | Weighted Average Balance | Weighted Average Rate | |||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||
Federal funds purchased | $ | — | $ | 59 | 2.45 | % | $ | — | $ | 119 | 2.43 | % | ||||||||||
FHLB advances | 295,000 | 286,464 | 2.17 | 274,500 | 274,382 | 2.06 | ||||||||||||||||
Line of credit | — | — | — | — | 3 | 4.47 | ||||||||||||||||
Other borrowings | 675 | 675 | 8.11 | 675 | 675 | 7.94 | ||||||||||||||||
Subordinated notes payable(1) | 23,707 | 24,502 | 7.45 | 23,769 | 23,739 | 6.64 | ||||||||||||||||
Junior subordinated notes | 10,047 | 10,040 | 11.08 | 10,033 | 10,025 | 11.10 | ||||||||||||||||
$ | 329,429 | $ | 321,740 | 2.87 | $ | 308,977 | $ | 308,943 | 2.72 | |||||||||||||
Short-term borrowings | $ | 118,500 | $ | 136,500 | ||||||||||||||||||
Long-term borrowings | 210,929 | 172,477 | ||||||||||||||||||||
$ | 329,429 | $ | 308,977 |
(1) | Weighted average rate of subordinated notes payable reflects the accelerated amortization of subordinated debt issuance costs as a result of the early redemption of a subordinated note during the third quarter of 2019. |
As of December 31, 2019 | ||||||||||||||||||||||||||||
Actual | Minimum Required for Capital Adequacy Purposes | For Capital Adequacy Purposes Plus Capital Conservation Buffer | Minimum Required to Be Well Capitalized Under Prompt Corrective Action Requirements | |||||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
Total capital (to risk-weighted assets) | ||||||||||||||||||||||||||||
Consolidated | $ | 239,029 | 12.01 | % | $ | 159,185 | 8.00 | % | $ | 208,930 | 10.50 | % | N/A | N/A | ||||||||||||||
First Business Bank | $ | 233,181 | 11.79 | % | $ | 158,177 | 8.00 | % | $ | 207,607 | 10.50 | % | $ | 197,721 | 10.00 | % | ||||||||||||
Tier 1 capital (to risk-weighted assets) | ||||||||||||||||||||||||||||
Consolidated | $ | 194,456 | 9.77 | % | $ | 119,388 | 6.00 | % | $ | 169,134 | 8.50 | % | N/A | N/A | ||||||||||||||
First Business Bank | 212,315 | 10.74 | 118,633 | 6.00 | 168,063 | 8.50 | 158,177 | 8.00 | ||||||||||||||||||||
Common equity tier 1 capital (to risk-weighted assets) | ||||||||||||||||||||||||||||
Consolidated | $ | 184,409 | 9.27 | % | $ | 89,541 | 4.50 | % | $ | 139,286 | 7.70 | % | N/A | N/A | ||||||||||||||
First Business Bank | 212,315 | 10.74 | 88,974 | 4.50 | 138,405 | 7.00 | 128,519 | 6.50 | ||||||||||||||||||||
Tier 1 leverage capital (to adjusted assets) | ||||||||||||||||||||||||||||
Consolidated | $ | 194,456 | 9.27 | % | $ | 83,950 | 4.00 | % | $ | 83,950 | 4.00 | % | N/A | N/A | ||||||||||||||
First Business Bank | 212,315 | 10.18 | 83,414 | 4.00 | 83,414 | 4.00 | 104,268 | 5.00 |
As of December 31, 2018 | ||||||||||||||||||||||||||||
Actual | Minimum Required for Capital Adequacy Purposes | For Capital Adequacy Purposes Plus Capital Conservation Buffer | Minimum Required to Be Well Capitalized Under Prompt Corrective Action Requirements | |||||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
Total capital (to risk-weighted assets) | ||||||||||||||||||||||||||||
Consolidated | $ | 228,325 | 11.85 | % | $ | 154,080 | 8.00 | % | $ | 190,192 | 9.875 | % | N/A | N/A | ||||||||||||||
First Business Bank | 220,474 | 11.49 | 153,456 | 8.00 | 189,422 | 9.875 | $ | 191,820 | 10.00 | % | ||||||||||||||||||
Tier 1 capital (to risk-weighted assets) | ||||||||||||||||||||||||||||
Consolidated | $ | 181,175 | 9.41 | % | $ | 115,560 | 6.00 | % | $ | 151,672 | 7.875 | % | N/A | N/A | ||||||||||||||
First Business Bank | 197,093 | 10.27 | 115,092 | 6.00 | 151,058 | 7.875 | $ | 153,456 | 8.00 | % | ||||||||||||||||||
Common equity tier 1 capital (to risk-weighted assets) | ||||||||||||||||||||||||||||
Consolidated | $ | 171,142 | 8.89 | % | $ | 86,670 | 4.50 | % | $ | 122,782 | 6.375 | % | N/A | N/A | ||||||||||||||
First Business Bank | 197,093 | 10.27 | 86,319 | 4.50 | 122,285 | 6.375 | $ | 124,683 | 6.50 | % | ||||||||||||||||||
Tier 1 leverage capital (to adjusted assets) | ||||||||||||||||||||||||||||
Consolidated | $ | 181,175 | 9.33 | % | $ | 77,648 | 4.00 | % | $ | 77,648 | 4.00 | % | N/A | N/A | ||||||||||||||
First Business Bank | 197,093 | 10.20 | 77,301 | 4.00 | 77,301 | 4.00 | $ | 96,626 | 5.00 | % |
As of December 31, | ||||||||
2019 | 2018 | |||||||
(In Thousands) | ||||||||
Stockholders’ equity of the Corporation | $ | 194,156 | $ | 180,707 | ||||
Net unrealized and accumulated losses on specific items | 1,348 | 1,684 | ||||||
Disallowed servicing assets | (629 | ) | (751 | ) | ||||
Disallowed goodwill and other intangibles | (10,466 | ) | (10,498 | ) | ||||
Junior subordinated notes | 10,047 | 10,033 | ||||||
Tier 1 capital | 194,456 | 181,175 | ||||||
Allowable general valuation allowances and subordinated debt | 44,573 | 47,150 | ||||||
Total capital | $ | 239,029 | $ | 228,325 |
For the Year Ended December 31, | ||||||||
2019 | 2018 | |||||||
(Dollars in Thousands, Except Share Data) | ||||||||
Basic earnings per common share | ||||||||
Net income | $ | 23,324 | $ | 16,303 | ||||
Less: earnings allocated to participating securities | 502 | 240 | ||||||
Basic earnings allocated to common stockholders | $ | 22,822 | $ | 16,063 | ||||
Weighted-average common shares outstanding, excluding participating securities | 8,515,375 | 8,640,198 | ||||||
Basic earnings per common share | $ | 2.68 | $ | 1.86 | ||||
Diluted earnings per common share | ||||||||
Earnings allocated to common stockholders, diluted | $ | 22,822 | $ | 16,063 | ||||
Weighted-average diluted common shares outstanding, excluding participating securities | 8,515,375 | 8,640,198 | ||||||
Diluted earnings per common share | $ | 2.68 | $ | 1.86 |
For the Year Ended December 31, | ||||||||||||||
2019 | 2018 | |||||||||||||
Number of Restricted Shares | Weighted Average Grant-Date Fair Value | Number of Restricted Shares | Weighted Average Grant-Date Fair Value | |||||||||||
Nonvested balance at beginning of year | 131,621 | $ | 21.02 | 130,441 | $ | 21.43 | ||||||||
Granted (1) | 95,265 | 23.64 | 66,498 | 20.57 | ||||||||||
Vested | (48,207 | ) | 20.62 | (46,034 | ) | 21.01 | ||||||||
Forfeited | (1,744 | ) | 23.67 | (19,284 | ) | 22.25 | ||||||||
Nonvested balance as of end of year | 176,935 | 22.51 | 131,621 | 21.02 |
(1) | The number of restricted shares/units shown includes the shares that would be granted if the target level of performance is achieved related to the performance based restricted stock units. The number of shares actually issued may vary. |
For the Year Ended December 31, | ||||||||
2019 | 2018 | |||||||
(In Thousands) | ||||||||
Share-based compensation expense | $ | 1,566 | $ | 1,004 |
For the Year Ended December 31, | ||||||||
2019 | 2018 | |||||||
(In Thousands) | ||||||||
Current: | ||||||||
Federal | $ | 1,483 | $ | 729 | ||||
State | 1,988 | 1,054 | ||||||
Current tax expense | 3,471 | 1,783 | ||||||
Deferred: | ||||||||
Federal | (1,979 | ) | (367 | ) | ||||
State | (317 | ) | (65 | ) | ||||
Deferred tax benefit | (2,296 | ) | (432 | ) | ||||
Total income tax expense | $ | 1,175 | $ | 1,351 |
December 31, 2019 | December 31, 2018 | |||||||
(In Thousands) | ||||||||
Deferred tax assets: | ||||||||
Allowance for loan and lease losses | $ | 5,104 | $ | 5,424 | ||||
SBA recourse reserve | 352 | 785 | ||||||
Deferred compensation | 1,335 | 1,045 | ||||||
State net operating loss carryforwards | 526 | 571 | ||||||
Tax credit carryforwards | 2,881 | 1,373 | ||||||
Non-accrual loan interest | 864 | 1,472 | ||||||
Capital loss carryforwards | 22 | 22 | ||||||
Unrealized losses on securities | 464 | 579 | ||||||
Other | 531 | 68 | ||||||
Total deferred tax assets before valuation allowance | 12,079 | 11,339 | ||||||
Valuation allowance | — | — | ||||||
Total deferred tax assets | 12,079 | 11,339 | ||||||
Deferred tax liabilities: | ||||||||
Leasing and fixed asset activities | 5,841 | 6,965 | ||||||
Loan servicing asset | 337 | 358 | ||||||
Other | 548 | 844 | ||||||
Total deferred tax liabilities | 6,726 | 8,167 | ||||||
Net deferred tax asset | $ | 5,353 | $ | 3,172 |
December 31, 2019 | December 31, 2018 | |||||||
(In Thousands) | ||||||||
Change in net deferred tax assets | $ | 2,181 | $ | 588 | ||||
Deferred taxes allocated to other comprehensive income | 115 | (156 | ) | |||||
Deferred income tax benefit | $ | 2,296 | $ | 432 |
Year Ended December 31, | ||||||||
2019 | 2018 | |||||||
(Dollars in Thousands) | ||||||||
Income before income tax expense | $ | 24,499 | $ | 17,654 | ||||
Tax expense at statutory federal rate of 21% applied to income before income tax expense | $ | 5,145 | $ | 3,707 | ||||
State income tax, net of federal effect | 1,321 | 803 | ||||||
Tax-exempt security and loan income, net of TEFRA adjustments | (635 | ) | (847 | ) | ||||
Bank-owned life insurance | (252 | ) | (250 | ) | ||||
Tax credits, net | (4,503 | ) | (2,157 | ) | ||||
Other | 99 | 95 | ||||||
Total income tax expense | $ | 1,175 | $ | 1,351 | ||||
Effective tax rate | 4.80 | % | 7.65 | % |
Interest Rate Swap Contracts | ||||||||||||
Asset Derivatives | Liability Derivatives | |||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||||
(In Thousands) | ||||||||||||
Derivatives not designated as hedging instruments | ||||||||||||
December 31, 2019 | Accrued interest receivable and other assets | $ | 18,346 | Accrued interest payable and other liabilities | $ | 18,346 | ||||||
December 31, 2018 | Accrued interest receivable and other assets | $ | 4,637 | Accrued interest payable and other liabilities | $ | 4,637 | ||||||
Derivatives designated as hedging instruments | ||||||||||||
December 31, 2019 | Accumulated other comprehensive income (1) | $ | 2,539 | Accrued interest payable and other liabilities | $ | 2,539 | ||||||
December 31, 2018 | Accumulated other comprehensive income (1) | $ | 142 | Accrued interest payable and other liabilities | $ | 142 |
(1) | The fair value of derivatives designated as hedging instruments included in accumulated other comprehensive income represent pre-tax amounts, which are reported net of tax on the Consolidated Balance Sheets. |
At December 31, | ||||||||
2019 | 2018 | |||||||
(In Thousands) | ||||||||
Commitments to extend credit, primarily commercial loans | $ | 555,374 | $ | 553,801 | ||||
Standby letters of credit | 8,918 | 12,436 |
As of and For the Year Ended December 31, | ||||||||
2019 | 2018 | |||||||
(In Thousands) | ||||||||
Balance at the beginning of the period | $ | 2,956 | $ | 2,849 | ||||
SBA recourse provision | 188 | 1,913 | ||||||
Charge-offs, net | (1,799 | ) | (1,806 | ) | ||||
Balance at the end of the period | $ | 1,345 | $ | 2,956 |
December 31, 2019 | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(In Thousands) | ||||||||||||||||
Assets: | ||||||||||||||||
Securities available-for-sale: | ||||||||||||||||
U.S. government agency securities - government-sponsored enterprises | $ | — | $ | 23,758 | $ | — | $ | 23,758 | ||||||||
Municipal securities | — | 160 | — | 160 | ||||||||||||
Residential mortgage-backed securities - government issued | — | 16,348 | — | 16,348 | ||||||||||||
Residential mortgage-backed securities - government-sponsored enterprises | — | 112,002 | — | 112,002 | ||||||||||||
Commercial mortgage-backed securities - government issued | — | 6,663 | — | 6,663 | ||||||||||||
Commercial mortgage-backed securities - government-sponsored enterprises | — | 11,967 | — | 11,967 | ||||||||||||
Other securities | — | 2,235 | — | 2,235 | ||||||||||||
Interest rate swaps | — | 18,346 | — | 18,346 | ||||||||||||
Liabilities: | ||||||||||||||||
Interest rate swaps | — | 20,885 | — | 20,885 |
December 31, 2018 | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(In Thousands) | ||||||||||||||||
Assets: | ||||||||||||||||
Securities available-for-sale: | ||||||||||||||||
U.S. government agency securities - government-sponsored enterprises | $ | — | $ | 990 | $ | — | $ | 990 | ||||||||
Municipal securities | — | 5,886 | — | 5,886 | ||||||||||||
Residential mortgage-backed securities - government issued | — | 14,495 | — | 14,495 | ||||||||||||
Residential mortgage-backed securities - government-sponsored enterprises | — | 104,186 | — | 104,186 | ||||||||||||
Commercial mortgage-backed securities - government issued | — | 5,133 | — | 5,133 | ||||||||||||
Commercial mortgage-backed securities - government-sponsored enterprises | — | 5,292 | — | 5,292 | ||||||||||||
Other securities | — | 2,376 | — | 2,376 | ||||||||||||
Interest rate swaps | — | 4,637 | — | 4,637 | ||||||||||||
Liabilities: | ||||||||||||||||
Interest rate swaps | — | 4,779 | — | 4,779 |
December 31, 2019 | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(In Thousands) | ||||||||||||||||
Impaired loans | $ | — | $ | — | $ | 15,699 | $ | 15,699 | ||||||||
Foreclosed properties | — | — | 2,919 | 2,919 | ||||||||||||
Loan servicing rights | — | — | 1,195 | 1,195 |
December 31, 2018 | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(In Thousands) | ||||||||||||||||
Impaired loans | $ | — | $ | — | $ | 15,706 | $ | 15,706 | ||||||||
Foreclosed properties | — | — | 2,547 | 2,547 | ||||||||||||
Loan servicing rights | — | — | 1,278 | 1,278 |
December 31, 2019 | ||||||||||||||||||||
Carrying Amount | Fair Value | |||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||
(In Thousands) | ||||||||||||||||||||
Financial assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 67,102 | $ | 67,102 | $ | 61,202 | $ | 5,900 | $ | — | ||||||||||
Securities available-for-sale | 173,133 | 173,133 | — | 173,133 | — | |||||||||||||||
Securities held-to-maturity | 32,700 | 33,188 | — | 33,188 | — | |||||||||||||||
Loans held for sale | 5,205 | 5,673 | — | 5,673 | — | |||||||||||||||
Loans and lease receivables, net | 1,695,115 | 1,706,201 | — | — | 1,706,201 | |||||||||||||||
Federal Home Loan Bank stock | 7,953 | N/A | N/A | N/A | N/A | |||||||||||||||
Accrued interest receivable | 5,760 | 5,760 | 5,760 | — | — | |||||||||||||||
Interest rate swaps | 18,346 | 18,346 | — | 18,346 | — | |||||||||||||||
Financial liabilities: | ||||||||||||||||||||
Deposits | 1,530,379 | 1,532,517 | 1,241,891 | 290,626 | — | |||||||||||||||
Federal Home Loan Bank advances and other borrowings | 319,382 | 319,507 | — | 319,507 | — | |||||||||||||||
Junior subordinated notes | 10,047 | 9,970 | — | — | 9,970 | |||||||||||||||
Accrued interest payable | 2,882 | 2,882 | 2,882 | — | — | |||||||||||||||
Interest rate swaps | 20,885 | 20,885 | — | 20,885 | — | |||||||||||||||
Off-balance sheet items: | ||||||||||||||||||||
Standby letters of credit | 63 | 63 | — | — | 63 |
December 31, 2018 | ||||||||||||||||||||
Carrying Amount | Fair Value | |||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||
(In Thousands) | ||||||||||||||||||||
Financial assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 86,546 | $ | 86,546 | $ | 67,246 | $ | 19,300 | $ | — | ||||||||||
Securities available-for-sale | 138,358 | 138,358 | — | 138,358 | — | |||||||||||||||
Securities held-to-maturity | 37,731 | 37,409 | — | 37,409 | — | |||||||||||||||
Loans held for sale | 5,287 | 5,816 | — | 5,816 | — | |||||||||||||||
Loans and lease receivables, net | 1,597,230 | 1,589,323 | — | — | 1,589,323 | |||||||||||||||
Federal Home Loan Bank stock | 7,240 | N/A | N/A | N/A | N/A | |||||||||||||||
Accrued interest receivable | 5,684 | 5,684 | 5,684 | — | — | |||||||||||||||
Interest rate swaps | 4,637 | 4,637 | — | 4,637 | — | |||||||||||||||
Financial liabilities: | ||||||||||||||||||||
Deposits | 1,455,299 | 1,453,482 | 1,026,648 | 426,834 | — | |||||||||||||||
Federal Home Loan Bank advances and other borrowings | 298,944 | 294,127 | — | 294,127 | — | |||||||||||||||
Junior subordinated notes | 10,033 | 9,955 | — | — | 9,955 | |||||||||||||||
Accrued interest payable | 3,696 | 3,696 | 3,696 | — | — | |||||||||||||||
Interest rate swaps | 4,779 | 4,779 | — | 4,779 | — | |||||||||||||||
Off-balance sheet items: | ||||||||||||||||||||
Standby letters of credit | 59 | 59 | — | — | 59 |
December 31, 2019 | December 31, 2018 | |||||||
(In Thousands) | ||||||||
Assets | ||||||||
Cash and cash equivalents | $ | 1,437 | $ | 3,699 | ||||
Investments in subsidiaries, at equity | 222,377 | 206,973 | ||||||
Premises and equipment, net | 1,592 | 2,036 | ||||||
Right-of-use assets | 4,234 | — | ||||||
Other assets | 6,436 | 5,444 | ||||||
Total assets | $ | 236,076 | $ | 218,152 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Junior subordinated notes and other borrowings | $ | 33,754 | $ | 33,802 | ||||
Lease liabilities | 4,533 | — | ||||||
Accrued interest payable and other liabilities | 3,633 | 3,643 | ||||||
Total liabilities | 41,920 | 37,445 | ||||||
Stockholders’ equity | 194,156 | 180,707 | ||||||
Total liabilities and stockholders’ equity | $ | 236,076 | $ | 218,152 |
For the Year Ended December 31, | ||||||||
2019 | 2018 | |||||||
(In Thousands) | ||||||||
Net interest expense | $ | 2,949 | $ | 2,703 | ||||
Non-interest income | ||||||||
Consulting and rental income from consolidated subsidiaries | 20,468 | 20,267 | ||||||
Other non-interest income | 84 | 33 | ||||||
Total non-interest income | 20,552 | 20,300 | ||||||
Non-interest expense | 24,121 | 22,866 | ||||||
Loss before income tax benefit and equity in undistributed net income of consolidated subsidiaries | 6,518 | 5,269 | ||||||
Income tax benefit | 1,659 | 1,478 | ||||||
Loss before equity in undistributed net income of consolidated subsidiaries | 4,859 | 3,791 | ||||||
Equity in undistributed net income of consolidated subsidiaries | 28,183 | 20,094 | ||||||
Net income | $ | 23,324 | $ | 16,303 |
For the Year Ended December 31, | ||||||||
2019 | 2018 | |||||||
(In Thousands) | ||||||||
Operating activities | ||||||||
Net income | $ | 23,324 | $ | 16,303 | ||||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
Equity in undistributed earnings of consolidated subsidiaries | (28,183 | ) | (20,094 | ) | ||||
Share-based compensation | 1,566 | 1,004 | ||||||
Excess tax benefit from share-based compensation | (37 | ) | (24 | ) | ||||
Payments on operating lease liabilities | (547 | ) | — | |||||
Net increase in other liabilities | 843 | 321 | ||||||
Other, net | (750 | ) | 72 | |||||
Net cash used in operating activities | (3,784 | ) | (2,418 | ) | ||||
Investing activities | ||||||||
Dividends received from subsidiaries | 14,034 | 10,034 | ||||||
Net cash provided by investing activities | 14,034 | 10,034 | ||||||
Financing activities | ||||||||
Net (decrease) increase in long-term borrowed funds | (48 | ) | 60 | |||||
Proceeds from issuance of subordinated notes payable | 15,000 | — | ||||||
Repayment of subordinated notes payable | (15,000 | ) | — | |||||
Purchase of treasury stock | (7,248 | ) | (533 | ) | ||||
Cash dividends paid | (5,216 | ) | (4,916 | ) | ||||
Net cash used in financing activities | (12,512 | ) | (5,389 | ) | ||||
Net (decrease) increase in cash and due from banks | (2,262 | ) | 2,227 | |||||
Cash and cash equivalents at the beginning of the period | 3,699 | 1,472 | ||||||
Cash and cash equivalents at the end of the period | $ | 1,437 | $ | 3,699 |
2019 | 2018 | ||||||||||||||||||||||||||||||
Fourth Quarter | Third Quarter | Second Quarter | First Quarter | Fourth Quarter | Third Quarter | Second Quarter | First Quarter | ||||||||||||||||||||||||
(Dollars in Thousands, Except Per Share Data) | |||||||||||||||||||||||||||||||
Interest income | $ | 25,613 | $ | 25,438 | $ | 25,309 | $ | 25,679 | $ | 24,522 | $ | 23,563 | $ | 22,468 | $ | 20,722 | |||||||||||||||
Interest expense | 7,139 | 8,662 | 8,457 | 7,925 | 7,407 | 6,469 | 5,537 | 4,520 | |||||||||||||||||||||||
Net interest income | 18,474 | 16,776 | 16,852 | 17,754 | 17,115 | 17,094 | 16,931 | 16,202 | |||||||||||||||||||||||
Provision for loan and lease losses | 1,472 | 1,349 | (784 | ) | 49 | 983 | (546 | ) | 2,579 | 2,476 | |||||||||||||||||||||
Non-interest income | 7,189 | 5,792 | 5,805 | 4,638 | 4,648 | 4,871 | 3,982 | 4,667 | |||||||||||||||||||||||
Non-interest expense | 16,773 | 14,716 | 17,464 | 17,742 | 18,244 | 15,746 | 14,467 | 13,907 | |||||||||||||||||||||||
Income before income tax expense | 7,418 | 6,503 | 5,977 | 4,601 | 2,536 | 6,765 | 3,867 | 4,486 | |||||||||||||||||||||||
Income tax expense (benefit) | 1,650 | 1,418 | (595 | ) | (1,298 | ) | (1,528 | ) | 1,464 | 578 | 837 | ||||||||||||||||||||
Net income | $ | 5,768 | $ | 5,085 | $ | 6,572 | $ | 5,899 | $ | 4,064 | $ | 5,301 | $ | 3,289 | $ | 3,649 | |||||||||||||||
Per common share: | |||||||||||||||||||||||||||||||
Basic earnings | $ | 0.67 | $ | 0.59 | $ | 0.75 | $ | 0.67 | $ | 0.46 | $ | 0.60 | $ | 0.38 | $ | 0.42 | |||||||||||||||
Diluted earnings | 0.67 | 0.59 | 0.75 | 0.67 | 0.46 | 0.60 | 0.38 | 0.42 | |||||||||||||||||||||||
Dividends declared | 0.15 | 0.15 | 0.15 | 0.15 | 0.14 | 0.14 | 0.14 | 0.14 |
(a) | Directors of the Registrant. The information included in the definitive Proxy Statement for the Annual Meeting of the Shareholders to be held on April 24, 2020 under the caption “Item 1 - Election of Directors” is incorporated herein by reference. |
(b) | Executive Officers of the Registrant. The information presented in Item 1 of this document is incorporated herein by reference. |
(c) | Code of Ethics. The Corporation has adopted a code of ethics applicable to all employees, including the principal executive officer, principal financial officer and principal accounting officer of the Corporation. The FBFS Code of Ethics is posted on the Corporation’s website at www.firstbusiness.com. The Corporation intends to satisfy the disclosure requirements under Item 5.05(c) of Form 8-K regarding any amendment to or waiver of the code with respect to its Chief Executive Officer, Chief Financial Officer, principal accounting officer, and persons performing similar functions, by posting such information to the Corporation’s website. |
Exhibit No. | Exhibit Name |
3.1 | |
3.2 | |
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Registrant agrees to furnish to the Securities and Exchange Commission, upon request, any instrument defining the rights of holders of long-term debt not being registered that is not filed as an exhibit to this Annual Report on Form 10-K. No such instrument authorizes securities in excess of 10% of the total assets of the Registrant. | |
4.1 | |
4.2 | |
10.1* | |
10.2* | |
10.3* | |
10.4* | |
10.5* | |
10.6* | |
10.7* | |
10.8* | |
10.9* | |
10.10* | |
10.11* | |
10.12* | |
10.13* | |
10.14* | |
21 | |
23 | |
31.1 | |
31.2 | |
32 | |
101 | The following financial information from First Business Financial Services, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2019 and December 31, 2018, (ii) Consolidated Statements of Income for the years ended December 31, 2019 and 2018, (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2019 and 2018, (iv) Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2019 and 2018, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018, and (vi) the Notes to Consolidated Financial Statements |
* | Management contract or compensatory plan. |
FIRST BUSINESS FINANCIAL SERVICES, INC. | |||
February 27, 2020 | /s/ Corey A. Chambas | ||
Corey A. Chambas | |||
Chief Executive Officer |
Signature | Title | Date | ||
/s/ Corey A. Chambas | Chief Executive Officer | February 27, 2020 | ||
Corey A. Chambas | (principal executive officer) | |||
/s/ Edward G. Sloane, Jr. | Chief Financial Officer | February 27, 2020 | ||
Edward G. Sloane, Jr. | (principal financial officer) | |||
/s/ Peggy J. Stebbins | Chief Accounting Officer & Controller | February 27, 2020 | ||
Peggy J. Stebbins | (principal accounting officer) | |||
/s/ Gerald L. Kilcoyne | Chair of the Board of Directors | February 27, 2020 | ||
Gerald L. Kilcoyne | ||||
/s/ Laurie S. Benson | Director | February 27, 2020 | ||
Laurie S. Benson | ||||
/s/ Mark D. Bugher | Director | February 27, 2020 | ||
Mark D. Bugher | ||||
/s/ Carla C. Chavarria | Director | February 27, 2020 | ||
Carla C. Chavarria | ||||
/s/ Jan A. Eddy | Director | February 27, 2020 | ||
Jan A. Eddy | ||||
/s/ John J. Harris | Director | February 27, 2020 | ||
John J. Harris | ||||
/s/ Ralph R. Kauten | Director | February 27, 2020 | ||
Ralph R. Kauten | ||||
/s/ Timothy J. Keane | Director | February 27, 2020 | ||
Timothy J. Keane | ||||
/s/ W. Kent Lorenz | Director | February 27, 2020 | ||
W. Kent Lorenz | ||||
/s/ Daniel P. Olszewski | Director | February 27, 2020 | ||
Daniel P. Olszewski | ||||
/s/ Carol P. Sanders | Director | February 27, 2020 | ||
Carol P. Sanders | ||||
• | the aggregate value of the per share consideration is at least equal to the highest of: |
o | the highest price paid for any common shares of the corporation by the significant shareholder in the transaction in which it became a significant shareholder or within two years before the date of the business combination; |
o | the market value of the corporation’s shares on the date of commencement of any tender offer by the significant shareholder, the date on which the person became a significant shareholder or the date of the first public announcement of the proposed business combination, whichever is highest; or |
o | the highest preferential liquidation or dissolution distribution to which holders of the shares would be entitled; and |
• | the consideration to be received by shareholders is either cash or the form of consideration used by the significant shareholder to acquire its shares, or, if it paid for its shares with varying forms of consideration, the form of consideration shall be either cash or the form used to acquire the largest number of the significant shareholder’s shares. |
(e) | The “Performance Period” begins on _________________ and concludes on ___________________. |
Performance Goal | Weighting | Threshold | Target | Maximum | Actual Performance Result | Achievement Percentage* |
[Relative Return on Average Equity] | 50% | 50% | 100% | 200% | [__]% | [__]% |
