FOBB First Oak Brook Bancshares (MM)

FIRST OAK BROOK BANCSHARES, INC., (NASDAQ:FOBB): 2006 First Quarter Earnings (Unaudited) FIRST OAK BROOK BANCSHARES, INC., (NASDAQ:FOBB) announced net income for the first quarter of 2006 of $3.422 million, down from $4.28 million for the first quarter of 2005. Diluted earnings per share were $0.34 for the first quarter of 2006 compared to $0.43 for the first quarter of 2005, down 21%. Earnings for the first quarter of 2006 included an income adjustment totaling $1,034,000 ($672,000 after tax) related to the conversion of merchant credit card processing fees ($768,000) and trust fees ($266,000) from the cash basis to the accrual basis of accounting. Both of these items had historically been recorded on a one-month lag, and as a result of the income adjustment four months of income for these items is included in the first quarter of 2006 as compared to three months in the first quarter of 2005. Excluding this income adjustment, diluted earnings per share (EPS) were $.28 per share for the first quarter of 2006. Net interest income was $11.464 million for the first quarter of 2006 compared to $12.815 million for the first quarter of 2005. The decrease in net interest income resulted from a 53 basis point decrease in the net interest margin to 2.17%, partially offset by an 11% increase in average earning assets. The growth in average earning assets included an increase in average loans of $245.2 million partially offset by a decrease in average investments of $55.8 million. The decline in the margin was primarily the consequence of interest rates rising faster on deposits than on loans and investments. The Federal Reserve's monetary policy where the Fed has been gradually increasing short-term interest rates, the flattening of the "yield curve" where shorter-term interest rates have caught up with longer-term interest rates, and stiff competition among banks in the highly competitive Chicago market were major factors driving this margin compression. The Company recorded a provision for loan losses of $180,000 in the first quarter of 2006. No provision was recorded in the first quarter of 2005. Other income, excluding securities gains and losses, increased 31% primarily as a result of the following: -- Merchant credit card processing fees - up $1,258,000, which includes the income adjustment of $768,000. Without the income adjustment, merchant fees would have increased $490,000, or 30%. The increase is primarily due to increased volume and new customer growth. Merchant volume rose 24% to $99.3 million at March 31, 2006 from $80.2 million at March 31, 2005. Merchant outlets totaled 649 at March 31, 2006 as compared to 595 at March 31, 2005. (Related merchant credit card interchange expense was up $359,000, or 26%, as noted below.) -- Investment management and trust fees - up $370,000, which includes the income adjustment of $266,000. Without the income adjustment, investment management and trust fees would have increased $104,000, or 14%. The increase is due to increases in discretionary assets under management which rose to $874.7 million, up from $760.4 million at March 31, 2005. Total trust assets under administration rose to $1.111 billion, up from $951.5 million at March 31, 2005. -- Gain on mortgages sold - up $60,000, primarily due to increased mortgage originations arising from the "Guaranteed Best Rate" program. Mortgages originated, including mortgages sold and mortgages held in the portfolio, rose 12% to $20.8 million at March 31, 2006 from $18.6 million at March 31, 2005. At March 31, 2006 the pipeline was greater than $14 million. -- Income from sale of covered call options - down $182,000, or 73%, to $66,000 in 2006 compared to $248,000 in 2005. -- Treasury management fees - down $206,000, primarily due to higher earnings credit rates (ECRs) being paid on commercial checking account balances. Treasury management clients retain the option to pay for Bank services in cash fees or by maintaining deposits in their checking accounts, or a combination of both. As rates rise, so do the ECRs we offer clients on their checking balances, and the less clients have to make up in cash fees. Total treasury management fees are up $48,000 for the comparable period. Other expenses rose 9% for 2006 primarily as a result of the following: -- Merchant credit card interchange expense - up $359,000, or 26%, primarily due to increased volume. -- Salaries and employee benefits - up $231,000, primarily due to higher compensation costs and an increase in average full-time equivalents (FTE). -- Occupancy and equipment - up $252,000, primarily due to branch expansion. The Bank opened four branches in 2005 (one in March and three in October), bringing its total to 21. Chief Executive Officer's Comments Richard M. Rieser, Jr., Company CEO said, "As anticipated, earnings for the first quarter of 2006 are down from 2005 due to the margin pressure that is expected to continue through most of 2006. "As published in our recent Annual Report, we are less than satisfied with our loan to deposit ratio which lags peers and our loan mix which is underweighted in commercial loans. Our plan is to improve these metrics. Therefore, we are heartened by the first quarter trend - with our loans up $66 million over year-end, an annualized rate of 20%. We are especially pleased that most of this loan growth was in the commercial segments. Our loan to deposit ratio improved from 70% to 72%. Looking forward, we expect to continue to shrink our investment portfolio and use cash flows from investments, deposits and borrowings to fund our strong loan pipeline. "Also, in the first quarter of 2006 we continued to build our fee income stream. Investment management and trust fees (excluding income adjustment) climbed 14% to $838,000. Merchant credit card fees (excluding income adjustment) rose 30% to $2,141,000. And gains on mortgages sold increased 68% to $148,000. "Our two new branches on the affluent North Shore in Glencoe and Northbrook -- branded Chicago Private Bank (CPB) -- have been so well-received (combined deposits of $86.7 million after six months) we've decided to expand the brand to our Glenview office on the North Shore and to our Chicago office at Dearborn and Huron Streets during the second quarter of 2006. All three of our North Shore offices will operate as full-service Chicago Private Banks - with concierge services and other Chicago Private Bank amenities. The decision to rebrand our Huron office as Chicago Private Bank resulted from the successful introduction of a senior private banker at that location in the first quarter, coupled with the consonance of using the 'Chicago Private Bank' name in downtown Chicago." Assets and Equity at March 31, 2006 (Unaudited) Total assets were a record $2.326 billion at March 31, 2006, up 4% from $2.229 billion at December 31, 2005 and up 13% from $2.058 billion at March 31, 2005. Shareholders' equity was $132.5 million at March 31, 2006 compared to $134.6 million at December 31, 2005 and $128.0 million at March 31, 2005. Book value per share stood at $13.43 at March 31, 2006. Equity includes an accumulated other comprehensive loss of $11.079 million at March 31, 2006 related to the Company's investment portfolio compared to $7.607 million of other comprehensive loss at December 31, 2005. Other comprehensive income or loss rises or falls with increases or decreases in the market value of that portion of the investment portfolio which is classified as available-for-sale. Oak Brook Bank's capital ratios met the "well capitalized" criteria of the FDIC. "Well capitalized" status reduces regulatory burdens and lessens FDIC insurance assessments. Asset Quality (Unaudited) Net charge-offs at March 31, 2006 totaled $144,000 compared to net recoveries of $3,000 at March 31, 2005. In 2006, charge-offs of $259,000 and recoveries of $115,000 relate primarily to the Company's indirect vehicle portfolio. In 2005, charge-offs of $123,000 related primarily to the Company's indirect vehicle portfolio. Recoveries totaled $126,000, of which $80,000 related to the Company's indirect vehicle portfolio and $32,000 was restitution from the 60 W. Erie loan fraud. As of March 31, 2006, the Company's allowance for loan losses stood at $8.85 million, or .64% of loans outstanding, compared to $8.81 million, or .67% of loans outstanding, at December 31, 2005. At March 31, 2006, nonperforming loans (including nonaccrual loans of $147,000 and loans past due greater than 90 days of $177,000) were $324,000, compared to $797,000 at December 31, 2005. At March 31, 2006, nonperforming assets totaled $529,000, down from $900,000 at December 31, 2005. Nonperforming assets include nonperforming loans of $324,000 and repossessed vehicles held for sale of $205,000. There was no balance in OREO at March 31, 2006 due to the completed sales of all 24 units and 53 parking spaces at the 60 W. Erie condominium project. The Company is maintaining a warranty reserve to pay for any known or anticipated obligations. The Bank remains the plaintiff in a number of civil lawsuits brought against various individuals and entities which arose as a result of the fraud perpetrated by original developers of this property. The amount and timing of any recoveries from the government mandated restitution or the civil lawsuits cannot be ascertained at this time. Expanding Branch Network (Unaudited) Oak Brook Bank currently operates 21 banking offices, 17 in the western suburbs of Chicago, three 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 the planned opening of two additional offices in Homer Glen in the southwest suburbs (currently under construction and expected to open in mid 2006) and Oak Lawn (expected to open in late 2006)in the south suburbs of Chicago. The Bank continues to evaluate branch expansion opportunities in the greater Chicago area. Although the opening of new offices increases operating expenses until breakeven is reached, management believes judicious branch expansion is a key to the Company's longer-term profitable growth prospects. 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. Seventeen firms make a market in the Company's Common stock. The following seven firms provide research coverage: Howe Barnes Investments, Inc.; Sandler, O'Neill & Partners; Stifel Nicolaus & Co.; Keefe, Bruyette & Woods, Inc.; FTN Financial Securities Corp.; A.G. Edwards; 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; 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) March 31, December 31, March 31, 2006 2005 2005 ------------------------------------ (Dollars in thousands) Assets Cash and due from banks $35,403 $37,445 $29,196 Fed funds sold and interest- bearing deposits with other banks 42,472 3,316 12,065 Investment securities: Held-to-maturity, at amortized cost 34,991 33,118 35,783 Available-for-sale, at fair value 722,386 738,277 778,134 Trading, at fair value 893 924 902 Non-marketable securities - FHLB stock 20,378 20,378 19,676 ----------- ---------- ----------- Total investment securities 778,648 792,697 834,495 Loans: Commercial 119,160 130,772 118,584 Syndicated 87,210 63,272 47,108 Construction 138,965 122,689 89,320 Commercial mortgage 307,478 279,018 240,081 Residential mortgage 134,860 130,819 115,141 Home equity 162,747 158,279 151,075 Indirect auto 334,926 333,863 278,409 Indirect Harley Davidson 74,014 71,341 55,147 Other consumer 18,871 22,211 7,574 ----------- ---------- ----------- Total loans, net of unearned income 1,378,231 1,312,264 1,102,439 Allowance for loan losses (8,848) (8,812) (8,549) ----------- ---------- ----------- Net loans 1,369,383 1,303,452 1,093,890 Other real estate owned, net of valuation reserve - 15 5,130 Premises and equipment, net of accumulated depreciation 41,207 40,684 35,203 Bank owned life insurance 26,100 25,853 25,102 Other assets 33,032 25,830 23,071 ----------- --------- ---------- Total assets $2,326,245 $2,229,292 $2,058,152 =========== ========== =========== FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (Unaudited) March 31, December 31, March 31, 2006 2005 2005 ------------------------------------ (Dollars in thousands) Liabilities Noninterest-bearing demand deposits $263,822 $278,667 $267,247 Interest-bearing deposits: Savings deposits and NOW accounts 278,272 258,683 273,019 Money market accounts 240,786 267,060 139,742 Time deposits: Under $100,000 494,721 493,443 399,463 $100,000 and over 628,491 585,829 651,706 ----------- ---------- ----------- Total interest-bearing deposits 1,642,270 1,605,015 1,463,930 ----------- ---------- ----------- Total deposits 1,906,092 1,883,682 1,731,177 Fed