FBIZ First Business Financial Services Inc

-- Stable net interest margin, continued balance sheet growth, and positive operating leverage support tangible book value expansion --

First Business Financial Services, Inc. (the “Company”, the “Bank”, or “First Business Bank”) (Nasdaq:FBIZ) reported quarterly net income available to common shareholders of $10.3 million, or earnings per share of $1.24 on a diluted basis. This compares to net income available to common shareholders of $10.2 million, or $1.23 per share, in the second quarter of 2024 and $9.7 million, or $1.17 per share, in the third quarter of 2023.

“First Business Bank again produced strong deposit and loan growth in a highly competitive environment,” said Corey Chambas, Chief Executive Officer. “Our ability to consistently deliver quality growth was supported by our team’s outstanding balance sheet management, resulting in a strong and stable net interest margin that remained within our target range of 3.60%-3.65%. We continue to execute our organic growth strategy with the intention of delivering double-digit loan, deposit, and revenue growth over the long term. We also continue to deliver on our commitment to achieving positive operating leverage, aided by prudent expense management, strong net interest income momentum, and revenue diversification. These successes have contributed to exceptional growth in shareholder value, with tangible book value expanding 12.5% from the prior year.”

Quarterly Highlights

• Stable Net Interest Margin. The Company's long held match funding practice and pricing discipline produced a net interest margin of 3.64% compared to 3.65% for the linked quarter. Net interest income grew 1.5% from the linked quarter and 8.4% from the prior year quarter.
• Consistent Loan Growth. Loans increased $65.0 million, or 8.7% annualized, from the second quarter of 2024, and $286.1 million, or 10.3%, from the third quarter of 2023, reflecting growth throughout the Company.
• Continued Deposit Growth. Total deposits grew $84.8 million, increasing 11.8% annualized from the linked quarter and $312.9 million, or 11.8%, from the third quarter of 2023. Core deposits grew to a record $2.383 billion, up $73.1 million, or 12.7% annualized, from the linked quarter and $193.5 million, or 8.8%, from the third quarter of 2023. New and expanded relationships also contributed to increased gross Treasury Management service charges, which grew 9.8% to $1.6 million, compared to $1.5 million in the third quarter of 2023.
• Robust Private Wealth Management Growth. Private Wealth assets under management and administration grew to a record $3.398 billion as of September 30, 2024, up $483.3 million, or 16.6% from the prior year. Private Wealth and Company Retirement Plan ("Private Wealth") fee income totaled $3.3 million, increasing by 10.8% from September 30, 2023 and comprising 46% of total non-interest income.
• Record Pre-Tax, Pre-Provision ("PTPP") Income. PTPP income grew to $15.4 million, up 9.0% and 9.5% from the linked and prior year quarters, respectively. This performance reflects solid growth across the Company’s balance sheet and operational efficiency. PTPP adjusted return on average assets measured 1.70%, compared to 1.57% for the linked quarter and 1.72% for the prior year quarter.
• Stable Asset Quality. Non-performing assets measured $19.4 million, increasing by $367,000, or 1.9%, from the linked quarter. Non-performing assets as a percent of total assets measured 0.52%, compared to 0.53% and 0.52% for the linked and prior year periods, respectively.
• Tangible Book Value Growth. The Company’s strong earnings generation and sound balance sheet management continued to drive growth in tangible book value per share, producing a 9.7% annualized increase compared to the linked quarter and a 12.5% increase compared to the prior year quarter.

 

Quarterly Financial Results

 

(Unaudited)

 

As of and for the Three Months Ended

 

As of and for the Nine Months Ended

(Dollars in thousands, except per share amounts)

 

September 30, 2024

 

June 30, 2024

 

September 30, 2023

 

September 30, 2024

 

September 30, 2023

Net interest income

 

$

31,007

 

 

$

30,540

 

 

$

28,596

 

 

$

91,059

 

 

$

83,049

 

Adjusted non-interest income (1)

 

 

7,064

 

 

 

7,425

 

 

 

8,430

 

 

 

21,254

 

 

 

24,259

 

Operating revenue (1)

 

 

38,071

 

 

 

37,965

 

 

 

37,026

 

 

 

112,313

 

 

 

107,308

 

Operating expense (1)

 

 

22,653

 

 

 

23,823

 

 

 

22,943

 

 

 

69,674

 

 

 

66,414

 

Pre-tax, pre-provision adjusted earnings (1)

 

 

15,418

 

 

 

14,142

 

 

 

14,083

 

 

 

42,639

 

 

 

40,894

 

Less:

 

 

 

 

 

 

 

 

 

 

Provision for credit losses

 

 

2,087

 

 

 

1,713

 

 

 

1,817

 

 

 

6,126

 

 

 

5,610

 

Net (gain) loss on repossessed assets

 

 

(12

)

 

 

65

 

 

 

4

 

 

 

72

 

 

 

8

 

SBA recourse provision

 

 

466

 

 

 

(9

)

 

 

242

 

 

 

583

 

 

 

565

 

Add:

 

 

 

 

 

 

 

 

 

 

Net loss on sale of securities

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(8

)

 

 

(45

)

Income before income tax expense

 

 

12,877

 

 

 

12,373

 

 

 

12,020

 

 

 

35,850

 

 

 

34,666

 

Income tax expense

 

 

2,351

 

 

 

1,917

 

 

 

2,079

 

 

 

6,020

 

 

 

7,409

 

Net income

 

$

10,526

 

 

$

10,456

 

 

$

9,941

 

 

$

29,830

 

 

$

27,257

 

Preferred stock dividends

 

 

218

 

 

 

219

 

 

 

218

 

 

 

656

 

 

 

656

 

Net income available to common shareholders

 

$

10,308

 

 

$

10,237

 

 

$

9,723

 

 

$

29,174

 

 

$

26,601

 

Earnings per share, diluted

 

$

1.24

 

 

$

1.23

 

 

$

1.17

 

 

$

3.50

 

 

$

3.19

 

Book value per share

 

$

36.17

 

 

$

35.35

 

 

$

32.32

 

 

$

36.17

 

 

$

32.32

 

Tangible book value per share (1)

 

$

34.74

 

 

$

33.92

 

 

$

30.87

 

 

$

34.74

 

 

$

30.87

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin (2)

 

 

3.64

%

 

 

3.65

%

 

 

3.76

%

 

 

3.62

%

 

 

3.81

%

Adjusted net interest margin (1)(2)

 

 

3.51

%

 

 

3.47

%

 

 

3.66

%

 

 

3.47

%

 

 

3.68

%

Fee income ratio (non-interest income / total revenue)

 

 

18.55

%

 

 

19.56

%

 

 

22.77

%

 

 

18.92

%

 

 

22.57

%

Efficiency ratio (1)

 

 

59.50

%

 

 

62.75

%

 

 

61.96

%

 

 

62.04

%

 

 

61.89

%

Return on average assets (2)

 

 

1.13

%

 

 

1.14

%

 

 

1.19

%

 

 

1.08

%

 

 

1.13

%

Pre-tax, pre-provision adjusted return on average assets (1)(2)

 

 

1.70

%

 

 

1.57

%

 

 

1.72

%

 

 

1.59

%

 

 

1.74

%

Return on average common equity (2)

 

 

13.83

%

 

 

14.12

%

 

 

14.62

%

 

 

13.41

%

 

 

13.72

%

 

 

 

 

 

 

 

 

 

 

 

Period-end loans and leases receivable

 

$

3,050,079

 

 

$

2,985,414

 

 

$

2,764,014

 

 

$

3,050,079

 

 

$

2,764,014

 

Average loans and leases receivable

 

$

3,031,880

 

 

$

2,962,927

 

 

$

2,711,851

 

 

$

2,961,014

 

 

$

2,592,941

 

Period-end core deposits

 

$

2,382,730

 

 

$

2,309,635

 

 

$

2,189,264

 

 

$

2,382,730

 

 

$

2,189,264

 

Average core deposits

 

$

2,375,002

 

 

$

2,375,101

 

 

$

2,105,716

 

 

$

2,365,553

 

 

$

2,047,776

 

Allowance for credit losses, including unfunded commitment reserves

 

$

35,509

 

 

$

34,950

 

 

$

31,036

 

 

$

35,509

 

 

$

31,036

 

Non-performing assets

 

$

19,420

 

 

$

19,053

 

 

$

17,689

 

 

$

19,420

 

 

$

17,689

 

Allowance for credit losses as a percent of total gross loans and leases

 

 

1.16

%

 

 

1.17

%

 

 

1.12

%

 

 

1.16

%

 

 

1.12

%

Non-performing assets as a percent of total assets

 

 

0.52

%

 

 

0.53

%

 

 

0.52

%

 

 

0.52

%

 

 

0.52

%

 

1. This is a non-GAAP financial measure. Management believes these measures are meaningful because they reflect adjustments commonly made by management, investors, regulators, and analysts to evaluate financial performance, provide greater understanding of ongoing operations, and enhance comparability of results with prior periods. See the section titled Non-GAAP Reconciliations at the end of this release for a reconciliation of GAAP financial measures to non-GAAP financial measures.

2. Calculation is annualized.

Third Quarter 2024 Compared to Second Quarter 2024

Net interest income increased $467,000, or 1.5%, to $31.0 million.

