First Business Financial Services Q4 2025 First Business Financial Services Inc Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 First Business Financial Services Inc Earnings Call
Speaker #1: Good afternoon. Welcome to the First Business Financial Services, fourth quarter 2025 earnings conference call. After today's presentation, there will be an opportunity to ask questions.
Operator: Good afternoon. Welcome to the First Business Financial Services Q4 2025 Earnings Conference Call. After today's presentation, there will be an opportunity to ask questions. To ask a question, please press star one on your touchtone phone. To withdraw your question, please press star two. Please note that this event is being recorded. I would now like to turn the conference over to First Business Financial Services, Inc. CEO, Corey Chambas. Please go ahead.
Operator: Good afternoon. Welcome to the First Business Financial Services Q4 2025 Earnings Conference Call. After today's presentation, there will be an opportunity to ask questions. To ask a question, please press star one on your touchtone phone. To withdraw your question, please press star two. Please note that this event is being recorded. I would now like to turn the conference over to First Business Financial Services, Inc. CEO, Corey Chambas. Please go ahead.
Speaker #1: To ask a question, please press *1 on your touch-tone phone. To withdraw your question, please press *2. Please note that this event is being recorded.
Speaker #1: I would now like to turn the conference over to First Business Financial Services, Inc. CEO, Corey Chambas. Please go ahead.
Speaker #2: Good afternoon, everyone, and thank you for joining us. We appreciate your time and your interest in First Business Bank. Joining me today is our President and Chief Operating Officer, Dave Seiler, and our CFO, Brian Spielmann.
Corey Chambas: Good afternoon, everyone, and thank you for joining us. We appreciate your time and your interest in First Business Bank. Joining me today is our President and Chief Operating Officer, Dave Siler, and our CFO, Brian Spielman. Today, we'll discuss our financial performance, followed by a Q&A session. I'd like to direct you to our Q4 earnings release and supplemental earnings call slides, which are available through our website at ir.firstbusiness.bank. We encourage you to review these along with our other investor materials. Before we begin, please note this call may include forward-looking statements, and the company's actual results may differ materially from those indicated in any forward-looking statements.
Corey Chambas: Good afternoon, everyone, and thank you for joining us. We appreciate your time and your interest in First Business Bank. Joining me today is our President and Chief Operating Officer, Dave Siler, and our CFO, Brian Spielman. Today, we'll discuss our financial performance, followed by a Q&A session. I'd like to direct you to our Q4 earnings release and supplemental earnings call slides, which are available through our website at ir.firstbusiness.bank. We encourage you to review these along with our other investor materials. Before we begin, please note this call may include forward-looking statements, and the company's actual results may differ materially from those indicated in any forward-looking statements.
Q4 2025 First Business Financial Services Inc Earnings Call
Speaker #2: Today, we'll discuss our financial performance, followed by a Q&A session. I'd like to direct you to our fourth quarter earnings release and supplemental earnings call slides, which are available through our website at ir.firstbusiness.bank.
Speaker #2: We encourage you to review these, along with our other investor materials. Before we begin, please note this call may include forward-looking statements, and the company's actual results may differ materially from those indicated in any forward-looking statements.
Speaker #2: Important factors that could cause actual results to differ materially from those indicated in the forward-looking statements are listed in the earnings release and the company's most recent annual report, Form 10-K, and as may be supplemented from time to time in the company's other filings with the SEC.
Corey Chambas: Important factors that could cause actual results to differ materially from those indicated in the forward-looking statements are listed in the earnings release, the company's most recent annual report, Form 10-K, and as may be supplemented from time to time in the company's other filings with the SEC, all of which are expressly incorporated herein by reference. There, you can also find information related to any non-GAAP financial measures we discuss on today's call, including reconciliations of such measures. First Business Bank finished 2025 with another outstanding quarter. Our team continued to produce high-quality growth, particularly on the deposit side. Core net interest margin remained resilient, and our revenue streams were diversified and strong. Notably, our Private Wealth business continued to expand, delivering record and significant annuity-like fee income. Our focus on positive operating leverage again drove improved efficiency.
Important factors that could cause actual results to differ materially from those indicated in the forward-looking statements are listed in the earnings release, the company's most recent annual report, Form 10-K, and as may be supplemented from time to time in the company's other filings with the SEC, all of which are expressly incorporated herein by reference. There, you can also find information related to any non-GAAP financial measures we discuss on today's call, including reconciliations of such measures. First Business Bank finished 2025 with another outstanding quarter. Our team continued to produce high-quality growth, particularly on the deposit side. Core net interest margin remained resilient, and our revenue streams were diversified and strong. Notably, our Private Wealth business continued to expand, delivering record and significant annuity-like fee income. Our focus on positive operating leverage again drove improved efficiency.
Speaker #2: All of which are expressly incorporated herein by reference. There, you can also find information related to any non-GAAP financial measures we discuss on today's call, including reconciliations of such measures.
Speaker #2: First Business Bank finished 2025 with another outstanding quarter. Our team continued to produce high-quality growth, particularly on the deposit side. Core net interest margin remained resilient, and our revenue streams were diversified and strong.
Speaker #2: Notably, our private wealth business continued to expand, delivering record and significant annuity-like fee income. And our focus on positive operating leverage again drove improved efficiency.
Speaker #2: These highlights contributed to strong profitability for the quarter and year, as pre-tax, pre-provision earnings grew nearly 15% over 2024. Return on average tangible common equity was over 15% for the year, and most importantly for shareholders, tangible book value per share grew 14% from a year ago.
Corey Chambas: These highlights contributed to strong profitability for the quarter and year as pretax, preprovision earnings grew nearly 15% over 2024. Return on average tangible common equity was over 15% for the year, and most importantly for shareholders, tangible book value per share grew 14% from a year ago. I'd also like to draw your attention to earnings per share, which you can see on slide 4 of our earnings supplement. EPS growth is perhaps the most universal metric across industries, and our track record is outstanding. First Business Bank's 2025 EPS grew 14% over 2024, exceeding our long-term annual goal of 10% earnings growth. Over the past 10 years, we've grown earnings per share at 12% compound annual rate.
These highlights contributed to strong profitability for the quarter and year as pretax, preprovision earnings grew nearly 15% over 2024. Return on average tangible common equity was over 15% for the year, and most importantly for shareholders, tangible book value per share grew 14% from a year ago. I'd also like to draw your attention to earnings per share, which you can see on slide 4 of our earnings supplement. EPS growth is perhaps the most universal metric across industries, and our track record is outstanding. First Business Bank's 2025 EPS grew 14% over 2024, exceeding our long-term annual goal of 10% earnings growth. Over the past 10 years, we've grown earnings per share at 12% compound annual rate.
Speaker #2: I'd also like to draw your attention to earnings per share, which you can see on slide four of our earnings supplement. EPS growth is perhaps the most universal metric across industries, and our track record is outstanding.
Speaker #2: FIRST BUSINESS Bank's 2025 EPS grew 14% over 2024, exceeding our long-term annual goal of 10% earnings growth. Over the past 10 years, we've grown earnings per share at a 12% compound annual rate.
Speaker #2: Going back to the year of our IPO in 2005, our 20-year compound average annual EPS growth is 10%. A very long period of outstanding performance.
Corey Chambas: Going back to the year of our IPO in 2005, our 20-year compound average annual EPS growth is 10%, a very long period of outstanding performance. We know how to execute to achieve our double-digit growth mandate, and we aim to continue doing so in 2026 and beyond. On the strength of these results and expectations for continued financial success, our board of directors approved a 17% increase to our quarterly cash dividend. We are very pleased with the positive momentum of Q4 results, which Dave will discuss more now. Dave?
Going back to the year of our IPO in 2005, our 20-year compound average annual EPS growth is 10%, a very long period of outstanding performance. We know how to execute to achieve our double-digit growth mandate, and we aim to continue doing so in 2026 and beyond. On the strength of these results and expectations for continued financial success, our board of directors approved a 17% increase to our quarterly cash dividend. We are very pleased with the positive momentum of Q4 results, which Dave will discuss more now. Dave?
Speaker #2: We know how to execute to achieve our double-digit growth mandate, and we aim to continue doing so in 2026 and beyond. On the strength of these results, and expectations for continued financial success, our board of directors approved a 17% increase to our quarterly cash dividend.
Speaker #2: We are very pleased with the positive momentum of fourth quarter results, which Dave will discuss more now.
Speaker #2: Dave? Thank
Speaker #3: Thank you, Corey. In the fourth quarter, we again delivered growth, producing strong bottom-line results that reflect consistent performance. We believe this is a differentiating strength of First Business Bank, and it is a direct outcome of our deep commitment to relationships and diversification.
Dave Seiler: Thank you, Corey. In Q4, we again delivered growth, producing strong bottom-line results that reflect consistent performance. We believe this is a differentiating strength of First Business Bank, and it is a direct outcome of our deep commitment to relationships and diversification. I would like to take a moment to address an isolated credit situation. During the quarter, we downgraded $20.4 million of CRE loans related to a single Wisconsin-based borrower with total loans outstanding of $29.7 million. You can see the impact of this on our asset quality ratios on slide 12 of the earnings supplement. Obviously, this is disappointing. The strength of our underwriting, our markets, and our deep relationships are notable here, however. This is a long-standing client. Over several years, they acquired a series of parcels for multifamily development.
Dave Seiler: Thank you, Corey. In Q4, we again delivered growth, producing strong bottom-line results that reflect consistent performance. We believe this is a differentiating strength of First Business Bank, and it is a direct outcome of our deep commitment to relationships and diversification. I would like to take a moment to address an isolated credit situation. During the quarter, we downgraded $20.4 million of CRE loans related to a single Wisconsin-based borrower with total loans outstanding of $29.7 million. You can see the impact of this on our asset quality ratios on slide 12 of the earnings supplement. Obviously, this is disappointing. The strength of our underwriting, our markets, and our deep relationships are notable here, however. This is a long-standing client. Over several years, they acquired a series of parcels for multifamily development.
Speaker #3: I would like to take a moment to address an isolated credit situation. During the quarter, we downgraded $20.4 million of CRE loans related to a single Wisconsin-based borrower, with total loans outstanding of $29.7 million.
Speaker #3: You can see the impact of this on our asset quality ratios on slide 12 of the earnings supplement. Obviously, this is disappointing. The strength of our underwriting, our markets, and our deep relationships are notable here, however.
Speaker #3: The client, over several years, acquired a series of parcels for multifamily development. They were unable to advance these parcels to the development phase, resulting in high carrying costs that exhausted their free cash flow.
Dave Seiler: They were unable to advance these parcels to development phase, resulting in high carrying costs that exhausted their free cash flow. This client stress is isolated and reflects internal management challenges. The majority of the non-performing loans are collateralized by tracts of land zoned for multifamily and located in Southeastern Wisconsin, mainly in the corridor between Milwaukee and Chicago. These are very healthy markets, and land value appraisals exceed the carrying value of the loans. As such, a specific reserve was not recorded, which reflects our general philosophy of having two or more ways out of a loan. We did record a non-accrual interest reversal totaling $892,000, and this compressed our net interest income and lowered our margin by 10 basis points in the fourth quarter. You can see this on slide 7 of the supplement.
They were unable to advance these parcels to development phase, resulting in high carrying costs that exhausted their free cash flow. This client stress is isolated and reflects internal management challenges. The majority of the non-performing loans are collateralized by tracts of land zoned for multifamily and located in Southeastern Wisconsin, mainly in the corridor between Milwaukee and Chicago. These are very healthy markets, and land value appraisals exceed the carrying value of the loans. As such, a specific reserve was not recorded, which reflects our general philosophy of having two or more ways out of a loan. We did record a non-accrual interest reversal totaling $892,000, and this compressed our net interest income and lowered our margin by 10 basis points in the fourth quarter. You can see this on slide 7 of the supplement.
Speaker #3: This client's stress is isolated and reflects internal management challenges. The majority of the non-performing loans are collateralized by tracts of land zoned for multifamily and located in southeastern Wisconsin, mainly in the corridor between Milwaukee and Chicago.
Speaker #3: These are very healthy markets, and land value appraisals exceed the carrying value of the loans. As such, a specific reserve was not recorded, which reflects our general philosophy of having two or more ways out of a loan.
Speaker #3: We did record a non-accrual interest reversal totaling $892,000, and this compressed our net interest income and lowered our margin by 10 basis points in the fourth quarter.
Speaker #3: You can see this on slide seven of the supplement. The performing loans in this relationship consist of four stabilized multifamily projects, all of which are located in Wisconsin.
Dave Seiler: The performing loans in this relationship consist of four stabilized multifamily projects, all of which are located in Wisconsin. On a full-year basis, net interest income grew 10%, meeting our double-digit growth goal. We attribute this strength to our robust loan and deposit growth that continued to outpace the industry, along with disciplined pricing and management of funding sources and costs. Fourth quarter non-interest income displayed similar resilience. Private wealth generated a record $3.8 million of fee income, up 11% year-over-year, as we had added new relationships and expanded existing relationships. Service charges were up nearly 20% year-over-year, demonstrating real success in adding full banking relationships, which is a litmus test that illustrates growth of our business banking relationships. These trends bolstered revenues and moderated the impact of business-driven variability in other line items.
The performing loans in this relationship consist of four stabilized multifamily projects, all of which are located in Wisconsin. On a full-year basis, net interest income grew 10%, meeting our double-digit growth goal. We attribute this strength to our robust loan and deposit growth that continued to outpace the industry, along with disciplined pricing and management of funding sources and costs. Fourth quarter non-interest income displayed similar resilience. Private wealth generated a record $3.8 million of fee income, up 11% year-over-year, as we had added new relationships and expanded existing relationships. Service charges were up nearly 20% year-over-year, demonstrating real success in adding full banking relationships, which is a litmus test that illustrates growth of our business banking relationships. These trends bolstered revenues and moderated the impact of business-driven variability in other line items.
