First Business Financial Services, Inc.

Second-quarter EPS was $1.84, which included a net benefit of $0.14 from two one-time items. Excluding that benefit, EPS grew 18% from Q1 and 26% from Q2 last year. Pretax pre-provision earnings reached a record $19.8 million, and second-quarter NIM increased 22 bps to 3.78% from 3.56% in Q1. Fee income grew 18% year over year despite the absence of SBA gain-on-sale revenue, and first-half revenue was up 11% year over year. Loans grew 10% annualized in the quarter, or 7.2% excluding the $23.7 million SBA transfer, while core deposits grew 12% annualized. Management reiterated full-year targets of about 10% loan growth, about 10% fee income growth, NIM of 3.60% to 3.65%, and effective tax rate of about 13% to 15% for 2026. They also said deposit growth should be approximately 10% annualized.

Dave Seiler framed the quarter as broad-based execution across the bank, emphasizing relationship banking, market share gains, and talent as key differentiators. He said the SBA exit frees capacity to focus on more profitable growth in existing markets like Milwaukee and Kansas City, along with higher-yielding niche C&I and private wealth. His tone was confident and upbeat, repeatedly calling the quarter outstanding and saying the company has a strong runway for the second half.

Brian Spielmann focused on the mechanics of the SBA exit and the margin/expense outlook. He estimated the decision will eventually add about $140,000 of incremental net interest income and $20,000 of incremental servicing income per quarter by 2027, while eliminating about $500,000 of quarterly SBA gain-on-sale revenue and about $650,000 of quarterly salaries and benefits tied to the exited positions, for a net pretax benefit of about $310,000 per quarter in 2027, or about $0.03 per share after tax. He also said operating expenses, excluding SBA severance and a tax-credit impairment, were largely in line with Q1, CET1 remained above the 9.5% internal target, total capital stayed above 12%, and the company still has a $5 million share repurchase authorization.

Analysts focused on the near-term NIM path, the timing of the SBA exit benefits, competition in loans and deposits, and whether funding costs would rise. Management said prepayment activity is likely to stay elevated in Q3, and that around 20 bps of NIM typically comes from prepayment and other fees in lieu of interest. On SBA, they said the salary savings start immediately, but the spread-income benefit builds as roughly $15 million of loans in process fund by year-end, which is why the full quarterly benefit is modeled for 2027 rather than immediately. On competition and funding, they said competition is still strong but not meaningfully different from recent years, and that they remain confident in meeting lending targets while managing through a competitive deposit environment.