First Business Financial Services Q3 2025 Earnings Report

First Business Financial Services EPS Results

• Actual EPS: $1.70
• Consensus EPS: $1.39
• Beat/Miss: Beat by +$0.31
• One Year Ago EPS: N/A

First Business Financial Services Revenue Results

• Actual Revenue: $44.29 million
• Expected Revenue: $42.30 million
• Beat/Miss: Beat by +$1.99 million
• YoY Revenue Growth: N/A

First Business Financial Services Announcement Details

• Quarter: Q3 2025
• Date: 10/30/2025
• Time: After Market Closes
• Conference Call Date: Friday, October 31, 2025
• Conference Call Time: 2:00PM ET

First Business Financial Services (NASDAQ:FBIZ) is the holding company for First Business Bank, a full-service financial institution focused on serving privately held businesses, business owners, professionals and high-net-worth individuals. Through its banking subsidiary, the company provides commercial banking, business lending and deposit services tailored to the needs of small and middle-market companies.

Its products and services include commercial real estate and working-capital loans, equipment financing, lines of credit, treasury management, checking and savings accounts, certificates of deposit, and other business deposit products. First Business Bank also offers wealth management and investment-related services, as well as specialized financing solutions such as Small Business Administration lending.

Headquartered in Madison, Wisconsin, First Business Bank serves businesses and individuals primarily in Wisconsin and surrounding Midwestern markets through its banking offices and digital banking platform. First Business Financial Services is led by President and Chief Executive Officer Corey A. Chambas. The company has built its business around relationship-based banking and specialized expertise for commercial clients.

First Business Financial Services Q3 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: First Business delivered record operating revenue and strong profitability—tangible book value per share rose 16% YoY while YTD ROA and return on average tangible common equity improved materially.
• Neutral Sentiment: Fee income drove the quarter (notably elevated swap and SBIC fees plus about $770K of one‑time items); management expects Q4 fee levels to normalize and targets ~10% annual fee growth on an adjusted basis.
• Positive Sentiment: Balance‑sheet growth was robust—loans increased ~ $85M (10% annualized) and core deposits were up 9%—with strong pipelines in asset‑based lending, accounts receivable finance and niche C&I supporting the 10% growth objective.
• Neutral Sentiment: Asset quality remains stable with NPAs down to 0.58% and $1.3M of net charge‑offs (mostly reserved equipment finance); a $6.1M claim remains tied up in slow litigation but management expects eventual recovery.
• Positive Sentiment: NIM held at 3.68% (guidance 3.60–3.65%), capital generation is outpacing organic needs, and the bank is evaluating dividend increases, share repurchases and selective tuck‑in M&A as ways to deploy excess capital.

Presentation

[Operator]

Good afternoon. Welcome to the First Business Financial Services Third Quarter 2025 Presentation. This will be an opportunity to discuss. This event will be recorded. CEO, Corey Chambas, please go ahead.

[Corey Chambas, CEO at First Business Financial Services]

Good afternoon, everyone, and thank you for joining us. We appreciate your time and your interest in First Business Bank. Joining me today is our President and Chief Operating Officer, Dave Seiler, and our CFO, Brian Spielmann. Today we'll discuss our financial performance, followed by a Q&A session. I'd like to direct you to our third quarter earnings release and supplemental earnings call slides, which are available through our website at ir.firstbusiness.bank. We encourage you to review these along with our other investor materials. Before we begin, please note this call may include forward-looking statements, and the company's actual results may differ materially from those indicated in any forward-looking statements.

[Corey Chambas, CEO at First Business Financial Services]

Important factors that could cause actual results to differ materially from those indicated in the forward-looking statements are listed in the earnings release and the company's most recent annual report, Form 10-K, and as may be supplemented from time to time in the company's other filings with the SEC, all of which are expressly incorporated herein by reference. There you can also find information related to any non-GAAP financial measures we discuss on today's call, including reconciliations of such measures. First Business delivered another outstanding quarter. Our team again produced high-quality loan and deposit growth sourced from core client relationships. We maintained a strong net interest margin and produced positive operating leverage, driving improved efficiency. Private Wealth assets continued to expand, delivering significant annuity-like fee income, and operating revenue reached record levels, reiterating the value of our revenue diversification. These highlights contributed to robust profitability metrics.

