First Business Financial Services Inc (FBIZ) is a Wisconsin-based bank holding company that has been serving the Midwest region for over three decades. Headquartered in Madison, Wisconsin, FBIZ operates through its wholly-owned subsidiary, First Business Bank, which provides a comprehensive suite 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.

FBIZ's History of Consistent Growth and Shareholder Value Creation

First Business Financial Services was incorporated in 1986 under the laws of the State of Wisconsin, with the goal of providing high-quality banking services to small- and medium-sized businesses in the Madison, Wisconsin area. In 1990, First Business Bank relocated its home office to Madison and began focusing on serving the banking needs of businesses in the surrounding area. Over the following years, the company expanded its geographic footprint by opening additional full-service banking locations in other parts of Wisconsin, as well as in the greater Kansas City metropolitan area.

A significant milestone in the company's history was the 2014 acquisition of Alterra Bank, which helped expand First Business Bank's presence in the Kansas City market. This acquisition allowed the company to leverage Alterra's existing infrastructure and client relationships to better serve businesses in that region. The integration of Alterra was successfully executed, with the combined organization maintaining strong asset quality and profitability.

During the 2008 financial crisis, First Business Financial Services faced challenges like many banks, experiencing an increase in non-performing assets and elevated credit costs. However, the company's conservative underwriting, diversified loan portfolio, and experienced management team allowed it to navigate the downturn effectively. First Business Financial Services emerged from the crisis in a strong position, setting the stage for subsequent growth and expansion.

The company's focus on commercial banking, private wealth management, and bank consulting services has allowed it to establish a strong foothold in its core markets of Wisconsin, Kansas, and Missouri. Through strategic acquisitions, disciplined risk management, and a commitment to client service, the company has demonstrated its ability to deliver consistent financial performance and create value for its shareholders.

Over the years, FBIZ has demonstrated a consistent track record of growth and shareholder value creation. Since the Great Recession, the company has reported annual net income growth, with 2024 marking the 12th consecutive year of dividend increases. This consistent financial performance is a testament to FBIZ's disciplined approach to risk management, strategic decision-making, and operational efficiency.

Diversified Revenue Streams and Strong Asset Quality

FBIZ's business model is characterized by a diversified revenue stream, with net interest income and non-interest income each comprising approximately 50% of total revenue. The company's lending portfolio is focused on commercial real estate, commercial and industrial loans, and specialized lending products such as asset-based lending, accounts receivable financing, and equipment financing. As of December 31, 2024, FBIZ's loan portfolio totaled $3.11 billion, with a non-performing asset ratio of just 0.74%.

The company's private wealth management services, which include trust and estate administration, financial planning, and investment management, have also been a consistent contributor to FBIZ's non-interest income. As of December 31, 2024, the company had $3.42 billion in private wealth assets under management and administration, up 9.5% from the prior year.

Prudent Capital Management and Strong Liquidity Position

FBIZ has maintained a strong capital position, with a Common Equity Tier 1 ratio of 9.10% and a total risk-based capital ratio of 12.08% as of December 31, 2024. The company's disciplined approach to capital management has enabled it to support organic growth, make strategic investments, and return capital to shareholders through dividends and share repurchases.

In terms of liquidity, FBIZ has a diverse funding base that includes core deposits, wholesale deposits, and FHLB advances. As of December 31, 2024, the company's loan-to-deposit ratio stood at 100.0%, indicating a well-balanced balance sheet. FBIZ's cash and cash equivalents totaled $157.7 million, providing ample liquidity to support its operations and growth initiatives. The company also has access to a $444.4 million credit line under a $709.8 million FHLB line of credit, further enhancing its liquidity position.

Consistent Financial Performance and Operational Efficiency

FBIZ's financial performance has been consistently strong, with the company reporting record earnings in 2024. For the full year, the company reported net income of $44.2 million, or $5.20 per diluted share, representing a 20% increase compared to 2023. This strong financial performance was driven by robust loan and deposit growth, stable net interest margins, and disciplined expense management.

The company's annual revenue for 2024 reached $153.5 million, with annual operating cash flow of $57.5 million and annual free cash flow of $57.3 million. In the fourth quarter of 2024, FBIZ reported revenue of $41.2 million and net income of $14.4 million, representing a 12.4% year-over-year revenue growth.

FBIZ's efficiency ratio, a measure of operational efficiency, improved to 60.61% in 2024, the lowest level since the fourth quarter of 2013. The company's focus on process improvement and technology investments has enabled it to maintain a lean cost structure while delivering exceptional service to its clients.

Business Banking Products and Services

FBIZ operates as a business bank, delivering a full line 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 Bank's products and services are focused on business banking, private wealth management, and bank consulting.

