First Business Bank Reports Fourth Quarter 2022 Net Income of $9.9 Million

Rhea-AI Summary

First Business Financial Services, Inc. (Nasdaq: FBIZ) announced a quarterly net income of $9.9 million, equating to $1.18 per diluted share, down from $10.6 million ($1.25 per share) in Q3 2022. For 2022, net income totaled $40.2 million, an increase from $35.8 million in 2021. The bank reported a 20% annualized loan growth, with net interest income reaching a record $27.5 million, a 31.2% increase year-over-year. The net interest margin expanded to 4.15%, supported by strong balance sheet management. Tangible book value per share grew 9% year-over-year. The company anticipates double-digit growth in loans, deposits, and revenue for 2023.

Positive

• Net income increased annually to $40.2 million in 2022 from $35.8 million in 2021.
• Record net interest income of $27.5 million represents a 31.2% increase year-over-year.
• 20% annualized loan growth in the fourth quarter of 2022.
• Tangible book value per share grew 9% year-over-year.
• Anticipated double-digit growth in loans, deposits, and revenue for 2023.

Negative

• Quarterly net income decreased from $10.6 million in Q3 2022 to $9.9 million in Q4 2022.
• Non-interest income declined by 14.9% to $7.0 million from the prior quarter.
• Provision for loan and lease losses expense increased to $702,000 from $12,000 in Q3 2022.

-- Loan growth, net interest margin expansion, and strong asset quality support continued tangible book value growth --

MADISON, Wis.--(BUSINESS WIRE)-- First Business Financial Services, Inc. (the “Company”, the “Bank”, or “First Business Bank”) (Nasdaq:FBIZ) reported quarterly net income available to common shareholders of $9.9 million, or $1.18 diluted earnings per share. This compares to net income available to common shareholders of $10.6 million, or $1.25 per share, in the third quarter of 2022 and $8.6 million, or $1.01 per share, in the fourth quarter of 2021. For the full year 2022, the Company reported net income available to common shareholders of $40.2 million, or $4.75 per share, compared to $35.8 million, or $4.17 per share, in 2021.

“Excellent execution across our commercial lending businesses continued through the fourth quarter, highlighted by 20% annualized loan growth,” Chief Executive Officer Corey Chambas said. “The impact of rising rates and strong balance sheet management, contributed to record net interest margin of 4.15%. We believe our core net interest margin will remain relatively stable in the near-term given the current interest rate environment. We bolstered our funding position with solid in-market deposit expansion, along with the use of wholesale deposits as part of our long-held strategy to match-fund our fixed rate loans.” Chambas added, “This important component of our interest rate risk management strategy resulted in favorable margin expansion compared to peer banks. Outstanding execution led to growth in tangible book value per share of 9% for the year, which compares very favorably to the industry. We enter 2023 with expectations for double-digit loan, deposit, and revenue growth, driving strong earnings performance.”

Quarterly Highlights

• Robust Loan Growth. Loans, excluding net Paycheck Protection Program (“PPP”) loans, grew $114.2 million, or 19.6% annualized, from the third quarter of 2022 and $230.4 million, or 10.4%, from the fourth quarter of 2021, reflecting balanced growth across the Company’s commercial and industrial (“C&I”) and commercial real estate (“CRE”) portfolios.

• Strong Deposit Growth. Total deposits grew to $2.168 billion, increasing 15.5% annualized from the linked quarter and 10.7% from the fourth quarter of 2021. In-market deposits grew to $1.966 billion, up $36.7 million, or 7.6% annualized, from the linked quarter.

• Record Net Interest Income. Net interest income grew to a record $27.5 million, increasing $1.6 million, or 6.1%, from the linked quarter and $6.5 million, or 31.2%, from the prior year quarter. This was driven by a combination of 11.6% annualized increase in average loans and leases as well as a record net interest margin of 4.15%.

• Exceptional Asset Quality. Continued positive asset quality trends resulted in non-performing assets of $3.8 million, measuring a historically low of 0.13% of total assets and improving from 0.25% of total assets on December 31, 2021.

• Tangible Book Value Growth. The Company’s strong earnings generation produced a 17.0% annualized increase in tangible book value per share compared to the linked quarter and 8.6% compared to the prior year quarter.

Quarterly Financial Results
(Unaudited)		As of and for the Three Months Ended												As of and for the Year Ended
(Dollars in thousands, except per share amounts)		December 31, 2022				September 30, 2022				December 31, 2021				December 31, 2022				December 31, 2021
Net interest income		$	27,452			$	25,884			$	20,924			$	98,422			$	84,662
Adjusted non-interest income (1)			6,164				8,197				7,569				28,619				28,071
Operating revenue (1)			33,616				34,081				28,493				127,041				112,733
Operating expense (1)			20,658				19,925				17,644				79,155				71,571
Pre-tax, pre-provision adjusted earnings (1)			12,958				14,156				10,849				47,886				41,162
Less:
Provision for loan and lease losses			702				12				(508	)			(3,868	)			(5,803	)
Net loss on foreclosed properties			22				7				7				49				15
Amortization of other intangible assets			—				—				2				—				25
Contribution to First Business Charitable Foundation			809				—				—				809				—
SBA recourse (benefit) provision			(322	)			96				(122	)			(188	)			(76	)
Tax credit investment impairment recovery			—				—				—				(351	)			—
Add:
Bank-owned life insurance claim			809				—				—				809				—
Net gain on sale of securities			—				—				—				—				29
Income before income tax expense			12,556				14,041				11,470				52,244				47,030
Income tax expense			2,400				3,215				2,879				11,386				11,275
Net income		$	10,156			$	10,826			$	8,591			$	40,858			$	35,755
Preferred stock dividends			219				218				—				683				—
Net income available to common shareholders		$	9,937			$	10,608			$	8,591			$	40,175			$	35,755
Earnings per share, diluted		$	1.18			$	1.25			$	1.01			$	4.75			$	4.17
Book value per share		$	29.74			$	28.58			$	27.48			$	29.74			$	27.48
Tangible book value per share (1)		$	28.28			$	27.13			$	26.03			$	28.28			$	26.03
Net interest margin (2)			4.15	%			4.01	%			3.39	%			3.82	%			3.44	%
Adjusted net interest margin (1)(2)			3.94	%			3.89	%			3.23	%			3.64	%			3.21	%
Fee income ratio (non-interest income / total revenue)			20.26	%			24.05	%			26.56	%			23.02	%			24.92	%
Efficiency ratio (1)			61.45	%			58.46	%			61.92	%			62.31	%			63.49	%
Return on average assets (2)			1.39	%			1.54	%			1.32	%			1.46	%			1.37	%
Pre-tax, pre-provision adjusted return on average assets (1)(2)			1.81	%			2.05	%			1.66	%			1.74	%			1.58	%
Return on average common equity (2)			16.26	%			17.44	%			15.04	%			16.79	%			16.21	%
Period-end loans and leases receivable		$	2,443,066			$	2,330,700			$	2,239,408			$	2,443,066			$	2,239,408
Average loans and leases receivable		$	2,384,091			$	2,316,621			$	2,179,769			$	2,304,990			$	2,179,154
Period-end in-market deposits		$	1,965,970			$	1,929,224			$	1,928,285			$	1,965,970			$	1,928,285
Average in-market deposits		$	1,950,625			$	1,930,995			$	1,866,875			$	1,928,815			$	1,784,302
Allowance for loan and lease losses		$	24,230			$	24,143			$	24,336			$	24,230			$	24,336
Non-performing assets		$	3,754			$	3,796			$	6,522			$	3,754			$	6,522
Allowance for loan and lease losses as a percent of total gross loans and leases			0.99	%			1.04	%			1.09	%			0.99	%			1.09	%
Non-performing assets as a percent of total assets			0.13	%			0.13	%			0.25	%			0.13	%			0.25	%

(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.

