Summary of First Business Financial Services Conference Call Company Overview - **Company Name**: First Business Bank (Ticker: FBIZ) - **Market Capitalization**: Approximately $4 billion - **Business Model**: Focused on business banking and private wealth management without a retail banking branch network [2][3] Core Business Segments - **Business Banking**: - Total assets of approximately $4 billion, primarily in loans [4] - Operates in four markets: Madison, Milwaukee, Appleton (Wisconsin), and Kansas City (Kansas) [4] - Offers conventional commercial banking and treasury management services [4] - Provides company retirement plans (401(k)s) and five niche C&I lending businesses: equipment finance, asset-based lending, accounts receivable financing, floor plan financing, and SBA lending [5] - **Private Wealth Management**: - Manages approximately $3.8 billion in assets, focusing on financial planning, asset management, and trust administration [5] Employee and Client Engagement - **Employee Engagement**: - 90% participation in annual employee engagement survey, with an engagement score of 86%, exceeding the finance industry benchmark of 78% [7][8] - Recognized as a top workplace by USA TODAY for five consecutive years [8] - **Client Satisfaction**: - Overall client satisfaction at 91% and a Net Promoter Score of 70, significantly higher than the banking industry average [9][10] Strategic Planning - **Current Strategic Plan**: Initiated in 2024, involving 80 employees and focusing on 11 key strategies, including: - **Culture**: Emphasizing employee engagement and cultural integrity [11][12] - **Future-Ready Talent**: Attracting and retaining skilled employees, with a focus on technology adoption [13][14] - **Deposits**: Building strong relationships with businesses to secure deposits [15][16] - **Operational Excellence**: Implementing robotic process automation for efficiency [17] - **Profitability**: Balancing growth with profitability across business lines [18] Financial Performance Metrics - **Growth Targets**: Aiming for over 10% annual growth, with actual revenue growth at 12.3% this year [19] - **Efficiency Ratio**: Currently at 59.51, below the target of 60 [19] - **Return on Equity**: Achieved 17.3%, exceeding the target of 15% [19] - **Tangible Book Value Growth**: Recorded at 15.6% annually, surpassing the target of 10% [19] Risk Management - **Asset Liability Management**: Focused on maintaining a stable net interest margin and avoiding interest rate volatility through disciplined practices [20][21] - **Credit Risk Management**: Maintains credit costs at about one-third of the industry average, with a thorough underwriting process [24][25] Loan Portfolio Characteristics - **Composition**: 40% C&I commercial and industrial loans, 60% commercial real estate [30] - **Focus Areas**: Strong growth in the C&I portfolio, particularly in treasury management and private wealth relationships [31][33] - **Credit Quality**: Normalized credit environment with stable provisioning; minor issues noted in the transportation sector [34] Investment Opportunity - **Valuation**: Currently trading at a discount relative to peers despite strong performance metrics [29][36] - **Growth Consistency**: Emphasis on organic growth strategy with a proven track record of achieving targets [36] This summary encapsulates the key points discussed during the First Business Financial Services conference call, highlighting the company's unique business model, strategic focus, financial performance, and investment potential.

