First Business Bank Reports Fourth Quarter 2020 EPS OF $0.71

-- Record top line revenue reflects significant loan growth, net interest margin stability, and gains on SBA loan sales --

-- Non-performing assets decline 27% --

MADISON, Wis.--(BUSINESS WIRE)-- First Business Financial Services, Inc. (the “Company” or “First Business Bank”) (Nasdaq:FBIZ) reported record net interest income and stable non-interest income, resulting in net income of $6.1 million, or diluted earnings per share of $0.71, in the fourth quarter 2020. First Business Bank’s strong financial results reflected improved asset quality as non-performing assets declined by $10.0 million, or 27.3%, attributable to loan payoffs and $6.7 million in charge-offs partially offset by the release of $5.2 million in related specific reserves.

“First Business Bank’s commitment to investing in talent contributed to our record revenue in the fourth quarter and very attractive positioning for strong and sustainable earnings growth in 2021 and beyond,” President and Chief Executive Officer Corey Chambas said. “Record in-market deposits at year end contributed to meaningful fourth quarter funding cost reductions and net interest margin stability while providing ample liquidity to fund our exceptional double-digit loan growth of 12% for the year, excluding PPP loans.” Chambas added, “We are also very pleased with the improvement in asset quality during the quarter and our outlook on credit going forward is positive.”

Summary results as of and for the fourth quarter ended December 31, 2020:

• Net income totaled $6.1 million, or diluted earnings per share of $0.71, in the fourth quarter of 2020, compared to $4.3 million, or diluted earnings per share of $0.50, in the third quarter of 2020 and $5.8 million, or diluted earnings per share of $0.67, in the fourth quarter of 2019.
• Annualized return on average assets and annualized return on average equity measured 0.93% and 11.92%, respectively, compared to 0.68% and 8.58% for the linked quarter and 1.09% and 11.93% for the fourth quarter of 2019.
• The Company had $228.9 million in Paycheck Protection Program (“PPP”) loans outstanding, down $103.5 million compared to the third quarter of 2020, and recognized $3.3 million in associated processing fee income, compared to $1.1 million and $859,000 in PPP processing fees in the third and second quarters of 2020, respectively.
• Pre-tax, pre-provision adjusted earnings, which excludes certain one-time and discrete items as defined in the Non-GAAP Reconciliations at the end of this release, totaled a record $11.7 million, up 25.6% from the third quarter of 2020 and up 29.4% from the fourth quarter of 2019. Pre-tax, pre-provision adjusted return on average assets was 1.80% compared to 1.47% and 1.72% for the linked and prior year quarters, respectively.
• Gross loans and leases receivable, excluding net PPP loans, were $1.921 billion as of December 31, 2020, up 16.4% annualized from the third quarter of 2020 and 12.0% from the fourth quarter of 2019.
• COVID-19 related loan deferrals outstanding declined by $104.5 million during the quarter to $27.0 million, or 1.4% of gross loans and leases, excluding gross PPP loans, at period end.
• Non-performing assets decreased $10.0 million, or 27.3%, to $26.7 million, or 1.04% of total assets, compared to $36.7 million, or 1.41%, at September 30, 2020 and $23.5 million, or 1.12%, at December 31, 2019. Non-performing assets to total assets, excluding net PPP loans was 1.14%, compared to 1.61%, at September 30, 2020.
• The allowance for loan and lease losses decreased $2.3 million, or 7.5%, compared to September 30, 2020, primarily due to a $5.2 million decrease in specific reserves. This decrease was partially offset by a $2.9 million increase in general reserves, principally driven by loan growth and the uncertainty of the economic conditions during the COVID-19 pandemic. The allowance for loan and lease losses was 1.33% of total loans as of December 31, 2020, compared to 1.41% and 1.14% at September 30, 2020 and December 31, 2019, respectively. Excluding net PPP loans, the allowance for loan and lease losses decreased to 1.48% of total loans as of December 31, 2020, compared to 1.67% as of September 30, 2020.
• Provision for loan and lease losses totaled $4.3 million in the fourth quarter of 2020, compared to $3.8 million in the third quarter of 2020 and $1.5 million in the fourth quarter of 2019.
• In January of 2021, the Company received a recovery of approximately $2.0 million on a loan charged off in a prior year. While this recovery will have a positive impact on the Company’s provision for loan and lease losses in the first quarter of 2021, it is not necessarily indicative of a trend or a reflection of the Company’s ultimate provision for the first quarter.
• Robust liquidity position includes record in-market deposits of $1.683 billion, up $15.8 million from September 30, 2020, and $304.1 million from December 31, 2019.
• Net interest margin was 3.69% in the fourth quarter of 2020, compared to 3.14% in the third quarter of 2020 and 3.73% in the fourth quarter of 2019. Adjusted net interest margin, which excludes certain one-time and discrete items as defined in the Non-GAAP Reconciliations at the end of this release, was 3.25% in the fourth quarter of 2020, compared to 3.24% in the third quarter of 2020 and 3.41% in the fourth quarter of 2019.
• Fees in lieu of interest, defined as prepayment fees, asset-based loan fees, non-accrual interest, and loan fee amortization, totaled $4.7 million in the fourth quarter of 2020, compared to $1.5 million in the third quarter of 2020 and $1.8 million in the fourth quarter of 2019. Loan fee amortization includes PPP processing fee income of $3.3 million and $1.1 million in the fourth and third quarters of 2020, respectively.
• Top line revenue, defined as net interest income plus non-interest income, totaled a record $29.3 million, up 50.4% annualized from the third quarter of 2020 and 14.2% from the fourth quarter of 2019.
• Non-interest income totaled $6.8 million, or 23.2% of total revenue, in the fourth quarter of 2020, compared to $7.4 million, or 28.5% of total revenue in the third quarter of 2020 and $7.2 million, or 28.0% of total revenue in the fourth quarter of 2019.
• Non-interest expense was $17.7 million in the fourth quarter of 2020, compared to $16.8 million in the third quarter of 2020 and $16.8 million in the fourth quarter of 2019. Operating expense, which excludes certain one-time and discrete items as defined in the Non-GAAP Reconciliations at the end of this release, totaled $17.6 million in the fourth quarter of 2020, compared to $16.7 million in the third quarter of 2020 and $16.6 million in the fourth quarter of 2019.
• The efficiency ratio, which excludes certain one-time and discrete items as defined in the Non-GAAP Reconciliations at the end of this release, improved to 60.02% in the fourth quarter of 2020, down from 64.16% and 64.77% in the linked and prior year quarters, respectively. Quarterly efficiency ratios in 2021 are not expected to continue at the level experienced in the fourth quarter of 2020, but are anticipated to be more in line with levels reported in the periods of comparison.
• On January 28, 2021, the Board of Directors of the Company adopted a new share repurchase program that authorizes the Company to repurchase up to $5 million of the Company’s common stock over a period of approximately twelve months, ending on January 31, 2022. The Company suspended its prior share repurchase program in March 2020 due to the uncertainty surrounding the COVID-19 pandemic. Under the previous plan, which was initiated in September 2019 and expired September 30, 2020, the Company had repurchased $3.5 million of the $5 million authorized in the Company’s common stock.