• The increase in net interest income was driven by increases in average loans and leases receivable, partially offset by a decrease in fees in lieu of interest. Average loans and leases receivable increased $69.0 million, or 9.3% annualized, to $3.032 billion. Fees in lieu of interest, which vary from quarter to quarter based on client-driven activity, totaled $942,000, compared to $1.2 million in the prior quarter. Excluding fees in lieu of interest, net interest income increased $752,000, or 2.6%.
• The yield on average interest-earning assets increased 5 basis points to 6.97% from 6.92%. Excluding fees in lieu of interest, the yield earned on average interest-earning assets increased 9 basis points to 6.86% from 6.77%.
• The rate paid for average interest-bearing core deposits increased one basis point to 4.10% from 4.09%. The rate paid for average total bank funding increased 5 basis points to 3.44% from 3.39%. Total bank funding is defined as total deposits plus Federal Home Loan Bank (“FHLB”) advances.
• Net interest margin was 3.64% compared to 3.65% for the linked quarter. Adjusted net interest margin1 was 3.51%, up 4 basis points compared to 3.47% in the linked quarter. The increase in adjusted net interest margin was driven by an increase in the yield on interest-earning assets partially offset by an increase in rate paid on wholesale funding.
• The Company maintains a long-term target for net interest margin in the range of 3.60% - 3.65%. Performance in future quarters will vary due to factors such as the level of fees in lieu of interest and the timing, pace and scale of future interest rate changes.

The Bank reported a provision expense of $2.1 million, compared to $1.7 million in the second quarter of 2024. The quarterly increase was driven by higher specific reserve requirements for Equipment Finance and Small Business Administration ("SBA") borrowers in the Commercial and Industrial ("C&I") loan portfolio. The $2.1 million expense consisted of $1.5 million of net charge-offs, $616,000 due to loan growth, and a $757,000 net increase in specific reserves, partially offset by decreases of $444,000 and $330,000 due to quantitative and qualitative factor changes, respectively. The decrease related to quantitative factors was primarily due to modest improvement in the economic forecast and the decrease related to qualitative factors was due to moderated growth in several portfolios.

Non-interest income decreased $361,000, or 4.9%, to $7.1 million.

• Private Wealth fee income decreased $197,000, or 5.7% to $3.3 million. Private Wealth assets under management and administration measured $3.398 billion on September 30, 2024, up $149.3 million, or 18.4% annualized from the prior quarter. Fee income is based on overall asset levels and may vary based on seasonal activity and the timing of fluctuations in market values.
• Gains on sale of SBA loans increased $111,000, or 31.8%, to $460,000. Management expects the SBA loan sales pipeline to continue building as production increases and previously closed commitments fully fund and become eligible for sale.
• Commercial loan swap fee income of $460,000 increased by $303,000, or 193.0%. Swap fee income varies from period to period based on loan activity and the interest rate environment.
• Other fee income decreased $533,000 or 31.7% to $1.1 million. The decrease was primarily due to lower returns on the Company’s investments in Small Business Investment Company ("SBIC") mezzanine funds. Income from SBIC funds was $193,000 in the third quarter, compared to $796,000 in the linked quarter. Income from SBIC funds varies from period to period based on changes in the realized and unrealized fair value of underlying investments.

Non-interest expense decreased $772,000, or 3.2%, to $23.1 million, while operating expense decreased $1.2 million, or 4.9%, to $22.7 million.

• Compensation expense was $15.2 million, reflecting a decrease of $1.0 million, or 6.3%, from the linked quarter primarily due to a decrease in cash bonus accrual and an increase in capitalized software development compensation. Excluding these two components, compensation was $15.9 million, reflecting a decrease of $334,000, or 2.1% from the linked quarter mainly due to a decrease in individual incentive compensation and social security taxes. Average full-time equivalents (“FTEs”) for the third quarter of 2024 were 355, up from 351 in the linked quarter. Management anticipates compensation expense will approximate this adjusted level in the fourth quarter of 2024.
• Professional fees expense was $1.3 million, decreasing $167,000, or 11.3%, from the linked quarter primarily due to a decrease in outside consulting for various projects.
• Data processing expense was $1.0 million, decreasing $137,000, or 11.6%, from the linked quarter primarily due to annual tax processing costs incurred in the prior quarter for Private Wealth clients.
• FDIC insurance was $810,000, increasing $198,000, or 32.4%, from the linked quarter primarily due to an increase in total assets and use of brokered deposits, instead of FHLB advances, to match-fund the fixed rate loan portfolio.
• Other non-interest expense was $1.3 million, increasing $236,000, or 22.2%, from the linked quarter primarily due to an increase in SBA recourse provision.

Income tax expense increased $434,000, or 22.6%, to $2.4 million. The effective tax rate was 18.3% for the three months ended September 30, 2024, compared to 15.5% for the linked quarter. The increase is primarily driven by adjustments to tax credit investments upon receipt of annual partnership filings. The Company expects to report an effective tax rate between 16% and 18% for 2024.

Total period-end loans and leases receivable increased $65.0 million, or 8.7% annualized, to $3.050 billion. The average rate earned on average loans and leases receivable was 7.32%, up 4 basis points from 7.28% in the prior quarter. Excluding fees in lieu of interest, the average rate earned on average loans and leases receivable was 7.20%, up 9 basis points from 7.11% in the prior quarter.

• Commercial Real Estate (“CRE”) loans increased by $54.0 million, or 12.2% annualized, to $1.829 billion. The increase was primarily due to an increase in construction and multi-family loans in the Wisconsin markets.
• C&I loans increased $12.6 million, or 4.3% annualized, to $1.174 billion. The increase was primarily due to growth in Floorplan Financing, Equipment Financing, and Accounts-Receivable Financing.

Total period-end core deposits increased $73.1 million, or 12.7% annualized, to $2.383 billion, compared to $2.310 billion. The average rate paid remained flat at 3.34%.

• New non-maturity deposit balances of $96.1 million were added at a weighted average rate of 3.91%. Certificate of deposit maturities of $144.0 million at a weighted average rate of 4.50% were replaced by new and renewed certificates of deposit of $127.5 million at a weighted average rate of 4.33%.

Period-end wholesale funding, including FHLB advances and brokered deposits, increased $27.8 million, or 13.0% annualized, to $881.7 million. Consistent with the Bank’s long-held philosophy to manage interest rate risk, management will continue to utilize the most efficient and cost-effective source of wholesale funds to match-fund fixed-rate loans as necessary.

• Wholesale deposits increased $11.7 million, or 8.1% annualized, to $587.2 million, compared to $575.5 million. The average rate paid on wholesale deposits increased 3 basis points to 4.12% and the weighted average original maturity increased to 4.6 years from 4.0 years.
• FHLB advances increased $16.1 million to $294.5 million, compared to $278.4 million. The average rate paid on FHLB advances increased 27 basis points to 2.96% and the weighted average original maturity decreased to 4.6 years from 5.3 years.

Non-performing assets increased $367,000 to $19.4 million, or 0.52% of total assets, down as a percentage of total assets from 0.53% in the prior quarter. While we continue to expect full repayment of the one Asset-Based Lending ("ABL") loan that defaulted during the second quarter of 2023, the liquidation process has transitioned into Chapter 7 bankruptcy, likely delaying final resolution until late 2024 or 2025. Through our collection efforts, the current balance of this loan is $6.4 million, down from $10.0 million in the prior year quarter. Excluding this ABL loan, non-performing assets totaled $13.0 million, or 0.35% of total assets in the current quarter and $12.6 million, or 0.35% of total assets in the linked quarter.

The allowance for credit losses, including the unfunded credit commitments reserve, increased $559,000, or 1.6%, as increases in the general reserve from loan growth, charge-offs, and new specific reserves were partially offset by changes in quantitative and qualitative factors. The allowance for credit losses, including unfunded credit commitment reserves, as a percent of total gross loans and leases was 1.16% compared to 1.17% in the prior quarter.

__________________________________________ 1

Adjusted net interest margin is a non-GAAP measure representing net interest income excluding fees in lieu of interest and other recurring, but volatile, components of net interest margin divided by average interest-earning assets less other recurring, but volatile, components of average interest-earning assets.

 

Third Quarter 2024 Compared to Third Quarter 2023

Net interest income increased $2.4 million, or 8.4%, to $31.0 million.

• The increase in net interest income primarily reflects an increase in average gross loans and leases and an increase in fees in lieu of interest, partially offset by net interest margin compression. Fees in lieu of interest increased to $942,000 from $582,000. Excluding fees in lieu of interest, net interest income increased $2.1 million, or 7.3%.
• The yield on average interest-earning assets increased 26 basis points to 6.97% from 6.71%. Excluding fees in lieu of interest, the yield on average interest-earning assets measured 6.86% compared to 6.63%. This increase in yield was primarily due to the increase in short-term market rates and the reinvestment of cash flows from the securities and fixed-rate loan portfolios in a rising rate environment.
• The rate paid for average interest-bearing core deposits increased 36 basis points to 4.10% from 3.74%. The rate paid for average total bank funding increased 37 basis points to 3.44% from 3.07%.
• Net interest margin decreased 12 basis points to 3.64% from 3.76%. Adjusted net interest margin decreased 15 basis points to 3.51% from 3.66%.

