Sound Fundamentals Highlighted by Strong Asset
Quality
Drive 12% Increase in Net Income Compared to the
Second Quarter of 2013
First Business Financial Services, Inc. (the "Company" or "First
Business") (Nasdaq:FBIZ), the parent company of First Business Bank
and First Business Bank - Milwaukee, today reported strong second
quarter profitability, even after non-recurring expenses related to
the Company's previously announced pending merger with Aslin Group,
Inc. ("Aslin Group"), parent company of Alterra Bank ("Alterra").
During the quarter the Company grew loans to record levels while
maintaining strong asset quality and generating robust fee
income.
Highlights for the quarter ended June 30, 2014 include:
- Announced merger agreement with Aslin Group, the parent of
Alterra, expanding First Business' entrepreneurial business banking
model into the Kansas City market. The merger is expected to close
in late 2014.
- Net income of $3.5 million increased 12% over the second
quarter of 2013, even after recording $320,000 in pre-tax
merger-related expenses in the second quarter of 2014.
- Diluted earnings per common share increased 10% to $0.88 for
the quarter ended June 30, 2014, compared to $0.80 for the quarter
ended June 30, 2013.
- Strong business fundamentals continued to deliver positive
results across key profitability measures:
- Pre-tax adjusted earnings, defined as pre-tax income excluding
the effects of provision for loan and lease losses, other
identifiable costs of credit and other discrete items unrelated to
the Company's primary business activities, totaled $5.4 million in
the second quarter of 2014, up 9% from $5.0 million in the second
quarter of 2013.
- Annualized return on average assets was 1.09% for the second
quarter of 2014, exceeding 1.0% for the sixth consecutive
quarter.
- Annualized return on average equity was 12.29% for the second
quarter of 2014, exceeding 12.0% for the eighth consecutive
quarter.
- Top line revenue, consisting of net interest income and
non-interest income, increased 6% to $13.2 million for the quarter
ended June 30, 2014, compared to $12.4 million for the second
quarter of 2013.
- The Company's efficiency ratio was 58.9%, marking its eighth
consecutive quarter below 60% even while including the impact of
merger-related expenses.
- Period-end net loans and leases grew for the ninth consecutive
quarter, reaching a record $993.7 million at June 30, 2014, up 7%
from June 30, 2013.
- Period-end in-market deposit balances - comprised of all
transaction accounts, money market accounts, and non-brokered
certificates of deposit - were $729.4 million at June 30, 2014, up
6% from June 30, 2013.
- Net interest margin measured 3.52% for the quarter ended
June 30, 2014, improving six basis points compared to the same
period of 2013.
- For the second consecutive quarter, the Company recognized no
charge-offs.
- Allowance for loan and lease losses as a percent of total loans
and leases declined to 1.39% at June 30, 2014 from 1.60% at
June 30, 2013, reflective of continued asset quality
improvement and consistent strength in underwriting.
The Company recorded net income of $3.5 million in the second
quarter of 2014, up from $3.3 million earned in the first quarter
of 2014 and $3.1 million earned in the second quarter of
2013. Diluted earnings per common share were $0.88 for the
second quarter of 2014, compared to $0.84 for the linked quarter
and $0.80 for the year-ago quarter. Improved earnings compared
to both the linked– and prior–year quarters were driven by higher
top line revenue, operating expense containment and continued
strength in asset quality. Second quarter 2014 results include
the impact of $320,000 in non-recurring, merger expenses related to
the Company's pending merger with Aslin Group, the parent of
Alterra.
"Once again our results demonstrate the effectiveness of our
business model and the value our team brings to executing on our
strategy. With success comes opportunity, and we are thrilled
with the prospect of Alterra joining First Business in growing this
franchise in the attractive Kansas City market area," said Corey
Chambas, President and Chief Executive Officer of First
Business. "Alterra and its talented team provide synergies to
First Business in almost every way, and we believe that it is truly
an excellent fit, with a complementary culture, market, business
model and loan portfolio. Our second quarter results
demonstrate First Business' robust profitability, asset quality and
capital strength. We believe that combining our strengths with
the well-positioned Alterra franchise will provide us with an
opportunity to accelerate our loan growth, client opportunities,
earnings power and shareholder returns."
Previously Announced Pending Merger with Aslin Group, Inc., the
Parent Company of Alterra Bank
On May 23, 2014 the Company and Aslin Group announced the
signing of a definitive agreement for First Business to acquire
Aslin Group, including Alterra Bank, Aslin Group's wholly owned
subsidiary. The merger is expected to close in late 2014,
subject to Aslin Group stockholder approval and customary
regulatory approvals.
Like First Business, Alterra operates an entrepreneurial
business banking franchise, providing commercial loans and lines of
credit, commercial real estate loans and treasury management
services to small- to middle-market businesses as well as offering
private banking/private wealth management services to
individuals. In addition, Alterra is the number one most
active U.S. Small Business Administration lender in the Kansas City
SBA district, providing First Business with immediate access to
talent and a platform in a new area of lending that is highly
complementary to its current focus. At the same time, Alterra
will be able to offer its commercial clients First Business'
specialized product and service offerings, including equipment
finance, trust and investment services, factoring and asset-based
lending.
