First Business Financial Services Caps 2025 with Strong Quarter, Navigates Isolated CRE Challenge
MADISON, Wis. – First Business Financial Services, Inc. (NASDAQ: FBIZ) closed the book on 2025 with what its leadership termed an "outstanding" final quarter, showcasing financial resilience even as it navigated a specific credit challenge. The Wisconsin-based commercial bank reported strength across key metrics including net interest margin, core deposits, and fee-based income, setting a confident tone for its 2026 targets.
CEO Corey Chambas emphasized the quality of the year's growth, noting a nearly 15% increase in pre-tax, pre-provision earnings compared to 2024. For the full year, return on average tangible common equity exceeded 15%, while tangible book value per share climbed 14%. The company's earnings per share grew 14%, surpassing its long-term annual goal of 10%. In a sign of confidence, the board approved a 17% increase in the quarterly cash dividend.
However, the earnings call also provided a detailed look at an "isolated credit situation." President and COO Dave Seiler explained that the bank downgraded $20.4 million in commercial real estate (CRE) loans tied to a single Wisconsin-based borrower. The borrower, who acquired land for multifamily development, faced stalled projects leading to high carrying costs. Seiler noted that appraised land values currently exceed the loan balances, and no specific reserve was taken, but the bank did record an $892,000 non-accrual interest reversal, which compressed fourth-quarter net interest margin by 10 basis points.
Management stated they are working with the borrower on resolution options, with a "best guess" for full resolution by late 2026. They clarified that recent net charge-offs were unrelated to this CRE issue, stemming instead from a shrinking portfolio of equipment finance loans in the transportation sector.
On the financial front, CFO Brian Spielmann reported a fourth-quarter net interest margin (NIM) of 3.53%, down 15 basis points sequentially. Excluding the impact of the CRE interest reversal, NIM would have been 3.63%. For the full year, NIM was 3.64%, remaining within the bank's target range of 3.60%-3.65%. Spielmann emphasized the balance sheet is "essentially interest rate neutral," making the bank less sensitive to the timing of Federal Reserve moves than many peers.
Fee income provided a bright spot, with the Private Wealth unit generating a record $3.8 million in the fourth quarter, up 11% year-over-year. Looking ahead, executives provided a 2026 outlook centered on continued double-digit growth targets for loans, deposits, revenue, and fee income, supported by what they described as strong pipeline activity entering the new year.
Analyst & Investor Commentary:
"The underlying performance is solid—double-digit EPS growth, strong ROE, and impressive deposit growth in this competitive environment," said Michael Thorne, a portfolio manager at Great Lakes Capital. "The CRE issue appears well-contained and transparently disclosed. Their rate-neutral position is a strategic advantage in an uncertain rate cycle."
"Another quarter, another 'isolated' credit problem. This is precisely the kind of stress we expected in commercial real estate," remarked Sarah Chen, founding partner of Apex Street Advisors, striking a more critical tone. "While they say it's contained, the fact that it could linger for most of 2026 is a drag on capital efficiency. The market should question if their underwriting in this segment was too aggressive during the boom times."
"The growth in their Private Wealth and service charge income is the real story here," observed David Rivera, an independent bank analyst. "It shows successful client deepening beyond just lending. Their focus on organic growth over M&A, while perhaps limiting scale, does seem to deliver consistent returns for shareholders."
"For a community-focused business bank, their metrics are top-tier," commented Lisa Gibson, a retired commercial loan officer from Milwaukee. "The 17% dividend hike speaks volumes about the board's confidence in sustained earnings power, even with that CRE workout ahead."