First Business Bank Reports Third Quarter 2022 Net Income of $10.6 Million

Rhea-AI Summary

First Business Financial Services reported Q3 net income of $10.6 million or $1.25 per share, slightly lower than Q2 2022's $10.9 million. The company achieved a 12% increase in top line revenue due to loan and deposit growth, with a record net interest margin of 4.01%.

Non-performing assets decreased to 0.13% of total assets. The bank's tangible book value rose 7.5% annualized. Total loans increased 7.1% annualized to $2.331 billion, while deposits grew 15.6%.

Positive

• Net interest income reached a record $25.9 million, a 9.4% increase from previous quarter.
• Top line revenue rose 12.2% quarter-over-quarter, driven by loan growth.
• Non-performing assets decreased to 0.13%, the lowest in nearly 20 years.
• Tangible book value increased 7.5% annualized, reflecting strong earnings.

Negative

• Net income fell to $10.6 million from $10.9 million in the previous quarter.
• Provision for loan losses increased to $12,000, contrasting with a provision benefit in Q2 2022.

-- Net interest margin expansion and balance sheet growth drive record top line revenue and 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 $10.6 million, or $1.25 diluted earnings per share. This compares to net income available to common shareholders of $11.0 million, or $1.29 per share, in the second quarter of 2022 and $9.2 million, or $1.07 per share, in the third quarter of 2021.

“In the third quarter, loan and deposit growth and net interest margin expansion helped generate a 12% increase in top line revenue compared to the second quarter of 2022. In addition, the Bank’s exceptional asset quality continued, as we reported our lowest percentage of non-performing assets to total assets in nearly 20 years at just 0.13%,” President and Chief Executive Officer Corey Chambas said. “We were also very pleased to see significant deposit growth during the quarter, increasing 16% annualized, more than fully funding our 8% annualized loan growth,” Chambas added. “Our capital base remains strong and, unlike many of our peers, we have continued to increase tangible book value and maintain tangible common equity in excess of 8%.”

Quarterly Highlights

• Strong Profitability Metrics. Pre-tax, pre-provision adjusted (“PTPP”) earnings, excluding Paycheck Protection Program (“PPP”) interest and fee income, grew to a record $14.1 million, increasing $3.5 million, or 32.6%, from the linked quarter and $6.3 million, or 80.4%, from the prior year quarter. Continued improvement in profitability was driven by an increase in top line revenue, which rose $3.7 million, or 12.2%, from the linked quarter and $7.7 million, or 29.1%, from the prior year quarter. With continued positive operating leverage, the Company increased PTPP return on average assets to 2.05% in the third quarter of 2022, compared to 1.57% in linked quarter and 1.24% in the prior year quarter.

• Record Top Line Revenue and Net Interest Margin Expansion. Net interest income grew to a record $25.9 million, increasing $2.2 million, or 9.4%, from the linked quarter and $4.7 million, or 22.0%, from the prior year quarter. This increase was primarily due to a 30 and 56 basis point expansion in net interest margin compared to the linked and prior year quarters, respectively. The net interest margin expansion resulted from rising rates on variable-rate loans and lower deposit betas on in-market deposits during the third quarter of 2022. Average loans and leases receivable increased $43.7 million, or 7.7% annualized, and $185.5, or 8.71%, compared to the linked and prior year quarters, respectively.

• Deposit Growth. Enhanced focus on relationship-based deposit generation and the return of cyclical deposits following second quarter client utilization led to in-market deposit growth of $72.2 million, or 15.6% annualized, from the second quarter of 2022.

• Exceptional Asset Quality. Continued positive asset quality trends resulted in the decline of non-performing assets to $3.8 million, or 0.13% of total assets, improving from 0.29% of total assets on September 30, 2021. The Company recorded a loan loss provision of $12,000, compared to a provision benefit of $3.7 million in the second quarter of 2022 and $2.3 million in the third quarter of 2021.

• Tangible Book Value Growth. The Company’s strong earnings continued to offset the interest-rate-driven market value decline in the investment portfolio, producing a 7.5% annualized increase in tangible book value compared to the linked quarter and 8.0% compared to the prior year quarter.

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, 2022				June 30, 2022				September 30, 2021				September 30, 2022				September 30, 2021
Net interest income		$	25,884			$	23,660			$	21,223			$	70,971			$	63,738
Adjusted non-interest income (1)			8,197				6,872				7,015				22,455				20,502
Operating revenue (1)			34,081				30,532				28,238				93,426				84,240
Operating expense (1)			19,925				19,685				18,546				58,497				53,928
Pre-tax, pre-provision adjusted earnings (1)			14,156				10,847				9,692				34,929				30,312
Less:
Provision for loan and lease losses			12				(3,727	)			(2,269	)			(4,569	)			(5,295	)
Net loss on foreclosed properties			7				8				6				27				7
Amortization of other intangible assets			—				—				7				—				23
SBA recourse provision (benefit)			96				114				(69	)			134				45
Tax credit investment impairment recovery			—				(351	)			—				(351	)			—
Add:
Net gain on sale of securities			—				—				—				—				29
Income before income tax expense			14,041				14,803				12,017				39,688				35,561
Income tax expense			3,215				3,599				2,819				8,986				8,396
Net income		$	10,826			$	11,204			$	9,198			$	30,702			$	27,165
Preferred stock dividends			218				246				—				464				—
Net income available to common shareholders		$	10,608			$	10,958			$	9,198			$	30,238			$	27,165
Earnings per share, diluted		$	1.25			$	1.29			$	1.07			$	3.57			$	3.15
Book value per share		$	28.58			$	28.08			$	26.56			$	28.58			$	26.56
Tangible book value per share (1)		$	27.13			$	26.63			$	25.11			$	27.13			$	25.11
Net interest margin (2)			4.01	%			3.71	%			3.45	%			3.71	%			3.46	%
Adjusted net interest margin (1)(2)			3.89	%			3.45	%			3.22	%			3.53	%			3.21	%
Fee income ratio (non-interest income / total revenue)			24.05	%			22.51	%			24.84	%			24.04	%			24.36	%
Efficiency ratio (1)			58.46	%			64.47	%			65.68	%			62.61	%			64.02	%
Return on average assets (2)			1.57	%			1.65	%			1.41	%			1.49	%			1.39	%
Pre-tax, pre-provision adjusted return on average assets (1)(2)			2.05	%			1.60	%			1.49	%			1.72	%			1.55	%
Return on average common equity (2)			16.97	%			18.27	%			16.39	%			16.59	%			16.63	%
Period-end loans and leases receivable		$	2,330,700			$	2,290,100			$	2,123,306			$	2,330,700			$	2,123,306
Average loans and leases receivable		$	2,316,621			$	2,272,946			$	2,131,099			$	2,278,333			$	2,178,947
Period-end in-market deposits		$	1,929,224			$	1,857,010			$	1,829,644			$	1,929,224			$	1,829,644
Average in-market deposits		$	1,930,995			$	1,900,842			$	1,810,948			$	1,921,465			$	1,756,475
Allowance for loan and lease losses		$	24,143			$	24,104			$	24,676			$	24,143			$	24,676
Non-performing assets		$	3,796			$	5,709			$	7,605			$	3,796			$	7,605
Allowance for loan and lease losses as a percent of total gross loans and leases			1.04	%			1.05	%			1.16	%			1.04	%			1.16	%
Non-performing assets as a percent of total assets			0.13	%			0.21	%			0.29	%			0.13	%			0.29	%

