Business Wire | Jul 23, 2020 04:02PM EDT

First Business Reports Second Quarter 2020 Financial Results

Jul. 23, 2020

MADISON, Wis.--(BUSINESS WIRE)--Jul. 23, 2020--First Business Financial Services, Inc. (the "Company" or "First Business") (Nasdaq:FBIZ) reported record net interest income and strong non-interest income, resulting in net income of $3.3 million, or diluted earnings per share of $0.38, in the second quarter 2020. First Business's robust operating performance during the quarter was offset by a $5.5 million provision for loan and lease losses and related 20.7% increase in the allowance for loan and leases losses primarily due to the COVID-19 pandemic.

"The effort and dedication of the entire First Business team to support our clients since March has been nothing short of exceptional and I'm incredibly proud," said Corey Chambas, President and Chief Executive Officer. "To date, we have funded $328 million in loans through the Paycheck Protection Program to small- and mid-sized businesses in our markets, impacting more than 26,000 jobs. Through our ongoing focus on executing our strategic plan, even in these challenging times, we grew pre-tax, pre-provision adjusted earnings and total in-market deposits to record levels in the second quarter. With ample liquidity and appropriate reserve builds, First Business is well-positioned to continue providing the highest level of support to the entrepreneurs and investors we serve."

Summary results as of and for the quarter ended June 30, 2020:

* Net income totaled $3.3 million, or diluted earnings per share of $0.38, in the second quarter of 2020, compared to $3.3 million, or diluted earnings per share of $0.38, in the first quarter of 2020 and $6.6 million, or diluted earnings per share of $0.75, in the second quarter of 2019. * During the second quarter of 2020, the Company disbursed $327.9 million in Paycheck Protection Program ("PPP") loans and received processing fee income from the Small Business Administration ("SBA") of $8.7 million. The processing fee income is deferred and recognized over the contractual life of the loan, or accelerated at forgiveness. During the second quarter of 2020, $859,000 was recognized in interest income. * Record 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 $9.8 million, up 29.1% from the first quarter of 2020 and 32.4% from the second quarter of 2019. Pre-tax, pre-provision adjusted return on average assets was 1.61% compared to 1.44% and 1.46% for the linked and prior year quarters, respectively. * Period-end gross loans and leases receivable were $2.057 billion as of June 30, 2020, up $313.5 million from the first quarter of 2020 and up $336.9 million from the second quarter of 2019. Line of credit utilization was significantly impacted by PPP loan proceeds and was $212.6 million as of June 30, 2020, down from $297.1 million as of the first quarter of 2020 and $317.9 million as of the second quarter of 2019. Gross loans and leases receivable, excluding PPP loans and lines of credit, were $1.516 billion as of June 30, 2020, up 19.4% annualized from the first quarter of 2020 and 8.1% from the second quarter of 2019. * The allowance for loan and lease losses increased $4.7 million, or 20.7%, compared to the first quarter of 2020 primarily due to a $2.4 million and $2.1 million increase in the general and specific reserves, respectively, driven by the COVID-19 pandemic. The allowance for loan and lease losses increased to 1.33% of total loans, compared to 1.30% and 1.15% in the first quarter of 2020 and second quarter of 2019, respectively. Excluding PPP loans, the allowance for loan and lease losses increased to 1.58% of total loans as of June 30, 2020. * Provision for loan and lease losses totaled $5.5 million in the second quarter of 2020, compared to $3.2 million in the first quarter of 2020 and a provision benefit of $784,000 in the second quarter of 2019. * Robust liquidity position includes record in-market deposits of $1.621 billion, total deposits of $1.710 billion, and on-balance sheet liquidity of $611.6 million, defined as total short-term investments, unencumbered securities available-for-sale, and unencumbered pledged loans. In-market deposit balances were inflated due to PPP loan proceeds. * Net interest margin was 3.34% in the second quarter of 2020, compared to 3.44% in the first quarter of 2020 and 3.52% in the second 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 3.33% in the second quarter of 2020, compared to 3.32% in the first quarter of 2020 and 3.31% in the second quarter of 2019. * Fees in lieu of interest, defined as prepayment fees, asset-based loan fees, non-accrual interest, and loan fee amortization, totaled $2.3 million in the second quarter of 2020, compared to $798,000 in the first quarter of 2020 and $1.2 million in the second quarter of 2019. * Top line revenue, defined as net interest income plus non-interest income, totaled $25.2 million, up 29.7% annualized from the first quarter of 2020 and 11.3% from the second quarter of 2019. * Non-interest income totaled $6.3 million, or 25.1% of total revenue, in the second quarter of 2020, surpassing the Company's goal of 25% for the fifth consecutive quarter. * Non-interest expense was $18.3 million in the second quarter of 2020, compared to $16.1 million in the first quarter of 2020 and $17.5 million in the second 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 $15.4 million in the second quarter of 2020, compared to $15.9 million in the first quarter of 2020 and $15.3 million in the second quarter of 2019. * The Company incurred a $744,000 loss on the early extinguishment of $59.5 million in Federal Home Loan Bank ("FHLB") term advances late in the second quarter of 2020, as the Company lowered wholesale funding costs and improved the Company's funding position with the expectation of a low interest rate environment for an extended period of time. * 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 61.22% in the second quarter of 2020, down from 67.74% and 67.41% in the linked and prior year quarters, respectively. * Historic tax credit programs contributed $690,000, or $0.08 per share, compared to $446,000, or $0.05 per share in the second quarter of 2019. No historic tax credits were recognized in the first quarter of 2020.

Financial Highlights

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

(Dollars inthousands, June 30, March 31, June 30, June 30, June 30,except per 2020 2020 2019 2020 2019share amounts)

Net interest $ 18,888 $ 17,050 $ 16,852 $ 35,937 $ 34,606 income

Adjustednon-interest 6,319 6,418 5,806 12,737 10,444 income ^(1)

Operating 25,207 23,468 22,658 48,674 45,050 revenue ^(1)

Operating 15,431 15,897 15,273 31,327 30,510 expense ^(1)

Pre-tax,pre-provision 9,776 7,571 7,385 17,347 14,540 adjustedearnings ^(1)

Less:

Provision(benefit) for 5,469 3,182 (784 ) 8,651 (736 )loan and leaselosses

Net loss(gain) on 348 102 (21 ) 450 (21 )foreclosedproperties

Amortizationof other 9 9 11 18 21 intangibleassets

SBA recourse(benefit) (30 ) 25 113 (5 ) 594 provision

Tax creditinvestment 1,841 113 2,088 1,954 4,102 impairment

Loss on earlyextinguishment 744 - - 744 - of debt

Add:

