First Business Financial Services, Inc. (the "Company")
(Nasdaq:FBIZ), the parent company of First Business Bank and First
Business Bank – Milwaukee, today reported second quarter results
highlighted by successful execution in growing top line revenue,
winning key commercial relationships, controlling expenses, and
significantly reducing problem assets.
Highlights for the quarter and six months ended June 30, 2012
include:
- Net income for the second quarter of 2012 was $1.6 million,
compared to $2.5 million earned in the second quarter of 2011. Net
income in the 2011 quarter included a substantial one-time tax
benefit.
- Net income for the six months ended June 30, 2012 was $3.8
million, compared to $3.9 million earned in the first six months of
2011. Net income for the first six months of 2011 included a
substantial one-time tax benefit.
- Core earnings, defined as pre-tax income adding back provision
for loan and lease losses, other identifiable costs of credit and
other discrete items unrelated to our core business activities,
grew 7% to $4.4 million for the second quarter of 2012, compared to
$4.2 million recorded in the second quarter of 2011. Core earnings
of $8.6 million for the first half of 2012 grew 13% from the prior
year.
- Annualized return on average equity and return on average
assets were 9.16% and 0.54%, respectively, for the three month
period ended June 30, 2012, compared to 17.21% and 0.91% for the
same period in 2011, which included the significant one-time tax
benefit.
- Top line revenue, consisting of net interest income and
non-interest income, increased 7% to a record $11.5 million for the
quarter ended June 30, 2012, compared to $10.7 million for the
prior year quarter. Top line revenue for the first half of 2012
grew 7% compared to the first half of 2011.
- Average in-market deposits of $627.4 million grew 25% in the
first half of 2012, increasing to 60.2% of total deposits, compared
to $501.9 million, or 50.4% of total deposits, for the first six
months of 2011.
- Total loans and leases at June 30, 2012 grew $30.8 million or
4% from the end of the first quarter of 2012 and were essentially
flat compared to balances at June 30, 2011.
- Net interest margin was 3.49% for the second quarter of 2012,
marking the highest level recorded in First Business' tenure as a
public company while improving 10 basis points compared to the
second quarter of 2011.
- Non-performing assets of $17.4 million at June 30, 2012
declined by $6.6 million or 28% from December 31, 2011, and
declined by $18.6 million or 52% from June 30, 2011. Non-performing
assets to total assets now stands at 1.50%, the lowest level since
September 30, 2008.
The Company recorded second quarter 2012 net income of $1.6
million, or diluted earnings per common share of $0.60, compared to
net income of $2.5 million, or diluted earnings per common share of
$0.98, for the second quarter of 2011. Net income earned in
the prior year period included a substantial one-time tax benefit
which reduced the Company's second quarter 2011 effective tax rate
to 3.0%.
The Company's net income for the six months ended June 30, 2012
was $3.8 million, or $1.44 per diluted common share. This
compares to net income of $3.9 million, or $1.49 per diluted common
share, earned in the six months ended June 30, 2011.
"First Business again delivered outstanding core earnings in the
second quarter, notably achieving record top line revenue with
characteristic efficiency," said Corey A. Chambas, President and
Chief Executive Officer. "Exceptional execution by our
business development officers drove an increase in new clients,
delivering key loan and deposit relationships with meaningful
revenue growth potential. As credit costs fall and revenues
grow, we continue to invest in niche business talent, building
value for clients and shareholders alike in 2012 and beyond."
Core Business Results
Net interest income increased $640,000 or 7.1% to a record $9.6
million in the second quarter of 2012. This compared to $9.0
million for the second quarter of 2011. The improvement
reflects a 10 basis point widening of the net interest margin to
3.49%, the highest level recorded in First Business' tenure as a
public company. The improvement primarily resulted from a 48
basis point decline in the average rate paid on interest-bearing
deposit balances, partially offset by a 29 basis point reduction in
the yield on average earning assets. Lower deposit funding
costs resulted primarily from declines in the volume of brokered
certificates of deposit as compared to the prior year
quarter. Growing in-market client deposits – comprised of all
transaction accounts, money market accounts, non-brokered
certificates of deposit, and non-interest-bearing demand deposits –
remains a primary focus of the Company's business development
efforts. As the Company continued to actively reduce its
overall reliance on higher-cost deposits, interest expense for the
second quarter fell 16.7% or $871,000 to $4.3 million, compared to
$5.2 million for the second quarter of 2011. This improvement
was partially offset by lower interest income generated by the
investment portfolio.
