FIRST BUSINESS FINANCIAL SERVICES INC
For the period ended Dec 31, 2024. Filed Feb 26, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Feb 26, 2025
FBIZ$74.18-0.9%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-02-28.
0001521951-24-000020
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-02-26.
0000950170-25-027715
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 213 previous paragraphs and 206 current paragraphs.
74 unchanged; 91 reworded; 40 added; 43 removed; 5 previous and 1 current paragraphs rearranged.
Tables are not compared: 24 previous and 24 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (40)
Current report
Unless otherwise indicated or unless the context requires otherwise, all references in this Report to the “Corporation,” “we,” “us,” “our,” or similar references mean First Business Financial Services, Inc. together with our subsidiary. “FBB” or the “Bank” refers to our subsidiary, First Business Bank.
Current report
This report may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which reflect our current views with respect to future events and financial performance. Forward-looking statements are not based on historical information, but rather are related to future operations, strategies, financial results, or other developments. Forward-looking statements are based on management’s expectations as well as certain assumptions and estimates made by, and information available to, management at the time the statements are made. Such statements are subject to risks and uncertainties, including among other things:
Current report
Uncertainty created by potential federal government actions relating to the authority of regulatory agencies (including bank regulators), international trade policy, and other significant policy matters.
Current report
Ongoing volatility in the banking sector may result in new legislation, regulations or policy changes that could subject the Corporation and the Bank to increased government regulation and supervision.
Current report
The proportion of the Corporation’s deposit account balances that exceed FDIC insurance limits may expose the Bank to enhanced liquidity risk.
Current report
The Corporation may be subject to increases in FDIC insurance assessments.
Current report
We will protect and strengthen our unique culture with a growing and geographically diverse team.
Current report
We will develop future-ready talent who will thrive in the workplace of the future by continuously investing in our team to elevate their impact and contribution.
Current report
We will grow our core deposits by driving a company-wide commitment to adding new relationships and capitalizing on innovative sources and new technologies.
Current report
We will achieve operational excellence by fostering a culture of continuous process improvement and utilization of innovative technology.
Current report
We will optimize the performance of each business line and market to achieve sustainable profitability and growth.
Current report
Excluding tax and SBA recourse benefits, the 2024 ROATCE was 14.6%.
Current report
Anonymous survey conducted annually.
Current report
Net promoter score assesses likelihood to recommend on a 11-point scale, where detractors (scores 0-6) are subtracted from promoters (scores 9-10), while passives (scores 7-8) are not considered.
Current report
Effective tax rate, including the benefit from Low-Income Housing Tax Credits, was 13.5% for the year ended December 31, 2024, compared to 21.5% for the year ended December 31, 2023.
Current report
Provision for credit loss expense was $8.8 million for the year ended December 31, 2024, compared to $8.2 million for the year ended December 31, 2023.
Current report
Non-performing assets were $28.4 million and 0.74% of total assets as of December 31, 2024, compared to $20.8 million and 0.59% of total assets as of December 31, 2023.
Current report
The allowance for credit losses, including reserve for unfunded credit commitments, increased $4.3 million compared to December 31, 2023. The allowance for credit losses, including reserve for unfunded credit commitments, was 1.20% of total loans, compared to 1.16% at December 31, 2023.
Current report
Period-end core deposits at December 31, 2024, increased $57.4 million, or 2.5%, to $2.396 billion from $2.339 billion as of December 31, 2023. Average core deposits of $2.378 billion increased $280.3 million, or 13.4%, for the year ended December 31, 2024, compared to $2.098 billion for the year ended December 31, 2023.
Current report
ROACE for the year ended December 31, 2024, was 14.73%, compared to 13.79% for the year ended December 31, 2023. The reasons for the change in ROACE are consistent with the net income variance explanation as discussed under ROAA above. We view
Current report
Excluding fees in lieu of interest.
Current report
Total bank funding represents total deposits plus FHLB advances.
Current report
Represents annualized yields/rates.
Current report
The yield on average interest-earning assets for the year ended December 31, 2024, was 6.87%, compared to 6.54% for the year ended December 31, 2023. The increase in yield was primarily due to the reinvestment of cash flows from fixed-rate loan portfolios and securities in a higher rate environment. Excluding loan fees in lieu of interest, the yield on average interest-earning assets for the year ended December 31, 2024, was 6.71%, compared to 6.42% for the year ended December 31, 2023.
Current report
The average rate paid on total interest-bearing liabilities was 3.91% for the year ended December 31, 2024, an increase from 3.46% for the year ended December 31, 2023. Total interest-bearing liabilities includes interest-bearing deposits, FHLB advances, subordinated and junior subordinated notes and debentures payable, federal funds purchased, and other borrowings. The average rates paid increased due to the increase in short-term market rates, the replacement of maturing wholesale funds at higher fixed rates, and client movement from non-interest bearing to interest bearing core deposit products.
Current report
The Corporation maintains a long-term target for net interest margin in the range of 3.60% - 3.65%. Performance in future periods will vary due to factors such as the level of fees in lieu of interest and the timing, pace, and scale of future interest rate changes.
Current report
(a)
Current report
Service charges on deposits increased $640,000, or 20.4%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. The increase is primarily driven by new and expanded core deposit relationships. Treasury management business development efforts remain robust as gross treasury management service charges increased $647,000, or 11.1%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. Management believes growth in gross analyzed service charges is a strong indicator of success for the Corporation given the direct correlation to adding and expanding core business relationships.
Current report
Other non-interest income decreased $3.1 million, or 44.6%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. The change was primarily due to a decrease from unexpectedly high 2023 returns on the Corporation's investments in SBIC funds. Income from SBIC funds varies from period to period based on changes in the realized and unrealized fair value of underlying investments.
Current report
Gain on sale of SBA loans decreased $113,000, or 5.5%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. Management expects the SBA loan sales to increase in 2025 as production increases and previously closed commitments fully fund and become eligible for sale, due to additions to the business development team.
