First Business Financial Services, Inc. (FBIZ) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary shows strong financial performance with a 10% revenue growth and stable net interest margin, but concerns arise from unclear management responses in the Q&A, particularly regarding the CRE relationship and asset-based lending credit. Despite positive operating leverage and loan growth, the lack of specific guidance on problem loans and the competitive deposit pricing environment tempers optimism. The absence of M&A opportunities and the focus on organic growth further suggest a steady but cautious outlook, leading to a neutral sentiment for the stock price movement.
Key Financial Performance
Pretax pre-provision earnings Grew nearly 15% over 2024. This growth was attributed to high-quality growth, particularly on the deposit side, diversified revenue streams, and improved efficiency driven by positive operating leverage.
Return on average tangible common equity Over 15% for the year. This reflects strong profitability and efficient operations.
Tangible book value per share Grew 14% from a year ago. This growth was driven by strong financial performance and profitability.
Earnings per share (EPS) Grew 14% over 2024, exceeding the long-term annual goal of 10% earnings growth. This growth reflects consistent execution and strong financial results.
Net interest income Grew 10% for the full year. This was driven by robust loan and deposit growth, disciplined pricing, and effective management of funding sources and costs.
Private Wealth fee income Generated a record $3.8 million, up 11% year-over-year. This increase was due to the addition of new relationships and expansion of existing ones.
Service charges Up nearly 20% year-over-year. This growth was attributed to success in adding full banking relationships, illustrating the growth of business banking relationships.
Loan balances Grew $261 million or 8% over the same period last year. Growth was driven by solid loan demand and strong pipelines, despite elevated CRE payoff activity.
Core deposit balances Up 12% from both the linked and prior year quarters. Growth was primarily from core interest-bearing and money market client accounts, offsetting runoff of higher-cost CDs and wholesale deposits.
Net charge-offs Totaled $2.5 million, primarily from previously reserved equipment finance loans.
Net interest margin (NIM) Declined by 15 basis points to 3.53% in Q4, with 10 basis points of compression due to a nonaccrual interest reversal. For the full year, NIM declined 2 basis points from 3.66% in 2024 to 3.64% in 2025, reflecting stable margin management.
Operating revenue growth Achieved 10% growth for the full year, meeting the annual double-digit goal. This was supported by income diversification and positive operating leverage.
Operating expense growth Grew about 6.5% for 2025. This was managed to achieve positive operating leverage for the fourth consecutive year.
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Operating Highlights
Private Wealth business expansion: Generated record $3.8 million of fee income, up 11% year-over-year, driven by new and expanded relationships.
Loan and deposit growth: Loan balances grew $39 million (5% annualized) in Q4 and $261 million (8%) year-over-year. Core deposit balances increased 12% year-over-year.
Regional market strength: Southern Wisconsin markets benefit from a strong regional economy, with robust performance in manufacturing, distribution, and multifamily real estate.
Net interest income growth: Grew 10% year-over-year, supported by disciplined pricing and management of funding sources.
Operating leverage: Achieved positive operating leverage for the fourth consecutive year, with operating revenue growth of 10% and expense growth of 6.5% in 2025.
Talent acquisition: New presidents in Kansas City, Northeast Wisconsin, and asset-based lending groups contributed to growth and pipeline expansion.
Dividend increase: Board approved a 17% increase in quarterly cash dividend, reflecting confidence in continued financial success.
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Risk or Challenges
Credit Downgrade of CRE Loans: The company downgraded $20.4 million of CRE loans related to a single Wisconsin-based borrower, resulting in high carrying costs and exhausted free cash flow for the borrower. This led to a nonaccrual interest reversal of $892,000, compressing net interest income and lowering the margin by 10 basis points in Q4.
Elevated CRE Payoff Activity: The company experienced elevated CRE payoff activity in Q4, which contributed to a more moderate pace of loan growth compared to recent periods. Total payoffs in 2025 exceeded 2024 levels by almost $70 million.
Deposit Pricing Pressure: The cost of acquiring new deposit clients remains extremely competitive, which could impact the company's ability to maintain its net interest margin and profitability.