[Corey Chambas, CEO at First Business Financial Services]

Year-to-date ROA grew 15 basis points to 1.23% compared to the same period of 2024. Year-to-date return on average tangible common equity grew to over 15%, up from just under 14% in 2024. Most importantly for shareholders, we grew tangible book value per share an impressive 16% from a year ago. We are very pleased with the quality of this quarter's results, which Dave will expand upon more now. Dave?

[Dave Seiler, President and COO at First Business Financial Services]

Thank you, Corey. Third quarter performance was very strong across the board and reflects our consistent growth and profitability. Our model is designed to drive 10% long-term growth, and we view quarterly results as a tool for tracking our success toward this. Our pre-tax, pre-provision earnings are a good indicator of the success of our model. We saw 18% growth from the second quarter and 20% growth compared to the first nine months of 2024. Credit costs can impact results meaningfully, and the provision for credit losses this quarter was better than expectations, leading to earnings per share growth of 26% from the second quarter and 25% year-to-date. A primary driver of these exceptional results was the record level of non-interest income generated during the quarter. That included elevated swap fees and income from SBIC funds, as well as two non-recurring items which totaled about $770,000 that Brian will cover.

[Dave Seiler, President and COO at First Business Financial Services]

Swap income grew nearly 6x from the linked quarter, and income from SBIC funds grew over 4x from the linked quarter. While both items are variable quarter-to-quarter, third quarter levels exceeded our expectations and were outside our historical range. This quarter's fee income performance showcases our successful revenue diversification efforts that we believe provide significant long-term benefits and differentiate us from our peers. Fee income comprised 19% of our operating revenue for year-to-date 2025 and 2024, compared to about 15% for peers. I'll highlight, as a business-only bank, we've achieved this outperformance without the heavy fee revenue stream of a residential mortgage or consumer business. This reflects the success of our investments for growth and efficiency and high-quality, high-producing talent we attract.

[Dave Seiler, President and COO at First Business Financial Services]

It's also one of the drivers of our strong ratio of operating revenue per average FTE, which has been 30%-40% above our peers over the past five years. Looking ahead, we'd expect annual fee income growth to approximate 10%. However, we would expect Q4 operating fee income to be more in line with our recent four-quarter average. Net interest income growth was also substantial and reflects continued and robust balance sheet expansion. You can see the highlights on slide three of the earnings call slides and our quarterly loan and deposit growth trends on slide four. Loan balances grew about $85 million, or 10% annualized during the quarter, and $286 million, or 9% over the same period last year. We had strong growth across our geography, with our Kansas City and Northeast Wisconsin markets leading the way.

[Dave Seiler, President and COO at First Business Financial Services]

We continue to see solid demand for our conventional and niche C&I products, and pipelines look strong for the fourth quarter. Activity levels in our asset-based lending group continue to exceed what we've seen in the last two years, and we are positioned to capture growth opportunities in this space. Our accounts receivable finance business is similarly poised for growth. We've been investing in these businesses, which also perform well during economic downturns, through Business Development Officer hires, technology, and process improvements. We know how to lend to these clients, and our solid underwriting process has historically driven better-than-average loss rates across cycles. We value the strong risk-adjusted returns our niche C&I businesses provide. We also continue to see strong growth in core deposits, up 9% from both the linked and prior-year quarters.

[Dave Seiler, President and COO at First Business Financial Services]

Our South Central Wisconsin market led the way in our deposit growth by landing several large new relationships. We track service charges on deposits as a proxy for new relationship deposit growth, and these fees grew 25% from last year's third quarter. Onto asset quality, which was pretty stable, with non-performing assets decreasing slightly during the quarter. Net charge-offs totaled $1.3 million and were primarily from previously reserved equipment finance loans. In total, NPAs decreased by $5.2 million to 0.58% of total assets compared to 0.72% last quarter. Our overall portfolio continues to perform as expected, and we have no areas of particular concern. The transportation loans in our small-ticket equipment finance portfolio continue to shrink, and our CRE markets remain strong. Additionally, we don't have direct consumer exposure, so we wouldn't be impacted by things like credit card and auto loan delinquencies.

[Dave Seiler, President and COO at First Business Financial Services]

This is a positive differentiator for our business-focused model. Before passing it to Brian, I'll make one quick note on the government shutdown. We do not currently anticipate any negative credit exposure related to the federal government shutdown. We do, however, depend on federal government processing to complete SBA loan closings. This may affect the already variable timing of SBA loan sale premiums. Our SBA loan pipeline is strong, and while pricing continues to be extremely competitive, we continue to win deals. Now, I'll hand it off to Brian.