Quarterly Financial Results - Excluding PPP Loans, Interest Income, and Fees
(Unaudited)		As of and for the Three Months Ended												As of and for the Year Ended
(Dollars in thousands, except per share amounts)		December 31, 2022				September 30, 2022				December 31, 2021				December 31, 2022				December 31, 2021
Net interest income		$	27,444			$	25,812			$	19,898			$	97,816			$	75,826
Adjusted non-interest income (1)			6,164				8,197				7,569				28,619				28,071
Operating revenue (1)			33,608				34,009				27,467				126,435				103,897
Operating expense (1)			20,658				19,925				17,644				79,155				71,571
Pre-tax, pre-provision adjusted earnings (1)		$	12,950			$	14,084			$	9,823			$	47,280			$	32,326
Net interest margin (2)			4.15	%			4.00	%			3.29	%			3.81	%			3.29	%
Fee income ratio (non-interest income / total revenue)			20.26	%			24.10	%			27.56	%			23.13	%			27.04	%
Efficiency ratio (1)			61.47	%			58.59	%			64.24	%			62.61	%			68.89	%
Pre-tax, pre-provision adjusted return on average assets (1)(2)			1.81	%			2.05	%			1.53	%			1.72	%			1.32	%
Period-end loans and leases receivable		$	2,442,560			$	2,328,376			$	2,212,111			$	2,442,560			$	2,212,111
Average loans and leases receivable		$	2,381,958			$	2,312,116			$	2,126,846			$	2,295,250			$	2,026,890
Allowance for loan and lease losses as a percent of total gross loans and leases			0.99	%			1.04	%			1.10	%			0.99	%			1.10	%
Non-performing assets as a percent of total assets			0.13	%			0.13	%			0.25	%			0.13	%			0.25	%

(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.

Fourth Quarter 2022 Compared to Third Quarter 2022

Net interest income increased $1.6 million, or 6.1%, to $27.5 million.

• Net interest income growth was driven by an increase in both average loans and leases and in fees in lieu of interest combined with net interest margin expansion. Average loans and leases receivable increased $67.5 million, or 11.6% annualized, to $2.384 billion. Fees in lieu of interest, which can vary from quarter to quarter based on client-driven activity, totaled $1.3 million, compared to $807,000 in the prior quarter. Excluding fees in lieu of interest and interest income from PPP loans, net interest income increased $1.1 million, or 17.0% annualized.

• The yield on average interest-earning assets increased 87 basis points to 5.79% from 4.92%. Excluding average net PPP loans, PPP loan interest income, and fees in lieu of interest, the yield earned on average interest-earning assets increased 79 basis points to 5.59% from 4.80%.

• The rate paid for average interest-bearing, in-market deposits increased 113 basis points to 2.01% from 0.88%. The rate paid for average total bank funding increased 78 basis points to 1.67% from 0.89%. Total bank funding is defined as total deposits plus Federal Home Loan Bank (“FHLB”) advances. The daily average effective federal funds rate increased 147 basis points compared to the linked quarter, which equates to a total bank funding beta of 53.1% for the three months ended December 31, 2022.

• Net interest margin was 4.15%, up 14 basis points compared to 4.01% in the linked quarter. Adjusted net interest margin¹ was 3.94%, up 5 basis points compared to 3.89% in the linked quarter. Net interest margin expansion was due to an increase in fees of lieu of interest and the beta on interest earning assets exceeding the total bank funding beta.

• The Bank maintains an asset-sensitive balance sheet and ended the quarter positioned for net interest income to continue to benefit from rising rates. However, the Bank anticipates deposit betas will continue to rise at a greater rate, and adjusted net interest margin may begin to decline at a gradual pace in coming quarters.

The Bank reported a provision expense of $702,000, compared to $12,000 in the third quarter of 2022.

• The provision for loan and lease losses expense in the fourth quarter of 2022 was primarily due to net charge offs of $615,000 and an increase of $982,000 in the general reserve due to loan growth, partially offset by a $930,000 decrease in the general reserve due to a decrease in the historical loss factor as elevated losses during the Great Recession fall outside the model look-back period.

• The Bank adopted ASU No. 2016-13, “Financial Instruments- Credit Losses (Topic 326)", which is often referred to as CECL, on January 1, 2023.

Non-interest income decreased $1.2 million, or 14.9%, to $7.0 million.

• Private Wealth and Retirement assets (“Private Wealth”) fee income decreased $48,000, or 1.8% to $2.6 million. Private Wealth assets under management and administration measured $2.660 billion at December 31, 2022, up $167.4 million from the third quarter, with a majority of the growth occurring late in the fourth quarter.

• Gains on sale of Small Business Administration (“SBA”) loans decreased $463,000, or 63.3%, to $269,000. Premiums on the sale of SBA loans sold decreased compared to prior quarter and the Company elected to hold a higher proportion of SBA loans on its balance sheet in the current interest rate environment.

• Commercial loan swap fee income increased $415,000, or 121.7%, to $756,000. Swap fee income can vary from period to period based on loan activity and the interest rate environment.

• Service charges on deposits decreased $227,000, or 22.3%, to $791,000, driven by an increase in the earnings credit rate commensurate with the rising rate environment.

• Other fee income decreased $934,000 to $1.7 million, compared to $2.7 million in the third quarter. The decrease was primarily due to lower returns on the Company’s investments in mezzanine funds and lower income in the equipment financing business line. The fourth quarter decrease was partially offset by the recognition of a $809,000 bank-owned life insurance claim. Income on mezzanine funds can vary from period to period based on changes in the value of underlying investments.

Non-interest expense increased $1.1 million, or 5.7%, to $21.2 million, while operating expense increased $733,000, or 3.7%, to $20.7 million.

____________________
¹ Adjusted net interest margin is a non-GAAP measure representing net interest income excluding fees in lieu of interest and other recurring, but volatile, components of net interest margin divided by average interest-earning assets less average net PPP loans and other recurring, but volatile, components of average interest-earning assets.

• Compensation expense was $15.3 million, reflecting an increase of $450,000, or 3.0%, from the linked quarter due to a $347,000 adjustment to the annual cash incentive bonus program accrual driven by above-target current year performance, as well as expanded hiring to support the Bank’s growth plans. The Bank’s compensation philosophy is to provide base salaries competitive with the market. To stay competitive in the tight labor market, the Company increased its base salaries consistent with 2021. Average full-time equivalents (FTEs) for the fourth quarter of 2022 were 336, up three from 333 in the linked quarter.

• Equipment expense increased $106,000, or 41.9%, to $359,000 from the linked quarter primarily due to one-time costs associated with an office relocation.

• Occupancy expense increased $103,000, or 18.2%, to $669,000 from the linked quarter primarily due to an office relocation and one-time costs associated with building repairs.

• Other non-interest expense increased $354,000, or 62.2%, to $923,000 from the linked quarter primarily due to a non-recurring contribution to the First Business Charitable Foundation totaling $809,000 during the fourth quarter partially offset by a recourse release of $322,000 and a swap credit valuation benefit of $153,000.

Income tax expense decreased $815,000, or 25.3%, to $2.4 million. The effective tax rate was 19.1% for the three months ended December 31, 2022, compared to 22.9% for the linked quarter. The three months ended December 31, 2022 benefited from low income housing tax credits and a state return amendment. The Company expects to report an effective tax rate of 21-22% for 2023.

Total period-end loans and leases receivable increased $112.4 million, or 19.3% annualized, to $2.443 billion. Excluding net PPP loans, total period-end loans and leases receivable increased $114.2 million, or 19.6% annualized.

• Commercial real estate loans increased by $57.0 million, or 15.4% annualized, to $1.542 billion, compared to $1.485 billion. Growth spanned all commercial real estate categories, led by increases in non-owner occupied and multi-family loans.

• C&I loans increased $52.2 million, or 26.4% annualized, to $841.2 million, compared to $789.0 million. Excluding PPP loans, C&I loans increased $54.0 million, or 27.6% annualized, due to growth across products and geographies.

Total period-end in-market deposits increased $36.7 million, or 7.6% annualized, to $1.966 billion, compared to $1.929 billion. The average rate paid was 1.43%, up 82 basis points from 0.61% in the third quarter.

Period-end wholesale funding, including FHLB advances, brokered deposits, and deposits gathered through internet deposit listing services, increased $82.5 million to $618.6 million.

• Wholesale deposits increased $43.9 million to $202.2 million, compared to $158.3 million as the Bank continued to replace FHLB advances with wholesale deposits. The increase in wholesale funding is consistent with the Company’s long-held philosophy to manage interest rate risk by utilizing the most efficient and cost-effective source of wholesale funds to match-fund our fixed-rate loan portfolio. The average rate paid on wholesale deposits increased 120 basis points to 3.66% and the weighted average original maturity increased to 2.1 years from 0.3 years.

• FHLB advances increased $38.6 million to $416.4 million. The average rate paid on FHLB advances increased 20 basis points to 2.21% and the weighted average original maturity decreased to 3.7 years from 4.8 years.

Non-performing assets were $3.8 million, or 0.13% of total assets in both periods of comparison.

The allowance for loan and lease losses increased $87,000, or 0.4%, as increases in the general reserve from loan growth and net charge-offs were partially offset by a decrease in the general reserve due to a change in loss factors derived from the historical look-back period. The allowance for loan and lease losses as a percent of total gross loans and leases was 0.99% compared to 1.04% in the third quarter.

Fourth Quarter 2022 Compared to Fourth Quarter 2021

Net interest income increased $6.5 million, or 31.2%, to $27.5 million.

• The increase in net interest income primarily reflects an increase in average gross loans and leases and net interest margin expansion, partially offset by lower fees in lieu of interest. Fees in lieu of interest decreased from $1.7 million to $1.3 million, primarily due to a $889,000 reduction in PPP loan fee amortization. Excluding fees in lieu of interest and interest income from PPP loans, net interest income increased $7.0 million, or 36.9%. Excluding net PPP loans, average gross loans and leases increased $255.1 million, or 12.0%.

• Net interest margin increased 76 basis points to 4.15% from 3.39%. Adjusted net interest margin increased 71 basis points to 3.94% from 3.23%.

• The yield on average interest-earning assets measured 5.79% compared to 3.81%. Excluding fees in lieu of interest, PPP loan interest income, and net PPP loans, the yield on average interest-earning assets measured 5.59%, compared to 3.60%. This increase in yield was primarily due to the increase in short-term market rates and the reinvestment of cash flows from the securities and fixed rate loan portfolios in a rising rate environment.

• The rate paid for average interest-bearing in-market deposits increased 183 basis points to 2.01% from 0.18%. The rate paid for average total bank funding increased 124 basis points to 1.67% from 0.33%.

The Company reported a provision expense of $702,000, compared to a provision benefit of $508,000 in the fourth quarter of 2021 primarily due to an increase in net charge-offs in the current quarter and improvement in subjective factors in the prior year quarter.

Non-interest income of $7.0 million decreased by $596,000, or 7.9%, from $7.6 million in the prior year period.

• Private Wealth fee income decreased $304,000, or 10.6%, to $2.6 million, due to a decline in market values. Private Wealth assets under management and administration measured $2.660 billion at December 31, 2022, down $260.7 million, or 8.9%.

• Gain on sale of SBA loans decreased $773,000, or 74.2%, to $269,000. Premiums on the sale and notional value of SBA loans sold decreased compared to prior year quarter, as the Company elected to hold a higher proportion of SBA loans on its balance sheet in the current interest rate environment.

• Service charges on deposits decreased $232,000, or 22.7%, to $791,000. The reasons for the decrease are consistent with the explanations discussed above in the linked quarter analysis.

• Loan fees of $847,000 increased by $168,000, or 24.7%, primarily due to an increase in C&I lending activity.

• Other fee income increased $473,000, or 37.4%, to $1.7 million, due to the recognition of a $809,000 bank owned life insurance death benefit, partially offset by lower returns on the Company’s investments in mezzanine funds. Income on mezzanine funds can vary from period to period based on changes in the value of underlying investments.

Non-interest expense increased $3.6 million, or 20.7%, to $21.2 million. Operating expense increased $3.0 million, or 17.1%, to $20.7 million.

• Compensation expense increased $2.8 million, or 22.7%, to $15.3 million. Average FTEs increased 12% to 336 in the fourth quarter of 2022, compared to 301 in the fourth quarter of 2021. The increase in compensation expense was mainly due to an increase in average FTEs, annual merit increases and promotions, and an increase in incentive compensation due to outstanding company performance.

• Full year 2022 compensation included a $6.7 million annual incentive compensation accrual, which exceeded the Company’s target payout by $2.5 million.

• Professional fees increased $277,000, or 29.7%, to $1.2 million, primarily due to a general increase in other professional consulting services associated with various projects and an increase in audit expenses.

• Equipment expense increased $136,000, or 61.0%, to $359,000. The reasons for the increase in equipment expense are consistent with the explanations discussed above in the linked quarter analysis.

• Occupancy expense increased $118,000, or 21.4%, to $669,000. The reasons for the increase in occupancy expense are consistent with the explanations discussed above in the linked quarter analysis.

• Other non-interest expense increased $94,000, or 11.3%, to $923,000 primarily due to a non-recurring charitable contribution totaling $809,000 during the fourth quarter partially offset by a reduction in expenses related to swap credit valuations and recourse provision.

Total period-end loans and leases receivable increased $203.7 million, or 9.1%, to $2.443 billion. Excluding net PPP loans, total period-end loans and leases receivable increased $230.4 million, or 10.4%, to $2.443 billion.

• C&I loans increased $110.4 million, or 15.1% to $841.2 million. Excluding PPP loans, C&I loans increased $137.7 million, or 19.6%, to $840.6 million due to growth across categories and geographies.

• CRE loans increased $87.3 million, or 6.0%, to $1.542 billion, due to increases in most CRE categories.

Total period-end in-market deposits increased $37.7 million, or 2.0%, to $1.966 billion, and the average rate paid increased 130 basis points to 1.43%. The increase in in-market deposits was principally due to a $99.7 million increase in certificates of deposit, partially offset by a $55.9 million decline in money market accounts.

Period-end wholesale funding increased $220.2 million to $618.6 million.

• Wholesale deposits increased $172.6 million to $202.2 million, as the Bank utilized more wholesale deposits in lieu of short-term FHLB advances. The average rate paid on brokered certificates of deposit increased 263 basis points to 3.66% and the weighted average original maturity decreased to 2.1 years from 3.8 years.

• FHLB advances increased $47.6 million to $416.4 million. The average rate paid on FHLB advances increased 91 basis points to 2.21% and the weighted average original maturity decreased to 3.7 years from 5.9 years.

Non-performing assets decreased to $3.8 million, or 0.13% of total assets, compared to $6.5 million, or 0.25% of total assets.

The allowance for loan and lease losses decreased $106,000 to $24.2 million, compared to $24.3 million. The allowance for loan and lease losses as a percent of total gross loans and leases was 0.99%, compared to 1.09%.

Paycheck Protection Program

As of December 31, 2022, the Company had $554,000 in gross PPP loans outstanding and deferred processing fees outstanding of $48,000. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness, as an adjustment of yield using the interest method. During the three and twelve months ended December 31, 2022, the Company recognized $3,000 and $509,000 of PPP processing fees in interest income, respectively, compared to $892,000 and $7.3 million for the three and twelve months ended December 31, 2021. The SBA provides a guaranty to the lender of 100% of principal and interest unless the lender violated an obligation under the agreement.

Share Repurchase Program Update

As previously announced, effective March 4, 2022, the Company’s Board of Directors authorized the repurchase by the Company of shares of its common stock with a maximum aggregate purchase price of $5.0 million, effective March 4, 2022 through March 4, 2023. As of December 16, 2022, the Company had completed the share repurchase program, purchasing a total of 142,074 shares for approximately $5.0 million at an average cost of $35.14 per share.

About First Business Financial Services, Inc.

First Business Financial Services, Inc., (Nasdaq: FBIZ) is the parent company of First Business Bank. First Business Bank specializes in business banking, including commercial banking and specialized lending, private wealth, and bank consulting services, and through its refined focus, delivers unmatched expertise, accessibility, and responsiveness. Specialized lending solutions are delivered through First Business Bank’s wholly owned subsidiary First Business Specialty Finance, LLC. For additional information, visit firstbusiness.bank.

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

• Adverse changes in the economy or business conditions, either nationally or in our markets including, without limitation, inflation, supply chain issues, labor shortages, and the adverse effects of the COVID-19 pandemic on the global, national, and local economy.

• Competitive pressures among depository and other financial institutions nationally and in the Company’s markets.

• Increases in defaults by borrowers and other delinquencies.

• Management’s ability to manage growth effectively, including the successful expansion of our client service, administrative infrastructure, and internal management systems.

• Fluctuations in interest rates and market prices.

• Changes in legislative or regulatory requirements applicable to the Company and its subsidiaries.

• Changes in tax requirements, including tax rate changes, new tax laws, and revised tax law interpretations.

• Fraud, including client and system failure or breaches of our network security, including the Company’s internet banking activities.

• Failure to comply with the applicable SBA regulations in order to maintain the eligibility of the guaranteed portion of SBA loans.

For further information about the factors that could affect the Company’s future results, please see the Company’s annual report on Form 10-K for the year ended December 31, 2021 and other filings with the Securities and Exchange Commission.

SELECTED FINANCIAL CONDITION DATA
(Unaudited)		As of
(in thousands)		December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021
Assets
Cash and cash equivalents		$	102,682			$	110,965			$	95,484			$	95,603			$	57,110
Securities available-for-sale, at fair value			212,024				196,566				208,643				223,631				205,702
Securities held-to-maturity, at amortized cost			12,635				13,531				13,968				17,267				19,746
Loans held for sale			2,632				773				2,256				2,418				3,570
Loans and leases receivable			2,443,066				2,330,700				2,290,100				2,251,249				2,239,408
Allowance for loan and lease losses			(24,230	)			(24,143	)			(24,104	)			(23,669	)			(24,336	)
Loans and leases receivable, net			2,418,836				2,306,557				2,265,996				2,227,580				2,215,072
Premises and equipment, net			4,340				3,143				1,899				1,621				1,694
Foreclosed properties			95				151				124				117				164
Right-of-use assets			7,690				5,424				5,772				6,118				4,910
Bank-owned life insurance			54,018				54,683				54,324				53,974				53,600
Federal Home Loan Bank stock, at cost			17,812				15,701				22,959				12,863				13,336
Goodwill and other intangible assets			12,159				12,218				12,262				12,184				12,268
Derivatives			68,581				73,718				44,461				26,890				26,343
Accrued interest receivable and other assets			63,107				57,372				48,868				43,816				39,390
Total assets		$	2,976,611			$	2,850,802			$	2,777,016			$	2,724,082			$	2,652,905
Liabilities and Stockholders’ Equity
In-market deposits		$	1,965,970			$	1,929,224			$	1,857,010			$	2,011,373			$	1,928,285
Wholesale deposits			202,236				158,321				12,321				12,321				29,638
Total deposits			2,168,206				2,087,545				1,869,331				2,023,694				1,957,923
Federal Home Loan Bank advances and other borrowings			456,808				420,297				596,642				414,487				403,451
Junior subordinated notes			—				—				—				—				10,076
Lease liabilities			10,175				6,827				7,207				7,580				5,406
Derivatives			61,419				66,162				40,357				24,961				28,283
Accrued interest payable and other liabilities			19,363				16,967				13,556				8,309				15,344
Total liabilities			2,715,971				2,597,798				2,527,093				2,479,031				2,420,483
Total stockholders’ equity			260,640				253,004				249,923				245,051				232,422
Total liabilities and stockholders’ equity		$	2,976,611			$	2,850,802			$	2,777,016			$	2,724,082			$	2,652,905

