FBIZ: Large Loan Loss Provision Mars an Otherwise Strong
Ann Heffron, CFA
First Business Financial Services, Inc. (
posted second quarter diluted EPS of $0.60, down 12% from the $0.68
EPS (before a $0.29 per diluted share one-time tax benefit related
to a change in regulation for net operating loss carryforwards by
the state of Wisconsin) posted last year, and $0.21 below our $0.81
Relative to our estimate, this largely reflected a $1.4 million
higher-than-expected loan loss provision primarily related to the
write-off of loans related to a single commercial and industrial
client. On the positive side, growth in net interest income was
much better than we had anticipated as FBIZ posted a record 3.49%
net interest margin and added a $31 million chunk of loans toward
the end of the second quarter, marking the first quarterly increase
in loans outstanding since 2010's third quarter.
Compared to the year-ago quarter, second quarter results were
boosted by a gain in net interest income from 4% growth in average
interest-earning assets and a 10 basis-point jump in the net
interest margin and solid 9% growth in noninterest income. This was
partly offset by a 7% increase in total noninterest expense,
largely due to higher compensation costs, a 39% surge in the loan
loss provision, and an effective tax rate that was almost 2 points
higher than that posted in the prior-year quarter.
The Company continued to reduce problem assets. Nonaccrual loans
fell $4.7 million, or 24%, sequentially to $15.5 million, while
foreclosed assets declined $0.7 million, or 25%, to $1.9 million.
As a percentage of total loans and OREO, nonperforming assets fell
72 basis points sequentially to 2.01% from 2.73% at the end of the
first quarter and 218 basis points year over year from the 4.18% at
the end of 2011's June quarter.
We note that the ABA Banking Journal recently ranked FBIZ 15th
among all publicly traded banks with $1-10 billion in total assets
(of which there are about 250 companies in the US), based upon ROE
in 2011, which was 12.8% for FBIZ. It is the first time FBIZ has
made this list, and speaks to the tremendous improvement in
operating performance the Company has made over the last few years.
First Business Financial Services, Inc. (FBIZ or the Company) is a
bank holding company headquartered in Madison, Wisconsin, with $1.2
billion in total assets at June 30, 2012. FBIZ specializes in
business lending for small-medium-sized companies with sales
ranging from $2-50 million. As an adjunct to these services, FBIZ
also offers banking services to business owners, executives,
professionals, and high net worth individuals, though this is a
less significant part of its business.
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