Within business banking, FBIZ offers a variety of lending solutions. Commercial real estate loans represent approximately 61.6% of the total loan portfolio as of December 31, 2024. These loans are secured by commercial real estate, including owner-occupied properties, non-owner-occupied facilities, multifamily developments, 1-4 family residential developments, and construction loans. Commercial and industrial loans make up 37% of the total loan portfolio. These loans are typically secured by business assets such as inventory, receivables, and equipment.

The Bank also provides specialized commercial lending products, including asset-based lending, accounts receivable financing, equipment financing, floorplan financing, and SBA lending and servicing. As of December 31, 2024, asset-based lending represented 4.5% of total loans, accounts receivable financing was 2.12%, equipment financing was 10.54%, and floorplan financing was 4.47%. The SBA loan portfolio, which includes both commercial real estate and commercial loans, comprised 1.87% of total gross loans.

In addition to lending, FBIZ offers treasury management services to help commercial clients manage their cash and liquidity, including deposit accounts, receivable collection, electronic payments, and information reporting. The Bank also provides company retirement plan services, acting as a fiduciary and investment manager to create and execute asset allocation strategies tailored to each client's needs.

Private Wealth Management

FBIZ's private wealth management division provides comprehensive services including trust and estate administration, financial planning, investment management, and private banking. As of December 31, 2024, the Bank had $3.42 billion in private wealth assets under management and administration, an increase of 9.5% from the prior year. Private wealth management fees increased 16.1% in 2024 compared to 2023, driven by growth in assets under management and administration as well as increases in fee rates.

Bank Consulting Services

The Bank also offers outsourced treasury services to assist other financial institutions with balance sheet management, including investment portfolio and asset liability management services. These consulting engagements provide an additional revenue stream for FBIZ.

Human Capital Management

FBIZ has prioritized investment in its workforce, which grew to 353 employees as of the end of 2024. The Bank has implemented strategies to protect and strengthen its unique corporate culture, develop future-ready talent, and drive operational excellence. These efforts have contributed to high employee engagement, low turnover, and a focus on internal mobility and career development. For example, the Bank achieved an 86% employee engagement rating in 2024 with a 90% participation rate, exceeding industry benchmarks. FBIZ was also recognized as a Top Workplace for the fourth consecutive year, highlighting its Culture Excellence across multiple categories.

Human capital management is a key strategic priority for FBIZ as it seeks to attract, retain, and develop the talent needed to effectively serve its clients and execute on its growth initiatives. The Corporation's commitment to its employees, clients, and communities has been foundational to its long-term success.

Positioned for Continued Growth and Shareholder Value Creation

Looking ahead, FBIZ is well-positioned to continue its growth trajectory. The company's strategic plan for 2024-2028 outlines ambitious goals, including targeted annual revenue growth of 10% and a return on average tangible common equity (ROATCE) of 15% or higher.

To achieve these objectives, FBIZ is focused on deepening its client relationships, expanding its presence in key markets, and leveraging technology to drive operational efficiencies. The company's strong capital position and liquidity profile provide the financial flexibility to support organic growth, pursue strategic acquisitions, and return capital to shareholders.

For 2025, FBIZ is targeting 10%+ annual revenue growth, which they believe the momentum from Q4 2024 positions them to achieve. They expect 10% annual growth in loan balances, with C&I loans making up a larger portion of the mix compared to commercial real estate. On net interest margin, they continue to target a range of 360-365 basis points, with fees in lieu of interest expected to contribute around 15 basis points on average.

Expenses are expected to grow at a rate below revenue growth, maintaining positive operating leverage. The effective tax rate is expected to be in the 16-18% range. FBIZ will balance asset growth with potential share buybacks to optimize long-term shareholder returns, with CET1 capital currently above 9%.

Risks and Potential Headwinds

While FBIZ has demonstrated resilience and adaptability in the face of economic challenges, the company is not immune to risks and potential headwinds. These include, but are not limited to, interest rate fluctuations, increasing competition from both traditional and non-traditional financial institutions, regulatory changes, and the potential for an economic downturn.

FBIZ actively monitors these risks and has implemented robust risk management practices to mitigate their potential impact. The company's diversified business model, conservative underwriting standards, and disciplined approach to capital management have all contributed to its ability to navigate various market conditions.

Conclusion

First Business Financial Services Inc (FBIZ) is a well-established Midwest community bank that has consistently delivered strong financial performance and shareholder value. The company's focus on commercial banking, private wealth management, and bank consulting services has enabled it to establish a unique market position and develop deep client relationships.

FBIZ's disciplined approach to risk management, strategic decision-making, and operational efficiency have been key drivers of its success. With a solid capital position, ample liquidity, and a clear roadmap for future growth, FBIZ appears well-positioned to continue creating value for its shareholders in the years to come. The company's commitment to its employees, clients, and communities, coupled with its focus on specialized commercial lending products and private wealth services, should continue to drive sustainable performance and growth in its core markets of Wisconsin and the greater Kansas City metropolitan area.