FIRST BUSINESS FINANCIAL SERVICES, INC. (FBIZ)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Unless otherwise indicated or unless the context requires otherwise, all references in this Report to the “Corporation,” “we,” “us,” “our,” or similar references mean First Business Financial Services, Inc. together with our subsidiary. “FBB” or the “Bank” refers to our subsidiary, First Business Bank.

Forward-Looking Statements

This report may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which reflect our current views with respect to future events and financial performance. Forward-looking statements are not based on historical information, but rather are related to future operations, strategies, financial results, or other developments. Forward-looking statements are based on management’s expectations as well as certain assumptions and estimates made by, and information available to, management at the time the statements are made. Such statements are subject to risks and uncertainties, including among other things:

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Adverse changes in the economy or business conditions, either nationally or in our markets including, without limitation, inflation, economic downturn, labor shortages, wage pressures, the adverse effects of public health events on the global, national, and local economy, and geopolitical instability and international conflicts that may affect energy prices or otherwise result in market volatility.

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Uncertainty created by potential federal government actions relating to the authority of regulatory agencies (including bank regulators), international trade policy, prolonged shutdown of the federal government, and other significant policy matters.

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Competitive pressures among depository and other financial institutions nationally and in our markets.

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Increases in defaults by borrowers and other delinquencies.

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Management's ability to manage growth effectively, including the successful expansion of our client support, administrative infrastructure, and internal management systems.

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Fluctuations in interest rates and market prices.

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Changes in legislative or regulatory requirements applicable to us and our subsidiaries.

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Changes in tax requirements, including tax rate changes, new tax laws, and revised tax law interpretations.

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Fraud, including client and system failure or breaches of our network security, including our internet banking activities.

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Failure to comply with the applicable SBA regulations in order to maintain the eligibility of the guaranteed portions of SBA loans.

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Ongoing volatility in the banking sector may result in new legislation, regulations or policy changes that could subject the Corporation and the Bank to increased government regulation and supervision.

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The proportion of the Corporation’s deposit account balances that exceed FDIC insurance limits may expose the Bank to enhanced liquidity risk.

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The Corporation may be subject to increases in FDIC insurance assessments.

These risks could cause actual results to differ materially from what we have anticipated or projected. These risk factors and uncertainties should be carefully considered by our shareholders and potential investors. See Part I, Item 1A — Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2025, for discussion relating to risk factors impacting us. Investors should not place undue reliance on any such forward-looking statements, which speak only as of the date made. These factors could affect our financial performance and could cause actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods.

Where any such forward-looking statement includes a statement of the assumptions or bases underlying such forward-looking statement, we caution that, while our management believes such assumptions or bases are reasonable and are made in good

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faith, assumed facts or bases can vary from actual results, and the differences between assumed facts or bases and actual results can be material, depending on the circumstances. Where, in any forward-looking statement, an expectation or belief is expressed as to future results, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will be achieved or accomplished.

We do not intend to, and specifically disclaim any obligation to, update any forward-looking statements.

The following discussion and analysis is intended as a review of significant events and factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with the unaudited Consolidated Financial Statements and the Notes thereto presented in this Form 10-Q.

Overview

We are a registered bank holding company incorporated under the laws of the State of Wisconsin and are engaged in the commercial banking business through our wholly-owned banking subsidiary, FBB. All of our operations are conducted through FBB and First Business Specialty Finance, LLC, a wholly-owned subsidiary of FBB. We operate as a business bank focusing on delivering a full line of commercial banking products and services tailored to meet the specific needs of small and medium-sized businesses, business owners, executives, professionals, and high net worth individuals. Our products and services include those for business banking, private wealth management services, and bank consulting. Within business banking, we offer commercial lending, asset-based lending, accounts receivable financing, equipment financing, floorplan financing, vendor financing, treasury management services, and company retirement plans. Our private wealth management services include trust and estate administration, financial planning, investment management, and private banking for executives and owners of our business banking clients and others. Our bank consulting experts provide investment portfolio administrative services and asset liability management services. We are not a retail bank and do not rely on a traditional branch network to gather deposits or attract clients. Instead, our operating model is built on deep client relationships, specialized financial expertise, and an efficient, centralized administrative structure designed to deliver best-in-class client satisfaction. This focused approach enables our experienced professionals to provide the level of insight and service required to develop and sustain long-term client relationships. We conduct our commercial banking operations through one operating segment.