STATEMENTS OF INCOME
(Unaudited)		As of and for the Three Months Ended																		As of and for the Year Ended
(Dollars in thousands, except per share amounts)		December 31, 2022			September 30, 2022			June 30, 2022				March 31, 2022				December 31, 2021				December 31, 2022				December 31, 2021
Total interest income		$	38,319		$	31,786		$	27,031			$	24,235			$	23,576			$	121,371			$	95,995
Total interest expense			10,867			5,902			3,371				2,809				2,652				22,949				11,333
Net interest income			27,452			25,884			23,660				21,426				20,924				98,422				84,662
Provision for loan and lease losses			702			12			(3,727	)			(855	)			(508	)			(3,868	)			(5,803	)
Net interest income after provision for loan and lease losses			26,750			25,872			27,387				22,281				21,432				102,290				90,465
Private wealth management service fees			2,570			2,618			2,852				2,841				2,874				10,881				10,784
Gain on sale of SBA loans			269			732			951				585				1,042				2,537				4,044
Service charges on deposits			791			1,018			1,041				999				1,023				3,849				3,837
Loan fees			847			814			697				652				679				3,010				2,506
Net gain on sale of securities			—			—			—				—				—				—				29
Swap fees			756			341			471				225				684				1,793				1,368
Other non-interest income			1,740			2,674			860				2,084				1,267				7,358				5,532
Total non-interest income			6,973			8,197			6,872				7,386				7,569				29,428				28,100
Compensation			15,267			14,817			14,020				13,638				12,447				57,742				51,710
Occupancy			669			566			568				555				551				2,358				2,180
Professional fees			1,210			1,203			1,298				1,170				933				4,881				3,736
Data processing			806			719			892				780				773				3,197				3,087
Marketing			641			543			670				500				548				2,354				2,022
Equipment			359			253			235				244				223				1,091				990
Computer software			1,089			1,128			1,117				1,082				1,017				4,416				4,260
FDIC insurance			203			230			296				313				210				1,042				1,143
Other non-interest expense			923			569			360				541				829				2,393				2,407
Total non-interest expense			21,167			20,028			19,456				18,823				17,531				79,474				71,535
Income before income tax expense			12,556			14,041			14,803				10,844				11,470				52,244				47,030
Income tax expense			2,400			3,215			3,599				2,172				2,879				11,386				11,275
Net income		$	10,156		$	10,826		$	11,204			$	8,672			$	8,591			$	40,858			$	35,755
Preferred stock dividends			219			218			246				—				—				683				—
Net income available to common shareholders		$	9,937		$	10,608		$	10,958			$	8,672			$	8,591			$	40,175			$	35,755
Per common share:
Basic earnings		$	1.18		$	1.25		$	1.29			$	1.02			$	1.01			$	4.75			$	4.17
Diluted earnings			1.18			1.25			1.29				1.02				1.01				4.75				4.17
Dividends declared			0.1975			0.1975			0.1975				0.1975				0.18				0.79				0.72
Book value			29.74			28.58			28.08				27.46				27.48				29.74				27.48
Tangible book value			28.28			27.13			26.63				26.02				26.03				28.28				26.03
Weighted-average common shares outstanding(1)			8,180,531			8,230,902			8,225,838				8,232,142				8,228,311				8,226,943				8,314,921
Weighted-average diluted common shares outstanding(1)			8,180,531			8,230,902			8,225,838				8,232,142				8,228,311				8,226,943				8,314,921

(1)	Excluding participating securities.

NET INTEREST INCOME ANALYSIS
(Unaudited)		For the Three Months Ended
(Dollars in thousands)		December 31, 2022									September 30, 2022									December 31, 2021
		Average Balance			Interest			Average Yield/Rate(4)			Average Balance			Interest			Average Yield/Rate(4)			Average Balance			Interest			Average Yield/Rate(4)
Interest-earning assets
Commercial real estate and other mortgage loans(1)		$	1,515,975		$	20,948		5.53	%		$	1,486,530		$	17,280		4.65	%		$	1,417,498		$	13,225		3.73	%
Commercial and industrial loans(1)			806,019			14,816		7.35	%			765,440			12,266		6.41	%			702,108			8,711		4.96	%
Direct financing leases(1)			13,747			156		4.54	%			15,093			160		4.24	%			17,662			200		4.53	%
Consumer and other loans(1)			48,350			514		4.25	%			49,558			468		3.78	%			42,501			376		3.54	%
Total loans and leases receivable(1)			2,384,091			36,434		6.11	%			2,316,621			30,174		5.21	%			2,179,769			22,512		4.13	%
Mortgage-related securities(2)			164,120			1,008		2.46	%			168,433			915		2.17	%			170,002			677		1.59	%
Other investment securities(3)			49,850			261		2.09	%			51,812			250		1.93	%			49,927			209		1.67	%
FHLB stock			16,281			301		7.40	%			18,167			289		6.36	%			12,345			155		5.02	%
Short-term investments			34,807			315		3.62	%			27,912			158		2.26	%			59,970			23		0.15	%
Total interest-earning assets			2,649,149			38,319		5.79	%			2,582,945			31,786		4.92	%			2,472,013			23,576		3.81	%
Non-interest-earning assets			218,326									176,016									140,892
Total assets		$	2,867,475								$	2,758,961								$	2,612,905
Interest-bearing liabilities
Transaction accounts		$	492,586			2,360		1.92	%		$	486,704			1,005		0.83	%		$	497,743			239		0.19	%
Money market			748,502			3,784		2.02	%			746,227			1,610		0.86	%			749,247			321		0.17	%
Certificates of deposit			148,949			849		2.28	%			113,529			340		1.20	%			42,507			36		0.34	%
Wholesale deposits			128,908			1,180		3.66	%			36,702			226		2.46	%			62,342			161		1.03	%
Total interest-bearing deposits			1,518,945			8,173		2.15	%			1,383,162			3,181		0.92	%			1,351,839			757		0.22	%
FHLB advances			389,310			2,149		2.21	%			432,528			2,173		2.01	%			353,637			1,149		1.30	%
Other borrowings			41,143			545		5.30	%			42,800			548		5.12	%			35,270			466		5.28	%
Junior subordinated notes			—			—		—	%			—			—		—	%			10,073			280		11.12	%
Total interest-bearing liabilities			1,949,398			10,867		2.23	%			1,858,490			5,902		1.27	%			1,750,819			2,652		0.61	%
Non-interest-bearing demand deposit accounts			560,588									584,535									577,378
Other non-interest-bearing liabilities			100,998									60,705									56,280
Total liabilities			2,610,984									2,503,730									2,384,477
Stockholders’ equity			256,491									255,231									228,428
Total liabilities and stockholders’ equity		$	2,867,475								$	2,758,961								$	2,612,905
Net interest income					$	27,452								$	25,884								$	20,924
Interest rate spread								3.56	%								3.65	%								3.21	%
Net interest-earning assets		$	699,751								$	724,455								$	721,194
Net interest margin								4.15	%								4.01	%								3.39	%

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

NET INTEREST INCOME ANALYSIS
(Unaudited)		For the Year Ended
(Dollars in thousands)		December 31, 2022									December 31, 2021
		Average Balance			Interest			Average Yield/Rate			Average Balance			Interest			Average Yield/Rate
Interest-earning assets
Commercial real estate and other mortgage loans(1)		$	1,484,239		$	66,917		4.51	%		$	1,387,434		$	51,930		3.74	%
Commercial and industrial loans(1)			755,837			45,893		6.07	%			727,923			37,470		5.15	%
Direct financing leases(1)			15,219			682		4.48	%			19,591			872		4.45	%
Consumer and other loans(1)			49,695			1,876		3.78	%			44,206			1,572		3.56	%
Total loans and leases receivable(1)			2,304,990			115,368		5.01	%			2,179,154			91,844		4.21	%
Mortgage-related securities(2)			173,495			3,486		2.01	%			159,242			2,633		1.65	%
Other investment securities(3)			51,700			986		1.91	%			44,739			777		1.74	%
FHLB stock			16,462			989		6.01	%			13,066			651		4.98	%
Short-term investments			30,845			542		1.76	%			64,308			90		0.14	%
Total interest-earning assets			2,577,492			121,371		4.71	%			2,460,509			95,995		3.90	%
Non-interest-earning assets			175,424									144,499
Total assets		$	2,752,916								$	2,605,008
Interest-bearing liabilities
Transaction accounts		$	503,668			3,963		0.79	%		$	506,693			988		0.19	%
Money market			761,469			6,241		0.82	%			693,608			1,183		0.17	%
Certificates of deposit			97,448			1,358		1.39	%			47,020			396		0.84	%
Wholesale deposits			48,825			1,616		3.31	%			119,831			986		0.82	%
Total interest-bearing deposits			1,411,410			13,178		0.93	%			1,367,152			3,553		0.26	%
FHLB advances			414,191			7,024		1.70	%			376,781			4,908		1.30	%
Other borrowings			43,818			2,243		5.12	%			31,935			1,759		5.51	%
Junior subordinated notes(4)			2,429			504		20.75	%			10,068			1,113		11.05	%
Total interest-bearing liabilities			1,871,848			22,949		1.23	%			1,785,936			11,333		0.63	%
Non-interest-bearing demand deposit accounts			566,230									536,981
Other non-interest-bearing liabilities			65,611									61,580
Total liabilities			2,503,689									2,384,497
Stockholders’ equity			249,227									220,511
Total liabilities and stockholders’ equity		$	2,752,916								$	2,605,008
Net interest income					$	98,422								$	84,662
Interest rate spread								3.48	%								3.27	%
Net interest-earning assets		$	705,644								$	674,573
Net interest margin								3.82	%								3.44	%

(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)	The calculation for the year ended December 31, 2022 includes $236,000 in accelerated amortization of debt issuance costs.

ASSET AND LIABILITY BETA ANALYSIS
	For the Three Months Ended															For the Year Ended
(Unaudited)	December 31, 2022			September 30, 2022						December 31, 2021						December 31, 2022			December 31, 2021
	Average Yield/Rate (3)			Average Yield/Rate (3)			Increase (Decrease)			Average Yield/Rate (3)			Increase (Decrease)			Average Yield/Rate			Average Yield/Rate			Increase (Decrease)
Total loans and leases receivable (a)	6.11	%		5.21	%		0.90	%		4.13	%		1.98	%		5.01	%		4.21	%		0.80	%
Total interest-earning assets(b)	5.79	%		4.92	%		0.87	%		3.81	%		1.98	%		4.71	%		3.90	%		0.81	%
Adjusted total loans and leases receivable (1)(c)	5.90	%		5.08	%		0.82	%		3.89	%		2.01	%		4.79	%		3.91	%		0.88	%
Adjusted total interest-earning assets (1)(d)	5.59	%		4.80	%		0.79	%		3.60	%		1.99	%		4.52	%		3.61	%		0.91	%
Total in-market deposits(e)	1.43	%		0.61	%		0.82	%		0.13	%		1.30	%		0.60	%		0.14	%		0.46	%
Total bank funding(f)	1.67	%		0.89	%		0.78	%		0.33	%		1.34	%		0.84	%		0.37	%		0.47	%
Net interest margin(g)	4.15	%		4.01	%		0.14	%		3.39	%		0.76	%		3.82	%		3.44	%		0.38	%
Adjusted net interest margin(h)	3.94	%		3.89	%		0.05	%		3.23	%		0.71	%		3.64	%		3.21	%		0.43	%
Effective fed funds rate (2)(i)	3.65	%		2.18	%		1.47	%		0.09	%		3.56	%		1.69	%		0.08	%		1.61	%
Beta Calculations:
Total loans and leases receivable(a)/(i)							61.42	%					55.67	%								49.69	%
Total interest-earning assets(b)/(i)							58.74	%					55.36	%								50.15	%
Adjusted total loans and leases receivable (1)(c)/(i)							55.61	%					56.38	%								54.66	%
Adjusted total interest-earning assets (1)(d)/(i)							53.50	%					56.05	%								56.39	%
Total in-market deposits(e/i)							55.78	%					36.52	%								28.57	%
Total bank funding(f)/(i)							53.06	%					37.64	%								29.19	%
Net interest margin(g/i)							9.52	%					21.35	%								23.60	%
Adjusted Net interest margin(h/i)							3.40	%					19.94	%								26.71	%

(1)	Excluding average net PPP loans, PPP loan interest income, and fees in lieu of interest.
(2)	Board of Governors of the Federal Reserve System (US), Effective Federal Funds Rate [DFF]. Retrieved from FRED, Federal Reserve Bank of St. Louis. Represents average daily rate.
(3)	Represents annualized yields/rates.

PROVISION FOR LOAN AND LEASE LOSS COMPOSITION
(Unaudited)		For the Three Months Ended																				For the Year Ended
(Dollars in thousands)		December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021				December 31, 2022				December 31, 2021
Change in general reserve due to qualitative factor changes		$	85			$	132			$	(185	)		$	(416	)		$	(805	)		$	(384	)		$	(426	)
Change in general reserve due to historical loss factor changes			(930	)			(940	)			64				(206	)			(862	)			(2,012	)			(4,456	)
Charge-offs			818				54				85				22				106				979				3,508
Recoveries			(203	)			(81	)			(4,247	)			(210	)			(274	)			(4,741	)			(5,126	)
Change in specific reserves on impaired loans, net			(50	)			447				29				(280	)			(64	)			146				(2,175	)
Change due to loan growth, net			982				400				527				235				1,391				2,144				2,872
Total provision for loan and lease losses		$	702			$	12			$	(3,727	)		$	(855	)		$	(508	)		$	(3,868	)		$	(5,803	)

PERFORMANCE RATIOS
		For the Three Months Ended															For the Year Ended
(Unaudited)		December 31, 2022			September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021			December 31, 2022			December 31, 2021
Return on average assets (annualized)		1.39	%		1.54	%		1.61	%		1.30	%		1.32	%		1.46	%		1.37	%
Return on average common equity (annualized)		16.26	%		17.44	%		18.79	%		14.70	%		15.04	%		16.79	%		16.21	%
Efficiency ratio		61.45	%		58.46	%		64.47	%		65.55	%		61.92	%		62.31	%		63.49	%
Interest rate spread		3.56	%		3.65	%		3.51	%		3.22	%		3.21	%		3.48	%		3.27	%
Net interest margin		4.15	%		4.01	%		3.71	%		3.39	%		3.39	%		3.82	%		3.44	%
Average interest-earning assets to average interest-bearing liabilities		135.90	%		138.98	%		137.40	%		138.64	%		141.19	%		137.70	%		137.77	%

ASSET QUALITY RATIOS
(Unaudited)		As of
(Dollars in thousands)		December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021
Non-accrual loans and leases		$	3,659			$	3,645			$	5,585			$	5,617			$	6,358
Foreclosed properties			95				151				124				117				164
Total non-performing assets			3,754				3,796				5,709				5,734				6,522
Performing troubled debt restructurings			156				172				188				203				217
Total impaired assets		$	3,910			$	3,968			$	5,897			$	5,937			$	6,739
Non-accrual loans and leases as a percent of total gross loans and leases			0.15	%			0.16	%			0.24	%			0.25	%			0.28	%
Non-performing assets as a percent of total gross loans and leases plus foreclosed properties			0.15	%			0.16	%			0.25	%			0.25	%			0.29	%
Non-performing assets as a percent of total assets			0.13	%			0.13	%			0.21	%			0.21	%			0.25	%
Allowance for loan and lease losses as a percent of total gross loans and leases			0.99	%			1.04	%			1.05	%			1.05	%			1.09	%
Allowance for loan and lease losses as a percent of non-accrual loans and leases			662.20	%			662.36	%			431.58	%			421.38	%			382.76	%

ASSET QUALITY RATIOS - EXCLUDING NET PPP LOANS
(Unaudited)		As of
(Dollars in thousands)		December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021
Non-accrual loans and leases as a percent of total gross loans and leases			0.15	%			0.16	%			0.24	%			0.25	%			0.29	%
Non-performing assets as a percent of total gross loans and leases plus foreclosed properties			0.15	%			0.16	%			0.25	%			0.26	%			0.29	%
Non-performing assets as a percent of total assets			0.13	%			0.13	%			0.21	%			0.21	%			0.25	%
Allowance for loan and lease losses as a percent of total gross loans and leases			0.99	%			1.04	%			1.06	%			1.06	%			1.10	%
PPP loans outstanding, net		$	506			$	2,324			$	8,172			$	18,206			$	27,297

NET CHARGE-OFFS (RECOVERIES)
(Unaudited)		For the Three Months Ended																				For the Year Ended
(Dollars in thousands)		December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021				December 31, 2022				December 31, 2021
Charge-offs		$	818			$	54			$	85			$	22			$	106			$	979			$	3,508
Recoveries			(203	)			(81	)			(4,247	)			(210	)			(274	)			(4,741	)			(5,126	)
Net charge-offs (recoveries)		$	615			$	(27	)		$	(4,162	)		$	(188	)		$	(168	)		$	(3,762	)		$	(1,618	)
Net charge-offs (recoveries) as a percent of average gross loans and leases (annualized)			0.10	%			—	%			(0.73	) %			(0.03	) %			(0.03	) %			(0.16	) %			(0.07	) %
Annualized charge-offs (recoveries) as a percent of average gross loans and leases, excluding average net PPP loans			0.10	%			—	%			(0.74	) %			(0.03	) %			(0.03	) %			(0.16	) %			(0.08	) %
Average PPP loans outstanding, net		$	2,133			$	4,505			$	11,650			$	20,935			$	52,923			$	9,740			$	152,264

CAPITAL RATIOS
		As of and for the Three Months Ended
(Unaudited)		December 31, 2022			September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021
Total capital to risk-weighted assets		11.26	%		11.66	%		11.56	%		11.87	%		10.82	%
Tier I capital to risk-weighted assets		9.20	%		9.48	%		9.34	%		9.27	%		8.94	%
Common equity tier I capital to risk-weighted assets		8.79	%		9.04	%		8.90	%		8.81	%		8.55	%
Tier I capital to adjusted assets		9.17	%		9.34	%		9.19	%		9.09	%		8.94	%
Tangible common equity to tangible assets		7.98	%		8.06	%		8.16	%		8.14	%		8.34	%
Tangible common equity to tangible assets, excluding net PPP loans		7.98	%		8.07	%		8.19	%		8.20	%		8.42	%

LOAN AND LEASE RECEIVABLE COMPOSITION
(Unaudited)		As of
(in thousands)		December 31, 2022			September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021
Commercial real estate:
Commercial real estate - owner occupied		$	268,354		$	265,989		$	258,375		$	254,237		$	235,589
Commercial real estate - non-owner occupied			687,091			657,975			651,920			656,185			661,423
Land development			50,803			49,458			42,545			40,092			42,792
Construction			167,948			162,051			203,913			200,472			179,841
Multi-family			350,026			332,782			314,392			302,494			320,072
1-4 family			17,728			16,678			17,335			16,198			14,911
Total commercial real estate			1,541,950			1,484,933			1,488,480			1,469,678			1,454,628
Commercial and industrial			841,178			788,983			741,363			720,695			730,819
Direct financing leases, net			12,149			11,109			13,718			14,551			15,743
Consumer and other:
Home equity and second mortgages			6,761			5,413			5,132			4,523			4,223
Other			41,177			40,710			42,387			43,066			35,518
Total consumer and other			47,938			46,123			47,519			47,589			39,741
Total gross loans and leases receivable			2,443,215			2,331,148			2,291,080			2,252,513			2,240,931
Less:
Allowance for loan and lease losses			24,230			24,143			24,104			23,669			24,336
Deferred loan fees			149			448			980			1,264			1,523
Loans and leases receivable, net		$	2,418,836		$	2,306,557		$	2,265,996		$	2,227,580		$	2,215,072

DEPOSIT COMPOSITION
(Unaudited)		As of
(in thousands)		December 31, 2022			September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021
Non-interest-bearing transaction accounts		$	537,107		$	564,141		$	544,507		$	600,987		$	589,559
Interest-bearing transaction accounts			576,601			461,883			466,785			539,492			530,225
Money market accounts			698,505			742,545			731,718			806,917			754,410
Certificates of deposit			153,757			160,655			114,000			63,977			54,091
Wholesale deposits			202,236			158,321			12,321			12,321			29,638
Total deposits		$	2,168,206		$	2,087,545		$	1,869,331		$	2,023,694		$	1,957,923

PRIVATE WEALTH OFF BALANCE SHEET COMPOSITION
(Unaudited)		As of
(in thousands)		December 31, 2022			September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021
Trust assets under management		$	2,483,811		$	2,332,448		$	2,386,637		$	2,636,896		$	2,711,760
Trust assets under administration			176,225			160,171			167,095			197,160			208,954
Total trust assets		$	2,660,036		$	2,492,619		$	2,553,732		$	2,834,056		$	2,920,714

NON-GAAP RECONCILIATIONS

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

TANGIBLE BOOK VALUE

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

(Unaudited)		As of
(Dollars in thousands, except per share amounts)		December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021
Common stockholders’ equity		$	248,648			$	241,012			$	237,931			$	233,059			$	232,422
Goodwill and other intangible assets			(12,159	)			(12,218	)			(12,262	)			(12,184	)			(12,268	)
Tangible common equity		$	236,489			$	228,794			$	225,669			$	220,875			$	220,154
Common shares outstanding			8,362,085				8,432,048				8,474,699				8,488,585				8,457,564
Book value per share		$	29.74			$	28.58			$	28.08			$	27.46			$	27.48
Tangible book value per share			28.28				27.13				26.63				26.02				26.03

TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS

“Tangible common equity to tangible assets” is defined as the ratio of common stockholders’ equity reduced by intangible assets, if any, divided by total assets reduced by intangible assets, if any. The Company’s management believes that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period in common equity and total assets, each exclusive of changes in intangible assets. The information below reconciles tangible common equity and tangible assets to their most comparable GAAP measures.

