2013 Annual Report. Growth. Seizing Opportunities. One Bank One Resource

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1 Annual Report Growth. Seizing Opportunities. One Bank One Resource

2 Our Growth Strategy Produces Results Again In we continued to build upon First Bank Financial Centre s (FBFC) long history of community banking values and financial success. Our customer-centric approach has proven to be successful, as we enjoyed solid growth in deposits and households. And guided by our disciplined growth strategy, we strengthened our financial position and delivered consistent earnings. Our expertise in small business and residential lending produced strong loan growth, even in a challenging environment. We are proud to now be Wisconsin s number one originator of SBA loans, and our commitment to conservative lending has resulted in a significant improvement in our asset quality. Another key component of our growth strategy is to diversify our sources of revenue. As part of that strategy, we ve acquired a local investment firm, now operating under the name Summit Street Wealth Management. These expanded investment services will provide an excellent complement of products to meet the financial needs of our small business and retail customers. We ll also continue to expand our physical and online presences to capitalize on our community bank values. We have plans to open our 12 th branch location this summer in Brookfield, and will broaden our digital banking platform to meet the changing needs of our customers. Of course none of our success would be possible without the hard work and dedication of our employees. We consistently attract and retain high-performing colleagues, and were again recognized by the Milwaukee Journal Sentinel as a Top Workplace. Customers and prospects remain attracted to the community bank experience, and our employees work tirelessly each day to exceed their expectations. Looking ahead to 2014, we are confident that our bank is well positioned for growth and enhanced returns. Our balance sheet is strong, and we have an experienced management team with a proven track record of success in both good and bad economic climates. On behalf of our Board of Directors and the entire FBFC family, we thank you for your confidence in us and for your investment in our great community bank. Mark W. Mohr, President & CEO 2

3 The Financial Strength to Grow Oconomowoc Bancshares recorded another strong financial performance in. Our strategy continues to focus on maintaining a strong and conservative balance sheet while growing at a sustainable rate. Our financial results were reflective of these strategies. Net income was $5.01 million, resulting in earnings per share of $14.95, compared with net income of $5.19 million or $15.48 earnings per share for the year ended December 31,. Consistent earnings were a result of key strategic initiatives we implemented over the past several years. Costs related to Legacy Assets, namely provision for loan losses and other real estate losses were $2.69 million, compared to $9.49 million in. The decline was directly correlated to our strengthening asset quality. Non-performing assets were reduced during the year to $9.20 million from $14.34 million. Our asset quality ratios continue to consistently remain in the top 10% of our peer group. The competitive landscape of banking is changing. Most banks balance sheets are getting stronger and many are flush with liquidity. The combination of these has resulted in heightened competition for loans. Given this environment, we were still able to grow our on-balance sheet loan and off-balance sheet servicing portfolio by $31.6 million and $77.1 million respectively. Combined, these portfolios total $1.06 billion. Over the past three years we have generated over $1.0 billion in loans. The growth in our loan portfolios lead to an increase in net interest income and servicing income of $0.4 million. Our strategy for the near future is to increase our net interest income by retaining more loans on our balance sheet. Initial evidence to this strategy was the decline of gain on loan sales from $9.7 million to $5.3 million in. Liquidity remains very strong with $207.4 million in cash and investments. Capital ended the year at $60.2 million. We paid a dividend of $2.90 per share, the third straight year we increased the dividend. Nate Zastrow, Senior Vice President & CFO Financial Highlights (in thousands) On & Off Balance Sheet Loans $962,025 $1,066,368 Earnings Assets Deposits Capital $5,189 $5,010 $806,763 $810,332 $634,120 $58,856 $656,209 $60,161 3

4 Condensed Financial Statement Oconomowoc Bancshares, Inc. and Subsidiaries Consolidated Statements of Income (in thousands, except per share data) as of December 31 Interest and dividend income: Loans, including fees $28,308 $27,451 Securities: Taxable 1, Tax-exempt Other Total interest and dividend income 30,346 29,441 Interest expense: Deposits 4,763 3,892 Short-term borrowings Other borrowings Subordinated debentures Total interest expense 5,853 4,797 Net interest income 24,493 24,644 Provision for loan losses 6, Net interest income after provision for loan losses 18,444 23,707 Noninterest income: Service fees Loan servicing income 2,977 3,220 Gain from sale of loans 9,697 5,314 Gain on sale of available-for-sale securities 2, Other 851 1,024 Total noninterest income 16,423 10,882 Noninterest expense: Salaries and employee benefits 14,687 15,829 Occupancy and equipment 3,502 3,959 Data processing 1,467 1,874 Net loss on other real estate 3,443 1,758 Advertising and promotions Professional fees Contributions Other 3,250 3,107 Total noninterest expense 28,189 28,564 Income before provision for income taxes 6,678 6,025 Provision for income taxes 1,489 1,015 Net income $5,189 $5,010 Earnings per common share $15.48 $14.95 Loan Losses: An analysis of the allowance for loan losses for the years ended Dec. 31 follows: Balance at beginning $5,189 $8,192 Provision for loan losses 6, Loans charged off (3,195) (2,648) Recoveries of loans previously charged off Balance at end $8,192 $6,576 4

