First Business Financial Services Q4 2025 Earnings Report

First Business Financial Services EPS Results

• Actual EPS: $1.58
• Consensus EPS: $1.38
• Beat/Miss: Beat by +$0.20
• One Year Ago EPS: N/A

First Business Financial Services Revenue Results

• Actual Revenue: $42.22 million
• Expected Revenue: $43.10 million
• Beat/Miss: Missed by -$877.00 thousand
• YoY Revenue Growth: N/A

First Business Financial Services Announcement Details

• Quarter: Q4 2025
• Date: 1/29/2026
• Time: After Market Closes
• Conference Call Date: Friday, January 30, 2026
• 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 Q4 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong 2025 financial results: EPS grew 14% year-over-year, pre‑tax/pre‑provision earnings rose ~15%, tangible book value per share increased 14%, return on average tangible common equity exceeded 15%, and the board raised the quarterly cash dividend 17%.
• Positive Sentiment: Deposit and loan momentum with 2026 outlook: Core deposits rose 12% in Q4 and loans were up ~8% year-over-year (management says normalized 2025 loan growth would be ~11% after elevated payoffs), and the bank expects to return to double‑digit loan and core deposit growth in 2026.
• Negative Sentiment: Isolated CRE credit event: The bank downgraded $20.4M of CRE loans (out of $29.7M outstanding) to non‑accrual for one Wisconsin borrower, recorded an $892k non‑accrual interest reversal that compressed Q4 NII/NIM by ~10 bps, and expects resolution to play out through 2026 despite appraised LTVs (~72%) above carrying value.
• Positive Sentiment: NIM and NII guidance maintained: Q4 NIM was 3.53% (3.63% excluding the non‑accrual interest reversal), full‑year NIM stayed near 3.64%, the 3.60%–3.65% target range is unchanged, and management expects to preserve margins by shifting toward higher‑yield C&I/ABL while targeting 10% net interest income growth.
• Neutral Sentiment: Fee diversification and accounting change: Private Wealth delivered record fee income ($3.8M, +11% YoY), while the company reclassified $904k of partnership expenses into non‑interest income (improving Q4 comparability); management expects ~10% fee income growth in 2026.

Presentation

[Operator]

Good afternoon. Welcome to the First Business Financial Services Fourth Quarter 2025 Earnings Conference Call. After today's presentation, there will be an opportunity to ask questions. To ask a question, please press star one on your touchtone phone. To withdraw your question, please press star two. Please note that this event is being recorded.

[Operator]

I will now turn the conference over to First Business Financial Services, Inc 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 fourth 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 Bank finished 2025 with another outstanding quarter. Our team continued to produce high-quality growth, particularly on the deposit side. Core net interest margin remained resilient, and our revenue streams were diversified and strong.

[Corey Chambas, CEO at First Business Financial Services]

Notably, our private wealth business continued to expand, delivering record and significant annuity-like fee income. Our focus on positive operating leverage again drove improved efficiency. These highlights contributed to strong profitability for the quarter and year as pre-tax, pre-provision earnings grew nearly 15% over 2024. Return on average tangible common equity was over 15% for the year, and most importantly for shareholders, tangible book value per share grew 14% from a year ago. I'd also like to draw your attention to earnings per share, which you can see on slide 4 of our earnings supplement. EPS growth is perhaps the most universal metric across industries, and our track record is outstanding. First Business Bank's 2025 EPS grew 14% over 2024, exceeding our long-term annual goal of 10% earnings growth. Over the past 10 years, we've grown earnings per share at 12% compound annual rate.

[Corey Chambas, CEO at First Business Financial Services]

Going back to the year of our IPO in 2005, our 20-year compound average annual EPS growth is 10%, a very long period of outstanding performance. We know how to execute to achieve our double-digit growth mandate, and we aim to continue doing so in 2026 and beyond. On the strength of these results and expectations for continued financial success, our board of directors approved a 17% increase to our quarterly cash dividend.

[Corey Chambas, CEO at First Business Financial Services]

We are very pleased with the positive momentum of fourth quarter results, which Dave will discuss more now. Dave?

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

Thank you, Corey. In the fourth quarter, we again delivered growth, producing strong bottom line results that reflect consistent performance. We believe this is a differentiating strength of First Business Bank, and it is a direct outcome of our deep commitment to relationships and diversification. I would like to take a moment to address an isolated credit situation. During the quarter, we downgraded $20.4 million of CRE loans related to a single Wisconsin-based borrower with total loans outstanding of $29.7 million. You can see the impact of this on our asset quality ratios on slide 12 of the earnings supplement. Obviously, this is disappointing. The strength of our underwriting, our markets and our deep relationships are notable here however. This is a long-standing client. Over several years, they acquired a series of parcels for multifamily development.

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

They were unable to advance these parcels to development phase, resulting in high carrying costs that exhausted their free cash flow. This client stress is isolated and reflects internal management challenges. The majority of the non-performing loans are collateralized by tracts of land zoned for multifamily and located in southeastern Wisconsin, mainly in the corridor between Milwaukee and Chicago. These are very healthy markets, and land value appraisals exceed the carrying value of the loans. As such, a specific reserve was not recorded, which reflects our general philosophy of having two or more ways out of a loan. We did record a non-accrual interest reversal totaling $892,000, and this compressed our net interest income and lowered our margin by ten basis points in the fourth quarter. You can see this on slide 7 of the supplement.

