Company Overview - First Business Financial Services (FBIZ) is headquartered in Madison and operates as a bank holding company for First Business Bank and First Business Bank-Milwaukee [3] - The stock has experienced a price change of 3.2% year-to-date [3] Dividend Information - FBIZ currently pays a dividend of $0.29 per share, resulting in a dividend yield of 2.43% [3] - The company's annualized dividend of $1.16 has increased by 16% from the previous year [4] - Over the last five years, FBIZ has raised its dividend five times, averaging an annual increase of 12.22% [4] - The current payout ratio is 22%, indicating that FBIZ pays out 22% of its trailing 12-month earnings per share as dividends [4] Earnings Growth Expectations - For the fiscal year 2025, the Zacks Consensus Estimate for earnings is $5.46 per share, reflecting an expected increase of 10.98% from the previous year [5] Investment Considerations - FBIZ is positioned as a strong dividend investment opportunity, especially compared to the Banks - Midwest industry's yield of 3.07% and the S&P 500's yield of 1.48% [3] - The stock holds a Zacks Rank of 3 (Hold), indicating a stable investment outlook [6]

[PART I. Financial Information](index=3&type=section&id=PART%20I.%20Financial%20Information) This section details the Corporation's unaudited financial statements and management's analysis for Q2 2025 [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements of First Business Financial Services, Inc. for the quarter ended June 30, 2025, including balance sheets, income statements, comprehensive income statements, changes in stockholders' equity, and cash flow statements, along with detailed notes on accounting policies, earnings per share, share-based compensation, securities, loans, leases, allowance for credit losses, leases, other assets, deposits, borrowings, preferred stock, commitments, fair value disclosures, derivatives, regulatory capital, and segment information [Consolidated Balance Sheets (Unaudited)](index=3&type=section&id=Consolidated%20Balance%20Sheets%20(Unaudited)) This table presents the unaudited consolidated balance sheets as of June 30, 2025, and December 31, 2024 | Metric | June 30, 2025 (In Thousands) | December 31, 2024 (In Thousands) | |:---|:---|:---| | **Assets** ||| | Total assets | $4,002,725 | $3,853,215 | | Cash and cash equivalents | $123,208 | $157,702 | | Securities available-for-sale | $382,365 | $341,392 | | Loans and leases receivable, net | $3,214,064 | $3,077,343 | | **Liabilities** ||| | Total liabilities | $3,657,930 | $3,524,626 | | Deposits | $3,305,222 | $3,107,140 | | FHLB advances and other borrowings | $276,131 | $320,049 | | **Stockholders' Equity** ||| | Total stockholders' equity | $344,795 | $328,589 | [Consolidated Statements of Income (Unaudited)](index=4&type=section&id=Consolidated%20Statements%20of%20Income%20(Unaudited)) This table presents the unaudited consolidated income statements for the three and six months ended June 30, 2025 | Metric | Three Months Ended June 30, 2025 (In Thousands) | Three Months Ended June 30, 2024 (In Thousands) | Six Months Ended June 30, 2025 (In Thousands) | Six Months Ended June 30, 2024 (In Thousands) | |:---|:---|:---|:---|:---|\n| Total interest income | $61,282 | $57,910 | $120,812 | $113,693 | | Total interest expense | $27,498 | $27,370 | $53,770 | $53,642 | | Net interest income | $33,784 | $30,540 | $67,042 | $60,051 | | Provision for credit losses | $2,701 | $1,713 | $5,360 | $4,039 | | Total non-interest income | $7,255 | $7,425 | $14,834 | $14,182 | | Total non-interest expense | $24,968 | $23,879 | $49,687 | $47,222 | | Net income | $11,422 | $10,456 | $22,593 | $19,304 | | Net income available to common shareholders | $11,203 | $10,237 | $22,155 | $18,866 | | Basic EPS | $1.35 | $1.23 | $2.66 | $2.26 | | Diluted EPS | $1.35 | $1.23 | $2.66 | $2.26 | | Dividends declared per share | $0.29 | $0.25 | $0.58 | $0.50 | [Consolidated Statements of Comprehensive Income (Unaudited)](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Unaudited)) This table presents the unaudited consolidated statements of comprehensive income for the periods ended June 30, 2025 | Metric | Three Months Ended June 30, 2025 (In Thousands) | Three Months Ended June 30, 2024 (In Thousands) | Six Months Ended June 30, 2025 (In Thousands) | Six Months Ended June 30, 2024 (In Thousands) | |:---|:---|:---|:---|:---|\n| Net income | $11,422 | $10,456 | $22,593 | $19,304 | | Unrealized securities gains (losses) | $2,534 | $(644) | $7,219 | $(3,505) | | Unrealized (losses) gains on interest rate swaps | $(3,206) | $382 | $(9,108) | $5,304 | | Total other comprehensive (loss) income | $(433) | $(768) | $(1,379) | $773 | | Comprehensive income | $10,989 | $9,688 | $21,214 | $20,077 | [Consolidated Statements of Changes in Stockholders' Equity (Unaudited)](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity%20(Unaudited)) This section details changes in stockholders' equity from December 31, 2024, to June 30, 2025 | Metric | Balance at December 31, 2024 (In Thousands) | Balance at June 30, 2025 (In Thousands) | |:---|:---|:---|\n| Total stockholders' equity | $328,589 | $344,795 | | Retained earnings | $265,778 | $283,077 | | Accumulated other comprehensive loss | $(11,425) | $(12,804) | | Common shares outstanding | 8,293,928 | 8,323,470 | | Treasury stock | $(31,396) | $(32,759) | - Total stockholders' equity increased by **$16.2 million** from December 31, 2024, primarily due to retained earnings, partially offset by dividends and treasury stock purchases[9](index=9&type=chunk)[16](index=16&type=chunk)[180](index=180&type=chunk) [Consolidated Statements of Cash Flows (Unaudited)](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) This section presents cash flow activities for the six months ended June 30, 2025 and 2024 | Cash Flow Activity | Six Months Ended June 30, 2025 (In Thousands) | Six Months Ended June 30, 2024 (In Thousands) | |:---|:---|:---|\n| Net cash provided by operating activities | $27,146 | $21,733 | | Net cash used in investing activities | $(209,219) | $(159,722) | | Net cash provided by financing activities | $147,579 | $79,559 | | Net decrease in cash and cash equivalents | $(34,494) | $(58,430) | | Cash and cash equivalents at end of period | $123,208 | $81,080 | - Operating activities generated **$27.1 million** in cash, while investing activities used **$209.2 million**, primarily for loan disbursements and securities investments. Financing activities provided **$147.6 million**, mainly from increased deposits[231](index=231&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) This section provides detailed notes to the unaudited consolidated financial statements, covering the nature of operations, significant accounting policies, earnings per common share calculations, share-based compensation plans, securities portfolio details, loan and lease receivables, allowance for credit losses, lease accounting, other assets, deposit composition, FHLB advances and other borrowings, preferred stock, commitments and contingencies, fair value disclosures, derivative financial instruments, regulatory capital requirements, and segment information [Note 1 — Nature of Operations and Summary of Significant Accounting Policies](index=8&type=section&id=Note%201%20%E2%80%94%20Nature%20of%20Operations%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note describes the Corporation's business, accounting policies, and impact of new accounting standards - First Business Financial Services, Inc. (FBFS) operates as a commercial banking institution through its wholly-owned subsidiary, First Business Bank (FBB), primarily in Wisconsin and the greater Kansas City metropolitan area, offering a full range of financial services to businesses, business owners, executives, professionals, and high net worth individuals, including bank consulting services to community financial institutions[20](index=20&type=chunk) - The unaudited Consolidated Financial Statements are prepared in accordance with GAAP and Form 10-Q instructions, and management's significant accounting and reporting policies remain unchanged from the December 31, 2024 Form 10-K[21](index=21&type=chunk)[23](index=23&type=chunk) - A new accounting standard, ASU No. 2023-09, 'Income Taxes (Topic 740): Improvements to Income Tax Disclosures,' effective for fiscal years beginning after December 15, 2024, is not expected to materially affect the Corporation's operating results or financial condition[24](index=24&type=chunk) [Note 2 — Earnings per Common Share](index=9&type=section&id=Note%202%20%E2%80%94%20Earnings%20per%20Common%20Share) This note details the calculation of basic and diluted earnings per common share using the two-class method - Earnings per common share are computed using the two-class method, with basic EPS calculated by dividing net income allocated to common shares by the weighted-average shares outstanding (excluding participating securities like unvested restricted shares). Diluted EPS includes the dilutive effect of common stock equivalents[25](index=25&type=chunk) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |:---|:---|:---|:---|:---|\n| Basic earnings per common share | $1.35 | $1.23 | $2.66 | $2.26 | | Diluted earnings per common share | $1.35 | $1.23 | $2.66 | $2.26 | | Net income allocated to common shareholders (Basic) | $10,996 | $10,003 | $21,712 | $18,444 | | Weighted-average common shares outstanding (Basic) | 8,141,159 | 8,113,246 | 8,149,600 | 8,154,445 | [Note 3 — Share-Based Compensation](index=9&type=section&id=Note%203%20%E2%80%94%20Share-Based%20Compensation) This note outlines the Corporation's equity incentive plan and