Document

Exhibit 99.1

[FOR IMMEDIATE RELEASE]

First Business Financial Services, Inc.

401 Charmany Drive

Madison, WI 53719

FIRST BUSINESS BANK REPORTS STRONG THIRD QUARTER 2021 NET INCOME OF $9.2 MILLION

-- Continuation of positive trends including top line revenue growth, organic loan growth, and superior asset quality --

MADISON, Wis., October 28, 2021 (BUSINESS WIRE) -- First Business Financial Services, Inc. (the “Company”, the “Bank”, or “First Business Bank”) (Nasdaq:FBIZ) reported net income of $9.2 million, or $1.07 diluted earnings per share, in the third quarter 2021. Third quarter net income grew by 11.7% from $8.2 million, or $0.95 per share, in the second quarter of 2021 and more than doubled from $4.3 million, or $0.50, in the third quarter of 2020.

“First Business Bank’s excellent third quarter results include profitable top line revenue growth illustrating the strength and diversification of our fee generating businesses, net interest margin stability, and our team’s ability to organically grow commercial loans,” President and Chief Executive Officer Corey Chambas said. “Excluding PPP loans, we achieved another quarter of solid loan growth and our record pipelines continue to support our expectation for double-digit organic loan growth for full-year 2021 and 2022. As expected, our discipline around credit resulted in further improvement to our asset quality metrics, with nonperforming assets declining to just 0.29% of total assets, the lowest level since 2006. Our results were further supported by a loan loss provision benefit in the third quarter and, based on current economic trends, we continue to expect no meaningful provision in the fourth quarter and anticipate continued opportunities to release reserves in 2022.”

Quarterly Highlights

•Continued Loan Growth. Loans, excluding Paycheck Protection Program (“PPP”) loans, grew $36.0 million, or 7.1% annualized, from the second quarter of 2021 and $214.0 million, or 11.6%, from the third quarter of 2020, as the Company continued to expand specialized lending offerings for commercial clients and focus on growing our businesses across all products and geographies.

•Sustained Strong Revenue Growth. Driven by net interest margin stability and fee income growth, top line revenue, the sum of net interest income and non-interest income, grew to $28.2 million, up 8.5% from the third quarter of 2020. Third quarter 2021 non-interest income continued to reflect the strength and diversity of our fee income sources, including record revenue from private wealth management of $2.8 million on $2.7 billion in assets under management and administration for the period.

•Positive Asset Quality Trends. Non-performing assets (“NPAs”) declined 34.4% to $7.6 million, or 0.29% of total assets, marking the fourth consecutive quarterly reduction of more than 25%. NPAs made up 0.30% of total assets, excluding net PPP loans, improving by 12 and 131 basis points from June 30, 2021 and September 30, 2020, respectively.

•Compounding Tangible Book Value. Tangible Book Value (“TBV”) per share grew by 14% annualized in the quarter to $25.11, which is nearly double the long-term growth rate of 8%.

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, 2021			June 30, 2021			September 30, 2020			September 30, 2021			September 30, 2020
Net interest income	$	21,223		$	21,652		$	18,621		$	63,738		$	54,558
Adjusted non-interest income (1)	7,015			6,292			7,408			20,502			20,145
Operating revenue (1)	28,238			27,944			26,029			84,240			74,703
Operating expense (1)	18,546			17,932			16,700			53,928			48,026
Pre-tax, pre-provision adjusted earnings (1)	9,692			10,012			9,329			30,312			26,677
Less:
Provision for loan and lease losses	(2,269)			(958)			3,835			(5,295)			12,487
Net loss (gain) on foreclosed properties	6			(1)			(121)			7			329
Amortization of other intangible assets	7			8			9			23			27
SBA recourse (benefit) provision	(69)			245			57			45			53
Impairment on tax credit investments	—			—			113			—			2,066
Loss on early extinguishment of debt	—			—			—			—			744
Add:
Net gain (loss) on sale of securities	—			29			—			29			(4)
Income before income tax expense	12,017			10,747			5,436			35,561			10,967
Income tax expense	2,819			2,512			1,143			8,396			73
Net income	$	9,198		$	8,235		$	4,293		$	27,165		$	10,894
Earnings per share, diluted	$	1.07		$	0.95		$	0.50		$	3.15		$	1.27
Book value per share	$	26.56		$	25.70		$	23.45		$	26.56		$	23.45
Tangible book value per share (1)	$	25.11		$	24.28		$	22.05		$	25.11		$	22.05

Net interest margin (2)	3.45		%	3.49		%	3.14		%	3.46		%	3.30		%
Adjusted net interest margin (1)(2)	3.22		%	3.20		%	3.24		%	3.21		%	3.29		%
Efficiency ratio (1)	65.68		%	64.17		%	64.16		%	64.02		%	64.29		%
Return on average assets (2)	1.41		%	1.26		%	0.68		%	1.39		%	0.62		%
Pre-tax, pre-provision adjusted return on average assets (1)(2)	1.49		%	1.53		%	1.47		%	1.55		%	1.51		%
Return on average equity (2)	16.39		%	15.09		%	8.58		%	16.63		%	7.49		%

Period-end loans and leases receivable	$	2,123,306		$	2,143,561		$	2,170,299		$	2,123,306		$	2,170,299
Period-end loans and leases receivable, excluding net PPP loans	$	2,058,852		$	2,022,839		$	1,844,818		$	2,058,852		$	1,844,818
Average loans and leases receivable	$	2,131,099		$	2,223,353		$	2,139,439		$	2,178,947		$	1,952,785
Period-end in-market deposits	$	1,829,644		$	2,016,215		$	1,667,245		$	1,829,644		$	1,667,245
Average in-market deposits	$	1,810,948		$	1,735,393		$	1,644,704		$	1,756,475		$	1,527,561
Allowance for loan and lease losses	$	24,676		$	25,675		$	30,817		$	24,676		$	30,817
Non-performing assets	$	7,605		$	11,601		$	36,663		$	7,605		$	36,663
Allowance for loan and lease losses as a percent of total gross loans and leases	1.16		%	1.20		%	1.41		%	1.16		%	1.41		%
Allowance for loan and lease losses as a percent of total gross loans and leases, excluding net PPP loans	1.20		%	1.27		%	1.67		%	1.20		%	1.67		%
Non-performing assets as a percent of total assets	0.29		%	0.40		%	1.41		%	0.29		%	1.41		%
Non-performing assets as a percent of total assets, excluding net PPP loans	0.30		%	0.42		%	1.61		%	0.30		%	1.61		%

(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 2021 Compared to Second Quarter 2021

Net interest income decreased $429,000, or 2.0%, to $21.2 million.