The Company reported a credit loss provision expense of $2.1 million, compared to $1.8 million in the third quarter of 2023. See provision breakdown table below for more detail on the components of provision expense.

Non-interest income decreased $1.4 million, or 16.2%, to $7.1 million.

• Private Wealth fee income increased $319,000, or 10.8%, to $3.3 million. Private Wealth assets under management and administration measured $3.398 billion at September 30, 2024, up $483.3 million, or 16.6%. The increase was due to successful new money efforts as well as market performance.
• Commercial loan swap fee income decreased by $532,000, or 53.6%, to $460,000. Swap fee income varies from period to period based on loan activity and the interest rate environment.
• Gain on sale of SBA loans decreased $391,000, or 45.9%, to $460,000. Management expects the SBA loan sales pipeline to continue building as production increases and previously closed commitments fully fund and become eligible for sale.
• Service charges on deposits increased $85,000, or 10.2%, to $920,000, driven by new core deposit relationships.
• Other fee income decreased $873,000, or 43.2%, to $1.1 million. The decrease was primarily due to lower returns on the Company’s investments in SBIC mezzanine funds in the third quarter. Income from SBIC mezzanine funds was $193,000 in the third quarter, compared to $1.2 million in the prior year quarter. Income from SBIC mezzanine funds varies from period to period based on changes in the realized and unrealized fair value of underlying investments.

Non-interest expense decreased $82,000, or 0.4%, to $23.1 million. Operating expense decreased $290,000, or 1.3%, to $22.7 million.

• Compensation expense decreased $375,000, or 2.4%, to $15.2 million. The decrease in compensation expense was primarily due to a cash bonus accrual adjustment decrease, an increase in capitalized software development compensation, and a decrease in individual incentive compensation. This decrease was partially offset by an increase in average FTEs, annual merit increases, and promotions. Average FTEs increased 3% to 355 in the third quarter of 2024, compared to 349 in the third quarter of 2023.
• Professional fees expense decreased $124,000, or 8.7%, to $1.3 million, primarily due to a decrease in recruiting expense and a decrease in other professional consulting services for various projects.
• Computer software expense increased $319,000, or 24.7%, to $1.6 million, primarily due to our commitment to innovative technology to support growth initiatives, enhance productivity, and improve the client experience.
• Marketing expense increased $164,000, or 21.6%, to $922,000, primarily due to increased business development efforts and advertising projects to support Company growth goals.
• FDIC Insurance increased $130,000, or 19.1%, to $810,000 primarily due to an increase in total assets and an increase use of brokered deposits.
• Other expense decreased $282,000, or 17.8%, to $1.3 million, primarily due to a decrease in liquidations expenses, partially offset by an increase in SBA recourse provision.

Total period-end loans and leases receivable increased $286.3 million, or 10.3%, to $3.050 billion.

• CRE loans increased $194.0 million, or 11.9%, to $1.829 billion, primarily due to increases in all loan categories in the Wisconsin market.
• C&I loans increased $90.6 million, or 8.4%, to $1.174 billion, due to growth across the majority of the Bank’s products and geographies.

Total period-end core deposits grew $193.5 million, or 8.8%, to $2.383 billion, and the average rate paid increased 36 basis points to 3.34%. The increase in average rate paid on core deposits was primarily due to heightened competition and a change in deposit mix. Total average core deposits grew $269.3 million, or 12.8%, to $2.375 billion.

Period-end wholesale funding increased $99.4 million, or 12.7%, to $881.7 million.

• Wholesale deposits increased $119.5 million, or 25.5%, to $587.2 million, as the Bank utilized more wholesale deposits in lieu of FHLB advances to build excess liquidity and to match-fund fixed rate assets. The average rate paid on wholesale deposits increased 9 basis points to 4.12% and the weighted average effective maturity increased to 4.6 years from 4.0 years. Consistent with our balance sheet strategy to use the most efficient and cost-effective source of wholesale funding, the Company has entered into derivative contracts which hedge a portion of the wholesale deposits to reduce the fixed rate funding costs.
• FHLB advances decreased $20.1 million, or 6.4%, to $294.5 million. The average rate paid on FHLB advances increased 48 basis points to 2.96% and the weighted average original maturity decreased to 4.6 years from 5.2 years.

Non-performing assets increased to $19.4 million, or 0.52% of total assets, compared to $17.7 million, or 0.52% of total assets, driven by past-due Equipment Finance loans within the C&I portfolio. Excluding one ABL loan for which we expect full repayment, non-performing assets totaled $13.0 million, or 0.35% of total assets.

The allowance for credit losses, including unfunded commitment reserves, increased $4.5 million to $35.5 million, compared to $31.0 million primarily due to an increase in specific reserves and loan growth, partially offset by chargeoffs. The allowance for credit losses as a percent of total gross loans and leases was 1.16%, compared 1.12% in the prior year.

Subordinated Debt Offering

On September 19, 2024 the Company announced the completion of a private placement of $20.0 million in aggregate principal amount of 7.5% Subordinated Debentures due September 13, 2034 (the “Notes”) on September 13, 2024. The Company used the net proceeds to repay the indebtedness incurred to fund the August 15, 2024 redemption in full of its $15 million in aggregate principal amount of 2019 Fixed-to-Floating Rate Subordinated Notes due August 15, 2029, and the Company intends to use the remaining proceeds to fund the Company’s anticipated future loan growth.

Investor Presentation and Conference Call

On October 24, 2024, the Company posted an investor presentation to its website www.firstbusiness.bank under the “Investor Relations” tab and will also be furnished to the U.S. Securities and Exchange Commission on October 24, 2024. The information included in the presentation provides an overview of the Company’s recent operating performance, financial condition, and business strategy. The Company intends to use this presentation in connection with its third quarter 2024 earnings call to be held at 1:00 p.m. Central time on October 25, 2024, and from time to time when the Company's executives interact with shareholders, analysts, and other third parties. The conference call can be accessed at 800-343-4849 (203-518-9848 if outside the United States and Canada), using the conference call access code: FBIZ. Investors may also listen live via webcast at: https://events.q4inc.com/attendee/456665235. A replay of the call will be available through Friday, November 1, 2024, by calling 800-839-2418 or 402-220-7210 for international participants. The webcast archive of the conference call will be available on the Company’s website, ir.firstbusiness.bank.

About First Business Bank

First Business Bank® specializes in Business Banking, including Commercial Banking and Specialty Finance, Private Wealth, and Bank Consulting services, and through its refined focus delivers unmatched expertise, accessibility, and responsiveness. Specialty Finance solutions are delivered through First Business Bank’s wholly owned subsidiary First Business Specialty Finance, LLC®. First Business Bank is a wholly owned subsidiary of First Business Financial Services, Inc®. (Nasdaq: FBIZ). For additional information, visit firstbusiness.bank.

This release may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which reflect First Business Bank’s current views with respect to future events and financial performance. Forward-looking statements are not based on historical information, but rather are related to future operations, strategies, financial results, or other developments. Forward-looking statements are based on management’s expectations as well as certain assumptions and estimates made by, and information available to, management at the time the statements are made. Those statements are based on general assumptions and are subject to various risks, uncertainties, and other factors that may cause actual results to differ materially from the views, beliefs, and projections expressed in such statements. Such statements are subject to risks and uncertainties, including among other things:

• Adverse changes in the economy or business conditions, either nationally or in our markets including, without limitation, inflation, economic downturn, labor shortages, wage pressures, and the adverse effects of public health events on the global, national, and local economy.
• Competitive pressures among depository and other financial institutions nationally and in the Company’s markets.
• Increases in defaults by borrowers and other delinquencies.
• Management’s ability to manage growth effectively, including the successful expansion of our client service, administrative infrastructure, and internal management systems.
• Fluctuations in interest rates and market prices.
• Changes in legislative or regulatory requirements applicable to the Company and its subsidiaries.
• Changes in tax requirements, including tax rate changes, new tax laws, and revised tax law interpretations.
• Fraud, including client and system failure or breaches of our network security, including the Company’s internet banking activities.
• Failure to comply with the applicable SBA regulations in order to maintain the eligibility of the guaranteed portion of SBA loans.
• Ongoing volatility in the banking sector may result in new legislation, regulations or policy changes that could subject the Company and the Bank to increased government regulation and supervision.
• The proportion of the Company’s deposit account balances that exceed FDIC insurance limits may expose the Bank to enhanced liquidity risk.
• The Company may be subject to increases in FDIC insurance assessments.

For further information about the factors that could affect the Company’s future results, please see the Company’s annual report on Form 10-K for the year ended December 31, 2023 and other filings with the Securities and Exchange Commission.

