Business Wire | Jan 28, 2021 04:05PM EST

First Business Bank Reports Fourth Quarter 2020 EPS OF $0.71

Jan. 28, 2021

MADISON, Wis.--(BUSINESS WIRE)--Jan. 28, 2021--First Business Financial Services, Inc. (the "Company" or "First Business Bank") (Nasdaq:FBIZ) reported record net interest income and stable non-interest income, resulting in net income of $6.1 million, or diluted earnings per share of $0.71, in the fourth quarter 2020. First Business Bank's strong financial results reflected improved asset quality as non-performing assets declined by $10.0 million, or 27.3%, attributable to loan payoffs and $6.7 million in charge-offs partially offset by the release of $5.2 million in related specific reserves.

"First Business Bank's commitment to investing in talent contributed to our record revenue in the fourth quarter and very attractive positioning for strong and sustainable earnings growth in 2021 and beyond," President and Chief Executive Officer Corey Chambas said. "Record in-market deposits at year end contributed to meaningful fourth quarter funding cost reductions and net interest margin stability while providing ample liquidity to fund our exceptional double-digit loan growth of 12% for the year, excluding PPP loans." Chambas added, "We are also very pleased with the improvement in asset quality during the quarter and our outlook on credit going forward is positive."

Summary results as of and for the fourth quarter ended December 31, 2020:

* Net income totaled $6.1 million, or diluted earnings per share of $0.71, in the fourth quarter of 2020, compared to $4.3 million, or diluted earnings per share of $0.50, in the third quarter of 2020 and $5.8 million, or diluted earnings per share of $0.67, in the fourth quarter of 2019. * Annualized return on average assets and annualized return on average equity measured 0.93% and 11.92%, respectively, compared to 0.68% and 8.58% for the linked quarter and 1.09% and 11.93% for the fourth quarter of 2019. * The Company had $228.9 million in Paycheck Protection Program ("PPP") loans outstanding, down $103.5 million compared to the third quarter of 2020, and recognized $3.3 million in associated processing fee income, compared to $1.1 million and $859,000 in PPP processing fees in the third and second quarters of 2020, respectively. * Pre-tax, pre-provision adjusted earnings, which excludes certain one-time and discrete items as defined in the Non-GAAP Reconciliations at the end of this release, totaled a record $11.7 million, up 25.6% from the third quarter of 2020 and up 29.4% from the fourth quarter of 2019. Pre-tax, pre-provision adjusted return on average assets was 1.80% compared to 1.47% and 1.72% for the linked and prior year quarters, respectively. * Gross loans and leases receivable, excluding net PPP loans, were $1.921 billion as of December 31, 2020, up 16.4% annualized from the third quarter of 2020 and 12.0% from the fourth quarter of 2019. * COVID-19 related loan deferrals outstanding declined by $104.5 million during the quarter to $27.0 million, or 1.4% of gross loans and leases, excluding gross PPP loans, at period end. * Non-performing assets decreased $10.0 million, or 27.3%, to $26.7 million, or 1.04% of total assets, compared to $36.7 million, or 1.41%, at September 30, 2020 and $23.5 million, or 1.12%, at December 31, 2019. Non-performing assets to total assets, excluding net PPP loans was 1.14%, compared to 1.61%, at September 30, 2020. * The allowance for loan and lease losses decreased $2.3 million, or 7.5%, compared to September 30, 2020, primarily due to a $5.2 million decrease in specific reserves. This decrease was partially offset by a $2.9 million increase in general reserves, principally driven by loan growth and the uncertainty of the economic conditions during the COVID-19 pandemic. The allowance for loan and lease losses was 1.33% of total loans as of December 31, 2020, compared to 1.41% and 1.14% at September 30, 2020 and December 31, 2019, respectively. Excluding net PPP loans, the allowance for loan and lease losses decreased to 1.48% of total loans as of December 31, 2020, compared to 1.67% as of September 30, 2020. * Provision for loan and lease losses totaled $4.3 million in the fourth quarter of 2020, compared to $3.8 million in the third quarter of 2020 and $1.5 million in the fourth quarter of 2019. * In January of 2021, the Company received a recovery of approximately $2.0 million on a loan charged off in a prior year. While this recovery will have a positive impact on the Company's provision for loan and lease losses in the first quarter of 2021, it is not necessarily indicative of a trend or a reflection of the Company's ultimate provision for the first quarter. * Robust liquidity position includes record in-market deposits of $1.683 billion, up $15.8 million from September 30, 2020, and $304.1 million from December 31, 2019. * Net interest margin was 3.69% in the fourth quarter of 2020, compared to 3.14% in the third quarter of 2020 and 3.73% in the fourth quarter of 2019. Adjusted net interest margin, which excludes certain one-time and discrete items as defined in the Non-GAAP Reconciliations at the end of this release, was 3.25% in the fourth quarter of 2020, compared to 3.24% in the third quarter of 2020 and 3.41% in the fourth quarter of 2019. * Fees in lieu of interest, defined as prepayment fees, asset-based loan fees, non-accrual interest, and loan fee amortization, totaled $4.7 million in the fourth quarter of 2020, compared to $1.5 million in the third quarter of 2020 and $1.8 million in the fourth quarter of 2019. Loan fee amortization includes PPP processing fee income of $3.3 million and $1.1 million in the fourth and third quarters of 2020, respectively. * Top line revenue, defined as net interest income plus non-interest income, totaled a record $29.3 million, up 50.4% annualized from the third quarter of 2020 and 14.2% from the fourth quarter of 2019. * Non-interest income totaled $6.8 million, or 23.2% of total revenue, in the fourth quarter of 2020, compared to $7.4 million, or 28.5% of total revenue in the third quarter of 2020 and $7.2 million, or 28.0% of total revenue in the fourth quarter of 2019. * Non-interest expense was $17.7 million in the fourth quarter of 2020, compared to $16.8 million in the third quarter of 2020 and $16.8 million in the fourth quarter of 2019. Operating expense, which excludes certain one-time and discrete items as defined in the Non-GAAP Reconciliations at the end of this release, totaled $17.6 million in the fourth quarter of 2020, compared to $16.7 million in the third quarter of 2020 and $16.6 million in the fourth quarter of 2019. * The efficiency ratio, which excludes certain one-time and discrete items as defined in the Non-GAAP Reconciliations at the end of this release, improved to 60.02% in the fourth quarter of 2020, down from 64.16% and 64.77% in the linked and prior year quarters, respectively. Quarterly efficiency ratios in 2021 are not expected to continue at the level experienced in the fourth quarter of 2020, but are anticipated to be more in line with levels reported in the periods of comparison. * On January 28, 2021, the Board of Directors of the Company adopted a new share repurchase program that authorizes the Company to repurchase up to $5 million of the Company's common stock over a period of approximately twelve months, ending on January 31, 2022. The Company suspended its prior share repurchase program in March 2020 due to the uncertainty surrounding the COVID-19 pandemic. Under the previous plan, which was initiated in September 2019 and expired September 30, 2020, the Company had repurchased $3.5 million of the $5 million authorized in the Company's common stock.

"The Board and management believe the Company's shares are undervalued, given the record of performance and the opportunities we see for our commercial banking, specialty finance, private wealth and consulting businesses," President and Chief Executive Officer Corey Chambas said. "Through this share repurchase program we have the ability to opportunistically purchase Company shares in the open market, while continuing to meet the needs of our clients. Our team is laser-focused on building lasting relationships with businesses, business executives, and high net worth individuals, and we intend to remain an important source of strength and stability for growing numbers of clients during this pivotal year of economic recovery across our Wisconsin, Kansas City and other attractive Midwestern markets."

Financial Highlights

(Unaudited) As of and for the Three Months Ended As of and for the Year Ended

(Dollars inthousands, December 31, September 30, December 31, December 31, December 31,except per 2020 2020 2019 2020 2019share amounts)

Net interest $ 22,512 $ 18,621 $ 18,474 $ 77,071 $ 69,856 income

Adjustednon-interest 6,799 7,408 7,231 26,944 23,469 income ^(1)

Operating 29,311 26,029 25,705 104,015 93,325 revenue ^(1)

Operating 17,591 16,700 16,649 65,619 62,149 expense ^(1)

Pre-tax,pre-provision 11,720 9,329 9,056 38,396 31,176 adjustedearnings ^(1)

Less:

Provision forloan and lease 4,322 3,835 1,472 16,808 2,085 losses

Net loss(gain) on 54 (121 ) (17 ) 383 224 foreclosedproperties

Amortizationof other 8 9 7 35 40 intangibleassets

SBA recourse(benefit) (330 ) 57 21 (278 ) 188 provision

Tax creditinvestment 328 113 113 2,395 4,094 impairment

Loss on earlyextinguishment - - - 744 - of debt

Add:

Net loss onsale of - - (42 ) (4 ) (46 )securities

Income beforeincome tax 7,338 5,436 7,418 18,305 24,499 expense

Income tax 1,254 1,143 1,650 1,327 1,175 expense

Net income $ 6,084 $ 4,293 $ 5,768 $ 16,978 $ 23,324

Earnings per $ 0.71 $ 0.50 $ 0.67 $ 1.97 $ 2.68 share, diluted

Book value per $ 24.06 $ 23.45 $ 22.67 $ 24.06 $ 22.67 share

Tangible bookvalue per $ 22.66 $ 22.05 $ 21.27 $ 22.66 $ 21.27 share ^(1)



