First Business Reports Record Profit of $4.4 Million

MADISON, Wis., Oct. 22, 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 (“Alterra”), today reported record quarterly results for the third quarter highlighted by continued organic loan and deposit growth, strong asset quality and strong Small Business Administration (“SBA”) lending activity, attributed in large part to Alterra, its Kansas City-based banking subsidiary acquired in November 2014. Investments in staffing and technology continued, as the Company continues to successfully execute its strategic growth objectives and further build-out a scalable franchise.

Highlights for the quarter ended September 30, 2015 include:

  • Net income grew to a record $4.4 million, marking a 23.3% increase from net income of $3.6 million in the third quarter of 2014 which was prior to the acquisition of Alterra.
  • Diluted earnings per common share increased to $0.50 for the quarter ended September 30, 2015, compared to $0.45 for the quarter ended September 30, 2014.
  • Annualized return on average assets and annualized return on average equity measured 1.02% and 11.93%, respectively, for the third quarter of 2015, compared to 1.06% and 12.10%, respectively, for the third quarter of 2014.
  • Top line revenue, consisting of net interest income and non-interest income, increased 40% to $18.7 million, compared to the third quarter of 2014.
    • Excluding Alterra, third quarter 2015 top line revenue grew 7% organically to $14.3 million, compared to the third quarter of 2014.
  • The Company’s third quarter efficiency ratio measured 64.8%, including growth-related investments to expand the Small Business Administration (“SBA”) business development and support teams in the Kansas City and Wisconsin markets, as well as investments for the conversion to an industry leading client relationship management platform and business intelligence software implementation.
  • Period-end net loans and leases – defined as gross loans and leases receivable less allowance for loan and lease losses – grew for the fourteenth consecutive quarter, reaching a record $1.362 billion at September 30, 2015, up 32% from September 30, 2014.
    • Excluding Alterra, net loans and leases grew 9% organically to a record $1.122 billion at September 30, 2015, from September 30, 2014.
  • Net interest margin measured 3.61% for the third quarter of 2015, including nine basis points related to the net accretion/amortization on purchase accounting adjustments on Alterra loans, deposits and borrowings, compared to 3.44% for the third quarter of 2014.
  • Net charge offs were $127,000 in the third quarter of 2015 compared to net recoveries of $4,000 in the third quarter 2014. Non-performing assets as a percent of total assets declined to 0.65% at September 30, 2015 from 1.12% one year prior.

“This quarter’s results validate the success of our relationship-focused strategy and continued investments aimed at growing our franchise, strengthening our team, and enhancing the efficiency and effectiveness of our technology platforms,” said Corey Chambas, President and Chief Executive Officer. “We continue to deliver strong deposit and loan growth, while SBA originations and loan sales have reached new highs and our expanding distribution platform has positioned us well with a seasonally strong pipeline as we approach the end of the year. We expect our relationship-based SBA strategy, which emphasizes client acquisition, to support continued growth in both loans and non-interest bearing deposits and to produce accelerating fee income, creating an earnings catalyst for the Company.”

The Company earned record net income of $4.4 million in the third quarter of 2015, compared to $3.9 million earned in the second quarter of 2015 and $3.6 million earned in the third quarter of 2014. Third quarter 2015 results included no material merger-related expenses, while non-recurring, pre-tax merger expenses related to the Company’s acquisition of Alterra totaled $33,000 and $104,000, respectively, for the second quarter of 2015 and third quarter of 2014. Diluted earnings per common share were $0.50 for the third quarter of 2015, compared to $0.45 for the linked quarter and $0.45 for the third quarter of 2014. Per share data for all periods reflect the previously announced two-for-one stock split in the form of a 100% stock dividend declared and paid by the company in August 2015.

During the third quarter of 2015, Alterra contributed $2.9 million in net interest income, including $385,000 related to the net accretion/amortization of purchase accounting adjustments, $1.5 million in non-interest income, $2.6 million in non-interest expense and $355,000 in loan loss provision, contributing a total of $1.5 million in pre-tax income to First Business’s third quarter results. In the second quarter of 2015, Alterra produced $3.0 million in net interest income, including $542,000 related to the net accretion/amortization of purchase accounting adjustments, $1.4 million in non-interest income, $2.4 million in non-interest expense and $770,000 in loan loss provision, contributing a total of $1.3 million in pre-tax income to First Business’s second quarter results.