funds purchased and securities sold under agreements to repurchase 59,993 31,531 26,821 Treasury, tax and loan demand notes 321 6,472 1,205 FHLB of Chicago borrowings 183,880 133,888 134,910 Junior subordinated notes issued to capital trusts 23,713 23,713 23,713 Other liabilities 19,762 15,419 12,362 ----------- ---------- ----------- Total liabilities 2,193,761 2,094,705 1,930,188 Shareholders' equity: Preferred stock - - - Common stock 21,850 21,850 21,850 Surplus 9,263 9,021 7,844 Accumulated other comprehensive loss (11,709) (7,607) (6,061) Retained earnings 126,102 124,455 117,397 Less: cost of shares in treasury (13,022) (13,132) (13,066) ----------- ---------- ----------- Total shareholders' equity 132,484 134,587 127,964 ----------- ---------- ----------- Total liabilities and shareholders' equity $2,326,245 $2,229,292 $2,058,152 =========== ========== =========== FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three months ended March 31, % (In thousands except per share 2006 2005 Change data) ------------------------------------ Interest and dividend income: Loans $19,459 $13,862 40 Investment securities: U.S. Treasuries and U.S. Government agencies 7,617 7,623 - State and municipal obligations 418 425 (2) Corporate and other securities 682 838 (19) Fed funds sold and interest- bearing deposits with other banks 610 126 384 ----------- ---------- Total interest and dividend income 28,786 22,874 26 Interest expense: Savings deposits and NOW accounts 1,205 855 41 Money market accounts 2,182 641 240 Time deposits 10,725 6,565 63 Fed funds purchased and securities sold under agreements to repurchase 275 195 41 Treasury, tax and loan demand notes 37 11 236 FHLB of Chicago borrowings 2,351 1,366 72 Junior subordinated notes issued to capital trusts 547 426 28 ----------- ---------- Total interest expense 17,322 10,059 72 ----------- ---------- Net interest income 11,464 12,815 (11) Provision for loan losses 180 - (a) ----------- ---------- Net interest income after provision for loan losses 11,284 12,815 (12) FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three months ended March 31, % (In thousands except per share 2006 2005 Change data) ------------------------------------ Other income: Service charges on deposit accounts: Treasury management 751 957 (22) Retail and small business 313 265 18 Investment management and trust fees 1,104 734 50 Merchant credit card processing fees 2,909 1,651 76 Gains on mortgages sold, net 148 88 68 Increase in cash surrender value of bank owned life insurance 247 244 1 Income from sale of covered call options 66 248 (73) Securities dealer income 79 35 126 Other operating income 386 353 9 Net investment securities gains (a) (losses) (71) 163 ----------- ---------- Total other income 5,932 4,738 25 Other expenses: Salaries and employee benefits 6,728 6,497 4 Occupancy 1,070 876 22 Equipment 574 516 11 Data processing 538 489 10 Professional fees 326 306 7 Postage, stationery and supplies 288 241 20 Advertising and business development 565 511 11 Merchant credit card interchange 1,721 1,362 26 Other operating expense 526 520 1 ----------- ---------- Total other expense 12,336 11,318 9 ----------- ---------- Income before income taxes 4,880 6,235 (22) Income tax expense 1,458 1,955 (25) ----------- ---------- Net income $3,422 $4,280 (20) =========== ========== Diluted earnings per share $0.34 $0.43 (21) =========== ========== (a) Percentage change information not meaningful. FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARIES SELECTED CONSOLIDATED FINANCIAL DATA (UNAUDITED) Three months ended March 31, % (In thousands except per share 2006 2005 Change data) ------------------------------------ AVERAGE BALANCES: Loans, net of unearned income $1,326,341 $1,081,121 23 Investment securities 788,609 844,395 (7) Earning assets 2,168,306 1,946,964 11 Total assets 2,286,611 2,062,705 11 Demand deposits 273,190 271,126 1 Total deposits 1,858,593 1,699,831 9 Interest bearing liabilities 1,865,184 1,643,990 13 Shareholders' equity 134,728 133,066 1 COMMON STOCK DATA: Earnings per share: Basic 0.35 0.43 (19) Diluted 0.34 0.43 (21) Weighted average shares outstanding: Basic 9,901,477 9,840,088 1 Diluted 10,008,458 10,006,833 - Cash dividends paid per share $0.18 $0.16 13 Market price at period end $26.75 $29.29 (9) Tangible book value per share $13.43 $12.85 5 Price to book ratio 1.99x 2.28x (13) Price to earnings ratio (1) 16.93x 15.75x 7 Period end shares outstanding 9,866,586 9,768,374 1 FINANCIAL RATIOS Return on average assets (2) 0.61% 0.84% (27) Return on average shareholders' equity (2) 10.30% 13.04% (21) Overhead ratio (2) 1.20% 1.37% (12) Efficiency ratio (2) 70.91% 64.48% 10 Net interest margin on average earning assets (2, 3) 2.17% 2.70% (20) Net interest spread (2, 3) 1.64% 2.31% (29) Dividend payout ratio (2) 51.86% 41.57% 25 (1) Calculated using the end of period market price divided by the last twelve months diluted earnings of $1.58 per share in 2006 and $1.86 per share in 2005. (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 2006 and 2005. Tax equivalent interest income for the three months ended March 31, 2006 and 2005 includes a tax equivalent adjustment of $138 and $134, respectively. FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARIES SELECTED CONSOLIDATED FINANCIAL DATA (UNAUDITED) March 31, December 31, March 31, (Dollars in thousands) 2006 2005 2005 ------------------------------------ CAPITAL RATIOS Company Consolidated $167,193 $165,180 $156,692 Tier 1 capital ratio 10.01% 10.23% 11.43% $176,044 $173,992 $165,241 Total risk-based capital ratio 10.54% 10.77% 12.05% $167,193 $165,180 $156,692 Capital leverage ratio 7.23% 7.36% 7.55% Oak Brook Bank (minimum for "well capitalized"): $165,050 $152,688 $144,750 Tier 1 capital ratio (6%) 9.91% 9.51% 10.63% $173,901 $161,500 $153,299 Total risk-based capital ratio (10%) 10.44% 10.06% 11.26% $165,050 $152,688 $144,750 Capital leverage ratio (5%) 7.17% 6.85% 7.01% TRUST ASSETS Discretionary assets under management $874,698 $832,816 $760,390 Total assets under administration 1,111,127 1,057,098 951,534 ASSET QUALITY RATIOS Nonperforming loans $324 $797 $126 Nonperforming assets (1) 529 900 5,328 Nonperforming loans to total loans 0.02% 0.06% 0.01% Nonperforming assets to total assets 0.02% 0.04% 0.26% Net charge-offs to average loans (annualized) 0.04% 0.01% 0.00% Allowance for loan losses to total loans 0.64% 0.67% 0.78% Allowance for loan losses to 27.31x 11.06x 67.85x nonperforming loans ROLLFORWARD OF ALLOWANCE FOR LOAN LOSSES Balance at January 1 $8,812 $8,546 Charge-offs during the period: Commercial loans - (1) Indirect vehicle loans (257) (118) Consumer loans (2) (4) ----------- ----------- Total charge-offs (259) (123) ----------- ----------- Recoveries during the period: Construction, land acquisition and development loans - 32 Indirect vehicle loans 114 80 Consumer loans 1 14 ----------- ----------- Total recoveries 115 126 ----------- ----------- Net (charge-offs) recoveries during the period (144) 3 Provision for loan losses 180 - ----------- ----------- Allowance for loan losses at March 31 $8,848 $8,549 =========== =========== (1) Includes nonperforming loans, OREO and repossessed vehicles. FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED QUARTERLY STATEMENT OF INCOME (UNAUDITED) 2006 2005 ------- ----------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter ------- ------- ------- ------- ------- (In thousands except per share data) Interest income $28,786 $28,233 $26,266 $24,681 $22,874 Interest expense 17,322 15,431 13,548 11,658 10,059 ------- ------ ------ ------ ------ Net interest income 11,464 12,802 12,718 13,023 12,815 Provision for loan losses 180 180 180 - - Other income 5,932 4,891 5,349 5,226 4,738 Other expense 12,336 12,026 12,071 11,735 11,318 ------- ------ ------ ------ ------ Income before income taxes 4,880 5,487 5,816 6,514 6,235 Income tax expense 1,458 1,653 1,752 2,059 1,955 ------- ------- ------- ------- ------- Net income $3,422 $3,834 $4,064 $4,455 $4,280 ======= ======= ======= ======= ======= Basic earnings per share $0.35 $0.39 $0.41 $0.45 $0.43 ======= ======== ======== ======== ======= Diluted earnings per share $0.34 $0.38 $0.41 $0.45 $0.43 ======= ======= ======= ======= ====== ROA (1) 0.61% 0.69% 0.74% 0.84% 0.84% ROE (1) 10.30% 11.45% 11.86% 13.54% 13.04% Net interest margin (1) 2.17% 2.44% 2.48% 2.62% 2.70% (1) Annualized ratio *T