About First Business Financial Services

First Business Financial Services, Inc. operates as the bank holding company for First Business Bank (FBB) that delivers 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. All of the company’s operations are conducted through FBB and its wholly-owned subsidiary First Business Specialty Finance, LLC (FBSF). The company delivers 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 company’s products and services are focused on business banking, private wealth, and bank consulting. Within business banking, the company offers commercial lending, asset-based lending, accounts receivable financing, equipment financing, floorplan financing, vendor financing, Small Business Administration (SBA) lending and servicing, treasury management solutions, and company retirement services. The company’s private wealth management services include trust and estate administration, financial planning, investment management, and private banking for executives and owners of its business banking clients and others. The company’s bank consulting experts provide investment portfolio administrative services, asset liability management services, and asset liability management process validation for other financial institutions. The company’s operating model is predicated on deep client relationships, financial expertise, and an efficient, centralized administration function delivering best in class client satisfaction. The company conducts its commercial banking operations through one operating segment. Commercial Banking Products and Services Commercial Lending The company strives to meet the specific commercial lending needs of small- to medium-sized companies in its primary markets in Wisconsin, Kansas, and Missouri, predominantly through lines of credit and term loans to businesses. Through FBB, the company services South Central Wisconsin, Southeast Wisconsin, Northeast Wisconsin, and the greater Kansas City Metro. The company’s commercial loans are typically secured by various types of business assets, including inventory, receivables, and equipment. The company also originates loans secured by commercial real estate, including owner-occupied and non owner-occupied facilities. As of December 31, 2022, the company’s conventional commercial real estate and commercial loans – excluding consumer lending, asset-based lending, accounts receivable financing, equipment financing, floorplan financing, and SBA lending described below – represented approximately 75% of its total gross loans and leases receivable. Asset-Based Lending FBB, through its wholly-owned subsidiary FBSF, provides asset-based lending to small- to medium-sized companies. With business development officers located in several states, the company’s asset-based lending team serves clients nationwide. The company primarily provides revolving lines of credit and term loans for financial and strategic acquisitions, capital expenditures, working capital to support rapid growth, bank debt refinancing, debt restructuring, and corporate turnaround strategies. As a bank-owned, asset-based lender with strong underwriting standards, the company’s team is positioned to provide cost-effective financing solutions to companies which do not have the established, stable cash flows necessary to qualify for traditional commercial lending products. Asset-based lending typically generates higher yields than traditional commercial lending. This line of business complements the company’s traditional commercial loan portfolio and provides it with more diverse income opportunities. As of December 31, 2022, asset-based lending represented approximately 8% of the company’s total gross loans and leases receivable. Accounts Receivable Financing FBB, through its wholly-owned subsidiary FBSF, provides funding to clients by purchasing accounts receivable primarily on a full recourse basis. With business development officers located in several states, the company’s accounts receivable financing team serves clients nationwide. The company’s accounts receivable financing team provides working capital to support growth and other cash flow needs. Accounts receivable financing typically generates higher yields than traditional commercial lending and complements the company’s traditional commercial portfolio. As of December 31, 2022, accounts receivable financing represented approximately 3% of the company’s total gross loans and leases receivable. Equipment Financing FBB, through its wholly-owned subsidiary FBSF, finances a broad range of equipment, through loans and leases, to address the financing needs of commercial clients in a variety of industries. The company’s focus in this financing vertical includes manufacturing equipment, industrial assets, construction and transportation equipment, and a wide variety of other commercial equipment. FBSF also delivers small ticket vendor equipment financing via an online application and proprietary credit scoring architecture. Through this nationwide distribution channel, FBSF provides financing solutions for equipment vendors and their end users. These equipment vendors specialize primarily in healthcare, manufacturing, technology equipment, and specialty vehicles. The end users (i.e., the company’s lessees and borrowers) are primarily industrial transportation users, physician groups, veterinarians, and