UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Common Stock, $0.01 par value FBIZ The Nasdaq Stock Market LLC FORM 10-Q ☑ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2020 OR ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 001-34095 FIRST BUSINESS FINANCIAL SERVICES, INC. (Exact name of registrant as specified in its charter) Wisconsin ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q þ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2020 OR ¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 001-34095 FIRST BUSINESS FINANCIAL SERVICES, INC. (Exact name of registrant as specified in its charter) Wisconsin 39-1576570 | --- | --- | --- | |------------------------------ ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-34095 FIRST BUSINESS FINANCIAL SERVICES, INC. (Exact name of registrant as specified in its charter) Wisconsin 39-1576570 (State or othe ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q þ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2019 OR ¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 001-34095 FIRST BUSINESS FINANCIAL SERVICES, INC. (Exact name of registrant as specified in its charter) Wisconsin 39-1576570 | --- | --- | --- | |-------------------------- ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q þ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2019 OR ¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 001-34095 FIRST BUSINESS FINANCIAL SERVICES, INC. (Exact name of registrant as specified in its charter) Wisconsin 39-1576570 | --- | --- | --- | |------------------------------- ...

PART I. Financial Information [Item 1. Financial Statements](index=3&type=section&id=Item%201%2E%20Financial%20Statements) This section presents the unaudited consolidated financial statements for First Business Financial Services, Inc. as of March 31, 2019, and for the three-month period then ended, including balance sheets, income statements, and cash flows [Consolidated Balance Sheets (Unaudited)](index=3&type=section&id=Consolidated%20Balance%20Sheets%20%28Unaudited%29) Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2019 (In Thousands) | December 31, 2018 (In Thousands) | | :--- | :--- | :--- | | **Assets** | | | | Total Assets | $2,005,642 | $1,966,457 | | Cash and cash equivalents | $56,335 | $86,546 | | Loans and leases receivable, net | $1,636,197 | $1,597,230 | | Securities available-for-sale | $156,783 | $138,358 | | **Liabilities & Equity** | | | | Total Deposits | $1,501,706 | $1,455,299 | | Total Liabilities | $1,820,542 | $1,785,750 | | Total Stockholders' Equity | $185,100 | $180,707 | [Consolidated Statements of Income (Unaudited)](index=4&type=section&id=Consolidated%20Statements%20of%20Income%20%28Unaudited%29) Consolidated Income Statement Highlights (Unaudited) | Metric | Three Months Ended March 31, 2019 (In Thousands) | Three Months Ended March 31, 2018 (In Thousands) | | :--- | :--- | :--- | | Net Interest Income | $17,754 (in thousands) | $16,202 (in thousands) | | Provision for loan and lease losses | $49 (in thousands) | $2,476 (in thousands) | | Non-interest Income | $4,638 (in thousands) | $4,667 (in thousands) | | Non-interest Expense | $17,742 (in thousands) | $13,907 (in thousands) | | Net Income | $5,899 (in thousands) | $3,649 (in thousands) | | Diluted EPS | $0.67 | $0.42 | [Consolidated Statements of Comprehensive Income (Unaudited)](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Unaudited%29) - Comprehensive income for the three months ended March 31, 2019 was **$6.178 million**, a significant increase from **$3.146 million** in the same period of 2018, driven by higher net income and a positive shift in other comprehensive income from a loss of **$503,000** in Q1 2018 to a gain of **$279,000** in Q1 2019, primarily due to unrealized gains on securities[16](index=16&type=chunk) [Consolidated Statements of Changes in Stockholders' Equity (Unaudited)](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity%20%28Unaudited%29) - Total stockholders' equity increased from **$180.7 million** at the beginning of 2019 to **$185.1 million** at March 31, 2019, primarily driven by net income of **$5.9 million** and a cumulative effect adjustment of **$687,000** from adopting ASC Topic 842, partially offset by cash dividends of **$1.3 million** and treasury stock purchases of **$1.5 million**[21](index=21&type=chunk) [Consolidated Statements of Cash Flows (Unaudited)](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20%28Unaudited%29) Cash Flow Summary (Unaudited) | Activity | Three Months Ended March 31, 2019 (In Thousands) | Three Months Ended March 31, 2018 (In Thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $10,663 | $8,552 | | Net cash used in investing activities | ($55,508) | ($76,383) | | Net cash provided by financing activities | $14,634 | $76,614 | | **Net (decrease) increase in cash** | **($30,211)** | **$8,783** | [Notes to Unaudited Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) - The company adopted ASU No. 2016-02, "Leases (Topic 842)" in Q1 2019, resulting in the recognition of an **$8.8 million** lease liability and an **$8.5 million** right-of-use asset, with a cumulative-effect adjustment increasing retained earnings by **$687,000**[31](index=31&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk) - The company plans to adopt ASU No. 2016-13, "Financial Instruments- Credit Losses (Topic 326)" in Q1 2020, which will replace the incurred loss methodology with an expected credit loss model, and has established a cross-functional committee and implemented a third-party software solution to manage the transition[35](index=35&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=44&type=section&id=Item%202%2E%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the financial condition and results of operations for the three months ended March 31, 2019, highlighting a **61.7%** increase in net income to **$5.9 million**, a **9.6%** rise in net interest income, and a significant decrease in the provision for loan and lease losses, covering revenue drivers, expense management, balance sheet changes, asset quality trends, and liquidity and capital resources [Overview](index=45&type=section&id=Overview) The company operates as a business bank focusing on commercial banking products for small- to medium-sized businesses, owners, and high net worth individuals, with Q1 2019 total assets growing to **$2.006 billion**, net income increasing to **$5.9 million** (**$0.67 per diluted share**), and top-line revenue growing **7.3%** to **$22.4 million** compared to Q1 2018 Q1 2019 Key Performance Metrics | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net Income | $5.9 million | $3.6 million | | Diluted EPS | $0.67 | $0.42 | | ROAA (annualized) | 1.20% | 0.78% | | ROAE (annualized) | 13.67% | 8.88% | | Net Interest Income | $17.8 million | $16.2 million | | Net Interest Margin | 3.79% | 3.65% | - Asset quality improved, with non-performing assets as a percentage of total assets decreasing to **1.30%** at March 31, 2019, from **1.42%** at December 31, 2018, and non-accrual loans also decreased by **7.0%** during the quarter[182](index=182&type=chunk) [Results of Operations](index=46&type=section&id=Results%20of%20Operations) Top-line revenue grew **7.3%** year-over-year, driven by a **9.6%** increase in net interest income due to higher loan balances and a 14 basis point expansion in net interest margin, while the provision for loan losses decreased significantly to **$49,000** from **$2.5 million** in the prior-year quarter, and non-interest expense increased **27.6%**, largely due to a **$1.9 million** impairment on a tax credit investment and higher compensation costs - Net interest income increased by **$1.6 million (9.6%) YoY**, driven by a **$99.0 million** increase in average loans and leases and higher fees collected in lieu of interest (**$2.2 million** in Q1 2019 vs **$1.0 million** in Q1 2018)[206](index=206&type=chunk) - The provision for loan and lease losses was only **$49,000** in Q1 2019, compared to **$2.5 million** in Q1 2018, with the decrease attributed to a reduction in historic loss rates, which offset the provision needed for loan growth[214](index=214&type=chunk) - Non-interest expense rose by **$3.8 million YoY**, primarily due to a **$1.9 million** impairment on a tax credit investment, a **$1.1 million** increase in compensation expense from hiring new producers, and a higher SBA recourse provision[229](index=229&type=chunk)[230](index=230&type=chunk)[231](index=231&type=chunk) - The company recognized an income tax benefit of **$1.3 million**, compared to an expense of **$837,000** in Q1 2018, due to a **$2.8 million** tax credit related to an in-market federal historic tax credit investment[236](index=236&type=chunk) [Financial Condition](index=55&type=section&id=Financial%20Condition) Total assets grew by **$39.2 million** during the quarter to **$2.006 billion**, driven by a **$39.0 million** increase in net loans and leases and a **$16.6 million** increase in securities, funded by a **$46.4 