EX-99.1 2 fbiz20220930ex991earningsr.htm EX-99.1

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.

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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, 2022						June 30, 2022						September 30, 2021						September 30, 2022						September 30, 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.

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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, 2022						June 30, 2022						September 30, 2021						September 30, 2022						September 30, 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.

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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.

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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%.

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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.

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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

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SELECTED FINANCIAL CONDITION DATA

(Unaudited)						As of
(in thousands)						September 30, 2022						June 30, 2022						March 31, 2022						December 31, 2021						September 30, 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

8

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, 2022						June 30, 2022						March 31, 2022						December 31, 2021						September 30, 2021						September 30, 2022						September 30, 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.

9

NET INTEREST INCOME ANALYSIS

(Unaudited)						For the Three Months Ended
(Dollars in thousands)						September 30, 2022																		June 30, 2022																		September 30, 2021
						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)						$	1,486,530					$	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.

10

NET INTEREST INCOME ANALYSIS

(Unaudited)						For the Nine Months Ended
(Dollars in thousands)						September 30, 2022																		September 30, 2021
						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)						$	1,472,930					$	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.

11

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, 2022						June 30, 2022						March 31, 2022						December 31, 2021						September 30, 2021						September 30, 2022						September 30, 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)

12

PERFORMANCE RATIOS

						For the Three Months Ended																														For the Nine Months Ended
(Unaudited)						September 30, 2022						June 30, 2022						March 31, 2022						December 31, 2021						September 30, 2021						September 30, 2022						September 30, 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, 2022						June 30, 2022						March 31, 2022						December 31, 2021						September 30, 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, 2022						June 30, 2022						March 31, 2022						December 31, 2021						September 30, 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

13

NET CHARGE-OFFS (RECOVERIES)

(Unaudited)						For the Three Months Ended																														For the Nine Months Ended
(Dollars in thousands)						September 30, 2022						June 30, 2022						March 31, 2022						December 31, 2021						September 30, 2021						September 30, 2022						September 30, 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, 2022						June 30, 2022						March 31, 2022						December 31, 2021						September 30, 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		%

14

LOAN AND LEASE RECEIVABLE COMPOSITION

(Unaudited)						As of
(in thousands)						September 30, 2022						June 30, 2022						March 31, 2022						December 31, 2021						September 30, 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, 2022						June 30, 2022						March 31, 2022						December 31, 2021						September 30, 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, 2022						June 30, 2022						March 31, 2022						December 31, 2021						September 30, 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

15

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, 2022						June 30, 2022						March 31, 2022						December 31, 2021						September 30, 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, 2022						June 30, 2022						March 31, 2022						December 31, 2021						September 30, 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		%

16

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, 2022						June 30, 2022						March 31, 2022						December 31, 2021						September 30, 2021						September 30, 2022						September 30, 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		%

17

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, 2022						June 30, 2022						March 31, 2022						December 31, 2021						September 30, 2021						September 30, 2022						September 30, 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		%

18

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, 2022						June 30, 2022						March 31, 2022						December 31, 2021						September 30, 2021						September 30, 2022						September 30, 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