FBIZ

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How FBIZ rewrote its risk factors

10-K ITEM 1A · FY2024 → FY2025

Text kept

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words, now 59,153

New in FY2025

Risk Factors Risk Factors Summary An investment in our common stock is subject to risks inherent to our business.
Credit Risks • If we do not effectively manage our credit risk, we may experience increased levels of delinquencies, non-accrual loans, and charge-offs, which would require increases in our provision for credit losses. • Our allowance for credit losses may not be adequate to cover actual losses. • A significant portion of our loan and lease portfolio is comprised of commercial real estate loans, which involve risks specific to real estate values and the real estate markets in general. • Real estate construction and land development loans are based upon estimates of costs and values associated with the completed project.
These estimates may be inaccurate and we may be exposed to significant losses on loans for these projects. • The success of our SBA lending program is dependent upon the continued availability of SBA loan programs, our status as a Preferred Lender under the SBA loan programs, our ability to effectively compete and originate new SBA loans, and our ability to comply with applicable SBA lending requirements. • Non-performing assets take time to resolve, adversely affect our results of operations and financial condition, and could result in losses.
Liquidity and Interest Rate Risks • Liquidity risks could affect operations and jeopardize our business, financial condition, and results of operations. • The Corporation is a bank holding company and its sources of funds necessary to meet its obligations are limited. • Interest rate shifts may reduce net interest income and otherwise negatively impact our financial condition and results of operations. • The proportion of the Corporation’s deposit account balances that exceed FDIC insurance limits may expose the Bank to enhanced liquidity risk.
A successful cyber-attack or other breach of our information systems could adversely affect the Corporation’s business, financial condition or results of operations and damage its reputation. • We are dependent upon third party service providers for certain information systems, data management and processing services, and key components of our business infrastructure, which are subject to operational, security, and other risks. • The nature of our operations is such that we are exposed to risks associated with potential fraudulent activities, errors, breaches and the like. • The adoption of artificial intelligence tools by us and our third-party vendors and service providers may increase the risk of errors, omissions, unfair treatment, or fraudulent behavior by our employees, clients, or counterparties, or other third parties. • Our business continuity plans could prove to be inadequate, resulting in a material interruption in or disruption to our business and a negative impact on our results of operations. • New lines of business, products, and services are essential to our ability to compete but may subject us to additional risks. • Our framework for managing risks may not be effective in mitigating risk and loss to us. • We are subject to changes in accounting principles, policies, or guidelines. • Our internal controls may be ineffective.
Strategic and External Risks • Our business may be adversely affected by conditions in the financial markets and economic conditions generally. • Changes in U.S. trade policies, including the imposition of tariffs, may adversely affect our business, results of operations and financial condition. • The Corporation’s business and financial results could be materially and adversely affected by widespread public health events. • Our business is concentrated in and largely dependent upon the continued growth and welfare of the general geographical markets in which we operate. • Our financial condition and results of operations could be negatively affected if we fail to effectively execute our strategic plan or manage the growth called for in our strategic plan. • We could recognize impairment losses on securities held in our securities portfolio, goodwill, or other long-lived assets. • The failure or perceived weakness of any of our significant counterparties could expose us to loss. • We could be required to establish a deferred tax asset valuation allowance and a corresponding charge against earnings if we experience a decrease in earnings. • Competition from other financial services providers could adversely affect our profitability. • Consumers and businesses are increasingly using non-banks to complete their financial transactions, which could adversely affect our business and results of operations. • If we are unable to keep pace with technological advances in our industry, our ability to attract and retain clients could be adversely affected. • Our Private Wealth management results of operations may be negatively impacted by changes in economic and market conditions. • Potential acquisitions may disrupt our business and dilute shareholder value. • The investments we make in certain tax-advantaged projects may not generate returns as anticipated and may have an adverse impact on the Corporation’s financial results. • A prolonged U.S. government shutdown or default by the U.S. on government obligations would harm our results of operations.
Changes in applicable laws or regulations, or our failure to comply with them, may adversely affect us. • We face a risk of noncompliance and enforcement action with various statutes and regulations. • We are periodically subject to examination and scrutiny by a number of banking agencies and, depending upon the findings and determinations of these agencies, we may be required to make adjustments to our business that could adversely affect us. • We are subject to claims and litigation pertaining to our fiduciary responsibilities.
