FIRST BUSINESS FINANCIAL SERVICES, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations General Unless otherwise indicated or unless the context requires otherwise, all references in this Report to the “Corporation,” “we,” “us,” “our,” or similar references mean First Business Financial Services, Inc. together with our subsidiary. “FBB” or the “Bank” refers to our subsidiary, First Business Bank. Forward-Looking Statements This report may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which reflect our current views with respect to future events and financial performance. Forward-looking statements are not based on historical information, but rather are related to future operations, strategies, financial results, or other developments. Forward-looking statements are based on management’s expectations as well as certain assumptions and estimates made by, and information available to, management at the time the statements are made. Such statements are subject to risks and uncertainties, including among other things: • Adverse changes in the economy or business conditions, either nationally or in our markets including, without limitation, inflation, economic downturn, labor shortages, wage pressures, and the adverse effects of public health events on the global, national, and local economy. • Competitive pressures among depository and other financial institutions nationally and in our markets. • Increases in defaults by borrowers and other delinquencies. • Our ability to manage growth effectively, including the successful expansion of our client support, administrative infrastructure, and internal management systems. • Fluctuations in interest rates and market prices. • Changes in legislative or regulatory requirements applicable to us and our subsidiaries. • Changes in tax requirements, including tax rate changes, new tax laws, and revised tax law interpretations. • Fraud, including client and system failure or breaches of our network security, including our internet banking activities. • Failure to comply with the applicable SBA regulations in order to maintain the eligibility of the guaranteed portions of SBA loans. • Ongoing volatility in the banking sector may result in new legislation, regulations or policy changes that could subject the Corporation and the Bank to increased government regulation and supervision. • The proportion of the Corporation’s deposit account balances that exceed FDIC insurance limits may expose the Bank to enhanced liquidity risk. • The Corporation may be subject to increases in FDIC insurance assessments. These risks could cause actual results to differ materially from what we have anticipated or projected. These risk factors and uncertainties should be carefully considered by our shareholders and potential investors. See Part I, Item 1A — Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023, and in this report, below, for discussion relating to risk factors impacting us. Investors should not place undue reliance on any such forward-looking statements, which speak only as of the date made. These factors could affect our financial performance and could cause actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods. Where any such forward-looking statement includes a statement of the assumptions or bases underlying such forward-looking statement, we caution that, while our management believes such assumptions or bases are reasonable and are made in good faith, assumed facts or bases can vary from actual results, and the differences between assumed facts or bases and actual results can be material, depending on the circumstances. Where, in any forward-looking statement, an expectation or belief is expressed as to future 36 Table of Contents results, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will be achieved or accomplished. We do not intend to, and specifically disclaim any obligation to, update any forward-looking statements. The following discussion and analysis is intended as a review of significant events and factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with the unaudited Consolidated Financial Statements and the Notes thereto presented in this Form 10-Q. Overview We are a registered bank holding company incorporated under the laws of the State of Wisconsin and are engaged in the commercial banking business through our wholly-owned banking subsidiary, FBB. All of our operations are conducted through FBB and First Business Specialty Finance, LLC (“FBSF”), a wholly-owned subsidiary of FBB. We operate as a business bank focusing on delivering a full line of commercial banking products and services tailored to meet the specific needs of small and medium-sized businesses, business owners, executives, professionals, and high net worth individuals. Our products and services include those for business banking, private wealth, and bank consulting. Within business banking, we offer commercial lending, asset-based lending, accounts receivable financing, equipment financing, floorplan financing, vendor financing, SBA lending and servicing, treasury management services, and company retirement plans. Our private wealth management services include trust and estate administration, financial planning, investment management, and private banking for executives and owners of our business banking clients and others. Our bank consulting experts provide investment portfolio administrative services, asset liability management services, and asset liability management process validation for other financial institutions. We do not utilize a branch network to attract retail clients. Our operating model is predicated on deep client relationships, financial expertise, and an efficient, centralized administration function delivering best in class client satisfaction. Our focused model allows experienced staff to provide the level of financial expertise needed to develop and maintain long-term relationships with our clients. Financial Performance Summary Results as of and for the three and nine months ended September 30, 2024 include: • Net income available to common shareholders totaled $10.3 million, or diluted earnings per share of $1.24, for the three months ended September 30, 2024, compared to $9.7 million, or diluted earnings per share of $1.17, for the same period in 2023. Net income available to common shareholders totaled $29.2 million, or diluted earnings per share of $3.50, for the nine months ended September 30, 2024, compared to $26.6 million, or diluted earnings per share of $3.19, for the same period in 2023. • Annualized return on average assets (“ROAA”) for the three months ended September 30, 2024 measured 1.13% compared to 1.19% for the same period in 2023. Annualized ROAA for the nine months ended September 30, 2024 measured 1.08% compared to 1.13% for the same period in 2023. • Return on average common equity (“ROACE”) is defined as net income available to common shareholders divided by average equity less average preferred stock. ROACE was 13.83% for the three months ended September 30, 2024, compared to 14.62% for the same period in 2023. ROACE was 13.41% for the nine months ended September 30, 2024, compared to 13.72% for the same period in 2023. • Pre-tax, pre-provision (“PTPP”) adjusted earnings, which excludes certain one-time and discrete items, and PTPP ROAA for the three months ended September 30, 2024 were $15.4 million and 1.70%, respectively, compared to $14.1 million and 1.72% in the same period in 2023. PTPP and PTPP ROAA for the nine months ended September 30, 2024 were $42.7 million and 1.59%, respectively, compared to $40.9 million and 1.74% in the same period in 2023. • Fees in lieu of interest, defined as prepayment fees, asset-based loan fees, non-accrual interest, and loan fee amortization, totaled $942,000 for the three months ended September 30, 2024, compared to $582,000 for the same period in 2023. Fees in lieu of interest totaled $3.0 million for the nine months ended September 30, 2024, compared to $2.2 million for the same period in 2023. • Net interest margin was 3.64% for the three months ended September 30, 2024 compared to 3.76% for the same period in 2023. Adjusted net interest margin, which excludes the impact of fees in lieu of interest, and other recurring, but volatile, components of net interest margin, was 3.51% for the three months ended September 30, 2024, compared to 3.66% for the 37 Table of Contents same period in 2023. Net interest margin was 3.62% for the nine months ended September 30, 2024 compared to 3.81% for the same period in 2023. Adjusted net interest margin, which excludes certain one-time and volatile items including fees in lieu of interest, was 3.47% for the nine months ended September 30, 2024, compared to 3.68% for the same period in 2023. • Top line revenue, defined as net interest income plus non-interest income, totaled $38.1 million for the three months ended September 30, 2024, compared to $37.0 million in the same period in 2023. Top line revenue totaled $112.3 million for the nine months ended September 30, 2024, compared to $107.3 million in the same period in 2023. • Effective tax rate, including the benefit from Low-Income Housing Tax Credits, was 16.8% for the nine months ended September 30, 2024 compared to 21.4% for the same period in 2023. • Provision for credit loss expense was $2.1 million for the three months ended September 30, 2024 compared to $1.8 million for the same period in 2023. Provision for credit loss expense was $6.1 million for the nine months ended September 30, 2024 compared to $5.6 million for the same period in 2023. • Total assets at September 30, 2024 increased $207.9 million, or 7.9% annualized, to $3.716 billion from $3.508 billion at December 31, 2023. • Period-end gross loans and leases receivable increased $200.3 million, or 9.4% annualized, to $3.050 billion as of September 30, 2024 compared to $2.850 billion as of December 31, 2023. Average gross loans and leases of $2.961 billion increased $368.1 million, or 14.2%, for the nine months ended September 30, 2024, compared to $2.593 billion for the same period in 2023. • Non-performing assets were $19.4 million and 0.52% of total assets as of September 30, 2024, compared to $20.8 million and 0.59% of total assets as of December 31, 2023. • The allowance for credit losses, including reserve for unfunded credit commitments, increased $2.5 million compared to December 31, 2023. The allowance for credit losses, including reserve for unfunded credit commitments, was 1.16% of total loans, compared to 1.16% at December 31, 2023. • Period-end core deposits at September 30, 2024 increased $43.7 million, or 2.5% annualized, to $2.383 billion from $2.339 billion as of December 31, 2023. Average core deposits of $2.366 billion increased $317.8 million, or 15.5%, for the nine months ended September 30, 2024, compared to $2.048 billion for the same period in 2023. • Private wealth and trust assets under management and administration increased by $276.4 million, or 11.1% annualized, to $3.398 billion at September 30, 2024, compared to $3.122 billion at December 31, 2023. Private wealth trust assets under management and administration increased $483.3 million, or 16.6%, compared to the same period in 2023. 