million** increase in deposits, allowing for a **$29.0 million** reduction in FHLB advances and other borrowings - Net loans and leases receivable grew by **$39.0 million (9.6% annualized)** during the quarter, led by a **$16.6 million** increase in multi-family commercial real estate loans[244](index=244&type=chunk) - Total deposits increased by **$46.4 million**, primarily from growth in money market accounts and certificates of deposit, with in-market deposits growing by **$60.0 million**, or **20.4% annualized**[182](index=182&type=chunk)[248](index=248&type=chunk) [Asset Quality](index=57&type=section&id=Asset%20Quality) Asset quality improved during the quarter, with non-performing assets decreasing by **$1.8 million** to **$26.1 million**, and the ratio of non-performing assets to total assets declined to **1.30%** from **1.42%**, while the allowance for loan and lease losses remained stable at **$20.4 million**, representing **1.23%** of gross loans, down slightly from **1.26%** at year-end 2018 Asset Quality Ratios | Metric | March 31, 2019 (In Thousands) | December 31, 2018 (In Thousands) | | :--- | :--- | :--- | | Total non-performing assets | $26,087 (in thousands) | $27,848 (in thousands) | | Non-accrual loans to gross loans | 1.42% | 1.56% | | Non-performing assets to total assets | 1.30% | 1.42% | | ALLL to gross loans | 1.23% | 1.26% | | ALLL to non-accrual loans | 86.87% | 80.73% | - The decrease in non-performing assets was primarily due to the payoff of a **$9.1 million** asset-based loan that was previously identified as impaired, which reduced NPAs by **$3.3 million**[258](index=258&type=chunk) - Net charge-offs for Q1 2019 were minimal at **$25,000 (0.01% of average loans annualized)**, a significant improvement from **$2.6 million (0.67% annualized)** in Q1 2018[262](index=262&type=chunk) [Liquidity and Capital Resources](index=61&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity and capital position, with immediate on-balance sheet liquidity of **$393.4 million** at quarter-end, and the bank's capital ratios remained well-capitalized under regulatory frameworks, effectively managing its funding mix with wholesale funds representing **29.1%** of total bank funding, within its target range of **25%-40%** - Immediate on-balance sheet liquidity (short-term investments, unencumbered securities, and unencumbered pledged loans) stood at **$393.4 million** as of March 31, 2019[273](index=273&type=chunk) - The company's operating range for wholesale funds (brokered CDs, internet deposits, FHLB advances) as a percentage of total bank funding is **25%-40%**, and as of March 31, 2019, this ratio was **29.1%**[254](index=254&type=chunk)[277](index=277&type=chunk) - As of March 31, 2019, First Business Bank's capital levels were characterized as well-capitalized, with a Total Capital to risk-weighted assets ratio of **11.83%** and a Tier 1 leverage ratio of **10.28%**[166](index=166&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=62&type=section&id=Item%203%2E%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is interest rate risk, managed by the Asset/Liability Management Committee through strategies aimed at matching the maturities and repricing of assets and liabilities, using earnings simulation and static gap analysis to measure this risk, with management believing its economic sensitivity to interest rate changes has not materially changed since December 31, 2018 - The company's main market risk is interest rate risk, which it manages by attempting to match the maturities and repricing dates of its assets and liabilities[283](index=283&type=chunk) - Two primary techniques are used to measure interest rate risk: simulation of earnings under different rate scenarios and static gap analysis, which measures the difference in asset and liability repricing within specific time frames[284](index=284&type=chunk)[288](index=288&type=chunk) [Controls and Procedures](index=63&type=section&id=Item%204%2E%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were **effective** as of March 31, 2019, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the Corporation's disclosure controls and procedures were **effective** as of the end of the period covered by this report (March 31, 2019)[291](index=291&type=chunk) - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the Corporation's internal control over financial reporting[292](index=292&type=chunk) PART II. Other Information [Legal Proceedings](index=63&type=section&id=Item%201%2E%20Legal%20Proceedings) The