Results of Operations

Net interest income for the third quarter of 2015 totaled $14.6 million, an increase of $422,000, or 3.0%, compared to the linked quarter which included $385,000 in net accretion/amortization of purchase accounting adjustments. Net accretion/amortization totaled $542,000 in the linked second quarter. Management expects the net accretion/amortization to remain volatile in future quarters due to the uncertain nature of loan prepayments. Excluding the impact of net accretion/amortization in both quarters, net interest income increased $579,000, or 4.2%. Compared to the same period last year and excluding Alterra for this quarter, First Business’s net interest income increased $768,000, or 7.0%. The increase in net interest income compared to the linked quarter and the same period last year is primarily due to an increase in average earning asset balances, specifically loans and leases receivable.

Net interest margin in the third quarter of 2015 was 3.61%, which remained consistent with the second quarter of 2015 and increased 17 basis points from the third quarter of 2014. Third quarter 2015 net interest margin included nine basis points related to the net accretion/amortization of purchase accounting adjustments, while the linked quarter margin included 14 basis points related to the net accretion/amortization of the purchase accounting adjustments. Excluding the net accretion/amortization of the purchase accounting adjustments, net interest margin improved by five basis points principally due to an increase in loan fees in lieu of interest. Net interest margin may experience occasional volatility due to non-recurring events such as loan fees collected in lieu of interest, the collection of interest on loans previously in non-accrual, the accumulation of significant short-term deposit inflows or the ongoing accretion/amortization of the fair value purchase accounting adjustments related to the acquisition of Alterra.

Non-interest income of $4.1 million for the third quarter of 2015 increased $1.6 million, or 66.8%, from the third quarter of 2014. Alterra contributed $1.5 million in non-interest income during the third quarter of 2015, including $910,000 in gains on the sale of SBA loans, $243,000 in gains on the sale of residential mortgage loans and $146,000 in loan fees. Alterra’s revenue contribution reflects continued growth in the SBA lending business, including seasonally strong volumes. Expansion of Alterra’s SBA lending expertise into First Business’s Wisconsin markets continues to be successful. The Company expects to experience variability in the timing of loan sale gains due to seasonal demand. Excluding income directly attributed to Alterra, non-interest income totaled $2.6 million, growing by $103,000, or 4.2%, from the third quarter of 2014. Trust and investment services income, the Company’s leading source of fee revenue, totaled $1.3 million, increasing $114,000, or 10.0%, from the third quarter of 2014 despite negative market volatility affecting overall asset values during third quarter 2015. Trust assets under management and administration measured $978.6 million as of September 30, 2015, compared to $998.0 million at June 30, 2015 and $927.4 million at September 30, 2014.

Non-interest expense for the third quarter of 2015 was $12.0 million, an increase of $3.9 million, or 48.9%, compared to the third quarter of 2014. Third quarter 2015 included $2.6 million in expenses at Alterra, while third quarter 2014 included $104,000 in non-recurring merger-related costs. Excluding merger-related costs and expenses incurred by Alterra, non-interest expense increased by $1.4 million, or 18.1%, compared to the third quarter of 2014 driven primarily by investments in people and technology. Excluding Alterra, compensation costs for the third quarter of 2015 grew by $550,000, or 10.6%, compared to the third quarter of 2014 reflecting annual merit increases and the continued approach to opportunistically hire new business development officers and operational staff to support growth. General other non-interest expenses, specifically professional services, increased in line with expectations as the Company continues to invest in solutions that will drive operational efficiency. Management expects to continue investing in products and technology to support these strategic growth initiatives. Expense growth was partially offset by a net gain of $163,000 on the sale of a foreclosed property during the third quarter of 2015.

The Company’s efficiency ratio of 64.8% for the third quarter of 2015, compared to 65.3% for the linked quarter and 60.1% for the third quarter of 2014, continues to be influenced by increased investments for the future. While management expects the efficiency ratio to remain above the long-term objective of 60% or less for the short-term, the longstanding objective of aligning non-interest expense growth with top line revenue growth remains a key component of the Company’s strategic plan.