38 Table of Contents Results of Operations Top Line Revenue Top line revenue, comprised of net interest income and non-interest income, increased $1.0 million, or 2.8%, for the three months ended September 30, 2024, compared to the same period in 2023, due to a 8.4% increase in net interest income, partially offset by a 16.2% decrease in non-interest income. The increase in net interest income primarily reflects an increase in average gross loans and leases and an increase in fees in lieu of interest, partially offset by net interest margin compression. The decrease in non-interest income was due to decreases in returns on investments in Small Business Investment Company ("SBIC") mezzanine funds, commercial loan swap fee income, and gains on the sale of SBA loans. Top line revenue increased $5.0 million, or 4.7%, for the nine months ended September 30, 2024, compared to the same period in 2023, due to a 9.6% increase in net interest income partially offset by a 12.3% decrease in non-interest income. The increase in net interest income was driven by an increase in average loans and leases outstanding. The decrease in non-interest income was due to decreases in returns on investments in SBIC mezzanine funds, commercial loan swap fee income, and gains on the sale of SBA loans; partially offset by increases in Private wealth fee income. The components of top line revenue were as follows: For the Three Months Ended September 30, For the Nine Months Ended September 30, 2024 2023 $ Change % Change 2024 2023 $ Change % Change (Dollars in Thousands) Net interest income $ 31,007 $ 28,596 $ 2,411 8.4 % $ 91,059 $ 83,049 $ 8,010 9.6 % Non-interest income 7,064 8,430 (1,366 ) (16.2 ) 21,246 24,214 (2,968 ) (12.3 ) Top line revenue $ 38,071 $ 37,026 $ 1,045 2.8 $ 112,305 $ 107,263 $ 5,042 4.7 Annualized Return on Average Assets (“ROAA”) and Annualized Return on Average Common Equity (“ROACE”) ROAA for the three and nine months ended September 30, 2024 was 1.13% and 1.08%, respectively, compared to 1.19% and 1.13% for the three and nine months ended September 30, 2023. The decrease in ROAA for the three and the nine months ended was due to the decrease in non-interest income, partially offset by an increase in net interest income and decrease in the effective tax rate. We consider ROAA a critical metric to measure the profitability of our organization and how efficiently our assets are deployed. ROAA also allows us to better benchmark our profitability to our peers without the need to consider different degrees of leverage which can ultimately influence return on equity measures. ROACE for the three and nine months ended September 30, 2024 was 13.8% and 13.4% respectively, compared to 14.6% and 13.7% for the three and nine months ended September 30, 2023. The reasons for the change in ROACE are consistent with the net income variance explanation as discussed under ROAA above. We view ROACE as an important measurement for monitoring profitability and continue to focus on improving our return to our shareholders by enhancing the overall profitability of our client relationships, controlling our expenses, and minimizing our costs of credit. Efficiency Ratio and Pre-Tax, Pre-Provision Adjusted Earnings Efficiency ratio measured 59.4% and 62.0% for the three and nine months ended September 30, 2024, compared to 62.0% and 61.9% for the three and nine months ended September 30, 2023, respectively. For the three month period comparison, the percentage increase in top line revenue exceeded the percentage increase in operating expenses, resulting in positive quarterly operating leverage. Revenue increased for the reasons stated above in the Top Line Revenue section, while operating expenses remained relatively consistent in the periods of comparison. For the nine month period comparison, the efficiency ratio was relatively consistent as revenue and expenses grew commensurately. Efficiency ratio is a non-GAAP measure representing operating expense, which is non-interest expense excluding the effects of the SBA recourse benefit or provision, net gains or losses on repossessed assets, amortization of other intangible assets, and other discrete items, if any, divided by operating revenue, which is equal to net interest income plus non-interest income less realized net gains or losses on securities, if any. 39 Table of Contents PTPP adjusted earnings for three and nine months ended September 30, 2024 were $15.4 million and $42.7 million, respectively, compared to $14.1 million and $40.9 million for the three and nine months ended September 30, 2023, respectively. PTPP adjusted earnings is defined as operating revenue less operating expense. The increase in PTPP adjusted earnings for both periods was primarily driven by an increase in net interest income partially offset by a decrease in non-interest income. In the judgment of the Corporation’s management, the adjustments made to non-interest expense and non-interest income allow investors and analysts to better assess the Corporation’s operating expenses in relation to its core operating revenue by removing the volatility associated with certain one-time items and other discrete items. PTPP adjusted earnings allows management to benchmark performance of our model to our peers without the influence of the provision for credit losses and tax considerations, which will ultimately influence other traditional financial measurements, including ROAA and ROACE. The information provided below reconciles the efficiency ratio to its most comparable GAAP measure. Please refer to the Non-Interest Income and Non-Interest Expense sections below for discussion on additional drivers of the year-over-year change in the efficiency ratio and PTPP adjusted earnings. For the Three Months Ended September 30, For the Nine Months Ended September 30, 2024 2023 $ Change % Change 2024 2023 $ Change % Change (Dollars in Thousands) Total non-interest expense $23,107 $23,189 $(82) (0.4)% $70,329 $66,987 $3,342 5.0% Less: Net (gain) loss on repossessed assets 11 4 7 NM 162 8 154 NM SBA recourse provision 466 242 224 NM 583 565 18 NM Total operating expense (a) $22,630 $22,943 $(313) (1.4) $69,584 $66,414 $3,170 4.8 Net interest income $31,007 $28,596 $2,411 8.4 $91,059 $83,049 $8,010 9.6 Total non-interest income 7,064 8,430 (1,366) (16.2) 21,246 24,214 (2,968) (12.3) Less: Net loss on sale of securities — — — NM (8) (45) 37 NM Adjusted non-interest income 7,064 8,430 (1,366) (16.2) 21,254 24,259 (3,005) (12.4) Operating revenue (b) $38,071 $37,026 $1,045 2.8 $112,313 $107,308 $5,005 4.7 Efficiency ratio 59.44% 61.96% 61.96% 61.89% Pre-tax, pre-provision adjusted earnings (b-a) $15,441 $14,083 $1,358 9.6 $42,729 $40,894 $1,835 4.5 Average total assets $3,636,887 $3,276,240 $360,647 11.0 $3,585,868 $3,130,426 $455,442 14.5 Pre-tax, pre-provision adjusted return on average assets 1.70% 1.72% 1.59% 1.74% The Corporation's atypically high net interest margin in 2023 creates a temporary, positive operating leverage headwind as net interest margin returns to normalized levels in 2024. We believe the Corporation will generate positive operating leverage on an annual basis and progress towards enhancing the long-term efficiency ratio at a measured pace as we focus on strategic initiatives directed toward revenue growth, process improvement, and automation. Net Interest Income Net interest income levels depend on the amount of and yield on interest-earning assets as compared to the amount of and rate paid on interest-bearing liabilities. Net interest income is sensitive to changes in market rates of interest and the asset/liability management processes to prepare for and respond to such changes. 40 Table of Contents The following table provides information with respect to (1) the change in net interest income attributable to changes in rate (changes in rate multiplied by prior volume) and (2) the change in net interest income attributable to changes in volume (changes in volume multiplied by prior rate) for the three and nine months ended September 30, 2024 compared to the same period in 2023. The change in net interest income attributable to changes in rate and volume (changes in rate multiplied by changes in volume) has been allocated to the rate and volume changes in proportion to the relationship of the absolute dollar amounts of the change in each. Increase (Decrease) for the Three Months Ended September 30, Increase (Decrease) for the Nine Months Ended September 30, 2024 Compared to 2023 2024 Compared to 2023 Rate Volume Net Rate Volume Net (In Thousands) (In Thousands) Interest-earning assets Commercial real estate and other mortgage loans (1) $ 1,414 $ 3,303 $ 4,717 $ 6,791 $ 9,957 $ 16,748 Commercial and industrial loans (1) 406 2,440 2,846 2,117 9,744 11,861 Consumer and other loans (1) 36 39 75 270 106 376 Total loans and leases receivable 1,856 5,782 7,638 9,178 19,807 28,985 Mortgage-related securities 375 606 981 1,481 1,694 3,175 Other investment securities (92 ) (110 ) (202 ) 75 (28 ) 47 FHLB and FRB Stock 145 (183 ) (38 ) 205 (298 ) (93 ) Short-term investments 6 1 7 146 593 739 Total net change in income on interest-earning assets 2,290 6,096 8,386 11,085 21,768 32,853 Interest-bearing liabilities Transaction accounts 390 1,287 1,677 3,719 5,846 9,565 Money market accounts 1,006 1,903 2,909 5,875 3,750 9,625 Certificates of deposit 318 (720 ) (402 ) 1,347 (799 ) 548 Wholesale deposits 58 1,245 1,303 (148 ) 5,438 5,290 Total deposits 1,772 3,715 5,487 10,793 14,235 25,028 FHLB advances 1,593 (1,651 ) (58 ) 561 (1,841 ) (1,280 ) Other borrowings 302 244 546 462 633 1,095 Total net change in expense on interest-bearing liabilities 3,667 2,308 5,975 11,816 13,027 24,843 Net change in net interest income $ (1,377 ) $ 3,788 $ 2,411 $ (731 ) $ 8,741 $ 8,010 (1) The average balances of loans and leases include non-accrual loans and leases and loans held for sale. 41 Table of Contents The tables below show our average balances, interest, average yields/rates, net interest margin, and the spread between the combined average yields earned on interest-earning assets and average rates on interest-bearing