FIRST BUSINESS FINANCIAL SERVICES, INC.

Previous wording

Uncertainty created by potential federal government actions relating to the authority of regulatory agencies (including bank regulators), international trade policy, and other significant policy matters.

Current wording

Uncertainty created by potential federal government actions relating to the authority of regulatory agencies (including bank regulators), international trade policy, prolonged shutdown of the federal government, and other significant policy matters.

Previous wording

We are a registered bank holding company incorporated under the laws of the State of Wisconsin and are engaged in the commercial banking business through our wholly-owned banking subsidiary, FBB. All of our operations are conducted through FBB and First Business Specialty Finance, LLC (“FBSF”), a wholly-owned subsidiary of FBB. We operate as a business bank focusing on delivering a full line of commercial banking products and services tailored to meet the specific needs of small and medium-sized businesses, business owners, executives, professionals, and high net worth individuals. Our products and services include those for business banking, private wealth management services, and bank consulting. Within business banking, we offer commercial lending, asset-based lending, accounts receivable financing, equipment financing, floorplan financing, vendor financing, SBA lending and servicing, treasury management services, and company retirement plans. Our private wealth management services include trust and estate administration, financial planning, investment management, and private banking for executives and owners of our business banking clients and others. Our bank consulting experts provide investment portfolio administrative services, asset liability management services, and asset liability management process validation for other financial institutions. We do not utilize a branch network to attract retail clients. Our operating model is predicated on deep client relationships, financial expertise, and an efficient, centralized administration function delivering best in class client satisfaction. Our focused model allows experienced staff to provide the level of financial expertise needed to develop and maintain long-term relationships with our clients.

Current wording

We are a registered bank holding company incorporated under the laws of the State of Wisconsin and are engaged in the commercial banking business through our wholly-owned banking subsidiary, FBB. All of our operations are conducted through FBB and First Business Specialty Finance, LLC, a wholly-owned subsidiary of FBB. We operate as a business bank focusing on delivering a full line of commercial banking products and services tailored to meet the specific needs of small and medium-sized businesses, business owners, executives, professionals, and high net worth individuals. Our products and services include those for business banking, private wealth management services, and bank consulting. Within business banking, we offer commercial lending, asset-based lending, accounts receivable financing, equipment financing, floorplan financing, vendor financing, SBA lending and servicing, treasury management services, and company retirement plans. Our private wealth management services include trust and estate administration, financial planning, investment management, and private banking for executives and owners of our business banking clients and others. Our bank consulting experts provide investment portfolio administrative services, asset liability management services, and asset liability management process validation for other financial institutions. We do not utilize a branch network to attract retail clients. Our operating model is predicated on deep client relationships, financial expertise, and an efficient, centralized administration function delivering best in class client satisfaction. Our focused model allows experienced staff to provide the level of financial expertise needed to develop and maintain long-term relationships with our clients.

Previous wording

Results as of and for the three and six months ended June 30, 2025 include:

Current wording

Results as of and for the three and nine months ended September 30, 2025 include:

Previous wording

Net income available to common shareholders totaled $11.2 million, or diluted earnings per share of $1.35, for the three months ended June 30, 2025, compared to $10.2 million, or diluted earnings per share of $1.23, for the same period in 2024. Net income available to common shareholders totaled $22.2 million, or diluted earnings per share of $2.66, for the six months ended June 30, 2025, compared to $18.9 million, or diluted earnings per share of $2.26, for the same period in 2024.

Current wording

Net income available to common shareholders totaled $14.2 million, or diluted earnings per share of $1.70, for the three months ended September 30, 2025, compared to $10.3 million, or diluted earnings per share of $1.24, for the same period in 2024. Net income available to common shareholders totaled $36.3 million, or diluted earnings per share of $4.37, for the nine months ended September 30, 2025, compared to $29.2 million, or diluted earnings per share of $3.50, for the same period in 2024.

Previous wording

Annualized return on average assets (“ROAA”) for the three months ended June 30, 2025 measured 1.14% compared to 1.14% for the same period in 2024. Annualized ROAA for the six months ended June 30, 2025 measured 1.14% compared to 1.06% for the same period in 2024.

Current wording

Annualized return on average assets (“ROAA”) for the three months ended September 30, 2025 measured 1.40% compared to 1.13% for the same period in 2024. Annualized ROAA for the nine months ended September 30, 2025 measured 1.23% compared to 1.08% for the same period in 2024.

