First Business Financial Services, Inc. (NASDAQ:FBIZ) Q1 2025 Earnings Call Transcript

First Business Financial Services, Inc. (NASDAQ:FBIZ) Q1 2025 Earnings Call Transcript April 25, 2025

Operator: Good afternoon. Welcome to the First Business Financial Services First Quarter 2025 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded Friday, [April 15, 2025] (ph). I would now like to turn the conference over to First Business Financial Services, Inc. CEO, Corey Chambas. Please go ahead.

Corey Chambas: 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 Spielmann. Today, we’ll discuss our financial performance along with some operational highlights 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 on 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. Our model is built to produce 10% annual growth, and the first quarter is one more example of our strategic plan at work. Our team has a clear directive to drive relationship-based deposit growth.

And this quarter, we produced double-digit core deposit growth that outpaced our robust expansion of loans. We also maintained a strong net interest margin and stable asset quality. All the elements required to consistently grow shareholder returns showed strength during the quarter. Loans grew across our markets and portfolios. Private wealth management assets and fees grew. Operating revenue showed continued strength, and operating expenses were contained and in line with growth in our workforce. Non-performing assets declined. These successes drove pre-tax pre-provision adjusted earnings up 23% over last year’s first quarter and earnings per share of $1.32, up 27% from a year ago. Most importantly, tangible book value per share grew 14%.

Dave will walk through some of the business activity that drove strong first quarter results. Dave?

Dave Seiler: Thanks, Corey. It’s worth repeating that our balance sheet growth was very strong this quarter and that’s by design. You can see the quarterly highlights on Slide 3 of the earnings call supplemental slides. Loan balances grew about $275 million over the same period last year. That’s up almost 10%, which is our long-term organic growth goal. Total deposits grew $488 million or 18% from last year’s first quarter. That includes our continued use of wholesale deposits to execute our match funding strategy, maintain adequate liquidity and support our loan growth goals. We saw exceptional growth in the first quarter with core deposits growing $66 million or over 11%. You can see our quarterly deposit and loan growth trends on Slide 4.

On the lending side, we continued to deliver on our growth targets in the first quarter. C&I led the growth with balances expanding $77 million, or 27% annualized. A few successes in particular merit attention. SBA lending sustained its momentum under the recently expanded team. We expect this trajectory will be variable, but with strong loan sale premiums for the past two quarters, we expect SBA to be a meaningful driver of revenue in 2025. Additionally, activity levels in our asset-based lending group are exceeding what we’ve seen in the last one-and-a-half to two years. We attribute this to market dynamics and with our new ABL leader now in place alongside our exceptional team, we’re positioned to capture growth opportunities in this space.

Our floor plan financing team also continues to show nice demand, extremely high client satisfaction results and is off to a great start in 2025. This is a good time to highlight two of our lending businesses in light of the current uncertainty around the economic outlook. Our asset-based lending and accounts receivable financing businesses are typically countercyclical. Yields on these loans typically carry a significant premium over conventional C&I yields, and they are generally 100% secured. We would expect growth in these portfolios in a softening economy. Moving briefly to revenue, our first quarter revenue grew by nearly 13% compared to the first quarter of 2024. This sustained strength reflects the diversified nature of our revenue streams and supports our continued goal of achieving 10% or greater annual revenue growth over the long term.

The diversification we’ve built into our revenue profile provides a buffer against reliance on any one source. You can see our revenue growth trajectory on Slide 7 of the earnings deck. On to asset quality. We continue to be pleased with how our portfolio is performing and have no areas of particular concern. NPAs declined by $4.3 million from the linked quarter due to net charge-offs against specific reserves on credits in the transportation sector of the equipment finance portfolio and the SBA portfolio. While these net charge-offs reduced the overall allowance for credit losses, this was partially offset by increased general reserves due to loan growth and modest deterioration in the economic outlook in our model forecast. Together, these factors drove the increase in the allowance coverage of NPLs compared to December 31.

