First Business(US:FBIZ)2024-10-25 22:16Financial Data and Key Metrics Changes - The company reported strong loan growth of approximately $286 million, up more than 10% year-over-year, and deposit growth of $313 million, nearly 12% from the previous year [5][11] - Adjusted net interest margin (NIM) for Q3 was 3.51%, compared to 3.47% in the previous quarter, while reported NIM was 3.64% [16][21] - Return on average tangible common equity expanded, and tangible book value per share grew by 9.7% annualized from the linked quarter [21] Business Line Data and Key Metrics Changes - The accounts receivable financing business showed significant growth, and the floor plan financing business for used car dealerships experienced the strongest growth among niche C&I lending areas [9][12] - The small ticket vendor finance business continued to grow at attractive spreads, while the transportation sector of the equipment finance portfolio saw a decline from $61 million to $46 million [7][8] - Private Wealth Management assets under management grew to $3.4 billion, marking a 17% increase from the prior year [12] Market Data and Key Metrics Changes - The South Central and Southeast Wisconsin markets led loan growth, while the Kansas City market showed early signs of growth under new leadership [5][6] - Core deposits grew by more than $193 million or 9% from a year ago, despite managing down higher-priced deposits [11] Company Strategy and Development Direction - The company is focused on growing core deposits through deep business and private wealth relationships, aiming for a stable net interest margin in the range of 360 to 365 basis points [25][29] - Strategic initiatives include enhancing operational efficiency through digital transformation and technology utilization, such as robotic process automation [26][27] - The company aims to produce tangible book value growth of 10% or more per year and return on average tangible common equity of 15% or more by 2028 [27] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining a stable net interest margin despite competitive pressures and anticipated rate cuts [14][42] - The company expects continued growth in loan and deposit volumes, driven by strong client relationships and a focus on high-quality growth [11][29] - Management noted that the current reserve levels are appropriate and will taper as credit normalizes [49] Other Important Information - The effective tax rate for the nine months ended September 30, 2024, was 16.8%, down from 21.4% for the same period in 2023 [20] - The company issued $20 million in subordinated debt, boosting Tier 2 capital and increasing the total capital ratio by 15 basis points [21] Q&A Session Summary Question: Margin outlook and cost of funds - Management indicated that they are proactively reducing deposit costs and are comfortable operating within the 3.60% to 3.65% range [32][42] Question: Lending demand and mix - Management noted strong demand in accounts receivable finance and vendor finance, with expectations that C&I lending may outpace CRE loans in the coming quarters [39] Question: Reserve levels and normalization - Management stated that current reserve levels are appropriate and will taper as credit conditions normalize [49] Question: Fee income outlook - Management expects fee income to stabilize and improve in the coming quarters, particularly in the SBA pipeline and mezzanine fund income [45][64]