hospitals. These financings generally range between $25,000 and $500,000 with terms of 36 to 84 months. Small ticket vendor equipment financing typically generates higher yields than traditional commercial lending. As of December 31, 2022, equipment financing represented approximately 8% of the company’s total gross loans and leases receivable. Floorplan Financing FBB, through its wholly-owned subsidiary FBSF, offers floorplan financing for independent car dealerships nationwide. These floorplan programs generally range from $500,000 to $10 million for larger, well-established independent car dealers. As of December 31, 2022, floorplan financing represented approximately 2% of the company’s total gross loans and leases receivable. SBA Lending and Servicing SBA loans are made through programs designed by the federal government to assist the small business community in obtaining financing. The company is an approved participant in the SBA’s Preferred Lender Program (PLP). The PLP is part of the SBA's effort to streamline the procedures necessary to provide financial assistance to the small business community. Under this program, the SBA delegates the final credit decision, most servicing, liquidation authority and responsibility to PLP lenders. The company leverages this program authority and capacity to package, underwrite, process, service, and liquidate, if necessary, SBA loans nationwide. Excluding Paycheck Protection Program (PPP) loans, the company’s SBA loans fall into three categories: loans originated under the SBA’s 7(a) term loan program; loans originated under the SBA’s 504 program; and SBA Express loans and lines of credit. Specific program guidelines vary based on the SBA loan program; however, all loans must be underwritten, originated, monitored, and serviced according to the SBA’s Standard Operating Procedures in order to maintain the guaranty, if any, under the SBA program. Except for loans originated under the SBA’s 504 program, the SBA generally provides a guaranty to the lender ranging from 50% to 90% of principal and interest as an inducement to the lender to originate the loan. The majority of the company’s SBA loans are originated using the 7(a) term loan program. This program typically provides a guaranty of 75% of principal and interest. In the event of default on the loan, the lender may request that the SBA purchase the guaranteed portion of the loan for an amount equal to outstanding principal plus accrued interest permissible under SBA guidelines. In addition, the SBA will share on a pro-rata basis in certain costs of collection, subject to SBA rules and limits, as well as the proceeds of liquidation. SBA lending is designed to generate new business opportunities for the bank by meeting the needs of clients that cannot be met with conventional bank loans. The company earns interest income from these loans, generally at variable rates higher than those of its traditional commercial loans. The company also obtains funding and treasury management fee income by gathering deposits from these clients. The company’s SBA strategy generates non-interest income from two primary sources. First, the company often choose to sell the guaranteed portions of the SBA loans to aggregators who securitize the assets for sale in the secondary market. The company receives a premium on each loan sold, resulting in the recognition of a gain in the period of sale. Second, the company receives servicing income from the holder of the securitized asset over the life of the loan. As of December 31, 2022, the on-balance sheet portion of SBA loans represented approximately 2% of the company’s total gross loans and leases receivable. Treasury Management Services FBB provides comprehensive treasury management services for commercial banking and specialized lending clients to manage their cash and liquidity, including lockbox, accounts receivable collection services, electronic payment solutions, fraud detection and protection, information reporting, reconciliation, and data integration solutions. For its clients involved in international trade, the bank offers international payment services, foreign exchange, and trade letters of credit. The bank also offers a variety of deposit accounts and balance optimization solutions. Company Retirement Plan Services FBB acts as fiduciary and investment manager for corporate clients, creating and executing asset allocation strategies tailored to each corporation’s unique situation. FBB acts as a discretionary trustee and investment fiduciary, sharing responsibility for monitoring assets to match the client’s specifications. Offering only non-proprietary funds removes conflict of interest while designing cost-effective company retirement plans which provide a competitive return. Private Wealth Management FBB acts as fiduciary and investment manager for individual clients, creating and executing asset allocation strategies tailored to each client’s unique situation. FBB has full fiduciary powers and offers trust and estate administration, financial planning, and investment management, acting in a trustee or agent capacity. FBB also provides brokerage and custody-only services, for which the company administers and safeguards assets, but do not provide investment advice. The bank also offers private banking to its Private Wealth Management clients. As of