Risks Related to Investing in Our Common Stock • Our stock is thinly traded and our stock price can fluctuate. • To maintain adequate capital levels, we may be required to raise additional capital in the future, but that capital may not be available when it is needed and/or could be dilutive to our existing shareholders. • If equity research analysts publish research or reports about our business with unfavorable commentary or downgrade our common stock, the price and trading volume of our common stock could decline. • Volatility or events impacting a subset of the banking industry can impact the entire sector, including the Corporation, which could affect the confidence of our clients and investors and result in a material adverse effect on our performance and a decline in our stock price for reasons outside of our control.
General Risk Factors • Our ability to attract and retain talented employees is critical to our success. • We rely on our management and the loss of one or more of those managers may harm our business. • Negative publicity could damage our reputation and adversely impact our business and financial results.
Risk Factors Credit Risks If we do not effectively manage our credit risk, we may experience increased levels of delinquencies, non-accrual loans, and charge-offs, which would require increases in our provision for credit losses.
Making any loan or lease involves a range of risks.
Some risks arise specifically from working with borrowers, such as the risk of nonpayment and uncertainties related to the borrower’s ability to generate sufficient cash flow to repay the debt and future value of collateral.
Other risks are driven by changes in economic and market conditions, which can impact the financial stability of borrowers, the value of collateral, and the overall collectability of loans and leases.
Our credit risk underwriting and monitoring procedures may not identify all credit risks, and they cannot be expected to completely eliminate our credit risks.
In turn, this would require increases in the provision for credit losses and reversals of interest earned but unpaid, which may adversely affect our business, results of operations, and financial condition.
Such credit losses may exceed current estimates.
At December 31, 2025, our ACL as a percentage of total loans and leases was 1.12% and as a percentage of total non-performing loans and leases was 85.95%.
Bank regulatory agencies will periodically review our ACL and the value attributed to non-performing loans and leases.
At December 31, 2025 we had $2.060 billion of commercial real estate loans, which represented 61.0% of our total loan and lease portfolio.
Payments on such loans are often dependent on the successful operation or development of the property or business involved.
Repayment of such loans is sensitive to conditions in the real estate market or the general economy, which are outside the borrower’s control.
These loans have real estate as a primary or secondary component of collateral.
Commercial real estate markets have been facing downward pressure since 2022.
Although commercial real estate markets showed some signs of stabilization in 2024, the prospects for commercial real estate markets and property valuation remain uncertain and continue to be influenced by market rate volatility, capital availability and evolving demand for certain property types, such as office and retail properties.
Since issuance of that guidance, regulators have continued to emphasize proactive commercial real estate portfolio monitoring and stress testing.
If we fail to maintain appropriate, enhanced risk management policies, procedures and controls in response to regulatory expectations, our ability to increase this portfolio going forward could be adversely affected and the rate of delinquencies in, and losses from, this portfolio could increase.
Real estate construction loans, a subset of commercial real estate loans, comprised approximately $248.6 million, or 7.36%, of our gross loan and lease portfolio, respectively, as of December 31, 2025.
If we are forced to foreclose on a project prior to or at completion due to a default.
We may be required to fund additional amounts to complete the project and may have to hold the property for an unspecified period of time while we attempt to dispose of it.
SBA loans consisting of both commercial real estate and commercial loans, comprised approximately $65.4 million, or 1.94%, of our gross loan and lease portfolio as of December 31, 2025.
As an SBA Preferred Lender, we enable our clients to obtain SBA loans without being subject to the potentially lengthy SBA approval process for lenders that are not SBA Preferred Lenders.
The total outstanding balance of sold SBA loans as of December 31, 2025 was $82.0 million.
In the event of a default and a determination by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by the Bank, the SBA may require the Bank to repurchase the previously sold portion of the loan, deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of the principal loss related to the deficiency from the Bank.
At December 31, 2025, our non-accrual loans totaled $43.9 million, or 1.30% of our gross loan and lease portfolio, and our non-performing assets (which include non-performing loans and repossessed assets) totaled $43.9 million, or 1.07% of total assets.
Such account and deposit balances can decrease if clients' preferences shift to alternative liquidity products such as tokenized money market accounts or stablecoins and investments such as debt securities, equity securities, or cryptocurrencies.
An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans may lead to an increase in non-performing assets, credit loss provision, and a reduction of income recognized, which could have an adverse effect on our results of operations and cash flows.
Federal banking agencies have concluded that the proportion of the deposits that exceeded FDIC insurance limits was a significant factor in the failure of several banking institutions in the first half of 2023.
Advances in digital banking and payment technologies, as well as increased access to real-time information, have heightened regulators’ focus on the potential speed and magnitude of deposit outflows.
These advances may also enable depositors to withdraw funds more rapidly than in the past.
In response to the 2023 bank failures, many large depositors across the industry withdrew deposits in excess of applicable deposit insurance limits and deposited these funds in other financial institutions and low-risk securities accounts in an effort to mitigate the risk of potential bank failures.

