FIRST BUSINESS FINANCIAL SERVICES, INC. Q1 FY2025 earnings call

• Balance sheet growth: Loan balances grew ~$275 million (+10%), total deposits grew $488 million (+18%), core deposits grew $66 million (+11%). - Lending: C&I led growth, SBA lending sustained momentum, asset-based lending and floor plan financing showing strong demand. - Revenue: Up ~13% y-o-y, with diversified revenue streams. - Asset quality: NPAs declined, weighted average risk rating stable. - Financials: Tangible book value per share grew 14%, earnings per share $1.32 (+27% y-o-y), pre-tax pre-provision adjusted earnings up 23% y-o-y.

Loans grew about $275 million over the same period last year, up almost 10%. Total deposits grew $488 million or 18% from last year's first quarter, with core deposits growing $66 million or over 11%. C&I lending led loan growth with balances expanding $77 million, or 27% annualized. Revenue grew by nearly 13% compared to the first quarter of 2024. Non-performing assets declined. Pre-tax pre-provision adjusted earnings were up 23% over last year's first quarter, earnings per share were $1.32 (up 27% from a year ago), and tangible book value per share grew 14%.

• Target 10% annual growth. - Net interest margin target 3.60% to 3.65%, expecting to land on the higher end. - Fee income expected to grow in long-term target range of 10%. - Organic growth supported by strong earnings generating capital.

• Uncertainty related to US trade policy and potential economic recession impacting growth. - Ongoing bankruptcy proceeding and litigation affecting NPA levels in asset-based lending.

Q: About the margin, specifically new loan yields, roll-off yields, and spread tightening?

A: New loan yields are pretty consistent with prior quarter; competitive credits spreads narrowing a bit but not much change.

Q: Impact of tariffs on borrowers?

A: Not seeing significant impact yet, focusing on clients with international ties, but no major effects so far.

Q: Provision related to equipment finance losses?

A: Charge-offs in equipment finance were a one-quarter anomaly, with some continued credit costs but the size of charge-offs unique.

Q: Cash and securities balances as percent of earning assets?

A: Intentional but temporary, related to liquidity goals and core deposit inflows at quarter-end.

Q: Fee income reclassification impact?

A: Reclassification of loan fees doesn't change outlook, with expectation to make up the reclass in fee income through various engines.

Q: Repricing of fixed rate loans/CDs?

A: CD portfolio small with opportunity to reprice, loan and bond portfolios also have repricing opportunities.

Q: SBA changes impact on revenue?

A: No huge concerns about volume impact currently.

Q: Loan deposit ratio target?

A: Focus on core funding to total bank funding in 70%-80% range, working to lower loan to deposit ratio.

Q: Margin stability and near-term outlook?

A: Stable with mix of new business on both sides of balance sheet providing opportunity to maintain long-term margin targets.

Q: Credit picture in weaker economy?

A: Portfolio strong with real estate and customer liquidity, equipment finance transportation sector already factoring in softness.

Q: Expense run rate?

A: Consistent with investing in people, will adjust if revenue headwinds arise to drive positive operating leverage.