 

SELECTED FINANCIAL CONDITION DATA

 

(Unaudited)

 

As of

(in thousands)

 

September 30, 2024

 

June 30, 2024

 

March 31, 2024

 

December 31, 2023

 

September 30, 2023

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

131,972

 

 

$

81,080

 

 

$

72,040

 

 

$

139,510

 

 

$

132,915

 

Securities available-for-sale, at fair value

 

 

313,336

 

 

 

308,852

 

 

 

314,114

 

 

 

297,006

 

 

 

272,163

 

Securities held-to-maturity, at amortized cost

 

 

6,907

 

 

 

7,082

 

 

 

8,131

 

 

 

8,503

 

 

 

8,689

 

Loans held for sale

 

 

8,173

 

 

 

6,507

 

 

 

4,855

 

 

 

4,589

 

 

 

4,168

 

Loans and leases receivable

 

 

3,050,079

 

 

 

2,985,414

 

 

 

2,910,864

 

 

 

2,850,261

 

 

 

2,764,014

 

Allowance for credit losses

 

 

(33,688

)

 

 

(33,088

)

 

 

(32,799

)

 

 

(31,275

)

 

 

(29,331

)

Loans and leases receivable, net

 

 

3,016,391

 

 

 

2,952,326

 

 

 

2,878,065

 

 

 

2,818,986

 

 

 

2,734,683

 

Premises and equipment, net

 

 

5,478

 

 

 

6,381

 

 

 

6,268

 

 

 

6,190

 

 

 

6,157

 

Repossessed assets

 

 

56

 

 

 

54

 

 

 

317

 

 

 

247

 

 

 

61

 

Right-of-use assets

 

 

5,789

 

 

 

6,041

 

 

 

6,297

 

 

 

6,559

 

 

 

6,800

 

Bank-owned life insurance

 

 

56,767

 

 

 

56,351

 

 

 

55,948

 

 

 

55,536

 

 

 

55,123

 

Federal Home Loan Bank stock, at cost

 

 

12,775

 

 

 

11,901

 

 

 

13,326

 

 

 

12,042

 

 

 

13,528

 

Goodwill and other intangible assets

 

 

11,834

 

 

 

11,841

 

 

 

11,950

 

 

 

12,023

 

 

 

12,110

 

Derivatives

 

 

42,539

 

 

 

70,773

 

 

 

69,703

 

 

 

55,597

 

 

 

93,702

 

Accrued interest receivable and other assets

 

 

103,707

 

 

 

97,872

 

 

 

90,344

 

 

 

91,058

 

 

 

78,751

 

Total assets

 

$

3,715,724

 

 

$

3,617,061

 

 

$

3,531,358

 

 

$

3,507,846

 

 

$

3,418,850

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

Core deposits

 

$

2,382,730

 

 

$

2,309,635

 

 

$

2,297,843

 

 

$

2,339,071

 

 

$

2,189,264

 

Wholesale deposits

 

 

587,217

 

 

 

575,548

 

 

 

457,563

 

 

 

457,708

 

 

 

467,743

 

Total deposits

 

 

2,969,947

 

 

 

2,885,183

 

 

 

2,755,406

 

 

 

2,796,779

 

 

 

2,657,007

 

Federal Home Loan Bank advances and other borrowings

 

 

349,109

 

 

 

327,855

 

 

 

381,718

 

 

 

330,916

 

 

 

363,891

 

Lease liabilities

 

 

8,054

 

 

 

8,361

 

 

 

8,664

 

 

 

8,954

 

 

 

9,236

 

Derivatives

 

 

45,399

 

 

 

61,821

 

 

 

61,133

 

 

 

51,949

 

 

 

78,696

 

Accrued interest payable and other liabilities

 

 

31,233

 

 

 

28,671

 

 

 

26,649

 

 

 

29,660

 

 

 

29,262

 

Total liabilities

 

 

3,403,742

 

 

 

3,311,891

 

 

 

3,233,570

 

 

 

3,218,258

 

 

 

3,138,092

 

Total stockholders’ equity

 

 

311,982

 

 

 

305,170

 

 

 

297,788

 

 

 

289,588

 

 

 

280,758

 

Total liabilities and stockholders’ equity

 

$

3,715,724

 

 

$

3,617,061

 

 

$

3,531,358

 

 

$

3,507,846

 

 

$

3,418,850

 

 

STATEMENTS OF INCOME

(Unaudited)

 

As of and for the Three Months Ended

 

As of and for the Nine Months Ended

(Dollars in thousands, except per share amounts)

 

September 30, 2024

 

June 30, 2024

 

March 31, 2024

 

December 31, 2023

 

September 30, 2023

 

September 30, 2024

 

September 30, 2023

Total interest income

 

$

59,327

 

$

57,910

 

$

55,783

 

 

$

54,762

 

$

50,941

 

$

173,020

 

 

$

140,167

 

Total interest expense

 

 

28,320

 

 

27,370

 

 

26,272

 

 

 

25,222

 

 

22,345

 

 

81,961

 

 

 

57,118

 

Net interest income

 

 

31,007

 

 

30,540

 

 

29,511

 

 

 

29,540

 

 

28,596

 

 

91,059

 

 

 

83,049

 

Provision for credit losses

 

 

2,087

 

 

1,713

 

 

2,326

 

 

 

2,573

 

 

1,817

 

 

6,126

 

 

 

5,610

 

Net interest income after provision for credit losses

 

 

28,920

 

 

28,827

 

 

27,185

 

 

 

26,967

 

 

26,779

 

 

84,933

 

 

 

77,439

 

Private wealth management service fees

 

 

3,264

 

 

3,461

 

 

3,111

 

 

 

2,933

 

 

2,945

 

 

9,835

 

 

 

8,492

 

Gain on sale of SBA loans

 

 

460

 

 

349

 

 

195

 

 

 

284

 

 

851

 

 

1,004

 

 

 

1,771

 

Service charges on deposits

 

 

920

 

 

951

 

 

940

 

 

 

848

 

 

835

 

 

2,810

 

 

 

2,283

 

Loan fees

 

 

812

 

 

826

 

 

847

 

 

 

869

 

 

786

 

 

2,486

 

 

 

2,495

 

Loss on sale of securities

 

 

—

 

 

—

 

 

(8

)

 

 

—

 

 

—

 

 

(8

)

 

 

(45

)

Swap fees

 

 

460

 

 

157

 

 

198

 

 

 

438

 

 

992

 

 

815

 

 

 

2,526

 

Other non-interest income

 

 

1,148

 

 

1,681

 

 

1,474

 

 

 

1,722

 

 

2,021

 

 

4,304

 

 

 

6,692

 

Total non-interest income

 

 

7,064

 

 

7,425

 

 

6,757

 

 

 

7,094

 

 

8,430

 

 

21,246

 

 

 

24,214

 

Compensation

 

 

15,198

 

 

16,215

 

 

16,157

 

 

 

14,450

 

 

15,573

 

 

47,570

 

 

 

46,610

 

Occupancy

 

 

585

 

 

593

 

 

607

 

 

 

571

 

 

575

 

 

1,785

 

 

 

1,809

 

Professional fees

 

 

1,305

 

 

1,472

 

 

1,571

 

 

 

1,313

 

 

1,429

 

 

4,348

 

 

 

4,012

 

Data processing

 

 

1,045

 

 

1,182

 

 

1,018

 

 

 

936

 

 

953

 

 

3,245

 

 

 

2,889

 

Marketing

 

 

922

 

 

850

 

 

818

 

 

 

724

 

 

758

 

 

2,591

 

 

 

2,165

 

Equipment

 

 

333

 

 

335

 

 

345

 

 

 

340

 

 

349

 

 

1,013

 

 

 

1,000

 

Computer software

 

 

1,608

 

 

1,555

 

 

1,418

 

 

 

1,317

 

 

1,289

 

 

4,581

 

 

 

3,668

 

FDIC insurance

 

 

810

 

 

612

 

 

610

 

 

 

585

 

 

680

 

 

2,032

 

 

 

1,653

 

Other non-interest expense

 

 

1,301

 

 

1,065

 

 

798

 

 

 

1,352

 

 

1,583

 

 

3,164

 

 

 

3,181

 

Total non-interest expense

 

 

23,107

 

 

23,879

 

 

23,342

 

 

 

21,588

 

 

23,189

 

 

70,329

 

 

 

66,987

 

Income before income tax expense

 

 

12,877

 

 

12,373

 

 

10,600

 

 

 

12,473

 

 

12,020

 

 

35,850

 

 

 

34,666

 

Income tax expense

 

 

2,351

 

 

1,917

 

 

1,752

 

 

 

2,703

 

 

2,079

 

 

6,020

 

 

 

7,409

 

Net income

 

$

10,526

 

$

10,456

 

$

8,848

 

 

$

9,770

 

$

9,941

 

$

29,830

 

 

$

27,257

 

Preferred stock dividends

 

 

218

 

 

219

 

 

219

 

 

 

219

 

 

218

 

 

656

 

 

 

656

 

Net income available to common shareholders

 

$

10,308

 

$

10,237

 

$

8,629

 

 

$

9,551

 

$

9,723

 

$

29,174

 

 

$

26,601

 

Per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings

 

$

1.24

 

$

1.23

 

$

1.04

 

 

$

1.15

 

$

1.17

 

$

3.50

 

 

$

3.19

 

Diluted earnings

 

 

1.24

 

 

1.23

 

 

1.04

 

 

 

1.15

 

 

1.17

 

 

3.50

 

 

 

3.19

 

Dividends declared

 

 

0.2500

 

 

0.2500

 

 

0.2500

 

 

 

0.2275

 

 

0.2275

 

 

0.7500

 

 

 

0.6825

 

Book value

 

 

36.17

 

 

35.35

 

 

34.41

 

 

 

33.39

 

 

32.32

 

 

36.17

 

 

 

32.32

 

Tangible book value

 

 

34.74

 

 

33.92

 

 

32.97

 

 

 

31.94

 

 

30.87

 

 

34.74

 

 

 

30.87

 

Weighted-average common shares outstanding(1)

 

 

8,111,215

 

 

8,113,246

 

 

8,125,319

 

 

 

8,110,462

 

 

8,107,641

 

 

8,149,949

 

 

 

8,134,587

 

Weighted-average diluted common shares outstanding(1)

 

 

8,111,215

 

 

8,113,246

 

 

8,125,319

 

 

 

8,110,462

 

 

8,107,641

 

 

8,149,949

 

 

 

8,134,587

 

(1) Excluding participating securities.