share-based compensation expenses - The Corporation's 2019 Equity Incentive Plan allows for grants of incentive stock options, nonqualified stock options, restricted stock, restricted stock units (RSUs), and performance-based restricted stock units (PRSUs). As of June 30, 2025, **192,647 shares** were available for future grants[27](index=27&type=chunk) | Metric | June 30, 2025 (Shares) | December 31, 2024 (Shares) | |:---|:---|:---|\n| Nonvested balance | 145,272 | 158,687 | | Unrecognized compensation cost (in thousands) | $4,596 | N/A | | Weighted average remaining recognition period (in years) | 2.27 | N/A | | Shares issued under ESPP (6 months ended June 30) | 1,632 (2025) / 1,862 (2024) | N/A | | Shares available for ESPP issuance | 225,174 | 228,776 | - Share-based compensation expense for the six months ended June 30, 2025, was **$1.577 million**, an increase from **$1.289 million** in the same period of 2024[33](index=33&type=chunk) [Note 4 — Securities](index=11&type=section&id=Note%204%20%E2%80%94%20Securities) This note provides details on the Corporation's available-for-sale and held-to-maturity securities portfolios | Security Type | Fair Value (June 30, 2025, In Thousands) | Fair Value (December 31, 2024, In Thousands) | |:---|:---|:---|\n| **Available-for-sale** ||| | U.S. treasuries | $4,816 | $4,718 | | U.S. government agency securities | $3,260 | $3,153 | | Municipal securities | $39,436 | $34,861 | | Residential mortgage-backed securities | $293,258 | $258,000 (approx) | | Commercial mortgage-backed securities | $41,595 | $40,672 | | **Held-to-maturity** ||| | Municipal securities | $2,387 | $3,099 | | Residential mortgage-backed securities | $1,251 | $1,512 | | Commercial mortgage-backed securities | $1,963 | $1,924 | - As of June 30, 2025, the Corporation held **170 available-for-sale securities** in an unrealized loss position, with **153** of these in a continuous loss position for twelve months or greater. Management concluded that declines in fair value were due to market factors, not credit losses[37](index=37&type=chunk)[38](index=38&type=chunk) - Securities with a fair value of **$40.8 million** (June 30, 2025) and **$36.9 million** (December 31, 2024) were pledged to secure various obligations[36](index=36&type=chunk) [Note 5 — Loans, Lease Receivables, and Allowance for Credit Losses](index=14&type=section&id=Note%205%20%E2%80%94%20Loans,%20Lease%20Receivables,%20and%20Allowance%20for%20Credit%20Losses) This note details loan and lease receivables, credit quality, and the allowance for credit losses | Loan Type | June 30, 2025 (In Thousands) | December 31, 2024 (In Thousands) | |:---|:---|:---|\n| Commercial real estate | $1,947,197 | $1,917,130 | | Commercial and industrial | $1,259,171 | $1,151,720 | | Consumer and other | $45,744 | $45,000 | | Total gross loans and leases receivable | $3,252,112 | $3,113,850 | | Allowance for credit losses | $36,861 | $35,785 | | Loans and leases receivable, net | $3,214,064 | $3,077,343 | - The total principal amount of guaranteed portions of SBA loans sold increased significantly, from **$5.7 million** in H1 2024 to **$12.2 million** in H1 2025. Total outstanding balance of sold SBA loans serviced by the Corporation was **$82.3 million** at June 30, 2025[43](index=43&type=chunk) | Credit Quality Indicator | June 30, 2025 | December 31, 2024 | |:---|:---|:---|\n| Total non-accrual loans and leases to gross loans and leases | 0.88% | 0.91% | | Allowance for credit losses to gross loans and leases | 1.18% | 1.20% | | Allowance for credit losses to non-accrual loans and leases | 133.45% | 131.38% | - The provision for credit losses for the six months ended June 30, 2025, was **$5.360 million**, an increase from **$4.039 million** in the same period of 2024, driven by an increase in credit-risk indicators in the C&I portfolio and higher charge-offs[65](index=65&type=chunk)[158](index=158&type=chunk) [Note 6 — Leases](index=27&type=section&id=Note%206%20%E2%80%94%20Leases) This note describes the Corporation's operating leases for office spaces and equipment - The Corporation leases office spaces and equipment under non-cancellable operating leases expiring through 2033, recognizing a right-of-use asset and an operating lease liability for all non-short-term leases[69](index=69&type=chunk) | Metric | Six Months Ended June 30, 2025 (In Thousands) | Six Months Ended June 30, 2024 (In Thousands) | |:---|:---|:---|\n| Total lease cost, net | $1,082 | $1,057 | | Weighted-average remaining lease term (in years) | 6.43 (June 30, 2025) | 6.93 (December 31, 2024) | | Weighted-average discount rate | 3.40% (June 30, 2025) | 3.37% (December 31, 2024) | [Note 7 — Other Assets](index=28&type=section&id=Note%207%20%E2%80%94%20Other%20Assets) This note details the composition of other assets, including accrued interest and deferred tax assets | Asset Type | June 30, 2025 (In Thousands) | December 31, 2024 (In Thousands) | |:---|:---|:---|\n| Accrued interest receivable | $13,099 | $12,879 | | Net deferred tax asset | $12,354 | $12,599 | | Investment in low-income housing development entities | $49,179 | $40,259 | | Total accrued interest receivable and other assets | $108,501 | $99,059 | - For the six months ended June 30, 2025, the Corporation amortized tax credit investments of **$3.1 million** and recognized tax credits and other benefits of **$3.9 million**[72](index=72&type=chunk) [Note 8 — Deposits](index=28&type=section&id=Note%208%20%E2%80%94%20Deposits) This note provides a breakdown of deposit types and their changes over the reporting period | Deposit Type | June 30, 2025 (Balance, In Thousands) | December 31, 2024 (Balance, In Thousands) | |:---|:---|:---|\n| Non-interest-bearing transaction accounts | $396,448 | $436,111 | | Interest-bearing transaction accounts | $1,047,434 | $965,637 | | Money market accounts | $833,684 | $809,695 | | Certificates of deposit | $255,533 | $184,986 | | Wholesale deposits | $772,123 | $710,711 | | Total deposits | $3,305,222 | $3,107,140 | - Total deposits increased by **$198.1 million** (**12.8% annualized**) to **$3.305 billion** at June 30, 2025, from **$3.107 billion** at December 31, 2024, primarily due to increases in interest-bearing transaction accounts, certificates of deposit, and money market accounts, partially offset by a decrease in non-interest-bearing transaction accounts[194](index=194&type=chunk) - Wholesale deposits included **$601.8 million** in wholesale certificates of deposit and **$170.3 million** in non-reciprocal interest-bearing transaction accounts at June 30, 2025[75](index=75&type=chunk) [Note 9 — FHLB Advances, Other Borrowings and Subordinated Notes and Debentures](index=29&type=section&id=Note%209%20%E2%80%94%20FHLB%20Advances,%20Other%20Borrowings%20and%20Subordinated%20Notes%20and%20Debentures) This note details the Corporation's FHLB advances, other borrowings, and subordinated debt | Borrowing Type | June 30, 2025 (Balance, In Thousands) | December 31, 2024 (Balance, In Thousands) | |:---|:---|:---|\n| FHLB advances | $221,385 | $265,350 | | Subordinated notes and debentures | $54,746 | $54,689 | | Total borrowings | $276,131 | $320,049 | - FHLB advances and other borrowings decreased by **$43.9 million** (**13.7%**) to **$276.1 million** at June 30, 2025, from **$320.0 million** at December 31, 2024, reflecting reduced reliance on FHLB advances as deposit balances increased[196](index=196&type=chunk) - The Corporation was in compliance with debt covenants under its third-party secured senior line of credit as of June 30, 2025, with the credit line renewed until February 18, 2026[79](index=79&type=chunk) [Note 10 — Preferred Stock](index=30&type=section&id=Note%2010%20%E2%80%94%20Preferred%20Stock) This note describes the Corporation's outstanding preferred stock and associated dividend payments - The Corporation has **12,500 shares** of **7.0%** Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A, outstanding, with an aggregate liquidation preference of **$12.5 million**[80](index=80&type=chunk)[198](index=198&type=chunk) - Dividends are paid quarterly at a fixed rate of **7.0%** per annum until March 15, 2027, after which they will be paid at a floating rate of Three-Month Term SOFR plus **539 basis points**. **$219,000** and **$438,000** in preferred stock dividends were declared for the three and six months ended June 30, 2025, respectively[81](index=81&type=chunk)[199](index=199&type=chunk) [Note 11 — Commitments and Contingencies](index=30&type=section&id=Note%2011%20%E2%80%94%20Commitments%20and%20Contingencies) This note outlines the Corporation's legal proceedings, commitments, and contingent liabilities - The Corporation is involved in various legal proceedings in the ordinary course of business, but management does not anticipate any significant losses that would materially adversely affect its financial position, results of operations, or cash flows[82](index=82&type=chunk)[240](index=240&type=chunk) - The Corporation sells guaranteed portions of SBA loans and participation interests in other loans, retaining servicing responsibilities and being subject to SBA program requirements and standard representations and warranties. A recourse reserve of **$507,000** was established at June 30, 2025, for estimated losses on sold SBA loans[83](index=83&type=chunk)[84](index=84&type=chunk) [Note 12 — Fair Value Disclosures](index=30&type=section&id=Note%2012%20%E2%80%94%20Fair%20Value%20Disclosures) This note details fair value measurements of financial instruments using the ASC Topic 820 hierarchy - The Corporation determines fair values of financial instruments using the ASC Topic 820 hierarchy (Level 1, 2, 3), maximizing observable