Net interest 3.69 % 3.14 % 3.73 % 3.40 % 3.61 %margin

Adjusted netinterest 3.25 % 3.24 % 3.41 % 3.28 % 3.33 %margin ^(1)

Efficiency 60.02 % 64.16 % 64.77 % 63.09 % 66.59 %ratio ^(1)

Return on 0.93 % 0.68 % 1.09 % 0.70 % 1.14 %average assets

Pre-tax,pre-provisionadjusted 1.80 % 1.47 % 1.72 % 1.59 % 1.52 %return onaverage assets^(1)

Return on 11.92 % 8.58 % 11.93 % 8.64 % 12.55 %average equity



Period-endloans and $ 2,145,970 $ 2,170,299 $ 1,714,635 $ 2,145,970 $ 1,714,635 leasesreceivable

Period-endloans andleases $ 1,920,647 $ 1,844,818 $ 1,714,635 $ 1,920,647 $ 1,714,635 receivable,excluding netPPP loans

Average loansand leases $ 2,185,662 $ 2,139,439 $ 1,744,308 $ 2,011,322 $ 1,703,971 receivable

Period-endin-market $ 1,683,008 $ 1,667,245 $ 1,378,903 $ 1,683,008 $ 1,378,903 deposits

Averagein-market $ 1,690,433 $ 1,644,704 $ 1,350,107 $ 1,568,502 $ 1,271,128 deposits

Allowance forloan and lease $ 28,521 $ 30,817 $ 19,520 $ 28,521 $ 19,520 losses

Non-performing $ 26,651 $ 36,663 $ 23,532 $ 26,651 $ 23,532 assets

Allowance forloan and leaselosses as apercent of 1.33 % 1.41 % 1.14 % 1.33 % 1.14 %total grossloans andleases

Allowance forloan and leaselosses as apercent oftotal gross 1.48 % 1.67 % 1.14 % 1.48 % 1.14 %loans andleases,excluding netPPP loans

Non-performingassets as a 1.04 % 1.41 % 1.12 % 1.04 % 1.12 %percent oftotal assets

Non-performingassets as apercent of 1.14 % 1.61 % 1.12 % 1.14 % 1.12 %total assets,excluding netPPP loans

(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.

COVID-19 Update

Paycheck Protection Program

As of December 31, 2020, the Company had $228.9 million in PPP loans outstanding and $3.5 million in deferred processing fees outstanding. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated when forgiven and repaid, as an adjustment of yield using the interest method. In the fourth quarter, the Company recognized $3.3 million of PPP processing fees in interest income from the federal program launched in 2020. For the year ended December 31, 2020, the Company recognized $5.3 million in PPP fees, recording 60% of the $8.8 million in deferred Small Business Administration ("SBA") processing fees for loans originated in 2020. The SBA provides a guaranty to the lender of 100% of principal and interest, unless the lender violated an obligation under the agreement. As loan losses are expected to be immaterial, if any at all, due to the guaranty, management excluded the gross PPP loans from the allowance for loan and lease losses calculation.

In January 2021, the Company began accepting applications for the SBA's second phase of the PPP program, with an emphasis on supporting in-market businesses and non-profit organizations.

Liquidity Sources

Management has reviewed all primary and secondary sources of liquidity in preparation for any unforeseen funding needs due to the COVID-19 pandemic and prioritized based on available capacity, term flexibility, and cost. As of December 31, 2020, the Company had the following sources of liquidity, including the Company's ability to participate in the Federal Reserve's Paycheck Protection Program Liquidity Facility ("PPPLF"):

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(1) 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.

COVID-19 Update

Paycheck Protection Program

As of December 31, 2020, the Company had $228.9 million in PPP loans outstanding and $3.5 million in deferred processing fees outstanding. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated when forgiven and repaid, as an adjustment of yield using the interest method. In the fourth quarter, the Company recognized $3.3 million of PPP processing fees in interest income from the federal program launched in 2020. For the year ended December 31, 2020, the Company recognized $5.3 million in PPP fees, recording 60% of the $8.8 million in deferred Small Business Administration ("SBA") processing fees for loans originated in 2020. The SBA provides a guaranty to the lender of 100% of principal and interest, unless the lender violated an obligation under the agreement. As loan losses are expected to be immaterial, if any at all, due to the guaranty, management excluded the gross PPP loans from the allowance for loan and lease losses calculation.

In January 2021, the Company began accepting applications for the SBA's second phase of the PPP program, with an emphasis on supporting in-market businesses and non-profit organizations.

Liquidity Sources

Management has reviewed all primary and secondary sources of liquidity in preparation for any unforeseen funding needs due to the COVID-19 pandemic and prioritized based on available capacity, term flexibility, and cost. As of December 31, 2020, the Company had the following sources of liquidity, including the Company's ability to participate in the Federal Reserve's Paycheck Protection Program Liquidity Facility ("PPPLF"):

(Unaudited) As of

December December(in thousands) 31, 31, 2020 2019

Short-term investments $ 27,371 $ 50,995

PPPLF availability 225,323 -

Collateral value of unencumbered loans (FHLB 250,127 212,516 borrowing availability)

Market value of unencumbered securities (Fed 137,357 174,661 Discount Window and FHLB borrowing availability)

Total sources of liquidity $ 640,178 $ 438,172

In addition to the above primary sources of liquidity, as of December 31, 2020, the Company also had access to $53.5 million in federal funds lines with various correspondent banks and significant experience accessing the highly liquid brokered deposit market.

Capital Strength

The Company's capital ratios continued to exceed the highest required regulatory benchmark levels.

* Total capital to risk-weighted assets at December 31, 2020 was 11.25%, tier 1 capital to risk-weighted assets was 8.96%, tier 1 leverage capital to adjusted average assets was 7.99%, and common equity tier 1 capital to risk-weighted assets was 8.53%. Tangible common equity to tangible assets was 7.60%. Excluding net PPP loans, tier 1 leverage capital to adjusted average assets and tangible common equity to tangible assets were 8.97% and 8.33%, respectively. * As previously announced, during the fourth quarter of 2020, the Company's Board of Directors declared a regular quarterly dividend of $0.165 per share. The dividend was paid on November 12, 2020 to stockholders of record at the close of business on November 2, 2020. Measured against fourth quarter 2020 diluted earnings per share of $0.71, the dividend represents a 23.2% payout ratio. The Board of Directors routinely considers dividend declarations as part of its normal course of business.

Deferral Requests

The Company provided loan modifications deferring payments up to six months to certain borrowers impacted by COVID-19 who were current in their payments at the inception of the Company's loan modification program. As of December 31, 2020, the Company had deferred loans outstanding of $27.0 million, or 1.4% of gross loans and leases, excluding gross PPP loans, compared to $131.5 million, or 7.1% as of September 30, 2020 and $323.2 million, or 18.6% as of June 30, 2020. The following tables represent a breakdown of the deferred loan balances by industry segment and collateral type:

(Unaudited) As of

(Dollars in thousands) December 31, 2020

Collateral Type

Industries Description Balance Real Non Real Estate Estate

Accommodation and Food Services $ 12,229 $ 12,229 $ -

Real Estate and Rental and Leasing 5,975 5,975 -

Manufacturing 3,398 - 3,398

Arts, Entertainment, and Recreation 3,095 1,051 2,044

Transportation and Warehousing 573 - 573

Construction 447 447 -

Professional, Scientific, and Technical 383 383 Services

Other Services (except Public 367 212 155 Administration)

Health Care and Social Assistance 205 - 205

Educational Services 195 195 -

Administrative and Support and Waste 143 143 Management and Remediation Services

Total deferred loan balances $ 27,010 $ 20,109 $ 6,901

Exposure to Stressed Industries

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

(Unaudited) As of

(Dollars in December 31, 2020 September 30, 2020 June 30, 2020thousands)

% % % Gross Gross GrossIndustries: Balance Loans Balance Loans Balance Loans and and and Leases Leases Leases ^(1) ^(1) ^(1)

Retail ^(2) $ 62,719 3.3 % $ 66,696 3.6 % $ 70,028 4.0 %

Hospitality 80,832 4.2 % 78,786 4.3 % 73,502 4.2 %

Entertainment 14,208 0.7 % 16,323 0.9 % 16,675 1.0 %

Restaurants & 24,854 1.3 % 26,728 1.4 % 24,884 1.4 %Food Service

Totaloutstanding $ 182,613 9.5 % $ 188,533 10.2 % $ 185,089 10.6 %exposure

(1)

Excluding net PPP loans.

(2)

Includes $48.9 million, $52.0 million, and $51.7 million in loans secured by commercial real estate as of December 31, 2020, September 30, 2020, and June 30, 2020, respectively.

As of December 31, 2020, the Company had no meaningful direct exposure to the energy sector, airline industry, or retail consumer, and does not participate in shared national credits.

Because of the significant 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 economy as a whole, there can be no assurances as to how the pandemic may ultimately affect the Company's loan portfolio.

Fourth Quarter 2020 Compared to Third Quarter 2020

Net interest income increased $3.9 million, or 20.9%, to $22.5 million.