“The Board and management believe the Company’s shares are undervalued, given the record of performance and the opportunities we see for our commercial banking, specialty finance, private wealth and consulting businesses,” President and Chief Executive Officer Corey Chambas said. “Through this share repurchase program we have the ability to opportunistically purchase Company shares in the open market, while continuing to meet the needs of our clients. Our team is laser-focused on building lasting relationships with businesses, business executives, and high net worth individuals, and we intend to remain an important source of strength and stability for growing numbers of clients during this pivotal year of economic recovery across our Wisconsin, Kansas City and other attractive Midwestern markets.”

Financial Highlights

COVID-19 Update

Paycheck Protection Program

As of December 31, 2020, the Company had $228.9 million in PPP loans outstanding and $3.5 million in deferred processing fees outstanding. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated when forgiven and repaid, as an adjustment of yield using the interest method. In the fourth quarter, the Company recognized $3.3 million of PPP processing fees in interest income from the federal program launched in 2020. For the year ended December 31, 2020, the Company recognized $5.3 million in PPP fees, recording 60% of the $8.8 million in deferred Small Business Administration (“SBA”) processing fees for loans originated in 2020. The SBA provides a guaranty to the lender of 100% of principal and interest, unless the lender violated an obligation under the agreement. As loan losses are expected to be immaterial, if any at all, due to the guaranty, management excluded the gross PPP loans from the allowance for loan and lease losses calculation.

In January 2021, the Company began accepting applications for the SBA’s second phase of the PPP program, with an emphasis on supporting in-market businesses and non-profit organizations.