Financial Performance Summary

Results as of and for the three and six months ended June 30, 2026 include:

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Net income available to common shareholders totaled $15.4 million, or diluted earnings per share of $1.84, for the three months ended June 30, 2026, compared to $11.2 million, or diluted earnings per share of $1.35, for the same period in 2025. Net income available to common shareholders totaled $27.3 million, or diluted earnings per share of $3.28, for the six months ended June 30, 2026, compared to $22.2 million, or diluted earnings per share $2.66, for the same period in 2025.

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Annualized return on average assets (“ROAA”) for the three months ended June 30, 2026 measured 1.43%, compared to 1.14% for the same period in 2025. ROAA for the six months ended June 30, 2026 measured 1.28%, compared to 1.14% for the same period in 2025.

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Return on average tangible common equity (“ROATCE”) is defined as net income available to common shareholders divided by average equity less average intangible assets and average preferred stock. ROATCE was 16.89% for the three months ended June 30, 2026, compared to 14.17% for the same period in 2025. ROATCE was 15.25% for the six months ended June 30, 2026, compared to 14.15% for the same period in 2025.

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Efficiency ratio measured 57.57% for the three months ended June 30, 2026, compared to 60.97% for the same period in 2025. Efficiency ratio measured 59.31% for the six months ended June 30, 2026, compared to 60.63% for the same period in 2025.

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Pre-tax, pre-provision (“PTPP”) adjusted earnings, which excludes certain one-time and discrete items, for the three months ended June 30, 2026 was $19.8 million, compared to $16.0 million in the same period in 2025. PTPP for the six months ended June 30, 2026 was $37.0 million, compared to $32.2 million in the same period in 2025.

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Net interest margin was 3.78% for the three months ended June 30, 2026, compared to 3.67% for the same period in 2025. Net interest margin was 3.67% for the six months ended June 30, 2026, compared to 3.68% for the same period in 2025.

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Top line revenue, defined as net interest income plus non-interest income, totaled $46.7 million for the three months ended June 30, 2026, compared to $41.0 million in the same period in 2025. Top line revenue totaled $91.0 million for the six months ended June 30, 2026, compared to $81.9 million in the same period in 2025.

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Effective tax rate, including the benefit from Low-Income Housing Tax Credits, was 10.89% for the six months ended June 30, 2026 compared to 15.79% for the same period in 2025. Income tax expense for the three and six months ended June 30, 2026 included a $1.5 million release of the remaining state deferred tax valuation allowance.

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Provision for credit losses was $2.1 million for the three months ended June 30, 2026, compared to $2.7 million for the same period in 2025. Provision for credit losses was $5.0 million for the six months ended June 30, 2026, compared to $5.4 million for the same period in 2025.

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Total assets at June 30, 2026 increased $328.1 million, or 8.0%, to $4.410 billion from $4.082 billion at December 31, 2025.

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Period-end gross loans and leases receivable increased $213.1 million, or 12.6% annualized, to $3.588 billion as of June 30, 2026 compared to $3.375 billion as of December 31, 2025. Average gross loans and leases of $3.488 billion increased $275.5 million, or 8.6%, for the six months ended June 30, 2026, compared to $3.213 billion for the same period in 2025.

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Non-performing assets were $38.1 million and 0.86% of total assets as of June 30, 2026, compared to $43.9 million and 1.07% of total assets as of December 31, 2025.

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The allowance for credit losses, including reserve for unfunded credit commitments, increased $1.8 million compared to December 31, 2025. The allowance for credit losses, including reserve for unfunded credit commitments, was 1.10% of total loans, compared to 1.12% at December 31, 2025.

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Period-end core deposits at June 30, 2026 increased $204.7 million, or 15.3% annualized, to $2.878 billion from $2.673 billion as of December 31, 2025. Average core deposits of $2.854 billion increased $474.6 million or 19.9%, for the six months ended June 30, 2026, compared to $2.380 billion for the same period in 2025.

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Private wealth and trust assets under management and administration increased by $419.9 million, or 22.0% annualized, to $4.235 billion at June 30, 2026, compared to $3.815 billion at December 31, 2025. Private wealth and trust assets under management and administration increased $503.9 million, or 13.5%, compared to June 30, 2025.