inputs. Most recurring fair value measurements for securities and derivatives are classified as **Level 2**[85](index=85&type=chunk)[86](index=86&type=chunk)[87](index=87&type=chunk)[88](index=88&type=chunk)[89](index=89&type=chunk)[90](index=90&type=chunk)[97](index=97&type=chunk) | Asset/Liability | June 30, 2025 (Fair Value, In Thousands) | December 31, 2024 (Fair Value, In Thousands) | |:---|:---|:---|\n| **Recurring Fair Value Measurements (Level 2)** ||| | Securities available-for-sale | $382,365 | $341,392 | | Interest rate swaps (assets) | $40,814 | $65,762 | | Interest rate swaps (liabilities) | $41,228 | $57,068 | | **Non-Recurring Fair Value Measurements (Level 3)** ||| | Collateral-dependent loans | $7,632 | $7,506 | | Repossessed assets | $31 | $51 | | Loan servicing rights | $1,382 | $1,245 | - Collateral-dependent loans and repossessed assets are measured at fair value using market or cost approaches, often involving unobservable inputs (**Level 3**). Loan servicing rights are also **Level 3**, valued using a discounted cash flow model with prepayment and discount rate assumptions[92](index=92&type=chunk)[93](index=93&type=chunk)[95](index=95&type=chunk) [Note 13 — Derivative Financial Instruments](index=35&type=section&id=Note%2013%20%E2%80%94%20Derivative%20Financial%20Instruments) This note describes the Corporation's use of interest rate swaps for risk management and hedging activities - The Corporation offers interest rate swap products to commercial borrowers and economically hedges these transactions with offsetting swaps with third parties. These non-hedging derivatives have mirror-image terms, resulting in insignificant impact on net income[102](index=102&type=chunk)[104](index=104&type=chunk) | Derivative Type | Notional Amount (June 30, 2025, In Thousands) | Notional Amount (December 31, 2024, In Thousands) | |:---|:---|:---|\n| Interest rate swap agreements on loans with commercial loan clients (assets) | $484,507 | $232,488 | | Interest rate swap agreements on loans with third-party counterparties (assets) | $1,074,531 | $1,022,365 | | Interest rate swap agreements on loans with commercial loan clients (liabilities) | $590,024 | $789,877 | | Interest rate swap related to wholesale funding (liabilities) | $456,255 | $100,000 | | Total aggregate amortizing notional value of interest rate swaps with commercial borrowers | $1,075,000 | $1,022,000 | - The Corporation also uses interest rate swaps as cash flow hedges to manage interest rate risk on wholesale funding and as fair value hedges to mitigate market value volatility on fixed securities. For the six months ended June 30, 2025, these hedges resulted in pre-tax unrealized losses of **$8.9 million** (cash flow) and **$243,000** (fair value) recognized in other comprehensive income[105](index=105&type=chunk)[106](index=106&type=chunk)[202](index=202&type=chunk)[204](index=204&type=chunk) [Note 14 — Regulatory Capital](index=37&type=section&id=Note%2014%20%E2%80%94%20Regulatory%20Capital) This note details the Corporation's and Bank's compliance with regulatory capital requirements - Both the Corporation and the Bank exceeded all regulatory minimum capital requirements as of June 30, 2025, with the Bank remaining 'well capitalized' under the regulatory framework[113](index=113&type=chunk) | Capital Ratio | Consolidated (June 30, 2025) | Bank (June 30, 2025) | Minimum Required for Capital Adequacy | Minimum to Be Well Capitalized | |:---|:---|:---|:---|:---|\n| Total capital (to risk-weighted assets) | 12.25% | 12.19% | 8.00% | 10.00% | | Tier 1 capital (to risk-weighted assets) | 9.66% | 11.12% | 6.00% | 8.00% | | Common equity tier 1 capital (to risk-weighted assets) | 9.33% | 11.12% | 4.50% | 6.50% | | Tier 1 leverage capital (to adjusted assets) | 8.82% | 10.16% | 4.00% | 5.00% | - The Corporation's ability to pay dividends is affected by Federal Reserve guidance and Wisconsin Business Corporation Law, requiring sufficient net income and capital levels[110](index=110&type=chunk)[111](index=111&type=chunk) [Note 15 — Segment Information](index=39&type=section&id=Note%2015%20%E2%80%94%20Segment%20Information) This note identifies banking operations as the Corporation's sole reportable segment - The Corporation's sole reportable segment is banking operations, evaluated by the CEO based on revenue streams, significant expenses, and budget-to-actual results. All operations are domestic[115](index=115&type=chunk) | Metric | Six Months Ended June 30, 2025 (In Thousands) | Six Months Ended June 30, 2024 (In Thousands) | |:---|:---|:---|\n| Total consolidated revenues | $135,646 | $127,875 | | Segment net interest and non-interest income | $81,876 | $74,233 | | Segment and consolidated net income | $22,593 | $19,304 | | Segment assets | $4,002,725 | $3,853,215 | | Expenses for segment assets | $49,687 | $47,222 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=41&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's discussion and analysis of the Corporation's financial condition and results of operations, including an overview of its business model, a summary of financial performance, detailed analysis of results of operations (net interest income, non-interest income, non-interest expense, provision for credit losses, income taxes), financial condition (assets, liabilities, equity), asset quality, liquidity, and capital resources. It also includes forward-looking statements and risk factors [General](index=41&type=section&id=General) This section defines the terminology used to refer to First Business Financial Services, Inc - The report refers to First Business Financial Services, Inc. and its subsidiary, First Business Bank (FBB), as 'Corporation,' 'we,' 'us,' or 'our'[118](index=118&type=chunk) [Forward-Looking Statements](index=41&type=section&id=Forward-Looking%20Statements) This section highlights the inherent risks and uncertainties associated with forward-looking statements - The report contains forward-looking statements, subject to risks and uncertainties such as adverse economic conditions, competitive pressures, interest rate fluctuations, regulatory changes, and fraud, which could cause actual results to differ materially from projections[120](index=120&type=chunk)[121](index=121&type=chunk) - The Corporation disclaims any obligation to update forward-looking statements, emphasizing that expectations are based on good faith assumptions that may vary from actual results[122](index=122&type=chunk)[123](index=123&type=chunk) [Overview](index=42&type=section&id=Overview) This section provides an overview of the Corporation's business model and service offerings - First Business Financial Services, Inc. is a Wisconsin-incorporated bank holding company operating through its subsidiary, FBB, as a business bank. It focuses on commercial banking products and services for small and medium-sized businesses, business owners, executives, professionals, and high net worth individuals[126](index=126&type=chunk) - The company's offerings include business banking (commercial lending, asset-based lending, SBA lending, treasury management), private wealth management (trust, financial planning, investment management), and bank consulting services[126](index=126&type=chunk) - The operating model emphasizes deep client relationships, financial expertise, and efficient, centralized administration, without relying on a branch network for retail clients[126](index=126&type=chunk) [Financial Performance Summary](index=42&type=section&id=Financial%20Performance%20Summary) This section summarizes key financial performance metrics and balance sheet changes for the period | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |:---|:---|:---|:---|:---|\n| Net income available to common shareholders | $11.2 million | $10.2 million | $22.2 million | $18.9 million | | Diluted earnings per share | $1.35 | $1.23 | $2.66 | $2.26 | | Annualized return on average assets (ROAA) | 1.14% | 1.14% | 1.14% | 1.06% | | Return on average tangible common equity (ROATCE) | 14.17% | 14.73% | 14.15% | 13.77% | | Pre-tax, pre-provision (PTPP) adjusted earnings | $16.0 million | $14.1 million | $32.2 million | $27.3 million | | Net interest margin | 3.67% | 3.65% | 3.68% | 3.62% | | Adjusted net interest margin | 3.47% | 3.46% | 3.47% | 3.45% | - Total assets increased **$149.5 million** (**7.8% annualized**) to **$4.003 billion** at June 30, 2025. Period-end gross loans and leases receivable grew **$138.3 million** (**8.9% annualized**) to **$3.252 billion**[134](index=134&type=chunk)[180](index=180&type=chunk) - Non-performing assets were **$28.7 million** (**0.72% of total assets**) at June 30, 2025, compared to **$28.4 million** (**0.74%**) at December 31, 2024. The allowance for credit losses was **1.18%** of total loans, slightly down from **1.20%** at December 31, 2024[134](index=134&type=chunk) [Results of Operations](index=43&type=section&id=Results%20of%20Operations) This section details the Corporation's operational performance, highlighting changes in top-line revenue, profitability metrics like ROAA and ROATCE, efficiency ratio, and pre-tax, pre-provision adjusted earnings. It further breaks down the drivers of net interest income, provision for credit losses, non-interest income, non-interest expense, and income taxes for the three and six months ended June 30, 2025, compared to the same periods in 2024 [Top Line Revenue](index=43&type=section&id=Top%20Line%20Revenue) This section analyzes the components and growth drivers of the Corporation's total revenue | Metric | Three Months Ended June 30, 2025 (In Thousands) | Three Months Ended June 30, 2024 (In Thousands) | Six Months Ended June 30, 2025 (In Thousands) | Six