company is involved in various legal proceedings in the ordinary course of business, and management does not anticipate that any of these proceedings will have a **material adverse effect** on the company's financial position, results of operations, or cash flows - Management believes that any liability from current or threatened legal proceedings will not have a **material adverse effect** on the Corporation's financial condition or results[294](index=294&type=chunk) [Risk Factors](index=63&type=section&id=Item%201A%2E%20Risk%20Factors) There have been no **material changes** to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2018 - No **material changes** were reported to the risk factors disclosed in the company's 2018 Form 10-K[295](index=295&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=63&type=section&id=Item%202%2E%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item is reported as not applicable or with no activity for the period - There were no unregistered sales of equity securities or use of proceeds to report for the quarter[296](index=296&type=chunk) [Other Information](index=64&type=section&id=Item%205%2E%20Other%20Information) There is no other information to report for the period - No other information was reported under this item[300](index=300&type=chunk) [Exhibits](index=64&type=section&id=Item%206%2E%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications (Exhibits 31.1, 31.2, 32) and the XBRL interactive data files (Exhibit 101)

PART I [Business](index=3&type=section&id=Item%201.%20Business) First Business Financial Services, Inc. is a bank holding company providing commercial banking and wealth management services, operating under extensive regulation Consolidated Financial Highlights (as of December 31, 2018) | Metric | Amount (Billions) | | :--- | :--- | | Total Assets | $1.966 | | Total Gross Loans and Leases | $1.619 | | Total Deposits | $1.455 | | Total Stockholders' Equity | $0.181 | - The company's business operations are conducted through a single operating segment, focusing on deep client relationships fostered by local banking partners and specialized business lines[9](index=9&type=chunk) Loan Portfolio Composition (as of December 31, 2018) | Loan Type | % of Total Gross Loans & Leases | | :--- | :--- | | Commercial Real Estate & Commercial Loans | ~82% | | Asset-Based Lending (FBCC) | 9% | | Equipment Financing (FBEF) | ~4% | | Retained SBA Loans | 3% | - The Private Wealth Management division (First Business Trust & Investments) had **$1.630 billion** of assets under management and administration as of December 31, 2018[26](index=26&type=chunk) - The company and its bank subsidiary are extensively regulated by the Federal Reserve, the Wisconsin Department of Financial Institutions (WDFI), and the FDIC, with the Regulatory Relief Act of 2018 providing some relief for community banks like FBFS[60](index=60&type=chunk)[62](index=62&type=chunk) - Under Basel III capital rules, First Business Bank was classified as "well-capitalized" under FDIC regulations as of December 31, 2018[70](index=70&type=chunk)[78](index=78&type=chunk)[79](index=79&type=chunk) [Risk Factors](index=17&type=section&id=Item%201A.%20Risk%20Factors) The company faces various risks including credit, liquidity, operational, strategic, and regulatory challenges - A significant portion of the loan portfolio, **67.6%** or **$1.1 billion**, comprised commercial real estate loans as of December 31, 2018, making the company sensitive to real estate market conditions[130](index=130&type=chunk) - The allowance for loan and lease losses was **1.26%** of total loans and leases at year-end 2018, which management acknowledges may not be adequate to cover all actual losses if economic conditions deteriorate[128](index=128&type=chunk) - Non-performing assets totaled **$27.8 million**, or **1.42%** of total assets, as of December 31, 2018, which do not generate interest income and increase administrative costs[144](index=144&type=chunk) - The upcoming transition away from LIBOR after 2021 presents uncertainty and potential market instability, as many financial contracts are linked to this benchmark[160](index=160&type=chunk)[162](index=162&type=chunk) - The company's operations are heavily concentrated in specific regions of Wisconsin and the greater Kansas City area, making it vulnerable to local economic downturns[183](index=183&type=chunk) - The company faces intense competition from a wide range of financial institutions, including larger national banks and non-bank FinTech companies[196](index=196&type=chunk) [Unresolved Staff Comments](index=28&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reported no unresolved staff comments from the SEC - None[228](index=228&type=chunk) [Properties](index=29&type=section&id=Item%202.