The Company recorded a provision for loan and lease losses totaling $287,000 for the third quarter of 2015, compared to $520,000 in the second quarter of 2015. During the third quarter of 2014, the Company recorded a negative provision for loan and lease losses of $89,000. During the third quarter of 2015 the Company recognized net charge-offs of $127,000, representing an annualized 0.04% of average loans and leases. The Company recognized net charge-offs of $15,000 in the second quarter of 2015 and net recoveries of $4,000 during the third quarter of 2014. The remaining increase in third quarter 2015 provision reflects additions commensurate with growth, partially offset by a reduction of the subjective loss factors applied in calculating the probable losses within the loan and lease portfolio.

The Company’s effective tax rate of 31.98% for the third quarter of 2015, compared to 33.71% for the linked quarter and 34.64% for the third quarter of 2014, included a 199 basis points benefit adjustment primarily due to updating state apportionment estimates for actual apportionment rates based on the filing of the 2014 tax returns during the quarter.

Balance Sheet and Asset Quality Strength

Period-end net loans and leases grew for the fourteenth consecutive quarter, reaching a record $1.362 billion at September 30, 2015. Net loans and leases grew $27.7 million, or 8.3% annualized, from June 30, 2015 and $333.9 million from September 30, 2014. Excluding $239.6 million in net loans and leases at Alterra, net loans and leases were a record $1.122 billion at September 30, 2015, increasing $94.3 million, or 9.2%, from the same period last year. On an average basis, gross loans and leases grew an annualized 13.3% during the third quarter of 2015, to $1.363 billion, compared to the linked quarter. Growth reflects continued and successful execution 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 – totaled $1.063 billion, comprising 69.0% of total deposits at September 30, 2015. Period-end wholesale deposits were $476.6 million at September 30, 2015, consisting of brokered certificates of deposit and deposits gathered through internet deposit listing services of $409.4 million and $67.2 million, respectively. In total, deposits measured $1.539 billion, growing $68.3 million, or 18.6% annualized, compared to the linked quarter. Average in-market deposits were $1.042 billion, or 69.1% of total deposits, for the third quarter of 2015. 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 that differentiates the Company from many of its peers. During the third quarter of 2015, non-performing loans decreased to $9.7 million, compared to $15.2 million at June 30, 2015, primarily due to the successful restructuring of one impaired relationship during the quarter, with no principal loss. As a result, the Company’s non-performing loans as a percentage of gross loans and leases declined to 0.70% at September 30, 2015, from 1.12% as of June 30, 2015. Non-performing loans as a percentage of total gross loans and leases measured 1.52% at September 30, 2014. Likewise, the ratio of non-performing assets to total assets decreased to 0.65% at September 30, 2015, compared to 1.01% and 1.12% at June 30, 2015 and September 30, 2014, respectively. Non-performing assets totaled $11.3 million at September 30, 2015, compared to $17.1 million and $15.9 million at June 30, 2015 and September 30, 2014, respectively.

Capital Strength

The Company’s earnings continue to generate capital, and its capital ratios exceed the highest required regulatory benchmark levels. As of September 30, 2015, total capital to risk-weighted assets was 11.29%, tier 1 capital to risk-weighted assets was 8.95%, tier 1 capital to average assets was 8.59% and common equity tier 1 capital to risk-weighted assets was 8.34%. Capital ratios as of September 30, 2015 reflect the Company’s implementation of the capital guidelines under Basel III, which became effective January 1, 2015.

Two-for-One Stock Split and Quarterly Dividend

As previously announced, during the third quarter of 2015 the Company’s Board of Directors declared a two-for-one stock split of its common stock payable in the form of a 100% stock dividend. The stock dividend was paid on August 28, 2015 to shareholders of record at the close of business on August 18, 2015. The trading price of the Company’s common stock on NASDAQ reflected the stock split effective August 31, 2015. Share and per share data have been adjusted for all historical periods.

In addition, as previously announced, during the third quarter of 2015 the Company’s Board of Directors declared a regular quarterly cash dividend of $0.22 per share on a pre-split basis. The cash dividend was paid on August 28, 2015 to shareholders of record at the close of business on August 18, 2015. On a post-split basis, the cash dividend represents what the Company believes is a sustainable 22.0% payout ratio, measured against third quarter 2015 earnings per share of $0.50. 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, expectations, 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 2014 annual report on Form 10-K, quarterly reports on Form 10-Q and other filings with the Securities and Exchange Commission.