Months Ended June 30, 2024 (In Thousands) | |:---|:---|:---|:---|:---|\n| Net interest income | $33,784 | $30,540 | $67,042 | $60,051 | | Non-interest income | $7,255 | $7,425 | $14,834 | $14,182 | | Top line revenue | $41,039 | $37,965 | $81,876 | $74,233 | | % Change (YoY, 3 months) | 8.1% | N/A | N/A | N/A | | % Change (YoY, 6 months) | N/A | N/A | 10.3% | N/A | - The increase in top line revenue for the three months was driven by a **10.6%** increase in net interest income, partially offset by a **2.3%** decrease in non-interest income. For the six months, it was due to an **11.6%** increase in net interest income and a **4.6%** increase in non-interest income[131](index=131&type=chunk)[132](index=132&type=chunk) [Annualized Return on Average Assets ("ROAA") and Annualized Return on Average Tangible Common Equity ("ROATCE")](index=45&type=section&id=Annualized%20Return%20on%20Average%20Assets%20(%22ROAA%22)%20and%20Annualized%20Return%20on%20Average%20Tangible%20Common%20Equity%20(%22ROATCE%22)) This section details the Corporation's profitability metrics, ROAA and ROATCE, and their drivers | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |:---|:---|:---|:---|:---|\n| ROAA | 1.14% | 1.14% | 1.14% | 1.06% | | ROATCE | 14.2% | 14.7% | 14.2% | 13.8% | - The increase in ROAA for the six months was due to higher net interest income and non-interest income, partially offset by increased operating and income tax expenses. ROATCE changes were consistent with net income variances[135](index=135&type=chunk)[136](index=136&type=chunk) [Efficiency Ratio and Pre-Tax, Pre-Provision Adjusted Earnings](index=45&type=section&id=Efficiency%20Ratio%20and%20Pre-Tax,%20Pre-Provision%20Adjusted%20Earnings) This section examines the Corporation's efficiency ratio and pre-tax, pre-provision adjusted earnings | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |:---|:---|:---|:---|:---|\n| Efficiency ratio | 60.97% | 62.75% | 60.63% | 63.25% | | Pre-tax, pre-provision adjusted earnings (In Thousands) | $16,016 | $14,142 | $32,236 | $27,287 | | % Change (YoY, 3 months) | 13.3% | N/A | N/A | N/A | | % Change (YoY, 6 months) | N/A | N/A | 18.1% | N/A | - The efficiency ratio improved due to top-line revenue growth exceeding the increase in operating expenses, resulting in positive quarterly operating leverage. PTPP adjusted earnings increased, driven by higher net interest income and non-interest income, partially offset by increased operating expenses[137](index=137&type=chunk)[138](index=138&type=chunk) [Net Interest Income](index=46&type=section&id=Net%20Interest%20Income) This section analyzes the drivers of net interest income and net interest margin changes | Metric | Three Months Ended June 30, 2025 (In Thousands) | Three Months Ended June 30, 2024 (In Thousands) | Six Months Ended June 30, 2025 (In Thousands) | Six Months Ended June 30, 2024 (In Thousands) | |:---|:---|:---|:---|:---|\n| Net interest income | $33,784 | $30,540 | $67,042 | $60,051 | | % Change (YoY, 3 months) | 10.6% | N/A | N/A | N/A | | % Change (YoY, 6 months) | N/A | N/A | 11.6% | N/A | | Net interest margin | 3.67% | 3.65% | 3.68% | 3.62% | | Adjusted net interest margin | 3.47% | 3.46% | 3.47% | 3.45% | | Average gross loans and leases (3 months) | $3,239,840 | $2,962,927 | N/A | N/A | | Average gross loans and leases (6 months) | N/A | N/A | $3,212,967 | $2,925,191 | - The increase in net interest income was driven by growth in average gross loans and leases and an increase in Fees in Lieu of Interest (FILOI), which totaled **$1.7 million** and **$3.7 million** for the three and six months ended June 30, 2025, respectively[153](index=153&type=chunk) - The primary driver of the increase in adjusted net interest margin was an increase in the yield on interest-earning assets, partially offset by an increase in the rate paid on total bank funding[154](index=154&type=chunk) [Provision for Credit Losses](index=51&type=section&id=Provision%20for%20Credit%20Losses) This section details the provision for credit losses, including changes in qualitative and quantitative factors | Metric | Three Months Ended June 30, 2025 (In Thousands) | Three Months Ended June 30, 2024 (In Thousands) | Six Months Ended June 30, 2025 (In Thousands) | Six Months Ended June 30, 2024 (In Thousands) | |:---|:---|:---|:---|:---|\n| Total provision for credit losses | $2,701 | $1,713 | $5,360 | $4,039 | | Change in qualitative factors | $590 | $496 | $235 | $1,237 | | Change in quantitative factors | $746 | $150 | $2,306 | $(49) | | Charge-offs | $1,338 | $1,583 | $5,148 | $2,504 | | Recoveries | $(332) | $(191) | $(730) | $(418) | | Change due to loan growth, net | $536 | $680 | $1,277 | $1,035 | - The increase in provision for credit losses was primarily driven by an increase in credit-risk indicators in the Commercial & Industrial (C&I) portfolio and higher charge-offs, reflecting management's evaluation of portfolio risk and changes in forecast assumptions[158](index=158&type=chunk) [Non-Interest Income](index=51&type=section&id=Non-Interest%20Income) This section analyzes the components and trends of the Corporation's non-interest income | Metric | Three Months Ended June 30, 2025 (In Thousands) | Three Months Ended June 30, 2024 (In Thousands) | Six Months Ended June 30, 2025 (In Thousands) | Six Months Ended June 30, 2024 (In Thousands) | |:---|:---|:---|:---|:---|\n| Total non-interest income | $7,255 | $7,425 | $14,834 | $14,182 | | Private wealth management service fees | $3,748 | $3,461 | $7,240 | $6,571 | | Gain on sale of SBA loans | $397 | $349 | $1,360 | $544 | | Service charges on deposits | $1,103 | $951 | $2,152 | $1,890 | | Loan fees | $424 | $826 | $812 | $1,674 | | Increase in cash surrender value of bank owned life insurance | $615 | $403 | $1,051 | $815 | | Fee income ratio | 17.7% | 19.6% | 18.1% | 19.1% | - Non-interest income decreased **2.3%** for the three months due to reclassification of C&I loan fees and lower SBIC fund income, but increased **4.6%** for the six months, driven by higher gains on SBA loan sales and private wealth fee income[159](index=159&type=chunk) - Private wealth and trust assets under management and administration increased by **$482.0 million** (**14.8%**) to **$3.731 billion** at June 30, 2025, compared to June 30, 2024, contributing to higher private wealth fee income[164](index=164&type=chunk) [Non-Interest Expense](index=53&type=section&id=Non-Interest%20Expense) This section details the components and drivers of the Corporation's non-interest expenses | Metric | Three Months Ended June 30, 2025 (In Thousands) | Three Months Ended June 30, 2024 (In Thousands) | Six Months Ended June 30, 2025 (In Thousands) | Six Months Ended June 30, 2024 (In Thousands) | |:---|:---|:---|:---|:---|\n| Total non-interest expense | $24,968 | $23,879 | $49,687 | $47,222 | | Compensation | $16,534 | $16,215 | $33,281 | $32,372 | | Data processing | $1,368 | $1,182 | $2,450 | $2,200 | | Marketing | $1,062 | $850 | $2,030 | $1,669 | | Computer software | $1,656 | $1,555 | $3,259 | $2,973 | | FDIC insurance | $834 | $612 | $1,614 | $1,222 | | Other non-interest expense | $1,128 | $1,065 | $2,241 | $1,863 | | Actual full-time equivalent employees | 368 | 353 | 368 | 353 | - Non-interest expense increased by **$1.1 million** (**4.6%**) for the three months and **$2.5 million** (**5.2%**) for the six months, primarily due to higher compensation, FDIC insurance, other non-interest expense, and marketing costs[169](index=169&type=chunk) - Compensation expense rose due to an increase in average full-time equivalent employees (up **3.7%** to **364**) and annual merit increases, partially offset by a lower incentive compensation accrual[171](index=171&type=chunk) [Income Taxes](index=54&type=section&id=Income%20Taxes) This section discusses income tax expense, tax credit benefits, and the effective tax rate | Metric | Six Months Ended June 30, 2025 (In Thousands) | Six Months Ended June 30, 2024 (In Thousands) | |:---|:---|:---|\n| Income tax expense | $4,236 | $3,668 | | Net benefit from tax credit investments | $882 | $752 | | Effective tax rate | 15.8% | 16.0% | - The Corporation expects an effective tax rate between **16%** and **18%** for 2025. The recently signed 'One Big Beautiful Bill Act' is not expected to have a significant impact on 2025 income tax expense[176](index=176&type=chunk) [Financial Condition](index=55&type=section&id=Financial%20Condition) This section analyzes the Corporation's financial position, detailing changes in total assets, liabilities, and stockholders' equity. It provides specific insights into cash and cash equivalents, the securities portfolio, loans and leases receivable composition and growth, deposit trends, FHLB advances and other borrowings, preferred stock, and derivative instruments [General](index=55&type=section&id=General) This section provides an overview of the Corporation's total assets, liabilities, and equity changes | Metric | June 30, 2025 (In Thousands) | December 31, 2024 (In Thousands) | |:---|:---|:---|\n| Total assets | $4,003,000 | $3,853,000 | | Total liabilities | $3,658,000 | $3,525,000 | | Total stockholders' equity | $344,800 | $328,600 | - Total assets increased by **$149.5 million** (**7.8%**) due to growth in loans and available-for-sale securities, partially offset by a decrease in short-term investments. Total liabilities increased by **$133.3 million** (**7.6%**) primarily from increased deposits. Stockholders' equity rose by **$16.2 million** (**9.9%**) due to retained earnings[180](index=180&type=chunk) [Cash and Cash Equivalents](index=55&type=section&id=Cash%20and%20Cash%20Equivalents) This section details changes in cash and cash