SECURITIES AND EXCHANGE COMMISSION

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer¨

Non-accelerated filer¨

Smaller reporting company¨

Emerging growth company¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No þ

The number of shares outstanding of the registrant’s sole class of common stock, par value $0.01 per share, on ~~October 20, 2017~~April 29, 2021 was ~~8,759,673~~8,568,955 shares.

FIRST BUSINESS FINANCIAL SERVICES, INC.

PART I. Financial Information

Item 1. Financial Statements

First Business Financial Services, Inc.

Consolidated Balance Sheets

September 30,
2017 December 31,
2016
(unaudited)
(In Thousands, Except Share Data)
Assets
Cash and due from banks $ 20,685
$ 14,596
Short-term investments 52,511
62,921
Cash and cash equivalents 73,196
77,517
Securities available-for-sale, at fair value 131,130
145,893
Securities held-to-maturity, at amortized cost 38,873
38,612
Loans held for sale —
1,111
Loans and leases receivable, net of allowance for loan and lease losses of $19,923 and $20,912, respectively 1,446,790
1,429,763
Premises and equipment, net 3,048
3,772
Foreclosed properties 2,585
1,472
Bank-owned life insurance 39,988
39,048
Federal Home Loan Bank and Federal Reserve Bank stock, at cost 5,083
2,131
Goodwill and other intangible assets 12,735
12,773
Accrued interest receivable and other assets 32,228
28,607
Total assets $ 1,785,656
$ 1,780,699
Liabilities and Stockholders’ Equity
Deposits $ 1,423,724
$ 1,538,855
Federal Home Loan Bank advances and other borrowings 167,884
59,676
Junior subordinated notes 10,015
10,004
Accrued interest payable and other liabilities 17,252
10,514
Total liabilities 1,618,875
1,619,049
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, 9,016,345 and 8,959,239 shares issued, 8,758,923 and 8,715,856 shares outstanding at September 30, 2017 and December 31, 2016, respectively 90
90
Additional paid-in capital 78,353
77,542
Retained earnings 95,785
91,317
Accumulated other comprehensive loss (370 ) (522 )
Treasury stock, 257,422 and 243,383 shares at September 30, 2017 and December 31, 2016, respectively, at cost (7,077 ) (6,777 )
Total stockholders’ equity 166,781
161,650
Total liabilities and stockholders’ equity $ 1,785,656
$ 1,780,699

First Business Financial Services, Inc.

Consolidated Statements of Income (Unaudited)

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
(In Thousands, Except Per Share Data)
Interest income
Loans and leases $ 17,686
$ 18,016
$ 53,492
$ 55,161
Securities 771
698
2,326
2,102
Short-term investments 177
184
488
533
Total interest income 18,634
18,898
56,306
57,796
Interest expense
Deposits 2,708
2,870
8,039
8,961
Federal Home Loan Bank advances and other borrowings 763
453
2,185
1,425
Junior subordinated notes 280
280
832
835
Total interest expense 3,751
3,603
11,056
11,221
Net interest income 14,883
15,295
45,250
46,575
Provision for loan and lease losses 1,471
3,537
5,699
6,824
Net interest income after provision for loan and lease losses 13,412
11,758
39,551
39,751
Non-interest income
Trust and investment services fee income 1,653
1,364
4,930
3,981
Gain on sale of Small Business Administration loans 606
347
1,501
3,854
Gain on sale of residential mortgage loans —
198
26
540
Service charges on deposits 756
772
2,287
2,247
Loan fees 391
506
1,525
1,791
Increase in cash surrender value of bank-owned life insurance 314
244
940
730
Other non-interest income 619
209
1,931
914
Total non-interest income 4,339
3,640
13,140
14,057
Non-interest expense
Compensation 7,645
7,637
24,710
24,454
Occupancy 527
530
1,521
1,538
Professional fees 995
1,065
3,046
2,888
Data processing 592
623
1,810
1,971
Marketing 594
528
1,546
1,710
Equipment 285
292
868
913
Computer software 715
539
2,037
1,607
FDIC insurance 320
444
1,081
989
Collateral liquidation costs 371
89
556
204
Net loss on foreclosed properties —
—
—
93
Impairment of tax credit investments 112
3,314
338
3,520
Small Business Administration recourse provision 1,315
375
2,095
449
Other non-interest expense 760
317
2,404
1,574
Total non-interest expense 14,231
15,753
42,012
41,910
Income (loss) before income tax expense 3,520
(355 ) 10,679
11,898
Income tax expense (benefit) 936
(3,020 ) 2,812
957
Net income $ 2,584
$ 2,665
$ 7,867
$ 10,941
Earnings per common share
Basic $ 0.30
$ 0.31
$ 0.90
$ 1.26
Diluted 0.30
0.31
0.90
1.26
Dividends declared per share 0.13
0.12
0.39
0.36

First Business Financial Services, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)


	For the Three Months Ended March 31,
	2021		2020
	(In Thousands)
Net income	$	9,731	$	3,278
Other comprehensive (loss) income, before tax
Securities available-for-sale:
Unrealized securities (losses) gains arising during the period	(2,238)		4,501
Reclassification adjustment for net loss realized in net income	0		4
Securities held-to-maturity:
Amortization of net unrealized losses transferred from available-for-sale	8		10
Interest rate swaps:
Unrealized gains (losses) on interest rate swaps arising during the period	2,089		(3,625)
Income tax benefit (expense)	36		(227)
Total other comprehensive (loss) gain	(105)		663
Comprehensive income	$	9,626	$	3,941

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
(In Thousands)
Net income $ 2,584
$ 2,665
$ 7,867
$ 10,941
Other comprehensive income, before tax
Securities available-for-sale:
Net unrealized securities gains arising during the period 172
81
199
1,317
Securities held-to-maturity:
Amortization of net unrealized losses transferred from available-for-sale 25
41
79
124
Income tax expense (76 ) (47 ) (126 ) (555 )
Total other comprehensive income 121
75
152
886
Comprehensive income $ 2,705
$ 2,740
$ 8,019
$ 11,827

First Business Financial Services, Inc.

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)


	Common Shares Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total
	(In Thousands, Except Share Data)
Balance at January 1, 2020	8,566,044	$	92	$	81,188	$	129,105	$	(1,348)	$	(14,881)	$	194,156

Net income	—	—		—		3,278		—		—		3,278
Other comprehensive income	—	—		—		—		663		—		663


Share-based compensation - restricted shares, net	63,684	0		417		—		—		—		417
Cash dividends ($0.165 per share)	—	—		—		(1,410)		—		—		(1,410)
Treasury stock purchased	(58,594)	—		—		—		—		(1,447)		(1,447)

Balance at March 31, 2020	8,571,134	$	92	$	81,605	$	130,973	$	(685)	$	(16,328)	$	195,657


	Common Shares Outstanding	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	—	—		—		9,731		—		—		9,731
Other comprehensive loss	—	—		—		—		(105)		—		(105)



Share-based compensation - restricted shares and employee stock purchase plan	84,255	1		530		—		—		—		531

Issuance of common stock under the employee stock purchase plan	1,775	—		39		—		—		—		39
Cash dividends ($0.18 per share)	—	—		—		(1,541)		—		—		(1,541)
Treasury stock purchased	(14,795)	—		—		—		—		(326)		(326)

Balance at March 31, 2021	8,638,195	$	93	$	83,694	$	148,621	$	(1,038)	$	(16,879)	$	214,491

Common Shares Outstanding
Common
Stock

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
(Loss) Income

Treasury
Stock
Total
(In Thousands, Except Share Data)
Balance at December 31, 2015 8,699,410
$ 89
$ 76,549
$ 80,584
$ (80 ) $ (6,310 ) $ 150,832
Net income —
—
—
10,941
—
—
10,941
Other comprehensive income —
—
—
—
886
—
886
Share-based compensation - restricted shares, net 37,708
1
857
—
—
—
858
Cash dividends ($0.36 per share) —
—
—
(3,132 ) —
—
(3,132 )
Treasury stock purchased (19,819 ) —
—
—
—
(454 ) (454 )
Balance at September 30, 2016 8,717,299
$ 90
$ 77,406
$ 88,393
$ 806
$ (6,764 ) $ 159,931

Common Shares Outstanding
Common
Stock

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
(Loss) Income

Treasury
Stock
Total
(In Thousands, Except Share Data)
Balance at December 31, 2016 8,715,856
$ 90
$ 77,542
$ 91,317
$ (522 ) $ (6,777 ) $ 161,650
Net income —
—
—
7,867
—
—
7,867
Other comprehensive income —
—
—
—
152
—
152
Share-based compensation - restricted shares, net 57,106
—
811
—
—
—
811
Cash dividends ($0.39 per share) —
—
—
(3,399 ) —
—
(3,399 )
Treasury stock purchased (14,039 ) —
—
—
—
(300 ) (300 )
Balance at September 30, 2017 8,758,923
$ 90
$ 78,353
$ 95,785
$ (370 ) $ (7,077 ) $ 166,781

First Business Financial Services, Inc.

Consolidated Statements of Cash Flows (Unaudited)


	For the Three Months Ended March 31,
	2021		2020
	(In Thousands)
Operating activities
Net income	$	9,731	$	3,278
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes, net	(1,242)		(26)
Impairment of tax credit investments	0		113
Provision for loan and lease losses	(2,068)		3,182
SBA recourse (benefit) provision	(130)		25
Derivative credit valuation adjustment	(170)		0
Depreciation, amortization and accretion, net	956		806
Share-based compensation	531		417
Net loss on sale of securities	0		4

Increase in bank-owned life insurance policies	(350)		(295)
Origination of loans for sale	(13,674)		(15,709)
Sale of SBA loans originated for sale	16,871		14,848
Gain on sale of loans originated for sale	(1,078)		(265)
Net loss on foreclosed properties, including impairment valuation	3		102


Excess tax benefit from share-based compensation	(7)		18

Payments on operating lease liabilities	(393)		(387)
Payments received on operating leases	39		28
Net increase in accrued interest receivable and other assets	(4,979)		(40,050)
Net increase in accrued interest payable and other liabilities	2,789		35,138
Net cash provided by operating activities	6,829		1,227
Investing activities
Proceeds from maturities, redemptions, and paydowns of available-for-sale securities	17,222		9,458
Proceeds from maturities, redemptions, and paydowns of held-to-maturity securities	1,580		1,910
Proceeds from sale of available-for-sale securities	0		839
Purchases of available-for-sale securities	(9,030)		(8,286)

Proceeds from sale of foreclosed properties	0		1,148

Net increase in loans and leases	(86,613)		(28,719)


Returns of investments in limited partnerships	60		0

Investment in historic development entities	0		(259)
Distribution from historic development entities	49		30
Investment in low-income housing	(1,307)		0
Investment in Federal Home Loan Bank and Federal Reserve Bank stock	(3,614)		(2,040)
Proceeds from the sale of Federal Home Loan Bank stock	2,250		260
Purchases of leasehold improvements and equipment, net	(89)		(88)
Purchases of bank-owned life insurance policies	0		(8,000)


Net cash used in investing activities	(79,492)		(33,747)
Financing activities
Net increase (decrease) in deposits	47,202		(30,253)
Proceeds from Federal Home Loan Bank advances	290,300		260,000
Repayment of Federal Home Loan Bank advances	(269,000)		(166,500)






Net increase in long-term borrowed funds	7,954		14


Cash dividends paid	(1,541)		(1,410)
Proceeds from issuance of common stock under ESPP	39		0

For the Nine Months Ended September 30,
2017 2016
(In Thousands)
Operating activities
Net income $ 7,867
$ 10,941
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes, net (1,603 ) (9 )
Impairment of tax credit investments 338
3,520
Provision for loan and lease losses 5,699
6,824
Depreciation, amortization and accretion, net 1,148
1,103
Share-based compensation 811
858
Increase in value of bank-owned life insurance policies (940 ) (730 )
Origination of loans for sale (24,606 ) (54,794 )
Sale of loans originated for sale 27,244
59,263
Gain on sale of loans originated for sale (1,527 ) (4,394 )
Net loss on foreclosed properties, including impairment valuation —
93
Excess tax benefit from share-based compensation (59 ) (138 )
Returns on investments in limited partnerships 92
250
Net increase in accrued interest receivable and other assets (1,759 ) (2,813 )
Net (decrease) increase in accrued interest payable and other liabilities 6,739
(2,789 )
Net cash provided by operating activities 19,444
17,185
Investing activities
Proceeds from maturities, redemptions and paydowns of available-for-sale securities 29,802
32,555
Proceeds from maturities, redemptions and paydowns of held-to-maturity securities 2,723
2,906
Proceeds from sale of available-for-sale securities 11,702
2,190
Purchases of available-for-sale securities (27,125 ) (48,229 )
Purchases of held-to-maturity securities

(3,016 ) (714 )
Proceeds from sale of foreclosed properties —
57
Net increase in loans and leases (22,530 ) (29,962 )
Investments in limited partnerships (500 ) (750 )
Returns of investments in limited partnerships —
541
Investment in historic development entities (417 ) (1,488 )
Investment in Federal Home Loan Bank and Federal Reserve Bank Stock (12,223 ) (388 )
Proceeds from the sale of Federal Home Loan Bank Stock 9,271
1,066
Purchases of leasehold improvements and equipment, net (942 ) (519 )
Net cash used in investing activities (13,255 ) (42,735 )
Financing activities
Net decrease in deposits (115,107 ) (10,924 )
Repayment of Federal Home Loan Bank advances (470,416 ) (63,100 )
Proceeds from Federal Home Loan Bank advances 580,415
59,600
Proceeds from issuance of subordinated notes payable 9,090
—
Repayment of subordinated notes payable (7,889 ) —
Net decrease in other borrowed funds (2,904 ) (1,240 )
Cash dividends paid (3,399 ) (3,132 )
Purchase of treasury stock (300 ) (454 )
Net cash used in financing activities (10,510 ) (19,250 )
Net decrease in cash and cash equivalents (4,321 ) (44,800 )
Cash and cash equivalents at the beginning of the period 77,517
113,564
Cash and cash equivalents at the end of the period $ 73,196
$ 68,764
Supplementary cash flow information
Cash paid during the period for:
Interest paid on deposits and borrowings $ 10,504
$ 11,058
Income taxes paid 490
5,122
Non-cash investing and financing activities:
Transfer of loans from held-to-maturity to held-for-sale 8,366
11,504
Transfer from premises and equipment to foreclosed properties 1,113
—


Purchase of treasury stock	(326)		(1,447)
Net cash provided by financing activities	74,628		60,404
Net decrease in cash and cash equivalents	1,965		27,884
Cash and cash equivalents at the beginning of the period	56,909		67,102
Cash and cash equivalents at the end of the period	$	58,874	$	94,986
Supplementary cash flow information
Cash paid during the period for:
Interest paid on deposits and borrowings	$	4,856	$	7,250
Income taxes paid	32		(8)

See ~~accompanying~~accompany Notes to Unaudited Consolidated Financial ~~Statements.~~Statements

Notes to Unaudited Consolidated Financial Statements

Note 1 — Nature of Operations and Summary of Significant Accounting Policies

Nature of ~~Operations.~~Operations

The accounting and reporting practices of First Business Financial Services, Inc. ~~(the~~(“FBFS” or the “Corporation”), through our wholly-owned subsidiary, First Business Bank (“FBB” or the “Bank”), ~~has~~have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). FBB operates as a commercial banking institution primarily in ~~the~~ Wisconsin and the greater Kansas City ~~markets. FBB also offers trust and investment services through First Business Trust & Investments (“FBTI”), a division of FBB.~~Metro. The Bank provides a full range of financial services to businesses, business owners, executives, professionals, and high net worth individuals. FBB also offers private wealth management services and bank consulting services. The Bank is subject to competition from other financial institutions and service providers, and is also subject to state and federal regulations. FBB has the following ~~wholly owned~~wholly-owned subsidiaries: First Business ~~Capital Corp.~~Specialty Finance, LLC (“~~FBCC”~~FBSF”), First Madison Investment Corp. (“FMIC”), ~~First Business Equipment Finance, LLC (“FBEF”),~~ ABKC Real Estate, LLC (“ABKC”), FBB Real Estate 2, LLC (“FBB RE 2”), Rimrock Road Investment Fund, LLC (“Rimrock Road”), BOC Investment, LLC (“BOC”), Mitchell Street Apartments Investment, LLC (“Mitchell Street”), and FBB Tax Credit Investment, LLC (“FBB Tax Credit”). FMIC is located in and was formed under the laws of the state of Nevada.

Basis of ~~Presentation.~~Presentation

The accompanying unaudited Consolidated Financial Statements were prepared in accordance with GAAP and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Corporation’s Consolidated Financial Statements and footnotes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2020. The unaudited Consolidated Financial Statements include the accounts of the Corporation and its ~~wholly owned~~wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. In accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 810, the Corporation’s ownership interest in FBFS Statutory Trust II (“Trust II”) has not been consolidated into the financial statements.

Management of the Corporation is required to make estimates and assumptions ~~that~~which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that could significantly change in the near-term include the value of securities and interest rate swaps, level of the allowance for loan and lease losses, lease residuals, property under operating leases, goodwill, level of the Small Business Administration (“SBA”) recourse reserve, and income taxes. The results of operations for the ~~nine month period~~three months ended ~~September 30, 2017~~March 31, 2021, are not necessarily indicative of results that may be expected for any other interim period or the entire fiscal year ending December 31, ~~2017.~~2021. Certain amounts in prior periods may have been reclassified to conform to the current presentation. Subsequent events have been evaluated through the date of the issuance of the unaudited Consolidated Financial Statements. No significant subsequent events have occurred through this date requiring adjustment to the financial statements or disclosures.

The Corporation has not changed its significant accounting and reporting policies from those disclosed in the Corporation’s Form 10-K for the year ended December 31, ~~2016.~~2020.

