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FBIZ: Impressive First Quarter Driven by Improved Credit Quality

Ann Heffron, CFA, CPA

First Business Financial Services, Inc. (FBIZ) posted net income of $3.2 million, up 47% from the $2.2 million earned in the year-ago quarter.

Click here to download of free copy of the FBIZ research report: FBIZ 5-6-13.

Diluted earnings per share, which fell 1% to $0.83 from $0.84 in last year’s first quarter due to an increased number of average shares outstanding, beat our $0.75 estimate by a wide $0.08 margin, largely due to strong gains in asset quality.

Specifically, the loan loss provision of $80,000 came in $0.72 million below our $0.8 million estimate and collateral liquidation costs and the loss on foreclosed properties posted small gains rather than the $125,000 and $50,000 losses we had projected.

Nonaccrual loans decreased $2.4 million, or 17%, sequentially to $11.7 million due to cash pay-offs on certain existing nonaccrual loans, while foreclosed assets declined by $0.7 million, or 43%, to $0.9 million as several properties were sold.

As a percentage of total loans and OREO, nonperforming assets fell 35 basis points to 1.37% from 1.72% at the end of the fourth quarter.

We are raising our 2013 diluted EPS estimate by a quarter to $3.30 from $3.05, primarily to reflect a reduction to our estimate for the loan loss provision.

Our $3.30 estimate is flat with 2012’s $3.29, due solely to a higher number of diluted shares outstanding following the late 2012 sale of 1.265 million common shares. Indeed, our 2013 net earnings estimate of $13.0 million represents a 46% gain over 2012’s $8.9 million.

Our initial 2014 estimate calls for a $0.20, or 6%, advance in diluted per share earnings to $3.50.

FBIZ recently doubled its quarterly dividend rate to $0.14 from $0.07, its first increase since 2008.

We note that the ABA Banking Journal 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 March 31, 2013. 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.