(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 Nine Months Ended
(Dollars in thousands, except per share amounts)		September 30, 2022				June 30, 2022				September 30, 2021				September 30, 2022				September 30, 2021
Net interest income		$	25,812			$	23,435			$	19,336			$	70,373			$	55,928
Adjusted non-interest income (1)			8,197				6,872				7,015				22,455				20,502
Operating revenue (1)			34,009				30,307				26,351				92,828				76,430
Operating expense (1)			19,925				19,685				18,546				58,497				53,928
Pre-tax, pre-provision adjusted earnings (1)		$	14,084			$	10,622			$	7,805			$	34,331			$	22,502
Net interest margin (2)			4.00	%			3.69	%			3.26	%			3.69	%			3.28	%
Fee income ratio (non-interest income / total revenue)			24.10	%			22.67	%			26.62	%			24.19	%			26.85	%
Efficiency ratio (1)			58.59	%			64.95	%			70.38	%			63.02	%			70.56	%
Pre-tax, pre-provision adjusted return on average assets (1)(2)			2.05	%			1.57	%			1.24	%			1.69	%			1.24	%
Period-end loans and leases receivable		$	2,328,376			$	2,281,928			$	2,058,852			$	2,328,376			$	2,058,852
Specialized lending as a percent of total loans and leases			22.24	%			20.76	%			18.33	%			22.24	%			18.33	%
Average loans and leases receivable		$	2,312,116			$	2,261,296			$	2,043,582			$	2,266,030			$	1,993,206
Allowance for loan and lease losses as a percent of total gross loans and leases			1.04	%			1.06	%			1.20	%			1.04	%			1.20	%
Non-performing assets as a percent of total assets			0.13	%			0.21	%			0.30	%			0.13	%			0.30	%

(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 2022 Compared to Second Quarter 2022

Net interest income increased $2.2 million, or 9.4%, to $25.9 million.

• Net interest income growth was driven by an increase in average loans and leases and net interest margin expansion, partially offset by a decrease in fees in lieu of interest. Average loans and leases receivable increased $43.7 million, or 7.7% annualized, to $2.3 billion. Fees in lieu of interest, which can vary from quarter to quarter based on client-driven activity, totaled $807,000, compared to $1.9 million, as the prior quarter included a significant non-accrual interest recovery. Excluding fees in lieu of interest and interest income from PPP loans, net interest income increased $3.3 million, or 15.2%.
• The yield on average interest-earning assets increased 68 basis points to 4.92% from 4.24%. Excluding average net PPP loans, PPP loan interest income, and fees in lieu of interest, the yield earned on average interest-earning assets increased 84 basis points to 4.80% from 3.96%.
• The rate paid for average interest-bearing, in-market deposits increased 59 basis points to 0.88% from 0.29%. The rate paid for average total bank funding increased 43 basis points to 0.89% from 0.46%. Total bank funding is defined as total deposits plus Federal Home Loan Bank (“FHLB”) advances. The daily average effective federal funds rate increased 141 basis points compared to the linked quarter, which equates to an in-market, interest-bearing deposit beta of 41.9% for the three months ended September 30, 2022.
• Net interest margin was 4.01%, up 30 basis points compared to 3.71% in the linked quarter. Adjusted net interest margin¹ was 3.89%, up 44 basis points compared to 3.45% in the linked quarter. Net interest margin expansion resulted from rising rates on variable-rate loans and lower deposit betas on in-market deposits, as the federal funds target rate reached its highest point since the Great Recession.
• The Bank continues to maintain 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 rise at a greater rate with further increases expected in the federal funds rate during the fourth quarter, which will slow the pace of net interest margin expansion.

____________________

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.

The Company reported provision expense of $12,000, compared to a $3.7 million benefit in the second quarter of 2022 due to a large loan recovery.

• The provision expense in the third quarter of 2022 was primarily due to an increase in the general reserve of $400,000 related to loan growth and a $132,000 increase due to qualitative factor changes, as well as a $447,000 net increase in specific reserves, partially offset by a $940,000 reduction in general reserve from change in loss factors derived from historical look-back period.

Non-interest income increased $1.3 million, or 19.3%, to $8.2 million.

• Other fee income increased $1.8 million to $2.7 million, compared to $860,000 in the second quarter. The increase was primarily due to strong returns on the Company’s investments in mezzanine funds and gains recognized on end-of-term buyout agreements related to the Company’s equipment financing business line.
• Loan fees increased $117,000, or 16.8% to $814,000 from the increase in loans as well as an increase in commercial and industrial activity (“C&I”) generating additional service fee income.
• Private Wealth management fee income decreased $234,000, or 8.2% to $2.6 million. Private Wealth and trust assets under management and administration measured $2.493 billion at September 30, 2022, down $61.1 million from the second quarter. The decrease in fee income and assets under management and administration was due to a decrease in market valuations.
• Gains on sale of Small Business Administration (“SBA”) loans decreased $219,000, or 23.0%, to $732,000. Premiums on the sale and notional value of SBA loans sold decreased compared to prior quarter.
• Commercial loan swap fee income decreased $130,000, or 27.6%, to $341,000. Swap fee income can vary from period to period based on loan activity and the interest rate environment.

Non-interest expense increased $572,000, or 2.9%, to $20.0 million, while operating expense increased $240,000, or 1.2%, to $19.9 million.

