Table of ~~our website are not incorporated by reference into this Form 10-K.~~Contents

Markets

Although certain of our ~~business lines~~commercial banking products and services are marketed throughout the Midwest and beyond, our primary markets lie in Wisconsin, Kansas, and Missouri. Specifically, our three ~~target~~ markets in Wisconsin consist of ~~Madison~~South Central Wisconsin, Southeast Wisconsin, and ~~Milwaukee, and their surrounding communities, and Northeastern~~Northeast Wisconsin. We serve these markets primarily through our ~~target markets~~offices in Madison, Brookfield, and Appleton, respectively. We serve the greater Kansas ~~and Missouri~~City Metro through our Leawood, Kansas office, which is located in the Kansas City metropolitan ~~statistical~~ area. Each of our primary markets provides a unique set of economic and demographic characteristics which provide us with a variety of strategic opportunities. A brief description of each of our primary markets is as follows:

~~Madison~~South Central Wisconsin

As the capital of Wisconsin and home of the University of ~~Wisconsin -~~Wisconsin-Madison, the greater Madison ~~our Madison market,~~area, specifically Dane County and surrounding counties, offers an appealing economic environment populated by a highly educated workforce. While the economy of the ~~Madison market~~South Central Wisconsin is driven in large part by the government and education sectors, there is also a diverse array of industries outside of these ~~segments, including significant concentration of insurance companies and agricultural-related industries. Madison~~segments. South Central Wisconsin is also home to ~~a concentration of~~technology and research and development related companies, which benefit from the area’s strong governmental and academic ties, as well as several major health care ~~systems/~~systems and hospitals, which provides healthcare services to South Central Wisconsin.

~~Milwaukee~~Southeast Wisconsin

~~Our~~The Milwaukee ~~market, the primary commercial and industrial hub for Southeastern Wisconsin, provides~~metropolitan area has a diverse economic base with ~~both~~ a highly skilled labor force and ~~significant~~strong manufacturing ~~base.~~sector. The most prominent economic sectors ~~in the Milwaukee market~~ include manufacturing, financial services, health care, diversified service companies, and education. ~~Milwaukee~~The area is home to several major hospitals, providing health services to the greater ~~Southeastern~~Southeast Wisconsin

~~Table of Contents~~

market, several large academic institutions including the University of Wisconsin-Milwaukee and Marquette University, and a wide variety of small- to medium-sized firms with representatives in nearly every industrial classification.

~~Northeastern~~Northeast Wisconsin

The cities of Appleton, Green Bay, ~~Oshkosh~~ and ~~Manitowoc,~~Oshkosh, Wisconsin serve as the primary population centers in our Northeast Wisconsin market and provide an attractive market to a variety of industries, including transportation, utilities, packaging, and diversified services, with the most significant economic drivers being the manufacturing, packaging, and paper goods industries.

Kansas City

Metro

Geographically located in the center of the U.S., the greater Kansas City ~~area~~Metro includes 1815 counties and more than 50 communities in Missouri and Kansas, including a central business district located in Kansas City, Missouri and communities on both sides of the state line. The area is known for the diversity of its economic base, with major employers in manufacturing and distribution, architecture and engineering, technology, telecommunications, financial services, and bioscience, as well as local ~~government~~ and ~~higher education.~~federal government.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following contains certain information about the executive officers of FBFS. There are no family relationships between any directors or executive officers of FBFS.

Corey A. Chambas, age 5561, has served as a director of FBFS since July 2002, as Chief Executive Officer since December 2006 and as President ~~since~~from February ~~2005.~~2005 until January 2023. He served as Chief Operating Officer of FBFS from February 2005 to September 2006 and as Executive Vice President from July 2002 to February 2005. He served as Chief Executive Officer of FBB from July 1999 to September 2006 and as President of FBB from July 1999 to February 2005. ~~He also currently serves as a director of our subsidiary FMIC.~~ Mr. Chambas has over 3035 years of commercial banking experience. Prior to joining FBFS in 1993, he was a Vice President of Commercial Lending with M&I Bank, now known as BMO ~~Harris~~ Bank, N.A. , in Madison, Wisconsin.

~~Edward G. Sloane, Jr.,~~Brian D. Spielmann, age ~~57,~~ 41,has served as Chief Financial Officer of FBFS since ~~January 2016.~~April 2023. Mr. ~~Sloane~~Spielmann also serves as the Chief Financial Officer of the Bank. Mr. Sloane has over 30 years of financial services experience including mergers and acquisitions, strategic planning and financial reporting and analysis. Prior to joining FBFS, Mr. Sloane was Executive Vice President, Chief Financial Officer and Treasurer with Peoples Bancorp, Inc. in Marietta, Ohio from 2008 to 2015. He also served as Senior Vice President of Strategic Planning & Analysis for WesBanco, Inc. in Wheeling, West Virginia from 2006 to 2008, as Senior Vice President and Controller from 1998 to 2006 and in various other capacities from 1989 to 1998.

~~Michael J. Losenegger,~~ ~~age 60~~, ~~has served as Chief Credit Officer of FBFS since May 2011. Mr. Losenegger also serves as the Chief Credit~~ Officer of the Bank. He also currently serves as a director ~~for~~of our ~~subsidiaries FBCC~~FBSF subsidiary. Mr. Spielmann had been serving as the Corporation’s Deputy Chief Financial Officer and ~~FBEF. Prior to being appointed~~ Chief ~~Credit Officer, Mr. Losenegger served as FBFS’s Chief Operating~~Accounting Officer since ~~September 2006.~~May 2022. Mr. ~~Losenegger~~

Spielmann joined FBFS in ~~2003~~2006 and has held various positions ~~with FBB,~~ including Chief ~~Executive~~Accounting Officer, ~~Chief Operating Officer~~Director of Finance, Financial Reporting Manager, and Senior Vice President of Business Development. Mr. Losenegger has over 30 years of experience in commercial lending. Prior to joining FBFS, Mr. Losenegger was Senior Vice President of Lending at M&I Bank, now known as BMO Harris Bank, in Madison, Wisconsin.Financial Accountant.

~~Barbara M. Conley,~~ David R. Seiler, age 6459, has served as FBFS’s General Counsel since June 2008. Ms. Conley also serves as General Counsel of the Bank. She has over 35 years of experience in commercial banking. Immediately prior to joining FBFS in 2007, Ms. Conley was a Senior Vice President in Corporate Banking with Associated Bank. She had been employed at Associated Bank since May 1976.

~~Jodi A. Chandler,~~ ~~age 53~~, has served as Chief ~~Human Resources~~Operating Officer of FBFS since April 2016 and as President of FBFS since January ~~2010.~~2023. He also currently serves as a director for our subsidiary FBSF. Mr. Seiler has over 25 years of financial services experience including his previous position as Managing Director (formerly Senior Vice President/Manager) of the Correspondent Banking Division with BMO Bank, N.A. in Milwaukee, Wisconsin which he held from 2007 to 2016. Prior to that, ~~she~~he held the position of Senior Vice ~~President-Human Resources for several years. She has been an employee of FBFS for over 25 years.~~President/Team Leader, Correspondent Real Estate Division from 2005 to 2007 and Vice President, Relationship Manager, Commercial Real Estate from 2002 to 2005.

Mark J. Meloy, age ~~56,~~62, has served as ~~Chief~~ Executive ~~Officer~~Vice President of ~~FBB~~FBFS since ~~December 2007.~~January 2023. Mr. Meloy joined FBFS in 2000 and has held various positions including Chief Executive Officer of FBB, Executive Vice President of FBB, and President and Chief Executive Officer of

FBB-Milwaukee. ~~He currently serves as CEO of FBEF.~~ He also currently serves as a director of our ~~subsidiaries FBB, FBCC and FBEF.~~FBSF subsidiary. Mr. Meloy has over 2535 years of commercial lending experience. Prior to joining FBFS, Mr. Meloy was a Vice President and Senior Relationship Manager with Firstar Bank, NA, in Cedar Rapids, Iowa and Milwaukee, Wisconsin, now known as U.S. Bank, working in their financial institutions group with mergers and acquisition financing.

~~Joan~~Bradley A. ~~Burke,~~ Quade, age ~~66,~~58, has served as Chief Credit Officer of FBFS since April 2020. Mr. Quade had been serving as the Corporation’s Deputy Chief Credit Officer since October 2019. He also currently serves as a director for our subsidiary FBSF. Mr. Quade has over 35 years of experience in banking at publicly traded and privately-owned institutions and has led successful lending teams in commercial banking, investment real estate, equipment leasing, and treasury management. Prior to joining FBFS, Mr. Quade held the position of Senior Vice President with Johnson Bank in Milwaukee, Wisconsin.

Jodi A. Chandler, age 59, has served as Chief Human Resources Officer of ~~FBTI~~FBFS since ~~September 2001.~~January 2010. Prior to that, she held the position of Senior Vice President-Human Resources for several years. She has been an employee of FBFS for over 30 years.

Laura M. Garcia, age 51, has served as Chief Risk Officer for FBFS since March 2022. Prior to joining FBFS, she held the position of Head of North American Risk and Compliance, Managing Director for BMO Bank, N.A. in Chicago, Illinois, from 2018 to 2022. Ms. ~~Burke~~Garcia has over 30 years of experience in ~~providing trust~~the financial services ~~investment management, mutual fund management~~industry, centered in commercial banking, credit, compliance, and ~~brokerage services. Prior to joining FBFS, Ms. Burke was the President, Chief Executive Officer and Chairperson of the Board of Johnson Trust Company and certain of its affiliates.~~risk management.

~~Charles H. Batson,~~ James E. Hartlieb, age ~~64,~~53, has served as ~~the~~ President of FBB since 2015 and as Chief Executive Officer of ~~FBCC~~FBB and a director of FBB since January ~~2006.~~2023. Mr. Hartlieb joined FBB in 2009 as Senior Vice President of Greater Dane County. He also currently serves as a director ~~for FBCC.~~of our FBSF subsidiary. Mr. ~~Batson~~Hartlieb has over 3025 years of ~~experience in asset-based lending.~~financial services experience. Prior to joining ~~FBCC,~~FBB, Mr. ~~Batson served as Vice~~Hartlieb held the position of Regional President ~~and Business Development Manager for Wells Fargo Business Credit, Inc. since 1990.~~with AMCORE Bank in Madison, Wisconsin, which he held from 1998 to 2009.

Daniel S. Ovokaitys, age 4450, has served as Chief Information Officer since June 2014. Prior to joining FBFS, Mr. Ovokaitys held the position of Head of Corporate IT (North/South America) for Merz Pharmaceuticals, located in Frankfurt, Germany, from 2010 to 2014. He also served as Director of IT for Aurora Health Care from 2006 to 2010 and Manager of IT for the American Transmission Company from 2000 to 2006.

~~David R. Seiler,~~ ~~age 53~~, has served as Chief Operating Officer of FBFS since April 2016. He also currently serves as a director for our subsidiary FBCC. Mr. Seiler has over 25 years of financial services experience including his previous position as Managing Director (formerly Senior Vice President/Manager) of the Correspondent Banking Division with BMO Harris Bank, N.A. in Milwaukee, Wisconsin which he held from 2007 to 2016. Prior to that, he held the position of Senior Vice President/Team Leader, Correspondent Real Estate Division from 2005 to 2007 and Vice President, Relationship Manager, Commercial Real Estate from 2002 to 2005.

SUPERVISION AND REGULATION

Below is a brief description of certain laws and regulations that relate to us and the Bank. This narrative does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations.

General

~~Institutions insured by the~~ Federal Deposit Insurance Corporation (“FDIC”),-insured institutions, like the Bank, their holding companies, and their affiliates are extensively regulated under federal and state law. As a result, ~~the Corporation’s~~our growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies, including our primary regulators, the Board of Governors of the Federal Reserve System (“Federal Reserve”), the Bank’s state regulator, the Wisconsin Department of Financial Institutions (“WDFI”), and its primary federal regulator, the ~~Federal Reserve, the FDIC and the Consumer Financial Protection Bureau (“CFPB”).~~FDIC. Furthermore, taxation laws administered by the Internal Revenue Service (“IRS”) and state taxing authorities, accounting rules developed by the Financial Accounting Standards Board (“FASB”), securities laws administered by the SEC and state securities authorities, and anti-money laundering

laws enforced by the U.S. Department of the Treasury (“Treasury”) have an impact ~~the Corporation’s~~on our business. The effect of these statutes, regulations, regulatory policies, and accounting rules are significant to ~~the Corporation’s~~our operations and results.

Federal and state banking laws impose a comprehensive system of supervision, regulation, and enforcement on the operations of FDIC-insured institutions, their holding companies, and affiliates that is intended primarily for the protection of the FDIC-insured deposits and depositors of banks, rather than shareholders. These laws, and the regulations of the bank regulatory agencies issued under them, affect, among other things, the scope of ~~the Corporation’s~~our business, the kinds and amounts of investments wethe Corporation and the Bank may make, limits on the Bank’s loans to any one borrower, reserve requirements, required capital levels relative to ~~the Corporation’s~~ assets, the nature and amount of collateral for loans, the establishment of branches, the ability to merge, consolidate and acquire, dealings with the Corporation’s and the Bank’s insiders and affiliates, and ~~the Corporation’s~~ payment of dividends. In reaction to the global financial crisis beginning in 2008 (the “global financial crisis”), and particularly following the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ~~(the “Dodd-Frank~~(“Dodd-Frank Act”), we experienced heightened regulatory requirements and scrutiny. Although the reforms primarily targeted systemically important financial service providers, their influence filtered down in varying degrees to community banks over time and caused ~~the Corporation’s~~our compliance and risk management processes, and the costs thereof, to increase. After the 2016 federal elections, momentum to decrease the regulatory burden on community banks gathered strength. ~~Although~~In May 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Regulatory Relief Act”) was enacted to modify or remove certain financial reform rules and regulations. While the Regulatory Relief Act maintains most of the regulatory structure established by the Dodd-Frank Act, it amends certain aspects of the regulatory framework for small depository institutions with assets of less than $10 billion, like us, and for large banks with assets of more than $50 billion that were considered systemically important under the Dodd-Frank Act solely because of size. Many of these ~~deregulatory trends continue~~changes were intended to ~~receive much~~result in meaningful regulatory relief for community banks and their holding companies, including new rules that may make the capital requirements less complex. For a discussion ~~among~~of capital requirements, see The Role of Capital below. The Regulatory Relief Act also eliminated questions about the ~~banking industry, lawmakers~~applicability of certain Dodd-Frank Act reforms to community bank systems, including relieving the Bank of any requirement to engage in mandatory stress tests, name a risk committee, or comply with the Volcker Rule’s complicated prohibitions on proprietary trading and ~~the bank regulatory agencies, little substantive progress has yet been made.~~ownership of private funds. The ~~true impact of proposed~~Corporation believes these reforms ~~remains difficult~~are generally favorable to ~~predict with any certainty.~~

its operations.

The supervisory framework for U.S. banking organizations subjects banks and bank holding companies to regular examination by their respective regulatory agencies, which results in examination reports and ratings that are not publicly available and ~~that~~ can impact the conduct and growth of their business. These examinations consider not only compliance with applicable laws and regulations, but also capital levels, asset quality and risk, management ability and performance, earnings, liquidity, information technology, and various other factors. The regulatory agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law, or are otherwise inconsistent with laws and ~~regulations or with the supervisory policies of these agencies.~~regulations.

The following is a summary of the material elements of the supervisory and regulatory framework applicable to ~~us,~~the Corporation and the Bank, beginning with a discussion of the continuing regulatory emphasis on ~~the Corporation’s~~our capital levels. It does not describe all of the statutes, regulations, and regulatory policies that apply, nor does it restate all of the requirements of those that are described. The descriptions are qualified in their entirety by reference to the particular statutory and regulatory provision.

~~Regulatory Emphasis on~~The Role of Capital

Regulatory capital represents the net assets of a banking organization available to absorb losses. Because of the risks attendant to their business, FDIC-insured institutions are generally required to hold more capital than other businesses, which directly affects ~~the Corporation’s~~our earnings capabilities. While capital has historically been one of the key measures of the financial health of both bank holding companies and banks, its role became fundamentally more important in the wake of the global financial crisis, as the banking regulators recognized that the amount and quality of capital held by banks prior to the crisis was insufficient to absorb losses during periods of severe stress. Certain provisions of the Dodd-Frank Act and Basel III, discussed below, establish ~~strengthened~~ capital standards for banks and bank holding companies ~~require more capital to be held in the form of common stock and disallow certain funds from being included in capital determinations. These standards represent regulatory capital requirements~~ that are meaningfully more stringent than those in place previously.

Minimum Required Capital Levels. Banks have been required to hold minimum levels of capital based on guidelines established by the bank regulatory agencies since 1983. The minimums have been expressed in terms of ratios of ~~capital~~“capital” divided by ~~total~~“total assets.” As discussed below, bank capital measures have become more sophisticated over the years and have focused more on the quality of capital and the risk of assets. Bank holding companies have historically had to comply with less stringent capital standards than their bank subsidiaries and have been able to raise capital with hybrid instruments such as trust preferred securities. The Dodd-Frank Act mandated the Federal Reserve to establish minimum capital levels for holding companies on a consolidated basis as stringent as those required for FDIC-insured institutions. A result of this change is that the proceeds of hybrid instruments, such as trust preferred securities, ~~are being~~were excluded from capital over a phase-out period. However,

if such securities were issued prior to May 19, 2010 by bank holding companies with less than $15 billion of assets, they may be retained, subject to certain restrictions. Because we have assets of less than $15 billion, we are able to maintain the Corporation’s trust preferred proceeds as capital but we have to comply with new capital mandates in other respects and will not be able to raise capital in the future through the issuance of trust preferred securities.

The Basel III Rule. On September 12, 2010, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced agreement on a strengthened set of capital requirements for banking organizations around the world, known as “Basel III”, to address deficiencies recognized in connection with the global financial crisis. In July 2013, the U.S. federal banking agencies approved the implementation of the Basel III regulatory capital reforms in pertinent part, and, at the same time, promulgated rules effecting certain changes required by the Dodd-Frank Act (the “Basel III Rule”). In contrast to capital requirements historically, which were in the form of guidelines, Basel III was released in the form of enforceable regulations by each of the regulatory agencies. The Basel III Rule is applicable to all banking organizations that are subject to minimum capital requirements, including federal and state banks and savings and loan associations, as well as to bank and savings and loan holding companies, other than “small bank holding companies” ~~(generally~~who are relieved from compliance with the Basel III Rule. Historically we have been disqualified from taking advantage of the relief since we have securities registered with the SEC. Moreover, our asset size now exceeds the small bank holding ~~companies with consolidated assets~~company threshold. Banking organizations became subject to the Basel III Rule on January 1, 2015, and its requirements were fully phased-in as of ~~less than $1 billion).~~January 1, 2019.

The Basel III Rule ~~required higher capital levels,~~ increased the required quantity and quality of capital and, ~~required more detailed categories of risk weighting of riskier, more opaque assets. For~~for nearly every class of assets, ~~the Basel III Rule~~it requires a more complex, detailed and calibrated assessment of ~~credit~~ risk and calculation of ~~risk weightings.~~risk-weight amounts.

Not only did the Basel III Rule increase most of the required minimum capital ratios in effect prior to January 1, 2015, but it introduced the concept of Common Equity Tier 1 Capital, which consists primarily of common stock, related surplus (net of ~~Treasury~~treasury stock), retained earnings, and Common Equity Tier 1 minority interests subject to certain regulatory adjustments. The Basel III Rule also changed the definition of capital by establishing more stringent criteria that instruments must meet to be considered Additional Tier 1 Capital (primarily non-cumulative perpetual preferred stock that meets certain requirements) and Tier 2 Capital (primarily other types of preferred stock and subordinated debt, subject to limitations). A number of instruments that historically qualified as Tier 1 Capital under Basel I do not qualify, or their qualifications ~~will change.~~changed. For example, noncumulative perpetual preferred stock, which qualified as simple Tier 1 Capital, ~~under Basel I,~~ does not qualify as Common Equity Tier 1

Capital, but qualifies as Additional Tier 1 Capital. The Basel III Rule also constrained the inclusion of minority interests, mortgage-servicing assets, and deferred tax assets in capital and requires deductions from Common Equity Tier 1 Capital in the event that such assets exceed a certain percentage of a banking institution’s Common Equity Tier 1 Capital.

The Basel III Rule required minimum capital ratios beginning as of January 1, 2015, as follows:

•A ratio of minimum Common Equity Tier 1 Capital equal to 4.5% of risk-weighted assets;

•An increase in the minimum required amount of Tier 1 Capital from 4% to 6% of risk-weighted assets;

•A continuation of the minimum required amount of Total Capital (Tier 1 plus Tier 2) at 8% of risk-weighted assets; and

•A minimum leverage ratio of Tier 1 Capital to total quarterly average assets equal to 4% in all circumstances.

In addition, institutions that seek the freedom to make capital distributions (including for dividends and repurchases of stock) and pay discretionary bonuses to executive officers without restriction must also maintain 2.5% in Common Equity Tier 1 Capital attributable to a capital conservation ~~buffer being phased in over three years beginning in 2016 (which, as of January 1, 2018, it had phased in to 1.875%).~~buffer. The purpose of the conservation buffer is to ensure that banking institutions maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress. Factoring in the ~~fully phased-in~~ conservation buffer increases the minimum ratios depicted above to 7% for Common Equity Tier 1 Capital, 8.5% for Tier 1 Capital and 10.5% for Total Capital.

~~Banking~~Through subsequent rulemaking, the federal banking agencies provided certain forms of relief to banking organizations ~~(except for large, internationally active banking organizations) became~~that are not subject to the ~~new rules on January 1, 2015. However, there~~capital regulation's advanced approaches, such as the Corporation. For instance, non-advanced approaches institutions are ~~separate phase-in/phase-out periods for: (i)~~subject to simpler regulatory capital requirements for Mortgage Servicing Assets (“MSA”), certain Deferred Tax Assets (“DTA”) arising from temporary differences, investments in the capital ~~conservation buffer; (ii)~~of unconsolidated financial institutions, and requirements for the amount of capital issued by a consolidated subsidiary of a banking organization and held by third parties (sometimes referred to as a minority interest) that is includable in regulatory capital. Specifically, such institutions may deduct from Common Equity Tier 1 Capital any amount of MSAs, temporary difference DTAs, and investments in the capital of unconsolidated financial institutions that individually exceeds 25 percent of Common Equity Tier 1 Capital.

On July 27, 2023, the federal banking agencies issued a proposed rule to implement the final components of the Basel III standards set by the Basel Committee on Banking Supervision in 2017. The proposed rule, which would not apply to the Corporation and the Bank as proposed, would substantially revise the existing regulatory capital adjustments and deductions; (iii) nonqualifying capital instruments; and (iv) changes to the prompt corrective action rules discussed below. The phase-in periods commenced on January 1, 2016 and extend until January 1, 2019.framework for institutions with $100 billion or more of assets.

Well-Capitalized Requirements. The ratios described above are minimum standards in order for banking organizations to be considered “adequately capitalized.” Bank regulatory agencies uniformly encourage banks to hold more capital and be ~~“well-capitalized”~~

“well-capitalized” and, to that end, federal law and regulations provide various incentives for banking organizations to maintain regulatory capital at levels in excess of minimum regulatory requirements. For example, a banking organization that is well-capitalized may: (i) qualify for exemptions from prior notice or application requirements otherwise applicable to certain types of activities; (ii) qualify for expedited processing of other required notices or applications; and (iii) accept, roll-over, or renew brokered deposits. Higher capital levels could also be required if warranted by the particular circumstances or risk profiles of individual banking organizations. For example, the Federal Reserve’s capital guidelines contemplate that additional capital may be required to take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of credit, nontraditional activities, or securities trading activities. Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions (i.e., Tier 1 Capital less all intangible assets), well above the minimum levels.

Under the capital regulations of the FDIC, ~~and Federal Reserve,~~ in order to be ~~well-capitalized,~~well‑capitalized, a banking organization must maintain:

•A Common Equity Tier 1 Capital ratio to risk-weighted assets of 6.5% or more;

•A ratio of Tier 1 Capital to total risk-weighted assets of 8% or ~~more (6% under Basel I);~~more;

•A ratio of Total Capital to total risk-weighted assets of 10% or ~~more (the same as Basel I);~~more; and

•A leverage ratio of Tier 1 Capital to total adjusted average quarterly assets of 5% or greater.

~~It is possible under the Basel III Rule to be well-capitalized while remaining out of compliance with the capital conservation buffer discussed above.~~

As of December 31, ~~2017:~~2023: (i) the Bank ~~was~~is not subject to a directive from the WDFI or the FDIC to increase its capital; and (ii) the Bank was well-capitalized, as defined by FDIC regulations. ~~As of December 31, 2017,~~Additionally, the Corporation had regulatory capital in excess of the Federal Reserve’s requirements ~~and met the Basel III Rule requirements to be well-capitalized.~~as of December 31, 2023.

Prompt Corrective Action. ~~An FDIC-insured institution’s capital plays~~The concept of an ~~important role in connection with~~institution being “well-capitalized” is part of a regulatory enforcement ~~as well. Federal law~~regime that provides the federal banking regulators with broad power to take ~~prompt~~“prompt corrective ~~action~~action” to resolve the problems of ~~undercapitalized institutions.~~ institutions based on the capital level of each particular institution.The extent of the regulators’ powers depends on whether the institution in question is “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized,” in each case as defined by regulation. Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include: (i) requiring the institution to submit a capital restoration plan; (ii) limiting the institution’s asset growth and restricting its activities; (iii) requiring the institution to issue additional capital stock (including additional voting stock) or to sell itself; (iv) restricting transactions between the institution and its affiliates; (v) restricting the interest rate that the institution may pay on deposits; (vi) ordering a new election of directors of the institution; (vii) requiring that senior executive officers or directors be dismissed; (viii) prohibiting the institution from accepting deposits from correspondent banks;

(ix) requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of principal or interest on subordinated debt; and (xi) ultimately, appointing a receiver for the institution.

~~Regulations~~Community Bank Capital Simplification.Community banks have long raised concerns with bank regulators about the regulatory burden, complexity, and ~~Supervision~~costs associated with certain provisions of the ~~Corporation~~Basel III Rule. In response, Congress provided a potential Basel III “off-ramp” for certain institutions, like us, under Section 201 of the Regulatory Relief Act. Pursuant to authority granted thereunder, on September 17, 2019, the agencies adopted a final rule, effective on January 1, 2020, providing that banks and bank holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a “Community Bank Leverage Ratio” (“CBLR”) calculated by dividing Tier 1 capital by average total consolidated assets of greater than 9%, will be eligible to opt into the CBLR framework. By opting into the framework, qualifying banks and bank holding companies maintaining a CBLR greater than 9% will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the agencies’ capital rules and, if applicable, will be considered to have met the well-capitalized ratio requirements for purposes of section 38 of the Federal Deposit Insurance Act. In addition to the consolidated assets and CBLR requirements described above, a qualifying bank or bank holding company must also have (i) total off-balance sheet exposures (excluding derivatives other than sold credit derivatives and unconditionally cancellable commitments) of 25% or less of total consolidated assets, and (ii) the sum of total trading assets and trading liabilities of 5% or less of total consolidated assets.

~~General.~~ The Corporation asand the Bank opted out of the CBLR framework for each reporting period in 2023 and has the option to opt into the framework for future reporting periods. The decision to opt into or out of the CBLR framework is monitored on an ongoing basis.

First Business Financial Services, Inc.

General. As the sole shareholder of the Bank, iswe are a bank holding company. As a bank holding company, we are registered with, and subject to regulation, supervision, and enforcement by, the Federal Reserve under the Bank Holding Company Act of 1956, as amended (“BHCA”). We are legally obligated to act as a source of financial ~~and managerial~~ strength to the Bank and to commit resources to support the Bank in circumstances where we might not otherwise do so. Under the BHCA, we are subject to periodic examination by the Federal ~~Reserve and~~Reserve. We are required to file with the Federal Reserve periodic reports of ~~the Corporation’s~~our operations and such additional information regarding usthe Corporation and ~~the Bank~~our subsidiaries as the Federal Reserve may require.

Acquisitions ~~Activities~~ and ~~Change in Control~~Activities. The primary purpose of a bank holding company is to control and manage banks. The BHCA generally requires the prior approval of the Federal Reserve for any merger involving a bank holding company or any acquisition by a bank holding company of another bank or bank holding company. Subject to certain conditions (including deposit concentration limits established by the ~~BHCA,~~BHCA), the Federal Reserve may allow a bank holding company to acquire banks located in any state of the United States. In approving interstate acquisitions, the Federal Reserve is required to give effect to applicable state law limitations on the aggregate amount of deposits that may be held by the acquiring bank holding company and its FDIC-insured institution affiliates in the state in which the target bank is located (provided that those limits do not discriminate against out-of-state institutions or their holding companies) and state laws that require that the target bank ~~have~~has been in existence for a minimum period of time (not to exceed five years) before being acquired by an out-of-state bank holding company. Furthermore, in accordance with the Dodd-Frank Act, bank holding companies must be well-capitalized and well-managed in order to effect interstate mergers or acquisitions. For a discussion of the capital requirements, see ~~“Regulatory Emphasis on Capital”~~The Role of Capital above.

The BHCA generally prohibits the Corporation from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries. This general prohibition is subject to a number of exceptions. The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve prior to November 11, 1999 to be “so closely related to banking ~~. . .~~... as to be a proper incident thereto.” This authority ~~would permit us~~permits the Corporation to engage in a variety of banking-related businesses, including the ownership and operation of a savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software development), and mortgage banking and brokerage services. The BHCA does not place territorial restrictions on the domestic activities of ~~nonbank~~non-bank subsidiaries of bank holding companies.

Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of ~~nonbanking~~non-banking activities, including securities and insurance underwriting and sales, merchant banking, and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature or incidental to any such financial activity or that the Federal Reserve determines by order to be complementary to any such financial activity and does not pose a substantial risk to the safety or soundness of FDIC-insured institutions or the financial system generally. In order to maintain status as a financial holding company, both the bank holding company and its subsidiary bank must be well-capitalized, well-managed, and have a least a satisfactory Community Reinvestment Act (“CRA”) rating. If the Federal Reserve determines that either the bank holding company or any of its subsidiary banks are not well-capitalized or well-managed, the Federal Reserve will provide a period of time in which to achieve compliance, but during the period of noncompliance, the Federal Reserve may place any additional limitations on it believes to be appropriate. Furthermore, if the Federal Reserve determines that the subsidiary bank has not received a satisfactory CRA rating, the holding company would not be able to commence any new financial activities or acquire a company that engages in such activities. The Corporation has not elected to ~~become~~operate as a financial holding company.

Change in Control.Federal law also prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator. “Control” is conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank holding company but may arise under certain circumstances between 10% and 24.99% ownership.

~~Capital Requirements.~~ ~~Bank holding companies are required to maintain capital in accordance with~~ On January 30, 2020, the Federal Reserve ~~capital adequacy requirements. For~~issued a ~~discussion~~final rule clarifying and expanding upon the Federal Reserve’s position on determinations of ~~capital requirements, see “Regulatory Emphasis on Capital” above.~~whether a company has the ability to exercise a controlling influence over another company. In particular, the final rule is intended to provide a better understanding of the facts and circumstances that the Federal Reserve considers most relevant when assessing whether control exists.

Dividend Payments. ~~The Corporation’s~~Our ability to pay dividends to ~~the Corporation’s~~our shareholders may be affected by both general corporate law considerations and policies of the Federal Reserve applicable to bank holding companies. As a Wisconsin corporation, we are subject to the limitations of ~~the~~ Wisconsin ~~Business Corporations Law,~~law, which allows us to pay dividends unless, after ~~such~~giving effect to a dividend, any of the following would occur: (i) we would not be able to pay ~~the Corporation’s~~our debts as they become due in the usual

course of business or (ii) the ~~Corporation’s~~ total assets would be less than the sum of ~~the Corporation’s~~its total liabilities plus any amount that would be needed if we were to be dissolved at the time of the dividend payment, to satisfy the preferential rights upon dissolution of shareholders whose rights are superior to the rights of the shareholders receiving the distribution.

As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should eliminate, defer, or significantly reduce dividends to shareholders if: (i) the company’s net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) the

prospective rate of earnings retention is inconsistent with the company’s capital needs and overall current and prospective financial condition; or (iii) the company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. Moreover, under the Dodd-Frank Act and the requirements of the Federal Reserve, the Corporation, as a bank holding company, is required to serve as a source of financial strength to the Bank and to commit resources to support the Bank. In addition, consistent with its “source of strength” policy, the Federal Reserve has stated that, as a matter of prudent banking, a bank holding company should not maintain a level of cash dividends to its shareholders that places undue pressure on the capital of its bank subsidiaries, or that can be funded only through additional borrowings or other arrangements that may undermine the bank holding company’s ability to serve as a source of strength. The appropriate federal regulatory authorities have indicated that paying dividends that deplete a bank’s capital base to an inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends only out of current operating earnings.

The Federal Reserve ~~also~~ possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies. In addition, under the Basel III Rule, institutions that seek the freedom to pay dividends ~~will~~ have to maintain 2.5% in Common Equity Tier 1 Capital attributable to the capital conservation ~~buffer to be phased in over three years beginning in 2016.~~buffer. See ~~“Regulatory Emphasis on Capital” above.~~The Role of Capital above for additional information.

~~Incentive Compensation.~~ There have been a number of developments in recent years focused on incentive compensation plans sponsored by bank holding companies and banks, reflecting recognition by the bank regulatory agencies and Congress that flawed incentive compensation practices in the financial industry were one of many factors contributing to the global financial crisis. Layered on top of that are the abuses in the headlines dealing with product cross-selling incentive plans. The result is interagency guidance on sound incentive compensation practices and proposed rulemaking by the agencies required under Section 956 of the Dodd-Frank Act.

The interagency guidance recognized three core principles. Effective incentive plans should: (i) provide employees incentives that appropriately balance risk and reward; (ii) be compatible with effective controls and risk-management; and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. Much of the guidance addresses large banking organizations and, because of the size and complexity of their operations, the regulators expect those organizations to maintain systematic and formalized policies, procedures and systems for ensuring that the incentive compensation arrangements for all executive and non-executive employees covered by this guidance are identified and reviewed, and appropriately balance risks and rewards. Smaller banking organizations like the Corporation that use incentive compensation arrangements are expected to be less extensive, formalized and detailed than those of the larger banks.

Section 956 of the Dodd-Frank Act required the banking agencies, the National Credit Union Administration, the SEC and the Federal Housing Finance Agency to jointly prescribe regulations that prohibit types of incentive-based compensation that encourages inappropriate risk taking and to disclose certain information regarding such plans. On June 10, 2016, the agencies released an updated proposed rule for comment. Section 956 will only apply to banking organizations with assets of greater than $1 billion. We have consolidated assets greater than $1 billion and less than $50 billion and we are considered a Level 3 banking organization under the proposed rules. The proposed rules contain mostly general principles and reporting requirements for Level 3 institutions so there are no specific prescriptions or limits, deferral requirements or claw-back mandates. Risk management and controls are required, as is board or committee level approval and oversight. Management expects to review its incentive plans in light of the proposed rulemaking and guidance and implement policies and procedures that mitigate unreasonable risk. As of December 31, 2017, these rules remain in proposed form.

Monetary Policy. The monetary policy of the Federal Reserve has a significant effect on the operating results of financial or bank holding companies and their subsidiaries. Among the tools available to the Federal Reserve to affect the money supply are open market transactions in U.S. government securities, changes in the discount rate on bank borrowings, and changes in reserve requirements against bank deposits. These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits.

Federal Securities Regulation. The Corporation’s common stock is registered with the SEC under the Securities Act of 1933, as amended, and the Exchange Act. Consequently, we are subject to the information, proxy solicitation, insider trading, and other restrictions and requirements of the SEC under the Exchange Act.

Corporate Governance. The Dodd-Frank Act addressed many investor protection, corporate governance, and executive compensation matters that ~~will~~ affect most U.S. publicly traded companies. The Dodd-Frank Act increased shareholder influence over boards of directors by requiring companies to give shareholders a ~~non-binding~~nonbinding vote on executive compensation and so-called “golden parachute” payments, and by authorizing the SEC to promulgate rules that would allow shareholders to nominate and solicit voters for their own candidates using a company’s proxy materials. The legislation also directed the Federal Reserve to promulgate rules prohibiting excessive compensation paid to executives of bank holding companies, regardless of whether such companies are publicly traded.

~~Regulation and Supervision of the~~The Bank

General. The Bank is a ~~Wisconsin-chartered~~Wisconsin state-chartered bank. The deposit accounts of the Bank are insured by the FDIC’s Deposit Insurance Fund (“DIF”) to the maximum extent provided under federal law and FDIC ~~regulations, currently $250,000 per insured depositor category.~~regulations. As a Wisconsin-chartered FDIC-insured bank, the Bank is subject to the examination, supervision, reporting, and enforcement requirements of the WDFI, the chartering authority for Wisconsin banks, and the FDIC, designated by federal law as the primary federal regulator of insured state banks that, like the Bank, are not members of the Federal Reserve System ~~(“nonmember banks”)~~(nonmember banks).

Deposit ~~Insurance.~~ Insurance. As an FDIC-insured institution, the Bank is required to pay deposit insurance premium assessments to the FDIC. Deposits are insured up to applicable limits by the FDIC and such insurance is backed by the full faith and credit of the United States Government. Under the Dodd-Frank Act, a permanent increase in deposit insurance was authorized to $250,000 per depositor, per insured depository institution for each account ownership category.

The FDIC has adopted a risk-based assessment system whereby FDIC-insured institutions pay insurance premiums at rates based on their risk classification. For institutions like the Bank that are not considered large and highly complex banking organizations, assessments are ~~not~~now based on examination ~~rating~~ratings and financial ratios. ~~The total base assessment rates currently range from 1.5 basis points to 30 basis points.~~ At least semi-annually, the FDIC updates its loss and income projections for the DIF and, if needed, increases or decreases the assessment rates, following notice and comment on proposed rulemaking. The assessment base against which an FDIC-insured institution’s deposit insurance premiums paid to the DIF ~~are~~has been calculated since effectiveness of the Dodd-Frank Act is based on its average consolidated total assets less its average tangible equity. This method ~~shifts~~shifted the burden of deposit insurance premiums toward those large depository institutions that rely on funding sources other than U.S. deposits.

~~The reserve ratio is the FDIC insurance fund balance divided by estimated insured deposits.~~ The Dodd-Frank Act ~~altered~~set the minimum DIF reserve ratio ~~of the DIF, increasing the minimum from 1.15% to~~at 1.35% of the estimated amount of total insured deposits, and eliminating the requirement that the FDIC pay dividends to FDIC-insured institutions when the reserve ratio exceeds

certain thresholds. ~~The~~On October 18, 2022, the FDIC adopted a final rule increasing the initial base deposit insurance rate schedules by 2 basis points, beginning with the first quarterly assessment period of 2023. Starting January 1, 2023, the total base assessment rates for small banks, such as the Bank, ranged from 2.5 basis points to 32 basis points. This new assessment rate schedule will remain in effect unless and until the reserve ratio ~~reached 1.15% on~~meets or exceeds 2.00%. Progressively lower assessment rate schedules will take effect when the reserve ratio reaches 2.00%, and again when it reaches 2.50%. The Bank’s assessment rate for deposit insurance was approximately 8 basis points for 2023.

The DIF reserve ratio was 1.10% as of June 30, ~~2016, when revised factors were put~~2023, which is less than the statutory minimum reserve ratio of 1.35%, which is required to be achieved by September 30, 2028. There was a sharp decline in ~~place~~the DIF in 2023 following the failures of Silicon Valley Bank, Signature Bank and First Republic Bank in the first half of 2023, coupled with strong insured deposit growth. On November 16, 2023, the FDIC issued a final rule to implement a special assessment to recover the loss DIF associated with protecting uninsured depositors following these bank failures. Under the final rule, the assessment base for ~~calculating~~an insured depository institution will be equal to the ~~assessment. The reserve ratio~~institution’s estimated uninsured deposits as of December 31, ~~2017 was 1.30%. If~~2022, adjusted to exclude the ~~reserve ratio does not reach 1.35% by December 31, 2018 (provided it is at least 1.15%),~~first $5 billion in estimated uninsured deposits. Under the final rule, the FDIC will ~~impose a shortfall~~collect the special assessment ~~on March~~at an annual rate of 13.4 basis points beginning with the first quarterly assessment period of 2024 and will continue to collect special assessments for an anticipated total of eight quarterly assessment periods. At December 31, ~~2019 on insured depository institutions with total consolidated assets~~2023, our estimated level of ~~$10 billion or more.~~ uninsured deposits was below this threshold, and therefore, the Bank is not subject to this special assessment.

The FDIC ~~will provide assessment credits~~is authorized to ~~insured~~conduct examinations of and require reporting by FDIC-insured institutions. It is also authorized to terminate a depository ~~institutions, like~~bank’s deposit insurance upon a finding by the FDIC that the bank’s financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order or condition enacted or imposed by the bank’s regulatory agency. The termination of deposit insurance for the Bank ~~with total consolidated assets of less than $10 billion for the portion of their regular assessments that contribute to growth in the reserve ratio between 1.15%~~would have a material adverse effect on our earnings, operations and ~~1.35%. The FDIC will apply the credits each quarter that the reserve ratio is at least 1.38% to offset the regular deposit insurance assessments of institutions with credits.~~financial condition.

~~FICO Assessments.~~ In addition to paying basic deposit insurance assessments, FDIC-insured institutions must pay Financing Corporation (“FICO”) assessments. FICO is a mixed-ownership governmental corporation chartered by the former Federal Home Loan Bank (“FHLB”) Board pursuant to the Competitive Equality Banking Act of 1987 to function as a financing vehicle for the recapitalization of the former Federal Savings and Loan Insurance Corporation. FICO issued 30-year noncallable bonds of approximately $8.1 billion that mature in 2017 through 2019. FICO’s authority to issue bonds ended on December 12, 1991. Since 1996, federal legislation has required that all FDIC-insured institutions pay assessments to cover interest payments on FICO’s outstanding obligations. The FICO assessment rate is adjusted quarterly and for the fourth quarter of 2017 was 54 cents per $100 dollars of assessable deposits.

Supervisory Assessments.All Wisconsin banks are required to pay supervisory assessments to the WDFI to fund the operations of that agency. The amount of the assessment is calculated on the basis of the Bank’s total assets. During the year ended December 31, 2017, the Bank paid supervisory assessments to the WDFI totaling approximately $60,000, which includes any separate assessment paid by FBB-Milwaukee. Also, Alterra, for the time in which it was held as a separate charter in 2017, paid supervisory assessments to the Office of State Bank Commissioner of Kansas totaling approximately $51,000.

~~Capital Requirements.~~ ~~Banks are generally required to maintain capital levels in excess of other businesses. For a discussion of capital requirements, see “Regulatory Emphasis on Capital” above.~~

Liquidity Requirements. Liquidity is a measure of the ability and ease with which bank assets may be converted to cash. Liquid assets are those that can be converted to cash quickly if needed to meet financial obligations. To remain viable, FDIC-insured institutions must have enough liquid assets to meet their near-term obligations, such as withdrawals by depositors. Because the global financial crisis was in part a liquidity crisis, Basel III also includes a liquidity framework that requires FDIC-insured institutions to measure their liquidity against specific liquidity tests. One test, referred to as the Liquidity Coverage Ratio, ~~(“LCR”),~~ is designed to ensure that the banking entity has an adequate stock of unencumbered high-quality liquid assets that can be converted easily and immediately in private markets into cash to meet liquidity needs for a 30-calendar day liquidity stress scenario. The other test, known as the Net Stable Funding Ratio, ~~(“NSFR”),~~ is designed to promote more medium- and long-term funding of the assets and activities of FDIC-insured institutions over a one-year horizon. These tests provide an incentive for banks and holding companies to increase their holdings in Treasury securities and other sovereign debt as a component of assets, increase the use of long-term debt as a funding source, and rely on stable funding like core deposits (in lieu of brokered deposits).

In addition to liquidity guidelines already in place, the federal bank regulatory agencies implemented the Basel III LCR in September 2014, which requires large financial firms to hold levels of liquid assets sufficient to protect against constraints on their funding during times of financial turmoil, and in 2016 proposed implementation of the NSFR. While these tests only apply to the largest banking organizations in the country, certain elements are expected to filter down to all FDIC-insured institutions. We are reviewing the Corporation’s liquidity risk management policies in light of the LCR and NSFR.

~~Stress Testing.~~ A stress test is an analysis or simulation designed to determine the ability of a given FDIC-insured institution to deal with an economic crisis. In October 2012, U.S. bank regulators unveiled new rules mandated by the Dodd-Frank Act that require the largest U.S. banks to undergo stress tests twice per year, once internally and once conducted by the regulators. Stress tests are not required for banks with less than $10 billion in assets; however, the FDIC now recommends stress testing as means to identify and quantify loan portfolio risk and the Bank is conducting quarterly commercial real estate portfolio stress testing.

Dividend Payments.The primary source of funds for the Corporation is dividends from the Bank. Under Wisconsin ~~banking~~ law, ~~Wisconsin-chartered banks generally~~the board of directors of a bank may declare and pay a dividend from its undivided profits in an amount it considers expedient. The board of directors must provide for the payment of all expenses, losses, required reserves, taxes, and interest accrued or due from the bank before the declaration of dividends ~~only out of~~from undivided profits. If dividends declared and paid in either of the two immediately preceding years exceeded net income for either of those two years respectively, the bank may not declare or pay any dividend in the current year that exceeds year-to-date net income except with the written consent of the WDFI. The FDIC and the WDFI may ~~restrict~~prohibit the ~~declaration or payment of a dividend by a Wisconsin-chartered bank, such as the Bank. The~~ payment of dividends by any FDIC-insured institution is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a FDIC-insured institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized. As described above, the Bank ~~exceeded its capital requirements under applicable guidelines as of December 31, 2017.~~if either or both determine such payment would constitute an unsafe or unsound practice. In addition, under the Basel III Rule, institutions that seek the freedom to pay dividends will have to maintain 2.5% in Common Equity Tier 1 Capital attributable to the capital conservation ~~buffer to be phased in over three years beginning in 2016.~~buffer. See ~~“Regulatory Emphasis on Capital”~~The Role of Capital above.

State Bank Investments and Activities. The Bank is permitted to make investments and engage in activities directly or through subsidiaries as authorized by Wisconsin law. However, under federal law and FDIC regulations, FDIC-insured state banks are prohibited, subject to certain exceptions, from making or retaining equity investments of a type, or in an amount, ~~that~~which are not permissible for a national bank. Federal law and FDIC regulations also prohibit FDIC-insured state banks and their subsidiaries, subject to certain exceptions, from engaging as principal in any activity that is not permitted for a national bank unless the ~~Bank~~bank meets, and continues to meet, its minimum regulatory capital requirements and the FDIC determines that the activity would not pose a significant risk to the DIF. These restrictions have not had, and are not currently expected to have, a material impact on the operations of the Bank.

Insider Transactions. The Bank is subject to certain restrictions imposed by federal law on “covered transactions” between the Bank and its “affiliates.” ~~The Corporation is~~We are an affiliate of the Bank for purposes of these restrictions, and covered transactions subject to the restrictions include extensions of credit to the Corporation, investments in the stock or other securities of the Corporation, and the acceptance of the stock or other securities of the Corporation as collateral for loans made by the Bank. The Dodd-Frank Act enhanced the requirements for certain transactions with affiliates, including an expansion of the definition of “covered transactions” and an increase in the amount of time for which collateral requirements regarding covered transactions must be maintained.

Certain limitations and reporting requirements are also placed on extensions of credit by the Bank to its directors and officers, to directors and officers of the Corporation and its subsidiaries, to principal shareholders of the Corporation, and to “related interests” of such directors, officers, and principal shareholders. In addition, federal law and regulations may affect the terms upon which any person who is a director or officer of the Corporation or the Bank, or a principal shareholder of the Corporation, may obtain credit from banks with which the Bank maintains a correspondent relationship.

Safety and Soundness Standards/Risk Management.The federal banking agencies have adopted ~~guidelines that establish~~ operational and managerial standards to promote the safety and soundness of FDIC-insured institutions. The ~~guidelines set forth~~ standards ~~for~~apply to internal controls, information systems, internal audit systems, ~~loan documentation,~~risk mitigation, bank operations, compliance, credit underwriting, interest rate exposure, asset growth, compensation, ~~fees and benefits,~~fiduciary risk, asset quality, and earnings.

In general, the safety and soundness ~~guidelines~~standards prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals. IfWhile regulatory standards do not have the force of law, if an institution ~~fails to comply with any of the standards set forth~~operates in ~~the guidelines,~~an unsafe and unsound manner, the FDIC-insured institution’s primary federal regulator may require the institution to submit a plan for achieving and maintaining compliance. If aan FDIC-insured institution fails to submit an acceptable compliance plan or fails in any material respect to implement a compliance plan that has been accepted by its primary federal regulator, the regulator is required to issue an order directing the institution to cure the deficiency. Until the deficiency cited in the regulator’s order is cured, the regulator may restrict the FDIC-insured institution’s rate of growth, require the FDIC-insured institution to increase its capital, restrict the rates the institution pays on deposits, or require the institution to take any action the regulator deems appropriate under the circumstances. Noncompliance with ~~the standards established by the~~ safety and soundness ~~guidelines~~

may also constitute grounds for other enforcement action by the federal bank regulatory agencies, including cease and desist orders and civil money penalty assessments.

During the past ~~decade,~~several years, the bank regulatory agencies have increasingly emphasized the importance of sound risk management processes and strong internal controls when evaluating the activities of the FDIC-insured institutions they supervise. Properly managing risks has been identified as critical to the conduct of safe and sound banking activities and has become even more important as new technologies, product innovation, and the size and speed of financial transactions have changed the nature of banking markets. The agencies have identified a spectrum of risks facing a banking institution including, but not limited to, credit, market, liquidity, operational, ~~legal~~compliance, and reputational risk. In particular, recent regulatory pronouncements have focused on operational risk, which arises from the potential that inadequate information systems, operational problems, breaches in internal controls, fraud, or unforeseen catastrophes will result in unexpected losses. New products and services, third-party risk, incentive compensation, and cybersecurity are critical sources of ~~operational~~ risk that FDIC-insured institutions ~~must~~are expected to address in the current environment. The Bank is expected to have active board and senior management oversight; adequate policies, procedures, and limits; adequate risk measurement, monitoring, and management information systems; and comprehensive internal controls.

Branching ~~Authority.~~ Authority. Wisconsin banks, such as the Bank, have the authority under Wisconsin law to establish branches anywhere in the State of Wisconsin, subject to receipt of all required regulatory approvals. The establishment of new interstate branches has historically been permitted only in those states the laws of which expressly authorize such expansion.The Dodd-Frank Act permits well-capitalized and well-managed banks to establish new interstate branches or acquire individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) without impediments. Federal law permits state and national banks to merge with banks in other states subject to: (i) regulatory approval; (ii) federal and state deposit concentration limits; and (iii) state law limitations requiring the merging bank to have been in existence for a minimum period of time (not to exceed five years) prior to the merger.

Brokered Deposits. On December 19, 2018, the FDIC adopted a final rule on the treatment of reciprocal deposits pursuant to the Regulatory Relief Act. The ~~establishment of new interstate branches has historically been permitted only in those states the laws of which expressly authorize such expansion. The Dodd-Frank Act permits~~final rule, effective March 6, 2019, exempts certain reciprocal deposits from being considered as brokered deposits for certain insured institutions. In particular, well-capitalized and ~~well-managed banks~~well-rated institutions are not required to ~~establish new interstate branches~~treat reciprocal deposits as brokered deposits up to the lesser of 20% of their total liabilities or $5 billion. Institutions that are not both well-capitalized and well-rated may also exclude reciprocal deposits from their brokered deposits under certain circumstances.

On December 15, 2020, the ~~acquisition of individual branches~~FDIC issued a final rule on brokered deposits. The rule aims to clarify and modernize the FDIC’s existing regulatory framework for brokered deposits. Among other things, the rule establishes bright-line standards for determining whether an entity meets the definition of a ~~bank in another state (rather than~~“deposit broker,” and identifies a number of business relationships (or “designated exceptions”) that automatically meet the ~~acquisition of an out-of-state bank in its entirety) without impediments.~~

~~Transaction Account Reserves.~~ Federal Reserve regulations require FDIC-insured institutions to maintain reserves against their transaction accounts (primarily NOW and regular checking accounts). For 2018, the first $16 million of otherwise reservable balances are exempt from reserves and have“primary purpose” exception. The rule also establishes a ~~zero percent reserve requirement;~~transparent application process for transaction accounts aggregating more than $16 million to $122.3 million, the reserve requirement is 3% of total transaction accounts; and for net transaction accounts in excess of $122.3 million, the reserve requirement is 3% up to $115.1 million plus 10%entities that seek a “primary purpose” exception but do not meet one of the ~~aggregate amount~~“designated exceptions.”The new rule also reflects technological changes across the banking industry and removes regulatory disincentives that limit banks’ ability to serve their customers. Full compliance with the amended brokered deposits regulation was required by January 1, 2022.The FDIC staff continues to implement the final rule through the issuance of ~~total transaction accounts in excess of $122.3 million. These reserve requirements are subject to annual adjustment by the Federal Reserve.~~interpretative guidance and other administrative actions.

