News Details

MADISON, Wis.--(BUSINESS WIRE)-- First Business Financial Services, Inc. (the “Company”, the “Bank”, or “First Business Bank”) (Nasdaq: FBIZ) reported quarterly net income available to common shareholders of $16.4 million, or earnings per share ("EPS") of $1.95. This compares to net income available to common shareholders of $15.4 million, or $1.84 per share, in the second quarter of 2026 and $14.2 million, or $1.70 per share, in the third quarter of 2025.

“Our record third quarter results reflect strong execution across First Business Bank’s relationship-based model,” said Dave Seiler, President and Chief Executive Officer. “Annualized loan growth of approximately 10% was more than fully funded by 14% annualized core deposit growth, while a strong net interest margin and disciplined expense management drove record pre-tax, pre-provision earnings. Through the first nine months of 2026, earnings per share increased 20%, pre-tax, pre-provision earnings increased 14%, and tangible book value per share grew 13% from the prior year.”

“We expect expenses to increase from the third-quarter level as we make planned investments in talent, marketing, technology, and infrastructure to support continued growth. These investments are integral to our long-term model of approximately 10% annual balance sheet growth and positive annual operating leverage. We believe consistent execution of our strategic plan, together with disciplined credit and capital management, will continue to compound earnings and tangible book value per share and support strong long-term profitability.”

Quarterly Highlights

• Record Earnings and Pre-Tax, Pre-Provision ("PTPP") Growth. Net income available to common shareholders reached a record $16.4 million, or $1.95 per diluted share. PTPP adjusted earnings grew to a record $21.3 million, up 7.6% and 13.1% from the linked and prior-year quarters, respectively.
• Relationship-Based Deposit Growth Funded Loan Expansion. Core deposits increased by $101.3 million, or 14.1% annualized, from the linked quarter and $386.8 million, or 14.9%, from the prior-year quarter, outpacing loan growth in both periods. Core deposits improved to 76.7% of total bank funding, allowing wholesale funding to decline by $103.1 million.
• Continued Loan Growth. Loans increased $88.6 million, or 9.9% annualized, from the linked quarter and $340.2 million, or 10.2%, from the third quarter of 2025.
• Strong Net Interest Margin. Net interest margin was 3.80%, compared to 3.78% for the linked quarter and 3.68% for the prior-year quarter. The modest linked improvement was primarily driven by favorable loan yields and an improved funding mix. Net interest margin was 3.72% and 3.68% for the first nine months of 2026 and 2025, respectively. Elevated fees in lieu of interest continued to support the year-over-year comparison.
• SBA Exit Improves Operating Efficiency. Operating expenses declined $706,000, or 2.6%, from the linked quarter, primarily due to lower SBA-related compensation costs. The Company expects annual operating leverage to remain modest but positive.
• Strong Value Creation. Through the first nine months of 2026, operating revenue increased 9.8% while operating expense increased 6.8%, driving a 14.2% increase in pre-tax, pre-provision earnings and 20% EPS growth. Tangible book value per share increased 10.5% annualized from the linked quarter and 13.4% from the prior year.

Quarterly Financial Results

1. This is a non-GAAP financial measure. Management believes these measures are meaningful because they reflect adjustments commonly made by management, investors, regulators, and analysts to evaluate financial performance, provide greater understanding of ongoing operations, and enhance comparability of results with prior periods. See the section titled Non-GAAP Reconciliations at the end of this release for a reconciliation of GAAP financial measures to non-GAAP financial measures.
2. Calculation is annualized.

Third Quarter 2026 Compared to Second Quarter 2026

Net interest income increased $936,000, or 2.5%, to $39.1 million.

• Net interest income increased as average loans and leases receivable grew by $66.0 million, or 7.4% annualized during the third quarter. This increase was partially offset by a $193,000 decrease in prepayment fees.
• The yield on average interest-earning assets increased 2 basis points to 6.47% from 6.45%.
• The rate paid for average core deposits was stable at 2.41% compared to 2.40%, and the rate paid on average total bank funding was stable at 2.76% compared to 2.75%. Total bank funding includes total deposits and Federal Home Loan Bank (“FHLB”) advances.
• Net interest margin increased to 3.80% from 3.78% in the linked quarter. The linked-quarter increase reflected more favorable loan yields and deposit mix, including growth in non-interest-bearing demand deposits, as well as a modest favorable day-count impact. These benefits more than offset lower prepayment and asset-based loan fees. While net interest margin is expected to remain above the Company’s long-term target range of 3.60% to 3.65% during the fourth quarter, it is expected to moderate from the third-quarter level as fee income normalizes. The Company continues to view 3.60% to 3.65% as an appropriate long-term range.