Government Shutdown Impact: Lower SBA gains were reported due to the government shutdown, which affected noninterest income.
Variable Income Streams: Income from partnership investments and other noninterest income streams showed variability, which could lead to fluctuations in quarterly financial performance.
Compensation and Benefit Costs: The company expects compensation levels to grow in 2026 due to higher benefit costs and efforts to fill open positions, which could increase operating expenses.
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Guidance & Outlook
EPS Growth: The company aims to continue achieving double-digit EPS growth in 2026 and beyond, building on its 2025 performance of 14% growth over 2024.
Dividend Increase: The Board of Directors approved a 17% increase to the quarterly cash dividend, reflecting expectations for continued financial success.
Loan Growth: Loan growth is expected to rebound to a double-digit pace in 2026, supported by strong loan demand, a robust regional economy, and positive trends in the banking industry.
Deposit Growth: Double-digit growth in core deposits is anticipated to continue in 2026, driven by increases in core interest-bearing and money market client accounts.
Net Interest Margin (NIM): The target range for NIM remains 3.60% to 3.65%, supported by double-digit annual loan, deposit, and revenue growth.
C&I Loan Portfolio: The company plans to shift its loan mix toward higher-yielding C&I relationships, which are expected to improve average loan spreads and offset deposit pricing pressures.
Noninterest Income: Noninterest income is expected to grow by 10% in 2026, with adjusted Q4 2025 noninterest income serving as a baseline.
Compensation Expense: Compensation levels are expected to grow slightly more in 2026 compared to 2025, driven by filling open positions and increased benefit costs.
Tax Rate: The effective tax rate is expected to remain within the range of 16% to 18% in 2026.
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Shareholder Return Plan
Dividend Increase: The Board of Directors approved a 17% increase to the quarterly cash dividend, reflecting confidence in the company's financial success and positive momentum.
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Key Q&A
Q:What was the timing of the appraisal for the CRE relationship that drove the increase in NPAs, and what is the current LTV and service coverage on the relationship?
A:Most appraisals were received at the end of the year, with some older ones. The properties are cross-collateralized with an overall loan-to-value (LTV) of 72%. Approximately 2/3 to 3/4 of the properties are land, with some multifamily properties included. No cash flow data was provided due to the land component.
Q:What are the credit expectations for the coming year, and how will charge-offs and NPLs evolve?
A:Charge-offs for the quarter were unrelated to the CRE relationship and were primarily from the equipment finance portfolio. No reserves or charge-offs were needed for the CRE relationship based on appraisals. The foreclosure process for real estate is straightforward but time-consuming. Management is working with the borrower on multiple options.
Q:What is the guidance for fee income growth, and how should it be calculated?
A:Fee income is expected to grow by 10% for the full year, excluding a $537,000 reclassification and a $234,000 BOLI claim. Growth should be calculated on a full-year basis, including a rebound in SBA gains.
Q:What is the base for fee income growth, and what is the timeline for resolving the larger problem loan?
A:The base for fee income growth is approximately $33 million. The timeline for resolving the larger problem loan is uncertain, but progress is expected throughout the year, with potential smaller wins each quarter. Full resolution may occur by year-end, depending on variables.
Q:What is the balance of the equipment finance portfolio, and what are the expectations for its future?
A:The equipment finance portfolio balance was $21 million at year-end, down from $61 million initially. It decreased by $20 million over the year. Management expects stability or growth as the remaining borrowers are likely to succeed.
Q:What are the strategic goals for ROE and efficiency ratio, and will they be revisited?
A:The ROE goal of over 15% and an efficiency ratio below 60% were achieved earlier than planned. Management aims to maintain these levels and continue improving the efficiency ratio annually without revising the goals.
Q:What is the starting point for the margin in Q1, and what is the mix of loans in the pipeline?
A:The margin is expected to reset at 3.63% in Q1, within the range of 3.60% to 3.65%. The loan pipeline is strong, with a mix of commercial real estate and C&I loans, particularly asset-based lending (ABL), which has higher margins.