We are always looking closely at migration in the portfolio. Our weighted average risk rating has barely moved. We continue to wait out the bankruptcy proceeding process and related litigation for the $6.2 million ABL credit mentioned in previous quarters. We expect full repayment on this credit, but unfortunately, it continues to inflate our otherwise healthy level of NPAs. Lastly, I want to comment on the current environment and what we’re hearing from our clients. We are in very healthy markets and our clients are generally healthy and thriving. We do have ongoing dialogue with clients and there is a rising level of uncertainty related to changes in US trade policy along with the potential for any unfavorable changes to lead the economy into recession.

Although we are built to grow at a double-digit pace in most conditions, our growth will be impacted if conditions weaken. We can’t put a number on that today, but we would expect to continue outperforming our peers as we have done in recent periods of economic weakness. Now, I’ll hand it off to Brian.

Brian Spielmann: Thanks, Dave. I’ll cover first quarter financials in a little more detail. As a reminder, when looking at our first quarter results in comparison to the linked quarter, our fourth quarter had some unusual items, which boosted earnings by about $0.28. Our ability to produce a net interest margin that is strong and stable compared to peers contributed to our solid performance. First quarter margin of 3.69%, reflects our continued strong balance sheet management. You can see a breakdown of this on Slide 5 of our earnings supplement. Our margin includes fees earned in lieu of interest, which declined by $307,000 from the linked quarter. Compared to the first quarter of 2024, fees in lieu of interest grew by $1.2 million.

Fees in lieu of interest refers to the significant and recurring, but variable amount of interest income we earn from items like prepayment fees and asset-based loan fees. Recent levels were elevated and contributed 23 basis points to reported margin for the first quarter and 27 basis points in the fourth quarter, compared to 10 basis points in the first quarter of 2024. Excluding these fees, our adjusted NIM was 3.46% for the quarter compared to 3.48% in the linked quarter and 3.43% for the prior-year quarter. Margin remains strong and consistent due to pricing discipline and continued execution of our long-standing match-funding philosophy. Dave covered fee income and the strength we continue to see there. Just a few additional notes. Ongoing variability in swap fees and returns on SBIC funds are expected.

Our swap fee income will continue to vary quarterly based on CRE activity, the rate environment and client preference. We saw a decrease of $475,000 there in the first quarter. SBIC fee income is driven by interest income in the portfolio and unrealized and realized gains. We saw an uptick of $318,000 in Q1 and expect realized gains should show strength throughout 2025 as the existing funds mature, though timing may contribute to ongoing variability. One administrative item is that we reclassified certain types of C&I loan fees from non-interest income to fees in lieu of interest in our net interest income line. For the first quarter, this reclassification was approximately $500,000. The reclassification does not change our outlook or target range of 3.60% to 3.65% for net interest margin, but we’d expect to land on the higher end of that range, all else equal.

Quarterly variability reinforces the importance of our fee income diversification we’ve worked hard to grow. We continue to expect overall annual fee income to grow in our long-term target range of 10% going forward. Our expenses were well-contained this quarter and showed expected workforce related and seasonal growth. Total expenses were up $1.6 million compared to the fourth quarter. $1.2 million of that growth came from compensation expense due to larger workforce, merit increases and higher seasonal payroll taxes. When we think about expenses, our primary objective is achieving annual positive operating leverage, expense growth at some level below our targeted level of 10% revenue growth. We will continue to manage expenses towards this goal in the event that economic conditions impact revenue growth.

Next, taxes. The first quarter returned to a more normalized effective tax rate of 17%, in line with our target range of 16% to 18% for 2025. Recall that in the fourth quarter, we saw a significant change in estimated state taxes, which brought our effective tax rate down to 5.8%. Finally, we continue to feel good about our capital levels and our strong earnings are generating more than enough capital to facilitate our expected organic growth. And now, I’ll hand it back over to Corey.

