First Business Bank (FBIZ) Q3 2026 earnings review
First Business Bank deposits grow fast, but problem loans rise
First Business Bank, a Wisconsin commercial lender, grew its third-quarter profit as surging customer deposits paid for new loans and replaced costly borrowings. Operating revenue rose 7% from a year ago (or 10% by our math excluding exited small-business loan sales and a prior-year fee one-off), while profit per share climbed 15% to $1.95. Chief executive Dave Seiler kept the bank's 10% annual growth plan intact, and net interest margin (the profit spread on loans) reached 3.80%, above what the company's own full-year target pointed to.
| Operating revenue (underlying: +9.5% by our math) | $47.5M +7.3% from a year ago |
|---|---|
| Profit per share | $1.95 +15% from a year ago |
| Core deposits | $2.98B +15% from a year ago |
| Q4 net interest margin outlook | Raised expected to stay above 3.65% target |
⚖️ Verdict: 🟢 Bullish
The story got better because core deposit growth and lower payroll costs after exiting national small-business lending lifted operating profit without help from tax one-offs. Management also expects fourth-quarter lending spreads to stay above its 3.60% to 3.65% long-term range, showing its earlier plan was cautious. The bad news: the bank's largest problem real estate relationship in Wisconsin grew by $5.7 million to $22.7 million as another multifamily loan stopped paying interest, and it carries only $416,000 in specific loss reserves.
The question now is whether property collateral values will cover that $22.7 million problem relationship without forcing a charge to earnings. Either the bank sells the underlying properties near appraised value, or it has to build loss reserves that eat into its lending gains. Fourth-quarter foreclosure sales and reserve updates will tell.
🐂 Bull Case
Customer Deposits Paid for Loan Growth
First Business Bank, a Wisconsin lender to mid-sized companies, relies on core deposits (checking, money market and local certificate accounts) to fund its loans without overpaying for outside money. Chief executive Dave Seiler said "Annualized loan growth of approximately 10% was more than fully funded by 14% annualized core deposit growth" during the third quarter.
- New core deposits: up $101.3 million in the quarter, compared with $59.0 million a year ago
- Core deposit share of bank funding: 76.7%, above the 75% five-year target
- Wholesale funding (brokered deposits and Federal Home Loan Bank advances): down $103.1 million from last quarter to $903.3 million
- Deposit service charges: up 22.4% from a year ago to $1.4 million
Because local business customers brought in more cash than borrowers drew in new loans, the lender paid down $159.4 million of Federal Home Loan Bank advances. Replacing those borrowings with core deposits costing 2.41% kept total funding costs flat at 2.76% from last quarter and lowered federal deposit insurance fees by 15.0%.
What to watch: core deposits as a share of total funding in the fourth quarter. Holding above 75% while loans grow would show the bank can expand its balance sheet without returning to wholesale borrowings.
Margin Target Proved Cautious as Rates Fell
Net interest margin (the profit spread between what the bank earns on loans and pays on deposits) has been a standing concern because volatile loan prepayment fees lifted it above management's 3.60% to 3.65% long-term target. By our math, hitting that target for the year required the margin to drop below 3.63% in the second half.
Instead, the margin rose to 3.80% from 3.78% last quarter and 3.68% a year ago, even as prepayment fees fell by $193,000 from the second quarter. As the Federal Reserve cut short-term interest rates by 0.63 percentage points over the past year, the Wisconsin bank cut the rate it pays on core deposits by 0.48 percentage points while loan yields fell by only 0.31 percentage points.
First Business Bank now expects the margin to "remain above the Company’s long-term target range of 3.60% to 3.65% during the fourth quarter". That outlook shows the earlier target was conservative, though management still expects the margin to "moderate from the third-quarter level as fee income normalizes".
What to watch: the fourth-quarter net interest margin and the size of loan fees collected in place of interest. A reading above 3.65% when prepayment fees drop would prove deposit repricing is defending the spread.
Leaving National Small-Business Lending Cut Payroll
In May 2026, First Business Bank shut down its out-of-market Small Business Administration (SBA) 7(a) lending unit to focus on higher-return local business banking. This quarter provided the first full three-month reading on the cost savings from that exit.
Operating expense fell 2.6% from last quarter to $26.2 million, "primarily due to lower compensation expense due to our exit from out-of-market SBA 7(a) lending". Employee compensation dropped by 2.1 percentage points of operating revenue from the second quarter (and 2.0 percentage points from a year ago) to 37.4%, pushing the efficiency ratio (operating expenses as a share of revenue) down to 55.12%.
Those savings will not all go to the bottom line next quarter, because Seiler said "We expect expenses to increase from the third-quarter level as we make planned investments in talent, marketing, technology, and infrastructure to support continued growth". What to watch: fourth-quarter operating expense growth against revenue growth, as faster cost growth would eat into the SBA payroll savings.
Positives this quarter didn't test
Two standing growth drivers kept advancing on the year-over-year numbers, though the quarterly release lacked the detail needed to test their third-quarter momentum.
- Private wealth management: fee revenue grew 13.2% from a year ago to $4.2 million, and trust assets rose 10.8% to $4.227 billion, but assets were flat from last quarter ($4.235 billion) and the release did not split new client money from market moves.
- Specialty commercial and industrial lending: total commercial and industrial loans rose 9.9% from a year ago to $1.390 billion, but grew at just a 2.7% annual pace from last quarter (led by floorplan financing), and the release did not provide separate balances for asset-based or equipment lending.