•Net interest income decreased primarily due to a reduction in fees in lieu of interest. Fees in lieu of interest, which can vary from quarter to quarter based on client-driven activity, totaled $2.8 million, compared to $3.5 million. Excluding fees in lieu of interest, net interest income increased $268,000, or 1.5%.

•Average loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $49.4 million, or 9.9% annualized, to $2.044 billion.

•The yield on average interest-earning assets decreased six basis points to 3.90% from 3.96%. Excluding average net PPP loans, the PPP loan interest income of $221,000, and the aforementioned fees in lieu of interest, the yield earned on average interest-earning assets decreased 11 basis points to 3.53% from 3.64%. The rate paid for average total bank funding decreased three basis point to 0.36% from 0.39%. Total bank funding is defined as total deposits plus Federal Home Loan Bank (“FHLB”) advances, and Federal Reserve Discount Window advances.

•Net interest margin decreased four basis points to 3.45% from 3.49%. Adjusted net interest margin was 3.22%, compared to 3.20% in the linked quarter. 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 such as excess liquidity and non-accrual loans.

The Company reported a net benefit to provision for loan and lease losses of $2.3 million, compared to a net benefit of $1.0 million in the second quarter.

•The decrease in the provision for loan and lease losses was primarily due to a $923,000 reduction in the general reserve from improving historical loss rates, $1.3 million in net recoveries, and a $451,000 decrease in specific reserves. These decreases were partially offset by a $426,000 increase in the general reserve due to loan growth.

Non-interest income increased $694,000, or 11.0%, to $7.0 million.

•Private wealth management fee income increased $15,000, or 0.5% to $2.8 million. Private wealth and trust assets under management and administration measured a record $2.694 billion at September 30, 2021, up $129.8 million, or 20.2% annualized, primarily due to growth from new and existing clients.

•Gains on sale of SBA loans decreased $482,000 to $721,000. Management expects this revenue stream to return to levels consistent with the first half of the year in the coming quarters and continues to believe gains on sale of traditional SBA loans (i.e., SBA loans unrelated to PPP loans), while variable based on timing of closings, will continue to increase annually at a measured pace.

•During the third and second quarters of 2021 there was no commercial loan interest rate swap fee income. Swap fee income can vary from period to period based on client demand and the interest rate environment in any given quarter. Subsequent to September 30, 2021, the Company completed two commercial loan interest rate swap transactions which generated swap fees totaling $684,000.

•Other fee income increased $1.0 million to $1.9 million, compared to $835,000 in the second quarter, reflecting higher than typical returns from the Company’s investments in mezzanine funds.

Non-interest expense increased $306,000, or 1.7%, to $18.5 million. Operating expense increased $614,000, or 3.4%, to $18.5 million.

•Compensation expense, the largest component of the Company’s non-interest expense, increased $96,000, or 0.7%, to $13.4 million, primarily for performance-based incentive compensation accruals reflecting strong company performance relative to bonus criteria.

•Other non-interest expense increased $543,000 to $719,000. Other non-interest expense for the second quarter of 2021 included a $206,000 and $78,000 benefit in the Company’s swap credit valuation and loan servicing impairment valuation, respectively. The remaining variance was generally attributable to higher travel costs.

Total period-end loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $36.0 million, or 7.1% annualized, to $2.059 billion.

•Commercial and industrial (“C&I”) loans, excluding net PPP loans, increased $41.9 million, or 29.2% annualized, led by First Business Bank’s specialized lending commercial business lines. Management believes the timely prior-period investments in our specialized lending business lines, such as dealer floorplan financing, small-ticket equipment vendor financing, and accounts receivable financing, have positioned C&I lending to increase throughout the current economic cycle.

•Commercial real estate (“CRE”) loans decreased by $4.3 million to $1.388 billion, compared to $1.392 billion, as new production was offset by payoffs and paydowns.

Total period-end in-market deposits decreased $186.6 million to $1.830 billion, compared to $2.016 billion, and the average rate paid decreased one basis point to 0.14%.

•As previously disclosed, in-market deposits on June 30, 2021 included a temporary balance associated with the proceeds of a commercial client’s business sale late in the second quarter, the majority of which was moved off the balance sheet in early July. Excluding this temporary deposit, total period-end in-market deposits increased by $38.4 million, or 8.6% annualized.

•Excluding the temporary deposit, money market accounts, interest-bearing transaction accounts, and certificates of deposit increased $43.6 million, $5.6 million, and $12.5 million, respectively, while non-interest bearing transaction accounts decreased $23.2 million.

Period-end wholesale funding, including FHLB advances, Federal Reserve Discount Window advances, brokered deposits, and deposits gathered through internet deposit listing services, decreased $99.9 million to $432.4 million.

•Wholesale deposits decreased $69.9 million to $74.6 million. The average rate paid on wholesale deposits increased 18 basis points to 0.92% and the weighted average original maturity of brokered certificates of deposit increased to 3.7 years from 3.5 years.

•FHLB advances decreased $30.0 million to $357.8 million. The average rate paid on FHLB advances increased two basis points to 1.29% and the weighted average original maturity increased to 6.2 years from 6.1 years.

Non-performing assets decreased $4.0 million, or 34.4%, to $7.6 million, or 0.29% of total assets, compared to $11.6 million, or 0.40% of total assets. The reduction in non-performing assets was due to loan payoffs. Excluding net PPP loans, non-performing assets were 0.30% of total assets as of September 30, 2021, compared to 0.42% as of June 30, 2021.