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

The performing loans in this relationship consist of four stabilized multifamily projects, all of which are located in Wisconsin. On a full year basis, net interest income grew 10%, meeting our double-digit growth goal. We attribute this strength to our robust loan and deposit growth that continued to outpace the industry, along with disciplined pricing and management of funding sources and costs. Fourth quarter non-interest income displayed similar resilience. Private Wealth generated a record $3.8 million of fee income, up 11% year-over-year, as we had added new relationships and expanded existing relationships. Service charges were up nearly 20% year-over-year, demonstrating real success in adding full banking relationships, which is a litmus test that illustrates growth of our business banking relationships. These trends bolstered revenues and moderated the impact of business-driven variability in other line items.

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

These include lower SBA gains, which resulted from the government shutdown, and lower swap and loan fees, which can be highly variable and declined from the third quarter. As a reminder, swap fees were unusually high in the linked quarter. We also recorded lower income from partnership investments in our other income line. This reflects a variable income stream from quarter to quarter, and this item was additionally affected by an accounting classification update during the fourth quarter, which Brian will cover. Our income diversification is by design, supporting our long-term double-digit revenue growth goals in a variety of market conditions. For full year 2025, this drove 10% operating revenue growth, which achieved our annual double-digit goal.

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

Paired with operating expense growth of about 6.5% for 2025, we achieved positive operating leverage for the fourth consecutive year and by a wider margin than we would expect in future periods. This is also partially a function of the accounting classification update that Brian will explain. Moving to balance sheet growth, you can see the highlights on slide 3 of the earnings call slides and our quarterly loan and deposit growth trends on slide 5. Loan balances grew about $39 million, or 5% annualized during the quarter, and $261 million, or 8% over the same period last year. On an average basis, loans grew 8% annualized compared to the linked quarter. We experienced elevated CRE payoff activity during Q4, contributing to our more moderate pace of loan growth compared to recent periods.

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

I'll note that total payoffs in 2025 exceeded 2024 levels by almost $70 million. If we normalize for the $70 million, adjusted full year 2025, total loan growth would be about 11%. We continue to see solid loan demand in our bank markets, and pipelines look strong for the first quarter. We would expect to see growth rebound to our typical double-digit pace in 2026. Our loan growth expectations are driven by continued positive trends in our business and the banking industry. Our largest markets in Southern Wisconsin benefit from a strong regional economy. Our clients in the manufacturing and distribution space are doing well. Commercial real estate occupancies have remained strong and steady, particularly in multifamily properties. We are also seeing signs that new development is picking up after a slight slowdown in 2024 and 2025.

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

We are seeing tangible benefits from talent acquisition. Our Kansas City market, Northeast Wisconsin market, and asset-based lending group each have new presidents in place who joined over the past 18 months. Their sales and hiring efforts led to growth in Q4, and their pipelines continue to expand. We are also seeing some nice refinance opportunities in commercial real estate that we haven't seen in a while. Lower interest rates tend to create more activity and demand, and we are seeing that bear out. Additionally, we expect 2026 changes to federal tax policy should be a tailwind for our business clients and C&I portfolio. I'll note that we are seeing secondary market activity pick up in CRE, so that may drive some ongoing payoff activity. We also expect double-digit growth in core deposits will continue in 2026.

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

Fourth quarter core deposit balances were up 12% from both the linked and prior year quarters. The majority of growth came from core interest-bearing and money market client accounts, and it more than offset runoff of higher-cost CDs and wholesale deposits, bringing support to our net interest margin. On the asset quality, outside of the new and isolated non-accrual relationship, the balance of our 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. You can see our performing portfolio on slide 11 of the earnings supplement. Net charge-offs totaled $2.5 million and were primarily from previously reserved equipment finance loans.

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

Now I'll hand it off to Brian.

[Brian Spielmann, CFO at First Business Financial Services]

Thanks, Dave. Fourth quarter net interest margin declined by 15 basis points to 3.53%, reflecting 10 basis points of compression from a non-accrual interest reversal on the downgraded CRE non-performing loan. Excluding this, net interest margin would have measured 3.63%. Even with the increase in non-performing loans, our NIM target range remains 3.60%-3.65%. You can see a breakdown of this on slide 7 of our earnings supplement. On a full year basis, net interest margin remained relatively stable, declining 2 basis points from 3.66% in 2024 to 3.64% in 2025. We are pleased with our ability to maintain a strong and stable margin, and this again shows the value of our risk-mitigating matched funding strategy. Looking ahead, our target range for net interest margin is unchanged.

