Business Wire | Oct 28, 2021 04:02PM EDT

First Business Bank Reports Strong Third Quarter 2021 Net Income of $9.2 Million

Oct. 28, 2021

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

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

Quarterly Highlights

* Continued Loan Growth. Loans, excluding Paycheck Protection Program ("PPP") loans, grew $36.0 million, or 7.1% annualized, from the second quarter of 2021 and $214.0 million, or 11.6%, from the third quarter of 2020, as the Company continued to expand specialized lending offerings for commercial clients and focus on growing our businesses across all products and geographies. * Sustained Strong Revenue Growth. Driven by net interest margin stability and fee income growth, top line revenue, the sum of net interest income and non-interest income, grew to $28.2 million, up 8.5% from the third quarter of 2020. Third quarter 2021 non-interest income continued to reflect the strength and diversity of our fee income sources, including record revenue from private wealth management of $2.8 million on $2.7 billion in assets under management and administration for the period. * Positive Asset Quality Trends. Non-performing assets ("NPAs") declined 34.4% to $7.6 million, or 0.29% of total assets, marking the fourth consecutive quarterly reduction of more than 25%. NPAs made up 0.30% of total assets, excluding net PPP loans, improving by 12 and 131 basis points from June 30, 2021 and September 30, 2020, respectively. * Compounding Tangible Book Value. Tangible Book Value ("TBV") per share grew by 14% annualized in the quarter to $25.11, which is nearly double the long-term growth rate of 8%.

QuarterlyFinancialResults

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

(Dollars inthousands, September 30, June 30, September 30, September 30, September 30,except per 2021 2021 2020 2021 2020share amounts)

Net interest $ 21,223 $ 21,652 $ 18,621 $ 63,738 $ 54,558 income

Adjustednon-interest 7,015 6,292 7,408 20,502 20,145 income ^(1)

Operating 28,238 27,944 26,029 84,240 74,703 revenue ^(1)

Operating 18,546 17,932 16,700 53,928 48,026 expense ^(1)

Pre-tax,pre-provision 9,692 10,012 9,329 30,312 26,677 adjustedearnings ^(1)

Less:

Provision forloan and lease (2,269 ) (958 ) 3,835 (5,295 ) 12,487 losses

Net loss(gain) on 6 (1 ) (121 ) 7 329 foreclosedproperties

Amortizationof other 7 8 9 23 27 intangibleassets

SBA recourse(benefit) (69 ) 245 57 45 53 provision

Impairment ontax credit - - 113 - 2,066 investments

Loss on earlyextinguishment - - - - 744 of debt

Add:

Net gain(loss) on sale - 29 - 29 (4 )of securities

Income beforeincome tax 12,017 10,747 5,436 35,561 10,967 expense

Income tax 2,819 2,512 1,143 8,396 73 expense

Net income $ 9,198 $ 8,235 $ 4,293 $ 27,165 $ 10,894

Earnings per $ 1.07 $ 0.95 $ 0.50 $ 3.15 $ 1.27 share, diluted

Book value per $ 26.56 $ 25.70 $ 23.45 $ 26.56 $ 23.45 share

Tangible bookvalue per $ 25.11 $ 24.28 $ 22.05 $ 25.11 $ 22.05 share ^(1)



Net interest 3.45 % 3.49 % 3.14 % 3.46 % 3.30 %margin ^(2)

Adjusted netinterest 3.22 % 3.20 % 3.24 % 3.21 % 3.29 %margin ^(1)(2)

Efficiency 65.68 % 64.17 % 64.16 % 64.02 % 64.29 %ratio ^(1)

Return onaverage assets 1.41 % 1.26 % 0.68 % 1.39 % 0.62 %^(2)

Pre-tax,pre-provisionadjusted 1.49 % 1.53 % 1.47 % 1.55 % 1.51 %return onaverage assets^(1)(2)

Return onaverage equity 16.39 % 15.09 % 8.58 % 16.63 % 7.49 %^(2)



Period-endloans and $ 2,123,306 $ 2,143,561 $ 2,170,299 $ 2,123,306 $ 2,170,299 leasesreceivable

Period-endloans andleases $ 2,058,852 $ 2,022,839 $ 1,844,818 $ 2,058,852 $ 1,844,818 receivable,excluding netPPP loans

Average loansand leases $ 2,131,099 $ 2,223,353 $ 2,139,439 $ 2,178,947 $ 1,952,785 receivable

Period-endin-market $ 1,829,644 $ 2,016,215 $ 1,667,245 $ 1,829,644 $ 1,667,245 deposits

Averagein-market $ 1,810,948 $ 1,735,393 $ 1,644,704 $ 1,756,475 $ 1,527,561 deposits

Allowance forloan and lease $ 24,676 $ 25,675 $ 30,817 $ 24,676 $ 30,817 losses

Non-performing $ 7,605 $ 11,601 $ 36,663 $ 7,605 $ 36,663 assets

Allowance forloan and leaselosses as apercent of 1.16 % 1.20 % 1.41 % 1.16 % 1.41 %total grossloans andleases

Allowance forloan and leaselosses as apercent oftotal gross 1.20 % 1.27 % 1.67 % 1.20 % 1.67 %loans andleases,excluding netPPP loans

Non-performingassets as a 0.29 % 0.40 % 1.41 % 0.29 % 1.41 %percent oftotal assets

Non-performingassets as apercent of 0.30 % 0.42 % 1.61 % 0.30 % 1.61 %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.

(2)

Calculation is annualized.

Third Quarter 2021 Compared to Second Quarter 2021

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

* Net interest income decreased primarily due to a reduction in fees in lieu of interest. Fees in lieu of interest, which can vary from quarter to quarter based on client-driven activity, totaled $2.8 million, compared to $3.5 million. Excluding fees in lieu of interest, net interest income increased $268,000, or 1.5%. * Average loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $49.4 million, or 9.9% annualized, to $2.044 billion. * The yield on average interest-earning assets decreased six basis points to 3.90% from 3.96%. Excluding average net PPP loans, the PPP loan interest income of $221,000, and the aforementioned fees in lieu of interest, the yield earned on average interest-earning assets decreased 11 basis points to 3.53% from 3.64%. The rate paid for average total bank funding decreased three basis point to 0.36% from 0.39%. Total bank funding is defined as total deposits plus Federal Home Loan Bank ("FHLB") advances, and Federal Reserve Discount Window advances. * Net interest margin decreased four basis points to 3.45% from 3.49%. Adjusted net interest margin was 3.22%, compared to 3.20% in the linked quarter. Adjusted net interest margin is a non-GAAP measure representing net interest income excluding the fees in lieu of interest and other recurring but volatile components of net interest margin divided by average interest-earning assets less average net PPP loans, if any, and other recurring but volatile components of average interest-earning assets such as excess liquidity and non-accrual loans.

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

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

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

* Private wealth management fee income increased $15,000, or 0.5% to $2.8 million. Private wealth and trust assets under management and administration measured a record $2.694 billion at September 30, 2021, up $129.8 million, or 20.2% annualized, primarily due to growth from new and existing clients. * Gains on sale of SBA loans decreased $482,000 to $721,000. Management expects this revenue stream to return to levels consistent with the first half of the year in the coming quarters and continues to believe gains on sale of traditional SBA loans (i.e., SBA loans unrelated to PPP loans), while variable based on timing of closings, will continue to increase annually at a measured pace. * During the third and second quarters of 2021 there was no commercial loan interest rate swap fee income. Swap fee income can vary from period to period based on client demand and the interest rate environment in any given quarter. Subsequent to September 30, 2021, the Company completed two commercial loan interest rate swap transactions which generated swap fees totaling $684,000. * Other fee income increased $1.0 million to $1.9 million, compared to $835,000 in the second quarter, reflecting higher than typical returns from the Company's investments in mezzanine funds.

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

* Compensation expense, the largest component of the Company's non-interest expense, increased $96,000, or 0.7%, to $13.4 million, primarily for performance-based incentive compensation accruals reflecting strong company performance relative to bonus criteria. * Other non-interest expense increased $543,000 to $719,000. Other non-interest expense for the second quarter of 2021 included a $206,000 and $78,000 benefit in the Company's swap credit valuation and loan servicing impairment valuation, respectively. The remaining variance was generally attributable to higher travel costs.

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

* Commercial and industrial ("C&I") loans, excluding net PPP loans, increased $41.9 million, or 29.2% annualized, led by First Business Bank's specialized lending commercial business lines. Management believes the timely prior-period investments in our specialized lending business lines, such as dealer floorplan financing, small-ticket equipment vendor financing, and accounts receivable financing, have positioned C&I lending to increase throughout the current economic cycle. * Commercial real estate ("CRE") loans decreased by $4.3 million to $1.388 billion, compared to $1.392 billion, as new production was offset by payoffs and paydowns.

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

* As previously disclosed, in-market deposits on June 30, 2021 included a temporary balance associated with the proceeds of a commercial client's business sale late in the second quarter, the majority of which was moved off the balance sheet in early July. Excluding this temporary deposit, total period-end in-market deposits increased by $38.4 million, or 8.6% annualized. * Excluding the temporary deposit, money market accounts, interest-bearing transaction accounts, and certificates of deposit increased $43.6 million, $5.6 million, and $12.5 million, respectively, while non-interest bearing transaction accounts decreased $23.2 million.

