First Business Financial Services Q4 Earnings Call Highlights

First Business Financial Services (NASDAQ:FBIZ) executives highlighted what CEO Corey Chambas called “another outstanding quarter” to close 2025, pointing to resilient net interest margin, strong core deposit growth, expanding fee income from Private Wealth, and improved efficiency that supported profitability and capital generation.

Management also addressed a new, isolated credit issue tied to a single commercial real estate borrower and discussed expectations for 2026, including continued double-digit growth targets for loans, deposits, revenue, and fee income.

2025 performance and shareholder returns

Chambas said the company’s 2025 results reflected “high-quality growth,” particularly in deposits, and emphasized diversification across revenue streams. He noted that pre-tax, pre-provision earnings grew nearly 15% compared to 2024, return on average tangible common equity was over 15% for the year, and tangible book value per share rose 14% year-over-year.

He also pointed to earnings per share (EPS) growth of 14% in 2025 versus 2024, exceeding the company’s long-term annual goal of 10%. Chambas said the bank has delivered 12% compounded annual EPS growth over the past 10 years and 10% compounded annual EPS growth since its 2005 IPO.

On capital returns, Chambas said the board approved a 17% increase to the quarterly cash dividend, citing both the year’s performance and expectations for continued financial success.

Credit: isolated CRE downgrade and equipment finance runoff

President and COO Dave Seiler discussed an “isolated credit situation” in which the bank downgraded $20.4 million of CRE loans tied to a single Wisconsin-based borrower with total loans outstanding of $29.7 million. The borrower had acquired parcels for multifamily development but was unable to advance the projects, leading to high carrying costs and depleted free cash flow.

Seiler said the majority of the non-performing loans were collateralized by land zoned for multifamily in southeastern Wisconsin, primarily between Milwaukee and Chicago. Management said appraised land values exceeded the carrying value of the loans, and no specific reserve was recorded. However, the bank did record a non-accrual interest reversal totaling $892,000, which Seiler said compressed net interest income and lowered net interest margin by 10 basis points in the fourth quarter.

During Q&A, management added that several appraisals were received at the end of the year, and that the seven cross-collateralized properties reflected an overall loan-to-value of 72%. Executives said they were working with the borrower on multiple options and described foreclosure as a “straightforward process” if needed, though it can take time. They indicated progress could potentially occur over multiple quarters, with a “best guess” of full resolution toward the end of the year, acknowledging that timing depends on several variables.

Management also clarified that fourth quarter net charge-offs of $2.5 million were primarily tied to previously reserved equipment finance loans—specifically a shrinking transportation segment in small-ticket equipment finance—and not related to the CRE downgrade. During the call, executives said the transportation portfolio was approximately $21 million at quarter-end, down about $20 million over the year and down from $61 million when issues first emerged. They suggested the remaining borrowers are more likely to perform, given the portfolio’s seasoning and the five-year structure of the credits.

Separately, executives provided an update on an older asset-based lending credit dating to 2023, saying it remains in the court system with a court date set for later in 2026.

Net interest margin: Q4 dip, target range maintained

CFO Brian Spielmann said fourth quarter net interest margin declined 15 basis points to 3.53%, including 10 basis points of compression from the non-accrual interest reversal tied to the CRE relationship. Excluding that impact, he said net interest margin would have been 3.63%.

For full-year 2025, Spielmann said net interest margin was 3.64%, down 2 basis points from 3.66% in 2024. He reiterated that the bank’s NIM target range remains 3.60% to 3.65% and said the balance sheet is “essentially interest rate neutral,” meaning the timing of rate moves is less consequential than for many peers. He added that the company’s targeted 10% growth in net interest income is not dependent on additional rate cuts or hikes.

On funding, Spielmann said deposit pricing pressure has eased modestly since the Fed began cutting rates, but competition for new deposit clients remains intense. On the asset side, management said the bank continues shifting toward higher-yielding C&I relationships, which typically bring lower-cost deposits, and noted strong pipeline activity across lending teams, including asset-based lending.

Fee income, accounting change, and expense outlook

Seiler said fourth quarter non-interest income was supported by record performance in Private Wealth, which generated $3.8 million of fee income, up 11% year-over-year. Service charges rose nearly 20% year-over-year, which management characterized as evidence of success in adding full banking relationships. Offsetting items included lower SBA gains tied to a government shutdown, lower swap and loan fees versus the third quarter (when swap fees were unusually high), and lower income from partnership investments.

Spielmann explained an accounting classification change during the quarter affecting partnership investments. Historically, revenue from equity partnership investments was recorded in other non-interest income and related expenses in other expense. In the fourth quarter, the company reclassified the related expenses to net against the associated revenue within other non-interest income. Specifically, $904,000 was reclassified out of non-interest expense and into other non-interest income. Excluding that reclassification, partnership investment income declined $383,000 to $477,000 in the fourth quarter.

During Q&A, Spielmann indicated that excluding certain non-recurring items, the adjusted fee income level provides “a good starting point” for quarterly fee income in 2026, with an expectation of 10% growth for the full year. Executives also discussed SBA gain-on-sale, noting an average of roughly $500,000 per quarter across 2025 and expecting improvement in 2026.

On expenses, Spielmann said fourth quarter compensation expense declined about $291,000 due mainly to lower annual cash bonus and 401(k) accruals. Looking ahead, he said compensation levels in 2026 are expected to grow more than in 2025 due to open positions and benefit cost increases, while reiterating a focus on positive operating leverage—keeping expense growth modestly below targeted 10% annual revenue growth. He also said the 2025 effective tax rate of 16.8% was within the company’s expected 16% to 18% range.

Loans, deposits, and management’s 2026 growth expectations

Seiler said loan balances grew $39 million in the fourth quarter (5% annualized) and $261 million year-over-year (8%), citing elevated CRE payoff activity in the quarter. He said total payoffs in 2025 exceeded 2024 by almost $70 million, and that normalizing for the higher payoff levels would put adjusted full-year loan growth closer to 11%. Management said pipelines are strong entering the first quarter and expressed expectations that growth will return to a typical double-digit pace in 2026.

On deposits, Seiler said fourth quarter core deposit balances rose 12% from both the linked quarter and the prior-year quarter, driven largely by core interest-bearing and money market accounts and offsetting runoff in higher-cost CDs and wholesale deposits.

In discussing strategy, Chambas said the company remains focused on organic growth, citing investments in talent, long-term client relationships, technology, and prudent underwriting. When asked about M&A opportunities, he said the company’s model is “so unique” that it is difficult to find acquisition targets that fit, adding that management believes organic growth is typically the best way to drive value for existing shareholders.

About First Business Financial Services (NASDAQ:FBIZ)

First Business Financial Services, Inc (NASDAQ:FBIZ) is a bank holding company headquartered in Madison, Wisconsin, offering a suite of commercial banking and financial services. Through its wholly owned subsidiary, First Business Bank, the company provides relationship-driven lending, deposit and treasury management solutions to small and mid-sized businesses, nonprofit organizations and high-net-worth individuals. Its core products include commercial real estate financing, equipment leasing, SBA-guaranteed lending, and cash management services.

In addition to lending and depository services, First Business Bank delivers investment advisory and wealth management through dedicated trust and private banking teams.