Community Reinvestment Act (“CRA”) Requirements. The CRA requires the Bank to have a continuing and affirmative obligation in a safe and sound manner to help meet the credit needs of ~~its~~the entire community, including low- and moderate-income (“LMI”) neighborhoods. Federal regulators regularly assess the Bank’s record of meeting the credit needs of its communities. ~~Applications~~An institution’s CRA assessment may be used by its regulators in their evaluation of certain applications, including a merger, acquisition, or the establishment of a branch office. An unsatisfactory rating may be used as a basis for ~~additional acquisitions~~denial of such an application.

On October 24, 2023, the federal banking agencies jointly issued a final rule to strengthen and modernize the existing CRA regulations. Under the final rule, the agencies will evaluate a bank’s CRA performance based upon the varied activities that it conducts and the communities in which it operates. CRA evaluations and data collection requirements will be tailored based on bank size and type. The Bank would be ~~affected~~considered a large bank with assets of greater than $2 billion under the final rule and therefore will be evaluated under new lending, retail services and products, community development financing, and community development services tests. The final rule includes CRA assessment areas associated with mobile and online banking, and new metrics and benchmarks to assess retail lending performance. In addition, the final rule emphasizes smaller loans and investments that can have a high impact and be more responsive to the needs of LMI communities. The final rule will take effect on April 1, 2024; however, compliance with the majority of the final rule's provisions will not be required until January 1, 2026, and the data reporting requirements of the final rule will not take effect until January 1, 2027.

Anti-Money Laundering. The Bank is subject to several federal laws that are designed to combat money laundering and terrorist financing, and to restrict transactions with persons, companies, or foreign governments sanctioned by United States authorities. This category of laws includes the Bank Secrecy Act (the “BSA”), the Money Laundering Control Act, the USA PATRIOT Act (collectively, “AML laws”) and implementing regulations as administered by the ~~evaluation~~United States Treasury Department’s Office of Foreign Assets Control (“sanctions laws”).

As implemented by federal banking and securities regulators and the Department of the ~~Bank’s~~Treasury, AML laws obligate depository institutions to verify their customers’ identity, conduct customer due diligence, report on suspicious activity, file reports of transactions in currency, and conduct enhanced due diligence on certain accounts. In addition, the Financial Crimes Enforcement Network (“FinCEN”) promulgated customer due diligence and customer identification rules that required banks to identify and verify the identity of beneficial owners of all legal entity customers (with certain exclusions) at the time a new account is opened (subject to certain exemptions). Sanctions laws prohibit persons of the United States from engaging in any transaction with a restricted person or restricted country. Depository institutions are required by their respective federal regulators to maintain policies and procedures in order to ensure compliance with the above obligations. Federal regulators regularly examine BSA/AML and sanctions compliance programs to ensure their adequacy and effectiveness, and the frequency and extent of such examinations and the remedial actions resulting therefrom have been increasing. Non–compliance with sanctions laws and/or AML laws or failure to maintain an adequate BSA/AML compliance program can lead to significant monetary penalties and reputational damage, and federal regulators evaluate the effectiveness of an applicant in ~~meeting its CRA requirements.~~combating money laundering when determining whether to approve a proposed bank merger, acquisition, restructuring, or other expansionary activity.

~~Anti-Money Laundering.~~ On January 1, 2021, the National Defense Authorization Act (“NDAA”) was enacted by Congress.The ~~Uniting~~new law establishes the most significant overhaul of BSA and ~~Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism~~AML since the USA PATRIOT Act of 2001, ~~(the “USA PATRIOT Act”)~~including: (i) new beneficial ownership information and the establishment of a beneficial ownership registry, which requires corporate entities (generally any corporation, limited liability company or similar entity with 20 or fewer employees and annual gross income of $5 million or less) to report beneficial ownership information to FinCEN (which information will be maintained by FinCEN and made available upon request to financial institutions); (ii) whistleblower and penalty enhancements; (iii) improvements to existing information sharing provisions that permit financial institutions to share information relating to suspicious activity reports for purposes of combating illicit finance risks; and (iv) provisions emphasizing the importance of risk-based approaches to AML program requirements. Many of the changes to the BSA and AML require the Department of Treasury and FinCEN to

promulgate rules. On September 29, 2022, FinCEN issued a final regulation implementing the BSA amendments included in the NDAA with respect to beneficial ownership.

Privacy and Cybersecurity. The Bank is ~~designed~~subject to ~~deny terrorists~~many U.S. federal and ~~criminals~~state laws and regulations governing requirements for maintaining policies and procedures to protect non-public personal information of their consumers. These laws require the Bank to periodically disclose their privacy policies and practices relating to sharing such information and permit consumers to opt out of their ability to ~~obtain access~~share information with unaffiliated third parties under certain circumstances. They also impact the Bank’s ability to share certain information with affiliates and non-affiliates for marketing and/or non-marketing purposes, or to contact clients with marketing offers.

Moreover, given the increased focus on privacy and data security in the United States and internationally, laws and regulations related to the ~~U.S. financial system~~same are evolving. Multiple states and ~~has significant implications for FDIC-insured institutions, brokers, dealers~~Congress are considering additional laws or regulations that could create or alter individual privacy rights and ~~other businesses involved in the transfer of money. The USA PATRIOT Act mandates~~impose additional obligations on banks and related financial services companies in possession of or with access to ~~have~~personal data.

The Bank is required to implement a comprehensive information security program that includes administrative, technical, and physical safeguards to ensure the security and confidentiality of customer records and information. These security and privacy policies and procedures, ~~with respect~~for the protection of personal and confidential information, are in effect across the Bank and its subsidiaries. On November 18, 2021, the FDIC, the Federal Reserve System, and the OCC (collectively, the agencies) issued a joint final rule, to ~~measures designed~~establish computer-security incident notification requirements for banking organizations and their bank service providers.

Specifically, the rule requires banking organizations to ~~address~~notify their primary federal regulator as soon as possible and no later than 36 hours after the discovery of a “computer-security incident” that rises to the level of a "notification incident," as those terms are defined under the final rule. Banks’ service providers are required under the rule to notify any affected bank to or ~~all~~on behalf of which the service provider provides services "as soon as possible" after determining that it has experienced an incident that materially disrupts or degrades, or is reasonably likely to materially disrupt or degrade, covered services provided to such bank for as much as four hours.

The federal banking agencies have also adopted guidelines for establishing information security standards and cybersecurity programs for implementing safeguards under the supervision of the ~~following matters: (i)~~board of directors. These guidelines, along with related regulatory materials, increasingly focus on risk management and processes related to information technology and the use of third parties in the provision of financial services. Moreover, recent cyberattacks against banks and other financial institutions that resulted in unauthorized access to confidential customer ~~identification programs; (ii) money laundering; (iii) terrorist financing; (iv) identifying~~information have prompted the federal banking regulators to issue more extensive guidance on cybersecurity risk management. Among other things, financial institutions are expected to design multiple layers of security controls to establish lines of defense and ~~reporting suspicious activities~~ensure that their risk management processes address the risks posed by compromised customer credentials, including security measures to authenticate customers accessing internet-based services. A financial institution also should have a robust business continuity program to recover from a cyberattack and ~~currency transactions; (v) currency crimes; and (vi) cooperation between FDIC-insured institutions and law enforcement authorities.~~procedures for monitoring the security of third-party service providers that may have access to nonpublic data at the institution.

Concentrations in Commercial Real ~~Estate.~~ Estate. Concentration risk exists when FDIC-insured institutions deploy too many assets to any one industry or segment. A concentration in commercial real estate is one example of regulatory concern. The interagency Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices guidance (“CRE Guidance”) provides supervisory criteria, including the following numerical indicators, to assist bank examiners in identifying banks with potentially significant commercial real estate loan concentrations that may warrant greater supervisory scrutiny: (i) commercial real estate loans exceeding 300% of capital and increasing 50% or more in the preceding three years; or (ii) construction and land development loans exceeding 100% of capital. The CRE Guidance does not limit banks’ levels of commercial real estate lending activities, but rather guides institutions in developing risk management practices and levels of capital that are commensurate with the level and nature of their commercial real estate concentrations. On December 18, 2015, the federal banking agencies issued a statement to reinforce prudent risk-management practices related to CRE lending, having observed substantial growth in many CRE asset and lending markets, increased competitive pressures, rising CRE concentrations in banks, and an easing of CRE underwriting standards. The federal bank agencies reminded FDIC-insured institutions to maintain underwriting discipline and exercise prudent risk-management practices to identify, measure, monitor,

and manage the risks arising from CRE lending. In addition, FDIC-insured institutions must maintain capital commensurate with the level and nature of their CRE concentration risk.

Consumer Financial Services. The historical structure of federal consumer protection regulation applicable to all providers of consumer financial products and services changed significantly on July 21, 2011, when the CFPB commenced operations to supervise and enforce consumer protection laws. The CFPB has broad rulemaking authority for a wide range of consumer protection laws that apply to all providers of consumer products and services, including the Bank, as well as the authority to prohibit ~~“unfair,~~

“unfair, deceptive or abusive” acts and practices. The CFPB has examination and enforcement authority over providers with more than $10 billion in assets. FDIC-insured institutions with $10 billion or less in assets, like the Bank, continue to be examined by their applicable bank regulators. ~~We do not currently expect~~

Because abuses in connection with residential mortgages were a significant factor contributing to the ~~CFPB’s~~financial crisis, many new rules issued by the CFPB and required by the Dodd-Frank Act addressed mortgage and mortgage-related products, their underwriting, origination, servicing, and sales. The Dodd-Frank Act significantly expanded underwriting requirements applicable to loans secured by 1-4 family residential real property and augmented federal law combating predatory lending practices. In addition to numerous disclosure requirements, the Dodd‑Frank Act imposed new standards for mortgage loan originations on all lenders, including banks and savings associations, in an effort to strongly encourage lenders to verify a borrower’s ability to repay, while also establishing a presumption of compliance for certain “qualified mortgages.” The Regulatory Relief Act provided relief in connection with mortgages for banks with assets of less than $10 billion, and, as a result, mortgages the Bank makes are now considered to be qualified mortgages if they are held in portfolio for the life of the loan.

Current Expected Credit Loss (“CECL”) Treatment. In June 2016, the FASB issued an accounting standard update, “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which replaces the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the CECL model. Under the CECL model, we are required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

On December 21, 2018, the federal banking agencies issued a joint final rule revising their regulatory capital rules to (i) address the impending implementation of the CECL accounting standard under GAAP; (ii) provide an optional three-year phase-in period for the day-one adverse regulatory capital effects that banking organizations were expected to experience upon enacting CECL; and (iii) require the use of CECL in stress tests beginning with the 2020 capital planning and stress testing cycle for certain banking organizations. The final rule took effect on April 1, 2019; however, on August 26, 2020, the federal bank regulatory agencies issued a final rule allowing institutions that adopted the CECL accounting standard in 2020 the option to mitigate the estimated capital effects of CECL for two years, followed by the three-year transition period already provided by the joint final rule. We elected to use the 2020 Capital Transition Relief as permitted under the applicable regulations. As a result, the three-year phase-out period described above commenced in 2023.

Digital Asset Regulation. The federal banking agencies have issued interpretive guidance and statements regarding the engagement by banking organizations in certain digital asset activities. On August 16, 2022, the Federal Reserve released supervisory guidance encouraging all banking organizations supervised by the agency to notify its lead supervisory point of contact at the Federal Reserve prior to engaging in any digital asset-related activity. Prior to engaging in any such activities, banking organizations are expected to ensure their proposed activities are legally permissible under relevant state and federal laws, and ensure they have implemented adequate systems, risk management, and internal controls to ensure that the activities are conducted in a ~~significant impact~~safe and sound manner consistent with applicable laws, including consumer protection laws. On April 7, 2022, the FDIC issued a financial institution letter also requiring its supervised institutions to provide notice and obtain supervisory feedback prior to engaging in any crypto-related activities.

On January 3, 2023, the federal banking agencies issued additional guidance in the form of a joint statement addressing digital asset-related risks to banking organizations. That statement noted the recent volatility and exposure of vulnerabilities in the digital asset sector and indicated that the agencies are continuing to assess whether or how the digital asset-related activities of banking organizations can be conducted in a safe and sound manner and in compliance with all applicable laws and regulations.The statement stressed that each agency has developed, and expects banking organizations to follow, supervisory processes for evaluating proposed and existing digital asset activities.

On February 23, 2023, the federal banking agencies issued a joint statement addressing liquidity risks to banking organizations resulting from crypto-asset market vulnerabilities. The joint statement noted that deposits placed by a crypto-asset-related entity and deposits that constitute stablecoin-related reserves may pose heightened liquidity risks to banking organizations due to the unpredictability of the scale and timing of deposit inflows and outflows. The statement stressed that banking organizations should establish and maintain effective risk management and controls commensurate with the level of liquidity risks from such funding sources. Further, on August 8, 2023, the ~~Corporation’s operations, except for higher compliance costs.~~Federal Reserve announced the establishment of a Novel Activities Supervision Program, which is designed in part to enhance the Federal Reserve’s supervision processes in respect of banking organizations’ crypto-asset related activities and use of distributed ledger technologies and other novel technologies in the delivery of financial products and services.

Although the federal banking agencies have not developed formal regulations governing the digital asset activities of banking organizations, the supervisory framework summarized above dictates that, in order to effectively identify and manage digital asset-related risks and obtain supervisory non-objection to the proposed engagement in digital asset activities, banking organizations must implement appropriate risk management practices, including with respect to board and management oversight, policies and procedures, risk assessments, internal controls and monitoring.

Item 1A. Risk Factors

An investment in our common stock is subject to risks inherent to our business. Before making an investment decision, you should carefully read and consider the following risks and uncertainties. We may encounter risks in addition to those described below, including risks and uncertainties not currently known to us or those we currently deem to be immaterial. The risks described below, as well as such additional risks and uncertainties, may impair or materially and adversely affect our business, results of operations, and financial condition. The risks are organized in the following categories:

•Credit Risk

•Liquidity and Interest Rate Risk

•Operational Risk

•Strategic and External Risk

•Regulatory, Compliance, Legal, and Reputational Risk

•Risks Related to Investing in Our Common Stock

•General Risk Factors

Credit Risks

If we do not effectively manage our credit risk, we may experience increased levels of delinquencies, non-performing loans, and charge-offs, which would require increases in our provision for ~~loan and lease~~credit losses.

There are risks inherent in making any loan or lease, including risks inherent in dealing with individual borrowers, risks of nonpayment, risks resulting from uncertainties as to the future value of collateral and cash flows available to service debt, and risks resulting from changes in economic and market conditions. ~~We cannot assure you that our~~Our credit risk approval and monitoring procedures may not have identified or will identify all of these credit risks, and they cannot be expected to completely eliminate our credit risks. If the overall economic climate in the U.S., generally, or in our markets, specifically, deteriorates, or if the financial condition of our borrowers otherwise declines, then our borrowers may experience difficulties in repaying their loans and leases, and the level of non-performing loans and leases, charge-offs, and delinquencies could ~~rise and~~rise. This would, in turn, require increases in the provision for ~~loan and lease~~credit losses, which may adversely affect our business, results of operations, and financial condition.

Our allowance for ~~loan and lease~~credit losses may not be adequate to cover actual losses.

We establish our allowance for ~~loan and lease~~credit losses (“ACL”) and maintain it at a level considered appropriate by management based on an analysis of our portfolio and market environment. The ~~allowance for loan and lease losses~~ACL represents our estimate of probable losses inherent in the portfolio at each balance sheet date and is based upon relevant information available to us. The allowance contains provisions for probable losses that have been identified relating to specific relationships, as well as probable losses inherent in our loan and lease portfolio that are not specifically identified. Additions to the ~~allowance for loan and lease losses,~~ACL, which are charged to earnings through the provision for ~~loan and lease~~credit losses, are determined based on a variety of factors, including an analysis of our loan and lease portfolio by segment, historical loss experience, subjective factors, and an evaluation of current economic conditions in our markets. The actual amount of ~~loan and lease~~credit losses is affected by changes in economic, operating, and other conditions within our markets, which may be beyond our control, and such losses may exceed current estimates.

At December 31, ~~2017,~~2023, our ~~allowance for loan and lease losses~~ACL as a percentage of total loans and leases was ~~1.25%~~1.16% and as a percentage of total non-performing loans and leases was ~~71.10%~~160.21%. Although management believes the ~~allowance for loan and lease losses~~ACL is appropriate, ~~as of such date,~~ we may be required to take additional provisions for losses in the future to further supplement the allowance, either due to management’s ~~decision, based on~~assessment of credit conditions, or requirements by our banking regulators. In addition, bank regulatory agencies will periodically review our ~~allowance for loan and lease losses~~ACL and the value attributed to non-performing loans and leases. Such regulatory agencies may require us to adjust our determination of the value for these items. Any significant increases to the ~~allowance for loan and lease losses~~ACL may materially decrease our net income, which may adversely affect our business, results of operations, and financial condition.

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A significant portion of our loan and lease portfolio is comprised of commercial real estate loans, which involve risks specific to real estate values and the real estate markets in general.

At December 31, ~~2017~~2023 we had ~~$1.0~~$1.700 billion of commercial real estate loans, which represented ~~67.7%~~59.6% of our total loan and lease portfolio. ~~Because payments~~Payments on such loans are often dependent on the successful operation or development of the property or business ~~involved,~~involved; therefore, repayment of such loans is ~~often more~~ sensitive ~~than other types of loans~~ to ~~adverse~~ conditions

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in the real estate market or the general economy, which are outside the borrower’s control. In the event that the cash flow from the property is reduced, the borrower’s ability to repay the loan could be negatively impacted. The deterioration of one or a few of these loans could cause a material increase in our level of non-performing loans, which would result in a loss of revenue from these loans and could result in an increase in the provision for ~~loan and lease~~credit losses and an increase in charge-offs, all of which could have a material adverse impact on our net income. ~~Additionally, many~~Many of these loans have real estate as a primary or secondary component of collateral. The market value of real estate can fluctuate significantly in a short period of time as a result of economic conditions. Adverse developments affecting real estate values in one or more of our markets could impact the collateral coverage associated with the commercial real estate segment of our portfolio, possibly leading to increased specific reserves or charge-offs, which may adversely affect our business, results of operations, and financial condition.

Commercial real estate markets have been facing downward pressure since 2022 due in large part to increasing interest rates and declining property values. Accordingly, the federal banking agencies have expressed concerns about weaknesses in the current commercial real estate market and have applied increased regulatory scrutiny to institutions with commercial real estate loan portfolios that are fast growing or large relative to the institutions' total capital. To address supervisory expectations with respect to financial institutions’ handling of commercial real estate borrowers who are experiencing financial difficulty, in June of 2023, the federal banking agencies, including the FDIC, issued an interagency policy statement addressing prudent commercial real estate loan accommodations and workouts. Our failure to adequately implement enhanced risk management policies, procedures and controls could adversely affect our ability to increase this portfolio going forward and could result in an increased rate of delinquencies in, and increased losses from, this portfolio.

Because of the risks associated with commercial real estate loans, we closely monitor the concentration of such loans in our portfolio. If we or our regulators determine that this concentration is approaching or exceeds appropriate limits, we may need to reduce or cease the origination of additional commercial real estate loans, which could adversely affect our growth plans and profitability. ~~In addition, we~~We may be required to sell existing loans in our portfolio, but there can be no assurances that we would be able to do so at prices that are acceptable to us.

Real estate construction and land development loans are based upon estimates of costs and values associated with the completed project. These estimates may be inaccurate and we may be exposed to significant losses on loans for these projects.

Real estate construction ~~and land development~~ loans, a subset of commercial real estate loans, comprised approximately ~~$165.3~~$193.1 million, or ~~11.0%~~6.8%, of our gross loan and lease portfolio, respectively, as of December 31, ~~2017.~~2023. Such lending involves additional risks as these loans are underwritten using the as-completed value of the project, which is uncertain prior to its completion, and costs may exceed realizable values in declining real estate markets. Because of the uncertainties inherent in estimating construction costs and the realizable market value of the completed project, it can be relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. As a result, construction loans often involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project and the ability of the borrower to sell or lease the property, rather than the ability of the borrower or guarantor to repay principal and interest. If the appraisal of the completed project’s value proves to be overstated or market values decline, we may have inadequate security for the repayment of the loan upon completion of construction of the project. If we are forced to foreclose on a project prior to or at completion due to a default, we may not be able to recover all of the unpaid balance of, and accrued interest on, the loan and may incur related foreclosure and holding costs. In addition, we may be required to fund additional amounts to complete the project and may have to hold the property for an unspecified period of time while we attempt to dispose of it.

A large portion of our loan and lease portfolio is comprised of commercial loans secured by various business assets, the deterioration in value of which could increase our exposure to future probable losses.

At December 31, ~~2017,~~2023, approximately ~~$429.0 million,~~$1.106 billion, or ~~28.5%~~38.8%, of our loan ~~and lease~~ portfolio was comprised of commercial loans to businesses collateralized by general business assets, including accounts receivable, inventory, and equipment. Our commercial loans are typically larger in amount than loans to individual consumers and therefore, have the potential for larger losses on an individual loan basis. Additionally, ~~asset-based borrowers~~some of our niche commercial lending clients are ~~usually~~ highly leveraged and/or have inconsistent historical earnings. Significant adverse changes in various industries could cause rapid declines in values and collectability associated with those business assets resulting in inadequate collateral coverage that may expose us to future losses. An increase in specific reserves and charge-offs may adversely affect our business, results of operations, and financial condition.

~~Non-performing assets take significant time to resolve, adversely affect our results of operations and financial condition and could result in further losses in the future.~~

At December 31, 2017, our non-performing loans and leases totaled $26.4 million, or 1.76% of our gross loan and lease portfolio and our non-performing assets (which include non-performing loans and foreclosed properties) totaled $27.5 million, or 1.53% of total assets. The aggregate amount of our non-performing loans and non-performing assets have increased from $25.2 million and $26.7 million, respectively, as of December 31, 2016. There can be no assurances that we will not experience further deterioration in our loan portfolio.

Our non-performing assets adversely affect our net income in various ways. We do not record interest income on non-accrual loans or foreclosed properties, thereby adversely affecting our net income and returns on assets and equity, increasing our loan administration costs and adversely affecting our efficiency ratio. When we take collateral in foreclosure and similar proceedings, we are required to mark the collateral to its then net realizable value, less estimated selling costs, which may result in a loss. These non-performing loans and foreclosed properties also increase our risk profile and the capital our regulators believe is appropriate in light of such risks. The resolution of non-performing assets requires significant time commitments from management and can be detrimental to the performance of their other responsibilities. If we experience increases in non-

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performing loans and non-performing assets, our net interest income may be negatively impacted and our loan administration costs could increase, each of which may adversely affect our business, results of operations and financial condition.

~~The FASB issued an accounting standard that may require us to increase our allowance for loan losses and may have a material adverse effect on our financial condition and results of operations.~~

The FASB has issued a new accounting standard that will be effective for our first fiscal year after December 15, 2019. This standard, referred to as Current Expected Credit Loss (“CECL”), will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans and leases and recognize the expected credit losses as allowances for loan and lease losses. This will change the current method of providing allowances for loan and lease losses that are probable, which may require us to increase our allowance for loan and lease losses, and to greatly increase the types of data we will need to collect and review to determine the appropriate level of the allowance for loan and lease losses. Any increase in our allowance for loan and lease losses or expenses incurred to determine the appropriate level of the allowance for loan and lease losses may have a material adverse effect on our financial condition and results of operations.

~~Liquidity and Interest Rate Risks~~

~~Liquidity risks could affect operations and jeopardize our business, financial condition and results of operations.~~

Our ability to implement our business strategy will depend on our liquidity and ability to obtain funding for loan originations, working capital and other general purposes. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity. Our preferred source of funds consists of client deposits, which we supplement with other sources, such as wholesale deposits made up of brokered deposits and deposits gathered through internet listing services. Such account and deposit balances can decrease when clients perceive alternative investments as providing a better risk/return profile. If clients move money out of bank deposits and into other investments, we may increase our utilization of wholesale deposits, FHLB advances and other wholesale funding sources necessary to fund desired growth levels. Because these funds generally are more sensitive to interest rate changes than our targeted in-market deposits, they are more likely to move to the highest rate available. In addition, the use of brokered deposits without regulatory approval is limited to banks that are “well capitalized” according to regulation. If the Bank is unable to maintain its capital levels at “well capitalized” minimums, we could lose a significant source of funding, which would force us to utilize different wholesale funding or potentially sell assets at a time when pricing may be unfavorable, increasing our funding costs and reducing our net interest income and net income.

Our access to funding sources in amounts adequate to finance or capitalize our activities or on terms that are acceptable to us could be impaired by factors that affect us directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry. Regional and community banks generally have less access to the capital markets than do national and super-regional banks because of their smaller size and limited analyst coverage. During periods of economic turmoil or decline, the financial services industry and the credit markets generally may be materially and adversely affected by declines in asset values and by diminished liquidity. Under such circumstances the liquidity issues are often particularly acute for regional and community banks, as larger financial institutions may curtail their lending to regional and community banks to reduce their exposure to the risks of other banks. Correspondent lenders may also reduce or even eliminate federal funds lines for their correspondent clients in difficult economic times.

As a result, we rely on our ability to generate deposits and effectively manage the repayment and maturity schedules of our loans and investment securities, to ensure that we have adequate liquidity to fund our operations. Any decline in available funding could adversely impact our ability to originate loans, invest in securities, meet our expenses, pay dividends to our shareholders or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse effect on our business, results of operations and financial condition.

~~The Corporation is a bank holding company and its sources of funds necessary to meet its obligations are limited.~~

The Corporation is a bank holding company and its operations are primarily conducted by the Bank, which is subject to significant federal and state regulation. Cash available to pay dividends to our shareholders, pay our obligations and meet our debt service requirements is derived primarily from our existing cash flow sources, our third party line of credit, dividends received from the Bank or a combination thereof. Future dividend payments by the Bank to us will require the generation of future earnings by the Bank and are subject to certain regulatory guidelines. If the Bank is unable to pay dividends to us, we may not have the resources or cash flow to pay or meet all of our obligations.

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~~Interest rate shifts may reduce net interest income and otherwise negatively impact our financial condition and results of operations.~~

Shifts in short-term interest rates may reduce net interest income, which is the principal component of our earnings. Net interest income is the difference between the amounts received by us on our interest-earning assets and the interest paid by us on our interest-bearing liabilities. In certain scenarios, when interest rates rise, the rate of interest we pay on our liabilities may rise more quickly than the rate of interest that we receive on our interest-bearing assets, which could cause our profits to decrease. However, the structure of our balance sheet and resultant sensitivity to interest rates in various scenarios may change in the future.

Additionally, interest rate increases often result in larger payment requirements for our borrowers, which increases the potential for default. At the same time, the marketability of underlying collateral may be adversely affected by any reduced demand resulting from higher interest rates. In a declining interest rate environment, there may be an increase in prepayments on certain loans as borrowers refinance at lower rates.

Changes in interest rates also can affect the value of loans. An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans may lead to an increase in nonperforming assets and a reduction of income recognized, which could have a material adverse effect on our results of operations and cash flows. Further, when we place a loan on non-accrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income. Subsequently, we continue to have a cost to fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense. Thus, an increase in the amount of non-performing assets would have an adverse impact on net interest income.

Rising interest rates may also result in a decline in value of our fixed-rate debt securities. The unrealized losses resulting from holding these securities would be recognized in other comprehensive income and reduce total stockholders’ equity. If debt securities in an unrealized loss position are sold, such losses become realized and will reduce our regulatory capital ratios.

~~Operational Risks~~

~~We rely on our management and the loss of one or more of those managers may harm our business.~~

Our success has been and will be greatly influenced by our continuing ability to retain the services of our existing senior management and, if we expand, to attract and retain additional qualified senior and middle management. The unexpected loss of key management personnel or the inability to recruit and retain qualified personnel in the future could have an adverse effect on our business and financial results. In addition, our failure to develop and/or maintain an effective succession plan will impede our ability to quickly and effectively react to unexpected loss of key management and in turn may have an adverse effect on our business, results of operations and financial condition.

~~We are subject to certain operational risks, including, but not limited to, client or employee fraud and data processing system failures and errors.~~

Employee errors and employee and client misconduct, including the improper disclosure or use of client information, could subject us to financial losses or regulatory sanctions and seriously harm our reputation. Misconduct by our employees could include hiding unauthorized activities from us, improper or unauthorized activities on behalf of our clients or improper use of confidential information. It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases. Employee errors or misconduct could also subject us to financial claims for negligence.

We maintain a system of internal controls and insurance coverage to mitigate our operational risks, including data processing system failures and errors and client or employee fraud. If our internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, financial condition and results of operations.

~~Our information systems may experience an interruption or breach in security and cyber-attacks, all of which could have a material adverse effect on our business.~~

The Corporation relies heavily on internal and outsourced technologies, communications and information systems to conduct its business. Additionally, in the normal course of business, the Corporation collects, processes and retains sensitive and confidential information regarding our clients. As our reliance on technology has increased, so have the potential risks of a technology-related operation interruption (such as disruptions in our client relationship management, general ledger, deposit, loan or other systems) or the occurrence of a cyber-attack (such as unauthorized access to our systems). These risks have increased for all financial institutions as new technologies, the use of the Internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions have increased, and the sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists and others have increased. In addition to cyber-attacks or other security breaches involving the theft of sensitive and confidential information, hackers recently have engaged in attacks

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against large financial institutions, particularly denial of service attacks, which are designed to disrupt key business services, such as customer-facing web sites. We may not be able to anticipate or implement effective preventive measures against all security breaches of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources. However, applying guidance from the Federal Financial Institutions Examination Council (“FFIEC”), the Corporation has analyzed and will continue to analyze security related to device specific considerations, user access topics, transaction-processing and network integrity.

We rely on our advisors, vendors and employees to comply with our policies and procedures to safeguard confidential data. The failure of these parties to comply with such policies and procedures could result in the loss or wrongful use of our clients’ confidential information or other sensitive information. In addition, even if we and our advisors, vendors and employees comply with our policies and procedures, persons who circumvent security measures could wrongfully use our confidential information or clients’ confidential information or cause interruptions or malfunctions in our operations.

The Corporation also faces risks related to cyber-attacks and other security breaches in connection with credit card and debit card transactions that typically involve the transmission of sensitive information regarding our customers through various third parties, including merchant acquiring banks, payment processors, payment card networks and its processors. Some of these parties have in the past been the target of security breaches and cyber-attacks, and because the transactions involve third parties and environments such as the point of sale that the Corporation does not control or secure, future security breaches or cyber-attacks affecting any of these third parties could impact us through no fault of its own, and in some cases it may have exposure and suffer losses for breaches or attacks relating to them. Further cyber-attacks or other breaches in the future, whether affecting us or others, could intensify consumer concern and regulatory focus and result in reduced use of payment cards and increased costs, all of which could have a material adverse effect on our business. To the extent we are involved in any future cyber-attacks or other breaches, our reputation could be affected, which could also have a material adverse effect on our business, financial condition or results of operations.

We are dependent upon third parties for certain information system, data management and processing services and to provide key components of our business infrastructure, which are subject to operational, security and other risks.

We outsource certain information system, data management and processing functions to third-party providers. These third-party service providers are sources of operational and informational security risk to us, including risks associated with operational errors, information system interruptions or breaches and unauthorized disclosures of sensitive or confidential client or customer information. If third-party service providers encounter any of these issues, or if we have difficulty exchanging information with them, we could be exposed to disruption of operations, loss of service or connectivity to customers, reputational damage and litigation risk that could have a material adverse effect on our business, results of operations and financial condition. We believe there may be an elevated risk of these issues occurring in connection with our recently completed core system conversion, which involved among other things, a change in certain of our third-party providers.

Third-party vendors provide key components of our business infrastructure such as internet connections, network access and core application processing. While we have selected these third-party vendors carefully, we do not control their actions. Any problems caused by these third parties, including as a result of their not providing us their services for any reason or their performing their services poorly, could adversely affect our ability to deliver products and services to our customers and otherwise to conduct our business.

~~Our business continuity plans could prove to be inadequate, resulting in a material interruption in or disruption to our business and a negative impact on our results of operations.~~

We rely heavily on communications and information systems to conduct our business and our operations are dependent on our ability to protect our systems against damage from fire, power loss or telecommunication failure. The computer systems and network infrastructure we use could be vulnerable to unforeseen problems. These problems may arise in both our internally developed systems and the systems of our third-party service providers. Any failure or interruption of these systems, whether due to severe weather, natural disasters, acts of war or terrorism, criminal activity or other factors, could result in failures or disruptions in general ledger, deposit, loan, client relationship management and other systems. While we have a business continuity plan and other policies and procedures designed to prevent or limit the effect of a failure, interruption or security breach of our information systems, there can be no assurance that any such failures or interruptions will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures or interruptions of our information systems could damage our reputation, result in a loss of clients, subject us to additional regulatory scrutiny or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our business, results of operations and financial condition.

~~Our framework for managing risks may not be effective in mitigating risk and loss to us.~~

Our risk management framework seeks to mitigate risk and loss to us. We have established processes and procedures intended to identify, measure, monitor, report and analyze the types of risk to which we are subject, including liquidity risk, credit risk, market risk, interest rate risk, operational risk, compensation risk, legal and compliance risk and reputational risk,

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among others. However, as with any risk management framework, there are inherent limitations to our risk management strategies as there may exist, or develop in the future, risks that we have not appropriately anticipated or identified. Our ability to successfully identify and manage risks facing us is an important factor that can significantly impact our results. If our risk management framework proves ineffective, we could suffer unexpected losses which could adversely affect our business, results of operations and financial condition.

~~We are subject to changes in accounting principles, policies or guidelines.~~

Our financial performance is impacted by accounting principles, policies and guidelines. Some of these policies require the use of estimates and assumptions that may affect the value of our assets or liabilities and financial results. Some of our accounting policies are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. If such estimates or assumptions underlying our financial statements are incorrect, we may experience material losses.

From time to time, the FASB and SEC change the financial accounting and reporting standards or the interpretation of those standards that govern the preparation of our financial statements. These changes are beyond our control, can be difficult to predict and could materially impact how we report our financial condition and results of operations. Changes in these standards are continuously occurring, and given recent economic conditions, more drastic changes may occur. The implementation of such changes could have a material adverse effect on our business, results of operations and financial condition.

~~Our internal controls may be ineffective.~~

Management regularly reviews and updates its internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the controls are met. In addition, if we continue to grow the Corporation, our controls will also need to be updated to keep up with such growth. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could cause us to report a material weakness in internal control over financial reporting and conclude that our controls and procedures are not effective, which could have a material adverse effect on our business, results of operations and financial condition.

~~Strategic and External Risks~~

~~Our business may be adversely affected by conditions in the financial markets and economic conditions generally.~~

Our operations and profitability are impacted by general business and economic conditions in the U.S. and, to some extent, abroad. These conditions include short-term and long-term interest rates, inflation, money supply, political issues, legislative and regulatory changes, fluctuations in both debt and equity markets, broad trends in industry and finance, the strength of the U.S. economy and uncertainty in financial markets globally, all of which are beyond our control. A deterioration in economic conditions could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services, among other things, any of which could have a material adverse effect on our business, results of operations and financial condition.

~~Our business is concentrated in and largely dependent upon the continued growth and welfare of the general geographical markets in which we operate.~~

Our operations are heavily concentrated in the South Central region of Wisconsin and, to a lesser extent, the Southeastern and Northeastern regions of Wisconsin and the greater Kansas City area and, as a result, our financial condition, results of operations and cash flows are significantly impacted by changes in the economic conditions in those areas. Our success depends to a significant extent upon the business activity, population, income levels, deposits and real estate activity in these markets. Although our clients’ business and financial interests may extend well beyond these markets, adverse economic conditions that affect these markets could reduce our growth rate, affect the ability of our clients to repay their loans to us, affect the value of collateral underlying loans and generally affect our financial condition and results of operations. Because of our geographic concentration, we are less able than other regional or national financial institutions to diversify our credit risks across multiple markets.

~~Our financial condition and results of operations could be negatively affected if we fail to effectively execute our strategic plan or manage the growth called for in our strategic plan.~~

Our strategic plan currently calls for, among other things, regaining our strong asset quality while we continue to grow loans and generate in-market deposits to maintain our net interest margin and increasing fee income. Our ability to increase profitability in accordance with this plan will depend on a variety of factors, including the identification of desirable business opportunities, competitive responses from financial institutions in our markets and our ability to manage liquidity and funding sources. While we believe we have the management resources and internal systems in place to successfully execute our

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~~strategic plan, we cannot guarantee that opportunities will be available and that the strategic plan will be successful or effectively executed.~~

Although we do not have any current definitive plans to do so, in implementing our strategic plan we may expand into additional communities or attempt to strengthen our position in our current markets through opportunistic acquisitions of similar or complementary financial services organizations. To the extent that we do so, we may experience higher operating expenses relative to operating income from the new operations or certain one-time expenses associated with the closure of offices, all of which may have an adverse effect on our business, results of operations and financial condition. Other effects of engaging in such strategies may include potential diversion of our management’s time and attention and general disruption to our business.

To the extent that we grow through new locations we cannot ensure that we will be able to adequately and profitably manage this growth. Acquiring other banks and businesses will involve similar risks to those commonly associated with branching, but may also involve additional risks, including potential exposure to unknown or contingent liabilities of banks and businesses we acquire and exposure to potential asset quality issues of the acquired bank or related business.

~~We could recognize impairment losses on securities held in our securities portfolio, goodwill or other long-lived assets.~~

As of December 31, 2017, the fair value of our securities portfolio was approximately $163.7 million. Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities. For example, fixed-rate securities acquired by us are generally subject to decreases in market value when interest rates rise. Additional factors include, but are not limited to, rating agency downgrades of the securities, defaults by the issuer or individual mortgagors with respect to the underlying securities and instability in the credit markets. Any of the foregoing factors could cause other-than-temporary impairment in future periods and result in realized losses. The process for determining whether impairment is other-than-temporary usually requires difficult, subjective judgments about the future financial performance of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security. Because of changing economic and market conditions affecting interest rates, the financial condition of issuers of the securities and the performance of the underlying collateral, we may recognize realized and/or unrealized losses in future periods, which could have an adverse effect on our business, results of operations and financial condition.

As of December 31, 2017, the Corporation had goodwill of $10.7 million recorded in connection with our acquisition of Alterra. Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. A decline in our stock price, decline in the performance of our acquired operations or the occurrence of another triggering event could, under certain circumstances, result in an impairment charge being recorded. Our most recent impairment test conducted as of November 30, 2017 indicated that the estimated fair value of the reporting unit exceeded the carrying value (including goodwill). Depending on market conditions, economic forecasts, results of operations, additional adverse circumstances specific to FBB-KC or other factors, the goodwill impairment analysis may require additional review of assumptions and outcomes prior to our next annual impairment testing date of July 1, 2018. In the event that we conclude that all or a portion of our goodwill may be impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.

~~We could be required to establish a deferred tax asset valuation allowance and a corresponding charge against earnings if we experience a decrease in earnings.~~

Deferred tax assets are reported as assets on our balance sheet and represent the decrease in taxes expected to be paid in the future in connection with our allowance for loan and lease losses and other matters. If it becomes more likely than not that some portion or the entire deferred tax asset will not be realized, a valuation allowance must be recognized. Effective January 1, 2018, the enactment of the Tax Cuts and Jobs Act (the “Act”) reduced the federal corporate income tax rate to 21% from 35%. Despite this reduction to the federal corporate tax rate, the Corporation believes it will fully realize its deferred tax assets and therefore no valuation allowance was necessary as of December 31, 2017. This determination was based on the evaluation of several factors, including our recent earnings history, expected future earnings and appropriate tax planning strategies. A decrease in earnings could adversely impact our ability to fully utilize our deferred tax assets. If we determine that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance will need to be recognized and this would result in a corresponding charge against our earnings.

~~Competition from other financial institutions could adversely affect our profitability.~~

We encounter heavy competition in attracting commercial loan, equipment finance and deposit clients as well as trust and investment clients. We believe the principal factors that are used to attract quality clients and distinguish one financial institution from another include value-added relationships, interest rates and rates of return, types of accounts, service fees, flexibility and quality of service.

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Our competition includes banks, savings institutions, mortgage banking companies, credit unions, finance companies, equipment finance companies, mutual funds, insurance companies, brokerage firms, investment banking firms and FinTech companies. We also compete with regional and national financial institutions that have a substantial presence in our market areas, many of which have greater liquidity, higher lending limits, greater access to capital, more established market recognition and more resources and collective experience than we do. In addition, some larger financial institutions that have not historically competed with us directly have substantial excess liquidity and have sought, and may continue to seek, smaller lending relationships in our target markets. Furthermore, tax-exempt credit unions operate in most of our market areas and aggressively price their products and services to a large portion of the market. Finally, technology has also lowered the barriers to entry and made it possible for non-banks to offer products and services we have traditionally offered, such as automatic funds transfer and automatic payment systems. Our profitability depends, in part, upon our ability to successfully maintain and increase market share.

~~Consumers and businesses are increasingly using non-banks to complete their financial transactions, which could adversely affect our business and results of operations.~~

Technology and other changes are allowing consumers and businesses to complete financial transactions that historically have involved banks through alternative methods. For example, the wide acceptance of Internet-based commerce has resulted in a number of alternative payment processing systems and lending platforms in which banks play only minor roles. Clients can now maintain funds in prepaid debit cards or digital currencies, and pay bills and transfer funds directly without the direct assistance of banks. The diminishing role of banks as financial intermediaries has resulted and could continue to result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the potential loss of lower cost deposits as a source of funds could have a material adverse effect on our business, financial condition and results of operations.

~~If we are unable to keep pace with technological advances in our industry, our ability to attract and retain clients could be adversely affected.~~

The banking industry is constantly subject to technological changes with frequent introductions of new technology-driven products and services. In addition to better serving clients, the effective use of technology increases our efficiency and enables us to reduce costs. Our future success will depend in part on our ability to address the needs of our clients by using technology to provide products and services that will satisfy client demands for convenience as well as create additional efficiencies in our operations. A number of our competitors have substantially greater resources to invest in technological improvements, as well as significant economies of scale. There can be no assurance that we will be able to implement and offer new technology-driven products and services to our clients. If we fail to do so, our ability to attract and retain clients may be adversely affected.

~~Our trust and investment services operations may be negatively impacted by changes in economic and market conditions.~~

Our trust and investment services operations may be negatively impacted by changes in general economic conditions and the conditions in the financial and securities markets, including the values of assets held under management. Our management contracts generally provide for fees payable for services based on the market value of assets under management. Because most of our contracts provide for a fee based on market values of securities, declines in securities prices will generally have an adverse effect on our results of operations from this business. Market declines and reductions in the value of our clients’ trust and investment services accounts could result in us losing trust and investment services clients, including those who are also banking clients.

~~Potential acquisitions may disrupt our business and dilute shareholder value.~~

While we remain committed to organic growth, we also may consider additional acquisition opportunities involving complementary financial service organizations if the right situation were to arise. Various risks commonly associated with acquisitions include, among other things:

~~Potential exposure to unknown or contingent liabilities of the target company.~~

~~Exposure to potential asset quality issues of the target company.~~

~~Potential disruption to our business.~~

~~Potential diversion of our management’s time and attention.~~

~~Possible loss of key employees and clients of the target company.~~

~~Difficulty in estimating the value of the target company.~~

~~Potential changes in banking or tax laws or regulations that may affect the target company.~~

~~Difficulty in integrating operations, personnel, technologies, services and products of acquired companies.~~

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failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits from an acquisition could have a material adverse effect on our business, financial condition and results of operations.

~~Regulatory, Compliance, Legal and Reputational Risks~~

We operate in a highly regulated industry and the laws and regulations that govern our operations, corporate governance, executive compensation and accounting principles, or changes in them, or our failure to comply with them, may adversely affect us.

We are subject to extensive regulation and supervision that govern almost all aspects of our operations. These laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on our business activities and compensation practices, limit the dividends or distributions that we can pay, restrict the ability of institutions to guarantee our debt and impose certain specific accounting requirements that may be more restrictive and may result in greater or earlier charges to earnings or reductions in our capital than generally accepted accounting principles. Compliance with laws and regulations can be difficult and costly and changes to laws and regulations often impose additional compliance costs. Further, our failure to comply with these laws and regulations, even if the failure was inadvertent or reflects a difference in interpretation, could subject us to restrictions on our business activities, fines and other penalties, any of which could adversely affect our business, results of operations and financial condition.

~~Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition and results of operations.~~

In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the Federal Reserve. An important function of the Federal Reserve is to regulate the money supply and credit conditions. Among the instruments used by the Federal Reserve to implement these objectives are open market operations in U.S. government securities, adjustments to the discount rate and changes in reserve requirements against bank deposits. These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits.

The monetary policies and regulations of the Federal Reserve have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. The effects of such policies upon our business, financial condition and results of operations cannot be predicted.

~~The financial services industry, as well as the broader economy, may be subject to new legislation, regulation and government policy.~~

From time to time, federal and state governments and bank regulatory agencies modify the laws and regulations that govern financial institutions and the financial system generally. Such laws and regulations can affect our operating environment in substantial and unpredictable ways. Among other effects, such laws and regulations can increase or decrease the cost of doing business, limit or expand the scope of permissible activities, or affect the competitive balance among banks and other financial institutions. In addition, any changes in monetary policy, fiscal policy, tax laws, including the Act, and other policies can affect the broader economic environment, interest rates and patterns of trade. Any of these changes could affect our company and the banking industry as a whole in ways that are difficult to predict, and could adversely impact our business, financial condition or results of operations.

~~We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.~~

The Bank Secrecy Act, the USA PATRIOT Act and other laws and regulations require financial institutions, among other duties, to institute and maintain effective anti-money laundering programs and file suspicious activity and currency transaction reports as appropriate. The Financial Crimes Enforcement Network, established by Treasury to administer the Bank Secrecy Act, is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration and IRS. There is also increased scrutiny of compliance with the rules enforced by the Financial Crimes Enforcement Network. Federal and state bank regulators also focus on compliance with Bank Secrecy Act and anti-money laundering regulations.

If our policies, procedures and systems are deemed deficient or the policies, procedures and systems of the financial institutions that we have already acquired or may acquire in the future are deficient, we would be subject to liability, including fines and regulatory actions, such as restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan which would adversely affect our business, results of operations and financial condition. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us.

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~~SBA lending is a significant part of our strategic business plan.~~ The success of our SBA lending program is dependent upon the continued availability of SBA loan programs, our status as a ~~preferred lender~~Preferred Lender under the SBA loan programs, our ability to effectively compete and originate new SBA loans, and our ability to comply with applicable SBA lending requirements.

SBA loans, excluding SBA loans made under the Paycheck Protection Program (“PPP Loans”), consisting of both commercial real estate and commercial loans, comprised approximately $53.4 million, or 1.9%, of our gross loan and lease portfolio as of December 31, 2023.

As an SBA Preferred Lender, we enable our clients to obtain SBA loans without being subject to the potentially lengthy SBA approval process necessary for lenders that are not SBA Preferred Lenders. The SBA periodically reviews the lending operations of participating lenders to assess, among other things, whether the lender exhibits prudent risk management. When weaknesses are identified, the SBA may request corrective actions or impose other restrictions, including revocation of the lender’s Preferred Lender status. If we lose our status as a Preferred Lender, we may lose our ability to compete effectively with other SBA Preferred Lenders, and as a result we could experience a material adverse effect to our financial results. Any changes to the SBA program, including changes to the level of guaranty provided by the federal government on SBA loans or changes to the level of funds appropriated by the federal government to the various SBA programs, may also have an adverse effect on our business, results of operations, and financial condition.

~~Historically we have sold~~ We often choose to sell the guaranteed portions of our SBA 7(a) loans in the secondary market. These sales ~~have resulted~~result in ~~our~~ earning premium income and ~~have created~~create a stream of future servicing income. There can be no assurance that we will be able to continue originating these loans, that a secondary market will exist, or that we will continue to realize premiums upon the sale of the guaranteed portions of these loans. ~~When~~Whether or not we sell the guaranteed ~~portions~~portion of ~~our~~an SBA ~~7(a) loans,~~loan, we retain credit risk on the non-guaranteed ~~portions~~portion of the ~~loans.~~loan. We also have credit risk on the guaranteed portion if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by the Bank. The total outstanding balance of sold SBA loans as of December 31, 2023 was $84.2 million.

In order for a borrower to be eligible to receive an SBA loan, ~~the lender~~it must ~~establish~~be established that the borrower would not be able to secure a bank loan without the credit enhancements provided by a guaranty under the SBA program. Accordingly, the SBA loans in our portfolio generally have weaker credit characteristics than the rest of our portfolio and may be at greater risk of ~~default in the event of deterioration in economic conditions or the borrower’s financial condition.~~default. 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,~~Bank, the SBA may require the ~~Corporation~~Bank to repurchase the previously sold portion of 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.~~Bank. Management has estimated losses ~~inherent~~ in the outstanding guaranteed portions of SBA loans and recorded an ACL and a SBA recourse reserve at a level determined to be appropriate. Significant increases to the ACL and the recourse reserve may materially decrease our net income, which may adversely affect our business, results of operations, and financial condition.

Non-performing assets take time to resolve, adversely affect our results of operations and financial condition, and could result in losses.

At December 31, 2023, our non-performing loans totaled $20.6 million, or 0.72% of our gross loan and lease portfolio, and our non-performing assets (which include non-performing loans and repossessed assets) totaled $20.8 million, or 0.59% of total assets. Our non-performing assets adversely affect our net income in various ways. We do not record interest income on non-accrual loans, thereby adversely affecting our net income and returns on assets and equity, increasing our loan administration costs, and adversely affecting our efficiency ratio. When we take collateral in repossession and similar proceedings, we are required to mark the collateral to its then net realizable value, less estimated selling costs, which may result in a loss. These non-performing loans and repossessed assets also increase our risk profile and the capital our regulators believe is appropriate in light of such risks. The resolution of non-performing assets requires significant time commitments from management and can be detrimental to the performance of their other responsibilities. If we experience increases in non-performing loans and non-performing assets, our net interest income may be negatively impacted and our loan administration costs could increase, each of which may adversely affect our business, results of operations, and financial condition.

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Liquidity and Interest Rate Risks

Liquidity risks could affect operations and jeopardize our business, financial condition, and results of operations.

Our ability to implement our business strategy will depend on our liquidity and ability to obtain funding for loan originations, working capital, and other general purposes. An inability to raise funds through deposits, borrowings, the sale of loans, and other sources could have a substantial negative effect on our liquidity. Our preferred source of funding consists of client deposits, which we supplement with other sources, such as wholesale deposits made up of brokered deposits and deposits gathered through internet listing services. Such account and deposit balances can decrease when clients perceive alternative investments as providing a better risk/return profile. If clients move money out of bank deposits and into other investments, we may increase our utilization of wholesale deposits, FHLB advances, and other wholesale funding sources necessary to fund desired growth levels. In addition, the use of brokered deposits without regulatory approval is limited to banks that are “well capitalized” according to regulation. If the Bank is unable to maintain its capital levels at “well capitalized” minimums, we could lose a significant source of funding, which would force us to utilize different wholesale funding or potentially sell assets at a time when pricing may be unfavorable, increasing our funding costs and reducing our net interest income and net income.

Our access to funding sources could be impaired by factors that affect us directly or the financial services industry or economy in general, such as disruptions in the financial markets, credit quality, capital adequacy, or negative views and expectations about the prospects for the financial services industry. Regional and community banks generally have less access to the capital markets than do national and super-regional banks because of their smaller size and limited analyst coverage. During periods of economic turmoil or decline, the financial services industry and the credit markets generally may be materially and adversely affected by declines in asset values and by diminished liquidity. Under such circumstances, the liquidity issues are often particularly acute for regional and community banks, as larger financial institutions may curtail their lending to regional and community banks to reduce their exposure to the risks of other banks. Correspondent lenders may also reduce or even eliminate federal funds lines for their correspondent clients in difficult economic times.

As a result, we rely on our ability to generate deposits and effectively manage the repayment and maturity schedules of our loans and investment securities to ensure that we have adequate liquidity to fund our operations. Any decline in available funding could adversely impact our ability to originate loans, invest in securities, meet our expenses, pay dividends to our shareholders, or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse effect on our business, results of operations, and financial condition.

The Corporation is a bank holding company and its sources of funds necessary to meet its obligations are limited.

