FBIZ: Common Stock Offering
By Ann Heffron, CFA
First Business Financial Services, Inc. (NasdaqGM:(FBIZ - Snapshot Report) ) recently completed a 1.1 million common share offering at $23.00 per share, raising gross proceeds of $25.3 million and net proceeds of $23.5 million, which are being used to pay off a like amount of subordinated debt.
As a result, we are reducing our diluted EPS estimates and our target price to $25.50 from $28.00. For 2012, we have lowered our EPS estimate for the year to $3.30 from $3.40 and for 2013 to $3.00 from $3.75 previously.
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Because of the increased number of shares outstanding in 2013, our 2013 EPS estimate represents a 9% decline from our 2012 estimate. However, 2013 estimated net earnings are actually growing 25% year over year, largely the result of increased net interest income stemming from a higher net interest margin
In addition to the income statement impact, the sale of common stock has strengthened the balance sheet. Double leverage at the holding company has been significantly reduced and the Company’s capital ratios have shown substantial improvement and meet Basel III requirements.
Negatively, the return on equity has been reduced to an estimated 11% in 2013 from 12.5% estimated for 2012 and 12.8% actual in 2011, though ROE will remain well above the single-digit level of the 2006-2010 period.
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 September 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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