FOBB First Oak Brook Bancshares (MM)

First Oak Brook Bancshares, Inc., (NASDAQ:FOBB): 2005 Second Quarter Earnings (Unaudited) FIRST OAK BROOK BANCSHARES, INC., (NASDAQ:FOBB) announced net income for the second quarter of 2005 of $4.455 million, down from $4.801 million for the second quarter of 2004. Diluted earnings per share were $.45 in the second quarter of 2005 compared to $.48 in 2004, down 6%. Net interest income was $13.023 million in the second quarter of 2005 compared to $13.265 million in the second quarter of 2004. The decrease in net interest income resulted from a 36 basis point decrease in the net interest margin to 2.62%, partially offset by an 11% increase in average earning assets. Margin compression in the second quarter of 2005 was primarily the result of interest rates rising faster on deposits than on loans and investments and the flattening yield curve. The growth in average earning assets included an increase in average loans of $184.9 million and an increase in average investment securities of $33.6 million. No provision for loan losses was recorded in the second quarter of 2005 due to high asset quality and a low level of charge-offs for the quarter. Other income, excluding securities gains and losses, increased 7% primarily as a result of the following: -- Merchant credit card processing fees - up $570,000, primarily due to new customer growth and increased volume. Merchant outlets totaled 628 at June 30, 2005 as compared to 488 at June 30, 2004. -- Other operating income - up $148,000, due to retail annuity sales and a gain on the sale of repossessed property. -- Investment management and trust fees - up $101,000, primarily from increases in discretionary assets under management which rose to $772.2 million, up from $634.3 million at June 30, 2004. -- Income from sale of covered call options - down $379,000. -- Treasury management fees - down $178,000, primarily due to higher earnings credit rates being paid on demand deposit account balances. Other expenses rose 10% for the second quarter of 2005 primarily as a result of the following: -- Merchant credit card interchange expense - up $501,000, primarily due to increased volume. -- Salaries and employee benefits - up $215,000. -- Advertising and business development - up $138,000, primarily due to expenses associated with individual sales and promotion efforts and the promotion of the new "guaranteed best rate" mortgage products. Six Month Earnings (Unaudited) Net income for the first six months of 2005 was $8.735 million, down from $9.566 million for the first six months of 2004. Diluted earnings per share were $.88 in the first six months of 2005 compared to $.96 in 2004, down 8%. Net interest income was $25.838 million in the first six months of 2005 compared to $26.383 million in the first six months of 2004. The decrease in net interest income resulted from a 37 basis point decrease in the net interest margin to 2.66%, partially offset by a 12% increase in average earning assets. Margin compression in the first six months of 2005 was primarily the result of interest rates rising faster on deposits than on loans and investments and the flattening yield curve. The growth in average earning assets included an increase in average loans of $168.6 million and an increase in average investment securities of $55.3 million. No provision for loan losses was recorded in the first six months of 2005 compared to $500,000 recorded in 2004, due to high asset quality and a low level of charge-offs in 2005. Other income, excluding security gains, increased 6%, primarily as a result of the following: -- Merchant credit card processing fees - up $890,000, primarily due to new merchants and increased volume. -- Investment management and trust fees - up $196,000, primarily from an increase in discretionary assets under management. -- Other operating income - up $176,000 due to retail annuity sales and a gain on the sale of repossessed property. -- Income from sale of covered call options - down $474,000. -- Treasury management fees - down $428,000, primarily due to higher earnings credit rates being paid on demand deposit account balances. Other expenses rose 9% for the first six months of 2005 primarily as a result of the following: -- Merchant credit card interchange expense - up $803,000, primarily due to increased volume. -- Salaries and employee benefits - up $621,000. -- Professional fees - up $170,000, primarily due to a reimbursement of legal fees in 2004 related to a fully recovered problem credit and increased ongoing costs related to compliance with the Sarbanes-Oxley Act. -- Advertising and