Current report
FDIC insurance increased $522,000, or 23.3%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. The increase was primarily due to an increase in total assets and use of brokered deposits.
Current report
Other non-interest expense decreased $851,000, or 18.8%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. The decrease was primarily due to a decrease in SBA recourse provision and liquidation expenses partially offset by an impairment on historical tax credit investments at exit.
Current report
General
Current report
Non-accrual loans and leases increased $7.8 million, to $28.4 million at December 31, 2024, compared to $20.6 million at December 31, 2023. The Corporation's non-accrual loans and leases as a percentage of total gross loans and leases measured 0.91% and 0.72% at December 31, 2024, and 2023, respectively. The change in non-accrual loans and leases is primarily driven by a conventional C&I loan that management identified as non-performing and recognized a specific reserve. While we continue to expect full repayment of the one ABL loan that defaulted during the second quarter of 2023, the liquidation process under Chapter 7 bankruptcy has delayed final resolution. Through our collection efforts, the current balance of this loan is $6.2 million, down from $8.8 million in the prior year. Excluding this credit, non-performing assets totaled $22.2 million, or 0.58% of total assets and $12.0 million, or 0.34% of total assets in the prior year.
Current report
The following represents additional information regarding our non-accrual loans and leases:
Current report
(a)
Current report
As of December 31, 2024, deposits increased by $310.4 million to $3.107 billion from $2.797 billion at December 31, 2023. The increase in deposits was primarily due to increases of $253.0 million, $98.5 million, and $70.3 million in wholesale deposits, money market accounts, and interest-bearing transaction accounts, respectively. These increases were partially offset by decreases of $102.1 million and $9.3 million in certificates of deposits and non-interest-bearing transaction accounts, respectively.
Current report
The Corporation redeemed $15.0 million of subordinated notes payable that bore a fixed interest rate of 5.5% as of August 15, 2024. The Corporation issued new subordinated notes payable on September 13, 2024. The aggregate principal amount of the newly issued subordinated notes payable was $20.0 million. The subordinated notes payable bear a fixed interest rate of 7.5% with a maturity date of September 13, 2034.
Current report
On April 26, 2024, the Corporation’s Board of Directors authorized the repurchase by the Corporation of shares of its common stock with a maximum aggregate purchase price of $5.0 million, in such quantities, at such prices and on such other terms and conditions as the Corporation’s Chief Executive Officer or Chief Financial Officer determine in their discretion to be in the best interests of the
Current report
Corporation and its shareholders, any time with no expiration date. As of December 31, 2024, the Corporation has not repurchased any shares under this repurchase program.
Removed paragraphs (43)
Previous report
When used in this report the words or phrases “may,” “could,” “should,” “hope,” “might,” “believe,” “expect,” “plan,” “assume,” “intend,” “estimate,” “anticipate,” “project,” “likely,” or similar expressions are intended to identify “forward-looking statements.” Such statements are subject to risks and uncertainties, including among other things:
Previous report
•We will identify, attract, develop, and retain a diverse, high performing team to positively impact the overall performance and efficiency of the Corporation.
Previous report
•We will increase internal efficiencies, deliver a differentiated client experience, and drive client experience utilizing technology where possible.
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•We will diversify and grow our deposit base.
Previous report
•We will optimize our business lines for diversification and performance.
Previous report
Throughout 2023, the last year of the existing plan, management undertook an extensive process to reassess its key strategies and performance indicators to create a new long-term strategic plan. The Corporation intends to disclose information about the key terms of the new strategic plan later in 2024 after it is finalized.
Previous report
•Effective tax rate was 21.45% for the year ended December 31, 2023 compared to 21.79% for the year ended December 31, 2022.
Previous report
•Provision for credit losses was $8.2 million for the year ended December 31, 2023, compared to a net provision benefit of $3.9 million for the year ended December 31, 2022. Net charge-offs as a percentage of average loans and leases were 0.05% for the year ended December 31, 2023, compared to net recoveries of 0.16% for the year ended December 31, 2022.
Previous report
•Non-performing assets increased to $20.8 million as of December 31, 2023, compared to $3.8 million as of December 31, 2022. Non-performing assets to total assets increased to 0.59% as of December 31, 2023, from 0.13% as of December 31, 2022.
Previous report
•The allowance for credit losses as of December 31, 2023 increased $7.0 million, or 29.1%, to $31.3 million, compared to $24.2 million as of December 31, 2022. The allowance for credit losses was 1.16% of total loans as of December 31, 2023, compared to 0.99% as of December 31, 2022.
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•Period-end in-market deposits at December 31, 2023 increased $373.1 million, or 19.0%, to $2.339 billion from $1.966 billion as of December 31, 2022. Average in-market deposits of $2.098 billion increased $169.3 million, or 8.8%, for the year ended December 31, 2023, compared to $1.929 billion for the same period in 2022.
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Results of Operations
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NM = Not meaningful
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Rate/Volume Analysis
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Asset and Liability Beta Analysis
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(1)Excluding average net PPP loans, PPP loan interest income, and fees in lieu of interest.
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(3)Represents annualized yields/rates.
Previous report
The yield on average earning assets for the year ended December 31, 2023 was 6.54%, an increase of 183 basis points compared to 4.71% for the year ended December 31, 2022. This increase was principally due to the rising interest rates on variable-rate loans and investment in securities at higher interest rates. Excluding the impact of recurring loan fees in lieu of interest in both 2023 and 2022, the yield on average earning assets for the year ended December 31, 2023 was 6.43%, an increase of 193 basis points compared to 4.50% for the year ended December 31, 2022.
Previous report
The average rate paid on interest-bearing liabilities was 3.46% for the year ended December 31, 2023, an increase of 223 basis points from 1.23% for the year ended December 31, 2022. The average rate paid increased as the Corporation increased deposit rates and secured wholesale funding, which consists of wholesale deposits and FHLB advances, at elevated fixed rates.