Net loss onsale of - (4 ) (1 ) (4 ) (1 )securities

Income beforeincome tax 1,395 4,136 5,977 5,531 10,579 expense

Income tax(benefit) (1,928 ) 858 (595 ) (1,070 ) (1,893 )expense

Net income $ 3,323 $ 3,278 $ 6,572 $ 6,601 $ 12,472

Earnings per $ 0.38 $ 0.38 $ 0.75 $ 0.77 $ 1.43 share, diluted

Book value per $ 23.04 $ 22.83 $ 21.71 $ 23.04 $ 21.71 share

Tangible bookvalue per $ 21.65 $ 21.44 $ 20.33 $ 21.65 $ 20.33 share ^(1)



Net interest 3.34 % 3.44 % 3.52 % 3.39 % 3.66 %margin

Adjusted netinterest 3.33 % 3.32 % 3.31 % 3.33 % 3.33 %margin ^(1)

Efficiency 61.22 % 67.74 % 67.41 % 64.36 % 67.72 %ratio ^(1)

Return on 0.55 % 0.62 % 1.30 % 0.58 % 1.25 %average assets

Pre-tax,pre-provisionadjusted 1.61 % 1.44 % 1.46 % 1.53 % 1.46 %return onaverage assets^(1)

Return on 6.70 % 7.14 % 14.09 % 6.92 % 13.89 %average equity



Period-endloans and $ 2,056,863 $ 1,743,399 $ 1,719,976 $ 2,056,863 $ 1,719,976 leasesreceivable

Period-endloans andleases $ 1,728,931 $ 1,743,399 $ 1,719,976 $ 1,728,931 $ 1,719,976 receivable,excluding PPPloans

Average loansand leases $ 1,983,121 $ 1,733,742 $ 1,694,294 $ 1,858,432 $ 1,669,511 receivable

Period-endin-market $ 1,620,616 $ 1,383,299 $ 1,290,258 $ 1,620,616 $ 1,290,258 deposits

Averagein-market $ 1,570,552 $ 1,366,142 $ 1,246,386 $ 1,468,348 $ 1,217,312 deposits

Allowance forloan and lease $ 27,464 $ 22,748 $ 19,819 $ 27,464 $ 19,819 losses

Non-performing $ 25,484 $ 29,566 $ 28,524 $ 25,484 $ 28,524 assets

Allowance forloan and leaselosses as apercent of 1.33 % 1.30 % 1.15 % 1.33 % 1.15 %total grossloans andleases

Allowance forloan and leaselosses as apercent oftotal gross 1.58 % 1.30 % 1.15 % 1.58 % 1.15 %loans andleases,excluding PPPloans

Non-performingassets as a 1.03 % 1.35 % 1.38 % 1.03 % 1.38 %percent oftotal assets

Non-performingassets as apercent of 1.19 % 1.35 % 1.38 % 1.19 % 1.38 %total assets,excluding PPPloans

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

COVID-19 Update

Business Continuity

The Company continues to strictly adhere to COVID-19 health and safety-related requirements and best practices across all of our locations. During the second quarter of 2020, employees slowly resumed business travel, as necessary, while business development efforts have continued to be somewhat negatively affected by limitations on in-person appointments.

Portions of the Company's workforce started returning to the office, subject to local mandates and restrictions, on a rotating basis. Management will monitor the activity closely and adjust accordingly as the health and safety of our employees and clients remain our highest priority.

The Company had no furloughs or layoffs related to COVID-19 to date.

Paycheck Protection Program

During the second quarter of 2020, the Company processed over 700 applications from existing and new clients, disbursed $327.9 million in funds, and received processing fee income from the SBA of $8.7 million. The processing fee income is 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 second quarter of 2020, $859,000 was recognized in interest income. The SBA provides a guaranty to the lender of 100% of principal and interest, unless the lender violated an obligation under the agreement. As loan losses are expected to be immaterial, if any at all, due to the guaranty, management excluded the PPP loans from the allowance for loan and lease losses calculation. Management funded these short-term loans through a combination of excess cash held at the Federal Reserve and the increase in in-market deposits.

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 June 30, 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

(in thousands) June 30, 2020

Short-term investments $ 27,839

PPPLF availability 298,327

Collateral value of unencumbered pledged loans (FHLB borrowing 178,587 availability)

Market value of unencumbered securities (Fed Discount Window and 106,808 FHLB borrowing availability)

Total sources of liquidity $ 611,561

In addition to the above primary sources of liquidity, as of June 30, 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 certificate of 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 June 30, 2020, was 11.97%, tier 1 capital to risk-weighted assets was 9.57%, tier 1 leverage capital to adjusted average assets was 8.29%, and common equity tier 1 capital to risk-weighted assets was 9.08%. Tangible common equity to tangible assets was 7.56%. Excluding PPP loans, tier 1 leverage capital to adjusted average assets and tangible common equity to tangible assets were 9.19% and 8.72%, respectively. * Management suspended the Company's stock repurchase program in March 2020 due to the uncertainty surrounding the COVID-19 pandemic. As of March 16, 2020, the Company had repurchased 141,137 shares of its common stock at a weighted average price of $24.62 per share, for a total value of $3.5 million. The company has $1.5 million of buyback authority remaining. * As previously announced, during the second quarter of 2020, the Company's Board of Directors declared a regular quarterly dividend of $0.165 per share. The dividend was paid on May 14, 2020 to stockholders of record at the close of business on May 4, 2020. Measured against second quarter 2020 diluted earnings per share of $0.38, the dividend represents a 43.4% 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 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 June 30, 2020, the Company had processed 448 deferral requests on loans totaling $323.2 million, or 18.6% of gross loans and leases. Loan deferrals of six months accounted for 60.2% of the total $323.2 million in deferral requests and the remaining balance were primarily for three months. Management anticipates the loan modifications may continue throughout 2020. The following tables represent a breakdown of the deferred loan balances by industry segment and collateral type:

(Unaudited) As of

(Dollars in thousands) June 30, 2020

Collateral Type

% ofIndustries Description Balance Deferred of Real Estate Non Real Total Estate Industry

Real Estate and Rental $ 147,584 18.8% $ 142,519 $ 5,065 and Leasing

Accommodation and Food 52,468 52.7% 49,198 3,270 Services

Manufacturing 34,214 17.5% 20,253 13,961

Health Care and Social 19,552 15.9% 12,136 7,416 Assistance

Transportation and 19,402 21.3% 422 18,980 Warehousing

Retail Trade 14,851 29.7% 11,355 3,496

Information 11,228 64.1% 2,430 8,798

Utilities 7,129 96.4% - 7,129

Construction 6,448 6.7% 6,359 89

Wholesale Trade 5,695 5.7% 569 5,126

Other Services (except 1,673 3.0% 50 1,623 Public Administration)

