First Business Financial Services Q1 Earnings Call Highlights

Key Points

• First Business posted a strong start to 2026 with loans up 15% (+$126M) and core deposits up 14% YoY (18% linked-quarter), fee income nearly +16% YoY, and net income and EPS rising more than 9% year-over-year.
• Net interest margin was 3.56% (3.61% on an adjusted basis) and management expects to operate in the lower-to-middle of its 3.60%–3.65% target range, saying future margin improvement will be driven more by balance-sheet mix (notably a shift to higher-yielding C&I loans) than by rate moves.
• Credit progress included selling $3.4M of land-development loans at par from a $20.4M CRE non-performing relationship, leaving about $17M with appraisals above carrying value while foreclosures are pursued; quarterly net charge-offs were ~25 bps with management expecting roughly 20 bps on average for the year.

First Business Financial Services NASDAQ: FBIZ reported what CEO Corey Chambas called a “strong start to 2026,” citing above-plan loan and deposit growth, higher fee income, and year-over-year gains in profitability and tangible book value per share during the company’s first-quarter 2026 earnings call.

Chambas said the bank “won new relationships in a highly competitive environment,” with loans and deposits growing at a pace that “well exceeded our expectations.” He also highlighted fee income growth of “nearly 16% year-over-year,” including “record revenues” from the company’s private wealth business. Net income and earnings per share rose “more than 9%” compared to the first quarter of the prior year, even as net interest margin normalized from early 2025 levels that were elevated following the rapid Federal Reserve tightening cycle, he said.

Loan and deposit growth outpaced internal targets

President and Chief Operating Officer Dave Seiler said the bank targets 10% loan and core deposit growth on an annual basis, but first-quarter performance came in well ahead of that goal. Loans increased by $126 million, or 15%, with growth “from across our markets led by Madison, Milwaukee, and Kansas City,” as well as from asset-based lending, Seiler said.

Seiler noted that the quarter’s loan growth was heavily weighted toward the end of the period, with $90 million, or 72% of the quarterly increase, occurring in March. He said that timing affected margin performance and also reflected “some pull forward of growth we had forecasted for the second quarter.”

Looking ahead, Seiler said pipelines are “lighter going into Q2,” and the bank expects “some known payoffs in the second quarter.” As a result, management expects second-quarter growth to be lower than the first quarter, with “normalization in the second half of the year” intended to keep the company on pace for its 10% annual growth target.

On deposits, Seiler pointed to “exceptional double-digit growth in core deposits.” First-quarter balances were up 18% from the linked quarter and up 14% year-over-year, which he said reflected investments in treasury management talent and disciplined business development. He added that core deposit growth came from multiple markets as well as the private wealth group.

Net interest margin influenced by timing and quarter mechanics

CFO Brian Spielmann said first-quarter net interest margin (NIM) increased 3 basis points to 3.56%, but called attention to factors affecting comparability. The quarter included a 5-basis-point impact from fewer accrual days; excluding that impact, Spielmann said first-quarter NIM would have been 3.61%, “in line with our internal budget expectations.”

He also referenced the prior quarter’s margin, noting the fourth quarter included 10 basis points of compression from a non-accrual interest reversal tied to a downgraded commercial real estate non-performing loan. Excluding that item, Spielmann said fourth-quarter NIM would have been 3.63%.

Spielmann attributed the slight difference between adjusted fourth-quarter and adjusted first-quarter NIM primarily to the late-quarter timing of loan growth. He said roughly two-thirds of the growth came from commercial and industrial (C&I) portfolios, which are “higher yielding than CRE,” and management expects that mix shift to benefit margin going forward.

For 2026, Spielmann said the bank expects to operate “within or toward the lower to middle portion” of its 3.60% to 3.65% NIM target range, assuming a stable to modestly changing rate environment. He said margin performance is expected to be driven more by balance sheet mix and targeted loan and deposit growth than by additional rate tailwinds.