Recent Accounting Pronouncements

~~In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09,~~ ~~“Revenue from Contracts with Customers (Topic 606),”~~ with an original effective date for annual reporting periods beginning after December 15, 2016. The ASU is a converged standard between the FASB and the IASB that provides a single comprehensive revenue recognition model for all contracts with customers across transactions and industries. The primary objective of the ASU is revenue recognition that represents the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. In August 2015, the FASB issued ASU No. 2015-14, which defers the effective date of ASU 2014-09 to annual and interim reporting periods in fiscal years beginning after December 15, 2017. Earlier application is permitted only as of annual and interim reporting periods in fiscal years beginning after December 15, 2016. In March 2016, the FASB issued ASU No. 2016-08, “~~Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net.”~~ The ASU intends to improve the operability and understandability of the implementation guidance of ASU 2014-09 on principal versus agent considerations. In April, May and December 2016, the FASB also issued ASU No. 2016-10, No. 2016-12 and No. 2016-20, respectively, related to Topic 606. The amendments do not change the core principles of the previously issued guidance, but instead further clarify and provide implementation guidance for certain aspects of the original ASU. The Corporation intends to adopt the accounting standards during the first quarter of 2018, as required. The Corporation has conducted its initial assessment and evaluated contracts to assess and quantify accounting methodology changes resulting from the adoption of this standard. The adoption of this accounting standard is not expected to have a material impact on the Corporation's consolidated financial statements. The

FASB continues to release new accounting guidance related to the adoption of this standard, which could impact the Corporation's initial assessment and may change the conclusions reached as to the application of this new guidance.

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~“Leases (Topic 842).”~~ The ASU intends to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities and disclosing key information about leasing arrangements. The ASU will require lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessees’ obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and ~~Topic 606, Revenue from Contracts with Customers~~. The new lease guidance simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. The ASU is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Corporation intends to adopt the accounting standard during the first quarter of 2019, as required, and is currently evaluating the impact on its results of operations, financial position and liquidity.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments- Credit Losses (Topic 326).,” which is often referred to as CECL. The ASU replaces the incurred loss impairment methodology for recognizing credit losses with a methodology that reflects all expected credit losses. The ASU also requires consideration of a broader range of information to inform credit loss estimates, including such factors as past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The amendments affect loans, debt securities, trade receivables, net investments in leases, ~~off-balance-sheet~~off-balance sheet credit exposures, and any other financial asset not excluded from the scope ~~that have~~under which the Corporation has the contractual right to receive cash. Entities will apply the amendments in the ASU through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. In November 2019, the FASB issued ASU No. 2019-10, “Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842).” The ASU delays the effective date for the credit losses standard from January 2020 to January 2023 for certain entities, including certain Securities and Exchange Commission filers, public business entities, and private companies. As a smaller reporting company, the Corporation is eligible for the delay and will be deferring adoption. The Corporation has established a cross-functional committee and has implemented a third-party software solution to assist with the adoption of the standard. Management has gathered all necessary data and reviewed potential methods to calculate the expected credit losses. Management is currently calculating sample expected loss computations and developing the allowance

methodology and assumptions that will be used under the new standard. Management will continue to progress on its implementation project plan and improve the Corporation’s approach throughout the deferral period.

In March 2020, the FASB issued ASU 2020-04 "Reference Rate Reform (Topic 848)," which provides temporary, optional practical expedients and exceptions to ease the potential burden of transitioning to the new reference rates which will replace LIBOR and other reference rates expected to be discontinued. Adoption of the provisions of ASU 2020-04 is optional. The amendments are effective for ~~public companies for fiscal years~~all entities from the beginning ~~after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as~~ of the ~~fiscal years beginning after~~interim period that includes the issuance date of the ASU. An entity may elect to apply the amendments prospectively through December ~~15, 2018.~~31, 2022. The Corporation ~~intends to adopt the accounting standard during the first quarter of 2020, as required, and~~ is currently evaluating the impact of ASU 2020-04 on its financial position, results of operations ~~financial position~~ and liquidity.

~~In May 2017, the FASB issued ASU No. 2017-09,~~ ~~“Compensation- Stock Compensation (Topic 718).”~~ The ASU provides clarity about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The ASU is effective for all entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption ~~is permitted. The Corporation is in the process of evaluating the impact~~ of this standard ~~but~~is not expected to have a material effect on the Corporation's operating results or financial condition.

In January, 2021, the FASB released ASU 2021-01, ‘Reference Rate Reform (Topic 848),’ which clarifies that certain optional expedients and exceptions in topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition related to reference rate reform. The amendments in this update are effective immediately for all entities. An entity may elect to apply the amendments in the update on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date that financial statements are available to be issued. The Corporation does not expect this ~~standard~~amendment to have a material ~~impact~~effect on its ~~results of operations,~~ financial ~~position and liquidity.~~statements.

~~In August 2017, the FASB issued ASU No. 2017-12,~~ ~~“Derivatives and Hedging (Topic 815).”~~ The ASU intends to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. It also expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item. The ASU is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Corporation is in the process of evaluating the impact of this standard but does not expect this standard to have a material impact on its results of operations, financial position and liquidity.

Note 2 — Other Events

On March 11, 2020, the World Health Organization declared COVID-19, the disease caused by the novel coronavirus, a pandemic as a result of the global spread of the coronavirus illness. In response to the outbreak, federal and state authorities in the U.S. introduced various measures to try to limit or slow the spread of the virus, including travel restrictions, nonessential business closures, stay-at-home orders, and strict social distancing. The Corporation activated its Pandemic Preparedness Plan to protect the health of employees and clients, which includes temporarily limiting lobby hours and transitioning the vast majority of the Corporation’s workforce to remote work. The Corporation has not incurred any significant disruptions to its business activities.

The full long-term impact of the COVID-19 pandemic is unknown and continues to evolve. It has caused substantial disruption in international and U.S. economies, markets, and employment. The outbreak has had a significant adverse impact on certain industries the Corporation serves, including retail, restaurants and food services, hospitality, and entertainment. As of March 31, 2021, the Corporation’s aggregate outstanding exposure in these segments was $194.5 million, or 9.9% of the Corporation’s gross loans and leases. Because of the significant uncertainties related to the ultimate duration of the COVID-19 pandemic and its effects on clients and prospects, and on the national and local economy as a whole, there can be no assurances as to how the crisis may ultimately affect the Corporation’s loan portfolio.

The Corporation provided loan payment deferrals for certain borrowers impacted by COVID-19 who were current in their payments at the inception of the Corporation’s loan modification program. As of March 31, 2021, the Corporation had 7 deferral requests outstanding, representing $13.0 million in total loans, or 0.7% of gross loans and leases, excluding gross PPP loans, compared to $27.0 million, or 1.4% of gross loans and leases, excluding gross PPP loans as of December 31, 2020. For loans subject to the program, each borrower is required to resume making regularly scheduled loan payment at the end of the modification period and the deferred amounts will be moved to the end of the loan term. The loan will not be reported as past due during the deferral period.

On December 27, 2020, the Consolidated Appropriations Act, 2021 (“CAA”) was signed into law. The CAA is a $2.3 trillion spending bill that combines $900 billion in stimulus relief for the COVID-19 pandemic in the United States with a $1.4 trillion omnibus spending bill for the 2021 federal fiscal year and prevents a government shutdown. The CAA allows for a second draw for certain businesses under the PPP. Like the original program, loan proceeds are available to help fund payroll and group health benefit costs, as well as certain mortgage interest, rent and utilities. In addition, authorized costs now also include COVID-19 related worker protection costs, uninsured property damage costs due to looting or vandalism during 2020 and certain supplier costs and expenses for operations. The CAA also expands benefit costs to include group dental, vision, life and disability benefits. All of these changes are generally retroactive to the original CARES Act, meaning that the changes may be taken into account in processing loan forgiveness with respect to an original PPP loan. The Corporation began accepting and processing applications for second draw PPP loans on January 13, 2021.

guaranty to the lender of 100% of principal and interest, unless the lender violated an obligation under the agreement. As loan losses are expected to be immaterial, if any, due to the guaranty, management excluded the PPP loans from the allowance for loan and lease losses calculation. Management funded these short-term loans primarily through a combination of excess cash held at the Federal Reserve and from an increase in in-market deposits.

Note 3 — 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~~weighted-average number of shares outstanding during the applicable period, excluding outstanding participating securities. Participating securities include unvested restricted shares. Unvested restricted shares are considered participating securities because holders of these securities receive non-forfeitable dividends, or dividend equivalents, at the same rate as holders of the Corporation’s common stock. Diluted earnings per share are computed by dividing net income allocated to common shares adjusted for reallocation of undistributed earnings of unvested restricted shares by the weighted average number of shares determined for the basic earnings per common share computation plus the dilutive effect of common stock equivalents using the treasury stock method.

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
(Dollars in Thousands, Except Share Data)
Basic earnings per common share
Net income $ 2,584
$ 2,665
$ 7,867
$ 10,941
Less: earnings allocated to participating securities 35
38
105
165
Basic earnings allocated to common shareholders $ 2,549
$ 2,627
$ 7,762
$ 10,776
Weighted-average common shares outstanding, excluding participating securities 8,621,311
8,582,836
8,606,080
8,569,613
Basic earnings per common share $ 0.30
$ 0.31
$ 0.90
$ 1.26

Diluted earnings per common share
Earnings allocated to common shareholders, diluted $ 2,549
$ 2,627
$ 7,762
$ 10,776
Weighted-average diluted common shares outstanding, excluding participating securities 8,621,311
8,582,836
8,606,080
8,569,613
Diluted earnings per common share $ 0.30
$ 0.31
$ 0.90
$ 1.26

Note 34 — Share-Based Compensation

The Corporation adopted the ~~2012~~2019 Equity Incentive Plan (the “Plan”) during the quarter ended June 30, ~~2012.~~2019. The Plan is administered by the Compensation Committee of the Board of Directors of the Corporation and provides for the grant of equity ownership opportunities through incentive stock options and nonqualified stock options (“Stock Options”), restricted stock, restricted stock units, dividend equivalent units, and any other type of award permitted by the Plan. As of ~~September 30, 2017, 217,475~~March 31, 2021, 40,953 shares were available for future grants under the Plan. Shares covered by awards that expire, terminate, or lapse will again be available for the grant of awards under the Plan. The Corporation may issue new shares and shares from its treasury stock for shares delivered under the Plan.

Under the Plan, the Corporation may grant restricted stock awards, restricted stock units, and other stock-based awards to plan participants, subject to forfeiture upon the occurrence of certain events until the dates specified in the participant’s award agreement. While restricted stock is subject to forfeiture, ~~with the exception of~~ restricted stock ~~units, which do not have voting rights and are provided dividend equivalents, restricted stock~~award participants may exercise full voting rights and will receive all dividends and other distributions paid with respect to the restricted shares. Restricted stock units do not have voting rights and are provided dividend equivalents. The restricted stock granted under the Plan is typically subject to a vesting period. Compensation expense for restricted stock is recognized over the requisite service period of generally three or four years for the entire award on a straight-line basis. Upon vesting of restricted stock, the benefit of tax deductions in excess of recognized compensation expense is reflected as an income tax benefit in the unaudited Consolidated Statements of Income.

The Corporation may issue a combination of performance-based restricted stock units and restricted stock awards to its executive officers. Vesting of the performance based restricted stock units will be measured on Total Shareholder Return

(“TSR”) and Return on Average Equity (“ROAE”) and will cliff-vest after a three-year measurement period based on the Corporation’s performance relative to a custom peer group. At the end of the performance period, the number of actual shares to be awarded varies between 0% and 200% of target amounts. The restricted stock awards issued to executive officers will vest ratably over a three-year period. Compensation expense is recognized for performance-based restricted stock units over the requisite service and performance period of generally three years for the entire expected award on a straight-line basis. The compensation expense for the awards expected to vest for the percentage of performance-based restricted stock units subject to the ROAE metric will be adjusted if there is a change in the expectation of ROAE. The compensation expense for the awards expected to vest for the percentage of performance based restricted stock units subject to the TSR metric are never adjusted, and are amortized utilizing the accounting fair value provided using a Monte Carlo pricing model.

Restricted stock activity for the year ended December 31, ~~2016~~2020 and the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 was as follows:


	Number of Restricted Shares	Weighted Average Grant-Date Fair Value
Nonvested balance as of January 1, 2020	176,935	$	22.51
Granted (1)	78,775	25.82
Vested	(56,904)	22.26
Forfeited	(11,002)	22.86
Nonvested balance as of December 31, 2020	187,804	24.29
Granted (1)	85,435	23.18
Vested	(25,897)	24.04
Forfeited	(1,180)	23.12
Nonvested balance as of March 31, 2021	246,162	$	23.94

Number of
Restricted Shares/Units

Weighted Average
Grant-Date
Fair Value
Nonvested balance as of December 31, 2015 135,471
$ 20.13
Granted 60,415
22.74
Vested (56,090 ) 18.71
Forfeited (23,551 ) 20.90
Nonvested balance as of December 31, 2016 116,245
21.13
Granted 64,725
21.62
Vested (45,695 ) 21.49
Forfeited (7,619 ) 21.57
Nonvested balance as of September 30, 2017 127,656
$ 21.39
(1)The number of restricted shares/units shown includes the shares that would be granted if the target level of performance is achieved related to the performance based restricted stock units. The number of shares actually issued may vary.

As of ~~September 30, 2017,~~March 31, 2021, the Corporation had ~~$2.6~~$4.7 million of ~~deferred~~ unvested compensation expense, which the Corporation expects to recognize over a weighted-average period of approximately ~~3.03~~2.54 years.

Employee Stock Purchase Plan

During 2020, an employee stock purchase plan ("ESPP") was approved by the Corporation’s shareholders and is offered to all qualifying employees, the Company is authorized to issue up to 250,000 shares under the ESPP. The plan qualifies as an employee stock purchase plan under section 423 of the Internal Revenue Code of 1986. Under the ESPP, eligible employees may enroll in a three month offer period that begins January, April, July, and October of each year. Employees may elect to purchase a limited number of shares on the Corporation's common stock at 90% of the fair market value on the last day of the offering period. The ESPP is treated as a compensatory item for purposes of share-based compensation expense.

During the three months ended March 31, 2021, the Corporation issued 1,775 shares of common stock under the ESPP. As of March 31, 2021, 244,258 shares remained available for issuance under the ESPP.

For the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~2016,~~2020, share-based compensation expense related to restricted stock and the ESPP included in the unaudited Consolidated Statements of Income was ~~as follows:~~$531,000 and $417,000, respectively.

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
(In Thousands)
Share-based compensation expense $ 268
$ 292
$ 811
$ 858

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Note 45 — Securities

The amortized cost and fair value of securities available-for-sale and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows:


	As of March 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In Thousands)
Available-for-sale:
U.S. government agency securities - government-sponsored enterprises	$	22,431	$	7	$	(203)	$	22,235
Municipal securities	23,986		419		(130)		24,275

Residential mortgage-backed securities - government issued	8,951		431		0		9,382
Residential mortgage-backed securities - government-sponsored enterprises	89,139		1,867		(401)		90,605
Commercial mortgage-backed securities - government issued	4,689		120		0		4,809
Commercial mortgage-backed securities - government-sponsored enterprises	19,754		367		(432)		19,689
Other securities	2,205		61		0		2,266
	$	171,155	$	3,272	$	(1,166)	$	173,261


	As of December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In Thousands)
Available-for-sale:
U.S. government agency securities - government-sponsored enterprises	$	22,699	$	9	$	(79)	$	22,629
Municipal securities	24,067		716		(4)		24,779

Residential mortgage-backed securities - government issued	9,894		509		0		10,403
Residential mortgage-backed securities - government-sponsored enterprises	102,843		2,212		(49)		105,006
Commercial mortgage-backed securities - government issued	5,289		175		0		5,464
Commercial mortgage-backed securities - government-sponsored enterprises	12,584		781		0		13,365
Other securities	2,205		74		0		2,279
	$	179,581	$	4,476	$	(132)	$	183,925

As of September 30, 2017
Amortized Cost
Gross
Unrealized Gains

Gross
Unrealized Losses
Fair Value
(In Thousands)
Available-for-sale:
U.S. Government agency obligations - government-sponsored enterprises $ 3,799
$ 11
$ (3 ) $ 3,807
Municipal obligations 9,342
13
(23 ) 9,332
Collateralized mortgage obligations - government issued 22,750
301
(149 ) 22,902
Collateralized mortgage obligations - government-sponsored enterprises 95,608
165
(684 ) 95,089
$ 131,499
$ 490
$ (859 ) $ 131,130

Table of Contents

As of December 31, 2016
Amortized Cost
Gross
Unrealized Gains

Gross
Unrealized Losses
Fair Value
(In Thousands)
Available-for-sale:
U.S. Government agency obligations - government-sponsored enterprises $ 6,298
$ 7
$ (10 ) $ 6,295
Municipal obligations 8,246
2
(92 ) 8,156
Asset-backed securities 1,116
—
(35 ) 1,081
Collateralized mortgage obligations - government issued 30,936
423
(146 ) 31,213
Collateralized mortgage obligations - government-sponsored enterprises 99,865
252
(969 ) 99,148
$ 146,461
$ 684
$ (1,252 ) $ 145,893

The amortized cost and fair value of securities held-to-maturity and the corresponding amounts of gross unrealized gains and losses were as follows:


	As of March 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In Thousands)
Held-to-maturity:

Municipal securities	$	16,197	$	342	$	(19)	$	16,520

Residential mortgage-backed securities - government issued	3,105		93		0		3,198
Residential mortgage-backed securities - government-sponsored enterprises	3,470		125		0		3,595
Commercial mortgage-backed securities - government-sponsored enterprises	2,011		213		0		2,224
	$	24,783	$	773	$	(19)	$	25,537


	As of December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In Thousands)
Held-to-maturity:

Municipal securities	$	17,106	$	417	$	(15)	$	17,508

Residential mortgage-backed securities - government issued	3,564		112		0		3,676
Residential mortgage-backed securities - government-sponsored enterprises	3,693		163		0		3,856
Commercial mortgage-backed securities - government-sponsored enterprises	2,011		282		0		2,293
	$	26,374	$	974	$	(15)	$	27,333

As of September 30, 2017
Amortized Cost
Gross
Unrealized Gains

Gross
Unrealized Losses
Fair Value
(In Thousands)
Held-to-maturity:
U.S. Government agency obligations - government-sponsored enterprises $ 1,498
$ —
$ (5 ) $ 1,493
Municipal obligations 21,928
443
(14 ) 22,357
Collateralized mortgage obligations - government issued 9,601
16
(33 ) 9,584
Collateralized mortgage obligations - government-sponsored enterprises 5,846
12
(18 ) 5,840
$ 38,873
$ 471
$ (70 ) $ 39,274

As of December 31, 2016
Amortized Cost
Gross
Unrealized Gains

Gross
Unrealized Losses
Fair Value
(In Thousands)
Held-to-maturity:
U.S. Government agency obligations - government-sponsored enterprises $ 1,497
$ 2
$ (5 ) $ 1,494
Municipal obligations 21,173
62
(78 ) 21,157
Collateralized mortgage obligations - government issued 9,148
17
(38 ) 9,127
Collateralized mortgage obligations - government-sponsored enterprises 6,794
6
(58 ) 6,742
$ 38,612
$ 87
$ (179 ) $ 38,520

U.S. ~~Government~~government agency ~~obligations~~securities - government-sponsored enterprises represent securities issued by ~~the Federal Home Loan Mortgage Corporation (“FHLMC”) and~~ Federal National Mortgage Association (“FNMA”). and the 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 the Government National Mortgage Association. ~~Collateralized mortgage obligations~~

Residential and commercial mortgage-backed securities - government-sponsored enterprises include securities guaranteed by the ~~FHLMC~~Federal Home Loan Mortgage Corporation, 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. There were 140 sales of available-for-sale securities that occurred during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~three sales~~1 sale of available-for-sale securities that occurred during the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2020.

At ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, securities with a fair value of ~~$1.9~~$29.7 million and ~~$22.4~~$73.7 million,, respectively, were pledged to secure various obligations, including interest rate swap contracts ~~outstanding Federal Home Loan Bank (“FHLB”) advances~~ and ~~additional FHLB availability.~~municipal deposits.

Table of Contents

The amortized cost and fair value of securities by contractual maturity at ~~September 30, 2017~~March 31, 2021 are shown below. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay certain obligations with or without call or prepayment penalties.


	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In Thousands)
Due in one year or less	$	0	$	0	$	2,663	$	2,672
Due in one year through five years	8,575		8,770		11,129		11,306
Due in five through ten years	41,310		42,045		8,754		9,213
Due in over ten years	121,270		122,446		2,237		2,346
	$	171,155	$	173,261	$	24,783	$	25,537

Available-for-Sale Held-to-Maturity
Amortized Cost Fair Value Amortized Cost Fair Value
(In Thousands)
Due in one year or less $ 6,785
$ 6,783
$ —
$ —
Due in one year through five years 13,156
13,194
11,177
11,326
Due in five through ten years 48,051
48,168
13,258
13,495
Due in over ten years 63,507
62,985
14,438
14,453
$ 131,499
$ 131,130
$ 38,873
$ 39,274

The tables below show the Corporation’s gross unrealized losses and fair value of available-for-sale investments ~~with unrealized losses,~~ aggregated by investment category and length of time that individual investments were in a continuous loss position at ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016.~~2020. At ~~September 30, 2017,~~March 31, 2021, the Corporation held ~~106~~26 available-for-sale securities that were in an unrealized loss position. Such securities have not experienced credit rating downgrades; however, they have primarily declined in value due to the current interest rate environment. At ~~September 30, 2017,~~March 31, 2021, the Corporation held 564 available-for-sale securities that had been in a continuous unrealized loss position for twelve months or greater.

The Corporation also has not specifically identified available-for-sale securities in a loss position that it intends to sell in the near term and does not believe that it will be required to sell any such securities. The Corporation reviews its securities on a quarterly basis to monitor its exposure to other-than-temporary impairment. Consideration is given to such factors as the length of time and extent to which the security has been in an unrealized loss position, changes in security ratings, and an evaluation of the present value of expected future cash flows, if necessary. Based on the Corporation’s evaluation, it is expected that the Corporation will recover the entire amortized cost basis of each security. Accordingly, no0 other-than-temporary impairment was recorded in the unaudited Consolidated Statements of Income for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016.~~2020.

A summary of unrealized loss information for securities available-for-sale, categorized by security type and length of time for which the security has been in a continuous unrealized loss position, follows:


	As of March 31, 2021
	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. government agency securities - government-sponsored enterprises	$	3,374	$	126	$	14,357	$	77	$	17,731	$	203
Municipal securities	10,192		130		0		0		10,192		130


Residential mortgage-backed securities - government-sponsored enterprises	18,247		401		0		0		18,247		401

Commercial mortgage-backed securities - government-sponsored enterprises	8,832		432		0		0		8,832		432

	$	40,645	$	1,089	$	14,357	$	77	$	55,002	$	1,166

Table of Contents

As of September 30, 2017
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. Government agency obligations - government-sponsored enterprises $ 800
$ —
$ 1,997
$ 3
$ 2,797
$ 3
Municipal obligations 1,916
9
3,011
14
4,927
23
Collateralized mortgage obligations - government issued 3,679
14
6,185
135
9,864
149
Collateralized mortgage obligations - government-sponsored enterprises 32,752
121
31,883
563
64,635
684
$ 39,147
$ 144
$ 43,076
$ 715
$ 82,223
$ 859


	As of December 31, 2020
	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. government agency securities - government-sponsored enterprises	$	11,602	$	45	$	4,031	$	34	$	15,633	$	79
Municipal securities	2,863		4		0		0		2,863		4


Residential mortgage-backed securities - government-sponsored enterprises	19,078		49		0		0		19,078		49



	$	33,543	$	98	$	4,031	$	34	$	37,574	$	132

As of December 31, 2016
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. Government agency obligations - government-sponsored enterprises $ 1,991
$ 10
$ —
$ —
$ 1,991
$ 10
Municipal obligations 7,207
89
406
3
7,613
92
Asset-backed securities —
$ —
1,081
35
1,081
35
Collateralized mortgage obligations - government issued 10,552
130
493
16
11,045
146
Collateralized mortgage obligations - government-sponsored enterprises 54,843
931
1,819
38
56,662
969
$ 74,593
$ 1,160
$ 3,799
$ 92
$ 78,392
$ 1,252

The tables below show the Corporation’s gross unrealized losses and fair value of held-to-maturity investments, aggregated by investment category and length of time that individual investments were in a continuous loss position at ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016.~~2020. At ~~September 30, 2017,~~March 31, 2021, the Corporation held 143 held-to-maturity securities that were in an unrealized loss position. Such securities have not experienced credit rating downgrades; however, they have primarily declined in value due to the current interest rate environment. There were ~~seven~~2 held-to-maturity securities that had been in a continuous loss position for twelve months or greater as of ~~September 30, 2017.~~March 31, 2021. It is expected that the Corporation will recover the entire amortized cost basis of each held-to-maturity security based upon an evaluation of aforementioned factors. Accordingly, no0 other-than-temporary impairment was recorded in the unaudited Consolidated Statements of Income for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016.~~2020.

A summary of unrealized loss information for securities held-to-maturity, categorized by security type and length of time for which the security has been in a continuous unrealized loss position, follows:


	As of March 31, 2021
	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Held-to-maturity:

Municipal securities	$	0	$	0	$	484	$	19	$	484	$	19
Residential mortgage-backed securities - government issued	5		0		0		0		5		0

	$	5	$	0	$	484	$	19	$	489	$	19


	As of December 31, 2020
	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Held-to-maturity:

Municipal securities	$	276	$	13	$	213	$	2	$	489	$	15

As of September 30, 2017
Less than 12 Months 12 Months or Longer Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
(In Thousands)
Held-to-maturity:
U.S. Government agency obligations - government-sponsored enterprises $ 1,000
$ 5
$ —
$ —
$ 1,000
$ 5
Municipal obligations 853
11
260
3
1,113
14
Collateralized mortgage obligations - government issued 2,806
8
3,804
25
6,610
33
Collateralized mortgage obligations - government-sponsored enterprises —
—
1,927
18
1,927
18
$ 4,659
$ 24
$ 5,991
$ 46
$ 10,650
$ 70

Table of Contents

As of December 31, 2016
Less than 12 Months 12 Months or Longer Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
(In Thousands)
Held-to-maturity:
U.S. Government agency obligations - government-sponsored enterprises $ 1,000
$ 5
$ —
$ —
$ 1,000
$ 5
Municipal obligations 9,472
78
—
—
9,472
78
Collateralized mortgage obligations - government issued 6,980
38
—
—
6,980
38
Collateralized mortgage obligations - government-sponsored enterprises 4,682
58
—
—
4,682
58
$ 22,134
$ 179
$ —
$ —
$ 22,134
$ 179

Note 56 — Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses

Loan and lease receivables consist of the following:


	September 30, 2017		December 31, 2016			March 31, 2021		December 31, 2020
	(In Thousands)					(In Thousands)
Commercial real estate:					Commercial real estate:
Commercial real estate — owner occupied	$	182,755	$	176,459	Commercial real estate — owner occupied	$	256,812	$	253,882
Commercial real estate — non-owner occupied	461,586		473,158		Commercial real estate — non-owner occupied	592,090		564,532
Land development	41,499		56,638		Land development	46,544		49,839
Construction	115,660		101,206		Construction	151,345		141,043
Multi-family	125,080		92,762		Multi-family	322,384		311,556
1-4 family	40,173		45,651		1-4 family	23,319		38,284
Total commercial real estate	966,753		945,874		Total commercial real estate	1,392,494		1,359,136
Commercial and industrial	447,223		450,298		Commercial and industrial	784,305		732,318
Direct financing leases, net	28,868		30,951
Direct financing leases					Direct financing leases	19,616		22,331
Consumer and other:					Consumer and other:
Home equity and second mortgages	7,776		8,412		Home equity and second mortgages	6,719		7,833
Other	17,447		16,329		Other	38,266		28,897
Total consumer and other	25,223		24,741		Total consumer and other	44,985		36,730
Total gross loans and leases receivable	1,468,067		1,451,864		Total gross loans and leases receivable	2,241,400		2,150,515
Less:					Less:
Allowance for loan and lease losses	19,923		20,912		Allowance for loan and lease losses	28,982		28,521
Deferred loan fees	1,354		1,189		Deferred loan fees	6,288		4,545
Loans and leases receivable, net	$	1,446,790	$	1,429,763	Loans and leases receivable, net	$	2,206,130	$	2,117,449

As of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, the Corporation had $272.7 million and $228.9 million, respectively, in gross PPP loans outstanding included in the commercial and industrial loan category and deferred processing fees outstanding of $5.1 million and $3.5 million, respectively, included in deferred loan fees. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness, as an adjustment of yield using the interest method. The SBA provides a guaranty to the lender of 100% of principal and interest, unless the lender violated an obligation under the agreement. As loan losses are expected to be immaterial, if any at all, due to the guaranty, management excluded the PPP loans from the allowance for loan and lease losses calculation. Management funded these short-term loans primarily through a combination of excess cash held at the Federal Reserve and from an increase in in-market deposits.

The total amount of the Corporation’s ownership of SBA loans ~~on the unaudited Consolidated Balance Sheets~~ comprised of the following:


	March 31, 2021		December 31, 2020
	(In Thousands)
SBA 7(a) loans	$	33,870	$	36,266
SBA 504 loans	30,004		26,327
SBA Express loans and lines of credit	910		1,251
SBA PPP loans	272,664		228,870
Total SBA loans	$	337,448	$	292,714

September 30,
2017 December 31,
2016
(In Thousands)
Retained, unguaranteed portion of sold SBA loans $ 30,632
$ 30,418
Other SBA loans⁽¹⁾
25,684
31,728
Total SBA loans $ 56,316
$ 62,146


~~(1)~~	Primarily consisted of SBA Express loans, partially funded 7(a) program loans, and impaired SBA loans that were repurchased from the secondary market, all of which were not saleable as of September 30, 2017 and December 31, 2016, respectively.

As of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016, $11.9~~2020, $8.6 million and ~~$5.5~~$9.3 million of SBA loans ~~in this portfolio~~ were considered impaired, respectively.

Loans transferred to third parties consist of the guaranteed ~~portion~~portions of SBA loans which the Corporation sold in the secondary market and participation interests in other, non-SBA originated ~~loans and residential real estate~~ loans. The total principal amount of the guaranteed ~~portion~~portions of SBA loans sold during the three months ended ~~September 30, 2017~~March 31, 2021, and ~~2016~~2020, was ~~$6.3~~$10.6 million and ~~$3.3~~$2.7 million, respectively. ~~The total principal amount~~

Table of ~~the guaranteed portion of SBA loans sold during the nine months ended September 30, 2017 and 2016 was $15.5 million and $36.4 million, respectively.~~ Contents

Each of the transfers of these financial assets met the qualifications for sale accounting, and therefore all of the loans transferred during the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021, and ~~2016~~2020, have been derecognized in the unaudited Consolidated Financial Statements. The guaranteed ~~portion~~portions of SBA loans were transferred at their fair value and the related gain was recognized upon the transfer as non-interest income in the unaudited Consolidated Financial Statements. The total outstanding balance of sold SBA loans at ~~September 30, 2017~~March 31, 2021, and December 31, ~~2016~~2020, was ~~$103.3~~$82.7 million and ~~$105.1~~$79.5 million, respectively.

The total principal amount of transferred participation interests in other, non-SBA originated ~~commercial~~ loans during the three months ended ~~September 30, 2017~~March 31, 2021, and ~~2016~~2020, was ~~$9.0~~$5.2 million and $7.9 million, respectively. The total principal amount of transferred participation interests in other originated commercial loans during the nine months ended September 30, 2017 and 2016 was $17.0 million and $17.7$11.9 million, respectively, all of which were treated as sales and derecognized under the applicable accounting guidance at the time of transfer. NoNaN gain or loss was recognized on participation interests in other, non-SBA originated loans as they were transferred at or near the date of loan origination and the payments received for servicing the portion of the loans participated represents adequate compensation. The total outstanding balance of these transferred loans at ~~September 30, 2017~~March 31, 2021, and December 31, ~~2016~~2020, was ~~$91.7~~$151.3 million and ~~$102.7~~$153.6 million, respectively. As of ~~September 30, 2017~~March 31, 2021, and December 31, ~~2016,~~2020, the total amount of the Corporation’s partial ownership of these transferred loans on the unaudited Consolidated Balance Sheets was ~~$146.2~~$259.9 million and ~~$106.1~~$276.5 million, respectively. ~~No loans in this participation portfolio were considered impaired as~~As of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016.~~2020, the non-SBA originated participation portfolio contained an impaired loan totaling $3.0 million with a sold portion of $4.2 million. The Corporation does not share in the participant’s portion of any potential charge-offs. ~~The total amount of~~There were 0 loan participations purchased on the unaudited Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2021, and the total of loan participations purchased as of December 31, ~~2016~~2020 was ~~$669,000 and $1.2 million, respectively.~~$410,000.

The Corporation also previously sold residential real estate loans, servicing released, in the secondary market. No residential real estate loans were sold during the three months ended September 30, 2017 and $8.0 million were sold during the three months ended September 30, 2016. The total principal amount of residential real estate loans sold during the nine months ended September 30, 2017 and 2016 was $1.6 million and $15.2 million, respectively. Each of the transfers of these financial assets met the qualifications for sale accounting, and therefore all of the loans transferred have been derecognized in the unaudited Consolidated Financial Statements. The loans were transferred at their fair value and the related gain was recognized as non-interest income upon the transfer in the unaudited Consolidated Financial Statements.

The following tables illustrate ending balances of the Corporation’s loan and lease portfolio, including impaired loans by class of receivable, and considering certain credit quality ~~indicators as~~indicators:


	March 31, 2021
	Category
	I			II			III			IV			Total
	(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	204,135		$	26,314		$	24,194		$	2,169		$	256,812
Commercial real estate — non-owner occupied	467,823			75,026			46,225			3,016			592,090
Land development	45,022			1,340			182			0			46,544
Construction	111,372			11,988			27,985			0			151,345
Multi-family	280,736			31,623			10,025			0			322,384
1-4 family	20,113			415			2,298			493			23,319
Total commercial real estate	1,129,201			146,706			110,909			5,678			1,392,494
Commercial and industrial	696,621			25,239			49,670			12,775			784,305
Direct financing leases, net	13,239			678			5,650			49			19,616
Consumer and other:
Home equity and second mortgages	6,104			0			81			534			6,719
Other	38,087			164			0			15			38,266
Total consumer and other	44,191			164			81			549			44,985
Total gross loans and leases receivable	$	1,883,252		$	172,787		$	166,310		$	19,051		$	2,241,400
Category as a % of total portfolio	84.02		%	7.71		%	7.42		%	0.85		%	100.00		%

Table of ~~September 30, 2017 and December 31, 2016:~~

Contents

September 30, 2017
Category
I II III IV Total
(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied $ 147,603
$ 19,324
$ 8,690
$ 7,138
$ 182,755
Commercial real estate — non-owner occupied 438,874
19,769
1,117
1,826
461,586
Land development 37,659
795
275
2,770
41,499
Construction 109,102
773
431
5,354
115,660
Multi-family 125,080
—
—
—
125,080
1-4 family 29,051
7,824
1,233
2,065
40,173
Total commercial real estate 887,369
48,485
11,746
19,153
966,753
Commercial and industrial 348,179
26,605
58,470
13,969
447,223
Direct financing leases, net 26,854
305
1,709
—
28,868
Consumer and other:
Home equity and second mortgages 7,764
—
8
4
7,776
Other 17,066
—
—
381
17,447
Total consumer and other 24,830
—
8
385
25,223
Total gross loans and leases receivable $ 1,287,232
$ 75,395
$ 71,933
$ 33,507
$ 1,468,067
Category as a % of total portfolio 87.68 % 5.14 % 4.90 % 2.28 % 100.00 %

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 %

Credit underwriting through a committee process is a key component 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.