equivalents, including short-term investments | Metric | June 30, 2025 (In Thousands) | December 31, 2024 (In Thousands) | |:---|:---|:---|\n| Cash and due from banks | $50,700 | $29,500 | | Short-term investments | $72,500 | $128,200 | | Interest-bearing deposits held at FRB | $71,100 | $127,800 | - Cash and due from banks increased by **$21.2 million**, while short-term investments decreased by **$55.7 million**, primarily due to a reduction in interest-bearing deposits held at the Federal Reserve Bank (FRB)[181](index=181&type=chunk) [Securities](index=55&type=section&id=Securities) This section analyzes the Corporation's securities portfolio, including unrealized gains and losses | Metric | June 30, 2025 (In Millions) | December 31, 2024 (In Millions) | |:---|:---|:---|\n| Total securities | $388.1 | $348.1 | | % of total assets | 9.7% | 9.0% | | Unrealized gains (before tax, 6 months ended June 30, 2025) | $7.2 | N/A | | Unrealized losses (before tax, 6 months ended June 30, 2024) | N/A | $3.5 | - Total securities increased by **$39.9 million** (**11.5%**). The Corporation recognized **$7.2 million** in unrealized gains (before income taxes) through other comprehensive income for the six months ended June 30, 2025, driven by decreasing market interest rates[182](index=182&type=chunk) - The overall securities portfolio had an estimated weighted-average expected maturity of **5.2 years** at both June 30, 2025, and December 31, 2024. No credit losses were recognized in the securities portfolio[182](index=182&type=chunk)[183](index=183&type=chunk) [Loans and Leases Receivable](index=55&type=section&id=Loans%20and%20Leases%20Receivable) This section details the composition and growth of the Corporation's loan and lease portfolio | Loan Type | June 30, 2025 (In Thousands) | December 31, 2024 (In Thousands) | |:---|:---|:---|\n| Loans and leases receivable, net | $3,214,064 | $3,077,343 | | Total commercial real estate (CRE) loans | $1,947,197 | $1,917,130 | | Commercial and Industrial (C&I) loans | $1,259,171 | $1,151,720 | | CRE as % of total loans | 59.9% | 61.6% | | Owner-occupied CRE as % of CRE loans | 13.5% | 14.3% | - Period-end loans and leases receivable, net, increased by **$136.7 million** (**8.9% annualized**), primarily driven by commercial loan growth. C&I loans increased by **$107.5 million** (**18.7% annualized**) due to growth in conventional commercial lending, Floorplan Financing, and Equipment Finance portfolios[184](index=184&type=chunk)[187](index=187&type=chunk) - The Corporation maintains disciplined underwriting standards, with new credit approvals requiring a serial sign-off or committee process, and business development officers having no individual lending authority[189](index=189&type=chunk) [Deposits](index=57&type=section&id=Deposits) This section analyzes deposit trends, including core and uninsured deposit balances | Deposit Type | June 30, 2025 (In Thousands) | December 31, 2024 (In Thousands) | |:---|:---|:---|\n| Total deposits | $3,305,222 | $3,107,140 | | Total core deposits | $2,533,000 | $2,396,000 | | Uninsured deposits (net of collateralized) | $1,001,519 | $973,414 | | Uninsured deposits as % of total deposits | 30.3% | 31.3% | - Total period-end deposits increased by **$198.1 million** (**12.8% annualized**), with core deposits increasing by **$136.7 million** (**11.4% annualized**). Average core deposits increased by **$19.0 million** (**0.8%**) for the six months ended June 30, 2025[194](index=194&type=chunk)[195](index=195&type=chunk) - The Bank's deposit-centric sales strategy, led by treasury management, aims for continued net deposit increases, though balances may fluctuate[194](index=194&type=chunk) [FHLB Advances and Other Borrowings](index=57&type=section&id=FHLB%20Advances%20and%20Other%20Borrowings) This section details FHLB advances and other borrowings, and their impact on funding | Metric | June 30, 2025 (In Millions) | December 31, 2024 (In Millions) | |:---|:---|:---|\n| FHLB advances and other borrowings | $276.1 | $320.0 | | % Change | (13.7)% | N/A | | Outstanding wholesale funds | $993.5 | $976.1 | | Wholesale funds as % of total bank funding | 28.2% | 28.9% | - FHLB advances and other borrowings decreased by **$43.9 million**, as increased average deposit balances allowed for reduced reliance on FHLB advances. The Bank continues to use wholesale funds to manage interest rate risk, liquidity, and contingency funding[196](index=196&type=chunk)[197](index=197&type=chunk) [Preferred Stock](index=58&type=section&id=Preferred%20Stock) This section describes the Corporation's preferred stock and associated dividend payments - The Corporation has **12,500 shares** of **7.0%** Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A, outstanding, with a **$12.5 million** aggregate liquidation preference[198](index=198&type=chunk) - Dividends are paid quarterly at a fixed **7.0%** rate until March 15, 2027, then at a floating rate (Three-Month Term SOFR + **539 basis points**). The Corporation paid **$219,000** and **$438,000** in preferred stock dividends for the three and six months ended June 30, 2025, respectively[199](index=199&type=chunk) [Derivatives](index=58&type=section&id=Derivatives) This section outlines the Corporation's use of interest rate swaps for risk management - The aggregate amortizing notional value of interest rate swaps with commercial borrowers was approximately **$1.075 billion** at June 30, 2025, up from **$1.022 billion** at December 31, 2024[201](index=201&type=chunk) | Derivative Position | June 30, 2025 (In Millions) | December 31, 2024 (In Millions) | |:---|:---|:---|\n| Commercial borrower swaps (derivative asset) | $9.0 | $2.0 | | Commercial borrower swaps (derivative liability) | $38.5 | $56.6 | | Dealer counterparty swaps (net derivative asset) | $29.5 | $54.5 | | Cash flow hedges (notional value) | $514.7 | N/A | | Fair value hedges (notional value) | $12.5 | N/A | - The Bank uses interest rate swaps for asset/liability management, including cash flow hedges for wholesale funding and fair value hedges for fixed securities, with pre-tax unrealized losses recognized in other comprehensive income for the six months ended June 30, 2025[200](index=200&type=chunk)[202](index=202&type=chunk)[204](index=204&type=chunk) [Asset Quality](index=59&type=section&id=Asset%20Quality) This section provides an in-depth analysis of the Corporation's asset quality, focusing on non-performing assets and the allowance for credit losses. It details the composition of non-accrual loans, the ratio of allowance for credit losses to total loans and non-accrual loans, and management's assessment of credit risk within specific loan portfolios like Transportation and Commercial Real Estate [Non-performing Assets](index=59&type=section&id=Non-performing%20Assets) This section details the Corporation's non-performing assets and their impact on asset quality | Metric | June 30, 2025 (In Thousands) | December 31, 2024 (In Thousands) | |:---|:---|:---|\n| Total non-performing assets | $28,664 | $28,418 | | Non-accrual loans and leases | $28,633 | $28,367 | | Repossessed assets, net | $31 | $51 | | Total non-performing assets to total assets | 0.72% | 0.74% | | Total non-accrual loans and leases to gross loans and leases | 0.88% | 0.91% | | Allowance for credit losses to non-accrual loans and leases | 133.45% | 131.38% | - Non-performing assets increased by **$266,000**, primarily due to a new non-accrual loan in the transportation and logistics segment of the C&I portfolio, partially offset by charge-offs of previously reserved equipment finance loans[207](index=207&type=chunk) - Excluding one specific ABL loan (**$6.1 million**), non-performing assets totaled **$22.6 million** (**0.56% of total assets**) at June 30, 2025. The payment performance of loans and leases remained strong, with **99.12%** in current payment status[207](index=207&type=chunk)[208](index=208&type=chunk) [Allowance for Credit Losses](index=60&type=section&id=Allowance%20for%20Credit%20Losses) This section analyzes the allowance for credit losses and net charge-offs for the period | Metric | June 30, 2025 (In Thousands) | December 31, 2024 (In Thousands) | |:---|:---|:---|\n| Total allowance for credit losses (ACL) | $38,210 | $37,268 | | ACL as % of gross loans and leases | 1.18% | 1.20% | | ACL to total non-accrual loans and leases | 133.45% | 131.38% | | Net charge-offs (6 months ended June 30, 2025) | $4,418 | N/A | | Net charge-offs (6 months ended June 30, 2024) | N/A | $2,086 | - The ACL, including unfunded commitment reserves, increased by **$943,000** (**5.06%**) to **$38.2 million**. The ratio of ACL to non-accrual loans increased due to higher general reserves offsetting an increase in non-accrual loans[214](index=214&type=chunk)[217](index=217&type=chunk) - Net charge-offs for the six months ended June 30, 2025, were **$4.4 million**, with higher charge-offs on Equipment Finance loans due to a policy change accelerating charge-offs[216](index=216&type=chunk) [Liquidity and Capital Resources](index=62&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the Corporation's liquidity management and regulatory capital compliance - The Corporation expects to meet liquidity needs through existing cash, cash flow, its senior line of credit, and Bank dividends. The Bank's capital ratios met all regulatory requirements and Basel III heightened requirements as of June 30, 2025[223](index=223&type=chunk) | Liquidity Source | June 30, 2025 (In Thousands) | December 31, 2024 (In Thousands) | |:---|:---|:---|\n| Readily accessible liquidity | $1,313,215 | $882,785 | | Fed fund lines | $45,000 | $45,000 | | Excess brokered CD capacity | $645,843 | $981,463 | | Total liquidity | $2,004,058 | $1,909,248 | | Total uninsured, net of collateralized deposits | $1,001,519 | $973,414 | - Readily accessible liquidity increased by **$430.4 million** from December 31, 2024, primarily due to engagement with the FRB to confirm pledge value of additional loans. Wholesale funds constituted **28.2%** of total bank funding at June 30, 2025, down from **28.9%** at December 31, 2024[226](index=226&type=chunk)[227](index=227&type=chunk) [Contractual Obligations and Off-Balance Sheet Arrangements](index=64&type=section&id=Contractual%20Obligations%20and%20Off-Balance%20Sheet%20Arrangements) This section confirms no material changes to contractual obligations or off-balance sheet arrangements - There were no material changes to contractual obligations and off-balance sheet arrangements from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024. The Corporation believes it has adequate capital and liquidity to fund projected obligations[233](index=233&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=65&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section discusses the Corporation's primary market risk, interest rate risk, and how it is managed through asset/liability management. It presents simulation results showing the impact of instantaneous interest rate changes on net interest income and outlines strategies to mitigate this risk - The Corporation's primary market risk is interest rate risk, managed by maintaining a largely match-funded position between maturities and repricing dates of interest-earning assets and interest-bearing liabilities[234](index=234&type=chunk) | Instantaneous Rate Change in Basis Points | Impact on Net Interest Income (June 30, 2025) | Impact on Net Interest Income (December 31, 2024) | |:---|:---|:---|\n| Down 300 | (2.58)% | (1.35)% | | Down 200 | (0.91)% | (0.10)% | | Down 100 | (0.66)% | 0.10% | | No Change | — | — | | Up 100 | 0.96% | 0.37% | | Up 200 | 1.93% | 0.75% | | Up 300 | 2.90% | 1.13% | - Management believes market risk is well managed, with minimal impact on net interest income in simulated instantaneous rate shock scenarios. The Bank uses FHLB advances and wholesale deposits, and has authorization to use derivatives, to manage interest rate exposure[235](index=235&type=chunk)[236](index=236&type=chunk) [Item 4. Controls and Procedures](index=65&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the Corporation's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter - The Corporation's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2025[237](index=237&type=chunk) - There were no material changes in the Corporation's internal control over financial reporting during the quarter ended June 30, 2025[238](index=238&type=chunk) [PART II. Other Information](index=66&type=section&id=PART%20II.%20Other%20Information) This section provides additional information including legal proceedings, risk factors, and exhibits [Item 1. Legal Proceedings](index=66&type=section&id=Item%201.%20Legal%20Proceedings) This section states that the Corporation is involved in ordinary course legal proceedings but management does not anticipate any material adverse effects on its financial position, results of operations, or cash flows - The Corporation and its subsidiaries are engaged in legal proceedings in the ordinary course of business, but management does not anticipate any significant losses that would materially adversely affect the Corporation's financial position, results of operations, or cash flows[240](index=240&type=chunk) [Item 1A. Risk Factors](index=66&type=section&id=Item%201A.%20Risk%20Factors) This section confirms that there were no material changes to the risk factors previously disclosed in the Corporation's Annual Report on Form 10-K - There were no material changes to the risk factors previously disclosed in Item 1A. to Part I of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2024[241](index=241&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=66&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the Corporation's common stock repurchase activity, specifically shares repurchased to satisfy tax withholding obligations related to restricted awards, and notes that no shares were repurchased under the publicly announced repurchase program - The Board of Directors authorized a **$5.0 million** common stock repurchase program on April 26, 2024, but no shares have been repurchased under this program as of June 30, 2025[242](index=242&type=chunk) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | |:---|:---|:---|\n| April 1, 2025 - April 30, 2025 | 12,315 | $45.04 | | May 1, 2025 - May 31, 2025 | 627 | $49.38 | | June 1, 2025 - June 30, 2025 | — | — | | Total (Q2 2025) | 12,942 | $45.25 | - All **12,942 shares** repurchased during Q2 2025 were surrendered to satisfy income tax withholding obligations in connection with the vesting of restricted awards[244](index=244&type=chunk) [Item 5. Other Information](index=66&type=section&id=Item%205.%20Other%20Information) This section states that no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-rule 10b5-1 trading arrangement during the quarter - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-rule 10b5-1 trading arrangement during the three months ended June 30, 2025[246](index=246&type=chunk) [Item 6. Exhibits](index=67&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including amended by-laws, director share awards, certifications of the CEO and CFO, and XBRL financial information - Exhibits include Amended and Restated By-Laws, Form of Director Share Awards for 2025, Certifications of the Chief Executive Officer and Chief Financial Officer, and XBRL formatted financial information[249](index=249&type=chunk) [Signatures](index=68&type=section&id=Signatures) This section contains the signatures of the Chief Executive Officer and Chief Financial Officer, certifying the filing of the report - The report was duly signed on July 25, 2025, by Corey A. Chambas, Chief Executive Officer, and Brian D. Spielmann, Chief Financial Officer[253](index=253&type=chunk)

Financial Data and Key Metrics Changes - Operating revenue grew by 10% year-to-date compared to the same period in 2024, with pre-tax pre-provision earnings increasing by 18% and net income by 17% [20] - Tangible book value per share increased by 14% from a year ago, indicating strong stock valuation gains [5] - The net interest margin for the second quarter was reported at 3.67%, reflecting strong balance sheet management [15] Business Line Data and Key Metrics Changes - Core deposits increased by $70 million, or 11% annualized from the first quarter, and up 10% from last year's second quarter [7] - Loan balances grew by approximately $267 million, or 9%, year-over-year, with solid demand for conventional and niche commercial and industrial (C&I) products [8] - Private wealth assets under management grew by 36% annualized during the quarter and were up 15% from a year ago [11] Market Data and Key Metrics Changes - The company reported a 16% increase in service charges on deposits compared to last year's second quarter, indicating strong core deposit gathering [7] - The company has seen broad-based growth in its conventional markets, particularly in the Southeast and Northeast regions [25] Company Strategy and Development Direction - The company is focused on achieving a five-year strategic plan aimed at driving double-digit growth annually [4] - The strategy includes a target of 75% in-market deposits and 25% wholesale funding, with flexibility based on match funding needs [49] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, believing that strategic initiatives will continue to serve the company well into the future [20] - The management noted that while deposit competition has increased, they remain confident in maintaining their net interest margin targets [29] Other Important Information - The company reported a low level of net charge-offs during the quarter, with a slight increase in non-performing assets (NPAs) attributed to a single credit in the transportation and logistics sector [13] - The company is no longer lending to the transportation and logistics industry in its small ticket equipment finance business, which is expected to lower overall loss risk [13] Q&A Session Summary Question: Loan growth outlook - Management indicated that they are currently running at about 8.9% loan growth and are optimistic about reaching the 10% target [24][25] Question: Deposit competition and margin impact - Management acknowledged that deposit competition has increased but does not foresee negative implications for their long-term net interest margin targets [29] Question: Non-performing assets increase - The increase in NPAs was due to a specific $6 million loan, which is fully collateralized [32] Question: SBA loan sale gains outlook - Management expects SBA loan sale gains to bounce back closer to Q1 levels for the remainder of the year [36] Question: Transportation portfolio outlook - Management feels confident about the remainder of the transportation portfolio, noting that they stopped lending in that area in May 2023 [41] Question: Expense outlook - Management anticipates typical modest growth in expenses, aiming for positive operating leverage [42] Question: Provision outlook - Management indicated that the provision for loan losses should be enough to support growth while keeping reserve levels flat [44] Question: Core deposit growth targets - Management aims to grow core deposits in line with loan growth, targeting a 10% increase [53] Question: Margin sensitivity to interest rates - Management noted slight asset sensitivity and plans to redeploy cash to maintain margin targets [59]