Similarly, net interest income for the six months ended June 30,
2012 increased $1.1 million or 6.2% to $18.5 million, compared to
$17.5 million generated during the same period of the prior
year. During the first half of 2012, the Company successfully
attracted a growing amount of in-market deposits and
correspondingly reduced its funding from higher-cost brokered
certificates of deposit. It also deployed its significant
excess liquidity primarily into mortgage backed securities.
Non-interest income increased $160,000 or 9.2% to $1.9 million
for the second quarter of 2012, compared with the second quarter of
2011. Trust and investment services income comprises the
largest portion of the Company's fee revenue; during the quarter it
increased by 15.3% to $755,000. Growth was primarily due to a
33.5% increase in trust assets under management to $608.8 million
at June 30, 2012, compared to June 30, 2011. In addition,
service charges on deposits grew by $76,000 or 18.2% to $493,000,
as success in acquiring new commercial relationships drove
increased deposit transaction volume.
Similarly, non-interest income increased $336,000 or 9.8% to
$3.8 million for the first six months of 2012. Success in
attracting new trust administration relationships drove increased
levels of assets under management, generating an 11.3% or $146,000
increase in trust and investment services income to $1.4 million
for the first half of 2012. Likewise, success in attracting
new commercial relationships drove higher deposit transaction
volumes and related service charge income. Deposit service
charges grew by $182,000 or 23.0% to $972,000 for the first six
months of 2012.
Non-interest expense for the second quarter of 2012 was $7.1
million, $494,000 or 7.4% higher compared to the same quarter in
2011. Increased expense related to employee compensation and
strategic new hire recruitment was the primary driver of the
increase, while professional services costs grew to support
increased compliance and regulatory requirements.
Compensation expense grew $390,000 or 10.2% to $4.2 million as the
Company sought to retain and attract key talent in support of
strategic initiatives. Professional services expense,
including recruiting costs, grew $102,000 or 29.6% compared to the
second quarter of 2011. Strategic and required expense
increases were partially offset by decreases in collateral
liquidation costs. The Company's success in reducing
non-performing assets in recent quarters aided a $98,000 or 55.4%
reduction in collateral liquidation costs for the three months
ended June 30, 2012, compared to the prior year
quarter. Disciplined core cost containment allowed the Company
to invest for future growth. Top-line revenue growth exceeded
expense growth, thereby maintaining the Company's efficiency
ratio.
Non-interest expense for the first six months of 2012 increased
by $565,000, or 4.2%, to $14.0 million as compared to the first six
months of 2011. Coupled with 6.8% growth in top line revenue,
the Company's disciplined cost containment aided a reduction in the
efficiency ratio to 61.56% for the first six months of 2012, 197
basis points lower than 63.53% reported for the first six months of
2011. Compensation expense grew by $658,000 or 8.7% to
support strategic investments in talent along with annual salary
merit increases and other ancillary benefits. Professional
services expense grew by $107,000, primarily resulting from
heightened regulatory compliance requirements, while a 2011 change
in the method for assessing FDIC insurance drove an offsetting
decline of $210,000. A $232,000 or 55.4% decline in collateral
liquidation costs for the six months ended June 30, 2012 further
benefited the Company's operating efficiency.
The provision for loan and lease losses for the second quarter
of 2012 was $2.0 million, representing an increase of 38.7% or
$571,000 from the second quarter of 2011. On a sequential
quarter basis, provision for loan and lease losses increased $1.5
million, primarily related to a charge-off of a certain commercial
loan along with additional provision commensurate with loan growth
during the quarter. Provision for loan and lease losses
totaled $2.5 million for the six months ended June 30, 2012, 11.4%
or $329,000 lower than in the prior year period.
Asset Quality Improves Meaningfully
The ratio of non-performing assets to total assets fell 54 basis
points from 2.04% at December 31, 2011 to 1.50% at June 30,
2012. The same measure fell 179 basis points from 3.29% at
June 30, 2011. Non-performing assets decreased by 51.7% or
$18.6 million from June 30, 2011 to June 30, 2012, reflecting
payoffs, paydowns, charge-offs and improved clients' performance
causing a return to accrual status. These reductions were
partially offset by continued additions of newly identified problem
loans and leases.
