First Business Financial Services Inc. Reports Operating Results (10-Q)

Author's Avatar
May 01, 2009
First Business Financial Services Inc. (FBIZ, Financial) filed Quarterly Report for the period ended 2009-03-31.

First Business Financial Services is the parent of the First Business family of companies managing shareholder relations and providing access to capital for our operating entities. It provides its subsidiaries with cost-effective corporate services including human resources finance information technology and marketing. Its companies include First Business Bank First Business Bank - Milwaukee First Business Trust & Investments First Business Leasing LLC and First Business Capital Corp. First Business Financial Services Inc. has a market cap of $32 million; its shares were traded at around $12.57 with and P/S ratio of 0.5. The dividend yield of First Business Financial Services Inc. stocks is 2.2%.

Highlight of Business Operations:

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. Return on equity for the three months ended March 31, 2009 was (1.43)%, compared to 6.17% for the three months ended March 31, 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 among other factors discussed in the Quarterly Report on Form 10-Q.

Net interest income was $6.5 million for the three months ended March 31, 2009, an increase of 7.0% from the same period in 2008. The increase in net interest income was primarily caused by the increased interest rate spread on our interest earning asset and interest bearing liability portfolios and an increase in interest earning assets of 7.9%. The net interest spread for the three months ended March 31, 2009 was 2.41% compared to 2.33% for the three months ended March 31, 2008. We have been successful in increasing the spread of our rate sensitive portfolio through implementation and utilization of interest rate floors on our variable rate loan products and through managed pricing on our deposit products.

The yield on earning assets was 5.65% for the three months ended March 31, 2009, a decline of 104 basis points from 6.69% for the three months ended March 31, 2008. The decline in the yield on earning assets is attributable to the loan and lease portfolio as the yield on our mortgage related securities portfolio is substantially unchanged. 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. As of March 31, 2009, approximately 58% of the average loan and lease portfolio had a fixed rate yield while 22% of our loan and lease portfolio contains interest rate floors that will influence the overall yield of the portfolio in a declining rate environment. The existence of the interest rate floors and fixed rate loans provide opportunity to protect the interest income in a falling rate environment. The average prime rate for the three months ended March 31, 2009 was 3.25% compared to 6.21% for the same three month period of 2008.

The rate on interest-bearing liabilities was 3.24% for the three months ended March 31, 2009, a decrease of 112 basis points from 4.36% for the comparable period of the prior year. Rates on interest-bearing deposits was 3.13% for the three months ended March 31, 2009, a decrease of 114 basis points from 4.27% for the comparable period of the prior year primarily due to the overall declining rate environment although influenced by competitive pricing necessary to retain balances and the impacts of implicit floors on interest-bearing transaction accounts.

The net interest margin decreased slightly to 2.65% for the three months ended March 31, 2009 from 2.67% for the three months ended March 31, 2008. As interest rates decline the contribution of net free funds also declines. The improvement in our net interest spread was offset by the declining value of the net free funds resulting in minimal changes in our net interest margin when comparing the three months ended March 31, 2009 and 2008. 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. We continue to manage the composition and duration of interest-bearing liabilities to limit our exposure to changing interest rates.

Read the The complete Report