Liquidity Sources

Management has reviewed all primary and secondary sources of liquidity in preparation for any unforeseen funding needs due to the COVID-19 pandemic and prioritized based on available capacity, term flexibility, and cost. As of December 31, 2020, the Company had the following sources of liquidity, including the Company’s ability to participate in the Federal Reserve’s Paycheck Protection Program Liquidity Facility (“PPPLF”):

In addition to the above primary sources of liquidity, as of December 31, 2020, the Company also had access to $53.5 million in federal funds lines with various correspondent banks and significant experience accessing the highly liquid brokered deposit market.

Capital Strength

The Company’s capital ratios continued to exceed the highest required regulatory benchmark levels.

• Total capital to risk-weighted assets at December 31, 2020 was 11.25%, tier 1 capital to risk-weighted assets was 8.96%, tier 1 leverage capital to adjusted average assets was 7.99%, and common equity tier 1 capital to risk-weighted assets was 8.53%. Tangible common equity to tangible assets was 7.60%. Excluding net PPP loans, tier 1 leverage capital to adjusted average assets and tangible common equity to tangible assets were 8.97% and 8.33%, respectively.
• As previously announced, during the fourth quarter of 2020, the Company’s Board of Directors declared a regular quarterly dividend of $0.165 per share. The dividend was paid on November 12, 2020 to stockholders of record at the close of business on November 2, 2020. Measured against fourth quarter 2020 diluted earnings per share of $0.71, the dividend represents a 23.2% payout ratio. The Board of Directors routinely considers dividend declarations as part of its normal course of business.

Deferral Requests

The Company provided loan modifications deferring payments up to six months to certain borrowers impacted by COVID-19 who were current in their payments at the inception of the Company’s loan modification program. As of December 31, 2020, the Company had deferred loans outstanding of $27.0 million, or 1.4% of gross loans and leases, excluding gross PPP loans, compared to $131.5 million, or 7.1% as of September 30, 2020 and $323.2 million, or 18.6% as of June 30, 2020. The following tables represent a breakdown of the deferred loan balances by industry segment and collateral type:

Exposure to Stressed Industries

Certain industries are widely expected to be particularly impacted by social distancing, quarantines, and the economic impact of the COVID-19 pandemic, such as the following:

As of December 31, 2020, the Company had no meaningful direct exposure to the energy sector, airline industry, or retail consumer, and does not participate in shared national credits.

Because of the significant uncertainties related to the ultimate duration of the COVID-19 pandemic and its effects on our clients and prospects, and on the national and local economy as a whole, there can be no assurances as to how the pandemic may ultimately affect the Company’s loan portfolio.

Fourth Quarter 2020 Compared to Third Quarter 2020

Net interest income increased $3.9 million, or 20.9%, to $22.5 million.

• Net interest income benefited from both an increase in average loans and leases and fees received in lieu of interest. Fees in lieu of interest, which can vary from quarter to quarter based on client-driven activity, totaled $4.7 million, compared to $1.5 million. Excluding fees in lieu of interest, net interest income increased $653,000, or 3.8%.
• Average loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $87.0 million, or 19.2% annualized, to $1.903 billion.
• The yield on average interest-earning assets increased 47 basis points to 4.22% from 3.75%. Excluding average net PPP loans, the PPP loan interest income of $718,000, and the aforementioned fees in lieu of interest, the yield earned on average interest-earning assets decreased 13 basis points to 3.76% from 3.89%. The rate paid for average total bank funding decreased nine basis points to 0.45% from 0.54%. Total bank funding is defined as total deposits plus Federal Home Loan Bank (“FHLB”) advances, Federal Reserve Discount Window advances, and Federal Reserve PPPLF advances.
• Net interest margin increased 55 basis points to 3.69% from 3.14%. Adjusted net interest margin, excluding fees in lieu of interest and other recurring but volatile components of net interest margin, increased to 3.25% from 3.24%.

Provision for loan and leases losses increased $487,000, or 12.7%, to $4.3 million.

• The increase in provision for loan and lease losses included $6.7 million in charge-offs, partially offset by the release of $5.2 million in related specific reserves.
• Changes in the general reserve increased the provision for loan and lease losses $1.3 million due to historical loss rate updates from net charge-off activity, $1.0 million due to qualitative factor changes in our commercial real estate portfolio, and $639,000 due to loan growth.
• In January of 2021, the Company received a recovery of approximately $2.0 million on a loan charged off in a prior year. While this recovery will have a positive impact on the Company’s provision for loan and lease losses in the first quarter of 2021, it is not necessarily indicative of a trend or a reflection of the Company’s ultimate provision for the first quarter.