• Compensation expense was $14.8 million, reflecting an increase of $797,000, or 5.7%, from the linked quarter due to a $441,000 one-time increase to the annual cash incentive bonus program accrual, as well as expanded hiring to support the Bank’s growth plans. Management believes there will be upward pressure on compensation throughout the remainder of the year as the Bank continues to opportunistically invest in new talent and retain existing talent in the competitive market. Average FTEs for the third quarter of 2022 were 333, up twelve from 321 in the linked quarter.
• Professional fees decreased $95,000, or 7.3%, to $1.2 million from the linked quarter primarily due to a decrease in recruiting expense.
• Marketing expense decreased $127,000, or 19.0%, to $543,000 from the linked quarter primarily due to seasonally higher spending in the second quarter related to sponsorships.
• Data processing expense decreased $173,000, or 19.4%, to $719,000 from the linked quarter primarily due to the decrease in recurring annual expense related to tax processing on behalf of the Bank’s Private Wealth management clients in the second quarter.

Income tax expense decreased $384,000, or 10.7%, to $3.2 million. The effective tax rate was 22.9% for the three months ended September 30, 2022, compared to 23.5% for the same period in 2021. The three months ended September 30, 2022 included a $155,000 net benefit from a low income housing tax credit investment; no tax credits were recognized in the second quarter of 2022. For 2022, the Company expects to report an effective tax rate less than 22.5% as management continues to actively pursue tax credit opportunities.

Total period-end loans and leases receivable increased $40.6 million, or 7.1% annualized, to $2.331 billion. Excluding net PPP loans, total period-end loans and leases receivable increased $46.4 million, or 8.1% annualized, to $2.328 billion.

• C&I loans increased $47.6 million, or 25.6% annualized, to $789.0 million, compared to $741.4 million. Excluding PPP loans, C&I loans increased $53.5 million, or 29.2% annualized, due to an increase in Equipment Finance and Asset-Based Lending.
• Commercial real estate (“CRE”) loans decreased by $3.5 million, or 1.0% annualized, to $1.485 billion, compared to $1.488 billion. A decrease in construction loans reflected migration to other CRE categories.

Total period-end in-market deposits increased $72.2 million, or 15.6% annualized, to $1.929 billion, compared to $1.857 billion. The average rate paid was 0.61%, up 41 basis points from 0.20% in the second quarter.

Period-end wholesale funding, including FHLB advances, brokered deposits, and deposits gathered through internet deposit listing services, decreased $30.3 million to $536.1 million.

• Wholesale deposits increased $146.0 million to $158.3 million, compared to $12.3 million as the Bank replaced FHLB advances with wholesale deposits. This shift in wholesale funding is consistent with our funding 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 decreased 52 basis points to 2.46% and the weighted average original maturity decreased to 0.3 years from 4.8 years.
• FHLB advances decreased $176.3 million to $377.8 million. The average rate paid on FHLB advances increased 53 basis points to 2.01% and the weighted average original maturity increased to 4.8 years from 3.2 years.

Non-performing assets decreased to $3.8 million, or 0.13% of total assets, compared to $5.7 million, or 0.21% of total assets, primarily due to the payoff of a non-accrual loan.

The allowance for loan and lease losses increased $39,000, or 0.2%, as increases in the general reserve from loan growth, changes in qualitative factors, and an increase in specific reserves 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 1.04% compared to 1.05%.

Third Quarter 2022 Compared to Third Quarter 2021

Net interest income increased $4.7 million, or 22.0%, to $25.9 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 $2.8 million to $807,000, primarily due to a $1.6 million reduction in PPP loan fee amortization. Excluding fees in lieu of interest and interest income from PPP loans, net interest income increased $6.9 million, or 38.0%. Excluding net PPP loans, average gross loans and leases increased $268.5 million, or 13.1%.
• Net interest margin increased 56 basis points to 4.01% from 3.45%. Adjusted net interest margin increased 67 basis points to 3.89% from 3.22%.
• The yield on average interest-earning assets measured 4.92% compared to 3.90%. Excluding fees in lieu of interest, PPP loan interest income, and net PPP loans, the yield on average interest-earning assets measured 4.80%, compared to 3.53%. 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 68 basis points to 0.88% from 0.20%. The rate paid for average total bank funding increased 53 basis points to 0.89% from 0.36%.

The Company reported provision expense of $12,000, compared to a provision benefit of $2.3 million in the third quarter of 2021 due to large loan recoveries in the prior year.

Non-interest income of $8.2 million increased by $1.2 million, or 16.8%, from $7.0 million in the prior year period.

• Other fee income increased $806,000, or 53.4%, to $2.3 million, due to above-average returns on the Company’s investments in mezzanine funds and gains recognized on end-of-term buyout agreements related to the Company’s equipment financing business line.
• Commercial loan swap fee income was $341,000. There was no swap fee activity in the prior year quarter. Swap fee income varies from period to period based on loan activity and the interest rate environment.
• Loan fees of $814,000 increased by $101,000, or 14.2%, primarily due to an increase in C&I lending activity.
• Service charges on deposits increased $62,000, or 6.5%, to $1.0 million, due to an increase in existing and new deposit client relationships.
• Private Wealth management fee income decreased $141,000, or 5.1%, to $2.6 million, due to a decline in market values. Private Wealth and trust assets under management and administration measured $2.493 billion at September 30, 2022, down $255.1 million, or 9.3%.

Non-interest expense increased $1.5 million, or 8.3%, to $20.0 million. Operating expense increased $1.4 million, or 7.4%, to $19.9 million.

• Compensation expense increased $1.5 million, or 11.0%, to $14.8 million. Average FTEs were 333 in the third quarter of 2022, compared to 311 in the third quarter of 2021. The increase in compensation expense is consistent with the explanations discussed above in the linked quarter analysis.
• Professional fees increased $179,000, or 17.5%, to $1.2 million, primarily due to an increase in recruiting expense, audit expenses, and a general increase in other professional consulting services for various projects.
• Computer software expense increased $129,000, or 12.9%, to $1.1 million, primarily due to an increase in technology costs driven by higher headcount.
• Other non-interest expense decreased $134,000, or 19.1%, to $569,000 mainly due to higher deferred loan origination costs driven by loan volume increases in our Equipment Finance business line.

Total period-end loans and leases receivable increased $207.4 million, or 9.8%, to $2.331 billion. Excluding net PPP loans, total period-end loans and leases receivable increased $269.5 million, or 13.1%, to $2.328 billion.

• C&I loans increased $107.9 million, or 15.8% to $789.0 million. Excluding PPP loans, C&I loans increased $171.4 million, or 27.9%, to $786.6 million due to expansion of existing markets and products.
• CRE loans increased $97.2 million, or 7.0%, due to increases in all CRE categories.

