What First Business Financial Services (FBIZ) Said on Its Q3 Earnings Call

Key Points

• Record Q3 performance: First Business Financial Services reported record pre-tax, pre-provision and net earnings, with EPS up 15% year over year and pre-tax, pre-provision earnings up 13%. Results were supported by loan and deposit growth, an expanded net interest margin and lower expenses.
• Growth remained strong, but margin may moderate: Loans grew at a 10% annualized rate and core deposits at 14%, while net interest margin reached 3.80%. Management expects margin to decline in Q4 as prepayment-fee benefits normalize and deposit funding costs rise, though it should remain above the long-term target range.
• Credit and capital remained manageable: Nonperforming assets increased because of a $5.7 million multifamily loan, but management said broader credit quality was stable. Capital ratios exceeded internal targets, and the company repurchased about $2.9 million of shares while retaining flexibility for further buybacks.

First Business Financial Services NASDAQ: FBIZ reported record third-quarter 2026 pre-tax, pre-provision and bottom-line earnings, supported by loan and deposit growth, an expanded net interest margin and lower expenses.

President and CEO Dave Seiler said earnings per share increased 6% from the second quarter, or 15% excluding $0.14 per share in net one-time benefits recorded in the prior quarter. EPS also rose 15% year over year, while year-to-date EPS grew 20% from the first nine months of 2025, according to Seiler.

Pre-tax, pre-provision earnings increased 13% year over year and 14% year to date. Seiler said the results reflected the company’s relationship-based lending model, core-deposit funding strategy, expense discipline and capital deployment.

Loan and Deposit Growth Continue

Total loans grew at a 10% annualized rate during the third quarter, extending the company’s streak to 20 consecutive quarters of loan growth. Commercial real estate loans were the largest contributor, increasing about $77 million, or at a 14% annualized rate from the second quarter. Seiler cited strength in South Central and Southeast Wisconsin.

Specialty commercial and industrial lending also contributed. Floor plan lending added $13 million of loan outstandings during the quarter, a 9% increase from the second quarter. The company said its specialty lending businesses accounted for about 23% of the total loan portfolio.

Management said loan pipelines had moderated heading into the fourth quarter, primarily because of the timing of client activity. Seiler said one or two larger loans could affect quarterly results, but he did not view the softer pipeline as systemic. The company continues to target about 10% annual loan growth in 2026 and 2027.

Core deposits increased $101 million in the third quarter, representing 14% annualized linked-quarter growth and the fourth straight quarter with deposit growth exceeding $80 million. Noninterest-bearing deposits rose $57 million from June 30, although Seiler said some of that increase could be temporary.

The core-deposit-to-total-funding ratio ended the quarter at 76.7%, above the company’s long-term target of more than 75% and up from 74% at midyear. Treasury management fees increased 15.9% in the first nine months of 2026 from a year earlier, which management said supported its view that it was adding primary operating-account relationships.

Margin Expands, Though Management Expects Moderation

Chief Financial Officer Brian Spielmann said net interest margin was 3.80% in the third quarter, up two basis points from the second quarter and 12 basis points from the year-earlier period. The improvement reflected higher loan yields excluding fees in lieu of interest, as well as a more favorable funding mix that reduced reliance on wholesale funding.

Fees in lieu of interest, primarily prepayment fees and asset-based lending fees, declined $468,000 sequentially to $2.8 million but still contributed 31 basis points to the quarter’s margin. Spielmann said the five-quarter average contribution from those fees was about 25 basis points.

Net interest income increased $4.2 million, or 12%, from the third quarter of 2025. Management expects margin to decline in the fourth quarter as prepayment-fee contributions normalize and funding costs rise modestly as certain deposit relationships reprice and the bank competes for deposits.

Spielmann said the company expects margin to remain above its long-term 3.60% to 3.65% target range for the next several quarters, before moderating over time. Management plans for an 80% beta on existing deposits, though Spielmann said the company has performed better than that historically.

Fee Income Mix and Expense Outlook

Fee income declined modestly from the second quarter, reflecting the company’s exit from nationwide SBA lending in the second quarter and the prior quarter’s $729,000 of unusually elevated limited partnership investment income. Swap fee income increased $393,000, while private wealth fees declined $82,000 due to the absence of seasonal tax-processing revenue recognized in the second quarter.

Private wealth remained a key contributor, with year-to-date fee income up 13%. Assets under management and administration rose 11% year to date to about $4.2 billion at quarter-end. Management said private wealth now represents roughly half of quarterly fee income and expects low-double-digit growth to be sustainable, aided by expansion in Southeast Wisconsin and Kansas City.

Total expenses declined $1.7 million from the second quarter. The reduction included a $381,000 SBA recourse benefit and about $250,000 of lower tax-credit investment impairment expense. Excluding those items, expenses fell about $1.1 million, or 4%, driven largely by lower compensation expense after reductions in full-time-equivalent positions tied to the SBA exit, along with the absence of approximately $405,000 of second-quarter severance costs.

Management expects expenses to increase in the fourth quarter as planned spending shifts into the period. Spielmann cited about $300,000 of higher marketing expense and said investments in technology, marketing and selective banker hiring would continue into 2027. He said total fourth-quarter expenses could remain below $27 million.

Credit, Capital and Share Repurchases

Nonperforming assets increased $2.2 million during the quarter, principally because of an additional $5.7 million nonaccrual multifamily loan associated with a previously disclosed Southeast Wisconsin relationship. The relationship included $22.7 million in nonperforming loans and $3.3 million in performing loans as of Sept. 30.

Seiler said the broader portfolio remained stable and the company was not seeing systemic stress by industry or geography. The allowance for credit losses stood at 1.06% of total loans at quarter-end.

The company expects the foreclosure process involving five land parcels associated with the $22.7 million nonperforming relationship to extend into the first quarter of 2027. Seiler said the bank expects to gain control of the parcels at roughly the same time, though sales may occur separately. He added that several parties had expressed interest in the properties. Resolution of a separate $6 million asset-based lending loan is also expected in the first quarter of 2027, and management said it continues to expect full collection.

The company’s common equity Tier 1 ratio was 9.65% at Sept. 30, above its 9.5% internal target, while the total capital ratio was 12.25%, above its 12% target. During the third quarter, the company repurchased 12,000 shares for about $835,000 at an average price of $69.55. It repurchased another 29,058 shares between Oct. 1 and Oct. 23. In total, it bought 41,058 shares for approximately $2.9 million at an average price of $69.70.

Management said it had used $2.9 million of its $5 million repurchase authorization and would continue evaluating buybacks against other capital-allocation opportunities, while prioritizing organic growth and maintaining capital flexibility.

About First Business Financial Services (NASDAQ:FBIZ)

First Business Financial Services, Inc is the bank holding company for First Business Bank, a commercial bank focused on serving small and middle-market businesses, business owners and professionals. The company provides relationship-based banking services through a specialized commercial banking model.

Its products and services include commercial and industrial loans, commercial real estate financing, equipment financing, Small Business Administration lending, business deposit accounts, treasury management and cash-management services.

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