[Relative Total Shareholder Return] | 50% | 50% | 100% | 200% | [__]% | [__]% |
Total Performance-Based RSU Vesting as a percentage of the Target Award | [__]% |
Attainment Level | [Relative Return on Average Equity] | [Relative Total Shareholder Return] |
Threshold | 50% | 50% |
Target | 100% | 100% |
Maximum | 200% | 200% |
(e) | The “Performance Period” begins on _________________ and concludes on ___________________. |
Performance Goal | Weighting | Threshold | Target | Maximum | Actual Performance Result | Achievement Percentage* |
[Relative Return on Average Equity] | 50% | 50% | 100% | 200% | [__]% | [__]% |
[Relative Total Shareholder Return] | 50% | 50% | 100% | 200% | [__]% | [__]% |
Total Performance-Based RSU Vesting as a percentage of the Target Award | [__]% |
Attainment Level | [Relative Return on Average Equity] | [Relative Total Shareholder Return] |
Threshold | 50% | 50% |
Target | 100% | 100% |
Maximum | 200% | 200% |
(e) | The “Performance Period” begins on _________________ and concludes on ___________________. |
Performance Goal | Weighting | Threshold | Target | Maximum | Actual Performance Result | Achievement Percentage* |
[Relative Return on Average Equity] | 50% | 50% | 100% | 200% | [__]% | [__]% |
[Relative Total Shareholder Return] | 50% | 50% | 100% | 200% | [__]% | [__]% |
Total Performance-Based RSU Vesting as a percentage of the Target Award | [__]% |
Attainment Level | [Relative Return on Average Equity] | [Relative Total Shareholder Return] |
Threshold | 50% | 50% |
Target | 100% | 100% |
Maximum | 200% | 200% |
Subsidiary | State of Incorporation or Organization |
First Business Bank | Wisconsin |
First Business Capital Corp. | Wisconsin |
First Business Equipment Finance, LLC | Wisconsin |
Rimrock Road Investment Fund, LLC | Wisconsin |
BOC Investment, LLC | Wisconsin |
Mitchell Street Apartments Investment, LLC | Wisconsin |
ABKC Real Estate, LLC | Kansas |
FBB Real Estate 2, LLC | Kansas |
FBB Tax Credit Investment, LLC | Wisconsin |
First Madison Investment Corp. | Nevada |
FBFS Statutory Trust II | Delaware |
1. | I have reviewed this Annual Report on Form 10-K of First Business Financial Services, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | Any significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Corey A. Chambas | |
Corey A. Chambas | |
Chief Executive Officer | |
February 27, 2020 |
1. | I have reviewed this Annual Report on Form 10-K of First Business Financial Services, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | Any significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Edward G. Sloane, Jr. | |
Edward G. Sloane, Jr. | |
Chief Financial Officer | |
February 27, 2020 |
/s/ Corey A. Chambas | |
Corey A. Chambas | |
Chief Executive Officer | |
February 27, 2020 | |
/s/ Edward G. Sloane, Jr. | |
Edward G. Sloane, Jr. | |
Chief Financial Officer | |
February 27, 2020 |
Deposits |
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Deposits [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits | Deposits The composition of deposits is shown below.
A summary of annual maturities of certificates of deposit outstanding and wholesale deposits at December 31, 2019 is as follows:
Deposits include approximately $63.7 million and $61.9 million of certificates of deposit and wholesale deposits which are denominated in amounts of $250,000 or more at December 31, 2019 and 2018, respectively. |
Premises and Equipment |
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Leasehold Improvements and Equipment | Premises and Equipment A summary of premises and equipment was as follows:
Depreciation expense was $877,000 and $835,000 for the years ended December 31, 2019 and 2018, respectively. |
Nature of Operations and Summary of Significant Accounting Policies |
12 Months Ended |
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Dec. 31, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Nature of Operations and Summary of Significant Accounting Policies | Nature of Operations and Summary of Significant Accounting Policies Nature of Operations. The accounting and reporting practices of First Business Financial Services, Inc. (“FBFS” or the “Corporation”), through our wholly-owned subsidiary, First Business Bank (“FBB” or the “Bank”), have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). FBB operates as a commercial banking institution primarily in Wisconsin and the greater Kansas City Metro. FBB also offers private wealth management services through First Business Trust & Investments (“FBTI”) and bank consulting services through First Business Consulting Services (“FBCS”), both divisions of FBB. The Bank provides a full range of financial services to businesses, business owners, executives, professionals, and high net worth individuals. The Bank is subject to competition from other financial institutions and service providers, and is also subject to state and federal regulations. FBB has the following wholly-owned subsidiaries: First Business Capital Corp. (“FBCC”), First Madison Investment Corp. (“FMIC”), First Business Equipment Finance, LLC (“FBEF”), ABKC Real Estate, LLC (“ABKC”), FBB Real Estate 2, LLC (“FBB RE 2”), Rimrock Road Investment Fund, LLC (“Rimrock Road”), BOC Investment, LLC (“BOC”), Mitchell Street Apartments Investment, LLC (“Mitchell Street”), and FBB Tax Credit Investment LLC (“FBB Tax Credit”). FMIC is located in and was formed under the laws of the state of Nevada. Basis of Presentation. The Consolidated Financial Statements include the accounts of the Corporation and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. In accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 810, the Corporation’s ownership interest in FBFS Statutory Trust II (“Trust II”) has not been consolidated into the financial statements. Management of the Corporation is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that could significantly change in the near-term include the value of securities and interest rate swaps, level of the allowance for loan and lease losses, lease residuals, property under operating leases, goodwill, level of the Small Business Administration (“SBA”) recourse reserve, and income taxes. Certain amounts in prior periods may have been reclassified to conform to the current presentation. Subsequent events have been evaluated through the date of the issuance of the Consolidated Financial Statements. No significant subsequent events have occurred through this date requiring adjustment to the financial statements or disclosures. Cash and Cash Equivalents. The Corporation considers federal funds sold, interest-bearing deposits, and short-term investments that have original maturities of three months or less to be cash equivalents. Securities. The Corporation classifies its investment and mortgage-related securities as available-for-sale, held-to-maturity, and trading. Debt securities that the Corporation has the positive intent and ability to hold to maturity are classified as held-to-maturity and are stated at amortized cost. Debt securities bought expressly for the purpose of selling in the near term are classified as trading securities and are measured at fair value with unrealized gains and losses reported in earnings. Debt securities not classified as held-to-maturity or as trading are classified as available-for-sale. Available-for-sale securities are measured at fair value with unrealized gains and losses reported as a separate component of stockholders’ equity, net of tax. Realized gains and losses, and declines in value deemed to be other than temporary, are included in the Consolidated Statements of Income as a component of non-interest income. The cost of securities sold is based on the specific identification method. The Corporation did not hold any trading securities at December 31, 2019 or 2018. Discounts and premiums on securities are accreted and amortized into interest income using the effective yield method over the estimated life (based on maturity date, call date, or weighted average life) of the related security. Declines in the fair value of investment securities (with certain exceptions for debt securities noted below) that are deemed to be other-than-temporary are charged to earnings as a realized loss and a new cost basis for the securities is established. In evaluating other-than-temporary impairment, management considers the length of time and extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value in the near term. Declines in the fair value of debt securities below amortized cost are deemed to be other-than-temporary in circumstances where: (1) the Corporation has the intent to sell a security; (2) it is more likely than not that the Corporation will be required to sell the security before recovery of its amortized cost basis; or (3) the Corporation does not expect to recover the entire amortized cost basis of the security. If the Corporation intends to sell a security or if it is more likely than not that the Corporation will be required to sell the security before recovery, an other-than-temporary impairment write-down is recognized in earnings equal to the difference between the security’s amortized cost basis and its fair value. If the Corporation does not intend to sell the security or it is not more likely than not that it will be required to sell the security before recovery, the other-than-temporary impairment write-down is separated into an amount representing credit loss, which is recognized in earnings, and an amount related to all other factors, which is recognized in other comprehensive income. Loans Held for Sale. The guaranteed portions of SBA loans which are originated and intended for sale in the secondary market are classified as held for sale. These loans are carried at the lower of cost or fair value in the aggregate. Unrealized losses on such loans are recognized through a valuation allowance by a charge to other non-interest income. Gains and losses on the sale of loans are also included in other non-interest income. As assets specifically originated for sale, the origination of, disposition of, and gain/loss on these loans are classified as operating activities in the Consolidated Statement of Cash Flows. Fees received from the borrower and direct costs to originate the loans are deferred and recognized as part of the gain or loss on sale. There was $5.2 million and $5.3 million in loans held for sale outstanding at December 31, 2019 and 2018, respectively. Loans and Leases. Loans and leases which management has the intent and ability to hold for the foreseeable future or until maturity are reported at their outstanding principal balance with adjustments for partial charge-offs, the allowance for loan and lease losses, deferred fees or costs on originated loans and leases, and unamortized premiums or discounts on any purchased loans. A loan or a lease is accounted for as a troubled debt restructuring if the Corporation, for economic or legal reasons related to the borrower’s financial condition, grants a concession to the borrower that it would not otherwise consider. A troubled debt restructuring may involve the receipt of assets from the debtor in partial or full satisfaction of the loan or lease or a modification of terms, such as a reduction of the stated interest rate or face amount of the loan or lease, a reduction of accrued interest, an extension of the maturity date at a stated interest rate lower than the current market rate for a new loan or lease with similar risk, or some combination of these concessions. Restructured loans can involve loans remaining on non-accrual, moving to non-accrual, or continuing on accrual status, depending on individual facts and circumstances. Non-accrual restructured loans are included and treated with all other non-accrual loans. In addition, all accruing restructured loans are reported as troubled debt restructurings which are considered and accounted for as impaired loans. Generally, restructured loans remain on non-accrual until the borrower has attained a sustained period of repayment performance under the modified loan terms (generally a minimum of six months). However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can meet the new terms and whether the loan should be returned to or maintained on accrual status. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan remains on non-accrual. Interest on non-impaired loans and leases is accrued and credited to income on a daily basis based on the unpaid principal balance and is calculated using the effective interest method. Per policy, a loan or a lease is considered impaired and placed on non-accrual status when it becomes 90 days past due or it is doubtful that contractual principal and interest will be collected in accordance with the terms of the contract. A loan or lease is determined to be past due if the borrower fails to meet a contractual payment and will continue to be considered past due until all contractual payments are received. When a loan or lease is placed on non-accrual, the interest accrual is discontinued and previously accrued but uncollected interest is deducted from interest income. If collectability of the contractual principal and interest is in doubt, payments received are first applied to reduce the loan principal. If collectability of the contractual payments is not in doubt, payments may be applied to interest for interest amounts due on a cash basis. As soon as it is determined with certainty that the principal of an impaired loan or lease is uncollectable, either through collections from the borrower or disposition of the underlying collateral, the portion of the carrying balance that exceeds the estimated measurement value of the loan or lease is charged off. Loans or leases are returned to accrual status when they are brought current in terms of both principal and accrued interest due, have performed in accordance with contractual terms for a reasonable period of time, and when the ultimate collectability of total contractual principal and interest is no longer doubtful. Transfers of assets, including but not limited to the guaranteed portions of SBA loans and participation interests in other, non-SBA originated loans, that upon completion of the transfer satisfy the conditions to be reported as a sale, including legal isolation, are derecognized from the Consolidated Financial Statements. Transfers of assets that upon completion of the transfer do not meet the conditions of a sale are recorded on a gross basis with a secured borrowing identified to reflect the amount of the transferred interest. Loan and lease origination fees as well as certain direct origination costs are deferred and amortized as an adjustment to loan yields over the stated term of the loan or lease. Loans or leases that result from a refinance or restructuring, other than a troubled debt restructuring, where terms are at least as favorable to the Corporation as the terms for comparable loans to other borrowers with similar collection risks and result in an essentially new loan or lease, are accounted for as a new loan or lease. Any unamortized net fees, costs, or penalties are recognized when the new loan or lease is originated. Unamortized net loan or lease fees or costs for loans and leases that result from a refinance or restructure with only minor modifications to the original loan or lease contract are carried forward as a part of the net investment in the new loan or lease. For troubled debt restructurings, all fees received in connection with a modification of terms are applied as a reduction of the loan or lease and any related costs, including direct loan origination costs, are charged to expense as incurred. Allowance for Loan and Lease Losses. The allowance for loan and lease losses is maintained at a level that management deems appropriate to absorb probable and estimable losses inherent in the loan and lease portfolios. The methodology applied for determining inherent losses stems from current risk characteristics of the loan and lease portfolio, an assessment of individual impaired loans and leases, actual loss experience, and adverse situations that may affect the borrower’s ability to repay. The methodology also focuses on evaluation of several factors for each portfolio category, including but not limited to: management’s ongoing review and grading of the loan and lease portfolios, consideration of delinquency experience, changes in the size of the loan and lease portfolios, existing economic conditions, level of loans and leases subject to more frequent review by management, changes in underlying collateral, concentrations of loans to specific industries, and other qualitative and quantitative factors that could affect credit losses. Impaired and other loans and leases have risk characteristics that are unique to an individual borrower and the loss must be estimated on an individual basis. Loans and leases that are not individually reviewed and measured for impairment are aggregated and historical loss statistics are primarily used to determine the risk of loss. The measurement of the estimate of loss is reliant upon historical experience, information about the ability of the individual debtor to pay, and the appraisal of loan collateral in light of current economic conditions. An estimate of loss is an approximation of what portion of all amounts receivable, according to the contractual terms of that receivable, is deemed uncollectible. Determination of the allowance is inherently subjective because it requires estimation of amounts and timing of expected future cash flows on impaired loans and leases, estimation of losses on types of loans and leases based on historical losses, and consideration of current economic trends, both local and national. Based on management’s periodic review using all previously mentioned pertinent factors, a provision for loan and lease losses is charged to expense when it is determined an increase in the allowance for loan and lease losses is appropriate. A negative provision for loan and lease losses may be recognized if management determines a reduction in the level of allowance for loan and lease losses is appropriate. Loan and lease losses are charged against the allowance and recoveries are credited to the allowance. The allowance for loan and lease losses contains specific allowances established for expected losses on impaired loans and leases. Impaired loans and leases are defined as loans and leases for which, based on current information and events, it is probable that the Corporation will be unable to collect scheduled principal and interest payments according to the contractual terms of the loan or lease agreement. Loans and leases subject to impairment are defined as non-accrual and restructured loans and leases. Impaired loans and leases are evaluated on an individual basis to determine the amount of specific reserve or charge-off required, if any. The measurement value of impaired loans and leases is determined based on the present value of expected future cash flows discounted at the loan’s effective interest rate (the contractual interest rate adjusted for any net deferred loan fees or costs, premium or discount existing at the origination or acquisition of the loan), the market price of the loan or lease, or the fair value of the underlying collateral less costs to sell, if the loan or lease is collateral dependent. A loan or lease is collateral dependent if repayment is expected to be provided principally by the underlying collateral. A loan’s effective interest rate may change over the life of the loan based on subsequent changes in rates or indices, or may be fixed at the rate in effect at the date the loan was determined to be impaired. Subsequent to the initial impairment, any significant change in the amount or timing of an impaired loan or lease’s future cash flows will result in a reassessment of the valuation allowance to determine if an adjustment is necessary. Measurements based on observable market price or fair value of the collateral may change over time and require a reassessment of the allowance if there is a significant change in either measurement base. Any increase in the present value of expected future cash flows attributable to the passage of time is recorded as interest income accrued on the net carrying amount of the loan or lease at the effective interest rate used to discount the impaired loan or lease’s estimated future cash flows. Any change in present value attributable to changes in the amount or timing of expected future cash flows is recorded as loan loss expense in the same manner in which impairment was initially recognized or as a reduction of loan loss expense that otherwise would be reported. Where the level of loan or lease impairment is measured using observable market price or fair value of collateral, any decrease in the observable market price of an impaired loan or lease or fair value of the collateral of an impaired collateral-dependent loan or lease is recorded as loan loss expense in the same manner in which impairment was initially recognized. Any increase in the observable market value of the impaired loan or lease or fair value of the collateral of an impaired collateral-dependent loan or lease is recorded as a reduction in the amount of loan loss expense that otherwise would be reported. Net Investment in Direct Financing Leases. The net investment in direct financing lease agreements represents total undiscounted payments plus estimated unguaranteed residual value (approximating 3% to 20% of the cost of the related equipment) and is recorded as lease receivables when the lease is signed and the leased property is delivered to the client. The excess of the minimum lease payments and residual values over the cost of the equipment is recorded as unearned lease income. Unearned lease income is recognized over the term of the lease on a basis which results in an approximate level rate of return on the unrecovered lease investment. Lease payments are recorded when due under the lease contract. Residual values are established at lease inception equal to the estimated value to be received from the equipment following termination of the initial lease and such estimated value considers all relevant information and circumstances regarding the equipment. In estimating the equipment’s fair value at lease termination, the Corporation relies on internally or externally prepared appraisals, published sources of used equipment prices, and historical experience adjusted for known current industry and economic trends. The Corporation’s estimates are periodically reviewed to ensure reasonableness; however, the amounts the Corporation will ultimately realize could differ from the estimated amounts. When there are other than temporary declines in the Corporation’s carrying amount of the unguaranteed residual value, the carrying value is reduced and charged to non-interest expense. Premises and Equipment, net. The cost of capitalized leasehold improvements is amortized on the straight-line method over the lesser of the term of the respective lease or estimated economic life. Equipment is stated at cost less accumulated depreciation and amortization which is calculated by the straight-line method over the estimated useful lives of three to ten years. Maintenance and repair costs are charged to expense as incurred. Improvements which extend the useful life are capitalized and depreciated over the remaining useful life of the assets. Foreclosed Properties. Property acquired by repossession, foreclosure, or by deed in lieu of foreclosure is recorded at the fair value of the underlying property, less costs to sell. This fair value becomes the new cost basis for the foreclosed property. Any write-down in the carrying value of a loan or lease at the time of acquisition is charged to the allowance for loan and lease losses. Any subsequent write-downs to reflect current fair value, as well as gains and losses on disposition and revenues are recorded in non-interest expense. Costs relating to the development and improvement of the property are capitalized while holding period costs are charged to other non-interest expense. Bank-Owned Life Insurance. Bank-owned life insurance (“BOLI”) is reported at the amount that would be realized if the life insurance policies were surrendered on the balance sheet date. BOLI policies owned by the Bank are purchased with the objective to fund certain future employee benefit costs with the death benefit proceeds. The cash surrender value of such policies is recorded in bank-owned life insurance on the Consolidated Balance Sheets and changes in the value are recorded in non-interest income. The total death benefit of all BOLI policies was $97.9 million and $97.8 million as of December 31, 2019 and 2018, respectively. There are no restrictions on the use of BOLI proceeds nor are there any contractual restrictions on the ability to surrender the policy. As of December 31, 2019 and 2018, there were no borrowings against the cash surrender value of the BOLI policies. Federal Home Loan Bank Stock. The Bank is required to maintain Federal Home Loan Bank (“FHLB”) stock as members of the FHLB, and in amounts as required by the FHLB. This equity security is “restricted” in that it can only be sold back to the FHLB or another member institution at par. Therefore, it is less liquid than other marketable equity securities and the fair value is equal to cost. At December 31, 2019 and 2018, the Bank had FHLB stock of $8.0 million and $7.2 million, respectively. The Corporation periodically evaluates its holding in FHLB stock for impairment. Should the stock be impaired, it would be written down to its estimated fair value. There were no impairments recorded on FHLB stock