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8-K - FORM 8-K - FIRST BUSINESS FINANCIAL SERVICES, INC.fbiz20141231earningsreleas.htm


Exhibit 99.1

[FOR IMMEDIATE RELEASE]
First Business Financial Services, Inc.
401 Charmany Drive
Madison, WI 53719

FIRST BUSINESS REPORTS RECORD 2014 NET INCOME OF $14.1 MILLION
Alterra Bank Acquisition Complete, Robust Loan Growth, Record Fee Income and
Reduction in Non-Performing Assets Highlight Results

Madison, WI - January 29, 2015 (GLOBE NEWSWIRE) - First Business Financial Services, Inc. (the “Company” or “First Business”) (NASDAQ: FBIZ), the parent company of First Business Bank, First Business Bank - Milwaukee and Alterra Bank, today reported strong fourth quarter and year-to-date results, including two months of contribution from Alterra Bank (“Alterra”), the Company’s Leawood, Kansas-based business banking subsidiary acquired on November 1, 2014. First Business, excluding the additional impact of Alterra, grew loans and top line revenue to record levels while reducing problem assets.

Highlights for the quarter ended December 31, 2014 include:

Net income totaled $3.7 million, including $566,000 in pre-tax merger-related costs recorded for the fourth quarter of 2014. Net income for the fourth quarter of 2013 totaled $3.8 million.
Annualized return on average assets and annualized return on average equity measured 0.95% and 10.92%, respectively, for the fourth quarter of 2014.
Top line revenue, consisting of net interest income and non-interest income, increased 26% to a record $16.6 million, compared to $13.2 million for the fourth quarter of 2013.
Excluding two months of contribution from Alterra, fourth quarter 2014 top line revenue totaled a record $14.0 million, reflecting organic growth of 7% compared to the final quarter of 2013.
Excluding 48 Alterra employees added in November, the Company’s full-time equivalent employees (“FTEs”) increased to 167 at December 31, 2014 from 145 at December 31, 2013, contributing to a 26% increase in compensation expense compared to the prior year quarter.
The Company’s fourth quarter efficiency ratio measured 61%, including merger-related costs, compared to 56% for the fourth quarter of 2013.
Net loans and leases grew for the eleventh consecutive quarter, reaching a record $1.266 billion at December 31, 2014, up 31% from December 31, 2013.
Excluding Alterra, net loans and leases were a record $1.070 billion at December 31, 2014, increasing 11% from the prior year end and 16%, annualized, from the linked quarter.
Net interest margin increased to 3.67% for the fourth quarter of 2014, including the favorable impact of 11 basis points related to the net accretion/amortization on purchase accounting adjustments of $392,000 on Alterra loans, deposits and borrowings.
Loan loss provision was $1.2 million for the fourth quarter of 2014, compared to a negative provision of $1.2 million in the fourth quarter of 2013.
Non-performing assets as a percent of total assets declined to 0.70% at December 31, 2014, from 1.28% at December 31, 2013.
The effective tax rate for the fourth quarter of 2014 was 28%, reflecting the utilization of new market federal tax credits, compared to 35% for the fourth quarter of 2013.

The Company recorded net income of $3.7 million in the fourth quarter of 2014, compared to $3.6 million earned in the third quarter of 2014 and $3.8 million earned in the fourth quarter of 2013. Diluted earnings per common share were $0.89 for the fourth quarter of 2014, compared to $0.89 for the linked quarter and $0.95 for the prior year quarter. Fourth quarter 2014 results include the impact of $566,000 in non-recurring, pre-tax merger expenses related to the Company’s recently completed acquisition of Alterra, which contributed $396,000 to consolidated net income during the final two months of the quarter.

The Company’s net income for the year ended December 31, 2014 was a record $14.1 million, or $3.51 per diluted common share, compared to $13.7 million, or $3.49 per diluted common share, earned for the year ended December 31, 2013. Full year 2014 results include $990,000 in non-recurring, pre-tax merger expenses and $396,000 in net income contribution from Alterra during the final two months of the year.


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“Again in 2014, First Business ended the year with stronger second-half earnings, resulting in record net income for the fourth consecutive year,” said Corey Chambas, President and Chief Executive Officer. “Robust loan growth in the fourth quarter by our Wisconsin bank subsidiaries highlights the strength of our franchise and team, which was further enhanced by the productivity of business development officers hired earlier in the year. With Alterra now on board and a solid pipeline heading into 2015, we will be both prudent and entrepreneurial in capitalizing on continued organic growth opportunities across our markets. In 2015, we will continue to pursue high-quality loan growth while emphasizing the exceptional asset quality that is core to the consistent success of our franchise.”

James Ropella Resumes CFO Role

First Business today announced that Senior Vice President James F. Ropella will postpone his retirement and resume his role as Chief Financial Officer, following David R. Papritz’s decision to resign from the Company after four months as CFO, effective January 30, 2015. Papritz informed First Business that his decision is based on personal and family reasons that are unrelated to the Company’s business, strategy and financial condition.

