8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 27, 2022

First Business Financial Services, Inc.

(Exact name of registrant as specified in its charter)

Wisconsin	1-34095	39-1576570
(State or other jurisdiction<br>of incorporation)	(Commission<br>File Number)	(I.R.S. Employer<br>Identification No.)

401 Charmany Drive

Madison, Wisconsin 53719

(Address of principal executive offices) (Zip code)

Registrant’s telephone number, including area code: (608) 238-8008

N/A

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | | --- | --- || ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | | --- | --- || ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | | --- | --- || ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | | --- | --- |

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b- 2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter). Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	FBIZ	The Nasdaq Stock Market LLC

Item 2.02. Results of Operations and Financial Condition.

On October 27, 2022, First Business Financial Services, Inc. (the “Company”) announced its earnings for the quarter ended September 30, 2022. A copy of the Company’s press release containing this information is being “furnished” as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.

The information in Item 2.02 of this Current Report on Form 8-K and Exhibit 99.1 attached hereto is being “furnished” and will not, except to the extent required by applicable law or regulation, be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor will any of such information or exhibits be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except as expressly set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

The following exhibit is being “furnished” as part of this Current Report on Form 8-K:

99.1	Press release of the registrant dated October 27, 2022, containing financial information for its quarter ended September 30, 2022.

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

October 27, 2022	FIRST BUSINESS FINANCIAL SERVICES, INC.
	By:	/s/ Edward G. Sloane, Jr.
	Name:	Edward G. Sloane, Jr.
	Title:	Chief Financial Officer

Document

Exhibit 99.1

[FOR IMMEDIATE RELEASE]

First Business Financial Services, Inc.

401 Charmany Drive

Madison, WI 53719

FIRST BUSINESS BANK REPORTS THIRD QUARTER 2022 NET INCOME OF $10.6 MILLION

-- Net interest margin expansion and balance sheet growth drive record top line revenue and tangible book value growth --

MADISON, Wis., October 27, 2022 (BUSINESS WIRE) -- First Business Financial Services, Inc. (the “Company”, the “Bank”, or “First Business Bank”) (Nasdaq:FBIZ) reported quarterly net income available to common shareholders of $10.6 million, or $1.25 diluted earnings per share. This compares to net income available to common shareholders of $11.0 million, or $1.29 per share, in the second quarter of 2022 and $9.2 million, or $1.07 per share, in the third quarter of 2021.

“In the third quarter, loan and deposit growth and net interest margin expansion helped generate a 12% increase in top line revenue compared to the second quarter of 2022. In addition, the Bank’s exceptional asset quality continued, as we reported our lowest percentage of non-performing assets to total assets in nearly 20 years at just 0.13%,” President and Chief Executive Officer Corey Chambas said. “We were also very pleased to see significant deposit growth during the quarter, increasing 16% annualized, more than fully funding our 8% annualized loan growth,” Chambas added. “Our capital base remains strong and, unlike many of our peers, we have continued to increase tangible book value and maintain tangible common equity in excess of 8%.”

Quarterly Highlights

•Strong Profitability Metrics. Pre-tax, pre-provision adjusted (“PTPP”) earnings, excluding Paycheck Protection Program (“PPP”) interest and fee income, grew to a record $14.1 million, increasing $3.5 million, or 32.6%, from the linked quarter and $6.3 million, or 80.4%, from the prior year quarter. Continued improvement in profitability was driven by an increase in top line revenue, which rose $3.7 million, or 12.2%, from the linked quarter and $7.7 million, or 29.1%, from the prior year quarter. With continued positive operating leverage, the Company increased PTPP return on average assets to 2.05% in the third quarter of 2022, compared to 1.57% in linked quarter and 1.24% in the prior year quarter.

•Record Top Line Revenue and Net Interest Margin Expansion. Net interest income grew to a record $25.9 million, increasing $2.2 million, or 9.4%, from the linked quarter and $4.7 million, or 22.0%, from the prior year quarter. This increase was primarily due to a 30 and 56 basis point expansion in net interest margin compared to the linked and prior year quarters, respectively. The net interest margin expansion resulted from rising rates on variable-rate loans and lower deposit betas on in-market deposits during the third quarter of 2022. Average loans and leases receivable increased $43.7 million, or 7.7% annualized, and $185.5, or 8.71%, compared to the linked and prior year quarters, respectively.

•Deposit Growth. Enhanced focus on relationship-based deposit generation and the return of cyclical deposits following second quarter client utilization led to in-market deposit growth of $72.2 million, or 15.6% annualized, from the second quarter of 2022.

•Exceptional Asset Quality. Continued positive asset quality trends resulted in the decline of non-performing assets to $3.8 million, or 0.13% of total assets, improving from 0.29% of total assets on September 30, 2021. The Company recorded a loan loss provision of $12,000, compared to a provision benefit of $3.7 million in the second quarter of 2022 and $2.3 million in the third quarter of 2021.

•Tangible Book Value Growth. The Company’s strong earnings continued to offset the interest-rate-driven market value decline in the investment portfolio, producing a 7.5% annualized increase in tangible book value compared to the linked quarter and 8.0% compared to the prior year quarter.

Quarterly Financial Results

(Unaudited)	As of and for the Three Months Ended									As of and for the Nine Months Ended
(Dollars in thousands, except per share amounts)	September 30,<br>2022			June 30,<br>2022			September 30,<br>2021			September 30,<br>2022			September 30,<br>2021
Net interest income	$	25,884		$	23,660		$	21,223		$	70,971		$	63,738
Adjusted non-interest income (1)	8,197			6,872			7,015			22,455			20,502
Operating revenue (1)	34,081			30,532			28,238			93,426			84,240
Operating expense (1)	19,925			19,685			18,546			58,497			53,928
Pre-tax, pre-provision adjusted earnings (1)	14,156			10,847			9,692			34,929			30,312
Less:
Provision for loan and lease losses	12			(3,727)			(2,269)			(4,569)			(5,295)
Net loss on foreclosed properties	7			8			6			27			7
Amortization of other intangible assets	—			—			7			—			23
SBA recourse provision (benefit)	96			114			(69)			134			45
Tax credit investment impairment recovery	—			(351)			—			(351)			—
Add:
Net gain on sale of securities	—			—			—			—			29
Income before income tax expense	14,041			14,803			12,017			39,688			35,561
Income tax expense	3,215			3,599			2,819			8,986			8,396
Net income	$	10,826		$	11,204		$	9,198		$	30,702		$	27,165
Preferred stock dividends	218			246			—			464			—
Net income available to common shareholders	$	10,608		$	10,958		$	9,198		$	30,238		$	27,165
Earnings per share, diluted	$	1.25		$	1.29		$	1.07		$	3.57		$	3.15
Book value per share	$	28.58		$	28.08		$	26.56		$	28.58		$	26.56
Tangible book value per share (1)	$	27.13		$	26.63		$	25.11		$	27.13		$	25.11
Net interest margin (2)	4.01		%	3.71		%	3.45		%	3.71		%	3.46		%
Adjusted net interest margin (1)(2)	3.89		%	3.45		%	3.22		%	3.53		%	3.21		%
Fee income ratio (non-interest income / total revenue)	24.05		%	22.51		%	24.84		%	24.04		%	24.36		%
Efficiency ratio (1)	58.46		%	64.47		%	65.68		%	62.61		%	64.02		%
Return on average assets (2)	1.57		%	1.65		%	1.41		%	1.49		%	1.39		%
Pre-tax, pre-provision adjusted return on average assets (1)(2)	2.05		%	1.60		%	1.49		%	1.72		%	1.55		%
Return on average common equity (2)	16.97		%	18.27		%	16.39		%	16.59		%	16.63		%
Period-end loans and leases receivable	$	2,330,700		$	2,290,100		$	2,123,306		$	2,330,700		$	2,123,306
Average loans and leases receivable	$	2,316,621		$	2,272,946		$	2,131,099		$	2,278,333		$	2,178,947
Period-end in-market deposits	$	1,929,224		$	1,857,010		$	1,829,644		$	1,929,224		$	1,829,644
Average in-market deposits	$	1,930,995		$	1,900,842		$	1,810,948		$	1,921,465		$	1,756,475
Allowance for loan and lease losses	$	24,143		$	24,104		$	24,676		$	24,143		$	24,676
Non-performing assets	$	3,796		$	5,709		$	7,605		$	3,796		$	7,605
Allowance for loan and lease losses as a percent of total gross loans and leases	1.04		%	1.05		%	1.16		%	1.04		%	1.16		%
Non-performing assets as a percent of total assets	0.13		%	0.21		%	0.29		%	0.13		%	0.29		%

(1)This is a non-GAAP financial measure. Management believes these measures are meaningful because they reflect adjustments commonly made by management, investors, regulators, and analysts to evaluate financial performance, provide greater understanding of ongoing operations, and enhance comparability of results with prior periods. See the section titled Non-GAAP Reconciliations at the end of this release for a reconciliation of GAAP financial measures to non-GAAP financial measures.

(2)Calculation is annualized.

Quarterly Financial Results - Excluding PPP Loans, Interest Income, and Fees

(Unaudited)	As of and for the Three Months Ended									As of and for the Nine Months Ended
(Dollars in thousands, except per share amounts)	September 30,<br>2022			June 30,<br>2022			September 30,<br>2021			September 30,<br>2022			September 30,<br>2021
Net interest income	$	25,812		$	23,435		$	19,336		$	70,373		$	55,928
Adjusted non-interest income (1)	8,197			6,872			7,015			22,455			20,502
Operating revenue (1)	34,009			30,307			26,351			92,828			76,430
Operating expense (1)	19,925			19,685			18,546			58,497			53,928
Pre-tax, pre-provision adjusted earnings (1)	$	14,084		$	10,622		$	7,805		$	34,331		$	22,502
Net interest margin (2)	4.00		%	3.69		%	3.26		%	3.69		%	3.28		%
Fee income ratio (non-interest income / total revenue)	24.10		%	22.67		%	26.62		%	24.19		%	26.85		%
Efficiency ratio (1)	58.59		%	64.95		%	70.38		%	63.02		%	70.56		%
Pre-tax, pre-provision adjusted return on average assets (1)(2)	2.05		%	1.57		%	1.24		%	1.69		%	1.24		%
Period-end loans and leases receivable	$	2,328,376		$	2,281,928		$	2,058,852		$	2,328,376		$	2,058,852
Specialized lending as a percent of total loans and leases	22.24		%	20.76		%	18.33		%	22.24		%	18.33		%
Average loans and leases receivable	$	2,312,116		$	2,261,296		$	2,043,582		$	2,266,030		$	1,993,206
Allowance for loan and lease losses as a percent of total gross loans and leases	1.04		%	1.06		%	1.20		%	1.04		%	1.20		%
Non-performing assets as a percent of total assets	0.13		%	0.21		%	0.30		%	0.13		%	0.30		%

(1)This is a non-GAAP financial measure. Management believes these measures are meaningful because they reflect adjustments commonly made by management, investors, regulators, and analysts to evaluate financial performance, provide greater understanding of ongoing operations, and enhance comparability of results with prior periods. See the section titled Non-GAAP Reconciliations at the end of this release for a reconciliation of GAAP financial measures to non-GAAP financial measures.

(2)Calculation is annualized.

Third Quarter 2022 Compared to Second Quarter 2022

Net interest income increased $2.2 million, or 9.4%, to $25.9 million.

•Net interest income growth was driven by an increase in average loans and leases and net interest margin expansion, partially offset by a decrease in fees in lieu of interest. Average loans and leases receivable increased $43.7 million, or 7.7% annualized, to $2.3 billion. Fees in lieu of interest, which can vary from quarter to quarter based on client-driven activity, totaled $807,000, compared to $1.9 million, as the prior quarter included a significant non-accrual interest recovery. Excluding fees in lieu of interest and interest income from PPP loans, net interest income increased $3.3 million, or 15.2%.

•The yield on average interest-earning assets increased 68 basis points to 4.92% from 4.24%. Excluding average net PPP loans, PPP loan interest income, and fees in lieu of interest, the yield earned on average interest-earning assets increased 84 basis points to 4.80% from 3.96%.

•The rate paid for average interest-bearing, in-market deposits increased 59 basis points to 0.88% from 0.29%. The rate paid for average total bank funding increased 43 basis points to 0.89% from 0.46%. Total bank funding is defined as total deposits plus Federal Home Loan Bank (“FHLB”) advances. The daily average effective federal funds rate increased 141 basis points compared to the linked quarter, which equates to an in-market, interest-bearing deposit beta of 41.9% for the three months ended September 30, 2022.

•Net interest margin was 4.01%, up 30 basis points compared to 3.71% in the linked quarter. Adjusted net interest margin1 was 3.89%, up 44 basis points compared to 3.45% in the linked quarter. Net interest margin expansion resulted from rising rates on variable-rate loans and lower deposit betas on in-market deposits, as the federal funds target rate reached its highest point since the Great Recession.

•The Bank continues to maintain an asset-sensitive balance sheet and ended the quarter positioned for net interest income to continue to benefit from rising rates. However, the Bank anticipates deposit betas will rise at a greater rate

1 Adjusted net interest margin is a non-GAAP measure representing net interest income excluding fees in lieu of interest and other recurring, but volatile, components of net interest margin divided by average interest-earning assets less average net PPP loans and other recurring, but volatile, components of average interest-earning assets.

with further increases expected in the federal funds rate during the fourth quarter, which will slow the pace of net interest margin expansion.

The Company reported provision expense of $12,000, compared to a $3.7 million benefit in the second quarter of 2022 due to a large loan recovery.

•The provision expense in the third quarter of 2022 was primarily due to an increase in the general reserve of $400,000 related to loan growth and a $132,000 increase due to qualitative factor changes, as well as a $447,000 net increase in specific reserves, partially offset by a $940,000 reduction in general reserve from change in loss factors derived from historical look-back period.

Non-interest income increased $1.3 million, or 19.3%, to $8.2 million.

•Other fee income increased $1.8 million to $2.7 million, compared to $860,000 in the second quarter. The increase was primarily due to strong returns on the Company’s investments in mezzanine funds and gains recognized on end-of-term buyout agreements related to the Company’s equipment financing business line.

•Loan fees increased $117,000, or 16.8% to $814,000 from the increase in loans as well as an increase in commercial and industrial activity (“C&I”) generating additional service fee income.

•Private Wealth management fee income decreased $234,000, or 8.2% to $2.6 million. Private Wealth and trust assets under management and administration measured $2.493 billion at September 30, 2022, down $61.1 million from the second quarter. The decrease in fee income and assets under management and administration was due to a decrease in market valuations.

•Gains on sale of Small Business Administration (“SBA”) loans decreased $219,000, or 23.0%, to $732,000. Premiums on the sale and notional value of SBA loans sold decreased compared to prior quarter.

•Commercial loan swap fee income decreased $130,000, or 27.6%, to $341,000. Swap fee income can vary from period to period based on loan activity and the interest rate environment.

Non-interest expense increased $572,000, or 2.9%, to $20.0 million, while operating expense increased $240,000, or 1.2%, to $19.9 million.

•Compensation expense was $14.8 million, reflecting an increase of $797,000, or 5.7%, from the linked quarter due to a $441,000 one-time increase to the annual cash incentive bonus program accrual, as well as expanded hiring to support the Bank’s growth plans. Management believes there will be upward pressure on compensation throughout the remainder of the year as the Bank continues to opportunistically invest in new talent and retain existing talent in the competitive market. Average FTEs for the third quarter of 2022 were 333, up twelve from 321 in the linked quarter.

•Professional fees decreased $95,000, or 7.3%, to $1.2 million from the linked quarter primarily due to a decrease in recruiting expense.

•Marketing expense decreased $127,000, or 19.0%, to $543,000 from the linked quarter primarily due to seasonally higher spending in the second quarter related to sponsorships.

•Data processing expense decreased $173,000, or 19.4%, to $719,000 from the linked quarter primarily due to the decrease in recurring annual expense related to tax processing on behalf of the Bank’s Private Wealth management clients in the second quarter.

Income tax expense decreased $384,000, or 10.7%, to $3.2 million. The effective tax rate was 22.9% for the three months ended September 30, 2022, compared to 23.5% for the same period in 2021. The three months ended September 30, 2022 included a $155,000 net benefit from a low income housing tax credit investment; no tax credits were recognized in the second quarter of 2022. For 2022, the Company expects to report an effective tax rate less than 22.5% as management continues to actively pursue tax credit opportunities.

Total period-end loans and leases receivable increased $40.6 million, or 7.1% annualized, to $2.331 billion. Excluding net PPP loans, total period-end loans and leases receivable increased $46.4 million, or 8.1% annualized, to $2.328 billion.

•C&I loans increased $47.6 million, or 25.6% annualized, to $789.0 million, compared to $741.4 million. Excluding PPP loans, C&I loans increased $53.5 million, or 29.2% annualized, due to an increase in Equipment Finance and Asset-Based Lending.

•Commercial real estate (“CRE”) loans decreased by $3.5 million, or 1.0% annualized, to $1.485 billion, compared to $1.488 billion. A decrease in construction loans reflected migration to other CRE categories.

Total period-end in-market deposits increased $72.2 million, or 15.6% annualized, to $1.929 billion, compared to $1.857 billion. The average rate paid was 0.61%, up 41 basis points from 0.20% in the second quarter.

Period-end wholesale funding, including FHLB advances, brokered deposits, and deposits gathered through internet deposit listing services, decreased $30.3 million to $536.1 million.

•Wholesale deposits increased $146.0 million to $158.3 million, compared to $12.3 million as the Bank replaced FHLB advances with wholesale deposits. This shift in wholesale funding is consistent with our funding philosophy to manage interest rate risk by utilizing the most efficient and cost-effective source of wholesale funds to match-fund our fixed-rate loan portfolio. The average rate paid on wholesale deposits decreased 52 basis points to 2.46% and the weighted average original maturity decreased to 0.3 years from 4.8 years.

•FHLB advances decreased $176.3 million to $377.8 million. The average rate paid on FHLB advances increased 53 basis points to 2.01% and the weighted average original maturity increased to 4.8 years from 3.2 years.

Non-performing assets decreased to $3.8 million, or 0.13% of total assets, compared to $5.7 million, or 0.21% of total assets, primarily due to the payoff of a non-accrual loan.

The allowance for loan and lease losses increased $39,000, or 0.2%, as increases in the general reserve from loan growth, changes in qualitative factors, and an increase in specific reserves were partially offset by a decrease in the general reserve due to a change in loss factors derived from the historical look-back period. The allowance for loan and lease losses as a percent of total gross loans and leases was 1.04% compared to 1.05%.

Third Quarter 2022 Compared to Third Quarter 2021

Net interest income increased $4.7 million, or 22.0%, to $25.9 million.

•The increase in net interest income primarily reflects an increase in average gross loans and leases and net interest margin expansion, partially offset by lower fees in lieu of interest. Fees in lieu of interest decreased from $2.8 million to $807,000, primarily due to a $1.6 million reduction in PPP loan fee amortization. Excluding fees in lieu of interest and interest income from PPP loans, net interest income increased $6.9 million, or 38.0%. Excluding net PPP loans, average gross loans and leases increased $268.5 million, or 13.1%.

•Net interest margin increased 56 basis points to 4.01% from 3.45%. Adjusted net interest margin increased 67 basis points to 3.89% from 3.22%.

•The yield on average interest-earning assets measured 4.92% compared to 3.90%. Excluding fees in lieu of interest, PPP loan interest income, and net PPP loans, the yield on average interest-earning assets measured 4.80%, compared to 3.53%. This increase in yield was primarily due to the increase in short-term market rates and the reinvestment of cash flows from the securities and fixed rate loan portfolios in a rising rate environment.

•The rate paid for average interest-bearing in-market deposits increased 68 basis points to 0.88% from 0.20%. The rate paid for average total bank funding increased 53 basis points to 0.89% from 0.36%.

The Company reported provision expense of $12,000, compared to a provision benefit of $2.3 million in the third quarter of 2021 due to large loan recoveries in the prior year.

Non-interest income of $8.2 million increased by $1.2 million, or 16.8%, from $7.0 million in the prior year period.

•Other fee income increased $806,000, or 53.4%, to $2.3 million, due to above-average returns on the Company’s investments in mezzanine funds and gains recognized on end-of-term buyout agreements related to the Company’s equipment financing business line.

•Commercial loan swap fee income was $341,000. There was no swap fee activity in the prior year quarter. Swap fee income varies from period to period based on loan activity and the interest rate environment.

•Loan fees of $814,000 increased by $101,000, or 14.2%, primarily due to an increase in C&I lending activity.

•Service charges on deposits increased $62,000, or 6.5%, to $1.0 million, due to an increase in existing and new deposit client relationships.

•Private Wealth management fee income decreased $141,000, or 5.1%, to $2.6 million, due to a decline in market values. Private Wealth and trust assets under management and administration measured $2.493 billion at September 30, 2022, down $255.1 million, or 9.3%.

Non-interest expense increased $1.5 million, or 8.3%, to $20.0 million. Operating expense increased $1.4 million, or 7.4%, to $19.9 million.

•Compensation expense increased $1.5 million, or 11.0%, to $14.8 million. Average FTEs were 333 in the third quarter of 2022, compared to 311 in the third quarter of 2021. The increase in compensation expense is consistent with the explanations discussed above in the linked quarter analysis.

•Professional fees increased $179,000, or 17.5%, to $1.2 million, primarily due to an increase in recruiting expense, audit expenses, and a general increase in other professional consulting services for various projects.

•Computer software expense increased $129,000, or 12.9%, to $1.1 million, primarily due to an increase in technology costs driven by higher headcount.

•Other non-interest expense decreased $134,000, or 19.1%, to $569,000 mainly due to higher deferred loan origination costs driven by loan volume increases in our Equipment Finance business line.

Total period-end loans and leases receivable increased $207.4 million, or 9.8%, to $2.331 billion. Excluding net PPP loans, total period-end loans and leases receivable increased $269.5 million, or 13.1%, to $2.328 billion.

•C&I loans increased $107.9 million, or 15.8% to $789.0 million. Excluding PPP loans, C&I loans increased $171.4 million, or 27.9%, to $786.6 million due to expansion of existing markets and products.

•CRE loans increased $97.2 million, or 7.0%, due to increases in all CRE categories.

Total period-end in-market deposits increased $99.6 million, or 5.4%, to $1.929 billion and the average rate paid increased 47 basis points to 0.61%. This increase in deposits was principally due to a $103.1 million increase in certificates of deposit, partially offset by a $17.3 million decrease in transaction accounts.

Period-end wholesale funding increased $103.7 million to $536.1 million.

•Wholesale deposits increased $83.7 million, or 112.1%, to $158.3 million, as the Bank utilized more wholesale deposits in lieu of short-term FHLB advances. The average rate paid on brokered certificates of deposit increased 154 basis points to 2.46% and the weighted average original maturity decreased to 0.3 years from 3.5 years.

•FHLB advances increased $20.0 million to $377.8 million. The average rate paid on FHLB advances increased 72 basis points to 2.01% and the weighted average original maturity decreased to 4.8 years from 6.1 years.

