FIRST BUSINESS FINANCIAL SERVICES, INC.
For the period ended Mar 31, 2025. Filed Apr 25, 2025.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2025 · Filed Apr 25, 2025
FBIZ$74.18-0.9%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-09-30; filed 2024-10-25.
0000950170-24-117408
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-03-31; filed 2025-04-25.
0000950170-25-058735
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 174 previous paragraphs and 165 current paragraphs.
85 unchanged; 68 reworded; 10 added; 21 removed; 0 previous and 2 current paragraphs rearranged.
Tables are not compared: 15 previous and 16 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (10)
Current report
Uncertainty created by potential federal government actions relating to the authority of regulatory agencies (including bank regulators), international trade policy, and other significant policy matters.
Current report
Provision for credit losses was $2.7 million for the three months ended March 31, 2025 compared to $2.3 million for the same period in 2024.
Current report
Total assets at March 31, 2025 increased $91.7 million, or 9.5% annualized, to $3.945 billion from $3.853 billion at December 31, 2024.
Current report
The change in yield of the respective interest-earning asset or the rate paid on interest-bearing liability compared to the change in short-term market rates is commonly referred to as a beta. The table below displays the beta calculations for loans and leases, total interest earning assets, core deposits, interest-bearing deposits and total interest-bearing liabilities for the three months ended March 31, 2025 and 2024. Additionally, adjusted total loans and leases and total interest-earning assets excludes the volatile impact of fees in lieu of interest.
Current report
Non-interest income for the three months ended March 31, 2025 increased $822,000, or 12.2%, to $7.6 million compared to $6.8 million for the same period in 2024. The increase in total non-interest income was primarily driven by higher gains on the sale of SBA loans and private wealth fee income, partially offset by a decrease in loan fees.
Current report
Gain on sale of SBA loans increased $768,000, or 393.8%, for the three months ended March 31, 2025, compared to the same period in 2024. Management expects the SBA production to continue to grow year-over-year.
Current report
Loan fee income decreased $459,000 or 54.2%, for the three months ended March 31, 2025, compared to the same period in 2024. The change is primarily due to the re-classification of certain types of C&I loan fees from non-interest income to interest income made on a prospective basis. Excluding this reclassification, loan fee income increased $67,000.
Current report
FDIC insurance expense increased $170,000, or 27.9%, for the three months ended March 31, 2025, compared to the same period in 2024, primarily due increase in assessment rate and assessable base.
Current report
Other non-interest expense for the three months ended March 31, 2025 increased $316,000, or 39.6%, compared to the same period in 2024. The increase was primarily due to an increase in collateral liquidation expenses and early stage expenses related to SBIC investments costs.
Current report
Total commercial real estate (“CRE”) loans decreased $7.2 million to $1.910 billion. The decrease was primarily due to payoffs and lighter demand.
Removed paragraphs (21)
Previous report
Provision for credit loss expense was $2.1 million for the three months ended September 30, 2024 compared to $1.8 million for the same period in 2023. Provision for credit loss expense was $6.1 million for the nine months ended September 30, 2024 compared to $5.6 million for the same period in 2023.
Previous report
Total assets at September 30, 2024 increased $207.9 million, or 7.9% annualized, to $3.716 billion from $3.508 billion at December 31, 2023.
Previous report
Top line revenue increased $5.0 million, or 4.7%, for the nine months ended September 30, 2024, compared to the same period in 2023, due to a 9.6% increase in net interest income partially offset by a 12.3% decrease in non-interest income. The increase in net interest income was driven by an increase in average loans and leases outstanding. The decrease in non-interest income was due to decreases in returns on investments in SBIC mezzanine funds, commercial loan swap fee income, and gains on the sale of SBA loans; partially offset by increases in Private wealth fee income.
Previous report
The Corporation's atypically high net interest margin in 2023 creates a temporary, positive operating leverage headwind as net interest margin returns to normalized levels in 2024. We believe the Corporation will generate positive operating leverage on an annual basis and progress towards enhancing the long-term efficiency ratio at a measured pace as we focus on strategic initiatives directed toward revenue growth, process improvement, and automation.
Previous report
$320.0 million, or 11.8%, and $368.1 million, or 14.2%, respectively, compared to the three and nine months ended September 30, 2023.
Previous report
The Corporation recognized $2.1 million and $6.1 million of provision expense for the three and nine months ended September 30, 2024, respectively, compared to expense of $1.8 million and $5.6 million for the three and nine months ended September 30, 2023. The provision expense for the three months ended September 30, 2024 of $2.1 million consisted of $1.5 million of net charge-offs, $616,000 due to loan growth, and a $757,000 net increase in specific reserves, partially offset by decreases of $444,000 and $330,000 due to quantitative and qualitative factor changes, respectively.
Previous report
Non-interest income decreased $1.4 million, or 16.2%, to $7.1 million for the three months ended September 30, 2024 compared to $8.4 million for the same period in 2023. The decrease in total non-interest income for the three months ended September 30, 2024 was primarily due to decreases in returns on investments of SBIC mezzanine funds and commercial loan swap fee income, offset by an increase in Private wealth fee income. Non-interest income for the nine months ended September 30, 2024 decreased $3.0 million, or 12.3%, to $21.2 million compared to $24.2 million for the same period in 2023. The decrease in total non-interest income for the nine months ended September 30, 2024 was driven by decreases in returns on investments in SBIC mezzanine funds, commercial loan swap fee income, and gains on the sale of SBA loans, partially offset by an increase in Private Wealth fee income and service charges on deposits.