The allowance for loan and lease losses decreased $1.0 million, or 3.9%, as an increase in the general reserve from loan growth was more than offset by a decrease in the historical loss rate and reduction in specific reserves.

•The allowance for loan and lease losses as a percent of total gross loans and leases was 1.16% compared to 1.20% as of June 30, 2021.

•Excluding net PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.20%, compared to 1.27% as of June 30, 2021.

Third Quarter 2021 Compared to Third Quarter 2020

Net interest income increased $2.6 million, or 14.0%, to $21.2 million.

•The increase in net interest income reflects expanded yields on average gross loans and leases, which were relatively consistent between periods, and lower deposit costs. Excluding fees collected in lieu of interest and interest income from PPP loans, net interest income increased $1.9 million, or 11.4%. Excluding net PPP loans, average gross loans and leases increased $227.2 million, or 12.5%.

•The yield on average interest-earning assets measured 3.90% compared to 3.75%. Excluding fees collected in lieu of interest, PPP loan interest income and net PPP loans, the yield on average interest-earning assets measured 3.53%, compared to 3.89%. This decrease in yield was primarily due to the decrease in LIBOR and Prime rates and related impact on variable-rate loans, in addition to the renewal of fixed-rate loans and reinvestment of cash flows from the securities portfolio at historically low interest rates. The rate paid for average total bank funding decreased 18 basis points to 0.36% from 0.54%.

•Net interest margin increased 31 basis points to 3.45% from 3.14%. Adjusted net interest margin decreased 2 basis points to 3.22% from 3.24%.

The Company reported a net benefit to provision for loan and lease losses of $2.3 million, compared to a $3.8 million expense in the third quarter of 2020.

Non-interest income of $7.0 million compares to $7.4 million in the prior year period.

•Private wealth management fee income increased $592,000, or 27.3%, to $2.8 million. Private wealth and trust assets under management and administration measured a record $2.694 billion at September 30, 2021, up $676.6 million, or 33.5%.

•Loan fees of $713,000 increased by $235,000, or 49.2%, primarily due to an increase in floorplan financing curtailment fees and miscellaneous asset-based lending fees.

•Gains on sale of SBA loans decreased $39,000 to $721,000. Management expects this revenue stream to return to levels consistent with the first half of the year in the coming quarters and continues to believe gains on sale of traditional SBA loans (i.e., SBA loans unrelated to PPP loans), while variable based on timing of closings, will continue to increase annually at a measured pace.

•During the third quarter of 2021, there was no commercial loan interest rate swap fee income activity, compared to $2.4 million in the year-ago period. Swap fee income can vary from period to period based on client demand and the interest rate environment in any given quarter.

•Other fee income increased $1.2 million, or 176.0%, to $1.9 million compared to $676,000, reflecting higher than typical returns from the Company’s investments in mezzanine funds in the third quarter of 2021.

Non-interest expense increased $1.7 million, or 10.3%, to $18.5 million. Operating expense increased $1.8 million, or 11.1%, to $18.5 million.

•Compensation expense increased $1.5 million, or 12.6%, to $13.4 million. The increase resulted from new hires and an increase in performance-based incentive compensation accruals reflecting strong company performance relative to bonus criteria.. Average full-time equivalent employees increased to 311, up 5.4% for the quarter ended September 30, 2021, compared to 295 for the quarter ended September 30, 2020.

Total period-end loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $214.0 million, or 11.6%, to $2.059 billion.

•C&I loans, excluding net PPP loans, increased $151.7 million, or 32.6%.

•CRE loans increased $61.2 million, or 4.6%, as increases in the non-owner occupied and multi-family portfolios were partially offset by reductions in the land development and 1-4 family portfolios.

Total period-end in-market deposits increased $162.4 million, or 9.7%, to $1.830 billion and the average rate paid decreased 13 basis points to 0.14%.

•Transaction and money market accounts increased $106.3 million and $91.9 million, respectively, while certificates of deposits decreased $35.7 million.

Period-end wholesale funding decreased $180.8 million to $432.4 million.

•Wholesale deposits decreased $79.5 million to $74.6 million, compared to $154.1 million, as the existing portfolio runoff was replaced by in-market deposits. The average rate paid on brokered certificates of deposit decreased 41 basis points to 0.92% and the weighted average original maturity decreased to 3.7 years from 4.3 years.

•FHLB advances decreased $71.7 million to $357.8 million. The average rate paid on FHLB advances increased 14 basis points to 1.29% and the weighted average original maturity increased to 6.2 years from 5.1 years.

Non-performing assets decreased to $7.6 million, or 0.29% of total assets, compared to $36.7 million, or 1.41% of total assets. Excluding net PPP loans, non-performing assets were 0.30% of total assets as of September 30, 2021 compared to 1.61% one year prior.

The allowance for loan and lease losses decreased $6.1 million to $24.7 million, compared to $30.8 million.

•The allowance for loan and lease losses as a percent of total gross loans and leases was 1.16% compared to 1.41%.

•Excluding net PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.20% as of September 30, 2021 compared to 1.67% one year prior.

COVID-19 Update

In the second quarter of 2021, the Company communicated return to office plans to employees. Based on the national and local guidelines, the Company developed a phased-in approach for returning to the office. Under this phased-in approach, more employees returned to the office in early June 2021. The return to office included enhanced safety protocols and processes to provide the best working environment possible for employees. In addition, the Company has adopted workplace flexibility strategies in response to ever-changing circumstances and expectations. Remote, hybrid and hoteling options are available for most positions. These options cultivate a more flexible work environment that is very attractive to our employees.

Paycheck Protection Program

As of September 30, 2021, the Company had $65.9 million in gross PPP loans outstanding and deferred processing fees outstanding of $1.4 million. 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 and nine months ended

September 30, 2021, the Company recognized $1.7 million and $6.4 million, respectively, of processing fees in loans and leases interest income in the unaudited Consolidated Statements of Income. The SBA provides a guaranty to the lender of 100% of principal and interest, unless the lender violated an obligation under the agreement. Since loan losses are expected to be immaterial, if at all due to the government guarantee, management excluded the PPP loans from the allowance for loan and lease losses calculation. These short-term loans were funded primarily through a combination of excess cash held at the Federal Reserve and from an increase in in-market deposits.

Deferral Requests

The Company provided loan modifications deferring payments for certain borrowers impacted by COVID-19 who were current in their payments at the inception of the Company’s loan modification program. Excluding gross PPP loans, as of September 30, 2021, the Company had five deferred loans outstanding in an aggregate amount of $24.1 million, or 1.2% of gross loans and leases, compared to $131.5 million, or 7.2% of gross loans and leases as of September 30, 2020. Of the $24.1 million of deferred loans outstanding, $23.5 million is related to three hospitality credits which received principal deferrals and are accruing and current on interest payments. Management believes there will be no losses associated with these credits.

The following tables represent a breakdown of the deferred loan balances by industry segment and collateral type:


	As of
	September 30, 2021
			Collateral Type
Industries Description	Balance		Real Estate		Non-Real Estate
	(In thousands)
Accommodation and Food Services	$	23,521	$	23,521	$	—
Manufacturing	428		—		428
Retail Trade	115		—		115
Total deferred loan balances	$	24,064	$	23,521	$	543

Exposure to Stressed Industries

Certain industries have been and are expected to be particularly impacted by social distancing, quarantines, and the economic impact of the COVID-19 pandemic, such as the following:


	As of
	September 30, 2021				December 31, 2020
Industries:	Balance		% Gross Loans and Leases (1)		Balance		% Gross Loans and Leases (1)
	(Dollars in Thousands)
Retail (2) (3)	$	76,635	3.7	%	$	62,719	3.3	%
Hospitality	77,286		3.7	%	80,832		4.2	%
Entertainment	13,533		0.7	%	14,208		0.7	%
Restaurants & food service	22,393		1.1	%	24,854		1.3	%
Total outstanding exposure	$	189,847	9.2	%	$	182,613	9.5	%

(1)Excluding net PPP loans.

(2)Includes $39.6 million and $48.9 million in loans secured by commercial real estate as of September 30, 2021 and December 31, 2020, respectively.

(3)Includes $23.2 million and $7.7 million in fully collateralized asset-based loans as of September 30, 2021 and December 31, 2020, respectively.

Because of the uncertainties related to the ultimate duration of the COVID-19 pandemic and its effects on our clients and prospects, and on the national and local economies as a whole, there can be no assurances as to the future effect of the ongoing pandemic on the Company’s loan portfolio.

Share Repurchase Program Update

During the third quarter the Company repurchased a total of 129,600 shares for approximately $3.5 million at an average cost of $27.40 per share. The Company had $717,000 of repurchase authority as of September 30, 2021 remaining in its previously disclosed share repurchase program.

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 www.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, the adverse effects of the COVID-19 pandemic on the global, national, and local economy.

•The effect of the COVID-19 pandemic on the Company’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 service, administrative infrastructure, and internal management systems.

•Fluctuations in interest rates and market prices.

•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 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, 2020 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, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020
Assets
Cash and cash equivalents	$	110,624	$	389,977	$	58,874	$	56,909	$	51,728
Securities available-for-sale, at fair value	194,056		171,219		173,261		183,925		179,274
Securities held-to-maturity, at amortized cost	21,196		22,382		24,783		26,374		28,897
Loans held for sale	5,603		6,059		6,576		8,695		15,049
Loans and leases receivable	2,123,306		2,143,561		2,235,112		2,145,970		2,170,299
Allowance for loan and lease losses	(24,676)		(25,675)		(28,982)		(28,521)		(30,817)
Loans and leases receivable, net	2,098,630		2,117,886		2,206,130		2,117,449		2,139,482
Premises and equipment, net	1,700		1,747		1,923		1,998		2,130
Foreclosed properties	172		179		31		34		613
Right-of-use assets	5,263		5,472		5,486		5,814		6,141
Bank-owned life insurance	53,244		52,887		52,537		52,188		51,798
Federal Home Loan Bank stock, at cost	12,351		13,451		14,941		13,578		15,153
Goodwill and other intangible assets	12,229		12,178		12,055		12,018		12,024
Derivatives	28,678		32,377		26,104		49,377		58,210
Accrued interest receivable and other assets	40,664		39,855		38,017		39,478		41,348
Total assets	$	2,584,410	$	2,865,669	$	2,620,718	$	2,567,837	$	2,601,847
Liabilities and Stockholders’ Equity
In-market deposits	$	1,829,644	$	2,016,215	$	1,737,226	$	1,683,008	$	1,667,245
Wholesale deposits	74,638		144,492		165,492		172,508		154,130
Total deposits	1,904,282		2,160,707		1,902,718		1,855,516		1,821,375
Federal Home Loan Bank advances and other borrowings	394,090		420,113		448,417		419,167		483,517
Junior subordinated notes	10,072		10,069		10,065		10,062		10,058
Lease liabilities	5,780		6,005		6,040		6,386		6,728
Derivatives	31,890		36,109		29,565		54,927		64,403
Accrued interest payable and other liabilities	13,016		11,214		9,422		15,617		14,981
Total liabilities	2,359,130		2,644,217		2,406,227		2,361,675		2,401,062
Total stockholders’ equity	225,280		221,452		214,491		206,162		200,785
Total liabilities and stockholders’ equity	$	2,584,410	$	2,865,669	$	2,620,718	$	2,567,837	$	2,601,847

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, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020		September 30, 2021		September 30, 2020
Total interest income	$	24,014	$	24,599	$	23,806	$	25,770	$	22,276	$	72,420	$	68,408
Total interest expense	2,791		2,947		2,943		3,258		3,655		8,682		13,850
Net interest income	21,223		21,652		20,863		22,512		18,621		63,738		54,558
Provision for loan and lease losses	(2,269)		(958)		(2,068)		4,322		3,835		(5,295)		12,487
Net interest income after provision for loan and lease losses	23,492		22,610		22,931		18,190		14,786		69,033		42,071
Private wealth management service fees	2,759		2,744		2,407		2,208		2,167		7,910		6,402
Gain on sale of SBA loans	721		1,203		1,078		1,300		760		3,002		1,598
Service charges on deposits	956		941		917		887		881		2,814		2,527
Loan fees	713		569		545		412		478		1,828		1,414
Net gain (loss) on sale of securities	—		29		—		—		—		29		(4)
Swap fees	—		—		684		1,078		2,446		684		5,782
Other non-interest income	1,866		835		1,564		914		676		4,264		2,422
Total non-interest income	7,015		6,321		7,195		6,799		7,408		20,531		20,141
Compensation	13,351		13,255		12,657		12,145		11,857		39,263		33,705
Occupancy	544		533		552		556		570		1,628		1,696
Professional fees	1,024		913		866		909		943		2,803		2,621
Data processing	746		798		770		668		679		2,315		2,066
Marketing	572		511		391		411		356		1,474		1,169
Equipment	260		261		246		294		310		767		905
Computer software	999		1,129		1,115		1,028		1,017		3,244		2,873
FDIC insurance	291		280		362		479		312		933		760
Collateral liquidation cost	47		84		94		47		45		224		281


Net loss (gain) on foreclosed properties	6		(1)		3		54		(121)		7		329
Tax credit investment impairment	—		—		—		328		113		—		2,066
SBA recourse (benefit) provision	(69)		245		(130)		(330)		57		45		53
Loss on early extinguishment of debt	—		—		—		—		—		—		744
Other non-interest expense	719		176		404		1,062		620		1,300		1,977
Total non-interest expense	18,490		18,184		17,330		17,651		16,758		54,003		51,245
Income before income tax expense	12,017		10,747		12,796		7,338		5,436		35,561		10,967
Income tax expense	2,819		2,512		3,065		1,254		1,143		8,396		73
Net income	$	9,198	$	8,235	$	9,731	$	6,084	$	4,293	$	27,165	$	10,894

Per common share:
Basic earnings	$	1.07	$	0.95	$	1.12	$	0.71	$	0.50	$	3.15	$	1.27
Diluted earnings	1.07		0.95		1.12		0.71		0.50		3.15		1.27
Dividends declared	0.18		0.18		0.18		0.165		0.165		0.54		0.495
Book value	26.56		25.70		24.83		24.06		23.45		26.56		23.45
Tangible book value	25.11		24.28		23.43		22.66		22.05		25.11		22.05
Weighted-average common shares outstanding(1)	8,340,042		8,385,069		8,429,149		8,417,216		8,404,084		8,380,591		8,380,676
Weighted-average diluted common shares outstanding(1)	8,340,042		8,385,069		8,429,149		8,417,216		8,404,084		8,380,591		8,380,676

(1)Excluding participating securities.

NET INTEREST INCOME ANALYSIS


(Unaudited)	For the Three Months Ended
(Dollars in thousands)	September 30, 2021						June 30, 2021						September 30, 2020
	Average Balance		Interest		Average Yield/Rate(4)		Average Balance		Interest		Average Yield/Rate(4)		Average Balance		Interest		Average Yield/Rate(4)
Interest-earning assets
Commercial real estate and other mortgage loans(1)	$	1,388,236	$	13,090	3.77	%	$	1,386,187	$	13,087	3.78	%	$	1,282,132	$	12,340	3.85	%
Commercial and industrial loans(1)	680,563		9,259		5.44	%	772,257		9,875		5.11	%	791,909		8,133		4.11	%
Direct financing leases(1)	18,611		207		4.45	%	19,883		222		4.47	%	26,129		258		3.95	%
Consumer and other loans(1)	43,689		391		3.58	%	45,026		407		3.62	%	39,269		374		3.81	%
Total loans and leases receivable(1)	2,131,099		22,947		4.31	%	2,223,353		23,591		4.24	%	2,139,439		21,105		3.95	%
Mortgage-related securities(2)	154,372		659		1.71	%	149,253		631		1.69	%	167,326		833		1.99	%
Other investment securities(3)	45,196		196		1.73	%	41,569		185		1.78	%	34,004		171		2.01	%
FHLB stock	13,279		167		5.03	%	14,172		176		4.97	%	12,835		161		5.02	%
Short-term investments	116,621		45		0.15	%	55,100		16		0.12	%	21,287		6		0.11	%
Total interest-earning assets	2,460,567		24,014		3.90	%	2,483,447		24,599		3.96	%	2,374,891		22,276		3.75	%
Non-interest-earning assets	147,631						137,893						165,844
Total assets	$	2,608,198					$	2,621,340					$	2,540,735
Interest-bearing liabilities
Transaction accounts	$	509,089	251		0.20	%	$	499,040	248		0.20	%	$	445,687	259		0.23	%
Money market	703,460		306		0.17	%	662,919		282		0.17	%	642,881		318		0.20	%
Certificates of deposit	42,370		71		0.67	%	45,993		112		0.97	%	110,891		513		1.85	%
Wholesale deposits	89,135		206		0.92	%	162,580		301		0.74	%	160,067		533		1.33	%
Total interest-bearing deposits	1,344,054		834		0.25	%	1,370,532		943		0.28	%	1,359,526		1,623		0.48	%
FHLB advances	381,061		1,228		1.29	%	405,855		1,284		1.27	%	379,915		1,356		1.43	%
Federal Reserve PPPLF	—		—		—	%	—		—		—	%	29,605		26		0.35	%
Other borrowings	32,630		449		5.50	%	32,447		443		5.46	%	24,403		370		6.06	%
Junior subordinated notes	10,070		280		11.12	%	10,066		277		11.01	%	10,056		280		11.14	%
Total interest-bearing liabilities	1,767,815		2,791		0.63	%	1,818,900		2,947		0.65	%	1,803,505		3,655		0.81	%
Non-interest-bearing demand deposit accounts	556,029						527,441						445,245
Other non-interest-bearing liabilities	59,865						56,691						91,810
Total liabilities	2,383,709						2,403,032						2,340,560
Stockholders’ equity	224,489						218,308						200,175
Total liabilities and stockholders’ equity	$	2,608,198					$	2,621,340					$	2,540,735
Net interest income			$	21,223					$	21,652					$	18,621
Interest rate spread					3.27	%					3.31	%					2.94	%
Net interest-earning assets	$	692,752					$	664,547					$	571,386
Net interest margin					3.45	%					3.49	%					3.14	%

(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, 2021						September 30, 2020
	Average Balance		Interest		Average Yield/Rate(4)		Average Balance		Interest		Average Yield/Rate(4)
Interest-earning assets
Commercial real estate and other mortgage loans(1)	$	1,377,302	$	38,704	3.75	%	$	1,209,810	$	38,312	4.22	%
Commercial and industrial loans(1)	736,623		28,759		5.21	%	678,650		24,338		4.78	%
Direct financing leases(1)	20,242		673		4.43	%	27,065		761		3.75	%
Consumer and other loans(1)	44,780		1,197		3.56	%	37,260		1,091		3.90	%
Total loans and leases receivable(1)	2,178,947		69,333		4.24	%	1,952,785		64,502		4.40	%
Mortgage-related securities(2)	155,617		1,955		1.67	%	173,985		2,806		2.15	%
Other investment securities(3)	42,992		569		1.76	%	29,177		456		2.08	%
FHLB stock	13,308		496		4.97	%	10,558		491		6.20	%
Short-term investments	65,769		67		0.14	%	39,293		153		0.52	%
Total interest-earning assets	2,456,633		72,420		3.93	%	2,205,798		68,408		4.13	%
Non-interest-earning assets	145,714						151,994
Total assets	$	2,602,347					$	2,357,792
Interest-bearing liabilities
Transaction accounts	$	509,709	749		0.20	%	$	362,326	1,197		0.44	%
Money market	674,858		862		0.17	%	649,999		2,555		0.52	%
Certificates of deposit	48,540		360		0.99	%	122,781		1,890		2.05	%
Wholesale deposits	139,205		825		0.79	%	132,811		2,021		2.03	%
Total interest-bearing deposits	1,372,312		2,796		0.27	%	1,267,917		7,663		0.81	%
FHLB advances	384,581		3,761		1.30	%	371,738		4,198		1.51	%
Federal Reserve PPPLF	—		—		—	%	16,855		44		0.35	%
Other borrowings	30,811		1,293		5.60	%	24,490		1,110		6.04	%
Junior subordinated notes	10,066		832		11.02	%	10,052		835		11.07	%
Total interest-bearing liabilities	1,797,770		8,682		0.64	%	1,691,052		13,850		1.09	%
Non-interest-bearing demand deposit accounts	523,368						392,455
Other non-interest-bearing liabilities	63,366						80,270
Total liabilities	2,384,504						2,163,777
Stockholders’ equity	217,843						194,015
Total liabilities and stockholders’ equity	$	2,602,347					$	2,357,792
Net interest income			$	63,738					$	54,558
Interest rate spread					3.29	%					3.04	%
Net interest-earning assets	$	658,863					$	514,746
Net interest margin					3.46	%					3.30	%

(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.

PROVISION FOR LOAN AND LEASE LOSS COMPOSITION


(Unaudited)	For the Three Months Ended										For the Nine Months Ended
(Dollars in thousands)	September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020		September 30, 2021		September 30, 2020
Change in general reserve due to subjective factor changes	$	(51)	$	(652)	$	1,082	$	1,008	$	(766)	$	379	$	4,697
Change in general reserve due to historical loss factor changes	(923)		(1,687)		(984)		1,274		(16)		(3,594)		(380)
Charge-offs	364		2,894		144		6,685		505		3,402		1,454
Recoveries	(1,634)		(545)		(2,673)		(68)		(23)		(4,852)		(264)
Change in specific reserves on impaired loans, net	(451)		(1,466)		(194)		(5,216)		2,974		(2,111)		5,533
Change due to loan growth, net	426		498		557		639		1,161		1,481		1,447
Total provision for loan and lease losses	$	(2,269)	$	(958)	$	(2,068)	$	4,322	$	3,835	$	(5,295)	$	12,487

PERFORMANCE RATIOS


	For the Three Months Ended										For the Nine Months Ended
(Unaudited)	September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020		September 30, 2021		September 30, 2020
Return on average assets (annualized)	1.41	%	1.26	%	1.51	%	0.93	%	0.68	%	1.39	%	0.62	%
Return on average equity (annualized)	16.39	%	15.09	%	18.48	%	11.92	%	8.58	%	16.63	%	7.49	%

Efficiency ratio	65.68	%	64.17	%	62.19	%	60.02	%	64.16	%	64.02	%	64.29	%

Interest rate spread	3.27	%	3.31	%	3.27	%	3.51	%	2.94	%	3.29	%	3.04	%
Net interest margin	3.45	%	3.49	%	3.44	%	3.69	%	3.14	%	3.46	%	3.30	%
Average interest-earning assets to average interest-bearing liabilities	139.19	%	136.54	%	134.23	%	132.88	%	131.68	%	136.65	%	130.44	%

ASSET QUALITY RATIOS


(Unaudited)	As of
(Dollars in thousands)	September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020
Non-accrual loans and leases	$	7,433		$	11,422		$	18,992		$	26,617		$	36,050
Foreclosed properties	172			179			31			34			613
Total non-performing assets	7,605			11,601			19,023			26,651			36,663
Performing troubled debt restructurings	53			56			59			46			47
Total impaired assets	$	7,658		$	11,657		$	19,082		$	26,697		$	36,710

Non-accrual loans and leases as a percent of total gross loans and leases	0.35		%	0.53		%	0.85		%	1.24		%	1.66		%
Non-performing assets as a percent of total gross loans and leases plus foreclosed properties	0.36		%	0.54		%	0.85		%	1.24		%	1.68		%
Non-performing assets as a percent of total assets	0.29		%	0.40		%	0.73		%	1.04		%	1.41		%
Allowance for loan and lease losses as a percent of total gross loans and leases	1.16		%	1.20		%	1.29		%	1.33		%	1.41		%
Allowance for loan and lease losses as a percent of non-accrual loans and leases	331.98		%	224.79		%	152.60		%	107.15		%	85.48		%

ASSET QUALITY RATIOS - EXCLUDING NET PPP LOANS


(Unaudited)	As of
(Dollars in thousands)	September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020


Non-accrual loans and leases as a percent of total gross loans and leases	0.36		%	0.56		%	0.96		%	1.38		%	1.95		%
Non-performing assets as a percent of total gross loans and leases plus foreclosed properties	0.37		%	0.57		%	0.96		%	1.38		%	1.98		%
Non-performing assets as a percent of total assets	0.30		%	0.42		%	0.81		%	1.14		%	1.61		%
Allowance for loan and lease losses as a percent of total gross loans and leases	1.20		%	1.27		%	1.47		%	1.48		%	1.67		%
PPP loans outstanding, net	$	64,454		$	120,723		$	267,567		$	225,323		$	325,481

NET CHARGE-OFFS (RECOVERIES)


(Unaudited)	For the Three Months Ended															For the Nine Months Ended
(Dollars in thousands)	September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020			September 30, 2021			September 30, 2020
Charge-offs	$	364		$	2,894		$	144		$	6,685		$	505		$	3,402		$	1,454
Recoveries	(1,634)			(545)			(2,673)			(68)			(23)			(4,852)			(264)
Net (recoveries) charge-offs	$	(1,270)		$	2,349		$	(2,529)		$	6,617		$	482		$	(1,450)		$	1,190
Net (recoveries) charge-offs as a percent of average gross loans and leases (annualized)	(0.24)		%	0.42		%	(0.46)		%	1.21		%	0.09		%	(0.09)		%	0.08		%
Annualized (recoveries) charge-offs as a percent of average gross loans and leases, excluding average net PPP loans	(0.25)		%	0.47		%	(0.52)		%	1.39		%	0.11		%	(0.10)		%	0.09		%
Average PPP loans outstanding, net	$	87,517		$	229,165		$	242,242		$	282,259		$	323,082		$	185,742		$	192,451

CAPITAL RATIOS


	As of and for the Three Months Ended
(Unaudited)	September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020
Total capital to risk-weighted assets	11.14	%	11.22	%	11.52	%	11.25	%	11.42	%
Tier I capital to risk-weighted assets	9.14	%	9.14	%	9.24	%	8.96	%	9.09	%
Common equity tier I capital to risk-weighted assets	8.73	%	8.72	%	8.81	%	8.53	%	8.64	%
Tier I capital to adjusted assets	8.69	%	8.48	%	8.37	%	7.99	%	8.04	%
Tangible common equity to tangible assets	8.28	%	7.33	%	7.76	%	7.60	%	7.29	%
Tangible common equity to tangible assets, excluding net PPP loans	8.50	%	7.66	%	8.65	%	8.33	%	8.34	%

LOAN AND LEASE RECEIVABLE COMPOSITION


(Unaudited)	As of
(in thousands)	September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020
Commercial real estate:
Commercial real estate - owner occupied	$	241,977	$	253,600	$	256,812	$	253,882	$	240,706
Commercial real estate - non-owner occupied	639,423		614,289		592,090		564,532		565,781
Land development	39,119		45,056		46,544		49,839		50,864
Construction	139,933		139,943		151,345		141,043		142,726
Multi-family	313,787		319,351		322,384		311,556		287,583
1-4 family	13,487		19,769		23,319		38,284		38,857
Total commercial real estate	1,387,726		1,392,008		1,392,494		1,359,136		1,326,517
Commercial and industrial	681,065		695,442		784,305		732,318		790,349
Direct financing leases, net	16,810		18,142		19,616		22,331		24,743
Consumer and other:
Home equity and second mortgages	4,576		5,740		6,719		7,833		7,106
Other	35,645		36,567		38,266		28,897		29,341
Total consumer and other	40,221		42,307		44,985		36,730		36,447
Total gross loans and leases receivable	2,125,822		2,147,899		2,241,400		2,150,515		2,178,056
Less:
Allowance for loan and lease losses	24,676		25,675		28,982		28,521		30,817
Deferred loan fees	2,516		4,338		6,288		4,545		7,757
Loans and leases receivable, net	$	2,098,630	$	2,117,886	$	2,206,130	$	2,117,449	$	2,139,482

LEGACY SBA 7(a) AND EXPRESS LOAN COMPOSITION (1)


(Unaudited)	As of
(in thousands)	September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020
Performing loans:
Off-balance sheet loans	$	13,340	$	14,161	$	17,523	$	23,354	$	26,017
On-balance sheet loans	3,905		6,836		7,340		11,117		15,175
Gross loans	17,245		20,997		24,863		34,471		41,192
Non-performing loans:
Off-balance sheet loans	3,689		3,943		1,835		1,931		2,574
On-balance sheet loans	624		1,800		6,832		7,435		9,561
Gross loans	4,313		5,743		8,667		9,366		12,135
Total loans:
Off-balance sheet loans	17,029		18,104		19,358		25,285		28,591
On-balance sheet loans	4,529		8,636		14,172		18,552		24,736
Gross loans	$	21,558	$	26,740	$	33,530	$	43,837	$	53,327

(1)Defined as SBA 7(a) and Express loans originated in 2016 and prior.

