Annual CEO Letter – 2024

Double-digit growth is both the expectation and the norm at First Business Bank. Growth is by design, and the design is our strategic plan.

2024-2028 Strategic Plan

We achieved our outstanding 2024 results by executing well in the inaugural year of our new five-year strategic plan. The objective of our plan is for First Business Bank’s unique model and culture to foster innovative and engaged team members who develop deep client relationships and deliver exceptional results for all stakeholders. The plan calls for focus and success on five strategies:

• Protect and strengthen our unique culture with a growing and geographically diverse team
• Develop future-ready talent who will thrive in the workplace of the future by continuously investing in our team to elevate their impact and contribution
• Grow our core deposits by deepening a company-wide commitment to adding new relationships and capitalizing on innovative sources and new technologies
• Achieve operational excellence by fostering a culture of continuous process improvement and utilization of innovative technology
• Optimize the performance of each business line and market to achieve sustainable profitability and growth

We evaluate our success in executing on these strategies by tracking a series of quantifiable goals. So, how did 2024 measure up?

Our scorecard tells a great story.

We aim to produce ROATCE of 15% or greater by 2028, and certain unusual beneficial tax items late in the year pushed our 2024 metric over the target. Even without those items, we are marching toward our long-term goal.

We far exceeded our 10%+ goal for growing TBV, which expanded by 15%.

Revenue growth accelerated in the second half of 2024, positioning us nicely to achieve continued growth in 2025. We plan to pair revenue growth with effective cost management in 2025 to achieve positive operating leverage, as we have for the past six years, further improving our efficiency ratio.

Our core deposit gathering efforts were highly productive in 2025. On an average basis, core deposits grew 13% over 2023, and our lending and treasury management teams are building new relationships every day, with incentive plans that reward this success.

Finally, our financial success reflects the exceptional work our team is doing to build deep client relationships, which we measure through the Net Promoter Score (“NPS”). The 2024 NPS survey revealed First Business Bank earned a score of 70 from our clients, which is nearly three times the average score of 24 reported for the banking industry. We believe client satisfaction is directly linked to our culture: we were pleased to learn our employees reported an employee engagement rate of 86% in our most recent survey.

Ultimately, we believe achieving these goals supports our overarching goal as it relates to our shareholders: producing top tier Total Shareholder Return (“TSR”) among our peers. On that measure, we were also highly successful in 2024: we produced a TSR of 17%, compared to 10% for our peers and 12% for the Russell 2000. Our outperformance is compounded over the longer term: our five-year TSR was 102% through 2024, compared to 24% for our peers and 43% for the Russell 2000.

What Sets Us Apart

We have long believed that in business banking the best team wins. Our focus every day is to build the best team from within, with the entrepreneurial spirit that has been the cornerstone of our culture since our founding more than thirty years ago. Some of the ways we do this look a little different from our peers.

Organic Growth Focus

We believe an organic growth strategy is the most controllable and least risky way to grow. Our organic growth goals remain consistent: we aim for 10%+ annual growth in the drivers of bottom-line results. In 2024 those drivers were highlighted by loans and core deposits, each of which grew 13% on average for the year. Additionally, double-digit growth in Private Wealth Management (PWM) assets under management contributed to PWM service fees growing to comprise 45% of non-interest income for the year.

What gives us confidence we can keep growing at this rate? Simply put, we win business from other, typically larger, banks. We win on expertise and relationships – on culture. We don’t need to see 10% GDP growth to achieve 10% loan growth. And the capital we generate through increased earnings supports our ongoing growth goals. This stands in stark contrast to the typical bank acquisition, in which additional dilutive shares are issued to an acquired bank's shareholders in payment for what is usually a lesser performing franchise.

We believe organic growth adds the most value for existing shareholders and it also preserves our all-important culture.

Limited Balance Sheet Risk

We have another belief that runs counter to most in the industry: balance sheet risk is not worth taking. In 2024 our belief proved right again, as our match-funded balance sheet resulted in a strong and stable net interest margin of 3.66% for the year – far from the norm in the industry. The peer median net interest margin was more than 50 basis points lower, for the second year in a row.