business development - up $136,000, due primarily to the promotion of the new "guaranteed best rate" mortgage product. Chief Executive Officer & President's Comments Richard M. Rieser, Jr., Company CEO and President said, "Despite current margin pressures, we are pleased with our strong loan growth of over $155 million since year end. In addition, our Investment Management and Trust Department is approaching $1 billion in total assets and our Merchant Credit Card Department had a record quarter. We are also very excited by our branch expansion. Our new Darien branch is already up to $43 million in deposits in just 16 weeks and we are still on target to add to our North Shore presence in Glencoe and Northbrook and open another Dupage County office in Wheaton later this year." Assets and Equity at June 30, 2005 (Unaudited) Total assets were $2.150 billion at June 30, 2005, up 3% from $2.083 billion at December 31, 2004. Shareholders' equity was $136.3 million at June 30, 2005 compared to $133.8 million at December 31, 2004. Book value per share was $13.68, at June 30, 2005. Under the Company's Stock Repurchase Program, the Company repurchased 88,603 shares at an average price of $29.75 during the first six months of 2005. The repurchased stock is held as treasury stock and used for general corporate purposes. The Company's and Oak Brook Bank's capital ratios met the "well capitalized" criteria of the Federal Reserve and FDIC, respectively. "Well-capitalized" status reduces Fed regulatory burdens and helps lessen FDIC insurance assessments. Asset Quality (Unaudited) Net charge-offs for the first six months of 2005 totaled $30,000 compared to $131,000 in the first six months of 2004. In 2005, charge-offs totaled $242,000, which related primarily to the indirect vehicle portfolio. Recoveries totaled $212,000 including $32,000 in restitution from the 60 W. Erie loan fraud. The remaining recoveries relate primarily to the Company's indirect vehicle portfolio. In 2004, charge-offs of $306,000 and recoveries of $175,000 related primarily to the indirect vehicle portfolio. As of June 30, 2005 and December 31, 2004, the Company's allowance for losses stood at $8.5 million. This allowance represented .69% of loans outstanding at June 30, 2005, and .80% of loans outstanding at year end. At June 30, 2005, nonperforming loans (including nonaccrual loans of $103,000 and loans past due greater than 90 days of $58,000) were $161,000, compared to $148,000 at December 31, 2004. At June 30, 2005, nonperforming assets totaled $1.19 million, a substantial decrease from $10.15 million at December 31, 2004. Nonperforming assets include Other Real Estate Owned (OREO) of $936,000, nonperforming loans of $161,000, and repossessed vehicles held for sale of $93,000. OREO totaled $936,000 at June 30, 2005, down from $9.857 million at December 31, 2004. OREO consists of one remaining full-floor unit and six parking spaces from a luxury condominium project in Chicago. The Company recognized a gain of $87,000 on the sale of the Chicago Heights OREO property during the second quarter of 2005. Branch Network (Unaudited) Oak Brook Bank currently operates eighteen banking offices, sixteen in the western suburbs of Chicago, one in the northern suburbs of Chicago, and one at Huron and Dearborn Streets in downtown Chicago, in addition to an Internet branch at www.obb.com. The Bank has announced four additional branches for Glencoe, Northbrook, Wheaton, and Homer Glen. The Bank expects to open the Glencoe, Northbrook, and Wheaton branches in the latter part of 2005, and the Homer Glen branch in 2006. The Bank continues to evaluate branch expansion opportunities in the Chicago area. Shareholder Information (Unaudited) The Company's Common Stock trades on the Nasdaq Stock Market(R) under the symbol FOBB. FOBB remained a member of the Russell 2000(R) Index effective July 1, 2005 for a term of one year. Twenty-one firms make a market in the Company's Common stock. The following six firms provide research coverage: Howe Barnes Investments, Inc.; Sandler, O'Neill & Partners; Stifel Nicolaus & Co.; Keefe, Bruyette & Woods, Inc.; FTN Financial Securities Corp.; and Sidoti & Co. At our Web site www.firstoakbrook.com you will find shareholder information including this press release and electronic mail boxes. You will also have the option of directly linking to additional financial information filed with the SEC. The consolidated balance sheets, income statements, and selected financial data are enclosed. Forward-Looking Statements This release contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and this statement is