The Bank reported provision for credit losses of $1.9 million compared to $2.1 million in the linked quarter. Compared to the linked quarter, the provision for credit losses was lower primarily due to a smaller increase in quantitative factors and lower loan growth, partially offset by higher net charge-offs. See the Provision for Credit Loss breakdown table below for more detail.

Non-interest income decreased $140,000, or 1.6%, to $8.4 million.

• Commercial loan swap fee income increased $393,000, or 242.6%, to $555,000. Swap fee income varies from period to period based on loan activity and the interest rate environment.
• Other non-interest income decreased $494,000 to $1.0 million, primarily due to a decrease in limited partnership investment income.

Non-interest expense decreased $1.7 million, or 6.3%, to $26.1 million, while operating expense decreased $706,000, or 2.6%, to $26.2 million. Third-quarter operating expense primarily benefited from lower compensation expense due to our exit from out-of-market SBA 7(a) lending. We expect the operating expense run rate to increase from the third-quarter level, primarily reflecting investments in talent, technology, and marketing initiatives. These investments are intended to expand the Company’s capacity for sustained growth. While quarterly comparisons may vary, the company continues to expect modest positive operating leverage annually.

• Compensation expense was $17.8 million, decreasing by $693,000, or 3.8% from the linked quarter. The decrease was primarily driven by lower salaries and benefits expense and linked quarter severance expense related to the Company's strategic exit from out of market SBA 7(a) lending activities. This decrease was partially offset by higher annual cash bonus accruals reflecting above-target Company performance. Average full-time equivalents ("FTEs") for the third quarter were 352, compared to 366 in the linked quarter. Excluding SBA employees, average FTEs were 351 for the third quarter compared to 354 in the linked quarter.
• Other non-interest expense decreased $656,000 to $1.2 million, primarily due to an SBA recourse provision benefit and changes in carrying values on historic tax credit investments.
• Professional fees expense decreased $204,000, or 13.7%, to $1.3 million, primarily reflecting annual stock awards issued to directors in the second quarter.
• FDIC insurance expense decreased $123,000, or 15.0%, to $696,000, due to improved leverage and brokered deposit ratios.
• Marketing expense decreased $105,000, or 12.5%, to $735,000, due to timing of marketing programs and a reduction in sponsorship activity.

Income tax expense increased $1.7 million to $2.9 million. The effective tax rate was 14.8% for the three months ended September 30, 2026, compared to 7.2% for the linked quarter. The change in tax expense primarily reflects the release of a state deferred tax valuation allowance in the linked quarter and higher pre-tax income in the current quarter. The Company expects to report a full year 2026 effective tax rate between 13% and 15%.

Total gross period-end loans and leases receivable increased $88.6 million, or 9.9% annualized, to $3.677 billion. The average rate earned on average loans and leases receivable was 6.79%, up from 6.76% in the linked quarter.

• CRE loans increased $77.2 million, or 14.3% annualized, to $2.239 billion, primarily due to growth in the Wisconsin markets.
• C&I loans increased $9.4 million, or 2.7% annualized, to $1.390 billion, primarily due to growth in Floorplan Financing.

Total period-end core deposits increased $101.3 million, or 14.1% annualized, to $2.979 billion, reflecting broad-based growth across our markets. The average rate paid was stable at 2.41% compared to 2.40% in the linked quarter.

Period-end wholesale funding, including FHLB advances and brokered deposits, decreased $103.1 million, or 10.24%, to $903.3 million. Wholesale funding continues to support interest rate risk management through match-funding of fixed-rate assets, enhancing funding flexibility, and stabilizing net interest margin.

• Wholesale deposits increased $56.3 million to $770.8 million. The average rate paid on wholesale deposits increased four basis points to 4.07% and the weighted average original maturity increased to 4.0 years from 3.3 years.
• FHLB advances decreased $159.4 million to $132.5 million. The average rate paid on FHLB advances increased two basis points to 3.55% and the weighted average original maturity remained flat at 6.0 years.

