FBIZ — First Business Financial Services, Inc.

Summary of First Business Financial Services (FBIZ) Q3 2025 Earnings Call

1. Key Financial Results and Metrics

• Operating Revenue: Achieved record levels, driven by strong loan and deposit growth.
• Return on Assets (ROA): Increased by 15 basis points to 1.23% year-to-date compared to 2024.
• Return on Average Tangible Common Equity: Grew to over 15%, up from just under 14% in 2024.
• Tangible Book Value per Share: Increased by 16% year-over-year.
• Net Interest Margin: Slightly improved to 3.68%, with expectations to maintain a range of 3.60% to 3.65%.
• Loan Growth: Loan balances rose by approximately $85 million (10% annualized) in the quarter and $286 million (9% year-over-year).
• Core Deposits: Increased by 9% from both linked and prior year quarters.

2. Strategic Updates and Business Highlights

• Revenue Diversification: Noninterest income reached record levels, comprising 19% of operating revenue year-to-date, significantly higher than peers.
• Private Wealth Management: Continued growth in assets, contributing to annuity-like fee income.
• Investment in Talent: Added 21 business development officers to drive growth, emphasizing relationship-building in recruiting.
• Asset Quality: Nonperforming assets decreased slightly to 0.58% of total assets, with no significant concerns in the portfolio.

3. Forward Guidance and Outlook

• Fee Income Growth: Expected to approximate 10% annually, adjusted for nonrecurring items from Q3.
• Loan and Deposit Growth: Management anticipates continued growth at a rate of 10%, supported by strong market opportunities and talent acquisition.
• SBA Loan Pipeline: Remains strong, but potential delays due to the government shutdown may impact timing and sale premiums.

4. Bad News, Challenges, or Points of Concern

• Government Shutdown: Could affect SBA loan processing and timing, though no immediate credit exposure is anticipated.
• Expense Growth: Compensation expense is expected to rise due to a bonus accrual update and increased benefit costs, with 2026 compensation levels projected to grow more than the 7% year-to-date growth in 2025.
• Market Conditions: While borrower sentiment remains positive, some clients are cautious due to economic uncertainties, which could impact future loan demand.

5. Notable Q&A Insights

• Fee Income Guidance: Clarified that the 10% growth expectation for fee income is adjusted for nonrecurring items in Q3.
• Margin Stability: Management indicated that fees in lieu of interest are variable but historically stable, with expectations for core margins to remain steady.
• Talent Acquisition: Emphasized the importance of maintaining a strong culture to attract and retain talent, which is crucial for sustaining growth.
• Asset-Based Lending: Noted a resurgence in activity and pipeline strength, with confidence in credit risk management due to robust monitoring practices.

Overall, First Business Financial Services reported a strong quarter with solid financial performance, strategic growth initiatives, and a positive outlook, despite some challenges related to external economic factors.