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Financial Performance - Net income available to common shareholders was $14.2 million, or diluted earnings per share of $1.70, for the three months ended September 30, 2025, compared to $10.3 million, or diluted earnings per share of $1.24, for the same period in 2024[134]. - Pre-tax, pre-provision adjusted earnings for the three months ended September 30, 2025, were $18.9 million, compared to $15.4 million in the same period in 2024[134]. - PTPP adjusted earnings for Q3 2025 were $18.9 million, up 22.1% from $15.4 million in Q3 2024[143]. - For the nine months ended September 30, 2025, adjusted earnings were $51.1 million, a 19.6% increase from $42.7 million in the same period of 2024[143]. Revenue Growth - Top line revenue increased by $6.5 million, or 17.0%, for the three months ended September 30, 2025, driven by a 12.5% increase in net interest income and a 36.5% increase in non-interest income[136]. - Net interest income for Q3 2025 reached $34.9 million, up 12.5% from $31.0 million in Q3 2024[146]. - Total non-interest income for Q3 2025 was $9.6 million, a significant increase of 36.5% from $7.1 million in Q3 2024[146]. - The company reported a total operating revenue of $44.3 million for Q3 2025, a 16.3% increase from $38.1 million in Q3 2024[146]. Asset and Loan Growth - Total assets increased by $181.6 million, or 6.3% annualized, to $4.035 billion as of September 30, 2025, compared to $3.853 billion at December 31, 2024[139]. - Period-end gross loans and leases receivable increased by $222.8 million, or 9.5% annualized, to $3.337 billion as of September 30, 2025[139]. - Average total assets increased to $4.04 billion in Q3 2025, up 11.2% from $3.64 billion in Q3 2024[146]. - Total loans and leases receivable for the nine months ended September 30, 2025, amounted to $3,240,908, up from $2,961,014 in 2024, reflecting a growth of 9.45%[153]. Non-Performing Assets and Credit Quality - Non-performing assets were $23.5 million, or 0.58% of total assets, as of September 30, 2025, down from $28.4 million, or 0.74% of total assets, at December 31, 2024[139]. - The allowance for credit losses was 1.15% of total loans as of September 30, 2025, compared to 1.20% at December 31, 2024[139]. - The ratio of non-accrual loans to gross loans and leases was 0.70% as of September 30, 2025, down from 0.91% at December 31, 2024[212]. - The total allowance for credit losses was $36.7 million as of September 30, 2025, compared to $35.8 million at December 31, 2024[197]. Efficiency and Cost Management - Efficiency ratio improved to 57.4% for the three months ended September 30, 2025, compared to 59.4% for the same period in 2024[142]. - Total non-interest expense for Q3 2025 was $25.7 million, an increase of 11.2% compared to $23.1 million in Q3 2024[146]. - Non-interest expense increased by $2.6 million, or 11.2%, for the three months ended September 30, 2025, primarily due to an increase in compensation expense[174]. - Compensation expense increased by $2.2 million, or 14.8%, for the three months ended September 30, 2025, attributed to higher average full-time equivalent employees and merit increases[176]. Capital and Liquidity - Total stockholders' equity increased by $29.7 million, or 12.1%, to $358.3 million as of September 30, 2025, primarily due to retained earnings[186]. - The Corporation had a net cash inflow of $45.6 million from operating activities for the nine months ended September 30, 2025, which included a net income of $37.0 million[237]. - Total liquidity as of September 30, 2025, was $2,068,850,000, compared to $2,004,058,000 as of June 30, 2025, showing a quarter-over-quarter increase of 3.4%[231]. - The capital ratios of the Bank met all applicable regulatory capital adequacy requirements as of September 30, 2025, including the capital conservation buffer imposed by Basel III[229]. Deposits and Borrowings - Total deposits as of September 30, 2025, rose by $225.9 million, or 9.7% annualized, to $3.333 billion compared to $3.107 billion at December 31, 2024[199]. - Core deposits increased by $195.7 million, or 10.9% annualized, to $2.592 billion as of September 30, 2025, from $2.396 billion at December 31, 2024[199]. - FHLB advances and other borrowings decreased by $53.4 million, or 16.7%, to $266.7 million as of September 30, 2025, from $320.0 million at December 31, 2024[201]. - Uninsured deposits increased to $1.100 billion, or 33.0% of total deposits, as of September 30, 2025, compared to $980.3 million, or 31.5%, at December 31, 2024[199].

Financial Data and Key Metrics Changes - Year-to-date return on assets (ROA) increased by 15 basis points to 1.23% compared to the same period in 2024 [4] - Year-to-date return on average tangible common equity rose to over 15%, up from just under 14% in 2024 [4] - Tangible book value per share grew by 16% year-over-year [4] - Pre-tax, pre-provision earnings saw an 18% increase from the second quarter and a 20% increase compared to the first nine months of 2024 [5] - Earnings per share grew by 26% from the second quarter and 25% year-to-date [5] Business Line Data and Key Metrics Changes - Loan balances increased by approximately $85 million, or 10% annualized during the quarter, and $286 million, or 9% year-over-year [7] - Fee income comprised 19% of operating revenue year-to-date for 2024 and 2023, compared to about 15% for peers [5] - Swap income grew nearly six times from the linked quarter, and income from SBIC funds increased over four times from the linked quarter [5] Market Data and Key Metrics Changes - Core deposits grew by 9% from both the linked and prior-year quarters [8] - The South Central Wisconsin market led deposit growth by landing several large new relationships [9] Company Strategy and Development Direction - The company aims for long-term growth of 10% and focuses on solid underwriting, efficient systems, client relationships, and talent investment [16] - The company continues to invest in additional SBIC funds as a long-term earnings catalyst [13] - The company is optimistic about future growth opportunities in its niche C&I products and asset-based lending [8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the quality of the quarter's results and the company's ability to maintain a strong and stable margin [11] - The company does not anticipate negative credit exposure related to the federal government shutdown, although it may affect SBA loan processing [10] - Management noted that clients remain optimistic, with many reporting strong business performance [53] Other Important Information - The effective tax rate for year-to-date 2025 was 16.3%, within the expected annual range of 16% to 18% [14] - Compensation expense grew by about $900,000 due to an annual cash bonus accrual update tied to strong performance [13] Q&A Session Summary Question: Clarification on fee income guidance - Management clarified that the 10% growth expectation for fee income is adjusted for non-recurring items from Q3 [20] Question: Margin normalization and funding side dynamics - Management indicated that betas on both sides of the balance sheet have historically been consistent, supporting margin guidance [22] Question: Classified or criticized balances at quarter-end - Management reported that classified balances remained consistent with a slight decrease in total MPL [24] Question: Investment wealth management area revenue drivers - Management noted that revenue growth in the investment wealth management area is due to both new accounts and market appreciation [48] Question: Talent acquisition strategy - Management emphasized the importance of cultivating relationships to attract new talent, focusing on market disruption and opportunistic relationship building [49] Question: Overall borrower sentiment - Management reported that borrower sentiment remains positive, with many clients experiencing strong business performance [53]