Results of Operations
Net interest income for the second quarter of 2014 grew
$606,000, or 5.9%, compared to the second quarter of 2013 as lower
funding costs and growth in earning assets more than offset
declines in earning asset yields. Interest income benefited
from earning asset balances that were 4.1% higher than in the
prior-year period due to 7.8% growth in average loans. The
growth of 22.8% in the average balance of the commercial and
industrial ("C&I") loan portfolio for the second quarter of
2014 relative to the comparable prior-year period, demonstrated the
Company's continued success in executing on its strategic objective
to increase business loans. Increased volume more than offset
the 24 basis point compression in average loan yields in the
sustained low-rate environment over the last year. Improved
net interest income also benefited from a year-over-year decline of
$183,000, or 6.2%, in interest expense, principally due to a 24
basis point reduction in the average rate paid on brokered
certificates of deposit. Funding costs further declined as a
result of the January 2014 paydown of subordinated debt and
continued growth in the Company's low-cost, in-market deposit
relationships. The average balance of in-market client
deposits grew 2.7% to $712.2 million for the quarter ended
June 30, 2014, compared to $693.3 million for the second
quarter of 2013.
Second quarter 2014 net interest margin of 3.52% declined six
basis points from the first quarter of 2014, but increased six
basis points from the second quarter of 2013. Net interest
margin for the first quarter of 2014 benefited from loan fees in
lieu of interest and non-accrual interest income recorded during
the quarter. Management believes the current period net
interest margin is indicative of the Company's stable net interest
margin; however, the margin may experience volatility due to
non-recurring events such as prepayment fees collected in lieu of
interest or the collection of foregone interest.
Non-interest income of $2.4 million for the second quarter of
2014 increased $37,000, or 1.6%, from the first quarter of 2014 and
$184,000, or 8.5%, from the second quarter of 2013. Growth in
non-interest income reflects the continued success of the Company's
initiatives to grow full-service banking relationships. Trust
and investment services fee income again grew to record levels,
reflecting continued strength in client accounts and equity market
values. The Company earned $1.1 million in trust and
investment services fee income in the second quarter of 2014,
reflecting trust assets under management and administration that
totaled $889.6 million as of June 30, 2014. The decline
in assets under management was due to the mutual agreement between
the Company and a client to discontinue providing trust services to
a group sponsored investment program. While the assets within
the relationship were significant, the fees for services were not,
therefore, the impact to revenue this period was not material nor
will it be in future periods.
Non-interest expense for the second quarter of 2014 was $7.7
million, a decrease of $103,000, or 1.3%, compared to the first
quarter of 2014 and an increase of $259,000, or 3.5%, compared to
the second quarter of 2013. Expenses declined from the linked
quarter even including $320,000 in costs related to the pending
merger with Aslin Group, the parent of Alterra. Excluding
merger-related professional expenses, non-interest expense declined
$423,000, or 5.4%, on a linked-quarter basis primarily due to
seasonal increases in compensation costs in the first quarter not
experienced in the second quarter and lower collateral liquidation
costs in the second quarter. The Company has consistently
balanced conservative expense management with an entrepreneurial
approach to investment for growth. Continued investment in
personnel, products and technology drove the $259,000, or 3.5%,
increase in non-interest expense compared to the second quarter of
2013. Increases in operating costs on a year-over-year basis
were partially offset by continued improvement in non-performing
asset resolutions, as second quarter 2014 net losses on the sale of
foreclosed property totaled just $4,000, declining $75,000 compared
to the prior-year quarter.
Even including merger-related costs, non-interest expense growth
remained aligned with top line revenue growth, resulting in an
efficiency ratio of 58.9% for the second quarter 2014. This
represented improvement of 97 basis points from the first quarter
of 2014 and 106 basis points from the second quarter of
2013. The efficiency ratio has remained below 60% for eight
consecutive quarters.
The Company recorded a negative provision for loan and lease
losses of $91,000 for the second quarter of 2014, compared to a
provision for loan and lease losses of $180,000 in the first
quarter of 2014 and $54,000 in the second quarter of
2013. Second quarter 2014 loan and lease loss provision
reflected consistently strong and improved credit
performance. The Company experienced no charge-offs and $5,000
in recoveries during the second quarter of 2014, similar to the
previous quarter, when the Company recognized no charge-offs and
$20,000 in recoveries on previously charged-off loans. In the
second quarter of 2013 the Company experienced net charge-offs
totaling $359,000, which represented an annualized 0.15% of average
loans and leases.
Balance Sheet and Asset Quality Strength
Period-end net loans and leases grew for the ninth consecutive
quarter, reaching a record $993.7 million at June 30,
2014. Balances grew $22.5 million, or 9.3% annualized, from
March 31, 2014 and $61.0 million, or 6.5%, from June 30,
2013. Continued success of initiatives to attract new commercial
clients and capitalize on market opportunities drove strong
year-over-year growth in C&I loans and the asset-based lending
business.
Management continues to believe asset quality is a source of
strength and differentiation for the Company relative to many of
its peers. Strong underwriting and the continued success of
certain exit strategies, including payoffs and paydowns, continue
to benefit asset quality metrics. In addition, management
continues to see improvement in both magnitude and direction of
various economic trends that warranted a reduction in the overall
general reserve. As a result, the Company's allowance for loan
and lease losses as a percentage of total gross loans and leases
declined to 1.39% as of June 30, 2014, compared to 1.43% as of
March 31, 2014 and 1.60% at June 30, 2013. The ratio
of non-performing assets to total assets measured 1.11% at
June 30, 2014, compared to 1.13% at March 31, 2014 and
0.93% at June 30, 2013. Non-performing assets totaled
$14.5 million at June 30, 2014, compared to $14.4 million at
March 31, 2014 and $11.8 million at June 30,
2013. The year-over-year increase was primarily due to the
fourth quarter 2013 addition of one relationship which management
continues to believe is not systemic in nature.
