FBIZ First Business Financial Services Inc

Ann Heffron, CFA

FBIZ: Strong First Quarter Results; Rising Target Price

FBIZ posted first quarter diluted EPS of $0.52, up 47% from the $0.35 reported last year, and well in excess of our $0.45 estimate. First quarter results were boosted by growth in net interest income from a higher net interest margin and a lower effective tax rate, partially offset by increased compensation from bonus accruals and a hike in the loan loss provision as the Company strengthened loss reserves.

Relative to our estimate, the main reasons for the difference were a stronger net interest margin, generating correspondingly higher net interest income, and a lower effective tax rate.

We are raising our 2011 diluted EPS estimate to $1.90 from $1.80 previously, reflecting the first quarter overage relative to our estimate, as well as the continuing benefit from a higher net interest margin and lower tax rate, partially offset by an increased loan loss provision. Our 2011 estimate represents a 33% increase over 2010’s $1.42 (excluding a goodwill write-off). Our initial diluted EPS estimate for 2012 is $2.10, an 11% gain over 2011.

We have also raised our target price and changed the holding period to twelve months from six months. Our new one-year $14.25 target price for FBIZ represents a total return of approximately 12%, consistent with our expectations for broader U.S. equity market gains during this period. Therefore, we are maintaining our Neutral recommendation on FBIZ shares.

First Business Financial Services, Inc. (FBIZ or the Company) is a bank holding company headquartered in Madison, Wisconsin, with $1.1 billion in total assets at December 31, 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 free copy of the FBIZ research report, please email scr@zacks.com with FBIZ as the subject.

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