Nonperforming assets increased $2.2 million to $40.2 million, or 0.91% of total assets, compared with 0.86% in the linked quarter, primarily reflecting a new non-accrual multifamily loan associated with the previously disclosed Wisconsin relationship. This increase was partially offset by the charge-off of fully reserved C&I non-accrual loans. The Wisconsin relationship represented $22.7 million of non-accrual loans, collateralized by commercial real estate, with $416,000 of reserves at September 30, 2026. Year-to-date net charge-offs remained stable at 0.22% of average loans compared with 0.23% in the prior-year period.

The allowance for credit losses, including the unfunded credit commitments reserve, decreased $668,000, or 1.7%, primarily due to charge-offs of previously reserved loans and leases and a decrease in qualitative factors partially offset by increases in general reserves primarily due to loan growth and a modest decline in the economic outlook in our model forecast. The allowance for credit losses, including unfunded credit commitment reserves, as a percent of total gross loans and leases was 1.06%, compared to 1.10% in the linked quarter.

Strong internal capital generation continued to support growth, with the common equity Tier 1 ratio increasing to 9.65% and the tangible common equity ratio increasing to 8.59%. The company believes its earnings capacity and capital position support its long-term balance-sheet growth objectives while continuing to build tangible book value per share.

Third Quarter 2026 Compared to Third Quarter 2025

Net interest income increased $4.2 million, or 12.0%, to $39.1 million.

• Net interest income growth reflects a 9.72% increase in average gross loans and leases, a $450,000 increase in prepayment fees, and a $407,000 increase in asset-based loan fees.
• The yield on average interest-earning assets decreased 25 basis points to 6.47% from 6.72%. This decrease in yield was primarily due to the decrease in short-term market rates, partially offset by an increase in prepayment fees and asset-based loan fees. The interest-earning asset beta was 39.2%.
• The rate paid for average core deposits decreased 48 basis points to 2.41% from 2.89%. The rate paid for average total bank funding decreased 38 basis points to 2.76% from 3.14%. The core deposit and total bank funding betas compared to the prior year were 76.2% and 60.3%, respectively.
• Net interest margin increased 12 basis points to 3.80% from 3.68%.

The Company reported provision for credit losses of $1.9 million, compared to $1.4 million in the third quarter of 2025. See the Provision for Credit Loss breakdown table below for more detail.

Non-interest income decreased $1.2 million, or 12.6%, to $8.4 million. Excluding gain on sale of SBA loans, non-interest income decreased $830,000, or 9.0%.

• Other non-interest income decreased $945,000, or 47.7%, to $1.0 million, primarily driven by higher returns on the Company’s investments in limited partnerships in the prior year quarter and $537,000 of non-recurring fee income in accounts receivable financing in the prior year quarter.
• Commercial loan swap fee income decreased $419,000, or 43.0%, to $555,000. Swap fee income varies from period to period based on loan activity and the interest rate environment.
• Gain on sale of SBA loans decreased $382,000 due to management's decision to hold for investment any existing and new SBA 7(a) loans.
• Private wealth fee income increased $488,000, or 13.2%, to $4.2 million. Private wealth assets under management and administration measured $4.227 billion at September 30, 2026, up $413.0 million, or 10.8%. Fee income is primarily based on asset levels and may vary based on seasonal activity and the timing of fluctuations in market values.
• Service charges on deposits increased $258,000, or 22.4%, to $1.4 million, primarily driven by new and expanded core deposit relationships. Treasury management gross analyzed service charges increased $276,000, or 15.6%.

Non-interest expense increased $405,000, or 1.6%, to $26.1 million. Operating expense increased $746,000 or 2.9%, to $26.2 million.

• Compensation expense increased $327,000, or 1.9%, to $17.8 million. Growth reflects annual merit increases and promotions as well as higher annual cash bonus accruals reflecting above-target Company performance. These increases were partially offset by lower salaries and benefits expense related to the Company's strategic exit from out of market SBA 7(a) lending activities. Average FTEs decreased 3.8% to 352 in the third quarter of 2026, compared to 366 in the third quarter of 2025. Excluding SBA employees, average FTEs were 351 in the current quarter compared to 345 in the third quarter of 2025.
• Other non-interest expense decreased $532,000, or 31.6% to $1.2 million, primarily due to a decrease in SBA recourse reserves.
• Data processing expense increased $366,000, or 32.6%, to $1.5 million, primarily due to an increase in core processing costs associated with core deposit growth and an increase in credit card transactions.
• Professional fees expense increased $218,000, or 20.4%, to $1.3 million, primarily due to an increase in recruiting expense, directors' fees, and miscellaneous legal and regulatory fees.
• Computer software expense increased $237,000, or 13.0%, to $2.1 million, primarily due to the Company's commitment to innovative technology to support growth initiatives, enhance productivity, and improve the client experience.