Results of Operations

Top Line Revenue

Top line revenue, comprised of net interest income and non-interest income, increased $5.7 million, or 13.8%, for the three months ended June 30, 2026, compared to the same period in 2025, due to a 12.9% increase in net interest income and an 18.1% increase in non-interest income. The increase in net interest income was primarily driven by increases in average loans and leases outstanding and prepayment fees, partially offset by lower short-term market rates. The increase in non-interest income was due pri

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Unless otherwise indicated or unless the context requires otherwise, all references in this Report to the “Corporation,” “we,” “us,” “our,” or similar references mean First Business Financial Services, Inc. together with our subsidiary. “FBB” or the “Bank” refers to our subsidiary, First Business Bank.

Forward-Looking Statements

This report may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which reflect our current views with respect to future events and financial performance. Forward-looking statements are not based on historical information, but rather are related to future operations, strategies, financial results, or other developments. Forward-looking statements are based on management’s expectations as well as certain assumptions and estimates made by, and information available to, management at the time the statements are made. Such statements are subject to risks and uncertainties, including among other things:

•
Adverse changes in the economy or business conditions, either nationally or in the Corporation's markets including, without limitation, inflation, economic downturn, labor shortages, wage pressures, and the adverse effects of public health events on the global, national, and local economy.

•
Uncertainty created by potential federal government actions relating to the authority of regulatory agencies (including bank regulators), international trade policy, prolonged shutdown of the federal government, and other significant policy matters.

•
Competitive pressures among depository and other financial institutions nationally and in the Corporation's markets.

•
Increases in defaults by borrowers and other delinquencies.

•
Management's ability to manage growth effectively, including the successful expansion of client support, administrative infrastructure, and internal management systems.

•
Fluctuations in interest rates and market prices.

•
Changes in legislative or regulatory requirements applicable the Corporation and its subsidiaries.

•
Changes in tax requirements, including tax rate changes, new tax laws, and revised tax law interpretations.

•
Fraud, including client and system failure or breaches of the Corporation's network security, including the Corporation's internet banking activities.

•
Failure to comply with the applicable SBA regulations in order to maintain the eligibility of the guaranteed portions of SBA loans.

•
Ongoing volatility in the banking sector may result in new legislation, regulations or policy changes that could subject the Corporation and the Bank to increased government regulation and supervision.

•
The proportion of the Corporation’s deposit account balances that exceed FDIC insurance limits may expose the Bank to enhanced liquidity risk.

•
The Corporation may be subject to increases in FDIC insurance assessments.

These risks, together with the risks identified in Item 1A — Risk Factors, could cause actual results to differ materially from what we have anticipated or projected. These risk factors and uncertainties should be carefully considered by our stockholders and potential investors. Investors should not place undue reliance on any such forward-looking statements, which speak only as of the date made.

Where any such forward-looking statement includes a statement of the assumptions or bases underlying such forward-looking statement, we caution that, while our management believes such assumptions or bases are reasonable and are made in good faith, assumed facts or bases can vary from actual results, and the differences between assumed facts or bases and actual results can be material, depending on the circumstances. Where, in any forward-looking statement, an expectation or belief is expressed as to future

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results, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will be achieved or accomplished.

We do not intend to, and specifically disclaim any obligation to, update any forward-looking statements.

The following discussion and analysis is intended as a review of significant events and factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with the Consolidated Financial Statements and the Notes thereto.

Long-Term Strategic Plan

In early 2024, management finalized the development of its five year strategic plan and began the implementation of strategies and initiatives that drive successful execution. Management’s objective over this five year period is to foster innovative and engaged team members who develop deep client relationships and deliver exceptional results for all stakeholders. To meet this objective, we identified five key strategies which are linked to corporate financial goals, all business lines, and centralized administration functions to ensure communication and execution are consistent at all levels of the Corporation.

These strategies are described below:

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We will protect and strengthen our unique culture with a growing and geographically diverse team.

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We will develop future-ready talent who will thrive in the workplace of the future by continuously investing in our team to elevate their impact and contribution.

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We will grow our core deposits by driving a company-wide commitment to adding new relationships and capitalizing on innovative sources and new technologies.

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We will achieve operational excellence by fostering a culture of continuous process improvement and utilization of innovative technology.

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We will optimize the performance of each business line and market to achieve sustainable profitability and growth.

The table below shows the Corporation’s performance for the years ended December 31, 2025, 2024, and 2023 in comparison to the key performance indicators included in the Corporation’s current strategic plan.