[Brian Spielmann, CFO at First Business Financial Services]

Our current outlook supports this in tandem with double-digit annual loan, deposit, and revenue growth. Our balance sheet is essentially interest rate neutral, so the timing of any potential rate changes is not as consequential to our margin as it may be for others. Thus, our continued 10% targeted growth in net interest income is not predicated on additional interest rate cuts or hikes. While deposit pricing pressure has eased modestly since the Fed began cutting, the cost of acquiring a new deposit client remains extremely competitive, but we do not believe this is unique to First Business Bank. On the asset side, we continue to shift our loan mix toward higher yielding C&I relationships, which also typically come with lower cost deposits.

[Brian Spielmann, CFO at First Business Financial Services]

See slide 6 of the earnings supplement. Our conventional and specialty lending teams are seeing strong pipeline activity. As C&I loans make up a larger share of our portfolio, we expect average loan spreads to improve, helping offset continued pressure on deposit pricing. On non-interest income and expense, we had an accounting classification change of note during the quarter. We have historically recorded revenue earned from our equity partnership investments in other non-interest income, while any expenses related to these investments were recorded in other expense. In the fourth quarter, we reclassified the expenses related to these investments to net against the related revenue and other fee income. This now presents the net benefit of all of our partnership investments, and we will continue this method on a go-forward basis.

[Brian Spielmann, CFO at First Business Financial Services]

Specifically, during the fourth quarter, we reclassified $904,000 out of non-interest expense and into other non-interest income to net against the related revenue. This expense represents the bank's share of costs for the first nine months of 2025, related to the latest round of limited partnership investments. Excluding this reclassification, income from partnership investments decreased $383,000 to $477,000 during the fourth quarter. I'll also note that when we exclude the $904,000 reclass from other non-interest income for Q4, the adjusted non-interest income number approximates a good starting point for quarterly fee income in 2026, with the expectation of 10% growth for the full year.

[Brian Spielmann, CFO at First Business Financial Services]

Recall also that our third quarter results included $770,000 in non-recurring fee income items. These included a $537,000 fee related to an exit of an accounts receivable finance credit and $234,000 in BOLI insurance proceeds during that quarter.

[Brian Spielmann, CFO at First Business Financial Services]

Moving to expenses, which were well contained in Q4. Compensation expense decreased by about $291,000, mainly due to a decrease in annual cash bonus and 401(k) accruals. Looking ahead, we continue to have a higher level of open positions we are actively working to fill, and we are always looking for opportunistic hires. Compounded with increase in benefit costs, we expect 2026 compensation levels to grow a bit more than in 2025. I'll reiterate that our primary expense management objective is achieving annual positive operating leverage. That is annual expense growth at some level, modestly below our targeted level of 10% annual revenue growth.

[Brian Spielmann, CFO at First Business Financial Services]

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 effective tax rate of 16.8% was within our expected annual range of 16%-18%, and we continue to believe this range is appropriate looking forward. Finally, our strong earnings have continued to generate excess capital to facilitate organic growth. Our increased dividend boosts shareholder returns, and we continue to believe reinvestment in the growth of the company typically provides the best return for our shareholders. We do, of course, evaluate all capital management tools at our disposal to maximize shareholder returns.

[Brian Spielmann, CFO at First Business Financial Services]

Now I'll hand it back over to Corey.

[Corey Chambas, CEO at First Business Financial Services]

Thank you, Brian. Our 2025 performance toward our long-term strategic plan goals was excellent and can be seen on slide 15. These outcomes demonstrate the value of consistency and execution. We continue to achieve our above-industry growth by investing in talent, prioritizing profitable long-term client relationships, investing in technology to build out efficient, scalable systems, and never losing sight of the criticality of prudent underwriting. We are very optimistic about the future and believe our focus, discipline, and consistency will continue to serve First Business Bank and our shareholders well.

[Corey Chambas, CEO at First Business Financial Services]

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. If you wish to decline from the polling process, please press star followed by the two. And if you are using a speakerphone, please lift the handset before pressing any keys. And the first question comes from Daniel Tamayo at Raymond James. Please go ahead.

[Daniel Tamayo, Analyst at Raymond James]

Thank you. Good afternoon, Corey, Dave, Brian.

[Corey Chambas, CEO at First Business Financial Services]

Hey, Danny.

[Daniel Tamayo, Analyst at Raymond James]

Maybe, maybe just starting on that, the CRE relationship that drove the increase in the NPAs. Appreciate the details that you gave in the prepared remarks, but, maybe just digging a little deeper there. The timing of the appraisal that you referenced, just curious when that was done, and then if you have the current LTV and debt service coverage on the relationship as a whole.

[Corey Chambas, CEO at First Business Financial Services]

Okay. A couple of questions in there. Let me see if I how much of that I can get at for you, Danny. Most of the appraisals, we just got several in just now, at the end of the year. A couple other ones are a little bit older. You know, it's mainly land for development, as Dave said, and those are the ones where we have fresher appraisals, particularly any of, of, significance in terms of size. You know, this goes across, seven properties. So the, the large properties, we've got fresh appraisals on. And, the, other, question that you asked was, the loan-to-value. The, the properties are all cross-collateralized, so overall loan-to-value across those seven properties is 72% on the LTV.