liabilities for the three and nine months ended September 30, 2024 and 2023. The average balances are derived from average daily balances. For the Three Months Ended September 30, 2024 2023 Average Balance Interest Average Yield/Rate (4) Average Balance Interest Average Yield/Rate (4) (Dollars in Thousands) Interest-earning assets Commercial real estate and other mortgage loans (1) $ 1,805,020 $ 30,340 6.72 % $ 1,605,464 $ 25,623 6.38 % Commercial and industrial loans (1) 1,177,112 24,481 8.32 1,059,512 21,635 8.17 Consumer and other loans (1) 49,748 685 5.51 46,875 610 5.21 Total loans and leases receivable (1) 3,031,880 55,506 7.32 2,711,851 47,868 7.06 Mortgage-related securities (2) 269,842 2,662 3.95 204,291 1,681 3.29 Other investment securities (3) 51,446 315 2.45 67,546 517 3.06 FHLB and FRB stock 11,960 285 9.53 14,770 323 8.75 Short-term investments 40,406 559 5.53 40,318 552 5.48 Total interest-earning assets 3,405,534 59,327 6.97 3,038,776 50,941 6.71 Non-interest-earning assets 231,353 237,464 Total assets $ 3,636,887 $ 3,276,240 Interest-bearing liabilities Transaction accounts $ 864,936 8,451 3.91 $ 731,529 6,774 3.70 Money market accounts 850,590 8,780 4.13 657,183 5,871 3.57 Certificates of deposit 219,315 2,584 4.71 282,674 2,986 4.23 Wholesale deposits 531,472 5,475 4.12 410,494 4,172 4.07 Total interest-bearing deposits 2,466,313 25,290 4.10 2,081,880 19,803 3.80 FHLB advances 278,103 2,059 2.96 342,117 2,117 2.48 Other borrowings 50,642 971 7.67 34,745 425 4.89 Total interest-bearing liabilities 2,795,058 28,320 4.05 2,458,742 22,345 3.64 Non-interest-bearing demand deposit accounts 440,161 434,330 Other non-interest-bearing liabilities 91,520 105,079 Total liabilities 3,326,739 2,998,151 Stockholders’ equity 310,148 278,089 Total liabilities and stockholders’ equity $ 3,636,887 $ 3,276,240 Net interest income $ 31,007 $ 28,596 Interest rate spread 2.92 % 3.07 % Net interest-earning assets $ 610,476 $ 580,034 Net interest margin 3.64 % 3.76 % Average interest-earning assets to average interest-bearing liabilities 121.84 % 123.59 % Return on average assets (4) 1.13 % 1.19 % Return on average common equity (4) 13.83 % 14.62 % Average equity to average assets 8.53 % 8.49 % Non-interest expense to average assets (4) 2.54 % 2.83 % 42 Table of Contents For the Nine Months Ended September 30, 2024 2023 Average Balance Interest Average Yield/Rate (4) Average Balance Interest Average Yield/Rate (4) (Dollars in Thousands) Interest-earning assets Commercial real estate and other mortgage loans (1) $ 1,764,133 $ 87,759 6.63 % $ 1,556,988 $ 71,011 6.08 % Commercial and industrial loans (1) 1,146,495 71,074 8.27 988,359 59,213 7.99 Consumer and other loans (1) 50,386 2,114 5.59 47,594 1,738 4.87 Total loans and leases receivable (1) 2,961,014 160,947 7.25 2,592,941 131,962 6.79 Mortgage-related securities (2) 257,914 7,547 3.90 193,196 4,372 3.02 Other investment securities (3) 60,037 1,276 2.83 61,396 1,229 2.67 FHLB and FRB stock 12,294 859 9.32 15,904 952 7.98 Short-term investments 58,040 2,391 5.49 43,437 1,652 5.07 Total interest-earning assets 3,349,299 173,020 6.89 2,906,874 140,167 6.43 Non-interest-earning assets 236,569 223,552 Total assets $ 3,585,868 $ 3,130,426 Interest-bearing liabilities Transaction accounts $ 869,511 25,635 3.93 $ 657,155 16,070 3.26 Money market accounts 809,593 24,609 4.05 663,284 14,984 3.01 Certificates of deposit 246,267 8,597 4.65 271,684 8,049 3.95 Wholesale deposits 488,543 14,961 4.08 311,038 9,671 4.14 Total interest-bearing deposits 2,413,914 73,802 4.08 1,903,161 48,774 3.42 FHLB advances 286,454 5,750 2.68 368,913 7,030 2.54 Other borrowings 49,863 2,409 6.44 35,351 1,314 4.96 Total interest-bearing liabilities 2,750,231 81,961 3.97 2,307,425 57,118 3.30 Non-interest-bearing demand deposit accounts 440,182 455,653 Other non-interest-bearing liabilities 93,430 96,883 Total liabilities 3,283,843 2,859,961 Stockholders’ equity 302,025 270,465 Total liabilities and stockholders’ equity $ 3,585,868 $ 3,130,426 Net interest income $ 91,059 $ 83,049 Interest rate spread 2.91 % 3.13 % Net interest-earning assets $ 599,068 $ 599,449 Net interest margin 3.62 % 3.81 % Average interest-earning assets to average interest-bearing liabilities 121.78 % 125.98 % Return on average assets (4) 1.08 % 1.13 % Return on average common equity (4) 13.41 % 13.72 % Average equity to average assets 8.42 % 8.64 % Non-interest expense to average assets (4) 2.62 % 2.85 % (1) The average balances of loans and leases include non-accrual loans and leases and loans held for sale. Interest income related to non-accrual loans and leases is recognized when collected. Interest income includes net loan fees in lieu of interest. (2) Includes amortized cost basis of assets available-for-sale and held-to-maturity. (3) Yields on tax-exempt municipal securities are not presented on a tax-equivalent basis in this table. (4) Represents annualized yields/rates. Comparison of Net Interest Income for the Three and Nine Months Ended September 30, 2024 and 2023 Net interest income increased $2.4 million, or 8.4%, and $8.0 million, or 9.6% during the three and nine months ended September 30, 2024, compared to the three and nine months ended September 30, 2023. The increase in net interest income reflected an increase in average gross loans and leases and an increase in fees in lieu of interest, partially offset by net interest margin compression. Fees in lieu of interest, which vary from quarter to quarter, totaled $942,000 and $3.0 million for the three and nine months ended September 30, 2024, compared to $582,000 and $2.2 million for the same periods in 2023. Excluding fees in lieu of interest, net interest income for the three and nine months ended September 30, 2024 increased $2.1 million, or 7.32%, and $7.2 million, or 8.92%, respectively. Average gross loans and leases for the three and nine months ended September 30, 2024 increased 43 Table of Contents $320.0 million, or 11.8%, and $368.1 million, or 14.2%, respectively, compared to the three and nine months ended September 30, 2023. The yield on average loans and leases for the three and nine months ended September 30, 2024 was 7.32% and 7.25%, respectively, compared to 7.06% and 6.79% for the three and nine months ended September 30, 2023. Excluding the impact of loan fees in lieu of interest, the yield on average loans and leases for the three and nine months ended September 30, 2024 was 7.20% and 7.11%, respectively, compared to 6.97% and 6.67% for the three and nine months ended September 30, 2023. The yield on average interest-earning assets for the three and nine months ended September 30, 2024 measured 6.97% and 6.89%, respectively, compared to 6.71% and 6.43% for the three and nine months ended September 30, 2023. Excluding loan fees in lieu of interest, the yield on average interest-earning assets for the three and nine months ended September 30, 2024 was 6.86% and 6.77%, respectively, compared to 6.63% and 6.33% for the three and nine months ended September 30, 2023. The increase in yields was primarily due to the reinvestment of cash flows from fixed-rate loan portfolios and securities in a higher rate environment. Compared to the prior year quarter, the quarter's daily average effective federal funds rate for the remained flat at 5.26%. The daily average effective federal funds rate for the nine months ended September 30, 2024 increased 39 basis points. The rate paid on average interest-bearing core deposits for the three and nine months ended September 30, 2024 increased to 4.10% and 4.07%, respectively, from 3.74% and 3.27% for the three and nine months ended September 30, 2023. The average rate paid on total interest-bearing liabilities for the three and nine months ended September 30, 2024 increased to 4.05% and 3.97%, respectively, from 3.64% and 3.30% for the three and nine months ended September 30, 2023. Total interest-bearing liabilities may include interest-bearing deposits, federal funds purchased, FHLB advances, subordinated and junior subordinated notes and debentures payable, and other borrowings. The average rates paid increased due to the increase in short-term market rates, the replacement of maturing wholesale funds at higher fixed rates, and client movement from non-interest bearing to interest bearing core deposit products. The daily average effective federal funds rate for the three months ended September 30, 2024 remained flat. Net interest margin decreased to 3.64% and 3.62%, respectively, for the three and nine months ended September 30, 2024, compared to 3.76% and 3.81% for the three and nine months ended September 30, 2023. The primary driver of the reduction in net interest margin was increased funding costs, partially offset by an increase in earning asset yields. Adjusted net interest margin measured 3.51% and 3.47% for the three and nine months ended September 30, 2024, compared to 3.66% and 3.68% for the three and nine months ended September 30, 2023. Adjusted net interest margin is a non-GAAP measure representing net interest income excluding the impact of fees in lieu of interest, and other recurring, but volatile, components of net interest margin divided by average interest-earning assets less other recurring, but volatile, components of average interest-earning assets. Management believes its success in growing core deposits, disciplined loan pricing, and increased production in existing higher-yielding commercial lending products will allow the Corporation to achieve a net interest margin that supports our long-term profitability goals. The collection of loan fees in lieu of interest is an expected source of volatility to quarterly net interest income and net interest margin. In addition, net interest margin may also experience volatility due to events such as the collection of interest on loans previously in non-accrual status or the accumulation of significant short-term deposit inflows. The Corporation maintains a long-term target for net interest margin in the range of 3.60% - 3.65%. Performance in future quarters will vary due to factors such as the level of fees in lieu of interest and the timing, pace, and scale of future interest rate changes. Provision for Credit Losses We determine our provision for credit losses pursuant to our allowance for credit loss methodology. It is based on a reasonable and supportable forecast as well as considerations for composition, risk, and performance indicators in our credit portfolio. Refer to Allowance for Credit Losses , below, for further information regarding our allowance for credit loss methodology. The Corporation recognized $2.1 million and $6.1 million of provision expense for the three and nine months ended September 30, 2024, respectively, compared to expense of $1.8 million and $5.6 million for the three and nine months ended September 30, 2023. The provision expense for the three months ended September 30, 2024 of $2.1 million consisted of $1.5 million of net charge-offs, $616,000 due to loan growth, and a $757,000 net increase in specific reserves, partially offset by decreases of $444,000 and $330,000 due to quantitative and qualitative factor changes, respectively. 44 Table of Contents The following table shows the components of the provision for credit losses for the three and nine months ended September 30, 2024 compared to the same periods in 2023. For the Three Months Ended September 30, For the Nine Months Ended September 30, 2024 2023 2024 2023 (In Thousands) (In Thousands) Change in qualitative factors $ (444 ) $ 506 $ 793 $ 465 Change in quantitative factors (330 ) (1,372 ) (380 ) (1,193 ) Charge-offs 1,619 562 4,123 1,057 Recoveries (91 ) (84 ) (509 ) (435 ) Change in reserves on individually evaluated loans, net 757 1,265 348 2,322 Change due to loan growth, net 616 817 1,652 3,023 Change in unfunded credit commitment reserves (40 ) 123 99 371 Total provision for credit losses $ 2,087 $ 1,817 $ 6,126 $ 5,610 The addition of specific reserves on individually evaluated loans represents new specific reserves established when collateral shortfalls or government guaranty deficiencies are present, while the release of specific reserves represents the reduction of previously established reserves that are no longer required. Qualitative factor changes reflect management’s evaluation of the level of risk within the portfolio based upon several factors for each portfolio segment. Quantitative factor changes reflect the change in the reasonable and supportable forecast as well as other model assumptions. Charge-offs in excess of previously established specific reserves require an additional provision for credit losses to maintain the allowance for credit losses at a level deemed appropriate by management. This amount is net of the release of any specific reserve that may have already been provided. Refer to Asset Quality , below, for further information regarding the overall credit quality of our loan and lease portfolio. Comparison of Non-Interest Income for the Three and Nine Months Ended September 30, 2024 and 2023 Non-Interest Income Non-interest income decreased $1.4 million, or 16.2%, to $7.1 million for the three months ended September 30, 2024 compared to $8.4 million for the same period in 2023. The decrease in total non-interest income for the three months ended September 30, 2024 was primarily due to decreases in returns on investments of SBIC mezzanine funds and commercial loan swap fee income, offset by an increase in Private wealth fee income. Non-interest income for the nine months ended September 30, 2024 decreased $3.0 million, or 12.3%, to $21.2 million compared to $24.2 million for the same period in 2023. The decrease in total non-interest income for the nine months ended September 30, 2024 was driven by decreases in returns on investments in SBIC mezzanine funds, commercial loan swap fee income, and gains on the sale of SBA loans, partially offset by an increase in Private Wealth fee income and service charges on deposits. Management continues to focus on revenue growth from multiple non-interest income sources to maintain a diversified revenue stream. Contribution from fee-based revenue sources can be variable and driven by changes in the interest rate environment, client activity, and the value of underlying investments. Total non-interest income accounted for 18.6% and 18.9% of total revenues for the three and nine months ended September 30, 2024, respectively, compared to 22.8% and 22.6% for the three and nine months ended September 30, 2023. 45 Table of Contents The components of non-interest income were as follows: For the Three Months Ended September 30, For the Nine Months Ended September 30, 2024 2023 $ Change % Change 2024 2023 $ Change % Change (Dollars in Thousands) (Dollars in Thousands) Private wealth management services fee income $3,264 $2,945 $319 10.8% $9,835 $8,492 $1,343 15.8% Gain on sale of SBA loans 460 851 (391) (45.9) 1,004 1,771 (767) (43.3) Service charges on deposits 920 835 85 10.2 2,810 2,283 527 23.1 Loan fees 812 786 26 3.3 2,486 2,495 (9) (0.4) Increase in cash surrender value of bank-owned life insurance 416 376 40 10.6 1,231 1,106 125 11.3 Net loss on sale of securities — — — N/A (8) (45) 37 (82.2) Swap fees 460 992 (532) (53.6) 815 2,526 (1,711) (67.7) Other non-interest income 732 1,645 (913) (55.5) 3,073 5,586 (2,513) (45.0) Total non-interest income $7,064 $8,430 $(1,366) (16.2) $21,246 $24,214 $(2,968) (12.3) Fee income ratio (1) 18.6% 22.8% 18.9% 22.6% (1) Fee income ratio is fee income, per the above table, divided by top line revenue (defined as net interest income plus non-interest income). Private wealth fee income increased $319,000, or 10.8%, and $1.3 million, or 15.8%, for the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023. Private wealth fee income is up compared to prior year primarily due to an increase in assets under management and administration, increases in fee rates across the client base, and non-recurring transaction fees in the 2024 period. Private wealth fee income can vary due to the mix of business at different fee structures and can be positively or negatively influenced by the timing and magnitude of volatility within the capital markets. As of September 30, 2024, Private wealth and trust assets under management and administration totaled $3.398 billion, increasing $483.3 million, or 16.6%, compared to $2.915 billion as of September 30, 2023, due to an increase in market values, new clients, and new money from existing clients. Service charges on deposits increased $85,000, or 10.2%, and $527,000, or 23.1%, for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. The increase is primarily driven by new and expanded core deposit relationships. Treasury management business development efforts remain robust as gross treasury management service charges increased $145,000, or 9.9%, and $473,000, or 11.0%, for the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023. Management believes growth in gross analyzed service charges is a strong indicator of success for the Corporation given the direct correlation to adding and expanding core business relationships. Commercial loan interest rate swap fee income decreased $532,000, or 53.6%, and $1.7 million, or 67.7%, for the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023. We originate commercial real estate loans in which we offer clients a floating rate and an interest rate swap. The client’s swap is then offset with a counter-party dealer. The execution of these transactions generates swap fee income. The aggregate amortizing notional value of interest rate swaps with various borrowers was $975.8 million as of September 30, 2024, compared to $939.2 million and $908.6 million as of December 31, 2023 and September 30, 2023, respectively. Interest rate swaps can be an attractive product for our commercial borrowers, although associated fee income varies from period to period based on loan activity and the interest rate environment. Gain on sale of SBA loans decreased $391,000, or 45.9%, and $767,000, or 43.3%, for the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023. Management expects the SBA loan sales to increase as production increases and previously closed commitments fully fund and become eligible for sale, due to additions to the business development team. Other non-interest income decreased $913,000, or 55.5%, and $2.5 million, or 45.0%, for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. The decreases for the three and nine months ended September 30, 2024, was primarily due to the lower returns on the Corporation's investments in SBIC mezzanine funds. Income from 46 Table of Contents SBIC mezzanine funds varies from period to period based on changes in the realized and unrealized fair value of underlying investments. Comparison of Non-Interest Expense for the Three and Nine Months Ended September 30, 2024 and 2023 Non-Interest Expense Non-interest expense for the three and nine months ended September 30, 2024 decreased by $82,000, or 0.4% and increased $3.3 million, or 5.0%, respectively, compared to the same period in 2023. Operating expense, which excludes certain one-time and discrete items as defined in the Efficiency Ratio table above, decreased $313,000, or 1.4%, and increased $3.2 million, or 4.8%, for the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023. For the three month period, the decrease in operating expense was primarily due to decreases in compensation, other non-interest expense, and professional fees; partially offset by increases in computer software expense, marketing expense, and FDIC insurance. For the nine month period, the increase in operating expense was primarily due to an increase in compensation expense, computer software expense, and FDIC insurance. The components of non-interest expense were as follows : For the Three Months Ended September 30, For the Nine Months Ended September 30, 2024 2023 $ Change % Change 2024 2023 $ Change % Change (Dollars in Thousands) Compensation $ 15,198 $ 15,573 $ (375 ) (2.4 )% $ 47,570 $ 46,610 $ 960 2.1 % Occupancy 585 575 10 1.7 1,785 1,809 (24 ) (1.3 ) Professional fees 1,305 1,429 (124 ) (8.7 ) 4,348 4,012 336 8.4 Data processing 1,045 953 92 9.7 3,245 2,889 356 12.3 Marketing 922 758 164 21.6 2,591 2,165 426 19.7 Equipment 333 349 (16 ) (4.6 ) 1,013 1,000 13 1.3 Computer software 1,608 1,289 319 24.7 4,581 3,668 913 24.9 FDIC insurance 810 680 130 19.1 2,032 1,653 379 22.9 Other non-interest expense 1,301 1,583 (282 ) (17.8 ) 3,164 3,181 (17 ) (0.5 ) Total non-interest expense $ 23,107 $ 23,189 $ (82 ) (0.4 ) $ 70,329 $ 66,987 $ 3,342 5.0 Total operating expense (1) $ 22,630 $ 22,943 $ (313 ) (1.4 ) $ 69,584 $ 66,414 $ 3,170 4.8 Actual full-time equivalent employees 353 348 353 348 (1) Total operating expense represents total non-interest expense, adjusted to exclude the impact of discrete items as previously defined in the non-GAAP efficiency ratio calculation, above. Compensation expense for the three and nine months ended September 30, 2024 decreased $375,000, or 2.4%, and increased $960,000, or 2.1%, respectively, compared to the same periods in 2023. For the three month period, the decrease in compensation expense was primarily due to a cash bonus accrual adjustment decrease and an increase in capitalized software development compensation. For the nine month period, the increase in compensation expense was primarily due to an increase in average FTEs, annual merit increases, and promotions. These increases were partially offset by decreases in incentive compensation and share-based compensation. Successful hiring efforts to secure talent resulted in average full-time equivalent employees for the three months ended September 30, 2024 increasing to 355, up 1.7%, compared to 349 for the three months ended September 30, 2023. Computer software expense increased $319,000, or 24.7%, and $913,000, or 24.9%, for the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023. The increase was primarily due to our commitment to innovative technology to support growth initiatives, enhance productivity, and improve the client experience. Marketing expense increased $164,000, or 21.6%, and $426,000, or 19.7%, for the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023. The increase was primarily due to an increase in business development efforts and advertising projects related to the Company’s growth initiatives. 47 Table of Contents FDIC insurance for the three and nine months ended September 30, 2024 increased $130,000, or 19.1%, and $379,000, or 22.9%, respectively, compared to the same period in 2023. The increase was primarily due to an increase in total assets and use of brokered deposits. Data processing expense increased $92,000, or 9.7%, and $356,000, or 12.3%, for the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023, primarily due to an increase in core processing costs due to loan and deposit account growth, private wealth asset growth, and various project implementations. Professional fees decreased $124,000, or 8.7%, and increased $336,000, or 8.4%, for the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023. For the three month period, the decrease was primarily due to a decrease in recruiting expense and professional consulting services for various projects. For the nine month period, the increase was primarily due to an increase in recruiting expense and professional consulting services for various projects. Other non-interest expense for the three and nine months ended September 30, 2024 decreased $282,000, or 17.8%, and $17,000, or 0.5%, respectively, compared to the same period in 2023. The decrease was primarily due to a decrease in liquidation expenses. Income Taxes Income tax expense totaled $6.0 million for the nine months ended September 30, 2024 compared to $7.4 million for the same period in 2023. Income tax expense included a $1.1 million net benefit from tax credit investments in both periods. The effective tax rate for the nine months ended September 30, 2024 was 16.8% compared to 21.4% for the same period in 2023. The decrease in effective tax rate is primarily due to a change in Wisconsin state tax legislation which reduced the Corporation's state taxable income. The Corporation expects to report an effective tax rate between 16% and 18% for 2024. Generally, the provision for income taxes is determined by applying an estimated annual effective income tax rate to income before taxes and adjusting for discrete items. The rate is based on the most recent annualized forecast of pre-tax income, book versus tax differences and tax credits, if any. If we conclude that a reliable estimated annual effective tax rate cannot be determined, the actual effective tax rate for the year-to-date period may be used. We re-evaluate the income tax rates each quarter. Therefore, the current projected effective tax rate for the entire year may change. 48 Table of Contents Financial Condition General Total assets increased by $207.9 million, or 7.9%, to $3.716 billion as of September 30, 2024 compared to $3.508 billion at December 31, 2023. The increase in total assets was primarily driven by an increase in loans and leases receivable and available-for-sale securities, partially offset by a reduction in short-term investments. Total liabilities increased by $185.5 million, or 7.7%, to $3.404 billion at September 30, 2024 compared to $3.218 billion at December 31, 2023. The increase in total liabilities was principally due to an increase in deposits. Total stockholders’ equity increased by $22.4 million, or 10.3%, to $312.0 million at September 30, 2024 compared to $289.6 million at December 31, 2023. The increase in total stockholders’ equity was due to retention of earnings and unrealized gains on available-for-sale securities, partially offset by dividends paid to common and preferred stockholders and unrealized losses on interest rate swaps. Cash and Cash Equivalents Cash and cash equivalents include short-term investments and cash and due from banks. Cash and due from banks increased $13.0 million to $45.3 million at September 30, 2024 from $32.3 million at December 31, 2023. Short-term investments decreased by $20.5 million to $86.7 million at September 30, 2024 from $107.2 million at December 31, 2023. Our short-term investments primarily consist of interest-bearing deposits held at the FRB. We value the safety and soundness provided by the FRB, and therefore, we incorporate short-term investments in our readily accessible liquidity program. As of September 30, 2024 and December 31, 2023, interest-bearing deposits held at the FRB were $85.7 million and $106.8 million, respectively. Securities Total securities, including available-for-sale and held-to-maturity, increased by $14.7 million, or 6.4%, to $320.2 million, or 8.6% of total assets at September 30, 2024 compared to $305.5 million or 8.7% of total assets at December 31, 2023. During the nine months ended September 30, 2024, the Corporation recognized unrealized gains of $5.6 million before income taxes through other comprehensive income, compared to unrealized losses of $6.4 million for the same period in 2023. The unrealized gains in the current period were driven by the decrease in market interest rates. As of September 30, 2024 and December 31, 2023, our overall securities portfolio, including available-for-sale securities and held-to-maturity securities, had an estimated weighted-average expected maturity of 5.1 years and 5.6 years, respectively. Our investment philosophy remains as stated in our most recent Annual Report on Form 10-K. We use a third-party pricing service as our primary source of market prices for our securities portfolio. On a quarterly basis, we validate the reasonableness of prices received from this source through independent verification, data integrity validation primarily through comparison of current price to an expectation-based analysis of movement in prices based upon the changes in the related yield curves, and other market factors. We did not recognize any credit losses in the securities portfolio as of September 30, 2024. Loans and Leases Receivable Period-end loans and leases receivable, net of allowance for credit losses, increased by $197.4 million, or 9.3% annualized, to $3.016 billion at September 30, 2024 from $2.819 billion at December 31, 2023 primarily driven by commercial loan growth. Management expects to manage loan growth towards our long term target of 10%. Total commercial real estate (“CRE”) loans increased $129.5 million, or 10.2% annualized, to $1.829 billion. The increase was primarily due to an increase in the construction and multifamily loan portfolios. CRE loans represented 60.0% and 59.6% of our total loans as of September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024, 14.2% of the CRE loans were owner-occupied CRE, compared to 15.1% as of December 31, 2023. We consider owner-occupied CRE more characteristic of the Corporation’s C&I portfolio as, in general, the client’s primary source of repayment is the cash flow from the operating entity occupying the commercial real estate property. Commercial and Industrial ("C&I") loans increased $68.5 million, or 8.3% annualized, to $1.174 billion. The increase was due to growth in traditional commercial lending, Equipment Finance, and Floorplan Financing loan portfolios. 49 Table of Contents We continue to actively pursue C&I loans across the Corporation as this segment of our loan and lease portfolio provides an attractive yield commensurate with an appropriate level of credit risk and creates opportunities for core deposit, treasury management, and private wealth management relationships which generate additional fee revenue. Underwriting of new credit is primarily through approval from a serial sign-off or committee process and is a key component of our operating philosophy. Business development officers have no individual lending authority. To monitor the ongoing credit quality of our loans and leases, each credit is evaluated for proper risk rating using a nine grade risk rating system at the time of origination, subsequent renewal, evaluation of updated financial information from our borrowers, or as other circumstances dictate. While we continue to experience competition from banks operating in our primary geographic areas, we remain committed to our underwriting standards and will not deviate from those standards for the sole purpose of growing our loan and lease portfolio. We continue to expect our new loan and lease activity to be adequate to replace normal amortization, allowing us to continue growing in future years. The types of loans and leases we originate and the various risks associated with these originations remain consistent with information previously outlined in our most recent Annual Report on Form 10-K. The following table presents information concerning the composition of the Bank’s consolidated loans and leases receivable. As of September 30, As of December 31, 2024 2023 Amount Outstanding % of Total Loans and Leases Amount Outstanding % of Total Loans and Leases (Dollars in Thousands) Commercial real estate: Commercial real estate — owner occupied $ 259,532 8.5 % $ 256,479 9.0 % Commercial real estate — non-owner occupied 768,195 25.2 773,494 27.1 Construction 266,762 8.8 193,080 6.8 Multi-family 494,954 16.2 450,529 15.8 1-4 family 39,933 1.3 26,289 0.9 Total commercial real estate 1,829,376 60.0 1,699,871 59.6 Commercial and industrial 1,174,295 38.5 1,105,835 38.8 Consumer and other 46,610 1.5 44,312 1.6 Total gross loans and leases receivable 3,050,281 100.0 % 2,850,018 100.0 % 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 Below is a view of selected loan portfolios disaggregated by North American Industry Classification (“NAICs”) code as of September 30, 2024: Real Estate Wholesale and Manufacturing Retail and Hospitality Transportation and Warehousing Other Total Commercial real estate — owner occupied 6% 28% 17% 13% 36% 100% Commercial real estate — non- owner occupied 71% (1) 1% 11% 2% 15% 100% Commercial and industrial 3% 32% 16% 10% 39% 100% (1) Includes approximately $269 million of office real estate, or 9% of gross loans. See Asset Quality for further discussion of industry-specific risks. 50 Table of Contents Deposits Deposit composition As of (in thousands) September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 September 30, 2023 Non-interest-bearing transaction accounts $ 428,012 $ 406,804 $ 400,267 $ 445,376 $ 430,011 Interest-bearing transaction accounts 930,252 841,146 818,080 895,319 779,789 Money market accounts 817,129 837,569 813,467 711,245 694,199 Certificates of deposit 207,337 224,116 266,029 287,131 285,265 Wholesale deposits 587,217 575,548 457,563 457,708 467,743 Total deposits $ 2,969,947 $ 2,885,183 $ 2,755,406 $ 2,796,779 $ 2,657,007 Uninsured deposits $ 1,088,496 $ 1,011,977 $ 995,428 $ 994,687 $ 916,083 Less: uninsured deposits collateralized by pledged assets 10,755 34,810 16,622 17,051 28,873 Total uninsured, net collateralized deposits $ 1,077,741 $ 977,167 $ 978,806 $ 977,636 $ 887,210 % of total deposits 36.3 % 33.9 % 35.5 % 35.0 % 33.4 % As of September 30, 2024, total period-end deposits increased by $173.2 million to $2.970 billion from $2.797 billion at December 31, 2023, primarily due to increases of $129.5 million, $105.9 million, and $34.9 million in wholesale deposits, money market accounts, and interest-bearing transaction accounts, respectively. These increases were partially offset by decreases of $79.8 million and $17.4 million in certificates of deposits and non-interest-bearing transaction accounts, respectively. As of September 30, 2024, total period-end core deposits increased $43.7 million, or 2.5% annualized, to $2.383 billion, compared to $2.339 billion at December 31, 2023. The increase in period-end balances is due to increases of $105.9 million and $34.9 million in money market accounts and interest bearing transaction accounts, respectively, offset by decreases of $79.8 million and $17.4 million in certificates of deposit and non-interest-bearing transaction accounts, respectively. Management believes the Bank’s deposit-centric sales strategy, led by treasury management sales, will continue to contribute to a net increase in deposits; however, period-end deposit balances associated with core relationships will fluctuate based upon maturity of time deposits, client demands for the use of their cash, and our ability to maintain existing and acquire new client relationships. Therefore, we believe average balances are a better indicator of our deposit growth. Our strategic efforts remain focused on adding core deposit relationships. We measure the success of core deposit gathering efforts based on the number and average balances of our deposit accounts as compared to ending balances due to the variability of some of our larger relationships. The Bank’s average core deposits, consisting of all transaction accounts, money market accounts, and certificates of deposit, increased $317.8 million, or 15.5%, to $2.366 billion for the nine months ended September 30, 2024 compared to $2.048 billion for the nine months ended September 30, 2023. FHLB Advances and Other Borrowings As of September 30, 2024, FHLB advances and other borrowings increased by $18.2 million, or 7.3%, to $349.1 million from $330.9 million at December 31, 2023. As average deposit balances have increased, we have been able to reduce our usage of FHLB advances as a percentage of total funding. In addition, we have strategically reduced our usage of FHLB advances in favor of wholesale deposits to increase the Bank’s readily accessible liquidity. We will continue to utilize FHLB advances and wholesale deposits to manage interest rate risk, liquidity, and contingency funding. 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 a sold tax credit investments accounted for as secured borrowings because they did not qualify for true sale accounting. As of August 15, 2024, the $15.0 million subordinated notes payable that bore a fixed interest rate of 5.5% were redeemed. The Corporation issued new subordinated notes payable on September 13, 2024. The aggregate principal amount of the newly issued subordinated notes payable was $20.0 million. The subordinated notes payable bear a fixed interest rate of 7.5% with a maturity date of September 13, 2034. 51 Table of Contents Consistent with our funding philosophy to manage interest rate risk, we will use the most efficient and cost effective source of wholesale funds. We will utilize FHLB advances to the extent we maintain an adequate level of excess borrowing capacity for liquidity and contingency funding purposes and pricing remains favorable in comparison to the wholesale deposit alternative. We will use FHLB advances and/or brokered certificates of deposit in specific maturity periods needed, typically three to five years, to match-fund fixed rate loans and effectively mitigate the interest rate risk measured through our asset/liability management process and to support asset growth initiatives while taking into consideration our operating goals and desired level of usage of wholesale funds. Please refer to the section entitled Liquidity and Capital Resources , below, for further information regarding our use and monitoring of wholesale funds. Preferred Stock The Corporation has 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”) outstanding as of September 30, 2024 and December 31, 2023. The Corporation expects to pay dividends on the Series A Preferred Stock when and if declared by its 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 Corporation paid $218,000 and $656,000, respectively, in cash dividends with respect to the Series A Preferred Stock. 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. Derivatives The Board approved Bank policies allow the Bank to participate in hedging strategies or to use financial futures, options, forward commitments, or interest rate swaps. The Bank utilizes, from time to time, derivative instruments in the course of its asset/liability management. The Corporation’s derivative financial instruments, under which the Corporation is required to either receive cash from or pay cash to counterparties depending on changes in interest rates applied to notional amounts, are carried at fair value on the consolidated balance sheets. As of September 30, 2024, the aggregate amortizing notional value of interest rate swaps with various commercial borrowers was approximately $975.8 million, compared to $939.2 million as of December 31, 2023. We receive fixed rates and pay floating rates based upon designated benchmark interest rates on the swaps with commercial borrowers. These swaps mature between June 2025 and July 2041. Commercial borrower swaps are completed independently with each borrower and are not subject to master netting arrangements. As of September 30, 2024, the commercial borrower swaps were reported on the Consolidated Balance Sheet as a derivative asset of $11.4 million and liability of $39.8 million compared to a derivative asset of $7.9 million and liability of $51.1 million as of December 31, 2023. On the offsetting swap contracts with dealer counterparties, we pay fixed rates and receive floating rates based upon designated benchmark interest rates. These interest rate swaps also have maturity dates between June 2025 and July 2041. Dealer counterparty swaps are subject to master netting agreements among the contracts within our Bank and were reported on the Consolidated Balance Sheet as a net derivative asset of $28.4 million as of September 30, 2024, compared to a net derivative asset of $43.2 million as of December 31, 2023. The gross amount of dealer counterparty swaps as of September 30, 2024, without regard to the enforceable master netting agreement, was a gross derivative liability of $11.4 million and gross derivative asset of $39.8 million, compared to a gross derivative liability of $7.9 million and gross derivative asset of $51.1 million as of December 31, 2023. 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 associated with forecasted interest payments on short-term FHLB advances or wholesale deposits. 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. As of September 30, 2024, the aggregate notional value of interest 52 Table of Contents rate swaps designated as cash flow hedges was $499.7 million. These interest rate swaps mature between October 2024 and February 2041. 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 was no ineffective portion of these 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 hedging instruments is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged transactions affect earnings. As of September 30, 2024, the aggregate notional value of interest rate swaps designated as fair value hedges was $12.5 million. These interest rate swaps mature between February 2031 and October 2034. 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. For further information and discussion of our derivatives, see Note 13 — Derivative Financial Instruments of the Consolidated Financial Statements. Asset Quality Non-performing Assets Total non-performing assets consisted of the following at September 30, 2024 and December 31, 2023, respectively: September 30, 2024 December 31, 2023 (Dollars in Thousands) Non-accrual loans and leases Commercial real estate: Commercial real estate - owner occupied $ — $ — Commercial real estate - non-owner occupied — — Construction — — Multi-family — — 1-4 family 16 22 Total non-accrual commercial real estate 16 22 Commercial and industrial 19,348 20,575 Consumer and other — — Total non-accrual loans and leases 19,364 20,597 Repossessed assets, net 56 247 Total non-performing assets $ 19,420 $ 20,844 Total non-accrual loans and leases to gross loans and leases 0.63 % 0.72 % Total non-accrual loans to gross loans and leases plus repossessed assets, net 0.64 0.73 Total non-performing assets to total assets 0.52 0.59 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 Non-accrual loans decreased $1.2 million, to $19.4 million at September 30, 2024, compared to $20.6 million at December 31, 2023. The Corporation’s non-accrual loans as a percentage of total gross loans and leases measured 0.63% and 0.72% at September 30, 2024 and December 31, 2023, respectively. The change in non-accrual loans was driven by charge-offs in the Equipment Finance pool and a paydown in the Asset-Based Lending ("ABL") pool both within the C&I portfolio segment, partially offset by newly defaulted loans in Equipment Finance and SBA lending pools. While we continue to expect full repayment of the one ABL loan that defaulted during the second quarter of 2023, the liquidation process has transitioned into Chapter 7 bankruptcy, likely delaying final resolution until late 2024 or 2025. Through our collections efforts, the current balance of this loan is $6.2 million, down from $10.9 million in the prior year quarter. Excluding this credit, non-performing assets totaled $13.2 million, or 0.36% of total assets in the current quarter and $12.6 million, or 0.35% of total assets in the prior quarter. 53 Table of Contents We use a wide variety of available metrics to assess the overall asset quality of the portfolio and no one metric is used independently to make a final conclusion as to the asset quality of the portfolio. Non-performing assets as a percentage of total assets was 0.52% and 0.59% at September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024 and December 31, 2023, the payment performance of our loans and leases did not point to any new areas of concern, as approximately 99.4% and 99.2%, respectively, of the total portfolio at the end of each period was in a current payment status. We reviewed loans and leases with exposure to certain industries: • Transportation and Logistics, Equipment Finance: 2% of total loans - Management considered the following: 10% of Equipment Finance Transportation loans are rated Category IV. Based on our reserve methodology for individually and collectively evaluated loans, we believe our reserves related to this industry to be appropriate. • Transportation and Logistics, other than Equipment Finance: 2% of total loans - Management considered the following: Less than 1% of the Transportation loans outside of Equipment Finance are rated Category IV. Collateral on these loans includes commercial real estate, business assets, and equipment. Based on our reserve methodology for individually and collectively evaluated loans, we believe our reserves related to this industry to be appropriate. • Office, Commercial Real Estate: 9% of total loans - Management considered the following: office exposure is concentrated in the Wisconsin markets where local market vacancy rates are below national rates, a majority of the loan maturity dates are beyond 2031 with the borrower paying a fixed rate, either directly or through an interest rate swap, and there are no non-accrual loans in the portfolio. Based on our reserve methodology for individually and collectively evaluated loans, we believe our reserves related to this loan category to be appropriate. • Multifamily, Commercial Real Estate: 16% of total loans - Management considered the following: multifamily exposure is concentrated in the Wisconsin markets where local market vacancy rates are below national rates, a majority of the loan maturity dates are beyond 2031 with the borrower paying a fixed rate, either directly or through an interest rate swap, and there are no non-accrual loans in the portfolio. Based on our reserve methodology for individually and collectively evaluated loans, we believe our reserves related to this loan category to be appropriate. We also monitor asset quality through our established categories as defined in Note 5 – Loans, Lease Receivables, and Allowance for Credit Losses of the Consolidated Financial Statements. As we continue to actively monitor the credit quality of our loan and lease portfolios, we may identify additional loans and leases for which the borrowers or lessees are having difficulties making the required principal and interest payments based upon factors including, but not limited to, the inability to sell the underlying collateral, inadequate cash flow from the operations of the underlying businesses, liquidation events, or bankruptcy filings. We proactively work with our loan borrowers experiencing financial difficulty to find meaningful solutions to difficult situations that are in the best interests of the Bank. As of September 30, 2024, as well as in all previous reporting periods, there were no loans over 90 days past due and still accruing interest. Loans and leases greater than 90 days past due are placed on non-accrual status and individually evaluated for reserve requirement. Cash received while a loan or a lease is on non-accrual status is generally applied solely against the outstanding principal. If collectability of the contractual principal and interest is not in doubt, payments received may be applied to both interest due on a cash basis and principal. 54 Table of Contents The following represents additional information regarding our non-accrual loans and leases: As of and for the Nine Months Ended September 30, As of and for the Year Ended December 31, 2024 2023 2023 (In Thousands) Individually evaluated loans and leases with no specific reserves required $ 8,025 $ 11,381 $ 9,691 Individually evaluated loans and leases with specific reserves required 11,339 6,247 10,906 Total individually evaluated loans and leases 19,364 17,628 20,597 Less: Specific reserves (included in allowance for credit losses) 6,339 3,982 5,989 Net non-accrual loans and leases $ 13,025 $ 13,646 $ 14,608 Average non-accrual loans and leases $ 19,761 $ 7,702 $ 10,450 Allowance for Credit Losses The allowance for credit losses, including unfunded commitment reserves, increased $2.5 million, or 10.2% annualized, to $35.5 million as of September 30, 2024 from $33.0 million as of December 31, 2023. The allowance for credit losses as a percentage of gross loans and leases was 1.16% as of September 30, 2024 compared to 1.16% as of December 31, 2023. During the nine months ended September 30, 2024, we recorded net charge-offs of $3.6 million, comprised of $4.1 million of charge-offs and $509,000 of recoveries. We will continue to experience some level of periodic charge-offs in the future as exit strategies are considered and executed. Loans and leases with previously established specific reserves, may ultimately result in a charge-off under a variety of scenarios. As of September 30, 2024 and December 31, 2023, our ratio of allowance for credit losses to total non-accrual loans and leases was 183.38% and 160.21%, respectively. This ratio increased because of paydowns on non-accrual loans and an increase in general reserves primarily due to loan growth. Non-accrual loans and leases exhibit weaknesses that inhibit repayment in compliance with the original terms of the note or lease; however, the evaluation of non-accrual loans and leases may not always result in a specific reserve included in the allowance for credit losses. As part of the underwriting process, as well as our ongoing monitoring efforts, we try to ensure that we have sufficient collateral to protect our interest in the related loan or lease. As a result of this practice, a significant portion of our outstanding balance of non-accrual loans or leases may not require additional specific reserves or require only a minimal amount of required specific reserve. Management is proactive in recording charge-offs to bring loans to their net realizable value in situations where it is determined with certainty that we will not recover the entire amount of our principal. This practice may lead to a lower allowance for credit loss to non-accrual loans and leases ratio as compared to our peers or industry expectations. As asset quality strengthens, our allowance for credit losses is measured more through collective characteristics of our portfolio rather than through specific identification and we would therefore expect this ratio to rise. Conversely, if we identify further non-accrual loans, this ratio could fall if the non-accrual loans are adequately collateralized and therefore require no specific or general reserve. Given our business practices and evaluation of our existing loan and lease portfolio, we believe this coverage ratio is appropriate for the probable losses inherent in our loan and lease portfolio as of September 30, 2024. To determine the level and composition of the allowance for credit losses, we break out the portfolio by segments with similar risk characteristics. First, we evaluate loans and leases for non-accrual classification. We analyze each loan and lease identified as non-accrual on an individual basis to determine a specific reserve based upon the estimated value of the underlying collateral for collateral-dependent loans, or alternatively, the present value of expected cash flows. For efficiency, smaller dollar value loans within the Equipment Finance pool are reserved based on a past-due criteria. Accruing loans may be evaluated individually. All loans not evaluated individually are evaluated collectively as part of a portfolio segment or portfolio segment and class. These collective evaluations utilized a reasonable and supportable forecast which includes projections of credit losses based on one of two established methods: discounted cash flow or weighted average remaining maturity. Each model includes a set of assumptions which are evaluated not less than annually by management. The methodology also focuses on evaluation of several qualitative factors for each portfolio segment or portfolio segment and class, including but not limited to: product growth rates, management’s ongoing review and grading of the loan and lease portfolios, consideration of delinquency experience, changes in the size of the loan and lease 55 Table of Contents portfolios, level of loans and leases subject to more frequent review by management, changes in underlying collateral, concentrations in specific industries, and other qualitative factors that could affect credit losses. When it is determined that we will not receive our entire contractual principal or the loss is confirmed, we record a charge against the allowance for credit loss reserve to bring the loan or lease to its net realizable value. It is typically part of our process to obtain appraisals on individually evaluated loans and leases that are primarily secured by real estate. As we complete new appraisals and/or market evaluations, in specific situations current fair values collateralizing certain collateral-dependent loans are inadequate to support the entire amount of the outstanding debt. As a result of our review process, we have concluded an appropriate allowance for credit losses for the funded loan and lease portfolio was $33.7 million, or 1.1% of gross loans and leases, at September 30, 2024. Given ongoing complexities with current workout situations and the uncertainty surrounding future economic conditions, further charge-offs, and increased provisions for credit losses may be recorded if additional facts and circumstances lead us to a different conclusion. Various federal and state regulatory agencies review the allowance for credit losses. These agencies could require certain loan and lease balances to be classified differently or charged off when their credit evaluations differ from those of management, based on their judgments about information available to them at the time of their examination. A summary of the activity in the allowance for credit losses 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 (Dollars in Thousands) Allowance at beginning of period $ 34,950 $ 29,697 $ 32,997 $ 24,230 Impact of adoption of ASC 326 — — — 1,818 Charge-offs: Commercial real estate: Commercial real estate — owner occupied — — — — Commercial real estate — non-owner occupied — — — — Construction — — — — Multi-family — — — — 1-4 family — — — — Commercial and industrial (1,619 ) (562 ) (4,101 ) (1,057 ) Consumer and other — — (22 ) — Total charge-offs (1,619 ) (562 ) (4,123 ) (1,057 ) Recoveries: Commercial real estate: Commercial real estate — owner occupied 1 3 2 5 Commercial real estate — non-owner occupied — — — 1 Construction — — — — Multi-family — — — — 1-4 family 6 9 121 30 Commercial and industrial 84 72 365 386 Consumer and other — — 21 13 Total recoveries 91 84 509 435 Net charge-offs (1,528 ) (478 ) (3,614 ) (622 ) Provision for credit losses 2,087 1,817 6,126 5,610 Allowance at end of period $ 35,509 $ 31,036 $ 35,509 $ 31,036 Components: Allowance for credit losses on loans $ 33,688 $ 29,331 $ 33,688 $ 29,331 Allowance for credit losses on unfunded credit commitments 1,821 1,705 1,821 1,705 Total ACL $ 35,509 $ 31,036 $ 35,509 $ 31,036 Annualized net charge offs (recoveries) as a percent of average gross loans and leases 0.20 % 0.07 % 0.16 % 0.03 % 56 Table of Contents Liquidity and Capital Resources The Corporation expects to meet its liquidity needs through existing cash on hand, established cash flow sources, its third-party senior line of credit, and dividends received from the Bank. While the Bank is subject to certain generally applicable regulatory limitations regarding its ability to pay dividends to the Corporation, we do not believe that the Corporation will be adversely affected by these dividend limitations. The Corporation’s principal liquidity requirements at September 30, 2024 were the interest payments due on subordinated notes and debentures and cash dividends payable to both common and preferred stockholders. The capital ratios of the Bank met all applicable regulatory capital adequacy requirements in effect on September 30, 2024, and continue to meet the heightened requirements imposed by Basel III, including the capital conservation buffer. The Corporation’s Board and management teams adhere to the appropriate regulatory guidelines on decisions which affect their capital positions, including but not limited to, decisions relating to the payment of dividends and increasing indebtedness. The Bank maintains liquidity by obtaining funds from several sources. The Bank’s primary sources of funds are principal and interest payments on loans receivable and mortgage-related securities, deposits, and other borrowings, such as federal funds, and FHLB advances. The scheduled payments of loans and mortgage-related securities are generally a predictable source of funds. Deposit flows and loan prepayments, however, are greatly influenced by general interest rates, economic and industry conditions, and competition. Sources of liquidity As of (in thousands) September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 September 30, 2023 Short-term investments $ 86,670 $ 54,680 $ 46,984 $ 107,162 $ 109,612 Collateral value of unencumbered pledged loans 397,852 401,602 340,639 367,471 315,067 Market value of unencumbered securities 279,191 289,104 288,965 259,791 236,618 Readily accessible liquidity 763,713 745,386 676,588 734,424 661,297 Fed fund lines 45,000 45,000 45,000 45,000 45,000 Excess brokered CD capacity 1 1,102,767 1,051,678 1,166,661 1,231,791 1,090,864 Total liquidity $ 1,911,480 $ 1,842,064 $ 1,888,249 $ 2,011,215 $ 1,797,161 Total uninsured, net of collateralized deposits 1,077,741 977,167 978,806 977,636 887,210 (1) Bank internal policy limits brokered CDs to 50% of total bank funding when combined with FHLB advances. We view readily accessible liquidity as a critical element to meet our cash and collateral obligations. We define our readily accessible liquidity as the total of our short-term investments, our unencumbered securities available-for-sale, and our unencumbered pledged loans. Our readily accessible liquidity increased quarter over quarter. At September 30, 2024 and December 31, 2023, the Bank had $85.7 million and $106.8 million on deposit with the FRB recorded in short-term investments, respectively. Any excess funds not used for loan funding or satisfying other cash obligations were maintained as part of our readily accessible liquidity in our interest-bearing accounts with the FRB, as we value the safety and soundness provided by the FRB. We plan to utilize excess liquidity to fund loan and lease portfolio growth, pay down maturing debt, allow run off of maturing wholesale certificates of deposit or invest in securities to maintain adequate liquidity at an improved margin. We had $881.7 million of outstanding wholesale funds at September 30, 2024, compared to $739.2 million of wholesale funds as of December 31, 2023, which represented 27.0% and 24.0%, respectively, of ending balance total bank funding. Wholesale funds include FHLB advances and brokered certificates of deposit. Total bank funding is defined as total deposits plus FHLB advances. We are committed to raising core deposits while utilizing wholesale funds to mitigate interest rate risk. Wholesale funds continue to be an efficient and cost effective source of funding for the Bank and allows it to gather funds across a larger geographic base at price levels and maturities that are more attractive than local time deposits when required to raise a similar level of core deposits within a short time period. Access to such deposits and borrowings allows us the flexibility to refrain from pursuing single service deposit relationships in markets that have experienced unfavorable pricing levels. The administrative costs associated with wholesale funds are considerably lower than those that would be incurred to administer a similar level of local deposits with a similar maturity structure. Wholesale funds are also stable as each issuance has a structured maturity date and may only be redeemed in 57 Table of Contents certain limited circumstances. During the time frames necessary to accumulate wholesale funds in an orderly manner, we will use short-term FHLB advances to meet our temporary funding needs. The short-term FHLB advances will typically have terms of one week to one month to cover the overall expected funding demands. Period-end core deposits increased $43.7 million as of September 30, 2024, compared to December 31, 2023. The increase was primarily due to increases of $105.9 million and $34.9 million in money market accounts and interest bearing transaction accounts, respectively. These increases were partially offset by a $79.8 million and $17.4 million decrease in certificates of deposit and non-interest-bearing transaction accounts, respectively. We will continue to use wholesale funds in specific maturity periods, typically three to five years, needed to effectively mitigate the interest rate risk measured through our asset/liability management process or in shorter time periods if core deposit balances decline. In order to provide for ongoing liquidity and funding, none of our wholesale certificates of deposit allow for withdrawal at the option of the depositor before the stated maturity date and FHLB advances have contractual maturity terms. The Bank limits the percentage of wholesale funds to total bank funds in accordance with liquidity policies approved by its Board. The Bank was in compliance with its policy limits as of September 30, 2024. The Bank was able to access the wholesale funding market as needed at rates and terms comparable to market standards during the quarter ended September 30, 2024. In the event that there is a disruption in the availability of wholesale funds at maturity, the Bank has managed the maturity structure, in compliance with our approved liquidity policy, so at least one year of maturities could be funded through readily accessible liquidity. These potential funding sources include deposits maintained at the FRB or Federal Reserve Discount Window utilizing currently unencumbered securities and acceptable loans as collateral. As of September 30, 2024, the accessible liquidity was in excess of the stated policy minimum. We believe the Bank will also have access to the unused federal funds lines, cash flows from borrower repayments, and cash flows from security maturities. The Bank also has the ability to raise local market deposits by offering attractive rates to generate the level required to fulfill its liquidity needs. The Corporation has a shelf registration statement on file with the Securities and Exchange Commission that would allow the Corporation to offer and sell, from time to time and in one or more offerings, up to $75.0 million in aggregate initial offering price of common and preferred stock, debt securities, warrants, subscription rights, units, or depository shares, or any combination thereof. The Corporation has in recent years, and may from time to time in the future, raise capital through the sale of debt or equity securities in private placements exempt from registration under federal securities laws. During the nine months ended September 30, 2024, operating activities resulted in a net cash inflow of $35.5 million, which included net income of $29.8 million. Net cash used by investing activities for the nine months ended September 30, 2024 was $226.4 million primarily due to net loan disbursements, investments made in securities available for sale, and additional investments in federal home loan bank stock. Net cash provided by financing activities was $183.3 million for the nine months ended September 30, 2024 primarily due to a net increase in deposits. Please refer to the Consolidated Statements of Cash Flows included in PART I., Item 1 for further details regarding significant sources of cash flow for the Corporation. Contractual Obligations and Off-Balance Sheet Arrangements As of September 30, 2024, there were no material changes to our contractual obligations and off-balance sheet arrangements disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023. We continue to believe that we have adequate capital and liquidity accessible from various sources to fund projected contractual obligations and commitments. 58 Table of Contents