Q:What is the state of deposit pricing competition, and how does it affect the bank?
A:Deposit pricing competition remains high but has eased slightly. Larger competitors expanding via M&A may influence the market.
Q:Are there any M&A opportunities that align with the bank's model?
A:No. The bank's unique model and preference for organic growth over acquisitions make M&A opportunities unlikely.
Q:What is the outlook for loan growth, and how does management plan to achieve it?
A:Management targets 10% annual loan growth, supported by strong pipelines, new leadership in key markets, and opportunities in commercial real estate and construction loans. Payoffs have been higher than normal but are expected to stabilize.
Q:What is the contribution of specialty businesses to loan growth, and what is the target?
A:Specialty businesses contributed 23% to the loan book at year-end, down from a peak of 25%. Management aims to increase this to 25% or higher, with growth expected in ABL, accounts receivable finance, and SBA.
Q:What are the expectations for fee income growth, and which areas will drive it?
A:Fee income is expected to grow by 10%, driven by private wealth management, SBA gain on sale, and SBIC revenues. SBIC revenues are expected to grow faster than 10% due to prior investments.
Q:What is the status of the asset-based lending credit and its resolution timeline?
A:The asset-based lending credit remains in the court system, with a court date set for later in the year. Resolution may take time due to the legal process.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the service coverage for the CRE relationship, citing the land component as a reason for the lack of cash flow data. Additionally, the timeline for resolving the asset-based lending credit remains vague, with reliance on the court system and no clear resolution date.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Bank outcome
CI
CRE payoff
Wealth record
Wisconsin
accounting classification
banking relationship
basis interest
benefit investment
carrying
classification update
compound
cost deposit
deposit balance
deposit pricing
digit goal
dividend
equity
income investment
interest rate
interest reversal
investment income
land
loan interest
majority
pace loan
parcel development
payoff activity
pipeline
pressure
rate timing
shareholder return
strength
track
FBIZ Transcript
First Business Financial Services, Inc. (FBIZ) Q4 2025 Earnings Call Transcript
Unknown1-30
The earnings call summary shows strong financial performance with a 10% revenue growth and stable net interest margin, but concerns arise from unclear management responses in the Q&A, particularly regarding the CRE relationship and asset-based lending credit. Despite positive operating leverage and loan growth, the lack of specific guidance on problem loans and the competitive deposit pricing environment tempers optimism. The absence of M&A opportunities and the focus on organic growth further suggest a steady but cautious outlook, leading to a neutral sentiment for the stock price movement.
First Business Financial Services, Inc. (FBIZ) Q3 2025 Earnings Call Transcript
Positive10-31
The earnings call indicates strong financial performance with a 16% revenue growth, a stable net interest margin, and reduced nonperforming assets. The Q&A section reveals positive borrower sentiment and growth opportunities, especially in asset-based lending. While there are some concerns, like the litigation issue and rising deposit costs, overall guidance remains optimistic with plans for shareholder returns and strategic acquisitions. The positive aspects outweigh the negatives, suggesting a positive stock price movement in the near term.
First Business Financial Services, Inc. (FBIZ) Q2 2025 Earnings Call Transcript
Positive7-25
The earnings call summary shows strong financial performance, with EPS and tangible book value increases, stable net interest margins, and strong deposit growth. The Q&A section indicates confidence in achieving growth targets and managing competitive pressures. Despite an increase in NPAs, management reassures collateral coverage. Overall, the company demonstrates resilience and growth potential, warranting a positive sentiment.
First Business Financial Services, Inc. (NASDAQ:FBIZ) Q1 2025 Earnings Call Transcript
Positive4-29
The earnings call indicates strong financial performance with a 27% increase in EPS, significant revenue and deposit growth, and well-managed expenses. Despite some concerns about loan portfolio risks and economic conditions, management's responses suggest stability, with no major impact from tariffs or macro volatility. The company also maintained its effective tax rate and expects consistent loan fee income. These factors, along with positive Q&A insights, support a positive sentiment, predicting a stock price increase of 2% to 8% over the next two weeks.
FBIZ Slides
FBIZ Report
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