Previous report
Commercial loan interest rate swap fee income decreased $532,000, or 53.6%, and $1.7 million, or 67.7%, for the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023. We originate commercial real estate loans in which we offer clients a floating rate and an interest rate swap. The client’s swap is then offset with a counter-party dealer. The execution of these transactions generates swap fee income. The aggregate amortizing notional value of interest rate swaps with various borrowers was $975.8 million as of September 30, 2024, compared to $939.2 million and $908.6 million as of December 31, 2023 and September 30, 2023, respectively. Interest rate swaps can be an attractive product for our commercial borrowers, although associated fee income varies from period to period based on loan activity and the interest rate environment.
Previous report
Gain on sale of SBA loans decreased $391,000, or 45.9%, and $767,000, or 43.3%, for the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023. Management expects the SBA loan sales to increase as production increases and previously closed commitments fully fund and become eligible for sale, due to additions to the business development team.
Previous report
Other non-interest income decreased $913,000, or 55.5%, and $2.5 million, or 45.0%, for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. The decreases for the three and nine months ended September 30, 2024, was primarily due to the lower returns on the Corporation's investments in SBIC mezzanine funds. Income from
Previous report
SBIC mezzanine funds varies from period to period based on changes in the realized and unrealized fair value of underlying investments.
Previous report
Comparison of Non-Interest Expense for the Three and Nine Months Ended September 30, 2024 and 2023
Previous report
FDIC insurance for the three and nine months ended September 30, 2024 increased $130,000, or 19.1%, and $379,000, or 22.9%, respectively, compared to the same period in 2023. The increase was primarily due to an increase in total assets and use of brokered deposits.
Previous report
Data processing expense increased $92,000, or 9.7%, and $356,000, or 12.3%, for the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023, primarily due to an increase in core processing costs due to loan and deposit account growth, private wealth asset growth, and various project implementations.
Previous report
Professional fees decreased $124,000, or 8.7%, and increased $336,000, or 8.4%, for the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023. For the three month period, the decrease was primarily due to a decrease in recruiting expense and professional consulting services for various projects. For the nine month period, the increase was primarily due to an increase in recruiting expense and professional consulting services for various projects.
Previous report
Other non-interest expense for the three and nine months ended September 30, 2024 decreased $282,000, or 17.8%, and $17,000, or 0.5%, respectively, compared to the same period in 2023. The decrease was primarily due to a decrease in liquidation expenses.
Previous report
Total commercial real estate (“CRE”) loans increased $129.5 million, or 10.2% annualized, to $1.829 billion. The increase was primarily due to an increase in the construction and multifamily loan portfolios.
Previous report
As of September 30, 2024, total period-end deposits increased by $173.2 million to $2.970 billion from $2.797 billion at December 31, 2023, primarily due to increases of $129.5 million, $105.9 million, and $34.9 million in wholesale deposits, money market accounts, and interest-bearing transaction accounts, respectively. These increases were partially offset by decreases of $79.8 million and $17.4 million in certificates of deposits and non-interest-bearing transaction accounts, respectively.
Previous report
As of September 30, 2024, the Corporation has no other borrowings. As of December 31, 2023, the Corporation had other borrowings of $20,000, which consisted of a sold tax credit investments accounted for as secured borrowings because they did not qualify for true sale accounting.
Previous report
As of August 15, 2024, the $15.0 million subordinated notes payable that bore a fixed interest rate of 5.5% were redeemed. The Corporation issued new subordinated notes payable on September 13, 2024. The aggregate principal amount of the newly issued subordinated notes payable was $20.0 million. The subordinated notes payable bear a fixed interest rate of 7.5% with a maturity date of September 13, 2034.
Previous report
To determine the level and composition of the allowance for credit losses, we break out the portfolio by segments with similar risk characteristics. First, we evaluate loans and leases for non-accrual classification. We analyze each loan and lease identified as non-accrual on an individual basis to determine a specific reserve based upon the estimated value of the underlying collateral for collateral-dependent loans, or alternatively, the present value of expected cash flows. For efficiency, smaller dollar value loans within the Equipment Finance pool are reserved based on a past-due criteria. Accruing loans may be evaluated individually. All loans not evaluated individually are evaluated collectively as part of a portfolio segment or portfolio segment and class. These collective evaluations utilized a reasonable and supportable forecast which includes projections of credit losses based on one of two established methods: discounted cash flow or weighted average remaining maturity. Each model includes a set of assumptions which are evaluated not less than annually by management. The methodology also focuses on evaluation of several qualitative factors for each portfolio segment or portfolio segment and class, including but not limited to: product growth rates, management’s ongoing review and grading of the loan and lease portfolios, consideration of delinquency experience, changes in the size of the loan and lease portfolios, level of loans and leases subject to more frequent review by management, changes in underlying collateral, concentrations in specific industries, and other qualitative factors that could affect credit losses.
Reworded paragraphs (68)
Previous wording
Our ability to manage growth effectively, including the successful expansion of our client support, administrative infrastructure, and internal management systems.
Current wording
Our ability to manage growth effectively includes the successful expansion of our client support, administrative infrastructure, and internal management systems.