	December 31, 2020
	Category
	I			II			III			IV			Total
	(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	185,943		$	34,917		$	27,593		$	5,429		$	253,882
Commercial real estate — non-owner occupied	432,053			90,942			37,754			3,783			564,532
Land development	47,777			987			185			890			49,839
Construction	104,083			26,444			10,516			0			141,043
Multi-family	278,145			23,386			10,025			0			311,556
1-4 family	35,053			620			2,315			296			38,284
Total commercial real estate	1,083,054			177,296			88,388			10,398			1,359,136
Commercial and industrial	623,346			27,201			65,616			16,155			732,318
Direct financing leases, net	15,597			730			5,955			49			22,331
Consumer and other:
Home equity and second mortgages	7,206			496			91			40			7,833
Other	28,701			175			0			21			28,897
Total consumer and other	35,907			671			91			61			36,730
Total gross loans and leases receivable	$	1,757,904		$	205,898		$	160,050		$	26,663		$	2,150,515
Category as a % of total portfolio	81.75		%	9.57		%	7.44		%	1.24		%	100.00		%

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 loans and leases generally exhibit undesirable characteristics, such as evidence of adverse financial trends and conditions, managerial problems, deteriorating economic conditions within the related industry, or evidence of adverse public filings and may exhibit collateral shortfall positions. Management continues to believe that it will collect all contractual principal and interest in accordance with the original terms of the contracts relating to the loans and leases in this category, and therefore

Category III loans are considered performing with no specific reserves established for this category. Category III loans are monitored by management and ~~the Bank’s Loan Committee~~asset quality review committees on a monthly ~~basis and the Bank’s Board 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, with the exception of performing troubled debt restructurings, have been placed on non-accrual as 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

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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. 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. Loans and leases in this category are monitored by management and ~~the Bank’s Loan Committee~~asset quality review committees on a monthly ~~basis and the Bank’s Board of Directors at each of their regularly scheduled meetings.~~

~~Utilizing regulatory classification terminology, the Corporation identified $36.7 million and~~ ~~$34.3 million~~ of loans and leases as Substandard as of September 30, 2017 and December 31, 2016, respectively. The Corporation identified $5.1 million of loans and leases as Doubtful as of September 30, 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 September 30, 2017 or December 31, 2016. The population of Substandard loans is a subset of Category III and Category IV loans.~~basis.

The delinquency aging of the loan and lease portfolio by class of receivable ~~as of September 30, 2017 and December 31, 2016~~ was as follows:

Table of Contents


	March 31, 2021
	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	$	0		$	0		$	0		$	0		$	254,643		$	254,643
Non-owner occupied	0			0			0			0			589,074			589,074
Land development	0			0			0			0			46,544			46,544
Construction	0			0			0			0			151,345			151,345
Multi-family	0			0			0			0			322,384			322,384
1-4 family	0			0			0			0			22,826			22,826
Commercial and industrial	1,349			570			0			1,919			769,670			771,589
Direct financing leases, net	0			0			0			0			19,567			19,567
Consumer and other:
Home equity and second mortgages	0			0			0			0			6,185			6,185
Other	0			0			0			0			38,251			38,251
Total	1,349			570			0			1,919			2,220,489			2,222,408
Non-accruing loans and leases
Commercial real estate:
Owner occupied	0			0			272			272			1,897			2,169
Non-owner occupied	0			0			0			0			3,016			3,016
Land development	0			0			0			0			0			0
Construction	0			0			0			0			0			0
Multi-family	0			0			0			0			0			0
1-4 family	0			0			247			247			246			493
Commercial and industrial	3,991			366			5,911			10,268			2,448			12,716
Direct financing leases, net	0			0			0			0			49			49
Consumer and other:
Home equity and second mortgages	0			496			0			496			38			534
Other	0			0			15			15			0			15
Total	3,991			862			6,445			11,298			7,694			18,992
Total loans and leases
Commercial real estate:
Owner occupied	0			0			272			272			256,540			256,812
Non-owner occupied	0			0			0			0			592,090			592,090
Land development	0			0			0			0			46,544			46,544
Construction	0			0			0			0			151,345			151,345
Multi-family	0			0			0			0			322,384			322,384
1-4 family	0			0			247			247			23,072			23,319
Commercial and industrial	5,340			936			5,911			12,187			772,118			784,305
Direct financing leases, net	0			0			0			0			19,616			19,616
Consumer and other:
Home equity and second mortgages	0			496			0			496			6,223			6,719
Other	0			0			15			15			38,251			38,266
Total	$	5,340		$	1,432		$	6,445		$	13,217		$	2,228,183		$	2,241,400
Percent of portfolio	0.24		%	0.06		%	0.29		%	0.59		%	99.41		%	100.00		%

Table of Contents


	September 30, 2017																				December 31, 2020
	30-59 Days Past Due			60-89 Days Past Due			Greater Than 90 Days Past Due			Total Past Due			Current				Total Loans and Leases				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)																				(Dollars in Thousands)
Accruing loans and leases																				Accruing loans and leases
Commercial real estate:																				Commercial real estate:
Owner occupied	$	—		$	—		$	—		$	—		$	175,675			$	175,675		Owner occupied	$	0		$	0		$	0		$	0		$	248,453		$	248,453
Non-owner occupied	—			—			—			—			459,760				459,760			Non-owner occupied	0			0			0			0			560,749			560,749
Land development	—			—			—			—			38,729				38,729			Land development	7,784			0			0			7,784			41,165			48,949
Construction	392			��			—			392			109,914				110,306			Construction	0			0			0			0			141,043			141,043
Multi-family	—			—			—			—			125,080				125,080			Multi-family	0			0			0			0			311,556			311,556
1-4 family	—			—			—			—			38,309				38,309			1-4 family	0			46			0			46			37,988			38,034
Commercial and industrial	2,257			470			—			2,727			430,539				433,266			Commercial and industrial	663			111			0			774			715,389			716,163
Direct financing leases, net	—			—			—			—			28,868				28,868			Direct financing leases, net	0			0			0			0			22,282			22,282
Consumer and other:																				Consumer and other:
Home equity and second mortgages	229			—			—			229			7,547				7,776			Home equity and second mortgages	0			0			0			0			7,793			7,793
Other	—			—			—			—			17,066				17,066			Other	0			0			0			0			28,876			28,876
Total	2,878			470			—			3,348			1,431,487				1,434,835			Total	8,447			157			0			8,604			2,115,294			2,123,898
Non-accruing loans and leases																				Non-accruing loans and leases
Commercial real estate:																				Commercial real estate:
Owner occupied	—			—			4,825			4,825			2,255				7,080			Owner occupied	0			0			272			272			5,157			5,429
Non-owner occupied	—			—			1,791			1,791			35				1,826			Non-owner occupied	0			0			3,783			3,783			0			3,783
Land development	—			—			—			—			2,770				2,770			Land development	890			0			0			890			0			890
Construction	—			—			5,353			5,353			1				5,354			Construction	0			0			0			0			0			0
Multi-family	—			—			—			—			—				—			Multi-family	0			0			0			0			0			0
1-4 family	529			10			1,041			1,580			284				1,864			1-4 family	0			0			0			0			250			250
Commercial and industrial	207			497			11,005			11,709			2,248				13,957			Commercial and industrial	103			342			7,557			8,002			8,153			16,155
Direct financing leases, net	—			—			—			—			—				—			Direct financing leases, net	0			0			0			0			49			49
Consumer and other:																				Consumer and other:
Home equity and second mortgages	—			—			—			—			—				—			Home equity and second mortgages	0			0			0			0			40			40
Other	—			—			358			358			23				381			Other	0			0			21			21			0			21
Total	736			507			24,373			25,616			7,616			—	33,232			Total	993			342			11,633			12,968			13,649			26,617
Total loans and leases																				Total loans and leases
Commercial real estate:																				Commercial real estate:
Owner occupied	—			—			4,825			4,825			177,930				182,755			Owner occupied	0			0			272			272			253,610			253,882
Non-owner occupied	—			—			1,791			1,791			459,795				461,586			Non-owner occupied	0			0			3,783			3,783			560,749			564,532
Land development	—			—			—			—			41,499				41,499			Land development	8,674			0			0			8,674			41,165			49,839
Construction	392			—			5,353			5,745			109,915				115,660			Construction	0			0			0			0			141,043			141,043
Multi-family	—			—			—			—			125,080				125,080			Multi-family	0			0			0			0			311,556			311,556
1-4 family	529			10			1,041			1,580			38,593				40,173			1-4 family	0			46			0			46			38,238			38,284
Commercial and industrial	2,464			967			11,005			14,436			432,787				447,223			Commercial and industrial	766			453			7,557			8,776			723,542			732,318
Direct financing leases, net	—			—			—			—			28,868				28,868			Direct financing leases, net	0			0			0			0			22,331			22,331
Consumer and other:																				Consumer and other:
Home equity and second mortgages	229			—			—			229			7,547				7,776			Home equity and second mortgages	0			0			0			0			7,833			7,833
Other	—			—			358			358			17,089				17,447			Other	0			0			21			21			28,876			28,897
Total	$	3,614		$	977		$	24,373		$	28,964		$	1,439,103			$	1,468,067		Total	$	9,440		$	499		$	11,633		$	21,572		$	2,128,943		$	2,150,515
Percent of portfolio	0.24		%	0.07		%	1.66		%	1.97		%	98.03		%		100.00		%	Percent of portfolio	0.44		%	0.02		%	0.54		%	1.00		%	99.00		%	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 %

Table of Contents

The Corporation’s total impaired assets consisted of the ~~following at September 30, 2017~~following:


	March 31, 2021		December 31, 2020
	(In Thousands)
Non-accrual loans and leases
Commercial real estate:
Commercial real estate — owner occupied	$	2,169	$	5,429
Commercial real estate — non-owner occupied	3,016		3,783
Land development	0		890
Construction	0		0
Multi-family	0		0
1-4 family	493		250
Total non-accrual commercial real estate	5,678		10,352
Commercial and industrial	12,716		16,155
Direct financing leases, net	49		49
Consumer and other:
Home equity and second mortgages	534		40
Other	15		21
Total non-accrual consumer and other loans	549		61
Total non-accrual loans and leases	18,992		26,617
Foreclosed properties, net	31		34
Total non-performing assets	19,023		26,651
Performing troubled debt restructurings	59		46
Total impaired assets	$	19,082	$	26,697


	March 31, 2021		December 31, 2020
Total non-accrual loans and leases to gross loans and leases	0.85	%	1.24	%
Total non-performing assets to total gross loans and leases plus foreclosed properties, net	0.85		1.24
Total non-performing assets to total assets	0.73		1.04
Allowance for loan and lease losses to gross loans and leases	1.29		1.33
Allowance for loan and lease losses to non-accrual loans and leases	152.60		107.15

As of March 31, 2021, and December 31, ~~2016, respectively.~~

September 30,
2017 December 31,
2016
(Dollars in Thousands)
Non-accrual loans and leases
Commercial real estate:
Commercial real estate — owner occupied $ 7,080
$ 2,223
Commercial real estate — non-owner occupied 1,826
1,609
Land development 2,770
3,440
Construction 5,354
2,918
Multi-family —
—
1-4 family 1,864
1,937
Total non-accrual commercial real estate 18,894
12,127
Commercial and industrial 13,957
12,463
Direct financing leases, net —
—
Consumer and other:
Home equity and second mortgages —
—
Other 381
604
Total non-accrual consumer and other loans 381
604
Total non-accrual loans and leases 33,232
25,194
Foreclosed properties, net 2,585
1,472
Total non-performing assets 35,817
26,666
Performing troubled debt restructurings 275
717
Total impaired assets
$ 36,092
$ 27,383

September 30,
2017 December 31,
2016
Total non-accrual loans and leases to gross loans and leases 2.26 % 1.74 %
Total non-performing assets to total gross loans and leases plus foreclosed properties, net 2.44
1.83
Total non-performing assets to total assets 2.01
1.50
Allowance for loan and lease losses to gross loans and leases 1.36
1.44
Allowance for loan and lease losses to non-accrual loans and leases 59.95
83.00

~~As of September 30, 2017~~2020, $4.8 million and ~~December 31, 2016,~~ ~~$10.9~~$6.5 million ~~and~~ ~~$12.8 million~~ of the non-accrual loans and leases were considered troubled debt restructurings, respectively. The Corporation has allocated $765,000 and $760,000 of specific reserves to troubled debt restructurings as of March 31, 2021 and December 31, 2020, respectively. There were no0 unfunded commitments associated with troubled debt restructured loans and leases as of ~~September 30, 2017.~~

The following table provides the number of loans modified in a troubled debt restructuring and the pre- and post-modification recorded investment by class of receivable as of September 30, 2017 and DecemberMarch 31, ~~2016.~~

As of September 30, 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
$ 888
3 $ 1,065
$ 930
Commercial real estate — non-owner occupied 1 158
35
1 158
39
Land development 1 5,745
2,770
1 5,745
3,440
Construction — —
—
2 331
314
Multi-family — —
—
— —
—
1-4 family 10 1,287
1,353
11 1,391
1,393
Commercial and industrial 11 8,944
5,759
10 8,094
7,058
Consumer and other:
Home equity and second mortgage 1 37
4
1 37
8
Other 2 2,094
359
1 2,076
378
Total 29 $ 19,330
$ 11,168
30 $ 18,897
$ 13,560

2021.

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.

AsThe following table provides the number of ~~September 30, 2017 and December 31, 2016, the Corporation’s~~loans modified in a troubled debt ~~restructurings grouped~~restructuring and the pre- and post-modification recorded investment by ~~type~~class of ~~concession were as follows:~~receivable:

Table of Contents

As of September 30, 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 1
49
1
52
   Combination of extension of term and interest rate concession 14
4,997
16
6,056
Commercial and industrial:
   Combination of extension of term and interest rate concession 11
5,759
10
7,058
Consumer and other:
   Extension of term 1
342
1
378
   Combination of extension of term and interest rate concession 2
21
1
8
Total 29
$ 11,168
30
$ 13,560


	For the Three Months Ended March 31,
	2020
			Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment
		(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied			2	$	299	$	299





Commercial and industrial			4	1,426		1,413




Total			6	$	1,725	$	1,712

During the three months ended ~~September 30, 2017, two commercial and industrial~~March 31, 2021, 0 loans ~~totaling $800,000~~ were modified to a troubled debt restructuring.

Restructured loan modifications may include payment schedule modifications, interest rate concessions, maturity date extensions, principal reduction, or some combination of these concessions. During the ~~nine~~three months ended ~~September 30, 2017, four~~March 31, 2020, the modification of terms primarily consisted of payment schedule modifications or principal reductions.

There were 0 loans modified in troubled debt restructurings during the previous 12 months which subsequently defaulted during the three months ended March 31, 2021. There was 1 commercial and industrial ~~loans and one consumer~~ loan ~~totaling $4.4~~for $2.1 million and ~~$17,000, respectively, were modified to a troubled debt restructuring. No~~2 owner-occupied commercial real estate loans ~~were modified to a troubled debt restructuring during the three and nine months ended September 30, 2016.~~

~~There were five loans and leases~~for $3.6 million modified in a troubled debt restructuring during the previous 12 months which subsequently defaulted during the three ~~and nine~~ months ended ~~September 30, 2017.~~March 31, 2020.

Table of Contents

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


	As of and for the Three Months Ended March 31, 2021
	Recorded Investment(1)		Unpaid Principal Balance		Impairment Reserve		Average Recorded Investment(2)		Foregone Interest Income		Interest Income Recognized		Net Foregone Interest Income
	(In Thousands)
With no impairment reserve recorded:
Commercial real estate:
Owner occupied	$	1,139	$	1,166	$	—	$	3,227	$	75	$	0	$	75
Non-owner occupied	3,016		5,795		—		3,221		133		15		118
Land development	0		0		—		30		0		0		0
Construction	0		0		—		0		0		0		0
Multi-family	0		0		—		0		0		0		0
1-4 family	493		252		—		291		43		3		40
Commercial and industrial	5,232		6,392		—		8,136		133		43		90
Direct financing leases, net	0		0		—		0		0		0		0
Consumer and other:
Home equity and second mortgages	496		496		—		6		6		0		6
Other	15		682		—		18		9		0		9
Total	10,391		14,783		—		14,929		399		61		338
With impairment reserve recorded:
Commercial real estate:
Owner occupied	1,030		1,030		485		1,044		60		0		60
Non-owner occupied	0		0		0		0		0		0		0
Land development	0		0		0		0		0		0		0
Construction	0		0		0		0		0		0		0
Multi-family	0		0		0		0		0		0		0
1-4 family	0		0		0		0		0		0		0
Commercial and industrial	7,543		8,680		2,947		6,030		141		7		134
Direct financing leases, net	49		49		49		49		1		0		1
Consumer and other:
Home equity and second mortgages	38		38		6		39		2		0		2
Other	0		0		0		0		0		0		0
Total	8,660		9,797		3,487		7,162		204		7		197
Total:
Commercial real estate:
Owner occupied	2,169		2,196		485		4,271		135		0		135
Non-owner occupied	3,016		5,795		0		3,221		133		15		118
Land development	0		0		0		30		0		0		0
Construction	0		0		0		0		0		0		0
Multi-family	0		0		0		0		0		0		0
1-4 family	493		252		0		291		43		3		40
Commercial and industrial	12,775		15,072		2,947		14,166		274		50		224
Direct financing leases, net	49		49		49		49		1		0		1
Consumer and other:
Home equity and second mortgages	534		534		6		45		8		0		8
Other	15		682		0		18		9		0		9
Grand total	$	19,051	$	24,580	$	3,487	$	22,091	$	603	$	68	$	535

(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.

