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

Rhea-AI Summary

First Business Financial Services, Inc. (Nasdaq: FBIZ) reported a strong third-quarter 2021 with net income of $9.2 million, up 11.7% from the previous quarter and more than doubling from last year. The bank experienced a 7.1% annualized growth in loans, excluding PPP loans, and a record low non-performing asset ratio of 0.29%. Total revenue increased by 8.5% year-over-year, reaching $28.2 million, driven by stable net interest margins and robust fee income. Asset quality improved with a significant decline in non-performing assets, while tangible book value per share rose 14% annualized to $25.11.

Positive

• Net income increased 11.7% from Q2 2021 to $9.2 million.
• Loan growth, excluding PPP loans, rose by $36 million, or 7.1% annualized.
• Total revenue grew 8.5% year-over-year to $28.2 million.
• Non-performing assets dropped 34.4% to 0.29% of total assets, the lowest since 2006.
• Tangible book value per share increased by 14% annualized to $25.11.

Negative

• Net interest income decreased 2.0% from Q2 2021 to $21.2 million.
• Non-interest income declined slightly from $7.4 million in Q3 2020 to $7.0 million.

-- Continuation of positive trends including top line revenue growth, organic loan growth, and superior asset quality --

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

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

Quarterly Highlights

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

Quarterly Financial Results
(Unaudited)		As of and for the Three Months Ended												As of and for the Nine Months Ended
(Dollars in thousands, except per share amounts)		September 30, 2021				June 30, 2021				September 30, 2020				September 30, 2021				September 30, 2020
Net interest income		$	21,223			$	21,652			$	18,621			$	63,738			$	54,558
Adjusted non-interest income (1)		7,015				6,292				7,408				20,502				20,145
Operating revenue (1)		28,238				27,944				26,029				84,240				74,703
Operating expense (1)		18,546				17,932				16,700				53,928				48,026
Pre-tax, pre-provision adjusted earnings (1)		9,692				10,012				9,329				30,312				26,677
Less:
Provision for loan and lease losses		(2,269		)		(958		)		3,835				(5,295		)		12,487
Net loss (gain) on foreclosed properties		6				(1		)		(121		)		7				329
Amortization of other intangible assets		7				8				9				23				27
SBA recourse (benefit) provision		(69		)		245				57				45				53
Impairment on tax credit investments		—				—				113				—				2,066
Loss on early extinguishment of debt		—				—				—				—				744
Add:
Net gain (loss) on sale of securities		—				29				—				29				(4		)
Income before income tax expense		12,017				10,747				5,436				35,561				10,967
Income tax expense		2,819				2,512				1,143				8,396				73
Net income		$	9,198			$	8,235			$	4,293			$	27,165			$	10,894
Earnings per share, diluted		$	1.07			$	0.95			$	0.50			$	3.15			$	1.27
Book value per share		$	26.56			$	25.70			$	23.45			$	26.56			$	23.45
Tangible book value per share (1)		$	25.11			$	24.28			$	22.05			$	25.11			$	22.05
Net interest margin (2)		3.45		%		3.49		%		3.14		%		3.46		%		3.30		%
Adjusted net interest margin (1)(2)		3.22		%		3.20		%		3.24		%		3.21		%		3.29		%
Efficiency ratio (1)		65.68		%		64.17		%		64.16		%		64.02		%		64.29		%
Return on average assets (2)		1.41		%		1.26		%		0.68		%		1.39		%		0.62		%
Pre-tax, pre-provision adjusted return on average assets (1)(2)		1.49		%		1.53		%		1.47		%		1.55		%		1.51		%
Return on average equity (2)		16.39		%		15.09		%		8.58		%		16.63		%		7.49		%
Period-end loans and leases receivable		$	2,123,306			$	2,143,561			$	2,170,299			$	2,123,306			$	2,170,299
Period-end loans and leases receivable, excluding net PPP loans		$	2,058,852			$	2,022,839			$	1,844,818			$	2,058,852			$	1,844,818
Average loans and leases receivable		$	2,131,099			$	2,223,353			$	2,139,439			$	2,178,947			$	1,952,785
Period-end in-market deposits		$	1,829,644			$	2,016,215			$	1,667,245			$	1,829,644			$	1,667,245
Average in-market deposits		$	1,810,948			$	1,735,393			$	1,644,704			$	1,756,475			$	1,527,561
Allowance for loan and lease losses		$	24,676			$	25,675			$	30,817			$	24,676			$	30,817
Non-performing assets		$	7,605			$	11,601			$	36,663			$	7,605			$	36,663
Allowance for loan and lease losses as a percent of total gross loans and leases		1.16		%		1.20		%		1.41		%		1.16		%		1.41		%
Allowance for loan and lease losses as a percent of total gross loans and leases, excluding net PPP loans		1.20		%		1.27		%		1.67		%		1.20		%		1.67		%
Non-performing assets as a percent of total assets		0.29		%		0.40		%		1.41		%		0.29		%		1.41		%
Non-performing assets as a percent of total assets, excluding net PPP loans		0.30		%		0.42		%		1.61		%		0.30		%		1.61		%

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

Third Quarter 2021 Compared to Second Quarter 2021

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Third Quarter 2021 Compared to Third Quarter 2020

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

COVID-19 Update

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

Paycheck Protection Program

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

Deferral Requests

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

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

		As of
		September 30, 2021
						Collateral Type
Industries Description		Balance				Real Estate				Non-Real Estate
		(In thousands)
Accommodation and Food Services		$	23,521			$	23,521			$	—
Manufacturing		428				—				428
Retail Trade		115				—				115
Total deferred loan balances		$	24,064			$	23,521			$	543

Exposure to Stressed Industries

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

		As of
		September 30, 2021							December 31, 2020
Industries:		Balance				% Gross Loans and Leases (1)			Balance				% Gross Loans and Leases (1)
		(Dollars in Thousands)
Retail (2) (3)		$	76,635			3.7	%		$	62,719			3.3	%
Hospitality		77,286				3.7	%		80,832				4.2	%
Entertainment		13,533				0.7	%		14,208				0.7	%
Restaurants & food service		22,393				1.1	%		24,854				1.3	%
Total outstanding exposure		$	189,847			9.2	%		$	182,613			9.5	%

(1)		Excluding net PPP loans.
(2)		Includes $39.6 million and $48.9 million in loans secured by commercial real estate as of September 30, 2021 and December 31, 2020, respectively.
(3)		Includes $23.2 million and $7.7 million in fully collateralized asset-based loans as of September 30, 2021 and December 31, 2020, respectively.

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

Share Repurchase Program Update

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

About First Business Financial Services, Inc.

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

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

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

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

SELECTED FINANCIAL CONDITION DATA
(Unaudited)		As of
(in thousands)		September 30, 2021				June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020
Assets
Cash and cash equivalents		$	110,624			$	389,977			$	58,874			$	56,909			$	51,728
Securities available-for-sale, at fair value		194,056				171,219				173,261				183,925				179,274
Securities held-to-maturity, at amortized cost		21,196				22,382				24,783				26,374				28,897
Loans held for sale		5,603				6,059				6,576				8,695				15,049
Loans and leases receivable		2,123,306				2,143,561				2,235,112				2,145,970				2,170,299
Allowance for loan and lease losses		(24,676		)		(25,675		)		(28,982		)		(28,521		)		(30,817		)
Loans and leases receivable, net		2,098,630				2,117,886				2,206,130				2,117,449				2,139,482
Premises and equipment, net		1,700				1,747				1,923				1,998				2,130
Foreclosed properties		172				179				31				34				613
Right-of-use assets		5,263				5,472				5,486				5,814				6,141
Bank-owned life insurance		53,244				52,887				52,537				52,188				51,798
Federal Home Loan Bank stock, at cost		12,351				13,451				14,941				13,578				15,153
Goodwill and other intangible assets		12,229				12,178				12,055				12,018				12,024
Derivatives		28,678				32,377				26,104				49,377				58,210
Accrued interest receivable and other assets		40,664				39,855				38,017				39,478				41,348
Total assets		$	2,584,410			$	2,865,669			$	2,620,718			$	2,567,837			$	2,601,847
Liabilities and Stockholders’ Equity
In-market deposits		$	1,829,644			$	2,016,215			$	1,737,226			$	1,683,008			$	1,667,245
Wholesale deposits		74,638				144,492				165,492				172,508				154,130
Total deposits		1,904,282				2,160,707				1,902,718				1,855,516				1,821,375
Federal Home Loan Bank advances and other borrowings		394,090				420,113				448,417				419,167				483,517
Junior subordinated notes		10,072				10,069				10,065				10,062				10,058
Lease liabilities		5,780				6,005				6,040				6,386				6,728
Derivatives		31,890				36,109				29,565				54,927				64,403
Accrued interest payable and other liabilities		13,016				11,214				9,422				15,617				14,981
Total liabilities		2,359,130				2,644,217				2,406,227				2,361,675				2,401,062
Total stockholders’ equity		225,280				221,452				214,491				206,162				200,785
Total liabilities and stockholders’ equity		$	2,584,410			$	2,865,669			$	2,620,718			$	2,567,837			$	2,601,847

STATEMENTS OF INCOME
(Unaudited)		As of and for the Three Months Ended																				As of and for the Nine Months Ended
(Dollars in thousands, except per share amounts)		September 30, 2021				June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020				September 30, 2021				September 30, 2020
Total interest income		$	24,014			$	24,599			$	23,806			$	25,770			$	22,276			$	72,420			$	68,408
Total interest expense		2,791				2,947				2,943				3,258				3,655				8,682				13,850
Net interest income		21,223				21,652				20,863				22,512				18,621				63,738				54,558
Provision for loan and lease losses		(2,269		)		(958		)		(2,068		)		4,322				3,835				(5,295		)		12,487
Net interest income after provision for loan and lease losses		23,492				22,610				22,931				18,190				14,786				69,033				42,071
Private wealth management service fees		2,759				2,744				2,407				2,208				2,167				7,910				6,402
Gain on sale of SBA loans		721				1,203				1,078				1,300				760				3,002				1,598
Service charges on deposits		956				941				917				887				881				2,814				2,527
Loan fees		713				569				545				412				478				1,828				1,414
Net gain (loss) on sale of securities		—				29				—				—				—				29				(4		)
Swap fees		—				—				684				1,078				2,446				684				5,782
Other non-interest income		1,866				835				1,564				914				676				4,264				2,422
Total non-interest income		7,015				6,321				7,195				6,799				7,408				20,531				20,141
Compensation		13,351				13,255				12,657				12,145				11,857				39,263				33,705
Occupancy		544				533				552				556				570				1,628				1,696
Professional fees		1,024				913				866				909				943				2,803				2,621
Data processing		746				798				770				668				679				2,315				2,066
Marketing		572				511				391				411				356				1,474				1,169
Equipment		260				261				246				294				310				767				905
Computer software		999				1,129				1,115				1,028				1,017				3,244				2,873
FDIC insurance		291				280				362				479				312				933				760
Collateral liquidation cost		47				84				94				47				45				224				281
Net loss (gain) on foreclosed properties		6				(1		)		3				54				(121		)		7				329
Tax credit investment impairment		—				—				—				328				113				—				2,066
SBA recourse (benefit) provision		(69		)		245				(130		)		(330		)		57				45				53
Loss on early extinguishment of debt		—				—				—				—				—				—				744
Other non-interest expense		719				176				404				1,062				620				1,300				1,977
Total non-interest expense		18,490				18,184				17,330				17,651				16,758				54,003				51,245
Income before income tax expense		12,017				10,747				12,796				7,338				5,436				35,561				10,967
Income tax expense		2,819				2,512				3,065				1,254				1,143				8,396				73
Net income		$	9,198			$	8,235			$	9,731			$	6,084			$	4,293			$	27,165			$	10,894
Per common share:
Basic earnings		$	1.07			$	0.95			$	1.12			$	0.71			$	0.50			$	3.15			$	1.27
Diluted earnings		1.07				0.95				1.12				0.71				0.50				3.15				1.27
Dividends declared		0.18				0.18				0.18				0.165				0.165				0.54				0.495
Book value		26.56				25.70				24.83				24.06				23.45				26.56				23.45
Tangible book value		25.11				24.28				23.43				22.66				22.05				25.11				22.05
Weighted-average common shares outstanding(1)		8,340,042				8,385,069				8,429,149				8,417,216				8,404,084				8,380,591				8,380,676
Weighted-average diluted common shares outstanding(1)		8,340,042				8,385,069				8,429,149				8,417,216				8,404,084				8,380,591				8,380,676

(1)

Excluding participating securities.

NET INTEREST INCOME ANALYSIS
(Unaudited)		For the Three Months Ended
(Dollars in thousands)		September 30, 2021									June 30, 2021									September 30, 2020
		Average Balance			Interest			Average Yield/Rate(4)			Average Balance			Interest			Average Yield/Rate(4)			Average Balance			Interest			Average Yield/Rate(4)
Interest-earning assets
Commercial real estate and other mortgage loans(1)		$	1,388,236		$	13,090		3.77	%		$	1,386,187		$	13,087		3.78	%		$	1,282,132		$	12,340		3.85	%
Commercial and industrial loans(1)		680,563			9,259			5.44	%		772,257			9,875			5.11	%		791,909			8,133			4.11	%
Direct financing leases(1)		18,611			207			4.45	%		19,883			222			4.47	%		26,129			258			3.95	%
Consumer and other loans(1)		43,689			391			3.58	%		45,026			407			3.62	%		39,269			374			3.81	%
Total loans and leases receivable(1)		2,131,099			22,947			4.31	%		2,223,353			23,591			4.24	%		2,139,439			21,105			3.95	%
Mortgage-related securities(2)		154,372			659			1.71	%		149,253			631			1.69	%		167,326			833			1.99	%
Other investment securities(3)		45,196			196			1.73	%		41,569			185			1.78	%		34,004			171			2.01	%
FHLB stock		13,279			167			5.03	%		14,172			176			4.97	%		12,835			161			5.02	%
Short-term investments		116,621			45			0.15	%		55,100			16			0.12	%		21,287			6			0.11	%
Total interest-earning assets		2,460,567			24,014			3.90	%		2,483,447			24,599			3.96	%		2,374,891			22,276			3.75	%
Non-interest-earning assets		147,631									137,893									165,844
Total assets		$	2,608,198								$	2,621,340								$	2,540,735
Interest-bearing liabilities
Transaction accounts		$	509,089		251			0.20	%		$	499,040		248			0.20	%		$	445,687		259			0.23	%
Money market		703,460			306			0.17	%		662,919			282			0.17	%		642,881			318			0.20	%
Certificates of deposit		42,370			71			0.67	%		45,993			112			0.97	%		110,891			513			1.85	%
Wholesale deposits		89,135			206			0.92	%		162,580			301			0.74	%		160,067			533			1.33	%
Total interest-bearing deposits		1,344,054			834			0.25	%		1,370,532			943			0.28	%		1,359,526			1,623			0.48	%
FHLB advances		381,061			1,228			1.29	%		405,855			1,284			1.27	%		379,915			1,356			1.43	%
Federal Reserve PPPLF		—			—			—	%		—			—			—	%		29,605			26			0.35	%
Other borrowings		32,630			449			5.50	%		32,447			443			5.46	%		24,403			370			6.06	%
Junior subordinated notes		10,070			280			11.12	%		10,066			277			11.01	%		10,056			280			11.14	%
Total interest-bearing liabilities		1,767,815			2,791			0.63	%		1,818,900			2,947			0.65	%		1,803,505			3,655			0.81	%
Non-interest-bearing demand deposit accounts		556,029									527,441									445,245
Other non-interest-bearing liabilities		59,865									56,691									91,810
Total liabilities		2,383,709									2,403,032									2,340,560
Stockholders’ equity		224,489									218,308									200,175
Total liabilities and stockholders’ equity		$	2,608,198								$	2,621,340								$	2,540,735
Net interest income					$	21,223								$	21,652								$	18,621
Interest rate spread								3.27	%								3.31	%								2.94	%
Net interest-earning assets		$	692,752								$	664,547								$	571,386
Net interest margin								3.45	%								3.49	%								3.14	%

(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 Nine Months Ended
(Dollars in thousands)		September 30, 2021									September 30, 2020
		Average Balance			Interest			Average Yield/Rate(4)			Average Balance			Interest			Average Yield/Rate(4)
Interest-earning assets
Commercial real estate and other mortgage loans(1)		$	1,377,302		$	38,704		3.75	%		$	1,209,810		$	38,312		4.22	%
Commercial and industrial loans(1)		736,623			28,759			5.21	%		678,650			24,338			4.78	%
Direct financing leases(1)		20,242			673			4.43	%		27,065			761			3.75	%
Consumer and other loans(1)		44,780			1,197			3.56	%		37,260			1,091			3.90	%
Total loans and leases receivable(1)		2,178,947			69,333			4.24	%		1,952,785			64,502			4.40	%
Mortgage-related securities(2)		155,617			1,955			1.67	%		173,985			2,806			2.15	%
Other investment securities(3)		42,992			569			1.76	%		29,177			456			2.08	%
FHLB stock		13,308			496			4.97	%		10,558			491			6.20	%
Short-term investments		65,769			67			0.14	%		39,293			153			0.52	%
Total interest-earning assets		2,456,633			72,420			3.93	%		2,205,798			68,408			4.13	%
Non-interest-earning assets		145,714									151,994
Total assets		$	2,602,347								$	2,357,792
Interest-bearing liabilities
Transaction accounts		$	509,709		749			0.20	%		$	362,326		1,197			0.44	%
Money market		674,858			862			0.17	%		649,999			2,555			0.52	%
Certificates of deposit		48,540			360			0.99	%		122,781			1,890			2.05	%
Wholesale deposits		139,205			825			0.79	%		132,811			2,021			2.03	%
Total interest-bearing deposits		1,372,312			2,796			0.27	%		1,267,917			7,663			0.81	%
FHLB advances		384,581			3,761			1.30	%		371,738			4,198			1.51	%
Federal Reserve PPPLF		—			—			—	%		16,855			44			0.35	%
Other borrowings		30,811			1,293			5.60	%		24,490			1,110			6.04	%
Junior subordinated notes		10,066			832			11.02	%		10,052			835			11.07	%
Total interest-bearing liabilities		1,797,770			8,682			0.64	%		1,691,052			13,850			1.09	%
Non-interest-bearing demand deposit accounts		523,368									392,455
Other non-interest-bearing liabilities		63,366									80,270
Total liabilities		2,384,504									2,163,777
Stockholders’ equity		217,843									194,015
Total liabilities and stockholders’ equity		$	2,602,347								$	2,357,792
Net interest income					$	63,738								$	54,558
Interest rate spread								3.29	%								3.04	%
Net interest-earning assets		$	658,863								$	514,746
Net interest margin								3.46	%								3.30	%

(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.

PROVISION FOR LOAN AND LEASE LOSS COMPOSITION
(Unaudited)		For the Three Months Ended																				For the Nine Months Ended
(Dollars in thousands)		September 30, 2021				June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020				September 30, 2021				September 30, 2020
Change in general reserve due to subjective factor changes		$	(51	)		$	(652	)		$	1,082			$	1,008			$	(766	)		$	379			$	4,697
Change in general reserve due to historical loss factor changes		(923		)		(1,687		)		(984		)		1,274				(16		)		(3,594		)		(380		)
Charge-offs		364				2,894				144				6,685				505				3,402				1,454
Recoveries		(1,634		)		(545		)		(2,673		)		(68		)		(23		)		(4,852		)		(264		)
Change in specific reserves on impaired loans, net		(451		)		(1,466		)		(194		)		(5,216		)		2,974				(2,111		)		5,533
Change due to loan growth, net		426				498				557				639				1,161				1,481				1,447
Total provision for loan and lease losses		$	(2,269	)		$	(958	)		$	(2,068	)		$	4,322			$	3,835			$	(5,295	)		$	12,487

PERFORMANCE RATIOS

		For the Three Months Ended															For the Nine Months Ended
(Unaudited)		September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020			September 30, 2021			September 30, 2020
Return on average assets (annualized)		1.41	%		1.26	%		1.51	%		0.93	%		0.68	%		1.39	%		0.62	%
Return on average equity (annualized)		16.39	%		15.09	%		18.48	%		11.92	%		8.58	%		16.63	%		7.49	%
Efficiency ratio		65.68	%		64.17	%		62.19	%		60.02	%		64.16	%		64.02	%		64.29	%
Interest rate spread		3.27	%		3.31	%		3.27	%		3.51	%		2.94	%		3.29	%		3.04	%
Net interest margin		3.45	%		3.49	%		3.44	%		3.69	%		3.14	%		3.46	%		3.30	%
Average interest-earning assets to average interest-bearing liabilities		139.19	%		136.54	%		134.23	%		132.88	%		131.68	%		136.65	%		130.44	%

ASSET QUALITY RATIOS
(Unaudited)		As of
(Dollars in thousands)		September 30, 2021				June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020
Non-accrual loans and leases		$	7,433			$	11,422			$	18,992			$	26,617			$	36,050
Foreclosed properties		172				179				31				34				613
Total non-performing assets		7,605				11,601				19,023				26,651				36,663
Performing troubled debt restructurings		53				56				59				46				47
Total impaired assets		$	7,658			$	11,657			$	19,082			$	26,697			$	36,710
Non-accrual loans and leases as a percent of total gross loans and leases		0.35		%		0.53		%		0.85		%		1.24		%		1.66		%
Non-performing assets as a percent of total gross loans and leases plus foreclosed properties		0.36		%		0.54		%		0.85		%		1.24		%		1.68		%
Non-performing assets as a percent of total assets		0.29		%		0.40		%		0.73		%		1.04		%		1.41		%
Allowance for loan and lease losses as a percent of total gross loans and leases		1.16		%		1.20		%		1.29		%		1.33		%		1.41		%
Allowance for loan and lease losses as a percent of non-accrual loans and leases		331.98		%		224.79		%		152.60		%		107.15		%		85.48		%

ASSET QUALITY RATIOS - EXCLUDING NET PPP LOANS
(Unaudited)		As of
(Dollars in thousands)		September 30, 2021				June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020
Non-accrual loans and leases as a percent of total gross loans and leases		0.36		%		0.56		%		0.96		%		1.38		%		1.95		%
Non-performing assets as a percent of total gross loans and leases plus foreclosed properties		0.37		%		0.57		%		0.96		%		1.38		%		1.98		%
Non-performing assets as a percent of total assets		0.30		%		0.42		%		0.81		%		1.14		%		1.61		%
Allowance for loan and lease losses as a percent of total gross loans and leases		1.20		%		1.27		%		1.47		%		1.48		%		1.67		%
PPP loans outstanding, net		$	64,454			$	120,723			$	267,567			$	225,323			$	325,481

NET CHARGE-OFFS (RECOVERIES)
(Unaudited)		For the Three Months Ended																				For the Nine Months Ended
(Dollars in thousands)		September 30, 2021				June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020				September 30, 2021				September 30, 2020
Charge-offs		$	364			$	2,894			$	144			$	6,685			$	505			$	3,402			$	1,454
Recoveries		(1,634		)		(545		)		(2,673		)		(68		)		(23		)		(4,852		)		(264		)
Net (recoveries) charge-offs		$	(1,270	)		$	2,349			$	(2,529	)		$	6,617			$	482			$	(1,450	)		$	1,190
Net (recoveries) charge-offs as a percent of average gross loans and leases (annualized)		(0.24		)%		0.42		%		(0.46		)%		1.21		%		0.09		%		(0.09		)%		0.08		%
Annualized (recoveries) charge-offs as a percent of average gross loans and leases, excluding average net PPP loans		(0.25		)%		0.47		%		(0.52		)%		1.39		%		0.11		%		(0.10		)%		0.09		%
Average PPP loans outstanding, net		$	87,517			$	229,165			$	242,242			$	282,259			$	323,082			$	185,742			$	192,451

CAPITAL RATIOS
		As of and for the Three Months Ended
(Unaudited)		September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020
Total capital to risk-weighted assets		11.14	%		11.22	%		11.52	%		11.25	%		11.42	%
Tier I capital to risk-weighted assets		9.14	%		9.14	%		9.24	%		8.96	%		9.09	%
Common equity tier I capital to risk-weighted assets		8.73	%		8.72	%		8.81	%		8.53	%		8.64	%
Tier I capital to adjusted assets		8.69	%		8.48	%		8.37	%		7.99	%		8.04	%
Tangible common equity to tangible assets		8.28	%		7.33	%		7.76	%		7.60	%		7.29	%
Tangible common equity to tangible assets, excluding net PPP loans		8.50	%		7.66	%		8.65	%		8.33	%		8.34	%

LOAN AND LEASE RECEIVABLE COMPOSITION
(Unaudited)		As of
(in thousands)		September 30, 2021				June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020
Commercial real estate:
Commercial real estate - owner occupied		$	241,977			$	253,600			$	256,812			$	253,882			$	240,706
Commercial real estate - non-owner occupied		639,423				614,289				592,090				564,532				565,781
Land development		39,119				45,056				46,544				49,839				50,864
Construction		139,933				139,943				151,345				141,043				142,726
Multi-family		313,787				319,351				322,384				311,556				287,583
1-4 family		13,487				19,769				23,319				38,284				38,857
Total commercial real estate		1,387,726				1,392,008				1,392,494				1,359,136				1,326,517
Commercial and industrial		681,065				695,442				784,305				732,318				790,349
Direct financing leases, net		16,810				18,142				19,616				22,331				24,743
Consumer and other:
Home equity and second mortgages		4,576				5,740				6,719				7,833				7,106
Other		35,645				36,567				38,266				28,897				29,341
Total consumer and other		40,221				42,307				44,985				36,730				36,447
Total gross loans and leases receivable		2,125,822				2,147,899				2,241,400				2,150,515				2,178,056
Less:
Allowance for loan and lease losses		24,676				25,675				28,982				28,521				30,817
Deferred loan fees		2,516				4,338				6,288				4,545				7,757
Loans and leases receivable, net		$	2,098,630			$	2,117,886			$	2,206,130			$	2,117,449			$	2,139,482

LEGACY SBA 7(a) AND EXPRESS LOAN COMPOSITION (1)
(Unaudited)		As of
(in thousands)		September 30, 2021				June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020
Performing loans:
Off-balance sheet loans		$	13,340			$	14,161			$	17,523			$	23,354			$	26,017
On-balance sheet loans		3,905				6,836				7,340				11,117				15,175
Gross loans		17,245				20,997				24,863				34,471				41,192
Non-performing loans:
Off-balance sheet loans		3,689				3,943				1,835				1,931				2,574
On-balance sheet loans		624				1,800				6,832				7,435				9,561
Gross loans		4,313				5,743				8,667				9,366				12,135
Total loans:
Off-balance sheet loans		17,029				18,104				19,358				25,285				28,591
On-balance sheet loans		4,529				8,636				14,172				18,552				24,736
Gross loans		$	21,558			$	26,740			$	33,530			$	43,837			$	53,327

(1)

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

DEPOSIT COMPOSITION
(Unaudited)		As of
(in thousands)		September 30, 2021				June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020
Non-interest-bearing transaction accounts		$	526,047			$	774,253			$	496,877			$	472,818			$	452,268
Interest-bearing transaction accounts		517,248				511,698				561,466				503,992				484,761
Money market accounts		728,751				685,127				632,065				641,504				636,872
Certificates of deposit		57,598				45,137				46,818				64,694				93,344
Wholesale deposits		74,638				144,492				165,492				172,508				154,130
Total deposits		$	1,904,282			$	2,160,707			$	1,902,718			$	1,855,516			$	1,821,375

TRUST ASSETS COMPOSITION
(Unaudited)		As of
(in thousands)		September 30, 2021				June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020
Trust assets under management		$	2,491,498			$	2,362,257			$	2,195,804			$	2,061,772			$	1,841,986
Trust assets under administration		202,657				202,116				190,721				187,228				175,521
Total trust assets		$	2,694,155			$	2,564,373			$	2,386,525			$	2,249,000			$	2,017,507

NON-GAAP RECONCILIATIONS

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

TANGIBLE BOOK VALUE

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

(Unaudited)		As of
(Dollars in thousands, except per share amounts)		September 30, 2021				June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020
Common stockholders’ equity		$	225,280			$	221,452			$	214,491			$	206,162			$	200,785
Goodwill and other intangible assets		(12,229		)		(12,178		)		(12,055		)		(12,018		)		(12,024		)
Tangible common equity		$	213,051			$	209,274			$	202,436			$	194,144			$	188,761
Common shares outstanding		8,483,099				8,617,761				8,638,195				8,566,960				8,561,714
Book value per share		$	26.56			$	25.70			$	24.83			$	24.06			$	23.45
Tangible book value per share		25.11				24.28				23.43				22.66				22.05

TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS

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

(Unaudited)		As of
(Dollars in thousands)		September 30, 2021				June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020
Common stockholders’ equity		$	225,280			$	221,452			$	214,491			$	206,162			$	200,785
Goodwill and other intangible assets		(12,229		)		(12,178		)		(12,055		)		(12,018		)		(12,024		)
Tangible common equity		$	213,051			$	209,274			$	202,436			$	194,144			$	188,761
Total assets		$	2,584,410			$	2,865,669			$	2,620,718			$	2,567,837			$	2,601,847
Goodwill and other intangible assets		(12,229		)		(12,178		)		(12,055		)		(12,018		)		(12,024		)
Tangible assets		$	2,572,181			$	2,853,491			$	2,608,663			$	2,555,819			$	2,589,823
Tangible common equity to tangible assets		8.28		%		7.33		%		7.76		%		7.60		%		7.29		%
Period-end net PPP loans		64,454				120,722				267,567				225,323				325,481
Tangible assets, excluding net PPP loans		$	2,507,727			$	2,732,769			$	2,341,096			$	2,330,496			$	2,264,342
Tangible common equity to tangible assets, excluding net PPP loans		8.50		%		7.66		%		8.65		%		8.33		%		8.34		%

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

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

(Unaudited)		For the Three Months Ended																				For the Nine Months Ended
(Dollars in thousands)		September 30, 2021				June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020				September 30, 2021				September 30, 2020
Total non-interest expense		$	18,490			$	18,184			$	17,330			$	17,651			$	16,758			$	54,003			$	51,245
Less:
Net loss (gain) on foreclosed properties		6				(1		)		3				54				(121		)		7				329
Amortization of other intangible assets		7				8				8				8				9				23				27
SBA recourse (benefit) provision		(69		)		245				(130		)		(330		)		57				45				53
Tax credit investment impairment		—				—				—				328				113				—				2,066
Loss on early extinguishment of debt		—				—				—				—				—				—				744
Total operating expense (a)		$	18,546			$	17,932			$	17,449			$	17,591			$	16,700			$	53,928			$	48,026
Net interest income		$	21,223			$	21,652			$	20,863			$	22,512			$	18,621			$	63,738			$	54,558
Total non-interest income		7,015				6,321				7,195				6,799				7,408				20,531				20,141
Less:
Net gain (loss) on sale of securities		—				29				—				—				—				29				(4		)
Adjusted non-interest income		7,015				6,292				7,195				6,799				7,408				20,502				20,145
Total operating revenue (b)		$	28,238			$	27,944			$	28,058			$	29,311			$	26,029			$	84,240			$	74,703
Efficiency ratio		65.68		%		64.17		%		62.19		%		60.02		%		64.16		%		64.02		%		64.29		%
Pre-tax, pre-provision adjusted earnings (b - a)		$	9,692			$	10,012			$	10,609			$	11,720			$	9,329			$	30,312			$	26,677
Average total assets		$	2,608,198			$	2,621,340			$	2,577,164			$	2,603,745			$	2,540,735			$	2,602,347			$	2,357,792
Pre-tax, pre-provision adjusted return on average assets		1.49		%		1.53		%		1.65		%		1.80		%		1.47		%		1.55		%		1.51		%

ADJUSTED NET INTEREST MARGIN

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

(Unaudited)	For the Three Months Ended																				For the Nine Months Ended
(Dollars in thousands)	September 30, 2021				June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020				September 30, 2021				September 30, 2020
Interest income	$	24,014			$	24,599			$	23,806			$	25,770			$	22,276			$	72,420			$	68,408
Interest expense	2,791				2,947				2,943				3,258				3,655				8,682				13,850
Net interest income (a)	21,223				21,652				20,863				22,512				18,621				63,738				54,558
Less:
Fees in lieu of interest	2,839				3,536				3,085				4,749				1,511				9,459				4,566
PPP loan interest income	221				566				603				718				833				1,391				1,481
FRB interest income and FHLB dividend income	212				192				158				188				167				563				602
Add:
FRB PPPLF interest expense	—				—				—				9				26				—				44
Adjusted net interest income (b)	$	17,951			$	17,358			$	17,017			$	16,866			$	16,136			$	52,325			$	47,953
Average interest-earning assets (c)	$	2,460,567			$	2,483,447			$	2,425,499			$	2,441,735			$	2,374,891			$	2,456,633			$	2,205,798
Less:
Average net PPP loans	87,517				229,165				242,242				282,259				323,082				185,741				192,451
Average FRB cash and FHLB stock	129,469				68,503				36,643				45,611				33,756				78,545				46,925
Average non-accrual loans and leases	11,298				16,744				22,069				36,013				26,931				16,657				24,849
Adjusted average interest-earning assets (d)	$	2,232,283			$	2,169,035			$	2,124,545			$	2,077,852			$	1,991,122			$	2,175,690			$	1,941,573
Net interest margin (a / c)	3.45		%		3.49		%		3.44		%		3.69		%		3.14		%		3.46		%		3.30		%
Adjusted net interest margin (b / d)	3.22		%		3.20		%		3.20		%		3.25		%		3.24		%		3.21		%		3.29		%

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20211028006112/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 were the financial highlights for FBIZ in Q3 2021?

FBIZ reported net income of $9.2 million, representing an 11.7% increase from Q2 2021 and more than double the net income of $4.3 million in Q3 2020.

How did FBIZ perform in terms of loan growth in Q3 2021?

FBIZ achieved a loan growth of $36 million, or 7.1% annualized, excluding PPP loans.

What was the non-performing assets ratio for FBIZ in Q3 2021?

The non-performing assets ratio was 0.29% of total assets, marking a 34.4% decline.

What was the total revenue for FBIZ in Q3 2021?

Total revenue for Q3 2021 was $28.2 million, an increase of 8.5% from the same quarter in 2020.

What is the tangible book value per share for FBIZ?

The tangible book value per share grew by 14% annualized to $25.11.