First Business(US:FBIZ)2022-04-28 16:00Part I Financial Statements The unaudited consolidated financial statements for Q1 2022 present the company's financial position, performance, and cash flows, with total assets reaching $2.72 billion Consolidated Balance Sheet Highlights (Unaudited) | (In Thousands) | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $2,724,082 | $2,652,905 | | Loans and leases receivable, net | $2,227,580 | $2,215,072 | | Securities (AFS & HTM) | $240,898 | $225,448 | | Total Liabilities | $2,479,031 | $2,420,483 | | Deposits | $2,023,694 | $1,957,923 | | FHLB advances and other borrowings | $414,487 | $403,451 | | Total Stockholders' Equity | $245,051 | $232,422 | Consolidated Statement of Income Highlights (Unaudited) | For the Three Months Ended March 31, (In Thousands, Except Per Share Data) | 2022 | 2021 | | :--- | :--- | :--- | | Net Interest Income | $21,426 | $20,863 | | Provision for loan and lease losses | ($855) | ($2,068) | | Non-interest Income | $7,386 | $7,195 | | Non-interest Expense | $18,823 | $17,330 | | Net Income | $8,672 | $9,731 | | Diluted Earnings Per Common Share | $1.02 | $1.12 | Consolidated Statement of Cash Flows Highlights (Unaudited) | For the Three Months Ended March 31, (In Thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,098 | $6,829 | | Net cash used in investing activities | ($40,085) | ($79,492) | | Net cash provided by financing activities | $76,480 | $74,628 | | Net increase in cash and cash equivalents | $38,493 | $1,965 | Notes to Unaudited Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, financial items, and significant transactions, including the upcoming CECL adoption and recent capital issuances - The Corporation will adopt the Current Expected Credit Losses (CECL) standard on January 1, 2023, establishing a committee and implementing a third-party software solution for the transition28 - On March 4, 2022, the Corporation issued 12,500 shares of 7.0% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A, for net proceeds of $12.0 million120 - The Corporation issued a new $20.0 million subordinated note on March 4, 2022, bearing a fixed rate of 3.50% and maturing in 2032, using proceeds to redeem $10.3 million of 10.50% junior subordinated notes on March 30, 2022118 Loan Portfolio Composition (In Thousands) | Loan Category | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Commercial real estate | $1,469,678 | $1,454,628 | | Commercial and industrial | $720,695 | $730,819 | | Direct financing leases, net | $14,551 | $15,743 | | Consumer and other | $47,589 | $39,741 | | Total gross loans and leases | $2,252,513 | $2,240,931 | Allowance for Loan and Lease Losses Activity (In Thousands) | For the Three Months Ended March 31, 2022 | Commercial Real Estate | Commercial and Industrial | Consumer and Other | Total | | :--- | :--- | :--- | :--- | :--- | | Beginning balance | $15,110 | $8,413 | $813 | $24,336 | | Net recoveries (charge-offs) | $116 | $62 | $10 | $188 | | Provision for loan and lease losses | ($1,461) | $437 | $169 | ($855) | | Ending balance | $13,765 | $8,912 | $992 | $23,669 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management's discussion highlights a decrease in net income to $8.7 million in Q1 2022, alongside successful capital raising, strong asset quality, and loan and deposit growth Financial Performance Summary Q1 2022 net income was $8.7 million, with annualized ROA of 1.30% and ROE of 14.47%, supported by $32.5 million in new capital and improved asset quality Key Performance Metrics (Q1 2022 vs Q1 2021) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net Income | $8.7M | $9.7M | | Diluted EPS | $1.02 | $1.12 | | Annualized ROA | 1.30% | 1.51% | | Annualized ROE | 14.47% | 18.48% | - The company completed a private placement of $32.5 million in new capital, comprising a $20.0 million subordinated note and $12.5 million of Series A Preferred Stock, partially used to redeem $10.3 million of higher-cost trust preferred securities178 - Non-performing assets decreased to $5.7 million, or 0.21% of total assets, from $6.5 million, or 0.25% of total assets, at year-end 2021180 Results of Operations Q1 2022 top-line revenue increased 2.7% to $28.8 million, driven by net interest and non-interest income growth, while non-interest expense rose 8.6% to $18.8 million - Top line revenue increased by $754,000, or 2.7%, to $28.8 million in Q1 2022, with adjusted top line revenue growing 13.9% excluding PPP impacts and one-time