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| FBIZ > SEC Filings for FBIZ > Form 10-Q on 30-Jul-2009 | All Recent SEC Filings |
30-Jul-2009
Quarterly Report
• Net income for the three months ended June 30, 2009 was $260,000 compared to net income of $1.1 million for the three months ended June 30, 2008. Net income for the six months ended June 30, 2009 was $66,000 compared to net income of $1.8 million for the six months ended June 30, 2008.
• Net interest margin decreased to 2.72% for the three months ended June 30, 2009 from 2.85% for the three months ended June 30, 2008. Net interest margin decreased to 2.69% for the six months ended June 30, 2009 compared to 2.77% for the six months ended June 30, 2008.
• Top line revenue increased 8.5% to $16.4 million for the six months ended June 30, 2009 compared to $15.1 million for the comparable period of the prior year.
• Loan and lease loss provision was $1.6 million for the three months ended June 30, 2009 compared to $743,000 for same time period in the prior year. Loan and lease loss provision was $3.8 million for the six months ended June 30, 2009 compared to $1.3 million for the six months ended June 30, 2008. Allowance for loan and lease loss as a percentage of gross loans and leases was 1.48% at June 30, 2009 compared to 1.39% at December 31, 2008.
• Diluted earnings per share for the three months ended June 30, 2009 were $0.10 compared to $0.42 for the three months ended June 30, 2008. Diluted earnings per share were $0.03 and $0.73 for the six months ended June 30, 2009 and 2008, respectively.
• Annualized return on average equity and return on average assets were 1.91% and 0.10%, respectively for the three month period ended June 30, 2009, compared to 8.31% and 0.44%, respectively, for the same time period in 2008. Return on average equity and return on average assets were 0.24% and 0.01%, respectively, for the six months ended June 30, 2009 compared to 7.27% and 0.39%, respectively, for the six months ended June 30, 2008.
• In March 2009, we elected not to participate in the U.S. Troubled Asset Relief Program Capital Purchase Program.
• In the second quarter of 2009 we recorded a special FDIC assessment equivalent to 5 basis points of total assets less Tier 1 Capital of our subsidiary banks, or approximately $481,000.
Results of Operations
Top Line Revenue
Top line revenue is comprised of net interest income and non-interest income.
This measurement is also commonly referred to as operating revenue. Top line
revenue grew 8.5% for the six months ended June 30, 2009 over the same period in
the prior year. The components of top line revenue were as follows:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2009 2008 Change 2009 2008 Change
(Dollars In Thousands)
Net interest income $ 6,845 $ 6,652 2.9 % $ 13,333 $ 12,714 4.9 %
Non-interest income 1,455 1,267 14.8 3,017 2,359 27.9
Total top line revenue $ 8,300 $ 7,919 4.8 $ 16,350 $ 15,073 8.5
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Adjusted Net Income
Adjusted net income is comprised of our net income as presented under generally
accepted accounting principles (GAAP) adjusted for the after tax effects of the
provision for loan and lease losses and actual net charge-offs incurred during
the year. Historically, we have experienced significant organic growth in our
loan and lease portfolio. As a result of this organic growth and the need for an
additional provision for loan and lease losses required to support the increased
inherent risk associated with a growing portfolio, we adjust our GAAP net income
to add back the after tax effects of the provision for loan and lease losses and
to reduce GAAP net income by the related after tax net charge-off activities to
allow our management to better analyze the growth of our earnings, including a
comparison to our benchmark peers. Institutions with different loan and lease
growth rates may not have comparable provisions for loan and lease loss amounts
and net charge-off activity. Due to increased loan charge-off activity and
overall increased costs of credit including collateral liquidation costs in the
first six months of 2009, our adjusted net income has declined by 75.5% for the
three months ended June 30, 2009 compared to the comparable period of the
prior year. In our judgment, presenting net income excluding the after tax
effects of the provision for loan and lease losses and actual net charge-offs
allows investors to trend, analyze and benchmark our results of operations in a
more meaningful manner. Adjusted net income is a non-GAAP financial measure that
does not represent and should not be considered as an alternative to net income
derived in accordance with GAAP.