Non-interest income decreased $609,000, or 8.2%, to $6.8 million.

• Commercial loan interest rate swap fee income decreased $1.4 million, or 55.9%, to $1.1 million compared to $2.4 million. Interest rate swaps continue to be an attractive product for the Company’s commercial borrowers, although associated fee income can vary from period to period based on client demand and the interest rate environment in any given quarter.
• Gains on sale of SBA loans increased $540,000, or 71.1%, to $1.3 million compared to $760,000. The Company’s pipeline continues to grow period over period and management believes the gain on sale of traditional SBA loans (i.e., SBA loans unrelated to PPP loans), while variable based on timing of closings, will continue to increase annually at a measured pace over time.
• Private wealth management fee income increased $41,000, or 1.9% to $2.2 million. Trust assets under management and administration measured a record $2.249 billion at December 31, 2020, up $231.5 million, or 45.9% annualized, primarily due to increased equity market values.
• Other fee income increased $238,000, or 35.2%, to $914,000 compared to $676,000. The increase is primarily due to gain on sale of state tax credits totaling $275,000 in the quarter.

Non-interest expense increased $893,000, or 5.3%, to $17.7 million.

• Compensation expense increased $288,000, or 2.4%, to $12.1 million mainly due to an increase in the Company’s performance-based incentive compensation accrual based on estimated full year 2020 results. Despite an elevated provision for loan and lease losses tempering the Company’s return on average assets, record loans, deposits, and fee income drove superior revenue growth and efficiency in 2020 when compared to the Company’s performance targets. In addition, average full-time equivalent employees increased to 301 for the quarter ended December 31, 2020, compared to 295 for the quarter ended September 30, 2020, the majority of which were producers.
• The Company recognized $216,000 in expense due to the remaining impairment of a federal historic tax credit investment, which corresponded with the recognition of a $270,000 tax credit during the quarter. No federal historic tax credit investments were recognized in the third quarter of 2020.
• The Company established a $461,000 credit valuation adjustment (“CVA”) related to the commercial loan interest rate swap program. The CVA represents a change in the market value of the Company’s commercial loan interest rate swaps to estimate potential borrower credit risk within the portfolio. The CVA can vary from period to period based on the size of the portfolio, credit metrics, and the interest rate environment in any given quarter. There was no CVA as of September 30, 2020.

Total period-end loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $75.8 million, or 16.4% annualized, to $1.921 billion.

• Commercial and industrial (“C&I”) loans, excluding net PPP loans, increased $42.1 million, or 36.4% annualized. Management believes the timely investments in producers in our counter cyclical commercial banking products, such as asset-based lending and accounts receivable financing, have positioned C&I lending to increase throughout the current economic cycle.
• Commercial real estate (“CRE”) loans increased $32.6 million, or 9.8% annualized, with growth coming from owner occupied and multi-family properties. Recent success in driving above-average CRE growth comes as established commercial lenders hired over the past 18 months were able to bring many of their high-quality relationships with them to the Bank.

“Despite economic headwinds and uncertainty in 2020 from the fallout of the COVID-19 pandemic, our business banking team remained steadfast in pursuing new relationships and going deeper with existing relationships,” said Chambas. “This commitment resulted in well above-industry loan growth across our lending products, particularly in traditional commercial lending, small business, and accounts receivable financing.” Chambas continued, “While economic uncertainty lingers in 2021, we believe our proactive investment in talent over the past two years, including in our counter cyclical specialty finance business lines, positions us well to continue our trend of double-digit loan growth moving forward and to meet our long-standing net interest margin goal of 3.50%.”

Total period-end in-market deposits increased $15.8 million to $1.683 billion and the average rate paid decreased seven basis points to 0.20%.

• Transaction accounts and money market accounts increased $39.8 million and $4.6 million, respectively, while certificates of deposits decreased $28.7 million.
• Client preferences continued to shift away from term deposits due to the low interest rate environment, while management attributes the continued increase in transaction accounts to successful business development efforts and our existing clients’ preference for safety and soundness amid the economic uncertainty created by the COVID-19 pandemic.

Period-end wholesale funding, including FHLB advances, Federal Reserve Discount Window advances, Federal Reserve PPPLF advances, brokered deposit, and deposits gathered through internet deposit listing services, decreased $46.2 million to $567.0 million.

