[FOR IMMEDIATE RELEASE]

First Business Financial Services, Inc.

401 Charmany Drive

Madison, WI 53719

-- Strong and stable performance supported by robust growth in loans, deposits, and pre-tax, pre-provision income --

MADISON, Wis., April 27, 2023 (BUSINESS WIRE) -- First Business Financial Services, Inc. (the “Company”, the “Bank”, or “First Business Bank”) (Nasdaq:FBIZ) reported quarterly net income available to common shareholders of $8.8 million, or $1.05 diluted earnings per share. This compares to net income available to common shareholders of $9.9 million, or $1.18 per share, in the fourth quarter of 2022 and $8.7 million, or $1.02 per share, in the first quarter of 2022.

“First Business Bank’s disciplined and effective execution of its business model drove outstanding performance for the quarter, delivering double-digit deposit and loan growth during a turbulent period for our industry,” Chief Executive Officer Corey Chambas said. “Stable balance sheet positioning and deep client relationships strengthened our overall profitability, most notably through increased levels of in-market deposits, which grew at an annualized pace of 18% during the quarter. Our clients make up a diverse deposit base, and with an average deposit relationship tenure of over 10 years, we have a deep understanding of each of our clients. We are proud to be their sound and trusted partner, from stewarding deposits to funding the day-to-day needs of these businesses that are the economic engine of our communities. In the first quarter, historically a slower quarter for new business, our loan portfolio increased by an annualized pace of 16% while maintaining our longstanding and rigorous underwriting standards. This exceptional performance drove record top line revenue and continued growth in our tangible book value, up 13% annualized during the quarter.”

•Strong Deposit Growth. Total deposits grew to $2.477 billion, increasing 56.9% annualized from the linked quarter and 22.4% from the first quarter of 2022. In-market deposits grew to a record $2.055 billion, up $88.8 million, or 18.1% annualized, from the linked quarter. Growth included an increase in wholesale deposits as management added brokered CDs to build on-balance sheet liquidity and replace maturing FHLB advances.

•Robust Loan Growth. Loans grew $96.3 million, or 15.8% annualized, from the fourth quarter of 2022, reflecting ongoing strength in C&I lending in the first quarter. Balanced expansion across the Company’s portfolios drove loan growth totaling $288.1 million, or 12.8%, from the first quarter of 2022.

•Exceptional Pre-tax, Pre-Provision (“PTPP”) Income. PTPP income grew to $13.3 million, up 2.9% from the prior quarter and 34.4% from the first quarter of 2022. Performance reflects strong balance sheet growth and diversified non-interest income, partially offset by non-interest expense growth to support the Company’s investment in talent.

•Outstanding Asset Quality. Continued positive asset quality trends resulted in non-performing assets of $3.5 million, measuring a historically low 0.11% of total assets and improving from 0.13% of total assets on December 31, 2022 and 0.21% on March 31, 2022. Net charge-offs as a percent of average loans and leases measured 0.01% for the quarter, compared to 0.10% in the linked quarter and net recoveries of 0.03% in the prior year quarter.

•Tangible Book Value Growth. The Company’s strong earnings generation produced a 12.8% annualized increase in tangible book value per share compared to the linked quarter and 12.2% compared to the prior year quarter.

•Minimal Impact of Fair Value Mark on Held-To-Maturity (“HTM”) Securities Portfolio. The Bank’s regulatory and tangible common equity capital ratios would be minimally impacted by the hypothetical recognition of fair value mark-to-market adjustments on the HTM securities portfolio. The HTM portfolio had an amortized cost of $11.5 million and a fair value of $11.2 million as of March 31, 2023. Adjusting the Bank's balance sheet accordingly would reduce the ratio of tangible common equity to tangible assets by just one basis point, to 7.68%, as of March 31, 2023.

Two bank failures occurring in March 2023 prompted industry concern regarding bank deposit funding, liquidity sources, and capital adequacy. “Our clients and communities view First Business Bank as a safe and sound partner, and from March 8 to March 31, we added new clients and our in-market deposit balances increased by $45 million”, Chambas said. “We believe our deep and longstanding client relationships are a critical factor in our success. With our focus on commercial banking clientele, our client deposit balances are naturally larger in size than those of peer banks with retail banking operations, and as such, we have long offered extended deposit insurance products to protect clients’ operating business assets. Combined with our deep and trusted relationships, this is a meaningful competitive advantage during recent market distress.”

