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FIRST BUSINESS FINANCIAL SERVICES, INC. (FBIZ)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 delivered diluted EPS of $1.04, down sequentially from $1.15 and essentially flat vs. $1.05 YoY, with net interest income stable at $29.5M and operating revenue of $36.3M .
  • Core franchise momentum remained strong: average core deposits reached a record $2.346B (+17.6% annualized QoQ) and average loans grew to $2.887B (+10.9% annualized QoQ), driving tangible book value per share up to $32.97 (+12.9% annualized QoQ) .
  • Management reiterated the net interest margin is near a floor and expects NIM to approach 3.50% in the current environment, with a new long-term target range of 3.60%–3.65%; effective tax rate guided to 17%–19% for 2024 .
  • Credit costs eased vs. Q4 (provision $2.3M vs. $2.6M), but Equipment Finance/transportation borrowers continue to add cyclicality; non-performing assets were 0.57% of assets (0.36% ex-ABL loan) .
  • Wall Street S&P Global consensus estimates for Q1 2024 were unavailable via our data pipe; no beat/miss determination can be made (consensus unavailable).

What Went Well and What Went Wrong

What Went Well

  • “Solid first quarter performance…Our operating model produced 13% tangible book value growth this quarter,” highlighting execution despite rate headwinds and a focus on client relationship growth .
  • Sustained balance sheet growth: average core deposits $2.346B (record) and average loans $2.887B; net interest income +10.5% YoY even amid NIM compression .
  • Private Wealth AUM/AUA reached a record $3.320B; related fee income grew 17.2% YoY to $3.1M .

What Went Wrong

  • NIM and adjusted NIM compressed QoQ (3.58% and 3.43% vs. 3.69% and 3.50%), reflecting deposit rate competition and mix .
  • Non-interest income fell 4.8% QoQ to $6.8M as swap fees and mezzanine fund returns moderated; fee ratio declined to 18.6% .
  • Continued cyclicality in Equipment Finance: provision $2.3M driven by specific reserves/charge-offs tied to transportation/logistics defaults; management expects stress to persist in 2024 .

Financial Results

MetricQ3 2023Q4 2023Q1 2024
Operating Revenue ($USD M)$37.026 $36.634 $36.276
Net Interest Income ($USD M)$28.596 $29.540 $29.511
Total Non-Interest Income ($USD M)$8.430 $7.094 $6.757
Net Income to Common ($USD M)$9.723 $9.551 $8.629
Diluted EPS ($)$1.17 $1.15 $1.04
Net Interest Margin (%)3.76% 3.69% 3.58%
Adjusted NIM (%)3.66% 3.50% 3.43%
Efficiency Ratio (%)61.96% 58.34% 63.76%

YoY focus (Q1 2023 vs. Q1 2024):

MetricQ1 2023Q1 2024
Operating Revenue ($USD M)$35.115 $36.276
Net Interest Income ($USD M)$26.705 $29.511
Non-Interest Income ($USD M)$8.410 $6.757
Net Income to Common ($USD M)$8.760 $8.629
Diluted EPS ($)$1.05 $1.04
NIM (%)3.86% 3.58%
Adjusted NIM (%)3.74% 3.43%

Segment/Balance Sheet Breakdown:

Loans ($USD M)Q4 2023Q1 2024
CRE – Total$1,699.871 $1,739.791
C&I – Total$1,105.835 $1,120.779
Consumer & Other$44.312 $50.020
Total Gross Loans & Leases$2,850.018 $2,910.590
Deposits ($USD M)Q4 2023Q1 2024
Non-Interest Bearing$445.376 $400.267
Interest-Bearing Transaction$895.319 $818.080
Money Market$711.245 $813.467
Certificates of Deposit$287.131 $266.029
Wholesale Deposits$457.708 $457.563
Total Deposits$2,796.779 $2,755.406

Key KPIs:

KPIQ4 2023Q1 2024
TBV/Share ($)$31.94 $32.97
Book Value/Share ($)$33.39 $34.41
ROAA (%)1.11% 0.98%
ROE (%)13.99% 12.24%
Efficiency Ratio (%)58.34% 63.76%
Private Wealth AUM/AUA ($USD B)$3.122 $3.320