The Corporation is a bank holding company and its operations are primarily conducted by the Bank, which is subject to significant federal and state regulation. Cash available to pay dividends to our shareholders, pay our obligations, and meet our debt service requirements is derived primarily from our existing cash flow sources, our third party line of credit, dividends received from the Bank, or a combination thereof. Future dividend payments by the Bank will require the generation of future earnings by the Bank and are subject to certain regulatory guidelines. If the Bank is unable to pay dividends, we may not have the resources or cash flow to pay or meet all of our obligations.

Interest rate shifts may reduce net interest income and otherwise negatively impact our financial condition and results of operations.

Shifts in short-term interest rates may reduce net interest income, which is the principal component of our earnings. Net interest income is the difference between the amounts we receive on our interest-bearing assets and the amounts we pay on our interest-bearing liabilities. In certain scenarios, when interest rates rise, the rate of interest we pay on our liabilities may rise more quickly than the rate of interest that we receive on our interest-bearing assets, which could cause our profits to decrease. Similarly, when interest rates fall, the rate of interest we pay on our liabilities may not decrease as quickly as the rate of interest we receive on our interest-bearing assets, which could cause our profits to decrease. The structure of our balance sheet and resultant sensitivity to interest rates in various scenarios may change in the future.

Interest rate increases on variable rate loans often result in larger payment requirements for our borrowers, which increases the potential for default. At the same time, the marketability of underlying collateral may be adversely affected by any reduced demand resulting from higher interest rates. In a declining interest rate environment, there may be an increase in prepayments on certain loans as borrowers refinance at lower rates.

Changes in interest rates also can affect the value of loans. An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans may lead to an increase in non-performing assets and a reduction of income recognized, which could have an adverse effect on our results of operations and cash flows. Further, when we place a loan on non-accrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income. Subsequently, we continue to have a cost to fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense. Thus, an increase in the amount of non-performing assets would have an adverse impact on net interest income.

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The proportion of the Corporation’s deposit account balances that exceed FDIC insurance limits may expose the Bank to enhanced liquidity risk.

There is growing consensus that the proportion of the deposits that exceeded FDIC insurance limits at Silicon Valley Bank, Signature Bank, and First Republic Bank was a significant factor in the failure of these institutions in the first half of 2023. In response, many large depositors across the industry withdrew deposits in excess of applicable deposit insurance limits and deposited these funds in other financial institutions and low-risk securities accounts in an effort to mitigate the risk of potential further bank failures. While the Bank has not experienced significant withdrawal activity in connection with the recent bank failures, if a significant portion of the Bank’s deposits were to be withdrawn within a short period of time in connection with a similar future crisis, additional sources of funding may be required to meet withdrawal demands. The Corporation may be unable to obtain sufficient funding on favorable terms, which may have an adverse effect on the Corporation’s net interest margin. In addition, funding deposit obligations may be more difficult in a high interest rate environment. Because the Corporation’s available-for-sale investment securities may lose value when interest rates rise, proceeds from the sale of such assets may be diminished during periods of elevated interest rates. Under such circumstances, the Corporation may be required to access funding from sources such as the Federal Reserve Discount Window or other alternative liquidity sources in order to manage our liquidity risk.

Uninsured deposits historically have been viewed by the regulators as less stable than insured deposits. According to statements made by the regulators, clients with larger uninsured deposit account balances often are small- and mid-sized businesses that rely upon deposit funds for payment of operational expenses and, as a result, are more likely to closely monitor the financial condition and performance of their depository institutions. As a result, in the event of financial distress, uninsured depositors historically have been more likely to withdraw their deposits. To that end, the federal banking agencies issued an interagency policy statement in July 2023 to underscore the importance of robust liquidity risk management and contingency funding planning. In the policy statement, the regulators noted that banks should maintain actionable contingency funding plans that take into account a range of possible stress scenarios, assess the stability of their funding and maintain a broad range of funding sources, ensure that collateral is available for borrowing, and review and revise contingency funding plans periodically and more frequently as market conditions and strategic initiatives change.

Operational Risks

Information security risks for financial institutions like us continue to increase in part because of new technologies, the increased use of the internet and telecommunications technologies (including mobile devices and cloud computing) to conduct financial and other business transactions, political activism, and the increased sophistication and activities of organized crime, terrorist, hackers, and perpetrators of fraud. A successful cyber-attack or other breach of our information systems could adversely affect the Corporation’s business, financial condition or results of operations and damage its reputation.

The methods of cyber-attacks change frequently or, in some cases, are not recognized until launch, we are not able to anticipate or implement effective preventive measures against all possible security breaches and the probability of a successful attack cannot be predicted. Although we employ detection and response mechanisms designed to detect and mitigate security incidents, early detection may be thwarted by persistent sophisticated attacks and malware designed to avoid detection. We train employees and our business and consumer clients on fraud risks and mitigation strategies. We face risks related to cyber-attacks and other security breaches that typically involve the transmission of sensitive information regarding our clients and monetary transactions through various third parties. Some of these parties have in the past been the target of security breaches and cyber-attacks. Because the transactions involve third parties and environments that we do not control or secure, future security breaches or cyber-attacks affecting any of these third parties could impact us through no fault of our own, and in some cases, we may suffer losses for breaches or attacks relating to them. We also rely on numerous other third-party service providers to conduct other aspects of our business operations and face similar risks relating to them. While we conduct security assessments on our high risk third party service providers, we cannot be sure that their information security protocols are sufficient to withstand a cyber-attack or other security breach.

The Corporation regularly evaluates its systems and controls and implements upgrades as necessary. The additional cost to the Corporation of our cyber security monitoring and protection systems and controls includes the cost of hardware and software, third party technology providers, consulting and forensic testing firms, and insurance premium costs, in addition to the incremental cost of our personnel who focus a substantial portion of their responsibilities on fraud and cyber security.

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Any successful cyber-attack or other security breach involving the misappropriation, loss or other unauthorized disclosure of confidential client information or funds or that compromises our ability to function could erode confidence in the security of our systems, products and services, result in monetary losses, potentially subject us to regulatory investigation with fines and penalties, expose us to litigation and liability, disrupt our operations and have a material adverse effect on our business, financial condition or results of operations and damage our reputation.

We are dependent upon third parties for certain information systems, data management and processing services, and key components of our business infrastructure, which are subject to operational, security, and other risks.

As with many other companies, we outsource certain information systems, data management, and processing functions to third-party providers, including key components of our business infrastructure like internet and network access, and core application processing. While we have selected these third-party vendors carefully, we do not control their actions, nor is any vendor due diligence perfect. These third-party service providers are sources of operational and informational security risk to us, including risks associated with operational errors, information system interruptions or outages, unauthorized access or disclosure of sensitive or confidential information. If our third-party service providers encounter any of these issues, or if we have difficulty exchanging information with or receiving services from them, we could be exposed to disruption of operations, an inability to provide products and services to our clients, a loss of service or connectivity, reputational damage, and litigation risk that could have a material adverse effect on our business, results of operations, and financial condition.

Our business continuity plans could prove to be inadequate, resulting in a material interruption in or disruption to our business and a negative impact on our results of operations.

We rely heavily on communications and information systems to conduct our business and our operations are dependent on our ability to protect our systems against damage from fire, power loss, telecommunication failure, or other emergencies. The computer systems and network infrastructure we use could be vulnerable to unforeseen problems. These problems may arise in both our internally developed systems and the systems of our third-party service providers. Any failure or interruption of these systems could result in failures or disruptions in general ledger, core bank processing systems, client relationship management, and other systems. While we have a business continuity plan and other policies and procedures designed to prevent or limit the impact of a failure, interruption or security breach of our information systems, there can be no assurance that any of those events will not occur or, if they do occur, that they will be adequately remediated. The occurrence of any failure, interruption, or security breach of our information systems could damage our reputation, result in a loss of clients, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our business, results of operations, and financial condition.

New lines of business, products, and services are essential to our ability to compete but may subject us to additional risks.

Periodically, we implement new lines of business and/or offer new products and services within existing lines of business. There can be substantial risks and uncertainties associated with these efforts, particularly in instances where the markets for such services are still developing or due diligence is not fully vetted. In developing and marketing new lines of business and/or new products or services, we invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved, and price and profitability targets may not prove feasible. New technologies needed to support the new line of business or product may result in incremental operating costs and system defects. Compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. In instances of new lines of businesses offering credit services, weaknesses relating to underwriting and operations may impact credit and capital. Delinquency may negatively affect non-performing assets and increase the provision for credit losses.

Any new line of business and/or new product or service could also have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, results of operations, and financial condition.

Our framework for managing risks may not be effective in mitigating risk and loss to us.

Our risk management framework seeks to mitigate risk and loss to us. We have established processes and procedures intended to identify, measure, monitor, control, and analyze the types of risk to which we are subject, including liquidity risk, credit risk, market risk, interest rate risk, operational risk, information and cyber security risk, compensation risk, legal and compliance risk, and reputational risk, among others. As with any risk management framework, there are inherent limitations to our risk management strategies as there may exist, or develop in the future, risks that we have not appropriately anticipated or identified. Our ability to successfully identify and manage risks facing us is an important factor that can significantly impact our results. If our risk management framework proves ineffective, we could suffer unexpected losses which could adversely affect our business, results of operations, and financial condition.

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We are subject to changes in accounting principles, policies, or guidelines.

Our financial performance is impacted by accounting principles, policies, and guidelines. Some of these policies require the use of estimates and assumptions that may affect the value of our assets or liabilities and financial results. Some of our accounting policies are critical because they require management to make difficult, subjective, and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. If such estimates or assumptions underlying our financial statements are incorrect, we may experience material losses.

From time to time, the FASB and SEC change the financial accounting and reporting standards or the interpretation of those standards that govern the preparation of our financial statements. These changes are beyond our control, can be difficult to predict, and could materially impact how we report our financial condition and results of operations. Changes in these standards are continuously occurring and more changes may occur in the future. The implementation of such changes could have a material adverse effect on our business, results of operations, and financial condition.

Our internal controls may be ineffective.

Management regularly reviews and updates its internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the controls are met. In addition, as we continue to grow the Corporation, our controls need to be updated to keep up with such growth. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could cause us to report a material weakness in internal control over financial reporting and conclude that our controls and procedures are not effective, which could have a material adverse effect on our business, results of operations, and financial condition.

Strategic and External Risks

The Corporation’s business and financial results could be materially and adversely affected by widespread public health events.

The COVID-19 pandemic negatively impacted the global economy, disrupted global supply chains and equity markets and created significant volatility and disruption in financial and labor markets. In addition, the pandemic resulted in temporary closures of many businesses and the institution of social distancing and stay-at-home requirements in many states and communities, including Wisconsin, Kansas, and Missouri. The COVID-19 pandemic, including, in part, supply chain disruption and the effects of the extensive pandemic-related government stimulus, played a significant role in recent inflationary pressure in the U.S. economy.

Future widespread public health epidemics could result in the continued and increased recognition of credit losses in the Corporation’s loan portfolio and increases in the Corporation’s ACL, particularly to the extent that there is a significant negative impact on the global economy. Because of changing economic and market conditions affecting issuers, the Corporation may be required to recognize impairments on the securities it holds. Furthermore, the demand for the Corporation’s products and services may be impacted, which could materially adversely affect the Corporation’s revenue.

We cannot predict how further outbreaks, new variants, the efficacy of vaccines or future widespread public health epidemics, should they occur, might impact our financial condition and results of operation. The extent to which any future pandemic impacts the Corporation’s business, results of operations, and financial condition, as well as the Corporation’s regulatory capital, liquidity ratios, and stock price, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and any responsive actions taken by governmental authorities and other third parties.

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Our business may be adversely affected by conditions in the financial markets and economic conditions generally.

Our operations and profitability are impacted by general business and economic conditions in the U.S. and, to some extent, abroad. These conditions include short-term and long-term interest rates, inflation, money supply, political issues, legislative and regulatory changes, fluctuations in both debt and equity markets, broad trends in industry and finance, the strength of the U.S. economy and uncertainty in financial markets globally, all of which are beyond our control. A deterioration in economic conditions could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values, and a decrease in demand for our products and services, among other things, any of which could have a material adverse effect on our business, results of operations, and financial condition.

Our business is concentrated in and largely dependent upon the continued growth and welfare of the general geographical markets in which we operate.

Our operations are heavily concentrated in southern Wisconsin and, to a lesser extent, the Northeast regions of Wisconsin and the greater Kansas City Metro and, as a result, our financial condition, results of operations, and cash flows are significantly impacted by changes in the economic conditions in those areas. Our success depends to a significant extent upon the business activity, population, income levels, deposits, and real estate activity in these markets. Although our clients’ business and financial interests may extend well beyond these markets, adverse economic conditions that affect these markets, including, without limitation, could reduce our growth rate, affect the ability of our clients to repay their loans to us, affect the value of collateral underlying loans, and generally affect our financial condition and results of operations. Because of our geographic concentration, we are less able than other regional or national financial institutions to diversify our credit risks across multiple markets.

Our financial condition and results of operations could be negatively affected if we fail to effectively execute our strategic plan or manage the growth called for in our strategic plan.

While we believe we have the management resources and internal systems in place to successfully execute our strategic plan, we cannot guarantee that opportunities will be available and that the strategic plan will be successful or effectively executed.

Although we do not have any current definitive plans to do so, we may expand into additional communities or attempt to strengthen our position in our current markets through opportunistic acquisitions of similar or complementary financial services organizations. To the extent that we do so, we may experience higher operating expenses relative to operating income from the new operations or certain one-time expenses associated with the closure of offices, all of which may have an adverse effect on our business, results of operations, and financial condition. Other effects of engaging in such strategies may include potential diversion of our management’s time and attention and general disruption to our business. To the extent that we grow through new locations, we cannot ensure that we will be able to adequately and profitably manage this growth. Acquiring other banks and businesses would involve similar risks to those commonly associated with branching, but may also involve additional risks, including potential exposure to unknown or contingent liabilities of banks and businesses we acquire and exposure to potential asset quality issues of the acquired bank or related business.

We could recognize impairment losses on securities held in our securities portfolio, goodwill, or other long-lived assets.

As of December 31, 2023, the fair value of our securities portfolio was approximately $305.3 million. Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities. For example, fixed-rate securities acquired by us are generally subject to decreases in market value when interest rates rise. Additional factors include, but are not limited to, rating agency downgrades of the securities, defaults by the issuer or individual mortgagors with respect to the underlying securities, and instability in the credit markets. Any of the foregoing factors could cause credit losses and result in a provision for credit losses. The process for determining whether impairment is other-than-temporary usually requires difficult, subjective judgments about the future financial performance of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security. Because of changing economic and market conditions affecting interest rates, the financial condition of issuers of the securities and the performance of the underlying collateral, we may recognize realized and/or unrealized losses in future periods, which could have an adverse effect on our business, results of operations, and financial condition.

As of December 31, 2023, the Corporation had goodwill of $10.7 million. Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. A decline in our stock price, decline in the performance of our acquired operations, or the occurrence of another triggering event could, under certain circumstances, result in an impairment charge being recorded. During 2023, our annual impairment test conducted July 1, 2023 indicated that the estimated fair value of the reporting unit exceeded the carrying value (including goodwill). Depending on market conditions, economic forecasts, results of operations, additional adverse circumstances or other factors, the goodwill

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impairment analysis may require additional review of assumptions and outcomes prior to our next annual impairment testing date of July 1, 2024. In the event that we conclude that all or a portion of our goodwill may be impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.

We could be required to establish a deferred tax asset valuation allowance and a corresponding charge against earnings if we experience a decrease in earnings.

Deferred tax assets are reported as assets on our balance sheet and represent the decrease in taxes expected to be paid in the future in connection with our ACL and other matters. If it becomes more likely than not that some portion or the entire deferred tax asset will not be realized, a valuation allowance must be recognized. As a result of a Wisconsin state tax law change in 2023, the Corporation has recorded a valuation allowance of $2.8 million against related state deferred tax assets. The Corporation believes it will fully realize its Federal and non-Wisconsin deferred tax assets. These determinations were based on the evaluation of several factors, including relevant tax law changes, our recent earnings history, expected future taxable earnings, and appropriate tax planning strategies. A decrease in taxable earnings could adversely impact our ability to fully utilize our remaining deferred tax assets. If we determine that it is more likely than not that some portion or all of the remaining deferred tax assets will not be realized, a valuation allowance will need to be recognized and this would result in a corresponding charge against our earnings.

Competition from other financial services providers could adversely affect our profitability.

We encounter heavy competition in attracting commercial loan, specialty finance, deposit, and private wealth management clients. We believe the principal factors that are used to attract quality clients and distinguish one financial institution from another include value-added relationships, interest rates and rates of return, types of accounts and product offerings, service fees, and quality of service.

Our competition includes banks, savings institutions, mortgage banking companies, credit unions, finance companies, equipment finance companies, mutual funds, insurance companies, brokerage firms, investment banking firms, and financial technology (“FinTech”) companies. We compete with regional and national financial institutions that have a substantial presence in our market areas, many of which have greater liquidity, higher lending limits, greater access to capital, more established market recognition, and more resources and collective experience than we do. Some larger financial institutions that have not historically competed with us directly have substantial excess liquidity and have sought, and may continue to seek, smaller lending relationships in our primary markets. Furthermore, tax-exempt credit unions operate in our market areas and aggressively price their products and services to a large portion of the market. Finally, technology has also lowered the barriers to entry and made it possible for non-bank financial service providers to offer products and services we have traditionally offered, such as automatic funds transfer and automatic payment systems. Our profitability depends, in part, upon our ability to successfully maintain and increase market share.

Consumers and businesses are increasingly using non-banks to complete their financial transactions, which could adversely affect our business and results of operations.

Technology and other changes are allowing consumers and businesses to complete financial transactions that historically have involved financial institutions through alternative methods. The wide acceptance of Internet-based and person-to-person commerce has resulted in a number of alternative payment processing systems and lending platforms in which banks play only minor roles. Businesses and consumers can now maintain funds in social payment applications, prepaid debit cards or digital currencies, and pay bills and transfer funds directly without the direct assistance of financial institutions. The diminishing role of financial institutions as financial intermediaries has resulted, and could continue to result, in the loss of fee income, as well as the loss of client deposits and the related income generated from those deposits. The loss of these revenue streams and the potential loss of lower cost deposits as a source of funds could have a material adverse effect on our business, financial condition, and results of operations.

If we are unable to keep pace with technological advances in our industry, our ability to attract and retain clients could be adversely affected.

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Our private wealth management results of operations may be negatively impacted by changes in economic and market conditions.

Our private wealth management results of operations may be negatively impacted by changes in general economic conditions and the conditions in the financial and securities markets, including the values of assets held under management, which are beyond our control. Our management contracts generally provide for fees payable for services based on the market value of assets under management; therefore, declines in securities prices will generally have an adverse effect on our results of operations from this business. Market declines and reductions in the value of our clients’ private wealth management services accounts could result in us losing private wealth management services clients, including those who are also banking clients, and negatively affect our earnings.

Potential acquisitions may disrupt our business and dilute shareholder value.

•Potential exposure to unknown or contingent liabilities of the target company.

•Exposure to potential asset quality issues of the target company.

•Potential diversion of our management’s time and attention.

•Possible loss of key employees and clients of the target company.

•Difficulty in estimating the value of the target company.

•Potential changes in banking or tax laws or regulations that may affect the target company.

•Difficulty in integrating operations, personnel, technologies, services, and products of acquired companies.

Acquisitions may involve the payment of a premium over book and market values, and, therefore, some dilution of our tangible book value and net income per common share may occur in connection with any future transaction. Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits from an acquisition could have a material adverse effect on our business, financial condition, and results of operations.

The investments we make in certain tax-advantaged projects may not generate returns as anticipated and may have an adverse impact on the Corporation’s financial results.

We invest in certain tax-advantaged projects promoting community development. Investments in these projects are designed to generate a return primarily through the realization of federal and state income tax credits, and other tax benefits, over specified time periods. The Corporation is subject to the risk that previously recorded tax credits, which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level, will fail to meet certain government compliance requirements and will not be able to be realized. The possible inability to realize these tax credit and other tax benefits could have a negative impact on the Corporation’s financial results. The risk of not being able to realize the tax credits and other tax benefits depends on many factors outside of the Corporation’s control, including changes in the applicable tax code and the ability of the projects to be completed.

A prolonged U.S. government shutdown or default by the U.S. on government obligations would harm our results of operations.

Our results of operations, including revenue, non-interest income, expenses and net interest income, would be adversely affected in the event of widespread financial and business disruption due to a default by the United States on U.S. government obligations or a prolonged failure to maintain significant U.S. government operations. Of particular impact to the Corporation are the operations regulated by the SBA. Any failure to maintain such U.S. government operations, and the after-effects of such shutdown, could impede our ability to originate SBA loans and sell such loans in the secondary market, and would materially adversely affect our business, results of operations, and financial condition.

In addition, many of our investment securities are issued by, and some of our loans are made to, the U.S. government and government agencies and sponsored entities. Uncertain domestic political conditions, including prior federal government shutdowns and potential future federal government shutdowns or other unresolved political issues, may pose credit default and liquidity risks with respect to investments in financial instruments issued or guaranteed by the federal government and loans to the federal government. Any further downgrade in the sovereign credit rating of the United States, as well as sovereign debt issues facing the governments of other countries, could have a material adverse impact on financial markets and economic conditions in the United States and worldwide. Any such adverse impact could have a material adverse effect on our liquidity, financial condition, and results of operations.

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Regulatory, Compliance, Legal and Reputational Risks

We operate in multiple states and in a highly regulated industry and the federal and state laws and regulations that govern our operations, corporate governance, executive compensation, and accounting principles. Changes in them or our failure to comply with them, may adversely affect us.

We are subject to extensive regulation and supervision that govern almost all aspects of our operations. These laws and regulations, among other matters, prescribe minimum capital requirements, expose us to legal penalties, financial forfeiture and material loss if we fail to act in accordance with bank laws and regulations, impose limitations on our business activities and compensation practices, limit the dividends or distributions that we can pay, restrict the ability to guarantee our debt, and impose certain specific accounting requirements that may be more restrictive and may result in greater or earlier charges to earnings or reductions in our capital than generally accepted accounting principles. These regulations affect our lending practices, employment practices, compliance management system, operational controls, tax structure, and growth, among other things. Changes to federal and state laws, income and property tax regulations, or regulatory guidance, could affect us in substantial and unpredictable ways. Such changes could subject us to additional costs, tax filing requirements, employment practices, and limit the types of financial services and products we may offer, among other things. Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose additional costs. Further, our failure to comply with these laws and regulations, even if the failure was inadvertent or reflects a difference in interpretation, could subject us to restrictions on our business activities, fines, and other penalties, any of which could adversely affect our business, results of operations, and financial condition.

The financial services industry, as well as the broader economy, may be subject to new legislation, regulation, and government policy.

From time to time, federal and state governments and bank regulatory agencies modify the laws and regulations that govern financial institutions and the financial system generally. These modifications often, but not always, occur in response to crises or significant events, such as the several bank failures in early 2023, the COVID-19 pandemic, or political transitions. Such laws and regulations can affect our operating environment in substantial and unpredictable ways. Among other effects, such laws and regulations can increase or decrease the cost of doing business, limit or expand the scope of permissible activities, or affect the competitive balance among banks and other financial institutions. In addition, any changes in monetary policy, fiscal policy, tax laws, and other policies can affect the broader economic environment, interest rates, and patterns of trade. Any of these changes could affect our company and the banking industry as a whole in ways that are difficult to predict, and could adversely impact our business, financial condition, or results of operations.

We face a risk of noncompliance and enforcement action with the Bank Secrecy Act (“BSA”) and other anti-money laundering (“AML”) statutes and regulations.

AML laws and regulations require financial institutions, among other duties, to institute and maintain effective anti-money laundering programs and file suspicious activity and currency transaction reports as appropriate. The Financial Crimes Enforcement Network (“FinCEN”), established by Treasury to administer the BSA, is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration and IRS. There is also increased scrutiny of compliance with the rules enforced by the FinCEN, Federal, and State regulators. Federal and state bank regulators also focus on compliance with AML laws.

If our policies, procedures, and systems are deemed deficient or the policies, procedures, and systems of the financial institutions that we may acquire in the future are deficient, we would be subject to liability, including fines and regulatory actions, such as restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan which would adversely affect our business, results of operations, and financial condition. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us.

We are periodically subject to examination and scrutiny by a number of banking agencies and, depending upon the findings and determinations of these agencies, we may be required to make adjustments to our business that could adversely affect us.

Federal and state banking agencies periodically conduct examinations of our business, including compliance with applicable laws and regulations. If, as a result of an examination, a federal banking agency was to determine that the financial condition, capital resources, asset quality, asset concentration, earnings prospects, management, liquidity, sensitivity to market risk, or other aspects of any of our operations has become unsatisfactory, or that we or our management is in violation of any law or regulation, it could take a number of different remedial actions as it deems appropriate. These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative actions to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to change the asset composition of our portfolio or balance sheet, to assess civil monetary penalties against our officers

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or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance. If we become subject to such regulatory actions, our business, results of operations, and financial condition may be adversely affected.

We are subject to claims and litigation pertaining to our fiduciary responsibilities.

Some of the services we provide, such as ~~trust and investment~~private wealth management services, require us to act as fiduciaries for our clients and others. From time to time, third parties could make claims and take legal action against us pertaining to the performance of our fiduciary responsibilities. If fiduciary investment decisions are not appropriately documented to justify action taken or trades are placed incorrectly, among other possible claims, and if these claims and legal actions are not resolved in a manner favorable to us, we may be exposed to significant financial liability and/or our reputation could be damaged. ~~Either of these~~These results may adversely impact demand for our products and services or otherwise have an adverse effect on our business, results of operations, and financial condition.

~~Negative publicity could damage our reputation and adversely impact our business and financial results.~~

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in response to those activities. Negative publicity can adversely affect our ability to keep and attract clients, and can expose us to litigation and regulatory action, all of which could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Investing in Our Common Stock

Our stock is thinly traded and our stock price can fluctuate.

Although our common stock is listed for trading on the Nasdaq Global Select Market, low volume of trading activity and volatility in the price of our common stock may make it difficult for our shareholders to sell common stock when desired and at prices they find attractive. Our stock price can fluctuate significantly in response to a variety of factors including, among other things:

•actual or anticipated variations in our quarterly results of operations;

•recommendations by securities analysts;

•operating and stock price performance of other companies that investors deem comparable to us;

•news reports relating to trends, concerns, and other issues in the financial services industry;

•perceptions in the marketplace regarding us or our competitors and other financial services companies;

•new technology used, or services offered, by competitors; and

•changes in government regulations.

General market fluctuations, industry factors, and general economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes, or credit loss trends, could also cause our stock price to decrease regardless of our operating results.

To maintain adequate capital levels, we may be required to raise additional capital in the future, but that capital may not be available when it is needed and/or could be dilutive to our existing shareholders.

We are required by regulatory authorities to maintain adequate levels of capital to support our operations. In order to ensure our ability to support the operations of the Bank, we may need to limit or terminate cash dividends that can be paid to our shareholders. In addition, we may need to raise capital in the future. Our ability to raise capital, if needed, will depend in part on our financial performance and conditions in the capital markets at that time, and accordingly, we cannot guarantee our ability to raise capital on terms acceptable to us. ~~In addition, if~~If we decide to raise equity capital in the future, the interests of our shareholders could be diluted. Any issuance of common stock would dilute the ownership percentage of our current shareholders and any issuance of common stock at prices below tangible book value would dilute the tangible book value of each existing share of our common stock held by our current shareholders. The market price of our common stock could also decrease as a result of the sale of a large number of shares or similar securities, or the perception that such sales could occur. If we cannot raise capital when needed, our ability to serve as a source of strength to the Bank, pay dividends, maintain adequate capital levels and liquidity, or further expand our operations could be materially impaired.

If equity research analysts publish research or reports about our business with unfavorable commentary or downgrade our common stock, the price and trading volume of our common stock could decline.

The trading market for our common stock could be affected by whether equity research analysts publish research or reports about us and our business and what is included in such research or reports. If equity analysts publish research reports about us containing unfavorable commentary, downgrade our stock, or cease publishing reports about our business, the price of our stock could decline. If any analyst electing to cover us downgrades our stock, our stock price could decline rapidly. If any analyst electing to cover us ceases coverage of us, we could lose visibility in the market, which in turn could cause our common stock price or trading volume to decline and our common stock to be less liquid.

Volatility or events impacting a subset of the banking industry, such as larger banks or institutions that serve to specific markets, can impact the entire sector, including the Corporation, which could affect the confidence of our clients and investors and result in a material adverse effect on our performance and a decline in our stock price for reasons outside of our control.

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The industry in which we compete is diverse, with participants ranging from community-based banks to global financial institutions with assets in the trillions of dollars. In addition, some financial institutions have exposure of an extremely broad range of risks, or outsized exposure to specific industries such as startup and early-stage, pharmaceutical, or oil & gas companies. When volatility, market events or similar issues affect a subset of financial institutions, or when there are news reports or high-profile incidents relating to trends, concerns, and other issues in the banking industry, the ramifications can affect the sector as a whole, regardless of the effect, or lack thereof, on any specific institution. For example, the recent failures of Silicon Valley Bank, Signature Bank and First Republic Bank, which were caused by specific risk management and industry issues, negatively impacted customer, investor and media perception of the entire sector, resulting in declines in depositor confidence and stock prices throughout the industry. Future events of this nature could result in a material adverse effect on our performance and a decline in our stock priced for reasons that would not otherwise affect the Bank or which are outside of our control.

General Risk Factors

Our ability to attract and retain talented employees is critical to our success.

Our success depends on our ability to continue to recruit and retain talented employees. Competition for such employees is intense, which has led to an increase in compensation throughout the labor market, and accordingly, an increase in payroll costs for employers. Prospective employees are also placing an emphasis on flexible, including remote, work arrangements and other considerations, and such arrangements can provide employees with more employment options and mobility, making them more difficult to retain. If we are unable to meet the expectations of employees and prospective employees, and thus, retain or attract employees, it could have a substantial adverse effect on our business.

We rely on our management and the loss of one or more of those managers may harm our business.

Our success has been and will be greatly influenced by our continuing ability to retain the services of our existing senior management and to attract and retain additional qualified senior and middle management. The unexpected loss of key management personnel or the inability to recruit and retain qualified personnel in the future could have an adverse effect on our business and financial results. In addition, our failure to develop and/or maintain an effective succession plan will impede our ability to quickly and effectively react to unexpected loss of key management, and in turn, may have an adverse effect on our business, results of operations, and financial condition.

Negative publicity could damage our reputation and adversely impact our business and financial results.

Reputation risk, or the risk to our earnings and capital due to negative publicity, is inherent in our business. Negative publicity can result from our actual or alleged conduct in a number of activities, including lending practices, fraud, information security, management actions, corporate governance, and actions taken by government regulators and community organizations in response to those activities. Negative publicity can adversely affect our ability to keep and attract clients, employees, and shareholders and can expose us to litigation and regulatory action, all of which could have a material adverse effect on our business, financial condition, and results of operations.

Item 1B. Unresolved Staff Comments

None.

Item 1C. Cybersecurity

Cybersecurity is an important component of our overall approach to Enterprise Risk Management (“ERM”). Our cybersecurity policies, standards, processes and practices are fully integrated in our ERM program which are based on recognized frameworks established by the National Institute of Standards and Technology, the International Organization for Standardization and other applicable industry standards. We seek to address cybersecurity risks through a comprehensive approach that is focused on preserving the confidentiality, security and availability of the information that we collect and store by identifying, preventing and mitigating cybersecurity threats and effectively responding to cybersecurity incidents when they occur.

Our cybersecurity program is focused on the following key areas:

Governance: The Board of Director’s (the “Board”) oversight of cybersecurity risk management is delegated to the Operational Risk Committee of the Board (the "ORC"), which regularly interacts with our ERM function, the Chief Information Officer ("CIO"), other members of management and relevant management committees. The ORC chair regularly reports material developments on cybersecurity to the Board.

Collaborative Approach: We have implemented a comprehensive approach to identifying, preventing and mitigating cybersecurity threats and incidents, while also implementing controls and procedures that provide for the prompt escalation of

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certain cybersecurity incidents so that decisions regarding the public disclosure and reporting of such incidents can be made by management in a timely manner.

Technical Safeguards: We deploy technical safeguards that are designed to continuously protect our information systems from cybersecurity threats, including firewalls, intrusion prevention and detection systems, anti-malware functionality and access controls. These safeguards are evaluated and improved through vulnerability assessments, penetration testing, and cybersecurity threat intelligence.

Incident Response and Recovery Planning: We have established and maintain a comprehensive incident response and recovery plan that fully addresses our response to a potential cybersecurity incident, and such plans are tested and evaluated on a regular basis.

Third-Party Risk Management: We maintain a comprehensive, risk-based approach to identifying and monitoring cybersecurity risks presented by third parties, including vendors, service providers and other external users of our systems, as well as the systems of third parties that could adversely impact our business in the event of a cybersecurity incident affecting those third-party systems. Our third-party risk management program includes robust upfront and ongoing risk assessments for all critical and high-risk vendors.

Education and Awareness: We provide regular, mandatory training for personnel regarding cybersecurity threats as a means to equip our personnel with effective tools to address cybersecurity threats, and to communicate our evolving information security policies, standards, processes and practices. The Board receives periodic education and on a regular basis is informed about industry trends and how the Bank is responding to evolving threats.

We engage an independent third party to conduct periodic testing and assessment of our policies, standards, processes, controls and practices that are designed to address cybersecurity threats and incidents. These efforts include audits, assessments, vulnerability and penetration testing and other exercises focused on evaluating the effectiveness of our cybersecurity measures. We also engage independent third parties to complete periodic testing and assessments of our cybersecurity measures. The results of such assessments are reported to the ORC and the Board and we adjust our policies and practices as necessary based on the information provided by these assessments.

The Board and the ORC oversee our ERM process, including regular presentations and reports. The Board and the ORC also receive prompt and timely information regarding any cybersecurity incident that meets established reporting thresholds. The Board and the ORC coordinate the approach to cybersecurity management with the Chief Risk Officer and the Chief Information Officer, as well as our CFO and CEO.

Our Chief Risk and Chief Information Officers have 30 and 24 years of experience, respectively. Their background is summarized in Item 1, Executive Officers of the Registrant.

To date, we have not been materially affected by cybersecurity threats, including our business strategy, results of operations or financial condition. Please refer to Risk Factors in Item 1A for discussion of possible impacts from future cybersecurity events.

Item 2. Properties

The following table provides certain summary information with respect to the principal properties in which we conduct our operations, all of which were leased, as of December 31, ~~2017~~:

2023:

Location

Function

Expiration
Date

~~Location~~

~~Function~~

~~Expiration~~

~~Date~~

401 Charmany Drive, Madison, WI

~~Full-service banking location of FBB and office of FBFS~~

~~2029~~

~~18500 W. Corporate Drive, Brookfield, WI~~

Full-service banking location of FBB - ~~Milwaukee~~South Central Region and office of FBFS

~~2020~~2028

~~11300 Tomahawk Creek Pkwy,~~17335 Golf Parkway, Brookfield, WI

Full-service banking location of FBB - Southeast Region

2032

11141 Overbrook Road, Leawood, KS

Full-service banking location of FBB - Kansas City Region

2033

3913 West Prospect Avenue, Appleton, WI

~~2023~~

Full-service banking location of FBB - Northeast Region

2025

~~To facilitate additional business development opportunities, as of~~ ~~December 31, 2017, the Corporation had loan production offices in Oshkosh, Appleton, Manitowoc and Kenosha, Wisconsin.~~

For the purpose of generating business development opportunities in ~~asset-based financing,~~our specialized lending and consulting businesses, as of December 31, ~~2017,~~2023, office space was also leased in several states nationwide under shorter-term lease agreements, which generally have terms of one year or less.

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Item 3. Legal Proceedings

We believe ~~that~~ no litigation is threatened or pending in which we face potential loss or exposure which could materially affect our consolidated financial position, consolidated results of operations, or consolidated cash flows. Since our subsidiaries act as depositories of funds, lenders, and fiduciaries, they are occasionally named as defendants in lawsuits involving a variety of claims. This and other litigation is ordinary, routine litigation incidental to our business.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II.

Item 5. Market for Registrant’s Common Equity, Related ~~Stockholder~~Shareholder Matters and Issuer Purchases of Equity Securities

Holders ~~Price Range and Dividends Declared~~

The common stock of the Corporation is traded on the Nasdaq Global Select Market under the symbol “FBIZ.” As of ~~March 1, 2018,~~February 15, 2024, there were ~~389~~361 registered shareholders of record of the Corporation’s common stock. ~~Certain of the Corporation’s shares are held in “nominee” or “street” name and the number of beneficial owners of such shares as of March 1, 2018 was approximately 1,900.~~

The following table presents the range of high and low sale prices of our common stock for each quarter within the two most recent fiscal years, according to information provided by Nasdaq, and cash dividends declared in such quarters.

High Low Dividend Declared
2017
4th Quarter $ 24.24
$ 20.76
$ 0.13
3rd Quarter 23.75
20.57
0.13
2nd Quarter 28.43
22.49
0.13
1st Quarter 26.47
23.07
0.13
2016
4th Quarter 24.14
18.76
0.12
3rd Quarter 24.74
20.96
0.12
2nd Quarter 25.94
22.19
0.12
1st Quarter 24.70
20.06
0.12

Dividend Policy

It has been our practice to pay a dividend to common shareholders. Dividends historically have been declared in the month following the end of each calendar quarter. However, the timing and amount of future dividends are at the discretion of the Board of Directors of the Corporation (the “Board”) and will depend upon the consolidated earnings, financial condition, liquidity, and capital requirements of the Corporation and the Bank, the amount of cash dividends paid to the Corporation by the Bank, applicable government regulations and policies, supervisory actions, and other factors considered relevant by the Board. Refer to Item 1 - Business - Supervision and Regulation - Regulation and Supervision of the Bank - Dividend Payments for additional discussion regarding the limitations on dividends and other capital contributions by the Bank to the Corporation. The Board anticipates it will continue to declare dividends as appropriate based on the above factors.

~~Table of Contents~~

Stock Performance Graph

The chart shown below depicts total return to shareholders during the period beginning December 31, ~~2012~~2018 and ending December 31, ~~2017. Total~~2023. The total return includes appreciation or depreciation in market value of the Corporation’s common stock as well as actual cash and stock dividends paid to common stockholders. Indices shown below, for comparison purposes only, are the Total Return Index for the Nasdaq Composite, which is a broad nationally recognized index of stock performance by publicly traded companies, and the SNL Bank Nasdaq, which is an index that contains securities of Nasdaq-listed companies classified according to the Industry Classification Benchmark as banks. The chart assumes that the value of the investment in FBIZ common stock and each of the three indices was $100 on December 31, ~~2012,~~2018 and that all dividends were reinvested in FBIZ common stock.

As of December 31,
Index 2012 2013 2014 2015 2016 2017
First Business Financial Services, Inc. $ 100.00
$ 166.98
$ 216.75
$ 230.68
$ 223.68
$ 213.36
Nasdaq Composite 100.00
140.12
160.78
171.97
187.22
242.71
SNL Bank Nasdaq 100.00
143.73
148.86
160.70
222.81
234.58

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	As of December 31,
Index	2018		2019		2020		2021		2022		2023
First Business Financial Services, Inc.	$	100.00	$	138.56	$	100.53	$	163.69	$	209.82	$	236.96
NASDAQ Composite Index	100.00		136.69		198.10		242.03		163.28		236.17
KBW NASDAQ Bank Index	100.00		136.13		122.09		168.88		132.75		131.57

Issuer Purchases of Securities

As previously announced, effective January 27, 2023, the Corporation’s Board of Directors authorized the repurchase by the Corporation of shares of its common stock with a maximum aggregate purchase price of $5.0 million, effective January 31, 2023 through January 31, 2024. As of December 31, 2023, the Corporation had repurchased a total of 65,112 shares for approximately $2.0 million at an average cost of $30.72 per share. At this time, the Corporation does not expect to adopt a new plan upon its expiration to replace the recently expired plan due to strong balance sheet growth.

Under the recently expired share repurchase program, the Corporation was authorized to repurchase shares from time to time in the open market or negotiated transactions at prevailing market rates, or by other means in accordance with federal securities laws.

The following table sets forth information about the Corporation's purchases of its common stock during the three months ended December 31, ~~2017.~~2023.

Period
Total Number of Shares Purchased⁽¹⁾
Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
October 1, 2017 - October 31, 2017 —
$ —
—
$ —
November 1, 2017 - November 30, 2017 1,024
22.42
—
—
December 1, 2017 - December 31, 2017 —
—
—
—
Total 1,024
—


Period	Total Number of Shares Purchased(1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Total Number of Shares that May Yet Be Purchased Under the Plans or Programs
October 1, 2023 - October 31, 2023	—	$	—	—
November 1, 2023 - November 30, 2023	458	34.30		—
December 1, 2023 - December 31, 2023	—	—		—
Total	458			—	74,813


~~(1)~~	~~The shares in this column represent the shares that were surrendered to us to satisfy income tax withholding obligations in connection with the vesting of restricted shares.~~

(1)During the fourth quarter of 2023, the Corporation repurchased an aggregate 458 shares of the Corporation’s common stock in open-market transactions, of which no shares were purchased pursuant to the repurchase program publicly announced on January 27, 2023, and of which 458 shares were surrendered to us to satisfy income tax withholding obligations in connection with the vesting of restricted awards. The Corporation did not repurchase any shares pursuant to the publicly announced program described above during the quarter.

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Item 6. ~~Selected Financial Data~~ [Reserved]

~~Five Year Comparison of Selected Consolidated Financial Data~~

As of and for the Year Ended December 31,
2017 2016 2015 2014 2013
(Dollars in Thousands, Except Share and Per Share Data)
INCOME STATEMENT:
Interest income $ 75,811
$ 78,117
$ 72,471
$ 57,701
$ 53,810
Interest expense 15,202
14,789
13,831
11,571
11,705
Net interest income 60,609
63,328
58,640
46,130
42,105
Provision for loan and lease losses 6,172
7,818
3,386
1,236
(959 )
Non-interest income 16,665
17,988
17,011
10,103
8,442
Non-interest expense 56,871
56,433
47,374
33,775
30,371
Income tax expense 2,326
2,156
8,377
7,083
7,389
Net income $ 11,905
$ 14,909
$ 16,514
$ 14,139
$ 13,746
Yield on earning assets 4.47 % 4.50 % 4.52 % 4.45 % 4.52 %
Cost of funds 1.11 % 1.06 % 1.04 % 1.07 % 1.18 %
Interest rate spread 3.36 % 3.44 % 3.48 % 3.38 % 3.34 %
Net interest margin 3.58 % 3.64 % 3.66 % 3.56 % 3.54 %
Return on average assets 0.67 % 0.82 % 0.97 % 1.04 % 1.10 %
Return on average equity 7.16 % 9.40 % 11.36 % 11.78 % 13.12 %
ENDING BALANCE SHEET:
Total assets $ 1,794,066
$ 1,780,699
$ 1,782,081
$ 1,628,505
$ 1,268,267
Securities 163,783
184,505
177,830
186,261
180,118
Loans and leases, net of deferred loan fees 1,501,595
1,450,675
1,430,965
1,266,438
967,050
In-market deposits 1,086,346
1,122,174
1,089,748
1,010,928
736,323
Wholesale deposits 307,985
416,681
487,483
427,340
393,532
FHLB advances and other borrowings 207,898
59,676
34,740
33,451
11,901
Junior subordinated notes 10,019
10,004
9,990
9,976
9,962
Stockholders’ equity 169,278
161,650
150,832
137,748
109,275
FINANCIAL CONDITION ANALYSIS:
Allowance for loan and lease losses to gross loans and leases 1.25 % 1.44 % 1.14 % 1.12 % 1.42 %
Allowance to non-accrual loans and leases 71.10 % 83.00 % 73.17 % 146.33 % 87.68 %
Net charge-offs to average loans and leases 0.57 % 0.22 % 0.10 % 0.08 % 0.06 %
Non-accrual loans to gross loans and leases 1.76 % 1.74 % 1.56 % 0.76 % 1.61 %
Average equity to average assets 9.35 % 8.75 % 8.54 % 8.80 % 8.39 %
STOCKHOLDERS’ DATA:
Basic earnings per common share⁽¹⁾
$ 1.36
$ 1.71
$ 1.90
$ 1.76
$ 1.75
Diluted earnings per common share⁽¹⁾
1.36
1.71
1.90
1.75
1.74
Book value per share at end of period 19.32
18.55
17.34
15.88
13.86
Tangible book value per share at end of period 17.87
17.08
15.90
14.51
13.86
Dividend declared per share 0.52
0.48
0.44
0.42
0.28
Dividend payout ratio 38.12 % 23.93 % 23.93 % 23.93 % 16.05 %
Shares outstanding 8,763,539
8,715,856
8,699,410
8,671,854
7,833,334


~~(1)~~	Basic and diluted earnings per share reflect earnings per common share as calculated under the two-class method due to the existence of participating securities. All shares and per share amounts have been adjusted to reflect the 2-for-1 stock split in the form of a 100% stock dividend completed in August 2015.

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~~Item 7.~~	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

When used in this report the words or phrases “may,” “could,” “should,” “hope,” “might,” “believe,” “expect,” “plan,” “assume,” “intend,” “estimate,” “anticipate,” “project,” “likely,” or similar expressions are intended to identify “forward-looking statements.” Such statements are subject to risks and uncertainties, including among other things:

~~Competitive pressures among depository and other financial institutions nationally and in our markets.~~

•Adverse changes in the economy or business conditions, either nationally or in our ~~markets.~~markets, including, without limitation, inflation, supply chain issues, 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.

~~The consequences of continued bank acquisitions and mergers in our markets, resulting in fewer but much larger and financially stronger competitors.~~

•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.

These risks, together with the risks identified in Item 1A — Risk Factors, 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~~stockholders and potential investors. Investors should not place undue reliance on any such forward-looking statements, which speak only as of the date made.

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 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 Consolidated Financial Statements and the Notes ~~thereto and the Selected Consolidated Financial Data in this Form 10-K.~~thereto.

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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 ~~the Bank~~FBB and ~~certain subsidiaries~~First Business Specialty Finance, LLC (“FBSF”), a wholly-owned subsidiary of FBB. ~~We operate~~FBB operates 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~~are focused on business banking, private wealth, and bank consulting. Within business banking, we offer commercial lending, ~~SBA~~asset-based lending, accounts receivable financing, equipment financing, floorplan financing, vendor financing, Small Business Administration (“SBA”) lending and servicing, ~~asset-based lending, equipment financing, factoring,~~treasury management solutions, and company retirement services. 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, ~~treasury~~asset liability management services, and ~~a broad range of deposit products.~~asset liability management process validation for other financial institutions. We do not utilize a branch network to attract retail clients. Our operating ~~philosophy~~model is predicated on deep client relationships, ~~fostered by local~~financial expertise, ~~combined with the efficiency of~~and an efficient, centralized ~~administrative functions such as information technology, loan and deposit operations, finance and accounting, credit~~ administration ~~compliance and human resources.~~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.

~~Effective June 1, 2017,~~Long-Term Strategic Plan

In early 2019, management finalized the development of its five year strategic plan and began the implementation of strategies and initiatives that drive successful execution. Management’s objective over this five year period was to excel by building an expert team with diverse experiences who work together to impact client success more than any other financial partner. To meet this objective, we ~~completed the consolidation~~identified four key strategies which are linked to corporate financial goals, all business lines, and centralized administration functions to ensure communication and execution are consistent at all levels of the ~~Corporation’s three bank charters into~~Corporation.

These four strategies are described below:

•We will identify, attract, develop, and retain a ~~single charter. In addition~~diverse, high performing team to ~~Federal Reserve supervision~~positively impact the overall performance and efficiency of the ~~holding company, which~~Corporation.

•We will ~~remain unchanged, prior to consolidation~~increase internal efficiencies, deliver a differentiated client experience, and drive client experience utilizing technology where possible.

•We will diversify and grow our deposit base.

•We will optimize our business lines for diversification and performance.

The table below shows the Corporation’s ~~three chartered bank subsidiaries were supervised by~~performance for the years ended December 31, 2023, 2022, and 2021 in comparison to the key performance indicators included in the Corporation’s 2019 strategic plan.


	As of December 31,
Key Performance Indicators	2021	2022	2023	Strategic Plan
Return on average equity (“ROAE”)	16.21%	16.79%	13.79%	13.50%
Return on average assets (“ROAA”)	1.37%	1.46%	1.13%	1.15%
Top line revenue growth	8.4%	13.4%	12.6%	≥ 10% per year
In-market deposits to total bank funding	82.9%	76.1%	76.0%	≥ 75%
Employee engagement (1)	87%	87%	90%	≥ 80%
Client satisfaction (1)	93%	95%	93%	≥ 90%

(1) Anonymous surveys conducted annually

Throughout 2023, the last year of the existing plan, management undertook an extensive process to reassess its key strategies and performance indicators to create a ~~total~~new long-term strategic plan. The Corporation intends to disclose information about the key terms of ~~four federal and state banking regulators. The~~the new strategic plan later in 2024 after it is finalized.

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Financial Performance Summary

~~consolidated single charter is now supervised by the FDIC~~Results as of and the WDFI. Beyond streamlining bank regulatory processes and relationships, the charter consolidation was designed to accelerate the Corporation’s ongoing efforts to improve overall operating efficiency. With one bank charter, we expect to eliminate administrative redundancies and increase our flexibility in managing capital, liquidity and funding.

In addition, having already integrated most of FBB-KC’s back office operations into FBFS, during the fourth quarter of 2017, the Corporation converted FBB-KC’s core bank system and centralized this service with FBB’s core bank system and its Wisconsin-based operations.

~~Operational Summary~~

~~Total assets at December 31, 2017 increased $13.4 million, or 0.8%, to $1.794 billion from~~ ~~$1.781 billion~~ ~~at December 31, 2016.~~

~~Net income~~ for the year ended December 31, ~~2017 was~~ ~~$11.9 million~~ ~~compared~~2023 include:

•Net income available to ~~$14.9 million~~common shareholders for the year ended December 31, ~~2016.~~

~~Diluted earnings per common share were~~ ~~$1.36~~ ~~for the year ended December 31, 2017,~~2023 was $36.2 million, decreasing 10.0% compared to ~~$1.71~~ ~~in the prior year.~~

~~Net interest margin was~~ ~~3.58%~~ ~~for the year ended December 31, 2017, declining~~ ~~six~~ ~~basis points from 3.64% for the year ended December 31, 2016.~~

~~Top line revenue, which consists of net interest income and non-interest income, decreased 5.0% to~~ ~~$77.3 million~~ ~~for the year ended December 31, 2017, compared to~~ ~~$81.3 million~~ ~~for the same period in~~ ~~2016~~.

~~Return on average assets and return on average equity for the year ended December 31, 2017 were~~ ~~0.67%~~ ~~and~~ ~~7.16%~~ ~~respectively, compared to~~ ~~0.82%~~ ~~and~~ ~~9.40%, respectively, for 2016.~~

~~Provision for loan and lease losses was $6.2~~$40.2 million for the year ended December 31, ~~2017,~~2022.

•Diluted earnings per common share were $4.33 for the year ended December 31, 2023, decreasing 8.8% compared to ~~$7.8~~$4.75 in the prior year.

•Return on average assets (“ROAA”) for the year ended December 31, 2023 was 1.13%, compared to 1.46% for 2022.

•Return on average common equity (“ROACE”), which is defined as net income available to common shareholders divided by average equity reduced by average preferred stock, if any. ROACE was 13.79% for the year ended December 31, 2023, compared to 16.79% for the year ended December 31, 2022.

•Pre-tax, pre-provision (“PTPP”) adjusted earnings, which excludes certain one-time and discrete items, and PTPP ROAA were $56.2 million and 1.75%, respectively, for the year ended December 31, 2023, increasing $8.3 million, or 17.3%, and 1 bp, from year ended December 31, 2022.

•Fees in lieu of interest, defined as prepayment fees, asset-based loan fees, non-accrual interest, and loan fee amortization, totaled $3.2 million for the year ended December 31, ~~2016.~~

~~Loans and leases receivable at~~2023, decreasing 38.6% compared to $5.3 million for the year ended December 31, ~~2017~~ ~~increased~~ ~~$50.9 million, or 3.5%, to $1.502 billion from $1.451 billion as of~~2022.

•Net interest margin was 3.78% for the year ended December 31, ~~2016.~~

~~Non-performing assets were~~ ~~$27.5 million~~ ~~and~~ ~~1.53%~~ ~~of total assets as of~~2023, declining 4 bps from 3.82% for the year ended December 31, ~~2017,~~2022. Adjusted net interest margin, which excludes certain one-time and discrete items, was 3.63% for the year ended December 31, 2023 and December 31, 2022.