Corey Chambas: Thanks, Brian. I’d like to draw your attention to our Slide 11 in our earnings deck. This shows our five-year strategic plan and our progress toward achieving our long-term goals. You’ll see that above all, our goal is to deliver shareholder returns that exceed our peers. We expect we can do this in any environment. The metrics we track to achieve this are laid out on this slide. Today, we continue to do what we’ve always done and that’s focused on controlling the controllable. This is the value of a well-thought-out strategic plan that is understood by all employees. It guides us in both stable and volatile times. We continue to be optimistic about 2025 and believe focus on our strategic initiatives will serve us well in the future. I want to thank you for taking time to join us today. We’re happy to take your questions now.

Q&A Session

Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Daniel Tamayo from Raymond James. Please go ahead.

Daniel Tamayo: Thanks. Good afternoon, guys.

Corey Chambas: Hey, Danny.

Brian Spielmann: Hey, Daniel.

Daniel Tamayo: Maybe we start, on the margin, kind of the underlying — some of the underlying components there. Just curious what new loan yields were in the first quarter, and where roll-off yields were, and then just any commentary you have on if you’ve seen tightening of spreads at all?

Brian Spielmann: All right. Yes. I would say [new loan yields] (ph) are pretty consistent with prior quarter. We’re seeing for the very competitive credits, those spreads are narrowing a little bit, but not much change. So, I would say nothing really to note there in the first quarter.

Daniel Tamayo: Okay. Not much change on new — do you have the — like a rough number of where they were, the loan yields?

Brian Spielmann: No. We don’t. We typically will see pricing in the 2.25% to 2.75% range depending on the type of credit and the type of product it is. So, over SOFR, sorry.

Corey Chambas: On the bank side.

Brian Spielmann: On the bank side. And then, obviously, the specialty finance or initial commercial lending area with ABL and ARF and other areas, we get wider spreads there. And so, that’s where that mix comes into play in the margin.

Corey Chambas: And, Danny, we for a while, we were providing that breakdown of what the loans for the quarter, the new loans came on at. And then, we thought that was going to be helpful, but we realized it gets skewed because of — it depends where it comes from for the quarter. So, as Brian said, if they’re asset-based — if we had a bunch of asset-based deals or factoring deals happen in that quarter, it’s going to really skew it up, but it was more confusing than it was informative. So, we stopped generating that information on a specific quarter go-forward basis.

Daniel Tamayo: Understood…

Corey Chambas: But I would say — yeah. I would say it’s pretty stable both on the loan and deposit side right now. We’ve finally kind of gotten to an equilibrium state, I would say, on both sides of the balance sheet.

Brian Spielmann: Agreed.

Daniel Tamayo: That’s kind of where I was going with this. The core margin has been pretty stable, trended slightly down over the last few quarters, but relatively stable here as you guys have talked about the expectation for that to be the case. You’ve got the, call it, 5 basis points of incremental fees in lieu of interest in there now. So, I appreciate your guidance on the upper end of 3.60% to 3.65%. But — so I guess, what you’re saying is that you’re not seeing loan yields. They were relatively stable in the quarter. You wouldn’t expect those to be trending down at all from current levels if we didn’t get any rate cuts and probably the same answer on funding costs. Is that fair?

Corey Chambas: Yeah. That’s spot on, Danny.

Daniel Tamayo: Okay. And then, you talked about it a little bit in your prepared comments, about the tariffs and maybe creating some uncertainty and probably hard to quantify at this point, but just curious, as you look through your borrower base, where it might be most exposed to these tariffs, where you’re watching most closely, as we go through these next few months, and who knows what’s going to actually come out of Washington, but at least to give you a starting point.

Corey Chambas: Dave, why don’t you start with that?

Dave Seiler: Yeah. Well, I mean, I think to start, Danny, I mean, we try to communicate a lot with our clients, and we’ve wrapped that up, over the last 60 days, for sure, just trying to figure out what they’re thinking and where they might be impacted. Right now, we’re not hearing a lot of noise from them. I mean, they have concerns and they have uncertainty, but I don’t believe they’ve been significantly impacted at this point. So, we’re focusing on — particularly on clients that have foreign — or international clients, international vendors. We’re focusing on contractors. And so far, we haven’t seen a huge impact.

Corey Chambas: Jim, anything different to add there?