* Net interest income benefited from both an increase in average loans and leases and fees received in lieu of interest. Fees in lieu of interest, which can vary from quarter to quarter based on client-driven activity, totaled $4.7 million, compared to $1.5 million. Excluding fees in lieu of interest, net interest income increased $653,000, or 3.8%. * Average loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $87.0 million, or 19.2% annualized, to $1.903 billion. * The yield on average interest-earning assets increased 47 basis points to 4.22% from 3.75%. Excluding average net PPP loans, the PPP loan interest income of $718,000, and the aforementioned fees in lieu of interest, the yield earned on average interest-earning assets decreased 13 basis points to 3.76% from 3.89%. The rate paid for average total bank funding decreased nine basis points to 0.45% from 0.54%. Total bank funding is defined as total deposits plus Federal Home Loan Bank ("FHLB") advances, Federal Reserve Discount Window advances, and Federal Reserve PPPLF advances. * Net interest margin increased 55 basis points to 3.69% from 3.14%. Adjusted net interest margin, excluding fees in lieu of interest and other recurring but volatile components of net interest margin, increased to 3.25% from 3.24%.

Provision for loan and leases losses increased $487,000, or 12.7%, to $4.3 million.

* The increase in provision for loan and lease losses included $6.7 million in charge-offs, partially offset by the release of $5.2 million in related specific reserves. * Changes in the general reserve increased the provision for loan and lease losses $1.3 million due to historical loss rate updates from net charge-off activity, $1.0 million due to qualitative factor changes in our commercial real estate portfolio, and $639,000 due to loan growth. * In January of 2021, the Company received a recovery of approximately $2.0 million on a loan charged off in a prior year. While this recovery will have a positive impact on the Company's provision for loan and lease losses in the first quarter of 2021, it is not necessarily indicative of a trend or a reflection of the Company's ultimate provision for the first quarter.

Non-interest income decreased $609,000, or 8.2%, to $6.8 million.

* Commercial loan interest rate swap fee income decreased $1.4 million, or 55.9%, to $1.1 million compared to $2.4 million. Interest rate swaps continue to be an attractive product for the Company's commercial borrowers, although associated fee income can vary from period to period based on client demand and the interest rate environment in any given quarter. * Gains on sale of SBA loans increased $540,000, or 71.1%, to $1.3 million compared to $760,000. The Company's pipeline continues to grow period over period and management believes the gain 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 over time. * Private wealth management fee income increased $41,000, or 1.9% to $2.2 million. Trust assets under management and administration measured a record $2.249 billion at December 31, 2020, up $231.5 million, or 45.9% annualized, primarily due to increased equity market values. * Other fee income increased $238,000, or 35.2%, to $914,000 compared to $676,000. The increase is primarily due to gain on sale of state tax credits totaling $275,000 in the quarter.

Non-interest expense increased $893,000, or 5.3%, to $17.7 million.

* Compensation expense increased $288,000, or 2.4%, to $12.1 million mainly due to an increase in the Company's performance-based incentive compensation accrual based on estimated full year 2020 results. Despite an elevated provision for loan and lease losses tempering the Company's return on average assets, record loans, deposits, and fee income drove superior revenue growth and efficiency in 2020 when compared to the Company's performance targets. In addition, average full-time equivalent employees increased to 301 for the quarter ended December 31, 2020, compared to 295 for the quarter ended September 30, 2020, the majority of which were producers. * The Company recognized $216,000 in expense due to the remaining impairment of a federal historic tax credit investment, which corresponded with the recognition of a $270,000 tax credit during the quarter. No federal historic tax credit investments were recognized in the third quarter of 2020. * The Company established a $461,000 credit valuation adjustment ("CVA") related to the commercial loan interest rate swap program. The CVA represents a change in the market value of the Company's commercial loan interest rate swaps to estimate potential borrower credit risk within the portfolio. The CVA can vary from period to period based on the size of the portfolio, credit metrics, and the interest rate environment in any given quarter. There was no CVA as of September 30, 2020.

Total period-end loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $75.8 million, or 16.4% annualized, to $1.921 billion.

* Commercial and industrial ("C&I") loans, excluding net PPP loans, increased $42.1 million, or 36.4% annualized. Management believes the timely investments in producers in our counter cyclical commercial banking products, such as asset-based lending and accounts receivable financing, have positioned C&I lending to increase throughout the current economic cycle. * Commercial real estate ("CRE") loans increased $32.6 million, or 9.8% annualized, with growth coming from owner occupied and multi-family properties. Recent success in driving above-average CRE growth comes as established commercial lenders hired over the past 18 months were able to bring many of their high-quality relationships with them to the Bank.

"Despite economic headwinds and uncertainty in 2020 from the fallout of the COVID-19 pandemic, our business banking team remained steadfast in pursuing new relationships and going deeper with existing relationships," said Chambas. "This commitment resulted in well above-industry loan growth across our lending products, particularly in traditional commercial lending, small business, and accounts receivable financing." Chambas continued, "While economic uncertainty lingers in 2021, we believe our proactive investment in talent over the past two years, including in our counter cyclical specialty finance business lines, positions us well to continue our trend of double-digit loan growth moving forward and to meet our long-standing net interest margin goal of 3.50%."

Total period-end in-market deposits increased $15.8 million to $1.683 billion and the average rate paid decreased seven basis points to 0.20%.

* Transaction accounts and money market accounts increased $39.8 million and $4.6 million, respectively, while certificates of deposits decreased $28.7 million. * Client preferences continued to shift away from term deposits due to the low interest rate environment, while management attributes the continued increase in transaction accounts to successful business development efforts and our existing clients' preference for safety and soundness amid the economic uncertainty created by the COVID-19 pandemic.

Period-end wholesale funding, including FHLB advances, Federal Reserve Discount Window advances, Federal Reserve PPPLF advances, brokered deposit, and deposits gathered through internet deposit listing services, decreased $46.2 million to $567.0 million.

* Wholesale deposits increased $18.4 million to $172.5 million, mainly due to adding non-maturity brokered deposits at a favorable rate compared to alternative funding sources. Excluding these deposits, wholesale deposits decreased as the existing portfolio runoff is replaced by in-market deposits and lower cost FHLB advances to match-fund long-term fixed rate loans and fund loan growth. The average rate paid on wholesale deposits decreased 37 basis points to 0.96% and the weighted average original maturity of brokered certificates of deposit decreased to 4.1 years from 4.3 years. * FHLB advances decreased $35.0 million to $394.5 million. The average rate paid on FHLB advances decreased 13 basis points to 1.30% and the weighted average original maturity increased to 5.5 years from 5.1 years. * During the second quarter of 2020, management tested the availability of the Federal Reserve PPPLF due to the uncertainty of when PPP loans would be required to close and fund. As of December 31, 2020, the Company had no PPPLF advances outstanding.

Non-performing assets decreased $10.0 million, or 27.3%, to $26.7 million, or 1.04% of total assets, compared to $36.7 million, or 1.41% of total assets. The reduction in non-performing assets was principally due to the successful exit of a $4.3 million legacy SBA loan in the manufacturing industry, $3.3 million charge-off of previously reserved legacy SBA loan in the restaurant industry, and a $2.8 million charge-off of a previously reserved conventional loan in the hospitality industry. Excluding net PPP loans, non-performing assets were 1.14% of total assets, compared to 1.61% as of September 30, 2020.

The allowance for loan and lease losses decreased $2.3 million, or 7.5%, compared to September 30, 2020 primarily due to a $5.2 million release of specific reserve corresponding with $6.6 million in net charge-offs. The decrease in specific reserve was partially offset by a $2.9 million increase in the general reserve principally due to historical loss rate updates from net charge-off activity, qualitative factor changes in our commercial real estate portfolio, and loan growth.

* The allowance for loan and lease losses as a percent of total gross loans and leases was 1.33% 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 1.48%, compared to 1.67% as of September 30, 2020.

Fourth Quarter 2020 Compared to Fourth Quarter 2019

Net interest income increased $4.0 million, or 21.9%, to $22.5 million.

* Net interest income benefited from an increase in average loans and leases, increase in fees received in lieu of interest, and significant reduction in interest expense paid on deposits. Fees in lieu of interest totaled $4.7 million, compared to $1.8 million. Excluding fees in lieu of interest, net interest income increased $1.1 million, or 6.8%. * Average loans and leases receivable, excluding PPP loans in both periods of comparison, increased $159.1 million, or 9.1%, to $1.903 billion. * The yield earned on average interest-earning assets decreased 95 basis points to 4.22% from 5.17%. Excluding average net PPP loans, related interest income of $718,000, and the aforementioned fees in lieu of interest, the yield earned on average interest-earning assets decreased 104 basis points to 3.76% from 4.80%. The rate paid for average total bank funding decreased 97 basis points to 0.45% from 1.42%. The average effective federal funds rate decreased 156 basis points to 0.09% from 1.65%. * Net interest margin decreased four basis points to 3.69% from 3.73%. Adjusted net interest margin decreased 16 basis points to 3.25% from 3.41%.

Non-interest income decreased $390,000, or 5.4%, to $6.8 million.

* Commercial loan interest rate swap fee income decreased $1.2 million to $1.1 million compared to $2.3 million. * Gains on sale of SBA loans increased $835,000 to $1.3 million compared to $465,000. * Private wealth management fee income increased $135,000, or 6.5%, to $2.2 million. Trust assets under management and administration measured a record $2.249 billion at December 31, 2020, up $356.8 million, or 18.9%. * Other fee income decreased $272,000, or 22.9%, to $914,000 compared to $1.2 million. The decrease is primarily due to the decrease in returns on investments in mezzanine funds.

Non-interest expense increased $878,000, or 5.2%, to $17.7 million. Operating expense increased $942,000, or 5.7%, to $17.6 million.