Previous report
Management believes its success in growing in-market deposits, disciplined loan pricing, and increased production in existing higher-yielding commercial lending products will allow the Corporation to achieve a net interest margin that supports our long-term profitability goals. The collection of loan fees in lieu of interest is an expected source of volatility to quarterly net interest income and net interest margin. Net interest margin may also experience volatility due to events such as the collection of interest on loans previously in non-accrual status or the accumulation of significant short-term deposit inflows.
Previous report
The Corporation recognized $8.2 million of provision expense for the year ended December 31, 2023, compared to a $3.9 million provision benefit for the year ended December 31, 2022. The provision expense for the year ended December 31, 2023 was primarily due to a $4.3 million increase in the specific reserves on individually evaluated loans and a $3.7 million increase in the general reserve due to loan growth. These increases were partially offset by a $1.5 million reduction in the general reserve from quantitative factors, mainly due to an improving economic forecast. Specific reserves were higher on loans in Equipment Finance and, to a lesser extent SBA, within the Commercial and Industrial portfolio. Equipment Finance had higher defaults from borrowers in the transportation and logistics industry which management believes is consistent with the cyclical nature of this industry. Given current economic conditions, the Corporation expects continued stress within this group of borrowers in 2024.
Previous report
Other non-interest income increased by $1.8 million to $6.9 million for the year ended December 31, 2023, compared to $5.1 million for the year ended December 31, 2022. The increase was primarily due to strong returns from the Corporation’s investments in mezzanine funds.
Previous report
Loan fees increased $353,000, or 11.7%, to $3.4 million for the year ended December 31, 2023, compared to $3.0 million for the same period in 2022. The increase was driven by an increase in equipment finance and floorplan finance lending activity generating additional service fee income.
Previous report
Bank-owned life insurance income decreased by $733,000, or 32.9%, to $1.5 million for the year ended December 31, 2023, compared to $2.2 million for the year ended December 31, 2022. The decrease was due to the recognition of a $809,000 insurance claim in the year ended December 31, 2022.
Previous report
Service charges on deposits for the year ended December 31, 2023 totaled $3.1 million, a decrease of $718,000, or 18.7%, from the same period in 2022. The decrease was due to higher earnings credit rates commensurate with the higher interest rate environment partially offset by an increase in additional product sales to new and existing clients.
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Gain on sale of SBA loans for the year ended December 31, 2023 totaled $2.1 million, a decrease of $482,000, or 19.0%, from the same period in 2022. The decrease is mainly due to a reduction in total loans sold resulting from lighter production in the first half of 2023.
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NM = Not meaningful
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Other non-interest expense increased $2.1 million, or 89.4%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily due to a $985,000 increase in liquidation expense related to an Asset-Based Lending client, a $963,000 increase in SBA recourse provision, a $232,000 increase in expense from swap credit valuation changes, increase in travel expense, and an increase in loan related expenses. These increases were partially offset by a decrease in charitable donations due to a non-recurring contribution to First Business Charitable foundation totaling $809,000 in the prior year.
Previous report
FDIC Insurance increased $1.2 million, or 114.8%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily due to an increase in the assessment rate and the Corporation’s assessable base.
Previous report
For further information and discussion of our derivatives, see Note 17 — Derivative Financial Instruments of the Consolidated Financial Statements.
Previous report
As noted in the table above, non-performing assets consisted of non-performing loans and leases and repossessed assets totaling $20.8 million, or 0.59% of total assets, as of December 31, 2023, an increase in non-performing assets of $17.1 million, or 455.2%, from December 31, 2022. As of December 31, 2023 and 2022, our allowance for credit losses to total non-performing loans and leases was 160.21% and 662.20%, respectively. The increase in non-performing assets was primarily due to one fully-collateralized, $8.8 million ABL loan which defaulted in the second quarter 2023. Excluding the ABL loan, non-performing assets totaled $12.0 million, or 0.34% of total assets. The liquidation process has transitioned into Chapter 7 bankruptcy, likely delaying final resolution until the second half of 2024. The Corporation’s ABL loans are rigorously underwritten and fully collateralized, historically resulting in no losses in the event of a default. Another driver in non-performing assets, is an increase in defaults in Equipment Finance driven by transportation and logistics borrowers, which management believes is consistent with the cyclical nature of this industry.
Previous report
Additional information about non-performing loans is as follows:
Previous report
During the first quarter of 2023, the Corporation adopted ASU 2016-13, including the CECL methodology for estimating the ACL. This standard was adopted using a modified retrospective approach on January 1, 2023, resulting in a $484,000 increase to the ACL and a $1.3 million increase to the unfunded credit commitments reserve. In addition to the adoption of ASU 2016-13, the increase in ACL as a percent of gross loans and leases was principally due to increase in specific reserves and changes to quantitative and qualitative model factors.
Previous report
During the year ended December 31, 2023, the Corporation recorded net charge-offs on non-performing loans and leases of approximately $1.2 million, which included $1.8 million of charge-offs and $548,000 of recoveries. During the year ended December 31, 2022, we recorded net recoveries on non-performing loans and leases of approximately $3.8 million, which included $979,000 of charge-offs and $4.7 million of recoveries.
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(b)Not required prior to adoption of ASC 326 on January 1, 2023
Previous report
The change in ACL as a percentage of gross loans and leases for the portfolios was due to additional specific reserves in Commercial and industrial and change in quantitative factors in all portfolios in the adoption of ASC 326. Although we believe the ACL was appropriate based on the current level of loan and lease delinquencies, non-accrual loans and leases, trends in charge-offs, economic conditions, and other factors as of December 31, 2023, there can be no assurance that future adjustments to the allowance will not be necessary.
