FIRST BUSINESS FINANCIAL SERVICES, INC. Income Taxes Disclosure

Note 16 — Income Taxes

Deferred income tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax basis. Deferred tax assets and liabilities are measured using enacted tax rates to apply to taxable income in the period in which the temporary differences are expected to be recovered or settled. Net deferred tax assets are included in accrued interest receivable and other assets in the Consolidated Balance Sheets.

Realization of the deferred tax assets is dependent upon the Corporation generating sufficient taxable earnings prior to the expiration of net operating loss carryforwards. Management performs an analysis to determine if a valuation allowance against deferred tax assets is required in accordance with U.S. GAAP.

For Wisconsin state deferred tax assets, management determined that it was probable that some or all of the deferred tax assets would not be utilized within the applicable carry-forward period. The primary driver is the 2023 Wisconsin Act 19 which contains a provision that provides financial institutions with a state tax-exemption for interest, fees, and penalties earned on qualifying small-business loans. In 2024, management recorded a $1.7 million partial release of a state deferred tax asset valuation allowance due to changes in projected taxable income based on revised state taxation guidance and 2023 state tax return actual results. As of December 31, 2025, the Wisconsin deferred tax valuation allowance was $1.5 million, reducing our state deferred tax assets to $2.1 million. As of December 31, 2024, the Wisconsin deferred tax valuation allowance was $1.6 million, reducing our state deferred tax assets to $2.1 million. The Corporation had state net operating loss carryforwards of approximately $4.2 million and $5.7 million at December 31, 2025 and 2024, respectively, which begin to expire in 2032.

For federal and other U.S. states, management determined that it was not required to establish a valuation allowance against the December 31, 2025 or 2024 deferred tax assets in accordance with U.S. GAAP since it was more likely than not that the deferred tax assets will be fully utilized in future periods.

There were no uncertain tax positions outstanding as of December 31, 2025 and 2024. As of December 31, 2025, tax years remaining open for the State of Wisconsin tax were 2021 through 2024. Federal tax years that remained open were 2022 through 2024.