•Top line revenue, defined as net interest income plus non-interest income, grew 12.6% to $143.9 million for the year ended December 31, 2023, compared to ~~$26.7~~$127.9 million ~~and 1.50% of total assets as of~~for the year ended December 31, ~~2016.~~

2022.

•Effective tax rate was 21.45% for the year ended December 31, 2023 compared to 21.79% for the year ended December 31, 2022.

•Provision for credit losses was $8.2 million for the year ended December 31, 2023, compared to a net provision benefit of $3.9 million for the year ended December 31, 2022. Net charge-offs as a percentage of average loans and leases ~~increased to~~ ~~0.57%~~were 0.05% for the year ended December 31, ~~2017,~~2023, compared to ~~0.22%~~net recoveries of 0.16% for the year ended December 31, ~~2016.~~

2022.

~~Trust~~•Total assets at December 31, 2023 increased $531.2 million, or 17.8%, to $3.508 billion from $2.977 billion at December 31, 2022.

•Period-end gross loans and leases receivable at December 31, 2023 increased $407.2 million, or 16.7%, to $2.850 billion from $2.443 billion as of December 31, 2022. Average gross loans and leases of $2.648 billion increased $342.9 million, or 14.9% for the year ended December 31, 2023, compared to $2.305 billion for the same period in 2022.

•Non-performing assets increased to $20.8 million as of December 31, 2023, compared to $3.8 million as of December 31, 2022. Non-performing assets to total assets increased to 0.59% as of December 31, 2023, from 0.13% as of December 31, 2022.

•The allowance for credit losses as of December 31, 2023 increased $7.0 million, or 29.1%, to $31.3 million, compared to $24.2 million as of December 31, 2022. The allowance for credit losses was 1.16% of total loans as of December 31, 2023, compared to 0.99% as of December 31, 2022.

•Period-end in-market deposits at December 31, 2023 increased $373.1 million, or 19.0%, to $2.339 billion from $1.966 billion as of December 31, 2022. Average in-market deposits of $2.098 billion increased $169.3 million, or 8.8%, for the year ended December 31, 2023, compared to $1.929 billion for the same period in 2022.

•Private wealth and trust assets under management and administration increased by ~~$332.0~~$461.5 million, or ~~27.6%~~17.3%, to ~~$1.536~~$3.122 billion at December 31, ~~2017~~2023, compared to ~~$1.204~~$2.660 billion at December 31, ~~2016.~~

~~Trust and investment~~2022. Private wealth management service ~~fee income~~fees increased by ~~$1.3 million~~,$544,000, or ~~24.5%~~5.00%, to ~~$6.7 million~~ for the year ended December 31, ~~2017~~2023, compared to~~$5.4 million~~ ~~for~~ the year ended December 31, ~~2016.~~

2022.

~~Average in-market deposits of~~ ~~$1.097 billion, or 70.15% of total bank funding sources, for the year ended December 31, 2017,~~ ~~decreased2.4%, compared to~~ ~~$1.124 billion, or 69.98% of total bank funding sources, for the same period in 2016.~~

~~Table of Contents~~

The detailed financial discussion that follows focuses on ~~2017~~2023 results compared to ~~2016. Discussion of 2016 results compared~~2022. Information pertaining to ~~2015 is predominantly~~2022 in comparison to 2021 was included in the ~~section captioned “2016 Compared to 2015.~~Corporation’s Annual Report on Form 10-K for the year ended December 31, 2022 on page 33 under Part II, Item 7, “Management’s Discussion and Analysis of Financial and Results of Operations,” which was filed with the SEC on February 22, 2023.

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Results of Operations

Top Line Revenue

Top line revenue, is comprised of net interest income and non-interest ~~income. This measurement is also commonly referred to as operating revenue. In 2017, top line revenue decreased 5.0%~~income, increased 12.6% for the year ended December 31, 2023 compared to the ~~prior~~ year ended December 31, 2022 primarily due to a ~~reduction~~$14.2 million, or 14.4%, increase in ~~gains from the sale of the guaranteed portions of SBA~~net interest income and a $1.9 million, or 6.4%, increase in non-interest income. The increase in net interest income was driven by an increase in average loans and leases outstanding and related interest income, partially offset by net interest margin compression and a ~~decline~~decrease in ~~recurring loan~~ fees ~~collected~~ in lieu of interest. ~~Based~~The increase in non-interest income was primarily due to a $1.8 million increase in other fee income, a $1.2 million increase in swap fee income, a $544,000 increase in trust fee income, and a $353,000 increase in loan fee income. These favorable variances were partially offset by a $733,000 decrease in bank owned life insurance income, a $718,000 decrease in service charge income on ~~management’s second quarter 2016 decision to rebuild the SBA operations~~deposits, and ~~production platforms,~~a $482,000 decrease in gains on the sale of SBA loans decreased $2.8 million to $1.6 million in 2017, compared to $4.4 million in 2016. Loan fees collected in lieu of interest decreased $2.4 million to $4.4 million in 2017, compared to $6.8 million in 2016.during the year ended December 31, 2023.

These 2017 revenue headwinds were partially offset by record trust and investment services fee income, an increase in loan swap fee income and successful efforts to manage in-market deposit rates and utilize an efficient mix of wholesale funding sources, despite a rising interest rate environment.

The components of top line revenue were as ~~follows for 2017, 2016 and 2015:~~follows:


	For the Year Ended December 31,						Change From Prior Year										For the Year Ended December 31,										Change From Prior Year
	2017		2016		2015		$ Change 2017			% Change 2017		$ Change 2016		% Change 2016			2023			2022				2021						$ Change 2023					% Change 2023						$ Change 2022				% Change 2022
	(Dollars in Thousands)																(Dollars in Thousands)
Net interest income	$	60,609	$	63,328	$	58,640	$	(2,719	)	(4.3	)%	$	4,688	8.0	%	Net interest income	$	112,588	$	$	98,422	$		$	84,662			$		$	14,166		14.4			14.4	%					$	13,760	16.3		16.3	%
Non-interest income	16,665		17,988		17,011		(1,323		)	(7.4	)	977		5.7		Non-interest income	31,308		29,428		29,428		28,100			28,100			1,880			1,880		6.4				6.4		1,328				1,328	4.7			4.7	%
Top line revenue	$	77,274	$	81,316	$	75,651	$	(4,042	)	(5.0	)	$	5,665	7.5		Top line revenue	$	143,896	$	$	127,850	$		$	112,762			$		$	16,046		12.6			12.6			$			$	15,088	13.4		13.4	%

For the Year Ended December 31,
2017 2016 2015

Average
Balance
Interest
Average
Yield/
Rate

Average
Balance
Interest
Average
Yield/
Rate

Average
Balance
Interest
Average
Yield/
Rate
(Dollars in Thousands)
Interest-earning assets
Commercial real estate and other mortgage loans⁽¹⁾
$ 961,572
$ 43,452
4.52 % $ 938,524
$ 43,927
4.68 % $ 848,213
$ 40,006
4.72 %
Commercial and industrial loans⁽¹⁾
447,937
26,165
5.84 % 465,736
28,143
6.04 % 445,659
26,668
5.98 %
Direct financing leases⁽¹⁾
28,988
1,231
4.25 % 30,379
1,364
4.49 % 30,228
1,394
4.61 %
Consumer and other loans⁽¹⁾
27,612
1,112
4.03 % 25,615
1,193
4.66 % 23,996
1,067
4.45 %
Total loans and leases receivable⁽¹⁾
1,466,109
71,960
4.91 % 1,460,254
74,627
5.11 % 1,348,096
69,135
5.13 %
Mortgage-related securities⁽²⁾
138,528
2,466
1.78 % 147,433
2,328
1.58 % 153,182
2,490
1.63 %
Other investment securities⁽³⁾
37,085
682
1.84 % 32,995
517
1.57 % 29,686
472
1.59 %
FHLB and FRB stock 4,231
103
2.43 % 2,537
79
3.11 % 2,886
81
2.82 %
Short-term investments 49,113
600
1.22 % 94,548
566
0.60 % 69,264
293
0.42 %
Total interest-earning assets 1,695,066
75,811
4.47 % 1,737,767
78,117
4.50 % 1,603,114
72,471
4.52 %
Non-interest-earning assets 84,829
73,905
97,932

Total assets $ 1,779,895
$ 1,811,672
$ 1,701,046

Interest-bearing liabilities
Transaction accounts $ 226,540
1,335
0.59 % $ 169,571
456
0.27 % $ 125,558
297
0.24 %
Money market 583,241
2,746
0.47 % 642,784
3,112
0.48 % 602,842
3,331
0.55 %
Certificates of deposit 56,667
569
1.00 % 65,608
592
0.90 % 106,177
825
0.78 %
Wholesale deposits 361,712
6,155
1.70 % 467,826
7,556
1.62 % 450,460
6,424
1.43 %
Total interest-bearing deposits 1,228,160
10,805
0.88 % 1,345,789
11,716
0.87 % 1,285,037
10,877
0.85 %
FHLB advances 105,276
1,472
1.40 % 14,485
140
0.97 % 14,779
110
0.75 %
Other borrowings 24,796
1,813
7.31 % 26,463
1,818
6.87 % 24,944
1,732
6.94 %
Junior subordinated notes 10,011
1,112
11.11 % 9,997
1,115
11.15 % 9,982
1,112
11.14 %
Total interest-bearing liabilities 1,368,243
15,202
1.11 % 1,396,734
14,789
1.06 % 1,334,742
13,831
1.04 %
Non-interest-bearing demand deposit accounts 230,907
246,182
211,945

Other non-interest-bearing liabilities 14,375
10,210
9,049

Total liabilities 1,613,525
1,653,126
1,555,736

Stockholders’ equity 166,370
158,546
145,310

Total liabilities and stockholders’ equity $ 1,779,895
$ 1,811,672
$ 1,701,046

Net interest income $ 60,609
$ 63,328
$ 58,640

Net interest spread 3.36 % 3.44 % 3.48 %
Net interest-earning assets $ 326,823
$ 341,033
$ 268,372

Net interest margin 3.58 % 3.64 % 3.66 %
Average interest-earning assets to average interest-bearing liabilities 123.89 % 124.42 % 120.11 %
Return on average assets 0.67 % 0.82 % 0.97 %
Return on average equity 7.16 % 9.40 % 11.36 %
Average equity to average assets 9.35 % 8.75 % 8.54 %
Non-interest expense to average assets 3.20 % 3.11 % 2.78 %


~~(1)~~	The average balances of loans and leases include non-performing loans and leases and loans held for sale. Interest income related to non-performing loans and leases is recognized when collected. Interest income includes net loan fees collected in lieu of interest.


~~(2)~~	~~Includes amortized cost basis of assets available-for-sale and held-to-maturity.~~


~~(3)~~	~~Yields on tax-exempt municipal obligations are not presented on a tax-equivalent basis in this table.~~

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	For the Year Ended December 31,
	2023							2022							2021
	Average Balance			Interest		Average Yield/ Rate		Average Balance			Interest		Average Yield/ Rate		Average Balance			Interest		Average Yield/ Rate
	(Dollars in Thousands)
Interest-earning assets
Commercial real estate and other mortgage loans(1)	$	1,586,967		$	98,370	6.20	%	$	1,484,239		$	66,917	4.51	%	$	1,387,434		$	51,930	3.74	%
Commercial and industrial loans(1)	1,013,866			81,963		8.08	%	771,056			46,575		6.04	%	747,514			38,342		5.13	%
Consumer and other loans(1)	47,018			2,316		4.93	%	49,695			1,876		3.78	%	44,206			1,572		3.56	%
Total loans and leases receivable(1)	2,647,851			182,649		6.90	%	2,304,990			115,368		5.01	%	2,179,154			91,844		4.21	%
Mortgage-related securities(2)	200,383			6,433		3.21	%	173,495			3,486		2.01	%	159,242			2,633		1.65	%
Other investment securities(3)	62,921			1,770		2.81	%	51,700			986		1.91	%	44,739			777		1.74	%
FHLB stock	15,162			1,231		8.12	%	16,462			989		6.01	%	13,066			651		4.98	%
Short-term investments	54,311			2,845		5.24	%	30,845			542		1.76	%	64,308			90		0.14	%
Total interest-earning assets	2,980,628			194,928		6.54	%	2,577,492			121,371		4.71	%	2,460,509			95,995		3.90	%
Non-interest-earning assets	231,521							175,424							144,499
Total assets	$	3,212,149						$	2,752,916						$	2,605,008
Interest-bearing liabilities
Transaction accounts	$	689,500		23,727		3.44	%	$	503,668		3,963		0.79	%	$	506,693		988		0.19	%
Money market accounts	681,336			22,129		3.25	%	761,469			6,241		0.82	%	693,608			1,183		0.17	%
Certificates of deposit	273,387			11,209		4.10	%	97,448			1,358		1.39	%	47,020			396		0.84	%
Wholesale deposits	346,285			14,353		4.14	%	48,825			1,616		3.31	%	119,831			986		0.82	%
Total interest-bearing deposits	1,990,508			71,418		3.59	%	1,411,410			13,178		0.93	%	1,367,152			3,553		0.26	%
FHLB advances	351,990			8,881		2.52	%	414,191			7,024		1.70	%	376,781			4,908		1.30	%
Other borrowings	38,891			2,041		5.25	%	43,818			2,243		5.12	%	31,935			1,759		5.51	%
Junior subordinated notes (4)	—			—		—	%	2,429			504		20.75	%	10,068			1,113		11.05	%
Total interest-bearing liabilities	2,381,389			82,340		3.46	%	1,871,848			22,949		1.23	%	1,785,936			11,333		0.63	%
Non-interest-bearing demand deposit accounts	453,930							566,230							536,981
Other non-interest-bearing liabilities	102,668							65,611							61,580
Total liabilities	2,937,987							2,503,689							2,384,497
Stockholders’ equity	274,162							249,227							220,511
Total liabilities and stockholders’ equity	$	3,212,149						$	2,752,916						$	2,605,008
Net interest income				$	112,588						$	98,422						$	84,662
Net interest spread						3.08	%						3.48	%						3.27	%
Net interest-earning assets	$	599,239						$	705,644						$	674,573
Net interest margin						3.78	%						3.82	%						3.44	%
Average interest-earning assets to average interest-bearing liabilities	125.16		%					137.70		%					137.77		%
Return on average assets	1.13		%					1.46		%					1.37		%
Return on average equity	13.79		%					16.79		%					16.21		%
Average equity to average assets	8.54		%					9.05		%					8.46		%
Non-interest expense to average assets	2.76		%					2.89		%					2.75		%

(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.

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(4)Weighted average rate of junior subordinated notes and debentures reflects the accelerated amortization of subordinated debt issuance costs as a result of the early redemption of the junior subordinated notes during the first quarter of 2022.

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 year ended December 31, ~~2017~~2023 compared to the year ended December 31, ~~2016 and for the year ended December 31, 2016 compared to the year ended December 31, 2015.~~2022. 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.

Rate/Volume Analysis


	Increase (Decrease) for the Year Ended December 31,
	2023 Compared to 2022						2022 Compared to 2021
	Rate		Volume		Net		Rate		Volume		Net
	(In Thousands)
Interest-earning assets
Commercial real estate and other mortgage loans(1)	$	26,551	$	4,902	$	31,453	$	11,176	$	3,811	$	14,987
Commercial and industrial loans(1)	18,329		17,059		35,388		6,993		1,240		8,233
Consumer and other loans(1)	546		(106)		440		101		203		304
Total loans and leases receivable(1)	45,426		21,855		67,281		18,270		5,254		23,524
Mortgage-related securities(2)	2,341		606		2,947		602		251		853
Other investment securities	538		246		784		81		128		209
FHLB Stock	325		(83)		242		149		189		338
Short-term investments	1,664		639		2,303		522		(70)		452
Total net change in income on interest-earning assets	50,294		23,263		73,557		19,625		5,752		25,376
Interest-bearing liabilities
Transaction accounts	17,816		1,948		19,764		2,981		(6)		2,975
Money market	16,612		(724)		15,888		4,931		127		5,058
Certificates of deposit	5,105		4,746		9,851		364		598		962
Wholesale deposits	507		12,230		12,737		1,503		(873)		630
Total deposits	40,040		18,200		58,240		9,779		(154)		9,625
FHLB advances	3,033		(1,176)		1,857		1,593		523		2,116
Other borrowings	56		(258)		(202)		(131)		615		484
Junior subordinated notes	—		(504)		(504)		579		(1,188)		(609)
Total net change in expense on interest-bearing liabilities	43,129		16,262		59,391		11,820		(204)		11,616
Net change in net interest income	$	7,165	$	7,001	$	14,166	$	7,805	$	5,956	$	13,760

(2)Includes amortized cost basis of assets available-for-sale and held-to-maturity.

The change in yield of the respective interest-earning asset or the rate paid on interest-bearing liability compared to the change in short-term market rates is commonly referred to as a beta. The table below displays the beta calculations for loans and leases, total interest earning assets, in-market deposits, interest-bearing deposits and total interest-bearing liabilities for the year ended December 31, 2023 and 2022. Additionally, adjusted total loans and leases and total interest-earning assets excludes the volatile impact of fees in lieu of interest.

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Increase (Decrease) for the Year Ended December 31,
2017 Compared to 2016 2016 Compared to 2015
Rate Volume Net Rate Volume Net
(In Thousands)
Interest-earning assets
Commercial real estate and other mortgage loans⁽¹⁾
$ (1,538 ) $ 1,063
$ (475 ) $ (308 ) $ 4,228
$ 3,920
Commercial and industrial loans⁽¹⁾
(922 ) (1,056 ) (1,978 ) 264
1,211
1,475
Direct financing leases⁽¹⁾
(72 ) (61 ) (133 ) (36 ) 7
(29 )
Consumer and other loans⁽¹⁾
(169 ) 88
(81 ) 52
74
126
Total loans and leases receivable⁽¹⁾
(2,701 ) 34
(2,667 ) (28 )
5,520

5,492
Mortgage-related securities⁽²⁾
284
(146 ) 138
(70 ) (91 ) (161 )
Other investment securities 96
69
165
(8 ) 52
44
FHLB and FRB Stock (20 ) 44
24
8
(11 ) (3 )
Short-term investments 395
(361 ) 34
145
129
274
Total net change in income on interest-earning assets (1,946 ) (360 ) (2,306 ) 47

5,599

5,646
Interest-bearing liabilities
Transaction accounts 686
193
879
44
114
158
Money market (84 ) (282 ) (366 ) (430 ) 212
(218 )
Certificates of deposit 63
(86 ) (23 ) 117
(351 ) (234 )
Wholesale deposits 387
(1,788 ) (1,401 ) 878
255
1,133
Total deposits 1,052
(1,963 ) (911 ) 609

230

839
FHLB advances 89
1,243
1,332
32
(2 ) 30
Other borrowings 113
(118 ) (5 ) (19 ) 105
86
Junior subordinated notes (5 ) 2
(3 ) 1
2
3
Total net change in expense on interest-bearing liabilities 1,249
(836 ) 413
624

334

958
Net change in net interest income $ (3,195 ) $ 476
$ (2,719 ) $ (577 )
$ 5,265

$ 4,688
Asset and Liability Beta Analysis


~~(1)~~	The average balances of loans and leases include non-performing loans and leases and loans held for sale. Interest income related to non-performing loans and leases is recognized when collected. Interest income includes net loan fees collected in lieu of interest.


~~(2)~~	~~Includes amortized cost basis of assets available-for-sale and held-to-maturity.~~


	For the Year Ended December 31,
	2023		2022		2021		2023 Compared to 2022		2022 Compared to 2021
	Average Yield/Rate (3)						Increase (Decrease)
Total loans and leases receivable (a)	6.90	%	5.01	%	4.21	%	1.89	%	0.80	%
Total interest-earning assets(b)	6.54	%	4.71	%	3.90	%	1.83	%	0.81	%
Adjusted total loans and leases receivable (1)(c)	6.78	%	4.78	%	3.91	%	2.00	%	0.87	%
Adjusted total interest-earning assets (1)(d)	6.43	%	4.50	%	3.61	%	1.93	%	0.89	%
Total in-market deposits(e)	2.72	%	0.60	%	0.14	%	2.12	%	0.46	%
Total bank funding(f)	2.87	%	0.84	%	0.37	%	2.03	%	0.47	%
Net interest margin(g)	3.78	%	3.82	%	3.44	%	(0.04)	%	0.38	%
Adjusted net interest margin(h)	3.63	%	3.63	%	3.21	%	—	%	0.42	%

Effective fed funds rate (2)(i)	5.02	%	1.69	%	0.08	%	3.33	%	1.61	%

Beta Calculations:
Total loans and leases receivable(a)/(i)							56.76	%	49.69	%
Total interest-earning assets(b)/(i)							54.98	%	50.31	%
Adjusted total loans and leases receivable (1)(c)/(i)							60.06	%	54.04	%
Adjusted total interest-earning assets (1)(d)/(i)							57.87	%	55.28	%
Total in-market deposits(e)/(i)							63.66	%	28.57	%
Total bank funding(f)/(i)							60.96	%	29.19	%
Net interest margin(g)/(i)							(1.20)	%	23.60	%
Adjusted net interest margin(h)/(i)							—	%	26.09	%

(1)Excluding average net PPP loans, PPP loan interest income, and fees in lieu of interest.

(2)Board of Governors of the Federal Reserve System (US), Effective Federal Funds Rates [DFF]. retrieved from FRED, Federal Reserve Bank of St. Louis.

(3)Represents annualized yields/rates.

Net interest income ~~decreased~~increased by ~~$2.7~~$14.2 million, or ~~4.3%~~14.4%, for the year ended December 31, ~~2017~~2023, compared to the year ended December 31, 2022. The increase was principally due to an increase in average loans and leases outstanding, partially offset by net interest margin compression and a decrease in fees in lieu of interest. Average gross loans and leases of $2.648 billion increased by $342.9 million, or 14.9% for the year ended December 31, 2023, compared to $2.305 billion for the same period in ~~2016. The decrease in net interest income was primarily attributable to a $2.4 million decrease in recurring loan~~2022. Loan fees collected in lieu of interest ~~combined with a shift in~~decreased 38.6% to $3.2 million, compared to $5.3 million during the ~~mix~~same period of loan originations toward lower-yielding conventional commercial loans. This decrease in interest income was partially muted by successful efforts to manage in-market deposit rates and reinvestment of certain investment security cash flows amid a rising interest rate environment.comparison.

The yield on average earning assets for the year ended December 31, ~~2017~~2023 was ~~4.47%~~6.54%, an increase of 183 basis points compared to ~~4.50%~~4.71% for the year ended December 31, ~~2016. The decrease in the yield on average earning assets~~2022. This increase was principally due to ~~a decrease~~the rising interest rates on variable-rate loans and investment in ~~recurring loan fees collected in lieu of interest.~~securities at higher interest rates. Excluding the impact of recurring loan fees in lieu of interest in both ~~2017~~2023 and ~~2016,~~2022, the yield on average earning assets for the year ended December 31, ~~2017~~2023 was ~~4.21%~~6.43%, an increase of 193 basis points compared to ~~4.10%~~4.50% for the year ended December 31, 2016. This increase in yield is principally due to a reduction in lower yielding short-term investments, as average cash held at the Federal Reserve decreased $46.3 million, combined with an increase in investment security yields and the increase in rates on certain variable-rate loans following the Federal Open Market Committee’s (“FOMC”) increases in the targeted federal funds rate since December 2016.2022.

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The yield on average loans and leases receivable for the year ended December 31, 2017 was 4.91% compared to 5.11% for the year ended December 31, 2016. The decrease in yield was principally due to a decrease in recurring loan fees collected in lieu of interest. Excluding the impact of loan fees in lieu of interest in both 2017 and 2016, the yield on average loans and leases receivable for the year ended December 31, 2017 was 4.61% compared to 4.64% for the year ended December 31, 2016.

While the yield on average variable rate loans and leases receivable benefited from the FOMC’s decision to raise the federal funds target rate 75 basis points in 2017, a significant portion of our loan and lease portfolio is comprised of fixed rate loans with terms generally from three to five years. As these loans reach their maturity they are renewed at current market rates and subject to competitive pricing pressures. As a result, the average yield on the loan and lease portfolio for the full year 2017, excluding purchase accounting adjustments and elevated recurring loan fees, continued to decline in comparison to full year 2016 results. We believe our ability to improve the average yield of the loan and lease portfolio may partially be dependent on the steepness of the yield curve, as well as our ability to successfully limit the price sensitivity of our existing and prospective client base by continuing to focus on adding value and fostering relationships.

The average rate paid on interest-bearing liabilities was ~~1.11%~~3.46% for the year ended December 31, ~~2017,~~2023, an increase of ~~five~~223 basis points from ~~1.06%~~1.23% for the year ended December 31, ~~2016. We were successful in limiting the increase in~~2022. The average rate paid ~~during 2017, despite a rising rate environment,~~increased as the weighted average rate paid on interest-bearing liabilities continued to benefit from a relatively stable level of low cost in-market interest-bearing deposits. In addition, the increase in the average rate paid was tempered due to a favorable change in ourCorporation increased deposit rates and secured wholesale funding, ~~mix as maturing fixed rate~~which consists of wholesale deposits ~~were replaced with more efficient~~ and cost effective fixed rate FHLB advances. Consistent with our longstanding funding strategy to use the most efficient and cost effective source of wholesale funds, management will continue to replace maturing wholesale deposits with fixed rate FHLB advances, at ~~various maturity terms commensurate with the Bank’s funding needs. Average FHLB advances~~elevated fixed rates.

Net interest margin decreased four basis points to 3.78% for the year ended December 31, ~~2017 increased $90.8 million~~2023, compared to ~~$105.3 million at an average rate paid of 1.40%. As of December 31, 2017, the weighted average original maturity of our FHLB term advances was 3.7 years.~~

Despite an uncertain rate environment, management expects to effectively manage the Corporation’s liability structure in both term and rate to deliver a stable net interest margin within our target range. Further, we expect to attract new in-market deposit relationships in our Wisconsin and Kansas-based markets which we believe will contribute to our ability to maintain an appropriate cost of funds. Average in-market deposits - comprised of all transaction accounts, money market accounts and non-wholesale deposits - decreased 2.4% to $1.097 billion3.82% for the year ended December 31, ~~2017 from $1.124 billion~~2022. Adjusted net interest margin measured 3.63% for the ~~year~~years ended December 31, ~~2016.~~2023 and December 31, 2022. Adjusted net interest margin is a non-GAAP measure representing net interest income excluding the fees in lieu of interest and other recurring, but volatile, components of net interest margin divided by average interest-earning assets less other recurring, but volatile, components of average interest-earning assets.

Management believes its success in growing in-market 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

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interest income and net interest margin. 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.

Provision for ~~Loan and Lease~~Credit Losses

We ~~determine~~determined our provision for ~~loan and lease~~credit losses pursuant to our allowance for ~~loan and lease~~credit loss methodology, which is based on the magnitude of current and historical net charge-offs recordedthroughout the established look-back period, the evaluation of several qualitative factors for each portfolio category, and the amount of specific reserves established for ~~impaired~~non-performing loans that present collateral shortfall positions. Refer to Allowance for ~~Loan and Lease~~Credit Lossesin the Critical Accounting Policy section, for further information regarding our ~~refined~~ allowance for ~~loan and lease~~credit loss methodology.

~~We recorded a~~

The following table shows the components of the provision for ~~loan and lease losses~~credit losses.


	For the Year Ended December 31,
(Dollars in thousands)	2023		2022		2021
Change in general reserve due to subjective factor changes	$	33	$	(384)	$	(426)
Change in general reserve due to quantitative factor changes	(1,453)		(2,012)		(4,456)
Charge-offs	1,781		979		3,508
Recoveries	(548)		(4,741)		(5,126)
Change in specific reserves on individually evaluated loans, net	4,330		146		(2,175)
Change due to loan growth, net	3,652		2,144		2,872
Change in unfunded credit commitment reserve	387		—		—
Total provision for credit losses (a)	$	8,182	$	(3,868)	$	(5,803)

(a) - Management adopted ASC 326 on January 1, 2023. Prior periods are presented under the incurred loss model.

The Corporation recognized $8.2 million of ~~$6.2 million~~provision expense for the year ended December 31, ~~2017 as~~2023, compared to ~~$7.8~~a $3.9 million provision benefit for the year ended December 31, ~~2016. Provision~~2022. The provision expense for the year ended December 31, ~~2017~~2023 was primarily ~~reflected $5.0~~due to a $4.3 million ~~of estimated losses related~~increase in the specific reserves on individually evaluated loans and a $3.7 million increase in the general reserve due to the previously disclosed $6.7 million Wisconsin-based commercial and industrial impaired loan. Management continues to pursue all potential repayment sources related to this credit. The provision for the year ended December 31, 2017 also reflected $5.0 million in charge-offs related to the Corporation’s remaining energy sector exposure, of which $2.3 million was specifically reserved for as of December 31, 2016.loan growth. These ~~2017~~ increases were partially offset by ~~the reversal of~~ a ~~$1.8~~$1.5 million specific reserve based on the full repayment of a previously disclosed impaired construction loan originated in our Kansas City market. Provision for the year ended December 31, 2016 primarily reflected $8.2 million in specific reserves and net charge-offs related to five discrete Kansas City-based loan relationships.

The addition of specific reserves on impaired loans represents new specific reserves established when collateral shortfalls are present, while conversely the release of specific reserves represents the reduction ~~of previously established reserves that are no longer required. Changes~~ in the ~~allowance for loan and lease losses~~general reserve from quantitative factors, mainly due to ~~subjective factor changes reflect management’s evaluation of the level of risk~~an improving economic forecast. Specific reserves were higher on loans in Equipment Finance and, to a lesser extent SBA, within the ~~portfolio based upon several factors for each portfolio segment. Charge-offs in excess of previously established specific reserves require an additional provision for loan~~Commercial and lease losses to maintain the allowance for loan and lease 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. ChangeIndustrial portfolio. Equipment Finance had higher defaults from borrowers in the ~~inherent risk~~transportation and logistics industry which management believes is consistent with the cyclical nature of this industry. Given current economic conditions, the ~~portfolio is primarily influenced by the overall growth~~Corporation expects continued stress within this group of borrowers in gross loans and leases and an analysis of loans previously charged off, as well as, movement of existing loans and leases in and out of an impaired loan classification where a specific evaluation of a particular credit may be required rather2024.

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~~than the application of a general reserve loss rate.~~ Refer to Asset Quality, below, for further information regarding the overall credit quality of our loan and lease portfolio.

Non-Interest Income

Non-interest income ~~consisting primarily of fees earned for trust and investment services, service charges on deposits, loan fees and gains on sale of SBA loans, decreased~~increased by ~~$1.3~~$1.9 million, or ~~7.4%~~6.4%, to ~~$16.7~~$31.3 million for the year ended December 31, ~~2017,~~2023, from ~~$18.0~~$29.4 million for the year ended December 31, ~~2016.~~2022. Management continues to focus on revenue growth from multiple non-interest income sources in order to maintain a diversified revenue stream through greater ~~contribution~~contributions from fee-based revenues. Total non-interest income accounted for ~~21.6%~~21.8% of our total revenues in ~~2017~~2023 compared to ~~22.1%~~23.0% in ~~2016.~~

2022. The ~~decrease~~increase in total non-interest income for the year ended December 31, ~~2017~~2023 primarily reflected lower gains from SBA and residential mortgage loans sales stemming from the Corporation’s decision to rebuild its SBA platform and to exit all secondary market residential mortgage loan origination activity. The decrease was partially offset by record trust and investment services fee income, an increase in other non-interest income, led by mezzanine fund investment income, commercial loan swap fee income, and ~~an increase in bank-owned~~higher private wealth management services income. These increases were partially offset by a decrease bank owned life insurance ~~(“BOLI”) fee~~ income ~~driven by a $9.8 million purchase~~and lower service charge income.

Table of ~~additional BOLI in December 2016.~~Contents

The components of non-interest income were as ~~follows for~~follows:


	For the Year Ended December 31,									Change From Prior Year
	2023			2022			2021			$ Change 2023		% Change 2023		$ Change 2022		% Change 2022
	(Dollars in Thousands)
Private wealth management services fee income	$	11,425		$	10,881		$	10,784		$	544	5.0	%	$	97	0.9
Gain on sale of SBA loans	2,055			2,537			4,044			(482)		(19.0)		(1,507)		(37.3)
Service charges on deposits	3,131			3,849			3,837			(718)		(18.7)		12		0.3
Loan fees	3,363			3,010			2,506			353		11.7		504		20.1
Bank-owned life insurance income	1,494			2,227			1,413			(733)		(32.9)		814		57.6
Net (loss) gain on sale of securities	(45)			—			29			(45)		NM		(29)		(100.0)
Swap fees	2,964			1,793			1,368			1,171		65.3		425		31.1
Other non-interest income	6,921			5,131			4,119			1,790		34.9		1,012		24.6
Total non-interest income	$	31,308		$	29,428		$	28,100		$	1,880	6.4		$	1,328	4.7
Fee income ratio(1)	21.8		%	23.0		%	24.9		%

(1)Fee income ratio is fee income, per the ~~years ended December 31, 2017, 2016 and 2015:~~above table, divided by top line revenue (defined as net interest income plus non-interest income).

For the Year Ended December 31, Change From Prior Year
2017 2016 2015 $ Change 2017 % Change 2017 $ Change 2016 % Change 2016
(In Thousands)
Trust and investment service fees $ 6,670
$ 5,356
$ 4,954
$ 1,314
24.5 % $ 402
8.1 %
Gain on sale of SBA loans 1,591
4,400
3,999
(2,809 ) (63.8 ) 401
10.0 %
Gain on sale of residential mortgage loans 26
590
729
(564 ) (95.6 ) (139 ) (19.1 )%
Service charges on deposits 3,013
2,990
2,812
23
0.8
178
6.3
Loan fees 1,988
2,430
2,187
(442 ) (18.2 ) 243
11.1
Increase in cash surrender value of bank-owned life insurance 1,250
974
960
276
28.3
14
1.5
Net (loss) gain on sale of securities (403 ) 10
—
(413 ) NM
—
10
NM
Swap fees 909
76
7
833
NM
—
69
NM
Other non-interest income 1,621
1,162
1,363
459
39.5
(201 ) (14.7 )
Total non-interest income $ 16,665
$ 17,988
$ 17,011
$ (1,323 ) (7.4 ) $ 977
5.7
Fee income ratio⁽¹⁾
21.6 % 22.1 % 22.5 %


~~(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).~~

~~Trust and investment~~ Private wealth management services fee income increased by ~~$1.3 million,~~$544,000, or ~~24.5%~~5.0%, to ~~$6.7~~a record $11.4 million for the year ended December 31, ~~2017~~2023 compared to ~~$5.4~~the previous record of $10.9 million for the year ended December 31, ~~2016. Trust and investment~~2022. Private wealth management services fee income is primarily driven by the amount of trust assets under management and administration, as well as 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~~equity and fixed income markets. This increase was driven by an increase in average assets under management and administration, which is attributable to market appreciation, new client relationships, and new money from existing client relationships. At December 31, ~~2017,~~2023, our trust assets under management and administration were ~~$1.350~~$3.122 billion, or ~~38.2%~~17.3% more than ~~the~~ trust assets under management of $977.0 million at December 31, 2016, while our assets under administration decreased approximately 18.0%, to $186.4 million at December 31, 2017 from $227.4 million at December 31, 2016. The decrease in assets under administration reflected the transfer of client assets from assets under administration to assets under management. The retirement plan services industry is undergoing a migration from advised services to fiduciary services. Consequently, during the first quarter of 2017, one large and several smaller retirement plans changed their service model, which resulted in assets moving to full fiduciary status. We anticipate there will be similar migration of additional assets because of this trend in the future. We expect to continue to increase our revenue from assets under management and administration ~~but market volatility may also affect the actual change in revenue.~~

~~Gain on sale~~ of ~~SBA loans for the year ended~~$2.660 billion at December 31, ~~2017 totaled $1.6~~2022.

Other non-interest income increased by $1.8 million ~~a decrease of $2.8 million, or 63.8%, from the same period in 2016 resulting from management’s decision during the second quarter of 2016~~ to temporarily slow SBA production while making investments to enhance the infrastructure, processes, capacity and scalability of the SBA platform. With the infrastructure and processes in place, management is now committed to increasing SBA production at a moderate pace by continuing to expand our business development team.

~~Table of Contents~~

~~Loan fees decreased by $442,000, or 18.2%, to $2.0~~$6.9 million for the year ended December 31, ~~2017 from $2.4~~2023, compared to $5.1 million for the year ended December 31, ~~2016.~~2022. The ~~decrease in loan fees~~increase was primarily ~~attributable~~due to ~~a decrease~~strong returns from the Corporation’s investments in ~~fees associated with SBA production, specifically SBA~~mezzanine funds.

Commercial loan ~~packaging~~interest rate swap fee income ~~as well as a decrease asset-based lending audit fee income.~~

~~Net loss on sale of securities totaled $403,000~~was $3.0 million for the year ended December 31, ~~2017,~~2023, compared to ~~net gain on sale of securities of $10,000~~$1.8 million for the year ended December 31, 2016. This was principally due to the strategic decision to harvest securities losses ahead of the 2018 reduction in corporate tax rates. We reinvested the cash into securities within the portfolio’s existing risk profile while adding approximately 130 basis points in yield.

~~Swap fees increased by $833,000 to $909,000 for the year ended December 31, 2017 from $76,000 for the year ended December 31, 2016.~~2022. We originate commercial real estate loans in which we offer clients a floating rate and an interest rate swap. The client’s swap ~~and~~is then offset ~~the client’s swap~~ with a counter-party dealer. The execution of these transactions generates swap fee income. ~~We believe due~~The aggregate amortizing notional value of interest rate swaps with various borrowers was $939.2 million as of December 31, 2023, compared to ~~the market’s general assumption~~$744.2 million as of ~~a rising~~December 31, 2022. Interest rate swaps can be an attractive product for our commercial borrowers, although associated fee income can be variable from period to period based on client demand and the interest rate environment ~~throughout 2018, we could see additional demand for these types of interest rate swap opportunities.~~in any given quarter.

~~Other non-interest income~~Loan fees increased ~~by $459,000~~$353,000, or 11.7%, to ~~$1.6~~$3.4 million for the year ended December 31, ~~2017,~~2023, compared to ~~$1.2~~$3.0 million for the ~~year ended December 31, 2016.~~same period in 2022. The increase was primarily due to historically reflecting our quarterly allocation of net income/loss from equity investments in two mezzanine funds in other non-interest expense. Due to the underlying funds being in an earnings position for a sustained period of time, we recognized our share of earnings in other non-interest income for the year ended December 31, 2017.

~~Non-Interest Expense~~

~~Non-interest expense increased~~driven by ~~$438,000, or 0.8%, to $56.9 million for the year ended December 31, 2017 from $56.4 million for the comparable period of 2016. The increase in non-interest expense was primarily due to~~ an increase in ~~other non-interest expense, collateral liquidation costs~~equipment finance and ~~computer software expense. The increase was partially offset by a decrease in impairment of tax credit investments, data processing expense and marketing expense.~~floorplan finance lending activity generating additional service fee income.

~~The components of non-interest expense were as follows for the years ended December 31, 2017, 2016 and 2015:~~

For the Year Ended December 31, Change From Prior Year
2017 2016 2015 $ Change 2017 % Change 2017 $ Change 2016 % Change 2016
(Dollars in Thousands)
Compensation $ 31,663
$ 31,545
$ 28,543
$ 118
0.4 % $ 3,002
10.5 %
Occupancy 2,088
2,019
1,973
69
3.4
46
2.3
Professional fees 4,063
4,031
4,893
32
0.8
(862 ) (17.6 )
Data processing 2,701
3,298
2,378
(597 ) (18.1 ) 920
38.7
Marketing 2,109
2,338
2,585
(229 ) (9.8 ) (247 ) (9.6 )
Equipment 1,211
1,189
1,230
22
1.9
(41 ) (3.3 )
Computer software 2,723
2,160
1,649
563
26.1
511
31.0
FDIC insurance 1,388
1,472
920
(84 ) (5.7 ) 552
60.0
Collateral liquidation costs 829
262
472
567
216.4
(210 ) (44.5 )
Net (gain) loss on foreclosed properties (143 ) 122
(171 ) (265 ) (217.2 ) 293
(171.3 )
Impairment on tax credit investments 2,784
3,691
—
(907 ) (24.6 ) 3,691
NM
SBA recourse provision 2,240
2,068
—
172
8.3
2,068
NM
Other non-interest expense 3,215
2,238
2,902
977
43.7
(664 ) (22.9 )
Total non-interest expense $ 56,871
$ 56,433
$ 47,374
$ 438
0.8
$ 9,059
19.1
Compensation expense to total non-interest expense 55.7 % 55.9 % 60.3 %

Full-time equivalent employees 251
257
242

Compensation expense increased by $118,000, or 0.4%, to $31.7 million for the year ended December 31, 2017 from $31.5 million for the year ended December 31, 2016. The increase reflects annual merit increases and growth in employee benefit costs. Full time equivalent employees as of December 31, 2017 were 251, down 2.3% from 257 at December 31, 2016.

~~Table of Contents~~

The modest decrease in FTE does not accurately depict our commitment to opportunistic growth but is merely a reflection of timing as it relates to filling open positions. Consistent with our historical approach to talent acquisition, we expect to continue investing in talent to support our strategic growth efforts, both in the form of additional business development and operational staff.

~~Data processing expense~~Bank-owned life insurance income decreased by ~~$597,000,~~$733,000, or ~~18.1%~~32.9%, to $2.7 million for the year ended December 31, 2017 from $3.3 million for the year ended December 31, 2016. The decrease is primarily due to a reduction in non-recurring expense related to our recent core banking system conversion. During the fourth quarter of 2017 we recognized $199,000 in final deconversion costs related to FBB-KC’s core banking system, compared to $794,000 in one-time fees recognized in the fourth quarter of 2016 to terminate its core banking system vendor agreement. These one-time fees are expected to be more than offset by savings recognized over the life of the renegotiated contract extended through the year 2022.

Marketing expense decreased by $229,000, or 9.8%, to $2.1 million for the year ended December 31, 2017 from $2.3 million for the year ended December 31, 2016. The decrease is primarily due to a reduction of certain advertising initiatives as management continues to align expense growth with revenue production.

Computer software expense increased by $563,000, or 26.1%, to $2.7 million for the year ended December 31, 2017 from $2.2 million for the year ended December 31, 2016. The increase was principally due to investments in technology platforms, continuing our strategic focus on scaling the Corporation to efficiently execute our growth strategy.

~~FDIC insurance expense decreased by $84,000, or 5.7%, to $1.4 million for the year ended December 31, 2017 from~~ $1.5 million for the year ended December 31, 2016. Consistent with our funding philosophy to match-fund long-term fixed rate loans with the most cost effective source of wholesale funds, in 2017 we began replacing maturing brokered certificates of deposit with the more cost effective FHLB advances in order to lower our FDIC assessment rate. While we expect to continue this strategy in 2018, we do not expect brokered certificates of deposit as a percentage of total assets to go below 10%.

Collateral liquidation costs for the year ended December 31, 2017 were $829,000 compared to $262,000 for the same period in 2016. The increase primarily reflected our workout process related to two non-performing loans.

Net loss on foreclosed properties decreased $265,000 to a net gain of $143,000 for the year ended December 31, 2017, compared to a net loss of $122,000 for the year ended December 31, 2016. The decrease reflects a $547,000 gain on the sale of the Overland Park full-service banking location in 2017, partially offset by a reduction in the fair value of the remaining foreclosed property.

Impairment on tax credit investments decreased $907,000, or 24.6%, to $2.8 million for the year ended December 31, 2017, compared to $3.7 million for the year ended December 31, 2016. The decrease reflects $2.3 million of impairment associated with the recognition of a $3.0 million federal historic tax credit in 2017, compared to $3.2 million of impairment associated with a $3.6 million credit in 2016.

SBA recourse provision for the year ended December 31, 2017 was $2.2 million compared to $2.1 million for the same period in 2016. The increase reflected refinements to the recourse reserve estimate due to the migration of certain credits with potential guaranty eligibility issues during the year. Management has extensively overhauled the previously acquired SBA lending platform and implemented best practices in the critical areas of credit, operations and compliance. These essential functions are overseen by a team of experienced SBA professionals, including a Director of SBA Credit, a Senior Director of SBA Operations and an SBA Compliance Manager, who all joined the team within the past 15 months. With these major pieces of the rebuild in place in 2017, we are now actively adding more producers in order to achieve the appropriate mix of producers and internal support staff to drive an optimal level of efficiency in our SBA business model.

Despite these enhancements to the SBA platform, changes to SBA recourse provision may be a source of non-interest expense volatility in future quarters; however, we believe the frequency and volatility in SBA recourse provision should diminish over time as we continue to originate new SBA loans with our rebuilt platform, the existing portfolio amortizes down and ongoing remediation efforts mitigate possible losses. The total recourse reserve balance was $2.8 million, or 2.8% of total sold SBA loans outstanding at December 31, 2017.

Other non-interest expense increased by $977,000, or 43.7%, to $3.2 million for the year ended December 31, 2017 from $2.2 million for the year ended December 31, 2016. The increase was primarily due to historically reflecting our quarterly allocation of net income/loss from equity investments in two mezzanine funds in other non-interest expense. Due to the underlying funds being in an earnings position for a sustained period of time, we recognized our share of earnings in other non-interest income for the year ended December 31, 2017.

~~Table of Contents~~

~~Income Taxes~~

~~Income tax expense was $2.3 million for the year ended December 31, 2017,~~2023, compared to $2.2 million for the year ended December 31, ~~2016. Effective January 1, 2018,~~2022. The decrease was due to the ~~Act reduced~~recognition of a $809,000 insurance claim in the ~~corporate federal income tax~~year ended December 31, 2022.

Service charges on deposits for the year ended December 31, 2023 totaled $3.1 million, a decrease of $718,000, or 18.7%, from the same period in 2022. The decrease was due to higher earnings credit rates commensurate with the higher interest rate environment partially offset by an increase in additional product sales to ~~21%~~new and existing clients.

Gain on sale of SBA loans for the year ended December 31, 2023 totaled $2.1 million, a decrease of $482,000, or 19.0%, from ~~35%~~the same period in 2022. The decrease is mainly due to a reduction in total loans sold resulting from lighter production in the first half of 2023.

Table of Contents

Non-Interest Expense

Non-interest expense increased by $9.1 million, or 11.5%, to $88.6 million for the year ended December 31, 2023 from $79.5 million for the year ended December 31, 2022. Operating expense, which ~~required~~excludes certain one-time and discrete items as defined in the Efficiency Ratio table above, increased $8.6 million, or 10.9%, to $87.8 million for the year ended December 31, 2023 compared to $79.2 million for the year ended December 31, 2022. The increase in operating expense was due to an increase in all expense categories, led by compensation, FDIC insurance, and other non-interest expense.

The components of non-interest expense were as follows:


	For the Year Ended December 31,						Change From Prior Year
	2023		2022		2021		$ Change 2023		% Change 2023		$ Change 2022		% Change 2022
	(Dollars in Thousands)
Compensation	$	61,059	$	57,742	$	51,710	$	3,317	5.7	%	$	6,032	11.7
Occupancy	2,381		2,358		2,180		23		1.0		178		8.2
Professional fees	5,325		4,881		3,736		444		9.1		1,145		30.6
Data processing	3,826		3,197		3,087		629		19.7		110		3.6
Marketing	2,889		2,354		2,022		535		22.7		332		16.4
Equipment	1,340		1,091		990		249		22.8		101		10.2
Computer software	4,985		4,416		4,260		569		12.9		156		3.7
FDIC insurance	2,238		1,042		1,143		1,196		114.8		(101)		(8.8)





Other non-interest expense	4,532		2,393		2,407		2,139		89.4		(14)		(0.6)
Total non-interest expense	$	88,575	$	79,474	$	71,535	$	9,101	11.5		$	7,939	11.1
Total operating expense(1)	$	87,788	$	79,155	$	71,571	$	8,633	10.9		$	7,584	10.6
Full-time equivalent employees	343		337		304		6		1.8		33		10.9

NM = Not meaningful

(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 increased by $3.3 million, or 5.7%, to $61.1 million for the year ended December 31, 2023 from $57.7 million for the year ended December 31, 2022 principally due to an increase in average FTEs, annual merit increases, growth in employee benefit costs, and increase in incentive compensation. The increase reflects a $2.5 million, or 7.1%, increase in employee salaries and a $908,000, or 25.6% increase in incentive compensation due to exceptional loan and deposit growth. These increases were partially offset by a $1.5 million, or 22.6% decrease in estimated annual cash bonuses compared to a record year for 2022. The Bank’s compensation philosophy is to provide base salaries competitive with the market. Given the competitive job market and the critical importance to the Corporation ~~to revalue its deferred taxes as~~ of retaining employees, annual base salaries were increased an additional $1.5 million, or approximately 4.1%, in the aggregate for 2024. Average FTEs were 343 for the year ended December 31, ~~2017.~~2023, increased by 18, or 5.5%, from 325 for the year ended December 31, 2022.

Other non-interest expense increased $2.1 million, or 89.4%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The ~~revaluation resulted~~increase was primarily due to a $985,000 increase in liquidation expense related to an ~~additional~~Asset-Based Lending client, a $963,000 increase in SBA recourse provision, a $232,000 increase in expense from swap credit valuation changes, increase in travel expense, and an increase in loan related expenses. These increases were partially offset by a decrease in charitable donations due to a non-recurring contribution to First Business Charitable foundation totaling $809,000 in the prior year.

FDIC Insurance increased $1.2 million, or 114.8%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily due to an increase in the assessment rate and the Corporation’s assessable base.

Data processing fees increased $629,000, or 19.7%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily due to an increase in core processing costs commensurate with loan and deposit account growth, as well as various project implementations.

Table of Contents

Computer software expense increased by $569,000, or 12.9%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily due to continued investment in technology to support the Corporation’s growth.

Marketing expense increased by $535,000, or 22.7%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily due to an increase in business development efforts and advertising projects commensurate with our expanding sales force.

Professional fees increased $444,000, or 9.1%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily due to an increase in recruiting expense and a general increase in other professional consulting services for various projects.

Income Taxes

Income tax expense was $10.1 million for the year ended December 31, 2023, compared to $11.4 million for the year ended December 31, 2022. The income tax expense ~~during the fourth quarter of 2017. The Corporation also recognized~~included a ~~federal historic~~$1.2 million and $635,000 net benefit from tax credit investments in ~~both 2017~~2023 and ~~2016, which reduced income tax expense by $3.0 million and $3.6 million,~~2022, respectively. The effective tax rate for the year ended December 31, ~~2017~~2023 was ~~16.3%~~21.5% compared to ~~12.6%~~21.8% for the year ended December 31, ~~2016.~~2022. Management completed its analysis of the Wisconsin State Budget 2023, which included language that provides an exemption for state tax on certain loan income for loans to Wisconsin small businesses. Management estimates this law will eliminate the Bank’s Wisconsin state income tax in 2023 and the foreseeable future. This conclusion results in a 2023 state income tax benefit of $2.8 million offset by a one-time $2.8 million charge to state income tax expense to recognize a valuation allowance on deferred state income taxes. Based on expected earnings, reduction in state tax, and future tax credit investments, the Corporation expects to report an effective tax rate between 18% and 19% for 2024.

FINANCIAL CONDITION

General

AtTotal assets increased by $531.2 million, or 17.8%, to $3.508 billion as of December 31, ~~2017 total assets were~~ ~~$1.794~~2023 compared to $2.977 billion~~, representing an~~ ~~increase~~ of ~~$13.4 million, or~~ ~~0.8%, from~~ ~~$1.781 billion~~ at December 31, ~~2016.~~2022. The increase in total assets was primarily driven by an increase in loans and leases ~~which was partially offset~~receivable, cash and cash equivalents, securities, and other assets. Total liabilities increased by ~~a decrease in our investment security portfolio and by a decrease in cash held at the Federal Reserve Bank (“FRB”)~~$502.3 million, or 18.5%, to $3.218 billion as ~~the excess liquidity was deployed~~of December 31, 2023 compared to ~~fund loan and lease growth.~~

~~Short-term investments~~

~~Short-term investments~~ ~~decreased~~ by ~~$27.4 million~~ to ~~$35.5 million~~$2.716 billion at December 31, ~~2017~~2022. The increase in total liabilities was principally due to an increase in deposits.