costs182183 - Net interest margin was 3.39% for Q1 2022, down from 3.44% in Q1 2021, while adjusted net interest margin increased to 3.24% from 3.20%178208 - Private wealth management fees increased 18.0% to $2.8 million, while gain on sale of SBA loans decreased 45.7% to $585,000218219220 - Compensation expense increased 7.8% to $13.6 million, driven by merit increases, higher payroll taxes on bonuses, and an expanded workforce227 Financial Condition As of March 31, 2022, total assets grew 2.7% to $2.72 billion, driven by increases in loans, securities, and deposits, alongside strategic debt management - Total assets increased by $71.2 million (2.7%) to $2.724 billion at March 31, 2022, from December 31, 2021234 - Net loans and leases receivable increased by $12.5 million, with the portfolio growing $21.6 million excluding PPP loans, despite nearly $90 million in payoffs239 - Deposits increased by $65.8 million (13.4% annualized) to $2.024 billion, primarily driven by an $83.1 million increase in in-market deposits246285 Asset Quality Asset quality remained strong in Q1 2022, with non-performing assets decreasing to $5.7 million (0.21% of total assets) and ALLL coverage of non-accrual loans increasing to 421.38% Asset Quality Metrics | Metric | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Non-performing assets (NPAs) | $5.7M | $6.5M | | NPAs / Total Assets | 0.21% | 0.25% | | Non-accrual loans / Gross loans | 0.25% | 0.28% | | ALLL / Gross loans | 1.05% | 1.09% | | ALLL / Non-accrual loans | 421.38% | 382.76% | - The company recorded net recoveries of $188,000 in Q1 2022, compared to net recoveries of $2.5 million in Q1 2021272278 Liquidity and Capital Resources The Corporation maintains strong liquidity and capital, with $638.9 million in immediate on-balance sheet liquidity and all capital ratios exceeding regulatory minimums for well-capitalized status - Immediate on-balance sheet liquidity stood at $638.9 million as of March 31, 2022, an increase from $529.5 million at year-end 2021283 - A new $5.0 million share repurchase program was authorized on March 4, 2022, with 4,502 shares repurchased for approximately $148,000 during March291303 - As of March 31, 2022, the Corporation's and the Bank's capital levels exceeded all regulatory minimums to be considered well-capitalized, with the Corporation's Tier 1 leverage ratio at 9.09% and Total capital ratio at 11.87%166 Quantitative and Qualitative Disclosures about Market Risk This section is not applicable for this reporting period - The report states that this item is not applicable295 Controls and Procedures Management, including the CEO and CFO, concluded that the Corporation's disclosure controls and procedures were effective as of March 31, 2022, with no material changes during the quarter - The CEO and CFO concluded that the Corporation's disclosure controls and procedures were effective as of March 31, 2022296 - There were no material changes to internal control over financial reporting during the quarter ended March 31, 2022297 Part II Legal Proceedings The Corporation is involved in ordinary course legal proceedings, with management anticipating no material adverse effect on financial position or results - Management believes that any liability from existing or threatened legal proceedings will not have a material adverse effect on the Corporation's financial condition or results301 Risk Factors There have been no material changes to the risk factors previously disclosed in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes to risk factors were reported for the quarter302 Unregistered Sales of Equity Securities and Use of Proceeds The Board approved a new $5 million share repurchase program on March 4, 2022, with 18,223 shares repurchased in Q1 2022, including 4,502 under the new program - A new $5.0 million share repurchase program was authorized on March 4, 2022303 Issuer Purchases of Equity Securities (Q1 2022) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Publicly Announced Program | | :--- | :--- | :--- | :--- | | Jan 2022 | 0 | $ - | 0 | | Feb 2022 | 13,721 | $33.60 | 0 | | Mar 2022 | 4,502 | $32.87 | 4,502 | | Total | 18,223 | $33.42 | 4,502 | Exhibits This section lists the exhibits filed with the Form 10-Q, including Articles of Amendment, the new Subordinated Note form, and CEO/CFO certifications - Filed exhibits include Articles of Amendment, the form of the 3.50% Fixed-to-Floating Rate Subordinated Note, and CEO/CFO certifications (31.1, 31.2, 32)313