included for purposes of invoking these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe the Company's future plans, strategies and expectations, can generally be identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain and actual results may differ materially from the results projected in forward-looking statements due to various factors. These risks and uncertainties include, but are not limited to, fluctuations in market rates of interest and loan and deposit pricing; a deterioration of general economic conditions in the Company's market areas; legislative or regulatory changes; adverse developments in our loan or investment portfolios; the assessment of the provision and reserve for loan losses; developments pertaining to the loan fraud and condominium project at 60 W. Erie, Chicago; significant increases in competition or changes in depositor preferences or loan demand, difficulties in identifying attractive branch sites or other expansion opportunities, or unanticipated delays in regulatory approval or construction buildout; difficulties in attracting and retaining qualified personnel; and possible dilutive effect of potential acquisitions or expansion. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update publicly any of these statements in light of future events except as may be required in subsequent periodic reports filed with the Securities and Exchange Commission. -0- *T FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (Unaudited) June 30, December 31, June 30, 2005 2004 2004 ------------------------------------ (Dollars in thousands) Assets Cash and due from banks $35,427 $34,273 $29,313 Fed funds sold and interest-bearing deposits with banks 41,409 51,479 136,095 Investment securities: Held-to-maturity, at amortized cost 37,554 35,469 23,297 Available-for-sale, at fair value 711,027 786,198 765,915 Trading, at fair value 907 - - Non-marketable securities - FHLB stock 19,941 19,410 38,517 ------------------------------------ Total investment securities 769,429 841,077 827,729 Loans: Commercial 130,808 116,653 101,494 Syndicated 64,389 34,958 26,829 Construction 111,675 75,833 59,141 Commercial mortgage 258,145 247,840 241,852 Residential mortgage 125,643 109,097 105,930 Home equity 158,546 151,873 146,296 Indirect auto 303,386 276,398 260,644 Indirect Harley Davidson 65,673 51,560 46,314 Other consumer 8,548 7,443 7,744 ------------ ----------- ----------- Total loans, net of unearned income 1,226,813 1,071,655 996,244 Allowance for loan losses (8,516) (8,546) (8,738) ------------ ----------- ----------- Net loans 1,218,297 1,063,109 987,506 Other real estate owned, net of valuation reserve 936 9,857 12,664 Premises and equipment, net of accumulated depreciation 37,024 34,561 34,188 Bank owned life insurance 25,349 24,858 21,435 Other assets 21,989 23,310 21,057 ------------ ----------- ----------- Total assets $2,149,860 $2,082,524 $2,069,987 ============ =========== =========== FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (Unaudited) June 30, December 31, June 30, 2005 2004 2004 ----------------------------------- (Dollars in thousands) Liabilities Noninterest-bearing demand deposits $279,506 $265,251 $263,682 Interest-bearing deposits: Savings deposits and NOW accounts 258,112 291,028 279,697 Money market accounts 210,446 166,777 138,605 Time deposits: Under $100,000 423,718 376,841 384,810 $100,000 and over 642,940 614,639 644,276 ------------ ----------- ----------- Total interest-bearing deposits 1,535,216 1,449,285 1,447,388 ------------ ----------- ----------- Total deposits 1,814,722 1,714,536 1,711,070 Fed funds purchased and securities sold under agreements to repurchase 24,370 25,285 22,954 Treasury, tax and loan demand notes 5,478 7,792 20,300 FHLB of Chicago borrowings 128,903 161,418 165,500 Junior subordinated notes issued to capital trusts 23,713 23,713 23,713 Other liabilities 16,388 15,993 8,972 ------------ ----------- ----------- Total liabilities 2,013,574 1,948,737 1,952,509 Shareholders' equity: Preferred stock - - - Common stock 21,850 21,850 21,850 Surplus 8,186 7,751 6,349 Accumulated other comprehensive (loss) income (632) 432 (9,098) Retained earnings 120,104 114,897 108,521 Less cost of shares in treasury (13,222) (11,143) (10,144) ------------ ----------- ----------- Total shareholders' equity 136,286 133,787 117,478 ------------ ----------- ----------- Total liabilities and shareholders' equity $2,149,860 $2,082,524 $2,069,987 ============ =========== =========== FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three months ended Six months ended June 30, % June 30, % (In thousands except 2005 