December 31, 2022, the company’s private wealth loans represented approximately 2% of its total gross loans and leases receivable. Bank Consulting Services FBB provides outsourced treasury services to assist banks and other financial institutions with balance sheet management. These services include investment portfolio management and administrative services, asset liability management services, and asset liability process validations required by regulators. Subsidiaries First Business Bank FBB focuses on providing high-quality banking services to small- to medium-sized businesses located in Madison and the surrounding area. FBB’s business lines include commercial loans, commercial real estate loans, asset-based loans, accounts receivable financing, SBA lending and servicing, floorplan financing, equipment loans and leases, commercial deposit accounts, company retirement solutions, and treasury management services. FBB offers a variety of deposit accounts and personal loans to business owners, executives, professionals, and high net worth individuals. FBB also offers private wealth management services and bank consulting services. FBB has four full-service banking locations in Madison, Brookfield, and Appleton, Wisconsin, and Leawood, Kansas. FBFS Statutory Trust II In September 2008, FBFS formed FBFS Statutory Trust II (Trust II), a Delaware business trust wholly-owned by FBFS to facilitate the sale of trust preferred securities by Trust II and Trust II’s purchase of junior subordinated notes issued by FBFS. FBFS’s ownership interest in Trust II has not been consolidated into the financial statements. As of March 30, 2022, the junior subordinated notes and preferred securities were redeemed and Trust II was dissolved. Markets Although certain of the company’s commercial banking products and services are marketed throughout the Midwest and beyond, its primary markets lie in Wisconsin, Kansas, and Missouri. Specifically, the company’s three markets in Wisconsin consist of South Central Wisconsin, Southeast Wisconsin, and Northeast Wisconsin. The company serves the greater Kansas City Metro through its Leawood, Kansas office, which is located in the Kansas City metropolitan area. Each of its primary markets provides a unique set of economic and demographic characteristics which provide the company with a variety of strategic opportunities. Investment Portfolio As of December 31, 2022, the company’s investment portfolio included U.S. treasuries; U.S. government agency securities - government-sponsored enterprises; municipal securities; residential mortgage-backed securities - government issued; residential mortgage-backed securities - government-sponsored enterprises; commercial mortgage-backed securities - government issued; and commercial mortgage-backed securities - government-sponsored enterprises. Deposits As of December 31, 2 the company’s deposits included non-interest-bearing transaction accounts; interest-bearing transaction accounts; money market accounts; certificates of deposit; and wholesale deposits. Supervision and Regulation As the sole shareholder of the bank, the company is a bank holding company. As a bank holding company, the company is registered with, and subject to regulation, supervision, and enforcement by, the Federal Reserve under the Bank Holding Company Act of 1956, as amended (BHCA). Under the BHCA, the company is subject to periodic examination by the Federal Reserve. The company is required to file with the Federal Reserve periodic reports of its operations and such additional information regarding the company and its subsidiaries as the Federal Reserve may require. The company’s common stock is registered with the Securities and Exchange Commission (SEC) under the Securities Act of 1933, as amended (the Exchange Act), and the Exchange Act. Consequently, the company is subject to the information, proxy solicitation, insider trading, and other restrictions and requirements of the SEC under the Exchange Act. The deposit accounts of the bank are insured by the Federal Deposit Insurance Corporation’s (FDIC) Deposit Insurance Fund to the maximum extent provided under federal law and FDIC regulations, $250,000 per insured depositor category. As a Wisconsin-chartered FDIC-insured bank, FBB is subject to the examination, supervision, reporting and enforcement requirements of the Wisconsin Department of Financial Institutions, the chartering authority for Wisconsin banks, and the FDIC, designated by federal law as the primary federal regulator of insured state banks that, like FBB, are not members of the Federal Reserve System (nonmember banks). As an FDIC-insured institution, FBB is required to pay deposit insurance premium assessments to the FDIC. The company is subject to various federal laws that are designed to combat money laundering and terrorist financing, and to restrict transactions with persons, companies, or foreign governments sanctioned by United States authorities. This category of laws includes the Bank Secrecy Act, the Money Laundering Control Act, the USA PATRIOT Act (collectively, AML laws) and implementing regulations as administered by the United States Treasury Department’s Office of Foreign Assets Control. History First Business Financial Services, Inc. was founded in 1909. The company was incorporated in 1986 under the laws of the state of Wisconsin.