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. As of June 30, 2014, total capital to
risk-weighted assets was 12.80%, tier 1 capital to risk-weighted
assets was 10.89% and tier 1 capital to average assets was
9.73%.
Quarterly Dividend
As previously announced, during the second quarter of 2014 the
Company's Board of Directors approved a $0.21 quarterly
cash dividend on its common stock, which was paid on May 27, 2014
to shareholders of record at the close of business on May 12,
2014. The Board of Directors routinely considers dividend
declarations as part of its normal course of business.
About First Business Financial Services, Inc.
First Business Financial Services (Nasdaq:FBIZ) is a $1.3
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. 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.
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 2013 annual
report on Form 10-K, quarterly reports on Form 10-Q and other
filings with the Securities and Exchange Commission.
Additional Information
Communications in this document do not constitute an offer to
sell or the solicitation of an offer to buy any securities or a
solicitation of any proxy vote or approval. The proposed
merger of Aslin Group with First Business (the "Proposed
Transaction") and issuance of First Business common stock in
connection therewith will be submitted to Aslin Group's
stockholders for their consideration and approval. In connection
with the Proposed Transaction, on July 8, 2014, First Business
filed with the SEC a Registration Statement on Form S-4 that
includes a preliminary proxy statement to be used by Aslin Group to
solicit the required approval of its stockholders in connection
with the Proposed Transaction and constitutes a preliminary
prospectus of First Business, which, when finalized, will be sent
to the stockholders of Aslin Group. First Business may also
file other documents with the SEC concerning the Proposed
Transaction. INVESTORS AND SECURITY HOLDERS OF ASLIN GROUP ARE
URGED TO READ THE PRELIMINARY PROXY STATEMENT AND PROSPECTUS
REGARDING THE PROPOSED TRANSACTION, THE DEFINITIVE PROXY STATEMENT
AND PROSPECTUS (WHEN IT BECOMES AVAILABLE) AND OTHER RELEVANT
DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR
SUPPLEMENTS TO THOSE DOCUMENTS, CAREFULLY AND IN THEIR ENTIRETY
BECAUSE THEY CONTAIN, OR WILL CONTAIN, AS THE CASE MAY BE,
IMPORTANT INFORMATION ABOUT FIRST BUSINESS, ASLIN GROUP AND THE
PROPOSED TRANSACTION. Investors and security holders may
obtain a free copy of all documents relating to the Proposed
Transaction filed by First Business through the website maintained
by the SEC at www.sec.gov. Copies of the documents filed with
the SEC by First Business are also, or will also be, as the case
may be, available free of charge on First Business' website at
www.firstbusiness.com/investor-relations/. Alternatively, these
documents can be obtained free of charge upon written request to
First Business Financial Services, Inc., Investor Relations, 401
Charmany Drive, Madison, Wisconsin 53719, or by calling (608)
238-8008.
Participants in this Transaction
First Business, Aslin Group and certain of their respective
directors and executive officers may be deemed to be participants
in the solicitation of proxies from the stockholders of Aslin Group
in connection with the Proposed Transaction under the rules of the
SEC. Information regarding the directors and executive
officers of First Business may be found in the definitive proxy
statement for First Business' 2014 annual meeting of stockholders,
as filed with the SEC on March 31, 2014. Information regarding
the interests of certain directors and officers of Aslin Group is
contained in the preliminary proxy statement for Aslin Group's
special meeting of stockholders, which was filed by First Business
with the SEC on July 8, 2014, and will be included in the
definitive proxy statement and prospectus and other relevant
materials regarding the Proposed Transaction to be filed with the
SEC, when they become available.
|
SELECTED FINANCIAL
CONDITION DATA |
|
|
|
|
|
|
(Unaudited) |
As
of |
|
June 30, |
March 31, |
December 31, |
September 30, |
June 30, |
(Dollars in thousands) |
2014 |
2014 |
2013 |
2013 |
2013 |
ASSETS |
|
|
|
|
|
Cash and cash equivalents |