Total gross period-end loans and leases receivable increased $340.2 million, or 10.2%, to $3.677 billion. The average yield decreased 31 basis points to 6.79%, primarily due to a decrease in short-term market rates.

• CRE loans increased $211.8 million, or 10.4%, to $2.239 billion, primarily due to growth throughout our Wisconsin and Kansas City markets.
• C&I loans increased $125.7 million, or 9.9%, to $1.390 billion, primarily due to growth across the Bank's markets and in asset-based lending, floorplan financing, and accounts receivable financing.

Total period-end core deposits grew $386.8 million, or 14.9%, to $2.979 billion. The average rate paid decreased 48 basis points to 2.41%, reflecting a decrease in short-term market rates.

Period-end wholesale funding decreased $49.5 million, or 5.2%, to $903.3 million.

• Wholesale deposits increased $29.9 million, or 4.0%, to $770.8 million. The average rate paid on wholesale deposits decreased four basis points to 4.07% and the weighted average original maturity decreased to 4.0 years from 4.3 years.
• FHLB advances decreased $79.3 million, or 37.5%, to $132.5 million. The average rate paid on FHLB advances increased 39 basis points to 3.55% and the weighted average original maturity increased to 6.0 years from 5.3 years.

Non-performing assets increased to $40.2 million, or 0.91% of total assets, from $23.5 million, or 0.58% of total assets, primarily reflecting $22.7 million of CRE non-accrual loans from a single southeast Wisconsin client relationship, partially offset by paydowns on SBA non-accrual loans and lower non-accrual balances from Equipment Finance loans and leases.

The allowance for credit losses, including unfunded commitment reserves, increased $467,000 to $38.8 million primarily due to higher general reserves as a result of loan growth and quantitative factors, partially offset by lower specific reserves and lower qualitative factors. The allowance for credit losses as a percent of total gross loans and leases was 1.06%, compared to 1.15% in the prior year.

Share Repurchase Program Update

As previously announced, on April 26, 2024, the Company's Board of Directors authorized the repurchase by the Company of shares of its common stock with a maximum aggregate purchase price of $5.0 million. As of September 30, 2026, the Company had repurchased a total of 12,000 shares for approximately $835,000 at an average cost of $69.55 per share. The Company repurchased another 29,058 shares from October 1 through October 23, 2026. In total, the Company repurchased 41,058 shares for approximately $2.9 million at an average price of $69.70 per share.

Dividend Announced

On October 29, 2026, the Company's Board of Directors declared a quarterly cash dividend on its common stock of $0.34 per share, which is equivalent to a dividend yield of 1.87% based on the market close price of $72.75 on Wednesday, October 28, 2026. The quarterly dividend is the same as the quarterly dividend declared in July 2026, and based on third quarter 2026 earnings per share, this represents a dividend payout ratio of 17%. This regular cash dividend is payable on November 30, 2026, to shareholders of record at the close of business on November 12, 2026.

The Board of Directors also declared a dividend on the Company’s 7% Series A Preferred Stock of $17.50 per share, payable on December 15, 2026, to shareholders of record on November 30, 2026.

Earnings Release Supplement and Conference Call

On October 29, 2026, the Company posted an earnings release supplement to its website firstbusiness.bank under the “Investor Relations” tab which will also be furnished to the U.S. Securities and Exchange Commission on October 29, 2026. The information included in the supplement provides an overview of the Company’s recent operating performance, financial condition, and other data relevant to the quarter. The Company intends to use this supplement in connection with its third quarter 2026 earnings call to be held at 8:00 a.m. Central Time on October 30, 2026. The conference call can be accessed at 833-461-5787 (585-542-9983 if outside the United States and Canada), using the conference call access code: FBIZ, 650767981. Investors may also listen live via webcast at: https://events.q4inc.com/attendee/650767981. The webcast archive of the conference call will be available on the Company’s website, ir.firstbusiness.bank.