Speaker #3: On a full-year basis, net interest income grew 10%, meeting our double-digit growth goal. We attribute this strength to our robust loan and deposit growth that continued to outpace the industry, along with disciplined pricing and management of funding sources and costs.
Speaker #3: Fourth-quarter non-interest income displayed similar resilience. Private Wealth generated a record $3.8 million of fee income, up 11% year over year, as we had added new relationships and expanded existing relationships.
Speaker #3: Service charges were up nearly 20% year over year, demonstrating real success in adding full banking relationships, which is a litmus test that illustrates growth of our business banking relationships.
Speaker #3: These trends bolstered business-driven variability in other line items. These include lower SBA gains, which resulted from the government shutdown, and lower swap and loan fees, which can be highly variable and declined from the third quarter.
Dave Seiler: These include lower SBA gains, which resulted from the government shutdown, and lower swap and loan fees, which can be highly variable and declined from Q3. As a reminder, swap fees were unusually high in the linked quarter. We also recorded lower income from partnership investments in our other income line. This reflects a variable income stream from quarter to quarter, and this item was additionally affected by an accounting classification update during Q4, which Brian will cover. Our income diversification is by design, supporting our long-term double-digit revenue growth goals in a variety of market conditions. For full year 2025, this drove 10% operating revenue growth, which achieved our annual double-digit goal.
These include lower SBA gains, which resulted from the government shutdown, and lower swap and loan fees, which can be highly variable and declined from Q3. As a reminder, swap fees were unusually high in the linked quarter. We also recorded lower income from partnership investments in our other income line. This reflects a variable income stream from quarter to quarter, and this item was additionally affected by an accounting classification update during Q4, which Brian will cover. Our income diversification is by design, supporting our long-term double-digit revenue growth goals in a variety of market conditions. For full year 2025, this drove 10% operating revenue growth, which achieved our annual double-digit goal.
Speaker #3: As a reminder, swap fees were unusually high in the linked quarter. We also recorded lower income from partnership investments in our other income line.
Speaker #3: This reflects a variable income stream from quarter to quarter, and this item was additionally affected by an accounting classification update during the fourth quarter, which Brian will cover.
Speaker #3: Our income diversification is by design, supporting our long-term double-digit revenue growth goals in a variety of market conditions. For full year 2025, this drove 10% operating revenue growth, which achieved our annual double-digit goal.
Speaker #3: Paired with operating expense growth of about 6.5% for 2025, we achieved positive operating leverage for the fourth consecutive year, and by a wider margin than we would expect in future periods.
Dave Seiler: Paired with operating expense growth of about 6.5% for 2025, we achieved positive operating leverage for the fourth consecutive year, and by a wider margin than we would expect in future periods. This is also partially a function of the accounting classification update that Brian will explain. Moving to balance sheet growth, you can see the highlights on slide three of the earnings call slides and our quarterly loan and deposit growth trends on slide five. Loan balances grew about $39 million, or 5% annualized during the quarter, and $261 million, or 8%, over the same period last year. On an average basis, loans grew 8% annualized compared to the linked quarter. We experienced elevated CRE payoff activity during Q4, contributing to our more moderate pace of loan growth compared to recent periods.
Paired with operating expense growth of about 6.5% for 2025, we achieved positive operating leverage for the fourth consecutive year, and by a wider margin than we would expect in future periods. This is also partially a function of the accounting classification update that Brian will explain. Moving to balance sheet growth, you can see the highlights on slide three of the earnings call slides and our quarterly loan and deposit growth trends on slide five. Loan balances grew about $39 million, or 5% annualized during the quarter, and $261 million, or 8%, over the same period last year. On an average basis, loans grew 8% annualized compared to the linked quarter. We experienced elevated CRE payoff activity during Q4, contributing to our more moderate pace of loan growth compared to recent periods.
Speaker #3: This is also partially a function of the accounting classification update that Brian will explain. Moving to balance sheet growth, you can see the highlights on slide three of the earnings call slides, and our quarterly loan and deposit growth trends on slide five.
Speaker #3: Loan balances grew about $39 million, or 5% annualized, during the quarter, and $261 million, or 8%, over the same period last year. On an average basis, loans grew 8% annualized, compared to the linked quarter.
Speaker #3: We experienced elevated CRE payoff activity during Q4, contributing to our more moderate pace of loan growth compared to recent periods. I'll note that total payoffs in 2025 exceeded 2024 by $70 million, adjusted to full millions.
Dave Seiler: I'll note that total payoffs in 2025 exceeded 2024 levels by almost $70 million. If we normalize for the $70 million, adjusted full year 2025, total loan growth would be about 11%. We continue to see solid loan demand in our bank markets, and pipelines look strong for Q1. We would expect to see growth rebound to our typical double-digit pace in 2026. Our loan growth expectations are driven by continued positive trends in our business and the banking industry. Our largest markets in Southern Wisconsin benefit from a strong regional economy. Our clients in the manufacturing and distribution space are doing well. Commercial real estate occupancies have remained strong and steady, particularly in multifamily properties. We are also seeing signs that new development is picking up after a slight slowdown in 2024 and 2025.
I'll note that total payoffs in 2025 exceeded 2024 levels by almost $70 million. If we normalize for the $70 million, adjusted full year 2025, total loan growth would be about 11%. We continue to see solid loan demand in our bank markets, and pipelines look strong for Q1. We would expect to see growth rebound to our typical double-digit pace in 2026. Our loan growth expectations are driven by continued positive trends in our business and the banking industry. Our largest markets in Southern Wisconsin benefit from a strong regional economy. Our clients in the manufacturing and distribution space are doing well. Commercial real estate occupancies have remained strong and steady, particularly in multifamily properties. We are also seeing signs that new development is picking up after a slight slowdown in 2024 and 2025.
Speaker #3: Levels by almost 70% year-over-year. By 2025, total loan growth would be about 11%. We continue to see solid loan demand in our bank markets, and pipelines look strong for the first quarter.
Speaker #3: We would expect to see growth rebound to our typical double-digit pace in 2026. Our loan growth expectations are driven by continued positive trends in our business and the banking industry.
Speaker #3: Our largest markets in southern Wisconsin benefit from a strong regional economy. Our clients in the manufacturing and distribution space are doing well. Commercial real estate occupancies have remained strong and steady, particularly in multifamily properties.
Speaker #3: We are also seeing signs that new development is picking up after a slight slowdown in 2024 and 2025. We are seeing tangible benefits from talent acquisition.
Dave Seiler: We are seeing tangible benefits from talent acquisition. Our Kansas City market, Northeast Wisconsin market, and asset-based lending group each have new presidents in place who joined over the past 18 months. Their sales and hiring efforts led to growth in Q4, and their pipelines continue to expand. We are also seeing some nice refinance opportunities in commercial real estate that we haven't seen in a while. Lower interest rates tend to create more activity and demand, and we are seeing that bear out. Additionally, we expect 2026 changes to federal tax policy should be a tailwind for our business clients and C&I portfolio. I'll note that we are seeing secondary market activity pick up in CRE, so that may drive some ongoing payoff activity. We also expect double-digit growth in core deposits will continue in 2026.
We are seeing tangible benefits from talent acquisition. Our Kansas City market, Northeast Wisconsin market, and asset-based lending group each have new presidents in place who joined over the past 18 months. Their sales and hiring efforts led to growth in Q4, and their pipelines continue to expand. We are also seeing some nice refinance opportunities in commercial real estate that we haven't seen in a while. Lower interest rates tend to create more activity and demand, and we are seeing that bear out. Additionally, we expect 2026 changes to federal tax policy should be a tailwind for our business clients and C&I portfolio. I'll note that we are seeing secondary market activity pick up in CRE, so that may drive some ongoing payoff activity. We also expect double-digit growth in core deposits will continue in 2026.
Speaker #3: Our Kansas City market, Northeast Wisconsin market, and asset-based lending group each have new presidents in place who joined over the past 18 months. Their sales and hiring efforts led to growth in Q4, and their pipelines continue to expand.
Speaker #3: We are also seeing some nice refinance opportunities in commercial real estate that we haven't seen in a while. Lower interest rates tend to create more activity and demand, and we are seeing that bear out.
Speaker #3: Additionally, we expect 2026 changes to federal tax policy should be a tailwind for our business clients and CNI portfolio. I'll note that we are seeing secondary market activity pick up in CRE, so that may drive some ongoing payoff activity.
Speaker #3: We also expect double-digit growth in core deposits will continue in 2026. Fourth-quarter core deposit balances were up 12% from both the linked and prior-year quarters.
Dave Seiler: Fourth quarter core deposit balances were up 12% from both the linked and prior year quarters. The majority of growth came from core interest-bearing, and money market client accounts, and it more than offset runoff of higher cost CDs and wholesale deposits, bringing support to our net interest margin. On to asset quality. Outside of the new and isolated nonaccrual relationship, the balance of our portfolio continues to perform as expected, and we have no areas of particular concern. The transportation loans in our small-ticket equipment finance portfolio continue to shrink, and our CRE markets remain strong. You can see our performing portfolio on slide 11 of the earnings supplement. Net charge-offs totaled $2.5 million and were primarily from previously reserved equipment finance loans. Now I'll hand it off to Brian.
Fourth quarter core deposit balances were up 12% from both the linked and prior year quarters. The majority of growth came from core interest-bearing, and money market client accounts, and it more than offset runoff of higher cost CDs and wholesale deposits, bringing support to our net interest margin. On to asset quality. Outside of the new and isolated nonaccrual relationship, the balance of our portfolio continues to perform as expected, and we have no areas of particular concern. The transportation loans in our small-ticket equipment finance portfolio continue to shrink, and our CRE markets remain strong. You can see our performing portfolio on slide 11 of the earnings supplement. Net charge-offs totaled $2.5 million and were primarily from previously reserved equipment finance loans. Now I'll hand it off to Brian.
Speaker #3: The majority of growth came from core interest-bearing and money market client accounts, and more than offset runoff of higher-cost CDs and wholesale deposits.
Speaker #3: Bringing support to our net interest margin. On asset quality, outside of the new and isolated non-accrual relationship, the balance of our portfolio continues to perform as expected, and we have no areas of particular concern.
Speaker #3: The transportation loans in our small-ticket equipment finance portfolio continue to shrink, and our CRE markets remain strong. You can see our performing portfolio on slide 11 of the earnings supplement.
Speaker #3: Net charge-offs totaled $2.5 million and were primarily from previously reserved equipment finance loans. Now I'll hand it off to Brian.
Speaker #2: Thanks, Dave. Fourth quarter net interest margin declined by 15 basis points to 3.53%, reflecting 10 basis points of compression from the non-accrual interest reversal on the downgraded CRE non-performing loan.
Brian Spielmann: Thanks, Dave. Fourth quarter net interest margin declined by 15 basis points to 3.53%, reflecting 10 basis points of compression from the nonaccrual interest reversal on the downgraded CRE non-performing loan. Excluding this, net interest margin would have measured 3.63%. Even with the increase in non-performing loans, our NIM target range remains 3.60% to 3.65%. You can see a breakdown of this on slide 7 of our earnings supplement. On a full year basis, net interest margin remained relatively stable, declining 2 basis points from 3.66% in 2024 to 3.64% in 2025. We are pleased with our ability to maintain a strong and stable margin, and this again shows the value of our risk mitigating match funding strategy. Looking ahead, our target range for net interest margin is unchanged.
Brian Spielmann: Thanks, Dave. Fourth quarter net interest margin declined by 15 basis points to 3.53%, reflecting 10 basis points of compression from the nonaccrual interest reversal on the downgraded CRE non-performing loan. Excluding this, net interest margin would have measured 3.63%. Even with the increase in non-performing loans, our NIM target range remains 3.60% to 3.65%. You can see a breakdown of this on slide 7 of our earnings supplement. On a full year basis, net interest margin remained relatively stable, declining 2 basis points from 3.66% in 2024 to 3.64% in 2025. We are pleased with our ability to maintain a strong and stable margin, and this again shows the value of our risk mitigating match funding strategy. Looking ahead, our target range for net interest margin is unchanged.
Speaker #2: Excluding this, net interest margin would have measured 3.63. Even with the increase in non-performing loans, our NIM target range remains 3.60 to 3.65. You can see a breakdown of this on slide seven of our earnings supplement.
Speaker #2: On a full-year basis, net interest margin remained relatively stable, declining two basis points from 3.66% in 2024 to 3.64% in 2025. We are pleased with our ability to maintain a strong and stable margin, and this again shows the value of our risk-mitigating match funding strategy.
Speaker #2: Looking ahead, our target range for net interest margin is unchanged. Our current outlook supports this, in tandem with double-digit annual loan, deposit, and revenue growth.
Brian Spielmann: Our current outlook supports this in tandem with double-digit annual loan, deposit, and revenue growth. Our balance sheet is essentially interest rate neutral, so the timing of any potential rate changes is not as consequential to our margin as it may be for others. Thus, our continued 10% targeted growth in net interest income is not predicated on additional interest rate cuts or hikes. While deposit pricing pressure has eased modestly since the Fed began cutting, the cost of acquiring a new deposit client remains extremely competitive, but we do not believe this is unique to First Business Bank. On the asset side, we continue to shift our loan mix toward higher-yielding C&I relationships, which also typically come with lower-cost deposits. See slide 6 of the earnings supplement. Our conventional and specialty lending teams are seeing strong pipeline activity.
