First Business Financial Services, Inc.

What they do

First Business Financial Services is a registered bank holding company headquartered in Madison, Wisconsin, incorporated in 1986, that conducts all operations through its wholly-owned bank subsidiary, First Business Bank, and its wholly-owned subsidiary First Business Specialty Finance, LLC. The Bank operates as a business bank, offering commercial real estate lending, commercial and industrial lending, asset-based lending, accounts receivable financing, equipment financing, floorplan financing, vendor financing, SBA lending and servicing, treasury management, and company retirement services. It also provides private wealth management services including trust and estate administration, financial planning, investment management, and private banking, as well as bank consulting services for investment portfolio administration and asset liability management. The company states it is not a retail bank and does not rely on a traditional branch network, instead using a centralized administrative structure and relationship-based model.

Revenue drivers

• Commercial real estate lending — Originates loans secured by owner-occupied and non-owner-occupied commercial real estate, multifamily developments, 1-4 family residential developments, and construction loans. At December 31, 2025, the CRE portfolio represented approximately 61.0% of total gross loans and leases receivable.
• Commercial and industrial lending — Includes conventional C&I loans plus asset-based lending, accounts receivable financing, equipment financing, floorplan financing, and SBA lending. At December 31, 2025, C&I represented approximately 37.7% of total gross loans and leases receivable.
• Asset-based lending — Provides revolving lines of credit and term loans for acquisitions, capital expenditures, working capital, refinancing, restructuring, and turnaround strategies, generally $2 million to $25 million with 24- to 60-month terms, marketed nationwide. At December 31, 2025, asset-based lending represented approximately 4.9% of total gross loans and leases receivable.
• Private wealth management and non-interest income — Trust and estate administration, financial planning, investment management, and private banking services generate non-interest income; private wealth management service fees increased 13.6% in the second quarter of 2026 versus the prior-year quarter.

Recent performance

Second quarter 2026 net income available to common shareholders was $15.4 million, or $1.84 per diluted share, compared to $12.0 million, or $1.44 per share, in the first quarter of 2026 and $11.2 million, or $1.35 per share, in the second quarter of 2025. EPS for the second quarter of 2026 included a tax benefit partly offset by one-time compensation costs, for a net benefit of $0.14 per share. Pre-tax, pre-provision income was a record $19.8 million, up 15.1% from the linked quarter and 23.7% from the prior-year quarter. Net interest margin was 3.78% for the second quarter of 2026, compared to 3.56% for the linked quarter and 3.67% and 3.68% for the first six months of 2026 and 2025, respectively. Loans increased $87.2 million, or 10.0% annualized, from the linked quarter and $336.2 million, or 10.3%, from the second quarter of 2025, while core deposits grew $81.6 million, or 11.7% annualized, from the linked quarter and $344.6 million, or 13.6%, year over year.

Strategy

In early 2024, management finalized a five-year strategic plan built on five key strategies: protecting and strengthening culture with a growing and geographically diverse team; developing future-ready talent; growing core deposits through new relationships and technology; achieving operational excellence through process improvement and technology; and optimizing each business line and market for sustainable profitability. The company exited SBA 7(a) lending activities outside its existing bank market footprint, expecting minimal impact on 2026 earnings and a modest benefit in 2027, and is redirecting resources to existing bank markets, higher-yielding niche C&I lending businesses, private wealth management, and limited partnership investments. Management states its annual goal is 10% growth in loans, core deposits, revenue, and earnings, and maintains an annual net interest margin target range of 3.60%-3.65%.

Risks

• Deposit concentration and uninsured deposits — The company notes that the proportion of deposit account balances exceeding FDIC insurance limits may expose the Bank to enhanced liquidity risk.
• Credit defaults and delinquencies — The company identifies increases in defaults by borrowers and other delinquencies as a risk, with credit exposure concentrated in CRE at about 61.0% of gross loans and leases as of December 31, 2025.
• Interest rate and margin pressure — Fluctuations in interest rates and market prices are cited as a risk, and the company's net interest margin target range is 3.60%-3.65% compared to second quarter 2026 margin of 3.78%.
• Regulatory, SBA, and FDIC assessment risk — Risks include changes in legislative or regulatory requirements, failure to comply with SBA regulations to maintain eligibility of guaranteed SBA loan portions, potential increases in FDIC insurance assessments, and ongoing banking-sector volatility that could bring increased regulation and supervision.

Outlook

Management stated that the strong second quarter and first-half 2026 results position the company to achieve its annual goal of 10% growth in loans, core deposits, revenue, and earnings. The company maintains its annual net interest margin target range of 3.60%-3.65%. The decision to exit SBA 7(a) lending outside the existing bank market footprint is expected to have minimal impact on 2026 earnings and provide a modest earnings benefit in 2027. Management expects continued support for shareholder returns from higher-return growth opportunities in existing bank markets, niche C&I lending, private wealth management, and limited partnership investments.