DEF: First Business Financial Services Reports Strong 2024 Performance and Outlines Strategic Priorities

First Business Financial Services announces a successful 2024, marked by significant growth in tangible book value and strong financial performance, as it executes its new five-year strategic plan.

Summary

• First Business Financial Services, Inc. reports a successful 2024, the inaugural year of its new five-year strategic plan.
• The company achieved 15% growth in tangible book value, exceeding its 10%+ annual growth goal.
• Loan growth was nearly 10%, and average core deposits increased by 13% compared to 2023.
• Pre-tax, pre-provision earnings reached record levels, with an efficiency ratio of 60.61%, approaching the strategic plan's target of less than 60% by 2028.
• The return on average tangible common equity was strong, moving towards the five-year goal of 15%+, excluding unusual items recorded late in the year.
• Over the five-year period ending December 31, 2024, the Bank generated cumulative total shareholder returns (TSR) exceeding 102%, significantly outperforming its peer group's median TSR of 24%.
• The company is focused on quality balance sheet and revenue growth, technology optimization, culture strengthening, and operational excellence in 2025.
• The 2025 Annual Meeting of Shareholders will be held virtually on April 25, 2025.
• Shareholders will vote on the election of a Class III director, executive compensation, the frequency of say-on-pay votes, and the ratification of the independent registered public accounting firm.

Sentiment

Score: 9

Explanation: The document expresses a highly positive sentiment due to the strong financial performance, successful strategic plan execution, and commitment to ESG and human capital management.

Positives

• The company achieved significant growth in tangible book value, loans, and core deposits.
• Pre-tax, pre-provision earnings reached record levels, indicating strong profitability.
• Shareholder returns significantly outperformed the peer group and broader market indices.
• The company is committed to ESG practices and human capital management.
• Employee engagement exceeds industry benchmarks, and turnover is well below the industry average.
• The company has a strong corporate governance structure with independent directors and active board committees.

Risks

• The company operates in a dynamic and uncertain interest rate environment.
• The company faces ongoing challenges related to cybersecurity and information security.
• The company must manage risks related to credit, compliance, operations, investments, liquidity, market conditions, and reputation.

Future Outlook

The company aims to continue driving quality balance sheet and revenue growth while optimizing technology, strengthening its culture, and pursuing operational excellence.

Management Comments

• 2024 was a highly successful inaugural year under our new five-year strategic plan.
• We achieved 15% growth in tangible book value, far exceeding our goal to produce annual growth of 10%+ on what is arguably our most meaningful measure of success.
• We launched our strategic plan with the view that long-term success would be evaluated by our ability to produce shareholder returns that consistently outperform peers.
• In 2025 our team continues to drive quality balance sheet and revenue growth while optimizing technology.
• We continue to strengthen our deep-rooted culture and pursue operational excellence, positioning our clients, our team, and our shareholders to thrive in the future.

Industry Context

The company's strong performance, particularly its TSR, positions it favorably compared to its peer group and broader market indices, indicating effective execution of its strategic plan in a competitive environment.

Comparison to Industry Standards

• The company's cumulative total shareholder returns (TSR) exceeding 102% over the five-year period ended December 31, 2024, significantly outperformed its peer group's median TSR of 24%.
• The Russell 2000 returned 43% and the S&P 500 Bank index returned only 45% over this period.
• The company earned the Piper Sandler 2024 Sm-All Star recognition, placing it among the top 6% of the industry for growth, profitability, credit quality, and capital strength.
• The company's overall client satisfaction and net promoter scores exceed those of top performers in the industry.

Related Party Transactions

• Certain affiliates (as defined under applicable SEC regulations) of Mr. Kauten participated in the Company's September 2024 offering of $20 million in aggregate principal amount of 7.5% Subordinated Debentures as follows: Erica E. Kauten Revocable Trust (spouse) $1 million, Carolin Kauten (daughter) $1 million, and Christopher Kauten (son) $1 million.

Stakeholder Impact

• Shareholders benefit from strong financial performance and shareholder returns.
• Employees benefit from a positive work environment and opportunities for professional development.
• Clients benefit from the company's expertise and commitment to long-term relationships.
• Communities benefit from the company's investments and volunteer efforts.

Next Steps

• Shareholders are encouraged to vote on the proposals presented at the Annual Meeting.
• The company will continue to execute its five-year strategic plan.
• The vesting level for the PRSUs grant for 2022-2024 will be determined in April 2025.

Key Dates