Our current outlook supports this in tandem with double-digit annual loan, deposit, and revenue growth. Our balance sheet is essentially interest rate neutral, so the timing of any potential rate changes is not as consequential to our margin as it may be for others. Thus, our continued 10% targeted growth in net interest income is not predicated on additional interest rate cuts or hikes. While deposit pricing pressure has eased modestly since the Fed began cutting, the cost of acquiring a new deposit client remains extremely competitive, but we do not believe this is unique to First Business Bank. On the asset side, we continue to shift our loan mix toward higher-yielding C&I relationships, which also typically come with lower-cost deposits. See slide 6 of the earnings supplement. Our conventional and specialty lending teams are seeing strong pipeline activity.
Speaker #2: Our balance sheet is essentially interest rate neutral, so the timing of any potential rate changes is not as consequential to our margin as it may be for others.
Speaker #2: Thus, our continued 10% targeted growth in net interest income is not predicated on additional interest rate cuts or hikes. While deposit pricing pressure has eased modestly since the Fed began cutting, the cost of acquiring a new deposit client remains extremely competitive.
Speaker #2: But we do not believe this is unique to First Business Bank. On the asset side, we continue to shift our loan mix toward higher-yielding C&I relationships, which also typically come with lower-cost deposits.
Speaker #2: See slide six of the earnings supplement. Our conventional and specialty lending teams are seeing strong pipeline activity. As CNI loans make up a larger share of our portfolio, we expect average loan spreads to improve, helping offset continued pressure on the deposit pricing.
Brian Spielmann: As C&I loans make up a larger share of our portfolio, we expect average loan spreads to improve, helping offset continued pressure on deposit pricing. On non-interest income and expense, we had an accounting classification change of note during the quarter. We have historically recorded revenue earned from our equity partnership investments and other non-interest income, while any expenses related to these investments were recorded in other expense. In the fourth quarter, we reclassified the expenses related to these investments to net against the related revenue and other fee income. This now presents the net benefit of all of our partnership investments, and we will continue this method on a go-forward basis. Specifically, during the fourth quarter, we reclassified $904,000 out of non-interest expense and into other non-interest income to net against the related revenue.
As C&I loans make up a larger share of our portfolio, we expect average loan spreads to improve, helping offset continued pressure on deposit pricing. On non-interest income and expense, we had an accounting classification change of note during the quarter. We have historically recorded revenue earned from our equity partnership investments and other non-interest income, while any expenses related to these investments were recorded in other expense. In the fourth quarter, we reclassified the expenses related to these investments to net against the related revenue and other fee income. This now presents the net benefit of all of our partnership investments, and we will continue this method on a go-forward basis. Specifically, during the fourth quarter, we reclassified $904,000 out of non-interest expense and into other non-interest income to net against the related revenue.
Speaker #2: On non-interest income and expense, we had an accounting classification change of note during the quarter. We have historically recorded revenue earned from our equity partnership investments in other non-interest income.
Speaker #2: While any expenses related to these investments were recorded in other expense, in the fourth quarter, we reclassified the expenses related to these investments to net against the related revenue and other fee income.
Speaker #2: This now presents the net benefit of all of our partnership investments, and we will continue this method on a go-forward basis. Specifically, during the fourth quarter, we reclassified $904,000 out of non-interest expense and into other non-interest income to net against the related revenue.
Speaker #2: This expense represents the Bank's share of costs for the first nine months of 2025 related to the latest round of limited partnership investments. Excluding this reclassification, income from partnership investments decreased $383,000 to $477,000 during the fourth quarter.
Brian Spielmann: This expense represents the bank's share of costs for the first 9 months of 2025 related to the latest round of limited partnership investments. Excluding this reclassification, income from partnership investments decreased $383,000 to $477,000 during Q4. I'll also note that when we exclude the $904,000 reclass from other non-interest income for Q4, the adjusted non-interest income number approximates a good starting point for quarterly fee income in 2026, with the expectation of 10% growth for the full year. Recall also that our Q3 results included $770,000 in non-recurring fee income items.
This expense represents the bank's share of costs for the first 9 months of 2025 related to the latest round of limited partnership investments. Excluding this reclassification, income from partnership investments decreased $383,000 to $477,000 during Q4. I'll also note that when we exclude the $904,000 reclass from other non-interest income for Q4, the adjusted non-interest income number approximates a good starting point for quarterly fee income in 2026, with the expectation of 10% growth for the full year. Recall also that our Q3 results included $770,000 in non-recurring fee income items.
Speaker #2: I'll also note that when we exclude the $904,000 reclass from other non-interest income for Q4, the adjusted non-interest income number approximates a good starting point for quarterly fee income in 2026, with the expectation of 10% growth for the full year.
Speaker #2: Recall also that our third quarter results included $770,000 in non-recurring fee income items. These included a $537,000 fee related to an exit of an accounts receivable finance credit, and $234,000 in BOLI insurance proceeds during that quarter.
Brian Spielmann: These included a $537,000 fee related to an exit of an accounts receivable finance credit and $234,000 in BOLI insurance proceeds during that quarter. Moving to expenses, which were well contained in Q4. Compensation expense decreased by about $291,000, mainly due to a decrease in annual cash bonus and 401(k) accruals. Looking ahead, we continue to have a higher level of open positions we are actively working to fill, and we are always looking for opportunistic hires. Compounded with increase in benefit costs, we expect 2026 compensation levels to grow a bit more than in 2025. I'll reiterate that our primary expense management objective is achieving annual positive operating leverage. That is, annual expense growth at some level, modestly below our targeted level of 10% annual revenue growth.
These included a $537,000 fee related to an exit of an accounts receivable finance credit and $234,000 in BOLI insurance proceeds during that quarter. Moving to expenses, which were well contained in Q4. Compensation expense decreased by about $291,000, mainly due to a decrease in annual cash bonus and 401(k) accruals. Looking ahead, we continue to have a higher level of open positions we are actively working to fill, and we are always looking for opportunistic hires. Compounded with increase in benefit costs, we expect 2026 compensation levels to grow a bit more than in 2025. I'll reiterate that our primary expense management objective is achieving annual positive operating leverage. That is, annual expense growth at some level, modestly below our targeted level of 10% annual revenue growth.
Speaker #2: Moving to expenses, which were well contained in Q4. Compensation expense decreased by about $291,000, mainly due to a decrease in annual cash bonus and 401(k) accruals.
Speaker #2: Looking ahead, we continue to have a higher level of open positions we are actively working to fill, and we are always looking for opportunistic hires.
Speaker #2: Compounded with the increase in benefit costs, we expect 2026 compensation levels to grow a bit more than in 2025. I'll reiterate that our primary expense management objective is achieving annual positive operating leverage.
Speaker #2: That is, annual expense growth at some level modestly below our targeted level of 10% annual revenue growth. Our effective tax rate varies modestly quarter to quarter.
Brian Spielmann: Our effective tax rate varies modestly quarter to quarter, in part due to the timing of tax benefits received from our investment in limited partnerships. Our 2025 effective tax rate of 16.8% was within our expected annual range of 16% to 18%, and we continue to believe this range is appropriate looking forward. Finally, our strong earnings have continued to generate excess capital to facilitate organic growth. Our increased dividend boosts shareholder returns, and we continue to believe reinvestment in the growth of the company typically provides the best return for our shareholders. We do, of course, evaluate all capital management tools at our disposal to maximize shareholder returns. And now I'll hand it back over to Corey.
Our effective tax rate varies modestly quarter to quarter, in part due to the timing of tax benefits received from our investment in limited partnerships. Our 2025 effective tax rate of 16.8% was within our expected annual range of 16% to 18%, and we continue to believe this range is appropriate looking forward. Finally, our strong earnings have continued to generate excess capital to facilitate organic growth. Our increased dividend boosts shareholder returns, and we continue to believe reinvestment in the growth of the company typically provides the best return for our shareholders. We do, of course, evaluate all capital management tools at our disposal to maximize shareholder returns. And now I'll hand it back over to Corey.
Speaker #2: In part, due to the timing of tax benefits received from our investment in limited partnerships. Our 2025 effective tax rate of 16.8% was within our expected annual range of 16% to 18%, and we continue to believe this range is appropriate looking forward.
Speaker #2: Finally, our strong earnings have continued to generate excess capital to facilitate organic growth. Our increased dividend boosts shareholder returns, and we continue to believe reinvestment in the growth of the company typically provides the best return for our shareholders.
Speaker #2: We do, of course, evaluate all capital management tools at our disposal to maximize shareholder returns. And now I'll hand it back over to Corey.
Speaker #1: Thank you, Brian. Our 2025 performance toward our long-term strategic plan goals was excellent and can be seen on slide 15. These outcomes demonstrate the value of consistency and execution.
Corey Chambas: Thank you, Brian. Our 2025 performance toward our long-term strategic plan goals was excellent and can be seen on slide 15. These outcomes demonstrate the value of consistency and execution. We continue to achieve our above-industry growth by investing in talent, prioritizing profitable long-term client relationships, investing in technology to build out efficient, scalable systems, and never losing sight of the criticality of prudent underwriting. We are very optimistic about the future and believe our focus, discipline, and consistency will continue to serve First Business Bank and our shareholders well. I want to thank you for taking time to join us today. We're happy to take your questions now.
Corey Chambas: Thank you, Brian. Our 2025 performance toward our long-term strategic plan goals was excellent and can be seen on slide 15. These outcomes demonstrate the value of consistency and execution. We continue to achieve our above-industry growth by investing in talent, prioritizing profitable long-term client relationships, investing in technology to build out efficient, scalable systems, and never losing sight of the criticality of prudent underwriting. We are very optimistic about the future and believe our focus, discipline, and consistency will continue to serve First Business Bank and our shareholders well. I want to thank you for taking time to join us today. We're happy to take your questions now.
Speaker #1: We continue to achieve our above-industry growth by investing in talent, prioritizing profitable long-term client relationships, investing in technology to build out efficient, scalable systems, and never losing sight of the criticality of prudent underwriting.
Speaker #1: We are very optimistic about the future and believe our focus, discipline, and consistency will continue to serve First Business Bank and our shareholders well.
Speaker #1: I want to thank you for taking the time to join us today. We're happy to take your questions.
Speaker #1: now.
Speaker #2: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star, followed by the one, on your touch-tone phone.
Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by the two. And if you are using a speakerphone, please lift the handset before pressing any keys. And the first question comes from Daniel Tamayo at Raymond James. Please go ahead.
Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by the two. And if you are using a speakerphone, please lift the handset before pressing any keys. And the first question comes from Daniel Tamayo at Raymond James. Please go ahead.
Speaker #2: You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by the number two.
Speaker #2: And if you are using a speakerphone, please lift the handset before pressing any keys. And the first question comes from Daniel Tameo at Raymond James.
Speaker #2: Please go
Speaker #2: ahead. Thank
Speaker #3: Good afternoon, Corey, Dave, Brian.
Daniel Tamayo: Thank you. Good afternoon, Corey, Dave, Brian.
Daniel Tamayo: Thank you. Good afternoon, Corey, Dave, Brian.
Corey Chambas: Hey, Danny.
Speaker #4: Hey, Danny.
Corey Chambas: Hey, Danny.
Speaker #3: Maybe just starting on that CRE relationship that drove the increase in the MPAs. I appreciate the details that you gave in the prepared remarks, but maybe just digging a little deeper there.
Daniel Tamayo: Maybe, maybe just starting on that, the CRE relationship that drove the increase in the NPAs. Appreciate the details that you gave in the prepared remarks, but, maybe just digging a little deeper there. The, the timing of the appraisal, that you, referenced, just curious when that was done, and then if you have the current LTV and, debt service coverage on, on the, the relationship as a whole.
Daniel Tamayo: Maybe, maybe just starting on that, the CRE relationship that drove the increase in the NPAs. Appreciate the details that you gave in the prepared remarks, but, maybe just digging a little deeper there. The, the timing of the appraisal, that you, referenced, just curious when that was done, and then if you have the current LTV and, debt service coverage on, on the, the relationship as a whole.
Speaker #3: The timing of the appraisal that you referenced—just curious when that was done, and then if you have the current LTV and debt service coverage on the relationship as a whole.
Corey Chambas: Okay. A couple of questions in there. Let me see if I can get to for you, Danny. Most of the appraisals, we just got several in just now, at the end of the year. A couple other ones are a little bit older. You know, it's mainly land for development, as Dave said, and those are the ones where we have fresher appraisals, particularly any of significance in terms of size. You know, this goes across 7 properties. So the large properties, we've got fresh appraisals on. The other question that you asked was the loan-to-value. The properties are all cross-collateralized, so overall loan-to-value across those 7 properties is 72% on the LTV.
Speaker #4: Okay. A couple of questions in there. Let me see how much of that I can get at for you, Danny. Most of the appraisals—we just got several in just now.
Corey Chambas: Okay. A couple of questions in there. Let me see if I can get to for you, Danny. Most of the appraisals, we just got several in just now, at the end of the year. A couple other ones are a little bit older. You know, it's mainly land for development, as Dave said, and those are the ones where we have fresher appraisals, particularly any of significance in terms of size. You know, this goes across 7 properties. So the large properties, we've got fresh appraisals on. The other question that you asked was the loan-to-value. The properties are all cross-collateralized, so overall loan-to-value across those 7 properties is 72% on the LTV.
Speaker #4: At the end of the year, a couple of other ones are a little bit older. It's mainly land for development, as Dave said. And those are the ones where we have fresher appraisals.
Speaker #4: Particularly, any of significance in terms of size—this goes across seven properties—so the large properties we've got fresh appraisals on. And the other question that you asked was the loan-to-value.
Speaker #4: The properties are all cross-collateralized, so the overall loan-to-value across those seven properties is 72%. On the LTV, I don't have a cash flow. Again, because the biggest part of this is land—so approximately two-thirds or three-quarters of it is land—because there are a couple of properties that are already developed, mainly for multifamily.