$ 85,977 |
$ 76,396 |
$ 81,286 |
$ 96,114 |
$ 106,578 |
Securities available-for-sale, at fair
value |
143,642 |
185,547 |
180,118 |
186,242 |
194,498 |
Securities held-to-maturity, at amortized
cost |
43,434 |
— |
— |
— |
— |
Loans and leases receivable |
1,007,736 |
985,319 |
980,951 |
956,345 |
947,915 |
Allowance for loan and lease losses |
(14,015) |
(14,101) |
(13,901) |
(15,185) |
(15,202) |
Loans and leases, net |
993,721 |
971,218 |
967,050 |
941,160 |
932,713 |
Leasehold improvements and equipment,
net |
1,152 |
1,186 |
1,155 |
1,182 |
1,218 |
Foreclosed properties |
329 |
333 |
333 |
595 |
565 |
Cash surrender value of bank-owned life
insurance |
23,558 |
23,348 |
23,142 |
22,906 |
22,691 |
Investment in Federal Home Loan Bank
stock, at cost |
1,349 |
1,255 |
1,255 |
1,255 |
1,829 |
Accrued interest receivable and other
assets |
13,341 |
14,489 |
14,316 |
15,485 |
15,977 |
Total assets |
$ 1,306,503 |
$ 1,273,772 |
$ 1,268,655 |
$ 1,264,939 |
$ 1,276,069 |
LIABILITIES AND STOCKHOLDERS'
EQUITY |
|
|
|
|
|
In-market deposits |
$ 729,400 |
$ 731,164 |
$ 736,323 |
$ 713,993 |
$ 691,001 |
Brokered CDs |
437,297 |
405,536 |
393,532 |
414,338 |
451,978 |
Total deposits |
1,166,697 |
1,136,700 |
1,129,855 |
1,128,331 |
1,142,979 |
Federal Home Loan Bank and other
borrowings |
7,936 |
7,936 |
11,936 |
11,936 |
11,936 |
Junior subordinated notes |
10,315 |
10,315 |
10,315 |
10,315 |
10,315 |
Accrued interest payable and other
liabilities |
5,907 |
6,626 |
7,274 |
8,258 |
7,601 |
Total liabilities |
1,190,855 |
1,161,577 |
1,159,380 |
1,158,840 |
1,172,831 |
Total stockholders' equity |
115,648 |
112,195 |
109,275 |
106,099 |
103,238 |
Total liabilities and
stockholders' equity |
$ 1,306,503 |
$ 1,273,772 |
$ 1,268,655 |
$ 1,264,939 |
$ 1,276,069 |
|
STATEMENTS OF
INCOME |
|
|
|
|
|
|
|
|
(Unaudited) |
As of and for the
Three Months Ended |
As of and for the
Six Months Ended |
|
June 30, |
March 31, |
December 31, |
September 30, |
June 30, |
June 30, |
June 30, |
(Dollars in thousands, except per
share amounts) |
2014 |
2014 |
2013 |
2013 |
2013 |
2014 |
2013 |
Total interest income |
$ 13,565 |
$ 13,402 |
$ 13,763 |
$ 13,586 |
$ 13,142 |
$ 26,966 |
$ 26,461 |
Total interest expense |
2,766 |
2,601 |
2,779 |
2,887 |
2,949 |
5,367 |
6,039 |
Net interest income |
10,799 |
10,801 |
10,984 |
10,699 |
10,193 |
21,599 |
20,422 |
Provision for loan and lease losses |
(91) |
180 |
(1,202) |
109 |
54 |
89 |
134 |
Net interest income after provision for
loan and lease losses |
10,890 |
10,621 |
12,186 |
10,590 |
10,139 |
21,510 |
20,288 |
Trust and investment services fee income |
1,110 |
1,068 |
983 |
976 |
970 |
2,178 |
1,797 |
Service charges on deposits |
600 |
567 |
574 |
549 |
544 |
1,167 |
1,027 |
Loan fees |
380 |
390 |
309 |
296 |
332 |
769 |
690 |
Other |
268 |
296 |
325 |
303 |
328 |
565 |
613 |
Total non-interest income |
2,358 |
2,321 |
2,191 |
2,124 |
2,174 |
4,679 |
4,127 |
Compensation |
4,741 |
5,057 |
4,459 |
4,586 |
4,507 |
9,798 |
9,233 |
Net collateral liquidation costs |
85 |
159 |
29 |
108 |
73 |
243 |
59 |
Net loss (gain) on foreclosed properties |
4 |
— |
(118) |
(48) |
79 |
4 |
49 |
Endowment to First Business Charitable
Foundation |
— |
— |
1,300 |
— |
— |
— |
— |
Merger-related costs |
320 |
— |
— |
— |
— |
320 |
— |
Other |
2,599 |
2,636 |
2,886 |
2,501 |
2,831 |
5,235 |
5,327 |
Total non-interest expense |
7,749 |
7,852 |
8,556 |
7,147 |
7,490 |
15,600 |
14,668 |
Income before tax expense |
5,499 |
5,090 |
5,821 |
5,567 |
4,823 |
10,589 |
9,747 |
Income tax expense |
1,994 |
1,753 |
2,061 |
1,958 |
1,690 |
3,747 |
3,370 |
Net income |
$ 3,505 |
$ 3,337 |
$ 3,760 |
$ 3,609 |
$ 3,133 |
$ 6,842 |
$ 6,377 |
|
|
|
|
|
|
|
|
Per common share: |
|
|
|
|
|
|
|
Basic earnings |
$ 0.89 |
$ 0.85 |
$ 0.95 |
$ 0.92 |
$ 0.80 |
$ 1.73 |
$ 1.63 |
Diluted earnings |
0.88 |
0.84 |
0.95 |
0.91 |
0.80 |
1.72 |
1.62 |
Dividends declared |
0.21 |
0.21 |
0.14 |
0.14 |
0.14 |
0.42 |
0.28 |
Book value |
29.31 |
28.44 |
27.71 |
26.94 |
26.35 |
29.31 |
26.35 |
Tangible book value |
29.31 |
28.44 |
27.71 |
26.94 |
26.35 |
29.31 |
26.35 |
|
NET INTEREST INCOME
ANALYSIS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
For the Three
Months Ended |
(Dollars in thousands) |
June 30,
2014 |
March 31,
2014 |