Cash and cash equivalents

Cash and cash equivalents include short-term investments and cash and due from ~~$62.9~~banks.Short-term investments increased by $30.3 million to $107.2 million at December 31, ~~2016.~~2023 from $76.9 million at December 31, 2022. Both short-term investments and cash and due from banks increased during 2023. Short-term investments primarily consist of interest-bearing deposits held at the ~~FRB, which decreased by $23.2 million to $17.7 million at December 31, 2017.~~Federal Reserve Bank (“FRB”). We value the safety and soundness provided by the FRB, and therefore, we incorporate short-term investments in our ~~on-balance-sheet~~on-balance sheet liquidity program. ~~Although the majority~~As of ~~short-term investments consist of~~December 31, 2023 and 2022, interest-bearing deposits ~~with~~held at the FRB ~~we also make investments in commercial paper. We approach decisions to purchase commercial paper with similar rigor~~were $76.5 million and underwriting standards applied to our loan and lease portfolio. The original maturities of the commercial paper are typically 60 days or less and provide an attractive yield in comparison to other short-term alternatives. These investments also assist us in maintaining a shorter duration of our overall investment portfolio which we believe is necessary to take advantage of a rising rate environment.$47.0 million, respectively. In general, the level of our cash and short-term investments iswill be influenced by the timing of deposit gathering, scheduled maturities of wholesale deposits, ~~and FHLB advances,~~ funding of loan and lease growth when opportunities are presented, and the level of our securities portfolio. Please refer to the section entitled Liquidity and Capital Resources for further discussion.

Securities

Total securities, including available-for-sale and held-to-maturity, ~~decreased~~increased by ~~$20.7~~$80.9 million to ~~$163.8~~$305.5 million at December 31, ~~2017~~2023 from ~~$184.5~~$224.7 million at December 31, ~~2016.~~2022. As of December 31, ~~2017,~~2023 and 2022, our total securities portfolio had a weighted average estimated remaining maturity of approximately ~~3.5 years.~~5.6 years and 6.3 years, respectively. The investment portfolio primarily consists of ~~collateralized mortgage obligations and agency obligations~~mortgage-backed securities and is used to provide a source of liquidity, including the ability to pledge securities for possible future cash advances, while contributing to the earnings potential of the Bank. The overall duration of the securities portfolio is established and maintained to further mitigate interest rate risk present within our balance sheet as identified through asset/liability simulations. We purchase investment securities intended to protect net interest margin while maintaining an acceptable risk profile. In addition, we will purchase ~~investments~~investment securities to utilize our cash position effectively within appropriate policy guidelines and estimates of future cash demands. While ~~collateralized mortgage obligations~~mortgage-backed securities present prepayment risk and extension risk, we believe the overall credit risk associated with these investments is minimal, as ~~the majority~~all of the ~~obligations~~securities we hold are guaranteed by the United States Treasury, the Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”), or the Government National Mortgage Association (“GNMA”), a U.S. government agency. The estimated repayment streams associated with this portfolio also allow

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us to better match short-term liabilities. The Bank’s investment policies allow for various types of investments, including tax-exempt municipal securities. The ability to invest in tax-exempt municipal securities provides for further opportunity to improve our overall yield on the securities portfolio. We evaluate the credit risk of the municipal ~~obligations~~securities prior to purchase and generally limit exposure to general obligation issuances from municipalities, primarily in Wisconsin.

As we evaluate the level of on-balance-sheet liquidity, we continue to purchase U.S. government agency obligations, primarily those obligations issued by Federal Home Loan Mortgage Corporation (“FHLMC”) and Federal National Mortgage Association (“FNMA”). We have structured these purchases to have final maturities within two to four years from the issue date. Some of the securities contain either quarterly or one-time call features. The maturity structure of our securities portfolio allows us to effectively manage the cash flows of these securities along with the collateralized mortgage obligations to be able to meet loan demand in the near future without the need to immediately borrow funds from various funding sources and proactively adjust the portfolio should interest rates rise materially within the next two to four years. Our management deems these securities to be creditworthy and believes they exhibit appropriate market yields for the risks assumed. We expect to continue to purchase these types of approved securities with appropriate maturity terms when they are available in the market.

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The majority of the securities we hold have active trading markets; therefore, we have not experienced difficulties in pricing our securities. We use a third-party pricing service as our primary source of market prices for the securities portfolio. On a quarterly basis, we validate the reasonableness of prices received from this source through independent verification of the portfolio, data integrity validation through comparison of current price to prior period prices, and an expectation-based analysis of movement in prices based upon the changes in the related yield curves and other market factors. On a periodic basis, we review the third-party pricing vendor’s methodology for pricing relevant securities and the results of its internal control assessments. Our securities portfolio is sensitive to fluctuations in the interest rate environment and has limited sensitivity to credit risk due to the nature of the issuers and guarantors of the securities as previously discussed. If interest rates decline and the credit quality of the securities remains constant or improves, the fair value of our debt securities portfolio would likely improve, thereby increasing total comprehensive income. If interest rates increase and the credit quality of the securities remains constant or deteriorates, the fair value of our debt securities portfolio would likely decline and therefore decrease total comprehensive income. The magnitude of the fair value change will be based upon the duration of the portfolio. A securities portfolio with a longer average duration will exhibit greater market price volatility ~~movements~~ than a securities portfolio with a shorter average duration in a changing rate environment. During the year ended December 31, ~~2017,~~2023, we recognized unrealized holding ~~losses~~gains of ~~$1.2~~$5.6 million before income taxes through other comprehensive income. These ~~losses~~gains were the result of ~~the~~an increase in interest rates. No securities within our portfolio were deemed to ~~be other-than-temporarily impaired~~require an allowance for credit losses as of December 31, ~~2017.~~2023. We sold approximately $5.1 million of securities during the year ended December 31, 2023 to proactively manage our securities portfolio and meet our long-term investment objectives. As of December 31, ~~2017~~2023 no securities were classified as trading securities.

At December 31, ~~2017,~~ ~~$2.8~~2023, $45.4 million of our ~~mortgage-related~~ securities were pledged to secure ~~our~~ various obligations, including interest rate swap ~~contracts.~~contracts and municipal deposits.

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The ~~table~~tables below ~~sets~~set forth information regarding the amortized cost and fair values of our ~~securities at~~securities.


	As of December 31,
	2023				2022
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In Thousands)
Available-for-sale:
U.S. Treasuries	$	14,158	$	13,776	$	4,977	$	4,445
U.S. government agency securities - government-sponsored enterprises	27,986		27,566		13,666		13,205
Municipal securities	40,407		35,881		45,088		39,311
Residential mortgage-backed securities - government issued	69,441		68,056		21,790		19,431
Residential mortgage-backed securities - government-sponsored enterprises	131,321		120,833		119,265		106,323
Commercial mortgage-backed securities - government issued	2,995		2,525		3,450		2,932
Commercial mortgage-backed securities - government-sponsored enterprises	32,774		28,369		31,515		26,377

	$	319,082	$	297,006	$	239,751	$	212,024


	As of December 31,
	2023				2022
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In Thousands)
Held-to-maturity:
Municipal securities	$	4,210	$	4,173	$	7,467	$	7,404
Residential mortgage-backed securities - government issued	1,211		1,135		1,625		1,518
Residential mortgage-backed securities - government-sponsored issued	1,078		1,025		1,537		1,444
Commercial mortgage-backed securities - government-sponsored enterprises	2,004		1,922		2,006		1,904
	$	8,503	$	8,255	$	12,635	$	12,270

U.S. Treasuries represent treasury bonds issued by the ~~dates indicated.~~

As of December 31,
2017 2016 2015
Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
(In Thousands)
Available-for-sale:
U.S. government agency obligations - government-sponsored enterprises $ 999
$ 1,000
$ 6,298
$ 6,295
$ 8,047
$ 8,017
Municipal obligations 9,494
9,414
8,246
8,156
4,278
4,283
Asset-backed securities —
—
1,116
1,081
1,327
1,269
Collateralized mortgage obligations - government issued 22,313
22,249
30,936
31,213
43,845
44,543
Collateralized mortgage obligations - government-sponsored enterprises 91,480
90,305
99,865
99,148
82,707
82,436
Other securities 3,040
3,037
—
—
—
—
$ 127,326
$ 126,005
$ 146,461
$ 145,893
$ 140,204
$ 140,548

As of December 31,
2017 2016 2015
Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
(In Thousands)
Held-to-maturity:
U.S. government agency obligations - government-sponsored enterprises $ 1,499
$ 1,490
$ 1,497
$ 1,494
$ 1,495
$ 1,485
Municipal obligations 21,680
21,822
21,173
21,157
16,038
16,365
Collateralized mortgage obligations - government issued 9,072
8,943
9,148
9,127
11,718
11,709
Collateralized mortgage obligations - government-sponsored enterprises 5,527
5,441
6,794
6,742
8,031
7,999
$ 37,778
$ 37,696
$ 38,612
$ 38,520
$ 37,282
$ 37,558

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United States Treasury. U.S. government agency ~~obligations~~securities - government-sponsored enterprises represent securities issued by FNMA and the ~~FHLMC and FNMA.~~SBA. Municipal ~~obligations~~securities include securities issued by various municipalities located primarily within ~~the State of~~ Wisconsin and are primarily general obligation bonds that are tax-exempt in nature. ~~Asset-backed~~Residential and commercial mortgage-backed securities ~~represent securities issued by the Student Loan Marketing Association (“SLMA”) which are 97% guaranteed by the U.S. government. Collateralized mortgage obligations~~ - government issued represent securities guaranteed by GNMA. ~~Collateralized mortgage obligations~~Residential and commercial mortgage-backed securities - government-sponsored enterprises include securities guaranteed by FHLMC, FNMA, and the ~~FNMA.~~FHLB. Other securities represent certificates of deposit of insured banks and savings institutions with an original maturity greater than three months. As of December 31, ~~2017,~~2023, no issuer's securities exceeded 10% of our total stockholders' equity.

The following table sets forth the contractual maturity and weighted average yield characteristics of the fair value of our available-for-sale securities and the amortized cost of our held-to-maturity securities at December 31, ~~2017,~~2023, classified by remaining contractual maturity. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay ~~obligations~~securities without call or prepayment penalties. Yields on tax-exempt ~~obligations~~securities have not been computed on a tax equivalent basis.

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Less than One Year One to Five Years Five to Ten Years Over Ten Years
Fair Value Weighted
Average
Yield Fair Value Weighted
Average
Yield Fair Value Weighted
Average
Yield Fair Value Weighted
Average
Yield Total
(Dollars in Thousands)
Available-for-sale:
U.S. government agency obligations - government-sponsored enterprises $ —
— % $ 1,000
2.04 % $ —
— % $ —
— % $ 1,000
Municipal obligations 4,468
1.04
3,105
1.23
1,348
1.60
493
2.20
9,414
Collateralized mortgage obligations - government issued —
—
—
—
6,954
2.97
15,295
2.46
22,249
Collateralized mortgage obligations - government-sponsored enterprises 22
2.45
6,864
2.08
27,340
1.94
56,079
2.27
90,305
Other securities 590
1.20
2,447
2.27
—
—
—
—
3,037
$ 5,080
$ 13,416
$ 35,642
$ 71,867
$ 126,005


	Less than One Year				One to Five Years				Five to Ten Years				Over Ten Years
	Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Total
	(Dollars in Thousands)
Available-for-sale:
U.S. treasuries	$	9,182	5.19	%	$	4,594	1.00	%	$	—	—	%	$	—	—	%	$	13,776
U.S. government agency securities - government-sponsored enterprises	13,387		4.12		6,060		2.76		1,345		6.19		6,774		6.04		27,566
Municipal securities	—		—		6,992		1.42		10,570		1.86		18,319		2.05		35,881

	22,569				17,646				11,915				25,093				77,223
Residential mortgage-backed securities																	188,889
Commercial mortgage-backed securities																	30,894
	$	22,569			$	17,646			$	11,915			$	25,093			$	297,006


	Less than One Year				One to Five Years				Five to Ten Years				Over Ten Years
	Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Total
	(Dollars in Thousands)
Held-to-maturity:
Municipal securities	$	1,060	2.40	%	$	3,150	2.76	%	$	—	—	%	$	—	—	%	$	4,210
	1,060				3,150				—				—				4,210
Residential mortgage-backed securities																	2,289
Commercial mortgage-backed securities																	2,004
	$	1,060			$	3,150			$	—			$	—			$	8,503

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Less than One Year One to Five Years Five to Ten Years Over Ten Years
Amortized Cost Weighted
Average
Yield Amortized Cost Weighted
Average
Yield Amortized Cost Weighted
Average
Yield Amortized Cost Weighted
Average
Yield Total
(Dollars in Thousands)
Held-to-maturity:
U.S. government agency obligations - government-sponsored enterprises $ 1,499
1.07 % $ —
— % $ —
— % $ —
— % $ 1,499
Municipal obligations —
—
10,673
2.00
10,058
2.20
949
2.69
21,680
Collateralized mortgage obligations - government issued —
—
—
—
4,014
1.80
5,058
2.12
9,072
Collateralized mortgage obligations - government-sponsored enterprises —
—
—
—
1,641
1.47
3,886
1.72
5,527
$ 1,499
$ 10,673
$ 15,713
$ 9,893
$ 37,778
Derivatives

~~Derivative Activities~~

The ~~Bank’s investment~~Board-approved Bank policies allow the Bank to participate in hedging strategies or to use financial futures, options, forward commitments, or interest rate ~~swaps with prior approval from the Board.~~swaps. The Bank utilizes, from time to time, derivative instruments in the course of ~~their~~its asset/liability management. ~~As of December 31, 2017 and 2016,~~The Corporation’s derivative financial instruments, under which the ~~Bank did not hold any derivative instruments that were designated as~~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 ~~hedges. The derivative portfolio includes interest rate swaps offered directly to qualified commercial borrowers, which allow~~on the Bank to provide a fixed rate alternative to their clients while mitigating interest rate risk by keeping a variable rate loan in their portfolios. The Bank economically hedges client derivative transactions by entering into equal and offsetting interest rate swap contracts executed with dealer counterparties. The economic hedge with the dealer counterparties allows the Bank to primarily offset the fixed rate interest rate risk. Derivative transactions executed through this program are not designated as accounting hedge relationships and are marked to market through earnings each period.consolidated balance sheets.

As of December 31, ~~2017,~~2023, the aggregate amortizing notional value of interest rate swaps with various commercial borrowers was approximately ~~$53.4 million.~~$939.2 million, compared to $744.2 million as of December 31, 2022. We receive fixed rates and pay floating rates based upon ~~LIBOR~~designated benchmark interest rates on the swaps with commercial borrowers. These swaps mature between ~~September 2018~~May 2024 and ~~May 2034.~~July 2040. Commercial borrower swaps are

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completed independently with each borrower and are not subject to master netting arrangements. ~~All~~As of ~~these~~December 31, 2023, the commercial borrower swaps were reported on the Consolidated Balance ~~Sheets~~Sheet as a derivative liability and asset of ~~$942,000, included in accrued interest receivable~~$51.1 million and ~~other assets~~$7.9 million, respectively, compared to a derivative liability and asset of $61.4 million and $1.0 million, respectively, as of December 31, ~~2017.~~2022. On the offsetting swap contracts with dealer counterparties, we pay fixed rates and receive floating rates based upon ~~LIBOR.~~designated benchmark interest rates. These interest rate swaps also have maturity dates between ~~September 2018~~May 2024 and ~~May 2034.~~July 2040. Dealer counterparty swaps are subject to master netting agreements among the contracts within ~~the~~our Bank and ~~are~~were reported ~~as a derivative liability of $942,000. The value of these swaps was included in accrued interest payable and other liabilities~~ on the Consolidated Balance ~~Sheets~~Sheet as a net derivative asset of $43.2 million as of December 31, ~~2017.~~2023, compared to a net derivative asset of $60.4 million as of December 31, 2022. The gross amount of dealer counterparty swaps as of December 31, 2023, without regard to the enforceable master netting agreement, was a gross derivative asset and liability of $51.1 million and $7.9 million, respectively, compared to a gross derivative asset and liability of $61.4 million and $1.0 million, respectively, as of December 31, 2022.

~~During the fourth quarter of 2017, the~~The Corporation also ~~entered~~enters into an interest rate ~~swap~~swaps to manage interest rate risk and reduce the cost of match-funding certain long-term fixed rate loans. ~~This~~These derivative ~~contract involves~~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. ~~This instrument is~~The instruments are designated as a cash flow ~~hedge~~hedges as the receipt of floating rate interest from the counterparty is used to manage interest rate risk associated with forecasted issuances of short-term FHLB advances. The change in the fair value of ~~this~~these hedging ~~instrument~~instruments is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged ~~transaction affects~~transactions affect earnings.

As of December 31, ~~2017,~~2023, the aggregate notional value of ~~the~~interest rate swaps designated as cash flow ~~hedge, which matures in~~hedges was $402.7 million. These interest rate swaps mature between December ~~2027, was approximately $22.0 million.~~2023 and March 2034. A pre-tax unrealized loss of ~~$122,000~~$3.5 million was recognized in ~~accumulated~~ other comprehensive income for the year ended December 31, ~~2017 with~~2023, while a ~~corresponding amount reported~~pre-tax unrealized gain of $8.5 million and $3.6 million were recognized in ~~accrued~~other comprehensive income for the years ended December 31, 2022 and 2021, respectively, and there were no ineffective portion of these hedges.

The Corporation also enters into interest ~~payable~~rate swaps to mitigate market value volatility on certain long-term fixed-rate 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 December 31, 2023, 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 gain of $22,000 and $602,000 was recognized in other ~~liabilities on~~comprehensive income for the year ended December 31, 2023 and 2022, respectively, and there was no ineffective portion of these hedges. No pre-tax unrealized gain or loss was recognized in other comprehensive income for the year ended December 31, 2021.

For further information and discussion of our derivatives, see Note 17 — Derivative Financial Instruments of the Consolidated ~~Balance Sheets.~~Financial Statements.

Loans and Leases Receivable

Loans and leases receivable, net of allowance for ~~loan and lease~~credit losses, increased by ~~$53.1~~$400.2 million, or ~~3.7%~~16.5%, to ~~$1.483~~$2.819 billion at December 31, ~~2017~~2023 from ~~$1.430~~$2.419 billion at December 31, ~~2016.~~2022.

~~While we continue~~ There continues to ~~have~~be a concentration in ~~commercial real estate (“CRE”)~~CRE loans ~~the overall mix~~which represented 59.6% and 63.1% of our ~~portfolio remained fairly consistent in 2017 when compared to 2016. Approximately 67.7%~~total loans, as of ~~our loan and lease portfolio was concentrated in CRE loans at~~ December 31, ~~2017, primarily in our owner-occupied~~2023 and ~~non-owner-occupied classes, compared to 65.2% at~~ December 31, ~~2016. Our CRE portfolio increased by $72.0 million, or 7.6%, to $1.018 billion at December 31, 2017 from $945.9 million at December 31, 2016.~~2022, respectively. As of December 31, ~~2017,~~2023, approximately ~~19.7%~~15.1% of the CRE loans

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were owner-occupied ~~CRE.~~CRE, compared to 17.4% as of December 31, 2022. We consider owner-occupied CRE more characteristic of the Corporation’s ~~commercial and industrial (“~~C~~&I”)~~&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.

Our C&I portfolio ~~decreased $21.3~~increased $252.5 million, or ~~4.7%~~29.6%, to ~~$429.0~~$1.106 billion at December 31, 2023 from $853.3 million at December 31, ~~2017 from $450.3 million at December 31, 2016 reflecting specialty finance prepayments~~2022. The Corporation experienced significant C&I loan growth in 2023, due to growth across products and ~~continued competitive pressure amid soft overall commercial loan demand. The countercyclical nature of~~geographies. Management believes the asset-based lending business may result in increased payoffs and fees collected in lieu of interest in periods of economic stability, with increased loan fundings and interest income during weaker economic markets. Consequently, a slight decline was notedinvestment in the Corporation’s C&I ~~component of our portfolio mix as approximately 28.5% of our loan~~product lines has positioned the Corporation for strong and ~~lease portfolio was comprised of C&I loans at December 31, 2017, compared to 31.0% at December 31, 2016.~~ sustainable growth in 2024 and beyond.

We continue to ~~emphasize~~ actively ~~pursuing~~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 in-market deposit, treasury management, and ~~trust and investment~~private wealth management relationships which generate additional fee revenue.

While we continue to experience significant competition as banks operating in our primary geographic area attempt to deploy excess liquidity, we remain committed to our underwriting standards and will not deviate from those standards for the sole purpose Underwriting of ~~growing our loan and lease portfolio. We continue to expect our~~ new ~~loan and lease activity to adequately replace amortization and to continue to grow at a modest pace in future years.~~

~~Credit underwriting~~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 ~~relatively low~~no individual lending authority limits, and thus, a significant portion of our new credit extensions require approval from a loan approval committee regardless of the type of loan or lease, ~~amount of the credit~~ or the related complexities of each proposal. ~~In addition, we make every reasonable effort to ensure that there is appropriate collateral or a government guarantee at the time of origination to protect our interest in the related loan or lease.~~ 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 significant 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.

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The following table presents information concerning the composition of the Bank’s consolidated loans and leases ~~receivable at the dates indicated.~~receivable.


	As of December 31,
	2023				2022
	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	$	256,479	9.0	%	$	268,354	11.0	%
Commercial real estate — non-owner occupied	773,494		27.1		687,091		28.1
Construction	193,080		6.8		218,751		9.0
Multi-family	450,529		15.8		350,026		14.3
1-4 family	26,289		0.9		17,728		0.7
Total commercial real estate	1,699,871		59.6		1,541,950		63.1
Commercial and industrial	1,105,835		38.8		853,327		34.9
Consumer and other	44,312		1.6		47,938		2.0
Total gross loans and leases receivable	2,850,018		100.0	%	2,443,215		100.0	%
Less:
Allowance for credit losses	31,275				24,230
Deferred loan fees and costs, net	(243)				149
Loans and leases receivable, net	$	2,818,986			$	2,418,836

Below is a view of selected loan portfolios disaggregated by North American Industry Classification (“NAICs”) code as of December 31, 2023:


	Real Estate	Wholesale and Manufacturing	Retail and Hospitality	Transportation and Warehousing	Other	Total
Commercial real estate — owner occupied	4%	27%	18%	17%	34%	100%
Commercial real estate — non-owner occupied	75% (1)	1%	10%	2%	12%	100%
Commercial and industrial	4%	26%	21%	12%	37%	100%

(1) Includes approximately $252.9 million of office real estate, or 10% of gross loans.

See Asset Quality for further discussion of industry-specific risks.

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As of December 31,
2017 2016 2015 2014 2013
Amount Outstanding % of Total Loans and Leases Amount Outstanding % of Total Loans and Leases Amount Outstanding % of Total Loans and Leases 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 $ 200,387
13.3 % $ 176,459
12.2 % $ 176,322
12.3 % $ 163,884
12.8 % $ 141,164
14.4 %
Commercial real estate — non-owner occupied 470,236
31.3
473,158
32.6
436,901
30.5
417,962
32.6
341,695
34.8
Land development 40,154
2.7
56,638
3.9
59,779
4.2
56,836
4.4
40,946
4.2
Construction 125,157
8.3
101,206
7.0
100,625
7.0
64,324
5.0
27,762
2.8
Multi-family 136,978
9.1
92,762
6.4
80,254
5.6
72,578
5.7
62,758
6.4
1-4 family 44,976
3.0
45,651
3.1
50,304
3.5
36,182
2.8
30,786
3.1
Total commercial real estate 1,017,888
67.7
945,874
65.2
904,185
63.1
811,766
63.3
645,111
65.7
Commercial and industrial 429,002
28.5
450,298
31.0
472,193
33.0
416,654
32.5
293,552
29.9
Direct financing leases, net 30,787
2.1
30,951
2.1
31,093
2.2
34,165
2.7
26,065
2.7
Consumer and other:
Home equity and second mortgage 7,262
0.5
8,412
0.6
8,237
0.6
7,866
0.6
5,272
0.5
Other 18,099
1.2
16,329
1.1
16,319
1.1
11,341
0.9
11,972
1.2
Total consumer and other 25,361
1.7
24,741
1.7
24,556
1.7
19,207
1.5
17,244
1.8
Total gross loans and leases receivable 1,503,038
100.0 % 1,451,864
100.0 % 1,432,027
100.0 % 1,281,792
100.0 % 981,972
100.0 %
Less:
Allowance for loan and lease losses 18,763
20,912
16,316
14,329
13,901

Deferred loan fees 1,443
1,189
1,062
1,025
1,021

Loans and leases receivable, net $ 1,482,832
$ 1,429,763
$ 1,414,649
$ 1,266,438
$ 967,050

The following table shows the scheduled contractual maturities of the Bank’s consolidated gross loans and leases receivable, as well as the dollar amount of such loans and leases which are scheduled to mature after one year ~~which~~and have fixed or adjustable interest rates, as of December 31, ~~2017.~~2023.


	Amounts Due								Interest Terms On Amounts Due after One Year
	In One Year or Less		After One Year through Five Years		After Five Years		Total		Fixed Rate		Variable Rate
	(In Thousands)
Commercial real estate:
Owner-occupied	$	20,274	$	137,966	$	98,239	$	256,479	$	191,383	$	44,822
Non-owner occupied	96,300		364,249		312,945		773,494		325,712		351,483
Construction	48,652		77,203		67,225		193,080		22,604		121,825
Multi-family	25,669		162,554		262,306		450,529		102,604		322,256
1-4 family	1,140		11,514		13,635		26,289		18,708		6,440
Commercial and industrial	306,864		665,954		133,017		1,105,835		241,606		557,364
Consumer and other	9,992		33,886		434		44,312		28,452		5,868
	$	508,891	$	1,453,326	$	887,801	$	2,850,018	$	931,069	$	1,410,058

Amounts Due Interest Terms On Amounts Due after One Year

In One Year
or Less

After One
Year through
Five Years

After Five
Years
Total Fixed Rate
Variable
Rate
(In Thousands)
Commercial real estate:
Owner-occupied $ 27,389
$ 116,367
$ 56,631
$ 200,387
$ 115,067
$ 57,931
Non-owner occupied 80,544
252,436
137,256
470,236
294,060
95,631
Land development 29,102
11,052
—
40,154
8,695
2,357
Construction 26,731
46,108
52,318
125,157
47,022
51,404
Multi-family 10,846
74,979
51,153
136,978
90,743
35,389
1-4 family 10,228
27,690
7,058
44,976
32,755
1,993
Commercial and industrial 176,221
204,346
48,435
429,002
93,860
158,921
Direct financing leases 29
20,717
10,041
30,787
30,759
—
Consumer and other 5,503
18,333
1,525
25,361
16,082
3,776
$ 366,593
$ 772,028
$ 364,417
$ 1,503,038
$ 729,043
$ 407,402

~~Table of Contents~~

Commercial Real Estate. The Bank originates owner-occupied and non-owner-occupied commercial real estate loans which have fixed or adjustable rates and generally terms of upthree to ~~five~~10 years and amortizations of up to 2530 years on existing commercial real ~~estate and new construction.~~estate. The Bank also originates loans to construct commercial properties and complete land development projects. The Bank’s construction loans generally have terms of six to 24 months with fixed or adjustable interest rates and fees that are due at the time of origination. Loan proceeds are disbursed in increments as construction progresses and as project inspections warrant.

Commercial real estate lending typically involves larger loan principal amounts than residential mortgage loans or consumer loans and, therefore, have the potential for larger losses on a per loan basis. The repayment of ~~these~~commercial real estate loans generally is dependent on sufficient income from the occupants of properties securing the loans to cover operating expenses and debt service. Payments on commercial real estate loans are often dependent on external market conditions impacting the successful operation or development of the property or business involved. Therefore, repayment of such loans is often ~~more~~ sensitive ~~than other types of loans~~ to ~~adverse~~ conditions in the real estate market or the general economy, which are outside the borrower’s control. In the event that the cash flow from the property is reduced, the borrower’s ability to repay the loan could be negatively impacted. The deterioration of one or a few of these loans could cause a material increase in our level of nonperforming loans, which would result in a loss of revenue from these loans and could result in an increase in the provision for ~~loan and lease~~credit losses and an increase in charge-offs, all of which could have a material adverse impact on our net income. Additionally, many of these loans have real estate as a primary or secondary component of collateral. The market value of real estate can fluctuate significantly in a short period of time as a result of economic conditions. Adverse developments affecting real estate values in one or more of our markets could impact collateral coverage associated with the commercial real estate segment of our portfolio, possibly leading to increased specific reserves or charge-offs, which would adversely affect profitability. ~~Of the $1.018 billion of commercial real estate loans outstanding as of December 31, 2017, $31.6 million were originated by our asset-based lending subsidiary.~~

Commercial and Industrial. The Bank’s commercial and industrial loan portfolio is comprised of loans for a variety of purposes which principally are secured by inventory, accounts receivable, equipment, machinery, and other corporate assets and are advanced within limits prescribed by our loan policy. The majority of such loans are secured and typically backed by personal guarantees of the owners of the borrowing business. Of the ~~$429.0 million~~$1.106 billion of ~~commercial and industrial~~C&I loans outstanding as of December 31, ~~2017, $109.3~~2023, $464.3 million were conventional C&I loans and $728.0 million were originated by ~~our~~the FBSF subsidiary. FBSF products consists of equipment financing, asset-based lending, ~~subsidiary, $6.2 million were originated by our factored receivable business line and $9.5 million were originated by our equipment finance and leasing subsidiary. The asset-based loans, including~~ accounts receivable ~~purchased on a full recourse basis, are typically secured by the borrower’s accounts receivable~~financing, and inventory. These loans generally have higher interest rates and non-origination fees collected in lieu of interest and the collateral supporting the credit is closely monitored. The equipment finance loans may provide 100%floorplan financing.

Our commercial loans are typically larger in amount than loans to individual consumers and, therefore, have the potential for larger losses on a per loan basis. Additionally, asset-based borrowers are usually highly leveraged and/or have inconsistent historical earnings. Significant adverse changes in various industries could cause rapid declines in values and collectability associated with those business assets resulting in inadequate collateral coverage that may expose us to future losses. An increase in specific reserves and charge-offs may have a material adverse impact on our results of operations.

~~Small Business Administration.~~ As an SBA Preferred Lender, the Bank originates loans partially guaranteed by the SBA to small businesses under the 7(a) Loan Program. Historically we have sold the guaranteed portions of our SBA 7(a) loans in the secondary market and retained the non-guaranteed portions. As of December 31, 2017, the Corporation’s ownership of SBA loans that were included in the commercial and industrial loan portfolio was $36.8 million, while the amount included in the commercial real estate loan portfolio was $15.5 million.

~~Direct Financing Leases.~~ Direct financing leases initiated through FBEF are originated with a fixed rate and typically a term of seven years or less. It is customary in the leasing industry to provide 100% financing; however, FBEF will, from time-to-time, require a down payment or lease deposit to provide a credit enhancement. As of December 31, 2017, the Bank had $30.8 million in net direct financing receivables outstanding.

FBEF leases machinery and equipment to clients under leases which qualify as direct financing leases for financial reporting and as operating leases for income tax purposes. Under the direct financing method of accounting, the minimum lease payments to be received under the lease contract, together with the estimated unguaranteed residual value (approximating 3% to 20% of the cost of the related equipment), are recorded as lease receivables when the lease is signed and the lease property is delivered to the client. The excess of the minimum lease payments and residual values over the cost of the equipment is recorded as unearned lease income. Unearned lease income is recognized over the term of the lease on a basis which results in a level rate of return on the unrecovered lease investment. Lease payments are recorded when due under the lease contract. Residual value is the estimated fair market value of the equipment on lease at lease termination. In estimating the equipment’s

~~Table of Contents~~

fair value, FBEF relies on historical experience by equipment type and manufacturer, published sources of used equipment pricing, internal evaluations and, when available, valuations by independent appraisers, adjusted for known trends.

Our commercial leases are typically larger in amount than leases to individual consumers and, therefore, have the potential for larger losses on an individual lease basis. Significant adverse changes in various industries could cause rapid declines in values of leased equipment resulting in inadequate collateral coverage that may expose us to future losses. An increase in specific reserves and charge-offs may have a material adverse impact on our results of operations.

Consumer and Other. The Bank originates a small amount of consumer loans consisting of home equity, first and second ~~mortgage, credit card~~mortgages, and other personal loans for professional and executive clients of the Bank.

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Asset Quality

Non-performing loans and leases increased ~~$1.2~~$16.9 million, or ~~4.7%~~462.9%, to ~~$26.4~~$20.6 million at December 31, ~~2017~~2023 compared to ~~$25.2~~$3.7 million at December 31, ~~2016.~~

2022. Our total ~~impaired~~non-performing assets consisted of the ~~following as of the dates indicated.~~following:


	As of December 31,
	2023			2022
	(Dollars in Thousands)
Non-performing loans and leases
Commercial real estate:
Commercial real estate – owner occupied	$	—		$	—
Commercial real estate – non-owner occupied	—			—
Construction	—			—
Multi-family	—			—
1-4 family	22			30
Total non-performing commercial real estate	22			30
Commercial and industrial	20,575			3,629
Consumer and other	—			—
Total non-accrual loans and leases	20,597			3,659
Repossessed assets, net	247			95
Total non-performing assets	$	20,844		$	3,754



Total non-performing loans and leases to gross loans and leases	0.72		%	0.15		%
Total non-performing assets to gross loans and leases plus repossessed assets, net	0.73		%	0.15		%
Total non-performing assets to total assets	0.59		%	0.13		%
Allowance for credit losses to gross loans and leases	1.16		%	0.99		%
Allowance for credit losses to non-performing loans and leases	160.21		%	662.20		%

As of December 31,
2017 2016 2015 2014 2013
(Dollars in Thousands)
Non-accrual loans and leases
Commercial real estate:
Commercial real estate – owner occupied $ 7,021
$ 2,223
$ 2,907
$ 500
$ 339
Commercial real estate – non-owner occupied 34
1,609
1,678
286
283
Land development 2,626
3,440
4,393
4,932
5,422
Construction 2,872
2,918
397
—
—
Multi-family —
—
2
17
31
1-4 family 1,161
1,937
2,550
690
521
Total non-accrual commercial real estate 13,714
12,127
11,927
6,425
6,596
Commercial and industrial 12,321
12,463
9,136
2,318
8,011
Direct financing leases, net —
—
38
—
—
Consumer and other:
Home equity and second mortgage —
—
542
329
453
Other 354
604
655
720
795
Total non-accrual consumer and other loans 354
604
1,197
1,049
1,248
Total non-accrual loans and leases 26,389
25,194
22,298
9,792
15,855
Foreclosed properties, net 1,069
1,472
1,677
1,693
333
Total non-performing assets 27,458
26,666
23,975
11,485
16,188
Performing troubled debt restructurings 332
717
1,735
2,003
371
Total impaired assets $ 27,790
$ 27,383
$ 25,710
$ 13,488
$ 16,559
Total non-accrual loans and leases to gross loans and leases 1.76 % 1.74 % 1.56 % 1.61 % 1.55 %
Total non-performing assets to gross loans and leases plus foreclosed properties, net 1.83 % 1.83 % 1.67 % 1.65 % 1.72 %
Total non-performing assets to total assets 1.53 % 1.50 % 1.35 % 1.28 % 1.28 %
Allowance for loan and lease losses to gross loans and leases 1.25 % 1.44 % 1.14 % 1.42 % 1.69 %
Allowance for loan and lease losses to non-accrual loans and leases 71.10 % 83.00 % 73.17 % 87.68 % 109.05 %

~~As of December 31, 2017 and 2016, $8.8 million and $12.8 million of the non-accrual loans were considered troubled debt restructurings, respectively.~~ As noted in the table above, non-performing assets consisted of ~~non-accrual~~non-performing loans and leases and ~~foreclosed properties~~repossessed assets totaling ~~$27.5~~$20.8 million, or ~~1.53%~~0.59% of total assets, as of December 31, ~~2017,~~2023, an increase in non-performing assets of ~~3.0%,~~$17.1 million, or ~~$792,000,~~455.2%, from December 31, ~~2016. Impaired~~2022. As of December 31, 2023 and 2022, our allowance for credit losses to total non-performing loans and leases ~~as of December 31, 2017~~was 160.21% and ~~2016 also included $332,000 and $717,000, respectively, of loans that are performing troubled debt restructurings, which are considered impaired~~662.20%, respectively. The increase in non-performing assets was primarily due to one fully-collateralized, $8.8 million ABL loan which defaulted in the ~~concession~~second quarter 2023. Excluding the ABL loan, non-performing assets totaled $12.0 million, or 0.34% of total assets. The liquidation process has transitioned into Chapter 7 bankruptcy, likely delaying final resolution until the second half of 2024. The Corporation’s ABL loans are rigorously underwritten and fully collateralized, historically resulting in ~~terms, but are meeting~~no losses in the ~~restructured payment terms~~event of a default. Another driver in non-performing assets, is an increase in defaults in Equipment Finance driven by transportation and ~~therefore are not on non-accrual status.~~logistics borrowers, which management believes is consistent with the cyclical nature of this industry.

~~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 increased ~~slightly~~ to ~~1.53%~~0.59% at December 31, ~~2017~~2023 from ~~1.50%~~0.13% at December 31, ~~2016.~~

2022. As of December 31, ~~2017, the payment performance~~2023, 99.20% of ~~our~~loans were current compared to 99.8% as of December 31, 2022. The decrease in current status is primarily driven by higher past-due Equipment Finance borrowers.

We reviewed loans and leases ~~did not point~~with exposure to ~~any~~certain industries:

•Transportation and Logistics, Equipment Finance - 2% of total loans - Management considered the following: 7% of Equipment Finance Transportation loans are rated Category IV and defaults from these borrowers are driving an increase in charge-offs and new ~~areas~~reserves. 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 - 4% of ~~concern, as approximately 98.7%~~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 these and other borrower-specific considerations, no additional reserve requirements were identified.

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•Office, Commercial Real Estate - 10% of total ~~portfolio was~~loans - Management considered the following: office exposure is concentrated in the Wisconsin markets where local market vacancy rates are below national rates, a ~~current payment status.~~ 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-performing loans in the portfolio. Based on these and other borrower-specific considerations, no additional reserve requirements were identified.

•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 2029 with the borrower paying a fixed rate, either directly or through an interest rate swap, and there are no non-performing loans in the portfolio. Based on these and other borrower-specific considerations, no additional reserve requirements were identified.

We also monitor ~~our~~ asset quality through our established categories as defined in Note 4 – Loans, Leases Receivable, and Allowance for Credit Losses of ~~our~~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 are proactively working with our ~~impaired~~non-performing loan borrowers to find meaningful solutions to difficult situations that are in the best interests of the Bank.

Additional information about non-performing loans is as follows:


	As of December 31,
	2023		2022
	(In Thousands)
Individually evaluated loans and leases with no specific reserves required	$	9,691	$	1,067
Individually evaluated loans and leases with specific reserves required	10,906		2,592
Total individually evaluated loans and leases	20,597		3,659
Less: Specific reserve (included in allowance for credit losses)	5,990		1,650
Net non-performing loans and leases	$	14,607	$	2,009
Average non-performing loans and leases	$	10,450	$	4,899

	For the years ended December 31,
	2023		2022
	(In Thousands)
Foregone interest income attributable to non-performing loans and leases	$	1,431	$	400
Less: Interest income recognized on non-performing loans and leases	266		1,436
Net foregone interest income on non-performing loans and leases	$	1,165	$	(1,036)

Loans and leases with no specific reserves represent non-performing loans where the collateral, less cost to sell, equals or exceeds the net realizable value of the loan. As part of the underwriting process, as well as our ongoing monitoring efforts, we evaluate sufficiency of 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-performing 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-performing loans and leases ratio as compared to our peers or industry expectations.

In ~~2017,~~2023, 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 considered ~~impaired~~non-performing and are placed on non-accrual status. 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.

~~Additional information about impaired loans as~~

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Allowance for ~~the years indicated was as follows:~~Credit Losses

As of December 31,
2017 2016 2015 2014 2013
(In Thousands)
Impaired loans and leases with no impairment reserves $ 16,975
$ 11,345
$ 15,175
$ 11,270
$ 8,200
Impaired loans and leases with impairment reserves required 9,746
14,566
8,858
525
8,026
Total impaired loans and leases 26,721
25,911
24,033
11,795
16,226
Less: Impairment reserve (included in allowance for loan and lease losses) 4,491
5,599
1,113
290
402
Net impaired loans and leases $ 22,230
$ 20,312
$ 22,920
$ 11,505
$ 15,824
Average impaired loans and leases $ 33,164
$ 22,986
$ 11,443
$ 14,474
$ 12,084

For the years ended December 31,
2017 2016 2015 2014 2013
(In Thousands)
Interest income attributable to impaired loans and leases $ 2,695
$ 1,617
$ 750
$ 870
$ 887
Less: Interest income recognized on impaired loans and leases 454
614
87
740
221
Net foregone interest income on impaired loans and leases $ 2,241
$ 1,003
$ 663
$ 130
$ 666

Loans with no specific reserves required represent impaired loans where the collateral, based upon current information, is deemed to be sufficient or that have been partially charged-off to reflect our net realizable value of the loan. When analyzing the adequacy of collateral, we obtain external appraisals as appropriate. Our policy regarding commercial real estate appraisals requires the utilization of appraisers from our approved list, the performance of independent reviews to monitor the quality of such appraisals and receipt of new appraisals for impaired loans at least annually, or more frequently as circumstances warrant. We make adjustments to the appraisals for appropriate selling costs. In addition, the ordering of appraisals and review of the appraisals are performed by individuals who are independent of the business development process. Based on the specific evaluation of the collateral of each impaired loan, we believe the reserve for impaired loans was appropriate at December 31, 2017. However, we cannot provide assurance that the facts and circumstances surrounding each individual impaired loan will not change and that the specific reserve or current carrying value will not be different in the future, which may require additional charge-offs or specific reserves to be recorded. Smaller balance loans (individually less than $50,000) are collectively evaluated for impairment as allowed under applicable accounting standards.

Foreclosed properties are recorded at the lower of cost or net realizable value. If, at the time of foreclosure, the fair value less cost to sell is lower than the carrying value of the loan, the difference, if any, is charged to theThe allowance for ~~loan and lease~~credit losses ~~prior~~(“ACL”) increased $7.0 million, or 29.1%, to the transfer to foreclosed property. The fair value is based on an appraisal, discounted cash flow analysis (the majority of which is based on current occupancy and lease rates) or a verifiable offer to purchase. After foreclosure, valuation allowances or future write-downs to net realizable value are charged directly to non-interest expense. Foreclosed properties were $1.1$31.3 million as of December 31, ~~2017, compared to $1.5~~2023 from $24.2 million as of December 31, ~~2016. We recorded~~

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impairment losses of approximately $403,000, $7,000 and $36,000 for the years ended December 31, 2017, 2016 and 2015, respectively. Net gain on sales of existing foreclosed property inventory was $547,000 for the year ended December 31, 2017, which reflected the sale of the Corporation’s previously disclosed Overland Park full-service banking location during the fourth quarter of 2017. Net losses on sales were $115,000 for the year ended December 31, 2016 compared to net gains of $207,000 for the year ended December 31, 2015. We continue to evaluate possible exit strategies on our impaired loans when foreclosure action may be probable and our level of foreclosed assets may increase in the future. Loans are transferred to foreclosed properties when we claim ownership rights to the properties.

2022. A summary of ~~foreclosed properties~~the activity in the ACL, inclusive of reserves for unfunded credit commitments, follows:


	Year Ended December 31,
	2023			2022
	(Dollars in Thousands)
Allowance at beginning of period	$	24,230		$	24,336
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	(1,781)			(909)
Consumer and other	—			(70)
Total charge-offs	(1,781)			(979)
Recoveries:
Commercial real estate
Commercial real estate — owner occupied	8			4,260
Commercial real estate — non-owner occupied	1			2
Construction	—			—
Multi-family	—			—
1-4 family	40			—
Commercial and industrial	479			437
Consumer and other	20			42
Total recoveries	548			4,741
Net charge-offs	(1,233)			3,762
Provision for credit losses	8,182			(3,868)
Allowance at end of period	$	32,997		$	24,230
Net charge-offs as a percent of average gross loans and leases	0.05		%	(0.16)		%

During the ~~years ended December 31, 2017, 2016~~first quarter of 2023, the Corporation adopted ASU 2016-13, including the CECL methodology for estimating the ACL. This standard was adopted using a modified retrospective approach on January 1, 2023, resulting in a $484,000 increase to the ACL and ~~2015 is as follows:~~

For the Year Ended December 31,
2017 2016 2015
(In Thousands)
Balance at the beginning of the period $ 1,472
$ 1,677
$ 1,693
Transfer of loans to foreclosed properties, at lower of cost or fair value 1,112
—
341
Impairment adjustments (403 ) (7 ) (36 )
Net book value of properties sold (1,112 ) (198 ) (321 )
Balance at the end of the period $ 1,069
$ 1,472
$ 1,677

~~Allowance for Loan and Lease Losses~~

~~The allowance for loan and lease losses~~a $1.3 million increase to the unfunded credit commitments reserve. In addition to the adoption of ASU 2016-13, the increase in ACL as a ~~percentage~~percent of gross loans and leases was ~~1.25% as of December 31, 2017~~principally due to increase in specific reserves and ~~1.44% as of December 31, 2016. Non-accrual loans~~changes to quantitative and ~~leases as a percentage of gross loans and leases increased slightly to 1.76% at December 31, 2017 compared to 1.74% at December 31, 2016.~~ qualitative model factors.

During the year ended December 31, ~~2017, we~~2023, the Corporation recorded net charge-offs on ~~impaired~~non-performing loans and leases of approximately ~~$8.3~~$1.2 million, which included ~~$8.8~~$1.8 million of charge-offs and ~~$519,000~~$548,000 of recoveries. During the year ended December 31, ~~2016,~~2022, we recorded net ~~charge-offs~~recoveries on ~~impaired~~non-performing loans and leases of approximately ~~$3.2~~$3.8 million, which included ~~$3.6 million~~$979,000 of charge-offs and ~~$372,000~~$4.7 million of recoveries.

~~As of~~The Corporation recognized $8.2 million provision expense for the year ended December 31, ~~2017 and 2016, our allowance~~2023, compared to $3.9 million provision benefit for ~~loan and lease losses to total non-accrual loans and leases~~the year ended December 31, 2022. The provision expense for the year ended December 31, 2023 was ~~71.10% and 83.00%, respectively. This ratio decreased~~ primarily due to ~~the collateral positions related to additional non-accrual loans and leases outstanding during 2017. Despite~~ a ~~$1.3~~$4.3 million increase in ~~non-accrual~~the specific reserves on individually evaluated loans and ~~leases,~~a $3.7 million increase in the general reserve due to loan growth. These increases were partially offset by a $1.5 million reduction in the general reserve from improving historical loss rates.

The increase in ACL was primarily driven by loan growth and net increase in specific reserves ~~related to non-accrual~~on loans in Equipment Finance and ~~leases decreased $1.1 million. Impaired loans~~SBA within the Commercial and ~~leases exhibit weaknesses that inhibit repayment~~Industrial portfolio. Equipment Finance had higher defaults from borrowers in ~~compliance~~the

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transportation and logistics industry which management believes is consistent with the original terms of the note or lease. However, the measurement of impairment on loans and leases may not always result in a specific reserve included in the allowance for loan and lease losses. As part of the underwriting process, as well as our ongoing monitoring efforts, we try to ensure that we have appropriate collateral to protect our interest in the related loan or lease. As a resultcyclical nature of this practice, a significant portion of our outstanding balance of non-performing loans or leases either does not require additional specific reserves or requires only a minimal amount of required specific reserve, as we believe the loans and leases are adequately collateralized as of the measurement period. In addition, 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 loan and lease loss to non-accrual loans and leases ratio as compared to our peers or industry expectations. As asset quality strengthens, our allowance for loan and lease losses is measured more through general characteristics, including historical loss experience, of our portfolio rather than through specific identification and we would therefore expect this ratio to rise. Conversely, if we identify further impaired loans, this ratio could fall if the impaired loans are adequately collateralized and therefore require no specific or general reserve.industry. 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 December 31, 2017.

To determine the level and composition of the allowance for loan and lease losses, we break out the portfolio by segments with similar risk characteristics. First, we evaluate loans and leases for potential impairment classification. We analyze each loan and lease identified as impaired 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 each segment of loans and leases that has not been individually evaluated, management segregates the Bank’s loss factors into a quantitative general reserve component based on historical loss rates throughout the defined look back period. The quantitative general reserve component also considers an estimate of the historical loss emergence period, which is the period of time between the event that triggers the loss to the charge-off of that loss. The methodology also focuses on evaluation of several qualitative factors for each portfolio category, including but not limited to: 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

~~Table of Contents~~

~~portfolios, existing~~current economic conditions, ~~level~~the Corporation expects continued stress within this group of ~~loans and leases subject to more frequent review by management, changes~~borrowers in ~~underlying collateral, concentrations of loans to specific industries and other qualitative factors that could affect credit losses.~~2024.

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 loan and lease loss reserve to bring the loan or lease to its net realizable value. Many of the impaired loans as of December 31, 2017 are collateral dependent. It is typically part of our process to obtain appraisals on impaired loans and leases that are primarily secured by real estate or equipment at least annually, or more frequently as circumstances warrant. As we have completed new appraisals and/or market evaluations, we have found that in general real estate values have been stable or improved; however, in specific situations current fair values collateralizing certain impaired loans were inadequate to support the entire amount of the outstanding debt. Foreclosure actions may have been initiated on certain of these commercial real estate and other mortgage loans.

As a result of our review process, we have concluded ~~that~~ an appropriate ~~allowance~~ACL for ~~loan and lease losses for~~ the ~~existing~~ loan and lease portfolio ~~was $18.8~~is $33.0 million, or ~~1.25%~~1.16% of gross loans and leases, at December 31, ~~2017. Taking into consideration net charge-offs of $8.3 million, the required provision for loan and lease losses was $6.2 million for the year ended December 31, 2017.~~2023. However, given ongoing complexities with current workout situations and the uncertainty surrounding future economic conditions, further charge-offs, and increased provisions for ~~loan and lease~~credit losses may be recorded if additional facts and circumstances lead us to a different conclusion. In addition, various federal and state regulatory agencies review the allowance for loan and lease 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.

~~Table of Contents~~

~~A summary of the activity in the allowance for loan and lease losses follows:~~

Year Ended December 31,
2017 2016 2015 2014 2013
(Dollars in Thousands)
Allowance at beginning of period $ 20,912
$ 16,316
$ 14,329
$ 13,901
$ 15,400
Charge-offs:
Commercial real estate
Commercial real estate — owner occupied (9 ) (41 ) —
—
—
Commercial real estate — non-owner occupied (80 ) —
(653 ) (631 ) (792 )
Construction and land development —
(948 ) —
—
(71 )
Multi-family —
—
—
—
—
1-4 family (38 ) (205 ) (120 ) —
(33 )
Commercial and industrial (8,621 ) (2,273 ) (701 ) (600 ) (14 )
Direct financing leases —
—
—
—
—
Consumer and other
Home equity and second mortgage —
(114 ) (32 ) —
—
Other (92 ) (13 ) (7 ) (2 ) (4 )
Total charge-offs (8,840 ) (3,594 ) (1,513 ) (1,233 ) (914 )
Recoveries:
Commercial real estate
Commercial real estate — owner occupied 42
—
2
8
1
Commercial real estate — non-owner occupied 2
74
—
5
61
Construction and land development 102
129
70
—
281
Multi-family —
—
—
14
—
1-4 family 7
71
32
17
10
Commercial and industrial 323
91
5
369
11
Direct financing leases —
—
—
—

5
Consumer and other
Home equity and second mortgage 3
4
4
12
5
Other 40
3
1
—
—
Total recoveries 519
372
114
425
374
Net charge-offs (8,321 ) (3,222 ) (1,399 ) (808 ) (540 )
Provision for loan and lease losses 6,172
7,818
3,386
1,236
(959 )
Allowance at end of period $ 18,763
$ 20,912
$ 16,316
$ 14,329
$ 13,901
Net charge-offs as a percent of average gross loans and leases 0.57 % 0.22 % 0.10 % 0.08 % 0.06 %

We review our methodology and periodically adjust allocation percentages of the allowance by segment, as reflected in the following table. Within the specific categories, certain loans or leases have been identified for specific reserve allocations as well as the whole category of that loan type or lease being reviewed for a general reserve based on the foregoing analysis of trends and overall balance growth within that category.

~~Table of Contents~~

The table below shows our allocation of the allowance for loan ~~and lease~~ losses by loan portfolio ~~segments at the dates indicated.~~segments.The allocation of the allowance by segment is management’s best estimate of the inherent risk in the respective loan ~~segments.~~portfolio as described in Allowance for Credit Losses in the Critical Accounting Policies and Estimatessection. Despite the specific allocation noted in the table below, the entire allowance is available to cover any loss.


	As of December 31,
	2023				2022
	Balance		(a)		Balance		(a)
	(Dollars in Thousands)
Loan and lease portfolios:
Commercial real estate	$	12,170	0.72	%	$	12,560	0.81	%
Commercial and industrial	18,710		1.69		11,128		1.30
Consumer and other	395		0.89		542		1.13
Total allowance for loan losses	$	31,275	1.10	%	$	24,230	0.99	%
Reserve for unfunded credit commitments (b)	$	1,722			$	—
Total allowance for credit losses	$	32,997	1.16	%	$	24,230	0.99	%

As of December 31,
2017 2016 2015 2014 2013
Balance (a) Balance (a) Balance (a) Balance (a) Balance (a)
(Dollars in Thousands)
Loan and lease segments:
Commercial real estate $ 10,131
1.00 % $ 12,384
1.31 % $ 11,220
1.24 % $ 8,619
1.06 % $ 9,055
1.40 %
Commercial and industrial 8,225
1.79 % 7,970
1.66 % 4,387
0.87 % 5,492
1.22 % 4,573
1.43 %
Consumer and other 407
1.60 % 558
2.26 % 709
2.89 % 218
1.14 % 273
1.58 %
Total allowance for loan and lease losses $ 18,763
1.25 % $ 20,912
1.44 % $ 16,316
1.14 % $ 14,329
1.12 % $ 13,901
1.42 %
(a)Allowance for credit losses category as a percentage of total loans by category.


~~(a)~~	~~Allowance for loan losses category as a percentage of total loans by category.~~

(b)Not required prior to adoption of ASC 326 on January 1, 2023

The ~~allowance~~change in ACL as a percentage of gross loans and leases for ~~loan and lease losses allocated to~~ the ~~commercial real estate portfolio decreased in 2017 primarily~~portfolios was due to ~~the reversal of a $1.8 million~~additional specific reserve based on the full repayment of the aforementioned Kansas City-based construction loan. This segment also benefited from a net recovery position during 2017, which reduced the historical loss rates applied to the quantitative general reserve. The allowance for loan and lease losses allocated to the commercialreserves in Commercial and industrial ~~portfolio increased~~and change in ~~both 2017 and 2016. These increases were primarily due to elevated specific reserves, as well as 2017 and 2016 net charge-offs~~quantitative factors in all portfolios in the adoption of ~~$8.3 million and $2.2 million, respectively, which increased the historical loss rates applied to the quantitative general reserve.~~

ASC 326. Although we believe the ~~allowance for loan and lease losses~~ACL was appropriate based on the current level of loan and lease delinquencies, non-accrual loans and leases, trends in charge-offs, economic conditions, and other factors as of December 31, ~~2017,~~2023, there can be no assurance that future adjustments to the allowance will not be necessary.

Deposits

As of December 31, ~~2017,~~2023, deposits ~~decreased~~increased by ~~$144.5~~$628.6 million to ~~$1.394~~$2.797 billion from ~~$1.539~~$2.168 billion at December 31, ~~2016.~~2022. The ~~decrease~~increase in deposits was primarily due to increases in wholesale deposits and transaction accounts of $255.5 million and $227.0 million, respectively. The large increase in wholesale deposits is primarily driven by a ~~decrease in~~shift from FHLB advances to wholesale deposits to manage interest rate risk and liquidity by utilizing the ~~level~~most efficient and cost-effective source of wholesale ~~deposits, specifically brokered~~funds to match-fund our fixed-rate loan portfolio. In addition, certificates of deposit and money market accounts increased by $133.4 million and $12.7 million, respectively. Both transaction and money market accounts increased due to the successful execution of client deposits gathered through internet deposit listing services, which declined by $108.7 million to $308.0 million at December 31, 2017 from $416.7 million at December 31, 2016. Consistent with our funding philosophy to match-fund long-term fixed rate loans with the most cost effective source of wholesale funds,initiatives and change in ~~2017 we began replacing maturing brokered~~client preferences. Additionally, certificate of deposit ~~with the more cost effective FHLB advances~~accounts saw an increase primarily due to a change in ~~order to lower our FDIC assessment rate. While we expect to continue this strategy in 2018, we do not expect brokered certificates~~client interest rate expectations.

Table of ~~deposit as a percentage of total assets to go below 10%.~~Contents

The following table presents the composition of the Bank’s consolidated ~~deposits at the dates indicated.~~deposits.


	As of December 31,
	2023				2022
	Balance		% of Total Deposits		Balance		% of Total Deposits
	(Dollars in Thousands)
Non-interest-bearing transaction accounts	$	445,376	15.9	%	$	537,107	24.8	%
Interest-bearing transaction accounts	895,319		32.0		576,601		26.6
Money market accounts	711,245		25.4		698,505		32.2
Certificates of deposit	287,131		10.3		153,757		7.1
Wholesale deposits	457,708		16.4		202,236		9.3
Total deposits	$	2,796,779	100.0	%	$	2,168,206	100.0	%

Uninsured deposits	994,687				967,465
Less: uninsured deposits collateralized by pledged assets	17,051				14,326
Total uninsured, net of collateralized deposits	$	977,636	35.0	%	$	953,139	44.0	%

As of December 31,
2017 2016 2015 2014 2013
Balance % of Total Deposits Balance % of Total Deposits Balance % of Total Deposits Balance % of Total Deposits Balance % of Total Deposits
(Dollars in Thousands)
Non-interest-bearing transaction accounts $ 277,445
19.9 % $ 252,638
16.4 % $ 231,199
14.7 % $ 204,328
14.2 % $ 151,275
13.4 %
Interest-bearing transaction accounts 217,625
15.6
183,992
12.0
165,921
10.5
104,199
7.2
77,004
6.8
Money market accounts 515,077
36.9
627,090
40.8
612,642
38.8
575,766
40.0
456,065
40.4
Certificates of deposit 76,199
5.5
58,454
3.8
79,986
5.1
126,635
8.8
51,979
4.6
Wholesale deposits 307,985
22.1
416,681
27.1
487,483
30.9
427,340
29.8
393,532
34.8
Total deposits 1,394,331
100.0 % 1,538,855
100.0 % 1,577,231
100.0 % 1,438,268
100.0 % 1,129,855
100.0 %

~~Deposit~~ Period-end deposit balances associated with in-market relationships will fluctuate based upon maturity of time deposits, client demands for the use of their cash, and our ability to service and maintain existing and new client relationships. Deposits continue to be the primary source of the Bank’s funding for lending and other investment activities. A variety of accounts are designed to attract both short- and long-term deposits. These accounts include non-interest-bearing transaction accounts,

~~Table of Contents~~

interest-bearing transaction accounts, money market accounts, and ~~time deposits.~~certificates of deposit. Deposit terms offered by the Bank vary according to the minimum balance required, the time period the funds must remain on deposit, the rates and products offered by competitors, and the interest rates charged on other sources of funds, among other factors. Our Bank’s in-market deposits are obtained primarily from the South Central, Northeast and Southeast regions of Wisconsin and the greater Kansas City Metro.

~~Our strategic efforts continue to be focused on adding in-market relationships.~~ We measure the success of in-market deposit gathering efforts based on the ~~number and~~ average balances of our deposit accounts ~~as compared to~~rather than ending balances due to the volatility of some of our larger relationships. ~~Our Bank’s in-market deposits are obtained primarily from the South Central, Northeastern and Southeastern regions of Wisconsin and the greater Kansas City area.~~ Average in-market deposits for the year ended December 31, ~~2017~~2023 were approximately ~~$1.097~~$2.098 billion, or ~~70.15%~~75.0% of total bank funding. Total bank funding is defined as total deposits plus FHLB advances. This compares to average in-market deposits of ~~$1.124~~$1.929 billion, or ~~69.98%~~80.6% of total bank funding, for ~~2016.~~2022. Refer to Note 89 - Deposits in ~~our~~the Consolidated Financial Statements for additional information regarding our deposit composition.

The following table sets forth the amount and maturities of the Bank’s certificates of deposit and term wholesale deposits at December 31, ~~2017.~~2023.


Interest Rate	Three Months and Less		Over Three Months Through Six Months		Over Six Months Through Twelve Months		Over Twelve Months		Total
	(In Thousands)
0.00% to 0.99%	$	712	$	—	$	233	$	408	$	1,353
1.00% to 1.99%	—		176		2,084		—		2,260
2.00% to 2.99%	2,332		—		5,195		2,552		10,079
3.00% to 3.99%	10,185		2,507		484		39,103		52,279
4.00% to 4.99%	110,400		17,120		13,181		116,131		256,832
5.00% and greater	317,805		21,005		33,226		—		372,036
	$	441,434	$	40,808	$	54,403	$	158,194	$	694,839

Interest Rate Three Months and Less Over Three Months Through Six Months Over Six Months Through Twelve Months Over Twelve Months Total
(In Thousands)
0.00% to 0.99% $ 5,948
$ 8,682
$ 10,532
$ 1,530
$ 26,692
1.00% to 1.99% 21,777
48,092
76,941
152,494
299,304
2.00% to 2.99% —
—
—
58,188
58,188
$ 27,725
$ 56,774
$ 87,473
$ 212,212
$ 384,184

At December 31, ~~2017,~~2023, time deposits included ~~$13.4~~$120.2 million of certificates of deposit and wholesale deposits in denominations greater than or equal to $250,000. Of these certificates, ~~$1.0~~$87.7 million are scheduled to mature in three months or less, ~~$4.9~~$5.5 million in greater than three through six months, ~~$1.8~~$24.5 million in greater than six through twelve months and ~~$5.7~~$2.5 million in greater than twelve months.

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Of the total time deposits outstanding as of December 31, ~~2017, $172.0~~2023, $536.6 million are scheduled to mature in ~~2018, $74.8~~2024, $19.1 million in ~~2019, $86.1~~2025, $50.4 million in ~~2020, $21.5~~2026, $73.8 million in ~~2021, $4.8~~2027, and $12.8 million in ~~2022 and $25.0 million thereafter.~~2028. As of December 31, ~~2017,~~2023, we have ~~$49.0 million of~~no wholesale certificates of deposit which the Bank has the right to call prior to the scheduled maturity. These certificates have original maturities ranging from 3-18 years with options to call after the first six to twelve months of issuing the certificates with monthly, quarterly or semi-annually call options thereafter.

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Borrowings

We had total borrowings of ~~$217.9~~$330.9 million as of December 31, ~~2017, an increase~~2023, a decrease of ~~$148.2~~$125.9 million, or ~~212.7%~~27.6%, from ~~$69.7~~$456.8 million at December 31, ~~2016.~~2022. The ~~primary reason for the increase~~Bank utilized more wholesale deposits in ~~borrowings was due to the increase in~~lieu of FHLB advances ~~consistent with our funding philosophy~~ to ~~match-fund long-term fixed~~manage interest rate ~~loans with~~risk and liquidity by utilizing the most efficient and ~~cost effective source of wholesale funds.~~

~~Consistent with our funding philosophy to use the most efficient and cost effective~~cost-effective source of wholesale funds ~~we expect the balance~~to match-fund our fixed-rate loan portfolio. Total wholesale funding as a percentage of FHLB advances to increase in future periods as we continue to reduce our brokered certificate of deposit portfolio to help reduce the recent increase in our FDIC insurance assessment rate resulting from the FDIC’s revised methodology made effective July 1, 2016. Our operating range of wholesale funds to total bank funding ~~is 30%-40%. Wholesale funds include brokered certificates~~was 25.2% as of ~~deposit, deposits gathered from internet listing services and FHLB advances.~~December 31, 2023 compared to 25.1% as of December 31, 2022. Total bank funding is defined as total deposits plus FHLB advances. At

As of December 31, ~~2017,~~2023, the ~~ratio~~Corporation had $20,000 of other borrowings, which consisted of sold tax credit investments accounted for as secured borrowings because they did not qualify for true sale accounting. As of December 31, 2022, the Corporation had other borrowings of $6.1 million which consisted of sold loans accounted for as secured borrowings because they did not qualify for true sale accounting.

Consistent with our funding philosophy to manage interest rate risk, we will use the most efficient and cost effective source of wholesale ~~funds~~funds. We utilize FHLB advances to ~~total bank~~the extent we maintain an adequate level of excess borrowing capacity for liquidity and contingency funding ~~was 31.2%.~~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 titled Liquidity and Capital Resources, below, for further information regarding our use and monitoring of wholesale funds.

The following table sets forth the outstanding balances, weighted average balances, and weighted average interest rates for our borrowings (short-term and long-term) as indicated.


	December 31, 2023						December 31, 2022
	Balance		Weighted Average Balance		Weighted Average Rate		Balance		Weighted Average Balance		Weighted Average Rate
	(Dollars in Thousands)
Federal funds purchased	$	—	$	3	5.37	%	$	—	$	14	7.42	%
FHLB advances	281,500		351,990		2.52		416,380		414,191		1.70
Line of credit	—		38		7.26		—		85		2.78
Other borrowings	20		600		8.33		6,088		8,624		5.23
Subordinated notes payable	49,396		38,250		5.16		34,340		35,095		5.06
Junior subordinated notes(1)	—		—		—		—		2,429		20.75
	$	330,916	$	390,881	2.79		$	456,808	$	460,438	2.12

December 31, 2017 December 31, 2016 December 31, 2015
Balance Weighted
Average
Balance Weighted
Average
Rate Balance Weighted
Average
Balance Weighted
Average
Rate Balance Weighted
Average
Balance Weighted
Average
Rate
(Dollars in Thousands)
Federal funds purchased $ —
$ 66
1.22 % $ —
$ 178
0.92 % $ —
$ 237
0.86 %
FHLB advances 183,500
105,276
1.40
33,578
14,485
0.97
8,198
14,779
0.75
Line of credit 10
328
3.64
1,010
2,079
3.26
1,592
678
9.66
Other borrowings⁽¹⁾
675
1,241
14.50
2,590
1,739
7.64
2,510
1,619
3.18
Subordinated notes payable 23,713
23,161
6.93
22,498
22,467
7.13
22,440
22,410
7.14
Junior subordinated notes 10,019
10,011
11.11
10,004
9,997
11.07
9,990
9,982
11.14
$ 217,917
$ 140,083
3.14
$ 69,680
$ 50,945
6.03
$ 44,730
$ 49,705
5.94
Short-term borrowings $ 37,010
$ 20,588
$ 7,010

Long-term borrowings 180,907
49,092
37,720

$ 217,917
$ 69,680
$ 44,730


~~(1)~~	~~Weighted average rate of other borrowings reflects the cost of prepaying~~(1) Weighted average rate of junior subordinated notes reflects the accelerated amortization of subordinated debt issuance costs as a ~~secured borrowing during the second quarter of 2017.~~

~~The following table sets forth maximum amounts outstanding at each month-end for specific types of short-term borrowings for the periods indicated. The maximum month-end balance has been the~~ result of ~~using advances with original~~the early redemption of the junior subordinated notes during the first quarter of 2022.

Table of Contents

A summary of annual maturities of upborrowings at December 31, 2023 is as follows:


(In Thousands)
Maturities during the year ended December 31,
2024	$	120,520
2025	48,000
2026	65,000
2027	28,000
2028	—
Thereafter	69,396
	$	330,916

TheCorporationissuednewsubordinateddebenturesasofSeptember29,2023.Theaggregateprincipalamountofthenewlyissuedsubordinateddebentureswas$15.0millionwhichqualifiedasTier2capital.Thesubordinateddebenturesbearafixedinterestrateof8.0%withamaturitydateofSeptember29,2033.TheCorporationmay,atitsoption,redeemthedebentures,inwholeorpart,atanytimeafterthefifthanniversaryofissuance.

Refer to ~~30 days to accommodate the orderly issuance of permanent wholesale funds, either~~Note 10 – FHLB Advances, Other Borrowings and Subordinated Notes and Debentures in the ~~form~~Consolidated Financial Statements for additional information on the terms of ~~brokered certificates of deposit or FHLB advances.~~Corporation’s current debt instruments.

Year Ended December 31,
2017 2016 2015
(In Thousands)
Maximum month-end balance:
FHLB advances $ 49,000
$ 45,500
$ 29,000

Stockholders’ Equity

As of December 31, ~~2017,~~2023, stockholders’ equity was ~~$169.3~~$289.6 million, or ~~9.4%~~8.26% of total assets, compared to stockholders’ equity of ~~$161.7~~$260.6 million, or ~~9.1%~~8.76% of total assets, as of December 31, ~~2016.~~2022. Stockholders’ equity increased by ~~$7.6~~$28.9 million during the year ended December 31, ~~2017~~2023 attributable to net income of ~~$11.9~~$37.0 million for the year ended December 31, ~~2017,~~2023, partially offset by preferred and common stock dividend declarations of ~~$4.5~~$875,000 and $7.6 million, respectively, and stock repurchases of $2.0 million of the $5.0 million authorized under the repurchase program discussed below.

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.

~~Table~~The Corporation expects to pay dividends on the Series A Preferred Stock when and if declared by its Board, at a fixed rate of ~~Contents~~

~~Non-bank Consolidated Subsidiaries~~

~~First Madison Investment Corp.~~ ~~FMIC is~~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 ~~wholly-owned operating subsidiary~~floating rate of ~~FBB incorporated in the State~~Three-Month Term SOFR plus a spread of Nevada in 1993. FMIC was organized for the purpose of managing a portion of FBB’s investment portfolio. FMIC invests in marketable securities. As an operating subsidiary, FMIC’s results of operations are consolidated with FBB’s for financial and regulatory purposes. FBB’s investment in FMIC was $154.3 million at December 31, 2017, gross loans outstanding were $29.9 million and net income for539 basis points per annum. During the year ended December 31, ~~2017 was $1.8 million. This compares~~2023, the Corporation paid $875,000 in preferred cash dividends. 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.

On January 27, 2023, the Board of Directors of the Corporation approved a share repurchase program. The program authorized the repurchase by the Corporation of up to $5 million of its total outstanding shares of common stock over a period of approximately twelve months, ending January 31, 2024. As of December 31, 2023, the Corporation had repurchased a total ~~investment~~ of ~~$153.0 million, no gross loans and net income of $1.6~~65,112 shares for approximately $2.0 million at ~~and for~~an average cost of $30.72 per share. At this time, the ~~year ended December 31, 2016.~~Corporation does not expect to adopt a new plan to replace the recently expired plan due to strong balance sheet growth.

~~First Business Capital Corp.~~ ~~FBCC is a wholly-owned subsidiary~~ Under the recently expired share repurchase program, authorized the repurchase of ~~FBB formed in 1995 and headquartered in Madison, Wisconsin. FBCC is an asset-based financing company established~~shares from time to meet the financing needs of companies that are generally unable to obtain traditional commercial lending products. FBCC underwrites its loans with additional emphasis placed on collateral coverage as the companies it finances are growing rapidly, highly leveraged or undergoing a turn-around period. Through its FBF division, FBCC purchases accounts receivable on a full recourse basis as one additional alternative to meet the financing needs of its client base. FBB’s investment in FBCC at December 31, 2017 was $38.7 million, gross loans outstanding were $147.1 million and net income for the year ended December 31, 2017 was $3.1 million. This compares to a total investment of $35.5 million, gross loans of $151.7 million and net income of $4.6 million at and for the year ended December 31, 2016.

~~First Business Equipment Finance, LLC.~~ ~~FBEF, headquartered in Madison, Wisconsin, was formed in 1998 for the purpose of originating leases and extending credit~~time in the ~~form~~open market or negotiated transactions at prevailing market rates, or by other means in accordance with federal securities laws.

Table of loans to small- and medium-sized companies nationwide and is a wholly-owned subsidiary of FBB. FBB’s total investment in FBEF at December 31, 2017 was $7.1 million, gross loans and leases outstanding were $40.4 million and a net loss of $55,000 for the year ended December 31, 2017. This compares to a total investment of $7.1 million, gross loans and leases outstanding of $42.5 million and net loss of $98,000 at and for the year ended December 31, 2016.Contents

~~Rimrock Road Investment Fund, LLC~~. Rimrock, formerly known as FBB Real Estate, LLC, is a wholly-owned subsidiary of FBB and was originally formed in 2009 for the purpose of holding and liquidating real estate and other assets acquired through foreclosure or other legal proceedings. In 2014, Rimrock’s purpose was changed to reflect its qualified equity investment in a Madison, Wisconsin community development project, including the financing and ownership of a property that generates federal new market tax credits. FBB’s total investment in Rimrock at December 31, 2017 was $2.8 million and Rimrock had net income of $15,000 for the year ended December 31, 2017. This compares to a total investment of $2.8 million and net income of $1,000 at and for the year ended December 31, 2016.

~~BOC Investment, LLC.~~ BOC is a wholly-owned subsidiary of FBB and was formed in 2015 for the purpose of holding its equity investment in a Madison, Wisconsin historic development project. The investment provided federal historic tax credits upon the completion of the restoration project. FBB’s total investment in BOC at December 31, 2017 was $4.0 million and BOC had net income of $131,000 for the year ended December 31, 2017. This compares to a total investment of $3.9 million and a net income of $422,000 at and for the year ended December 31, 2016.

~~Mitchell Street Apartments Investment, LLC.~~ Mitchell is a wholly-owned subsidiary of FBB and was formed in 2016 for the purpose of holding its equity investment in a Milwaukee, Wisconsin historic development project. The investment provided federal and state historic tax credits upon the completion of the restoration project. FBB’s total investment in Mitchell at December 31, 2017 was $1.4 million and Mitchell had $803,000 net income for the year ended December 31, 2017. This compares to a total investment of $563,000 and a no net income at and for the year ended December 31, 2016.

~~ABKC Real Estate, LLC.~~ ABKCRE is a wholly-owned subsidiary of FBB and was formed for the purpose of holding and liquidating real estate and other assets acquired by FBB through foreclosure or other legal proceedings. ABKCRE was established in 2017. FBB’s total investment in ABKCRE at December 31, 2017 was $1.2 million and a net loss of $238,000 for the year ended December 31, 2017.

~~FBB Tax Credit Investment, LLC.~~ FBB Tax Credit, formerly known as FBB-Milwaukee Real Estate, LLC, is a wholly-owned subsidiary of FBB and was originally formed in 2012 for the purpose of holding and liquidating real estate and other assets acquired by FBB through foreclosure or other legal proceedings. In 2017, FBB Tax Credit’s purpose was changed to facilitate investments in federal and state tax credits.

LIQUIDITY AND CAPITAL RESOURCES

~~We expect~~ The Corporation expects to meet ~~our~~its liquidity needs through existing cash on hand, established cash flow sources, ~~our~~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 ~~their~~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 December 31, ~~2017~~2023 were the interest payments due on subordinated notes and ~~junior subordinated notes.~~cash dividends payable to both common and preferred stockholders. During ~~2017~~2023 and ~~2016,~~2022, FBB declared and paid dividends totaling ~~$13.5~~$12.1 million and ~~$7.0~~$2.0 million, respectively. The capital ratios of the ~~Corporation and its subsidiaries~~Bank met all applicable regulatory capital adequacy requirements in effect on December 31, ~~2017,~~2023, and continue to meet the heightened requirements imposed by Basel III, including the capital conservation ~~buffer that went into effect January 1, 2016.~~buffer. The Corporation’s ~~and the Bank’s respective Boards of Directors~~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 source 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 conditions, and competition.

We view ~~on-balance-sheet~~readily accessible liquidity as a critical element ~~to maintaining adequate liquidity~~ to meet our cash and collateral obligations. We define our ~~on-balance-sheet~~readily accessible liquidity as the total of our short-term investments, our unencumbered securities available-for-sale, and our unencumbered pledged loans. As of December 31, ~~2017~~2023 and ~~2016,~~2022, our ~~immediate on-balance-sheet~~readily accessible liquidity was ~~$401.1~~$734.4 million and ~~$543.1~~$449.6 million, respectively. At December 31, ~~2017~~2023 and ~~2016,~~2022, the Bank ~~has $17.7~~had $106.8 million and ~~$40.9~~$76.5 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 ~~on-balance-sheet~~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, pay down FHLB advances, allow run off of maturing wholesale certificates of deposit or to invest in securities to maintain adequate liquidity at an improved margin. ~~The decline in on-balance-sheet liquidity is primarily attributable to the decrease in cash held on deposit with the FRB and the increased use of FHLB advances.~~

We had ~~$491.5~~$739.2 million of outstanding wholesale funds at December 31, ~~2017,~~2023, compared to ~~$450.3~~$618.6 million of wholesale funds as of December 31, ~~2016,~~2022, which represented ~~31.2%~~24.0% and ~~28.6%~~23.9%, respectively, of ~~ending balance~~period end total bank funding. Wholesale funds include FHLB advances, brokered certificates of deposit, and deposits gathered from internet listing services. Total bank funding is defined as total deposits plus FHLB advances. We are committed to raising in-market deposits while ~~maintaining our overall target mix of~~utilizing wholesale funds to match-fund our loan portfolio and ~~in-market deposits.~~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 in-market deposits within a short time period. Access to such deposits and borrowings allows us the flexibility to refrain from pursuing ~~single service~~less desirable deposit ~~relationships in markets that have experienced unfavorable pricing levels.~~relationships. In addition, 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. 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 in-market deposits increased $373.1 million, or 19.0%, to $2.339 billion at December 31, 2023 from $1.966 billion at December 31, 2022 as in-market deposit balances increased due to successful business development efforts, partially offset by deposit movement from money market accounts to, alternative investment options, and clients funding their normal course of business. Our in-market relationships ~~remain stable;~~continue to grow; however, deposit balances associated with those relationships will fluctuate. We expect to establish new client relationships and continue marketing efforts aimed at increasing the balances in existing clients’ deposit accounts. Nonetheless, 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 in-market deposit balances decline. In order to provide for ongoing liquidity and funding, substantially all of our wholesale funds are certificates of deposit which do not allow for withdrawal at the option of the depositor before the stated maturity (with the exception of deposits accumulated through the internet listing service which have the same early withdrawal privileges and fees as do our other in-market deposits) and FHLB advances with contractual maturity terms and no call provisions. The Bank limits the percentage of wholesale funds to total bank funds in accordance with liquidity policies approved by its ~~Board of Directors. The Corporation’s overall operating range of wholesale funds to total bank funds is 30%-40%.~~Board. The Bank was in compliance with its policy limits as of December 31, ~~2017.~~2023.

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The Bank was able to access the wholesale funding market as needed at rates and terms comparable to market standards during the year ended December 31, ~~2017.~~2023. 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 ~~on-balance-sheet~~readily available liquidity. These potential funding sources include deposits maintained at

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the FRB or Federal Reserve Discount Window utilizing currently unencumbered securities and acceptable loans as collateral. As of December 31, ~~2017,~~2023, the available 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 maintains a shelf registration 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 Bank is required by federal regulation to maintain sufficient liquidity to ensure safe and sound operations. We believe that the Bank has sufficient liquidity to match the balance of net withdrawable deposits and short-term borrowings in light of present economic conditions and deposit flows.

During the year ended December 31, ~~2017,~~2023, operating activities resulted in a net cash inflow of ~~$22.4 million. Operating cash flows included~~$52.3 million driven by net income of ~~$11.9 million and a provision for loan and leases losses of $6.2~~$37.0 million. Net cash used in investing activities for the year ended December 31, ~~2017~~2023 was ~~$46.4~~$506.8 million which consisted of $408.6 million in cash outflows to fund net loan growth and ~~reinvestment of~~$75.7 million in net cash ~~flows within purchases of additional securities, partially offset by cash inflows from maturities, redemptions and paydowns of~~outflows to purchase available-for-sale ~~and held-to-maturity~~ securities. Net cash ~~used in~~provided by financing activities for the year ended December 31, ~~2017~~2023 was ~~$1.0~~$491.4 million. Financing cash flows included a $628.6 million net increase in deposits and a $134.9 million net increase in FHLB advances, partially offset by cash dividends paid of $7.6 million, and share repurchases of $3.0 million, respectively.

Refer to Note 1012 - ~~Stockholders’ Equity and~~ Regulatory Capital for ~~a summary of~~additional information regarding the Corporation’s and the Bank’s capital ratios and the ratios required by their federal regulators at December 31, ~~2017~~2023 and ~~2016.~~2022.

~~OFF-BALANCE-SHEET ARRANGEMENTS~~

~~Commitments~~

As of December 31, 2017, the Bank had outstanding commitments to originate $498.0 million of loans and commitments to extend funds to or on behalf of clients pursuant to standby letters of credit of $13.8 million. As of December 31, 2017, the Bank had $283.9 million of commitments to extend funds which extend beyond one year. We do not expect any losses as a result of these funding commitments. We have evaluated outstanding commitments associated with loans that were identified as impaired loans and concluded that there are no additional losses required to be recorded with these unfunded commitments as of December 31, 2017. We believe that additional commitments will not be granted or additional collateral will be provided to support any additional funds advanced. The Bank also utilizes interest rate swaps for the purposes of interest rate risk management, as described further in ~~Note 17 – Derivative Financial Instruments~~ ~~to the Consolidated Financial Statements.~~

Additionally the Corporation has remaining commitments of $960,000 to Aldine Capital Fund, LP (“Aldine”) and $1.5 million to Aldine Capital Fund II, LP (“Aldine II”), which are private equity mezzanine funding limited partnerships in which we have invested. Aldine began its operations in October 2006 and Aldine II began its operations in March 2013.

~~We believe adequate capital and liquidity are available from various sources to fund projected commitments.~~

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~~Contractual Obligations~~

~~The following table summarizes our contractual cash obligations at December 31, 2017:~~

Payments Due by Period

Less than
1 Year
1-3 Years 4-5 Years More than 5 Years Total
(In Thousands)
Operating lease obligations $ 1,648
$ 3,121
$ 2,807
$ 4,820
$ 12,396
Time deposits 171,972
160,930
26,295
24,987
384,184
Line of credit 10
—
—
—
10
Subordinated notes payable —
—
—
23,713
23,713
Junior subordinated notes —
—
—
10,019
10,019
FHLB advances 37,000
121,000
12,000
13,500
183,500
Other borrowings —
—
—
675
675
Total contractual obligations $ 210,630
$ 285,051
$ 41,102
$ 77,714
$ 614,497

~~SBA Recourse~~

In the ordinary course of business, the Corporation sells the guaranteed portions of SBA loans to third parties. 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.

~~Management has assessed the 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 $2.8 million at December 31, 2017. The recourse reserve is reported in accrued interest payable and other liabilities on the Consolidated Balance Sheets. See ~~Note 18– Commitments and Contingencies~~ ~~for additional information on the SBA recourse reserve.~~

~~2016 COMPARED TO 2015~~

~~Top Line Revenue~~

In 2016, top line revenue increased by approximately 7.5% from the prior year primarily due to an 8.3% increase in average loans and leases and elevated recurring loan fees collected in lieu of interest. Recurring loan fees collected in lieu of interest totaled $5.1 million in 2016, compared to $3.3 million in 2015. The increase in fees collected in lieu of interest can primarily be attributed to above average prepayment activity in our asset-based lending line of business.

~~Return on Average Assets and Return on Average Equity~~

ROAA was 0.82% for the year ended December 31, 2016 compared to 0.97% for the year ended December 31, 2015. The decrease in ROAA can be attributed principally to a decrease in earnings as net income decreased 9.7% during the same time period. The decrease in net income was primarily due to both the deterioration in credit quality and related increase in the provision for loan and leases losses, and our decision to temporarily slow SBA production while making investments in the SBA platform. This decrease was partially offset by the aforementioned elevated loan fees collected in lieu of interest. ROAA is a critical metric used by us 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.

ROAE for the year ended December 31, 2016 was 9.40% compared to 11.36% for the year ended December 31, 2015. The primary reasons for the decrease in ROAE are consistent with the net income variance explanations discussed above. We view ROAE 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~~

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The efficiency ratio improved to 61.12% for the year ended December 31, 2016, compared to 62.75% for the year ended December 31, 2015, and deteriorated moderately from the 60.06% for the year ended December 31, 2014. We took significant steps in 2016 toward enhancing the Corporation’s long-term efficiency ratio. While loan fees are a regular part of our business model, unusually elevated loan fees and other non-recurring items meaningfully improved our efficiency ratio during 2016. A normalized level of fees and expenses would have resulted in an efficiency ratio in the mid-60% range.

~~Please refer to the Non-Interest Expense section below for discussion on the primary drivers of the year-over-year change in the efficiency ratio.~~

~~Net Interest Income~~

Net interest income increased by $4.7 million, or 8.0%, for the year ended December 31, 2016 compared to the same period in 2015. The increase in net interest income was primarily attributable to an increase in total loans and leases receivable combined with a $1.8 million increase in recurring loan fees collected in lieu of interest. These items more than offset continued competitive pricing pressure on loans and leases, a decrease in the net accretion of purchase accounting adjustments and an increase in the rate paid on wholesale funds resulting from a steeper yield curve.

The yield on average earning assets for the year ended December 31, 2016 was 4.50% compared to 4.52% for the year ended December 31, 2015. The decrease in the yield on average earning assets was principally due to a decrease in net accretion of purchase accounting adjustments, offset by above average recurring loan fees collected in lieu of interest. Excluding the impact of purchase accounting accretion in both 2015 and 2016 and the $1.8 million increase in loan fees in 2016, the yield on average earning assets for the year ended December 31, 2016 was 4.16% compared to 4.20% for the year ended December 31, 2015. Similarly, excluding net accretion in both 2015 and 2016 and the year over year increase in loan fees, the yield on the loan and lease portfolio declined five basis points to 4.95% for the year ended December 31, 2016 from 5.00% for the year ended December 31, 2015.

A significant portion of our loan and lease portfolio is comprised of fixed rate loans with terms generally from three to five years. As these loans reach their maturity they are renewed at current market rates and subject to competitive pricing pressures. As a result, the overall yield on the loan and lease portfolio, excluding purchase accounting adjustments and elevated recurring loan fees, continued to decline in 2016.

The overall weighted average rate paid on interest-bearing liabilities was 1.06% for the year ended December 31, 2016, an increase of two basis points from 1.04% for the year ended December 31, 2015. The moderate increase in the overall rate paid on interest-bearing liabilities was primarily caused by an increase in rate paid on our wholesale deposits and in-market certificates of deposit, partially offset by a reduction in the average rate paid on our money market accounts. Our continued success of attracting in-market non-interest bearing and interest-bearing demand deposits through new business relationships and increased client deposit balances mitigated the overall increase in our cost of funds driven by a steeper yield curve. The weighted average remaining maturity of our wholesale deposit portfolio remains consistent when compared to the same period in 2015, however, market rates increased moderately throughout 2016 as a result of the Federal Reserve raising rates in both December 2015 and December 2016.

Average in-market deposits - comprised of all transaction accounts, money market accounts and non-wholesale deposits - increased 7.4% to $1.124 billion for the year ended December 31, 2016 from $1.047 billion for the year ended December 31, 2015.

~~Provision for Loan and Lease Losses~~

We recorded a provision for loan and lease losses in the amount of $7.8 million for the year ended December 31, 2016 as compared to $3.4 million for the year ended December 31, 2015. Provision for the year ended December 31, 2016 primarily reflected $8.2 million in specific reserves and net charge-offs related to five discrete Kansas City market loan relationships. This increase in provision for loan and leases losses was tempered by improvements in underlying credit metrics in the remaining loan and lease portfolio, as asset quality in our Wisconsin markets remained strong.

~~Non-Interest Income~~

Non-interest income, consisting primarily of fees earned for trust and investment services, gains on sale of SBA loans, service charges on deposits and loan fee income, increased by $1.0 million, or 5.7%, to $18.0 million for the year ended December 31, 2016, from $17.0 million for the year ended December 31, 2015. Total non-interest income accounted for 22.1% of our total revenues in 2016 compared to 22.5% in 2015.

Trust and investment services fee income increased by $402,000, or 8.1%, to $5.4 million for the year ended December 31, 2016 compared to $5.0 million for the year ended December 31, 2015. Trust and investment services fee income is primarily driven by the amount of assets under management and administration as well as the mix of business at

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different fee structures and can be positively or negatively influenced by the timing and magnitude of volatility within the capital markets. At December 31, 2016, our trust assets under management were $977.0 million, or 19.5% more than the trust assets under management of $817.9 million at December 31, 2015, while our assets under administration increased approximately 11.9%, to $227.4 million at December 31, 2016 from $203.2 million at December 31, 2015.

Gain on sale of SBA loans for the year ended December 31, 2016 totaled $4.4 million, an increase of $401,000, or 10.0%, from the same period in 2015, primarily attributable to greater than expected production in the first and second quarters of 2016.

Service charges on deposits increased by $178,000, or 6.3%, to $3.0 million for the year ended December 31, 2016, compared to $2.8 million for the year ended December 31, 2015. The increase in service charges on deposits is primarily due to our success of attracting in-market fee generating non-interest bearing and interest-bearing demand deposits through new business relationships and increased client deposit balances.

Loan fees increased by approximately $243,000, or 11.1%, to $2.4 million for the year ended December 31, 2016 from $2.2 million for the year ended December 31, 2015. The increase in loan fees is primarily attributable to an increase in fees commensurate with SBA production, specifically the fee income generated from servicing and packaging SBA loans. This increase was partially offset by a decrease in fees earned for issuing letters of credit on behalf of our clients.

Other non-interest income decreased by $122,000 to $1.2 million for the year ended December 31, 2016, compared to $1.4 million for the year ended December 31, 2015. The decrease in other non-interest income was primarily due to a decrease in the gains recognized on the termination of leased assets. This decrease was partially offset by income recognized from our investment in various Community Development Entities.

~~Non-Interest Expense~~

Non-interest expense increased by $9.1 million, or 19.1%, to $56.4 million for the year ended December 31, 2016 from $47.4 million for the comparable period of 2015. The increase in non-interest expense was primarily due to an increase in compensation expense, impairment of tax credit investments (which resulted from the recognition of $4.2 million of tax credit benefits) and establishment of a SBA recourse reserve. The increase was partially offset by a decrease in professional fees, marketing costs and collateral liquidation costs.

Compensation expense increased by $3.0 million, or 10.5%, to $31.5 million for the year ended December 31, 2016 from $28.5 million for the year ended December 31, 2015. The increase reflects growth in compensation costs related to our strategic investment in new employees to meet our existing and future growth objectives, annual merit increases and employee benefit costs. Full time equivalent employees as of December 31, 2016 were 257, up 6.2% from 242 at December 31, 2015.

Professional fees expense decreased by $862,000, or 17.6%, to $4.0 million for the year ended December 31, 2016 from $4.9 million for the year ended December 31, 2015. The decrease was consistent with management’s expectations as technology platforms introduced in 2015 were largely put in place in 2016. Management will evaluate additional technology platforms and expand the capabilities of existing platforms going forward as we continue to strategically focus on scaling the Corporation to efficiently execute our growth strategy. For the year ended December 31, 2016, professional fees and fees paid to outside service providers specifically related to information technology (“IT”) projects decreased $508,000 and $439,000, respectively. In addition, fees paid for audit assurance and tax compliance decreased by $126,000. These decreases in professional fees were partially offset by a $391,000 increase in consulting services related to SBA strategic planning and loan review, and website development.

Data processing expense increased by $920,000, or 38.7%, to $3.3 million for the year ended December 31, 2016 from $2.4 million for the year ended December 31, 2015. The increase is principally due to a one-time fee of $794,000 to terminate FBB-KC’s existing core banking system vendor agreement.

Marketing expense decreased by $247,000, or 9.6%, to $2.3 million for the year ended December 31, 2016 from $2.6 million for the year ended December 31, 2015. The favorable variance is primarily due to a purposeful reduction of certain advertising initiatives as management continues to align expense growth with revenue production.

FDIC insurance expense increased by $552,000, or 60.0%, to $1.5 million for the year ended December 31, 2016 from $920,000 for the year ended December 31, 2015. The increase in FDIC insurance expense is commensurate with the pricing changes made effective by the FDIC on July 1, 2016 (which negatively impacts FDIC-insured institutions with brokered deposits greater than 10% of total assets) and reflective of the Corporation’s growth in criticized and risk-weighted assets.

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During 2016, in accordance with the applicable accounting guidance, the Corporation recognized $3.3 million in nonrecurring expense due to impairment of a historic tax credit investment, which corresponded with the recognition of $3.8 million in tax credits, providing a net benefit to after-tax earnings of $450,000 for the year ended December 31, 2016. In addition, 2016 expenses included the recognition of $2.1 million in SBA recourse provision for estimated losses in the outstanding guaranteed portions of SBA loans sold. As a result of negative trends in credit quality, the Corporation performed a proactive and rigorous eligibility review of its SBA loan guarantees during 2016. No SBA recourse provision was recognized for the same period in 2015.

~~Income Taxes~~

Income tax expense was $2.2 million for the year ended December 31, 2016, compared to $8.4 million for the year ended December 31, 2015 primarily due to the aforementioned recognition of a historic tax credit, as well as lower pre-tax income. The effective tax rate for the year ended December 31, 2016 was 12.6% compared to 33.7% for the year ended December 31, 2015. The Corporation’s effective tax rate may fluctuate as it is impacted by the level and timing of the Corporation’s utilization of tax credits, level of pre-tax income and the extent of tax-exempt investments and loans.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. By their nature, changes in these assumptions and estimates could significantly affect the Corporation’s financial position or results of operations. Actual results could differ from those estimates. Discussed below are certain policies that are critical to the Corporation. We view critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements.

Allowance for ~~Loan~~Credit Losses. Management believes the determination of the ACL involves a high degree of judgment and ~~Lease Losses.~~complexity than its other significant accounting policies. The ~~allowance~~ACL is calculated with the objective of maintaining a reserve level believed by management to be sufficient to absorb estimated credit losses over the life of an asset or an off-balance sheet credit exposure. Management’s determination of the adequacy of the ACL is based on periodic evaluations of 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. However, this evaluation has subjective components requiring material estimates, including expected default probabilities, the expected loss given default, the amounts and timing of expected future cash flows, and estimated losses based on historical loss experience and forecasted economic conditions. All of these factors may be susceptible to significant change. To the extent that actual results differ from management estimates, additional provisions for ~~loan and lease~~credit losses may be required that would adversely impact earnings in future periods. The ACL represents our recognition of the risks of extending credit and our evaluation of the quality of the loan and lease portfolio and as such, requires the use of judgment as well as other systematic objective and quantitative methods which may include additional assumptions and estimates. ~~The risks of extending credit and the accuracy of our evaluation~~

One of the ~~quality of~~most significant judgments impacting the ~~loan~~ACL estimate is the economic forecast for United States national unemployment and ~~lease portfolio are neither static nor mutually exclusive and~~United States national GDP. Changes in the economic forecast could ~~result in a material impact on our Consolidated Financial Statements. We may over-estimate~~significantly affect the quality of the loan and lease portfolio, resulting in a lower allowance for loan and lease losses than necessary, overstating net income and equity. Conversely, we may under-estimate the quality of the loan and lease portfolio, resulting in a higher

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~~allowance for loan and lease losses than necessary, understating net income and equity. The allowance for loan and lease losses is a valuation allowance for probable~~estimated credit losses ~~increased by~~which could potentially lead to materially different allowance levels from one reporting period to the ~~provision for loan and lease losses and decreased by charge-offs, net~~next.

Loans that no longer conform to the risk characteristics of recoveries. We estimate the allowance reserve balance required and the related provision for loan and lease losses based on monthly evaluations of the loan and lease portfolio, with particular attention paid to loans and leases that have been specifically identified as needing additional management analysis because of the potential for further problems. During these evaluations, consideration is also given to such factors as the level and composition of impaired and otherany pool are evaluated individually. This includes all non-performing loans and ~~leases, historical loss experience, results~~may also include other loans that management identifies as non-conforming. Reserves on individually-evaluated loans are estimated based on one or a combination of ~~examinations by regulatory agencies, independent loan and lease reviews, our estimate~~estimates of ~~the~~ fair value of the underlying collateral ~~taking into consideration various valuation techniques~~less cost to sell, seniority of the Bank’s claim, and ~~qualitative adjustments to inputs to those estimates~~borrower repayment forecasts. For loans and leases less than $1,000,000 in the Equipment Finance pool, the recovery value is based on historical experience rather than specific asset appraisals.

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Management also evaluates debt securities for credit losses when a default or decline in fair value ~~the strength and availability of guarantees, concentration of credits and other factors. Allocations of the allowance may be made for specific loans or leases, but the entire allowance~~ is available for any loan or lease that, in our judgment, should be charged off. Loan and lease losses are charged against the allowance when we believe that the uncollectability of a loan or lease balance is confirmed. identified.

See Note 1 – Nature of Operations and Summary of Significant Accounting Policies, Note 3 Securities, and Note 4 – Loans, Leases Receivable, and Allowance for Credit Losses in the Consolidated Financial Statements for further discussion of the ~~allowance for loan and lease losses.~~ACL.

We also continue to exercise our legal rights and remedies as appropriate in the collection and disposal of non-performing assets, and adhere to rigorous underwriting standards in our origination process in order to achieve strong asset quality. Although we believe that the ~~allowance for loan and lease losses~~ACL was appropriate as of December 31, ~~2017~~2023 based upon the evaluation of loan and lease delinquencies, non-performing assets, charge-off trends, economic conditions, and other factors, there can be no assurance that future adjustments to the allowance will not be necessary. If the quality of loans or leases deteriorates, then the allowance for loan and lease losses would generally be expected to increase relative to total loans and leases. If loan or lease quality improves, then the allowance would generally be expected to decrease relative to total loans and leases.

Goodwill Impairment Assessment. Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, including goodwill. The Corporation conducted its annual impairment test onas of July 1, ~~2017,~~2023, utilizing a qualitative assessment, and concluded that it iswas more likely than not ~~that FBB-KC’s~~the estimated fair value of the reporting unit exceeded its carrying value. Due to management’s decision to temporarily slow SBA production while investments to enhance the platform were made and the slower than expected ramp up of production during the fourth quarter, management elected to again assess goodwill on November 30, 2017 by comparing the fair value, ~~of FBB-KC to its carrying value. Based on this assessment, management concluded that there was~~resulting in no ~~evidence of goodwill~~ impairment. ~~There were no events since the November 2017 impairment test that have changed the Corporation's impairment assessment conclusion.~~ Although no goodwill impairment was noted, there can be no assurances that future goodwill impairment will not occur. See Note 1 – Nature of Operations and Summary of Significant Accounting Policiesfor the Corporation's accounting policy on goodwill and see Note 67 – Goodwill and ~~Other~~ Intangible Assets in the Consolidated Financial Statements for a detailed discussion of the factors considered by management in the assessment.

Income Taxes. The Corporation and its wholly owned subsidiaries file a consolidated federal income tax return and a combined Wisconsin ~~state tax return and a Kansas~~ state tax return. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The determination of current and deferred income taxes is based on complex analysis of many factors, including the interpretation of federal and state income tax laws, the difference between the tax and financial reporting basis of assets and liabilities (temporary differences), estimates of amounts currently due or owed, such as the timing of reversals of temporary differences, and current accounting standards. We apply a more likely than not approach to each of our tax positions when determining the amount of tax benefit to record in our Consolidated Financial Statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred taxes is recognized in income in the period that includes the enactment date. Effective January 1, 2018, the enactment of the Act reduced the corporate federal income tax rate to 21% from 35%, which required the Corporation to revalue its deferred taxes as of December 31, 2017. The revaluation resulted in an additional $629,000 income tax expense during the fourth quarter of 2017.

We have made our best estimate of valuation allowances utilizing available evidence and evaluation of sources of taxable income including tax planning strategies and expected reversals of timing differences to determine if valuation allowances were needed for deferred tax assets. Realization of deferred tax assets over time is dependent on our ability to generate sufficient taxable earnings in future periods and a valuation allowance may be necessary if management determines that it is more likely than not that the deferred asset will not be utilized. These estimates and assumptions are subject to change. Changes in these estimates and assumptions could adversely affect future consolidated results of operations. The Corporation believes the tax assets and liabilities are properly recorded in the Consolidated Financial Statements. See also Note 16 – Income Taxes in the Consolidated Financial Statements.

The Corporation also invests in certain development entities that generate federal and state historic and low income housing tax credits. The tax benefits associated with these investments are accounted for either under the flow-through method, equity method, or proportional amortization method and are recognized when the respective project is placed in service or over the investment term.

~~Table of Contents~~

The federal and state taxing authorities who make assessments based on their determination of tax laws may periodically review our interpretation of federal and state income tax laws. Tax liabilities could differ significantly from the estimates and interpretations used in determining the current and deferred income tax liabilities based on the completion of examinations by taxing authorities.

~~SBA Recourse Reserve~~. The SBA recourse reserve represents management’s estimate of losses associated with the guaranteed portions of sold SBA loans. 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. We estimate the SBA recourse reserve balance and the related SBA recourse provision by individually analyzing the eligibility of the guaranty for impaired loans that present a collateral shortfall, as well as by evaluating several factors to estimate probable losses within the remaining performing portion of the sold portfolio.

Although we believe that the SBA recourse reserve was appropriate as of December 31, 2017, future adjustments may be necessary based on changes to impaired loans, the fair value estimate of the underlying collateral and the Corporation’s ability to originate, fund or service sold SBA loans in accordance with SBA regulations. In addition, the SBA’s ultimate conclusion on the eligibility of a guaranty may be inconsistent with management’s best estimate. See ~~Note 1 - Nature of Operations and Summary of Significant Accounting Policies~~ ~~in the Consolidated Financial Statements for further discussion of the SBA recourse reserve.~~



~~Item 7A.~~	Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Our primary market risk is interest rate risk, which arises from exposure of our financial position to changes in interest rates. It is our strategy to reduce the impact of interest rate risk on net interest margin by maintaining a ~~favorable match~~match-funded position between the maturities and repricing dates of interest-earning assets and interest-bearing liabilities. This strategy is monitored by the Bank’s Asset/Liability Management Committee, in accordance with policies approved by the Bank’s Board. The committee meets regularly to review the sensitivity of the Bank’s assets and liabilities to changes in interest rates, liquidity needs and sources, and pricing and funding strategies.

Table of Contents

The primary technique we use ~~two techniques~~ to measure interest rate ~~risk. The first~~risk is simulation of earnings. In this measurement technique the balance sheet is modeled as an ongoing entity whereby future growth, pricing, and funding assumptions are implemented. These assumptions are modeled under different rate scenarios that include a ~~parallel, instantaneous~~simultaneous, instant and sustained change in interest rates. ~~Key assumptions include:~~

The following table illustrates the ~~behavior~~potential impact of ~~interest rates and pricing spreads;~~

~~the~~ changes in ~~product balances; and~~

~~the behavior of loan and deposit clients in different rate environments.~~

This analysis incorporates several assumptions, the most material of which relate to the re-pricing characteristics and balance fluctuations of deposits with indeterminate or non-contractual maturities.

~~The sensitivity analysis included below is measured as a percentage change in~~market rates on our net interest income for the next 12 months due to instantaneous movements in benchmark interest rates from a baseline scenario. Estimated changes set forth below are dependent upon material assumptions such as those previously discussed. The reduction in expected benefit from instantaneous rate changes is principally due to the assumption that the Bank’s deposit price sensitivity will be greater in 2018 than it was in 2017.

twelve months.

Impact on Net Interest Income as of December 31,
Instantaneous Rate Change in Basis Points 2017 2016
Down 50 (0.16 )% 0.01 %
No Change — % — %
Up 100 1.38 % 5.34 %
Up 200 3.01 % 10.95 %

The earnings simulation analysis does not incorporate any management actions that may be used to mitigate negative consequences of actual interest rate movement. For that reason and others, they do not reflect the likely actual results but serve as conservative estimates of interest rate risk. This simulation analysis is not comparable to actual results disclosed elsewhere or directly predictive of future values of other measures provided.

~~Table of Contents~~

The second measurement technique used is static gap analysis. Gap analysis involves measurement of the difference in asset and liability repricing on a cumulative basis within a specified time frame. In general, a positive gap indicates that more interest-earning assets than interest-bearing liabilities reprice/mature in a time frame and a negative gap indicates the opposite. As shown in the cumulative gap position in the table presented below, at December 31, 2017, our interest-bearing liabilities have the general characteristics that will allow them to reprice faster than interest-earning assets over the next 12 months while our interest-earning assets will reprice faster than interest-bearing-liabilities thereafter. In addition to the gap position, other determinants of net interest income are the shape of the yield curve, general rate levels and the corresponding effect of contractual interest rate floors, reinvestment spreads, balance sheet growth and mix, and interest rate spreads. Our success in attracting in-market deposits adds to the interest rate liability sensitivity of the organization.


	Impact on Net Interest Income as of December 31,
Instantaneous Rate Change in Basis Points	2023		2022
Down 300	(0.20)	%	(9.90)	%
Down 200	1.54		(0.88)
Down 100	1.92		0.79
No Change	—		—
Up 100	2.11		2.26
Up 200	2.24		4.48
Up 300	2.36		6.65

We manage the structure of interest-earning assets and interest-bearing liabilities by adjusting their mix, yield, maturity and/or repricing characteristics based on market conditions. ~~Wholesale~~FHLB advances and, to a lesser extent, wholesale certificates of deposit ~~and FHLB advances~~ are a significant source of ~~our funding and we~~funds. We use a variety of maturities to augment our management of interest rate exposure. ~~In addition,~~Currently, we do not employ any derivatives to assist in managing our interest rate risk exposure; however, management has the authorization, as permitted within applicable approved policies, and ability to utilize ~~various derivative~~such instruments should they be appropriate to manage interest rate exposure. We maintained our historically neutral balance sheet throughout 2023 and believe we ended the year appropriately positioned.