[Corey Chambas, CEO at First Business Financial Services]

I don't have a, cash flow, again, because, the, the biggest part of this is land. So approximately, 2/3 or three-quarters of it is land because there's a couple properties that are already developed, mainly, you know, for multifamily, I think, as we mentioned, in terms of for development, and then there's a couple multifamily properties in there as well.

[Daniel Tamayo, Analyst at Raymond James]

Okay, that's great. And then as it relates to credit cost—I mean, you know, credit expectations in the coming year, you guys have had a pretty good run here. There was obviously some charge-offs related to this loan in the fourth quarter, but how should we think about, you know, what needs to flow through now and then, in terms of charge-offs and then, and how that might move the NPLs as we work through the year?

[Corey Chambas, CEO at First Business Financial Services]

Sure. Just to clarify, the charge-offs that we had for the quarter were not related to this. So based on those appraisals, we didn't have to take any, even any reserves on this. So no specific reserves, no charge-offs. Charge-offs that we had really for the quarter and for the year were pretty much all, almost all related to the equipment finance, small-ticket equipment finance, where we had that transportation portfolio that we've been grinding through. So a lot of those were already reserved for, methodology there. Just kind of going back in time is time-based on delinquency on that small-ticket portfolio.

[Corey Chambas, CEO at First Business Financial Services]

And so things that are gonna be charged off in that portfolio get reserved in advance, as they go past due, and then, as time expires on the clock, so to speak, then we charge those off. So that's where all the charge-offs came through for the quarter. So on this one, no credit costs at this point. You know, we think we're in pretty good shape here based on the appraisals that we have. It's real estate, so that takes some time to work through, but it's a pretty straightforward process. We're still working with the borrower on multiple options of what we can do on this one. But ultimately, if, you know, things don't work out on real estate, as you know, there is a foreclosure process that's pretty straightforward.

[Corey Chambas, CEO at First Business Financial Services]

Does take some time to go through, but is pretty straightforward.

[Daniel Tamayo, Analyst at Raymond James]

Okay. That's great. Thanks for that color. And then maybe just one on the fee income side. Just a clarification on your guidance, Brian. The 10% growth for overall fees, so we're pulling out the $537,000 reclass and then the $234,000 BOLI claim, and then growing off of kind of that number into the--I guess the best way to think of it, like, annualize it or just go fourth quarter to fourth quarter, that's the way we should be thinking about it?

[Corey Chambas, CEO at First Business Financial Services]

Yeah, and when you're excluding those two items, you're talking about full year, right? So full year, 2025, excluding those two items and then grow off of that.

[Brian Spielmann, CFO at First Business Financial Services]

Yep, and full year, 10% expectations there.

[Daniel Tamayo, Analyst at Raymond James]

Okay. And that includes a rebound in SBA gains, I'm assuming, off of the fourth quarter level to something much more meaningful?

[Corey Chambas, CEO at First Business Financial Services]

Yes. Correct.

[Daniel Tamayo, Analyst at Raymond James]

Okay. All right. I will step back. Thanks for all the color, guys.

[Corey Chambas, CEO at First Business Financial Services]

Yep. Thank you.

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

Thank you.

[Operator]

Thank you. The next question comes from Jeff Rulis from D.A. Davidson. Please go ahead.

[Jeff Rulis, Managing Director and Senior Research Analyst at D.A. Davidson]

Thanks. Maybe just to clarify on the last one, so, like, a $33 million base, is that fair on fee income?

[Brian Spielmann, CFO at First Business Financial Services]

For 2026?

[Jeff Rulis, Managing Director and Senior Research Analyst at D.A. Davidson]

The base to grow off of 10%.

[Brian Spielmann, CFO at First Business Financial Services]

Oh, sorry. Sorry, 2025. Yes, yes, yes. Sorry about that.

[Jeff Rulis, Managing Director and Senior Research Analyst at D.A. Davidson]

Okay.

[Brian Spielmann, CFO at First Business Financial Services]

Yes, that's a good start. Yep.

[Jeff Rulis, Managing Director and Senior Research Analyst at D.A. Davidson]

Okay. Got it. Thanks. And back to the larger problem loan, it sounds like the question is the timeline of resolution. It sounds like it might be a bit, but maybe just checking in on your expectations over the balance of this year or beyond.

[Brian Spielmann, CFO at First Business Financial Services]

Yeah, it does take some time, if you kind of go all the way to the end of a foreclosure, getting the property, sheriff sale, all that process that you know of. But we do think because there are multiple pieces of real estate here, that there can be shorter-term progress, potentially with some pieces of this, even in the very near term. And kind of chipping away at it through the year and, you know, potentially, you know, if everything went well, you know, it could be sooner than later, but likely toward the end of the year for full resolution on everything would be best guess. And really is a guess because there's just a lot of variables on timing and what might happen.

[Jeff Rulis, Managing Director and Senior Research Analyst at D.A. Davidson]

Yeah, yeah, that's good detail. So we could see some smaller wins. It doesn't—it's not a, a full, all-in kind of recovery or not. It's, it's a, you could see sales and things that minimized the NPAs in the—in short. Well, over the course of the year, we could see that come in.

