Maintain Outperform on FBIZ - Analyst Blog

Written by Ann Heffron, CFA

We are maintaining our Outperform recommendation on First Business Financial Services, Inc. ( FBIZ ) posted third quarter diluted EPS of $0.38, down 28% from the $0.53 earned last year and $0.06 shy of our $0.44 estimate, principally due to a larger-than-expected increase in the loan loss provision. This was the result of growth in the loan portfolio. Loans outstanding rose 4.1% sequentially to $880 million as the Company closed a few big loan deals near the end of the quarter.

Partially offsetting the higher loss provision were positive variances in net interest income, stemming from a 24 basis-point year-over-year gain in the net interest margin to 3.12% on significantly reduced deposit costs, and a modest gain in foreclosure costs versus our estimate of a $0.2 million loss. The 2010 quarter is better than it appears at first glance because 2009's third quarter included $0.3 million of gains on securities sales, while 2010's third quarter had none.

We are increasing our diluted EPS estimates going forward, mainly due to stronger growth in net interest income, partially offset by higher loan loss provisions. For 2010, our new estimate is $1.50 versus $1.40 previously and for 2011, we have raised our estimate to $1.80 from $1.70.

First Business Financial Services, Inc. is a bank holding company headquartered in Madison, Wisconsin, with $1.1 billion in total assets at September 30, 2010. 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.

For a copy of the FBIZ research report, please contact Zacks Investment Research ghaycock@zacks.com