During Q&A, Spielmann said “fees in lieu of interest” were about $2.2 million in the quarter, which he described as roughly in line with run-rate levels.

Fee income growth led by private wealth and service charges

Seiler said non-interest income rose 16% compared to the first quarter of the prior year. Private wealth delivered record quarterly revenue of $3.9 million, up 11% year-over-year, and Seiler said the business “consistently generates more than 40% of our total quarterly fee income.”

Seiler also said strong deposit growth contributed to service charges rising more than 26% year-over-year. He characterized the improvement as evidence of success in adding and expanding banking relationships. Spielmann said management continues to expect 10% fee income growth in 2026 compared to 2025, with the first quarter serving as “a good starting point for quarterly fee income in 2026.”

On SBA activity, Seiler said the bank expected SBA results to be “a little bit higher this quarter after the shutdown late last year,” but based on pipelines, he expects SBA to be “relatively flat going forward.”

Spielmann also told analysts that quarterly fee income can remain uneven due to items such as swap fees and SBA gains, while the bank works to increase more consistent “annuity-like” sources of fee income, including private wealth and service charges. He also discussed investments in Small Business Investment Company (SBIC) funds as an additional longer-term contributor to more stable fee income over time.

Credit update includes progress on largest non-performing asset

Seiler said asset quality remained stable in the core performing portfolio and highlighted progress in resolving the bank’s largest non-performing asset. The company previously downgraded $20.4 million of commercial real estate loans from a single Southeast Wisconsin-based relationship to non-accrual status. In the first quarter, Seiler said $3.4 million of land development loans in that portfolio were sold “at par.”

Seiler said appraisals “exceed carrying values on the land” for the remaining $17 million of loans, and that no specific reserves were recorded. He said the bank expects continued resolution, though timing will vary, and based on current activity, management does not anticipate additional progress before the second half of 2026. In response to questions later in the call, Seiler said the bank is pursuing foreclosure on the remaining properties and reiterated that meaningful resolution is more likely in the back half of the year given the time required for proceedings in Wisconsin.

On charge-offs, Spielmann said there was “nothing kind of unusual to report” in the quarter, describing a broad mix across SBA and C&I. He said equipment finance charge-offs improved from the fourth quarter to the first quarter, and estimated net charge-offs were about 25 basis points for the quarter. Spielmann said the bank tends to expect around 20 basis points on average for the year and added, “Nothing that's alarming to us by any means.” Seiler added that within the equipment finance portfolio, the transportation segment has been reduced from about $61 million to about $18.1 million to $18.2 million.

Discussing provisioning and reserves, Spielmann said he views “no change” as a reasonable baseline given macro uncertainty, with provisioning influenced by growth and expected charge-offs. He cited that about $1 million of the quarter’s provision was due to loan growth.

Expense trends and leadership transition

Spielmann said first-quarter expenses reflected typical seasonal increases, particularly in compensation. Compensation expense rose about $1.4 million from the fourth quarter due to payroll tax and 401(k) match resets, merit increases, and higher average full-time equivalents, which were up about 5.7% from a year ago. Professional fees increased about $445,000 from the fourth quarter, driven by recruiting costs and seasonal legal fees tied to annual 10-K and proxy filings.

Spielmann said the company typically uses first-quarter actuals as the base for its full-year expense forecast, and that this remains an appropriate run rate for 2026. He reiterated management’s focus on positive operating leverage, with expense growth modestly below the targeted 10% annual revenue growth level. The effective tax rate was 15.2% for the quarter, and Spielmann said the company still expects a 16% to 18% effective tax rate range for 2026.

The call also marked Chambas’ final earnings call ahead of his retirement. Seiler said Chambas will remain on the board and credited his leadership for delivering “cumulative shareholder returns of nearly 700%” during his tenure as CEO. Chambas, for his part, emphasized the importance of company culture and said he is confident the bank has “the right team in place to continue achieving both strong earnings and above-industry growth.”

About First Business Financial Services NASDAQ: FBIZ

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

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

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