[Brian Spielmann, CFO at First Business Financial Services]

Thanks, Dave. Third quarter net interest margin grew 1 basis point to 3.68%, reflecting our continued strong balance sheet management. You can see a breakdown of this on slide six of our earnings supplement.

[Brian Spielmann, CFO at First Business Financial Services]

As you know, our margin includes fees in lieu of interest, which refers to the recurring but somewhat variable amount of interest income we earn from items like prepayment fees, collection of non-accrual interest, and asset-based loan fees. These fees increased by $482,000 from Q2 and contributed 23 basis points to margin in Q3, up 5 basis points compared to 18 basis points in Q2. Fees in lieu of interest contributed 21 basis points on average this year compared to 16 basis points on average over the past three years. On a year-to-date basis, net interest margin grew to 3.68% from 3.62% for the same period of 2024. We're very pleased with our ability to maintain a strong and stable margin in this environment. This again shows the value of our risk-mitigating match funding strategy.

[Brian Spielmann, CFO at First Business Financial Services]

Given the current interest rate environment, I'll remind you that our balance sheet is intentionally interest rate neutral. Looking forward, we continue to target a range of 3.60%-3.65% for margin. A few additional notes on our record fee income this quarter. The $770,000 in non-recurring items Dave mentioned consists of two distinct components. First, a $537,000 fee was recognized related to the exit of an accounts receivable finance credit. While these types of fees are not unusual, the size of this particular fee was larger than typical. Second, we received $234,000 in BOLI insurance proceeds during the quarter, and we offset this income with a contribution to the First Business Charitable Foundation. As Dave mentioned, we expect SBIC income and swap fee income will return to more typical levels in the fourth quarter.

[Brian Spielmann, CFO at First Business Financial Services]

We expect to continue investing in additional SBIC funds as a long-term earnings catalyst and effective use of capital. SBA gains are a bit of a wild card for the near term, given the government shutdown and potential backlog at the SBA, but we expect they will rebound and benefit from our continued investment in the business. Our expenses were well contained in Q3. Compensation expense grew about $900,000 due to an annual cash bonus accrual update tied to strong total bank performance. Excluding this accrual update, compensation expense declined by about $183,000. I'll note that we currently have a higher level of open positions we are actively working to fill. Compounded with increases in benefit costs, we expect 2026 compensation levels to grow a bit more than the 7% year-to-date growth in 2025.

[Brian Spielmann, CFO at First Business Financial Services]

I'll reiterate that when we think about expenses, our primary objective is achieving annual positive operating leverage. That is, annual expense growth at some level modestly below our target level of 10% annual revenue growth. We saw significant positive operating leverage in the third quarter due to our 16% revenue growth. We would expect this gap to narrow to a more normal level as revenue growth returns to our long-term target of 10%. This reflects consideration of the high revenue produced this quarter, including some one-time items, as well as our ongoing commitment to investing in talent and technology for growth. On taxes, our effective tax rate varies modestly quarter-to-quarter, in part due to the timing of tax benefits received from our investment in limited partnerships. Our 2025 year-to-date effective tax rate of 16.3% was within our expected annual range of 16%-18%.

[Brian Spielmann, CFO at First Business Financial Services]

We continue to believe this range is appropriate looking forward. Finally, our strong earnings are generating more than enough capital to facilitate our expected organic growth. We continue to believe reinvestment in the growth of the company typically provides the best return for our shareholders. Of course, we regularly evaluate all the capital management tools at our disposal to maximize shareholder returns. Now I'll hand it back over to Corey.

[Corey Chambas, CEO at First Business Financial Services]

Thank you, Brian. Our 2025 progress toward our long-term strategic plan goals has been excellent and can be seen on slide 12. These outcomes demonstrate the value of consistency in execution. We continue to work our plan by focusing on solid underwriting, building out efficient systems, prioritizing client relationships and profitability, and investing in talent. We are very optimistic about the future and believe our discipline and consistency will continue to serve First Business Bank and our shareholders well. I want to thank you for taking time to join us today. We're happy to take your questions now.

[Operator]

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. For your first question, Daniel Tamayo from Raymond James, please go ahead.

