First Business Financial Services Inc.: Doubles net income to $3.1 million for second quarter of 2013

Company Delivers Double-Digit Loan Growth and Record Trust and Deposit
Fee Income
Declining Non-Performing Assets Reach Pre-Recession Levels

MADISON, Wis., July 25, 2013 (GLOBE NEWSWIRE) — First Business
Financial Services, Inc. (the “Company”) (Nasdaq:FBIZ), the parent
company of First Business Bank and First Business Bank – Milwaukee,
today reported strong second quarter results reflecting steady and
efficient execution of initiatives to increase the Company’s full
banking relationships with businesses, executives and high net worth
individuals.

Highlights for the quarter and six months ended June 30, 2013 include:

— Net income totaled $3.1 million for the second quarter of 2013,
increasing from the $1.6 million earned in the second quarter of 2012.
— Net income of $6.4 million for the six months ended June 30, 2013 grew
69%, compared to $3.8 million earned in the first six months of 2012.

— Pre-tax adjusted earnings, defined as pre-tax income excluding the
effects of provision for loan and lease losses, other identifiable costs
of credit and other discrete items unrelated to the Company’s primary
business activities, grew 11% to $5.0 million for the second quarter of
2013, compared to $4.4 million earned in the second quarter of 2012.
Pre-tax adjusted earnings of $9.9 million for the first half of 2013
grew 16% from the prior year.

— At 1.02%, second quarter 2013 annualized return on average assets
exceeded 1.0% for the second consecutive quarter and increased 48 basis
points compared to the second quarter of 2012.

— Annualized return on average equity was 12.05% for the quarter ended
June 30, 2013, compared to 9.16% for the same period in 2012.

— Top line revenue, consisting of net interest income and non-interest
income, increased 7% to a record $12.4 million for the quarter ended
June 30, 2013, compared to $11.5 million for the second quarter of 2012.
Top line revenue for the first half of 2013 grew 10% compared to the
first half of 2012.

— The Company’s efficiency ratio of 59.9% marked its fourth consecutive
quarter below 60%.

— Average loans and leases grew for the fifth consecutive quarter to a
record $931.2 million, representing an increase of $29.7 million, or an
annualized 13%, from the first quarter of 2013 and an increase of $88.0
million, or 10%, from the second quarter of 2012.

— Net interest margin was 3.46% for the three months ended June 30, 2013,
compared to 3.49% for the same period of 2012. Net interest margin was
3.50% for the six months ended June 30, 2013, compared to 3.32% for the
same period of 2012.

— Non-performing assets of $11.8 million at June 30, 2013 decreased by
$3.9 million, or 25%, from December 31, 2012, and by $5.6 million, or
32%, from June 30, 2012. Non-performing assets measured 0.93% of total
assets as of June 30, 2013, falling below 1.0% for the first time since
March 31, 2008.

The Company recorded net income of $3.1 million in the second quarter
of 2013, compared to the $1.6 million earned in the second quarter of
2012. Diluted earnings per common share were $0.80 for the second
quarter of 2013 compared to $0.60 for the same period in 2012. The
Company’s net income for the six months ended June 30, 2013 was $6.4
million, or $1.62 per diluted common share, compared to net income of
$3.8 million, or $1.44 per diluted common share, earned in the six
months ended June 30, 2012. Second quarter 2013 and first half 2013
earnings per share reflect the issuance and sale of 1,265,000 shares of
common stock in December 2012. As a result of the issuance and sale,
the weighted-average diluted common shares outstanding during the 2013
periods were approximately 51% higher than in the corresponding periods
of 2012.

“We believe our strong second quarter results validate First Business’
nimble and disciplined approach to growth,” said Corey A. Chambas,
President and Chief Executive Officer. “We continued to build value
across our franchise with sound credit management, an entrepreneurial
approach to business development and a culture of efficiency. Notably,
this quarter produced record loan balances, record top line revenue and
a meaningful reduction in non-performing assets, all of which boosted
bottom line results and demonstrated our ability to consistently drive
enhanced earnings power and increased shareholder value.”

Core Business Results

Net interest income increased $584,000, or 6.1%, to $10.2 million in
the second quarter of 2013, compared to $9.6 million for the second
quarter of 2012. The improvement principally resulted from continued
growth in low-cost funding sources and a decline in the average rate
paid on such sources. Continued success of the Company’s initiative to
attract client deposits drove 9.2% growth in in-market client deposits
– comprised of all transaction accounts, money market accounts, and
non-brokered certificates of deposit – to $691.0 million at June 30,
2013 from $632.7 million at June 30, 2012. The Company’s ratio of
in-market deposits to total deposits measured 60.5% at June 30, 2013,
compared to 61.5% for the same period in 2012. The average cost of
total interest-bearing deposits declined from 1.50% in the second
quarter of 2012 to 1.04% in second quarter 2013.

Given the Company’s low-cost, branchless distribution model, it also
values the flexibility of using alternate sources to efficiently fund
balance sheet growth. These sources include the Company’s historic and
complementary use of low-cost, fixed rate, callable brokered
certificates of deposit to match-fund its fixed rate loan originations.
The Company employs an established and orderly process for securing
brokered deposit funding. In the current low-rate environment the
Company has also elected to periodically and temporarily supplement its
funding sources by utilizing low-cost, short-term advances from the
Federal Home Loan Bank. The Company’s average FHLB borrowing cost was
0.15% in the second quarter of 2013, compared to 5.87% in the second
quarter of 2012, primarily due to the final maturity of a long-term,
comparatively high-rate advance. In addition to growing its low-cost
funding sources, the Company also continued to benefit from the
repayment of $27.1 million of subordinated debt in conjunction with its
December 2012 common stock offering.

Finally, while lower than in the prior year quarter, interest income
benefited from higher earning asset balances, which offset much of the
60 basis point compression in earning asset yields in the sustained
low-rate environment. The Company continued to execute on its strategic
objective to increase commercial and industrial loans, contributing to
a 10.4% increase in average total loans and leases compared to the
second quarter of 2012.

Net interest income for the six months ended June 30, 2013 grew by $1.9
million, or 10.2%, to $20.4 million, compared to $18.5 million for the
first six months of 2012. Drivers of the improvement in year-to-date
net interest income mirror those discussed above for the second quarter
of 2013. The Company’s continued success in attracting in-market client
deposits reduced its reliance on wholesale sources of funding,
including brokered certificates of deposit. As a result, the average
rate paid on interest-bearing deposits decreased by 48 basis points.
Interest expense for the first half of 2013 also benefited from the
repayment of a portion of the Company’s subordinated debt in December
2012. As a result of the prepayment, other borrowing costs declined
$971,000 compared to the prior year period. Lower earning-asset yields
on higher earning asset balances partially offset the improvement in
funding costs.

The Company’s improved funding costs helped to defend its net interest
margin against declining earning asset yields. As a result, net
interest margin declined by a modest three basis points to 3.46% in the
second quarter of 2013, compared to 3.49% in the second quarter of
2012. On a year-to-date basis, net interest margin grew 18 basis
points, from 3.32% for the first six months of 2012 to 3.50% for the
same period of 2013. Net interest margin stability continues to
differentiate the Company from many community and regional bank peers.

Non-interest income increased $270,000, or 14.2%, to $2.2 million for
the second quarter of 2013, compared with the second quarter of 2012.
Improvement over the prior year period reflects successful execution
toward the Company’s objective to grow customer relationships,
including fee-based services such as trust and investment management
and treasury management. Robust expansion of trust and investment
services income, which grew by $215,000, or 28.5%, to $970,000 for the
second quarter of 2013, was driven by a 14.1% increase in trust assets
under management and administration to $852.8 million at June 30, 2013,
compared to $747.2 million at June 30, 2012. The growth in assets under
management and administration was primarily due to improved market
values and the successful generation of new client relationships.
Expansion in deposit service charges and the cash surrender value of
bank-owned life insurance further boosted non-interest income in the
second quarter. A $30,000 year-over-year decline in credit, merchant
and debit card fees partially offset non-interest income growth and
reflected planned run-off following the sale of the credit card
portfolio in the third quarter of 2012.

Similarly, for the six months ended June 30, 2013, non-interest income
grew $373,000, or 9.9%, to $4.1 million, compared to the prior year
period. Consistent with second quarter 2013 drivers, trust and
investment services fee income drove the year-over-year improvement,
expanding by $355,000, or 24.6%, to $1.8 million on higher levels of
assets under management and administration. Increases in deposit
service charges and in the cash surrender value of bank-owned life
insurance further boosted first half 2013 non-interest income, while
lower loan fees and credit, merchant and debit card fees modestly
offset revenue expansion.

Non-interest expense for the second quarter of 2013 was $7.5 million,
an increase of $358,000, or 5.0%, compared to the same quarter in 2012.
Compensation expense grew $281,000, or 6.6%, to $4.5 million,
reflecting the Company’s continued investment in key talent in support
of strategic initiatives as well as annual merit increases. Other
non-interest expense totaling $2.6 million grew $411,000, or 18.5%.
This is largely the result of an adjustment to the carrying value of
the Company’s investment in one of its limited partnerships to reflect
the allocation of certain of the partnership’s returns to the general
partner now that the fund has attained certain preferred rates of
return. A $340,000 decline in FDIC insurance cost was the primary
offset to non-interest expense growth during the quarter. Second
quarter expense growth was appropriately aligned with the Company’s
growth in top line revenue, as evidenced by the efficiency ratio of
59.93% for the second quarter of 2013, which improved from 61.37% in
the second quarter of 2012 and marked the fourth consecutive quarter
below 60%.

Non-interest expense for the first six months of 2013 increased by
$704,000, or 5.0%, to $14.7 million compared to $14.0 million for the
first six months of 2012. Growth primarily reflected increased
compensation costs and higher other non-interest expense, partially
offset by lower FDIC insurance costs. As with the second quarter, new
employees hired over the last year in support of strategic initiatives,
along with annual merit increases, drove the $1.0 million, or 12.2%
increase in compensation expense for the first half of 2013. Other
non-interest expense grew by $745,000, or 17.8%, over the first half of
2012 primarily as a result of the second quarter 2013 adjustment to the
carrying value of the Company’s investment in one of its limited
partnerships as described above. A $722,000 decrease in FDIC insurance
expense was the primary offset to non-interest expense growth during
the period. Expense growth was aligned with revenue growth, resulting
in a 59.55% efficiency ratio for the first six months of 2013, improved
from 61.56% for the same period of the prior year.

The provision for loan and lease losses for the second quarter of 2013
was $54,000, representing a decrease of $26,000, or 32.5%, compared to
the first quarter of 2013 and a decrease of $2.0 million, or 97.4%,
from the second quarter of 2012. The Company recognized $359,000 in net
charge-offs during the second quarter of 2013, resulting in annualized
net charge-offs as a percentage of average loans and leases measuring
0.15% for the quarter. This compares to net recoveries of $27,000 for
the first quarter of 2013 and net charge-offs of $1.7 million for the
second quarter of 2012. For the same periods, annualized net
charge-offs (recoveries) as a percentage of average loans and leases
measured (0.01)% and 0.80%, respectively. Provision for loan and lease
losses totaled $134,000 and $2.5 million for the six months ended June
30, 2013 and 2012, respectively.

Loans Grow for Fifth Consecutive Quarter While Asset Quality Continues
to Improve to Pre-Recession Levels

Net loans and leases reached a record $932.7 million at June 30, 2013,
growing $31.6 million, or 14.0% annualized, from March 31, 2013, and
$85.0 million, or 10.0%, from June 30, 2012. Measured on an average
basis, second quarter 2013 gross loans and leases of $931.2 million
were up $29.7 million, or 13.2% annualized, from the first quarter of
2013, and up $88.0 million, or 10.4%, from the second quarter of 2012.
Growth reflected the successful addition of new commercial
relationships along with signs of increased loan demand and the
measured improvement in economic conditions in the Company’s markets.

Asset quality continues to improve and be a source of differentiation
for the Company relative to many of its peers. The ratio of
non-performing assets to total assets improved to 0.93% at June 30,
2013, representing the Company’s lowest level measured since March 31,
2008. This metric fell 10 basis points from 1.03% at March 31, 2013 and
57 basis points from 1.50% at June 30, 2012. This improvement reflects
a $773,000, or 6.1%, decrease in non-performing assets from March 31,
2013 to June 30, 2013. Non-performing assets decreased by $5.6 million,
or 32.1%, from June 30, 2012 to June 30, 2013, reflecting the success
of certain exit strategies, including payoffs, paydowns and
charge-offs, as well as improved client performance resulting in a
return to accrual status. These reductions were partially offset by the
addition of newly identified impaired loans and leases. The Company’s
allowance for loan and lease losses as a percentage of total loans and
leases measured 1.60% as of June 30, 2013, compared to 1.69% at March
31, 2013 and 1.72% at June 30, 2012.

Capital Strength

The Company’s earnings power continues to generate capital, and its
capital ratios are in excess of the highest required regulatory
benchmark levels. In addition, the common stock offering completed in
the fourth quarter of 2012 improved the composition of the Company’s
capital by increasing Tier I capital in the form of equity and allowing
the Company to pay down Tier II capital in the form of subordinated
debt. Total capital to risk-weighted assets was 13.12% as of June 30,
2013, compared to 12.97% at December 31, 2012. Tier I capital to
risk-weighted assets was 10.74% as of June 30, 2013, compared to 10.54%
at December 31, 2012. Tier I capital to average assets was 9.17%, as of
June 30, 2013, compared to 8.99% as of December 31, 2012.

Dividend Maintained

During the second quarter of 2013 the Company’s Board of Directors
approved a $0.14 quarterly cash dividend on its common stock, which was
paid on July 15, 2013 to shareholders of record at the close of
business on July 1, 2013. Measured against second quarter 2013 earnings
per share of $0.80, the dividend represents a modest and sustainable
18% payout ratio.