Previous report
As of December 31, 2023, deposits increased by $628.6 million to $2.797 billion from $2.168 billion at December 31, 2022. The increase in deposits was primarily due to increases in wholesale deposits and transaction accounts of $255.5 million and $227.0 million, respectively. The large increase in wholesale deposits is primarily driven by a shift from FHLB advances to wholesale deposits to manage interest rate risk and liquidity by utilizing the most efficient and cost-effective source of wholesale funds to match-fund our fixed-rate loan portfolio. In addition, certificates of deposit and money market accounts increased by $133.4 million and $12.7 million, respectively. Both transaction and money market accounts increased due to the successful execution of client deposits initiatives and change in client preferences. Additionally, certificate of deposit accounts saw an increase primarily due to a change in client interest rate expectations.
Previous report
As of December 31, 2023, the Corporation had $20,000 of other borrowings, which consisted of sold tax credit investments accounted for as secured borrowings because they did not qualify for true sale accounting. As of December 31, 2022, the Corporation had other borrowings of $6.1 million which consisted of sold loans accounted for as secured borrowings because they did not qualify for true sale accounting.
Previous report
The Corporation issued new subordinated debentures as of September 29, 2023. The aggregate principal amount of the newly issued subordinated debentures was $15.0 million which qualified as Tier 2 capital. The subordinated debentures bear a fixed interest rate of 8.0% with a maturity date of September 29, 2033. The Corporation may, at its option, redeem the debentures, in whole or part, at any time after the fifth anniversary of issuance.
Previous report
Refer to Note 10 – FHLB Advances, Other Borrowings and Subordinated Notes and Debentures in the Consolidated Financial Statements for additional information on the terms of Corporation’s current debt instruments.
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Reworded paragraphs (91)
Previous wording
•Adverse changes in the economy or business conditions, either nationally or in our markets, including, without limitation, inflation, supply chain issues, economic downturn, labor shortages, wage pressures, and the adverse effects of public health events on the global, national, and local economy.
Current wording
Adverse changes in the economy or business conditions, either nationally or in our markets including, without limitation, inflation, economic downturn, labor shortages, wage pressures, and the adverse effects of public health events on the global, national, and local economy.
Previous wording
We are a registered bank holding company incorporated under the laws of the State of Wisconsin and are engaged in the commercial banking business through our wholly-owned banking subsidiary, FBB. All of our operations are conducted through FBB and First Business Specialty Finance, LLC (“FBSF”), a wholly-owned subsidiary of FBB. FBB operates as a business bank, delivering a full line of commercial banking products and services tailored to meet the specific needs of small and medium-sized businesses, business owners, executives, professionals, and high net worth individuals. Our products and services are focused on business banking, private wealth, and bank consulting. Within business banking, we offer commercial lending, asset-based lending, accounts receivable financing, equipment financing, floorplan financing, vendor financing, Small Business Administration (“SBA”) lending and servicing, treasury management solutions, and company retirement services. Our private wealth management services include trust and estate administration, financial planning, investment management, and private banking for executives and owners of our business banking clients and others. Our bank consulting experts provide investment portfolio administrative services, asset liability management services, and asset liability management process validation for other financial institutions. We do not utilize a branch network to attract retail clients. Our operating model is predicated on deep client relationships, financial expertise, and an efficient, centralized administration function delivering best in class client satisfaction. Our focused model allows experienced staff to provide the level of financial expertise needed to develop and maintain long-term relationships with our clients.
Current wording
We are a registered bank holding company incorporated under the laws of the State of Wisconsin and are engaged in the commercial banking business through our wholly-owned banking subsidiary, FBB. All of our operations are conducted through FBB and First Business Specialty Finance, LLC (“FBSF”), a wholly-owned subsidiary of FBB. We operate as a business bank focusing on delivering a full line of commercial banking products and services tailored to meet the specific needs of small and medium-sized businesses, business owners, executives, professionals, and high net worth individuals. Our products and services include those for business banking, private wealth management services, and bank consulting. Within business banking, we offer commercial lending, asset-based lending, accounts receivable financing, equipment financing, floorplan financing, vendor financing, SBA lending and servicing, treasury management services, and company retirement plans. Our private wealth management services include trust and estate administration, financial planning, investment management, and private banking for executives and owners of our business banking clients and others. Our bank consulting experts provide investment portfolio administrative services, asset liability management services, and asset liability management process validation for other financial institutions. We do not utilize a branch network to attract retail clients. Our operating model is predicated on deep client relationships, financial expertise, and an efficient, centralized administration function delivering best in class client satisfaction. Our focused model allows experienced staff to provide the level of financial expertise needed to develop and maintain long-term relationships with our clients.
Previous wording
In early 2019, management finalized the development of its five year strategic plan and began the implementation of strategies and initiatives that drive successful execution. Management’s objective over this five year period was to excel by building an expert team with diverse experiences who work together to impact client success more than any other financial partner. To meet this objective, we identified four key strategies which are linked to corporate financial goals, all business lines, and centralized administration functions to ensure communication and execution are consistent at all levels of the Corporation.
Current wording
In early 2024, management finalized the development of its five year strategic plan and began the implementation of strategies and initiatives that drive successful execution. Management’s objective over this five year period is to foster innovative and engaged team members who develop deep client relationships and deliver exceptional results for all stakeholders. To meet this objective, we identified five key strategies which are linked to corporate financial goals, all business lines, and centralized administration functions to ensure communication and execution are consistent at all levels of the Corporation.
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These four strategies are described below:
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These strategies are described below:
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•Net income available to common shareholders for the year ended December 31, 2023 was $36.2 million, decreasing 10.0% compared to $40.2 million for the year ended December 31, 2022.
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Net income available to common shareholders for the year ended December 31, 2024 was $43.4 million, increasing 20.0% compared to $36.2 million for the year ended December 31, 2023.
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•Diluted earnings per common share were $4.33 for the year ended December 31, 2023, decreasing 8.8% compared to $4.75 in the prior year.
Current wording
Diluted earnings per common share were $5.20 for the year ended December 31, 2024, increasing 20.0% compared to $4.33 in the prior year.
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•Return on average assets (“ROAA”) for the year ended December 31, 2023 was 1.13%, compared to 1.46% for 2022.
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Return on average assets (“ROAA”) for the year ended December 31, 2024, was 1.20%, compared to 1.13% for 2023.
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•Return on average common equity (“ROACE”), which is defined as net income available to common shareholders divided by average equity reduced by average preferred stock, if any. ROACE was 13.79% for the year ended December 31, 2023, compared to 16.79% for the year ended December 31, 2022.
Current wording
Return on average common equity (“ROACE”) is defined as net income available to common shareholders divided by average equity less average preferred stock. ROACE was 14.73% for the year ended December 31, 2024, compared to 13.79% for the year ended December 31, 2023.
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•Pre-tax, pre-provision (“PTPP”) adjusted earnings, which excludes certain one-time and discrete items, and PTPP ROAA were $56.2 million and 1.75%, respectively, for the year ended December 31, 2023, increasing $8.3 million, or 17.3%, and 1 bp, from year ended December 31, 2022.
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Pre-tax, pre-provision (“PTPP”) adjusted earnings, which excludes certain one-time and discrete items, was $60.4 million for the year ended December 31, 2024, compared to $56.2 million for the year ended December 31, 2023.
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•Fees in lieu of interest, defined as prepayment fees, asset-based loan fees, non-accrual interest, and loan fee amortization, totaled $3.2 million for the year ended December 31, 2023, decreasing 38.6% compared to $5.3 million for the year ended December 31, 2022.
Current wording
Fees in lieu of interest, defined as prepayment fees, asset-based loan fees, non-accrual interest, and loan fee amortization, totaled $5.5 million for the year ended December 31, 2024, compared to $3.5 million for the year ended December 31, 2023.
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•Net interest margin was 3.78% for the year ended December 31, 2023, declining 4 bps from 3.82% for the year ended December 31, 2022. Adjusted net interest margin, which excludes certain one-time and discrete items, was 3.63% for the year ended December 31, 2023 and December 31, 2022.
Current wording
Net interest margin was 3.66% for the year ended December 31, 2024, compared to 3.78% for the year ended December 31, 2023. Adjusted net interest margin, which excludes certain one-time and volatile items including fees in lieu of interest, was 3.47% for the year ended December 31, 2024, compared to 3.62% for the year ended December 31, 2023.
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•Top line revenue, defined as net interest income plus non-interest income, grew 12.6% to $143.9 million for the year ended December 31, 2023, compared to $127.9 million for the year ended December 31, 2022.
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Top line revenue, defined as net interest income plus non-interest income, totaled $153.5 million for the year ended December 31, 2024, compared to $143.9 million in the year ended December 31, 2023.
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•Total assets at December 31, 2023 increased $531.2 million, or 17.8%, to $3.508 billion from $2.977 billion at December 31, 2022.
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Total assets at December 31, 2024, increased $345.4 million, or 9.8%, to $3.853 billion from $3.508 billion at December 31, 2023.
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•Period-end gross loans and leases receivable at December 31, 2023 increased $407.2 million, or 16.7%, to $2.850 billion from $2.443 billion as of December 31, 2022. Average gross loans and leases of $2.648 billion increased $342.9 million, or 14.9% for the year ended December 31, 2023, compared to $2.305 billion for the same period in 2022.
Current wording
Period-end gross loans and leases receivable increased $263.8 million, or 9.3%, to $3.114 billion as of December 31, 2024, compared to $2.850 billion as of December 31, 2023. Average gross loans and leases of $2.997 billion increased $349.0 million, or 13.2%, for the year ended December 31, 2024, compared to $2.648 billion for the year ended December 31, 2023.
Previous wording
•Private wealth and trust assets under management and administration increased by $461.5 million, or 17.3%, to $3.122 billion at December 31, 2023, compared to $2.660 billion at December 31, 2022. Private wealth management service fees increased $544,000, or 5.00%, for the year ended December 31, 2023, compared to the year ended December 31, 2022.
Current wording
Private wealth and trust assets under management and administration increased by $297.2 million, or 9.5%, to $3.419 billion at December 31, 2024, compared to $3.122 billion at December 31, 2023. Private wealth management service fees increased $1.8 million, or 16.1%, for the year ended December 31, 2024, compared to the year ended December 31, 2023.
Previous wording
The detailed financial discussion that follows focuses on 2023 results compared to 2022. Information pertaining to 2022 in comparison to 2021 was included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2022 on page 33 under Part II, Item 7, “Management’s Discussion and Analysis of Financial and Results of Operations,” which was filed with the SEC on February 22, 2023.
Current wording
The detailed financial discussion that follows focuses on 2024 results compared to 2023. Information pertaining to 2023 in comparison to 2022 was included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2023, on page 37 under Part II, Item 7, "Management's Discussion and Analysis of Financial and Result of Operations," which was filed with the SEC on February 26, 2024.
Previous wording
Top line revenue, comprised of net interest income and non-interest income, increased 12.6% for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to a $14.2 million, or 14.4%, increase in net interest income and a $1.9 million, or 6.4%, increase in non-interest income. The increase in net interest income was driven by an increase in average loans and leases outstanding and related interest income, partially offset by net interest margin compression and a decrease in fees in lieu of interest. The increase in non-interest income was primarily due to a $1.8 million increase in other fee income, a $1.2 million increase in swap fee income, a $544,000 increase in trust fee income, and a $353,000 increase in loan fee income. These favorable variances were partially offset by a $733,000 decrease in bank owned life insurance income, a $718,000 decrease in service charge income on deposits, and a $482,000 decrease in gains on the sale of SBA loans during the year ended December 31, 2023.
Current wording
Top line revenue, comprised of net interest income and non-interest income, increased $9.6 million, or 6.6%, for the year ended December 31, 2024, compared to the year ended December 31, 2023, due to a 10.3% increase in net interest income partially offset by a 6.6% decrease in non-interest income. The increase in net interest income was driven by an increase in average gross loans and leases outstanding. The decrease in non-interest income was due to lower returns on investments in SBIC funds, commercial loan swap fee income, and gains on the sale of SBA loans; partially offset by increases in private wealth fee income.
Previous wording
ROAA was 1.13% for the year ended December 31, 2023, compared to 1.46% for the year ended December 31, 2022 principally due to a $12.1 million increase in provision for credit losses and an $8.6 million increase in operating expenses, partially offset by a $14.2 million increase in net interest income. We consider ROAA a critical metric to measure the profitability of our organization and how efficiently our assets are deployed. ROAA also allows us to better benchmark our profitability to our peers without the need to consider different degrees of leverage which can ultimately influence return on equity measures.
Current wording
ROAA was 1.20% for the year ended December 31, 2024, compared to 1.13% for the year ended December 31, 2023. The increase in ROAA was due to the increase in net interest income and a lower effective tax rate, partially offset by a decrease in non-interest income. We consider ROAA a critical metric to measure the profitability of our organization and how efficiently our assets are deployed. ROAA also allows us to better benchmark our profitability to our peers without the need to consider different degrees of leverage which can ultimately influence return on equity measures.
Previous wording
ROACE for the year ended December 31, 2023 was 13.79% compared to 16.79% for the year ended December 31, 2022. The primary reason for the change in ROACE is consistent with the change in ROAA discussed above. We view ROACE as an important measurement for monitoring profitability and continue to focus on improving our return to our shareholders by enhancing the overall profitability of our client relationships, controlling our expenses, and minimizing our costs of credit.
Current wording
ROACE as an important measurement for monitoring profitability and continue to focus on improving our return to our shareholders by enhancing the overall profitability of our client relationships, controlling our expenses, and minimizing our costs of credit.
Previous wording
Efficiency ratio measured 60.99% and 62.31% for the years ended December 31, 2023 and 2022, respectively. Efficiency ratio is a non-GAAP measure representing operating expense divided by operating revenue. Operating expense is defined as non-interest expense excluding the effects of the SBA recourse benefit or provision, impairment of tax credit investments, net gains or losses on repossessed assets, amortization of other intangible assets, and other discrete items, if any. Operating revenue is defined as net interest income plus non-interest income less realized net gains or losses on securities, if any, and other discrete items.
Current wording
Efficiency ratio measured 60.61% for the year ended December 31, 2024, compared to 60.99% for the year ended December 31, 2023. Efficiency ratio is a non-GAAP measure representing operating expense divided by operating revenue. Operating expense is defined as non-interest expense excluding the effects of the SBA recourse benefit or provision, impairment of tax credit investments, net gains or losses on repossessed assets, amortization of other intangible assets, and other discrete items, if any. Operating revenue is defined as net interest income plus non-interest income less realized net gains or losses on securities, if any, and other discrete items.
Previous wording
PTPP adjusted earnings for the year ended December 31, 2023 was $56.2 million, compared to $47.9 million for the year ended December 31, 2022. PTPP adjusted earnings is a non-GAAP measure defined as operating revenue less operating expense. In the judgment of the Corporation’s management, the adjustments made to non-interest expense and non-interest income allow investors and analysts to better assess the Corporation’s operating expenses in relation to its core operating revenue by removing the volatility associated with certain one-time items and other discrete items. PTPP adjusted earnings allows management to benchmark performance of our model to our peers without the influence of the loan loss provision and tax considerations, which will ultimately influence other traditional financial measurements, including ROA and ROAE. The information provided below reconciles the efficiency ratio to its most comparable GAAP measure.
Current wording
PTPP adjusted earnings for the year ended December 31, 2024, was $60.4 million, compared to $56.2 million for the year ended December 31, 2023. PTPP adjusted earnings is a non-GAAP measure defined as operating revenue less operating expense. In the judgment of the Corporation’s management, the adjustments made to non-interest expense and non-interest income allow investors and analysts to better assess the Corporation’s operating expenses in relation to its core operating revenue by removing the volatility associated with certain one-time items and other discrete items. PTPP adjusted earnings allows management to benchmark performance of our model to our peers without the influence of the loan loss provision and tax considerations, which will ultimately influence other traditional financial measurements, including ROA and ROAE. The information provided below reconciles the efficiency ratio to its most comparable GAAP measure.
Previous wording
(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 in lieu of interest.
Current wording
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 in lieu of interest.
Previous wording
(2)Includes amortized cost basis of assets available-for-sale and held-to-maturity.
Current wording
Includes amortized cost basis of assets available-for-sale and held-to-maturity.
Previous wording
(3)Yields on tax-exempt municipal securities are not presented on a tax-equivalent basis in this table.
Current wording
Yields on tax-exempt municipal securities are not presented on a tax-equivalent basis in this table.
Previous wording
(4)Weighted average rate of junior subordinated notes and debentures reflects the accelerated amortization of subordinated debt issuance costs as a result of the early redemption of the junior subordinated notes during the first quarter of 2022.
Current wording
Weighted average rate of junior subordinated notes and debentures reflects the accelerated amortization of subordinated debt issuance costs as a result of the early redemption of the junior subordinated notes during the first quarter of 2022.
Previous wording
The change in yield of the respective interest-earning asset or the rate paid on interest-bearing liability compared to the change in short-term market rates is commonly referred to as a beta. The table below displays the beta calculations for loans and leases, total interest earning assets, in-market deposits, interest-bearing deposits and total interest-bearing liabilities for the year ended December 31, 2023 and 2022. Additionally, adjusted total loans and leases and total interest-earning assets excludes the volatile impact of fees in lieu of interest.
Current wording
The change in yield of the respective interest-earning asset or the rate paid on interest-bearing liability compared to the change in short-term market rates is commonly referred to as a beta. The table below displays the beta calculations for loans and leases, total interest earning assets, core deposits, interest-bearing deposits and total interest-bearing liabilities for the year ended December 31, 2024, and 2023. Additionally, adjusted total loans and leases and total interest-earning assets excludes the volatile impact of fees in lieu of interest.
Previous wording
(2)Board of Governors of the Federal Reserve System (US), Effective Federal Funds Rates [DFF]. retrieved from FRED, Federal Reserve Bank of St. Louis.
Current wording
Board of Governors of the Federal Reserve System (US), Effective Federal Funds Rates (DFF) retried from FRED, Federal Reserve Bank of St. Louis.
Previous wording
Net interest income increased by $14.2 million, or 14.4%, for the year ended December 31, 2023, compared to the year ended December 31, 2022. The increase was principally due to an increase in average loans and leases outstanding, partially offset by net interest margin compression and a decrease in fees in lieu of interest. Average gross loans and leases of $2.648 billion increased by $342.9 million, or 14.9% for the year ended December 31, 2023, compared to $2.305 billion for the same period in 2022. Loan fees collected in lieu of interest decreased 38.6% to $3.2 million, compared to $5.3 million during the same period of comparison.
Current wording
Net interest income increased $11.6 million, or 10.3% during the year ended December 31, 2024, compared to the year ended December 31, 2023. The increase in net interest income reflected an increase in average gross loans and leases and an increase in fees in lieu of interest, partially offset by net interest margin compression. Average gross loans and leases of $2.997 billion increased by $349.0 million, or 13.2%, for the year ended December 31, 2024, compared to $2.648 billion for the same period in 2023. Loan fees collected in lieu of interest increased 59.8% to $5.5 million, compared to $3.5 million during the same period of comparison.
Previous wording
Net interest margin decreased four basis points to 3.78% for the year ended December 31, 2023, compared to 3.82% for the year ended December 31, 2022. Adjusted net interest margin measured 3.63% for the years ended December 31, 2023 and December 31, 2022. Adjusted net interest margin is a non-GAAP measure representing net interest income excluding the fees in lieu of interest and other recurring, but volatile, components of net interest margin divided by average interest-earning assets less other recurring, but volatile, components of average interest-earning assets.
Current wording
Net interest margin decreased to 3.66% for the year ended December 31, 2024, compared to 3.78% for the year ended December 31, 2023. Adjusted net interest margin measured 3.47% for the year ended December 31, 2024, compared to 3.62% for the year ended December 31, 2023. The decrease in net interest margin is due to increased total bank funding costs in a higher rate environment. This was partially offset by an increase in fees collected in lieu of interest and an increase in earning asset yields due to the reinvestment of cash flows from the fixed-rate loan and securities portfolios in a higher rate environment. Adjusted net interest margin is a non-GAAP measure representing net interest income excluding the impact of fees in lieu of interest, and other recurring, but volatile, components of net interest margin divided by average interest-earning assets less other recurring, but volatile, components of average interest-earning assets.
Previous wording
We determined our provision for credit losses pursuant to our allowance for credit loss methodology, which is based on the magnitude of current and historical net charge-offs recorded throughout the established look-back period, the evaluation of several qualitative factors for each portfolio category, and the amount of specific reserves established for non-performing loans that present collateral shortfall positions. Refer to Allowance for Credit Lossesin the Critical Accounting Policy section, for further information regarding our allowance for credit loss methodology.
Current wording
We determine our provision for credit losses pursuant to our allowance for credit loss methodology. It is based on a reasonable and supportable forecast as well as considerations for composition, risk, and performance indicators in our credit portfolio. Refer to Allowance for Credit Lossesin the Critical Accounting Policy section, for further information regarding our allowance for credit loss methodology.
Previous wording
Non-interest income increased by $1.9 million, or 6.4%, to $31.3 million for the year ended December 31, 2023, from $29.4 million for the year ended December 31, 2022. Management continues to focus on revenue growth from multiple non-interest income sources in order to maintain a diversified revenue stream through greater contributions from fee-based revenues. Total non-interest income accounted for 21.8% of our total revenues in 2023 compared to 23.0% in 2022. The increase in total non-interest income for the year ended December 31, 2023 primarily reflected an increase in other non-interest income, led by mezzanine fund investment income, commercial loan swap fee income, and higher private wealth management services income. These increases were partially offset by a decrease bank owned life insurance income and lower service charge income.
Current wording
Non-interest income decreased by $2.1 million, or 6.6%, to $29.3 million for the year ended December 31, 2024, from $31.3 million for the year ended December 31, 2023. Management continues to focus on revenue growth from multiple non-interest income sources to maintain a diversified revenue stream through greater contributions from fee-based revenues. Total non-interest income accounted for 19.1% of total revenues for the year ended December 31, 2024, compared to 21.8% in 2023. The decrease in total non-interest income for the year ended December 31, 2024, was driven by lower returns on investments in SBIC funds, commercial loan swap fee income, and gains on the sale of SBA loans, partially offset by an increase in private wealth fee income and service charges on deposits.
Previous wording
(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).
Current wording
Fee income ratio is fee income, per the above table, divided by top line revenue (defined as net interest income plus non-interest income).
Previous wording
Private wealth management services fee income increased by $544,000, or 5.0%, to a record $11.4 million for the year ended December 31, 2023 compared to the previous record of $10.9 million for the year ended December 31, 2022. Private wealth management services fee income is primarily driven by the amount of trust assets under management and administration, as well as the mix of business at different fee structures, and can be positively or negatively influenced by the timing and magnitude of volatility within the equity and fixed income markets. This increase was driven by an increase in average assets under management and administration, which is attributable to market appreciation, new client relationships, and new money from existing client relationships. At December 31, 2023, our trust assets under management and administration were $3.122 billion, or 17.3% more than trust assets under management and administration of $2.660 billion at December 31, 2022.