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

* Wholesale deposits decreased $69.9 million to $74.6 million. The average rate paid on wholesale deposits increased 18 basis points to 0.92% and the weighted average original maturity of brokered certificates of deposit increased to 3.7 years from 3.5 years. * FHLB advances decreased $30.0 million to $357.8 million. The average rate paid on FHLB advances increased two basis points to 1.29% and the weighted average original maturity increased to 6.2 years from 6.1 years.

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

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

* The allowance for loan and lease losses as a percent of total gross loans and leases was 1.16% compared to 1.20% as of June 30, 2021. * Excluding net PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.20%, compared to 1.27% as of June 30, 2021.

Third Quarter 2021 Compared to Third Quarter 2020

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

* The increase in net interest income reflects expanded yields on average gross loans and leases, which were relatively consistent between periods, and lower deposit costs. Excluding fees collected in lieu of interest and interest income from PPP loans, net interest income increased $1.9 million, or 11.4%. Excluding net PPP loans, average gross loans and leases increased $227.2 million, or 12.5%. * The yield on average interest-earning assets measured 3.90% compared to 3.75%. Excluding fees collected in lieu of interest, PPP loan interest income and net PPP loans, the yield on average interest-earning assets measured 3.53%, compared to 3.89%. This decrease in yield was primarily due to the decrease in LIBOR and Prime rates and related impact on variable-rate loans, in addition to the renewal of fixed-rate loans and reinvestment of cash flows from the securities portfolio at historically low interest rates. The rate paid for average total bank funding decreased 18 basis points to 0.36% from 0.54%. * Net interest margin increased 31 basis points to 3.45% from 3.14%. Adjusted net interest margin decreased 2 basis points to 3.22% from 3.24%.

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

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

* Private wealth management fee income increased $592,000, or 27.3%, to $2.8 million. Private wealth and trust assets under management and administration measured a record $2.694 billion at September 30, 2021, up $676.6 million, or 33.5%. * Loan fees of $713,000 increased by $235,000, or 49.2%, primarily due to an increase in floorplan financing curtailment fees and miscellaneous asset-based lending fees. * Gains on sale of SBA loans decreased $39,000 to $721,000. Management expects this revenue stream to return to levels consistent with the first half of the year in the coming quarters and continues to believe gains on sale of traditional SBA loans (i.e., SBA loans unrelated to PPP loans), while variable based on timing of closings, will continue to increase annually at a measured pace. * During the third quarter of 2021, there was no commercial loan interest rate swap fee income activity, compared to $2.4 million in the year-ago period. Swap fee income can vary from period to period based on client demand and the interest rate environment in any given quarter. * Other fee income increased $1.2 million, or 176.0%, to $1.9 million compared to $676,000, reflecting higher than typical returns from the Company's investments in mezzanine funds in the third quarter of 2021.

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

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

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

* C&I loans, excluding net PPP loans, increased $151.7 million, or 32.6%. * CRE loans increased $61.2 million, or 4.6%, as increases in the non-owner occupied and multi-family portfolios were partially offset by reductions in the land development and 1-4 family portfolios.

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

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

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

* Wholesale deposits decreased $79.5 million to $74.6 million, compared to $154.1 million, as the existing portfolio runoff was replaced by in-market deposits. The average rate paid on brokered certificates of deposit decreased 41 basis points to 0.92% and the weighted average original maturity decreased to 3.7 years from 4.3 years. * FHLB advances decreased $71.7 million to $357.8 million. The average rate paid on FHLB advances increased 14 basis points to 1.29% and the weighted average original maturity increased to 6.2 years from 5.1 years.

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

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

* The allowance for loan and lease losses as a percent of total gross loans and leases was 1.16% compared to 1.41%. * Excluding net PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.20% as of September 30, 2021 compared to 1.67% one year prior.

COVID-19 Update

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

Paycheck Protection Program

As of September 30, 2021, the Company had $65.9 million in gross PPP loans outstanding and deferred processing fees outstanding of $1.4 million. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness, as an adjustment of yield using the interest method. During the three and nine months ended September 30, 2021, the Company recognized $1.7 million and $6.4 million, respectively, of processing fees in loans and leases interest income in the unaudited Consolidated Statements of Income. The SBA provides a guaranty to the lender of 100% of principal and interest, unless the lender violated an obligation under the agreement. Since loan losses are expected to be immaterial, if at all due to the government guarantee, management excluded the PPP loans from the allowance for loan and lease losses calculation. These short-term loans were funded primarily through a combination of excess cash held at the Federal Reserve and from an increase in in-market deposits.

Deferral Requests

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

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

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.

(2) Calculation is annualized.

Third Quarter 2021 Compared to Second Quarter 2021

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

* Net interest income decreased primarily due to a reduction in fees in lieu of interest. Fees in lieu of interest, which can vary from quarter to quarter based on client-driven activity, totaled $2.8 million, compared to $3.5 million. Excluding fees in lieu of interest, net interest income increased $268,000, or 1.5%. * Average loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $49.4 million, or 9.9% annualized, to $2.044 billion. * The yield on average interest-earning assets decreased six basis points to 3.90% from 3.96%. Excluding average net PPP loans, the PPP loan interest income of $221,000, and the aforementioned fees in lieu of interest, the yield earned on average interest-earning assets decreased 11 basis points to 3.53% from 3.64%. The rate paid for average total bank funding decreased three basis point to 0.36% from 0.39%. Total bank funding is defined as total deposits plus Federal Home Loan Bank ("FHLB") advances, and Federal Reserve Discount Window advances. * Net interest margin decreased four basis points to 3.45% from 3.49%. Adjusted net interest margin was 3.22%, compared to 3.20% in the linked quarter. Adjusted net interest margin is a non-GAAP measure representing net interest income excluding the fees in lieu of interest and other recurring but volatile components of net interest margin divided by average interest-earning assets less average net PPP loans, if any, and other recurring but volatile components of average interest-earning assets such as excess liquidity and non-accrual loans.

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

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

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

* Private wealth management fee income increased $15,000, or 0.5% to $2.8 million. Private wealth and trust assets under management and administration measured a record $2.694 billion at September 30, 2021, up $129.8 million, or 20.2% annualized, primarily due to growth from new and existing clients. * Gains on sale of SBA loans decreased $482,000 to $721,000. Management expects this revenue stream to return to levels consistent with the first half of the year in the coming quarters and continues to believe gains on sale of traditional SBA loans (i.e., SBA loans unrelated to PPP loans), while variable based on timing of closings, will continue to increase annually at a measured pace. * During the third and second quarters of 2021 there was no commercial loan interest rate swap fee income. Swap fee income can vary from period to period based on client demand and the interest rate environment in any given quarter. Subsequent to September 30, 2021, the Company completed two commercial loan interest rate swap transactions which generated swap fees totaling $684,000. * Other fee income increased $1.0 million to $1.9 million, compared to $835,000 in the second quarter, reflecting higher than typical returns from the Company's investments in mezzanine funds.

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

* Compensation expense, the largest component of the Company's non-interest expense, increased $96,000, or 0.7%, to $13.4 million, primarily for performance-based incentive compensation accruals reflecting strong company performance relative to bonus criteria. * Other non-interest expense increased $543,000 to $719,000. Other non-interest expense for the second quarter of 2021 included a $206,000 and $78,000 benefit in the Company's swap credit valuation and loan servicing impairment valuation, respectively. The remaining variance was generally attributable to higher travel costs.

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

* Commercial and industrial ("C&I") loans, excluding net PPP loans, increased $41.9 million, or 29.2% annualized, led by First Business Bank's specialized lending commercial business lines. Management believes the timely prior-period investments in our specialized lending business lines, such as dealer floorplan financing, small-ticket equipment vendor financing, and accounts receivable financing, have positioned C&I lending to increase throughout the current economic cycle. * Commercial real estate ("CRE") loans decreased by $4.3 million to $1.388 billion, compared to $1.392 billion, as new production was offset by payoffs and paydowns.

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

* As previously disclosed, in-market deposits on June 30, 2021 included a temporary balance associated with the proceeds of a commercial client's business sale late in the second quarter, the majority of which was moved off the balance sheet in early July. Excluding this temporary deposit, total period-end in-market deposits increased by $38.4 million, or 8.6% annualized. * Excluding the temporary deposit, money market accounts, interest-bearing transaction accounts, and certificates of deposit increased $43.6 million, $5.6 million, and $12.5 million, respectively, while non-interest bearing transaction accounts decreased $23.2 million.

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

* Wholesale deposits decreased $69.9 million to $74.6 million. The average rate paid on wholesale deposits increased 18 basis points to 0.92% and the weighted average original maturity of brokered certificates of deposit increased to 3.7 years from 3.5 years. * FHLB advances decreased $30.0 million to $357.8 million. The average rate paid on FHLB advances increased two basis points to 1.29% and the weighted average original maturity increased to 6.2 years from 6.1 years.

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

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

* The allowance for loan and lease losses as a percent of total gross loans and leases was 1.16% compared to 1.20% as of June 30, 2021. * Excluding net PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.20%, compared to 1.27% as of June 30, 2021.