 

NET INTEREST INCOME ANALYSIS

(Unaudited)

 

For the Three Months Ended

(Dollars in thousands)

 

September 30, 2024

 

June 30, 2024

 

September 30, 2023

 

 

Average Balance

 

Interest

 

Average Yield/Rate(4)

 

Average Balance

 

Interest

 

Average Yield/Rate(4)

 

Average Balance

 

Interest

 

Average Yield/Rate(4)

Interest-earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate and other mortgage loans(1)

 

$

1,805,020

 

$

30,340

 

6.72

%

 

$

1,765,743

 

$

29,299

 

6.64

%

 

$

1,605,464

 

$

25,623

 

6.38

%

Commercial and industrial loans(1)

 

 

1,177,112

 

 

24,481

 

8.32

 

 

 

1,146,312

 

 

23,869

 

8.33

 

 

 

1,059,512

 

 

21,635

 

8.17

 

Consumer and other loans(1)

 

 

49,748

 

 

685

 

5.51

 

 

 

50,872

 

 

725

 

5.70

 

 

 

46,875

 

 

610

 

5.21

 

Total loans and leases receivable(1)

 

 

3,031,880

 

 

55,506

 

7.32

 

 

 

2,962,927

 

 

53,893

 

7.28

 

 

 

2,711,851

 

 

47,868

 

7.06

 

Mortgage-related securities(2)

 

 

269,842

 

 

2,662

 

3.95

 

 

 

261,828

 

 

2,609

 

3.99

 

 

 

204,291

 

 

1,681

 

3.29

 

Other investment securities(3)

 

 

51,446

 

 

315

 

2.45

 

 

 

60,780

 

 

443

 

2.92

 

 

 

67,546

 

 

517

 

3.06

 

FHLB stock

 

 

11,960

 

 

285

 

9.53

 

 

 

12,656

 

 

291

 

9.20

 

 

 

14,770

 

 

323

 

8.75

 

Short-term investments

 

 

40,406

 

 

559

 

5.53

 

 

 

48,836

 

 

674

 

5.52

 

 

 

40,318

 

 

552

 

5.48

 

Total interest-earning assets

 

 

3,405,534

 

 

59,327

 

6.97

 

 

 

3,347,027

 

 

57,910

 

6.92

 

 

 

3,038,776

 

 

50,941

 

6.71

 

Non-interest-earning assets

 

 

231,353

 

 

 

 

 

 

245,188

 

 

 

 

 

 

237,464

 

 

 

 

Total assets

 

$

3,636,887

 

 

 

 

 

$

3,592,215

 

 

 

 

 

$

3,276,240

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transaction accounts

 

$

864,936

 

 

8,451

 

3.91

 

 

$

880,752

 

 

8,737

 

3.97

 

 

$

731,529

 

 

6,774

 

3.70

 

Money market

 

 

850,590

 

 

8,780

 

4.13

 

 

 

815,846

 

 

8,264

 

4.05

 

 

 

657,183

 

 

5,871

 

3.57

 

Certificates of deposit

 

 

219,315

 

 

2,584

 

4.71

 

 

 

241,535

 

 

2,803

 

4.64

 

 

 

282,674

 

 

2,986

 

4.23

 

Wholesale deposits

 

 

531,472

 

 

5,475

 

4.12

 

 

 

476,149

 

 

4,871

 

4.09

 

 

 

410,494

 

 

4,172

 

4.07

 

Total interest-bearing deposits

 

 

2,466,313

 

 

25,290

 

4.10

 

 

 

2,414,282

 

 

24,675

 

4.09

 

 

 

2,081,880

 

 

19,803

 

3.80

 

FHLB advances

 

 

278,103

 

 

2,059

 

2.96

 

 

 

294,043

 

 

1,974

 

2.69

 

 

 

342,117

 

 

2,117

 

2.48

 

Other borrowings

 

 

50,642

 

 

971

 

7.67

 

 

 

49,481

 

 

721

 

5.83

 

 

 

34,745

 

 

425

 

4.89

 

Total interest-bearing liabilities

 

 

2,795,058

 

 

28,320

 

4.05

 

 

 

2,757,806

 

 

27,370

 

3.97

 

 

 

2,458,742

 

 

22,345

 

3.64

 

Non-interest-bearing demand deposit accounts

 

 

440,161

 

 

 

 

 

 

436,968

 

 

 

 

 

 

434,330

 

 

 

 

Other non-interest-bearing liabilities

 

 

91,520

 

 

 

 

 

 

95,484

 

 

 

 

 

 

105,079

 

 

 

 

Total liabilities

 

 

3,326,739

 

 

 

 

 

 

3,290,258

 

 

 

 

 

 

2,998,151

 

 

 

 

Stockholders’ equity

 

 

310,148

 

 

 

 

 

 

301,957

 

 

 

 

 

 

278,089

 

 

 

 

Total liabilities and stockholders’ equity

 

$

3,636,887

 

 

 

 

 

$

3,592,215

 

 

 

 

 

$

3,276,240

 

 

 

 

Net interest income

 

 

 

$

31,007

 

 

 

 

 

$

30,540

 

 

 

 

 

$

28,596

 

 

Interest rate spread

 

 

 

 

 

2.92

%

 

 

 

 

 

2.95

%

 

 

 

 

 

3.07

%

Net interest-earning assets

 

$

610,476

 

 

 

 

 

$

589,221

 

 

 

 

 

$

580,034

 

 

 

 

Net interest margin

 

 

 

 

 

3.64

%

 

 

 

 

 

3.65

%

 

 

 

 

 

3.76

%

 

(1) The average balances of loans and leases include non-accrual loans and leases and loans held for sale. Interest income related to non-accrual loans and leases is recognized when collected. Interest income includes net loan fees collected in lieu of interest.

(2) Includes amortized cost basis of assets available for sale and held to maturity.

(3) Yields on tax-exempt municipal obligations are not presented on a tax-equivalent basis in this table.

(4) Represents annualized yields/rates.

 

 

 

For the Nine Months Ended September 30,

 

 

2024

 

2023

 

 

Average Balance

 

Interest

 

Average Yield/Rate(4)

 

Average Balance

 

Interest

 

Average Yield/Rate(4)

 

 

(Dollars in Thousands)

Interest-earning assets

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate and other mortgage loans(1)

 

$

1,764,133

 

 

$

87,759

 

6.63

%

 

$

1,556,988

 

 

$

71,011

 

6.08

%

Commercial and industrial loans(1)

 

 

1,146,495

 

 

 

71,074

 

8.27

 

 

 

988,359

 

 

 

59,213

 

7.99

 

Consumer and other loans(1)

 

 

50,386

 

 

 

2,114

 

5.59

 

 

 

47,594

 

 

 

1,738

 

4.87

 

Total loans and leases receivable(1)

 

 

2,961,014

 

 

 

160,947

 

7.25

 

 

 

2,592,941

 

 

 

131,962

 

6.79

 

Mortgage-related securities(2)

 

 

257,914

 

 

 

7,547

 

3.90

 

 

 

193,196

 

 

 

4,372

 

3.02

 

Other investment securities(3)

 

 

60,037

 

 

 

1,276

 

2.83

 

 

 

61,396

 

 

 

1,229

 

2.67

 

FHLB and FRB stock

 

 

12,294

 

 

 

859

 

9.32

 

 

 

15,904

 

 

 

952

 

7.98

 

Short-term investments

 

 

58,040

 

 

 

2,391

 

5.49

 

 

 

43,437

 

 

 

1,652

 

5.07

 

Total interest-earning assets

 

 

3,349,299

 

 

 

173,020

 

6.89

 

 

 

2,906,874

 

 

 

140,167

 

6.43

 

Non-interest-earning assets

 

 

236,569

 

 

 

 

 

 

 

223,552

 

 

 

 

 

Total assets

 

$

3,585,868

 

 

 

 

 

 

$

3,130,426

 

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Transaction accounts

 

$

869,511

 

 

 

25,635

 

3.93

 

 

$

657,155

 

 

 

16,070

 

3.26

 

Money market accounts

 

 

809,593

 

 

 

24,609

 

4.05

 

 

 

663,284

 

 

 

14,984

 

3.01

 

Certificates of deposit

 

 

246,267

 

 

 

8,597

 

4.65

 

 

 

271,684

 

 

 

8,049

 

3.95

 

Wholesale deposits

 

 

488,543

 

 

 

14,961

 

4.08

 

 

 

311,038

 

 

 

9,671

 

4.14

 

Total interest-bearing deposits

 

 

2,413,914

 

 

 

73,802

 

4.08

 

 

 

1,903,161

 