SELECTED FINANCIAL CONDITION DATA

(Unaudited)   As of
(in thousands)   September 30,
 2015
  June 30,
 2015
  March 31,
 2015
  December 31,
 2014
  September 30,
 2014
ASSETS                    
Cash and cash equivalents   $ 122,671     $ 88,848     $ 141,887     $ 103,237     $ 174,498  
Securities available-for-sale, at fair value   143,729     146,342     142,951     144,698     142,427  
Securities held-to-maturity, at amortized cost   38,364     39,428     40,599     41,563     42,522  
Loans held for sale   2,910     1,274     2,396     1,340      
Loans and leases receivable   1,377,172     1,349,290     1,294,540     1,279,427     1,041,816  
Allowance for loan and lease losses   (15,359 )   (15,199 )   (14,694 )   (14,329 )   (13,930 )
Loans and leases, net   1,361,813     1,334,091     1,279,846     1,265,098     1,027,886  
Premises and equipment, net   3,889     3,998     3,883     3,943     1,198  
Foreclosed properties   1,632     1,854     1,566     1,693     106  
Cash surrender value of bank-owned life insurance   28,029     27,785     27,548     27,314     23,772  
Investment in Federal Home Loan Bank and Federal Reserve Bank stock, at cost   2,843     2,891     2,798     2,340     1,349  
Goodwill and other intangible assets   12,244     12,133     12,011     11,944      
Accrued interest receivable and other assets   26,029     24,920     25,192     26,217     13,809  
Total assets   $ 1,744,153     $ 1,683,564     $ 1,680,677     $ 1,629,387     $ 1,427,567  
LIABILITIES AND STOCKHOLDERS’ EQUITY                    
In-market deposits   $ 1,062,753     $ 1,026,588     $ 1,054,828     $ 1,010,928     $ 859,114  
Wholesale deposits   476,617     444,480     430,973     427,340     410,086  
Total deposits   1,539,370     1,471,068     1,485,801     1,438,268     1,269,200  
Federal Home Loan Bank and other borrowings   36,354     47,401     34,448     33,994     22,936  
Junior subordinated notes   10,315     10,315     10,315     10,315     10,315  
Accrued interest payable and other liabilities   10,147     10,493     8,424     9,062     6,924  
Total liabilities   1,596,186     1,539,277     1,538,988     1,491,639     1,309,375  
Total stockholders’ equity   147,967     144,287     141,689     137,748     118,192  
Total liabilities and stockholders’ equity   $ 1,744,153     $ 1,683,564     $ 1,680,677     $ 1,629,387     $ 1,427,567  
                                         

STATEMENTS OF INCOME

(Unaudited)   As of and for the Three Months Ended   As of and for the Nine Months Ended
 

(Dollars in thousands, except per share amounts)

  September 30,
 2015
  June 30,
 2015
  March 31,
 2015
  December 31,
 2014
  September 30,
 2014
  September 30,
 2015
  September 30,
 2014
 