[Daniel Tamayo, Analyst at Raymond James]

Thank you. Good afternoon, guys.

[Brian Spielmann, CFO at First Business Financial Services]

Hey, Daniel.

[Daniel Tamayo, Analyst at Raymond James]

Maybe just a clarification first on the fee income guide. The 10%, I think you said 10%. Next year, is that an all-in number, or should we be pulling any of these one-time items out that you've had in 2025 so far?

[Brian Spielmann, CFO at First Business Financial Services]

I would say it's adjusted for the Q3 items. If you pull those non-recurring items out, so $770,000, and adjust off of that based off the kind of four-quarter average, excluding that, that's your good starting point for 10% growth off of that.

[Daniel Tamayo, Analyst at Raymond James]

Got it. Okay. Thanks. Maybe looking at the margin, if you normalize the fees in lieu of interest, your core margin is really kind of exactly where it should be in terms of where you're thinking about the guidance you've given, 3.60%-3.65%. Deposit costs have continued to rise a bit. Just thinking about understanding the match funding nature of your balance sheet. As we do get rate cuts, just thinking about how the funding side and the loan side would be coming down. You're expecting those betas to be pretty similar kind of initially and over the next few quarters?

[Brian Spielmann, CFO at First Business Financial Services]

Correct. Our betas on both sides of the balance sheet have historically been pretty consistent, which gives us comfort in the continued message around that 3.60%-3.65% on the deposit side. New client acquisition is expensive. We're bringing on clients at, say, SOFR right now, but then we're having opportunities to lend out in our specialty areas at SOFR plus four so that we have that spread that contributes to the net interest margin long term. Pointing that on slide five of the supplement materials, this kind of shows our long-term growth rate in the C&I businesses versus the CRE businesses. We think our ability to continue to do that and be able to pay for those higher cost deposits is important.

[Brian Spielmann, CFO at First Business Financial Services]

I would add that when we're having those conversations for new clients with those higher prices, we're having conversations around expectations for rate cuts, and that's built in early on in the conversation. We're having luck bringing those rates down when there are rate cuts to help stabilize margins.

[Daniel Tamayo, Analyst at Raymond James]

Understood. That's helpful. Thanks. Just a clean-up question here. Do you have the classified or criticized balances at quarter-end or at least the direction from where they were at June 30?

[Brian Spielmann, CFO at First Business Financial Services]

We had that in the Q2 that'll be filed tomorrow. I can tell you they're very consistent. Nothing materially changed. We actually have a decrease in our total NPLs that you saw in the release, but nothing significant to report in terms of the adversely classified population.

[Daniel Tamayo, Analyst at Raymond James]

Got it. Okay. Thanks for taking my questions. Appreciate it.

[Operator]

Next question will be from Jeff Rulis from D.A. Davidson. Please go ahead.

[Jeff Rulis, Analyst at D.A. Davidson]

Thanks. Good afternoon. Wanted to maybe refine just a small part of the margin. The fees in lieu, could you remind me if there's any historical context? Those tend to be higher, lower, not impacted in times of rate reductions? Is that something to think about? I know that we model for core, but just wanted to see if the next 12 months, if we see additional rate cuts, if that is any impact on that figure.

[Brian Spielmann, CFO at First Business Financial Services]

Yeah. The fees in lieu of interest have historically been pretty idiosyncratic. On average, I thought we give them the average detailed long-term average because it's around 20 basis points, I think. We'll have spikes here and there. Corey, if you want to add to that.

[Corey Chambas, CEO at First Business Financial Services]

Yeah. The one thought I have on that, Jeff, is the biggest piece of fee in lieu comes from a variety of places, but the biggest one would be from our asset-based lending group. Their deals are contractual. If somebody breaks the contract, that's where we get significant fees in lieu. Unlike thinking, "Rates are going down, so people might leave," those are all floating rate deals. They're going to float. It's not like a fixed-rate real estate loan. If rates go down, somebody might want to refinance. Those deals refinance because the company gets stronger and it becomes bankable on a conventional basis. Those deals aren't fixed-rate deals where that would become attractive. I'm trying to think of any forces of movement in rates, but I don't really see anything with that.