Professional,Scientific, and 933 2.3% - 933 Technical Services

Administrative andSupport and Waste 831 9.9% 728 103 Management andRemediation Services

Finance and Insurance 743 1.8% 715 28

Arts, Entertainment, and 300 1.7% 292 8 Recreation

Agriculture, Forestry, 165 1.3% - 165 Fishing and Hunting

Total deferred loan $ 323,216 $ 247,026 $ 76,190 balances

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

(Dollar in thousands) June 30, 2020

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

Retail ^(2) $ 70,028 4.0%

Hospitality 73,502 4.2%

Entertainment 16,675 1.0%

Restaurants & food service 24,884 1.4%

Total outstanding exposure $ 185,089 10.7%

(1) Excluding PPP loans.(2) Includes $51.7 million in loans secured by commercial real estate.

As of June 30, 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 crisis may ultimately affect the Company's loan portfolio.

Second Quarter 2020 Compared to First Quarter 2020

Net interest income increased $1.8 million, or 10.8%, to $18.9 million.

* Net interest income reflected an increase in average loans and leases, increase in fees received in lieu of interest, and a significant reduction in interest expense. Fees in lieu of interest, which can vary from quarter to quarter based on client-driven activity, totaled $2.3 million, compared to $798,000. Excluding fees in lieu of interest, net interest income increased $379,000, or 2.3%. * Average loans and leases receivable increased $249.4 million to $1.983 billion. Excluding average PPP loans of $259.5 million and average line of credit utilization in both periods of comparison, average loans and leases receivable increased $39.9 million, or 10.8% annualized, to $1.513 billion. * The yield on average interest-earning assets decreased 69 basis points to 4.03% from 4.72%. Excluding average PPP loans, the PPP loan interest income of $647,000, and the aforementioned fees in lieu of interest, the yield earned on average interest-earning assets decreased 59 basis points to 3.97% from 4.56%. The rate paid for average total bank funding decreased 63 basis points to 0.61% from 1.24%. Total bank funding is defined as total deposits plus FHLB advances, Federal Reserve Discount Window advances, and Federal Reserve PPPLF advances. The average effective federal funds rate decreased 119 basis points to 0.06% from 1.25%. * Net interest margin decreased 10 basis points to 3.34% from 3.44%. Adjusted net interest margin, excluding fees in lieu of interest and other recurring but volatile components of net interest margin, increased one basis point to 3.33% from 3.32%. * The Company incurred a $744,000 loss on the early extinguishment of $59.5 million in FHLB term advances late in the second quarter of 2020, as the Company lowered wholesale funding costs and improved the Company's funding position. Management believes this strategy will help stabilize net interest margin with the expectation of a low interest rate environment for an extended period of time.

Non-interest income decreased $95,000, or 1.5%, to $6.3 million.

* Commercial loan interest rate swap fee income was strong and consistent with the first quarter of 2020 at $1.7 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 $309,000, or 116.6%, to $574,000 compared to $265,000. 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) will increase at a measured pace over time. Loans held for sale, consisting entirely of SBA loans closed but not fully funded, increased $7.3 million, or 116.0%, to $13.7 million. * Private wealth management fee income increased $12,000, or 0.6% to $2.1 million. Trust assets under management and administration measured $1.873 billion at June 30, 2020, up $209.0 million, or 50.2% annualized, primarily due to increased equity market values. * Other non-interest income decreased $371,000, or 35.1%, to $686,000 primarily due to a $413,000 decrease in returns on the investment in mezzanine funds.

Non-interest expense increased $2.2 million, or 13.6%, to $18.3 million. Operating expense decreased $466,000, or 2.9%, to $15.4 million.

* Compensation expense decreased $256,000, or 2.3%, to $10.8 million due to a reduction in payroll taxes as first quarter payroll taxes are typically elevated commensurate with payment of amounts earned under the annual corporate incentive compensation plans. Average full-time equivalent employees were 281 for the quarter ended June 30, 2020, compared to 286 for the quarter ended March 31, 2020. * Marketing expense decreased $109,000, or 23.6%, to $352,000, due to a temporary reduction in meals, entertainment, and sponsorships following restrictions put in place during the COVID-19 pandemic. * The Company recognized $1.7 million in expense due to the impairment of federal historic tax credit investments, which corresponded with the recognition of a $2.5 million in tax credits during the quarter. No federal historic tax credit investments were recognized in the first quarter of 2020. * The Company incurred a $744,000 loss on the early extinguishment of $59.5 million in FHLB term advances late in the second quarter of 2020. * Other non-interest expense decreased $271,000, or 33.2%, to $545,000 as business travel related expenses remained low due to restrictions put in place during the COVID-19 pandemic.

Total period-end loans and leases receivable increased $313.5 million to $2.057 billion primarily due to an increase in PPP loans of $327.9 million, partially offset by a $84.5 million decrease in line of credit utilization. Excluding PPP loans and lines of credit in both periods of comparison, total period-end loans and leases receivable increased $70.0 million, or 19.4% annualized, to $1.516 billion.

* Commercial and industrial ("C&I") loans, excluding PPP loans and lines of credit, increased $17.9 million, or 32.0% annualized. * Commercial real estate loans increased $61.8 million, or 21.3% annualized, driven primarily by an increase in multi-family loans and non-owner occupied commercial real estate loans.

Total period-end in-market deposits increased $237.3 million to $1.621 billion and the average rate paid decreased 63 basis points to 0.33%.

* Transaction accounts and money market accounts increased $202.3 million and $46.9 million, respectively, as both existing and new clients received PPP loan funds. * Certificates of deposits decreased $11.8 million as client preferences continued to shift towards more liquid products due to the low interest rate environment. * Total period-end in-market deposits represent 75.3% of total bank funding compared to 73.2%.

Period-end wholesale funding, including FHLB advances, Federal Reserve Discount Window advances, Federal Reserve PPPLF advances, brokered certificates of deposit, and deposits gathered through internet deposit listing services, increased $25.0 million to $530.4 million.