Total assets of $1.2 billion remained essentially flat to the
prior quarter and declined a modest $17.1 million or 2.9%
annualized from December 31, 2011. Total assets grew $63.6
million or 5.8% from June 30, 2011. Compared to December 31,
2011, cash and cash equivalents decreased $51.8 million or an
annualized 80.0% as the Company invested excess liquidity and cash
flows into additional securities purchases. Growth in
securities available-for-sale was coupled with an $11.0 million or
2.6% annualized increase in net loan and lease balances since
December 31, 2011. The increase in net loans and leases is
attributable to new loan originations modestly offsetting
amortization of the existing loan portfolio and the reduction of
non-accrual loans and leases. Net loans and leases increased
$30.4 million or 14.9% annualized from March 31, 2012 to June 30,
2012.
Dividend Maintained
During the second quarter of 2012 the Company's Board of
Directors approved a $0.07 quarterly cash dividend on its common
stock, which was paid on July 15, 2012 to shareholders of record at
the close of business on July 1, 2012. This maintained the
Company's annualized dividend at $0.28 per share, a level it has
maintained for eighteen consecutive quarters.
Capital Strength
The Company's earnings power continues to generate capital, and
its capital ratios are in excess of the highest required regulatory
benchmark levels. Total capital to risk-weighted assets was 13.31%
as of June 30, 2012 as compared to 13.11% at December 31, 2011.
About First Business Financial Services, Inc.
First Business Financial Services (Nasdaq:FBIZ) is a $1.2
billion Wisconsin-based bank holding company that specializes in
focused financial solutions for businesses, key executives, and
high net worth individuals through its operating companies. It is
the second largest Wisconsin-based commercial bank holding company
listed on NASDAQ or New York Stock Exchange. Its companies include:
First Business Bank - Madison; First Business Bank - Milwaukee;
First Business Bank - Northeast; First Business Trust &
Investments; First Business Equipment Finance, LLC; and First
Business Capital Corp. For additional information, visit
www.firstbusiness.com or call (608) 238-8008.
The First Business Financial Services, Inc. logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=2667
This press release includes "forward-looking" statements related
to First Business Financial Services, Inc. (the "Company") that can
generally be identified as describing the Company's future plans,
objectives or goals. Such forward-looking statements are subject to
risks and uncertainties that could cause actual results or outcomes
to differ materially from those currently anticipated. These
forward-looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
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 and other filings with the Securities and Exchange
Commission.
|
|
|
|
|
|
Consolidated Balance
Sheets (Unaudited) |
(Dollars in thousands) |
As
Of |
|
Jun. 30, |
Mar. 31, |
Dec. 31, |
Sep. 30, |
Jun. 30, |
Assets |
2012 |
2012 |
2011 |
2011 |
2011 |
Cash and cash equivalents |
$ 78,369 |
$ 135,351 |
$ 130,093 |
$ 80,461 |
$ 42,875 |
Securities available-for-sale, at fair
value |
195,904 |
170,547 |
170,386 |
168,307 |
168,318 |
Loans and leases receivable |
862,529 |
831,748 |
850,842 |
860,804 |
860,694 |
Allowance for loan and lease losses |
(14,818) |