A reconciliation of net income to adjusted net income is as follows:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2009 2008 Change 2009 2008 Change
(Dollars In Thousands)
Net income, presented
under US GAAP $ 260 $ 1,068 (75.7 )% $ 66 $ 1,837 (96.4 )%
Add back:
Provision for loan
and lease losses,
after tax 1,001 452 121.5 2,337 788 196.6
Less:
Net charge-offs,
after tax 1,150 127 805.5 1,824 260 601.5
Adjusted net income $ 111 $ 1,393 (92.0 ) $ 579 $ 2,365 (75.5 )
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Return on Equity
Return on equity for the three months ended June 30, 2009 was 1.91%, compared to
8.31% for the three months ended June 30, 2008. Return on equity for the six
months ended June 30, 2009 was 0.24% compared to 7.27% for the six months ended
June 30, 2008. The decrease in return on equity from the comparable periods of
the prior year is primarily attributable to the decrease in net income which was
caused by increased costs of credit, including provision for loan and lease
losses and collateral liquidation costs, and increased FDIC insurance including
the special assessment accrued during the second quarter of 2009 among other
factors discussed in this Quarterly Report on Form 10-Q. We view return on
equity to be an important measurement to monitor profitability and we are
continuing to focus on improving our return on equity throughout 2009 by
enhancing the overall profitability of our client relationships, controlling our
expenses and minimizing our costs of credit.
Net Interest Income. Net interest income depends on the amounts of and yields on
interest-earning assets as compared to the amounts of and rates on
interest-bearing liabilities. Net interest income is sensitive to changes in
market rates of interest and the asset/liability management procedures used by
management in responding to such changes.
The table below provides information with respect to (1) the effect on interest income attributable to changes in rate (changes in rate multiplied by prior volume), (2) the effect on interest income attributable to changes in volume (changes in volume multiplied by prior rate) and (3) the changes in rate/volume (changes in rate multiplied by changes in volume) for the three months and six months ended June 30, 2009, compared to the same periods of 2008.
Three Months Six Months
Rate/ Rate/
Rate Volume Volume Net Rate Volume Volume Net
(In Thousands)
Interest-Earning Assets
Commercial real estate and
other mortgage loans $ (1,035 ) $ 701 $ (84 ) $ (418 ) $ (2,665 ) $ 1,417 $ (215 ) $ (1,463 )
Commercial loans (79 ) (247 ) 5 (321 ) (660 ) (66 ) 5 (721 )
Direct financing leases (12 ) 36 (1 ) 23 (18 ) 64 (1 ) 45
Consumer loans (46 ) (19 ) 2 (63 ) (67 ) (13 ) 1 (79 )
Total loans and leases
receivable (1,172 ) 471 (78 ) (779 ) (3,410 ) 1,402 (210 ) (2,218 )
Mortgage-related securities (45 ) 135 (6 ) 84 (51 ) 273 (6 ) 216
Investment securities - (1 ) - (1 ) - (10 ) - (10 )
Federal Home Loan Bank Stock - - - - - - - -
Short-term investments (15 ) 140 (124 ) 1 (53 ) 227 (205 ) (31 )
Total net change in income
on interest-earning assets (1,232 ) 745 (208 ) (695 ) (3,514 ) 1,892 (421 ) (2,043 )
Interest-Bearing Liabilities
NOW accounts (177 ) 55 (39 ) (161 ) (541 ) (2 ) 2 (541 )
Money market (62 ) 252 (28 ) 162 (657 ) 446 (182 ) (393 )
Certificates - regular (150 ) 355 (88 ) 117 (425 ) 824 (251 ) 148
Certificates - large (745 ) (460 ) 59 (1,146 ) (1,695 ) (128 ) 19 (1,804 )
Total deposits (1,134 ) 202 (96 ) (1,028 ) (3,318 ) 1,140 (412 ) (2,590 )
FHLB advances (2 ) (133 ) 1 (134 ) (37 ) (333 ) 16 (354 )
Other borrowings 116 (97 ) (22 ) (3 ) (181 ) (105 ) 16 (270 )
Junior subordinated notes 277 277 (277 ) 277 552 552 (552 ) 552
Total net change in expense
on interest-bearing
liabilities (743 ) 249 (394 ) (888 ) (2,984 ) 1,254 (932 ) (2,662 )
Net change in net interest
income $ (489 ) $ 496 $ 186 $ 193 $ (530 ) $ 638 $ 511 $ 619
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The yield on earning assets was 5.58% for the three months ended June 30, 2009, a decline of 74 basis points from 6.32% for the three months ended June 30, 2008. The decline in the yield on earning assets is attributable to the loan and lease portfolio. Loan yields were primarily impacted by the declining interest rate environment and the repricing of adjustable rate loans mitigated by the existence of interest rate floors within the terms of the contracts. The existence of the interest rate floors and fixed rate loans provide opportunities to protect our interest income in a low rate environment. As of June 30, 2009, approximately 52% of our loan and lease portfolio had a fixed interest rate while 25% of our loan and lease portfolio contained interest rate floors. The magnitude of the portfolio being fixed rate in nature or represented by "in-the-money" floors has protected our loan and lease portfolio yield from declines of the same magnitude as the overall interest rate environment. The average prime rate declined 183 basis points to 3.25% for the three months ended June 30, 2009 compared to 5.08% for the same three month period of 2008. In addition we have experienced increased levels of non-accrual loans, resulting in foregone interest of approximately $389,000 for the three months ended June 30, 2009, compared to $132,000 for the three months ended June 30, 2008. This equates to approximately a 12 basis point reduction in the overall loan and lease portfolio yield. We also recognize as part of interest yield prepayment fees for loans that are paid in full prior to their stated maturity. For the three months ended June 30, 2009, we recognized approximately $228,000 of prepayment fees compared to $16,000 for the three months ended June 30, 2008 resulting in an increase of the overall yield of the loan and lease portfolio of approximately 10 basis points.
