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FBIZ: Shaving 2012 Estimate, but Continuing Outperform - Analyst Blog

Posted: 3/15/2012 5:22:00 PM
Referenced Stocks: FBIZ

FBIZ: Shaving 2012 Estimate, but Continuing Outperform  

Ann Heffron, CFA

First Business Financial Services, Inc. ( FBIZ ) posted fourth quarter diluted EPS of $0.90, up 275% from the $0.24 EPS reported last year, and $0.03 above our $0.87 estimate. Relative to our estimate, this largely reflected lower-than-expected compensation expense due to reduced bonus accruals as some divisions fell short of their targets, partly offset by a higher-than-expected loss provision.

Compared to the year-ago quarter, fourth quarter results were boosted by a gain in net interest income from a higher net interest margin, sharp growth in service charges on deposits and loan fees, a significantly reduced loan loss provision, strong control over operating costs, and a lower effective tax rate.

The Company continued to make excellent progress in reducing problem assets and indications are that it has turned the corner regarding asset quality. Nonaccrual loans fell $5.2 million, or 19%, sequentially to $21.8 million, while foreclosed assets rose $0.2 million, or 9%, to $2.2 million. As a percentage of total loans and OREO, nonperforming assets fell 56 basis points sequentially to 2.81% from 3.37% at the end of the third quarter and 175 basis points year over year from the 4.56% at the end of 2010.

For the year, FBIZ earned $7.7 million before a $0.7 million one-time tax benefit related to a change in regulation for net operating loss carryforwards by the state of Wisconsin, or $2.94 per diluted share, up 107% from the $3.6 million before a $2.7 million goodwill impairment charge, or $1.42 per diluted share, posted in 2010.

This year-over-year gain primarily stemmed from an 11% rise in net interest income to $35.5 million on a 25 basis-point increase in the net interest margin (average loans rose only 0.5%), a 40% decline in the loan loss provision to $4.3 million, and modest 3% growth in noninterest expense, largely due to lower credit costs from collateral liquidations and foreclosures, which combined fell about 12 % to $1.2 million, and a 21% drop in FDIC insurance premiums to $2.5 million, due to changes in premium calculations required by the Dodd-Frank Act that became effective on April 1, 2011. This was partly offset by a 12% increase in compensation expense to $14.9 million stemming from FBIZ's better operating performance, as well as a 33% jump in marketing costs to $1.0 million, reflecting increased emphasis on gathering in-market core deposits.

We are reducing our 2012 diluted EPS estimate to $3.25 from $3.40, principally due to three factors: (1) increased compensation expense as the Company intends to hire new business development officers during 2012  to drum up new business, (2) a higher effective tax rate than we estimated previously, and (3) a modestly higher loan loss provision than our prior estimate. Despite the reduction, our $3.25 estimate in 2012 still represents an 11% gain over 2011's $2.94.

First Business Financial Services, Inc. (FBIZ or the Company) is a bank holding company headquartered in Madison, Wisconsin, with $1.1 billion in total assets at December 31, 2011. 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.

To view a free copy of our most recent research report on FBIZ, visit Ann Heffron's page  at .


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