(14,451) |
(14,155) |
(14,141) |
(15,937) |
Loans and leases, net |
847,711 |
817,297 |
836,687 |
846,663 |
844,757 |
Leasehold improvements and equipment,
net |
1,030 |
1,035 |
999 |
1,000 |
1,041 |
Foreclosed properties |
1,937 |
2,590 |
2,236 |
2,043 |
1,400 |
Cash surrender value of bank-owned life
insurance |
18,006 |
17,830 |
17,660 |
17,462 |
17,293 |
Investment in Federal Home Loan Bank stock,
at cost |
1,519 |
1,748 |
2,367 |
2,367 |
2,367 |
Accrued interest receivable and other
assets |
15,550 |
15,647 |
16,737 |
17,296 |
18,326 |
Total assets |
$1,160,026 |
$1,162,045 |
$1,177,165 |
$1,135,599 |
$1,096,377 |
|
|
|
|
|
|
Liabilities and Stockholders'
Equity |
|
|
|
|
|
In-market deposits |
$ 632,699 |
$ 618,609 |
$ 604,647 |
$ 530,364 |
$ 480,770 |
Brokered CDs |
396,531 |
415,180 |
446,665 |
482,764 |
496,718 |
Total deposits |
1,029,230 |
1,033,789 |
1,051,312 |
1,013,128 |
977,488 |
Federal Home Loan Bank and other
borrowings |
42,396 |
41,498 |
40,292 |
39,495 |
39,498 |
Junior subordinated notes |
10,315 |
10,315 |
10,315 |
10,315 |
10,315 |
Accrued interest payable and other
liabilities |
10,319 |
10,009 |
11,032 |
10,911 |
9,229 |
Total liabilities |
1,092,260 |
1,095,611 |
1,112,951 |
1,073,849 |
1,036,530 |
|
|
|
|
|
|
Total stockholders' equity |
67,766 |
66,434 |
64,214 |
61,750 |
59,847 |
Total liabilities and
stockholders' equity |
$1,160,026 |
$1,162,045 |
$1,177,165 |
$1,135,599 |
$1,096,377 |
|
|
Statements of Income
(Unaudited) |
(Dollars in thousands, except per share
amounts) |
Three Months
Ended |
Six Months
Ended |
|
Jun. 30, |
Mar. 31, |
Dec. 31, |
Sep. 30, |
Jun. 30, |
Jun. 30, |
Jun. 30, |
|
2012 |
2012 |
2011 |
2011 |
2011 |
2012 |
2011 |
Total interest income |
$ 13,943 |
$ 13,633 |
$ 13,854 |
$ 14,119 |
$ 14,174 |
$ 27,576 |
$ 28,245 |
Total interest expense |
4,334 |
4,707 |
4,950 |
5,015 |
5,205 |
9,041 |
10,792 |
Net interest income |
9,609 |
8,926 |
8,904 |
9,104 |
8,969 |
18,535 |
17,453 |
Provision for loan and lease losses |
2,045 |
504 |
937 |
435 |
1,474 |
2,549 |
2,878 |
Net interest income after provision for
loan and lease losses |
7,564 |
8,422 |
7,967 |
8,669 |
7,495 |
15,986 |
14,575 |
Trust and investment services fee income |
755 |
687 |
614 |
622 |
655 |
1,442 |
1,296 |
Service charges on deposits |
493 |
479 |
497 |
425 |
417 |
972 |
790 |
Loan fees |
345 |
398 |
402 |
380 |
368 |
743 |
699 |
Other |
311 |
286 |
403 |
301 |
304 |
597 |
633 |
Total non-interest income |
1,904 |
1,850 |
1,916 |
1,728 |
1,744 |
3,754 |
3,418 |
Compensation |
4,226 |
4,005 |
3,485 |
3,840 |
3,836 |
8,231 |
7,573 |
FDIC insurance |
533 |
587 |
585 |
571 |
571 |
1,120 |
1,330 |
Collateral liquidation costs |
79 |
108 |
212 |
155 |
177 |
187 |
419 |
Other |
2,294 |
2,132 |
1,967 |
2,184 |
2,054 |
4,426 |
4,077 |
Total non-interest expense |
7,132 |
6,832 |
6,249 |
6,750 |
6,638 |
13,964 |
13,399 |
Income before tax expense |
2,336 |
3,440 |
3,634 |
3,647 |
2,601 |
5,776 |
4,594 |
Income tax expense |
771 |
1,230 |
1,250 |
1,468 |
88 |
2,001 |
732 |
Net income |
$ 1 ,565 |
$ 2,210 |
$ 2,384 |
$ 2,179 |
$ 2,513 |
$ 3,775 |
$ 3,862 |
|
|
|
|
|
|
|
|
Per common share: |
|
|
|
|
|
|
|
Basic earnings |
$ 0.60 |
$ 0.84 |
$ 0.90 |
$ 0.83 |
$ 0.98 |
$ 1.44 |
$ 1.49 |
Diluted earnings |
0.60 |
0.84 |
0.90 |
0.83 |
0.98 |
1.44 |
1.49 |
Dividends declared |
0.07 |
0.07 |
0.07 |
0.07 |
0.07 |
0.14 |
0.14 |
Book value |
25.77 |
25.31 |
24.46 |
23.49 |