DEPOSIT COMPOSITION


(Unaudited)	As of
(in thousands)	September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020
Non-interest-bearing transaction accounts	$	526,047	$	774,253	$	496,877	$	472,818	$	452,268
Interest-bearing transaction accounts	517,248		511,698		561,466		503,992		484,761
Money market accounts	728,751		685,127		632,065		641,504		636,872
Certificates of deposit	57,598		45,137		46,818		64,694		93,344
Wholesale deposits	74,638		144,492		165,492		172,508		154,130
Total deposits	$	1,904,282	$	2,160,707	$	1,902,718	$	1,855,516	$	1,821,375

TRUST ASSETS COMPOSITION


(Unaudited)	As of
(in thousands)	September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020
Trust assets under management	$	2,491,498	$	2,362,257	$	2,195,804	$	2,061,772	$	1,841,986
Trust assets under administration	202,657		202,116		190,721		187,228		175,521
Total trust assets	$	2,694,155	$	2,564,373	$	2,386,525	$	2,249,000	$	2,017,507

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, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020
Common stockholders’ equity	$	225,280	$	221,452	$	214,491	$	206,162	$	200,785
Goodwill and other intangible assets	(12,229)		(12,178)		(12,055)		(12,018)		(12,024)
Tangible common equity	$	213,051	$	209,274	$	202,436	$	194,144	$	188,761
Common shares outstanding	8,483,099		8,617,761		8,638,195		8,566,960		8,561,714
Book value per share	$	26.56	$	25.70	$	24.83	$	24.06	$	23.45
Tangible book value per share	25.11		24.28		23.43		22.66		22.05

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, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020
Common stockholders’ equity	$	225,280		$	221,452		$	214,491		$	206,162		$	200,785
Goodwill and other intangible assets	(12,229)			(12,178)			(12,055)			(12,018)			(12,024)
Tangible common equity	$	213,051		$	209,274		$	202,436		$	194,144		$	188,761
Total assets	$	2,584,410		$	2,865,669		$	2,620,718		$	2,567,837		$	2,601,847
Goodwill and other intangible assets	(12,229)			(12,178)			(12,055)			(12,018)			(12,024)
Tangible assets	$	2,572,181		$	2,853,491		$	2,608,663		$	2,555,819		$	2,589,823
Tangible common equity to tangible assets	8.28		%	7.33		%	7.76		%	7.60		%	7.29		%
Period-end net PPP loans	64,454			120,722			267,567			225,323			325,481
Tangible assets, excluding net PPP loans	$	2,507,727		$	2,732,769		$	2,341,096		$	2,330,496		$	2,264,342
Tangible common equity to tangible assets, excluding net PPP loans	8.50		%	7.66		%	8.65		%	8.33		%	8.34		%

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, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020			September 30, 2021			September 30, 2020
Total non-interest expense	$	18,490		$	18,184		$	17,330		$	17,651		$	16,758		$	54,003		$	51,245
Less:
Net loss (gain) on foreclosed properties	6			(1)			3			54			(121)			7			329
Amortization of other intangible assets	7			8			8			8			9			23			27
SBA recourse (benefit) provision	(69)			245			(130)			(330)			57			45			53
Tax credit investment impairment	—			—			—			328			113			—			2,066
Loss on early extinguishment of debt	—			—			—			—			—			—			744

Total operating expense (a)	$	18,546		$	17,932		$	17,449		$	17,591		$	16,700		$	53,928		$	48,026
Net interest income	$	21,223		$	21,652		$	20,863		$	22,512		$	18,621		$	63,738		$	54,558
Total non-interest income	7,015			6,321			7,195			6,799			7,408			20,531			20,141
Less:
Net gain (loss) on sale of securities	—			29			—			—			—			29			(4)
Adjusted non-interest income	7,015			6,292			7,195			6,799			7,408			20,502			20,145
Total operating revenue (b)	$	28,238		$	27,944		$	28,058		$	29,311		$	26,029		$	84,240		$	74,703
Efficiency ratio	65.68		%	64.17		%	62.19		%	60.02		%	64.16		%	64.02		%	64.29		%

Pre-tax, pre-provision adjusted earnings (b - a)	$	9,692		$	10,012		$	10,609		$	11,720		$	9,329		$	30,312		$	26,677
Average total assets	$	2,608,198		$	2,621,340		$	2,577,164		$	2,603,745		$	2,540,735		$	2,602,347		$	2,357,792
Pre-tax, pre-provision adjusted return on average assets	1.49		%	1.53		%	1.65		%	1.80		%	1.47		%	1.55		%	1.51		%

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, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020			September 30, 2021			September 30, 2020
Interest income	$	24,014		$	24,599		$	23,806		$	25,770		$	22,276		$	72,420		$	68,408
Interest expense	2,791			2,947			2,943			3,258			3,655			8,682			13,850
Net interest income (a)	21,223			21,652			20,863			22,512			18,621			63,738			54,558
Less:
Fees in lieu of interest	2,839			3,536			3,085			4,749			1,511			9,459			4,566
PPP loan interest income	221			566			603			718			833			1,391			1,481
FRB interest income and FHLB dividend income	212			192			158			188			167			563			602
Add:
FRB PPPLF interest expense	—			—			—			9			26			—			44
Adjusted net interest income (b)	$	17,951		$	17,358		$	17,017		$	16,866		$	16,136		$	52,325		$	47,953
Average interest-earning assets (c)	$	2,460,567		$	2,483,447		$	2,425,499		$	2,441,735		$	2,374,891		$	2,456,633		$	2,205,798
Less:
Average net PPP loans	87,517			229,165			242,242			282,259			323,082			185,741			192,451
Average FRB cash and FHLB stock	129,469			68,503			36,643			45,611			33,756			78,545			46,925
Average non-accrual loans and leases	11,298			16,744			22,069			36,013			26,931			16,657			24,849
Adjusted average interest-earning assets (d)	$	2,232,283		$	2,169,035		$	2,124,545		$	2,077,852		$	1,991,122		$	2,175,690		$	1,941,573
Net interest margin (a / c)	3.45		%	3.49		%	3.44		%	3.69		%	3.14		%	3.46		%	3.30		%
Adjusted net interest margin (b / d)	3.22		%	3.20		%	3.20		%	3.25		%	3.24		%	3.21		%	3.29		%