First Business Financial Services, Inc. Q4 FY2025 earnings call

Key Points

• The bank had strong financial performance in Q4 2025 with pretax pre-provision earnings up nearly 15% over 2024, return on average tangible common equity over 15% for the year, and tangible book value per share up 14%.
• Private Wealth business expanded, delivering record annuity-like fee income.
• There was an isolated credit situation where $20.4 million of CRE loans were downgraded for a Wisconsin-based borrower, but the majority of performing loans are stabilized multifamily projects in healthy markets.
• Loan growth: $39 million annualized in Q4, $261 million over the same period last year; expected double-digit loan growth in 2026.
• Core deposits grew 12% in Q4 from linked and prior year quarters, driven by core interest-bearing and money market accounts.
• Asset quality: Outside the isolated nonaccrual relationship, the portfolio performed as expected, with net charge-offs of $2.5 million from previously reserved equipment finance loans.

First Business Bank had a strong fourth quarter. Private Wealth business delivered record annuity-like fee income. Full-year 2025 net interest income grew 10%, meeting the double-digit growth goal. Fourth quarter loan balances grew about $39 million (5% annualized), and core deposit balances were up 12% from linked and prior year quarters. Private Wealth generated a record $3.8 million of fee income in Q4, up 11% year-over-year, and service charges were up nearly 20% year-over-year.

Forward-Looking Statements

• Expect double-digit growth in core deposits to continue in 2026.
• Net interest margin target range remains 3.60% to 3.65%.
• Noninterest income is expected to grow 10% full year 2026, excluding nonrecurring items.
• Anticipate double-digit loan growth in 2026, driven by business and banking industry trends, tax policy tailwinds, and strong pipeline activity.

Risks

• Isolated credit risk with a specific Wisconsin-based CRE borrower, though land values exceed loan carrying value.
• Potential ongoing payoff activity in the CRE secondary market.
• Competitive deposit pricing environment, though pressure has eased modestly.

Q: Daniel Tamayo asked about the timing of appraisals for the isolated CRE loan and LTV/service coverage.

A: Corey Chambas responded that most appraisals were done at year-end, and the overall loan-to-value across the seven properties is 72%.

Q: Daniel Tamayo asked about fee income guidance.

A: Brian Spielmann clarified that full-year 2026 noninterest income is expected to grow 10% excluding nonrecurring items.

Q: Jeff Rulis asked about the timeline for resolving the large problem loan.

A: Corey Chambas said progress could be made over the year, with potential shorter-term progress on some pieces of the loan.

Q: Nathan Race asked about deposit pricing competition and M&A.

A: David Seiler said deposit pricing is still competitive but eased slightly; Corey Chambas stated preference for organic growth over M&A.

Q: Damon DelMonte asked about margin reset and expense growth.

A: Brian Spielmann discussed margin reset to 3.63% and expense growth expectations; David Seiler and Corey Chambas talked about loan growth potential.

Q: Brian Martin asked about payoffs, production, and specialty businesses.

A: David Seiler and Corey Chambas provided context on payoffs, production, and outlook for specialty businesses like ABL and equipment finance.

Q: Brian Martin asked about fee income lift and SBIC revenues.

A: David Seiler and Corey Chambas discussed fee income growth expectations and SBIC revenue potential.

Q: Brian Martin asked about resolution of another credit.

A: David Seiler said an asset-based lending credit is in the court system with a later 2026 court date.