“First Business has never been in a stronger financial position, and we continue to focus on strategic growth opportunities, with every expectation of extending our track record of successful execution in 2015,” said Mr. Chambas. “We are very pleased that Jim has committed to staying with the Company through the completion of a CFO search, selection and transition process, which we expect to complete later this year.”

Previously Announced Completion of Acquisition of Aslin Group, the Parent Company of Alterra Bank

As previously disclosed, on November 1, 2014, First Business completed its acquisition of Leawood, Kansas-based Aslin Group, Inc., the parent company of Alterra Bank. At December 31, 2014, Alterra had $258.8 million in assets, $196.5 million in net loans and leases and $213.7 million in deposits. For the final two months of 2014, Alterra produced $2.0 million in net interest income, $567,000 in non-interest income, $1.5 million in non-interest expense - including $139,000 in non-recurring merger-related costs - and $337,000 in loan loss provision, contributing a total of $396,000 in net income to First Business’s fourth quarter results.

Results of Operations

Net interest income for the fourth quarter of 2014 totaled $13.6 million, an increase of $2.6 million, or 23.8%, compared to the fourth quarter of 2013. Fourth quarter 2014 net interest income included $2.0 million from Alterra in the final two months of the year. Net interest income from Alterra included $392,000 in fair value adjustments related to the net accretion/amortization of the purchase accounting adjustments on Alterra loans, deposits and borrowings. Overall, consolidated net interest income continued to benefit from lower funding costs and growth in earning assets. Fourth quarter 2014 average earning asset and loan and lease balances were each 21.3% higher than in the prior-year period, including the impact of the Alterra acquisition, while earning asset yields held steady year-over-year at 4.55%. A $501,000 interest recovery associated with the full payoff of a $6.2 million non-accrual loan, combined with higher average yields at Alterra, offset the decline in First Business’s earning asset yields attributable to the other bank subsidiaries.

The net interest margin of 3.67% increased 23 basis points from the third quarter of 2014 and seven basis points from the fourth quarter of 2013. Fourth quarter 2014 net interest margin included 11 basis points related to the net accretion/amortization on the purchase accounting adjustments of $392,000 and 14 basis points related to the interest recovery on a non-accrual loan payoff. The linked quarter margin was compressed, primarily due to the temporary excess liquidity on the balance sheet at the end of the third quarter of 2014. As expected, the excess transactional deposit balances were gradually reduced by the end of the fourth quarter. Net interest margin may experience occasional volatility due to non-recurring events such as prepayment fees collected in lieu of interest, the collection of foregone interest or the accumulation of significant short-term deposit inflows.

Non-interest income of $3.0 million for the fourth quarter of 2014 increased $774,000, or 35.3%, from the fourth quarter of 2013. Alterra contributed $567,000 in non-interest income during the final two months of 2014, of which $399,000 was due to the sale of the guaranteed portion of SBA loans and related servicing fee income. Overall growth in non-interest income reflects the continued success of the Company's initiatives to grow full-service banking relationships. The Company’s deposit service charge income, excluding Alterra, increased 10.1% year-over-year, while trust and investment services income of $1.1 million remained the primary source of fee revenue, increasing $136,000, or 13.8%, from the fourth quarter of 2013. Trust revenue growth continued to reflect significant success at new business development, including current client additions to accounts. Both the domestic equity and fixed income markets were positive year-over-year, which was also additive to the growth in revenue. Trust assets under management and administration measured $959.7 million as of December 31, 2014, compared to $959.0 million at December 31, 2013. Off-balance sheet growth was relatively flat year-over-year primarily due to the

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mutual agreement between the Company and a client to discontinue providing trust services to a group sponsored investment program during the second quarter of 2014. While the assets within the relationship were significant, the fees for services were not; therefore, the impact to revenue in 2014 was not material nor does the Company anticipate that it will be in future periods.
 
Non-interest expense for the fourth quarter of 2014 was $10.1 million, an increase of $1.6 million, or 18.4%, compared to the fourth quarter of 2013. Fourth quarter 2014 included $1.5 million in expenses at Alterra for the last two months of the year - including $139,000 in non-recurring merger-related costs - along with $427,000 in non-recurring First Business merger-related costs. Excluding merger-related costs and expenses generated by Alterra, non-interest expense decreased by $399,000, or 4.7%, compared to the prior year quarter. The year-over-year decline partly reflects the Company’s one-time $1.3 million endowment to the First Business Charitable Foundation during the fourth quarter of 2013. Higher compensation costs in the fourth quarter of 2014 largely offset the difference. Compared to the prior year quarter, fourth quarter 2014 compensation costs, excluding Alterra, grew $1.2 million, or 26.3%, on a larger base of employees, annual merit increases, higher employee benefit costs and higher incentive compensation accruals commensurate with the Company’s strong financial performance in 2014.