June 30,
2013 |
|
Average |
|
Average |
Average |
|
Average |
Average |
|
Average |
|
balance |
Interest |
yield/rate |
balance |
Interest |
yield/rate |
balance |
Interest |
yield/rate |
Interest-earning assets |
|
|
|
|
|
|
|
|
|
Commercial real estate and other mortgage
loans(1) |
$ 636,174 |
$ 7,702 |
4.84% |
$ 636,812 |
$ 7,497 |
4.71% |
$ 636,705 |
$ 7,836 |
4.92% |
Commercial and industrial loans(1) |
323,045 |
4,476 |
5.54% |
298,696 |
4,525 |
6.06% |
263,099 |
4,104 |
6.24% |
Direct financing leases(1) |
27,457 |
316 |
4.60% |
26,056 |
297 |
4.56% |
14,542 |
182 |
5.01% |
Consumer and other loans(1) |
17,044 |
157 |
3.68% |
17,083 |
156 |
3.65% |
16,828 |
161 |
3.83% |
Total loans and leases receivable(1) |
1,003,720 |
12,651 |
5.04% |
978,647 |
12,475 |
5.10% |
931,174 |
12,283 |
5.28% |
Mortgage-related securities(2) |
156,073 |
746 |
1.91% |
151,478 |
746 |
1.97% |
163,099 |
686 |
1.68% |
Other investment securities(3) |
27,497 |
109 |
1.59% |
31,950 |
121 |
1.51% |
35,698 |
122 |
1.37% |
FHLB stock |
1,427 |
1 |
0.44% |
1,261 |
1 |
0.30% |
1,725 |
1 |
0.20% |
Short-term investments |
37,451 |
58 |
0.62% |
43,925 |
59 |
0.54% |
45,621 |
50 |
0.43% |
Total interest-earning assets |
1,226,168 |
13,565 |
4.43% |
1,207,261 |
13,402 |
4.44% |
1,177,317 |
13,142 |
4.47% |
Non-interest-earning assets |
56,063 |
|
|
57,799 |
|
|
56,817 |
|
|
Total assets |
$ 1,282,231 |
|
|
$ 1,265,060 |
|
|
$ 1,234,134 |
|
|
Interest-bearing
liabilities |
|
|
|
|
|
|
|
|
|
Transaction accounts |
$ 80,027 |
$ 45 |
0.22% |
$ 78,591 |
$ 45 |
0.23% |
$ 55,767 |
$ 27 |
0.19% |
Money market |
449,907 |
571 |
0.51% |
462,574 |
587 |
0.51% |
441,459 |
584 |
0.53% |
Certificates of deposit |
47,332 |
115 |
0.97% |
50,925 |
120 |
0.94% |
63,014 |
161 |
1.02% |
Brokered certificates of deposit |
422,024 |
1,606 |
1.52% |
387,240 |
1,417 |
1.46% |
381,479 |
1,682 |
1.76% |
Total interest-bearing deposits |
999,290 |
2,337 |
0.94% |
979,330 |
2,169 |
0.89% |
941,719 |
2,454 |
1.04% |
FHLB advances |
9,418 |
4 |
0.17% |
3,111 |
1 |
0.16% |
24,621 |
9 |
0.15% |
Other borrowings |
8,381 |
148 |
7.06% |
8,647 |
157 |
7.26% |
12,271 |
209 |
6.81% |
Junior subordinated notes |
10,315 |
277 |
10.74% |
10,315 |
274 |
10.63% |
10,315 |
277 |
10.74% |
Total interest-bearing liabilities |
1,027,404 |
2,766 |
1.08% |
1,001,403 |
2,601 |
1.04% |
988,926 |
2,949 |
1.19% |
Non-interest-bearing demand deposit
accounts |
134,892 |
|
|
143,953 |
|
|
133,019 |
|
|
Other non-interest-bearing liabilities |
5,882 |
|
|
8,530 |
|
|
8,164 |
|
|
Total liabilities |
1,168,178 |
|
|
1,153,886 |
|
|
1,130,109 |
|
|
Stockholders' equity |
114,053 |
|
|
111,174 |
|
|
104,025 |
|
|
Total liabilities and stockholders'
equity |
$ 1,282,231 |
|
|
$ 1,265,060 |
|
|
$ 1,234,134 |
|
|
Net interest income |
|
$ 10,799 |
|
|
$ 10,801 |
|
|
$ 10,193 |
|
Interest rate spread |
|
|
3.35% |
|
|
3.40% |
|
|
3.28% |
Net interest-earning assets |
$ 198,764 |
|
|
205,858 |
|
|
$ 188,391 |
|
|
Net interest margin |
|
|
3.52% |
|
|
3.58% |
|
|
3.46% |
|
|
|
|
|
|
|
|
|
|
(1) The average balances
of loans and leases include non-performing loans and
leases. Interest income related to non-performing loans and
leases is recognized when collected. |
(2) Includes amortized
cost basis of assets available for sale and held to maturity. |
(3) Yields on tax-exempt
municipal obligations are not presented on a tax-equivalent basis
in this table. |
|
NET INTEREST INCOME
ANALYSIS (CONTINUED) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
For the Six
Months Ended June 30, |
(Dollars in thousands) |
2014 |
2013 |
|
Average |
|
Average |
Average |
|
Average |
|
balance |
Interest |
yield/ cost |
balance |
Interest |
yield/ cost |
Interest-earning assets |
|
|
|
|
|
|
Commercial real estate and other mortgage
loans(1) |
$ 636,491 |
$ 15,199 |
4.78% |
$ 627,378 |
$ 15,848 |
5.05% |
Commercial and industrial loans(1) |
310,938 |
9,000 |
5.79% |
257,487 |
8,193 |
6.36% |
Direct financing leases(1) |
26,760 |
614 |
4.59% |
14,777 |
375 |
5.08% |
Consumer and other loans(1) |
17,064 |
313 |
3.67% |
16,770 |
320 |
3.82% |
Total loans and leases receivable(1) |
991,253 |
25,126 |
5.07% |
916,412 |
24,736 |
5.40% |
Mortgage-related securities(2) |
153,788 |
1,491 |
1.94% |
164,545 |
1,386 |