Previous wording
We are a registered bank holding company incorporated under the laws of the State of Wisconsin and are engaged in the commercial banking business through our wholly-owned banking subsidiary, FBB. All of our operations are conducted through FBB and First Business Specialty Finance, LLC (“FBSF”), a wholly-owned subsidiary of FBB. We operate as a business bank focusing on delivering a full line of commercial banking products and services tailored to meet the specific needs of small and medium-sized businesses, business owners, executives, professionals, and high net worth individuals. Our products and services include those for business banking, private wealth, and bank consulting. Within business banking, we offer commercial lending, asset-based lending, accounts receivable financing, equipment financing, floorplan financing, vendor financing, SBA lending and servicing, treasury management services, and company retirement plans. Our private wealth management services include trust and estate administration, financial planning, investment management, and private banking for executives and owners of our business banking clients and others. Our bank consulting experts provide investment portfolio administrative services, asset liability management services, and asset liability management process validation for other financial institutions. We do not utilize a branch network to attract retail clients. Our operating model is predicated on deep client relationships, financial expertise, and an efficient, centralized administration function delivering best in class client satisfaction. Our focused model allows experienced staff to provide the level of financial expertise needed to develop and maintain long-term relationships with our clients.
Current wording
We are a registered bank holding company incorporated under the laws of the State of Wisconsin and are engaged in the commercial banking business through our wholly-owned banking subsidiary, FBB. All of our operations are conducted through FBB and First Business Specialty Finance, LLC (“FBSF”), a wholly-owned subsidiary of FBB. We operate as a business bank focusing on delivering a full line of commercial banking products and services tailored to meet the specific needs of small and medium-sized businesses, business owners, executives, professionals, and high net worth individuals. Our products and services include those for business banking, private wealth management services, and bank consulting. Within business banking, we offer commercial lending, asset-based lending, accounts receivable financing, equipment financing, floorplan financing, vendor financing, SBA lending and servicing, treasury management services, and company retirement plans. Our private wealth management services include trust and estate administration, financial planning, investment management, and private banking for executives and owners of our business banking clients and others. Our bank consulting experts provide investment portfolio administrative services, asset liability management services, and asset liability management process validation for other financial institutions. We do not utilize a branch network to attract retail clients. Our operating model is predicated on deep client relationships, financial expertise, and an efficient, centralized administration function delivering best in class client satisfaction. Our focused model allows experienced staff to provide the level of financial expertise needed to develop and maintain long-term relationships with our clients.
Previous wording
Results as of and for the three and nine months ended September 30, 2024 include:
Current wording
Results as of and for the three months ended March 31, 2025 include:
Previous wording
Net income available to common shareholders totaled $10.3 million, or diluted earnings per share of $1.24, for the three months ended September 30, 2024, compared to $9.7 million, or diluted earnings per share of $1.17, for the same period in 2023. Net income available to common shareholders totaled $29.2 million, or diluted earnings per share of $3.50, for the nine months ended September 30, 2024, compared to $26.6 million, or diluted earnings per share of $3.19, for the same period in 2023.
Current wording
Net income available to common shareholders totaled $11.0 million, or diluted earnings per share of $1.32, for the three months ended March 31, 2025, compared to $8.6 million, or diluted earnings per share of $1.04, for the same period in 2024.
Previous wording
Annualized return on average assets (“ROAA”) for the three months ended September 30, 2024 measured 1.13% compared to 1.19% for the same period in 2023. Annualized ROAA for the nine months ended September 30, 2024 measured 1.08% compared to 1.13% for the same period in 2023.
Current wording
Annualized return on average assets (“ROAA”) for the three months ended March 31, 2025 measured 1.14% compared to 0.98% for the same period in 2024.
Previous wording
Return on average common equity (“ROACE”) is defined as net income available to common shareholders divided by average equity less average preferred stock. ROACE was 13.83% for the three months ended September 30, 2024, compared to 14.62% for the same period in 2023. ROACE was 13.41% for the nine months ended September 30, 2024, compared to 13.72% for the same period in 2023.
Current wording
Return on average tangible common equity (“ROATCE”) is defined as net income available to common shareholders divided by average equity less average intangible assets and average preferred stock. ROATCE was 14.12% for the three months ended March 31, 2025, compared to 12.79% for the same period in 2024.
Previous wording
Pre-tax, pre-provision (“PTPP”) adjusted earnings, which excludes certain one-time and discrete items, and PTPP ROAA for the three months ended September 30, 2024 were $15.4 million and 1.70%, respectively, compared to $14.1 million and 1.72% in the same period in 2023. PTPP and PTPP ROAA for the nine months ended September 30, 2024 were $42.7 million and 1.59%, respectively, compared to $40.9 million and 1.74% in the same period in 2023.
Current wording
Pre-tax, pre-provision (“PTPP”) adjusted earnings, which excludes certain one-time and discrete items, for the three months ended March 31, 2025 was $16.2 million, compared to $13.1 million in the same period in 2024.
Previous wording
Fees in lieu of interest, defined as prepayment fees, asset-based loan fees, non-accrual interest, and loan fee amortization, totaled $942,000 for the three months ended September 30, 2024, compared to $582,000 for the same period in 2023. Fees in lieu of interest totaled $3.0 million for the nine months ended September 30, 2024, compared to $2.2 million for the same period in 2023.
Current wording
Fees in lieu of interest, defined as prepayment fees, asset-based loan fees, non-accrual interest, and loan fee amortization, totaled $2.1 million for the three months ended March 31, 2025, compared to $849,000 for the same period in 2024.
Previous wording
Net interest margin was 3.64% for the three months ended September 30, 2024 compared to 3.76% for the same period in 2023. Adjusted net interest margin, which excludes the impact of fees in lieu of interest, and other recurring, but volatile, components of net interest margin, was 3.51% for the three months ended September 30, 2024, compared to 3.66% for the same period in 2023. Net interest margin was 3.62% for the nine months ended September 30, 2024 compared to 3.81% for the same period in 2023. Adjusted net interest margin, which excludes certain one-time and volatile items including fees in lieu of interest, was 3.47% for the nine months ended September 30, 2024, compared to 3.68% for the same period in 2023.