Corey Chambas: I don't have a cash flow, again, because the biggest part of this is land. So approximately, two-thirds or three-quarters of it is land, because there's a couple properties that are already developed, mainly, you know, for multifamily, I think, as we mentioned, in terms of for development, and then there's a couple multifamily properties in there as well.
I don't have a cash flow, again, because the biggest part of this is land. So approximately, two-thirds or three-quarters of it is land, because there's a couple properties that are already developed, mainly, you know, for multifamily, I think, as we mentioned, in terms of for development, and then there's a couple multifamily properties in there as well.
Speaker #4: I think, as we mentioned, in terms of for development, and then there's a couple of multifamily properties in there as well.
Speaker #3: Okay, that's great. And then, as it relates to credit costs—I mean, credit expectations in the coming year—you guys have had a pretty good run here.
Daniel Tamayo: Okay, that's great. And then as it relates to credit cost—I mean, you know, credit expectations in the coming year, you guys have had a pretty good run here. There was obviously some charge-offs related to this loan in the fourth quarter, but how should we think about, you know, what needs to flow through now and then, in terms of charge-offs and then, and how that might move the NPLs as we work through the year?
Daniel Tamayo: Okay, that's great. And then as it relates to credit cost—I mean, you know, credit expectations in the coming year, you guys have had a pretty good run here. There was obviously some charge-offs related to this loan in the fourth quarter, but how should we think about, you know, what needs to flow through now and then, in terms of charge-offs and then, and how that might move the NPLs as we work through the year?
Speaker #3: There were obviously some charge-offs related to this loan in the fourth quarter, but how should we think about what needs to flow through now and then in terms of charge-offs and how that might move the MPLs as we work through the year?
Speaker #4: Sure. Just to clarify, the charge-offs that we had for the quarter were not related to this. So, based on those appraisals, we didn't have to take any—even any reserves on this.
Corey Chambas: Sure. Just to clarify, the charge-offs that we had for the quarter were not related to this. So based on those appraisals, we didn't have to take any, even any reserves on this. So no specific reserves, no charge-offs. Charge-offs that we had, really for the quarter and for the year, were pretty much all- almost all related to, the equipment finance, small ticket equipment finance, where we had that transportation portfolio that we've been grinding through. So a lot of those were, already reserved for. Methodology there, just kind of going back in time, is time-based on delinquency on that small ticket, portfolio.
Corey Chambas: Sure. Just to clarify, the charge-offs that we had for the quarter were not related to this. So based on those appraisals, we didn't have to take any, even any reserves on this. So no specific reserves, no charge-offs. Charge-offs that we had, really for the quarter and for the year, were pretty much all- almost all related to, the equipment finance, small ticket equipment finance, where we had that transportation portfolio that we've been grinding through. So a lot of those were, already reserved for. Methodology there, just kind of going back in time, is time-based on delinquency on that small ticket, portfolio.
Speaker #4: So no specific reserves, no charge-offs. Charge-offs that we had really for the quarter and for the year were pretty much all, almost all, related to the equipment finance, the small-ticket equipment finance, where we had that transportation portfolio.
Speaker #4: That we've been grinding through, so a lot of those were already reserved for methodology there. Just kind of going back in time, it is time-based on delinquency on that small ticket.
Speaker #4: Portfolio and so things that are going to be charged off in that portfolio get reserved in advance as they go past due, and then as time expires on the clock, so to speak, then we charge those off.
Corey Chambas: And so things that are gonna be charged off in that portfolio get reserved in advance, as they go past due, and then, as time expires on the clock, so to speak, then we charge those off. So that's where all the charge-offs came through for the quarter. So on this one, no credit costs at this point. You know, we think we're in pretty good shape here based on the appraisals that we have. It's real estate, so that takes some time to work through, but it's a pretty straightforward process. We're still working with the borrower on multiple options of what we can do on this one. But ultimately, if, you know, things don't work out on real estate, as you know, there is a foreclosure process that's pretty straightforward.
And so things that are gonna be charged off in that portfolio get reserved in advance, as they go past due, and then, as time expires on the clock, so to speak, then we charge those off. So that's where all the charge-offs came through for the quarter. So on this one, no credit costs at this point. You know, we think we're in pretty good shape here based on the appraisals that we have. It's real estate, so that takes some time to work through, but it's a pretty straightforward process. We're still working with the borrower on multiple options of what we can do on this one. But ultimately, if, you know, things don't work out on real estate, as you know, there is a foreclosure process that's pretty straightforward.
Speaker #4: So that's where all the charge-offs came through for the quarter. So on this one, no credit costs at this point. We think we're in pretty good shape here based on the appraisals that we have.
Speaker #4: It's real estate, so that takes some time to work through, but it's a pretty straightforward process. We're still working with the borrower on multiple options for what we can do on this one.
Speaker #4: But ultimately, if things don't work out on real estate, as you know, there is a foreclosure process that's pretty straightforward. It does take some time to go through, but is pretty—
Corey Chambas: Does take some time to go through, but is pretty straightforward.
Does take some time to go through, but is pretty straightforward.
Speaker #4: straightforward. Okay.
Daniel Tamayo: Okay, that's great. Thanks for that color. And then maybe just one on the fee income side. Just a clarification on your guidance, Brian. The 10% growth for overall fees, so we're pulling out the $537,000 reclass, and then the $234,000 BOLI claim, and then growing off of kind of that number into the... I guess the best way to think of it, like, annualize it or just go fourth quarter to fourth quarter, that's the way we should be thinking about it?
Daniel Tamayo: Okay, that's great. Thanks for that color. And then maybe just one on the fee income side. Just a clarification on your guidance, Brian. The 10% growth for overall fees, so we're pulling out the $537,000 reclass, and then the $234,000 BOLI claim, and then growing off of kind of that number into the... I guess the best way to think of it, like, annualize it or just go fourth quarter to fourth quarter, that's the way we should be thinking about it?
Speaker #3: That's great. Thanks for that, Caller. And then maybe just one on the fee-income side. Just a clarification on your guidance, Brian. The 10% growth for overall fees, so we're pulling out the $530,700 reclass and then the $234,000 BOLI claim, and then growing off of kind of that number into the— I guess, is the best way to think of it to annualize it, or just go fourth quarter to fourth quarter?
Speaker #3: That's the way we should be thinking about it.
Speaker #4: Yeah, and when you're excluding those two out, you're talking about full year, right? So, full year '25, exclude those two items, and then grow off of that.
Corey Chambas: Yeah, when you're excluding those two items, you're talking about full year, right? So full year, 25, exclude those two items-
Brian Spielmann: Yeah, when you're excluding those two items, you're talking about full year, right? So full year, 25, exclude those two items-
Daniel Tamayo: Right.
Daniel Tamayo: Right.
Corey Chambas: - and then grow off of that. Yep. Yep, and full year, 10% expectations there.
Brian Spielmann: - and then grow off of that. Yep. Yep, and full year, 10% expectations there.
Speaker #4: Yep. Yep. And full year, 10% expectations.
Speaker #4: There.
Speaker #3: Okay. And that
Daniel Tamayo: Okay. And that includes a rebound in SBA gains, I'm assuming, off of the fourth quarter level to something much more meaningful?
Daniel Tamayo: Okay. And that includes a rebound in SBA gains, I'm assuming, off of the fourth quarter level to something much more meaningful?
Speaker #3: Includes a rebound in SBA gains, I'm assuming, off of the fourth quarter level to something much more meaningful.
Speaker #4: Yeah. Correct.
Corey Chambas: Yes. Correct.
Brian Spielmann: Yes. Correct.
Speaker #3: Okay. All right. I will step back. Thanks for all the calls.
Daniel Tamayo: Okay. All right. I will step back. Thanks for all the color, guys.
Daniel Tamayo: Okay. All right. I will step back. Thanks for all the color, guys.
Speaker #3: guys. Yep.
Corey Chambas: Yep. Thank you.
Corey Chambas: Yep. Thank you.
Speaker #4: Thank
Speaker #4: you. Thank you.
Operator: Thank you. The next question comes from Jeff Rulis from D.A. Davidson. Please go ahead.
Operator: Thank you. The next question comes from Jeff Rulis from D.A. Davidson. Please go ahead.
Speaker #1: The next question comes from Jeff Rueles from D.A. Davidson. Please go ahead.
Speaker #1: ahead. Yeah.
Speaker #5: Thanks. Maybe just to clarify on the last one—so, a $33 million base? Is that fair on—
Brian Spielmann: Thanks. Maybe just to clarify on the last one, so like a $33 million base, is that fair on fee income?
Jeff Rulis: Thanks. Maybe just to clarify on the last one, so like a $33 million base, is that fair on fee income?
Speaker #5: fee-income? For
Corey Chambas: For 26?
Corey Chambas: For 26?
Brian Spielmann: The base to grow off of 10%.
Speaker #5: The base to grow off of in '26? Ten percent.
Corey Chambas: Yes, that's a, that's a good start. Yep.
Corey Chambas: Yes, that's a, that's a good start. Yep.
Speaker #4: good start. Yep. Okay.
Brian Spielmann: Okay. Got it. Thanks. And back to the larger problem loan. It sounds like the question is the timeline of resolution. It sounds like it might be a bit, but maybe just checking in on your expectations over the balance of this year or beyond.
Jeff Rulis: Okay. Got it. Thanks. And back to the larger problem loan. It sounds like the question is the timeline of resolution. It sounds like it might be a bit, but maybe just checking in on your expectations over the balance of this year or beyond.
Speaker #5: Got it, thanks. And back to the larger problem loan—it sounds like the question is the timeline of resolution. It sounds like it might be a bit, but maybe just checking in on your expectations over the balance of this year or beyond.
Corey Chambas: Yeah, it does take some time, if you kind of go all the way to the end of a foreclosure, getting the property, sheriff sale, all that process that you know of. But we do think because there are multiple parts, pieces of real estate here, that there can be shorter-term progress, potentially, with some pieces of this, even in the, you know, very near term. And kind of chipping away at it through the year and, you know, potentially, you know, if everything went well, you know, it could be sooner than later, but likely toward the end of the year for full resolution on everything would be best guess, and really is a guess, because there's just a lot of variables on timing and what might happen.
Speaker #4: Yeah, it does take some time. If you kind of go all the way to the end of a foreclosure—getting the property, sheriff's sale, all that process that you know of.
Corey Chambas: Yeah, it does take some time, if you kind of go all the way to the end of a foreclosure, getting the property, sheriff sale, all that process that you know of. But we do think because there are multiple parts, pieces of real estate here, that there can be shorter-term progress, potentially, with some pieces of this, even in the, you know, very near term. And kind of chipping away at it through the year and, you know, potentially, you know, if everything went well, you know, it could be sooner than later, but likely toward the end of the year for full resolution on everything would be best guess, and really is a guess, because there's just a lot of variables on timing and what might happen.
Speaker #4: But we do think, because there are multiple pieces of real estate here, that there can be shorter-term progress, potentially with some pieces of this, even in the very near term.
Speaker #4: And kind of chipping away at it through the year, and potentially, if everything went well, it could be sooner than later. But likely, toward the end of the year for full resolution on everything would be my best guess—and it really is a guess—because there's just a lot of variables on timing and what might happen.
Speaker #4: happen. Yeah.
Brian Spielmann: Yeah, yeah, that's good detail. So we could see some smaller wins. It doesn't—it's not a, a full, all-in kind of recover or not. It's, it's a, you could see sales and things that minimize the NPAs in the—in short... Well, over the course of the year, we could see that come in.
Jeff Rulis: Yeah, yeah, that's good detail. So we could see some smaller wins. It doesn't—it's not a, a full, all-in kind of recover or not. It's, it's a, you could see sales and things that minimize the NPAs in the—in short... Well, over the course of the year, we could see that come in.
Speaker #5: Yeah, that's good detail. So, we could see some smaller wins—that it's not a full, all-in kind of recovery or not. You could see sales and things that minimize the NPAs in the short—well, over the course of the year, we could see that come in.
Speaker #4: Correct. Over the course of the quarters, I wouldn't be surprised if there was something happening every quarter over the course of the year in terms of making progress on the different—
Corey Chambas: Correct.
Corey Chambas: Correct.
Brian Spielmann: Correct.
Brian Spielmann: Correct.
Corey Chambas: Over the course of the quarters-
Corey Chambas: Over the course of the quarters-
Brian Spielmann: Okay.
Corey Chambas: I wouldn't be surprised if there was something happening every quarter over the course of the year in terms of making progress-
Brian Spielmann: Okay.
Corey Chambas: I wouldn't be surprised if there was something happening every quarter over the course of the year in terms of making progress-
Brian Spielmann: Got it
Jeff Rulis: Got it
Corey Chambas: ... on the different pieces.
Corey Chambas: ... on the different pieces.
Speaker #4: pieces. Yeah.
Brian Spielmann: Thank you. Another quick one on the equipment finance. Could you just remind us of the balance there, what that maybe is at the year-end and what that was the prior year and expectations for, do you keep that stable, keep shrinking it?
Speaker #5: Thank you. Another quick one on the equipment finance. Could you just remind us of the balance there—what that maybe is at the year-end, and what that was the prior year—and expectations for, do you keep that stable?
Jeff Rulis: Thank you. Another quick one on the equipment finance. Could you just remind us of the balance there, what that maybe is at the year-end and what that was the prior year and expectations for, do you keep that stable, keep shrinking it?
Speaker #5: Keep shrinking
Speaker #5: Keep shrinking it? Right.
Speaker #4: So that's the transportation segment of that equipment finance portfolio. I believe we're at $21 million at the end of—
Corey Chambas: Right. So that's the transportation segment of that Equipment Finance portfolio. I believe we're at 21.