Previous wording

Return on average tangible common equity (“ROATCE”) is defined as net income available to common shareholders divided by average equity less average intangible assets and average preferred stock. ROATCE was 14.17% for the three months ended June 30, 2025, compared to 14.73% for the same period in 2024. ROATCE was 14.15% for the six months ended June 30, 2025, compared to 13.77% for the same period in 2024.

Current wording

Return on average tangible common equity (“ROATCE”) is defined as net income available to common shareholders divided by average equity less average intangible assets and average preferred stock. ROATCE was 17.29% for the three months ended September 30, 2025, compared to 14.40% for the same period in 2024. ROATCE was 15.23% for the nine months ended September 30, 2025, compared to 13.98% for the same period in 2024.

Previous wording

Pre-tax, pre-provision (“PTPP”) adjusted earnings, which excludes certain one-time and discrete items, for the three months ended June 30, 2025 was $16.0 million, compared to $14.1 million in the same period in 2024. PTPP for the six months ended June 30, 2025 was $32.2 million, compared to $27.3 million in the same period in 2024.

Current wording

Pre-tax, pre-provision (“PTPP”) adjusted earnings, which excludes certain one-time and discrete items, for the three months ended September 30, 2025 was $18.9 million, compared to $15.4 million in the same period in 2024. PTPP for the nine months ended September 30, 2025 was $51.1 million, compared to $42.7 million in the same period in 2024.

Previous wording

Fees in lieu of interest ("FILOI"), defined as prepayment fees, asset-based loan fees, non-accrual interest, and loan fee amortization, totaled $1.7 million for the three months ended June 30, 2025, compared to $1.3 million for the same period in 2024. FILOI totaled $3.7 million for the six months ended June 30, 2025, compared to $2.1 million for the same period in 2024.

Current wording

Fees in lieu of interest ("FILOI"), defined as prepayment fees, asset-based loan fees, non-accrual interest, and loan fee amortization, totaled $2.2 million for the three months ended September 30, 2025, compared to $1.0 million for the same period in 2024. FILOI totaled $5.9 million for the nine months ended September 30, 2025, compared to $3.2 million for the same period in 2024.

Previous wording

Net interest margin was 3.67% for the three months ended June 30, 2025 compared to 3.65% for the same period in 2024. Adjusted net interest margin, which excludes the impact of FILOI, and other recurring, but volatile, components of net interest margin, was 3.47% for the three months ended June 30, 2025, compared to 3.46% for the same period in 2024. Net interest margin was 3.68% for the six months ended June 30, 2025 compared to 3.62% for the same period in 2024. Adjusted net interest margin, which excludes the impact of FILOI, and other recurring, but volatile, components of net interest margin, was 3.47% for the three months ended June 30, 2025, compared to 3.45% for the same period in 2024.

Current wording

Net interest margin was 3.68% for the three months ended September 30, 2025 compared to 3.64% for the same period in 2024. Net interest margin was 3.68% for the nine months ended September 30, 2025 compared to 3.62% for the same period in 2024.

Previous wording

Top line revenue, defined as net interest income plus non-interest income, totaled $41.0 million for the three months ended June 30, 2025, compared to $38.0 million in the same period in 2024. Top line revenue totaled $81.9 million for the six months ended June 30, 2025, compared to $74.2 million in the same period in 2024.

Current wording

Top line revenue, defined as net interest income plus non-interest income, totaled $44.5 million for the three months ended September 30, 2025, compared to $38.1 million in the same period in 2024. Top line revenue totaled $126.4 million for the nine months ended September 30, 2025, compared to $112.3 million in the same period in 2024.

Previous wording

Effective tax rate, including the benefit from Low-Income Housing Tax Credits, was 15.8% for the six months ended June 30, 2025 compared to 16.0% for the same period in 2024.

Current wording

Effective tax rate, including the benefit from Low-Income Housing Tax Credits, was 16.3% for the nine months ended September 30, 2025 compared to 16.8% for the same period in 2024.

Previous wording

Provision for credit losses was $2.7 million for the three months ended June 30, 2025 compared to $1.7 million for the same period in 2024. Provision for credit losses was $5.4 million for the six months ended June 30, 2025 compared to $4.0 million for the same period in 2024.

Current wording

Provision for credit losses was $1.4 million for the three months ended September 30, 2025 compared to $2.1 million for the same period in 2024. Provision for credit losses was $6.8 million for the nine months ended September 30, 2025 compared to $6.1 million for the same period in 2024.

Previous wording

Total assets at June 30, 2025 increased $149.5 million, or 7.8% annualized, to $4.003 billion from $3.853 billion at December 31, 2024.

Current wording

Total assets at September 30, 2025 increased $181.6 million, or 6.3% annualized, to $4.035 billion from $3.853 billion at December 31, 2024.

Previous wording

Period-end gross loans and leases receivable increased $138.3 million, or 8.9% annualized, to $3.252 billion as of June 30, 2025 compared to $3.114 billion as of December 31, 2024. Average gross loans and leases of $3.213 billion increased $287.8 million, or 9.8%, for the six months ended June 30, 2025, compared to $2.925 billion for the same period in 2024.

Current wording

Period-end gross loans and leases receivable increased $222.8 million, or 9.5% annualized, to $3.337 billion as of September 30, 2025 compared to $3.114 billion as of December 31, 2024. Average gross loans and leases of $3.241 billion increased $279.9 million, or 9.5%, for the nine months ended September 30, 2025, compared to $2.961 billion for the same period in 2024.

Previous wording

Non-performing assets were $28.7 million and 0.72% of total assets as of June 30, 2025, compared to $28.4 million and 0.74% of total assets as of December 31, 2024.

Current wording

Non-performing assets were $23.5 million and 0.58% of total assets as of September 30, 2025, compared to $28.4 million and 0.74% of total assets as of December 31, 2024.

Previous wording

The allowance for credit losses, including reserve for unfunded credit commitments, increased $943,000 compared to December 31, 2024. The allowance for credit losses, including reserve for unfunded credit commitments, was 1.18% of total loans, compared to 1.20% at December 31, 2024.

Current wording

The allowance for credit losses, including reserve for unfunded credit commitments, increased $1.1 million compared to December 31, 2024. The allowance for credit losses, including reserve for unfunded credit commitments, was 1.15% of total loans, compared to 1.20% at December 31, 2024.

Previous wording

Period-end core deposits at June 30, 2025 increased $136.7 million, or 11.4% annualized, to $2.533 billion from $2.396 billion as of December 31, 2024. Average core deposits of $2.380 billion increased $19.0 million or 0.8%, for the six months ended June 30, 2025, compared to $2.361 billion for the same period in 2024.

Current wording

Period-end core deposits at September 30, 2025 increased $195.7 million, or 10.9% annualized, to $2.592 billion from $2.396 billion as of December 31, 2024. Average core deposits of $2.453 billion increased $87.5 million or 3.7%, for the nine months ended September 30, 2025, compared to $2.366 billion for the same period in 2024.

Previous wording

Private wealth and trust assets under management and administration increased by $312.0 million, or 18.2% annualized, to $3.731 billion at June 30, 2025, compared to $3.419 billion at December 31, 2024. Private wealth trust assets under management and administration increased $482.0 million, or 14.8%, compared to the same period in 2024.

Current wording

Private wealth and trust assets under management and administration increased by $395.1 million, or 15.4% annualized, to $3.814 billion at September 30, 2025, compared to $3.419 billion at December 31, 2024. Private wealth trust assets under management and administration increased $415.9 million, or 12.2%, compared to September 30, 2024.

Previous wording

Top line revenue, comprised of net interest income and non-interest income, increased $3.1 million, or 8.1%, for the three months ended June 30, 2025, compared to the same period in 2024, due to a 10.6% increase in net interest income, offset by a 2.3% decrease in non-interest income. The increase in net interest income was driven by an increase in average loans and leases outstanding, offset by a decrease in FILOI. The decrease in non-interest income was due to a decrease in the gains on sale of SBA loans and a decrease in income from Small Business Investment Company ("SBIC") funds, partially offset by an increase in private wealth fee income.

Current wording

Top line revenue, comprised of net interest income and non-interest income, increased $6.5 million, or 17.0%, for the three months ended September 30, 2025, compared to the same period in 2024, due to a 12.5% increase in net interest income and a 36.5% increase in non-interest income. The increase in net interest income was primarily driven by an increase in average loans and leases outstanding, as well as an increase in FILOI. The increase in non-interest income was due primarily to an increase in nonrecurring fee income in accounts receivable financing and an increase in income from Small Business Investment Company ("SBIC") funds.

Previous wording

Top line revenue increased $7.6 million, or 10.3%, for the six months ended June 30, 2025, compared to the same period in 2024, due to an 11.6% increase in net interest income and a 4.6% increase in non-interest income. The increase in net interest income was driven by an increase in average loans and leases outstanding as well as an increase in FILOI. The increase in non-interest income was due to increases in gains on the sale of SBA loans and private wealth fee income, partially offset by decreases in loan fees and income from SBIC funds.