• Wholesale deposits increased $18.4 million to $172.5 million, mainly due to adding non-maturity brokered deposits at a favorable rate compared to alternative funding sources. Excluding these deposits, wholesale deposits decreased as the existing portfolio runoff is replaced by in-market deposits and lower cost FHLB advances to match-fund long-term fixed rate loans and fund loan growth. The average rate paid on wholesale deposits decreased 37 basis points to 0.96% and the weighted average original maturity of brokered certificates of deposit decreased to 4.1 years from 4.3 years.
• FHLB advances decreased $35.0 million to $394.5 million. The average rate paid on FHLB advances decreased 13 basis points to 1.30% and the weighted average original maturity increased to 5.5 years from 5.1 years.
• During the second quarter of 2020, management tested the availability of the Federal Reserve PPPLF due to the uncertainty of when PPP loans would be required to close and fund. As of December 31, 2020, the Company had no PPPLF advances outstanding.

Non-performing assets decreased $10.0 million, or 27.3%, to $26.7 million, or 1.04% of total assets, compared to $36.7 million, or 1.41% of total assets. The reduction in non-performing assets was principally due to the successful exit of a $4.3 million legacy SBA loan in the manufacturing industry, $3.3 million charge-off of previously reserved legacy SBA loan in the restaurant industry, and a $2.8 million charge-off of a previously reserved conventional loan in the hospitality industry. Excluding net PPP loans, non-performing assets were 1.14% of total assets, compared to 1.61% as of September 30, 2020.

The allowance for loan and lease losses decreased $2.3 million, or 7.5%, compared to September 30, 2020 primarily due to a $5.2 million release of specific reserve corresponding with $6.6 million in net charge-offs. The decrease in specific reserve was partially offset by a $2.9 million increase in the general reserve principally due to historical loss rate updates from net charge-off activity, qualitative factor changes in our commercial real estate portfolio, and loan growth.

• The allowance for loan and lease losses as a percent of total gross loans and leases was 1.33% compared to 1.41%.
• Excluding net PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.48%, compared to 1.67% as of September 30, 2020.

Fourth Quarter 2020 Compared to Fourth Quarter 2019

Net interest income increased $4.0 million, or 21.9%, to $22.5 million.

• Net interest income benefited from an increase in average loans and leases, increase in fees received in lieu of interest, and significant reduction in interest expense paid on deposits. Fees in lieu of interest totaled $4.7 million, compared to $1.8 million. Excluding fees in lieu of interest, net interest income increased $1.1 million, or 6.8%.
• Average loans and leases receivable, excluding PPP loans in both periods of comparison, increased $159.1 million, or 9.1%, to $1.903 billion.
• The yield earned on average interest-earning assets decreased 95 basis points to 4.22% from 5.17%. Excluding average net PPP loans, related interest income of $718,000, and the aforementioned fees in lieu of interest, the yield earned on average interest-earning assets decreased 104 basis points to 3.76% from 4.80%. The rate paid for average total bank funding decreased 97 basis points to 0.45% from 1.42%. The average effective federal funds rate decreased 156 basis points to 0.09% from 1.65%.
• Net interest margin decreased four basis points to 3.69% from 3.73%. Adjusted net interest margin decreased 16 basis points to 3.25% from 3.41%.

Non-interest income decreased $390,000, or 5.4%, to $6.8 million.

• Commercial loan interest rate swap fee income decreased $1.2 million to $1.1 million compared to $2.3 million.
• Gains on sale of SBA loans increased $835,000 to $1.3 million compared to $465,000.
• Private wealth management fee income increased $135,000, or 6.5%, to $2.2 million. Trust assets under management and administration measured a record $2.249 billion at December 31, 2020, up $356.8 million, or 18.9%.
• Other fee income decreased $272,000, or 22.9%, to $914,000 compared to $1.2 million. The decrease is primarily due to the decrease in returns on investments in mezzanine funds.

Non-interest expense increased $878,000, or 5.2%, to $17.7 million. Operating expense increased $942,000, or 5.7%, to $17.6 million.

• Compensation expense increased $1.1 million, or 10.1%, to $12.1 million. Average full-time equivalent employees increased to 301, up 9.8% for the quarter ended December 31, 2020, compared to 274 for the quarter ended December 31, 2019.
• Marketing expense decreased $199,000, or 32.6%, to $411,000 due to temporary postponement of various marketing plans due to the COVID-19 pandemic.
• The Company recognized $216,000 in expense due to the remaining impairment of a federal historic tax credit investment, which corresponded with the recognition of a $270,000 tax credit during the quarter, compared to no tax credit activity in the fourth quarter of 2019.
• Other non-interest expense decreased $518,000, or 32.8%, to $1.1 million. The decrease was principally due to a one-time right-of-use impairment of $299,000 recognized during the fourth quarter of 2019 from vacating and subleasing unused office space in our Kansas City market. In addition, general business-related expenses decreased due to the Company’s adherence to COVID-19 restrictions.