Current wording
Net interest margin was 3.69% for the three months ended March 31, 2025 compared to 3.58% for the same period in 2024. Adjusted net interest margin, which excludes the impact of fees in lieu of interest, and other recurring, but volatile, components of net interest margin, was 3.46% for the three months ended March 31, 2025, compared to 3.43% for the same period in 2024.
Previous wording
Top line revenue, defined as net interest income plus non-interest income, totaled $38.1 million for the three months ended September 30, 2024, compared to $37.0 million in the same period in 2023. Top line revenue totaled $112.3 million for the nine months ended September 30, 2024, compared to $107.3 million in the same period in 2023.
Current wording
Top line revenue, defined as net interest income plus non-interest income, totaled $40.8 million for the three months ended March 31, 2025, compared to $36.3 million in the same period in 2024.
Previous wording
Effective tax rate, including the benefit from Low-Income Housing Tax Credits, was 16.8% for the nine months ended September 30, 2024 compared to 21.4% for the same period in 2023.
Current wording
Effective tax rate, including the benefit from Low-Income Housing Tax Credits, was 17.0% for the three months ended March 31, 2025 compared to 16.5% for the same period in 2024.
Previous wording
Period-end gross loans and leases receivable increased $200.3 million, or 9.4% annualized, to $3.050 billion as of September 30, 2024 compared to $2.850 billion as of December 31, 2023. Average gross loans and leases of $2.961 billion increased $368.1 million, or 14.2%, for the nine months ended September 30, 2024, compared to $2.593 billion for the same period in 2023.
Current wording
Period-end gross loans and leases receivable increased $71.4 million, or 9.2% annualized, to $3.185 billion as of March 31, 2025 compared to $3.114 billion as of December 31, 2024. Average gross loans and leases of $3.186 billion increased $298.3 million, or 10.3%, for the three months ended March 31, 2025, compared to $2.887 billion for the same period in 2024.
Previous wording
Non-performing assets were $19.4 million and 0.52% of total assets as of September 30, 2024, compared to $20.8 million and 0.59% of total assets as of December 31, 2023.
Current wording
Non-performing assets were $24.1 million and 0.61% of total assets as of March 31, 2025, compared to $28.4 million and 0.74% of total assets as of December 31, 2024.
Previous wording
The allowance for credit losses, including reserve for unfunded credit commitments, increased $2.5 million compared to December 31, 2023. The allowance for credit losses, including reserve for unfunded credit commitments, was 1.16% of total loans, compared to 1.16% at December 31, 2023.
Current wording
The allowance for credit losses, including reserve for unfunded credit commitments, decreased $753,000 compared to December 31, 2024. The allowance for credit losses, including reserve for unfunded credit commitments, was 1.15% of total loans, compared to 1.20% at December 31, 2024.
Previous wording
Period-end core deposits at September 30, 2024 increased $43.7 million, or 2.5% annualized, to $2.383 billion from $2.339 billion as of December 31, 2023. Average core deposits of $2.366 billion increased $317.8 million, or 15.5%, for the nine months ended September 30, 2024, compared to $2.048 billion for the same period in 2023.
Current wording
Period-end core deposits at March 31, 2025 increased $66.3 million, or 11.1% annualized, to $2.463 billion from $2.396 billion as of December 31, 2024. Average core deposits of $2.363 billion increased $16.4 million or 0.7%, for the three months ended March 31, 2025, compared to $2.346 billion for the same period in 2024.
Previous wording
Private wealth and trust assets under management and administration increased by $276.4 million, or 11.1% annualized, to $3.398 billion at September 30, 2024, compared to $3.122 billion at December 31, 2023. Private wealth trust assets under management and administration increased $483.3 million, or 16.6%, compared to the same period in 2023.
Current wording
Private wealth and trust assets under management and administration increased by $5.9 million, or 0.7% annualized, to $3.425 billion at March 31, 2025, compared to $3.419 billion at December 31, 2024. Private wealth trust assets under management and administration increased $104.4 million, or 3.1%, compared to the same period in 2024.
Previous wording
Top line revenue, comprised of net interest income and non-interest income, increased $1.0 million, or 2.8%, for the three months ended September 30, 2024, compared to the same period in 2023, due to a 8.4% increase in net interest income, partially offset by a 16.2% decrease in non-interest income. The increase in net interest income primarily reflects an increase in average gross loans and leases and an increase in fees in lieu of interest, partially offset by net interest margin compression. The decrease in non-interest income was due to decreases in returns on investments in Small Business Investment Company ("SBIC") mezzanine funds, commercial loan swap fee income, and gains on the sale of SBA loans.
Current wording
Top line revenue, comprised of net interest income and non-interest income, increased $4.6 million, or 12.6%, for the three months ended March 31, 2025, compared to the same period in 2024, due to a 12.7% increase in net interest income and a 12.2% increase in non-interest income. The increase in net interest income was driven by an increase in average loans and leases outstanding as well as an increase in fees in lieu of interest. The increase in non-interest income was due to increases in gains on the sale of SBA loans and private wealth fee income, partially offset by decreases in loan fees.
Previous wording
Annualized Return on Average Assets (“ROAA”) and Annualized Return on Average Common Equity (“ROACE”)
Current wording
Annualized Return on Average Assets (“ROAA”) and Annualized Return on Average Tangible Common Equity (“ROATCE”)
Previous wording
ROAA for the three and nine months ended September 30, 2024 was 1.13% and 1.08%, respectively, compared to 1.19% and 1.13% for the three and nine months ended September 30, 2023. The decrease in ROAA for the three and the nine months ended was due to the decrease in non-interest income, partially offset by an increase in net interest income and decrease in the effective tax rate. We consider ROAA a critical metric to measure the profitability of our organization and how efficiently our assets are deployed. ROAA also allows us to better benchmark our profitability to our peers without the need to consider different degrees of leverage which can ultimately influence return on equity measures.