~~The following table illustrates our static gap position at December 31, 2017.~~

Estimated Maturity or Repricing at December 31, 2017
Within 3 Months 3-12 Months 1-5 Years After 5 Years Total
(Dollars in Thousands)
Assets:
Short-term investments $ 35,481
$ —
$ —
$ —
$ 35,481
Investment securities 6,544
26,503
93,744
37,872
164,663
Commercial loans 218,017
28,088
75,968
6,283
328,356
Real estate loans 333,742
86,250
385,445
177,524
982,961
Asset-based loans 145,388
—
—
—
145,388
Lease receivables 878
5,297
13,824
2,234
22,233
Consumer loans 2,008
337
499
—
2,844
Total earning assets⁽¹⁾
$ 742,058
$ 146,475
$ 569,480
$ 223,913
$ 1,681,926
Liabilities:
Interest-bearing transaction $ 217,625
$ —
$ —
$ —
$ 217,625
Money market accounts 515,078
—
—
—
515,078
Time deposits under $250,000 14,854
149,610
182,068
24,988
371,520
Time deposits $250,000 and over 998
6,509
5,157
—
12,664
FHLB advances 5,000
10,000
133,000
35,500
183,500
Short-term borrowings 10
—
—
—
10
Long-term debt⁽²⁾
—
—
15,675
19,405
35,080
Total interest-bearing liabilities $ 753,565
$ 166,119
$ 335,900
$ 79,893
$ 1,335,477
Interest rate gap $ (11,507 ) $ (19,644 ) $ 233,580
$ 144,020
$ 346,449
Cumulative interest rate gap $ (11,507 ) $ (31,151 ) $ 202,429
$ 346,449

Cumulative interest rate gap to total earning assets (0.68 )% (1.85 )% 12.04 % 20.60 %


~~(1)~~	~~Excludes non-interest sensitive balances and balances with indeterminate maturities.~~


~~(2)~~	~~Excludes debt issuance costs.~~

~~Table of Contents~~

~~The following table illustrates our static gap position at December 31, 2016.~~

Estimated Maturity or Repricing at December 31, 2016
Within 3 Months 3-12 Months 1-5 Years After 5 Years Total
(Dollars in Thousands)
Assets:
Short-term investments $ 61,941
$ —
$ 980
$ —
$ 62,921
Investment securities 8,395
16,536
143,267
16,148
184,346
Commercial loans 211,799
28,226
83,867
10,296
334,188
Real estate loans 343,584
92,890
365,379
120,853
922,706
Asset-based loans 151,872
—
—
—
151,872
Lease receivables 829
3,864
13,907
1,216
19,816
Consumer loans 1,217
337
655
—
2,209
Total earning assets⁽¹⁾
$ 779,637
$ 141,853
$ 608,055
$ 148,513
$ 1,678,058
Liabilities:
Interest-bearing transaction $ 183,992
$ —
$ —
$ —
$ 183,992
Money market accounts 627,090
—
—
—
627,090
Time deposits under $250,000 23,611
116,461
295,313
31,647
467,032
Time deposits $250,000 and over 2,516
2,554
3,033
—
8,103
FHLB advances 78
19,500
14,000
—
33,578
Short-term borrowings 1,010
—
—
—
1,010
Long-term debt⁽²⁾
9,841
—
15,675
10,315
35,831
Total interest-bearing liabilities $ 848,138
$ 138,515
$ 328,021
$ 41,962
$ 1,356,636
Interest rate gap $ (68,501 ) $ 3,338
$ 280,034
$ 106,551
$ 321,422
Cumulative interest rate gap $ (68,501 ) $ (65,163 ) $ 214,871
$ 321,422

Cumulative interest rate gap to total earning assets (4.08 )% (3.88 )% 12.80 % 19.15 %


~~(1)~~	~~Excludes non-interest sensitive balances and balances with indeterminate maturities.~~


~~(2)~~	~~Excludes debt issuance costs.~~

~~Table of Contents~~



~~Item 8.~~	Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF FIRST BUSINESS FINANCIAL SERVICES

Table of Contents

First Business Financial Services, Inc.

Consolidated Balance Sheets


		December 31, 2017			December 31, 2016
				December 31, 2023						December 31, 2023	December 31, 2022
	(In Thousands, Except Share Data)								(In Thousands, Except Share Data)
Assets								Assets
Cash and due from banks		$	17,059		$	14,596
Short-term investments		35,480			62,921
Cash and cash equivalents		52,539			77,517
Securities available-for-sale, at fair value		126,005			145,893
Securities held-to-maturity, at amortized cost		37,778			38,612
Loans held for sale		2,194			1,111
Loans and leases receivable, net of allowance for loan and lease losses of $18,763 and $20,912, respectively		1,482,832			1,429,763
Loans and leases receivable, net of allowance for credit losses of $31,275 and $24,230, respectively
Premises and equipment, net		3,156			3,772
Foreclosed properties		1,069			1,472
Repossessed assets
Right-of-use assets, net
Bank-owned life insurance		40,323			39,048
Federal Home Loan Bank and Federal Reserve Bank stock, at cost		5,670			2,131
Federal Home Loan Bank stock, at cost
Goodwill and other intangible assets		12,652			12,773
Derivatives
Accrued interest receivable and other assets		29,848			28,607
Total assets		$	1,794,066		$	1,780,699
Liabilities and Stockholders’ Equity								Liabilities and Stockholders’ Equity
Deposits		$	1,394,331		$	1,538,855
Federal Home Loan Bank advances and other borrowings		207,898			59,676
Junior subordinated notes		10,019			10,004
Lease liabilities
Derivatives
Accrued interest payable and other liabilities		12,540			10,514
Total liabilities		1,624,788			1,619,049
Stockholders’ equity:								Stockholders’ equity:
Preferred stock, $0.01 par value, 2,500,000 shares authorized, none issued or outstanding		—			—
Common stock, $0.01 par value, 25,000,000 shares authorized, 9,021,985 and 8,959,239 shares issued, 8,763,539 and 8,715,856 shares outstanding at December 31, 2017 and 2016, respectively		90			90
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 December 31, 2023 and 2022, respectively
Common stock, $0.01 par value, 25,000,000 shares authorized, 9,418,463 and 9,371,078 shares issued, 8,314,778 and 8,362,085 shares outstanding at December 31, 2023 and 2022, respectively
Additional paid-in capital		78,620			77,542
Retained earnings		98,906			91,317
Accumulated other comprehensive loss		(1,238		)	(522		)
Treasury stock, 258,446 and 243,383 shares at December 31, 2017 and 2016, respectively, at cost		(7,100		)	(6,777		)
Treasury stock, 1,103,685 and 1,008,993 shares at December 31, 2023 and 2022, respectively, at cost
Total stockholders’ equity		169,278			161,650
Total liabilities and stockholders’ equity		$	1,794,066		$	1,780,699

December 31, 2017
Category
I II III IV Total
(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied $ 166,018
$ 18,442
$ 8,850
$ 7,077
$ 200,387
Commercial real estate — non-owner occupied 441,246
27,854
1,102
34
470,236
Land development 36,470
1,057
—
2,627
40,154
Construction 121,528
757
—
2,872
125,157
Multi-family 136,978
—
—
—
136,978
1-4 family 34,598
7,735
1,220
1,423
44,976
Total commercial real estate 936,838
55,845
11,172
14,033
1,017,888
Commercial and industrial 341,875
25,344
49,453
12,330
429,002
Direct financing leases, net 28,866
342
1,579
—
30,787
Consumer and other:
Home equity and second mortgages 7,250
8
—
4
7,262
Other 17,745
—
—
354
18,099
Total consumer and other 24,995
8
—
358
25,361
Total gross loans and leases receivable $ 1,332,574
$ 81,539
$ 62,204
$ 26,721
$ 1,503,038
Category as a % of total portfolio 88.66 % 5.42 % 4.14 % 1.78 % 100.00 %

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
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

Table of Contents

December 31, 2016
Category
I II III IV Total
(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied $ 142,704
$ 20,294
$ 11,174
$ 2,287
$ 176,459
Commercial real estate — non-owner occupied 447,895
20,933
2,721
1,609
473,158
Land development 52,082
823
293
3,440
56,638
Construction 93,510
3,154
1,624
2,918
101,206
Multi-family 87,418
1,937
3,407
—
92,762
1-4 family 38,504
3,144
1,431
2,572
45,651
Total commercial real estate 862,113
50,285
20,650
12,826
945,874
Commercial and industrial 348,201
42,949
46,675
12,473
450,298
Direct financing leases, net 29,351
1,600
—
—
30,951
Consumer and other:
Home equity and second mortgages 8,271
121
12
8
8,412
Other 15,714
—
11
604
16,329
Total consumer and other 23,985
121
23
612
24,741
Total gross loans and leases receivable $ 1,263,650
$ 94,955
$ 67,348
$ 25,911
$ 1,451,864
Category as a % of total portfolio 87.04 % 6.54 % 4.64 % 1.78 % 100.00 %


December 31, 2022	Term Loans Amortized Cost Basis by Origination Year
(In Thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial real estate — owner occupied
Category
I	$	50,705	$	34,896	$	55,096	$	25,583	$	15,583	$	72,091	$	2,287	$	256,241
II	—		560		300		—		399		1,344		—		2,603
III	—		494		5,489		299		417		2,811		—		9,510
IV	—		—		—		—		—		—		—		—
Total	$	50,705	$	35,950	$	60,885	$	25,882	$	16,399	$	76,246	$	2,287	$	268,354

Commercial real estate — non-owner occupied
Category
I	$	88,752	$	74,615	$	60,216	$	64,847	$	84,053	$	232,405	$	25,508	$	630,396
II	—		—		—		15,099		11,390		7,534		—		34,023
III	—		—		3,891		—		—		18,566		215		22,672
IV	—		—		—		—		—		—		—		—
Total	$	88,752	$	74,615	$	64,107	$	79,946	$	95,443	$	258,505	$	25,723	$	687,091

Construction
Category
I	$	39,942	$	70,257	$	39,048	$	457	$	8,052	$	22,603	$	27,601	$	207,960
II	—		—		—		—		—		—		—		—
III	—		—		—		10,791		—		—		—		10,791
IV	—		—		—		—		—		—		—		—
Total	$	39,942	$	70,257	$	39,048	$	11,248	$	8,052	$	22,603	$	27,601	$	218,751

Multi-family
Category
I	$	21,698	$	46,894	$	121,199	$	23,293	$	32,611	$	93,723	$	2,612	$	342,030
II	—		—		—		—		—		7,996		—		7,996
III	—		—		—		—		—		—		—		—
IV	—		—		—		—		—		—		—		—
Total	$	21,698	$	46,894	$	121,199	$	23,293	$	32,611	$	101,719	$	2,612	$	350,026

1-4 family
Category
I	$	7,659	$	3,087	$	2,525	$	632	$	98	$	2,250	$	1,447	$	17,698
II	—		—		—		—		—		—		—		—
III	—		—		—		—		—		—		—		—
IV	—		—		—		—		—		30		—		30
Total	$	7,659	$	3,087	$	2,525	$	632	$	98	$	2,280	$	1,447	$	17,728

~~Credit underwriting primarily through a committee process is a key component~~

Table of the Corporation’s operating philosophy. Commercial lenders have relatively low individual lending authority limits, and thus a significant portion of the Corporation’s new credit extensions require approval from a loan approval committee regardless of the type of loan or lease, asset quality grade of the credit, amount of the credit or the related complexities of each proposal.Contents


December 31, 2022	Term Loans Amortized Cost Basis by Origination Year
(In Thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial and industrial
Category
I	$	199,293	$	109,901	$	56,590	$	30,000	$	13,838	$	19,367	$	364,817	$	793,806
II	5,499		801		3,021		1,108		92		239		9,846		20,606
III	1,809		5,607		6,691		6,699		133		5,451		8,896		35,286
IV	601		1,015		589		446		102		876		—		3,629
Total	$	207,202	$	117,324	$	66,891	$	38,253	$	14,165	$	25,933	$	383,559	$	853,327

Consumer and other
Category
I	$	11,086	$	3,556	$	13,870	$	2,433	$	2,600	$	4,193	$	10,200	$	47,938
II	—		—		—		—		—		—		—		—
III	—		—		—		—		—		—		—		—
IV	—		—		—		—		—		—		—		—
Total	$	11,086	$	3,556	$	13,870	$	2,433	$	2,600	$	4,193	$	10,200	$	47,938

Total Loans
Category
I	$	419,135	$	343,206	$	348,544	$	147,245	$	156,835	$	446,632	$	434,472	$	2,296,069
II	5,499		1,361		3,321		16,207		11,881		17,113		9,846		65,228
III	1,809		6,101		16,071		17,789		550		26,828		9,111		78,259
IV	601		1,015		589		446		102		906		—		3,659
Total	$	427,044	$	351,683	$	368,525	$	181,687	$	169,368	$	491,479	$	453,429	$	2,443,215

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 subjective and, depending on the size and nature of the credit, 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 ~~subcommittees of the Bank’s Loan Committee.~~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

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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

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Category III loans are considered performing with no specific reserves established for this category. Category III loans are monitored by management and ~~subcommittees of the Bank’s Loan Committee~~asset quality review committees on a monthly ~~basis and the Bank’s Boards of Directors at each of their regularly scheduled meetings.~~basis.

Category IV — Loans and leases in this category are ~~considered to be impaired. Impaired loans and leases have been placed on non-accrual as management~~non-performing 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. ~~Impaired~~Non-performing 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 for impaired loans and leases.~~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 to reflect the magnitude of the impairment.~~recorded. Loans and leases in this category are monitored by management and ~~subcommittees of the Bank’s Loan Committee~~asset quality review committees on a monthly ~~basis and the Bank’s Boards of Directors at each of their regularly scheduled meetings.~~basis.

Utilizing regulatory classification terminology, the Corporation identified $32.7 million and $34.3 million of loans and leases as Substandard as of December 31, 2017 and 2016, respectively. The Corporation identified $4.7 million of loans and leases as Doubtful as of December 31, 2017. No loans and leases were considered Doubtful as of December 31, 2016. Additionally, no loans were considered Special Mention or Loss as of either December 31, 2017 or 2016. The population of Substandard loans is a subset of Category III and Category IV loans.

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The delinquency aging of the loan and lease portfolio by class of receivable ~~as of December 31, 2017 and 2016~~ was as follows:


			December 31, 2023																														December 31, 2023
			30-59 Days Past Due																			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)
	December 31, 2017
	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)
Accruing loans and leases
Performing loans and leases																			Performing loans and leases
Commercial real estate:																			Commercial real estate:
Owner occupied	$	—		$	—		$	—		$	—		$	193,366		$	193,366
Non-owner occupied	—			—			—			—			470,202			470,202
Land development	—			—			—			—			37,528			37,528
Construction	—			196			—			196			122,089			122,285
Multi-family	—			—			—			—			136,978			136,978
1-4 family	496			—			—			496			43,319			43,815
Commercial and industrial	1,169			197			—			1,366			415,315			416,681
Direct financing leases, net	—			—			—			—			30,787			30,787
Consumer and other:
Home equity and second mortgages	106			—			—			106			7,156			7,262
Other	—			—			—			—			17,745			17,745
Consumer and other
Total	1,771			393			—			2,164			1,474,485			1,476,649
Non-accruing loans and leases
Non-performing loans and leases																			Non-performing loans and leases
Commercial real estate:																			Commercial real estate:
Owner occupied	405			—			4,836			5,241			1,780			7,021
Non-owner occupied	—			—			—			—			34			34
Land development	—			—			—			—			2,626			2,626
Construction	—			—			2,872			2,872			—			2,872
Multi-family	—			—			—			—			—			—
1-4 family	—			—			948			948			213			1,161
Commercial and industrial	782			—			7,349			8,131			4,190			12,321
Direct financing leases, net	—			—			—			—			—			—
Consumer and other:
Home equity and second mortgages	—			—			—			—			—			—
Other	—			—			345			345			9			354
Consumer and other
Total	1,187			—			16,350			17,537			8,852			26,389
Total loans and leases																			Total loans and leases
Commercial real estate:																			Commercial real estate:
Owner occupied	405			—			4,836			5,241			195,146			200,387
Non-owner occupied	—			—			—			—			470,236			470,236
Land development	—			—			—			—			40,154			40,154
Construction	—			196			2,872			3,068			122,089			125,157
Multi-family	—			—			—			—			136,978			136,978
1-4 family	496			—			948			1,444			43,532			44,976
Commercial and industrial	1,951			197			7,349			9,497			419,505			429,002
Direct financing leases, net	—			—			—			—			30,787			30,787
Consumer and other:
Home equity and second mortgages	106			—			—			106			7,156			7,262
Other	—			—			345			345			17,754			18,099
Consumer and other
Total	$	2,958		$	393		$	16,350		$	19,701		$	1,483,337		$	1,503,038
Percent of portfolio	0.20		%	0.03		%	1.09		%	1.32		%	98.68		%	100.00		%	Percent of portfolio	0.12	%		0.04	%		0.64	%		0.80	%		99.20		%		100.00	%

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	December 31, 2022
	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)
Performing loans and leases
Commercial real estate:
Owner occupied	$	—		$	—		$	—		$	—		$	268,354		$	268,354
Non-owner occupied	215			—			—			215			686,876			687,091
Construction	—			—			—			—			218,751			218,751
Multi-family	—			—			—			—			350,026			350,026
1-4 family	—			—			—			—			17,698			17,698
Commercial and industrial	1,437			403			—			1,840			847,858			849,698
Consumer and other	—			—			—			—			47,938			47,938
Total	1,652			403			—			2,055			2,437,501			2,439,556
Non-performing loans and leases
Commercial real estate:
Owner occupied	—			—			—			—			—			—
Non-owner occupied	—			—			—			—			—			—
Construction	—			—			—			—			—			—
Multi-family	—			—			—			—			—			—
1-4 family	—			—			—			—			30			30
Commercial and industrial	439			126			2,464			3,029			600			3,629
Consumer and other	—			—			—			—			—			—
Total	439			126			2,464			3,029			630			3,659
Total loans and leases
Commercial real estate:
Owner occupied	—			—			—			—			268,354			268,354
Non-owner occupied	215			—			—			215			686,876			687,091
Construction	—			—			—			—			218,751			218,751
Multi-family	—			—			—			—			350,026			350,026
1-4 family	—			—			—			—			17,728			17,728
Commercial and industrial	1,876			529			2,464			4,869			848,458			853,327
Consumer and other	—			—			—			—			47,938			47,938
Total	$	2,091		$	529		$	2,464		$	5,084		$	2,438,131		$	2,443,215
Percent of portfolio	0.09		%	0.02		%	0.10		%	0.21		%	99.79		%	100.00		%

December 31, 2016
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)
Accruing loans and leases
Commercial real estate:
Owner occupied $ —
$ —
$ —
$ —
$ 174,236
$ 174,236
Non-owner occupied —
—
—
—
471,549
471,549
Land development —
—
—
—
53,198
53,198
Construction —
—
—
—
98,288
98,288
Multi-family —
—
—
—
92,762
92,762
1-4 family 75
—
—
75
43,639
43,714
Commercial and industrial 55
468
—
523
437,312
437,835
Direct financing leases, net —
—
—
—
30,951
30,951
Consumer and other:
Home equity and second mortgages —
—
—
—
8,412
8,412
Other —
—
—
—
15,725
15,725
Total 130
468
—
598
1,426,072
1,426,670
Non-accruing loans and leases
Commercial real estate:
Owner occupied —
—
1,183
1,183
1,040
2,223
Non-owner occupied —
—
—
—
1,609
1,609
Land development —
—
—
—
3,440
3,440
Construction 2,482
—
436
2,918
—
2,918
Multi-family —
—
—
—
—
—
1-4 family —
—
1,240
1,240
697
1,937
Commercial and industrial 3,345
168
6,740
10,253
2,210
12,463
Direct financing leases, net —
—
—
—
—
—
Consumer and other:
Home equity and second mortgages —
—
—
—
—
—
Other 186
—
378
564
40
604
Total 6,013
168
9,977
16,158
9,036
25,194
Total loans and leases
Commercial real estate:
Owner occupied —
—
1,183
1,183
175,276
176,459
Non-owner occupied —
—
—
—
473,158
473,158
Land development —
—
—
—
56,638
56,638
Construction 2,482
—
436
2,918
98,288
101,206
Multi-family —
—
—
—
92,762
92,762
1-4 family 75
—
1,240
1,315
44,336
45,651
Commercial and industrial 3,400
636
6,740
10,776
439,522
450,298
Direct financing leases, net —
—
—
—
30,951
30,951
Consumer and other:
Home equity and second mortgages —
—
—
—
8,412
8,412
Other 186
—
378
564
15,765
16,329
Total $ 6,143
$ 636
$ 9,977
$ 16,756
$ 1,435,108
$ 1,451,864
Percent of portfolio 0.42 % 0.04 % 0.69 % 1.15 % 98.85 % 100.00 %

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The Corporation’s total ~~impaired~~non-performing assets consisted of the ~~following at December 31, 2017 and 2016, respectively.~~following:


	December 31, 2023		December 31, 2022
	(In Thousands)
Non-performing loans and leases
Commercial real estate:
Commercial real estate — owner occupied	$	—	$	—
Commercial real estate — non-owner occupied	—		—
Construction	—		—
Multi-family	—		—
1-4 family	22		30
Total non-performing commercial real estate	22		30
Commercial and industrial	20,575		3,629
Consumer and other	—		—
Total non-performing loans and leases	20,597		3,659
Repossessed assets, net	247		95
Total non-performing assets	$	20,844	$	3,754

December 31,
2017 December 31,
2016
(In Thousands)
Non-accrual loans and leases
Commercial real estate:
Commercial real estate — owner occupied $ 7,021
$ 2,223
Commercial real estate — non-owner occupied 34
1,609
Land development 2,626
3,440
Construction 2,872
2,918
Multi-family —
—
1-4 family 1,161
1,937
Total non-accrual commercial real estate 13,714
12,127
Commercial and industrial 12,321
12,463
Direct financing leases, net —
—
Consumer and other:
Home equity and second mortgages —
—
Other 354
604
Total non-accrual consumer and other loans 354
604
Total non-accrual loans and leases 26,389
25,194
Foreclosed properties, net 1,069
1,472
Total non-performing assets 27,458
26,666
Performing troubled debt restructurings 332
717
Total impaired assets $ 27,790
$ 27,383


	December 31, 2023		December 31, 2022
Total non-performing loans and leases to gross loans and leases	0.72	%	0.15	%
Total non-performing assets to total gross loans and leases plus repossessed assets, net	0.73		0.15
Total non-performing assets to total assets	0.59		0.13
Allowance for credit losses to gross loans and leases	1.16		0.99
Allowance for credit losses to non-performing loans and leases	160.21		662.20

December 31,
2017 December 31,
2016
Total non-accrual loans and leases to gross loans and leases 1.76 % 1.74 %
Total non-performing assets to total gross loans and leases plus foreclosed properties, net 1.83
1.83
Total non-performing assets to total assets 1.53
1.50
Allowance for loan and lease losses to gross loans and leases 1.25
1.44
Allowance for loan and lease losses to non-accrual loans and leases 71.10
83.00

~~As of December 31, 2017 and 2016, $8.8~~Non-performing loans, which are collateral dependent, are primarily secured by inventory $8.9 million, equipment $3.7 million, and ~~$12.8 million~~ ofaccounts receivable and other assets $1.7 million. Occasionally, the ~~non-accrual~~Corporation modifies loans ~~and leases were considered troubled debt restructurings, respectively.~~to borrowers in financial distress. There were ~~no unfunded commitments associated with troubled debt restructured~~three commercial and industrial loans ~~and leases as~~for a total of ~~December 31, 2017.~~

~~Table of Contents~~

~~The following table provides the number of loans~~$882,000 modified ~~in a troubled debt restructuring and the pre- and post-modification recorded investment by class of receivable as of December 31, 2017 and 2016:~~

As of December 31, 2017 As of December 31, 2016

Number
of
Loans

Pre-Modification
Recorded
Investment

Post-Modification
Recorded
Investment

Number
of Loans

Pre-Modification
Recorded
Investment

Post-Modification
Recorded
Investment
(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied 3 $ 1,065
$ 880
3 $ 1,065
$ 930
Commercial real estate — non-owner occupied 1 158
34
1 158
39
Land development 1 5,745
2,626
1 5,745
3,440
Construction — —
—
2 331
314
Multi-family — —
—
— —
—
1-4 family 8 627
307
11 1,391
1,393
Commercial and industrial 10 8,759
4,951
10 8,094
7,058
Consumer and other:
Home equity and second mortgage 2 37
4
1 37
8
Other 2 2,094
345
1 2,076
378
Total 27 $ 18,485
$ 9,147
30 $ 18,897
$ 13,560

All loans and leases modified as a troubled debt restructuring are measured for impairment. The nature and extent of the impairment of restructured loans, including those which have experienced a default, is considered in the determination of an appropriate level of the allowance for loan and lease losses.

~~As of December 31, 2017 and 2016, the Corporation’s troubled debt restructurings grouped by type of concession were as follows:~~

As of December 31, 2017 As of December 31, 2016
Number of Loans Recorded Investment Number of Loans Recorded Investment
(Dollars in Thousands)
Commercial real estate:
Extension of term —
$ —
1
$ 8
Interest rate concession 12
3,793
1
52
Combination of extension of term and interest rate concession 1
54
16
6,056
Commercial and industrial:
Combination of extension of term and interest rate concession 10
4,951
10
7,058
Consumer and other:
Extension of term 1
328
1
378
Combination of extension of term and interest rate concession 3
21
1
8
Total 27
$ 9,147
30
$ 13,560

~~During~~during the year ended December 31, ~~2017, four commercial and industrial~~2023. The modifications consisted of payment deferrals. These loans are included in total non-performing loans and ~~one consumer loan totaling $4.4 million~~are currently between zero and ~~$17,000, respectively,~~209 days past due as of December 31, 2023. No loans were modified ~~to a troubled debt restructuring. During~~during the year ended December 31, ~~2016, three~~2022. There was one commercial and industrial ~~loans and one commercial real estate~~ loan ~~totaling $675,000 and $441,000, respectively, were modified~~ to a ~~troubled debt restructuring.~~

~~Table~~borrower experiencing financial distress for a total of ~~Contents~~

~~There were no loans and leases~~$382,000 that was modified ~~in a troubled debt restructuring~~ during the previous 12 months and which subsequently defaulted during the year ended December 31, ~~2017.~~2023. There were no loans to borrowers experiencing financial distress that were modified during the previous 12 months and which subsequently defaulted during the year ended December 31, 2022. There were no unfunded commitments associated with loans modified for borrowers experiencing financial distress as of December 31, 2023.

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The following represents additional information regarding the Corporation’s ~~impaired~~non-accrual loans and leases, ~~including performing troubled debt restructurings,~~ by ~~class:~~

portfolio segment:


			As of and for the Year Ended December 31, 2023																				As of and for the Year Ended December 31, 2023
			Amortized Cost(1)																Amortized Cost(1)	Unpaid Principal Balance	Individual Reserve	Average Recorded Investment(2)	Foregone Interest Income	Interest Income Recognized	Net Foregone Interest Income
																		(In Thousands)
	As of and for the Year Ended December 31, 2017
	Recorded Investment			Unpaid Principal Balance		Impairment Reserve		Average Recorded Investment⁽¹⁾		Foregone Interest Income		Interest Income Recognized		Net Foregone Interest Income
	(In Thousands)
With no impairment reserve recorded:
With no individual reserve recorded:																	With no individual reserve recorded:
Commercial real estate:																	Commercial real estate:
Owner occupied	$	7,077		$	7,077	$	—	$	5,549	$	613	$	—	$	613
Non-owner occupied	34			75		—		1,830		97		226		(129		)
Land development	2,627			5,297		—		3,092		84		—		84
Construction	—			—		—		2,000		134		214		(80		)
Multi-family	—			—		—		1		—		—		—
1-4 family	1,423			1,706		—		2,146		53		7		46
Commercial and industrial	5,465			6,502		—		3,634		858		7		851
Direct financing leases, net	—			—		—		—		—		—		—
Consumer and other:
Home equity and second mortgages	4			3		—		7		—		—		—
Other	345			1,011		—		365		59		—		59
Consumer and other
Total	16,975			21,671		—		18,624		1,898		454		1,444
With impairment reserve recorded:
With individual reserve recorded:																	With individual reserve recorded:
Commercial real estate:																	Commercial real estate:
Owner occupied	—			—		—		—		—		—		—
Non-owner occupied	—			—		—		—		—		—		—
Land development	—			—		—		—		—		—		—
Construction	2,872			2,872		415		2,252		158		—		158
Multi-family	—			—		—		—		—		—		—
1-4 family	—			—		—		—		—		—		—
Commercial and industrial	6,865			8,813		4,067		12,288		639		—		639
Direct financing leases, net	—			—		—		—		—		—		—
Consumer and other:
Home equity and second mortgages	—			—		—		—		—		—		—
Other	9			9		9		—		—		—		—
Consumer and other
Total	9,746			11,694		4,491		14,540		797		—		797
Total:																	Total:
Commercial real estate:																	Commercial real estate:
Owner occupied	7,077			7,077		—		5,549		613		—		613
Non-owner occupied	34			75		—		1,830		97		226		(129		)
Land development	2,627			5,297		—		3,092		84		—		84
Construction	2,872			2,872		415		4,252		292		214		78
Multi-family	—			—		—		1		—		—		—
1-4 family	1,423			1,706		—		2,146		53		7		46
Commercial and industrial	12,330			15,315		4,067		15,922		1,497		7		1,490
Direct financing leases, net	—			—		—		—		—		—		—
Consumer and other:
Home equity and second mortgages	4			3		—		7		—		—		—
Other	354			1,020		9		365		59		—		59
Consumer and other
Grand total	$	26,721		$	33,365	$	4,491	$	33,164	$	2,695	$	454	$	2,241


~~(1)~~	~~Average recorded investment is calculated primarily using daily average balances.~~

(1)The amortized cost represents the unpaid principal balance net of any partial charge-offs.

(2)Average recorded investment is calculated primarily using daily average balances.

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	As of and for the Year Ended December 31, 2022
	Recorded Investment(1)		Unpaid Principal Balance		Individual Reserve		Average Recorded Investment(2)		Foregone Interest Income		Interest Income Recognized		Net Foregone Interest Income
	(In Thousands)
With no individual reserve recorded:
Commercial real estate:
Owner occupied	$	—	$	—	$	—	$	180	$	14	$	759	$	(745)
Non-owner occupied	—		—		—		—		—		1		(1)
Construction	—		—		—		—		—		47		(47)
Multi-family	—		—		—		—		—		—		—
1-4 family	30		35		—		112		8		41		(33)
Commercial and industrial	1,037		1,037		—		3,153		277		587		(310)
Consumer and other	—		—		—		—		—		—		—
Total	1,067		1,072		—		3,445		299		1,435		(1,136)
With individual reserve recorded:
Commercial real estate:
Owner occupied	—		—		—		—		—		—		—
Non-owner occupied	—		—		—		—		—		—		—
Construction	—		—		—		—		—		—		—
Multi-family	—		—		—		—		—		—		—
1-4 family	—		—		—		—		—		—		—
Commercial and industrial	2,592		2,612		1,650		1,454		101		1		100
Consumer and other	—		—		—		—		—		—		—
Total	2,592		2,612		1,650		1,454		101		1		100
Total:
Commercial real estate:
Owner occupied	—		—		—		180		14		759		(745)
Non-owner occupied	—		—		—		—		—		1		(1)
Construction	—		—		—		—		—		47		(47)
Multi-family	—		—		—		—		—		—		—
1-4 family	30		35		—		112		8		41		(33)
Commercial and industrial	3,629		3,649		1,650		4,607		378		588		(210)
Consumer and other	—		—		—		—		—		—		—
Grand total	$	3,659	$	3,684	$	1,650	$	4,899	$	400	$	1,436	$	(1,036)

(1)The recorded investment represents the unpaid principal balance net of any partial charge-offs.

(2)Average recorded investment is calculated primarily using daily average balances.

As of and for the Year Ended December 31, 2016

Recorded
Investment

Unpaid
Principal
Balance

Impairment
Reserve

Average
Recorded
Investment⁽¹⁾

Foregone
Interest
Income

Interest
Income
Recognized

Net Foregone
Interest
Income
(In Thousands)
With no impairment reserve recorded:
Commercial real estate:
   Owner occupied $ 1,788
$ 1,788
$ —
$ 3,577
$ 328
$ 118
$ 210
   Non-owner occupied 1,609
1,647
—
1,318
91
79
12
   Land development 3,440
6,111
—
3,898
107
—
107
   Construction 436
438
—
—
—
291
—
20
—
—
20
   Multi-family —
—
—
—
1
134
(133 )
   1-4 family 2,379
2,379
—
2,755
125
94
31
Commercial and industrial 1,307
1,307
—
709
79
62
17
Direct financing leases, net —
—
—
6
—
—
—
Consumer and other:
   Home equity and second mortgages 8
8
—
307
16
127
(111 )
   Other 378
1,044
—
510
71
—
71
      Total 11,345
14,722
—
13,371
838
614
224
With impairment reserve recorded:
Commercial real estate:
   Owner occupied 499
499
70
111
28
—
28
   Non-owner occupied —
—
—
—
—
—
—
   Land development —
—
—
—
—
—
—
—
—
—
—
   Construction 2,482
2,482
—
1,790
—
834
—
45
—
—
45
   Multi-family —
—
—
—
—
—
—
   1-4 family 193
199
39
203
5
—
5
Commercial and industrial 11,166
11,166
3,700
8,448
701
—
701
Direct financing leases, net —
—
—
—
—
—
—
Consumer and other:
   Home equity and second mortgages —
—
—
—
—
—
—
   Other 226
226
—
19
—
—
—
      Total 14,566
14,572
5,599
9,615
779
—
779
Total:
Commercial real estate:
   Owner occupied 2,287
2,287
70
3,688
356
118
238
   Non-owner occupied 1,609
1,647
—
1,318
91
79
12
   Land development 3,440
6,111
—
3,898
107
—
107
   Construction 2,918
2,920
1,790
1,125
65
—
65
   Multi-family —
—
—
—
1
134
(133 )
   1-4 family 2,572
2,578
39
2,958
130
94
36
Commercial and industrial 12,473
12,473
3,700
9,157
780
62
718
Direct financing leases, net —
—
—
6
—
—
—
Consumer and other:
Home equity and second mortgages 8
8
—
307
16
127
(111 )
Other 604
1,270
—
529
71
—
71
      Grand total $ 25,911
$ 29,294
$ 5,599
$ 22,986
$ 1,617
$ 614
$ 1,003


~~(1)~~	~~Average recorded investment is calculated primarily using daily average balances.~~

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	As of and for the Year Ended December 31, 2021
	Recorded Investment(1)		Unpaid Principal Balance		Individual Reserve		Average Recorded Investment(2)		Foregone Interest Income		Interest Income Recognized		Net Foregone Interest Income
	(In Thousands)
With no individual reserve recorded:
Commercial real estate:
Owner occupied	$	348	$	386	$	—	$	2,217	$	145	$	218	$	(73)
Non-owner occupied	—		—		—		2,281		233		16		217
Construction	—		—		—		7		—		—		—
Multi-family	—		—		—		—		—		—		—
1-4 family	339		344		—		285		60		24		36
Commercial and industrial	3,732		3,834		—		7,916		523		179		344
Consumer and other	—		—		—		48		30		9		21
Total	4,419		4,564		—		12,754		991		446		545
With individual reserve recorded:
Commercial real estate:
Owner occupied	—		—		—		—		—		—		—
Non-owner occupied	—		—		—		—		—		—		—
Construction	—		—		—		—		—		—		—
Multi-family	—		—		—		—		—		—		—
1-4 family	—		—		—		—		—		—		—
Commercial and industrial	2,156		2,156		1,505		1,506		113		8		105
Consumer and other	—		—		—		—		—		—		—
Total	2,156		2,156		1,505		1,506		113		8		105
Total:
Commercial real estate:
Owner occupied	348		386		—		2,217		145		218		(73)
Non-owner occupied	—		—		—		2,281		233		16		217
Construction	—		—		—		7		—		—		—
Multi-family	—		—		—		—		—		—		—
1-4 family	339		344		—		285		60		24		36
Commercial and industrial	5,888		5,990		1,505		9,422		636		187		449
Consumer and other	—		—		—		48		30		9		21
Grand total	$	6,575	$	6,720	$	1,505	$	14,260	$	1,104	$	454	$	650

(1)The recorded investment represents the unpaid principal balance net of any partial charge-offs.

As of and for the Year Ended December 31, 2015

Recorded
Investment

Unpaid
Principal
Balance

Impairment
Reserve

Average
Recorded
Investment⁽¹⁾

Foregone
Interest
Income

Interest
Income
Recognized

Net Foregone
Interest
Income
(In Thousands)
With no impairment reserve recorded:
Commercial real estate:
Owner occupied $ 2,164
�� $ 2,164
$ —
$ 712
$ 53
$ 12
$ 41
Non-owner occupied 2,314
2,355
—
962
25
—
25
Land development 4,413
7,083
—
4,333
133
—
133
Construction 120
120
—
474
—
—
—
Multi-family 2
369
—
10
27
—
27
1-4 family 2,423
2,486
—
1,604
82
4
78
Commercial and industrial 2,546
2,590
—
544
172
6
166
Direct financing leases, net 38
38
—
4
—
—
—
Consumer and other:
Home equity and second mortgages 500
500
—
390
23
63
(40 )
Other 655
1,321
—
688
82
—
82
Total 15,175
19,026
—
9,721
597
85
512
With impairment reserve recorded:
Commercial real estate:
Owner occupied 814
814
20
215
7
2
5
Non-owner occupied —
—
—
—
—
—
—
Land development —
—
—
—
—
—
—
Construction 397
397
48
34
—
—
—
Multi-family —
—
—
—
—
—
—
1-4 family 945
950
173
605
34
—
34
Commercial and industrial 6,603
6,603
847
810
102
—
102
Direct financing leases, net —
—
—
—
—
—
—
Consumer and other:
Home equity and second mortgages 99
99
25
58
10
—
10
Other —
—
—
—
—
—
—
Total 8,858
8,863
1,113
1,722
153
2
151
Total:
Commercial real estate:
Owner occupied 2,978
2,978
20
927
60
14
46
Non-owner occupied 2,314
2,355
—
962
25
—
25
Land development 4,413
7,083
—
4,333
133
—
133
Construction 517
517
48
508
—
—
—
Multi-family 2
369
—
10
27
—
27
1-4 family 3,368
3,436
173
2,209
116
4
112
Commercial and industrial 9,149
9,193
847
1,354
274
6
268
Direct financing leases, net 38
38
—
4
—
—
—
Consumer and other:
Home equity and second mortgages 599
599
25
448
33
63
(30 )
Other 655
1,321
—
688
82
—
82
Grand total $ 24,033
$ 27,889
$ 1,113
$ 11,443
$ 750
$ 87
$ 663
(2)Average recorded investment is calculated primarily using daily average balances.


~~(1)~~	~~Average recorded investment is calculated primarily using daily average balances.~~

The difference between the recorded investment of loans and leases and the unpaid principal balance of ~~$6.6 million~~, ~~$3.4 million~~$15,000 and ~~$3.9 million~~$26,000 as of December 31, ~~2017, 2016~~2023 and ~~2015,~~2022, respectively, represents partial charge-offs of loans and leases resulting from losses due to the ~~appraised~~ value of the collateral securing the loans and leases being below the carrying values of the loans and leases. ~~Impaired loans and leases also included~~ ~~$332,000~~, ~~$717,000~~ ~~and $1.7 million of loans as of December 31, 2017, 2016 and 2015, respectively, that were performing troubled debt restructurings, and although not on non-~~

~~Table of Contents~~

~~accrual, were reported as impaired due to the concession in terms.~~ When a loan is placed on non-accrual, interest accrual is discontinued and previously accrued but uncollected interest is deducted from interest income. Cash payments collected on non-accrual loans are first applied to such loan’s principal. Foregone interest represents the interest that was contractually due on the loan but not received or recorded. No principal has been forgiven on modified loans during the years ended December 31, 2023 and 2022. To the extent the amount of principal on a non-accrual loan is fully collected and additional cash is received, the Corporation will recognize interest income.

~~To determine the level and composition~~Allowance for Credit Losses

The ACL is an estimate of the ~~allowance for loan and lease~~expected credit losses ~~the Corporation categorizes the portfolio into segments~~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. First,~~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.

During the first quarter of 2023, the Corporation ~~evaluates loans~~adopted ASU 2016-13, including the CECL methodology for estimating the ACL. This standard was adopted using a modified retrospective approach on January 1, 2023, resulting in a $484,000 increase to the ACL and ~~leases for potential impairment classification. The Corporation analyzes each loan~~a $1.3 million increase to the unfunded credit commitments reserve. A cumulative effect adjustment resulting in

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an $1.4 million decrease to retained earnings and ~~lease determined~~a $465,000 increase to ~~be impaired on an individual basis to determine a specific reserve based upon the estimated value~~deferred tax assets was also recorded as of the ~~underlying collateral~~adoption of ASU 2016-13.

Quantitative Considerations

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 ~~collateral-dependent loans, or alternatively, the present value of expected~~use in forecasting cash flows. The LDA analysis utilized peer FFIEC Call Report data for all pools. The Corporation ~~applies historical trends from established risk factors~~plans to ~~each category~~update the LDA annually.

•Probability of ~~loans and leases~~default – PD is the probability that an asset will be in default within a given time frame. The Corporation has ~~not been individually evaluated for~~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 is the ~~purpose of establishing the general portion~~percentage of the ~~allowance.~~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 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 forecasts unemployment between 3.89% and 4.04% and GDP growth change between 1.29% and 2.32% 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-performing assets, 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 review function;

•The effect of other external factors such as the regulatory, legal and technological environments, competition, and events such as natural disasters or pandemics.

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ACL Activity

A summary of the activity in the allowance for ~~loan and lease~~credit losses by portfolio segment is as follows:


													As of and for the Year Ended December 31, 2023
	As of and for the Year Ended December 31, 2017
	Commercial Real Estate			Commercial and Industrial			Consumer and Other			Total
			Owner Occupied											Owner Occupied	Non-Owner Occupied	Construction	Multi-Family	1-4 Family	Commercial and Industrial	Consumer and Other	Total
	(Dollars in Thousands)												(In Thousands)
Beginning balance	$	12,384		$	7,970		$	558		$	20,912
Impact of adopting ASC 326
Charge-offs	(127		)	(8,621		)	(92		)	(8,840		)
Recoveries	153			323			43			519
Net recoveries (charge-offs)	26			(8,298		)	(49		)	(8,321		)
Provision for credit losses	(2,279		)	8,553			(102		)	6,172
Ending balance	$	10,131		$	8,225		$	407		$	18,763
Components:
Allowance for loan losses
Allowance for loan losses
Allowance for loan losses
Allowance for unfunded credit commitments
Total ACL


													As of and for the Year Ended December 31, 2022
	As of and for the Year Ended December 31, 2016
	Commercial Real Estate			Commercial and Industrial			Consumer and Other			Total
			Commercial Real Estate											Commercial Real Estate	Commercial and Industrial	Consumer and Other	Total
	(Dollars in Thousands)												(In Thousands)
Beginning balance	$	11,220		$	4,387		$	709		$	16,316
Charge-offs	(1,194		)	(2,273		)	(127		)	(3,594		)
Recoveries	274			91			7			372
Net charge-offs	(920		)	(2,182		)	(120		)	(3,222		)
Net recoveries (charge-offs)
Provision for credit losses	2,084			5,765			(31		)	7,818

Ending balance	$	12,384		$	7,970		$	558		$	20,912
Ending balance
Ending balance


	As of and for the Year Ended December 31, 2021
	Commercial Real Estate		Commercial and Industrial		Consumer and Other		Total
	(In Thousands)
Beginning balance	$	17,157	$	10,593	$	771	$	28,521
Charge-offs	(256)		(3,227)		(25)		(3,508)
Recoveries	3,935		1,168		23		5,126
Net recoveries (charge-offs)	3,679		(2,059)		(2)		1,618
Provision for credit losses	(5,726)		(121)		44		(5,803)

Ending balance	$	15,110	$	8,413	$	813	$	24,336

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ACL Summary

As of and for the Year Ended December 31, 2015

Commercial
Real Estate

Commercial
and
Industrial

Consumer
and Other
Total
(Dollars in Thousands)
Beginning balance $ 8,619
$ 5,492
$ 218
$ 14,329
Charge-offs (793 ) (711 ) (9 ) (1,513 )
Recoveries 104
6
4
114
Net charge-offs (689 ) (705 ) (5 ) (1,399 )
Provision for credit losses 3,290
(400 ) 496
3,386
Ending balance $ 11,220
$ 4,387
$ 709
$ 16,316
Loans collectively evaluated for credit losses in the following tables include all performing loans at December 31, 2023 and 2022. Loans individually evaluated for credit losses include all non-performing loans.

The following tables provide information regarding the allowance for ~~loan and lease~~credit losses and balances by type of allowance ~~methodology.~~methodology:


	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

~~Table of Contents~~


	December 31, 2022
	Commercial Real Estate		Commercial and Industrial		Consumer and Other		Total
	(In Thousands)
Allowance for credit losses:
Collectively evaluated for credit losses	$	12,560	$	9,478	$	542	$	22,580
Individually evaluated for credit loss	—		1,650		—		1,650

Total	$	12,560	$	11,128	$	542	$	24,230
Loans and lease receivables:
Collectively evaluated for credit losses	$	1,541,920	$	849,542	$	47,938	$	2,439,400
Individually evaluated for credit loss	30		3,785		—		3,815

Total	$	1,541,950	$	853,327	$	47,938	$	2,443,215

As of December 31, 2017

Commercial
Real Estate

Commercial
and
Industrial

Consumer
and Other
Total
(Dollars in Thousands)
Allowance for loan and lease losses:
Collectively evaluated for impairment $ 9,716
$ 4,158
$ 398
$ 14,272
Individually evaluated for impairment 415
4,067
9
4,491
Loans acquired with deteriorated credit quality —
—
—
—
Total $ 10,131
$ 8,225
$ 407
$ 18,763
Loans and lease receivables:
Collectively evaluated for impairment $ 1,003,855
$ 447,459
$ 25,003
1,476,317
Individually evaluated for impairment 13,506
12,324
358
26,188
Loans acquired with deteriorated credit quality 527
6
—
533
Total $ 1,017,888
$ 459,789
$ 25,361
$ 1,503,038

As of December 31, 2016

Commercial
Real Estate

Commercial
and
Industrial

Consumer
and Other
Total
(Dollars in Thousands)
Allowance for loan and lease losses:
Collectively evaluated for impairment $ 10,485
$ 4,270
$ 558
$ 15,313
Individually evaluated for impairment 1,899
3,700
—
5,599
Loans acquired with deteriorated credit quality —
—
—
—
Total $ 12,384
$ 7,970
$ 558
$ 20,912
Loans and lease receivables:
Collectively evaluated for impairment $ 933,048
$ 468,776
$ 24,129
$ 1,425,953
Individually evaluated for impairment 11,222
12,452
612
24,286
Loans acquired with deteriorated credit quality 1,604
21
—
1,625
Total $ 945,874
$ 481,249
$ 24,741
$ 1,451,864

~~The Corporation’s net investment in direct financing leases consists of the following:~~

As of December 31,
2017 2016
(In Thousands)
Minimum lease payments receivable $ 24,898
$ 26,096
Estimated unguaranteed residual values in leased property 8,312
7,625
Initial direct costs 76
106
Unearned lease and residual income (2,499 ) (2,876 )
Investment in commercial direct financing leases $ 30,787
$ 30,951

~~There were~~ no ~~impairments of residual value of leased property during the years ended December 31, 2017, 2016 and 2015.~~

The Corporation leases equipment under direct financing leases expiring in future years. Some of these leases provide for additional rents based on use in excess of a stipulated minimum number of hours and generally allow the lessees to purchase the equipment for fair value at the end of the lease term.

~~Table of Contents~~

~~Future aggregate maturities of minimum lease payments to be received are as follows:~~

(In Thousands)
Maturities during year ended December 31,
2018 $ 8,866
2019 6,635
2020 4,632
2021 2,301
2022 1,393
Thereafter 1,071
$ 24,898

Note 5 – Premises and Equipment

A summary of premises and equipment ~~at December 31, 2017 and 2016 is~~was as follows:


	As of December 31,
	2023		2022
	(In Thousands)

Leasehold improvements	$	5,557	$	4,525
Furniture and equipment	9,361		8,250
Total premises and equipment	14,918		12,775
Less: accumulated depreciation	(8,728)		(8,435)
Total premises and equipment, net	$	6,190	$	4,340

As of December 31,
2017 2016
(In Thousands)
Land $ —
$ 650
Building and leasehold improvements 2,550
3,019
Furniture and equipment 6,442
5,366
8,992
9,035
Less: accumulated depreciation (5,836 ) (5,263 )
Total premises and equipment, net $ 3,156
$ 3,772

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Depreciation expense was ~~$744,000, $767,000~~$961,000, $578,000, and ~~$746,000~~$585,000 for the years ended December 31, ~~2017, 2016~~2023, 2022, and ~~2015,~~2021, respectively. During 2023, the Corporation relocated its Kansas City metropolitan office. This resulted in additional leasehold improvements and equipment of $1.3 million and $606,000, respectively.

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.

In June 2023, the Corporation relocated its Kansas City metropolitan area office. This resulted in a $2.6 million right-of-use asset and $3.7 million lease liability, which was recorded in October 2022. The Corporation received a $1.1 million tenant improvement allowance related to this lease, which was recognized as a lease incentive and deducted from the right-of-use asset.

The components of total lease expense were as follows:


	For the Year Ended December 31,
	2023		2022		2021
	(In Thousands)
Operating lease cost	$	1,411	$	1,544	$	1,513
Short-term lease cost	200		148		158
Variable lease cost	576		604		492
Less: sublease income	(75)		(179)		(170)
Total lease cost, net	$	2,112	$	2,117	$	1,993

Quantitative information regarding the Corporation’s operating leases was as follows:


	December 31, 2023		December 31, 2022		December 31, 2021
Weighted-average remaining lease term (in years)	7.70		8.06		5.05
Weighted-average discount rate	3.61	%	3.40	%	2.51	%

The following maturity analysis shows the undiscounted cash flows due on the Corporation’s operating lease liabilities:


(In Thousands)
2024	$	1,514
2025	1,408
2026	1,400
2027	1,427
2028	1,113
Thereafter	3,600
Total undiscounted cash flows	10,462
Discount on cash flows	(1,508)
Total lease liability	$	8,954

Note 67 – Goodwill and Other Intangible Assets

Goodwill

Goodwill is not amortized, but is subject to impairment tests on an annual basis and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount ~~(including~~

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(including goodwill). At December 31, ~~2017~~2023 and ~~2016,~~2022, the Corporation had goodwill of $10.7 million, which was related to the acquisition of Alterra Bank in 2014.

The Corporation conducted its annual impairment test on July 1, ~~2017,~~2023, utilizing a qualitative assessment, and concluded that it was more likely than not ~~that FBB-KC’s~~the estimated fair value exceeded its carrying value. Due to management’s decision to temporarily slow SBA production while investments to enhance the platform were made and the slower than expected ramp up of production during the fourth quarter, management elected to again assess goodwill on November 30, 2017 by comparing the fair value of FBB-KC to its carrying value. The fair value of the reporting unit ~~was determined based on a weighted average of the income and market approaches. The income approach establishes fair~~exceeded its carrying value, based on estimated future cash flows of the reporting unit, discounted by an estimated weighted-average cost of capital developed using the capital asset pricing model, which reflects the overall level of inherent risk of the reporting unit. The income approach uses our projections of financial performance for a four-year period and includes assumptions about future revenue growth rates, operating margins and terminal values. The market approach establishes fair value by applying cash flow multiples to the respective reporting unit’s operating performance. The multiples are derived from other publicly traded companies that are similar but not identical from an operational and economic standpoint.

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~~Based on this assessment, there was~~resulting in no evidence of goodwill impairment as of November 30, 2017. Management also assessed external and internal qualitative factors through December 31, 2017 and determined no changes to factors occurred that would negatively impact the goodwill test. impairment.

Other Intangible Assets

The Corporation has intangible assets that are amortized consisting of loan servicing ~~rights and core deposit intangibles.~~rights.

Loan servicing rights are recognized upon sale of the guaranteed portions of SBA loans with servicing rights retained. 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. Loan servicing assets are subsequently measured using the amortization method, which requires servicing rights to be amortized into interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. For the years ended December 31, ~~2017, 2016~~2023, 2022, and ~~2015,~~2021, loan servicing asset amortization totaled ~~$388,000, $639,000~~$500,000, $634,000, and ~~$197,000,~~$412,000, respectively.