during the years ended December 31, 2019 or 2018. Goodwill and Other Intangible Assets. Goodwill and other intangible assets consist primarily of goodwill, core deposit intangibles, and loan servicing rights. Core deposit intangibles have estimated finite lives and are amortized on an accelerated basis to expense over a period of seven years. Loan servicing rights, when originated, are initially recorded at fair value and subsequently amortized in proportion to and over the period of estimated net servicing income. The Corporation reviews other intangible assets for impairment at least annually, or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, in which case an impairment charge would be recorded. Goodwill is not amortized but is subject to impairment tests on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount (including goodwill). An initial qualitative evaluation is made to assess the likelihood of impairment and determine whether further quantitative testing to calculate the fair value is necessary. When the qualitative evaluation indicates that impairment is more likely than not, quantitative testing is required whereby the fair value of each reporting unit is calculated and compared to the recorded book value, Step 1. If the calculated fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired and Step 2 is not considered necessary. If the carrying value of a reporting unit exceeds its calculated fair value, the impairment test continues (Step 2) by comparing the carrying value of the reporting unit’s goodwill to the implied fair value of goodwill. The implied fair value is computed by adjusting all assets and liabilities of the reporting unit to current fair value with the offset adjustment to goodwill. The adjusted goodwill balance is the implied fair value of the goodwill. An impairment charge is recognized if the carrying value of goodwill exceeds the implied fair value of goodwill. Other Investments. The Corporation owns certain equity investments in other corporate organizations which are not consolidated because the Corporation does not own more than a 50% interest or exercise control over the organization. Investments in corporations representing at least a 20% interest are generally accounted for using the equity method and investments in corporations representing less than 20% interest are generally accounted for at cost. Investments in limited partnerships representing from at least a 3% up to a 50% interest in the entity are generally accounted for using the equity method and investments in limited partnerships representing less than 3% are generally accounted for at cost. All of these investments are periodically evaluated for impairment. Should an investment be impaired, it would be written down to its estimated fair value. The equity investments are reported in other assets and the income and expense from such investments, if any, is reported in non-interest income and non-interest expense. Derivative Instruments. The Corporation uses derivative instruments to protect against the risk of adverse price or interest rate movements on the value of certain assets, liabilities, future cash flows, and economic hedges for written client derivative contracts. Derivative instruments represent contracts between parties that usually require little or no initial net investment and result in one party delivering cash to the other party based on a notional amount and an underlying variable, as specified in the contract, and may be subject to master netting agreements. Market risk is the risk of loss arising from an adverse change in interest rates, exchange rates, or equity prices. The Corporation’s primary market risk is interest rate risk. Instruments designed to manage interest rate risk include interest rate swaps, interest rate options, and interest rate caps and floors with indices that relate to the pricing of specific assets and liabilities. The nature and volume of the derivative instruments used to manage interest rate risk depend on the level and type of assets and liabilities on the balance sheet and the risk management strategies for the current and anticipated rate environments. Counterparty risk with respect to derivative instruments occurs when a counterparty to a derivative contract with an unrealized gain fails to perform according to the terms of the agreement. Counterparty risk is managed by limiting the counterparties to highly rated dealers, requiring collateral postings when values are in deficit positions, applying uniform credit standards to all activities with credit risk, and monitoring the size and the maturity structure of the derivative portfolio. All derivative instruments are to be carried at fair value on the Consolidated Balance Sheets. The accounting for the gain or loss due to changes in the fair value of a derivative instrument depends on whether the derivative instrument qualifies as a hedge. If the derivative instrument does not qualify as a hedge, the gains or losses are reported in earnings when they occur. However, if the derivative instrument qualifies as a hedge, the accounting varies based on the type of risk being hedged. The Corporation utilizes interest rate swaps offered directly to qualified commercial borrowers, which do not qualify for hedge accounting, and therefore, all changes in fair value and gains and losses on these instruments are reported in earnings as they occur. The effects of netting arrangements are disclosed within the Notes of the Consolidated Financial Statements. The Corporation also enters into interest rate swaps to manage interest rate risk and reduce the cost of match-funding certain long-term fixed rate loans. These derivative contracts are designated as a cash flow hedge as the receipt of floating interest from the counterparty is used to manage interest rate risk associated with forecasted issuances of short-term FHLB advances. The change in fair value of the hedging instrument is recorded in accumulated other comprehensive income. SBA Recourse Reserve. The Corporation establishes SBA recourse reserves on the guaranteed portions of sold SBA loans. The recourse reserve is reported in accrued interest payable and other liabilities on the Consolidated Balance Sheets and consists of two components: (1) specific reserves for individually evaluated impaired loans that present a collateral shortfall where the guaranty associated with the sold portion of the SBA loan is determined to most likely be ineligible; and (2) general reserves for estimated probable losses on the remaining sold portfolio. The general reserve methodology is based on the evaluation of several factors, including but not limited to: credit quality trends within the SBA portfolio, changes in underlying collateral, and the Corporation’s ability to originate, fund, or service sold SBA loans in accordance with SBA regulations. In the ordinary course of business, the Corporation sells the guaranteed portions of SBA loans to third parties. The Corporation has a continuing involvement in each of the transferred lending arrangements by way of relationship management, servicing the loans, as well as being subject to normal and customary requirements of the SBA loan program; however, there are no further obligations to the third-party participant required of the Corporation, other than standard representations and warranties related to sold amounts. In the event of a loss resulting from default and a determination by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by the Corporation, the SBA may require the Corporation to repurchase the loan, deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of the principal loss related to the deficiency from the Corporation. The Corporation must comply with applicable SBA regulations in order to maintain the guaranty. In addition, the Corporation retains the option to repurchase the sold guaranteed portion of an SBA loan if the loan defaults. Income Taxes. Deferred income tax assets and liabilities are computed for temporary differences in timing between the financial statement and tax basis of assets and liabilities that result in taxable or deductible amounts in the future based on enacted tax law and rates applicable to periods in which the differences are expected to affect taxable income. The effect of a change in tax rates on deferred taxes is recognized in income in the period that includes the enactment date. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversals of deferred tax liabilities, appropriate tax planning strategies, and projections for future taxable income over the period which the deferred tax assets are deductible. When necessary, valuation allowances are established to reduce deferred tax assets to the realizable amount. Management believes it is more likely than not that the Corporation will realize the benefits of these deductible differences, net of the existing valuation allowances. Income tax expense or benefit represents the tax payable or tax refundable for a period, adjusted by the applicable change in deferred tax assets and liabilities for that period. The Corporation also invests in certain development entities that generate federal and state historic tax credits. The tax benefits associated with these investments are accounted for under the flow-through method and are recognized when the respective project is placed in service. The Corporation and its subsidiaries file a consolidated federal income tax return and separate state income tax returns. Tax sharing agreements allocate taxes to each legal entity for the settlement of intercompany taxes. The Corporation applies a more likely than not standard to each of its tax positions when determining the amount of tax expense or benefit to record in its financial statements. Unrecognized tax benefits are recorded in other liabilities. The Corporation recognizes accrued interest relating to unrecognized tax benefits in income tax expense and penalties in other non-interest expense. Other Comprehensive Income or Loss. Comprehensive income or loss, shown as a separate financial statement, includes net income or loss, changes in unrealized gains and losses on available-for-sale securities, changes in deferred gains and losses on investment securities transferred from available-for-sale to held-to-maturity, if any, changes in unrealized gains and losses associated with cash flow hedging instruments, if any, and the amortization of deferred gains and losses associated with terminated cash flow hedges, if any. For the years ended December 31, 2019, and 2018, realized securities losses of $46,000 and $4,000 were reclassified out of accumulated other comprehensive income, respectively. Earnings Per Common Share. Earnings per common share (“EPS”) is computed using the two-class method. Basic EPS is computed by dividing net income allocated to common shares by the weighted average number of common shares outstanding for the period, excluding any participating securities. Participating securities include unvested restricted shares. Unvested restricted shares are considered participating securities because holders of these securities receive non-forfeitable dividends at the same rate as the holders of the Corporation’s common stock. Diluted EPS is computed by dividing net income allocated to common shares adjusted for reallocation of undistributed earnings of unvested restricted shares by the weighted average number of common shares determined for the basic EPS plus the dilutive effect of common stock equivalents using the treasury stock method based on the average market price for the period. Segments and Related Information. The Corporation is required to report each operating segment based on materiality thresholds of ten percent or more of certain amounts, such as revenue. Additionally, the Corporation is required to report separate operating segments until the revenue attributable to such segments is at least 75 percent of total consolidated revenue. The Corporation provides a broad range of financial services to individuals and companies. These services include demand, time, and savings products, the sale of certain non-deposit financial products, and commercial and retail lending, leasing and private wealth management services. While the Corporation’s chief decision-maker monitors the revenue streams of the various products, services, and locations, operations are managed and financial performance is evaluated on a corporate-wide basis. The Corporation’s business units have similar basic characteristics in the nature of the products, production processes and type or class of client for products or services; therefore, these business units are considered one operating segment. Share-Based Compensation. The Corporation may grant restricted stock awards, restricted stock units, and other stock based awards to plan participants, subject to forfeiture upon the occurrence of certain events until the dates specified in the participant’s award agreement. The Corporation accounts for forfeitures as they occur. While restricted stock is subject to forfeiture, restricted stock award participants may exercise full voting rights and will receive all dividends and other distributions paid with respect to the restricted shares. Restricted stock units do not have voting rights and are provided dividend equivalents. The restricted stock granted under the 2019 Equity Incentive Plan (the “Plan”) is typically subject to a vesting period. Compensation expense for restricted stock is recognized over the requisite service period of generally four years for the entire award on a straight-line basis. Upon vesting of restricted stock, the benefit of tax deductions in excess of recognized compensation expense is reflected as an income tax benefit in the Consolidated Statements of Income. Beginning in 2019, the Corporation issued a combination of performance based restricted stock units and restricted stock awards to its executive officers. Vesting of the performance based restricted stock units will be measured on Total Shareholder Return (“TSR”) and Return on Average Equity (“ROAE”) and will cliff-vest after a three-year measurement period based on the Corporation’s performance relative to a custom peer group. At the end of the performance period, the number of actual shares to be awarded varies between 0% and 200% of target amounts. The restricted stock awards issued to executive officers will vest ratably over a three-year period. Compensation expense is recognized for performance based restricted stock units over the requisite service and performance period of generally three years for the entire expected award on a straight-line basis. The compensation expense for the awards expected to vest for the percentage of performance based restricted stock units subject to the ROAE metric will be adjusted if there is a change in the expectation of ROAE. The compensation expense for the awards expected to vest for the percentage of performance based restricted stock units subject to the TSR metric are never adjusted, and are amortized utilizing the accounting fair value provided using a Monte Carlo pricing model. Adoption of New Accounting Standards. In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842).” The ASU intends to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities and disclosing key information about leasing arrangements. The ASU requires lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessees’ obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The new lease guidance simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) may apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may also elect to apply the amendments in the ASU through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The ASU was effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Corporation adopted the accounting standard during the first quarter of 2019 retrospectively through a cumulative-effect adjustment to retained earnings as of January 1, 2019. The Corporation leases office space, loan production offices, and specialty financing production offices under noncancelable operating leases which expire on various dates through 2028. The Corporation also leases office equipment. As part of the adoption of the accounting standard, we elected to not recognize short-term leases on the Consolidated Balance Sheets. As such, the Corporation applied the accounting standard to six office spaces. All non-lease components, such as common area maintenance, were excluded. When calculating the lease liability on a discounted bases, the Corporation utilized the incremental borrowing rate as the rate implicit in the leases was not readily determinable. The Federal Home Loan Bank fixed advance rate as of January 2, 2019 that most closely resembled the remaining term was used as the incremental borrowing rate. While several leases contained options to extend and terminate, it is not reasonably certain that either option will be utilized and therefore, only the payments in the initial term of the leases were included in the lease liability and right-of-use asset. The impact of adoption was an $8.8 million lease liability with an offsetting $8.5 million right-of-use asset, which is net of $312,000 of lease incentives, and a $687,000 cumulative-effect adjustment to increase retained earnings on the Consolidated Balance Sheets as of January 1, 2019. In June 2018, the FASB issued ASU No. 2018-07, “Compensation- Stock Compensation (Topic 718).” The ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The Corporation adopted the accounting standard during the first quarter of 2019. The adoption of the standard did not have a material impact on the Corporation’s results of operations, financial position, and liquidity. Recent Accounting Pronouncements. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments- Credit Losses (Topic 326),” which is often referred to as CECL. The ASU replaces the incurred loss impairment methodology for recognizing credit losses with a methodology that reflects all expected credit losses. The ASU also requires consideration of a broader range of information to inform credit loss estimates, including such factors as past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, and any other financial asset not excluded from the scope under which the Corporation has the contractual right to receive cash. Entities will apply the amendments in the ASU through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. In November 2019, the FASB issued ASU No. 2019-10, “Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842).” The ASU delays the effective date for the credit losses standard from January 2020 to January 2023 for certain entities, including certain Securities and Exchange Commission filers, public business entities, and private companies. As a smaller reporting company, the Corporation is eligible for the delay and will be deferring adoption. The Corporation has established a cross-functional committee and has implemented a third-party software solution to assist with the adoption of the standard. Management has gathered all necessary data and reviewed potential methods to calculate the expected credit losses. Management is currently calculating sample expected loss computations and developing the allowance methodology and assumptions that will be used under the new standard. Management will continue to progress on its implementation project plan and improve the Corporation’s approach throughout the deferral period. In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350).” The ASU amended existing guidance to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The amendments require an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The ASU is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The amendment should be applied prospectively. The Corporation is in the process of evaluating the impact of this standard but does not expect this standard to have a material impact on its results of operations, financial position, and liquidity. In August 2018, the FASB issued ASU No. 2018-15, “Intangibles-Goodwill and Other Internal-Use Software (Subtopic 350-40).” The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Implementation costs incurred in the application development stage are capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post implementation stages are expensed as the activities are performed. The amendment also requires entities to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement and in the same income statement line item as the fees associated with the hosting element. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Corporation is in the process of evaluating the impact of this standard but does not expect this standard to have a material impact on its results of operations, financial position, and liquidity. |
Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses (Policies) |
12 Months Ended |
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Receivables [Abstract] | |
Allowance for Loan and Lease Losses | The allowance for loan and lease losses is maintained at a level that management deems appropriate to absorb probable and estimable losses inherent in the loan and lease portfolios. The methodology applied for determining inherent losses stems from current risk characteristics of the loan and lease portfolio, an assessment of individual impaired loans and leases, actual loss experience, and adverse situations that may affect the borrower’s ability to repay. The methodology also focuses on evaluation of several factors for each portfolio category, including but not limited to: management’s ongoing review and grading of the loan and lease portfolios, consideration of delinquency experience, changes in the size of the loan and lease portfolios, existing economic conditions, level of loans and leases subject to more frequent review by management, changes in underlying collateral, concentrations of loans to specific industries, and other qualitative and quantitative factors that could affect credit losses. Impaired and other loans and leases have risk characteristics that are unique to an individual borrower and the loss must be estimated on an individual basis. Loans and leases that are not individually reviewed and measured for impairment are aggregated and historical loss statistics are primarily used to determine the risk of loss. The measurement of the estimate of loss is reliant upon historical experience, information about the ability of the individual debtor to pay, and the appraisal of loan collateral in light of current economic conditions. An estimate of loss is an approximation of what portion of all amounts receivable, according to the contractual terms of that receivable, is deemed uncollectible. Determination of the allowance is inherently subjective because it requires estimation of amounts and timing of expected future cash flows on impaired loans and leases, estimation of losses on types of loans and leases based on historical losses, and consideration of current economic trends, both local and national. Based on management’s periodic review using all previously mentioned pertinent factors, a provision for loan and lease losses is charged to expense when it is determined an increase in the allowance for loan and lease losses is appropriate. A negative provision for loan and lease losses may be recognized if management determines a reduction in the level of allowance for loan and lease losses is appropriate. Loan and lease losses are charged against the allowance and recoveries are credited to the allowance. The allowance for loan and lease losses contains specific allowances established for expected losses on impaired loans and leases. Impaired loans and leases are defined as loans and leases for which, based on current information and events, it is probable that the Corporation will be unable to collect scheduled principal and interest payments according to the contractual terms of the loan or lease agreement. Loans and leases subject to impairment are defined as non-accrual and restructured loans and leases. Impaired loans and leases are evaluated on an individual basis to determine the amount of specific reserve or charge-off required, if any. The measurement value of impaired loans and leases is determined based on the present value of expected future cash flows discounted at the loan’s effective interest rate (the contractual interest rate adjusted for any net deferred loan fees or costs, premium or discount existing at the origination or acquisition of the loan), the market price of the loan or lease, or the fair value of the underlying collateral less costs to sell, if the loan or lease is collateral dependent. A loan or lease is collateral dependent if repayment is expected to be provided principally by the underlying collateral. A loan’s effective interest rate may change over the life of the loan based on subsequent changes in rates or indices, or may be fixed at the rate in effect at the date the loan was determined to be impaired. Subsequent to the initial impairment, any significant change in the amount or timing of an impaired loan or lease’s future cash flows will result in a reassessment of the valuation allowance to determine if an adjustment is necessary. Measurements based on observable market price or fair value of the collateral may change over time and require a reassessment of the allowance if there is a significant change in either measurement base. Any increase in the present value of expected future cash flows attributable to the passage of time is recorded as interest income accrued on the net carrying amount of the loan or lease at the effective interest rate used to discount the impaired loan or lease’s estimated future cash flows. Any change in present value attributable to changes in the amount or timing of expected future cash flows is recorded as loan loss expense in the same manner in which impairment was initially recognized or as a reduction of loan loss expense that otherwise would be reported. Where the level of loan or lease impairment is measured using observable market price or fair value of collateral, any decrease in the observable market price of an impaired loan or lease or fair value of the collateral of an impaired collateral-dependent loan or lease is recorded as loan loss expense in the same manner in which impairment was initially recognized. Any increase in the observable market value of the impaired loan or lease or fair value of the collateral of an impaired collateral-dependent loan or lease is recorded as a reduction in the amount of loan loss expense that otherwise would be reported. To determine the level and composition of the allowance for loan and lease losses, the Corporation categorizes the portfolio into segments with similar risk characteristics. First, the Corporation evaluates loans and leases for potential impairment classification. The Corporation analyzes each loan and lease determined to be impaired on an individual basis to determine a specific reserve based upon the estimated value of the underlying collateral for collateral-dependent loans, or alternatively, the present value of expected cash flows. The Corporation applies historical trends from established risk factors to each category of loans and leases that has not been individually evaluated for the purpose of establishing the general portion of the allowance. |
Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses (Tables) |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loan Composition Schedule | Loan and lease receivables consist of the following:
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Ownership of SBA Loans | The total amount of the Corporation’s ownership of SBA loans is comprised of the following:
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Schedule of Related Party Transactions | Certain of the Corporation’s executive officers, directors, and their related interests are loan clients of the Bank. These loans to related parties are summarized below:
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Financing Receivable by Credit Quality Indicators | The following tables illustrate ending balances of the Corporation’s loan and lease portfolio, including impaired loans by class of receivable, and considering certain credit quality indicators:
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||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Past Due Financing Receivables | The delinquency aging of the loan and lease portfolio by class of receivable was as follows:
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||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Financing Receivables, Non Accrual Status | The Corporation’s total impaired assets consisted of the following:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Troubled Debt Restructurings on Financing Receivables | The following table provides the number of loans modified in a troubled debt restructuring and the pre- and post-modification recorded investment by class of receivable:
|
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Impaired Financing Receivables | The following represents additional information regarding the Corporation’s impaired loans and leases, including performing troubled debt restructurings, by class:
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Summary of Allowance for Loan and Lease Loss Activity by Portfolio Segment | A summary of the activity in the allowance for loan and lease losses by portfolio segment is as follows:
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Allowance for Credit Losses on Financing Receivables | The following tables provide information regarding the allowance for loan and lease losses and balances by type of allowance methodology:
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Net Investment In Direct Financing Leases | The Corporation’s net investment in direct financing leases consists of the following:
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Schedule of Future Minimum Lease Payments for Capital Leases | Future aggregate maturities of minimum lease payments to be received are as follows:
|
Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2019 |
Dec. 31, 2018 |
|
Statement of Comprehensive Income [Abstract] | ||
Net income | $ 23,324 | $ 16,303 |
Other comprehensive loss, before tax | ||
Unrealized securities gains (losses) arising during the period | 2,747 | (662) |
Reclassification adjustment for net loss (gain) realized in net income | 46 | 4 |
Amortization of net unrealized losses transferred from available-for-sale | 54 | 70 |
Unrealized losses on interest rate swaps arising during the period | (2,396) | (20) |
Income tax (expense) benefit | 115 | (179) |
Total other comprehensive gain (loss) | 336 | (429) |
Comprehensive income | $ 23,660 | $ 15,874 |
Document and Entity Information - USD ($) $ in Millions |
12 Months Ended | |
---|---|---|
Dec. 31, 2019 |
Feb. 18, 2020 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | First Business Financial Services, Inc. | |
Entity Central Index Key | 0001521951 | |
Current Fiscal Year End Date | --12-31 | |
Document Type | 10-K | |
Document Period End Date | Dec. 31, 2019 | |
Document Fiscal Year Focus | 2019 | |
Document Fiscal Period Focus | FY | |
Amendment Flag | false | |
Entity Emerging Growth Company | false | |
Entity Small Business | true | |
Entity Interactive Data Current | Yes | |
Entity Well-known Seasoned Issuer | No | |
Entity Shell Company | false | |
Entity Voluntary Filers | No | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Accelerated Filer | |
Entity Public Float | $ 203.9 | |
Entity Common Stock, Shares Outstanding | 8,513,390 |
Deposits (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits | The composition of deposits is shown below.
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Time Deposits By Maturity | A summary of annual maturities of certificates of deposit outstanding and wholesale deposits at December 31, 2019 is as follows:
|
Nature of Operations and Summary of Significant Accounting Policies Direct Financing Leases (Details) |
12 Months Ended |
---|---|
Dec. 31, 2019 | |
Minimum | |
Unguaranteed Residual Percentage Of Cost [Line Items] | |
Unguaranteed residual percent of cost | 3.00% |
Maximum | |
Unguaranteed Residual Percentage Of Cost [Line Items] | |
Unguaranteed residual percent of cost | 20.00% |
Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses (Troubled Debt Restructurings) (Details) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2019
USD ($)
loans
|
Dec. 31, 2018
loans
|
|
Troubled debt restructurings: | ||
Number of loans | loans | 17 | 0 |
Financing Receivable, Troubled Debt Restructuring, Premodification | $ 17,146 | |
Financing Receivable, Troubled Debt Restructuring, Postmodification | $ 13,459 | |
Commercial real estate — owner occupied | ||
Troubled debt restructurings: | ||
Number of loans | loans | 2 | |
Financing Receivable, Troubled Debt Restructuring, Premodification | $ 3,774 | |
Financing Receivable, Troubled Debt Restructuring, Postmodification | $ 3,614 | |
Commercial and industrial | ||
Troubled debt restructurings: | ||
Number of loans | loans | 15 | |
Financing Receivable, Troubled Debt Restructuring, Premodification | $ 13,372 | |
Financing Receivable, Troubled Debt Restructuring, Postmodification | $ 9,845 |
Leases Leases (Quantitative Information on Operating Leases) (Details) |
Dec. 31, 2019 |
---|---|
Leases [Abstract] | |
Operating Lease, Weighted Average Remaining Lease Term | 6 years 6 months 22 days |
Operating Lease, Weighted Average Discount Rate, Percent | 3.09% |
Other Assets (Details) - USD ($) $ in Thousands |
Dec. 31, 2019 |
Dec. 31, 2018 |
---|---|---|
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||
Accrued interest receivable | $ 5,760 | $ 5,684 |
Net deferred tax asset | 5,353 | 3,172 |
Investment in historic development entities | 2,216 | 1,653 |
Investment in a community development entity | 5,571 | 6,081 |
Investment in limited partnerships | 4,476 | 4,176 |
Investment in Trust II | 315 | 315 |
Fair value of interest rate swaps | 18,346 | 4,637 |
Prepaid expenses | 2,285 | 2,894 |
Other assets | 4,184 | 6,039 |
Total accrued interest receivable and other assets | $ 48,506 | $ 34,651 |
Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses Net Investment In Direct Financing Leases (Details) - USD ($) $ in Thousands |
Dec. 31, 2019 |
Dec. 31, 2018 |
---|---|---|
Receivables [Abstract] | ||
Minimum lease payments receivable | $ 24,165 | $ 26,700 |
Estimated unguaranteed residual values in leased property | 6,732 | 9,330 |
Initial direct costs | 111 | 73 |
Unearned lease and residual income | 2,805 | 2,933 |
Investment in commercial direct financing leases | $ 28,203 | $ 33,170 |
Stockholders' Equity and Regulatory Capital (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Broker-Dealer, Net Capital Requirement, SEC Regulation [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations | The following tables summarize both the Corporation’s and the Bank’s capital ratios and the ratios required by their federal regulators:
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Reconciliation of stockholders' equity to federal regulatory capital | The following table reconciles stockholders’ equity to federal regulatory capital at December 31, 2019 and 2018, respectively:
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Derivative Financial Instruments (Tables) |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Location and Fair Value of the Company's Derivative Financial Instruments | Information about the balance sheet location and fair value of the Corporation’s derivative instruments is below:
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Condensed Quarterly Earnings (Tables) |
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Quarterly Financial Information Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Quarterly Financial Information |
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Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses (SBA Loans) (Details) - USD ($) $ in Thousands |
Dec. 31, 2019 |
Dec. 31, 2018 |
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Receivables [Abstract] | ||
SBA 7(a) loans | $ 40,402 | $ 44,201 |
SBA 504 Loans | 20,592 | 10,574 |
SBA Express Loans | 1,781 | 1,721 |
SBA Loans | $ 62,775 | $ 56,496 |
FHLB Advances, Other Borrowings and Junior Subordinated Notes Trust II Issuance Of Trust Preferred Securities (Details) - USD ($) |
Dec. 31, 2019 |
Dec. 31, 2018 |
Sep. 26, 2008 |
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Variable Interest Entity | |||
Trust preferred securities | $ 10,047,000 | $ 10,033,000 | |
Sole ownership of common securities issued by Trust II | 315,000 | ||
Junior subordinated notes | 10,047,000 | $ 10,033,000 | |
Unamortized Debt Issuance Expense | $ 268,000 | ||
Trust II | |||
Variable Interest Entity | |||
Trust preferred securities | $ 10,000,000 | ||
Trust preferred securities fixed rate | 10.50% | ||
Sole ownership of common securities issued by Trust II | $ 315,000 | ||
Junior subordinated notes | |||
Variable Interest Entity | |||
Trust preferred securities fixed rate | 10.50% | ||
Junior subordinated notes | $ 10,300,000 |
Employee Benefit Plans (Bank Owned Life Insurance) (Details) - USD ($) $ in Thousands |
Dec. 31, 2019 |
Dec. 31, 2018 |
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Bank owned life insurance [Line Items] | ||
Bank-owned life insurance | $ 42,761 | $ 41,538 |
Bank owned life insurance death benefits | 97,900 | 97,800 |
Insured executive officers with deferred compensation plans | ||
Bank owned life insurance [Line Items] | ||
Bank-owned life insurance | 2,600 | 2,500 |
Bank owned life insurance death benefits | 6,000 | 5,900 |
Other insured individuals | ||
Bank owned life insurance [Line Items] | ||
Bank-owned life insurance | $ 40,200 | $ 39,000 |
Share-Based Compensation (Restricted Share Activity) (Details) - $ / shares |
12 Months Ended | |
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Dec. 31, 2019 |
Dec. 31, 2018 |
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Number of Restricted Shares | ||
Nonvested balance, beginning | 131,621 | 130,441 |
Granted (1) | 95,265 | 66,498 |
Vested | (48,207) | (46,034) |
Forfeited | (1,744) | (19,284) |
Nonvested balance, ending | 176,935 | 131,621 |
Weighted Average Grant-Date Fair Value | ||
Nonvested balance, beginning | $ 21.02 | $ 21.43 |
Granted (1) | 23.64 | 20.57 |
Vested | 20.62 | 21.01 |
Forfeited | 23.67 | 22.25 |
Nonvested balance, ending | $ 22.51 | $ 21.02 |
Nature of Operations and Summary of Significant Accounting Policies Nature of Operations and Summary of Significant Accounting Policies (Policies) |
12 Months Ended |
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Dec. 31, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Accounting | Nature of Operations. The accounting and reporting practices of First Business Financial Services, Inc. (“FBFS” or the “Corporation”), through our wholly-owned subsidiary, First Business Bank (“FBB” or the “Bank”), have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). FBB operates as a commercial banking institution primarily in Wisconsin and the greater Kansas City Metro. FBB also offers private wealth management services through First Business Trust & Investments (“FBTI”) and bank consulting services through First Business Consulting Services (“FBCS”), both divisions of FBB. The Bank provides a full range of financial services to businesses, business owners, executives, professionals, and high net worth individuals. The Bank is subject to competition from other financial institutions and service providers, and is also subject to state and federal regulations. FBB has the following wholly-owned subsidiaries: First Business Capital Corp. (“FBCC”), First Madison Investment Corp. (“FMIC”), First Business Equipment Finance, LLC (“FBEF”), ABKC Real Estate, LLC (“ABKC”), FBB Real Estate 2, LLC (“FBB RE 2”), Rimrock Road Investment Fund, LLC (“Rimrock Road”), BOC Investment, LLC (“BOC”), Mitchell Street Apartments Investment, LLC (“Mitchell Street”), and FBB Tax Credit Investment LLC (“FBB Tax Credit”). FMIC is located in and was formed under the laws of the state of Nevada. |
Principles of Consolidation | Basis of Presentation. The Consolidated Financial Statements include the accounts of the Corporation and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. In accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 810, the Corporation’s ownership interest in FBFS Statutory Trust II (“Trust II”) has not been consolidated into the financial statements. |
Use of Estimates | Management of the Corporation is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that could significantly change in the near-term include the value of securities and interest rate swaps, level of the allowance for loan and lease losses, lease residuals, property under operating leases, goodwill, level of the Small Business Administration (“SBA”) recourse reserve, and income taxes. |
Reclassification | Certain amounts in prior periods may have been reclassified to conform to the current presentation. |
Subsequent Events | Subsequent events have been evaluated through the date of the issuance of the Consolidated Financial Statements. No significant subsequent events have occurred through this date requiring adjustment to the financial statements or disclosures. |
Cash and Cash Equivalents | Cash and Cash Equivalents. The Corporation considers federal funds sold, interest-bearing deposits, and short-term investments that have original maturities of three months or less to be cash equivalents. |
Securities | Securities. The Corporation classifies its investment and mortgage-related securities as available-for-sale, held-to-maturity, and trading. Debt securities that the Corporation has the positive intent and ability to hold to maturity are classified as held-to-maturity and are stated at amortized cost. Debt securities bought expressly for the purpose of selling in the near term are classified as trading securities and are measured at fair value with unrealized gains and losses reported in earnings. Debt securities not classified as held-to-maturity or as trading are classified as available-for-sale. Available-for-sale securities are measured at fair value with unrealized gains and losses reported as a separate component of stockholders’ equity, net of tax. Realized gains and losses, and declines in value deemed to be other than temporary, are included in the Consolidated Statements of Income as a component of non-interest income. The cost of securities sold is based on the specific identification method. The Corporation did not hold any trading securities at December 31, 2019 or 2018. Discounts and premiums on securities are accreted and amortized into interest income using the effective yield method over the estimated life (based on maturity date, call date, or weighted average life) of the related security. Declines in the fair value of investment securities (with certain exceptions for debt securities noted below) that are deemed to be other-than-temporary are charged to earnings as a realized loss and a new cost basis for the securities is established. In evaluating other-than-temporary impairment, management considers the length of time and extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value in the near term. Declines in the fair value of debt securities below amortized cost are deemed to be other-than-temporary in circumstances where: (1) the Corporation has the intent to sell a security; (2) it is more likely than not that the Corporation will be required to sell the security before recovery of its amortized cost basis; or (3) the Corporation does not expect to recover the entire amortized cost basis of the security. If the Corporation intends to sell a security or if it is more likely than not that the Corporation will be required to sell the security before recovery, an other-than-temporary impairment write-down is recognized in earnings equal to the difference between the security’s amortized cost basis and its fair value. If the Corporation does not intend to sell the security or it is not more likely than not that it will be required to sell the security before recovery, the other-than-temporary impairment write-down is separated into an amount representing credit loss, which is recognized in earnings, and an amount related to all other factors, which is recognized in other comprehensive income. |
Loans Held for Sale | Loans Held for Sale. The guaranteed portions of SBA loans which are originated and intended for sale in the secondary market are classified as held for sale. These loans are carried at the lower of cost or fair value in the aggregate. Unrealized losses on such loans are recognized through a valuation allowance by a charge to other non-interest income. Gains and losses on the sale of loans are also included in other non-interest income. As assets specifically originated for sale, the origination of, disposition of, and gain/loss on these loans are classified as operating activities in the Consolidated Statement of Cash Flows. Fees received from the borrower and direct costs to originate the loans are deferred and recognized as part of the gain or loss on sale. There was $5.2 million and $5.3 million in loans held for sale outstanding at December 31, 2019 and 2018, respectively. |
Loans and Leases | Loans and Leases. Loans and leases which management has the intent and ability to hold for the foreseeable future or until maturity are reported at their outstanding principal balance with adjustments for partial charge-offs, the allowance for loan and lease losses, deferred fees or costs on originated loans and leases, and unamortized premiums or discounts on any purchased loans. A loan or a lease is accounted for as a troubled debt restructuring if the Corporation, for economic or legal reasons related to the borrower’s financial condition, grants a concession to the borrower that it would not otherwise consider. A troubled debt restructuring may involve the receipt of assets from the debtor in partial or full satisfaction of the loan or lease or a modification of terms, such as a reduction of the stated interest rate or face amount of the loan or lease, a reduction of accrued interest, an extension of the maturity date at a stated interest rate lower than the current market rate for a new loan or lease with similar risk, or some combination of these concessions. Restructured loans can involve loans remaining on non-accrual, moving to non-accrual, or continuing on accrual status, depending on individual facts and circumstances. Non-accrual restructured loans are included and treated with all other non-accrual loans. In addition, all accruing restructured loans are reported as troubled debt restructurings which are considered and accounted for as impaired loans. Generally, restructured loans remain on non-accrual until the borrower has attained a sustained period of repayment performance under the modified loan terms (generally a minimum of six months). However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can meet the new terms and whether the loan should be returned to or maintained on accrual status. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan remains on non-accrual. Interest on non-impaired loans and leases is accrued and credited to income on a daily basis based on the unpaid principal balance and is calculated using the effective interest method. Per policy, a loan or a lease is considered impaired and placed on non-accrual status when it becomes 90 days past due or it is doubtful that contractual principal and interest will be collected in accordance with the terms of the contract. A loan or lease is determined to be past due if the borrower fails to meet a contractual payment and will continue to be considered past due until all contractual payments are received. When a loan or lease is placed on non-accrual, the interest accrual is discontinued and previously accrued but uncollected interest is deducted from interest income. If collectability of the contractual principal and interest is in doubt, payments received are first applied to reduce the loan principal. If collectability of the contractual payments is not in doubt, payments may be applied to interest for interest amounts due on a cash basis. As soon as it is determined with certainty that the principal of an impaired loan or lease is uncollectable, either through collections from the borrower or disposition of the underlying collateral, the portion of the carrying balance that exceeds the estimated measurement value of the loan or lease is charged off. Loans or leases are returned to accrual status when they are brought current in terms of both principal and accrued interest due, have performed in accordance with contractual terms for a reasonable period of time, and when the ultimate collectability of total contractual principal and interest is no longer doubtful. Transfers of assets, including but not limited to the guaranteed portions of SBA loans and participation interests in other, non-SBA originated loans, that upon completion of the transfer satisfy the conditions to be reported as a sale, including legal isolation, are derecognized from the Consolidated Financial Statements. Transfers of assets that upon completion of the transfer do not meet the conditions of a sale are recorded on a gross basis with a secured borrowing identified to reflect the amount of the transferred interest. Loan and lease origination fees as well as certain direct origination costs are deferred and amortized as an adjustment to loan yields over the stated term of the loan or lease. Loans or leases that result from a refinance or restructuring, other than a troubled debt restructuring, where terms are at least as favorable to the Corporation as the terms for comparable loans to other borrowers with similar collection risks and result in an essentially new loan or lease, are accounted for as a new loan or lease. Any unamortized net fees, costs, or penalties are recognized when the new loan or lease is originated. Unamortized net loan or lease fees or costs for loans and leases that result from a refinance or restructure with only minor modifications to the original loan or lease contract are carried forward as a part of the net investment in the new loan or lease. For troubled debt restructurings, all fees received in connection with a modification of terms are applied as a reduction of the loan or lease and any related costs, including direct loan origination costs, are charged to expense as incurred. |