Current wording
ROAA for the three months ended March 31, 2025 was 1.14%, compared to 0.98% for the three months ended March 31, 2024. The increase in ROAA for the three months ended was due to increases in net interest income and non-interest income, partially offset by an increase in operating expenses and income tax expense. We consider ROAA a critical metric to measure the profitability of our organization and how efficiently our assets are deployed. ROAA also allows us to better benchmark our profitability to our peers without the need to consider different degrees of leverage which can ultimately influence return on equity measures.
Previous wording
ROACE for the three and nine months ended September 30, 2024 was 13.8% and 13.4% respectively, compared to 14.6% and 13.7% for the three and nine months ended September 30, 2023. The reasons for the change in ROACE are consistent with the net income variance explanation as discussed under ROAA above. We view ROACE as an important measurement for monitoring profitability and continue to focus on improving our return to our shareholders by enhancing the overall profitability of our client relationships, controlling our expenses, and minimizing our costs of credit.
Current wording
ROATCE for the three months ended March 31, 2025 was 14.1%, compared to 12.8% for the three months ended March 31, 2024. The reasons for the change in ROATCE are consistent with the net income variance explanation as discussed under ROAA above. We view ROATCE as an important measurement for monitoring profitability and continue to focus on improving our return to our shareholders by enhancing the overall profitability of our client relationships, controlling our expenses, and minimizing our costs of credit.
Previous wording
Efficiency ratio measured 59.4% and 62.0% for the three and nine months ended September 30, 2024, compared to 62.0% and 61.9% for the three and nine months ended September 30, 2023, respectively. For the three month period comparison, the percentage increase in top line revenue exceeded the percentage increase in operating expenses, resulting in positive quarterly operating leverage. Revenue increased for the reasons stated above in the Top Line Revenue section, while operating expenses remained relatively consistent in the periods of comparison. For the nine month period comparison, the efficiency ratio was relatively consistent as revenue and expenses grew commensurately. Efficiency ratio is a non-GAAP measure representing operating expense, which is non-interest expense excluding the effects of the SBA recourse benefit or provision, net gains or losses on repossessed assets, amortization of other intangible assets, and other discrete items, if any, divided by operating revenue, which is equal to net interest income plus non-interest income less realized net gains or losses on securities, if any.
Current wording
Efficiency ratio measured 60.3% for the three months ended March 31, 2025, compared to 63.8% for the three months ended March 31, 2024. The percentage increase in top line revenue exceeded the percentage increase in operating expenses, resulting in positive quarterly operating leverage. Revenue increased for the reasons stated above in the Top Line Revenue section, while operating expenses increased at a slower rate in the periods of comparison as described in the Non-Interest Expense section. Efficiency ratio is a non-GAAP measure representing operating expense, which is non-interest expense excluding the effects of the SBA recourse benefit or provision, net gains or losses on repossessed assets, amortization of other intangible assets, and other discrete items, if any, divided by operating revenue, which is equal to net interest income plus non-interest income less realized net gains or losses on securities, if any.
Previous wording
PTPP adjusted earnings for three and nine months ended September 30, 2024 were $15.4 million and $42.7 million, respectively, compared to $14.1 million and $40.9 million for the three and nine months ended September 30, 2023, respectively. PTPP adjusted earnings is defined as operating revenue less operating expense. The increase in PTPP adjusted earnings for both periods was primarily driven by an increase in net interest income partially offset by a decrease in non-interest income. In the judgment of the Corporation’s management, the adjustments made to non-interest expense and non-interest income allow investors and analysts to better assess the Corporation’s operating expenses in relation to its core operating revenue by removing the volatility associated with certain one-time items and other discrete items. PTPP adjusted earnings allows management to benchmark performance of our model to our peers without the influence of the provision for credit losses and tax considerations, which will ultimately influence other traditional financial measurements, including ROAA and ROACE. The information provided below reconciles the efficiency ratio to its most comparable GAAP measure.
Current wording
PTPP adjusted earnings for three months ended March 31, 2025 were $16.2 million, compared to $13.1 million for the three months ended March 31, 2024, an increase of 23.4%. PTPP adjusted earnings is defined as operating revenue less operating expense. The increase in PTPP adjusted earnings was primarily driven by increases in both net interest income and non-interest income, partially offset by an increase in operating expenses. In the judgment of the Corporation’s management, the adjustments made to non-interest expense and non-interest income allow investors and analysts to better assess the Corporation’s operating expenses in relation to its core operating revenue by removing the volatility associated with certain one-time items and other discrete items. PTPP adjusted earnings is a non-GAAP measure that allows management to benchmark performance of our model to our peers without the influence of the provision for credit losses and tax considerations, which will ultimately influence other traditional financial measurements, including ROAA and ROATCE. The information provided below reconciles the efficiency ratio to its most comparable GAAP measure.
Previous wording
The following table provides information with respect to (1) the change in net interest income attributable to changes in rate (changes in rate multiplied by prior volume) and (2) the change in net interest income attributable to changes in volume (changes in volume multiplied by prior rate) for the three and nine months ended September 30, 2024 compared to the same period in 2023. The change in net interest income attributable to changes in rate and volume (changes in rate multiplied by changes in volume) has been allocated to the rate and volume changes in proportion to the relationship of the absolute dollar amounts of the change in each.