Table of Contents


	As of and for the Nine Months Ended September 30, 2017																		As of and for the Year Ended December 31, 2020
	Recorded Investment		Unpaid Principal Balance			Impairment Reserve		Average Recorded Investment⁽¹⁾			Foregone Interest Income			Interest Income Recognized		Net Foregone Interest Income			Recorded Investment(1)		Unpaid Principal Balance		Impairment Reserve		Average Recorded Investment(2)		Foregone Interest Income		Interest Income Recognized		Net Foregone Interest Income
	(In Thousands)																		(In Thousands)
With no impairment reserve recorded:																		With no impairment reserve recorded:
Commercial real estate:																		Commercial real estate:
Owner occupied	$	6,727	$	6,727		$	—	$	4,898		$	394		$	—	$	394	Owner occupied	$	4,338	$	4,365	$	—	$	4,565	$	291	$	72	$	219
Non-owner occupied	1,826		1,866			—		1,932			99			—		99		Non-owner occupied	3,783		6,563		—		1,519		486		0		486
Land development	2,770		5,441			—		3,218			65			—		65		Land development	890		5,187		—		1,192		14		0		14
Construction	2,482		2,482			—		611			208			—		208		Construction	0		0		—		0		0		0		0
Multi-family	—		—			—		1			—			—		—		Multi-family	0		0		—		0		0		0		0
1-4 family	2,065		2,319			—		2,387			69			—		69		1-4 family	46		51		—		307		31		141		(110)
Commercial and industrial	1,740		2,103			—		6,782			509			—		509		Commercial and industrial	9,888		12,337		—		13,951		1,219		423		796
Direct financing leases, net	—		—			—		—			—			—		—		Direct financing leases, net	0		0		—		89		0		0		0
Consumer and other:																		Consumer and other:
Home equity and second mortgages	4		4			—		6			—			—		—		Home equity and second mortgages	0		0		—		1		0		0		0
Other	358		1,025			—		397			45			—		45		Other	21		688		—		85		41		0		41
Total	17,972		21,967			—		20,232			1,389			—		1,389		Total	18,966		29,191		—		21,709		2,082		636		1,446
With impairment reserve recorded:																		With impairment reserve recorded:
Commercial real estate:																		Commercial real estate:
Owner occupied	411		411			15		424			19			—		19		Owner occupied	1,091		4,792		471		2,349		384		0		384
Non-owner occupied	—		—			—		—			—			—		—		Non-owner occupied	0		0		0		0		0		0		0
Land development	—		—		—	—		—		—	—		—	—		—		Land development	0		0		0		0		0		0		0
Construction	2,872		2,872		—	94		4,091		—	108		—	—		108		Construction	0		0		0		0		0		0		0
Multi-family	—		—			—		—			—			—		—		Multi-family	0		0		0		0		0		0		0
1-4 family	—		—			—		—			—			—		—		1-4 family	250		250		29		21		0		0		0
Commercial and industrial	12,229		12,702			5,658		10,114			453			—		453		Commercial and industrial	6,267		6,972		3,125		3,585		324		0		324
Direct financing leases, net	—		—			—		—			—			—		—		Direct financing leases, net	49		49		49		39		3		0		3
Consumer and other:																		Consumer and other:
Home equity and second mortgages	—		—			—		—			—			—		—		Home equity and second mortgages	40		40		7		0		1		0		1
Other	23		23			23		10			—			—		—		Other	0		0		0		0		0		0		0
Total	15,535		16,008			5,790		14,639			580			—		580		Total	7,697		12,103		3,681		5,994		712		0		712
Total:																		Total:
Commercial real estate:																		Commercial real estate:
Owner occupied	7,138		7,138			15		5,322			413			—		413		Owner occupied	5,429		9,157		471		6,914		675		72		603
Non-owner occupied	1,826		1,866			—		1,932			99			—		99		Non-owner occupied	3,783		6,563		0		1,519		486		0		486
Land development	2,770		5,441			—		3,218			65			—		65		Land development	890		5,187		0		1,192		14		0		14
Construction	5,354		5,354			94		4,702			316			—		316		Construction	0		0		0		0		0		0		0
Multi-family	—		—			—		1			—			—		—		Multi-family	0		0		0		0		0		0		0
1-4 family	2,065		2,319			—		2,387			69			—		69		1-4 family	296		301		29		328		31		141		(110)
Commercial and industrial	13,969		14,805			5,658		16,896			962			—		962		Commercial and industrial	16,155		19,309		3,125		17,536		1,543		423		1,120
Direct financing leases, net	—		—			—		—			—			—		—		Direct financing leases, net	49		49		49		128		3		0		3
Consumer and other:																		Consumer and other:
Home equity and second mortgages	4		4			—		6			—			—		—		Home equity and second mortgages	40		40		7		1		1		0		1
Other	381		1,048			23		407			45			—		45		Other	21		688		0		85		41		0		41
Grand total	$	33,507	$	37,975		$	5,790	$	34,871		$	1,969		$	—	$	1,969	Grand total	$	26,663	$	41,294	$	3,681	$	27,703	$	2,794	$	636	$	2,158


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

(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.

Table of Contents

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.~~

The difference between the recorded investment of loans and leases and the unpaid principal balance of ~~$4.5~~$5.5 million and ~~$3.4~~$14.6 million as of ~~September 30, 2017~~March 31, 2021, and December 31, ~~2016,~~2020, respectively, represents partial charge-offs of loans and leases resulting from losses due to the ~~appraised value~~valuation of the collateral securing the loans and leases being below the carrying values of the loans and leases. Impaired loans and leases also included ~~$275,000~~$59,000 and ~~$717,000~~$46,000 of loans as of ~~September 30, 2017~~March 31, 2021, and December 31, ~~2016,~~2020, respectively, that were performing troubled debt restructurings, and although not on non-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. 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 of the allowance for loan and lease losses, the Corporation categorizes the portfolio into segments with similar risk characteristics. First, the Corporation evaluates loans and leases for potential impairment classification. The Corporation analyzes each loan and lease determined to be 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. The Corporation applies historical trends from established risk factors to each category of loans and leases that has not been individually evaluated for the purpose of establishing the general portion of the allowance.

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


	As of and for the Three Months Ended March 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	0		(144)		0		(144)
Recoveries	2,219		453		1		2,673
Net recoveries	2,219		309		1		2,529
Provision for loan and lease losses	(931)		(1,358)		221		(2,068)

Ending balance	$	18,445	$	9,544	$	993	$	28,982


	As of and for the Three Months Ended March 31, 2020
	Commercial Real Estate		Commercial and Industrial		Consumer and Other		Total
	(In Thousands)
Beginning balance	$	10,852	$	8,078	$	590	$	19,520
Charge-offs	0		(125)		(6)		(131)
Recoveries	1		176		0		177
Net recoveries (charge-offs)	1		51		(6)		46
Provision for loan and lease losses	1,744		1,193		245		3,182

Ending balance	$	12,597	$	9,322	$	829	$	22,748

As of and for the Three Months Ended September 30, 2017

Commercial
Real Estate

Commercial
and
Industrial

Consumer
and Other
Total
(Dollars in Thousands)
Beginning balance $ 12,003
$ 9,090
$ 584
$ 21,677
Charge-offs (8 ) (3,217 ) (5 ) (3,230 )
Recoveries 2
2
1
5
Net charge-offs (6 ) (3,215 ) (4 ) (3,225 )
Provision for credit losses (2,462 ) 3,968
(35 ) 1,471
Ending balance $ 9,535
$ 9,843
$ 545
$ 19,923

As of and for the Three Months Ended September 30, 2016

Commercial
Real Estate

Commercial
and
Industrial

Consumer
and Other
Total
(Dollars in Thousands)
Beginning balance $ 11,436
$ 6,017
$ 701
$ 18,154
Charge-offs (259 ) (1,396 ) (1 ) (1,656 )
Recoveries 31
—
1
32
Net charge-offs (228 ) (1,396 ) —
(1,624 )
Provision for credit losses 1,607
2,051
(121 ) 3,537
Ending balance $ 12,815
$ 6,672
$ 580
$ 20,067
25

Table of Contents

As of and for the Nine Months Ended September 30, 2017

Commercial
Real Estate

Commercial
and
Industrial

Consumer
and Other
Total
(Dollars in Thousands)
Beginning balance $ 12,384
$ 7,970
$ 558
$ 20,912
Charge-offs (126 ) (6,978 ) (92 ) (7,196 )
Recoveries 152
314
42
508
Net recoveries (charge-offs) 26
(6,664 ) (50 ) (6,688 )
Provision for credit loss (2,875 ) 8,537
37
5,699
Ending balance $ 9,535
$ 9,843
$ 545
$ 19,923

As of and for the Nine Months Ended September 30, 2016

Commercial
Real Estate

Commercial
and
Industrial

Consumer
and Other
Total
(Dollars in Thousands)
Beginning balance $ 11,220
$ 4,387
$ 709
$ 16,316
Charge-offs (1,194 ) (2,048 ) (8 ) (3,250 )
Recoveries 170
2
5
177
Net charge-offs (1,024 ) (2,046 ) (3 ) (3,073 )
Provision for credit loss 2,619
4,331
(126 ) 6,824
Ending balance $ 12,815
$ 6,672
$ 580
$ 20,067

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


	As of March 31, 2021
	Commercial Real Estate		Commercial and Industrial		Consumer and Other		Total
	(In Thousands)
Allowance for loan and lease losses:
Collectively evaluated for impairment	$	17,960	$	6,548	$	987	$	25,495
Individually evaluated for impairment	485		2,996		6		3,487

Total	$	18,445	$	9,544	$	993	$	28,982
Loans and lease receivables:
Collectively evaluated for impairment	$	1,386,816	$	791,097	$	44,436	$	2,222,349
Individually evaluated for impairment	5,678		12,824		549		19,051

Total	$	1,392,494	$	803,921	$	44,985	$	2,241,400


	As of September 30, 2017									As of December 31, 2020
	Commercial Real Estate		Commercial and Industrial		Consumer and Other		Total			Commercial Real Estate		Commercial and Industrial		Consumer and Other		Total
	(Dollars in Thousands)									(In Thousands)
Allowance for loan and lease losses:									Allowance for loan and lease losses:
Collectively evaluated for impairment	$	9,426	$	4,185	$	522	$	14,133	Collectively evaluated for impairment	$	16,657	$	7,419	$	764	$	24,840
Individually evaluated for impairment	109		5,658		23		5,790		Individually evaluated for impairment	500		3,174		7		3,681
Loans acquired with deteriorated credit quality	—		—		—		—

Total	$	9,535	$	9,843	$	545	$	19,923	Total	$	17,157	$	10,593	$	771	$	28,521
Loans and lease receivables:									Loans and lease receivables:
Collectively evaluated for impairment	$	947,600	$	462,122	$	24,838	$	1,434,560	Collectively evaluated for impairment	$	1,348,738	$	738,445	$	36,669	$	2,123,852
Individually evaluated for impairment	18,535		13,962		385		32,882		Individually evaluated for impairment	10,398		16,204		61		26,663
Loans acquired with deteriorated credit quality	618		7		—		625

Total	$	966,753	$	476,091	$	25,223	$	1,468,067	Total	$	1,359,136	$	754,649	$	36,730	$	2,150,515

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

Note 67 — Leases

The Corporation leases various office spaces and specialty financing production offices under non-cancellable operating leases which expire on various dates through 2028. The Corporation also leases office equipment. The Corporation recognizes a right-of-use asset and an operating lease liability for all leases, with the exception of short-term leases. Right-of-use assets represent the right to use an underlying asset for the lease term and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term.

The Corporation entered into a sublease for vacated office space which expires in 2023.

Table of Contents

The components of total lease expense were as follows:


	For the Three Months Ended March 31,
	2021		2020
	(In Thousands)
Operating lease cost	$	375	$	372
Short-term lease cost	39		74
Variable lease cost	129		127
Less: sublease income	(39)		(28)
Total lease cost, net	$	504	$	545

Quantitative information regarding the Corporation’s operating leases was as follows:


	March 31, 2021		December 31, 2020
Weighted-average remaining lease term (in years)	5.66		5.80
Weighted-average discount rate	3.06	%	3.03	%

The following maturity analysis shows the undiscounted cash flows due on the Corporation’s operating lease liabilities:


(In Thousands)
2021	$	1,163
2022	1,373
2023	1,015
2024	756
2025	666
Thereafter	1,641
Total undiscounted cash flows	6,614
Discount on cash flows	(574)
Total lease liability	$	6,040

Note 8 — 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 the limited partnerships have not been consolidated. These investments are accounted for using the equity method of accounting and are evaluated for impairment at the end of each reporting period. For historic rehabilitation tax credits, the Corporation begins to evaluate its investments for impairment at the time the credit is earned, which is typically in the year the project is placed in service, through the end of its five-year compliance period. New market tax credits are also evaluated for impairment beginning at the time the tax credits are earned on the project through the seven-year compliance period.

~~Historic Rehabilitation Tax Credits~~

In 2015, the Corporation invested in a development entity through BOC, a wholly-owned subsidiary of FBB, to acquire, rehabilitate and operate a historic building in Madison, Wisconsin. At September 30, 2017 and December 31, 2016, the net carrying value of the investment was $174,000.

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 September 30, 2017 and December 31, 2016, the net carrying value of the investment was $563,000. The aggregate capital contributions to the project will depend upon the final amount of the certified project costs, but are expected to approximate $5.5 million. The Corporation is also anticipating the sale of the state credits associated with the investment to a third party. No historic tax credits were received at September 30, 2017. The credits will be taken when the project is placed in service and are subject to a five-year recapture period.

In 2017, the Corporation also invested in a development entity through FBB Tax Credit, a wholly-owned subsidiary of FBB, to rehabilitate a historic building in Kenosha, Wisconsin. At September 30, 2017, the net carrying value of the investment was $417,000. The aggregate capital contributions to the project will depend upon the final amount of the certified project costs, but are expected 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.

~~New Market Tax Credits~~

The Corporation invested in a community development entity (“CDE”) through Rimrock Road, a wholly-owned subsidiary of FBB, to develop and operate a real estate project located in a low-income community. At September 30, 2017 and December 31, 2016, Rimrock had one CDE investment with a net carrying value of $6.7 million and $7.1 million, respectively. The investment provides federal new market tax credits over a seven-year credit allowance period through 2020. The remaining federal new market tax credit to be utilized over a maximum of seven years was $1.5 million as of September 30, 2017. The Corporation’s use of the federal new market tax credit during the nine months ended September 30, 2017 and 2016 was $338,000 and $281,000, respectively.

~~Other Investments~~

The Corporation has an equity investment in Aldine Capital Fund, LP, a mezzanine fund, of $948,000 and $883,000 recorded as of September 30, 2017 and December 31, 2016, respectively. The Corporation’s equity investment in Aldine Capital Fund II, LP, also a mezzanine fund, totaled $3.7 million and $3.1 million as of September 30, 2017 and December 31, 2016, respectively. The Corporation’s share of these partnerships’ income included in the unaudited Consolidated Statements of Income for the nine months ended September 30, 2017 and 2016 was $236,000 and $708,000, respectively.

The Corporation is the sole owner of $315,000 of common securities issued by Trust II, a Delaware business trust. 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. The investment in Trust II of $315,000 as of September 30, 2017 and December 31, 2016 is included in accrued interest receivable and other assets.

A summary of accrued interest receivable and other assets iswas as follows:


	March 31, 2021		December 31, 2020
	(In Thousands)
Accrued interest receivable	$	7,794	$	8,564
Net deferred tax asset	7,234		7,217
Investment in historic development entities	2,307		2,356
Investment in low-income housing development entity	1,307		0
Investment in a community development entity	5,306		5,306
Investment in limited partnerships	7,361		6,673
Investment in Trust II	315		315
Prepaid expenses	2,947		2,165
Other assets	3,446		6,882
Total accrued interest receivable and other assets	$	38,017	$	39,478

September 30, 2017 December 31, 2016
(In Thousands)
Accrued interest receivable $ 4,722
$ 4,677
Net deferred tax asset 5,543
4,052
Investment in historic development entities 1,154
737
Investment in a CDE 6,719
7,106
Investment in limited partnerships 4,607
3,963
Investment in Trust II 315
315
Fair value of interest rate swaps 1,380
352
Prepaid expenses 3,338
3,074
Other assets 4,450
4,331
Total accrued interest receivable and other assets $ 32,228
$ 28,607

Table of Contents

Note 79 — Deposits

The composition of deposits ~~at September 30, 2017 and December 31, 2016~~ is shown below. Average balances represent ~~year-to-date~~year to date averages.


	March 31, 2021						December 31, 2020
	Balance		Average Balance		Average Rate		Balance		Average Balance		Average Rate
	(Dollars in Thousands)
Non-interest-bearing transaction accounts	$	496,877	$	485,863	0	%	$	472,818	$	412,825	0	%
Interest-bearing transaction accounts	561,466		521,130		0.19		503,992		392,576		0.37
Money market accounts	632,065		657,690		0.17		641,504		651,402		0.44
Certificates of deposit	46,818		57,424		1.23		64,694		111,698		1.97
Wholesale deposits	165,492		166,752		0.76		172,508		142,591		1.71
Total deposits	$	1,902,718	$	1,888,859	0.22		$	1,855,516	$	1,711,092	0.52

September 30, 2017 December 31, 2016
Balance
Average
Balance
Average Rate Balance
Average
Balance
Average Rate
(Dollars in Thousands)
Non-interest-bearing transaction accounts $ 253,320
$ 228,231
— % $ 252,638
$ 246,182
— %
Interest-bearing transaction accounts 251,355
221,526
0.53
183,992
169,571
0.27
Money market accounts 527,705
601,455
0.45
627,090
642,784
0.48
Certificates of deposit 58,144
55,888
0.98
58,454
65,608
0.90
Wholesale deposits 333,200
374,083
1.68
416,681
467,826
1.62
Total deposits $ 1,423,724
$ 1,481,183
0.72
$ 1,538,855
$ 1,591,971
0.74

A summary of annual maturities of in-market and wholesale certificates of deposit at March 31, 2021 is as follows:


(In Thousands)
Maturities during the year ended December 31,
2021	$	60,465
2022	24,319
2023	1,796
2024	369
2025	360
Thereafter	1
	$	87,310

Wholesale deposits include $40.5 million and $125.0 million of wholesale certificates of deposit and non-reciprocal interest-bearing transaction accounts, respectively, at March 31, 2021, compared to $47.5 million and $125.0 million of wholesale certificates of deposit and non-reciprocal interest-bearing transaction accounts, respectively, at December 31, 2020.