%20Properties) The company conducts its operations from leased properties, including principal banking offices in Wisconsin and Kansas Principal Leased Properties (as of December 31, 2018) | Location | Function | Expiration Date | | :--- | :--- | :--- | | 401 Charmany Drive, Madison, WI | Full-service banking location of FBB and office of FBFS | 2028 | | 18500 W. Corporate Drive, Brookfield, WI | Full-service banking location of FBB - Milwaukee Region | 2020 | | 11300 Tomahawk Creek Pkwy, Leawood, KS | Full-service banking location of FBB - Kansas City Region | 2023 | | 3913 West Prospect Avenue, Appleton, WI | Full-service banking location of FBB - Northeast Region | 2025 | [Legal Proceedings](index=29&type=section&id=Item%203.%20Legal%20Proceedings) The company is not involved in any pending or threatened litigation expected to materially affect its financial position - The company believes that no pending or threatened litigation could materially affect its financial position[231](index=231&type=chunk) [Mine Safety Disclosures](index=29&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company - Not applicable[232](index=232&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=30&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq, with a practice of paying quarterly dividends and a recently approved share repurchase program - The company's common stock trades on the Nasdaq Global Select Market under the symbol 'FBIZ'[234](index=234&type=chunk) - On December 14, 2018, the Board of Directors approved a share repurchase program authorizing up to **$5 million** of the company's common stock through December 31, 2019[239](index=239&type=chunk) Share Repurchases in Q4 2018 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Oct 2018 | — | — | | Nov 2018 | 956 | $20.76 | | Dec 2018 | 11,920 | $19.69 | [Selected Financial Data](index=32&type=section&id=Item%206.%20Selected%20Financial%20Data) This section provides a five-year summary of the company's key consolidated financial data from 2014 to 2018 Five-Year Selected Financial Data (Years Ended December 31, in thousands except per share data) | Metric | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $67,342 | $60,609 | $63,328 | $58,640 | $46,130 | | Net Income | $16,303 | $11,905 | $14,909 | $16,514 | $14,139 | | Total Assets | $1,966,457 | $1,794,066 | $1,780,699 | $1,782,081 | $1,628,505 | | Loans and Leases, net | $1,617,655 | $1,501,595 | $1,450,675 | $1,430,965 | $1,266,438 | | Total Deposits | $1,455,299 | $1,394,331 | $1,538,855 | $1,577,231 | $1,438,268 | | Diluted EPS | $1.86 | $1.36 | $1.71 | $1.90 | $1.75 | | Book Value Per Share | $20.57 | $19.32 | $18.55 | $17.34 | $15.88 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the company's financial performance and condition for 2018, highlighting asset growth, increased net income, and improved asset quality Overview - The company operates as a business bank focused on small and medium-sized businesses, delivering a full line of commercial banking products and services through a model combining local relationship banking with centralized administrative functions[253](index=253&type=chunk) 2018 Performance Summary Highlights | Metric | 2018 Value | Change vs. 2017 | | :--- | :--- | :--- | | Total Assets | $1.966 billion | +9.6% | | Net Income | $16.3 million | +36.9% | | Diluted EPS | $1.86 | +36.7% | | Net Interest Margin | 3.72% | +14 bps | | Top Line Revenue | $85.5 million | +10.7% | | Non-performing Assets / Total Assets | 1.42% | -11 bps | Results of Operations - Top line revenue (net interest income + non-interest income) increased **10.7%** in 2018, driven by an **11.1%** increase in net interest income[257](index=257&type=chunk)[259](index=259&type=chunk) Key Profitability Ratios | Ratio | 2018 | 2017 | | :--- | :--- | :--- | | Return on Average Assets (ROAA) | 0.86% | 0.67% | | Return on Average Equity (ROAE) | 9.41% | 7.16% | | Efficiency Ratio (non-GAAP) | 67.77% | 66.48% | - Net interest margin increased by **14 basis points** to **3.72%** in 2018, primarily due to higher loan yields and fees collected in lieu of interest[283](index=283&type=chunk) - Non-interest income grew **9.0%** to **$18.2 million**, led by a **16.1%** increase in trust and investment services fee income