The Company meaningfully invested in talent throughout 2014 ending the year with 167 FTEs, excluding Alterra employees, up 15% from 145 at December 31, 2013. Management expects to continue investing in personnel, products and technology to support its growth strategies and initiatives, while remaining committed to its history of efficient expense management. The Company’s efficiency ratio of 61.1% for the fourth quarter of 2014 reflects continued success in aligning non-interest expense growth with top line revenue growth, despite merger-related costs and increased compensation expense. The efficiency ratio was 60.1% for the third quarter of 2014 and 56.0% for the fourth quarter of 2013.

The Company recorded provision for loan and lease losses totaling $1.2 million for the fourth quarter of 2014, compared to a negative provision for loan and lease losses of $1.2 million in the fourth quarter of 2013. The significant negative provision in the fourth quarter of 2013 reflected the positive outcome of an annual review of the Company’s rolling three-year historical loss rates, resulting in a reduction in the loan and lease loss reserve at December 31, 2013. During the fourth quarter of 2014, the Company recorded $541,000 in provision to support solid loan growth, which was partially offset by a reduction in provision as a result of the annual review of the Company’s rolling three-year historical loss rates. Additionally, the Company experienced $1.2 million in charge-offs related to two discrete commercial loan clients, along with $393,000 in recoveries on previously charged-off loans. Net charge-offs represented an annualized 0.28% of average loans and leases for the fourth quarter of 2014. This compares to annualized net charge-offs measuring 0.03% of average loans and leases in the fourth quarter of 2013. For the full year 2014, the Company’s net charge-offs as a percentage of average loans and leases measured 0.08%, which was relatively consistent with 0.06% for 2013.

The effective tax rate for the fourth quarter of 2014 was 28.0%, compared to 34.6% and 35.4% in the linked and year-ago quarters, respectively. During the fourth quarter of 2014, the Company utilized new market federal tax credits of $243,750 related to community development-related loans which reduced the effective tax rate for the quarter. It is expected that similar amounts of federal tax credits will be utilized in 2015.

Balance Sheet and Asset Quality Strength

Period-end net loans and leases grew for the eleventh consecutive quarter, reaching a record $1.266 billion at December 31, 2014. Including $196.5 million of Alterra balances, net loans and leases grew $299.4 million, or 31.0%, from December 31, 2013. Excluding Alterra, net loans and leases were still a record $1.070 billion at December 31, 2014, increasing 10.6% from the prior year end and 16.3%, annualized, from the linked quarter. Growth reflects the successful execution of the Company’s strategic plan, including consistent performance by business development officers (“BDOs”) in deepening client relationships, attracting new commercial clients and capitalizing on market opportunities.

Period-end in-market deposits - consisting of all transaction accounts, money market accounts and non-wholesale deposits - increased to $1.011 billion, or 70.3% of total deposits, at December 31, 2014. Period-end wholesale deposits were $427.3 million at December 31, 2014, consisting of brokered certificates of deposit and deposits gathered through internet deposit listing services of $376.4 million and $50.9 million, respectively. Average in-market deposits were $955.7 million, or 68.9% of total deposits in the fourth quarter of 2014. In order to reduce interest-rate risk, the Company uses wholesale deposits to efficiently match-fund fixed rate loans. Over time, management expects to maintain a ratio of in-market deposits to total deposits in line with the Company’s recent historical range of 60%-70%.

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. As previously disclosed, a $6.2 million non-accrual commercial and industrial credit paid off in

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full during the fourth quarter of 2014, driving a 38.2% reduction in non-performing loans compared to September 30, 2014. In addition, Alterra loans were acquired at fair value, with no corresponding reserves. As a result, the Company's non-performing loans as a percentage of total gross loans and leases declined to 0.76% as of December 31, 2014, compared to 1.52% as of September 30, 2014 and 1.61% at December 31, 2013. The ratio of non-performing assets to total assets declined to 0.70% at December 31, 2014, compared to 1.12% at September 30, 2014 and 1.28% at December 31, 2013. Non-performing assets totaled $11.5 million at December 31, 2014, compared to $15.9 million at September 30, 2014 and $16.2 million at December 31, 2013.

Capital Strength

The Company’s earnings power continues to generate capital, and as of December 31, 2014, its capital ratios were in excess of the then-current highest required regulatory benchmark levels. As of December 31, 2014, total capital to risk-weighted assets was 12.13%, tier 1 capital to risk-weighted assets was 9.52% and tier 1 capital to average assets was 8.71%. The Company anticipates that its capital ratios will remain in excess of the enhanced regulatory benchmark levels required by Basel III which went into effect on January 1, 2015.

Quarterly Dividend

As previously announced, during the fourth quarter of 2014 the Company's Board of Directors approved a $0.21 quarterly cash dividend on its common stock, which was paid on November 24, 2014 to shareholders of record at the close of business on November 13, 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, Inc. (NASDAQ: FBIZ) is a Wisconsin-based bank holding company, focused on the unique needs of businesses, business executives, and high net worth individuals. First Business offers commercial banking, specialty finance, and private wealth management solutions, and because of its niche focus, is able to provide its clients with unmatched expertise, accessibility, and responsiveness. For additional information, visit www.firstbusiness.com or call 608-238-8008.    
This press release includes “forward-looking” statements related to 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.

 
 
 
CONTACT:
  
First Business Financial Services, Inc.
 