Deposits include $12.9 million and $28.7 million of certificates of deposit and wholesale deposits which are denominated in amounts of $250,000 or more at March 31, 2021 and December 31, 2020, respectively.

Note 810 — FHLB Advances, Other Borrowings and Junior Subordinated Notes

The composition of borrowed funds ~~at September 30, 2017 and December 31, 2016~~ is shown below. Average balances represent ~~year-to-date~~year to date averages.


	March 31, 2021						December 31, 2020
	Balance		Weighted Average Balance		Weighted Average Rate		Balance		Weighted Average Balance		Weighted Average Rate
	(Dollars in Thousands)
Federal funds purchased	$	0	$	0	0	%	$	0	$	71	0.69	%
Federal Reserve PPPLF	0		0		0		0		15,207		0.35
FHLB advances	415,800		366,670		1.36		394,500		379,891		1.45

Other borrowings	8,860		3,545		5.05		920		676		12.60
Subordinated notes payable	23,757		23,751		5.94		23,747		23,725		5.95
Junior subordinated notes	10,065		10,063		10.91		10,062		10,054		11.09
	$	458,482	$	404,029	1.91		$	429,229	$	429,624	1.91

Table of Contents

September 30, 2017 December 31, 2016
Balance
Weighted Average
Balance

Weighted
Average Rate
Balance
Weighted Average
Balance

Weighted
Average Rate
(Dollars in Thousands)
Federal funds purchased $ —
$ 88
1.21 % $ —
$ 178
0.92 %
FHLB advances 143,500
83,987
1.24
33,578
14,485
0.97
Line of credit 10
435
3.63
1,010
2,079
3.26
Other borrowings⁽¹⁾
675
1,432
15.37
2,590
1,739
7.64
Subordinated notes payable 23,699
22,978
7.04
22,498
22,467
7.13
Junior subordinated notes 10,015
10,009
11.08
10,004
9,997
11.07
$ 177,899
$ 118,929
3.38
$ 69,680
$ 50,945
6.03

Short-term borrowings $ 54,510
$ 20,588

Long-term borrowings 123,389
49,092

$ 177,899
$ 69,680

A summary of annual maturities of borrowings at March 31, 2021 is as follows:


~~(1)~~	~~Weighted average rate of other borrowings reflects the cost of prepaying a secured borrowing during the second quarter of 2017.~~


(In Thousands)
Maturities during the year ended December 31,
2021	$	171,260
2022	29,000
2023	37,300
2024	35,500
2025	20,925
Thereafter	164,497
	$	458,482

During the second quarter of 2020, the Corporation tested its ability to borrow from the Federal Reserve Paycheck Protection Program Liquidity Facility (“PPPLF”) in the event funding was required to support the Banks PPP lending efforts. On April 28, 2020, the Corporation borrowed $29.6 million from the PPPLF at a rate of 0.35%. The borrowing was fully collateralized by a tranche of PPP loans originated by the Bank on April 15, 2020 and matures on April 15, 2022, or when the tranche of PPP loans utilized to collateralize the PPPLF borrowing are forgiven, whichever comes first. As of November 2, 2020, the borrowing was paid in full.

As of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, the Corporation had other borrowings of $8.9 million and $920,000 respectively, which consisted of $7.9 million of sold loans accounted for as secured borrowings because they did not qualify for true sale accounting, and borrowings associated with our investment in a community development entity.

As of March 31, 2021 and December 31, 2020, the Corporation was in compliance with its debt covenants under its third-party secured senior line of credit. Per the promissory note dated February 19, ~~2017,~~2021, the Corporation pays a ~~commitment~~ fee on this line of credit. During both the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016,~~2020, the Corporation incurred interest expense of $3,000 due to this ~~fee of $10,000.~~fee.

Note 911 — Commitments and Contingencies

In the ~~ordinary~~normal course of business, various legal proceedings involving the Corporation are pending. Management, based upon advice from legal counsel, does not anticipate any significant losses as a result of these actions. Management believes that any liability arising from any such proceedings currently existing or threatened will not have a material adverse effect on the Corporation’s financial position, results of operations, and cash flows.

The Corporation sells the guaranteed ~~portion~~portions of SBA 7(a) loans, as well as participation interests in other, non-SBA originated, loans to third parties. The Corporation has a continuing involvement in each of the transferred lending arrangements by way of relationship management and servicing the loans, as well as being subject to normal and customary requirements of the SBA loan program and standard representations and warranties related to sold amounts. In the event of a loss resulting from default and a determination by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by the Corporation, the SBA may require the Corporation to repurchase the loan, deny its

liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of the principal loss related to the deficiency from the Corporation. The Corporation must comply with applicable SBA regulations in order to maintain the guaranty. In addition, the Corporation retains the option to repurchase the sold guaranteed portion of an SBA loan if the loan defaults.

Management has assessed estimated losses inherent in the outstanding guaranteed ~~portion~~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 ~~$2.7 million~~$593,000 at ~~September 30, 2017,~~March 31, 2021, which is reported in accrued interest payable and other liabilities on the unaudited Consolidated Balance Sheets. ~~During the nine months ended September 30, 2017, a $2.1 million recourse provision was recorded.~~

Table of Contents

The summary of the activity in the SBA recourse reserve is as follows:


	As of and for the Three Months Ended March 31,
	2021		2020
	(In Thousands)
Balance at the beginning of the period	$	723	$	1,345
SBA recourse (benefit) provision	(130)		25
Charge-offs, net	0		(284)
Balance at the end of the period	$	593	$	1,086

As of and for the Nine Months Ended September 30, 2017 As of and for the Year Ended December 31, 2016
(In Thousands)
Balance at the beginning of the period $ 1,750
$ —
SBA recourse provision 2,095
2,068
Charge-offs, net (1,141 ) (318 )
Balance at the end of the period $ 2,704
$ 1,750

In the normal course of business, various legal proceedings involving the Corporation are pending. Management, based upon advice from legal counsel, does not anticipate any significant losses as a result of these actions. Management believes that any liability arising from any such proceedings currently existing or threatened will not have a material adverse effect on the Corporation’s financial position, results of operations and cash flows.

Note 1012 — Fair Value Disclosures

The Corporation determines the fair values of its financial instruments based on the fair value hierarchy established in ASC Topic 820, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Fair value is defined as the price that would be received in an orderly transaction that is not a forced liquidation or distressed sale at the measurement date and is based on exit prices. Fair value includes assumptions about risk, such as nonperformance risk in liability fair values, and is a market-based measurement, not an entity-specific measurement. The standard describes three levels of inputs that may be used to measure fair value.

Level 1 — Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Corporation has the ability to access at the measurement date.

Level 2 — Level 2 inputs are inputs, other than quoted prices included with Level 1, that are observable for the asset or liability either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Level 3 inputs are supported by little or no market activity and are significant to the fair value of the assets or liabilities.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Corporation’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Table of Contents

Assets and liabilities measured at fair value on a recurring basis, segregated by fair value hierarchy level, are summarized below:


	March 31, 2021
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Assets:
Securities available-for-sale:
U.S. government agency securities - government-sponsored enterprises	$	0	$	22,235	$	0	$	22,235
Municipal securities	0		24,275		0		24,275
Residential mortgage-backed securities - government issued	0		9,382		0		9,382
Residential mortgage-backed securities - government-sponsored enterprises	0		90,605		0		90,605
Commercial mortgage-backed securities - government issued	0		4,809		0		4,809
Commercial mortgage-backed securities - government-sponsored enterprises	0		19,689		0		19,689
Other securities	0		2,266		0		2,266
Interest rate swaps	0		26,104		0		26,104
Liabilities:
Interest rate swaps	0		29,565		0		29,565


	September 30, 2017									December 31, 2020
	Fair Value Measurements Using									Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
	(In Thousands)									(In Thousands)
Assets:									Assets:
Securities available-for-sale:									Securities available-for-sale:
U.S. Government agency obligations - government-sponsored enterprises	$	—	$	3,807	$	—	$	3,807
Municipal obligations	—		9,332		—		9,332
Collateralized mortgage obligations - government issued	—		22,902		—		22,902
Collateralized mortgage obligations - government-sponsored enterprises	—		95,089		—		95,089
U.S. government agency securities - government-sponsored enterprises									U.S. government agency securities - government-sponsored enterprises	$	0	$	22,629	$	0	$	22,629
Municipal securities									Municipal securities	0		24,779		0		24,779
Residential mortgage-backed securities - government issued									Residential mortgage-backed securities - government issued	0		10,403		0		10,403
Residential mortgage-backed securities - government-sponsored enterprises									Residential mortgage-backed securities - government-sponsored enterprises	0		105,006		0		105,006
Commercial mortgage-backed securities - government issued									Commercial mortgage-backed securities - government issued	0		5,464		0		5,464
Commercial mortgage-backed securities - government-sponsored enterprises									Commercial mortgage-backed securities - government-sponsored enterprises	0		13,365		0		13,365
Other securities									Other securities	0		2,279		0		2,279
Interest rate swaps	—		1,380		—		1,380		Interest rate swaps	0		49,377		0		49,377
Liabilities:									Liabilities:
Interest rate swaps	—		1,380		—		1,380		Interest rate swaps	0		54,927		0		54,927

December 31, 2016
Fair Value Measurements Using
Level 1 Level 2 Level 3 Total
(In Thousands)
Assets:
Securities available-for-sale:
U.S. Government agency obligations - government-sponsored enterprises $ —
$ 6,295
$ —
$ 6,295
Municipal obligations —
8,156
—
8,156
Asset backed securities —
1,081
—
1,081
Collateralized mortgage obligations - government issued —
31,213
—
31,213
Collateralized mortgage obligations - government-sponsored enterprises —
99,148
—
99,148
Interest rate swaps —
352
—
352
Liabilities:
Interest rate swaps —
352
—
352

For assets and liabilities measured at fair value on a recurring basis, there were no0 transfers between the levels during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 or the year ended December 31, ~~2016~~2020 related to the above measurements.

Table of Contents

Assets and liabilities measured at fair value on a non-recurring basis, segregated by fair value hierarchy are summarized below:


	March 31, 2021
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Impaired loans	$	0	$	0	$	12,935	$	12,935
Foreclosed properties	0		0		31		31
Loan servicing rights	0		0		1,370		1,370


	September 30, 2017									December 31, 2020
	Fair Value Measurements Using									Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
	(In Thousands)									(In Thousands)
Impaired loans	$	—	$	7,637	$	8,661	$	16,298	Impaired loans	$	0	$	0	$	17,203	$	17,203
Foreclosed properties	—		1,472		—		1,472		Foreclosed properties	0		0		34		34
Loan servicing rights									Loan servicing rights	0		0		1,325		1,325

Impaired loans were written down to the fair value of their underlying collateral less costs to sell of ~~$16.3~~$12.9 million and ~~$13.4~~$17.2 million at ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, respectively, through the establishment of specific reserves or by recording charge-offs when the carrying value exceeded the fair value of the underlying collateral of impaired loans. Valuation techniques consistent with the market approach, income approach, or cost approach were used to measure fair ~~value and primarily~~value. These techniques included observable inputs for the individual impaired loans being evaluated, such as current appraisals, recent sales of similar assets, or other observable market data, and ~~are reflected within Level 2 of the hierarchy. In cases where an input is~~ unobservable ~~specifically~~inputs, typically when discounts are applied to appraisal values to adjust such values to current market conditions or to reflect net realizable ~~value, the impaired loan balance is reflected within Level 3 of the hierarchy.~~values. The quantification of unobservable inputs for Level 3 impaired loan values range from ~~13%~~10% - ~~90%~~91% as of the measurement date of ~~September 30, 2017.~~March 31, 2021. The weighted average of those unobservable inputs was ~~20%~~29%. The majority of the impaired loans ~~in the Level 3 category~~ are considered collateral dependent loans or are supported by aan SBA guaranty.

Foreclosed properties, upon initial recognition, are remeasured and reported at fair value through a charge-off to the allowance for loan and lease losses, if deemed necessary, based upon the fair value of the foreclosed property. The fair value of a foreclosed property, upon initial recognition, is estimated using a market approach or ~~Level 2 inputs~~ based on observable market data, typically a current appraisal, or ~~Level 3 inputs~~ based upon assumptions specific to the individual property or ~~equipment. Level 3 inputs typically include unobservable inputs~~equipment, such as management applied discounts used to further reduce values to a net realizable value ~~and may be used in situations~~ when observable inputs become stale. ~~Foreclosed property fair value inputs may transition to Level 1~~

Loan servicing rights represent the asset retained upon ~~receipt of an accepted offer for the~~ sale of the ~~related foreclosed property.~~guaranteed portion of certain SBA loans. When SBA loans are sold, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. The servicing rights are subsequently measured using the amortization method, which requires amortization into interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.

The Corporation periodically reviews this portfolio for impairment and engages a third-party valuation firm to assess the fair value of the overall servicing rights portfolio. Loan servicing rights do not trade in an active, open market with readily observable prices. While sales of loan servicing rights do occur, the precise terms and conditions typically are not readily available to allow for a “quoted price for similar assets” comparison. Accordingly, the Corporation utilizes an independent valuation from a third party which uses a discounted cash flow model to estimate the fair value of its loan servicing rights. The valuation model incorporates prepayment assumptions to project loan servicing rights cash flows based on the current interest rate scenario, which is then discounted to estimate an expected fair value of the loan servicing rights. The valuation model considers portfolio characteristics of the underlying serviced portion of the SBA loans and uses the following significant unobservable inputs: (1) constant prepayment rate (“CPR”) assumptions based on the SBA sold pools historical CPR as quoted in Bloomberg and (2) a discount rate. Due to the nature of the valuation inputs, loan servicing rights are classified in Level 3 of the fair value hierarchy.

Fair Value of Financial Instruments

The Corporation is required to disclose estimated fair values for its financial instruments. Fair value estimates, methods, and assumptions, consistent with exit price concepts for fair value measurements, are set forth below:

N/A = The fair value is not applicable due to restrictions placed on transferability

December 31, 2016

Carrying
Amount
Fair Value
Total Level 1 Level 2 Level 3
(In Thousands)
Financial assets:
Cash and cash equivalents $ 77,517
$ 77,517
$ 55,622
$ 21,895
$ —
Securities available-for-sale 145,893
145,893
—
145,893
—
Securities held-to-maturity 38,612
38,520
—
38,520
—
Loans held for sale 1,111
1,222
—
1,222
—
Loans and lease receivables, net 1,429,763
1,447,044
—
12,268
1,434,776
Bank-owned life insurance 39,048
39,048
—
39,048
—
Federal Home Loan Bank and Federal Reserve Bank stock 2,131
2,131
—
2,131
—
Accrued interest receivable 4,677
4,677
4,677
—
—
Interest rate swaps 352
352
—
352
—
Financial liabilities:
Deposits 1,538,855
1,539,413
1,063,720
475,693
—
Federal Home Loan Bank advances and other borrowings 59,676
60,893
—
60,893
—
Junior subordinated notes 10,004
9,072
—
—
9,072
Accrued interest payable 1,765
1,765
1,765
—
—
Interest rate swaps 352
352
—
352
—
Off-balance-sheet items:
Standby letters of credit 58
58
—
—
58
N/A = The fair value is not applicable due to restrictions placed on transferability

Disclosure of fair value information about financial instruments, for which it is practicable to estimate that value, is required whether or not recognized in the unaudited Consolidated Balance Sheets. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Certain financial instruments and all non-financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not necessarily represent the underlying value of the Corporation.

~~Cash and Cash Equivalents:~~ The carrying amount reported for cash and due from banks and interest-bearing deposits held by the Corporation approximates fair value because of its immediate availability and because it does not present unanticipated credit concerns. As of September 30, 2017 and December 31, 2016, the Corporation held $13.4 million and $20.3 million, respectively, of commercial paper. The fair value of commercial paper is classified as a Level 2 input due to the lack of available independent pricing sources. The carrying value of brokered certificates of deposit purchased approximates the fair value for these instruments. The fair value of brokered certificates of deposits purchased is based on the discounted value of contractual cash flows using a discount rate reflective of rates currently offered for deposits of similar remaining maturities. As of both September 30, 2017 and December 31, 2016, the Corporation held $3.3 million and $1.6 million of brokered certificates of deposits, respectively.

Loans Held for Sale: Loans held for sale, which consist of the guaranteed ~~portion~~portions of SBA 7(a) loans, are carried at the lower of cost or estimated fair value. The estimated fair value is based on what secondary markets are currently offering for portfolios with similar characteristics.

~~Loans and Lease Receivables, net:~~ The fair value estimation process for the loan portfolio uses an exit price concept and reflects discounts that the Corporation believes are consistent with liquidity discounts in the market place. Fair values are estimated for portfolios of loans with similar financial characteristics. The fair value of performing and nonperforming loans is calculated by discounting scheduled and expected cash flows through the estimated maturity using estimated market rates that reflect the credit and interest rate risk inherent in the portfolio of loans and then applying a discount factor based upon the embedded credit risk of the loan and the fair value of collateral securing nonperforming loans when the loan is collateral dependent. The estimate of maturity is based on the Bank’s historical experience with repayments for each loan classification, modified, as required, by an estimate of the effect of current economic and lending conditions. Significant unobservable inputs include, but are not limited to, discounts (investor yield premiums) applied to fair value calculations to further determine the exit price value of a portfolio of loans.

respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Corporation considers the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

~~Financial Instruments with Off-Balance-Sheet Risks:~~ The fair value of the Corporation’s off-balance-sheet instruments is based on quoted market prices and fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the credit standing of the related counterparty. Commitments to extend credit and standby letters of credit are generally not marketable. Furthermore, interest rates on any amounts drawn under such commitments would generally be established at market rates at the time of the draw. Fair value would principally derive from the present value of fees received for those products.