Third Quarter 2021 Compared to Third Quarter 2020

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

* The increase in net interest income reflects expanded yields on average gross loans and leases, which were relatively consistent between periods, and lower deposit costs. Excluding fees collected in lieu of interest and interest income from PPP loans, net interest income increased $1.9 million, or 11.4%. Excluding net PPP loans, average gross loans and leases increased $227.2 million, or 12.5%. * The yield on average interest-earning assets measured 3.90% compared to 3.75%. Excluding fees collected in lieu of interest, PPP loan interest income and net PPP loans, the yield on average interest-earning assets measured 3.53%, compared to 3.89%. This decrease in yield was primarily due to the decrease in LIBOR and Prime rates and related impact on variable-rate loans, in addition to the renewal of fixed-rate loans and reinvestment of cash flows from the securities portfolio at historically low interest rates. The rate paid for average total bank funding decreased 18 basis points to 0.36% from 0.54%. * Net interest margin increased 31 basis points to 3.45% from 3.14%. Adjusted net interest margin decreased 2 basis points to 3.22% from 3.24%.

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

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

* Private wealth management fee income increased $592,000, or 27.3%, to $2.8 million. Private wealth and trust assets under management and administration measured a record $2.694 billion at September 30, 2021, up $676.6 million, or 33.5%. * Loan fees of $713,000 increased by $235,000, or 49.2%, primarily due to an increase in floorplan financing curtailment fees and miscellaneous asset-based lending fees. * Gains on sale of SBA loans decreased $39,000 to $721,000. Management expects this revenue stream to return to levels consistent with the first half of the year in the coming quarters and continues to believe gains on sale of traditional SBA loans (i.e., SBA loans unrelated to PPP loans), while variable based on timing of closings, will continue to increase annually at a measured pace. * During the third quarter of 2021, there was no commercial loan interest rate swap fee income activity, compared to $2.4 million in the year-ago period. Swap fee income can vary from period to period based on client demand and the interest rate environment in any given quarter. * Other fee income increased $1.2 million, or 176.0%, to $1.9 million compared to $676,000, reflecting higher than typical returns from the Company's investments in mezzanine funds in the third quarter of 2021.

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

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

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

* C&I loans, excluding net PPP loans, increased $151.7 million, or 32.6%. * CRE loans increased $61.2 million, or 4.6%, as increases in the non-owner occupied and multi-family portfolios were partially offset by reductions in the land development and 1-4 family portfolios.

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

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

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

* Wholesale deposits decreased $79.5 million to $74.6 million, compared to $154.1 million, as the existing portfolio runoff was replaced by in-market deposits. The average rate paid on brokered certificates of deposit decreased 41 basis points to 0.92% and the weighted average original maturity decreased to 3.7 years from 4.3 years. * FHLB advances decreased $71.7 million to $357.8 million. The average rate paid on FHLB advances increased 14 basis points to 1.29% and the weighted average original maturity increased to 6.2 years from 5.1 years.

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

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

* The allowance for loan and lease losses as a percent of total gross loans and leases was 1.16% compared to 1.41%. * Excluding net PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.20% as of September 30, 2021 compared to 1.67% one year prior.

COVID-19 Update

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

Paycheck Protection Program

As of September 30, 2021, the Company had $65.9 million in gross PPP loans outstanding and deferred processing fees outstanding of $1.4 million. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness, as an adjustment of yield using the interest method. During the three and nine months ended September 30, 2021, the Company recognized $1.7 million and $6.4 million, respectively, of processing fees in loans and leases interest income in the unaudited Consolidated Statements of Income. The SBA provides a guaranty to the lender of 100% of principal and interest, unless the lender violated an obligation under the agreement. Since loan losses are expected to be immaterial, if at all due to the government guarantee, management excluded the PPP loans from the allowance for loan and lease losses calculation. These short-term loans were funded primarily through a combination of excess cash held at the Federal Reserve and from an increase in in-market deposits.

Deferral Requests

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

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

As of

September 30, 2021

Collateral Type

Industries Description Balance Real Estate Non-Real Estate

(In thousands)

Accommodation and Food Services $ 23,521 $ 23,521 $ -

Manufacturing 428 - 428

Retail Trade 115 - 115

Total deferred loan balances $ 24,064 $ 23,521 $ 543

Exposure to Stressed Industries

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

As of

September 30, 2021 December 31, 2020

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

(Dollars in Thousands)

Retail ^(2) $ 76,635 3.7 % $ 62,719 3.3 %(3)

Hospitality 77,286 3.7 % 80,832 4.2 %

Entertainment 13,533 0.7 % 14,208 0.7 %

Restaurants & 22,393 1.1 % 24,854 1.3 %food service

Totaloutstanding $ 189,847 9.2 % $ 182,613 9.5 %exposure

(1)

Excluding net PPP loans.

(2)

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

(3)

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

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

Share Repurchase Program Update

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

About First Business Financial Services, Inc.

First Business Financial Services, Inc., (Nasdaq: FBIZ) is the parent company of First Business Bank. First Business Bank specializes in Business Banking, including Commercial Banking and Specialized Lending, Private Wealth, and Bank Consulting services, and through its refined focus, delivers unmatched expertise, accessibility, and responsiveness. Specialized Lending solutions are delivered through First Business Bank's wholly owned subsidiary First Business Specialty Finance, LLC. For additional information, visit www.firstbusiness.bank.

This release may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which reflect First Business Bank's current views with respect to future events and financial performance. Forward-looking statements are not based on historical information, but rather are related to future operations, strategies, financial results, or other developments. Forward-looking statements are based on management's expectations as well as certain assumptions and estimates made by, and information available to, management at the time the statements are made. Those statements are based on general assumptions and are subject to various risks, uncertainties, and other factors that may cause actual results to differ materially from the views, beliefs, and projections expressed in such statements. Such statements are subject to risks and uncertainties, including among other things:

* Adverse changes in the economy or business conditions, either nationally or in our markets, including, without limitation, the adverse effects of the COVID-19 pandemic on the global, national, and local economy. * The effect of the COVID-19 pandemic on the Company's credit quality, revenue, and business operations. * Competitive pressures among depository and other financial institutions nationally and in our markets. * Increases in defaults by borrowers and other delinquencies. * Our ability to manage growth effectively, including the successful expansion of our client service, administrative infrastructure, and internal management systems. * Fluctuations in interest rates and market prices. * Changes in legislative or regulatory requirements applicable to us and our subsidiaries. * Changes in tax requirements, including tax rate changes, new tax laws, and revised tax law interpretations. * Fraud, including client and system failure or breaches of our network security, including our internet banking activities. * Failure to comply with the applicable SBA regulations in order to maintain the eligibility of the guaranteed portion of SBA loans.

For further information about the factors that could affect the Company's future results, please see the Company's annual report on Form 10-K for the year ended December 31, 2020 and other filings with the Securities and Exchange Commission.

(1) Excluding net PPP loans.

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

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

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

Share Repurchase Program Update

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

About First Business Financial Services, Inc.

First Business Financial Services, Inc., (Nasdaq: FBIZ) is the parent company of First Business Bank. First Business Bank specializes in Business Banking, including Commercial Banking and Specialized Lending, Private Wealth, and Bank Consulting services, and through its refined focus, delivers unmatched expertise, accessibility, and responsiveness. Specialized Lending solutions are delivered through First Business Bank's wholly owned subsidiary First Business Specialty Finance, LLC. For additional information, visit www.firstbusiness.bank.

This release may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which reflect First Business Bank's current views with respect to future events and financial performance. Forward-looking statements are not based on historical information, but rather are related to future operations, strategies, financial results, or other developments. Forward-looking statements are based on management's expectations as well as certain assumptions and estimates made by, and information available to, management at the time the statements are made. Those statements are based on general assumptions and are subject to various risks, uncertainties, and other factors that may cause actual results to differ materially from the views, beliefs, and projections expressed in such statements. Such statements are subject to risks and uncertainties, including among other things:

* Adverse changes in the economy or business conditions, either nationally or in our markets, including, without limitation, the adverse effects of the COVID-19 pandemic on the global, national, and local economy. * The effect of the COVID-19 pandemic on the Company's credit quality, revenue, and business operations. * Competitive pressures among depository and other financial institutions nationally and in our markets. * Increases in defaults by borrowers and other delinquencies. * Our ability to manage growth effectively, including the successful expansion of our client service, administrative infrastructure, and internal management systems. * Fluctuations in interest rates and market prices. * Changes in legislative or regulatory requirements applicable to us and our subsidiaries. * Changes in tax requirements, including tax rate changes, new tax laws, and revised tax law interpretations. * Fraud, including client and system failure or breaches of our network security, including our internet banking activities. * Failure to comply with the applicable SBA regulations in order to maintain the eligibility of the guaranteed portion of SBA loans.

For further information about the factors that could affect the Company's future results, please see the Company's annual report on Form 10-K for the year ended December 31, 2020 and other filings with the Securities and Exchange Commission.

SELECTED FINANCIAL CONDITION DATA

(Unaudited) As of

(in thousands) September 30, June 30, March 31, December 31, September 30, 2021 2021 2021 2020 2020

Assets

Cash and cash $ 110,624 $ 389,977 $ 58,874 $ 56,909 $ 51,728 equivalents

Securitiesavailable-for-sale, 194,056 171,219 173,261 183,925 179,274 at fair value

Securitiesheld-to-maturity, 21,196 22,382 24,783 26,374 28,897 at amortized cost

Loans held for sale 5,603 6,059 6,576 8,695 15,049

Loans and leases 2,123,306 2,143,561 2,235,112 2,145,970 2,170,299 receivable

Allowance for loan (24,676 ) (25,675 ) (28,982 ) (28,521 ) (30,817 )and lease losses

Loans and leases 2,098,630 2,117,886 2,206,130 2,117,449 2,139,482 receivable, net

Premises and 1,700 1,747 1,923 1,998 2,130 equipment, net

Foreclosed 172 179 31 34 613 properties

Right-of-use assets 5,263 5,472 5,486 5,814 6,141

Bank-owned life 53,244 52,887 52,537 52,188 51,798 insurance

Federal Home Loan 12,351 13,451 14,941 13,578 15,153 Bank stock, at cost

Goodwill and other 12,229 12,178 12,055 12,018 12,024 intangible assets

Derivatives 28,678 32,377 26,104 49,377 58,210

Accrued interestreceivable and 40,664 39,855 38,017 39,478 41,348 other assets

Total assets $ 2,584,410 $ 2,865,669 $ 2,620,718 $ 2,567,837 $ 2,601,847

Liabilities andStockholders' Equity

In-market deposits $ 1,829,644 $ 2,016,215 $ 1,737,226 $ 1,683,008 $ 1,667,245

Wholesale deposits 74,638 144,492 165,492 172,508 154,130

Total deposits 1,904,282 2,160,707 1,902,718 1,855,516 1,821,375

Federal Home LoanBank advances and 394,090 420,113 448,417 419,167 483,517 other borrowings

Junior subordinated 10,072 10,069 10,065 10,062 10,058 notes

Lease liabilities 5,780 6,005 6,040 6,386 6,728

Derivatives 31,890 36,109 29,565 54,927 64,403

Accrued interestpayable and other 13,016 11,214 9,422 15,617 14,981 liabilities

Total liabilities 2,359,130 2,644,217 2,406,227 2,361,675 2,401,062

Total stockholders' 225,280 221,452 214,491 206,162 200,785 equity

Total liabilitiesand stockholders' $ 2,584,410 $ 2,865,669 $ 2,620,718 $ 2,567,837 $ 2,601,847 equity

STATEMENTS OF INCOME

(Unaudited)

As of and for the Three Months Ended

As of and for the Nine Months Ended

(Dollars in thousands, except per share amounts)

September 30,2021

June 30,2021

March 31,2021

December 31,2020

September 30,2020

September 30,2021

September 30,2020

Total interest income

$

24,014

$

24,599

$

23,806

$

25,770

$

22,276

$

72,420

$

68,408

Total interest expense

2,791

2,947

2,943

3,258

3,655

8,682

13,850

Net interest income

21,223

21,652

20,863

22,512

18,621

63,738

54,558

Provision for loan and lease losses

(2,269

)

(958

)

(2,068

)

4,322

3,835

(5,295

)

12,487

Net interest income after provision for loan and lease losses

23,492

22,610

22,931

18,190

14,786

69,033

42,071

Private wealth management service fees

2,759

2,744

2,407

2,208

2,167

7,910

6,402

Gain on sale of SBA loans

721

1,203

1,078

1,300

760

3,002

1,598

Service charges on deposits

956

941

917

887

881

2,814

2,527

Loan fees

713

569

545

412

478

1,828

1,414

Net gain (loss) on sale of securities

-

29

-

-

-

29

(4

)

Swap fees

-

-

684

1,078

2,446

684

5,782

Other non-interest income

1,866

835

1,564

914

676

4,264

2,422

Total non-interest income

7,015

6,321

7,195

6,799

7,408

20,531

20,141

Compensation

13,351

13,255

12,657

12,145

11,857

39,263

33,705

Occupancy

544

533

552

556

570

1,628

1,696

Professional fees

1,024

913

866

909

943

2,803

2,621

Data processing

746

798

770

668

679

2,315

2,066

Marketing

572

511

391

411

356

1,474

1,169

Equipment

260

261

246

294

310

767

905

Computer software

999

1,129

1,115

1,028

1,017

3,244

2,873

FDIC insurance

291

280

362

479

312

933

760

Collateral liquidation cost

47

84

94

47

45

224

281

Net loss (gain) on foreclosed properties

6

(1

)

3

54

(121

)

7

329

Tax credit investment impairment

-

-

-

328

113

-

2,066

SBA recourse (benefit) provision

(69

)

245

(130

)

(330

)

57

45

53

Loss on early extinguishment of debt

-

-

-

-

-

-

744

Other non-interest expense

719

176

404

1,062

620

1,300

1,977

Total non-interest expense

18,490

18,184

17,330

17,651

16,758

54,003

51,245

Income before income tax expense

12,017

10,747

12,796

7,338

5,436

35,561

10,967

Income tax expense

2,819

2,512

3,065

1,254

1,143

8,396

73

Net income

$

9,198

$

8,235

$

9,731

$

6,084

$

4,293

$

27,165

$

10,894

Per common share:

Basic earnings

$

1.07

$

0.95

$

1.12

$

0.71

$

0.50

$

3.15

$

1.27

Diluted earnings

1.07

0.95

1.12

0.71

0.50

3.15

1.27

Dividends declared

0.18

0.18

0.18

0.165

0.165

0.54

0.495

Book value

26.56

25.70

24.83

24.06

23.45

26.56

23.45

Tangible book value

25.11

24.28

23.43

22.66

22.05

25.11

22.05

Weighted-average common shares outstanding(1)

8,340,042

8,385,069

8,429,149

8,417,216

8,404,084

8,380,591

8,380,676

Weighted-average diluted common shares outstanding(1)

8,340,042

8,385,069

8,429,149

8,417,216

8,404,084

8,380,591

8,380,676

STATEMENTS OF INCOME

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

(Dollars in September December September September Septemberthousands, 30, June 30, March 31, 31, 30, 30, 30,except per share 2021 2021 2021 2020 2020 2021 2020amounts)

Total interest $ 24,014 $ 24,599 $ 23,806 $ 25,770 $ 22,276 $ 72,420 $ 68,408 income

Total interest 2,791 2,947 2,943 3,258 3,655 8,682 13,850 expense

Net interest 21,223 21,652 20,863 22,512 18,621 63,738 54,558 income

Provision forloan and lease (2,269 ) (958 ) (2,068 ) 4,322 3,835 (5,295 ) 12,487 losses

Net interestincome afterprovision for 23,492 22,610 22,931 18,190 14,786 69,033 42,071 loan and leaselosses

Private wealthmanagement 2,759 2,744 2,407 2,208 2,167 7,910 6,402 service fees

Gain on sale of 721 1,203 1,078 1,300 760 3,002 1,598 SBA loans

Service charges 956 941 917 887 881 2,814 2,527 on deposits

Loan fees 713 569 545 412 478 1,828 1,414

Net gain (loss)on sale of - 29 - - - 29 (4 )securities

Swap fees - - 684 1,078 2,446 684 5,782

Othernon-interest 1,866 835 1,564 914 676 4,264 2,422 income

Totalnon-interest 7,015 6,321 7,195 6,799 7,408 20,531 20,141 income

Compensation 13,351 13,255 12,657 12,145 11,857 39,263 33,705

Occupancy 544 533 552 556 570 1,628 1,696

Professional 1,024 913 866 909 943 2,803 2,621 fees

Data processing 746 798 770 668 679 2,315 2,066

Marketing 572 511 391 411 356 1,474 1,169

Equipment 260 261 246 294 310 767 905

Computer 999 1,129 1,115 1,028 1,017 3,244 2,873 software

FDIC insurance 291 280 362 479 312 933 760

Collateral 47 84 94 47 45 224 281 liquidation cost

Net loss (gain)on foreclosed 6 (1 ) 3 54 (121 ) 7 329 properties

Tax creditinvestment - - - 328 113 - 2,066 impairment

SBA recourse(benefit) (69 ) 245 (130 ) (330 ) 57 45 53 provision

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

Othernon-interest 719 176 404 1,062 620 1,300 1,977 expense

Totalnon-interest 18,490 18,184 17,330 17,651 16,758 54,003 51,245 expense

Income beforeincome tax 12,017 10,747 12,796 7,338 5,436 35,561 10,967 expense

Income tax 2,819 2,512 3,065 1,254 1,143 8,396 73 expense

Net income $ 9,198 $ 8,235 $ 9,731 $ 6,084 $ 4,293 $ 27,165 $ 10,894



Per common share:

Basic earnings $ 1.07 $ 0.95 $ 1.12 $ 0.71 $ 0.50 $ 3.15 $ 1.27

Diluted earnings 1.07 0.95 1.12 0.71 0.50 3.15 1.27

Dividends 0.18 0.18 0.18 0.165 0.165 0.54 0.495 declared

Book value 26.56 25.70 24.83 24.06 23.45 26.56 23.45

Tangible book 25.11 24.28 23.43 22.66 22.05 25.11 22.05 value

Weighted-averagecommon shares 8,340,042 8,385,069 8,429,149 8,417,216 8,404,084 8,380,591 8,380,676 outstanding^(1)

Weighted-averagediluted common 8,340,042 8,385,069 8,429,149 8,417,216 8,404,084 8,380,591 8,380,676 sharesoutstanding^(1)

(1)

Excluding participating securities.

(1) Excluding participating securities.