Total interest income   $ 18,135     $ 17,520     $ 18,216     $ 16,863     $ 13,871     $ 53,871     $ 40,838    
Total interest expense   3,525     3,332     3,286     3,268     2,936     10,143     8,303    
Net interest income   14,610     14,188     14,930     13,595     10,935     43,728     32,535    
Provision for loan and lease losses   287     520     684     1,236     (89 )   1,491        
Net interest income after provision for loan and lease losses   14,323     13,668     14,246     12,359     11,024     42,237     32,535    
Trust and investment services fee income   1,251     1,279     1,207     1,119     1,137     3,737     3,315    
Gain on sale of SBA loans   927     842     505     318         2,274        
Gain on sale of residential mortgage loans   244     222     148     74         614        
Service charges on deposits   705     693     696     682     620     2,094     1,787    
Loan fees   486     499     502     421     386     1,487     1,156    
Other   489     591     790     351     316     1,870     880    
Total non-interest income   4,102     4,126     3,848     2,965     2,459     12,076     7,138    
Compensation   7,320     6,924     7,354     6,486     5,193     21,598     14,991    
Occupancy   486     486     500     428     324     1,472     963    
Professional fees   1,268     1,482     911     638     570     3,661     1,777    
Data processing   587     655     530     483     389     1,772     1,227    
Marketing   693     701     642     542     409     2,036     1,120    
Equipment   308     298     308     250     145     914     400    
FDIC Insurance   260     220     213     216     179     693     542    
Net collateral liquidation costs   22     78     302     44     32     402     276    
Net (gain) loss on foreclosed properties   (163 )   1     (16 )   (5 )   (9 )   (178 )   (5 )  
Merger-related costs       33     78     566     104     111     424    
Other   1,203     1,096     910     479     711     3,209     1,933    
Total non-interest expense   11,984     11,974     11,732     10,127     8,047     35,690     23,648    
Income before tax expense   6,441     5,820     6,362     5,197     5,436     18,623     16,025    
Income tax expense   2,060     1,962     2,170     1,453     1,883     6,192     5,630    
Net income   $ 4,381     $ 3,858     $ 4,192     $ 3,744     $ 3,553     $ 12,431     $ 10,395    
                               
Per common share:                              
Basic earnings   $ 0.50     $ 0.45     $ 0.48     $ 0.44     $ 0.45     $ 1.43     $ 1.32    
Diluted earnings   0.50     0.45     0.48     0.44     0.45     1.43     1.31    
Dividends declared   0.11     0.11     0.11     0.105     0.105     0.33     0.315    
Book value   17.01     16.64     16.34     15.88     14.93     17.01     14.93    
Tangible book value   15.60     15.24     14.95     14.51     14.93     15.60     14.93    
Weighted-average common shares outstanding(1)   8,546,563     8,523,418     8,525,127     8,282,999     7,739,918     8,538,219     7,727,300    
Weighted-average diluted common shares outstanding(1)   8,546,563     8,523,418     8,529,658     8,297,508     7,783,612     8,539,705     7,771,485    
                                             

(1) Excluding participating securities

NET INTEREST INCOME ANALYSIS

(Unaudited)   For the Three Months Ended
(Dollars in thousands)   September 30, 2015   June 30, 2015   September 30, 2014
    Average
balance
  Interest   Average
yield/rate(4)
  Average
balance
  Interest   Average
yield/rate(4)
  Average
balance
  Interest   Average
yield/rate(4)
Interest-earning assets                                    
Commercial real estate and other mortgage loans(1)   $ 856,488     $ 9,994     4.67 %   $ 824,250     $ 9,672     4.69 %   $ 641,522     $ 7,705     4.80 %
Commercial and industrial loans(1)   454,184     6,741     5.94 %   439,986     6,408     5.83 %   326,579     4,769     5.84 %
Direct financing leases(1)   28,352     328     4.63 %   29,631     342     4.62 %   30,278     351     4.64 %
Consumer and other loans(1)   23,647     260     4.40 %   24,888     258     4.15 %   15,696     143     3.64 %
Total loans and leases receivable(1)   1,362,671     17,323     5.09 %   1,318,755     16,680     5.06 %   1,014,075     12,968     5.12 %
Mortgage-related securities(2)   152,763     602     1.57 %   156,137     632     1.62 %   158,832     716     1.80 %
Other investment securities(3)   30,431     120     1.58 %   28,912     116     1.60 %   26,284     105     1.60 %
FHLB and FRB stock   3,175     22     2.69 %   2,926     20     2.73 %   1,349     2     0.57 %
Short-term investments   67,716     68     0.41 %   66,035     72     0.44 %   70,633     80     0.45 %
Total interest-earning assets   1,616,756     18,135     4.49 %   1,572,765     17,520     4.46 %   1,271,173     13,871     4.36 %
Non-interest-earning assets   100,863             93,477             63,485          
Total assets   $ 1,717,619             $ 1,666,242             $ 1,334,658          
Interest-bearing liabilities                                    
Transaction accounts   $ 138,489     84     0.24 %   $ 105,582     63     0.24 %   $ 84,434     47     0.22 %
Money market   587,063     829     0.56 %   605,195     841     0.56 %   484,402     627     0.52 %
Certificates of deposit   102,477     204     0.80 %   111,192     219     0.79 %   44,423     115     1.04 %
Wholesale deposits   466,516     1,668     1.43 %   428,080     1,470     1.37 %   422,618     1,616     1.53 %
Total interest-bearing deposits   1,294,545     2,785     0.86 %   1,250,049     2,593     0.83 %   1,035,877     2,405     0.93 %
FHLB advances   17,503     30     0.67 %   22,749     31     0.55 %   1,304     1     0.16 %
Other borrowings   25,154     430     6.84 %   25,556     430     6.73 %   13,806     250     7.24 %
Junior subordinated notes   10,315     280     10.86 %   10,315     278     10.78 %   10,315     280     10.86 %
Total interest-bearing liabilities   1,347,517     3,525     1.05 %   1,308,669     3,332     1.02 %   1,061,302     2,936     1.11 %
Non-interest-bearing demand deposit accounts   213,712             205,508             148,017          
Other non-interest-bearing liabilities   9,520             8,252             7,908          
Total liabilities   1,570,749             1,522,429             1,217,227          
Stockholders’ equity   146,870             143,813             117,431          
Total liabilities and stockholders’ equity   $ 1,717,619             $ 1,666,242             $ 1,334,658          
Net interest income       $ 14,610             $ 14,188             $ 10,935      
Interest rate spread           3.44 %           3.44 %           3.25 %
Net interest-earning assets   $ 269,239             $ 264,096             $ 209,871          
Net interest margin           3.61 %           3.61 %           3.44 %
                                           

