FBIZ: Best-Ever Margin and Strong Growth in Noninterest Income Drive Record EPS
By Ann Heffron, CFA First Business Financial Services, Inc. (FBIZ) posted record diluted EPS in the third quarter of $0.99, up 19% from the $0.83 EPS posted last year, and $0.11 above our $0.88 estimate. Relative to our estimate, this largely reflected: (1) net interest income that was $0.4 million higher than our estimate due both to better-than expected loan growth and a record net interest margin of 3.50% and (2) other noninterest income that was $0.3 million higher than we had anticipated, including a $144,000 one-time gain on the sale on a credit card portfolio. These items were partly offset by: (1) a loan loss provision that was $0.1 million more than expectations and (2) a 35.5% effective tax rate that was 2 points higher the 33.5% we had projected. Compared to the year-ago quarter, third quarter results were boosted by a 9% gain in net interest income due to 6% growth in average interest-earning assets and a 10 basis-point rise in the net interest margin, as well as a 30% jump in noninterest income. This was partly offset by a 7% increase in total noninterest expense, largely the result of higher compensation costs, a 95% surge in the loan loss provision, and an effective tax rate that was almost 5 points lower than the unusually high 40.3% posted in the prior-year quarter. The Company continued to reduce problem assets. Nonaccrual loans fell $2.6 million, or 17%, sequentially to $12.8 million, while foreclosed assets increased by $0.3 million, or 13%, to $2.2 million. As a percentage of total loans and OREO, nonperforming assets fell 30 basis points sequentially to 1.71% from 2.01% at the end of the second quarter and 166 basis points year over year from the 3.37% at the end of 2011’s September quarter. We are raising our 2012 and 2013 diluted EPS estimate by $0.15 each, to $3.40 from $3.25 and to $3.75 from $3.60, respectively. These increases primarily reflect changes to our estimates for the net interest margin (NIM) and effective income tax rates in both years. 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. To view a free copy of our most recent research report on FBIZ, visit Ann Heffron's page at Zacks Small-Cap Research .