Corey Chambas: Right. So that's the transportation segment of that Equipment Finance portfolio. I believe we're at 21.
Speaker #5: 21 last quarter.
Brian Spielmann: 21 last quarter.
Brian Spielmann: 21 last quarter.
Corey Chambas: Million at the end of the quarter. I think that went down about $20 million over the course of the year. Going back, when we initially started having issues with that, it was $61 million. So we're down to 20. Remember, these are 5-year deals, generally, 5-year loans. So I believe we're getting to the point that the people who have made it through the really tough transportation economy this far, you know, are much more likely to make it going forward.
Corey Chambas: Million at the end of the quarter. I think that went down about $20 million over the course of the year. Going back, when we initially started having issues with that, it was $61 million. So we're down to 20. Remember, these are 5-year deals, generally, 5-year loans. So I believe we're getting to the point that the people who have made it through the really tough transportation economy this far, you know, are much more likely to make it going forward.
Speaker #4: the quarter. And I think that went down about $20 million over the course of the year, going back to when we initially started having issues with that.
Speaker #4: It was $61 million. So we're down to $20 million. Remember, these are five-year deals—generally, five-year loans. So I believe we're getting to the point that the people who have made it through the really tough transportation economy this far are much more likely to make it going forward.
Speaker #5: Gotcha. Thank you. And one last one, if I could, Corey, looking at slide 15, it's pretty remarkable progress on those goals, if not achieved them.
Brian Spielmann: Gotcha. Thank you. And one last one, if I could, Corey. Looking at slide 15, a pretty remarkable progress on those goals, if not achieved them. And you've had some wind at your back, but I guess just strategically, do you revisit those a couple of years early? I mean, you know, every bank, I guess, would hope to just maintain that, but any thoughts on how you look at those goals, or it takes a lot of work just to stay there? Thanks.
Jeff Rulis: Gotcha. Thank you. And one last one, if I could, Corey. Looking at slide 15, a pretty remarkable progress on those goals, if not achieved them. And you've had some wind at your back, but I guess just strategically, do you revisit those a couple of years early? I mean, you know, every bank, I guess, would hope to just maintain that, but any thoughts on how you look at those goals, or it takes a lot of work just to stay there? Thanks.
Speaker #5: And you've had some wind at your back, but I guess just strategically, do you revisit those a couple of years early? I mean, every bank, I guess, would hope to just maintain that, but any thoughts on how you look at those goals, or—it takes a lot of work just to stay there?
Speaker #5: Thanks.
Speaker #4: Yeah, good point. We have made tremendous progress, because a few of these things that were at all times we wanted to do are particularly things like the employee engagement score, our net promoter score—those were forever and always.
Corey Chambas: Yeah, good, good point. We have made tremendous progress because, you know, a few of these things that were at all times, you know, we want to do are particularly things like the employee engagement score, our net promoter score. Those were forever and always. But a few of these were the end of the plan in 2028 to hit the ROE goal on that, to hit the efficiency ratio goal. And as you alluded to, we hit that ROE goal of over 15% in 2024 and 2025. We're below 60 on the efficiency ratio in 2025. So, okay, now what are you going to do? So for us, I would say, I don't think we'll recast those, but, you know, given that we hit that ROE goal, you know, we'd like to stay there.
Corey Chambas: Yeah, good, good point. We have made tremendous progress because, you know, a few of these things that were at all times, you know, we want to do are particularly things like the employee engagement score, our net promoter score. Those were forever and always. But a few of these were the end of the plan in 2028 to hit the ROE goal on that, to hit the efficiency ratio goal. And as you alluded to, we hit that ROE goal of over 15% in 2024 and 2025. We're below 60 on the efficiency ratio in 2025. So, okay, now what are you going to do? So for us, I would say, I don't think we'll recast those, but, you know, given that we hit that ROE goal, you know, we'd like to stay there.
Speaker #4: But a few of these were the end of the plan in 2028 to hit the ROE goal on that, to hit the efficiency ratio goal.
Speaker #4: And as you alluded to, we hit that ROE goal of over 15% in '24 and '25, and we're below 60 on the efficiency ratio in '25.
Speaker #4: So, okay, now what are you going to do? So, for us, I would say I don't think we'll recast those, but given that we hit that ROE goal, we'd like to stay there.
Speaker #4: That's pretty dang good. So if we're in the ballpark of that over these next three years, we would consider that good. And efficiency ratio is one where it's kind of like your golf handicap.
Corey Chambas: That's pretty dang good. So if we're in the ballpark of that, over these next three years, we would consider that good. And efficiency ratio is one where it's kind of like your golf handicap. You want to just keep bringing that thing down. And our ability to, you know, also like a golf handicap, the lower you go, the harder it is to keep improving, but we would expect to continue to improve on that. We won't recast our goal to be different than to get below something lower than 60 by 2028. But at this point, I would say our goal will be to try to make improvement on that every single year going forward. And that's kind of our, you know, we've talked a lot.
That's pretty dang good. So if we're in the ballpark of that, over these next three years, we would consider that good. And efficiency ratio is one where it's kind of like your golf handicap. You want to just keep bringing that thing down. And our ability to, you know, also like a golf handicap, the lower you go, the harder it is to keep improving, but we would expect to continue to improve on that. We won't recast our goal to be different than to get below something lower than 60 by 2028. But at this point, I would say our goal will be to try to make improvement on that every single year going forward. And that's kind of our, you know, we've talked a lot.
Speaker #4: You want to just keep bringing that thing down. And our ability to—also, like a golf handicap, the lower you go, the harder it is to keep improving.
Speaker #4: But we would expect to continue to improve on that. We won't recast our goal to be different than to get below something lower than 60 by 2028, but at this point, I would say our goal will be to try to make improvement on that every single year, going forward.
Speaker #4: And that’s kind of our—we’ve talked a lot. It’s a little different than standard bank speak, where everything’s looking at efficiency ratio. We really look at operating leverage.
Corey Chambas: It's a little different than standard bank speak, where everything's like looking at Efficiency Ratio. We really look at Operating Leverage. So we're going to want to... You know, we had really big positive Operating Leverage this year, with expenses growing significantly less than the growth rate in revenues, but we'll expect to continue to have positive Operating Leverage every year. That's kind of how we set our goal, our budgets every year. It's a key measure that we look at overall and for our different business units and lines and things like that. So we would expect to continue to make progress on that Efficiency Ratio.
It's a little different than standard bank speak, where everything's like looking at Efficiency Ratio. We really look at Operating Leverage. So we're going to want to... You know, we had really big positive Operating Leverage this year, with expenses growing significantly less than the growth rate in revenues, but we'll expect to continue to have positive Operating Leverage every year. That's kind of how we set our goal, our budgets every year. It's a key measure that we look at overall and for our different business units and lines and things like that. So we would expect to continue to make progress on that Efficiency Ratio.
Speaker #4: So we're going to want to—we had really big positive operating leverage this year, with expenses growing significantly less than the growth rate in revenues.
Speaker #4: But we'll expect to continue to have positive operating leverage every year. That's kind of how we set our budgets every year. It's a key measure that we look at overall, and for our different business units and lines and things like that.
Speaker #4: So, we would expect to continue to make progress on that efficiency.
Speaker #4: ratio. That's
Speaker #5: great. Thanks, Corey.
Brian Spielmann: That's great. Thanks, Corey.
Jeff Rulis: That's great. Thanks, Corey.
Speaker #1: Thank you. The next question comes from Nathan Race at Piper Sandler. Please go ahead.
Operator: Thank you. The next question comes from Nathan Race at Piper Sandler. Please go ahead.
Operator: Thank you. The next question comes from Nathan Race at Piper Sandler. Please go ahead.
Speaker #1: ahead. Hey,
[Analyst] (Piper Sandler): Hey, guys. Good afternoon. Thanks for taking the questions.
Nathan Race: Hey, guys. Good afternoon. Thanks for taking the questions.
Speaker #6: Guys, good afternoon. Thanks for taking the—
Speaker #6: Questions. Yep, hey Nathan. Ryan, I was hoping you could maybe just help us with the starting point for the margin in the first quarter.
Corey Chambas: Yep, Nathan.
Corey Chambas: Yep, Nathan.
[Analyst] (Piper Sandler): Ryan, I was hoping you could maybe just help us with the starting point for the margin in the first quarter. I know, you know, that tends to depend on the production that's coming through the pipeline in terms of mix. So would be curious if you could just comment on kind of what type of loans you're seeing in the pipeline these days, which sounds like it's pretty strong, and maybe how that could translate into the margin starting point for the first quarter.
Nathan Race: Ryan, I was hoping you could maybe just help us with the starting point for the margin in the first quarter. I know, you know, that tends to depend on the production that's coming through the pipeline in terms of mix. So would be curious if you could just comment on kind of what type of loans you're seeing in the pipeline these days, which sounds like it's pretty strong, and maybe how that could translate into the margin starting point for the first quarter.
Speaker #6: I know that tends to depend on the production that's coming through the pipeline in terms of mix, so we'd be curious if you could just comment on what type of loans you're seeing in the pipeline these days—which it sounds like is pretty strong—and maybe how that could translate into the margin starting point for the first quarter.
Speaker #6: quarter. Yeah.
Speaker #4: I'll actually have Dave maybe start on the mix of pipeline, and then I can talk about the—
Brian Spielmann: Yeah, I'll actually have Dave maybe start on the mix of pipeline, and then I can talk about the margin.
Brian Spielmann: Yeah, I'll actually have Dave maybe start on the mix of pipeline, and then I can talk about the margin.
Speaker #4: margin. So the pipeline in
Corey Chambas: So the pipeline in Q4, Nate, going into Q1 or going into Q1?
Dave Seiler: So the pipeline in Q4, Nate, going into Q1 or going into Q1?
Speaker #5: Q4, Nate? Going into Q1 or—
Speaker #5: going into Q1?
[Analyst] (Piper Sandler): Just this year.
Nathan Race: Just this year.
Speaker #6: Yeah, so this year. Yeah. Yep.
Corey Chambas: Yeah.
Dave Seiler: Yeah.
[Analyst] (Piper Sandler): Yep.
Nathan Race: Yep.
Speaker #4: Yeah, so, I mean, we're really seeing right now our pipelines across our business lines are strong. So it's a combination; it's a mix of commercial real estate and C&I.
Corey Chambas: Yeah. So, I mean, we're really seeing right now our pipelines across our business lines are strong. So it's a mix of commercial real estate and C&I. I don't really, I don't really have a great flavor for you on the mix, but I can tell you that our asset-based lending pipeline, it is particularly good, and those are higher-margin deals.
Corey Chambas: Yeah. So, I mean, we're really seeing right now our pipelines across our business lines are strong. So it's a mix of commercial real estate and C&I. I don't really, I don't really have a great flavor for you on the mix, but I can tell you that our asset-based lending pipeline, it is particularly good, and those are higher-margin deals.
Speaker #4: I don't really have a great flavor for you on the mix, but I can tell you that our asset-based lending pipeline is particularly good.
Speaker #4: And those are higher-margin deals.
Speaker #5: And so I would just add to that with the comment on ABL, with our expectation of SBA picking up, and just the success we've continued to have in other of those C&I areas.
Brian Spielmann: And so I would just add to that, with the comment on ABL, with our expectation of SBA picking up, and just the success we've continued to have in other of those C&I areas, when you adjust for the amount of accrual interest in Q4, that resets us at 363. And with that mix that we're seeing in the pipelines, we feel like it's a great place to be, and within our range of 360 to 365. You know, we're going to continue to compete on both sides of the balance sheet, but we feel like we have the ability to maintain that.
Brian Spielmann: And so I would just add to that, with the comment on ABL, with our expectation of SBA picking up, and just the success we've continued to have in other of those C&I areas, when you adjust for the amount of accrual interest in Q4, that resets us at 363. And with that mix that we're seeing in the pipelines, we feel like it's a great place to be, and within our range of 360 to 365. You know, we're going to continue to compete on both sides of the balance sheet, but we feel like we have the ability to maintain that.
Speaker #5: When you adjust for the amount of accrual interest in Q4, that resets us at 363. And with that mix that we're seeing in the pipelines, we feel like it's a great place to be.
Speaker #5: And within our range of 360 to 365, we're going to continue to compete on both sides of the balance sheet, but we feel like we have the ability to maintain that.
Speaker #6: Okay, great, really helpful. And then I'd be curious, just in terms of what you're seeing from a deposit pricing competition standpoint. Now that we've had some additional rate cuts in the back half of last year, just curious if you're seeing kind of rational deposit pricing competition, particularly as some of the larger competitors in Wisconsin are expanding via M&A into other geographies.
[Analyst] (Piper Sandler): Okay, great. Really helpful. And then, you know, I'd be curious just in terms of what you're seeing from a deposit pricing competition. You know, now that we've had some, some additional rate cuts in the back half of last year, just curious if you're seeing kind of rational deposit pricing competition, particularly as, you know, some of the larger competitors in Wisconsin are, you know, expanding via M&A into other geographies.
Nathan Race: Okay, great. Really helpful. And then, you know, I'd be curious just in terms of what you're seeing from a deposit pricing competition. You know, now that we've had some, some additional rate cuts in the back half of last year, just curious if you're seeing kind of rational deposit pricing competition, particularly as, you know, some of the larger competitors in Wisconsin are, you know, expanding via M&A into other geographies.
Speaker #5: Right. As you know, I mean, particularly six to twelve months ago, it was extremely competitive. For new deposits, it's still very competitive. Our sense is it's eased just maybe a little bit, but still competitive.
Speaker #5: Right. As you know, I mean, particularly six to twelve months ago, it was extremely competitive. For new deposits, it's still very competitive. Our sense is it's eased just maybe a little bit, but still competitive.