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Interest Margin (NIM)Multi-yearStabilize above 3.50% (prior long-term goal) Near floor now; approach 3.50% in current environment; new long-term target 3.60%–3.65% Raised long-term target
Effective Tax RateFY 202418%–19% 17%–19% Lower bound reduced
Loan GrowthLong-termModerate toward 10% Manage loan growth toward long-term ~10% Maintained
Dividends (per share)Quarterly$0.2275 declared in prior quarters $0.2500 declared Q1 2024 Raised

Earnings Call Themes & Trends

(Transcript for Q1 2024 not found in our corpus; themes synthesized from press release narratives.)

TopicPrevious Mentions (Q3 2023, Q4 2023)Current Period (Q1 2024)Trend
Net Interest Margin trajectoryNIM pressure; expected stabilization above 3.50% NIM near floor; approach ~3.50%; long-term target 3.60%–3.65% Stabilizing; long-term uplift
Deposit strategy/competitionStrong in-market deposit growth; rising deposit betas Competitive rates; match-funded balance sheet; focus on relationship-based core deposit generation Continued disciplined deposit growth
Equipment Finance credit cycleElevated NPAs and specific reserves; cyclical defaults Provision lower QoQ but continued stress expected in 2024 Ongoing normalization/cycle
Private Wealth growthAUM/AUA rising; fees up AUM/AUA record $3.320B; fees +6.1% QoQ, +17.2% YoY Positive momentum
Wholesale funding & hedgingShift from FHLB to wholesale deposits; hedging to reduce cost Temporary FHLB increase due to timing; still leveraging efficient wholesale funding Active ALM optimization
Tax credits/state taxLower WI state taxes; valuation allowance in Q4 ETR guided 17%–19% with new federal credits Structural tax rate improvement

Management Commentary

  • “Solid first quarter performance is a testament to our team’s consistent execution…Our operating model produced 13% tangible book value growth this quarter…The cornerstone of our new five-year plan is the confluence of the future of talent and technology,” Corey Chambas, CEO .
  • “We continue to run a match-funded balance sheet…we believe [it] is effective in delivering a stable net interest margin…we expect our net interest margin will approach our previous long-term target of 3.50%. Over time…new long-term target range of 3.60% to 3.65%” .
  • On credit: provision lowered due to improved economic forecast and fewer specific reserves in Equipment Finance, but management expects continued stress among transportation/logistics borrowers in 2024 .

Q&A Highlights

Q1 2024 earnings call transcript was not available in our document set; therefore, Q&A highlights and any clarifications on guidance from the call cannot be provided.

Estimates Context

  • S&P Global consensus estimates for Q1 2024 could not be retrieved (system limit error). As a result, we cannot determine beat/miss vs. consensus for EPS or revenue at this time (consensus unavailable).

Key Takeaways for Investors

  • The core growth engine remains intact: average loans and average core deposits expanded meaningfully, supporting TBV/share compounding despite NIM pressure .
  • Management believes NIM is near a floor; the explicit long-term NIM target range (3.60%–3.65%) signals confidence in pricing, mix, and asset/liability management over the plan horizon .
  • Credit normalization persists in Equipment Finance; provision eased QoQ, but investors should expect continued cyclicality in transportation/logistics exposures through 2024 .
  • Private Wealth continues to scale with record AUM/AUA, providing diversified fee income; watch quarterly variability in swaps/mezzanine returns .
  • Liquidity robust; temporary wholesale funding uptick stemmed from timing of a recurring core deposit inflow; match-funding philosophy maintained .
  • Effective tax rate outlook lowered to 17%–19%, a tailwind to net income margin vs. prior guidance .
  • Near-term trading implications: NIM floor commentary and TBV/share growth underpin valuation resilience; monitor deposit pricing dynamics and Equipment Finance credit trends for any surprises .
Sources: Company Form 8-K and Q1 2024 press release (Exhibit 99.1) and prior quarter releases. 
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