 

 

48,774

 

3.42

 

FHLB advances

 

 

286,454

 

 

 

5,750

 

2.68

 

 

 

368,913

 

 

 

7,030

 

2.54

 

Other borrowings

 

 

49,863

 

 

 

2,409

 

6.44

 

 

 

35,351

 

 

 

1,314

 

4.96

 

Total interest-bearing liabilities

 

 

2,750,231

 

 

 

81,961

 

3.97

 

 

 

2,307,425

 

 

 

57,118

 

3.30

 

Non-interest-bearing demand deposit accounts

 

 

440,182

 

 

 

 

 

 

 

455,653

 

 

 

 

 

Other non-interest-bearing liabilities

 

 

93,430

 

 

 

 

 

 

 

96,883

 

 

 

 

 

Total liabilities

 

 

3,283,843

 

 

 

 

 

 

 

2,859,961

 

 

 

 

 

Stockholders’ equity

 

 

302,025

 

 

 

 

 

 

 

270,465

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

3,585,868

 

 

 

 

 

 

$

3,130,426

 

 

 

 

 

Net interest income

 

 

 

$

91,059

 

 

 

 

 

$

83,049

 

 

Interest rate spread

 

 

 

 

 

2.91

%

 

 

 

 

 

3.13

%

Net interest-earning assets

 

$

599,068

 

 

 

 

 

 

$

599,449

 

 

 

 

 

Net interest margin

 

 

 

 

 

3.62

%

 

 

 

 

 

3.81

%

Average interest-earning assets to average interest-bearing liabilities

 

 

121.78

%

 

 

 

 

 

 

125.98

%

 

 

 

 

Return on average assets(4)

 

 

1.08

%

 

 

 

 

 

 

1.13

%

 

 

 

 

Return on average common equity(4)

 

 

13.41

%

 

 

 

 

 

 

13.72

%

 

 

 

 

Average equity to average assets

 

 

8.42

%

 

 

 

 

 

 

8.64

%

 

 

 

 

Non-interest expense to average assets(4)

 

 

2.62

%

 

 

 

 

 

 

2.85

%

 

 

 

 

 

PROVISION FOR CREDIT LOSS COMPOSITION

 

(Unaudited)

 

For the Three Months Ended

 

For the Nine Months Ended

(Dollars in thousands)

 

September 30, 2024

 

June 30, 2024

 

March 31, 2024

 

December 31, 2023

 

September 30, 2023

 

September 30, 2024

 

September 30, 2023

Change due to qualitative factor changes

 

$

(444

)

 

$

496

 

 

$

740

 

 

$

(432

)

 

$

506

 

 

$

793

 

 

$

465

 

Change due to quantitative factor changes

 

 

(330

)

 

 

150

 

 

 

(199

)

 

 

(260

)

 

 

(1,372

)

 

 

(380

)

 

 

(1,193

)

Charge-offs

 

 

1,619

 

 

 

1,583

 

 

 

921

 

 

 

724

 

 

 

562

 

 

 

4,123

 

 

 

1,057

 

Recoveries

 

 

(91

)

 

 

(191

)

 

 

(227

)

 

 

(114

)

 

 

(84

)

 

 

(509

)

 

 

(435

)

Change in reserves on individually evaluated loans, net

 

 

757

 

 

 

(1,037

)

 

 

629

 

 

 

2,008

 

 

 

1,265

 

 

 

348

 

 

 

2,322

 

Change due to loan growth, net

 

 

616

 

 

 

680

 

 

 

354

 

 

 

629

 

 

 

817

 

 

 

1,652

 

 

 

3,023

 

Change in unfunded commitment reserves

 

 

(40

)

 

 

32

 

 

 

108

 

 

 

17

 

 

 

123

 

 

 

99

 

 

 

371

 

Total provision for credit losses

 

$

2,087

 

 

$

1,713

 

 

$

2,326

 

 

$

2,572

 

 

$

1,817

 

 

$

6,126

 

 

$

5,610

 

 

PERFORMANCE RATIOS

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

(Unaudited)

 

September 30, 2024

 

June 30, 2024

 

March 31, 2024

 

December 31, 2023

 

September 30, 2023

 

September 30, 2024

 

September 30, 2023

Return on average assets (annualized)

 

1.13

%

 

1.14

%

 

0.98

%

 

1.11

%

 

1.19

%

 

1.08

%

 

1.13

%

Return on average common equity (annualized)

 

 

13.83

%

 

 

14.12

%

 

 

12.24

%

 

 

13.99

%

 

 

14.62

%

 

 

13.41

%

 

 

13.72

%

Efficiency ratio

 

 

59.50

%

 

 

62.75

%

 

 

63.76

%

 

 

58.34

%

 

 

61.96

%

 

 

62.04

%

 

 

61.89

%

Interest rate spread

 

 

2.92

%

 

 

2.95

%

 

 

2.88

%

 

 

2.97

%

 

 

3.07

%

 

 

2.91

%

 

 

3.13

%

Net interest margin

 

 

3.64

%

 

 

3.65

%

 

 

3.58

%

 

 

3.69

%

 

 

3.76

%

 

 

3.62

%

 

 

3.81

%

Average interest-earning assets to average interest-bearing liabilities

 

 

121.84

%

 

 

121.37

%

 

 

122.15

%

 

 

123.02

%

 

 

123.59

%

 

 

121.78

%

 

 

125.98

%

 

ASSET QUALITY RATIOS

 

(Unaudited)

 

As of

(Dollars in thousands)

 

September 30, 2024

 

June 30, 2024

 

March 31, 2024

 

December 31, 2023

 

September 30, 2023

Non-accrual loans and leases

 

$

19,364

 

 

$

18,999

 

 

$

19,829

 

 

$

20,597

 

 

$

17,628

 

Repossessed assets

 

 

56

 

 

 

54

 

 

 

317

 

 

 

247

 

 

 

61

 

Total non-performing assets

 

$

19,420

 

 

$

19,053

 

 

$

20,146

 

 

$

20,844

 

 

$

17,689

 

Non-accrual loans and leases as a percent of total gross loans and leases

 

 

0.63

%

 

 

0.64

%

 

 

0.68

%

 

 

0.72

%

 

 

0.64

%

Non-performing assets as a percent of total gross loans and leases plus repossessed assets

 

 

0.64

%

 

 

0.64

%

 

 

0.69

%

 

 

0.73

%

 

 

0.64

%

Non-performing assets as a percent of total assets

 

 

0.52

%

 

 

0.53

%

 

 

0.57

%

 

 

0.59

%

 

 

0.52

%

Allowance for credit losses as a percent of total gross loans and leases

 

 

1.16

%

 

 

1.17

%

 

 

1.19

%

 

 

1.16

%

 

 

1.12

%

Allowance for credit losses as a percent of non-accrual loans and leases

 

 

183.38

%

 

 

183.96

%

 

 

174.64

%

 

 

160.21

%

 

 

176.06

%

 

NET CHARGE-OFFS (RECOVERIES)

 

(Unaudited)

 

For the Three Months Ended

 

For the Nine Months Ended

(Dollars in thousands)

 

September 30, 2024

 

June 30, 2024

 

March 31, 2024

 

December 31, 2023

 

September 30, 2023

 

September 30, 2024

 

September 30, 2023

Charge-offs

 

$

1,619

 

 

$

1,583

 

 

$

921

 

 

$

724

 

 

$

562

 

 

$

4,123

 

 

$

1,057

 

Recoveries

 

 

(91

)

 

 

(191

)

 

 

(227

)

 

 

(114

)

 

 

(84

)

 

 

(509

)

 

 

(435

)

Net charge-offs (recoveries)

 

$

1,528

 

 

$

1,392

 

 

$

694

 

 

$

610

 

 

$

478

 

 

$

3,614

 

 

$

622

 

Net charge-offs (recoveries) as a percent of average gross loans and leases (annualized)

 

 

0.20

%

 

 

0.19

%

 

 

0.10

%

 

 

0.09

%

 

 

0.07

%

 

 

0.16

%

 

 

0.03

%

 

CAPITAL RATIOS

 

 

 

As of and for the Three Months Ended

(Unaudited)

 

September 30, 2024

 

June 30, 2024

 

March 31, 2024

 

December 31, 2023

 

September 30, 2023

Total capital to risk-weighted assets

 

11.72

%

 

11.45

%

 

11.36

%

 

11.19

%

 

11.20

%

Tier I capital to risk-weighted assets

 

 

9.11

%

 

 

8.99

%

 

 

8.86

%

 

 

8.74

%

 

 

8.74

%

Common equity tier I capital to risk-weighted assets

 

 

8.76

%

 

 

8.64

%

 

 

8.51

%

 

 

8.38

%

 

 

8.37

%

Tier I capital to adjusted assets

 

 

8.68

%

 

 

8.51

%

 

 

8.45

%

 

 

8.43

%

 

 

8.65

%

Tangible common equity to tangible assets

 

 

7.78

%

 

 

7.80

%

 

 

7.78

%

 

 

7.60

%

 

 

7.53

%

 

LOAN AND LEASE RECEIVABLE COMPOSITION

 

(Unaudited)

 

As of

(in thousands)

 

September 30, 2024

 

June 30, 2024

 

March 31, 2024

 

December 31, 2023

 