Financial Performance Highlights - Private Wealth Management assets under management and administration reached a record of $3.731 billion[5] - Private Wealth Management fee income totaled $3.7 million for Q2 2025, an increase of 8.3% compared to Q2 2024[5] - The company experienced consistent loan growth, with an annualized increase of 8.4% from the linked quarter and 8.9% from Q2 2024[5] - Core deposits grew at an annualized rate of 11.4% from the linked quarter and 9.7% from Q2 2024[5] - The net interest margin (NIM) was strong at 3.67%, compared to 3.69% for the linked quarter and 3.65% for the prior-year quarter[5] - Tangible book value per share (TBVPS) increased at an annualized rate of 10.2% from the linked quarter and 13.6% from Q2 2024[5] - Operating revenue increased by 8.1% from Q2 2024, and year-to-date operating revenue increased by 10.3% over the first six months of 2024[5] - Pre-tax, pre-provision earnings grew by 18% year-to-date, and net income grew by 17% for the first six months of 2025 compared to the prior-year period[7] Balance Sheet and Liquidity - As of June 30, 2025, readily accessible liquidity was $1.313 billion, with total liquidity reaching $2.004 billion[35] - 70% of deposits are insured or collateralized, with FDIC insured deposits at $3.305 billion[36]

Financial Performance - First Business Financial Services reported quarterly earnings of $1.35 per share, matching the Zacks Consensus Estimate, and an increase from $1.23 per share a year ago [1] - The company posted revenues of $41.04 million for the quarter ended June 2025, which was 0.79% below the Zacks Consensus Estimate, compared to $37.97 million in the same quarter last year [2] - Over the last four quarters, the company has surpassed consensus EPS estimates three times and topped consensus revenue estimates two times [2] Stock Performance - First Business Financial Services shares have increased approximately 15.6% since the beginning of the year, outperforming the S&P 500's gain of 8.1% [3] - The current status of estimate revisions translates into a Zacks Rank 3 (Hold) for the stock, indicating expected performance in line with the market in the near future [6] Future Outlook - The current consensus EPS estimate for the coming quarter is $1.34 on revenues of $42.37 million, and for the current fiscal year, it is $5.45 on revenues of $167.8 million [7] - The outlook for the industry, specifically the Banks - Midwest sector, is currently in the top 29% of over 250 Zacks industries, suggesting a favorable environment for stock performance [8]

Second Quarter 2025 Earnings Overview [Executive Summary](index=1&type=section&id=1.1%20Executive%20Summary) First Business Bank reported strong Q2 2025 net income and EPS, driven by balance sheet expansion, loan growth, and improved efficiency - Net income available to common shareholders for Q2 2025 was **$11.2 million**, up from **$11.0 million** in Q1 2025 and **$10.2 million** in Q2 2024[1](index=1&type=chunk) - Diluted EPS for Q2 2025 was **$1.35**, compared to **$1.32** in Q1 2025 and **$1.23** in Q2 2024[1](index=1&type=chunk) - For the first half of 2025, operating revenue grew **10%**, pre-tax, pre-provision earnings grew **18%**, and net income grew **17%**[2](index=2&type=chunk) - Tangible book value expanded an impressive **14%** from the prior year[2](index=2&type=chunk) [Quarterly Highlights](index=1&type=section&id=1.2%20Quarterly%20Highlights) Q2 2025 highlights include robust growth in deposits and loans, stable net interest margin, and strong tangible book value - Total deposits grew **$62.2 million** (7.7% annualized) from the linked quarter and **$420.0 million** (14.6%) from Q2 2024[4](index=4&type=chunk) - Core deposits grew **$70.4 million** (11.4% annualized) from the linked quarter and **$223.5 million** (9.7%) from Q2 2024[4](index=4&type=chunk) - Loans increased **$66.9 million** (8.4% annualized) from Q1 2025 and **$266.9 million** (8.9%) from Q2 2024[4](index=4&type=chunk) - Net interest margin was **3.67%**, compared to **3.69%** for the linked quarter and **3.65%** for the prior year quarter, with net interest income increasing **10.6% YoY**[4](index=4&type=chunk) - Private Wealth assets under management and administration grew to **$3.731 billion**, generating record quarterly Private Wealth fee income of **$3.7 million** (up **8.3% YoY**)[4](index=4&type=chunk) - Tangible book value per share increased **10.2% annualized QoQ** and **13.6% YoY**[4](index=4&type=chunk) Detailed Financial Performance [Quarterly Financial Results (Table)](index=2&type=section&id=2.1%20Quarterly%20Financial%20Results%20(Table)) This table presents unaudited financial results for Q2 2025, Q1 2025, and Q2 2024, covering income statement, balance sheet, and performance ratios Quarterly Financial Results (Unaudited) | (Dollars in thousands, except per share amounts) | June 30, 2025 | March 31, 2025 | June 30, 2024 | June 30, 2025 (YTD) | June 30, 2024 (YTD) | | :---------------------------------------------- | :------------ | :------------- | :------------ | :------------------ | :------------------ | | Net interest income | $33,784 | $33,258 | $30,540 | $67,042 | $60,051 | | Operating revenue | 41,039 | 40,837 | 37,965 | 81,876 | 74,241 | | Operating expense | 25,023 | 24,617 | 23,823 | 49,640 | 46,954 | | Pre-tax, pre-provision adjusted earnings | 16,016 | 16,220 | 14,142 | 32,236 | 27,287 | | Net income available to common shareholders | $11,203 | $10,952 | $10,237 | $22,265 | $18,866 | | Earnings per share, diluted | $1.35 | $1.32 | $1.23 | $2.66 | $2.26 | | Tangible book value per share | $38.54 | $37.58 | $33.92 | $38.54 | $33.92 | | Net interest margin | 3.67% | 3.69% | 3.65% | 3.68% | 3.62% | | Efficiency ratio | 60.97% | 60.28% | 62.75% | 60.63% | 63.25% | | Period-end loans and leases receivable | $3,250,925 | $3,184,400 | $2,985,414 | $3,250,925 | $2,985,414 | | Period-end core deposits | $2,533,099 | $2,462,695 | $2,309,635 | $2,533,099 | $2,309,635 | | Non-performing assets | $28,664 | $24,092 | $19,053 | $28,664 | $19,053 | | Non-performing assets as a percent of total assets | 0.72% | 0.61% | 0.53% | 0.72% | 0.53% | [Q2 2025 vs Q1 2025 Performance Analysis](index=3&type=section&id=2.2%20Q2%202025%20vs%20Q1%202025%20Performance%20Analysis) Net interest income increased, while non-interest income and operating expenses saw slight decreases, with loan and deposit growth continuing and stable net interest margin - Net interest income increased by **$526,000**, or **1.6%**, to **$33.8 million**[7](index=7&type=chunk) - Provision for credit losses remained stable at **$2.7 million**, primarily driven by an increase in general reserves due to a deterioration in economic outlook and loan growth, partially offset by a decrease in specific reserve requirements[8](index=8&type=chunk) - Non-interest income decreased **$324,000**, or **4.3%**, to **$7.3 million**[9](index=9&type=chunk) - Operating expense decreased **$406,000**, or **1.6%**, to **$25.0 million**, mainly due to lower compensation expense from payroll taxes in the prior quarter, despite an expanded workforce (average FTEs up to 364 from 353)[10](index=10&type=chunk) - Net interest margin was **3.67%** compared to **3.69%** for the linked quarter, while adjusted net interest margin increased one basis point to **3.47%**[11](index=11&type=chunk) - Private wealth fee income increased **$256,000**, or **7.3%**, to **$3.7 million**, with Private Wealth assets under management and administration up **$306.1 million**, or **35.8% annualized**[11](index=11&type=chunk) - Total period-end loans and leases receivable increased **$66.9 million**, or **8.4% annualized**, to **$3.252 billion**[13](index=13&type=chunk) - Total period-end core deposits increased **$70.4 million**, or **11.4% annualized**, to **$2.533 billion**[14](index=14&type=chunk) - Non-performing assets increased **$4.6 million** to **$28.7 million**, or **0.72% of total assets**, primarily driven by one new non-accrual loan in the transportation and logistics segment[16](index=16&type=chunk) - The allowance for credit losses, including unfunded credit commitments reserve, increased **$1.7 million**, or **4.6%**, to **1.18% of total gross loans and leases**, up from **1.15%** in the prior quarter[17](index=17&type=chunk) [Q2 2025 vs Q2 2024 Performance Analysis](index=4&type=section&id=2.3%20Q2%202025%20vs%20Q2%202024%20Performance%20Analysis) Net interest income significantly increased year-over-year, supported by loan growth, despite higher provision for credit losses and increased operating expenses - Net interest income increased **$3.2 million**, or **10.6%**, to **$33.8 million**[18](index=18&type=chunk) - Provision for credit losses increased to **$2.7 million**, compared to **$1.7 million** in the second quarter of 2024[20](index=20&type=chunk) - Non-interest income decreased **$170,000**, or **2.3%**, to **$7.3 million**[21](index=21&type=chunk) - Operating expense increased **$1.2 million**, or **5.0%**, to **$25.0 million**, driven by increases in compensation (up **2.0%** due to increased FTEs), FDIC Insurance (up **36.3%**), data processing (up **15.7%**), computer software (up **6.5%**), and marketing (up **24.9%**)[22](index=22&type=chunk)[24](index=24&

