• Loan Growth: $286 million increase, over 10% year-over-year.
• Deposit Growth: $313 million increase, nearly 12% year-over-year.
• Net Interest Margin (NIM): Reported NIM at 3.64%, adjusted NIM at 3.51% for the third quarter.
• Private Wealth Assets Under Management: $3.4 billion, 17% growth from the prior year.
• Fee Income from Private Wealth Management: $3.3 million, up 11% from the third quarter of last year.
• SBA Loan Sale Gains: $460,000 for the quarter.
• Transportation Loans: $46 million, down from $61 million at the start of the year.
• Effective Tax Rate: 16.8% for the nine months ended September 30, 2024.
• Tangible Book Value Per Share Growth: 9.7% annualized from the linked quarter, 12.5% from the prior year quarter.
• Subordinated Debt Issuance: $20 million issued, boosting Tier 2 capital.

• Warning! GuruFocus has detected 4 Warning Sign with FBIZ.

Release Date: October 25, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• First Business Financial Services Inc (NASDAQ:FBIZ) reported strong loan and deposit growth, with loans increasing by over 10% and deposits by nearly 12% year-over-year.
• The company maintained a stable net interest margin, with an adjusted NIM of 3.51% for the third quarter, reflecting effective management of interest rates.
• FBIZ's private wealth management division saw a 17% growth in assets under management, contributing to an 11% increase in fee income from the previous year.
• The company's niche C&I lending areas, such as accounts receivable financing and floor plan financing, showed significant growth and diversification benefits.
• FBIZ's strategic initiatives, including AI training and robotic process automation, are enhancing operational efficiency and preparing the company for future growth.

Negative Points

• The transportation sector within the equipment finance portfolio continues to show weakness, with loans decreasing from $61 million to $46 million since the start of the year.
• SBA loan sale gains, although improved, remain below expectations, indicating potential challenges in meeting future targets.
• The company faces intense competition in its markets, which could pressure margins and deposit growth.
• Non-interest income showed variability, with some areas like swap fees and SBIC mezzanine funds experiencing fluctuations.
• FBIZ's compensation expenses are expected to increase, potentially impacting operating leverage despite efforts to manage costs through technology initiatives.

Q & A Highlights

Q: Can you provide insights on the cost of funds and any visibility on the peak there? A: Brian Spielmann, CFO: We've been proactive in reducing deposit costs and will continue to evaluate rates as we approach another rate cut. We believe our strong relationships provide opportunities to lower costs in line with the asset side of our balance sheet, maintaining a comfortable margin range of 3.65%.

Q: What are the strategic initiatives that might be easier to acquire than build out? A: Corey Chambas, CEO: Robotic process automation is well underway, with a team in-house. We've been working on this for over a year, and it's embraced internally. Treasury management has identified multiple use cases, and we're prioritizing them. C&I lending continues to be a focus, and deposit growth remains a challenge but a priority.

Q: Where are you seeing specific loan demand, and what might the mix look like in the coming quarters? A: David Seiler, President & COO: We see strong demand in accounts receivable finance and vendor finance. CRE growth was significant due to construction loans, but C&I might outpace CRE in the coming quarters. Southeast Wisconsin, particularly Milwaukee, shows promising growth.

Q: How are you thinking about overall net charge-offs in the next few quarters? A: Corey Chambas, CEO: We expect net charge-offs to remain consistent with recent trends. The transportation sector's impact is accounted for in our reserves, and we anticipate this pattern to continue.

Q: What is the outlook for the margin given the recent Fed rate cut and potential future cuts? A: Brian Spielmann, CFO: We are confident in our ability to match repricing on both sides of the balance sheet. While deposit growth is prioritized over rate, we expect to maintain our margin within the 3.60% to 3.65% range, with potential pressure from competitive deposit growth.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.