September 30, 2023

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

Commercial real estate - owner occupied

 

$

259,532

 

$

258,636

 

 

$

263,748

 

 

$

256,479

 

 

$

236,058

 

Commercial real estate - non-owner occupied

 

 

768,195

 

 

 

777,704

 

 

 

792,858

 

 

 

773,494

 

 

 

753,517

 

Construction

 

 

266,762

 

 

 

229,181

 

 

 

202,382

 

 

 

193,080

 

 

 

211,828

 

Multi-family

 

 

494,954

 

 

 

470,176

 

 

 

453,321

 

 

 

450,529

 

 

 

409,714

 

1-4 family

 

 

39,933

 

 

 

39,680

 

 

 

27,482

 

 

 

26,289

 

 

 

24,235

 

Total commercial real estate

 

 

1,829,376

 

 

 

1,775,377

 

 

 

1,739,791

 

 

 

1,699,871

 

 

 

1,635,352

 

Commercial and industrial

 

 

1,174,295

 

 

 

1,161,711

 

 

 

1,120,779

 

 

 

1,105,835

 

 

 

1,083,698

 

Consumer and other

 

 

46,610

 

 

 

48,145

 

 

 

50,020

 

 

 

44,312

 

 

 

44,808

 

Total gross loans and leases receivable

 

 

3,050,281

 

 

 

2,985,233

 

 

 

2,910,590

 

 

 

2,850,018

 

 

 

2,763,858

 

Less:

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses

 

 

33,688

 

 

 

33,088

 

 

 

32,799

 

 

 

31,275

 

 

 

29,331

 

Deferred loan fees

 

 

202

 

 

 

(181

)

 

 

(274

)

 

 

(243

)

 

 

(156

)

Loans and leases receivable, net

 

$

3,016,391

 

 

$

2,952,326

 

 

$

2,878,065

 

 

$

2,818,986

 

 

$

2,734,683

 

   

DEPOSIT COMPOSITION

 

(Unaudited)

 

As of

(in thousands)

 

September 30, 2024

 

June 30, 2024

 

March 31, 2024

 

December 31, 2023

 

September 30, 2023

Non-interest-bearing transaction accounts

 

$

428,012

 

 

$

406,804

 

 

$

400,267

 

 

$

445,376

 

 

$

430,011

 

Interest-bearing transaction accounts

 

 

930,252

 

 

 

841,146

 

 

 

818,080

 

 

 

895,319

 

 

 

779,789

 

Money market accounts

 

 

817,129

 

 

 

837,569

 

 

 

813,467

 

 

 

711,245

 

 

 

694,199

 

Certificates of deposit

 

 

207,337

 

 

 

224,116

 

 

 

266,029

 

 

 

287,131

 

 

 

285,265

 

Wholesale deposits

 

 

587,217

 

 

 

575,548

 

 

 

457,563

 

 

 

457,708

 

 

 

467,743

 

Total deposits

 

$

2,969,947

 

 

$

2,885,183

 

 

$

2,755,406

 

 

$

2,796,779

 

 

$

2,657,007

 

 

 

 

 

 

 

 

 

 

 

 

Uninsured deposits

 

$

1,088,496

 

 

$

1,011,977

 

 

$

995,428

 

 

$

994,687

 

 

$

916,083

 

Less: uninsured deposits collateralized by pledged assets

 

 

10,755

 

 

 

34,810

 

 

 

16,622

 

 

 

17,051

 

 

 

28,873

 

Total uninsured, net of collateralized deposits

 

 

1,077,741

 

 

 

977,167

 

 

 

978,806

 

 

 

977,636

 

 

 

887,210

 

% of total deposits

 

 

36.3

%

 

 

33.9

%

 

 

35.5

%

 

 

35.0

%

 

 

33.4

%

 

SOURCES OF LIQUIDITY

 

(Unaudited)

 

As of

(in thousands)

 

September 30, 2024

 

June 30, 2024

 

March 31, 2024

 

December 31, 2023

 

September 30, 2023

Short-term investments

 

$

86,670

 

$

54,680

 

$

46,984

 

$

107,162

 

$

109,612

Collateral value of unencumbered pledged loans

 

 

397,852

 

 

 

401,602

 

 

 

340,639

 

 

 

367,471

 

 

 

315,067

 

Market value of unencumbered securities

 

 

279,191

 

 

 

289,104

 

 

 

288,965

 

 

 

259,791

 

 

 

236,618

 

Readily accessible liquidity

 

 

763,713

 

 

 

745,386

 

 

 

676,588

 

 

 

734,424

 

 

 

661,297

 

 

 

 

 

 

 

 

 

 

 

 

Fed fund lines

 

 

45,000

 

 

 

45,000

 

 

 

45,000

 

 

 

45,000

 

 

 

45,000

 

Excess brokered CD capacity(1)

 

 

1,102,767

 

 

 

1,051,678

 

 

 

1,166,661

 

 

 

1,231,791

 

 

 

1,090,864

 

Total liquidity

 

$

1,911,480

 

 

$

1,842,064

 

 

$

1,888,249

 

 

$

2,011,215

 

 

$

1,797,161

 

Total uninsured, net of collateralized deposits

 

 

1,077,741

 

 

 

977,167

 

 

 

978,806

 

 

 

977,636

 

 

 

887,210

 

 

1. Bank internal policy limits brokered CDs to 50% of total bank funding when combined with FHLB advances.

 

PRIVATE WEALTH OFF-BALANCE SHEET COMPOSITION

 

(Unaudited)

 

As of

(in thousands)

 

September 30, 2024

 

June 30, 2024

 

March 31, 2024

 

December 31, 2023

 

September 30, 2023

Trust assets under management

 

$

3,145,789

 

$

3,008,897

 

$

3,080,951

 

$

2,898,516

 

$

2,715,801

Trust assets under administration

 

 

252,152

 

 

 

239,766

 

 

 

239,249

 

 

 

223,013

 

 

 

198,864

 

Total trust assets

 

$

3,397,941

 

 

$

3,248,663

 

 

$

3,320,200

 

 

$

3,121,529

 

 

$

2,914,665

 

 

NON-GAAP RECONCILIATIONS

Certain financial information provided in this release is determined by methods other than in accordance with generally accepted accounting principles (United States) (“GAAP”). Although the Company’s management believes that these non-GAAP financial measures provide a greater understanding of its business, these measures are not necessarily comparable to similar measures that may be presented by other companies.

TANGIBLE BOOK VALUE

“Tangible book value per share” is a non-GAAP measure representing tangible common equity divided by total common shares outstanding. “Tangible common equity” itself is a non-GAAP measure representing common stockholders’ equity reduced by intangible assets, if any. The Company’s management believes that this measure is important to many investors in the marketplace who are interested in period-to-period changes in book value per common share exclusive of changes in intangible assets. The information provided below reconciles tangible book value per share and tangible common equity to their most comparable GAAP measures.

 

(Unaudited)

 

As of

(Dollars in thousands, except per share amounts)

 

September 30, 2024

 

June 30, 2024

 

March 31, 2024

 

December 31, 2023

 

September 30, 2023

Common stockholders’ equity

 

$

299,990

 

 

$

293,178

 

 

$

285,796

 

 

$

277,596

 

 

$

268,766

 

Less: Goodwill and other intangible assets

 

 

(11,834

)

 

 

(11,841

)

 

 

(11,950

)

 

 

(12,023

)

 

 

(12,110

)

Tangible common equity

 

$

288,156

 

 

$

281,337

 

 

$

273,846

 

 

$

265,573

 

 

$

256,656

 

Common shares outstanding

 

 

8,295,017

 

 

 

8,294,589

 

 

 

8,306,573

 

 

 

8,314,778

 

 

 

8,315,186

 

Book value per share

 

$

36.17

 

 

$

35.35

 

 

$

34.41

 

 

$

33.39

 

 

$

32.32

 

Tangible book value per share

 

 

34.74

 

 

 

33.92

 

 

 

32.97

 

 

 

31.94

 

 

 

30.87

 

 

TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS

“Tangible common equity to tangible assets” (“TCE”) is defined as the ratio of common stockholders’ equity reduced by intangible assets, if any, divided by total assets reduced by intangible assets, if any. Adjusted TCE ratio is defined as TCE adjusted for net fair value adjustments of financial assets and liabilities. For more information on fair value adjustments please refer to Note 19 - Fair Value Disclosures in the annual report on Form 10-K for the year ended December 31, 2023. The Company’s management believes that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period in common equity and total assets, each exclusive of changes in intangible assets. The information below reconciles tangible common equity and tangible assets to their most comparable GAAP measures.