  
James F. Ropella, Senior Vice President
 
  
608-232-5970
 
  
jropella@firstbusiness.com
 
  
 














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SELECTED FINANCIAL CONDITION DATA
(Unaudited)
 
As of
(Dollars in thousands)
 
December 31,
2014
 
September 30,
2014
 
June 30,
2014
 
March 31,
2014
 
December 31,
2013
ASSETS
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
103,237

 
$
174,498

 
$
85,977

 
$
76,396

 
$
81,286

Securities available-for-sale, at fair value
 
144,698

 
142,427

 
143,642

 
185,547

 
180,118

Securities held-to-maturity, at amortized cost
 
41,563

 
42,522

 
43,434

 

 

Loans and leases receivable
 
1,280,767

 
1,041,816

 
1,007,736

 
985,319

 
980,951

Allowance for loan and lease losses
 
(14,329
)
 
(13,930
)
 
(14,015
)
 
(14,101
)
 
(13,901
)
Loans and leases, net
 
1,266,438

 
1,027,886

 
993,721

 
971,218

 
967,050

Leasehold improvements and equipment, net
 
3,943

 
1,198

 
1,152

 
1,186

 
1,155

Foreclosed properties
 
1,693

 
106

 
329

 
333

 
333

Cash surrender value of bank-owned life insurance
 
27,314

 
23,772

 
23,558

 
23,348

 
23,142

Investment in Federal Home Loan Bank and Federal Reserve Bank stock, at cost
 
2,340

 
1,349

 
1,349

 
1,255

 
1,255

Goodwill and other intangibles
 
11,002

 

 

 

 

Accrued interest receivable and other assets
 
27,159

 
13,809

 
13,341

 
14,489

 
14,316

Total assets
 
$
1,629,387

 
$
1,427,567

 
$
1,306,503

 
$
1,273,772

 
$
1,268,655

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
In-market deposits
 
$
1,010,928

 
$
859,114

 
$
729,400

 
$
731,164

 
$
736,323

Wholesale deposits
 
427,340

 
410,086

 
437,297

 
405,536

 
393,532

Total deposits
 
1,438,268

 
1,269,200

 
1,166,697

 
1,136,700

 
1,129,855

Federal Home Loan Bank and other borrowings
 
33,994

 
22,936

 
7,936

 
7,936

 
11,936

Junior subordinated notes
 
10,315

 
10,315

 
10,315

 
10,315

 
10,315

Accrued interest payable and other liabilities
 
9,062

 
6,924

 
5,907

 
6,626

 
7,274

Total liabilities
 
1,491,639

 
1,309,375

 
1,190,855

 
1,161,577

 
1,159,380

Total stockholders’ equity
 
137,748

 
118,192

 
115,648

 
112,195

 
109,275

Total liabilities and stockholders’ equity
 
$
1,629,387

 
$
1,427,567

 
$
1,306,503

 
$
1,273,772

 
$
1,268,655



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STATEMENTS OF INCOME
(Unaudited)
 
As of and for the Three Months Ended
 
As of and for the Year Ended

(Dollars in thousands, except per share amounts)
 
December 31,
2014
 
September 30,
2014
 
June 30,
2014
 
March 31,
2014
 
December 31,
2013
 
December 31,
2014
 
December 31,
2013
Total interest income
 
$
16,863

 
$
13,871

 
$
13,565

 
$
13,402

 
$
13,763

 
$
57,701

 
$
53,810

Total interest expense
 
3,268

 
2,936

 
2,766

 
2,601

 
2,779

 
11,571

 
11,705

Net interest income
 
13,595

 
10,935

 
10,799

 
10,801

 
10,984

 
46,130

 
42,105

Provision for loan and lease losses
 
1,236

 
(89
)
 
(91
)
 
180

 
(1,202
)
 
1,236

 
(959
)
Net interest income after provision for loan and lease losses
 
12,359

 
11,024


10,890


10,621


12,186


44,894


43,064

Trust and investment services fee income
 
1,119

 
1,137

 
1,110

 
1,068

 
983

 
4,434

 
3,756

Service charges on deposits
 
682

 
620

 
600

 
567

 
574

 
2,469

 
2,150

Loan fees
 
421

 
386

 
380

 
390

 
309

 
1,577

 
1,295

Gain on sale of loans and leases
 
409

 
24

 
3

 
23

 
10

 
460

 
49

Other
 
334

 
292

 
265

 
273

 
315

 
1,163

 
1,192

Total non-interest income
 
2,965

 
2,459


2,358


2,321


2,191


10,103


8,442

Compensation
 
6,486

 
5,193

 
4,741

 
5,057

 
4,459

 
21,477

 
18,278

Net collateral liquidation costs
 
44

 
32

 
85

 
159

 
29

 
320

 
196

Net (gain) loss on foreclosed properties
 
(5
)
 
(9
)
 
4

 

 
(118
)
 
(10
)
 
(117
)
Endowment to First Business Charitable Foundation
 

 

 

 

 
1,300

 