Core Viewpoint - First Business Financial Services (FBIZ) shows potential for significant upside, with a mean price target of $60.20 indicating a 26.2% increase from the current price of $47.69 [1] Price Targets - The average price target for FBIZ ranges from a low of $57 to a high of $62, with a standard deviation of $2.05, suggesting a relatively high agreement among analysts [2] - The lowest estimate indicates a 19.5% increase, while the highest suggests a 30% upside [2] Analyst Consensus and Earnings Estimates - Analysts are optimistic about FBIZ's earnings prospects, as indicated by a positive trend in earnings estimate revisions, which historically correlates with stock price movements [4][11] - Over the last 30 days, the Zacks Consensus Estimate for the current year has increased by 0.9%, with one estimate moving higher and no negative revisions [12] Zacks Rank - FBIZ holds a Zacks Rank 2 (Buy), placing it in the top 20% of over 4,000 ranked stocks based on earnings estimate factors, indicating strong potential for near-term upside [13]

Group 1: Company Overview - First Business Financial Services (FBIZ) currently has a Zacks Rank of 2 (Buy) and an A grade for Value [3][8] - FBIZ has a P/E ratio of 8.44, compared to the industry average of 10.01 [3] - FBIZ's Forward P/E has fluctuated between 6.79 and 10.58 over the past 52 weeks, with a median of 8.55 [3] Group 2: Valuation Metrics - FBIZ's P/B ratio is 1.26, which is lower than the industry average of 1.93 [4] - The P/B ratio for FBIZ has ranged from 0.96 to 1.48 in the past 52 weeks, with a median of 1.22 [4] - FBIZ has a P/S ratio of 1.49, compared to the industry's average P/S of 1.85 [5] - FBIZ's P/CF ratio is 6.92, significantly lower than the industry average of 14.81 [6] - The P/CF ratio for FBIZ has varied between 5.92 and 8.66 over the past 12 months, with a median of 7.19 [6] Group 3: Comparison with Other Companies - First Financial Bank (FFBC) also has a Zacks Rank of 2 (Buy) and a Value grade of A [7] - FFBC's P/B ratio is 0.87, which is lower than the industry average of 1.93 [7] - FFBC's P/B ratio has ranged from 0.84 to 1.18 in the past 52 weeks, with a median of 1.01 [7] Group 4: Investment Outlook - Both FBIZ and FFBC are considered undervalued based on their strong earnings outlook and valuation metrics [8]

Financial Performance - Net income available to common shareholders for Q1 2025 was $11.0 million, or diluted earnings per share of $1.32, compared to $8.6 million, or $1.04 per share in Q1 2024, representing a 28% increase in net income [129]. - Top line revenue for Q1 2025 reached $40.8 million, a 12.6% increase from $36.3 million in Q1 2024, attributed to a 12.7% rise in net interest income and a 12.2% rise in non-interest income [131]. - Pre-tax, pre-provision adjusted earnings for Q1 2025 were $16.2 million, a 23.4% increase from $13.1 million in Q1 2024 [137]. - Efficiency ratio improved to 60.3% in Q1 2025 from 63.8% in Q1 2024, indicating better operational efficiency [136]. Asset and Loan Growth - Total assets increased by $91.7 million, or 9.5% annualized, to $3.945 billion as of March 31, 2025, compared to $3.853 billion at the end of 2024 [135]. - Period-end gross loans and leases receivable rose to $3.185 billion, a 9.2% annualized increase from $3.114 billion at the end of 2024 [135]. - Average gross loans and leases rose by $298.3 million, or 10.3%, for the three months ended March 31, 2025, compared to the same period in 2024 [149]. - Period-end loans and leases receivable increased by $71.8 million, or 9.3% annualized, to $3.149 billion as of March 31, 2025, from $3.077 billion at December 31, 2024 [180]. Income and Interest Metrics - Net interest income increased by $3.7 million, or 12.7%, for the three months ended March 31, 2025, compared to the same period in 2024 [149]. - Net interest margin improved to 3.69% for the three months ended March 31, 2025, compared to 3.58% for the same period in 2024 [148]. - The yield on average loans and leases decreased to 6.94% for the three months ended March 31, 2025, down from 7.14% for the same period in 2024 [150]. - The yield on average interest-earning assets was 6.61% for the three months ended March 31, 2025, compared to 6.77% for the same period in 2024 [150]. Credit Quality - Provision for credit losses was $2.7 million in Q1 2025, up from $2.3 million in Q1 2024 [135]. - Non-performing assets decreased to $24.1 million, or 0.61% of total assets, down from $28.4 million, or 0.74%, at the end of 2024 [135]. - The allowance for credit losses decreased by $753,000, or 2.0%, to $36.5 million as of March 31, 2025, with the allowance as a percentage of gross loans and leases at 1.15% [208]. - Net charge-offs for the three months ended March 31, 2025, were $3.4 million, consisting of $3.8 million in charge-offs and $398,000 in recoveries [210]. Deposits and Funding - Total deposits increased by $135.9 million, or 4.3%, to $3.243 billion as of March 31, 2025, from $3.107 billion at December 31, 2024 [189]. - Core deposits increased by $66.3 million, or 11.1% annualized, to $2.463 billion as of March 31, 2025 [189]. - Outstanding wholesale funds increased to $1.012 billion as of March 31, 2025, representing 29.1% of total bank funding [221]. - FHLB advances and other borrowings decreased by $33.5 million, or 41.8%, to $286.6 million as of March 31, 2025 [191]. Liquidity - As of March 31, 2025, the Corporation's total liquidity was $1.955 billion, an increase from $1.909 billion as of December 31, 2024 [219]. - Readily accessible liquidity increased to $961.7 million as of March 31, 2025, compared to $882.8 million as of December 31, 2024 [220]. - The Bank's accessible liquidity was in excess of the stated policy minimum as of March 31, 2025, ensuring funding for at least one year of maturities [224]. - The Corporation plans to utilize excess liquidity to fund loan and lease portfolio growth and maintain adequate liquidity margins [220]. Other Financial Metrics - Total stockholders' equity increased by $7.5 million, or 9.1%, to $336.1 million at March 31, 2025, compared to $328.6 million at December 31, 2024 [176]. - The effective tax rate for the three months ended March 31, 2025, was 17.00%, compared to 16.5% for the same period in 2024 [172]. - The Corporation paid $219,000 in cash dividends on the Series A Preferred Stock during the three months ended March 31, 2025 [194]. - The Corporation recognized a pre-tax unrealized loss of $5.7 million in other comprehensive income for the three months ended March 31, 2025, related to cash flow hedges [197].

Financial Data and Key Metrics Changes - Pre-tax pre-provision adjusted earnings increased by 23% year-over-year, with earnings per share rising by 27% to $1.32 [6][12] - Tangible book value per share grew by 14% [6] - Net interest margin for the first quarter was 3.69%, reflecting strong balance sheet management [17][18] - Total deposits grew by $488 million, or 18%, compared to the same quarter last year [9] - Loan balances increased by approximately $275 million, or nearly 10% year-over-year [8] Business Line Data and Key Metrics Changes - Core deposits grew by $66 million, or over 11% [9] - Commercial and Industrial (C&I) loans led growth with balances expanding by $77 million, or 27% annualized [10] - Private wealth management assets and fees also saw growth [6] Market Data and Key Metrics Changes - Non-performing assets (NPAs) declined by $4.3 million from the linked quarter [13] - The weighted average risk rating of the portfolio remained stable, indicating no significant deterioration [14] Company Strategy and Development Direction - The company aims for 10% annual growth, focusing on relationship-based deposit growth and loan expansion [5][24] - The strategic plan emphasizes controlling the controllable and delivering shareholder returns that exceed peers [24][25] - The company is optimistic about 2025 and believes its strategic initiatives will support future growth [25] Management's Comments on Operating Environment and Future Outlook - Management noted rising uncertainty related to U.S. trade policy and potential economic recession but remains confident in outperforming peers [15][16] - The company is positioned to capture growth opportunities in countercyclical lending areas, such as asset-based lending [10][11] Other Important Information - Total expenses increased by $1.6 million compared to the fourth quarter, primarily due to workforce-related costs [21] - The effective tax rate for the first quarter returned to a normalized level of 17% [22] Q&A Session Summary Question: Inquiry about new loan yields and spread tightening - Management indicated that new loan yields were consistent with the prior quarter, with slight narrowing of spreads for competitive credits [29][30] Question: Impact of tariffs on clients - Management reported no significant impact from tariffs on clients, although there is ongoing uncertainty [38][40] Question: Equipment finance losses and charge-offs - Management confirmed that the increase in net charge-offs was a one-quarter anomaly, with expectations of continued credit costs in the equipment finance portfolio [42][43] Question: Provision expectations related to loan growth - Management acknowledged a correlation between increased provisions and charge-offs, with expectations for provisions to remain in line with recent quarters [46][48] Question: Cash and securities balances strategy - Management stated that the high cash and securities balances were intentional but temporary, aimed at maintaining liquidity [49][50] Question: SBA lending changes and revenue impact - Management does not foresee significant changes in volume due to recent SBA underwriting changes, attributing volume growth to the sales team [64][65] Question: Credit quality and migration trends - Management reported benign trends in credit quality with little change quarter-over-quarter [69][70] Question: Loan deposit ratio target - Management indicated a focus on maintaining a loan-to-deposit ratio below 100, with a target of 75% core funding to total bank funding [75][77]