1.68% |
Other investment securities(3) |
29,711 |
230 |
1.55% |
34,606 |
231 |
1.34% |
FHLB stock |
1,344 |
2 |
0.30% |
1,436 |
2 |
0.24% |
Short-term investments |
40,671 |
117 |
0.58% |
50,947 |
106 |
0.42% |
Total interest-earning assets |
1,216,767 |
26,966 |
4.43% |
1,167,946 |
26,461 |
4.53% |
Non-interest-earning assets |
56,878 |
|
|
58,381 |
|
|
Total assets |
1,273,645 |
|
|
1,226,327 |
|
|
Interest-bearing
liabilities |
|
|
|
|
|
|
Transaction accounts |
$ 79,313 |
90 |
0.23% |
$ 54,825 |
55 |
0.20% |
Money market |
456,206 |
1,157 |
0.51% |
450,281 |
1,255 |
0.56% |
Certificates of deposit |
49,119 |
236 |
0.96% |
64,563 |
331 |
1.03% |
Brokered certificates of deposit |
404,728 |
3,023 |
1.49% |
370,429 |
3,411 |
1.84% |
Total interest-bearing deposits |
989,366 |
4,506 |
0.91% |
940,098 |
5,052 |
1.07% |
FHLB advances |
6,282 |
5 |
0.16% |
13,046 |
12 |
0.19% |
Other borrowings |
8,513 |
305 |
7.17% |
12,160 |
424 |
6.97% |
Junior subordinated notes |
10,315 |
551 |
10.68% |
10,315 |
551 |
10.70% |
Total interest-bearing liabilities |
1,014,476 |
5,367 |
1.06% |
975,619 |
6,039 |
1.24% |
Non-interest-bearing demand deposit
accounts |
139,397 |
|
|
138,230 |
|
|
Other non-interest-bearing liabilities |
7,150 |
|
|
9,780 |
|
|
Total liabilities |
1,161,023 |
|
|
1,123,629 |
|
|
Stockholders' equity |
112,622 |
|
|
102,698 |
|
|
Total liabilities and stockholders'
equity |
$ 1,273,645 |
|
|
$ 1,226,327 |
|
|
Net interest income |
|
$ 21,599 |
|
|
$ 20,422 |
|
Interest rate spread |
|
|
3.37% |
|
|
3.29% |
Net interest-earning assets |
$ 202,291 |
|
|
$ 192,327 |
|
|
Net interest margin |
|
|
3.55% |
|
|
3.50% |
|
|
|
|
|
|
|
(1) The average balances of
loans and leases include non-performing loans and leases. Interest
income related to non-performing loans and leases is recognized
when collected. |
(2) Includes amortized cost
basis of assets available for sale and held to maturity. |
(3) Yields on tax-exempt
municipal obligations are not presented on a tax-equivalent basis
in this table. |
|
SELECTED FINANCIAL
TRENDS |
|
|
|
|
|
|
|
|
PERFORMANCE RATIOS |
|
|
|
|
|
|
|
|
For the Three
Months Ended |
For the Six
Months Ended |
(Unaudited) |
June 30, |
March 31, |
December 31, |
September 30, |
June 30, |
June 30, |
June 30, |
|
2014 |
2014 |
2013 |
2013 |
2013 |
2014 |
2013 |
Return on average assets (annualized) |
1.09% |
1.06% |
1.18% |
1.14% |
1.02% |
1.07% |
1.04% |
Return on average equity (annualized) |
12.29% |
12.01% |
13.88% |
13.73% |
12.05% |
12.15% |
12.42% |
Efficiency ratio |
58.87% |
59.84% |
55.97% |
56.11% |
59.93% |
59.35% |
59.55% |
Interest rate spread |
3.35% |
3.40% |
3.42% |
3.38% |
3.28% |
3.37% |
3.29% |
Net interest margin |
3.52% |
3.58% |
3.60% |
3.56% |
3.46% |
3.55% |
3.50% |
Average interest-earning assets to average
interest-bearing liabilities |
119.35% |
120.56% |
119.72% |
118.79% |
119.05% |
119.94% |
119.71% |
|
ASSET QUALITY
RATIOS |
|
|
|
|
|
|
(Unaudited) |
As
of |
|
June 30, |
March 31, |
December 31, |
September 30, |
June 30, |
(Dollars in thousands) |
2014 |
2014 |
2013 |
2013 |
2013 |
Non-performing loans and leases |
$ 14,180 |
$ 14,110 |
$ 15,855 |
$ 9,725 |
$ 11,241 |
Foreclosed properties, net |
329 |
333 |
333 |
595 |
565 |
Total non-performing assets |
14,509 |
14,443 |
16,188 |
10,320 |
11,806 |
Performing troubled debt restructurings |
602 |
586 |
371 |
789 |
1,076 |
Total impaired assets |
$ 15,111 |
$ 15,029 |
$ 16,559 |
$ 11,109 |
$ 12,882 |
|
|
|
|
|
|
Non-performing loans and leases as a percent
of total gross loans and leases |
1.41% |
1.43% |
1.61% |
1.02% |
1.18% |
Non-performing assets as a percent of total
gross loans and leases plus foreclosed properties |
1.44% |
1.46% |
1.65% |
1.08% |
1.24% |
Non-performing assets as a percent of total
assets |
1.11% |
1.13% |
1.28% |
0.82% |
0.93% |
Allowance for loan and lease losses as a
percent of total gross loans and leases |
1.39% |
1.43% |
1.42% |
1.59% |
1.60% |
Allowance for loan and lease losses as a
percent of non-performing loans |
98.84% |
99.94% |
87.68% |
156.14% |
135.24% |
|
|
|
|
|
|
Criticized assets: |
|
|
|
|
|
Special mention |
$ — |
$ — |
$ — |
$ — |
$ — |
Substandard |
29,337 |
21,283 |
22,841 |
17,145 |
21,564 |
Doubtful |
— |
— |
— |
— |
— |
Total criticized assets |