Jim Hartlieb: No. Lots of conversation and uncertainty, but no impact as of yet. And I would say there’s a little bit of a good news, bad news in that, Danny, is we don’t have a lot of clients that do international — that’s all internationally. We’ve often tried to push on international products because it’s a good product for banks, letters of credit for hedging foreign currency exposure, et cetera. And we just don’t have much usage on that from our client base, which right now, today is probably good news.

Daniel Tamayo: Got it. Okay. I appreciate all that color. Last one. Just a small question. I apologize. I’m not sure if you addressed this in the comments. I know you did in the release a little bit. Just on the pull-forward of equipment finance losses that drove the increase in net charge-offs, that would be expected to — I mean, that’s essentially, like, a one-quarter phenomenon. Is that the way to think about that?

Corey Chambas: Yeah. Let’s have Brad Quade, our Chief Credit Officer, handle that one.

Brad Quade: Hey, Danny. Good. Yeah. That is a one-quarter anomaly that we’re going to see it at that level. While we do expect some continued credit costs in the equipment and the equipment finance portfolio in Q2 and beyond, we look at that size of the charge-offs there as being unique and kind of accelerating at quarters worth of charge-offs.

Daniel Tamayo: Okay. All right. Great. I’ll just — I’ll sign off with, glad to see the Packers finally decided to take a receiver last night, the draft bill.

Corey Chambas: Yeah. I’m excited…

Daniel Tamayo: All right. Thanks, guys.

Operator: Our next question comes from Jeff Rulis from D.A. Davidson. Please go ahead.

Jeff Rulis: Thanks. Good afternoon. Maybe a quick follow-on in the same vein. Expectation on the provision, assuming loan growth is where it’s at, a step down, there’s some correlation, I guess, I’m asking on the provision to the increased charge-offs. Is that correct?

Brian Spielmann: Yes, in the current quarter, there’s correlation with the increased provision due to the pull-forward on the [EF] (ph) charge-offs. So, I think all else equal, we have a growth factor in provision. And then, we’ll continue to work through the EF portfolio with some additional net new along with the charge-offs in the quarter. And then, again, the CECL model factors, the quantitative piece, right, will kind of present itself as it will with the rest of the industry. So, yeah.

Corey Chambas: But most of what we pulled forward because, essentially, I think you could think of it as two quarters’ worth of charge-offs from that equivalent finance portfolio, which is where there was a transportation noise. But because of all that was done on timing, those were essentially reserved for already. So, I don’t think it had the same impact on the provision for the quarter. It just pulled — it pulled those charge-offs out of the specific reserves that were already in place for them.

Jeff Rulis: Got it. Okay. So, it came out of the reserve, but the provision line is less impacted, and that’s more of a function of kind of go-forward growth and CECL gymnastics, I suppose, right? So — okay. So, a provision level in the range that you’ve seen in the last few quarters is reasonable assumption?

Corey Chambas: Yes.

Jeff Rulis: Okay. So, jumping ship a little bit, your cash and securities balances as a percent of earning assets is kind of a two-year high. I guess, is that an intentional strategy, somewhat temporary? Just trying to check-in on those levels relative to overall earning assets.

Brian Spielmann: Yeah. I’ll say intentional, but temporary. Intentional in the fact that we’re looking to the balance sheet for 10% of total assets for liquidity at quarter-end, and you try to land the plan as best you can around that. And we had some nice core deposit inflows near really the last business day of the quarter, which then left us with some additional deposits there and inflated the balance sheet. We’ve already put that to work though. So…

Jeff Rulis: Got it. Okay. Appreciate it. And then, you mentioned the fee income expectations overall. I just want to clarify in that loan fee income line, the reclass, is that permanent that the run rate on loan fees remains kind of at this run rate, safe to say?

Brian Spielmann: Yes. I would say in the quarter, right, we had $7.5 million-or-so. So, you add that reclass back, we’re closer to $8 million. That’s with some of those components that we talk about, right? SBA was stronger, but private wealth, SBIC fund investments, different areas that we still think we can grow fee income…

Corey Chambas: Swaps.