Limitations: Fair value estimates are made at a discrete point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Corporation’s entire holding of a particular financial instrument. Because no market exists for a significant portion of the Corporation’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and are not considered in the estimates.

Note 1113 — Derivative Financial Instruments

The Corporation offers interest rate swap products directly to qualified commercial borrowers. The Corporation economically hedges client derivative transactions by entering into offsetting interest rate swap contracts executed with a third party. Derivative transactions executed as part of this program are not ~~designated as accounting hedge relationships~~considered hedging instruments and are ~~marked- to-market~~marked-to-market through earnings each period. The derivative contracts have mirror-image terms, which results in the positions’ changes in fair value ~~primarily~~ offsetting through earnings each period. The credit risk and risk of non-performance embedded in the fair value calculations is different between the dealer counterparties and the commercial borrowers which may result in a difference in the changes in the fair value of the mirror-image swaps. The Corporation incorporates credit valuation adjustments to appropriately reflect both its own non-performance risk and the counterparty’s risk in the fair value measurements. When evaluating the fair value of its derivative contracts for the effects of non-performance and credit risk, the Corporation considered the impact of netting and any applicable credit enhancements such as collateral postings, thresholds, and guarantees. During the three months ended March 31, 2021, a credit valuation adjustment was recognized resulting in a $170,000 benefit.

At ~~September 30, 2017,~~March 31, 2021, the aggregate amortizing notional value of interest rate swaps with various commercial borrowers was ~~$52.3~~$645.1 million. The Corporation receives fixed rates and pays floating rates based upon LIBOR on the swaps with commercial borrowers. These interest rate swaps mature between ~~September 2018~~January 2024 and March ~~2034.~~2038. Commercial borrower swaps are completed independently with each borrower and are not subject to master netting arrangements. These commercial borrower swaps were reported on the unaudited Consolidated Balance ~~Sheets~~Sheet as a derivative asset of ~~$1.4~~$26.1 million ~~included in accrued interest receivable~~ and ~~other assets as~~a derivative liability of September 30, 2017. In the event of default on a commercial borrower interest rate swap by the counterparty, a right of offset exists to allow for the commercial borrower to set off amounts due against the related commercial loan. As of September 30, 2017, no ~~interest rate swaps were in default and therefore all values for the commercial borrower swaps are recorded on a gross basis on the unaudited Consolidated Balance Sheets.~~$10.8 million.

At ~~September 30, 2017,~~March 31, 2021, the aggregate amortizing notional value of interest rate swaps with dealer counterparties was also ~~$52.3~~$645.1 million. The Corporation pays fixed rates and receives floating rates based upon LIBOR on the swaps with dealer counterparties. These interest rate swaps mature in ~~September 2018~~January 2024 through March ~~2034~~.2038. Dealer counterparty swaps are subject to master netting agreements among the contracts within our Bank and ~~were~~are reported on the unaudited Consolidated Balance ~~Sheets~~Sheet as a net derivative liability of ~~$1.4~~$15.3 million. ~~The value of these swaps was included in accrued interest payable and other liabilities as of September 30, 2017.~~ The gross amount of dealer counterparty swaps, without regard to the enforceable master netting agreement, was ~~also $1.4~~a gross derivative liability of $26.1 million ~~as no~~and $10.8 million gross derivative asset. NaN right of offset existed with ~~the~~ dealer counterparty swaps as of ~~September 30, 2017.~~March 31, 2021.

~~The table below provides information about the balance sheet location and fair value of the Corporation’s derivative instruments as of September 30, 2017 and December 31, 2016.~~

Accrued interest receivable and other assets

Accrued interest payable and other liabilities

~~No derivative instruments held by the Corporation for the nine months ended September 30, 2017 were considered hedging instruments.~~ All changes in the fair value of these instruments are recorded in other non-interest income. Given the mirror-image terms of the outstanding derivative portfolio, the change in fair value for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 had an insignificant impact on the unaudited Consolidated Statements of Income.

The Corporation also enters into interest rate swaps to manage interest rate risk and reduce the cost of match-funding certain long-term fixed rate loans. These derivative contracts involve the receipt of floating rate interest from a counterparty in exchange for the Corporation making fixed-rate payments over the life of the agreement, without the exchange of the underlying notional value. The instruments are designated as cash flow hedges as the receipt of floating rate interest from the counterparty is used to manage interest rate risk associated with forecasted issuances of short-term FHLB advances. 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 affects earnings.

As of March 31, 2021, the aggregate notional value of interest rate swaps designated as cash flow hedges was $114.0 million. These interest rate swaps mature between December 2021 and December 2027. A pre-tax unrealized gain of $2.1 million was recognized in other comprehensive income for the three months ended March 31, 2021, and there was 0 ineffective portion of these hedges.

Information about the balance sheet location and fair value of the Corporation’s derivative instruments below:

Accumulated other comprehensive income (1)

(1)The fair value of derivatives designated as hedging instruments included in accumulated other comprehensive income represent pre-tax amounts, which are reported net of tax on the unaudited Consolidated Balance Sheets.

Note 1214 — 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, 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 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 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 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 measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios of Total Common Equity Tier 1 and Tier 1 capital to risk-weighted assets and of Tier 1 capital to adjusted total assets. These risk-based capital requirements presently address credit risk related to both recorded and ~~off-balance-sheet~~off-balance sheet commitments and obligations.

(to risk-weighted assets)

(to adjusted assets)

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, 2016
Total capital
(to risk-weighted assets)

Consolidated $ 204,117
11.74 % $ 139,101
8.00 % $ 149,968
8.625 % N/A
N/A
First Business Bank 147,811
11.55
102,362
8.00
110,360
8.625
$ 127,953
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
First Business Bank 134,208
10.49
76,772
6.00
84,769
6.625
$ 102,362
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
First Business Bank 134,208
10.49
57,579
4.50
65,576
5.125
$ 83,170
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
First Business Bank 134,208
10.40
51,600
4.00
51,600
4.00
$ 64,500
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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless otherwise indicated or unless the context requires otherwise, all references in this Report to the “Corporation,” “we,” “us,” “our,” or similar references mean First Business Financial Services, Inc. together with our ~~subsidiaries.~~subsidiary. “FBB” or the “Bank” refers to our subsidiary, First Business Bank.

Forward-Looking Statements

This report may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which reflect ~~First Business’s~~our current views with respect to future events and financial performance. Forward-looking statements are not based on historical information, but rather are related to future operations, strategies, financial results, or other developments. Forward-looking statements are based on management’s expectations as well as certain assumptions and estimates made by, and information available to, management at the time the statements are made. Such statements are subject to risks and uncertainties, including among other things:

•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 ~~portion~~portions of SBA loans.

These risks could cause actual results to differ materially from what we have anticipated or projected. These risk factors and uncertainties should be carefully considered by our ~~shareholders~~stockholders and potential investors. See Part I, Item 1A — Risk Factors in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2020 for discussion relating to risk factors impacting us. Investors should not place undue reliance on any such forward-looking statements, which speak only as of the date made. The factors described within this Form 10-Q could affect our financial performance and could cause actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods.

Where any such forward-looking statement includes a statement of the assumptions or bases underlying such forward-looking statement, we caution that, while our management believes such assumptions or bases are reasonable and are made in good faith, assumed facts or bases can vary from actual results, and the differences between assumed facts or bases and actual results can be material, depending on the circumstances. Where, in any forward-looking statement, an expectation or belief is expressed as to future results, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will be achieved or accomplished.

We do not intend to, and specifically disclaim any obligation to, update any forward-looking statements.

The following discussion and analysis is intended as a review of significant events and factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with the unaudited Consolidated Financial Statements and the Notes thereto presented in this Form 10-Q.

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~~First Business Specialty Finance, LLC (“FBSF”), a wholly-owned subsidiary of ~~its subsidiaries.~~FBB. We operate as a business bank focusing on delivering a full line of commercial banking products and services tailored to meet the specific needs of ~~small- to~~small and medium-sized businesses, business owners, executives, professionals, and high net worth individuals. Our products and services include those for business banking, private wealth, and bank consulting. Within business banking, we offer commercial lending, consumer and other lending, asset-based lending, accounts receivable financing, equipment financing, floorplan financing, vendor financing, SBA lending and servicing, ~~asset-based lending, equipment financing, factoring, trust and investment services,~~ treasury management services, and ~~a broad range of deposit products.~~company retirement plans. Our private wealth services for executives and individuals include trust and estate administration, financial planning, investment management, and private banking. For other financial institutions, our bank consulting experts provide investment portfolio administrative services, asset liability management services, and asset liability management process validation. We do not utilize a branch network to attract retail clients. Our operating philosophy is predicated on deep client relationships ~~fostered by local~~within our commercial bank markets and skilled expertise within our nationwide specialty finance business lines, combined with the efficiency of centralized administrative functions, such as information technology, loan and deposit operations, finance and accounting, credit administration, compliance, marketing, and human resources. ~~We believe we have a niche business banking~~Our focused model ~~and we consistently operate within our model. This~~ allows ~~our~~ experienced staff to provide the level of financial expertise needed to develop and maintain long-term relationships with our clients.

Effective June 1, 2017, we completed the consolidation of our three former bank charters into a single charter and rebranded Alterra Bank to First Business Bank. We believe the charter consolidation and brand consistency will be meaningful contributors to improved operating efficiency and profitability as we move forward into 2018.

Results ~~for the three and nine months ended September 30, 2017 include:~~

•Net income totaled $9.7 million, ~~compared to net income~~ or diluted earnings per share of ~~$2.7 million~~$1.12, for the three months ended ~~September 30, 2016. Net income for the nine months ended September 30, 2017 was $7.9 million~~March 31, 2021, compared to ~~net income of $10.9~~$3.3 million, ~~for the nine months ended September 30, 2016.~~

•Annualized return on average assets ~~(“ROAA”)~~ and annualized return on average equity ~~(“ROAE”) were 0.58% and 6.22%, respectively,~~ for the three ~~month period~~months ended ~~September 30, 2017,~~March 31, 2021 measured 1.51% and 18.48%, respectively, compared to ~~0.59%~~0.62% and ~~6.69%, respectively,~~7.14% for the same ~~time~~ period in ~~2016. ROAA~~2020.

•Pre-tax, pre-provision adjusted earnings, which excludes certain one-time and ~~ROAE were 0.59% and 6.36%, respectively, for the nine month period ended September 30, 2017 compared to 0.80% and 9.26%, respectively, for the same time period in 2016.~~

•Net interest margin was 3.44% for both the three months ended March 31, 2021 and March 31, 2020. Adjusted net interest margin, which excludes certain one-time and discrete items, was 3.20% for the three months ended March 31, 2021 compared to 3.32% for the three months ended March 31, 2020.

•Fees in lieu of interest, defined as prepayment fees, asset-based loan fees, non-accrual interest, and loan fee amortization, totaled $3.1 million for the three months ended ~~September 30, 2016. For~~March 31, 2021 compared to $798,000 for the ~~nine~~three months ended ~~September 30, 2017, trust and investment services fee income increased 23.8% to $4.9 million compared to $4.0 million for the nine months ended September 30, 2016.~~March 31, 2020.

•Top line revenue, ~~the sum of~~defined as net interest income ~~and~~plus non-interest income, ~~increased 1.5% to $19.2~~totaled $28.1 million for the three months ended September 30, 2017 compared to $18.9 million for the three months ended September 30, 2016. For the nine months ended September 30, 2017, top line revenue decreased 3.7% to $58.4 million compared to $60.6 million for the nine months ended September 30, 2016.

•Provision for loan and lease losses was ~~$1.5 million~~ ~~for the three months ended September 30, 2017 compared to~~ ~~$3.5 million~~ ~~for the same period in the prior year. Provision for loan and lease losses was $5.7 million for the nine months ended September 30, 2017 compared to $6.8 million for the same time period in 2016.~~

•Non-interest income totaled $7.2 million for the three months ended ~~September 30, 2016. For~~March 31, 2021, once again exceeding the ~~nine months ended September 30, 2017, SBA recourse provision was $2.1 million~~Corporation’s goal of 25%, compared to ~~$449,000 for the nine months ended September 30, 2016.~~

•Non-interest expense was $17.3 million for the three months ended ~~September 30, 2016. Net charge-offs of $6.7~~March 31, 2021 compared to $16.1 million ~~represented an annualized 0.61% of average loans and leases~~ for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020. Operating expense, which excludes certain one-time and discrete items, totaled $17.4 million for the three months ended March 31, 2021 compared to ~~annualized net charge-offs of 0.28%~~$15.9 million for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2020.

•The efficiency ratio improved to 62.19% for the three months ended March 31, 2021, down from 67.74% for the three months ended March 31, 2020.

~~Gross~~•Total assets at March 31, 2021 increased $52.9 million, or 8.2% annualized, to $2.621 billion from $2.568 billion at December 31, 2020.

•Period-end gross loans and leases receivable at March 31, 2021 increased ~~$16.0~~$89.1 million, or 16.6% annualized, to ~~$1.467~~$2.235 billion ~~at September 30, 2017~~ from ~~$1.451~~$2.146 billion atas of December 31, ~~2016.~~2020. Average gross loans and leases of $2.183 billion increased $449.2 million, or 25.9%, for the three months ended March 31, 2021, compared to $1.734 billion for the same period in 2020.

•Period-end gross loans and leases receivable, excluding net PPP loans, at March 31, 2021 increased $46.9 million, or 9.8% annualized, to $1.968 billion from $1.921 billion as of December 31, 2020. Average gross loans and leases, excluding net PPP loans, of $1.941 billion increased $207.0 million, or 11.9%, for the three months ended March 31, 2021, compared to $1.734 billion for the same period in 2020.

•PPP loans and PPP deferred processing fees were $272.7 million and $5.1 million, respectively, at March 31, 2021. Average PPP loans, net of deferred processing fees, were $242.2 million for the three months ended March 31, 2021.

~~Allowance~~•Non-performing assets were $19.0 million and 0.73% of total assets as of March 31, 2021, compared to $26.7 million and 1.04% of total assets as of December 31, 2020. Non-performing assets to total assets, excluding net PPP loans, was 0.81% as of March 31, 2021.

•The allowance for loan and lease losses increased $461,000, or 1.6%, compared to December 31, 2020. The allowance for loan and lease losses decreased to 1.29% of total loans, compared to 1.33% at December 31, 2020. Excluding net PPP loans, the allowance for loan and lease losses decreased to 1.47% of total loans as of March 31, 2021, compared to 1.48% as of December 31, 2020.

•Period-end in-market deposits at March 31, 2021 increased $54.2 million, or 12.9% annualized, to $1.737 billion from $1.683 billion as of December 31, 2020. Average in-market deposits of $1.722 billion increased $356.0 million, or 26.1%, for the three months ended March 31, 2021, compared to $1.366 billion for the same period in 2020.

•Private wealth and trust assets under management and administration increased by $137.5 million, or 24.5% annualized, to $2.387 billion at March 31, 2021, compared to $2.249 billion at December 31, 2020.

•On January 28, 2021, the Board of Directors of the Corporation adopted a ~~percentage~~new share repurchase program that authorizes the Corporation to repurchase up to $5 million of the Corporation’s common stock over a period of approximately twelve months, ending on January 31, 2022. As of March 31, 2021, the Corporation had repurchased 5,736 shares of its common stock at a weighted average price of $22.49 per share, for a total value of $129,000.

•On January 29, 2021, the Corporation’s Board of Directors declared a regular quarterly dividend of $0.18 per share. The quarterly dividend represents a 9% increase over the quarterly dividend declared in October 2020 and, based on fourth quarter 2020 earnings per share, a dividend payout ratio of 25.5%. This regular cash dividend was payable on February 18, 2021 to shareholders of record at the close of business on February 8, 2021. The Board of Directors routinely considers dividend declarations as part of its normal course of business.

Paycheck Protection Program

As of March 31, 2021, the Corporation had $272.7 million in gross PPP loans outstanding and deferred processing fees outstanding of $5.1 million. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness, as an adjustment of yield using the interest method. During the three months ended March 31, 2021, the Corporation recognized $2.2 million of processing fees in loans and leases interest income in the unaudited Consolidated Statements of Income. The SBA provides a guaranty to the lender of 100% of principal and interest, unless the lender violated an obligation under the agreement. As loan losses are expected to be immaterial, if any at all, due to the guaranty, management excluded the PPP loans from the allowance for loan and lease losses calculation. Management funded these short-term loans primarily through a combination of excess cash held at the Federal Reserve and from an increase in in-market deposits.

The Corporation provided loan modifications deferring payments for certain borrowers impacted by COVID-19 who were current in their payments at the inception of the Corporation’s loan modification program. As of March 31, 2021, the Corporation had deferred loans outstanding of $13.0 million, or 0.7% of gross loans and leases, ~~was~~ ~~1.36%~~ ~~at September 30, 2017~~excluding gross PPP loans, compared to ~~1.44% at~~$323.2 million, or 18.6% of gross loans and leases, excluding gross PPP loans, as of June 30, 2020.

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


	As of
	March 31, 2021
			Collateral Type
Industries Description	Balance		Real Estate		Non Real Estate
	(In Thousands)
Real Estate and Rental and Leasing	$	9,425	$	9,425	$	—
Manufacturing	3,000		—		3,000
Professional, Scientific, and Technical Services	39		—		39
Other Services (except Public Administration)	328		212		116
Educational Services	195		195		—
Administrative and Support and Waste Management and Remediation Services	11		—		11
Total deferred loan balances	$	12,998	$	9,832	$	3,166

The following table is a further breakdown of the deferred loan balances by certain credit quality indicators. Please refer to Note 6 — Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses for the risk category definitions.