[Corey Chambas, CEO at First Business Financial Services]

Correct. Over the course of the quarters, I wouldn't be surprised if there were something happening every quarter over the course of the year in terms of making progress on the different pieces.

[Jeff Rulis, Managing Director and Senior Research Analyst at D.A. Davidson]

Thank you. Another quick one on that. Equipment Finance, could you just remind us of the balance there, what that maybe is at the year-end and what that was the prior year and expectations for, do you keep that stable? Do you keep shrinking it?

[Brian Spielmann, CFO at First Business Financial Services]

Right. So that's the transportation segment of that Equipment Finance portfolio. I believe we're at 21--

[Corey Chambas, CEO at First Business Financial Services]

$21 million last quarter.

[Brian Spielmann, CFO at First Business Financial Services]

$21 million at the end of the quarter, and I think that went down about $20 million over the course of the year. Going back, when we initially started having issues with that, it was $61 million. So we're down to $20 million. Remember, these are five-year deals, generally, five-year loans. So I believe we're getting to the point that the people who have made it through the really tough transportation economy this far. You know, are much more likely to make it going forward.

[Jeff Rulis, Managing Director and Senior Research Analyst at D.A. Davidson]

Got it. Thank you. And one last one, if I could, Corey. Looking at slide 15, a pretty remarkable progress on those goals, if not achieved them. You know, you've had some wind at your back, but I guess just strategically, do you revisit those a couple of years early? I mean, you know, every bank, I guess, would hope to just maintain that. But any thoughts on how you look at those goals, or it takes a lot of work just to stay there? Thanks.

[Corey Chambas, CEO at First Business Financial Services]

Yeah, good point. We have made tremendous progress because, you know, a few of these things that were at all times, you know, we want to do are particularly things like the employee engagement score, our Net Promoter Score. Those were forever and always, but a few of these were the end of the plan in 2028 to hit the ROE goal on that, to hit the efficiency ratio goal. And as you alluded to, we hit that ROE goal of over 15% in 2024 and 2025. We're below 60 on the efficiency ratio of 2025. So okay, now what are you going to do?

[Corey Chambas, CEO at First Business Financial Services]

So, so for us, I would say I don't think we'll recast those, but, you know, given that we hit that ROE goal, you know, we'd like to stay there. That's pretty dang good. So if we're in the ballpark of that, over these next three years, we would consider that good. And efficiency ratio is one where it's kind of like your golf handicap. You want to just keep bringing that thing down. And our ability to, you know, also like a golf handicap, the lower you go, the harder it is to keep improving, but we would expect to continue to improve on that. We won't recast our goal to be different than to get below something lower than 60 by 2028.

[Corey Chambas, CEO at First Business Financial Services]

But at this point, I would say our goal will be to try to make improvement on that every single year going forward, and that's kind of our--you know, we've talked a lot. It's a little different than standard bank speak, where everything's like looking at efficiency ratio. We really look at operating leverage, so we're going to want to-- You know, we had really big positive operating leverage this year, with expenses growing up, significantly less than the growth rate in revenues, but we'll expect to continue to have positive operating leverage every year. That's kind of how we set our goal, our budgets every year. It's a key measure that we look at overall and for our different business units and lines and things like that. So we would expect to continue to make progress on that efficiency ratio.

[Jeff Rulis, Managing Director and Senior Research Analyst at D.A. Davidson]

That's great. Thanks, Corey.

[Operator]

Thank you. The next question comes from Nathan Race at Piper Sandler. Please go ahead.

[Nathan Race, Managing Director and Senior Research Analyst at Piper Sandler]

Hey, guys. Good afternoon. Thanks for taking the questions.

[Corey Chambas, CEO at First Business Financial Services]

Yep, hey.

[Nathan Race, Managing Director and Senior Research Analyst at Piper Sandler]

Brian, I was hoping you could, maybe just help us with the starting point for the margin in the first quarter. I know, you know, that tends to depend on the production that's coming through the pipeline in terms of mix. So would be curious if you could just comment on kind of what type of loans you're seeing in the pipeline these days, which sounds like it's pretty strong, and maybe how that could translate into the margin starting point for the first quarter.

[Brian Spielmann, CFO at First Business Financial Services]

Yeah. I'll actually have Dave maybe start on the mix of pipeline, and then I can talk about the margin.

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

The pipeline in Q4, going into Q1 or going into Q1? [crosstalk]

[Nathan Race, Managing Director and Senior Research Analyst at Piper Sandler]

Just this year.

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

Yeah. So, I mean, we're really seeing right now our pipelines across our business lines are strong, so it's a mix of commercial real estate and C&I. I don't really, I don't really have a great flavor for you on the mix, but I can tell you that our asset-based lending pipeline, it is particularly good, and those are higher-margin deals.

[Brian Spielmann, CFO at First Business Financial Services]

So I would just add to that with the comment on ABL, with our expectation of SBA picking up and just the success we've continued to have in other of those C&I areas, when you adjust for the non-accrual interest in Q4, that resets us at 363. And with that mix that we're seeing in the pipelines, we feel like it's a great place to be and within our range of 360-365. You know, we're going to continue to compete on both sides of the balance sheet, but we feel like we have the ability to maintain that.