About First Business Bank

First Business Bank^® specializes in Business Banking, including Commercial Banking and Specialty Finance, Private Wealth, and Bank Consulting services, and through its refined focus delivers unmatched expertise, accessibility, and responsiveness. Specialty Finance solutions are delivered through First Business Bank’s wholly owned subsidiary First Business Specialty Finance, LLC^®. First Business Bank is a wholly owned subsidiary of First Business Financial Services, Inc^®. (Nasdaq: FBIZ). For additional information, visit firstbusiness.bank.

This release may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which reflect First Business Bank’s current views with respect to future events and financial performance. Forward-looking statements are not based on historical information, but rather are related to future operations, strategies, financial results, or other developments. Forward-looking statements are based on management’s expectations as well as certain assumptions and estimates made by, and information available to, management at the time the statements are made. Those statements are based on general assumptions and are subject to various risks, uncertainties, and other factors that may cause actual results to differ materially from the views, beliefs, and projections expressed in such statements. Such statements are subject to risks and uncertainties, including among other things:

• Adverse changes in the economy or business conditions, either nationally or in our markets including, without limitation, inflation, economic downturn, labor shortages, wage pressures, the adverse effects of public health events on the global, national, and local economy, and geopolitical instability and international conflicts that may affect energy prices or otherwise result in market volatility.
• Uncertainty created by potential federal government actions relating to the authority of regulatory agencies (including bank regulators), international trade policy, prolonged shutdown of the federal government, and other significant policy matters.
• Competitive pressures among depository and other financial institutions nationally and in the Company’s markets.
• Increases in defaults by borrowers and other delinquencies.
• Management’s ability to manage growth effectively, including the successful expansion of our client support, administrative infrastructure, and internal management systems.
• Fluctuations in interest rates and market prices.
• Changes in legislative or regulatory requirements applicable to the Company and its subsidiaries.
• Changes in tax requirements, including tax rate changes, new tax laws, and revised tax law interpretations.
• Fraud, including client and system failure or breaches of our network security, including the Company’s internet banking activities.
• Failure to comply with the applicable SBA regulations in order to maintain the eligibility of the guaranteed portion of SBA loans.
• Ongoing volatility in the banking sector may result in new legislation, regulations or policy changes that could subject the Company and the Bank to increased government regulation and supervision.
• The proportion of the Company’s deposit account balances that exceed FDIC insurance limits may expose the Bank to enhanced liquidity risk.
• Increases in FDIC insurance assessments.

For further information about the factors that could affect the Company’s future results, please see the Company’s annual report on Form 10-K for the year ended December 31, 2025, and other filings with the Securities and Exchange Commission.

1. Excludes prepayment activity in all periods of comparison.
2. Board of Governors of the Federal Reserve System (US), Effective Federal Funds Rate [DFF]. Retrieved from FRED, Federal Reserve Bank of St. Louis. Represents average daily rate.
3. Represents annualized yields/rates.

1. Bank internal policy limits brokered CDs to 50% of total bank funding when combined with value of unencumbered pledged loans.

NON-GAAP RECONCILIATIONS

Certain financial information provided in this release is determined by methods other than in accordance with generally accepted accounting principles (United States) (“GAAP”). Although the Company’s management believes that these non-GAAP financial measures provide a greater understanding of its business, these measures are not necessarily comparable to similar measures that may be presented by other companies.

TANGIBLE BOOK VALUE

“Tangible book value per share” is a non-GAAP measure representing tangible common equity divided by total common shares outstanding. “Tangible common equity” itself is a non-GAAP measure representing common stockholders’ equity reduced by intangible assets, if any. The Company’s management believes that this measure is important to many investors in the marketplace who are interested in period-to-period changes in book value per common share exclusive of changes in intangible assets. The information provided below reconciles tangible book value per share and tangible common equity to their most comparable GAAP measures.

TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS

“Tangible common equity to tangible assets” (“TCE”) is defined as the ratio of common stockholders’ equity reduced by intangible assets, if any, divided by total assets reduced by intangible assets, if any. The Company’s management believes that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period in common equity and total assets, each exclusive of changes in intangible assets. The information below reconciles tangible common equity and tangible assets to their most comparable GAAP measures.