[Jeff Rulis, Analyst at D.A. Davidson]

Got it. I appreciate it. Just kind of chasing that down. Pretty clear. On the, I guess, kind of a segue to the asset-based lending, the large loan, the $6.1 million that seemed locked up in litigation for a while. I just wanted to check in on that timeline. Does this feel like a 2026 event? Any update there would be helpful.

[Dave Seiler, President and COO at First Business Financial Services]

Yeah. I think your description is pretty good, Jeff. It's locked up in litigation, so there's really no change, and it's taking a very long time. There's really no change in our belief that we're going to fully recover that.

[Corey Chambas, CEO at First Business Financial Services]

Given the geography of where this is, that's normal as we understand it from the court system there, as it's just really slow.

[Jeff Rulis, Analyst at D.A. Davidson]

Gotcha. Okay. Maybe one last one, just on, I think Brian sort of teased the capital close of the formal remarks, but looking at growing capital, and just wanted to kind of reconfirm the priorities. I think, obviously, organic growth, you've got a fantastic position in that and don't really need to chase other opportunities. Maybe if you touch on other capital tools as well as if there was one area on the acquisition front that you would consider, what would that be?

[Brian Spielmann, CFO at First Business Financial Services]

That can speak to the capital tools, and maybe Corey or Dave will jump in on the M&A front. As far as the capital tools we have that we evaluate quarterly and annually, it's going to be just our common stock dividend increase. We've done that for 13 consecutive years. We'll evaluate that now here going into January. Just a reminder, we also have a $5 million repurchase agreement out there with Interpreter. There's no maturity on that, so that's something we also continue to evaluate in terms of best use of that, comparing it to on-balance sheet growth we have been doing of late to drive that shareholder value.

[Corey Chambas, CEO at First Business Financial Services]

Just to tack on to that, Jeff, you're not wrong. Capital has continued to build. We're above where we're comfortable with our capital levels, and we've been able to do that through strong earnings, even though we've been growing at 10%. We are accumulating a bit extra. At some point, maybe we grow a little faster. That would be awesome. 10% growth is a pretty good mark already as it is. As Brian said, at some point, you look at other capital options. On the acquisition side, I think an ideal acquisition candidate for us would be something that would fit inside our private wealth management business, some kind of money management business. Unfortunately, those are really rare, hard to find. When we've looked at those before, we've gotten very close.

[Corey Chambas, CEO at First Business Financial Services]

Those are typically owned by individuals, one or two people, and then you're sort of dealing with an emotional seller. The one time I can tell you, years ago, we were on the precipice of this thing happening, and then the guy couldn't sell his baby. You have emotional sellers, harder to do deals in that space, I think, because of that. Other than that, it's something that tucked into one of our niche areas where we have nice platforms built out and could add a little more scale. That would be fine as a fine fit for us as well. Again, when we can do 10% organically, we're not going to overpay. We're not going to stretch on something that doesn't fit our credit standards, which is typically why those other businesses screen out when we do take a look at those.

[Corey Chambas, CEO at First Business Financial Services]

As we've said in the past, we play in the top quartile in the credit spectrum of any of the businesses that we're in, any of the business lines or niches. By mathematical reasoning, averages below that, so the typical one you see is not going to fit into our credit standards. That's why those typically fall by the wayside.

[Jeff Rulis, Analyst at D.A. Davidson]

Okay. Thanks, Corey.

[Operator]

Next question will be from Nathan Race from Piper Sandler. Please go ahead.

[Nathan Race, Analyst at Piper Sandler]

Hey, guys. Good afternoon. Thanks for taking the questions. Going back to the margin discussion, Brian, just given the variability around the fees in lieu of interest, wondering if you have any thoughts around kind of just an adjusted margin outlook. I know you reiterated 3.60%-3.65% on a reported basis, but if we strip that out, any thoughts on just kind of how that adjusted margin stabilizes in the future or perhaps expands?

[Brian Spielmann, CFO at First Business Financial Services]

Yeah. I would say stability is the key there. I would go off of our long-term average that we've been talking about of 20 basis points. Just backing into that, I could say 3.4%-3.45% is going to be our adjusted margin range and expectations. You can tell we're right around there right now, but have a little bit of room there still to continue to go after these nice deposit relationships. Again, the ability to lend that back out in those higher-yielding C&I areas is going to be key.