Brian Spielmann: Swap fee income that comes and goes as a client preferences in the rate environment. So, we believe we can make up that reclass throughout the course of the year in fee income based on the various lever — based on the various engines and cylinders we have in that fee income growth.

Jeff Rulis: Okay. I may follow-up with you on that. But thanks. I’ll step back.

Brian Spielmann: Thank you.

Operator: Your next question comes from Damon DelMonte from KBW. Please go ahead.

Damon DelMonte: Hey, good afternoon, guys. Hope you’re all doing well today. Quick question, just to kind of follow-up on that, the last comment on the loan income reclassification. So, I think, Brian, you said that was about 5 basis points impact to the margin. Is that correct?

Brian Spielmann: Yeah. About.

Damon DelMonte: Okay. So, I think total fees in lieu of interest was around 23 basis points this quarter. And I think, historically, it’s been a little bit lower, maybe like 15 basis points. So, should we kind of model 20 basis points now if you look at the pickup from the other 5 basis points on the reclass?

Brian Spielmann: Yeah. I think that’s fair. On average, right, it’s been around 15 basis points to 20 basis points. And so, similar to our margin comments around that 3.60% to 3.65%, all else equally, we’d probably be on the higher end of that range, right? So, the 15 basis points to 20 basis points would probably be on the higher end. It’s probably a fair assumption.

Damon DelMonte: Okay. Got it. That makes sense. And then, with regards to opportunity to reprice fixed rate loans or CDs that are coming due, can you just talk a little bit about what the schedule for those look like?

Brian Spielmann: Yeah. Our CD portfolio is smaller, but we still do have opportunity there. We kind of we noted that in our press — in our earnings release, around $100 million-plus coming off at a 4 handle and a $100 million-plus coming on renewed or new at a sub-4. So, there’s still some benefit there. It’s just not a large portfolio, really, at all. And then, on the loan side, just given where we are in — when those loans were put on, I think there still is an opportunity not only in the loan side but on the bond portfolio, too, diminishing there though given where we are in the rate cycle now from where we put those assets on. So…

Damon DelMonte: Got it. Okay. That’s probably all that I had. Everything else had already been asked. So, thank you very much.

Brian Spielmann: Thanks, Damon.

Operator: Your next question comes from Nathan Race from Piper Sandler. Please go ahead.

Nathan Race: Hey, guys. Good afternoon. Thanks for taking the questions. Bigger picture, on the SBA front, obviously, there’s been a lot of headlines recently in terms of some changes in terms of underwriting and kind of just how that may impact deal volumes and so forth. So, just curious how you guys are kind of thinking about any ramifications, some of the changes in the SBA arena may impact your revenue line going forward.

Dave Seiler: I mean, I don’t think we, at this point, see a huge difference. I think it’s — the biggest factor driving volume for us right now is our sales team there. So, at this point, I don’t think we have huge concerns about changes in volume.

Nathan Race: Okay. Got you. And then, obviously, you guys are still kind of sticking to your double-digit or high-single-digit balance sheet growth outlook, but just curious with all the macro volatility of late, have you seen any kind of slowdown in activity levels when it comes to what you’re seeing in loan committee or otherwise?

Corey Chambas: Jim?

Jim Hartlieb: We really haven’t. There’s been a lot of conversation and they’re dealing with it on a case by case basis, but we haven’t seen it pull through on the pipeline yet.

Nathan Race: Okay. Great.

Corey Chambas: And the only kind of — Nate, the only real-time data that we have, if it’s loan deals that we have coming through the bank, those are things that have been in process for a while. So, we tried to look at that to see if we had any real-time data, and thought about our equipment finance business. Why don’t you speak to that, Dave?

Dave Seiler: Right. So that’s a higher volume, smaller ticket type product. So, what we’ve seen there is actually an increase in volume — an increase in applications over the past 30 to 45 days. So, we don’t know if that’s people accelerating their purchases to avoid tariffs or just baseline economic activity. And I guess we won’t know until sometime in the future, but at least it’s an indicator that real time it hasn’t slowed down yet.

Nathan Race: Okay. Got you. And then, question for Brad. Just curious what you saw in terms of kind of criticized classified migration in the quarter and just — kind of just any general thoughts on that front?