The rate on interest-bearing liabilities was 3.09% for the three months ended
June 30, 2009, a decrease of 68 basis points from 3.77% for the comparable
period of the prior year. Rates on interest-bearing deposits were 2.87% for the
three months ended June 30, 2009, a decrease of 83 basis points from 3.70% for
the comparable period of the prior year. The decrease is primarily due to the
overall declining rate environment partially offset by influences of competitive
pricing necessary to retain balances. Rates on other borrowings for the three
months ended June 30, 2009 are indexed to 1 Month LIBOR plus an interest spread.
A portion of these borrowings are subject to an interest rate of floor of 5.5%,
which was active for substantially the entire period. The outstanding average
balance of other borrowings for the three month period ended June 30, 2009
includes our subordinated notes payable and senior line of credit. The
outstanding average balance of other borrowings also included average balances
for federal funds purchased outstanding during the three months ended June 30,
2008. The rates on these funds are substantially lower than those associated
with our subordinated notes payable. The increase in the weighted average rate
on other borrowings is due to the repayment of the lower cost federal funds
purchased and the impact of the interest rate floors on our subordinated debt.
Net interest margin decreased to 2.72% for the three months ended June 30, 2009
from 2.85% for the three months ended June 30, 2008. As interest rates declined,
the contribution of net free funds also declined. Net free funds are
non-interest bearing liabilities plus stockholders' equity less non-interest
earning assets. Our net free funds are principally non-interest bearing demand
deposit accounts and stockholders' equity. The margin compression was also
caused by increased foregone interest on non-accrual loans and leases as well as
additional interest expense associated with our junior subordinated debt at a
fixed cost substantially greater than rates on borrowings outstanding in the
prior year. We completed our trust preferred offering in September of 2008 which
resulted in the addition of $10.3 million of junior subordinated notes on our
balance sheet. We continue to manage the composition and duration of
interest-bearing liabilities to limit our exposure to changing interest rates.
We also continue to implement interest rate floors on variable rate loans to
limit our exposure to further declines in interest rates.
Average earning assets increased 7.8% to $1.0 billion for the three months ended
June 30, 2009 from $932.4 million for the three months ended June 30, 2008, with
the growth occurring primarily in our commercial real estate loan portfolios and
our short-term investments. As we continue to build our on-balance sheet
liquidity, short-term investments primarily include balances on deposit with the
Federal Reserve Bank. We experienced a strong level of growth in the loan and
lease portfolio during the second quarter of 2008, but experienced limited
growth in the loan and lease portfolio in the second quarter of 2009 as we
continued to compete with other lenders for fewer high quality loan
opportunities. The average balance of our commercial and industrial loan
portfolio decreased $13.4 million, or 5.9%, due to many clients reducing their
balance sheets and outstanding debt obligations due to the current economic
environment.
Average interest bearing liabilities increased 8.5% to $929.2 million for the
three months ended June 30, 2009 from $856.2 million for the comparable period
of the prior year, with the growth occurring primarily in our money market
deposit accounts.
The yield on earning assets was 5.62% for the six months ended June 30, 2009, a
decline of 88 basis points from 6.50% for the six months ended June 30, 2008.