5 Assets: Cash and due from banks $88,158 $58,593 Securities available for sale 154, ,823 Loans held for sale 623 2,492 Loans, net 511, ,529 Accrued interest receivable 2,022 1,794 Premises and equipment, net 17,605 20,541 Goodwill 1,820 1,820 Other investments, at cost 2,801 2,301 Cash value of life insurance 4,698 4,729 Loan servicing rights 5,595 6,528 Other real estate, net 9,878 7,524 Other assets 7,420 11,658 TOTAL ASSETS $806,763 $810,332 Liabilities: Deposits 634, ,209 Short-term borrowings 84,020 72,976 Borrowed funds 22,700 12,703 Subordinated debentures 6,186 6,186 Accrued interest payable Other liabilities 457 1,698 Total liabilities 747, ,171 Stockholders equity: Common stock $0.01 par value: Authorized 450,000 shares, Issued 335, Additional paid-in capital 7,566 7,566 Retained earnings 50,563 54,602 Accumulated other comprehensive income (loss) 724 (2,010) Total stockholders equity 58,856 60,161 TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $806,763 $810,332 Loan portfolio: The composition of loans at Dec. 31 is as follows: Commercial: Real estate $257,371 $261,497 Construction 32,454 35,064 Small Business Administration (SBA) 76,677 93,064 Commercial and industrial 30,808 38,372 Retail: Real estate 118, ,439 Other 2,533 2,068 Subtotals 517, ,504 Add Deferred loan fees 2,139 2,601 Less Allowance for loan loss 8,192 6,576 Loans, net $511,940 $543,529 Independent Auditor s Report: We have audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheets of Oconomowoc Bancshares, Inc. and Subsidiaries as of December 31, and, and the related consolidated statements of income, comprehensive income, changes in stockholders equity, and cash flows for the years then ended, and in our report dated March 21, 2014, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed consolidated financial statements is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived. 5

6 #1 SBA Lender in Wisconsin Originating nearly 100 more loans than the next financial services provider, First Bank Financial Centre was proud to be recognized in as Wisconsin s #1 SBA Lender. We ve been the #1 Community Bank SBA Lender for five straight years, and our customers appreciate the quick turnaround and local decision-making we provide as an SBA Preferred Lender. Coupled with our loan pool programs, we are well positioned to continue to help small businesses across the state grow and thrive. More Convenient Than Ever Recognizing that the way customers interact with the Bank is always evolving, First Bank Financial Centre continues to develop ways to better serve our customers. In 2014 we re proud to open our 12 th retail branch. Located in Brookfield, this new office will allow us to better serve the community, while also expanding our presence into neighboring Elm Grove and Wauwatosa. Furthermore, our investment in technology like mobile check deposit, ensures that wherever our customers may be, they re never far from their finances. Mortgage Loan Excellence Introducing Summit Street Wealth Management In January 2014 we were pleased to introduce our customers to Summit Street Wealth Management. This newly formed and enhanced resource of the bank offers a more robust product and services line including comprehensive financial planning and a wide array of insurance products. The team has been expanded to include two financial advisors and two assistants and will provide our customers with the most personal, responsive service possible. In First Bank Financial Centre ranked in the top 5% of total mortgage volume in the state of Wisconsin for community banks. In fact, our more than $160 million in retail loans was the second largest year for lending in our company s history. We are proud to provide local funding so our customers can achieve their dream of home ownership. 6

7 Board of Directors (Listed left to right, Back row first) Mark W. Mohr First Bank Financial Centre Mark T. McCune First Bank Financial Centre Robert W. Snyder Board Chairman Snyder and Ek, S.C. Charles J. Folkman, Jr. Vice Chairman L.F. George, Inc. Board of Directors Dear Shareholders: This year I want to thank a good friend and wonderful Director for all that he has done for First Bank Financial Centre. Gerald ( Jerry ) Kuhn is retiring from our board. Jerry joined us after retiring from Ernst & Young, where he had a successful career as a bank auditor. He s provided great insight to the Board, and we are going to miss him and his wife, Cheryl, at our functions. Before leaving, Jerry helped us find a wonderful addition to the Board in Monica Stern. Monica also worked as an auditor at Ernst & Young, and has served on the Audit Committee for the last several months. Monica will take over as Chair of that committee when Jerry retires. Monica and her family live in Grafton, and her volunteer work and accomplishments in the Grafton and Cedarburg areas are tremendous. Thank you for your continued confidence in us. We look forward to continued growth in the year ahead. Very truly yours, James P. Siepmann Siepmann Realty Corporation Peter G. Roehl Roehl Corporation Maureen Stapleton Stapleton Realty and Appraisal Gerald J. Kuhn Ernst & Young LLC (retired) Craig S. Schiefelbein Observation Tower LLC Monica Stern Village of Grafton Executive Management Mark W. Mohr President, Chief Executive Officer Mark T. McCune Senior Vice President, Chief Lending Officer Nate Zastrow Senior Vice President, Chief Financial Officer & Treasurer Robert W. Snyder, Board Chairman 7

8 Madison 151 West Bend W. Beltline Hwy Stoughton Rd. 83 Hartford Grafton Verona Rd S. Fish Hatchery Rd Germantown 167 Mequon Oconomowoc Hartland Menomonee Falls Brookfield Milwaukee Brookfield W. Capitol Dr. (262) W. North Ave. (888) Germantown N112 W17100 Mequon Rd. (262) Grafton 2300 Washington St. (262) Hartford 940 Bell Ave. (262) Hartland 800 Cardinal Ln. (262) Branch Locations Menomonee Falls N56 W14044 Silver Spring Dr. (262) Mequon N. Port Washington Rd. (262) Oconomowoc 155 W. Wisconsin Ave. (262) (888) W359 N5900 Brown St. (262) Summit Ave. (262) West Bend 1811 W. Washington St. (262) Loan Offices: Madison 2001 W. Beltline Hwy. (608) Menomonee Falls N56 W14108 Silver Spring Dr. (262) Lobby and drive-thru hours available anytime at FBFCWI.com 24-hour telephone banking: (888) MEMBER FDIC NMLS #: