FIRST BUSINESS FINANCIAL SERVICES, INC. Stock Compensation Disclosure
Note 14 — Share-Based Compensation
The Corporation initially adopted the 2019 Equity Incentive Plan (the “Plan”) during the quarter ended June 30, 2019. The Plan is administered by the Compensation Committee of the Board of Directors (the “Board”) of the Corporation and provides for the grant of equity ownership opportunities through incentive stock options and nonqualified stock options, restricted stock, restricted stock units, dividend equivalent units, and any other type of award permitted by the Plan. As of December 31, 2025, 186,821 shares were available for future grants under the Plan, as amended. Shares covered by awards that expire, terminate, or lapse will again be available for the grant of awards under the Plan.
Restricted Stock
Under the Plan, the Corporation may grant restricted stock awards (“RSA”), restricted stock units (“RSU”), and other stock-based awards to plan participants, subject to forfeiture upon the occurrence of certain events until the dates specified in the participant’s award agreement. While restricted stock is subject to forfeiture, RSA participants may exercise full voting rights and will receive all dividends and other distributions paid with respect to the restricted shares. RSUs do not have voting rights. RSUs granted prior to 2023 are provided dividend equivalents concurrent with dividends paid to shareholders while RSUs granted in 2023 and after will accrue dividend equivalents payable upon vesting. The restricted stock granted under the Plan is typically subject to a vesting period. Compensation expense for restricted stock is recognized over the requisite service period of generally or four years for the entire award on a straight-line basis. Upon vesting of restricted stock, the benefit of tax deductions in excess of recognized compensation expense is reflected as an income tax benefit in the Consolidated Statements of Income.
The Corporation may also issue performance-based restricted stock units (“PRSU”). Vesting of the PRSU will be measured on the relative Total Shareholder Return (“TSR”) and relative Return on Average Equity (“ROAE”) for issuances prior to 2023 or Return on Average Tangible Common Equity (“ROATCE”) for issuances after 2022, and will cliff-vest after a three-year measurement period based on the Corporation’s TSR performance and ROAE or ROATCE performance compared to a broad peer group of over 100 banks. At the end of the performance period, the number of actual shares to be awarded varies between 0% and 200% of target amounts. The restricted stock awards and units issued to executive officers will vest ratably over a three-year period. Compensation expense is recognized for PRSU over the requisite service and performance period of generally three years for the entire expected award on a straight-line basis. The compensation expense for the awards expected to vest for the percentage of performance-based restricted stock units subject to the ROAE or ROATCE metric will be adjusted if there is a change in the expectation of ROAE or ROATCE. The compensation expense for the awards expected to vest for the percentage of PRSU subject to the TSR metric are never adjusted and are amortized utilizing the accounting fair value provided using a Monte Carlo pricing model.
Restricted stock activity for the year ended December 31, 2024 and the year ended December 31, 2025 was as follows:
|
|
RSA |
|
|
Weighted |
|
|
PRSU |
|
|
Weighted |
|
|
RSU |
|
|
Weighted |
|
|
Total |
|
|
Weighted |
|
||||||||
Nonvested balance as of |
|
|
133,317 |
|
|
$ |
27.95 |
|
|
|
57,435 |
|
|
$ |
32.89 |
|
|
|
6,105 |
|
|
$ |
25.92 |
|
|
|
196,857 |
|
|
$ |
29.32 |
|
Granted (1) |
|
|
— |
|
|
|
— |
|
|
|
34,840 |
|
|
|
35.79 |
|
|
|
54,955 |
|
|
|
34.43 |
|
|
|
89,795 |
|
|
|
34.96 |
|
Vested |
|
|
(56,931 |
) |
|
|
27.03 |
|
|
|
(36,120 |
) |
|
|
31.31 |
|
|
|
(3,253 |
) |
|
|
26.06 |
|
|
|
(96,304 |
) |
|
|
28.60 |
|
Forfeited |
|
|
(4,435 |
) |
|
|
30.20 |
|
|
|
— |
|
|
|
— |
|
|
|
(820 |
) |
|
|
36.42 |
|
|
|
(5,255 |
) |
|
|
31.17 |
|
Nonvested balance as of |
|
|
71,951 |
|
|
$ |
28.53 |
|
|
|
56,155 |
|
|
$ |
35.70 |
|
|
|
56,987 |
|
|
$ |
33.97 |
|
|
|
185,093 |
|
|
$ |
32.38 |
|
Granted (1) |
|
|
— |
|
|
|
— |
|
|
|
27,614 |
|
|
|
34.76 |
|
|
|
65,717 |
|
|
|
30.43 |
|
|
|
93,331 |
|
|
|
31.71 |
|
Vested |
|
|
(35,131 |
) |
|
|
26.86 |
|
|
|
(34,139 |
) |
|
|
25.43 |
|
|
|
(33,716 |
) |
|
|
21.25 |
|
|
|
(102,986 |
) |
|
|
24.57 |
|
Forfeited |
|
|
(7,924 |
) |
|
|
29.75 |
|
|
|
— |
|
|
|
— |
|
|
|
(8,827 |
) |
|
|
36.25 |
|
|
|
(16,751 |
) |
|
|
33.18 |
|
Nonvested balance as of |
|
|
28,896 |
|
|
$ |
30.09 |
|
|
|
49,630 |
|
|
$ |
42.24 |
|
|
|
80,161 |
|
|
$ |
36.04 |
|
|
|
158,687 |
|
|
$ |
36.77 |
|
Granted (1) |
|
|
— |
|
|
|
— |
|
|
|
12,195 |
|
|
|
63.61 |
|
|
|
45,789 |
|
|
|
51.39 |
|
|
|
57,984 |
|
|
|
53.92 |
|
Vested |
|
|
(20,280 |
) |
|
|
28.74 |
|
|
|
(15,825 |
) |
|
|
42.70 |
|
|
|
(32,376 |
) |
|
|
37.56 |
|
|
|
(68,481 |
) |
|
|
37.21 |
|
Forfeited |
|
|
(976 |
) |
|
|
33.60 |
|
|
|
— |
|
|
|
— |
|
|
|
(2,468 |
) |
|
|
41.48 |
|
|
|
(3,444 |
) |
|
|
40.79 |
|
Nonvested balance as of |
|
|
7,640 |
|
|
$ |
33.76 |
|
|
|
46,000 |
|
|
$ |
47.31 |
|
|
|
91,106 |
|
|
$ |
43.03 |
|
|
|
144,746 |
|
|
$ |
43.87 |
|
Unrecognized compensation |
|
$ |
47 |
|
|
|
|
|
$ |
944 |
|
|
|
|
|
$ |
2,822 |
|
|
|
|
|
$ |
3,813 |
|
|
|
|
||||
Weighted average remaining |
|
|
0.26 |
|
|
|
|
|
|
1.67 |
|
|
|
|
|
|
2.10 |
|
|
|
|
|
|
2.06 |
|
|
|
|
||||
Employee Stock Purchase Plan
The Corporation is authorized to issue up to 250,000 shares of common stock under the employee stock purchase plan ("ESPP"). The plan qualifies as an employee stock purchase plan under section 423 of the Internal Revenue Code of 1986. Under the ESPP, eligible employees may enroll in a three month offer period that begins January, April, July, and October of each year. Employees may elect to purchase a limited number of shares of the Corporation's common stock at 90% of the fair market value on the last day of the offering period. The ESPP is treated as a compensatory item for purposes of share-based compensation expense.
The Corporation issued 3,115 and 3,832 shares of common stock under the ESPP during the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025 and 2024, 223,691 and 226,806 shares, respectively, remained available for issuance under the ESPP.
Share-based compensation expense related to restricted stock and ESPP included in the Consolidated Statements of Income was as follows:
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
|
|
(In Thousands) |
|
|||||||||
Share-based compensation expense |
|
$ |
2,800 |
|
|
$ |
2,785 |
|
|
$ |
2,977 |
|
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.