(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.
(4) Represents annualized yields/rates.

NET INTEREST INCOME ANALYSIS (CONTINUED)

(Unaudited)   For the Nine Months Ended September 30,
(Dollars in thousands)   2015   2014
    Average
balance
  Interest   Average
yield/rate(4)
  Average
balance
  Interest   Average
yield/rate(4)
Interest-earning assets                        
Commercial real estate and other mortgage loans(1)   $ 832,042     $ 29,535     4.73 %   $ 638,187     $ 22,904     4.79 %
Commercial and industrial loans(1)   440,390     19,973     6.05 %   316,209     13,769     5.81 %
Direct financing leases(1)   30,229     1,053     4.64 %   27,945     965     4.60 %
Consumer and other loans(1)   24,213     767     4.22 %   16,603     456     3.66 %
Total loans and leases receivable(1)   1,326,874     51,328     5.16 %   998,944     38,094     5.08 %
Mortgage-related securities(2)   154,734     1,896     1.63 %   155,488     2,208     1.89 %
Other investment securities(3)   29,213     350     1.60 %   28,556     335     1.56 %
FHLB and FRB stock   2,902     60     2.74 %   1,346     4     0.44 %
Short-term investments   75,469     237     0.42 %   50,768     197     0.52 %
Total interest-earning assets   1,589,192     53,871     4.52 %   1,235,102     40,838     4.41 %
Non-interest-earning assets   96,889             59,104          
Total assets   $ 1,686,081             $ 1,294,206          
Interest-bearing liabilities                        
Transaction accounts   $ 117,242     205     0.23 %   $ 81,039     137     0.23 %
Money market   605,906     2,523     0.56 %   465,708     1,785     0.51 %
Certificates of deposit   112,602     643     0.76 %   47,536     350     0.98 %
Wholesale deposits   439,744     4,576     1.39 %   410,757     4,639     1.51 %
Total interest-bearing deposits   1,275,494     7,947     0.83 %   1,005,040     6,911     0.92 %
FHLB advances   16,569     85     0.68 %   4,604     6     0.16 %
Other borrowings   24,948     1,279     6.84 %   10,297     555     7.19 %
Junior subordinated notes   10,315     832     10.76 %   10,315     831     10.76 %
Total interest-bearing liabilities   1,327,326     10,143     1.02 %   1,030,256     8,303     1.07 %
Non-interest-bearing demand deposit accounts   206,547             142,302          
Other non-interest-bearing liabilities   8,646             7,406          
Total liabilities   1,542,519             1,179,964          
Stockholders’ equity   143,562             114,242          
Total liabilities and stockholders’ equity   $ 1,686,081             $ 1,294,206          
Net interest income       $ 43,728             $ 32,535      
Interest rate spread           3.50 %           3.34 %
Net interest-earning assets   $ 261,866             $ 204,846          
Net interest margin           3.67 %           3.51 %
                             

(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.
(4) Represents annualized yields/rates.

