First Business Financial Services, Inc.

Good afternoon, welcome to the first business financial services first quarter 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After today's presentation, there will be an opportunity to ask questions. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. 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 first 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 very pleased with our strong start to 2026. Our team's execution was exceptional. We won new relationships in a highly competitive environment, growing loans and deposits at a pace that well exceeded our expectations. We grew fee income by nearly 16% year over year with strong contributions from multiple sources. I'll highlight our private wealth business, which again produced record revenues and provides annuity-like support for our revenue growth and diversification goals. Asset quality remains stable in our core performing portfolio, and we were pleased to see some swift progress toward resolving our largest non-performing asset, which was downgraded last quarter. At the bottom line, We grew net income and earnings per share by more than 9% over last year's first quarter, even as our margin returned to a more normalized level after being elevated in early 2025, which was residual from the period of rapid Fed tightening. And perhaps most importantly, our strong earnings and disciplined capital deployment drove 14% year-over-year growth in tangible book value per share. This success reflects our commitment to four key objectives. prioritizing high-quality relationship-based growth, diversifying our revenue streams, maintaining long-term positive operating leverage, and preserving a culture that attracts and keeps the highest quality talent. We are very pleased with the momentum of our first quarter results, which Dave will discuss more now. Dave?

Thank you, Corey. Our outstanding first quarter growth positions us well to achieve our long-term goals. As you know, we aim for 10% loan and core deposit growth on an annual basis. In the first quarter, we grew loans by $126 million, or 15%, far outpacing our plan. Growth came from across our markets led by Madison, Milwaukee, and Kansas City, as well as from asset-based lending, which is generating some great momentum under the new leader we brought on a year ago. The growth occurred late in the quarter with $90 million, or 72%, in March. That had margin implications, which Brian will cover, and it included some pull forward of growth we had forecasted for the second quarter. After an extremely strong first quarter, our pipelines are lighter going into Q2, and we will have some known payoffs in the second quarter. Therefore, we expect the second quarter to be lighter on growth than Q1, with normalization in the second half of the year, placing us on track to achieve our 10% annual growth goal for 2026. Our 10% growth expectations are driven by continued positive trends in our businesses and the banking industry. Our largest markets in southern Wisconsin continue to benefit from a strong regional economy. Our clients in the manufacturing and distribution space are doing well. Commercial real estate occupancies have remained strong, particularly in multifamily properties. We are also seeing signs that new development is picking up after a slight slowdown in 2024 and 2025. Additionally, we continue to expect the 2026 changes to federal tax policy should be a tailwind for our business clients and CNI portfolio. We continue to see tangible benefits from talent acquisitions as well. We recently hired a new president for our private wealth business. We are also seeing positive results from producers in asset-based lending who were hired in the second half of 2025. Obviously, we are looking at the same wild cards as everyone else. and will continue to monitor for any impact of oil prices and geopolitical uncertainty. So far, it's been business as usual. I also want to highlight our exceptional double-digit growth in core deposits this quarter. First quarter balances were up 18% from the linked quarter and up 14% year over year. That's not an easy feat in this environment. Our focus on hiring the best treasury management talent and maintaining a disciplined approach to business development continues to pay off. We are pleased to see this core deposit growth coming from multiple bank markets and our private wealth group. Our strength is in taking market share as you saw this quarter. So we are confident in our team's ability to not only maintain existing client relationships, but also to continue bringing in new deposit balances. As with loans, we continue to target 10% growth on an annual basis. Another highlight was our strong non-interest income. which grew 16% compared to last year's first quarter. Private wealth produced record revenue of 3.9 million, up 11% year over year. This business consistently generates more than 40% of our total quarterly fee income. Strong deposit growth contributed to service charges increasing more than 26% year over year, displaying our team's impressive success in adding and expanding full business banking relationships. And our other fee income sources, which tend to be variable from quarter to quarter, posted favorable results for the quarter. Moving to credit, we saw some rapid progress on our largest non-performing asset. Recall that we downgraded $20.4 million in CRE loans from a single southeast Wisconsin-based client relationship to non-accrual status last quarter. In Q1, $3.4 million of land development loans in this portfolio were sold at par. You can see the benefit of this to our non-performing asset ratio on slide 12 of the earnings supplement. Appraisals exceed carrying values on the land in the remaining $17 million of loans with no specific reserves recorded. We expect ongoing resolution, but the timing will be variable. Based on current activity, we don't anticipate additional progress to occur before the second half of 2026. The remainder of our portfolio is stable. And you can see our favorable trends on slide 11. Before I hand it off to Brian, I'll note that this is Corey's last call before his retirement next week. I want to thank Corey for his leadership and service to First Business Bank. It's difficult to summarize his many contributions to our company, so I'll leave you with this. During Corey's tenure as CEO, First Business Bank has produced cumulative shareholder returns of nearly 700% outperforming bank and regional bank indices by a multiple of more than 3x and the Russell 2000 by more than 200 percentage points. This is no coincidence. Corey is a visionary, and we are grateful for his leadership and friendship. We are also very happy that Corey will be continuing to serve on our board. Now I'll hand it off to Brian.