* Compensation expense increased $1.1 million, or 10.1%, to $12.1 million. Average full-time equivalent employees increased to 301, up 9.8% for the quarter ended December 31, 2020, compared to 274 for the quarter ended December 31, 2019. * Marketing expense decreased $199,000, or 32.6%, to $411,000 due to temporary postponement of various marketing plans due to the COVID-19 pandemic. * The Company recognized $216,000 in expense due to the remaining impairment of a federal historic tax credit investment, which corresponded with the recognition of a $270,000 tax credit during the quarter, compared to no tax credit activity in the fourth quarter of 2019. * Other non-interest expense decreased $518,000, or 32.8%, to $1.1 million. The decrease was principally due to a one-time right-of-use impairment of $299,000 recognized during the fourth quarter of 2019 from vacating and subleasing unused office space in our Kansas City market. In addition, general business-related expenses decreased due to the Company's adherence to COVID-19 restrictions.

Total period-end loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $206.0 million, or 12.0%, to $1.921 billion.

* C&I loans, excluding net PPP loans, increased $3.6 million, or 0.7%. * CRE loans increased $205.0 million, or 17.8%, driven by an increase across all CRE categories.

Total period-end in-market deposits increased $304.1 million, or 22.1%, to $1.683 billion and the average rate paid decreased 94 basis points to 0.20%.

* Transaction accounts increased $409.3 million and money market accounts decreased $32.9 million. * Certificates of deposits decreased $72.3 million as client preferences continued to shift towards more liquid products due to the low interest rate environment.

Period-end wholesale funding increased $120.5 million to $567.0 million.

* Wholesale deposits increased $21.0 million to $172.5 million mainly due to adding non-maturity brokered deposits at a favorable rate compared to alternative funding sources. Excluding these deposits, wholesale deposits decreased as the existing portfolio runoff is replaced by in-market deposits and lower cost FHLB advances to match-fund long-term fixed rate loans and fund loan growth. The average rate paid on brokered certificates of deposit decreased 145 basis points to 0.96% and the weighted average original maturity decreased to 4.1 years from 5.3 years. * FHLB advances increased $99.5 million to $394.5 million. The average rate paid on FHLB advances decreased 79 basis points to 1.30% and the weighted average original maturity increased to 5.5 years from 5.4 years.

Non-performing assets increased modestly to $26.7 million, or 1.04% of total assets, compared to $23.5 million, or 1.12% of total assets. Excluding net PPP loans, non-performing assets were 1.14% of total assets.

The allowance for loan and lease losses increased 46.1% primarily due to an increase in the general and specific reserve driven by the COVID-19 pandemic.

* The allowance for loan and lease losses as a percent of total gross loans and leases was 1.33% compared to 1.14%. * Excluding net PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.48%.

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 specialty finance, private wealth, and bank consulting services, and through its refined focus, delivers unmatched expertise, accessibility, and responsiveness. Specialty finance 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, the adverse effects of the COVID-19 pandemic on the global, national, and local economy. * The effect of the COVID-19 pandemic on the Corporation'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, 2019, the Company's quarterly report on Form 10-Q for the quarter ended March 31, 2020, and other filings with the Securities and Exchange Commission.

SELECTED FINANCIAL CONDITION DATA

(1) Excluding net PPP loans.

Includes $48.9 million, $52.0 million, and $51.7 million in loans secured(2) by commercial real estate as of December 31, 2020, September 30, 2020, and June 30, 2020, respectively.

As of December 31, 2020, the Company had no meaningful direct exposure to the energy sector, airline industry, or retail consumer, and does not participate in shared national credits.

Because of the significant 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 economy as a whole, there can be no assurances as to how the pandemic may ultimately affect the Company's loan portfolio.

Fourth Quarter 2020 Compared to Third Quarter 2020

Net interest income increased $3.9 million, or 20.9%, to $22.5 million.

* Net interest income benefited from both an increase in average loans and leases and fees received in lieu of interest. Fees in lieu of interest, which can vary from quarter to quarter based on client-driven activity, totaled $4.7 million, compared to $1.5 million. Excluding fees in lieu of interest, net interest income increased $653,000, or 3.8%. * Average loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $87.0 million, or 19.2% annualized, to $1.903 billion. * The yield on average interest-earning assets increased 47 basis points to 4.22% from 3.75%. Excluding average net PPP loans, the PPP loan interest income of $718,000, and the aforementioned fees in lieu of interest, the yield earned on average interest-earning assets decreased 13 basis points to 3.76% from 3.89%. The rate paid for average total bank funding decreased nine basis points to 0.45% from 0.54%. Total bank funding is defined as total deposits plus Federal Home Loan Bank ("FHLB") advances, Federal Reserve Discount Window advances, and Federal Reserve PPPLF advances. * Net interest margin increased 55 basis points to 3.69% from 3.14%. Adjusted net interest margin, excluding fees in lieu of interest and other recurring but volatile components of net interest margin, increased to 3.25% from 3.24%.

Provision for loan and leases losses increased $487,000, or 12.7%, to $4.3 million.

* The increase in provision for loan and lease losses included $6.7 million in charge-offs, partially offset by the release of $5.2 million in related specific reserves. * Changes in the general reserve increased the provision for loan and lease losses $1.3 million due to historical loss rate updates from net charge-off activity, $1.0 million due to qualitative factor changes in our commercial real estate portfolio, and $639,000 due to loan growth. * In January of 2021, the Company received a recovery of approximately $2.0 million on a loan charged off in a prior year. While this recovery will have a positive impact on the Company's provision for loan and lease losses in the first quarter of 2021, it is not necessarily indicative of a trend or a reflection of the Company's ultimate provision for the first quarter.

Non-interest income decreased $609,000, or 8.2%, to $6.8 million.

* Commercial loan interest rate swap fee income decreased $1.4 million, or 55.9%, to $1.1 million compared to $2.4 million. Interest rate swaps continue to be an attractive product for the Company's commercial borrowers, although associated fee income can vary from period to period based on client demand and the interest rate environment in any given quarter. * Gains on sale of SBA loans increased $540,000, or 71.1%, to $1.3 million compared to $760,000. The Company's pipeline continues to grow period over period and management believes the gain 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 over time. * Private wealth management fee income increased $41,000, or 1.9% to $2.2 million. Trust assets under management and administration measured a record $2.249 billion at December 31, 2020, up $231.5 million, or 45.9% annualized, primarily due to increased equity market values. * Other fee income increased $238,000, or 35.2%, to $914,000 compared to $676,000. The increase is primarily due to gain on sale of state tax credits totaling $275,000 in the quarter.

Non-interest expense increased $893,000, or 5.3%, to $17.7 million.

* Compensation expense increased $288,000, or 2.4%, to $12.1 million mainly due to an increase in the Company's performance-based incentive compensation accrual based on estimated full year 2020 results. Despite an elevated provision for loan and lease losses tempering the Company's return on average assets, record loans, deposits, and fee income drove superior revenue growth and efficiency in 2020 when compared to the Company's performance targets. In addition, average full-time equivalent employees increased to 301 for the quarter ended December 31, 2020, compared to 295 for the quarter ended September 30, 2020, the majority of which were producers. * The Company recognized $216,000 in expense due to the remaining impairment of a federal historic tax credit investment, which corresponded with the recognition of a $270,000 tax credit during the quarter. No federal historic tax credit investments were recognized in the third quarter of 2020. * The Company established a $461,000 credit valuation adjustment ("CVA") related to the commercial loan interest rate swap program. The CVA represents a change in the market value of the Company's commercial loan interest rate swaps to estimate potential borrower credit risk within the portfolio. The CVA can vary from period to period based on the size of the portfolio, credit metrics, and the interest rate environment in any given quarter. There was no CVA as of September 30, 2020.

Total period-end loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $75.8 million, or 16.4% annualized, to $1.921 billion.

* Commercial and industrial ("C&I") loans, excluding net PPP loans, increased $42.1 million, or 36.4% annualized. Management believes the timely investments in producers in our counter cyclical commercial banking products, such as asset-based lending and accounts receivable financing, have positioned C&I lending to increase throughout the current economic cycle. * Commercial real estate ("CRE") loans increased $32.6 million, or 9.8% annualized, with growth coming from owner occupied and multi-family properties. Recent success in driving above-average CRE growth comes as established commercial lenders hired over the past 18 months were able to bring many of their high-quality relationships with them to the Bank.

"Despite economic headwinds and uncertainty in 2020 from the fallout of the COVID-19 pandemic, our business banking team remained steadfast in pursuing new relationships and going deeper with existing relationships," said Chambas. "This commitment resulted in well above-industry loan growth across our lending products, particularly in traditional commercial lending, small business, and accounts receivable financing." Chambas continued, "While economic uncertainty lingers in 2021, we believe our proactive investment in talent over the past two years, including in our counter cyclical specialty finance business lines, positions us well to continue our trend of double-digit loan growth moving forward and to meet our long-standing net interest margin goal of 3.50%."

Total period-end in-market deposits increased $15.8 million to $1.683 billion and the average rate paid decreased seven basis points to 0.20%.

* Transaction accounts and money market accounts increased $39.8 million and $4.6 million, respectively, while certificates of deposits decreased $28.7 million. * Client preferences continued to shift away from term deposits due to the low interest rate environment, while management attributes the continued increase in transaction accounts to successful business development efforts and our existing clients' preference for safety and soundness amid the economic uncertainty created by the COVID-19 pandemic.