(Unaudited)		As of
(Dollars in thousands)		December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021
Common stockholders’ equity		$	248,648			$	241,012			$	237,931			$	233,059			$	232,422
Goodwill and other intangible assets			(12,159	)			(12,218	)			(12,262	)			(12,184	)			(12,268	)
Tangible common equity		$	236,489			$	228,794			$	225,669			$	220,875			$	220,154
Total assets		$	2,976,611			$	2,850,802			$	2,777,016			$	2,724,082			$	2,652,905
Goodwill and other intangible assets			(12,159	)			(12,218	)			(12,262	)			(12,184	)			(12,268	)
Tangible assets		$	2,964,452			$	2,838,584			$	2,764,754			$	2,711,898			$	2,640,637
Tangible common equity to tangible assets			7.98	%			8.06	%			8.16	%			8.14	%			8.34	%
Period-end net PPP loans			506				2,324				8,172				18,206				27,297
Tangible assets, excluding net PPP loans		$	2,963,946			$	2,836,260			$	2,756,582			$	2,693,692			$	2,613,340
Tangible common equity to tangible assets, excluding net PPP loans			7.98	%			8.07	%			8.19	%			8.20	%			8.42	%

EFFICIENCY RATIO & PRE-TAX, PRE-PROVISION ADJUSTED EARNINGS

“Efficiency ratio” is a non-GAAP measure representing non-interest expense excluding the effects of the SBA recourse provision, impairment of tax credit investments, losses or gains on foreclosed properties, amortization of other intangible assets and other discrete items, if any, divided by operating revenue, which is equal to net interest income plus non-interest income less realized gains or losses on securities, if any. “Pre-tax, pre-provision adjusted earnings” is defined as operating revenue less operating expense. In the judgment of the Company’s management, the adjustments made to non-interest expense and non-interest income allow investors and analysts to better assess the Company’s operating expenses in relation to its core operating revenue by removing the volatility that is associated with certain one-time items and other discrete items. The information provided below reconciles the efficiency ratio and pre-tax, pre-provision adjusted earnings to its most comparable GAAP measure.

(Unaudited)	For the Three Months Ended																				For the Year Ended
(Dollars in thousands)	December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021				December 31, 2022				December 31, 2021
Total non-interest expense	$	21,167			$	20,028			$	19,456			$	18,823			$	17,531			$	79,474			$	71,535
Less:
Net loss on foreclosed properties		22				7				8				12				7				49				15
Amortization of other intangible assets		—				—				—				—				2				—				25
SBA recourse provision (benefit)		(322	)			96				114				(76	)			(122	)			(188	)			(76	)
Contribution to First Business Charitable Foundation		809				—				—				—				—				809				—
Tax credit investment impairment recovery		—				—				(351	)			—				—				(351	)			—
Total operating expense (a)	$	20,658			$	19,925			$	19,685			$	18,887			$	17,644			$	79,155			$	71,571
Net interest income	$	27,452			$	25,884			$	23,660			$	21,426			$	20,924			$	98,422			$	84,662
Total non-interest income		6,973				8,197				6,872				7,386				7,569				29,428				28,100
Less:
Bank-owned life insurance claim		809				—				—				—				—				809				—
Net gain on sale of securities		—				—				—				—				—				—				29
Adjusted non-interest income		6,164				8,197				6,872				7,386				7,569				28,619				28,071
Total operating revenue (b)	$	33,616			$	34,081			$	30,532			$	28,812			$	28,493			$	127,041			$	112,733
Efficiency ratio		61.45	%			58.46	%			64.47	%			65.55	%			61.92	%			62.31	%			63.49	%
Pre-tax, pre-provision adjusted earnings (b - a)	$	12,958			$	14,156			$	10,847			$	9,925			$	10,849			$	47,886			$	41,162
Less:
PPP fee income		3				61				196				249				892				509				7,312
PPP loan interest income		5				11				29				52				134				97				1,524
Pre-tax, pre-provision adjusted earnings, excluding PPP	$	12,950			$	14,084			$	10,622			$	9,624			$	9,823			$	47,280			$	32,326
Average total assets	$	2,867,475			$	2,758,961			$	2,716,707			$	2,666,241			$	2,612,905			$	2,752,916			$	2,605,008
Less:
Average net PPP loans		2,133				4,505				11,650				20,935				52,923				9,740				152,264
Adjusted average total assets	$	2,865,342			$	2,754,456			$	2,705,057			$	2,645,306			$	2,559,982			$	2,743,176			$	2,452,744
Pre-tax, pre-provision adjusted return on average assets		1.81	%			2.05	%			1.60	%			1.49	%			1.66	%			1.74	%			1.58	%
Pre-tax, pre-provision adjusted return on average assets, excluding PPP		1.81	%			2.05	%			1.57	%			1.46	%			1.53	%			1.72	%			1.32	%

ADJUSTED NET INTEREST MARGIN

“Adjusted Net Interest Margin” is a non-GAAP measure representing net interest income excluding the fees in lieu of interest and other recurring, but volatile, components of net interest margin divided by average interest-earning assets less average net PPP loans, if any, and other recurring, but volatile, components of average interest-earning assets. Fees in lieu of interest are defined as prepayment fees, asset-based loan fees, non-accrual interest, and loan fee amortization. In the judgment of the Company’s management, the adjustments made to net interest income allow investors and analysts to better assess the Company’s net interest income in relation to its core client-facing loan and deposit rate changes by removing the volatility that is associated with these recurring but volatile components. The information provided below reconciles the net interest margin to its most comparable GAAP measure.

(Unaudited)	For the Three Months Ended																				For the Year Ended
(Dollars in thousands)	December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021				December 31, 2022				December 31, 2021
Interest income	$	38,319			$	31,786			$	27,031			$	24,235			$	23,576			$	121,371			$	95,995
Interest expense		10,867				5,902				3,371				2,809				2,652				22,949				11,333
Net interest income (a)		27,452				25,884				23,660				21,426				20,924				98,422				84,662
Less:
Fees in lieu of interest		1,318				807				1,865				1,293				1,700				5,283				11,160
PPP loan interest income		5				11				29				52				134				97				1,524
FRB interest income and FHLB dividend income		613				445				279				188				179				1,525				741
Adjusted net interest income (b)	$	25,516			$	24,621			$	21,487			$	19,893			$	18,911			$	91,517			$	71,237
Average interest-earning assets (c)	$	2,649,149			$	2,582,945			$	2,551,180			$	2,525,272			$	2,472,013			$	2,577,492			$	2,460,509
Less:
Average net PPP loans		2,133				4,505				11,650				20,935				52,923				9,740				152,264
Average FRB cash and FHLB stock		50,522				45,351				46,334				44,577				71,939				46,708				76,880
Average non-accrual loans and leases		3,591				4,416				5,429				6,195				6,796				5,011				14,172
Adjusted average interest-earning assets (d)	$	2,592,903			$	2,528,673			$	2,487,767			$	2,453,565			$	2,340,355			$	2,516,033			$	2,217,193
Net interest margin (a / c)		4.15	%			4.01	%			3.71	%			3.39	%			3.39	%			3.82	%			3.44	%
Adjusted net interest margin (b / d)		3.94	%			3.89	%			3.45	%			3.24	%			3.23	%			3.64	%			3.21	%

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20230126005726/en/

First Business Financial Services, Inc.

Edward G. Sloane, Jr.

Chief Financial Officer

608-232-5970

esloane@firstbusiness.bank

Source: First Business Financial Services, Inc

FAQ

What are the latest earnings reported by First Business Financial Services, Inc. (FBIZ)?

First Business Financial Services reported a quarterly net income of $9.9 million, or $1.18 per diluted share.

How did First Business Financial Services' loan growth perform in the fourth quarter of 2022?

The bank achieved a 20% annualized loan growth in the fourth quarter of 2022.

What was the net interest margin for First Business Financial Services in Q4 2022?

The net interest margin was 4.15%, a record for the company.

What is the tangible book value growth reported by FBIZ for the year 2022?

Tangible book value per share grew by 9% year-over-year.

What growth does First Business Financial Services anticipate for 2023?

The company expects double-digit growth in loans, deposits, and revenue for 2023.