First Business Financial Services, Inc.

Good afternoon. Welcome to the First Business Bank Earnings Conference Call, Second Quarter 2025. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. After today's presentation, there will be an opportunity to ask questions. 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.

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 Spielman. Today, we'll discuss our financial performance, followed by a Q&A session. I'd like to direct you to our second quarter 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. 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, 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. We are pleased to report another outstanding quarter. As you know, we work to achieve a five-year strategic plan that is built to drive double-digit growth on an annual basis. Results for our second quarter and first half of 2025 show that strategic plan at work. During the quarter, our team again produced double-digit core deposit growth that outpaced our robust expansion of loans. We also maintained a strong net interest margin and saw a decline in net charge-offs. Private wealth assets expanded significantly and fees grew. Operating revenue was solid, even with some expected variability in our fee income sources, showing the value of our revenue diversification strategy. This drove pre-tax, pre-provision adjusted earnings up 13% over last year's second quarter and EPS up 10%. ROA matched the linked quarter and year-ago quarters, showing great consistency. Most importantly, tangible book value growth is a significant driver of stock valuation gains, and we grew tangible book value per share an impressive 14% from a year ago. Before I hand it over to Dave, I want to acknowledge our recent announcement of my planned retirement and Dave's succession to CEO, effective next May, 2026. You are all very familiar with Dave, and we're grateful for his outstanding leadership and his commitment to the future of First Business Bank. Dave?

Thank you, Corey. Balance sheet growth was a clear highlight again this quarter. You can see the quarterly highlights on slide three of the earnings call slides. We continue to see exceptional growth with core deposits increasing 70 million or 11% annualized from the first quarter and up 10% from last year's second quarter. Another indicator of our great success in core deposit gathering is service charges on deposits. which grew 16% from last year's second quarter. I'll note that our growth trajectory has been outstanding, but as a business only bank with larger average client balances, normal daily balance fluctuations can make a significant difference to period end growth rates. We prioritize developing long-term relationships and that requires a long sales cycle. So we tend to evaluate our success over a rolling four quarter view rather than period to period. Loan balances grew about 267 million over the same period last year. That's up about 9%. You can see our quarterly deposit and loan growth trends on slide four. We continue to see solid demand for our conventional and niche CNI products. Total CNI balances expanded 30 million or 10% annualized. This included growth within asset-based lending, up 13 million, Floor plan financing up $10 million and equipment finance up $7 million. Activity levels in our asset-based lending group continue to exceed what we've seen in the last two years. We attribute this to current market dynamics and our new leader in asset-based lending who is off to a great start. We are positioned to capture growth opportunities in this space. Our floor plan financing team also continues to see nice demand and extremely high client satisfaction results, which has led to a significant number of referrals. On revenue, I'll cover a few areas quickly. Private wealth is a true highlight for us. The consistency of its revenue generation, relationship development, and capital efficiency are extremely valuable to our company. Private wealth assets under management grew an incredible 36% annualized during the quarter and were up 15% from a year ago. Approximately 63% of our growth in assets under management during the past 12 months was from transfers from our new and existing clients. Obviously, there's a market component to this business that can drive variability, but as a revenue annuity stream, it is exceptional and growing. We also saw a decrease in SBA loan sale premiums and fee income. Like several of our fee income items, individual contribution levels can vary quarter to quarter. This quarter, the timing of closings and loans fully funding was a factor. Additionally, we've closed a higher proportion of SBA construction loans, which has lengthened our overall timeline between loan closing and loan sales. Pricing is extremely competitive right now, but we have a very strong team in place and we continue to win deals. On to asset quality. We are very pleased with our low level of net charge-offs during the quarter, particularly the fact that they came from the transportation and logistics segment of our small ticket equipment finance portfolio, which was anticipated and is running off. The $4.6 million increase in NPAs was due to a single credit in the transportation and logistics sector of the conventional CNI portfolio. In total, our exposure to this industry at June 30th was $75 million, $44 million in the conventional portfolio, and $31 million in the small ticket equipment finance portfolio. It is important to note that our exposure to this industry in the conventional portfolio is well collateralized. As a reminder, we are no longer lending to the transportation and logistics industry in our small ticket equipment finance business. This gives us confidence that our overall loss risk is relatively low. We continue to be pleased that our overall portfolio is performing as expected, and we have no areas of particular concern. Now I'll hand it off to Brian.