FIRST BUSINESS FINANCIAL SERVICES, INC. 10-Q

Item 1. Financial Statements First Business Financial Services, Inc. Consolidated Balance Sheets September 30, 2024 December 31, 2023 (Unaudited) (In Thousands, Except Share Data) Assets Cash and due from banks $ 45,302 $ 32,348 Short-term investments 86,670 107,162 Cash and cash equivalents 131,972 139,510 Securities available-for-sale, at fair value 313,336 297,006 Securities held-to-maturity, at amortized cost 6,907 8,503 Loans held for sale 8,173 4,589 Loans and leases receivable, net of allowance for credit losses of $ 33,688 and $ 31,275 , respectively 3,016,391 2,818,986 Premises and equipment, net 5,478 6,190 Repossessed assets 56 247 Right-of-use assets, net 5,789 6,559 Bank-owned life insurance 56,767 55,536 Federal Home Loan Bank stock, at cost 12,775 12,042 Goodwill and other intangible assets 11,834 12,023 Derivatives 42,539 55,597 Accrued interest receivable and other assets 103,707 91,058 Total assets $ 3,715,724 $ 3,507,846 Liabilities and Stockholders’ Equity Deposits $ 2,969,947 $ 2,796,779 Federal Home Loan Bank advances and other borrowings 349,109 330,916 Lease liabilities 8,054 8,954 Derivatives 45,399 51,949 Accrued interest payable and other liabilities 31,233 29,660 Total liabilities 3,403,742 3,218,258 Stockholders’ equity: Preferred stock, $ 0.01 par value, 2,500,000 shares authorized, 12,500 shares of 7 % non-cumulative perpetual preferred stock, Series A, outstanding at September 30, 2024 and December 31, 2023 11,992 11,992 Common stock, $ 0.01 par value, 25,000,000 shares authorized, 9,434,444 and 9,418,463 shares issued, 8,295,017 and 8,314,778 shares outstanding at September 30, 2024 and December 31, 2023, respectively 95 95 Additional paid-in capital 92,650 90,616 Retained earnings 253,660 230,728 Accumulated other comprehensive loss ( 15,032 ) ( 13,717 ) Treasury stock, 1,139,427 and 1,103,685 shares at September 30, 2024 and December 31, 2023, respectively, at cost ( 31,383 ) ( 30,126 ) Total stockholders’ equity 311,982 289,588 Total liabilities and stockholders’ equity $ 3,715,724 $ 3,507,846 See accompanying Notes to Unaudited Consolidated Financial Statements. 1 Table of Contents First Business Financial Services, Inc. Consolidated Statements of Income (Unaudited) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2024 2023 2024 2023 (In Thousands, Except Per Share Data) Interest income Loans and leases $ 55,506 $ 47,868 $ 160,947 $ 131,962 Securities 2,976 2,198 8,823 5,601 Short-term investments 845 875 3,250 2,604 Total interest income 59,327 50,941 173,020 140,167 Interest expense Deposits 25,290 19,803 73,802 48,774 Federal Home Loan Bank advances and other borrowings 3,030 2,542 8,159 8,344 Total interest expense 28,320 22,345 81,961 57,118 Net interest income 31,007 28,596 91,059 83,049 Provision for credit losses 2,087 1,817 6,126 5,610 Net interest income after provision for credit losses 28,920 26,779 84,933 77,439 Non-interest income Private wealth management service fees 3,264 2,945 9,835 8,492 Gain on sale of Small Business Administration loans 460 851 1,004 1,771 Service charges on deposits 920 835 2,810 2,283 Loan fees 812 786 2,486 2,495 Increase in cash surrender value of bank-owned life insurance 416 376 1,231 1,106 Net loss on sale of securities — — ( 8 ) ( 45 ) Swap fees 460 992 815 2,526 Other non-interest income 732 1,645 3,073 5,586 Total non-interest income 7,064 8,430 21,246 24,214 Non-interest expense Compensation 15,198 15,573 47,570 46,610 Occupancy 585 575 1,785 1,809 Professional fees 1,305 1,429 4,348 4,012 Data processing 1,045 953 3,245 2,889 Marketing 922 758 2,591 2,165 Equipment 333 349 1,013 1,000 Computer software 1,608 1,289 4,581 3,668 FDIC insurance 810 680 2,032 1,653 Other non-interest expense 1,301 1,583 3,164 3,181 Total non-interest expense 23,107 23,189 70,329 66,987 Income before income tax expense 12,877 12,020 35,850 34,666 Income tax expense 2,351 2,079 6,020 7,409 Net income 10,526 9,941 29,830 27,257 Preferred stock dividend 218 218 656 656 Net income available to common shareholders $ 10,308 $ 9,723 $ 29,174 $ 26,601 Earnings per common share Basic $ 1.24 $ 1.17 $ 3.50 $ 3.19 Diluted 1.24 1.17 3.50 3.19 Dividends declared per share 0.25 0.2275 0.75 0.6825 See accompanying Notes to Unaudited Consolidated Financial Statements. 2 Table of Contents First Business Financial Services, Inc. Consolidated Statements of Comp rehensive Income (Unaudited) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2024 2023 2024 2023 (In Thousands) Net income $ 10,526 $ 9,941 $ 29,830 $ 27,257 Other comprehensive (loss) income Securities available-for-sale: Unrealized securities gains (losses) arising during the period 9,129 ( 6,194 ) 5,624 ( 6,446 ) Reclassification adjustment for net loss realized in net income — — 8 45 Securities held-to-maturity: Amortization of net unrealized losses transferred from available-for-sale 1 1 2 4 Interest rate swaps: Unrealized (losses) gains on interest rate swaps arising during the period ( 11,811 ) 5,713 ( 6,507 ) 7,844 Income tax benefit (expense) 593 123 ( 442 ) ( 371 ) Total other comprehensive (loss) income ( 2,088 ) ( 357 ) ( 1,315 ) 1,076 Comprehensive income $ 8,438 $ 9,584 $ 28,515 $ 28,333 See accompanying Notes to Unaudited Consolidated Financial Statements. 3 Table of Contents First Business Financial Services, Inc. Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) Common Shares Outstanding Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total (In Thousands, Except Share Data) Balance at December 31, 2022 8,362,085 $ 11,992 $ 94 $ 87,512 $ 203,507 $ ( 15,310 ) $ ( 27,155 ) $ 260,640 Cumulative change in accounting principle — — — — ( 1,353 ) — — ( 1,353 ) Balance at January 1, 2023 8,362,085 11,992 94 87,512 202,154 ( 15,310 ) ( 27,155 ) 259,287 Net income — — — — 8,979 — — 8,979 Other comprehensive income — — — — — 1,639 — 1,639 Share-based compensation - restricted shares and employee stock purchase plan ( 426 ) — — 634 — — — 634 Issuance of common stock under the employee stock purchase plan 1,005 — — 27 — — — 27 Preferred stock dividends — — — — ( 219 ) — — ( 219 ) Cash dividends ($ 0.2275 per share) — — — — ( 1,906 ) — — ( 1,906 ) Treasury stock purchased ( 56,394 ) — — — — — ( 1,860 ) ( 1,860 ) Balance at March 31, 2023 8,306,270 $ 11,992 $ 94 $ 88,173 $ 209,008 $ ( 13,671 ) $ ( 29,015 ) $ 266,581 Net income — — — — 8,337 — — 8,337 Other comprehensive loss — — — — — ( 206 ) — ( 206 ) Share-based compensation - restricted shares and employee stock purchase plan 45,280 — 1 1,071 — — — 1,072 Issuance of common stock under the employee stock purchase plan 1,044 — — 28 — — — 28 Preferred stock dividends — — — — ( 219 ) — — ( 219 ) Cash dividends ($ 0.2275 per share) — — — — ( 1,889 ) — — ( 1,889 ) Treasury stock purchased ( 37,129 ) — — — — — ( 1,072 ) ( 1,072 ) Balance at June 30, 2023 8,315,465 $ 11,992 $ 95 $ 89,272 $ 215,237 $ ( 13,877 ) $ ( 30,087 ) $ 272,632 Net income — — — — 9,941 — — 9,941 Other comprehensive loss — — — — — ( 357 ) — ( 357 ) Share-based compensation - restricted shares and employee stock purchase plan ( 702 ) — — 643 — — — 643 Issuance of common stock under the employee stock purchase plan 1,134 — — 32 — — — 32 Preferred stock dividends — — — — ( 218 ) — — ( 218 ) Cash dividends ($ 0.2275 per share) — — — — ( 1,892 ) — — ( 1,892 ) Treasury stock purchased ( 711 ) — — — — — ( 23 ) ( 23 ) Balance at September 30, 2023 8,315,186 $ 11,992 $ 95 $ 89,947 $ 223,068 $ ( 14,234 ) $ ( 30,110 ) $ 280,758 4 Table of Contents Common Shares Outstanding Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total (In Thousands, Except Share Data) Balance at December 31, 2023 8,314,778 $ 11,992 $ 95 $ 90,616 $ 230,728 $ ( 13,717 ) $ ( 30,126 ) $ 289,588 Net income — — — — 8,848 — — 8,848 Other comprehensive income — — — — — 1,541 — 1,541 Share-based compensation - restricted shares and employee stock purchase plan 6,940 — — 665 — — — 665 Issuance of common stock under the employee stock purchase plan 913 — — 31 — — — 31 Preferred stock dividends — — — — ( 219 ) — — ( 219 ) Cash dividends ($ 0.25 per share) — — — — ( 2,087 ) — — ( 2,087 ) Treasury stock purchased ( 16,058 ) — — — — — ( 579 ) ( 579 ) Balance at March 31, 2024 8,306,573 $ 11,992 $ 95 $ 91,312 $ 237,270 $ ( 12,176 ) $ ( 30,705 ) $ 297,788 Net income — — — — 10,456 — — 10,456 Other comprehensive loss — — — — — ( 768 ) — ( 768 ) Share-based compensation - restricted shares and employee stock purchase plan 6,494 — — 624 — — — 624 Issuance of common stock under the employee stock purchase plan 949 — — 31 — — — 31 Preferred stock dividends — — — — ( 219 ) — — ( 219 ) Cash dividends ($ 0.25 per share) — — — — ( 2,076 ) — — ( 2,076 ) Treasury stock purchased ( 19,427 ) — — — — — ( 666 ) ( 666 ) Balance at June 30, 2024 8,294,589 $ 11,992 $ 95 $ 91,967 $ 245,431 $ ( 12,944 ) $ ( 31,371 ) $ 305,170 Net income — — — — 10,526 — — 10,526 Other comprehensive loss — — — — — ( 2,088 ) — ( 2,088 ) Share-based compensation - restricted shares and employee stock purchase plan ( 145 ) — — 649 — — — 649 Issuance of common stock under the employee stock purchase plan 830 — — 34 — — — 34 Preferred stock dividends — — — — ( 218 ) — — ( 218 ) Cash dividends ($ 0.25 per share) — — — — ( 2,079 ) — — ( 2,079 ) Treasury stock purchased ( 257 ) — — — — — ( 12 ) ( 12 ) Balance at September 30, 2024 8,295,017 $ 11,992 $ 95 $ 92,650 $ 253,660 $ ( 15,032 ) $ ( 31,383 ) $ 311,982 See accompanying Notes to Unaudited Consolidated Financial Statements. 5 Table of Contents First Business Financial Services, Inc. Consolidated Statements of Cash Flows (Unaudited) For the Nine Months Ended September 30, 2024 2023 (In Thousands) Operating activities Net income $ 29,830 $ 27,257 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes, net 565 ( 733 ) Provision for credit losses 6,126 5,610 Depreciation, amortization and accretion, net 2,723 2,838 Share-based compensation 1,938 2,349 Net loss on disposal of fixed assets 10 73 Net loss on sale of securities 8 45 Amortization of tax credit investments 3,888 2,882 Bank-owned life insurance policy income ( 1,231 ) ( 1,106 ) Origination of loans for sale ( 103,865 ) ( 115,925 ) Sale of loans originated for sale 101,285 116,160 Gain on sale of loans originated for sale ( 1,004 ) ( 1,771 ) Net loss on repossessed assets 162 9 Return on investment in limited partnerships 1,481 3,542 Excess tax benefit expense from share-based compensation 172 185 Net payments on operating lease liabilities ( 1,099 ) ( 1,061 ) Net decrease in accrued interest receivable and other assets ( 10,465 ) ( 8,870 ) Net increase in accrued interest payable and other liabilities 5,003 7,474 Net cash provided by operating activities 35,527 38,958 Investing activities Proceeds from maturities, redemptions, and paydowns of available-for-sale securities 60,688 16,536 Proceeds from maturities, redemptions, and paydowns of held-to-maturity securities 1,586 3,932 Proceeds from sale of available-for-sale securities 7,533 5,028 Purchases of available-for-sale securities ( 79,066 ) ( 88,563 ) Proceeds from sale of repossessed assets 18 25 Net increase in loans and leases ( 203,422 ) ( 321,570 ) Investments in limited partnerships ( 1,200 ) ( 1,106 ) Returns of investments in limited partnerships 22 7 Investment in tax credit investments ( 13,417 ) ( 11,430 ) Distribution from tax credit investments 130 33 Proceeds from sale of tax credit 1,645 — Investment in Federal Home Loan Bank stock ( 20,555 ) ( 30,540 ) Proceeds from the sale of Federal Home Loan Bank stock 19,822 34,824 Purchases of leasehold improvements and equipment, net ( 181 ) ( 2,574 ) Proceeds from sale of leasehold improvements and equipment 30 — Net cash used in investing activities ( 226,367 ) ( 395,398 ) Financing activities Net increase in deposits 173,168 488,801 Repayment of Federal Home Loan Bank advances ( 908,205 ) ( 1,536,255 ) Proceeds from Federal Home Loan Bank advances 921,155 1,434,375 Repayment of subordinated notes and debentures ( 15,000 ) — Proceeds from issuance of subordinated notes and debentures 20,000 15,000 Net increase (decrease) in long-term borrowed funds 243 ( 6,037 ) Cash dividends paid ( 6,242 ) ( 5,687 ) Preferred stock dividends paid ( 656 ) ( 656 ) Proceeds from issuance of common stock under ESPP 96 87 