[Nathan Race, Managing Director and Senior Research Analyst at Piper Sandler]

Okay, great. Really helpful. And then, you know, I'd be curious just in terms of what you're seeing from a deposit pricing competition. You know, now that we've had some additional rate cuts in the back half of last year, just curious if you're seeing kind of rational deposit pricing competition, particularly as, you know, some of the larger competitors in Wisconsin are, you know, expanding via M&A into other geographies.

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

Right. As you know, I mean, particularly 6-12 months ago, it was extremely competitive for new deposits. It's still very competitive. Our sense is it's eased just maybe a little bit, but still competitive.

[Nathan Race, Managing Director and Senior Research Analyst at Piper Sandler]

Okay, great. Maybe one last one for me, for Corey. Obviously, M&A optimism is continuing to build across the space. I know you guys have a very kind of narrow strike zone in terms of the type of acquisition opportunities that would fit your model. You know, just curious if you're seeing any opportunities out there that could align or maybe kind of augment the franchise that you guys have today.

[Corey Chambas, CEO at First Business Financial Services]

You know, if I had to give you a one-word answer, I'd say no. But I'll give you more than that. You know, we're so unique, as you know, with our model, that there's just not many things that look like us. We don't value branch networks, so basically, everybody else has branches. So that's problematic. And additionally, we think as we've looked at things, you know, I know it's counter to the industry, but what's happening with M&A, but we believe that the best way to drive value for your existing shareholders is through organic growth.

[Corey Chambas, CEO at First Business Financial Services]

You're not diluting them by issuing shares to somebody else for their franchise, which, you know, you would, I mean, it sort of makes sense that you think that franchise is less valuable than your franchise if you're the one buying them, but you're still giving their shareholders your valuable shares. So we're just big believers in organic growth as the best way to generate value for existing shareholders.

[Nathan Race, Managing Director and Senior Research Analyst at Piper Sandler]

Understood. That's really helpful. I appreciate the extra color, Corey. Thank you.

[Corey Chambas, CEO at First Business Financial Services]

Yeah.

[Operator]

Thank you. The next question comes from Damon DelMonte at KBW. Please go ahead.

[Damon DelMonte, Managing Director at KBW]

Hey, good afternoon, guys. Hope everybody's doing well today. First question, just wanted to, Brian, clarify on the comments on the margin. I think you said that because of the strong ABL pipeline and SBA, you know, picking back up, that the margin would reset into 3.63% range. So is that implying that the delta between the 3.53% and 3.60% that you'll benefit from next quarter? Is that how we should think about it?

[Brian Spielmann, CFO at First Business Financial Services]

No, I would start by saying that the delta between the 3.53% and the 3.63% is the 10 basis points of nonaccrual interest reversal that happened in the quarter from the real estate nonaccrual loan. So that, that alone, that was about eight months of interest that we reversed. So from that resetting, you're going to have a higher run rate closer to 3.63% right away in Q1. And then from there, the strong pipelines, predominantly in C&I, I mentioned asset-based lending and others, that gives us the ability to maintain our spreads and hopefully increase our spreads while paying for those expensive deposits and then staying within our guide of 3.60-3.65 on net interest margin.

[Damon DelMonte, Managing Director at KBW]

Got it. Okay. That's helpful. Thank you. And then, with regards to expenses, I think you had said, you know, comp's going to grow a little bit more than we did—we saw this year, and I think this year was around 7.5% or so. And how about for, like, the rest of the expense base? What are you expecting for growth there?

[Brian Spielmann, CFO at First Business Financial Services]

Yeah, I would say modest increase. I mean, we're expecting to grow 10% revenue as we continue to talk about, and we want that positive operating leverage. So if compensation is going to increase a little bit more than 7.5% this year, you know, there's not much left for the rest of the expenses, and that's consistent with our approach to generating annual positive operating leverage.

[Damon DelMonte, Managing Director at KBW]

Got it. Okay, great. And then just lastly, you know, if you look back over the last, you know, eight quarters, I think six of them, you guys came in, you know, call it 7%-9% growth, with, you know, linked-quarter annualized loan growth. I guess, what gives you confidence that you can get back to a consistent double-digit type of growth rate in loan growth for 2026?

[Corey Chambas, CEO at First Business Financial Services]

Yeah, Damon, as we look at it, remember, we're trying—our goal is 10% over the course of the year, a year, right? Over 12 months. So we're saying that based on pipelines that we're seeing and we're also looking at, you know, potential for some rate cuts, although that seems to be maybe that probability is decreasing a little bit. But also the potential benefits from the new tax policy is something that we think could, you know, spur some investment by our client base and create some loan opportunities, particularly like in areas like equipment finance.

[Brian Spielmann, CFO at First Business Financial Services]

And I would add to that, Damon, I think if you look back at our CAGR for 2020 through 2025 on loans and lease growth, it's 10%. So we've done it. There's been a little bit of softness as of late, but I'm reminded of--and I can't remember when it was, but there was a time when I actually remember sort of making an excuse about slowness in our loan growth. This is maybe--10 years ago or something like that. I was starting to, like, kind of, you know, imagine economic things that were going on that were causing this, and the reality, as I saw over time, was it was just some of our teams weren't that strong right at that time.