[Nathan Race, Analyst at Piper Sandler]

Understood. That's helpful. I appreciate that you guys are still expecting 10% loan and deposit growth going forward. Just curious, when you look across your Wisconsin, Kansas City footprint, and also the national verticals, do you see enough opportunities to generate that growth with the existing team? Are you guys looking at any markets or any kind of adjacent areas to your footprint where maybe you'd want to establish a presence, or is kind of the existing landscape fertile ground enough to execute on that growth outlook?

[Dave Seiler, President and COO at First Business Financial Services]

Right. When we look at our Southeast Wisconsin market and the Kansas City market, we don't have high market shares in those markets. We think there is a really nice opportunity to grow market share and grow those markets for us. Additionally, all of our niche C&I businesses are national, and we think we have a lot of runway in front of us there. I think we're pretty optimistic right now in terms of being able to continue the growth for the foreseeable future.

[Corey Chambas, CEO at First Business Financial Services]

I would add something to that as well. Nate, we sat at our Board meeting this morning, and the Board was asking us about it because it's like, "How long can you keep doing 10%?" We say, "We've been doing it, and we believe we can continue to do it if we can add talent." That's part of it. The first part is, is there market opportunity? Dave just outlined that there's lots of market opportunity in some of our other specialty businesses. There's lots of national opportunity in those. Then it's about talent. Do you have the right talent and enough talent? Since we started this last strategic plan, we've added 21 business development officers. As long as we can keep adding that business development talent, we have the markets, have capacity.

[Corey Chambas, CEO at First Business Financial Services]

If we can keep attracting and retaining the talent, that's where our culture is really important to us. It has people happy working for us. They don't leave. We don't have a kind of hole in the bucket as we're bringing new people in. Good performers like it here. That also attracts talent from the outside because folks want to be on a winning team. That helps us to continue to grow that business development talent pool. As long as we keep winning the talent game, we can continue to grow at this kind of a pace.

[Nathan Race, Analyst at Piper Sandler]

Got it. Makes sense. Really helpful. One last one, Brian, on expenses. Is the 4Q, in terms of the fourth quarter runway, is it similar to expect something that we saw here in 3Q? That would put you around 8% growth for this year. Is that kind of a decent proxy as you think about the expense growth trajectory into 2026?

[Brian Spielmann, CFO at First Business Financial Services]

Yeah. It's a good place to start. We had our bonus accrual update here in Q3 because of the strong performance that brought in about $900,000 of additional expense. That also means then a higher run rate to finish the year. We talked about all our open positions. I think you maybe could back out a little bit, but it's a pretty good spot to start, especially when you get to that 8% growth rate relative to our 10% operating revenue targets.

[Nathan Race, Analyst at Piper Sandler]

Gotcha. I'm with you there. I appreciate all the color. Great quarter. Thanks, guys.

[Brian Spielmann, CFO at First Business Financial Services]

Thanks, Dave.

[Dave Seiler, President and COO at First Business Financial Services]

Thanks.

[Operator]

Next question will be from Damon DelMonte from KBW. Please go ahead.

[Damon DelMonte, Analyst at KBW]

Hey, good afternoon, guys. I hope you're all well, and thanks for taking my questions. Just looking for a little bit more color on the investment wealth management area. If you look at the kind of the year-to-date revenues generated by that area, it's had a nice lift over 2024. Is that more of a function of adding new accounts and new customers, or is there more market appreciation baked into those numbers?

[Corey Chambas, CEO at First Business Financial Services]

It is a combination of the two, right? Obviously, markets have done very well, but we have a lot of focus on building new relationships and acquiring new relationships. I would say it's a good mix there, but we've done a nice job adding relationships this year.

[Damon DelMonte, Analyst at KBW]

Okay. Great. Corey, I think you mentioned the talent hires, 21 business development officers since your last business plan. What has been your recipe for success for adding people? Is it from market disruption where people are getting displaced? Has it been just opportunistic relationship building with people in the markets that you kind of crossed paths with? What's been the driver of the additional people?

[Corey Chambas, CEO at First Business Financial Services]

Yeah. I would say it's more the latter of relationships. The people who run our Market Presidents, who run different business lines, we let them know that part of their job, they're supposed to be out prospecting for new clients, but they're also supposed to be prospecting for new bankers. They should be treating it the same way. They should be knowing in their market who the talented folks are, and you need to cultivate those relationships over long periods of time. They're working that all the time.

[Corey Chambas, CEO at First Business Financial Services]

Like I said, when people see you winning and being successful, if they get uncomfortable where they are because potentially they've gone through an acquisition and things have changed or whatever makes them not real aligned with the philosophy of the organization that they're with, if you're the one who's developed the relationship, just like a prospective client, you might have heard us say before, we like to say we have foam fingers that say we're number two because we want to be in the position to take over that relationship when somebody becomes disgruntled with the large bank that they're with. That typically happens. We want to be there, have the relationship, and they move to us kind of no questions asked when they finally throw in the towel. Same thing with the talent that we want. We want to develop those relationships and work those.

[Corey Chambas, CEO at First Business Financial Services]

It also happens in the same way with some of the folks. The person who's fairly newly in charge of our asset-based lending group, been in the industry a long time, has a lot of good relationships. The guy who's running our SBA group, I mean, their BDOs are people they've worked with in the past. They're following those leaders that they've worked with in the past. That's primarily how we get the talent.

[Damon DelMonte, Analyst at KBW]

Got it. Okay. Appreciate that color. I guess just lastly, obviously a very positive and continued positive outlook for loan growth. Is it fair to assume that kind of the overall borrower sentiment remains positive in the markets that you're in? Others have kind of talked about borrowers kind of being a little bit more reluctant, waiting for rates to come down, or more clarity on the prospects for their business. It seems like you guys continue to just power through regardless of the broader sentiment. Just curious on your local sentiment.

[Corey Chambas, CEO at First Business Financial Services]

Yeah. I'd say it's pretty positive. I would say if you took a sampling of our business clients, probably the most common answer that you would get is that this year is their third best year ever. The last two were the best ever. It's really good. Things are still really good, just not quite as good as they were the last two years. People are positive. They've had to deal with questions about tariffs and different things that make life a little confusing. I would say most of our clients, they're entrepreneurial. They're positive, optimistic people. Otherwise, you wouldn't start a business because that's a tough endeavor. They do kind of what we do for the most part.

[Corey Chambas, CEO at First Business Financial Services]

They just put their head down and say, "We're just going to keep winning, and we're going to succeed." While there is some uncertainty, I don't think any of them are kind of going into a shell in any way, shape, or form.

[Damon DelMonte, Analyst at KBW]

Got it. Okay. Appreciate that color. That's all that I had. Thank you.

[Operator]

Next question will be from Brian Martin from Janney. Please go ahead.

[Brian Martin, Analyst at Janney]

Hey, good afternoon, guys.

[Dave Seiler, President and COO at First Business Financial Services]

Hey, Brian.

[Brian Spielmann, CFO at First Business Financial Services]

Hey, Brian.

[Brian Martin, Analyst at Janney]

Hey, just one question, Brian, just back to the margin, just one thing. The funding pressure, a little bit of funding uptick you saw on the core margin, if you will. I guess are you beginning to see that stabilize in terms of it sounds as though you would, given kind of the dynamics of holding the margin steady, just kind of wondering how you're seeing the trends there on the funding side and what maybe the driver of that this quarter.

[Brian Spielmann, CFO at First Business Financial Services]

Yeah. I would say the driver for this quarter in particular is specific to subsidy relationships we brought on in Q2. That's really what drove a decent amount of that pricing pressure reported in Q3. I would say from what we're seeing in newer opportunities with now two rate cuts behind us, the pressures, the premium we're seeing for new clients, new deposit acquisition is coming down a little bit. We are seeing some relief there. For our highest rates, for these ones we're really trying to attract, we were over SOFR for a bit. Now we're at SOFR. We have had some ones that are now below SOFR again for those new, new money relationships. We're seeing better rates across the board for new money.

[Brian Martin, Analyst at Janney]

Gotcha. Okay. That's helpful. Just in terms of just one question back to those open positions, the majority of those open positions, are they more operational or back office, or are they more revenue-producing in terms of where the talent is you're looking for today?

[Dave Seiler, President and COO at First Business Financial Services]

Yeah. Brian, I think they're really across the board. I don't think there's a concentration in business development folks or other positions throughout the company.

[Brian Martin, Analyst at Janney]

Okay. All right. In terms of the specialty businesses, can you just talk about where maybe over the next 12 to 15 months, where is the greatest opportunity? Where are you seeing the best opportunity today to grow that book of business? It sounds as though the expectation would be that that book, in aggregate, would outgrow the traditional book. Is how you're thinking about things today. That seems accurate?