Current wording

Top line revenue increased $14.1 million, or 12.6%, for the nine months ended September 30, 2025, compared to the same period in 2024, due to an 11.9% increase in net interest income and a 15.2% increase in non-interest income. The increase in net interest income was driven by an increase in average loans and leases outstanding as well as an increase in FILOI. The increase in non-interest income was due to increases in gains on the sale of SBA loans, private wealth fee income, and nonrecurring fee income in accounts receivable financing, partially offset by decreases in loan fees and income from SBIC funds.

Previous wording

ROAA for the three and six months ended June 30, 2025 was 1.14% for both periods, compared to 1.14% and 1.06% for the three and six months ended June 30, 2024, respectively. The increase in ROAA for the six months was due to increases in net interest income and non-interest income, partially offset by an increase in operating expenses and income tax expense. We consider ROAA a critical metric to measure the profitability of our organization and how efficiently our assets are deployed. ROAA also allows us to better benchmark our profitability to our peers without the need to consider different degrees of leverage which can ultimately influence return on equity measures.

Current wording

ROAA for the three and nine months ended September 30, 2025 was 1.40% and 1.23%, respectively, compared to 1.13% and 1.08% for the three and nine months ended September 30, 2024, respectively. The increase in ROAA for the nine months was due to increases in net interest income and non-interest income, partially offset by an increase in operating expenses and income tax expense. We consider ROAA a critical metric to measure the profitability of our organization and how efficiently our assets are deployed. ROAA also allows us to better benchmark our profitability to our peers without the need to consider different degrees of leverage which can ultimately influence return on equity measures.

Previous wording

ROATCE for the three and six months ended June 30, 2025 was 14.2% for both periods, compared to 14.7% and 13.8% for the three and six months ended June 30, 2024. The reasons for the change in ROATCE are consistent with the net income variance explanation as discussed under ROAA above. We view ROATCE as an important measurement for monitoring profitability and continue to focus on improving our return to our shareholders by enhancing the overall profitability of our client relationships, controlling our expenses, and minimizing our costs of credit.

Current wording

ROATCE for the three and nine months ended September 30, 2025 was 17.3% and 15.2%, respectively, compared to 14.4% and 14.0% for the three and nine months ended September 30, 2024. The reasons for the change in ROATCE are consistent with the net income variance explanation as discussed under ROAA above. We view ROATCE as an important measurement for monitoring profitability and continue to focus on improving our return to our shareholders by enhancing the overall profitability of our client relationships, controlling our expenses, and minimizing our costs of credit.

Previous wording

Efficiency ratio measured 61.0% and 60.6% for the three and six months ended June 30, 2025, compared to 62.7% and 63.2% for the three and six months ended June 30, 2024. The percentage increase in top line revenue exceeded the percentage increase in operating expenses, resulting in positive quarterly operating leverage. Revenue increased for the reasons stated above in the Top Line Revenue section, while operating expenses increased at a slower rate in the periods of comparison as described in the Non-Interest Expense section. Efficiency ratio is a non-GAAP measure representing operating expense, which is non-interest expense excluding the effects of the SBA recourse benefit or provision, net gains or losses on repossessed assets, amortization of other intangible assets, and other discrete items, if any, divided by operating revenue, which is equal to net interest income plus non-interest income less realized net gains or losses on securities, if any.

Current wording

Efficiency ratio measured 57.4% and 59.5% for the three and nine months ended September 30, 2025, compared to 59.4% and 62.0% for the three and nine months ended September 30, 2024. The percentage increase in top line revenue exceeded the percentage increase in operating expenses, resulting in positive quarterly operating leverage. Revenue increased for the reasons stated above in the Top Line Revenue section, while operating expenses increased at a slower rate in the periods of comparison as described in the Non-Interest Expense section. Efficiency ratio is a non-GAAP measure representing operating expense, which is non-interest expense excluding the effects of the SBA recourse benefit or provision, net gains or losses on repossessed assets, amortization of other intangible assets, and other discrete items, if any, divided by operating revenue, which is equal to net interest income plus non-interest income less realized net gains or losses on securities, if any.

Previous wording

PTPP adjusted earnings for three and six months ended June 30, 2025 were $16.0 million and $32.2 million, compared to $14.1 million and $27.3 million for the three and six months ended June 30, 2024. PTPP adjusted earnings is defined as operating revenue less operating expense. The increase in PTPP adjusted earnings was primarily driven by increases in both net interest income and non-interest income, partially offset by an increase in operating expenses. In the judgment of the Corporation’s management, the adjustments made to non-interest expense and non-interest income allow investors and analysts to better assess the Corporation’s operating expenses in relation to its core operating revenue by removing the volatility associated with certain one-time items and other discrete items. PTPP adjusted earnings is a non-GAAP measure that allows management to benchmark performance of our model to our peers without the influence of the provision for credit losses and tax considerations, which will ultimately influence other traditional financial measurements, including ROAA and ROATCE. The information provided below reconciles the efficiency ratio to its most comparable GAAP measure.

Current wording

PTPP adjusted earnings for three and nine months ended September 30, 2025 were $18.9 million, up 22.1%, and $51.1 million, up 19.6%, compared to $15.4 million and $42.7 million for the three and nine months ended September 30, 2024. PTPP adjusted earnings is defined as operating revenue less operating expense. The increase in PTPP adjusted earnings was primarily driven by increases in both net interest income and non-interest income, partially offset by an increase in operating expenses. In the judgment of the Corporation’s management, the adjustments made to non-interest expense and non-interest income allow investors and analysts to better assess the Corporation’s operating expenses in relation to its core operating revenue by removing the volatility associated with certain one-time items and other discrete items. PTPP adjusted earnings is a non-GAAP measure that allows management to benchmark performance of our model to our peers without the influence of the provision for credit losses and tax considerations, which will ultimately influence other traditional financial measures, including ROAA and ROATCE. The information provided below reconciles the efficiency ratio to its most comparable GAAP measure.

Previous wording

The following table provides information with respect to (1) the change in net interest income attributable to changes in rate (changes in rate multiplied by prior volume) and (2) the change in net interest income attributable to changes in volume (changes in volume multiplied by prior rate) for the three and six months ended June 30, 2025 compared to the same period in 2024. The change in net interest income attributable to changes in rate and volume (changes in rate multiplied by changes in volume) has been allocated to the rate and volume changes in proportion to the relationship of the absolute dollar amounts of the change in each.

Current wording

The following table provides information with respect to (1) the change in net interest income attributable to changes in rate (changes in rate multiplied by prior volume) and (2) the change in net interest income attributable to changes in volume (changes in volume multiplied by prior rate) for the three and nine months ended September 30, 2025 compared to the same periods in 2024. The change in net interest income attributable to changes in rate and volume (changes in rate multiplied by changes in volume) has been allocated to the rate and volume changes in proportion to the relationship of the absolute dollar amounts of the change in each.

Previous wording

The tables below show our average balances, interest, average yields/rates, net interest margin, and the spread between the combined average yields earned on interest-earning assets and average rates on interest-bearing liabilities for the three and six months ended June 30, 2025 and 2024. The average balances are derived from average daily balances.

Current wording

The tables below show our average balances, interest, average yields/rates, net interest margin, and the spread between the combined average yields earned on interest-earning assets and average rates on interest-bearing liabilities for the three and nine months ended September 30, 2025 and 2024. The average balances are derived from average daily balances.

Previous wording

The change in yield of the respective interest-earning asset or the rate paid on interest-bearing liability compared to the change in short-term market rates is commonly referred to as a beta. The table below displays the beta calculations for loans and leases, total interest earning assets, core deposits, interest-bearing deposits and total interest-bearing liabilities for the three and six months ended June 30, 2025 and 2024. Additionally, adjusted total loans and leases receivable and adjusted total interest-earning assets excludes the volatile impact of FILOI.

Current wording

The change in yield of the respective interest-earning assets or the rate paid on interest-bearing liability compared to the change in short-term market rates is commonly referred to as a beta. The table below displays the beta calculations for loans and leases, total interest earning assets, core deposits, interest-bearing deposits and total interest-bearing liabilities for the three and nine months ended September 30, 2025 and 2024. Additionally, adjusted total loans and leases receivable and adjusted total interest-earning assets excludes the volatile impact of FILOI.

Previous wording

Net interest income increased $3.2 million, or 10.6%, and $7.0 million, or 11.6%, during the three and six months ended June 30, 2025, compared to the three and six months ended June 30, 2024. The increase in net interest income reflected an increase in average gross loans and leases, an increase in FILOI, and net interest margin improvement. FILOI, which vary from quarter to quarter, totaled $1.7 million and $3.7 million for the three and six months ended June 30, 2025, compared to $1.3 million and $2.1 million for the same period in 2024. FILOI increased primarily due to reclassification of loan fees that were previously classified as non-interest income to interest income. Excluding FILOI, net interest income for the three and six months ended June 30, 2025 increased $2.9 million, or 9.8%, and $5.4 million, or 9.3%, respectively. Average gross loans and leases for the three and six months ended June 30, 2025 increased $276.9 million, or 9.3%, and $287.8 million, or 9.8%, respectively, compared to the three and six months ended June 30, 2024.