Corey Chambas: Right. As you know, I mean, particularly 6 to 12 months ago, it was extremely competitive for new deposits. Still very competitive. Our sense is it's eased just maybe a little bit, but still competitive.
Corey Chambas: Right. As you know, I mean, particularly 6 to 12 months ago, it was extremely competitive for new deposits. Still very competitive. Our sense is it's eased just maybe a little bit, but still competitive.
Speaker #6: Okay, great. Maybe one last one for me for Corey. Obviously, M&A optimism is continuing to build across the space. I know you guys have a very kind of narrow strike zone in terms of the type of acquisition opportunities that would fit your model, but just curious if you're seeing any opportunities out there that could align or maybe kind of augment the franchise that you guys have today.
[Analyst] (Piper Sandler): Okay, great. Maybe one last one for me for Corey. Obviously, M&A optimism is continuing to build across the space. And I know you guys have a very kind of narrow strike zone in terms of the type of acquisition opportunities that would fit your model. But, you know, just curious if you're seeing any opportunities out there that could align or maybe kind of augment the franchise that you guys have today.
Nathan Race: Okay, great. Maybe one last one for me for Corey. Obviously, M&A optimism is continuing to build across the space. And I know you guys have a very kind of narrow strike zone in terms of the type of acquisition opportunities that would fit your model. But, you know, just curious if you're seeing any opportunities out there that could align or maybe kind of augment the franchise that you guys have today.
Corey Chambas: You know, if I had to give you a one-word answer, I'd say no. But I'll give you more than that. You know, we're so unique, as you know, with our model, that there's just not many things that look like us. We don't value branch networks, so, I mean, basically everybody else has branches. So that's problematic. Additionally, we think, as we've looked at things, you know, I know it's counter to the industry, but what's happening with M&A, but we believe that the best way to drive value for your existing shareholders is through organic growth.
Speaker #4: If I had to give you a one-word answer, I'd say no. But I'll give you more than that. We're so unique, as you know, with our model that there just aren't many things that look like us.
Corey Chambas: You know, if I had to give you a one-word answer, I'd say no. But I'll give you more than that. You know, we're so unique, as you know, with our model, that there's just not many things that look like us. We don't value branch networks, so, I mean, basically everybody else has branches. So that's problematic. Additionally, we think, as we've looked at things, you know, I know it's counter to the industry, but what's happening with M&A, but we believe that the best way to drive value for your existing shareholders is through organic growth.
Speaker #4: We don't value branch networks. So basically, everybody else has branches, so that's problematic. And additionally, we think as we've looked at things—I know it's counter to the industry—but what's happening with M&A?
Speaker #4: But we believe that the best way to drive value for your existing shareholders is through organic growth. You're not diluting them by issuing shares to somebody else for their franchise—which you would. I mean, it sort of makes sense that you think that franchise is less valuable than your franchise.
Corey Chambas: You're not diluting them by issuing shares to somebody else for their franchise, which, you know, you would-- I mean, it sort of makes sense that you think that franchise is less valuable than your franchise if you're, if you're the one buying them, but you're still giving their shareholders your valuable shares. So we're just big believers in organic growth as the best way to generate value for existing shareholders.
You're not diluting them by issuing shares to somebody else for their franchise, which, you know, you would-- I mean, it sort of makes sense that you think that franchise is less valuable than your franchise if you're, if you're the one buying them, but you're still giving their shareholders your valuable shares. So we're just big believers in organic growth as the best way to generate value for existing shareholders.
Speaker #4: If you're the one buying them, but you're still giving their shareholders your valuable shares. So we're just big believers in organic growth as the best way to generate value for existing shareholders.
Speaker #6: Understood. That's really helpful. I appreciate the extra color, Corey. Thank you.
[Analyst] (Piper Sandler): Understood. That's really helpful. I appreciate the extra color, Corey. Thank you.
Nathan Race: Understood. That's really helpful. I appreciate the extra color, Corey. Thank you.
Speaker #4: Yeah. Thank you.
Corey Chambas: Yeah.
Corey Chambas: Yeah.
Operator: Thank you. The next question comes from Damon DelMonte at KBW. Please go ahead.
Operator: Thank you. The next question comes from Damon DelMonte at KBW. Please go ahead.
Speaker #1: The next question comes from Damon Delmonte at KBW. Please go ahead.
Speaker #7: Hey, good afternoon, guys. Hope everybody's doing well today. First question—I just wanted to, Brian, clarify on the comments on the margin. I think you said that because of the strong ABL pipeline and SBA picking back up, that the margin would reset into the 3.63% range.
Damon DelMonte: Hey, good afternoon, guys. Hope everybody's doing well today. First question, just wanted to, Brian, clarify on the comments on the margin. I think you said that because of the strong ABL pipeline and SBA, you know, picking back up, that the margin would reset in the 3.63 range. So is that implying that the delta between the 3.53 and 3.63, that you'll benefit from next quarter? Is that how we should think about it?
Damon DelMonte: Hey, good afternoon, guys. Hope everybody's doing well today. First question, just wanted to, Brian, clarify on the comments on the margin. I think you said that because of the strong ABL pipeline and SBA, you know, picking back up, that the margin would reset in the 3.63 range. So is that implying that the delta between the 3.53 and 3.63, that you'll benefit from next quarter? Is that how we should think about it?
Speaker #7: So is that implying that the delta between the 353 and
Speaker #7: 360? You'll benefit from next
Speaker #6: Quarter? So, how should we think about
Speaker #6: it?
Speaker #4: No, I would start by saying that the delta between the 3.53% and the 3.63% is the 10 basis points of non-accrual interest reversal that happened in the quarter from the real estate non-accrual loan.
Corey Chambas: No, I would start by saying that the delta between the 3.53 and the 3.63 is the 10 basis points of non-accrual interest reversal that happened in the quarter from a real estate non-accrual loan. So that, that alone, that was about 8 months of interest that we reversed. So from that resetting, you're going to have a higher run rate closer to 3.63 right away in Q1. And then from there, the strong pipelines, predominantly in C&I, we mentioned asset-based lending and others, that gives us the ability to maintain our spreads and hopefully increase our spreads while paying for those expensive deposits, and then staying within our guide of 3.60 to 3.65 on net interest margin.
Corey Chambas: No, I would start by saying that the delta between the 3.53 and the 3.63 is the 10 basis points of non-accrual interest reversal that happened in the quarter from a real estate non-accrual loan. So that, that alone, that was about 8 months of interest that we reversed. So from that resetting, you're going to have a higher run rate closer to 3.63 right away in Q1. And then from there, the strong pipelines, predominantly in C&I, we mentioned asset-based lending and others, that gives us the ability to maintain our spreads and hopefully increase our spreads while paying for those expensive deposits, and then staying within our guide of 3.60 to 3.65 on net interest margin.
Speaker #4: So that alone was about eight months of interest that we reversed. So from that resetting, you're going to have a higher run rate, closer to 363 right away.
Speaker #4: In Q1, and then from there, the strong pipelines—predominantly in C&I, asset-based lending, and others—give us the ability to maintain our spreads.
Speaker #4: And hopefully, increase our spreads while paying for those expensive deposits, and then staying within our guide of 360 to 365 on net interest.
Speaker #4: margin. Got
Speaker #7: It. Okay, that's helpful, thank you. And then with regards to expenses, I think you had said comp's going to grow a little bit more than we saw this year.
Damon DelMonte: Got it. Okay. That's helpful. Thank you. And then, with regards to expenses, I think you had said, you know, comp's going to grow a little bit more than we did, we saw this year, and I think this year was around 7.5% or so. And how about for, like, the rest of the expense base? What are you expecting for growth there?
Damon DelMonte: Got it. Okay. That's helpful. Thank you. And then, with regards to expenses, I think you had said, you know, comp's going to grow a little bit more than we did, we saw this year, and I think this year was around 7.5% or so. And how about for, like, the rest of the expense base? What are you expecting for growth there?
Speaker #7: And I think this year was around 7.5% or so. And how about for the rest of the expense base? What are you expecting for growth?
Speaker #7: there? Yeah.
Speaker #4: I would say a modest increase. I mean, we're expecting to grow 10% revenue, as we continue to talk about. And we want that positive operating leverage.
Corey Chambas: Yeah, I would say modest increase. I mean, we're expecting to grow 10% revenue as we continue to talk about, and we want that positive operating leverage. So if compensation is going to increase a little bit more than 7.5% this year, you know, there's not much left for the rest of the expenses, and that's consistent with our approach to generating annual positive operating leverage.
Corey Chambas: Yeah, I would say modest increase. I mean, we're expecting to grow 10% revenue as we continue to talk about, and we want that positive operating leverage. So if compensation is going to increase a little bit more than 7.5% this year, you know, there's not much left for the rest of the expenses, and that's consistent with our approach to generating annual positive operating leverage.
Speaker #4: So if compensation is going to increase a little bit more than 7.5% this year, there's not much left for the rest of the expenses.
Speaker #4: And that's consistent with our approach to generating annual positive operating.
Speaker #4: leverage. Got it.
Damon DelMonte: Got it. Okay, great. And then just lastly, you know, if you look back over the last, you know, 8 quarters, I think 6 of them, you guys came in, you know, call it 7% to 9% growth, with, you know, linked quarter annualized loan growth. I guess, what gives you confidence that you can get back to a, a consistent double-digit, type of growth rate in, in, in loan growth for 2026?
Damon DelMonte: Got it. Okay, great. And then just lastly, you know, if you look back over the last, you know, 8 quarters, I think 6 of them, you guys came in, you know, call it 7% to 9% growth, with, you know, linked quarter annualized loan growth. I guess, what gives you confidence that you can get back to a, a consistent double-digit, type of growth rate in, in, in loan growth for 2026?
Speaker #7: Okay, great. And then just lastly, if you look back over the last eight quarters, I think six of them you guys came in, call it 7% and 9% growth.
Speaker #7: Linked quarter annualized loan growth—what gives you confidence that you can get back to a consistent double-digit type of growth rate in loan growth for '26?
Speaker #3: Yeah, Damon, as we look at it—remember, our goal is 10% over the course of the year, right? Over 12 months. And so we're saying that based on pipelines that we're seeing, and we're also looking at the potential for some rate cuts, although that seems to be—maybe that probability is decreasing a little bit.
Corey Chambas: Yeah, Damon, as we look at it, remember, we're trying, our goal is 10% over the course of the year, year, right, over 12 months.
Corey Chambas: Yeah, Damon, as we look at it, remember, we're trying, our goal is 10% over the course of the year, year, right, over 12 months.
Damon DelMonte: Mm-hmm.
Damon DelMonte: Mm-hmm.
Corey Chambas: And so we're saying that based on pipelines that we're seeing, and we're also looking at, you know, potential for some rate cuts, although that seems to be maybe that probability is decreasing a little bit. But also the potential benefits from the new tax policy is something that we think could, you know, spur some investment by our client base and create some loan opportunities, particularly like in areas like equipment finance. And I would add to that, Damon, I think if you look back at our CAGR for 2020 through 2025 on loans and lease growth, it's 10%. So we've done it.
Corey Chambas: And so we're saying that based on pipelines that we're seeing, and we're also looking at, you know, potential for some rate cuts, although that seems to be maybe that probability is decreasing a little bit. But also the potential benefits from the new tax policy is something that we think could, you know, spur some investment by our client base and create some loan opportunities, particularly like in areas like equipment finance. And I would add to that, Damon, I think if you look back at our CAGR for 2020 through 2025 on loans and lease growth, it's 10%. So we've done it.
Speaker #3: But also, the potential benefits from the new tax policy. It is something that we think could spur some investment by our client base and create some loan opportunities.
Speaker #3: Particularly, in areas like equipment finance.
Speaker #4: And I would add to that, Damon, I think if you look back at our CAGR for 2020 through 2025 on loans and lease growth, it's 10%.
Speaker #4: So, we've done it. There's been a little bit of softness as of late, but I'm reminded of—and I can't remember when it was—but there was a time when I actually remember sort of making an excuse about slowness in our loan growth.
Corey Chambas: There's been a little bit of softness as of late, but I'm reminded of, I can't remember when it was, but there was a time when I actually remember sort of making an excuse about slowness in our loan growth. This is maybe 10 years ago or something like that. I was starting to, like, kind of, you know, imagine economic things that were going on that were causing this. In the reality, as I saw over time, was it was just some of our teams weren't that strong right at that time. So I believe for us, it's about our people and our teams, and if we have the right teams in place, we're gonna, we're gonna get our 10%. I'm just very confident. Right now, we feel really good about it. We mentioned ABL.
There's been a little bit of softness as of late, but I'm reminded of, I can't remember when it was, but there was a time when I actually remember sort of making an excuse about slowness in our loan growth. This is maybe 10 years ago or something like that. I was starting to, like, kind of, you know, imagine economic things that were going on that were causing this. In the reality, as I saw over time, was it was just some of our teams weren't that strong right at that time. So I believe for us, it's about our people and our teams, and if we have the right teams in place, we're gonna, we're gonna get our 10%. I'm just very confident. Right now, we feel really good about it. We mentioned ABL.
Speaker #4: And this is maybe 10 years ago or something like that. And I would start to kind of imagine economic things that were going on that were causing this, and the reality as I saw over time was, it was just some of our teams weren't that strong, right, at that time.
Speaker #4: And so I believe for us, it's about our people and our teams, and if we have the right teams in place, we're going to get our 10%.
Speaker #4: I'm just very confident. And right now, we feel really good about it. We mentioned ABL; we've really rebuilt that. We have a new leader there who's brought in a business development team, which is twice the size of the team that we had before, for example.