Purchase of treasury stock ( 1,257 ) ( 2,955 ) Net cash provided by financing activities 183,302 386,673 Net (decrease) increase in cash and cash equivalents ( 7,538 ) 30,233 Cash and cash equivalents at the beginning of the period 139,510 102,682 Cash and cash equivalents at the end of the period $ 131,972 $ 132,915 Supplementary cash flow information Cash paid during the period for: Interest paid on deposits and borrowings $ 82,002 $ 51,092 Net income taxes paid 853 5,022 Non-cash investing and financing activities: Transfer of repossessed assets to loans 10 — See accompany Notes to Unaudited Consolidated Financial Statements 6 Table of Contents Notes to Unaudited Consolidated Financial Statements Note 1 — Nature of Operations and Summary of Significant Accounting Policies Nature of Operations The accounting and reporting practices of First Business Financial Services, Inc. (“FBFS” or the “Corporation”), through our wholly-owned subsidiary, First Business Bank (“FBB” or the “Bank”), have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). FBB operates as a commercial banking institution primarily in Wisconsin and the greater Kansas City metropolitan area. The Bank provides a full range of financial services to businesses, business owners, executives, professionals, and high net worth individuals. FBB also offers bank consulting services to community financial institutions. The Bank is subject to competition from other financial institutions and service providers and is also subject to state and federal regulations. As of September 30, 2024, FBB had the following wholly-owned subsidiaries: First Business Specialty Finance, LLC (“FBSF”), First Madison Investment Corp. (“FMIC”), ABKC Real Estate, LLC (“ABKC”), FBB Real Estate 2, LLC (“FBB RE 2”), Mitchell Street Apartments Investment, LLC (“Mitchell Street”), and FBB Tax Credit Investment, LLC (“FBB Tax Credit”). Basis of Presentation The accompanying unaudited Consolidated Financial Statements were prepared in accordance with GAAP and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Corporation’s Consolidated Financial Statements and footnotes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2023. The unaudited Consolidated Financial Statements include the accounts of the Corporation and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Management of the Corporation is required to make estimates and assumptions which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that could significantly change in the near-term include the value of securities and interest rate swaps, level of the allowance for credit losses, lease residuals, property under operating leases, goodwill, and income taxes . The results of operations for the three and nine months ended September 30, 2024, are not necessarily indicative of results that may be expected for any other interim period or the entire fiscal year ending December 31, 2024 . Certain amounts in prior periods may have been reclassified to conform to the current presentation. Subsequent events have been evaluated through the date of the issuance of the unaudited Consolidated Financial Statements. No significant subsequent events have occurred through this date requiring adjustment to the financial statements or disclosures. The Corporation has not changed its significant accounting and reporting policies from those disclosed in the Corporation’s Form 10-K for the year ended December 31, 2023. 7 Table of Contents Recent Accounting Pronouncements In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 820): Improvements to Reportable Segment Disclosures.” This update is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2024. The Corporation is one operating segment; therefore, we do not anticipate any material impact to the financial statements. In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This update enhances the transparency and decision usefulness of income tax disclosures by providing better information regarding exposure to potential changes in jurisdictional tax legislation and related forecasting and cash flow opportunities. This update is effective for fiscal years beginning after December 15, 2024. The Corporation is assessing the impact of the standard. Note 2 — Earnings per Common Share Earnings per common share are computed using the two-class method. Basic earnings per common share are computed by dividing net income allocated to common shares by the weighted-average number of shares outstanding during the applicable period, excluding outstanding participating securities. Participating securities include unvested restricted shares. Unvested restricted shares are considered participating securities because holders of these securities receive non-forfeitable dividends, or dividend equivalents, at the same rate as holders of the Corporation’s common stock. Diluted earnings per share are computed by dividing net income allocated to common shares adjusted for reallocation of undistributed earnings of unvested restricted shares by the weighted average number of shares determined for the basic earnings per common share computation plus the dilutive effect of common stock equivalents using the treasury stock method. For the Three Months Ended September 30, For the Nine Months Ended September 30, 2024 2023 2024 2023 (Dollars in Thousands, Except Share Data) Basic earnings per common share Net income $ 10,526 $ 9,941 $ 29,830 $ 27,257 Less: preferred stock dividends 218 218 656 656 Less: earnings allocated to participating securities 228 242 682 690 Basic earnings allocated to common shareholders $ 10,080 $ 9,481 $ 28,492 $ 25,911 Weighted-average common shares outstanding, excluding participating securities 8,111,215 8,107,641 8,149,949 8,134,587 Basic earnings per common share $ 1.24 $ 1.17 $ 3.50 $ 3.19 Diluted earnings per common share Earnings allocated to common shareholders, diluted $ 10,080 $ 9,481 $ 28,492 $ 25,911 Weighted-average diluted common shares outstanding, excluding participating securities 8,111,215 8,107,641 8,149,949 8,134,587 Diluted earnings per common share $ 1.24 $ 1.17 $ 3.50 $ 3.19 Note 3 — Share-Based Compensation The Corporation initially adopted the 2019 Equity Incentive Plan (the “Plan”) during the quarter ended June 30, 2019. The Plan is administered by the Compensation Committee of the Board of Directors (the “Board”) of the Corporation and provides for the grant of equity ownership opportunities through incentive stock options and nonqualified stock options, restricted stock, restricted stock units, dividend equivalent units, and any other type of award permitted by the Plan. As of September 30, 2024, 267,439 shares were available for future grants under the Plan, as amended. Shares covered by awards that expire, terminate, or lapse will again be available for the grant of awards under the Plan. Restricted Stock Under the Plan, the Corporation may grant restricted stock awards (“RSA”), restricted stock units (“RSU”), and other stock-based awards to plan participants, subject to forfeiture upon the occurrence of certain events until the dates specified in the participant’s 8 Table of Contents award agreement. While restricted stock is subject to forfeiture, RSA participants may exercise full voting rights and will receive all dividends and other distributions paid with respect to the restricted shares. RSUs do not have voting rights. RSUs granted prior to 2023 are provided dividend equivalents concurrent with dividends paid to shareholders while RSUs granted in 2023 and after will accrue dividend equivalents payable upon vesting. The restricted stock granted under the Plan is typically subject to a vesting period. Compensation expense for restricted stock is recognized over the requisite service period of generally three or four years for the entire award on a straight-line basis. Upon vesting of restricted stock, the benefit of tax deductions in excess of recognized compensation expense is reflected as an income tax benefit in the unaudited Consolidated Statements of Income. The Corporation may also issue performance-based restricted stock units (“PRSU”). Vesting of the PRSU will be measured on the relative Total Shareholder Return (“TSR”) and relative Return on Average Equity (“ROAE”) for issuances prior to 2023 or Return on Average Common Equity (“ROACE”) for issuances after 2022, and will cliff-vest after a three-year measurement period based on the Corporation’s TSR performance and ROAE or ROACE performance compared to a broad peer group of over 100 banks. At the end of the performance period, the number of actual shares to be awarded varies between 0 % and 200 % of target amounts. The restricted stock awards and units issued to executive officers will vest ratably over a three-year period. Compensation expense is recognized for PRSU over the requisite service and performance period of generally three years for the entire expected award on a straight-line basis. The compensation expense for the awards expected to vest for the percentage of performance-based restricted stock units subject to the ROAE or ROACE metric will be adjusted if there is a change in the expectation of ROAE or ROACE. The compensation expense for the awards expected to vest for the percentage of PRSU subject to the TSR metric are never adjusted and are amortized utilizing the accounting fair value provided using a Monte Carlo pricing model. Restricted stock activity for the year ended December 31, 2023 and the nine months ended September 30, 2024 was as follows: RSA Weighted Average Grant Price PRSU Weighted Average Grant Price RSU Weighted Average Grant Price Total Weighted Average Grant Price Nonvested balance as of December 31, 2022 133,317 $ 27.95 57,435 $ 32.89 6,105 $ 25.92 196,857 $ 29.32 Granted (1) — — 34,840 35.79 54,955 34.43 89,795 34.96 Vested ( 56,931 ) 27.03 ( 36,120 ) 31.31 ( 3,253 ) 26.06 ( 96,304 ) 28.60 Forfeited ( 4,435 ) 30.20 — — ( 820 ) 36.42 ( 5,255 ) 31.17 Nonvested balance as of December 31, 2023 71,951 28.53 56,155 35.70 56,987 33.97 185,093 32.38 Granted (1) — — 27,614 34.76 64,747 30.13 92,361 31.52 Vested ( 34,170 ) 26.93 ( 34,139 ) 25.43 ( 31,859 ) 20.76 ( 100,168 ) 24.46 Forfeited ( 5,430 ) 30.35 — — ( 4,857 ) 36.28 ( 10,287 ) 33.15 Nonvested balance as of September 30, 2024 32,351 $ 29.92 49,630 $ 42.24 85,018 $ 35.87 166,999 $ 36.61 Unrecognized compensation cost (in thousands) $ 577 $ 1,152 $ 2,433 $ 4,162 Weighted average remaining recognition period (in years) 1.07 1.64 2.50 2.11 (1) The number of restricted shares/units shown includes the shares that would be granted if the target level of performance is achieved related to the PRSU. The number of shares actually issued may vary. During the nine months ended September 30, 2024, an additional 10,589 were issued related to actual performance results of previously granted awards. Employee Stock Purchase Plan The Corporation is authorized to issue up to 250,000 shares of common stock under the employee stock purchase plan ("ESPP"). The plan qualifies as an employee stock purchase plan under section 423 of the Internal Revenue Code of 1986. Under the ESPP, eligible employees may enroll in a three month offer period that begins January, April, July, and October of each year. Employees may elect to purchase a limited number of shares of the Corporation's common stock at 90 % of the fair market value on the last day of the offering period. The ESPP is treated as a compensatory item for purposes of share-based compensation expense. During the nine months ended September 30, 2024, the Corporation issued 2,692 shares of common stock under the ESPP. As of September 30, 2024, 227,946 shares remained available for issuance under the ESPP. Share-based compensation expense related to restricted stock and ESPP included in the unaudited Consolidated Statements of Income was as follows: 9 Table of Contents For the Three Months Ended September 30, For the Nine Months Ended September 30, 2024 2023 2024 2023 (In Thousands) Share-based compensation expense $ 649 $ 643 $ 1,938 $ 2,349 Note 4 — Securities The amortized cost and fair value of securities available-for-sale and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows: As of September 30, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (In Thousands) Available-for-sale: U.S. treasuries $ 4,987 $ — $ ( 252 ) 4,735 U.S. government agency securities - government-sponsored enterprises 8,500 — ( 310 ) 8,190 Municipal securities 40,099 — ( 4,038 ) 36,061 Residential mortgage-backed securities - government issued 107,364 1,385 ( 1,985 ) 106,764 Residential mortgage-backed securities - government-sponsored enterprises 133,898 710 ( 8,255 ) 126,353 Commercial mortgage-backed securities - government issued 2,718 — ( 372 ) 2,346 Commercial mortgage-backed securities - government-sponsored enterprises 32,212 72 ( 3,397 ) 28,887 $ 329,778 $ 2,167 $ ( 18,609 ) $ 313,336 As of December 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (In Thousands) Available-for-sale: U.S. treasuries $ 14,158 $ 7 $ ( 389 ) $ 13,776 U.S. government agency securities - government-sponsored enterprises 27,986 35 ( 455 ) 27,566 Municipal securities 40,407 — ( 4,526 ) 35,881 Residential mortgage-backed securities - government issued 69,441 1,000 ( 2,385 ) 68,056 Residential mortgage-backed securities - government-sponsored enterprises 131,321 281 ( 10,769 ) 120,833 Commercial mortgage-backed securities - government issued 2,995 — ( 470 ) 2,525 Commercial mortgage-backed securities - government-sponsored enterprises 32,774 65 ( 4,470 ) 28,369 $ 319,082 $ 1,388 $ ( 23,464 ) $ 297,006 10 Table of Contents The amortized cost and fair value of securities held-to-maturity and the corresponding amounts of gross unrecognized gains and losses were as follows: As of September 30, 2024 Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Fair Value (In Thousands) Held-to-maturity: Municipal securities $ 3,140 $ 4 $ ( 14 ) $ 3,130 Residential mortgage-backed securities - government issued 931 — ( 46 ) 885 Residential mortgage-backed securities - government-sponsored enterprises 833 — ( 31 ) 802 Commercial mortgage-backed securities - government-sponsored enterprises 2,003 — ( 45 ) 1,958 $ 6,907 $ 4 $ ( 136 ) $ 6,775 As of December 31, 2023 Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Fair Value (In Thousands) Held-to-maturity: Municipal securities $ 4,210 $ 4 $ ( 41 ) $ 4,173 Residential mortgage-backed securities - government issued 1,211 — ( 76 ) 1,135 Residential mortgage-backed securities - government-sponsored enterprises 1,078 — ( 53 ) 1,025 Commercial mortgage-backed securities - government-sponsored enterprises 2,004 — ( 82 ) 1,922 $ 8,503 $ 4 $ ( 252 ) $ 8,255 U.S. Treasuries contain treasury bonds issued by the United States Treasury. U.S. government agency securities - government-sponsored enterprises represent securities issued by Federal National Mortgage Association (“FNMA”) and the SBA. Municipal securities include securities issued by various municipalities located primarily within Wisconsin and are primarily general obligation bonds that are tax-exempt in nature. Residential and commercial mortgage-backed securities - government issued represent securities guaranteed by the Government National Mortgage Association. Residential and commercial mortgage-backed securities - government-sponsored enterprises include securities guaranteed by the Federal Home Loan Mortgage Corporation, FNMA, and the FHLB. The Corporation sold no available-for-sale securities during the three months ended September 30, 2024 and 5 available-for-sale securities during the nine months ended September 30, 2024 . The Corporation sold no available-for-sale securities during the three months ended September 30, 2023 and 16 available-for-sale securities during the nine months ended September 30, 2023. At September 30, 2024 and December 31, 2023, securities with a fair value of $ 39.3 million and $ 45.4 million , respectively, were pledged to secure various obligations, including interest rate swap contracts and municipal deposits. 11 Table of Contents The amortized cost and fair value of securities by contractual maturity at September 30, 2024 are shown below. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay certain obligations with or without call or prepayment penalties. Available-for-Sale Held-to-Maturity Amortized Cost Fair Value Amortized Cost Fair Value (In Thousands) Due in one year or less $ 3,501 $ 3,463 $ 738 $ 735 Due in one year through five years 20,270 19,305 2,402 2,395 Due in five through ten years 8,855 8,220 — — Due in over ten years 20,960 17,998 — — 53,586 48,986 3,140 3,130 Residential mortgage-backed securities 241,262 233,117 1,764 1,687 Commercial mortgage-backed securities 34,930 31,233 2,003 1,958 $ 329,778 $ 313,336 $ 6,907 $ 6,775 The tables below show the Corporation’s gross unrealized losses and fair value of available-for-sale investments aggregated by investment category and length of time that individual investments were in a continuous loss position at September 30, 2024 and December 31, 2023. At September 30, 2024, the Corporation held 160 available-for-sale securities that were in an unrealized loss position, 155 of which have been in a continuous unrealized loss position for twelve months or greater. The Corporation has not specifically identified available-for-sale securities in a loss position that it intends to sell in the near term and does not believe that it will be required to sell any such securities. The Corporation reviews its securities on a quarterly basis to assess declines in fair value for credit losses. Consideration is given to such factors as the credit rating of the borrower, market conditions such as current interest rates, any adverse conditions specific to the security, and delinquency status on contractual payments. For the three and nine months ended September 30, 2024 and 2023, management concluded that in all instances securities with fair value less than carrying value was due to market factors; thus, no credit loss provision was required. A summary of unrealized loss information for securities available-for-sale, categorized by security type and length of time for which the security has been in a continuous unrealized loss position, follows: As of September 30, 2024 Less than 12 Months 12 Months or Longer Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses (In Thousands) Available-for-sale: U.S. treasuries $ — $ — $ 4,735 $ 252 $ 4,735 $ 252 U.S. government agency securities - government- sponsored enterprises 3,000 1 3,190 309 6,190 310 Municipal securities — — 36,061 4,038 36,061 4,038 Residential mortgage-backed securities - government issued 3,209 20 20,108 1,965 23,317 1,985 Residential mortgage-backed securities - government-sponsored enterprises 3,710 55 75,879 8,200 79,589 8,255 Commercial mortgage-backed securities - government issued — — 2,346 372 2,346 372 Commercial mortgage-backed securities - government-sponsored enterprises — — 27,861 3,397 27,861 3,397 $ 9,919 $ 76 $ 170,180 $ 18,533 $ 180,099 $ 18,609 12 Table of Contents As of December 31, 2023 Less than 12 Months 12 Months or Longer Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses (In Thousands) Available-for-sale: U.S. treasuries $ — $ — $ 4,595 $ 389 $ 4,595 $ 389 U.S. government agency securities - government- sponsored enterprises 13,370 30 3,076 425 16,446 455 Municipal securities — — 35,881 4,526 35,881 4,526 Residential mortgage-backed securities - government issued 13,178 160 13,819 2,225 26,997 2,385 Residential mortgage-backed securities - government-sponsored enterprises 19,925 285 78,086 10,484 98,011 10,769 Commercial mortgage-backed securities - government issued — — 2,525 470 2,525 470 Commercial mortgage-backed securities - government-sponsored enterprises 893 20 26,465 4,450 27,358 4,470 $ 47,366 $ 495 $ 164,447 $ 22,969 $ 211,813 $ 23,464 The tables below show the Corporation’s gross unrealized losses and fair value of held-to-maturity investments, aggregated by investment category and length of time that individual investments were in a continuous loss position at September 30, 2024 and December 31, 2023. At September 30, 2024, the Corporation held 21 held-to-maturity securities that were in an unrealized loss position, 21 of which have been in a continuous loss position for twelve months or greater. Management assesses held-to-maturity securities for credit losses on a quarterly basis. The assessment includes review of credit ratings, identification of delinquency and evaluation of market factors. Based on this analysis, management concludes the decline in fair value is due to market factors, specifically changes in interest rates. Accordingly, no credit loss provision was recorded in the unaudited Consolidated Statements of Income for the three and nine months ended September 30, 2024 and 2023. A summary of unrecognized loss information for securities held-to-maturity, categorized by security type and length of time for which the security has been in a continuous unrealized loss position, follows: As of September 30, 2024 Less than 12 Months 12 Months or Longer Total Fair Value Unrecognized Losses Fair Value Unrecognized Losses Fair Value Unrecognized Losses (In Thousands) Held-to-maturity: Municipal securities $ — $ — $ 2,159 $ 14 $ 2,159 $ 14 Residential mortgage-backed securities - government issued — — 885 46 885 46 Residential mortgage-backed securities - government-sponsored enterprises — — 802 31 802 31 Commercial mortgage-backed securities - government-sponsored enterprises — — 1,958 45 1,958 45 $ — $ — $ 5,804 $ 136 $ 5,804 $ 136 13 Table of Contents As of December 31, 2023 Less than 12 Months 12 Months or Longer Total Fair Value Unrecognized Losses Fair Value Unrecognized Losses Fair Value Unrecognized Losses (In Thousands) Held-to-maturity: Municipal securities $ 1,424 $ 4 $ 2,234 $ 37 $ 3,658 $ 41 Residential mortgage-backed securities - government issued — — 1,135 76 1,135 76 Residential mortgage-backed securities - government-sponsored enterprises — — 1,025 53 1,025 53 Commercial mortgage-backed securities - government-sponsored enterprises — — 1,922 82 1,922 82 $ 1,424 $ 4 $ 6,316 $ 248 $ 7,740 $ 252 Note 5 — Loans, Lease Receivables, and Allowance for Credit Losses Loan and lease receivables consist of the following: September 30, 2024 December 31, 2023 (In Thousands) Commercial real estate: Commercial real estate — owner occupied $ 259,532 $ 256,479 Commercial real estate — non-owner occupied 768,195 773,494 Construction 266,762 193,080 Multi-family 494,954 450,529 1-4 family 39,933 26,289 Total commercial real estate 1,829,376 1,699,871 Commercial and industrial 1,174,295 1,105,835 Consumer and other 46,610 44,312 Total gross loans and leases receivable 3,050,281 2,850,018 Less: Allowance for credit losses 33,688 31,275 Deferred loan fees and costs, net 202 ( 243 ) Loans and leases receivable, net $ 3,016,391 $ 2,818,986 Loans transferred to third parties consist of the guaranteed portions of SBA loans which the Corporation sold in the secondary market and participation interests in other, non-SBA originated loans. The total principal amount of the guaranteed portions of SBA loans sold during the three months ended September 30, 2024 and 2023, was $ 4.6 million and $ 10.7 million , respectively. The total principal amount of the guaranteed portions of SBA loans sold during the nine months ended September 30, 2024 and 2023, was $ 10.3 million and $ 20.5 million , respectively. Each of the transfers of these financial assets met the qualifications for sale accounting, and therefore all of the loans transferred during the three and nine months ended September 30, 2024 and 2023, have been derecognized in the unaudited Consolidated Financial Statements. The guaranteed portions of SBA loans were transferred at their fair value and the related gain was recognized upon the transfer as non-interest income in the unaudited Consolidated Financial Statements. The total outstanding balance of sold SBA loans serviced by the Corporation at September 30, 2024, and December 31, 2023, was $ 74.6 million and $ 84.2 million , respectively. The total principal amount of transferred participation interests in other, non-SBA originated loans during the three months ended September 30, 2024 and 2023, was $ 31.4 million and $ 39.2 million , respectively, all of which were treated as sales and derecognized under the applicable accounting guidance at the time of transfer. The total principal amount of transferred participation interests in other, non-SBA originated loans during the nine months ended September 30, 2024 and 2023, was $ 90.0 million and $ 93.9 million , respectively, all of which were treated as sales and derecognized under the applicable accounting guidance at the time of transfer. No gain or loss was recognized on participation interests in other, non-SBA originated loans as they were transferred at or near the date of loan origination and the payments received for servicing the portion of the loans participated represents adequate compensation. The total amount of loan participation purchased on the Corporation's Consolidated Balance Sheet as of September 30, 2024 was $ 2.2 million . There were no loan participation purchased on the Corporation's Consolidated Balance Sheet as of December 31, 2023. The 14 Table of Contents total outstanding balance of these transferred loans serviced by the Corporation at September 30, 2024, and December 31, 2023, was $ 332.0 million and $ 279.5 million , respectively. As of September 30, 2024, and December 31, 2023, the total amount of the Corporation’s retained ownership of these transferred loans was $ 390.1 million and $ 367.4 million , respectively. As of September 30, 2024 and December 31, 2023 , the non-SBA originated participation portfolio contained no non-accrual loans. The Corporation does not share in the participant’s portion of any potential charge-offs. 15 Table of Contents The following table illustrates ending balances of the Corporation’s loan and lease portfolio, including non-accrual loans by class of receivable, and considering certain credit quality indicators: September 30, 2024 Term Loans Amortized Cost Basis by Origination Year (In Thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Total Commercial real estate — owner occupied Category I $ 9,514 $ 38,462 $ 45,346 $ 37,126 $ 42,580 $ 83,902 $ 1,747 $ 258,677 II — — — — — — — — III — — — — — 855 — 855 IV — — — — — — — — Total $ 9,514 $ 38,462 $ 45,346 $ 37,126 $ 42,580 $ 84,757 $ 1,747 $ 259,532 Commercial real estate — non-owner occupied Category I $ 18,420 $ 69,137 $ 76,518 $ 70,956 $ 85,917 $ 350,267 $ 38,223 $ 709,438 II — — — 2,257 2,176 30,266 — 34,699 III — 651 — — — 23,407 — 24,058 IV — — — — — — — — Total $ 18,420 $ 69,788 $ 76,518 $ 73,213 $ 88,093 $ 403,940 $ 38,223 $ 768,195 Construction Category I $ 53,512 $ 130,485 $ 37,255 $ 4,769 $ 729 $ 5,556 $ 19,870 $ 252,176 II — — — — — — — — III — — 454 8,155 5,713 264 — 14,586 IV — — — — — — — — Total $ 53,512 $ 130,485 $ 37,709 $ 12,924 $ 6,442 $ 5,820 $ 19,870 $ 266,762 Multi-family Category I $ 26,055 $ 80,720 $ 75,986 $ 69,682 $ 102,078 $ 136,119 $ 2,900 $ 493,540 II — — — 1,414 — — — 1,414 III — — — — — — — — IV — — — — — — — — Total $ 26,055 $ 80,720 $ 75,986 $ 71,096 $ 102,078 $ 136,119 $ 2,900 $ 494,954 1-4 family Category I $ 10,544 $ 4,211 $ 7,153 $ 2,356 $ 2,302 $ 2,508 $ 10,843 $ 39,917 II — — — — — — — — III — — — — — — — — IV — — — — — 16 — 16 Total $ 10,544 $ 4,211 $ 7,153 $ 2,356 $ 2,302 $ 2,524 $ 10,843 $ 39,933 Commercial and industrial Category I $ 187,043 $ 242,991 $ 106,808 $ 59,711 $ 27,053 $ 29,980 $ 448,373 $ 1,101,959 II 199 3,352 3,666 — 472 8 5,792 13,489 III 4,413 5,190 6,103 1,473 2,489 4,529 15,302 39,499 IV 58 3,578 5,653 1,026 447 2,381 6,205 19,348 Total $ 191,713 $ 255,111 $ 122,230 $ 62,210 $ 30,461 $ 36,898 $ 475,672 $ 1,174,295 Consumer and other Category I $ 6,580 $ 5,388 $ 7,674 $ 2,866 $ 11,467 $ 5,220 $ 7,415 $ 46,610 II — — — — — — — — III — — — — — — — — IV — — — — — — — — Total $ 6,580 $ 5,388 $ 7,674 $ 2,866 $ 11,467 $ 5,220 $ 7,415 $ 46,610 Total Loans Category I $ 311,668 $ 571,394 $ 356,740 $ 247,466 $ 272,126 $ 613,552 $ 529,371 $ 2,902,317 II 199 3,352 3,666 3,671 2,648 30,274 5,792 49,602 III 4,413 5,841 6,557 9,628 8,202 29,055 15,302 78,998 IV 58 3,578 5,653 1,026 447 2,397 6,205 19,364 Total $ 316,338 $ 584,165 $ 372,616 $ 261,791 $ 283,423 $ 675,278 $ 556,670 $ 3,050,281 16 Table of Contents December 31, 2023 Term Loans Amortized Cost Basis by Origination Year (In Thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total Commercial real estate — owner occupied Category I $ 31,637 $ 43,156 $ 38,803 $ 44,704 $ 22,078 $ 72,774 $ 451 $ 253,603 II — — — 260 — — — 260 III — — — — — 2,616 — 2,616 IV — — — — — — — — Total $ 31,637 $ 43,156 $ 38,803 $ 44,964 $ 22,078 $ 75,390 $ 451 $ 256,479 Commercial real estate — non-owner occupied Category I $ 71,857 $ 76,689 $ 72,660 $ 78,212 $ 66,262 $ 314,970 $ 32,478 $ 713,128 II — — 2,302 2,252 19,838 16,274 — 40,666 III — — — — — 19,700 — 19,700 IV — — — — — — — — Total $ 71,857 $ 76,689 $ 74,962 $ 80,464 $ 86,100 $ 350,944 $ 32,478 $ 773,494 Construction Category I $ 63,660 $ 83,161 $ 8,542 $ 744 $ 433 $ 6,528 $ 15,011 $ 178,079 II — — 9,289 5,712 — — — 15,001 III — — — — — — — — IV — — — — — — — — Total $ 63,660 $ 83,161 $ 17,831 $ 6,456 $ 433 $ 6,528 $ 15,011 $ 193,080 Multi-family Category I $ 84,932 $ 41,068 $ 70,054 $ 113,294 $ 22,925 $ 115,243 $ 3,013 $ 450,529 II — — — — — — — — III — — — — — — — — IV — — — — — — — — Total $ 84,932 $ 41,068 $ 70,054 $ 113,294 $ 22,925 $ 115,243 $ 3,013 $ 450,529 1-4 family Category I $ 4,242 $ 7,684 $ 2,672 $ 2,359 $ 443 $ 2,805 $ 6,062 $ 26,267 II — — — — — — — — III — — — — — — — — IV — — — — — 22 — 22 Total $ 4,242 $ 7,684 $ 2,672 $ 2,359 $ 443 $ 2,827 $ 6,062 $ 26,289 Commercial and industrial Category I $ 302,612 $ 144,167 $ 85,504 $ 38,164 $ 20,151 $ 26,490 $ 415,301 $ 1,032,389 II 1,496 5,280 785 353 94 219 5,706 13,933 III 1,093 7,168 1,882 5,919 3,861 3,957 15,058 38,938 IV 1,482 6,519 1,319 321 133 1,644 9,157 20,575 Total $ 306,683 $ 163,134 $ 89,490 $ 44,757 $ 24,239 $ 32,310 $ 445,222 $ 1,105,835 Consumer and other Category I $ 5,920 $ 8,786 $ 3,167 $ 12,193 $ 2,049 $ 3,485 $ 8,712 $ 44,312 II — — — — — — — — III — — — — — — — — IV — — — — — — — — Total $ 5,920 $ 8,786 $ 3,167 $ 12,193 $ 2,049 $ 3,485 $ 8,712 $ 44,312 Total Loans Category I $ 564,860 $ 404,711 $ 281,402 $ 289,670 $ 134,341 $ 542,295 $ 481,028 $ 2,698,307 II 1,496 5,280 12,376 8,577 19,932 16,493 5,706 69,860 III 1,093 7,168 1,882 5,919 3,861 26,273 15,058 61,254 IV 1,482 6,519 1,319 321 133 1,666 9,157 20,597 Total $ 568,931 $ 423,678 $ 296,979 $ 304,487 $ 158,267 $ 586,727 $ 510,949 $ 2,850,018 17 Table of Contents Each credit is evaluated for proper risk rating upon origination, at the time of each subsequent renewal, upon receipt and evaluation of updated financial information from the Corporation’s borrowers, or as other circumstances dictate. The Corporation primarily uses a nine grade risk rating system to monitor the ongoing credit quality of its loans and leases. The risk rating grades follow a consistent definition and are then applied to specific loan types based on the nature of the loan. Each risk rating is determined based on various quantitative and qualitative factors and is subject to various levels of review and concurrence on the stated risk rating. In addition to its nine grade risk rating system, the Corporation groups loans into four loan and related risk categories which determine the level and nature of review by management. Category I — Loans and leases in this category are performing in accordance with the terms of the contract and generally exhibit no immediate concerns regarding the security and viability of the underlying collateral, financial stability of the borrower, integrity or strength of the borrowers’ management team, or the industry in which the borrower operates. The Corporation monitors Category I loans and leases through payment performance, continued maintenance of its personal relationships with such borrowers, and continued review of such borrowers’ compliance with the terms of their respective agreements. Category II — Loans and leases in this category are beginning to show signs of deterioration in one or more of the Corporation’s core underwriting criteria such as financial stability, management strength, industry trends, or collateral values. Management will place credits in this category to allow for proactive monitoring and resolution with the borrower to possibly mitigate the area of concern and prevent further deterioration or risk of loss to the Corporation. Category II loans are considered performing but are monitored frequently by the assigned business development officer and by asset quality review committees. Category III — Loans and leases in this category are identified by management as warranting special attention. However, the balance in this category is not intended to represent the amount of adversely classified assets held by the Bank. Category III loans and leases generally exhibit undesirable characteristics, such as evidence of adverse financial trends and conditions, managerial problems, deteriorating economic conditions within the related industry, or evidence of adverse public filings and may exhibit collateral shortfall positions. Management continues to believe that it will collect all contractual principal and interest in accordance with the original terms of the contracts relating to the loans and leases in this category, and therefore Category III loans are considered performing with no specific reserves established for this category. Category III loans are monitored by management and asset quality review committees on a monthly basis. Category IV — Loans and leases in this category are non-accrual loans. Management has determined that it is unlikely that the Bank will receive the contractual principal and interest in accordance with the original terms of the agreement. Non-accrual loans are individually evaluated to assess the need for the establishment of specific reserves or charge-offs. When analyzing the adequacy of collateral, the Corporation obtains external appraisals at least annually. External appraisals are obtained from the Corporation’s approved appraiser listing and are independently reviewed to monitor the quality of such appraisals. To the extent a collateral shortfall position is present, a specific reserve or charge-off will be recorded. Loans and leases in this category are monitored by management and asset quality review committees on a monthly basis. The delinquency aging of the loan and lease portfolio by class of receivable was as follows: September 30, 2024 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Total Past Due Current Total Loans and Leases (Dollars in Thousands) Total loans and leases Commercial real estate: Owner occupied $ — $ — $ — $ — $ 259,532 $ 259,532 Non-owner occupied 375 — — 375 767,820 768,195 Construction — — — — 266,762 266,762 Multi-family — — — — 494,954 494,954 1-4 family — — — — 39,933 39,933 Commercial and industrial 1,555 2,835 17,497 21,887 1,152,408 1,174,295 Consumer and other — — — — 46,610 46,610 Total $ 1,930 $ 2,835 $ 17,497 $ 22,262 $ 3,028,019 $ 3,050,281 Percent of portfolio 0.06 % 0.09 % 0.57 % 0.73 % 99.27 % 100.00 % 18 Table of Contents December 31, 2023 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Total Past Due Current Total Loans and Leases (Dollars in Thousands) Total loans and leases Commercial real estate: Owner occupied $ — $ — $ — $ — $ 256,479 $ 256,479 Non-owner occupied — — — — 773,494 773,494 Construction — — — — 193,080 193,080 Multi-family — — — — 450,529 450,529 1-4 family — — — — 26,289 26,289 Commercial and industrial 3,430 1,041 18,347 22,818 1,083,017 1,105,835 Consumer and other — — — — 44,312 44,312 Total $ 3,430 $ 1,041 $ 18,347 $ 22,818 $ 2,827,200 $ 2,850,018 Percent of portfolio 0.12 % 0.04 % 0.64 % 0.80 % 99.20 % 100.00 % The following tables provide additional detail on loans on non-accrual status and loans past due over 89 days still accruing as of: September 30, 2024 Non-accrual With No Allowance for Credit Loss Non-accrual With Allowance for Credit Loss Loans Past Due Over 89 Days Still Accruing (In Thousands) Commercial real estate: Commercial real estate — owner occupied $ — $ — $ — Commercial real estate — non-owner occupied — — — Construction — — — Multi-family — — — 1-4 family 16 — — Total commercial real estate 16 — — Commercial and industrial 8,009 11,339 — Consumer and other — — — Total non-accrual loans and leases $ 8,025 $ 11,339 $ — December 31, 2023 Non-accrual With No Allowance for Credit Loss Non-accrual With Allowance for Credit Loss Loans Past Due Over 89 Days Still Accruing (In Thousands) Commercial real estate: Commercial real estate — owner occupied $ — $ — $ — Commercial real estate — non-owner occupied — — — Construction — — — Multi-family — — — 1-4 family — 22 — Total commercial real estate — 22 — Commercial and industrial 9,691 10,884 — Consumer and other — — — Total non-accrual loans and leases $ 9,691 $ 10,906 $ — September 30, 2024 December 31, 2023 Total non-accrual loans and leases to gross loans and leases 0.63 % 0.72 % Allowance for credit losses to gross loans and leases 1.16 1.16 Allowance for credit losses to non-accrual loans and leases 183.38 160.21 19 Table of Contents The following table presents the amortized cost basis of the non-accrual, collateral-dependent commercial and industrial loans as of: September 30, 2024 December 31, 2023 (In Thousands) Inventory $ 75 $ 8,879 Equipment 10,128 8,903 Real Estate 132 46 Accounts Receivable 6,179 278 Other 1,021 1,348 Total $ 17,535 $ 19,454 Occasionally, the Corporation modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses. The following table presents the amortized cost basis of loans at September 30, 2024 that were both experiencing financial difficulty and modified during the nine months ended September 30, 2024 and 2023, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized costs basis of each class of financing receivable is also presented below. For the Nine Months Ended September 30, 2024 Principal Forgiveness Payment Delay Term Extension Interest Rate Reduction Total Total Class of Financing Receivable (In Thousands) Commercial real estate $ — $ 5,901 $ — $ — $ 5,901 0.32 % Commercial and industrial — 1,847 477 — 2,324 0.20 Total $ — $ 7,748 $ 477 $ — $ 8,225 0.27 % For the Nine Months Ended September 30, 2023 Principal Forgiveness Payment Delay Term Extension Interest Rate Reduction Total Total Class of Financing Receivable (In Thousands) Commercial real estate $ — $ — $ — $ — $ — 0.00 % Commercial and industrial — 716 — — 716 0.07 Total $ — $ 716 $ — $ — $ 716 0.03 % The Corporation closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance of such loans that have been modified in the last 12 months: For the Nine Months Ended September 30, 2024 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Total Past Due (Dollars in Thousands) Commercial real estate $ — $ — $ — $ — Commercial and industrial — 360 50 410 Total $ — $ 360 $ 50 $ 410 20 Table of Contents For the Nine Months Ended September 30, 2023 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Total Past Due (Dollars in Thousands) Commercial real estate $ — $ — $ — $ — Commercial and industrial — — 389 389 Total $ — $ — $ 389 $ 389 The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the nine months ended September 30, 2024 and 2023: For the Nine Months Ended September 30, 2024 (Dollars in Thousands) Principal Forgiveness Weighted Average Interest Rate Reduction Weighted Average Term Extension (years) Weighted Average Payment Delay (years) Commercial real estate $ — $ — 0.00 0.75 Commercial and industrial — — 1.01 0.67 Total $ — $ — 1.01 1.42 For the Nine Months Ended September 30, 2023 (Dollars in Thousands) Principal Forgiveness Weighted Average Interest Rate Reduction Weighted Average Term Extension (years) Weighted Average Payment Delay (years) Commercial real estate $ — $ — 0.00 0.00 Commercial and industrial — — 0.00 0.50 Total $ — $ — 0.00 0.50 The following table presents the amortized cost basis of loans that had a payment default during the nine months ended September 30, 2024 and 2023 and were modified in the 12 months prior to that default to borrowers experience financial difficulty: For the Nine Months Ended September 30, 2024 Principal Forgiveness Payment Delay Term Extension Interest Rate Reduction (In Thousands) Commercial real estate $ — $ — $ — $ — Commercial and industrial — 753 — — Total $ — $ 753 $ — $ — For the Nine Months Ended September 30, 2023 Principal Forgiveness Payment Delay Term Extension Interest Rate Reduction (In Thousands) Commercial real estate $ — $ — $ — $ — Commercial and industrial — — — — Total $ — $ — $ — $ — Allowance for Credit Losses The ACL is an estimate of the expected credit losses on financial assets measured at amortized cost, which is measured using relevant information about past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets. A provision for credit losses is charged to operations based on management’s periodic evaluation of these and other pertinent factors as discussed within Note 1 – Nature of Operations and Summary of Significant Accounting Policies included in the Corporation’s Form 10-K for the year ended December 31, 2023. Quantitative Considerations 21 Table of Contents The ACL is primarily calculated utilizing a Discounted Cash Flow (“DCF”) model. Key inputs and assumptions used in this model are discussed below: • Forecast model - For each portfolio segment, a Loss Driver Analysis (“LDA”) was performed in order to identify appropriate loss drivers and create a regression model for use in forecasting cash flows. The LDA analysis utilized peer FFIEC Call Report data for all DCF pools. The Corporation plans to update the LDA annually. • Probability of Default ("PD") – PD is the probability that an asset will be in default within a given time frame. The Corporation has defined default as when a charge-off has occurred, a loan goes to non-accrual status, or a loan is greater than 90 days past due. The forecast model is utilized to estimate PDs. • Loss Given Default ("LGD") – LGD is the percentage of the asset not expected to be collected due to default. The LGD is derived from using a method referred to as Frye Jacobs which uses industry data. • Prepayments and curtailments – Prepayments and curtailments are calculated based on the Corporation’s own data. This analysis is updated semi-annually. • Forecast and reversion – The Corporation has established a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average. • Economic forecast – The Corporation utilizes a third party to provide economic forecasts under various scenarios, which are assessed against economic indicators and management’s observations in the market. As of December 31, 2023, the Corporation selected a forecast which estimates unemployment between 3.89% and 4.04% and GDP growth change between 1.29% and 2.32% over the next four quarters. As of September 30, 2024, the Corporation selected a forecast which estimates unemployment between 4.12% and 4.20% and GDP growth change between 1.83% and 2.34% over the next four quarters. Following the forecast period, the model reverts to long-term averages over four quarters. Management believes that the resulting quantitative reserve appropriately balances economic indicators with identified risks. Qualitative Considerations In addition to the quantitative model, management considers the need for qualitative adjustment for risks not considered in the DCF. Factors that are considered by management in determining loan collectability and the appropriate level of the ACL are listed below: • The Corporation’s lending policies and procedures, including changes in lending strategies, underwriting standards and practices for collections, write-offs, and recoveries; • Actual and expected changes in international, national, regional, and local economic and business conditions and developments in which the Corporation operates that affect the collectability of financial assets; • The experience, ability, and depth of the Corporation’s lending, investment, collection, and other relevant management and staff; • The volume of past due financial assets, the volume of non-accrual loans and leases, and the volume and severity of adversely classified or graded assets; • The existence and effect of industry concentrations of credit; • The nature and volume of the portfolio segment or class; • The quality of the Corporation’s credit function; and • The effect of other external factors such as the regulatory, legal and technological environments, competition, and events such as natural disasters or pandemics. 22 Table of Contents ACL Activity A summary of the activity in the allowance for credit losses by portfolio segment is as follows: As of and for the Three Months Ended September 30, 2024 Owner Occupied Non-Owner Occupied Construction Multi- Family 1-4 Family Commercial and Industrial Consumer and Other Total (In Thousands) Beginning balance $ 1,531 $ 6,415 $ 3,045 $ 3,752 $ 461 $ 19,280 $ 466 $ 34,950 Charge-offs — — — — — ( 1,619 ) — ( 1,619 ) Recoveries 1 — — — 6 84 — 91 Net recoveries (charge-offs) 1 — — — 6 ( 1,535 ) — ( 1,528 ) Provision for credit losses 70 ( 325 ) 483 ( 17 ) 12 1,911 ( 47 ) 2,087 Ending balance $ 1,602 $ 6,090 $ 3,528 $ 3,735 $ 479 $ 19,656 $ 419 $ 35,509 Components: Allowance for credit losses on loans $ 1,588 $ 6,048 $ 2,518 $ 3,710 $ 439 $ 19,010 $ 375 $ 33,688 Allowance for credit losses on unfunded credit commitments 14 42 1,010 25 40 646 44 1,821 Total ACL $ 1,602 $ 6,090 $ 3,528 $ 3,735 $ 479 $ 19,656 $ 419 $ 35,509 As of and for the Three Months Ended September 30, 2023 Owner Occupied Non-Owner Occupied Construction Multi- Family 1-4 Family Commercial and Industrial Consumer and Other Total (In Thousands) Beginning balance $ 1,721 $ 5,241 $ 2,293 $ 3,426 $ 249 $ 16,223 $ 544 $ 29,697 Charge-offs — — — — — ( 562 ) — ( 562 ) Recoveries 3 — — — 9 72 — 84 Net recoveries (charge-offs) 3 — — — 9 ( 490 ) — ( 478 ) Provision for credit losses ( 151 ) 26 68 96 ( 10 ) 1,833 ( 45 ) 1,817 Ending balance $ 1,573 $ 5,267 $ 2,361 $ 3,522 $ 248 $ 17,566 $ 499 $ 31,036 Components: Allowance for credit losses on loans $ 1,556 $ 5,209 $ 1,441 $ 3,512 $ 228 $ 16,946 $ 439 $ 29,331 Allowance for credit losses on unfunded credit commitments 17 58 920 10 20 620 60 1,705 Total ACL $ 1,573 $ 5,267 $ 2,361 $ 3,522 $ 248 $ 17,566 $ 499 $ 31,036 As of and for the Nine Months Ended September 30, 2024 Owner Occupied Non-Owner Occupied Construction Multi- Family 1-4 Family Commercial and Industrial Consumer and Other Total (In Thousands) Beginning balance $ 1,540 $ 5,636 $ 2,125 $ 3,571 $ 266 $ 19,408 $ 451 $ 32,997 Charge-offs — — — — — ( 4,101 ) ( 22 ) ( 4,123 ) Recoveries 2 — — — 121 365 21 509 Net recoveries (charge-offs) 2 — — — 121 ( 3,736 ) ( 1 ) ( 3,614 ) Provision for credit losses 60 454 1,403 164 92 3,984 ( 31 ) 6,126 Ending balance $ 1,602 $ 6,090 $ 3,528 $ 3,735 $ 479 $ 19,656 $ 419 $ 35,509 Components: Allowance for credit losses on loans $ 1,588 $ 6,048 $ 2,518 $ 3,710 $ 439 $ 19,010 $ 375 $ 33,688 Allowance for credit losses on unfunded credit commitments 14 42 1,010 25 40 646 44 1,821 Total ACL $ 1,602 $ 6,090 $ 3,528 $ 3,735 $ 479 $ 19,656 $ 419 $ 35,509 As of and for the Nine Months Ended September 30, 2023 Owner Occupied Non-Owner Occupied Construction Multi- Family 1-4 Family Commercial and Industrial Consumer and Other Total (In Thousands) Beginning balance $ 1,766 $ 5,108 $ 1,646 $ 2,634 $ 207 $ 12,403 $ 466 $ 24,230 Impact of adopting ASC 326 ( 204 ) ( 242 ) 796 ( 386 ) ( 45 ) 1,873 26 1,818 Charge-offs — — — — — ( 1,057 ) — ( 1,057 ) Recoveries 5 1 — — 30 386 13 435 Net recoveries (charge-offs) 5 1 — — 30 ( 671 ) 13 ( 622 ) Provision for credit losses 6 400 ( 81 ) 1,274 56 3,961 ( 6 ) 5,610 Ending balance $ 1,573 $ 5,267 $ 2,361 $ 3,522 $ 248 $ 17,566 $ 499 $ 31,036 Components: Allowance for credit losses on loans $ 1,556 $ 5,209 $ 1,441 $ 3,512 $ 228 $ 16,946 $ 439 $ 29,331 Allowance for credit losses on unfunded credit commitments 17 58 920 10 20 620 60 1,705 Total ACL $ 1,573 $ 5,267 $ 2,361 $ 3,522 $ 248 $ 17,566 $ 499 $ 31,036 23 Table of Contents ACL Summary Loans collectively evaluated for credit losses in the following tables include all performing loans at September 30, 2024 and December 31, 2023. Loans individually evaluated for credit losses include all non-accrual loans. The following tables provide information regarding the allowance for credit losses and balances by type of allowance methodology. As of September 30, 2024 Owner Occupied Non-Owner Occupied Construction Multi- Family 1-4 Family Commercial and Industrial Consumer and Other Total (In Thousands) Allowance for credit losses: Collectively evaluated for credit losses $ 1,588 $ 6,048 $ 2,518 $ 3,710 $ 439 $ 12,671 $ 375 $ 27,349 Individually evaluated for credit loss — — — — — 6,339 — 6,339 Total $ 1,588 $ 6,048 $ 2,518 $ 3,710 $ 439 $ 19,010 $ 375 $ 33,688 Loans and lease receivables: Collectively evaluated for credit losses $ 259,532 $ 768,195 $ 266,762 $ 494,954 $ 39,917 $ 1,154,947 $ 46,610 $ 3,030,917 Individually evaluated for credit loss — — — — 16 19,348 — 19,364 Total $ 259,532 $ 768,195 $ 266,762 $ 494,954 $ 39,933 $ 1,174,295 $ 46,610 $ 3,050,281 As of December 31, 2023 Owner Occupied Non-Owner Occupied Construction Multi- Family 1-4 Family Commercial and Industrial Consumer and Other Total (In Thousands) Allowance for credit losses: Collectively evaluated for credit losses $ 1,525 $ 5,596 $ 1,244 $ 3,562 $ 221 $ 12,743 $ 395 $ 25,286 Individually evaluated for credit loss — — — — 22 5,967 — 5,989 Total $ 1,525 $ 5,596 $ 1,244 $ 3,562 $ 243 $ 18,710 $ 395 $ 31,275 Loans and lease receivables: Collectively evaluated for credit losses $ 256,479 $ 773,494 $ 193,080 $ 450,529 $ 26,267 $ 1,085,260 $ 44,312 $ 2,829,421 Individually evaluated for credit loss — — — — 22 20,575 — 20,597 Total $ 256,479 $ 773,494 $ 193,080 $ 450,529 $ 26,289 $ 1,105,835 $ 44,312 $ 2,850,018 Note 6 — Leases The Corporation leases various office spaces and specialized lending production offices under non-cancellable operating leases which expire on various dates through 2033. The Corporation also leases office equipment. The Corporation recognizes a right-of-use asset and an operating lease liability for all leases, with the exception of short-term leases. Right-of-use assets represent the right to use an underlying asset for the lease term and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term. The components of total lease expense were as follows: For the Three Months Ended September 30, For the Nine Months Ended September 30, 2024 2023 2024 2023 (In Thousands) Operating lease cost $ 333 $ 338 $ 1,028 $ 1,088 Short-term lease cost 31 36 106 145 Variable lease cost 143 139 430 436 Less: sublease income — — — ( 75 ) Total lease cost, net $ 507 $ 513 $ 1,564 $ 1,594 24 Table of Contents Quantitative information regarding the Corporation’s operating leases was as follows: September 30, 2024 December 31, 2023 Weighted-average remaining lease term (in years) 7.20 7.70 Weighted-average discount rate 3.78 % 3.61 % The following maturity analysis shows the undiscounted cash flows due on the Corporation’s operating lease liabilities: (In Thousands) 2024 $ 367 2025 1,408 2026 1,400 2027 1,427 2028 1,113 Thereafter 3,600 Total undiscounted cash flows 9,315 Discount on cash flows ( 1,261 ) Total lease liability $ 8,054 Note 7 — Other Assets A summary of accrued interest receivable and other assets was as follows: September 30, 2024 December 31, 2023 (In Thousands) Accrued interest receivable $ 12,906 $ 13,275 Net deferred tax asset 9,641 9,508 Investment in historic development entities 4,866 2,393 Investment in low-income housing development entities 41,059 33,303 Investment in limited partnerships 16,465 15,027 Prepaid expenses 5,425 4,269 Other assets 13,345 13,283 Total accrued interest receivable and other assets $ 103,707 $ 91,058 For the nine months ended September 30, 2024 and 2023, the Corporation amortized tax credit investments of $ 3.9 million and $ 2.9 million respectively, and recognized tax credits and other benefits for the nine months ended September 30, 2024 and 2023 of $ 5.0 million and $ 4.0 million , respectively, within the income tax expense line on the unaudited Consolidated Statements of Income. Note 8 — Deposits The composition of deposits is shown below. Average balances represent year-to-date averages. September 30, 2024 December 31, 2023 Balance Average Balance Average Rate Balance Average Balance Average Rate (Dollars in Thousands) Non-interest-bearing transaction accounts $ 428,012 $ 440,182 — % $ 445,376 $ 453,930 — % Interest-bearing transaction accounts 930,252 869,511 3.93 895,319 689,500 3.44 Money market accounts 817,129 809,593 4.05 711,245 681,336 3.25 Certificates of deposit 207,337 246,267 4.65 287,131 273,387 4.10 Wholesale deposits 587,217 488,543 4.08 457,708 346,285 4.14 Total deposits $ 2,969,947 $ 2,854,096 3.45 $ 2,796,779 $ 2,444,438 2.92 25 Table of Contents A summary of annual maturities of core and wholesale certificates of deposit at September 30, 2024 is as follows: (In Thousands) Maturities during the year ended December 31, 2024 $ 431,326 2025 92,189 2026 57,587 2027 73,517 2028 12,821 Thereafter 7,072 $ 674,512 Wholesale deposits include $ 467.2 million and $ 120.0 million of wholesale certificates of deposit and non-reciprocal interest-bearing transaction accounts, respectively, at September 30, 2024, compared to $ 407.7 million and $ 50.0 million of wholesale certificates of deposit and non-reciprocal interest-bearing transaction accounts, respectively, at December 31, 2023. The Corporation has entered into derivative contracts hedging a portion of the certificates of deposit included in the 2024 maturities above. As of September 30, 2024, the notional amount of derivatives designated as cash flow hedges totaled $ 431.3 million with a weighted average remaining maturity of 3.77 years and a weighted average rate of 3.83 % . Certificates of deposit and wholesale deposits denominated in amounts greater than $250,000 were $ 85.9 million at September 30, 2024 and $ 120.2 million at December 31, 2023 . Note 9 — FHLB Advances, Other Borrowings and Subordinated Notes and Debentures The composition of borrowed funds is shown below. Average balances represent year-to-date averages. September 30, 2024 December 31, 2023 Balance Weighted Average Balance Weighted Average Rate Balance Weighted Average Balance Weighted Average Rate (Dollars in Thousands) Federal funds purchased $ — $ 2 6.31 % $ — $ 3 5.37 % FHLB advances 294,450 286,454 2.68 281,500 351,990 2.52 Line of credit — 1,642 7.76 — 38 7.26 Other borrowings — 10 — 20 600 8.33 Subordinated notes and debentures 54,659 48,208 6.37 49,396 38,250 5.16 $ 349,109 $ 336,316 3.23 $ 330,916 $ 390,881 2.79 A summary of annual maturities of borrowings at September 30, 2024 is as follows: (In Thousands) Maturities during the year ended December 31, 2024 $ 116,000 2025 48,000 2026 65,000 2027 10,000 2028 10,450 Thereafter 99,659 $ 349,109 As of September 30, 2024 , the Corporation has no other borrowings. As of December 31, 2023, the Corporation had other borrowings of $ 20,000 , which consisted of sold tax credit investments accounted for as secured borrowings because they did not qualify for true sale accounting. The Corporation has entered into derivative contracts hedging a portion of the borrowings included in the 2024 maturities above. As of September 30, 2024, the notional amount of derivatives designated as cash flow hedges totaled $ 68.4 million with a weighted average remaining maturity of 2.55 years and a weighted average rate of 1.98 % . As of September 30, 2024 and December 31, 2023 , the Corporation was in compliance with its debt covenants under its third-party secured senior line of credit. On February 20, 2024, the credit line was renewed for one additional year with pricing terms of 1-month term SOFR + 2.36% and a maturity date of February 19, 2025 . 26 Table of Contents The Corporation issued new subordinated notes payable as of September 13, 2024. The aggregate principal amount of the newly issued subordinated notes payable was $ 20.0 million which qualified as Tier 2 capital. The subordinated notes payable bear a fixed interest rate of 7.5 % with a maturity date of September 13, 2034 . The Corporation may, at its option, redeem the notes payable, in whole or part, at anytime after the fifth anniversary of the issuance. As of August 15, 2024, the $ 15.0 million subordinated notes payable that bore a fixed interest rate of 5.5 % were redeemed, and the remaining unamortized debt issuance cost was accelerated due to the early redemption. As of September 30, 2024 , $ 341,000 of debt issuance costs remain in the subordinated note and debentures payable balance, of which $ 56,000 is related to the recently issued subordinated debentures. Note 10 — Preferred Stock On March 4, 2022, the Corporation issued 12,500 shares, or $ 12.5 million in aggregate liquidation preference, of 7.0 % Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A, par value $ 0.01 per share, with a liquidation preference of $ 1,000 per share (the “Series A Preferred Stock”) in a private placement to institutional investors. The net proceeds received from the issuance of the Series A Preferred Stock were $ 12.0 million. The Corporation expects to pay dividends on the Series A Preferred Stock when and if declared by the Board, at a fixed rate of 7.0 % per annum, payable quarterly, in arrears, on March 15, June 15, September 15 and December 15 of each year up to, but excluding, March 15, 2027. For each dividend period from and including March 15, 2027, dividends will be paid at a floating rate of Three-Month Term SOFR plus a spread of 539 basis points per annum. During the three and nine months ended September 30, 2024, the Board of Directors declared an aggregate preferred stock dividend of $ 218,000 and $ 656,000 , respectively. The Series A Preferred Stock is perpetual and has no stated maturity. The Corporation may redeem the Series A Preferred Stock at its option at a redemption price equal to $ 1,000 per share, plus any declared and unpaid dividends (without regard to any undeclared dividends), subject to regulatory approval, on or after March 15, 2027 or within 90 days following a regulatory capital treatment event, in accordance with the terms of the Series A Preferred Stock. Note 11 — Commitments and Contingencies In the normal course of business, various legal proceedings involving the Corporation are pending. Management, based upon advice from legal counsel, does not anticipate any significant losses as a result of these actions. Management believes that any liability arising from any such proceedings currently existing or threatened will not have a material adverse effect on the Corporation’s financial position, results of operations, and cash flows. The Corporation sells the guaranteed portions of SBA 7(a) and 504 loans, as well as participation interests in other, non-SBA originated, loans to third parties. The Corporation has a continuing involvement in each of the transferred lending arrangements by way of relationship management and servicing the loans, as well as being subject to normal and customary requirements of the SBA loan program and standard representations and warranties related to sold amounts. In the event of a loss resulting from default and a determination by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by the Corporation, the SBA may require the Corporation to repurchase the loan, deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of the principal loss related to the deficiency from the Corporation. The Corporation must comply with applicable SBA regulations in order to maintain the guaranty. In addition, the Corporation retains the option to repurchase the sold guaranteed portion of an SBA loan if the loan defaults. Management has assessed estimated losses inherent in the outstanding guaranteed portions of SBA loans sold in accordance with ASC 450, Contingencies , and determined a recourse reserve based on the probability of future losses for these loans to be $ 1.3 million at September 30, 2024, which is reported in accrued interest payable and other liabilities on the unaudited Consolidated Balance Sheets. The summary of the activity in the SBA recourse reserve is as follows: As of and for the Three Months Ended September 30, As of and for the Nine Months Ended September 30, 2024 2023 2024 2023 (In Thousands) Balance at the beginning of the period $ 906 $ 752 $ 955 $ 441 SBA recourse 466 242 583 565 Charge-offs, net ( 40 ) ( 11 ) ( 206 ) ( 23 ) Balance at the end of the period $ 1,332 $ 983 $ 1,332 $ 983 27 Table of Contents Note 12 — Fair Value Disclosures The Corporation determines the fair values of its financial instruments based on the fair value hierarchy established in ASC Topic 820, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Fair value is defined as the price that would be received in an orderly transaction that is not a forced liquidation or distressed sale at the measurement date and is based on exit prices. Fair value includes assumptions about risk, such as nonperformance risk in liability fair values, and is a market-based measurement, not an entity-specific measurement. The standard describes three levels of inputs that may be used to measure fair value. Level 1 — Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Corporation has the ability to access at the measurement date. Level 2 — Level 2 inputs are inputs, other than quoted prices included with Level 1, that are observable for the asset or liability either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 — Level 3 inputs are supported by little or no market activity and are significant to the fair value of the assets or liabilities. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Corporation’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Assets and liabilities measured at fair value on a recurring basis, segregated by fair value hierarchy level, are summarized below: September 30, 2024 Fair Value Measurements Using Level 1 Level 2 Level 3 Total (In Thousands) Assets: Securities available-for-sale: U.S. treasuries $ — $ 4,735 $ — $ 4,735 U.S. government agency securities - government-sponsored enterprises — 8,190 — 8,190 Municipal securities — 36,061 — 36,061 Residential mortgage-backed securities - government issued — 106,764 — 106,764 Residential mortgage-backed securities - government- sponsored enterprises — 126,353 — 126,353 Commercial mortgage-backed securities - government issued — 2,346 — 2,346 Commercial mortgage-backed securities - government- sponsored enterprises — 28,887 — 28,887 Interest rate swaps — 42,539 — 42,539 Liabilities: Interest rate swaps — 45,399 — 45,399 28 Table of Contents December 31, 2023 Fair Value Measurements Using Level 1 Level 2 Level 3 Total (In Thousands) Assets: Securities available-for-sale: U.S. treasuries $ — $ 13,776 $ — $ 13,776 U.S. government agency securities - government-sponsored enterprises — 27,566 — 27,566 Municipal securities — 35,881 — 35,881 Residential mortgage-backed securities - government issued — 68,056 — 68,056 Residential mortgage-backed securities - government- sponsored enterprises — 120,833 — 120,833 Commercial mortgage-backed securities - government issued — 2,525 — 2,525 Commercial mortgage-backed securities - government- sponsored enterprises — 28,369 — 28,369 Interest rate swaps — 55,597 — 55,597 Liabilities: Interest rate swaps — 51,949 — 51,949 For assets and liabilities measured at fair value on a recurring basis, there were no transfers between the levels during the three and nine months ended September 30, 2024 or the year ended December 31, 2023 related to the above measurements. Assets and liabilities measured at fair value on a no n-recurring basis, segregated by fair value hierarchy are summarized below: September 30, 2024 Fair Value Measurements Using Level 1 Level 2 Level 3 Total (In Thousands) Collateral-dependent loans $ — $ — $ 6,201 $ 6,201 Repossessed assets — — 56 56 Loan servicing rights — — 1,167 1,167 December 31, 2023 Fair Value Measurements Using Level 1 Level 2 Level 3 Total (In Thousands) Collateral-dependent loans $ — $ — $ 4,917 $ 4,917 Repossessed assets — — 247 247 Loan servicing rights — — 1,356 1,356 Collateral-dependent loans were written down to the fair value of their underlying collateral less costs to sell of $ 6.2 million and $ 4.9 million at September 30, 2024 and December 31, 2023 , respectively, through the establishment of specific reserves or by recording charge-offs when the carrying value exceeded the fair value of the underlying collateral of individually evaluated loans. Valuation techniques consistent with the market approach, income approach, or cost approach were used to measure fair value. These techniques included observable inputs for the collateral dependent loans being evaluated, such as current appraisals, recent sales of similar assets, or other observable market data, and u no bservable inputs, typically when discounts are applied to appraisal values to adjust such values to current market conditions or to reflect net realizable values. The quantification of unobservable inputs for Level 3 individually evaluated loan values range from 10 % - 100 % as of the measurement date of September 30, 2024. The weighted average of those unobservable inputs was 42 % . The majority of the individually evaluated loans are considered collateral dependent loans or are supported by an SBA guaranty. Repossessed assets are measured and reported at fair value through a charge-off to the allowance for credit losses, if deemed necessary. The fair value of a repossessed asset, upon initial recognition, is estimated using a market approach or based on observable market data, such as a current appraisal, recent sale price of similar assets, or based upon assumptions specific to the individual property or equipment, such as management applied discounts used to further reduce values to a net realizable value when observable inputs become stale. 29 Table of Contents Loan servicing rights represent the asset retained upon sale of the guaranteed portion of certain SBA loans. When SBA loans are sold, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. The servicing rights are subsequently measured using the amortization method, which requires amortization into interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. The Corporation periodically reviews this portfolio for impairment and engages a third-party valuation firm to assess the fair value of the overall servicing rights portfolio. Loan servicing rights do not trade in an active, open market with readily observable prices. While sales of loan servicing rights do occur, the precise terms and conditions typically are not readily available to allow for a “quoted price for similar assets” comparison. Accordingly, the Corporation utilizes an independent valuation from a third party which uses a discounted cash flow model to estimate the fair value of its loan servicing rights. The valuation model incorporates prepayment assumptions to project loan servicing rights cash flows based on the current interest rate scenario, which is then discounted to estimate an expected fair value of the loan servicing rights. The valuation model considers portfolio characteristics of the underlying serviced portion of the SBA loans and uses the following significant unobservable inputs: (1) constant prepayment rate (“CPR”) assumptions based on the SBA sold pools historical CPR as quoted in Bloomberg and (2) a discount rate. Due to the nature of the valuation inputs, loan servicing rights are classified in Level 3 of the fair value hierarchy. Fair Value of Financial Instruments The Corporation is required to disclose estimated fair values for its financial instruments. Fair value estimates, methods, and assumptions, consistent with exit price concepts for fair value measurements, are set forth below: September 30, 2024 Carrying Amount Fair Value Total Level 1 Level 2 Level 3 (In Thousands) Financial assets: Cash and cash equivalents $ 131,972 $ 131,972 $ 131,972 $ — $ — Securities available-for-sale 313,336 313,336 — 313,336 — Securities held-to-maturity 6,907 6,775 — 6,775 — Loans held for sale 8,173 8,827 — 8,827 — Loans and lease receivables, net 3,016,391 2,998,254 — — 2,998,254 Federal Home Loan Bank stock 12,775 N/A N/A N/A N/A Accrued interest receivable 12,906 12,906 12,906 — — Interest rate swaps 42,539 42,539 — 42,539 — Financial liabilities: Deposits 2,969,947 2,966,694 2,295,436 671,258 — Federal Home Loan Bank advances and other borrowings 349,109 344,004 — 344,004 — Accrued interest payable 10,820 10,820 10,820 — — Interest rate swaps 45,399 45,399 — 45,399 — Off-balance sheet items: Standby letters of credit 216 216 — — 216 30 Table of Contents N/A = The fair value is not applicable due to restrictions placed on transferability December 31, 2023 Carrying Amount Fair Value Total Level 1 Level 2 Level 3 (In Thousands) Financial assets: Cash and cash equivalents $ 139,510 $ 139,510 $ 139,510 $ — $ — Securities available-for-sale 297,006 297,006 — 297,006 — Securities held-to-maturity 8,503 8,255 — 8,255 — Loans held for sale 4,589 4,956 — 4,956 — Loans and lease receivables, net 2,818,986 2,789,731 — — 2,789,731 Federal Home Loan Bank stock 12,042 N/A N/A N/A N/A Accrued interest receivable 13,275 13,275 13,275 — — Interest rate swaps 55,597 55,597 — 55,597 — Financial liabilities: Deposits 2,796,779 2,795,463 2,101,939 693,524 — Federal Home Loan Bank advances and other borrowings 330,916 320,287 — 320,287 — Accrued interest payable 10,860 10,860 10,860 — — Interest rate swaps 51,949 51,949 — 51,949 — Off-balance sheet items: Standby letters of credit 190 190 — — 190 N/A = The fair value is not applicable due to restrictions placed on transferability Disclosure of fair value information about financial instruments, for which it is practicable to estimate that value, is required whether or not recognized in the unaudited Consolidated Balance Sheets. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Certain financial instruments and all non-financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not necessarily represent the underlying value of the Corporation. Securities: The fair value measurements of investment securities are determined by a third-party pricing service which considers observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, trade execution data, market consensus prepayment speeds, credit information, and the securities’ terms and conditions, among other things. The fair value measurements are subject to independent verification by another pricing source on a quarterly basis to review for reasonableness. Any significant differences in pricing are reviewed with appropriate members of management who have the relevant technical expertise to assess the results. The Corporation has determined that these valuations are classified in Level 2 of the fair value hierarchy. When the independent pricing service does not provide a fair value measurement for a particular security, the Corporation will estimate the fair value based on specific information about each security. Fair values derived in this manner are classified in Level 3 of the fair value hierarchy. Loans Held for Sale: Loans held for sale, which consist of the guaranteed portions of SBA 7(a) loans, are carried at the lower of cost or estimated fair value. The estimated fair value is based on what secondary markets are currently offering for portfolios with similar characteristics. Derivatives: The carrying amount and fair value of existing derivative financial instruments are based upon independent valuation models, which use widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative contract. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The Corporation incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Corporation considers the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. Limitations: Fair value estimates are made at a discrete point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the 31 Table of Contents Corporation’s entire holding of a particular financial instrument. Because no market exists for a significant portion of the Corporation’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and are not considered in the estimates. Note 13 — Derivative Financial Instruments The Corporation offers interest rate swap products directly to qualified commercial borrowers. The Corporation economically hedges client derivative transactions by entering into offsetting interest rate swap contracts executed with a third party. Derivative transactions executed as part of this program are not considered hedging instruments and are marked-to-market through earnings each period. The derivative contracts have mirror-image terms, which results in the positions’ changes in fair value offsetting through earnings each period. The credit risk and risk of non-performance embedded in the fair value calculations is different between the dealer counterparties and the commercial borrowers which may result in a difference in the changes in the fair value of the mirror-image swaps. The Corporation incorporates credit valuation adjustments to appropriately reflect both its own non-performance risk and the counterparty’s risk in the fair value measurements. When evaluating the fair value of its derivative contracts for the effects of non-performance and credit risk, the Corporation considered the impact of netting and any applicable credit enhancements such as collateral postings, thresholds, and guarantees. As of September 30, 2024 and December 31, 2023, the credit valuation allowance was $ 38,000 and $ 117,000 , respectively. The Corporation receives fixed rates and pays floating rates based upon designated benchmark interest rates used on the swaps with commercial borrowers. Commercial borrower swaps are completed independently with each borrower and are not subject to master netting arrangements. The Corporation pays fixed rates and receives floating rates based upon designated benchmark interest rates used on the swaps with dealer counterparties. Dealer counterparty swaps are subject to master netting agreements among the contracts within our Bank and are reported on the unaudited Consolidated Balance Sheet. The gross amount of dealer counterparty swaps, without regard to the enforceable master netting agreement, was a gross derivative asset of $ 39.8 million and gross derivative liability of $ 11.4 million as of September 30, 2024. All changes in fair value of these instruments are recorded in other non-interest income. Given the mirror-image terms of the outstanding derivative portfolio, the change in fair value for the three and nine months ended September 30, 2024 and 2023 had an insignificant impact on the unaudited Consolidated Statements of Income. The Corporation also enters into interest rate swaps to manage interest rate risk and reduce the cost of match-funding certain long-term fixed rate loans. These derivative contracts involve the receipt of floating rate interest from a counterparty in exchange for the Corporation making fixed-rate payments over the life of the agreement, without the exchange of the underlying notional value. The instruments are designated as cash flow hedges as the receipt of floating rate interest from the counterparty is used to manage interest rate risk related to cash outflows attributable to future wholesale deposit or short-term FHLB advance borrowings. The change in the fair value of these hedging instruments is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged transactions affect earnings. A pre-tax unrealized loss of $ 11.6 million and $ 6.5 million was recognized in other comprehensive income for the three and nine months ended September 30, 2024 , respectively, and there were no ineffective portions of the hedges. A pre-tax unrealized gain of $ 5.3 million and $ 7.5 million was recognized in other comprehensive income for the three and nine months ended September 30, 2023 , respectively, and there were no ineffective portions of the hedges. The Corporation also enters into interest rate swaps to mitigate market value volatility on certain long-term fixed securities. The objective of the hedge is to protect the Corporation against changes in fair value due to changes in benchmark interest rates. The instruments are designated as fair value hedges as the changes in the fair value of the interest rate swap are expected to offset changes in the fair value of the hedged item attributable to changes in the SOFR swap rate, the designated benchmark interest rate. These derivative contracts involve the receipt of floating rate interest from a counterparty in exchange for the Corporation making fixed-rate payments over the life of the agreement, without the exchange of the underlying notional value. The change in the fair value of these 32 Table of Contents hedging instruments is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged transactions affect earnings. A pre-tax unrealized loss of $ 246,000 and $ 24,000 was recognized in other comprehensive income for the three and nine months ended September 30, 2024 , respectively, and there was no ineffective portion of these hedges. A pre-tax unrealized gain of $ 421,000 and $ 353,000 was recognized in other comprehensive income for the three and nine months ended September 30, 2023 , respectively, and there was no ineffective portion of these hedges. As of September 30, 2024 Number of Instruments Notional Amount Weighted Average Maturity (In Years) Fair Value (Dollars in Thousands) Included in Derivative assets Derivatives not designated as hedging instruments Interest rate swap agreements on loans with commercial loan clients 33 $ 377,041 5.12 $ 11,352 Interest rate swap agreements on loans with third-party counterparties 106 975,845 5.49 28,444 Derivatives designated as hedging instruments Interest rate swap related to AFS securities 11 $ 12,500 7.53 $ 601 Interest rate swap related to wholesale funding 6 68,400 2.55 2,142 Included in Derivative liabilities Derivatives not designated as hedging instruments Interest rate swap agreements on loans with commercial loan clients 73 $ 598,803 5.73 $ 39,796 Derivatives designated as hedging instruments Interest rate swap related to wholesale funding 41 $ 431,255 3.77 $ 5,603 As of December 31, 2023 Number of Instruments Notional Amount Weighted Average Maturity (In Years) Fair Value (Dollars in Thousands) Included in Derivative assets Derivatives not designated as hedging instruments Interest rate swap agreements on loans with commercial loan clients 25 $ 249,454 6.33 $ 7,904 Interest rate swap agreements on loans with third-party counter parties 106 939,156 6.06 43,234 Derivatives designated as hedging instruments Interest rate swap related to AFS securities 11 $ 12,500 8.28 $ 624 Interest rate swap related to wholesale funding 9 96,400 2.47 3,835 Included in Derivative liabilities Derivatives not designated as hedging instruments Interest rate swap agreements on loans with commercial loan clients 81 $ 689,702 5.96 $ 51,138 Derivatives designated as hedging instruments Interest rate swap related to wholesale funding 29 $ 306,255 3.89 $ 811 Note 14 — Regulatory Capital The Corporation and the Bank are subject to various regulatory capital requirements administered by Federal and Wisconsin banking agencies. Failure to meet minimum capital requirements can result in certain mandatory, and possibly additional discretionary actions on the part of regulators, that if undertaken, could have a direct material effect on the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory practices. The Corporation’s and the Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. The Corporation regularly reviews and updates, when appropriate, its capital and liquidity action plans, which is designed to help ensure appropriate capital adequacy, to plan for future capital needs, and to ensure that the Corporation serves as a source of financial strength to the Bank. The 33 Table of Contents Corporation’s and the Bank’s Board and management teams adhere to the appropriate regulatory guidelines on decisions which affect their respective capital positions, including but not limited to, decisions relating to the payment of dividends and increasing indebtedness. As a bank holding company, the Corporation’s ability to pay dividends is affected by the policies and enforcement powers of the Board of Governors of the Federal Reserve system (the “Federal Reserve”). Federal Reserve guidance urges financial institutions to strongly consider eliminating, deferring, or significantly reducing dividends if: (i) net income available to common shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividend; (ii) the prospective rate of earnings retention is not consistent with the bank holding company’s capital needs and overall current and prospective financial condition; or (iii) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital ratios. Management intends, when appropriate under regulatory guidelines, to consult with the Federal Reserve Bank (“FRB”) of Chicago and provide it with information on the Corporation’s then-current and prospective earnings and capital position in advance of declaring any cash dividends. As a Wisconsin corporation, the Corporation is subject to the limitations of the Wisconsin Business Corporation Law, which prohibit the Corporation from paying dividends if such payment would: (i) render the Corporation unable to pay its debts as they become due in the usual course of business, or (ii) result in the Corporation’s assets being less than the sum of its total liabilities plus the amount needed to satisfy the preferential rights upon dissolution of any shareholders with preferential rights superior to those shareholders receiving the dividend. The Bank is also subject to certain legal, regulatory, and other restrictions on their ability to pay dividends to the Corporation. As a bank holding company, the payment of dividends by the Bank to the Corporation is one of the sources of funds the Corporation could use to pay dividends, if any, in the future and to make other payments. Future dividend decisions by the Bank and the Corporation will continue to be subject to compliance with various legal, regulatory, and other restrictions as defined from time to time. Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios of Total Common Equity Tier 1 and Tier 1 capital to risk-weighted assets and of Tier 1 capital to adjusted total assets. These risk-based capital requirements presently address credit risk related to both recorded and off-balance sheet commitments and obligations. As of September 30, 2024 , the Corporation’s capital levels exceeded the regulatory minimums and the Bank’s capital levels remained characterized as well capitalized under the regulatory framework. The following tables summarize both the Corporation’s and the Bank’s capital ratios and the ratios required by their federal regulators: As of September 30, 2024 Actual (1) Minimum Required for Capital Adequacy Purposes For Capital Adequacy Purposes Plus Capital Conservation Buffer Minimum Required to Be Well Capitalized Under Prompt Corrective Action Requirements Amount Ratio Amount Ratio Amount Ratio Amount Ratio (Dollars in Thousands) Total capital (to risk-weighted assets) Consolidated $ 407,421 11.72 % $ 278,219 8.00 % $ 365,162 10.50 % N/A N/A First Business Bank 402,567 11.57 278,257 8.00 365,212 10.50 $ 347,821 10.00 % Tier 1 capital (to risk-weighted assets) Consolidated $ 316,792 9.11 % $ 208,664 6.00 % $ 295,607 8.50 % N/A N/A First Business Bank 366,597 10.54 208,692 6.00 295,648 8.50 $ 278,257 8.00 % Common equity tier 1 capital (to risk-weighted assets) Consolidated $ 304,800 8.76 % $ 156,498 4.50 % $ 243,441 7.00 % N/A N/A First Business Bank 366,597 10.54 156,519 4.50 243,474 7.00 $ 226,083 6.50 % Tier 1 leverage capital (to adjusted assets) Consolidated $ 316,792 8.68 % $ 145,944 4.00 % $ 145,944 4.00 % N/A N/A First Business Bank 366,597 10.05 145,914 4.00 145,914 4.00 $ 182,393 5.00 % 34 Table of Contents As of December 31, 2023 Actual (1) Minimum Required for Capital Adequacy Purposes For Capital Adequacy Purposes Plus Capital Conservation Buffer Minimum Required to Be Well Capitalized Under Prompt Corrective Action Requirements Amount Ratio Amount Ratio Amount Ratio Amount Ratio (Dollars in Thousands) Total capital (to risk-weighted assets) Consolidated $ 375,440 11.19 % $ 268,500 8.00 % $ 352,406 10.50 % N/A N/A First Business Bank 376,310 11.21 268,595 8.00 352,531 10.50 $ 335,744 10.00 % Tier 1 capital (to risk-weighted assets) Consolidated $ 293,338 8.74 % $ 201,375 6.00 % $ 285,281 8.50 % N/A N/A First Business Bank 343,604 10.23 201,446 6.00 285,382 8.50 $ 268,595 8.00 % Common equity tier 1 capital (to risk-weighted assets) Consolidated $ 281,346 8.38 % $ 151,031 4.50 % $ 234,937 7.00 % N/A N/A First Business Bank 343,604 10.23 151,085 4.50 235,021 7.00 $ 218,233 6.50 % Tier 1 leverage capital (to adjusted assets) Consolidated $ 293,338 8.43 % $ 139,145 4.00 % $ 139,145 4.00 % N/A N/A First Business Bank 343,604 9.87 139,262 4.00 139,262 4.00 $ 174,077 5.00 % (1) 2024 and 2023 capital amounts include $677,000 and $1.0 million, respectively, of additional stockholders’ equity as elected by the Corporation and permitted by federal banking regulatory agencies related to the adoption of ASC 326. Risk-weighted assets were also adjusted accordingly. 35 Table of Contents