Period-end wholesale funding, including FHLB advances, Federal Reserve Discount Window advances, Federal Reserve PPPLF advances, brokered deposit, and deposits gathered through internet deposit listing services, decreased $46.2 million to $567.0 million.

* Wholesale deposits increased $18.4 million to $172.5 million, mainly due to adding non-maturity brokered deposits at a favorable rate compared to alternative funding sources. Excluding these deposits, wholesale deposits decreased as the existing portfolio runoff is replaced by in-market deposits and lower cost FHLB advances to match-fund long-term fixed rate loans and fund loan growth. The average rate paid on wholesale deposits decreased 37 basis points to 0.96% and the weighted average original maturity of brokered certificates of deposit decreased to 4.1 years from 4.3 years. * FHLB advances decreased $35.0 million to $394.5 million. The average rate paid on FHLB advances decreased 13 basis points to 1.30% and the weighted average original maturity increased to 5.5 years from 5.1 years. * During the second quarter of 2020, management tested the availability of the Federal Reserve PPPLF due to the uncertainty of when PPP loans would be required to close and fund. As of December 31, 2020, the Company had no PPPLF advances outstanding.

Non-performing assets decreased $10.0 million, or 27.3%, to $26.7 million, or 1.04% of total assets, compared to $36.7 million, or 1.41% of total assets. The reduction in non-performing assets was principally due to the successful exit of a $4.3 million legacy SBA loan in the manufacturing industry, $3.3 million charge-off of previously reserved legacy SBA loan in the restaurant industry, and a $2.8 million charge-off of a previously reserved conventional loan in the hospitality industry. Excluding net PPP loans, non-performing assets were 1.14% of total assets, compared to 1.61% as of September 30, 2020.

The allowance for loan and lease losses decreased $2.3 million, or 7.5%, compared to September 30, 2020 primarily due to a $5.2 million release of specific reserve corresponding with $6.6 million in net charge-offs. The decrease in specific reserve was partially offset by a $2.9 million increase in the general reserve principally due to historical loss rate updates from net charge-off activity, qualitative factor changes in our commercial real estate portfolio, and loan growth.

* The allowance for loan and lease losses as a percent of total gross loans and leases was 1.33% 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 1.48%, compared to 1.67% as of September 30, 2020.

Fourth Quarter 2020 Compared to Fourth Quarter 2019

Net interest income increased $4.0 million, or 21.9%, to $22.5 million.

* Net interest income benefited from an increase in average loans and leases, increase in fees received in lieu of interest, and significant reduction in interest expense paid on deposits. Fees in lieu of interest totaled $4.7 million, compared to $1.8 million. Excluding fees in lieu of interest, net interest income increased $1.1 million, or 6.8%. * Average loans and leases receivable, excluding PPP loans in both periods of comparison, increased $159.1 million, or 9.1%, to $1.903 billion. * The yield earned on average interest-earning assets decreased 95 basis points to 4.22% from 5.17%. Excluding average net PPP loans, related interest income of $718,000, and the aforementioned fees in lieu of interest, the yield earned on average interest-earning assets decreased 104 basis points to 3.76% from 4.80%. The rate paid for average total bank funding decreased 97 basis points to 0.45% from 1.42%. The average effective federal funds rate decreased 156 basis points to 0.09% from 1.65%. * Net interest margin decreased four basis points to 3.69% from 3.73%. Adjusted net interest margin decreased 16 basis points to 3.25% from 3.41%.

Non-interest income decreased $390,000, or 5.4%, to $6.8 million.

* Commercial loan interest rate swap fee income decreased $1.2 million to $1.1 million compared to $2.3 million. * Gains on sale of SBA loans increased $835,000 to $1.3 million compared to $465,000. * Private wealth management fee income increased $135,000, or 6.5%, to $2.2 million. Trust assets under management and administration measured a record $2.249 billion at December 31, 2020, up $356.8 million, or 18.9%. * Other fee income decreased $272,000, or 22.9%, to $914,000 compared to $1.2 million. The decrease is primarily due to the decrease in returns on investments in mezzanine funds.

Non-interest expense increased $878,000, or 5.2%, to $17.7 million. Operating expense increased $942,000, or 5.7%, to $17.6 million.

* Compensation expense increased $1.1 million, or 10.1%, to $12.1 million. Average full-time equivalent employees increased to 301, up 9.8% for the quarter ended December 31, 2020, compared to 274 for the quarter ended December 31, 2019. * Marketing expense decreased $199,000, or 32.6%, to $411,000 due to temporary postponement of various marketing plans due to the COVID-19 pandemic. * The Company recognized $216,000 in expense due to the remaining impairment of a federal historic tax credit investment, which corresponded with the recognition of a $270,000 tax credit during the quarter, compared to no tax credit activity in the fourth quarter of 2019. * Other non-interest expense decreased $518,000, or 32.8%, to $1.1 million. The decrease was principally due to a one-time right-of-use impairment of $299,000 recognized during the fourth quarter of 2019 from vacating and subleasing unused office space in our Kansas City market. In addition, general business-related expenses decreased due to the Company's adherence to COVID-19 restrictions.

Total period-end loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $206.0 million, or 12.0%, to $1.921 billion.

* C&I loans, excluding net PPP loans, increased $3.6 million, or 0.7%. * CRE loans increased $205.0 million, or 17.8%, driven by an increase across all CRE categories.

Total period-end in-market deposits increased $304.1 million, or 22.1%, to $1.683 billion and the average rate paid decreased 94 basis points to 0.20%.

* Transaction accounts increased $409.3 million and money market accounts decreased $32.9 million. * Certificates of deposits decreased $72.3 million as client preferences continued to shift towards more liquid products due to the low interest rate environment.

Period-end wholesale funding increased $120.5 million to $567.0 million.

* Wholesale deposits increased $21.0 million to $172.5 million mainly due to adding non-maturity brokered deposits at a favorable rate compared to alternative funding sources. Excluding these deposits, wholesale deposits decreased as the existing portfolio runoff is replaced by in-market deposits and lower cost FHLB advances to match-fund long-term fixed rate loans and fund loan growth. The average rate paid on brokered certificates of deposit decreased 145 basis points to 0.96% and the weighted average original maturity decreased to 4.1 years from 5.3 years. * FHLB advances increased $99.5 million to $394.5 million. The average rate paid on FHLB advances decreased 79 basis points to 1.30% and the weighted average original maturity increased to 5.5 years from 5.4 years.

Non-performing assets increased modestly to $26.7 million, or 1.04% of total assets, compared to $23.5 million, or 1.12% of total assets. Excluding net PPP loans, non-performing assets were 1.14% of total assets.

The allowance for loan and lease losses increased 46.1% primarily due to an increase in the general and specific reserve driven by the COVID-19 pandemic.

* The allowance for loan and lease losses as a percent of total gross loans and leases was 1.33% compared to 1.14%. * Excluding net PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.48%.

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 specialty finance, private wealth, and bank consulting services, and through its refined focus, delivers unmatched expertise, accessibility, and responsiveness. Specialty finance 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, the adverse effects of the COVID-19 pandemic on the global, national, and local economy. * The effect of the COVID-19 pandemic on the Corporation'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, 2019, the Company's quarterly report on Form 10-Q for the quarter ended March 31, 2020, and other filings with the Securities and Exchange Commission.

SELECTED FINANCIAL CONDITION DATA

(Unaudited) As of

(in thousands) December 31, September 30, June 30, March 31, December 31, 2020 2020 2020 2020 2019

Assets

Cash and cash $ 56,909 $ 51,728 $ 42,391 $ 94,986 $ 67,102 equivalents

Securitiesavailable-for-sale, 183,925 179,274 171,680 175,564 173,133 at fair value

Securitiesheld-to-maturity, 26,374 28,897 29,826 30,774 32,700 at amortized cost

Loans held for sale 8,695 15,049 13,672 6,331 5,205

Loans and leases 2,145,970 2,170,299 2,056,863 1,743,399 1,714,635 receivable

Allowance for loan (28,521 ) (30,817 ) (27,464 ) (22,748 ) (19,520 )and lease losses

Loans and leases 2,117,449 2,139,482 2,029,399 1,720,651 1,695,115 receivable, net

Premises and 1,998 2,130 2,266 2,427 2,557 equipment, net

Foreclosed 34 613 1,389 1,669 2,919 properties

Right-of-use assets 5,814 6,141 6,272 6,590 6,906

Bank-owned life 52,188 51,798 51,433 51,056 42,761 insurance

Federal Home Loan 13,578 15,153 13,470 9,733 7,953 Bank stock, at cost

Goodwill and other 12,018 12,024 11,925 11,872 11,922 intangible assets

Accrued interestreceivable and 88,855 99,558 95,091 84,721 48,506 other assets

Total assets $ 2,567,837 $ 2,601,847 $ 2,468,814 $ 2,196,374 $ 2,096,779

Liabilities andStockholders' Equity

In-market deposits $ 1,683,008 $ 1,667,245 $ 1,620,616 $ 1,383,299 $ 1,378,903

Wholesale deposits 172,508 154,130 89,759 116,827 151,476

Total deposits 1,855,516 1,821,375 1,710,375 1,500,126 1,530,379

Federal Home LoanBank advances and 419,167 483,517 465,007 412,892 319,382 other borrowings

Junior subordinated 10,062 10,058 10,054 10,051 10,047 notes

Lease liabilities 6,386 6,728 6,877 7,211 7,541

Accrued interestpayable and other 70,544 79,384 78,939 70,437 35,274 liabilities

Total liabilities 2,361,675 2,401,062 2,271,252 2,000,717 1,902,623

Total stockholders' 206,162 200,785 197,562 195,657 194,156 equity

Total liabilitiesand stockholders' $ 2,567,837 $ 2,601,847 $ 2,468,814 $ 2,196,374 $ 2,096,779 equity

STATEMENTS OF INCOME

(Unaudited) As of and for the Three Months Ended As of and for the Year Ended

(Dollars in December September December December Decemberthousands, 31, 30, June 30, March 31, 31, 31, 31,except per share 2020 2020 2020 2020 2019 2020 2019amounts)

Total interest $ 25,770 $ 22,276 $ 22,761 $ 23,372 $ 25,613 $ 94,179 $ 102,040 income

Total interest 3,258 3,655 3,873 6,322 7,139 17,108 32,184 expense

Net interest 22,512 18,621 18,888 17,050 18,474 77,071 69,856 income

Provision forloan and lease 4,322 3,835 5,469 3,182 1,472 16,808 2,085 losses

Net interestincome afterprovision for 18,190 14,786 13,419 13,868 17,002 60,263 67,771 loan and leaselosses

Private wealthmanagement 2,208 2,167 2,124 2,112 2,073 8,611 8,197 service fees

Gain on sale of 1,300 760 574 265 465 2,899 1,459 SBA loans

Service charges 887 881 829 818 789 3,415 3,104 on deposits

Loan fees 412 478 451 485 451 1,826 1,767

Net loss on sale - - - (4 ) (42 ) (4 ) (46 )of securities

Swap fees 1,078 2,446 1,655 1,681 2,267 6,860 4,165

Othernon-interest 914 676 686 1,057 1,186 3,333 4,777 income

Totalnon-interest 6,799 7,408 6,319 6,414 7,189 26,940 23,423 income

Compensation 12,145 11,857 10,796 11,052 11,030 45,850 42,021

Occupancy 556 570 554 572 563 2,252 2,293

Professional 909 943 859 819 957 3,530 3,703 fees

Data processing 668 679 710 677 639 2,734 2,562

Marketing 411 356 352 461 610 1,580 2,221

Equipment 294 310 304 291 292 1,199 1,230

Computer 1,028 1,017 966 889 929 3,900 3,414 software

FDIC insurance 479 312 239 208 46 1,238 641

Collateral 47 45 115 121 10 328 119 liquidation cost

Net loss (gain)on foreclosed 54 (121 ) 348 102 (17 ) 383 224 properties

Tax creditinvestment 328 113 1,841 113 113 2,395 4,094 impairment

SBA recourse(benefit) (330 ) 57 (30 ) 25 21 (278 ) 188 provision

Loss on earlyextinguishment - - 744 - - 744 - of debt

Othernon-interest 1,062 620 545 816 1,580 3,043 3,985 expense

Totalnon-interest 17,651 16,758 18,343 16,146 16,773 68,898 66,695 expense

Income beforeincome tax 7,338 5,436 1,395 4,136 7,418 18,305 24,499 expense(benefit)

Income taxexpense 1,254 1,143 (1,928 ) 858 1,650 1,327 1,175 (benefit)

Net income $ 6,084 $ 4,293 $ 3,323 $ 3,278 $ 5,768 $ 16,978 $ 23,324



Per common share:

Basic earnings $ 0.71 $ 0.50 $ 0.38 $ 0.38 $ 0.67 $ 1.97 $ 2.68

Diluted earnings 0.71 0.50 0.38 0.38 0.67 1.97 2.68

Dividends 0.165 0.165 0.165 0.165 0.15 0.66 0.60 declared

Book value 24.06 23.45 23.04 22.83 22.67 24.06 22.67

Tangible book 22.66 22.05 21.65 21.44 21.27 22.66 21.27 value

Weighted-averagecommon shares 8,417,216 8,404,084 8,392,197 8,388,666 8,442,675 8,384,464 8,515,375 outstanding^(1)

Weighted-averagediluted common 8,417,216 8,404,084 8,392,197 8,388,666 8,442,675 8,384,464 8,515,375 sharesoutstanding^(1)

(1)

Excluding participating securities.

NET INTEREST INCOME ANALYSIS

(1) Excluding participating securities.

NET INTEREST INCOME ANALYSIS

(Unaudited) For the Three Months Ended

(Dollars in thousands) December 31, 2020 September 30, 2020 December 31, 2019

Average Average Average Average Interest Yield/ Average Interest Yield/ Average Interest Yield/ Balance Rate^ Balance Rate^ Balance Rate^ (4) (4) (4)

Interest-earning assets

Commercial real estate and other $ 1,353,333 $ 12,875 3.81 % $ 1,282,132 $ 12,340 3.85 % $ 1,161,802 $ 14,319 4.93 %mortgage loans^(1)

Commercial and industrial loans^ 768,869 11,149 5.80 % 791,909 8,133 4.11 % 523,237 9,239 7.06 %(1)

Direct financing leases^(1) 25,071 278 4.44 % 26,129 258 3.95 % 28,439 308 4.33 %

Consumer and other loans^(1) 38,389 355 3.70 % 39,269 374 3.81 % 30,830 330 4.28 %

Total loans and leases 2,185,662 24,657 4.51 % 2,139,439 21,105 3.95 % 1,744,308 24,196 5.55 %receivable^(1)

Mortgage-related securities^(2) 170,400 742 1.74 % 167,326 833 1.99 % 172,539 1,047 2.43 %

Other investment securities^(3) 39,647 183 1.85 % 34,004 171 2.01 % 23,132 126 2.18 %

FHLB stock 14,608 179 4.90 % 12,835 161 5.02 % 7,958 97 4.88 %

Short-term investments 31,418 9 0.11 % 21,287 6 0.11 % 32,985 147 1.78 %

Total interest-earning assets 2,441,735 25,770 4.22 % 2,374,891 22,276 3.75 % 1,980,922 25,613 5.17 %

Non-interest-earning assets 162,010 165,844 126,443

Total assets $ 2,603,745 $ 2,540,735 $ 2,107,365

Interest-bearing liabilities

Transaction accounts $ 482,670 250 0.21 % $ 445,687 259 0.23 % $ 221,446 629 1.14 %

Money market 655,581 287 0.18 % 642,881 318 0.20 % 676,255 2,345 1.39 %

Certificates of deposit 78,693 308 1.57 % 110,891 513 1.85 % 146,128 888 2.43 %

Wholesale deposits 171,718 414 0.96 % 160,067 533 1.33 % 172,033 1,036 2.41 %

Total interest-bearing deposits 1,388,662 1,259 0.36 % 1,359,526 1,623 0.48 % 1,215,862 4,898 1.61 %

FHLB advances 404,174 1,309 1.30 % 379,915 1,356 1.43 % 304,049 1,590 2.09 %

Federal Reserve PPPLF 10,297 9 0.35 % 29,605 26 0.35 % - - - %

Other borrowings 24,419 400 6.55 % 24,403 370 6.06 % 24,462 371 6.07 %

Junior subordinated notes 10,059 281 11.17 % 10,056 280 11.14 % 10,045 280 11.15 %

Total interest-bearing 1,837,611 3,258 0.71 % 1,803,505 3,655 0.81 % 1,554,418 7,139 1.84 %liabilities

Non-interest-bearing demand 473,489 445,245 306,278 deposit accounts

Other non-interest-bearing 88,496 91,810 53,271 liabilities

Total liabilities 2,399,596 2,340,560 1,913,967

Stockholders' equity 204,149 200,175 193,398

Total liabilities and $ 2,603,745 $ 2,540,735 $ 2,107,365 stockholders' equity

Net interest income $ 22,512 $ 18,621 $ 18,474

Interest rate spread 3.51 % 2.94 % 3.33 %

Net interest-earning assets $ 604,124 $ 571,386 $ 426,504

Net interest margin 3.69 % 3.14 % 3.73 %

(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 (CONTINUED)

The average balances of loans and leases include non-accrual loans and(1) 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 (CONTINUED)

(Unaudited) For the Year Ended

(Dollars in December 31, 2020 December 31, 2019thousands)

Average Average Average Average Balance Interest Yield/ Balance Interest Yield/ Rate Rate

Interest-earning assets

Commercial realestate and other $ 1,245,886 $ 51,188 4.11 % $ 1,142,201 $ 58,330 5.11 %mortgage loans^(1)

Commercial and 701,328 35,487 5.06 % 500,058 35,251 7.05 %industrial loans^(1)

Direct financing 26,564 1,039 3.91 % 30,462 1,276 4.19 %leases^(1)

Consumer and other 37,544 1,446 3.85 % 31,250 1,372 4.39 %loans^(1)

Total loans andleases receivable^ 2,011,322 89,160 4.43 % 1,703,971 96,229 5.65 %(1)

Mortgage-related 173,084 3,548 2.05 % 161,969 4,069 2.51 %securities^(2)

Other investment 31,809 639 2.01 % 26,661 568 2.13 %securities^(3)