Total period-end in-market deposits increased $99.6 million, or 5.4%, to $1.929 billion and the average rate paid increased 47 basis points to 0.61%. This increase in deposits was principally due to a $103.1 million increase in certificates of deposit, partially offset by a $17.3 million decrease in transaction accounts.

Period-end wholesale funding increased $103.7 million to $536.1 million.

• Wholesale deposits increased $83.7 million, or 112.1%, to $158.3 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 154 basis points to 2.46% and the weighted average original maturity decreased to 0.3 years from 3.5 years.
• FHLB advances increased $20.0 million to $377.8 million. The average rate paid on FHLB advances increased 72 basis points to 2.01% and the weighted average original maturity decreased to 4.8 years from 6.1 years.

Non-performing assets decreased to $3.8 million, or 0.13% of total assets, compared to $7.6 million, or 0.29% of total assets.

The allowance for loan and lease losses decreased $533,000 to $24.1 million, compared to $24.7 million.

• The allowance for loan and lease losses as a percent of total gross loans and leases was 1.04% compared to 1.16%.

Paycheck Protection Program

As of September 30, 2022, the Company had $2.4 million in gross PPP loans outstanding and deferred processing fees outstanding of $52,000. 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 months ended September 30, 2022, the Company recognized $61,000 of PPP processing fees in interest income. The SBA provides a guaranty to the lender of 100% of principal and interest unless the lender violated an obligation under the agreement.

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 October 25, 2022, the Company had repurchased a total of 88,735 shares for approximately $2.9 million at an average cost of $33.17 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)		September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021
Assets
Cash and cash equivalents		$	110,965			$	95,484			$	95,603			$	57,110			$	110,624
Securities available-for-sale, at fair value			196,566				208,643				223,631				205,702				194,056
Securities held-to-maturity, at amortized cost			13,531				13,968				17,267				19,746				21,196
Loans held for sale			773				2,256				2,418				3,570				5,603
Loans and leases receivable			2,330,700				2,290,100				2,251,249				2,239,408				2,123,306
Allowance for loan and lease losses			(24,143	)			(24,104	)			(23,669	)			(24,336	)			(24,676	)
Loans and leases receivable, net			2,306,557				2,265,996				2,227,580				2,215,072				2,098,630
Premises and equipment, net			3,143				1,899				1,621				1,694				1,700
Foreclosed properties			151				124				117				164				172
Right-of-use assets			5,424				5,772				6,118				4,910				5,263
Bank-owned life insurance			54,683				54,324				53,974				53,600				53,244
Federal Home Loan Bank stock, at cost			15,701				22,959				12,863				13,336				12,351
Goodwill and other intangible assets			12,218				12,262				12,184				12,268				12,229
Derivatives			73,718				44,461				26,890				26,343				28,678
Accrued interest receivable and other assets			57,372				48,868				43,816				39,390				40,664
Total assets		$	2,850,802			$	2,777,016			$	2,724,082			$	2,652,905			$	2,584,410
Liabilities and Stockholders’ Equity
In-market deposits		$	1,929,224			$	1,857,010			$	2,011,373			$	1,928,285			$	1,829,644
Wholesale deposits			158,321				12,321				12,321				29,638				74,638
Total deposits			2,087,545				1,869,331				2,023,694				1,957,923				1,904,282
Federal Home Loan Bank advances and other borrowings			420,297				596,642				414,487				403,451				394,090
Junior subordinated notes			—				—				—				10,076				10,072
Lease liabilities			6,827				7,207				7,580				5,406				5,780
Derivatives			66,162				40,357				24,961				28,283				31,890
Accrued interest payable and other liabilities			16,967				13,556				8,309				15,344				13,016
Total liabilities			2,597,798				2,527,093				2,479,031				2,420,483				2,359,130
Total stockholders’ equity			253,004				249,923				245,051				232,422				225,280
Total liabilities and stockholders’ equity		$	2,850,802			$	2,777,016			$	2,724,082			$	2,652,905			$	2,584,410

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, 2022			June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				September 30, 2022				September 30, 2021
Total interest income		$	31,786		$	27,031			$	24,235			$	23,576			$	24,014			$	83,053			$	72,420
Total interest expense			5,902			3,371				2,809				2,652				2,791				12,082				8,682
Net interest income			25,884			23,660				21,426				20,924				21,223				70,971				63,738
Provision for loan and lease losses			12			(3,727	)			(855	)			(508	)			(2,269	)			(4,569	)			(5,295	)
Net interest income after provision for loan and lease losses			25,872			27,387				22,281				21,432				23,492				75,540				69,033
Private wealth management service fees			2,618			2,852				2,841				2,874				2,759				8,311				7,910
Gain on sale of SBA loans			732			951				585				1,042				721				2,269				3,002
Service charges on deposits			1,018			1,041				999				1,023				956				3,058				2,814
Loan fees			814			697				652				679				713				2,163				1,828
Net gain on sale of securities			—			—				—				—				—				—				29
Swap fees			341			471				225				684				—				1,038				684
Other non-interest income			2,674			860				2,084				1,267				1,866				5,616				4,264
Total non-interest income			8,197			6,872				7,386				7,569				7,015				22,455				20,531
Compensation			14,817			14,020				13,638				12,447				13,351				42,475				39,263
Occupancy			566			568				555				551				544				1,689				1,628
Professional fees			1,203			1,298				1,170				933				1,024				3,671				2,803
Data processing			719			892				780				773				746				2,391				2,315
Marketing			543			670				500				548				572				1,713				1,474
Equipment			253			235				244				223				260				732				767
Computer software			1,128			1,117				1,082				1,017				999				3,327				3,244
FDIC insurance			230			296				313				210				291				840				933
Other non-interest expense			569			360				541				829				703				1,469				1,576
Total non-interest expense			20,028			19,456				18,823				17,531				18,490				58,307				54,003
Income before income tax expense			14,041			14,803				10,844				11,470				12,017				39,688				35,561
Income tax expense			3,215			3,599				2,172				2,879				2,819				8,986				8,396
Net income		$	10,826		$	11,204			$	8,672			$	8,591			$	9,198			$	30,702			$	27,165
Preferred stock dividends			218			246				—				—				—				464				—
Net income available to common shareholders		$	10,608		$	10,958			$	8,672			$	8,591			$	9,198			$	30,238			$	27,165
Per common share:
Basic earnings		$	1.25		$	1.29			$	1.02			$	1.01			$	1.07			$	3.57			$	3.15
Diluted earnings			1.25			1.29				1.02				1.01				1.07				3.57				3.15
Dividends declared			0.1975			0.1975				0.1975				0.18				0.18				0.5925				0.54
Book value			28.58			28.08				27.46				27.48				26.56				28.58				26.56
Tangible book value			27.13			26.63				26.02				26.03				25.11				27.13				25.11
Weighted-average common shares outstanding(1)			8,230,902			8,225,838				8,232,142				8,228,311				8,340,042				8,237,879				8,380,591
Weighted-average diluted common shares outstanding(1)			8,230,902			8,225,838				8,232,142				8,228,311				8,340,042				8,237,879				8,380,591

(1)

Excluding participating securities.

NET INTEREST INCOME ANALYSIS
(Unaudited)		For the Three Months Ended
(Dollars in thousands)		September 30, 2022									June 30, 2022									September 30, 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)		$	1,486,530		$	17,280		4.65	%		$	1,472,075		$	15,343		4.17	%		$	1,388,236		$	13,090		3.77	%
Commercial and industrial loans(1)			765,440			12,266		6.41	%			734,299			9,710		5.29	%			680,563			9,259		5.44	%
Direct financing leases(1)			15,093			160		4.24	%			15,527			176		4.53	%			18,611			207		4.45	%
Consumer and other loans(1)			49,558			468		3.78	%			51,045			458		3.59	%			43,689			391		3.58	%
Total loans and leases receivable(1)			2,316,621			30,174		5.21	%			2,272,946			25,687		4.52	%			2,131,099			22,947		4.31	%
Mortgage-related securities(2)			168,433			915		2.17	%			176,747			804		1.82	%			154,372			659		1.71	%
Other investment securities(3)			51,812			250		1.93	%			54,591			260		1.91	%			45,196			196		1.73	%
FHLB stock			18,167			289		6.36	%			17,355			226		5.21	%			13,279			167		5.03	%
Short-term investments			27,912			158		2.26	%			29,541			54		0.73	%			116,621			45		0.15	%
Total interest-earning assets			2,582,945			31,786		4.92	%			2,551,180			27,031		4.24	%			2,460,567			24,014		3.90	%
Non-interest-earning assets			176,016									165,527									147,631
Total assets		$	2,758,961								$	2,716,707								$	2,608,198
Interest-bearing liabilities
Transaction accounts		$	486,704			1,005		0.83	%		$	502,763			343		0.27	%		$	509,089			251		0.20	%
Money market			746,227			1,610		0.86	%			767,433			509		0.27	%			703,460			306		0.17	%
Certificates of deposit			113,529			340		1.20	%			73,560			114		0.62	%			42,370			71		0.67	%
Wholesale deposits			36,702			226		2.46	%			12,350			92		2.98	%			89,135			206		0.92	%
Total interest-bearing deposits			1,383,162			3,181		0.92	%			1,356,106			1,058		0.31	%			1,344,054			834		0.25	%
FHLB advances			432,528			2,173		2.01	%			449,599			1,666		1.48	%			381,061			1,228		1.29	%
Other borrowings			42,800			548		5.12	%			51,018			647		5.07	%			32,630			449		5.50	%
Junior subordinated notes			—			—		—	%			—			—		—	%			10,070			280		11.12	%
Total interest-bearing liabilities			1,858,490			5,902		1.27	%			1,856,723			3,371		0.73	%			1,767,815			2,791		0.63	%
Non-interest-bearing demand deposit accounts			584,535									557,086									556,029
Other non-interest-bearing liabilities			60,705									57,615									59,865
Total liabilities			2,503,730									2,471,424									2,383,709
Stockholders’ equity			255,231									245,283									224,489
Total liabilities and stockholders’ equity		$	2,758,961								$	2,716,707								$	2,608,198
Net interest income					$	25,884								$	23,660								$	21,223
Interest rate spread								3.65	%								3.51	%								3.27	%
Net interest-earning assets		$	724,455								$	694,457								$	692,752
Net interest margin								4.01	%								3.71	%								3.45	%

(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, 2022									September 30, 2021
		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)		$	1,472,930		$	45,969		4.16	%		$	1,377,302		$	38,704		3.75	%
Commercial and industrial loans(1)			739,540			31,077		5.60	%			736,623			28,759		5.21	%
Direct financing leases(1)			15,714			526		4.46	%			20,242			673		4.43	%
Consumer and other loans(1)			50,149			1,362		3.62	%			44,780			1,197		3.56	%
Total loans and leases receivable(1)			2,278,333			78,934		4.62	%			2,178,947			69,333		4.24	%
Mortgage-related securities(2)			176,654			2,479		1.87	%			155,617			1,955		1.67	%
Other investment securities(3)			52,324			725		1.85	%			42,992			569		1.76	%
FHLB stock			16,523			688		5.55	%			13,308			496		4.97	%
Short-term investments			29,509			227		1.03	%			65,769			67		0.14	%
Total interest-earning assets			2,553,343			83,053		4.34	%			2,456,633			72,420		3.93	%
Non-interest-earning assets			160,966									145,714
Total assets		$	2,714,309								$	2,602,347
Interest-bearing liabilities
Transaction accounts		$	507,402			1,602		0.42	%		$	509,709			749		0.20	%
Money market			765,839			2,458		0.43	%			674,858			862		0.17	%
Certificates of deposit			80,093			509		0.85	%			48,540			360		0.99	%
Wholesale deposits			21,838			436		2.66	%			139,205			825		0.79	%
Total interest-bearing deposits			1,375,172			5,005		0.49	%			1,372,312			2,796		0.27	%
FHLB advances			422,576			4,875		1.54	%			384,581			3,761		1.30	%
Other borrowings			44,719			1,698		5.06	%			30,811			1,293		5.60	%
Junior subordinated notes(5)			3,247			504		20.69	%			10,066			832		11.02	%
Total interest-bearing liabilities			1,845,714			12,082		0.87	%			1,797,770			8,682		0.64	%
Non-interest-bearing demand deposit accounts			568,131									523,368
Other non-interest-bearing liabilities			53,685									63,366
Total liabilities			2,467,530									2,384,504
Stockholders’ equity			246,779									217,843
Total liabilities and stockholders’ equity		$	2,714,309								$	2,602,347
Net interest income					$	70,971								$	63,738
Interest rate spread								3.46	%								3.29	%
Net interest-earning assets		$	707,629								$	658,863
Net interest margin								3.71	%								3.46	%

(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.
(5)		The calculation for the nine months ended September 30, 2022 includes $236,000 in accelerated amortization of debt issuance costs.

ASSET AND LIABILITY BETA ANALYSIS
	For the Three Months Ended															For the Nine Months Ended
(Unaudited)	September 30, 2022			June 30, 2022						September 30, 2021						September 30, 2022			September 30, 2021
	Average Yield/ Rate (3)			Average Yield/ Rate (3)			Increase (Decrease)			Average Yield/ Rate (3)			Increase (Decrease)			Average Yield/ Rate (3)			Average Yield/ Rate (3)			Increase (Decrease)
Total loans and leases receivable (a)	5.21	%		4.52	%		0.69	%		4.31	%		0.90	%		4.62	%		4.24	%		0.38	%
Total interest-earning assets(b)	4.92	%		4.24	%		0.68	%		3.90	%		1.02	%		4.34	%		3.93	%		0.41	%
Adjusted total loans and leases receivable (1)(c)	5.08	%		4.21	%		0.87	%		3.89	%		1.19	%		4.40	%		3.91	%		0.49	%
Adjusted total interest-earning assets (1)(d)	4.80	%		3.96	%		0.84	%		3.53	%		1.27	%		4.14	%		3.61	%		0.53	%
Interest-bearing in-market deposits(e)	0.88	%		0.29	%		0.59	%		0.20	%		0.68	%		0.45	%		0.21	%		0.24	%
Interest-bearing deposits(f)	0.92	%		0.31	%		0.61	%		0.25	%		0.67	%		0.49	%		0.27	%		0.22	%
Interest-bearing liabilities(g)	1.27	%		0.73	%		0.54	%		0.63	%		0.64	%		0.87	%		0.64	%		0.23	%
Effective fed funds rate (2)(h)	2.18	%		0.77	%		1.41	%		0.09	%		2.09	%		1.03	%		0.08	%		0.95	%
Beta Calculations:
Total loans and leases receivable(a)/(h)							48.90	%					43.20	%								39.66	%
Total interest-earning assets(b)/(h)							48.53	%					48.74	%								42.77	%
Adjusted total loans and leases receivable (1)(c)/(h)							61.70	%					56.75	%								51.96	%
Adjusted total interest-earning assets (1)(d)/(h)							59.92	%					60.87	%								55.80	%
Interest-bearing in-market deposits(e)/(h)							41.87	%					32.43	%								24.94	%
Interest-bearing deposits(f)/(h)							43.11	%					32.14	%								22.48	%
Interest-bearing liabilities(g)/(h)							38.59	%					30.56	%								24.09	%

(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 Nine Months Ended
(Dollars in thousands)		September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				September 30, 2022				September 30, 2021
Change in general reserve due to qualitative factor changes		$	132			$	(185	)		$	(416	)		$	(805	)		$	(51	)		$	(469	)		$	379
Change in general reserve due to historical loss factor changes			(940	)			64				(206	)			(862	)			(923	)			(1,082	)			(3,594	)
Charge-offs			54				85				22				106				364				161				3,402
Recoveries			(81	)			(4,247	)			(210	)			(274	)			(1,634	)			(4,537	)			(4,852	)
Change in specific reserves on impaired loans, net			447				29				(280	)			(64	)			(451	)			196				(2,111	)
Change due to loan growth, net			400				527				235				1,391				426				1,162				1,481
Total provision for loan and lease losses		$	12			$	(3,727	)		$	(855	)		$	(508	)		$	(2,269	)		$	(4,569	)		$	(5,295	)

PERFORMANCE RATIOS
		For the Three Months Ended															For the Nine Months Ended
(Unaudited)		September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021			September 30, 2022			September 30, 2021
Return on average assets (annualized)		1.57	%		1.65	%		1.30	%		1.32	%		1.41	%		1.49	%		1.39	%
Return on average equity (annualized)		16.97	%		18.27	%		14.47	%		15.04	%		16.39	%		16.59	%		16.63	%
Return on average tangible common equity (annualized)		17.88	%		19.27	%		15.05	%		15.44	%		16.85	%		17.40	%		17.12	%
Efficiency ratio		58.46	%		64.47	%		65.55	%		61.92	%		65.68	%		62.61	%		64.02	%
Interest rate spread		3.65	%		3.51	%		3.22	%		3.21	%		3.27	%		3.46	%		3.29	%
Net interest margin		4.01	%		3.71	%		3.39	%		3.39	%		3.45	%		3.71	%		3.46	%
Average interest-earning assets to average interest-bearing liabilities		138.98	%		137.40	%		138.64	%		141.19	%		139.19	%		138.34	%		136.65	%

ASSET QUALITY RATIOS
(Unaudited)		As of
(Dollars in thousands)		September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021
Non-accrual loans and leases		$	3,645			$	5,585			$	5,617			$	6,358			$	7,433
Foreclosed properties			151				124				117				164				172
Total non-performing assets			3,796				5,709				5,734				6,522				7,605
Performing troubled debt restructurings			172				188				203				217				53
Total impaired assets		$	3,968			$	5,897			$	5,937			$	6,739			$	7,658
Non-accrual loans and leases as a percent of total gross loans and leases			0.16	%			0.24	%			0.25	%			0.28	%			0.35	%
Non-performing assets as a percent of total gross loans and leases plus foreclosed properties			0.16	%			0.25	%			0.25	%			0.29	%			0.36	%
Non-performing assets as a percent of total assets			0.13	%			0.21	%			0.21	%			0.25	%			0.29	%
Allowance for loan and lease losses as a percent of total gross loans and leases			1.04	%			1.05	%			1.05	%			1.09	%			1.16	%
Allowance for loan and lease losses as a percent of non-accrual loans and leases			662.36	%			431.58	%			421.38	%			382.76	%			331.98	%

ASSET QUALITY RATIOS - EXCLUDING NET PPP LOANS
(Unaudited)		As of
(Dollars in thousands)		September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021
Non-accrual loans and leases as a percent of total gross loans and leases			0.16	%			0.24	%			0.25	%			0.29	%			0.36	%
Non-performing assets as a percent of total gross loans and leases plus foreclosed properties			0.16	%			0.25	%			0.26	%			0.29	%			0.37	%
Non-performing assets as a percent of total assets			0.13	%			0.21	%			0.21	%			0.25	%			0.30	%
Allowance for loan and lease losses as a percent of total gross loans and leases			1.04	%			1.06	%			1.06	%			1.10	%			1.20	%
PPP loans outstanding, net		$	2,324			$	8,172			$	18,206			$	27,297			$	64,454

NET CHARGE-OFFS (RECOVERIES)
(Unaudited)		For the Three Months Ended																				For the Nine Months Ended
(Dollars in thousands)		September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				September 30, 2022				September 30, 2021
Charge-offs		$	54			$	85			$	22			$	106			$	364			$	161			$	3,402
Recoveries			(81	)			(4,247	)			(210	)			(274	)			(1,634	)			(4,537	)			(4,852	)
Net (recoveries) charge-offs		$	(27	)		$	(4,162	)		$	(188	)		$	(168	)		$	(1,270	)		$	(4,376	)		$	(1,450	)
Net (recoveries) charge-offs as a percent of average gross loans and leases (annualized)			—	%			(0.73	)%			(0.03	)%			(0.03	)%			(0.24	)%			(0.26	)%			(0.09	)%
Annualized (recoveries) charge-offs as a percent of average gross loans and leases, excluding average net PPP loans			—	%			(0.74	)%			(0.03	)%			(0.03	)%			(0.25	)%			(0.26	)%			(0.10	)%
Average PPP loans outstanding, net		$	4,505			$	11,650			$	20,935			$	52,923			$	87,517			$	12,303			$	185,742

CAPITAL RATIOS
		As of and for the Three Months Ended
(Unaudited)		September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021
Total capital to risk-weighted assets		11.66	%		11.56	%		11.87	%		10.82	%		11.14	%
Tier I capital to risk-weighted assets		9.48	%		9.34	%		9.27	%		8.94	%		9.14	%
Common equity tier I capital to risk-weighted assets		9.04	%		8.90	%		8.81	%		8.55	%		8.73	%
Tier I capital to adjusted assets		9.34	%		9.19	%		9.09	%		8.94	%		8.69	%
Tangible common equity to tangible assets		8.06	%		8.16	%		8.14	%		8.34	%		8.28	%
Tangible common equity to tangible assets, excluding net PPP loans		8.07	%		8.19	%		8.20	%		8.42	%		8.50	%

LOAN AND LEASE RECEIVABLE COMPOSITION
(Unaudited)		As of
(in thousands)		September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021
Commercial real estate:
Commercial real estate - owner occupied		$	265,989		$	258,375		$	254,237		$	235,589		$	241,977
Commercial real estate - non-owner occupied			657,975			651,920			656,185			661,423			639,423
Land development			49,458			42,545			40,092			42,792			39,119
Construction			162,051			203,913			200,472			179,841			139,933
Multi-family			332,782			314,392			302,494			320,072			313,787
1-4 family			16,678			17,335			16,198			14,911			13,487
Total commercial real estate			1,484,933			1,488,480			1,469,678			1,454,628			1,387,726
Commercial and industrial			788,983			741,363			720,695			730,819			681,065
Direct financing leases, net			11,109			13,718			14,551			15,743			16,810
Consumer and other:
Home equity and second mortgages			5,413			5,132			4,523			4,223			4,576
Other			40,710			42,387			43,066			35,518			35,645
Total consumer and other			46,123			47,519			47,589			39,741			40,221
Total gross loans and leases receivable			2,331,148			2,291,080			2,252,513			2,240,931			2,125,822
Less:
Allowance for loan and lease losses			24,143			24,104			23,669			24,336			24,676
Deferred loan fees			448			980			1,264			1,523			2,516
Loans and leases receivable, net		$	2,306,557		$	2,265,996		$	2,227,580		$	2,215,072		$	2,098,630

DEPOSIT COMPOSITION
(Unaudited)		As of
(in thousands)		September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021
Non-interest-bearing transaction accounts		$	564,141		$	544,507		$	600,987		$	589,559		$	526,047
Interest-bearing transaction accounts			461,883			466,785			539,492			530,225			517,248
Money market accounts			742,545			731,718			806,917			754,410			728,751
Certificates of deposit			160,655			114,000			63,977			54,091			57,598
Wholesale deposits			158,321			12,321			12,321			29,638			74,638
Total deposits		$	2,087,545		$	1,869,331		$	2,023,694		$	1,957,923		$	1,904,282

TRUST ASSETS COMPOSITION
(Unaudited)		As of
(in thousands)		September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021
Trust assets under management		$	2,332,448		$	2,386,637		$	2,636,896		$	2,711,760		$	2,545,089
Trust assets under administration			160,171			167,095			197,160			208,954			202,657
Total trust assets		$	2,492,619		$	2,553,732		$	2,834,056		$	2,920,714		$	2,747,746

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, 2022				June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021
Common stockholders’ equity		$	241,012			$	237,931			$	233,059			$	232,422			$	225,280
Goodwill and other intangible assets			(12,218	)			(12,262	)			(12,184	)			(12,268	)			(12,229	)
Tangible common equity		$	228,794			$	225,669			$	220,875			$	220,154			$	213,051
Common shares outstanding			8,432,048				8,474,699				8,488,585				8,457,564				8,483,099
Book value per share		$	28.58			$	28.08			$	27.46			$	27.48			$	26.56
Tangible book value per share			27.13				26.63				26.02				26.03				25.11

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, 2022				June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021
Common stockholders’ equity		$	241,012			$	237,931			$	233,059			$	232,422			$	225,280
Goodwill and other intangible assets			(12,218	)			(12,262	)			(12,184	)			(12,268	)			(12,229	)
Tangible common equity		$	228,794			$	225,669			$	220,875			$	220,154			$	213,051
Total assets		$	2,850,802			$	2,777,016			$	2,724,082			$	2,652,905			$	2,584,410
Goodwill and other intangible assets			(12,218	)			(12,262	)			(12,184	)			(12,268	)			(12,229	)
Tangible assets		$	2,838,584			$	2,764,754			$	2,711,898			$	2,640,637			$	2,572,181
Tangible common equity to tangible assets			8.06	%			8.16	%			8.14	%			8.34	%			8.28	%
Period-end net PPP loans			2,324				8,172				18,206				27,297				64,454
Tangible assets, excluding net PPP loans		$	2,836,260			$	2,756,582			$	2,693,692			$	2,613,340			$	2,507,727
Tangible common equity to tangible assets, excluding net PPP loans			8.07	%			8.19	%			8.20	%			8.42	%			8.50	%

RETURN ON AVERAGE TANGIBLE COMMON EQUITY

“Return on average tangible common equity” is defined as net income less earnings allocated to participating shares and preferred stock dividends, if any, divided by average equity reduced by intangible assets and average preferred stock, 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 earnings allocated to common shareholders and average tangible equity, each exclusive of changes in intangible assets and preferred stock. The information below reconciles net income allocated to Common Shares and average tangible common equity to their most comparable GAAP measures.

(Unaudited)		For the Three Months Ended																				For the Nine Months Ended
(Dollars in thousands)		September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				September 30, 2022				September 30, 2021
Net income		$	10,826			$	11,204			$	8,672			$	8,591			$	9,198			$	30,702			$	27,165
Earnings allocated to participating shares			(281	)			(310	)			(255	)			(245	)			(252	)			(834	)			(744	)
Preferred Dividends			(218	)			(246	)			—				—				—				(464	)			—
Net income allocated to Common Shares		$	10,327			$	10,648			$	8,417			$	8,346			$	8,946			$	29,404			$	26,421
Average Equity		$	255,231			$	245,283			$	239,651			$	228,427			$	224,489			$	246,779			$	217,843
Average preferred stock			(11,992	)			(11,992	)			(3,731	)			—				—				(9,269	)			—
Goodwill and other intangible assets			(12,218	)			(12,210	)			(12,240	)			(12,248	)			(12,180	)			(12,237	)			(12,130	)
Average tangible common equity		$	231,021			$	221,081			$	223,680			$	216,179			$	212,309			$	225,273			$	205,713
Return on average tangible common equity (annualized)			17.88	%			19.27	%			15.05	%			15.44	%			16.85	%			17.40	%			17.12	%

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, 2022				June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				September 30, 2022				September 30, 2021
Total non-interest expense	$	20,028			$	19,456			$	18,823			$	17,531			$	18,490			$	58,307			$	54,003
Less:
Net loss on foreclosed properties		7				8				12				7				6				27				7
Amortization of other intangible assets		—				—				—				2				7				—				23
SBA recourse provision (benefit)		96				114				(76	)			(122	)			(69	)			134				45
Tax credit investment impairment recovery		—				(351	)			—				—				—				(351	)			—
Total operating expense (a)	$	19,925			$	19,685			$	18,887			$	17,644			$	18,546			$	58,497			$	53,928
Net interest income	$	25,884			$	23,660			$	21,426			$	20,924			$	21,223			$	70,971			$	63,738
Total non-interest income		8,197				6,872				7,386				7,569				7,015				22,455				20,531
Less:
Net gain on sale of securities		—				—				—				—				—				—				29
Adjusted non-interest income		8,197				6,872				7,386				7,569				7,015				22,455				20,502
Total operating revenue (b)	$	34,081			$	30,532			$	28,812			$	28,493			$	28,238			$	93,426			$	84,240
Efficiency ratio		58.46	%			64.47	%			65.55	%			61.92	%			65.68	%			62.61	%			64.02	%
Pre-tax, pre-provision adjusted earnings (b - a)	$	14,156			$	10,847			$	9,925			$	10,849			$	9,692			$	34,929			$	30,312
Less:
PPP fee income		61				196				249				892				1,666				506				6,419
PPP loan interest income		11				29				52				134				221				92				1,391
Pre-tax, pre-provision adjusted earnings, excluding PPP	$	14,084			$	10,622			$	9,624			$	9,823			$	7,805			$	34,331			$	22,502
Average total assets	$	2,758,961			$	2,716,707			$	2,666,241			$	2,612,905			$	2,608,198			$	2,714,309			$	2,602,347
Less:
Average net PPP loans		4,505				11,650				20,935				52,923				87,517				12,303				185,742
Adjusted average total assets	$	2,754,456			$	2,705,057			$	2,645,306			$	2,559,982			$	2,520,681			$	2,702,006			$	2,416,605
Pre-tax, pre-provision adjusted return on average assets		2.05	%			1.60	%			1.49	%			1.66	%			1.49	%			1.72	%			1.55	%
Pre-tax, pre-provision adjusted return on average assets, excluding PPP		2.05	%			1.57	%			1.46	%			1.53	%			1.24	%			1.69	%			1.24	%

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, 2022				June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				September 30, 2022				September 30, 2021
Interest income	$	31,786			$	27,031			$	24,235			$	23,576			$	24,014			$	83,053			$	72,420
Interest expense		5,902				3,371				2,809				2,652				2,791				12,082				8,682
Net interest income (a)		25,884				23,660				21,426				20,924				21,223				70,971				63,738
Less:
Fees in lieu of interest		807				1,865				1,293				1,700				2,839				3,962				9,459
PPP loan interest income		11				29				52				134				221				92				1,391
FRB interest income and FHLB dividend income		445				279				188				179				212				913				563
Adjusted net interest income (b)	$	24,621			$	21,487			$	19,893			$	18,911			$	17,951			$	66,004			$	52,325
Average interest-earning assets (c)	$	2,582,945			$	2,551,180			$	2,525,272			$	2,472,013			$	2,460,567			$	2,553,343			$	2,456,633
Less:
Average net PPP loans		4,505				11,650				20,935				52,923				87,517				12,303				185,741
Average FRB cash and FHLB stock		45,351				46,334				44,577				71,939				129,469				45,423				78,545
Average non-accrual loans and leases		4,416				5,429				6,195				6,796				11,298				5,532				16,657
Adjusted average interest-earning assets (d)	$	2,528,673			$	2,487,767			$	2,453,565			$	2,340,355			$	2,232,283			$	2,490,085			$	2,175,690
Net interest margin (a / c)		4.01	%			3.71	%			3.39	%			3.39	%			3.45	%			3.71	%			3.46	%
Adjusted net interest margin (b / d)		3.89	%			3.45	%			3.24	%			3.23	%			3.22	%			3.53	%			3.21	%

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20221027005821/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 was First Business Financial Services' net income for Q3 2022?

First Business Financial Services reported a net income of $10.6 million for Q3 2022.

How did First Business Financial Services' revenue change in Q3 2022?

The company experienced a 12% increase in top line revenue compared to the linked quarter.

What is the net interest margin for FBIZ in Q3 2022?

The net interest margin for First Business Financial Services in Q3 2022 was 4.01%.

How much did non-performing assets decrease for First Business Financial Services?

Non-performing assets decreased to 0.13% of total assets.

What is the tangible book value growth for FBIZ?

The tangible book value increased by 7.5% annualized in Q3 2022.