First Business Financial Services (FBIZ -5.67%), a bank holding company focused on commercial businesses, private wealth, and specialty finance, released its earnings results for the second quarter of fiscal 2025 on July 24, 2025. The headline news: EPS (GAAP) reached $1.35, slightly beating expectations of $1.33. Operating revenue (non-GAAP) landed at $41.04 million, up from $37.97 million in Q2 2024, but just shy of the consensus estimate of $41.55 million. The quarter showed steady loan and deposit growth, ongoing strength in private wealth management, and stable margins. However, upticks in non-performing assets and persistent exposure to commercial real estate (CRE) signal developing risks, making asset quality a key focus for coming periods.
| Metric | Q2 2025 | Q2 2025 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| EPS (GAAP) | $1.35 | $1.33 | $1.23 | 9.8% |
| Operating Revenue (Non-GAAP) | $41.04 million | $41.55 million | $37.97 million | 8.1% |
| Net Interest Income | $33.78 million | $30.54 million | 10.6% | |
| Pre-tax, Pre-provision Adjusted Earnings (Non-GAAP) | $16.02 million | $14.14 million | 13.2% | |
| Return on Average Tangible Common Equity | 14.17% | 14.73% | (0.56) pp |
Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.
Company Overview and Strategic Focus
First Business Financial Services (FBIZ -5.67%) is a regional financial services company specializing in commercial and private banking, with a sharp focus on business lending and private wealth management. Its primary client base includes commercial entities and wealthy individuals, rather than mass-market retail customers. Instead of a traditional branch-heavy approach, it relies on targeted relationship management and expertise in niche banking products.
The company’s recent focus has been on growing its loan book, particularly in commercial real estate (CRE) and commercial and industrial (C&I) lending. Diversification of revenue streams, building scale in private wealth management, and maintaining compliance with evolving regulatory requirements are key factors for its ongoing performance. Relationship-driven banking and continued investment in human capital are also central to its operational approach.
Quarterly Developments: Financial and Business Highlights
The quarter featured strong loan and deposit growth, with loans and leases up 8.9% to $3.25 billion and total deposits up 14.6% to $3.31 billion. CRE loans remained the largest component at $1.95 billion, or nearly 59.9% of the portfolio. C&I loans reached $1.26 billion, displaying healthy annualized growth. Core deposits, the less volatile funding source, increased 9.7% year-over-year to $2.53 billion, outpacing total loan growth.
Net interest income, which measures the difference between what the bank earns on loans and pays on deposits, rose 10.6 % from the year-ago period. Net interest margin (NIM)—a metric of lending profitability—ended at 3.67%, compared to 3.69% for the prior quarter and 3.65% for the year-ago period. Management reiterated a NIM target range of 3.60% to 3.65%, with the upper end more likely if current business patterns and pricing persist.
The company’s non-interest income, which includes revenue from private wealth management and fees from services like Small Business Administration (SBA) loan sales, contributed notable results. Private wealth management fees delivered $3.75 million, up 8.3% year over year, and accounted for just over half of all non-interest income. Assets under management or administration reached $3.73 billion—a record for the segment. Other fee-based revenue, such as SBA loan sale gains and bank-owned life insurance returns, showed usual volatility, while non-interest income overall softened compared to analyst expectations due to recent reclassification of some loan fees into interest income.
Operating expenses (non-GAAP) increased 5.0% year over year to $25.0 million, as the company added staff and invested further in marketing, technology, and regulatory compliance. The efficiency ratio—a measure of how much of each dollar earned is spent on running the business—improved by 1.8 percentage points to 60.97% (non-GAAP) year over year.
Asset quality trends showed some early signs of risk. Non-performing assets (NPAs), which reflect loans that are no longer accruing interest or are otherwise impaired, rose to 0.72% of total assets, up from 0.53% in Q2 2024. The increase in non-performing assets came mainly from a single non-accrual loan in transportation and logistics (part of the C&I portfolio). Allowance for credit losses (the funds set aside to absorb future loan losses) grew to $38.2 million, or 1.18% of loans (GAAP). Net charge-offs—a measure of actual loan losses—moderated compared to the previous quarter but remain an area for close scrutiny as the economic outlook softens.
Capital strength continued to grow, with tangible book value per share (non-GAAP) up 13.6% year over year to $38.54. Common equity tier 1 ratio, a critical regulatory capital metric, improved to 9.33%. The quarterly dividend was raised 16% to $0.29 per share in Q1 2025, compared to $0.25 in the prior quarter.
Business Mix and Product Highlights
The company’s commercial real estate lending—loans secured by various types of business properties, construction projects, and multi-family developments—remains its largest book of business. Management continues to call out this CRE concentration as a risk, since it accounts for approximately 61.6% of total loans as of December 31, 2024, and faces regulatory scrutiny.
Private wealth management provides robust fee income and diversification. This segment offers trust and investment management services. Growth in private wealth assets under administration and record fee income highlight the importance of this non-interest revenue engine. Gains from SBA loan sales fluctuate and depend on both the rate environment and origination volumes, but demonstrate the ability to tap multiple sources of fee revenue beyond traditional banking activities. Management notes that gain on sale of SBA loans varies period to period based on the amount of closed and fully funded loans.
Efforts to maintain a diverse funding base include increased use of wholesale deposits, which now fund 23.4% of total deposits. By matching these funding sources with loan portfolios, the company aims to manage liquidity and support loan growth without taking excessive interest rate risk. This shift also contributed to a more favorable loan-to-deposit ratio, which now sits just below 100% as of Q1 2025, a level often viewed positively by regulators and investors.
Investments in people, technology, and controls continue. Full-time employee headcount increased 3.7% year over year. While higher costs in areas such as data processing, computer software, and FDIC insurance were noted, these are attributed to business growth and technology investments. Leadership succession planning also advanced, as the company announced its CEO will retire in May 2026 and the current President and COO has been named as successor, supporting a smooth transition.
Looking Ahead: Management Outlook and Investor Considerations
Asset quality, however, will remain a watch point, especially as CRE and select transportation and logistics loans account for much of the risk in the credit portfolio.
No specific revenue or EPS guidance was provided for the second half of fiscal 2025. Management did note that future performance will depend on factors such as the interest rate environment, loan demand, and evolving economic conditions, particularly for CRE and transportation-exposed lending. Investors should watch for further developments in asset quality metrics, shifts in deposit mix or funding costs, and the continued execution on deposit and relationship banking strategies.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