 
1,300

Merger-related costs
 
566

 
104

 
320

 

 

 
990

 

Other
 
3,036

 
2,727

 
2,599

 
2,636

 
2,886

 
10,998

 
10,714

Total non-interest expense
 
10,127

 
8,047

 
7,749


7,852


8,556


33,775


30,371

Income before tax expense
 
5,197

 
5,436

 
5,499

 
5,090

 
5,821

 
21,222

 
21,135

Income tax expense
 
1,453

 
1,883

 
1,994

 
1,753

 
2,061

 
7,083

 
7,389

Net income
 
$
3,744

 
$
3,553

 
$
3,505

 
$
3,337

 
$
3,760

 
$
14,139

 
$
13,746

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings
 
$
0.89

 
$
0.90

 
$
0.89

 
$
0.85

 
$
0.95

 
$
3.52

 
$
3.50

Diluted earnings
 
0.89

 
0.89

 
0.88

 
0.84

 
0.95

 
3.51

 
3.49

Dividends declared
 
0.21

 
0.21

 
0.21

 
0.21

 
0.14

 
0.84

 
0.56

Book value
 
31.77

 
29.85

 
29.31

 
28.44

 
27.71

 
31.77

 
27.71

Tangible book value
 
29.23

 
29.85

 
29.31

 
28.44

 
27.71

 
29.23

 
27.71

Weighted-average common shares outstanding(1)
 
4,130,158

 
3,867,835

 
3,860,087

 
3,859,503

 
3,848,573

 
3,929,969

 
3,832,296

Weighted-average diluted common shares outstanding(1)
 
4,137,411

 
3,889,679

 
3,883,355

 
3,880,561

 
3,867,247

 
3,948,372

 
3,847,610

(1)
Excluding participating securities

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NET INTEREST INCOME ANALYSIS
(Unaudited)
 
For the Three Months Ended
(Dollars in thousands)
 
December 31, 2014
 
September 30, 2014
 
December 31, 2013
 
 
Average
balance
 
Interest
 
Average
yield/rate
 
Average
balance
 
Interest
 
Average
yield/rate
 
Average
balance
 
Interest
 
Average
yield/rate
Interest-earning assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate and other mortgage loans(1)
 
$
745,411

 
$
9,162

 
4.92
%
 
$
641,522

 
$
7,705

 
4.80
%
 
$
642,104

 
$
8,133

 
5.07
%
Commercial and industrial loans(1)
 
381,202

 
6,192

 
6.50
%
 
326,579

 
4,769

 
5.84
%
 
288,478

 
4,265

 
5.91
%
Direct financing leases(1)
 
33,698

 
403

 
4.78
%
 
30,278

 
351

 
4.64
%
 
24,300

 
282

 
4.64
%
Consumer and other loans(1)
 
17,631

 
196

 
4.45
%
 
15,696

 
143

 
3.64
%
 
15,880

 
153

 
3.85
%
Total loans and leases receivable(1)
 
1,177,942

 
15,953

 
5.42
%
 
1,014,075

 
12,968

 
5.12
%
 
970,762

 
12,833

 
5.29
%
Mortgage-related securities(2)
 
158,091

 
686

 
1.74
%
 
158,832

 
716

 
1.80
%
 
151,041

 
734

 
1.94
%
Other investment securities(3)
 
28,166

 
113

 
1.60
%
 
26,284

 
105

 
1.60
%
 
33,330

 
121

 
1.45
%
FHLB and FRB stock
 
2,004

 
10

 
1.96
%
 
1,349

 
2

 
0.57
%
 
1,255

 
1

 
0.36
%
Short-term investments
 
116,283

 
101

 
0.35
%
 
70,633

 
80

 
0.45
%
 
65,451

 
74

 
0.45
%
Total interest-earning assets
 
1,482,486

 
16,863

 
4.55
%
 
1,271,173

 
13,871

 
4.36
%
 
1,221,839

 
13,763

 
4.51
%
Non-interest-earning assets
 
92,439

 
 
 
 
 
63,485

 
 
 
 
 
57,233

 
 
 
 
Total assets
 
$
1,574,925

 
 
 
 
 
$
1,334,658

 
 
 
 
 
$
1,279,072

 
 
 
 
Interest-bearing liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Transaction accounts
 
$
90,836

 
48

 
0.21
%
 
$
84,434

 
47

 
0.22
%
 
$
72,016

 
41

 
0.23
%
Money market
 
575,266

 
768

 
0.53
%
 
484,402

 
627

 
0.52
%
 
471,610

 
599

 
0.51
%
Certificates of deposit
 
98,111

 
186

 
0.76
%
 
44,423

 
115

 
1.04
%
 
54,400

 
134

 
0.99
%
Wholesale deposits
 
432,361

 
1,557

 
1.44
%
 
422,618

 
1,616

 
1.53
%
 
399,671

 
1,515

 
1.52
%
Total interest-bearing deposits
 
1,196,574

 
2,559

 
0.86
%
 
1,035,877

 
2,405

 
0.93
%
 
997,697

 
2,289

 
0.92
%
FHLB advances
 
6,242

 
16

 
1.09
%
 
1,304

 
1

 
0.16
%
 
5

 