$ 29,337 |
$ 21,283 |
$ 22,841 |
$ 17,145 |
$ 21,564 |
Criticized assets to total assets |
2.25% |
1.67% |
1.80% |
1.36% |
1.69% |
|
NET CHARGE-OFFS
(RECOVERIES) |
(Unaudited) |
For the Three
Months Ended |
For the Six
Months Ended |
|
June 30, |
March 31, |
December 31, |
September 30, |
June 30, |
June 30, |
June 30, |
(Dollars in
thousands) |
2014 |
2014 |
2013 |
2013 |
2013 |
2014 |
2013 |
Charge-offs |
$ — |
$ — |
$ 120 |
$ 135 |
$ 647 |
$ — |
$ 658 |
Recoveries |
(5) |
(20) |
(38) |
(9) |
(288) |
(25) |
(326) |
Net (recoveries) charge-offs |
$ (5) |
$ (20) |
$ 82 |
$ 126 |
$ 359 |
$ (25) |
$ 332 |
Net (recoveries) charge-offs as a percent of
average gross loans and leases (annualized) |
—% |
(0.01)% |
0.03% |
0.05% |
0.15% |
(0.01)% |
0.07% |
|
CAPITAL
RATIOS |
|
|
|
|
|
|
|
As of and for the
Three Months Ended |
|
June 30, |
March 31, |
December 31, |
September 30, |
June 30, |
(Unaudited) |
2014 |
2014 |
2013 |
2013 |
2013 |
Total capital to risk-weighted assets |
12.80% |
12.92% |
13.16% |
13.26% |
13.12% |
Tier I capital to risk-weighted assets |
10.89% |
10.96% |
10.83% |
10.89% |
10.74% |
Tier I capital to average assets |
9.73% |
9.67% |
9.35% |
9.20% |
9.17% |
Tangible common equity to tangible
assets |
8.85% |
8.81% |
8.61% |
8.39% |
8.09% |
|
SELECTED OTHER
INFORMATION |
|
|
|
|
|
|
(Unaudited) |
As
of |
|
June 30, |
March 31, |
December 31, |
September 30, |
June 30, |
(Dollars in
thousands) |
2014 |
2014 |
2013 |
2013 |
2013 |
Trust assets under management |
$ 703,626 |
$ 787,645 |
$ 763,912 |
$ 731,076 |
$ 676,855 |
Trust assets under administration |
186,014 |
181,611 |
195,056 |
179,692 |
175,929 |
Total trust assets |
$ 889,640 |
$ 969,256 |
$ 958,968 |
$ 910,768 |
$ 852,784 |
NON-GAAP RECONCILIATIONS
Certain financial information provided in this release is
determined by methods other than in accordance with generally
accepted accounting principles (United States)
("GAAP"). Although the Company believes that these non-GAAP
financial measures provide a greater understanding of its business,
these measures are not necessarily comparable to similar measures
that may be presented by other companies.
PRE-TAX ADJUSTED EARNINGS
"Pre-tax adjusted earnings" is a non-GAAP measure representing
pre-tax income excluding the effects of (1) provision for loan and
lease losses, (2) other identifiable costs of credit and (3) other
discrete items that are unrelated to the Company's primary business
activities. In the judgment of the Company's management, the
presentation of pre-tax adjusted earnings allows the management
team, investors and analysts to better assess the growth of the
Company's business by removing the volatility that is associated
with costs of credit and other discrete items and facilitates a
more streamlined comparison of growth to its benchmark
peers. The information provided below reconciles pre-tax
adjusted earnings to its most comparable GAAP measure.
(Unaudited) |
For the Three
Months Ended |
For the Six
Months Ended |
|
June 30, |
March 31, |
December 31, |
September 30, |
June 30, |
June 30, |
June 30, |
(Dollars in
thousands) |
2014 |
2014 |
2013 |
2013 |
2013 |
2014 |
2013 |
Income before tax expense |
$ 5,499 |
$ 5,090 |
$ 5,821 |
$ 5,567 |
$ 4,823 |
$ 10,589 |
$ 9,747 |
Add back: |
|
|
|
|
|
|
|
Provision for loan and lease losses |
(91) |
180 |
(1,202) |
109 |
54 |
89 |
134 |
Net loss (gain) on foreclosed
properties |
4 |
— |
(118) |
(48) |
79 |
4 |
49 |
Endowment to First Business Charitable
Foundation |
— |
— |
1,300 |
— |
— |
— |
— |
Pre-tax adjusted earnings |
$ 5,412 |
$ 5,270 |
$ 5,801 |
$ 5,628 |
$ 4,956 |
$ 10,682 |
$ 9,930 |
TANGIBLE BOOK VALUE
"Tangible book value per share" is a non-GAAP measure
representing tangible equity divided by total common shares
outstanding. "Tangible common equity" itself is a non-GAAP
measure representing common stockholders' equity reduced by
intangible assets, if any. The Company's management believes
that this measure is important to many investors in the marketplace
who are interested in period-to-period changes in book value per
common share exclusive of changes in intangible assets. The
information provided below reconciles tangible book value per share
and tangible common equity to their most comparable GAAP
measures.