Financial Performance Highlights - Private Wealth Management (PWM) assets under management and administration (AUM&A) increased by 12% to a record $3.814 billion[5] - PWM fee income totaled $3.7 million for Q3 2025, a 13% increase compared to Q3 2024[5] - Operating revenue increased by 16.3% from Q3 2024[5] - Pre-tax, pre-provision (PTPP) earnings grew by 20% year-to-date (YTD)[6, 7] - Net income grew by 25% for the first nine months of 2025 compared to the prior-year period[7] Loan and Deposit Growth - Core deposits grew 9.3% annualized from the linked quarter and 8.8% from Q3 2024[5] - Loan growth was 10.4% annualized from the linked quarter and 9.4% from Q3 2024[5] - The company aims for 10% annual deposit and loan growth[10] Net Interest Margin (NIM) - The net interest margin (NIM) was 3.68%, compared to 3.67% for the linked quarter and 3.64% for the prior-year quarter[5] - Floating rate loans totaled $1.933 billion[17] - Floating rate deposits totaled $1.890 billion[17] Asset Quality and Liquidity - As of September 30, 2025, 93% of the loan portfolio was classified in Category I[32] - Total liquidity was $2.068 billion as of September 30, 2025[35] - 69% of total deposits are insured or collateralized[36] Capital Strength - Tangible book value per share (TBVPS) grew 16.8% annualized from the linked quarter and 15.6% from Q3 2024[5]

Core Insights - First Business Financial Services (FBIZ) reported revenue of $44.53 million for Q3 2025, a 17% year-over-year increase, with an EPS of $1.70 compared to $1.24 a year ago [1] - The revenue exceeded the Zacks Consensus Estimate of $42.37 million by 5.1%, and the EPS surpassed the consensus estimate of $1.39 by 22.3% [1] Financial Performance Metrics - Efficiency ratio stood at 57.4%, better than the three-analyst average estimate of 59.8% [4] - Net Interest Margin was reported at 3.7%, slightly above the three-analyst average estimate of 3.6% [4] - Net charge-offs as a percentage of average gross loans and leases were 0.2%, matching the two-analyst average estimate [4] - Average balance of total interest-earning assets was $3.79 billion, slightly higher than the $3.78 billion estimated by two analysts [4] - Net Interest Income reached $34.89 million, exceeding the three-analyst average estimate of $34.54 million [4] - Total Non-Interest Income was $9.64 million, significantly above the $7.83 million average estimate based on three analysts [4] - Service charges on deposits amounted to $1.15 million, compared to the $1.06 million average estimate based on two analysts [4] - Private wealth management service fees were $3.69 million, slightly below the $3.9 million average estimate based on two analysts [4] - Gain on sale of SBA loans was $0.38 million, lower than the $0.85 million average estimate based on two analysts [4] Stock Performance - Shares of First Business Financial Services have returned -0.9% over the past month, while the Zacks S&P 500 composite increased by 3.6% [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating potential underperformance relative to the broader market in the near term [3]

Core Insights - First Business Financial Services (FBIZ) reported quarterly earnings of $1.7 per share, exceeding the Zacks Consensus Estimate of $1.39 per share and up from $1.24 per share a year ago [1][2] - The company achieved a revenue of $44.53 million for the quarter ended September 2025, surpassing the Zacks Consensus Estimate by 5.10% and increasing from $38.07 million year-over-year [3] Earnings Performance - The earnings surprise for the quarter was +22.30%, with the company having surpassed consensus EPS estimates three times over the last four quarters [2] - The current consensus EPS estimate for the upcoming quarter is $1.43, with expected revenues of $43.1 million, and for the current fiscal year, the estimate is $5.49 on revenues of $167.37 million [8] Stock Performance and Outlook - Shares of First Business Financial Services have increased by approximately 7.1% since the beginning of the year, compared to a 17.2% gain in the S&P 500 [4] - The stock currently holds a Zacks Rank 4 (Sell), indicating expectations of underperformance in the near future due to unfavorable estimate revisions prior to the earnings release [7] Industry Context - The Banks - Midwest industry, to which First Business Financial Services belongs, is currently ranked in the top 15% of over 250 Zacks industries, suggesting a favorable industry outlook [9]