Current wording
Private wealth fee income increased $1.8 million, or 16.1%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. Private wealth fee income is up compared to prior year primarily due to an increase in assets under management and administration, increases in fee rates across the client base, and non-recurring transaction fees in the 2024 period. Private wealth fee income can vary due to the mix of business at different fee structures and can be positively or negatively influenced by the timing and magnitude of volatility within the capital markets. As of December 31, 2024, private wealth and trust assets under management and administration totaled $3.419 billion, increasing $297.2 million, or 9.5%, compared to $3.122 billion as of December 31, 2023, due to an increase in market values, new clients, and new money from existing clients.
Previous wording
Commercial loan interest rate swap fee income was $3.0 million for the year ended December 31, 2023, compared to $1.8 million for the year ended December 31, 2022. We originate commercial real estate loans in which we offer clients a floating rate and an interest rate swap. The client’s swap is then offset with a counter-party dealer. The execution of these transactions generates swap fee income. The aggregate amortizing notional value of interest rate swaps with various borrowers was $939.2 million as of December 31, 2023, compared to $744.2 million as of December 31, 2022. Interest rate swaps can be an attractive product for our commercial borrowers, although associated fee income can be variable from period to period based on client demand and the interest rate environment in any given quarter.
Current wording
Commercial loan interest rate swap fee income decreased $1.6 million, or 52.7%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. We originate commercial real estate loans in which we offer clients a floating rate and an interest rate swap. The client’s swap is then offset with a counter-party dealer. The execution of these transactions generates swap fee income. The aggregate amortizing notional value of interest rate swaps with various borrowers was $1.022 billion as of December 31, 2024, compared to $939.2 million as of December 31, 2023. Interest rate swaps can be an attractive product for our commercial borrowers, although associated fee income varies from period to period based on loan activity and the interest rate environment.
Previous wording
Non-interest expense increased by $9.1 million, or 11.5%, to $88.6 million for the year ended December 31, 2023 from $79.5 million for the year ended December 31, 2022. Operating expense, which excludes certain one-time and discrete items as defined in the Efficiency Ratio table above, increased $8.6 million, or 10.9%, to $87.8 million for the year ended December 31, 2023 compared to $79.2 million for the year ended December 31, 2022. The increase in operating expense was due to an increase in all expense categories, led by compensation, FDIC insurance, and other non-interest expense.
Current wording
Non-interest expense increased by $4.9 million, or 5.5%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. Operating expense, which excludes certain one-time and discrete items as defined in the Efficiency Ratio table above, increased $5.2 million, or 6.0%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. The increase in operating expense was primarily due to an increase in compensation expense, computer software expense, and data processing expense.
Previous wording
(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.
Current wording
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.
Previous wording
Compensation expense increased by $3.3 million, or 5.7%, to $61.1 million for the year ended December 31, 2023 from $57.7 million for the year ended December 31, 2022 principally due to an increase in average FTEs, annual merit increases, growth in employee benefit costs, and increase in incentive compensation. The increase reflects a $2.5 million, or 7.1%, increase in employee salaries and a $908,000, or 25.6% increase in incentive compensation due to exceptional loan and deposit growth. These increases were partially offset by a $1.5 million, or 22.6% decrease in estimated annual cash bonuses compared to a record year for 2022. The Bank’s compensation philosophy is to provide base salaries competitive with the market. Given the competitive job market and the critical importance to the Corporation of retaining employees, annual base salaries were increased an additional $1.5 million, or approximately 4.1%, in the aggregate for 2024. Average FTEs were 343 for the year ended December 31, 2023, increased by 18, or 5.5%, from 325 for the year ended December 31, 2022.
Current wording
Compensation expense increased by $2.0 million, or 3.4%, for the year ended December 31, 2024, compared to the year ended December 31, 2024, principally due to an increase in average FTEs, annual merit increases, growth in employee benefit costs, and increase in incentive compensation. The increase reflects a $2.7 million, or 7.2%, increase in employee salaries and a $428,000, or 8.4%, increase in estimated annual cash bonuses compared to 2023. These increases were partially offset by a $768,000, or 17.2% decrease in individual production incentive compensation. Average FTEs were 350 for the year ended December 31, 2024, increased by seven, or 2.0%, from 343 for the year ended December 31, 2023.
Previous wording
Computer software expense increased by $569,000, or 12.9%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily due to continued investment in technology to support the Corporation’s growth.
Current wording
Computer software expense increased $1.2 million, or 23.7%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. The increase was primarily due to our commitment to innovative technology to support growth initiatives, enhance productivity, and improve the client experience.
Previous wording
Data processing fees increased $629,000, or 19.7%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily due to an increase in core processing costs commensurate with loan and deposit account growth, as well as various project implementations.
Current wording
Data processing expense increased $1.1 million, or 27.9%, for the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to an increase in core processing costs due to loan and deposit account growth, private wealth asset growth, and a one-time expense resulting from a change in credit card vendors.
Previous wording
Marketing expense increased by $535,000, or 22.7%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily due to an increase in business development efforts and advertising projects commensurate with our expanding sales force.
Current wording
Marketing expense increased $629,000, or 21.8%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. The increase was primarily due to an increase in business development efforts and advertising projects related to the Company’s growth initiatives.
Showing the first 40 of 91 pairs. Open the source sections for the rest.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
The average balances of loans and leases include non-accrual loans and leases and loans held for sale.
Rearranged previous paragraphs (5)
Previous report — wording carried elsewhere
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Previous report — wording carried elsewhere
(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.
Previous report — wording carried elsewhere
(2)Includes amortized cost basis of assets available-for-sale and held-to-maturity.
Previous report — wording carried elsewhere
(1) Weighted average rate of junior subordinated notes reflects the accelerated amortization of subordinated debt issuance costs as a result of the early redemption of the junior subordinated notes during the first quarter of 2022.
Previous report — wording carried elsewhere
One of the most significant judgments impacting the ACL estimate is the economic forecast for United States national unemployment and United States national GDP. Changes in the economic forecast could significantly affect the estimated credit losses which could potentially lead to materially different allowance levels from one reporting period to the next.