Corey Chambas: We've really rebuilt that. We have a new leader there who's brought in a business development team, which is twice the size of the team that we had before, for example. And in our Northeast and Kansas City markets, we had really good growth in the fourth quarter. And I think it's probably the best growth. Those are our two smallest bank markets, and that was the best growth we've ever had out of those two markets. So, you know, our Madison Bank's kind of a machine that rolls along, and our Milwaukee area bank is somewhat the same. So if we have Kansas City and Northeast, those leaders have been, we've had new leaders there maybe 18 months ago or something like that, I think.
We've really rebuilt that. We have a new leader there who's brought in a business development team, which is twice the size of the team that we had before, for example. And in our Northeast and Kansas City markets, we had really good growth in the fourth quarter. And I think it's probably the best growth. Those are our two smallest bank markets, and that was the best growth we've ever had out of those two markets. So, you know, our Madison Bank's kind of a machine that rolls along, and our Milwaukee area bank is somewhat the same. So if we have Kansas City and Northeast, those leaders have been, we've had new leaders there maybe 18 months ago or something like that, I think.
Speaker #4: And in our Northeast and Kansas City markets, we had really good growth in the fourth quarter. And I think it's probably the best growth.
Speaker #4: Those are two smallest bank markets, and that was the best growth we've ever had out of those two markets. So, in our massive banks, kind of a machine that rolls along, and our Milwaukee area bank is somewhat the same.
Speaker #4: So if we have Kansas City and Northeast, and those leaders have been—we've had new leaders there maybe 18 months ago or something like that, I think—the two people that are running those two bank locations.
Corey Chambas: The two people that are running those two bank locations came into place. They've worked on rebuilding teams. So again, we're in the people business. Best team wins, and we think we've got the best team we've ever had. So that's what gives me the confidence we can keep rolling at that 10% pace.
The two people that are running those two bank locations came into place. They've worked on rebuilding teams. So again, we're in the people business. Best team wins, and we think we've got the best team we've ever had. So that's what gives me the confidence we can keep rolling at that 10% pace.
Speaker #4: Came into place, they've worked on rebuilding teams. So again, we're in the people business—best team wins—and we think we've got the best team we've ever had.
Speaker #4: So, that's what gives me the confidence we can keep rolling at.
Speaker #4: So that's what gives me the confidence we can keep rolling at that 10% pace. Yeah.
[Company Representative] (First Business Financial Services): Yeah, and I'd just add one more thing, Damon, that it really isn't a new business volume issue for us. It was really higher than, I'd say, normalized payoff levels for us, particularly in the second half of the year, that impacted that growth number that you're referencing.
Brian Spielmann: Yeah, and I'd just add one more thing, Damon, that it really isn't a new business volume issue for us. It was really higher than, I'd say, normalized payoff levels for us, particularly in the second half of the year, that impacted that growth number that you're referencing.
Speaker #3: And I'd just add one more thing, Damon, that it really isn't a new business volume issue for us. It was really higher than, I'd say, normalized payoff levels for us, particularly in the second half of the year.
Speaker #3: That impacted that growth number that you’re referencing.
Speaker #7: Got it. That's great color. I appreciate that. That's all that I had, guys. Thanks a lot. Have a great weekend.
[Analyst] (Janney): Got it. That's great color. I appreciate that. That's all that I had, guys. Thanks a lot. Have a great weekend.
Damon DelMonte: Got it. That's great color. I appreciate that. That's all that I had, guys. Thanks a lot. Have a great weekend.
Speaker #4: You too. Thanks,
[Company Representative] (First Business Financial Services): You too. Thanks, Damon.
Corey Chambas: You too. Thanks, Damon.
Speaker #1: Thank you, Damon. The next question comes from Brian Martin at Jenny. Please go ahead.
Operator: Thank you. The next question comes from Brian Martin at Janney. Please go ahead.
Operator: Thank you. The next question comes from Brian Martin at Janney. Please go ahead.
Speaker #1: ahead. Hey, good afternoon,
[Analyst] (Piper Sandler): Hey, good afternoon, guys.
Brian Martin: Hey, good afternoon, guys.
Speaker #6: guys. Hey, Hi, Brian.
[Company Representative] (First Business Financial Services): Hi, Brian.
Brian Spielmann: Hi, Brian.
Speaker #6: Brian. Hey,
Corey Chambas: Hey, Brian.
Corey Chambas: Hey, Brian.
[Analyst] (Janney): I think it was Corey that said that last. I couldn't hear, sorry, but, or maybe it was Dave, sorry. The payoffs versus the production this quarter, I guess just in general, can you just give. I guess it sounded like from your last comment that it was more about the payoffs. Just a, I guess, can you give us some context over the course of 2025, what the payoffs and production look like? And then just how do you feel about the subsiding, if you will, of the payoffs as you enter 2026? It sounds like that was more of the issue. But I get they're sporadic, but just any context you can help provide on that would be helpful.
Speaker #4: Tier. I think it was Corey that said that last. I couldn't hear. Sorry. But the, or maybe it was Dave. Sorry. The payoffs versus the production this quarter, I guess, just in general, can you just give a, I guess it sounded like from your last comment that it was more about the payoffs, just A, I guess, can you give us some context over the course of '25, what the payoffs and production look like?
Brian Martin: I think it was Corey that said that last. I couldn't hear, sorry, but, or maybe it was Dave, sorry. The payoffs versus the production this quarter, I guess just in general, can you just give. I guess it sounded like from your last comment that it was more about the payoffs. Just a, I guess, can you give us some context over the course of 2025, what the payoffs and production look like? And then just how do you feel about the subsiding, if you will, of the payoffs as you enter 2026? It sounds like that was more of the issue. But I get they're sporadic, but just any context you can help provide on that would be helpful.
Speaker #4: And then just, how do you feel about the subsiding, if you will, of the payoffs as you enter '26? Because it sounded like that was more of the issue.
Speaker #4: But I get they're sporadic, but just any context you can help—you can provide on that would be helpful. Sure. So just starting from the payoff point of view, right?
[Company Representative] (First Business Financial Services): Sure. So just starting from the payoff point of view, right? The payoffs, we think we're about $70 million higher than our, let's say, our average payoff level, if we look back on a quarterly basis, our last 8+ quarters. So 60 of those payoffs were in the last two quarters of the year. So if we, if we add that, 60 to 70 million back in, we end up at an annualized growth rate of between 10% and 11%. So that's, you know, much closer to our target. The payoffs, I think a number of those payoffs were multifamily properties going into the secondary market, and those, you know, those tend to be larger and lumpy.
Brian Spielmann: Sure. So just starting from the payoff point of view, right? The payoffs, we think we're about $70 million higher than our, let's say, our average payoff level, if we look back on a quarterly basis, our last 8+ quarters. So 60 of those payoffs were in the last two quarters of the year. So if we, if we add that, 60 to 70 million back in, we end up at an annualized growth rate of between 10% and 11%. So that's, you know, much closer to our target. The payoffs, I think a number of those payoffs were multifamily properties going into the secondary market, and those, you know, those tend to be larger and lumpy.
Speaker #4: The payoffs—we think we're higher than our, I'd say our average, about $70 million payoff level if we look back on a quarterly basis over our last eight-plus quarters.
Speaker #4: So, 60 of that, of those payoffs, were in the last two quarters of the year. So if we add that $60 to $70 million back in, we end up at an annualized growth rate of between 10% and 11%.
Speaker #4: So that's much closer to our target. The payoffs—I think a number of those payoffs were multifamily properties going into the secondary market. And those tend to be larger and lumpy.
Speaker #6: And piggybacking on that, Brian, on Dave's comment on that with the secondary market, it seems like there's a little bit of balloon activity ballooning right now on commercial real estate.
Corey Chambas: And piggybacking on that, Brian, on Dave's comment on that, with the secondary market, it seems like there's a little bit of balloon activity, ballooning right now on commercial real estate. So think of deals that were done five years ago on a five-year note, because if we're going to get paid out on those commercial real estate loans, by the probably going secondary market, it's going to be at the end of term, because they're not gonna, you know, we have prepayment features in there, or swaps or something that's gonna cause them to wait till the end of that term.
Corey Chambas: And piggybacking on that, Brian, on Dave's comment on that, with the secondary market, it seems like there's a little bit of balloon activity, ballooning right now on commercial real estate. So think of deals that were done five years ago on a five-year note, because if we're going to get paid out on those commercial real estate loans, by the probably going secondary market, it's going to be at the end of term, because they're not gonna, you know, we have prepayment features in there, or swaps or something that's gonna cause them to wait till the end of that term.
Speaker #6: So, think of deals that were done five years ago on a five-year note, because if we're going to get paid out on those commercial real estate loans by somebody going to the secondary market, it's going to be at the end of term. They're not going to— we have prepayment features in there, or swaps, or something that's going to cause them to wait till the end of that term.
Speaker #6: But the other side of that coin is, other banks have commercial real estate loans that they did five years ago that are now ballooning.
Corey Chambas: But, the other side of that coin is other banks have commercial real estate loans that they did 5 years ago that are now ballooning, and we're getting looks at things, and that's part of that pipeline that Dave was referencing before. And the beauty of those deals on the CRE side is they're fully funding. It's not like doing a construction loan. We love doing construction loans, but they take 18 months or 2 years to get fully funded. So we think there's gonna be some opportunities kind of to, to have a little bit of offsetting penalties. It just depends which quarter you get the, you know, the payoffs in and which quarter you get the new deals that, that you can get out there and win.
But, the other side of that coin is other banks have commercial real estate loans that they did 5 years ago that are now ballooning, and we're getting looks at things, and that's part of that pipeline that Dave was referencing before. And the beauty of those deals on the CRE side is they're fully funding. It's not like doing a construction loan. We love doing construction loans, but they take 18 months or 2 years to get fully funded. So we think there's gonna be some opportunities kind of to, to have a little bit of offsetting penalties. It just depends which quarter you get the, you know, the payoffs in and which quarter you get the new deals that, that you can get out there and win.
Speaker #6: And we're getting looks at things. And that's part of that pipeline that Dave was referencing before. And the beauty of those deals on the CRE side is they're fully funding.
Speaker #6: It's not like doing a construction loan. We love doing construction loans, but they take 18 months or two years to get fully funded. So we think there's going to be some opportunities to have a little bit of offsetting penalties.
Speaker #6: It just depends which quarter you get the payoffs in, and which quarter you get the new deals that you can get out there and win.
Speaker #6: Gotcha. And those payoffs that were 60 to 70, was that annually or was that high? How much higher? That's what, is that right?
[Analyst] (Janney): Gotcha. And those -- the payoffs that were 60 to 70, was that annually? It was that high, much higher? That's what -- is that right?
Brian Martin: Gotcha. And those -- the payoffs that were 60 to 70, was that annually? It was that high, much higher? That's what -- is that right?
Speaker #4: Right. Right. We think we had an extra $60 to $70 million of payoffs above what we'd consider normal payoff levels in the year.
[Company Representative] (First Business Financial Services): Right. Right.
[Company Representative] (First Business Financial Services): Right. Right.
[Analyst] (Janney): Yeah.
Brian Martin: Yeah.
[Company Representative] (First Business Financial Services): It was-
[Analyst] (Janney): Okay.
[Company Representative] (First Business Financial Services): We think we had an extra $60 to 70 million of payoffs above what we'd consider normal payoff levels in the year.
Brian Spielmann: We think we had an extra $60 to 70 million of payoffs above what we'd consider normal payoff levels in the year.
Speaker #6: Yeah, on an annual level. Okay. And then, just the production was pretty consistent—quarters pretty consistent, year to year?
[Analyst] (Janney): Yeah, on annual. Okay. And then just the production.
Brian Martin: Yeah, on annual. Okay. And then just the production. Production was pretty consistent this year with what, you know, if you look at those last 8 quarters, pretty consistent, you know, year to year?
[Company Representative] (First Business Financial Services): Yep.
[Analyst] (Janney): Production was pretty consistent this year with what, you know, if you look at those last 8 quarters, pretty consistent, you know, year to year?
Speaker #4: Yeah, yeah. I mean, it was really at the rate we looked for.
[Company Representative] (First Business Financial Services): Yeah. Yeah. I mean, it was really at the rate we looked for.
Brian Spielmann: Yeah. Yeah. I mean, it was really at the rate we looked for.
Speaker #6: Yeah, understood. Okay. And then maybe just a little bit of comment about the specialty businesses, just kind of where on the CNI side—how did growth throughout the year in '25, how much did that contribute to growth?
[Analyst] (Janney): Yeah, understood. Okay. And then maybe just a little bit of comment about the specialty businesses, just kind of where on the C&I side, you know, how, how did growth, you know, throughout the year in 2025, you know, how, how much did that contribute to growth? And then just your outlook, I know you talked about ABL, but just in terms of moving up that percentage, just remind us where it's at today and just kind of how you're thinking, you know, over time, you see that trending.
Brian Martin: Yeah, understood. Okay. And then maybe just a little bit of comment about the specialty businesses, just kind of where on the C&I side, you know, how, how did growth, you know, throughout the year in 2025, you know, how, how much did that contribute to growth? And then just your outlook, I know you talked about ABL, but just in terms of moving up that percentage, just remind us where it's at today and just kind of how you're thinking, you know, over time, you see that trending.
Speaker #6: And then just your outlook? I know you talked about ABL, but just in terms of moving up that percentage, just remind us where it's at today and just kind of how you're thinking over time when you see that trending.
Speaker #4: So we're pretty flat in that over '24 in terms of some of those niche areas relative to the total balance sheet. We would expect that to lift, because our current level is down from where it had been.
Corey Chambas: So we're pretty flat in that over 24 in terms of some of those niche areas relative to the total balance sheet. We would expect that to lift, because that's down. Our current level is down from, you know, where it had been, at some point. So, you know, we had good growth in other segments that weren't in there over the last couple of years, and that's been a little slower, because in the last two years, ABL has been slow. Accounts receivable finance has had some payoffs and been down a little bit. So that hasn't grown at the pace of the average balance sheet. And we would expect that to be picking up.