 
%
Other borrowings
 
23,748

 
412

 
6.94
%
 
13,806

 
250

 
7.24
%
 
12,528

 
210

 
6.70
%
Junior subordinated notes
 
10,315

 
281

 
10.86
%
 
10,315

 
280

 
10.86
%
 
10,315

 
280

 
10.86
%
Total interest-bearing liabilities
 
1,236,879

 
3,268

 
1.06
%
 
1,061,302

 
2,936

 
1.11
%
 
1,020,545

 
2,779

 
1.09
%
Non-interest-bearing demand deposit accounts
 
191,438

 
 
 
 
 
148,017

 
 
 
 
 
142,738

 
 
 
 
Other non-interest-bearing liabilities
 
9,436

 
 
 
 
 
7,908

 
 
 
 
 
7,436

 
 
 
 
Total liabilities
 
1,437,753

 
 
 
 
 
1,217,227

 
 
 
 
 
1,170,719

 
 
 
 
Stockholders’ equity
 
137,172

 
 
 
 
 
117,431

 
 
 
 
 
108,353

 
 
 
 
Total liabilities and stockholders’ equity
 
$
1,574,925

 
 
 
 
 
$
1,334,658

 
 
 
 
 
$
1,279,072

 
 
 
 
Net interest income
 
 
 
$
13,595

 
 
 
 
 
$
10,935

 
 
 
 
 
$
10,984

 
 
Interest rate spread
 
 
 
 
 
3.49
%
 
 
 
 
 
3.25
%
 
 
 
 
 
3.42
%
Net interest-earning assets
 
$
245,607

 
 
 
 
 
$
209,871

 
 
 
 
 
$
201,294

 
 
 
 
Net interest margin
 
 
 
 
 
3.67
%
 
 
 
 
 
3.44
%
 
 
 
 
 
3.60
%

(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.


7



NET INTEREST INCOME ANALYSIS (CONTINUED)
(Unaudited)
 
For the Year Ended December 31,
(Dollars in thousands)
 
2014
 
2013
 
 
Average
balance
 
Interest
 
Average
yield/
cost
 
Average
balance
 
Interest
 
Average
yield/
cost
Interest-earning assets
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate and other mortgage loans(1)
 
$
665,213

 
$
32,066

 
4.82
%
 
$
633,605

 
$
32,021

 
5.05
%
Commercial and industrial loans(1)
 
332,591

 
19,962

 
6.00
%
 
268,376

 
16,739

 
6.24
%
Direct financing leases(1)
 
29,395

 
1,367

 
4.65
%
 
17,413

 
844

 
4.85
%
Consumer and other loans(1)
 
16,862

 
652

 
3.87
%
 
16,446

 
634

 
3.86
%
Total loans and leases receivable(1)
 
1,044,061

 
54,047

 
5.18
%
 
935,840

 
50,238

 
5.37
%
Mortgage-related securities(2)
 
156,144

 
2,894

 
1.85
%
 
159,188

 
2,841

 
1.78
%
Other investment securities(3)
 
28,458

 
448

 
1.57
%
 
33,990

 
474

 
1.39
%
FHLB and FRB stock
 
1,512

 
14

 
0.94
%
 
1,402

 
4

 
0.29
%
Short-term investments
 
67,281

 
298

 
0.44
%
 
59,737

 
253

 
0.42
%
Total interest-earning assets
 
1,297,456

 
57,701

 
4.45
%
 
1,190,157

 
53,810

 
4.52
%
Non-interest-earning assets
 
67,507

 
 
 
 
 
58,536

 
 
 
 
Total assets
 
$
1,364,963

 
 
 
 
 
$
1,248,693

 
 
 
 
Interest-bearing liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Transaction accounts
 
$
83,508

 
185

 
0.22
%
 
$
62,578

 
126

 
0.20
%
Money market
 
493,322

 
2,553

 
0.52
%
 
450,558

 
2,398

 
0.53
%
Certificates of deposit
 
60,284

 
536

 
0.89
%
 
60,276

 
611

 
1.01
%
Wholesale deposits
 
416,202

 
6,196

 
1.49
%
 
393,726

 
6,604

 
1.68
%
Total interest-bearing deposits
 
1,053,316

 
9,470

 
0.90
%
 
967,138

 
9,739

 
1.01
%
FHLB advances
 
5,017

 
22

 
0.45
%
 
6,471

 
13

 
0.19
%
Other borrowings
 
13,688

 
967

 
7.06
%
 
12,196

 
842

 
6.90
%
Junior subordinated notes
 
10,315

 
1,112

 
10.78
%
 
10,315

 
1,111

 
10.78
%
Total interest-bearing liabilities
 
1,082,336

 
11,571

 
1.07
%
 
996,120

 
11,705

 
1.18
%
Non-interest-bearing demand deposit accounts
 
154,687

 
 
 
 
 
138,920

 
 
 
 
Other non-interest-bearing liabilities
 
7,918

 
 