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Gone since FY2024

Risk Factors An investment in our common stock is subject to risks inherent to our business.
The risks are organized in the following categories: • Credit Risk • Liquidity and Interest Rate Risk • Operational Risk • Strategic and External Risk • Regulatory, Compliance, Legal, and Reputational Risk • Risks Related to Investing in Our Common Stock • General Risk Factors Credit Risks If we do not effectively manage our credit risk, we may experience increased levels of delinquencies, non-accrual loans, and charge-offs, which would require increases in our provision for credit losses.
There are risks inherent in making any loan or lease, including risks inherent in dealing with borrowers, including, risks of nonpayment, risks resulting from uncertainties as to the future value of collateral and cash flows available to repay debt, and risks resulting from changes in economic and market conditions.
Our credit risk underwriting and monitoring procedures may not have identified, or will identify, all of these credit risks, and they cannot be expected to completely eliminate our credit risks.
This would, in turn, require increases in the provision for credit losses, which may adversely affect our business, results of operations, and financial condition.
Such losses may exceed current estimates.
At December 31, 2024, our ACL as a percentage of total loans and leases was 1.20% and as a percentage of total non-performing loans and leases was 131.38%.
In addition, bank regulatory agencies will periodically review our ACL and the value attributed to non-performing loans and leases.
At December 31, 2024 we had $1.917 billion of commercial real estate loans, which represented 61.6% of our total loan and lease portfolio.
Payments on such loans are often dependent on the successful operation or development of the property or business involved; therefore, repayment of such loans is sensitive to conditions in the real estate market or the general economy, which are outside the borrower’s control.
Many of these loans have real estate as a primary or secondary component of collateral.
Commercial real estate markets have been facing downward pressure since 2022 due in large part to high interest rates.
Although commercial real estate markets showed some signs of stabilization in 2024, the prospects for commercial real estate markets and property valuation remain uncertain.
Our failure to maintain appropriate, enhanced risk management policies, procedures and controls in response to regulatory expectations could adversely affect our ability to increase this portfolio going forward and could result in an increased rate of delinquencies in, and increased losses from, this portfolio.
Real estate construction loans, a subset of commercial real estate loans, comprised approximately $221.1 million, or 7.1%, of our gross loan and lease portfolio, respectively, as of December 31, 2024.
If we are forced to foreclose on a project prior to or at completion due to a default, we may not be able to recover all of the unpaid balance of, and accrued interest on, the loan and may incur related foreclosure and holding costs.
In addition, we may be required to fund additional amounts to complete the project and may have to hold the property for an unspecified period of time while we attempt to dispose of it.
A large portion of our loan and lease portfolio is comprised of commercial loans secured by various business assets, the deterioration in value of which could increase our exposure to future probable losses.
At December 31, 2024, approximately $1.152 billion, or 37.0%, of our loan portfolio was comprised of commercial loans to businesses collateralized by general business assets, including accounts receivable, inventory, and equipment.
Our commercial loans are typically larger in amount than loans to individual consumers and therefore, have the potential for larger losses on an individual loan basis.
Additionally, some of our niche commercial lending clients are highly leveraged and/or have inconsistent historical earnings.
Significant adverse changes in various industries could cause rapid declines in values and collectability associated with those business assets resulting in inadequate collateral coverage that may expose us to future losses.
An increase in specific reserves and charge-offs may adversely affect our business, results of operations, and financial condition.
SBA loans consisting of both commercial real estate and commercial loans, comprised approximately $58.1 million, or 1.87%, of our gross loan and lease portfolio as of December 31, 2024.
As an SBA Preferred Lender, we enable our clients to obtain SBA loans without being subject to the potentially lengthy SBA approval process necessary for lenders that are not SBA Preferred Lenders.
The total outstanding balance of sold SBA loans as of December 31, 2024 was $79.4 million.
In the event of a loss resulting from default and a determination by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by the Bank, the SBA may require the Bank to repurchase the previously sold portion of the loan, deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of the principal loss related to the deficiency from the Bank.
At December 31, 2024, our non-accrual loans totaled $28.4 million, or 0.91% of our gross loan and lease portfolio, and our non-performing assets (which include non-performing loans and repossessed assets) totaled $28.4 million, or 0.74% of total assets.
Such account and deposit balances can decrease when clients perceive alternative investments as providing a better risk/return profile.
An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans may lead to an increase in non-performing assets and a reduction of income recognized, which could have an adverse effect on our results of operations and cash flows.
Further, when we place a loan on non-accrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income.
Subsequently, we continue to have a cost to fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense.
Thus, an increase in the amount of non-performing assets would have an adverse impact on net interest income.
Federal banking agencies have concluded that the proportion of the deposits that exceeded FDIC insurance limits was a significant factor in the failure of certain banking institutions in the first half of 2023.
In response, many large depositors across the industry withdrew deposits in excess of applicable deposit insurance limits and deposited these funds in other financial institutions and low-risk securities accounts in an effort to mitigate the risk of potential further bank failures.
While the Bank has not experienced significant withdrawal activity in connection with the 2023 bank failures, if a significant portion of the Bank’s deposits were to be withdrawn within a short period of time in connection with a similar future crisis, additional sources of funding may be required to meet withdrawal demands.
The Corporation may be unable to obtain sufficient funding on favorable terms, which may have an adverse effect on the Corporation’s net interest margin.
In addition, funding deposit obligations may be more difficult in a high interest rate environment.
Because the Corporation’s available-for-sale investment securities may lose value when interest rates rise, proceeds from the sale of such assets may be diminished during periods of elevated interest rates.
Under such circumstances, the Corporation may be required to access funding from alternative liquidity sources in order to manage our liquidity risk.

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Sentence-level comparison of Item 1A in the two most recent 10-Ks (FY2024 ↗, FY2025 ↗). A reworded sentence counts as one dropped and one added, so heavy edits read as low “kept”. Headings and page furniture are stripped; nothing is summarised by a model.

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