NET INTEREST INCOME ANALYSIS

(Unaudited)

For the Three Months Ended

(Dollars in thousands)

September 30, 2021

June 30, 2021

September 30, 2020

Average

Balance

Interest

Average

Yield/Rate(4)

Average

Balance

Interest

Average

Yield/Rate(4)

Average

Balance

Interest

Average

Yield/Rate(4)

Interest-earning assets

Commercial real estate and other mortgage loans(1)

$

1,388,236

$

13,090

3.77

%

$

1,386,187

$

13,087

3.78

%

$

1,282,132

$

12,340

3.85

%

Commercial and industrial loans(1)

680,563

9,259

5.44

%

772,257

9,875

5.11

%

791,909

8,133

4.11

%

Direct financing leases(1)

18,611

207

4.45

%

19,883

222

4.47

%

26,129

258

3.95

%

Consumer and other loans(1)

43,689

391

3.58

%

45,026

407

3.62

%

39,269

374

3.81

%

Total loans and leases receivable(1)

2,131,099

22,947

4.31

%

2,223,353

23,591

4.24

%

2,139,439

21,105

3.95

%

Mortgage-related securities(2)

154,372

659

1.71

%

149,253

631

1.69

%

167,326

833

1.99

%

Other investment securities(3)

45,196

196

1.73

%

41,569

185

1.78

%

34,004

171

2.01

%

FHLB stock

13,279

167

5.03

%

14,172

176

4.97

%

12,835

161

5.02

%

Short-term investments

116,621

45

0.15

%

55,100

16

0.12

%

21,287

6

0.11

%

Total interest-earning assets

2,460,567

24,014

3.90

%

2,483,447

24,599

3.96

%

2,374,891

22,276

3.75

%

Non-interest-earning assets

147,631

137,893

165,844

Total assets

$

2,608,198

$

2,621,340

$

2,540,735

Interest-bearing liabilities

Transaction accounts

$

509,089

251

0.20

%

$

499,040

248

0.20

%

$

445,687

259

0.23

%

Money market

703,460

306

0.17

%

662,919

282

0.17

%

642,881

318

0.20

%

Certificates of deposit

42,370

71

0.67

%

45,993

112

0.97

%

110,891

513

1.85

%

Wholesale deposits

89,135

206

0.92

%

162,580

301

0.74

%

160,067

533

1.33

%

Total interest-bearing deposits

1,344,054

834

0.25

%

1,370,532

943

0.28

%

1,359,526

1,623

0.48

%

FHLB advances

381,061

1,228

1.29

%

405,855

1,284

1.27

%

379,915

1,356

1.43

%

Federal Reserve PPPLF

-

-

-

%

-

-

-

%

29,605

26

0.35

%

Other borrowings

32,630

449

5.50

%

32,447

443

5.46

%

24,403

370

6.06

%

Junior subordinated notes

10,070

280

11.12

%

10,066

277

11.01

%

10,056

280

11.14

%

Total interest-bearing liabilities

1,767,815

2,791

0.63

%

1,818,900

2,947

0.65

%

1,803,505

3,655

0.81

%

Non-interest-bearing demand deposit accounts

556,029

527,441

445,245

Other non-interest-bearing liabilities

59,865

56,691

91,810

Total liabilities

2,383,709

2,403,032

2,340,560

Stockholders' equity

224,489

218,308

200,175

Total liabilities and stockholders' equity

$

2,608,198

$

2,621,340

$

2,540,735

Net interest income

$

21,223

$

21,652

$

18,621

Interest rate spread

3.27

%

3.31

%

2.94

%

Net interest-earning assets

$

692,752

$

664,547

$

571,386

Net interest margin

3.45

%

3.49

%

3.14

%

NET INTEREST INCOME ANALYSIS

(Unaudited) For the Three Months Ended

(Dollars in thousands) September 30, 2021 June 30, 2021 September 30, 2020

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

Interest-earning assets

Commercial real estateand other mortgage $ 1,388,236 $ 13,090 3.77 % $ 1,386,187 $ 13,087 3.78 % $ 1,282,132 $ 12,340 3.85 %loans^(1)

Commercial and 680,563 9,259 5.44 % 772,257 9,875 5.11 % 791,909 8,133 4.11 %industrial loans^(1)

Direct financing 18,611 207 4.45 % 19,883 222 4.47 % 26,129 258 3.95 %leases^(1)

Consumer and other 43,689 391 3.58 % 45,026 407 3.62 % 39,269 374 3.81 %loans^(1)

Total loans and leases 2,131,099 22,947 4.31 % 2,223,353 23,591 4.24 % 2,139,439 21,105 3.95 %receivable^(1)

Mortgage-related 154,372 659 1.71 % 149,253 631 1.69 % 167,326 833 1.99 %securities^(2)

Other investment 45,196 196 1.73 % 41,569 185 1.78 % 34,004 171 2.01 %securities^(3)

FHLB stock 13,279 167 5.03 % 14,172 176 4.97 % 12,835 161 5.02 %

Short-term investments 116,621 45 0.15 % 55,100 16 0.12 % 21,287 6 0.11 %

Total interest-earning 2,460,567 24,014 3.90 % 2,483,447 24,599 3.96 % 2,374,891 22,276 3.75 %assets

Non-interest-earning 147,631 137,893 165,844 assets

Total assets $ 2,608,198 $ 2,621,340 $ 2,540,735

Interest-bearing liabilities

Transaction accounts $ 509,089 251 0.20 % $ 499,040 248 0.20 % $ 445,687 259 0.23 %

Money market 703,460 306 0.17 % 662,919 282 0.17 % 642,881 318 0.20 %

Certificates of 42,370 71 0.67 % 45,993 112 0.97 % 110,891 513 1.85 %deposit

Wholesale deposits 89,135 206 0.92 % 162,580 301 0.74 % 160,067 533 1.33 %

Total interest-bearing 1,344,054 834 0.25 % 1,370,532 943 0.28 % 1,359,526 1,623 0.48 %deposits

FHLB advances 381,061 1,228 1.29 % 405,855 1,284 1.27 % 379,915 1,356 1.43 %

Federal Reserve PPPLF - - - % - - - % 29,605 26 0.35 %

Other borrowings 32,630 449 5.50 % 32,447 443 5.46 % 24,403 370 6.06 %

Junior subordinated 10,070 280 11.12 % 10,066 277 11.01 % 10,056 280 11.14 %notes

Total interest-bearing 1,767,815 2,791 0.63 % 1,818,900 2,947 0.65 % 1,803,505 3,655 0.81 %liabilities

Non-interest-bearingdemand deposit 556,029 527,441 445,245 accounts

Othernon-interest-bearing 59,865 56,691 91,810 liabilities

Total liabilities 2,383,709 2,403,032 2,340,560

Stockholders' equity 224,489 218,308 200,175

Total liabilities and $ 2,608,198 $ 2,621,340 $ 2,540,735 stockholders' equity

Net interest income $ 21,223 $ 21,652 $ 18,621

Interest rate spread 3.27 % 3.31 % 2.94 %

Net interest-earning $ 692,752 $ 664,547 $ 571,386 assets

Net interest margin 3.45 % 3.49 % 3.14 %

(1)

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

(2)

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

(3)

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

(4)

Represents annualized yields/rates.

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

(Unaudited)

For the Nine Months Ended

(Dollars in thousands)

September 30, 2021

September 30, 2020

Average

Balance

Interest

Average

Yield/Rate(4)

Average

Balance

Interest

Average

Yield/Rate(4)

Interest-earning assets

Commercial real estate and other mortgage loans(1)

$

1,377,302

$

38,704

3.75

%

$

1,209,810

$

38,312

4.22

%

Commercial and industrial loans(1)

736,623

28,759

5.21

%

678,650

24,338

4.78

%

Direct financing leases(1)

20,242

673

4.43

%

27,065

761

3.75

%

Consumer and other loans(1)

44,780

1,197

3.56

%

37,260

1,091

3.90

%

Total loans and leases receivable(1)

2,178,947

69,333

4.24

%

1,952,785

64,502

4.40

%

Mortgage-related securities(2)

155,617

1,955

1.67

%

173,985

2,806

2.15

%

Other investment securities(3)

42,992

569

1.76

%

29,177

456

2.08

%

FHLB stock

13,308

496

4.97

%

10,558

491

6.20

%

Short-term investments

65,769

67

0.14

%

39,293

153

0.52

%

Total interest-earning assets

2,456,633

72,420

3.93

%

2,205,798

68,408

4.13

%

Non-interest-earning assets

145,714

151,994

Total assets

$

2,602,347

$

2,357,792

Interest-bearing liabilities

Transaction accounts

$

509,709

749

0.20

%

$

362,326

1,197

0.44

%

Money market

674,858

862

0.17

%

649,999

2,555

0.52

%

Certificates of deposit

48,540

360

0.99

%

122,781

1,890

2.05

%

Wholesale deposits

139,205

825

0.79

%

132,811

2,021

2.03

%

Total interest-bearing deposits

1,372,312

2,796

0.27

%

1,267,917

7,663

0.81

%

FHLB advances

384,581

3,761

1.30

%

371,738

4,198

1.51

%

Federal Reserve PPPLF

-

-

-

%

16,855

44

0.35

%

Other borrowings

30,811

1,293

5.60

%

24,490

1,110

6.04

%

Junior subordinated notes

10,066

832

11.02

%

10,052

835

11.07

%

Total interest-bearing liabilities

1,797,770

8,682

0.64

%

1,691,052

13,850

1.09

%

Non-interest-bearing demand deposit accounts

523,368

392,455

Other non-interest-bearing liabilities

63,366

80,270

Total liabilities

2,384,504

2,163,777

Stockholders' equity

217,843

194,015

Total liabilities and stockholders' equity

$

2,602,347

$

2,357,792

Net interest income

$

63,738

$

54,558

Interest rate spread

3.29

%

3.04

%

Net interest-earning assets

$

658,863

$

514,746

Net interest margin

3.46

%

3.30

%

NET INTEREST INCOME ANALYSIS

(Unaudited) For the Nine Months Ended

(Dollars in September 30, 2021 September 30, 2020thousands)

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

Interest-earning assets

Commercial realestate and other $ 1,377,302 $ 38,704 3.75 % $ 1,209,810 $ 38,312 4.22 %mortgage loans^(1)

Commercial and 736,623 28,759 5.21 % 678,650 24,338 4.78 %industrial loans^(1)

Direct financing 20,242 673 4.43 % 27,065 761 3.75 %leases^(1)

Consumer and other 44,780 1,197 3.56 % 37,260 1,091 3.90 %loans^(1)

Total loans andleases receivable^ 2,178,947 69,333 4.24 % 1,952,785 64,502 4.40 %(1)

Mortgage-related 155,617 1,955 1.67 % 173,985 2,806 2.15 %securities^(2)

Other investment 42,992 569 1.76 % 29,177 456 2.08 %securities^(3)

FHLB stock 13,308 496 4.97 % 10,558 491 6.20 %

Short-term 65,769 67 0.14 % 39,293 153 0.52 %investments

Totalinterest-earning 2,456,633 72,420 3.93 % 2,205,798 68,408 4.13 %assets

Non-interest-earning 145,714 151,994 assets

Total assets $ 2,602,347 $ 2,357,792

Interest-bearing liabilities

Transaction accounts $ 509,709 749 0.20 % $ 362,326 1,197 0.44 %

Money market 674,858 862 0.17 % 649,999 2,555 0.52 %

Certificates of 48,540 360 0.99 % 122,781 1,890 2.05 %deposit

Wholesale deposits 139,205 825 0.79 % 132,811 2,021 2.03 %

Totalinterest-bearing 1,372,312 2,796 0.27 % 1,267,917 7,663 0.81 %deposits

FHLB advances 384,581 3,761 1.30 % 371,738 4,198 1.51 %

Federal Reserve - - - % 16,855 44 0.35 %PPPLF

Other borrowings 30,811 1,293 5.60 % 24,490 1,110 6.04 %

Junior subordinated 10,066 832 11.02 % 10,052 835 11.07 %notes

Totalinterest-bearing 1,797,770 8,682 0.64 % 1,691,052 13,850 1.09 %liabilities

Non-interest-bearingdemand deposit 523,368 392,455 accounts

Othernon-interest-bearing 63,366 80,270 liabilities

Total liabilities 2,384,504 2,163,777

Stockholders' equity 217,843 194,015

Total liabilitiesand stockholders' $ 2,602,347 $ 2,357,792 equity

Net interest income $ 63,738 $ 54,558

Interest rate spread 3.29 % 3.04 %

Net interest-earning $ 658,863 $ 514,746 assets

Net interest margin 3.46 % 3.30 %

(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.

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.

PROVISION FOR LOAN AND LEASE LOSS COMPOSITION

(Unaudited)

For the Three Months Ended

For the Nine Months Ended

(Dollars in thousands)

September 30,2021

June 30,2021

March 31,2021

December 31,2020

September 30,2020

September 30,2021

September 30,2020

Change in general reserve due to subjective factor changes

$

(51

)

$

(652

)

$

1,082

$

1,008

$

(766

)

$

379

$

4,697

Change in general reserve due to historical loss factor changes

(923

)

(1,687

)

(984

)

1,274

(16

)

(3,594

)

(380

)

Charge-offs

364

2,894

144

6,685

505

3,402

1,454

Recoveries

(1,634

)

(545

)

(2,673

)

(68

)

(23

)

(4,852

)

(264

)

Change in specific reserves on impaired loans, net

(451

)

(1,466

)

(194

)

(5,216

)

2,974

(2,111

)

5,533

Change due to loan growth, net

426

498

557

639

1,161

1,481

1,447

Total provision for loan and lease losses

$

(2,269

)

$

(958

)

$

(2,068

)

$

4,322

$

3,835

$

(5,295

)

$

12,487

PERFORMANCE RATIOS

PROVISION FOR LOAN AND LEASE LOSS COMPOSITION

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

(Dollars in September June 30, March 31, December September September Septemberthousands) 30, 2021 2021 31, 30, 30, 30, 2021 2020 2020 2021 2020

Change ingeneralreserve dueto $ (51 ) $ (652 ) $ 1,082 $ 1,008 $ (766 ) $ 379 $ 4,697 subjectivefactorchanges

Change ingeneralreserve dueto (923 ) (1,687 ) (984 ) 1,274 (16 ) (3,594 ) (380 )historicalloss factorchanges

Charge-offs 364 2,894 144 6,685 505 3,402 1,454

Recoveries (1,634 ) (545 ) (2,673 ) (68 ) (23 ) (4,852 ) (264 )

Change inspecificreserves on (451 ) (1,466 ) (194 ) (5,216 ) 2,974 (2,111 ) 5,533 impairedloans, net

Change dueto loan 426 498 557 639 1,161 1,481 1,447 growth, net

Totalprovisionfor loan $ (2,269 ) $ (958 ) $ (2,068 ) $ 4,322 $ 3,835 $ (5,295 ) $ 12,487 and leaselosses

PERFORMANCE RATIOS

For the Three Months Ended For the Nine Months Ended

September June 30, March December September September September(Unaudited) 30, 2021 31, 31, 30, 30, 30, 2021 2021 2020 2020 2021 2020

Return onaverage assets 1.41 % 1.26 % 1.51 % 0.93 % 0.68 % 1.39 % 0.62 %(annualized)

Return onaverage equity 16.39 % 15.09 % 18.48 % 11.92 % 8.58 % 16.63 % 7.49 %(annualized)

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

Interest rate 3.27 % 3.31 % 3.27 % 3.51 % 2.94 % 3.29 % 3.04 %spread

Net interest 3.45 % 3.49 % 3.44 % 3.69 % 3.14 % 3.46 % 3.30 %margin

Averageinterest-earningassets to 139.19 % 136.54 % 134.23 % 132.88 % 131.68 % 136.65 % 130.44 %averageinterest-bearingliabilities

ASSET QUALITY RATIOS

(Unaudited)

As of

(Dollars in thousands)

September 30,2021

June 30,2021

March 31,2021

December 31,2020

September 30,2020

Non-accrual loans and leases

$

7,433

$

11,422

$

18,992

$

26,617

$

36,050

Foreclosed properties

172

179

31

34

613

Total non-performing assets

7,605

11,601

19,023

26,651

36,663

Performing troubled debt restructurings

53

56

59

46

47

Total impaired assets

$

7,658

$

11,657

$

19,082

$

26,697

$

36,710

Non-accrual loans and leases as a percent of total gross loans and leases

0.35

%

0.53

%

0.85

%

1.24

%

1.66

%

Non-performing assets as a percent of total gross loans and leases plus foreclosed properties

0.36

%

0.54

%

0.85

%

1.24

%

1.68

%

Non-performing assets as a percent of total assets

0.29

%

0.40

%

0.73

%

1.04

%

1.41

%

Allowance for loan and lease losses as a percent of total gross loans and leases

1.16

%

1.20

%

1.29

%

1.33

%

1.41

%

Allowance for loan and lease losses as a percent of non-accrual loans and leases

331.98

%

224.79

%

152.60

%

107.15

%

85.48

%

ASSET QUALITY RATIOS

(Unaudited) As of

(Dollars in September June 30, March 31, December Septemberthousands) 30, 2021 2021 31, 30, 2021 2020 2020

Non-accrualloans and $ 7,433 $ 11,422 $ 18,992 $ 26,617 $ 36,050 leases

Foreclosed 172 179 31 34 613 properties

Totalnon-performing 7,605 11,601 19,023 26,651 36,663 assets

Performingtroubled debt 53 56 59 46 47 restructurings

Total impaired $ 7,658 $ 11,657 $ 19,082 $ 26,697 $ 36,710 assets



Non-accrualloans andleases as apercent of 0.35 % 0.53 % 0.85 % 1.24 % 1.66 %total grossloans andleases

Non-performingassets as apercent oftotal gross 0.36 % 0.54 % 0.85 % 1.24 % 1.68 %loans andleases plusforeclosedproperties

Non-performingassets as a 0.29 % 0.40 % 0.73 % 1.04 % 1.41 %percent oftotal assets

Allowance forloan and leaselosses as apercent of 1.16 % 1.20 % 1.29 % 1.33 % 1.41 %total grossloans andleases

Allowance forloan and leaselosses as apercent of 331.98 % 224.79 % 152.60 % 107.15 % 85.48 %non-accrualloans andleases

ASSET QUALITY RATIOS - EXCLUDING NET PPP LOANS

(Unaudited)

As of

(Dollars in thousands)

September 30,2021

June 30,2021

March 31,2021

December 31,2020

September 30,2020

Non-accrual loans and leases as a percent of total gross loans and leases

0.36

%

0.56

%

0.96

%

1.38

%

1.95

%

Non-performing assets as a percent of total gross loans and leases plus foreclosed properties

0.37

%

0.57

%

0.96

%

1.38

%

1.98

%

Non-performing assets as a percent of total assets

0.30

%

0.42

%

0.81

%

1.14

%

1.61

%

Allowance for loan and lease losses as a percent of total gross loans and leases

1.20

%

1.27

%

1.47

%

1.48

%

1.67

%

PPP loans outstanding, net

$

64,454

$

120,723

$

267,567

$

225,323

$

325,481

ASSET QUALITY RATIOS - EXCLUDING NET PPP LOANS

(Unaudited) As of

(Dollars in September June 30, March 31, December Septemberthousands) 30, 2021 2021 31, 30, 2021 2020 2020

Non-accrualloans andleases as apercent of 0.36 % 0.56 % 0.96 % 1.38 % 1.95 %total grossloans andleases

Non-performingassets as apercent oftotal gross 0.37 % 0.57 % 0.96 % 1.38 % 1.98 %loans andleases plusforeclosedproperties

Non-performingassets as a 0.30 % 0.42 % 0.81 % 1.14 % 1.61 %percent oftotal assets

Allowance forloan and leaselosses as apercent of 1.20 % 1.27 % 1.47 % 1.48 % 1.67 %total grossloans andleases

PPP loansoutstanding, $ 64,454 $ 120,723 $ 267,567 $ 225,323 $ 325,481 net

NET CHARGE-OFFS (RECOVERIES)

(Unaudited)

For the Three Months Ended

For the Nine Months Ended

(Dollars in thousands)

September 30,2021

June 30,2021

March 31,2021

December 31,2020

September 30,2020

September 30,2021

September 30,2020

Charge-offs

$

364

$

2,894

$

144

$

6,685

$

505

$

3,402

$

1,454

Recoveries

(1,634

)

(545

)

(2,673

)

(68

)

(23

)

(4,852

)

(264

)

Net (recoveries) charge-offs

$

(1,270

)

$

2,349

$

(2,529

)

$

6,617

$

482

$

(1,450

)

$

1,190

Net (recoveries) charge-offs as a percent of average gross loans and leases (annualized)

(0.24

)%

0.42

%

(0.46

)%

1.21

%

0.09

%

(0.09

)%

0.08

%

Annualized (recoveries) charge-offs as a percent of average gross loans and leases, excluding average net PPP loans

(0.25

)%

0.47

%

(0.52

)%

1.39

%

0.11

%

(0.10

)%

0.09

%

Average PPP loans outstanding, net

$

87,517

$

229,165

$

242,242

$

282,259

$

323,082

$

185,742

$

192,451

NETCHARGE-OFFS(RECOVERIES)

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

(Dollars in September June 30, March 31, December September September Septemberthousands) 30, 2021 2021 31, 30, 30, 30, 2021 2020 2020 2021 2020

Charge-offs $ 364 $ 2,894 $ 144 $ 6,685 $ 505 $ 3,402 $ 1,454

Recoveries (1,634 ) (545 ) (2,673 ) (68 ) (23 ) (4,852 ) (264 )

Net(recoveries) $ (1,270 ) $ 2,349 $ (2,529 ) $ 6,617 $ 482 $ (1,450 ) $ 1,190 charge-offs

Net(recoveries)charge-offsas a percent (0.24 ) 0.42 % (0.46 ) 1.21 % 0.09 % (0.09 ) 0.08 %of average % % %gross loansand leases(annualized)

Annualized(recoveries)charge-offsas a percentof average (0.25 ) 0.47 % (0.52 ) 1.39 % 0.11 % (0.10 ) 0.09 %gross loans % % %and leases,excludingaverage netPPP loans

Average PPPloans $ 87,517 $ 229,165 $ 242,242 $ 282,259 $ 323,082 $ 185,742 $ 192,451 outstanding,net

CAPITAL RATIOS

As of and for the Three Months Ended

(Unaudited)

September 30,2021

June 30,2021

March 31,2021

December 31,2020

September 30,2020

Total capital to risk-weighted assets

11.14

%

11.22

%

11.52

%

11.25

%

11.42

%

Tier I capital to risk-weighted assets

9.14

%

9.14

%

9.24

%

8.96

%

9.09

%

Common equity tier I capital to risk-weighted assets

8.73

%

8.72

%

8.81

%

8.53

%

8.64

%

Tier I capital to adjusted assets

8.69

%

8.48

%

8.37

%

7.99

%

8.04

%

Tangible common equity to tangible assets

8.28

%

7.33

%

7.76

%

7.60

%

7.29

%

Tangible common equity to tangible assets, excluding net PPP loans

8.50

%

7.66

%

8.65

%

8.33

%

8.34

%

CAPITAL RATIOS

As of and for the Three Months Ended

September June March December September(Unaudited) 30, 30, 31, 31, 30, 2021 2021 2021 2020 2020

Total capital to 11.14 % 11.22 % 11.52 % 11.25 % 11.42 %risk-weighted assets

Tier I capital to 9.14 % 9.14 % 9.24 % 8.96 % 9.09 %risk-weighted assets

Common equity tier Icapital to risk-weighted 8.73 % 8.72 % 8.81 % 8.53 % 8.64 %assets

Tier I capital to 8.69 % 8.48 % 8.37 % 7.99 % 8.04 %adjusted assets

Tangible common equity 8.28 % 7.33 % 7.76 % 7.60 % 7.29 %to tangible assets

Tangible common equityto tangible assets, 8.50 % 7.66 % 8.65 % 8.33 % 8.34 %excluding net PPP loans

LOAN AND LEASE RECEIVABLE COMPOSITION

(Unaudited)

As of

(in thousands)

September 30,2021

June 30,2021

March 31,2021

December 31,2020

September 30,2020

Commercial real estate:

Commercial real estate - owner occupied

$

241,977

$

253,600

$

256,812

$

253,882

$

240,706

Commercial real estate - non-owner occupied

639,423

614,289

592,090

564,532

565,781

Land development

39,119

45,056

46,544

49,839

50,864

Construction

139,933

139,943

151,345

141,043

142,726

Multi-family

313,787

319,351

322,384

311,556

287,583

1-4 family

13,487

19,769

23,319

38,284

38,857

Total commercial real estate

1,387,726

1,392,008

1,392,494

1,359,136

1,326,517

Commercial and industrial

681,065

695,442

784,305

732,318

790,349

Direct financing leases, net

16,810

18,142

19,616

22,331

24,743

Consumer and other:

Home equity and second mortgages

4,576

5,740

6,719

7,833

7,106

Other

35,645

36,567

38,266

28,897

29,341

Total consumer and other

40,221

42,307

44,985

36,730

36,447

Total gross loans and leases receivable

2,125,822

2,147,899

2,241,400

2,150,515

2,178,056

Less:

Allowance for loan and lease losses

24,676

25,675

28,982

28,521

30,817

Deferred loan fees

2,516

4,338

6,288

4,545

7,757

Loans and leases receivable, net

$

2,098,630

$

2,117,886

$

2,206,130

$

2,117,449

$

2,139,482

LOAN AND LEASE RECEIVABLE COMPOSITION

(Unaudited) As of

(in September 30, June 30, March 31, December 31, September 30,thousands) 2021 2021 2021 2020 2020

Commercial real estate:

Commercialreal estate $ 241,977 $ 253,600 $ 256,812 $ 253,882 $ 240,706 - owneroccupied

Commercialreal estate 639,423 614,289 592,090 564,532 565,781 - non-owneroccupied

Land 39,119 45,056 46,544 49,839 50,864 development

Construction 139,933 139,943 151,345 141,043 142,726

Multi-family 313,787 319,351 322,384 311,556 287,583

1-4 family 13,487 19,769 23,319 38,284 38,857

Totalcommercial 1,387,726 1,392,008 1,392,494 1,359,136 1,326,517 real estate

Commercialand 681,065 695,442 784,305 732,318 790,349 industrial

Directfinancing 16,810 18,142 19,616 22,331 24,743 leases, net

Consumer and other:

Home equityand second 4,576 5,740 6,719 7,833 7,106 mortgages

Other 35,645 36,567 38,266 28,897 29,341

Totalconsumer and 40,221 42,307 44,985 36,730 36,447 other

Total grossloans and 2,125,822 2,147,899 2,241,400 2,150,515 2,178,056 leasesreceivable

Less:

Allowancefor loan and 24,676 25,675 28,982 28,521 30,817 lease losses

Deferred 2,516 4,338 6,288 4,545 7,757 loan fees

Loans andleases $ 2,098,630 $ 2,117,886 $ 2,206,130 $ 2,117,449 $ 2,139,482 receivable,net

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

(Unaudited)

As of

(in thousands)

September 30,2021

June 30,2021

March 31,2021

December 31,2020

September 30,2020

Performing loans:

Off-balance sheet loans

$

13,340

$

14,161

$

17,523

$

23,354

$

26,017

On-balance sheet loans

3,905

6,836

7,340

11,117

15,175

Gross loans

17,245

20,997

24,863

34,471

41,192

Non-performing loans:

Off-balance sheet loans

3,689

3,943

1,835

1,931

2,574

On-balance sheet loans

624

1,800

6,832

7,435

9,561

Gross loans

4,313

5,743

8,667

9,366

12,135

Total loans:

Off-balance sheet loans

17,029

18,104

19,358

25,285

28,591

On-balance sheet loans

4,529

8,636

14,172

18,552

24,736

Gross loans

$

21,558

$

26,740

$

33,530

$

43,837

$

53,327

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

(Unaudited) As of

September June 30, March 31, December September(in thousands) 30, 2021 2021 31, 30, 2021 2020 2020

Performing loans:

Off-balance sheet $ 13,340 $ 14,161 $ 17,523 $ 23,354 $ 26,017 loans

On-balance sheet 3,905 6,836 7,340 11,117 15,175 loans

Gross loans 17,245 20,997 24,863 34,471 41,192

Non-performing loans:

Off-balance sheet 3,689 3,943 1,835 1,931 2,574 loans

On-balance sheet 624 1,800 6,832 7,435 9,561 loans

Gross loans 4,313 5,743 8,667 9,366 12,135

Total loans:

Off-balance sheet 17,029 18,104 19,358 25,285 28,591 loans

On-balance sheet 4,529 8,636 14,172 18,552 24,736 loans

Gross loans $ 21,558 $ 26,740 $ 33,530 $ 43,837 $ 53,327

(1)

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

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

DEPOSIT COMPOSITION

(Unaudited)

As of

(in thousands)

September 30,2021

June 30,2021

March 31,2021

December 31,2020

September 30,2020

Non-interest-bearing transaction accounts

$

526,047

$

774,253

$

496,877

$

472,818

$

452,268

Interest-bearing transaction accounts

517,248

511,698

561,466

503,992

484,761

Money market accounts

728,751

685,127

632,065

641,504

636,872

Certificates of deposit

57,598

45,137

46,818

64,694

93,344

Wholesale deposits

74,638

144,492

165,492

172,508

154,130

Total deposits

$

1,904,282

$

2,160,707

$

1,902,718

$

1,855,516

$

1,821,375

DEPOSIT COMPOSITION

(Unaudited) As of

(in thousands) September 30, June 30, March 31, December 31, September 30, 2021 2021 2021 2020 2020

Non-interest-bearing $ 526,047 $ 774,253 $ 496,877 $ 472,818 $ 452,268 transaction accounts

Interest-bearing 517,248 511,698 561,466 503,992 484,761 transaction accounts

Money market 728,751 685,127 632,065 641,504 636,872 accounts

Certificates of 57,598 45,137 46,818 64,694 93,344 deposit

Wholesale deposits 74,638 144,492 165,492 172,508 154,130

Total deposits $ 1,904,282 $ 2,160,707 $ 1,902,718 $ 1,855,516 $ 1,821,375

TRUST ASSETS COMPOSITION

(Unaudited)

As of

(in thousands)

September 30,2021

June 30,2021

March 31,2021

December 31,2020

September 30,2020

Trust assets under management

$

2,491,498

$

2,362,257

$

2,195,804

$

2,061,772

$

1,841,986

Trust assets under administration

202,657

202,116

190,721

187,228

175,521

Total trust assets

$

2,694,155

$

2,564,373

$

2,386,525

$

2,249,000

$

2,017,507

NON-GAAP RECONCILIATIONS

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

TANGIBLE BOOK VALUE

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

TRUST ASSETS COMPOSITION

(Unaudited) As of

(in thousands) September 30, June 30, March 31, December 31, September 30, 2021 2021 2021 2020 2020

Trust assetsunder $ 2,491,498 $ 2,362,257 $ 2,195,804 $ 2,061,772 $ 1,841,986 management

Trust assetsunder 202,657 202,116 190,721 187,228 175,521 administration

Total trust $ 2,694,155 $ 2,564,373 $ 2,386,525 $ 2,249,000 $ 2,017,507 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, September June 30, March 31, December Septemberexcept per 30, 2021 2021 31, 30,share 2021 2020 2020amounts)

Commonstockholders' $ 225,280 $ 221,452 $ 214,491 $ 206,162 $ 200,785 equity

Goodwill andother (12,229 ) (12,178 ) (12,055 ) (12,018 ) (12,024 )intangibleassets

Tangible $ 213,051 $ 209,274 $ 202,436 $ 194,144 $ 188,761 common equity

Common shares 8,483,099 8,617,761 8,638,195 8,566,960 8,561,714 outstanding

Book value $ 26.56 $ 25.70 $ 24.83 $ 24.06 $ 23.45 per share

Tangible bookvalue per 25.11 24.28 23.43 22.66 22.05 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 September 30, June 30, March 31, December 31, September 30,thousands) 2021 2021 2021 2020 2020

Commonstockholders' $ 225,280 $ 221,452 $ 214,491 $ 206,162 $ 200,785 equity

Goodwill andother (12,229 ) (12,178 ) (12,055 ) (12,018 ) (12,024 )intangibleassets

Tangible $ 213,051 $ 209,274 $ 202,436 $ 194,144 $ 188,761 common equity

Total assets $ 2,584,410 $ 2,865,669 $ 2,620,718 $ 2,567,837 $ 2,601,847

Goodwill andother (12,229 ) (12,178 ) (12,055 ) (12,018 ) (12,024 )intangibleassets

Tangible $ 2,572,181 $ 2,853,491 $ 2,608,663 $ 2,555,819 $ 2,589,823 assets

Tangiblecommon equity 8.28 % 7.33 % 7.76 % 7.60 % 7.29 %to tangibleassets

Period-end 64,454 120,722 267,567 225,323 325,481 net PPP loans

Tangibleassets, $ 2,507,727 $ 2,732,769 $ 2,341,096 $ 2,330,496 $ 2,264,342 excluding netPPP loans

Tangiblecommon equityto tangible 8.50 % 7.66 % 8.65 % 8.33 % 8.34 %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 Nine Months Ended

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

Totalnon-interest $ 18,490 $ 18,184 $ 17,330 $ 17,651 $ 16,758 $ 54,003 $ 51,245 expense

Less:

Net loss(gain) on 6 (1 ) 3 54 (121 ) 7 329 foreclosedproperties

Amortizationof other 7 8 8 8 9 23 27 intangibleassets

SBA recourse(benefit) (69 ) 245 (130 ) (330 ) 57 45 53 provision

Tax creditinvestment - - - 328 113 - 2,066 impairment

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

Totaloperating $ 18,546 $ 17,932 $ 17,449 $ 17,591 $ 16,700 $ 53,928 $ 48,026 expense ^(a)

Net interest $ 21,223 $ 21,652 $ 20,863 $ 22,512 $ 18,621 $ 63,738 $ 54,558 income

Totalnon-interest 7,015 6,321 7,195 6,799 7,408 20,531 20,141 income

Less:

Net gain(loss) on sale - 29 - - - 29 (4 )of securities

Adjustednon-interest 7,015 6,292 7,195 6,799 7,408 20,502 20,145 income

Totaloperating $ 28,238 $ 27,944 $ 28,058 $ 29,311 $ 26,029 $ 84,240 $ 74,703 revenue ^(b)

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



Pre-tax,pre-provisionadjusted $ 9,692 $ 10,012 $ 10,609 $ 11,720 $ 9,329 $ 30,312 $ 26,677 earnings ^(b -a)

Average total $ 2,608,198 $ 2,621,340 $ 2,577,164 $ 2,603,745 $ 2,540,735 $ 2,602,347 $ 2,357,792 assets

Pre-tax,pre-provisionadjusted 1.49 % 1.53 % 1.65 % 1.80 % 1.47 % 1.55 % 1.51 %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 Nine Months Ended

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

Interest income $ 24,014 $ 24,599 $ 23,806 $ 25,770 $ 22,276 $ 72,420 $ 68,408

Interest expense 2,791 2,947 2,943 3,258 3,655 8,682 13,850

Net interest 21,223 21,652 20,863 22,512 18,621 63,738 54,558 income ^(a)

Less:

Fees in lieu of 2,839 3,536 3,085 4,749 1,511 9,459 4,566 interest

PPP loan 221 566 603 718 833 1,391 1,481 interest income

FRB interestincome and FHLB 212 192 158 188 167 563 602 dividend income

Add:

FRB PPPLF - - - 9 26 - 44 interest expense

Adjusted netinterest income $ 17,951 $ 17,358 $ 17,017 $ 16,866 $ 16,136 $ 52,325 $ 47,953 ^(b)

Averageinterest-earning $ 2,460,567 $ 2,483,447 $ 2,425,499 $ 2,441,735 $ 2,374,891 $ 2,456,633 $ 2,205,798 assets ^(c)

Less:

Average net PPP 87,517 229,165 242,242 282,259 323,082 185,741 192,451 loans

Average FRB cash 129,469 68,503 36,643 45,611 33,756 78,545 46,925 and FHLB stock

Averagenon-accrual 11,298 16,744 22,069 36,013 26,931 16,657 24,849 loans and leases

Adjusted averageinterest-earning $ 2,232,283 $ 2,169,035 $ 2,124,545 $ 2,077,852 $ 1,991,122 $ 2,175,690 $ 1,941,573 assets ^(d)

Net interest 3.45 % 3.49 % 3.44 % 3.69 % 3.14 % 3.46 % 3.30 %margin^ (a / c)

Adjusted netinterest margin^ 3.22 % 3.20 % 3.20 % 3.25 % 3.24 % 3.21 % 3.29 %(b / d)

View source version on businesswire.com: https://www.businesswire.com/news/home/20211028006112/en/

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