Current wording
The following table provides information with respect to (1) the change in net interest income attributable to changes in rate (changes in rate multiplied by prior volume) and (2) the change in net interest income attributable to changes in volume (changes in volume multiplied by prior rate) for the three months ended March 31, 2025 compared to the same period in 2024. The change in net interest income attributable to changes in rate and volume (changes in rate multiplied by changes in volume) has been allocated to the rate and volume changes in proportion to the relationship of the absolute dollar amounts of the change in each.
Previous wording
The tables below show our average balances, interest, average yields/rates, net interest margin, and the spread between the combined average yields earned on interest-earning assets and average rates on interest-bearing liabilities for the three and nine months ended September 30, 2024 and 2023. The average balances are derived from average daily balances.
Current wording
The tables below show our average balances, interest, average yields/rates, net interest margin, and the spread between the combined average yields earned on interest-earning assets and average rates on interest-bearing liabilities for the three months ended March 31, 2025 and 2024. The average balances are derived from average daily balances.
Previous wording
Comparison of Net Interest Income for the Three and Nine Months Ended September 30, 2024 and 2023
Current wording
Comparison of Net Interest Income for the Three Months Ended March 31, 2025 and 2024
Previous wording
Net interest income increased $2.4 million, or 8.4%, and $8.0 million, or 9.6% during the three and nine months ended September 30, 2024, compared to the three and nine months ended September 30, 2023. The increase in net interest income reflected an increase in average gross loans and leases and an increase in fees in lieu of interest, partially offset by net interest margin compression. Fees in lieu of interest, which vary from quarter to quarter, totaled $942,000 and $3.0 million for the three and nine months ended September 30, 2024, compared to $582,000 and $2.2 million for the same periods in 2023. Excluding fees in lieu of interest, net interest income for the three and nine months ended September 30, 2024 increased $2.1 million, or 7.32%, and $7.2 million, or 8.92%, respectively. Average gross loans and leases for the three and nine months ended September 30, 2024 increased
Current wording
Net interest income increased $3.7 million, or 12.7%, during the three months ended March 31, 2025, compared to the three months ended March 31, 2024. The increase in net interest income reflected an increase in average gross loans and leases, an increase in fees in lieu of interest, and net interest margin improvement. Fees in lieu of interest, which vary from quarter to quarter, totaled $2.1 million for the three months ended March 31, 2025, compared to $849,000 for the same period in 2024. FILOI was elevated due to reclassification of loan fees that were previously classified as non-interest income to interest income. Excluding fees in lieu of interest, net interest income for the three months ended March 31, 2025 increased $2.5 million, or 8.88%. Average gross loans and leases for the three months ended March 31, 2025 increased $298.3 million, or 10.3%, compared to the three months ended March 31, 2024.
Previous wording
The yield on average loans and leases for the three and nine months ended September 30, 2024 was 7.32% and 7.25%, respectively, compared to 7.06% and 6.79% for the three and nine months ended September 30, 2023. Excluding the impact of loan fees in lieu of interest, the yield on average loans and leases for the three and nine months ended September 30, 2024 was 7.20% and 7.11%, respectively, compared to 6.97% and 6.67% for the three and nine months ended September 30, 2023. The yield on average interest-earning assets for the three and nine months ended September 30, 2024 measured 6.97% and 6.89%, respectively, compared to 6.71% and 6.43% for the three and nine months ended September 30, 2023. Excluding loan fees in lieu of interest, the yield on average interest-earning assets for the three and nine months ended September 30, 2024 was 6.86% and 6.77%, respectively, compared to 6.63% and 6.33% for the three and nine months ended September 30, 2023. The increase in yields was primarily due to the reinvestment of cash flows from fixed-rate loan portfolios and securities in a higher rate environment. Compared to the prior year quarter, the quarter's daily average effective federal funds rate for the remained flat at 5.26%. The daily average effective federal funds rate for the nine months ended September 30, 2024 increased 39 basis points.
Current wording
The yield on average loans and leases for the three months ended March 31, 2025 was 6.94%, compared to 7.14% for the three months ended March 31, 2024. Excluding the impact of loan fees in lieu of interest, the yield on average loans and leases for the three months ended March 31, 2025 was 6.68%, compared to 7.02% for the three months ended March 31, 2024. The yield on average interest-earning assets for the three months ended March 31, 2025 measured 6.61%, compared to 6.77% for the three months ended March 31, 2024. Excluding loan fees in lieu of interest, the yield on average interest-earning assets for the three months ended March 31, 2025 was 6.38%, compared to 6.67% for the three months ended March 31, 2024. The decrease in yield was primarily due to the decrease in short-term market rates partially offset by the reinvestment of cash flows from the securities and fixed-rate loan portfolios. Compared to the prior year quarter, the quarter's daily average effective federal funds rate was 4.33%. The daily average effective federal funds rate for the three months ended March 31, 2025 decreased 100 basis points compared to the prior year quarter.
Previous wording
The rate paid on average interest-bearing core deposits for the three and nine months ended September 30, 2024 increased to 4.10% and 4.07%, respectively, from 3.74% and 3.27% for the three and nine months ended September 30, 2023. The average rate paid on total interest-bearing liabilities for the three and nine months ended September 30, 2024 increased to 4.05% and 3.97%, respectively, from 3.64% and 3.30% for the three and nine months ended September 30, 2023. Total interest-bearing liabilities may include interest-bearing deposits, federal funds purchased, FHLB advances, subordinated and junior subordinated notes and debentures payable, and other borrowings. The average rates paid increased due to the increase in short-term market rates, the replacement of maturing wholesale funds at higher fixed rates, and client movement from non-interest bearing to interest bearing core deposit products. The daily average effective federal funds rate for the three months ended September 30, 2024 remained flat.
Current wording
The rate paid on average interest-bearing core deposits for the three months ended March 31, 2025 decreased to 3.29%, from 4.04% for the three months ended March 31, 2024. The average rate paid on total interest-bearing liabilities for the three months ended March 31, 2025 decreased to 3.50%, from 3.90% for the three months ended March 31, 2024. Total interest-bearing liabilities may include interest-bearing deposits, FHLB advances, subordinated and junior subordinated notes and debentures payable, federal funds purchased, and other borrowings. The average rates paid decreased primarily due to the decrease in short-term market rates. The daily average effective federal funds rate for the three months ended March 31, 2025 decreased by 100 basis points compared to the prior year quarter.
Previous wording
Net interest margin decreased to 3.64% and 3.62%, respectively, for the three and nine months ended September 30, 2024, compared to 3.76% and 3.81% for the three and nine months ended September 30, 2023. The primary driver of the reduction in net interest margin was increased funding costs, partially offset by an increase in earning asset yields. Adjusted net interest margin measured 3.51% and 3.47% for the three and nine months ended September 30, 2024, compared to 3.66% and 3.68% for the three and nine months ended September 30, 2023. Adjusted net interest margin is a non-GAAP measure representing net interest income excluding the impact of fees in lieu of interest, and other recurring, but volatile, components of net interest margin divided by average interest-earning assets less other recurring, but volatile, components of average interest-earning assets.
Current wording
Net interest margin increased to 3.69% for the three months ended March 31, 2025, compared to 3.58% for the three months ended March 31, 2024. The primary driver of the increase in net interest margin was lower funding costs, partially offset by a decrease in earning asset yields. Adjusted net interest margin measured 3.46% for the three months ended March 31, 2025, compared to 3.43% for the three months ended March 31, 2024. Adjusted net interest margin is a non-GAAP measure representing net interest income excluding the impact of fees in lieu of interest, and other recurring, but volatile, components of net interest margin divided by average interest-earning assets less other recurring, but volatile, components of average interest-earning assets.
Previous wording
The following table shows the components of the provision for credit losses for the three and nine months ended September 30, 2024 compared to the same periods in 2023.
Current wording
The following table shows the components of the provision for credit losses for the three months ended March 31, 2025 compared to the same period in 2024.
Previous wording
The addition of specific reserves on individually evaluated loans represents new specific reserves established when collateral shortfalls or government guaranty deficiencies are present, while the release of specific reserves represents the reduction of previously established reserves that are no longer required. Qualitative factor changes reflect management’s evaluation of the level of risk within the portfolio based upon several factors for each portfolio segment. Quantitative factor changes reflect the change in the reasonable and supportable forecast as well as other model assumptions. Charge-offs in excess of previously established specific reserves require an additional provision for credit losses to maintain the allowance for credit losses at a level deemed appropriate by management. This amount is net of the release of any specific reserve that may have already been provided. Refer to Asset Quality, below, for further information regarding the overall credit quality of our loan and lease portfolio.
Current wording
Qualitative factor changes reflect management’s evaluation of the level of risk within the portfolio based upon several factors for each portfolio segment. The current period benefit is primarily due to lower growth rates in certain loan pools. Quantitative factor changes reflect the change in the reasonable and supportable forecast as well as other model assumptions. Charge-offs in excess of previously established specific reserves require an additional provision for credit losses to maintain the allowance for credit losses at a level deemed appropriate by management. This amount is net of the release of any specific reserve that may have already been provided. The addition of specific reserves on individually evaluated loans represents new specific reserves established when collateral shortfalls or government guaranty deficiencies are present, while the release of specific reserves represents the reduction of previously established reserves that are no longer required. Refer to Asset Quality, below, for further information regarding the overall credit quality of our loan and lease portfolio.
Previous wording
Comparison of Non-Interest Income for the Three and Nine Months Ended September 30, 2024 and 2023
Current wording
Comparison of Non-Interest Income for the Three Months Ended March 31, 2025 and 2024
Previous wording
Management continues to focus on revenue growth from multiple non-interest income sources to maintain a diversified revenue stream. Contribution from fee-based revenue sources can be variable and driven by changes in the interest rate environment, client activity, and the value of underlying investments. Total non-interest income accounted for 18.6% and 18.9% of total revenues for the three and nine months ended September 30, 2024, respectively, compared to 22.8% and 22.6% for the three and nine months ended September 30, 2023.
Current wording
Management continues to focus on revenue growth from multiple non-interest income sources to maintain a diversified revenue stream. Contribution from fee-based revenue sources can be variable and driven by changes in the interest rate environment, client activity, and the value of underlying investments. Total non-interest income accounted for 18.6% of total revenues for both the three months ended March 31, 2025 and March 31, 2024.
Previous wording
Private wealth fee income increased $319,000, or 10.8%, and $1.3 million, or 15.8%, for the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023. Private wealth fee income is up compared to prior year primarily due to an increase in assets under management and administration, increases in fee rates across the client base, and non-recurring transaction fees in the 2024 period. Private wealth fee income can vary due to the mix of business at different fee structures and can be positively or negatively influenced by the timing and magnitude of volatility within the capital markets. As of September 30, 2024, Private wealth and trust assets under management and administration totaled $3.398 billion, increasing $483.3 million, or 16.6%, compared to $2.915 billion as of September 30, 2023, due to an increase in market values, new clients, and new money from existing clients.