Non-performing assets decreased to $3.8 million, or 0.13% of total assets, compared to $7.6 million, or 0.29% of total assets.

The allowance for loan and lease losses decreased $533,000 to $24.1 million, compared to $24.7 million. The allowance for loan and lease losses as a percent of total gross loans and leases was 1.04% compared to 1.16%.

Paycheck Protection Program

As of September 30, 2022, the Company had $2.4 million in gross PPP loans outstanding and deferred processing fees outstanding of $52,000. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness, as an adjustment of yield using the interest method. During the three months ended September 30, 2022, the Company recognized $61,000 of PPP processing fees in interest income. The SBA provides a guaranty to the lender of 100% of principal and interest unless the lender violated an obligation under the agreement.

Share Repurchase Program Update

As previously announced, effective March 4, 2022, the Company’s Board of Directors authorized the repurchase by the Company of shares of its common stock with a maximum aggregate purchase price of $5.0 million, effective March 4, 2022 through March 4, 2023. As of October 25, 2022, the Company had repurchased a total of 88,735 shares for approximately $2.9 million at an average cost of $33.17 per share.

About First Business Financial Services, Inc.

First Business Financial Services, Inc., (Nasdaq: FBIZ) is the parent company of First Business Bank. First Business Bank specializes in business banking, including commercial banking and specialized lending, private wealth, and bank consulting services, and through its refined focus, delivers unmatched expertise, accessibility, and responsiveness. Specialized lending solutions are delivered through First Business Bank’s wholly owned subsidiary First Business Specialty Finance, LLC. For additional information, visit firstbusiness.bank.

This release may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which reflect First Business Bank’s 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. Those statements are based on general assumptions and are subject to various risks, uncertainties, and other factors that may cause actual results to differ materially from the views, beliefs, and projections expressed in such statements. 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, inflation, supply chain issues, labor shortages, and the adverse effects of the COVID-19 pandemic on the global, national, and local economy.

•Competitive pressures among depository and other financial institutions nationally and in the Company’s markets.

•Increases in defaults by borrowers and other delinquencies.

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

•Fluctuations in interest rates and market prices.

•Changes in legislative or regulatory requirements applicable to the Company 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 our network security, including the Company’s internet banking activities.

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

For further information about the factors that could affect the Company’s future results, please see the Company’s annual report on Form 10-K for the year ended December 31, 2021 and other filings with the Securities and Exchange Commission.

CONTACT:	First Business Financial Services, Inc.
	Edward G. Sloane, Jr.
	Chief Financial Officer
	608-232-5970
	esloane@firstbusiness.bank

SELECTED FINANCIAL CONDITION DATA

(Unaudited)	As of
(in thousands)	September 30,<br>2022		June 30,<br>2022		March 31,<br>2022		December 31,<br>2021		September 30,<br>2021
Assets
Cash and cash equivalents	$	110,965	$	95,484	$	95,603	$	57,110	$	110,624
Securities available-for-sale, at fair value	196,566		208,643		223,631		205,702		194,056
Securities held-to-maturity, at amortized cost	13,531		13,968		17,267		19,746		21,196
Loans held for sale	773		2,256		2,418		3,570		5,603
Loans and leases receivable	2,330,700		2,290,100		2,251,249		2,239,408		2,123,306
Allowance for loan and lease losses	(24,143)		(24,104)		(23,669)		(24,336)		(24,676)
Loans and leases receivable, net	2,306,557		2,265,996		2,227,580		2,215,072		2,098,630
Premises and equipment, net	3,143		1,899		1,621		1,694		1,700
Foreclosed properties	151		124		117		164		172
Right-of-use assets	5,424		5,772		6,118		4,910		5,263
Bank-owned life insurance	54,683		54,324		53,974		53,600		53,244
Federal Home Loan Bank stock, at cost	15,701		22,959		12,863		13,336		12,351
Goodwill and other intangible assets	12,218		12,262		12,184		12,268		12,229
Derivatives	73,718		44,461		26,890		26,343		28,678
Accrued interest receivable and other assets	57,372		48,868		43,816		39,390		40,664
Total assets	$	2,850,802	$	2,777,016	$	2,724,082	$	2,652,905	$	2,584,410
Liabilities and Stockholders’ Equity
In-market deposits	$	1,929,224	$	1,857,010	$	2,011,373	$	1,928,285	$	1,829,644
Wholesale deposits	158,321		12,321		12,321		29,638		74,638
Total deposits	2,087,545		1,869,331		2,023,694		1,957,923		1,904,282
Federal Home Loan Bank advances and other borrowings	420,297		596,642		414,487		403,451		394,090
Junior subordinated notes	—		—		—		10,076		10,072
Lease liabilities	6,827		7,207		7,580		5,406		5,780
Derivatives	66,162		40,357		24,961		28,283		31,890
Accrued interest payable and other liabilities	16,967		13,556		8,309		15,344		13,016
Total liabilities	2,597,798		2,527,093		2,479,031		2,420,483		2,359,130
Total stockholders’ equity	253,004		249,923		245,051		232,422		225,280
Total liabilities and stockholders’ equity	$	2,850,802	$	2,777,016	$	2,724,082	$	2,652,905	$	2,584,410

STATEMENTS OF INCOME

(Unaudited)	As of and for the Three Months Ended										As of and for the Nine Months Ended
(Dollars in thousands, except per share amounts)	September 30,<br>2022		June 30,<br>2022		March 31,<br>2022		December 31,<br>2021		September 30,<br>2021		September 30,<br>2022		September 30,<br>2021
Total interest income	$	31,786	$	27,031	$	24,235	$	23,576	$	24,014	$	83,053	$	72,420
Total interest expense	5,902		3,371		2,809		2,652		2,791		12,082		8,682
Net interest income	25,884		23,660		21,426		20,924		21,223		70,971		63,738
Provision for loan and lease losses	12		(3,727)		(855)		(508)		(2,269)		(4,569)		(5,295)
Net interest income after provision for loan and lease losses	25,872		27,387		22,281		21,432		23,492		75,540		69,033
Private wealth management service fees	2,618		2,852		2,841		2,874		2,759		8,311		7,910
Gain on sale of SBA loans	732		951		585		1,042		721		2,269		3,002
Service charges on deposits	1,018		1,041		999		1,023		956		3,058		2,814
Loan fees	814		697		652		679		713		2,163		1,828
Net gain on sale of securities	—		—		—		—		—		—		29
Swap fees	341		471		225		684		—		1,038		684
Other non-interest income	2,674		860		2,084		1,267		1,866		5,616		4,264
Total non-interest income	8,197		6,872		7,386		7,569		7,015		22,455		20,531
Compensation	14,817		14,020		13,638		12,447		13,351		42,475		39,263
Occupancy	566		568		555		551		544		1,689		1,628
Professional fees	1,203		1,298		1,170		933		1,024		3,671		2,803
Data processing	719		892		780		773		746		2,391		2,315
Marketing	543		670		500		548		572		1,713		1,474
Equipment	253		235		244		223		260		732		767
Computer software	1,128		1,117		1,082		1,017		999		3,327		3,244
FDIC insurance	230		296		313		210		291		840		933
Other non-interest expense	569		360		541		829		703		1,469		1,576
Total non-interest expense	20,028		19,456		18,823		17,531		18,490		58,307		54,003
Income before income tax expense	14,041		14,803		10,844		11,470		12,017		39,688		35,561
Income tax expense	3,215		3,599		2,172		2,879		2,819		8,986		8,396
Net income	$	10,826	$	11,204	$	8,672	$	8,591	$	9,198	$	30,702	$	27,165
Preferred stock dividends	218		246		—		—		—		464		—
Net income available to common shareholders	$	10,608	$	10,958	$	8,672	$	8,591	$	9,198	$	30,238	$	27,165
Per common share:
Basic earnings	$	1.25	$	1.29	$	1.02	$	1.01	$	1.07	$	3.57	$	3.15
Diluted earnings	1.25		1.29		1.02		1.01		1.07		3.57		3.15
Dividends declared	0.1975		0.1975		0.1975		0.18		0.18		0.5925		0.54
Book value	28.58		28.08		27.46		27.48		26.56		28.58		26.56
Tangible book value	27.13		26.63		26.02		26.03		25.11		27.13		25.11
Weighted-average common shares outstanding(1)	8,230,902		8,225,838		8,232,142		8,228,311		8,340,042		8,237,879		8,380,591
Weighted-average diluted common shares outstanding(1)	8,230,902		8,225,838		8,232,142		8,228,311		8,340,042		8,237,879		8,380,591

(1)Excluding participating securities.

NET INTEREST INCOME ANALYSIS

(Unaudited)	For the Three Months Ended
(Dollars in thousands)	September 30, 2022						June 30, 2022						September 30, 2021
	Average<br>Balance		Interest		Average<br><br>Yield/Rate(4)		Average<br>Balance		Interest		Average<br><br>Yield/Rate(4)		Average<br>Balance		Interest		Average<br><br>Yield/Rate(4)
Interest-earning assets
Commercial real estate and other mortgage loans(1)	$	1,486,530	$	17,280	4.65	%	$	1,472,075	$	15,343	4.17	%	$	1,388,236	$	13,090	3.77	%
Commercial and industrial loans(1)	765,440		12,266		6.41	%	734,299		9,710		5.29	%	680,563		9,259		5.44	%
Direct financing leases(1)	15,093		160		4.24	%	15,527		176		4.53	%	18,611		207		4.45	%
Consumer and other loans(1)	49,558		468		3.78	%	51,045		458		3.59	%	43,689		391		3.58	%
Total loans and leases receivable(1)	2,316,621		30,174		5.21	%	2,272,946		25,687		4.52	%	2,131,099		22,947		4.31	%
Mortgage-related securities(2)	168,433		915		2.17	%	176,747		804		1.82	%	154,372		659		1.71	%
Other investment securities(3)	51,812		250		1.93	%	54,591		260		1.91	%	45,196		196		1.73	%
FHLB stock	18,167		289		6.36	%	17,355		226		5.21	%	13,279		167		5.03	%
Short-term investments	27,912		158		2.26	%	29,541		54		0.73	%	116,621		45		0.15	%
Total interest-earning assets	2,582,945		31,786		4.92	%	2,551,180		27,031		4.24	%	2,460,567		24,014		3.90	%
Non-interest-earning assets	176,016						165,527						147,631
Total assets	$	2,758,961					$	2,716,707					$	2,608,198
Interest-bearing liabilities
Transaction accounts	$	486,704	1,005		0.83	%	$	502,763	343		0.27	%	$	509,089	251		0.20	%
Money market	746,227		1,610		0.86	%	767,433		509		0.27	%	703,460		306		0.17	%
Certificates of deposit	113,529		340		1.20	%	73,560		114		0.62	%	42,370		71		0.67	%
Wholesale deposits	36,702		226		2.46	%	12,350		92		2.98	%	89,135		206		0.92	%
Total interest-bearing deposits	1,383,162		3,181		0.92	%	1,356,106		1,058		0.31	%	1,344,054		834		0.25	%
FHLB advances	432,528		2,173		2.01	%	449,599		1,666		1.48	%	381,061		1,228		1.29	%
Other borrowings	42,800		548		5.12	%	51,018		647		5.07	%	32,630		449		5.50	%
Junior subordinated notes	—		—		—	%	—		—		—	%	10,070		280		11.12	%
Total interest-bearing liabilities	1,858,490		5,902		1.27	%	1,856,723		3,371		0.73	%	1,767,815		2,791		0.63	%
Non-interest-bearing demand deposit accounts	584,535						557,086						556,029
Other non-interest-bearing liabilities	60,705						57,615						59,865
Total liabilities	2,503,730						2,471,424						2,383,709
Stockholders’ equity	255,231						245,283						224,489
Total liabilities and stockholders’ equity	$	2,758,961					$	2,716,707					$	2,608,198
Net interest income			$	25,884					$	23,660					$	21,223
Interest rate spread					3.65	%					3.51	%					3.27	%
Net interest-earning assets	$	724,455					$	694,457					$	692,752
Net interest margin					4.01	%					3.71	%					3.45	%

(1)The average balances of loans and leases include non-accrual loans and leases and loans held for sale. Interest income related to non-accrual loans and leases is recognized when collected. Interest income includes net loan fees collected in lieu of interest.

(2)Includes amortized cost basis of assets available for sale and held to maturity.

(3)Yields on tax-exempt municipal obligations are not presented on a tax-equivalent basis in this table.

(4)Represents annualized yields/rates.

NET INTEREST INCOME ANALYSIS

(Unaudited)	For the Nine Months Ended
(Dollars in thousands)	September 30, 2022						September 30, 2021
	Average<br>Balance		Interest		Average<br><br>Yield/Rate(4)		Average<br>Balance		Interest		Average<br><br>Yield/Rate(4)
Interest-earning assets
Commercial real estate and other mortgage loans(1)	$	1,472,930	$	45,969	4.16	%	$	1,377,302	$	38,704	3.75	%
Commercial and industrial loans(1)	739,540		31,077		5.60	%	736,623		28,759		5.21	%
Direct financing leases(1)	15,714		526		4.46	%	20,242		673		4.43	%
Consumer and other loans(1)	50,149		1,362		3.62	%	44,780		1,197		3.56	%
Total loans and leases receivable(1)	2,278,333		78,934		4.62	%	2,178,947		69,333		4.24	%
Mortgage-related securities(2)	176,654		2,479		1.87	%	155,617		1,955		1.67	%
Other investment securities(3)	52,324		725		1.85	%	42,992		569		1.76	%
FHLB stock	16,523		688		5.55	%	13,308		496		4.97	%
Short-term investments	29,509		227		1.03	%	65,769		67		0.14	%
Total interest-earning assets	2,553,343		83,053		4.34	%	2,456,633		72,420		3.93	%
Non-interest-earning assets	160,966						145,714
Total assets	$	2,714,309					$	2,602,347
Interest-bearing liabilities
Transaction accounts	$	507,402	1,602		0.42	%	$	509,709	749		0.20	%
Money market	765,839		2,458		0.43	%	674,858		862		0.17	%
Certificates of deposit	80,093		509		0.85	%	48,540		360		0.99	%
Wholesale deposits	21,838		436		2.66	%	139,205		825		0.79	%
Total interest-bearing deposits	1,375,172		5,005		0.49	%	1,372,312		2,796		0.27	%
FHLB advances	422,576		4,875		1.54	%	384,581		3,761		1.30	%
Other borrowings	44,719		1,698		5.06	%	30,811		1,293		5.60	%
Junior subordinated notes(5)	3,247		504		20.69	%	10,066		832		11.02	%
Total interest-bearing liabilities	1,845,714		12,082		0.87	%	1,797,770		8,682		0.64	%
Non-interest-bearing demand deposit accounts	568,131						523,368
Other non-interest-bearing liabilities	53,685						63,366
Total liabilities	2,467,530						2,384,504
Stockholders’ equity	246,779						217,843
Total liabilities and stockholders’ equity	$	2,714,309					$	2,602,347
Net interest income			$	70,971					$	63,738
Interest rate spread					3.46	%					3.29	%
Net interest-earning assets	$	707,629					$	658,863
Net interest margin					3.71	%					3.46	%

(1)The average balances of loans and leases include non-accrual loans and leases and loans held for sale. Interest income related to non-accrual loans and leases is recognized when collected. Interest income includes net loan fees collected in lieu of interest.

(2)Includes amortized cost basis of assets available for sale and held to maturity.

(3)Yields on tax-exempt municipal obligations are not presented on a tax-equivalent basis in this table.

(4)Represents annualized yields/rates.

(5)The calculation for the nine months ended September 30, 2022 includes $236,000 in accelerated amortization of debt issuance costs.

ASSET AND LIABILITY BETA ANALYSIS

	For the Three Months Ended										For the Nine Months Ended
(Unaudited)	September 30, 2022		June 30, 2022				September 30, 2021				September 30, 2022		September 30, 2021
	Average Yield/Rate (3)		Average Yield/Rate (3)		Increase (Decrease)		Average Yield/Rate (3)		Increase (Decrease)		Average Yield/Rate (3)		Average Yield/Rate (3)		Increase (Decrease)
Total loans and leases receivable (a)	5.21	%	4.52	%	0.69	%	4.31	%	0.90	%	4.62	%	4.24	%	0.38	%
Total interest-earning assets(b)	4.92	%	4.24	%	0.68	%	3.90	%	1.02	%	4.34	%	3.93	%	0.41	%
Adjusted total loans and leases receivable (1)(c)	5.08	%	4.21	%	0.87	%	3.89	%	1.19	%	4.40	%	3.91	%	0.49	%
Adjusted total interest-earning assets (1)(d)	4.80	%	3.96	%	0.84	%	3.53	%	1.27	%	4.14	%	3.61	%	0.53	%
Interest-bearing in-market deposits(e)	0.88	%	0.29	%	0.59	%	0.20	%	0.68	%	0.45	%	0.21	%	0.24	%
Interest-bearing deposits(f)	0.92	%	0.31	%	0.61	%	0.25	%	0.67	%	0.49	%	0.27	%	0.22	%
Interest-bearing liabilities(g)	1.27	%	0.73	%	0.54	%	0.63	%	0.64	%	0.87	%	0.64	%	0.23	%
Effective fed funds rate (2)(h)	2.18	%	0.77	%	1.41	%	0.09	%	2.09	%	1.03	%	0.08	%	0.95	%
Beta Calculations:
Total loans and leases receivable(a)/(h)					48.90	%			43.20	%					39.66	%
Total interest-earning assets(b)/(h)					48.53	%			48.74	%					42.77	%
Adjusted total loans and leases receivable (1)(c)/(h)					61.70	%			56.75	%					51.96	%
Adjusted total interest-earning assets (1)(d)/(h)					59.92	%			60.87	%					55.80	%
Interest-bearing in-market deposits(e)/(h)					41.87	%			32.43	%					24.94	%
Interest-bearing deposits(f)/(h)					43.11	%			32.14	%					22.48	%
Interest-bearing liabilities(g)/(h)					38.59	%			30.56	%					24.09	%

(1)Excluding average net PPP loans, PPP loan interest income, and fees in lieu of interest.

(2)Board of Governors of the Federal Reserve System (US), Effective Federal Funds Rate [DFF]. Retrieved from FRED, Federal Reserve Bank of St. Louis. Represents average daily rate.

(3)Represents annualized yields/rates.

PROVISION FOR LOAN AND LEASE LOSS COMPOSITION

(Unaudited)	For the Three Months Ended										For the Nine Months Ended
(Dollars in thousands)	September 30,<br>2022		June 30,<br>2022		March 31,<br>2022		December 31,<br>2021		September 30,<br>2021		September 30,<br>2022		September 30,<br>2021
Change in general reserve due to qualitative factor changes	$	132	$	(185)	$	(416)	$	(805)	$	(51)	$	(469)	$	379
Change in general reserve due to historical loss factor changes	(940)		64		(206)		(862)		(923)		(1,082)		(3,594)
Charge-offs	54		85		22		106		364		161		3,402
Recoveries	(81)		(4,247)		(210)		(274)		(1,634)		(4,537)		(4,852)
Change in specific reserves on impaired loans, net	447		29		(280)		(64)		(451)		196		(2,111)
Change due to loan growth, net	400		527		235		1,391		426		1,162		1,481
Total provision for loan and lease losses	$	12	$	(3,727)	$	(855)	$	(508)	$	(2,269)	$	(4,569)	$	(5,295)

PERFORMANCE RATIOS

	For the Three Months Ended										For the Nine Months Ended
(Unaudited)	September 30,<br>2022		June 30,<br>2022		March 31,<br>2022		December 31,<br>2021		September 30,<br>2021		September 30,<br>2022		September 30,<br>2021
Return on average assets (annualized)	1.57	%	1.65	%	1.30	%	1.32	%	1.41	%	1.49	%	1.39	%
Return on average equity (annualized)	16.97	%	18.27	%	14.47	%	15.04	%	16.39	%	16.59	%	16.63	%
Return on average tangible common equity (annualized)	17.88	%	19.27	%	15.05	%	15.44	%	16.85	%	17.40	%	17.12	%
Efficiency ratio	58.46	%	64.47	%	65.55	%	61.92	%	65.68	%	62.61	%	64.02	%
Interest rate spread	3.65	%	3.51	%	3.22	%	3.21	%	3.27	%	3.46	%	3.29	%
Net interest margin	4.01	%	3.71	%	3.39	%	3.39	%	3.45	%	3.71	%	3.46	%
Average interest-earning assets to average interest-bearing liabilities	138.98	%	137.40	%	138.64	%	141.19	%	139.19	%	138.34	%	136.65	%

ASSET QUALITY RATIOS

(Unaudited)	As of
(Dollars in thousands)	September 30,<br>2022			June 30,<br>2022			March 31,<br>2022			December 31,<br>2021			September 30,<br>2021
Non-accrual loans and leases	$	3,645		$	5,585		$	5,617		$	6,358		$	7,433
Foreclosed properties	151			124			117			164			172
Total non-performing assets	3,796			5,709			5,734			6,522			7,605
Performing troubled debt restructurings	172			188			203			217			53
Total impaired assets	$	3,968		$	5,897		$	5,937		$	6,739		$	7,658
Non-accrual loans and leases as a percent of total gross loans and leases	0.16		%	0.24		%	0.25		%	0.28		%	0.35		%
Non-performing assets as a percent of total gross loans and leases plus foreclosed properties	0.16		%	0.25		%	0.25		%	0.29		%	0.36		%
Non-performing assets as a percent of total assets	0.13		%	0.21		%	0.21		%	0.25		%	0.29		%
Allowance for loan and lease losses as a percent of total gross loans and leases	1.04		%	1.05		%	1.05		%	1.09		%	1.16		%
Allowance for loan and lease losses as a percent of non-accrual loans and leases	662.36		%	431.58		%	421.38		%	382.76		%	331.98		%

ASSET QUALITY RATIOS - EXCLUDING NET PPP LOANS

(Unaudited)	As of
(Dollars in thousands)	September 30,<br>2022			June 30,<br>2022			March 31,<br>2022			December 31,<br>2021			September 30,<br>2021
Non-accrual loans and leases as a percent of total gross loans and leases	0.16		%	0.24		%	0.25		%	0.29		%	0.36		%
Non-performing assets as a percent of total gross loans and leases plus foreclosed properties	0.16		%	0.25		%	0.26		%	0.29		%	0.37		%
Non-performing assets as a percent of total assets	0.13		%	0.21		%	0.21		%	0.25		%	0.30		%
Allowance for loan and lease losses as a percent of total gross loans and leases	1.04		%	1.06		%	1.06		%	1.10		%	1.20		%
PPP loans outstanding, net	$	2,324		$	8,172		$	18,206		$	27,297		$	64,454

NET CHARGE-OFFS (RECOVERIES)

(Unaudited)	For the Three Months Ended															For the Nine Months Ended
(Dollars in thousands)	September 30,<br>2022			June 30,<br>2022			March 31,<br>2022			December 31,<br>2021			September 30,<br>2021			September 30,<br>2022			September 30,<br>2021
Charge-offs	$	54		$	85		$	22		$	106		$	364		$	161		$	3,402
Recoveries	(81)			(4,247)			(210)			(274)			(1,634)			(4,537)			(4,852)
Net (recoveries) charge-offs	$	(27)		$	(4,162)		$	(188)		$	(168)		$	(1,270)		$	(4,376)		$	(1,450)
Net (recoveries) charge-offs as a percent of average gross loans and leases (annualized)	—		%	(0.73)		%	(0.03)		%	(0.03)		%	(0.24)		%	(0.26)		%	(0.09)		%
Annualized (recoveries) charge-offs as a percent of average gross loans and leases, excluding average net PPP loans	—		%	(0.74)		%	(0.03)		%	(0.03)		%	(0.25)		%	(0.26)		%	(0.10)		%
Average PPP loans outstanding, net	$	4,505		$	11,650		$	20,935		$	52,923		$	87,517		$	12,303		$	185,742

CAPITAL RATIOS

	As of and for the Three Months Ended
(Unaudited)	September 30,<br>2022		June 30,<br>2022		March 31,<br>2022		December 31,<br>2021		September 30,<br>2021
Total capital to risk-weighted assets	11.66	%	11.56	%	11.87	%	10.82	%	11.14	%
Tier I capital to risk-weighted assets	9.48	%	9.34	%	9.27	%	8.94	%	9.14	%
Common equity tier I capital to risk-weighted assets	9.04	%	8.90	%	8.81	%	8.55	%	8.73	%
Tier I capital to adjusted assets	9.34	%	9.19	%	9.09	%	8.94	%	8.69	%
Tangible common equity to tangible assets	8.06	%	8.16	%	8.14	%	8.34	%	8.28	%
Tangible common equity to tangible assets, excluding net PPP loans	8.07	%	8.19	%	8.20	%	8.42	%	8.50	%

LOAN AND LEASE RECEIVABLE COMPOSITION

(Unaudited)	As of
(in thousands)	September 30,<br>2022		June 30,<br>2022		March 31,<br>2022		December 31,<br>2021		September 30,<br>2021
Commercial real estate:
Commercial real estate - owner occupied	$	265,989	$	258,375	$	254,237	$	235,589	$	241,977
Commercial real estate - non-owner occupied	657,975		651,920		656,185		661,423		639,423
Land development	49,458		42,545		40,092		42,792		39,119
Construction	162,051		203,913		200,472		179,841		139,933
Multi-family	332,782		314,392		302,494		320,072		313,787
1-4 family	16,678		17,335		16,198		14,911		13,487
Total commercial real estate	1,484,933		1,488,480		1,469,678		1,454,628		1,387,726
Commercial and industrial	788,983		741,363		720,695		730,819		681,065
Direct financing leases, net	11,109		13,718		14,551		15,743		16,810
Consumer and other:
Home equity and second mortgages	5,413		5,132		4,523		4,223		4,576
Other	40,710		42,387		43,066		35,518		35,645
Total consumer and other	46,123		47,519		47,589		39,741		40,221
Total gross loans and leases receivable	2,331,148		2,291,080		2,252,513		2,240,931		2,125,822
Less:
Allowance for loan and lease losses	24,143		24,104		23,669		24,336		24,676
Deferred loan fees	448		980		1,264		1,523		2,516
Loans and leases receivable, net	$	2,306,557	$	2,265,996	$	2,227,580	$	2,215,072	$	2,098,630

DEPOSIT COMPOSITION

(Unaudited)	As of
(in thousands)	September 30,<br>2022		June 30,<br>2022		March 31,<br>2022		December 31,<br>2021		September 30,<br>2021
Non-interest-bearing transaction accounts	$	564,141	$	544,507	$	600,987	$	589,559	$	526,047
Interest-bearing transaction accounts	461,883		466,785		539,492		530,225		517,248
Money market accounts	742,545		731,718		806,917		754,410		728,751
Certificates of deposit	160,655		114,000		63,977		54,091		57,598
Wholesale deposits	158,321		12,321		12,321		29,638		74,638
Total deposits	$	2,087,545	$	1,869,331	$	2,023,694	$	1,957,923	$	1,904,282

TRUST ASSETS COMPOSITION

(Unaudited)	As of
(in thousands)	September 30,<br>2022		June 30,<br>2022		March 31,<br>2022		December 31,<br>2021		September 30,<br>2021
Trust assets under management	$	2,332,448	$	2,386,637	$	2,636,896	$	2,711,760	$	2,545,089
Trust assets under administration	160,171		167,095		197,160		208,954		202,657
Total trust assets	$	2,492,619	$	2,553,732	$	2,834,056	$	2,920,714	$	2,747,746

NON-GAAP RECONCILIATIONS

Certain financial information provided in this release is determined by methods other than in accordance with generally accepted accounting principles (United States) (“GAAP”). Although the Company’s management believes that these non-GAAP financial measures provide a greater understanding of its business, these measures are not necessarily comparable to similar measures that may be presented by other companies.

TANGIBLE BOOK VALUE

“Tangible book value per share” is a non-GAAP measure representing tangible common equity divided by total common shares outstanding. “Tangible common equity” itself is a non-GAAP measure representing common stockholders’ equity reduced by intangible assets, if any. The Company’s management believes that this measure is important to many investors in the marketplace who are interested in period-to-period changes in book value per common share exclusive of changes in intangible assets. The information provided below reconciles tangible book value per share and tangible common equity to their most comparable GAAP measures.

(Unaudited)	As of
(Dollars in thousands, except per share amounts)	September 30,<br>2022		June 30,<br>2022		March 31,<br>2022		December 31,<br>2021		September 30,<br>2021
Common stockholders’ equity	$	241,012	$	237,931	$	233,059	$	232,422	$	225,280
Goodwill and other intangible assets	(12,218)		(12,262)		(12,184)		(12,268)		(12,229)
Tangible common equity	$	228,794	$	225,669	$	220,875	$	220,154	$	213,051
Common shares outstanding	8,432,048		8,474,699		8,488,585		8,457,564		8,483,099
Book value per share	$	28.58	$	28.08	$	27.46	$	27.48	$	26.56
Tangible book value per share	27.13		26.63		26.02		26.03		25.11

TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS

“Tangible common equity to tangible assets” is defined as the ratio of common stockholders’ equity reduced by intangible assets, if any, divided by total assets reduced by intangible assets, if any. The Company’s management believes that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period in common equity and total assets, each exclusive of changes in intangible assets. The information below reconciles tangible common equity and tangible assets to their most comparable GAAP measures.

(Unaudited)	As of
(Dollars in thousands)	September 30,<br>2022			June 30,<br>2022			March 31,<br>2022			December 31,<br>2021			September 30,<br>2021
Common stockholders’ equity	$	241,012		$	237,931		$	233,059		$	232,422		$	225,280
Goodwill and other intangible assets	(12,218)			(12,262)			(12,184)			(12,268)			(12,229)
Tangible common equity	$	228,794		$	225,669		$	220,875		$	220,154		$	213,051
Total assets	$	2,850,802		$	2,777,016		$	2,724,082		$	2,652,905		$	2,584,410
Goodwill and other intangible assets	(12,218)			(12,262)			(12,184)			(12,268)			(12,229)
Tangible assets	$	2,838,584		$	2,764,754		$	2,711,898		$	2,640,637		$	2,572,181
Tangible common equity to tangible assets	8.06		%	8.16		%	8.14		%	8.34		%	8.28		%
Period-end net PPP loans	2,324			8,172			18,206			27,297			64,454
Tangible assets, excluding net PPP loans	$	2,836,260		$	2,756,582		$	2,693,692		$	2,613,340		$	2,507,727
Tangible common equity to tangible assets, excluding net PPP loans	8.07		%	8.19		%	8.20		%	8.42		%	8.50		%

RETURN ON AVERAGE TANGIBLE COMMON EQUITY

“Return on average tangible common equity” is defined as net income less earnings allocated to participating shares and preferred stock dividends, if any, divided by average equity reduced by intangible assets and average preferred stock, if any. The Company’s management believes that this measure is important to many investors in the marketplace who are interested in the relative changes from period-to-period in earnings allocated to common shareholders and average tangible equity, each exclusive of changes in intangible assets and preferred stock. The information below reconciles net income allocated to Common Shares and average tangible common equity to their most comparable GAAP measures.

(Unaudited)	For the Three Months Ended															For the Nine Months Ended
(Dollars in thousands)	September 30,<br>2022			June 30,<br>2022			March 31,<br>2022			December 31,<br>2021			September 30,<br>2021			September 30,<br>2022			September 30,<br>2021
Net income	$	10,826		$	11,204		$	8,672		$	8,591		$	9,198		$	30,702		$	27,165
Earnings allocated to participating shares	(281)			(310)			(255)			(245)			(252)			(834)			(744)
Preferred Dividends	(218)			(246)			—			—			—			(464)			—
Net income allocated to Common Shares	$	10,327		$	10,648		$	8,417		$	8,346		$	8,946		$	29,404		$	26,421
Average Equity	$	255,231		$	245,283		$	239,651		$	228,427		$	224,489		$	246,779		$	217,843
Average preferred stock	(11,992)			(11,992)			(3,731)			—			—			(9,269)			—
Goodwill and other intangible assets	(12,218)			(12,210)			(12,240)			(12,248)			(12,180)			(12,237)			(12,130)
Average tangible common equity	$	231,021		$	221,081		$	223,680		$	216,179		$	212,309		$	225,273		$	205,713
Return on average tangible common equity (annualized)	17.88		%	19.27		%	15.05		%	15.44		%	16.85		%	17.40		%	17.12		%

EFFICIENCY RATIO & PRE-TAX, PRE-PROVISION ADJUSTED EARNINGS

“Efficiency ratio” is a non-GAAP measure representing non-interest expense excluding the effects of the SBA recourse provision, impairment of tax credit investments, losses or gains on foreclosed properties, amortization of other intangible assets and other discrete items, if any, divided by operating revenue, which is equal to net interest income plus non-interest income less realized gains or losses on securities, if any. “Pre-tax, pre-provision adjusted earnings” is defined as operating revenue less operating expense. In the judgment of the Company’s management, the adjustments made to non-interest expense and non-interest income allow investors and analysts to better assess the Company’s operating expenses in relation to its core operating revenue by removing the volatility that is associated with certain one-time items and other discrete items. The information provided below reconciles the efficiency ratio and pre-tax, pre-provision adjusted earnings to its most comparable GAAP measure.

(Unaudited)	For the Three Months Ended															For the Nine Months Ended
(Dollars in thousands)	September 30,<br>2022			June 30,<br>2022			March 31,<br>2022			December 31,<br>2021			September 30,<br>2021			September 30,<br>2022			September 30,<br>2021
Total non-interest expense	$	20,028		$	19,456		$	18,823		$	17,531		$	18,490		$	58,307		$	54,003
Less:
Net loss on foreclosed properties	7			8			12			7			6			27			7
Amortization of other intangible assets	—			—			—			2			7			—			23
SBA recourse provision (benefit)	96			114			(76)			(122)			(69)			134			45
Tax credit investment impairment recovery	—			(351)			—			—			—			(351)			—
Total operating expense (a)	$	19,925		$	19,685		$	18,887		$	17,644		$	18,546		$	58,497		$	53,928
Net interest income	$	25,884		$	23,660		$	21,426		$	20,924		$	21,223		$	70,971		$	63,738
Total non-interest income	8,197			6,872			7,386			7,569			7,015			22,455			20,531
Less:
Net gain on sale of securities	—			—			—			—			—			—			29
Adjusted non-interest income	8,197			6,872			7,386			7,569			7,015			22,455			20,502
Total operating revenue (b)	$	34,081		$	30,532		$	28,812		$	28,493		$	28,238		$	93,426		$	84,240
Efficiency ratio	58.46		%	64.47		%	65.55		%	61.92		%	65.68		%	62.61		%	64.02		%
Pre-tax, pre-provision adjusted earnings (b - a)	$	14,156		$	10,847		$	9,925		$	10,849		$	9,692		$	34,929		$	30,312
Less:
PPP fee income	61			196			249			892			1,666			506			6,419
PPP loan interest income	11			29			52			134			221			92			1,391
Pre-tax, pre-provision adjusted earnings, excluding PPP	$	14,084		$	10,622		$	9,624		$	9,823		$	7,805		$	34,331		$	22,502
Average total assets	$	2,758,961		$	2,716,707		$	2,666,241		$	2,612,905		$	2,608,198		$	2,714,309		$	2,602,347
Less:
Average net PPP loans	4,505			11,650			20,935			52,923			87,517			12,303			185,742
Adjusted average total assets	$	2,754,456		$	2,705,057		$	2,645,306		$	2,559,982		$	2,520,681		$	2,702,006		$	2,416,605
Pre-tax, pre-provision adjusted return on average assets	2.05		%	1.60		%	1.49		%	1.66		%	1.49		%	1.72		%	1.55		%
Pre-tax, pre-provision adjusted return on average assets, excluding PPP	2.05		%	1.57		%	1.46		%	1.53		%	1.24		%	1.69		%	1.24		%

ADJUSTED NET INTEREST MARGIN

“Adjusted Net Interest Margin” is a non-GAAP measure representing net interest income excluding the fees in lieu of interest and other recurring, but volatile, components of net interest margin divided by average interest-earning assets less average net PPP loans, if any, and other recurring, but volatile, components of average interest-earning assets. Fees in lieu of interest are defined as prepayment fees, asset-based loan fees, non-accrual interest, and loan fee amortization. In the judgment of the Company’s management, the adjustments made to net interest income allow investors and analysts to better assess the Company’s net interest income in relation to its core client-facing loan and deposit rate changes by removing the volatility that is associated with these recurring but volatile components. The information provided below reconciles the net interest margin to its most comparable GAAP measure.

(Unaudited)	For the Three Months Ended															For the Nine Months Ended
(Dollars in thousands)	September 30,<br>2022			June 30,<br>2022			March 31,<br>2022			December 31,<br>2021			September 30,<br>2021			September 30,<br>2022			September 30,<br>2021
Interest income	$	31,786		$	27,031		$	24,235		$	23,576		$	24,014		$	83,053		$	72,420
Interest expense	5,902			3,371			2,809			2,652			2,791			12,082			8,682
Net interest income (a)	25,884			23,660			21,426			20,924			21,223			70,971			63,738
Less:
Fees in lieu of interest	807			1,865			1,293			1,700			2,839			3,962			9,459
PPP loan interest income	11			29			52			134			221			92			1,391
FRB interest income and FHLB dividend income	445			279			188			179			212			913			563
Adjusted net interest income (b)	$	24,621		$	21,487		$	19,893		$	18,911		$	17,951		$	66,004		$	52,325
Average interest-earning assets (c)	$	2,582,945		$	2,551,180		$	2,525,272		$	2,472,013		$	2,460,567		$	2,553,343		$	2,456,633
Less:
Average net PPP loans	4,505			11,650			20,935			52,923			87,517			12,303			185,741
Average FRB cash and FHLB stock	45,351			46,334			44,577			71,939			129,469			45,423			78,545
Average non-accrual loans and leases	4,416			5,429			6,195			6,796			11,298			5,532			16,657
Adjusted average interest-earning assets (d)	$	2,528,673		$	2,487,767		$	2,453,565		$	2,340,355		$	2,232,283		$	2,490,085		$	2,175,690
Net interest margin (a / c)	4.01		%	3.71		%	3.39		%	3.39		%	3.45		%	3.71		%	3.46		%
Adjusted net interest margin (b / d)	3.89		%	3.45		%	3.24		%	3.23		%	3.22		%	3.53		%	3.21		%

19