 
 
 
8,909

 
 
 
 
Total liabilities
 
1,244,941

 
 
 
 
 
1,143,949

 
 
 
 
Stockholders’ equity
 
120,022

 
 
 
 
 
104,744

 
 
 
 
Total liabilities and stockholders’ equity
 
$
1,364,963

 
 
 
 
 
$
1,248,693

 
 
 
 
Net interest income
 
 
 
$
46,130

 
 
 
 
 
$
42,105

 
 
Interest rate spread
 
 
 
 
 
3.38
%
 
 
 
 
 
3.34
%
Net interest-earning assets
 
$
215,120

 
 
 
 
 
$
194,037

 
 
 
 
Net interest margin
 
 
 
 
 
3.56
%
 
 
 
 
 
3.54
%

(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.

8



SELECTED FINANCIAL TRENDS

PERFORMANCE RATIOS
 
 
For the Three Months Ended
 
For the Year Ended
(Unaudited)
 
December 31,
2014
 
September 30,
2014
 
June 30,
2014
 
March 31,
2014
 
December 31,
2013
 
December 31,
2014
 
December 31,
2013
Return on average assets (annualized)
 
0.95
%
 
1.06
%
 
1.09
%
 
1.06
%
 
1.18
%
 
1.04
%
 
1.10
%
Return on average equity (annualized)
 
10.92
%
 
12.10
%
 
12.29
%
 
12.01
%
 
13.88
%
 
11.78
%
 
13.12
%
Efficiency ratio
 
61.11
%
 
60.15
%
 
58.87
%
 
59.84
%
 
55.97
%
 
60.06
%
 
57.74
%
Interest rate spread
 
3.49
%
 
3.25
%
 
3.35
%
 
3.40
%
 
3.42
%
 
3.38
%
 
3.34
%
Net interest margin
 
3.67
%
 
3.44
%
 
3.52
%
 
3.58
%
 
3.60
%
 
3.56
%
 
3.54
%
Average interest-earning assets to average interest-bearing liabilities
 
119.86
%
 
119.77
%
 
119.35
%
 
120.56
%
 
119.72
%
 
119.88
%
 
119.48
%


ASSET QUALITY RATIOS
(Unaudited)
 
As of
(Dollars in thousands)
 
December 31,
2014
 
September 30,
2014
 
June 30,
2014
 
March 31,
2014
 
December 31,
2013
Non-performing loans and leases
 
$
9,792

 
$
15,837

 
$
14,180

 
$
14,110

 
$
15,855

Foreclosed properties, net
 
1,693

 
106

 
329

 
333

 
333

Total non-performing assets
 
11,485

 
15,943

 
14,509

 
14,443

 
16,188

Performing troubled debt restructurings
 
2,003

 
556

 
602

 
586

 
371

Total impaired assets
 
$
13,488

 
$
16,499

 
$
15,111

 
$
15,029

 
$
16,559

 
 
 
 
 
 
 
 
 
 
 
Non-performing loans and leases as a percent of total gross loans and leases
 
0.76
%
 
1.52
%
 
1.41
%
 
1.43
%
 
1.61
%
Non-performing assets as a percent of total gross loans and leases plus foreclosed properties
 
0.89
%
 
1.53
%
 
1.44
%
 
1.46
%
 
1.65
%
Non-performing assets as a percent of total assets
 
0.70
%
 
1.12
%
 
1.11
%
 
1.13
%
 
1.28
%
Allowance for loan and lease losses as a percent of total gross loans and leases
 
1.12
%
 
1.34
%
 
1.39
%
 
1.43
%
 
1.42
%
Allowance for loan and lease losses as a percent of non-performing loans
 
146.33
%
 
87.96
%
 
98.84
%
 
99.94
%
 
87.68
%
 
 
 
 
 
 
 
 
 
 
 
Criticized assets:
 
 
 
 
 
 
 
 
 
 
Special mention
 
$

 
$

 
$

 
$

 
$

Substandard
 
27,078

 
26,147

 
29,337

 
21,283

 
22,841

Doubtful
 

 

 

 

 

Foreclosed properties, net
 
1,693

 
106

 
329

 
333

 
333

Total criticized assets
 
$
28,771

 
$
26,253

 
$
29,666

 
$
21,616

 
$
23,174

Criticized assets to total assets
 
1.77
%
 
1.84
%
 
2.27
%
 
1.70
%
 
1.83
%


9



NET CHARGE-OFFS (RECOVERIES)
(Unaudited)
 
For the Three Months Ended
 
For the Year Ended
(Dollars in thousands)
 
December 31,
2014
 
September 30,
2014
 
June 30,
2014
 
March 31,
2014
 
December 31,
2013
 
December 31,
2014
 
December 31,
2013
Charge-offs
 
$
1,231

 
$
2

 
$

 
$

 
$
120

 
$
1,233

 
$
914

Recoveries
 
(393
)
 
(6
)
 
(5
)
 
(20
)
 
(38
)
 
(425
)
 
(374
)
Net (recoveries) charge-offs
 
$
838

 
$
(4
)
 
