Attached files
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| 8-K - FIRST BUSINESS FINANCIAL SERVICES, INC. | fbiz6308-kearningsrelease.htm |
Exhibit 99.1
Section 2 – Exhibit 99.1
[FOR IMMEDIATE RELEASE]
First Business Financial Services, Inc.
401 Charmany Drive
Madison, WI 53719
FIRST BUSINESS FINANCIAL SERVICES, INC. REPORTS RECORD TOP LINE REVENUE AND SOLID NET INCOME OF $1.6 MILLION FOR THE SECOND QUARTER OF 2012
Successful New Business Development Efforts and Growing In-Market Deposit Base Drive Strong Core Earnings
Madison, WI - July 27, 2012 (GLOBE NEWSWIRE) - 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.
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.
CONTACT: | First Business Financial Services, Inc. | |
James F. Ropella, Senior Vice President | ||
and Chief Financial Officer | ||
608-232-5970 | ||
jropella@firstbusiness.com | ||
SELECTED FINANCIAL CONDITION DATA
(Unaudited) | June 30, | March 31, | December 31, | September 30, | June 30, | |||||||||||||||
(Dollars in Thousands) | 2012 | 2012 | 2011 | 2011 | 2011 | |||||||||||||||
ASSETS | ||||||||||||||||||||
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 FHLB 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
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
(Unaudited) (Dollars in Thousands, except per share amounts) | June 30, 2012 | March 31, 2012 | December 31, 2011 | September 30, 2011 | June 30, 2011 | June 30, 2012 | June 30, 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 and 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
Three Months Ended | Six Months Ended | ||||||||||||||||||||
June 30, | March 31, | December 31, | September 30, | June 30, | June 30, | June 30, | |||||||||||||||
(Unaudited) | 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
As of | |||||||||||||||
June 30, | March 31, | December 31, | September 30, | June 30, | |||||||||||
(Unaudited) | 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 | % | |||||
NON-GAAP RECONCILIATIONS
CORE EARNINGS
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
(Unaudited) | June 30, | March 31, | December 31, | September 30, | June 30, | June 30, | June 30, | |||||||||||||||||||||
(Dollars in thousands) | 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 | |||||||||||||||||||||
Net 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 | ||||||||||||||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
(Unaudited) | June 30, | March 31, | December 31, | September 30, | June 30, | June 30, | June 30, | |||||||||||||||||||||
(Dollars in thousands) | 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 | ||||||||||||||
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 | % | ||||||||||||||