SELECTED FINANCIAL TRENDS

PERFORMANCE RATIOS

    For the Three Months Ended   For the Nine Months Ended
(Unaudited)   September 30,
 2015
  June 30,
 2015
  March 31,
 2015
  December 31,
 2014
  September 30,
 2014
  September 30,
 2015
  September 30,
 2014
Return on average assets (annualized)   1.02 %   0.93 %   1.00 %   0.95 %   1.06 %   0.98 %   1.07 %
Return on average equity (annualized)   11.93 %   10.73 %   11.98 %   10.92 %   12.10 %   11.55 %   12.13 %
Efficiency ratio   64.82 %   65.28 %   62.47 %   61.11 %   60.15 %   64.18 %   59.62 %
Interest rate spread   3.44 %   3.44 %   3.63 %   3.49 %   3.25 %   3.50 %   3.34 %
Net interest margin   3.61 %   3.61 %   3.79 %   3.67 %   3.44 %   3.67 %   3.51 %
Average interest-earning assets to average interest-bearing liabilities   119.98 %   120.18 %   119.02 %   119.86 %   119.77 %   119.73 %   119.88 %
                                           

ASSET QUALITY RATIOS

(Unaudited)   As of
(Dollars in thousands)   September 30,
 2015
  June 30,
 2015
  March 31,
 2015
  December 31,
 2014
  September 30,
 2014
Non-performing loans and leases   $ 9,707     $ 15,198     $ 9,352     $ 9,792     $ 15,837  
Foreclosed properties, net   1,632     1,854     1,566     1,693     106  
Total non-performing assets   11,339     17,052     10,918     11,485     15,943  
Performing troubled debt restructurings   7,852     1,944     1,972     2,003     556  
Total impaired assets   $ 19,191     $ 18,996     $ 12,890     $ 13,488     $ 16,499  
                     
Non-performing loans and leases as a percent of total gross loans and leases   0.70 %   1.12 %   0.72 %   0.76 %   1.52 %
Non-performing assets as a percent of total gross loans and leases plus foreclosed properties   0.82 %   1.26 %   0.84 %   0.89 %   1.53 %
Non-performing assets as a percent of total assets   0.65 %   1.01 %   0.65 %   0.70 %   1.12 %
Allowance for loan and lease losses as a percent of total gross loans and leases   1.11 %   1.12 %   1.13 %   1.12 %   1.34 %
Allowance for loan and lease losses as a percent of non-performing loans   158.22 %   100.01 %   157.12 %   146.33 %   87.96 %
                     
Criticized assets:                    
Special mention   $     $     $     $     $  
Substandard   11,144     10,633     22,626     25,493     26,147  
Doubtful                    
Foreclosed properties, net   1,632     1,854     1,566     1,693     106  
Total criticized assets   $ 12,776     $ 12,487     $ 24,192     $ 27,186     $ 26,253  
Criticized assets to total assets   0.73 %   0.74 %   1.44 %   1.67 %   1.84 %
                               

NET CHARGE-OFFS (RECOVERIES)

(Unaudited)   For the Three Months Ended   For the Nine Months Ended
(Dollars in thousands)   September 30,
 2015
  June 30,
 2015
  March 31,
 2015
  December 31,
 2014
  September 30,
 2014
  September 30,
 2015
  September 30,
 2014
Charge-offs   $ 138     $ 84     $ 324     $ 1,231     $ 2     $ 546     $ 2    
Recoveries   (11 )   (69 )   (5 )   (393 )   (6 )   (85 )   (31 )  
Net charge-offs (recoveries)   $ 127     $ 15     $ 319     $ 838     $ (4 )   $ 461     $ (29 )  
Net charge-offs (recoveries) as a percent of average gross loans and leases (annualized)   0.04 %   %   0.10 %   0.28 %   %   0.05 %   %  
                                             