(Unaudited) |
As
of |
|
June 30, |
March 31, |
December 31, |
September 30, |
June 30, |
(Dollars in thousands, except per
share amounts) |
2014 |
2014 |
2013 |
2013 |
2013 |
Common stockholders' equity |
$ 115,648 |
$ 112,195 |
$ 109,275 |
$ 106,099 |
$ 103,238 |
Intangible assets |
— |
— |
— |
— |
— |
Tangible common equity |
$ 115,648 |
$ 112,195 |
$ 109,275 |
$ 106,099 |
$ 103,238 |
Common shares outstanding |
3,945,220 |
3,944,795 |
3,943,997 |
3,938,423 |
3,918,347 |
Book value per share |
$ 29.31 |
$ 28.44 |
$ 27.71 |
$ 26.94 |
$ 26.35 |
Tangible book value per share |
29.31 |
28.44 |
27.71 |
26.94 |
26.35 |
TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS
''Tangible common equity to tangible assets'' is defined as the
ratio of common stockholders' equity reduced by intangible assets,
if any, divided by total assets reduced by other intangible assets,
if any. The Company's management believes that this measure is
important to many investors in the marketplace who are interested
in the relative changes from period-to-period in common equity and
total assets, each exclusive of changes in intangible
assets. The information below reconciles tangible common
equity and tangible assets to their most comparable GAAP
measures.
(Unaudited) |
As
of |
|
June 30, |
March 31, |
December 31, |
September 30, |
June 30, |
(Dollars in thousands) |
2014 |
2014 |
2013 |
2013 |
2013 |
Common stockholders' equity |
$ 115,648 |
$ 112,195 |
$ 109,275 |
$ 106,099 |
$ 103,238 |
Intangible assets |
— |
— |
— |
— |
— |
Tangible common equity |
$ 115,648 |
$ 112,195 |
$ 109,275 |
$ 106,099 |
$ 103,238 |
Total assets |
$ 1,306,503 |
$ 1,273,772 |
$ 1,268,655 |
$ 1,264,939 |
$ 1,276,069 |
Intangible assets |
— |
— |
— |
— |
— |
Tangible assets |
$ 1,306,503 |
$ 1,273,772 |
$ 1,268,655 |
$ 1,264,939 |
$ 1,276,069 |
Tangible common equity to tangible
assets |
8.85% |
8.81% |
8.61% |
8.39% |
8.09% |
EFFICIENCY RATIO
"Efficiency ratio" is a non-GAAP measure representing
non-interest expense excluding the effects of losses or gains on
foreclosed properties, other discrete items that are unrelated to
the Company's primary business activities and amortization of other
intangible assets, if any, divided by operating revenue, which is
equal to net interest income plus non-interest income less realized
gains or losses on securities, if any. In the judgment of the
Company's management, the adjustments made to non-interest expense
and operating revenue allow investors and analysts to better assess
the Company's operating expenses in relation to its core operating
revenue by removing the volatility that is associated with certain
one-time items and other discrete items that are unrelated to its
business. The information provided below reconciles the
efficiency ratio to its most comparable GAAP measure.
(Unaudited) |
For the Three
Months Ended |
For the Six
Months Ended |
|
June 30, |
March 31, |
December 31, |
September 30, |
June 30, |
June 30, |
June 30, |
(Dollars in thousands) |
2014 |
2014 |
2013 |
2013 |
2013 |
2014 |
2013 |
Total non-interest expense |
$ 7,749 |
$ 7,852 |
$ 8,556 |
$ 7,147 |
$ 7,490 |
$ 15,600 |
$ 14,668 |
Less: |
|
|
|
|
|
|
|
Net loss (gain) on foreclosed
properties |
4 |
— |
(118) |
(48) |
79 |
4 |
49 |
Amortization of other intangible
assets |
— |
— |
— |
— |
— |
— |
— |
Endowment to First Business Charitable
Foundation |
— |
— |
1,300 |
— |
— |
— |
— |
Total operating expense |
$ 7,745 |
$ 7,852 |
$ 7,374 |
$ 7,195 |
$ 7,411 |
$ 15,596 |
$ 14,619 |
Net interest income |
$ 10,799 |
$ 10,801 |
$ 10,984 |
$ 10,699 |
$ 10,193 |
$ 21,599 |
$ 20,422 |
Total non-interest income |
2,358 |
2,321 |
2,191 |
2,124 |
2,174 |
4,679 |
4,127 |
Less: |
|
|
|
|
|
|
|
Gain on sale of securities |
— |
— |
— |
— |
— |
— |
— |
Total operating revenue |
$ 13,157 |
$ 13,122 |
$ 13,175 |
$ 12,823 |
$ 12,367 |
$ 26,278 |
$ 24,549 |
Efficiency ratio |
58.87% |
59.84% |
55.97% |
56.11% |
59.93% |
59.35% |
59.55% |
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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