	As of
	March 31, 2021
	Category
	I			II			III			IV			Total
	(Dollars in Thousands)
Total deferred loan balances	$	407		$	11		$	12,425		$	155		$	12,998
% of Total	3.1		%	0.1		%	95.6		%	1.2		%	100.0		%


	As of
	December 31, 2020
	Category
	I			II			III			IV			Total
	(Dollars in Thousands)
Total deferred loan balances	$	13,466		$	13,448		$	58		$	38		$	27,010
% of Total	49.9		%	49.8		%	0.2		%	0.1		%	100.0		%

Exposure to Stressed Industries

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


	As of
	March 31, 2021				December 31, 2020
Industries:	Balance		% Gross Loans and Leases (1)		Balance		% Gross Loans and Leases (1)
	(Dollars in Thousands)
Retail (2) (3)	$	74,534	3.8	%	$	62,719	3.3	%
Hospitality	82,604		4.2	%	80,832		4.2	%
Entertainment	13,943		0.7	%	14,208		0.7	%
Restaurants & food service	23,385		1.2	%	24,854		1.3	%
Total outstanding exposure	$	194,466	9.9	%	$	182,613	9.5	%

(1)Excluding net PPP loans.

(2)Includes $40.2 million and $48.9 million in loans secured by commercial real estate as of March 31, 2021 and December 31, ~~2016.~~2020, respectively.

(3)Includes $21.3 million and $7.7 million in fully collateralized asset-based loans as of March 31, 2021 and December 31, 2020, respectively.

~~Non-performing assets~~

As of March 31, 2021, the Corporation had no meaningful direct exposure to the energy sector, airline industry or retail consumer, and does not participate in Shared National Credits.

Because of the significant uncertainties related to the ultimate duration of the COVID-19 pandemic and its effects on our clients and prospects, and on the national and local economy as a ~~percentage of total assets was~~ ~~2.01%~~ ~~at September 30, 2017 compared~~whole, there can be no assurances as to ~~1.50%~~ ~~at December 31, 2016.~~

~~Non-accrual loans increased by~~ ~~$8.0 million, or~~ ~~31.9%, to~~ ~~$33.2 million~~ ~~at September 30, 2017 from~~ ~~$25.2 million~~ ~~at December 31, 2016.~~

Results of Operations



Wisconsin						39-1576570

(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)



401 Charmany Drive ~~Madison, WI~~		53719
Madison	Wisconsin
(Address of Principal Executive Offices)		(Zip Code)



PART I. Financial Information			1
Item 1. Financial Statements			1
Consolidated Balance Sheets (Unaudited)			1
Consolidated Statements of Income (Unaudited)			2
Consolidated Statements of Comprehensive Income (Unaudited)			3
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)			4
Consolidated Statements of Cash Flows (Unaudited)			5
Notes to Unaudited Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			3839
Item 3. Quantitative and Qualitative Disclosures about Market Risk			5861
Item 4. Controls and Procedures			5961
PART II. Other Information			5961
Item 1. Legal Proceedings			5961
Item 1A. Risk Factors			5962
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			5962
Item 3. Defaults Upon Senior Securities			5962
Item 4. Mine Safety Disclosures			5962
Item 5. Other Information			6062
Item 6. Exhibits			6062
Signatures			6062



þ☑						Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



¨☐						Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


		March 31, 2021		December 31, 2020
		(Unaudited)
	(In Thousands, Except Share Data)
Assets
Cash and due from banks		$	20,129	$	29,538
Short-term investments		38,745		27,371
Cash and cash equivalents		58,874		56,909
Securities available-for-sale, at fair value		173,261		183,925
Securities held-to-maturity, at amortized cost		24,783		26,374
Loans held for sale		6,576		8,695
Loans and leases receivable, net of allowance for loan and lease losses of $28,982 and $28,521, respectively		2,206,130		2,117,449
Premises and equipment, net		1,923		1,998
Foreclosed properties		31		34
Right-of-use assets, net		5,486		5,814
Bank-owned life insurance		52,537		52,188
Federal Home Loan Bank stock, at cost		14,941		13,578
Goodwill and other intangible assets		12,055		12,018
Derivatives		26,104		49,377
Accrued interest receivable and other assets		38,017		39,478
Total assets		$	2,620,718	$	2,567,837
Liabilities and Stockholders’ Equity
Deposits		$	1,902,718	$	1,855,516
Federal Home Loan Bank advances and other borrowings		448,417		419,167
Junior subordinated notes		10,065		10,062
Lease liabilities		6,040		6,386
Derivatives		29,565		54,927
Accrued interest payable and other liabilities		9,422		15,617
Total liabilities		2,406,227		2,361,675

Stockholders’ equity:
Preferred stock, $0.01 par value, 2,500,000 shares authorized, 0ne issued or outstanding		0		0
Common stock, $0.01 par value, 25,000,000 shares authorized, 9,320,490 and 9,234,460 shares issued, 8,638,195 and 8,566,960 shares outstanding at March 31, 2021 and December 31, 2020, respectively		93		92
Additional paid-in capital		83,694		83,125
Retained earnings		148,621		140,431
Accumulated other comprehensive loss		(1,038)		(933)
Treasury stock, 682,295 and 667,500 shares at March 31, 2021 and December 31, 2020, respectively, at cost		(16,879)		(16,553)
Total stockholders’ equity		214,491		206,162
Total liabilities and stockholders’ equity		$	2,620,718	$	2,567,837



	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2017		2016			2017		2016
	(In Thousands, Except Per Share Data)
Interest income
Loans and leases	$	17,686	$	18,016		$	53,492	$	55,161
Securities	771		698			2,326		2,102
Short-term investments	177		184			488		533
Total interest income	18,634		18,898			56,306		57,796
Interest expense
Deposits	2,708		2,870			8,039		8,961
Federal Home Loan Bank advances and other borrowings	763		453			2,185		1,425
Junior subordinated notes	280		280			832		835
Total interest expense	3,751		3,603			11,056		11,221
Net interest income	14,883		15,295			45,250		46,575
Provision for loan and lease losses	1,471		3,537			5,699		6,824
Net interest income after provision for loan and lease losses	13,412		11,758			39,551		39,751
Non-interest income
Trust and investment services fee income	1,653		1,364			4,930		3,981
Gain on sale of Small Business Administration loans	606		347			1,501		3,854
Gain on sale of residential mortgage loans	—		198			26		540
Service charges on deposits	756		772			2,287		2,247
Loan fees	391		506			1,525		1,791
Increase in cash surrender value of bank-owned life insurance	314		244			940		730
Other non-interest income	619		209			1,931		914
Total non-interest income	4,339		3,640			13,140		14,057
Non-interest expense
Compensation	7,645		7,637			24,710		24,454
Occupancy	527		530			1,521		1,538
Professional fees	995		1,065			3,046		2,888
Data processing	592		623			1,810		1,971
Marketing	594		528			1,546		1,710
Equipment	285		292			868		913
Computer software	715		539			2,037		1,607
FDIC insurance	320		444			1,081		989
Collateral liquidation costs	371		89			556		204
Net loss on foreclosed properties	—		—			—		93
Impairment of tax credit investments	112		3,314			338		3,520
Small Business Administration recourse provision	1,315		375			2,095		449
Other non-interest expense	760		317			2,404		1,574
Total non-interest expense	14,231		15,753			42,012		41,910
Income (loss) before income tax expense	3,520		(355		)	10,679		11,898
Income tax expense (benefit)	936		(3,020		)	2,812		957
Net income	$	2,584	$	2,665		$	7,867	$	10,941
Earnings per common share
Basic	$	0.30	$	0.31		$	0.90	$	1.26
Diluted	0.30		0.31			0.90		1.26
Dividends declared per share	0.13		0.12			0.39		0.36



	Number of Restricted Shares/Units		Weighted Average Grant-Date Fair Value
Nonvested balance as of December 31, 2015	135,471		$	20.13
Granted	60,415		22.74
Vested	(56,090	)	18.71
Forfeited	(23,551	)	20.90
Nonvested balance as of December 31, 2016	116,245		21.13
Granted	64,725		21.62
Vested	(45,695	)	21.49
Forfeited	(7,619	)	21.57
Nonvested balance as of September 30, 2017	127,656		$	21.39



	As of December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available-for-sale:
U.S. Government agency obligations - government-sponsored enterprises	$	6,298	$	7	$	(10	)	$	6,295
Municipal obligations	8,246		2		(92		)	8,156
Asset-backed securities	1,116		—		(35		)	1,081
Collateralized mortgage obligations - government issued	30,936		423		(146		)	31,213
Collateralized mortgage obligations - government-sponsored enterprises	99,865		252		(969		)	99,148
	$	146,461	$	684	$	(1,252	)	$	145,893



	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		%



	As of September 30, 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	$	888	3	$	1,065	$	930
Commercial real estate — non-owner occupied	1	158		35		1	158		39
Land development	1	5,745		2,770		1	5,745		3,440
Construction	—	—		—		2	331		314
Multi-family	—	—		—		—	—		—
1-4 family	10	1,287		1,353		11	1,391		1,393
Commercial and industrial	11	8,944		5,759		10	8,094		7,058
Consumer and other:
Home equity and second mortgage	1	37		4		1	37		8
Other	2	2,094		359		1	2,076		378
Total	29	$	19,330	$	11,168	30	$	18,897	$	13,560



	As of September 30, 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	1	49		1	52
Combination of extension of term and interest rate concession	14	4,997		16	6,056
Commercial and industrial:
Combination of extension of term and interest rate concession	11	5,759		10	7,058
Consumer and other:
Extension of term	1	342		1	378
Combination of extension of term and interest rate concession	2	21		1	8
Total	29	$	11,168	30	$	13,560


	March 31, 2021
	Carrying Amount		Fair Value
			Total		Level 1		Level 2		Level 3
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	58,874	$	58,874	$	58,874	$	0	$	0
Securities available-for-sale	173,261		173,261		0		173,261		0
Securities held-to-maturity	24,783		25,537		0		25,537		0
Loans held for sale	6,576		7,167		0		7,167		0
Loans and lease receivables, net	2,206,130		2,210,391		0		0		2,210,391
Federal Home Loan Bank stock	14,941		N/A		N/A		N/A		N/A
Accrued interest receivable	7,794		7,794		7,794		0		0
Interest rate swaps	26,104		26,104		0		26,104		0
Financial liabilities:
Deposits	1,902,718		1,903,873		1,815,408		88,465		0
Federal Home Loan Bank advances and other borrowings	448,417		459,775		0		459,775		0
Junior subordinated notes	10,065		9,990		0		0		9,990
Accrued interest payable	969		969		969		0		0
Interest rate swaps	29,565		29,565		0		29,565		0
Off-balance sheet items:
Standby letters of credit	134		134		0		0		134


	Interest Rate Swap Contracts
	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(In Thousands)
Derivatives not designated as hedging instruments
March 31, 2021	Derivatives	$	26,104	Derivatives	$	26,104
December 31, 2020	Derivatives	$	49,377	Derivatives	$	49,377
Derivatives designated as hedging instruments
March 31, 2021	Accumulated other comprehensive income (1)	$	3,461	Derivatives	$	3,461
December 31, 2020	Accumulated other comprehensive income (1)	$	5,550	Derivatives	$	5,550


	As of March 31, 2021
	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)
Total capital (to risk-weighted assets)
Consolidated	$	267,291	11.52	%	$	185,682	8.00	%	$	243,708	10.50	%	N/A	N/A
First Business Bank	260,529		11.24		185,412		8.00		243,354		10.50		231,765	10.00	%
Tier 1 capital (to risk-weighted assets)
Consolidated	$	214,510	9.24	%	$	139,262	6.00	%	$	197,288	8.50	%	N/A	N/A
First Business Bank	231,547		9.99		139,059		6.00		197,001		8.50		185,412	8.00
Common equity tier 1 capital (to risk-weighted assets)
Consolidated	$	204,445	8.81	%	$	104,446	4.50	%	$	162,472	7.00	%	N/A	N/A
First Business Bank	231,547		9.99		104,294		4.50		162,236		7.00		150,648	6.50
Tier 1 leverage capital (to adjusted assets)
Consolidated	$	214,510	8.37	%	$	102,499	4.00	%	$	102,499	4.00	%	N/A	N/A
First Business Bank	231,547		9.08		102,027		4.00		102,027		4.00		127,534	5.00



	Increase (Decrease) for the Three Months Ended September 30,									Increase (Decrease) for the Nine Months Ended September 30,
	2017 Compared to 2016									2017 Compared to 2016
	Rate			Volume			Net			Rate			Volume			Net
	(In Thousands)
Interest-earning assets
Commercial real estate and other mortgage loans⁽¹⁾	$	45		$	221		$	266		$	(1,283	)	$	777		$	(506	)
Commercial and industrial loans⁽¹⁾	(309		)	(155		)	(464		)	(290		)	(679		)	(969		)
Direct financing leases	(20		)	(18		)	(38		)	(56		)	(51		)	(107		)
Consumer and other loans	(135		)	41			(94		)	(161		)	75			(86		)
Total loans and leases receivable	(419		)	89			(330		)	(1,790		)	122			(1,668		)
Mortgage-related securities	99			(53		)	46			183			(59		)	124
Other investment securities	19			8			27			38			61			99
FHLB and FRB Stock	(40		)	44			4			(15		)	27			12
Short-term investments	118			(129		)	(11		)	292			(349		)	(57		)
Total net change in income on interest-earning assets	(223		)	(41		)	(264		)	(1,292		)	(198		)	(1,490		)
Interest-bearing liabilities
Transaction accounts	207			44			251			490			122			612
Money market accounts	(6		)	(52		)	(58		)	(256		)	(178		)	(434		)
Certificates of deposit	13			(15		)	(2		)	51			(81		)	(30		)
Wholesale deposits	148			(501		)	(353		)	234			(1,303		)	(1,069		)
Total deposits	362			(524		)	(162		)	519			(1,440		)	(921		)
FHLB advances	(7		)	340			333			18			698			716
Other borrowings	(14		)	(10		)	(24		)	152			(108		)	44
Junior subordinated notes	1			—			1			5			(8		)	(3		)
Total net change in expense on interest-bearing liabilities	342			(194		)	148			694			(858		)	(164		)
Net change in net interest income	$	(565	)	$	153		$	(412	)	$	(1,986	)	$	660		$	(1,326	)


	Increase (Decrease) for the Three Months Ended March 31,
	2021 Compared to 2020
	Rate		Volume		Net
	(In Thousands)
Interest-earning assets
Commercial real estate and other mortgage loans(1)	$	(3,147)	$	2,152	$	(995)
Commercial and industrial loans(1)	(1,465)		3,233		1,768
Direct financing leases(1)	162		(26)		136
Consumer and other loans(1)	(52)		89		37
Total loans and leases receivable	(4,502)		5,448		946
Mortgage-related securities	(301)		(94)		(395)
Other investment securities	(28)		88		60
FHLB and FRB Stock	(419)		366		(53)
Short-term investments	(93)		(31)		(124)
Total net change in income on interest-earning assets	(5,343)		5,777		434
Interest-bearing liabilities
Transaction accounts	(738)		341		(397)
Money market accounts	(1,563)		(32)		(1,595)
Certificates of deposit	(252)		(321)		(573)
Wholesale deposits	(710)		178		(532)
Total deposits	(3,263)		166		(3,097)
FHLB advances	(1,301)		991		(310)

Other borrowings	(12)		43		31
Junior subordinated notes	(3)		—		(3)
Total net change in expense on interest-bearing liabilities	(4,579)		1,200		(3,379)
Net change in net interest income	$	(764)	$	4,577	$	3,813


~~(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.~~


~~(4)~~	~~Average rate of other borrowings reflects the cost of prepaying a secured borrowing during the second quarter of 2017.~~


~~(1)~~	~~Total adjusted operating expense excludes the impact of discrete items as previously defined in the non-GAAP efficiency ratio calculation.~~


	As of and for the Three Months Ended March 31,				As of and for the Year Ended December 31,
	2021		2020		2020
	(In Thousands)
Impaired loans and leases with no impairment reserves required	$	10,391	$	13,006	$	18,966
Impaired loans and leases with impairment reserves required	8,660		15,025		7,697
Total impaired loans and leases	19,051		28,031		26,663
Less: Impairment reserve (included in allowance for loan and lease losses)	3,487		3,802		3,681
Net impaired loans and leases	$	15,564	$	24,229	$	22,982
Average impaired loans and leases	$	22,091	$	22,144	$	27,703
Foregone interest income attributable to impaired loans and leases	$	603	$	601	$	2,794
Less: Interest income recognized on impaired loans and leases	68		9		636
Net foregone interest income on impaired loans and leases	$	535	$	592	$	2,158



(In Thousands)
Foreclosed properties as of December 31, 2016	$	1,472
Premises and equipment transferred to foreclosed properties	1,113
Foreclosed properties as of September 30, 2017	$	2,585



31.1						Certification of the Chief Executive Officer

31.2						Certification of the Chief Financial Officer

32						Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350

101						The following financial information from First Business Financial Services, Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2017,~~March 31, 2021, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, (ii) Consolidated Statements of Income for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~2016,~~2020, (iii) Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~2016,~~2020, (iv) Consolidated Statements of Changes in Stockholders’ Equity for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016,~~2020, (v) Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016,~~2020, and (vi) the Notes to Unaudited Consolidated Financial Statements



			FIRST BUSINESS FINANCIAL SERVICES, INC.
~~October 27, 2017~~April 30, 2021			/s/ Corey A. Chambas
			Corey A. Chambas
			Chief Executive Officer

~~October 27, 2017~~April 30, 2021			/s/ Edward G. Sloane, Jr.
			Edward G. Sloane, Jr.
			Chief Financial Officer
			(principal financial officer)