2004 Change 2005 2004 Change per share data) ----------------------- ----------------------- Interest and dividend income: Loans $15,713 $12,154 29 $29,575 $23,850 24 Investment securities: U.S. Treasuries and U.S. Government agencies 7,456 6,952 7 15,079 13,938 8 State and municipal obligations 439 492 (11) 864 955 (10) Other securities 822 1,121 (27) 1,660 2,268 (27) Fed funds sold and interest-bearing deposits with banks 251 137 83 377 217 74 -------- -------- -------- -------- Total interest and dividend income 24,681 20,856 18 47,555 41,228 15 Interest expense: Savings deposits and NOW accounts 869 751 16 1,724 1,456 18 Money market accounts 1,047 401 161 1,688 768 120 Time deposits 7,812 4,772 64 14,377 9,219 56 Fed funds purchased and securities sold under agreements to repurchase 223 54 313 418 189 121 Treasury, tax and loan demand notes 63 12 425 74 31 139 FHLB of Chicago borrowings 1,157 1,236 (6) 2,523 2,450 3 Junior subordinated notes issued to capital trusts 487 365 33 913 732 25 -------- -------- -------- -------- Total interest expense 11,658 7,591 54 21,717 14,845 46 -------- -------- -------- -------- Net interest income 13,023 13,265 (2) 25,838 26,383 (2) Provision for loan losses - 250 (a) - 500 (a) -------- -------- -------- -------- Net interest income after provision for loan losses 13,023 13,015 - 25,838 25,883 - FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three months ended Six months ended June 30, % June 30, % (In thousands except 2005 2004 Change 2005 2004 Change per share data) ----------------------- ----------------------- Other income: Service charges on deposit accounts: Treasury management 909 1,087 (16) 1,866 2,294 (19) Retail and small business 317 322 - 582 619 (6) Investment management and trust fees 762 661 15 1,496 1,300 15 Merchant credit card processing fees 2,056 1,486 38 3,707 2,817 32 Gains on mortgages sold, net of fees and costs 187 108 73 275 125 120 Income from bank owned life insurance 247 211 17 491 424 16 Income from sale of covered call options 58 437 (87) 306 780 (61) Securities dealer income 57 74 (23) 92 101 (9) Other operating income 498 350 42 851 675 26 Investment securities gains (losses) 135 (5) (a) 298 162 (a) -------- -------- -------- -------- Total other income 5,226 4,731 10 9,964 9,297 7 Other expenses: Salaries and employee benefits 6,291 6,076 4 12,788 12,167 5 Occupancy 859 799 8 1,735 1,654 5 Equipment 557 509 9 1,073 1,029 4 Data processing 494 456 8 983 894 10 Professional fees 276 258 7 582 412 41 Postage, stationery and supplies 282 268 5 523 505 4 Advertising and business development 706 568 24 1,217 1,081 13 Merchant credit card interchange expense 1,700 1,199 42 3,062 2,259 36 Other operating expense 570 537 6 1,090 1,072 2 -------- -------- -------- -------- Total other expense 11,735 10,670 10 23,053 21,073 9 -------- -------- -------- -------- Income before income taxes 6,514 7,076 (8) 12,749 14,107 (10) Income tax expense 2,059 2,275 (9) 4,014 4,541 (12) -------- -------- -------- -------- Net income $4,455 $4,801 (7) $8,735 $9,566 (9) ======== ======== ======== ======== Diluted earnings per share $0.45 $0.48 (6) $0.88 $0.96 (8) ======== ======== ======== ======== (a) Percentage change information not meaningful. FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARIES SELECTED CONSOLIDATED FINANCIAL DATA (UNAUDITED) Three months ended Six months ended (In thousands June 30, % June 30, % except per 2005 2004 Change 2005 2004 Change share data) --------------------------- --------------------------- AVERAGE BALANCES: Loans, net of unearned income $1,163,565 $978,715 19 $1,122,570 $954,012 18 Investment securities 814,973 781,396 4 829,603 774,329 7 Earning assets 2,014,411 1,812,873 11 1,980,874 1,771,044 12 Total assets 2,125,483 1,932,143 10 2,094,268 1,891,607 11 Demand deposits 277,098 278,240 - 274,129 265,802 3 Total deposits 1,779,878 1,575,413 13 1,740,076 1,522,457 14 Interest bearing liabilities 1,701,787 1,520,007 12 1,673,048 1,489,564 12 Shareholders' equity 131,946 121,749 8 132,503 123,006 8 COMMON STOCK DATA: Earnings per share: Basic 0.45 0.49 (8) 0.89 0.98 (9) Diluted 0.45 0.48 (6) 0.88 0.96 (8) Weighted average shares outstanding: Basic 9,802,540 9,743,842 1 9,821,210 9,729,189 1 Diluted 9,946,913 9,990,636 - 9,976,629 9,989,710 - Cash dividends paid per share $0.18 $0.16 13 $0.34 $0.30 13 Market price at period end $28.22 $30.30 (7) Book value per share $13.68 $11.73 17 Price to book 2.06x 2.58x ratio (20) Price to 15.42x 15.95x earnings ratio (1) (3) Period end shares outstanding 9,794,170 9,754,216 - FINANCIAL RATIOS Return on average assets (2) 0.84% 