This is a big differentiator for First Business Bank. Make no mistake, our match funding approach and discipline are very unique.

We do not play the yield curve to periodically add a few basis points to net interest margin, and that philosophy has benefited us and our shareholders greatly over the last few years. It is extremely difficult to predict interest rates, and that's not what we are pros at doing.

See the graph [below], which shows that even the Fed — which sets the Fed Funds rate — cannot accurately predict the Fed Funds rate.

Therefore, our mantra is "don't predict, prepare." We position our balance sheet to be indifferent to the direction of interest rates.

Our perspective is that it's hard, if not impossible, to predict what the economy and interest rates will be like over the remainder of our five-year plan. And that’s okay with us. Because what we do is all about adding and building relationships, and we have the best team at doing just that. The team that achieved double digit growth over the last three years is still in place, and because of our unique culture, they don't leave. Furthermore, our culture consistently attracts additional top performers who want to be on the winning team, facilitating more growth.

A Look Ahead in 2025

So, what does 2025 hold? We are operating in volatile and unpredictable times. For banks, the economy and interest rates are the big drivers.

While the economy is very strong as I write this, any number of unforeseen tides could sway that trend. Since we don't lose our extremely happy clients, and our new clients are predominantly folks we take away from other banks, our growth is not conditioned on a booming economy.

As far as what will happen with interest rates, that's a wild card. A short time ago multiple rate cuts were anticipated in 2025, and now as I write this, the expectation is for only one cut (according to the futures market) and there is even some talk of possible rate increases. We don't really care about this. It simply isn't the driver of swings in net interest margin and profitability for us that it is for other banks. Again, we don't predict, we prepare.

We have additional reasons for optimism within and across our franchise. We see opportunity in several of our bank markets and niche lending groups. While we have had strong growth in our Southeast Wisconsin bank market over the past few years, our market share there remains small. The same opportunity exists for our Northeast Wisconsin and Kansas City markets, both of which have new market presidents who have brought fresh energy to accelerate their growth.

Furthermore, within our C&I portfolio, our Equipment Finance, Small Business Administration, and Floorplan Finance products are still relatively new with strong growth potential, while our Asset-Based Lending and Accounts Receivable Financing products tend to be counter cyclical and should benefit as bank credit normalizes from recent benign levels.

As we begin 2025 backed by our unique and proven model and our best team ever, we are very optimistic. On behalf of our employees and board, I sincerely thank you for your continued interest in and support of First Business Bank.

Corey Chambas, CEO
First Business Financial Services, Inc.
parent company of First Business Bank

This letter includes “forward-looking statements” related to First Business Financial Services, Inc. (the “Company”) that can generally be identified as describing the Company’s future plans, objectives, goals or expectations. Such forward-looking statements are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those currently anticipated. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. For further information about the factors that could affect the Company’s future results, please see the Company’s most recent annual report on Form 10-K, quarterly reports on Form 10-Q, and other filings with the Securities and Exchange Commission. We do not intend to, and specifically disclaim any obligation to, update any forward-looking statements.

1. Peer group consists of publicly traded banks with assets between $1.75 billion and $7.0 billion.
2. “Tangible book value” (“TBV”) is a non-GAAP measurement representing tangible common equity divided by total common shares outstanding. See the section titled Non-GAAP Reconciliations in the Company’s most recent earnings release, included as an exhibit to our Current Report on Form 8-K furnished to the SEC on January 30, 2025.
3. “Efficiency ratio” is a non-GAAP measure defined as total operating expense divided by total operating revenue. Please refer to the calculations and management’s reason for using these non-GAAP measures in the Company’s most recent earnings release, included as an exhibit to our Current Report on Form 8-K furnished to SEC on April 25, 2024.
4. Net promoter score assesses the likelihood to recommend on an 11-point scale, where detractors (scores 0-6) are subtracted from promoters (scores 9-10), while passives (scores 7-8) are not considered. See appendix for additional information on the source of the net promoter score. Represents data from the 2024 survey.
5. 1-Year, 2-Year, and 3-Year TSR is through 12/31/2024.