First Business Financial Services, Inc. :FBIZ-US: Earnings Analysis: Q3, 2016 By the Numbers : October 31, 2016

First Business Financial Services, Inc. reports financial results for the quarter ended September 30, 2016.

We analyze the earnings along side the following peers of First Business Financial Services, Inc. – PSB Holdings, Inc., PrivateBancorp, Inc., CVB Financial Corp., Wintrust Financial Corporation, 1st Source Corporation, TCF Financial Corporation, Associated Banc-Corp, Wells Fargo & Company, Fifth Third Bancorp and PacWest Bancorp (PSBQ-US, PVTB-US, CVBF-US, WTFC-US, SRCE-US, TCB-US, ASB-US, WFC-US, FITB-US and PACW-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 18.94 million, Net Earnings of USD 2.54 million.
  • Net interest income margins widened from 78.57% to 80.78% compared to the same period last year.
  • Net loan assets changed 5.61% compared to same period last year and 0.32% from previous period, total deposits changed 1.74% compared to same period last year and -2.60% from previous period.
  • Earnings decline from worsening in operating margins as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2015-09-30 2015-12-31 2016-03-31 2016-06-30 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 18.9 19.85 20.13 21.47 18.94
Revenue Growth (%YOY) 41.04 19.81 7.12 17.24 0.17
Earnings (mil) 4.31 4.02 4.48 3.66 2.54
Earnings Growth (%YOY) 24.01 9.37 8.69 -3.56 -41.11
Net Margin (%) 22.82 20.23 22.24 17.04 13.41
EPS 0.5 0.47 0.52 0.43 0.29
Return on Equity (%) 11.81 10.75 11.7 9.33 6.38
Return on Assets (%) 1.01 0.91 1 0.81 0.57

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Market Share Versus Profits

Revenues History
Earnings History

FBIZ-US‘s change in revenue this period compared to the same period last year of 0.17% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that FBIZ-US is holding onto its market share. Also, for comparison purposes, revenues changed by -11.81% and earnings by -30.56% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

{arg3)’s earnings declined year-on-year because of the increases in loan loss provisions. Its net interest income after provisions margins went from 77.06% to 62.10%. The fall in earnings would have been worse were it not for the fact that the company’s net interest income margins improved, from 78.57% to 80.78%. For comparison, net interest income margins were 73.31% and net interest income after provisions margins 60.45% in the immediate last period.

Net Interest Income Margin Versus Loan Loss Provisions Margin

Quadrant label definitions. Hover to know more

High Risk; High Reward Loans, Risky Loan Portfolio, Conservative Loan Portfolio, Safer Loan Portfolio
Net Interest Income Margin History
Loan Loss Provisions Margin History

Net Loans and Total Deposits

A financial institution’s core operations represented by Net Interest Income and Net Interest Income after Provisions are dependent on both the growth and quality of its deposits as well as the growth and quality of its loans. A firm could boost its interest income in the short-term by just increasing its loan assets with less concern about their quality – but this would eventually lead to greater loan loss provisions. Similarly a drive to increase deposits could result in higher interest expenses and eventually effect the firm’s equity. It is thus important to understand net interest income performance in context to loan loss provisions, loan assets and deposits.

Loan Assets Growth Rate History (Qtr YOY)
Total Deposits Growth Rate History (Qtr YOY)

FBIZ-US‘s improvement in net interest income margins came in spite of relative drops in the levels of net loan assets and total deposits. On an absolute basis, net loan assets changed 5.61% compared to the same period last year and 0.32% from the previous period. Total deposits changed 1.74% compared to the same period last year and -2.60% from the previous period.

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Contraction of operating margins from 34.22% to 15.63% and (2) One-time items that contributed to a decrease in pretax margins from 34.07% to -1.87%

EBIT Margin History
PreTax Margin History
EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables

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Company Profile

First Business Financial Services, Inc. operates as a bank holding company, which engages in the commercial banking business through its wholly-owned banking subsidiaries: First Business Bank and First Business Bank-Milwaukee, which operate as business banks focusing on delivering a full line of commercial banking products, including commercial loans and commercial real estate loans, and services tailored to meet the specific needs of small and medium sized businesses, business owners, executives, professionals and high net worth individuals. The company was founded in 1986 and is headquartered in Madison, WI.

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