* Brokered certificates of deposit decreased $27.1 million to $89.8 million, as the existing portfolio run off is replaced by in-market deposits and, as needed, lower cost FHLB advances to match fund long-term fixed-rate loans. The average rate paid on wholesale deposits decreased 15 basis points to 2.42% and the weighted average original maturity decreased to 4.6 years from 4.8 years. * FHLB advances increased $22.5 million to $411.0 million. The average rate paid on FHLB advances decreased 66 basis points to 1.25% and the weighted average original maturity decreased to 5.3 years from 5.9 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 June 30, 2020, the Company had one $29.6 million PPPLF advance outstanding.

Non-performing assets decreased $4.1 million to $25.5 million, or 1.03% of total assets, compared to $29.6 million, or 1.35% of total assets, principally due to the payoff of impaired legacy SBA loans. Excluding PPP loans, non-performing assets were 1.19% of total assets.

The allowance for loan and lease losses increased $4.7 million, or 20.7%, primarily due to a $1.7 million increase in general reserve that resulted from the economic conditions caused by the pandemic, including the increase in the unemployment rate, and an additional $680,000 stemmed from the other qualitative factors, such as management's ongoing review and grading of the loan and lease portfolios, consideration of delinquency experience, and the level of loans and leases subject to more frequent review by management. Additionally, an increase in specific reserves of $2.1 million was driven by deterioration of two existing legacy SBA impaired relationships.

* The allowance for loan and lease losses as a percent of total gross loans and leases was 1.33% compared to 1.30%. * Excluding PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.58%.

Second Quarter 2020 Compared to Second Quarter 2019

Net interest income increased $2.0 million, or 12.1%, to $18.9 million.

* Net interest income reflected 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 $2.3 million, compared to $1.2 million. Excluding fees in lieu of interest, net interest income increased $1.0 million, or 6.3%. * Average loans and leases receivable increased $288.8 million, or 17.0%, to $1.983 billion. Excluding average PPP loans of $259.5 million and average line of credit utilization in both periods of comparison, average loans and leases receivable increased $113.0 million, or 8.1%, to $1.513 billion. * The yield earned on average interest-earning assets decreased 126 basis points to 4.03% from 5.29%. Excluding average PPP loans, related interest income of $647,000, and the aforementioned fees in lieu of interest, the yield earned on average interest-earning assets decreased 106 basis points to 3.97% from 5.03%. The rate paid for average total bank funding decreased 115 basis points to 0.61% from 1.76%. The average effective federal funds rate decreased 234 basis points to 0.06% from 2.40%. * Net interest margin decreased 18 basis points to 3.34% from 3.52%. Adjusted net interest margin increased two basis points to 3.33% from 3.31%.

Non-interest income increased $514,000, or 8.9%, to $6.3 million.

* Commercial loan interest rate swap fee income increased $604,000, or 57.5%, to $1.7 million compared to $1.1 million. * Gains on sale of SBA loans increased $277,000, or 93.3%, to $574,000 compared to $297,000. * Private wealth management fee income decreased $14,000, or 0.7%, to $2.1 million primarily due to decreased values in equity markets during the second quarter 2020 compared to the prior year quarter. Trust assets under management and administration measured $1.873 billion at June 30, 2020, up $118.4 million, or 6.7%. * Other fee income decreased $427,000, or 38.4%, to $686,000 compared to $1.1 million. The decrease is primarily due to $501,000 in gains recognized in the second quarter of 2019 on end-of-term buyout agreements related to the Company's equipment financing business line.

Non-interest expense increased $879,000, or 5.0%, to $18.3 million. Operating expense increased $158,000, or 1.0%, to $15.4 million.

* Compensation expense increased $293,000, or 2.8%, to $10.8 million. Average full-time equivalent employees were 281 for the quarter ended June 30, 2020, compared to 274 for the quarter ended June 30, 2019. * Marketing expense decreased $229,000, or 39.4%, to $352,000. The reasons for the decrease in marketing expense are consistent with the linked quarter variance discussed above. * The Company recognized $1.7 million in expense due to the impairment of federal historic tax credit investments, which corresponded with the recognition of a $2.5 million in tax credits during the quarter, compared to $2.0 million of impairment and $2.4 million in tax credits. * The Company incurred a $744,000 loss on the aforementioned early extinguishment of $59.5 million in FHLB term advances. * Other non-interest expense decreased $133,000, or 19.6%, to $545,000. The reasons for the decrease in other non-interest expense are consistent with the linked quarter variance discussed above.

Total period-end loans and leases receivable increased $336.9 million, or 19.6%, to $2.057 billion primarily due to an increase in PPP loans of $327.9 million, partially offset by a $105.3 million decrease in line of credit utilization. Excluding PPP loans and lines of credit in both periods of comparison, total period-end loans and leases receivable increased $114.2 million, or 8.1%, to $1.516 billion.

* C&I loans, excluding PPP loans and lines of credit, increased $48.1 million, or 25.0%. * Commercial real estate loans increased $72.6 million, or 6.3%, driven primarily by an increase in multi-family loans and non-owner occupied commercial real estate loans.

Total period-end in-market deposits increased $330.4 million, or 25.6%, to $1.621 billion and the average rate paid decreased 123 basis points to 0.33%.

* Transaction accounts increased $300.5 million and money market accounts decreased $60.2 million. * Certificates of deposits decreased $30.3 million as client preferences continued to shift towards more liquid products due to the low interest rate environment. * Total period-end in-market deposits represent 75.3% of total bank funding compared to 71.6%.

Period-end wholesale funding increased $17.5 million to $530.4 million.

* Brokered certificates of deposit decreased $149.6 million to $89.8 million, as the existing portfolio runs off and is replaced by in-market deposits and, as needed, lower cost FHLB advances to match fund long-term fixed-rate loans. The average rate paid on brokered certificates of deposit increased 20 basis points to 2.42% and the weighted average original maturity decreased to 4.6 years from 4.9 years. * FHLB advances increased $137.5 million to $411.0 million. The average rate paid on FHLB advances decreased 102 basis points to 1.25% and the weighted average original maturity increased to 5.3 years from 3.9 years. The Company extended maturities during the first half of 2020 by entering into pay-fixed swaps, with terms to pay fixed rates and receive 3-month LIBOR, to partially pre-fund the Company's loan originations with historically low cost funding.

Non-performing assets decreased $3.0 million to $25.5 million, or 1.03% of total assets, compared to $28.5 million, or 1.38% of total assets, principally due to the payoff of impaired legacy SBA loans. Excluding PPP loans, non-performing assets were 1.19% of total assets.

The allowance for loan and lease losses increased 38.6% 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 1.15%. * Excluding PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.58%.

About First Business Financial Services, Inc.

First Business Financial Services, Inc. (Nasdaq:FBIZ) is a Wisconsin-based bank holding company focused on the unique needs of businesses, business executives, and high net worth individuals. First Business offers commercial banking, specialty finance, and private wealth management solutions, and because of its niche focus, is able to provide its clients with unmatched expertise, accessibility, and responsiveness. For additional information, visit www.firstbusiness.com or call 608-238-8008.

This release may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which reflect First Business'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) June 30, March 31, December 31, September 30, June 30, 2020 2020 2019 2019 2019

Assets

Cash and cash $ 42,391 $ 94,986 $ 67,102 $ 60,958 $ 45,875 equivalents

Securitiesavailable-for-sale, 171,680 175,564 173,133 160,665 158,933 at fair value

Securitiesheld-to-maturity, 29,826 30,774 32,700 33,400 34,519 at amortized cost

Loans held for sale 13,672 6,331 5,205 3,070 4,786

Loans and leases 2,056,863 1,743,399 1,714,635 1,720,542 1,719,976 receivable

Allowance for loan (27,464 ) (22,748 ) (19,520 ) (20,170 ) (19,819 )and lease losses

Loans and leases 2,029,399 1,720,651 1,695,115 1,700,372 1,700,157 receivable, net

Premises and 2,266 2,427 2,557 2,740 2,866 equipment, net

Foreclosed 1,389 1,669 2,919 2,902 2,660 properties

Right-of-use assets 6,272 6,590 6,906 7,524 7,853

Bank-owned life 51,433 51,056 42,761 42,432 42,127 insurance

Federal Home Loan 13,470 9,733 7,953 8,315 6,720 Bank stock, at cost

Goodwill and other 11,925 11,872 11,922 11,946 12,000 intangible assets

Accrued interestreceivable and 95,091 84,721 48,506 58,469 51,808 other assets

Total assets $ 2,468,814 $ 2,196,374 $ 2,096,779 $ 2,092,793 $ 2,070,304

Liabilities andStockholders' Equity

In-market deposits $ 1,620,616 $ 1,383,299 $ 1,378,903 $ 1,320,957 $ 1,290,258

Wholesale deposits 89,759 116,827 151,476 187,859 239,387

Total deposits 1,710,375 1,500,126 1,530,379 1,508,816 1,529,645

Federal Home LoanBank advances and 465,007 412,892 319,382 332,897 297,972 other borrowings

Junior subordinated 10,054 10,051 10,047 10,044 10,040 notes

Lease liabilities 6,877 7,211 7,541 7,866 8,187

Accrued interestpayable and other 78,939 70,437 35,274 42,378 35,605 liabilities

Total liabilities 2,271,252 2,000,717 1,902,623 1,902,001 1,881,449

Total stockholders' 197,562 195,657 194,156 190,792 188,855 equity

Total liabilitiesand stockholders' $ 2,468,814 $ 2,196,374 $ 2,096,779 $ 2,092,793 $ 2,070,304 equity

STATEMENTS OF INCOME

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

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

Total interest $ 22,761 $ 23,372 $ 25,613 $ 25,438 $ 25,309 $ 46,132 $ 50,989 income

Total interest 3,873 6,322 7,139 8,662 8,457 10,195 16,383 expense

Net interest 18,888 17,050 18,474 16,776 16,852 35,937 34,606 income

Provision forloan and lease 5,469 3,182 1,472 1,349 (784 ) 8,651 (736 )losses

Net interestincome afterprovision for 13,419 13,868 17,002 15,427 17,636 27,286 35,342 loan and leaselosses

Private wealthmanagement 2,124 2,112 2,073 2,060 2,138 4,235 4,065 service fees

Gain on sale of 574 265 465 454 297 839 539 SBA loans

Service charges 829 818 789 795 743 1,647 1,520 on deposits

Loan fees 451 485 451 439 464 936 877

Net loss on sale - (4 ) (42 ) (4 ) (1 ) (4 ) (1 )of securities

Swap fees 1,655 1,681 2,267 374 1,051 3,336 1,523

Othernon-interest 686 1,057 1,186 1,674 1,113 1,744 1,920 income

Totalnon-interest 6,319 6,414 7,189 5,792 5,805 12,733 10,443 income

Compensation 10,796 11,052 11,030 10,324 10,503 21,848 20,667

Occupancy 554 572 563 580 559 1,126 1,149

Professional 859 819 957 751 784 1,678 1,994 fees

Data processing 710 677 639 654 689 1,386 1,269

Marketing 352 461 610 548 581 813 1,063

Equipment 304 291 292 277 272 595 661

Computer 966 889 929 859 827 1,856 1,626 software

FDIC insurance 239 208 46 1 302 448 595

Collateralliquidation cost 115 121 10 110 89 236 (1 )(recovery)

Net loss (gain)on foreclosed 348 102 (17 ) 262 (21 ) 450 (21 )properties

Tax creditinvestment 1,841 113 113 (120 ) 2,088 1,954 4,102 impairment(recovery)

SBA recourse(benefit) (30 ) 25 21 (427 ) 113 (5 ) 594 provision

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

Othernon-interest 545 816 1,580 897 678 1,359 1,508 expense

Totalnon-interest 18,343 16,146 16,773 14,716 17,464 34,488 35,206 expense

Income beforeincome tax 1,395 4,136 7,418 6,503 5,977 5,531 10,579 (benefit)expense

Income tax(benefit) (1,928 ) 858 1,650 1,418 (595 ) (1,070 ) (1,893 )expense

Net income $ 3,323 $ 3,278 $ 5,768 $ 5,085 $ 6,572 $ 6,601 $ 12,472



Per common share:

Basic earnings $ 0.38 $ 0.38 $ 0.67 $ 0.59 $ 0.75 $ 0.77 $ 1.43

Diluted earnings 0.38 0.38 0.67 0.59 0.75 0.77 1.43

Dividends 0.165 0.165 0.15 0.15 0.15 0.34 0.30 declared

Book value 23.04 22.83 22.67 22.09 21.71 23.04 21.71

Tangible book 21.65 21.44 21.27 20.71 20.33 21.65 20.33 value

Weighted-averagecommon shares 8,392,197 8,388,666 8,442,675 8,492,445 8,569,581 8,379,696 8,584,444 outstanding^(1)

Weighted-averagediluted common 8,392,197 8,388,666 8,442,675 8,492,445 8,569,581 8,379,696 8,584,444 sharesoutstanding^(1)

(1) Excluding participating securities.

NET INTEREST INCOME ANALYSIS

(Unaudited) For the Three Months Ended

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

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

Interest-earning assets

Commercial realestate and other $ 1,192,530 $ 12,450 4.18% $ 1,153,972 $ 13,523 4.69% $ 1,139,036 $ 14,755 5.18%mortgage loans^(1)

Commercial and 726,862 8,347 4.59% 515,935 7,857 6.09% 493,093 8,477 6.88%industrial loans^(1)

Direct financing 27,115 395 5.83% 27,961 108 1.55% 31,610 324 4.10%leases^(1)

Consumer and other 36,614 356 3.89% 35,874 361 4.03% 30,555 348 4.56%loans^(1)

Total loans andleases receivable^ 1,983,121 21,548 4.35% 1,733,742 21,849 5.04% 1,694,294 23,904 5.64%(1)

Mortgage-related 174,113 912 2.10% 180,590 1,061 2.35% 161,827 1,024 2.53%securities^(2)

Other investment 30,194 158 2.09% 23,280 127 2.18% 28,723 151 2.10%securities^(3)

FHLB stock 10,301 127 4.93% 8,512 205 9.63% 6,875 86 5.00%

Short-term 61,030 16 0.10% 35,763 130 1.45% 22,570 144 2.55%investments

Totalinterest-earning 2,258,759 22,761 4.03% 1,981,887 23,372 4.72% 1,914,289 25,309 5.29%assets

Non-interest-earning 167,008 122,975 110,516 assets

Total assets $ 2,425,767 $ 2,104,862 $ 2,024,805

Interest-bearing liabilities

Transaction accounts $ 368,844 291 0.32% $ 271,531 647 0.95% $ 234,241 989 1.69%

Money market 637,714 368 0.23% 669,482 1,869 1.12% 593,431 2,850 1.92%

Certificates of 123,581 627 2.03% 134,000 750 2.24% 164,537 1,025 2.49%deposit

Wholesale deposits 105,597 638 2.42% 132,468 850 2.57% 251,060 1,394 2.22%

Totalinterest-bearing 1,235,736 1,924 0.62% 1,207,481 4,116 1.36% 1,243,269 6,258 2.01%deposits

FHLB advances 409,281 1,283 1.25% 325,929 1,559 1.91% 266,137 1,511 2.27%

Federal Reserve 20,821 18 0.35% - - -% - - -%PPPLF

Other borrowings 24,681 371 6.01% 24,385 370 6.07% 24,463 411 6.72%

Junior subordinated 10,052 277 11.02% 10,048 277 11.03% 10,038 277 11.04%notes

Totalinterest-bearing 1,700,571 3,873 0.91% 1,567,843 6,322 1.61% 1,543,907 8,457 2.19%liabilities

Non-interest-bearingdemand deposit 440,413 291,129 254,177 accounts

Othernon-interest-bearing 86,504 62,367 40,110 liabilities

Total liabilities 2,227,488 1,921,339 1,838,194

Stockholders' equity 198,279 183,523 186,611

Total liabilitiesand stockholders' $ 2,425,767 $ 2,104,862 $ 2,024,805 equity

Net interest income $ 18,888 $ 17,050 $ 16,852

Interest rate spread 3.12% 3.10% 3.10%

Net interest-earning $ 558,188 $ 414,044 $ 370,382 assets

Net interest margin 3.34% 3.44% 3.52%

(1) The average balances of loans and leases include non-accrual loans andleases and loans held for sale. Interest income related to non-accrual loansand leases is recognized when collected. Interest income includes net loan feescollected in lieu of interest.(2) Includes amortized cost basis of assets available for sale and held tomaturity.(3) Yields on tax-exempt municipal obligations are not presented on atax-equivalent basis in this table.(4) Represents annualized yields/rates.

NET INTEREST INCOME ANALYSIS (CONTINUED)

(Unaudited) For the Six Months Ended

(Dollars in June 30, 2020 June 30, 2019thousands)

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

Interest-earning assets

Commercial realestate and other $ 1,173,251 $ 25,973 4.43% $ 1,126,449 $ 29,444 5.23%mortgage loans^(1)

Commercial and 621,399 16,204 5.22% 479,644 17,315 7.22%industrial loans^(1)

Direct financing 27,538 503 3.65% 31,927 651 4.08%leases^(1)

Consumer and other 36,244 717 3.96% 31,491 701 4.45%loans^(1)

Total loans andleases receivable^ 1,858,432 43,397 4.67% 1,669,511 48,111 5.76%(1)

Mortgage-related 177,352 1,973 2.22% 153,981 1,963 2.55%securities^(2)

Other investment 26,737 285 2.13% 29,423 307 2.09%securities^(3)

FHLB and FRB stock 9,407 331 7.04% 6,965 175 5.03%

Short-term 48,396 146 0.60% 33,818 433 2.56%investments

Totalinterest-earning 2,120,324 46,132 4.35% 1,893,698 50,989 5.39%assets

Non-interest-earning 144,991 103,196 assets

Total assets $ 2,265,315 $ 1,996,894

Interest-bearing liabilities

Transaction accounts $ 320,188 938 0.59% $ 224,873 1,860 1.65%

Money market 653,598 2,237 0.68% 574,666 5,373 1.87%

Certificates of 128,791 1,377 2.14% 162,082 1,983 2.45%deposit

Wholesale deposits 119,032 1,488 2.50% 259,379 2,838 2.19%

Totalinterest-bearing 1,221,609 6,040 0.99% 1,221,000 12,054 1.97%deposits

FHLB advances 367,604 2,842 1.55% 267,058 2,955 2.21%

Federal Reserve 10,410 18 0.35% - - -%PPPLF

Other borrowings 24,533 740 6.03% 24,456 822 6.72%

Junior subordinated 10,050 555 11.04% 10,036 552 11.00%notes

Totalinterest-bearing 1,634,206 10,195 1.25% 1,522,550 16,383 2.15%liabilities

Non-interest-bearingdemand deposit 365,771 255,691 accounts

Othernon-interest-bearing 74,436 39,017 liabilities

Total liabilities 2,074,413 1,817,258

Stockholders' equity 190,902 179,636

Total liabilitiesand stockholders' $ 2,265,315 $ 1,996,894 equity

Net interest income $ 35,937 $ 34,606

Interest rate spread 3.10% 3.23%

Net interest-earning $ 486,118 $ 371,148 assets

Net interest margin 3.39% 3.66%

(1) The average balances of loans and leases include non-accrual loans andleases and loans held for sale. Interest income related to non-accrual loansand leases is recognized when collected. Interest income includes net loan feescollected in lieu of interest.(2) Includes amortized cost basis of assets available for sale and held tomaturity.(3) Yields on tax-exempt municipal obligations are not presented on atax-equivalent basis in this table.(4) Represents annualized yields/rates.