Current wording

Net interest income increased $3.9 million, or 12.5%, and increased $10.9 million, or 11.9%, during the three and nine months ended September 30, 2025, compared to the three and nine months ended September 30, 2024. The increase in net interest income reflected an increase in average gross loans and leases, an increase in FILOI. FILOI, which vary from quarter to quarter, totaled $2.2 million and $5.9 million for the three and nine months ended September 30, 2025, compared to $1.0 million and $3.2 million for the same period in 2024. FILOI increased primarily due to reclassification of loan fees that were previously classified as non-interest income to interest income. Excluding FILOI, net interest income for the three and nine months ended September 30, 2025 increased $2.7 million, or 9.1%, and $8.1 million, or 9.3%, respectively. Average gross loans and leases for the three and nine months ended September 30, 2025 increased $264.0 million, or 8.7%, and $279.9 million, or 9.5%, respectively, compared to the three and nine months ended September 30, 2024.

Previous wording

Net interest margin increased to 3.67% and 3.68% for the three and six months ended June 30, 2025, respectively, compared to 3.65% and 3.62% for the three and six months ended June 30, 2024. Adjusted net interest margin measured 3.47% for both the three and six months ended June 30, 2025, compared to 3.46% and 3.45% for the three and six months ended June 30, 2024. Adjusted net interest margin is a non-GAAP measure representing net interest income excluding the impact of FILOI, 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. The primary driver of the increase in adjusted net interest margin was driven by an increase in the yield on interest-earning assets, partially offset by an increase in the rate paid on total bank funding.

Current wording

Net interest margin increased to 3.68% for both the three and nine months ended September 30, 2025, compared to 3.64% and 3.62% for the three and nine months ended September 30, 2024. Adjusted net interest margin decreased to 3.44% and 3.46% for the three and nine months ended September 30, 2025, compared to 3.50% and 3.46% for the three and nine months ended September 30, 2024. Adjusted net interest margin is a non-GAAP measure representing net interest income excluding the impact of FILOI, 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. The primary driver of the decrease in adjusted net interest margin was driven by a decrease in the yield on interest-earning assets, partially offset by a decrease in the rate paid on total bank funding.

Previous wording

The following table shows the components of the provision for credit losses for the three and six months ended June 30, 2025 compared to the same period in 2024.

Current wording

The following table shows the components of the provision for credit losses for the three and nine months ended September 30, 2025 compared to the same period in 2024.

Previous wording

Qualitative factor changes reflect management’s evaluation of the level of risk within the portfolio based upon several factors for each portfolio segment. The current period's expense is primarily driven by an increase in credit-risk indicators in the C&I portfolio. Quantitative factor changes reflect the change in the reasonable and supportable forecast as well as other model assumptions. Charge-offs in excess of previously established specific reserves require an additional provision for credit losses to maintain the allowance for credit losses at a level deemed appropriate by management. This amount is net of the release of any specific reserve that may have already been provided. The addition of specific reserves on individually evaluated loans represents new specific reserves established when collateral shortfalls or government guaranty deficiencies are present, while the release of specific reserves represents the reduction of previously established reserves that are no longer required. Refer to Asset Quality, below, for further information regarding the overall credit quality of our loan and lease portfolio.

Current wording

Qualitative factor changes reflect management’s evaluation of the level of risk within the portfolio based upon several factors for each portfolio segment. Quantitative factor changes reflect the change in the reasonable and supportable forecast as well as other model assumptions. Charge-offs in excess of previously established specific reserves require an additional provision for credit losses to maintain the allowance for credit losses at a level deemed appropriate by management. This amount is net of the release of any specific reserve that may have already been provided. The addition of specific reserves on individually evaluated loans represents new specific reserves established when collateral shortfalls or government guaranty deficiencies are present, while the release of specific reserves represents the reduction of previously established reserves that are no longer required. Refer to Asset Quality, below, for further information regarding the overall credit quality of our loan and lease portfolio.

Previous wording

Non-interest income for the three months ended June 30, 2025 decreased $170,000, or 2.3%, to $7.3 million compared to $7.4 million for the same period in 2024. The decrease in total non-interest income was primarily driven by a reclassification of certain types of C&I loan fees from non-interest income to interest income and lower income from SBIC funds, partially offset by an increase in private wealth fee income and bank-owned life insurance income. Non-interest income for the six months ended June 30, 2025 increased $652,000, or 4.6%, to $14.8 million compared to $14.2 million for the same period in 2024. The increase in total non-interest income was primarily driven by higher gains on the sale of SBA loans and private wealth fee income, partially offset by decreases in loan fees and income from SBIC funds.

Current wording

Non-interest income for the three months ended September 30, 2025 increased $2.6 million, or 36.5%, to $9.6 million compared to $7.1 million for the same period in 2024. The increase in total non-interest income was primarily driven by an increase in interest rate swap fees, private wealth fee income, income from nonrecurring fees in accounts receivable financing, bank-owned life insurance, and income from SBIC funds, partially offset by decrease in loan fees. Non-interest income for the nine months ended September 30, 2025 increased $3.2 million, or 15.2%, to $24.5 million compared to $21.2 million for the same period in 2024. The increase in total non-interest income was primarily driven by higher gains on the sale of SBA loans, an increase in private wealth fee income, income from nonrecurring fee in accounts receivable financing, and bank-owned life insurance, partially offset by lower loan fee income primarily due to a reclassification of certain types of C&I loan fees from non-interest income to interest income.

Previous wording

Management continues to focus on revenue growth from multiple non-interest income sources to maintain a diversified revenue stream. Contribution from fee-based revenue sources can be variable and driven by changes in the interest rate environment, client activity, and the value of underlying investments. Total non-interest income accounted for 17.7% and 18.1% of total revenues for the three and six months ended June 30, 2025, respectively, compared to 19.6% and 19.1% for three and six months ended June 30, 2024.

Current wording

Management continues to focus on revenue growth from multiple non-interest income sources to maintain a diversified revenue stream. Contribution from fee-based revenue sources can be variable and driven by changes in the interest rate environment, client activity, and the value of underlying investments. Total non-interest income accounted for 21.7% and 19.4% of total revenues for the three and nine months ended September 30, 2025, respectively, compared to 18.6% and 18.9% for the three and nine months ended September 30, 2024.

Previous wording

Gain on sale of SBA loans increased $48,000, or 13.8%, and $816,000, or 150.0%, for the three and six months ended June 30, 2025, respectively, compared to the same period in 2024. Gain on sale of SBA loans varies period to period based on the amount of closed and fully funded loans. While quarterly gains may vary, management expects the SBA loan production to continue growing year-over-year.

Current wording

Gain on sale of SBA loans decreased $78,000, or 17.0%, and increased $738,000, or 73.5%, for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. Gain on sale of SBA loans varies period to period based on the amount of closed and fully funded loans. While quarterly gains may vary, management expects SBA loan production to continue growing year-over-year.

Previous wording

Private wealth fee income increased $287,000, or 8.3%, and $669,000, or 10.2% for the three and six months ended June 30, 2025, respectively, compared to the same period in 2024. Private wealth fee income is up compared to the prior year primarily due to an increase in assets under management and administration and increases in fee rates across the client base. Private wealth fee income can vary due to the mix of business at different fee structures and can be positively or negatively influenced by the timing and magnitude of volatility within the capital markets. As of June 30, 2025, private wealth and trust assets under management and administration totaled $3.731 billion, increasing $482.0 million, or 14.8%, compared to $3.249 billion as of June 30, 2024, due to an increase in market values, new clients, and new money from existing clients.

Current wording

Private wealth fee income increased $423,000, or 13.0%, and $1.1 million, or 11.1% for the three and nine months ended September 30, 2025, respectively, compared to the same period in 2024. Private wealth fee income is up compared to the prior year primarily due to an increase in assets under management and administration and increases in fee rates across the client base. Private wealth fee income can vary due to the mix of business at different fee structures and can be positively or negatively influenced by the timing and magnitude of volatility within the capital markets. As of September 30, 2025, private wealth and trust assets under management and administration increased $415.9 million, or 12.2%, totaling $3.814 billion compared to $3.398 billion as of September 30, 2024, due to an increase in market values, new clients, and new money from existing clients.

Previous wording

Service charges on deposits increased $152,000, or 16.0%, and $262,000, or 13.9% for the three and six months ended June 30, 2025, respectively, compared to the same period in 2024. The increase is primarily driven by new and expanded core deposit relationships. Treasury management business development efforts remain robust as gross treasury management service charges increased $154,000, or 9.6%, and $335,000, or 10.6%, for the three and six months ended June 30, 2025, respectively, compared to the same period in 2024. Management believes growth in gross analyzed service charges is a strong indicator of success for the Corporation given the direct correlation to adding and expanding core business relationships.

Current wording

Service charges on deposits increased $231,000, or 25.1%, and $493,000, or 17.5% for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. The increase is primarily driven by new and expanded core deposit relationships. Treasury management business development efforts remain robust as gross treasury management service charges increased $148,000, or 9.1%, and $284,000, or 5.9%, for the three and nine months ended September 30, 2025, respectively, compared to the same period in 2024. Management believes growth in gross analyzed service charges is a strong indicator of success for the Corporation given the direct correlation to adding and expanding core business relationships.

Previous wording

Increase in cash surrender value of bank-owned life insurance increased $212,000, or 52.6%, and $236,000, or 29.0%, for the three and six months ended June 30, 2025, respectively, compared to the same period in 2024. The increase is primarily due to the purchase of new policies, totaling $24.5 million in the second quarter of 2025.

Current wording

Bank-owned life insurance income increased $549,000, or 132.0%, and $785,000, or 63.8%, for the three and nine months ended September 30, 2025, respectively, compared to the same period in 2024. The increase is primarily due to the purchase of new policies, totaling $24.5 million in the second quarter of 2025 and an insurance claim of $234,000 in the third quarter.

Previous wording

Loan fee income decreased $402,000, or 48.7%, and $862,000 or 51.5%, for the three and six months ended June 30, 2025, respectively, compared to the same period in 2024. The change is primarily due to the re-classification of certain types of C&I loan fees from non-interest income to interest income. Excluding this reclassification, loan fee income increased $165,000, or 20.0%, and $207,000, or 12.4% for the three and six months ended June 30, 2025, respectively.

Current wording

Loan fee income decreased $311,000, or 38.3%, and $1.2 million or 47.2%, for the three and nine months ended September 30, 2025, respectively, compared to the same period in 2024. The change is primarily due to the reclassification of certain types of C&I loan fees from non-interest income to interest income. Excluding this reclassification, loan fee income increased $135,000, or 37.0%, and $152,000, or 13.1% for the three and nine months ended September 30, 2025, respectively. The change excluding the reclassification is primarily due to an increase in traditional commercial loan fees and asset-based lending audit income.

Previous wording

Non-interest expense for the three and six months ended June 30, 2025 increased $1.1 million, or 4.6%, and $2.5 million, or 5.2%, compared to the same period in 2024. Operating expense, which excludes certain one-time and discrete items as defined in the Efficiency Ratio table above, increased $1.2 million, or 5.0%, and $2.7 million, or 5.7%, for the three and six months ended June 30, 2025, compared to the same period in 2024. The increase in operating expense was primarily due to an increase in compensation expense, FDIC insurance, other non-interest expense, and marketing.

Current wording

Non-interest expense for the three and nine months ended September 30, 2025 increased $2.6 million, or 11.2%, and $5.1 million, or 7.2%, respectively, compared to the same periods in 2024. Operating expense, which excludes certain one-time and discrete items as defined in the Efficiency Ratio table above, increased $2.8 million, or 12.4%, and $5.5 million, or 7.9%, for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. The increase in operating expense was primarily due to an increase in compensation expense.

Previous wording

Compensation expense for the three and six months ended June 30, 2025 increased $319,000, or 2.0%, and $909,000, or 2.8%, respectively, compared to the same period in 2024. The increase in compensation expense was primarily due to an increase in average full-time equivalent employees and annual merit increases and promotions, partially offset by a lower year-to-date incentive compensation accrual. Successful hiring efforts to secure talent resulted in average full-time equivalent employees for the three months ended June 30, 2025 increasing to 364, up 3.7%, compared to 351 for the three months ended June 30, 2024.

Current wording

Compensation expense for the three and nine months ended September 30, 2025 increased $2.2 million, or 14.8%, and $3.2 million, or 6.6%, respectively, compared to the same periods in 2024. The increase in compensation expense was primarily due to an increase in average full-time equivalent employees, annual merit increases and promotions, an increase in cash bonus accrual adjustment, and a decrease in capitalized labor related to software development. Successful hiring efforts to secure talent resulted in average full-time equivalent employees for the three months ended September 30, 2025 increasing to 361, up 1.7%, compared to 355 for the three months ended September 30, 2024.