FHLB and FRB stock 11,576 671 5.80 % 7,398 357 4.83 %

Short-term 37,314 161 0.43 % 35,344 817 2.31 %investments

Totalinterest-earning 2,265,105 94,179 4.16 % 1,935,343 102,040 5.27 %assets

Non-interest-earning 154,511 113,692 assets

Total assets $ 2,419,616 $ 2,049,035

Interest-bearing liabilities

Transaction accounts $ 392,577 1,448 0.37 % $ 222,244 3,408 1.53 %

Money market 651,402 2,842 0.44 % 617,341 10,576 1.71 %

Certificates of 111,698 2,198 1.97 % 156,048 3,852 2.47 %deposit

Wholesale deposits 142,591 2,434 1.71 % 225,302 5,122 2.27 %

Totalinterest-bearing 1,298,268 8,922 0.69 % 1,220,935 22,958 1.88 %deposits

FHLB advances 379,891 5,507 1.45 % 286,464 6,219 2.17 %

Federal Reserve 15,207 54 0.36 % - - - %PPPLF

Other borrowings 24,472 1,509 6.17 % 25,236 1,895 7.51 %

Junior subordinated 10,054 1,116 11.10 % 10,040 1,112 11.08 %notes

Totalinterest-bearing 1,727,892 17,108 0.99 % 1,542,675 32,184 2.09 %liabilities

Non-interest-bearingdemand deposit 412,825 275,495 accounts

Othernon-interest-bearing 82,337 45,047 liabilities

Total liabilities 2,223,054 1,863,217

Stockholders' equity 196,562 185,818

Total liabilitiesand stockholders' $ 2,419,616 $ 2,049,035 equity

Net interest income $ 77,071 $ 69,856

Interest rate spread 3.17 % 3.19 %

Net interest-earning $ 537,213 $ 392,668 assets

Net interest margin 3.40 % 3.61 %

(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.

PROVISION FOR LOAN AND LEASE LOSS COMPOSITION

The average balances of loans and leases include non-accrual loans and(1) 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.

PROVISION FOR LOAN AND LEASE LOSS COMPOSITION

(Unaudited) For the Three Months Ended For the Year Ended

(Dollars in December September June 30, March 31, December December Decemberthousands) 31, 30, 2020 2020 31, 31, 31, 2020 2020 2019 2020 2019

Change ingeneralreserve dueto $ 1,008 $ (766 ) $ 2,388 $ 2,831 $ (117 ) $ 5,460 $ (378 )subjectivefactorchanges

Change ingeneralreserve dueto 1,274 (16 ) (54 ) (255 ) 406 949 (391 )historicalloss factorchanges

Charge-offs 6,685 505 817 131 2,194 8,139 3,356

Recoveries (68 ) (23 ) (64 ) (177 ) (73 ) (332 ) (366 )

Change inspecificreserves on (5,216 ) 2,974 2,122 436 (954 ) 316 (1,032 )impairedloans, net

Change dueto loan 639 1,161 260 216 16 2,276 896 growth, net

Totalprovisionfor loan $ 4,322 $ 3,835 $ 5,469 $ 3,182 $ 1,472 $ 16,808 $ 2,085 and leaselosses

PERFORMANCE RATIOS

For the Three Months Ended For the Year Ended

December September June 30, March December December December(Unaudited) 31, 30, 2020 31, 31, 31, 31, 2020 2020 2020 2019 2020 2019

Return onaverage assets 0.93 % 0.68 % 0.55 % 0.62 % 1.09 % 0.70 % 1.14 %(annualized)

Return onaverage equity 11.92 % 8.58 % 6.70 % 7.14 % 11.93 % 8.64 % 12.55 %(annualized)

Efficiency ratio 60.02 % 64.16 % 61.22 % 67.74 % 64.77 % 63.09 % 66.59 %

Interest rate 3.51 % 2.94 % 3.12 % 3.10 % 3.33 % 3.17 % 3.19 %spread

Net interest 3.69 % 3.14 % 3.34 % 3.44 % 3.73 % 3.40 % 3.61 %margin

Averageinterest-earningassets to 132.88 % 131.68 % 132.82 % 126.41 % 127.44 % 131.09 % 125.45 %averageinterest-bearingliabilities

ASSET QUALITY RATIOS

(Unaudited) As of

(Dollars in December September June 30, March 31, Decemberthousands) 31, 30, 2020 2020 31, 2020 2020 2019

Non-accrualloans and $ 26,617 $ 36,050 $ 24,095 $ 27,897 $ 20,613 leases

Foreclosed 34 613 1,389 1,669 2,919 properties

Totalnon-performing 26,651 36,663 25,484 29,566 23,532 assets

Performingtroubled debt 46 47 49 134 140 restructurings

Total impaired $ 26,697 $ 36,710 $ 25,533 $ 29,700 $ 23,672 assets



Non-accrualloans andleases as apercent of 1.24 % 1.66 % 1.17 % 1.60 % 1.20 %total grossloans andleases

Non-performingassets as apercent oftotal gross 1.24 % 1.68 % 1.23 % 1.69 % 1.37 %loans andleases plusforeclosedproperties

Non-performingassets as a 1.04 % 1.41 % 1.03 % 1.35 % 1.12 %percent oftotal assets

Allowance forloan and leaselosses as apercent of 1.33 % 1.41 % 1.33 % 1.30 % 1.14 %total grossloans andleases

Allowance forloan and leaselosses as apercent of 107.15 % 85.48 % 113.98 % 81.54 % 94.70 %non-accrualloans andleases

ASSET QUALITY RATIOS - EXCLUDING NET PPP LOANS (1)

(Unaudited) As of

December September June March December 31, 30, 30, 31, 31, 2020 2020 2020 2020 2019

Non-accrual loans andleases as a percent of 1.38 % 1.95 % 1.38 % 1.60 % 1.20 %total gross loans andleases

Non-performing assets as apercent of total gross 1.38 % 1.98 % 1.46 % 1.69 % 1.37 %loans and leases plusforeclosed properties

Non-performing assets as a 1.14 % 1.61 % 1.19 % 1.35 % 1.12 %percent of total assets

Allowance for loan andlease losses as a percent 1.48 % 1.67 % 1.57 % 1.30 % 1.14 %of total gross loans andleases

(1)

Net PPP loans outstanding as of December 31, 2020, September 30, 2020, and June 30, 2020, were $225.3 million, $325.5 million, and $320.0 million, respectively. The other periods presented did not have any PPP loans outstanding.

NET CHARGE-OFFS (RECOVERIES)

Net PPP loans outstanding as of December 31, 2020, September 30, 2020, and(1) June 30, 2020, were $225.3 million, $325.5 million, and $320.0 million, respectively. The other periods presented did not have any PPP loans outstanding.

NET CHARGE-OFFS (RECOVERIES)

(Unaudited) For the Three Months Ended For the Year Ended

(Dollars in December September June March December December Decemberthousands) 31, 30, 30, 31, 31, 31, 31, 2020 2020 2020 2020 2019 2020 2019

Charge-offs $ 6,685 $ 505 $ 817 $ 131 $ 2,194 $ 8,139 $ 3,356

Recoveries (68 ) (23 ) (64 ) (177 ) (73 ) (332 ) (366 )

Netcharge-offs $ 6,617 $ 482 $ 753 $ (46 ) $ 2,121 $ 7,807 $ 2,990 (recoveries)

Netcharge-offs(recoveries)as a percent 1.21 % 0.09 % 0.15 % (0.01 ) 0.49 % 0.39 % 0.18 %of average %gross loansand leases(annualized)

Annualizednetcharge-offs(recoveries)as a percentof average 1.39 % 0.11 % 0.17 % (0.01 ) 0.49 % 0.43 % 0.18 %gross loans %and leases,excludingaverage netPPP loans^(1)

(1)

Average net PPP loans outstanding for the three months ended December 31, 2020, September 30, 2020, and June 30, 2020 and year ended December 31, 2020, were $282.3 million, $323.1 million, $252.8 million, and $215.0 million, respectively. The other periods presented did not have any PPP loans outstanding.

CAPITAL RATIOS

Average net PPP loans outstanding for the three months ended December 31, 2020, September 30, 2020, and June 30, 2020 and year ended December 31,(1) 2020, were $282.3 million, $323.1 million, $252.8 million, and $215.0 million, respectively. The other periods presented did not have any PPP loans outstanding.

CAPITAL RATIOS

As of and for the Three Months Ended

December September June March December(Unaudited) 31, 30, 30, 31, 31, 2020 2020 2020 2020 2019

Total capital to 11.25 % 11.42 % 11.97 % 11.74 % 12.01 %risk-weighted assets

Tier I capital to 8.96 % 9.09 % 9.57 % 9.45 % 9.77 %risk-weighted assets

Common equity tier Icapital to risk-weighted 8.53 % 8.64 % 9.08 % 8.96 % 9.27 %assets

Tier I capital to 7.99 % 8.04 % 8.29 % 9.33 % 9.27 %adjusted assets

Tangible common equity to 7.60 % 7.29 % 7.56 % 8.41 % 8.74 %tangible assets

Tangible common equity totangible assets, 8.33 % 8.34 % 8.69 % 8.41 % 8.74 %excluding net PPP loans

LOAN AND LEASE RECEIVABLE COMPOSITION

(Unaudited) As of

(in December 31, September 30, June 30, March 31, December 31,thousands) 2020 2020 2020 2020 2019

Commercial real estate:

Commercialreal estate $ 253,882 $ 240,706 $ 229,994 $ 224,075 $ 226,614 - owneroccupied

Commercialreal estate 564,532 565,781 533,211 511,363 516,652 - non-owneroccupied