The decline in the yield on earning assets is attributable to the loan and lease
portfolio. Similar to the discussion of the fluctuations in the three months
ended June 30, 2009 and 2008 above, loan yields have been primarily impacted by
the declining interest rate environment and the repricing of adjustable rate
loans mitigated by the existence of interest rate floors within the terms of the
contracts. Foregone interest was approximately $731,000 for the six months ended
June 30, 2009 compared to $299,000 for the six months ended June 30, 2008
resulting in a reduction in the loan and lease portfolio yield of approximately
10 basis points. The remaining decline in the yield on earning assets is
directly related to the changing interest rate environment.
The rate on interest-bearing liabilities was 3.17% for the six months ended
June 30, 2009, a decrease of 89 basis points from 4.06% for the comparable
period of the prior year. Rates on interest-bearing deposits were 2.99% for the
six months ended June 30, 2009, a decrease of 99 basis points from 3.98% for the
comparable period of the prior year primarily due to the overall declining rate
environment partially offset by influences of competitive pricing necessary to
retain balances.
The net interest margin decreased to 2.69% for the six months ended June 30,
2009 from 2.77% for the six months ended June 30, 2008. Margin compression is
primarily due to the decline in net free funds of approximately nine basis
points and increased foregone interest due to elevated non-accrual loans.
Average earning assets increased 7.8% to $991.2 million for the six months ended
June 30, 2009 from $919.2 million for the six months ended June 30, 2008, with
the growth occurring primarily in our commercial real estate loan portfolio and
our short-term investments as we continue to build our on-balance sheet
liquidity. We experienced a strong level of growth in the loan and lease
portfolio during the first half of 2008, but have experienced limited growth in
the loan and lease portfolio in the first half of 2009 as we continue to compete
with other lenders for fewer high quality loan opportunities.
Average interest bearing liabilities increased 8.4% to $916.3 million for the
six months ended June 30, 2009 from $845.3 million for the comparable period of
the prior year, with the growth occurring primarily in our in-market
interest-bearing accounts.
Average Interest-Earning Assets, Average Interest-Bearing Liabilities and Interest Rate Spread.The table below shows our average balances, interest, average rates, net interest margin and the spread between the combined average rates earned on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated. The average balances are derived from average daily balances.
For the Three Months Ended June 30,
2009 2008
Average Average Average Average
balance Interest yield/cost balance Interest yield/cost
(Dollars In Thousands)
Interest-Earning Assets
Commercial real estate
and other mortgage
loans(1) $ 592,222 $ 8,178 5.52 % $ 547,544 $ 8,596 6.28 %
Commercial and
industrial loans(1) 214,798 3,896 7.26 228,148 4,217 7.39
Direct financing
leases(1) 30,731 474 6.17 28,433 451 6.34
Consumer loans 21,921 259 4.73 23,333 322 5.52
Total loans and leases
receivable(1) 859,672 12,807 5.96 827,458 13,586 6.57
Mortgage-related
securities(2) 110,928 1,206 4.35 99,038 1,122 4.53
Investment securities(2) - - - 58 1 5.62
Federal Home Loan Bank
stock 2,367 - - 2,367 - -
Short-term investments 31,994 18 0.23 3,466 17 1.96
Total interest-earning
assets 1,004,961 14,031 5.58 932,387 14,726 6.32
Non-interest-earning
assets 38,784 31,128
Total assets $ 1,043,745 $ 963,515
Interest-Bearing
Liabilities
NOW accounts $ 83,357 87 0.42 $ 68,133 248 1.46
Money market 209,313 723 1.38 144,380 561 1.55
Certificates of deposits 113,004 719 2.55 71,062 602 3.39
Brokered certificates of
deposit 455,656 4,646 4.08 494,937 5,792 4.68
Total deposits 861,330 6,175 2.87 778,512 7,203 3.70
FHLB advances 18,512 219 4.73 29,654 353 4.76
Other borrowings 39,010 515 5.28 48,012 518 4.32
Junior subordinated
notes 10,315 277 10.74 - - -
Total interest-bearing
liabilities 929,167 7,186 3.09 856,178 8,074 3.77
Non-interest-bearing
liabilities 60,419 55,916
Total liabilities 989,586 912,094
Stockholders' equity 54,159 51,421
Total liabilities and
stockholders' equity $ 1,043,745 $ 963,515
Net interest
income/interest rate
spread $ 6,845 2.49 % $ 6,652 2.55 %
. . .
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