Allowance for Loan and Lease Losses | The allowance for loan and lease losses is maintained at a level that management deems appropriate to absorb probable and estimable losses inherent in the loan and lease portfolios. The methodology applied for determining inherent losses stems from current risk characteristics of the loan and lease portfolio, an assessment of individual impaired loans and leases, actual loss experience, and adverse situations that may affect the borrower’s ability to repay. The methodology also focuses on evaluation of several factors for each portfolio category, including but not limited to: management’s ongoing review and grading of the loan and lease portfolios, consideration of delinquency experience, changes in the size of the loan and lease portfolios, existing economic conditions, level of loans and leases subject to more frequent review by management, changes in underlying collateral, concentrations of loans to specific industries, and other qualitative and quantitative factors that could affect credit losses. Impaired and other loans and leases have risk characteristics that are unique to an individual borrower and the loss must be estimated on an individual basis. Loans and leases that are not individually reviewed and measured for impairment are aggregated and historical loss statistics are primarily used to determine the risk of loss. The measurement of the estimate of loss is reliant upon historical experience, information about the ability of the individual debtor to pay, and the appraisal of loan collateral in light of current economic conditions. An estimate of loss is an approximation of what portion of all amounts receivable, according to the contractual terms of that receivable, is deemed uncollectible. Determination of the allowance is inherently subjective because it requires estimation of amounts and timing of expected future cash flows on impaired loans and leases, estimation of losses on types of loans and leases based on historical losses, and consideration of current economic trends, both local and national. Based on management’s periodic review using all previously mentioned pertinent factors, a provision for loan and lease losses is charged to expense when it is determined an increase in the allowance for loan and lease losses is appropriate. A negative provision for loan and lease losses may be recognized if management determines a reduction in the level of allowance for loan and lease losses is appropriate. Loan and lease losses are charged against the allowance and recoveries are credited to the allowance. The allowance for loan and lease losses contains specific allowances established for expected losses on impaired loans and leases. Impaired loans and leases are defined as loans and leases for which, based on current information and events, it is probable that the Corporation will be unable to collect scheduled principal and interest payments according to the contractual terms of the loan or lease agreement. Loans and leases subject to impairment are defined as non-accrual and restructured loans and leases. Impaired loans and leases are evaluated on an individual basis to determine the amount of specific reserve or charge-off required, if any. The measurement value of impaired loans and leases is determined based on the present value of expected future cash flows discounted at the loan’s effective interest rate (the contractual interest rate adjusted for any net deferred loan fees or costs, premium or discount existing at the origination or acquisition of the loan), the market price of the loan or lease, or the fair value of the underlying collateral less costs to sell, if the loan or lease is collateral dependent. A loan or lease is collateral dependent if repayment is expected to be provided principally by the underlying collateral. A loan’s effective interest rate may change over the life of the loan based on subsequent changes in rates or indices, or may be fixed at the rate in effect at the date the loan was determined to be impaired. Subsequent to the initial impairment, any significant change in the amount or timing of an impaired loan or lease’s future cash flows will result in a reassessment of the valuation allowance to determine if an adjustment is necessary. Measurements based on observable market price or fair value of the collateral may change over time and require a reassessment of the allowance if there is a significant change in either measurement base. Any increase in the present value of expected future cash flows attributable to the passage of time is recorded as interest income accrued on the net carrying amount of the loan or lease at the effective interest rate used to discount the impaired loan or lease’s estimated future cash flows. Any change in present value attributable to changes in the amount or timing of expected future cash flows is recorded as loan loss expense in the same manner in which impairment was initially recognized or as a reduction of loan loss expense that otherwise would be reported. Where the level of loan or lease impairment is measured using observable market price or fair value of collateral, any decrease in the observable market price of an impaired loan or lease or fair value of the collateral of an impaired collateral-dependent loan or lease is recorded as loan loss expense in the same manner in which impairment was initially recognized. Any increase in the observable market value of the impaired loan or lease or fair value of the collateral of an impaired collateral-dependent loan or lease is recorded as a reduction in the amount of loan loss expense that otherwise would be reported. To determine the level and composition of the allowance for loan and lease losses, the Corporation categorizes the portfolio into segments with similar risk characteristics. First, the Corporation evaluates loans and leases for potential impairment classification. The Corporation analyzes each loan and lease determined to be impaired on an individual basis to determine a specific reserve based upon the estimated value of the underlying collateral for collateral-dependent loans, or alternatively, the present value of expected cash flows. The Corporation applies historical trends from established risk factors to each category of loans and leases that has not been individually evaluated for the purpose of establishing the general portion of the allowance. |
Net Investment in Direct Financing Leases and Operating Leases | Net Investment in Direct Financing Leases. The net investment in direct financing lease agreements represents total undiscounted payments plus estimated unguaranteed residual value (approximating 3% to 20% of the cost of the related equipment) and is recorded as lease receivables when the lease is signed and the leased property is delivered to the client. The excess of the minimum lease payments and residual values over the cost of the equipment is recorded as unearned lease income. Unearned lease income is recognized over the term of the lease on a basis which results in an approximate level rate of return on the unrecovered lease investment. Lease payments are recorded when due under the lease contract. Residual values are established at lease inception equal to the estimated value to be received from the equipment following termination of the initial lease and such estimated value considers all relevant information and circumstances regarding the equipment. In estimating the equipment’s fair value at lease termination, the Corporation relies on internally or externally prepared appraisals, published sources of used equipment prices, and historical experience adjusted for known current industry and economic trends. The Corporation’s estimates are periodically reviewed to ensure reasonableness; however, the amounts the Corporation will ultimately realize could differ from the estimated amounts. When there are other than temporary declines in the Corporation’s carrying amount of the unguaranteed residual value, the carrying value is reduced and charged to non-interest expense. |
Leasehold Improvements and Equipment | Premises and Equipment, net. The cost of capitalized leasehold improvements is amortized on the straight-line method over the lesser of the term of the respective lease or estimated economic life. Equipment is stated at cost less accumulated depreciation and amortization which is calculated by the straight-line method over the estimated useful lives of three to ten years. Maintenance and repair costs are charged to expense as incurred. Improvements which extend the useful life are capitalized and depreciated over the remaining useful life of the assets. |
Foreclosed Properties | Foreclosed Properties. Property acquired by repossession, foreclosure, or by deed in lieu of foreclosure is recorded at the fair value of the underlying property, less costs to sell. This fair value becomes the new cost basis for the foreclosed property. Any write-down in the carrying value of a loan or lease at the time of acquisition is charged to the allowance for loan and lease losses. Any subsequent write-downs to reflect current fair value, as well as gains and losses on disposition and revenues are recorded in non-interest expense. Costs relating to the development and improvement of the property are capitalized while holding period costs are charged to other non-interest expense. |
Bank-Owned Life Insurance | Bank-Owned Life Insurance. Bank-owned life insurance (“BOLI”) is reported at the amount that would be realized if the life insurance policies were surrendered on the balance sheet date. BOLI policies owned by the Bank are purchased with the objective to fund certain future employee benefit costs with the death benefit proceeds. The cash surrender value of such policies is recorded in bank-owned life insurance on the Consolidated Balance Sheets and changes in the value are recorded in non-interest income. The total death benefit of all BOLI policies was $97.9 million and $97.8 million as of December 31, 2019 and 2018, respectively. There are no restrictions on the use of BOLI proceeds nor are there any contractual restrictions on the ability to surrender the policy. As of December 31, 2019 and 2018, there were no borrowings against the cash surrender value of the BOLI policies. |
Regulatory Required Holdings | Federal Home Loan Bank Stock. The Bank is required to maintain Federal Home Loan Bank (“FHLB”) stock as members of the FHLB, and in amounts as required by the FHLB. This equity security is “restricted” in that it can only be sold back to the FHLB or another member institution at par. Therefore, it is less liquid than other marketable equity securities and the fair value is equal to cost. At December 31, 2019 and 2018, the Bank had FHLB stock of $8.0 million and $7.2 million, respectively. The Corporation periodically evaluates its holding in FHLB stock for impairment. Should the stock be impaired, it would be written down to its estimated fair value. There were no impairments recorded on FHLB stock during the years ended December 31, 2019 or 2018. |
Goodwill and Intangible Assets | Goodwill and Other Intangible Assets. Goodwill and other intangible assets consist primarily of goodwill, core deposit intangibles, and loan servicing rights. Core deposit intangibles have estimated finite lives and are amortized on an accelerated basis to expense over a period of seven years. Loan servicing rights, when originated, are initially recorded at fair value and subsequently amortized in proportion to and over the period of estimated net servicing income. The Corporation reviews other intangible assets for impairment at least annually, or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, in which case an impairment charge would be recorded. Goodwill is not amortized but is subject to impairment tests on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount (including goodwill). An initial qualitative evaluation is made to assess the likelihood of impairment and determine whether further quantitative testing to calculate the fair value is necessary. When the qualitative evaluation indicates that impairment is more likely than not, quantitative testing is required whereby the fair value of each reporting unit is calculated and compared to the recorded book value, Step 1. If the calculated fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired and Step 2 is not considered necessary. If the carrying value of a reporting unit exceeds its calculated fair value, the impairment test continues (Step 2) by comparing the carrying value of the reporting unit’s goodwill to the implied fair value of goodwill. The implied fair value is computed by adjusting all assets and liabilities of the reporting unit to current fair value with the offset adjustment to goodwill. The adjusted goodwill balance is the implied fair value of the goodwill. An impairment charge is recognized if the carrying value of goodwill exceeds the implied fair value of goodwill. |
Other Investments | Other Investments. The Corporation owns certain equity investments in other corporate organizations which are not consolidated because the Corporation does not own more than a 50% interest or exercise control over the organization. Investments in corporations representing at least a 20% interest are generally accounted for using the equity method and investments in corporations representing less than 20% interest are generally accounted for at cost. Investments in limited partnerships representing from at least a 3% up to a 50% interest in the entity are generally accounted for using the equity method and investments in limited partnerships representing less than 3% are generally accounted for at cost. All of these investments are periodically evaluated for impairment. Should an investment be impaired, it would be written down to its estimated fair value. The equity investments are reported in other assets and the income and expense from such investments, if any, is reported in non-interest income and non-interest expense. |
Derivative Instruments | Derivative Instruments. The Corporation uses derivative instruments to protect against the risk of adverse price or interest rate movements on the value of certain assets, liabilities, future cash flows, and economic hedges for written client derivative contracts. Derivative instruments represent contracts between parties that usually require little or no initial net investment and result in one party delivering cash to the other party based on a notional amount and an underlying variable, as specified in the contract, and may be subject to master netting agreements. Market risk is the risk of loss arising from an adverse change in interest rates, exchange rates, or equity prices. The Corporation’s primary market risk is interest rate risk. Instruments designed to manage interest rate risk include interest rate swaps, interest rate options, and interest rate caps and floors with indices that relate to the pricing of specific assets and liabilities. The nature and volume of the derivative instruments used to manage interest rate risk depend on the level and type of assets and liabilities on the balance sheet and the risk management strategies for the current and anticipated rate environments. Counterparty risk with respect to derivative instruments occurs when a counterparty to a derivative contract with an unrealized gain fails to perform according to the terms of the agreement. Counterparty risk is managed by limiting the counterparties to highly rated dealers, requiring collateral postings when values are in deficit positions, applying uniform credit standards to all activities with credit risk, and monitoring the size and the maturity structure of the derivative portfolio. All derivative instruments are to be carried at fair value on the Consolidated Balance Sheets. The accounting for the gain or loss due to changes in the fair value of a derivative instrument depends on whether the derivative instrument qualifies as a hedge. If the derivative instrument does not qualify as a hedge, the gains or losses are reported in earnings when they occur. However, if the derivative instrument qualifies as a hedge, the accounting varies based on the type of risk being hedged. The Corporation utilizes interest rate swaps offered directly to qualified commercial borrowers, which do not qualify for hedge accounting, and therefore, all changes in fair value and gains and losses on these instruments are reported in earnings as they occur. The effects of netting arrangements are disclosed within the Notes of the Consolidated Financial Statements. The Corporation also enters into interest rate swaps to manage interest rate risk and reduce the cost of match-funding certain long-term fixed rate loans. These derivative contracts are designated as a cash flow hedge as the receipt of floating interest from the counterparty is used to manage interest rate risk associated with forecasted issuances of short-term FHLB advances. The change in fair value of the hedging instrument is recorded in accumulated other comprehensive income. |
SBA Recourse Reserve | SBA Recourse Reserve. The Corporation establishes SBA recourse reserves on the guaranteed portions of sold SBA loans. The recourse reserve is reported in accrued interest payable and other liabilities on the Consolidated Balance Sheets and consists of two components: (1) specific reserves for individually evaluated impaired loans that present a collateral shortfall where the guaranty associated with the sold portion of the SBA loan is determined to most likely be ineligible; and (2) general reserves for estimated probable losses on the remaining sold portfolio. The general reserve methodology is based on the evaluation of several factors, including but not limited to: credit quality trends within the SBA portfolio, changes in underlying collateral, and the Corporation’s ability to originate, fund, or service sold SBA loans in accordance with SBA regulations. In the ordinary course of business, the Corporation sells the guaranteed portions of SBA loans to third parties. The Corporation has a continuing involvement in each of the transferred lending arrangements by way of relationship management, servicing the loans, as well as being subject to normal and customary requirements of the SBA loan program; however, there are no further obligations to the third-party participant required of the Corporation, other than standard representations and warranties related to sold amounts. In the event of a loss resulting from default and a determination by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by the Corporation, the SBA may require the Corporation to repurchase the loan, deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of the principal loss related to the deficiency from the Corporation. The Corporation must comply with applicable SBA regulations in order to maintain the guaranty. In addition, the Corporation retains the option to repurchase the sold guaranteed portion of an SBA loan if the loan defaults. |
Income Taxes | Income Taxes. Deferred income tax assets and liabilities are computed for temporary differences in timing between the financial statement and tax basis of assets and liabilities that result in taxable or deductible amounts in the future based on enacted tax law and rates applicable to periods in which the differences are expected to affect taxable income. The effect of a change in tax rates on deferred taxes is recognized in income in the period that includes the enactment date. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversals of deferred tax liabilities, appropriate tax planning strategies, and projections for future taxable income over the period which the deferred tax assets are deductible. When necessary, valuation allowances are established to reduce deferred tax assets to the realizable amount. Management believes it is more likely than not that the Corporation will realize the benefits of these deductible differences, net of the existing valuation allowances. Income tax expense or benefit represents the tax payable or tax refundable for a period, adjusted by the applicable change in deferred tax assets and liabilities for that period. The Corporation also invests in certain development entities that generate federal and state historic tax credits. The tax benefits associated with these investments are accounted for under the flow-through method and are recognized when the respective project is placed in service. The Corporation and its subsidiaries file a consolidated federal income tax return and separate state income tax returns. Tax sharing agreements allocate taxes to each legal entity for the settlement of intercompany taxes. The Corporation applies a more likely than not standard to each of its tax positions when determining the amount of tax expense or benefit to record in its financial statements. Unrecognized tax benefits are recorded in other liabilities. The Corporation recognizes accrued interest relating to unrecognized tax benefits in income tax expense and penalties in other non-interest expense. |
Other Comprehensive Income or Loss | Other Comprehensive Income or Loss. Comprehensive income or loss, shown as a separate financial statement, includes net income or loss, changes in unrealized gains and losses on available-for-sale securities, changes in deferred gains and losses on investment securities transferred from available-for-sale to held-to-maturity, if any, changes in unrealized gains and losses associated with cash flow hedging instruments, if any, and the amortization of deferred gains and losses associated with terminated cash flow hedges, if any. For the years ended December 31, 2019, and 2018, realized securities losses of $46,000 and $4,000 were reclassified out of accumulated other comprehensive income, respectively. |
Earnings Per Common Share | Earnings Per Common Share. Earnings per common share (“EPS”) is computed using the two-class method. Basic EPS is computed by dividing net income allocated to common shares by the weighted average number of common shares outstanding for the period, excluding any participating securities. Participating securities include unvested restricted shares. Unvested restricted shares are considered participating securities because holders of these securities receive non-forfeitable dividends at the same rate as the holders of the Corporation’s common stock. Diluted EPS is computed by dividing net income allocated to common shares adjusted for reallocation of undistributed earnings of unvested restricted shares by the weighted average number of common shares determined for the basic EPS plus the dilutive effect of common stock equivalents using the treasury stock method based on the average market price for the period. |
Segments and Related Information | Segments and Related Information. The Corporation is required to report each operating segment based on materiality thresholds of ten percent or more of certain amounts, such as revenue. Additionally, the Corporation is required to report separate operating segments until the revenue attributable to such segments is at least 75 percent of total consolidated revenue. The Corporation provides a broad range of financial services to individuals and companies. These services include demand, time, and savings products, the sale of certain non-deposit financial products, and commercial and retail lending, leasing and private wealth management services. While the Corporation’s chief decision-maker monitors the revenue streams of the various products, services, and locations, operations are managed and financial performance is evaluated on a corporate-wide basis. The Corporation’s business units have similar basic characteristics in the nature of the products, production processes and type or class of client for products or services; therefore, these business units are considered one operating segment. |
Share-Based Compensation | Share-Based Compensation. The Corporation may grant restricted stock awards, restricted stock units, and other stock based awards to plan participants, subject to forfeiture upon the occurrence of certain events until the dates specified in the participant’s award agreement. The Corporation accounts for forfeitures as they occur. While restricted stock is subject to forfeiture, restricted stock award participants may exercise full voting rights and will receive all dividends and other distributions paid with respect to the restricted shares. Restricted stock units do not have voting rights and are provided dividend equivalents. The restricted stock granted under the 2019 Equity Incentive Plan (the “Plan”) is typically subject to a vesting period. Compensation expense for restricted stock is recognized over the requisite service period of generally four years for the entire award on a straight-line basis. Upon vesting of restricted stock, the benefit of tax deductions in excess of recognized compensation expense is reflected as an income tax benefit in the Consolidated Statements of Income. Beginning in 2019, the Corporation issued a combination of performance based restricted stock units and restricted stock awards to its executive officers. Vesting of the performance based restricted stock units will be measured on Total Shareholder Return (“TSR”) and Return on Average Equity (“ROAE”) and will cliff-vest after a three-year measurement period based on the Corporation’s performance relative to a custom peer group. At the end of the performance period, the number of actual shares to be awarded varies between 0% and 200% of target amounts. The restricted stock awards issued to executive officers will vest ratably over a three-year period. Compensation expense is recognized for performance based restricted stock units over the requisite service and performance period of generally three years for the entire expected award on a straight-line basis. The compensation expense for the awards expected to vest for the percentage of performance based restricted stock units subject to the ROAE metric will be adjusted if there is a change in the expectation of ROAE. The compensation expense for the awards expected to vest for the percentage of performance based restricted stock units subject to the TSR metric are never adjusted, and are amortized utilizing the accounting fair value provided using a Monte Carlo pricing model. Restricted Stock Under the Plan, the Corporation may grant restricted stock awards, restricted stock units, and other stock based awards to plan participants, subject to forfeiture upon the occurrence of certain events until the dates specified in the participant’s award agreement. While restricted stock is subject to forfeiture, restricted stock award participants may exercise full voting rights and will receive all dividends and other distributions paid with respect to the restricted shares. Restricted stock units do not have voting rights and are provided dividend equivalents. The restricted stock granted under the Plan is typically subject to a vesting period. Compensation expense for restricted stock is recognized over the requisite service period of generally four years for the entire award on a straight-line basis. Upon vesting of restricted stock, the benefit of tax deductions in excess of recognized compensation expense is reflected as an income tax benefit in the Consolidated Statements of Income. B |