Land 49,839 50,864 44,299 48,045 51,097 development

Construction 141,043 142,726 133,375 131,060 109,057

Multi-family 311,556 287,583 244,496 211,594 217,322

1-4 family 38,284 38,857 36,823 34,220 33,359

Totalcommercial 1,359,136 1,326,517 1,222,198 1,160,357 1,154,101 real estate

Commercialand 732,318 790,349 781,239 519,900 503,402 industrial

Directfinancing 22,331 24,743 25,525 26,833 28,203 leases, net

Consumer and other:

Home equityand second 7,833 7,106 6,706 6,513 7,006 mortgages

Other 28,897 29,341 29,737 30,416 22,664

Totalconsumer and 36,730 36,447 36,443 36,929 29,670 other

Total grossloans and 2,150,515 2,178,056 2,065,405 1,744,019 1,715,376 leasesreceivable

Less:

Allowancefor loan and 28,521 30,817 27,464 22,748 19,520 lease losses

Deferred 4,545 7,757 8,542 620 741 loan fees

Loans andleases $ 2,117,449 $ 2,139,482 $ 2,029,399 $ 1,720,651 $ 1,695,115 receivable,net

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

(Unaudited) As of

December September June 30, March 31, December(in thousands) 31, 30, 2020 2020 31, 2020 2020 2019

Performing loans:

Off-balance sheet $ 23,354 $ 26,017 $ 28,843 $ 31,212 $ 35,029 loans

On-balance sheet 11,117 15,175 16,554 17,935 19,697 loans

Gross loans 34,471 41,192 45,397 49,147 54,726

Non-performing loans:

Off-balance sheet 1,931 2,574 1,640 4,887 7,290 loans

On-balance sheet 7,435 9,561 9,725 13,833 12,037 loans

Gross loans 9,366 12,135 11,365 18,720 19,327

Total loans:

Off-balance sheet 25,285 28,591 30,483 36,099 42,319 loans

On-balance sheet 18,552 24,736 26,279 31,768 31,734 loans

Gross loans $ 43,837 $ 53,327 $ 56,762 $ 67,867 $ 74,053

(1)

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

DEPOSIT COMPOSITION

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

DEPOSIT COMPOSITION

(Unaudited) As of

(in thousands) December 31, September 30, June 30, March 31, December 31, 2020 2020 2020 2020 2019

Non-interest-bearing $ 472,818 $ 452,268 $ 433,760 $ 301,657 $ 293,573 transaction accounts

Interest-bearing 503,992 484,761 413,214 343,064 273,909 transaction accounts

Money market 641,504 636,872 656,741 609,883 674,409 accounts

Certificates of 64,694 93,344 116,901 128,695 137,012 deposit

Wholesale deposits 172,508 154,130 89,759 116,827 151,476

Total deposits $ 1,855,516 $ 1,821,375 $ 1,710,375 $ 1,500,126 $ 1,530,379

TRUST ASSETS COMPOSITION

(Unaudited) As of

(in thousands) December 31, September 30, June 30, March 31, December 31, 2020 2020 2020 2020 2019

Trust assetsunder $ 2,061,772 $ 1,841,986 $ 1,704,019 $ 1,519,632 $ 1,726,538 management

Trust assetsunder 187,228 175,521 169,388 144,822 165,660 administration

Total trust $ 2,249,000 $ 2,017,507 $ 1,873,407 $ 1,664,454 $ 1,892,198 assets

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 inthousands, December September June 30, March 31, Decemberexcept per 31, 30, 2020 2020 31,share 2020 2020 2019amounts)

Commonstockholders' $ 206,162 $ 200,785 $ 197,562 $ 195,657 $ 194,156 equity

Goodwill andother (12,018 ) (12,024 ) (11,925 ) (11,872 ) (11,922 )intangibleassets

Tangible $ 194,144 $ 188,761 $ 185,637 $ 183,785 $ 182,234 common equity

Common shares 8,566,960 8,561,714 8,575,134 8,571,134 8,566,044 outstanding

Book value $ 24.06 $ 23.45 $ 23.04 $ 22.83 $ 22.67 per share

Tangible bookvalue per 22.66 22.05 21.65 21.44 21.27 share

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 December 31, September 30, June 30, March 31, December 31,thousands) 2020 2020 2020 2020 2019

Commonstockholders' $ 206,162 $ 200,785 $ 197,562 $ 195,657 $ 194,156 equity

Goodwill andother (12,018 ) (12,024 ) (11,925 ) (11,872 ) (11,922 )intangibleassets

Tangible $ 194,144 $ 188,761 $ 185,637 $ 183,785 $ 182,234 common equity

Total assets $ 2,567,837 $ 2,601,847 $ 2,468,814 $ 2,196,374 $ 2,096,779

Goodwill andother (12,018 ) (12,024 ) (11,925 ) (11,872 ) (11,922 )intangibleassets

Tangible $ 2,555,819 $ 2,589,823 $ 2,456,889 $ 2,184,502 $ 2,084,857 assets

Tangiblecommon equity 7.60 % 7.29 % 7.56 % 8.41 % 8.74 %to tangibleassets

Period-end 225,323 325,481 320,036 - - net PPP loans

Tangibleassets, $ 2,330,496 $ 2,264,342 $ 2,136,853 $ 2,184,502 $ 2,084,857 excluding netPPP loans

Tangiblecommon equityto tangible 8.33 % 8.34 % 8.69 % 8.41 % 8.74 %assets,excluding netPPP loans

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 Year Ended

(Dollars in December 31, September 30, June 30, March 31, December 31, December 31, December 31,thousands) 2020 2020 2020 2020 2019 2020 2019

Totalnon-interest $ 17,651 $ 16,758 $ 18,343 $ 16,146 $ 16,773 $ 68,898 $ 66,695 expense

Less:

Net loss(gain) on 54 (121 ) 348 102 (17 ) 383 224 foreclosedproperties

Amortizationof other 8 9 9 9 7 35 40 intangibleassets

SBA recourse(benefit) (330 ) 57 (30 ) 25 21 (278 ) 188 provision

Tax creditinvestment 328 113 1,841 113 113 2,395 4,094 impairment

Loss on earlyextinguishment - - 744 - - 744 - of debt

Totaloperating $ 17,591 $ 16,700 $ 15,431 $ 15,897 $ 16,649 $ 65,619 $ 62,149 expense ^(a)

Net interest $ 22,512 $ 18,621 $ 18,888 $ 17,050 $ 18,474 $ 77,071 $ 69,856 income

Totalnon-interest 6,799 7,408 6,319 6,414 7,189 26,940 23,423 income

Less:

Net loss onsale of - - - (4 ) (42 ) (4 ) (46 )securities

Adjustednon-interest 6,799 7,408 6,319 6,418 7,231 26,944 23,469 income

Totaloperating $ 29,311 $ 26,029 $ 25,207 $ 23,468 $ 25,705 $ 104,015 $ 93,325 revenue ^(b)

Efficiency 60.02 % 64.16 % 61.22 % 67.74 % 64.77 % 63.09 % 66.59 %ratio



Pre-tax,pre-provisionadjusted $ 11,720 $ 9,329 $ 9,776 $ 7,571 $ 9,056 $ 38,396 $ 31,176 earnings ^(b -a)

Average total $ 2,603,745 $ 2,540,735 $ 2,425,767 $ 2,104,862 $ 2,107,365 $ 2,419,616 $ 2,049,035 assets

Pre-tax,pre-provisionadjusted 1.80 % 1.47 % 1.61 % 1.44 % 1.72 % 1.59 % 1.52 %return onaverage assets

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 Year Ended

(Dollars in December 31, September 30, June 30, March 31, December 31, December 31, December 31,thousands) 2020 2020 2020 2020 2019 2020 2019

Interest income $ 25,770 $ 22,276 $ 22,761 $ 23,372 $ 25,613 $ 94,179 $ 102,040

Interest expense 3,258 3,655 3,873 6,322 7,139 17,108 32,184

Net interest 22,512 18,621 18,888 17,050 18,474 77,071 69,856 income ^(a)

Less:

Fees in lieu of 4,749 1,511 2,257 798 1,840 9,315 6,479 interest

PPP loan 718 833 647 - - 2,198 - interest income

FRB interestincome and FHLB 188 167 134 301 208 789 934 dividend income

Add:

FRB PPPLF 9 26 18 - - 54 - interest expense

Adjusted netinterest income $ 16,866 $ 16,136 $ 15,868 $ 15,951 $ 16,426 $ 64,823 $ 62,443 ^(b)

Averageinterest-earning $ 2,441,735 $ 2,374,891 $ 2,258,759 $ 1,981,887 $ 1,980,922 $ 2,265,105 $ 1,935,343 assets ^(c)

Less:

Average net PPP 282,259 323,082 252,834 - - 215,025 - loans

Average FRB cash 45,611 33,756 69,176 37,989 34,565 46,595 34,149 and FHLB stock

Averagenon-accrual 36,013 26,931 25,386 22,209 21,738 27,656 23,937 loans and leases

Adjusted averageinterest-earning $ 2,077,852 $ 1,991,122 $ 1,911,363 $ 1,921,689 $ 1,924,619 $ 1,975,829 $ 1,877,257 assets ^(d)

Net interest 3.69 % 3.14 % 3.34 % 3.44 % 3.73 % 3.40 % 3.61 %margin^ (a / c)

Adjusted netinterest margin^ 3.25 % 3.24 % 3.32 % 3.32 % 3.41 % 3.28 % 3.33 %(b / d)

View source version on businesswire.com: https://www.businesswire.com/news/home/20210128006017/en/

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