CAPITAL RATIOS

    As of and for the Three Months Ended
(Unaudited)   September 30,
 2015
  June 30,
 2015
  March 31,
 2015
  December 31,
 2014
  September 30,
 2014
Total capital to risk-weighted assets (1)   11.29 %   11.11 %   11.40 %   12.13 %   13.97 %
Tier I capital to risk-weighted assets (1)   8.95 %   8.78 %   8.98 %   9.52 %   10.84 %
Common equity tier I capital to risk-weighted assets (1)   8.34 %   8.16 %   8.34 %   N/A   N/A
Tier I capital to average assets (1)   8.59 %   8.66 %   8.42 %   8.71 %   9.56 %
Tangible common equity to tangible assets   7.84 %   7.91 %   7.77 %   7.78 %   8.28 %
                               

(1) The September 30, 2015 data is estimated.

SELECTED OTHER INFORMATION

(Unaudited)   As of
(in thousands)   September 30,
 2015
  June 30,
 2015
  March 31,
 2015
  December 31,
 2014
  September 30,
 2014
Trust assets under management   $ 791,150     $ 800,615     $ 814,226     $ 773,192     $ 741,210  
Trust assets under administration   187,495     197,343     195,148     186,505     186,212  
Total trust assets   $ 978,645     $ 997,958     $ 1,009,374     $ 959,697     $ 927,422  
                                         

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)   September 30,
 2015
  June 30,
 2015
  March 31,
 2015
  December 31,
 2014
  September 30,
 2014
Common stockholders’ equity   $ 147,967     $ 144,287     $ 141,689     $ 137,748     $ 118,192  
Goodwill and other intangible assets   (12,244 )   (12,133 )   (12,011 )   (11,944 )    
Tangible common equity   $ 135,723     $ 132,154     $ 129,678     $ 125,804     $ 118,192  
Common shares outstanding   8,698,775     8,669,836     8,672,322     8,671,854     7,918,230  
Book value per share   $ 17.01     $ 16.64     $ 16.34     $ 15.88     $ 14.93  
Tangible book value per share   15.60     15.24     14.95     14.51     14.93  
                               

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)   September 30,
 2015
  June 30,
 2015
  March 31,
 2015
  December 31,
 2014
  September 30,
 2014
Common stockholders’ equity   $ 147,967     $ 144,287     $ 141,689     $ 137,748     $ 118,192  
Goodwill and other intangible assets   (12,244 )   (12,133 )   (12,011 )   (11,944 )    
Tangible common equity   $ 135,723     $ 132,154     $ 129,678     $ 125,804     $ 118,192  
Total assets   $ 1,744,153     $ 1,683,564     $ 1,680,677     $ 1,629,387     $ 1,427,567  
Goodwill and other intangible assets   (12,244 )   (12,133 )   (12,011 )   (11,944 )    
Tangible assets   $ 1,731,909     $ 1,671,431     $ 1,668,666     $ 1,617,443     $ 1,427,567  
Tangible common equity to tangible assets   7.84 %   7.91 %   7.77 %   7.78 %   8.28 %
                               

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 Nine Months Ended
(Dollars in thousands)   September 30,
 2015
  June 30,
 2015
  March 31,
 2015
  December 31,
 2014
  September 30,
 2014
  September 30,
 2015
  September 30,
 2014
Total non-interest expense   $ 11,984     $ 11,974     $ 11,732     $ 10,127     $ 8,047     $ 35,690     $ 23,648  
Less:                            
Net loss (gain) on foreclosed properties   (163 )   1     (16 )   (5 )   (9 )   (178 )   (5 )
Amortization of other intangible assets   18     18     18     12         55      
Total operating expense   $ 12,129     $ 11,955     $ 11,730     $ 10,120     $ 8,056     $ 35,813     $ 23,653  
Net interest income   $ 14,610     $ 14,188     $ 14,930     $ 13,595     $ 10,935     $ 43,728     $ 32,535  
Total non-interest income   4,102     4,126     3,848     2,965     2,459     12,076     7,138  
Total operating revenue   $ 18,712     $ 18,314     $ 18,778     $ 16,560     $ 13,394     $ 55,804     $ 39,673  
Efficiency ratio   64.82 %   65.28 %   62.47 %   61.11 %   60.15 %   64.18 %   59.62 %

CONTACT: 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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