FIRST BUSINESS FINANCIAL SERVICES, INC. (FBIZ) stock intrinsic value fair value estimate & owner earnings analysis

First Business Financial Services is the holding company for First Business Bank, a commercial bank serving small and mid-sized businesses, primarily in Wisconsin (Madison, Brookfield and Appleton) and the greater Kansas City area (Leawood, Kansas). It earns money from the spread between what it charges on commercial loans (average loans of about $3.3 billion in 2025 at a 6.95% yield) and what it pays on deposits and borrowings, plus fees from treasury management and SBA lending. In 2025 it earned $50.3 million ($49.4 million after preferred dividends, or about $6.06 per share on roughly 8.16 million diluted shares), up from $44.2 million in 2024 and $37.0 million in 2023. How we measured earnings. The standard owner-earnings calculation starts from operating cash flow and removes working-capital swings, stock compensation and maintenance capital spending. That series, which we stored for 2016 to 2025, rose from $2.39 per share in 2016 to $7.62 in 2025. For a bank it flatters the picture, because it adds back the provision for credit losses (about $8.7 million in 2025, closely matching $8.2 million of actual net charge-offs) and the amortization of tax-credit investments (about $5.7 million), both of which are recurring costs of doing this business. It also does not charge for the capital needed to grow the loan book. We therefore valued the business on net income to common shareholders, which charges those costs once, and we take only the growth the bank can pay for out of its own retained earnings. The earnings anchor is the median of 2023 to 2025, $5.32 per share; we chose those three years because they reflect the current, higher-rate lending environment and exclude the pandemic-era distortions of 2020 to 2021. Recent-year growth reconciliation: owner earnings per share grew about 6.9% in 2025 (net income per share about 13.9%), and the base case assumes 5% for year one, at or below the trailing rate. Base case, about $77 per share. Earnings grow 5% a year for five years and 4% for the next five. Growth is credited only because the bank has run the same process for years: it has added roughly $270 million of net loans in each of 2024 and 2025, funded from retained earnings and deposit growth, and net income has risen from $17.0 million in 2020 to $50.3 million in 2025. We assume it needs to retain earnings at a 13% return on equity (about 14% in 2025, on equity of $371.6 million) to fund that growth, so only the remainder is treated as cash to owners. After year ten we assume the franchise holds its earnings flat for a further 15 years and then stop counting anything, because nothing in the filings supports a longer horizon. No net-debt adjustment is made; as a bank, its funding is part of its operations and the cash-flow-based earnings are already after interest expense. We left out new markets, new products, margin expansion and rate-cut benefits, none of which is secured. Bear case, about $42 per share. A credit downturn like 2020, when the provision jumped to $16.8 million and net income fell from $23.3 million to $17.0 million, hits at once and cuts earnings about 30% in year one. Afterward earnings grow only 3% a year at a 9% return on equity, and the franchise persists for just ten years after year ten. The named risks are real: net charge-offs rose from $4.6 million (0.15% of loans) in 2024 to $8.2 million (0.25%) in 2025, the loan book is concentrated in commercial real estate and commercial and industrial lending in two regional markets, and the bank operates with typical bank leverage. Bull case, about $96 per share. The bank sustains the roughly 8% annual loan growth it has recently delivered for five years and then 6% for five more, at a 14% return on equity, and its earnings then hold flat for 20 years. This uses only its own demonstrated pace and returns, not a market recovery or acquisition. What could make this wrong: a severe regional commercial credit cycle beyond our bear case, sustained deposit-cost pressure that lowers returns below 9%, or growth requiring more capital than assumed. We could not separately confirm the size of net charge-off history for every earlier year from the filings reviewed, and figures for the most recent quarterly report were not incorporated.