Financial Performance - Third Quarter 2025 net income available to common shareholders was $14.2 million, or earnings per share (EPS) of $1.70, compared to $11.2 million, or $1.35 per share in the second quarter of 2025[1] - Pre-tax, pre-provision adjusted earnings grew to $18.9 million, up 17.7% from the linked quarter[4] - Net income for the three months ended September 30, 2025, reached $14,393 thousand, a 36.5% increase from $10,526 thousand in the same quarter of 2024[38] - Total operating revenue for Q3 2025 was $44,292,000, an increase of 16.3% compared to $38,071,000 in Q3 2024[58] - Basic earnings per share for the three months ended September 30, 2025, were $1.70, compared to $1.24 for the same period in 2024, representing a 37.1% increase[38] Loan and Deposit Growth - Loans increased by $84.6 million, or 10.4% annualized, from the second quarter of 2025, and $286.4 million, or 9.4%, from the third quarter of 2024[4] - Core deposits grew by $59.0 million, or 9.3% annualized, from the linked quarter, and $209.4 million, or 8.8%, from the third quarter of 2024[4] - Total period-end loans and leases receivable increased by $286.4 million, or 9.4%, to $3.337 billion[26] - Total period-end core deposits grew by $209.4 million, or 8.8%, to $2.592 billion, with the average rate paid decreasing by 45 basis points to 2.89%[27] - Total deposits rose to $3,333,071 thousand as of September 30, 2025, compared to $2,969,947 thousand a year ago, marking an increase of 12.2%[37] Income and Revenue - Net interest income increased by $1.1 million, or 3.3%, to $34.9 million from the second quarter of 2025[7] - Non-interest income rose by $2.4 million, or 32.9%, to $9.6 million[9] - Net interest income increased by $3.9 million, or 12.5%, to $34.9 million compared to the third quarter of 2024[21] - Non-interest income rose by $2.6 million, or 36.5%, to $9.6 million, driven by higher average gross loans and increased fees[23] - Total non-interest income for Q3 2025 was $9,640,000, a 36.5% increase from $7,064,000 in Q3 2024[58] Asset Quality - Non-performing assets decreased by $5.2 million to $23.5 million, or 0.58% of total assets, improving from 0.72% in the prior quarter[17] - The allowance for credit losses as a percent of total gross loans and leases was 1.15%, compared to 1.18% in the prior quarter[18] - The provision for credit losses for the three months ended September 30, 2025, was $1,440 thousand, down from $2,087 thousand in the same quarter of 2024, indicating improved credit quality[38] - Non-accrual loans and leases as of September 30, 2025, were $23,513 thousand, representing 0.70% of total gross loans and leases[44] Operational Efficiency - The efficiency ratio improved to 57.44% for the three months ended September 30, 2025, compared to 60.97% in the previous quarter[43] - The efficiency ratio improved to 8.31% as of September 30, 2025, compared to 8.04% in the previous quarter, indicating better operational efficiency[56] Capital and Liquidity - Total assets increased to $4,034,845 thousand as of September 30, 2025, up from $3,715,724 thousand a year earlier, representing a growth of 8.6%[37] - Total liabilities stood at $3,676,526 thousand as of September 30, 2025, an increase from $3,403,742 thousand a year earlier, reflecting a growth of 8.0%[37] - Tangible common equity to tangible assets ratio was 8.31% as of September 30, 2025, up from 7.78% a year earlier, showing a strengthening capital position[56] - Total liquidity as of September 30, 2025, was $2,068,850,000, reflecting an increase from $2,004,058,000 in the previous quarter[49] Expense Management - Compensation expense increased by $2.2 million, or 14.8%, to $17.4 million, reflecting a rise in average FTEs and annual merit increases[31] - Computer software expense increased by $218,000, or 13.6%, to $1.8 million due to ongoing investment in innovative technology[31]

Core Points - First Business Financial Services, Inc. is hosting a conference call to discuss its financial and operating performance for the third quarter ended September 30, 2025 [1] - The conference call is scheduled for Friday, October 31, 2025, at 1:00 p.m. Central Time [1] - The call may include forward-looking statements and other material information [1]