First Business Financial Services, Inc. Q1 FY2026 earnings call

• Strong start to 2026 with exceptional team execution, winning new relationships, growing loans and deposits faster than expected. - Prioritize high-quality relationship-based growth, diversify revenue streams, maintain long-term positive operating leverage, and preserve quality talent. - Aim for 10% loan and core deposit growth annually; loans grew 15% in Q1, core deposits up 18% linked quarter and 14% y/y. - Private wealth business had record revenues, contributing to fee income growth. - Progress on largest non-performing asset, with $3.4 million of land development loans sold at par. - Compensation expense increased in Q1 due to payroll taxes, 401k match, merit increases, and higher FTEs; professional fees also higher in Q1.

Loans grew by $126 million (15%) in Q1, with growth from across markets including Madison, Milwaukee, Kansas City, and asset-based lending. Core deposits were up 18% from the linked quarter and 14% year over year. Private wealth business produced record revenues, growing fee income by nearly 16% year over year. Net interest margin increased three basis points to 356 in Q1, with bulk loan growth late in the quarter having margin implications. Non-interest income grew 16% compared to Q1 2025, with private wealth at 3.9 million (up 11% y/y) and service charges up over 26% y/y. Asset quality stable in core portfolio, with progress on largest non-performing asset (sold $3.4 million of land development loans at par in Q1).

• Expect Q2 to be lighter on growth than Q1 with normalization in second half, on track for 10% annual growth. - Margin outlook assumes stable to modestly changing interest rate environment, operating within or toward 360 - 365 range. - Fee income expected to grow 10% full year compared to 2025, with Q1 as good starting point. - Anticipate payroll taxes to come down throughout year but new FTE ads to go up. - Effective tax rate expected within 16 - 18% range for 2026.

• Monitor impact of oil prices and geopolitical uncertainty. - Macro uncertainties like geopolitical events could affect provisioning and overall business. - Lumpiness in fee income due to swap fees, SBA gains, etc.

Q: Daniel Tomeo asked about profitability metrics and long-term goals progress.

A: Dave said strategic plan is under review, efficiency ratio expected to return to desired level, strategies with teams working on them.

Q: Jeff Rulis asked on expenses and loan growth mix.

A: Brian said expenses expected to flatline, Dave said loan growth across markets, driven by new client relationships.

Q: Nathan Race asked on fee income outlook and SBA.

A: Brian said total fee income expected 10% y/y growth, Dave said SBA expected relatively flat in Q2 but 10% for year.

Q: Damon Del Monte asked on fees in lieu of interest and provisioning.

A: Brian said fees in lieu of interest up, provisioning based on average net charge off of 20 basis points.

Q: Brian Martin asked on loan growth areas and fee income lumpiness.

A: Dave said optimistic about ABL, accounts receivable finance, Kansas City, may add another FTE in KC; Brian said fee income still lumpy but working on consistency with private wealth and SBIC investments.