and an **83.7%** increase in commercial loan swap fees[291](index=291&type=chunk)[293](index=293&type=chunk) - Non-interest expense rose **9.7%** to **$62.4 million**, mainly due to an **18.2%** increase in compensation expense reflecting investment in 17 new producers across multiple business lines[302](index=302&type=chunk)[305](index=305&type=chunk) Financial Condition - Total assets increased by **$172.4 million** (**9.6%**) to **$1.966 billion** at year-end 2018, driven by growth in loans and leases[316](index=316&type=chunk) - Loans and leases receivable, net, grew by **$114.4 million** (**7.7%**) to **$1.597 billion**, with Commercial Real Estate (CRE) loans constituting **67.6%** of the total portfolio[340](index=340&type=chunk) Asset Quality Metrics | Metric | Dec 31, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | | Non-performing Loans | $25.3 million | $26.4 million | | Non-performing Assets / Total Assets | 1.42% | 1.53% | | Allowance / Gross Loans | 1.26% | 1.25% | - Total deposits increased by **$61.0 million** to **$1.455 billion**, with in-market deposits growing by **$93.1 million** (**8.6%**)[387](index=387&type=chunk)[254](index=254&type=chunk) - Total borrowings increased by **$91.1 million** to **$309.0 million**, primarily through FHLB advances to match-fund long-term fixed-rate loans[398](index=398&type=chunk) Liquidity and Capital Resources - The Bank maintains strong liquidity, with on-balance-sheet liquidity of **$390.9 million** as of December 31, 2018, consisting of short-term investments and unencumbered securities and loans[419](index=419&type=chunk) - Effective August 2018, the Corporation is no longer subject to the Basel III Rule capital requirements due to a revision in the Small Bank Holding Company Policy Statement, and is deemed "well-capitalized"[427](index=427&type=chunk)[701](index=701&type=chunk) First Business Bank Capital Ratios (as of Dec 31, 2018) | Ratio | Actual | Minimum to be Well Capitalized | | :--- | :--- | :--- | | Total capital (to risk-weighted assets) | 11.49% | 10.00% | | Tier 1 capital (to risk-weighted assets) | 10.27% | 8.00% | | Common equity tier 1 capital | 10.27% | 6.50% | | Tier 1 leverage capital | 10.20% | 5.00% | Off-Balance-Sheet Arrangements - As of December 31, 2018, the Bank had outstanding commitments to originate **$553.8 million** of loans and standby letters of credit of **$12.4 million**[429](index=429&type=chunk) - The SBA recourse reserve, for potential losses on the guaranteed portions of sold SBA loans, was **$3.0 million** at year-end 2018[436](index=436&type=chunk) Critical Accounting Policies and Estimates - Management identifies four critical accounting policies that require significant judgment and estimates: Allowance for Loan and Lease Losses, Goodwill Impairment Assessment, Income Taxes, and SBA Recourse Reserve[478](index=478&type=chunk)[480](index=480&type=chunk)[481](index=481&type=chunk)[487](index=487&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=70&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is interest rate risk, managed through asset/liability matching and earnings simulation - The company's primary market risk is interest rate risk, which it manages by attempting to match the repricing characteristics of its assets and liabilities[489](index=489&type=chunk) Net Interest Income Sensitivity (as of Dec 31, 2018) | Instantaneous Rate Change | Impact on Net Interest Income (Next 12 Months) | | :--- | :--- | | Down 100 bps | +0.21% | | Up 100 bps | +1.12% | | Up 200 bps | +2.18% | - Static gap analysis as of December 31, 2018, shows a cumulative negative gap of **($117.7 million)** for the 3-12 month period, indicating a short-term liability-sensitive position[500](index=500&type=chunk) [Financial Statements and Supplementary Data](index=74&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for 2018, including balance sheets, income statements, and cash flows Consolidated Balance Sheet Highlights (as of December 31) | (In Thousands) | 2018 | 2017 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $86,546 | $52,539 | | Loans and leases receivable, net | $1,597,230 | $1,482,832 | | **Total Assets** | **$1,966,457** | **$1,794,066** | | **Liabilities & Equity** | | | | Deposits | $1,455,299 | $1,394,331 | | Total Liabilities | $1,785,750 | $1,624,788 | | Total Stockholders' Equity | $180,707 | $169,278 | | **Total Liabilities & Equity** | **$1,966,457** | **$1,794,066** | Consolidated Statement of Income Highlights (Year Ended December 31) | (In