Release Date: January 31, 2025

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 record earnings, with a 15% increase from the third quarter and a 24% increase from Q4 2023.
• The company achieved strong loan growth, with loan balances increasing by 10% year-over-year.
• Total deposits grew by 11% from the previous year's fourth quarter, indicating strong deposit growth.
• The efficiency ratio improved to its lowest level since Q4 2013, showcasing operational efficiency.
• FBIZ's net promoter score of 70 is nearly three times the banking industry average, reflecting strong client satisfaction.

Negative Points

• There was a tick-up in non-performing assets (NPAs), which the company attributes to normalization from unusually low levels in recent years.
• The transportation sector within the equipment finance portfolio continues to show isolated weakness.
• A $16.9 million loan to a borrower in the equipment wholesale business was moved to non-performing status during the quarter.
• The company experienced a modest uptick in accruing past due loans due to a delayed payment from one client.
• Swap fee income and returns on SBIC funds are expected to continue experiencing variability.

Q & A Highlights

• Warning! GuruFocus has detected 5 Warning Signs with BWERY.

Q: Can you provide more details on the 10% annual loan growth guidance, particularly regarding the C&I bucket which was down in the fourth quarter? A: (Unidentified_6) We expect C&I to be the larger portion of growth next year, as CRE activity has slowed. The decline in the fourth quarter was due to some asset-based lending loans paying off, which is not typical.

Q: What are your plans for growing core deposits, and how do you see the mix between core and wholesale deposits evolving? A: (Unidentified_6) We aim to maintain a mix where 70-80% of our funding is from in-market deposits and 20-30% from wholesale to match fund. (Unidentified_3) We focus on adding new relationships through treasury management, which has grown at an 11% annual rate over the last five years.

Q: How do you view loan yields and the potential for repricing in the current environment? A: (Unidentified_4) We have opportunities to improve yields through reinvestment and a better C&I lending mix. We aim to maintain a stable net interest margin in the 360 to 365 basis points range.

Q: Can you discuss your capital deployment strategy, particularly regarding share repurchases and dividends? A: (Unidentified_6) Our priority is organic growth, aiming for 10% balance sheet growth. We consistently increase dividends and will consider share buybacks if we generate capital beyond growth and dividend needs.

Q: What is your outlook on the efficiency ratio, given your investments in technology and operating leverage? A: (Unidentified_6) We expect a gradual decrease in the efficiency ratio due to positive operating leverage. While we will continue investing in growth, the math of positive operating leverage will drive the ratio down over time.

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