Recent Accounting Pronouncements | Adoption of New Accounting Standards. In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842).” The ASU intends to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities and disclosing key information about leasing arrangements. The ASU requires lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessees’ obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The new lease guidance simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) may apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may also elect to apply the amendments in the ASU through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The ASU was effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Corporation adopted the accounting standard during the first quarter of 2019 retrospectively through a cumulative-effect adjustment to retained earnings as of January 1, 2019. The Corporation leases office space, loan production offices, and specialty financing production offices under noncancelable operating leases which expire on various dates through 2028. The Corporation also leases office equipment. As part of the adoption of the accounting standard, we elected to not recognize short-term leases on the Consolidated Balance Sheets. As such, the Corporation applied the accounting standard to six office spaces. All non-lease components, such as common area maintenance, were excluded. When calculating the lease liability on a discounted bases, the Corporation utilized the incremental borrowing rate as the rate implicit in the leases was not readily determinable. The Federal Home Loan Bank fixed advance rate as of January 2, 2019 that most closely resembled the remaining term was used as the incremental borrowing rate. While several leases contained options to extend and terminate, it is not reasonably certain that either option will be utilized and therefore, only the payments in the initial term of the leases were included in the lease liability and right-of-use asset. The impact of adoption was an $8.8 million lease liability with an offsetting $8.5 million right-of-use asset, which is net of $312,000 of lease incentives, and a $687,000 cumulative-effect adjustment to increase retained earnings on the Consolidated Balance Sheets as of January 1, 2019. In June 2018, the FASB issued ASU No. 2018-07, “Compensation- Stock Compensation (Topic 718).” The ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The Corporation adopted the accounting standard during the first quarter of 2019. The adoption of the standard did not have a material impact on the Corporation’s results of operations, financial position, and liquidity. Recent Accounting Pronouncements. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments- Credit Losses (Topic 326),” which is often referred to as CECL. The ASU replaces the incurred loss impairment methodology for recognizing credit losses with a methodology that reflects all expected credit losses. The ASU also requires consideration of a broader range of information to inform credit loss estimates, including such factors as past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, and any other financial asset not excluded from the scope under which the Corporation has the contractual right to receive cash. Entities will apply the amendments in the ASU through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. In November 2019, the FASB issued ASU No. 2019-10, “Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842).” The ASU delays the effective date for the credit losses standard from January 2020 to January 2023 for certain entities, including certain Securities and Exchange Commission filers, public business entities, and private companies. As a smaller reporting company, the Corporation is eligible for the delay and will be deferring adoption. The Corporation has established a cross-functional committee and has implemented a third-party software solution to assist with the adoption of the standard. Management has gathered all necessary data and reviewed potential methods to calculate the expected credit losses. Management is currently calculating sample expected loss computations and developing the allowance methodology and assumptions that will be used under the new standard. Management will continue to progress on its implementation project plan and improve the Corporation’s approach throughout the deferral period. In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350).” The ASU amended existing guidance to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The amendments require an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The ASU is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The amendment should be applied prospectively. The Corporation is in the process of evaluating the impact of this standard but does not expect this standard to have a material impact on its results of operations, financial position, and liquidity. In August 2018, the FASB issued ASU No. 2018-15, “Intangibles-Goodwill and Other Internal-Use Software (Subtopic 350-40).” The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Implementation costs incurred in the application development stage are capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post implementation stages are expensed as the activities are performed. The amendment also requires entities to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement and in the same income statement line item as the fees associated with the hosting element. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Corporation is in the process of evaluating the impact of this standard but does not expect this standard to have a material impact on its results of operations, financial position, and liquidity. |
Commitments and Contingencies |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies | Commitments and Contingencies The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of clients. These financial instruments include commitments to extend credit and standby letters of credit and involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the Consolidated Financial Statements. The contract amounts reflect the extent of involvement the Bank has in these particular classes of financial instruments. In the event of non-performance, the Bank’s exposure to credit loss for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Bank uses the same credit policies in making commitments and conditional obligations as they do for instruments reflected in the Consolidated Financial Statements. An accrual for credit losses on financial instruments with off-balance sheet risk would be recorded separate from any valuation account related to any such recognized financial instrument. As of December 31, 2019 and 2018, there were no accrued credit losses for financial instruments with off-balance sheet risk. Financial instruments whose contract amounts represent potential credit risk were as follows:
Commitments to extend credit are agreements to lend to a client as long as there is no violation of any condition in the contract. Commitments generally have fixed expiration dates or other termination clauses and may have a fixed interest rate or a rate which varies with the prime rate or other market indices and may require payment of a fee. Since some commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements of the Bank. The Bank evaluates the creditworthiness of each client on a case-by-case basis and generally extends credit only on a secured basis. Collateral obtained varies but consists primarily of commercial real estate, accounts receivable, inventory, equipment, and securities. There is generally no market for commercial loan commitments, the fair value of which would approximate the present value of any fees expected to be received as a result of the commitment. These are not considered to be material to the financial statements. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a client to a third party. Generally, standby letters of credit expire within one year and are collateralized by accounts receivable, equipment, inventory, and commercial properties. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to clients. The fair value of standby letters of credit is recorded as a liability when the standby letter of credit is issued. The fair value has been estimated to approximate the fees received by the Bank for issuance. The fees are recorded into income and the fair value of the guarantee is decreased ratably over the term of the standby letter of credit. The Corporation sells the guaranteed portions of SBA loans, as well as participation interests in other, non-SBA originated, loans to third parties. The Corporation has a continuing involvement in each of the transferred lending arrangements by way of relationship management and servicing the loans, as well as being subject to normal and customary requirements of the SBA loan program and standard representations and warranties related to sold amounts. In the event of a loss resulting from default and a determination by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by the Corporation, the SBA may require the Corporation to repurchase the loan, deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of the principal loss related to the deficiency from the Corporation. The Corporation must comply with applicable SBA regulations in order to maintain the guaranty. In addition, the Corporation retains the option to repurchase the sold guaranteed portion of an SBA loan if the loan defaults. Management has assessed estimated losses inherent in the outstanding guaranteed portions of SBA loans sold in accordance with ASC 450, Contingencies, and determined a recourse reserve based on the probability of future losses for these loans to be $1.3 million and $3.0 million at December 31, 2019 and 2018, respectively, which is reported in accrued interest payable and other liabilities on the Consolidated Balance Sheets. The summary of the activity in the SBA recourse reserve is as follows:
In the normal course of business, various legal proceedings involving the Corporation are pending. Management, based upon advice from legal counsel, does not anticipate any significant losses as a result of these actions. Management believes that any liability arising from any such proceedings currently existing or threatened will not have a material adverse effect on the Corporation’s financial position, results of operations, and cash flows. |
Share-Based Compensation |
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Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-Based Compensation | Share-Based Compensation The Corporation adopted the Plan during the quarter ended June 30, 2019. The Plan is administered by the Compensation Committee of the Board of Directors of the Corporation and provides for the grant of equity ownership opportunities through incentive stock options and nonqualified stock options (“Stock Options”), restricted stock, restricted stock units, dividend equivalent units, and any other type of award permitted by the Plan. The Plan authorized 185,000 shares, plus all shares previously available for grant under the 2012 Equity Incentive Plan (the “2012 Plan”). No new grants will be made under the 2012 Plan. As of December 31, 2019, 234,590 shares were available for future grants under the Plan. Shares covered by awards that expire, terminate, or lapse will again be available for the grant of awards under the Plan. The Corporation may issue new shares and shares from its treasury stock for shares delivered under the Plan. Restricted Stock Under the Plan, the Corporation may grant restricted stock awards, restricted stock units, and other stock based awards to plan participants, subject to forfeiture upon the occurrence of certain events until the dates specified in the participant’s award agreement. While restricted stock is subject to forfeiture, restricted stock award participants may exercise full voting rights and will receive all dividends and other distributions paid with respect to the restricted shares. Restricted stock units do not have voting rights and are provided dividend equivalents. The restricted stock granted under the Plan is typically subject to a vesting period. Compensation expense for restricted stock is recognized over the requisite service period of generally four years for the entire award on a straight-line basis. Upon vesting of restricted stock, the benefit of tax deductions in excess of recognized compensation expense is reflected as an income tax benefit in the Consolidated Statements of Income. Beginning in 2019, the Corporation issued a combination of performance based restricted stock units and restricted stock awards to its executive officers. Vesting of the performance based restricted stock units will be measured on Total Shareholder Return (“TSR”) and Return on Average Equity (“ROAE”) and will cliff-vest after a three-year measurement period based on the Corporation’s performance relative to a custom peer group. At the end of the performance period, the number of actual shares to be awarded varies between 0% and 200% of target amounts. The restricted stock awards issued to executive officers will vest ratably over a three-year period. Compensation expense is recognized for performance based restricted stock units over the requisite service and performance period of generally three years for the entire expected award on a straight-line basis. The compensation expense for the awards expected to vest for the percentage of performance based restricted stock units subject to the ROAE metric will be adjusted if there is a change in the expectation of ROAE. The compensation expense for the awards expected to vest for the percentage of performance based restricted stock units subject to the TSR metric are never adjusted, and are amortized utilizing the accounting fair value provided using a Monte Carlo pricing model. Restricted stock activity was as follows:
As of December 31, 2019, the Corporation had $3.4 million of unvested compensation expense, which the Corporation expects to recognize over a weighted-average period of approximately 2.5 years. Share-based compensation expense related to restricted stock included in the Consolidated Statements of Income was as follows:
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Nature of Operations and Summary of Significant Accounting Policies Securities (Details) - USD ($) $ in Thousands |
Dec. 31, 2019 |
Dec. 31, 2018 |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Trading securities | $ 0 | $ 0 |
Earnings Per Common Share (Tables) |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Earnings Per Share, Basic and Diluted |
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Commitments and Contingencies (Tables) |
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Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Lending Related And Other Commitments | Financial instruments whose contract amounts represent potential credit risk were as follows:
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Summary of SBA Recourse Reserve Activity | The summary of the activity in the SBA recourse reserve is as follows:
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FHLB Advances, Other Borrowings and Junior Subordinated Notes Subordinated notes payable and junior subordinated notes payable (Details) - USD ($) |
12 Months Ended | |
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Dec. 31, 2019 |
Dec. 31, 2018 |
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Subordinated Borrowing [Line Items] | ||
Junior subordinated notes and other borrowings | $ 329,429,000 | $ 308,977,000 |
Repayment of subordinated notes payable | 15,000,000 | 0 |
Unamortized Debt Issuance Cost, Subordinated Notes | 383,000 | |
Subordinated Debt | ||
Subordinated Borrowing [Line Items] | ||
Junior subordinated notes and other borrowings | 23,707,000 | $ 23,769,000 |
Maturity date August 15, 2029 | Subordinated Debt | ||
Subordinated Borrowing [Line Items] | ||
Junior subordinated notes and other borrowings | $ 15,000,000 | |
Fixed rate | 5.50% | |
Maturity date April 15, 2027 | Subordinated Debt | ||
Subordinated Borrowing [Line Items] | ||
Junior subordinated notes and other borrowings | $ 9,100,000 | |
Fixed rate | 6.00% |
Deposits Deposits Narrative (Details) - USD ($) $ in Millions |
Dec. 31, 2019 |
Dec. 31, 2018 |
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Deposits [Abstract] | ||
Time Deposits, $250,000 or More | $ 63.7 | $ 61.9 |
Securities (Contractual Maturity) (Details) - USD ($) $ in Thousands |
Dec. 31, 2019 |
Dec. 31, 2018 |
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Amortized Cost Available for Sale | ||
Due in one year or less | $ 1,160 | |
Due in one year through five years | 7,143 | |
Due in five through ten years | 33,970 | |
Due in over ten years | 130,046 | |
Amortized cost | 172,319 | $ 140,337 |
Estimated Fair Value Available for Sale | ||
Due in one year or less | 1,162 | |
Due in one year through five years | 7,177 | |
Due in five through ten years | 34,377 | |
Due in over ten years | 130,417 | |
Fair value | 173,133 | 138,358 |
Amortized Cost Held to Maturity | ||
Due in one year or less | 1,525 | |
Due in one year through five years | 13,474 | |
Due in five through ten years | 12,985 | |
Due in over ten years | 4,716 | |
Amortized cost | 32,700 | 37,731 |
Estimated Fair Value Held to Maturity | ||
Due in one year or less | 1,531 | |
Due in one year through five years | 13,643 | |
Due in five through ten years | 13,241 | |
Due in over ten years | 4,773 | |
Fair value | $ 33,188 | $ 37,409 |
Income Taxes Schedule of Components of Income Tax Expense (Benefit) (Details) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | ||||||||
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Dec. 31, 2019 |
Sep. 30, 2019 |
Jun. 30, 2019 |
Mar. 31, 2019 |
Dec. 31, 2018 |
Sep. 30, 2018 |
Jun. 30, 2018 |
Mar. 31, 2018 |
Dec. 31, 2019 |
Dec. 31, 2018 |
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Current Income Tax Expense (Benefit) [Abstract] | ||||||||||
Current federal tax expense | $ 1,483 | $ 729 | ||||||||
Current state tax expense | 1,988 | 1,054 | ||||||||
Current tax expense | 3,471 | 1,783 | ||||||||
Deferred Income Tax Expense (Benefit) [Abstract] | ||||||||||
Deferred federal tax expense (benefit) | (1,979) | (367) | ||||||||
Deferred state tax expense (benefit) | (317) | (65) | ||||||||
Deferred Income Tax Expense (Benefit) | (2,296) | (432) | ||||||||
Total income tax expense | $ 1,650 | $ 1,418 | $ (595) | $ (1,298) | $ (1,528) | $ 1,464 | $ 578 | $ 837 | $ 1,175 | $ 1,351 |
Share-Based Compensation Share-Based Compensation (Compensation Expense) (Details) - USD ($) $ in Thousands |
12 Months Ended | |
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Dec. 31, 2019 |
Dec. 31, 2018 |
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Share-based Payment Arrangement [Abstract] | ||
Share-based compensation | $ 1,566 | $ 1,004 |
Derivative Financial Instruments |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Financial Instruments | Derivative Financial Instruments The Corporation offers interest rate swap products directly to qualified commercial borrowers. The Corporation economically hedges client derivative transactions by entering into offsetting interest rate swap contracts executed with a third party. Derivative transactions executed as part of this program are not considered hedging instruments and are marked-to-market through earnings each period. The derivative contracts have mirror-image terms, which results in the positions’ changes in fair value offsetting through earnings each period. The credit risk and risk of non-performance embedded in the fair value calculations is different between the dealer counterparties and the commercial borrowers which may result in a difference in the changes in the fair value of the mirror-image swaps. The Corporation incorporates credit valuation adjustments to appropriately reflect both its own non-performance risk and the counterparty’s risk in the fair value measurements. When evaluating the fair value of its derivative contracts for the effects of non-performance and credit risk, the Corporation considered the impact of netting and any applicable credit enhancements such as collateral postings, thresholds and guarantees. At December 31, 2019, the aggregate amortizing notional value of interest rate swaps with various commercial borrowers was $326.9 million. The Corporation receives fixed rates and pays floating rates based upon LIBOR on the swaps with commercial borrowers. These interest rate swaps mature between March 2021 and October 2036. Commercial borrower swaps are completed independently with each borrower and are not subject to master netting arrangements. These commercial borrower swaps were reported on the Consolidated Balance Sheet as a derivative asset of $18.3 million, included in accrued interest receivable and other assets, and as a derivative liability of $64,000, included in accrued interest payable and other liabilities. As of December 31, 2019, no interest rate swaps were in default. At December 31, 2019, the aggregate amortizing notional value of interest rate swaps with dealer counterparties was also $326.9 million. The Corporation pays fixed rates and receives floating rates based upon LIBOR on the swaps with dealer counterparties. These interest rate swaps mature in March 2021 through October 2036. Dealer counterparty swaps are subject to master netting agreements among the contracts within our Bank and are reported on the Consolidated Balance Sheet as a net derivative liability of $18.3 million, included in accrued interest payable and other liabilities. The gross amount of dealer counterparty swaps, without regard to the enforceable master netting agreement, was a gross derivative liability of $18.3 million and a gross derivative asset of $64,000. No right of offset existed with the dealer counterparty swaps as of December 31, 2019. All changes in the fair value of these instruments are recorded in other non-interest income. Given the mirror-image terms of the outstanding derivative portfolio, the change in fair value for the years ended December 31, 2019 and 2018 had an insignificant impact on the Consolidated Statements of Income. The Corporation also enters into interest rate swaps to manage interest rate risk and reduce the cost of match-funding certain long-term fixed rate loans. These derivative contracts involve the receipt of floating rate interest from a counterparty in exchange for the Corporation making fixed-rate payments over the life of the agreement, without the exchange of the underlying notional value. The instruments are designated as cash flow hedges as the receipt of floating rate interest from the counterparty is used to manage interest rate risk associated with forecasted issuances of short-term FHLB advances. The change in the fair value of these hedging instruments is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged transactions affects earnings. As of December 31, 2019, the aggregate notional value of interest rate swaps designated as cash flow hedges was $54.0 million. These interest rate swaps mature between December 2021 and December 2027. A pre-tax unrealized loss of $2.4 million was recognized in other comprehensive income for the year ended December 31, 2019 and there was no ineffective portion of these hedges. Information about the balance sheet location and fair value of the Corporation’s derivative instruments is below:
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Earnings per Common Share |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings per Common Share | Earnings per Common Share Earnings per common share are computed using the two-class method. Basic earnings per common share are computed by dividing net income allocated to common shares by the weighted average number of shares outstanding during the applicable period, excluding outstanding participating securities. Participating securities include unvested restricted shares. Unvested restricted shares are considered participating securities because holders of these securities receive non-forfeitable dividends, or dividend equivalents, at the same rate as holders of the Corporation’s common stock. Diluted earnings per share are computed by dividing net income allocated to common shares adjusted for reallocation of undistributed earnings of unvested restricted shares by the weighted average number of shares determined for the basic earnings per common share computation plus the dilutive effect of common stock equivalents using the treasury stock method.