1.00% (16) 0.84% 1.02% (18) Return on average shareholders' equity (2) 13.54% 15.86% (15) 13.29% 15.64% (15) Overhead ratio (2) 1.30% 1.32% (2) 1.33% 1.34% (1) Efficiency ratio (2) 64.31% 59.29% 8 64.39% 59.06% 9 Net interest margin on average earning assets (2, 3) 2.62% 2.98% (12) 2.66% 3.03% (12) Net interest spread (2, 3) 2.19% 2.65% (17) 2.25% 2.72% (17) Dividend payout ratio (2) 39.26% 32.35% 21 40.39% 32.48% 24 --------- (1) Calculated using the end of period market price divided by the last twelve months diluted earnings of $1.83 per share in 2005 and $1.90 per share in 2004. (2) Annualized ratio. (3) Tax equivalent basis. The net interest margin calculations include the effects of tax equivalent adjustments for tax exempt loans and investment securities using a tax rate of 35% in 2005 and 2004. Tax equivalent interest income for the three months ended June 30, 2005 and 2004 includes a tax equivalent adjustment of $140 and $157, respectively. Tax equivalent interest income for the six months ended June 30, 2005 and 2004 includes a tax equivalent adjustment of $274 and $300, respectively. FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARIES SELECTED CONSOLIDATED FINANCIAL DATA (UNAUDITED) June 30, December 31, June 30, (Dollars in thousands) 2005 2004 2004 ------------------------------------ CAPITAL RATIOS Company Consolidated (minimum for "well capitalized"): Tier 1 capital ratio (6%) $157,792 $156,019 $149,415 10.52% 11.57% 11.80% Total risk-based capital ratio (10%) $166,309 $164,566 $158,153 11.09% 12.20% 12.49% Capital leverage ratio (5%) $157,792 $156,019 $149,415 7.37% 7.47% 7.68% Oak Brook Bank: Tier 1 capital ratio (6%) $147,517 $142,000 $136,300 9.91% 10.61% 10.84% Total risk-based capital ratio (10%) $156,034 $150,547 $145,038 10.48% 11.24% 11.53% Capital leverage ratio (5%) $147,517 $142,000 $136,300 6.93% 6.82% 7.03% TRUST ASSETS Discretionary assets under management $772,153 $751,046 $634,326 Total assets under administration 978,053 944,318 815,542 ASSET QUALITY RATIOS Nonperforming loans $161 $148 $388 Nonperforming assets (1) 1,190 10,150 13,119 Nonperforming loans to total loans 0.01% 0.01% 0.04% Nonperforming assets to total assets 0.06% 0.49% 0.63% Net charge-offs to average loans (annualized) 0.01% 0.03% 0.03% Allowance for loan losses to total loans 0.69% 0.80% 0.88% Allowance for loan losses to 52.90x 57.74x 22.52x nonperforming loans ROLLFORWARD OF ALLOWANCE FOR LOAN LOSSES Balance at January 1 $8,546 $8,369 ------------ ------------ Charge-offs during the period: Commercial loans (1) - Home equity loans - (15) Indirect vehicle loans (237) (282) Consumer loans (4) (9) ------------ ------------ Total charge-offs (242) (306) ------------ ------------ Recoveries during the period: Commercial loans 39 15 Construction, land acquisition and development loans 32 - Indirect vehicle loans 126 152 Consumer loans 15 8 ------------ ------------ Total recoveries 212 175 ------------ ------------ Net charge-offs during the period (30) (131) Provision for loan losses - 500 ------------ ------------ Allowance for loan losses at June 30 $8,516 $8,738 ============ ============ (1) Includes nonperforming loans, OREO and repossessed vehicles. FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED QUARTERLY STATEMENT OF INCOME (UNAUDITED) 2005 2004 ---------------- -------------------------------- Second First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Quarter ------- -------- ------- ------- ------- -------- (In thousands except per share data) Interest income $24,681 $22,874 $22,752 $22,731 $20,856 $20,372 Interest expense 11,658 10,059 9,492 8,963 7,591 7,254 ------- -------- ------- ------- ------- -------- Net interest income 13,023 12,815 13,260 13,768 13,265 13,118 Provision for loan losses - - - - 250 250 Other income 5,226 4,738 4,389 4,846 4,731 4,566 Other expense 11,735 11,318 10,688 11,971 10,670 10,403 ------- -------- ------- ------- ------- -------- Income before income taxes 6,514 6,235 6,961 6,643 7,076 7,031 Income tax expense 2,059 1,955 2,021 2,077 2,275 2,266 ------- -------- ------- ------- ------- -------- Net income $4,455 $4,280 $4,940 $4,566 $4,801 $4,765 ======= ======== ======= ======= ======= ======== Basic earnings per share $0.45 $0.43 $0.50 $0.47 $0.49 $0.49 ======= ======== ======= ======= ======= ======== Diluted earnings per share $0.45 $0.43 $0.49 $0.46 $0.48 $0.48 ======= ======== ======= ======= ======= ======== ROA (1) 0.84% 0.84% 0.94% 0.87% 1.00% 1.04% ROE (1) 13.54% 13.04% 14.88% 14.71% 15.86% 15.42% Net interest margin (1) 2.62% 2.70% 2.72% 2.81% 2.98% 3.08% --------------------- (1) Annualized ratio. *T