First Business Financial Services, Inc. (the “Company,” the “Bank,” or “First Business Bank”) (Nasdaq:FBIZ) reported quarterly net income available to common shareholders of $8.1 million, or $0.98 diluted earnings per share. This compares to net income available to common shareholders of $8.8 million, or $1.05 per share, in the first quarter of 2023 and $11.0 million, or $1.29 per share, in the second quarter of 2022.
“First Business Bank’s focus on fundamentals drove outstanding core performance for the quarter, continuing our success in achieving our strategic objectives,” Chief Executive Officer Corey Chambas said. “Net interest income grew more than 17% from the second quarter of 2022, and we continued to expand in-market deposits, up 11.0% annualized from year end. Strong client activity also drove loan growth, which exceeded 20% annualized for the quarter, and capped off an outstanding first half, well above the Company’s mid-year loan growth expectations. The revenue expansion accompanying this growth contributed to excellent pre-tax, pre-provision earnings, a key measure we use to track ongoing earnings power. Our ability to execute on strategic priorities in a volatile first half of 2023 for the banking industry underscores the strength of our business model and reinforces our capacity to deliver for our stakeholders.”
“Exceptional loan growth is a testament to our team’s solid strategic planning and outstanding execution,” Chambas added. “We’ve thoughtfully built robust asset-generating business lines in response to client needs and our desire for balance sheet diversification and growth. That, along with our strategic focus on Treasury Management, has allowed us to grow both loans and deposits in excess of 10% over the last two years. We expect this growth rate to moderate as we manage to our long-term target of 10%.”
“We are pleased with the continuation of First Business Bank’s positive asset quality in the first half of 2023,” Chambas continued. “The increase in non-performing assets during the second quarter was the result of one default that occurred in our Asset-Based Lending (“ABL”) portfolio. While defaults and liquidations are not atypical for ABL loans, these loans are fully collateralized and therefore, as usual, we do not expect any loss. Further, we do not believe it to be reflective of portfolio or industry stress. Excluding this credit, non-performing assets totaled less than $5 million.”
Quarterly Highlights
- Robust Loan Growth. Loans grew $135.2 million, or 21.3% annualized, from the first quarter of 2023, reflecting broad-based expansion across the Company’s products and geographies in the second quarter. Similar expansion across the Company’s portfolios drove loan growth totaling $384.5 million, or 16.8%, from the second quarter of 2022.
- Continued Deposit Growth. Total deposits grew to $2.529 billion, increasing 8.4% annualized from the linked quarter and 35.3% from the second quarter of 2022. In-market deposits grew to a record $2.074 billion, up $19.0 million, or 3.7% annualized, from the linked quarter and 11.7% from the second quarter of 2022. Importantly, gross treasury management service charges grew to $1.4 million in the quarter, expanding 15% compared to the second quarter of 2022.
- Net Interest Income Expansion. Net interest income grew 3.9% from the linked quarter and 17.3% from the prior year quarter. Consistent execution of the Company’s strategy to drive diversified portfolio growth supported this outcome.Net interest margin of 3.81% declined five basis points from the linked quarter and increased 10 basis points compared to second quarter of 2022.
- Strong Pre-tax, Pre-Provision (“PTPP”) Income. PTPP income grew to $13.5 million, up 1.0% from the prior quarter and 24.2% from the second quarter of 2022. This performance reflects solid growth across the Company’s balance sheet and diversified sources of non-interest income, which outpaced non-interest expense expansion in support of the Company’s growth initiatives. PTPP adjusted return on average assets measured 1.72%, compared to 1.79% for the linked quarter and up from 1.60% for the second quarter of 2022.
- Tangible Book Value Growth. The Company’s strong earnings generation produced a 9.7% annualized increase in tangible book value per share compared to the linked quarter and 12.3% compared to the prior year quarter.
