Business Overview and History
First Business Financial Services, Inc. (FBIZ) is a bank holding company that provides a wide range of financial services through its wholly-owned subsidiary, First Business Bank. Based in Madison, Wisconsin, the company has established a reputation for delivering consistent growth and shareholder value by focusing on its unique business banking model.
First Business Financial Services was incorporated as a bank holding company in the state of Wisconsin in 1995, operating through its wholly-owned subsidiary, First Business Bank (FBB), which was founded in 1986. The company’s initial focus was on providing specialized banking services to small and medium-sized businesses, business owners, executives, professionals, and high net worth individuals in the greater Madison, Wisconsin area.
Over the years, First Business Financial Services has expanded its geographic footprint and service offerings. In 1998, the company opened its first branch in the Milwaukee, Wisconsin market, followed by establishing a presence in the Kansas City metropolitan area in 2005. Today, the company operates in four key markets: South Central Wisconsin, Southeast Wisconsin, Northeast Wisconsin, and the greater Kansas City metropolitan area.
In addition to its core commercial banking business, First Business Financial Services has grown its private wealth management and bank consulting services. The private wealth management division offers trust and estate administration, financial planning, investment management, and private banking for executives and owners of business banking clients. The bank consulting division provides investment portfolio administrative services, asset liability management services, and asset liability management process validation for other financial institutions.
Throughout its history, First Business Financial Services has faced various challenges, including the Great Recession in the late 2000s. During this time, the company successfully navigated the difficult economic environment by maintaining its disciplined underwriting standards and focus on serving its core commercial and private wealth clients. The company was also able to leverage its diversified revenue streams from its private wealth management and bank consulting services to help weather the storm.
First Business Financial Services has built a diversified loan portfolio, with commercial real estate (CRE) loans accounting for 60% of the total loan book as of September 30, 2024. The company’s commercial and industrial (C&I) loans, which include niche lending areas such as equipment finance, accounts receivable financing, and floor plan financing, make up an additional 38.5% of the loan portfolio. The remaining 1.5% is comprised of consumer and other loans.
The Corporation operates through three key product segments: Business Banking, Private Wealth, and Bank Consulting. The Business Banking segment focuses on delivering a full range of commercial banking products and services tailored to meet the specific needs of small and medium-sized businesses, business owners, executives, professionals, and high net worth individuals. The Private Wealth segment provides trust and estate administration, financial planning, investment management, and private banking services. The Bank Consulting segment offers investment portfolio administrative services, asset liability management services, and asset liability management process validation for other financial institutions.
Financial Strength and Performance
First Business Financial Services has demonstrated strong financial performance, with consistent growth in key metrics. As of September 30, 2024, the company reported total assets of $3.72 billion, up 7.9% from the end of 2023. This growth was primarily driven by a 9.3% increase in loans and leases receivable, net of allowance for credit losses, to $3.02 billion.
The company’s net interest margin (NIM) has remained stable, averaging 3.62% for the nine months ended September 30, 2024, compared to 3.81% for the same period in 2023. This stability is a result of the company’s disciplined asset-liability management, which includes the use of interest rate swaps to manage interest rate risk.
First Business Financial Services has also maintained a strong capital position, with a total risk-based capital ratio of 11.72% as of September 30, 2024, well above the regulatory minimum of 10.5% required to be considered “well-capitalized.” The company’s Tier 1 leverage ratio stood at 8.68%, also exceeding the 5% well-capitalized threshold.
For the most recent fiscal year (2023), First Business Financial Services reported revenue of $143.90 million, net income of $37.03 million, operating cash flow of $52.29 million, and free cash flow of $49.41 million. In the most recent quarter (Q3 2024), the company achieved revenue of $38.07 million, net income of $10.53 million, operating cash flow of $13.79 million, and free cash flow of $14.41 million.
The company experienced a $1.04 million, or 2.80%, increase in top-line revenue for Q3 2024 compared to Q3 2023. This growth was primarily due to an $8.40 million, or 8.40%, increase in net interest income, partially offset by a $1.37 million, or 16.20%, decrease in non-interest income. The increase in net interest income was driven by an 11.80% increase in average gross loans and leases and an increase in fees in lieu of interest, partially offset by net interest margin compression.
Diversified Revenue Streams and Fee Income
In addition to its core lending activities, First Business Financial Services has built a diversified revenue stream through its private wealth management services, which generated $9.84 million in fee income for the nine months ended September 30, 2024, a 15.8% increase from the same period in 2023. The company’s private wealth assets under management and administration totaled $3.4 billion as of September 30, 2024, up 17% from the prior year.
The company’s fee income also includes gains from the sale of Small Business Administration (SBA) loans, which totaled $1.0 million for the nine months ended September 30, 2024, as well as income from commercial loan interest rate swap fees and service charges on deposits.
Prudent Risk Management and Asset Quality
First Business Financial Services has maintained a strong focus on asset quality, with non-performing assets (NPAs) accounting for just 0.52% of total assets as of September 30, 2024, down from 0.59% at the end of 2023. The company’s allowance for credit losses, including the reserve for unfunded credit commitments, was 1.16% of total loans as of September 30, 2024, unchanged from the end of 2023.
The company’s credit quality metrics have remained stable, with the ratio of net charge-offs to average gross loans and leases at 0.16% for the nine months ended September 30, 2024, compared to 0.03% for the same period in 2023. This performance is a testament to the company’s prudent underwriting standards and proactive credit risk management practices.
Liquidity
First Business Financial Services maintains a strong liquidity position to support its operations and meet regulatory requirements. The company’s liquidity management strategy includes maintaining diverse funding sources, including deposits, borrowings, and capital markets access. As of September 30, 2024, the company had ample liquidity resources, including cash and cash equivalents, available-for-sale securities, and access to various credit facilities and borrowing arrangements.
The company’s debt-to-equity ratio stands at 1.12, indicating a balanced approach to leverage. Cash and cash equivalents totaled $131.97 million as of September 30, 2024. First Business Financial Services has a $45 million federal funds line of credit and excess brokered CD capacity of $110 million. The company’s current ratio and quick ratio are both 0.06, reflecting its focus on maintaining sufficient liquidity to meet short-term obligations.
Strategic Initiatives and Outlook
First Business Financial Services is focused on several strategic initiatives to drive continued growth and shareholder value. These include:
Looking ahead, First Business Financial Services is well-positioned to navigate the evolving banking landscape. The company’s consistent financial performance, strong asset quality, and strategic initiatives position it for continued success in serving the specialized banking needs of its target clientele.
First Business Financial Services has reiterated its long-term organic growth goal of 10% for both loans and deposits. The company is targeting a net interest margin (NIM) range of 3.60% to 3.65% in the long term and expects to maintain a stable NIM within this range despite the competitive environment. Additionally, First Business Financial Services aims to produce tangible book value growth of 10% or more per year, along with a return on average tangible common equity of 15% or more by 2028. The company believes its growth model will deliver on its ultimate goal to generate total shareholder returns that exceed their peer group median, which they overachieved for the five years ended 2023.
Conclusion
First Business Financial Services has established itself as a leading provider of business banking services, leveraging its unique model to deliver consistent growth and shareholder value. With a diversified loan portfolio, stable net interest margin, and prudent risk management practices, the company continues to demonstrate its ability to navigate the challenges of the banking industry. As it executes on its strategic initiatives, First Business Financial Services is poised to capitalize on the opportunities ahead and maintain its position as a trusted partner for its clients and investors.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.