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Condensed Quarterly Earnings (unaudited) |
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Quarterly Financial Information Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Condensed Quarterly Earnings (unaudited) | Condensed Quarterly Earnings (unaudited)
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Condensed Quarterly Earnings (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 12 Months Ended | ||||||||
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Dec. 31, 2019 |
Sep. 30, 2019 |
Jun. 30, 2019 |
Mar. 31, 2019 |
Dec. 31, 2018 |
Sep. 30, 2018 |
Jun. 30, 2018 |
Mar. 31, 2018 |
Dec. 31, 2019 |
Dec. 31, 2018 |
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Quarterly Financial Information Disclosure [Abstract] | ||||||||||
Interest income | $ 25,613 | $ 25,438 | $ 25,309 | $ 25,679 | $ 24,522 | $ 23,563 | $ 22,468 | $ 20,722 | $ 102,040 | $ 91,275 |
Interest expense | 7,139 | 8,662 | 8,457 | 7,925 | 7,407 | 6,469 | 5,537 | 4,520 | 32,184 | 23,933 |
Net interest income | 18,474 | 16,776 | 16,852 | 17,754 | 17,115 | 17,094 | 16,931 | 16,202 | 69,856 | 67,342 |
Provision for loan and lease losses | 1,472 | 1,349 | (784) | 49 | 983 | (546) | 2,579 | 2,476 | 2,085 | 5,492 |
Non-interest income | 7,189 | 5,792 | 5,805 | 4,638 | 4,648 | 4,871 | 3,982 | 4,667 | 23,423 | 18,167 |
Non-interest expense | 16,773 | 14,716 | 17,464 | 17,742 | 18,244 | 15,746 | 14,467 | 13,907 | 66,695 | 62,363 |
Income before income tax expense | 7,418 | 6,503 | 5,977 | 4,601 | 2,536 | 6,765 | 3,867 | 4,486 | 24,499 | 17,654 |
Income tax benefit | 1,650 | 1,418 | (595) | (1,298) | (1,528) | 1,464 | 578 | 837 | 1,175 | 1,351 |
Net income | $ 5,768 | $ 5,085 | $ 6,572 | $ 5,899 | $ 4,064 | $ 5,301 | $ 3,289 | $ 3,649 | $ 23,324 | $ 16,303 |
Basic earnings per common share | $ 0.67 | $ 0.59 | $ 0.75 | $ 0.67 | $ 0.46 | $ 0.60 | $ 0.38 | $ 0.42 | $ 2.68 | $ 1.86 |
Diluted earnings per common share | 0.67 | 0.59 | 0.75 | 0.67 | 0.46 | 0.60 | 0.38 | 0.42 | 2.68 | 1.86 |
Dividends declared per share | $ 0.15 | $ 0.15 | $ 0.15 | $ 0.15 | $ 0.14 | $ 0.14 | $ 0.14 | $ 0.14 | $ 0.60 | $ 0.56 |
Commitments and Contingencies (Narrative) (Details) - USD ($) $ in Thousands |
Dec. 31, 2019 |
Dec. 31, 2018 |
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Commitments and Contingencies Disclosure [Abstract] | ||
Accrued credit losses for financial instruments with off-balance-sheet risk | $ 0 | $ 0 |
SBA Loans, Probability of Future Losses | $ 1,300 | $ 3,000 |
Other Assets |
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Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Assets | Other Assets The Corporation is a limited partner in several limited partnership investments. The Corporation is not the general partner, does not have controlling ownership, and is not the primary beneficiary in any of these limited partnerships and the limited partnerships have not been consolidated. These investments are accounted for using the equity method of accounting and are evaluated for impairment at the end of each reporting period. Historic Rehabilitation Tax Credits The Corporation invests in development entities through BOC, Mitchell Street, and FBB Tax Credit, wholly-owned subsidiaries of FBB, to rehabilitate historic buildings. At December 31, 2019 and 2018, the net carrying value of the investments were $2.2 million and $1.7 million, respectively. During 2019, the Corporation contributed $9.4 million to these partnerships, recognized $5.2 million in federal historic tax credits, and $3.6 million in impairment related to these investments. During 2018, the Corporation contributed $2.0 million to these partnerships and recognized $2.5 million in federal historic tax credits and $1.6 million in impairment related to these investments. The state historic tax credits are sold to a third party resulting in a gain on sale of $413,000 during the year ended December 31, 2019. None were sold during the year ended December 31, 2018. New Market Tax Credits The Corporation invested in a community development entity (“CDE”) through Rimrock Road, a wholly-owned subsidiary of FBB, to develop and operate a real estate project located in a low-income community. At December 31, 2019 and 2018, Rimrock Road had one CDE investment with a net carrying value of $5.6 million and $6.1 million respectively. The investment provides federal new market tax credits over the seven year compliance period through 2020. The remaining federal new market tax credit to be utilized was $450,000 as of December 31, 2019. The Corporation’s use of the federal new market tax credit during the years ended December 31, 2019 and 2018 was $450,000. Other Investments The Corporation has an equity investment in Aldine Capital Fund, LP, a mezzanine fund, of $54,000 and $600,000 recorded as of December 31, 2019 and 2018, respectively. The Corporation’s equity investment in Aldine Capital Fund II, LP, also a mezzanine fund, totaled $3.1 million and $3.4 million as of December 31, 2019 and 2018, respectively. The Corporation’s equity investment in Aldine Capital Fund III, LP, also a mezzanine fund, totaled $1.3 million and $188,000 as of December 31, 2019 and 2018, respectively. The Corporation’s share of these partnerships’ income included in other non-interest income in the Consolidated Statements of Income for the years ended December 31, 2019 and 2018 was $1.4 million and $459,000, respectively. The Corporation’s share of these partnerships’ losses included in other non-interest expense in the Consolidated Statements of Income for the year ended December 31, 2019 was $121,000. There were no losses included in other non-interest expense for the year ended December 31, 2018. The Corporation is the sole owner of $315,000 of common securities issued by Trust II. The purpose of Trust II was to complete the sale of $10.0 million of 10.50% fixed rate preferred securities. Trust II, a wholly owned subsidiary of the Corporation, is not consolidated into the financial statements of the Corporation. The investment in Trust II of $315,000 as of December 31, 2019 and 2018 is included in accrued interest receivable and other assets. A summary of accrued interest receivable and other assets was as follows:
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Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses | Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses Loan and lease receivables consist of the following:
The total amount of the Corporation’s ownership of SBA loans is comprised of the following:
As of December 31, 2019 and 2018, $12.1 million and $13.7 million of SBA loans were considered impaired, respectively. Loans transferred to third parties consist of the guaranteed portions of SBA loans which the Corporation sold in the secondary market and participation interests in other, non-SBA originated loans. The total principal amount of the guaranteed portions of SBA loans sold during the year ended December 31, 2019 and 2018 was $16.1 million and $17.4 million, respectively. Each of the transfers of these financial assets met the qualifications for sale accounting, and therefore, all of the loans transferred during the year ended December 31, 2019 and 2018 have been derecognized in the Consolidated Financial Statements. The guaranteed portions of SBA loans were transferred at their fair value and the related gain was recognized upon the transfer as non-interest income in the Consolidated Financial Statements. The total outstanding balance of sold SBA loans at December 31, 2019 and 2018 was $73.8 million and $83.3 million, respectively. The total principal amount of transferred participation interests in other, non-SBA originated loans during the year ended December 31, 2019 and 2018 was $45.4 million and $73.9 million, respectively, all of which were treated as sales and derecognized under the applicable accounting guidance at the time of transfer. No gain or loss was recognized on participation interests in other, non-SBA originated loans as they were transferred at or near the date of loan origination and the payments received for servicing the portion of the loans participated represents adequate compensation. The total outstanding balance of these transferred loans at December 31, 2019 and 2018 was $142.8 million and $129.7 million, respectively. As of December 31, 2019 and 2018, the total amount of the Corporation’s partial ownership of these transferred loans on the Consolidated Balance Sheets was $244.6 million and $208.9 million, respectively. No loans in this participation portfolio were considered impaired as of December 31, 2019 and 2018. The Corporation does not share in the participant’s portion of any potential charge-offs. The total amount of loan participations purchased on the Consolidated Balance Sheets as of December 31, 2019 and 2018 was $492,000 and $569,000, respectively. Certain of the Corporation’s executive officers, directors, and their related interests are loan clients of the Bank. These loans to related parties are summarized below:
The following tables illustrate ending balances of the Corporation’s loan and lease portfolio, including impaired loans by class of receivable, and considering certain credit quality indicators:
Each credit is evaluated for proper risk rating upon origination, at the time of each subsequent renewal, upon receipt and evaluation of updated financial information from the Corporation’s borrowers or as other circumstances dictate. The Corporation primarily uses a nine grade risk rating system to monitor the ongoing credit quality of its loans and leases. The risk rating grades follow a consistent definition and are then applied to specific loan types based on the nature of the loan. Each risk rating is subjective and, depending on the size and nature of the credit, subject to various levels of review and concurrence on the stated risk rating. In addition to its nine grade risk rating system, the Corporation groups loans into four loan and related risk categories which determine the level and nature of review by management. Category I — Loans and leases in this category are performing in accordance with the terms of the contract and generally exhibit no immediate concerns regarding the security and viability of the underlying collateral, financial stability of the borrower, integrity or strength of the borrowers’ management team or the industry in which the borrower operates. The Corporation monitors Category I loans and leases through payment performance, continued maintenance of its personal relationships with such borrowers and continued review of such borrowers’ compliance with the terms of their respective agreements. Category II — Loans and leases in this category are beginning to show signs of deterioration in one or more of the Corporation’s core underwriting criteria such as financial stability, management strength, industry trends or collateral values. Management will place credits in this category to allow for proactive monitoring and resolution with the borrower to possibly mitigate the area of concern and prevent further deterioration or risk of loss to the Corporation. Category II loans are considered performing but are monitored frequently by the assigned business development officer and by asset quality review committees. Category III — Loans and leases in this category are identified by management as warranting special attention. However, the balance in this category is not intended to represent the amount of adversely classified assets held by the Bank. Category III loans and leases generally exhibit undesirable characteristics, such as evidence of adverse financial trends and conditions, managerial problems, deteriorating economic conditions within the related industry or evidence of adverse public filings and may exhibit collateral shortfall positions. Management continues to believe that it will collect all contractual principal and interest in accordance with the original terms of the contracts relating to the loans and leases in this category, and therefore Category III loans are considered performing with no specific reserves established for this category. Category III loans are monitored by management and asset quality review committees on a monthly basis. Category IV — Loans and leases in this category are considered to be impaired. Impaired loans and leases, with the exception of performing troubled debt restructurings, have been placed on non-accrual as management has determined that it is unlikely that the Bank will receive the contractual principal and interest in accordance with the original terms of the agreement. Impaired loans are individually evaluated to assess the need for the establishment of specific reserves or charge-offs. When analyzing the adequacy of collateral, the Corporation obtains external appraisals at least annually for impaired loans and leases. External appraisals are obtained from the Corporation’s approved appraiser listing and are independently reviewed to monitor the quality of such appraisals. To the extent a collateral shortfall position is present, a specific reserve or charge-off will be recorded to reflect the magnitude of the impairment. Loans and leases in this category are monitored by management and asset quality review committees on a monthly basis. The delinquency aging of the loan and lease portfolio by class of receivable was as follows:
The Corporation’s total impaired assets consisted of the following:
As of December 31, 2019 and 2018, $15.6 million and $7.6 million of the non-accrual loans and leases were considered troubled debt restructurings, respectively. The Corporation has allocated $2.7 million and $1.5 million of specific reserves to troubled debt restructurings as of December 31, 2019 and 2018, respectively. There were no unfunded commitments associated with troubled debt restructured loans and leases as of December 31, 2019. All loans and leases modified as a troubled debt restructuring are measured for impairment. The nature and extent of the impairment of restructured loans, including those which have experienced a default, is considered in the determination of an appropriate level of the allowance for loan and lease losses. The following table provides the number of loans modified in a troubled debt restructuring and the pre- and post-modification recorded investment by class of receivable:
Restructured loan modifications may include payment schedule modifications, interest rate concessions, maturity date extensions, principal reduction, or some combination of these concessions. For the year ended December 31, 2019, the modification of terms primarily consisted of payment schedule modifications or principal reductions. During the year ended December 31, 2018, no loans were modified to a troubled debt restructuring. There were two commercial and industrial loans for $2.1 million modified in a troubled debt restructuring during the previous 12 months which subsequently defaulted during the year ended December 31, 2019. There were no loans and leases modified in a troubled debt restructuring during the previous 12 months which subsequently defaulted during the year ended December 31, 2018. The following represents additional information regarding the Corporation’s impaired loans and leases, including performing troubled debt restructurings, by class:
The difference between the recorded investment of loans and leases and the unpaid principal balance of $9.5 million and $7.1 million as of December 31, 2019 and 2018, respectively, represents partial charge-offs of loans and leases resulting from losses due to the appraised value of the collateral securing the loans and leases being below the carrying values of the loans and leases. Impaired loans and leases also included $140,000 and $180,000 of loans as of December 31, 2019 and 2018, respectively, that were performing troubled debt restructurings, and although not on non-accrual, were reported as impaired due to the concession in terms. When a loan is placed on non-accrual, interest accrual is discontinued and previously accrued but uncollected interest is deducted from interest income. Cash payments collected on non-accrual loans are first applied to such loan’s principal. Foregone interest represents the interest that was contractually due on the loan but not received or recorded. To the extent the amount of principal on a non-accrual loan is fully collected and additional cash is received, the Corporation will recognize interest income. To determine the level and composition of the allowance for loan and lease losses, the Corporation categorizes the portfolio into segments with similar risk characteristics. First, the Corporation evaluates loans and leases for potential impairment classification. The Corporation analyzes each loan and lease determined to be impaired on an individual basis to determine a specific reserve based upon the estimated value of the underlying collateral for collateral-dependent loans, or alternatively, the present value of expected cash flows. The Corporation applies historical trends from established risk factors to each category of loans and leases that has not been individually evaluated for the purpose of establishing the general portion of the allowance. A summary of the activity in the allowance for loan and lease losses by portfolio segment is as follows:
The following tables provide information regarding the allowance for loan and lease losses and balances by type of allowance methodology:
The Corporation’s net investment in direct financing leases consists of the following:
The Corporation leases equipment under direct financing leases expiring in future years. Some of these leases provide for additional rents based on use in excess of a stipulated minimum number of hours and generally allow the lessees to purchase the equipment for fair value at the end of the lease term. Future aggregate maturities of minimum lease payments to be received are as follows:
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FHLB Advances, Other Borrowings and Junior Subordinated Notes (Tables) |
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Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Composition of borrowed funds | The composition of borrowed funds is shown below.