Brad Quade: Yeah. From a credit standpoint, I mean, nothing exceptional. I’d say the trend lines were benign. We had very little way of change quarter-over-quarter. We continue to work through a couple of the challenged credits that are on there. But, the overall portfolio and even those that headed into the quarter with some signs of distress, had general stability quarter-over-quarter. So, really too early to pick up any real trend lines of deterioration from broader economic concerns.

Nathan Race: Okay. Got it. And then, maybe one last one for Brian. Just curious how you’re thinking about remaining deposit cost leverage, just based on kind of where your pricing is today and maybe what you have in CDs rolling off based on kind of where your pricing is today on some of those products as long as that remains on pause.

Brian Spielmann: Yeah. I would say it’s going to be nominal, right? We talked about the CD portfolio and the opportunity we have there, kind of very small CD portfolio. And then, just new client acquisition is expensive. It’s near the alternative cost of funds. And for us, we think about the brokered CD market as alternative cost of funds. And so, the good thing for us is we’ve always been kind of competing in that environment. And so, we have — we think the asset yields to support that 3.60% to 3.65% long term still when you throw in the mix of the conventional in addition to the mix of the higher yielding niche C&I buckets. So, long answer to a shorter question. Sorry.

Nathan Race: No, that helps a lot. Thank you. And just lastly, can you guys remind us kind of what your loan deposit ratio target is? Obviously, it came down nicely in the quarter, but just curious how — where you’d like that to land over time.

Corey Chambas: Well, I think, we might have said this, Nate, is, we don’t think about it that much. We don’t care about it that much. We just think about our funding and liquidity, et cetera. But we know there are some kind of older school bank investors who look at loan to deposit ratio and think that’s an indicator of risk. They could see the Silicon Valley Bank experience and realize maybe that’s not the case. But we also, because of those optics, we’re trying to get it down a little bit. That’s why we favor brokered CDs over home loan bank advances when we want to match fund our balance sheet. So, ideally, if that was 99.99 instead of a 100-some-01, we think it could be better just because it had some screening that people do.

Brian Spielmann: So that’s our first test this quarter. We’ll see. We’re below 100 this quarter. Yeah. We’re at 98 maybe this quarter. And so, I think that’d been a big — there’s a lot of success on the core deposit side, but also just transitioning away from home loan advances to brokered CDs for our match-funding brought us down. And so, we think we have opportunity to keep pushing that down, given the core deposit objectives and goals. But to Corey’s point, we’re really more focused on that 75% core funded to total bank funding. And if it gets a little higher, that’s great, but we’re always going to have that element of wholesale funding to mitigate the interest rate risk.

Corey Chambas: And as long as that’s in that 70% to 80% range of our core funding, that’s a good place for us to be to be able to appropriately match fund the fixed rate portion of our loan portfolio that’s on balance sheet. So that’s a good range for us to be in. But as Brian said, the transition from home loan to brokered, which has been over the last couple years, in terms of what we’ve used for that match funding, that’s brought that loan to deposit ratio down. So, hopefully, we look more attractive and hit a few more screens, and people come and listen to the story and discover what we’re doing here and find it attractive.

Nathan Race: Yeah. Agreed. Sounds good. I appreciate all the color. Thanks, guys.

Brian Spielmann: Thanks, Nate.

Operator: Your next question comes from Brian Martin from Janney. Please go ahead.

Brian Martin: Hey. Good afternoon, guys.

Corey Chambas: Hey, Brian.

Brian Martin: Hey, just one question. Except to that fees in lieu of the reclass, is it — I guess, is it just being conservative to not bump the target range in the margin if you’re adding 5 basis points to that bucket, if you will, kind of when you split out the kind of core margin versus core with the fees in lieu or however you want to call it, but is that — is some conservatism on your part, or I guess, is there something — I guess, if we think about that…

Brian Spielmann: Yeah. We have a range — stated range of 3.60% to 3.65%, and we think, all else equal, we’ll end up now on the higher end of that range. Why we kind of say it that way and continue to say it that way is because it’s so — it is a volatile element with the fees in lieu of interest, right? So that can be, on average, 15 basis points to 20 basis points. It can be 23 basis points like it is this quarter. It can be less than 10 basis points like it has been on other quarters. And so, that’s why we kind of stuck with our guns there on our disclosed ranges. Although, again, pushing towards that higher end given the reclass.