(1)Included in interest-bearing transaction accounts and certificates of deposit balances above.

Management regularly reviews all primary and secondary sources of liquidity in preparation for any unforeseen funding needs, such as potential fallout from recent market events. These are prioritized based on available capacity, term flexibility, and cost. At March 31, 2023, the Company’s liquidity position included record in-market deposits of $2.055 billion, total deposits of $2.477 billion, and readily available liquidity of $656.6 million, which compares favorably to $449.6 million at December 31, 2022. Management has not accessed the Federal Reserve Bank’s Bank Term Funding Program.

(1)Bank internal policy limits brokered CDs to 50% of total bank funding when combined with FHLB advances.

Chambas added, “Our uniquely disciplined approach to interest rate risk management is another key point of differentiation in the current banking environment. Through robust earnings generation and limited mark-to-market adjustments, we’ve grown our tangible book value by 12.2% over the past twelve months, in stark contrast to many of our peers. Modeling in the HTM mark-to-market and full balance sheet mark-to-market adjustments produced a similarly strong capital result as of March 31, 2023. Tangible common equity to tangible assets (“TCE”) adjusted for HTM and full balance sheet mark-to-market adjustments totaled 7.68% and 7.56%, respectively, compared to our reported ratio of 7.69%. Even after these adjustments, the results still fall within our target TCE range of 7.5%-8.5%.”

The Company’s capital ratios continued to exceed the highest required regulatory benchmark levels. Capital ratios remain strong with the voluntary inclusion of mark-to-market adjustments on the full balance sheet.

(1)This is a non-GAAP financial measure. Management believes these measures are meaningful because they reflect adjustments commonly made by management, investors, regulators, and analysts to evaluate financial performance, provide greater understanding of ongoing operations, and enhance comparability of results with prior periods. See the section titled Non-GAAP Reconciliations at the end of this release for a reconciliation of GAAP financial measures to non-GAAP financial measures.

(2)Calculation is annualized.

Net interest income decreased $747,000, or 2.7%, to $26.7 million.

•The decrease in net interest income was driven by a decrease in both net interest margin and fees in lieu of interest, partially offset by an increase in average loans and leases receivable. Average loans and leases receivable increased $97.1 million, or 16.3% annualized, to $2.481 billion. Fees in lieu of interest, which can vary from quarter to quarter based on client-driven activity, totaled $651,000, compared to $1.3 million in the prior quarter. Excluding fees in lieu of interest, net interest income decreased $80,000, or 1.2% annualized.

•The yield on average interest-earning assets increased 30 basis points to 6.09% from 5.79%. Excluding fees in lieu of interest, the yield earned on average interest-earning assets increased 40 basis points to 5.99% from 5.59%. The daily average effective federal funds rate increased 86 basis points compared to the linked quarter, which equates to an average adjusted interest-earning asset beta of 47.0% for the three months ended March 31, 2023, compared to 53.5% in the linked quarter. The cumulative adjusted interest earning asset beta since December 31, 2021 was 55.3%.

•The rate paid for average interest-bearing, in-market deposits increased 77 basis points to 2.78% from 2.01% due to the acceleration of exception pricing and the migration of client balances from non-maturity deposits to certificates of deposit. Similarly, the rate paid for average total bank funding increased 63 basis points to 2.30% from 1.67%. Total bank funding is defined as total deposits plus Federal Home Loan Bank (“FHLB”) advances. The total bank funding beta was 73.3% for the three months ended March 31, 2023, compared to 53.1% in the linked quarter. The cumulative bank funding beta since December 31, 2021 was 44.5%.

•Net interest margin was 3.86%, down 29 basis points compared to 4.15% in the linked quarter. Adjusted net interest margin1 was 3.74%, down 19 basis points compared to 3.93% in the linked quarter. The decline in net interest margin was due to a decrease in fees in lieu of interest and an increase in the rate paid on total bank funding, partially offset by an increase in the yield on average adjusted interest earning assets.

•The Bank anticipates deposit betas may continue to rise and adjusted net interest margin may continue to decline at a gradual pace in coming quarters as the Federal Open Market Committee approaches a terminal federal funds rate.

The Bank reported a provision expense of $1.6 million, compared to $702,000 in the fourth quarter of 2022.

•The Bank adopted ASU No. 2016-13, Financial Instruments- Credit Losses (“ASC 326”), which is often referred to as CECL, on January 1, 2023. The adoption increased the reserve by $1.8 million, primarily driven by recognition of reserves on unfunded, off-balance sheet credit commitments. The after-tax adoption impact to retained earnings of $1.4 million will be phased into regulatory capital over a three-year period as permitted by the federal banking regulatory agencies.

•Under ASC 326, the first quarter provision expense increase consisted of an additional $979,000 due to loan growth and $474,000 due to modest deterioration in forecasted economic outlook compared to adoption date.

Non-interest income increased $1.4 million, or 20.6%, to $8.4 million.

•Private Wealth and Retirement assets (“Private Wealth”) fee income increased $84,000, or 3.3% to $2.7 million. Private Wealth assets under management and administration measured $2.804 billion at March 31, 2023, up $144.1 million from the prior quarter.

•Gains on sale of Small Business Administration (“SBA”) loans increased $207,000, or 77.0%, to $476,000.

•Commercial loan swap fee income decreased $199,000, or 26.3%, to $557,000. Swap fee income can vary from period to period based on loan activity and the interest rate environment.

•Service charges on deposits decreased $109,000, or 13.8%, to $682,000, driven by an increase in the earnings credit rate commensurate with the rising rate environment.

•Other fee income increased $1.5 million to $3.2 million, compared to $1.7 million in the prior quarter. The increase was primarily due to higher returns on the Company’s investments in mezzanine funds. Income from mezzanine funds was $2.4 million in the first quarter, compared to $92,000 in the linked quarter. Income from mezzanine funds can vary from period to period based on changes in the value of underlying investments.

1 Adjusted net interest margin is a non-GAAP measure representing net interest income excluding fees in lieu of interest and other recurring, but volatile, components of net interest margin divided by average interest-earning assets less other recurring, but volatile, components of average interest-earning assets.

Non-interest expense increased $600,000, or 2.8%, to $21.8 million, while operating expense increased $1.1 million, or 5.4%, to $21.8 million.

•Compensation expense was $15.9 million, reflecting an increase of $641,000, or 4.2%, from the linked quarter due to payroll taxes paid in the quarter on a record annual cash bonus payout, annual merit increases reflecting a competitive job market, and an expanded workforce. Management believes the increase in compensation expense will decline modestly from this seasonally high rate and stabilize to a lower rate during the remainder of the year. Average full-time equivalents (FTEs) for the first quarter of 2023 were 340, up from 336 in the linked quarter.

•Professional fees were $1.3 million, increasing $133,000, or 11.0%, from the linked quarter primarily due to expenses related to an office relocation.

•FDIC insurance expense was $394,000, increasing $191,000, or 94.1%, from the linked quarter primarily due to an increase in the assessment rate and the assessable base.

•Other non-interest expense decreased $413,000, or 44.7%, to $510,000 from the linked quarter primarily due to a non-recurring contribution to the First Business Charitable Foundation totaling $809,000 during the prior quarter. This was partially offset by a recourse release of $322,000 and a swap credit valuation benefit of 153,000 in the prior quarter.

Income tax expense increased $408,000, or 17.0%, to $2.8 million. The effective tax rate was 23.8% for the three months ended March 31, 2023, compared to 19.1% for the linked quarter. The prior quarter benefited from low income housing tax credits and a state return amendment. Based on expected earnings and future tax credit investments, the Company expects to report an effective tax rate of 21-22% for 2023.

Total period-end loans and leases receivable increased $96.3 million, or 15.8% annualized, to $2.539 billion. Due to the adoption of ASC 326, the current quarter included a change to our portfolio segmentation. The balances as of March 31, 2023 reflect reclassifications of $43 million to commercial and industrial (“C&I”) from commercial real estate (“CRE”) and $7 million from consumer and other to CRE.

•Including the reclassification impact of adopting ASC 326 in the period of comparison, CRE loans increased by $22.5 million, or 6.0% annualized, to $1.529 billion. The increase was primarily due to an increase in multi-family loans, partially offset by a decrease in CRE non-owner occupied loans and construction loans.

•Including the reclassification impact of adopting ASC 326 in the period of comparison, C&I loans increased $66.2 million, or 29.5% annualized, to $963.3 million. The increase was due to growth across the majority of the Bank’s C&I products and geographies. Management does not believe this level of C&I loan growth is sustainable and expects growth to moderate to lower double-digit levels in subsequent quarters.

Total period-end in-market deposits increased $88.8 million, or 18.1% annualized, to $2.055 billion, compared to $1.966 billion. The average rate paid was 2.09%, up 66 basis points from 1.43% in the prior quarter.

•Growth in interest-bearing transaction accounts and certificates of deposits, driven by client movement into extended insurance products, was partially offset by a decrease in non-interest bearing transaction accounts and money market accounts.

Period-end wholesale funding, including FHLB advances, brokered deposits, and deposits gathered through internet deposit listing services, increased $111.0 million to $729.6 million.

•Wholesale deposits increased $219.9 million to $422.1 million, compared to $202.2 million as the Bank continued to replace FHLB advances with wholesale deposits while also prudently adding excess liquidity to the balance sheet in response to recent banking industry events. Management will replace this excess funding, as needed, with term funding throughout the second quarter consistent with the Company’s long-held philosophy to manage interest rate risk by utilizing the most efficient and cost-effective source of wholesale funds to match-fund our fixed-rate loan portfolio. The average rate paid on wholesale deposits increased 55 basis points to 4.21% and the weighted average original maturity decreased to 1.8 years from 2.1 years.

•FHLB advances decreased $108.9 million to $307.5 million. The average rate paid on FHLB advances increased 26 basis points to 2.47% and the weighted average original maturity increased to 4.7 years from 3.7 years.

Non-performing assets decreased $253,000 to $3.5 million, or 0.11% of total assets down from 0.13% in the prior quarter.

The allowance for credit losses, including unfunded credit commitments reserve, increased $3.3 million, or 13.7%, primarily driven by the adoption of CECL, loan growth, and modest deterioration in forecasted economic outlook. The allowance for credit losses, including unfunded credit commitment reserves, as a percent of total gross loans and leases was 1.08% compared to 0.99% in the prior quarter under the incurred loss model.

Net interest income increased $5.3 million, or 24.6%, to $26.7 million.

•The increase in net interest income primarily reflects an increase in average gross loans and leases and net interest margin expansion, partially offset by lower fees in lieu of interest. Fees in lieu of interest decreased from $1.3 million to $651,000, primarily due to a decrease in prepayment fees. Excluding fees in lieu of interest, net interest income increased $5.9 million, or 29.4%.

•The yield on average interest-earning assets measured 6.09% compared to 3.84%. Excluding fees in lieu of interest, the yield on average interest-earning assets measured 5.99%, compared to 3.63%. This increase in yield was primarily due to the increase in short-term market rates and the reinvestment of cash flows from the securities and fixed rate loan portfolios in a rising rate environment. The daily average effective federal funds rate increased 442 basis points compared to the prior year quarter, which equates to a average adjusted interest-earning asset beta of 53.3% for the three months ended March 31, 2023, compared to the prior year period.

•The rate paid for average interest-bearing in-market deposits increased 259 basis points to 2.78% from 0.19%. The rate paid for average total bank funding increased 199 basis points to 2.30% from 0.31%. The total bank funding beta was 45.0% for the three months ended March 31, 2023, compared to the prior year period.

•Net interest margin increased 47 basis points to 3.86% from 3.39%. Adjusted net interest margin increased 52 basis points to 3.74% from 3.22%.

The Company reported a provision expense of $1.6 million, compared to a provision benefit of $855,000 in the first quarter of 2022 primarily due to loan growth and quantitative factor changes. The prior year quarter benefited from improvement in subjective factors, improvement in quantitative factors, and a decrease in specific reserves.

Non-interest income of $8.4 million increased by $1.0 million, or 13.9%, from $7.4 million in the prior year period.

•Private Wealth fee income decreased $187,000, or 6.6%, to $2.7 million, due to a decline in market values. Private Wealth assets under management and administration measured $2.804 billion at March 31, 2023, down $29.9 million, or 1.1%.

•Gain on sale of SBA loans decreased $109,000, or 18.6%, to $476,000. Premiums on the sale and notional value of SBA loans sold decreased compared to prior year quarter, as the Company elected to hold a higher number of SBA loans on its balance sheet in the current interest rate environment.

•Service charges on deposits decreased $317,000, or 31.7%, to $682,000. The reasons for the decrease are consistent with the explanations discussed above in the linked quarter analysis.

•Loan fees of $803,000 increased by $151,000, or 23.2%, primarily due to an increase in C&I lending activity.

•Other fee income increased $1.2 million, or 65.5%, to $3.2 million, due to higher returns on the Company’s investments in mezzanine funds. Income from mezzanine funds was $2.4 million in the first quarter, compared to $1.4 million in the linked quarter. Income on mezzanine funds can vary from period to period based on changes in the value of underlying investments.

Non-interest expense increased $2.9 million, or 15.6%, to $21.8 million. Operating expense increased $2.9 million, or 15.3%, to $21.8 million.

•Compensation expense increased $2.3 million, or 16.6%, to $15.9 million. The increase in compensation expense was mainly due to an increase in average FTEs, annual merit increases and promotions, and an increase in incentive compensation due to outstanding production. Average FTEs increased 10% to 340 in the first quarter of 2023, compared to 310 in the first quarter of 2022, as a result of expanded hiring efforts that have successfully driven growth while maintaining positive operating leverage.

•Professional fees increased $173,000, or 14.8%, to $1.3 million, primarily due to an increase in the use of professional staffing services and costs associated with an office relocation.

•Marketing expense increased $128,000, or 25.6%, to $628,000, primarily due to an increase in business development efforts and advertising projects commensurate with our expanded sales force and national footprint.

•Computer software expense increased $101,000, or 9.3%, to $1.2 million, primarily due to continued investments in existing technologies commensurate with the Company’s growth.

Total period-end loans and leases receivable increased $288.1 million, or 12.8%, to $2.539 billion.

•Including the reclassification impact of adopting ASC 326 in the period of comparison, C&I loans increased $189.5 million, or 24.5% to $963.3 million, due to growth across all categories and geographies.

•Including the reclassification impact of adopting ASC 326 in the period of comparison, CRE loans increased $91.8 million, or 6.4%, to $1.529 billion, due to increases in most CRE categories and geographies.

Total period-end in-market deposits increased $43.4 million, or 2.2%, to $2.055 billion, and the average rate paid increased 196 basis points to 2.09%. The increase in in-market deposits was principally due to a $244.2 million increase in certificates of deposit, partially offset by a $144.8 million decrease in money market accounts.

Period-end wholesale funding increased $355.9 million to $729.6 million.

•Wholesale deposits increased $409.8 million to $422.1 million, as the Bank utilized more wholesale deposits in lieu of FHLB advances to build additional borrowing capacity during the recent banking industry events. The average rate paid on brokered certificates of deposit increased 130 basis points to 4.21% and the weighted average original maturity decreased to 1.8 years from 4.8 years.

•FHLB advances decreased $53.9 million to $307.5 million. The average rate paid on FHLB advances increased 139 basis points to 2.47% and the weighted average original maturity decreased to 4.7 years from 6.0 years.

Non-performing assets decreased to $3.5 million, or 0.11% of total assets, compared to $5.7 million, or 0.21% of total assets.

The allowance for credit losses, including unfunded commitment reserves, increased $3.9 million to $27.6 million, compared to $23.7 million. The allowance for credit losses as a percent of total gross loans and leases was 1.08%, compared to the allowance for loan losses of 1.05% under the incurred loss model.

As previously announced, effective January 27, 2023, the Company’s Board of Directors authorized the repurchase by the Company of shares of its common stock with a maximum aggregate purchase price of $5.0 million, effective January 31, 2023 through January 31, 2024. As of March 31, 2023, the Company had repurchased a total of 41,526 shares for approximately $1.3 million at an average cost of $31.75 per share. The Company expects to pause the repurchase program, instead allocating capital to support continued exceptional balance sheet growth.

The Company has prepared investor presentation materials that management intends to use from time to time in discussions about the Company’s operations and performance. The presentation will be available for viewing in the Investor Relations section of the Company’s website at www.firstbusiness.bank and will also be furnished to the U.S. Securities and Exchange Commission on April 28, 2023.

First Business Financial Services, Inc., (Nasdaq: FBIZ) is the parent company of First Business Bank. First Business Bank specializes in business banking, including commercial banking and specialized lending, private wealth, and bank consulting services, and through its refined focus, delivers unmatched expertise, accessibility, and responsiveness. Specialized lending solutions are delivered through First Business Bank’s wholly owned subsidiary First Business Specialty Finance, LLC. For additional information, visit firstbusiness.bank.

This release may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which reflect First Business Bank’s current views with respect to future events and financial performance. Forward-looking statements are not based on historical information, but rather are related to future operations, strategies, financial results, or other developments. Forward-looking statements are based on management’s expectations as well as certain assumptions and estimates made by, and information available to, management at the time the statements are made. Those statements are based on general assumptions and are subject to various risks, uncertainties, and other factors that may cause actual results to differ materially from the views, beliefs, and projections expressed in such statements. Such statements are subject to risks and uncertainties, including among other things:

•Adverse changes in the economy or business conditions, either nationally or in our markets including, without limitation, inflation, supply chain issues, labor shortages, and the adverse effects of the COVID-19 pandemic on the global, national, and local economy.

•Competitive pressures among depository and other financial institutions nationally and in the Company’s markets.

•Increases in defaults by borrowers and other delinquencies.

•Management’s ability to manage growth effectively, including the successful expansion of our client service, administrative infrastructure, and internal management systems.

•Fluctuations in interest rates and market prices.

•Changes in legislative or regulatory requirements applicable to the Company and its subsidiaries.

•Changes in tax requirements, including tax rate changes, new tax laws, and revised tax law interpretations.

•Fraud, including client and system failure or breaches of our network security, including the Company’s internet banking activities.

•Failure to comply with the applicable SBA regulations in order to maintain the eligibility of the guaranteed portion of SBA loans.

•Recent volatility in the banking sector may result in new legislation, regulations or policy changes that could subject the Corporation and the Bank to increased government regulation and supervision.

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

•The Corporation may be subject to increases in FDIC insurance assessments as a result of the recent bank failures.

For further information about the factors that could affect the Company’s future results, please see the Company’s annual report on Form 10-K for the year ended December 31, 2022 and other filings with the Securities and Exchange Commission.

(1)Excluding participating securities.

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

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

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

(4)Represents annualized yields/rates.

(5)The rate column for the three months ended March 31, 2022 included $236,000 in accelerated amortization of debt issuance costs.

(1)Excluding fees in lieu of interest.

(2)Board of Governors of the Federal Reserve System (US), Effective Federal Funds Rate [DFF]. Retrieved from FRED, Federal Reserve Bank of St. Louis. Represents average daily rate.

(3)Represents annualized yields/rates.

(1)     On January 1, 2023, the Bank adopted ASU 2016-03 Financial Instruments - Credit losses (“ASC 326”). The Bank adopted ASC 326 using the modified retrospective method which does not require restatement of prior periods. The balances as of March 31, 2023 reflect a reclassification of $43 million to commercial and industrial from commercial real estate, and $7 million from consumer and other to commercial real estate.

Certain financial information provided in this release is determined by methods other than in accordance with generally accepted accounting principles (United States) (“GAAP”). Although the Company’s management believes that these non-GAAP financial measures provide a greater understanding of its business, these measures are not necessarily comparable to similar measures that may be presented by other companies.

 

“Tangible book value per share” is a non-GAAP measure representing tangible common equity divided by total common shares outstanding. “Tangible common equity” itself is a non-GAAP measure representing common stockholders’ equity reduced by intangible assets, if any. The Company’s management believes that this measure is important to many investors in the marketplace who are interested in period-to-period changes in book value per common share exclusive of changes in intangible assets. The information provided below reconciles tangible book value per share and tangible common equity to their most comparable GAAP measures.

“Tangible common equity to tangible assets” (“TCE”) is defined as the ratio of common stockholders’ equity reduced by intangible assets, if any, divided by total assets reduced by intangible assets, if any. Adjusted TCE ratio is defined as TCE adjusted for net fair value adjustments of financial assets and liabilities. For more information on fair value adjustments please refer to Note 19 - Fair Value Disclosures in the annual report on Form 10-K for the year ended December 31, 2022. The Company’s management believes that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period in common equity and total assets, each exclusive of changes in intangible assets. The information below reconciles tangible common equity and tangible assets to their most comparable GAAP measures.

“Efficiency ratio” is a non-GAAP measure representing non-interest expense excluding the effects of the SBA recourse provision, impairment of tax credit investments, losses or gains on repossessed assets, amortization of other intangible assets and other discrete items, if any, divided by operating revenue, which is equal to net interest income plus non-interest income less realized gains or losses on securities, if any. “Pre-tax, pre-provision adjusted earnings” is defined as operating revenue less operating expense. In the judgment of the Company’s management, the adjustments made to non-interest expense and non-interest income allow investors and analysts to better assess the Company’s operating expenses in relation to its core operating revenue by removing the volatility that is associated with certain one-time items and other discrete items. The information provided below reconciles the efficiency ratio and pre-tax, pre-provision adjusted earnings to its most comparable GAAP measure.