PERFORMANCE RATIOS

For the Three Months Ended For the Six Months Ended

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

Return onaverage assets 0.55% 0.62% 1.09% 0.97% 1.30% 0.58% 1.25% (annualized)

Return onaverage equity 6.70% 7.14% 11.93% 10.68% 14.09% 6.92% 13.89% (annualized)

Efficiency ratio 61.22% 67.74% 64.77% 66.41% 67.41% 64.36% 67.72%

Interest rate 3.12% 3.10% 3.33% 2.95% 3.10% 3.10% 3.23%spread

Net interest 3.34% 3.44% 3.73% 3.40% 3.52% 3.39% 3.66%margin

Averageinterest-earningassets to 132.82% 126.41% 127.44% 125.54% 123.99% 129.75% 124.38%averageinterest-bearingliabilities

ASSET QUALITY RATIOS

(Unaudited) As of

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

Non-accrualloans and $ 24,095 $ 27,897 $ 20,613 $ 22,789 $ 25,864 leases

Foreclosed 1,389 1,669 2,919 2,902 2,660 properties

Totalnon-performing 25,484 29,566 23,532 25,691 28,524 assets

Performingtroubled debt 49 134 140 146 151 restructurings

Total impaired $ 25,533 $ 29,700 $ 23,672 $ 25,837 $ 28,675 assets



Non-accrualloans andleases as apercent of 1.17% 1.60% 1.20% 1.32% 1.50%total grossloans andleases

Non-performingassets as apercent oftotal gross 1.23% 1.69% 1.37% 1.49% 1.66%loans andleases plusforeclosedproperties

Non-performingassets as a 1.03% 1.35% 1.12% 1.23% 1.38%percent oftotal assets

Allowance forloan and leaselosses as apercent of 1.33% 1.30% 1.14% 1.17% 1.15%total grossloans andleases

Allowance forloan and leaselosses as apercent of 113.98% 81.54% 94.70% 88.51% 76.64%non-accrualloans andleases

ASSET QUALITY RATIOS - EXCLUDING PPP LOANS (1)

(Unaudited) As of

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

Non-accrual loans and leases asa percent of total gross loans 1.39% 1.60% 1.20% 1.32% 1.50%and leases

Non-performing assets as apercent of total gross loans and 1.47% 1.69% 1.37% 1.49% 1.66%leases plus foreclosedproperties

Non-performing assets as a 1.19% 1.35% 1.12% 1.23% 1.38%percent of total assets

Allowance for loan and leaselosses as a percent of total 1.58% 1.30% 1.14% 1.17% 1.15%gross loans and leases

(1) PPP loans outstanding as of June 30, 2020, were $327.9 million. The otherperiods presented did not have any PPP loans outstanding.

NET CHARGE-OFFS (RECOVERIES)

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

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

Charge-offs $ 817 $ 131 $ 2,194 $ 1,099 $ 15 $ 948 $ 63

Recoveries (64 ) (177 ) (73 ) (101 ) (169 ) (241 ) (193 )

Netcharge-offs $ 753 $ (46 ) $ 2,121 $ 998 $ (154 ) $ 707 $ (130 )(recoveries)

Netcharge-offs(recoveries)as a percent 0.15 % (0.01 ) 0.49 % 0.23 % (0.04 ) 0.08 % (0.02 )of average % % %gross loansand leases(annualized)

Annualizednetcharge-offs(recoveries)as a percent ) ) )of average 0.17 % (0.01 % 0.49 % 0.23 % (0.04 % 0.08 % (0.02 %gross loansand leases,excludingaverage PPPloans ^(1)

(1) Average PPP loans outstanding for the three and six months ended June 30,2020, were $259.5 million and $129.8 million, respectively. The other periodspresented did not have any PPP loans outstanding.

CAPITAL RATIOS

As of and for the Three Months Ended

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

Total capital to 11.97% 11.74% 12.01% 11.90% 11.92%risk-weighted assets

Tier I capital to 9.57% 9.45% 9.77% 9.62% 9.60%risk-weighted assets

Common equity tier I capital 9.08% 8.96% 9.27% 9.11% 9.09%to risk-weighted assets

Tier I capital to adjusted 8.29% 9.33% 9.27% 9.18% 9.36%assets

Tangible common equity to 7.56% 8.41% 8.74% 8.59% 8.59%tangible assets

LOAN AND LEASE RECEIVABLE COMPOSITION

(Unaudited) As of

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

Commercial real estate:

Commercialreal estate $ 229,994 $ 224,075 $ 226,614 $ 226,307 $ 210,471 - owneroccupied

Commercialreal estate 533,211 511,363 516,652 503,102 477,740 - non-owneroccupied

Land 44,299 48,045 51,097 49,184 49,000 development

Construction 133,375 131,060 109,057 111,848 185,347

Multi-family 244,496 211,594 217,322 227,330 195,363

1-4 family 36,823 34,220 33,359 31,226 31,656

Totalcommercial 1,222,198 1,160,357 1,154,101 1,148,997 1,149,577 real estate

Commercialand 781,239 519,900 503,402 513,672 510,448 industrial

Directfinancing 25,525 26,833 28,203 28,987 30,365 leases, net

Consumer and other:

Home equityand second 6,706 6,513 7,006 7,373 7,513 mortgages

Other 29,737 30,416 22,664 22,140 22,896

Totalconsumer and 36,443 36,929 29,670 29,513 30,409 other

Total grossloans and 2,065,405 1,744,019 1,715,376 1,721,169 1,720,799 leasesreceivable

Less:

Allowancefor loan and 27,464 22,748 19,520 20,170 19,819 lease losses

Deferred 8,542 620 741 627 823 loan fees

Loans andleases $ 2,029,399 $ 1,720,651 $ 1,695,115 $ 1,700,372 $ 1,700,157 receivable,net

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

(Unaudited) As of

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

Performing loans:

Off-balance sheet $ 28,843 $ 31,212 $ 35,029 $ 40,288 $ 44,385 loans

On-balance sheet 16,554 17,935 19,697 21,814 23,406 loans

Gross loans 45,397 49,147 54,726 62,102 67,791

Non-performing loans:

Off-balance sheet 1,640 4,887 7,290 7,287 8,294 loans

On-balance sheet 9,725 13,833 12,037 14,663 16,940 loans

Gross loans 11,365 18,720 19,327 21,950 25,234

Total loans:

Off-balance sheet 30,483 36,099 42,319 47,575 52,679 loans

On-balance sheet 26,279 31,768 31,734 36,477 40,346 loans

Gross loans $ 56,762 $ 67,867 $ 74,053 $ 84,052 $ 93,025

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

DEPOSIT COMPOSITION

(Unaudited) As of

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

Non-interest-bearing $ 433,760 $ 301,657 $ 293,573 $ 280,990 $ 301,914 transaction accounts

Interest-bearing 413,214 343,064 273,909 206,267 244,608 transaction accounts

Money market 656,741 609,883 674,409 678,993 596,520 accounts

Certificates of 116,901 128,695 137,012 154,707 147,216 deposit

Wholesale deposits 89,759 116,827 151,476 187,859 239,387

Total deposits $ 1,710,375 $ 1,500,126 $ 1,530,379 $ 1,508,816 $ 1,529,645

TRUST ASSETS COMPOSITION

(Unaudited) As of

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

Trust assetsunder $ 1,704,019 $ 1,519,632 $ 1,726,538 $ 1,651,809 $ 1,590,508 management

Trust assetsunder 169,388 144,822 165,660 148,711 164,517 administration

Total trust $ 1,873,407 $ 1,664,454 $ 1,892,198 $ 1,800,520 $ 1,755,025 assets

NON-GAAP RECONCILIATIONSCertain 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, June 30, March 31, December September June 30,except per 2020 2020 31, 30, 2019share 2019 2019amounts)

Commonstockholders' $ 197,562 $ 195,657 $ 194,156 $ 190,792 $ 188,855 equity

Goodwill andother (11,925 ) (11,872 ) (11,922 ) (11,946 ) (12,000 )intangibleassets

Tangible $ 185,637 $ 183,785 $ 182,234 $ 178,846 $ 176,855 common equity

Common shares 8,575,134 8,571,134 8,566,044 8,636,085 8,699,456 outstanding

Book value $ 23.04 $ 22.83 $ 22.67 $ 22.09 $ 21.71 per share

Tangible bookvalue per 21.65 21.44 21.27 20.71 20.33 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 June 30, March 31, December 31, September 30, June 30,thousands) 2020 2020 2019 2019 2019

Commonstockholders' $ 197,562 $ 195,657 $ 194,156 $ 190,792 $ 188,855 equity

Goodwill andother (11,925 ) (11,872 ) (11,922 ) (11,946 ) (12,000 )intangibleassets

Tangible $ 185,637 $ 183,785 $ 182,234 $ 178,846 $ 176,855 common equity

Total assets $ 2,468,814 $ 2,196,374 $ 2,096,779 $ 2,092,793 $ 2,070,304

Goodwill andother (11,925 ) (11,872 ) (11,922 ) (11,946 ) (12,000 )intangibleassets

Tangible $ 2,456,889 $ 2,184,502 $ 2,084,857 $ 2,080,847 $ 2,058,304 assets

Tangiblecommon equity 7.56 % 8.41 % 8.74 % 8.59 % 8.59 %to tangibleassets

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 Six Months Ended

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

Totalnon-interest $ 18,343 $ 16,146 $ 16,773 $ 14,716 $ 17,464 $ 34,488 $ 35,206 expense

Less:

Net loss(gain) on 348 102 (17 ) 262 (21 ) 450 (21 )foreclosedproperties

Amortizationof other 9 9 7 11 11 18 21 intangibleassets

SBA recourse(benefit) (30 ) 25 21 (427 ) 113 (5 ) 594 provision

Tax creditinvestment 1,841 113 113 (120 ) 2,088 1,954 4,102 impairment(recovery)

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

Totaloperating $ 15,431 $ 15,897 $ 16,649 $ 14,990 $ 15,273 $ 31,327 $ 30,510 expense ^(a)

Net interest $ 18,888 $ 17,050 $ 18,474 $ 16,776 $ 16,852 $ 35,937 $ 34,606 income

Totalnon-interest 6,319 6,414 7,189 5,792 5,805 12,733 10,443 income

Less:

Net loss onsale of - (4 ) (42 ) (4 ) (1 ) (4 ) (1 )securities

Adjustednon-interest 6,319 6,418 7,231 5,796 5,806 12,737 10,444 income

Totaloperating $ 25,207 $ 23,468 $ 25,705 $ 22,572 $ 22,658 $ 48,674 $ 45,050 revenue ^(b)

Efficiency 61.22% 67.74% 64.77% 66.41% 67.41% 64.36% 67.72%ratio



Pre-tax,pre-provisionadjusted $ 9,776 $ 7,571 $ 9,056 $ 7,582 $ 7,385 $ 17,347 $ 14,540 earnings ^(b -a)

Average total $ 2,425,767 $ 2,104,862 $ 2,107,365 $ 2,093,285 $ 2,024,805 $ 2,265,315 $ 1,996,894 assets

Pre-tax,pre-provisionadjusted 1.61% 1.44% 1.72% 1.45% 1.46% 1.53% 1.46%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 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 Six Months Ended

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

Interest income $ 22,761 $ 23,372 $ 25,613 $ 25,438 $ 25,309 $ 46,132 $ 50,989

Interest expense 3,873 6,322 7,139 8,662 8,457 10,195 16,383

Net interest 18,888 17,050 18,474 16,776 16,852 35,937 34,606 income ^(a)

Less:

Fees in lieu of 2,257 798 1,840 1,090 1,214 3,055 3,549 interest

PPP loan 647 - - - - 647 - interest income

FRB interestincome and FHLB 134 301 208 278 176 435 449 dividend income

Add:

FRB PPPLF 18 - - - - 18 - interest expense

Adjusted netinterest income $ 15,868 $ 15,951 $ 16,426 $ 15,408 $ 15,462 $ 31,818 $ 30,608 ^(b)

Averageinterest-earning $ 2,258,759 $ 1,981,887 $ 1,980,922 $ 1,971,696 $ 1,914,289 $ 2,120,324 $ 1,893,698 assets ^(c)

Less:

Average PPP 259,518 - - - - 129,759 - loans

Average FRB cash 69,176 37,989 34,565 42,040 22,113 53,583 29,927 and FHLB stock

Averagenon-accrual 25,386 22,209 21,738 25,331 24,607 23,797 24,345 loans and leases

Adjusted averageinterest-earning $ 1,904,679 $ 1,921,689 $ 1,924,619 $ 1,904,325 $ 1,867,569 $ 1,913,185 $ 1,839,426 assets ^(d)

Net interest 3.34 % 3.44 % 3.73 % 3.40 % 3.52 % 3.39 % 3.66 %margin^ (a / c)

Adjusted netinterest margin^ 3.33 % 3.32 % 3.41 % 3.24 % 3.31 % 3.33 % 3.33 %(b / d)

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