Current wording
Private wealth fee income increased $381,000, or 12.2% for the three months ended March 31, 2025, compared to the same period in 2024. Private wealth fee income is up compared to the prior year primarily due to an increase in assets under management and administration, increases in fee rates across the client base, and non-recurring transaction fees in the 2025 period. Private wealth fee income can vary due to the mix of business at different fee structures and can be positively or negatively influenced by the timing and magnitude of volatility within the capital markets. As of March 31, 2025, private wealth and trust assets under management and administration totaled $3.425 billion, increasing $104.4 million, or 3.1%, compared to $3.320 billion as of March 31, 2024, due to an increase in market values, new clients, and new money from existing clients.
Previous wording
Service charges on deposits increased $85,000, or 10.2%, and $527,000, or 23.1%, for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. The increase is primarily driven by new and expanded core deposit relationships. Treasury management business development efforts remain robust as gross treasury management service charges increased $145,000, or 9.9%, and $473,000, or 11.0%, for the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023. Management believes growth in gross analyzed service charges is a strong indicator of success for the Corporation given the direct correlation to adding and expanding core business relationships.
Current wording
Service charges on deposits increased $108,000, or 11.5% for the three months ended March 31, 2025, compared to the same period in 2024. The increase is primarily driven by new and expanded core deposit relationships. Treasury management business development efforts remain robust as gross treasury management service charges increased $108,000, or 6.7%, for the three months ended March 31, 2025, compared to the same period in 2024. Management believes growth in gross analyzed service charges is a strong indicator of success for the Corporation given the direct correlation to adding and expanding core business relationships.
Previous wording
Non-interest expense for the three and nine months ended September 30, 2024 decreased by $82,000, or 0.4% and increased $3.3 million, or 5.0%, respectively, compared to the same period in 2023. Operating expense, which excludes certain one-time and discrete items as defined in the Efficiency Ratio table above, decreased $313,000, or 1.4%, and increased $3.2 million, or 4.8%, for the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023. For the three month period, the decrease in operating expense was primarily due to decreases in compensation, other non-interest expense, and professional fees; partially offset by increases in computer software expense, marketing expense, and FDIC insurance. For the nine month period, the increase in operating expense was primarily due to an increase in compensation expense, computer software expense, and FDIC insurance.
Current wording
Non-interest expense for the three months ended March 31, 2025 increased $1.4 million, or 5.9%, compared to the same period in 2024. Operating expense, which excludes certain one-time and discrete items as defined in the Efficiency Ratio table above, increased $1.5 million, or 6.4%, for the three months ended March 31, 2025, compared to the same period in 2024. The increase in operating expense was primarily due to an increase in compensation expense, other expenses, computer software expense, and FDIC insurance.
Previous wording
Compensation expense for the three and nine months ended September 30, 2024 decreased $375,000, or 2.4%, and increased $960,000, or 2.1%, respectively, compared to the same periods in 2023. For the three month period, the decrease in compensation expense was primarily due to a cash bonus accrual adjustment decrease and an increase in capitalized software development compensation. For the nine month period, the increase in compensation expense was primarily due to an increase in average FTEs, annual merit increases, and promotions. These increases were partially offset by decreases in incentive compensation and share-based compensation. Successful hiring efforts to secure talent resulted in average full-time equivalent employees for the three months ended September 30, 2024 increasing to 355, up 1.7%, compared to 349 for the three months ended September 30, 2023.
Current wording
Compensation expense for the three months ended March 31, 2025 increased $590,000, or 3.7%, compared to the same period in 2024. The increase in compensation expense was primarily due to annual merit increases, promotions, and increases in headcount. Successful hiring efforts to secure talent resulted in average full-time equivalent employees for the three months ended March 31, 2025 increasing to 354, up 2%, compared to 348 for the three months ended March 31, 2024.
Previous wording
Computer software expense increased $319,000, or 24.7%, and $913,000, or 24.9%, for the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023. The increase was primarily due to our commitment to innovative technology to support growth initiatives, enhance productivity, and improve the client experience.
Current wording
Computer software expense increased $185,000, or 13.0%, for the three months ended March 31, 2025, compared to the same period in 2024. The increase was primarily due to our commitment to innovative technology to support growth initiatives, enhance productivity, and improve the client experience.
Previous wording
Marketing expense increased $164,000, or 21.6%, and $426,000, or 19.7%, for the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023. The increase was primarily due to an increase in business development efforts and advertising projects related to the Company’s growth initiatives.
Current wording
Marketing expense increased $150,000, or 18.3%, for the three months ended March 31, 2025, compared to the same period in 2024. The increase was primarily due to an increase in business development efforts and advertising projects related to the Corporation’s growth initiatives.
Previous wording
Income tax expense totaled $6.0 million for the nine months ended September 30, 2024 compared to $7.4 million for the same period in 2023. Income tax expense included a $1.1 million net benefit from tax credit investments in both periods. The effective tax rate for the nine months ended September 30, 2024 was 16.8% compared to 21.4% for the same period in 2023. The decrease in effective tax rate is primarily due to a change in Wisconsin state tax legislation which reduced the Corporation's state taxable income. The Corporation expects to report an effective tax rate between 16% and 18% for 2024.
Current wording
Income tax expense totaled $2.3 million for the three months ended March 31, 2025 compared to $1.8 million for the same period in 2024. Income tax expense included a $459,000 net benefit from tax credit investments compared to $376,000 for the same period in 2024. The effective tax rate for the three months ended March 31, 2025 was 17.00% compared to 16.5% for the same period in 2024. The increase in effective tax rate is primarily due to higher state income taxes. The Corporation expects to report an effective tax rate between 16% and 18% for 2025.
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Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
Comparison of Non-Interest Expense for the Three Months Ended March 31, 2025 and 2024
Current report — wording carried from elsewhere
The following represents additional information regarding our allowance for credit losses: