First Business Bank’s Q1 2025 Earnings: Fireworks in Loan Growth, but Watch the Margins!

First Business Bank (NASDAQ: FBIZ) just lit up the financial sector with its Q1 2025 earnings, reporting a net income of $11.0 million or $1.32 per share, a 27% jump from Q1 2024. But hold onto your hats—the story here isn’t just about the numbers; it’s about what’s underneath them. Let’s dive in.

The Good: Loan Growth is Igniting!

First Business isn’t messing around. Its commercial and industrial (C&I) loans surged 26.9% annualized to $1.229 billion, driving overall loan growth of 9.2% annualized. This is the kind of expansion that keeps shareholders smiling. The bank is clearly winning in sectors like small business lending and corporate financing, which bodes well for future revenue.

But wait—there’s more! Total deposits swelled 17.5% annualized to $3.185 billion, with core deposits hitting a record $2.463 billion. That’s critical because core deposits are the lifeblood of a bank—they’re cheaper to maintain and less volatile than wholesale funding. Management deserves credit for steering clients toward these low-cost deposits, which helped slash the average rate paid on them by 27 basis points to 2.71%.

The Not-So-Good: Margins Take a Hit

Here’s where the caution flag flies. The net interest margin (NIM) dipped to 3.69%, down 8 basis points from Q4 2024. While this is still within the bank’s long-term target range of 3.60%-3.65%, it’s a trend to monitor. Falling short-term rates have crimped loan yields, and the bank’s reliance on volatile fee income (which dropped 57% to $388K) isn’t helping.

The Ugly: Expense Bloat and Tax Headwinds

Expenses are creeping up. Non-interest costs rose 6.8% to $24.7 million, driven by higher payroll taxes, 401(k) contributions, and a 3.4% increase in full-time employees. Meanwhile, the effective tax rate spiked to 17%—up sharply from 5.8% in Q4—due to the reversal of prior tax benefits. This isn’t a disaster, but it’s a reminder that banks aren’t immune to fiscal headwinds.

The Hidden Gem: SBA and Wealth Management

Don’t overlook the SBA loan sales, which grew 2.7% to $963K, or the Private Wealth Management division, which now contributes 46% of non-interest income. Assets under management there hit $3.425 billion, a 12% jump from last year. These fee-based businesses are recession-resistant and could become cash cows if interest rates stay volatile.

Risk Radar: NPA Watch and Interest Rate Beta

While non-performing assets (NPAs) fell to 0.61% of total assets, excluding a $6.2M problematic ABL loan, the allowance for credit losses dipped to 1.15% of loans. That’s a bit lean given economic uncertainty. Also, the bank’s interest-rate beta (how much its margins react to rate changes) is 50%, meaning it’s only halfway insulated from Fed moves. If rates drop further, margins could struggle.

Verdict: Buy the Growth, But Mind the Gaps

First Business is firing on all cylinders in loans and deposits—this is a bank that’s out-executing peers. Its tangible book value per share grew 14% year-over-year, a clear sign of shareholder value creation. Management’s focus on 10% annual growth in loans, deposits, and revenue is bold but achievable if they keep costs in check.

Final Call: FBIZ is a buy for investors who believe in regional banks’ comeback story. But don’t forget—margin pressure and rising expenses are real. If you’re in, set a close watch on NIM trends and loan quality. This isn’t a “set it and forget it” stock, but for active investors willing to sweat the details, it’s worth the ride.

Bottom Line: First Business is a growth machine in a sector hungry for winners. Just don’t let the fireworks distract you from the fundamentals.