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FBIZ: First Quarter Beats Our Estimate  

Ann Heffron, CFA

First Business Financial Services, Inc. (FBIZ - Snapshot Report) posted first quarter diluted EPS of $0.84, up 62% from the $0.52 EPS reported last year, and $0.08 above our $0.76 estimate. Relative to our estimate, this largely reflected better-than-expected growth in both net interest income and noninterest income, aided by a larger decline in the loan loss provision than we had anticipated.

Compared to the year-ago quarter, first quarter results were boosted by a gain in net interest income from 5% growth in interest-earning assets, sharp increases in service charges on deposits and loan fees, a significantly reduced loan loss provision, and strong control over operating costs, partly offset by a higher effective rate.

The Company continued to reduce problem assets, and it appears that FBIZ has turned the corner regarding asset quality. Nonaccrual loans fell $1.2 million, or 7%, sequentially to $20.2 million, while foreclosed assets rose $0.4 million, or 16%, to $2.6 million. As a percentage of total loans and OREO, nonperforming assets fell 8 basis points sequentially to 2.73% from 2.81% at the end of the fourth quarter and 204 basis points year over year from the 4.77% cycle peak at the end of 2011’s March quarter.

We are raising our 2012 diluted EPS estimate to $3.35 from $3.25, principally to reflect the Company’s better-than-expected performance in the first quarter. Our $3.35 estimate in 2012 represents a 14% gain over 2011’s $2.94, which excludes a $0.7 million, or $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. Our initial diluted EPS estimate for 2013 is $3.70, a 10% gain over our 2012 estimate.

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, 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 .


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