Release Date: April 25, 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 a strong quarter with a 23% increase in pre-tax, pre-provision, adjusted earnings compared to the previous year.
• The company achieved double-digit core deposit growth, outpacing loan expansion, which supports their strategic plan for 10% annual growth.
• Net interest margin remained strong and stable, contributing to solid financial performance.
• Non-performing assets declined, indicating improved asset quality.
• Tangible book value per share grew by 14%, reflecting enhanced shareholder value.

Negative Points

• There is rising uncertainty related to changes in US trade policy, which could potentially impact economic conditions and growth.
• The company experienced increased net charge-offs in the equipment finance portfolio, particularly in the transportation sector.
• Ongoing variability in fee income, particularly from slot fees and SBIC fund returns, could impact revenue consistency.
• The economic outlook shows modest deterioration, which could affect future loan growth and asset quality.
• The company faces competitive pressures on both loan yields and deposit costs, which could impact margins if conditions change.

Q & A Highlights

Q: What were the new loan yields in the first quarter, and have there been any changes in spreads? A: New loan yields were consistent with the prior quarter, with no significant changes in spreads. Typically, pricing ranges from 225 to 275 basis points depending on the credit type. (Unidentified_6)

Q: How are tariffs impacting your clients, and which sectors are most exposed? A: There is some uncertainty among clients, particularly those with international exposure, but no significant impact has been observed yet. The bank is focusing on clients with foreign vendors and contractors. (Unidentified_3)

Q: Can you explain the increase in net charge-offs in the equipment finance sector? A: The increase was a one-quarter anomaly due to accelerated charge-offs in the equipment finance portfolio, particularly in the transportation sector. This was already reserved for, so it had minimal impact on the provision line. (Unidentified_9)

Q: What is the outlook for fee income, especially after the reclassification of loan fees? A: The reclassification is permanent, and the bank expects to maintain or grow fee income through various channels such as SBA, private wealth, and SBIC fund investments. (Unidentified_6)

Q: How is the bank managing its loan-to-deposit ratio, and what are the targets? A: The bank aims to keep the loan-to-deposit ratio below 100% for better optics, favoring brokered CDs over home loan advances for match funding. The focus is on maintaining 75% core funding of total bank funding. (Unidentified_7)

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