Thousands) | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Net Interest Income | $67,342 | $60,609 | $63,328 | | Provision for loan and lease losses | $5,492 | $6,172 | $7,818 | | Non-interest Income | $18,167 | $16,665 | $17,988 | | Non-interest Expense | $62,363 | $56,871 | $56,433 | | **Net Income** | **$16,303** | **$11,905** | **$14,909** | [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=125&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reported no changes in or disagreements with its accountants on accounting and financial disclosure - None[805](index=805&type=chunk) [Controls and Procedures](index=125&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2018 - Management concluded that the Corporation's disclosure controls and procedures were effective as of December 31, 2018[806](index=806&type=chunk) - Management's assessment determined that the Corporation's internal control over financial reporting was effective as of December 31, 2018[809](index=809&type=chunk) - There were no changes in internal control over financial reporting during the fourth quarter of 2018 that materially affected, or are reasonably likely to materially affect, these controls[807](index=807&type=chunk) [Other Information](index=126&type=section&id=Item%209B.%20Other%20Information) The company reported no other information for this item - None[812](index=812&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=126&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section incorporates information on directors, executive officers, and corporate governance from the 2019 Proxy Statement - Information regarding directors, corporate governance, and Section 16(a) compliance is incorporated by reference from the 2019 Proxy Statement[813](index=813&type=chunk) - The company has adopted a code of ethics applicable to all employees, including senior financial officers, which is available on its website[813](index=813&type=chunk) [Executive Compensation](index=126&type=section&id=Item%2011.%20Executive%20Compensation) This section incorporates information regarding executive and director compensation from the 2019 Proxy Statement - Information regarding executive and director compensation is incorporated by reference from the 2019 Proxy Statement[814](index=814&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=126&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section incorporates information on security ownership from the 2019 Proxy Statement, detailing available securities for future issuance - Information regarding security ownership of principal shareholders and management is incorporated by reference from the 2019 Proxy Statement[815](index=815&type=chunk) Equity Compensation Plan Information (as of Dec 31, 2018) | Plan Category | Securities to be issued upon exercise of outstanding options, warrants and rights | Number of securities remaining available for future issuance | | :--- | :--- | :--- | | Equity compensation plans approved by security holders | — | 164,621 | [Certain Relationships and Related Transactions, and Director Independence](index=126&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) This section incorporates information regarding related party transactions and director independence from the 2019 Proxy Statement - Information regarding related party transactions and director independence is incorporated by reference from the 2019 Proxy Statement[818](index=818&type=chunk) [Principal Accountant Fees and Services](index=127&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) This section incorporates information regarding principal accounting fees and services from the 2019 Proxy Statement - Information regarding principal accountant fees and services is incorporated by reference from the 2019 Proxy Statement[820](index=820&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=128&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K, including corporate governance documents and certifications - The Consolidated Financial Statements listed under Item 8 are filed as part of this Form 10-K[822](index=822&type=chunk) - The Exhibit Index lists all documents filed with the report, including Articles of Incorporation, Bylaws, Rights Agreement, various compensatory plans, consents of accountants, and CEO/CFO certifications[822](index=822&type=chunk)[823](index=823&type=chunk)[825](index=825&type=chunk) [Form 10-K Summary](index=129&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company did not provide a summary for this item - None[826](index=826&type=chunk)