The estimated fair value of the Corporation’s loan servicing asset was ~~$1.8~~$1.4 million and ~~$1.9~~$1.5 million as of December 31, ~~2017~~2023 and ~~2016,~~2022, respectively. 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.

The core deposit intangible has a finite life and is amortized by the straight-line method over a period of seven years. The net book value of the core deposit intangible was $147,000 and $202,000 as of December 31, 2017 and 2016, respectively. For During the years ended December 31, ~~2017, 2016~~2023 and ~~2015, amortization totaled $55,000, $62,000~~2022, the Corporation recognized $73,000 and ~~$71,000, respectively~~$1,000 of impairment expense, respectively. During the year ended December 31, 2021, the Corporation recognized an impairment recovery of $63,000.

Note 78 – Other Assets

The Corporation is a limited partner in several limited partnership investments. The Corporation is not the general partner, does not have controlling ownership, and is not the primary beneficiary in any of these limited partnerships and ~~thus,~~ the limited partnerships have not been consolidated. These investments are accounted for using the equity and proportional amortization method of accounting and are evaluated for impairment at the end of each reporting period.

Historic Rehabilitation Tax Credits

~~In 2015, the~~The Corporation ~~invested~~invests in a development ~~entity~~entities through ~~BOC, a~~Mitchell Street and FBB Tax Credit, wholly-owned ~~subsidiary~~subsidiaries of FBB, to ~~acquire,~~ rehabilitate ~~and operate a~~ historic ~~building in Madison, Wisconsin.~~buildings. At December 31, ~~2017~~2023 and ~~2016,~~2022, the net carrying value of the ~~investment~~investments was ~~$174,000.~~ $2.4 million and $2.2 million, respectively. During 2023, the Corporation invested $285,000 in these partnerships. During 2022 and 2021, the Corporation had no activity related to these investments.

Low-Income Housing Tax Credits

The Corporation ~~contributed an additional $2.8 million to the project~~invests in ~~2016. During 2016, the Corporation recognized $3.8 million in historic tax credits related to this investment and $3.3 million in impairment to the underlying investment.~~

~~In 2016, the Corporation also invested in a~~ development entity through Mitchell Street, a wholly-owned subsidiary of FBB, to rehabilitate a historic building in Milwaukee, Wisconsin. At December 31, 2017 and 2016, the net carrying value of the investment was $570,000 and $563,000, respectively. The Corporation contributed an additional $4.9 million to the project in 2017. During 2017, the Corporation recognized $3.0 million in federal historic tax credits related to this investment and $2.3 million in impairment to the underlying investment. The Corporation also sold the state historic tax credits associated with the investment to a third parted for a pre-tax gain of $210,000.

~~In 2017, the Corporation also invested in a development entity~~entities through FBB Tax Credit, a wholly-owned subsidiary of FBB, to ~~rehabilitate a historic building in Kenosha, Wisconsin.~~develop buildings that offer low-income housing. These investments are accounted for using the proportional amortization method of accounting. At December 31, ~~2017,~~2023 and 2022, the net carrying value of the ~~investment was $417,000. The aggregate capital contributions~~investments were $33.3 million and $13.5 million, respectively. During 2023, 2022, and 2021, the Corporation invested $24.0 million, $11.5 million, and $3.0 million in these partnerships, respectively. During 2023 and 2022, the Corporation recognized $5.3 million and $1.4 million in tax benefit, respectively, and $4.1 million and $1.0 million in amortization, respectively, related to these partnerships. Amortization is included in income tax expense in the ~~project will depend upon~~accompanying Consolidated Statements of Income. During 2021, the ~~final amount of the certified project costs, but are expected~~Corporation did not recognize any tax benefit or amortization related to ~~approximate $2.1 million. The credits will be taken when the project is placed in service and are subject to a five-year recapture period.~~these partnerships.

~~New Market Tax Credits~~Other Investments

The ~~Corporation invested~~Corporation’s equity investment in ~~a community development entity (“CDE”) through Rimrock Road, a wholly-owned subsidiary~~mezzanine funds, consisting of ~~FBB, to develop~~Aldine Capital Fund II, LP, Aldine Capital Fund III, LP, and ~~operate a real estate project located in a low-income community. At December 31, 2017 and 2016, Rimrock Road had one CDE investment with a net carrying value of $6.6~~Aldine Capital Fund IV, LP, totaled $13.5 million and $7.1 million respectively. The investment provides federal new market tax credits over the seven year compliance period through 2020. The remaining federal new market tax credit to be utilized over a maximum of seven years was $1.4$12.8 million as of December 31, ~~2017. The Corporation’s use of the federal new market tax credit during the year ended December 31, 2017~~2023 and ~~2016 was $450,000 and $375,000,~~2022, respectively.

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~~Other Investments~~

~~The Corporation has an equity investment in Aldine Capital Fund, LP, a mezzanine fund, of $904,000 and $883,000 recorded as~~ As of December 31, ~~2017 and 2016, respectively. The Corporation’s equity investment in Aldine Capital Fund II, LP, also a mezzanine fund, totaled $3.4~~2023, the Corporation has $5.3 million ~~and $3.1~~remaining of the original $15.0 million ~~as of December 31, 2017 and 2016, respectively.~~commitment to these partnerships. The Corporation’s share of these partnerships’ income included in other non-interest income in the Consolidated Statements of Income for the years ended December 31, ~~2017~~2023, 2022, and ~~2016~~2021 was ~~$354,000~~$4.8 million, $3.0 million, and ~~$790,000,~~$2.5 million, respectively. The Corporation’s share of these partnerships’ losses included in other non-interest expense in the Consolidated Statements of Income for the years ended December 31, 2023, 2022 and 2021 was $101,000, $0, and $24,000, respectively.

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The Corporation is the sole owner of $315,000 of common securities issued by Trust II. The purpose of Trust II was to complete the sale of $10.0 million of 10.50% fixed rate preferred securities. Trust II, a wholly owned subsidiary of the Corporation, is not consolidated into the financial statements of the Corporation. TheCorporation’s equity investment in ~~Trust II of $315,000~~Dane Workforce Housing Fund LLC, a Wisconsin limited liability company focused on community development by providing affordable workforce housing units in Dane County, Wisconsin, totaled $916,000 and $653,000 as of December 31, ~~2017~~2023 and ~~2016 is~~2022, respectively. The Corporation had a $63,000 commitment remaining of the original $1.0 million as of December 31, 2023. The Corporation’s share of the investment fund’s income included in ~~accrued interest receivable~~other non-interest income in the Consolidated Statements of Income for the years ended December 31, 2023, 2022, and 2021 was $13,000, $8,000, and $2,000, respectively. The Corporation’s share of this partnerships’ losses included in other ~~assets.~~non-interest expense in the Consolidated Statements of Income for the year ended December 31, 2021 was $19,000. There were no losses related to this investment during the years ended December 31, 2023 and 2022.

The Corporation’s equity investment in BankTech Ventures, LP, a venture capital fund, focused on the community banking industry through strategic investments in growth-stage startups that directly support community banking needs, totaled $569,000 and $154,000 as of December 31, 2023 and 2022, respectively. The Corporation had a $530,000 commitment remaining of the original $1.0 million as of December 31, 2023. The Corporation’s share of the investment fund’s income included in other non-interest income in the Consolidated Statements of Income for the year ended December 31, 2023 was $211,000. There was no income related to this investment during the years ended December 31, 2022 and 2021. The Corporation’s share of this partnerships’ losses included in other non-interest expense in the Consolidated Statements of Income for the years ended December 31, 2023 and 2022 was $2,000 and $21,000, respectively. There were no losses related to this investment during the year ended December 31, 2021.

A summary of accrued interest receivable and other assets ~~as of December 31, 2017 and 2016~~ was as follows:


	December 31, 2023		December 31, 2022
	(In Thousands)
Accrued interest receivable	$	13,275	$	9,403
Net deferred tax asset	9,508		11,711
Investment in historic development entities	2,393		2,176
Investment in low-income housing development entity	33,303		13,514

Investment in limited partnerships	15,027		13,599
Prepaid expenses	4,269		3,821
Other assets	13,283		8,883
Total accrued interest receivable and other assets	$	91,058	$	63,107

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December 31, 2017 December 31, 2016
(In Thousands)
Accrued interest receivable $ 5,019
$ 4,677
Net deferred tax asset 2,584
4,052
Investment in historic development entities 1,161
737
Investment in a CDE 6,591
7,106
Investment in limited partnerships 4,261
3,963
Investment in Trust II 315
315
Fair value of interest rate swaps 942
352
Prepaid expenses 3,091
3,074
Other assets 5,884
4,331
Total accrued interest receivable and other assets $ 29,848
$ 28,607

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Note 89 – Deposits

The composition of deposits ~~at December 31, 2017 and 2016~~ is ~~as follows:~~shown below.

December 31, 2017 December 31, 2016
Balance Average Balance Average Rate Balance Average Balance Average Rate
(Dollars in Thousands)
Non-interest-bearing transaction accounts $ 277,445
$ 230,907
— % $ 252,638
$ 246,182
— %
Interest-bearing transaction accounts 217,625
226,540
0.59
183,992
169,571
0.27
Money market accounts 515,077
583,241
0.47
627,090
642,784
0.48
Certificates of deposit 76,199
56,667
1.00
58,454
65,608
0.90
Wholesale deposits 307,985
361,712
1.70
416,681
467,826
1.62
Total deposits $ 1,394,331
$ 1,459,067
0.74
$ 1,538,855
$ 1,591,971
0.74

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	December 31, 2023						December 31, 2022
	Balance		Average Balance		Average Rate		Balance		Average Balance		Average Rate
	(Dollars in Thousands)
Non-interest-bearing transaction accounts	$	445,376	$	453,930	—	%	$	537,107	$	566,230	—	%
Interest-bearing transaction accounts	895,319		689,500		3.44		576,601		503,668		0.79
Money market accounts	711,245		681,336		3.25		698,505		761,469		0.82
Certificates of deposit	287,131		273,387		4.10		153,757		97,448		1.39
Wholesale deposits	457,708		346,285		4.14		202,236		48,825		3.31
Total deposits	$	2,796,779	$	2,444,438	2.92		$	2,168,206	$	1,977,640	0.67

A summary of annual maturities of in-market and wholesale certificates of deposit ~~outstanding and wholesale deposits~~ at December 31, ~~2017~~2023 is as follows:


(In Thousands)
Maturities during the year ended December 31,
2024	$	536,645
2025	19,081
2026	50,416
2027	73,804
2028	12,821
Thereafter	2,072
	$	694,839

(In Thousands)
Maturities during the year ended December 31,
2018 $ 171,972
2019 74,808
2020 86,122
2021 21,482
2022 4,813
Thereafter 24,987
$ 384,184
Wholesale deposits include $407.7 million and $50.0 million of wholesale certificates of deposit and non-reciprocal interest-bearing transaction accounts, respectively, at December 31, 2023, compared to $187.2 million and $15.0 million of wholesale certificates of deposit and non-reciprocal interest-bearing transaction accounts at December 31, 2022. The Corporation has entered into derivative contracts hedging a portion of the certificates of deposit included in the 2024 maturities above. As of December 31, 2023, the notional amount of derivatives designated as cash flow hedges totaled $306.3 million with a weighted average remaining maturity of 3.9 years and a weighted average rate of 3.95%.

~~Deposits include approximately~~ ~~$13.4 million~~ ~~and~~ ~~$8.9 million~~ ~~of certificates~~Certificates of deposit and wholesale deposits ~~which are~~ denominated in amounts ofgreater than $250,000 ~~or more~~were $120.2 million and $81.6 million at December 31, ~~2017~~2023 and ~~2016,~~2022, respectively.

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Note 910 – FHLB Advances, Other Borrowings and ~~Junior~~ Subordinated Notes and Debentures

The composition of borrowed funds is shown below.


	December 31, 2023						December 31, 2022
	Balance		Weighted Average Balance		Weighted Average Rate		Balance		Weighted Average Balance		Weighted Average Rate
	(Dollars in Thousands)
Federal funds purchased	$	—	$	3	5.37	%	$	—	$	14	7.42	%

FHLB advances	281,500		351,990		2.52		416,380		414,191		1.70
Line of credit	—		38		7.26		—		85		2.78
Other borrowings	20		600		8.33		6,088		8,624		5.23

Subordinated notes and debentures	49,396		38,250		5.16		34,340		35,095		5.06
Junior subordinated notes(1)	—		—		—		—		2,429		20.75
	$	330,916	$	390,881	2.79		$	456,808	$	460,438	2.12

(1) Weighted average rate of junior subordinated notes and debentures reflects the accelerated amortization of subordinated debt issuance costs as a result of the early redemption of the junior subordinated notes during the first quarter of 2022.

A summary of annual maturities of borrowings at December 31, ~~2017 and 2016~~2023 is as follows:


(In Thousands)
Maturities during the year ended December 31,
2024	$	120,520
2025	48,000
2026	65,000
2027	28,000
2028	—
Thereafter	69,396
	$	330,916

December 31, 2017 December 31, 2016
Balance
Weighted
Average
Balance

Weighted
Average
Rate
Balance
Weighted
Average
Balance

Weighted
Average
Rate
(Dollars in Thousands)
Federal funds purchased $ —
$ 66
1.22 % $ —
$ 178
0.92 %
FHLB advances 183,500
105,276
1.40
33,578
14,485
0.97
Line of credit 10
328
3.64
1,010
2,079
3.26
Other borrowings⁽¹⁾
675
1,241
14.50
2,590
1,739
7.64
Subordinated notes payable 23,713
23,161
6.93
22,498
22,467
7.13
Junior subordinated notes 10,019
10,011
11.11
10,004
9,997
11.07
$ 217,917
$ 140,083
3.14
$ 69,680
$ 50,945
6.03
Short-term borrowings $ 37,010
$ 20,588

Long-term borrowings 180,907
49,092

$ 217,917
$ 69,680


~~(1)~~	~~Weighted average rate of other borrowings reflects the cost of prepaying a secured borrowing during the second quarter of 2017.~~

The Corporation has a ~~$388.2~~$649.0 million FHLB line of credit available for advances ~~and open line borrowings~~ which is collateralized ~~by mortgage-related securities, unencumbered first mortgage loans and secured small business loans~~ as noted below. At December 31, ~~2017,~~ ~~$204.7~~2023, $367.5 million of this line remained unused. There were no ~~advances outstanding on the Corporation’s open line at December 31, 2017 and 2016. There were $183.5~~$281.5 million of term FHLB advances outstanding at December 31, ~~2017~~2023 with stated fixed interest rates ranging from ~~1.20%~~0.50% to ~~2.42%~~5.58% compared to ~~$33.6~~$416.4 million of term FHLB advances outstanding at December 31, ~~2016~~2022 with stated fixed interest ~~rate~~rates ranging from ~~0.83%~~0.31% to ~~4.43%~~4.69%. The term FHLB advances outstanding at December 31, ~~2017~~2023 are due at various dates through ~~August 2024.~~May 2030.

The Corporation is required to maintain as collateral mortgage-related securities, ~~and~~ unencumbered first mortgage loans and secured small business loans in its portfolio aggregating at least the amount of outstanding advances from the FHLB. Loans totaling approximately ~~$388.2 million~~$1.172 billion and ~~$326.4 million~~$1.059 billion were pledged as collateral at December 31, ~~2017~~2023 and ~~2016,~~2022, respectively. ~~Collateralized mortgage obligations totaling approximately~~ ~~$20.7 million~~ ~~were pledged as collateral for FHLB advances at December 31, 2016.~~

The Corporation has a senior line of credit with a third-party financial institution of $10.5 million. As of December 31, ~~2017,~~2023, the line of credit carried an interest rate of ~~LIBOR~~SOFR + ~~2.75%~~ ~~with an interest rate floor of~~ ~~3.125%~~2.36% that matured on February 19, ~~2018~~2024 and had certain performance debt covenants of which the Corporation was in compliance. The Corporation pays a commitment fee on this senior line of credit. For the years ended December 31, ~~2017~~2023, 2022, and ~~2016~~2021 the Corporation incurred

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~~$13,000~~ $13,000 additional interest expense due to this fee. There was no outstanding balance on the line of credit as of December 31, 2023. On February ~~19, 2018,~~20, 2024, the credit line was renewed for one additional year with pricing terms of ~~LIBOR~~1-month term SOFR + ~~2.75% with an interest rate floor of 3.125%~~2.36% and a maturity date of February ~~20, 2019. As of December 31, 2017, the outstanding balance on the line of credit was $10,000.~~19, 2025.

The Corporation ~~has~~issued new subordinated ~~notes payable. At December 31, 2017, the~~debentures as of September 29, 2023. The aggregate principal amount of the newly issued subordinated ~~notes payable outstanding~~debentures was ~~$23.7~~$15.0 million, which qualified ~~for~~as Tier 2 capital. ~~At December 31, 2017, $15.0 million bore~~The subordinated debentures bear a fixed interest rate of ~~6.50%~~8.0% with a maturity date of September ~~21, 2024 and $9.1 million bore a fixed interest rate of 6.00% with a maturity date of April 15, 2027. There are no debt covenants on the subordinated notes payable.~~29, 2033. The Corporation may, at its option, redeem the ~~notes,~~debentures, in whole or part, at any time after the fifth anniversary of issuance. As of December 31, ~~2017, $377,000~~2023, $573,000 of debt issuance costs remain in the subordinated ~~notes~~note and debenture payable ~~balance.~~balance, of which $48,000 was related to the recently issued subordinated debentures.

In ~~September 2008, Trust II completed the sale of~~ ~~$10.0 million~~ of ~~10.50%~~ ~~fixed rate trust preferred securities (“Preferred Securities”). Trust II also issued common securities of~~ ~~$315,000. Trust II used the proceeds from the offering to purchase~~ ~~$10.3 million~~ of ~~10.50%~~ ~~junior subordinated notes (“Notes”) of the Corporation. The Preferred Securities are mandatorily redeemable upon the maturity of the Notes on~~ ~~September 26, 2038~~. The Preferred Securities qualify under the risk-based capital guidelines as Tier 1 capital for regulatory purposes. Per the provisions of the Dodd-Frank Act, bank holding companies with total assets of less than $15 billion are not required to phase out trust preferred securities as an element of Tier 1 capital as other, larger institutions must. The Corporation used the proceeds from the sale of the Notes for general corporate purposes including providing additional capital to its subsidiaries. As of December 31, ~~2017,~~ ~~$296,000~~2023, the Corporation had other borrowings of ~~debt issuance costs remain reflected in junior subordinated notes on~~$20,000, which consisted of sold tax credit investments accounted for as secured borrowings because they did not qualify for true sale accounting. As of December 31, 2022, the ~~Consolidated Balance Sheets.~~

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Corporation had other borrowings of $6.1 million, which consisted of sold loans 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 ~~right~~borrowings included in the 2024 maturities above. As of December 31, 2023, the notional amount of derivatives designated as cash flow hedges totaled $96.4 million with a weighted average remaining maturity of 2.5 years and a weighted average rate of 1.78%.

Note 11 – Preferred Stock

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 years ended December 31, 2023 and 2022, the Board of Directors declared aggregate preferred stock dividends of $875,000 and $683,000, respectively. The Series A Preferred Stock is perpetual and has no stated maturity. The Corporation may redeem the ~~Notes~~Series A Preferred Stock at ~~each interest payment date~~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 ~~September 26, 2013. The Corporation also has the right to redeem the Notes, in whole but not in part, after the occurrence of certain special events. Special events are limited to: (1)~~March 15, 2027 or within 90 days following a ~~change in~~regulatory capital treatment ~~resulting~~event, in accordance with the ~~inability~~terms of the Corporation to include the Notes in Tier 1 capital, (2) a change in laws or regulations that could require Trust II to register as an investment company under the Investment Company Act of 1940, as amended; and (3) a change in laws or regulations that would require Trust II to pay income tax with respect to interest received on the Notes or, prohibit the Corporation from deducting the interest payable by the Corporation on the Notes or result in greater than a de minimis amount of taxes for Trust II.Series A Preferred Stock.

Note 1012 – Regulatory Capital

The Corporation and the Bank are subject to various regulatory capital requirements administered by Federal and ~~the State of~~ 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~~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 ~~Plan,~~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 Corporation’s and the Bank’s ~~Boards of Directors~~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 ~~stockholders~~shareholders with preferential rights superior to those ~~stockholders~~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

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Bank and the Corporation will continue to be subject to compliance with various legal, regulatory, and other restrictions as defined from time to time.

~~Qualitative~~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

104

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adjusted total assets. These risk-based capital requirements presently address credit risk related to both recorded and ~~off-balance-sheet~~off-balance sheet commitments and obligations.

In July 2013, the FRB and the FDIC approved the final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks. These rules are applicable to all financial institutions that are subject to minimum capital requirements, including federal and state banks and savings and loan associations, as well as bank and savings and loan holding companies other than “small bank holding companies” (generally non-publicly traded bank holding companies with consolidated assets of less than $1 billion). Under the final rules, minimum requirements increased for both the quantity and quality of capital held by the Corporation. The rules include a new Common Equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0%, require a minimum ratio of Total Capital to risk-weighted assets of 8.0%, and require a minimum Tier 1 leverage ratio of 4.0%. The rules also permit banking organizations with less than $15 billion in assets to retain, through a one-time election, the past treatment for accumulated other comprehensive income, which did not affect regulatory capital. The Corporation elected to retain this treatment, which reduces the volatility of regulatory capital ratios. ~~A new capital~~The Corporation also must comply with the 2.5% conservation buffer, ~~comprised~~which the Corporation met as of Common Equity Tier 1 capital, was also established above the regulatory minimum capital requirements. This capital conservation buffer will be phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and will increase each subsequent year by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019.December 31, 2023.

As of December 31, ~~2017, both~~2023, the Corporation’s capital levels exceeded the regulatory minimums and the Bank’s capital levels remained characterized as well capitalized under the ~~new rules.~~regulatory framework. The following ~~table summarizes~~tables summarize both the Corporation’s and the Bank’s capital ratios and the ratios required by their federal ~~regulators at December 31, 2017:~~regulators:


	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) 2023 capital amounts include $1.0 million of additional stockholders’ equity as elected by the Corporation and permitted by federal banking regulatory agencies. Risk-weighted assets were also adjusted accordingly.

105

Actual 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)
As of December 31, 2017
Total capital
(to risk-weighted assets)

Consolidated $ 214,501
11.98 % $ 143,219
8.00 % $ 165,597
9.250 % N/A
N/A
First Business Bank 207,986
11.66
142,736
8.00
165,038
9.250
$ 178,420
10.00 %
Tier 1 capital
(to risk-weighted assets)

Consolidated $ 169,176
9.45
$ 107,414
6.00
$ 129,792
7.250 % N/A
N/A
First Business Bank 186,374
10.45
107,052
6.00
129,354
7.250
$ 142,736
8.00
Common equity tier 1 capital
(to risk-weighted assets)

Consolidated $ 159,157
8.89
$ 80,561
4.50
$ 102,939
5.750 % N/A
N/A
First Business Bank 186,374
10.45
80,289
4.50
102,591
5.750
$ 115,973
6.50
Tier 1 leverage capital
(to adjusted assets)

Consolidated $ 169,176
9.54
$ 70,920
4.00
$ 70,920
4.00 % N/A
N/A
First Business Bank 186,374
10.56
70,617
4.00
70,617
4.00
$ 88,272
5.00

~~The following table summarizes both the Corporation’s and the Corporation’s legacy bank charters’ ratios and the ratios required by their federal regulators at December 31, 2016:~~

~~100~~

Table of Contents


			As of December 31, 2022																																						As of December 31, 2022
																			Actual							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
	Actual					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					(Dollars in Thousands)
	Amount			Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in Thousands)
As of December 31, 2016
Total capital (to risk-weighted assets)
Consolidated	$	204,117		11.74	%	$	139,101	8.00	%	$	149,968	8.625	%	N/A		N/A
Consolidated
Consolidated																			$	323,893		11.26		%			$	230,180			8.00	%			$	302,111			10.50	%					N/A
First Business Bank	147,811			11.55		102,362		8.00		110,360		8.625		$	127,953	10.00	%	First Business Bank	323,021		11.22		11.22		230,367				230,367	8.00			8.00	302,357			302,357	10.50				10.50	$	$	287,959	10.00	10.00	%
First Business Bank – Milwaukee	24,347			11.02		17,680		8.00		19,062		8.625		22,101		10.00
Alterra Bank	31,699			13.27		19,106		8.00		20,599		8.625		23,882		10.00
Tier 1 capital (to risk-weighted assets)
Consolidated	$	160,964		9.26	%	$	104,326	6.00	%	$	115,193	6.625	%	N/A		N/A
Consolidated
Consolidated																			$	264,843		9.20		%			$	172,635			6.00	%			$	244,566			8.50	%					N/A
First Business Bank	134,208			10.49		76,772		6.00		84,769		6.625		$	102,362	8.00	%	First Business Bank	298,312		10.36		10.36		172,775				172,775	6.00			6.00	244,765			244,765	8.50				8.50	$	$	230,367	8.00	8.00	%
First Business Bank – Milwaukee	22,323			10.10		13,260		6.00		14,642		6.625		17,680		8.00
Alterra Bank	28,685			12.01		14,329		6.00		15,822		6.625		19,106		8.00
Common equity tier 1 capital (to risk-weighted assets)
Consolidated	$	150,960		8.68	%	$	78,244	4.50	%	$	89,111	5.125	%	N/A		N/A
Consolidated
Consolidated																			$	252,851		8.79		%			$	129,476			4.50	%			$	201,407			7.00	%					N/A
First Business Bank	134,208			10.49		57,579		4.50		65,576		5.125		$	83,170	6.50	%	First Business Bank	298,312		10.36		10.36		129,581				129,581	4.50			4.50	201,571			201,571	7.00				7.00	$	$	187,173	6.50	6.50	%
First Business Bank – Milwaukee	22,323			10.10		9,945		4.50		11,327		5.125		14,365		6.50
Alterra Bank	28,685			12.01		10,747		4.50		12,240		5.125		15,524		6.50
Tier 1 leverage capital (to adjusted assets)
Consolidated	$	160,964		9.07	%	$	70,985	4.00	%	$	70,985	4.00	%	N/A		N/A
Consolidated
Consolidated																			$	264,843		9.17		%			$	115,464			4.00	%			$	115,464			4.00	%					N/A
First Business Bank	134,208			10.40		51,600		4.00		51,600		4.00		$	64,500	5.00	%	First Business Bank	298,312		10.34		10.34		115,402				115,402	4.00			4.00	115,402			115,402	4.00				4.00	$	$	144,252	5.00	5.00	%
First Business Bank – Milwaukee	22,323			9.15		9,758		4.00		9,758		4.00		12,198		5.00
Alterra Bank	28,685			10.58		10,842		4.00		10,842		4.00		13,552		5.00

The following table reconciles stockholders’ equity to federal regulatory capital at December 31, ~~2017~~2023 and ~~2016,~~2022, respectively:


	As of December 31,
	2023		2022
	(In Thousands)
Stockholders’ equity of the Corporation	$	289,588	$	260,640
Net unrealized and accumulated losses on specific items	13,717		15,310
Disallowed servicing assets	(614)		(706)
Disallowed goodwill and other intangibles	(10,368)		(10,401)
ASC 326 Phase-in	1,015		—
Tier 1 capital	293,338		264,843
Allowable general valuation allowances and subordinated debt	82,102		59,050
Total capital	$	375,440	$	323,893

As of December 31,
2017 2016
(In Thousands)
Stockholders’ equity of the Corporation $ 169,278
$ 161,650
Net unrealized and accumulated losses on specific items 1,238
522
Disallowed servicing assets (848 ) (652 )
Disallowed goodwill and other intangibles (10,511 ) (10,560 )
Junior subordinated notes 10,019
10,004
Tier 1 capital 169,176
160,964
Allowable general valuation allowances and subordinated debt 45,325
43,153
Total capital $ 214,501
$ 204,117

~~101~~

~~Table of Contents~~

Note 1113 – 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.

106

Table of Contents


				For the Year Ended December 31,									For the Year Ended December 31,
									2023	2022		2021
	(Dollars in Thousands, Except Share Data)										(Dollars in Thousands, Except Share Data)
Basic earnings per common share
Net income
Net income
Net income
Less: preferred stock dividends
Less: earnings allocated to participating securities
Basic earnings allocated to common shareholders

Weighted-average common shares outstanding, excluding participating securities
Weighted-average common shares outstanding, excluding participating securities
Weighted-average common shares outstanding, excluding participating securities

Basic earnings per common share
Basic earnings per common share
Basic earnings per common share

Diluted earnings per common share
Diluted earnings per common share
Diluted earnings per common share
Earnings allocated to common shareholders, diluted

		For the Year Ended December 31,
		2017			2016		2015
	(Dollars in Thousands, Except Share Data)
Basic earnings per common share
Net income		$	11,905		$	14,909	$	16,514
Less: earnings allocated to participating securities		162			219		273
Basic earnings allocated to common shareholders		$	11,743		$	14,690	$	16,241
Weighted-average common shares outstanding, excluding participating securities		8,612,770			8,573,722		8,549,176
Basic earnings per common share		$	1.36		$	1.71	$	1.90
Weighted-average diluted common shares outstanding, excluding participating securities

Weighted-average diluted common shares outstanding, excluding participating securities

Weighted-average diluted common shares outstanding, excluding participating securities

Diluted earnings per common share
Earnings allocated to common shareholders, diluted		$	11,743		$	14,690	$	16,241
Weighted-average common shares outstanding, excluding participating securities		8,612,770			8,573,722		8,549,176
Dilutive effect of share-based awards		—			—		1,146
Weighted-average diluted common shares outstanding, excluding participating securities		8,612,770			8,573,722		8,550,322
Diluted earnings per common share		$	1.36		$	1.71	$	1.90
Diluted earnings per common share


☑
þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, ~~2017~~2023
¨☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to


Wisconsin			39-1576570

~~Wisconsin~~	~~39-1576570~~
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

401 Charmany Drive, Madison, WI			53719
(Address of principal executive offices)			(Zip Code)



Title of each class	Trading Symbol(s)			Name of each exchange on which registered
Common Stock, $0.01 par value			FBIZ		The Nasdaq Stock Market LLC
~~Common Share Purchase Rights~~		~~The Nasdaq Stock Market LLC~~



PART I			1
Item 1. Business			1
Item 1A. Risk Factors			1417
Item 1B. Unresolved Staff Comments			2429
I tem 1C. Cyber security			29
Item 2. Properties			2430
Item 3. Legal Proceedings			2431
Item 4. Mine Safety Disclosures			2431
PART II			2532
Item 5. Market for Registrant’s Common Equity, Related ~~Stockholder~~Shareholder Matters and Issuer Purchases of Equity Securities			2532
Item 6. ~~Selected Financial Data~~[Reserved]			2734
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			2834
Item 7A. Quantitative and Qualitative Disclosures about Market Risk			6062
Item 8. Financial Statements and Supplementary Data			6263
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			~~118~~126
Item 9A. Controls and Procedures			~~118~~126
Item 9B. Other Information			~~120~~127
~~PART III~~Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections			~~120~~127
PART III			127
Item 10. Directors, Executive Officers and Corporate Governance			~~120~~127
Item 11. Executive Compensation			~~120~~127
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related ~~Stockholder~~Shareholder Matters			~~120~~127
Item 13. Certain Relationships and Related Transactions, and Director Independence			~~120~~128
Item 14. Principal Accountant Fees and Services			~~121~~128
PART IV			~~122~~129
Item 15. Exhibits and Financial Statements Schedules			~~122~~129
Item 16. Form 10-K Summary			~~123~~130
Signatures			~~124~~131



	High		Low		Dividend Declared
2017
4th Quarter	$	24.24	$	20.76	$	0.13
3rd Quarter	23.75		20.57		0.13
2nd Quarter	28.43		22.49		0.13
1st Quarter	26.47		23.07		0.13
2016
4th Quarter	24.14		18.76		0.12
3rd Quarter	24.74		20.96		0.12
2nd Quarter	25.94		22.19		0.12
1st Quarter	24.70		20.06		0.12



	As of December 31,
Index	2012		2013		2014		2015		2016		2017
First Business Financial Services, Inc.	$	100.00	$	166.98	$	216.75	$	230.68	$	223.68	$	213.36
Nasdaq Composite	100.00		140.12		160.78		171.97		187.22		242.71
SNL Bank Nasdaq	100.00		143.73		148.86		160.70		222.81		234.58



Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
October 1, 2017 - October 31, 2017	—	$	—	—	$	—
November 1, 2017 - November 30, 2017	1,024	22.42		—	—
December 1, 2017 - December 31, 2017	—	—		—	—
Total	1,024			—



	Increase (Decrease) for the Year Ended December 31,
	2017 Compared to 2016									2016 Compared to 2015
	Rate			Volume			Net			Rate			Volume			Net
	(In Thousands)
Interest-earning assets
Commercial real estate and other mortgage loans⁽¹⁾	$	(1,538	)	$	1,063		$	(475	)	$	(308	)	$	4,228		$	3,920
Commercial and industrial loans⁽¹⁾	(922		)	(1,056		)	(1,978		)	264			1,211			1,475
Direct financing leases⁽¹⁾	(72		)	(61		)	(133		)	(36		)	7			(29		)
Consumer and other loans⁽¹⁾	(169		)	88			(81		)	52			74			126
Total loans and leases receivable⁽¹⁾	(2,701		)	34			(2,667		)	(28		)	5,520			5,492
Mortgage-related securities⁽²⁾	284			(146		)	138			(70		)	(91		)	(161		)
Other investment securities	96			69			165			(8		)	52			44
FHLB and FRB Stock	(20		)	44			24			8			(11		)	(3		)
Short-term investments	395			(361		)	34			145			129			274
Total net change in income on interest-earning assets	(1,946		)	(360		)	(2,306		)	47			5,599			5,646
Interest-bearing liabilities
Transaction accounts	686			193			879			44			114			158
Money market	(84		)	(282		)	(366		)	(430		)	212			(218		)
Certificates of deposit	63			(86		)	(23		)	117			(351		)	(234		)
Wholesale deposits	387			(1,788		)	(1,401		)	878			255			1,133
Total deposits	1,052			(1,963		)	(911		)	609			230			839
FHLB advances	89			1,243			1,332			32			(2		)	30
Other borrowings	113			(118		)	(5		)	(19		)	105			86
Junior subordinated notes	(5		)	2			(3		)	1			2			3
Total net change in expense on interest-bearing liabilities	1,249			(836		)	413			624			334			958
Net change in net interest income	$	(3,195	)	$	476		$	(2,719	)	$	(577	)	$	5,265		$	4,688



	December 31, 2017						December 31, 2016						December 31, 2015
	Balance		Weighted Average Balance		Weighted Average Rate		Balance		Weighted Average Balance		Weighted Average Rate		Balance		Weighted Average Balance		Weighted Average Rate
	(Dollars in Thousands)
Federal funds purchased	$	—	$	66	1.22	%	$	—	$	178	0.92	%	$	—	$	237	0.86	%
FHLB advances	183,500		105,276		1.40		33,578		14,485		0.97		8,198		14,779		0.75
Line of credit	10		328		3.64		1,010		2,079		3.26		1,592		678		9.66
Other borrowings⁽¹⁾	675		1,241		14.50		2,590		1,739		7.64		2,510		1,619		3.18
Subordinated notes payable	23,713		23,161		6.93		22,498		22,467		7.13		22,440		22,410		7.14
Junior subordinated notes	10,019		10,011		11.11		10,004		9,997		11.07		9,990		9,982		11.14
	$	217,917	$	140,083	3.14		$	69,680	$	50,945	6.03		$	44,730	$	49,705	5.94
Short-term borrowings	$	37,010					$	20,588					$	7,010
Long-term borrowings	180,907						49,092						37,720
	$	217,917					$	69,680					$	44,730



	Payments Due by Period
	Less than 1 Year		1-3 Years		4-5 Years		More than 5 Years		Total
	(In Thousands)
Operating lease obligations	$	1,648	$	3,121	$	2,807	$	4,820	$	12,396
Time deposits	171,972		160,930		26,295		24,987		384,184
Line of credit	10		—		—		—		10
Subordinated notes payable	—		—		—		23,713		23,713
Junior subordinated notes	—		—		—		10,019		10,019
FHLB advances	37,000		121,000		12,000		13,500		183,500
Other borrowings	—		—		—		675		675
Total contractual obligations	$	210,630	$	285,051	$	41,102	$	77,714	$	614,497



	Estimated Maturity or Repricing at December 31, 2017
	Within 3 Months			3-12 Months			1-5 Years			After 5 Years			Total
	(Dollars in Thousands)
Assets:
Short-term investments	$	35,481		$	—		$	—		$	—		$	35,481
Investment securities	6,544			26,503			93,744			37,872			164,663
Commercial loans	218,017			28,088			75,968			6,283			328,356
Real estate loans	333,742			86,250			385,445			177,524			982,961
Asset-based loans	145,388			—			—			—			145,388
Lease receivables	878			5,297			13,824			2,234			22,233
Consumer loans	2,008			337			499			—			2,844
Total earning assets⁽¹⁾	$	742,058		$	146,475		$	569,480		$	223,913		$	1,681,926
Liabilities:
Interest-bearing transaction	$	217,625		$	—		$	—		$	—		$	217,625
Money market accounts	515,078			—			—			—			515,078
Time deposits under $250,000	14,854			149,610			182,068			24,988			371,520
Time deposits $250,000 and over	998			6,509			5,157			—			12,664
FHLB advances	5,000			10,000			133,000			35,500			183,500
Short-term borrowings	10			—			—			—			10
Long-term debt⁽²⁾	—			—			15,675			19,405			35,080
Total interest-bearing liabilities	$	753,565		$	166,119		$	335,900		$	79,893		$	1,335,477
Interest rate gap	$	(11,507	)	$	(19,644	)	$	233,580		$	144,020		$	346,449
Cumulative interest rate gap	$	(11,507	)	$	(31,151	)	$	202,429		$	346,449
Cumulative interest rate gap to total earning assets	(0.68		)%	(1.85		)%	12.04		%	20.60		%




Consolidated Financial Statements	Page No.

Consolidated Balance Sheets as of December 31, ~~2017~~202 3 and ~~2016~~20 2 2		64

Consolidated Statements of Income for the Years Ended December 31, ~~2017, 2016~~202 3 , 202 2 , and ~~2015~~202 1		65

Consolidated Statements of Comprehensive Income for the Years Ended December 31, ~~2017, 2016~~202 3 , 202 2 , and ~~2015~~20 21		66

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, ~~2017, 2016~~202 3 , 202 2 , and ~~2015~~202 1		67

Consolidated Statements of Cash Flows for the Years Ended December 31, ~~2017, 2016~~202 3 , 20 22 , and ~~2015~~202 1		68

Notes to Consolidated Financial Statements		70

Report of Independent Registered Public Accounting Firm (PCAOB ID 173)		~~117~~123


	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 January 1, 2021	8,566,960	$	—	$	92	$	83,125	$	140,431	$	(933)	$	(16,553)	$	206,162
Net income	—	—		—		—		35,755		—		—		35,755
Other comprehensive loss	—	—		—		—		—		(524)		—		(524)




Share-based compensation - restricted shares and employee stock purchase plan	85,370	—		1		2,512		—		—		—		2,513
Issuance of common stock under the employee stock purchase plan	6,531	—		—		160		—		—		—		160


Cash dividends ($0.72 per share)	—	—		—		—		(6,166)		—		—		(6,166)
Treasury stock purchased	(201,297)	—		—		—		—		—		(5,478)		(5,478)
Balance at December 31, 2021	8,457,564	—		93		85,797		170,020		(1,457)		(22,031)		232,422
Net income	—	—		—		—		40,858		—		—		40,858
Other comprehensive loss	—	—		—		—		—		(13,853)		—		(13,853)
Issuance of preferred stock, net of issuance costs	—	11,992		—		—		—		—		—		11,992



Share-based compensation - restricted shares and employee stock purchase plan	75,564	—		1		2,583		—		—		—		2,584
Issuance of common stock under the employee stock purchase plan	4,535	—		—		134		—		—		—		134
Treasury stock re-issued	—	—		—		(1,002)		—		—		1,002		—
Preferred stock dividends	—	—		—		—		(683)		—		—		(683)
Cash dividends ($0.79 per share)	—	—		—		—		(6,688)		—		—		(6,688)
Treasury stock purchased	(175,578)	—		—		—		—		—		(6,126)		(6,126)
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	—	—		—		—		37,027		—		—		37,027
Other comprehensive income	—	—		—		—		—		1,593		—		1,593




Share-based compensation - restricted shares and employee stock purchase plan	43,057	—		1		2,976		—		—		—		2,977
Issuance of common stock under the employee stock purchase plan	4,328	—		—		128		—		—		—		128

Preferred stock dividends	—	—		—		—		(875)		—		—		(875)
Cash dividends ($0.91 per share)	—	—		—		—		(7,578)		—		—		(7,578)
Treasury stock purchased	(94,692)	—		—				—		—		(2,971)		(2,971)
Balance at December 31, 2023	8,314,778	$	11,992	$	95	$	90,616	$	230,728	$	(13,717)	$	(30,126)	$	289,588

First Business Financial Services, Inc. Consolidated Statements of Cash Flows

	For the Year Ended December 31,
	2017			2016			2015
	(In Thousands)
Operating activities
Net income	$	11,905		$	14,909		$	16,514
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes, net	1,747			(1,108		)	1,158
Impairment of tax credit investments	2,784			3,691			—
Provision for loan and lease losses	6,172			7,818			3,386
Depreciation, amortization and accretion, net	1,562			1,515			(90		)
Share-based compensation	1,078			994			1,063
Net loss (gain) on sale of available-for-sale securities	403			(10		)	—
Gain on sale of historic development entity state tax credit	(210		)	—			—
Increase in value of bank-owned life insurance policies	(1,250		)	(974		)	(960		)
Origination of loans for sale	(69,966		)	(71,965		)	(70,254		)
Sale of loans originated for sale	70,500			78,546			77,333
Gain on sale of loans originated for sale	(1,617		)	(4,990		)	(4,728		)
Net (gain) loss on foreclosed properties, including impairment valuation	(143		)	122			(171		)
Excess tax benefit from share-based compensation	(66		)	(142		)	—
Returns on investments in limited partnerships	459			250			—
Net increase in accrued interest receivable and other assets	(2,857		)	(3,861		)	(1,033		)
Net increase in accrued interest payable and other liabilities	1,907			1,367			1,002
Net cash provided by operating activities	22,408			26,162			23,220
Investing activities
Proceeds from maturities, redemptions and paydowns of available-for-sale securities	38,241			43,745			42,899
Proceeds from maturities, redemptions and paydowns of held-to-maturity securities	3,808			3,882			4,349
Proceeds from sale of available-for-sale securities	40,144			5,227			—
Purchases of available-for-sale securities	(60,399		)	(56,356		)	(40,721		)
Purchases of held-to-maturity securities	(3,016		)	(5,191		)	—
Proceeds from sale of foreclosed properties	1,659			83			528
Net increase in loans and leases	(59,033		)	(22,385		)	(155,204		)
Investments in limited partnerships	(500		)	(750		)	—
Returns of investments in limited partnerships	97			541			459
Investment in historic development entities	(5,312		)	(3,456		)	(578		)
Proceeds from sale of historic development entity state tax credit	2,764			—			—
Investment in Federal Home Loan Bank and Federal Reserve Bank Stock	(16,275		)	(1,308		)	(1,352		)
Proceeds from the sale of Federal Home Loan Bank Stock	12,736			2,020			849
Purchases of leasehold improvements and equipment, net	(1,242		)	(584		)	(789		)
Purchases of bank owned life insurance policies	—			(9,750		)	—
Premium payment on bank owned life insurance policies	(25		)	(26		)	(25		)
Net cash used in investing activities	(46,353		)	(44,308		)	(149,585		)
Financing activities
Net (decrease) increase in deposits	(144,486		)	(38,256		)	139,469
Repayment of Federal Home Loan Bank advances	(656,916		)	(4,500		)	(1,000		)
Proceeds from Federal Home Loan Bank advances	806,916			30,000			—
Net (decrease) increase in short-term borrowed funds	(1,000		)	(1,500		)	1,500
Net (decrease) increase in long-term borrowed funds	(1,901		)	998			918
Proceeds from issuance of subordinated notes payable	9,090			—			—
Repayment of subordinated notes payable	(7,875		)	—			—
Excess tax benefit from share-based compensation	—			—			267
Cash dividends paid	(4,538		)	(4,176		)	(3,816		)



	As of December 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available-for-sale:
U.S. government agency obligations - government-sponsored enterprises	$	999	$	1	$	—		$	1,000
Municipal obligations	9,494		2		(82		)	9,414
Collateralized mortgage obligations - government issued	22,313		149		(213		)	22,249
Collateralized mortgage obligations - government-sponsored enterprises	91,480		24		(1,199		)	90,305
Other securities	3,040		3		(6		)	3,037
	$	127,326	$	179	$	(1,500	)	$	126,005


	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


	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In Thousands)
Due in one year or less	$	22,576	$	22,569	$	1,060	$	1,057
Due in one year through five years	18,970		17,646		3,150		3,116
Due in five through ten years	12,653		11,915		—		—
Due in over ten years	28,352		25,093		—		—
	82,551		77,223		4,210		4,173
Residential mortgage-backed securities	200,762		188,889		2,289		2,160
Commercial mortgage-backed securities	35,769		30,894		2,004		1,922
	$	319,082	$	297,006	$	8,503	$	8,255


	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


~~(1)~~	Primarily consisted of SBA Express loans and impaired SBA loans that were repurchased from the secondary market, all of which were not saleable as of December 31, 2017 and December 31, 2016, respectively.


(In Thousands)
Maturities during year ended December 31,
2024	$	3,268
2025	2,425
2026	1,788
2027	1,301
2028	626
Thereafter	252
	$	9,660



	December 31, 2017		December 31, 2016
Total non-accrual loans and leases to gross loans and leases	1.76	%	1.74	%
Total non-performing assets to total gross loans and leases plus foreclosed properties, net	1.83		1.83
Total non-performing assets to total assets	1.53		1.50
Allowance for loan and lease losses to gross loans and leases	1.25		1.44
Allowance for loan and lease losses to non-accrual loans and leases	71.10		83.00



	As of December 31, 2017					As of December 31, 2016
	Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment
	(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied	3	$	1,065	$	880	3	$	1,065	$	930
Commercial real estate — non-owner occupied	1	158		34		1	158		39
Land development	1	5,745		2,626		1	5,745		3,440
Construction	—	—		—		2	331		314
Multi-family	—	—		—		—	—		—
1-4 family	8	627		307		11	1,391		1,393
Commercial and industrial	10	8,759		4,951		10	8,094		7,058
Consumer and other:
Home equity and second mortgage	2	37		4		1	37		8
Other	2	2,094		345		1	2,076		378
Total	27	$	18,485	$	9,147	30	$	18,897	$	13,560



	As of December 31, 2017			As of December 31, 2016
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
	(Dollars in Thousands)
Commercial real estate:
Extension of term	—	$	—	1	$	8
Interest rate concession	12	3,793		1	52
Combination of extension of term and interest rate concession	1	54		16	6,056
Commercial and industrial:
Combination of extension of term and interest rate concession	10	4,951		10	7,058
Consumer and other:
Extension of term	1	328		1	378
Combination of extension of term and interest rate concession	3	21		1	8
Total	27	$	9,147	30	$	13,560


	RSA		Weighted Average Grant Price		PRSU		Weighted Average Grant Price		RSU		Weighted Average Grant Price		Total		Weighted Average Grant Price
Nonvested balance as of January 1, 2021	143,246		$	23.04	39,570		$	28.85	4,988		$	24.08	187,804		$	24.29
Granted (1)	67,515		22.39		23,550		27.12		2,065		21.68		93,130		23.57
Vested	(61,384)		22.26		—		—		(2,001)		22.91		(63,385)		22.28
Forfeited	(7,760)		23.24		—		—		—		—		(7,760)		23.24
Nonvested balance as of December 31, 2021	141,617		23.06		63,120		28.20		5,052		23.56		209,789		24.62
Granted (1)	62,560		34.04		37,335		24.71		3,115		27.95		103,010		30.47
Vested	(62,353)		23.21		(43,020)		18.91		(2,062)		23.20		(107,435)		21.49
Forfeited	(8,507)		26.15		—		—		—		—		(8,507)		26.15
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
Unrecognized compensation cost (in thousands)	$	1,229			$	879			$	1,393			$	3,501
Weighted average remaining recognition period (in years)	1.80				1.64				2.79				2.15


~~(1)~~	~~Partnership income was recorded in other non-interest income for the year ended December 31, 2017.~~


	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


	At December 31,
	2023		2022
	(In Thousands)
Commitments to extend credit, primarily commercial loans	$	1,198,031	$	913,042
Standby letters of credit	17,938		15,013


	December 31, 2017
	Fair Value Measurements Using
	Level 1			Level 2		Level 3		Total
			December 31, 2023											December 31, 2023
			Fair Value Measurements Using										Fair Value Measurements Using
			Level 1								Level 1	Level 2		Level 3	Total
	(In Thousands)									(In Thousands)
Assets:
Securities available-for-sale:
U.S. government agency obligations - government-sponsored enterprises	$	—		$	1,000	$	—	$	1,000
Municipal obligations	—			9,414		—		9,414
Collateralized mortgage obligations - government issued	—			22,249		—		22,249
Collateralized mortgage obligations - government-sponsored enterprises	—			90,305		—		90,305
Other securities	—			3,037		—		3,037
Securities available-for-sale:
Securities available-for-sale:
U.S. treasuries
U.S. treasuries
U.S. treasuries
U.S. government agency securities - government-sponsored enterprises
Municipal securities
Residential mortgage-backed securities - government issued
Residential mortgage-backed securities - government-sponsored enterprises
Commercial mortgage-backed securities - government issued
Commercial mortgage-backed securities - government-sponsored enterprises

Interest rate swaps
Interest rate swaps
Interest rate swaps	—			942		—		942
Liabilities:
Interest rate swaps	—			1,064		—		1,064
Interest rate swaps
Interest rate swaps


	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


	2023								2022
	Fourth Quarter		Third Quarter		Second Quarter		First Quarter		Fourth Quarter		Third Quarter		Second Quarter		First Quarter
	(Dollars in Thousands, Except Per Share Data)
Interest income	$	54,762	$	50,941	$	47,161	$	42,064	$	38,319	$	31,786	$	27,031	$	24,235
Interest expense	25,222		22,345		19,414		15,359		10,867		5,902		3,371		2,809
Net interest income	29,540		28,596		27,747		26,705		27,452		25,884		23,660		21,426
Provision for credit losses	2,573		1,817		2,231		1,561		702		12		(3,727)		(855)
Non-interest income	7,094		8,430		7,374		8,410		6,973		8,197		6,872		7,386
Non-interest expense	21,588		23,189		22,031		21,767		21,167		20,028		19,456		18,823
Income before income tax expense	12,473		12,020		10,859		11,787		12,556		14,041		14,803		10,844
Income tax expense	2,703		2,079		2,522		2,808		2,400		3,215		3,599		2,172
Net income	9,770		9,941		8,337		8,979		10,156		10,826		11,204		8,672
Preferred stock dividend	219		218		219		219		219		219		245		—
Income available to common shareholders	$	9,551	$	9,723	$	8,118	$	8,760	$	9,937	$	10,607	$	10,959	$	8,672
Per common share:
Basic earnings	$	1.15	$	1.17	$	0.98	$	1.05	$	1.18	$	1.25	$	1.29	$	1.02
Diluted earnings	1.15		1.17		0.98		1.05		1.18		1.25		1.29		1.02
Dividends declared	0.2275		0.2275		0.2275		0.2275		0.1975		0.1975		0.1975		0.1975


~~(1)~~	Results for the third quarter, second quarter and first quarter 2016 have been adjusted to reflect early adoption of ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.”


~~(a)~~	~~Directors of the Registrant~~. The information included in the definitive Proxy Statement for the Annual Meeting of the Shareholders to be held on May 22, 2018 under the captions “Item 1 - Election of Directors,” “Corporate Governance Principles and Practices” and “Section 16(a) Beneficial Ownership Reporting Compliance” is incorporated herein by reference.


~~(b)~~	~~Executive Officers of the Registrant. The information presented in Item 1 of this document is incorporated herein by reference.~~



~~Plan category~~	~~Number of securities to~~ ~~be issued upon exercise~~ ~~of outstanding options,~~ ~~warrants and rights~~	~~Weighted-average~~ ~~exercise price of~~ ~~outstanding options,~~ ~~warrants and rights~~		~~Number of securities~~ ~~remaining available for~~ ~~future issuance under~~ ~~equity compensation~~ ~~plans (excluding~~ ~~securities reflected in~~ ~~column (a))~~
	~~(a)~~	~~(b)~~		~~(c)~~
~~Equity compensation plans approved by security holders~~	—	$	—	~~211,835~~
~~Equity compensation plans not approved by security holders~~	—	—		—