$
(5
)
 
$
(20
)
 
$
82

 
$
808

 
$
540

Net (recoveries) charge-offs as a percent of average gross loans and leases (annualized)
 
0.28
%
 
%
 
%
 
(0.01
)%
 
0.03
%
 
0.08
%
 
0.06
%

CAPITAL RATIOS
 
 
As of and for the Three Months Ended
(Unaudited)
 
December 31,
2014
 
September 30,
2014
 
June 30,
2014
 
March 31,
2014
 
December 31,
2013
Total capital to risk-weighted assets
 
12.13
%
 
13.97
%
 
12.80
%
 
12.92
%
 
13.16
%
Tier I capital to risk-weighted assets
 
9.52
%
 
10.84
%
 
10.89
%
 
10.96
%
 
10.83
%
Tier I capital to average assets
 
8.71
%
 
9.56
%
 
9.73
%
 
9.67
%
 
9.35
%
Tangible common equity to tangible assets
 
7.83
%
 
8.28
%
 
8.85
%
 
8.81
%
 
8.61
%

SELECTED OTHER INFORMATION
(Unaudited)
 
As of
(Dollars in thousands)
 
December 31,
2014
 
September 30,
2014
 
June 30,
2014
 
March 31,
2014
 
December 31,
2013
Trust assets under management
 
$
773,192

 
$
741,210

 
$
703,626

 
$
787,645

 
$
763,912

Trust assets under administration
 
186,505

 
186,212

 
186,014

 
181,611

 
195,056

Total trust assets
 
$
959,697

 
$
927,422

 
$
889,640

 
$
969,256

 
$
958,968
















10



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.
 
TANGIBLE BOOK VALUE
“Tangible book value per share” is a non-GAAP measure representing tangible common 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
(Dollars in thousands, except per share amounts)
 
December 31,
2014
 
September 30,
2014
 
June 30,
2014
 
March 31,
2014
 
December 31,
2013
Common stockholders’ equity
 
$
137,748

 
$
118,192

 
$
115,648

 
$
112,195

 
$
109,275

Goodwill and other intangibles
 
(11,002
)
 

 

 

 

Tangible common equity
 
$
126,746

 
$
118,192

 
$
115,648

 
$
112,195

 
$
109,275

Common shares outstanding
 
4,335,927

 
3,959,115

 
3,945,220

 
3,944,795

 
3,943,997

Book value per share
 
$
31.77

 
$
29.85

 
$
29.31

 
$
28.44

 
$
27.71

Tangible book value per share
 
29.23

 
29.85

 
29.31

 
28.44

 
27.71


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 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
(Dollars in thousands)
 
December 31,
2014
 
September 30,
2014
 
June 30,
2014
 
March 31,
2014
 
December 31,
2013
Common stockholders’ equity
 
$
137,748

 
$
118,192

 
$
115,648

 
$
112,195

 
$
109,275

Goodwill and other intangibles
 
(11,002
)
 

 

 

 

Tangible common equity
 
$
126,746

 
$
118,192

 
$
115,648

 
$
112,195

 
$
109,275

Total assets
 
$
1,629,387

 
$
1,427,567

 
$
1,306,503

 
$
1,273,772

 
$
1,268,655

Goodwill and other intangibles
 
(11,002
)
 

 

 

 

Tangible assets
 
$
1,618,385

 
$
1,427,567

 
$
1,306,503

 
$
1,273,772

 
$
1,268,655

Tangible common equity to tangible assets
 
7.83
%
 
8.28
%
 
8.85
%
 
8.81
%
 
8.61
%











11



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 Year Ended
(Dollars in thousands)
 
December 31,
2014
 
September 30,
2014
 
June 30,
2014
 
March 31,
2014
 
December 31,
2013
 
December 31,
2014
 
December 31,
2013
Total non-interest expense
 
$
10,127

 
$
8,047

 
$
7,749

 
$
7,852

 
$
8,556

 
$
33,775

 
$
30,371

Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (gain) loss on foreclosed properties
 
(5
)
 
(9
)
 
4

 

 
(118
)
 
(10
)
 
(117
)
Amortization of other intangible assets
 
12

 

 

 

 

 
12

 

Endowment to First Business Charitable Foundation
 

 

 

 

 
1,300

 

 
1,300

Total operating expense
 
$
10,120

 
$
8,056

 
$
7,745

 
$
7,852

 
$
7,374

 
$
33,773

 
$
29,188

Net interest income
 
$
13,595

 
$
10,935

 
$
10,799

 
$
10,801

 
$
10,984

 
$
46,130

 
$
42,105

Total non-interest income
 
2,965

 
2,459

 
2,358

 
2,321

 
2,191

 
10,103

 
8,442

Total operating revenue
 
$
16,560

 
$
13,394

 
$
13,157

 
$
13,122

 
$
13,175

 
$
56,233

 
$
50,547

Efficiency ratio
 
61.11
%
 
60.15
%
 
58.87
%
 
59.84
%
 
55.97
%
 
60.06
%
 
57.74
%

12