(1)
Anonymous survey conducted annually.

(2)
Net promoter score assesses likelihood to recommend on a 11-point scale, where detractors (scores 0-6) are subtracted from promoters (scores 9-10), while passives (scores 7-8) are not considered

Financial Performance Summary

Results as of and for the year ended December 31, 2025, include:

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Net income available to common shareholders for the year ended December 31, 2025 was $49.4 million, compared to $43.4 million for the year ended December 31, 2024.

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•
Diluted earnings per common share were $5.94 for the year ended December 31, 2025, compared to $5.20 in the prior year.

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Return on average assets (“ROAA”) for the year ended December 31, 2025, was 1.24%, compared to 1.20% for 2024.

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Return on average tangible common equity (“ROATCE”) is defined as net income available to common shareholders divided by average equity less average preferred stock and less intangibles. ROATCE was 15.25% for the year ended December 31, 2025, compared to 15.35% for the year ended December 31, 2024.

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Efficiency ratio measured 58.78% for the year ended December 31, 2025, compared to 60.61% for the year ended December 31, 2024.

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Pre-tax, pre-provision (“PTPP”) adjusted earnings, which excludes certain one-time and discrete items, was $69.4 million for the year ended December 31, 2025, compared to $60.4 million for the year ended December 31, 2024.

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Net interest margin was 3.64% for the year ended December 31, 2025, compared to 3.66% for the year ended December 31, 2024.

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Top line revenue, defined as net interest income plus non-interest income, totaled $168.6 million for the year ended December 31, 2025, compared to $153.5 million in the year ended December 31, 2024.

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Effective tax rate was 16.8% for the year ended December 31, 2025, compared to 13.5% for the year ended December 31, 2024.

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Provision for credit loss expense was $8.7 million for the year ended December 31, 2025, compared to $8.8 million for the year ended December 31, 2024.

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Total assets at December 31, 2025, increased $228.7 million, or 5.9%, to $4.082 billion from $3.853 billion at December 31, 2024.

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Period-end gross loans and leases receivable increased $261.4 million, or 8.4%, to $3.375 billion as of December 31, 2025, compared to $3.114 billion as of December 31, 2024. Average gross loans and leases of $3.272 billion increased $275.0 million, or 9.2%, for the year ended December 31, 2025, compared to $2.997 billion for the year ended December 31, 2024.

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Non-performing assets were $43.9 million and 1.07% of total assets as of December 31, 2025, compared to $28.4 million and 0.74% of total assets as of December 31, 2024.

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The allowance for credit losses, including reserve for unfunded credit commitments, increased $424,000 compared to December 31, 2024. The allowance for credit losses, including reserve for unfunded credit commitments, was 1.12% of total loans, compared to 1.20% at December 31, 2024.

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Period-end core deposits at December 31, 2025, increased $276.6 million, or 11.5%, to $2.673 billion from $2.396 billion as of December 31, 2024. Average core deposits of $2.532 billion increased $153.4 million, or 6.4%, for the year ended December 31, 2025, compared to $2.378 billion for the year ended December 31, 2024.

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Private wealth and trust assets under management and administration increased by $396.0 million, or 11.58%, to $3.815 billion at December 31, 2025, compared to $3.419 billion at December 31, 2024. Private wealth management service fees increased $1.5 million, or 11.0%, for the year ended December 31, 2025, compared to the year ended December 31, 2024.

The detailed financial discussion that follows focuses on 2025 results compared to 2024. Information pertaining to 2024 in comparison to 2023 was included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2024, on page 37 under Part II, Item 7, "Management's Discussion and Analysis of Financial and Result of Operations," which was filed with the SEC on February 26, 2025.

Results of Operations

Top Line Revenue

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Top line revenue, comprised of net interest income and non-interest income, increased $15.2 million, or 9.9%, for the year ended December 31, 2025, compared to the year ended December 31, 2024, due to a 10.1% increase in net interest income and a 9.2% increase in non-interest income. The increase in net interest income was driven by an increase in average gross loans and leases partially offset by net interest margin compression. The increase in non-interest income was due to increases in private wealth fee income, bank owned life insurance policy income, service charges on deposits, and commercial loan swap fee income, partially offset by a decrease in loan fees driven by a reclassification of certain items to net interest income.

The components of top line revenue were as follows:

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