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 our markets, including, without limitation, the adverse effects of

the COVID-19 pandemic on the global, national, and local economy.

• The effect of the COVID-19 pandemic on the Corporation's credit quality,

revenue, and business operations.

• Competitive pressures among depository and other financial institutions

nationally and in our markets.

• Increases in defaults by borrowers and other delinquencies.




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

• Fluctuations in interest rates and market prices.

• The consequences of continued bank acquisitions and mergers in our

markets, resulting in fewer but much larger and financially stronger

competitors.

• Changes in legislative or regulatory requirements applicable to us and our

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 our network

security, including our internet banking activities.

• Failure to comply with the applicable SBA regulations in order to maintain

the eligibility of the guaranteed portions of SBA loans.




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 stockholders and potential investors. See Part I,
Item 1A - Risk Factors in our Annual Report on Form 10-K for the year ended
December 31, 2019 and Part II, Item 1A - Risk Factors 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. The factors
described within this Form 10-Q 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 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.


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                                    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 the Bank and certain subsidiaries 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, and bank consulting. Within business banking, we offer commercial lending, consumer and other lending, asset-based lending, accounts receivable financing, equipment financing, vendor financing, SBA lending and servicing, treasury management services, and company retirement plans. Our private wealth services for executives and individuals include trust and estate administration, financial planning, investment management, and private banking. For other banks, our bank consulting experts provide investment portfolio administrative services, asset liability management services, and asset liability management process validation. We do not utilize a branch network to attract retail clients. Our operating philosophy is predicated on deep client relationships fostered by local banking partners and specialized business lines where we provide skilled expertise, combined with the efficiency of centralized administrative functions such as information technology, loan and deposit operations, finance and accounting, credit administration, compliance, marketing, and human resources. Our focused model allows experienced staff to provide the level of financial expertise needed to develop and maintain long-term relationships with our clients.


                              Operational Summary

Results for the three months ended March 31, 2020 include:



•      Total assets increased to $2.196 billion as of March 31, 2020 compared to
       $2.097 billion as of December 31, 2019.


•      Net income for the three months ended March 31, 2020 was $3.3 million
       compared to $5.9 million for the three months ended March 31, 2019.


•      Diluted earnings per common share for the three months ended March 31,
       2020 were $0.38 compared to $0.67 for the three months ended March 31,
       2019.


•      Net interest margin decreased 35 basis points to 3.44% for the three
       months ended March 31, 2020 compared to 3.79% for the three months ended
       March 31, 2019.


•      Top line revenue, the sum of net interest income and non-interest income,
       increased 4.8% to $23.5 million for the three months ended March 31, 2020
       compared to $22.4 million for the three months ended March 31, 2019.


•      Annualized return on average assets ("ROAA") and annualized return on
       average equity ("ROAE") were 0.62% and 7.14%, respectively, for the three
       month period ended March 31, 2020, compared to 1.20% and 13.67%,
       respectively, for the same time period in 2019.


•      Provision for loan and lease losses was $3.2 million for the three months
       ended March 31, 2020 compared to $49,000 for the three months ended
       March 31, 2019. Net recoveries for the three months ended March 31, 2020
       were $46,000 compared to net charge-offs of $25,000 for the three months
       ended March 31, 2019.


•      SBA recourse provision was $25,000 for the three months ended March 31,
       2020 compared to $481,000 for the three months ended March 31, 2019.


•      Period-end gross loans and leases receivable increased $28.8 million, or
       6.7% annualized, to $1.743 billion at March 31, 2020 from $1.715 billion
       at December 31, 2019. Average gross loans and leases receivable decreased
       $10.6 million, or 2.4% annualized, to $1.734 billion, for the three months
       ended March 31, 2020 from $1.744 billion for the three months ended
       December 31, 2019.


•      Non-performing assets increased $6.0 million, or 25.6%, to $29.6 million,
       or 1.35% of total assets, at March 31, 2020 from $23.5 million, or 1.12%
       of total assets, at December 31, 2019.


•      Period-end in-market deposits increased $4.4 million, or 1.3% annualized,
       to $1.383 billion at March 31, 2020 from $1.379 billion at December 31,
       2019. Average in-market deposits increased $16.0 million, or 4.8%
       annualized, to $1.366 billion at March 31, 2020 from $1.350 billion at
       December 31, 2019.



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                                COVID-19 Update

First Business's work to ensure business continuity and responsive client
service included proactive engagement by relationship managers with our clients
and prospects to address their needs in the short and medium terms, leveraging
our comprehensive digital banking and service platforms, and enabling virtually
all of our employees to serve their clients remotely from the safety of their
homes.
Business Continuity Plan
During March 2020, management activated its previously developed Pandemic
Preparedness Plan, taking the following actions to protect the health of
employees and clients, while continuing to exceed client needs:
• Limited lobby hours.


•      Increased, proactive communication with employees and clients via phone,
       video conferencing, email, and other digital tools, while prohibiting
       business travel.

• Transitioned over 90% of employees to remote work.




No furloughs or layoffs have been made to date, nor does management currently
anticipate future employee furloughs or layoffs related to COVID-19.
Paycheck Protection Program
A team of nearly 60 employees, over 20% of the Corporation's workforce, started
accepting and processing applications for loans under the Paycheck Protection
Program ("PPP") on Friday, April 3, 2020, when the program was officially
launched by the SBA and Treasury Department under the recently enacted
Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). As of
April 22, 2020, the Corporation had received over 600 applications from existing
clients, received conditional approval from the SBA in excess of $300 million,
disbursed approximately $280 million in funds, and is expected to generate
processing fee income of approximately $8.5 million. Management expects to fund
these short-term loans through a combination of excess cash held at the Federal
Reserve, short-term Federal Home Loan Bank ("FHLB") advances, and participation
in the Federal Reserve's Paycheck Protection Program Liquidity Facility
("PPPLF").
Liquidity Sources
Management has reviewed all primary and secondary sources of liquidity in
preparation for any unforeseen funding needs due to the COVID-19 pandemic and
prioritized based on available capacity, term flexibility, and cost. As of
March 31, 2020, the Corporation had the following sources of liquidity
(excluding the Corporation's ability to participate in the PPPLF):

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