[Brian Spielmann, CFO at First Business Financial Services]

So I believe for us, it's about our people and our teams, and if we have the right teams in place, we're going to, we're going to get our 10%. I'm just very confident. Right now, we feel really good about it. We mentioned ABL. We've really rebuilt that. We have a new leader there who's brought in a business development team, which is twice the size of the team that we had before, for example. In our Northeast and Kansas City markets, we had really good growth in the fourth quarter. And I think it's probably the best growth—those are our two smallest bank markets, and that was the best growth we've ever had out of those two markets.

[Brian Spielmann, CFO at First Business Financial Services]

So, you know, and our Madison bank is kind of a machine that rolls along, and our Milwaukee area bank is somewhat the same. So if we have Kansas City and Northeast, those leaders have been—we've had new leaders there maybe 18 months ago or something like that, I think. The two people that are running those two bank locations came into place. They've worked on rebuilding teams. So again, we're in the people business. Best team wins, and we think we've got the best team we've ever had.

[Brian Spielmann, CFO at First Business Financial Services]

So that, that's what gives me the confidence we can keep rolling at that 10%.

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

Yeah, and I'd just add one more thing, Damon, that it really isn't a new business volume issue for us. It was really higher than, I'd say, normalized payoff levels for us, particularly in the second half of the year, that impacted that growth number that you're referencing.

[Damon DelMonte, Managing Director at KBW]

Got it. That's great color. I appreciate that. That's all that I had, guys. Thanks a lot. Have a great weekend.

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

You too. Thanks, Damon.

[Operator]

Thank you. The next question comes from Brian Martin at Janney. Please go ahead.

[Brian Martin, VP and Research Analyst at Janney]

Hey, good afternoon, guys.

[Corey Chambas, CEO at First Business Financial Services]

Hi, Brian.

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

Hey, Brian.

[Brian Martin, VP and Research Analyst at Janney]

Hey, hey, to, I think it was Corey that said that last. I couldn't hear. Sorry, but the- or maybe it was Dave, sorry. The, the payoffs versus the production this quarter, I guess just in general, can you just give a-- I guess it sounded like from your last comment that it was more about the payoffs. Just, a, I guess, can you give us some context over the course of 2025, what the payoffs and production look like? And then just how do you feel about the, the subsiding, if you will, of the payoffs as you enter 2026? It sounded like it was-- that was more of the issue. But I get they're sporadic, but just any context you can help provide on that would be helpful.

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

Sure. So just starting from the payoff point of the view, right? The payoffs, we think were about $70 million higher than our, let's say, our average payoff level, if we look back on a quarterly basis, our last eight+ quarters. So $60 million of that, of those payoffs were in the last two quarters of the year. So if we add that, $60 million to $70 million back in, we end up at an annualized growth rate of between 10% and 11%. So that's, you know, much closer to our target. The payoffs, I think a number of those payoffs were multifamily properties going into the secondary market. And those, you know, those tend to be larger and lumpy.

[Corey Chambas, CEO at First Business Financial Services]

And piggybacking on that, Brian, on Dave's comment on that, with the secondary market, it seems like there's a little bit of balloon activity, ballooning right now on commercial real estate. So think of deals that were done five years ago on a five-year note, because if we're going to get paid out on those commercial real estate loans, by the somebody going to secondary market, it's going to be at the end of term because they're not going to--You know, we have prepayment features in there, or swaps or something that's going to cause them to wait till the end of that term.

[Corey Chambas, CEO at First Business Financial Services]

But, the other side of that coin is other banks have commercial real estate loans that they did five years ago that are now ballooning, and we're getting looks at things, and that's part of that pipeline that Dave was referencing before. And the beauty of those deals on the CRE side is they're fully funding. It's not like doing a construction loan. We love doing construction loans, but they take 18 months or two years to get fully funded. So we think there's going to be, some opportunities kind of to have a little bit of offsetting penalties. It just depends which quarter you get the, you know, the payoffs in and which quarter you get the new deals that you can get out there and win.

[Brian Martin, VP and Research Analyst at Janney]

Gotcha. And those- the payoffs that were $60 million to $70 million, was that annually? Was that it was that high, much higher? That's what- Is that right?

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

Right. It was--

[Brian Martin, VP and Research Analyst at Janney]

Okay.

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

We think we had an extra $60 million-$70 million of payoffs above what we'd consider normal payoff levels in the year.

[Brian Martin, VP and Research Analyst at Janney]

Yeah, on annual. Okay, and then just the production. Production was pretty consistent this year with what, you know, if you look at those last eight quarters, pretty consistent, you know, year to year?

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

Yeah. I mean, it was, it was really at the, the rate we looked for.

[Brian Martin, VP and Research Analyst at Janney]

Yeah. Understood. Okay, and then maybe just a little bit of comment about the specialty businesses, just kind of where on the C&I side, you know, how, how did growth, you know, throughout the year in 2025, you know, how, how much did that contribute to growth? And then just your outlook. I know you talked about ABL, but just in terms of moving up that percentage, just remind us where it's at today and just kind of how you're thinking, you know, over time, you see that trending.