 

(Unaudited)

 

As of

(Dollars in thousands)

 

September 30, 2024

 

June 30, 2024

 

March 31, 2024

 

December 31, 2023

 

September 30, 2023

Common stockholders’ equity

 

$

299,990

 

 

$

293,178

 

 

$

285,796

 

 

$

277,596

 

 

$

268,766

 

Less: Goodwill and other intangible assets

 

 

(11,834

)

 

 

(11,841

)

 

 

(11,950

)

 

 

(12,023

)

 

 

(12,110

)

Tangible common equity (a)

 

$

288,156

 

 

$

281,337

 

 

$

273,846

 

 

$

265,573

 

 

$

256,656

 

Total assets

 

$

3,715,724

 

 

$

3,617,061

 

 

$

3,531,358

 

 

$

3,507,846

 

 

$

3,418,850

 

Less: Goodwill and other intangible assets

 

 

(11,834

)

 

 

(11,841

)

 

 

(11,950

)

 

 

(12,023

)

 

 

(12,110

)

Tangible assets (b)

 

$

3,703,890

 

 

$

3,605,220

 

 

$

3,519,408

 

 

$

3,495,823

 

 

$

3,406,740

 

Tangible common equity to tangible assets

 

 

7.78

%

 

 

7.80

%

 

 

7.78

%

 

 

7.60

%

 

 

7.53

%

 

 

 

 

 

 

 

 

 

 

 

Fair Value Adjustments:

 

 

 

 

 

 

 

 

 

 

Financial assets - MTM (c)

 

$

(17,615

)

 

$

(17,432

)

 

$

(29,019

)

 

$

(29,136

)

 

$

(45,489

)

Financial liabilities - MTM (d)

 

$

8,358

 

 

$

9,032

 

 

$

12,560

 

 

$

11,945

 

 

$

23,436

 

Net MTM, after-tax e = (c-d)*(1-21%)

 

$

(7,313

)

 

$

(6,636

)

 

$

(13,003

)

 

$

(13,581

)

 

$

(17,422

)

 

 

 

 

 

 

 

 

 

 

 

Adjusted tangible equity f = (a-e)

 

$

280,843

 

 

$

274,701

 

 

$

260,843

 

 

$

251,992

 

 

$

239,234

 

Adjusted tangible assets g = (b-c)

 

$

3,686,275

 

 

$

3,587,788

 

 

$

3,490,389

 

 

$

3,466,687

 

 

$

3,361,251

 

Adjusted TCE ratio (f/g)

 

 

7.62

%

 

 

7.66

%

 

 

7.47

%

 

 

7.27

%

 

 

7.12

%

 

EFFICIENCY RATIO & PRE-TAX, PRE-PROVISION ADJUSTED EARNINGS

“Efficiency ratio” is a non-GAAP measure representing non-interest expense excluding the effects of the SBA recourse provision, impairment of tax credit investments, losses or gains on repossessed assets, amortization of other intangible assets and other discrete items, if any, divided by operating revenue, which is equal to net interest income plus non-interest income less realized gains or losses on securities, if any. “Pre-tax, pre-provision adjusted earnings” is defined as operating revenue less operating expense. In the judgment of the Company’s management, the adjustments made to non-interest expense and non-interest income allow investors and analysts to better assess the Company’s operating expenses in relation to its core operating revenue by removing the volatility that is associated with certain one-time items and other discrete items. The information provided below reconciles the efficiency ratio and pre-tax, pre-provision adjusted earnings to its most comparable GAAP measure.

 

(Unaudited)

 

For the Three Months Ended

 

For the Nine Months Ended

(Dollars in thousands)

 

September 30, 2024

 

June 30, 2024

 

March 31, 2024

 

December 31, 2023

 

September 30, 2023

 

September 30, 2024

 

September 30, 2023

Total non-interest expense

 

$

23,107

 

 

$

23,879

 

 

$

23,342

 

 

$

21,588

 

 

$

23,189

 

 

$

70,329

 

 

$

66,987

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss (gain) on repossessed assets

 

 

(12

)

 

 

65

 

 

 

86

 

 

 

4

 

 

 

4

 

 

 

72

 

 

 

8

 

SBA recourse provision (benefit)

 

 

466

 

 

 

(9

)

 

 

126

 

 

 

210

 

 

 

242

 

 

 

583

 

 

 

565

 

Total operating expense (a)

 

$

22,653

 

 

$

23,823

 

 

$

23,130

 

 

$

21,374

 

 

$

22,943

 

 

$

69,674

 

 

$

66,414

 

Net interest income

 

$

31,007

 

 

$

30,540

 

 

$

29,511

 

 

$

29,540

 

 

$

28,596

 

 

$

91,059

 

 

$

83,049

 

Total non-interest income

 

 

7,064

 

 

 

7,425

 

 

 

6,757

 

 

 

7,094

 

 

 

8,430

 

 

 

21,246

 

 

 

24,214

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss on sale of securities

 

 

—

 

 

 

—

 

 

 

(8

)

 

 

—

 

 

 

—

 

 

 

(8

)

 

 

(45

)

Adjusted non-interest income

 

 

7,064

 

 

 

7,425

 

 

 

6,765

 

 

 

7,094

 

 

 

8,430

 

 

 

21,254

 

 

 

24,259

 

Total operating revenue (b)

 

$

38,071

 

 

$

37,965

 

 

$

36,276

 

 

$

36,634

 

 

$

37,026

 

 

$

112,313

 

 

$

107,308

 

Efficiency ratio

 

 

59.50

%

 

 

62.75

%

 

 

63.76

%

 

 

58.34

%

 

 

61.96

%

 

 

62.04

%

 

 

61.89

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax, pre-provision adjusted earnings (b - a)

 

$

15,418

 

 

$

14,142

 

 

$

13,146

 

 

$

15,260

 

 

$

14,083

 

 

$

42,639

 

 

$

40,894

 

Average total assets

 

$

3,636,887

 

 

$

3,592,215

 

 

$

3,527,941

 

 

$

3,454,652

 

 

$

3,276,240

 

 

$

3,585,868

 

 

$

3,130,426

 

Pre-tax, pre-provision adjusted return on average assets

 

 

1.70

%

 

 

1.57

%

 

 

1.49

%

 

 

1.77

%

 

 

1.72

%

 

 

1.59

%

 

 

1.74

%

 

ADJUSTED NET INTEREST MARGIN

“Adjusted Net Interest Margin” is a non-GAAP measure representing net interest income excluding the fees in lieu of interest and other recurring, but volatile, components of net interest margin divided by average interest-earning assets less other recurring, but volatile, components of average interest-earning assets. Fees in lieu of interest are defined as prepayment fees, asset-based loan fees, non-accrual interest, and loan fee amortization. In the judgment of the Company’s management, the adjustments made to net interest income allow investors and analysts to better assess the Company’s net interest income in relation to its core client-facing loan and deposit rate changes by removing the volatility that is associated with these recurring but volatile components. The information provided below reconciles the net interest margin to its most comparable GAAP measure.

 

(Unaudited)

 

For the Three Months Ended

 

For the Nine Months Ended

(Dollars in thousands)

 

September 30, 2024

 

June 30, 2024

 

March 31, 2024

 

December 31, 2023

 

September 30, 2023

 

September 30, 2024

 

September 30, 2023

Interest income

 

$

59,327

 

 

$

57,910

 

 

$

55,783

 

 

$

54,762

 

 

$

50,941

 

 

$

173,020

 

 

$

140,167

 

Interest expense

 

 

28,320

 

 

 

27,370

 

 

 

26,272

 

 

 

25,222

 

 

 

22,345

 

 

 

81,961

 

 

 

57,118

 

Net interest income (a)

 

 

31,007

 

 

 

30,540

 

 

 

29,511

 

 

 

29,540

 

 

 

28,596

 

 

 

91,059

 

 

 

83,049

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fees in lieu of interest

 

 

942

 

 

 

1,227

 

 

 

793

 

 

 

1,075

 

 

 

582

 

 

 

2,962

 

 

 

2,169

 

FRB interest income and FHLB dividend income

 

 

841

 

 

 

959

 

 

 

1,436

 

 

 

1,466

 

 

 

870

 

 

 

3,235

 

 

 

2,590

 

Adjusted net interest income (b)

 

$

29,224

 

 

$

28,354

 

 

$

27,282

 

 

$

26,999

 

 

$

27,144

 

 

$

84,862

 

 

$

78,290

 

Average interest-earning assets (c)

 

$

3,405,534

 

 

$

3,347,027

 

 

$

3,294,717

 

 

$

3,199,485

 

 

$

3,038,776

 

 

$

3,349,299

 

 

$

2,906,874

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average FRB cash and FHLB stock

 

 

52,603

 

 

 

61,082

 

 

 

97,036

 

 

 

99,118

 

 

 

54,677

 

 

 

70,175

 

 

 

58,870

 

Average non-accrual loans and leases

 

 

18,954

 

 

 

19,807

 

 

 

20,540

 

 

 

18,602

 

 

 

15,775

 

 

 

19,761

 

 

 

7,702

 

Adjusted average interest-earning assets (d)

 

$

3,333,977

 

 

$

3,266,138

 

 

$

3,177,141

 

 

$

3,081,765

 

 

$

2,968,324

 

 

$

3,259,363

 

 

$

2,840,302

 

Net interest margin (a / c)

 

 

3.64

%

 

 

3.65

%

 

 

3.58

%

 

 

3.69

%

 

 

3.76

%

 

 

3.62

%

 

 

3.81

%

Adjusted net interest margin (b / d)

 

 

3.51

%

 

 

3.47

%

 

 

3.43

%

 

 

3.50

%

 

 

3.66

%

 

 

3.47

%

 

 

3.68

%

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20241024626127/en/

First Business Financial Services, Inc. Brian D. Spielmann Chief Financial Officer 608-232-5977 bspielmann@firstbusiness.bank