23.04 |
25.77 |
23.04 |
Tangible book value |
25.77 |
25.31 |
24.46 |
23.48 |
23.03 |
25.77 |
23.03 |
|
Selected Financial Ratios
(Unaudited) |
|
Three Months
Ended |
Six Months
Ended |
|
Jun. 30, |
Mar. 31, |
Dec. 31, |
Sep. 30, |
Jun. 30, |
Jun. 30, |
Jun. 30, |
|
2012 |
2012 |
2011 |
2011 |
2011 |
2012 |
2011 |
|
|
|
|
|
|
|
|
Return on average assets |
0.54% |
0.74% |
0.82% |
0.78% |
0.91% |
0.64% |
0.69% |
Return on average equity |
9.16% |
13.43% |
15.02% |
14.02% |
17.21% |
11.26% |
13.49% |
Efficiency ratio |
61.37% |
61.78% |
55.17% |
62.01% |
61.19% |
61.56% |
63.53% |
Average interest-earning assets to average
interest-bearing liabilities |
116.67% |
115.08% |
115.47% |
114.53% |
113.77% |
115.86% |
113.03% |
Interest rate spread |
3.23% |
2.91% |
2.95% |
3.13% |
3.12% |
3.06% |
3.01% |
Net interest margin |
3.49% |
3.15% |
3.23% |
3.40% |
3.39% |
3.32% |
3.27% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Quality Ratios
(Unaudited) |
As
Of |
|
|
|
Jun. 30, |
Mar. 31, |
Dec. 31, |
Sep. 30, |
Jun. 30, |
|
|
|
2012 |
2012 |
2011 |
2011 |
2011 |
|
|
Non-performing loans and leases as a percent
of total loans and leases |
1.79% |
2.43% |
2.56% |
3.14% |
4.02% |
|
|
Non-performing assets as a percent of total
assets |
1.50% |
1.96% |
2.04% |
2.56% |
3.29% |
|
|
Allowance for loan and lease losses as a
percent of total gross loans and leases |
1.72% |
1.74% |
1.66% |
1.64% |
1.85% |
|
|
Allowance for loan and lease losses as a
percent of non-performing loans |
95.90% |
71.55% |
65.03% |
52.34% |
46.03% |
|
|
|
Core Earnings
(Unaudited) |
(Dollars in thousands) |
Three Months
Ended |
Six Months
Ended |
|
Jun. 30, |
Mar. 31, |
Dec. 31, |
Sep. 30, |
Jun. 30, |
Jun. 30, |
Jun. 30, |
|
2012 |
2012 |
2011 |
2011 |
2011 |
2012 |
2011 |
Income before tax expense |
$ 2,336 |
$ 3,440 |
$ 3,634 |
$ 3,647 |
$ 2,601 |
$ 5,776 |
$ 4,594 |
Provision for loan and lease losses |
2,045 |
504 |
937 |
435 |
1,474 |
2,549 |
2,878 |
Loss on foreclosed properties |
67 |
175 |
261 |
29 |
79 |
242 |
130 |
Core earnings (pre-tax) |
$ 4,448 |
$ 4,119 |
$ 4,832 |
$ 4,111 |
$ 4,154 |
$ 8,567 |
$ 7,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Efficiency Ratio
(Unaudited) |
(Dollars in thousands) |
Three Months
Ended |
Six Months
Ended |
|
Jun. 30, |
Mar. 31, |
Dec. 31, |
Sep. 30, |
Jun. 30, |
Jun. 30, |
Jun. 30, |
|
2012 |
2012 |
2011 |
2011 |
2011 |
2012 |
2011 |
Total non-interest expense |
$ 7,132 |
$ 6,832 |
$ 6,249 |
$ 6,750 |
$ 6,638 |
$ 13,964 |
$ 13,399 |
Net loss on foreclosed properties |
67 |
175 |
261 |
29 |
79 |
242 |
130 |
Amortization of other intangible
assets |
-- |
-- |
19 |
4 |
4 |
-- |
9 |
Total operating expense |
$ 7,065 |
$ 6,657 |
$ 5,969 |
$ 6,717 |
$ 6,555 |
$ 13,722 |
$ 13,260 |
|
|
|
|
|
|
|
|
Net interest income |
$ 9,609 |
$ 8,926 |
$ 8,904 |
$ 9,104 |
$ 8,969 |
$ 18,535 |
$ 17,453 |
Total non-interest income |
1,904 |
1,850 |
1,916 |
1,728 |
1,744 |
3,754 |
3,418 |
Gain on sale of securities |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
Total operating revenue |
$ 11,513 |
$ 10,776 |
$ 10,820 |
$ 10,832 |
$ 10,713 |
$ 22,289 |
$ 20,871 |
|
|
|
|
|
|
|
|
Efficiency ratio |
61.37% |
61.78% |
55.17% |
62.01% |
61.19% |
61.56% |
63.53% |
CONTACT: First Business Financial Services, Inc.
James F. Ropella, Senior Vice President
and Chief Financial Officer
608-232-5970
jropella@firstbusiness.com
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