[Corey Chambas, CEO at First Business Financial Services]

But we're pretty flat in that over 2024 in terms of the some of those niche areas relative to the total balance sheet. We would expect that to lift, 'cause that's down. Our current level is down from, you know, where it had been at some point. So, you know, we had good growth in other segments that weren't in there over the last couple of years, and that's been a little slower. 'Cause in the last, say, two years, ABL's been slow, accounts receivable finance has had some payoffs and been down a little bit. So that hasn't grown at the pace of the average balance sheet, and we would expect that to be picking up.

[Corey Chambas, CEO at First Business Financial Services]

Our floorplan financing business has grown steadily, so that's been a good performer there, and we think will continue to be. But where the lift is gonna come from, we think and it's happening, like, already in ABL. Good, good activity, good pipelines, booking deals, BDO is in place, and then we would think the accounts receivable financing business would grow more as we move forward. And again, just a reminder, those two business lines are countercyclical. You never know what's gonna happen in the economy, so those could get a lift there. But those along with SBA we would hope to contribute more. So we would like to see that percentage move up. It's been as high as 25% of the total book, and ideally, we'd like to move it back there.

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

I would just say our Equipment Finance business leveled off a bit in 2025, but we think there might be some good opportunities there, in part due to the new tax law, that could drive some activity there.

[Brian Martin, VP and Research Analyst at Janney]

Got it. And just remind me, you know, kind of where you're at percentage-wise versus kind of where you think it trends, you know, I guess, I don't know if it's a multi-year, you know, kinda scale up. Kind of where do you see it moving to over time?

[Corey Chambas, CEO at First Business Financial Services]

Yeah, yeah. On the specialty niches, we're at year-end, we were about 23%. And we like I had mentioned, 25% had been our kind of the goal we were shooting for. We got to that and a little bit over that, couple of years ago, and so we want to get back there, and we'd like to get back there kind of in short order. And anything, you know, it, it all helps margin, all helps strengthen margin. So we'd like to see that continue to grow, and if we could get that up to 30% over time, that would be really nice for us.

[Brian Martin, VP and Research Analyst at Janney]

Got it. Okay, and then just one on the fee income side. Just kind of the area, you talked about several areas there in terms of, you know, contributions. I mean, where, where do you see the most lift in, you know, potential lift in fee income? And then, I just, I don't know if you gave more details on the SBIC revenues, but just in terms of kind of how, just annually, if we think about that, you know, what they were in 2025 versus how we think about, you know, the potential growth in that business in 2026, would be helpful. Thanks.

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

So I'd say the two areas that we'd probably look at first are Private Wealth, right? So that's a business that, you know, we shoot for, you know, 10%, 10%-ish+ growth in. So that would be our goal there. And then the other area that we'd expect more pickup is in SBA gain on sale. And so as we look at that, I think last year, if you look at the four quarters, we averaged right around $500,000-ish in terms of gain on sale per quarter. And, you know, we'd expect that to, to grow some this year.

[Corey Chambas, CEO at First Business Financial Services]

And I also think we would see. You know, overall, for that whole fee income category, we're looking for 10% growth. I think we would expect greater than 10% growth in the SBIC piece, just because we've been investing. So there's a J-curve on those businesses, those funds as they ramp up, and so we've been in the downside of the J-curve on that a little bit, and we would expect more of that to be above the line in terms of the J-curve and contributing more as we build that portfolio internally.

[Brian Martin, VP and Research Analyst at Janney]

Got it. Okay, and then, yeah, just one last one, I, I think was the, you talked about the credit quality earlier, in, in particular, the one credit this quarter. The other credit that's been out there that's, you know, taking a little bit of time to, to work through the, the process, can you just remind us where that's standing? I mean, I guess in terms of the potential to come down, it sounds like you could see some, some wins on, you know, the one that came on this quarter, you know, just given the sizing of the, the pieces there. But in terms of the other one that's out there, I mean, could we see some resolution on, on that in the near term, or is that still, you know, a little bit a ways out?

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

Right. That's the asset-based lending credit we have that's been there since 2023, I believe. So, you know, that one, it's all in the court system. I mean, things can happen at any time, but, right now, the court date is set for later in the year, later in 2026. So, you know, that could be with us for a little while, and it's not, from what we're being told, it's not really unusual in that state's court system. So, unfortunately, it just takes way too long.

[Brian Martin, VP and Research Analyst at Janney]

Yeah. Okay, perfect. I appreciate the update. Thanks for everything, guys.

[Corey Chambas, CEO at First Business Financial Services]

You bet. Thanks, Brian.

[Operator]

Thank you. We have no further questions. I will turn the call back over to Corey Chambas for closing comments.

[Corey Chambas, CEO at First Business Financial Services]

All right. Thank you all for joining us today. We appreciate your time and your interest in First Business Bank, and we look forward to sharing our progress again next quarter. Have a great weekend.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.

Participants

Executives

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

Analysts

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