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Share-Based Compensation Share-Based Compensation (Policies) |
12 Months Ended |
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Dec. 31, 2019 | |
Share-based Payment Arrangement [Abstract] | |
Share-based Payment Arrangement [Policy Text Block] | Share-Based Compensation. The Corporation may grant restricted stock awards, restricted stock units, and other stock based awards to plan participants, subject to forfeiture upon the occurrence of certain events until the dates specified in the participant’s award agreement. The Corporation accounts for forfeitures as they occur. While restricted stock is subject to forfeiture, restricted stock award participants may exercise full voting rights and will receive all dividends and other distributions paid with respect to the restricted shares. Restricted stock units do not have voting rights and are provided dividend equivalents. The restricted stock granted under the 2019 Equity Incentive Plan (the “Plan”) is typically subject to a vesting period. Compensation expense for restricted stock is recognized over the requisite service period of generally four years for the entire award on a straight-line basis. Upon vesting of restricted stock, the benefit of tax deductions in excess of recognized compensation expense is reflected as an income tax benefit in the Consolidated Statements of Income. Beginning in 2019, the Corporation issued a combination of performance based restricted stock units and restricted stock awards to its executive officers. Vesting of the performance based restricted stock units will be measured on Total Shareholder Return (“TSR”) and Return on Average Equity (“ROAE”) and will cliff-vest after a three-year measurement period based on the Corporation’s performance relative to a custom peer group. At the end of the performance period, the number of actual shares to be awarded varies between 0% and 200% of target amounts. The restricted stock awards issued to executive officers will vest ratably over a three-year period. Compensation expense is recognized for performance based restricted stock units over the requisite service and performance period of generally three years for the entire expected award on a straight-line basis. The compensation expense for the awards expected to vest for the percentage of performance based restricted stock units subject to the ROAE metric will be adjusted if there is a change in the expectation of ROAE. The compensation expense for the awards expected to vest for the percentage of performance based restricted stock units subject to the TSR metric are never adjusted, and are amortized utilizing the accounting fair value provided using a Monte Carlo pricing model. Restricted Stock Under the Plan, the Corporation may grant restricted stock awards, restricted stock units, and other stock based awards to plan participants, subject to forfeiture upon the occurrence of certain events until the dates specified in the participant’s award agreement. While restricted stock is subject to forfeiture, restricted stock award participants may exercise full voting rights and will receive all dividends and other distributions paid with respect to the restricted shares. Restricted stock units do not have voting rights and are provided dividend equivalents. The restricted stock granted under the Plan is typically subject to a vesting period. Compensation expense for restricted stock is recognized over the requisite service period of generally four years for the entire award on a straight-line basis. Upon vesting of restricted stock, the benefit of tax deductions in excess of recognized compensation expense is reflected as an income tax benefit in the Consolidated Statements of Income. B |
Premises and Equipment (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment | A summary of premises and equipment was as follows:
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Nature of Operations and Summary of Significant Accounting Policies Federal Home Loan Bank Stock (Details) - USD ($) $ in Thousands |
12 Months Ended | |
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Dec. 31, 2019 |
Dec. 31, 2018 |
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Investment Holdings | ||
Federal Home Loan Bank stock, at cost | $ 7,953 | $ 7,240 |
FHLB Stock | ||
Investment Holdings | ||
Other than temporary impairment losses, investments | $ 0 | $ 0 |
Nature of Operations and Summary of Significant Accounting Policies Loans Held for Sale (Details) - USD ($) $ in Thousands |
Dec. 31, 2019 |
Dec. 31, 2018 |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Loans held for sale | $ 5,205 | $ 5,287 |
Cash and Cash Equivalents (Narrative Disclosures) (Details) - USD ($) $ in Thousands |
Dec. 31, 2019 |
Dec. 31, 2018 |
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Cash and Cash Equivalents [Abstract] | ||
Cash and due from banks | $ 16,107 | $ 23,319 |
Required reserves in the form of either vault cash or deposits held at the Federal Reserve Bank | 9,200 | 9,900 |
Federal Reserve Bank balances | 44,400 | 43,600 |
Short-term investments | $ 50,995 | $ 63,227 |
Leases Leases (Maturity Analysis) (Details) - USD ($) $ in Thousands |
Dec. 31, 2019 |
Jan. 01, 2019 |
Dec. 31, 2018 |
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Lessee, Operating Lease, Liability, Payment, Due [Abstract] | |||
2020 | $ 1,541 | ||
2021 | 1,382 | ||
2022 | 1,373 | ||
2023 | 1,015 | ||
2024 | 756 | ||
Thereafter | 2,307 | ||
Total undiscounted cash flows | 8,374 | ||
Discount on cash flows | 833 | ||
Total lease liability | $ 7,541 | $ 8,800 | $ 0 |
Other Assets Other Assets (Tax Credits) (Details) - USD ($) |
12 Months Ended | |
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Dec. 31, 2019 |
Dec. 31, 2018 |
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Other Assets [Abstract] | ||
Investment in historic development entities | $ 2,216,000 | $ 1,653,000 |
Capital Contributions to Historic Rehabilitation Tax Credits | 9,400,000 | 2,000,000 |
Tax Credit Benefits Recognized on Federal Historic Tax Credits | 5,200,000 | 2,535,000 |
Expense Related to Investment in Historic Rehabilitation Tax Credits | 3,600,000 | 1,633,000 |
Gain on sale of investments | 413,000 | |
Proceeds from sale of other investments | 0 | |
Investment in a community development entity | $ 5,571,000 | 6,081,000 |
New Market Tax Credit Benefit, Period of Recognition | 7 years | |
Federal New Market Tax Credits Not Yet Recognized | $ 450,000 | |
Tax Credit Benefits Recognized on New Market Tax Credits | $ 450,000 | $ 450,000 |
Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses Future Minimum Lease Payments To Be Received (Details) $ in Thousands |
Dec. 31, 2019
USD ($)
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Direct Financing Leases, Future Minimum Payments Receivable By Year [Abstract] | |
2019 | $ 8,115 |
2020 | 5,771 |
2021 | 4,648 |
2022 | 3,211 |
2023 | 1,781 |
Thereafter | 639 |
Total | $ 24,165 |
Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses (Related Party Loan Rollforward) (Details) - USD ($) $ in Thousands |
12 Months Ended | |
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Dec. 31, 2019 |
Dec. 31, 2018 |
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Receivables [Abstract] | ||
Balance at beginning of year | $ 1,855 | $ 10,513 |
New loans | 412 | 5,014 |
Repayments | (584) | (6,304) |
Change due to status of executive officers and directors | 0 | (7,368) |
Balance at end of year | $ 1,683 | $ 1,855 |
FHLB Advances, Other Borrowings and Junior Subordinated Notes FHLB Borrowings (Details) - USD ($) $ in Thousands |
Dec. 31, 2019 |
Dec. 31, 2018 |
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Line of Credit Facility [Line Items] | ||
Junior subordinated notes and other borrowings | $ 329,429 | $ 308,977 |
Loans pledged as collateral for Federal Home Loan Bank advances and unused available credit | 507,600 | 435,200 |
FHLB advances and other borrowings | ||
Line of Credit Facility [Line Items] | ||
Federal Home Loan Bank line of credit maximum available | 507,600 | |
Federal Home Loan Bank unused line remaining | 212,600 | |
Line of credit, amount outstanding | 0 | 0 |
FHLB advances and other borrowings | ||
Line of Credit Facility [Line Items] | ||
Junior subordinated notes and other borrowings | $ 295,000 | $ 274,500 |
FHLB advances and other borrowings | Minimum | ||
Line of Credit Facility [Line Items] | ||
Fixed rate | 0.92% | 1.29% |
FHLB advances and other borrowings | Maximum | ||
Line of Credit Facility [Line Items] | ||
Fixed rate | 2.75% | 2.75% |
Income Taxes (Tables) |
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Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Components of Income Tax Expense | Income tax expense consists of the following:
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Schedule of Deferred Tax Assets and Liabilities | The significant components of the Corporation’s deferred tax assets and liabilities were as follows:
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Schedule of Reconciliation of the Change in Net Deferred Tax Assets to Deferred Tax Expense | A reconciliation of the change in net deferred tax assets to deferred tax expense is as follows:
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Schedule of Effective Income Tax Rate Reconciliation | The provision for income taxes differs from that computed at the federal statutory corporate tax rate as follows:
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Condensed Parent Only Financial Information (Tables) |
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Condensed Financial Information Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Condensed Balance Sheet | Condensed Balance Sheets
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Condensed Income Statement | Condensed Statements of Income
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Condensed Cash Flow Statement | Condensed Statements of Cash Flows
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Fair Value |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value | Fair Value Disclosures The Corporation determines the fair values of its financial instruments based on the fair value hierarchy established in ASC Topic 820, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Fair value is defined as the price that would be received in an orderly transaction that is not a forced liquidation or distressed sale at the measurement date and is based on exit prices. Fair value includes assumptions about risk, such as nonperformance risk in liability fair values, and is a market-based measurement, not an entity-specific measurement. The standard describes three levels of inputs that may be used to measure fair value. Level 1 — Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Corporation has the ability to access at the measurement date. Level 2 — Level 2 inputs are inputs, other than quoted prices included with Level 1, that are observable for the asset or liability either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 — Level 3 inputs are supported by little or no market activity and are significant to the fair value of the assets or liabilities. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Corporation’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Assets and liabilities measured at fair value on a recurring basis, segregated by fair value hierarchy level, are summarized below:
For assets and liabilities measured at fair value on a recurring basis, there were no transfers between the levels during the year ended December 31, 2019 or 2018 related to the above measurements. Assets and liabilities measured at fair value on a non-recurring basis, segregated by fair value hierarchy, are summarized below:
Impaired loans were written down to the fair value of their underlying collateral less costs to sell of $15.7 million at December 31, 2019 and 2018 through the establishment of specific reserves or by recording charge-offs when the carrying value exceeded the fair value of the underlying collateral of impaired loans. Valuation techniques consistent with the market approach, income approach, or cost approach were used to measure fair value. These techniques included observable inputs for the individual impaired loans being evaluated such as current appraisals, recent sales of similar assets, or other observable market data, and unobservable inputs, typically when discounts are applied to appraisal values to adjust such values to current market conditions or to reflect net realizable values. The quantification of unobservable inputs for Level 3 impaired loan values range from 10% - 50% as of the measurement date of December 31, 2019. The weighted average of those unobservable inputs was 22%. The majority of the impaired loans are considered collateral dependent loans or are supported by a SBA guaranty. Foreclosed properties, upon initial recognition, are remeasured and reported at fair value through a charge-off to the allowance for loan and lease losses, if deemed necessary, based upon the fair value of the foreclosed property. The fair value of a foreclosed property, upon initial recognition, is estimated using a market approach or based on observable market data, typically a current appraisal, or based upon assumptions specific to the individual property or equipment, such as management applied discounts used to further reduce values to a net realizable value when observable inputs become stale. Loan servicing rights represent the asset retained upon sale of the guaranteed portion of certain SBA loans. When SBA loans are sold, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. The servicing rights are subsequently measured using the amortization method, which requires amortization into interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. The Corporation periodically reviews this portfolio for impairment and engages a third-party valuation firm to assess the fair value of the overall servicing rights portfolio. Loan servicing rights do not trade in an active, open market with readily observable prices. While sales of loan servicing rights do occur, the precise terms and conditions typically are not readily available to allow for a “quoted price for similar assets” comparison. Accordingly, the Corporation utilizes an independent valuation from a third party which uses a discounted cash flow model to estimate the fair value of its loan servicing rights. The valuation model incorporates prepayment assumptions to project loan servicing rights cash flows based on the current interest rate scenario, which is then discounted to estimate an expected fair value of the loan servicing rights. The valuation model considers portfolio characteristics of the underlying serviced portion of the SBA loans and uses the following significant unobservable inputs: (1) constant prepayment rate (“CPR”) assumptions based on the SBA sold pools historical CPR as quoted in Bloomberg and (2) a discount rate. Due to the nature of the valuation inputs, loan servicing rights are classified in Level 3 of the fair value hierarchy. Fair Value of Financial Instruments The Corporation is required to disclose estimated fair values for its financial instruments. Fair value estimates, methods and assumptions, consistent with exit price concepts for fair value measurements, are set forth below:
N/A = The fair value is not applicable due to restrictions placed on transferability
Disclosure of fair value information about financial instruments, for which it is practicable to estimate that value, is required whether or not recognized in the Consolidated Balance Sheets. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Certain financial instruments and all non-financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not necessarily represent the underlying value of the Corporation. Securities: The fair value measurements of investment securities are determined by a third-party pricing service which considers observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, trade execution data, market consensus prepayment speeds, credit information and the securities’ terms and conditions, among other things. The fair value measurements are subject to independent verification by another pricing source on a quarterly basis to review for reasonableness. Any significant differences in pricing are reviewed with appropriate members of management who have the relevant technical expertise to assess the results. The Corporation has determined that these valuations are classified in Level 2 of the fair value hierarchy. When the independent pricing service does not provide a fair value measurement for a particular security, the Corporation will estimate the fair value based on specific information about each security. Fair values derived in this manner are classified in Level 3 of the fair value hierarchy. Loans Held for Sale: Loans held for sale, which consist of the guaranteed portions of SBA loans, are carried at the lower of cost or estimated fair value. The estimated fair value is based on what secondary markets are currently offering for portfolios with similar characteristics. Interest Rate Swaps: The carrying amount and fair value of existing derivative financial instruments are based upon independent valuation models, which use widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative contract. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The Corporation incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Corporation considers the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. Limitations: Fair value estimates are made at a discrete point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Corporation’s entire holding of a particular financial instrument. Because no market exists for a significant portion of the Corporation’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and are not considered in the estimates. |
Employee Benefit Plans |
12 Months Ended |
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Dec. 31, 2019 | |
Retirement Benefits [Abstract] | |
Employee Benefit Plans | Employee Benefit Plans The Corporation maintains a contributory 401(k) defined contribution plan covering substantially all employees. The Corporation matches 100% of amounts contributed by each participating employee, up to 3% of the employee’s compensation. The Corporation may also make discretionary contributions up to an additional 6% of salary. Contributions are expensed in the period incurred and recorded in compensation expense in the Consolidated Statements of Income. The Corporation made a matching contribution of 3% to all eligible employees which totaled $783,000 and $700,000, and for the years ended December 31, 2019 and 2018, respectively. Discretionary contributions of 4.1%, or $808,000, and 1.0%, or $180,000, were made in 2019 and 2018, respectively. As of December 31, 2019 and 2018, the Corporation had a deferred compensation plan under which it provided contributions to supplement the retirement income of one executive. Under the terms of the plan, benefits to be received are generally payable within six months of the date of the termination of employment with the Corporation. The expense associated with the deferred compensation plan for the years ended December 31, 2019 and 2018 was $168,000 and $150,000, respectively. The present value of future payments under the remaining plan of $1.4 million and $1.3 million at December 31, 2019 and 2018, respectively, is included in accrued interest payable and other liabilities on the Consolidated Balance Sheets. The Corporation owned life insurance policies on the life of the executive covered by the deferred compensation plan, which had cash surrender values and death benefits of approximately $2.6 million and $6.0 million, respectively, at December 31, 2019 and cash surrender values and death benefits of approximately $2.5 million and $5.9 million, respectively, at December 31, 2018. The remaining balance of the cash surrender value of bank-owned life insurance of $40.2 million and $39.0 million as of December 31, 2019 and 2018, respectively, is related to policies on a number of then-qualified individuals affiliated with the Bank. |
Condensed Parent Only Financial Information Condensed Income Statement (Details) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | ||||||||
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Dec. 31, 2019 |
Sep. 30, 2019 |
Jun. 30, 2019 |
Mar. 31, 2019 |
Dec. 31, 2018 |
Sep. 30, 2018 |
Jun. 30, 2018 |
Mar. 31, 2018 |
Dec. 31, 2019 |
Dec. 31, 2018 |
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Condensed Financial Statements, Captions [Line Items] | ||||||||||
Net interest expense | $ 18,474 | $ 16,776 | $ 16,852 | $ 17,754 | $ 17,115 | $ 17,094 | $ 16,931 | $ 16,202 | $ 69,856 | $ 67,342 |
Non-interest income | ||||||||||
Total non-interest income | 7,189 | 5,792 | 5,805 | 4,638 | 4,648 | 4,871 | 3,982 | 4,667 | 23,423 | 18,167 |
Non-interest expense | 16,773 | 14,716 | 17,464 | 17,742 | 18,244 | 15,746 | 14,467 | 13,907 | 66,695 | 62,363 |
Loss before income tax benefit and equity in undistributed net income of consolidated subsidiaries | 7,418 | 6,503 | 5,977 | 4,601 | 2,536 | 6,765 | 3,867 | 4,486 | 24,499 | 17,654 |
Income tax benefit | 1,650 | 1,418 | (595) | (1,298) | (1,528) | 1,464 | 578 | 837 | 1,175 | 1,351 |
Net income | $ 5,768 | $ 5,085 | $ 6,572 | $ 5,899 | $ 4,064 | $ 5,301 | $ 3,289 | $ 3,649 | 23,324 | 16,303 |
Parent company | ||||||||||
Condensed Financial Statements, Captions [Line Items] | ||||||||||
Net interest expense | 2,949 | 2,703 | ||||||||
Non-interest income | ||||||||||
Consulting and rental income from consolidated subsidiaries | 20,468 | 20,267 | ||||||||
Other non-interest income | 84 | 33 | ||||||||
Total non-interest income | 20,552 | 20,300 | ||||||||
Non-interest expense | 24,121 | 22,866 | ||||||||
Loss before income tax benefit and equity in undistributed net income of consolidated subsidiaries | 6,518 | 5,269 | ||||||||
Income tax benefit | 1,659 | 1,478 | ||||||||
Loss before equity in undistributed net income of consolidated subsidiaries | 4,859 | 3,791 | ||||||||
Equity in undistributed net income of consolidated subsidiaries | 28,183 | 20,094 | ||||||||
Net income | $ 23,324 | $ 16,303 |
Income Taxes Reconciliation of the Change in Net Deferred Tax Assets to Deferred Tax Expense (Details) - USD ($) $ in Thousands |
12 Months Ended | |
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Dec. 31, 2019 |
Dec. 31, 2018 |
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Income Tax Disclosure [Abstract] | ||
Change in net deferred tax assets | $ 2,181 | $ 588 |
Deferred taxes allocated to other comprehensive income | 115 | (156) |
Deferred Income Tax Expense (Benefit) | $ (2,296) | $ (432) |
Employee Benefit Plan (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2019 |
Dec. 31, 2018 |
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Retirement Benefits [Abstract] | ||
Defined contribution maximum annual matching contribution per employee, percent | 3.00% | |
Defined contribution maximum annual discretionary contribution per employee, percent | 6.00% | |
Defined contribution plan, employer matching contribution, percent | 3.00% | |
Defined contribution plan employer matching contribution | $ 783,000 | $ 700,000 |
Defined contribution plan employer discretionary contribution percent | 4.10% | 1.00% |
Defined contribution plan, employer discretionary contribution amount | $ 808,000 | $ 180,000 |
Deferred compensation plan compensation expense | 168,000 | 150,000 |
Present value of future payments under the remaining deferred compensation plan liability | $ 1,400,000 | $ 1,300,000 |
Earnings Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 12 Months Ended | ||||||||
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Dec. 31, 2019 |
Sep. 30, 2019 |
Jun. 30, 2019 |
Mar. 31, 2019 |
Dec. 31, 2018 |
Sep. 30, 2018 |
Jun. 30, 2018 |
Mar. 31, 2018 |
Dec. 31, 2019 |
Dec. 31, 2018 |
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Basic earnings per common share | ||||||||||
Net income | $ 5,768 | $ 5,085 | $ 6,572 | $ 5,899 | $ 4,064 | $ 5,301 | $ 3,289 | $ 3,649 | $ 23,324 | $ 16,303 |
less: earnings allocated to participating securities | 502 | 240 | ||||||||
Basic earnings allocated to common shareholders | $ 22,822 | $ 16,063 | ||||||||
Weighted-average common shares outstanding, excluding participating securities | 8,515,375 | 8,640,198 | ||||||||
Basic earnings per common share | $ 0.67 | $ 0.59 | $ 0.75 | $ 0.67 | $ 0.46 | $ 0.60 | $ 0.38 | $ 0.42 | $ 2.68 | $ 1.86 |
Diluted earnings per common share | ||||||||||
Diluted earnings allocated to common shareholders | $ 22,822 | $ 16,063 | ||||||||
Weighted-average diluted common shares outstanding, excluding participating securities | 8,515,375 | 8,640,198 | ||||||||
Diluted earnings per common share | $ 0.67 | $ 0.59 | $ 0.75 | $ 0.67 | $ 0.46 | $ 0.60 | $ 0.38 | $ 0.42 | $ 2.68 | $ 1.86 |
Securities (Tables) |
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Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Available-for-sale Securities | The amortized cost and fair value of securities available-for-sale and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows:
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Schedule of Held-to-maturity Securities | The amortized cost and fair value of securities held-to-maturity and the corresponding amounts of gross unrealized gains and losses were as follows:
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Realized gains and losses on sale of securities | Total proceeds and gross realized gains and losses from sales of securities available-for-sale were as follows:
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Investments Classified by Contractual Maturity | The amortized cost and fair value of securities by contractual maturity at December 31, 2019 are shown below. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay certain obligations with or without call or prepayment penalties.
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Schedule of Unrealized Loss on Investments | A summary of unrealized loss information for securities available-for-sale, categorized by security type and length of time for which the security has been in a continuous unrealized loss position, follows:
A summary of unrealized loss information for securities held-to-maturity, categorized by security type and length of time for which the security has been in a continuous unrealized loss position, follows:
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Other Assets (Tables) |
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Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued Interest Receivable and Other Assets | A summary of accrued interest receivable and other assets was as follows:
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FHLB Advances, Other Borrowings and Junior Subordinated Notes |
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Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FHLB Advances, Other Borrowings and Junior Subordinated Notes | FHLB Advances, Other Borrowings and Junior Subordinated Notes The composition of borrowed funds is shown below.
The Corporation has a $507.6 million FHLB line of credit available for advances and open line borrowings which is collateralized as noted below. At December 31, 2019, $212.6 million of this line remained unused. There were no advances outstanding on the Corporation’s open line at December 31, 2019 and 2018. There were $295.0 million of term FHLB advances outstanding at December 31, 2019 with stated fixed interest rates ranging from 0.92% to 2.75% compared to $274.5 million of term FHLB advances outstanding at December 31, 2018 with stated fixed interest rates ranging from 1.29% to 2.75%. The term FHLB advances outstanding at December 31, 2019 are due at various dates through November 2029. The Corporation is required to maintain as collateral mortgage-related securities, unencumbered first mortgage loans and secured small business loans in its portfolio aggregating at least the amount of outstanding advances from the FHLB. Loans totaling approximately $507.6 million and $435.2 million were pledged as collateral at December 31, 2019 and 2018, respectively. The Corporation has a senior line of credit with a third-party financial institution of $10.5 million. As of December 31, 2019, the line of credit carried an interest rate of LIBOR + 2.75% with an interest rate floor of 3.125% that matured on February 20, 2020 and had certain performance debt covenants of which the Corporation was in compliance. The Corporation pays a commitment fee on this senior line of credit. For the years ended December 31, 2019 and 2018 the Corporation incurred $13,000 additional interest expense due to this fee. There was no outstanding balance on the line of credit as of December 31, 2019. On February 19, 2020, the credit line was renewed for one additional year with pricing terms of LIBOR + 2.75% and a maturity date of February 19, 2021. The Corporation has subordinated notes payable. At December 31, 2019, the amount of subordinated notes payable outstanding was $23.7 million, which qualified for Tier 2 capital. At December 31, 2019, $15.0 million bore a fixed interest rate of 5.50% with a maturity date of August 15, 2029 and $9.1 million bore a fixed interest rate of 6.00% with a maturity date of April 15, 2027. The $15.0 million subordinated note payable has certain performance debt covenants of which the Corporation was in compliance. The Corporation may, at its option, redeem the notes, in whole or part, at any time after the fifth anniversary of issuance. As of December 31, 2019, $383,000 of debt issuance costs remain in the subordinated notes payable balance. In September 2008, Trust II completed the sale of $10.0 million of 10.50% fixed rate trust preferred securities (“Preferred Securities”). Trust II also issued common securities of $315,000. Trust II used the proceeds from the offering to purchase $10.3 million of 10.50% junior subordinated notes (“Notes”) of the Corporation. The Preferred Securities are mandatorily redeemable upon the maturity of the Notes on September 26, 2038. The Preferred Securities qualify under the risk-based capital guidelines as Tier 1 capital for regulatory purposes. Per the provisions of the Dodd-Frank Act, bank holding companies with total assets of less than $15 billion are not required to phase out trust preferred securities as an element of Tier 1 capital as other, larger institutions must. The Corporation used the proceeds from the sale of the Notes for general corporate purposes including providing additional capital to its subsidiaries. As of December 31, 2019, $268,000 of debt issuance costs remain reflected in junior subordinated notes on the Consolidated Balance Sheets. The Corporation has the right to redeem the Notes at each interest payment date on or after September 26, 2013. The Corporation also has the right to redeem the Notes, in whole but not in part, after the occurrence of certain special events. Special events are limited to: (1) a change in capital treatment resulting in the inability of the Corporation to include the Notes in Tier 1 capital, (2) a change in laws or regulations that could require Trust II to register as an investment company under the Investment Company Act of 1940, as amended; and (3) a change in laws or regulations that would require Trust II to pay income tax with respect to interest received on the Notes or, prohibit the Corporation from deducting the interest payable by the Corporation on the Notes or result in greater than a de minimis amount of taxes for Trust II. |
Commitments and Contingencies (Details) - USD ($) $ in Thousands |
Dec. 31, 2019 |
Dec. 31, 2018 |
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Commitments to extend credit, primarily commercial loans | ||
Lending Related Commitments by Type [Line Items] | ||
Lending related commitments | $ 555,374 | $ 553,801 |
Standby letters of credit | ||
Lending Related Commitments by Type [Line Items] | ||
Lending related commitments | $ 8,918 | $ 12,436 |
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