What to watch: the third-quarter presentation supplement and quarterly filing for net new wealth client inflows and individual specialty loan balances. Strong new client inflows and double-digit asset-based loan growth would confirm both engines are still taking market share.
🐻 Bear Case
The Largest Problem Real Estate Relationship Grew
Commercial real estate makes up 60.9% of First Business Bank's loan book, and last quarter management expected progress later this year toward resolving its two largest problem loans. Seiler highlighted "disciplined credit and capital management" in the third quarter.
Instead of shrinking, non-performing assets (loans no longer paying interest) rose by $2.2 million from last quarter to $40.2 million, or 0.91% of total assets, because of a "new non-accrual multifamily loan associated with the previously disclosed Wisconsin relationship". That single southeast Wisconsin borrower now accounts for $22.7 million of non-accrual loans, up from $17.0 million in June, and carries just $416,000 in specific loss reserves.
- Total non-performing assets: $40.2 million, up 71.1% from $23.5 million a year ago
- Quarter net charge-offs (loans written off as uncollectible): $2.6 million (0.29% of average loans annualized), up from $1.0 million last quarter
- Total loss allowance to non-accrual loans: 96.5%, down from 103.8% in June
Setting aside almost no reserve on a $22.7 million problem relationship rests on property appraisals, so any drop in sale prices during foreclosure would force new credit provisions. What to watch: fourth-quarter property sales or reserve additions on the Wisconsin relationship, as another quarter without a sale would break the year-end resolution timeline.
Non-Interest Fee Income Still Swings on One-Offs
First Business Bank wants non-interest fee income to grow 10% a year so revenue does not depend entirely on lending spreads. Reported non-interest income fell 12.6% from a year ago to $8.4 million (and fell 9.0% excluding the exited SBA loan sales).
Part of the drop came from comparing against $771,000 of one-time accounts receivable and life insurance gains a year ago; excluding those and SBA sales, underlying fee revenue was down 0.7% by our math. Even on a clean basis, volatile commercial loan swap fees ($555,000, down 43.0% from a year ago) and lower returns on limited partnership investments offset steady gains in wealth management and deposit fees.
Fee income made up 17.74% of total revenue this quarter, down from 21.65% a year ago. What to watch: fourth-quarter non-interest income, where hitting the 10% full-year growth target requires $8.6 million to $9.4 million of fees (by our math, depending on the 2025 base), above the $8.4 million third-quarter run rate.
👓 Other Themes
Stock Buybacks Used Over Half the Authorization
After leaving its $5.0 million share buyback program untouched for more than a year, First Business Bank began buying its own stock as its common equity Tier 1 capital ratio reached 9.65%. The bank bought 12,000 shares for $835,000 in the third quarter and another 29,058 shares in October, spending $2.9 million in total at an average price of $69.70 per share.
💲 Other KPIs
Tangible book value per share (net worth per share excluding goodwill and intangibles) rose 13.4% from a year ago and 10.5% annualized from last quarter. Strong retained earnings and a 17.32% return on average tangible common equity drove the increase, keeping the bank ahead of its 10% annual growth target.
Deposits above the federal insurance limit (and not backed by pledged assets) rose 18.1% from last quarter to 36.2% of total deposits, up from 32.0% in June. First Business Bank holds $1.654 billion in readily accessible cash and loan collateral (and $2.546 billion in total liquidity), covering uninsured balances 1.2 times.
🔮 Guidance
Unchanged. Seiler reaffirmed the bank's model of roughly 10% annual balance sheet growth and positive annual operating leverage (growing revenue faster than expenses). Gross loans are already up 10.2% from a year ago, so by our math the lender needs just 3.9% annualized loan growth in Q4 to finish 2026 at 10%. Hitting 10% full-year operating revenue growth requires 10.7% growth in Q4 by our math.
Raised for the fourth quarter. The Wisconsin lender kept its 3.60% to 3.65% long-term range, but now expects the Q4 margin to stay above 3.65% while moderating from 3.80% as loan fees normalize. Over the last six quarters, net interest margin has beaten the 3.625% target middle by an average of 0.05 percentage points.
Unchanged. Management still expects the full-year tax rate to land between 13% and 15%. Through the first nine months of 2026, taxes took 12.4% of pre-tax income (helped by a state tax benefit in the second quarter), which by our math leaves an implied Q4 tax rate of about 18% to reach the 14% middle of the full-year range.
❓ Key Questions
Why did another Wisconsin real estate loan stop paying?
The single southeast Wisconsin real estate relationship grew from $17.0 million of non-accrual loans in June to $22.7 million in September as a multifamily loan was added, yet carries only $416,000 in reserves. What are the updated appraisal values and foreclosure timelines for this borrower?
How much will fourth-quarter operating expenses rise?
Operating expenses fell $706,000 in Q3 after the SBA lending exit, but management plans to increase spending on talent, marketing and technology from the Q3 level. How much of the $650,000 quarterly SBA payroll savings will remain after these new investments?
What were loan payoffs and specialty C&I balances in Q3?
Commercial and industrial loans grew just 2.7% annualized in Q3 compared with 14.3% for commercial real estate. Were commercial loan payoffs still running above average, and what were the period-end balances for asset-based lending and equipment finance?
How much of Q3 net interest margin came from loan fees?
Prepayment and asset-based loan fees were $857,000 higher than a year ago, and management expects the 3.80% margin to moderate in Q4 as those fees normalize. How many basis points did fees in place of interest add to the Q3 margin?