[Corey Chambas, CEO at First Business Financial Services]

Yeah. I would say the places where we see the strongest pipelines right now and activity level, asset-based lending would be one of those. That kind of was slow for quite a while for us, and that's picked up. We've had more new deal activity there. Our accounts receivable finance business has strong pipelines and really good activity. Floor plan has been really consistent. Our floor plan business has been really strong and steady.

[Brian Martin, Analyst at Janney]

Okay. In terms of credit risk in those businesses, remind us where the greatest risk is there. Is there concern out there as you grow these businesses a little bit quicker, especially given kind of the market conditions today or just the fears out there, I guess?

[Corey Chambas, CEO at First Business Financial Services]

No, I don't think so. Those business lines, any of those businesses that we've built, we've built with real specialists. I think one place banks can get into trouble is even when we got into asset-based lending back in 1995, I mean, I knew what an asset-based deal was, and so did Jerry Smith. We also knew we didn't know how to monitor them correctly. We knew they needed to be monitored. We brought in somebody at that time from Bank One's asset-based group. We built out the full team with a field examiner, collateral analyst, etc. We've always done that. We play in that kind of top quartile piece of each of those businesses. What we've seen is there's less credit risk and credit costs in those businesses than even in our conventional book over time.

[Corey Chambas, CEO at First Business Financial Services]

A lot of the reason is, let's say asset-based lending compared to a conventional C&I loan. The asset-based loan, that company's balance sheet's going to be weaker. The earnings history is going to be sketchier. We're all over the collateral. We're out there examining it. Before we go into the deal, we already know at what price we think we could liquidate out of it if we had to liquidate the inventory. Whereas a conventional C&I deal where you may have the same kind of collateral, receivables, and inventory, you don't do that kind of monitoring on it. When things go south on one of those deals, suddenly you don't have what you think you had in terms of collateral. It's just kind of how those end up turning out.

[Corey Chambas, CEO at First Business Financial Services]

You don't have the real-time information like you do on asset-based lending or factoring where you've got daily information coming in. In the absence of fraud, if you act quickly, you should be able to get out of those deals whole. That's our expectation on those kinds of business lines.

[Brian Martin, Analyst at Janney]

Gotcha. No, that's helpful. In terms of just the SBA, I know Brian mentioned it. Bottom line is if the shutdown persists, is it just your expectation that the business that would normally flow through this quarter will just fall into one queue? Until we see more clarity on that, that's kind of where it's at?

[Dave Seiler, President and COO at First Business Financial Services]

Right. I think to a certain extent, it would be pushed out, depending upon when the government opens back up. Where we're really impacted is after we have a credit that goes through underwriting and is approved and accepted by the client. That's when we have to go out and get the E-Tran number from the SBA, and that's what we can't do today. We can talk with clients, we can structure deals, we can get deals approved, we just can't really start the closing process without that E-Tran number. The other thing we can't do is sell a loan once it's closed and funded. Both of those two things will open up when the government opens up.

[Corey Chambas, CEO at First Business Financial Services]

The E-Tran numbers, we anticipated the closing.

[Dave Seiler, President and COO at First Business Financial Services]

Right. We did anticipate the closing, and we were able to get a few deals or a good chunk of deals kind of far enough along in our pipeline where we could get the E-Tran numbers in anticipation of the government shutdown.

[Brian Martin, Analyst at Janney]

Gotcha. Okay. All right. Thanks for taking the questions. Great quarter, you guys.

[Dave Seiler, President and COO at First Business Financial Services]

Thanks, Brian.

[Brian Spielmann, CFO at First Business Financial Services]

Thanks, Brian.

[Operator]

There are no further questions at this time. I will now turn the call over to Corey Chambas. Please continue.

[Corey Chambas, CEO at First Business Financial Services]

Thank you for joining us today. We appreciate your time and interest in First Business Bank, and we look forward to sharing our progress next quarter once again. Again, appreciate it and have a great weekend.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Participants

Executives

• Corey Chambas, CEO
• Dave Seiler, President and COO
• Brian Spielmann, CFO

Analysts

• Brian Martin, Analyst at Janney
• Daniel Tamayo, Analyst at Raymond James
• Jeff Rulis, Analyst at D.A. Davidson
• Damon DelMonte, Analyst at KBW
• Nathan Race, Analyst at Piper Sandler