Quarterly Financial Results
(Unaudited) | As of and for the Three Months Ended | As of and for the Year Ended | ||||||||||||||||||
(Dollars in thousands, except per share amounts) | June 30,
| March 31,
| June 30,
| June 30,
| June 30,
| |||||||||||||||
Net interest income | $ | 27,747 | $ | 26,705 | $ | 23,660 | $ | 54,453 | $ | 45,087 | ||||||||||
Adjusted non-interest income (1) | 7,419 | 8,410 | 6,872 | 15,829 | 14,258 | |||||||||||||||
Operating revenue (1) | 35,166 | 35,115 | 30,532 | 70,282 | 59,345 | |||||||||||||||
Operating expense (1) | 21,692 | 21,779 | 19,685 | 43,471 | 38,573 | |||||||||||||||
Pre-tax, pre-provision adjusted earnings (1) | 13,474 | 13,336 | 10,847 | 26,811 | 20,772 | |||||||||||||||
Less: | ||||||||||||||||||||
Provision for credit losses | 2,231 | 1,561 | (3,727 | ) | 3,793 | (4,582 | ) | |||||||||||||
Net (gain) loss on repossessed assets | (2 | ) | 6 | 8 | 4 | 20 | ||||||||||||||
SBA recourse provision (benefit) | 341 | (18 | ) | 114 | 323 | 38 | ||||||||||||||
Tax credit investment impairment recovery | — | — | (351 | ) | — | (351 | ) | |||||||||||||
Add: | ||||||||||||||||||||
Net loss on sale of securities | (45 | ) | — | — | (45 | ) | — | |||||||||||||
Income before income tax expense | 10,859 | 11,787 | 14,803 | 22,646 | 25,647 | |||||||||||||||
Income tax expense | 2,522 | 2,808 | 3,599 | 5,330 | 5,771 | |||||||||||||||
Net income | $ | 8,337 | $ | 8,979 | $ | 11,204 | $ | 17,316 | $ | 19,876 | ||||||||||
Preferred stock dividends | 219 | 219 | 246 | 438 | 246 | |||||||||||||||
Net income available to common shareholders | $ | 8,118 | $ | 8,760 | $ | 10,958 | $ | 16,878 | $ | 19,630 | ||||||||||
Earnings per share, diluted | $ | 0.98 | $ | 1.05 | $ | 1.29 | $ | 2.02 | $ | 2.31 | ||||||||||
Book value per share | $ | 31.34 | $ | 30.65 | $ | 28.08 | $ | 31.34 | $ | 28.08 | ||||||||||
Tangible book value per share (1) | $ | 29.89 | $ | 29.19 | $ | 26.63 | $ | 29.89 | $ | 26.63 | ||||||||||
Net interest margin (2) | 3.81 | % | 3.86 | % | 3.71 | % | 3.83 | % | 3.55 | % | ||||||||||
Adjusted net interest margin (1)(2) | 3.63 | % | 3.74 | % | 3.44 | % | 3.69 | % | 3.33 | % | ||||||||||
Fee income ratio (non-interest income / total revenue) | 21.00 | % | 23.95 | % | 22.51 | % | 22.47 | % | 24.03 | % | ||||||||||
Efficiency ratio (1) | 61.68 | % | 62.02 | % | 64.47 | % | 61.85 | % | 65.00 | % | ||||||||||
Return on average assets (2) | 1.04 | % | 1.17 | % | 1.61 | % | 1.10 | % | 1.46 | % | ||||||||||
Pre-tax, pre-provision adjusted return on average assets (1)(2) | 1.72 | % | 1.79 | % | 1.60 | % | 1.75 | % | 1.54 | % | ||||||||||
Return on average common equity (2) | 12.58 | % | 13.96 | % | 18.79 | % | 13.26 | % | 16.74 | % | ||||||||||
Period-end loans and leases receivable | $ | 2,674,583 | $ | 2,539,363 | $ | 2,290,100 | $ | 2,674,583 | $ | 2,290,100 | ||||||||||
Average loans and leases receivable | $ | 2,583,237 | $ | 2,481,200 | $ | 2,272,946 | $ | 2,532,500 | $ | 2,258,872 | ||||||||||
Period-end in-market deposits | $ | 2,073,744 | ||||||||||||||||||