Corey Chambas: So we're pretty flat in that over 24 in terms of some of those niche areas relative to the total balance sheet. We would expect that to lift, because that's down. Our current level is down from, you know, where it had been, at some point. So, you know, we had good growth in other segments that weren't in there over the last couple of years, and that's been a little slower, because in the last two years, ABL has been slow. Accounts receivable finance has had some payoffs and been down a little bit. So that hasn't grown at the pace of the average balance sheet. And we would expect that to be picking up.
Speaker #4: At some points, we had good growth in other segments that weren't in there over the last couple of years. That's been a little slower, because in the last, say, two years, ABL has been slow, accounts receivable finance has had some payoffs, and been down a little bit.
Speaker #4: So, that hasn't grown at the pace of the average balance sheet, and we would expect that to be picking up. Our floor plan finance business has grown steadily.
Corey Chambas: Our floor plan finance business has grown steadily, so that's been a good performer there, and we think will continue to be. But where the lift is gonna come from, we think it's happening, like, already in ABL. Good, good activity, good pipelines, booking deals, BDO is in place, and then, we would think the accounts receivable finance business would grow more as we move forward. And again, just a reminder, those two business lines are countercyclical. We don't you never know what's gonna happen in the economy, so those could get a lift there. But, those, along with SBA, we would hope to contribute more. So we would like to see that percentage move up. It's been as high as 25% of the total book. And ideally, we'd like to, to move it back there.
Our floor plan finance business has grown steadily, so that's been a good performer there, and we think will continue to be. But where the lift is gonna come from, we think it's happening, like, already in ABL. Good, good activity, good pipelines, booking deals, BDO is in place, and then, we would think the accounts receivable finance business would grow more as we move forward. And again, just a reminder, those two business lines are countercyclical. We don't you never know what's gonna happen in the economy, so those could get a lift there. But, those, along with SBA, we would hope to contribute more. So we would like to see that percentage move up. It's been as high as 25% of the total book. And ideally, we'd like to, to move it back there.
Speaker #4: So, that's been a good performer there, and we think it will continue to be. But where the lift is going to come from, we think it's happening already in ABL—good activity, good pipelines, booking deals, BDOs in place.
Speaker #4: And then we would think the accounts receivable finance business would grow more as we move forward. And again, just a reminder, those two business lines are countercyclical.
Speaker #4: We don't know what's going to happen in the economy, so those could get a lift there. But those, along with SBA, we would hope to contribute more.
Speaker #4: So, we would like to see that percentage move up. It's been as high as 25% of the total book, and ideally, we'd like to move it back there.
Speaker #4: So we would like to see that percentage move up. It's been as high as 25% of the total book, and ideally, we'd like
Speaker #6: And I would just say our equipment finance business leveled off a bit in '25, but we think there might be some good opportunities there, in part due to the new tax law.
[Company Representative] (First Business Financial Services): I would just say our Equipment Finance business leveled off a bit in 2025, but we think there might be some good opportunities there, in part due to the new tax law, that could drive some activity there.
Brian Spielmann: I would just say our Equipment Finance business leveled off a bit in 2025, but we think there might be some good opportunities there, in part due to the new tax law, that could drive some activity there.
Speaker #6: That could drive some activity there. Gotcha. And just remind me, just the—kind of, where you're at percentage-wise versus kind of where you think it trends, I guess. I don't know if it's a multi-year.
[Analyst] (Janney): Got you. And just remind me, just the percentage. You know, kind of where you're at percentage-wise versus kind of where you think it trends. You know, I guess, I don't know if it's a multi-year, you know, kinda scale up. Kind of where do you see it moving to over time?
Brian Martin: Got you. And just remind me, just the percentage. You know, kind of where you're at percentage-wise versus kind of where you think it trends. You know, I guess, I don't know if it's a multi-year, you know, kinda scale up. Kind of where do you see it moving to over time?
Speaker #6: Kind of scale up, kind of where do you see it moving to over time?
Corey Chambas: Yeah, yeah. On, on the specialty, the specialty niches?
Corey Chambas: Yeah, yeah. On, on the specialty, the specialty niches?
Speaker #4: Yeah, on the specialty—the specialty niches—we were, at year end, about 23%. And like I had mentioned, 25% had been our goal, the goal we were shooting for.
[Analyst] (Janney): Yeah.
Brian Martin: Yeah.
Corey Chambas: We're at year-end, we were about 23%. And we, like I had mentioned, 25% had been our, kind of the goal we were shooting for. We got to that and a little bit over that, couple years ago, and so we want to get back there, and we'd like to get back there kind of in short order. And anything, you know, it, it all helps margin. It all helps strengthen margin. So we'd like to see that continue to grow, and if we could get that up to 30% over time, that would be really nice for us.
Corey Chambas: We're at year-end, we were about 23%. And we, like I had mentioned, 25% had been our, kind of the goal we were shooting for. We got to that and a little bit over that, couple years ago, and so we want to get back there, and we'd like to get back there kind of in short order. And anything, you know, it, it all helps margin. It all helps strengthen margin. So we'd like to see that continue to grow, and if we could get that up to 30% over time, that would be really nice for us.
Speaker #4: We got to that, and a little bit over that, a couple of years ago, and so we want to get back there. And we'd like to get back there kind of in short order.
Speaker #4: And anything at all helps margin. It all helps strengthen margin. So we'd like to see that continue to grow. And if we could get that up to 30% over time, that would be really nice for us.
Speaker #6: Gotcha. Okay. And then just one on the fee income side—just kind of the area, you talked about several areas there in terms of contributions.
[Analyst] (Janney): Got you. Okay, and then just one on the fee income side. Just kind of the area... You talked about several areas there in terms of, you know, contributions. I mean, where do you see the most lift in, you know, potential lift in fee income? And then I just don't know if you gave more details on the SBIC revenues, but just in terms of kind of just annually, if we think about that, you know, what they were in 2025 versus how we think about, you know, the potential growth in that business in 2026, would be helpful. Thanks.
Brian Martin: Got you. Okay, and then just one on the fee income side. Just kind of the area... You talked about several areas there in terms of, you know, contributions. I mean, where do you see the most lift in, you know, potential lift in fee income? And then I just don't know if you gave more details on the SBIC revenues, but just in terms of kind of just annually, if we think about that, you know, what they were in 2025 versus how we think about, you know, the potential growth in that business in 2026, would be helpful. Thanks.
Speaker #6: I mean, where do you see the most lift in potential lift in fee income? And then I just the I don't know if you gave more details on the SBI fee revenues, but just in terms of kind of how just annually, if we think about that, what they were in '25 versus how we think about the potential growth in that business in '26, would be helpful.
Speaker #6: Thanks.
Speaker #4: Yeah. So I'd say
[Company Representative] (First Business Financial Services): So I'd say the two areas that we'd probably look at first are Private Wealth, right? So that's a business that, you know, we shoot for, you know, 10, 10-ish plus % growth in. So that would be our goal there. And then the other area that we'd expect more pickup is in SBA gain on sale. And so as we look at that, I think last year, if you look at the 4 quarters, we averaged right around $500,000-ish in terms of gain on sale per quarter. And, you know, we'd expect that to, to grow some this year.
Brian Spielmann: So I'd say the two areas that we'd probably look at first are Private Wealth, right? So that's a business that, you know, we shoot for, you know, 10, 10-ish plus % growth in. So that would be our goal there. And then the other area that we'd expect more pickup is in SBA gain on sale. And so as we look at that, I think last year, if you look at the 4 quarters, we averaged right around $500,000-ish in terms of gain on sale per quarter. And, you know, we'd expect that to, to grow some this year.
Speaker #4: The two areas that we probably look at first are private wealth, right? So that's a business that we shoot for 10-ish plus percent growth in.
Speaker #4: So that would be our goal there. And then the other area that we'd expect more pickup is in SBA gain on sale. And so as we look at that, I think last year, if you look at the four quarters, we averaged right around $500,000-ish in terms of gain on sale per quarter.
Speaker #4: And we'd expect that to grow some this year.
Speaker #3: And I also think we would see overall, for that whole fee income category, we're looking for 10% growth. I think we would expect greater than 10% growth in the SBIC piece, just because we've been investing.
Corey Chambas: And I also think we would see... You know, overall, for that whole fee income category, we're looking for 10% growth. I think we would expect greater than 10% growth in the SBIC piece, just because we've been investing. So there's a J-curve on those businesses, those funds, as they ramp up, and so we've been in the downside of the J-curve on that a little bit, and we would expect more of that to be above the line in terms of the J-curve and contributing more as we build that portfolio internally.
Corey Chambas: And I also think we would see... You know, overall, for that whole fee income category, we're looking for 10% growth. I think we would expect greater than 10% growth in the SBIC piece, just because we've been investing. So there's a J-curve on those businesses, those funds, as they ramp up, and so we've been in the downside of the J-curve on that a little bit, and we would expect more of that to be above the line in terms of the J-curve and contributing more as we build that portfolio internally.
Speaker #3: So, there's a J-curve on those businesses, those funds, as they ramp up. And so we've been in the downside of the J-curve on that a little bit.
Speaker #3: And we would expect more of that to be above the line in terms of the J curve and contributing more as we build that portfolio internally.
Speaker #6: Gotcha. Okay. And then just one last one. I think you talked about the credit quality earlier, in particular, the one credit this quarter.
[Analyst] (Janney): Gotcha. Okay, and then, yeah, just one last one, I, I think was the—you talked about the credit quality earlier, in, in particular, the one credit this quarter. The other credit that's been out there that's, you know, taking a little bit of time to, to work through the, the process, can you just remind us where that's standing? I mean, I guess in terms of the potential to come down, it sounds like you could see some, some wins on, you know, the one that came on this quarter, you know, just given the sizing of the, the pieces there. But in terms of the other one that's out there, I mean, could we see some resolution on, on that in the near term, or is that still, you know, a, a little bit a ways out?
Brian Martin: Gotcha. Okay, and then, yeah, just one last one, I, I think was the—you talked about the credit quality earlier, in, in particular, the one credit this quarter. The other credit that's been out there that's, you know, taking a little bit of time to, to work through the, the process, can you just remind us where that's standing? I mean, I guess in terms of the potential to come down, it sounds like you could see some, some wins on, you know, the one that came on this quarter, you know, just given the sizing of the, the pieces there. But in terms of the other one that's out there, I mean, could we see some resolution on, on that in the near term, or is that still, you know, a, a little bit a ways out?
Speaker #6: The other credit that's been out there that's taking a little bit of time to work through the process—can you just remind us where that stands?
Speaker #6: I mean, I guess in terms of the potential to come down, it sounds like you could see some wins on the one that came on this quarter, just given the sizing of the pieces there.
Speaker #6: But in terms of the other one that's out there, I mean, could we see some resolution on that in the nearer term, or is that still a little bit a ways out?
Speaker #4: Right. That's the asset-based lending credit we have that's been there since '23, I believe. So that one, it's all in the court system. I mean, things can happen at any time, but right now, the court date is set for later in the year, later in '26.
[Company Representative] (First Business Financial Services): Right. That's the Asset-Based Lending credit we have-
Brian Spielmann: Right. That's the Asset-Based Lending credit we have-
[Analyst] (Janney): Yeah
Brian Martin: Yeah
[Company Representative] (First Business Financial Services): ... that's been there since 2023, I believe. So, you know, that one, it's all in the court system.
Brian Spielmann: ... that's been there since 2023, I believe. So, you know, that one, it's all in the court system.
[Analyst] (Janney): Okay.
Brian Martin: Okay.
[Company Representative] (First Business Financial Services): I mean, things can happen at any time, but right now, the court date is set for later in the year, later in 2026. So, you know, that could be with us for a little while, and it's not, from what we're being told, it's not really unusual in that state's court system. So, unfortunately, it just takes way too long.
Brian Spielmann: I mean, things can happen at any time, but right now, the court date is set for later in the year, later in 2026. So, you know, that could be with us for a little while, and it's not, from what we're being told, it's not really unusual in that state's court system. So, unfortunately, it just takes way too long.
Speaker #4: So that could be with us for a little while. And it's not—from what we're being told—it's not really unusual in that state's court system.
Speaker #4: So unfortunately, it just takes way—
Speaker #4: too long. Yeah.
[Analyst] (Janney): Yeah. Okay, perfect. I appreciate the update. Thanks for everything, guys.
Brian Martin: Yeah. Okay, perfect. I appreciate the update. Thanks for everything, guys.
Speaker #6: Okay. Perfect. I appreciate the update. Thanks for everything,
Speaker #6: guys.
Speaker #3: Yeah. Thanks,
Corey Chambas: You bet. Thanks, Brian.
Corey Chambas: You bet. Thanks, Brian.
Speaker #3: Brian. Thank you.
Operator: Thank you. We have no further questions. I will turn the call back over to Corey Chambas for closing comments.
Operator: Thank you. We have no further questions. I will turn the call back over to Corey Chambas for closing comments.
Speaker #1: We have no further questions. I will turn the call back over to Corey Chambas for closing comments.
Speaker #3: All right. Thank you all for joining us today. We appreciate your time and your interest in First Business Bank, and we look forward to sharing our progress again next quarter.
Corey Chambas: All right. Thank you all for joining us today. We appreciate your time and your interest in First Business Bank, and we look forward to sharing our progress again next quarter. Have a great weekend.
Corey Chambas: All right. Thank you all for joining us today. We appreciate your time and your interest in First Business Bank, and we look forward to sharing our progress again next quarter. Have a great weekend.
Speaker #3: Have a great weekend.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.