Total period-end loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $206.0 million, or 12.0%, to $1.921 billion.

• C&I loans, excluding net PPP loans, increased $3.6 million, or 0.7%.
• CRE loans increased $205.0 million, or 17.8%, driven by an increase across all CRE categories.

Total period-end in-market deposits increased $304.1 million, or 22.1%, to $1.683 billion and the average rate paid decreased 94 basis points to 0.20%.

• Transaction accounts increased $409.3 million and money market accounts decreased $32.9 million.
• Certificates of deposits decreased $72.3 million as client preferences continued to shift towards more liquid products due to the low interest rate environment.

Period-end wholesale funding increased $120.5 million to $567.0 million.

• Wholesale deposits increased $21.0 million to $172.5 million mainly due to adding non-maturity brokered deposits at a favorable rate compared to alternative funding sources. Excluding these deposits, wholesale deposits decreased as the existing portfolio runoff is replaced by in-market deposits and lower cost FHLB advances to match-fund long-term fixed rate loans and fund loan growth. The average rate paid on brokered certificates of deposit decreased 145 basis points to 0.96% and the weighted average original maturity decreased to 4.1 years from 5.3 years.
• FHLB advances increased $99.5 million to $394.5 million. The average rate paid on FHLB advances decreased 79 basis points to 1.30% and the weighted average original maturity increased to 5.5 years from 5.4 years.

Non-performing assets increased modestly to $26.7 million, or 1.04% of total assets, compared to $23.5 million, or 1.12% of total assets. Excluding net PPP loans, non-performing assets were 1.14% of total assets.

The allowance for loan and lease losses increased 46.1% primarily due to an increase in the general and specific reserve driven by the COVID-19 pandemic.

• The allowance for loan and lease losses as a percent of total gross loans and leases was 1.33% compared to 1.14%.
• Excluding net PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.48%.

About First Business Financial Services, Inc.

First Business Financial Services, Inc., (Nasdaq: FBIZ) is the parent company of First Business Bank. First Business Bank specializes in business banking, including commercial banking and specialty finance, private wealth, and bank consulting services, and through its refined focus, delivers unmatched expertise, accessibility, and responsiveness. Specialty finance solutions are delivered through First Business Bank’s wholly owned subsidiary First Business Specialty Finance, LLC. For additional information, visit firstbusiness.bank.

This release may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which reflect First Business Bank’s current views with respect to future events and financial performance. Forward-looking statements are not based on historical information, but rather are related to future operations, strategies, financial results, or other developments. Forward-looking statements are based on management’s expectations as well as certain assumptions and estimates made by, and information available to, management at the time the statements are made. Those statements are based on general assumptions and are subject to various risks, uncertainties, and other factors that may cause actual results to differ materially from the views, beliefs, and projections expressed in such statements. Such statements are subject to risks and uncertainties, including among other things:

• Adverse changes in the economy or business conditions, either nationally or in our markets, including, without limitation, the adverse effects of the COVID-19 pandemic on the global, national, and local economy.
• The effect of the COVID-19 pandemic on the Corporation’s credit quality, revenue, and business operations.
• Competitive pressures among depository and other financial institutions nationally and in our markets.
• Increases in defaults by borrowers and other delinquencies.
• Our ability to manage growth effectively, including the successful expansion of our client service, administrative infrastructure, and internal management systems.
• Fluctuations in interest rates and market prices.
• Changes in legislative or regulatory requirements applicable to us and our subsidiaries.
• Changes in tax requirements, including tax rate changes, new tax laws, and revised tax law interpretations.
• Fraud, including client and system failure or breaches of our network security, including our internet banking activities.
• Failure to comply with the applicable SBA regulations in order to maintain the eligibility of the guaranteed portion of SBA loans.

For further information about the factors that could affect the Company’s future results, please see the Company’s annual report on Form 10-K for the year ended December 31, 2019, the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2020, and other filings with the Securities and Exchange Commission.

SELECTED FINANCIAL CONDITION DATA

STATEMENTS OF INCOME

NET INTEREST INCOME ANALYSIS

NET INTEREST INCOME ANALYSIS (CONTINUED)