Brian Martin: Got you. Okay. And just stick with a higher range of what we’ve put in for the fees in lieu right now. Okay. And then, Brian, just any big comments on — I get the NIM stability and just kind of the match-funded. Just any near-term kind of push or pulls on directionally how the margin plays out here over the next couple of quarters given kind of the environment we’re in right now or just not much movement one way or the other really, I guess, is how you’re — now listening to your comment about the competitive pressures on the deposit side, certainly funding the loan growth. But anything else that merits mentioning on your part in terms of near term?

Brian Spielmann: Yeah. I would kind of echo off of what Corey said earlier around stability right now at least on both sides of the balance sheet relative to pricing. And while it’s very competitive on the deposit side, I think we also have some comments — maybe in Dave’s comments around a little pickup in some of our niche C&I areas, too, right? So, there is some more activity there. And the more activity we have there, the more opportunity we have with those higher yielding loans. And we get those on the books, [indiscernible] opportunities that more fees in lieu of interest. And so, we think that combination and the mix of new business on both sides of the balance sheet gives us the opportunity to maintain our long-term margin targets.

Brian Martin: Got you. Okay. No, that’s helpful. And in terms of the just a credit picture, if we do get into a little bit different environment or weaker environment here, I think you had talked about or maybe some continued normalization of the conventional portfolio, but just as you kind of eye the risk here over the next six to 12 months, if we do economically get a little bit weaker, where — any new areas that we should be watching? I know you talked about the equipment finance, but just is it more of the conventional side? Or is it — I guess, would you just point to where you’re kind of paying a little bit more attention to today?

Corey Chambas: Brad, why don’t you take that?

Brad Quade: Yeah. I think that while obviously impossible to estimate with great accuracy what’s going on in the economy, I think our portfolio, because of the focus on real estate and heavily toward Wisconsin and Madison area, real estate continues to be very, very strong and showing high occupancy, good cash flows and across the entire portfolio, a great deal of still customer liquidity. So, I would say, in general, we feel very good about our portfolio being able to withstand softness in the economy. I think the obvious areas that — as we look at the portfolio will still be equipment finance driven, but it will be — already existing weakness within the transportation sector. If we were to hit a recession, they’re the ones who have already been in recession for the last couple of years and would — I think, be the ones to feel it most significantly.

But we’ve already factored in a great deal of softness in that segment of the portfolio today. So, I guess that’s a thought of the guidance I could give you based on what we see right now.

Brian Martin: Yeah. No, that’s helpful. I appreciate it. And I don’t know if you guys talked about — maybe if I missed in your opening comments, but just about the kind of the level of expenses today. This is kind of a good run rate to think about. Anything unusual there in terms of just kind of your outlook or just what you might have to say about that?

Brian Spielmann: Nothing unusual. I’d say consistent with how we’ve operated for a long time now, investing in people. We’ll continue to do that in ’25 opportunistically. And then — and if there are revenue headwinds from anything out of our control, macro based, then we can adjust that run rate, really driving towards that positive operating leverage on an annual basis.

Brian Martin: Yeah. Okay. So, good run rate to start, and we’ll see how things play out.

Brian Spielmann: Yes.

Brian Martin: Okay. That’s it. Then my other questions were answered. So, thanks for the time, guys.

Brian Spielmann: Yeah. All right. Thanks, Brian.

Corey Chambas: Thanks, Brian.

Operator: [Operator Instructions] There are no further questions at this time. I will now turn the call over to CEO, Corey Chambas. Please continue.

Corey Chambas: Thank you for joining us today, everyone. We appreciate your time and your interest in First Business Bank, and we look forward to sharing our progress again next quarter. Have a great rest of your day and a great weekend. Thanks.

Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.